Wati HC Auckland CIV-2009-404-6367

[2011] NZHC 1174

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-6367

CIV-2008-404-6369

CIV-2008-404-6370
CIV-2008-404-6371

CIV-2008-404-6375

IN THE MATTER OF     IN THE MATTER of the Insolvency Act

2006

AND IN THE MATTER OF IN THE MATTER of the Bankruptcy of

DEO DATT SHARMA

BETWEEN  NIRMALA WATI Creditor/Respondent

Hearing:         27 July 2011

Counsel:         Debtor/Applicant in person

A J H Witten-Hannah for Creditor/Respondent

Judgment:      30 September 2011 at 4:00 PM

JUDGMENT OF RODNEY HANSEN J

This judgment was delivered by me on 30 September 2011 at 4.00 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           A J H Witten-Hannah for Creditor/Respondent

Copy to:            Dr DD Sharma, 1/97 McLeod Road, Te Atatu South, Auckland 0610, Phone/Fax:

838 165411

NIRMALA WATI HC AK CIV-2009-404-6367 30 September 2011

Introduction

[1]      Dr Sharma applies out of time to review a judgment of Bell AJ given on

9 March 2011, in which he refused to set aside five bankruptcy notices issued by

Ms Wati.

[2]      The bankruptcy notices were based on costs orders made against Dr Sharma in proceedings between the parties in the Family Court and, on appeal, in this Court, the Court of Appeal and the Supreme Court.  The bankruptcy notices were served on

1 October 2008.  On 15 October 2008 – the last day for compliance with the notices

– Dr Sharma applied to set them aside.

[3]      His applications were heard by Wylie J on 29 January 2009.   Dr Sharma relied on three grounds:

(a)      The notices were an abuse of process because the creditor ought to have issued only one notice instead of separate notices for each costs order;

(b)      He was solvent and able to pay his debts; (c)    He had a cross-claim.

[4]      Wylie J found against Dr Sharma on the first two grounds.  He adjourned the application as it related to the third ground.  That came before Bell AJ for decision.

[5]      The cross-claim relied on by Dr Sharma was based on a judgment of the Family Court in Property (Relationships) Act 1976 proceedings between Dr Sharma and Ms Wati, his former wife.   Judge Clarkson ordered the equal division of matrimonial property.  She vested the major asset, the former matrimonial home, in Ms Wati but postponed vesting until 30 November 2013.  Judge Clarkson calculated that in order to achieve an equal division of matrimonial property, Ms Wati should pay Dr Sharma $177,500 when the property vests in her in 2013.

[6]      Dr Sharma appealed against the judgment.  The appeal had not been heard when Mr Sharma’s application to set aside the five bankruptcy notices came before Wylie  J.    He  decided  that  the  appeal  could  affect  the  issue  of  whether  or  not Dr Sharma had a cross-claim for the purpose of s 17(1)(d) of the Insolvency Act

2006 (the Act).

[7]      The appeal was heard by Allan J.   He gave two judgments, the first on

27 February 2009 and the second on 8 October 2009.   In his first judgment he partially allowed the appeal in that he quashed the order made by Judge Clarkson under s 26A of the Property (Relationships) Act 1976, fixing Dr Sharma’s share in total relationship property at $177,500 and postponing the vesting of the matrimonial home until 30 November 2013.  He substituted an occupation order under s 27 and gave directions pursuant to which the former family home would be sold on or after

30 November 2013 and the proceeds of sale divided equally.

Judgment under review

[8]      Bell AJ acknowledged in [9] of his judgment that the order made in the

Family Court requiring Ms Wati to pay Dr Sharma $177,500 at the vesting date in

2013 gave rise to a possible argument that a future debt had been created in favour of Dr Sharma.  He went on to say, however, that the orders made by Allan J on appeal changed that.  Dr Sharma and his former wife no longer have a creditor and debtor relationship in relation to the proceeds of sale of the house.  Instead, they remain co-

owners of the house until it is sold.  He concluded:[1]

As Dr Sharma and his former wife are the people between whom the proceeds of sale are to be divided, neither of them will be a creditor of the other.  Accordingly, it is not open to Dr Sharma to claim that he is a creditor of his wife now or that he will become a creditor of his wife on the sale of the former family home.  There is no debt owing by his former wife to him, either now or in the future, upon which he can lay any claim as a cross-claim under s 17 of the Insolvency Act 2006.

