Spence Building Limited (in liq) v Jones HC Wellington CIV-2011-485-589

[2011] NZHC 723

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-589

IN THE MATTER OF     The Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of KERRY SPENCER JONES

BETWEEN  SPENCE BUILDING LIMITED (IN LIQUIDATION)

Judgment Creditor

Hearing:         20 June 2011

(Heard at Wellington)

Counsel:         C. Carey - Counsel for Judgment Creditor

J. Mahuta-Cayle - Counsel for Judgment Debtor

Judgment:      20 June 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

Solicitors:           JT Law, Solicitors, PO Box 25443, Wellington 6146

Steven Lee, Barristers & Solicitors, PO Box 142, Wellington

SPENCE BUILDING LIMITED (IN LIQUIDATION) v KS Jones HC WN CIV-2011-485-589 20 June 2011

[1]      Before the Court is an application by the judgment debtor to set-aside a

Bankruptcy Notice dated 30 March 2011 served upon him by the judgment creditor.

[2]      The Bankruptcy Notice requires payment by the judgment debtor of the sum of $117,761.23 representing a judgment obtained by the judgment creditor in the Porirua District Court, as I understand it, around 11 January 2011 plus some additional costs.

[3]      The  application  to  set-aside  the  Bankruptcy  Notice  is  based  upon  the following grounds:

(a)       The Bankruptcy Notice is defective in substance in that it does not comply with the requirements of s 29(1) Insolvency Act 2006.

(b)       The defective  Bankruptcy Notice cannot  be rectified  under s  418

Insolvency Act 2006.

[4]      Before me at the outset counsel for the judgment creditor suggested that the judgment debtor’s present application to set-aside the Bankruptcy Notice should be dismissed because when it was filed in this Court it was not accompanied by an affidavit in support.  I turn to consider this argument first.

[5]      In support of her contention that the present application should be dismissed as no supporting affidavit was filed and served initially, Ms Carey for the judgment creditor  referred  to  my  decision  in  Memelink  v  Sanco  (N.Z.)  Limited,  HC, Wellington, 10 March 2009, CIV-2008-485-2691.

[6]      Whilst this argument advanced by the judgment creditor might hold some initial attraction, in the present case the judgment debtor’s opposition to the Bankruptcy Notice is based solely on the argument that the notice itself is defective. In Memelink v Sanco (N.Z.) Limited no such similar argument was raised.   The judgment debtor’s defence was based simply on the fact that he had a crossclaim, counter-claim or set-off against the judgment creditor which exceeded the debt and this should be taken into account.  Hence, compliance with the strict requirements of the rules regarding the filing of the application with a supporting affidavit became crucial.

[7]      In the present case, however, the clear issue has been raised by the judgment debtor as to whether the Bankruptcy Notice itself is itself defective in substance.  If indeed it is established that the Notice is defective, then it would seem to me that this would invalidate all subsequent actions emanating from that Notice including any substantive bankruptcy proceedings which were to be pursued.

[8]      That said, there is a reasonable argument in my view that it is immaterial whether the formal application to set-aside the Notice is to some extent defective because of the failure to file an affidavit in support.

[9]      In any event, leave of this Court might be granted to the late filing of an affidavit in support and my view is that in the circumstances here such leave would be likely to be forthcoming.

[10]     That said, I dismiss the argument advanced for the judgment creditor that the failure of the judgment debtor to file an affidavit in support at the time of filing the application to set-aside is fatal.

[11]     I turn now to consider the first effective ground advanced by the judgment debtor in support of his application.

Bankruptcy Notice is Defective

[12]     This ground is simply that the Bankruptcy Notice itself is defective in that it does not comply with s 29(1) Insolvency Act 2006.

[13]     Section 29(1) states:

29(1)    The Bankruptcy Notice must:

(a)        be in the prescribed form and

(b)        require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order –

(i)         to pay the amount owing, plus costs; or

(ii)         to give security for the amount owing that satisfies the

Court or the creditor; or

(iii)        to compromise the amount owing on terms that satisfy the Court or the creditor.

(emphasis added)

[14]     It is the judgment debtor’s submission here that the Bankruptcy Notice issued and served upon him does not comply with the requirements of s 29(1) because the Notice does not comply with both sub-section (a) and sub-section (b) of the section.

[15]     In  response,  counsel  for  the  judgment  creditor  notes  that  the  form  of Bankruptcy Notice used in this case complies almost to the very word with the form of Bankruptcy Notice provided for in the High Court Rules, under Form B2 in the First Schedule.

[16]     The only variation appears to be in para 1(b) of the Notice itself where the judgment creditor uses the words “You must secure or enter into a new formal agreement for the amount referred to in para (a) to the judgment creditor’s satisfaction or to the satisfaction of the High Court.”

