IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-2570
[2019] NZHC 909	

UNDER	the Insolvency Act 2006	
IN THE MATTER OF	the bankruptcy of Colleen Anne Warin and an application to set aside a bankruptcy notice	
BETWEEN	MARIAN RUTH WARIN
Judgment Creditor	
AND	COLLEEN ANNE WARIN
Judgment Debtor	

Hearing:	29 April 2019	
Appearances:	M W Anderson for the Judgment Creditor Colleen Anne Warin, Judgment Debtor in person	
Judgment:	7 May 2019	

INTERIM JUDGMENT OF ASSOCIATE JUDGE R M BELL

This interim judgment was delivered by me on 7 May 2019 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules.

…………………………………
Deputy Registrar

Solicitors:
Thomas Dewar Sziranyi Letts (M W Anderson), Wellington, for the Judgment Creditor
Copy for:
Colleen Anne Warin, PO Box 519, Oneroa, Waikehe Island, Auckland

MARIAN RUTH WARIN v COLLEEN ANNE WARIN [2019] NZHC 909 [7 May 2019]

[1]	Colleen Anne Warin, the judgment debtor, applies to set aside the bankruptcy notice of her mother, Marian Ruth Warin. The amount payable under the bankruptcy notice is $206,078.83. It is based on a judgment debt of $191,984.33 given in the High Court at Wellington on 26 April 2017,1 plus interest on the judgment. Colleen was served on 3 December 2018. She filed and served her application on 17 December 2018. The application is within time. Under r 24.10 of the High Court Rules 2016, the time for complying with the notice has been extended until her setting-aside application is decided. Colleen has appeared for herself. She did have legal representation in the proceeding in which judgment was given against her and she has had some legal advice since the judgment was given against her.

[2]	Marian now lives with her son, Nigel, in Midland, Perth, Western Australia, although in the entituling her address is given as her former home in Te Puke. Marian is 88 years old. Colleen says that Marian lacks capacity and is under the control and influence of Nigel.

[3]	Colleen’s application to set aside the bankruptcy notice is wide-ranging, but the main points are these:

(a)	She says that Marian lacks capacity and that Nigel has undue influence over her, which he uses for his own personal benefit.

(b)	Colleen wants to cross-examine Marian to establish her lack of capacity.

(c)	The lawyers acting for Marian failed to disclose that Marian left New Zealand in December 2016.

(d)	Colleen ought not to have to pay interest on the debt.

1	Warin v Warin [2017] NZHC 786.

(e)	An adjudication in bankruptcy would cause Colleen undue hardship. While she has assets, she has not been able to sell them at prices that would enable her to clear her indebtedness.

Background

[4]	Colleen is the only daughter of Marian and Trevor Warin. She has two brothers, Wayne and Nigel. Trevor is in his nineties and has dementia. Wayne holds an enduring power of attorney for him. Nigel has lived in Western Australia for over 20 years and has his own business. Marian has lived with him in Western Australia since the end of 2016.

[5]	Trevor (through his attorney, Wayne) and Marian sued Colleen for repayment of loans to her. They applied for summary judgment. Associate Judge Smith gave the background in his judgment of 26 April 2017.2
Background

[16]	The transactions which are at issue go back as far as November 1996, when Mr and Mrs Warin transferred a half share of the property they owned jointly at Te Puna Road, Te Puke (the Te Puke property) to Colleen. The following March, they transferred their remaining share of the Te Puke property to Colleen, in return for an acknowledged debt back to them of
$100,000 and a promise given to them by Colleen (apparently orally) to build them a “home for life” on the Te Puke property. The debt of $100,000 was secured by way of a mortgage over the Te Puke property in favour of Mr and Mrs Warin.

[17]	Colleen arranged for the “home for life” to be built on the Te Puke property, and Mr and Mrs Warin say that its value was approximately
$200,000. With the debt back from Colleen of $100,000, they had effectively sold the Te Puke property to Colleen for a consideration of $100,000 plus the value of their rent-free occupation of the Te Puke property.

