|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of New Zealand Decisions |
Last Updated: 31 December 2012
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
IN BANKRUPTCY
CIV 2006-419-1805
IN THE MATTER OF the Insolvency Act 1976
BETWEEN ROBERT JAMES SWETMAN Debtor
EX PARTE GLOBE HOLDINGS LIMITED Creditor
Hearing: 28 August 2007
Counsel: JE Dorbu for debtor
RB Stewart QC and PW Michalik for creditor
Judgment: 31 August 2007 at 1600
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application to adjudicate debtor a bankrupt)
Solicitors: Murdoch Price, PO Box 23 620, Hunters Corner for debtor
Morrison Kent, PO Box 10 035, Wellington for creditor
SWETMAN EX PARTE GLOBE HOLDINGS LTD HC HAM CIV 2006-419-1805 31 August 2007
The applications
[1] The creditor has filed a petition seeking an order adjudicating Robert James Swetman a bankrupt. The judgment debtor, Robert James Swetman, has filed an application pursuant to s 26(7) of the Insolvency Act 1967 seeking a stay of the petition. Both matters were set down for hearing together.
[2] No notice of opposition has been filed on the debtor’s behalf in respect of the petition. Counsel’s submissions were directed to the stay application.
[3] In terms of s 23 of the Insolvency Act 1967 the jurisdictional basis for the filing of a petition seeking an order of adjudication are met in this case. They are:
a) The debt was owing;
b) It exceeded the sum referred to in s 23;
d) The debt was a liquidated sum payable immediately.
Factual background
[4] Mr Stewart set out a helpful summary of the relevant facts. Mr Dorbu did not take issue with that summary. Accordingly, I adopt Mr Stewart’s summary which is as follows, but with one minor alteration which I will refer to.
2. The debtor and the creditor entered into a contract on 4 December
2004, in terms of which the debtor agreed to buy a property from the
creditor for $12.5m plus GST (if any) on terms: (a) possession date to be 30 March 2005;
(b) deposit of $500,000 to be paid within two days of execution of agreement;
(c) a further $500,000 to be paid on Friday 28 February 2005;
(d) GST (if any) to be paid on the earlier date of:
• possession date;
• 30 days after the Vendor issues the GST tax invoice.
3. The deposit of $500,000 was not paid on 6 December 2005. The creditor made formal demand for payment of the deposit on
8 December 2004. The demand referred to clause 2.2 of the agreement and gave notice requiring payment within three working days of the notice.
4. By letter dated 16 December 2004 [86] the creditor offered to vary the agreement as follows:
(a) purchase price $13m plus GST; (b) immediate payment of $500,000;
(c) further deposit of $500,000 on or before 20 January 2005; (d) further deposit of $500,000 on or before 03 March 2005; (e) settlement on 31 May 2005.
5. On 23 December 2004 the creditor issued summary judgment proceedings seeking an order for specific performance. Those proceedings were served on 14 January 2005.
6. On 1 February 2005, the debtor accepted the offer to vary the terms of the agreement set out in the creditor's letter dated 16 December
2004, despite the fact that the initial $500,000 deposit had not been
paid by 4.00pm Friday 17 December 2004, and despite the fact that the second deposit of $500,000 had not been paid on 20 January
2005, as stipulated in the offer to vary the agreement.
7. No Monies were paid in terms of the varied agreement with the consequence that the creditor made demand on 9 February 2005, for
$1m being the two deposit payments falling due on 17 December
2004 and 20 January 2005.
8. On 18 February 2005, the creditor filed an amended pleading reflecting the varied agreement.
9. On 25 February 2005, the debtor filed an affidavit saying at paragraph 5:
• I can now confirm however, that the loans have been approved and all paperwork with the bank is substantially completed. The agreement will settle on settlement date as agreed with the plaintiff.
• That the debtor would not be prejudiced if an order for specific performance was made but that he would oppose any order for costs.
10. On 4 May 2005, the Court entered judgment by way of an order for specific performance and an order that the debtor make payment of the sum of $1.5m forthwith. The debtor was ordered to pay costs.
11. The debtor filed an appeal in the Court of Appeal on 16 May 2005, and also sought leave to adduce additional evidence in support of a ground of appeal that the agreement was subject to a condition precedent being the issue of a subdivision consent as a contingency, without which the agreement had not become unconditional.
12. The debtor failed to settle the purchase on 31 May 2005.
13. On 1 June 2005, the creditor served a settlement notice (12 days) and a deposit notice (3 days).
14. On 8 June 2005, the creditor cancelled the agreement for failure by the debtor to pay the deposit.
15. On 23 June 2005, the creditor again cancelled the agreement in terms of the 12 day settlement notice, without prejudice to prior cancellation.
