Konishi v Jin [2016] NZHC 2702 (11 November 2016)

Last Updated: 14 December 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-992 [2016] NZHC 2702

IN THE MATTER	of the Insolvency Act 2006
AND	of the bankruptcy of RUJING JIN
BETWEEN	YASUKI KONISHI AND MAKIKO KONISHI Judgment Creditors
AND	RUJING JIN Judgment Debtor

Hearing:	20 October 2016
Appearances:	Mr D B Hickson for Judgment Creditors Mr Y Lee for Judgment Debtor
Judgment:	11 November 2016

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

11.11.16 at 3.30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

KONISHI & ANOR v JIN [2016] NZHC 2702 [11 November 2016]

[1] Ms Jin (the judgment debtor) was served with a bankruptcy notice which was issued by Mr and Mrs Konishi (the judgment creditors). The bankruptcy notice seeks to enforce costs orders that have been made in the course of a disastrous series of cases between these two parties.

[2] Specifically, the bankruptcy notice which was filed in the High Court on 12

May 2016 required the judgment debtor to pay the sum of $8,358 on a final judgment that the judgment creditors obtained against her in the High Court at Auckland on 23 July 2013.

[3] The effect of the bankruptcy notice was that the judgment debtor was informed that unless she paid the amount specified in the bankruptcy notice, she would be deemed to have committed an act of bankruptcy.

Background

[4] The original dispute arose out of an attempted sale of a residential property in Auckland by the judgment debtor. A dispute broke out over the fact that the property was cross-leased and the judgment creditors declined to settle. They considered that they were entitled to a freehold title to the property. The judgment creditors had paid a deposit of $30,000. They sought to recover the money from the judgment debtor in proceedings which they commenced in the District Court but were ultimately unsuccessful.

[5] The full history of the proceeding does not need to be set out in detail here. It is summarised in a judgment that Gilbert J gave on 28 May 2014:¹

[6] The respondents, Mr and Mrs Konishi, entered into an agreement in July 2010, to purchase a new house in Auckland from the first appellant, Ms Jin. The agreement was in the form approved by the Auckland District Law Society (Eighth Edition). Mr and Mrs Konishi paid a deposit of $30,000 which is held by the real estate agent as stakeholder. The balance of the purchase price was to be paid on settlement, following issue of a new title.

[7] The agreement contained a term requiring Ms Jin to remedy any defects or other faults notified by Mr and Mrs Konishi during the maintenance period, being 90 days from settlement.

¹ Jin v Konishi [2014] NZHC 1150, (2014) 22 PRNZ 133.

[8] The agreement did not settle. In January 2011, Mr and Mrs Konishi purported to avoid the agreement on the basis that Ms Jin had not complied with her obligations under the maintenance clause. They relied on cl 8.7(5) of the standard terms and conditions of the agreement which enables either party to cancel an agreement which is subject to a condition that is not fulfilled or waived prior to the due date. This clause has no application in the present case because the maintenance covenant is not a condition covered by cl 8.

[9] Mr and Mrs Konishi filed a notice of claim against Ms Jin in the District Court at North Shore in February 2011 seeking a declaration that they had validly avoided the agreement relying on cl 8.7(5). They sought an order for return of their deposit with interest. They also sought $5,214.38 being the rent they had paid on the property they were living in and further rent from the date of issue of proceedings to the date of judgment at the rate of $2,607.14 per month. No basis for the rent claim was identified.

[10] A new title to the property [was] issued on 28 March 2011. Notice of this was given to Mr and Mrs Konishi’s solicitors on 11 April 2011. They responded by requisitioning the removal of the cross-lease instruments and associated memorials on the basis that the agreement was for a freehold title. Ms Jin did not comply with this requisition and accordingly, on 21 April

2011, Mr and Mrs Konishi’s solicitors cancelled the agreement pursuant to cl

5.2(3)(c).

[11] Ms Jin accepts that this cancellation was effective and does not oppose the return of the deposit. Mr and Mrs Konishi recognise that they have no entitlement to rent and they have abandoned this part of their claim. The result is that all parties agree that the real estate agent should refund the deposit, with interest. However, this has not yet happened because the parties are locked in battle over the issue of costs. This is the only issue that divides them and that has been the case for over two year.

[12] In summary, this is a straightforward case involving a very modest sum. In the normal course, one would expect a dispute of this nature to be resolved promptly and efficiently. The opposite has occurred in this case. Despite there being no dispute that Mr and Mrs Konishi are entitled to the return of their deposit, but not rent, the proceedings have an extraordinary history.

