Slavich v Slavich

[2012] NZHC 1513

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-419-112 [2012] NZHC 1513

IN THE MATTER OF     the Insolvency Act 2006

AND

IN THE MATTER OF the bankrupty of JK Slavich

BETWEEN  ALLISON SLAVICH Judgment Creditor

ANDJOHN KENNETH SLAVICH Judgment Debtor

Hearing:         29 June 2012

Counsel:         JK Gilby-Todd for judgment creditor

No appearance for judgment debtor

Judgment:      29 June 2012

(ORAL) JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for adjudication order]

Solicitors:           Harkness Henry, Private Bag 3077, Hamilton 3240

And To:             JK Slavich, PO Box 120 Hamilton

SLAVICH V SLAVICH HC AK CIV-2012-419-112 [29 June 2012]

[1]      The  judgment  creditor  applies  for  an  order  adjudicating  John  Kenneth

Slavich a bankrupt.

[2]      Judgment was entered against the judgment debtor on 18 August 2011 for

$21,172.94.   The judgment is a cost judgment.   It arises from proceedings issued under the Trustee Act 1956 and the Administration Act 1969.  The parties settled the proceeding except for costs.  The question of costs was referred to Woodhouse J for consideration.

[3]      The  judgment  creditor  sought  the  issue  of  a  bankruptcy  notice.    The bankruptcy  notice  was  issued  on  1 February  2012.     It  required  payment  of

$21,172.94 on the following basis:

This amount is the amount the judgment creditor claims is due (or remains unpaid) on a final judgment or final order, on which execution has not been stayed, that the judgment creditor obtained against you in the High Court at Hamilton on 18 August 2011.

[4]      The bankruptcy notice was served on the judgment debtor on 14 February

2012.  It was not complied with.  The result is that an act of bankruptcy occurred on

28 February 2012. This application followed.

[5]      The judgment debtor filed a notice of opposition and affidavit in opposition. In his notice of opposition he provides as follows:

(i)        That the debt is known to the creditor, or should be known, to be fully  recoverable  from the  Estate  on  the  production  of  proof  of payment of legal fees.  Such fees resulting from the legal actions of the  creditor  without  first  attempting  to  resolve  the  issues  raised about the Estate.

(ii)      The application is made in bad faith.

(iii)      The debt is subject to a recall application on the issue of costs.

[6]      The judgment debtor also filed an application to strike out the application for an adjudication order. The grounds contained in that application are:

2.1The Judgement creditor is aware, or ought to be aware, that the debt incurred was incurred in the capacity of a Trustee in the Estate.

2.2      The legal fees awarded resulted from legal action that prevented the

Judgment Debtor settling matters before litigation.

2.3The Judgement debtor, in that circumstance, is entitled to have the estate pay the legal fees actually paid by the Judgement Creditor from the assets of the Estate.

2.4The Judgement Debtor will not provide proof of legal fees paid, as requested, so as that proven debt can be presented for payment by the Estate.

2.5The application is in bad faith and is driven by malice or revenge on the part of the Judgement Creditors legal counsel.

2.6      In those circumstances it is appropriate that costs be awarded.

[7]      In addition, the judgment debtor filed an affidavit in support of both his notice of opposition to the order of adjudication and in support of his strike out application.

[8]      The application was called before me on 28 May 2012.  I was advised that an application to recall the judgment on which the bankruptcy notice is based had been filed.  It is dated 25 May 2012.  I adjourned this application to 1 June 2012, to see if the application for recall had been allocated a date of hearing or otherwise disposed of.  In that way, I apprehended, I would know whether the requirements of ss 13 and

36 of the Insolvency Act 2006 had been complied with.

[9]      I have now been provided with a judgment of Woodhouse J which dismissed the application for recall.   The judgment specifically deals with the defendant’s allegation that the judgment was obtained by the judgment creditor by fraud.   It refers to the position that to challenge a judgment by fraud a separate proceeding is required.  It also dealt with the allegation that there had been serious and material false statements to the court made by the plaintiff’s counsel.   It dismissed that allegation as being without foundation.   It also deals with the judgment debtor’s claim that there had been procedural unfairness in the determination of the costs.  It notes there was no appeal from the decision.  It concludes that there is no reason for setting aside the judgment for costs.

[10]     The judgment debtor has advised me by memorandum that he has made application for leave to appeal the original cost judgment and has also filed an appeal from the recall judgment.   He has provided the court with a copy of the letter enclosing the documents forwarded to the Registrar of the Court of Appeal.  Those documents indicate that an application for a waiver of fees was also made to the Registrar of the Court of Appeal.  I have not been provided with a copy of it.

