Featherstone Park Developments Limited (in receivership and in liquidation) v Bradley [2012] NZHC 300 (1 March 2012)

Last Updated: 21 March 2012

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-000956 [2012] NZHC 300

IN THE MATTER OF the Insolvency Act 2006

AND

IN THE MATTER OF the bankruptcy of Peter Michael Bradley

BETWEEN FEATHERSTONE PARK DEVELOPMENTS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)

Judgment Creditor

AND PETER MICHAEL BRADLEY Judgment Debtor

CIV-2011-419-000957 [2012] NZHC 300

IN THE MATTER OF the Insolvency Act 2006

AND

IN THE MATTER OF the bankruptcy of Jeanette Susan Bradley

BETWEEN FEATHERSTONE PARK DEVELOPMENTS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION)

Judgment Creditor

AND JEANETTE SUSAN BRADLEY Judgment Debtor

FEATHERSTONE PARK DEVELOPMENTS LIMITED (IN RECEIVERSHIP AND IN LIQUIDATION) V BRADLEY HC HAM CIV-2011-419-000956 and CIV-2011-419-000957 [1 March 2012]

Hearing: 24 February 2012

Counsel: K Davenport for Judgment Creditor

R Gowing for Peter Michael Bradley

C Gudsell QC for Jeanette Susan Bradley

Judgment: 1 March 2012

_{RESERVED JUDGMENT OF WOOLFORD J}

This judgment was delivered by me on Thursday, 1 March 2012 at 4:00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Ms K Davenport, Barrister, Auckland

Mr R Gowing, Gowing & Co, Solicitors, Whakatane

Mr C T Gudsell QC, Barrister, Hamilton

Introduction

[1] The judgment creditor applies for orders adjudicating Peter Michael Bradley and Jeanette Susan Bradley bankrupt. The application is opposed by Mr and Mrs Bradley. The judgment creditor obtained judgment against Mr and Mrs Bradley in the High Court at Auckland on 31 May 2011. Associate Judge Bell gave judgment for $1,570,000 plus interest of $219,957 together with costs and continuing interest

at five percent per annum.1

[2] The judgment creditor requested bankruptcy notices be issued. Bankruptcy notices were issued and served on Mr and Mrs Bradley on 21 July 2011. Neither Mr Bradley nor Mrs Bradley complied with the bankruptcy notices. That resulted in an act of bankruptcy.

[3] The judgment creditor filed these applications for adjudication orders against Mr and Mrs Bradley on 12 October 2011. The jurisdictional requirements, which must be met before an order of adjudication is made, are contained in ss 13 and 36 of the Insolvency Act 2006. Section 13 provides:

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.

_{[4] Section 36 provides:}

1 Featherstone Park Developments Ltd (in receivership & in liquidation) v Bradley [2011] BCL

510.

36 Court may adjudicate debtor bankrupt

The Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in section 13.

[5] The jurisdictional requirements are met in this case. The grounds on which the Court may consider staying the adjudication are contained in ss 37 and 42 of the Insolvency Act. Section 37 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 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.

[6] Section 42 provides:

42 Halt or refusal of application when judgment under appeal

(1) This section applies if the creditor's application for adjudication relies on 1 of the following acts of bankruptcy:

(a) the debtor failed to comply with a bankruptcy notice (see section 17):

(b) a judgment against the debtor for non-payment of trust money is not satisfied within 5 working days after the date of the judgment (see section 28).

(2) If the debtor has appealed against the judgment or order underlying the bankruptcy notice or the judgment for nonpayment of trust money, as the case may be, and the appeal is still to be decided, then the Court may—

(a) halt the creditor's application for adjudication; or

(b) refuse the application.

[7] Notices of opposition were filed by Mr and Mrs Bradley on 29 November

2011. At the same time, they each filed an identical affidavit. They deposed that they had appealed to the Court of Appeal against the judgment of Associate Judge

Bell and that they had progressed the appeal to the stage where it had been allocated a hearing date in May 2012. They also deposed that shortly after the judgment of Associate Judge Bell was issued the judgment creditor obtained and served orders on them both restraining them from dealing with their assets pending further order of the Court. Both Mr and Mrs Bradley seek to have the proceedings either dismissed or halted pending the decision of the Court of Appeal.

Legal principles

[8] The principles relating to the Court’s discretion under s 42 are set out in

Pillay v ANZ National Bank Limited.2

[10] The Court’s discretion under s 42 is an unfettered discretion. A number of factors, however, have often assumed importance in determining whether, in a particular case, the Court should exercise its discretion and grant an order halting the adjudication application. Those matters are summarised in the judgment of Associate Judge Doogue HC AK CIV 2006-

404-1164 Yeoh & Anor v A1 Saffaf 21 June 2006 as:

(a) The bona fides of the judgment debtor in prosecuting the pending appeal;

(b) What stage the appeal has reached and whether there has been delay in prosecuting the appeal;

(c) Whether an order halting the application for an adjudication order would unduly prejudice the judgment creditor; and

(d) Whether the bankruptcy proceeding might render the appeal nugatory as the judgment creditor would be unable to prosecute the appeal.

