Waikato District Council v Soroka

[2023] NZHC 79

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-342

[2023] NZHC 79

UNDER

the Insolvency Act 2006

IN THE MATTER OF

the bankruptcy of GLENN MICHAEL SOROKA

BETWEEN

WAIKATO DISTRICT COUNCIL

Judgment Creditor

AND

GLENN MICHAEL SOROKA

Judgment Debtor

Hearing:	1 November 2022
Appearances:	Prajna Moodley for the Judgment Creditor Judgment Debtor is self-represented
Judgment:	9 February 2023

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[application to set aside a bankruptcy notice]

This judgment was delivered by me on 9 February 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Brookfields (P Moodley), Auckland, for the Judgment Creditor

Copy for:

Glenn Michael Soroka

WAIKATO DISTRICT COUNCIL v SOROKA [2023] NZHC 79 [3 February 2023]

Introduction

[1]                 Glenn Soroka, the judgment debtor in this matter, applies to set aside a bankruptcy notice served on him on 19 May 2022.

Background

[2]                 Hinton J issued a judgment dated 25 August 2021 that included a costs award against Mr Soroka and in favour of the Waikato  District Council (the  Council).1   Mr Soroka filed an appeal against that decision on 22 September 2021.

[3]                 The quantum of the costs award was fixed in a further Hinton J judgment dated 22 December 2021.2

[4]                 A bankruptcy notice was issued against Mr Soroka on 11 April 2022. It was served on him by way of substituted service on 19 May 2022.

[5]                 Mr Soroka has applied for orders setting aside the bankruptcy notice on the grounds that he has a bona fide set off or counterclaim, there is a genuine dispute about his level of indebtedness to the Council and he has appealed the decision the subject of the bankruptcy notice.

[6]                 Mr Soroka’s appeal against Hinton J’s decision has been twice vacated. Both times were on Mr Soroka’s application. The Council says, therefore, that Mr Soroka has been using an unmeritorious appeal against the High Court decision to delay paying the costs award.

1      Soroka v Waikato District Council [2021] NZHC 2191.

2      Soroka v Waikato District Council [2021] NZHC 3592.

Application to set aside bankruptcy notice

Application

[7]                 Mr Soroka seeks orders setting aside the bankruptcy notice, on the following grounds:3

a.The respondent has a bona fide set-off or counterclaim based on substantial grounds which exceeds the debt petitioned on.

b.There is a genuine and substantive dispute supported by sufficient evidence about the respondent’s level of indebtedness to the applicant.

c.The respondent has appealed the judgment of the High Court which is the subject of the bankruptcy notice which appeal is to be heard by the Court of Appeal on 19 July 2022.

Affidavit of Glenn Soroka dated 2 June 2022

[8]                 Mr Soroka has made an affidavit in support of his application to set aside the bankruptcy notice. He deposes that he has received no other demands for the payment of costs other than the bankruptcy notice. He says the obvious reason for not receiving any formal demands in writing is because previous invoices have been sent to an address that he has never lived at permanently and that he has not used as an address for service for over three years. He says the judgment at issue is being appealed, there are strong grounds for the appeal to succeed and for the costs award to then be overturned. He says he is in the process of instructing senior counsel to present the appeal.4

Opposition to application to set aside bankruptcy notice

Notice of opposition

[9]The Council opposes Mr Soroka’s application on the following grounds:5

(a)The judgment debtor does not have a bona fide-set off or counterclaim which exceeds the amount claimed by the judgment creditor in its bankruptcy notice.

3 Application to set aside bankruptcy notice dated 2 June 2022 at [2].

4      Affidavit in support of application to set aside bankruptcy notice dated 2 June 2022 at [1]–[8].

5 Notice of opposition by judgment creditor to the interlocutory application by judgment debtor for an order to set aside a bankruptcy notice at [3].

(b)There is no genuine or substantive dispute about the judgment debtor’s level of indebtedness to the judgment creditor.

(c)The amount claimed by the judgment creditor relates to a costs award properly awarded in its favour pursuant to a judgment of Hinton J delivered on 25 August 2021 (“High Court Decision”).

(d)On 22 September 2021 the judgment debtor appealed the High Court decision (“Appeal”).

(e)The judgment debtor has not applied for a stay of enforcement of the High Court Decision.

