Kipping v UDC Finance Limited [2012] NZHC 1707 (16 July 2012)

Last Updated: 24 July 2012

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2010-409-2273 [2012] NZHC 1707

BETWEEN JOHN BRIAN KIPPING Applicant

AND UDC FINANCE LIMITED Respondent

Hearing: 16 July 2012

(Heard at Christchurch)

Appearances: J B Kipping, as Applicant in Person with Mr P King (McKenzie friend)

M D Pascariu for Respondent

G Slevin for Official Assignee (appearing initially but then excused) C Ruane for Circle K Limited (with a watching brief only in this proceeding, not attending throughout)

Judgment: 16 July 2012

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

_{as to application for annulment}

[1] On 12 April 2011 the Court adjudicated John Brian Kipping bankrupt. Mr Kipping applies for the annulment of his adjudication. He says that he should not have been adjudicated bankrupt.

The bankruptcy proceeding

[2] UDC Finance Limited (“UDC”) is a money lender. In October 2010, it had a bankruptcy notice issued against Mr Kipping. It relied on a judgment entered in the

_{District Court against Mr Kipping for $77,351.48 in August 2010.}

KIPPING V UDC FINANCE LIMITED HC CHCH CIV-2010-409-2273 [16 July 2012]

[3] Mr Kipping was then promptly served with the bankruptcy notice. He did not meet the requirements of that notice and in particular did not pay to UDC the judgment sum.

[4] In November 2010 UDC applied for an adjudication order. Mr Kipping was served with that application in December 2010.

[5] Following service of the UDC application upon him, Mr Kipping, through a barrister, applied to the District Court for an order setting aside the District Court judgment. His ground of application was that he had no recollection of being served personally with the notice of claim. He also disputed the debt.

[6] Judge Somerville heard the setting aside application on 8 February 2011 and by judgment dated 15 March 2011 dismissed Mr Kipping’s application. He was satisfied that the proceedings were properly served on Mr Kipping and that Mr Kipping had no substantial defence to the claim being made against him.1

[7] The original District Court judgment is based on a debt of Circle K Limited to UDC which had been guaranteed by Mr Kipping. At the setting aside hearing, Mr Kipping did not deny having entered into the guarantee but instead asserted that he had a defence because:

(a) It was an illegal contract;

(b) If it was not illegal then it was not capable of being enforced as there had been no proper disclosure made as required by ss 17 and 22 of the Credit Contracts and Consumer Finance Act 2003;

(c) It was an oppressive contract under the same Act and Mr Kipping was entitled to relief;

(d) The doctrine of laches applies.

[8] Judge Somerville considered all four defences and found that each failed. By way of background his Honour’s judgment refers to the fact that the loan contract was entered into in March 2008 but quickly fell into default, with a repossession order being issued on 27 January 2009. Further demand for payment was then made in June 2009 when UDC calculated the debt as $121,798.59. Three payments were received shortly afterwards, with the last payment on 31 August 2009. Judgment for the balance was obtained almost a year after the last payment.

[9] With the dismissal of Mr Kipping’s application for setting aside, and he having taken no formal step in the bankruptcy proceeding, he was (in his absence) adjudicated bankrupt on 12 April 2011. The April 2011 hearing date was a rearranged hearing date following the disruption to earlier hearings caused by the Christchurch earthquake in February.

[10] Following that adjudication, before UDC was able to seal the order of adjudication, Mr Kipping contacted the Registrar to say that he had had no notice of the amended hearing date.

[11] Mr Kipping filed an application for annulment primarily on the basis that he had not been aware of the 12 April 2011 hearing date. At the same time the Court was informed by Mr Kipping that he had in writing accepted an offer of UDC made in April 2011 for UDC to accept $77,000.00 in full and final settlement. Through cooperation of UDC (which essentially abided the outcome) and of counsel for the Official Assignee, his application for annulment was dealt with promptly at a telephone hearing. On 24 May 2011, I gave judgment annulling Mr Kipping’s

bankruptcy.2 Mr Kipping had satisfied the ground available under s 309(1)(a)

Insolvency Act 2006, in that I considered that he should not have been adjudicated bankrupt on that date. The reasons for that lay in the confusion over the rearranged hearing.

[12] I ordered:

(a) Pursuant to s 309(1)(a) Insolvency Act 2006, the adjudication of Mr

Kipping in bankruptcy was annulled with effect from 18 May 2011;

(b) The UDC application for an adjudication order in the proceeding was dismissed with no order as to costs;

(c) The order was to lie in Court until Mr Kipping provided to the

Registrar confirmation of UDC that it had received the sum of

$77,000.00 in settlement.

[13] Mr Kipping did not subsequently pay the $77,000.00 to UDC, despite an extension of time granted by UDC.

[14] On 12 July 2011, Justice Lang heard UDC’s application for recall of the 24

May 2011 annulment judgment. His Honour recalled the orders made on 24 May

2011. The original order adjudicating Mr Kipping bankrupt accordingly remained intact.3

[15] There has been some discussion in submissions for the current hearing as to the possibility that Mr Kipping may not have received notice of the hearing on 12

July 2011 but when I put that to Mr Kipping he indicated that he was not asking the Court to accept that he had not received notice. I note in this regard that the hearing was specifically allocated by me in my minute of 30 June 2011 following which the case officer’s note records that the minute was sent, in the Christchurch case officer’s normal way at that stage, by both post and email.

