Highmark Homes Limited v Watkins [2023] NZHC 353 (1 March 2023)

Last Updated: 24 April 2023

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-002268 [2023] NZHC 353

UNDER	the Insolvency Act 2006
IN THE MATTER	of the bankruptcy of N M Watkins
BETWEEN	HIGHMARK HOMES LIMITED Judgment Creditor
AND	NICOLA MAREE WATKINS Judgment Debtor

Hearing:	17 February 2023
Appearances:	D Hayes for the Judgment Creditor N M Watkins, Judgment Debtor in Person
Judgment:	1 March 2023

JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 1 March 2023 at 10.30 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Hunwick Law Ltd, Hamilton D Hayes, Hamilton

Copy to: N M Watkins

HIGHMARK HOMES LTD v WATKINS [2023] NZHC 353 [1 March 2023]

Introduction

[1] Nicola Watkins was, until 14 November 2017, an employee of Highmark Homes Limited (Highmark). The employment relationship ended in acrimonious and disputed circumstances.

[2] During the employment relationship, Highmark assisted Ms Watkins to build a house on land she owned at Wheatstone Road, including providing financial assistance when Ms Watkins ran short of funds. After the employment relationship ended, Highmark brought a claim against Ms Watkins in the Disputes Tribunal (the Tribunal) to recover just under $22,000 it had advanced to Ms Watkins. Ms Watkins counterclaimed. The Tribunal determined that it had jurisdiction to hear Highmark’s claim for the debt, but not matters relating to the parties’ employment relationship. The Tribunal dismissed Ms Watkins’s counterclaim and ordered Ms Watkins to pay Highmark a total of $23,996, being the original outstanding advance plus interest.

[3] Ms Watkins’ appeal of that decision was dismissed by the District Court on 23 August 2021.¹ Accordingly, Ms Watkins’ appeal rights in respect of the Tribunal’s decision were exhausted.

[4] Highmark served Ms Watkins with a bankruptcy notice relating to the Tribunal’s order on 1 February 2022. Ms Watkins did not apply to set aside the bankruptcy notice, and on 29 March 2022, Highmark applied for an order that Ms Watkins be adjudicated bankrupt. The application is opposed by Ms Watkins.

[5] The application for adjudication was originally set down to be heard on 20 October 2022. The hearing was adjourned to allow time to receive rulings from the Employment Relations Authority (the ERA) on two claims Ms Watkins had made against Highmark. The first was a claim that she was unjustifiably disadvantaged in her employment because Highmark stood her down for family reasons. She also claimed to be entitled to wage arrears owed for sick pay being paid as annual leave, and that her final pay was incorrectly calculated. In her second claim Ms Watkins sought to raise a personal grievance for unjustified dismissal. In a preliminary

¹ Watkins v Highmark Homes [2021] NZDC 16179.

determination, the ERA found that she had not raised the personal grievance for unjustified dismissal within the statutory timeframe.² In that same determination, leave to raise grievances out of time was not granted.³

[6] By application lodged on 15 May 2022, Ms Watkins sought to reopen the preliminary determination. In a decision dated 1 December 2022 the ERA found that no miscarriage of justice would occur if the reopening application was declined as the parties had a fair opportunity to put information before the ERA for the preliminary determination, no fresh evidence would influence the outcome, a considerable period of time had passed between the issue of the preliminary determination and the reopening application, and the right to challenge the preliminary determination was not exercised.⁴

[7] The ERA determined Ms Watkins’ unjustified disadvantage and arrears claim in a decision dated 30 November 2022.⁵ The ERA found against Ms Watkins. Highmark’s counterclaim was successful in part, with the ERA ordering Ms Watkins to pay $3,500.25 in damages to compensate it for its loss in recreating work information Ms Watkins deleted from a work laptop.⁶

[8] Ms Watkins has now applied to the ERA to reopen its investigation into the matters to which the decisions described relate. That application is opposed, with the ERA reporting to Ms Watkins on 26 January 2023 that the matter was awaiting allocation to a member of the ERA. In a subsequent communication on 15 February 2023, the ERA confirmed that Ms Watkins’ application has been allocated to a member who would make directions to progress the application.