(f)The Appeal does not act as a stay of enforcement in relation to the High Court Decision, including orders made pursuant to the High Court Decision.

(g)The judgment debtor has not applied for a stay of execution of the High Court Decision pending the Appeal against it.

(h)The Appeal is set down for hearing on 29 September 2022.

(i)Upon the further grounds set out in the affidavit of CHRISTINE LOUISE PIDDUCK filed herein.

Affidavit of Christine Pidduck dated 22 July 2022

[10]             Christine Pidduck, legal counsel at the Council, has made an affidavit in support of the Council’s notice of opposition. She deposes that on 17 January 2022 the Council, through its solicitors Brookfields Lawyers, made demand on Mr Soroka for payment of the costs award. She says that on 19 May 2022 the Council served a bankruptcy notice on Mr Soroka.6

[11]             Ms Pidduck deposes that on 22 September 2021, Mr Soroka appealed the Hinton J decision that gave rise to the costs award. She says the hearing of the appeal has been delayed at Mr Soroka’s request. Mr Soroka has not applied for a stay of enforcement of the decision. On that basis, Ms Pidduck says, the Council should be permitted to continue with bankruptcy proceedings against Mr Soroka for payment of the costs properly awarded in the Council’s favour.7

6      Affidavit of Christine Louise Pidduck in support of notice of opposition by judgment creditor to the interlocutory application by judgment debtor for an order to set aside a bankruptcy notice dated 22 July 2022 at [1]–[5].

7      At [6]–[8].

Mr Soroka’s submissions

[12]             Mr  Soroka,  self-represented,  filed  submissions  on   28   October   2022. Mr Moodley, counsel for the Council, objected to the late filing of these submissions, but at the hearing I allowed the submissions to be filed together with an affidavit of Mr Soroka dated 28 October 2022 in support of his application to set aside the bankruptcy notice.

[13]             Mr Soroka submits that his delay in filing the submissions for this hearing and his affidavit in support of his application were due to not receiving the minute of Associate Judge Sussock following the  directions  conference  on  28  July  2022. Mr Soroka submitted that he did not receive the notification of the directions conference nor the minute, and was unaware that this hearing was proceeding.

[14]             Mr Soroka distinguishes the decisions relied on by Mr Moodley (Insight Design & Development Ltd v Sadler8 and Duncan v Osborne Building Limited9) on the basis that these decisions were seeking to overturn bankruptcy decisions which were unlikely to succeed. He submits in the present case there is a counterclaim, albeit contingent on the decision of the Court of Appeal. Mr Soroka submits that if the bankruptcy notice is not set aside, then there is a risk that the property situated at 1264 Klondyke Road, Port Waikato (the Property) will be sold and that this Property has rarity and irreplaceability. He refers to the market appraisal of the Property prepared by Property Brokers, attached to his affidavit, as evidence of the uniqueness of the Property.

[15]             Mr Soroka submits that if the bankruptcy proceeding is advanced and the Official Assignee has to sell the Property before the Court of Appeal decision is released after the hearing on 23 February 2023, then there are significant complications in relation to the appeal. He submits that the core of the appeal before the High  Court  is  whether  or  not  Pakau  Trust  was  due  to  an  entitlement  of  64 Transferrable Title Rights (TTRs), rather than the 29 TTRs it has used to date. He submits that in the event that the declaratory judgment sought in the appeal is

8      Insight Design & Development Ltd v Sadler HC Auckland, CIV-2006-404-4528), Associate Judge Sargisson, 13 September 2007.

9      Duncan v Osborne Building Limited 6 PRNZ 85 at 87.

successful, and the judgment given in the Pakau Trust’s favour, then reinstatement of the TTRs would be the outcome. He submits that if this occurs then the Property owned by the Pakau Trust will still need to be owned by Pakau Trust for the Council to be able to remedy the wrong of extinguishing the TTRs and allocate those reinstated TTRs to the Property. He submits that the TTRs attach to the land and not the owner at the time the application for the TTRs was made. He submits that in summary, if the appeal to reinstate the 34 TTRs the Pakau Trust says is due to it is successful, then the Pakau Trust will still need to be the owner of the Property to enable the Council to register the reinstated TTRs against the Property and for the Pakau Trust to receive the benefit of them.

