Young v Wadman

[2024] NZHC 3751

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2021-419-000259

[2024] NZHC 3751

UNDER

AND

the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of BRIAN DAVID WADMAN

BETWEEN

GRANT YOUNG

Judgment Creditor

AND

BRIAN DAVID WADMAN

Judgment Debtor

Hearing:	4 November 2024
Appearances:	AM Swan for the Judgment Creditor TJP Bowler for the Judgment Debtor
Judgment:	10 December 2024

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 10 December 2024 at 4 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date.......................................

Solicitors:

Auckland Property Legal Service, Auckland Neilsons Lawyers, Auckland

YOUNG v WADMAN [2024] NZHC 3751 [10 November 2024]

Introduction

[1]    The judgment creditor, Grant Young, applies for an order adjudicating the judgment  debtor,  Brian  Wadman,  bankrupt  pursuant  to   s   36   of   the Insolvency Act 2006.

[2]    Mr Young was substituted as the judgment creditor on 13 August 2024, in place of the original judgment creditor, Graham Smith, pursuant to s 44 of the Insolvency Act. Mr Young relies on a judgment obtained against Mr Wadman in the Disputes Tribunal on 11th August 2021 in the sum of $18,050.

[3]    A notice of opposition has been filed on behalf of Mr Wadman by the lawyers who were acting for him in defending the application by the original judgment creditor, Mr Smith, together with an affidavit in support by a law clerk of the firm. In the affidavit, the law clerk deposes:

3.          Mr Wadman has been overseas for several months and we have been unable to obtain any instructions from him in relation to accepting service of the proceedings.

4.          Mr Wadman has previously instructed us in relation to a counterclaim he has against Mr Young. A copy of that draft counterclaim is attached to this proceeding and marked with the letter "A".

5.          The counterclaim Mr Wadman has against Mr Young is in excess of the sum claimed by Mr Young being $18,050.

6.          Furthermore, Mr Wadman is solvent as he holds a number of properties (some freehold). Furthermore, we are currently holding funds in our trust account on behalf of Mr Wadman in the sum of $53,000. Please find attached marked exhibit "B" is our trust account printout confirming the funds held on behalf of Mr Wadman.

(bold in original)

[4]    The affidavit further records that the notice of opposition was filed without prejudice to the position that Neilsons Lawyers were not authorised to accept service of the bankruptcy proceedings by the substituted creditor, Mr Young.

[5]Essentially, the three grounds of opposition by Mr Wadman are that:

(a)he has not been personally served;

(b)he is solvent; and

(c)he has a counterclaim exceeding the amount of the debt.

[6]    I consider each of these grounds below after setting out the principles applying to bankruptcy applications.

Requirements of the Insolvency Act and legal principles applying

[7]    Section 36 of the Insolvency Act provides that the Court may, at its discretion, adjudicate a debtor bankrupt if the creditor has established the requirements as set out in s 13 of the Act that:1

(a)the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c)the debt is a certain amount; and

(d)the debt is payable either immediately or at a date in the future that is certain.

[8]    Even where the requirements of s 13 are satisfied, adjudication does not follow automatically. Section 37 of the Act provides that the Court may exercise its discretion to decline to make an order adjudicating the judgment 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 Baker v Westpac Banking Corporation, the Court of Appeal held in relation to the exercise of the Court’s discretion:2

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 set out in s23 [the equivalent of s 13] is not automatically entitled to an order. On the

1      Insolvency Act 2006, s 13.

2      Baker v Westpac Banking Corporation CA212/92, 13 July 1993 at 4.

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 to be made.

[10]   In Rabobank Australia Ltd v Tootell,3 Associate Judge Osborne (as his Honour then was) referred with approval to the list of factors set out in Re Epirosa, ex parte Diners Club (NZ) Ltd.4 These factors include the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication.

Has Mr Wadman been properly served?

[11]   It is clear that Mr Wadman has been properly served. Mr Bowler is the solicitor on the record for Mr Wadman in the proceedings. Although Mr Young has been substituted in as the judgment creditor, Mr Wadman’s address for service remains current as the new bankruptcy application by the substituted creditor is filed in the original proceedings under the same CIV number.

