New Zealand Credit Law Bulletin - Vol 9, No 1, January 2009
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe, visit the New Zealand bulletin index and enter your details on the right
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Another step in defamation case in respect of debt listed on credit reporting database
Including judicial advice on interpreting credit reports! - Liquidators seek approval for funding of cases against directors and secured creditors
Court declines approval but leaves door open for amended application - OA ends no asset procedure for debtor with money coming from mother’s estate
Statement of affairs form proves too complex for debtor
1. Another step in defamation case in respect of debt listed on credit reporting database
SADIQ V BAYCORP (NZ) LIMITED AND ANOR HC AK CIV 2007-404-6421 [2008] NZHC 1712 (5 November 2008)
John Harris claimed Mohammed Sadiq owed him money and gave the debt to a debt collector, Baycorp Advantage (NZ) Ltd to collect. Baycorp Advantage was a debt collection and credit reporting business. Baycorp Advantage lodged the debt on its credit reporting database. Sadiq later claimed that as a result of this, he was unable to get credit.
The Baycorp Advantage business was split into two parts. The credit reporting business is now “Veda Advantage”. The debt collection business was sold to investors and now trades in New Zealand as a new entity, Baycorp (NZ) Ltd.
Sadiq sued Baycorp (NZ) Ltd for defamation. In March 2008, the High Court heard an application for summary judgment from Baycorp (NZ). Baycorp (NZ) claimed it wasn’t liable as it hadn’t published the information.
Summary judgment was declined and the matter therefore went for a defended hearing.
In the light of Sadiq’s own claim that he could not obtain credit, his previous bankruptcy and the eighteen prior debt collection instructions that had been received by Baycorp Advantage in respect of Sadiq, Baycorp (NZ) became concerned that the plaintiff would be unable to meet an adverse award of costs if he lost. Sadiq refused to provide information revealing his financial position.
Baycorp (NZ) asked the court to order Sadiq to provide security for costs.
The judge said, “the Court's experience of life must lead it to the view that individuals and companies which are on a sound financial footing and who pay their debts as they fall due, are unlikely to be mentioned on credit reporting websites. There may be the occasional misunderstanding which leads to a disputed debt not being paid but it seems unlikely that the type of entity that I am talking about would have repeated appearances on debt collection websites. The credit history of [Sadiq] would make a potential reader apprehensive for that reason. For similar reasons, I consider the Court is justified in taking the view that Mr Sadiq's numerous appearances as a defaulting debtor provide reason to believe that his financial position is such that there must be doubt as whether he can meet the costs of the present proceedings. The fact that many of the listings go back some years, in my view, establishes only that the respondent's financial frailty is not a transitory or short-term problem but is now an embedded feature of the way Mr Sadiq manages his business and finances.
Sadiq claimed that a property he had bought in Remuera 10 months before for $900,000 was now worth $1,800,000. Baycorp (NZ) got a valuation of the property which said it was worth $900,000 and pointed out that property prices have slumped. The judge said that this “sounds a more sensible judgment than Mr Sadiq's competing view that his property has doubled in value...”
The judge thought it significant that Sadiq had been adjudicated bankrupt, even though that bankruptcy was later annulled.
The respondent had an obligation to provide such financial information as would reassure the Court. The limited disclosure that has been made, and which did not purport to be a complete statement of his assets and liabilities, was inadequate. I infer from the fact that the respondent has not provided a reasonably comprehensive response because he cannot, and that in turn follows from the fact that his financial circumstances are far from favourable.
Sadiq “does not have a good reputation as is evidenced by the numerous appearances of his name on credit reporting databases. Even if he were to obtain judgment… damages would be modest.”
The fact that Baycorp (NZ) lost its summary judgment application should not “encourage the view that [Sadiq’s] prospects of success are high or that [his] case is a particularly strong one.”
“The key conclusion … was that it would seem to be unlikely that … a party who acquired a website upon which defamatory comments had earlier been posted when the website was under the control of the defendant's predecessor, would therefore have "published" the defamatory material.”
The judge ordered Sadiq to pay $35,000 security for costs to the Registrar of the High Court at Auckland.
