Van Oosteen v Clark HC Ham CIV 2007-419-001439
[2008] NZHC 2453
•31 July 2008
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2007-419-001439
IN THE MATTER OF the Insolvency Act 1967
AND
IN THE MATTER OF the bankruptcy of GA van Oosten
BETWEEN GERRARD ANDREW VAN OOSTEEN Judgment Debtor
ANDGREGORY NEIL CLARK Judgment Creditor
Hearing: 29 July 2008
Counsel: D Hayes for judgment debtor
RP Lewis for judgment creditor
Judgment: 31 July 2008 at 1500
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to set aside bankruptcy notice]
Solicitors: Brook Law, PO Box 9600, Hamilton for judgment debtor
Rodney Lewis, PO Box 591, Hamilton for judgment creditor
VAN OOSTEEN V CLARK HC HAM CIV 2007-419-001439 31 July 2008
[1] The judgment debtor applies for an order setting aside a bankruptcy notice dated 21 September 2007.
[2] The application is made in reliance on s 19(1)(d) of the Insolvency Act 1967. It also relies on the Court’s inherent jurisdiction.
[3] Section 19(1)(d) provides:
19 Acts of bankruptcy
(1)A debtor commits an act of bankruptcy in each of the following cases:
…
(d) If a creditor has obtained a final judgment or final order against the debtor for any amount, and, execution thereon not having been stayed, the debtor has served on him in New Zealand, or, by leave of the Court, elsewhere, a bankruptcy notice under this Act, and he does not, within 14 days after the service of the notice in a case where the service is effected in New Zealand, and in a case where the service is effected elsewhere then within the time limited in that behalf by the order giving leave to effect the service, either comply with the requirements of the notice or satisfy the Court that he has a counterclaim, set-off, or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained, or the proceedings in which the order was obtained:
[4] The application is made in accordance with the requirements of r 830 of the
High Court Rules which provides:
830 Setting aside bankruptcy notice
(1) Every application to set aside a bankruptcy notice must comply with rules 234 to [[262]] so far as they are applicable and with any necessary modifications.
(2)If the application to set aside the bankruptcy notice cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the time is deemed to have been extended until the application has been heard and determined.
(3)Until the application has been heard and determined, an act of bankruptcy is not committed by reason only of non-compliance with the notice.
[5] Mr Hayes conceded in submissions that the application was now based solely on the Court’s inherent jurisdiction. The application had pleaded that the judgment debtor has a counterclaim or set-off or cross-demand which equals the purported debt and which could not have been set up in the proceeding in which the order was made. No evidence of any such counterclaim was provided to the Court. On the material placed before me, Mr Hayes’ concession was properly made and, for that reason, I do not examine further the counterclaim ground originally pleaded as a basis for setting aside the bankruptcy notice.
[6] I shall therefore consider this application as one made in reliance on the
Court’s inherent jurisdiction.
[7] In re Wise, ex parte Benecke HC AK B227-95 and B228-95 21 June 1995
Master Kennedy-Grant considered a situation where debtors alleged they had a valid defence to a claim made by the creditor in the District Court. They did not put that defence forward because they were not aware of the hearing at which judgment was granted. They filed their application to set aside the judgment in the District Court. In that case Master Kennedy-Grant noted that relief was not available to the debtors in that case pursuant to s 19(1)(d) of the Insolvency Act 1967 and the appropriate Rule. That was because the debtors did not have a counterclaim, set-off or cross- demand. After analysing the authorities, however, he concluded that the Court has an inherent jurisdiction where the debtors' case is based on an alleged defect in the process by which a judgment was obtained or where there is an arguable defence to the claim for which judgment was given. After satisfying himself that there was a foundation for the debtors' claim based on the two circumstances to which I have made reference, Master Kennedy-Grant then adjourned the application so that the Court could determine if the debtors' application to the District Court to set aside the judgment against them had been heard and determined. He ordered that a further adjournment would only be entertained if the debtors satisfied the Court that they had taken every step possible to ensure that their application to set aside the District Court judgment had been undertaken.
[8] The approach adopted by Master Kennedy-Grant where the Court’s inherent jurisdiction is invoked, in my view, is usually the correct position to follow. In
short, it is appropriate that the application to set aside the bankruptcy notice be adjourned to check progress with the hearing to set aside the judgment on which it was based. If that application proves unsuccessful there would appear to be no ground for setting the bankruptcy notice. There is no time problem because of r 830(2) of the High Court Rules, as it then was. Time wis preserved for payment until the application is disposed of. In short, any risk of injustice is avoided.
