Willis Street Parking Limited v Kumar
[2021] NZHC 2866
•27 October 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-14
[2021] NZHC 2866
BETWEEN WILLIS STREET PARKING LIMITED
Judgment Creditor
AND
SARWAN KUMAR
Judgment Debtor
Hearing: 19 October 2021 Appearances:
J Spring and J Hofer for judgment creditor K Lakshman for judgment debtor
Judgment:
27 October 2021
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] This is an application by the judgment creditor, Willis Street Parking Ltd, pursuant to the Insolvency Act 2006 for an order adjudicating the judgment debtor, Sarwan Kumar, bankrupt.
[2] The factual background is not complex, and I gratefully adopt the summary provided by Mr Lakshman in his submissions on behalf of the judgment debtor with which Mr Spring did not take any serious issue.
Facts
2.The facts, except in one material respect, are not in dispute and are set out in the affidavits filed by both parties.
3.The dispute is whether Mr Zhu, on behalf of the judgment creditor, made representations to the judgment debtor about the rent and OPEX, about whether the judgment debtor would be able to get a liquor licence, and about whether the judgment debtor’s Indian – food stall would be the only business of its kind in the food market.
WILLIS STREET PARKING LIMITED v KUMAR [2021] NZHC 2866 [27 October 2021]
4.The judgment debtor guaranteed the obligations of his company JPS Private Ltd (JPS) under a lease that it signed with the judgment creditor for an Indian – food stall at shop 5 in the judgment creditor’s food market in Willis Street, Wellington, for three years commencing on 1 November 2014 at a rent of $2,383.33 plus GST per month plus operating expenses (OPEX), with annual rent reviews, and a right of renewal for a further term of three years. The default interest rate was 16%, calculated on a daily basis for the due date until the date of payment in full. The judgment creditor’s legal costs were recoverable in full.
5.The judgment debtor guaranteed the obligations of JPS under a second lease that JPS signed with the judgment creditor for a bar at stall 20 in the judgment creditor’s food market in Willis Street, Wellington, commencing on 1 February 2015 and expiring on 31 January 2021 at a rent of $2,166.67 plus GST per month plus operating expenses (OPEX), with annual rent reviews. The default interest rate was 16%, calculated on a daily basis from the due date until the date of payment in full. The judgment creditor’s legal costs were recoverable in full.
6.It took about nine months after the new stall 20 lease commenced to obtain the liquor licence and open the bar for business. The judgment creditor put time restrictions on the contractors who were setting up the bar and this delayed their work. JPS was spending about
$90,000.00 in set-up costs for the bar, and since the bar was not open for business for some nine months, JPS was under financial pressure.
7.There was a dispute about the rent for the first nine months that the bar was not open. In February 2016 the rent was doubled to $4,983.33 incl. GST per month and in April 2016 the OPEX was increased to
$548.99 per fortnight. In March 2017, the rent was increased to
$5,132.83 incl. GST per month.
8.In November 2015 the rent for shop 5 was increased to $3,239.16 incl. GST per month and in April 2016 the OPEX was increased to $548.99 per fortnight.
9.Other shops selling similar types of food opened. This affected JPS’s food business with the income decreasing.
10.The food market was not kept clean. This affected both businesses with the income decreasing.
11.In September 2017 the OPEX for the food stall increased to $690.00 per fortnight and the OPEX for the bar increased to $690.00 per fortnight.
12.JPS fell into arrears of rent and OPEX.
13.Rent and OPEX for the bar was charged down to May 2018, and rent and OPEX for the food stall was charged down to February 2019. By then the bar and food stall were no longer operating.
14.The total amount of rent and OPEX charged and not paid for the bar and the food stall was $146,599.62.
15.Interest was charged on the outstanding amounts. In February 2018 interest of more than $13,000.00 was charged. In February 2019 interest of almost $25,700.00 was charged. In September 2019 interest of more than $18,000.00 was charged.
16.By 13 September 2019 the total amount charged and not paid for rent, OPEX and interest was $207,508.34.
17.In November 2019 the judgment creditor commenced liquidation proceedings in the High Court against JPS of $208,060.34.
18.In November 2019 the judgment creditor commenced summary judgment proceedings in the District Court case against the judgment debtor under his guarantee for $208,060.34 plus further interest and legal costs.
19.In February 2020 the High Court put JPS in liquidation.
