The Vintage Aviator Ltd v DeMarco

[2021] NZHC 1911

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2017-485-001027

[2021] NZHC 1911

BETWEEN

THE VINTAGE AVIATOR LIMITED

First Plaintiff/First Counterclaim Defendant

PETER ROBERT JACKSON, FRANCES ROSEMARY WALSH and PHILIPPA JANE

BOYENS (as trustees of Film Property Trust)

Second Plaintiffs/Second Counterclaim Defendants

AND

EUGENE JOHN DEMARCO including as trustee of the Airflight Trust

First Defendant/First Counterclaim Plaintiff

OLD STICK & RUDDER CO LIMITED

Second Defendant/Second Counterclaim Plaintiff

CIV-2018-485-000417

BETWEEN

OLIVER WULFF
Plaintiff

AND

EUGENE JOHN DEMARCO

First Defendant

THE OLD STICK & RUDDER CO LIMITED

Second Defendant

Hearing:

23 July 2021 (by teleconference)

Appearances:

B A Scott and J E Henderson for The Vintage Aviator Ltd, the trustees of the Film Property Trust and Sir Peter Jackson

D W Ballinger for Mr Oliver Wulff
S J Fraser for The Old Stick & Rudder Co Ltd

G A D Neil for the Official Assignee in the bankruptcy of Mr E J DeMarco (a bankrupt)

THE VINTAGE AVIATOR LIMITED v EUGENE JOHN DEMARCO including as trustee of the Airflight Trust [2021] NZHC 1911 [27 July 2021]

Judgment: 27 July 2021

JUDGMENT OF GRICE J

(re: application under s 76(2) of the Insolvency Act 2006 for leave to continue proceedings against the first defendant, a bankrupt)

[1]    On 23 July I indicated I would grant this application. This is the reasons judgment for leave being  granted  to  continue  proceedings  against  a  bankrupt,  Mr DeMarco.

[2]    The two proceedings, which are travelling together, were due to go to a hearing on a formal proof basis commencing 19 July 2021. Initially the trial was to commence on 12 July 2021, but following various leave and stay applications by the defendants the  start  date  was  delayed.1  Those  applications  were  heard  on  14 July 2021.  Mr DeMarco was adjudicated bankrupt at 4.00 pm on that date.

[3]    On 15 July 2021 I delivered a results decision dismissing the application for leave to appeal and the stay application in relation to the second defendant.2 The reasons judgment and a judgment dismissing the leave to appeal and stay applications in relation to Mr DeMarco was delivered on 19 July 2021.

[4]    The Official Assignee has now indicated he will abide the decision of this Court in relation to the s 76(2) of the Insolvency Act 2006 applications in both proceedings  in  which  leave  is  sought   to   continue   the   proceedings   against Mr DeMarco.3

1      Leave was sought to appeal a decision debarring the defendants from defending together with a stay pending appeal. Vintage Aviator Ltd v DeMarco [2021] NZHC 1476 (Debarring Judgment).

2      Vintage Aviator Ltd v DeMarco [2021] NZHC 1805.

3      A limited leave to continue proceedings to allow for delivery of the decision was granted.

Principles relating to applications for leave to proceed against a bankrupt pursuant to s 76(2) of the Insolvency Act 2006

[5]The statutory framework is set out in FE Investments Limited v Klisser:4

Statutory provisions

[12]      This application is to be determined under s 76(2) of the Act, which provides:

76. Effect of adjudication on Court proceedings – (1) On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.

(2) However, on the application by any creditor or other person interested in the bankruptcy, the Court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the Court thinks appropriate.

[13]“Provable debt” is defined in s 231 of the Act as follows:

231. Meaning of provable debt – (1) A provable debt is a debt or liability that a creditor of the bankrupt may prove in the bankruptcy.

(2)        A creditor’s claim form is the document that a creditor submits to the Assignee for the purpose of proving the debt.

(3)A debt is proved when it is admitted by the Assignee.

