Whitley v Lowes Automotive (1993) Limited HC Auckland B1247-im01

[2002] NZHC 3

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
IN BANKRUPTCY B1247-im01

IN THE MATTER of the Insolvency Act 1967

AND

IN THE MATTER of the bankruptcy of KEVIN JOHN WHITLEY
Judgment Debtor

AND LOWES AUTOMOTIVE (1993) LIMITED
Judgment Creditor

Hearing: 5, 19 December 2001

Counsel: Mr Whitley in person
P F Dalkie for the judgment creditor

Judgment: 10 January 2002

(RESERVED) JUDGMENT OF MASTER KENNEDY-GRANT

Introduction

[1] On 13 December 2000 judgment was entered against Mr Whitley in the District Court at Lower Hutt for the sum of $9,628.87 plus interest of $441.07 and costs of $1,500 with disbursements to be fixed by the Registrar.

[2] Judgment was granted against Mr Whitley personally because the liability in respect of which it was granted arose out of a contract entered into by him as receiver of a company in receivership. The personal liability of a receiver in such situations is created by s 32(1) of the Receiverships Act 1993. In October 2001 the judgment creditor served on Mr Whitley a bankruptcy notice founded on the judgment of 13 December 2000.

[3] Mr Whitley has applied to set this bankruptcy notice aside.

The grounds of Mr Whitley’s application

[4] In his application, Mr Whitley relied on the following grounds:

[a] That the judgment of the District Court was ultra vires that Court, jurisdiction under the Receiverships Act 1993 being conferred solely upon the High Court;

[b] The bankruptcy notice was invalid because it was issued for the full amount of the judgment debt and did not take into account the sum of $4,500.00 held in Court and paid out of Court to the judgment creditor;

[c] It is open to him to apply for a summary instalment order, under Part XVI of the Insolvency Act 1967;

[d] He could apply for a variation of the existing Part XV proposal under the Insolvency Act 1967 to include this debt (which had been expressly excluded from the Part XV proposal);

[e] He could seek relief from liability from the High Court under s 33(1)(b) of the Receiverships Act 1993;

[f] It is open to him to apply for leave to appeal out of time against the judgment of the District Court and/or to apply to the District Court for an order rescinding or revoking the judgment.

[5] In his affidavit in support of his application, Mr Whitley sought leave, in the event that his first ground was rejected, to file a further affidavit in support of his application to set aside the bankruptcy notice .

[6] When the matter was further argued on 19 December 2001, Mr Whitley advanced two further arguments in support of his application:

[a] That, as a receiver held personally liable under s 32(1) of the Receiverships Act 1993, he is entitled to indemnity out of the property in receivership (under s 32(9) of that Act) and that there are funds in the receivership;

[b] That he is entitled to apply for a rehearing of the District Court judgment on the ground of new evidence.

The jurisdictional basis of Mr Whitley’s application

[7] Mr Whitley’s application not being based upon the existence of “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” (see s 19(1)(b) of the Insolvency Act 1967), it can only succeed if he is able to establish that it is an abuse of the process of this Court for the judgment creditor to seek to bankrupt him : Re Wise (High Court, Auckland, B227/95, 21/6/95 Master Kennedy-Grant).

Mr Whitley’s grounds other than the first

[8] I am not satisfied that any of the grounds advanced by Mr Whitley, other than the first, would, if established, render the judgment creditor’s invoking of the bankruptcy jurisdiction of this Court an abuse of process.

[9] I set out below, in respect of each ground separately, my reasons for coming to this conclusion in respect of the grounds relied on by Mr Whitley, other than the first:

[a] Invalidity of the bankruptcy notice

Section 20(b) of the Insolvency Act 1967 expressly provides that a bankruptcy notice “shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due . . .”

[b] Ability to apply for a summary instalment order

Mr Whitley has not applied for a summary instalment order.

[c] Variation of existing Part XV proposal

In the course of argument, Mr Whitley stated that he no longer considered this to be necessary, because of his right to relief under s 32(9) of the Receiverships Act 1993.

In any event, he has not made any application for variation of the Part XV proposal to include this additional debt.

[d] Relief under s 33(1)(b) of the Receiverships Act 1993

Mr Whitley very properly accepts that this ground is not sound because paragraphs (a) and (b) of s 33(1) of the Receiverships Act 1993 are conjunctive not disjunctive.

[e] Application for leave to appeal out of time against the judgment of the District Court and/or to the District Court for an order rescinding or revoking the judgment

No application for leave to appeal out of time has been made.

An application to set aside or rescind the judgment, on the ground of want of jurisdiction on the part of the District Court, has been filed; but, as that issue is before this Court as the first ground relied on by Mr Whitley, there is no need to delay dealing with the validity of the judgment creditor’s bankruptcy proceeding pending determination of the issue by the District Court.

[f] Application for leave to adduce further evidence

Mr Whitley has had ample opportunity to adduce further evidence and has not done so.

