Commissioner of Inland Revenue, ex parte Barnett HC Auckland CIV-2011-454-29 [2011] NZHC 1080; (2011) 25 NZTC 20-068 (2 August 2011)

Last Updated: 22 October 2011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

_{CIV-2011-454-29}

IN THE MATTER OF the Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of PETER OWEN BARNETT as trustee in the BARNETT FAMILY TRUST

BETWEEN THE COMMISSIONER OF INLAND REVENUE

Judgment Creditor

AND PETER OWEN BARNETT AS TRUSTEE IN THE BARNETT FAMILY TRUST Judgment Debtor

Hearing: 29 July 2011

(Heard at Palmerston North)

Counsel: E.M. Carpenter for Judgment Creditor

Mr P.O. Barnett - Judgment Debtor in person

Judgment: 2 August 2011 at 3:14 PM

_{JUDGMENT OF ASSOCIATE JUDGE D.I.GENDALL}

This judgment was delivered by Associate Judge Gendall on 2 August 2011 at 3.00 pm under r 11.5 of the High Court Rules.

Solicitors: Inland Revenue Department, PO Box 1462, Wellington 6140

_Introduction

THE COMMISSIONER OF INLAND REVENUE V PO BARNETT AS TRUSTEE IN THE BARNETT FAMILY TRUST HC WN CIV-2011-454-29 2 August 2011

[1] Before the Court is an application by the judgment creditor seeking an order to adjudicate the judgment debtor bankrupt in terms of s 13 Insolvency Act 2006.

[2] The judgment creditor contends that the judgment debtor committed an act of bankruptcy by failing to comply with a Bankruptcy Notice served upon him on 9

February 2011 claiming the sum of $652,863.25.

[3] This debt of $652,863.25 represents a judgment entered against the judgment debtor in the District Court at Palmerston North on 25 August 2010 on proceedings taken by the judgment creditor.

[4] As I understand the position, this debt relates to default PAYE tax assessments made against the judgment debtor from December 2001 to April 2010 plus interest and penalties.

[5] No appeal against this decision of the District Court nor any application to set-aside the Bankruptcy Notice was brought by the judgment debtor.

[6] Then on 1 April 2011 the judgment creditor brought the present proceedings against the judgment debtor seeking an order for adjudication. On 30 May 2011 the judgment debtor filed in this Court a “Notice of Intention to Oppose the Liquidation Application” together with an affirmation dated 30 May 2011. In addition, the judgment debtor on 17 June 2011 filed a “Memorandum Applying for Halt of Adjudication Application and Trial to Establish Debt” and on 22 July 2011 the judgment debtor filed a “Memorandum in Reply” to the judgment debtor’s Application for Halt of Adjudication and Notice by Debtor of Intention to Oppose Application for Adjudication”.

[7] At the hearing of this matter before me on 29 July 2011 the judgment debtor appeared himself and made further oral submissions to me.

Parties’ Arguments and My Decision

[8] The present application is brought pursuant to Section 13 Insolvency Act

2006 which provides as follows:

13 When creditor may apply for debtor’s adjudication

A creditor may apply for a debtor to be adjudicated bankrupt if

(a) The debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and

(b) the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and

(c) the debt is a certain amount; and

(d) the debt is payable either immediately or at a date in the future that is certain.

[9] In the present case the District Court judgment which as I have noted, has not been the subject of an appeal or review by the judgment debtor, substantially exceeds the $1,000.00 threshold provided in s 13(a) Insolvency Act 2006.

[10] In addition the judgment debtor has committed an act of bankruptcy within the period of three months before the filing of the present adjudication application. As I have noted the application was filed on 1 April 2011 and the judgment debtor had failed to comply with the Bankruptcy Notice served on him on 9 February 2011 within the time allowed within the Notice.

[11] Further, the substantial $652,863.25 debt, effectively undisputed by the judgment debtor at the time, has been outstanding for some considerable time, relates to PAYE tax assessment for periods dating back to 2001, it is payable immediately and is clearly a certain amount.

