Glynbrook 2001 Limited v Official Assignee in Bankruptcy of Lawrence HC Greymouth CIV 2005-418-000004
[2011] NZHC 1520
•10 November 2011
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
CIV 2005-418-000004
IN THE MATTER OF Insolvency Act 2006
AND IN THE MATTER OF Insolvency Act 1967
AND IN THE MATTER OF DEAN ROBERT LAWRENCE
AND IN THE MATTER OF AN APPLICATION PURSUANT TO s226 INSOLVENCY ACT 2006 AND/OR s
86 INSOLVENCY ACT 1967
BETWEEN GLYNBROOK 2001 LIMITED CRAIG WILLIAM LAWRENCE ALFRED NORMAN WILLIAM LAWRENCE
BEVERLY DIANE LAWRENCE ALFRED NORMAN WILLIAM LAWRENCE AND BEVERLY DIANE LAWRENCE
CRAIGADEAN DAIRY FARM LIMITED
ANDMARBLE HILL DAIRIES LIMITED Plaintiffs
ANDTHE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF DEAN ROBERT LAWRENCE
First Defendant
ANDTHE OFFICIAL ASSIGNEE FOR NEW ZEALAND
Second Defendant
ANDDEAN ROBERT LAWRENCE Third Defendant
Hearing: 28 October 2011 (Heard at Wellington)
Counsel: T S Shiels for Plaintiff
PRW Chisnall for First and Second Defendant
H N Mackintosh and S M Bisley for Third Defendant
Judgment: 10 November 2011
GLYNBROOK 2001 LIMITED V THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF DEAN ROBERT LAWRENCE HC GRY CIV 2005-418-000004 10 November 2011
JUDGMENT OF FOGARTY J
Introduction
[1] Mr Dean Lawrence was adjudicated bankrupt in 2005. He was discharged from bankruptcy in 2008. These proceedings seek to appeal against an assignment of choses of action attaching to shares he held in a company called Craigadean by letter in January 2010, and secondly, a replacement deed of assignment of the choses of action attaching to the same shares, but this time for consideration, executed in March 2011.
Issue No. 1 – Does the Insolvency Act 1967 or 2006 apply?
[2] Because these assignments arose out of the administration of the estate of Dean Lawrence which commenced upon his adjudication in 2005, and at that time under the Insolvency Act 1967, I am satisfied that the transitional provision in the
2006 Act applies. That provision says:
444 Transitional provisions
(1) In this section, -
1967 Act means the Insolvency Act 1967 as if it had not been repealed by this Act, and any rules or regulations made under that Act
commencement means the commencement of Parts 1 to7 of this Act
past event means any of the following that has occurred before commencement:
(a) issuing a bankruptcy notice:
(b) filing a petition for adjudication:
(c) filing an application for a summary instalment order: (d) the making of a proposal:
(e) the making of a compromise:
(f) filing an application for an order for the administration of an insolvent deceased estate.
(2) The 1967 Act continues to apply, to the exclusion of this Act, to any past event and to any step or proceeding preceding, following, or relating to that past event, even if it is a step or proceeding that is taken after commencement.
(3) For the avoidance of doubt, nothing in subpart 7 of Part 3 permits the cancellation of an irregular transaction that was completed before this section came into force, if that transaction could not have been cancelled if this section had not come into force.
[3] The 1967 Act was in force at the date Dean Lawrence was served with the bankruptcy and on the date on which he was adjudicated. The issues now before the Court relate to decisions of the Official Assignee following or relating to those two past events. Absent the adjudication, the Official Assignee would not have acquired the property which she has reassigned to Mr Lawrence.
Issue 2 – Do the plaintiffs have standing as aggrieved parties?
[4] The Insolvency Act 1967, s 86, provides:
86 Appeal from decision of Assignee
If the bankrupt or any creditor or any other person is aggrieved by an act or decision of the Assignee, he may, within 21 days from the date of that act or decision or within such further period as the Court allows, apply to the Court, and the Court may confirm, reverse, or modify the act or decision complained of, and make such order as it thinks fit.
[5] Mr Shiels argued that the plaintiffs are aggrieved parties.
[6] Mrs Beverly Lawrence complains in her affidavit:
73.I understand the Official Assignee is trying to give Dean the right to sue us. I cannot understand why the Official Assignee would do that. Dean owes us a lot of money and has cost us a lot of money.
