IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-8543

UNDER	the Insolvency Act 2006
IN THE MATTER OF	the bankruptcy of SHER AFZAL KHAN BETWEEN	KEITH WILLIAM REID
Judgment Creditor

AND	SHER AFZAL KHAN Judgment Debtor

Hearing:	17 August 2010

Appearances: Mr M Colthart for Judgment Creditor
Mr Khan in person

Judgment:	7 September 2010 at 4.30 p.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on
07.09.10 at 4.30, pursuant to
Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:
Mr M Colthart, P O Box 535, Auckland
Copy: Mr Khan

REID V  KHAN HC AK CIV-2009-404-8543  7 September 2010

[1]       The creditor has issued bankruptcy proceedings against Mr Khan following the service on Mr Khan of a bankruptcy notice on 10 January 2010.   There is no dispute that the bankruptcy notice has not been complied with.   The bankruptcy notice was based upon costs ordered by Allan J following orders he made striking out a claim brought by Mr and Mrs Khan, in a judgment dated 30 October 2010.  Mr Khan has filed an appeal against that judgment.  Shortly before the matter was called for hearing on 18 August at 2.15, a minute was received from the Court of Appeal advising that Mr Khan’s application for leave to bring that appeal had been heard but no judgment yet had issued but that it was expected that the judgment would be to hand in the next week.

[2]       Both parties agreed that if the Court of Appeal were to grant leave to Mr Khan to bring an appeal, that would have a substantial effect on the bankruptcy case because  if  Mr  Khan  were  then  to  go  on  and  succeed  on  the  appeal,  the  costs judgment which underpinned the bankruptcy notice would be set aside.

[3]       Mr Khan has not sought a stay of the proceedings while his appeal is heard. On the grounds of pragmatism I suggested that one solution would be for me to reserve my decision and await advice from the Court of Appeal as to whether leave had been granted to Mr Khan.  If leave was not granted then matters would proceed in a straightforward way.   If leave was granted, then the parties would need to address me in supplementary memoranda on the consequences of that leave being forthcoming.

[4]       Following the hearing, I was advised in a memorandum by counsel for the creditor that the Court of Appeal had issued a judgement dated 17 August 2010 dismissing  the  Khans’  application  for  extension  of  time  to  appeal.    That  was followed by a memorandum from Mr Khan some days later making submissions additional to those which he made at the hearing before me.  While I did not grant leave for the parties to make still further submissions (other than on the issue of the effect of the Court of Appeal judgement) I am prepared to deal with the matters that Mr Khan has raised and I cover them in a separate section of this judgment.

Matters raised at the hearing

[5]       The merits of the original negligence claim which was struck out are strictly speaking not relevant to the present judgment.  Mr Khan however wanted to bring me up to date with what he said was one of the key matters that would be explored if he was given leave to appeal.  In brief, Mr Khan sought to bring proceedings against Mr Reid for the latter’s negligence as a lawyer advising Mr Khan and his wife on accident compensation proceedings.  Mr Khan claimed that Mr Reid failed to give him prompt advice of a determination by the ACC during the time that he was acting for the Khan’s.  This matter was the subject of a factual dispute before Allan J.  In the end the Judge concluded that Mr Reid had in fact sent a copy of the relevant document to a fax number which the Judge determined was the active fax number being used by Mr and Mrs Khan.  There was a second ground for striking out the case apart from the point about the factual error that Mr Khan had allegedly made about the fax number.  That other ground was that the claim against Mr Reid was statute barred.  Mr Khan asserts that that part of the decision was wrong as well.

[6]       As part of his judgment, Allan J ordered the Khan’s to pay costs on a 2B basis and reasonable disbursements as fixed by the Registrar.   In due course these were calculated to total $8,055.43 and that became the amount that the Court ordered the Khan’s to pay.   The bankruptcy notice seeking payment of this amount was served  on  Mr  Khan  on  20  January  2010.    Mr  Khan  applied  to  set  aside  the bankruptcy notice by application dated 6 February 2010.   But he failed to file an affidavit in support of that application within the time limits specified.   For that reason the application to set aside bankruptcy notice was dismissed and a further costs order was made against Mr Khan in the sum of $1,600.  Those costs are not, of course, included in the bankruptcy notice.