[16] UDC was finally able to have the adjudication order sealed, which it promptly did.

[17] Mr Kipping did not make this further annulment application for at least seven months. In the meantime his estate has been administered by the Official Assignee.

I turn to briefly summarise what has happened with the administration through the report provided by the Official Assignee pursuant to s 309 of the Act.

The administration of Mr Kipping’s bankrupt estate

[18] Mr Kipping completed a statement of affairs in May 2011 in which he disclosed that he personally owned no assets. He also disclosed no creditor debts. UDC was of course a creditor and filed a proof of debt for $83,230.92 (which included the costs of the bankruptcy proceeding).

[19] The Official Assignee was initially able to realise $67,800 through the recovery of what is described as an “after acquired asset”, although, as I will discuss later, the Assignee has since disgorged that sum back to UDC.4

[20] The Official Assignee calculated at the time he filed his report (and before the

$67,800 was repaid to UDC) that the balance sum required to satisfy Mr Kipping’s debts (balance to UDC and the Assignee’s costs and disbursements to May 2012 of

$17,694.58) was $36,221.95. That of course does not include any subsequently accruing interest or costs.

[21] There is no suggestion that Mr Kipping has since made any payment towards that balance save for a sum which I understand from his advice to me was paid last week. It is common ground that that still leaves a balance on UDC’s judgment debt and would, if this had been an application under s 309(1)(b), still have left outstanding the Assignee’s costs and disbursements. Mr Kipping’s application for annulment was therefore not based under s 309(1)(b) of the Act on the basis that his debts and the Assignee’s fees and costs had been fully paid or satisfied. I do not take into account, in the context of this application, additional material Mr Kipping placed before the Court in the last few days indicating that he has been making further attempts to settle the debt. There is no admissible evidence to indicate that he is in a position to clear the sums which would require payment for an application to succeed under s 309(1)(b).

[22] It appears that in the period since his adjudication, Mr Kipping has been undertaking further research into what he considers to be fallacies and errors in the debt claimed by UDC. One particular aspect of concern flowing on from submissions he made to the District Court is the proposition that a provision of the Credit Contracts and Consumer Finance Act 2003 applied to the contract as a whole. Now Mr Kipping focuses more particularly on the insurance component of the contract and submits that that was a consumer credit insurance situation. Mr Kipping refers to this at various points through the lengthy affidavit he filed in support of his annulment application. It appears that he wishes (on behalf of both Circle K Limited and himself) to hold UDC accountable for conduct in relation to such insurance. There is a somewhat different issue relating to the cancellation of the insurance policy. He suggests that the Disputes Tribunal is the appropriate place to resolve the insurance matter as an alternative to the High Court’s reopening of the underlying loan contract.

[23] Mr Kipping has also apparently had discussions with the Assignee as to his involvement in a Disputes Tribunal claim as a representative of Circle K Limited. (He apparently discussed with the Assignee a range of other matters relating to the administration of his bankrupt estate, including the acceptance of UDC’s proof of debt which Mr Kipping described as a “manifestly erroneous claim”). Mr Kipping has filed an interlocutory application to appeal the Official Assignee’s decisions on those and other matters. That application has been adjourned pending the outcome of this annulment application.

[24] Mr Kipping also wishes the Court to explore the accuracy of UDC’s calculations when it made its demand for repayment and when it filed its Notice of Claim in the District Court.

Section 309 of the Insolvency Act 2006

[25] Section 309 of the Act sets out the circumstances in which annulment of an adjudication may be ordered. It is the successor provision to s 119 of the 1967 Act.

309 Court may annul adjudication

(1) The Court may, on the application of the Assignee or any person interested, annul the adjudication if—

(a) the Court considers that the bankrupt should not have been adjudicated bankrupt; or

(b) the Court is satisfied that the bankrupt's debts have been fully paid or satisfied and that the Assignee's fees and costs incurred in the bankruptcy have been paid; or

(c) the Court considers that the liability of the bankrupt to pay his or her debts should be revived because there has been a substantial change in the bankrupt's financial circumstances since the date of adjudication; or

(d) the Court has approved a composition under subpart 1 of

Part 5.

(2) In the case of an application on one of the grounds specified in subsection (1)(a) to (c) by an applicant who is not the Assignee,—

(a) a copy of the application must be served on the Assignee in the manner and within the time that the Court directs; and

(b) the Assignee may appear on the hearing of the application as if the Assignee were a party to the proceeding.

...

The Court’s jurisdiction

[27] By s 411(1) of the Act a Judge may exercise all the powers and jurisdictions given to the Court under the Insolvency Act.

[28] Section 411(2), while allowing most proceedings under the Act to be heard either in Chambers or in open Court, requires that three particular matters, including

_{the annulment of bankruptcy, be dealt with in open Court, as this has been.}5

5 See also Balzat v Zhang HC Auckland CIV-2008-404-006062, 22 September 2009, Heath J at

[33].

