Grey District Council v Banks [2016] NZHC 2663 (8 November 2016)

Last Updated: 17 November 2016

IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY

CIV-2016-418-000022 [2016] NZHC 2663

IN THE MATTER	of the Insolvency Act 2006
AND
IN THE MATTER	of the bankruptcy of DOUGLAS BANKS
BETWEEN	GREY DISTRICT COUNCIL Judgment Creditor
AND	DOUGLAS BANKS Judgment Debtor

CIV-2016-418-000023

IN THE MATTER of the Insolvency Act 2006

AND

IN THE MATTER of the bankruptcy of CHRISTINE SANDRA BANKS

BETWEEN GREY DISTRICT COUNCIL Judgment Creditor

AND CHRISTINE SANDRA BANKS Judgment Debtor

Hearing:	31 October 2016
Appearances:	J Shackleton for Judgment Creditor Mr & Mrs Banks, Judgment Debtors, self-represented
Judgment:	8 November 2016

_{JUDGMENT OF ASSOCIATE JUDGE MATTHEWS}

GREY DISTRICT COUNCIL v BANKS [2016] NZHC 2663 [8 November 2016]

[1] On 12 July 2016 the judgment creditor, Grey District Council (the Council), applied to the High Court for the issue of bankruptcy notices against Mr and Mrs Banks. In each case the Council relied on a sum said to remain owing by both Mr Banks and Mrs Banks on a final sealed judgment of the Court dated 5 November

2013.

[2] Bankruptcy notices were duly issued and served on Mr and Mrs Banks on

5 August. They then filed a document described as “Notice of Joint Interlocutory Application for Leave to Seek Relief Orders in Bankruptcy Proceedings”, and affidavits in support. The application related to both Mr and Mrs Banks, and was filed and served within the time required, 10 working days of the date of service of the bankruptcy notice.¹ The Court subsequently directed that a separate application

be filed by Mrs Banks.²

[3] Mr and Mrs Banks both applied for appointment of an amicus curiae in this case. This application was declined by Associate Judge Osborne as the principles relating to setting aside of bankruptcy notices are well-settled, and the Court is in a position to apply those principles regardless of any inadequacy there may be in the identification of the relevant principles in submissions which might be filed.³

[4] Mrs Banks presented submissions not only on her behalf, but also on behalf of Mr Banks, with leave.

[5] Although Mr and Mrs Banks’ applications are each 31 pages in length, the arguments they presented concentrated on two principal issues, interpretation and application of the Local Government Official Information and Meetings Act 1987 and a submission that the Court should order that the debt relied on for issue of the bankruptcy notice, and five other debts also the subject of court judgments, should be repaid on terms acceptable to them.

[6] Before turning to these principal arguments, I refer briefly to other points made by Mrs Banks, first that the Council’s procedure in relying on only one of the

¹ _{ANZ Bank New Zealand Ltd v Edwards [2013] NZHC 2756; Insolvency Act 2006, s 17.}

² _{Grey District Council v Banks HC Greymouth CIV-2016-418-000022, 25 August 2016.}

³ Grey District Council v Banks HC Greymouth CIV-2016-418-000022, 7 September 2016.

judgments as a foundation for its bankruptcy notice was flawed. Mr and Mrs Banks appear to be of the view that by splitting the total debt, as they see it, the Council is acting improperly. That is not the case. Where multiple debts are owed a bankruptcy notice should only be issued in respect of one. The authority for this proposition is Re Pollock, Far North District Council v Pollock.⁴ Secondly, neither Mr Banks nor Mrs Banks takes issue with the validity of the sum claimed in the bankruptcy notice (nor indeed could either of them do so, as it is the amount owing under a judgment of this Court which is not subject to appeal) but when they

authorised the release of the sum of $3,000 which they had paid by way of security for costs to the Court of Appeal, the Council appropriated this to the sum owing under the High Court judgment relied on for the bankruptcy notice. Mrs Banks was critical of this, submitting that this sum should have been credited to the sum they owe on the costs order by the Court of Appeal. How that argument was said to advance her cause is obscure, as satisfaction of the bankruptcy notice would have been further beyond the reach of Mr and Mrs Banks had the sum required to satisfy it been $3,000 more. I do not see any basis to impugn the Council’s action in this respect.