[9] Ms Watkins opposes Highmark’s application for adjudication, as she hopes to obtain through the reopening of her claims in the ERA a judgment that will extinguish

² Nicola Maree Watkins v Highmark Homes Ltd [2020] NZERA 467 [ERA Determination 2020].

³ ERA Determination 2020, above n 2 at [45].

4. Nicola Maree Watkins v Highmark Homes Ltd [2022] NZERA 638 at [13] [Reopening Determination].
5. Nicola Maree Watkins v Highmark Homes Ltd [2022] NZERA 632 [Unjustified Disadvantage Determination].

⁶ Unjustified Disadvantage Determination, above n 5 at [53].

the debt that she has owed Highmark since the Tribunal’s decision in October 2020 (notwithstanding her appeal against that decision operated as a stay of enforcement).

[10] In a memorandum filed on 1 December 2022, and through her written submissions for the hearing, Ms Watkins sought various orders including that the bankruptcy notice is struck out, determining which Court has jurisdiction over all matters relating to the employment proceedings, and quashing the orders made in the Tribunal and District Court.

[11] As I explained at the hearing, the only matter before me is Highmark’s application to adjudicate Ms Watkins bankrupt. All matters relating to Ms Watkins’ former employment relationship with Highmark, including the circumstances around her termination, are within the jurisdiction of the ERA.

[12] This Court does not have jurisdiction to quash the orders of the Tribunal or the District Court. Ms Watkins’ appeal rights in respect of the Tribunal’s judgment were exhausted when the District Court found that there was no error in the Tribunal’s decision.⁷ She has not applied to the Tribunal or District Court to set aside their decisions.

[13] Nor can the Court strike out the bankruptcy notice. Ms Watkins could have applied to set aside the bankruptcy notice, but she did not do so within the 10 days required.⁸ The bankruptcy notice informed her of that right.

[14] By not having the bankruptcy notice set aside, or complying with the notice, Ms Watkins has committed an act of bankruptcy under s 17 of the Insolvency Act 2006 (Act). Section 13 of the Act provides that a creditor may apply for a debtors’ adjudication if the debtor owes the creditor $1,000 or more, the debtor has committed an act of bankruptcy, and the debt is a certain amount and payable either immediately or at a date in the future that is certain.

7. MacSmith's Tires Ltd v George Stock and Co Ltd [2022] NZHC 438 at [19]–[31]; and Ding v James [2021] NZCA 578 at [14].

⁸ Insolvency Act 2006, s 17; and High Court Rules 2016, r 24.10.

[15] With that clarification, Ms Watkins confirmed that she wanted the application for adjudication to be deferred until her application to reopen the ERA investigation was determined.

[16] Therefore, the issue before the Court is whether Highmark’s application for adjudication should be deferred (halted), or whether in all the circumstances Ms Watkins should be adjudicated bankrupt.

Legal principles

[17] Section 36 of the Act provides that the Court may, at its discretion, adjudicate a debtor bankrupt if the creditor has established the requirements set out in s 13. Once the s 13 requirements are made out, the judgment creditor is prima facie entitled to an adjudication order.⁹ This Court has said:¹⁰

... the petitioning creditor does not have an automatic right to obtain an order of adjudication, nevertheless the onus in those circumstances is on the debtor to persuade the Court that an order should not be made.

[18] The Court may, in its discretion, refuse adjudication for the reasons set out in s 37 of the Act. These include that it is just and equitable that the Court does not make an order of adjudication.¹¹ The Court of Appeal has observed that s 37 confers a “wide discretion” informed by various factors.¹² The existence of a cross claim can be considered by the Court when deciding whether to exercise this discretion, even if the judgment debtor did not raise the cross claim earlier to set aside the bankruptcy notice.¹³ Where a judgment debtor applies to set aside a bankruptcy notice because they have a cross claim (a counterclaim or set off), the Court consider the trialability and merits of the cross claim.¹⁴

9. See Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 3 and 7; and Re Epirosa HC Wellington B498/91, 6 March 1992 at 5 and 8.

