Small Business Accounting (NZ) Limited v Ridge

[2014] NZHC 2512

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-001144 [2014] NZHC 2512

BETWEEN

SMALL BUSINESS ACCOUNTING

(NZ) LIMITED Judgment Creditor

AND

SALLY ANNE JUDITH RIDGE Judgment Debtor

Hearing:	13 October 2014
Appearances:	P Dale for the Applicant Z Kennedy and S Collier for the Respondent T Allen and J Fowler for the Bank of New Zealand
Judgment:	14 October 2014

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

14.10.14 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

SMALL BUSINESS ACCOUNTING (NZ) LIMITED v SAJ RIDGE [2014] NZHC 2512 [14 October 2014]

[1]      Ms  Ridge  has  applied  for  the  bankruptcy  proceedings  against  her  to  be stayed.   Those proceedings were filed when Ms Ridge did not pay the sum of

$101,409.40 being the costs ordered against her in the outcome of her unsuccessful claim against her former husband, Mr Parore, his family trust, and his company Small Business Accounting (NZ) Limited (SBA).

[2]      The bankruptcy proceedings have been brought by SBA alone.

[3]      Ms Ridge has applied for a stay of the bankruptcy proceedings because she has appealed the High Court judgment declining her claim that she and Mr Parore would beneficially and equally share in the assets held in each other’s trusts.  Her appeal was filed after the judgment was delivered and before the award of costs against her was made.

[4]      In her application for stay Ms Ridge claims that her appeal is being pursued expediously,  that  it  has  merit,  that  it  involves  important  legal  issues,  and  if successful then the judgment against her will be set aside and the costs order which forms the basis of bankruptcy proceeding, will be cancelled.

[5]      She says if the bankruptcy petition is not halted pending determination of her appeal then the appeal will be rendered nugatory i.e. futile.

[6]      Opposition to Ms Ridge’s application focuses upon the grounds that:

a)        She has not appealed the costs judgment but only the substantive judgment ruling against her claims.

b)She should be required to meet her costs obligations first if she is to pursue her appeal.

c)        Her appeal has no prospect of success.

d)Bankruptcy would not prevent the Official Assignee from pursuing the appeal on her behalf.

e)        Bankruptcy may unduly prejudice the judgment creditor. f)    Third parties may be affected.

g)       That no question of novelty or importance is involved with the appeal. h)     The overall balance of convenience does not favour Ms Ridge.

Considerations

[7]      Ms Ridge’s application has been brought pursuant to s 42 of the Insolvency

Act 2006 which provides:

(1)     This section applies if the creditor's application for adjudication relies on 1 of the following acts of bankruptcy:

(a)     the  debtor  failed  to  comply  with  a  bankruptcy  notice  (see section 17);

…

(2)     If the debtor has appealed against the judgment or order underlying the bankruptcy notice… and the appeal is still to be decided, then the Court may—

(a)     halt the creditor's application for adjudication; or

(b)     refuse the application.

[8]      In this case Ms Ridge failed to comply with the bankruptcy notice served on her which required payment of the costs she was ordered to pay.   Ms Ridge has appealed the judgment which underlies the bankruptcy notice and that appeal is still to be heard.

[9]      In  the Court’s  view the  jurisdictional  requirements  to  file an  application under s 42, have been satisfied.  Section 42 concerns appeals against judgments or orders underlying the bankruptcy notice.   In this case it is the costs order which underlines the bankruptcy notice.   Clearly, if the appeal succeeds the costs award will fall away.

[10]     Counsel for SBA submits the notice of appeal did not refer to costs but of course when the initial appeal was filed the costs award had not issued and indeed that award issued two months after the delivery of judgment.  Regardless, it is clear that the fate of the costs issue will lie in the outcome of an appeal decision.

[11]     Submissions of counsel address whether Ms Ridge has pursued her appeal with sufficient haste.

[12]     Delays have occurred because of Ms Ridge’s application to the Court of Appeal to waive payment of security for costs.  The Registrar of the Court of Appeal refused that application and a review of that decision was sought from Wild J of the Court of Appeal.  Wild J upheld the Registrar’s decision.  In that outcome Ms Ridge paid the security required for her appeal to proceed.

[13]     Counsel for Ms Ridge advises that on 26 May 2014 a date was requested for the hearing of the appeal.

[14]     On 30 June 2014 SBA filed an application to strike out Ms Ridge’s appeal on the basis that she had failed to pay security for costs, and claiming the appeal had no realistic prospects of success.

[15]     Not until 7 August 2014 was that application withdrawn.  Counsel for SBA says it was withdrawn because security for costs had been paid.  It appears that the late withdrawal of that strike out application may itself have caused delay for the hearing of the appeal.

[16]     On 26 August 2014 the Court of Appeal advised that the matter was before a Judge for a mode of hearing decision.  At this time it is not clear when the appeal will be heard.   However, the Court does not accept the actions of Ms Ridge have unnecessarily caused delays with the appeal process.  Her counsel advises a request has now been made for an urgent hearing.