[7]       Mr Khan did not file a synopsis of submissions but I gather from his affidavit in opposition to the making of the bankruptcy order and the notice of opposition in the submissions that he made that the following are matters which he considers to be in issue.

[8]       Mr  Khan  alleged  that  he  has  a  counter-claim  against  the  creditor.    The creditor is seeking the payment of legal costs.  Mr Khan says that he has a counter- claim arising out of the negligence of the solicitor which equals or exceeds the amount which the solicitor claims.

[9]       That ground of opposition cannot succeed because Allan J determined in the strike out application that the debtor had no such ground of counter-claim.

[10]     Mr Khan said that he did not receive a tax invoice from the creditor for the costs order by Allan J and that the creditor instead proceeded with a bankruptcy notice without making any demand from the debtor, all of which is an abuse of process.  In answer to that Mr Colthart said that there is no requirement that a Court order for costs must be the subject of a letter of claim or an invoice as a precondition to the creditor taking steps to enforce the debt by means of a bankruptcy notice.  Mr Colthart is clearly right and this ground does not assist Mr Khan.

[11]     Mr Khan said that because the costs were awarded against the two parties the claimant is only entitled to seek half the costs from Mr Khan.  However an order for costs is joint and several and Mr Khan is liable for the full amount.

[12]     Mr Khan said that the creditor had applied unnecessarily to the High Court for “an interlocutory order” which incurred further legal costs.   I understand that what Mr Khan actually intends to convey by this is that the bankruptcy notice procedure was misconceived because there was no invoice etc and that therefore the costs relating to that should not be recoverable.  However the basis of the argument is incorrect, as I have determined above, when I concluded that no tax invoice or notice of demand needed to be sent before the money became owing.   Therefore there is no reason to interfere with the award for costs that was made against Mr Khan by Lang J when he dismissed the application to set aside the bankruptcy notice.

[13]     Mr Khan said that the judgment creditor’s action was unnecessary because the debtor had “never refused or avoided paying the legal costs awarded by the High Court”.  This submission cannot succeed because the facts are that the creditor has

established that the debt existed, and Mr Khan has not provided any evidence that he has paid it.  If he was always ready and willing to pay the debt ever since the date when Allan J made the costs order, he would have done so by now and he has not. This ground does not succeed either.

[14]     Mr Khan asserts that the creditor has an intention to harm the judgment debtor by bringing the bankruptcy application.   There is no evidence offered in support of this assertion.  The only basis upon which it could therefore be supported would be if this is a fair inference from the fact that Mr Reid has brought the bankruptcy proceedings.  There is a much more obvious inference to be drawn and that is that Mr Reid wants to get paid what he is entitled to under the order for costs. This ground cannot succeed either.

[15]     Mr Khan gave evidence of the health difficulties that had been experienced by himself and his wife.  He describes himself as a sickness beneficiary and he says he is suffering from depression.  I understand that the various health problems that afflict him and his wife and the fact that she is apparently in Australia must be the cause of considerable worry and difficulty.  I do not consider though that they are matters which should defeat the creditor’s entitlement to have the costs orders satisfied.  There is a presumption that the debtor is insolvent and his affairs ought to be brought under official oversight unless there is some substantial reason why that course should not be adopted.  The fact that one’s spouse is experiencing ill health does not amount to such a reason.  Further, the ill health that Mr Khan is suffering from is a cataract in one eye, as he deposed in his affidavit.  That in itself would not seem to be the type of reason which would tip the scales against making an order adjudicating him bankrupt.  Mr Khan also told me in the course of the hearing that he is suffering from depression.  No details were provided about the severity of the depressive illness and therefore there would be no rational basis for concluding that that factor should persuade the Court not to make an order in pursuance of the broad discretion that the Court undoubtedly has to decline to make orders adjudicating debtors bankrupt.

