Sharrock v Kipping
[2020] NZHC 799
•24 April 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-244
[2020] NZHC 799
IN THE MATTER of the Insolvency Act 2006 AND IN THE MATTER
of the bankruptcy of JOHN BRIAN KIPPING
BETWEEN
GERALD ERRINGTON SHARROCK
Judgment Creditor
AND
JOHN BRIAN KIPPING
Judgment Debtor
Hearing: 12 March 2020 Appearances:
R B Hucker and M W Swan for Judgment Creditor J B Kipping (self-represented Judgment Debtor)
D M L Dingwall for Official Assignee
Judgment:
24 April 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 24 April 2020 at 11am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 24 April 2020
SHARROCK v KIPPING [2020] NZHC 799 [24 April 2020]
Introduction
[1] Mr Kipping, who was adjudicated bankrupt on 19 December 2018, applied on 6 November 2019 for annulment of his bankruptcy under s 309(1)(a) of the Insolvency Act 2006 (“the Act”) and in the alternative, early discharge under s 294 of the Act.
Annulment application
[2] Annulment was sought on the following ground: “The petitioning creditor has failed to provide any evidence to the court or anyone else that he has incurred any “actual costs”, as all monetary amounts are court costs.” (This is a reference to the fact the debts upon which Mr Kipping was adjudicated were costs awards of this Court).
[3] Given this concern, when Mr Kipping’s application was called on 17 December 2019 as a pragmatic way of addressing the issue, I suggested that Mr Sharrock may be prepared to disclose to me his actual invoices for costs and I would compare those against scale costs to confirm one way or another whether Mr Sharrock’s actual costs exceed scale as required by r 14.2(1)(f) of the High Court Rules 2016. Mr Kipping agreed to this approach.
[4] Mr Sharrock’s counsel filed the requisite material which I reviewed. I issued a Minute in which I confirmed that having examined the invoices and the costs awards, that costs incurred exceeded actual cost by a significant margin.1
[5] As this was the only factor raised to support the annulment application and given Mr Kipping had said he would accept my assessment on this issue, I queried with Mr Kipping at the outset whether that meant the annulment application would not proceed.
[6] Mr Kipping acknowledged that he would not be pursuing annulment on the pleaded ground but made an oral application to amend his application to rely on a new ground to support the annulment which he called the “natural justice” ground.
1 Sharrock v Kipping HC Christchurch CIV-2018-409-244, 30 January 2019.
[7] Mr Kipping’s arguments in respect of what he calls the “natural justice” ground have been the subject of earlier rulings of this Court.
[8] Mr Kipping raised the natural justice argument in an application to set aside the bankruptcy notice which led to his adjudication. Associate Judge Osborne (as he then was) addressed Mr Kipping’s submissions under this head and dismissed his arguments.2
[9] Osborne J (as he had become) dealt with Mr Kipping’s adjudication in a judgment issued on 19 December 2018.3 In that matter, Mr Kipping argued the costs awards against him were the result of “lies, perjury and other dishonesty matters by the applicant.”4 Mr Kipping’s assertions in relation to how the costs awards came about were not accepted by Osborne J.
[10] Those were the types of matters that Mr Kipping wanted to raise in support of his annulment application under the “natural justice” ground.
[11] The fact is, there is no avenue open to Mr Kipping to challenge the costs judgments against him.5
[12] I declined Mr Kipping leave to amend the grounds upon which his annulment application was based as that would have been the third time he had run the arguments. In substance, the “natural justice” argument was a challenge to the validity of the costs judgments upon which Mr Kipping was bankrupted. Those matters, as I have said, cannot be reopened.
[13] Upon Mr Kipping’s oral application to amend his application being declined, he withdrew his application for annulment.
