HG METAL MANUFACTURING LTD v NAVARATNAM [2022] NZHC 2183

HG METAL MANUFACTURING LTD v NAVARATNAM [2022] NZHC 2183 [30 August 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-001195[2022] NZHC 2183BETWEEN HG METAL MANUFACTURINGLIMITEDJudgment CreditorAND VASHIHARAN NAVARATNAMJudgment DebtorHearing: 11 May 2022Appearances: T B Fitzgerald and B J Dominikovich for the Judgment CreditorJudgment Debtor in PersonJudgment: 30 August 2022JUDGMENT OF ASSOCIATE JUDGE GARDINERThis judgment was delivered by me on 30 August 2022 at 2.00 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Bell Gully, AucklandIntroduction[1] HG Metal Manufacturing Ltd (HG Metal) applies for an order adjudicatingVashiharan Navaratnam bankrupt. It says that Mr Navaratnam owes HG Metal thefollowing amounts:(a) SGD 404,736.10 and USD 1,230,187.73 plus interest, fees andexpenses, pursuant to a judgment of Katz J determining HG Metal'sapplication for enforcement of an overseas arbitral award;1 and(b) $73,027.39, pursuant to the costs judgment of Katz J following thatdecision.2[2] HG Metal submits that the criteria for an adjudication order under s 13 of theInsolvency Act 2006 are met and Mr Navaratnam has not established any basis onwhich this Court ought to exercise its discretion not to make the order.[3] Mr Navaratnam opposes the application. Alternatively, he asks the Court tostay the proceeding while certain appeals are determined.[4] The issues are:(a) Are the s 13 criteria met?(b) Despite that, should the Court exercise its discretion to refuse toadjudicate Mr Navaratnam bankrupt?(c) Alternatively, should the Court stay the bankruptcy proceedings topermit appeals to be resolved?1 HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 1920.2 HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 2498.Background[5] On 23 April 2020, HG Metal obtained an arbitral award againstMr Navaratnam and his wife in Singapore (the Award). The Award held that Mr andMrs Navaratnam had breached a guarantee they provided to HG Metal concerningGayathri Steels Pte Ltd in 2013. The Award was not appealed.[6] As Mr and Mrs Navaratnam now live in New Zealand, HG Metal applied tothis Court for orders that the Award be entered as a judgment (the Recognition andEnforcement Application). Mr Navaratnam opposed that application.[7] On 22 February 2021, Fitzgerald J declined Mr Navaratnam's application tostay the hearing of HG Metal's Recognition and Enforcement Application andawarded costs against him in relation to the list mention.3[8] Mr Navaratnam did not comply with the costs order. On 7 July 2021,HG Metal served him with a bankruptcy notice demanding payment of the costs order.[9] On 14 July 2021, Mr Navaratnam applied to set aside the bankruptcy notice.Associate Judge Bell dismissed his application on 12 August 2021. He stated that withhis determination, the time for bringing a bankruptcy application under s 13 of the Actbegan. He also stated that, in applying for an adjudication order, HG Metal wasentitled to rely not only on the Fitzgerald J costs order but on any other amountMr Navaratnam owes it.4[10] Mr Navaratnam paid the amount demanded under the bankruptcy notice on13 August 2021, the day after Associate Judge Bell's decision. However, by that timethe timeframe for compliance had expired.5[11] In the meantime, on 28 July 2021, Katz J granted HG Metal's Recognition andEnforcement Application and entered the Award as a judgment against Mr Navaratnam3 Navaratnam v HG Metal Manufacturing Ltd HC Auckland CIV 2020-404-1195/CIV 2020-404-2230, 22 February 2021 (Minute of Fitzgerald J) at [5]–[6].4 HG Metal Manufacturing Ltd v Navaratnam HC Auckland CIV-2020-404-1195, 12 August 2021(Minute of Associate Judge Bell) at [13].5 At [12]; High Court Rules 2016, r 24.10(1).(the Substantive Judgment). That judgment includes the sums of SGD 404,736.10and USD 1,230,187.73 plus interest, fees and expenses. Mr Navaratnam has not paidthis amount. This is the first debt HG Metal relies on in its adjudication application.[12] On 22 September 2021, Katz J ordered that Mr Navaratnam pay costs of$73,027.39 to HG Metal as he had been the unsuccessful party in the SubstantiveJudgment (the Costs Award). Mr Navaratnam has not paid this amount either. Thisis the second debt HG Metal relies on in its application.Legal principles[13] The criteria for when a creditor may apply for the debtors' adjudication are setout in s 13 of the Insolvency Act 2006 (the Act):13 When creditor may apply for debtor's adjudicationA creditor may apply for a debtor to be adjudicated bankruptif —(a) the debtor owes the creditor $1,000 or more or, if 2 ormore creditors join in the application, the debtor owes atotal of $1,000 or more to those creditors between them;and(b) the debtor has committed an act of bankruptcy within theperiod of 3 months before the filing of the application;and(c) the debt is a certain amount; and(d) the debt is payable either immediately or at a date in thefuture that is certain.