Young v Bailey [2015] NZHC 2243 (16 September 2015)

Last Updated: 23 September 2015

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2015-419-0066 [2015] NZHC 2243

BETWEEN	MATTHEW JOHN YOUNG Judgment Creditor
AND	PAUL BAILEY Judgment Debtor

Hearing:	16 September 2015
Appearances:	Ms S Cameron for judgment creditor Mr S McKenna for judgment debtor
Judgment:	16 September 2015

_{ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

YOUNG v BAILEY [2015] NZHC 2243 [16 September 2015]

[1] I have today heard on an opposed basis the application which Mr Young brings for an order adjudicating the judgment debtor bankrupt. The grounds upon which the bankruptcy application is made are stated in the application as follows:

That the debtor committed an act of bankruptcy on or about 3 February 2014 when under an execution process issued against the debtor or the debtor’s property, a return was made that sufficient goods and chattels of the debtor could not be found on which to levy the debt.

[2] The application for adjudication was filed on 2 March 2015. The debt owed was stated in the application to be $6,413.54. Costs were sought as well. The debt upon which the application was based was an order for costs that was made in the District Court following an application which Mr Young made under the Harassment Act 1997 and upon which he was successful in obtaining orders. That application had been heard on 20 March 2014.

[3] It is not disputed that the amounts claimed in the judgment creditor’s application remain unpaid nor is it disputed that an act of bankruptcy was committed when the process server reported that the judgment debtor had no assets to seize following an attempt to enforce the judgment on 3 February 2015.

[4] The judgment debtor filed a notice of intention to oppose the application in which he stated that the judgment creditor “is an undischarged bankrupt” and that the debt arising from the order for costs made in the District Court was property acquired by the bankrupt during bankruptcy which therefore vests in the Assignee. It was further asserted that the judgment creditor was not competent to bring enforcement action and that his assignee in bankruptcy had taken no enforcement action. As well it was stated that the judgment debtor had made part payments towards the debt.

[5] The judgment creditor took the view that the judgment debtors understanding of the legal matters underlying the grounds of opposition was in error. The judgment creditor’s advice was that the Harassment Act claim and any relief under it were personal to the bankrupt and did not represent property which could be distributed amongst the creditors of Mr Young. The fact that the judgment creditor was correct

in that regard is borne out by the description of the matters which the applicant for an order under the Harassment Act must prove which include that there has been act which causes apprehension on the part of the applicant for his/her safety etc. The flavour of the legislation is can be seen by considering the terms of s 4 which provides:

4 Meaning of “specified act”

(1) For the purposes of this Act, a specified act, in relation to a person, means any of the following acts:

(a) Watching, loitering near, or preventing or hindering access to or from, that person's place of residence, business, employment, or any other place that the person frequents for any purpose:

.......

(f) Acting in any other way—

(i) That causes that person (“person A”) to fear for his or her safety; and

(ii) That would cause a reasonable person in person A's particular circumstances to fear for his or her safety.

[6] In or about May of 2015 the judgment debtor was advised by the Official Assignee that the Harassment Act claim was not one in which the Official Assignee, as Mr Young’s assignee in bankruptcy, had an interest. By that time the bankruptcy proceedings had been commenced as I have noted above.

[7] Another matter of background which I must mention concerns the payments which the judgment debtor says that he made in respect of the debt. It would appear that he made a series of payments of $520 to the solicitors who had acted for Mr Young on the Harassment Act application, Neilson Law. They had instructed counsel who acted in the Harassment Act proceedings. Those payments which were made during the period 4 July 2014 to 23 January 2015 totalled $520. The judgment debtor says that in February 2015 after the bailiff had called on him, he made a payment of $5,000 in cash to Neilson Law. However that payment has apparently since been reversed at least as to the $5,000, although Neilson Law did not return the

$520.

[8] Mr McKenna told me during the hearing today that the reason why the judgment debtor wished to pay the money to Neilson Law was because he was concerned that otherwise the judgment creditor would obtain a windfall. That is to say, the judgment debtor’s apprehension was that Mr Young would acquire the amount of the costs order but not use that money to pay off his legal debts to Neilson Law / counsel instructed. I will briefly comment on that matter next.

