Westpac New Zealand Limited v Gardiner
[2013] NZHC 1243
•31 May 2013
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2011-454-586, 890 and 891
Consolidated by Order of the Court on 17 May 2012 [2013] NZHC 1243
BETWEEN WESTPAC NEW ZEALAND LIMITED Plaintiff/Judgment Creditor
AND DJ GARDINER
First Defendant/Judgment Debtor
H M GARDINER
Second Defendant/Judgment DebtorS J OSTEN Third Defendant Z J GARDINER
Fourth Defendant
Hearing: 23 May 2013
(Heard at Wellington)
Appearances: N.A. Taylor - Counsel for Plaintiff
G. Cruden & L.W. Goodman - Counsel for Defendants
Judgment: 31 May 2013
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by me on 31 May 2013 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ..................................................................
WESTPAC NEW ZEALAND LIMITED v DJ GARDINER [2013] NZHC 1243 [31 May 2013]
Introduction
[1] In a judgment issued by His Honour Associate Judge Abbott on 8 April 2013 (the judgment) in the present proceeding, the following occurred:
(a) summary judgment was entered against the fourth defendant; and
(b)an application to set aside earlier summary judgment orders made in favour of the plaintiff (Westpac) against the first and second defendants was dismissed;
(c) an application by the first and second defendants to set-aside bankruptcy notices issued against them by Westpac was also dismissed, and
(d) the first and second defendants were adjudicated bankrupt.
[2] The first, second and fourth defendants have appealed the judgment to the Court of Appeal. Before me, they have applied to stay the 8 April 2013 judgment, and halt the bankruptcy proceedings against the first and second defendants.
[3] That application is opposed by the plaintiff.
Background
[4] The original proceedings concerned a dispute over liability for the balance of bank loans made by Westpac to Gardost Properties Limited (Gardost), after security properties were sold and the proceeds applied in reduction of the loans. The defendants were all shareholders of Gardost, and guaranteed the loans.
[5] Gardost was incorporated on 19 July 2007 for the purpose of purchasing a property in Palmerston North (the property). The fourth defendant was the sole director of Gardost. He is the son of the first and second defendants, and the former partner of the third defendant. Each defendant held 25% of the shares in Gardost. Gardost obtained a loan from Westpac to purchase the property, and Westpac also made further loans to Gardost and provided current account advances. In April 2010
Gardost defaulted under its bank loan arrangements when its current account went into unauthorised overdraft, and Westpac made demand on 20 April 2010. When that demand was not met, Westpac made demand on the defendants as guarantors. It then served Property Law Act notices and proceeded to exercise its power as mortgagee to sell the property.
[6] At the same time, the second defendant defaulted on her other separate obligations to Westpac, causing Westpac to sell her property. The proceeds of that sale, plus the proceeds of the property sale, were applied to Gardost’s outstanding loan, leaving $238,397.34 unpaid.
[7] Westpac then on 20 October 2011 obtained summary judgment for this shortfall against both the first and second defendants by default. On 15 December
2011 Westpac issued bankruptcy notices against the first and second defendants. On
17 May 2012, Westpac applied to this Court to have those defendants adjudicated bankrupt. That application was opposed and the first and second defendants also applied to set aside the summary judgment and bankruptcy notices. They argued first, that the guarantees were invalid and unenforceable because they were acting under the undue influence of their son, secondly, that they should have been told to obtain independent legal advice, thirdly, that Westpac acted imprudently in advancing loans to Gardost, and fourthly, that they had an arguable counterclaim and set-off to the debt as the sales of the properties were not at market value.
[8] In the meantime, Westpac had settled with the third defendant.
[9] Westpac’s summary judgment proceeding was opposed in relation to the fourth defendant. Essentially, he said his guarantee was unenforceable because he did not receive independent legal advice and Westpac acted imprudently. And further, he maintained that Westpac breached its duty to him by selling their security properties below market value.