[9] The specific problem, which has arisen in the case before me, concerns the actual status of the judgment on which the bankruptcy notice was issued. No order has been presented to me indicating that the order on which the bankruptcy notice was issued was formally set aside. Certainly, there are no further proceedings outstanding in relation to the order on which the bankruptcy notice is based. In short, by analogy, there is no situation currently outstanding, similar to that which occurred in re Wise, ex parte Benecke, where the parties were awaiting the disposal of an application to set aside the judgment.
[10] Faced with this problem I invited Mr Hayes to explain how there could be any continuing basis for the exercise of the Court’s inherent jurisdiction. He submitted, in essence, that the effect of what occurred in this case was a setting aside of the original order on which the bankruptcy notice was issued and its replacement by a later judgment. I have examined the circumstances very carefully and cannot reach that conclusion for reasons which I will now set out. The judgment debtor issued proceedings against the judgment creditor in the District Court. His claim failed and judgment was entered for the judgment creditor on 30 October 2006. That judgment did not deal with costs. The judgment was later sealed on 7 November
2006 by the plaintiff in the District Court proceeding, who is now the judgment debtor. The defendant, who is now the judgment creditor, sought, by memorandum, an order for costs. It is not for me to analyse precisely the circumstances how the order was made because that would be the provenance of any Court which is called upon to set aside the judgment or review it in judicial review proceedings. The District Court ordered costs to be paid by the judgment debtor in the sum of
$10,021.26. The debtor filed judicial review proceedings. They were served on the judgment creditor on 4 September 2007. The judgment creditor filed a request for the issue of a bankruptcy notice on 21 September 2007. A Deputy-Registrar of this
Court signed the bankruptcy notice, thus authorising its issue on 21 September 2007. The judgment debtor then filed his application to set aside the bankruptcy notice on
15 October 2007.
[11] The judicial review proceeding, which was filed in relation to the order for costs, came before Ronald Young J on 28 November 2007.
[12] His Honour first noted that the primary ground advanced by the judgment debtor, namely that the Court was functus officio when giving judgment for costs in favour of the defendant, was not supported by authority. His Honour, in his judgment of that date, said that he drew counsel for the judgment creditor, the defendant in the proceedings, attention to two specific difficulties in relation to the costs order. First, the Judge making the cost order did not call for formal submissions by both parties, nor set a timetable for doing so. Second, no reasons for the decision were given.
[13] In the course of submissions I asked Mr Hayes whether he acknowledged that the apparent lack of notification mentioned by Young J was relied upon. He advised me that that was not relied upon. The concession is understandable because it is apparent from the material placed before me that, when counsel for the judgment creditor sought an order for costs, a copy of the memorandum seeking those costs was served on counsel for the judgment debtor. The concession is important, in my view, because it makes it clear that the attack on the order for costs made in the District Court is not based upon any allegation that the judgment was irregularly obtained. It short, it is not one of those judgments that could be subject to being set aside for the reasons explained by Greig J in O’Shannessy v Dasun Hair Designers Ltd [1980] 2 NZLR 652 at 654. That judgment emphasised that the irregularity must relate to the way the judgment is obtained and does not apply to any irregularity in the judgment itself.
[14] Ronald Young J commented at [6] of his judgment of 28 November 2007 as follows:
In those circumstances I invited both parties to agree to a suggestion by me that I, by agreement, refer the matter back to the District Court for a decision
on costs. The decision would be informed by submissions filed by the defendant and plaintiff, and the expectation would be that Judge MacLean, who was the trial Judge, would give a reasoned decision as to whether costs should be awarded and if so the appropriate quantum.
[15] His Honour added at [7]:
In the circumstances, no formal order in these proceedings is required. The matter is referred back to Judge MacLean to reconsider the question of costs and give a reasoned decision based on the submissions received. In those circumstances the appropriate course as to these proceedings is adjourn them sine die. Once the decision by the Judge has been given, these proceedings could suitably be discontinued. The expectation is that upon the release of the judgment of the District Court on the question of costs, these proceedings will be discontinued by the plaintiff. Both parties’ appeal rights would then be reserved in respect of to any costs judgment in the District Court.
[16] His Honour then directed that his judgment be sent to Judge MacLean and he made an order for the filing of submissions in relation to costs.