[12] I am satisfied, therefore, that the requirements of s 13 Insolvency Act 2006 have been satisfied here.

[13] Although the documentation filed by the judgment debtor here does not make this clear, his opposition to the present application effectively appears to rely upon s

37 Insolvency Act 2006. This section sets out the basis upon which the Court at its discretion may refuse to adjudicate a judgment debtor bankrupt as follows:

37 Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if

–

(a) the applicant creditor has not established the requirements set out in section 13; or

(b) the debtor is able to pay his or her debts; or

(c) it is just and equitable that the Court does not make an order of adjudication; or

(d) for any other reason an order of adjudication should not be made.

[14] Turning to consider these grounds, as I have noted above, s 37(a) does not apply here.

[15] Turning next to s 37(b) there is no evidence of any kind before this Court form the judgment debtor or otherwise as to his financial position, assets and liabilities and commitments. There is nothing before the Court to show that the judgment debtor is able to pay his debts. The ground set out in s 37(b) is also not met here.

[16] That leaves the remaining two grounds under s 37(c) and (d) for consideration. These provide that, where a judgment debtor is able to establish that it is just and equitable that the Court does not make an order of adjudication or for some other sufficient cause an order for adjudication ought not to be made, the Court may refuse to make such an order.

[17] The first ground of opposition which appears to have been advanced by the judgment debtor is that although the Bankruptcy Notice served upon him relied upon the 25 August 2010 District Court judgment obtained against him, a copy of that judgment had not been served upon him prior to his receiving the Bankruptcy

Notice. This is disputed by the judgment creditor and the judgment debtor in any event acknowledged in his submissions before me:

The judgment debtor has now cured that failure for the judgment creditor by acknowledging presentment for acceptance of the copy of the judgment served with the Bankruptcy Notice.

[18] Whatever the correct position may be here, it is undisputed that a copy of the judgment was served with the Bankruptcy Notice and in light of the judgment debtor’s acknowledgement above, I am satisfied there is nothing in this defence.

[19] The next ground of opposition advanced by the judgment debtor seems to relate to a suggested defence based upon the Bills of Exchange Act 1908 (the Act). By this the judgment debtor contends that the District Court judgment in some way is a “Bill of Exchange” under the Act, that it was supposedly incomplete as a Bill of Exchange under s 20(1) of the Act, that the judgment debtor had “accepted” the bill on about 24 February 2011 and in his own writing noted that the sum of only “$10.00” was “payable to the Commissioner of Inland Revenue” under the bill which he then duly delivered to the judgment creditor and “the judgment creditor has subsequently failed to present the bill for payment (presumably of the $10.00) in due course.”

[20] The judgment debtor then argues that the judgment creditor’s refusal to present the “Bill of Exchange” for payment is a “refusal to accept money” and thus the judgment debtor is released from liability as the judgment debtor confirms his ongoing willingness to pay the $10.00 due it is said under the bill even at this late stage.

[21] In response to this argument, the judgment creditor submits at the outset that the District Court judgment is not a Bill of Exchange and thus the further arguments advanced for the judgment debtor are of no substance and must be dismissed. I agree.

[22] In terms of s 3(1) Bills of Exchange Act 1908:

(a) A Bill of Exchange is an unconditional order in writing, addressed by one person [the drawer] to another [the drawee], signed by the person giving it, requiring the person to whom it is addressed [the drawee] to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person or to bearer”.

[23] For two reasons, I consider that a judgment cannot be a bill of exchange. First, a fixed or determinable future time is required. Section 11 of the Act provides:

11 Bill payable at a future time

(1) A bill is payable at a determinable future time within the meaning of this Act if it is expressed to be payable –

(a) At a fixed period after date or sight:

(b) On or at a fixed period after the occurrence of a specified event that is certain to happen, though the time of happening may be uncertain.

