Official Trustee in Bankruptcy v Smith [2014] NZHC 1305 (11 June 2014)

Last Updated: 20 June 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-1228 [2014] NZHC 1305

UNDER	the Insolvency (Cross-border) Act 2006 and the High Court Rules
IN THE MATTER OF	an application pursuant to sch 1, Chapter III, art 15 of the Act, and rr 24.26, 24.57 and 18.7 of the Rules
BETWEEN	THE OFFICIAL TRUSTEE IN BANKRUPTCY Applicant
AND	DAVID JOHN SMITH of Bunbury, Western Australia, bankrupt Respondent

Hearing:	On the papers
Appearances:	Phillip Cornegé for Applicant
Judgment:	11 June 2014

_{JUDGMENT OF ASSOCIATE JUDGE BELL}

This judgment was delivered by me on 11 June 2014 at 11:00am

pursuant to Rule 11.5 of the High Court Rules.

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

Registrar/Deputy Registrar

Solicitors:

Nielsen Law (David Nielsen), Hamilton, for Applicant

Counsel:

Phillip Cornegé, Barrister, Hamilton, for Applicant

THE OFFICIAL TRUSTEE IN BANKRUPTCY v SMITH [2014] NZHC 1305 [11 June 2014]

[1] This is an originating application for recognition of a foreign main proceeding under the Insolvency (Cross-border) Act 2006, sch 1, Chapter III, art 15. The Official Trustee applies for these orders:

(a) dispensing with service on the respondent;

(b) for recognition under Chapter III of the Model Law on Cross-Border Insolvency of the Australian bankruptcy of David John Smith, arising out of a sequestration order made in the Federal Magistrates’ Court of Australia at Sydney on 19 September 2012; and

(c) entrusting the administration or realisation of the debtor’s New

Zealand assets to the Official Assignee at Hamilton.

Facts

[2] David Smith, the respondent, was born in New Zealand, but lives in Australia, has an Australian domicile and is an Australian citizen. In recent years he has lived in Western Australia. He presently lives in South Bunbury.

[3] On 19 September 2012, on the petition of Medfin Australia Pty Ltd a sequestration order was made under the Bankruptcy Act 1966 (Cth) against Mr Smith in the Federal Magistrates’ Court of Australia at Sydney. The Official Trustee in Bankruptcy was appointed trustee of Mr Smith’s estate. Mr Smith has provided the Insolvency and Trustee Service Australia (was known as ITSA, now known as Australia Financial Security Authority) with a statement of affairs which discloses two New Zealand assets – an interest in the estate of his late father (the Public Trust in Nelson is administering the estate) and an account with the ANZ Bank in Nelson. The case manager in Australia asked Mr Smith to transfer the funds in the bank account to the Official Trustee, but Mr Smith refused to do so. Following contact by the case officer, the ANZ Bank has placed a block on the account pending this application. The ultimate purpose of this application is to have the funds in that bank account, which vested in the Official Trustee on Mr Smith’s adjudication in bankruptcy, transferred to the Official Trustee.

(a) a certified copy of the sequestration order of 19 September 2012;¹

(b) a certificate of appointment of the Official Trustee;²

(c) information identifying all foreign proceedings in respect of Mr Smith known to the Official Trustee(?);³ and

(d) that Mr Smith’s centre of main interest is in Western Australia, given that he holds a Western Australian driver’s licence, formerly practised dentistry in that state, and continues to live there.

[5] There is expert evidence from a legal officer with the Australian Financial Security Authority showing that a bankruptcy under the Bankruptcy Act 1966 (Cth) is a collective judicial proceeding in Australia, under which the assets and affairs of Mr Smith are subject to the control and supervision by the Federal Circuit Court of Australia (formerly the Federal Magistrates’ Court of Australia) or the Federal Court of Australia. That evidence goes to show that the bankruptcy is a “foreign proceeding” under the definition in sch 1, Chapter I, art 2 of the Insolvency (Cross- border) Act 2006 and that the Official Trustee is authorised under the Australian Bankruptcy Act to administer the re-organisation or liquidation of Mr Smith’s assets, so as to bring the Trustee within the definition of “foreign representative” under art 2.

[6] Mr Currie, the Official Assignee in Hamilton, who is the liaison contact with the Australian Financial Security Authority for requests for assistance with Australian bankruptcies, has consented to the administration or realisation of Mr Smith’s New Zealand assets being entrusted to him.

[7] Overall, the evidence for the Official Trustee shows a clear case for recognition of the Australian bankruptcy as a foreign main proceeding under art 17.