74.If the Official Assignee had contacted us about Dean’s claims against us I certainly would have wanted to discuss the money Dean owed us with the Official Assignee. [The Lawrence family and their companies have never proved as creditors in the estate.] I would have wanted to know whether Dean ever listed any of these debts or whether the Official Assignee knew about these debts. However as it turns out the Official Assignee never gave us that chance.
75.I understand Dean is promising the Official Assignee 7.5% of his net winnings against us. These proceedings have been very expensive for all parties.
76.We spent a considerable amount of money on defending Dean’s claims against us. While we do not accept them, we have been advised that there is always a risk of an expected outcome at litigation. If the Official Assignee had ever approached us putting forward the claims now made by Dean, we would have entered into negotiations with the Official Assignee to reach a settlement of those claims having regard to their strength and our claims against Dean. While it is impossible to be certain that a settlement could have been reached, or to guess what a settlement figure might have been, it would have depended on all of the circumstances at the time. We would have been strongly motivated to settle to avoid the litigation costs and uncertainty.
[7] Mr Shiels argued that the plaintiffs should be understood as aggrieved parties. He invites this Court not to follow a Court of Appeal decision: Gay v Bruns[1]. In that case Mr Bruns, an adjudicated bankrupt, had prior to his bankruptcy issued civil proceedings against a number of parties. The Official Assignee initially disclaimed the rights to these proceedings as owner’s property. After the matter was taken to the High Court, the Official Assignee, Mr Bruns and his mother agreed to a consent order:
[1] Gay v Bruns CA193/98 and CA194/98, 17 June 1999
That all property, right, interest, title and benefit of any kind in the Official Assignee in the estate of the Bankrupt disclaimed by the Official Assignee vest in the Bankrupt.
That effectively enabled the bankrupt to continue his civil proceedings. He issued a fresh set of proceedings and the defendants in those proceedings filed an application to review the decision of Morris J in respect of which the appeal was made. The matter came to the Court of Appeal by way of an appeal against the decision of Morris J’s acceptance of the formal order agreed to by the parties. Section 8(2) of the Insolvency Act 1967 provides:
8 Rehearings and appeals
...
(2) Except as provided in subsection (4) of section 6 of this Act, an appeal shall lie to the Court of Appeal, by any person aggrieved, from any decision of the High Court or any Judge thereof under this Act.
[8] The Court of Appeal held that the question was whether or not the decision of the Official Assignee to effectively assign these choses of action to the bankrupt affected the appellants in the sense by the section at all. Gallen and Doogue JJ writing one judgment agreed that there is no real distinction between a right of action under the control of the Official Assignee and a right of action under the control of the bankrupt saying:
[21] ... Either the Official Assignee was possessed with a chose in action or he was not. The appellants are in exactly the same position with regard to challenging the validity of the action, whether it is prosecuted by the Official Assignee or Mr Bruns.
[9] They agreed with the third member of the Court, Tipping J, that the vesting order did not cause any material prejudice to any rights of the appellants whether substantive or procedural. Therefore they could not be described as persons aggrieved and accordingly have no status to prosecute the appeal. Tipping J said:
[5] ... This means that the person claiming to be aggrieved must be legally worse off in some substantive or procedural way as a result of the decision.... It cannot have been Parliament’s intention to allow an appeal from the High Court to the Court of Appeal on any lesser basis, albeit the concept of rights should not be given any technical or unduly restrictive meaning for present purposes.
[10] In a second Court of Appeal decision: Edmonds Judd v Official Assignee[2] the appellant was a creditor and so entitled to appeal. The discussion in that Court as to the standing of a person who is not a creditor is therefore obiter. That discussion queried the reasoning, in Gay v Bruns.
[2] Edmonds Judd v Official Assignee [2000] 2 NZLR 135
[11] There can be no suggestion that the word “aggrieved” as used in s 8(2) is used any differently than “aggrieved” as appears in s 86. I consider I am bound by Gay v Bruns.
[12] I would also observe that there is another argument in support of Gay v Bruns that was not drawn to my attention but which I think applies. Section 72 of the Act deals with the power of the Official Assignee to dispose of property. Section 72(5) provides:
72 Power of Assignee to sell
...
(5) Where a document is made or executed in professed exercise of the power to sell conferred by this section, the title of any person acquiring title thereunder shall not be impeachable except on the ground of fraud, or be affected on the ground that no case has arisen to authorise the sale, or that the power was otherwise improperly or irregularly exercised.
[13] To allow standing to a person aggrieved by a disposal of property by the Official Assignee, who is not able to challenge the disposal by reason of s 72(5), but entitled to appeal the decision, seems to me to be contrary to the scheme of the Act. To allow standing to such persons would undermine the efficacy and purpose of subs (5).