[11]     The judgment debtor claims that he is entitled to call on the estate of Steven Frank Slavich to cover his costs.  There is no evidence before me that he has taken any step at all to seek reimbursement from the estate.  In any event, I am advised by counsel for the judgment creditor, that there is no foundation for such claim because the judgment debtor was sued in his personal capacity.   The order sought in the proceedings was an order requiring him to stand down from his role as trustee administrator.

[12]     On 1 June 2012 I adjourned the application to my next bankruptcy day on

25 June 2012.  I recorded the basis for the adjournment.  My minute of 25 June 2012 contains a transcript of that minute.

[13]     On 25 June 2012 I heard submissions and issued the following minute:

1.        On 1 June 2012 I recorded the following minute on this file:

Mr  Slavich  advices  me  that  a  payment  will  be  made  to  the Registrar of this Court of $21,172.94 by Friday, 8 June 2012 on the basis that such sum shall be held pending further order of the Court.  I order accordingly.  This proceeding is adjourned to 10am on 25 June 2012 to check compliance.  If the payment is not made an order of adjudication may be made.

2.        This matter was called before me this morning and stood down until

2:15pm this afternoon.   Mr Slavich has presented submissions to me.  What is behind the submissions is that money is held in relation to other proceedings which is in Court and which he says is ample to cover security for the judgment for costs entered in this proceeding.

3.He is not able to present me with the consent of the other parties to the other proceedings, to the release of those funds to be used as security in this proceeding.

4.Mr Slavich has raised the possibility, and I emphasise, possibility only, that he may be able to obtain the necessary funds from another source.  That would be on the basis that if he is able to have cleared

funds paid, or available for payment, to the Registrar by Friday of this week I would make an order halting this proceeding pursuant to s 42 of the Insolvency Act 2006 pending the hearing of his appeal against the judgment of Woodhouse J.

5.Reluctantly, I adjourn this proceeding until Friday, 29 June 2012 to allow  Mr Slavich  one  further  opportunity  to  have  cleared  funds available for payment to the Registrar covering the amount of the judgment for costs, that is the sum of $21,172.94.  On that basis, this application  is  adjourned  to  10am on  Friday,  29 June  2012.    Mr Slavich should, however, be prepared for a likely order of adjudication to be made if the security is not then available.

[14]     This is an application to adjudicate Mr Slavich a bankrupt.

[15]     The  jurisdictional  requirements  which  must  be  met  before  an  order  of adjudication is made are contained in the Insolvency Act 2006, ss 13 and 36.  Section

13 provides:

13       When creditor may apply for debtor's adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if—

(a)       the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)       the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)       the debt is a certain amount; and

(d)       the debt is payable either immediately or at a date in the future that is certain.

Section 36 provides:

36.      Court may adjudicate debtor bankrupt

The  Court  may,  at  its  discretion,  adjudicate  the  debtor  bankrupt  if  the creditor has established the requirements set out in section 13.

[16]     As matters currently stand, the jurisdictional requirements are met in this case.  I must, however, consider the Insolvency Act 2006, s 37 which provides:

37.      Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

(a)       the applicant creditor has not established the requirements set out in section 13; or

(b)      the debtor is able to pay his or her debts; or

(c)       it is just and equitable that the Court does not make an order of adjudication; or

(d)      for any other reason an order of adjudication should not be made.

[17]     Mr Slavich has been given the opportunity to pay the judgment debt.  He has not paid the judgment debt.   I have been provided with counsel’s certificate today confirming that position.  Mr Slavich has been given two opportunities to provide security for the judgment by way of payment of the judgment sum to the Registrar of this Court.  He has not done so.  His latest response is contained in a memorandum which was filed with the Registrar today.  I record what he has set out in paragraphs

1 and 2 of that memorandum as follows:

1.        The  Judgment  Debtor  appreciates  the  opportunity  given  to  the

Trustees and his family to reassess their position.

2.Their view is unchanged.  They believe they cannot rely on the Rule of Law being applied by the Court of Appeal on this matter and will resolve the debt outside the Rule of Law.  They will not deposit any funds.

The balance of the memorandum I regard as contemptuous and therefore I do not repeat it in this judgment.

[18]   In Eide v Colonial Mutual Life Assurance Society Ltd I reviewed the circumstances where the discretion which is vested in the Court under s 37 could by exercised.[1]  At 635 of the judgment recorded:

[1] Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC).

