Tyres4U (NZ) Limited v Bruce
[2020] NZHC 1497
•30 June 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2334
[2020] NZHC 1497
UNDER THE
AND
Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of DYLAN IAN BRUCE
BETWEEN
TYRES4U (NZ) LIMITED
Judgment Creditor
AND
DYLAN IAN BRUCE
Judgment Debtor
Hearing: 22 June 2020 Appearances:
T Mahood & S Cachopa for the Judgment Creditor TJ Herbert for the Judgment Debtor
Judgment:
30 June 2020
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 30 June 2020 at 12 noon pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Hudson Gavin Martin, Auckland Gregory Simon Law, Auckland
Tyres4U (NZ) Ltd v Bruce [2020] NZHC 1497 [30 June 2020]
[1] The judgment creditor (Tyres4U) applies for an order adjudicating the judgment debtor (Mr Bruce) bankrupt. The bankruptcy application is based on a judgment for $283,548.06 obtained by Tyres4U on 24 September 2019, and Mr Bruce’s subsequent failure to comply with, or apply to set aside, a bankruptcy notice served on him on 2 November 2019.
[2] Mr Bruce has filed a notice of opposition, and an affidavit in opposition. On 19 June 2020 he purported to file a brief further affidavit, to which he attached a “will say” statement signed by Mr Vincent Jones in the District Court proceeding which I refer to below as “the TCL proceeding”. While Mr Mahood did not object to the filing of the affidavit per se, the “will say” statement of Mr Jones is unsworn, and is substantially comprised of hearsay evidence. I have not taken it into account in the judgment that follows.
Background
[3] On 23 January 2013 Mr Bruce signed an unconditional guarantee of payment for all money due and owing to Tyres4U in respect of credit extended by Tyres4U to a company called Tyre City Newmarket Limited (TCNL), and any money owing by TCNL to Tyres4U under Tyres4U’s terms of trade.
[4]At the time the guarantee was given, Mr Bruce was a director of TCNL.
[5] On 12 July 2018, Tyres4U commenced a proceeding against Mr Bruce under the guarantee, claiming $268,581.26 (the Debt Proceeding). Mr Bruce instructed a solicitor and filed a statement of defence in the Debt Proceeding, and later participated in a settlement conference.
[6]TCNL was placed in liquidation on 9 November 2018.
[7] On 12 September 2019, Tyres4U and Mr Bruce signed a joint memorandum in the Debt Proceeding, consenting to judgment being entered against Mr Bruce for the
$268,581.26 claimed together with interest and costs.
[8] Mr Bruce did not challenge the bankruptcy notice served on him on 2 November 2019.
Applicable law
[9]Section 13 of the Insolvency Act 2006 (the Act) provides:
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.
[10]Section 17 of the Act materially provides:
17 Failure to comply with bankruptcy notice
(1)A debtor commits an act of bankruptcy if—
(a) a creditor has obtained a final judgment or a final order against the debtor for any amount; and
(b) execution of the judgment or order has not been halted by a court; (the Debt Proceeding)
(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;
…
(7) In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that—
(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.
[11] If the grounds set out in s 13 of the Act have been made out by the creditor, the Court still has a discretion to refuse to make an order for adjudication. Section 37 of the Act provides:
37 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
(d) for any other reason an order of adjudication should not be made.
[12]Mr Bruce also relies on ss 38 and 43 of the Act. Those sections provide:
38 Court may halt application
(1) The court may at any time halt the creditor’s application for adjudication.
(2) The court may halt the application on the terms and conditions (if any), and for the period, that the court thinks appropriate.
43 Court may halt application while underlying debt determined
(1) This section applies if the debtor appears in opposition to a creditor’s application
and the debtor says either—
(a) that he or she does not owe a debt to the creditor; or
(b) that he or she does owe a debt to the creditor, but the debt is less than
$1,000.
(2) The court may, instead of refusing the application, halt the application so that the question of whether the debt is owed, or how much of the debt is owed, can be resolved at a trial.
