Doody v Body Corporate 343562 [2012] NZHC 6 (2 February 2012)

Last Updated: 17 April 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-004027 [2012] NZHC 6

UNDER the Insolvency Act 2006

IN THE MATTER OF the bankruptcy of Mary Doody of St Josephs, 35 Rathdown Park, Dublin, Ireland

BETWEEN MARY DOODY Judgment Debtor

AND BODY CORPORATE 343562

Judgment Creditor

Hearing: 27 January 2012

Appearances: DJG Cox for Judgment Debtor

S C Price and I Stephenson for the Judgment Creditor

Judgment: 2 February 2012

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

02.02.12 at 4:00pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Solicitors:

D Cox, Rennie Cox, Auckland – [e-mail]

S Price, Minter Ellison, Auckland – [e-mail]

BODY CORPORATE 343562 V MARY DOODY AND JOHN MICHAEL DOODY HC AK CIV 2011-404-

004027 / 004037 [2 February 2012]

CIV 2011-404-004037

AND IN THE MATTER OF the bankruptcy of John Michael Doody of St Josephs, 35 Rathdown Park, Dublin, Ireland

BETWEEN JOHN MICHAEL DOODY Judgment Debtor

AND BODY CORPORATE 343562

Judgment Creditor

[1] The judgment debtors (the Doodys) are the registered proprietors of a unit within a Unit Title Development at Halsey Street, Auckland.

[2] In September 2010 and February 2011 the judgment creditor (Body

Corporate) obtained orders for judgment and costs respectively in the total sum of

$58,509.41. The claim upon which the judgment was granted arose because the Doodys failed to pay levied amounts charged by the Body Corporate to them, such debt being a statutory debt under the Unit Titles Act 1972.

[3] The Doodys reside in Dublin, Ireland.

[4] Bankruptcy notices were delivered to the Doodys on 21 March 2011 claiming an amount of $60,485.69 including interest and costs (the judgment debt). However those bankruptcy notices were defective as leave of the Court had not be obtained to serve the bankruptcy notices overseas

[5] On 18 July 2011 the Doodys were served with further bankruptcy notices seeking payment of $17,988.10 plus legal costs of $676.00. Prior to service on 18

July 2011 the Doodys made the following Payments:

1. 19 April 2011 $3,169.42

2. 29 April 2011 $22,874.00

3. 10 May 2011 $28,139.44

4. 20 May 2011 $9,635.05 (the Payments)

[6] The total of the Payments was $63,817.91. The Doodys assert the judgment debt was paid in full by 20 May 2011, two months prior to service of the second bankruptcy notices.

[7] Initially, it appears that by 20 May 2011 that is before effective service of the bankruptcy notice the Doodys have satisfied, indeed paid in excess of that amount for which judgment was obtained against them. How then is the sum of $17,988.10 for which the second bankruptcy notice issued, calculated to be owing? It is part of that sum totalling $40,928.26 contained in the Body Corporate’s application for an adjudication order. The Body Corporate says it is that part of the judgment debt the Doodys have not paid. It says the balance includes interest accrued under the Judicature Act 1908 on unpaid judgment sums. It also includes the sum of

$21,921.23 being the total amount of four invoices rendered by the Body Corporate’s solicitors (including a sum of approximately $8,300 rendered by Irish solicitor agents).

[8] The Body Corporate’s position is that the judgment obtained against the

Doodys was for non payment of amounts levied for the period 1 June 2009 to 18

February 2010. Further levies became payable after that period. The Body Corporate has applied the Payments to payment of the Body Corporate levies then most recently being owed. Because levies continued to be unpaid beyond the date of judgment, the Body Corporate has applied the Payments first in reduction of the levies most recently due, and then in reduction of the levies for which judgment had been obtained. In that outcome the Body Corporate asserts the sum identified in the second bankruptcy notices remained unpaid of that debt for which judgment was originally obtained.