[18]	In or about November 2011 Colleen completed a sub-division of the Te Puke property. Two new certificates of title were issued, for properties at 86A Te Puna Road and 86B Te Puna Road. For convenience, I will refer to the new properties as “86A” and “86B”. The mortgage to Mr and Mrs Warin was brought down onto the titles for 86A and 86B.

[19]	Mr and Mrs Warin had been living in the part of the Te Puke property which, after the subdivision, became 86B. On 29 November 2011 Colleen transferred 86B to a third party, and Mr and Mrs Warin moved to live in the house on 86A.

2	Warin v Warin [2017] NZHC 786 at [16]-[25].

[20]	On 13 March 2012, Colleen sold 86A to a third party. For reasons which have not been made clear by the evidence, Mr and Mrs Warin agreed to provide a release of their mortgage over the titles to both 86A and 86B. When 86A was sold, they moved to a property owned by them in Te Puke which had previously been rented, and had provided them with a source of income in their retirement years. A consequence of the move was that they lost the rental income they had previously received.

[21]	When Colleen sold 86A, the consideration she received was not solely cash. In addition to some cash, she agreed to take three units situated at Tui Street, Taupo (the Taupo properties). Mr and Mrs Warin say that the transaction resulted in a GST liability for Colleen of $141,749.70, which Colleen could not pay. They say, and Colleen does not dispute, that Colleen asked them to lend the money to her. Mr and Mrs Warin contend that Colleen told them she would repay the $141,749.70 when she received a GST refund, which she expected to receive within a few months of the transaction being completed.

[22]	The loan was made, but Colleen did not repay the $141,749.70. Nor has she repaid the $100,000.00 which was the subject of the mortgage in favour of Mr and Mrs Warin registered over the Te Puke property and (later) over 86A and 86B. These two sums are now claimed by Mr and Mrs Warin in their application for summary judgment.

[23]	In addition to those sums, Mr and Mrs Warin say that between them they lent Colleen a total of $126,154.20, by 23 separate advances, over the period 2010 to 2014. Details of these advances, as pleaded in the amended statement of claim, are set out in the schedule to this judgment.

[24]	Mr and Mrs Warin’s case is that all of the advances were repayable on demand. They say that they made demand for the money they had by then advanced, on 3 May 2012. No payment was made in response to that demand. Eventually they consulted solicitors, and on 7 August 2015 their then solicitors, Harkness Henry, send a further letter of demand to Colleen. The further demand referred to Harkness Henry acting for Mr and Mrs Warin in their personal capacities and in their capacities as trustees of the two Trusts. It referred to advances made by Mr Trevor Warin totalling $190,433.27, and advances made by Mrs Marian Warin totalling $177,470.63. The letter demanded repayment of the total sum of $367,903.90 by 21 August 2015.

[25]	Colleen has not paid any part of the amount demanded.

[6]	While Colleen did not deny that she had received the funds claimed by her parents, she opposed the summary judgment application. She contended that the loans were not made by her parents but by their respective family trusts (which were also plaintiffs), that the loans were not repayable upon demand, and that if they were repayable upon demand there had been no valid demands for repayment. Associate Judge  Smith  found  against  these  defences.    He  gave  judgment  for  Marian  for
$177,430.63, and for Trevor for $190,433.27, and awarded interest and costs. The total judgment sum payable to Marian was $191,984.33. Judgment was entered before

the Interest on Money Claims Act 2016 came into force (1 January 2018).   Under     r 11.27 of the High Court Rules (then in force) judgment debts carried interest at the rate prescribed under s 87 of the Judicature Act 1908, which at that time was 5 per cent per annum.

[7]	While Marian has taken formal steps to enforce the judgment against Colleen, Trevor has not. Marian’s solicitors do not have instructions for Trevor. I understand that Colleen may have made some arrangement to deal with Trevor’s debt.