[11] The above matters, of course, are the matters that are usually taken into account with possibly the following additional matters:

(a) The effect on third parties;

(b) The novelty and importance of the question involved in the appeal;

(c) The public interest in the proceeding which is under appeal;

and

(d) The overall balance of convenience.

Those matters were part of the summary of traditional matters taken into account and which were referred to by Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd 13 PRNZ 48 at 50 when considering applications for stay generally where an appeal is pending.

[9] Counsel accepted that these principles should govern the exercise of the discretion in this case.

Appeals

[10] On 21 June 2011, Mrs Bradley filed a notice of appeal against Associate Judge Bell’s judgment of 31 May 2011. The basis of Mrs Bradley’s appeal is the claim that Mrs Bradley has a reasonably arguable defence under the Contractual Mistakes Act 1977.

[11] On 29 June 2011, Mr Bradley also lodged an appeal against the decision of Associate Judge Bell. The grounds of appeal are similar to those of Mrs Bradley but with the addition of a defence of estoppel and a defence pursuant to s 18 of the Receiverships Act 1993, which relates to the general duties of receivers and the requirement to exercise his or her powers in good faith and for a proper purpose.

[12] The Court of Appeal has allocated the number CA395/2011 to Mrs Bradley’s appeal and CA404/2011 to Mr Bradley’s appeal. On 1 December 2011 the cases on appeal in respect of both appeals were filed with the Court of Appeal. Mrs Bradley’s appeal is to be heard on 9-10 May 2012.

[13] Mr Bradley has apparently not applied for the allocation of a hearing date. His counsel explained it to me as being an oversight and advised me that he had, on the previous day, sought an extension of time to apply for the allocation of a hearing date for Mr Bradley’s appeal pursuant to r 43(2) and (3) of the Court of Appeal (Civil) Rules 2005.

[14] Counsel advised me that he had overlooked the need to apply for a fixture, given the minute of a Court of Appeal Judge, Arnold J, dated 2 August 2011, in which Arnold J stated that he understood that the appeals in CA395/201 and CA404/2011 would be heard together. In the minute Arnold J states that he “ordered

accordingly” on 18 July 2011. I accept that it is an honest oversight on Mr Bradley’s behalf that he has not formally applied for the allocation of a hearing date of his appeal.

Submissions

[15] Counsel for the judgment creditor, Ms Davenport, submits that it is of significance to the exercise of the Court’s discretion that neither Mr or Mrs Bradley applied for a stay of the judgment of Associate Judge Bell or to set aside the bankruptcy notice which was served on them both. She saw some distinction however between the position of Mr and Mrs Bradley in that Mr Bradley had not applied for the allocation of a hearing date. Council submits that even though Mr and Mrs Bradley have appealed against the judgment, the bankruptcy should proceed

and referred me to the case of Wang v Westpac New Zealand Limited3 as authority for

the proposition that, notwithstanding a debtor’s bankruptcy, an appeal could still proceed.

[16] Counsel also submits that the Court is entitled to consider the merits of the appeal. She noted that the grounds on which Mrs Bradley appeals are those advanced in the High Court and rejected. She therefore submits that this argument has little chance of success in the Court of Appeal.

[17] As to the charging orders which the judgment creditor has over certain property of Mr and Mrs Bradley, counsel submits that the judgment creditor does not know whether these orders cover all of the property of Mr and Mrs Bradley. The charging orders also do not give the judgment creditor priority or security. Nor do they guarantee payment. They simply give the creditor the right to sell the properties subject to the existing mortgages and encumbrances.

[18] In all the circumstances, Ms Davenport submits that the judgment creditor is entitled to an order for bankruptcy. There is no significant public interest in anything other than the bankruptcy of both parties. There is also nothing before the Court to

show that Mr and Mrs Bradley are able to pay their debts and indeed the inference is that they are not able to pay their debts.

[19] Counsel for both Mr and Mrs Bradley, Messrs Gowing and Gudsell QC, submit that their clients have prosecuted their appeals and that their bona fides in doing so cannot be disputed. In those circumstances, it was unnecessary for them to apply for a stay of the judgment or to set aside the bankruptcy notices.

[20] Counsel also submit that the case of Wang is distinguishable from the present case. In that case, Ms Wang had not appealed against the judgment underlying the bankruptcy notice. Instead, she had appealed against a judgment dismissing an application for approval of a proposal for satisfaction of her debts under subpart 2 of Part 5 of the Insolvency Act 2006. No such application has been made here.

[21] Counsel submit that the judgment in Wang turned on other factors, in particular, Ms Wang’s ability to pursue her appeal despite adjudication, and more significantly, prejudice to Mrs Wang’s creditors if the stay application was granted. These factors do not apply in the present case according to counsel.

[22] As to the merits of the appeal, the mere fact that Mrs Bradley is appealing Associate Judge Bell’s judgment on the same fundamental grounds on which she opposed the application for summary judgment in the High Court, does not establish that her appeal “has absolutely no prospects of success”, referring to the comments of Associate Judge Faire in Pillay where he stated at para [17]:

[17] ...the merits are not generally an appropriate matter for the Court to contemplate on an application to halt the adjudication application unless the Court considers the appeal has absolutely no prospect of success.