(3) As a condition of halting the application, the court may require the debtor to give security to the creditor for any debt that may be established as owing by the debtor to the creditor, and for the costs of establishing the debt.
[13] Once the formal requirements for adjudication have been satisfied, the position is that an applicant creditor is prima facie entitled to an order of adjudication. The order may not be refused on the grounds of expedience or convenience.1 Each case is to be considered on its own terms.2
1 Re Epirosa, ex parte Diners Club NZ Ltd HC Wellington B498/91, 6 March 1992; B532/91; Re Twidle [1916] NZLR 748, at 749; Re Fidow [1989] 2 NZLR 431 at 439.
2 Cribb v Evia Rural Finance Ltd [2014] NZCA 543 at [32].
[14] In Baker v Westpac Banking Corporation, the Court of Appeal discussed the principles applicable to the exercise of the Court’s discretion to make an adjudication order. Richardson J said:3
… a creditor who establishes the jurisdictional facts … is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The Court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with the bankruptcy. In the end the Court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
[15] A number of factors may be relevant to the exercise of the Court’s discretion under s 37. The following factors were identified by Master Williams QC in Re Epirosa:4
(1)What are the wishes of all affected parties, including the applying creditor, other creditors and the debtor?
(2)Does the debtor have the ability to meet his or her debts over time and, if so, does that meet the requirement of achieving finality within a reasonable period?
(3)What were the circumstances in which the debt was incurred, and do those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication?
(4)Will adjudication be pointless?
(5)Will the debtor, if adjudicated, be rendered unable to support himself or herself?
(6)Does the debtor have such a standing in the community that significant issues of stigma or embarrassment will result?
[16] As the Court of Appeal noted in Baker v Westpac Banking Corporation, the public interest may be a relevant factor, and that may include questions of whether an adjudication order will be conducive or detrimental to commercial morality. In that
3 Baker v Westpac Banking Corporation CA 212/92, 13 July 1993 at 4.
4 Re Epirosa, ex parte Diners Club NZ Ltd, above n.1.
regard, a number of decisions have placed considerable weight on the need for personal guarantees to be honoured.5
The case for Mr Bruce
[17] Mr Bruce says that he has a genuine, triable counterclaim, set-off or cross- demand that he was unable to use as a defence in the Debt Proceeding.6
[18] His notice of opposition to the adjudication application set out the following three grounds of opposition:
(i)The debt relates to a guarantee I gave as to debts owed by Tyre City Limited (TCL) to a trust, of which the applicant creditor is a trustee;
(ii)As far as I am aware, the applicant creditor did not attempt to recover the debts owed by TCL from TCL, as the principal debtor;
(iii)TCL has subsequently issued proceedings in the District Court dispute the quantum of the debt said to be owed to the applicant creditor by it and/or raising a counterclaim that would exceed that debt.
[19] In his supporting affidavit, Mr Bruce said that he was a director of TCL from 27 October 2009 to 30 January 2019. In July 2009 TCL entered into a distribution agreement with Tyres4U (acting as trustee of a trust called the Independent Distributors Trust (the ITD Trust)), (“the TCL Agreement”), under which TCL would act as a retail distributor of “Contiplus” tyres for the IDT Trust.
[20] The TCL Agreement was principally between TCL and the ITD Trust, but Mr Bruce was also a party as guarantor of TCL’s liabilities under the TCL Agreement.
5 See for example, Re Coll, ex parte Consumer Finance Ltd HC Rotorua B69/97, 18 September 1997, where Master Kennedy-Grant said: “It would not, in my view, be conducive to commercial morality – the proper consideration by directors of whether they can give guarantees and the proper consideration by directors of whether, once having given guarantees, they should honour them – if I were to dismiss this petition”. See also Re Rossall, ex parte Auckland Finance Ltd HC Auckland CIV-2002-404-580 B1370/02, 30 April 2004, referred to Zheng Li Trustee Ltd v Henderson [2016] NZHC 292, at [23].
