IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-5377
CIV 2010-404-2349

IN THE MATTER OF	the Insolvency Act 2006

A PROPOSAL MADE FOR AND ON BEHALF OF WESLEY JOHN LIDDLE OF AUCKLAND, AN INSOLVENT Plaintiff

Appearances: R Gordon for the Creditor
Mr Paalvast in person

Judgment:	25 June 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on
25 June 2010 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.

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

Solicitors:	Buddle Findlay, PO Box 2694,Wellington
Morgan Freeman Penn, Auckland
Metro Law, PO Box 68882, Auckland

A PROPOSAL MADE FOR AND ON BEHALF OF WESLEY JOHN LIDDLE OF AUCKLAND, AN INSOLVENT HC AK CIV 2009-404-5377  25 June 2010

[1]       By my Judgment dated 22 April 2010 I dismissed Mr Liddle’s bankruptcy proposal. The Bank of New Zealand (BNZ) opposed the proposal. I rejected the claim of the provisional trustee, Mr Paalvast, that he was entitled to disregard BNZ’s vote  against the  proposal.  I was  critical  of  last  minute  claims  being offered  as reasons for disregarding the BNZ’s vote.

[2]       The proposal was dismissed because the BNZ’s vote was sufficient to defeat the proposal. In the concluding paragraph of my Judgment I noted:

[9]        In that outcome the bank’s costs will have to be paid. I have yet to decide on what basis or against whom that order for costs should be made. But I will if it is the bank’s intention to do so, entertain an application for indemnity costs and I will entertain an application for its payment by a person other than Mr Liddle.

[3]       Since, the BNZ has filed a memorandum seeking an award of indemnity costs under rule 14.6(4)(a) on the basis that the insolvent and his advisors/advocates have acted vexatiously, improperly and unnecessarily in commencing – and then continuing with – their application for approval of the proposal.

[4]       BNZ seeks an order that such costs be awarded jointly and severally against the insolvent and Mr Peter Paalvast from the organisation “Morgan Freeman Penn”.

[5]       Upon receipt of same I issued a minute allowing a memorandum in response to be filed within ten days. Nothing has since been received on behalf of Mr Liddle or Mr Paalvast. I am satisfied both persons have received a copy of BNZ’s counsel’s cost memorandum.

Background

[6]       The  proposal  commenced  in  August  2009.  It  was  prepared  by  Morgan Freeman Penn. I accept that from the outset the proposal has been grossly misconceived. By its original form it sought to vest in the provisional trustee, five properties which were secured to the bank. The proposal seems to have been part of an attempt to halt the bank’s then impending mortgagee sales of those properties.

[7]       From the beginning the bank’s solicitors have warned those involved with the proposal that they may be at risk of a claim of non-party costs.

[8]       The bank’s claim for indemnity costs is based upon a knowing and deliberate abuse of the Court’s processes. In support of its case the bank has exhibited copies of correspondence between Morgan Freeman Penn and its then counsel. Shortly before the hearing before me on 22 April 2010, counsel’s services were dispensed with by Morgan Freeman Penn. At that time Mr Paalvast, the provisional trustee, took over conduct of the litigation in person.

[9]       Legal advice had been given to Mr Paalvast that he could not and should not purport to reject the bank’s proof of debt. Indeed Mr Paalvast was warned of the possibility of an order for costs being made against him. He was warned that his responsibilities as provisional trustee were in conflict with his position as advocate for the insolvent.

[10]     Although I dismissed the insolvent’s proposal the insolvent and Mr Paalvast have since filed a duplicate proceeding in this Court under CIV 2010-404-2349 in which they seek an order for approval of the very same proposal that I have dismissed. Further it appears this was done without giving the bank any notice of the duplicate proceeding. This notwithstanding the bank has learned of the second application and advised the Court of its concerns. In that outcome Associate Judge Sargisson has issued a minute wherein Mr Liddle and Mr Paalvast are offered the opportunity to be heard on the question of whether there is any reason why the application should not be struck out. The minute noted that the matter was to remain in the List for call on 27 July 2010. Furthermore, the bank was given leave to appear.

[11]     The Court’s view is that Mr Paalvast’s actions provide the clearest evidence of a gross abuse of Court processes. Ignoring advice not to do so the insolvent and Mr Paalvast contrived to reject the bank’s proof of debt and then seek Court approval regardless.

[12]     This is not a case of Mr Paalvast having misdirected himself. Ignoring his obligations as a provisional trustee he has proceeded to act as a lay advocate for the

insolvent. It appears the services of Mr Paalvast and Morgan Freeman Penn were to be provided by way of commission payments to be deducted if the proposal had succeeded.

[13]     It is not the role of a provisional trustee to protect an insolvent’s interests. His role under the Act is a serious and important one. He must act neutrally, judicially and fairly. It is a solemn responsibility.

[14]     This is a proper case for the payment of indemnity costs. The bank’s lawyers have provided sufficient detail to explain their charges totalling $12,238. There is an order that Wesley John Liddle and Peter Paalvast shall jointly and severally be liable to pay the BNZ’s solicitors’ costs in that amount.