Strata Title Administration Limited v Tao
[2018] NZHC 3381
•29 January 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-002177
[2018] NZHC 3381
BETWEEN STRATA TITLE ADMINISTRATION LIMITED
First Judgment CreditorJIGAR PANDYA
Second Judgment CreditorBODY CORPORATE 198693
Third Judgment CreditorAND
AN LI TAO
Judgment Debtor
Hearing: 16 November 2018 Appearances:
E St John for the Judgment Creditors M Dillon for the Judgment Debtor
Judgment:
29 January 2019
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 29 January 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Price Baker Berridge, Auckland
STRATA TITLE ADMINISTRATION LTD v TAO [2018] NZHC 3381 [29 January 2019]
Introduction
[1]The applicants, creditors of An Li Tao, seek an order adjudicating her bankrupt.
[2] On the face of it the jurisdictional requirements for such an order are made out.1 She owes the applicants a judgment debt of a certain amount more than $1,000, which is well overdue for payment; and she committed a relevant act of bankruptcy within the period of three months before the filing of the application for adjudication. After being served with a bankruptcy notice based on the judgment debt, Ms Tao failed to satisfy the court she had grounds to set the notice aside.
[3] Ms Tao nonetheless resists the application in two ways. She first seeks the proceeding be temporarily stayed or halted pending resolution of her appeal against the dismissal of her application to set the bankruptcy notice aside.2
[4] Should Ms Tao fail in obtaining a temporary stay, she seeks an order refusing her adjudication. At the hearing, her just and equitable grounds for challenging adjudication boiled down to these. It is said her adjudication would:
(a)serve no practical purpose because she has no realisable assets; and
(b)make it impossible for her to have enduring powers of attorney or be appointed welfare guardian for her ailing parents, thus compromising their welfare.
[5] I find it remains just and equitable that a stay be refused and that the application for adjudication be granted. My reasons follow.
1 Insolvency Act 2006, s 13.
2 Section 38; and Tao v Strata Title Administration [2018] NZHC 848 per Associate Judge Matthews.
Background
Debt made
[6] The applicant creditors are the body corporate (along with its corporate secretary and chairperson) of a unit title development in New Lynn where Ms Tao’s parents own a unit. Until 25 October 2016, Ms Tao was also registered as a proprietor on the title.
[7] Disgruntled by the creditors’ actions, Ms Tao brought claims against them in two sets of proceedings. She variously alleged mismanagement, fraud and conspiracy on the part of the creditors, primarily in relation to building maintenance carried out on the New Lynn property.
[8] In a comprehensive decision issued on 27 April 2016, Justice Thomas granted defendant summary judgment in favour of the creditors, dismissing both proceedings.3 She held that the creditors were entitled to costs of $60,210 (which included a 25 per cent uplift applied on the basis Ms Tao's behaviour prolonged the trial and added to its expense).4 The costs award against Ms Tao, plus interest, is the outstanding debt on which the creditors apply for adjudication.
Debt challenged
[9] On 19 May 2016, Ms Tao applied to the Court of Appeal for leave to appeal Thomas J’s substantive decision, and on 17 June 2017 she sought an order relieving her of the obligation to provide security for costs. This application was dismissed by the Deputy-Registrar and Ms Tao’s application to review that decision was also dismissed by Miller J.5 Undeterred, Ms Tao applied for leave to appeal to the Supreme Court. She was unsuccessful.
[10] In the meantime, Ms Tao had applied to the Court of Appeal to extend the time for filing the case on appeal. The Court of Appeal declined the extension; and given
3 Tao v Strata Title Administration [2016] NZHC 814, (2016) 17 NZCPR 312.
4 Tao v Strata Title Administration [2016] NZHC 1821 [“Costs Judgment”].
5 Tao v Strata Title Administration [2016] NZCA 437.
no security had been paid, it treated the appeal as having been abandoned under High Court Rule 43(1).6 Ms Tao then appealed Thomas J’s costs judgment. The Court of Appeal declined her application for an extension of time and ordered that the appeal be treated as having been abandoned.7
[11] An appellant may file afresh an appeal that is treated as abandoned, but an extension of time under r 29A of the Court of Appeal (Civil) Rules 2005 is required. Ms Tao took this course with respect to both Thomas J’s substantive and costs decisions.8 The Court of Appeal noted her application was filed “two calendar years after summary judgment was entered against her and approximately 20 months after the costs judgment”.9 The application was declined on 23 August 2018 and costs awarded against her.