6 Referring to Clark v UDC Finance Ltd [1985] 2 NZLR 636.
[21] Under the TCL Agreement, Tyres4U appointed TCL as its retail distributor for certain tyre and related products, in a particular territory. TCL’s distributorship was to be exclusive, and the term of the agreement would run to 30 June 2014. There was also provision for a loan to be made by Tyres4U to TCL, which would be progressively repaid by rebates granted by Tyres4U on sales made by it to TCL. The amount of the rebates would be calculated in accordance with a formula set out in a schedule to the TCL Agreement. By January 2009, Tyres4U had lent TCL a total of $437,000.
[22] TCL was not a party to the Debt Proceeding, and nor was Mr Ian Willis, who was a co-guarantor of TCL’s liability to Tyres4U under the TCL Agreement.
[23] Mr Bruce said that he was aware that TCL had potential claims it could mount against Tyres4U, but those claims had not been made by the time he ceased to be a director of TCL on 30 January 2019. Thereafter, Mr Bruce had no ability to force TCL to bring any action in relation to the claims it had. In those circumstances, he decided he could not defend the Debt Proceeding, and judgment was entered on his admission of the debt on 12 September 2019.
[24] Mr Bruce acknowledged that he took no step to set aside the bankruptcy notice. Again, that was because he was not then aware that TCL’s potential claims against Tyres4U might also have provided him with a defence. At the time, he could see no basis for setting the bankruptcy notice aside.
[25] Mr Bruce says that position changed on 22 November 2019, when TCL filed a proceeding in the District Court against Tyres4U (“the TCL Proceeding”). In the TCL Proceeding, TCL seeks damages of at least $230,000, plus pecuniary penalties, interest and costs. Mr Bruce considered it likely that if TCL is successful, its recovery will substantially outweigh the debt claimed by Tyres4U, and his liability will be reduced to zero.
[26] Mr Bruce produced a copy of the statement of claim in the TCL Proceeding. The named parties are TCL as plaintiff, and Tyres4U as trustee of the ITD Trust as defendant.
[27] The statement of claim in the TCL proceeding says that, in or about February 2010, TCL was asked by Tyres4U to take over a retail distribution outlet for “Contiplus” tyres in Newmarket, which was then operated by a third party. No formal agreement was entered into between TCL and Tyres4U to cover the Newmarket operation when it was acquired by Tyres4U, but TCL alleges that it was agreed orally that the existing provisions of the TCL Agreement as to rebates and a loan from Tyres4U would be extended to include any products sold by the Newmarket business once Tyres4U had taken it over.
[28] The statement of claim in the TCL Proceeding records that TCNL was incorporated on 1 March 2010, and that TCNL then operated the Contiplus tyre retail business in Newmarket. Mr Bruce was the sole director, and he held one of the 20,000 shares in TCNL. The other 19,999 shares were held jointly by two trustees of a trust, one of whom was Mr Bruce.
[29] TCL goes on to say in the TCL Proceeding that, from 1 March 2010, Tyres4U conducted itself as if the existing provisions of the TCL Agreement as to rebates and the loan included any products sold by TCNL – all products sold by TCNL (together with those sold by TCL) were included by Tyres4U in its calculations of the rebates due under the TCL Agreement.
[30] The first cause of action pleaded by TCL in the TCL Proceeding is a claim for the sum of $92,396.67, being an amount by which Tyres 4U is said to have been unjustly enriched at TCL’s expense. Tyres4U is alleged to have paid (itself) for two invoices it had issued, one to Tyre City Botany Ltd (“TCBL”, another distributor for Tyres4U) for $75,845.35 and the other to TCNL for $16,551.32, by increasing the amount of the loan owed to it by TCL. In addition to payment of the $92,396.67, TCL asks for declarations that it is not liable for those invoices.
[31] In its second cause of action, TCL pleads that Tyres4U’s actions in unjustly enriching itself constituted misleading and deceptive conduct in trade, or was unconscionable, within the meaning of ss 18, 20 or 21 of the Australian Consumer
Law (Schedule 2 to the Competition and Consumer Act 2010).7 TCL asks for damages in the sum of $92,396.67, and “such pecuniary penalty as the Court sees fit”, on this cause of action.