[9] The Doodys’ position is that the Payments were made subject to an arrangement that they be applied in payment of the judgment debt. The Body Corporate’s position is that the Payments were received with no direction about how to apply them in the context of a situation where payment proposals were put by the Doodys and were rejected by the Body Corporate.

[10] Issue was also taken by the Doodys regarding the Body Corporate’s claim for reimbursement of its solicitor’s costs totalling $21,921.23. The Doodys assert the level of costs claimed are unreasonable and/or unnecessarily incurred. They believe that in accordance s 161 of the Lawyers and Conveyancers Act 2006 that when the NZ Law Society’s Standards Committee gives notice to a firm of solicitors that it has

received a complaint about a bill of costs that no proceedings for recovery of that amount may be commenced or proceeded with until the complaint has been finally disposed of. The Doodys say that if the Court upholds in whole or in part the actions of the Body Corporate in appropriating their Payments other than in reduction of the judgment debt, that the bankruptcy application should be suspended until their cost’s complaint has been dealt with by the NZ Law Society.

[11] The Body Corporate’s position in response is that the Doodys do not have

standing to bring the legal costs complaint they have about the fees of its lawyers.

Overview of issues

[12] They concern whether or not the judgment debt had been fully paid before effective service of bankruptcy notices; and even if the judgment debt had been paid whether the Body Corporate was prevented from pursuing its bankruptcy applications.

[13] Those issues involve a consideration of the provisions of the Insolvency Act

2006 (the Act). They also invite an analysis of the documents and correspondence between the parties and their representatives in association with the Payments the Doodys made which they say cleared their judgment debt. This invites a consideration of the law that applies when there is an issue over claims by the payor about the Payments being made for a specific purpose. There is no suggestion by either counsel that this is an issue which cannot be resolved by reference to the affidavit evidence before the Court.

[14] Finally, there is the issue concerning the challenge to legal fees which remain unpaid and if that challenge is successful what affect if any it should have on the Court’s exercise of its discretion whether or not to grant the adjudication application.

Legal Principles - Bankruptcy

[15] Section 13 of the Act enables a creditor to apply for a debtor to be adjudicated bankrupt if, inter alia, the debtor has committed an act of bankruptcy

within the period of three months before the filing of the application. To be adjudicated bankrupt a debtor must owe a creditor $1,000 or more and that debt is payable either immediately or in the future.

[16] It follows that the application for adjudication can be made by a person who is not a judgment creditor. He/she need not rely upon the existence of a judgment debt.

[17] A debtor commits an act of bankruptcy under s 17(1) of the Act if:

(a) a creditor has obtained a final judgment or a final order against the debtor for any amount; and

(b) execution of the judgment or order has not been halted by a Court;

and

(c) the debtor has been served with a bankruptcy notice; (d) the debtor has not, within the time specified..., -

(i) complied with the requirements of the notice; or

(ii) satisfied the Court that he or she has a cross claim against the creditor.

[18] The primary purpose of the bankruptcy notice is to notify a debtor that a creditor may apply to the Court to adjudicate the debtor bankrupt. A bankruptcy notice is validly issued if the request for issue is founded on a judgment or order of the Court and the Register had no knowledge that payment of the debt has occurred.

[19] A judgment debtor has the prescribed timeframe in which to satisfy or apply to set aside the bankruptcy notice and where a judgment debtor applies to set aside the bankruptcy after the prescribed timeframe has expired there is no jurisdiction for the Court to deal with that application.

[20] In this case the Body Corporate has obtained a final judgment which has not been halted by a Court; the Doodys were served with bankruptcy notices on 18 July

2011 and they have not within the time permitted complied with the notice demand nor have they applied to set that notice aside. Their position is that they no longer owe any part of the judgment debt obtained against them. However, it is not in

dispute that when they made their Payments a significant debt was owing by them in respect of unpaid levies. The further evidence is that there have been no further payments since May 2011 and that the value of unpaid levies continues to accumulate. That debt is a liability certain in the future. These are factors along with others to be considered when exercising the Court’s discretion upon the adjudication application.