[17] The matter came back before Ronald Young J on 27 February 2008. Both counsel acknowledge that His Honour’s recording of the position in relation to the bankruptcy proceedings was in error. They say, the error was not of their making. His Honour then went on to stay the current bankruptcy petition based on the original costs order. Therein lay a further mistake because no such petition had issued although the parties took the order to mean that application in relation to the bankruptcy notice was appropriately stayed.
[18] It is unnecessary that I record the various steps that were taken thereafter. It is important to record, however, that Judge MacLean issued reasons for judgment on
3 June 2008. His Honour commences by reviewing the basis upon which the matter is before him, noting that the parties acknowledge that he has jurisdiction to decide the matter. He then commenced his assessment of the position noting in [10] that the criticism made of him in the earlier ruling was that reasons were not articulated. He commented that that did not mean that he did not apply his mind to the relevant principles relating to costs. He then considered the various applicable principles and recorded, in the last paragraph of his judgment, that he ordered the plaintiff to pay the defendant’s costs and disbursements totalling $10,021.25. That, of course, is the precise sum recorded in the certificate which evidenced the cost order made originally on 23 April 2007. Nowhere in the reasons for judgment does he record
that the original order has been set aside. As best I can see from the material placed before me, the Judge has approached this on the basis of an application to set aside a judgment given in default of appearance, but in relation to a regularly obtained judgment. His conclusion, as recorded in his reasons, was that there was no basis for altering the original assessment he made.
[19] The applicable jurisprudence in relation to applications to set aside judgments by default has been reviewed in a number of decisions. The leading authority is the Court of Appeal judgment in Russell v Cox [1983] NZLR 654. That judgment refers to earlier judgments of the Court of Appeal, notably Wellington Free Kindergarten Association Incorporated [1966] NZLR 975. A consistent theme runs through those authorities which is that where a judgment has been regularly obtained, when the Court exercises its discretion to set aside that judgment, it is granting an indulgence in favour of the party applying in circumstances where the usual course is that that party pays all costs associated with the entry of the judgment and the application to set it aside. That position is important in the review of the matters that I am undertaking because, save for one small issue, what has happened, in this case, is a reconfirmation of the original order for costs upon which the bankruptcy notice was based.
[20] I put to Mr Hayes, in the course of his submissions, that even if there was a foundation for the proposition that the judgment creditor had agreed to a formal setting aside of the judgment, something which is not recorded in any material before me and, certainly, not in the short judgment of Ronald Young J, then one would have expected the judgment creditor to have been protected for costs incurred in the entry of judgment and in relation to the application to set aside the judgment, and including any enforcement costs that were taken. That, of course, is consistent with the position outlined in the authorities that I have referred to and the principle that the Court is being asked to grant an indulgence in favour of the party applying to set aside the judgment.
[21] When consideration of the above matters is taken into account and, in particular:
a) The fact that, except for one small amount of $175, the original order has been confirmed;
b) the original order does not appear to have been formally set aside; and
c) the general position taken on applications to set aside judgments regularly obtained, that is that the judgment creditor will be protected for costs, as I have outlined
there would seem to be no reason why the judgment debtor should not pay the costs as originally ordered and the costs incurred in relation to the application to set aside the order for costs. In particular, there is no reason why the judgment creditor should be denied the original fruits of the judgment which emanated from the judgment of 30 October 2006 and which led to the costs order being made on
23 April 2007.
[22] These matters, then, lead me to the conclusion that the application to set aside the bankruptcy notice in reliance on the Court’s inherent jurisdiction should be refused. There is no proven abuse of process that would justify the Court’s intervention. Overall, I cannot see that any injustice is caused to the judgment debtor by refusing the order which he seeks.
[23] Before concluding this judgment, I record that I examined with counsel what the cost implications were and indicated to Mr Hayes that I would defer issuing this judgment until 3pm on Thursday, 31 July 2008. That step was taken so that the judgment debtor could, if he so wished, arrange payment of the judgment debt and thereby avoid the consequence of an act of bankruptcy occurring. In view of the fact that no notification has been given to the Court of payment this judgment is now issued.
Orders
[24] The application to set aside the bankruptcy notice is refused.
Costs
[25] I have mentioned in this judgment that I analysed the costs position with counsel for both parties in relation to the application to set aside the bankruptcy notice and appropriate disbursements. Based on Category 2 Band B that yielded a figure for costs and disbursements of $4,668.13. I order that the judgment debtor
pay the sum of $4,668.13 for costs and disbursements in respect of this application.
JA Faire
Associate Judge
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