[12] Ms Tao has therefore exhausted her rights in challenging the debt underlying this adjudication application.
New debts made
[13] The litigation mentioned above is not the only Ms Tao has attempted, arising from the same events. An affidavit from the creditors’ solicitors sets out six separate proceedings involving the creditors. They include a judicial review of an unsuccessful defamation claim, an appeal of an unfavourable Tenancy Tribunal order, and two claims to the Human Rights Review Tribunal.
[14] So far, all such litigation has proved unsuccessful — except the two claims before the Human Rights Review Tribunal which are awaiting a hearing. Significantly, Ms Tao faces other outstanding costs orders from this wider litigation, aside from that comprising the basis of this adjudication.
6 Tao v Strata Title Administration [2016] NZCA 594.
7 Tao v Strata Title Administration Ltd [2017] NZCA 130.
8 Tao v Strata Title Administration Ltd [2018] NZCA 317.
9 At [9].
Debt pursued
[15] Turning back the clock, the creditors served Ms Tao with the bankruptcy notice on 12 October 2017, in reliance on the judgment debt from Thomas J’s costs award.
[16] She applied to set the bankruptcy notice aside on 24 October 2017. Associate Judge Matthews found against her application on 30 April 2018, and awarded the creditors costs of almost $6,000.
[17] The creditors applied for adjudication on 22 June 2018. On 15 July 2018, Ms Tao applied for an adjournment for the adjudication hearing on grounds of her mother’s medical issues, which was accordingly postponed by the court from 16 August to 16 November 2018.
[18] On 14 August 2018 Ms Tao filed a notice of opposition. She then applied, on 28 October, for an extension of the dates for filing her affidavits and submissions, saying she had only recently engaged a lawyer who needed time to review the matter. I took that into account in my timetabling directions. Her counsel applied on 13 November for a further adjournment to permit time to prepare.
[19] The parties came before me on 16 November 2018. In accordance with Courtney J’s pre-hearing direction on 14 November 2018, Ms Tao gave evidence orally, bolstered by submissions from her counsel.
Should the adjudication be halted?
[20] I deal first with the application to temporarily stay or halt the adjudication proceeding.
[21] A word about terminology: Ms Tao’s application for a ‘stay’ relies on High Court Rule 20.10; but the more applicable provision is s 38 of the Insolvency
Act, which use the word ‘halt’ instead.10 I have used the terms interchangeably in this judgment.11
Procedural backdrop
[22] The procedural backdrop to the application is unusual. Ms Tao relies on an application she filed earlier on 17 May 2018 which was in fact for a stay “of enforcement proceedings … pending the determination of appeals and counterclaim”. It came before Associate Judge Bell who, by minute dated 7 June 2018, noted the creditors were yet to file any application for her adjudication and until then, “there [was] nothing to stay”.
[23] Ms Tao’s counsel nonetheless argues the application was ‘revived’ by Associate Judge Andrew’s direction on 16 August 2018 that the stay would be heard at the same time as the application for adjudication. Ultimately, the creditors’ counsel elected not to take issue with the procedural irregularity and I proceed on the basis of that concession.
The argument for halting adjudication
[24] As noted earlier, Ms Tao contends the court should pause the adjudication pending resolution of her appeal against Judge Matthews’ refusal to set the bankruptcy notice aside.12
[25] Ms Tao filed a brief supporting affidavit with the stay application to which she attached her notice of appeal, dated 9 May 2018. The notice of appeal refers to counterclaims that are no longer relied upon in support of the stay.
10 The more specific ss 42 and 43 do not apply because Ms Tao has exhausted her appeal rights with respect to “the judgment or order underlying the bankruptcy notice”, that being Thomas J’s substantive decision; and the foundational debt is, for present purposes, beyond challenge.
11 It appears the change to ‘halt’ was an attempt to avoid the more legalistic, and less readily comprehensible, terms ‘stay’: Jim Guest “Introduction to Personal Insolvency” in Paul Heath and Michael Hale (eds) Heath and Whale: Insolvency Law in New Zealand (3rd ed, LexisNexis, Wellington, 2018) at [3.10.6].
12 She initially made a similar argument based on her claims before the Human Rights Review Tribunal, which are yet to be heard, and her appeal against Thomas J’s judgments. These grounds have been abandoned as lacking in any merit.
[26] It also rehashes several arguments addressed, and soundly dismissed, by Matthews AJ — concerning, for instance, Ms Tao’s claim to have an indemnity for the costs, the committee’s delegated authority from the body corporate, or whether the bankruptcy procedure was an abuse of process.13 I see no reason to revisit the arguments, which I also find lacking in merit.