[29] This annulment application is within the jurisdiction of an Associate Judge. Section 26I(2)(ha) Judicature Act 1908 provides:

26I Associate Judge may exercise certain powers of the Court

(1) ...

(2) An Associate Judge shall have and may exercise all the jurisdiction and powers which are vested in the Court or a Judge by the following enactments:

...

(ha) the Insolvency Act 2006 (except sections 150, 166(3), 180, and 236(2)); 6

...

Sections 150, 166(3), 180 and 236(2) have no application in the present case. I

accordingly have jurisdiction to deal with this matter.

Annulment – the procedure

[30] Annulment applications under s 119 of the 1967 Act were made by way of originating application,7 and are appropriately dealt with in the same way under the

2006 Act. In this case, Mr Kipping filed a document in the form of an interlocutory application (albeit with some deficiencies). In the interests of the just, speedy, and inexpensive determination of the proceeding and by application of r 1.5(3) I have dealt with Mr Kipping’s application according to its “substantive reality”.8 On 4

July 2012, I accordingly ordered that Mr Kipping’s application be treated as an

_{originating application with these reasons to follow.}

6 _{Ibid, at [34].}

7 See Holdgate v Blocassa HC Auckland CIV-2005-404-002693, 23 March 2006, per Courtney J

_{at [9].}

8. This was the expression adopted by Fraser J in Niak v Armitage (1992) 6 PRNZ 566 at 570, when ordering an agreed statement of issues to be treated as a proceeding under the High Court Rules as well as an application pursuant to s 15 Arbitration Act 1908 and s 26N Judicature Act

1908.

[31] Mr Kipping has pursued an order that his adjudication and bankruptcy be annulled pursuant to s 309(1)(a) of the Insolvency Act. He challenges the accuracy of the debt originally claimed by UDC and he challenges, on numerous grounds, the validity of that claim. He says that the original debt asserted by UDC in the District Court was demonstrably and manifestly wrong. He provides calculations which suggest that there was a balance left owing by UDC to Circle K Limited. He says that he and/or Circle K Limited have cross-claims against UDC for various reasons, including the consumer credit issue, UDC’s taking of a commission, UDC’s engagement in misleading conduct in terms of the Fair Trading Act 1986, UDC’s alleged breaches of consumer guarantees rights, and issues relating to credit contracts more generally.

[32] Mr Kipping refers also to the sum of $67,800 which I have referred to as having been received by the Official Assignee (in July 2011). That sum was initially paid apparently by Circle K Limited to UDC with an intended relationship to the

$77,000 which Mr Kipping had agreed to pay to UDC in May 2011 that would be accepted in full and final settlement. On 12 July 2011 the Court recalled the annulment judgment so that Mr Kipping’s bankruptcy then became fully effective. It appears that Circle K Limited made the payment some weeks later. UDC, having received that payment (for a person now bankrupt) took advice and forwarded the funds a week later to the Official Assignee. Mr Kipping has expressed some surprise and concern in the course of his submissions as to the appropriateness or otherwise of that advice. I find the advice entirely understandable and appropriate. Hence the Official Assignee, having received that sum included in his report an account for that sum. I am today informed that subsequently the Assignee released the sum back, with interest to UDC.

UDC’s opposition to annulment

[33] UDC filed a particularised notice of opposition to Mr Kipping’s application.

(a) UDC had followed a proper process in obtaining the adjudication; (b) The application disclosed no new material facts;

(c) The application repackages issues previously raised by Mr Kipping in this Court and in other courts and tribunals and is vexatious and an abuse of the Court process.

Evidence of Manager of UDC’s Recovery division

[35] Ross Webster, the manager of UDC’s recovery division gave the primary

affidavit evidence for UDC in opposition to the application.

[36] His affidavit evidence gave the background to the judgment debt. He identified the Business Finance contract, which Mr Kipping’s company Circle K Limited entered into in March 2008 with Circle K’s obligations guaranteed by Mr Kipping. Mr Webster identified defaults which began occurring in August 2008 and the recovery steps taken by UDC. He then identified the District Court judgment obtained by UDC, the subsequent bankruptcy proceeding, Mr Kipping’s unsuccessful application to the District Court for an order setting aside the judgment and the annulment procedures.

[37] Mr Webster confirmed that the judgment debt which UDC has proved in Mr Kipping’s bankruptcy remains outstanding as to the balance after the Circle K payment was credited back.

[38] Mr Webster refers to six tribunals, forums or Courts (apart from this Court) in which Mr Kipping has pursued claims or complaints with a relationship to the Business Finance contract. These are the District Court, the Disputes Tribunal, Banking Ombudsman, Veda Advantage NZ Limited, New Zealand Law Society and the Privacy Commissioner. Mr Webster deposed that with the exception of one complaint to the Privacy Commissioner, all the complaints have been resolved. I

note that in addition there seems to be a matter parked in the Disputes Tribunal which Mr Webster, in the cross-examination before me today, indicated he had no direct knowledge of.

[39] Mr Kipping required Mr Webster for cross-examination. Mr Webster gave his evidence at the hearing today. The chief points of Mr Kipping’s cross- examination and the submissions which Mr Kipping made can be gathered under four heads, which I set out with a brief analysis of the impact of that evidence, including relevance.

