D D SHARMA V N WATI HC AK CIV 2008-404-006367 [2009] NZHC 25 (29 January 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                  CIV 2008-404-006367
                                                                  CIV 2008-404-006369
                                          
                       CIV 2008-404-006370
                                                                  CIV 2008-404-006371
                                                                  CIV 2008-404-006375



               BETWEEN                 
    DEO DATT SHARMA
                                            Debtor

               AND                          NIRWALI WATI
                                            Creditor


Hearing:       29 January 2009

Appearances: D D Sharma in person
       
     A J H Witten-Hannah for the Creditor

Judgment:      29 January 2009


                        [ORAL] JUDGMENT OF WYLIE J




Solicitors:
Witten-Hannah Howard, 187 Hurstmere Road, Takapuna, North Shore 0622

Copy to:
D D Sharma, 1-97 McLeod Road, Te Atatu
South, Auckland 0610




D D SHARMA V N WATI HC AK CIV 2008-404-006367 29 January 2009

[1]     Mr Sharma has applied to set aside
five bankruptcy notices which have been
served on him.


[2]     Each notice is dated 26 September 2008, and each seeks payment of
costs
ordered to be paid by Mr Sharma to his former wife, Ms Wati, in various Court
proceedings. Details are as follows:


     
  a)     a bankruptcy notice seeking payment of the sum of $2,157.03. This
               notice is based on a costs order made by
the Family Court at
               Waitakere in June 2001;


        b)     a bankruptcy notice seeking $10,642.17, also based on
a costs order
               made in favour of Ms Wati by the Family Court at Waitakere, this
               time on 1 May 2006;


        c)     a bankruptcy notice seeking payment of the sum of $2,560.31, based
               upon a costs order made by the
Court of Appeal in May 2007;


        d)     a bankruptcy notice also seeking payment of the sum of $2,716.11,
               based
upon a Court order made by the Supreme Court in July 2007;
               and


        e)     a bankruptcy notice seeking payment
of the sum of $2,529.62, based
               on a costs order made against Mr Sharma in the High Court in April
               2008.


[3]     Each notice also seeks interest at the rate of 8.4%, together with costs of
$620.


[4]     The total debt including accrued
interest, is approximately $24,500.

The application


[5]    Mr Sharma seeks to set aside the bankruptcy notices on three key grounds.
I
list them as follows:


       a)      that the costs and fees for serving the notices have been inflated, and
               that
a single notice should have been issued;


       b)      that he is solvent and can pay all his debts; and


       c)      that
he is owed the sum of $177,500 by Ms Wati, against which the
               debts can be set off.


[6]    A notice of opposition
has been filed by Ms Wati, and a number of affidavits
have been filed by both parties.


[7]    The notice of application purports
to rely on r 830 of the High Court Rules.
That rule relates to verification of a creditor's application and has no application in
the present circumstances.


[8]    The rules clearly envisage that an application can be made to set aside a
bankruptcy notice ­
see r 828(1).


[9]    Under the Insolvency Rules 1970 ­ r 41(3) and (4) ­ an assertion by the
debtor that he or she had a cross
claim against the creditor, contained in an affidavit,
operated as an application to set aside a bankruptcy notice. This carried
through into
the High Court Amendment Rules (No. 2) 1999, r 830.


[10]   The Insolvency Rules have now been repealed. The relevant
insolvency
legislation is now the Insolvency Act 2006 (the "Act"). Section 17(1)(d) of the Act
provides as follows:

       (1) 
   A debtor commits an act of bankruptcy if:

               ...

               (d)     the debtor has not, within the time limit specified in
                       subsection (4):

            
          (i)     complied with the requirements of the notice; or

                       (ii)    satisfied the Court that he or
she has a cross claim
                               against the creditor.

[11]   Although there is no equivalent provision to r
41(3) and (4) in the old
Insolvency Rules, the combined operation of r 828 and s 17(1)(d)(ii) is to the same
effect. A debtor commits
an act of bankruptcy if, inter alia, he has not within the
specific time satisfied the Court that he or she has a cross claim against
the creditor.
If the debtor asserts that he or she has a cross claim, that operates as an application to
set aside the notice and
time to comply with the notice is suspended until that
application is dealt with ­ r 828.


[12]   In addition, the Court has inherent
jurisdiction to set aside a bankruptcy
notice to control abuse of its processes ­ see Wise v Benecke, HC AK, B 227-95, B
228-95,
21 June 1995, Master Kennedy-Grant.


[13]   I now turn to deal with the various matters raised in the application.


Costs and fees
­ inflated five times


[14]   Mr Sharma argued that one bankruptcy notice should have been issued, and
not five notices. He submitted
that as a consequence, costs and fees have been
inflated, and that he should not be liable for those additional fees.


[15]   This
ground does not come within s 17(1)(d)(ii) of the Act. It can only be
advanced in reliance on the Court's inherent jurisdiction.


[16]   It has no merit. Under r 826, the Registrar may approve the issue of a
bankruptcy notice if the request is founded on a
judgment or order of a Court and the
Registrar has no knowledge that payment of the debt has occurred. A bankruptcy
notice can be
issued in respect of only one judgment ­ see Re Low  [1891] 1 QB 148,
and Carlyle v McCardle & Anor, HC WN, B 394-96, 12 March 1997, Master
Thompson.

