Brambles New Zealand Limited t/a Chep New Zealand v Braid [2018] NZHC 1187 (24 May 2018)

Last Updated: 1 June 2018

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000472 [2018] NZHC 1187

UNDER	the Insolvency Act 2006
IN THE MATTER	of the bankruptcy of Peter Robert Braid
BETWEEN	BRAMBLES NEW ZEALAND LIMITED (trading as CHEP New Zealand Judgment Creditor
AND	PETER ROBERT BRAID Judgment Debtor

	CIV-2017-409-000473
UNDER	the Insolvency Act 2006
IN THE MATTER	of the bankruptcy of Margaret Ann Braid
BETWEEN	BRAMBLES NEW ZEALAND LIMITED (trading as CHEP New Zealand) Judgment Creditor
AND	MARGARET ANN BRAID Judgment Debtor

Hearing:	21 May 2018
Appearances:	S T Coupe for Judgment Creditor D G Dewar for Judgment Debtor
Judgment:	24 May 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

BRAMBLES NEW ZEALAND LTD (trading as CHEP New Zealand) v BRAID [2018] NZHC 1187 [24 May 2018]

[1] The judgment creditor (Brambles) applies for orders adjudicating the judgment debtors bankrupt. Judgment was entered in the District Court by default against Mr and Mrs Braid in a total sum of $107,236.87 on 30 May 2017. Judgment was also entered that day against their company, Braid Fine Foods Limited (BFF). The judgment debt remains owing. BFF was placed into liquidation on 14 December 2017. Brambles now applies for orders adjudicating Mr and Mrs Braid bankrupt.

[2] Neither Mr nor Mrs Braid has applied to the District Court to set aside the judgments entered against them. Nonetheless, on these applications they raise concerns about the original and ongoing claims by Brambles that they and BFF owe a debt to Brambles.

[3] Prior to the Christchurch earthquakes, BFF operated a business extracting protein from meat processing waste products, particularly chicken waste. From this it manufactured pet food. Its sources of supply were chicken processing companies in Christchurch.

[4] Due to damage caused by the Christchurch earthquakes BFF was unable to continue to operate. Mr Braid endeavoured to re-establish the business but as part of their own response to the earthquakes, BFF’s two principal suppliers of meat processing waste began to undertake their own processing, and BFF’s source of materials dried up.

[5] Mr Braid then endeavoured to recommence business processing venison and lamb waste. For this BFF needed various items of equipment, including suitable meat handling equipment. BFF entered a contract with Brambles to rent collection bins. Mr and Mrs Braid guaranteed BFF’s obligation to Brambles. Unfortunately, Mr Braid was unable to restore the business to profitable operation using new products, and BFF ceased trading in March 2014.

[6] Mr Braid says that he then took the rented storage bins back to the premises from which they had been taken, in two loads. The first load was dropped off at one property operated by the judgment creditor in Halswell Junction Road, and the second was dropped off at another property on that road. However, the yard staff at the
premises did not issue any documentation, and Mr Braid did not keep any records. He maintains that the bins were dropped off; Brambles’ position throughout has been that they were not. As a consequence it continued to charge hiring fees and eventually the cost of the bins, and this led to the judgments referred to.

[7] Both Mr and Mrs Braid oppose the making of orders adjudicating them bankrupt on the ground that it is not just and equitable that orders be made. They rely in part on their contention that they do not owe anything to Brambles for the reasons I have outlined, but also on two other factors. The first stems from a further effect of the Christchurch earthquakes. Evidently, before the earthquakes, Mr and Mrs Braid lived in a relatively new home, but it was substantially damaged in the earthquakes. EQC paid its contribution to their mortgagee, but as their mortgage was in default the mortgagee refused to re-advance the sum concerned so it was not available for repairs. Initial advice given via solicitors retained by Mr and Mrs Braid, and experts retained on their behalf by those solicitors, was that the home would need to be rebuilt. Later, that advice was amended. Repairs were carried out but it seems those repairs were unsatisfactory. Despite changing solicitors Mr and Mrs Braid were unable to achieve a resolution with their insurers which would result in full repair of the house, and eventually their case was discontinued. It seems that inability to draw on the funds paid out by EQC was a contributing factor to this. Whatever the position may be, the house is about to be sold by Mr and Mrs Braid’s mortgagee with a substantial shortfall, estimated to be between $400,000 and $500,000.