Subrogation

[40] First, there is an issue as to subrogation and for convenience I will return to this when I discuss Circle K Limited in more particularity.9

Misleading conduct

[41] Secondly, Mr Kipping says the way in which the insurance contract was entered into was misleading, with potential ramifications under the Fair Trading Act, and possibly oppression under the Credit Contracts and Consumer Finance Act.

[42] The way in which that argument comes about is this: Mr Kipping knew another person (“the third party”) in need of finance and UDC was approached. It appears the third party (whom I will return to discuss) had a role in relation to how the deal with UDC was put together. He is described by Mr Kipping in a document he gave to UDC as “my account manager” who can be contacted for any further information. He also happens to be the person for whom Mr Kipping was apparently borrowing the funds (although Mr Kipping’s application to UDC does not suggest such a purpose for the finance at all). According to Mr Kipping, the third party was the person who would in fact be making all loan repayments. It transpired that he

_{did so only for a short time and has since then repaid nothing.}

9 Below [77]-[80].

[43] What Mr Kipping and Circle K asked for, for it was they who entered into the contractual obligations, was a loan from UDC and a quote for a payment protection plan. That was done under Mr Kipping’s signature on 5 March 2008. Mr Kipping has raised some issues of no merit at all as to the way in which the Business Finance application was completed and whether or not ticks in boxes such as for the payment protection plan had been made by him, or not. He accepts he signed the form. It is his and Circle K’s application.

[44] There are other documents which were then completed as the loan discussions proceeded. A loan was offered to Mr Kipping on 28 March in which the third party was again involved. What Mr Kipping was offered and accepted was a principal sum loan of $125,210 made up of $115,000 primary principal, $1,000 loan establishment fee and $9,200 being the premium for a consumer credit insurance with Crown for 60 months. Additionally there was a $10 PPSR fee. Undoubtedly the parties entering this contract would have understood the components of the loan if they had read the contract.

[45] A difficulty which does not impact directly on the insurance loan but clearly colours Mr Kipping’s view as to whether he was misled by the documents generally is his belief that the third party who witnessed the ultimate finance documents took it upon himself to change the addresses to which documents relating to the loan were to be sent. There was a suggestion, at least in the initial submissions made by Mr Kipping, that UDC was somehow responsible for not later sending documents to a correct address. That suggestion has no foundation – it ignores the ultimate responsibility of Mr Kipping for what appear to have been the unauthorised and quite possibly criminal alterations effected by the third party. That is not the fault of UDC.

[46] In short, there was nothing misleading on the part of UDC in the way in which UDC treated the consumer finance addresses of Mr Kipping and Circle K.

Oppressive conduct

[47] Thirdly, Mr Kipping developed a proposition that the loan contract or (in a more refined development of that submission, the “insurance contract” in particular) was covered by the Credit Contracts and Consumer Finance Act 2003. He submitted it is therefore legitimate for this Court to enquire into whether it was oppressive in relation to its terms or the way it was administered.

[48] The operation of the Credit Contract and Consumer Finance Act in relation to this composite contract was a matter put before the District Court by Mr Kipping when he applied for a rehearing. That Court gave a judgment which has not been appealed. The Court found the Act did not apply to this contract. It is not for this Court to reconsider that issue – there is an issue estoppel. That judgment was revisited through Mr Kipping’s unsuccessful application for a rehearing. The District Court in effect reaffirmed its judgment, and there was no appeal from that decision. On that ground alone, it would not be appropriate for this Court to go behind the District Court judgment. Furthermore, when this Court adjudicated Mr Kipping bankrupt it did so on the basis of the District Court judgment. That is again a judgment of this Court from which there has been no appeal. I will come back to the difference between appeal rights and the rights that exist under this provision shortly.

[49] Finally, in relation to Mr Kipping’s submission that consumer finance was involved, I note his reliance upon specific references made by UDC in its documentation to the Credit Contracts and Consumer Finance Act and steps taken by UDC which indicate an assumption the Act applied to the transaction. The reality is that UDC’s references and assumptions were incorrect, as the District Court’s finding indicates. Again, the parties are issue estopped from suggesting otherwise.

Lack of statement of account

[50] A fourth point developed by Mr Kipping in his submissions was that it was misleading of UDC, or oppressive on the part of UDC, not to provide statements of account to Mr Kipping. Mr Kipping points to a lack of evidence from UDC as to the

printing out or transmission of statements of account to him over the period of the contract until a very late point when problems had set in. The problems had however arisen within six months of entry into the contract. Furthermore, Mr Kipping points to no term of the contract broken by UDC through any decision or practice of not sending out statements.

[51] The major point developed by Mr Kipping both in his cross-examination of Mr Webster and in his submissions lay in a proposition, as I understand it, that had Mr Kipping received the statements of account he may have picked up errors in the calculation of UDC’s debt by UDC. Mr Kipping did himself no favours in the way he cross-examined Mr Webster on this issue. It was a cross-examination which was constructed in such a way that it would have inevitably misled the witness.