Back to top
Information on our current seminars
2. Liquidators seek approval for funding of cases against directors and secured creditors
AMP CAPITAL INVESTMENTS NO. 4 LIMITED V IBS GROUP LIMITED (IN LIQUIDATION) HC AK 2008)
IBS Group Limited was placed into liquidation by orders of the Court on 14 December 2007 on the application of AMP Investments No. 4 Limited. The liquidators, John Fisk and Vivian Fatupaito, believe there are claims that can be pursued. (These claims are not spelt out but are against the secured creditors and directors of IBS.) However, the company in liquidation didn’t have enough money to pursue the claims. It asked the court to approve a litigation funding arrangement between the liquidators and a company called ALF No 9 Pty Ltd which would provide the money.
The reason the liquidators needed the court’s approval was that the common law has prohibitions against what are called “maintenance” (where one person provides the funds to enable another to undertake litigation) and “champerty” (where the funder is also entitled to a share in the proceeds if the litigation is successful). The reason the common law prohibits champetry is one of public policy. The common law fears that the funder might be tempted “to inflame the damages, to suppress evidence, or even to suborn witnesses”. The court process is supposed to put things right, not to allow investors in court cases – people who are not a party to the dispute - to make a profit.
Under the terms of the agreement, AFL would receive an assignment of a proportion of the proceeds of the litigation. The entitlement percentage depends upon the total value of funding that is provided and whether an early settlement is achieved. Its main terms were, a flat 15% of the proceeds and a further 20% if the dispute was not settled by 16 February 2009, or if the substantive action was commenced, or if the funding costs exceeded $150,000. If the costs exceeded $880,000, other rules applied.
The liquidators would have day-to-day control of the proceedings, but the agreement said that the liquidators and the funder must agree to certain things. They must agree who to sue and any step proposed by the liquidators in the proceedings or any related investigations if that step was likely to have any material effect. If agreement between liuidators and funder could not be reached, the liquidators must do what the funder says.
This type of arrangement is not champertous if the funder does not interfere with the conduct of the cause of action. In this case, the judge concluded that “the fact that the funder must agree to every action in the litigation goes against the rule that the [funder] may not interfere with the conduct of the litigation. Furthermore, although the liquidator has a right to seek directions from this Court … that is insufficient to overcome the conflict between the agreement and the rule.” He anticipated that the liquidators might amend the terms and try again.
Back to top
Information on our current seminars
3. OA ends no asset procedure for debtor with money coming from mother’s estate
OFFICIAL ASSIGNEE V KENNEDY HC NAP CIV-2008-441-000751 [2008] NZHC 1820 (21 November 2008)
Mrs Kennedy applied to the Official Assignee to be admitted into the “no asset procedure” under the Insolvency Act 2006. was accepted into the "no asset procedure". This procedure provides an alternative to bankruptcy for an insolvent debtor who has no realisable assets.
She completed a statement of affairs which disclosed debts of $36,858.91 and no realisable assets. In her statement of affairs Kennedy answered "No" to the question "Do you have an interest in any deceased estate?" In fact, Kennedy was a beneficiary of her late mother's estate and the solicitors acting for the estate held $33,750 on trust for her, being her share in the estate. The money had been held by the estate's solicitors for some time and she had clearly known about it.
The Assignee can terminate participation in the no asset procedure if the debtor was wrongly admitted into it because he or she concealed assets or misled the Assignee. The Assignee terminated Kennedy's participation in the no asset procedure on these grounds. The Assignee applied under s 374 for an interim preservation order in relation to the funds, to stop the money being paid to Kennedy, so that it could ultimately be paid to creditors.
Kennedy appeared before the court in person and did not object to an interim order being made. She had not received any legal advice on the application and did not appear to have much understanding of the legal process, but she intended to seek advice as soon as possible. She had until 17 December 2008 to file a statement of defence.
The High Court granted the interim order. The funds currently held on Kennedy’s behalf by the lawyers would be held for a further four months.
The judge said that “on the face of it, Mrs Kennedy has misled the Assignee. However, she wishes to raise in her defence the fact that she did not understand the question about an interest in any deceased estate as meaning some right or title to property but rather of a feeling of personal concern [i.e. presumably in the sense of, ‘are you interested in deceased estates?’] There has not been any previous judicial consideration of s 374. Therefore the question will arise whether the acts of concealing assets and misleading the Assignee under in s 374(1) are to be judged objectively by reference to the effect on the Official Assignee or subjectively by reference to the debtor's intentions.” It appeared from the solicitor's correspondence that she has previously declined to accept payment of the funds, suggesting that she did in fact have “no interest” in the money.
Back to top
Information on our current seminars