[8]	The relationships in the family are now fractured. Wayne appears sympathetic to Colleen’s position. They accuse Nigel of supporting his mother, but only for his own personal benefit. They allege that he is exercising undue influence over Marian.

Preliminary matters

[9]	Before moving to Colleen’s grounds for her setting-aside application, I refer to other matters, simply to put them out of the way. Under s 17(1)(d) of the Insolvency Act 2006 one way to comply with a bankruptcy notice is to satisfy the court that the debtor has a cross claim against the creditor. A cross claim is a counterclaim, set-off or cross demand which is equal to or greater than the debt owed to the creditor and which the debtor could not use as a defence in the proceeding in which the judgment was obtained. Colleen does not say that she has a cross claim against Marian.

[10]	Case law has recognised that bankruptcy notices may be set aside. A notice may be formally defective, for example, for non-compliance with s 29 of the Insolvency Act or because of defects in service (such as service overseas when leave has not been granted under s 17(3) of the Insolvency Act). The court can also set aside a bankruptcy notice in its inherent jurisdiction on the ground of abuse of process. In Re Wise, Master Kennedy-Grant recognised that a bankruptcy notice may be set aside to prevent an abuse of process.3 That jurisdiction may be exercised when there has been a procedural defect in obtaining the judgment on which the bankruptcy notice is based, or because there were arguable grounds of defence to the claim when judgment had been obtained by default. The grounds for setting-aside for abuse of process in

3	Re Wise Ex parte Benecke HC Auckland, B227-228/95, 21 June 1995.

the inherent jurisdiction are not necessarily as narrow as those described by Master Kennedy-Grant.4

[11]	Nevertheless, it is important to recognise that the grounds for setting-aside a bankruptcy notice are confined. The purpose of a bankruptcy notice is to test the solvency of a judgment debtor. If the debtor does not comply with the notice, the debtor will commit an act of bankruptcy and that will give the creditor grounds under ss 13 and 16 of the Insolvency Act to apply for the debtor’s adjudication in bankruptcy. When a debtor applies to set aside a bankruptcy notice, they are saying that that notice ought not to be used to test their solvency. On an application to set aside a bankruptcy notice, the court does not decide wider questions such as how to deal with the insolvency or otherwise of the judgment debtor. Those matters are more appropriately dealt with on a hearing of a bankruptcy application. They are generally not relevant to deciding the validity of a bankruptcy notice.

Finality of the judgment of 26 April 2017

[12]	Associate Judge Smith gave his judgment on a defended summary judgment application after a hearing in court where the lawyers for both sides presented submissions. Affidavit evidence had been filed. Before the hearing, Associate Judge Smith had given procedural directions.5 His decision shows that there was full argument on the merits. In the hearing of this application, Colleen complained that there had been no cross-examination of witnesses. That, however, is normal on summary judgment applications. On a plaintiff’s application for summary judgment, the court must be satisfied that the defendant has no defence. If the judge giving summary judgment is so satisfied on the evidence, they must be able to come to that decision on the basis that cross-examination would make no difference to the result. As judgment was given after Colleen had tested her parents’ claim and there had been full argument, there is no reason for not treating Associate Judge Smith’s decision of 26 April 2017 as final and binding. Colleen did not appeal against that decision. The decision unquestionably established her indebtedness to her parents. There is no basis for looking through the judgment to re-examine whether she is truly indebted to

4	Re Reynolds ex parte Bartlett [2014] NZHC 447.
5	See paragraphs [4]-[15] of his decision.

Marian and to Trevor. In short, this is not the kind of case where a bankruptcy notice should be set aside on the abuse of process ground contemplated by Master Kennedy- Grant in Re Wise.6