[52] I attach to this judgment as Schedule A the relevant pages of the notice of claim as filed by UDC in the District Court. The relevant passage of that notice of claim, if everything relevant were put to a witness, starts at paragraph 18 and goes through to paragraph 23. Mr Kipping chose to cross-examine Mr Webster beginning at paragraph 21 by reference to the demand by UDC on 22 December 2009 for a balance of $123,332.71. Paragraph 22 refers to a payment through a vehicle insurance recovery of $34,500, and there then follows the statement at paragraph 23, “The insurance payment was applied to the balance outstanding under the loan agreement, however a shortfall of $72,390.94 remains.” That is the very sum on which the District Court proceeded to base its judgment. What Mr Kipping did not put to Mr Webster was the earlier paragraph, paragraph 19, in which it was made clear and plain that the first demand which UDC had made to the company was for

$121,798.59 and paragraph 20, that there had then been three payments totalling

$14,900. When all those sums are taken into account one can follow precisely how

UDC arrived at the figures it presented to the District Court.

[53] There is what at first appears a plausible difficulty in some of the figures that appear in UDC’s documents before the Court in that UDC provided two statements of account to Mr Kipping in recent times. Mr Webster’s evidence distinguished two types of statements. One was a statement in relation to a normal, operating situation in which the loan has not been called up. The second was a statement in relation to a

called-up debt. In the latter case, UDC calculates the full amount of interest payable over the balance of the 60 month loan period and then applies a credit pursuant to contractual provisions.

[54] The reason for the approach taken in the statement of account on which Mr Kipping cross-examined is clear. So long as UDC regards the contracts as running appropriately there is no need to incorporate the balance of the 60 months interest. When the loan is to be called up it is appropriate that UDC calculates the full amount of the balance of interest and then gives any credit on the assumption of immediate payment calculated to that date. That is where the discrepancy might appear to arise. But it is not a true discrepancy. Neither Mr Kipping nor Mr Pascariu has attempted to take me to the figures that would come out of marrying up the precise terms of the contract to produce an exact loan balance today. From Mr Pascariu’s point of view that is understandable given that his client obtained a judgment against Mr Kipping in the District Court, and that the contract long ago merged in judgment. To the extent that Mr Kipping carries an onus in this case he has clearly not satisfied me that the statements of account which he considers to have been misleading on the part of UDC were misleading. There remains the more fundamental problem that this sum is the subject of a final judgment of the District Court, which this Court in its insolvency jurisdiction is obliged to recognise.

The revisiting of an adjudication order

[55] Under s 414 Insolvency Act 2006 (previously s 8 of the 1967 Act) the Court may review, rescind, or vary any decision of the Court or a Judge under the Insolvency Act. Despite the apparently wide and far-reaching character of that provision and its predecessors, those provisions do not give power to rescind an order of adjudication.10

[56] Pursuant to s 414(2), an aggrieved person may appeal to the Court of Appeal from decisions of the Court or a Judge under the Act (that is to say including from an

10 Re Byron (a debtor) ex p CIR [1964] NZLR 508 per Tompkins J at 510; Re Castle, ex p Evans Bay Timber Co Ltd HC Wellington B259/89, 26 February 1990 (Greig J); Re Hunter, ex p CIR (2000) 19 NZTC 15,722 (Robertson J). See also Brookers Insolvency Law & Practice at IN

414.02.

order of adjudication). No appeal has been pursued in this case and that procedure does not fall to be further considered.

[57] The only procedure through which annulment may be sought is through the specific statutory annulment provision in s 309 of the Act.11 Again, that appears to give the Court a broad discretion, but the discretion is narrowly exercised.

[58] I adopt as accurately summarising the position the commentary in Heath and

Whale on Insolvency:12

9.26 Annulment where bankruptcy order “ought not to have been made”

overview

The phrase "ought not have been made" may convey the impression of a wide basis under which the Court may annul an order of adjudication in bankruptcy. A survey of the cases reveals however that the Court is generally parsimonious in the exercise of its power to annul and narrowly construes this ground.

This is consonant with the status of an adjudication order being a final order and the Court being functus officio. Applications where the grounds supporting the annulment application are ones available when the Court was considering the adjudication application appear always to fail.

There seem to be three groups of applications brought under this ground. These are where there has been an abuse of process of the Court, where there is a defect in form or procedure, and where a material fact was not drawn to the Court's attention at the adjudication hearing due to human error.

[Footnotes omitted].

[59] Two leading authorities illustrate this jurisdiction.

[60] In his judgment in Re Byron, Tompkins J gave as examples of the Court’s

exercise of its special power to annul adjudication the following:13

_{(a) Where an infant had been adjudicated;}14

11 _{Heath and Whale on Insolvency (looseleaf ed, LexisNexis, 2012) at 9.24.}

12 Ibid at 9.26. To similar effect see the commentary in Brookers Insolvency Law & Practice at IN

_309.05(1).

13 _{Re Byron (a debtor) ex p CIR [1964] NZLR 508 at 510.}

14 Re Andrews (1915) 34 NZLR 351.

(b) Where the petition for adjudication had not been properly presented;15

(c) Where an adjudication was made while a suit by the debtor against the petitioning creditor was pending.16

His Honour concluded in relation to the power under what is now s 309:

It is in my opinion the appropriate and only power to be invoked where an order of adjudication should not have been made for any reason.

