HOLMES CONSTRUCTION WELLINGTON LTD V REES HC AK CIV 2006-404-004129 [2008] NZHC 228 (3 March 2008)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                          CIV
2006-404-004129

                  IN THE MATTER OF              the Insolvency Act 1967

                  AND

               
  IN THE MATTER OF              the bankruptcy of GR Rees


                  BETWEEN                       HOLMES CONSTRUCTION WELLINGTON
                                                LIMITED
                                                Judgment Creditor

     
            AND                           GARY JAMES REES
                                                Judgment Debtor

     
                                                                    CIV 2006-404-004220

                  IN THE MATTER OF     
        the Insolvency Act 1967

                  AND

                  IN THE MATTER OF              the bankruptcy of I Laywood

                  BETWEEN                       HOLMES CONSTRUCTION WELLINGTON
                                                LIMITED
                                                Judgment Creditor

                  AND                           IAN LAYWOOD
 
                                              Judgment Debtor


Hearing:          3 March 2008

Counsel:          D Hughes and M
Casey for judgment creditor
                  R Hucker for judgment debtor

Judgment:         3 March 2008 at 1700


           
  SECOND INTERIM JUDGMENT OF ASSOCIATE JUDGE FAIRE
                     [on applications to set aside bankruptcy notices]




Solicitors:
       Kensington Swan, PO Box 10 246, Wellington for judgment creditor
                   Hucker & Associates, PO Box 3843, Auckland
for judgment debtors


HOLMES CONSTRUCTION WELLINGTON LTD V REES HC AK CIV 2006-404-004129 3 March 2008

[1]     My judgment of
9 February 2007 dealt with the applications to set aside
bankruptcy notices on an interim basis and in reliance on the Court's inherent
jurisdiction.


[2]     The applications were adjourned to await the outcome of an appeal against
the decision of District Court
Judge DM Wilson QC given on 5 July 2006. That
judgment is the foundation for the issue of the bankruptcy notices which I am invited
to set aside.


[3]     The appeal was refused by Asher J in a judgment delivered on 13 December
2007. In a further judgment delivered
by His Honour on 15 February 2008 he
granted the judgment debtors leave to appeal to the Court of Appeal.


[4]     The current position
differs little from that which I referred to in my interim
judgment. It seems to me the conclusion referred to in [34] of that judgment
still
applies, namely:

        .... In my view, the correct approach, if the inherent jurisdiction of the
        Court is to be
invoked, is to do what Master Kennedy-Grant did in re Wise,
        ex parte Benecke and simply adjourn this application to check
progress with
        the hearing of the appeals and on the condition that the debtors take all
        practical steps to prosecute
those appeals diligently. In that way the effect of
        r 830(2) of the High Court Rules is preserved.

[5]     The judgment
debtors, in addition to referring to the judgment granting them
leave to appeal, add a further ground to their application to set
aside the bankruptcy
notices. It is expressed as follows:

        The second additional ground is that the judgment obtained by
the debtor is
        not a final judgment for the purposes of s 19 of the Insolvency Act 1967
        given the status of judgments
under the Construction Contracts Act 2002.

[6]     Bankruptcy notices are issued for the purpose of establishing an act of
bankruptcy
pursuant to s 19(1)(d) of the Insolvency Act 1967. Section 19(1)(d)
provides:

        19      Acts of bankruptcy

        (1)  
  A debtor commits an act of bankruptcy in each of the following
                cases:

              ...

              (d)  
  If a creditor has obtained a final judgment or final order
                      against the debtor for any amount, and, execution thereon
                      not having
been stayed, the debtor has served on him in New
                      Zealand, or, by leave of the Court, elsewhere, a bankruptcy
                      notice under this Act, and he does not, within 14 days after
                      the service of the notice
in a case where the service is
                      effected in New Zealand, and in a case where the service is
               
      effected elsewhere then within the time limited in that behalf
                      by the order giving leave to effect the
service, either comply
                      with the requirements of the notice or satisfy the Court that
                     
he has a counterclaim, set-off, or cross demand which equals
                      or exceeds the amount of the judgment debt or
sum ordered
                      to be paid, and which he could not set up in the action in
                      which the judgment
was obtained, or the proceedings in
                      which the order was obtained:

[7]    Bankruptcy notices are issued on
request to a Registrar pursuant to r 826 of
the High Court Rules. In terms of s 19(1)(d) of the Insolvency Act 1967 there must
be
a final judgment before a bankruptcy notice can be issued. In his judgment of
13 December 2007 Asher J was required to consider what
the District Court must do
when it receives an application pursuant to s 73 of the Construction Contracts
Act 2002. In carrying out
his review, His Honour records at [45] of the judgment:

              The fact that the enforcement process is not intended to transform
an
              adjudicator's determination into a final judgment, and is not
              intended to prevail over any other dispute
resolution procedures, is
              confirmed by a reading of the select committee report.

