Turner Hopkins Solicitors v Verappan
[2024] NZHC 3566
•27 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-001260
[2024] NZHC 3566
UNDER the Insolvency Act 2006 BETWEEN
TURNER HOPKINS SOLICITORS
Judgment Creditor
AND
DHARMENDRA VERAPPAN
Judgment Debtor
Hearing: 12 November 2024 Appearances:
L P Santana De Mattos for the Judgment Creditor Judgment Debtor in Person
Judgment:
27 November 2024
JUDGMENT OF GARDINER J
This judgment was delivered by me on 27 November 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Turner Hopkins, Auckland
TURNER HOPKINS SOLICITORS v VERAPPAN [2024] NZHC 3566 [27 November 2024]
Introduction
[1] The judgment creditor, Turner Hopkins Solicitors (Turner Hopkins), seeks the adjudication of the judgment debtor, Dharmendra Verappan, relying on an unsatisfied bankruptcy notice based on a judgment entered against Mr Verappan in the District Court.
[2] The judgment debt comprises unpaid fees charged by Turner Hopkins for legal services provided to Mr Verappan in late 2019.
[3] Mr Verappan opposes the application on the grounds that he should not be required to pay the judgment debt. He made a complaint to the New Zealand Law Society (NZLS) Lawyers Complaints Service about the solicitor who provided the legal services, and he is not satisfied with the outcome of that process. He considers that the bankruptcy application and the District Court proceeding that preceded it are retaliatory and vexatious.
[4] As the statutory criteria for bankruptcy are met, the issue is whether the Court should exercise its discretion to refuse to adjudicate Mr Verappan bankrupt.
Background
[5] On or about 18 June 2019, Mr Verappan instructed Turner Hopkins to act for him in a Family Court matter. In or about January 2020, Turner Hopkins ceased to act for Mr Verappan because he had not paid outstanding fees, or a $20,000 retainer required for an upcoming hearing.
[6] On 6 March 2020, Turner Hopkins sent Mr Verappan a formal letter of demand for the outstanding fees for work undertaken, which stood at $11,141.28. He was required to pay within seven days. Mr Verappan did not make payment within seven days.
[7]Turner Hopkins did not take any further steps to recover the outstanding fees.
[8] On 5 October 2021, Mr Verappan made a complaint about the solicitor at Turner Hopkins to the Lawyers Complaints Service. He alleged that the solicitor had failed to act competently and/or in accordance with instructions; failed to treat him with respect or courtesy; failed to advise him that he may be eligible for legal aid; and failed to charge a fair and reasonable fee.
[9] Turner Hopkins was invited to provide a response to the allegations. It did so, in writing, on 21 December 2021.
[10] On 14 October 2022, the Auckland Standards Committee of the NZLS notified its decision on Mr Verappan’s complaint. The Committee had decided to take no further action in relation to Mr Verappan’s complaint.
[11] On 6 March 2023, Turner Hopkins filed legal proceedings against Mr Verappan in the North Shore District Court to recover the amount of the outstanding fees. Mr Verappan filed and served a statement of defence. Turner Hopkins filed a reply, and Mr Verappan filed a second statement of defence.
[12] Mr Verappan’s defence in the District Court was essentially the same as the complaint he had raised with the NZLS.
[13] The matter was transferred to the Disputes Tribunal. Mr Verappan attended the Tribunal hearing and made submissions.
[14] On 26 April 2024, the Disputes Tribunal decided that it did not have jurisdiction to hear Mr Verappan’s defence regarding the actions or competence of the solicitor or the reasonableness of the fees charged because the Standards Committee had already determined these matters. The Disputes Tribunal ordered Mr Verappan to pay Turner Hopkins the sum of $18,302.24 on or before 24 May 2024. This amount represented the original $11,141.28 in unpaid fees, interest of $5,772.71 (less than the amount claimed by Turner Hopkins) and disbursements of $1,388.25.
[15]On 28 May 2024, the order was sealed at $18,352.24.
[16] On 10 June 2024, Turner Hopkins served Mr Verappan with a bankruptcy notice dated 4 June 2024, relying on the judgment debt.
[17] On 27 May 2024, Mr Verappan filed a financial statement with the District Court. Turner Hopkins opposed Mr Verappan paying the judgment debt by periodic payments on the basis that his financial statement showed that he had a surplus monthly income of $5,375.
[18]Turner Hopkins filed these bankruptcy proceedings on 25 June 2024.
[19] On 9 July 2024, the District Court issued its decision on Mr Verappan’s financial statement, ordering Mr Verappan to pay the judgment debt by automatic payments of $400 per week starting from 18 July 2024.
[20] On 22 July 2024, Turner Hopkins provided a trust account deposit slip for the purpose of Mr Verappan’s Court-ordered payments.