2 Sharrock v Kipping [2018] NZHC 2210 at [36]-[38].
3 Sharrock v Kipping [2018] NZHC 3421.
4 Sharrock v Kipping, above n 3 at [19].
5 Sharrock v Kipping, above n 3, at [27]. See notice of result from the Deputy Registrar of the Court of Appeal in relation to Mr Kipping’s application for a waiver for security of costs in Kipping v Sharrock CA41/2019, 8 May 2019.
Cross-examination of Mr Sharrock and modification of the Official Assignee’s report
[14] Mr Kipping issued a notice advising that he required Mr Sharrock, who had filed an affidavit in opposition, to be present for cross-examination. I issued a Minute in which I said Mr Kipping was within his rights to issue that notice but that any cross-examination had to be related to matters put in issue in the application.6
[15] Because Mr Kipping’s alternative (early discharge) application was under s 294 of the Act, the Official Assignee was required to prepare a report (“the report”).7
[16] Mr Kipping had filed an affidavit “regarding relevant documents” producing documents. The affidavit said that Mr Kipping’s questions for Mr Sharrock would be based on the documents produced. The documents concerned historical disputes between Mr Sharrock and Mr Kipping.
[17] Given the narrow basis for Mr Kipping’s applications and that his questions needed to be limited to matters relevant to those applications, I said to Mr Kipping that the hearing was not an opportunity for him to cross-examine Mr Sharrock in relation to historical events. If Mr Kipping had questions relevant to his application for early discharge (by the time of the discussion he had withdrawn the application for annulment), then he would be able to cross-examine Mr Sharrock in respect of those issues. Mr Kipping said he had prepared some written submissions which he was prepared to circulate at that point and then have a discussion with his McKenzie Friend on the cross-examination questions. Mr Kipping’s submissions were circulated on the understanding that those relating to the annulment application were now redundant and the focus would be on the discharge submissions.
[18] After the adjournment to consider the submissions and for Mr Kipping to speak to his McKenzie Friend, Mr Kipping explained there were two matters in the report that he wished to ask Mr Sharrock questions about. They were paras 26
6 Sharrock v Kipping HC Christchurch CIV-2018-409-244, 10 February 2020.
7 Section 294(3) providing that a hearing for an application for early discharge is held in accordance with s 177, which requires the bankrupt to attend for examination. Section 176 of the Act requires the Assignee to file a report before the examination.
and 31. Following discussions with all counsel, it was agreed those paragraphs would not be read and would be treated as deleted from the report.
[19] For that reason, and for the reason I will deal with in the following paragraph, there is an order that this file is not to be searched without leave of the High Court.
[20] The other reason for the order in [19] is that Mr Kipping filed an affidavit producing a confidential document from the New Zealand Law Society. That document should not have been in Mr Kipping’s possession and should not have been produced by him. Mr Kipping is not to disseminate that document further.
[21] With paras 26 and 31 in the report, which are of concern to Mr Kipping having been excised and not to be read, Mr Kipping elected not to cross-examine Mr Sharrock.
Application for early discharge
[22]Section 294 of the Act provides:
294 Bankrupt may apply for discharge
(1)The bankrupt may at any time apply to the court for an order of discharge from bankruptcy.
(2)However, if the court has previously refused an application by the bankrupt for a discharge, and has specified the earliest date when the bankrupt may again apply, the bankrupt must not apply before that date.
(3)The hearing of the application must be in accordance with section 177.
[23]Section 296 of the Act provides:
296 Assignee’s report
(1)The Assignee must prepare a report and file it in the court when—
(a)the bankrupt has applied under section 294 for a discharge; or
(b)the Assignee has summoned the bankrupt to be examined under section 295.
(2)The Assignee must report as to—
(a)the bankrupt’s affairs; and
(b)the causes of the bankruptcy; and
(c)the bankrupt’s performance of his or her duties under this Act; and
(d)the manner in which the bankrupt has obeyed orders of the court; and
(e)the bankrupt’s conduct before and after adjudication; and
(f)any other matter that would assist the court in making a decision as to the bankrupt’s discharge.