[g] Right to indemnity out of the property in receivership under s 32(9) of the Act

Mr Whitley has not sought such indemnity.

[h] Application for a rehearing of the District Court judgment on the ground of new evidence

The new evidence relied on by Mr Whitley is to the effect that the $4,500 paid into Court prior to judgment being granted against him in December 2000 was “misapplied” to payment of the debt despite the knowledge of the judgment creditor, through its solicitor, and of the Registrar of the District Court that Mr Whitley had appealed. The effect of the payment out was that the funds were not available for the payment of security for costs in respect of Mr Whitley’s appeal, which therefore automatically lapsed.

Even if it is correct that the judgment creditor and the Registrar of the District Court “misapplied” the funds in Court (as opposed to receiving payment and making payment properly), the fact that Mr Whitley has not applied for leave to appeal out of time, when he could have, removes the sting of their conduct and prevents the institution of the present bankruptcy proceeding being an abuse of the process of this Court.

Mr Whitley’s first ground: the ground restated

[10] Mr Whitley’s first ground is that the judgment of the District Court was ultra vires that Court, jurisdiction under the Receiverships Act 1993 being conferred solely upon the High Court.

Mr Whitley’s first ground: the opposing arguments

[11] In support of his application, Mr Whitley advances the following arguments:

[a] S 32(1) of the Receiverships Act 1993 is expressly stated to be subject to s 32(2) and (3), both of which refer to “the Court”;

[b] Similarly, the parallel provision of s 32(5) of the Act is expressly stated to be subject to s 32(7), which refers to “the Court”;

[c] The power to relieve from liability contained in s 33(1) of the Act is vested in “the Court”;

[d] “The Court” is defined in s 2 of the Act as meaning “the High Court”;

[e] If the power to declare a receiver personally liable under s 32(1) of the Act is exercisable by the District Court, as well as by the High Court, a receiver seeking an extension of time under s 32(3) or limitation of liability under s 32(7) will necessarily be involved in proceedings in two Courts:

[i] a defence of the claim based on s 32(1) in the District Court;

[ii] application for relief in the High Court;

[f] The position is the same in the case of a receiver who is held personally liable and who seeks an indemnity out of the property in receivership under s 32(9) of the Act;

[g] The same is true in the case of a receiver who faces a claim for personal liability under s 32(1) of the Act and seeks relief from liability under s 33(1) of the Act;

[h] When first introduced to Parliament, the provisions of the Receiverships Act 1993 were part of the Companies (Ancillary Provisions) Bill. The High Court has exclusive jurisdiction in respect of matters arising under the Companies Act and the same rule should apply to what is now the Receiverships Act 1993.

[12] In support of the judgment creditor’s opposition to Mr Whitley’s application, Mr Dalkie submits:

[a] That Mr Whitley’s argument from the legislative history of the provisions in question is flawed because, while it is clear that the High Court is the only Court with supervisory power in respect of companies, there is no question but that:

[i] Ordinary proceedings can be brought against a company in the District Court;

[ii] Claims by a liquidator under ss 297 and 298 of the Companies Act 1993 may be brought in the District Court;

[b] That Mr Whitley’s argument from the wording of the Act itself is flawed because:

[i] There is no mention of “the Court” in s 32(9), so it cannot be said that a receiver who is defending a claim under s 32(1) and who seeks indemnity under s 32(9) will be forced to litigate in two courts;

[ii] The reference to “the Court” in s 32(2) does not support the inference that only the High Court may find a person liable under s 32(1) of the Act because the expression only appears in a phrase excluding from the operation of the sub-section receivers appointed “by the Court”;

[iii] S 32(3) of the Act only applies to cases under s 32(1)(b) not to cases under s 32(1)(a), which is the relevant provision in this case;

[iv] S 32(5)-(7) deal with a different situation from that in question in this case and no argument in respect of s 32(1) of the Act can therefore be based upon those sub-sections;

[v] The right to indemnity under s 32(9) is not limited in any way in respect of the Court able to declare the existence of and to enforce a right to indemnity out of the property in receivership;

[vi] S 33(1), which is limited to the High Court, deals with a very special case, which is not involved here;

[vii] The evil of a party in the position of Mr Whitley having to litigate in two Courts is substantially reduced by two factors:

• It is not every case that will create a need for this;

• Duplicity of proceedings can be avoided by means of a stay of the District Court proceeding or by transfer of the District Court proceeding to the High Court for determination by that Court together with the High Court proceeding.

Mr Whitley’s first ground: the relevant sections of the Receiverships Act 1993

[13] The word “Court” is defined in s 2 of the Act as meaning “the High Court”

[14] S 32 of the Act reads as follows:

“Liabilities of receiver

(1) Subject to subsections (2) and (3) of this section, a receiver is personally liable-

(a) On a contract entered into by the receiver in the exercise of any of the receiver’s powers; and

(b) For payment of wages or salary that, during the receivership, accrue under a contract of employment relating to the property in receivership and entered into before the appointment of the receiver if notice of the termination of the contract is not lawfully given within 14 days after the date of appointment; and

(c) For payment of remuneration under any contract with-

(i) A director of a grantor that is a body corporate; or

(ii) A person who, in relation to a grantor that is not a body corporate, occupies a position equivalent to that of a director of a body corporate-

if the receiver has expressly confirmed the contract.