[12]   No application to withdraw as solicitor on the record for Mr Wadman was filed by Mr Bowler prior to service of the substituted application. There is no ability, therefore, for Mr Wadman to say he has not been properly served on the basis that he has not authorised Mr Bowler to accept service of the substituted application or otherwise. Service in accordance with a current address for service is good service in the proceeding.

Is Mr Wadman solvent?

[13]   Mr Wadman opposed the original application by Mr Smith on the basis that he was solvent, submitting that he was able to pay his debts as they fell due. This was notwithstanding that he was choosing not to pay the debt owed to Mr Smith.

3      Rabobank Australia Ltd v Tootell [2013] NZHC 2975 at [7] and [8].

4      Re Epirosa, ex parte Diners Club (NZ) Ltd HC Wellington B498/91, 6 March 1992.

[14]   Mr Young, the now substituted judgment creditor, filed an affidavit in respect of Mr Smith’s application, in reply to the affidavit filed by Mr Wadman, confirming that the judgment debt now in issue of $18,050 was outstanding to him. Two other creditors also filed affidavits in reply to establish that there were other debts outstanding.

[15]   After considering the evidence filed by Mr Wadman of his financial position, Associate Judge Brittain held in a judgment issued in November 2023 that it was not possible to determine Mr Wadman’s financial position on the limited information he had elected to put before the Court and that the Court could not, therefore, safely conclude that Mr Wadman was able to pay his debts.5

[16]   No new evidence has been  filed  by  Mr Wadman  himself  in  response to  Mr Young’s application as substituted judgment creditor. As set out above, a law clerk at Neilsons Lawyers has filed an affidavit attaching copies of trust account balances in the name of Mr Wadman personally, for $53,575.79. There is no evidence from Mr Wadman, however, of what other creditors he may have or what other files he has with the law firm acting, and what amounts might be owing. In addition, the law clerk deposes that Mr Wadman “is solvent as he holds a number of properties (some freehold).” But no further details are given.

[17]   As Associate Judge Brittain found at the end of last year, I do not consider it is possible to determine Mr Wadman’s financial position on the limited information that is before the Court. The Court cannot, therefore, safely conclude that Mr Wadman is able to pay his debts.

[18]   Counsel for Mr Wadman sought to rely on the Court of Appeal’s decision in Body Corporate 68792 v Memelink where the Court held that a bankruptcy order would not be made where a party was a solvent but unwilling debtor.6 However, as Mr Wadman has not sufficiently established his solvency, that case is of no assistance.

5      Smith v Wadman [2023] NZHC 3085 at [22].

6      Body Corporate 68792 v Memelink [2018] NZCA 509 at [20].

Does Mr Wadman have a counterclaim exceeding the amount of the debt?

[19]   The third ground of opposition is that Mr Wadman has a counterclaim against Mr Young for greater than the debt owing. Counsel explained the counterclaim on the basis that the debt that Mr Young relies on is a judgment debt of $18,050 which the Disputes Tribunal found the parties had agreed would be paid to Mr Young when a property on Waiheke Island was sold. Mr Wadman’s counterclaim alleges that Mr Young rented out that property to various parties and received $37,500 in rent, in excess of twice the amount it was agreed Mr Young would be entitled to after the sale.

[20]   A statement of claim is attached to the affidavit of the law clerk seeking recovery of that rent, plus judgment for $97,500 for the loss caused to Mr Wadman in relation to refinancing with a second-tier lender, allegedly because Mr Young retained the rent monies.

[21]   Submissions were made in respect of the counterclaim on the basis that the judgment that Mr Young is seeking to enforce was obtained by default in the Disputes Tribunal. But in fact, the judgment relied on by Mr Young is a judgment following a re-hearing by the Disputes Tribunal at which Mr Wadman made submissions.7

[22]   Furthermore, Mr Wadman appealed the second judgment of the Disputes Tribunal to the District Court, but his appeal was dismissed.8

[23]   In the District Court decision, the Judge recorded that the Disputes Tribunal referee provided a report to the District Court under s 51 of the Disputes Tribunal Act 1988. Such a report sets out how the referee reached their decision and gives the referee an opportunity to explain the reasons for the decision against the grounds of appeal.

