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High Court of New Zealand Decisions |
Last Updated: 3 September 2018
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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
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CIV-2018-409-000244
[2018] NZHC 2210 |
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IN THE MATTER
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of the Insolvency Act 2006
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AND
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IN THE MATTER
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of the bankruptcy of JOHN BRIAN KIPPING
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BETWEEN
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GERALD ERRINGTON SHARROCK
Judgment Creditor
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AND
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JOHN BRIAN KIPPING
Judgment Debtor
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Hearing:
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19 July 2018
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Appearances:
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J B Kipping (Debtor/Applicant) in person R B Hucker for
Creditor/Respondent
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Judgment:
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27 August 2018
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JUDGMENT OF ASSOCIATE JUDGE OSBORNE
(application to set aside bankruptcy notice)
[1] John Kipping owes a judgment debt of $22,681 to Gerald Sharrock.
[2] The judgment debt represents the costs and disbursements awarded by the High Court following Mr Sharrock’s successful summary judgment application.1
1 Sharrock v Wedd [2017] NZHC 1739.
SHARROCK v KIPPING [2018] NZHC 2210 [27 August 2018]
[3] The Court made its determination of the costs and disbursements payable by Mr Kipping on 5 April 2018.2
Mr Kipping’s application
[4] Mr Sharrock had a bankruptcy notice issued for the judgment debt on 27 April 2018. It had to be served by substituted service.
[5] Mr Kipping applies for the bankruptcy notice to be set aside.
Setting aside a bankruptcy notice – the principles
[6] Section 17(1) of the Insolvency Act 2006 establishes a number of acts of bankruptcy. Among them, s 17(1)(d) involves non-compliance with a bankruptcy notice. It provides, as an alternative to compliance with the requirements of the notice, that the debtor may satisfy the Court that he or she has a cross-claim against the creditor.
[7] Section 17(7) defines what may constitute a cross-claim for the purposes of s 17(1)(d). It provides:
17 Failure to comply with bankruptcy notice
...
(7) In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that-
(a) is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and
(b) the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.
[8] I adopt the following principles in determining whether I am satisfied that, in terms of s 17(1)(d)(ii) of the Act, the debtor has a cross-claim against the creditor:
2 Sharrock v Wedd [2018] NZHC 603.
(7) The debtor must show they have a genuine triable claim against the creditor.3
(8) The debtor’s inability to use the cross-claim as a defence (required under s 17(7)(b)) is primarily a legal inability. Factual inability is also available but that requires some cogent circumstance.4 Notwithstanding that the creditor’s original claim is pursued through a summary proceeding, it is open to the defendant in such a proceeding to set up a cross-claim.5
(9) To establish the required value under s 17(7)(a) the debtor must establish (including where a claim may be for unliquidated damages) a genuine, triable claim at least to a sufficient extent in monetary terms to bring it somewhere near the equality or excess required under the sub-section.6
The status of the judgment debt
[9] The Court has powers, including by halting a bankruptcy proceeding, to respond to situations in which the judgment leading to or creating the judgment debt is the subject of an appeal genuinely pursued.
[10] In his application for an order setting aside the bankruptcy notice, Mr Kipping relied in part on the fact that he had an appeal scheduled for hearing before the Court of Appeal on 16 July 2018 (the appeal). As he put it, the substantive matter was due to be heard in the Court of Appeal, which could render any costs order moot or nugatory.
[11] The Court of Appeal subsequently heard and determined the appeal.7 The judgment in Kipping v Sharrock indicates that the matter before the Court of Appeal
5 Sharma v ANZ Banking Group, above n 3, at 389.
6 Sharma v ANZ Banking Group, above n 3, at 390.
7 Kipping v Sharrock [2018] NZCA 289 (“the Court of Appeal judgment”).
was Mr Kipping’s application for an extension of time to file a case on appeal and to seek allocation of a fixture.8
[12] In accordance with authority, the Court of Appeal did not treat the merits of Mr Kipping’s proposed appeal as relevant.9
[13] The Court of Appeal did consider the purpose of the appeal, holding that an appeal concerning a judgment relating to the directorate and shareholding of Affordable Residential was moot given the liquidation of that company.10
[14] The Court of Appeal then explained why it rejected an assertion by Mr Kipping that a successful appeal would benefit him:11
Mr Kipping’s response was that Affordable Residential may have a significant claim against another party and substantial funds could become available for disbursement on a liquidation. However, the flaw in that contention is that, even if that eventuality occurred, Mr Kipping makes no claim to being a shareholder in Affordable Residential and hence could have no interest in that outcome, a point which he appeared to accept in his notes dated 13 July 2018.
