Gerard Harrahill v Simon W. Kennedy

• Jurisdiction: Ireland
• Judge: Ms. Justice Dunne
• Judgment Date: 14 June 2013
• Neutral Citation: [2013] IEHC 539
• Docket Number: No 2424
• Court: High Court
• Date: 14 June 2013

Harrahill v Kennedy

BANKRUPTCY

BETWEEN

GERARD HARRAHILL

PETITIONER/RESPONDENT

AND

SIMON W. KENNEDY

RESPONDENT/APPLICANT

[2013] IEHC 539

No 2424

THE HIGH COURT

BANKRUPTCY

Practice and Procedure

Application to annul adjudication and to show cause against validity of adjudication - Adjudicated bankrupt - Revenue - Tax arrears - Outstanding court judgments - Method of calculating interest on amount due - Application of credit to tax liabilities - Charging interest on interest - Existence and enforceability of settlement arrangement - Alleged embezzlement - Courts Act interest - Pre-judgment interest - Annul adjudication - Imposition of penalties - Statute of limitations - Calculation of post-judgment interest for six years and one day to allow for leap year - Abuse of process - Hampering of ability to earn a living as solicitor - Whether just and equitable to annul adjudication - Whether wrong to allow for leap year in calculation of post-judgment interest - Whether proceedings amounted to abuse of process - Whether evidence of ulterior or collateral purpose for adjudication proceedings - Whether post-judgment interest charged correctly - Whether entitlement of Revenue to charge interest on tax overdue constituted penalty - Whether judgment creditor entitled to look for interest on the judgment debt if judgment included interest - Whether issue to be litigated - St Kevin's Company v A Debtor (Unrep, ex tempore, SC, 27/1/1995); Minister for Communications v MW [2009] IEHC 413, [2010] 3 IR 1 and McGinn v Beagan [1962] IR 364 considered - Bankruptcy Act 1988 (No 27), ss 8(6)(b) and 16 - Courts Act 1981 (No 11), ss 2A and 22(1) - Taxes Consolidation Act 1997 (No 39), s 1080 - Value-Added Tax Consolidation Act 2010 (No 31), s 114 - Value-Added Tax Act 1972 (No 22), s 21 - Debtors Ireland Act 1840 (3 & 4 Vict c 105), s 26 - Courts (Supplemental Provisions) Act 1961 (No 39), s 47(2) - Statute of Limitations 1957 (No 6), ss 3(2)(a) and 11(6)(b) - Solicitors Act 1954 (No 36), s 50 - Application refused (2424 - Dunne J - 14/6/2013) [2013] IEHC 539

Harrahill v Kennedy

The applicant, Simon W. Kennedy, was adjudicated bankrupt on the 18^th of June 2012 by way of petition by the respondent, Gerard Harrahill (the Revenue). On the 4^th of July 2012, an application to show cause under section 16 of the Bankruptcy Act 1988 (the 1988 Act) was filed on behalf of Mr. Kennedy. In seeking the adjudication of the applicant, the Revenue relied on nine judgments, two from the Circuit Court and seven obtained against the applicant in the High Court which amounted to €884,389.91. Section 16 (2) of the 1998 Act stipulated that on an application to show cause, the Court shall, ‘if within such time the bankrupt shows to its satisfaction that any of the requirements of s. 11(1) have not been complied with, annul the adjudication and may, in any other case, dismiss the application or adjourn it on such conditions as the Court thinks fit, having regard to the interests of the bankrupt, his creditors and any persons who might advance further credit to him." It was not suggested by the applicant at any stage that the criteria set out in section 11 (1) of the act were not met.

Held by Dunne J., the correct approach in cases where the application to show cause arose in circumstances other than failure to comply with section 11 (1) was that the Court had to be satisfied that it was just and equitable to annul the adjudication paying regard to the interests of the ‘bankrupt, his creditors and any persons who might advance further credit to him’. The issues raised by the applicant related to the calculation of interest that was owed, an allegation of miscalculation of post judgment interest and the contention that these proceedings constituted an abuse of process.

The applicant submitted that it was difficult to work out the calculation of interest on the sums of debt owed in the absence of a ‘clear statement’ of the start and end dates for the calculation and the balance upon which the calculation was made. The Court, however, accepted the averments of the Revenue that the post judgment interest was charged in accordance with the applicable legislation—section 26 of the Debtors Ireland Act 1840, as amended. It was further contended that the Revenue could only claim interest for a period of six years, but that it had in fact claimed interest for a period of six years and one day. The Revenue accepted the existence of a calculation of a 366^th day in one year to allow for a leap year within the six year period. The Court held that that there was nothing ‘intrinsically wrong’ in allowing an extra day for a leap year in calculations—as such, no issue arose for the ‘extra’ day of interest. Finally, the applicant argued that it was an abuse of process to adjudicate when it would mean that he would not be able to work as a solicitor and as a consequence, be unable repay the Revenue. As the Court found no ulterior or collateral purpose of any improper kind, it was held that there was no evidence to suggest that the adjudication of bankruptcy should be annulled on the basis of abuse of process.