[14] Under s 17, a debtor commits an act of bankruptcy if a creditor has obtained afinal judgment/order against the debtor for any amount, the execution of which hasnot been halted by a court, and the debtor, having been served with a bankruptcynotice, has not complied with the requirements of the notice or otherwise satisfied theCourt that he or she has a cross-claim against the creditor.[15] Once the s 13 requirements are made out, the creditor is prima facie entitled toan adjudication order.6 However, under ss 36 and 37, the Court has a discretion as towhether it adjudicates the debtor bankrupt.7 The onus is on the defendant to satisfythe Court not to make the order. This Court has said:8 the petitioning creditor does not have an automatic right to obtain an orderof adjudication, nevertheless the onus in those circumstances is on the debtorto persuade the Court that an order should not be made.[16] As the Court of Appeal has observed, s 37 confers a "wide discretion" informedby various factors.9 These include whether the debtor is able to pay their debts overtime, bearing in mind that bringing finality within a reasonable period is the essenceof bankruptcy proceedings; whether adjudication is conducive or detrimental to thewider public interest; and whether adjudication would be pointless because thecreditors are unlikely to receive any payment.10[17] The Court may also, in its discretion, halt or refuse adjudication when thejudgment underlying the bankruptcy notice is under appeal and that appeal is still tobe decided.11Are the s 13 criteria met?Section 13(b): Has Mr Navaratnam committed an act of bankruptcy within threemonths before the filing of the application?[18] Mr Navaratnam submits that the amount in the bankruptcy notice was settledand the file CIV-2021-404-1195 closed, meaning HG Metal was not entitled to filethis application.[19] Mr Navaratnam appears to rely on a copy of the Register of Documents Filedin this proceeding as evidence that the Court Registry had updated the "case status" ofthis proceeding to "closed" at 8 October 2021. His argument seems to be that6 See Baker v Westpac Banking Corp CA212/92, 13 July 1993 at 5 and 7; and Re Epirosa HCWellington B498/91, 6 March 1992 at 5 and 8.7 Insolvency Act 2006, ss 36 and 37.8 Kiwibank Ltd v Hutchin [2015] NZHC 1518 at [26].9 Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [15].10 At [15].11 Insolvency Act 2006, s 42.HG Metal ought not to have been allowed to file this application because the Court'sfile had been marked "closed".[20] This objection misunderstands the Registry's administrative process. As theRegistry has explained to Mr Navaratnam, if an application to set aside a bankruptcynotice is dismissed, the Registry records the 'case status' of bankruptcy proceedingsas 'closed' and then reactivates the file when an application for adjudication is filed.12[21] In any case, the administrative categorisation of the file by the Registry doesnot have any bearing on the application of the Act to Mr Navaratnam.[22] As noted, Mr Navaratnam paid the amount demanded under the bankruptcynotice on 13 August 2021. That was too late to avoid the act of bankruptcy. The timefor compliance with the bankruptcy notice ended on the expiry of the day AssociateJudge Bell dismissed his application to set aside the notice, namely 12 August 2021.This is clear from r 24.10 of the High Court Rules which states that the time forcompliance is extended to "until the application [to set aside the bankruptcy notice]has been determined." The fact that payment was made subsequently does not changethe fact that an act of bankruptcy occurred.[23] Further, there is no evidence that the payment was made pursuant to asettlement between Mr Navaratnam and HG Metal which involved HG Metal agreeingnot to bring an application for adjudication based on this act of bankruptcy.[24] HG Metal's application for adjudication was filed on 10 November 2021,within three months of the act of bankruptcy on 12 August 2021. The criterion ins 13(b) is met.Section 13(a): Does Mr Navaratnam owe HG Metal $1,000 or more?[25] As previously mentioned, HG Metal relies on two unpaid judgments of thisCourt, both exceeding $1,000:12 BJD243(a) the Substantive Judgment for SGD 404,736.10 andUSD 1,230,187.73 plus interest, fees and expenses and sealed orders tothat effect;13(b) the Costs Award of $73,027.39 and sealed orders.14[26] Mr Navaratnam says that HG Metal cannot bring an application based on thesedebts because they were not part of the bankruptcy notice. That is incorrect. For thepurposes of s 13(a), a judgment creditor is not limited to the debt specified in thebankruptcy notice. This is settled law. As this Court confirmed in The Ministry ofJustice v McGuire:15 the judgment creditor may claim any outstanding debt. He, she or it is notlimited to the amount claimed in the bankruptcy notice.