[17]     There is no significant challenge by SBA or its counsel for a claim that Ms

Ridge is not acting in good faith by prosecuting her appeal.  She has acted within

strict  time  constraints.    The  case  on  appeal  was  a  very substantial  undertaking provided by her solicitors and senior counsel, Mr L Taylor QC.

[18]     It does not appear to the Court any prejudice would be caused if SBA is required to wait until the outcome of the appeal before it is paid.  Interest will accrue on the costs judgment sum until payment is made.

[19]     The evidence suggests Ms Ridge has assets able to be realised for the purpose of meeting SBA’s debt.   The fact that those assets may include a family home purchased in the name of a trust would unlikely provide much hindrance for recourse to that asset if needed.

[20]     Ms Ridge asserts that if she is bankrupted it is unlikely her appeal would be pursued.  If she is bankrupted the Official Assignee will assume the right to decide whether the appeal should be pursued or not.  Counsel for Ms Ridge submits it is unlikely the Official Assignee will pursue the appeal.  The Court concurs with that view of matters.   The Official Assignee is not under any obligation to pursue the appeal.  The Official Assignee would likely be persuaded by the judgment of Gilbert J who said that the claims against Mr Parore, his family trust and SBA were misconceived and had no realistic prospect of succeeding.

[21]     In submissions prepared for today’s hearing counsel for Ms Ridge noted no other creditors had filed papers in support of SBA’s bankruptcy application.  Shortly after that the Bank of New Zealand filed a notice of appearance in support of SBA’s application.  It refers to a claim that Ms Ridge is a debtor of the bank in the sum of

$295,332.74 as at 26 September 2014.   That debt arose by virtue of Ms Ridge’s family trusts guarantee along with that of Mr Parore’s family trust’s guarantee of a loan obtained by the purchaser of a business owned by Mr Parore’s interests. Apparently  Mr  Parore’s  interests  have  reached  an  agreement  with  the  Bank regarding their indebtedness.   The Court has no information regarding that arrangement or regarding what is due from Ms Ridge’s family trust in that outcome.

[22]     The bank advises that if SBA was to withdraw its application or that if for any  other  reason  the  application  did  not  proceed,  the  bank  would  seek  to  be

substituted as the petitioning creditor.   As matters presently stand SBA has not withdrawn its bankruptcy application and there appears no other basis on which the substitution application can proceed.

[23]     Ms Ridge says the Bank’s debt has a connection with those same issues which were before Gilbert J and which had been addressed in that statement of claim which was before the Court at the time the matter was heard by Gilbert J.

[24]     At the forefront of the opposition to the stay application is the claim that Ms

Ridge’s appeal has no prospects of success.

[25]     In this regard the observations of Gilbert J, previously noted were advanced on behalf of SBA.

[26]     The essence of Gilbert J’s judgment is contained in paragraphs 24 – 28 as follows:

[24]     The intention which the plaintiffs now allege is that the assets, in particular SBA, were to be held on trust for the benefit of the Ridge Trust and the Parore Trust in equal shares.  The intention is said to have existed from the time of the restructuring in 2007, before SBA was acquired.

[25]      This claim is contradicted by the evidence.   It is quite clear that a decision was taken in 2007 to separate the family and business assets by placing the former in the Ridge Trust and the latter in the Parore Trust.  This was implemented following advice from Mr Davidson and with his assistance.  I am satisfied that all parties, including Ms Ridge, understood the legal effect of the arrangements.

[26]     One of the central purposes of the restructure was to separate the ownership of the assets in the two trusts.   There was never any suggestion that the trustees of the Parore Trust would hold the assets of that trust for the beneficiaries of the Ridge Trust, contrary to the express terms of the Trust Deed.  Equally, it was never intended that the trustees of the Ridge Trust would hold the assets of that trust in part for the benefit of the beneficiaries of the Parore Trust.  This was plainly  not  Mr Parore’s  intention  at  any  point.    There  was  no evidence suggesting that Wyndam Trustees Ltd had any such intention.  Mr Davidson would have well understood that the assets of each trust would be held exclusively for the benefit of the beneficiaries of that trust.   It is likely that Ms Ridge would have understood this as well.

[27]     Mr Grove submits that the asserted common intention is supported

by a number of statements made by Mr Parore referring to the “equal

sharing agreement” and the parties’ intention to share the assets and income equally.  Contrary to Mr Grove’s submissions, it is clear that the assets of each trust were to be held by the trustees of that trust for the benefit of the beneficiaries of that particular trust as was required by the terms of the Trust Deeds.   The concept of equal sharing between Mr Parore and Ms Ridge was to be achieved by the trustees exercising their discretion to treat them as equal beneficiaries under each trust, not by the trusts sharing ownership of the assets.