(2) An instrument expressed to be payable on a contingency is not a bill, and the happening of the event does not cure the defect.

[24] A judgment specifying a debt to be paid and the Court order that follows regarding the judgment debt do not, generally, prescribe a fixed period of time in which that payment must be made. Therefore, a judgment does not fit within the definition in s 3.

[25] Secondly, the English Court of Appeal in Hong Kong & Shanghai Banking

Corporation Ltd v GD Trade Company Ltd [1998] CLC 238 stated at 242:

[a bill] is a document in use in hundreds of commercial transactions and, in the case of an instrument which has been drawn as a bill with the plain intention that it should take effect as such, the Court should lean in favour of a construction which upholds its validity as a bill where that is reasonably possible.

[26] The following illustrate the purpose of a bill of exchange, none of which, in my view, leads to a logical conclusion that a Court judgment ought to be treated as a bill of exchange. First, under s 55(1) of the Act, a drawer of a bill by drawing it:

(a) Engages that on due presentation it shall be accepted and paid according to its tenor, and that if it is dishonoured he will compensate

the holder or any indorser who is compelled to pay it, provided that the requisite proceedings on dishonour are duly taken:

(b) Is precluded from denying to a holder in due course the existence of the payee and his then capacity to indorse.

[27] Upon delivering a judgment and making an appropriate order, a Judge or a

Court provides no such undertaking. Further, under s 53 of the Act:

53 Funds in hands of drawee

A bill of itself does not operate as an assignment of funds in the hands of the drawee available for the payment thereof, and the drawee of a bill who does not accept as required by this Act is not liable on the instrument.

[28] Under a Court judgment or order such as the District Court judgment here, a judgment debtor cannot refuse or decline to pay. In contrast, under a bill of exchange, a holder’s recourse, upon non payment, is to claim against the drawer (s

43(2) of the Act). A plaintiff claimant, however, has no recourse against a Court where a judgment debtor refuses payment. Accordingly a judgment clearly does not fulfil the purposes of a bill of exchange and so cannot be construed to be such.

[29] In the present case, if the District Court judgment or order is to be a bill of exchange, the drawer would have to be the Judge who delivered the judgment or the Court who issued the order, and the payee the Commissioner of Inland Revenue.

[30] Moreover, bills of exchange are commonly seen in commerce as cheques, promissory notes or the like. That is clearly not the case here. The District Court judgment does not meet the definition of “Bill of Exchange” in s 3(1) of the Act.

[31] Section 3(2) of the Act states that an instrument that does not comply with the conditions outlined in s 3(1) or that orders any act to be done in addition to the payment of money is not a bill of exchange.

[32] I am satisfied that no argument is available here to contest the proposition that the District Court judgment is not a Bill of Exchange. All arguments addressed

to me by the judgment debtor in his defence based upon the contention that the

District Court judgment is a bill of exchange are misplaced and are dismissed.

[33] The debt owing here to the judgment creditor which was the subject of the District Court judgment is substantial and has been outstanding for quite some time. Although it relates to what were originally default assessments of PAYE, the judgment debtor chose not to avail himself of the NOPA or objection or appeal procedures with regard to these assessments.

[34] In the present case, I conclude that the arguments the judgment debtor has endeavoured to advance in opposition are without merit and fall well short of satisfying the onus upon him to establish either that it is just and equitable or, for some other sufficient cause, the present application for an adjudication order should not be made.

Conclusion

[35] For the reasons I have outlined above, I am satisfied the judgment creditor’s

application for an order of adjudication must succeed. [36] Orders are now made, therefore, as follows:

(a) An order is made adjudicating the judgment debtor, Peter Owen

Barnett, a bankrupt.

(b) Costs are awarded to the judgment creditor on this application on a Category 2B basis together with disbursements as fixed by the Registrar.

(c) These orders are timed at 3.14 pm today 2 August 2011.

‘Associate Judge D.I. Gendall’