[24]Mr Hucker, counsel for Mr Sharrock, submitted:
31.The discretion to order an early discharge was described by the Court of appeal in the following terms:
…In providing for automatic discharge after three years the legislation recognises that it is not in the public interest that the bankruptcy should endure indefinitely. In providing for earlier discharge section 108 [now section 294] recognises that continuing the bankruptcy to the end of three years may not be in the public interest. Whether or not it is will be a matter for decision on the particular facts … Clearly the Court appraised of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise if the discretions so as to derogate from the breadth of powers conferred under section 110 [now section 298]. The applicant has the onus of adducing evidence to show good cause for ordering an early discharge, but his obligation goes no further than that.8
32.This reflected the approaches in Re Anderson,9 Re Maher,10 and Re Wilson.11 The approach emphasised that while special circumstances need not be shown, there needed to become cogent or rational ground for the exercise of the discretion.12 Where the early discharge is sought the onus is on the bankrupt to justify the early discharge. Where the statutory period for an automatic discharge has passed there is an onus on the Official Assignee to justify the extension of the period in bankruptcy.
33.The first consideration is to assess the purpose for the discharge and whether there is a legitimate interest in the bankrupt obtaining an early discharge:
8 ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at [6].
9 Re Anderson HC Hamilton B213/89, 14 April 1992.
10 Re Maher (1985) 61 ALR 592 (FCA) at [59].
11 Wilson v Official Assignee HC Auckland M480/90, 27 May 1992.
12 An example of the type of situation is where there has not been a statement of affairs filed and the three year period for bankruptcy has not commenced.
the “cogent ground for the exercise of the discretion in his or her favour and the mere consciousness of the stigma of a bankruptcy [not being] itself enough”.13
[25] When the Court exercises its discretion whether to grant an early discharge, it can consider the conduct of the bankrupt, the bankrupt’s compliance with the Court’s orders, the performance of the bankrupt’s duties and whether it is in the public interests and the interests of creditors for there to be an early discharge.
[26] Associate Judge Doogue, in Bryers v Official Assignee, considered that the issue of accountability was also relevant when determining whether a bankrupt ought to be discharged.14 The Judge considered that the concept of accountability was linked to the requirement of deterrence, and he considered the law ought to be administered in such a way to make it clear to the bankrupt and members of the community that breaches of obligations will lead to detrimental consequences. In that case, the Judge took into account the bankrupt was likely in the future to disregard his legal obligations if necessary to protect his personal financial interests and therefore posed a future risk to the community. Also, of concern was the bankrupt’s tendency to blame others rather than to acknowledge his own shortcomings or the need to make changes.15
[27] Here, the application for early discharge was brought on the grounds that: “… continuing the bankruptcy is counterproductive in that additional costs will be incurred with no benefit to any party.” Those grounds were expanded on in Mr Kipping’s affidavit of 6 November 2019 and I adopt Mr Hucker’s summary of the expanded grounds extracted from that. The grounds advanced are:
(a)There is nothing for the Official Assignee to do.
(b)Mr Kipping wishes to engage in business.
(c)The bankrupt has no assets and his previous bankruptcy was supposedly annulled.
13 ASB Bank Limited v Hogg, above n 8, at [5].
14 Bryers v Official Assignee [2015] NZHC 384, [2015] NZCCLR 10.
15 See Insolvency Law & Practice (online looseleaf ed, Thomson Reuters) at [IN298.01].
(d)There will be savings of court time and Official Assignee time.
(e)The period of bankruptcy in the UK is one year.
[28] Mr Hucker dealt with (a), (c), (d) and (e) as one broad category. He said these factors were of no weight and I agree. Reference to the period of the bankruptcy in the UK (para (e) above) may well be because (I understand) Mr Kipping was born in the UK before coming to live in New Zealand. The Act specifies the standard bankruptcy term as three years. That is the context in which an early discharge is sought, as opposed to being a ground for an early discharge.