[7] Thirdly, some 10 pages of each application were devoted to exposition of Mr and Mrs Banks’ views in relation to the issues concerning their lease of their property from the Council, which is the issue which has been the subject of the judgments of this Court, the Court of Appeal and the Supreme Court and which led to their liability for adverse costs awards on six occasions. The final occasion was when the Supreme Court declined leave to Mr and Mrs Banks to appeal against a judgment of the Court of Appeal, thereby bringing to an end their litigation with the

Council over their lease.⁵

[8] I have not taken into account this material, nor did Mrs Banks refer to it in the course of presenting her argument. I therefore turn to the two principal arguments presented by Mrs Banks in support of the application to dismiss the

_{bankruptcy notice and this proceeding, or alternatively to order payment of the}

⁴ _{Re Pollock, Far North District Council v Pollock [2014] NZHC 2473 at [9] – [10].}

⁵ Banks v Grey District Council [2014] NZSC 102.

balance owing to the Council on terms, or alternatively again for an order staying the proceeding.

Applicable principles

[9] In Re Wise ex parte Benecke, Master Kennedy-Grant reviewed the principles applying to application of the Court’s inherent jurisdiction to set aside bankruptcy notices or to stay a bankruptcy proceeding. His Honour said:⁶

Having considered the matter further, I have come to the following conclusions:

(a) I do have jurisdiction to grant relief to the debtors;

(b) The jurisdiction is the inherent jurisdiction of the Court to control the abuse of its process;

(c) The grounds on which the jurisdiction may be exercised are:

(i) procedural defect in the obtaining of the judgment on which the bankruptcy notice is based; and/or

(ii) the existence of arguable grounds of defence to the claim for which judgment was given;

(d) The grounds on which the jurisdiction may be exercised may extend beyond those stated in (d) to any ground on which the Court feels it necessary to intervene to prevent injustice but I make no finding on that point in this judgment;

(e) The correct procedure for invoking the inherent jurisdiction of the Court is not the filing of an affidavit under r41 [of the Insolvency Rules 1970] but the filing of an interlocutory application to set aside the bankruptcy notice on one of the grounds stated in (c) above or, possibly, the broader ground stated in (d) above.

[10] This case was applied in Re Krukziener ex parte Hanover Finance Ltd, where Associate Judge Abbott concluded that where a debtor seeks to have the Court exercise its inherent jurisdiction to set aside a bankruptcy notice or stay a bankruptcy proceeding on the grounds of potential injustice, but not impugning the underlying

judgment debt, that debtor must show very special circumstances.⁷

[11] Mr and Mrs Banks did not seek to argue that there had been a procedural defect in the obtaining of the judgment on which the bankruptcy notice is based or

_{that there exists an arguable ground of defence to the claim for which judgment was}

⁶ _{Re Wise ex parte Benecke HC Auckland B227/95, 21 June 1995 at 6.}

⁷ Re Krukziener ex parte Hanover Finance Ltd HC Auckland CIV-2007-404-002896, 12 August

2008 at [36].

given. Therefore their argument must come down to whether the actions of the Council in bringing proceedings to adjudicate Mr and Mrs Banks bankrupt is an abuse of the Court’s process, or whether it is necessary for the Court to intervene to prevent injustice. With this in mind I turn to the arguments advanced by Mr and Mrs Banks.

Local Government Official Information and Meetings Act 1987 (LGOIMA)

[12] The minutes of a meeting of the Council on 13 June 2016 record a resolution to exclude the public from the meeting of the Council under s 48(1) of the LGOIMA in relation to three items of Council business. The third relates to Mr and Mrs Banks. The general subject matter to be considered is described as “recovery of court-awarded costs – D & C Banks”. The reason for passing the resolution in relation to this matter is given as “good reason to withhold exists under s 7”. The ground under s 48(1) of the Act for the passing of the resolution is cited as s

48(1)(a).

[13] The particular interest protected by s 7 of LGOIMA, which is recorded as being prejudiced by the holding of the whole or relevant part of the proceedings of the meeting in public, is said, in relation to Mr and Mrs Banks, to be “the withholding of the information is necessary to protect the privacy of natural persons, and to continue good faith negotiations”.

[14] Section 48 of LGOIMA sets out the bases on which a local authority may, by resolution, exclude the public from the whole or any part of the proceedings of a meeting of that authority. A resolution to exclude may only be passed on one or more of four stipulated grounds. The ground relied on by the Council is in paragraph (a). Paraphrased, it is that the public conduct of the whole or relevant part of the proceedings of the meeting would be likely to result in the disclosure of information, where good reason for withholding that information would exist under s 7 of the Act. One of the grounds in s 7, which itself provides for circumstances in which official information may be withheld, is that the withholding of the information is necessary to protect the privacy of natural persons.

