Westpac New Zealand Limited v Chen

[2022] NZHC 1834

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2074

[2022] NZHC 1834

IN THE MATTER

of the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of JIAYUAN (GEORGIA) CHEN

BETWEEN

WESTPAC NEW ZEALAND LIMITED

Judgment Creditor

AND

JIAYUAN (GEORGIA) CHEN

Judgment Debtor

Hearing:	28 July 2022
Appearances:	J J K Spring and E Johnson for Judgment Creditor J Belthazar for Judgment Creditor
Judgment:	28 July 2022

JUDGMENT OF LANG J

[on application to set aside bankruptcy notice]

This judgment was delivered by me on 28 July 2022 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:

Minter Ellison Rudd Watts, Auckland Belthazar Law Ltd, Auckland

WESTPAC NEW ZEALAND LTD v CHEN [2022] NZHC 1834 [28 July 2022]

[1]    The issue in this proceeding is whether the Court should exercise its power under s 17 of the Insolvency Act 2006 to set aside a bankruptcy notice served by Westpac New Zealand Limited (Westpac) on Ms Georgia Chen.

Background

[2]    Ms Chen and a Mr McKenzie were the shareholders in a company known as  J & MWM Holdings Limited. In December 2017 the company obtained a loan from Westpac to enable it to purchase a property in Millwater. The loan was secured by way of mortgage over the property. The company was unable to meet the mortgage payments and fell into default.

[3]    Ms Chen and Mr McKenzie had guaranteed the company’s obligations under the loan agreement. The agreement named them as principal debtors along with the company.

[4]    Westpac did not take steps to exercise its powers of sale under the mortgage. Instead, it withheld action whilst Ms Chen took steps to sell the property herself. After marketing the property for several months she sold it in November 2020 for the sum of $1.17 million. After the net sale proceeds were applied against the loan there was a shortfall of approximately $350,000.

[5]    Westpac then sought summary judgment against Ms Chen and Mr McKenzie. Mr McKenzie ultimately came to an arrangement with the bank whereas Ms Chen did not. She took no steps to defend the summary judgment proceeding and summary judgment was entered against her on 10 August 2021 for the sum of $365,849.80.

[6]    On 15 December 2021 Westpac served a bankruptcy notice on Ms Chen by way of substituted service. This required her to pay the sum of $356,849.80 within ten working days. On 2 February 2022 Ms Chen applied for an order setting the bankruptcy notice aside.

Grounds of application

[7]    Ms Chen advances several grounds in support of the application. First, she contends she sold her property at undervalue because of inappropriate pressure Westpac placed upon her. Secondly, she complains that Westpac has unjustifiably refused to accept reasonable proposals that she has made for repayment of the debt by instalments. Thirdly, she contends the Court should exercises its residual discretion in her favour based on Westpac’s inappropriate conduct.

Relevant principles

[8]    The principles to be applied in the present context are well established. Section 17 of the Act relevantly provides as follows:

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),—

(i)      complied with the requirements of the notice; or

(ii)     satisfied the Court that he or she has a cross claim against the creditor.

…

(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.

[9]    In summary, ss 17(1)(d) and 17(7) require the debtor to demonstrate the existence of a cross claim of true substance that he or she genuinely proposes to

pursue.1 This must be equal to, or greater than, the judgment debt. The applicant must also establish that the cross claim could not have been established as a defence in the proceeding in which the judgment underpinning the bankruptcy notice was entered.2

Decision

[10]   Ms Chen faces several obvious difficulties in satisfying the criteria under s 17. First, she has taken no steps to date to pursue the proposed cross claim against Westpac despite the fact that nearly twelve months have now elapsed since summary judgment was entered against her.

[11]   Secondly, there is no contemporaneous evidence to suggest she believed Westpac was placing inappropriate pressure on her during the sale process. The only concern Ms Chen appears to have displayed before entering into the agreement for sale of the property related to her ability to meet the shortfall that she obviously knew would result once the property was sold. This is evident from the following email that she sent to Westpac on 14 October 2020:

Hi Sunita,

I’d like to confirm a payment plan before I accept the offer, they’ve come up to 1.17m.

I can’t accept the offer without knowing the repayment terms, and without knowing whether or not the repayment is affordable in my situation, and I certainly don’t wish Westpac to be disappointed regarding shortfall payment not being met after the settlement.

Hope you understand and I would appreciate a guideline of the repayment before I sign anything with the buyer. It looks like a solid purchase and once I’ve agreed to 1.17M, the buyers will settle in late November.

Kindly advise.

…

[12]   If Ms Chen was genuine in her view that Westpac was placing inappropriate pressure on her to sell the property one would expect her to raise that issue at the time.

1      Sharm v ANZ Banking Group [1992[] 6 PRNZ 386 (CA), at 389.

2      Clark v UDC Finance Ltd [1985] 2 NZLR 636 (CA), at 639.

Instead, she did not raise the issue until after summary judgment had been entered against her.

[13]   Thirdly, Ms Chen was responsible for marketing the property. She rejected an earlier offer of $1.14 million. In the email set out above she observed that the purchaser had “come up to $1.17m” and said this was “a solid offer”. This suggests Ms Chen believed she would be selling the property at market value.

[14]   These factors lead me to conclude Ms Chen does not have a cross claim against Westpac of true substance and that she genuinely proposes to pursue.

[15]   Furthermore, Ms Chen plainly had the ability to raise the cross claim once she was served with the application for summary judgment. Ms Chen says she encountered difficulty in finding lawyers who were prepared to act for her in relation to the application for summary judgment. She was eventually able to find solicitors who agreed to act on her behalf but they ultimately declined to act for her because she was unable to provide them with the retainer they requested. She then left New Zealand on 20 June 2021 to tend to her ailing mother in China. Summary judgment was entered two months later after Ms Chen took no steps to defend the proceeding.

[16]   This sequence of events makes it clear that Ms Chen could have filed her cross claim in defence of the application for summary judgment and that she was aware she needed to obtain solicitors to do so. The fact that she was unable to meet the cost of legal representation simply underscores the fact that she appears to be insolvent.

[17]   It follows that Ms Chen is unable to meet the statutory threshold to permit the Court to make an order setting the bankruptcy notice aside.

[18]   Ms Chen’s remaining arguments relate to Westpac’s actions, including the alleged failure to accept reasonable offers of payment by instalments. These may be relevant to the exercise of the Court’s discretion if Westpac applies for an order of adjudication. They are not relevant in the present context.

Result

[19]The application is dismissed.

Costs

[20]   The bank has a contractual right to recover its reasonable solicitor / client costs from Ms Chen. I make an order to that effect. If counsel cannot reach agreement regarding the quantum of costs, they may file memoranda marked for my attention and I will determine that issue on the papers.

Lang J