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Cribb v Evia Rural Finance Limited [2014] NZCA 543 (11 November 2014)

Last Updated: 17 November 2014

     
IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellant
AND
 First Respondent
Second Respondent
Hearing:
10 September 2014
Court:
French, Winkelmann and Asher JJ
Counsel:
Appellant in person No appearance for Respondents
Judgment:


JUDGMENT OF THE COURT

  1. The application for leave to adduce further evidence is dismissed.
  2. The appeal is dismissed.
  1. There is no order as to costs.

____________________________________________________________________

REASONS OF THE COURT

(Given by Winkelmann J)

Introduction

[1] On 6 March 2012, Associate Judge Bell adjudicated Mr Cribb bankrupt on the application of a creditor, Evia Rural Finance Ltd (Evia).[1] Mr Cribb appeals against the making of the order of adjudication.[2]
[2] Prior to his bankruptcy, Mr Cribb was a property developer. In 2001 his company, Kaimai Palms Golf Resort Ltd (Kaimai), took over a failed residential development with plans to revitalise the project. Evia was one of the companies providing finance to Kaimai for this purpose. It advanced approximately NZD 800,000 together with capitalised interest. It took security by way of a mortgage over five sites in the development and Mr Cribb’s personal guarantee of Kaimai’s obligations. Receivers were appointed to Kaimai in 2010 by another creditor. Mr Cribb made strenuous attempts to see Evia repaid, obtaining refinancing commitments from an overseas financier, Zender Minol d.o.o.[3] Ultimately, however, Zender Minol did not provide the refinancing and Evia was not repaid. Evia obtained a summary judgment against Mr Cribb and then proceeded with its application to bankrupt him.[4]
[3] In granting Evia’s application, the Judge considered and rejected an argument by Mr Cribb that Evia had agreed to compromise the debt he owed it, found that Mr Cribb was insolvent, and exercised his discretion to bankrupt him.
[4] Mr Cribb appeals on the following grounds:
[5] Evia and the Official Assignee abide the Court’s decision. Evia says that due to the amount of time that has elapsed since the notice of appeal was filed it has reluctantly made the decision not to take any further part in the appeal. It says that this decision is based upon its cost benefit analysis of the appeal rather than the appeal’s merits.

First ground of appeal: the Judge erred in his assessment of Mr Cribb’s insolvency

[6] Mr Cribb contends that at the time of the adjudication he was solvent. The Judge reached the view he was insolvent because he disregarded Mr Cribb’s prospects of being repaid loans he had made to Kaimai (NZD 6 million) and of securing judgment against Zender Minol.

High Court judgment

[7] In the High Court, the Judge proceeded on the basis of Mr Cribb’s acknowledgment that he effectively had no assets at that time.[5] The Judge also noted Mr Cribb’s liabilities other than those he owed to Evia under the guarantee.[6]
[8] The Judge’s conclusion in respect of Mr Cribb’s solvency was:

[14] I have simply expressed these as the face value of the debts. Mr Cribb has negotiated with several of these creditors for them to accept less than the face value of their debts. That includes arrangements he has negotiated with Evia. However, if Mr Cribb were adjudicated bankrupt, his creditors would likely prove for the face value of the debts, not just for the amounts that Mr Cribb has negotiated as amounts they would accept if they were paid. The total face values of the debts are in the order of $12 million to $13 million, with perhaps Auckland Mortgage Trust being fully secured, and Evia being partly secured. Quite clearly, Mr Cribb is insolvent.

Analysis

[9] Evia had a judgment against Mr Cribb. Mr Cribb did not pay Evia in response to the bankruptcy notice issued in reliance upon that judgment. Mr Cribb thereby committed an act of bankruptcy.[7] Nevertheless, in terms of s 37 of the Insolvency Act 2006, the Judge had a discretion not to bankrupt if he was satisfied that:
[10] The Judge was plainly correct in his assessment on the facts before him that Mr Cribb did not have the assets to pay his creditors. To the extent Mr Cribb had any claims against third parties, they could not be realised by him in time to meet his obligations to Evia. In fact, it was unlikely Mr Cribb would realise anything through pursuing these claims.
[11] Mr Cribb argued that the receivers could be liable to Kaimai for selling assets of Kaimai at an undervalue, and that any recovery from the receivers through that claim could then be used to repay him. But Kaimai was in receivership and Mr Cribb’s claims for advances ranked behind those of at least two secured creditors. The Judge said of this claim:[8]

... his proposal to sue receivers would be difficult litigation. There are others who could undertake the litigation instead for example, Compass Capital, which ranks second as a security-holder would obviously be vitally interested if there were a viable case to be brought. Maybe other creditors, if they could be persuaded of the merits of the case. Mr Cribb has better hopes of being able to see that that matter is pursued by persuading other creditors to undertake it. The litigation would be arduous and expensive. I do not view him as being in a strong position to be able to see it through.