[27] Counsel indicated by telephone conference (convened by me after the hearing) that the real issue came down whether the committee actually resolved to issue the bankruptcy notice. Ms Tao’s counsel says that cannot be assumed because there are no minutes in evidence. On that basis, he contends the bankruptcy notice is defective for want of a judgment creditor.
Reasons not to halt the adjudication
[28] There are four primary reasons for not halting the adjudication in the circumstances. A couple are procedural in nature.
[29] When she filed her appeal on 11 May 2018, the Court of Appeal required security for costs. She has refused to pay. The time for applying for a hearing date and for filing her case stated has expired.
[30] However, she has applied for an extension in time. That application was to be heard in November 2018 but was adjourned at Ms Tao’s request. Ms Tao’s counsel filed an updating memorandum after the hearing before me, explaining that Ms Tao had sought and obtained an adjournment from the Court of Appeal until a date no earlier than January 2019 (a fact he was unaware of at the hearing). The basis for her seeking an adjournment was that it would be appropriate to have the adjudication proceeding determined first.
[31] Aside from giving rise to a sense of procedural déjà vu, this backstory problematises Ms Tao’s application in two respects:
13 Tao v Strata Title Administration, above n 2, at [18]-[25] and [29]-[30].
(a)first, the adjournment in the Court of Appeal stands directly at odds with her request for a stay. Ms Tao’s counsel says her actions were inadvertent, a mere misunderstanding; but then again, she has not asked the Court of Appeal to recall the adjournment. In those circumstances, her conduct comes close to an effective abandonment of the stay application in this court;
(b)second, I see no realistic basis for thinking the Court of Appeal will allow the extension of time. She has not paid, and refuses to pay, the required security. And as Asher J notes in his minute, unless she does pay security she cannot apply for a hearing date.
[32]The remaining factors relate to the substantive weakness of Ms Tao’s appeal:
(a)third, the objection based on the absence of evidence the committee actually resolved to issue the bankruptcy notice, which appears to have some force to it, is ultimately academic. Even if successful, it would oust only one creditor, leaving two others who would still have a proper basis for seeking Ms Tao’s adjudication;
(b)fourth, that objection ought to have been pursued before Matthews J, and it is arguable Ms Tao is estopped from making the argument now. Certainly, this point only compounds the prejudice to the creditors in halting what has already been, for them, a painfully drawn-out affair.
[33] In short, I am not prepared to allow Ms Tao the indulgence of halting a valid adjudication application so she can pursue further, likely fruitless litigation, even while multiple costs orders remain unpaid.
Should Ms Tao be adjudicated?
[34] I turn then to Ms Tao’s alternative application that her adjudication should be refused on just and equitable grounds.
[35] To some extent her grounds for resisting adjudication repeat the arguments made on appeal, and in support of her application to halt the proceeding. Having addressed those already, I deal only with the balance in what follows.
Legal principles
[36] The fact the jurisdictional grounds for an adjudication order are made out, as they are here, does not automatically entitle a creditor to such an order.
[37] The court may, at its discretion, refuse to adjudicate a debtor bankrupt on “just and equitable” or indeed for “any other reason”.14 But Ms Tao has the onus of persuading the court to take that course.
[38] The discretion is broad and wide-ranging, and its governing principles are “balance, justice and equity”.15 Adjudication is not designed to punish debtors, but to provide for the orderly administration of their affairs.16
[39] In deciding whether to refuse adjudication, the court may weigh in the balance:17
(a)the wishes of all affected parties (including non-applying creditors);
(b)whether the debtor can meet her debts over time, or if the adjudication will be pointless as a debt collection exercise;
(c)the debtor’s culpability for incurring the debt, and the consequences for the debtor of an adjudication order; and
(d)the public interest and promotion of commercial morality, including the need for the debtor’s affairs to be investigated.
14 Insolvency Act 2006, s 37(c) and (d).
15 Parkin v Marr [2016] NZHC 2891 at [25], [45] and [56].
16 Lawson v Perkins HC Auckland CIV-2008-404-2473, 20 November 2008 at [18].17 Adapted from Re Epirosa, ex parte Diners Club NZ Ltd HC Wellington B498/91 and B532/91, 6 March 1992 cited in Re Memelink (debtor) [2017] NZHC 905 at [72]; and The Commissioner of Inland Revenue v Price HC Auckland CIV-2008-404-4370, 21 May 2010 at [46]-[52].