¹⁰ Kiwibank Ltd v Hutchin [2015] NZHC 1518 at [26].

¹¹ Insolvency Act 2006, s 37(c).

¹² Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [15].

13. 239 Queen St Developments Ltd v Watts & Hughes Construction Ltd [2012] NZHC 1791 at [19]; Concrete Structures (NZ) Ltd v NMHB Ltd [2019] NZHC 268 at [17]–[19]; Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243 at [61]–[64]; and Covington Railways Ltd v Uni-Accommodation Ltd [2011] 1 NZLR 272 at [11].

¹⁴ Laywood v Holmes Construction Wellington Ltd, above n 13 at [64]; Clark v UDC Finance Ltd [1985] 2 NZLR 636; and Robert Osbourne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR24.10.03].

[19] Additionally, the Court may, in its discretion, at any time halt a creditor’s application for adjudication under s 38 of the Act. The Court may halt the application on the terms and conditions (if any) for a period the Court thinks appropriate. The Court’s discretion to halt a creditor’s adjudication application under s 38 is broad and flexible and allows the Court to take into account varying circumstances which may have different weight according to each case.¹⁵

[20] I will now turn to the reasons Ms Watkins gives for asking that the application for bankruptcy be deferred (halted). In doing so, I also consider whether it would be just and equitable to exercise my discretion to decline to make an order of adjudication.

Ms Watkins’ reasons

[21] I have read Ms Watkins’ application for a reopening of the ERA’s investigation and her written submissions filed for this hearing. I heard from Ms Watkins at the hearing. I discern three main reasons behind her application for a reopening and her request that the application for bankruptcy is halted.

[22] First, she claims that she has new evidence that shows that Highmark committed perjury in the ERA, the Tribunal and the District Court. She also makes this claim about Highmark’s solicitor. She alleges that the evidence, which she has obtained from NZ Police, shows that prior to Highmark standing her down from her employment for two weeks to undertake an investigation, they had already made a complaint to the police, on 15 October 2017. She says that this new evidence shows that Highmark lied to the ERA and the Disputes Tribunal and that she was constructively dismissed.

[23] Second, she claims that Highmark denied her the opportunity to sell the house at Wheatstone Road at a profit, maintaining that Highmark’s contributions to the project were part of her remuneration. She claims that because of Highmark’s actions and her constructive dismissal, she lost her qualification, her income just prior to Christmas, her family home (which she says had to be sold because of the allegedly

¹⁵ Re Bank of New Zealand ex parte Koroniadis [2013] NZHC 2865 at [11].

nonprofitable Wheatstone Road sale) and caused her and her children emotional suffering.

[24] Third, she says that the ERA mishandled her evidence and submissions and made a range of errors in its decisions including failing to consider the complaint to NZ Police which she filed with the ERA before their decision was released.

My evaluation

[25] I am not persuaded by these reasons to defer the bankruptcy proceeding, or to exercise my discretion to refuse to adjudicate Ms Watkins bankrupt.

[26] The new evidence Ms Watkins describes does not cast serious doubt on the Tribunal’s order which forms the basis for this bankruptcy proceeding. Based on Ms Watkins’ description of the new evidence, it shows that Highmark had serious concerns about Ms Watkins before they commenced their employment investigation that led to her termination. At its highest, this might show that Highmark predetermined their investigation into her. Whether or not Highmark predetermined the investigation is irrelevant to the issues that were before the Tribunal concerning Wheatstone Road. Those issues were: What was the nature of the arrangement between Ms Watkins and Highmark concerning the expenses Highmark paid for her? Was there a legitimate building contract between Highmark and Ms Watkins and if so, did Highmark breach that contract? Did Ms Watkins suffer loss on the sale of the property and if so, was the loss caused by Highmark?