The claim for interest

[13]	Associate Judge Smith awarded Marian interest before judgment and the judgment, as a matter of law, carries interest. Colleen contends that is wrong. She says that her mother never expected Colleen to pay interest on the loans. Associate Judge Smith accepted that there was no agreement for payment of interest but he awarded interest in the court’s discretionary power under s 87 of the Judicature Act 1908. 7 Lawyers acting for Marian and Trevor Warin made demand on 7 August 2015. Judge Smith held that Colleen ought to have repaid her parents within a month of that date and they should have interest under s 87 at the rate of 5 per cent per annum from 7 September 2015 to the date of judgment. Interest was accordingly ordered as a matter of law to compensate Mr and Mrs Warin for being held out of their money after they had made demand for repayment. The award of interest is final in the same way as other parts of the judgment are final and cannot be re-visited. Likewise, the judgment debt carries interest by operation of law under r 11.27. I am satisfied, therefore, that Marian is entitled to claim in the bankruptcy notice the judgment amount (including interest) plus interest on the judgment.

Marian’s address in the bankruptcy notice

[14]	A bankruptcy notice is required to specify the full name and address of the creditor. Form B2 of the First Schedule to the High Court Rules provides in part:

You must pay to the judgment creditor, [full name, address], $ [amount], either in person or at the address for service of the judgment creditor (or the solicitor for the judgment creditor). This amount is the amount the judgment creditor claims is due …

[15]	The bankruptcy notice follows that form but gives as the address for Marian her former home in Te Puke. She does not presently live there, but her husband Trevor

6	Re Wise ex parte Benecke HC Auckland, B227-228/95, 21 June 1995.
7	Warin v Warin [2017] NZHC 786 at [129].

does. The notice also states that payment may be made at Marian’s address for service, which is specified at the end of the document.

[16]	Colleen’s objection is that her mother no longer lives at the Te Puke address and it is therefore not possible to pay her at that address. To deal with the point raised by Colleen, I treat Marian as a foreign creditor. While the Te Puke address is her former home, it is not her current home.

[17]	Mr Anderson said that the point was addressed because any payment at the Te Puke address would be sent on to Marian, but there is no evidence how that could be arranged.

[18]	There is a practical issue: how is a foreign creditor to specify in the bankruptcy notice an address for payment as well as an address for service? It would be extremely inconvenient for the foreign creditor to specify a place for payment outside New Zealand. A debtor served in New Zealand is given only 10 days in which to comply with the notice. There could be very practical problems with paying in person at an address outside New Zealand. Clearly to allow a debtor in New Zealand, served with a bankruptcy notice, a reasonable chance to comply with the notice, an address for payment in New Zealand should be specified, even if the creditor is outside New Zealand. A creditor, including a foreign creditor, may name an agent for payment and state the agent’s address as a place for payment. Section 29(2) of the Insolvency Act says:

The bankruptcy notice may name an agent on behalf of the creditor insofar as the notice requires –

(a)	any payment to be made to the creditor; or

(b)	any other step to be taken that involves the creditor.

[19]	While the notice here can be criticised for not naming an agent at the Te Puke address to whom payment can be made, an address for payment is nevertheless specified. Besides, the notice also allows for payment at the address for service, which is specified in the notice. The technical defect in the notice, the non-specification of an agent in New Zealand to receive payment on Marian’s behalf, can be cured under s 418 of the Insolvency Act. In these circumstances, I direct that any payment to be

made under the bankruptcy notice is to be made at the office of Marian’s solicitors. The Te Puke address can be disregarded.

Effects of bankruptcy

[20]	Colleen submitted that an adjudication of bankruptcy is inappropriate. She is a chartered accountant and works on contract. An adjudication in bankruptcy would severely affect her earning ability. She also outlined some of her other personal financial circumstances and steps she had taken to sell properties in Taupo and Waiheke, both of which were mortgaged. She also referred to the adverse effects of media publicity about her parents’ claims against her. These matters are not relevant to whether the bankruptcy notice should be set aside. They may be relevant on the hearing of any later bankruptcy application, but they do not count here.

Other enforcement steps

[21]	Marian had taken other enforcement steps, including a sale order, with a view to having Colleen’s property on Waiheke sold. I was advised that that had been put on hold to await the outcome of the setting-aside application. It is not relevant to an application to set aside a bankruptcy notice that a creditor has taken other steps to enforce the judgment.