[14] Accordingly, I find the plaintiffs do not have standing. This decision is sufficient of itself to dismiss these appeals. However, because I have had the benefit of the other issues being argued and in case the matter goes further I deal with the other issues.
Issue No. 3 – What is the standard of review to be applied by the High Court when considering these appeals?
[15] These appeals are governed by s 86 of the 1967 Act which provides:
86 Appeal from decision of Assignee
If the bankrupt or any creditor or any other person is aggrieved by an act or decision of the Assignee, he may, within 21 days from the date of that act or decision or within such further period as the Court allows, apply to the Court, and the Court may confirm, reverse, or modify the act or decision complained of, and make such order as it thinks fit.
[16] Unusually the word “appeal” is not used in the text but only in the heading. However, there is no doubt that the heading can be taken into account because of s 5 of the Interpretation Act 1999.
[17] There has been some discussion by High Court Judges, particularly Rodney Hansen and Clifford JJ as to the test[3]. Rodney Hansen J has held that the Lodestar[4] decision of the Supreme Court does not apply. He agrees with the formulation of Clifford J.
[3] Rao v Official Assignee HC Wellington CIV 2006-485-0004, 17 October 2007 (Clifford J) Knight v Official Assignee [2009] NZAR 235 (Rodney Hansen J)
[4] Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141
[18] I do not think it is necessary for me to choose between following Lodestar or following these two High Court decisions. On my reading of Lodestar, para [3] of the decision of the Chief Justice when read with para [4] arrives at the same result as that expressed by Clifford J, and Rodney Hansen J also, in different ways. Where I see the difference between myself and Rodney Hansen J it is only in available interpretations of the decision of the Supreme Court.
[19] This is an appeal. It is against two decisions of the Official Assignee. Those decisions have to be examined. I do so as an appellate Judge with the full power to agree or disagree or to modify the decisions. But I need to be persuaded that I should intervene. I need to reach the view that the decision under appeal is wrong. When examining the merit of the issues placed before this Court I am entitled to examine the analysis of the same issues by the Official Assignee.
Issue 4 – Whether an Official Assignee has a power of sale without calling any
creditors’ meetings
[20] This is the principal argument of Mr Shiels on both appeals. He argues that any sale of any property acquired by the Official Assignee as trustee in the estate of bankruptcy cannot be made unless there is first a meeting of creditors.
[21] The power of sale is contained in s 72 of the 1967 Act:
72 Power of Assignee to sell
...
(4) Except in the case of perishable property or any property the sale of which might, in the opinion of the Assignee, be prejudiced from any cause by the delay, none of the property of the bankrupt shall be sold until after the date fixed for the first meeting of creditors:
...
[22] Subs (4) provides that the power of sale cannot be exercised before the first meeting of the creditors.
[23] At the time the 1967 Act was passed it was a requirement of that Act that the first meeting of creditors be held within 14 days of the adjudication. See s 34.
[24] In 1990 the Act was amended to insert s 34A:
34A Assignee may dispense with first meeting of creditors
The Assignee shall not be required to summon a first meeting of creditors under section 34 of this Act in any case where-
(a) The Assignee considers, having regard to the assets and liabilities of the bankrupt, the likely result of the bankruptcy, and any other relevant matters, that no such meeting should be summoned; and
(b) The Assignee gives notice in writing to each creditor named in the bankrupt's statement of affairs and to such other creditors (if any) as are known to the Assignee stating-
(i) That the Assignee does not consider that the meeting should be held; and
(ii) The reasons for the Assignee's view; and
(iii) That no such meeting will be summoned unless a creditor gives notice in writing to the Assignee, within 14 days after receiving the notice, requiring the meeting to be summoned; and
(c) No notice requiring the meeting to be summoned is received by the Assignee within that period.
[25] This section effectively gave the Official Assignee a discretion whether or not to call a creditors’ meeting. As a result of this amendment there are a large number of administrations of bankrupt estates at which there is never a meeting of creditors.
This is one of those cases. There has never been a meeting of creditors in the administration of the bankruptcy of Mr Dean Lawrence.
[26] It is important to read a statutory provision in the light of its purpose. When the Act was enacted the first meeting of the creditors, held within 14 days, was a meeting distinctly different from any subsequent meetings of creditors. It was held before proofs of debt were normally filed or certainly before they were all in. It was held before the Official Assignee had completed an enquiry as to the assets. It was an interrogation of the bankrupt.
