Simpson v Scott HC Tauranga CIV-2010-470-690
[2011] NZHC 2056
•29 June 2011
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2010-470-690
UNDER Section 13 of the Insolvency Act 2006
BETWEEN D M SIMPSON Judgment Creditor
ANDL M SCOTT Judgment Debtor
Hearing: 14 June 2011
Appearances: Mr Harrison for Judgment Creditor
Mr Scott in person
Judgment: 29 June 2011 at 10:00 AM
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
29.06.11 at 10 am, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Gary M Harrison, Barrister, P O Box 4338, Auckland – [email protected]
Mr Scott, 506 McLaren Falls Road, Tauranga
SIMPSON V SCOTT HC TAU CIV-2010-470-690 29 June 2011
[1] The bankruptcy notice which is the subject of the present proceeding was the subject of a decision which I gave on 16 December 2010 in which Mr Scott, the debtor, applied to set aside a bankruptcy notice which was served on him on 16
August 2010. The bankruptcy notice, in turn, was based on a judgment entered
against the debtor in the creditor’s favour in the District Court at Tauranga on 7 May
2010. A more detailed description of the background is set out in my decision of 16
December 2010 in which I disallowed the application to set aside the bankruptcy notice.
[2] The judgment creditor now seeks an order adjudicating Mr Scott bankrupt. In his notice of opposition filed in response to the creditor’s application, Mr Scott sets out his grounds of opposition as follows:
a) He has a ―defence, set off, and / or genuine triable counterclaim that
exceeds the amount claimed‖;
b) A statement of claim has been filed and served;
c) ―I am otherwise solvent‖.
[3] He also seeks a stay of the proceedings in order to progress a claim that he has brought against the creditor.
[4] The creditor was the solicitor who instructed counsel, Mr J Moody of Auckland, to act for Mr Scott in respect of a mediation that took place with the object of settling some family litigation that Mr Scott was involved in. That mediation resulted in the parties signing a Heads of Agreement on 17 February 2006. Mr Moody represented Mr Scott at the mediation. Mr Scott has since complained that Mr Moody did not follow his instructions at the mediation, and has also alleged in proceedings which he commenced in May of this year at the High Court at Tauranga, that Mr Moody and Mr Simpson were in breach of the separate duties of care which they owed to him in their respective capacities of solicitor and barrister.
Mr Scott claims, for example, that counsel refused to advance at the mediation matters which Mr Scott had instructed him to advance. Mr Scott claims that these breaches of duty have caused him, to quote from his recently filed May 2011 proceedings, ―significant financial loss which is directly attributable to the negligent acts‖. Further, he says that counsel made mistakes when settling the form of the written agreement embodying the agreement that was reached at the mediation and that this was greatly to Mr Scott’s detriment. One of the matters that Mr Scott mentioned was the failure to make proper provision for the incidence of GST on one or more of the transactions which would follow from the mediated agreement. He said because of the GST errors it became impossible for him to proceed with the agreement reached at the mediation.
[5] The alleged breaches of duty and resulting financial loss were raised by Mr Scott at least by the date when the District Court at Tauranga heard the claim by Mr Simpson for judgment for recovery of his legal costs and those of counsel instructed, Mr Moody. In the judgment which Judge Rollo issued in the District Court proceedings on 7 May 2010, he noted that Mr Scott had sought leave in the summary judgment proceedings to amend his notice of opposition to include complaints about breaches of duty of care which had not been raised in the original notice of opposition. Judge Rollo declined to grant leave for this to be done.
[6] Similar allegations concerning breaches of duty of care were made by Mr Scott in his application to set aside a bankruptcy notice based upon Judge Rollo’s judgment which I heard in December of last year. Mr Scott in his application to set aside the bankruptcy notice on the grounds that he was going to appeal the judgment which Judge Rollo entered against him, that he had a defence, set-off or genuine triable counterclaim that could not be raised in the proceeding, and that equalled or exceeded the amount claimed, and that he was able to pay his debts. My note is that no appeal ever seems to have been actually brought against Judge Rollo’s decision.