[16]             Mr Soroka submits that it is appropriate that this bankruptcy application be set aside to prevent the Council from not being able to comply with the Court of Appeal judgment should the Pakau Trust be successful in that appeal. He submits that if the Court of Appeal declare that Pakau was due an additional 34 TTRs, then the Pakau Trust would immediately be in a position to sell these TTRs, which presently have a market value of approximately $120,000. However, if the Pakau Trust is not the owner of the Property, they would not be in a position to benefit from the sale of the TTRs and the Council would not be in a position to uphold the order of the Court of Appeal.

[17]             Finally, Mr Soroka submits that the hearing in the Court of Appeal is imminent on 23 February 2023, and given the time proximity, the distinct possibility of success at the appeal and the need for the Pakau Trust to still own the Property to be able to receive the TTRs if the appeal succeeds, that it is appropriate to adjourn the application to set aside the bankruptcy as there will be an inarguable counterclaim in relation to costs if the appeal is granted.

[18]             Mr Soroka submits that the Council would not be prejudiced by waiting a few more months for payment pending the outcome of the appeal and that a potential injustice could occur in the event that the appeal is granted, but the irreplaceable Property has been sold, and not recoverable.

The Council’s submissions

[19]             Prajna Moodley, for the Council, submits that Mr Soroka has not sought a stay of execution of Hinton J’s judgment. He says there is no suggestion that execution of the judgment (in relation to costs) will  render  Mr Soroka’s appeal nugatory  —    Mr Soroka is seeking the Court’s indulgence to avoid paying a costs award while an appeal is heard. Mr Moodley says it is highly relevant that that the appeal has been significantly delayed solely due to Mr Soroka’s actions.10

[20]             Mr Moodley reiterates that Hinton J’s judgment was issued on 25 August 2021, with Mr Soroka’s appeal being filed on 22 September 2021. He says the appeal was first to be heard on 19 July 2022, but that the hearing was adjourned on Mr Soroka’s application. It was then set down for 29 September 2022, before being adjourned to

18 February 2023  —  again,  at  Mr  Soroka’s  instigation.  Mr  Moodley  submits Mr Soroka has displayed a lack of diligence in prosecuting the appeal and he continues to seek the Court’s indulgence to delay the Council from obtaining the benefit of its judgment. And Mr Moodley submits that Mr Soroka’s affidavit discloses no evidence to support his contended set-off or counterclaim, or of any genuine and substantive dispute about his level of indebtedness to the Council.11

[21]             In the circumstances, Mr Moodley submits, there is no proper basis for further delay of enforcement of Hinton J’s judgment. The application to set aside the bankruptcy notice should be declined.12

Legal principles

[22]             The Court may set aside a bankruptcy notice if satisfied the debtor has complied with the notice’s requirements, or if the debtor has satisfied the Court that he or she has a cross claim against the creditor.13

10     Synopsis of submissions on behalf of judgment creditor regarding application to set aside bankruptcy notice dated 26 October 2022 at [13]–[16].

11     At [17]–[19].

12     At [20]–[21].

13     Insolvency Act 2006, s 17(1)(d)(ii).

[23]             A cross claim is a counterclaim, set-off or cross demand that is equal to, or greater than, the amount the debtor has been ordered to pay, and that the debtor could not use as a defence in the action or proceeding in which the judgment was obtained.14

[24]             The expression “could not use as a defence” usually connotes legal, rather than practical or factual impediments — a failure to take advantage of an opportunity will not suffice.15 There must be “cogent circumstances” for a judgment debtor to be able to establish a factual inability to set up the cross claim as a defence.16

[25]             If a debtor does satisfy the Court that he or she has a cross claim, there is no relevant act of bankruptcy. In that case, the Court has no residual discretion to allow the bankruptcy notice to stand. But the cross claim must be “genuine” and “triable”, requiring the debtor to demonstrate that the claim has true substance and that he or she genuinely proposes to pursue it.17

[26]In establishing the cross claim is genuine and triable, a debtor must show:18

(a)there is a prima facie case that has a fair chance of success;19

(b)there is a degree of mutuality between the subject of the cross-claim and the underlying judgment debt;20

(c)the counterclaim, set-off, or cross-demand is sounding in money:21

(d)the cross-claim is against the creditor, not a third party;22 and

(e)the debtor [genuinely] proposes to pursue the cross-claim.23

14 Section 17(7). See also Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC) at 637. The latter requirement reflects the principles of res judicata and issue estoppel: Flow Control Ltd v Il Forno Ltd [2021] NZHC 1159.