[28]      It follows that Ms Ridge’s claim fails at the first hurdle.  There was no clear and unequivocal intention by the trustees of the two trusts that the assets of each trust would be held for the joint benefit of the beneficiaries of both trusts.  There was never any intention that the trustees of the Parore Trust would hold 50 per cent of the shares in SBA on trust for the beneficiaries of the Ridge Trust.  This finding is fatal to the plaintiffs’ claim.

[27]     Mr Kennedy’s submissions on behalf of SBA were that those paragraphs contain no finding of law that it was not possible for assets subject to an express trust to be the subject of a constructive trust.  Rather Mr Kennedy submits that Gilbert J found as a matter of fact that the division of property to respective trusts was what the  parties  intended.    In  Mr  Kennedy’s  submissions  paragraphs  25,  26  and  27 provide the clearest of findings of fact that in the outcome will be fatal to Ms Ridge’s appeal.  He submitted the decision was not one of legal principle, indeed did not even get close to it.   Therefore and because the decision involves such clear findings of fact, no scope at all remains to question the conclusions reached by the decision.

[28]     However, the Court of Appeal will not necessarily agree with a trial Judge’s factual conclusions without an assessment of the facts from which those conclusions are reached.  Also, it may be that in assessing His Honour’s conclusions contained in those paragraphs of the judgment recorded herein, a Court of Appeal may want to review that evidence from which assessment conclusions were drawn.  The Court of Appeal may be asked to analyse the learned Judge’s conclusions in order to confirm that those can be sustained.

[29]    In this Court’s view section 42 does not contemplate this Court giving consideration to the endorsement or otherwise of the judgment of the hearing Judge. Otherwise, and unless clearly the appeal has no prospects of success then the appellant should not be precluded from the opportunity of challenging the decision.

[30]     In this case as earlier noted Ms Ridge’s advisors have engaged the opinion of Queens Counsel who in the course of a 15 page memorandum has addressed in detail those reasons why the appeal of Gilbert J’s judgment should proceed.

[31]     In the circumstances the Court is not prepared to consider that the appeal is hopeless and does not regard submissions of lack of prospects of success as persuasive in the circumstances.

[32]     The  remaining  submissions  of  counsel  address  balance  of  convenience

arguments.  In the Court’s view these clearly favour Ms Ridge.

[33]     Claims of prejudice have not been advanced on behalf of Mr Parore or SBA. It appears he and his company have made their own arrangements with the Bank in connection with guarantees provided for the sale of their business asset.

[34]     The Bank apart, Ms Ridge appears to have no other creditor issues.  Also she (her trust) owns a property with significant equity and more than sufficient to meet the Bank’s demands or the costs arising from the Court’s judgment.

[35]     No claims of substance have been provided suggesting prejudice to SBA if there should be a delay by Ms Ridge in meeting the payment presently due to it.

[36]     In the Court’s view balance of convenience considerations favour Ms Ridge. Whilst she has equity in property more than sufficient to meet payment of the judgment debt her only means of satisfying that is to sell the home in which she and her four children reside.

[37]     There is no evidence to suggest Ms Ridge is other than candid regarding her financial circumstances.

Conclusions

[38]     It matters not that the costs judgment was not appealed because the separate substantive judgment has been appealed and in that outcome if successful the costs judgment will fall away.

[39]     Considerations  of whether or  not  an  appeal  has  no  prospects  of  success should focus upon whether the appeal is hopeless or totally without merit rather than upon whether there may be sufficient reason for it to be considered.

[40]     Considerations  about  whether  an  appeal  is  being  sufficiently  progressed should focus upon efforts to advance the appeal to this stage.   There have been delays but these appear to be due to some misunderstanding concerning the process for applying for a waiver of security costs.

[41]     Causation of significant delays in prosecuting an appeal is important and appropriately an adverse view ought to be taken of appellants who do not address obligations for the expedious disposition of appeal hearings.   The Court considers that has not occurred in this case.

[42]     The effect on third parties focuses upon the judgment creditor and supporting creditors  but  also  upon  those  who  might  be  affected  by the  judgment  debtor’s bankruptcy.  Sufficient evidence will usually indicate who is likely most vulnerable in the outcome of that assessment.

[43]     Prospects of success  considerations aside the unfettered  discretion of the Court upon applications for stay focus in broad terms upon the balance of convenience.  For reasons, it is hoped already identified, it is the Court’s view that the balance of convenience favours Ms Ridge.

Judgment

[44]     The application for stay is granted.  The bankruptcy application of SBA will be halted until determination of the appeal of the decision of Gilbert J.

[45]     Costs are reserved for determination upon application and will be dealt with on the papers.

Other

[46]     The proceeding will be adjourned for call in a bankruptcy list before me on

30 October 2014 at 10:45am for consideration of the application of the Bank of

New Zealand for substitution as creditor.  At that time if the application is opposed then a hearing will be scheduled to consider the application.

Associate Judge Christiansen