[27] Plainly, Parliament had no objection to there being any sales of property after that first meeting, 14 days after the adjudication. Why? It is obvious that the restriction on power of sale, except for perishables, within a maximum of 14 days after the adjudication was intended as the minimum restraint on the timing of sale. It was intended in part no doubt to give efficacy to the functions of this first meeting.
[28] When the Act was amended to give a discretion not to call meetings, the first meeting within 14 days was no longer required. A decision to call a meeting of the creditors could be for purposes distinct from the original purposes of the first meeting. It might not be until some years later.
[29] It is inconceivable that it was the purpose of Parliament when releasing the Official Assignee from the obligation to conduct at least one meeting, within 14 days, and indeed to release the Official Assignee from an obligation to conduct any meetings, that Parliament intended to make the calling of a meeting a pre-condition of any sale and disposal of property.
[30] For the last 21 years many hundreds of millions of dollars have been raised by Official Assignees disposing of property on the interpretation of the Act that the qualification before “the first meeting” was directed to that particular, and peculiar, meeting, hitherto required to be held within 14 days after adjudication.
[31] I am satisfied that this first argument is based on an incorrect interpretation of the Act. Since the 1990 amendment of the Insolvency Act, the Official Assignee has powers of sale whether or not there is any meeting of creditors.
Issue 5 – Should leave be given to extend time to appeal the first decision in
2010?
[32] Notice was given to the appellants in this case within a few weeks of the January 2010 decision. The fact of the decision of the Official Assignee is recorded in a memorandum to the High Court served on the appellants on 3 February 2010. No steps were taken to appeal it until after the second decision in 2011, more than a year later.
[33] Had I concluded that the plaintiffs had standing and that the decision of the Official Assignee was beyond the Official Assignee’s powers due to the want of a meeting of creditors, I would have granted leave to enlarge the time. I have also considered the merit of granting leave to enlarge the time because of the fact that the choses of action were assigned by the letter of the Official Assignee in 2010 without any consideration. There has been one decision of the High Court upholding an
assignment of an asset for no consideration. That is the case of Moynihan[5]. In this
[5] Moynihan v Berkett HC Tauranga CP3/94 27 July 1998, Paterson J
case the Official Assignee had enquired and received correspondence from the accountants, Hubbard and Churcher, to the effect that Craigadean was insolvent. Indeed the Official Assignee had been asked to advance funds in order to complete the accounts of Craigadean. The Official Assignee refused. There was a basis for the Official Assignee to consider that there was no market value in the shares. On the other hand, there is the fact that the discharged bankrupt wanted them back. That in itself suggests that they had value. It was not a mere sentimental decision. But the merit of that decision to assign them without consideration was reviewed in 2011 by the Official Assignee and consideration was agreed.
[34] For these reasons I do not think there is any merit in enlarging time. The issue of merit is as to the reasonableness of the 2011 decision.
Issue 6 - Merit of the 2011 decision
[35] The Official Assignee revisited the January 2010 assignment. This was wise. Although there is some justification from the decision of Moynihan v Berkett I respectfully doubt the proposition that the Official Assignee can ever give a property away.
[36] By the 2011 assignment the choses in action are clearly transferred for value. The consideration is for 7.5% of any return from the subsequent litigation.
[37] There is no easy way to dispose of choses in action in a bitter family dispute. It is plainly impractical and incorrect for the Official Assignee to try to sell such choses in action to the highest bidder by way of public sale.
[38] That was not suggested by Mr Shiels in this case. As I have already noted, his principal argument is that there was no power to dispose of these choses in action in the absence of a creditors’ meeting. He also argued that the purported transfer proceeded on the false premise that there had been a share disclaimer. I do not think it did. Certainly, that was not the case with the 2011 assignment.
[39] Mr Shiels argued that the Court should not sanction an assignment to a bankrupt who has been assisted by a third party funder without knowing a lot more about the funding arrangement. He sought to rely upon the recent decision of Saunders v Houghton[6].
[6] Saunders v Houghton [2010] 3 NZLR 331 (CA)
[40] Mr Dean Lawrence is supported by a man who is funding him on a charitable basis, that is, without any expectation or entitlement to a return.
[41] I agree with the submission of Mr Mackintosh that the question of whether or not the fact that Mr Lawrence is being assisted financially by a friend to bring these claims is maintenance and/or champerty, is for a trial Judge in the substantive proceedings. (I do not understand it to be a pending issue in this case.) Mr Shiels
argued that the Official Assignee had an obligation to satisfy himself that the proceeding was not hopeless. Otherwise she would be facilitating abuse of proceedings. Certainly, there is support for that proposition in the decision of Re Callis[7] at 217 and 218, were the choses in action hopeless.