The equivalent words in the High Court Rules Form B2 are:

You  must secure or  enter into  a  new formal agreement with the  judgment creditor or,

alternatively, obtain the High Court’s approval of terms of payment.

[17]     In my view, there is no material difference in these words used and certainly I

fail to see how the judgment debtor could claim any prejudice as a result.

[18]     Essentially  as  I  understand  the  argument  advanced  by  counsel  for  the judgment  debtor  here,  it  is  that  in  terms  of  s  29(1)  Insolvency Act  2006  the Bankruptcy Notice issued by a judgment creditor must be in the prescribed form in the rules and contain strictly the words specified in s 29(1)(b)(i), (ii) and (iii).  It is clear here that those words in s 29(1)(b)(i), (ii) and (iii) were not precisely followed either in the form of Bankruptcy Notice issued by the judgment creditor here, or indeed in the High Court Rules Form B2 itself.  In my view, however, the standard form in the rules as Form B2 (effectively followed by the judgment creditor here) does require the judgment debtor in relation to the judgment debt to pay the amount owing plus costs or to give security for that amount or to compromise the amount on satisfactory terms.

[19]     There seems to be no question also that a mention of the consequences of a debtor failing to do so is included in the Notice here.

[20]     Before me, Ms Carey for the judgment creditor went on to argue that if the present  contention  from  counsel  for  the  judgment  debtor  is  accepted  then  all judgment creditors will be faced with a significant dilemma.  This dilemma would require them to decide either to follow the Bankruptcy Notice form provided in the rules at B2 or to strictly outline the precise wording of s 29(1)(b) (i), (ii) and (iii) in the Notice itself. An alternative might be simply to add this 29(1)(b) (i), (ii) and (iii) wording to the end of the standard form B2 Notice but, in my view, this would be superfluous and create confusion.

[21]     For all these reasons I am satisfied that the Bankruptcy Notice issued here by the judgment creditor cannot be considered in any way to be defective.  It is clear on its terms, it follows the form outlined in the High Court Rules and, in my view, it cannot be considered to have caused any prejudice to the judgment debtor here.

[22]     That said, I do not need to consider s 418 Insolvency Act 2006, but I will address this section briefly for the sake of completeness.

[23]     Section 418 Insolvency Act 2006 provides that:

(1)       A proceeding under this Act must not be invalidated or set-aside for a defect (which includes misdescription, misnomer or omission) in a step that must be taken as part of, or in connection with, the proceeding, unless a person is prejudiced by the defect.

(2)       The  Court  may  order  the  defect  to  be  corrected,  and  may  order  the proceeding to continue, on the conditions that the Court thinks appropriate in the interests of everyone who has an interest in the proceeding.

[24]     In  the present  case,  s  29(1) of the Insolvency Act is clear in its use of mandatory language. The section provides that the Bankruptcy Notice must be in the prescribed form and comply with s 29(1)(b).  Before me, counsel for the judgment debtor suggested that if significant defects in a Bankruptcy Notice could be rectified under s 418 Insolvency Act 2006 this would effectively emasculate the mandatory requirements of s 29.  Counsel noted that the intention of Parliament in insisting on these mandatory requirements in relatively unambiguous terms should be honoured. I agree.

[25]     In Best v Watson [1979] 2 NZLR 492 the Court of Appeal broadened the ability of the Courts to rectify defective Notices but in doing so, however, it

recognised that this power was still limited by the words of the particular statute. Fundamental defects were to be outside the reach of a provision such as s 418.

[26]     Finally, s 418 itself provides that a Court cannot order rectification where a defect in a Notice may have prejudiced the affected parties.

[27]     Although in the present case it is my view that there is no need to refer to s

418, as the Bankruptcy Notice in question cannot be seen as defective in itself, as I see the position provided the defects in the Notice were seen as only minor, an order for rectification here might follow provided the Court was satisfied that the judgment debtor was not thereby prejudiced.

[28]     In this case, any supposed defect in the Notice (and I have found otherwise) could only be considered to be minor and I would have no doubt that the judgment debtor would not thereby be prejudiced by rectification of such a defect.   A rectification order therefore would be likely to follow in the circumstances prevailing here.

Conclusion

[29]   For the reasons I have outlined above, the application to set-aside the Bankruptcy Notice based upon the suggested defects in the Bankruptcy Notice must fail.

[30]     An order is now made that the judgment debtor is to have until 27 June 2011 to comply with the terms of the Bankruptcy Notice.

[31]     The   judgment   creditor   has   been   successful   in   opposing   the   present application and I see no reason why costs should not follow the event in the normal way.  Costs are therefore awarded to the judgment creditor on this application on a

2B basis together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’