The important matters can be summarised as follows:

1)A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing  debtor  to  show  why  an  order  should  not  be  made.'' McHardy v Wilkins & Davies Marinas Ltd (Court of Appeal, Wellington, CA 54/93, 7 April 1993) at p 3.

2)        ``. . . in the exercise of the discretion under s 26 it is proper for the

Court to consider not only the interests of those directly concerned –

the petitioner, other creditors, the debtor – but also the wider public interest.'' McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

3)In determining whether an order should be made, the wider public interest   must   be   taken   into   account   to   determine   whether adjudication is ``conducive or detrimental to commercial morality and the interests of the general public.'' Re Nisbett, ex parte Vala [1934] GLR 553 at p 556.

4)``. . . on a bankruptcy petition the Court must have regard to public interest in a way which transcends the interest of the immediate parties to the proceeding. . . . The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of  the  separate  question  of  debt  collection  by  his immediate creditors.'' Re Fidow [1989] 2 NZLR 431 at p 444.

5)        Absence of assets is a factor but:

``. . . even the undoubted absence of assets will not necessarily preclude an order, for the circumstances may be such that the debtor ought in the public interest to be visited with the disqualifications that go with bankruptcy.'' McHardy v Wilkins & Davies Marinas Ltd (supra) at p 3.

6)        Another matter:

``. . . is the potential for further investigation. A bankruptcy makes available to creditors an array of procedures for investigating the financial circumstances of the debtor. Those procedures are likely to prove more effective than an investigation conducted by other means.'' Re Fidow (supra) at p 444.

7)        There is a need:

``. . . for the Court to balance the various considerations relevant to the  case,  and  to  determine  whether in  the  end  the  debtor  has succeeded in showing that an order ought not to be made''. McHardy v Wilkins & Davies Marinas Ltd (supra) at p 4.

[19]     That judgment was approved by the Court of Appeal.[2]

[2] Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 631.

[20]     I do not overlook the fact that if there is evidence of the oppressive use of bankruptcy then that in itself may be a ground for refusing an order for adjudication.[3]

[3] Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at [4]–[5].

[21]     I have considered the existence of the appeal.  When an appeal has been filed and an application for stay of the judgment under appeal is made, the Court has to

balance two principles.  The first is that a successful litigant should not be deprived

of the fruits of his or her litigation.  The second is that an appellant should not be deprived of the fruits of a successful appeal.[4]

[4] Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.

[22]     This is a case where, having regard to the consequence of non-payment being an order of adjudication, I consider that the payment of the amount of the judgment to the Registrar is an appropriate condition to impose.  The giving of security in this fashion has been upheld in a number of cases.[5]

[5] Contributory Mortgage Nominees Ltd v Harris Road No 10 Ltd HC Auckland CIV-2005-404-

3078, 31 January 2006; Crow v Calvista Australia Pty Ltd HC Auckland CIV-2010-404-2295,

8 September 2010.

[23]     In  balancing  the  two  principles  the  Courts,  however,  have  considered  a number of matters. They include:

a)        Whether, if no stay is granted, the appellant’s right of appeal will be

rendered nugatory;

b)        Whether the successful party will be injuriously affected by the stay; c)        The bona fides of the applicants as to the prosecution of the appeal; d)  The effect on third parties;

e)        The novelty and importance of questions involved;

f)        The public interest in the proceeding;

g)        The overall balance of convenience and the status quo; and

h)Whether the appellant has demonstrated a sufficiently arguable point to be considered on appeal.[6]

[6] Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48,

Videbeck v Auckland City Council HC Auckland M1053sw02, 21 October 2002 at [7].

When I consider those matters I consider that a stay would have been justified had the sum involved in the judgment been paid to the Registrar to be held by him pending the determination of the appeal.

[24]     I am not satisfied that there is justification for any further delay in making the order on account of the filing of an appeal by the judgment debtor in respect of this appeal.   I am not satisfied that a case has been made out for the exercise of the discretion under s 42 of the Insolvency Act 2006.

[25]     I am satisfied that the jurisdictional requirements for the making of an order of adjudication have been met in this case.  No evidence has been placed before me that the judgment debtor has any prospect of satisfying this judgment.   To delay making an order of adjudication simply causes the judgment creditor to incur additional costs in a situation where there is no known prospect of recovery.  There are no other cogent reasons for not adjudicating the judgment debtor.

[26]     Accordingly I order that John Kenneth Slavich be adjudicated bankrupt. [27]           This order is timed at 10:35am.

Costs

[28]     I order that the debtor’s estate pay costs based on Category 2 Band B together with disbursements as fixed by the Registrar.

JA Faire

Associate Judge