[7] Re Callis; Callis v Pardington (1996) 7 NZCLC 261,211
[42] The Official Assignee in this case took advice from internal counsel and also engaged external counsel. She also had the advantage that there have been a number of decisions in the High Court preliminary to the trial which indicate that the proceedings are not without merit.
[43] If the proceedings in the High Court were utterly hopeless they would have presumably been struck out by now.
[44] Mr Shiels argues that the Official Assignee did not consult with the present plaintiffs. That is so. He also relies on Callis in the same pages. But Callis was a case where the Court was of the view that the Official Assignee had assigned utterly hopeless choses of action and was facilitating thereby an abuse of process. The Court said:
... We think counsel was right to exclude the assignment of frivolous and vexatious causes of action, even where there is no cost to the Assignee or the estate, and where there is a theoretical possibility of ultimate gain. Frivolous and vexatious proceedings are an abuse of the process of the Court, and it is no part of the proper carrying out of an Assignee’s or liquidator’s function, as officers of the Court, to traffic in such proceedings.
[45] On the other hand the Court also said, in the same context:
We accept that there will be cases where the Official Assignee may properly decide that he should not pursue a disputed claim because the likely cost is disproportionate to the possibility of benefit to creditors. In such a case, it may be proper for the Official Assignee to assign the cause of action to a party willing to take the risk at that party’s own expense while undertaking to account for part of the proceeds if successful. We do not see how the Official Assignee can properly make such decisions without first evaluating both the strength of the claim and its likely result. That evaluation must be undertaken with such advice as the Official Assignee requires, and incurring such expenses as the Official Assignee feels justified. ...
[46] The Official Assignee in this case has sworn an affidavit deposing how that exercise was undertaken. I have no doubt that those criteria in Callis were applied.
[47] The Court of Appeal in Callis go on to say:
The Court is not going to reverse the decision merely because it disagrees with it. A decision made without any attempt at evaluation and without advice, however, is likely to be unreasonable.
[48] The first of those two sentences, to my mind, is inconsistent with the Supreme Court decision in Lodestar. I do not follow it. However, if I am wrong in finding that the appellants are not aggrieved, I go on to consider whether or not the Official Assignee was wrong to enter into the agreement that she did and assign the transfers. As I have previously noted, under the principle of Lodestar an appeal will only succeed when the appellate Court has come to the view that the first instance decision was wrong.
[49] In this case I have not come to that view. I do not think I can come to that view. The Official Assignee scrutinised the issues with some care with the assistance of internal and external counsel. She was expending public funds to do this as there were no proceeds from the estate to fund it. Theoretically economists might say that in a perfect market both sides of the family would have paid the same value for the assignment of shares. The real world (of asymmetry of information) that the Official Assignee was working in, however, that cannot be presumed. The bankrupt did not have the assets to buy the assignment. On the other hand, it is inconceivable to imagine the choses of action being pursued by anybody other than Dean Lawrence. Dean Lawrence was and is in a position to best utilise those causes of action. He also has the advantage of connecting those causes of action in respect of Craigadean with a deed containing in a preamble of a record of an intention that he acquired
12.5% of certain family assets.
[50] Had the Official Assignee dealt with the appellants to sell the chose in action or compromise the litigation there would have been two problems. Firstly, the Official Assignee could easily have undersold those assets due to a paucity of information or alternatively she would have had to spend a lot more money on counsel for potentially no gain.
[51] One needs to appreciate, when considering such appeals from the Official Assignee, the paucity of resources that the Official Assignee has when disposing of complicated assets like a chose in action without any fund other than Government funds to resource the process.
[52] In the circumstances the decision to deal with Mr Lawrence seems to me to be correct. It would take a very powerful argument to go the other way, one that was not developed by Mr Shiels, because he could not.
[53] As to the 7.5% return, that is obviously a judgment. I have no reasons for differing from it.
[54] Accordingly, I do not come to any different view from the Official Assignee. Therefore I do not think her decision is wrong. The appeal is dismissed.
[55] The Official Assignee and Mr Dean Lawrence are entitled to costs on a 2B
basis. Leave is reserved to make submissions if costs cannot be settled.
Solicitors:
Downie Stewart, Dunedin
Official Assignee, Insolvency and Trustee Services, Christchurch
Russell McVeagh, Wellington
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