20.In June 2020 the District Court ruled that the judgment debtor was responsible for JPS’s debt to the judgment creditor under the guarantee. In August 2020 the District Court ordered the judgment debtor to pay the judgment creditor $271,126.19 plus interest at
$103.06 per day from 26 June 2020 to the date of payment. The
$271,126.10 was made up of:
Rent and OPEX $146,599.62 Interest to 13.09.19 $56,929.72 Further interest to 25.06.20 $31,588.70 Barristers fees $35,456.15 Document service fee $552.00
21.In January 2021 the judgment creditor filed the bankruptcy notice on the basis of the judgment debt, and in May 2021 the judgment creditor filed the creditor’s application for adjudication.
[3] The judgment debtor did not apply to set aside the District Court’s judgment aside, or appeal.
[4] Pursuant to s 17 of the Insolvency Act the judgment debtor committed an act of the bankruptcy when he did not comply with the bankruptcy notice.
[5] On the basis of that act of bankruptcy the judgment creditor commenced this proceeding on 20 May 2021.
[6]The judgment debtor has not applied for a stay (halt) of the proceeding.
[7] He has put all his eggs in one basket by filing a notice of opposition dated 12 July 2021 and inviting the Court to exercise its discretion under s 37 of the Insolvency Act to decline to make an order of adjudication.
[8]Section 37 provides as follows:
37 Court may refuse adjudication
The court may, at its discretion, refuse to adjudicate the debtor bankrupt if—
(a)the applicant creditor has not established the requirements set out in section 13; or
(b)the debtor is able to pay his or her debts; or
(c)it is just and equitable that the court does not make an order of adjudication; or
(d)for any other reason an order of adjudication should not be made.
[9] In relation to the exercise of the Court’s discretion, Richardson J in Baker v Westpac Banking Corporation said this:1
It is proper for the Court to consider not only the interests of those directly concerned — the petitioner, other creditors, the debtor — but also the wider public interest. A creditor who establishes the jurisdictional facts as set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The Court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the Court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not be made.
[10] Mr Spring’s submissions on behalf of the judgment creditor could scarcely have been more straightforward. He submitted that the judgment creditor was entitled to proceed down the path that it has, and is prima facie entitled to an order. He of course acknowledged the existence of the Court’s discretion to decline to make an order, but submitted that that was limited to exceptional cases where the Court was satisfied that no useful purpose at all would be served by the order. In acknowledging
1 Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 4.
that, Mr Spring accepted that the process provided for in the Insolvency Act is not a conventional debt collection process in which a judgment creditor has an entitlement to an order. It is a process with wider implications that raises broader issues.
[11]As to those principles Mr Spring and Mr Lakshman were on common ground.
[12] Mr Lakshman, at least in his notice of opposition and formal submissions, appeared to be relying on two grounds:
(a)First that there may have been an arguable defence to the judgment creditor’s District Court claim which the judgment debtor was unable to raise because of his inability to secure advice and assistance;
(b)The contention that no useful purpose would be served by an order of adjudication in this case and that the Court ought to exercise its discretion to refuse the same pursuant to s 37.
[13] In his oral submissions Mr Lakshman did not press the first of those contentions. That, in my view, was wise of him because it is only in the rarest of cases
— and usually where something in the nature of fraud or deception is involved — that a party in the position of the judgment debtor in this case who has not taken any step to defend his position until the eleventh hour will be able to persuade the Court to revisit the merits of the underlying claim.
[14]Mr Lakshman was on more solid ground in his second argument.
[15] He contrasted cases such as Bridgecorp Ltd (in rec and in liq) v Nielsen,2 Ellis v NZI Finance Ltd,3 and McHardy v Wilkins & Davies Marinas Ltd (in receivership)4where the Court had found that there were reasons for an order of adjudication irrespective of the judgment debtors’ financial position, with Associate Judge Gendall’s (as the Judge then was) judgment in Allied Nationwide Finance Ltd v
2 Bridgecorp Ltd (in rec and in liq) v Nielsen [2010] 1 NZLR 820.
3 Ellis v NZI Finance Ltd CA253/89, 24 July 1990.
4 McHardy v Wilkins & Davies Marinas Ltd (in receivership) CA54/93, 7 April 1993.
Temple5 where the Judge stepped carefully through the various relevant criteria, concluding:
(a)that there was no evidence to suggest that the judgment debtor had any available funds;
(b)that the judgment creditor was the only known creditor;
(c)that there was no evidence to suggest that the judgment debtor had any available funds;
(d)that there was no evidence to suggest that the judgment debtor had acted improperly in any way so that there was no obvious reason to involve the Official Assignee in the investigation of his affairs;
(e)that there was no reason to think that the judgment debtor was continuing in business; and finally
(f)there was no evidence to suggest that the judgment debtor posed any other sort of financial risk to the community.