[8]    His Honour's comments are
apparently one of the bases for the amended
ground advanced, namely that the bankruptcy notices are not based on a final
judgment.


[9]    If the judgment debtors are successful in setting aside the District Court
judgment then, of course, there is no foundation
for the bankruptcy notices and they
must be set aside. Accordingly, if that answer is given in the appeal that is decisive
of the
applications which are before me.


[10]   However, if the judgment of District Court Judge DM Wilson QC is not set
aside, the question
will arise as to whether that is a final judgment for the purposes
of s 19(1)(d) of the Insolvency Act 1967.

[11]   Because the
nature of the judgment or order which is made under s 74 of the
Construction Contracts Act 2002, pursuant to the application which
is made under
s 73 of that Act, is so closely related to the matters which will be argued before the
Court of Appeal under the leave
application, it is important that the issue referred to
in [10] be determined by that Court at the same time. That is because the
judgment
of Asher J makes it plain that the effect of the order that the adjudicator's
determination be entered as a judgment of
the Court is not subject to the principle of
res judicata.


[12]   I inquired of Mr Hucker as to whether the appeal pursuant to
the leave had
been filed. He told me it had not. A short adjournment was arranged. The appeal
was completed and Mr Hucker advised
me he had instructions and would undertake
to the Court that the appeal would be filed and served forthwith and that the
appropriate
fees would be paid. I therefore proceed on the basis that an appeal has
been filed pursuant to the leave granted by Asher J.


[13]
  I next invited submissions from counsel as to how the problem of the status
of the judgment for the purposes of s 19(1)(d) of the
Insolvency Act 1967 might be
approached. Mr Hucker submitted that I should refer the matter to the Court of
Appeal for determination
at the same time as the current appeal. That certainly has
considerable attraction because it will ensure that the Court of Appeal is appraised of
all aspects relating to the orders which
District Courts make pursuant to s 74(4) of
the Construction Contracts Act 2002, including the use of such judgments in both
personal
and corporate insolvency cases.


[14]   Two potential approaches were discussed with counsel. The first involved the
possible application
of s 64 of the Judicature Act 1908 by the removal of the
applications which I am now determining from the High Court to the Court
of
Appeal. I do not pursue that jurisdiction because there may be a case for exploring
the existence of a counterclaim which would
involve an inquiry as to fact before
finally determining the applications to set aside the bankruptcy notices.


[15]   A further
alternative is to consider the matter by way of determination of a
question pursuant to rr 417 and 418 of the High Court Rules.


[16]   The question is:

       Whether an order pursuant to s 74 of the Construction Contracts Act 2002
       that an adjudicator's
determination be enforced by entry as a judgment of the
       Court is a final judgment for the purpose of s 19(1)(d) of the Insolvency
Act
       1967.

[17]   Rule 419 of the High Court Rules permits the removal of a question pursuant
to rr 417 and 418 into the Court
of Appeal for determination.


[18]   The process utilising r 419, in my view, is the correct one in this case. That
will ensure
that all questions relating to the order made by District Court
DM Wilson QC under s 74 of the Construction Contracts Act 2002 are
before the
Court of Appeal when the present appeal is determined.


Orders


[19]   Accordingly, I order as follows:


       a)
     The question of whether an order pursuant to s 74 of the Construction
               Contracts Act 2002, made by District Court
Judge DM Wilson QC,
               that an adjudicator's determination be enforced by entry as a
               judgment of the Court,
is a final judgment for the purposes of
               s 19(1)(d) of the Insolvency Act 1967 shall be determined separately
    
          and before the determination of the balance of the matters required to
               be determined in the application
to set aside the bankruptcy notices;


       b)      The determination of the question referred to above is removed into
      
        the Court of Appeal for determination with the judgment debtors'
               appeal from the judgment of Asher J delivered
on 13 December 2007;
               and


       c)      The applications are otherwise adjourned to the Miscellaneous
         
     Insolvency List at 11.45am on 31 March 2008. It is a condition of
               such adjournment that the judgment debtors
take every step possible
               to ensure that the appeal is heard and determined promptly.

[20]    Because the determination
of the question posed and, indeed this appeal,
relates to a procedure prescribed in the Construction Contracts Act 2002 which is
designed to provide for the speedy resolution of disputes and because the answer to
the question posed will have application to every
order made under s 74 of the
Construction Contracts Act 2002 where the judgment creditor seeks to invoke the
insolvency jurisdiction
of the Court, a request for the determination of the appeal on
an urgent basis is made.


Costs


[21]    Costs are reserved.




                                                           _____________________

                                             
                              JA Faire
                                                                     Associate Judge