Hampton v Official Assignee [2014] NZHC 1458 (26 June 2014)

Last Updated: 2 July 2014

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2011-409-002055 [2014] NZHC 1458

BETWEEN	DAVID JOHN HAMPTON Applicant
AND	THE OFFICIAL ASSIGNEE First Respondent
AND	THE COMMISSIONER OF INLAND REVENUE Second Respondent
AND	MINTER ELLISON RUDD WATTS Third Respondent

Hearing:	19 June 2014
Appearances:	Mr D J Hampton in person G E Slevin for First Respondent P J Shamy for Second Respondent D P MacKenzie for Third Respondent
Judgment:	26 June 2014

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

[1] Mr Hampton was adjudicated bankrupt on 5 June 2013. He applies for annulment of his bankruptcy under s 309(1)(a) and (c) of the Insolvency Act 2006:

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) ...

(c) the Court considers that the liability of the bankrupt to pay his or her debts should be revived because there has been a

D J HAMPTON v THE OFFICIAL ASSIGNEE [2014] NZHC 1458 [26 June 2014]

substantial change in the bankrupt’s financial circumstances

since the date of adjudication;

(d) ...

[2] Whilst the Official Assignee, as first respondent, maintains a neutral stance on the application, it is opposed by the Commissioner of Inland Revenue (the Commissioner) and by Minter Ellison Rudd Watts (Minter Ellison), which was the judgment creditor which applied for, and obtained, the adjudication order.

[3] This is the second application for annulment by Mr Hampton. The first was dismissed by the Court after a defended hearing, on 17 September 2013. As noted in the judgment,¹ the Judge proceeded on the basis that Mr Hampton relied on s 309(1)(a) and (c). As noted, these are the paragraphs on which he relies in this application. Counsel for the Commissioner and for Minter Ellison both say that Mr Hampton is, in this application, trying to re-argue the exact points that he made

on his first application.

[4] There is strength in that submission. However, as Mr Hampton argued before me an issue of fact not specifically canvassed in the context of s 309(1)(a) in the former judgment I prefer to proceed on the basis that this application should be considered on its merits.

[5] The learned Judge on the first application set out certain principles that the Court will apply when considering an application under s 309(1)(a). The learned Judge said:²

[34] I adopt the summary of relevant circumstances enunciated by

Robertson J in [Re Hunter ex parte Commissioner of Inland Revenue (2000)

19 NZTC 15,722 (HC) at 15,730] and also the correct observation by the commentators [P Heath and M Whale (eds) Heath and Whale on Insolvency (looseleaf ed, LexisNexis at [9.26]] and Brookers Insolvency Law and Practice (looseleaf ed, Brookers) at [IN 309.05 and IN 309.06(2)]] that this is a narrow jurisdiction. I am not entitled to interfere with an adjudication by an order of annulment simply because I might have decided matters differently on 5 June 2013. When Mr Hampton’s oral submissions are properly analysed, they invite certain assumptions. First, that had Mr Hampton appeared, he would have applied for a further adjournment – indeed that is what he says would have been done. Secondly, that had an

¹ _{Minter Ellison Rudd Watts v Hampton [2013] NZHC 2434 at [33].}

² At [34] – [35].

adjournment application been made, the only proper outcome would have been for a further adjournment. Mr Hampton believes that the Associate Judge who dealt with the matter on the day, if requested to grant a further opposed adjournment, would have granted such adjournment. That is not the test for annulment. The granting or refusal of adjournment would have been a discretionary matter for the Court. The Court would have weighed up, as it had on at least three previous occasions, whether it is appropriate in relation to a person who committed an act of bankruptcy in 2012 to grant a further adjournment when the debtor has not been able to pay his debts. As it happened, the Court was not confronted with the exercise of that adjournment discretion in June. The decision which confronted the Court in June was whether it should grant to (sic) the creditor’s application for an order adjudicating the debtor bankrupt. On the evidence of a prior act of bankruptcy and of a remaining debt, the creditor was entitled to the order it sought.

[35] The judgment was correctly given on that date. The adjudication cannot be described as one which should not have been made.

[6] Earlier in the judgment, the learned Judge said:³

[27] It is settled that the Court should be parsimonious in the exercise of its power to annul. The Court narrowly construes this jurisdiction. The relevant cases are reviewed and the narrow interpretation of s 309(1)(a) is accurately discussed in this regard by the authors of both Heath and Whale on Insolvency [P Heath and M Whale (eds) Heath and Whale on Insolvency (looseleaf ed, LexisNexis) at [9.26]] and Brookers Insolvency Law & Practice [Brookers Insolvency Law & Practice (looseleaf ed, Brookers) at [IN 309.05 and IN 309.06(1)]]. In Re Hunter, Robertson J noted that the cases referred to by the commentators: [Re Hunter ex parte Commissioner of Inland Revenue (2000) 19 NZTC 15,722 (HC) at 15,730]

... 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 the[a] discretion.