[14]Section 232 states what debts are provable debts:

232. What debts are provable debts – (1) A provable debt  is a debt or liability that the bankrupt owes –

(a)at the time of adjudication; or

(b)after adjudication but before discharge, by reason of an obligation incurred by the bankrupt before adjudication.

(2) A fine, penalty, sentence of reparation, or other order for the payment of money that has been made following any conviction or order made under section 106 of the Sentencing Act 2002 –

(a)is not a provable debt; and

(b)is not discharged when the bankrupt is discharged from bankruptcy.

[15]      If the plaintiff’s dishonest assistance claim is successful, the plaintiff contends that a debt will arise that will survive discharge from bankruptcy under s 304 of the Act:

4      FE Investments Ltd v Klisser [2010] 2 NZLR 217 at [12]–[15].

304.     Debts from which bankrupt is released on discharge –

(1)        On discharge, the bankrupt is released from all debts provable in the bankruptcy except those listed in subsection (2).

(2)The bankrupt is not released from the following debts:

(a)any debt or liability incurred by fraud or fraudulent breach of trust to which the bankrupt was a party:

(b)any debt or liability for which the bankrupt has obtained forbearance through fraud to which the bankrupt was a party:

(c)any judgment debt or amount payable under any order for which the bankrupt is liable under section 147 or section 298:

(d)any amount payable under a maintenance order under the Family Proceedings Act 1980:

(e)any amount payable under the Child Support Act 1991.

[6]    Saimei v McKay & Ors,5 set out the principles which have generally been adopted in relation to applications for leave to continue proceedings under s 76(2). Although that decision was made under the 1967 Insolvency Act, the predecessor to s 76 of the present Act, s 32, was broadly in similar terms to s 76. The principles set out in that Act are not exhaustive but, as they are relevant to these proceedings, the principles articulated in Saimei are as follows:6

(a)   The Court has a discretion to do what is right and fair according to the circumstances of the case;

(b)   When a person is adjudicated bankrupt, his assets are to be administered in an orderly fashion for the benefit of all his creditors and a particular creditor should not be able to obtain an advantage by bringing proceedings against him. There should thus be no prejudice to other creditors or to the ordinary administration of the bankruptcy if the action were to proceed;

(c)    The claim should not be clearly unsustainable but the Court will not investigate the merits of the claim;

(d)  The claim should normally be of a type which is more suitably determined by action rather than by lodging a proof of debt in the bankruptcy. If the claim could just as easily be dealt with in the bankruptcy, leave is not likely to be granted;

(e)   Leave is more likely to be granted where there is an insurance company standing behind the defendant to pay any judgment debts the plaintiff might

5      Saimei v McKay & Ors (1998) 6 NZBLC 102,611.

6      At page 3.

obtain, because if it is successful, such an action is unlikely to prejudice the creditors of the defendant;

(f)  It may be desirable to impose a condition that the plaintiff will not enforce any judgment against the defendant without the leave of the Court to ensure that the Official Assignee retains ultimate control;

[7]    Paterson J, in Saimei, also added that it was a relevant factor against the granting of leave that the applicant had no prospect of benefiting financially.

[8]    The   views   of   the   Official Assignee   should   also   be   sought.    In     FE Investments Ltd, the Official Assignee supported the application and observed that if the plaintiff was not granted leave to continue then it would have to file a proof of debt, together with supporting evidence to establish the contractual and dishonest assistance claims. The Judge noted that the claim was sufficiently complex to be more suited to judgment.7 The Official Assignee had indicated it expected to be able to deal with any quantum issues in respect of the guarantee claims, even if they were complex, however it would then possibly have to apply to the court for assistance under s 225 of the Act. In addition, the court noted that if the bankrupt admitted or rejected the claim, the bankrupt or the plaintiff might appeal the decisions under ss 238 or 239 of the Act. Therefore, the court would likely need to determine the issues that it was being asked to determine by way of the continuation of proceedings.8