[40]Three key questions emerge when applying these principles to the present case.
Question One: Would adjudication be pointless?
[41] Counsel argues adjudication would serve no useful end because Ms Tao is impecunious. Bankrupting her, in those circumstances, would be a “vain thing”.18
[42] A debtor’s lack of assets is certainly a germane factor for the court to consider. However, it does not provide a jurisdictional bar if the court nonetheless considers adjudication appropriate overall.19
[43] There is no evidence of Ms Tao’s impecuniosity except her own assertion. That will rarely suffice to resist an application for adjudication,20 especially when the court is left with lingering doubts or questions as to the authenticity of those assertions. Here an inference of impecuniosity may have been available but for the fact the creditors have their sights on one particular potential asset: the unit currently registered in her parents’ name (and, before October 2016, in her name also).
[44] Ms Tao gave evidence to the effect she does not have, and never had, any financial interest in the property. Her account is that her name was only put on the title because the original mortgagee bank would not lend to her elderly parents unless she was a covenantor on the mortgage.
[45] She insists she did not contribute to the original purchase, or make payments towards rent or outgoings; nor did she gain anything from her name being removed from the title. That removal is explained in terms of a refinancing offer with new mortgagee which did not require her name to be on the title.
[46] A solicitors’ letter was adduced in evidence to corroborate that story. Its utility is limited. The letter simply reiterates Ms Tao’s own instructions she had no financial interest in the property. It does not mention a new mortgagee offer, instead recording
18 In re Robinson (1883) 22 Ch D 816 cited in McHardy v Wilkins & Davies Marinas Ltd CA54/93, 7 April 1993 at 3.
19 McHardy v Wilkins & Davies Marinas Ltd CA54/93, 7 April 1993 at 3-4.
20 Re Fidow (a debtor) [1989] 2 NZLR 431 (HC).
“you” (that is, Ms Tao) wanted to be removed, and further that she was unsure why she had originally been included as a registered proprietor.
[47] Counsel for the creditors does not go so far as to impugn Ms Tao’s motivations in transferring her title as one of the registered proprietors in October 2016, after Thomas J imposed a substantial costs award. But I agree those circumstances, as Associate Judge Gendall elsewhere put it, “cry out for investigation by the Official Assignee”.21
[48] Whether or not Ms Tao was attempting to shield assets, the creditors are entitled to have the Official Assignee examine whether Ms Tao in fact has a beneficial interest in an asset held in the name of her parents. A key purpose of the bankruptcy process is to allow for public examination of a debtor’s affairs, this being the most effective method of determining whether any assets can be realised.22
Question Two: To what extent will adjudication harm her parents?
[49] It is clear the welfare and interests of Ms Tao’s parents are germane considerations.
[50] Her parents are aging: her mother, and to a lesser extent her father also, are suffering from medical conditions that necessitate their full-time care. Ms Tao performs that role while living with her parents, and she receives a government subsidy to do so.
[51] On 27 January 2017, she was also granted enduring powers of attorney for each parent, over both their property and their personal care and welfare. While it appears her father has greater capacity, Ms Tao’s evidence was clear she effectively makes all the important medical and financial decisions for both of them.
[52] Her bankruptcy would not affect the government subsidy nor impede her ability to provide material assistance. But it would strip her of her enduring powers
21 Inland Revenue v Price, above n 17, at [49].
22 Re Fidow (a debtor) [1989] 2 NZLR 431 (HC).
of attorney.23 The rationale, one may presume, is a bankrupt is judged unfit to manage the financial affairs of another. 24 In that vein I note decisions made under an enduring power of attorney, over personal care and welfare only, can still incur considerable expense. If bankrupted, Ms Tao would also be disqualified from being appointed a welfare guardian for her parents (even if the court were to assess her capable of exercising the requisite judgement and commonsense).25
[53] Ms Tao says there is no one else who can make key decisions on her parents’ behalf, as her parents have no other significant relationships within New Zealand. That assertion is unevidenced, but hardly implausible. I am prepared to accept it on its face.
[54] Even so, I agree with the creditors’ counsel that these consequences — while inconvenient, perhaps significantly so — are far from decisive. I make three points:
(a)first, whatever weight is to be afforded this factor, it remains only one consideration in the overall analysis;
(b)secondly, it is no light matter to handle the financial affairs of another, and given her recent track record, it is not inappropriate Ms Tao’s ability to do is curtailed as a consequence of her adjudication; and
(c)finally, her parents are not left without options. Health providers can still take steps in the best interests of a customer who is not competent to give informed consent, where no other person is entitled to consent on their behalf.26 Ms Tao’s also has the right, as a “relative”, to seek orders under Part 1 of the Protection of Personal and Property Rights Act, including the “generously wide” orders available under s 10.27
23 Protection of Personal and Property Rights Act 1988, s 106(d).
24 See Treneary v Treneary (2008) 27 FRNZ 78 where an enduring power of attorney was revoked because the attorney had acted without reasonable care in administering finances.