[7] I respectfully agree with and adopt these passages.

Section 309(1)(a)

[8] Notwithstanding this clear exposition of the way the Court will apply an application relying on s 309(1)(a), Mr Hampton now seeks to argue, again, that had an adjournment application been made, it would have been granted. This time, however, Mr Hampton says that as he did not appear at the adjudication hearing,⁴ he

_{was not able to inform the Court that monies he had expected from the Earthquake}

³ _{At [27].}

⁴ The reasons for this are set out at [8] and [9] of the judgment of 17 September 2013,

Minter Ellison Rudd Watts v Hampton, above n 1.

Commission in relation to a damaged property had in fact been received. Had the Court known that, he says, it would have adjourned the adjudication application for a short period while the Court decided whether these funds should also be the subject of the freezing orders made earlier by the Court, or whether the funds could be made available to pay Minter Ellison.

[9] The first difficulty with this submission is that it goes directly to how the Court might have exercised its discretion in relation to adjudicating Mr Hampton bankrupt, a matter outside the consideration of this Court on an annulment application under s 309(1)(a). The second difficulty is that, as noted in the earlier judgment, Mr Hampton had committed an act of bankruptcy as long ago as 2012, Minter Ellison had a judgment dating back to February 2010 which was still partly unsatisfied, and there is no evidence that as at the date of adjudication, a decision that the funds which had been received could be released to satisfy that debt was imminent. As well, on the day of adjudication an appearance in support of the application was entered for the Commissioner in respect of a judgment of approximately $35,000, including interest, for costs awarded to the Commissioner by the Court of Appeal. I think it unlikely that in these circumstances a further adjournment would have been granted.

[10] In my view that is sufficient to dispose of the application under s 309(1)(a), but for the sake of completeness, I mention two further arguments raised by Mr Hampton.

[11] First, he says there are public interest factors which weigh in his favour. The first is that where a judgment debtor complies with court directions on a bankruptcy proceeding, in order to improve the prospect of payment to the judgment creditor, it is in the public interest that the Court act consistently with its directions in order to encourage judgment debtors to take all reasonable steps to achieve payment to creditors. I agree with this proposition, but find it does not apply in this case. The Court did not give any directions to Mr Hampton. In May 2013 it gave him further time to try to arrange payment, from the funds which had been received. That was, in itself, an exercise of discretion favourable to Mr Hampton as the funds were not owned by him personally, in any event, and it did not appear to be by any means

certain that the funds would in fact be made available because of the existence of the freezing orders.

[12] Mr Hampton says it is in the public interest that a judgment debtor and parties associated with him be given an opportunity to apply to the court for consent to pay a judgment creditor from funds which are controlled by the Court. I do not agree this is a matter of public interest, though it may be an issue of relevance to the parties concerned. Funds coming into the hands of Mr Hampton and related entities were frozen by the Court on the application of the Commissioner to protect its prospects of recovering significant taxation liabilities. The only public interest factor that might be raised on an application to release some of those funds to pay another creditor is the public interest in the collection of properly assessed taxation.

[13] Mr Hampton says it is in the public interest for a judgment debtor and the Crown to explore the prospect of settlement of disputes between them, particularly where the debtor is threatened with bankruptcy proceedings and seeks the consent of the Crown for disbursement of funds which are the subject of a freezing order in order to pay a judgment debt. Again, I see no public interest in this, apart from the general proposition that settlement should always be considered before and during the course of litigation. Mr Hampton sought to develop this submission by reference to his complaints of bad faith and reckless conduct on the part of the Commissioner. Nothing in these assertions assists his present application.

[14] The second issue to which I refer is Mr Hampton’s contention that he could, in any event, have had the insurance monies made available to him to settle the Minter Ellison debt, because they could not be made the subject of the freezing order. In this respect he relies on r 32.6(3) which provides that a freezing order must not prohibit a person from dealing with assets covered by the order for the purpose of paying legal expenses related to the freezing order, or making payments in the ordinary course of the respondent’s business. The answer to this lies in the fact that the sum claimed by Minter Ellison was not incurred by way of legal expenses related to the freezing order – it related to substantial work for Mr Hampton and other related entities in its ongoing disputes with the Inland Revenue Department over a prolonged period of time. Whilst, if further detail were available, it might be

established that some part of those expenses were incurred in relation to the business activities of one of Mr Hampton’s related entities, there is insufficient material before me to substantiate his claim that the entire debt to Minter Ellison was incurred in the ordinary course of his business.

