Heaven v McVeagh HC Auckland B.1584-im00 [2001] NZHC 444 (5 June 2001)

Last Updated: 5 November 2013

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY IN BANKRUPTCY B.1584-im00

IN THE MATTER of the Insolvency Act 1967

AND

IN THE MATTER of the bankruptcy of JOHN CHARLES HEAVEN
Debtor

EX PARTE RUSSELL McVEAGH
Creditor

AND

B.1585-im00

IN THE MATTER of the Insolvency Act 1967

AND

IN THE MATTER of the bankruptcy of MARY LOUISE HEAVEN
Debtor

EX PARTE RUSSELL McVEAGH
Creditor

Hearing: 5 June 2001

Counsel: MM Edwards for the creditor
The debtors in person

Judgment: 5 June 2001

(ORAL) JUDGMENT OF MASTER KENNEDY-GRANT

[1] The creditor seeks orders adjudicating the debtors bankrupt.

[2] The debtors oppose the making of such orders.

[3] The petitions are based on the existence of a judgment in favour of the creditor for unpaid fees and disbursements and the subsequent failure by the debtors to comply with a bankruptcy notice served upon them in January of this year.

[4] The grounds on which the debtors oppose the making of orders of adjudication are as follows:

[a] That the amount of the judgment includes fees charged for work done by partners of the creditor which it had been agreed would not be charged for;

[b] That an acknowledgement of debt which the debtors had signed in July 2000, acknowledging their indebtedness for the full amount for which judgment was subsequently given, was signed under duress;

[c] The creditor had failed to carry out part of the instructions given to it, in that it had failed to sue a firm of solicitors which had previously acted for the debtors;

[d] That the creditor’s accounts are overstated because credit has been given for only one of the two payments of $8,108.03 made by the debtors;

[e] The debtors have no assets and there is, therefore, no point in declaring them bankrupt.

[5] This list of grounds is limited to those grounds advanced in the debtors’ affidavits which I consider have possible relevance to the petition. The other grounds relied on, such as the failure by previous solicitors and barristers engaged by the debtors to carry out instructions or to carry them out effectively and the fact that the debtors have paid overall in solicitors’ fees and other expenses more than $400,000, are, in my view, irrelevant to the present proceeding.

[6] In preparing for the hearing today, I read the papers which have been filed by the creditor and by the debtors and prepared a chronology, a copy of which is attached to this judgment. I handed that chronology out to Mr Edwards, for the creditor, and to the debtors. In the course of the hearing two further items (which appear on the copy of the chronology attached to this judgment in italics) were added. All other items predated the hearing and were based on my reading of the papers.

[7] I deal with each of the relevant grounds advanced by the debtors in turn.

[8] First, the allegation that the services of the partners of the creditor were to be, in the debtors’ words “pro bono”. The responsible partner of the creditor at the time, now practising as a barrister, has sworn an affidavit in this matter which states on this issue as follows:

“4 [2] I never advised Mr and Mrs Heaven that the substantive work to be undertaken for them by me or any other senior practitioner at Russell McVeagh was to be undertaken on a pro bono basis.

5 [2] When Mr and Mrs Heaven first instructed Russell McVeagh there were a large number of files for Russell McVeagh to review before substantive work could be commenced. Mr and Mrs Heaven expressed concern at the possible cost of this exercise. I agreed that for the task of reviewing those files alone, Mr and Mrs Heaven would only have to pay for Sarah Keene’s time, and that any time spent on the task by myself would not be charged for. Accordingly, they were not charged for any of my time spent reviewing their files. Once the substantive work commenced, Russell McVeagh rendered invoices for the time spent by all Russell McVeagh practitioners working on Mr and Mrs Heaven’s matter.

[9] Taking into account the debtors’ allegation in their affidavits, on the one hand, and the evidence of the responsible partner, on the other hand, it appears that the issue here is whether the statement that the costs of the partners of the creditor would be borne by the creditor rather than charged to the debtors related to all the work done or only to the initial review of the file by a staff solicitor employed by the creditor.

[10] One other piece of evidence needs to be taken into account and that is, that in March 2000, in the course of the trial to which the accounts relate, Mrs Heaven asked the responsible partner the name of another partner who had been involved at that stage and was assured by the responsible partner that the other partner would not be charging either.