Appropriation

[21] The Doodys claim they intended the Payments to be applied to the judgment debt at the time of payment. They say their intention in this regard should have been inferred from the circumstances. Therefore, they object to how the Body Corporate chose to apply the Payments.

[22] A debtor has a right, when making a payment to a creditor, to appropriate the money to any distinct debt as the debtor pleases. Should the creditor accept the payment, the creditor is then bound to appropriate the money as they debtor directed.[1]

[23] A debtor’s appropriation does not need to be made expressly, but can also be inferred from the nature of the transaction or where the circumstances of the case show that there was an intention to appropriate. [2]

[24] A debtor must appropriate at the time of payment, or the right to appropriate becomes a right to the creditor, a right which persists until it is exercised or it becomes inequitable to rely upon it. Accordingly should a debtor make a payment without making any appropriation to the time of the payment, the creditor has the right to appropriate the payment as they wish. [3]

[25] Appropriation by a debtor requires more than intention. Rather that intention must be communicated to the creditor either expressly or by implication. [4] The

principle that intention must be communicated exists to avoid prejudicing a creditor that relies on their right to appropriation following payment. [5]

[26] In this case the Body Corporate contends that the Doodys made no express direction about how the Payments were to be applied. If that is so then there needs be an enquiry about whether there was an implied direction made prior to or at the time of each payment.

[27] Also it is the Doodys’ position that no right of appropriation passes to a creditor in the case of a current account. A current account occurs where there is one account into which all receipts and payments are carried in order of date and all sums form one blended fund. [6]

[28] Where a current account exists, payments are to be appropriated to the earliest debts incurred, thereby reducing or discharging original debts prior to the most recent debts. [7]

The evidence supporting claims of appropriation

[29] By email dated 29 March 2011 Mr Doody wrote to the Body Corporate’s lawyers advising he had that day received a bankruptcy notice. He sought assistance with legal requirements and advised:

... I have no intention of having myself and my wife declared bankrupt.

[30] The lawyers replied that same day advising:

Failure to reply within the time set out in the notice may result in an order adjudicating you and/or your wife bankrupt. To whom you should respond will depend on the course of action you wish to take. Payment in full may be directed to the Body Corporate care of Minter Ellison Rudd Watts, details of the account is set out below...

Should you wish to apply to the High Court for whatever reason then you would need to direct correspondence accordingly, though we strongly suggest that legal advice be sought before taking that path...

[31] That same day the Body Corporate’s lawyers emailed Ms Liggins, the

Doodys’ Irish financial advisor:

Please find attached the latest statement in respect of unit 606 owned by

John and Mary Doody, as requested.

[32] The statement identified a balance owing of $78,317.83 as at that date. It is not in contention that the said sum included amounts for which judgment had been obtained, and amounts for levies that had accumulated since.

[33] On 4 April 2011 Ms Liggins emailed the Body Corporate’s lawyers:

Would it be possible for Mr and Mrs Doody to reduce the judgment debt to below $40,000 and then put that into a summary instalment order – thereby have the payments locked in, and for the current debt they will bring this completely up to date before December.

[34] The response to Ms Liggins was:

Good morning Christine. Our instructions remain unchanged. Our client requires payment and in full.

[35] Ms Liggins emailed the lawyers again on 5 April 2011:

There isn’t the funds to pay in one lump sum immediately, but they can pay

something now and then some more at later stages.

If your client isn’t happy with the SIO format, then we can perhaps organise

a lump sum now of $10,000 and then monthly payments to clear the debt.

[36] In response the lawyers emailed Ms Liggins:

Our client’s instructions remain unchanged. We note that Mr and Mrs Doodys apartment continues to receive rental income and therefore the benefit of the complex while not paying Body Corporate levies. Meanwhile, our client has incurred the continued burdened of the costs associated with the management of the complex, including the cost of recovery of Mr and Mrs Doodys overdue levies.