[61] Similarly in Re Hunter, Robertson J referred to the three examples given in Re Byron. His Honour referred also to cases identified in Insolvency Laws of New Zealand and observed:17

...all relate to the situation where the procedures were wrong, where the notice was bad, abuse of process, and not to the situation of the exercise of a discretion.

Adjudication following a judgment debt

[62] A bankrupt is bound by his adjudication once the order of adjudication is made and his rights of appeal have been exhausted. There is English authority to the effect that, following adjudication, any grounds to have an underlying judgment debt set aside for fraud or miscarriage of justice are vested in the Assignee who alone may

bring an action to have the judgment debt set aside.18 This principle was approved

by Tipping J in Wilson v UDC Finance Limited.19 His Honour referred to a heading in Spratt & McKenzie Law of Insolvency20 which read:

Bankrupt may not ask for adjudication to be set aside on grounds of

invalidity of petitioner’s judgment debt.

His Honour noted that the authors of Spratt & McKenzie went on to refer to Boaler v

_{Power in the same sense as he had.}

15 _{Re Adcock (1888) 22 SALR 42.}

16 _{Re Burke (1886) NZLR 4 SC 303; Re Ell (1885) NZLR 3 SC 433.}

17 _{Re Hunter, ex p CIR (2000) 19 NZTC 15,722 at 15,730.}

18 _{Boaler v Power [1910] 2 KB 229 (CA) at 232.}

19 _{Re Wilson, Wilson v UDC Finance Limited HC Christchurch, B348/89, 5 December 1989.}

20. F Spratt and P McKenzie (eds), Spratt and McKenzie’s Law of Insolvency (2nd ed, Butterworths, Wellington, 1972) at 280, para 119/8.

[63] There has recently been recognition in the insolvency jurisdiction that judgments obtained by fraud are in a special category. In Heenan v Official Assignee,21 the Court found that the statutory pre-conditions for adjudication had been met because of evidence of an unpaid judgment debt and failure to comply with the bankruptcy notice but observed in relation to an allegation of fraud:22

Mr Heenan is right to submit that any judgment may be overturned if procured by fraud. An example is a case to which he referred me: Shannon v Shannon (2002) 16 PRNZ 420. As Potter J observed (at paras [47], [48] and [50]), the principle of finality in litigation does not apply to judgments obtained by fraud.

[64] Heath J shared a sense of “unease” with Chisholm J, who had presided at an earlier hearing, about the circumstances in which an underlying cheque had been altered, but found:23

...on reflection I do not consider that the possibility of fraud justifies the Court in overturning an adjudication order made on the basis of what appeared, at the time, to be a judgment validly obtained, not subjected to appeal and upheld in judicial review proceedings.

[65] The underlying principle, following adjudication, still remains that the right to contest the validity of the debt now lies with the Assignee as identified by Tipping J in Re Wilson.

[66] In any event, on Mr Kipping’s pleadings and evidence in this case, there are advanced numerous grounds of defence to at least a substantial part of the claim which I have identified,24 but there is no allegation of fraud against UDC in relation to the obtaining of the underlying District Court judgment. The highest Mr Kipping put it in his submissions and cross-examination was to suggest that UDC’s claimed figures were false – I took it that he was responsibly refraining from any allegation of fraud. There was equally no fraud allegation by Mr Kipping when he exercised

_{his right to apply to the District Court to set aside the underlying judgment.}

21 _{Heenan v Official Assignee HC Christchurch CIV-2005-425-000076, 12 May 2009 (Heath J).}

22 _{At [99].}

23 _{At [101].}

24 Above [22]-[24].

Discussion

[67] Mr Kipping may succeed on this annulment application only if he satisfies the Court that he should not have been adjudicated bankrupt.

[68] Mr Kipping was adjudicated bankrupt pursuant to a judgment debt of

$77,381.48 plus interest by reason of his failure to meet a bankruptcy notice issued in reliance on the same judgment debt. UDC was entitled to apply for Mr Kipping’s adjudication under s 13 of the Act. The Court had jurisdiction to adjudicate him bankrupt under s 11 of the Act.

[69] By the time he was adjudicated bankrupt, Mr Kipping had already had the benefit of adjournments to enable him to pursue the setting aside of the District Court judgment. He had, through that setting aside application, the opportunity to fully explore all matters of defence and cross-claim which he wished to assert against UDC and had failed to do so prior to the District Court judgment being entered. He then failed in his setting aside application. He failed first because UDC satisfied the Court that (contrary to the first ground of Mr Kipping’s application) he had been properly served with the District Court proceeding. He failed also because his various grounds of defence (many similar to those now advanced) were found to lack substance.

[70] Mr Kipping’s adjudication subsequently took effect. Any further attack on the underlying judgment (if there was any procedural route to pursue it, which I doubt), would lie with the Assignee and not with Mr Kipping. For now the underlying judgment stands. The adjudication was correctly made.