[10] In the judgment, Associate Judge Abbott found, but it seems only by a narrow margin, that there was a sufficient relationship of trust and confidence between the first and second defendants and the fourth defendant to advance a claim of undue
influence, and that the first and second defendants entered into the guarantee as a result of such influence. However, he went on to find that Westpac was not put on inquiry of any undue influence, and even if they were, they took reasonable steps under all the circumstances here. In addition, he concluded that there was no duty for Westpac to act prudently when lending, and in any event, Westpac were prudent here. He found too that the defendants did not have an arguable case that Westpac breached its mortgagee’s duty. There was no miscarriage of justice arising from the summary judgment against the first and second defendants because they did not have an arguable defence. Westpac had established grounds for adjudicating them bankrupt, and thus the Associate Judge did so. For the same reasons, the Judge found the fourth defendant did not have an arguable defence to the application against him for summary judgment, and entered judgment for Westpac.
[11] On 3 May 2013, the first, second and fourth defendants lodged with the Court of Appeal an appeal against the judgment in its entirety.
[12] They have now applied to the High Court to:
(a) stay the judgment under rule 20.10 of the High Court Rules; and
(b)halt the bankruptcy proceedings. There has been confusion as to the exact relief sought here, however it seems the first and second defendants are applying to suspend the bankruptcy either under s 416 of the Insolvency Act 2006, or through the High Court’s inherent jurisdiction.
Counsels’ submissions and my decision
[13] Rule 20.10 of the High Court Rules is relevant here. It provides:
(1) An appeal does not operate as a stay—
(a) of the proceedings appealed against; or
(b) of enforcement of any judgment or order appealed against.
(2) Despite subclause (1), the decision-maker or the court may, on application, do any 1 or more of the following pending determination of an appeal:
(a) order a stay of proceedings in relation to the decision appealed against:
(b) order a stay of enforcement of any judgment or order appealed against: (c) grant any interim relief.
(3) An order made or relief granted under subclause (2) may—
(a) relate to enforcement of the whole of a judgment or order or to a particular form of enforcement:
(b) be subject to any conditions for the giving of security the decision-maker or the court thinks just.
[14] Likewise, r 12 of the Court of Appeal (Civil) Rules 2005 provides a similar authority for the Court of Appeal or the Court from which the decision has been appealed from to grant a stay.
[15] It is not in dispute that the principles the court must take into account in determining a stay application, confirmed in Keung v GBR Investment Ltd [2010] NZCA 396 at [11], are as follows:
In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant's right to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:
(a) Whether the appeal may be rendered nugatory by the lack of a stay. (b) The bona fides of the applicant as to the prosecution of the appeal. (c) Whether the successful party will be injuriously affected by the stay. (d) The effect on third parties.
(e) The novelty and importance of questions involved. (f) The public interest in the proceedings, and
(g) The overall balance of convenience.
[16] The strength of the appeal is also a factor to be considered.1
[17] Rule 20.10 is to apply unless there is a specific provision in the Act in question that confers the right of appeal.2 Thus s 416 of the Insolvency Act 2006 becomes relevant for the first and second defendants who were adjudicated bankrupt under that Act. It provides that where an appeal has been filed against an order of adjudication, the bankrupt or any interested party may apply to the High Court or to
the Court of Appeal for an order that the bankruptcy be suspended until the appeal is
1 At [11].
2 High Court Rules, r 20.1(3).
decided. If such an application is granted, the Court has discretion to attach terms and conditions. Whether an order of adjudication has been suspended or not, the Court may also make an order to govern the period between the adjudication and the determination of the appeal.
[18] Similar considerations under r 20.10, set out at [15] above, are relevant.3
[19] Lindsay v Vaucluse Holdings Ltd CA272/99, 13 December 1999 held in relation to the 1967 legislation, that a suspension is not necessary to appeal an order of adjudication, so while the Court can order suspension, it is not mandatory. Tipping J, for the Court in that case, in declining to suspend the operation of an order of adjudication, said:
Leaving these two points aside, if this application for suspension is viewed on the wider and more conventional discretionary basis, Mr Lindsay has not demonstrated any good reason why there should be suspension in the meantime. Again there is no evidence suggesting any particular prejudice. We are satisfied that the adjudication order should take effect. If the appeal against it succeeds the position will be analogous to an annulment.
[20] While that proceeding, dealing with an adjudicated bankrupt, was decided under the 1967 legislation, it dealt with the directly parallel provision (s 9(2)) to that in the current legislation (s 416). This reasoning was also applied under s 416 in Re Havenleigh Global Services Ltd, ex parte Henderson HC Christchurch CIV-2010-
409-559, 29 November 2010 and in Re Parlane, ex parte Young HC Auckland CIV-
2010-404-5478, 25 July 2011.