Matters raised by Mr Khan in his memorandum dated 30 August 2010

[16]     Mr Khan has drawn my attention to a number of authorities including re

Stirling [1990] 1 NZLR 569.

[17]     In re Stirling it was clear that the Judge reached the view that the debtor, Mr Stirling, was able to pay his debts as they fell due.  That is clear from the following extract from the judgment in which the Judge considered the creditor’s contention that the references in the act to the debtor being unable to pay his debts extended to a case where the debtor could pay his debts but was unwilling to.  At page 575 the Judge said:

It may put the petitioning creditor in a better position, but it must be remembered that the fundamental difference between execution and bankruptcy is that the former is for the benefit of the creditor taking the proceedings, while bankruptcy is to ensure that all creditors are treated fairly and equally. In this case, if the petition were founded on an available act and allowed to go to adjudication despite the debtor's ability to pay, it would operate to the prejudice of creditors. That would be contrary to the rule that bankruptcy petitions are for the benefit of creditors as a class and the public in general; see Re A Debtor [1935] Ch 353, at p 357. Here Mr Stirling is paying his other debts as they fall due and there is little doubt as to his continuing ability to do so

[18]     There is an earlier passage in the judgment (at page 573) where the Judge expressly noted the evidence from Mr Stirling that he was able to pay the debt.

[19]      There is no such evidence here.  What we do know is that Mr Khan in his memorandum put forward three separate proposals for deferred payment of the amount owed.  By doing that he has effectively said he will pay the debt but not at the present time.  There is no reason given why he would be unwilling to pay the debt now but would pay it in a month or two in the future.  He has not explained why it would be unacceptable to him to pay the debt now but not at a future date. Normally one would associate such a stance with an inability at the present time to come up with the necessary money coupled with a wish to have more time within which to do so.

[20]     Section 37 of the Insolvency Act 2006 provides:

37	Court may refuse adjudication

The Court may, at its discretion, refuse to adjudicate the debtor bankrupt if—

(a)	the applicant creditor has not established the requirements out in section 13; or

(b)	the debtor is able to pay his or her debts; or

(c)	it is just and equitable that the Court does not make an order of adjudication; or

(d)	for any other reason an order of adjudication should not be made.

[21]     Before the discretion can be exercised on this ground, there must be a basis upon which the Court can rationally conclude that the debtor is in fact able to pay his debts.  Otherwise the prima facie position is that the Court should make a bankruptcy order: Re Fidow [1989] 2 NZLR 431.

[22]     There is no evidence from any source which bears upon this issue.  There is the circumstance I have set out above at paragraph [19] which, if anything, gives rise to an inference that the reason why Mr Khan has not paid the debt is because he does not presently have the money to do so rather than that he has the money but chooses not to pay.  That being so, I do not consider that there are any grounds upon which the Court should in the exercise of its discretion decline to adjudicate Mr Khan bankrupt.

[23]     I should briefly mention the remaining grounds upon which Mr Khan invokes the discretion. They are that making an order would impact upon the health of his wife and the second is that he wants to apply for a licence as a migration consultant.

[24]     As to the first, I know nothing about the circumstances of Mrs Khan other than that she is residing in Australia, because Mr Khan has stated on occasions that he has travelled to Sydney where she is located. There is no material before me which would raise  concerns that her medical treatment would be interrupted or discontinued as a result of a bankruptcy order.  Nor is there any evidence that she

would be put out of the place where she is residing in Sydney if such an order was made.  Neither of these grounds would justify the Court declining to make an order of adjudication.

Conclusion

[25]     The result is that there will be an order adjudicating the debtor bankrupt.  The date and time of adjudication will be at 4.30 p.m on 7 September 2010.  The creditor
shall have costs on a 2B basis and disbursements as fixed by the Registrar.

J.P. Doogue
Associate Judge