Jeffreys and Anor v Morgenstern
| Jurisdiction | New Zealand |
| Judgment Date | 17 November 2014 |
| Neutral Citation | [2014] NZHC 2847 |
| Date | 17 November 2014 |
| Docket Number | CIV-2014-404-0742 |
| Court | High Court |
In The Matter of the Insolvency Act 2006
In The Matter of the Bankruptcy of Arthur Sylvan Morgenstern
Under the Companies Act 1993
In The Matter of the liquidation of Kingdon Undertaking Limited (in Liquidation)
[2014] NZHC 2847
CIV-2014-404-0742
CIV-2014-404-001648
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
Application by the judgment debtor to rescind a substituted service order — judgment creditors were the liquidators of the judgment debtor's company — they had previously obtained judgment against the debtor in favour of the company for $3.5 million — judgment debtor asserted that the judgment creditors obtained the substituted service order in circumstances where there was no full and frank disclosure to the Court of all material facts and the Court should deem the bankruptcy notice as never having been served — service agent attempt unsuccessfully to serve the notice on the debtor at his home address — creditors advised the Court that it was not possible to attach the documents to the debtor's front gate as directed because there was no gate, and there was only a fence and a shared driveway — debtor argued that this misled the court — substituted service order under r6.8 High Court Rules (“HCR”) (substituted service) was made that the notice be served on the judgment debtor's solicitors -debtor claimed he had told the service agent he would meet him elsewhere so that he could be served — debtor argued there was a vertically retractable gate — whether the order should be rescinded under r7.49 High Court Rules (“HCR”) (order may be varied or rescinded if shown to be wrong) or r7.51 HCR (order may be rescinded if fraudulently or improperly obtained).
Mr Malarao for Judgment Creditors
Mr Tingey for Judgment Debtor
This judgment was delivered by me on 17.11.14 at 4 p.m, pursuant to Rule 11.5 of the High Court Rules.
Date……………
The judgment debtor asserts that the judgment creditors obtained the substituted service order in circumstances where there was no full and frank disclosure to the Court of all material facts. For that reason, he applies to rescind the order for substituted service. It is the case for the judgment debtor that if the substituted service order is set aside, then the result is that the Court should deem the bankruptcy notice to never have been served upon him. It would follow from such a conclusion that the judgment creditor is not able to rely upon the purported non-compliance with the bankruptcy order as an act of bankruptcy.
The judgment creditors are the liquidators of Kingdon Undertaking Limited. In Jeffreys v Morgenstern, Hansen J gave judgment against the judgment debtor in favour of the company for breaches of directors' duties. The judgment debtor was ordered to pay $3,499,999 to his company. 1 The judgment creditors issued a bankruptcy notice and had their service agent, Mr Peter Ward, attempt unsucessfully to serve the notice on the judgment debtor. A substituted service order was then made and the bankruptcy notice was served upon the judgment debtor's solicitors.
The history of the circumstances in which the substituted service order was made is now set out.
In a without notice application for substituted service dated 15 April 2014, counsel for the judgment creditors relied upon a number of factual contentions.
It was stated that the legal firm of Gilbert Walker had confirmed to counsel for the judgment creditors on 8 April 2014 that they were authorised to accept service of the bankruptcy notice on behalf of the judgment debtor.
It was stated in the application that before service could be effected on Gilbert Walker, the firm advised that Bell Gully would accept service of the bankruptcy notice and that they were no longer authorised to do so. Further, it was said, on 8 April 2014, Bell Gully wrote to counsel for the judgment creditors advising that the judgment debtor had taken an assignment of a security over the assets of the debtor's company, that was previously held by ANZ National Bank Limited. The letter further stated that the security extended to the judgment which was the subject of the bankruptcy notice and that the judgment creditors had no authority to deal with the assets subject to the security, and consequently no right to issue a bankruptcy notice in respect of the judgment. Further, the letter stated that Bell Gully was not instructed to accept service of the bankruptcy notice.
