Bank of New Zealand v Muir [2014] NZHC 3139 (9 December 2014)

Last Updated: 16 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-000234 [2014] NZHC 3139

BETWEEN	BANK OF NEW ZEALAND Plaintiff
AND	GARRY ALBERT MUIR First Defendant JUSTITIAE TRUSTEE COMPANY LIMITED as trustee of the CARBON TRUST Second Defendant

CIV 2014-404-002565

BETWEEN BANK OF NEW ZEALAND Plaintiff

AND JUSTITIAE TRUSTEE COMPANY LIMITED

Defendant

CIV 2013-404-005157

IN THE MATTER of the Insolvency Act 2006 and the bankruptcy of GARRY ALBERT MUIR

BETWEEN PUBLIC TRUST as trustee of the Mortgage Distribution Fund Judgment Creditor

AND GARRY ALBERT MUIR Judgment Debtor

Hearing:	1 December 2014
Appearances:	G J Toebes for Plaintiff M S Hinde for Defendants
Judgment:	9 December 2014

BANK OF NEW ZEALAND v GARRY ALBERT MUIR [2014] NZHC 3139 [9 December 2014]

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

This judgment was delivered by me at 4.30 pm on 9 December 2014 pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

JT Law, Wellington.

Stainton Chellew, Auckland.

Simpson Grierson, Wellington.

[1] On 21 August 2014 the Court entered summary judgment against Dr G A Muir, Justitiae Trustee Company Limited (Justitiae) as trustee of the Carbon Trust, and the same company as trustee of the Ismail Trust, for sums it found to be owing to the Bank of New Zealand (the Bank).¹

[2] Subsequently, the Bank has applied to adjudicate Dr Muir bankrupt, and for appointment of liquidators to Justitiae.

[3] In respect of Dr Muir the Bank relies on an act of bankruptcy committed by Dr Muir when he failed to comply within the statutory time limit with a bankruptcy notice issued against him by the Public Trust in proceeding CIV-2013-404-5157. The Bank of New Zealand was substituted as creditor on that proceeding by order of the Court on 9 September 2014.

[4] In respect of Justitiae, the Bank relies on the evidence of Dr Muir in an affidavit in proceeding CIV-2014-404-234 in which Dr Muir deposed that as at

7 July 2013 the Trust had assets of $1,020 and liabilities of $815,979.17. The Bank says that there should be added a further $205,562.98 which is the subject judgment. It says that the assets of Justitiae other than the sum of $1,020 have been transferred to other parties including Dr Muir and that in all these circumstances it is just and equitable that liquidators be appointed to Justitiae.

[5] All defendants have appealed to the Court of Appeal the judgment of this Court. I am informed that the case on appeal has been filed and the Court has been asked for a fixture date.

[6] There are now two applications before the Court:

(a) All defendants apply for a stay of the 21 August 2014 judgment in proceeding CIV-2014-404-234.

(b) Justitiae applies for a stay of the application for appointment of liquidators.

¹ Bank of New Zealand v Muir [2014] NZHC 1973.

[7] In addition, Dr Muir has filed a notice of opposition to the bankruptcy application brought by the Bank in reliance on the judgment. It is accepted that if the applications for stay are granted, the application to adjudicate Dr Muir bankrupt should also be stayed.

[8] The applications are dealt with under different statutory provisions. The application for a stay of the judgment is governed by r 20.10 of the High Court Rules. The application to stay the liquidation is governed by r 31.11. This rule gives the Court power to make an order restraining publication of the advertisement of the application which is required by r 31.9, as well as staying any further proceeding. Rule 31.11(2) provides that the Court must treat an application under this rule as though it were an application for an interim injunction.

[9] Although there is no formal application to stay the adjudication application before the Court, s 42(2) of the Insolvency Act provides that if a debtor has appealed against the judgment or order underlying the bankruptcy notice, and the appeal is still to be decided, then the Court may halt the application. In this case, the application is not based on the judgment under appeal, so s 42 is not of direct relevance. Nonetheless, the principles which have been established in cases under this section are in my opinion of equal relevance.

Application for a stay pending appeal

[10] It is convenient to deal first with the general application for a stay under r 20.10.

[11] There are a number of principles which apply. First, the Bank is entitled to enjoy the fruits of the judgment it holds. Secondly, an applicant from a stay must show that if a stay were not granted its appeal rights would be rendered nugatory.²

Thirdly, a stay of enforcement of a monetary judgment should generally only be

_{granted if there is no appropriate assurance of repayment, should the decision under}

2. Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (New Zealand) Ltd [1977] 2 NZLR 41 (CA).

appeal be set aside.³ Fourthly, the Court must engage in a balancing exercise, weighing up the position of both parties.