(2) The terms of a contract referred to in paragraph (a) of subsection (1) of this section may exclude or limit the personal liability of a receiver other than a receiver appointed by the Court.

(3) The Court may, on the application of a receiver, extend the period within which notice of the termination of a contract is required to be given under paragraph (b) of subsection (1) of this section and may extend that period on such terms and conditions as the Court thinks fit.

(4) Every application under subsection (3) of this section must be made before the expiry of the period referred to.

(5) Subject to subsection (7) of this section, a receiver is personally liable, to the extent specified in subsection (6) of this section, for rent and any other payments becoming due under an agreement subsisting at the date of the appointment of the receiver relating to the use, possession, or occupation by the grantor of property in receivership.

(6) The liability of a receiver under subsection (5) of this section is limited to that portion of the rent or other payments which accrue in the period commencing 14 days after the date of the appointment of the receiver and ending on-

(a) The date on which the receivership ends; or

(b) The date on which the grantor ceases to use, possess, or occupy the property,-

whichever is the earlier.

(7) The Court may, on the application of a receiver,-

(a) Limit the liability of the receiver to a greater extent than that specified in subsection (6) of this section:

(b) Excuse the receiver from liability under subsection (5) of this section.

(8) Nothing in subsection (5) or subsection (6) of this section-

(a) Is to be taken as giving rise to an adoption by a receiver of an agreement referred to in subsection (5) of this section; or

(b) Renders a receiver liable to perform any other obligation under the agreement.

(9) A receiver is entitled to an indemnity out of the property in receivership in respect of personal liability under this section.

(10) Nothing in this section-

(a) Limits any other right of indemnity to which a receiver may be entitled; or

(b) Limits the liability of a receiver on a contract entered into without authority; or

(c) Confers on a receiver a right to an indemnity in respect of liability on a contract entered into without authority.

[15] S 33(1) of the Act reads as follows:

(1) The Court may relieve a person who has acted as a receiver from all or any personal liability incurred in the course of the receivership if it is satisfied that-

(a) The liability was incurred solely by reason of a defect in the appointment of the receiver or in the deed or agreement or order of the Court by or under which the receiver was appointed; and

(b) The receiver acted honestly and reasonably and ought, in the circumstances, to be excused.

Mr Whitley’s first ground: my ruling

[16] I hold that the power to declare a receiver personally liable under s 32(1) of the Receiverships Act 1993 may be exercised either by the High Court or by a District Court.

[17] I so hold for the following reasons:

[a] Prior to the coming into force of the Receiverships Act 1993, a receiver appointed by a debenture holder was not personally liable for contracts he or she entered into on behalf of the company during the course of the receivership: D Owen & Co v Cronk [1895] 1 QB 265. The purpose of s 32(1) of the Act was to alter this position, so that a receiver appointed by a debenture holder was in the same position as far as personal liability as a receiver appointed by the Court. The sub-section is not, therefore, concerned with jurisdiction but, rather, with establishing a particular substantive legal position. That being so, there is no inherent reason why jurisdiction to declare personal liability under the sub-section should be limited to the High Court;

[b] The provisions of the Receiverships Act 1993 in respect of which jurisdiction is expressly limited to the High Court fall into the following categories:

[i] facilitatory: ss 5(1), 11(7), 12(2), 17(1) and 39;

[ii] supervisory: ss 25(1), 31(1), 31(2), 35 and 37;

[iii] remedial: ss 32(3), 32(7), 33(1), 34 and 39;

and are thus different in their nature and purpose from s 32(1) of the Act;

[c] I am persuaded that Mr Whitley’s argument from the legislative history of the Act is flawed, for the reasons advanced by Mr Dalkie, for the judgment creditor (see paragraph [12][a] of this judgment);

[d] I accept as valid the other arguments advanced by Mr Dalkie (see paragraph [12][b] of this judgment).

Conclusion and Orders

[18] In the light of my rejection of Mr Whitley’s grounds other than his first ground (see paragraphs [7]-[9] of this judgment) and of my rejection also of his first ground (see paragraphs [7] and [10]-[17] of this judgment), it follows that his application must fail.

[19] I therefore make the following orders:

[a] Mr Whitley’s application for an order setting aside the bankruptcy notice served on him by the judgment creditor is dismissed;

[b] Mr Whitley is ordered to pay the judgment creditor’s costs of the application on a 2B basis, together with disbursements to be fixed by the Registrar.

[20] This judgment is signed at 12.05 pm on 10 January 2002.