[71] I accordingly find that Mr Kipping has not met the threshold of s 309(1)(a) of the Act.

The discretion under s 309 of the Act

[72] Even had Mr Kipping satisfied the threshold, the Court retains a discretion as to whether or not to annul adjudication.

[73] For a number of reasons I would have refused in this case to exercise the discretion in Mr Kipping’s favour. As he has failed on the threshold test, it is unnecessary to explore these additional grounds in detail and I simply summarise them.

[74] Mr Kipping in the context of the bankruptcy proceeding itself reached a compromise with UDC whereby he was to pay $77,000.00 in full and final settlement. He obtained the benefit of delay in the implementation of his bankruptcy by reason of that compromise. He failed to meet the settlement terms by not paying the full $77,000 to UDC. I interpolate that Mr Kipping has sought to explain in the course of submissions the complications that befell him in paying what was a relatively modest balance of the compromise sum after he had initially paid the larger part of it. Those matters are understandable problems and indicate the sincerity with which Mr Kipping has acted, but do not detract from the fact that UDC, as creditor, was entitled to either have the compromise contract met or to move on with adjudication. Mr Kipping, apart from a smaller payment made apparently last week, has not since cleared the debt. (The partial payment received by UDC after the event of the adjudication has been returned to UDC but those two payments together still leave a balance). While UDC has understandably chosen not to enforce the compromise agreement, Mr Kipping’s failure to honour the compromise agreement so as to extinguish the judgment debt counts strongly against the exercise of any discretion (under s 309) in his favour.

[75] Secondly, Mr Kipping’s own declarations to the Assignee confirm that he was insolvent at the time of adjudication and subsequently, and that he has never held sufficient assets to meet that judgment debt. He was and therefore remains insolvent to a significant degree.

[76] Thirdly, UDC’s grounds of opposition identify numerous procedures which Mr Kipping has been pursuing in relation to these matters arising from the underlying loan contract and ensuing litigation. Mr Webster, the manager of UDC’s Recoveries Division, identified the six different forums to which I have referred. He deposes that UDC has incurred significant costs in dealing with Mr Kipping’s repeated complaints in the various Courts, forums and statutory bodies. There is a

strong impression of vexatiousness and abuse of process in the range of procedures and complaints in which Mr Kipping is engaging although I am satisfied, not particularly on the basis of evidence but on the way in which Mr Kipping has presented himself in submission, that he has acted sincerely in raising issues before the Court. However, given that Mr Kipping’s adjudication arose out of a judgment debt obtained almost two years ago, and not subsequently fully met, the Court should not on the facts of this case lend itself to a process which in some way submits the District Court judgment to questioning when there is no procedure in place by which that judgment may be lawfully impeached.

Circle K Limited and subrogation

[77] Although it is not directly relevant to Mr Kipping’s bankruptcy, I pause to mention the position of Circle K Limited. Mr Kipping has referred in his submissions to the liquidation application which UDC has been pursuing against Circle K Limited.

[78] Mr Kipping made submissions, largely unsupported by evidence filed, as to a willingness by UDC to compromise the debt owing by Circle K Limited as well as himself. He relied on this to support an allegation that there is a substantial dispute in relation to the debt claimed by UDC. I put that evidence to one side because it was clearly privileged material in relation to negotiations to settle.

[79] Circle K Limited was the original principal debtor to UDC. Mr Kipping’s liability to UDC arose as a guarantor of that debt and in terms of the contracts he became a principal debtor himself. When UDC obtained judgment against Mr Kipping, the contract of loan merged so far as Mr Kipping was concerned in the judgment. Mr Kipping owes the full judgment sum to UDC independently of UDC’s position with Circle K Limited. Any assignments based on what debt would have been owing under the contract are now irrelevant. UDC is a judgment creditor, and a creditor entitled to have this Court respect that judgment. As I have recorded, there is no compromise in force. The fact that an intended or agreed compromise has not been met by Mr Kipping and/or Circle K Limited was the very reason for a judgment

of Lang J on 12 July 2011 by which my judgment of 24 May 2011 was recalled and

Mr Kipping’s adjudication was effectively confirmed.

[80] In the memorandum he very recently filed, Mr Kipping made a one paragraph submission to the effect that Circle K Limited had somehow acquired by right of subrogation all the rights in the debt which UDC had previously held. Subrogation is not an easy concept to understand and it is not surprising that Mr Kipping in relation to a contract of guarantee may have been attracted to the concept as potentially assisting him. It clearly cannot assist Circle K Limited. Circle K Limited was the principal debtor throughout. Its debt has never been discharged. Subrogation has no application.

The role of a third party – the altruism and the honour of Mr Kipping

[81] It is appropriate that I add some comments as to the role of the person I have called “the third party”. Mr Kipping had confidence in the third party. In an endeavour to assist the third party, Mr Kipping put his company and himself on the financial line. He incurred loan obligations which, when the third party defaulted, Mr Kipping was ultimately unable to meet in full. It is clear from his closing submissions that it is a significant concern for Mr Kipping to ensure that the Court understands that Mr Kipping had not willingly let down UDC as his creditor. I do not doubt at all the sincerity of Mr Kipping’s position in that. On the evidence I have heard, he has been let down by a third party.