[15] Mrs Banks argues, however, that in order to validly exclude the public from its meeting the Council was obliged to pass a resolution to deal with issues relating to them under s 48(1)(d), not s 48(1)(a), and that it acted incorrectly in relying on the latter paragraph. Section 48(1)(d) allows the Council to exclude the public where that is necessary to enable it to deliberate in private on its decision or recommendation in any proceedings to which the paragraph applies. Mrs Banks says that the proceedings between her, her husband and the Council are within this paragraph, and therefore the Council could only exclude the public on the basis it was necessary to do so to enable the Council to deliberate in private on a decision it was considering making in relation to the proceedings between them and the Council.

[16] This argument is flawed because by s 48(2), paragraph (d) applies to proceedings before a local authority, or proceedings of a local authority in relation to any application or objection under the Marine Farming Act 1971. The proceedings between Mr and Mrs Banks and the Council are not proceedings before the local authority, which includes such matters as applications for resource consent, and nor, of course, are they proceedings under the Marine Farming Act. Therefore, the Council was not able to resolve to exclude the public from the meeting while it considered the question of Mr and Mrs Banks’ unpaid costs under s 48(1)(d). The only paragraph of s 48(1) under which the Council could act was s 48(1)(a), and the Council resolved to act under that paragraph. Protection of the privacy of natural persons would have been sufficient reason (s 7(2)(a)) but the Council cannot be criticised for also relying on s 7(2)(c), (g) and (i), all of which applied. The last of these, enabling the local authority to carry on negotiations, is specifically referred to in the resolution.

[17] I find therefore that the resolution of the Council, taken in a public meeting, to exclude the public from the meeting while it considered recovery of court costs from Mr and Mrs Banks, was correctly made under s 48(1)(a), as a ground referred to in that section was applicable.

[18] Mrs Banks also said the resolution was flawed because it referred only to continuing good faith negotiations, and not to considering taking proceedings to

declare Mr and Mrs Banks bankrupt. Whilst the resolution of the Council could have made reference to such a step being in prospect, if indeed it was in prospect at the time that the resolution to exclude the public was passed, I am satisfied that the lack of reference to the prospect of taking that step does not adversely affect the resolution which the Council passed. The minute of the proceeding of the Council taken with the public excluded contains two resolutions. The first was a resolution to rescind an early resolution, which is not itself in evidence, but the decision to rescind was made “in order to show goodwill to Mr and Mrs Banks and to consider a further proposal”. It may be assumed, therefore, that the earlier resolution, which was revoked, was to the opposite or in any event a materially different effect; thus it shows a shift of position towards negotiating further. The second resolution confirmed the Council’s willingness to allow Mr and Mrs Banks to pay the balance then owing to the Council over a period of up to five years, on five specific conditions. The final part of this resolution is in the following terms:

In the event of Mr and Mrs Banks not accepting the above within a period of

7 days, Council commences bankruptcy proceedings without any further delay.

[19] I am satisfied that these resolutions were passed as part of the Council carrying on negotiations with Mr and Mrs Banks, albeit that it would seem by the time they were passed the Council was very near the end of the road with those negotiations. The resolutions were squarely within the terms of the resolution to exclude the public. Further, passing these resolutions at a meeting from which the public were excluded was a proper course of action for the Council to take as it would have protected the privacy of Mr and Mrs Banks.

[20] For these reasons I reject the argument of Mr and Mrs Banks that the Council did not take steps required of it by the LGOIMA. In particular I do not see any obligation on the Council to have made reference to the prospect of bankruptcy proceedings being initiated against Mr and Mrs Banks, in the Council’s resolution to exclude the public. The whole purpose of excluding the public from part of a meeting would be defeated if the resolution to do so was required to be so detailed that the privacy of those whom the Council seeks to protect would be compromised by the very resolution taken for the purpose of according that protection.

[21] Mrs Banks spoke at considerable length about the democratic processes which councils are required to follow. She made reference to various provisions in LGOIMA on which she relied in this respect. LGOIMA itself, however, balances those principles against protection of the rights of individuals not to have their private affairs discussed in public, and other circumstances in which the public should not be privy to information. I find nothing in the proceedings of the Council on which any valid criticism can be based.

