Allied Nationwide Finance Limited v Temple HC Napier CIV-2011-441-172 [2011] NZHC 1137 (19 September 2011)

Last Updated: 19 October 2011

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

_{CIV-2011-441-172}

BETWEEN ALLIED NATIONWIDE FINANCE LIMITED

Judgment Creditor

AND CATHRYN MARY TEMPLE (ALSO KNOWN AS CATHRYN MARY RADBURND)

Judgment Debtor

Hearing: 15 September 2011 (Heard at Napier)

Counsel: L. Blomfield - Counsel for Judgment Creditor

A. Orme - Counsel for Judgment Debtor

Judgment: 19 September 2011 at 3:00 PM

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

This judgment was delivered by Associate Judge Gendall on 19 September 2011 at

3.00 pm under r 11.5 of the High Court Rules.

Solicitors: Buddle Findlay, Solicitors, PO Box 2694, Wellington

_{Lawson Robinson, Solicitors, PO Box 45, Napier}

ALLIED NATIONWIDE FINANCE LIMITED V CM TEMPLE (ALSO KNOWN AS CM RADBURND) HC NAP CIV-2011-441-172 19 September 2011

[1] Before the Court is an application by the judgment creditor for an order adjudicating the judgment debtor bankrupt.

[2] The application was filed in this Court on 7 June 2011. It followed the service on the judgment debtor of a Bankruptcy Notice on 18 March 2011 requiring payment of the sum of $241,135.41. This amount represented a judgment of the High Court at Wellington against the judgment debtor issued on 7 March 2011 for

$240,462.11 together with additional amounts by way of interest. The High Court judgment followed a summary judgment hearing at which there was no appearance for the judgment debtor. The summary judgment order was also made at the time against Mr Michael Alan Radburnd (Mr Radburnd) the former husband of the judgment debtor as a first defendant.

[3] The amount in the summary judgment order represented a balance outstanding under a guaranteed loan made by the judgment creditor I understand at the instigation of Mr Radburnd for the purchase of a luxury boat over which security was held. The boat has subsequently been sold and there is a substantial shortfall in the loan advanced.

[4] There is no argument here that the judgment debtor has established the requirements for an order for adjudication set out in s 13 Insolvency Act 2006. The debt owing by the judgment debtor exceeds $1,000.00. She has clearly committed an act of bankruptcy by failing to comply with the Bankruptcy Notice issued against her within the period of 3 months before the filing of the creditor’s application. And, there is no doubt also that the debt in question is a certain amount and is payable immediately.

[5] Notwithstanding this, the judgment debtor opposes the present application effectively requesting that the Court exercise its discretion not to adjudicate her bankrupt on just and equitable or other grounds pursuant to s 37(c) and (d) Insolvency Act 2006.

[6] In this regard, s 37 Insolvency Act 2006 provides:

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 requirement set out in s 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.

[7] In considering the Court’s discretion under s 37, Brookers Insolvency Law & Practice at para IN37.03 discusses the general principles to be applied in the following way:

IN37.03 Court’s Discretion – general principles

In Baker v Westpac Banking Corporation 13 July 1993, CA 212/92, the Court of

Appeal discussed the principles applicable to the Court’s discretion under s 26

Insolvency Act 1967. Richardson J said (at page 4):

“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 as set out in s 23 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 the 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 be made.”

The main factors affecting the Court’s exercise of its discretion are:

(a) The creditor’s entitlement to an order;

(b) The wishes of the petitioner, the creditors or the debtor; (c) The public interest;

(d) Whether such discretion is just and equitable; and

(e) The ability of the debt to pay his or her debt.

[8] The evidence before the Court by the judgment debtor here is that her only asset is a Subaru Legacy car with a value as at April 2011 of $3,500.00. She states that she is living with a friend, paying board and has no other liabilities other than

the present debt to the judgment creditor. She is presently employed as a Commission Agent selling real estate and her income is irregular and it seems at a rather low level.

[9] The background to this whole matter and the incurring of the present debt to the judgment creditor is explained in the judgment debtor’s affidavit. As to this, she deposes that:

(a) On 1 September 2004 she married Mr Radburnd.

(b) In November – December 2005 Mr Radburnd said he “Would like to give me a half share in a boat as a gift to me as his new wife”. She deposes that Mr Radburnd organised for her to sign what she thought were only ownership papers for the boat but, completely unbeknown to her, it seems he had surreptitiously had her sign the Loan Agreement with the judgment creditor for the boat loan. This made her jointly and severally responsible for loan payments from the time of the boat’s acquisition.