[1] Wati v Sharma HC Auckland CIV-2008-404-6367, 9 March 2011 at [10].

[9]      Bell AJ went on to deal with two further matters raised by Dr Sharma for the first time.  The first related to a payment of $21,000 he had made into Court, which

was recorded on a receipt by the Registrar as ―security for costs‖.   Dr Sharma declined an invitation to consent to the funds being paid to Ms Wati in satisfaction of the costs orders.  He informed Bell AJ that he had paid the money into Court, not to provide his former wife with security for payment of the sums due to her on the orders for costs, but merely to demonstrate to the Court that he was able to put up

money amounting to the orders for costs.  Bell AJ said of the payment:[2]

It is a step taken by him to try and prove his solvency.  On that point, Wylie  J  has  ruled  that  solvency  is  not  a  relevant  issue  on  an application to set aside a bankruptcy notice.   I concur in that.   The only matters in issue on an application to set aside a bankruptcy notice are whether the bankruptcy notice is valid and whether it ought to be allowed to issue and stand as the basis for an act of bankruptcy. There  are  limited  grounds  for  setting  aside.  Saying  that  you  are solvent is not a proper ground for setting aside a bankruptcy notice.

[2] Ibid, at [14].

[10]     The Judge then raised the question of how the payment into Court might be used if Ms Wati later filed an application to have Dr Sharma adjudicated bankrupt. He said:[3]

This matter may have to be adjudicated on later on, but I can say at this stage that simply paying the money into Court to show that you have funds to match the orders for costs is not, in my judgment, adequate security for the creditor when they are paid into Court on the basis that the funds will not be payable to the creditor.   There can only be adequate security under this part of the bankruptcy notice if there can be the certainty that the creditor will receive the funds. Dr Sharma’s refusal to let his former wife have those funds is not adequate security for this part of the bankruptcy notice.

[3] Ibid, at [17].

[11]     The second additional matter raised by Dr Sharma concerns the certificates annexed to the bankruptcy notices pursuant to r 24.8(3) as provided by Form B2 of Schedule 1 to the High Court Rules.  Dr Sharma had submitted that the certificates were not in the form required by the rules.  Bell AJ rejected his argument.  He said he was satisfied that in each case the Registrar had properly certified the judgments and orders for costs.  He also made the point that in Best v Watson,[4]  the Court of Appeal gave a very clear indication that these kinds of attacks on technical points of

[4] Best v Watson [1979] 2 NZLR 492 (CA).

procedure were not going to be effective to have proceedings invalidated.  He said

the trend is not to dwell on procedural niceties.   Something has to go drastically wrong for a step to be regarded as a nullity and ineffective.

This application to review

Application for leave

[12]     The last  day for  filing  the application  to  review  Bell AJ’s  decision  was

16 March 2011.   Dr Sharma explained in a supporting affidavit that he filed an application in time, only to be advised by the Registrar that separate applications were required in relation to each bankruptcy notice.  Unfortunately he had by this time left New Zealand on an overseas trip and was unable to file the appropriate applications until his return.

[13]     Ms Wati does not claim to be prejudiced by the delay.  In the circumstances, I

propose to extend the time for filing the applications.

Cross-claim

[14]     Dr Sharma attempted to argue that Allan J’s judgment did not have the effect of quashing the order for payment of $177,500.  That is plainly wrong.  As noted above,[5]  Allan J’s  judgment  completely changed  the basis  on  which  relationship property is to be divided.  An alternative argument which he advanced at the hearing was that his entitlement to a share in the proceeds of sale of the house when Ms Wati’s right to occupation comes to an end is a debt due to him which qualifies as a

counterclaim.  There is no merit in that contention either.  Bell AJ’s analysis on this

issue is unassailable.

