Tannenberg Limited v Jellie

[2016] NZHC 2950

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-002623 [2016] NZHC 2950

BETWEEN

TANNENBERG LIMITED

Plaintiff

AND

CHRISTOPHER WAYNE JELLIE Defendant

Hearing:	1 December 2016
Appearances:	R B Hucker for Judgment Creditor Judgment Debtor in Person
Judgment:	7 December 2016

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 7 December 2016 at 2.30 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

Hucker & Associates, Auckland

TANNENBERG LTD v JELLIE [2016] NZHC 2950 [7 December 2016]

[1]      Before  me  today  is  the  interlocutory  application  made  by  the  judgment debtor, Mr Jellie, to set aside Tannenberg Limited’s bankruptcy notice, on the basis that he has a counterclaim against Tannenberg.

[2]      The application is opposed.   Ordinarily an opposed application would be allocated a date for a defended fixture.  However, counsel for Tannenberg submits that the application is plainly a nullity and should therefore be struck out at this point.

[3]      The basis for counsel’s submission is:

(a)       There is a mandatory statutory requirement that the judgment debtor’s

application is to be filed with a supporting affidavit.

(b)No supporting affidavit has been filed in this case, and the statutory time  for  filing  and  serving  the  application  and  the  affidavit  has expired.

(c)      Failure to file and serve both documents within the time limit means that an act of bankruptcy has occurred, and that is fatal to Mr Jellie’s application.

[4]      The submission is based on the wording of s 17(1)(d) of the Insolvency Act

2006.  Relevantly s 17 states:

(1) A debtor commits an act of bankruptcy if—

…

(c) the debtor has been served with a bankruptcy notice; and

(d) the debtor has not, within the time limit specified in subsection

(4),—

(i) complied with the requirements of the notice; or

(ii) satisfied the court that he or she has a cross claim against the creditor.

…

(4) The time limit referred to in subsection (1)(d) is,—

(a)  if  the  debtor  is  served  with  the  bankruptcy  notice  in  New

Zealand, 10 working days after service; or

… 1

[5]      High Court Rule 24.10 prescribes that a bankruptcy notice must follow Form B2 of the High Court Rules, and must state in notes to the judgment debtor the following:

Procedure for counterclaiming, etc

If you consider you have a counterclaim, set-off, or cross-demand against the judgment creditor that comes within paragraph 1(c), or you wish to seek the court’s approval of terms of payment, you must, within 10 working days from the date of receiving this notice, apply to the High Court. Your application must be supported by affidavit.

You must, within the same time, also serve a copy of the application and supporting affidavit on the judgment creditor.

(Emphasis added).

[6]     Mr Jellie’s application to set aside the bankruptcy notice relies upon a counterclaim.  Though filed in time, the application was not filed with a supporting affidavit.   It is now too late for a supporting affidavit to be filed within the time allowed.  (That is, within 10 working days of service of the bankruptcy notice).  As Associate Judge Gendall (now Gendall J) stated in Memelink v Sanco2:

[11]  …  It is clear from judgments such as Scott v ANZ Banking Group (NZ) Limited (High  Court,  Rotorua,  B133/89),  15  September  1989,  Gillon  v Blueprint  Developments  Limited ,  High  Court,  Auckland,  B2164/89,  27

March 1990 and Alexander v SH Locke (NZ) Ltd (1998) 12 PRNZ 249 that once the tenth working day after service of a bankruptcy notice, not counting

the day of service has passed, an act of bankruptcy occurs. Accordingly,

provisions be they in the Insolvency Act 2006 or elsewhere which provide for some extension of time for bringing and serving applications will not assist. Blankly put, they cannot undo an event which has occurred, namely the act of bankruptcy.

1      Section 17(7) sets out that a counterclaim must be:

(a) is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and
(b) the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.