[8] The second further circumstance on which Mr and Mrs Braid rely is Mrs Braid’s health. Mrs Braid suffers from a serious and life-threatening illness, for which she undergoes treatment.

[9] Mr and Mrs Braid are 64 and 68 years of age, respectively. The consequence of the Christchurch earthquakes on them is that they lost their business, and therefore source of income, as well as their home. Mrs Braid now suffers from poor health, and does not work. She receives National Superannuation. Mr Braid is employed as a driver.

The law

[10] A number of principles are relevant to the circumstances of this case. First, on
7 May 2018 this Court issued a judgment in Nightingale v James in which I summarised the approach to be taken when faced with a submission that despite a bankruptcy proceeding being based on a final judgment of a court, it is contended that there is good reason to doubt the liability established by that judgment.¹ It is apposite to reproduce certain paragraphs from that judgment which summarise the position:

[5] Section 36 of the Insolvency Act 2006 provides that the Court may, at its discretion, adjudicate a debtor bankrupt if the creditor has established the requirements set out in s 13. These requirements are that the debtor owes the creditor $1,000 or more, the debtor has committed an act of bankruptcy within a period of three months before the filing of the application, the debt is a certain amount, and the debt is payable either immediately or at a date in the future that is certain.

[6] An act of bankruptcy is defined in s 17. It is committed if a creditor has obtained a final judgment or order against the debtor, execution of that judgment or order has not been halted, the debtor has been served with a bankruptcy notice, and the debtor has not within 10 working days (in the case of a debtor served in New Zealand) either complied with the notice or satisfied the Court that he or she has a cross claim against the creditor.

[7] From this it will be seen that, provided an act of bankruptcy has been committed, the Court has jurisdiction to make an adjudication order, but it also has a discretion not to do so. This discretion is amplified in s 37 which provides that the Court may, at its discretion, refuse to adjudicate a debtor bankrupt if the creditor has not established the requirements set out in s 13, or the debtor is able to pay his or her debts, or if it is just and equitable that an order is not made, or if for any other reason the Court finds that an order should not be made.

[8] Before making an order it is necessary for the Court to be satisfied that the debt on which the bankruptcy notice was based has not been paid. Rule

24.20 of the High Court Rules provides that a certificate by the applicant creditor’s solicitor to the effect that, after having made due enquiries, the solicitor is satisfied that the debt remains unpaid may be accepted by the Court as sufficient prima facie evidence that the debt does in fact remain unpaid.

[9] During the course of hearing applications for adjudication, the Court is frequently informed of a challenge, by a debtor, to the underlying judgment on which the procedure is based. When a submission to this effect is made, the Court enquires from the debtor whether an appeal against the underlying judgment has been filed, or whether an application to set aside the judgment has been made. If neither of these steps has been taken and the debt remains paid, it is the usual practice of the Court either to adjourn the application to allow the underlying judgment to be challenged by way of appeal or application for rehearing, or to proceed to adjudication depending on the facts

¹ Nightingale v James [2018] NZHC 965.

presented to the Court at the time. Generally the Court does not investigate whether the underlying judgment is sound, that being a matter which has already been finally determined between the debtor and the creditor. A decision on how to proceed is made by way of exercise of the discretion given to the Court in ss 36 and 37.² Section 42(2) of the Insolvency Act provides that if a debtor has appealed against a judgment or order underlying the bankruptcy notice and the appeal is still to be decided then the Court may halt the application for adjudication, or refuse it.