[15] Quite apart from that, the argument about whether the funds could properly be regarded as exempt from the freezing order is not before me on this application, nor would it have altered the decision of the Court on the adjudication application. It is an issue to be decided by the Court in relation to the freezing order itself. Had it been explained to the Court on the day the adjudication was made, which it was not, it would have merely been one factor in relation to the freezing order issue, which as I have found, would not have altered the decision of the Court on the day.

[16] For these reasons the application under s 309(1)(a) is dismissed.

Section 309(1)(c)

[17] The only fact put before the Court by Mr Hampton to support his application under this paragraph is that a property owned by him has now been sold, resulting in his receiving net proceeds of sale of $91,000 after a mortgage repayment.

[18] This sum is held by the Official Assignee. It is insufficient to pay the debt of Minter Ellison, which at the present time is $99,152.94,⁵ and costs owing to the Commissioner of approximately $35,000.

[19] Quite apart from this debt, the Commissioner says that Mr Hampton’s

indebtedness to her is $925,235.34 and that this liability is now beyond dispute.

[20] Mr Hampton denies this. He says he has two civil proceedings against the Commissioner, and he also says that there is an outstanding notice of proposed adjustment which could materially affect this liability.

[21] The sum stated by the Commissioner to be owing reflects the final judgment

_{of the Court of Appeal in relation to Mr Hampton’s taxation affairs, which is not}

⁵ Mr Hampton disputes this but did not put in any contrary evidence.

itself subject to an appeal to the Supreme Court. I am satisfied for present purposes that it is the last word on the subject of his liability. If Mr Hampton is right, and he is able to challenge it further, the figure may alter. Even if it is found that he does not owe any tax, which I find highly unlikely given the judgment of the Court of Appeal, his indebtedness to Minter Ellison and the Commissioner for costs still exceeds the sum he has received.

[22] In any event, the sum received from the property by Mr Hampton is the subject of the freezing order in favour of the Commissioner, to which I have referred.

[23] For these reasons I am not satisfied that there has been a substantial change in Mr Hampton’s financial circumstances since the date of adjudication. As a result I do not consider that his liability to pay his debts should be revived, as provided in s 309(1)(c). The application under this paragraph is dismissed.

Costs

[24] It is appropriate that Mr Hampton pay costs.

[25] Rule 14.15 provides that the Court must not allow more than one set of costs, unless it appears to the Court that there is good reason to do so, if several defendants defend a proceeding separately and it appears to the Court that all or some of them could have joined in their defence.

[26] It was necessary for the Official Assignee to be served. Prior to the hearing the Official Assignee filed a memorandum indicating that she would abide the decision of the Court, and sought leave not to appear. Section 309(2) provides that the Assignee must be served and may appear as a party. I declined the Assignee’s request that no appearance be made, because at that point the submissions for Mr Hampton had not been received and it was not known what he would say, particularly given that this was his second application for annulment. I took the view that the Court could be materially assisted by the presence of counsel for the Official Assignee, depending on how Mr Hampton’s case was presented. In the event I was aided by counsel.

[27] Further, the Commissioner was entitled to appear, given that she holds freezing orders over the assets of Mr Hampton and associated entities, is a very substantial creditor in his bankruptcy, and faces two separate civil suits by Mr Hampton.

[28] The judgment creditor, Minter Ellison, was also entitled to appear. The firm is owed a significant sum and was the successful applicant for adjudication.

[29] I am satisfied that each was entitled to appear, and oppose the application. Their interests differ materially. I do not consider that any of them could have properly joined in their defence of this application. I am therefore satisfied that there is good reason for more than one award of costs.

[30] Mr Hampton will pay costs:

(a) to the Official Assignee on a 2B basis plus disbursements fixed by the Registrar for preparation of counsel’s memorandum and appearance at the hearing;

(b) to the Commissioner on a 2B basis, together with disbursements fixed by the Registrar;

(c) to Minter Ellison on a 2B basis together with disbursements to be fixed by the Registrar. I certify for Mr MacKenzie’s reasonable travel

_expenses.

J G Matthews

Associate Judge

Solicitors:

D J Hampton, Applicant in Person.

Insolvency and Trustee Service, Christchurch.

Crown Law, Wellington.

Minter Ellison Rudd Watts, Wellington.