[13] In August 2012, Ms Jin sought judicial review of six procedural orders made by various judges in the District Court. That application was dismissed by Wylie J on 19 February 2013. His Honour subsequently ordered Ms Jin to pay indemnity costs for those proceedings.

[14] On 30 April 2013, Judge M-E Sharp struck out Ms Jin’s defence

because of non-compliance with ‘unless’ orders made on 14 August and 19

December 2012.

[15] On 10 October 2013, the Court of Appeal dismissed Ms Jin’s appeal against Wylie J’s two judgments and ordered Ms Jin to pay indemnity costs on the appeal. The Supreme Court dismissed Ms Jin’s application for leave to appeal against this judgment.

[16] On 31 October 2013, after the Court of Appeal had released its

decision, Ms Jin applied to set aside Judge Sharp’s orders made on 30 April

2013 debarring her from defending the proceeding. That application was plainly misconceived and Judge Sharp dismissed it in a judgment delivered on 9 December 2013. The Judge made an order requiring Mr Lee personally to pay indemnity costs on the application. It is from this judgment that the appellants now appeal.

[6] The cost judgment at the centre of the current proceedings was made by Wylie J following an unsuccessful application by the judgment debtor for interim relief under s 8 of the Judicature Act 1908. The decisions which Wylie J gave on the costs issues in the review proceedings before whom were not upset on appeal to the Court of Appeal when it issued judgement in the matter on 3 October 2013.

[7] An application to recall the decision (including, it would seem, the judgment regarding costs) was dismissed by Venning J on 11 October 2016.

Grounds for application

[8] The grounds upon which the applicant seeks the order setting aside the bankruptcy notice are stated in the application as follows:

1. That she has a cross claim which equals or exceeds the amount of the judgment debt, and which she could not set up in the action in which the judgment was obtained;

2. That at the time of the award of the judgment debt, counsel for the judgment creditors failed to draw to the attention of the Court that they had abandoned all substantive cause of action against the judgment debtor. They misled the Court asserting they required to call up to 5 witnesses where none was required at law. As such the judgment debt was fraudulently or improperly obtained.

3. That the judgment debtor had applied for the recall of the judgment, if granted would mean the judgment debt would be rescinded for been improperly obtained.

4. That this Honourable Court exercises its inherent jurisdiction to avert a catastrophe and gross miscarriage of justice.

[9] The grounds of the application state that the applicant has a “cross-claim” which equals or exceeds the amount of the judgment debt. There was no evidence supporting that ground. The sole ground which was the subject of evidence was the ground that the judgment debtor had good reason for seeking the recall of the various judgments issued by Wylie J.

Discussion

[10] There are two grounds upon which the bankruptcy notice is attacked. I will deal with each in turn.

Possibility of costs order under pending judicial review proceeding

[11] The case which the judgment debtor first puts forward is that she has, as recently as the day before the hearing of this application, filed a further application for judicial review in the High Court (“the 2016 judicial review proceeding”) which attacks a number of determinations made by the District Court of an interlocutory or case management nature. As I understand it, her submission is that the significance of some of these decisions is not apparent when they are considered as stand-alone decisions but, it is said, there are inconsistencies between some of the decisions that were made in the District Court and this is a ground for review.

[12] Mr Lee identified the individual decisions for me as follows and I summarise their provisions as follows:

(a) On 17 and 28 September 2012, Judge Hinton issued minutes vacating a trial fixture that had been made in the District Court and directing that a judicial settlement conference take place.

(b) Notwithstanding the directions that Judge Hinton gave, the proceeding was apparently listed for call over on 4 December 2012. I surmise (because the point is not made clear in the statement of claim that I have seen in draft) that the judgment debtor claims that she did not attend this call over personally or through counsel. A costs order was made against her for non-attendance. The judgment debtor applied for the recall of that decision but no decision has ever been forthcoming from the District Court.

(c) On 30 April 2013, Judge Sharp granted the judgment creditors leave to further amend their defective claim (so described in the 2016 judicial review proceeding statement of claim) and then struck out the

defence before the amended claim was filed and before the judgment debtor was able to exercise her right to file an amended response under r 2.38A.7 of the District Court Rules 2009.

(d) On 14 August 2013, Judge Mathers part-heard the formal proof hearing.² The Judge called for submissions from the judgment creditors on legal points that had been made by the judgment debtor at some point during the proceedings, such as the submission that there was no jurisdiction to grant a declaration. This ground then continues by stating that “Judge Sharp took over the second and final part-heard formal proof hearings on 10 December 2014 and 10 February 2015.”

