Cooley v Prestidge HC New Plymouth CIV-2011-443-436

[2011] NZHC 1772

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV-2011-443-436

BETWEEN  JEFFREY COOLEY Plaintiff

ANDBRIAN PRESTIDGE Defendant

Hearing:         7 December 2011

Counsel:         A McGowan for Plaintiff

P J Napier for Defendant

Judgment:      7 December 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTT

Solicitors:      Dennis King Law, New Plymouth

Keegan Alexander, Auckland

COOLEY V PRESTIDGE HC NWP CIV-2011-443-436 7 December 2011

[1]      The  plaintiff,  Mr  Cooley,  brings  a  claim  against  his  former  accountant, Mr Prestidge,   seeking   damages   for   an   alleged   breach   of  fiduciary  duty  in arrangements made by the accountant to procure loans for Mr Cooley.   The loans were obtained from a company, Hawera Finance Limited, of which Mr Prestidge was also director and shareholder.

[2]      The  loans  were  obtained  with  a  view  to  setting  up  a  business  in  the importation and sale of pig semen, and to assist in the acquisition of a pig farm.  The initial loan was supplemented by further loans, and ultimately a sixth and final loan used to refinance earlier loans and provide funds to pay Mr Prestidge’s accounting fees.

[3]      Mr Cooley’s business enterprise failed.   He was ultimately made bankrupt and lost the farm, his livestock (the pigs) and the stocks of imported semen that he had built up.   He contends that these losses are a consequence of breaches of a fiduciary relationship that existed between himself and Mr Prestidge (as his accountant) and Mr Prestidge’s failure to refer him away for independent advice having regard to Mr Prestidge’s interest in Hawera Finance Limited.

[4]     The matter has come before the Court because Mr Cooley remains an undischarged  bankrupt.    Before  issue  of  this  proceeding,  his  solicitors  sought approval  of  the  Official  Assignee  to  commence  the  proceeding.    The  Deputy Assignee in the office of the Insolvency and Trustee Service which is administering Mr Cooley’s  bankrupt  estate reviewed  the claim  and  took the view that  it  was personal to Mr Cooley.  He has stated that the Official Assignee has no interest in it.

[5]      The matter is before the Court because Mr Prestidge has applied to strike out the claim on the grounds that Mr Cooley has no legal standing to pursue it as the cause of action pleaded is vested in the Official Assignee.

[6]      It is common ground that on bankruptcy all property of the bankrupt and any rights of the bankrupt in property are extinguished and the powers that a bankrupt could  have  exercised  in  respect  of  property  are  vested  in  the Assignee:  s  101

Insolvency Act 2006 (the Act).

[7]      A right of action comes within the definition of property in the Act:[1]

Property means property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise.

[1] Insolvency Act 2006, s 3.

[8]      However, there is long-standing authority to the effect that claims that are personal to a bankrupt do not pass with bankruptcy.  This proposition was stated as early as the mid nineteenth century in the decision in Beckham v Drake[2] where Erle J stated:

The right of action does not pass where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property. Thus it has been laid down that the assignees cannot sue for breach of promise of marriage, for criminal conversation, seduction, defamation, battery, injury to the person by negligence, as by not carrying safely, not curing, not saving from imprisonment by process of law.

[2] Beckham v Drake (1849) 2 HLC 579, 604; 9 ER 1213, 1222.

[9]      This statement from Beckham v Drake was adopted by Cooke J in Leach v Official Assignee[3]  where he emphasised that the rule applied to rights of action for damages  for  personal  injury  suffered  by  the  bankrupt.     The  rule  has  had comparatively recent consideration in the United Kingdom by Hoffmann LJ (as he then  was)  in  the  case  of  Heath  v  Tang[4]   where  the  Judge,  applying  the  rule, commented pithily:[5]

[3] Leach v Official Assignee [1975] 1 NZLR 83, 85.

[4] Heath v Tang [1993] 4 All ER 694 (CA).

[5] At 697.

These include cases in which-

'the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate

reference to his rights of property.' (See Beckham v Drake (1849) 2 HL Cas

579 at 604, 9 ER 1213 at 1222 per Erle J. See also Wilson v United Counties

Bank Ltd [1920] AC 102, [1918-19] All ER Rep 1035.)

Actions for defamation and assault are obvious examples. The bankruptcy does not affect his ability to litigate such claims.

[10]   Slightly more recently, the issue came before this Court in Dobie v McCullough,[6] where a plaintiff sought damages from a district council for breach of a duty of care in distributing a medical report to councillors and others.  The plaintiff sought  damages  under  various  heads,  including  loss  of  reputation,   loss  of employment opportunities and associated income, and aggravated and exemplary damages.  Master Gambrill confirmed the rule in Beckham v Drake, and found that only the claim for loss of reputation could be said to be measured by reference to the plaintiff’s mind, body and character, and not by his right to property.  She took the

view that the other claims were properly categorised as claims for economic loss, rather than to claims relating to the feelings of the bankrupt.[7]

[6] Dobie v McCullough HC Rotorua CP6/95, 10 July 1995.