[11] Where the existence of a judgment and failure to comply with the bankruptcy notice is proved, the onus of persuading the Court that orders of adjudication should not be made is on the debtors not on the creditor. The question is therefore, Am I satisfied on the evidence that the argument which the debtors advance on this point should be accepted?

[12] I am not so satisfied, for the following reasons:

[a] The only occasion in all the correspondence in 2000 on which there was any suggestion by the debtors that there had been a promise that no charge would be made at all for the work done by the partners of the creditor is in the debtors’ letter of 13 June to the responsible partner (by then a barrister) (exhibit “C” to the debtors’ affidavit). The relevant passage in the letter reads as follows:

“Regarding [the other partner] we appreciate that he has done work on our case against Crawfords. On the Friday of trial round in Courtroom 8 (I think) I asked you who he was to which you replied “He is a colleague of mine and he won’t be charging you either”

Don’t get me wrong !! I know you did work for John and I without charge and I can assure you we appreciated it all”

The allegation that the work of the partners of the creditor was to be done pro bono was not raised again in the correspondence before the Court until April of this year, after the present proceedings had been commenced and indeed called for the first time in this Court, when, in two letters to Mr Bogiatto, whose assistance the debtors were then seeking, the debtors made the allegations that the fees of the partners of the creditor were not to be charged for.

[b] There was no suggestion in writing that the responsible partner’s fees were not to be charged for when the creditor forwarded his account, he now being a barrister, to the debtors under cover of a letter of 29 March 2001 (exhibit “F” to the first affidavit of Ann Marie Creagh in the summary judgment proceeding on which the petition is based, exhibited to the affidavit of Michelle Louise Fleming, sworn in these proceedings on 21 March 2001). There are two documents following the dispatch of that letter fairly closely, one a file note by Ms Harris, an employee of the creditor firm, on 31 March 2000 in which Mrs Heaven is recorded as telling the creditor not to worry about its fees, and a letter from the debtors to the creditor of 24 April 2000 in which again there is no suggestion of a promise not to charge for partners’ time.

[c] When the matter was heard in the District Court, Judge Joyce, QC said in his judgment, which the debtors admit they were present during, the following:

“Mr and Mrs Heaven have had the misfortune to have been involved in very long running, and thus inevitably expensive, litigation at the highest levels. Latterly their interests have been in the care of Russell McVeagh. It is therefore regrettable that they face this morning a Summary Judgment Application made by Russell McVeagh for Legal Fees and Disbursements that are at present outstanding.

Insofar as those are concerned Mr and Mrs Heaven in the end told me two things. First, that they had been well served by Russell MeVeagh during the period of their involvement in the matter. Secondly, that although there might be room for this or that modest quibble they accepted the amount of the fees and the disbursements that run with them. They have the confident expectation that, within the next few weeks, funds expected from Canada will be to hand. They would relieve them of their present embarrassment in the form of an inability immediately to pay the outstanding accounts.”

[13] Having regard to these matters, I am, as I have already said, not satisfied that there was a blanket undertaking that the time of partners of the creditor would not be charged for throughout the proceeding.

[14] I turn to consider now the question of whether the acknowledgement of debt signed by the debtors on 7 July 2000, which is exhibit “D” to their affidavit, was signed under duress.

[15] Having considered the correspondence which pre-dated the signing of that acknowledgement of debt, I do not find any evidential basis for an allegation of duress. I am also persuaded that an insufficient basis has been established for any such allegation, by the total absence of any reference to duress in the correspondence which followed, including, I note, in the correspondence passing between the debtors and Mr Bogiatto in April of this year. Duress is not mentioned.

[16] So far as the failure to pursue the debtors’ former solicitors in addition to taking the steps which were taken is concerned, while it is clear that the debtors did want all options explored, there has been no suggestion until the affidavit in opposition sworn on 28 May 2001 that there was a failure by the creditor to carry out clear instructions. Again, there is no reference to this at any stage after the invoices were rendered. There is no suggestion of this is the correspondence with Mr Bogiatto in April of this year. I am therefore not persuaded that there is any basis or any sufficient basis for such an allegation.

[17] The fourth matter which I consider to be relevant to the question of whether I should make orders adjudicating the debtors bankrupt is whether there has been an overstating of the account by reason of a failure to take into account the fact that the figure of $8,108.03 was received twice by Russell Mcveagh.