[7] After hearing Mr Scott’s application to set aside the bankruptcy notice, I dismissed it. In the judgment I gave (at [17]) I expressed my conclusion that Mr Scott had not shown that he had a cross-claim of true substance which he genuinely proposed to pursue. I noted that it was then four and half years since the alleged
breaches of obligation on the part of the legal practitioners had occurred and that no attempt had been made to quantify the alleged losses suffered. I also concluded that Mr Scott was not able to establish that such defences he had could not have been raised in the District Court proceedings as an answer to the claim for fees. The application to set aside the bankruptcy notice was therefore dismissed.
[8] The result of the foregoing circumstances is that Mr Scott has undoubtedly committed an act of bankruptcy by not complying with the bankruptcy notice which was served on him and which expired on or about 17 December 2010.
[9] Once an act of bankruptcy has occurred, the creditor is prima facie entitled to an order for adjudication: Baker v Westpac Banking Corp.[1] However, the Court retains a discretion to decline to make an order of adjudication: Re Fidow (a debtor) where Fisher J stated: [2]
[1] Baker v Westpac Banking Corp CA 212/92, 13 July 1993 at 3.
[2] Re Fidow (a debtor), 1989 2 NZLR 431 (HC) at 440.
Notwithstanding those prima facie grounds, it is clear that a bankruptcy adjudication does not follow automatically. Discretions arise at several points. One is that pursuant to [the former] s 26(1) itself, the Court has from the outset a discretion whether or not to adjudge the debtor bankrupt even when the prima facie grounds are established.
[10] In this case the sole ground that Mr Scott is able to advance which would influence the exercise of the discretion whether or not to adjudicate him bankrupt is that he has an alleged claim against the creditor, Mr Simpson. As I have already indicated, the issue of the counterclaim was considered in my judgment of December last year on the application to set aside the bankruptcy notice. I concluded that, in summary, the purported counterclaim was not available to Mr Scott as a ground upon which the Court could set aside the bankruptcy notice. Essentially, that was because an applicant for an order setting aside a bankruptcy notice under r 24.10 must show that he or she has a genuine, triable counterclaim, set-off or cross-demand that was unable to be used as a defence in the action which the relevant judgment
was given: Clark v UDC Finance Ltd.[3] In Clark, Casey J said:[4]
[3] Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC). Clark is one of a number of authorities on this point which are noted in Brookers Online Bankruptcy and Insolvency (online ed) at [IN17.10].
[4] Ibid, at 637.
Lockhart J discussed the test to be applied under corresponding Bankruptcy Rules at p 439 of Re Brink, ex p Commercial Banking Co of Sydney Ltd (1980) 30 ALR 433, 437. After a review of relevant English and Australian decisions he followed the High Court view in Ebert v Union Trustee Co of Australia Ltd (1960) 104 CLR 346, 350 that the debtor must show a prima facie case, adding that he should have “a fair chance of success”. In Thomasen v Nigro (CA 124/76; 19 July 1978) the Court of Appeal accepted a ―genuine triable demand‖ as sufficient. An unliquidated claim in tort will be adequate.
[11] The approach of Casey J in Clark was approved by the Court of Appeal in Sharma v ANZ Banking Group (New Zealand) Ltd.[5] In that judgment, Cooke P said that it was incumbent on the debtor to “demonstrate that he has a claim of true substance which he genuinely proposes to pursue”.[6]
[5] Sharma v ANZ Banking Group (New Zealand) Ltd (1992) 6 PRNZ 386 (CA).
[6] Ibid, at 389.
[12] It would not be consistent with the structure of the bankruptcy notice procedure, and the procedures for setting aside the bankruptcy notices, for the Court, when hearing the substantive bankruptcy application, to apply the legislation under the Insolvency Act 2006 in a way which was inconsistent with the approach that it took at the earlier stage in the proceeding, when considering the application to set aside the bankruptcy notice. Specifically, I do not consider that it would be permissible, the Court having declined to give any weight to the alleged counterclaim at the point where the application to set aside the bankruptcy notice was under consideration, to nonetheless agree to dismiss the subsequent bankruptcy proceeding based upon the same notice for that exact reason. Of course if there had been a material change of circumstance since the date when the application to set aside the statutory demand was dismissed, it would be appropriate for the Court to re-visit the matter.
