Minter Ellison Rudd Watts v Hampton

• Jurisdiction: New Zealand
• Judge: Judge Osborne
• Judgment Date: 20 July 2012
• Neutral Citation: [2012] NZHC 1715
• Docket Number: CIV-2011-409-0002055
• Court: High Court
• Date: 20 July 2012

In the Matter of the bankruptcy of David John Hampton

Between

Minter Ellison Rudd Watts

Judgment Creditor

and

David John Hampton

Judgment Debtor

[2012] NZHC 1715

CIV-2011-409-0002055

IN THE HIGH COURT OF NEW ZEALAND

CHRISTCHURCH REGISTRY

Application for an order setting aside a bankruptcy notice under r24.10 High Court Rules (setting aside bankruptcy notice) — debtor involved in on-going litigation with Commissioner of Inland Revenue (“CIR”) — creditor law firm had represented debtor in some proceedings — outstanding legal fees of $172,000 not been paid — creditor obtained summary judgment for amount — debtor claimed had set off for professional negligence — unreasonable charges not proven — whether there were grounds to set aside the bankruptcy notice under s17(1)(d)(ii) Insolvency Act 2006 (failure to comply with bankruptcy notice).

Appearances:

D J Hampton (Debtor/Applicant) In Person

C A Levermore for Creditor/Respondent

JUDGMENT OF ASSOCIATE Judge Osborne

[as to application to set aside bankruptcy notice]

Introduction

1 This proceeding is yet another product of the litigation which has grown around Mr Hampton and his related entities (which I will refer to collectively as “Mr Hampton”) since they fell out with the Commissioner of Inland Revenue approximately 20 years ago. 1

2 Minter Ellison Rudd Watts (“Minter Ellison”) on 11 February 2010 obtained a judgment for $172,462.57 (plus interest and costs). They now have served a bankruptcy notice on Mr Hampton.

The grounds of the application

3 This judgment concerns Mr Hampton's application for an order setting aside the bankruptcy notice under s 24.10 High Court Rules.

4 Mr Hampton says that the bankruptcy notice should be set aside for two reasons. These are:

• (a) Mr Hampton has a cross-claim against Minter Ellison (s 17(1)(d) Insolvency Act 2006); and

• (b) the Court in its discretion (reliance being placed on ss 37 and 38 of the Act) and pursuant to its inherent jurisdiction should set the notice aside because there is reason to believe that Mr Hampton will shortly receive quantification and payment of a costs judgment in his favour against the Commissioner of Inland Revenue.

Setting aside a bankruptcy notice – the principles

5 Rule 24.10 provides:

Setting aside bankruptcy notice

• (1) If an application to set aside a bankruptcy notice cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the time is treated as extended until the application has been determined.

• (2) An act of bankruptcy is not committed by reason only of non-compliance with the notice until the application has been determined.

6 Section 17(1)(a) of the Act provides:

17 Failure to comply with bankruptcy notice

(1) A debtor commits an act of bankruptcy if—

• …

• (d) the debtor has not, within the time limit specified in subsection (4), —

  • (i) complied with the requirements of the notice; or

  • (ii) satisfied the Court that he or she has a cross claim against the creditor.

• …

7 Both Mr Hampton and Ms Levermore adopted as the test for setting aside a bankruptcy notice the formulation of Cooke P in Sharma v ANZ Banking Group to which I return below. 2

Factual background

8 The background to Minter Ellison's work for and judgment debt against Mr Hampton is set out in the judgment of Associate Judge Christiansen when summary judgment was granted on 11 February 2010. 3

9 Associate Judge Christiansen summarised the nature of Minter Ellison's claim thus:

• [1] The plaintiff (MERW) seeks summary judgment upon its claim for legal services. The defendants engaged MERW to represent them in respect of two successful judicial review proceedings, and associated interlocutory applications, brought against the Commissioner of Inland Revenue (the Commissioner). Two separate contracts of retainer were entered into. The first encompassed the period March 2005 to May 2006 (the first retainer) and the second encompassed the period June 2007 to June 2009 (the second retainer).

• [2] Eleven invoices were issued by MERW to the defendants between June 2008 and May 2009 for legal services provided under the second retainer. The present claim is for $172,462.57 being the balance owing on those unpaid invoices. All invoiced costs provided under the first retainer have been paid by the defendants.