[18] Given my finding in respect of the first ground relied on, namely the promise to do all partners’ work without charge, the full amount of the accounts for which judgment has been given is, I am satisfied, due. It follows therefore, that even if there has been a failure to account for one payment of $8,108.03, there is still owing to the creditor a substantial sum of the order of $37,000 or $38,000. So this fourth ground is not a sufficient one on which to decline to order the adjudication of the debtors.

[19] The final ground which has been advanced by the debtors, and which I accept is arguably relevant to the question of whether orders should be made as sought by the creditor, is that they have nothing and to declare them bankrupt would be counter-productive “to any resolution of this settling any debt”(sic).

[20] It is clear from the evidence and from what the debtors have said today that there is or may be a debt owed to them of $36,000. This is apparently owed by a person or persons in Canada. Efforts have been made by them to recover this but thus far unsuccessfully. The responsible partner, in his affidavit to which I have already referred, has also questioned whether, having received some $600,000 odd in 1998, the debtors have adequately explained where that has gone. I do not propose to take that suggestion into account. Whether there is substance in it or not I do not know.

[21] I take into account that there is at least one asset that can be proceeded against, namely the debt. Whether there are others I do not know.

[22] It is now necessary for me, having considered the grounds advanced by the debtors, to consider the overall question of whether it would be unjust and inequitable to make orders adjudicating the debtors bankrupt.

[23] Given the findings that I have made, I do not consider that there are any grounds which would make it unjust or inequitable to bankrupt the debtors.

[24] There will therefore be orders adjudicating them bankrupt.

[25] Costs are awarded to the creditor on a 2B basis, including the reasonable costs of preparation for today’s hearing.

[26] These orders are timed at 4.22pm.

Appendix

		CHRONOLOGY
B1584-im00
B1585-im00
	30/9/99	Invoice	$11,006.00
			-($1,100.88)
	17/11/99	Invoice	$2,416.06
Heaven “P”	9/12/99	Heaven to Fardell
Handed up	21/1/00	Fardell to Heaven
	30/3/00	Invoice	$14,908.64
	28/3/00	HH invoice	$842.00
	24/3/00	RF invoice	$14,590.31
Fleming C1/”F”	29/3/00	RMcV to Heaven	Fardell’s a/c
Fleming C2 “A#1	31/3/00	Harris file note	“not to worry abt our fees”
A#2	20/4/00	RMcV to Heaven	No sugg of pro bono
A#3	24/4/00	Heaven to RMcV	No sugg of pro bono
Fleming C2/4	22/5/00	Heaven to Fardell	Promise to pay
C2/5	23/5/00	RMcV to Heaven	Reply: no pay no work
C2/6	29/5/00	Heaven to Fardell/McV	para 12 will pay
Fleming C2	7/6/00	RMcV to Heaven	No pay, no work
	7/6/00	Heaven to Fardell	promise to pay
Heaven E	7/6/00	RMcV to heaven	pay or no more work
Fleming C2	13/6/00	Fardell to Heaven
Heaven “C”	13/6/00	Heaven to Fardell	want to fulfil our obs
			Thorp pro bono
			?Fardell ditto
Fleming “C 1/K	13/6/00	RMcV(Thorp) to Heaven	2 weeks to pay
Fleming C1/L	7/7/00	RMcV to Heaven	offer to hold off
Heaven D	7/7/00	acknowledgement of debt
Fleming C 1/N	26/7/00	RMcV to Heaven	notice of intention to sue
Fleming B	17/10/00	Joyce DCJ, QC’s judgment
Braun G	17/1/01	Heaven to RMcV	Promise to pay
Braun H	18/1/01	RMcV to Heaven	Reply
Braun I	5/3/01	Heaven to RMcV	promise to pay
Braun J	8/3/01	RMcV to Heaven	Reply
Flagged	20/3/01	Heaven letters to RMcV & ADLS
Heaven L	23/3/01	Bogiatto to Heaven	Request for instructions
Heaven B	11/4/01	Heaven to Bogiatto	2 x pro bono
	No suggestion of duress re acknowledgement
Heaven M	11/4/01	Heaven to Bogiatto	2 x pro bono
Heaven N	1/5/01	Bogiatto to Heaven	pay undisputed portion
Sandberg C	8/5/01	ADLS to RMcV