[27] Associate Judge Bell made this point to Mr Navaratnam in his decisiondismissing Mr Navaratnam's application to set aside the bankruptcy notice:16In making its bankruptcy application, HG Metal Manufacturing Ltd will beentitled to rely not only on the costs order of Fitzgerald J but also on any otherindebtedness of Mr Navaratnam to it.[28] In his Notice of Opposition, Mr Navaratnam refers to HG Metal "attemptingto substitute itself under s 44 of the Insolvency Act". That section deals with thesituation where a creditor seeks to substitute itself for another creditor (the petitioningcreditor), where the petitioning creditor does not want to continue the proceeding.That is not what HG Metal is purporting to do here.13 HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 1920; and orders entering award asjudgment against first defendant dated 28 July 2021.14 HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 2498; HG Metal ManufacturingLtd v Navaratnam [2021] NZHC 2701 at [51(c)]; and orders of the Court as to costsdated 8 October 2021.15 The Ministry of Justice v McGuire [2018] NZHC 3322 at [4]. See also Re Chapman, ex parteCommissioner of Inland Revenue (2007) 23 NZTC 21,521 (HC) at [36] and Curtis v Commissionerof Inland Revenue HC Wellington B244/97, 12 November 1997 at 4–5 (both referring to theequivalent section in the Insolvency Act 1967).16 HG Metal Manufacturing Ltd v Navaratnam HC Auckland CIV-2020-404-1195,12 August 2021 (Minute of Associate Judge Bell) at [13].Section 13(c): Is the debt for a certain amount?[29] The debts relied on are both money judgments of this Court. They are for fixedamounts, which are specified in the sealed orders and the application for adjudication.Section 13(d): Is the debt payable either immediately or at a date in the future that iscertain?[30] On 25 March 2022, Mr Navaratnam made an application in the Court of Appealunder the CIV number of the Recognition and Enforcement Application proceedingsfor a "stay of proceeding or stay of enforcement proceedings" (the Stay Application).He sought a stay pending resolution of:(a) the appeal brought by Mrs Navaratnam against the decision to enter theAward as judgment against her (CA692/2020) (Mrs Navaratnam'sAppeal);(b) Mr Navaratnam's appeal of the striking out of his purported applicationto this Court for judicial review of various decisions of this Court inproceedings between HG Metal and Mr Navaratnam, including theSubstantive Judgment and Costs Award (CA152/2022) (JudicialReview Appeal). In striking out the application, Jagose J had said:17In very significant part, looking past its judicial reviewveneer, this proceeding embodies the applicants'dissatisfaction with the substance of this Court's impugneddecisions. No exceptional circumstance is evident. As such, Iam satisfied this proceeding plainly is an abuse of the Court'sprocess. An abuse is "improper use of [the Court's]machinery"; use of that process "for a purpose or in a waysignificantly different from its ordinary and proper use". Here,as I have explained, that is the proceeding's improper attemptto obtain judicial review of this Court's decisions. Theapplicants can have no reasonably arguable case to claim it.(citations omitted)On 21 April 2022, HG Metal applied to strike out Mr Navaratnam'sappeal against Jagose J's decision as an abuse of process.17 Navaratnam v High Court of Auckland [2022] NZHC 371 at [6].Mr Navaratnam has not filed any documents in opposition to thatapplication. HG Metal's application was heard on 18 July 2022 and thedecision reserved.[31] The Registrar of the Court of Appeal declined to accept the stay application forfiling on the basis that it ought to have been filed in this Court in the first instance.Mr Navaratnam applied to review the Registrar's decision. On 3 May 2022,Collins J declined to review the Registrar's decision and confirmed that Mr andMrs Navaratnam needed to file the stay application in this Court first. He added thathe did not see any merit in the appeals and considered it "highly unlikely" that anycourt would grant a stay.18[32] I will return to these appeals when it comes to the Court's discretion unders 37 of the Act. But for the purposes of s 13(d), as there has been no decision of thisCourt staying enforcement of the two judgments, the debts are immediately payable.[33] Further, Mrs Navaratnam's Appeal has no bearing on enforcement of the twojudgments against Mr Navaratnam. HG Metal commenced the Recognition andEnforcement Application against both Mr and Mrs Navaratnam, but they proceededdifferently because Mrs Navaratnam did not file any documents in opposition or takeany steps. Accordingly, on 22 October 2020, Woolford J entered judgment by defaultagainst Mrs Navaratnam. Mrs Navaratnam filed a notice of appeal in late 2020. InDecember 2021, the Court of Appeal sought submissions to strike out that appeal dueto lack of progress. HG Metal made submissions in support of strike out whileMr Navaratnam filed submissions on his and his wife's behalf in opposition. On13 May 2022, the Court declined to strike out the appeal and directed that it bedetermined promptly on the merits to avoid any further unnecessary delays.19 Asecond strike-out application was subsequently filed which was heard on 19 July 2022,with the Court reserving its decision. Whatever the outcome of that process,Mrs Navaratnam's Appeal is irrelevant to the enforceability of the two judgmentsagainst Mr Navaratnam.18 Navaratnam v High Court at Auckland [2022] NZCA 156 at [15] and [19].19 Navaratnam v HG Metal Manufacturing Ltd [2022] NZCA 185 at [16] and [22].