[13] Mr Scott emphasised the fact that he has now filed a substantive proceeding against Messrs Moody and Simpson. That is a new circumstance, of course. But the relevant issue is whether the change of circumstance is material when considering if the Court should revisit the question of whether the debtor has an arguable
counterclaim etc.
[14] While Mr Scott did not spell out to me what the effect of filing this proceeding was, it would seem at least arguable that a set-off can continue to have relevance at the stage where an unopposed application is made under the Insolvency Act 2006. The position is described in Heath and Whale on Insolvency:[7]
[7] Heath and Whale on Insolvency (online ed) at [3.10].
It appears that if the Court is satisfied the debtor has a right of set-off which would reduce the debt owing to the creditor to a sum less than $1000 the Court may dismiss the creditor’s application for bankruptcy.
[15] While it is unclear to me that the authority that is cited in support of that statement[8] supports such a proposition, it would seem as a matter of principle alone that the statement must be correct.
[8] Re a Debtor (No 66 of 1955) [1956] 1 WLR 480 (Ch); affirmed by the Court of Appeal in Re aDebtor (No 66 of 1955) [1956] 1 WLR 1226 (CA).
[16] I have read the statement of claim in Mr Scott’s latest proceeding.[9] The statement of claim which Mr Scott has filed in the fresh proceeding is devoid of particulars. It seeks: “An enquiry into the plaintiff’s losses arising from the defendant’s errors, omissions and negligence.”
[9] Scott v Simpson HC Tauranga CIV-2011-470-349.
[17] Mr Scott explained to me that the claimed losses include financial detriment that he suffered as a result of the family mediation not bearing fruit. Had he managed to settle matters with his family members at the mediation successfully, his financial position would have been far better than it now appears to have turned out. This I understand is a reference to, first, the very large costs order that was made
against Mr Scott in the litigation which went to trial before Stevens J.[10] It is also a
[10] Scott v Scott HC Tauranga CIV-2004-470-94, 25 March 2010.
reference to his failure to make financial gains that he says he would have made had he been put in the position that was agreed to at the mediation. In substance, this claim is that counsel negligently admitted to have relevant matters included in the agreement. But I understand Mr Scott also says that he wanted to adopt a certain negotiating position but counsel was reluctant to put forward offers or counter offers that Mr Scott wished him to. Mr Scott alleges, counsel said that he would decline to act further if instructed to proceed in the way that the client wished. In other words
counsel did not follow his instructions, Mr Scott alleges.
[18] I understand that Mr Scott also complains that the agreement did not make the requisite provision for GST on the transactions which were to be carried out pursuant to it and that also caused him financial loss.
[19] Mr Harrison for the applicants disputed many aspects of these contentions. He was sceptical that Mr Scott had any claim at all and/or that any amount recoverable would have amounted to a complete set-off. Mr Harrison also said that the mediation fell down, not because of the actions of Mr Moody, but because of Mr Scott’s own failings. Mr Harrison submitted that the mediation agreement foundered because of the failure of Mr Scott to obtain a valuation of a property that was incumbent upon him to arrange. He did so too late and the other members of the family lost patience and would not proceed with the mediated agreement.
[20] It would seem that the claim by Mr Scott will involve him having to prove the propositions that:
a) Mr Moody owed a duty to take care with the process of contributing to the drafting of the mediation agreement;
b) he negligently breached that obligation; c) his negligence caused loss to Mr Scott; d) the losses were recoverable at law; and
e) that the amount of the losses for which he would be able to obtain damages would offset the claim brought by the creditors to the point where there was no debt of $1,000 or more available to the creditors which would give the Court jurisdiction to adjudicate Mr Scott bankrupt.