(c) Then, on 7 July 2007 the judgment debtor and Mr Radburnd separated. It was only at this time that the judgment debtor says it became clear that she was responsible for the loan with respect to the boat. Shocked at this, the judgment debtor deposes that at that point discussions took place for her to be removed as a debtor under this loan and for her to “clear my name if I could”.

(d) The Judgment debtor goes on to depose in her affiavit that Mr

Radburnd came up with a way for this to be achieved:

“My ex-husband (Mr Radburnd) and myself made an appointment with Jonathon Heaphy, Solicitor, Scannell Hardy & Co, Hastings where I fully explained and outlined what had happened. He (Mr Heaphy) drew up a document saying that if I signed it and fulfilled the conditions of the document (which I did) then I would no longer be responsible for any debt or liability to do with the boat. I had no reason to doubt a senior solicitor.”

(e) On 28 September 2008 a Deed was entered into and signed between Mr Radburnd’s company (Bligh Properties Limited) described as debtor, the judgment debtor described as creditor and Mr Radburnd described as covenantor. Amongst other things, this Deed stated that Bligh Properties Limited owed the sum of $91,266.01 to the judgment debtor and agreed to repay this upon demand. Mr Radburnd provided his guarantee for this and, in addition Mr Radburnd at para 6(c) covenanted that he would:

.... become solely liable for and take over the full debt associated with the boat known as “Quatramis” and shall indemnify and save harmless the creditor (Ms Temple) in respect of any such debt. In consideration of this, the creditor henceforth regards the covenantor (Mr Radburnd) as being the sole owner of the boat and he shall therefore be solely liable to meet maintenance costs etc.

[10] In addition, under this Deed and pursuant to two Agreements for Sale and Purchase entered into at the same time, the judgment debtor and Mr Radburnd transferred to Bligh Properties Limited all their jointly owned interests in first, a property at 94 Clyde Street, Tokoroa at a purchase price of

$150,000.00 and secondly, a property at 22 Clyde Street, Tokoroa at a purchase price of $170,000.00. It appears that no monies were to change hands on these sales. Instead, the purchaser Bligh Properties Limited was to take over liability under existing mortgages on the respective properties and also (perhaps rather confusingly) any balance was to be satisfied “by the purchaser (Bligh Properties Limited) accepting the balance of the purchase price in reduction of the vendor’s current account with the purchaser”. What seems to have happened in effect is that the half share interests the judgment debtor had in these two Tokoroa properties were effectively transferred to Mr Radburnd’s company, Bligh Properties Limited, simply in exchange for an assumption of debt on behalf of the purchaser.

[11] Interestingly, both the Agreement for Sale and Purchase of 94 Clyde Street, Tokoroa and the Agreement for Sale and Purchase of 22 Clyde Street, Tokoroa were conditional in para 15.0 upon:

The current mortgagee agreeing to release the said Cathryn Mary Radburnd (the judgment debtor) on or before the settlement date from her personal covenant contained within the existing mortgage number 7765170.2.

There is no evidence before me first as to who the existing mortgagee may be and secondly, as to whether or not this release from liability was obtained.

[12] Nevertheless, what does appear clear is that no approach was made by any party, including the solicitor who prepared the Deed and Agreements, Mr Heaphy, to the judgment creditor to obtain a release of the judgment debtor’s liability under the loan over the boat “Quatramis”.

[13] Mr Radburnd has now been adjudicated bankrupt on an application, as I understand it, brought by the judgment creditor. As I understand the position, his company Bligh Properties Limited is also in financial difficulty and may well be in liquidation, and no payments have been made in reduction of the summary judgment order.

[14] The judgment creditor wishes to continue its pursuit of the judgment debtor for this debt and now seeks an order adjudicating her bankrupt.

[15] Throughout all this, the judgment debtor refers to two particular matters. First, she maintains that regrettably she trusted her former husband, Mr Radburnd implicitly throughout all these transactions. Secondly, she says that she understood that the lawyer, Mr Radburnd and she had instructed to prepare the Deed and the Agreements for Sale and Purchase of the Tokoroa properties, Mr Heaphy, would do all things necessary to ensure that her guarantee of the judgment creditor’s loan was released. Clearly this did not occur.

[16] The issue then arises whether in the present case it would be just and equitable to make the judgment debtor bankrupt given these circumstances and her present situation.

[17] The judgment debtor wishes to avoid bankruptcy specifically as I understand it in large measure because of the effect this might have on her continued employment and involvement as a real estate agent and her general reputation in the

business community. On these aspects, Master Kennedy Grant in Re: Wong Ex P Turners and Growers (Auckland) Limited HC, Auckland, 1 October 1993, B1104/93, investigated the possible impact of an order for adjudication on a debtor’s ability to work as a real estate agent and concluded that an order would not necessarily be a bar to a debtor practising in this capacity. Notwithstanding this, issues might well arise over the renewal of any real estate agent’s licence and certainly, in my view, commercial reputation questions would surface in any event. In addition, it is fair to say that ongoing issues concerning the possible loss of her job as an agent might well arise for the judgment debtor.