[37] On 12 April Ms Liggins emailed the lawyers:

What is the actual amount that will stop the proceedings? Is it the $40,000 judgment?

[38] By response that same day the lawyers advised:

We can only speak for the Body Corporate, and our instructions remain unchanged. Outstanding levies are a great burden on any Body Corporate. If I were to hazard a guess I would say that a reduction in that burden would be welcomed.

[39] And later that same day the lawyers wrote:

My comment is not a suggestion that part payment now would halt proceedings. As stated repeatedly, our instructions are to proceed until payment is made in full.

[40] On 19 April 2011 the sum of $3,169.42 was credited to the Doodys’ account with the Body Corporate by the Doodys’ New Zealand rental agent. That is the same amount referred to in paragraph [5] of this judgment.

[41] On 20 April 2011 Mr Doody emailed the Body Corporate:

Please be advised that the following amounts will be paid to the Body

Corporate as per details below:

(1) $20,000 on April 20, 2011 direct to Body Corporate. (2) $10,000 on May 31, 2011 direct to Body Corporate. (3) $19,000 on June 30, 2011 direct to Body Corporate.

We will have all remaining invoices current by the end of August 2011.

Could you please confirm the bankruptcy proceedings will be stopped. We value our name and our reputation.

[42] Later that same day the Body Corporate responded:

I have spoken with the Chairman of the Committee.

They are not prepared to accept the payments as listed due to the amount of debt outstanding and previous commitments to paying the overdue and current levies not being met.

Bankruptcy proceedings will continue unless payment in full of all overdue amounts is received.

[43] The following day on 21 April 2011 Ms Liggins emailed the Body

Corporate’s lawyers:

It seems that the Body Corporate has accepted a payment plan – can you can confirm that this is true/

Please can you confirm that you are not proceeding with bankruptcy?

[44] The Body Corporate’s lawyers responded that same day:

We are instructed that the Body Corporate has not accepted a payment plan, and that payment is required in full including all costs of recovery, penalties and interest.

[45] On 27 April 2011 the Doodys’ Irish solicitors wrote:

Further to my telephone conversation of today’s date I have been instructed

by Mr Doody as follows:

(1) NZ$22,701 has been paid as of the 21st directly to the Body

Corporate.

(2) A further NZ$27,000 will be paid directly to the Body Corporate within 14 working days.

(3) this will bring Payments up to NZ$50,000.

(4) Our client has gone to great lengths to pay this sum together with the intended next payment.

(5) He is doing everything he can to deal with your client’s demands.

(6) We ask that the intended proceedings be put on hold pending completion of the above payments.

(7) In relation to the balance we seek details of the order in respect of the costs demand so that we may take further instructions from our client.

[46] The Irish lawyer agents’ same day response stated:

As indicated on a number of occasions, our client is unwilling to accept instalment payments and required immediate payment of the entire debt due to it.

[47] By email dated 19 May (that is, after the payments made on 29 April and 10

May 2011) the Irish solicitor agents wrote to Mr Doodys Irish solicitors advising that a balance of NZ$27,623.15 was immediately due. It is clear that this sum included unpaid levies and legal costs to that date.

[48] The following day i.e. on 20 May 2011 a sum of $9,635.05 was paid to the

Body Corporate on account of the Doodys.

[49] By email dated 3 June 2011 the Body Corporate’s solicitors advised the

Doodys how the Payments had been applied and indicated there was a debt of

$17,988.10 still to be paid.

[50] The Doodys’ New Zealand solicitors responded by letter dated 9 June 2011. It challenged the appropriation of the Payments for purposes other than payment of the judgment debt. They sought confirmation that the bankruptcy proceedings would be withdrawn.