[21] From the account that Mr Scott has given me of the circumstances in which the settlement agreement came to be signed, it seems that Mr Scott actually knew about what he describes as the defects in the agreement. That is because he argued with Mr Moody, he says, about the omission of certain key provisions from the
agreement. On the other hand, such an outcome would not excuse any alleged failures on the part of counsel to follow his client's instructions.
[22] It is implicit in Mr Scott's claim that had the position that he wished to advance been put forward it that was likely that the opposite party to the negotiations would have accepted his offer, to Mr Scott's advantage.
[23] The position about the GST matter is in a different category. The allegation is that it was simply not adverted to by, inter alios, Mr Moody. That would seem therefore to amount to an assertion that counsel was negligent in that regard when settling the terms of the compromise agreement.
[24] I consider that the statement of claim that has been filed does not provide a convincing or clear summary of the matters which Mr Scott alleges and the losses which he claims to have suffered. While it is possible to perceive the outlines of the types of claim that Mr Scott wishes to bring, they are not stated in his pleading in a concise intelligible form. Because of vagueness of the statement of claim, I cannot be certain what it is that the proceedings raise for resolution by the Court. There is what might be reasonably described as the statement of a generic type of claim, which does not convey an outline of what particular circumstances the plaintiff is alleging nor what relief was sought.
[25] The statement of claim does not include an explicit statement of the loss claimed or the premises which underlie calculations of the plaintiff's loss.
[26] To summarise, it is questionable whether Mr Scott has a claim at all, and even if he does, how much that claim is for. It is not explained why, after this period of time, Mr Scott’s claim is still only in a nascent form instead of having been prosecuted in a way that would be consistent with that genuine intention to seek compensation from the lawyers.
[27] I do not therefore accept that Mr Scott has any defence on the counterclaim ground.
[28] Mr Scott asserted that he is solvent. No evidence was produced which supports that contention. It has been established that he has committed an act of bankruptcy in not complying with a bankruptcy notice that was served on him. I appreciate that Mr Scott’s position is that he could meet the liability but chooses not to. The second of those factual propositions is clearly established but the Court could not possibly conclude on the material before it that Mr Scott is actually able to pay the debt upon which the application for adjudication is based. The position is
not dissimilar to that of the debtor in Holdgate v Blocassa Ltd.[11] Although the
[11] Holdgate v Blocassa Ltd [2007] NZCA 132 at [28].
procedural context was different — that was an application for annulment — the Court of Appeal agreed with the approach that unsubstantiated claims of this kind are likely to be rejected by the Court. For that reason, the position of Mr Scott is to be differentiated from that of the debtor in Re Stirling, ex parte Webb Ross & Co[12] where the Court declined to adjudicate the debtor bankrupt because it was satisfied that the debtor was able to pay his debts. Indeed, the Court is authorised to dismiss
[12] Re Stirling, ex parte Webb Ross & Co [1990] 1 NZLR 569 (HC).
the application pursuant to s 37 of the Insolvency Act 2006 if ―the debtor is able to pay his or her debts‖. But for the reasons that I have given, it is not apparent that that is the position in this case.
[29] The creditor has established the grounds in s 13 of the Insolvency Act 2006. There are no other discretionary considerations which justify the Court dismissing the application for adjudication.
[30] Mr Harrison sensibly told the Court that he would not oppose Mr Scott being given a period of 14 days within which to meet the liability claimed failing which he should be bankrupted. For practical reasons, it is not going to be possible to bring the matter back before Court in 14 days. In place of the order which was suggested by Mr Harrison, I propose to adjourn the proceeding until the next bankruptcy list is held at Tauranga which will be at 10 AM on 22 July 2011 with a view to then
adjudicating Mr Scott bankrupt if he has not settled the debt.
Suppression of name
[31] Mr Scott submitted that his name ought to be suppressed in any judgment issuing from these proceedings. I am unable to see any good reason why that should be so. The presumption is that the operation of the Courts should be open and not subject to secrecy unless that course is unavoidable because of a need to protect
victims of crime etc. The application for a suppression order is dismissed.
J.P. Doogue
Associate Judge
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