[15] The Court of Appeal then identified from Mr Kipping’s materials and submissions that the primary purpose of the proposed appeal was in fact to resist the award of the costs.12
[16] The Court of Appeal then made observations as to the costs judgment (notwithstanding that Mr Kipping had not made an application in relation to it):13
...We have considered whether it would be appropriate to treat the notice of appeal as extending to the costs judgment but we have concluded that that would not be appropriate in the circumstances.
[15] As we explained to Mr Kipping, his primary point in reliance on the Joint Action Funding case was misconceived. That case concerned the situation of a lawyer-litigant who represented himself. However Mr Sharrock was represented by counsel at the hearing before Associate Judge Smith and consequently the finding in Joint Action Funding has no application to him merely because he happens to be both a litigant and a lawyer.
8 Under r 43(2) Court of Appeal (Civil) Rules 2005.
9 The Court of Appeal judgment at [12].
10 The Court of Appeal judgment at [13].
11 The Court of Appeal judgment at [13].
12 The Court of Appeal judgment at [14].
13 The Court of Appeal judgment at [14] – [17].
[16] There would appear to be no error in the costs judgment so far as the award of costs was made on a 2B basis. While we express no opinion on the point, it may be that Mr Kipping could take objection to the 10 per cent uplift. However, we heard no argument on that proposition. Consequently, if Mr Kipping wished to challenge that aspect of the costs order (which could involve no more than $1,784.00) then it would be necessary for him to apply for an extension of time under r 29A of the Rules to file an appeal against the costs judgment.
[17] Our comments on the issue of costs should not be taken by Mr Kipping as implicit encouragement to pursue a further appeal. However, as he is a litigant in person and as we have commented unfavourably in this judgment on his costs contention in reliance on the Joint Action Funding case, we felt it appropriate to explain why this judgment cannot address other grounds of concern which he may have about the costs award.14
[17] Accordingly, the judgment debt (for costs) stands unaffected.
Grounds of Mr Kipping’s application
[18] At the conclusion of his notice of application, Mr Kipping (having set out what might be described as 19 particulars) summarised his grounds of application:
For the above reasons it is submitted that this matter should be at least adjourned or stayed until after the decision from the Court of Appeal, otherwise there is a risk of a substantial miscarriage of justice. The application is made in reliance on
(lawyer-litigant exception no longer applies).
[19] I will discuss these grounds under three heads, namely the existence of a set- off; the challenge to the substantive and costs judgments; and natural justice.
14 The Court of Appeal was referring to Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249, [2018] 2 NZLR 70, in which the Court held that a party who was both litigant and lawyer was not entitled to a costs award.
The existence of a set-off
Mr Kipping’s assertion of a set-off
[20] Mr Kipping asserts that he has a set-off against Mr Sharrock which should lead the Court to order that the bankruptcy notice be set aside. To put that claim in context, it is necessary to refer to the background and, in particular, the events by which there was contact between Mr Sharrock and Mr Kipping. The background is helpfully summarised in the recent Court of Appeal judgment:
[2] On 22 February 2013 Mr Sharrock, Affordable Residential Ltd (Affordable Residential), Just Steel Framing Ltd (Just Steel) and Mr Wedd (at the time the sole shareholder in both companies) entered into a deed under which Mr Sharrock was to acquire 50 per cent of the shares in both companies. The circumstances giving rise to the execution of the deed are recorded in an earlier judgment of Associate Judge Smith.15 Mr Kipping was not a party to the deed. His interest in the matter appears to have arisen from his sale of a steel framing machine to Mr Wedd for use by Just Steel.