[11] The Court then examined authority in Australia which has culminated in Ramsay Healthcare Australia Pty Ltd v Compton.³ In this case the High Court of Australia examined the circumstances in which the courts in that country will look behind the underlying judgment. In Nightingale I concluded that this Court is not required to take, and does not take, the same approach as in Australia. I summarise the position thus:⁴

The New Zealand legislative framework enables the Court to consider issues raised in relation to an underlying judgment and, if those issues are found to be of sufficient concern, to exercise its discretion accordingly. If a Court is not satisfied that it can form a firm view, it can afford time to a judgment debtor to take the matter up by way of an application for rehearing or appeal, as the case may be. But, because of the differences between the legislative provisions in Australia and New Zealand, this Court will not take the next step predicated in Ramsay and investigate the underlying judgment in the course of considering an application for adjudication. It will not embark upon an exercise akin to a retrial of the case which gave rise to the underlying judgment. Similarly, it will not engage in a process akin to an appeal. It will look at the underlying judgment to the extent that it needs to do so in order to assess the validity of a challenge to that judgment made by a judgment debtor. Then it will make a decision on whether to allow time for reconsideration of the judgment elsewhere, or to dismiss the application, or to proceed to adjudication. Beyond that it is not in my view necessary to lay down any more rigid basis on which the Court should approach this issue.

[12] Secondly, I refer to authorities on the exercise of a discretion not to adjudicate bankrupt. Because this is a discretionary issue counsel for both Brambles and for Mr and Mrs Braid were able to direct the Court’s attention to cases which supported their position. It is trite to say that cases on this point generally turn on their own facts, and are of limited assistance in later cases. There is, however, authority for the proposition that when a bankruptcy application is based on a judgment on a personal

2. Factors to be considered are summarised in Re Rabobank Australia Ltd ex parte Tootell [2013] NZHC 2975 and Re Epirosa HC Wellington B498/91 and B832/91, 6 March 1992. The list of factors identified in these cases is not exhaustive.

³ Ramsay Healthcare Australia Pty Ltd v Compton [2017] HCA 28, (2017) 345 ALR 534.

⁴ Nightingale v James, above n 1, at [22].

guarantee the Court should be particularly conscious of the commercial morality of ensuring that liability under guarantees is upheld. Such an approach meets the broader public interest of ensuring that those who give guarantees are held accountable for the commitment they have entered, and on which creditors who give credit rely in deciding to do so. Examples include Re Rossall ex parte Auckland Finance Ltd,⁵ and Trustees Executors Ltd v Cary.⁶

[13] Thirdly, the likelihood that in a bankruptcy there will be few assets, if any, available for distribution to unsecured creditors is not in itself a reason for declining to adjudicate, though it is a matter to be taken into account in the exercise of the Court’s discretion.⁷

[14] Fourthly, in some circumstances the Court will take into account economic circumstances which led to the failure of the debtor to pay monies owing to the creditor. This was recognised by Thomas J in Re Taylor, a case brought after the downturn in the New Zealand economy following the share market crash of the late 1980s. His Honour summarised the position as he saw it:⁸

It may well be that in the more buoyant economic times which have preceded the current recession, debtors who default in their obligations could expect to be adjudicated bankrupt. But in the harsher economic clime which now prevails, a person may find him or herself insolvent through no fault or foible of their own. In such circumstances bankruptcy need not follow as a matter of course. The Court in the exercise of its discretion may decline the “remedy”, certainly in the absence of a public interest factor which might otherwise warrant an adjudication of bankruptcy ...

Moreover it is difficult to perceive any public interest element which would be served by making Mr Taylor bankrupt ... To make Mr Taylor bankrupt would be purely punitive and serve no practical or useful purpose. To my mind sufficient cause exists for no order of adjudication to be made.