[5] At [7] above.

[15]     Dr Sharma then put forward (for the first time) the alternative argument that the  issue  of  whether  a  counterclaim  existed  should  have  been  determined  by reference to Judge Clarkson’s decision.  He submitted that both Wylie J and Bell AJ

were wrong to decide the issue by reference to Allan J’s decision on appeal.

[16]     This  argument  cannot  succeed  either.     Section  17  of  the Act  relevantly 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; and

(c)       the debtor has been served with a bankruptcy notice; and

(d)the  debtor  has  not,  within  the  time  limit  specified  in subsection (4),—

...

1. complied with the requirements of the notice; or

2. 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; or

(b)if the debtor is served outside New Zealand, the time specified in the order of the court permitting service outside New Zealand.

[17]     The  issue  is  whether,  within  the  time  limit  specified  in  subsection  (4), Dr Sharma  satisfied  the  Court  that  he  had  a  cross-claim  against  Ms  Wati.   As Dr Sharma was served with the bankruptcy notice in New Zealand, the relevant time limit is ten working days after service.   However, by r 24.10 of the High Court Rules, that time is extended until any application to set aside the bankruptcy notice is heard.  Rule 24.10 provides:

24.10   Setting aside bankruptcy notice

(1)       If an application to set aside a 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 treated as extended until the application has been determined.

(2)      An act of bankruptcy is not committed by reason only of non- compliance   with   the   notice   until   the   application   has   been determined.

[18]     Accordingly, the time at which Dr Sharma was required to satisfy the Court that he had a counterclaim was when his application to set aside the bankruptcy notices was determined.  By that time, of course, Allan J’s decision on appeal had been made.  Bell AJ was clearly right to decide whether there was a counterclaim by reference to the judgment on appeal.

[19]     Dr Sharma referred me to Re Daintrey ex p Mant[6] in support of his argument that Judge Clarkson’s order should provide the foundation for the cross-claim.  The case is of no assistance on that issue.   It stands for the proposition that a setoff is available in respect of a debt which, although existing, was unquantified at the relevant date.  It does not have any bearing on the issue I am required to determine.

Non-compliant certificates

[6] Re Daintrey ex p Mant [1900] 1 QB 546.

[20]     Rule 24.8(3) of the High Court Rules[7] provides:

(3)       A bankruptcy notice must be in form B 2 and a certified copy of the judgment or order on which the bankruptcy notice is based must be attached to it.

[7] Formerly r 826(3) of the High Court Rules 1985.

[21]     Dr Sharma submitted that four of the five bankruptcy notices are invalid because of non-compliance with the rules.   Particulars of the five notices are as follows:

Bankruptcy Notice No 6367

Judgment debt of $9,030 in respect of costs of $9,000 awarded in the Family Court

at Waitakere. Certified copy of judgment attached.

Bankruptcy Notice No 6369

Costs of $1,250 awarded in the Waitakere Family Court, supported by Certificate of

Judgment with costs order attached.

Bankruptcy Notice 6370

Costs  of  $2,000  and  disbursements  of  $323  awarded  in  the  Court  of  Appeal,

supported by sealed judgment with schedule of costs and disbursements attached.

Bankruptcy Notice 6371

Costs of $2,500 awarded by the Supreme Court, supported by Notice of Result of

Application for Leave to Appeal given by the Registrar under seal.

Bankruptcy Notice 6375

Costs  and  disbursements  totalling  $3,130  awarded  by Andrews  J  in  this  Court

supported by a sealed judgment with schedule of costs annexed.

[22]     Dr Sharma submitted that, as all bankruptcy notices except number 6367 did not attach certified copies of the judgments or orders, they are invalid and Bell AJ erred in holding that the non-compliance in each case was of a technical nature which did not invalidate the notices.