[32] TCL pleads two other causes of action, both relating to alleged failure by Tyres4U to pay $171,936.30 in rebates said to be due under the TCL Agreement. The third cause of action claims damages in that sum for breach of contract. The fourth cause of action is for alleged misleading and deceptive conduct, or unconscionable conduct, contrary to ss 18, 20 or 21 of the Australian Consumer Act 2010. On the fourth cause of action, TCL claims damages of $59,802.03 for unpaid rebate benefits (part of the $171,936.30 claimed in its third cause of action), and “such pecuniary penalty as the Court sees fit”.
[33] In essence, Mr Bruce’s contention is that TCL, TCNL and TCBL, together with another Tyres4U retail outlet in Albany (“TCAL”), were effectively treated as a single entity by Tyres4U, and that debts and liabilities within the group were “pooled” so that any debt owed by Tyres4U to one group member could be netted off against amounts owed to Tyres4U by other group members. He argues that there is or may be a substantial sum of money owing by Tyres4U to TCL, which exceeds the amount of Tyres4U’s claim against himself as guarantor of TCNL’s liability. If the TCL claim were brought to account, nothing would be owed by either TCNL or himself to Tyres4U.
[34] Mr Bruce noted in his affidavit that in the Debt Proceeding Tyres4U sued him in its personal capacity. However it did not contract with TCNL in its personal capacity, but as a trustee for the IDT Trust. Mr Bruce said that he believed that he owes nothing to Tyres4U in its personal capacity.
[35] On that basis, or because TCL, as principal debtor, owes nothing to Tyres4U (or to the ITD Trust), he argues that he is not liable for any debt to Tyres4U.
7 Apparently pleaded because the TCL Agreement provided that the law of New South Wales would apply.
Reply affidavit for Tyres4U
[36] Mr Li Pin Tye, financial controller (Auckland) for Tyres4U, provided an affidavit in reply. In it, he said that the TCL Agreement was for the supply of products to TCL, not to TCNL. He considered that the TCL Agreement was not relevant to this proceeding, or to Debt Proceeding.
[37] Mr Tye produced a copy of the credit application form completed by TCNL on 23 January 2013. Mr Bruce signed the application as director of TCNL, and he separately signed the following form of guarantee:
Guarantee
In consideration of Tyres4U approving this application, I, the guarantor, whose name is listed below, jointly, severally and unconditionally guarantee payment by the applicant of all moneys due and owing by the applicant to Tyres4U, in respect of all credit extended by Tyres4U as a consequence of this application, including all moneys due and owing by the applicant to Tyres4U under the Terms of Trade. I acknowledge that I have read and understood the Terms of Trade.
I accept that as between Tyres4U and myself I am liable as a principal debtor in respect of such moneys. I accept that my guarantee is unaffected by the enforceability of any payment of such moneys, by the liquidation or bankruptcy of the applicant, by the giving of time or any indulgence to the applicant by Tyres4U or any other matter. I accept that demand for payment may be made on me by Tyres4U without demand being made of the applicant.
[38] Mr Tye produced a copy of a statement of defence dated 31 August 2018 filed by a firm of solicitors on Mr Bruce’s behalf in the Debt Proceeding. In the statement of defence, Mr Bruce admitted that TCNL completed the credit account application with Tyres4U (not with the IDT Trust) on 23 January 2013, and he further admitted that Tyres4U supplied TCNL with goods and issued invoices to it from time to time. He also admitted that TCNL’s credit application form contained a guarantee which he executed. He said that he relied on the terms of that guarantee as if pleaded in full. As appearing from [23] above, those terms included provisions that Mr Bruce would be a principal debtor in respect of the credit provided to TCNL, and that demand could be made on him for payment without demand being made on TCNL.
[39] In response to the statement of claim in the TCL Proceeding, Mr Tye again noted that TCNL is a separate company from TCL. He said that Tyres4U filed a statement of defence and counterclaim in the TCL Proceeding on 19 February 2020.