[23] Counsel point to a closely related proceeding in which the Court did accept Mrs Bradley’s mistake based defence. On 6 April 2011, Associate Judge Christiansen dismissed an application for summary judgment by South Canterbury Finance Ltd against Mrs Bradley.4 South Canterbury Finance Ltd’s claim in those

proceedings was based upon a guarantee signed by Mrs Bradley at the same time as the deed of acknowledgement of debt relevant to the judgment creditor’s claim was signed. The defence advanced by Mrs Bradley in the two sets of proceedings was essentially the same, albeit in relation to different (but related) contractual documents. Associate Judge Christiansen accepted Mrs Bradley had a reasonably arguable defence. Associate Judge Bell did not. South Canterbury Finance Ltd has appealed against Associate Judge Christiansen’s judgment. This is to be heard at the same time as the appeals against Associate Judge Bell’s judgment.

[24] It was therefore submitted that this was not a case where either Mr or

Mrs Bradley’s appeals could be seen as having “absolutely no prospect of success”.

[25] As to the charging orders, counsel submit that the judgment creditor was provided with a copy of a July 2009 Relationship Property Agreement between Mr and Mrs Bradley, which contained an exhaustive and detailed list of their assets and set out which of the assets each party would retain. It is submitted, therefore, that the judgment creditor’s position is adequately protected.

[26] Counsel note that Mr and Mrs Bradley’s appeals are to proceed on 9 - 10 May

2012, which is in less than three months time. A halt on the application for adjudication would not unduly prejudice the judgment creditor. There are no creditors, other than South Canterbury Finance Ltd and the judgment creditor. There is no significant delay in the appeal being determined.

[27] Finally, it is submitted that if Mr and Mrs Bradley were to be adjudicated bankrupt, it is unlikely that the Official Assignee would pursue their appeals. In conclusion, counsel submit that the overall balance of convenience favours Mr and Mrs Bradley.

Discussion

[28] During the course of the hearing, I was provided with an affidavit sworn by Mr Bradley on 22 February 2012 in which he outlines the negotiations he has had to date with the judgment creditor and an email that he had written the day before (21

February) to the receiver of South Canterbury Finance Limited, complaining about the attitude of the receiver of the judgment creditor (who was appointed by South Canterbury Finance Limited).

[29] Counsel for the judgment creditor strenuously opposed its receipt. I regard the consents of it as privileged in terms of s 57 Evidence Act 2006 and accordingly rule it to be inadmissible. I do not take into account any of its contents in reaching my decision.

[30] Reviewing the principles set out in Pillay, I am of the opinion that the applications by the judgment creditor for adjudication of Mr and Mrs Bradley bankrupt should be halted to await the outcome of the Court of Appeal hearing on 9 -

10 May 2012. I have no doubt that Mr and Mrs Bradley are prosecuting the appeal diligently. I accept that the failure of Mr Bradley to apply for a fixture of the hearing of his appeal is a genuine and excusable oversight, given the comments of Arnold J in his minute of 2 August 2011. Contrary to the submissions of counsel for the judgment creditor, Mr Bradley has filed an affidavit in opposition (which has not been served on the judgment creditor) and he has also filed a case on appeal.

[31] The appeals filed by both Mr and Mrs Bradley will apparently be heard on 9 -

10 May 2012. In my view, there has not been any significant delay in prosecuting the appeals. In fact, Mrs Bradley had applied for a fixture before being served with a bankruptcy notice by the judgment creditor.

[32] I am also of the view that the halting of the applications for adjudication would not unduly prejudice the judgment creditor. I accept that the judgment creditor has charging orders over any property of Mr and Mrs Bradley of significance. Although a complaint is made that the judgment creditor has no way of knowing whether there is any other property available to satisfy the judgment debt, there is no evidence before me suggesting that there might be any other property.

[33] I am also of the view that the bankruptcy would render the appeals nugatory as Mr and Mrs Bradley would be unable to prosecute the appeals. In my view, it is unlikely that the Official Assignee would prosecute the appeals even though

Mrs Bradley’s defence was accepted as reasonably arguable in separate, but related, proceedings involving South Canterbury Finance Ltd. In that regard, I think the case of Wang is distinguishable as the appeal lodged by Mrs Wang was not against the unsatisfied judgment which was the basis for the adjudication application.

[34] Also of importance is the associated appeal to be heard at the same time. Again, in my view, the Official Assignee would likely not defend this appeal if Mr and Mrs Bradley were adjudicated bankrupt.

[35] There are no other creditors whose interests may be prejudiced by a halt on the application for adjudication. I am, therefore, of the view that the overall balance of convenience does favour the halting of the applications to enable the appeals to be heard and determined.

[36] The applications for adjudication are, therefore, halted for six months, to be called again in a civil chambers list at 10:00 am on 20 August 2012. Counsel are requested to file a memorandum with the Court prior to that date setting out the position reached on the appeals and advising the Court whether hearing time is required for the applications for adjudication.

.....................................

Woolford J