The Court concluded that there was no basis upon which it would have been just and equitable to annul the adjudication.

BANKRUPTCY ACT 1988 S16

BANKRUPTCY ACT 1988 S16(1)

COURTS ACT 1981 S22(1)

COURTS ACT 1981 S2(A)

TAXES CONSOLIDATION ACT 1997 S1080

VALUE-ADDED TAX CONSOLIDATION ACT 2010 S114

VALUE-ADDED TAX ACT 1972 S21

COURTS ACT 1981 S22

DEBTORS (IRL) ACT 1840 S26

BANKRUPTCY ACT 1988 S16(2)

BANKRUPTCY ACT 1988 S8(6)(B)

ST KEVINS CO v A DEBTOR UNREP SUPREME 27.1.1995 (EX TEMPORE) TRANSCRIPT NOT AVAILABLE)

MIN FOR COMMUNICATIONS & O'C (M) v W (M) & W (R) 2010 3 IR 1 2009/44/10960 2009 IEHC 413

BANKRUPTCY ACT 1988 S11(1)

SANFEY & HOLOHAN BANKRUPTCY LAW & PRACTICE 2ED 2010 PARA 2.102

TAXES CONSOLIDATION ACT 19971997 PART 47

COURTS (SUPPLEMENTAL PROVISIONS) ACT 1961 S47(2)

STATUTE OF LIMITATIONS ACT 1957 S11(6)(B)

MCGINN v BEAGAN 1962 IR 364

SOLICITORS ACT 1954 S50

Ms. Justice Dunne

1 The respondent/applicant herein (hereinafter referred to as "the applicant") was adjudicated bankrupt on the 18^th June, 2012, (Herbert J.) on the petition of the petitioner/respondent (hereinafter referred to as "the Revenue"). An application to show cause was filed on the 4^th July, 2012, on behalf of the applicant pursuant to the provisions of s. 16 of the Bankruptcy Act 1988 (hereinafter referred to as "the Act"). Strictly speaking, the application was out of time in that s. 16(1) of the Act provides that the bankrupt may, within three days of such extended time not exceeding fourteen days as the court thinks fit from the service of the copy of the order of adjudication on him, show cause to the court against the validity of the adjudication. The application in this case was made more than three days after service of the order of adjudication on him, but was within the fourteen day period specified in s. 16(1) of the Act and in the circumstances I was satisfied that it was appropriate to extend the time within which to show cause.

2 The Revenue in seeking the adjudication of the applicant herein relied on a series of judgments of the High Court and the Circuit Court amounting in total to €884,389.91. That figure is set out in more detail in the affidavit of debt sworn by Gerard Harrahill on the 22^nd March, 2012. There are some nine judgments in total, two of which were obtained in the Circuit Court and the rest were obtained against the applicant in the High Court. The first of the judgments in time was obtained on the 16^th July, 2002 and is described as follows:-

"The Circuit Court, Record No. 2002/247 between Gerard Harrahill, plaintiff and Simon W. Kennedy, defendant."

Judgment amount €17,157.94

Paid/credit on account €5,921.19

Balance as at 7^th June, 2011, €11,236.75

Courts Act interest at 8% per annum €5,396.10

Costs €495.00

Total €17,127.85"

3 Subsequently judgments were obtained on the 19^th August, 2002, the 28^th March, 2003, the 18^th June, 2003, the 9^th September, 2004, the 31^st January, 2005, the 5^th April, 2005, the 3^rd May, 2007 and the 9^th June, 2011. The last of the judgments was in the amount of €109,498.41. No interest was sought in relation to that judgment.

4 The affidavit of the applicant sworn herein on the 14^th September, 2012 grounding the application to show cause raised a number of points. The first of those related to the lack of information as to the method used by the Revenue in calculating interest on the amounts due. There was also an issue raised as to the application of credit against liabilities for tax alleged to be due and the date upon which interest was applied. A question was raised as to whether or not there was a charging of interest on interest, and in that context reference was made to s. 22(1) and 2A of the Courts Act 1981. Finally, an issue was raised as to a settlement arrangement between the parties. That arrangement involved the payment of €4,000 per month, but as stated by the applicant in his affidavit, the arrangement "collapsed following an embezzlement of €150,000 from my firm of which all of the authorities including the Revenue were informed". He explained that the embezzlement was discovered in 2010.

5 A replying affidavit was sworn by Michael Gladney on behalf of the Revenue on the 31^st January, 2013 and in the course of that affidavit he also dealt with two other affidavits sworn previously by the applicant herein on the 14^th June, 2012 and the 2^nd July, 2012, prior to his adjudication as a bankrupt.

6 The first point made by Mr. Gladney in his affidavit was a response to the argument raised in the written legal submissions of the applicant of the 7^th December, 2012. In those submissions, reference was made to the 2008 agreement between the parties in respect of the...