[29] The bankrupt asserts that he has no assets (para (c) above). That reflects the contents of the report, but that report must be read subject to the outcome of Mr Kipping’s examination. Matters emerged from Mr Kipping’s examination that require further investigation by the Official Assignee which may mean Mr Kipping does have assets. I put it no higher than that. However, the fact that a bankrupt has no assets is not of itself grounds for an early discharge. A significant proportion of bankrupts have no assets or will have no assets after the Official Assignee has realised such assets that can be realised. Reaching the point where a bankrupt has no assets is not a ground for an early discharge.
[30] The claim in para (a), that there is nothing for the Official Assignee to do, must be read against the outcome of the examination, which I will cover in more detail below.
[31] The claim that there will be savings of court time (para (d) above), is irrelevant. If applications are made to the Court, the Court will deal with them. In the absence of applications such as the present one, the Court will not be involved. However, as I have said, if applications are properly brought then it is the Court’s role to consider them. Such is not a ground for discharge.
[32] The matter that received the most attention was para (b), that the bankrupt wishes to engage in business. Mr Kipping is very experienced in underfloor heating systems. He was, prior to his bankruptcy (apparently), a director of a company named
Warmth.NZ Ltd along with a Mr Reilly. Since shortly before Mr Kipping’s adjudication, he has been an employee of Warmth.NZ Ltd. That employment commenced immediately upon his resignation as director.
[33] It was clear from Mr Kipping’s evidence that he has the support of Mr Reilly in relation to Mr Kipping’s continued involvement in that company.
[34] Mr Kipping was pressed as to whether his role had in fact changed within the company. In effect, the proposition was put to him that the change from director to employee was purely nominal and he continued to have the same role within the company, including involvement in management. Mr Kipping was adamant that he was not involved with management, indeed he said he was somewhat relieved to be released from management responsibilities. Paraphrasing his evidence, Mr Kipping said he had no interest in or affinity for management systems such as payrolls, billing et cetera. His principal role was involvement in technical matters and in the installation of underfloor systems.
[35] Given Mr Kipping’s professed relief at being able to step back (albeit on an enforced basis) from management, it was not clear to me what exactly Mr Kipping believed would be achieved through his early discharge as regards his involvement with the company.
[36] In any event, I accept Mr Hucker’s submission that if Mr Kipping’s focus was on obtaining the ability to be involved in the management of the company, the appropriate mechanism for him to achieve that objective was to apply to the Official Assignee under s 149 of the Act for leave to be involved in management.
[37] In relation to the business, in his submissions Mr Kipping submitted he would like to be given the opportunity to write down all the knowledge he has gained over the last 12 years in order to pass the company on in two years’ time when he is 65 years old without the stigma and burden of bankruptcy.
[38] The short point is, there is nothing stopping Mr Kipping writing down his knowledge, whether it be in a book or by way of a website, as he suggested in his examination.
[39] As set out at [24] above, mere consciousness of the stigma of bankruptcy is not enough to qualify for a discharge.
[40] Mr Kipping also referred to the present director of the company’s ill health. The fact is the present director is able to run the company. Mr Kipping said the present director had some difficulty in walking, but he was not prevented from managing the company.
[41] Even if I had considered that Mr Kipping’s desire to return to the management of Warmth.NZ Ltd warranted the Court considering exercising its discretion to give an early discharge, I would not have granted an early discharge for the following reasons (in no particular order).
Accountability and deterrence
[42] Mr Kipping was bankrupted as a result of costs awards made against him by this Court. The background to those costs awards is set out in two judgments of this Court. Associate Judge Osborne’s decision on Mr Kipping’s application to set aside the bankruptcy notice16 and Osborne J’s decision on the opposed adjudication application.17
[43] Before me, Mr Kipping accepted that those costs awards represented a debt, but he has, subject to one minor qualification I will refer to below, no intention of taking any steps to satisfy those Court orders. He said in his submission:
As anyone can probably work out, the very thought of Mr Sharrock having any of my hard earned money is nauseating, I am not going to work to pay Mr Sharrock. I am not going to mortgage any future earnings to pay Mr Sharrock. I feel no moral need to pay someone who patently has no morals.