[21] In the present case, the defendants seek orders for stay and suspension of the bankruptcy because they say it will avoid premature enforcement of the judgment, avoid confusion between the High Court and Court of Appeal proceedings, and enhance the fair and orderly conduct of the appeal and the proceedings generally. Any prejudice suffered by the defendants it is claimed would be disproportionate to that suffered by Westpac. Furthermore, the appeal is claimed to raise major questions of novelty and importance – whether there was undue influence, whether Westpac was obligated to ensure the defendants received independent legal advice, whether
Westpac had a duty to lend prudently, whether Westpac was obliged to sell at market
3 Kroon v Westpac Banking Corporation HC Auckland CIV-2006-404-4720; CIV-2006-404-1970, 15
May 2007 at [24].
value, whether the under value sale was unlawful, and whether the sale of the second
defendant’s home was inequitable.
[22] The fourth defendant says that a stay would also avoid the duplication, costs and delay of having to make an application under s 42(2) Insolvency Act 2006 to halt the proceedings if Westpac were to commence adjudication proceedings against him.
[23] Originally in their present application, the first and second defendants sought to rely on s 42(2) of the Insolvency Act 2006. However they have now decided this was inappropriate and abandoned that. Instead, they contend that this Court should use its power under r 20.10 or s 416 Insolvency Act 2006 to remedy the situation that has arisen here. If that fails, they suggest the Court should use its inherent jurisdiction to provide them with a remedy. On all of this, they submit specifically:
(a) A genuine dispute exists.
(b)A stay will prevent an abuse of process. The judgment they say was unable to determine certain issues at the interlocutory stage, mainly whether the amount owing to Westpac was just the loan for the property purchase ($404,000), or whether it was that amount and the personal loans ($696,906).
(c) It is in the interests of fairness to the first and second defendants and their creditors to preserve their existing incomes. They would suffer loss which would not be compensated if the appeal were to be allowed. There is no risk they will dissipate assets in the meantime as they have no realizable assets.
(d)Returning a stay and suspension order here would have potential adverse consequences to their employment. The first defendant is employed by a farming company of whom the shareholders are accountants professionally aware of a bankrupt employee’s financial disabilities. The second defendant is in a local body role dealing with ratepayers’ and residents’ inquiries and complaints, and not
suspending her bankruptcy puts her continued employment in increased risk.
(e) In the small community in which they live, bankruptcy will unnecessarily damage their good reputation.
(f) It will not cause Westpac any prejudice. In fact, if the first and second defendants lose their employment, it would prejudice Westpac and other creditors if the appeals were ultimately to be unsuccessful.
(g)The Official Assignee has recognised the defendants’ right to appeal by not attending these proceedings. The Official Assignee has also decided not to disburse bankruptcy monies pending the outcome of the appeal – suspension would reinforce and give added authority to this decision.
(h)And, on the last point noted above, if the Court declines to exercise its power under r 20.12 or s 416, the Court should use its inherent jurisdiction to grant some relief. They cite Aditude Advertising Ltd (in Liquidation) v Techday Ltd [2012] NZHC 1884 which concerned liquidation proceedings, where the Court used its inherent jurisdiction to grant a stay, as it said it would be unsafe not to grant a stay and halt the bankruptcy proceedings. They also cite In the matter of Philip Taueki 279 MB 101, where there were statutory stay powers that did not contain an explicit power to grant the stay of execution on the grounds sought. The Court considered it had a power under its inherent jurisdiction.
[24] In response, Westpac submits in relation to the fourth defendant’s application, that it is entitled to the fruits of the judgment. There is no evidence that the appeal would be rendered nugatory if the relief sought is not granted. The decision of Associate Judge Abbot is reasoned and lengthy, and if the merits of the appeal are taken into account, it is said they favour Westpac.
[25] As to the position of the first and second defendants, Westpac suggests that the only option here is for them to seek a suspension of their adjudications under s
416. There is no basis to stay the adjudication under the inherent jurisdiction of the court. They have been bankrupt since 8 April 2013, and there is no evidence of real prejudice in a continuation of this apart from the normal consequences of being made bankrupt. This is not enough to grant a stay. The proposition that there may be a risk to employment is based on no evidence, and has not eventuated. The fact that there are no assets to distribute is not determinative. And any consideration of the merits of the appeal favours Westpac.