[51] By email of same date the Body Corporate’s solicitors responded to the Doodys claim it was their intention that the Payments be applied to the judgment debt. It said there had been no communication of any such intention. It sought payment of the balance of the judgment debt it said was due.

[52] The following day the Body Corporate’s solicitors emailed the Doodys’ New Zealand solicitors confirming there had been a procedural issue in respect of service of the adjudication applications. They offered the Doodys the opportunity to pay the sum of $17,988.10 in three instalments paid fortnightly apart.

[53] By email dated 17 June 2011 the Doodys’ New Zealand solicitors advised the

offer was rejected.

[54] Eventually, as earlier noted, the Body Corporate’s second bankruptcy notices

were served on 18 July 2011. Considerations Appropriation

[55] It is not claimed on behalf of the Doodys that they provided express directions for the Payments to be applied to the judgment debt. Rather, they say such direction was clearly implied or was to be inferred from the course of correspondence earlier referred to in this judgment.

[56] The Court’s view is that although the Doodys may well have intended that result such intention was not communicated to the Body Corporate or its representatives and further that there was no agreement for the appropriation of the Payments.

[57] Mr Cox submits the Body Corporate was aware the Doodys would be making instalments, rather than a lump sum payment in order to satisfy the judgment debt; that when the Body Corporate received the payments they ought to have followed the Doodys’ instructions and appropriated the payments accordingly. But, no express instructions were given – that is quite clear. Instead the correspondence from the Doodys’ Irish advisers focussed upon arranging a plan for payment by instalments rather than upon the process by which those payments were to be appropriated.

[58] The Doodys through their Irish advisers advised that the debt could not be paid in full by one lump sum. At one time the Body Corporate’s solicitors advised that payments in reduction of the debt would be welcome. Then, almost immediately the solicitors made it clear that a part payment would not halt the Body Corporate’s proceedings. Throughout, the Body Corporate’s position was that its proceedings would continue until the Doodys’ debt with it was paid in full.

[59] The Court’s concern is that there is a lack of contemporaneous correspondence or communication which indicates any attention having been given to the question of appropriation at all.

[60] There are other factors which do not support the Doodys’ position. The amounts paid do not precisely match the particular debt. Indeed the payments exceeded the amount referred to in the first bankruptcy notice. The Doodys have no explanation for this.

[61] In this case there were four separate and different payments. They did not total the precise debt but even had they done, that would not become apparent until the last payment was made. To have deprived the Body Corporate of its right to exercise appropriation any direction from the Doodys must have been given prior to

or at the same time as the payment was made. Therefore even if the Payments totalled the precise debt and even if such was taken as an inferred direction as to how payments were to be applied, it could only be effective in relation to the last payment and in this case the last payment was in fact applied to the judgment debt.

[62] It appears clear that the first payment by (on behalf of) the Doodys was made before proposals of payment were advanced. Also and quite clearly the Doodys were not continuing to make payment of unit title levies which were accumulating.

[63] The Court can now assume that the Doodys focus was their judgment debt and their concern to avoid the consequences of bankruptcy. It appears equally clear that no direct attention was given at all to the question of appropriation until an argument in that respect was advanced by their Irish solicitors after the fourth payment had been made.

[64] In short, there is nothing in all of this which suggests the Doodys’ payment proposals contained a direction express or inferred to apply payment to the judgment debt ahead of their other outstanding indebtedness. Indeed, the contrary may be inferred because the payment proposal expressly referred to clearing “all outstanding invoices”.

Whether the Doodys’ account held with the Body Corporate was a “current account”

[65] Mr Cox submits the Doodys’ account with the Body Corporate was a current

account”, because;

(a) They held an account and received a statement from the Body

Corporate which showed an outstanding total balance of all invoices.

(b) Previous payments by the Doodys were appropriated to the balance of the statement, rather than to individual invoices; and

(c) The sum of $4,085.97 of the payments (i.e. the amount paid in excess of the bankruptcy notice amount) was appropriated to the balance of the statement rather than to individual invoices.