16 Sharrock v Kipping, above n 2.
17 Sharrock v Kipping, above n 3.
[44] What that attitude says to me is that Mr Kipping wants the benefits of bankruptcy, that is, he will be discharged from the costs awards which led to his bankruptcy, but he wants to walk away from the other consequences of bankruptcy for the balance of the standard three-year term.
[45] After his bankruptcy, Mr Kipping brought a private prosecution against Mr Sharrock that was dismissed with a further costs award against him. That costs award will not be discharged, being a post-bankruptcy debt. Mr Kipping was not prepared to pay that debt on his discharge. It was only upon being pressed from me that he indicated he might be prepared to pay some nominal amount per week towards that debt and perhaps (although it was not entirely clear), the historical debts.
[46] Whether or not Mr Kipping agrees with the orders made against him, he is bound by them and if he wishes to operate in the commercial world he must be prepared to give effect to rulings of tribunals and courts. It is an untenable commercial position for Mr Kipping to prioritise his moral views ahead of a court order. In effect, Mr Kipping asks in this application that I vindicate his moral position by confirming his discharge from the debts he does not accept and release him from bankruptcy. In my view, that would send the entirely wrong signal in respect of applications for early discharge.
Further investigations / no assets
[47] Prior to his bankruptcy, Mr Kipping was a shareholder in a number of companies. He was a shareholder in a company named Hydronix Ltd until about 6 August 2018. It appears his shareholding was transferred to Warmth.NZ Ltd.
[48] Mr Kipping was also a shareholder in a forestry company named Family Trees NZ Ltd. He was a 25 per cent shareholder in that company. On the date of his adjudication hearing he transferred the 25 per cent shareholding to his wife. In respect of both companies, Mr Kipping asserted the shares had no value. In respect of the forestry company, he claimed it had never traded and in respect of the other company, he claimed that the shares had no value.
[49] Hydronix Ltd imports the parts and plant used by Warmth.NZ Ltd in its underfloor heating installations. The creation of a separate company to deal in the parts and plant, potentially suggests an income splitting structure. The point of that structure would be to divert profit into the parts and plant company suggesting it might have value. Again, while to some extent speculative, it is a matter the Official Assignee may want to look into.
[50] The Official Assignee may also want to look into Warmth.NZ Ltd. Mr Kipping was adamant in his submissions that he was the technical know-how behind the company. He said the company would simply not exist if it was not for him. He said in cross-examination he was 50/50 in the business with Mr Reilly and at that point they took profits by way of directors fees.
[51] In response to my questions, Mr Kipping says he and Mr Reilly were both 50/50 in the business and both directors. The nature and extent of Mr Kipping’s interest in the company is a matter the Official Assignee needs to consider.
[52] Mr Kipping also addressed a tax liability of $10,000 which is referred to in Osborne J’s 19 December 2018 decision.18 If Mr Kipping had a tax liability as at the 10 December 2018 adjudication hearing, then I would expect that liability to be a debt in his bankruptcy. Admittedly Mr Kipping did not purport to understand the details of how the tax liability arose. The Official Assignee will need to make enquiries of Mr Kipping’s accountant in that regard, particularly as to the nature of the income attributed to Mr Kipping said to give rise to the tax liability.
Bankrupt’s conduct
[53] I consider that Mr Kipping has deliberately structured his post-bankruptcy income to avoid it being above the level where the Official Assignee would require him to make a contribution to his debts. The following passage is a quotation of an affidavit of Mr Kipping in the adjudication judgment of Osborne J:19
It is also to be observed that my income for the next few years is likely to be below $45,000, therefore the assignee will recover no money from this.