[15] This decision was approved by the Court of Appeal in Cribb v Evia Rural Finance Ltd.⁹

⁵ Rossall v Auckland Finance Ltd HC Auckland CIV-2002-404-580, 30 April 2004 at [40].

⁶ Trustees Executors Ltd v Cary HC Auckland CIV-2011-404-1461, 12 September 2011 at [52].

⁷ Re Fidow [1989] NZHC 298; [1989] 2 NZLR 431.

⁸ Re Taylor [1992] 4 NZBLC 102,875, at 102,878.

⁹ Cribb v Evia Rural Finance Ltd [2014] NZCA 543.

Discussion

[16] In my opinion, a number of factors must be weighed in arriving at a decision on these applications. The first is that the applications are based on judgments of the District Court which are final and binding. They are not, and have not been, the subject of appeals. No applications were made to set them aside. As a matter of basic principle Brambles is entitled to pursue the judgment debtors by an application for adjudication in bankruptcy. No criticism can be levelled at Brambles for electing to take this course.

[17] Mr Dewar explained the decision not to apply to set aside the judgments in practical terms. Although Mr and Mrs Braid deny any liability for the value of the items rented by BFF, and the rent which accrued after the time when they maintain they returned them, they accept that BFF would in any event have owed a sum of around $9,000 for rent which had accrued prior to this point, and which it had not paid. Mr and Mrs Braid accept that they are responsible for this sum, but as their financial circumstances would not have allowed them to pay this undisputed amount, they took the view that nothing was to be gained in a practical sense by applying to set aside the judgment. They would still have been left with a liability they could not meet.

[18] The second point to record is that on the principle summarised in Nightingale v James, the Court will not look behind the District Court judgment on this application.¹⁰ It will not embark on an exercise akin to a retrial, nor review the judgment in a manner akin to an appeal. This seems to have been recognised by Mr and Mrs Braid’s counsel, who responsibly did not put before the Court any argument that the Court should do other than merely note his client’s genuine belief that the greater part of the debt is not owing because the bins were returned. I am not prepared to look beyond the judgment of the District Court and give any weight to Mr and Mrs Braid’s questioning of their liability for the greater part of the debt.

[19] I acknowledge the principle that the Court must recognise the need to ensure that guarantees are appropriately enforced, as a matter of commercial morality. As Master Kennedy-Grant put it in Re D’Esposito, ex parte Westpac Banking Corp:¹¹

¹⁰ Nightingale v James, above n 1.

¹¹ Re D’Esposito, ex parte Westpac Banking Corp HC Napier B16/98, 30 June 1998 at [19].

I have had occasion to comment before on the fact that the giving of personal guarantees is an integral part of the financing of business. Failure to honour personal guarantees can have serious consequences for the creditors to whom they have been given. The general expectation among the business community and on the part of those who finance business must be that guarantees, if given, will be able to be honoured, that the guarantors have assets against which the persons to whom the guarantees are given may proceed if the guarantees are not honoured.

[20] This principle, however, does not create a presumption that where an application for adjudication is based on a debt as a guarantor, bankruptcy should generally follow. The basis of the debt and the need of the Court to recognise the importance of upholding the responsibility of guarantors is one factor to be taken into account in the overall assessment of how the Court’s discretion should be exercised, albeit one of considerable significance.