[21] By the date of the hearing, Mr Verappan had not made any payments to Turner Hopkins pursuant to the District Court Registrar’s orders.
[22] On 26 July 2024, Turner Hopkins served Mr Verappan with the adjudication proceedings. Mr Verappan filed an interlocutory application on notice to oppose the bankruptcy. The Court has directed that this be treated as his notice of opposition.
Legal principles
Insolvency Act 2006
[23] The criteria for when a creditor may apply for the debtors’ adjudication are set out in s 13 of the Insolvency Act 2006 (the Act):
13 When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a)the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of
$1,000 or more to those creditors between them; and
(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c)the debt is a certain amount; and
(d)the debt is payable either immediately or at a date in the future that is certain.
[24] Under s 17, a debtor commits an act of bankruptcy (as required under s 13(b)) if a creditor has obtained a final judgment or final order against the debtor for any amount, the execution of which has not been halted by a court, and the debtor, having been served with a bankruptcy notice, has not complied with the requirements of the notice or otherwise satisfied the Court that he or she has a cross-claim against the creditor within the required timeframe.
[25] Section 36 provides that the Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in s 13. It has been said that once the formal requirements for adjudication (now set out in s 13) are made out, the judgment creditor is prima facie entitled to an adjudication order.1 This Court has said:2
Whilst the petitioning creditor does not have an automatic right to obtain an order of adjudication, nevertheless the onus in those circumstances is on the debtor to persuade the Court that an order should not be made.
[26] The Court may, in its discretion, refuse adjudication for the reasons set out in s 37 of the Act. Section 37 provides:
(a)Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a)the applicant creditor has not established the requirements set out in section 13; or
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the court does not make an order of adjudication; or
1 See Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 3, 4 and 5–6; and Re Epirosa
HC Wellington B498/91, 6 March 1992 at 5 and 8.
2 Kiwibank Ltd v Hutchin [2015] NZHC 1518 at [26].
(d)for any other reason an order of adjudication should not be made.
[27] The Court of Appeal has observed that s 37 confers a “wide discretion” informed by various factors.3
[28]Relevant factors include:4
(a)the interests of those directly concerned including the petitioner, other creditors, and the debtor;
(b)the wider public interest, including the public interest in exposing and controlling the insolvent debtor;
(c)whether adjudication is conducive or detrimental to commercial morality;
(d)the potential for further investigation procedures to be made available to creditors by the bankruptcy.
Are the requirements of s 13 met?
[29]The requirements of s 13 of the Act are met in this case:
(a)Mr Verappan owes Turner Hopkins a debt of $18,352.24, namely the judgment debt sealed on 28 May 2024.
(b)Mr Verappan committed an act of bankruptcy by not complying with the bankruptcy notice served on him on 10 June 2024 or applying to have the bankruptcy notice set aside.
(c)The debt is for a certain amount.
3 Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [15], citing Re Epirosa, above n 1, at 5–8.
4 Re Fontein, ex parte Bank of New Zealand HC Auckland CIV-2009-404-7769, 22 November 2010 at [8], citing Eide v Colonial Mutual Life Assurance Society Ltd [1998] 3 NZLR 632 (HC) at 635.
(d)The debt is immediately payable.
[30] Consequently, the issue is whether the Court should exercise its discretion to refuse to adjudicate Mr Verappan bankrupt. As noted above, the onus is on Mr Verappan to persuade the Court that an order ought not to be made.
The Court’s discretion
[31] Mr Verappan’s grounds for why an order ought not to be made are, in summary:5
(a)The application is vexatious litigation and an abuse of process by Turner Hopkins to exact revenge on him for filing a complaint about the solicitor to the NZLS.
(b)Turner Hopkins is relying on a false premise, being that the NZLS adequately and justly reviewed his complaint.
(c)Turner Hopkins failed to deliver the services it agreed to provide, and the solicitor in question was abusive, manipulative, and bullying.
(d)The decision of the NZLS was unjust and biased.
(e)Turner Hopkins has provided false information to the NZLS and to this Court.
(f)Turner Hopkins has refused to accept a payment plan from him.
(g)He is not bankrupt; however, he does not have the money to pay the judgment debt.
5 These grounds are derived from Mr Verappan’s deemed Notice of Opposition and his written and oral submissions.
(h)Turner Hopkins made no attempt to recover the fees from him after issuing the demand in March 2020, until after Mr Verappan made his complaint.
(i)He is unable to make payments of $400 per week pursuant to the Court-ordered payment plan. He made an error in the financial statement he provided to the District Court, indicating a fortnightly salary that was in fact his monthly salary. His weekly expenses exceed his weekly income. He has questioned the Registrar’s decision.