[12] Here, there is no suggestion that repayment would cause any difficulty. The judgment creditor is a bank, and in any event it has assured the Court that if it receives payment of the judgment sum and the judgment is then set aside, it will repay the sum received.

[13] In written submissions filed by the solicitor for the judgment debtors, but at a point when counsel for the judgment debtor was not available to assist in preparation, there is a very full and critical analysis of the judgment under appeal. In my view, in this case, it is not necessary to engage in this analysis and form a view on the strength or otherwise of the appellant’s case.

[14] In presenting argument, counsel for the applicants emphasised certain points which in her submission support the exercise of the Court’s discretion in relation to a stay in favour of the applicants. Given that specific enforcement procedures have been undertaken, I think it preferable to consider counsel’s points in the context of the application to stay the liquidation of Justitiae.

[15] So far as the general application for a stay is concerned, I am not persuaded that the Court should interfere with the general rule that the Bank is entitled to receive payment of the judgment sum, given:

• The Bank will repay it if the appeal succeeds.

• The evidence of Mr Muir on his ability to meet the judgment goes no further than saying that he will be seriously inconvenienced by being required to borrow the amount of the judgment until the appeal has been

_{determined, and that he may not be able to do so.}

³ Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17.

• The appellant’s appeal rights would not be rendered nugatory unless a stay is granted. I refer to this point again in relation to the application to stay the application for liquidation.

[16] The application for a stay of enforcement of the judgment under r 20.10 is dismissed.

Application for a stay of the liquidation application

[17] Rule 31.11 provides that the Court must treat this application as though it were an application for an interim injunction. The governing consideration is whether proceeding with the application for liquidation savours of unfairness or undue pressure.⁴

Is there a serious question to be considered on appeal?⁵

[18] Counsel for Justitiae and Dr Muir referred to a number of aspects of the case which she says show that the appeal has a strong chance of succeeding. Primarily, she says the documents relating to the loan to the Carbon Trust limit the liability of Justitiae to the assets it holds for the Trust. She says that the evidence shows that the assets of the Trust amount to just over $1,000. She says that Justitiae should not, in effect, be put under pressure by a proceeding to place it into liquidation in respect of a judgment which is not required to honour because of this limitation.

[19] Mrs Hinde says that when the Bank agreed to the revolving credit facility which gave rise to the debt in question, the Carbon Trust owned a significant number of carbon credits, worth a sum many times the level of approved borrowing. She says, however, that by the time the indebtedness was actually incurred, the market for carbon credits had fallen drastically, a risk the Bank took when, on the face of the documents of which it required execution, it agreed to limit the liability of Justitiae

_{to the assets it held as trustees of that Trust.}

⁴ _{Exchange Finance Co Ltd v Lemmington Holdings Ltd [1984] 2 NZLR 242 (CA) at 245.}

⁵ American Cyanamid Co v Ethicon Ltd [1975] UKHL 1; [1975] AC 396 (HL) at 407.

[20] Mr Toebes takes issue with counsel’s assessment that the assets of the Trust should be taken as a sum of just over $1,000. He points to the evidence of Dr Muir in an affidavit he swore in opposition to the application for summary judgment in which he says that as at May 2014 Carbon was entitled to a sum of $750,000 pursuant to a sale of certain promissory notes, and there is no evidence that this sale did not go ahead.

[21] This evidence was before the Court during argument of the application for summary judgment. Whilst the result of the transaction is not clear from the evidence of Dr Muir, there is sufficient evidence for me to conclude that the net asset position of the Trust is unclear and is disputed on grounds which have some support from the evidence presented.

[22] The submissions of counsel for the applicants were not structured in such a way that the points that the Court is asked to take into account in determining whether there is a serious question to be tried were clearly identified. The written submissions filed by the solicitor for the applicants lacked focus on this issue also. Rather, they appeared to be a precis of argument which is to be put to the Court of Appeal. Perhaps the solicitor concerned intended that I should draw an inference that because there is an argument, there is a serious question to be tried. If that is so, it would apply to every appeal. It is for the applicants in this case to convince the Court of the basis on which it is said that there is a serious question to be determined. The best points made by Mrs Hinde on this issue are those which I have referred to.

[23] Despite the shortcomings of the applicant on this issue I am prepared to accept for present purposes that Justitiae has a serious question to be taken on appeal.

Does the balance of convenience favour granting a stay?

[24] I have referred to the evidence of Dr Muir in relation to raising monies to

meet the judgment, and to BNZ’s acceptance of its obligation to repay the judgment

sum if the appeal succeeds, and its plain obligation to do so. These points strongly favour the application for a stay being declined.

[25] It is necessary to consider as well whether there is any evidence of an abuse of process in the bringing of the liquidation application, or whether the proceeding is brought unfairly or places undue pressure on Justitiae. The Bank has a judgment. Justitiae had an opportunity to fully argue its case when the Bank’s application for summary judgment was before the Court. It took that opportunity and the Court did not agree with its position. All the Bank is doing now is utilising a procedure which it is entitled to invoke, under the Companies Act 1993.

