Wati v Sharma HC Auckland CIV-2008-404-006367 [2011] NZHC 194 (9 March 2011)

Last Updated: 29 May 2011

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}

IN THE MATTER OF THE INSOLVENCY ACT 2006

AND IN THE MATTER OF THE BANKRUPTCY OF DEO DATT SHARMA

BETWEEN NIRMALI WATI Creditor

AND DEO DATT SHARMA Debtor

Hearing: 9 March 2011

Appearances: AJH Witten-Hannah for Creditor

D D Sharma (Debtor in person) Judgment: 9 March 2011

_{ORAL JUDGMENT OF ASSOCIATE JUDGE BELL}

Solicitors:

Witten-Hannah Howard, 187 Hurstmere Road, Takapuna, Auckland

Copy to:

_{D D Sharma, 1/97 McLeod Road, Te Atatu South, Auckland}

NIRMALI WATI V DEO DATT SHARMA HC AK CIV-2008-404-006367 9 March 2011

[1] This is a part-heard application to set aside five bankruptcy notices. It has been heard in Court. The creditor has issued five bankruptcy notices for five costs orders:

[a]	Family Court at Waitakere, June 2001:	$ 2,157.03
[b]	Family Court at Waitakere, 1 May 2006:	$10,642.17
[c]	Costs order of Court of Appeal, May 2007:	$ 2,560.31
[d]	Costs order of Supreme Court, July 2007:	$ 2,716.11
[e]	Costs order for High Court, April 2008:	$ 2,529.62 Total $20,605.24

[2] The parties are former husband and wife. Costs orders have arisen out of litigation in the Family Court and later appeals. All the bankruptcy notices were served on 1 October 2008. Dr Sharma filed an application to set aside each notice on

15 October 2008. That was his last day for compliance with each bankruptcy notice. Since then, the time for compliance with the notices has been extended under r 25.10(1) of the High Court Rules.

[3] The setting aside applications first came before Wylie J on 29 January 2009. The application raised three grounds:

[a] That the notices were an abuse of process because the creditor ought to have issued only one notice for all five notices, instead of one notice for each costs order;

[b] That Dr Sharma was solvent and able to pay his debts; [c] That he had a cross-claim.

[4] Wylie J found against Dr Sharma on the first two grounds, but adjourned the application on the third ground. I am required to decide the third ground today, and in addition two fresh matters that Dr Sharma raised today.

[5] Dr Sharma’s argument for a cross-claim was based on a judgment of the Family Court given on 16 June 2008. Judge Clarkson in the Family Court made an order that the former family home would vest in the creditor in 2013 and on that date she was to pay Dr Sharma the sum of $177,500. Dr Sharma says that that sum is the debt due to him by his former wife and that it is payable in the future, but he says that it is capable of set-off.

[6] Wylie J did not determine this ground of appeal for the setting aside application because Dr Sharma had appealed against the decision of Judge Clarkson in the Family Court. Wylie J held that he could not safely rule on the set-off argument until the High Court had determined the appeal. He left that point open for decision at a later time.

[7] Allan J heard the appeal. He gave two judgments, the first on 27 February

2009, and the second on 8 October 2009. In the judgment of 27 February 2009, he partially allowed the appeal. Judge Clarkson had made a vesting order under s 26(a) of the Property (Relationships) Act. Instead, on appeal, Allan J substituted an occupation order under s 27 of the Property (Relationships) Act and he ordered that the former family home was to be sold on or after 30 November 2013 and the proceeds of sale were to be divided between Dr Sharma and his former wife. He made it clear in his judgment of 8 October 2009 that there would not necessarily be an equal division of the proceeds of sale and there would instead be adjustments following calculations made by Judge Clarkson in the Family Court and other directions he gave in his decision of 8 October 2009.

[8] I am now required to decide the matter by reference to the orders which have been made by Allan J in the High Court, rather than by reference to the orders made by Judge Clarkson in the Family Court.

[9] Under the Family Court judgment, Dr Sharma and his former wife remained owners of the former family home until the vesting date in 2013. The property would then vest in his former wife automatically, while she would be required to pay Dr Sharma $177,500. That payment was required to redress the imbalance in the division of relationship property in the former family home being vested in the former wife. There is a possible argument that those orders created a future debt in favour of Dr Sharma. The orders made by Allan J on appeal have changed that. He has ordered a future sale of the house and ordered a division of the proceeds of sale between Dr Sharma and his former wife. There will not be an equal division

because adjustments will need to be made, as I have already discussed. The judgment means that Dr Sharma and his former wife will not be creditor and debtor in respect of the moneys that come out of the sale of the house. Instead, they will remain co-owners of the house until it is sold.

[10] There are directions on how the proceeds of sale are to be divided. Dr Sharma and his former wife will be claimants against that sum to be divided in accordance with the directions given by the Court. As Dr Sharma and his former wife are the people between whom the proceeds of sale are to be divided, neither of them will be a creditor of the other. Accordingly, it is not open to Dr Sharma to claim that he is a creditor of his wife now or that he will become a creditor of his wife on the sale of the former family home. There is no debt owing by his former wife to him, either now or in the future, upon which he can lay any claim as a cross- claim under s 17 of the Insolvency Act 2006.