16. On 12 October 2005, the Court of Appeal heard the debtor's application to adduce further evidence and the debtor's appeal. Having heard Mr Dorbu for the debtor, the Court of Appeal did not call on the creditor to respond [62: para 15]. On 17 October 2005, the Court of Appeal dismissed both the application to adduce further evidence and the appeal.
17. On 8 November 2005, the debtor applied for an order that caveats do not lapse on basis that once an order for specific performance is made, the contract cannot be cancelled without first obtaining an order discharging the order for specific performance.
18. On 14 November 2005, the debtor applied for leave to appeal to the Supreme Court on the basis that the contract constituted a subdivision for the purpose of s225(1) of the Resource Management Act 1991 and that the contract remained conditional on the resource consent being granted.
19. On 6 December 2005, the High Court heard the debtor's application that the caveats not lapse. See para 16 above.
20 On 9 December 2006, the Court made an order sustaining the caveats on the ground that there was an arguable case that the agreement could not be cancelled until the Court discharged its order for specific performance.
The creditor was invited to file a summary judgment application seeking an order discharging the order for specific performance and other relief.
The matter was adjourned to 31 January 2006.
21. On 14 December 2006, the creditor applied for summary judgment discharging the order for specific performance and cancelling the contract.
22. On 31 January 2006, the summary judgment application seeking orders rescinding the order for specific performance and cancelling the contract was adjourned to 1 March 2006.
23. On 31 January 2006, the debtor again advised the Court that funding was arranged and that he would tender settlement within 10 working days.
24. On 14 February 2006, debtor's solicitors requested a GST tax invoice. (There is a dispute as to whether this was the first or second request.) [The bracketed part of this paragraph I have added to Mr Stewart’s summary.]
25. On 21 February 2006, the debtor's solicitors again requested a GST
tax invoice.
26. On 28 February 2006, counsel were invited at short notice to attend the Court early to commence the hearing in advance of the one day fixture scheduled for 1 March 2006 so as to ensure completion of all four matters set down for hearing.
The hearing commenced on the afternoon of 28 February 2006.
The debtor again advised through counsel that he had funding arranged and that the purchasers would tender settlement. Counsel for the debtor advised that payment would be made to Morrison Kent's trust account overnight. No payment was made.
27. The hearing resumed on 1 March 2006 with further promises to pay.
The hearing proceeded on the basis that in practice the debtor would
have until the delivery of judgment to tender settlement if he was going to do so.
28. On 7 March 2006, the Court delivered judgment:
• Rescinding the order for specific performance.
• Cancelling the contract.
• Removing the caveats; and
• Reserving to 1 May the question of the debtor's liability to pay the deposit, with exchange of evidence for the summary hearing in the meantime. The question was whether a deposit in excess of 10% could be justified or whether it was unenforceable as a penalty.
29. On 27 March 2006, the Supreme Court refused leave to appeal.
30. The 1 May 2006 fixture was adjourned by consent to a half day hearing on 7 June 2006.
31. The 7 June 2006 hearing proceeded with judgment being delivered on 21 June 2006, which determined that the debtor was liable to pay the deposit.
32. On 16 January 2007, the debtor was served with bankruptcy notice.
33. On 2 April 2007, the debtor was served with the creditor's petition and summons for hearing on 7 May 2007.
34. On 7 May 2007, the debtor and his counsel appeared to oppose the adjudication, despite not having filed any papers, on the basis that the debtor had a counterclaim or cross-claim. The debtor was granted leave to apply for a stay on the basis that he filed his claim and application for a stay within three days.
35. The debtor and Westham filed their claim on 9 May 2007, for $41m on basis of the creditor's alleged failure or refusal to provide a GST invoice within 28 days of request. The matter was called on 10 May
2007, and adjourned to 7 June 2007, for hearing.
36. On 22 May 2007, the creditor filed a statement of defence.
37. The hearing scheduled for 7 June 2007 was adjourned to 28 August
2007, as there was no hearing time.
38 On 26 July 2006, the debtor and Westham filed an amended claim – they now claim the $41m plus any tax penalties they have incurred by trying to claim GST without tax invoice.
The application for stay
[5] The grounds advanced by the debtor in support of his application for stay are:
a) The debtor has a substantial claim against the creditor which could not be set up in the proceeding upon which the creditor obtained judgment against the debtor;
b) The debtor’s claim exceeds the creditor’s claim;
c) Injustice will result, if the proceeding under the creditor’s petition were allowed to proceed, because, in that event, the debtor would have been deprived of his right to pursue and set-off his claim against the creditor to obviate being adjudicate bankrupt; and
d) That a stay is necessary to prevent injustice and the Court’s process being abused.
