Jeffreys and Anor v Morgenstern

JurisdictionNew Zealand
CourtHigh Court
Judgment Date17 Nov 2014
Neutral Citation[2014] NZHC 2847
Docket NumberCIV-2014-404-0742

[2014] NZHC 2847

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-0742

CIV-2014-404-001648

In The Matter of the Insolvency Act 2006

In The Matter of the Bankruptcy of Arthur Sylvan Morgenstern

Between
Stephanie Beth Jeffreys And Timothy Wilson Downes
Judgment Creditors
and
Arthur Sylvan Morgenstern
Judgment Debtor

Under the Companies Act 1993

In The Matter of the liquidation of Kingdon Undertaking Limited (in Liquidation)

Between
Arthur Sylvan Morgenstern
Applicant
and
Stephanie Beth Jeffreys And Timothy Wilson Downes
Respondents
Appearances:

Mr Malarao for Judgment Creditors

Mr Tingey for Judgment Debtor

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so that he could be served — debtor argued there was a vertically retractable gate — whether the order should be rescinded under r7.49 High Court Rules (“HCR”) (order may be varied or rescinded if shown to be wrong) or r7.51 HCR (order may be rescinded if fraudulently or improperly obtained).

The issues were whether the order for substituted service should be rescinded and the bankruptcy notice set aside.

Held: Rule 7.49 HCR (order may be varied or rescinded if shown to be wrong) and r7.51 HCR (order may be rescinded if fraudulently or improperly obtained) did not apply to orders made by an Associate Judge in chambers, as the order in this case was.

Under r7.51 HCR, it was not necessary for an applicant for a rescission order to establish that there was knowing dishonesty on the part of the applicant or the solicitor representing him in applying for the substituted service order. Inadvertently misleading material placed before the Court was sufficient to justify discharge.

When the matter had first came before the Court, the question was not whether substituted service could be justified in terms of r6.8 HCR but rather what form the order ought to take. It was well known that making provision for affixing documents to the front door of an address was a common means adopted for substituted service. At the point where the Court was dealing with the application for substituted service, there was far less information before the Court as to the configuration of the property of the judgment debtor than there now was.

The key issue was that counsel advised that there was no front gate. In the rural context, affixing the documents to the front gate would be the equivalent of attaching them to the front door of an urban property. It was unlikely that the Judge, on being told that there was no front gate and that there was a shared driveway would want to make further enquiries to assess the topography and layout of the property's entrance way to determine whether there was some point alternative to a gateway that would be a satisfactory place to leave the documents. That was particularly so when there was a viable alternative suggested for substituted service of the documents, in this case the offices of the solicitor.

Counsel who filed the memorandum was entitled to proceed on the basis that it would be understood that there was no front gate in the sense of being a gate adjoining the highway. There had not been any material misdescription of the situation arising from the assertion in the second memorandum that there was no front gate to the property. The fact that a vertically retractable gate would be unsuitable to affix documents to was self-evident.

There were two dwellings on the property. Access to both properties was from the same road that adjoined the highway. Further background information about the layout of the driveway was of interest but was not essential to the Court's assessment of the position. The fact that an entrance served two different occupiers of the property, rather than two occupiers of different properties, was immaterial. The fact that they were both entering and leaving the same property by a common drive made no difference as each could see the documents.

There was no substance to the points that the debtor raised about the allegedly misleading nature of the memorandum which counsel for the judgment creditor filed.

Application to set aside the bankruptcy notice dismissed.

JUDGMENT OF THE COURT

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……………

Introduction
1

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.

2

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.

Issue concerning service of the bankruptcy notice
3

The history of the circumstances in which the substituted service order was made is now set out.

4

In a without notice application for substituted service dated 15 April 2014, counsel for the judgment creditors relied upon a number of factual contentions.

5

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.

6

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.

7

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.

8

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.

9

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...

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