Section 17 of the Insolvency Act 2006

[22] Section 17 provides that a debtor commits an act of bankruptcy in certain circumstances. It provides, to the extent presently relevant:

17 Failure to comply with bankruptcy notice

(1) A debtor commits an act of bankruptcy if—

(a) a creditor has obtained a final judgment or a final order against the debtor for any amount; and

(b) execution of the judgment or order has not been halted by a court; and

(c) the debtor has been served with a bankruptcy notice; and

(d) the debtor has not, within the time limit specified in subsection (4):

(i) complied with the requirements of the notice; or

(ii) satisfied the Court that he or she has a cross claim against the creditor.

[23] In the present case, the Council has obtained a final judgment against Mr and Mrs Banks, and execution of that judgment has not been halted by any court. Mr and Mrs Banks each have been served with a bankruptcy notice and, to date, they have not complied with those notices. They do not allege that they have a cross claim against the Council. Unless the notices are set aside, therefore, both Mr and Mrs Banks will have committed an act of bankruptcy. The time for compliance with

the notices is suspended until the decision of the Court on this application.⁸

[24] Section 29 of the Insolvency Act sets out the form of a bankruptcy notice. Section 29(1) provides:

⁸ High Court Rules, r 24.10 (1) – (2).

29 Form of bankruptcy notice

(1) The bankruptcy notice must –

(a) be in the prescribed form; and

(b) require the debtor, in relation to the judgment debt or the sum ordered to be paid under a final order, -

(i) to pay the amount owing, plus costs; or

(ii) to give security for the amount owing that satisfies the court or the creditor; or

(iii) to compromise the amount owing on terms that satisfy the court or the creditor; and

(c) state what are the consequences if the debtor does not comply with the notice; and

(d) be served on the debtor in the prescribed manner.

[25] Mr and Mrs Banks rely on the provision in s 29(1)(b)(iii). They ask the Court to approve the terms on which they propose that they could satisfy all their indebtedness to the Council pursuant to this paragraph. If that occurs, they argue, they will have complied with the requirements of the notice in terms of s 17(1)(d)(i) and they will not, therefore, have committed an act of bankruptcy.

[26] The proposal which Mr and Mrs Banks put forward for repayment not only of the debt on which the bankruptcy notice is based, but also their other indebtedness to the Council, a total of approximately $75,000, is in two parts:

(a) They would continue to pay the sum of $50 per week on account of the debt, as they did from 13 November 2015 to 6 May 2016, or a higher sum per week, but no more than $80 depending, as I understand it, on Mr Banks’ income. According to a schedule they produced, they have been paying $70 per week since 13 May 2016.

(b) A lump sum would be paid prior to 31 October 2019 to clear the debt.

This would be provided by “a close family member” who has evidently offered to pay the debt by securing a mortgage over that person’s freehold property in 2019, or applying a “future inheritance”, also through a close family member, or if neither of these eventuates, selling their own home. In this respect they regard 2019 as “a more advantageous time to sell”, given that they say there is a need to clarify

property rights prior to selling, and they need to sell “in consultation with” the Council in order to obtain the best possible price.

[27] Exactly what is meant by these last provisions is unclear. There is no evidence that in 2019 the property market in Greymouth will be better than it is now, nor why it is necessary to sell the property in consultation with the Council. Mr and Mrs Banks have a leasehold title to the property as the land is owned by the Council, this being the genesis of all the litigation between Mr and Mrs Banks and the Council to date. It is also unclear why there is any need to clarify Mr and Mrs Banks’ property rights because they are set out in the registered lease.

[28] The view of the Council is that this is not acceptable. A similar but materially different proposal would have been acceptable to the Council and is embodied in the Council’s resolution passed in the portion of the Council meeting on

13 June 2016 from which the public were excluded. The resolution is in the following terms:

1. Council confirms its willingness to allow Mr and Mrs Banks to pay the amount owing being $76,300.22 over a period of up to 5 years subject thereto that:

a. All monies paid by direct debit up to now be paid on the outstanding debt.

b. In addition to current rents and rates payable at any time throughout this period, they will pay an additional $80.00 per week as payment towards the outstanding debt.

c. The debt payment of $80.00 per week will increase by $5.00 per week at the anniversary of one year from the date of this arrangement being formally agreed and, thereafter yearly from the anniversary date.

d. Interest at 5% per annum will accrue on the outstanding balance calculated monthly.

e. The undertaking to, at the termination of the 5 year period pay the balance from other sources must be underwritten by means of either a bank guarantee or similar form of security to the satisfaction of the Corporate Services Manager.

2. In the event of Mr and Mrs Banks not accepting the above within a period of 7 days, Council commences Bankruptcy proceedings without any further delay.