[82] Those are the additional comments I wish to make. For the reasons I have given I find that Mr Kipping has not established the threshold of s 309(1)(a) and his application must fail.

Costs

[83] At the conclusion of the judgment which I have just given I have heard from counsel in relation to costs and offered Mr Kipping an opportunity to respond. I am indebted to Mr Ruane who, (although not representing Mr Kipping as he appears for Circle K in another matter), as an officer of the Court assisted in a brief discussion

with Mr Kipping. Mr Ruane was then able to relate to me Mr Kipping’s position. Mr Kipping does not wish himself to make further submissions. He does not oppose costs at the level I have tentatively indicated I intend to award.

[84] Mr Pascariu initially sought in the notice of opposition filed for UDC indemnity costs under r 14.6(1)(b) on the basis that at the heart of this litigation was an attempt to re-litigate matters which had been dealt with in the District Court and then led almost inevitably to adjudication when the bankruptcy notice was not met. Mr Pascariu had referred particularly to r 14.6(4)(a) which deals with vexatious commencement and defence of a proceeding.

[85] I adopt as a helpful guide to the consideration of indemnity costs the approach endorsed by the Court of Appeal in Bradbury v Westpac Banking Corporation.25 The headnote to the Bradbury law report accurately summarises the judgment of the Court in this regard, as delivered by Baragwanath J:

Predictability of costs was important, however, indemnity costs could be ordered where a party was guilty of flagrant misconduct. Examples of such conduct included: making allegations of fraud knowing them to be false; making irrelevant allegations of fraud; particular actions that caused loss of time to the court and to other parties; commencing or continuing proceedings for some ulterior motive; doing so in wilful disregard of known facts or clearly established law; making allegations which ought never to have been made; or unduly prolonging a case by groundless contentions.

[86] For reasons I explained to counsel at the conclusion of my judgment, I do not consider this an appropriate case for indemnity costs. I do, however, take the view that it is an appropriate case for some increase in costs. It is some ways correct to characterise Mr Kipping’s application as hopeless from the inception. It was, in that sense, in terms of r 14.6(4)(a) an unnecessary proceeding. On the other hand, there was and still is no reason to treat Mr Kipping’s application other than as a genuinely pursued application to deal with his bankruptcy. Furthermore, this is not a case where Mr Kipping has asserted likely fraud as falls within the first example cited by

_{the Court of Appeal in Bradbury.}

25. Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400; the Court endorsing the formulation of Goddard J in Hedley v Kiwi Co-Operative Dairies Limited (2002) 16 PRNZ 694 at [11], in turn adopting Sheppard J’s summary in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225.

[87] In these circumstances, I view the proceeding as one which lacked merit, this being one of the specific grounds identified by r 14.6(3)(b)(ii) as justifying an order for increased costs.

[88] This is also not a case where the creditor, faced with a debtor’s grievance as to an underlying judgment, raced headlong towards adjudication. UDC responsibly accepted adjournments to enable Mr Kipping (ultimately unsuccessfully) to pursue setting aside in the District Court. Mr Kipping may not have seen, until that point, that his arguments for setting aside were hopeless but Judge Somerville’s judgment on the re-hearing application gave him the opportunity to reappraise and to be realistic. In the face of that judgment, the present application was hopeless.

[89] This is a case for increased costs under r 14.6(3)(b)(ii). It is not a case to justify an increase of 50 per cent above an award of 2B. I consider it is a case for an award of 25 per cent above 2B to take into account the lacking quality of the central points advanced by Mr Kipping but to also have some regard to the fact that he conscientiously sought to obtain further information from UDC and others to indicate the detail of accounting and he has clearly arrived at a sincere view that he cannot rely on UDC’s figures. The fact that that work has not provided him a route to annulment should not result in a weighty increase above an award of normal costs. For those reasons I will be awarding UDC scale 2B costs with a 25 per cent uplift, together with disbursements to be fixed by the Registrar.

[90] I turn briefly to the position of the Official Assignee. The Court has again been assisted by Mr Slevin in this proceeding as in others. The Assignee responsibly filed a report under s 309 of the Act and then abided the outcome. He has been represented at conferences and briefly at the hearing but not as an active party in the proceeding. The Assignee has very responsibly elected not to pursue a costs order and there will be no order in relation to the position of the Assignee.

Orders

[91] Formal orders therefore are:

(a) The application of Mr Kipping for annulment filed 20 February 2012 as amended by the document filed on 14 May 2012 is dismissed.

(b) Mr Kipping is to pay the costs of the proceeding calculated on the basis of an uplift of 25 per cent on a 2B award, together with disbursements (including a certificate for the reasonable travel and accommodation costs of counsel and of any witness required for cross-examination not otherwise paid in advance by Mr Kipping).

(c) There is no order as to costs as between Mr Kipping and the Official

Assignee.

Solicitors:

Mr J B Kipping, Blakes Road, R D 6, Christchurch - Email: [e-mail] /

[e-mail]

Minter Ellison Rudd Watts - Email: [e-mail]

Insolvency and Trustee Service - Email: [e-mail]

SCHEDULE A