[21] In the present case that significance is less than it might be in other circumstances. The guarantees were given as part of an attempt by Mr Braid to resuscitate the business of BFF after it was obliterated by the Christchurch earthquakes. With hindsight it is clear that this was misguided, as the different focus for the business which Mr Braid envisaged would be successful turned out not to be. There is no material before the Court on which the Court can undertake a review of the business case which might have been made out at the time for such a move, nor is it necessary that there should be. Mr Braid did not have the benefit of hindsight. He and his wife had lost their business and, of particular importance, their income. As well, his suppliers of products had now set up in opposition, in effect, by processing their own by-products for protein extraction. Mr and Mrs Braid needed income; amongst other matters they plainly had significant borrowing to service. BFF had expertise in protein extraction. This does not seem to be a case where foolish or rash decisions were made. Whilst the decisions of Mr and Mrs Braid to give guarantees were made under pressure, that pressure was not of their own making. The Court cannot form the view, in my judgment, that there is an element of commercial immorality in the steps they took. Rather, it was a business decision on the part of each of them which appeared to be soundly based but which, in the event, was not, due to altered market circumstances since the earlier interruption to their business caused by matters beyond their control.
[22] As can be seen from the judgment in Re Taylor the Court will recognise changed economic circumstances beyond a debtor’s control when considering the exercise of its discretion. The effect on BFF of the Christchurch earthquake sequence was unforeseen, unforeseeable, sudden and dire. Mr and Mrs Braid went from having a business one morning, with an attendant source of income, to having neither that afternoon. Whilst this did not, of itself, result in guarantees of prior indebtedness being called up, it did lead to an immediate need to take ameliorating steps to service those debts or face abrupt financial collapse. In the end that occurred in any event, but whilst the earthquakes were not the immediate cause of that, they led directly to the failure of BFF and thus the calling up of these guarantees.

[23] In recognising the need to take into account a change in economic circumstances, Thomas J also considered whether there was a contrary public interest factor which would nonetheless warrant adjudication in bankruptcy. I am unable to identify any such interest in this case, beyond the general principle that adjudication in bankruptcy is the normal consequence of failure to pay judgment debts, and the need, particularly with guarantees, to uphold commercial morality, as I have discussed. For the reasons given, I find only limited weight need be given to those factors in this case. I am satisfied that neither Mr Braid nor Mrs Braid has any assets from which debt can be satisfied. Whilst not determinative of an application for bankruptcy, this is a factor to be taken into account. Mr and Mrs Braid operated a trust which owned their house, but that trust is without assets. I accept Mr Dewar’s advice, updating information in his clients’ affidavits, that the house is about to be sold and the present shortfall in payment to its mortgagees is expected to be $400,000 and $500,000. Nothing in the evidence suggests an independent review of Mr and Mrs Braid’s finances is warranted. In my view, nothing would be achieved, in terms of a return to creditors, by adjudicating either Mr or Mrs Braid bankrupt.

[24] A further factor I take into account is Mrs Braid’s age and ill-health. So far as she is concerned adjudication in bankruptcy would achieve nothing and in my judgment would be unduly punitive. Mr Braid is some years younger and does not have poor health. These factors, therefore, are absent in my consideration of the application to adjudicate him bankrupt. My assessment, though, is still that nothing would be gained from adjudicating him bankrupt. I have not overlooked the fact that
from time to time he has written emails to personnel of Brambles in regrettably abusive terms. As is almost invariably the case when such a course is followed it was probably unwise to do this, but I do not think this is a factor which should sway the Court in favour of Brambles on this application. The Court is conscious of the stress on Mr and Mrs Braid of their financial collapse including loss of their business, failure to build up a new business, significant difficulties with their insurance claim with an unfavourable outcome, and imminent loss of their home at a time in life when they have little if any prospect of any level of financial recovery. To this must be added the very serious health issues that Mrs Braid faces, and which necessarily involve Mr Braid also.

[25] Taking into account all factors put before the Court I find this is a case where the Court should decline to adjudicate either Mr Braid or Mrs Braid bankrupt.

Outcome

[26] Each application is dismissed.

[27] I did not hear counsel on costs. Mr and Mrs Braid have been successful. In ordinary circumstances costs would follow the event. There may be other circumstances which the Court should take into account, however, when assessing costs. I invite counsel to discuss the position and if agreement is not reached memoranda may be filed within seven working days. These should be limited to three pages each.





J G Matthews Associate Judge

Solicitors:

Bell Gully, Auckland

Thomas Dewar Sziranyi Letts, Lower Hutt