[66] Mr Cox submits therefore that the Body Corporate was obliged to appropriate the four payments to the judgment debt, before appropriating the payments to current levies. He asserts the Body Corporate initially did this but later changed its mind in order to recover more fees from the Doodys without seeking a judgment. He says this claim is proven by the fact that although the Body Corporate has stated that the payments were first appropriated to levies owing from July 2010 to February2011 (being a period post that which was the subject of the Body Corporate claim for which it obtained its judgment), a balance of $4,085.97 has not been accounted for but rather appropriated to the balance of the account.

[67] I do not agree that the account between the Body Corporate and the Doodys

was one to which the term “current” applies.

[68] In The Laws of New Zealand:

A current account is characterised by frequent credits as monies paid in by the customer and frequent debits as monies paid out in accordance with the customer’s orders. It is sometimes necessary to determine precisely which debit items have been discharged. When a current account has a debit balance it is called an overdraft account. A customer who draws a cheque when there are insufficient funds in his or her account to meet the cheque is making an implied request to the bank to supply overdraft facilities. A deposit or savings account is an interest bearing account which, unlike the current account, cannot usually be drawn upon by a cheque. [8]

[69] Tyree’s Banking Law in New Zealand states:

The most common form of an account operated by customers is the current account. The salient feature of the current account it that it may be used to receive payments from, and to make payments to, third parties. Today, the current account may act as a conduit for funds paid and received through cheques, direct debit, direct credit and automatic payments... The current account exists in two states: credit and debit... [9]

[70] The Doodys’ account with the Body Corporate does not resemble the character or purpose of a current account. There is not there what can be termed a true running account as in the character of a cheque account. Rather the Doodys’ account was one to which invoices were regularly posted and to which at times payments or receipts were received. It was a creditor/debtor account. It was not a current account.

Complaint to Law Society about legal fees charged by the Body Corporate’s

solicitors

[71] The Body Corporate’s adjudication application identified a debt comprising the judgment and costs orders against the Doodys together with interest thereon which had accumulated pursuant to the Judicature Act. The application also referred to a sum for costs incurred in the recovery of unpaid levies on-charged pursuant to section 124(2) Unit Titles Act 2010. As the application noted these were not included in the amount for which the bankruptcy notice issued. Rather it stated they were a debt due to the Body Corporate. Particulars of costs invoices are as follows:

(a) $5,614.48 by invoice dated 31 June 2011; (b) $5,874.81 by invoice dated 20 July 2011; (c) $2,112.37 by invoice dated 29 July2011;

(d) $8,319.57 by invoice dated 18 August 2011. [72] The total of these invoice amounts is $21,921.23.

[73] The Doodys have complained to the New Zealand Law Society claiming that those costs are unreasonable.

[74] The Doodys oppose payment of the first two invoices dated 31 June and 20

July 2011 on the basis that they related to the initial bankruptcy proceedings which were dismissed due to the Body Corporate’s failure to seek leave to serve the bankruptcy notices overseas. Further having paid the judgment debt in full by 20

May 2011 the Doodys say they should not be responsible for any legal fees incurred after that date.

[75] The bankruptcy notice was issued claiming the sum of $17,988.10. That was the sum left owing of the judgment debt after the Payments had been applied first in payment of levies owing post that period for which judgment was obtained. The balance was then applied against the judgment, leaving the amount for which the bankruptcy notice issued.

[76] The Doodys concern is that the post judgment liability included not only levies but the solicitor’s fees as detailed above. The total of those invoices exceeds the amount for which the bankruptcy notice issued.

[77] Apparently the Law Society is yet to consider the Doodys challenge to the

Body Corporate’s lawyer’s invoices.