[9] There is no doubt that the order which was made in the District Court was effective and valid and that it subsists till this day. It has never been attacked in appeal proceedings. It would seem to me that when making the order in the District Court the Judge was not required to enquire into matters such as whether the recipient of the order, that is Mr Young, intended or did not intend to satisfy any contractual obligations he might have to pay his lawyers. He was represented by counsel at the hearing and had instructed solicitors in the matter and he was entitled to an order for costs. Had the position been otherwise he would not, of course, been able to obtain an order for costs because, except in exceptional cases, lay litigants cannot obtain orders for costs: Commissioner of Inland Revenue v Chesterfields

Preschools.¹

[10] It is very likely that Mr Young has an undischarged obligation to pay his lawyer. The Court is simply not in a position to come to firm views on that but even if Mr Young had not paid his lawyer and even if he had a private intention not to pay his lawyer that would not change the fact that he holds the order for costs and ought to be entitled to enforce it. But in any event the question about what Mr Young intends to do is a matter of speculation only and the Court has no firm evidential foundation to come to any views about that subject. I turn now to the question of whether the Court ought to make an adjudication order. Mr McKenna, sensibly, did not dispute that the grounds stated in s 13 of the Insolvency Act 2006 for making an order had been satisfied. Mr McKenna focussed attention on the discretion that the Court has in s 36 to make an adjudication order and in s 37 to refuse such an order. The case for the judgment debtor is that he could pay his debts but declined to do so. Section 37 of the Act states that that is a ground upon which the Court may refuse

_{adjudication.}

¹ Commissioner of Inland Revenue v Chesterfields Preschools 2010 NZCA 400 at [162].

[11] The approach that I intend to take is that the starting point is that where the debtor has committed an act of bankruptcy and has continued to fail to pay a costs order there are prima facie grounds for adjudication.

[12] As to the question of whether Mr Bailey is able to pay his debts but is unwilling to, there is again no direct relevant evidence. Mr McKenna reminded me that at an earlier stage in the dispute between the parties Mr Bailey had had sufficient money to pay the $5,520 which I had mentioned already in this judgment into the trust account of Neilson Law. I do not however regard that as being evidence that some months later Mr Bailey remains in a position where he is able to pay his debts. He has defaulted on the judgment and committed an act of bankruptcy and in those circumstances I do not consider that it could safely be concluded that he is able to pay his debts.

[13] A further discretionary consideration, which Ms Cameron submitted the Court ought to take into account, was the necessity to not allow persons who have costs orders made against them in Court proceedings to flout those orders by not paying them. I agree that that is a relevant consideration.

[14] In summary therefore the following is the position. Mr Bailey may at one point have had legitimate reasons to doubt that Mr Young could personally apply to enforce the costs judgment of the District Court. However the position has been explained to him that a claim under the Harassment Act is a personal one and therefore lies outside the estate of the bankrupt. Mr Bailey was therefore disabused of any belief that Mr Young could not enforce the Harassment Act order and any ancillary orders such as orders as to costs. In any event, he was informed that the Official Assignee did not regard himself as having an entitlement in the matter, contrary to what Mr Bailey had apparently previously thought. Whatever relevance this might have had at an earlier stage in proceedings it has none now to the question of whether an adjudication order ought to be made.

[15] I consider that an order ought to be made. I indicated to the parties during the course of the hearing today that they ought to see if a suitable compromise position could be negotiated. Following my return to Court Mr McKenna advised me that his

client was prepared to make an “open offer” to pay the amount that was sought into the trust account of any solicitor for onward payment to Neilson Law. That offer had been rejected and the judgment creditor through counsel, Ms Cameron, indicated an intention to proceed.

[16] For the reasons I have given I consider that the judgment creditor is entitled to an order. That the judgment debtor may have acted imprudently in not taking the opportunity to come to a negotiated settlement in the matter in the circumstances that I indicated above.

[17] There will be an order adjudicating Mr Bailey bankrupt. The order is timed at 12.31 p.m.

[18] The judgment creditor has sought indemnity costs in the proceeding. The judgment debtor’s counsel’s submission was that 2B costs were appropriate. I do not consider that the factual position has been established with sufficient clarity to justify an order for indemnity costs but I do consider that an increased costs order should be made. The Court is entitled to make an increased costs order where there has been a failure by the paying party to act reasonably: Bradbury v Westpac Banking

Corporation² and that is the case here. The base costs in this case would

appropriately be fixed at category 2B. I consider that an uplift of 33 1/3 percent is required on those costs for the reasons that I have just stated. If the parties are unable to agree on the question of costs that are to be paid as a result of the directions I have given, they may file additional memoranda within ten working days. I would hope that such a course proves not to be necessary. It is long overdue for this matter to be completed. The parties may also be aware that the Court has an entitlement to make further costs orders in the course of making the costs orders

_themselves.

J.P. Doogue

_{Associate Judge}

² Bradbury v Westpac Banking Corporation [2009] NZCA 234; [2009] 3 NZLR 400.