[12] We agree with this analysis. We add that we have seen no evidence to suggest that there was any foundation for a claim against the receivers based on sale at an undervalue, or any other misconduct.
[13] The Judge also addressed Mr Cribb’s argument that he had good claims against the company that had agreed to provide refinancing, Zender Minol. The Judge regarded those claims “as being no more than expressions of hopefulness”.[9] On the facts before the Judge, that assessment was also correct. Zender Minol was a company incorporated and resident in Europe. It had repeatedly failed to pay money in accordance with its commitments to Mr Cribb, contractual or otherwise.
[14] Mr Cribb sought to file further evidence on appeal to establish that the Judge understated his assets and overstated his liabilities.[10] In his affidavit dated 4 September 2014, he provides evidence that a trust of which he is a trustee has obtained judgment in New Zealand against Zender Minol and others for approximately NZD 33 million. The Trust has registered that judgment in the Queen’s Bench Division of the High Court of Justice. He attaches correspondence from “external counsel” for the Trust, resident in London and Switzerland, confirming that settlement has been reached with at least one of the judgment debtors requiring them to pay amounts of EUR 20 million and USD 4.5 million. According to a letter attached to the affidavit from external counsel for the Trust, the agreed settlement is that funds will be lodged in external counsel’s nominated account:

... upon the next arrival of Mr Cribb in London. Indeed under the arrangements made the defendants will require the presence of Mr Cribb in London to personally execute documentation confirming satisfaction of the judgment and releasing them from any further claims.

[15] Mr Cribb also includes in his affidavit material he says he obtained from the Official Assignee on 3 September 2014, which shows total accepted claims in his estate of only NZD 11,042.85, with the total of notified claims not pursued or not accepted in excess of NZD 4.8 million.
[16] Having now considered the material provided, we decline to grant leave for Mr Cribb to adduce the further evidence. We do so for three reasons. First, the respondents were unaware of the material when they elected not to participate actively in this appeal. Secondly, we do not consider the material relevant. On its face, it is material that may tend to support Mr Cribb’s account that his prospects for repaying his creditors have improved since the date of adjudication. Obviously an individual’s solvency can fluctuate. But evidence of post-adjudication fluctuation in solvency does not provide grounds for an appeal against the original decision, although it may provide grounds for an application for discharge or even an annulment.[11]
[17] Thirdly, we are not satisfied the evidence is reliable or that it has much probative value on the issue of solvency. Mr Cribb offers no more than his account of what the Official Assignee says the creditor position is. This is hearsay evidence on any view. We are also dubious that Mr Cribb will ever see payment of the amounts his external counsel refers to. His expectation of payment is based on commitments made by the external financiers (and an associated individual) who, on Mr Cribb’s own evidence, have strung him along for many years with promises to pay large amounts of money. It is also not apparent to us why the debtor would require that Mr Cribb be present in London to sign a deed of release. Any of these three reasons provides sufficient reason to refuse leave to file this evidence.
[18] To conclude on this ground of appeal, we do not consider that the Judge erred in his assessment that Mr Cribb was insolvent at the time of adjudication.

Second ground of appeal: the Judge erred in finding that Evia was not precluded from proceeding with its application to bankrupt Mr Cribb

High Court judgment

[19] Mr Cribb advanced arguments in the High Court that as petitioning creditor, Evia was precluded from proceeding to bankrupt him because it had agreed to assign its debt to Zender Minol. He tendered emails and correspondence that showed that Zender Minol had agreed to pay Evia directly, if Evia would send an invoice to it for the sum of NZD 650,000 plus legal costs. This was less than the amount Evia said was due to it, but Evia was content to compromise its claim in return for payment. In an email dated 11 April 2011, Mr Cribb said to Evia:

Zender have suggested that you make out an invoice for payment in their name, they will arrange payment direct if that suits you. Send the invoice to me and I will drive it from my end. This was in consideration because of the extension granted today and I understand completely Evia’s frustrations which are also theirs.