[34] Before leaving this topic, I deal with Mr Navaratnam's argument that "theCourt has not given permission to enforce the [Award] as required under s 17(6) of theInsolvency Act." HG Metal does not require the Court's permission under s 17(6) ofthe Act to enforce the Award because the Award has been entered as judgment inNew Zealand. That was the outcome of the Substantive Judgment. It is that judgmentof this Court that HG Metal seeks to enforce.Conclusion on s 13[35] The statutory criteria in s 13 of the Act are satisfied. HG Metal is prima facieentitled to an adjudication order. However, the Court still has a discretion as towhether it adjudicates Mr Navaratnam bankrupt. Under s 37, it may refuse to makethe orders if it considers, amongst other things, that it would be unjust or inequitableto do so. As noted, the onus is on Mr Navaratnam to persuade the Court to exerciseits discretion. I consider other objections Mr Navaratnam has raised under thisheading.Despite s 13 being met, should the Court exercise its discretion to refuse to makeorders for Mr Navaratnam's adjudication?The appeals[36] Mr Navaratnam asks the Court to refuse, or alternatively stay, the applicationuntil Mrs Navaratnam's appeal and the Judicial Review Appeal are determined.[37] Mr Navaratnam argues that this proceeding should be dismissed or stayed topermit Mrs Navaratnam's Appeal. As Mr Navaratnam acknowledged,Mrs Navaratnam can prosecute her appeal irrespective of Mr Navaratnam'sbankruptcy. He argued that his bankruptcy would affect her financial ability toprosecute her appeal. A potential consequential financial impact of this kind does notprovide a compelling reason for me to exercise my discretion. Further, as notedearlier, Mrs Navaratnam's Appeal is entirely separate to the judgments againstMr Navaratnam and whatever the outcome will not affect his indebtedness toHG Metal.[38] The Judicial Review Appeal is completely without merit. This Court cannotreview its own decisions by way of judicial review. Jagose J explains why in hisjudgment. I can see no prospect of this appeal succeeding and therefore it does notprovide me with a reason to exercise my discretion.[39] I also note for completeness that there are no other active appeals which mightgive me grounds to use my discretion not to adjudicate Mr Navaratnam bankrupt.There is no extant appeal of the Substantive Judgment. The Court of Appeal declinedMr Navaratnam's application for an extension of time to appeal the High Court'sdecision on 20 December 2021.20 In so doing, it noted that although the applicationwas only five days late, the merits of the appeal were such that there would be no pointextending the time.21[40] Mr Navaratnam appealed the Costs Award on time, but on 20 January 2022the appeal was deemed to be abandoned under r 43 of the Court of Appeal (Civil)Rules 2005 because Mr Navaratnam did not file the case on appeal and pay securityfor costs on time, or apply for an extension of time to do so.22[41] Overall, Mr Navaratnam has not persuaded me that, despite being unable topay his debts, it would be unjust or unfair to adjudicate him bankrupt. It is in thepublic interest that Mr Navaratnam not incur any further obligations that he is unableto meet. There is also a strong public interest in orders of the Court being enforced.23Alternatively, should the Court stay the bankruptcy proceedings to permitappeals to be resolved?[42] For the same reasons, I decline to stay the bankruptcy proceedings untilMrs Navaratnam's Appeal and the Judicial Review Appeal are determined.[43] Given the lengthy and complicated litigation preceding this point, it would bemost unfair to deny HG Metal the benefit of the two judgments any longer, when the20 Navaratnam v HG Metal Manufacturing Ltd [2021] NZCA 704.21 At [32].22 Notice of Result in CA623/2021 dated 20 January 2022.23 Copland v Goodwin [2013] NZHC 652 at [58]; and see Commissioner of Inland Revenue v Faloon[2016] NZHC 760 at [46] and Dench v Gates [2013] NZHC 3134 at [5].outstanding appeals are alternately irrelevant to the debt owed by Mr Navaratnam toHG Metal; or obviously without merit.Result[44] I order that Vashiharan Navaratnam is adjudicated bankrupt. The time of theorder is 2.00 pm.[45] As the unsuccessful party, Mr Navaratnam will pay HG Metal's costs on a scale2B basis, and reasonable disbursements fixed by the Registrar._______________________________Associate Judge Gardiner