[24]   The counterclaim that Mr Wadman seeks to rely on is discussed in the s 51 report provided by the Disputes Tribunal Referee ter Haar as follows:

Both parties were given the opportunity to provide evidence to support their positions in this matter. What Mr Wadman appears to be saying is that he does

7      Brian David Wadman as trustee of the Treble David Trust v Young [2022] NZDC 12927 at [19].

8 At [26].

not agree with my decision because I did not take into account rent payable. My decision shows that I considered his argument and rejected it, based on the evidence before me.

This matter was first heard on 22 April 2021 and Mr Wadman was ordered to pay Mr Young $18,000. Mr Wadman did not attend the hearing and was granted a rehearing. That rehearing took place in front of me on 11 August 2021. Mr Wadman had a considerable period of time on which to make a counterclaim and he had not done so. One of the Disputes Tribunal’s tasks is to resolve claims expediently and on this basis I did not consider it appropriate to further adjourn the hearing so that Mr Wadman had another opportunity to make his counterclaim.

[25]   Although a draft statement of claim is annexed to the law clerk’s affidavit, no counterclaim has still been filed. This is despite the fact that the counterclaim was raised by Mr Wadman before the Disputes Tribunal in 2021, and it is now 2024. In the circumstances, I am not prepared to either dismiss these bankruptcy proceedings or halt them pursuant to s 38 of the Insolvency Act to allow such a counterclaim to be filed. I reach this decision taking into account all of the circumstances including that counsel for Mr Wadman appears to be acting without instructions; and the evidence as to whether Mr Wadman is currently overseas or has received or replied to emails is not that clear.

[26]   I allow a short time below within which Mr Wadman is to pay the debt. If he pays the debt within that time he may still be able to bring the counterclaim if he still wishes to do so.

Conclusion on bankruptcy application

[27]   Mr Young has established that all of the factors in s 13 of the Insolvency Act have been met. In terms of the remaining subparagraphs of s 37, Mr Wadman has not established that he can pay his debts as they fall due. In addition, I do not consider that counsel have established on behalf of Mr Wadman that it would be just and equitable not to make the bankruptcy order or that there is any other reason why an order ought not to be made. I therefore make a bankruptcy order below as sought. Before doing so, however, I discuss the timing of that order.

Timing of bankruptcy order

[28]   Counsel for Mr Young asks the Court to allow any bankruptcy order made to lie in Court for two weeks to allow Mr Wadman to pay the debt. Mr Bowler said in response that it was difficult to assess what would be an appropriate time period, given the lack of contact with Mr Wadman.

[29]   Mr Young has been waiting for payment for this debt since the Disputes Tribunal decision in 2021. Associate Judge Brittain included a direction in his judgment of 1 November 2023 that Mr Wadman was to pay Mr Young’s debt (as well as the debts of the other creditors in support of the application by Mr Smith) as a condition of the order to halt the original bankruptcy application that he made at that time.9 Mr Wadman has not paid that debt, and only paid the debt of Mr Smith at the last minute. He must have been aware there was a possibility that Mr Young would substitute in as the creditor, as Mr Young’s debt remained unpaid.

[30]   In these circumstances, I make an order that the bankruptcy order is to lie in Court for one week to allow Mr Wadman to pay, but I am not prepared to extend the time period beyond that.

Result

[31]   The substituted judgment creditor’s application for the  adjudication  of  Brian David Wadman in bankruptcy is granted,  with the order to lie in Court until  18 December 2024 at 11 am, to allow Mr Wadman one final opportunity to pay, with the following directions to apply:

(a)Mr Wadman is to pay the debt of $18,050 by Tuesday, 17 December 2024 at 4 pm;

(b)a memorandum is to be filed and served on behalf of the judgment creditor by 9.30 am on 18 December 2024, either attaching a certificate of unpaid debt or confirming that the debt has been paid; and

9      Smith v Wadman, above n 5, at [26].

(c)a minute will then be issued confirming either that the bankruptcy order has taken effect or that the debt has been paid.

Costs

[32]   Mr Young has succeeded, and so is entitled to costs. The parties are to confer, and only if costs cannot be agreed, to file memoranda of no more than three pages (excluding schedules) on behalf of Mr Young by 24 January 2025, and on behalf of Mr Wadman by 7 February 2025. A costs decision will then be made on the papers.

Associate Judge Sussock