[78] The Body Corporate’s position is that it is entitled to recover the reasonable cost incurred in recovering levies as s 124 Unit Titles Act 2010, provides. Further they say that whilst the Doodys now complain about those costs, they have provided no evidence or substantiation of those claims.

[79] Mr Cox submits for the Doodys that s 161 of the Lawyers and Conveyancers Act 2006 requires a stay of proceeding until a costs complaint has been disposed of by the Law Society’s Standards Committee once that Committee has given notice to the practitioner/firm that rendered the bill of costs in question. Mr Cox appears to contend that because there is an issue/dispute concerning an element of those charges contained within the bankruptcy notice debt the adjudication applications should be stayed.

[80] The Law Practitioners Act 1982 enabled a lawyer’s client to challenge the Lawyer’s fees through a cost revision process. The focus was on the reasonableness/appropriateness of the fees charged. The revision process did not usually involve a conduct enquiry.

[81] With the advent of the Lawyers and Conveyancers Act 2006 the process has changed. The focus is upon dealing with complaints. Section 132 permits a person to complain about the conduct of a practitioner, and any person who is chargeable with a bill of costs may complain about the amount of the bill of costs rendered.

[82] One can assume the purpose of the process was intended to enable a client to complain about his/her solicitor’s level of charges. On the other hand conceivably a person chargeable is not the person who provided directions for the services to be engaged. Section 132 may not preclude a complaint by a unit title owner about the legal fees incurred by a body corporate in the recovery of outstanding levies. Section 124 of the Unit Titles Act 2010 makes it clear that the body corporate may recover as a debt due the amount of any unpaid levy together with any reasonable costs incurred in collection that levy. Even assuming the Lawyers and Conveyancers Act 2006 provides standing for the Doodys to challenge the Body Corporate’s legal fees there is no basis in this case for the provisions of s 161 to prevent the Body Corporate from continuing with its adjudication applications.

[83] The reason is that a significant part of the debt still due from the Doodys involves liabilities for other than legal costs. At best s 161 of the Lawyers and Conveyancers Act 2006 will operate to delay recovery by a lawyer of costs until a complaint has been disposed of. It does not operate to prevent recovery of a debt founded upon other causes. Nor should it for otherwise the process of challenging a lawyer’s fees account could be inappropriately used to prevent recovery of other and unrelated debts.

Conclusions

[84] At the core of the Doodys’ opposition to the adjudication application is their claim that the judgment debt was satisfied by the time the second and correctly served bankruptcy notices were served. The Doodys contend therefore that there was no act of bankruptcy because the Body Corporate’s judgment debt had already been paid by the time the second bankruptcy notices were served.

[85] The Doodys’ position relies upon the Court accepting their claim that the judgment debt had been paid prior to service of the bankruptcy notices on 18 July

2011. In turn this relies upon the Court’s accepting that the Payments ought to have been appropriated to the outstanding judgment debt and not as the Body Corporate has done, to payment first of levies which had accumulated since the judgments were entered against them.

[86] In my analysis the Doodys’ appropriation claims fail because there had not been any communication of their requirements, nor could such be inferred from the correspondence between the parties.

[87] Therefore it is this Court’s determination that the Body Corporate’s appropriation of the payments to accumulated unpaid levies to the payment of interest was proper. Therefore the judgment debt remains unpaid at least to the extent of the amount contained in the second bankruptcy notice.

[88] As well there is evidence that unpaid levies currently amount to about

$10,000, and in addition interest continues to accumulate. It would appear that even excluding the fees the subject of a complaint to the Law Society the Doodys owe approximate $30,000 about which sum there can be no dispute.

[89] The provisions of s 13 of the Insolvency Act have been met. An act of bankruptcy occurred because the Body Corporate obtained a final judgment, execution of which was not halted by order of the Court; the Doodys were served with a bankruptcy notice and they have not complied with it within time.

[90] It follows that the Court may adjudicate the Doodys bankrupt unless pursuant to s 37 of the Act they are able to pay their debts or it is just and equitable that the Court does not make such an order, or there is other reason why the order should not be made.