(j)Turner Hopkins rejected his offer to make monthly payments at the hearing in the Disputes Tribunal.
(k)The process servers who served the Court documents on him intimidated and harassed him, and physically assaulted him by grabbing and squeezing his phone.
Analysis
[32] It is clear to me that Mr Verappan remains aggrieved about the service he received from the solicitor at Turner Hopkins. It is also clear that he is dissatisfied with the NZLS process and outcome.
[33] The difficulty for Mr Verappan is that the Court will not investigate the underlying judgment when considering an application for adjudication.6 It will not embark upon an exercise akin to a rehearing of the matter which gave rise to the underlying judgment or engage in a process akin to an appeal.
[34] Mr Verappan had the opportunity to apply for a review of the NZLS decision or to appeal the NZLS decision. The notice of decision advised him that he could apply for a review of the decision to the Legal Complaints Review Officer within 30 working days. Mr Verappan did not apply for a review. He says that he did not do so because he was advised that it would be a waste of time.
6 Re James, ex parte Nightingale [2018] NZHC 965 at [22].
[35] If a debtor persuades the Court that there is a sound reason to doubt the validity of the underlying judgment, the Court may respond by allowing time for reconsideration of the judgment elsewhere, or by exercising its discretion not to make an adjudication order.7
[36] But Mr Verappan has not persuaded me that there is a sound reason to doubt the validity of the judgment or the NZLS decision; or that he has any intention of taking steps to have the decisions reviewed, if that is even possible given the time that has elapsed.
[37] The Lawyers Complaints Service issued a 15-page decision on Mr Verappan’s complaint. It concluded that the hourly rate was fair and reasonable, that the solicitor was qualified to help Mr Verappan with his family dispute, that they acted appropriately towards Mr Verappan and provided him with good quality representation, and that fees charged were fair and reasonable. There is no apparent reason to doubt the rigour of the NZLS process or the decision.
[38] Mr Verappan alleges that the process followed was unjust. However, he does not specify how the process was unjust, other than that he was not asked to clarify anything or provide any additional information. He alleges that the NZLS was biased; but his reason is that the Standards Committee preferred the solicitor’s account of events and did not uphold his complaint.
[39] Mr Verappan also had the opportunity to apply for a rehearing of the Disputes Tribunal order or appeal the decision of the Disputes Tribunal. He did not take either of those steps.
[40] At the hearing, I asked Mr Verappan whether he has not paid any of the judgment debt because he does not accept that he is required to do so or because he does not have the means to pay. Mr Verappan said that he does not consider he should be required to pay the judgment debt because Turner Hopkins did not render the services to which it relates.
7 At [22].
[41] Mr Verappan must understand that the decision of the NZLS and the judgment of the Disputes Tribunal are final. The NZLS concluded that the fees were reasonable. The Disputes Tribunal entered judgment based on that decision. Mr Verappan is obliged to pay the judgment debt.
[42] It is interesting that Turner Hopkins did not take any steps to recover the unpaid fees from Mr Verappan until after he made his complaint. Turner Hopkins issued a statement in March 2020. Mr Verappan made his complaint in October 2021. There is no evidence that Turner Hopkins pursued Mr Verappan for the debt over the intervening 19 months. The Standards Committee issued its decision on 14 October 2022 and Turner Hopkins filed proceedings on 6 March 2023.
[43] Mr Verappan submits that this shows that the plaintiff is acting vindictively. The Court will not let the bankruptcy process be used oppressively. However, Turner Hopkins is entitled to seek to recover fees that it is owed for services it rendered to Mr Verappan.
[44] It is relevant that Mr Verappan has not paid any of the outstanding fees since the invoices were rendered in December 2019. He has not paid any amount after the NZLS decision in October 2022, or the order of the Disputes Tribunal in April 2024. He has not paid any amount since the orders of the Registrar of the District Court on 9 July 2024. Turner Hopkins has been out of pocket for the fees for five years now.
[45] Mr Verappan says that he is a service delivery manager with a net fortnightly income of $2,419.79. The financial statement he provided to the District Court suggests that his fortnightly expenses exceed this income. Other than this statement, the Court does not have any information about his financial position.
[46] Weighing these considerations, I consider that Mr Verappan should be provided with a final opportunity to pay the judgment debt. He is to pay the judgment debt of $18,352.24. Mr Verappan will also need to resolve the matter of Turner Hopkins’ costs. If he does not pay these costs or reach an agreement with Turner Hopkins about these costs, the Court is likely to order that he pay the costs even if he has paid the judgment debt.
Result
[47] The application is listed for recall on 13 February 2025. If Mr Verappan has not paid the judgment debt by then, he should be prepared for the Court to make an order adjudicating him bankrupt.
Gardiner J
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