In support of the application judgment creditors presented evidence of an unsuccessful attempt at service. In an affidavit which Mr Ward swore on 15 April 2014, he deposed that he had received instructions to serve documents on the judgment debtor's address at 781 North Road in Clevedon. He said that he had previously served documents on the judgment debtor at that address. He described the property as having a long, tree-lined driveway. Mr Ward deposed that on 11 April 2014 at 7.53 am, he had called at the property to serve the documents. The circumstances which Mr Ward set out in his affidavit in brief were that a woman at the address told Mr Ward that the judgment debtor was not there and that he had gone into the city for a meeting. Mr Ward then left his business card and asked her to have the judgment debtor phone him so that they could arrange for a time to meet and he could give the judgment debtor the documents in the envelope which he had with him.
Mr Ward deposed that he left the property and at 9.29 am that day, he received a phone call from the judgment debtor. The judgment debtor said that he had been in the shower when Mr Ward called at the property. Mr Ward deposed that the judgment debtor said he had arranged for his solicitors, Gilbert Walker, to accept service of the documents. Mr Ward said he told the judgment debtor that he did not know about that arrangement. He deposed that the judgment debtor then said that he would call his solicitor about the matter and then call him, Mr Ward, back within the hour. Mr Ward said that the judgment debtor did not call him back.
I interpolate that in evidence he has given, the judgment debtor does not accept that he did not call back to Mr Ward. He says that he did so to and in the course of that conversation indicated his agreement to meet with Mr Ward to accept service. He does not say that any agreement was then made as to a time and place to meet. I take it that he is therefore saying that he called Mr Ward back indicating that he was prepared to meet and that the conversation ended without either he or Mr Ward actually fixing a time and place to meet so that the latter could affect service of the documents on the judgment debtor.
Whatever the correct position, Mr Ward deposed that later in the same day at around 3 pm, a solicitor from the firm of Bell Gully, called him and advised him that the firm now acted for the judgment debtor and that he was not to go back onto the property and if he did so he would be trespassing.
On 14 April 2014 Bell Gully wrote to the counsel for the judgment creditors repeating the trespass warning that it had given to Mr Ward personally.
Thereafter, the judgment creditors made an application seeking an order for substituted service of the bankruptcy notice. They sought an order that the service of the proceedings could be completed by leaving the documents with Bell Gully.
The matter came before the Court following which a minute was issued in which reservations were expressed about whether it was desirable for substituted service of proceedings to be effected on solicitors acting. The suggestion was made that the papers could be served by affixing them to the front gate of the property.
The terms of the minute dated 3 May 2014 are not unimportant and should be set out in detail:
1. While there is no prohibition upon serving documents for the purposes of substituted service on solicitors acting, I consider that it would be preferable in the circumstances of this case of a varied order for substituted service to be made. I consider that the appropriate form of order would be to affix the documents to the front gate of the property at 781 North Road, Clevedon, with the documents being packaged or labelled conspicuously in order to ensure that they are noticed by the occupants of the property.
That minute drew a response from counsel for the judgment creditors in the form of a memorandum dated 6 May 2014. The terms of which should also be set out verbatim:
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1. We refer to the minute of His Honour Associate Judge Doogue dated 3 May 2014.
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2. Counsel has conferred with Mr Ward, the judgment creditor's process server, who has previously been to the property at 781 North Road, Clevedon, regarding the proposed orders for substituted service.
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3. Mr Ward has advised that there is no front gate to the property, and the driveway is also a shared driveway, with a post and rail-type fence at the entrance. The number “781” is positioned on the top rail of defence to the left of the driveway entrance.
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4. Counsel submits that, given the absence of a front gate, affixing the documents in the manner proposed in His Honour's minute is not possible. However in the event that His Honour considers as service at the premises is preferred, the order ought to be amended to provide for the documents to be affixed to the fence near the entrance of the driveway.
It is to be noted that it is this memorandum which counsel for the judgment creditors filed which is said to have unintentionally misled the Court.
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