[23]     Section 418 of the Act provides a remedy for defects in proceedings.   It provides:

Defects in proceedings

(1)       A proceeding under this Act must not be invalidated or set aside for a defect (which includes misdescription, misnomer, or omission) in a step that must be taken as part of, or in connection with, the proceeding, unless a person is prejudiced by the defect.

(2)       The court may order the defect to be corrected, and may order the proceeding to continue, on the conditions that the court thinks appropriate in the interests of everyone who has an interest in the proceeding.

[24]     In Best v Watson,[8]  the case referred to by Bell AJ, the Court of Appeal considered s 11 of the Insolvency Act 1967, which was substantially re-enacted by s 418.  The Court observed[9]  that it allows rectification of any defects, misnomers, inaccurate descriptions or omissions “in any case where no person is injuriously affected thereby”.  The Court went on to say:[10]

[8] Best v Watson, above n 4.

[9] Ibid, at 493.

[10] Ibid, at 494.

In our view the section has to be given its full meaning and is not to be read subject to any limitations not required by the statutory language.   There must, of course, be proceedings before the Court before rectification may be directed under s 11.  So if the document is so defective that it is a nullity there is nothing before the Court capable of rectification.   The distinction between nullity and irregularity is well recognised in other areas of the law (see, for instance, New Zealand Institute of Agricultural Science Inc v Ellesmere County [1976] 1 NZLR 630, particularly at p 636; and Police v Thomas [1977] 1 NZLR 109). In that latter case Cooke J, referring to s 204 of the Summary Proceedings Act 1957 which is in essentially the same terms

as s 11 of the Insolvency Act, said at p 121:  “No doubt s 204 is unavailable if a defect is so serious as to result in what should be stigmatised as a nullity.”   He went on to observe that “nullity  or otherwise is apt to be a question of degree”.

We think that the same considerations apply under s 11.  That provision may be invoked in any case where the proceedings are defective and however the defect may be characterised.  It will always be a question of degree whether or not it can be said that, notwithstanding failure to comply with any apparently mandatory requirement of the Act or of the Rules, there is before the Court what can fairly be described as proceedings under the Act; and that question should not be approached in a mechanical or technical way.

[25]     I am left in no doubt that s 418 applies to cure any defects in the bankruptcy notices.  In each case the documentation annexed to the notice provides irrefutable evidence of the costs order relied on.   Dr Sharma questioned whether the order which forms the basis of Notice 6369 had in fact been made.  He claimed that when the case was heard in 2001, costs were not awarded in cases dealing with protection orders.  But mere assertion is no reason to go behind the Registrar’s certificate that an award was duly made.

[26]     Dr  Sharma  also  relied  on  Re  Gray,  ex  parte  Miller[11]   in  which  Master Gambrill  held  that  an  award  of  costs  by  the  Employment  Tribunal  was  not  a judgment or order which could found a bankruptcy petition and a certificate under the seal of the Employment Tribunal was not effective to convert it into a judgment. That  decision  has  no  application  in  the  present  circumstances.     Under  the Employment Contracts Act 1991, the Employment Tribunal order would not become enforceable until filed in the District Court.  Master Gambrill held that until that step had been taken, the order could not found a bankruptcy notice.

[11] Re Gray, ex parte Miller (1998) 12 PRNZ 283 (HC)..

[27]     That is, of course, not the situation here. All orders are capable of founding a bankruptcy notice.  The complaint is that they were not certified in accordance with the Rules.  Dr Sharma could not point to any prejudice arising from the omission to attach  certified  copies  of  the  orders.    As  Sargisson  AJ  said  in  Don  v  G  R International Ltd,[12]  the heart of a bankruptcy notice is to clearly inform the debtor what the Court has determined is owed and what needs to be paid to meet that

[12] Don v G R International Ltd HC Auckland CIV-2005-404-1720, 21 December 2005 at [7]

obligation.   What was attached to the notices was fully effective to identify and

prove the debts.  The defects were of no practical consequence.  I am satisfied that

Bell AJ was correct to reject his complaints on this issue.

Result

[28]     The application for review fails.  Dr Sharma must pay costs on a category 2 band B basis.