Clayton v Clayton [2014] NZHC 2528 (15 October 2014)

Last Updated: 21 October 2014

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2014-463-000068 [2014] NZHC 2528

IN THE MATTER	of the Insolvency Act 2006
AND
IN THE MATTER	of the bankruptcy of MARK ARNOLD CLAYTON
BETWEEN	MELANIE ANN CLAYTON Judgment Creditor
AND	MARK ARNOLD CLAYTON Judgment Debtor

Hearing:	14 October 2014 (by AVL)
Appearances:	J R Hosking for Judgment Creditor J Gurnick for Judgment Debtor
Judgment:	15 October 2014

_{SECOND INTERIM JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

This second interim judgment was delivered by me at 12 noon on 15 October 2014 pursuant to Rule 11.5 of the High Court Rules

_{Registrar/Deputy Registrar}

CLAYTON v CLAYTON (Second Interim Judgment) [2014] NZHC 2528 [15 October 2014]

[1] The first interim judgment on this application was issued on 18 September. For the reasons given the application was adjourned to 25 September.

[2] On that day I heard again from counsel, and issued a Minute dated

26 September adjourning the application to 14 October. This second interim judgment is issued as a result of these hearings.

[3] A position has now been reached by which Mr Clayton has taken significant steps to relieve his insolvent situation. He has arranged to receive a distribution from the Sophia No. 7 Trust of which he is a discretionary beneficiary. The Trust will be in a position to distribute to him $241,500 in a few days time, if not before the end of this week then early next. That will be a sufficient sum to pay the outstanding judgment for costs of $212,471 together with interest, which is calculated as at today at $4,715. It will also be sufficient to pay the majority of two of the outstanding monthly payments of maintenance, of $15,000 each ($24,314).

[4] The result of receiving this outright distribution from the Trust is that Mr Clayton’s solvency position will be materially improved. He would still owe the balance of the second outstanding payment of maintenance, the entire third and fourth payments (August and September) and an award of costs on this application. However, the extent of the improvement in his position is such that he should be given further time to pay the balances which are owing under Court judgments. Mr Gurnick says Mr Clayton will be provided with a modest sum from other family sources to enable him to pay in full the balance of the second and the third (August) maintenance payments.

[5] The result of this is that more time will be given to Mr Clayton to make the payments set out in paragraph [15] but if he does not do so, bankruptcy is inevitable. The date will be 24 October 2014.

Costs

[6] Ms Hosking applies for costs. Initially she sought costs on a 2C basis but I am not prepared to award costs on other than a 2B basis, at least as a starting point. I do not think it can be said that the time taken on this defended bankruptcy

application warrants reference to Category C. There is, however, an application by

Ms Hosking for an uplift in the costs of 50 per cent.

[7] In support of this aspect of her application Ms Hosking says that Mr Clayton has been less than transparent in respect of his solvency and that affidavits filed on his behalf have been misleading. She says the application to set aside the bankruptcy notice, which I have found to be invalid, was in any event flawed in substance and designed to cause delay and expense to Mrs Clayton. It was without merit. She says that Mr Clayton could and should have accepted a settlement proposal, which was openly discussed, but did not do so.

[8] Ms Hosking notes that in a previous case the Court has found that:

After hearing submissions from counsel the Court accepted this was an appropriate case to award 2B costs against Mr Clayton, together with a

50 per cent uplift. The Court considers there is some force to Ms Hosking’s submission that his purpose in these applications is to cause as much expense as he can in frustrating recourse to sensible outcomes.¹

[9] For Mr Clayton, Mr Gurnick says that costs should be deferred until the final outcome of this application is known. He says that it is premature to award costs at a point during the proceeding prior to its final determination. In the alternative, he accepts that costs should be awarded on a 2B basis, takes issue with the steps in the process which were analysed during argument, and says that there should not be any uplift in costs. On the latter point he says that Mr Clayton has done everything he can to try to arrange for the Sophia No. 7 Trust to obtain finance in order to distribute funds to him to meet the outstanding judgments, that all arguments raised have had merit or at least an arguable point to back them, and that Mrs Clayton has contributed to difficulties he has experienced in borrowing the funds to meet the judgments because of information she has provided to lending institutions.

[10] I agree with Mr Gurnick that it is premature to award costs at this point. The outcome of the case must be awaited. I therefore make the following directions in

_{relation to costs:}

¹ Re Clayton, ex parte Clayton ROTORUA HC CIV-2013.463-428, 12 February 2014, Associate

Judge Christiansen.

(a) In the event that Mr Clayton is adjudicated bankrupt on 24 October I will consider costs at the first practicable opportunity after that date. I will not require any further submission from either counsel in order to reach a decision on costs and make an order.

(b) If Mr Clayton is not adjudicated bankrupt on 24 October costs will be considered either at or immediately after the resumed hearing on

8 December, as may be found appropriate at that time.

[11] In either event it remains open to counsel to agree on costs and seek a consent order. As a preliminary indication I can indicate that I am satisfied that the steps for which Mrs Clayton is likely to receive an award of costs are these:

44. Filing and service of bankruptcy notice 0.2

45. Filing application for adjudication 0.6

_{46. Appearances at hearings:}

7 July	0.4
11 September	1
25 September	0.4
14 October	0.4

2.2

24. Preparation of submissions:

11 September 1.5

25 September &

_{14 October 0.5}

2.0

For preparation of all affidavits in opposition to the application to set aside the bankruptcy

_{notice and on the bankruptcy application: 1.5}

_{Total 6.5}

[12] It goes without saying that there may need to be an addition to this for further attendances yet to be required.

[13] As a further preliminary indication, I can indicate that some uplift in scale costs appears to be warranted, on the basis that Mr Clayton brought and pursued to a fixture an application to set aside the bankruptcy notice, in respect of which findings have already been made in the first interim judgment. Arguments in relation to that application entirely lacked merit, and this position should have been accepted.

[14] These observations are given only to assist counsel to resolve costs issues if that is possible; this application has already been before the Court on four separate occasions. Prompt closure is not only in the interests of both parties, but also in the interests of those commercially involved with Mr Clayton given his substantial commercial interests.

Outcome

[15] I make the following orders:

(a) There will be an order adjudicating Mr Clayton bankrupt which will take effect at 4.00 pm on 24 October 2014 unless before then he has paid to the solicitors for Mrs Clayton in cleared funds a sum calculated thus:

Judgment sum $212,471.00

Interest $4,715.00

_{Maintenance $45,000.00}

_{Total $262,186.00}

(b) If this payment is made the order is revoked and the application for bankruptcy will be adjourned for further consideration on Monday,

8 December at 9.30 am.

[16] The outstanding payment of maintenance due in September has not been paid. This is an outstanding Court order and reflects, materially, on Mr Clayton’s solvency. Although his situation will have improved, it will not be until all outstanding Court judgments have been met that it could confidently be said that he

is solvent. Therefore there is a prospect that the application for adjudication will result in a bankruptcy order being made at the December hearing unless payment is made before that date, in cleared funds, of all monthly payments of maintenance which have not been paid and which have fallen due, up to the date of the hearing. This decision accommodates the possibility that the maintenance order will be stayed on the application to this Court which I am told is to be heard on 12 November.

[17] Except as directed this application is adjourned to Monday, 8 December at

_{9.30 am.}

J G Matthews

Associate Judge

Solicitors:

Lance Lawson, Rotorua. Tompkins Wake, Hamilton.