15   Flow Control Ltd v Il Forno Ltd, above n 14, at [21], citing Clark v UDC Finance Ltd, above n   14, at 630 and Hardy v Booth [1992] 1 NZLR 356 (HC) at 13.

16 Aluminium Plus Wellington Ltd v Shaw [2017] NZHC 2607 at [53].

17 Sharma v ANZ Banking Group (NZ) Ltd (1992) 6 PRNZ 386 (CA) at 389; and Wikeley v Jacomb

[2014] NZCA 146 at [37]–[40].

18     Mao v Kim [2021] NZHC 3253 at [33].

19     Clark v UDC Finance Ltd, above n 14.

20     Re Elvin, ex parte Sandilands [1990] 3 NZLR 124 (HC).

21     Robertson v ASB Bank Ltd [2014] NZCA 597 at [24].

22     Re Faloon, ex parte Bank of New Zealand HC Wellington B175/97, 12 August 1997.

23     Sharma v ANZ Banking Group (NZ) Ltd, above n 17.

Analysis

[27]             The issue to be determined in this judgment is whether the bankruptcy notice should be set aside pending the outcome of the Pakau Trust’s appeal to the Court of Appeal in relation to the possible allocation of TTRs by the Council to the Pakau Trust. Mr Soroka’s submission is effectively that if the appeal is successful and the TTRs are reinstated, then the costs judgment underlying the bankruptcy notice will be reversed and accordingly he has a counterclaim against the Council.

[28]             Mr Soroka’s other key submission that if the bankruptcy notice is allowed to stand, and the bankruptcy proceedings continue and an order adjudicating Mr Soroka bankrupt is made, then the Official Assignee will take possession of the Property and the Property will be sold by the Official Assignee prior to the outcome of the Court of Appeal decision. Mr Soroka has submitted that the Property is unique and the sale of the Property would be an unjust result pending the outcome of the Court of Appeal‘s decision.

[29]             Mr Soroka has also submitted that if the TTRs are reinstated by the Court of Appeal, then these will be allocated to the current owner of the Property at the time they are reinstated -- therefore if the Property has been sold the TTRs will be allocated to the new owner. Mr Soroka submits this is again an unjust result as the TTRs should be received by the Pakau Trust being the owner of the Property on which the application for the reinstatement of the TTRs was made.

[30]             Mr Soroka has deposed in his affidavit of 28 October 2022 that very senior counsel experienced in RMA matters have been instructed in relation to the hearing of the Court of Appeal, set down for 23 February 2023. Mr Soroka has deposed that  Mr Rob Enright, the senior counsel, has reviewed the materials relating to the appeal, and that he is of the firm opinion that the appeal will be successful.

[31]             Mr Moodley, on the other hand, has submitted that there has been no application by Mr Soroka for a stay of the costs judgment and therefore the Council is entitled to the fruits of that  judgment  as the  appeal  does  not  operate  as  a  stay. Mr Moodley also refers to the case in relation to the Court of Appeal hearing which had been instigated by Mr Soroka, and submits that Mr Soroka is using the appeal as

a means to avoid paying the costs judgment. Mr Moodley has submitted there is no evidence in support of the contended set-off or counterclaim by Mr Soroka and no evidence of a genuine and substantive dispute about the level of indebtedness to the Council.

Result

[32]             Notwithstanding the submissions on behalf of the Council that the appeal by Mr Soroka does not operate to stay the judgment, which is undoubtedly correct, I am of the view that the bankruptcy notice should be set aside, given the imminent hearing of the appeal in the Court of Appeal. While there is not strong evidence before the Court as to the likelihood of success of the appeal, given its imminence Mr Soroka should be given the opportunity to allow the appeal to be completed without the bankruptcy proceeding defeating this.

Orders

[33]I make the following orders:

(a)The application to set aside the bankruptcy notice is granted.

(b)No costs award is made, as the Court does not have jurisdiction to award costs in favour of a self-represented litigant.

…………………………….. Associate Judge Taylor