[91] The Court usually approaches the exercise of its discretion in these situations by balancing relevant considerations. It is this Court’s decision that the Doodys have

failed to satisfy the judgment debt, and have failed to show that the appropriation of the payments to other debts was contrary to the arrangement for those payments.

[92] This Court is of the view that it is inappropriate to suspend the adjudication applications because of a separate issue regarding the reasonableness of the solicitor’s fee invoices. There is a significant debt in addition to the claim for payment of those invoices.

[93] Also unit title levies have continued to accrue unpaid and there is no issue about the Doodys’ liability for these, and there is no evidence of any proposals being made for their payment. If the Doodys had proved their claims for appropriation then the amount of unpaid levies would be significantly greater than it is.

[94] At the beginning of this judgment I reviewed the provisions of ss 13 and 17 of the Act. In relation to the former I noted there is no requirement that a creditor be a judgment creditor and that the debt could refer to something owing in the future.

[95] The latter provision refers to the committing of an act of bankruptcy. If refers to the process which follows a creditor obtaining a final judgment with the proviso that if that process is not engaged by the judgment debtor then an act of bankruptcy will be deemed to have been committed. In that assessment of things it is arguable that an adjudication application is not prevented by the fact that the judgment debt is repaid. In this case it could be argued that the Body Corporate was entitled to pursue its adjudication application even if, as the Doodys contend, they had paid the judgment debt. The reason is that the Body Corporate was still owed a debt of

$1,000 or more (for unpaid levies) and the amount owed was a certain amount. An act of bankruptcy has occurred because of the judgment that was obtained against the Doodys.

[96] In the case of New Zealand Casting Company Finance Limited v Henderson[10] Master Gambrill stated:

I do not believe this creditor should be permitted to use the act of bankruptcy based on a judgment when the judgment is satisfied to subsequently fund the

original petition and the petition is not based on a judgment and would need a summary judgment or a proceeding taken to obtain a judgment and be then capable of funding a bankruptcy notice and petition.

[97] If it was the learned Master’s position that, a petition having issued, the judgment debt was then satisfied, and that a petition for bankruptcy could not be pursued, then with respect I disagree. A creditor can continue an application for adjudication notwithstanding a judgment debt has been paid. In this case there was no dispute by the Doodys that beyond their judgment debt there was a debt certain for unpaid levies that continued to accumulate.

[98] Also, it is clear that notwithstanding settlement of a judgment debt another creditor may apply to substitute as creditor and rely upon that same act of bankruptcy which founded the original adjudication application. That may occur even though the substituting creditor does not have the benefit of a judgment against the debtor.

[99] Ultimately the Court has a discretion to deal with perceived inequities that may arise in situations such as these. In this case there is no proper reason not to make orders for adjudication.

Decision

[100] This matter is to be adjourned and is to be listed before me in the Bankruptcy List at 10:45am, 8 March 2012 at which time I intend making orders for adjudication.

Associate Judge Christiansen

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[1] _{Cory Brothers & Co Ltd v Owners Mecca, Turkish SS [1897] AC 286.}
[2] _{Shaw v Picton (1825) 4 B & C 715.}
[3] _{Cory Brothers (supra)}
[4] Leeson v Leeson [1936] 2 KB 156.
[5] _{Caltabino v Electoral Commission of Queensland (QLD) (2010) ALMD 4894.}
[6] _{Bodenham v Purehas (1818) 2 B & Ald 39; 106 ER 281.}
[7] Ward v National Bank of New Zealand Limited – (1888) 8 NZLR 10.
[8] _{The Laws of New Zealand/The Banker and Customer Relationship/ para 52.}
[9] Tyree’s Banking Law in New Zealand – 2nd Edn, Chapter 5.

[10] HC Auckland B.No 1922 – IM/99, 2 August 2000.