¹ _{Required under sch 1, Chapter III, art 15(2)(a) of the Insolvency (Cross-border) Act 2006.}

² _{Required under sch 1, Chapter III, art 15(2)(b) of the Insolvency (Cross-border) Act 2006.}

³ Required under sch 1, Chapter III, art 15(3) of the Insolvency (Cross-border) Act 2006; and High

Court Rules, r 24.56(2)(a).

[8] The Official Trustee has applied by originating application, as required under r 24.56(1) of the High Court Rules. The application seeks directions as to service under r 18.7, as required under r 24.57(2). No other person has been served so far. In applying without notice, counsel ought to have certified that the application

complied with the High Court Rules, but did not do so.⁴ An amended application

with a certificate is required.

[9] The Official Trustee relies on r 24.56(2)(b) of the High Court Rules to say that the court should dispense with service on Mr Smith:

(2) In addition to complying with the requirements of article 15, the application must—

...

(b) be served, in accordance with Part 6 of these rules, on the debtor or a New Zealand agent or representative of the debtor unless a Judge directs that the application may in all the circumstances proceed without that service.

[10] In support, it is submitted that:

(a) Mr Smith does not have a New Zealand agent or representative.

(b) As service would have to be carried out in Western Australia, that would delay resolution of the application for recognition. That would run counter to art 17(3) of the Insolvency (Cross-border) Act 2006, which requires a recognition application to be decided at the earliest possible time.

(c) If Mr Smith were to oppose the application, he would breach his obligations under the Australian Bankruptcy Act, which require him to assist with the administration of his estate and the realisation of assets.

_{(d) The substantive application is a strong one.}

4. Under r 19.10(1)(e) of the High Court Rules, r 7.23 applies to proceedings commenced by originating application. Rule 7.23(2) requires this certificate for without notice applications.

[11] Rule 24.56 does not state expressly what the court should take into account in deciding whether to dispense with service other than “all the circumstances”. Notwithstanding that, the court clearly must have regard to the objective of securing the just, speedy and inexpensive determination of the proceeding under r 1.2 and whether the application is one the court can properly determine without notice under

r 7.46(3):⁵

(3) The Judge may determine that an application can properly be dealt with without notice only if the Judge is satisfied that—

(a) requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant; or

(b) the application affects only the applicant; or

(c) the application relates to a routine matter; or

(d) an enactment expressly permits the application to be made without serving notice of the application; or

(e) the interests of justice require the application to be determined without serving notice of the application.

[12] It is possible to envisage cases where the court would dispense with service on applications for recognition under art 15. In cases of corporate insolvency where the foreign corporation is under the control of the foreign representatives who are applying for recognition, service on the debtor would be pointless.⁶ In other cases a debtor may have gone to ground so that attempting service on him would be futile. But this is a case of personal, not corporate, bankruptcy and Mr Smith has not gone

to ground or tried to avoid service. He could be served. The correspondence in evidence gives no indication that he consents to the orders sought by the Official Trustee, in fact quite the opposite.

[13] I have difficulty finding that this case comes within r 7.46(3). I do not accept that the requirement of art 17(3) to decide a recognition application at the earliest

_{possible time means that the court must dispense with service. It should be read in a}

⁵ _{Applicable under r 19.10(1)(n) and r 24.56(1).}

⁶ Orders under r 24.56 dispensing with service have been made in similar circumstances in

Re Application by Sheahan HC Auckland CIV-2011-404-1623, 20 May 2011 per Courtney J, Jeong v TPC Korea Co Ltd HC Auckland CIV-2009-404-6704, 15 October 2009 per Faire AJ and Re Pacific Northstar Property Group, LLC HC Auckland CIV-2009-404-6312, 29

September 2009 per Faire AJ.

way that allows for the application to be decided consistently with the principles of natural justice. It is necessary to bear in mind the warning of Megarry J in John v Rees⁷ that even apparently open and shut cases may turn out not to be so. I do not find that requiring service on Mr Smith in Bunbury, Western Australia would cause undue delay or prejudice to the Official Trustee under r 7.46(3)(a). The application does not affect only the Official Trustee: it affects Mr Smith under subclause (b) as it is directed at bringing to an end his control of the ANZ Bank account after his bankruptcy. The matter is not routine under subclause (c): it goes to the enforcement

of a foreign bankruptcy in New Zealand. Under subclause (d) it is not permissible to rely on the power to dispense with service under r 24.56, because that would give rise to a circular argument. Under subclause (e) there are no countervailing circumstances that require natural justice to take second place. In particular the ANZ Bank has blocked the account so that the status quo is preserved in the meantime.