[18] As I have noted above, the judgment debtor has deposed that she has only one debt outstanding this being the current debt to the judgment creditor. Accordingly, it is only the present judgment creditor who desires to bankrupt her. It has already bankrupted her former husband Mr Radburnd and as I have noted above, he has made no payment towards the judgment debt obtained against both him and the judgment debtor.

[19] It is well settled law as indicated above that, in exercising the discretion under s 37 Insolvency Act 2006 to refuse an order for adjudication, it is proper for the Court to consider the interests of those directly concerned namely the judgment creditor and judgment debtor, other creditors and also the wider public interest. Lack of assets is a factor to be taken into account but is not in itself determinative. The Court is not to do “a vain thing” – Motor Trade Finances Ltd v Timmins HC, Wanganui, 9 March 1999, Master Thomson, B56/97. Notwithstanding this and the fact that a debtor may have found herself insolvent through no fault of her own, the authorities establish that an order for adjudication is appropriate:

(a) If there is a public interest factor which would otherwise warrant an adjudication; or

(b) If bankruptcy would serve a practical useful purpose – Re: Wong Ex P Turners and Growers (Auckland) Limited.

In undertaking these considerations, a Court in exercising its discretion is to ask whether adjudication generally would be conducive or detrimental to commercial morality and whether it would be in the interests of the general public.

[20] In the present case, when considering the overall circumstances in which the judgment debt was incurred and the subsequent events surrounding the 28 September

2008 Deed, in my view there are reasonable arguments that first, the judgment debtor did not have a full appreciation of the commercial situation into which she was placing herself and secondly, once she had separated from Mr Radburnd, the arrangements made effectively through his legal adviser, Mr Heaphy, despite assurances to the contrary, did not appear to protect or advance her position. On all this, the judgment debtor claims that, to a certain point, she is a victim here, that she is certainly not a commercial risk to the community and that it is not in the public interest that she be adjudicated bankrupt. She contends it would be a pointless exercise to place her into bankruptcy. Her only asset is the vehicle she requires for work purposes (any debt originally owing to her by Bligh Properties Ltd being irrecoverable) and she says no practical or useful purpose would be served here by bankrupting her.

[21] In response, the judgment creditor notes first, that an act of bankruptcy has clearly been committed here, secondly that the debt is substantial, and thirdly that it has incurred a large loss and is entitled to the order for adjudication sought.

[22] In addition, Ms Blomfield for the judgment creditor argued before me that no repayment proposal of any type has been put by the judgment debtor and, in any event, presumably here for a time the judgment debtor did indeed enjoy the benefits of the luxury boat for which the loan was obtained.

[23] Weighing up all these matters, and putting to one side the question whether the judgment debtor might have a possible claim against the legal advisers involved in completing the 28 September 2008 Deed and property agreements in so far as they may have advised and acted for her, I take the view that this is one of those rare cases where the punitive aspects and stigma of bankruptcy should not be imposed upon the judgment debtor. On her evidence the judgment debtor has clearly been

substantially mislead and deceived by her former husband in being a party to the boat loan to the judgment creditor and in the later settlement and property sale arrangements. And, in my view, the interests of the general public do not require that the judgment debtor be adjudicated here. As I see it, there are no issues requiring independent inspection of the judgment debtor’s financial affairs or justifying adjudication on the grounds that it is required for reasons of commercial morality. Although at one level the judgment debtor may be seen to have been somewhat foolish and naive in all these matters, in my view, the commercial and financial community generally does not require protection from her possible future activities.

[24] Although I readily accept that it is in the public interest that the commercial integrity of loan arrangements freely entered into between informed parties must be upheld, all and all in the present case I am satisfied there would be nothing to be gained by making an order for adjudication against this debtor. This was what occurred in not dissimilar circumstances in Timmins v Motor Trade Finances Limited (which involved possibly similar loan arrangements entered into at the behest of a former defacto partner) where, in a situation which is in my view not as compelling as the present case, Master Thomson refused an order for adjudication on just and equitable grounds.

[25] For all these reasons, in my judgment, as no useful purpose would be served and as there would be nothing to be gained in the present case by making an order for adjudication against the judgment debtor, this is a proper case where it is just and equitable that she should not be made bankrupt.

[26] Accordingly the present application for adjudication is dismissed.

[27] There is to be no order as to costs however. The present application, although unsuccessful, was properly brought by the judgment creditor.

‘Associate Judge D.I. Gendall’