[20] Evia sent such an invoice to Zender Minol. Shortly after this an engineering company that operates from the same premises as Zender Minol, Frucom Engineering GmbH, sent a letter acknowledging the transfer of the debt as agreed between Evia and Mr Cribb. The letter continued that the agreed sum was to be paid on or before 27 April 2011 to the bank account that Evia had nominated in its invoice. No payment was forthcoming.
[21] In the course of subsequent correspondence with Evia, both Mr Cribb and Frucom referred to the debt as transferred. However on 17 June 2011, Evia’s lawyers responded to Frucom making clear that there had been no assignment of the debt and Evia had not entered into any agreement to assign its loans or securities to Frucom. They did indicate, however, that if payment were made, Evia was willing to transfer its mortgage to the person nominated by Kaimai instead of discharging the mortgage as would usually occur. They added that they thought this point was moot because no payment had been forthcoming.
[22] At the hearing in the High Court, Mr Cribb argued that there had been an agreement to assign the debt, in the sense of substituting Zender Minol for Mr Cribb as the debtor. This assignment arose out of the request to Evia to issue the invoice on 11 April 2011. He argued that Zender Minol had promised to pay the sum of $650,000 and by issuing the invoice, Evia had accepted that offer to pay. Once Evia accepted Zender Minol’s offer to pay, it was an implied term of that arrangement that Evia would transfer over to Zender Minol the debt owed by Mr Cribb plus the debt owed by Kaimai and the associated mortgage security.
[23] The Judge dealt with this as follows:[12]

I am not satisfied that there was any such contract. The evidence I have, in particular Mr Cribb’s email of 11 April 2011, is simply that he requested Evia to issue the invoice as a way of getting payment from Zender Minol. All that Evia did in issuing the invoice was to respond to a suggestion that if the invoice were issued, that might produce payment when there had not been payment until then.

Analysis

[24] We agree that Evia’s act in issuing the invoice is insufficient to evidence an agreement to release Mr Cribb from his obligations to Evia, and substitute Zender Minol as the debtor. On the evidence it was no more than a gesture made in the hope that Mr Cribb and the people financing him would eventually come to light with the funds that had long been promised. The notion that Evia thereby agreed to forego rights of action against Mr Cribb is implausible.
[25] Mr Cribb did not identify any error in the Judge’s analysis. We find it convincing. This ground of appeal must also fail.

Third ground of appeal: the Judge erred in the exercise of his discretion

[26] Mr Cribb argues that the Judge should have exercised his discretion not to adjudicate him bankrupt, because:

(a) his debts were not that great;

(b) he was insolvent because of extreme market conditions and not due to any fault of his own;

(c) he was committed to seeing his creditors repaid; and

(d) bankruptcy would hinder his efforts to repay his creditors.

[27] Mr Cribb relies upon the decision of Thomas J in Re Taylor, in which the Judge declined to bankrupt a debtor in circumstances where the debtor had behaved correctly, and his business had collapsed due to economic factors beyond his control.[13]

High Court judgment

[28] Associate Judge Bell referred himself to the following statement in Baker v Westpac Banking Corp as to the standard approach taken in the exercise of the discretion as to whether or not to bankrupt a debtor where the statutory preconditions are met.[14] In that case, Richardson J said:[15]

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 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 to be made.

[29] The Judge then considered the various aspects of bankruptcy to decide whether adjudication was a proper response to Mr Cribb’s insolvency. He did not consider that the community was in need of protection from Mr Cribb.[16] Mr Cribb was not to be condemned for the failure of the Kaimai venture:[17]

He has suffered the fate of many property developers following the crash in 2007/2008 where finance companies fell over, sources of funding dried up, property values dropped and he has been unable to meet his liabilities as a result.