18 Sharrock v Kipping, above n 3, at [40].
19 Sharrock v Kipping, above n 3 at [34].
In plain speaking, I will not be working to pay the applicant, I am not prepared to borrow the money to pay the applicant and the Official Assignee will recover no money. Under these circumstances a bankruptcy will only be “punishment”, and would therefore not be natural justice.
[54] This passage reflects the continued view of Mr Kipping as set out at [43] above, and in my view, foreshadowed Mr Kipping’s intention to structure his income so that it would be below the $45,000 limit. I pressed Mr Kipping on this point and he acknowledged that the $45,000 limit was a factor in setting his remuneration, but asserted it was not overriding overriding factor. I do not accept Mr Kipping’s denial that minimising his income to avoid having to contribute to his debts, is credible against the matters he raised with Osborne J prior to Mr Kipping’s bankruptcy and also raised in his submissions.
[55] In a sense, this is the other side of the coin of Mr Kipping’s view of his judgment debts but reinforces to me his view that unless he agrees with an obligation, he will not meet it.
[56] Mr Hucker referred to Mr Kipping’s general view of commercial disputes and in particular to the report setting out what Mr Kipping is meant to have said to the Official Assignee. I do not set out all of the matters set out, but mention a few:
(a)It is said that Mr Kipping said that he did not care about the possibility of adverse costs awards because he would not be paying them.
(b)He Mr Kipping would not be subject to an adverse costs order from the private prosecution and would not be paying anything, so it did not matter.
(c)He was generally satisfied about having caused the creditor to incur costs.
[57] Mr Kipping, in his affidavit in replying to the statements attributed to him, said: “I may or may not say a lot of things whilst talking, these things are a ‘wish list’ or pubtalk taken out of context.”
[58] What Mr Kipping did not do in his affidavit is deny what the report claimed he said, albeit in cross-examination he purported to do so. I have no reason to think the report is not accurate given that when Mr Kipping prepared his affidavit in reply, he did not deny the statements attributed to him. The statements do not reflect well on him and are consistent with what I have already said about his attitude to the judgment debts.
[59] As set out at [25] above, the Court is to consider the interests of creditors. There is no benefit whatsoever to creditors in what Mr Kipping is proposing. Such is not surprising given his attitude to the judgment debts. While payment of creditors is not strictly a requirement for early discharge, how early discharge will benefit creditors, needs to be explained.
[60] Accordingly, I find that the applicant has by some margin not met the onus of adducing evidence to show good cause for ordering an early discharge. There is no cogent or rational ground for exercising the discretion in Mr Kipping’s favour. The factors go the other way. The need for the enquiries that I have outlined, of itself, stand squarely against early discharge.
Further applications
[61]Section 298(1)(e) of the Act provides:
298 Court may grant or refuse discharge
…the court may, having regard to all the circumstances of the case,–
…
(e)refuse an order of discharge, in which case the court may specify the earliest date when the bankrupt may apply again for discharge.
[62] Mr Hucker sought that the earliest date be timed to coincide with Mr Kipping’s date for automatic discharge. I adopt that course and there is an order that Mr Kipping may not apply for a discharge prior to 19 December 2021.
[63] In respect of this application, Mr Kipping has been unsuccessful. There is no reason why costs should not follow the event.
[64] If the judgment creditor seeks that there be a departure from scale costs, any submissions in that regard are to be filed within five working days of the date of this judgment (that is by Monday 4 May 2020) and being not more than five pages. Mr Kipping may reply within a further five working days (that is by Monday 11 May 2020), again not more than five pages.
[65] In the event Mr Kipping pays the costs of this proceeding I reserve leave for him to apply to vary the date set in [62].
Order
[66] For the sake of completeness, I repeat the order in [19] above, that this file is not to be searched without leave.
Associate Judge Lester
Solicitors:
Hucker Associates, Auckland
Copy to:
Mr J Kipping, self-represented
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