[17]   There was no abuse of process in issuing
the five notices here in issue, and
there is no basis on which to invoke the Court's inherent jurisdiction to set aside
those notices
on this ground.


Mr Sharma is solvent, and can pay his debts


[18]   Mr Sharma has filed an affidavit asserting his solvency. He
has deposed that
he has no other debts or creditors, that he has moneys in his bank account, and that
he owns various shares in Australia
and in New Zealand. In Court he stated that he
has assets in Fiji. Only two of the assets are in New Zealand ­ first an account with
the National Bank which as at 11 December 2008 was in credit to the extent of
$23,761.84, and as at 28 January 2009, was in credit
to the extent of $22,491.78 and
secondly, some 1,600 shares in Auckland Airport Limited, which Mr Sharma asserts
were worth some
$2,720 as at 11 December 2008.


[19]   On the face of it, it seems that Mr Sharma has assets in this jurisdiction just
sufficient
to pay the amounts sought by Ms Wati in the bankruptcy notices. There is
however nothing to suggest that he had sufficient assets
as at the date the bankruptcy
notices were issued. Indeed the evidence is to the contrary. In an affidavit sworn on
18 November 2008,
Mr Sharma deposed that he then had the sum of "about $8,000"
in his current account with the bank.


[20]   Again this alleged solvency
does not come within s 17(1)(d)(ii). Further,
there was no abuse of process in issuing the bankruptcy notices in September 2008.
At that stage, Mr Sharma was in breach of numerous Court orders, and in most cases
that breach had been continuing for some time.
The creditor was entitled to proceed
to issue the notices.


[21]   In the event that Ms Wati elects to proceed with a bankruptcy
petition, it will
be open to the Court at that time to refuse to adjudicate Mr Sharma bankrupt if he
can then satisfy the Court that
he is able to pay his debts ­ see s 37 of the Act. It will
also be open to the Court to halt any application for adjudication ­ s
38. That is not
a matter to be determined in the present context, and it will fall for consideration
when and if a bankruptcy petition
is presented.

[22]      The notices cannot be set aside on this ground.


Set off


[23]      Mr Sharma asserts that he is entitled
to set off the sum owing by him to
Ms Wati against the sum of $177,500 he says is owing to him by Ms Wati.


[24]      The basis
of this assertion is contained in a judgment of the Family Court.
On 16 June 2008, Judge D F Clarkson gave judgment on the parties'
respective
interests in their relationship property pursuant to the Property (Relationship) Act
1976. Ms Wati and Mr Sharma own half
shares in a residential property, which is
currently occupied by Ms Wati and the children of the relationship. Judge Clarkson
made
an order fixing Mr Sharma's interest in the relationship property at $177,500,
and, in reliance on s 26A of the Property (Relationship)
Act, directing that the
vesting of that interest be postponed until 2013.


[25]      Mr Sharma maintains that that order creates
a debt, which is entitled to set off
against the amounts sought in the bankruptcy notices. He relies on a passage in the
Law of Set
Off, 3rd Edition, by S R Derham at para 8.03, and on the decisions in ex
parte Prescot [1753] EngR 121;  (1753) 1 Atk 230,  26 ER 147, and Rolls Razor Limited v Cox  [1967] 1
QB 552.


[26]      Mr Witten-Hannah for Ms Wati argues that the Family Court judgment does
not create a debt, but rather fixes Mr Sharma's
interest in the parties' relationship
property, and defers the vesting of that interest until 2013.          He relies on the
provisions
of the Property (Relationship) Act.


[27]      Mr Sharma appealed Judge Clarkson's decision to this Court. The appeal
was heard
in late November 2008, and the Court reserved its decision. It has not as
yet been issued.

[28]      I am advised by Mr Sharma
that there were two key issues raised on the
appeal:


          a)     whether the interest created by the Family Court was sufficient;
and


          b)     whether or not any vesting of the interest should be deferred.


[29]      To bring himself within s 17(1)(d)(ii)
of the Act, Mr Sharma has to satisfy me
that he has a cross claim, as those words are defined in s 17(7).


[30]      When the matter
was first called before me this morning, I signalled to the
parties that it seemed to me impossible to determine that issue until
the Court has
issued its decision on the appeal from the Family Court decision. Both were anxious
to proceed, and I heard from them
in relation to the point. Having considered the
issue, in my view it is inappropriate to give any ruling on the matter at this point.
This Court could make orders on the Family Court appeal which could affect
whether or not Mr Sharma can satisfy the Court as required
by s 17(1)(d)(ii) of the
Act, and it would be inappropriate to deal with the issue until the final outcome of
the appeal is known.


[31]      In the circumstances, I adjourn this aspect of Mr Sharma's application until
the Court has delivered its decision on
the appeal from Judge Clarkson's decision. I
direct that the Registrar should place Mr Sharma's application before the Duty Judge
on the first reasonably available date after the Court's decision on the appeal from
the Family Court has been delivered.


[32]
     This has the consequence that Mr Sharma is entitled to take advantage of the
provisions of r 828 of the High Court Rules.  
        No act of bankruptcy will be
committed by reason only of non compliance with the bankruptcy notices until his
application
to set aside the notices has been determined in its totality.

Costs


[33]    The costs of today's hearing are reserved.




 
                                              Wylie J