[26] The pleaded basis for doing so is the evidence of Dr Muir on the net value of the assets and liabilities of the Trust in July 2013. The Bank also pleads that all other assets of the defendant company have been transferred to other parties including Dr Muir.

[27] Dr Muir is the director of Justitiae and therefore orchestrated the payments to himself and to other beneficiaries. The status of those payments is in issue. In the summary judgment the Court found that they were advances to beneficiaries, but Dr Muir maintains they were legitimate distributions of Trust assets. Unless a liquidator is appointed to Justitiae, Dr Muir’s capacity as both director of Justitiae and recipient of at least some of the monies paid out by the company will prevent independent analysis and, if appropriate, challenge to the claimed status of those payments. This has the potential to prejudice the position of the Bank: its ability to recover is limited to the assets of the Trust, so the extent of those assets is highly material to its ability to recover the advances it made.

[28] I find the application has not been brought unfairly and it does not place undue pressure on Justitiae.

[29] Mrs Hinde says that liquidation of Justitiae will put an end to the appeal. That is not necessarily so. Dr Muir is an appellant himself and there is no reason to pre-suppose that a liquidator, if properly put in funds, would not continue the appeal.

All the applicants have been represented by one counsel to date so the additional expense for Justitiae (in liquidation) would not appear to be significant.

[30] Mrs Hinde criticises the Bank’s presentation of the summary judgment case, saying that allegations of dishonesty and even fraud on the part of Dr Muir were raised, these being issues which were not pleaded in the statement of claim. She says that the consequence of these allegations being introduced in evidence was that it was necessary for further evidence to be provided by Dr Muir (she accepts it was) but as a general observation the case went “off track” and it was not conducted in a just or equitable way. Thus, Mrs Hinde says that the Bank does not have clean hands, and as the Court is being asked to exercise a discretion to wind up the company on the grounds that it is just and equitable to do so, this is a factor which should be taken into account.

[31] I find this submission unconvincing. It was for the Judge at the trial to make such rulings as may have been appropriate in relation to the evidence to be considered, in light of the pleadings and in particular the grounds on which summary judgment was sought, and the grounds of opposition. I am not satisfied that any ground is made out to show that Dr Muir was treated unjustly or inequitably, or indeed wrongly at all.

[32] Mrs Hinde says that Justitiae is not insolvent. She says that its assets and liabilities are equal, because its assets are $1,020, and although the judgment in favour of the Bank is well in excess of that sum, its liability to pay is only co- extensive with its assets. Whilst Carbon once had assets well exceeding the borrowing from the Bank, that is no longer the position, and the Bank took a commercial risk in lending in reliance on the expected value of the Trust’s assets which later diminished for reasons outside the control of Dr Muir as director of Justitiae. However, for the reasons I have discussed, I am satisfied the true financial position is not established.

[33] Mrs Hinde accepts that as Justitiae drew down funds under the facility, it paid them out to Dr Muir and other beneficiaries, but she says that was done in May 2012 before the carbon credits diminished in value, and the Trust was entitled to borrow to

pay distributions to beneficiaries when its assets well exceeded its liabilities. She acknowledges that the Bank does not accept that the payments made to beneficiaries were distributions, and accepts that the Court found that they were advances to beneficiaries, but she takes issue with the findings of the Judge, noting that this will be one point argued on appeal. Mrs Hinde says that the Bank went into the lending transaction knowing it was dealing with a trustee and that the trustee would only have available to it to repay the advances the assets it held at the time the repayment was required.

[34] This argument is cast into doubt for the reasons to which I have already referred: the contrary evidence that as at May 2014 Carbon had sold assets worth

$850,000. This is not consistent with the Trust’s assets being as diminished as

Justitiae maintains.

[35] The concerns expressed by Mrs Hinde about the nature of the evidence presented compared with the pleaded causes of action, may have been directed at the Court’s assessment of the balance of convenience, but if that is so (and it is by no means clear) I find them unpersuasive for the reasons I have already discussed.

[36] I find that the balance of convenience strongly favours the Bank. The application for a stay of the application to appoint liquidators to Justitiae is declined.

[37] Finally, counsel for the applicants specifically ask that I address a stay of advertising as part of my consideration of these applications. I note that in relation to a former judgment debt, Dr Muir made full payment to the Bank. I think it appropriate that he and Justitiae have a brief period within which to make payment, if they elect to do so, without the application for liquidation of Justitiae being advertised.

Dr Muir – stay of insolvency application?

[38] Although there is no formal application before the Court, I consider briefly whether the application to adjudicate Dr Muir bankrupt should be stayed. Dr Muir relies on s 42(2) of the Insolvency Act 2006.