The counterclaim seeks damages of $203,384.97 against TCL, plus interest and costs. If Tyres4U is successful with its counterclaim, that will more or less cancel out the majority of TCL’s claim against Tyres4U.
[40] Mr Tye noted that Mr Bruce’s liability will exist regardless of the outcome of the TCL Proceeding.
Submissions for Mr Bruce
[41] Mr Herbert submitted that at relevant times Tyres4U treated TCL, TCNL, TCBL, and TCAL as if they were one entity. He relied on Re Elvin, ex parte Sandilands, in support of the submission that it would be unjust to bankrupt Mr Bruce without reference to related claims which might substantially reduce his obligation to pay.8 Mr Herbert also referred to Re Wise9, although he accepted that the Court would only intervene in the exercise of its inherent jurisdiction to prevent an abuse of process in very special circumstances.10
[42] Mr Herbert submitted that Mr Bruce gave various guarantees, on the basis that they would be treated as relating to the Tyre City group. He submitted that Tyres4U has essentially taken advantage of the paperwork signed to overcome the group structure, and to obtain judgment against Mr Bruce on the basis of TCNL’s liability alone. But TCNL’s liability was really part of the group’s net liability, and any debts owed to group members by Tyres4U itself should be brought to account in considering TCNL’s liability (and consequentially, any liability of Mr Bruce as TCNL’s guarantor).
[43] The requirements of Re Elvin are met. There is a sufficient degree of mutuality, some coincidence or correlation between the circumstances out of which the opposing claims arise, and some relationship between the parties. And Mr Bruce could not raise the TCL claims as a defence in the Debt Proceeding, because the liability was TCNL’s, and it was not a party to the Debt Proceeding.
8 Re Elvin, ex parte Sandilands [1990] 3 NZLR 124.
9 Re Wise, ex parte Benecke HC Auckland B227/95, B228/95, 21 June 1995 at 6.
10 Referring to Re Krukziener, ex parte Hanover Finance Ltd HC Auckland CIV-2007-404-2896, 12 August 2008 at [36].
[44] Mr Herbert also referred to the inherent jurisdiction of the Court to prevent an abuse of its process, referred to in the decision of Associate Judge Gendall in Re Bennett ex parte Preston, where the Associate Judge said:11
I am persuaded, as the Court found in Re A Debtor (No.757 of 1954) (as cited in Re Stansfield) that a genuine and triable allegation of fraud on the part of the judgment creditor which, if proved, would have the likely effect of completely off-setting the judgment debt, is an “obvious example of abuse of the process of the Courts” such that the Court should exercise its inherent jurisdiction.
[45] In this case, the TCL Proceeding includes a claim of misleading and deceptive conduct against Tyres4U. While at this stage there is no allegation of fraud, the misleading and deceptive conduct allegation is akin to fraud. (Essentially, TCL is alleging that Tyres4U knowingly failed to provide rebates that would otherwise have been due to group members). On that basis, Mr Bruce has sufficiently made out a case of abuse of process.
[46] The adjudication application before the Court only considers one side of the ledger. The other side should also be determined before there can be any suggestion of Mr Bruce being bankrupted. Mr Herbert submitted that the adjudication application should be refused, or at least adjourned or stayed, pending the outcome of the TCL Proceeding and, depending on the outcome of the TCL Proceeding, any application by Mr Bruce to set aside the judgment in the Debt Proceeding.
Submissions for Tyres4U
[47] Mr Mahood submitted that Mr Bruce’s opposition is misconceived. Tyres4U relies not on Mr Bruce’s guarantee of any agreement made with TCL, but on the credit application form completed by TCNL, including Mr Bruce’s personal guarantee, in January 2013. And there is no evidence of any agreement under which claims by TCL against Tyres4U could be set off against any liability Mr Bruce might have to Tyres4U.
[48] Mr Mahood submitted that even if that were not so there would still be a shortfall of about $20,000 between the amount claimed by TCL in the TCL Proceeding and the amount now owing by Mr Bruce to Tyres4U.