2      Re Memelink ex parte SANCO (NZ) Ltd, HC Wellington 10/3/2009, CIV-2008-485-2691

[7]      His Honour added:

[12]   It follows from these and other authorities that where an application (with the required supporting material) from a judgment debtor to set-aside a bankruptcy notice is filed after the tenth working day after service there is no jurisdiction for the Court to deal with that application.

[8]      There is therefore no basis in law which would allow the application to set aside the bankruptcy notice to proceed, and it must be dismissed.  I make an order accordingly.  This outcome may seem unfair to Mr Jellie – he submitted as much at the hearing – but I have explained to him that the grounds for opposing an order of adjudication include just and equitable grounds, and as such are wider than the grounds available to him on an application to set aside a bankruptcy notice.   It remains open to him to raise the dispute that he presently relies upon, in his grounds of opposition to an adjudication application, should Tannenberg now proceed to make such an application based on the bankruptcy notice.  Mr Jellie would be well advised of course to seek legal advice on these matters.

[9]      I do note that this is an unusual situation because:

(a)      The bankruptcy notice is based on an unpaid order for costs;

(b)That order for costs was made in a related proceeding in this Court on an application to stay a liquidation proceeding brought by Mr Jellie against Tannenberg.   The liquidation proceeding was based on the alleged debt which is now the subject of a claim in a District Court proceeding brought by Mr Jellie against Tannenberg.

(c)      In ordering a stay of the liquidation proceeding this Court found that the amount Mr Jellie claims against Tannenberg is the subject of a genuine  dispute.     As  such,  the  dispute  could  not  properly  be determined in the context of the liquidation proceeding, and must be determined in the District Court proceeding.  If Mr Jellie is successful in his claim in the District Court the relief he would be entitled to will exceed the cost award against him on which the bankruptcy notice is based.

(d)In the circumstances, and without wishing to say anything that is seen as determinative of an adjudication application if Tannenberg now files one, (or of any ruling that may be sought in relation to such application) the appropriateness of Tannenberg’s wishing to proceed to the point of judgment on such an application for non-payment of costs in the stayed liquidation proceeding appears (on an initial impression at least) to be questionable, and to have the potential to be oppressive.  An order for Mr Jellie’s adjudication could well deprive him of the opportunity to have the underlying dispute ruled upon.

[10]     That  brings  me  to  the  remaining  issue.    Tannenberg  seeks  an  order  for

2B costs as the successful party on this present application.  Prima facie it is entitled to costs under the statutory costs regime, subject to the limitation in r 14.2(f) that an award of costs should not exceed the costs incurred by a party, and any matters going to the Court’s discretion.   As a general rule, such costs are to be fixed when the application is determined and become payable when fixed: see r 14.8.

[11]     I accept that there are no discretionary factors disentitling Tannenberg to an award for 2B costs, as it is the successful party, subject of course to the proviso that such costs should not exceed its actual costs.  I am however satisfied that there are special reasons why such costs should not be payable until the conclusion of these bankruptcy proceedings or earlier order.

[12]     My reason for deferring costs in this way is this: plainly there is a genuine dispute between the parties about the debt that has given rise to this bankruptcy proceeding.   To pursue Mr Jellie to the actual point of bankruptcy for non-payment of those costs, when there is a much larger and related debt at issue, would be harsh. And to require him to pay such costs at this point risks being oppressive.   I am satisfied that the judgment creditor’s right to payment on the costs award will be sufficiently protected by reserving leave to seek an order that the costs awarded should become payable if Mr Jellie fails to proceed with his District Court claim expeditiously.

[13]     In these circumstances I make the following orders:

(a)       I award 2B costs to the judgment creditor plus disbursements.

(b)The award is subject to the proviso that counsel for the judgment creditor is to file and serve a memorandum setting out the actual costs incurred by the judgment creditor.  If they are less than 2B costs, then the award of costs is to be adjusted downwards accordingly.

(c)      The award will be payable at the conclusion of this bankruptcy proceeding or upon earlier order of the Court.

Associate Judge Sargisson