[39] There are no set criteria to which the Court must have reference when determining an application under this section.⁶ The Court should exercise its discretion in a manner that is just and equitable having regard to all relevant factors. The Court may take into account such factors as the bona fides of the judgment debtor in prosecuting the pending appeal, the stage the appeal has reached, whether there has been any delay in prosecuting the appeal, and whether an order halting the

application would unduly prejudice the judgment creditor. In this case, these factors weigh in favour of a stay being granted. The appeal has already been brought to a point where a hearing date is awaited and there is no suggestion that there has been any delay to this point.

[40] Further factors applied by the courts include whether the bankruptcy proceedings might render the appeal nugatory as the judgment creditor would be unable to prosecute the appeal, prejudice to the debtor, the likelihood of the appeal succeeding, the debtor’s ability to pay the debt if the appeal does not succeed, and the prejudice to the judgment creditor and other creditors if the application is granted.

[41] I see little prejudice to the Bank or to Dr Muir if the bankruptcy application is stayed or if it is not. Dr Muir stops short of saying he cannot meet the judgment debt, and the Bank does not point to any particular factor that would support a finding of prejudice if it remains unpaid until the appeal process has been concluded. There is no evidence suggesting Dr Muir’s ability to pay the debt will change between now and the time judgment on the appeal is delivered. I make no further comment on the likelihood of the appeal succeeding.

[42] These factors must be considered in light of the fundamental principle that a creditor who has a judgment is entitled to the fruits of that judgment. This issue was discussed in ASB Bank Ltd v Rui Yu Lin.⁷ In that case Associate Judge Bell

_said:⁸

6. Re Wright, ex parte Health Distributors Ltd HC Hamilton CIV-2010-419-121, 5 November 2010 at [13].

⁷ _{ASB Bank Ltd v Rui Yu Lin [2014] NZHC 106, [2014] NZAR 327.}

⁸ At [17].

So long as there is an appropriate assurance of repayment if the appeal is successful, then there should be nothing to prevent the party who was successful at first instance from enjoying the fruits of the judgment. The unsuccessful party may have to run with their appeal, notwithstanding the fact that enforcement steps can be taken against them in the meantime.

[43] And further:

[20] The defendants could press ahead and get their appeal heard in the Court of Appeal. In particular they may use the fast track procedures available there. The way is open to the defendants to run their appeal without facing the imminent threat of bankruptcy. The question of bankruptcy is not likely to arise unless they do not exercise their appeal rights promptly. If a bankruptcy application comes before the Court, I am confident that any Judge sitting in the bankruptcy jurisdiction would look carefully at the question that the debt on which the bankruptcy application is founded is the subject of an appeal to be heard shortly in the Court of Appeal. A common outcome is for the bankruptcy court to await the determination of the Court of Appeal. In saying that, I do not mean to bind any Judge in the bankruptcy jurisdiction. Putting that as that way, the overall balance of convenience is consistent with the Court following the approach in McLeod v New Zealand Pine Company Ltd.

[44] In McLeod v The New Zealand Pine Company Limited,⁹ the Court said that the way to reconcile the conflicting rights of the plaintiff to receive the fruits of his judgment, and the right of the defendant to ensure that an appeal is not fruitless, is to require that an order staying proceedings should be made on payment by the defendants to the plaintiffs of the judgment sum, with the plaintiff giving security to repay it if necessary.

[45] This case does not lay down an absolute rule. The Court has a discretion.

[46] In my view the application to adjudicate Dr Muir bankrupt should not be stayed. In reaching this conclusion I have taken into account his evidence in relation to his ability to pay the judgment, all arguments advanced by his counsel, and the observations of Associate Judge Bell in ASB Bank Ltd v Rui Yu Lin.

[47] The application to stay the adjudication application is dismissed. If the application is called before the Court it will be for the Judge hearing it to decide

_{whether it should be adjourned to await the decision of the Court of Appeal.}

⁹ McLeod v The New Zealand Pine Company Limited (1892) 11 NZLR 493 (SC) at 495.

Outcome

[48] I make the following orders:

(a) On proceeding 234, the application for a stay of enforcement of the judgment of the Court dated 21 August 2014 is dismissed.

(b) On proceeding 2565, the application to stay the application to appoint liquidators to Justitiae is dismissed.

(c) On proceeding 2565, under r 31.11(1)(a) I restrain publication of an advertisement or any other information relating to the statement of claim until 5.00 pm Monday, 22 December 2014.

(d) On proceeding 5157, the application to stay the application to adjudicate Dr Muir bankrupt is dismissed.

(e) On all proceedings, but as one award of costs, Justitiae and Dr Muir will pay costs to the respondent on a 2B basis plus disbursements fixed

_{by the Registrar.}

J G Matthews

Associate Judge