[3] A dispute arose concerning the performance of various obligations under the deed. While Mr Sharrock claimed that he had paid the full amounts required of him and that Mr Wedd was removed as a director and shareholder of the companies on 12 April 2013, Mr Wedd and Mr Kipping disagreed, contending that Mr Wedd was wrongfully ousted from Affordable Residential and Just Steel and that Mr Sharrock had no rights in either company.
[4] The events which prompted Mr Sharrock’s claim culminating in the judgment against Mr Kipping are recorded in the following paragraphs of the judgment sought to be appealed:16
[22] On 22 July 2016, Mr Josland, a solicitor for the Registrar of Companies, advised Mr Sharrock that the Registrar intended to provide notice to Affordable of the Registrar’s intention to rectify the Companies Register to show Mr Sharrock’s shareholding in Affordable.
[23] On or about 1 August 2016 Mr Wedd and/or Mr Kipping lodged a “Consent and certificate of Director” document with the Companies Office. The document recorded that Mr Kipping had been appointed as a director of Affordable on 20 July 2016. It also recorded that Mr Kipping had granted his consent to be a director of Affordable and was not disqualified from being appointed or holding office as a director. The document was signed on 30 July 2016. The form records it was “completed by” Mr Wedd. A “Particulars of Director” document was also filed, recording Mr Wedd as the “Presenter” and Mr Kipping as a “New Director” appointed on 20 July 2016.
[24] On or about 1 August 2016 Mr Kipping, purporting to act as director of Affordable, lodged an objection to the Registrar proceeding to rectify the Companies Register.
15 Sharrock v Wedd [2016] NZHC 1477.
16 Sharrock v Wedd [2017] NZHC 1739 [Substantive judgment].
[25] Mr Wedd, purporting to act as the sole shareholder in Affordable, then resolved to appoint Mr Hunt as liquidator of Affordable. Notification of Mr Hunt’s appointment was lodged with the Companies Office on 18 August 2016.
[26] On 19 August, Mr Josland advised Mr Sharrock that the Registrar now had no ability to rectify the Companies Register as proposed given the provisions of ss 360A(4) and 360B of the Act, and the objection received from Mr Kipping.
[5] Consequently, Mr Sharrock sought declarations in the High Court that he was a shareholder in Affordable Residential and that Mr Kipping had not been validly appointed as a director of Affordable, there having been no shareholders’ meeting or resolution of shareholders appointing Mr Kipping a director. In the substantive judgment summary judgment was entered in favour of Mr Sharrock declaring, among other things, that Mr Sharrock is a shareholder in Affordable Residential and that Mr Kipping is not a director of Affordable Residential.17 It is that judgment which Mr Kipping appealed and it is in that appeal that he now seeks an extension of time under r 43(2).
[6] One of the reasons we explain this background is that Mr Kipping appeared to be aggrieved at the fact that he was a party to the proceeding and hence became liable for costs when Mr Sharrock’s claim was successful. Indeed, in his application for extension of time dated 12 March 2018 he requested “relief from this Kafkaesque situation”. However, as the brief chronology at [4] above discloses, his inclusion and consequent liability stemmed from his intervention in the Companies Office processes.
[7] On 21 August 2017 Mr Kipping filed this appeal against the substantive judgment. However he did not file an appeal against the consequent costs judgment.
[21] Mr Kipping asserts a set-off of at least $80,000 for a number of outstanding invoices.
[22] Mr Kipping deals with this claim in a single paragraph in his affidavit in which he states:
Gerald Sharrock has recently been invoiced for amounts of money outstanding to John Kipping. These amounts have not been disputed and can therefore be considered correct. The total amount owing to me is at least $80,800.
[23] To his affidavit in support, Mr Kipping exhibits a document dated 14 May 2018 addressed to Mr Sharrock as an invoice. It states:
17 At [81] and [95].
company, in November 2013. You then tried to sue me in the Christchurch District Court for converting my own machine. (see below). Balance due $12,000
Balance due $155,000
$35,000 (as indemnified by you), less $10,000 paid. $25,000
Totals. With daily charge $192,800 With unpaid balance $80,800
All balances subject to additional interest charges from the time they were incurred/failed to be paid.