[16] In that case, the Judge concluded that no useful purpose would be served by an order and accordingly exercised his discretion to refuse the same, leaving it to the judgment creditor to enforce its debt by more conventional enforcement processes.
[17] In my view, this case is not on all fours with .Allied Nationwide Finance Ltd v Temple. I accept Mr Lakshman’s submission that the evidence indicates that the judgment debtor was naïve and that the worst criticism that one could make of him is that he was careless as to his own interests. I accept therefore that there is no evidence suggesting impropriety that would justify investigation by the Official Assignee’s. The judgment debtor’s evidence, which I have no reason to doubt, is that the judgment creditor in this case is his only creditor. That point too is in his favour. The judgment debtor has arranged to file and serve a supplementary affidavit at the last moment
5 Allied Nationwide Finance Ltd v Temple HC Napier CIV-2011-441-172, 19 September 2011.
which addresses discussions and negotiations between the parties directed at resolving this matter. Some resistance was offered on behalf of the judgment creditor to the Court receiving that affidavit, first because leave was not sought, second on the basis that it was filed at the last moment and the judgment creditor has had no opportunity to respond, and third because it addresses — in precise terms — communications which on the face of them would be entitled to a claim to privilege.
[18] Having heard counsel in relation to this I allowed the affidavit in, but only after Mr Lakshman accepted that all he could legitimately rely on it for was the general proposition that the judgment debtor had not sat idle but made some attempt to resolve matters and that he acknowledged that he might have access to resources within his family and in particular resources in a family trust that owned property in Wellington in which he and his wife were settlors and trustees and he and his wife and children were discretionary beneficiaries.
[19] A combination of the fact that the judgment debtor has not provided comprehensive evidence as to this personal financial position, and this evidence that he might have access to funds for settlement purposes appear to me to take this case outside the realms of cases such as Allied Nationwide Finance Ltd v Temple.
[20] There is also the fact of the personal guarantee. Those who personally guarantee debts of companies must anticipate being called upon if things do not go as planned or hoped. There is a line of authority that emphasises the importance of holding those who give personal guarantees to their promises and the need to ensure guarantees are enforced as a matter of commercial morality.6 Indeed, any other approach could render the giving of personal guarantees worthless. While this factor alone is not determinative of an application where the relevant debt has been guaranteed, it must be weighed in the balance.
[21] Generally, where an applicant creditor has made out the jurisdictional requirements of s 13, the courts will be slow to exercise the s 37 discretion.
6 See for example Re Coll, ex parte Consumer Finance Ltd HC Rotorua B69/97, 18 September 1997; Re D’Esposito, ex p Westpac Banking Corp HC Napier B16/98, 30 June 1998; and Re Pulman ex parte the Hire Company Ltd HC Auckland CIV-2006-404-4697, 20 April 2007.
[22] The above considerations suggest to me that the proper outcome here is to make the order sought by the judgment creditor so as to enable the Official Assignee to carry out an investigation of the judgment debtor’s affairs and clarify the position.
[23] I am not therefore prepared to exercise the Court’s discretion under s 37 as Mr Lakshman invites the Court to do on behalf of the judgment debtor.
[24] As an alternative, Mr Lakshman submitted that the Court should give the judgment debtor some time to resolve matters. Mr Spring on behalf of the judgment creditor resisted that. However, in my view, that is a practical approach which may ultimately be to the benefit of both parties.
[25]For the reasons outlined, I make the following orders:
(a)On the application of the judgment creditor, Willis Street Parking Ltd, I make an order pursuant to s 36 of the Insolvency Act 2006 adjudicating the judgment debtor, Sarwan Kumar, bankrupt.
(b)The judgment creditor will have its costs on a solicitor and client basis pursuant to cl 17.2 of the lease between the parties together with such disbursements as may be allowed by the Registrar. If counsel are unable to settle the quantum of indemnity costs that may be referred back to me for determination by memoranda in the usual way;
(c)That order will come into force at 4.00 pm on 10 November 2021, unless, by that date and time, the judgment debtor has discharged the full amount of the debt together with costs.
Associate Judge Johnston
Solicitors:
MinterEllisonRuddWatts, Auckland for judgment creditor Maude & Miller, Porirua for judgment debtor
0
0
0