IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2014-463-000176 [2015] NZHC 402

UNDER	The Insolvency Act 2006	

IN THE MATTER OF	
The bankruptcy of Ralph Donald McBeth	

BETWEEN	
CRANE DISTRIBUTION NZ LIMITED Judgment Creditor	

AND	
RALPH DONALD McBETH Judgment Debtor	

CIV 2014-000175

UNDER	The Insolvency Act 2006

IN THE MATTER OF	The bankruptcy of Rae Patricia McBeth

BETWEEN	CRANE DISTRIBUTION NZ LIMITED Judgment Creditor

AND	RAE PATRICIA McBETH Judgment Debtor

Hearing:	On the papers	

Appearances:	
R Connell for the Judgment Creditor
L A Foley for the Judgment Debtors	

Judgment:	
10 March 2015	

COSTS JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on
10.03.15 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar
Date……………

CRANE DISTRIBUTION NZ LIMITED v R D McBETH and R P McBETH [2015] NZHC 402 [10 March
2015]

[1]       These two proceedings concern applications by the judgment debtors to set aside the bankruptcy notices served on them.

[2]	Notices of opposition to those applications were filed. [3]	On 5 February 2015:
(a)       The  Court  was  advised  the  setting  aside  applications  would  be withdrawn.  The Court was also advised the parties were agreed that the judgment creditor would not pursue bankruptcy applications relying on those bankruptcy notices.

(b)	The Court ordered the setting aside applications to be dismissed.

[4]       Counsel could not agree regarding competing claims for costs.   The Court directed  submissions  be  filed  and  for  its  decision  to  issue  on  the  papers. Submissions have now been received from counsel.

Background

[5]       Judgment was entered against the judgment debtors on 5 June 2012 in the sum of $111,119.40.

[6]       Bankruptcy  notices  were  filed  on  23  October  2014  seeking  payment  of

$63,655.70.  Those notices recorded the payment by the judgment debtors of the sum of $47,500 in reduction of the judgment debt.

[7]       Bankruptcy notices were served on 29 October 2014.   Applications to set aside the bankruptcy notices were filed on 12 November 2014.  Those applications were of course filed out of time.  It seems counsel agreed those applications could be filed out of time.  In fact by 23 October 2014 those notices had expired and could not thereafter found a claim for setting aside.

[8]       This is of minor consequence in the frame of issues raised by the costs application because both sides acted as if the applications were properly filed.  The

costs applications are focussed upon whether those bankruptcy notices ought to have been served anyway.

[9]       The Court has carefully reviewed counsels’ submissions.  It is not the Court’s

intention in this judgment to provide a detailed account of the factual background.

[10]     The Court’s clear view is that the actions of the judgment creditor and its solicitors  consisted  of  a  deliberate  attempt  to  extract  an  increase  of  an  agreed monthly  repayment  rate  by  promoting  unreasonable  demands  regarding  that increase, and by attempts to bully the judgment debtors into making concessions.

[11]     It was implicit by the original payment arrangement that an orderly and respectful review process was available and ought to have been adopted.   The judgment creditor did not honour that obligation when it unilaterally demanded a monthly repayment rate at a level exceeding more than three times than had previously been accepted.  It is correct that the judgment creditor had made a request for a review and in that regard sought certain information by their letter dated 28
October 2014.   The judgment creditor’s solicitors advised they proposed pursuing recovery and they requested proof that the judgment debtors had no available assets or income to increase the monthly payments due.  In fact, they had obtained sealed copies of bankruptcy notices five days earlier on 23 October.  Those notices were served on 29 October, which is just one day after the relevant information had been requested from the judgment debtors.

[12]     The  bankruptcy  notices  were  served  to  force  the  judgment  debtors  into making  some  repayment  concessions  without  regard  at  all  to  the  ability of  the judgment debtors to meet those.

[13]     The judgment creditor’s actions were vindicated, its solicitors would argue, because time had previously been provided to the judgment debtors to supply sufficient information.   That submission is correct but in part only.   The overall purpose of original enquiries on behalf the judgment creditor suggested significant pressure being applied without the judgment creditor having reasonable grounds at all for believing the judgment debtors could afford to pay more.  Their actions on

this  occasion  were  not  within  the  spirit  of  the  settlement  agreement  originally entered into nor in the initial review process that followed.

[14]     It appears that from the beginning the judgment debtors have without fail met their agreed monthly repayment arrangements.

[15]     The bankruptcy notices were issued in circumstances where the debtors had previously explained their circumstances and that explanation was accepted; despite which  the creditor made demand  for 3.7  times  the then current  instalment  rate without having sought any information as to the debtors actual financial circumstances.

[16]     The Court agrees with the submission that the bankruptcy notices were an unjustifiable step in the circumstances.

[17]     The  judgment  creditor  has  claimed  increased/indemnity costs  against  the judgment debtors on grounds:

(a)     The judgment debtors knowingly and unreasonably avoided correspondence and negotiation with the judgment creditor.

(b)       The  judgment  debtors  appeared  to  be  unwilling  to  come  to  a reasonable agreement.

(c)       It  was  reasonable  for  the  judgment  creditor  to  believe  that  the judgment debtors were able to afford further increased instalments because those had not increased for one and half years prior.

[18]     It is submitted, the issuing of notices to set aside was an unnecessary step; that the judgment debtors, without reasonable justification, failed to accept an offer to  settle  the  proceedings;  and  the  judgment  debtors’  actions  were  vexatious, improper and unnecessary.

[19]     It is clear from the comments already made that the Court does not accept there is any significant foundation to those claims.

[20]     The judgment debtors’ solicitors wrote to the judgment creditors’ solicitors on 11 November 2014 stating that the judgment debtors were forced to file their set aside applications because otherwise they would have committed acts of bankruptcy upon which another creditor may rely.

[21]     The  judgment  creditors’  solicitors  reject  that  position.    But,  in  fact  that statement of position on behalf of the judgment debtors is correct for a creditor filing a separate application for adjudication is indeed able to rely upon the bankruptcy notice of another which has not been satisfied in time.

[22]     Notwithstanding the Court’s view that the setting aside applications were filed out of time and therefore could not have formed any valid basis for the grant of a set aside it seems to the Court in all the circumstances of this particular case it was proper for the setting aside applications to have been filed.

Conclusions

[23]     The parties’ agreement for the dismissal of the setting aside applications and upon the judgment creditors undertaking not to pursue bankruptcy applications based on those bankruptcy notices, provides an agreement of the parties that the Court should consider justifies an award of costs to that party whose actions were more justifiable.

[24]     It is clear from the Court’s account of matters earlier in this judgment that little cause at all can be found that justifies the actions on behalf of the judgment creditors.   The Court considers the judgment creditor did not observe the word or spirit of arrangements for obtaining a review.  On the other hand there were delays made by or on behalf of the judgment debtors in responding to requests for further information.  By then however the judgment creditors had resorted to bullying tactics it having formed the clear view that it was not prepared to wait as long as the repayment agreement contemplated.

[25]    Scale costs ought to be paid to the judgment debtors for although their applications  were  formally  dismissed,  those  were  withdrawn  as  part  of  a  deal whereby it was agreed no bankruptcy applications would be pursued.

[26]     In the Court’s view a single award of 2B costs be awarded in respect of the setting aside applications.  However the Court will order payment of disbursements on both setting aside applications.

[27]   If the parties cannot agree upon a calculation of those costs then brief submissions are to be filed and a decision will be made on the papers.

Associate Judge Christiansen