[11] It may happen that in 2013, his former wife may offer to pay out Dr Sharma, although Mr Witten-Hannah says that that is unlikely. If it were to happen that his wife were to offer to pay him out and Dr Sharma were to accept that offer, a relationship of creditor and debtor might arise, but at this stage that is simply speculative. The possibility that such a debt might arise in the future is too remote to be considered in the context of an application to set aside a bankruptcy notice.

[12] The orders for costs are final orders of the Courts in which they were made and there have been no orders staying execution. His former wife is entitled to enforce those orders for costs against Dr Sharma, including by way of bankruptcy notice.

[13] Dr Sharma has raised two new matters. The first point is that he has filed an affidavit in which he has deposed that he has made a payment into Court. That payment was $21,000. He exhibits a receipt given by the Registrar of this Court showing that the sum of $21,000 was paid into Court as payment of security in these cases. The receipt is noted as being security for costs.

[14] Mr Witten-Hannah invited me to make an order that I should direct the funds should be paid out to his client. I asked Dr Sharma whether he consented to the funds being paid out. He said that he did not consent to the funds being paid out. His response indicates to me what the purpose of his payment into Court is. He has paid that money into Court not to provide his wife with security for payment of the

sums due to her on the orders for costs, but merely to demonstrate to the Court that he is able to put up money amounting to the orders for costs. It is a step taken by him to try and prove his solvency. On that point, Wylie J has ruled that solvency is not a relevant issue on an application to set aside a bankruptcy notice. I concur in that. The only matters in issue on an application to set aside a bankruptcy notice are whether the bankruptcy notice is valid and whether it ought to be allowed to issue and stand as the basis for an act of bankruptcy. There are limited grounds for setting aside. Saying that you are solvent is not a proper ground for setting aside a bankruptcy notice.

[15] There is a question as to how this payment into Court might be used if the wife later files an application to have Dr Sharma adjudicated bankrupt.

[16] The bankruptcy notice says in each case that to comply with the notice, Dr Sharma may take a number of steps. One of those steps is this: the debtor must secure or enter into a new formal agreement for the amount referred to in the notice to the judgment creditor’s satisfaction or to the satisfaction of the High Court.

[17] This matter may have to be adjudicated on later on, but I can say at this stage that simply paying the money into Court to show that you have funds to match the orders for costs is not, in my judgment, adequate security for the creditor when they are paid into Court on the basis that the funds will not be payable to the creditor. There can only be adequate security under this part of the bankruptcy notice if there can be the certainty that the creditor will receive the funds. Dr Sharma’s refusal to let his former wife have those funds is not adequate security for this part of the bankruptcy notice.

[18] The remaining point raised by Dr Sharma goes to a question of form. He takes issue with the certificates of judgment that were provided to the Court to allow the bankruptcy notices to issue.

[19] In each case, the Court from which the judgments came provided a certified form of judgment, typical of the particular court in which those orders were made. There is nothing special or unusual about the certificates. In each case, the Registrars were simply following the standard procedure required when judgment creditors request certificates of judgment for the purpose of a bankruptcy notice.

[20] I am satisfied that in each case the Registrar in each Court had properly certified the judgments and orders for costs. There was nothing in Dr Sharma’s point.

[21] I also make the point that in Best v Watson [1979] 2 NZLR 492, the Court of Appeal gave a very clear indication that these kinds of attacks on technical points of procedure were not going to be effective to have proceedings invalidated. The trend of the Court these days is not to dwell on procedural niceties. Something has to go drastically wrong for a step to be regarded as a nullity and ineffective. In this case, I am satisfied that the bankruptcy notices themselves are in order and that proper certified orders and judgments have been provided to the Court as a foundation for the bankruptcy notices.

[22] Accordingly, Dr Sharma’s applications to set aside the bankruptcy notices are dismissed.

[23] Until now, the time for compliance with the bankruptcy notices has been extended but with this order that the applications are dismissed, the time for compliance with the bankruptcy notices has stopped. The time in which his former wife can begin an application for adjudication will start to run from the end of today.

[24] I say something for any further steps that need to be taken. In this case, the former wife issued separate bankruptcy notices for each order for costs. As Wylie J indicated in his judgment, that was a proper step to take. It seems to me, however, that if the former wife wishes to apply for an adjudication of bankruptcy, it is not necessary for her to issue five separate applications. It will be open to her to issue just one application and to record five different acts of bankruptcy, being five acts of non-compliance with five different bankruptcy notices.

[25] The matters I have dealt with today are only about the bankruptcy notices. I have not ordered that the funds paid into Court be paid out to Dr Sharma’s former wife because, taking a narrow view of my jurisdiction, I am not confident that it would be within my powers on hearing a setting aside application, that I could make an order for payment out of funds paid into Court, attractive though it might be to his former wife to have access to those funds.

[26] I need to indicate, however, that if the matter goes to a bankruptcy application, the Court has wider powers and wider discretion. Nothing that I have

said today, barring my comments about security being offered, is intended to indicate what the outcome of any application for adjudication might result in. That is to be determined on another day.

[27] To summarise then, I make these orders:

[a] In each case, the application to set aside the bankruptcy notice is dismissed;

[b] Dr Sharma is to pay his former wife costs of $6,392, plus disbursements as approved by the Registrar.

R M Bell

Associate Judge