10 His Honour dealt with the background to Minter Ellison's representation of Mr Hampton from January 2005 to June 2006 in this way:

• [4] Until December 2004 the defendants were represented by Buddle Findlay, barristers and solicitors (Buddle Findlay). Initially Buddle Findlay were engaged in settlement negotiations with the

  Commissioner “concerning a protracted tax dispute involving a range of historical issues”. An objection of complaint was made against the Commissioner following the Commissioner's issue of a statutory demand. Ultimately Buddle Findlay prepared and filed an application for judicial review on behalf of the defendants. Mr Hampton states that because the defendants were unable to continue to fund the representation of Buddle Findlay he personally undertook the initial formal discovery and inspection of the Commissioner's documents in November 2004.

• [5] When on 13 December 2004 Buddle Findlay formally withdrew as solicitors on the record, the defendants instructed Mr Andrews in January 2005. At that time he was a partner at Palmer Chen, barristers and solicitors. Shortly afterwards Mr Andrews joined the partnership of MERW. MERW were instructed from March 2005 to May 2006 and from June 2007 to June 2009 in relation to two High Court judicial review proceedings. Each period of retainer was the subject of a separate contract of retainer.

• [6] Mr Hampton states MERW withdrew its representation a month prior to the first judicial review hearing in July 2006 and did not represent the defendants in that hearing.

11 Minter Ellison was subsequently re-engaged by Mr Hampton. The timing and nature of Minter Ellison's re-engagement was summarised by Associate Judge Christiansen in this way:

• [41] MERW was reengaged by the defendants in June 2007. Mr Andrews deposes that initially the engagement was for the limited purpose of determining whether a settlement with the Commissioner could be reached in light of the defendants' success in their initial review proceedings. Subsequently MERW agreed to act for the defendants in their further judicial review proceedings against the Commissioner, and related proceedings to set aside freezing orders that the Commissioner had obtained. Although by then historical invoices were still unpaid, MERW formed the view, based on the merits of the defendants' position, that there was a realistic prospect that the further proceedings would free up funds for payment of their costs.

• [42] In the outcome of Fogarty J's judgment of 31 October 2007 and as a result of other developments including the mortgagee sale of a number of the defendants' properties funds were realised and the defendants settled all of MERW's unpaid invoices in early 2008, and advanced some further funds towards ongoing legal costs.

• [43] Following the re-enactment of the Lawyers and Conveyances [sic] Act 2006 and its coming into force on 1 August 2008 MERW advised the defendants of the terms of its retainer with them on 5 August 2008.

• [44] MERW's invoice for June 2008 was not settled in full and thereafter all invoices went unpaid. Nevertheless they agreed to continue to represent the defendants through to the hearing of the second judicial review proceedings in late October 2008. They say they agreed to do so on the basis that payment would be postponed until those proceedings were determined by the High Court. The nature of this arrangement was disclosed to the Court.

• [45] The second judicial review proceeding was heard on 21 and 22 October 2008. By his judgment dated 25 November 2008 Fogarty J essentially upheld the defendants' challenges to the Commissioner's actions on all grounds.

• [46] In the outcome costs were sought against the Commissioner. The Commissioner sought a stay of execution pending appeal. The hearing of those applications was initially set down for 22 April 2009.

• [47] Earlier on 23 March 2009 MERW advised the defendants they would cease acting after the costs hearing unless their invoices were paid. Mr Hampton responded on 24 March 2009 acknowledging that the costs award would be used to pay MERW's fees.

12 Subsequently Minter Ellison had difficulties in obtaining payment of its fees. The Associate Judge summarised that period thus:

• [48] In his costs judgment of 1 May 2009 Fogarty J made awards of costs against the Commissioner (each on an uplifted basis) in the sums of $88,818.78 including disbursements in respect of the second review proceeding and $97,920.00 (plus disbursements to be fixed at 80 %) in respect of the first review proceeding. In his judgment Fogarty J made several observations regarding MERW's representation of the defendants. His Honour noted that MERW reasonably was unwilling to continue to act unless its costs were met by the costs award.

• [49] Despite continuing requests for payment none was forthcoming in the period June 2008 and May 2009. The defendants have not authorised MERW to take steps to seek payment from the Commissioner. Mr Andrews deposes and it has not been disputed that Ms Sisson was willing to allow MERW to write to Crown Law seeking payment by the Commissioner of the legal costs and that Ms Sisson on several occasions orally acknowledged that the defendants were liable for outstanding legal fees. Despite this Mr Hampton was not prepared to let MERW take that step to recover the costs from the Crown.

• [50] Mr Andrews deposes that as a consequence of the defendants [sic] refusal to pay the outstanding invoices he concluded that MERW's retainer had been...