[9]    In FE Investments Ltd the Court also noted the public interest in having allegations of fraud resolved by the Court. In that case there had been no previous finding of liability for fraud against the first defendant. The Court also was satisfied that there might be a modest financial benefit for the plaintiff if leave was granted, although that might be modest.9 The Court was satisfied that there was a real prospect of financial benefit to the plaintiff because of the fraud exception. That exception provided that a debt or liability incurred as a result of fraud may result in the bankrupt not being released from that debt or liability, following his discharge.10

7      FE Investments Ltd v Klisser, above n 4 at [36].

8 At [22].

9      At [38] and [39].

10     Under s 304(2)(a) of the Insolvency Act.

[10]   In FE Investments Ltd, the discretion to grant leave to the plaintiff to continue the proceedings was exercised in favour of the plaintiff. The Judge made it clear that this was not only because of the prospects of financial success, if the claim were made out, but because the Judge was satisfied that it was a proceeding that ought to be heard and determined by a court.11

[11]   In the earlier case of Navix Line (NZ) Ltd v Milo,12 leave was granted in a situation where fraud was alleged and the defendant had been convicted on charges of fraud and served a term of imprisonment.13 The Judge there said:14

[22] The factor that I find most convincing, as did Paterson J in Jelicich, is that on the evidence before this Court, more specifically  his guilty pleas,  Mr Milo may well have misappropriated the funds now in question. It is, therefore, a matter of some public interest that the allegations of fraud be resolved by the Court. I should add that the fact a fraud may have been committed is a very relevant consideration, as confirmed by s114 of the Act which survives every stage of bankruptcy proceedings in cases where fraud is alleged.

[12]Applying the above principles to this case:

(a)The plaintiffs will not be gaining an advantage by bringing the proceedings. The adjudication by the Court in relation to the claims due to go to trial would likely  require  an  application  by  the  Official Assignee to determine liability and quantum in any event. Therefore, it is more efficient to deal with the proceedings which are ready to go to trial now.

(b)The claim is not clearly unsustainable. Mr DeMarco has already been convicted on the same facts that form the basis of the first four causes of action in the Jackson claim.

(c)The claims are complex and involve a number of witnesses. Extensive case management, including a number of telephone conferences,

11     FE Investments Ltd v Klisser, above n 4, at [54].

12     Navix Line (NZ) Ltd v Milo High Court Auckland Registry, CP281-SD99, 5 December 2002, referred to at [37] of FE Investments Ltd v Klisser, above n 4.

13 At [4].

14 At [22].

hearings and interlocutory decisions, have already taken place in these proceedings. Considerable time and resource has been invested to ready them for trial.

(d)The plaintiffs will likely benefit from a claim on the bankrupt estate although it is not clear of the extent of Mr DeMarco’s assets or the claims against it as the  bankruptcy  adjudication  is  very  recent.15  Mr DeMarco has indicated he intends appealing against that adjudication. In any event the plaintiffs may be entitled to enforce their judgments (insofar as they relate  to  fraud)  after  the  discharge  of Mr DeMarco in bankruptcy. That will clearly benefit them.

(e)It is in the public interest that the claims are dealt with, particularly given the fraud convictions.

(f)The plaintiffs have indicated they would consent to a condition that they would not enforce any judgment against Mr DeMarco without leave of the court to ensure that the Official Assignee retains ultimate control.

[13]   In those circumstances I consider it is right and fair to grant leave pursuant to s 76(2) of the Insolvency Act for the plaintiffs to proceed with the present proceedings subject to a condition that they will not enforce any judgment against Mr DeMarco without leave of the court to ensure that the Official Assignee retains ultimate control. Leave on those terms is granted.

15     Anderson v DeMarco [2021] NZHC 1757.

Costs

[14]In the circumstances costs are reserved.

Grice J

Solicitors:

Chapman Tripp, Wellington, for The Vintage Aviator, the trustees of the Film Property Trust and Sir Peter Jackson

Finn Collins, Wellington, for Oliver Wulff Civil Aviation Authority, Wellington

John Miller Law, Wellington, for Eugene DeMarco and The Old Stick & Rudder Co Ltd