[30] However the Judge said that several factors weighed in favour of adjudication. First, it was possible that benefits would flow from administration of Mr Cribb’s estate. Secondly, it was necessary to hold Mr Cribb accountable for his failure to pay his debts. Finally the Judge referred to the public interest in the discharge aspect of bankruptcy, which lifts the burden of debt from the bankrupt.[18] While noting that Mr Cribb did not seek discharge, the Judge found this to be the determinative factor. He said:[19]

It will be advantageous if the slate is wiped clean by having Mr Cribb adjudicated bankrupt now rather than leave him with these debts which will plague him forever, and which I realistically regard him as having no hope of ever satisfying.

[31] The Judge addressed the application of Re Taylor to Mr Cribb’s situation, and said:

[53] I have taken that into account. Counsel for Evia has pointed out that the case can be distinguished on its facts because Mr Cribb has greater liabilities than Mr Taylor and Mr Cribb took part in a riskier business than Mr Taylor.

[54] In the end, each case turns on its own facts. I acknowledge that Thomas J exercised his discretion one way. However, I regard Mr Cribb as being a different case. In particular, he has much greater liabilities and more creditors. ...

Analysis

[32] The Judge was not bound to follow the approach in Re Taylor. As the Judge observed, each case must be considered on its own terms and that case inevitably addressed a different factual circumstance. In our view the three considerations that the Judge identified – accountability, the administration of the debtor’s affairs and the discharge of indebtedness – weighed heavily in favour of the exercise of the discretion to bankrupt Mr Cribb. We give particular weight to the benefits of the Official Assignee’s administration of the debtor’s estate. One of the key benefits of bankruptcy is that the Official Assignee ensures that creditors are paid in accordance with statutory priorities and otherwise in accordance with the pari passu principle. We also consider that, if anything, the Judge was generous to Mr Cribb in his overall assessment of his position. While the market moved against Mr Cribb, the magnitude of the shortfall to creditors reflects the extent of the risks he took.
[33] This ground of appeal must also fail.
[34] We add two final comments. First, during the course of the argument we observed to Mr Cribb that he was really seeking a discharge or annulment of his bankruptcy in light of subsequent events. He agreed that was so. If he wishes to pursue an application for discharge or annulment then that application should be made to the High Court and it will need to be supported by cogent evidence. The evidence he sought to present to us is very unlikely to be adequate.
[35] Secondly, the Official Assignee did not appear on this appeal. We would have been assisted by an appearance for the Official Assignee to address the appeal ground related to the exercise of the Judge’s discretion and the public interest aspects of that.

Result

[36] The appeal is dismissed. We make no order of costs in light of the fact that the respondents elected not to involve themselves in the appeal.





Solicitors:
Stace Hammond, Hamilton for First Respondent

[1] Evia Rural Finance Ltd v Cribb HC Hamilton CIV-2011-419-631, 6 March 2012.

[2] The appeal was filed on 26 March 2012 but was deemed abandoned on 27 September 2012. On 26 November 2012, Mr Cribb filed an application for extension of time under r 43 of the Court of Appeal (Civil) Rules 2005. Consent orders were made extending time for the filing of the case on appeal.

[3] As the Judge noted at [15], the letters “d.o.o” are an acronym in Serbo-Croatian. They stand for društvo s ograničenom odgovornošću, indicating a limited liability company.

[4] The application disclosed that Evia had security for part of that debt which it valued at NZD 485,000.

[5] At [12].

[6] At [12]–[13].

[7] Insolvency Act 2006, s 17.

[8] At [50].

[9] At [51].

[10] Rule 45(1) of the Court of Appeal (Civil) Rules allows this Court to receive evidence not adduced at first instance where that evidence is fresh, credible and cogent: Erceg v Balenia Ltd [2008] NZCA 535 at [15]; Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 (CA) at 192; and Aotearoa International Ltd v Paper Reclaim Ltd [2006] NZSC 59, [2007] 2 NZLR 1 at [6]. Evidence will not be fresh if it could have been produced at trial with reasonable diligence.

[11] Insolvency Act, ss 294 and 309.

[12] Evia Rural Finance Ltd v Cribb, above n 1, at [34].

[13] Re Taylor, ex parte Greenwood (1992) 4 NZBLC 102,875 (HC).

[14] At [41] citing Baker v Westpac Banking Corp CA212/92, 13 July 1993.

[15] At 4.

[16] Evia Rural Finance Ltd v Cribb, above n 1, at [44].

[17] At [44].

[18] At [43].

[19] At [54].

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