[27] The Tribunal concluded that the arrangement between Ms Watkins and Highmark was that Highmark would be reimbursed the building costs it paid for her; that there was no legitimate building contract; and that if Ms Watkins suffered loss on the sale, Highmark was not responsible. I cannot see how the Tribunal could reach different conclusions on these issues had it had evidence that Highmark had made a complaint to the police about Ms Watkins before her employment ended.

[28] Similarly, Ms Watkins’ attempt to reopen the Wheatstone Road issue with the ERA is unlikely to be successful. The ERA has informed her that the Wheatstone Road issue is not within their jurisdiction.¹⁶ Her claim relating to the Wheatstone Road build has been determined by the Tribunal.

[29] I accept that the new evidence she raises is potentially relevant to her unjustified dismissal claim. However, the ERA refused to accept this claim as Ms Watkins made it outside the statutory timeframe.

[30] Having read her application and heard from Ms Watkins, I conclude that aside from the evidence of the police complaint, she is essentially trying to relitigate claims she has already made in the Tribunal and the ERA. The only new matter she raises is the letter to the police. As she records in her application to the ERA, most of the documents she provides as grounds for a reopening have been provided to the ERA before. The best Ms Watkins can hope for is that this letter persuades the ERA to re- open its investigation, to give her leave to make a claim for unjustified dismissal out of time, and to find that she was unjustifiably dismissed. To provide a reason for deferring or declining the bankruptcy application, I would need to be satisfied that this was a realistic possibility, and that the ERA would award Ms Watkins damages that would come within $1,000 of her debt to Highmark. That is highly improbable in my view.

[31] Also weighing against halting the application pending a decision from the ERA is the fact that the Tribunal ordered Ms Watkins to pay Highmark the judgment sum on 9 October 2020. The District Court determined Ms Watkins’ appeal on 23 August 2021. Highmark has been denied the fruits of the Tribunal decision for over two years. It is unclear how long the ERA process will take, assuming Ms Watkins succeeds in having the investigation reopened. Then there is the possibility of appeals. I do not consider that it is in the interests of justice to deny Highmark the judgment sum to which it is entitled for an indefinite length of time when there is no serious doubt about Ms Watkins’ liability to pay it.

¹⁶ Unjustified Disadvantage Determination, above n 5 at [19]–[20].

[32] Further, there is no evidence that Highmark will be unable to pay Ms Watkins if the investigation is indeed reopened and the ERA finds in her favour against Highmark.

[33] It is unclear whether Ms Watkins can pay the sum ordered by the Tribunal or simply refuses to do so. In her submissions she says that she has no means to pay a lawyer; but at the same time she made it clear at the hearing that she will not pay Highmark because she does not accept that it is entitled to the judgment sum.

Conclusion and result

[34] Ms Watkins has committed an act of bankruptcy by not meeting the bankruptcy notice served on her. The presumption is that she is unable to pay her debts and is insolvent. There is no serious doubt about the Tribunal decision to which the bankruptcy notice relates. Her application to reopen the ERA investigation does not provide a sound reason to defer the bankruptcy application or for me to exercise my discretion to refuse to order her bankrupt.

[35] I have reached a decision on Highmark’s application for adjudication and it is that Ms Watkins should be adjudicated bankrupt. However, I will not make the order until the Bankruptcy List on 23 March 2023 at 10.00 am, to give Ms Watkins time to pay the outstanding judgment sum to Highmark. To be clear, I have reached my decision and there will not be a further opportunity for submissions. If the judgment sum is not paid by then, Ms Watkins should expect that an order will be made declaring her bankrupt.

Observations

[36] At the hearing I heard from Ms Watkins and her son, Jonathan, about the emotional toll the dispute with Highmark has had on their family since around the time of her termination in 2017. I am sorry to hear how difficult things have been for them.

[37] Plainly Ms Watkins does not accept, and may never accept, the decisions of the Tribunal and the ERA. Despite that, I urge Ms Watkins to accept the finality of the Tribunal decision concerning Wheatstone Road, pay the sum the Tribunal ordered if she is able, and thereby take a step towards putting the dispute with Highmark behind her.

Associate Judge Gardiner