(e) On 9 December 2013, Judge Sharp debarred the judgment debtor from taking part in the proceedings until outstanding costs had been paid.

[13] Mr Lee told me that my task was to put myself in the shoes of the Judge hearing the judicial review proceeding and to make an assessment of whether or not it was likely to proceed. When I had completed that task, it was apparently his argument, I would be of the view that the judicial review proceedings would succeed. It could therefore be surmised that the judgment debtor would have an order of costs made in her favour.

[14] I reject those submissions. The process that it was suggested I follow would involve nothing less than speculation. More importantly, though, there is no counterclaim set-off or cross demand currently in existence which could be the basis for the relief sought on the application to set aside the bankruptcy notice.

[15] In case I have misunderstood the argument which the judgment debtor puts forward, I should also briefly consider whether the judicial review proceedings would serve any useful purpose.

[16] The statement of claim seeks first of all, a declaration that the District Court lacked jurisdiction to hear the prayer for a declaration and that therefore the

2. It was the subject of a formal proof hearing because the statement of defence of the judgment debtor had been struck out for non-compliance with an unless order.

defendants had no standing to bring the claim for a declaration in the District Court. It would seem to be unlikely that any such remedy would be available on judicial review because the point was actually decided in favour of the judgment debtor in the District Court.³

[17] Next the judgment debtor seeks in the 2016 judicial review proceedings a declaration that:

... all the decisions of the District Court were Moot, fundamentally flawed

and invalid, apart from the two minutes of Judge Hinton issued on 17 and 28

September 2012.

[18] However, even if the case management/interlocutory decisions which I have set out above could be successfully attacked, it seems unlikely that the result would be that the entire substantive decision made in the District Court⁴ would be set aside. How the argument would work in detail was not explained to me. I certainly could not come to even a tentative view that the judgment debtor was likely to overall enjoy success on the judicial review application and that therefore costs orders

would follow.

Set-off considerations

[19] The act of bankruptcy which is relied upon in this case is the failure on the part of the judgment debtor to pay costs of $8358 which were awarded by Wylie J at the time when he dismissed the application for interim relief. That cost order remains in place and an application to “recall” the underlying order which Wylie J made has been dismissed.

[20] Nonetheless, it would be open to the judgment debtor to demonstrate at the substantive bankruptcy hearing, if one should follow, that the judgment creditors were no longer creditors of the judgment debtor. That might come about, for example, if the 2016 judicial review proceeding bore fruit and resulted in the review of any costs in the District Court relevant to the orders that in theory could be set aside on review, and also any party and party costs that the High Court might order

_{in favour of the judgment debtor as the successful party.}

³ _{Refer judgment of Jin v Konishi [2015] NZHC 2417 at [20] per Woodhouse J.}

⁴ That is the decision of Judge Sharp dismissing the plaintiff ’s proceeding but awarding costs.

[21] However at the present time, there is no set-off available to the judgment debtor and therefore no ground for setting aside the bankruptcy notice.

Concluding comments

[22] At the hearing before me, Mr Lee was very anxious to raise the entire merits of the litigation in the District Court and the costs orders that were made in that court. It did not seem to me that there would be any profit in the court engaging in that discussion. As it was pointed out to Mr Lee, Woodhouse J in the course of his judgment on costs in the District Court closely examined the merits of the overall litigation as he saw it.

[23] Two costs decisions were before the court. One was for the overall costs of the District Court proceeding which Woodhouse J called the “proceeding costs”. The judgment debtor applied for these costs as did the judgment creditors who were the plaintiffs in the proceedings but the District Court made orders in favour of neither party in regard to the proceeding costs.

[24] The second costs decision was an order that the judgment debtor pay indemnity costs in respect of an application brought by her to set aside a striking out decision. The District Court Judge eventually made an order that the judgment debtor pay indemnity costs in regard to that matter.

[25] So far as the proceedings costs were concerned, Woodhouse J determined that instead of there being no costs order in favour of either party, there should be a modest costs award to the judgment debtor, which he made. In relation to the strikeout application, the indemnity costs order which was made against the judgment debtor in the District Court was set aside and no other order was made.

[26] These orders are now beyond review. Referring to the merits of the case against the judgment debtor cannot change that situation. The fact is that the only costs order that the judgment debtor could ever conceivably obtain would be an order as the successful applicant in the 2016 judicial review proceedings.

[27] There is no basis for the application to set aside the bankruptcy notice and it

_{will be dismissed.}

J.P. Doogue

Associate Judge