The grounds of opposition
[6] A summary of the grounds advanced in opposition to the application for stay is as follows:
a) The stay was sought on the basis of a counterclaim or cross-claim which could have been set up at the time of the initial summary judgment application; and, for that matter, the second summary judgment application;
b) S 19(1)(d) of Insolvency Act 1967 and Part 16 of the High Court Rules constitute a bar to the granting of relief under s 26(7) of the Insolvency Act 1967 and/or the Court’s inherent jurisdiction if the basis for the stay falls squarely within the position covered by s 19(1)(d) and Part 16 of the High Court Rules and the debtor is unable to bring himself within those provisions; and
c) Alternatively, any discretion which the Court may have should not be exercised in favour of the granting of a stay.
The debtor’s claim filed on 9 May 2007
[7] In summary, the debtor claims that he and his associate company were entitled to a tax invoice immediately upon the sale and purchase contract becoming unconditional or within 28 days of the date a request for a tax invoice was made to the plaintiff. The debtor pleads that the creditor was in breach of its obligations by refusing to issue the tax invoice. It is pleaded that that gives rise to a claim in negligence. It is further pleaded that the creditor’s failure to issue the tax invoice caused the debtor loss and damage in the sum of $41,868,750.
Could the counterclaim or cross-claim have been set up at the time of the summary judgment applications?
[8] Based on the debtor’s evidence as to when the first demand for a tax invoice was made, namely 18 February 2005, it is apparent that that situation existed before the hearing of the summary judgment application which resulted in an order for specific performance. Certainly, the later requests for a tax invoice referred to in Mr Stewart’s summary occurred before the hearing of the second summary judgment application, at which time the contract was cancelled.
[9] In his affidavit of 9 May 2007 the debtor gave no explanation for not having referred to the alleged failure of the creditor to issue the tax invoice. In his affidavit sworn on 31 May 2007 he said he did not raise the failure of the creditor to provide a tax invoice in the summary judgment proceedings by way of defence or counterclaim because he wanted to settle the contract. What is apparent from this explanation is that there is no legal impediment to this matter being raised by way of defence to either of the summary judgment applications. Certainly, he says that he did not raise the GST question because he did not know if the creditor was registered for GST. I have grave misgivings as to whether there is any validity to this claim. If a GST invoice had not been issued then the consideration was limited to that which is set out in the sale and purchase contract. If the vendor wanted to claim GST in addition in reliance on the additional words in the consideration provision of the agreement a tax invoice would have issued. There is simply little logic to the debtor’s position in this respect. Be that as it may, there is no evidence before me of any legal impediment to the GST issue being raised in either of the summary judgment applications.
[10] In Clark v UDC Finance Ltd [1985] 2 NZLR 636 at 637 Casey J held the judgment debtor who makes an application to set aside a bankruptcy notice must show:
a) That he has a general triable counterclaim, set-off or cross-demand;
and
The inability referred to here is primarily a legal inability. Hardie v Booth [1992] 1
NZLR 356 at 362.
[11] It is appropriate that I mention the position of counterclaims in relation to summary judgment applications. That position was considered by the Court of Appeal in Sharma v ANZ Banking Group (NZ) Ltd 6 PRNZ 386. The Court there determined that in the proceeding in which summary judgment is sought it is competent for a defendant to file a counterclaim. The Court further held that the filing of such a counterclaim is a step that could be taken as part of the process of attempting to satisfy the Court that the defendant had a counterclaim that ought to be tried. Such a counterclaim should be supported by an affidavit. An alternative to the filing of a counterclaim, however, is for the party to satisfy the Court by affidavit evidence and with a draft counterclaim. The Court concluded that these steps make it reasonably clear
that in one way or another the counterclaim may certainly be set up (page
389).
[12] When one considers the first ground in the application for stay, it is apparent that there is no justification for the proposition that the counterclaim or cross-claim could not have been set up at the time of the summary judgment applications.
Is failure to qualify for relief under s 19(1)(d) and Part 16 of the High Court Rules a bar to granting relief under s 26(7) of the Insolvency Act 1967 and/or the Court’s inherent jurisdiction?
[13] Section 26(7) provides:
(7) The Court may at any time make an order staying the proceedings under a creditor's petition, for such time, on such terms, and subject to such conditions as the Court thinks fit.
[14] In re Fidow [1989] 2 NZLR 431 at 440 Fisher J observed that the Court is given a very wide discretion under s 26(7). He referred to the analysis of the
position by Eichelbaum J (as he then was) in re Sturdee (a debtor) [1985] 2 NZLR
627 at 635.
[15] Counsel, in their submissions, referred to two cases where the Court has exercised an inherent jurisdiction on an application to set aside a bankruptcy notice. They respectively are Wise, ex parte Benecke HC AK B 227-95 and B228-95 21
June 1995 Master Kennedy and Holloway ex parte Darby HC HAM Civ 2005-419-
1085 8 December 2005.