11 Re Bennett, ex parte Preston HC Palmerston North, 28 October 2008.
[49] Mr Mahood submitted that there would be no point in delaying the adjudication proceeding to await the outcome of the TCL Proceeding in the District Court. It could be at least a year away, and even if TCL were successful that would not assist Mr Bruce personally.
Discussion and conclusions
[50] The onus is on Mr Bruce to show that an adjudication order should not be made, and I am satisfied that he has failed to discharge that onus. Nor has he persuaded me that a halt order should be made under ss 38 or 43 of the Act.
[51] First, this is not a case where something has gone wrong with the process by which judgment was obtained against Mr Bruce, and the bankruptcy notice later filed and served on him. He was represented by a solicitor in the Debt Proceeding, and he filed a statement of defence. The judgment was obtained not by default, but on an admission of the debt signed by him following a settlement conference. There is thus no room for the Court to exercise any inherent jurisdiction to stay or dismiss the proceeding for abuse of process. The simple reality is that Mr Bruce says that he was aware of “potential defences and possible counterclaims”, but elected (presumably on legal advice) not to pursue them.
[52] The next difficulty for Mr Bruce is that, while he produced a copy of TCL’s statement of claim in the TCL Proceeding, he did not directly testify to the truth of the matters pleaded in it. In particular, he did not specifically confirm TCL’s pleading relating to the alleged oral agreement relating to the Newmarket business (notwithstanding that the pleading says he was one of the parties who negotiated the alleged oral agreement). That is important, because there is almost a total lack of documentary evidence supporting the oral agreement, or the alleged “netting off” agreement between the companies in the group. If the Newmarket operation was really only intended to be an “extension” of TCL’s business in some way, why did Mr Bruce incorporate TCNL as a separate company to run the Newmarket operation? And if the relevant guarantee was really the guarantee signed by Mr Bruce and Mr Willis as part of the TCL Agreement, why did Mr Bruce sign a separate guarantee of TCNL’s liability in January 2013? None of that has been explained.
[53] Nor has Mr Bruce explained the alleged unjust enrichment and unpaid rebate claims (to the extent they may have affected TCNL). He was a director of both TCL and TCNL at relevant times, and he must have been keenly aware of what sales TCNL was making, and what rebates it was entitled to under whatever arrangements existed between it and Tyres4U. Also, he must have known about Tyres4U’s invoice for
$16,551.32 to TCNL that was said to have been paid by increasing TCL’s loan debt. How did that occur if TCNL did not agree to it? Why did TCNL not simply pay the debt itself?
[54] All of this called for some credible explanation from Mr Bruce, but none was provided.
[55] One would also have expected Mr Bruce to provide copies of at least some of the financial statements and supporting documents for TCNL, showing how the claimed “netting off” agreement between the group members was applied in practice. If rebates earned by TCNL were in fact agreed to be paid not to it but to TCL, was that reflected in the financial statements by corresponding debts owed by TCL to TCNL? If it wasn’t, how is TCNL said to have suffered loss as a result of the alleged failure of Tyres4U to pay all of the rebates now claimed by TCL?
[56] It was not good enough in this case for Mr Bruce to advance in support of his “mutuality” argument, claims that TCL might or might not be able to advance against Tyres4U. Any such claims, if successful, might well say nothing about how much TCNL owed to Tyres4U. Indeed, that appears to be the case with the bulk of TCL’s first cause of action, where $75,845.35 of the amount by which Tyres4U is said to have been enriched would affect only TCL and TCBL – not TCNL (or Mr Bruce as the (January 2013) guarantor of TCNL’s liabilities).
[57] There are other difficulties with Mr Bruce’s reliance on the claims in the TCL proceeding. First, it appears that at least some of the claims (or parts of them) may be subject to limitation issues. The claims appear to go back to July 2012, and the TCL Proceeding was not filed until November 2019. Secondly, there is a question over whether the Australian Competition and Consumer Act 2010 could apply, so as to confer on a District Court in New Zealand power to impose pecuniary penalties on
Tyres4U. The TCL Agreement states only that the contract was to be governed by the law of New South Wales, and there must be a question over whether that provision would be read as requiring the District Court to apply Australian consumer protection law. More generally, I expect that the ability of the District Court in New Zealand to impose penalties under foreign law will require particular consideration.