There is no need for interim relief under r 24.56(3) ahead of a recognition order.⁸

[14] Notwithstanding those matters, the Official Trustee has a point that this is a strong application, given Mr Smith’s domicile and residence in Australia at all material times. The chances of Mr Smith successfully challenging the recognition of his bankruptcy in New Zealand are very low. While he should not be denied the opportunity of challenging that recognition if he wants to, it is possible to arrange matters to avoid delay in seeing whether he will challenge the application. A middle path is possible: make the recognition order now, but give Mr Smith the opportunity to apply to set it aside.

[15] That comes about in two ways. First, under art 17(5) recognition orders may be terminated or modified if it is shown that the grounds for granting them were fully or partially lacking or have ceased to exist. Mr Smith has standing to apply under art 17(5). The second arises out of practice in a cognate area – recognition of foreign in personam judgments under statute. Applications to register a judgment under the Reciprocal Enforcement of Judgments Act 1934 may be made without notice to the

_{judgment debtor.}⁹ _{Instead notice of registration of the foreign judgment is given to}

⁷ _{John v Rees [1970] Ch 345 at 402.}

⁸ _{That rule allows without notice applications for urgent interim relief under art 19.}

⁹ High Court Rules, r 23.4(2)

the judgment debtor, who has the right to apply to set aside registration.¹⁰ The practice under the Trans-Tasman Proceedings Act 2010 is similar. An Australian judgment creditor may register a judgment against a liable person in New Zealand without an application but is required to give notice of the registration to the liable person, who may apply to set aside registration.¹¹ It is important to recognise that the registration of foreign judgments under statute is allowed only for some foreign jurisdictions, those in whom New Zealand has sufficient confidence that their judgments should provisionally stand, once the conditions of registration are made out, and it will be for the judgment debtor to show why they should not be recognised in New Zealand. That has particular resonance with the Trans-Tasman Proceedings Act under which New Zealand has acknowledged its confidence in the judicial institutions of Australia and has streamlined trans-Tasman litigation.¹²

While recognition and enforcement of Australian bankruptcies is carried out through

the Insolvency (Cross-border) Act,¹³ the approach under the Trans-Tasman Proceedings Act gives guidance. Relations between Australia and New Zealand are so close and the two countries have such great confidence in each other’s legal systems that there is little injustice in allowing immediate recognition of an Australian bankruptcy order while reserving a right to apply later to challenge that recognition.

[16] In the circumstances of an apparently strong case and of an Australian resident, domiciliary and national with his main centre of interests in Australia being adjudicated bankrupt in Australia, an appropriate course is to make a recognition order under art 17, but also to direct service of the order on him and give time for an application to review the recognition order under r 2.3. The appropriate time is 30 working days, that being the period allowed in similar circumstances under the

Trans-Tasman Proceedings Act.¹⁴ The right to apply for review under r 2.3 is in

_{addition to, not in place of the right to apply under art 17(5).}

¹⁰ _{Rules 23.18-23.20.}

¹¹ _{Trans-Tasman Proceedings Act 2010, ss 61(2) and 62.}

¹² _{See the Trans-Tasman Agreement in sch 1 of the Trans-Tasman Proceedings Act.}

¹³ Trans-Tasman Proceedings (Specified Australian Insolvency Judgments Excluded From

_{Recognition or Enforcement in New Zealand and Excluded Matter) Order 2013, regs 4 and 5.}

¹⁴ Trans-Tasman Proceedings Act, s 65(3).

[17] As service under r 24.56(2) must be under Part 6 of the High Court Rules, leave to serve outside New Zealand is required under r 6.30, as the order is not an originating document under r 6.27(1). The exception in r 6.36 for proceedings under subpart 1 of Part 2 of the Trans-Tasman Proceedings Act does not apply, as the order is not an initiating document and a recognition application is not a civil proceeding in a New Zealand court under s 12 of the Trans-Tasman Proceedings Act. This is an obvious case for leave to be granted under r 6.30.

Outcome

_{[18] I give these directions:}

	(a)	Upon the applicant filing an application certified under r 7.23 of the High Court Rules without any changes in the evidence, I will make a
		recognition order under art 17 of the Insolvency (Cross-border) Act
		2006 and entrust the administration and realisation of Mr Smith’s assets in New Zealand to the Official Assignee at Hamilton.
	(b)	It will be a condition of the order that it is to be served as soon as possible on Mr Smith.
	(c)	Leave to serve the order outside New Zealand will be granted.
	(d)	The time for Mr Smith to apply to review the order under r 2.3 of the
		High Court Rules will be extended to 30 working days after service.
[19]	Wh	en filing the amended application, the Official Trustee should submit a

_{draft order for consideration.}

Associate Judge Bell