25 Protection of Personal and Property Rights Act 1988, s 22(b). On the likelihood of the court assessing her capable, see Sylvia Bell and Warren Brookbanks “Decision-making and the Protection of Personal and Property Rights Act 1988” in Kate Diesfeld and Ian McIntosh (eds) Elder Law in New Zealand (Thomson Reuters, Wellington, 2014) at [5.5.2].
26 Health and Disability Commissioner (Code of Health and Disability Services Consumers' Rights) Regulations 1996, cl 7(4).
27 T-E v B [2009] NZFLR 844 (HC) at 848 cited in Bell and Brookbanks, above n 25, at [5.5.2].
[55] I would encourage Ms Tao to seek legal advice to explore the full range of legal avenues.
Question Three: Is adjudication in the interests of commercial morality?
[56] Ms Tao insists she was acting in the public interest. Granted, I accept Thomas J’s finding her litigation focussed on holding the Body Corporate accountable, rather than “escaping only her own obligations”.28 But Ms Tao’s characterisation of her litigation — as representing the majority of the owners against the injustices of the Body Corporate — is unstainable.
[57] She fails to recognise that her parents and the other owners are the Body Corporate; so her proceeding seeks relief against the wishes of the majority. Moreover, as Thomas J stressed, “any deficit in the applicant’s actual costs will have to be met by the Body Corporate members”.29
[58] The public interest actually lies in the opposite direction. Counsel for the creditors referred me to Honey v Nottingham, in which the High Court observed:30
Ms Nottingham has a demonstrated history of commencing private prosecutions against individuals in which he has thus far been entirely unsuccessful.
Unquestionably these apparently groundless prosecutions have wreaked havoc with the lives of those wrongly accused of criminal activity. In my view, if Mr Nottingham’s bankruptcy puts an end to this practice on his part, that is a public good.
[59] The analogy is imperfect: Ms Tao’s litigation should not be characterised with such strong language. But it holds true to the extent there is obvious public benefit in curbing the ability of Ms Tao, who is plainly insolvent, to conduct further costly (and to all appearances, pointless) litigation against the body corporate.
[60] I acknowledge, however, the force of this argument is somewhat mitigated by Ms Tao’s apparent willingness to make an undertaking withdrawing from all future proceedings against the body corporate as a condition of her not being adjudicated
28 Costs Judgment, above n 4, at [28].
29 At [36].
30 Honey v Nottingham [2018] NZHC 2382 at [43]-[44].
bankrupt. That is a positive sign; yet it falls short of a complete answer. Ms Tao should have long since seen the writing on the wall as to the limitations of her litigation and the likelihood of costs being awarded against her.
[61]In the final analysis, I am reminded that:31
… if the debt is incurred in a normal commercial context rather than in circumstances completely beyond the control of the judgment debtor, then adjudication is likely to follow.
[62] That is certainly the case here. Ms Tao has relentlessly pursued myriad litigation against the body corporate, which has so far proved meritless. In so doing she has received several costs awards despite grave judicial warnings as to the consequences of continuing down her path.32
[63] The upshot is that, in the ordinary course, when someone freely makes choices which result in financial losses they must live with the consequences.33 There are no compelling reasons why Ms Tao should be released now from the consequences of a validly made adjudication application.
Result
[64] Ms Tao’s application for a stay of proceedings is dismissed. The creditors’ application for adjudication is granted. I accordingly make the order adjudicating Ms Tao bankrupt. This order is made on Tuesday 29 January 2019 at 3.30 pm.
[65] As costs follow the event under the statutory costs regime the creditors, as the successful party, are entitled to 2B costs from Ms Tao plus disbursements as fixed by the Registrar.
Associate Judge Sargisson
31 The Commissioner of Inland Revenue v Price, above n 17, at [48].
32 See, for instance, Tao v Strata Title Administration [2015] NZHC 2215 at [27] cited in Costs Judgement, above n 4, at [23].
33 Re Dixon, ex parte National Bank of New Zealand Ltd HC New Plymouth B98/92, 13 March 1993.
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