[26] Furthermore, Westpac contends that it is only the Official Assignee who can challenge the debt underlying a bankruptcy order. Thus there are procedural issues with the defendants’ appeal where they have sought to bring this proceeding themselves. The defendants’ reply to this however is that the bankrupt has a statutory right to apply for suspension under s 416, and all procedural requirements here have been complied with.
Fourth defendant – r 20.10
[27] The effect of staying the proceedings for the fourth defendant would be that the fourth defendant would not have to pay $238,397.34 and interest on that sum until the appeal is concluded, if it all.
[28] As the wording of r 20.10 itself makes clear, the scales are somewhat tipped at the outset in favour of the entitled party.4 Thus the onus is on the fourth defendant to persuade the court that a stay should be granted.5 This onus has not been discharged, and the fourth defendant has not provided any reason why the payment of this sum now would render the appeal nugatory. I decline to comment on the
merits of the appeal, but do note that Associate Judge Abbott issued a lengthy and carefully reasoned judgment, after hearing a full day of argument from the parties. Furthermore, the grounds of the appeal in my view do not deal with novel points of
law and essentially are factual. Furthermore, there is nothing of substance before the
4 M v M [2013] NZHC 470 at [10].
5 Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd [1977] 2 NZLR 41 (CA)
Court to indicate the fourth defendant’s financial position and to confirm he is a “man of substance”, such that the plaintiff can wait to enjoy the “fruits of its judgment” against him and would not be injuriously affected by the inevitable delay which would occur if a stay is granted. For all these reasons I decline to order a stay.
First and second defendant – s 416 and r 20.10
[29] If the present application is dismissed, it is clear the first and second defendants will continue to suffer the stigma of bankruptcy and its attendant disqualifications. This cannot, however, be a ground for stay or suspension unless something beyond the ordinary is revealed in all the circumstances prevailing here. This was a point made by Ronald Young J in Kroon v Westpac Banking Corporation HC Auckland CIV-2006-404-4720 CIV-2006-404-1970, 15 May 2007 at [9] in the context of an application under s 42 of the Insolvency Act. It is equally applicable in
the present context.6 And as I see the position, there is nothing beyond the ordinary
or more than what would be seen as the normal prejudice associated with adjudication, in the circumstances here that would require the Court to grant relief under s 416.
[30] The first and second defendants have been bankrupt since 8 April 2013 and yet the evidence before me is that they still continue in their previous jobs. The argument that the first and second defendants’ employment will be in jeopardy is no more than a bald assertion here. It is unsupported by evidence of any kind, either independent evidence, or evidence properly advanced by the first and second defendants. Significantly, there is also nothing before the Court from either of their employers. Further, as I have noted above, and to the extent that it is relevant, the grounds of appeal are not novel and in my view do not appear to be particularly strong.
[31] In my view, the fact that in this case there may be no assets in the estates of the first and second defendants for the Official Assignee to distribute, is also not
determinative. There is a public and community interest in ensuring the integrity of
6 Re Wang, ex parte Westpac New Zealand Ltd (1763882) (2011) 25 NZTC 20-015 at [23].
the bankruptcy process remains, and adjudication provides a number of general restrictions and protections for the benefit of creditors and the wider community.
[32] I decline to order a suspension of the adjudication order. This result would be the same whether r 20.10 or s 416 applied.
[33] And, leaving on one side the question of whether it is only the Official Assignee who can bring an appeal against the original summary judgment orders made against the now bankrupted first and second defendants, in any event, I would also decline to have ordered a stay of those summary judgment orders for all the reasons outlined above. For completeness, I confirm also that I would not have engaged the inherent jurisdiction of this Court to grant the stay or suspension orders sought here.
Conclusion
[34] The application by the fourth defendant and the application by the first and second defendants to stay the 8 April 2013 judgment and the orders made therein under r 20.10 are declined.
[35] The application by the first and second defendants to suspend the adjudication orders is declined.
Costs
[36] As to costs, if they are sought by the plaintiff on the present applications, it is my view that as the plaintiff has succeeded in opposing these applications it is entitled to the usual award of costs in this case.
[37] Costs are therefore awarded on these applications to the plaintiff on a category 2B basis together with disbursements as fixed by the Registrar. On this it is simply noted however that the first and second defendants remain undischarged bankrupts.
‘Associate Judge D.I. Gendall’
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