[7] At pgs 10 and 11.

[11]     The most recent case referred to me was that of Siemer v Fardell,[8] where the plaintiffs sued the defendant (a barrister who had been acting for them) for negligent advice and breach of fiduciary duty.  Rodney Hansen J expressed the general rule as being that generally personal torts do not pass to the Official Assignee:

[4]       Mr Siemer was adjudicated bankrupt on 6 November 2008.   His cause of action vested in the  Official Assignee  pursuant to  s 42  of  the Insolvency Act 1967.   Mr Siemer’s claims in this proceeding are not among the rights of actions, generally personal torts, which do not pass to the Official Assignee.   It follows that only the Official Assignee may continue Mr Siemer’s claim.

[8] Siemer v Fardell HC Auckland CIV-2003-404-5782, 21 June 2010.

[12]     Although the above New Zealand authorities were decided under the former provision in s 42 of the Insolvency Act 1967, there is no substantive difference between that section and s 101 of the Act, at least so far as this application is concerned.

Application to this case

[13]     Counsel for Mr Cooley defended Mr Cooley’s entitlement to pursue this

claim on two general bases:

(a)       The Official Assignee had considered the proceeding and had decided that it was a personal claim which did not pass to him.

(b)The claim was personal to Mr Cooley because it arose out of the relationship between Mr Cooley and Mr Prestidge.

I will address each of these points in turn.

[14]      There is nothing, in my view, in the argument that the Official Assignee has formed a view on the matter.  It is for this Court to decide whether or not the claim is personal in terms of the tests I have identified above.

[15]     The primary argument for Mr Cooley centres on the submission that the claim arises out of the relationship between the parties, and the consequences of the alleged breaches of fiduciary duty on Mr Cooley personally.  Counsel conceded that the early loans were related to property, but argued that the later loans (or perhaps the last loan in particular) did not.  The contention was two-fold.  The first matter advanced was that the refinancing could only have been obtained as a consequence of the conflict arising out of the relationship between Mr Prestidge and his finance company.   The second was that the only interests being served by the loans were those of Mr Prestidge (his fees) or the finance company (recycling of the earlier loan).

[16]     When  pressed  to  explain  how  these  propositions  fitted  within  the  test identified in the authorities, counsel initially submitted that the damages were to be estimated by reference to Mr Cooley’s loss of reputation as a consequence of his bankruptcy, and the emotional damage caused to him also as a consequence of the collapse  of  his  business  activities,  but  later  modified  the  initial  submission  to contend that the damages flowed from his loss of reputation as a successful pig farmer.

[17]     In my view, these arguments do not give rise to an arguable basis for a claim. There are three elements to the test for a personal claim not vesting in the Official Assignee.  It is that the damages being sought need to be estimated:

(a)       by immediate reference to pain felt by the bankrupt;

(b)      in respect of the bankrupt’s body, mind or character; and

(c)       without reference to his rights of property.

[18]     In  my  view,  the  claims  being  advanced  in  this  case  are  economic  not personal.   They may cause consequential distress, but they are certainly not immediate, and they do not relate obviously to Mr Cooley’s body, mind or character (other  than  in  their  eventual  consequences,  which  do  not  meet  the  test  of immediacy).   Furthermore, I do not accept that they can be said to be without reference to his rights of property – essentially his obligations under the loans and the consequences of the loss of his rights to his pig farm, livestock and trading stock.

[19]     I accept the submission of counsel for Mr Prestige that if emotional distress was enough to bring a claim under the umbrella of a personal claim, virtually all claims for monetary compensation would be left with the bankrupt.   Clearly that would be a nonsense.

[20]     In my view this is not a case dealing with a loss of reputation as was before Master Gambrill in Dobie v McCullough.  It is more in keeping with the decision in Siemer v Fardell, where the Court was dealing with economic loss arising from a breach of fiduciary duty, and had no difficulty rejecting the contention that that was a personal claim.

Decision

[21]     The  claim  remains  vested  in  the  Official Assignee.    Mr  Cooley  has  no entitlement to bring it personally. The claim is struck out.

[22]     Mr Prestidge seeks costs.   Mr Cooley is legally aided.   I make an order pursuant to s 45(5) of the Legal Services Act 2011 that   costs would have been awarded to Mr Prestidge on a scale 2B basis together with disbursements as fixed by

the Registrar had s 45 of that Act not affected Mr Cooley’s liability.

Associate Judge Abbott

COOLEY V PRESTIDGE HC NWP CIV-2011-443-436 7 December 2011