The challenge to Marian’s capacity

[22]	Colleen maintains that her mother lacks mental capacity and that she is under Nigel’s control and influence. Marian’s capacity was not in issue in the proceeding in which Marian obtained judgment against Colleen, even though it was recognised that Trevor lacked capacity.

[23]	In response to the challenge to her capacity, Marian has sworn an affidavit. She states that she does not lack capacity, she is fully aware of the proceeding and is giving instructions to her solicitor about it. While she lives with Nigel, she is the one giving instructions, not Nigel. Notwithstanding that, Colleen has raised some matters that at least raise a question as to Marian’s capacity. She is 88 years old, she no longer

has any contact with Wayne and Colleen, her grandchildren in New Zealand or her great-grandchildren. An interest in an apartment at Maroochydore, Queensland, has been transferred to Nigel’s company.   Her interest in the former  family home in    Te Puke has been transferred to trustees, including Nigel and herself. Colleen submitted that Marian had taken part in a meeting by video-link on 18 March 2018 for some two hours. Colleen maintained that Marian appeared disorientated and unable to answer questions without prompting by Nigel.

[24]	The capacity rules are in Part 4 subpart 7 of the High Court Rules. Rule 4.30(1) says:

4.30	Incapacitated person must be represented by litigation guardian

(1)	An incapacitated person must have a litigation guardian as his or her representative in any proceeding, unless the court otherwise orders.

…

An incapacitated person is defined in r 4.29:

incapacitated person means a person who by reason of physical, intellectual, or mental impairment, whether temporary or permanent, is—

(a)	not capable of understanding the issues on which his or her decision would be required as a litigant conducting proceedings; or

(b)	unable to give sufficient instructions to issue, defend, or compromise proceedings

[25]	At this stage, the evidence is not enough to make an affirmative finding that Marian is incapacitated, but Colleen has done enough to suggest that the matter should be checked.

[26]	Colleen proposed that Marian should be required to attend court to be cross- examined so that her incapacity could be established. Mr Anderson objected, saying that this was no more than a ploy to put emotional pressure on Marian not to persist with her claim. I accept the force of that objection.

[27]	An application to set aside a bankruptcy notice is an interlocutory application and special leave to cross examine a deponent is allowed only in special

circumstances.8 Conflicts between deponents do not themselves create special circumstances justifying cross-examination. Requiring Marian to be cross-examined is unlikely to assist on the capacity question. Assessing capacity is a matter of specialist medical expertise. Instead, Marian’s capacity should be checked by obtaining a report by an appropriate medical specialist – for example, a psycho- geriatrician – as to her capacity to give instructions for this proceeding. Marian’s lawyers should arrange for her to be examined by a specialist and for the specialist to provide an affidavit reporting on the examination and on Marian’s ability to understand the issues and to give sufficient instructions. If the report shows that Marian does not have capacity, it will be necessary to consider the appointment of a litigation guardian. The parties should provide proposals for that. Because it is not possible now to rule on the capacity question, the hearing is adjourned to allow medical evidence to be filed on Marian’s capacity.

[28]	I have not addressed Colleen’s complaint that Marian is no more than a puppet for Nigel. That can be considered once the medical evidence is made available.

Outcome

[29]	Accordingly, I give these directions:

(a)	The hearing is adjourned to allow Marian to be medically examined as to her incapacity to understand and give instructions for this proceeding.

(b)	An affidavit by the medical specialist who will examine Marian is to be filed and served. Once that affidavit is filed, counsel for Marian is to advise the court so that a telephone conference can be convened for further directions.

(c)	The time for complying with the bankruptcy notice has not yet expired. If Colleen wishes to make any payments under the notice, they are to be made Marian’s address for service, not the Te Puke address.

8	High Court Rules 2016, r 7.28.

(d)	Costs are reserved pending a final decision on the setting aside application.

……………………………….
Associate Judge R M Bell