Payment can be made via cheque to the above address, or to the following bank account:
John Kipping ...
All these amounts are now seriously overdue and therefore need paying by 5pm Monday 4th June 2018.
John Kipping [Signature]
[24] That is all the evidence which Mr Kipping provided as to his claimed set-offs. Mr Kipping provides no explanation for why, if he believes such claims existed, they became the subject of an invoice for the first time in May 2018.
Mr Sharrock’s opposition to a set-off
[25] Mr Sharrock’s first ground of opposition in response to the set-off claims lies in Mr Kipping’s failure to adduce such evidence or supporting documentation as would demonstrate that there is an arguable or valid cross-claim.
[26] In Clark v UDC Finance Ltd, Casey J cited Australian authority which requires an applicant debtor to show a prima facie case which has “a fair chance of success”. His Honour had opted also an earlier Court of Appeal formulation that the debtor must have a “genuine triable demand”.18
[27] The Court of Appeal in Sharma v ANZ Banking Group, approved the Clark v UDC Finance Ltd above formulation. The Court added:19
We accept that this is the proper criterion and that the words “genuine” and “triable” require the debtor to demonstrate that he has a claim of true substance which he genuinely proposes to pursue.
[28] The material which Mr Kipping has put before the Court in support of his set- off falls far short of demonstrating that he has a claim of true substance which he genuinely proposes to pursue. The timing of the assertion – in response to a bankruptcy notice and some three to four years after the matters which are the subject of the “invoice” – does not indicate a genuine intention to pursue recovery of the various items. But, more fundamentally, the supporting detail required to indicate that Mr Kipping has a triable or prima facie claim is lacking. What Mr Kipping presents are mere assertions of claims.
[29] For his part, Mr Sharrock in his affidavit in opposition, responded to the invoiced items one by one. He provided more background and explained his denial of liability for each of the items claimed. Mr Kipping did not file a reply to Mr Sharrock’s denials and explanation of background. As a result, material aspects of any cause of action which Mr Kipping would pursue have no supporting evidence. Illustrations of that deficiency identified by Mr Sharrock include the facts that:
(a) Mr Kipping and his company in their dealings over the steel framing machine were dealing with a company and not with Mr Sharrock personally; and
18 Clark v UDC Finance Ltd [1985] 2 NZLR 636 at 637.
19 Sharma v ANZ Banking Group (1992) 6 PRNZ 386 at 389.
(b) in relation to the District Court proceedings (which were taken by Just Steel Framing Ltd and not Mr Sharrock personally) Mr and Mrs Kipping and their company, Circle K Limited, signed a settlement agreement in January 2018 whereby they agreed costs would lie where they fell.
[30] Mr Kipping has not demonstrated that there is a reasonable probability of his succeeding should he commence a claim in respect of any of the matters he has “invoiced”.
Challenge to the substantive and costs judgments
[31] Mr Kipping’s ground of application based on the fact that the hearing of his application for leave was to be heard by the Court of Appeal on 16 July 2018 has been overtaken by the delivery of the Court of Appeal judgment. That judgment denied him the extension of time he required if he was to take the substantive (High Court) judgment to a fixture. At the same time, the Court of Appeal recognised that the primary purpose of Mr Kipping’s proposed appeal was to resist the consequential award of costs. Given that Mr Kipping had not succeeded on his extension application (and is now unable to pursue a substantive appeal), it followed that he would have the costs to pay as an unsuccessful litigant of the High Court litigation.
[32] The Court of Appeal in its judgment (as cited at [16] above) explained that the decision in Joint Action Funding v Eichelbaum has no application to the judgment debt as Mr Sharrock was represented by counsel at the hearing in question.20
[33] The Court of Appeal went further, however, and considered (obiter) the quantum of the costs judgment in the passage set out at [16] above. The Court there found that there appeared to have been no error in the costs judgment having been made on a 2B basis. To the extent that the Associate Judge had awarded costs calculated on a 10 per cent uplift of a 2B award, the Court of Appeal expressed no opinion on that increase other than to state that any challenge over the increase (no
more than $1,784) would have to be the application of an extension for time. There is no suggestion that Mr Kipping has applied for such an extension.