[29] Mr and Mrs Banks did not accept this proposal. The principal reason was the requirement for interest at five per cent, and it seems they were not able to offer a form of security to the Council either.

[30] As at 31 August Mr and Mrs Banks owed the Council $75,650.22. The balance will have reduced since then because of subsequent weekly payments. For present purposes I assume a current liability of approximately $75,000.

[31] Interest of $75,000 per annum at five per cent would cost $3,750 per annum. Weekly payments of $70 amount to $3,640. Thus payments of $70 per week would approximately equate to the interest proposed by the Council. Only by making payments of $80 per week could Mr and Mrs Banks make any headway into the principal sum. I was not given a calculation to show the balance of the debt by October 2019 if interest were charged at five per cent per annum, on a monthly basis, and weekly payments of $80 per week were made, but it appears that by the date by which Mr and Mrs Banks say they would clear the debt from other sources, there would still be a debt in excess of $70,000 owing.

[32] Even if a full five year period were allowed to pass before clearance, as the Council proposed, the principal debt would only be reducing by a few hundred dollars per year and, on a rough calculation, it still would not have reduced to a figure below $70,000.

[33] As a result, the main source of repayment would come from whatever means Mr and Mrs Banks settled on at or before October 2019. The Council was not satisfied with the proposals made and required a form of security in the interim period, no doubt because the Council could then enforce that security if payment of the balance were not forthcoming from Mr and Mrs Banks.

[34] In FM Custodians Limited v McNally, the Court considered the approach to be taken in the circumstances of the present case.⁹ The Court said:

[9] The position that confronts the court is that the creditor does not approve. The court is being asked to approve and, in effect, to override the

decision of the creditor. It needs to be said at the outset that the court does not necessarily exercise a commercial judgment in these matters. Usually the court applies insolvency law, while leaving the parties themselves to make commercial judgments as to whether they should accept part-payment in satisfaction of debts. A starting point is an initial reluctance of the court to question the commercial judgment of a creditor or to override it. It may be that if the creditor were seen to be acting unconscionably or unreasonably or in a way that would not be consistent with any commercial judgment, that the court might step in to override the wishes of the creditor.

[10] ...

[11] The court’s function is simply to approve terms of payment. That does not mean that the court itself fixes terms of payment or imposes those terms of payment on the debtor. It is for the debtor to offer terms of payment, to see whether they meet the court’s approval. In this case, the terms are fairly loose – a general proposal to pay over five years without any programme of payment being provided or with any provisions as to what should happen if there is non-compliance.

[35] The principal points of difference between Mr and Mrs Banks’ proposal and the Council’s proposal, interest and security, are requirements which might usually be expected in an arrangement to clear a debt over a period of time. There is nothing in either of these requirements that could be described as inconsistent with commercial practice, or as having been specified by the Council with a lack of commercial judgment. Section 14 of the Local Government Act 2002 sets out certain principles relating to local authorities, one of which is that a local authority should undertake any commercial transactions in accordance with sound business practices. Other principles in this section support a similar approach to the way in

which a local authority is required to carry out its duties.¹⁰ Mrs Banks stressed the

obligation in s 14(1) which provides that a local authority should conduct its business in an open, transparent and democratically accountable manner, when presenting her submissions in relation to the resolutions of the Council which I have referred to earlier in this judgment. The principles enunciated in the subsequent paragraphs are of equal weight and importance.

[36] In my judgment it cannot be said that the Council has acted unconscionably or unreasonably or in a way which is inconsistent with commercial judgment. Rather, it has acted in accordance with the principles to which I have referred.

[37] I am not satisfied that the Court should impose on the Council a different view. The proposal made by Mr and Mrs Banks is, in my view, unsound. Even if interest were required at a lower rate than five per cent, or not at all, little headway would have been made into the core debt within the three year period proposed, and the suggested means of clearing the balance of the debt are not supported by any information which could satisfy the Court that there is a realistic prospect of one or other of those means of repayment coming to fruition.

Outcome

[38] The application by Mr and Mrs Banks is dismissed. The consequence is that they have each committed an act of bankruptcy. The Council is entitled to proceed with an application to adjudicate each of them bankrupt on the basis of those acts of bankruptcy.

[39] Mr and Mrs Banks will pay the Council costs on a 2B basis plus disbursements fixed by the Registrar.

J G Matthews

Associate Judge

Solicitors:

Simpson Grierson, Wellington.

Mr and Mrs Banks, self-represented.