[16] Neither case support the proposition that an application for stay at the petition stage on the grounds of a counterclaim, set-off or cross-demand which could have been raised in the judgment but was not, will be entertained as a basis for engaging the Court’s jurisdiction or discretion to set aside the bankruptcy notice based on the Court’s inherent jurisdiction. In my view, s 19(1)(d) and Part 16 constitute a bar to the granting of a stay under s 26(7) and/or the Court’s inherent jurisdiction in such a case. I accept Mr Stewart’s submission that to hold otherwise would operate to defeat the statutory filter for relief which s 19(1)(d) and Part 16 are directed at
[17] Put simply, if Parliament, in s 19(1)(d) has prohibited the setting aside of a bankruptcy notice on the grounds of a counterclaim, set-off or cross-demand if same could have been raised in the supporting judgment, but was not, there is no proper basis for ignoring that prohibition at the petition stage.
[18] I repeat that the position advanced to me was simply the existence of alleged counterclaim or set-off or cross-demand. As I have already found, the claim could clearly be, and should have been, raised in the summary judgment applications. There is plainly, in my view, no justification whatsoever for the grant of a stay in the circumstances of this case.
[19] The position might well have been otherwise had the debtor offered an additional ground such as, for example, security for the debt whilst the new claim was pursued. When that matter was canvassed with counsel in submission Mr Dorbu agreed that I should defer issuing judgment until 4pm on Friday,
31 August 2007. I record the position discussed with counsel, namely that if the
Court did not receive advice from Mr Stewart by 3pm on Friday, 31 August 2007, that satisfactory security for the debt had been given, this judgment should issue. If in fact, advice was given that security had been given to the satisfaction of the creditor, this judgment could record the position and enter an appropriate stay. As no such advice has been given, this judgment, will accordingly issue.
[20] Two additional comments should be made about the debtor’s claim. They are not essential to the decision I have made. The first is that the matters raised in the new proceeding are clearly part of the subject matter of the litigation that has already been concluded to judgment. The new proceeding would therefore arguably fall within the rule in Henderson v Henderson [1843] EngR 917; 1843 3 Hare 100, (1843) 67 ER 312 (HL), namely:
Where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of the matter which might have been brought forward as part of the subject and contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
[21] That principle was recently endorsed by the Court of Appeal in Bank of New Zealand Ltd v Savril Contractors Ltd [2005] 2 NZLR 475 at [109] where the Court of Appeal referred to:
the principle set out by Sir James Wigram V-C in Henderson v Henderson at pp 114 – 115, explained recently by Lord Bingham of Cornhill in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 at p 23 as covering issues or facts which are so clearly part of the subject–matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the Court to allow a new proceeding to be started in respect of them. The Henderson principle is usually applied in cases where the first proceeding has been tried on its merits ...
[22] The second comment is that the claim in negligence alleging a breach duty of care arises solely out of the contract. Counsel did not analyse the position as to whether such a duty might arise. Had they done so they would have given
consideration to the Court of Appeal decision in Rolls Royce NZ Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 342 where this issue was examined. I refer, in particular to [58]-[65] of the judgment. I do not intend, in this judgment, to analyse the position further because it is unnecessary for the purposes of this judgement and I apprehend that there may be an opportunity, if the further proceedings issued by the debtor are advanced, to consider the question of the benefit of full argument in that proceeding.
The result
[23] I am not satisfied that any of the grounds advanced by the debtor in support of the application for stay are justified. The debtor’s application is, in fact, barred because of the debtor’s failure to quality for relief under s 19(1)(d) of the Insolvency Act 1967 and Part 16 of the High Court Rules.
[24] No grounds exist suggesting that an order of adjudication should not be made when the matters that are referred to in s 26 of the Insolvency Act 1967 are taken into account. I simply have no material before me to indicate that this debtor has the ability to pay this debt. If, by some chance, the debtor is able to raise funds and able to pay the debt then, of course, the way is open for an application for annulment under s 119 of the Insolvency Act 1967.
Orders
[25] I order that Robert James Swetman be adjudicated a bankrupt.
Costs
[26] Counsel acknowledged that Category 2 and Band B were appropriate for this case. I order that the debtor pay the creditor’s costs based on Category 2 Band B together with disbursements as fixed by the Registrar. I certify for second counsel for the hearing of this application.
Time of the order
[27] This order is made at 4pm on 31 August 2007.
Proceeding Civ 2007-419-628
[28] This proceeding was adjourned for mention at the hearing of the bankruptcy proceedings. In view of the result, s 42 of the Insolvency Act 1967 will apply and it will be for the Official Assignee to determine what, if any further, step in respect of this proceeding should be taken. Having regard to that position the proceeding is stayed pending advice from the Official Assignee as to whether he intends to prosecute it. Leave is reserved to the defendant to apply on seven day’s notice for an
order striking out the proceeding.
JA Faire
Associate Judge
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZHC/2007/2094.html