[34] In Mr Kipping’s summarised grounds of application, he referred also to s 161 Lawyers and Conveyancers Act 2006, recording:
The costs have not been finally disposed of.
[35] The statutory provision which Mr Kipping cites precludes proceedings for recovery of the amount of a lawyer’s bill where a Standards Committee gives notice to the lawyer of a complaint about the amount of the bill. This provision does not assist Mr Kipping. He has not provided evidence that a Standards Committee has given notice to Mr Sharrock in relation to any relevant bill of costs. Furthermore, the bankruptcy notice is based on an order for costs which is to be taken to have been regularly made.
Breach of natural justice
[36] Mr Kipping identified a breach of natural justice as the final ground of application.
[37] The allegation of a breach of natural justice appeared to be Mr Kipping’s characterisation of Mr Sharrock’s conduct in the sequence of events since Mr Kipping involved himself in matters concerning Just Steel Framing Ltd and Affordable Residential Ltd, in an effort to assist Stephen Wedd. In his affidavit in support of the application, Mr Kipping devotes most of his paragraphs to a chronology of dealings from December 2012 to April 2018, when the costs judgment was delivered. While the legal concept of natural justice focuses on the process adopted by a decision-maker, Mr Kipping’s evidence as to the events focuses mainly on alleged misconduct on the part of Mr Sharrock. Mr Kipping makes allegations as to Mr Sharrock having been involved in such conduct as unlawful transfers of shares and removal of monies from company bank accounts. All issues of that nature were properly to be determined or able to be pursued as cross-claims in the litigation which has occurred. There can be no allegation of a failure of fair process in that regard. In other allegations in Mr Kipping’s affidavit, there are suggestions that the Court may have been misled.
For instance, when Mr Sharrock sued Mr Wedd in order to become sole owner of Just Steel. Mr Kipping asserts (with no supporting analysis) that the Court believed the “deceit and misinformation of Gerald Sharrock” and gave him all the shares back. There are numerous difficulties with these matters asserted by Mr Kipping. For the most part, they represent substantive issues arising from the property interests of others and not of Mr Kipping. To the extent there has been dissatisfaction with substantive outcomes, appeal pathways were open to those involved. Mr Kipping’s liability for costs flows simply from the fact that he made himself a part of the litigation by claiming to be a director, only to have judgment entered against him and the costs order consequentially made. This is not a case in which an applicant has established that the bankruptcy notice needs to be set aside to prevent an injustice arising from defective procedure.
[38] Nothing in these findings cuts across the strong impression created by previous judgments and by the evidence in this proceeding which indicates that Mr Kipping has acted with sincere and altruistic motivation. As he himself put it to the Court at the conclusions of his submissions, “I only got involved to help Stephen Wedd”. The fact that it was centrally the property interests of a third party rather than of himself which Mr Kipping sought to protect through involvement in the litigation has undoubtedly made the judgment debt and the risk of bankruptcy all the harder for Mr Kipping to accept. They are, however, the direct consequence of his becoming involved in litigation. Mr Kipping thereby exposes himself to costs orders.
Outcome
[39] Mr Kipping’s application for an order setting aside the bankruptcy notice must be dismissed.
Orders
[40] I order:
(a) The judgment debtor’s interlocutory application dated 5 June 2018 is dismissed.
(b) The time for the judgment debtor to comply with the bankruptcy notice is extended to the tenth working day after this judgment, and, failing settlement of the judgment debt, the judgment creditor may apply for an order of adjudication.
(c) The judgment debtor is to pay to the judgment creditor costs on a 2B21 basis together with disbursements to be fixed by the Registrar.
Associate Judge Osborne
Hucker Associates, Auckland
Copy to: J B Kipping (in person)
21 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).
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