[58] The Australian law issue was not a matter that was addressed in any detail by Mr Herbert in argument, and I make no finding on it. However it is an issue which, when considered with the other matters to which I have referred, makes it clear that this is not a case where the Court should consider looking behind the judgment that Mr Bruce agreed should be entered against him.
[59] This is not a case where the issue is whether or not a bankruptcy notice should be set aside, which was the issue with which Gallen J was concerned in the principal authority relied upon by Mr Herbert, Re Elvin, ex parte Sandilands.12 We have gone well beyond that stage, as Mr Bruce has committed an act of bankruptcy. The issue now is whether it would be just and equitable to refuse to make the adjudication order sought (s 37(c) of the Act), or whether any other reason an adjudication order should not be made exists (s 37(d)).13
[60] For the reasons set out above, Mr Bruce has failed to show that there is an arguable question over whether the debt is really owing. He agreed (in the Debt Proceeding) that it is, and I am not persuaded that TCL’s claims in the TCL Proceeding will or may benefit Mr Bruce. There is no evidence that any sums that might be found to be payable by Tyres4U to TCL will affect TCNL’s liability to Tyres4U, and it is not suggested that the liquidator of TCNL has advanced similar claims to those made in the TCL Proceeding. If TCNL would not benefit from any judgment of the District Court in the TCL Proceeding, it is difficult to see how Mr Bruce, who was liable to Tyres4U as a principal debtor under his guarantee, would be likely to benefit.
12 Re Elvin, ex parte Sandilands, above n8.
13 All of the requirements of s 13 of the Act are satisfied, and Mr Bruce has not provided any evidence that he is able to pay his debts.
[61] There is no merit in Mr Bruce’s argument that any liability he might have is a liability not to Tyres4U but to the IDT Trust. The credit application form made it clear that the IDT Trust was trading as Tyres4U, and as trustee of the IDT Trust Tyres4U was entitled to commence the Debt Proceeding. Mr Bruce appears to have taken no point in the District Court about the capacity in which the Debt Proceeding had been brought against him by Tyres4U; if he had, I have no doubt that the Court would readily have amended the intituling (if it had considered that was necessary). Any judgment Tyres4U obtained in the Debt Proceeding would clearly be held by it for the IDT Trust, and both sides knew that. In those circumstances, it would not be just and equitable for the Court to look beyond the judgment as it was entered, and I decline to do so.
[62] Mr Bruce has not relied on any personal circumstances which might suggest that the Court should exercise its discretion under s 37 of the Act to refuse to make an adjudication order. And the public interest in having commercial guarantors held accountable on their personal guarantees is a compelling factor in favour of adjudication. No other relevant discretionary factor has been raised in opposition by Mr Bruce.
[63] I am not prepared to halt the proceeding, or grant any lengthy adjournment. Section 43 of the Act does not apply, as the underlying debt has been determined (on Mr Bruce’s admission, made at a time when he appears to have had access to information concerning any potential defences). And I accept Mr Mahood’s submissions that the circumstances do not justify a halt order pending judgment in the TCL Proceeding. First, there is insufficient evidence that the judgment in that proceeding may benefit Mr Bruce personally. Secondly, it may take a year or so before judgment is given, and then there would presumably be a further delay while Mr Bruce took steps to set aside the judgment in the Debt Proceeding.
Result
[64] For all of those reasons, Mr Bruce’s opposition to the bankruptcy adjudication application is rejected, and his application for a halt order under s 38 or 43 is dismissed.
[65] Mr Herbert did ask for a short adjournment if I should come to those conclusions, to allow Mr Bruce time to pay the debt if he can. I agree that is reasonable, and I adjourn the case to the bankruptcy list at 10.45am on 16 July 2020. The case will be dealt with on that date as an undefended adjudication application.
[66] Tyres4U is entitled to costs, which I award on a 2B basis, with disbursements to be fixed by the Registrar.
Associate Judge Smith
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