Glynbrook 2001 Ltd v Official Assignee
[2012] NZCA 289
•2 July 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA759/2011 [2012] NZCA 289 |
| BETWEEN GLYNBROOK 2001 LIMITED, CRAIG WILLIAM LAWRENCE, ALFRED NORMAN WILLIAM LAWRENCE, BEVERLY DIANE LAWRENCE ALFRED NORMAN WILLIAM LAWRENCE and BEVERLY DIANE LAWRENCE (as trustees of the ANW Lawrence Trust) CRAIGADEAN DAIRY FARM LIMITED AND MARBLE HILL DAIRY LIMITED |
| AND THE OFFICIAL ASSIGNEE FOR NEW ZEALAND |
| AND DEAN ROBERT LAWRENCE |
| Hearing: 17 April 2012 |
| Court: Stevens, Wild and White JJ |
| Counsel: T J Shiels for Appellants |
| Judgment: 2 July 2012 at 3.00pm |
JUDGMENT OF THE COURT
AThe application by the first respondent to adduce further evidence by way of affidavit from Robyn Anne Cox dated 3 April 2012 is granted.
BThe 28 day period for the Official Assignee to decide whether to summon the first meeting of creditors is retrospectively extended from 13 June 2005 to the date of the decision by the Official Assignee.
C The appeal is dismissed.
DThe appellants are ordered to pay costs to each of the first and second respondents for a standard appeal on a band B basis together with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by White J)
Table of Contents
Para No
Introduction [1]
Background [9]
High Court judgment [31]
Power to sell without creditors’ meeting? [36]
Impeachable title? [53]
Any right of appeal? [63]
Standing to appeal? [74]
Standard of review [82]
The merits of the Official Assignee’s decision [91]
Summary [100]
Result [102]
Introduction
The appellants, members of the Lawrence family, their family trust and their farming companies, appeal against a High Court decision dismissing an appeal against two decisions of the Official Assignee to assign to Dean Lawrence (Dean), another member of the family and a former bankrupt, certain causes of action which he claimed to have against them.[1]
[1]Glynbrook 2001 Ltd v The Official Assignee HC Greymouth CIV-2005-418-4, 10 November 2011.
The causes of action had vested in the Official Assignee when Dean was adjudicated bankrupt on 16 May 2005.[2] Following Dean’s automatic discharge from bankruptcy on 16 May 2008, he issued a proceeding against the appellants in the High Court at Dunedin in August 2009 (the main proceeding)[3] based on the causes of action which, at that time, were still vested in the Official Assignee.
[2] Section 42(1) and (2)(b) of the Insolvency Act 1967.
[3] CIV-2009-412-713.
When the appellants challenged Dean’s standing to issue the main proceeding, his lawyers obtained two assignments of the causes of action from the Official Assignee. The first assignment was given without consideration by letter dated 18 January 2010. The second assignment was given for consideration by deed dated 22 August 2011.
In September 2011 the appellants appealed to the High Court challenging the two assignment decisions of the Official Assignee (the challenge proceeding). The appeal was brought principally on the ground that the Official Assignee had no power to assign the causes of action to Dean because under s 72(4) of the Insolvency Act 1967 (the Act) the Official Assignee’s power of sale could not be exercised “until after the date fixed for the first meeting of creditors” and there had been no meeting of creditors in Dean’s bankruptcy. The appellants argued that the assignments were therefore void from the outset. They also argued that the first assignment was void because there was no consideration. They sought orders under s 86 of the Act reversing or modifying the two assignment decisions of the Official Assignee and both the 18 January 2010 letter and the 2011 Deed.
In the High Court, however, Fogarty J, applying the provisions of the Insolvency Act 1967 rather than the Insolvency Act 2006,[4] and accepting that on appeal he was entitled to examine the decisions of the Official Assignee to determine whether they were wrong,[5] decided that:
(a)the appellants had no standing to appeal to the High Court under s 86 of the Act because they were not persons “aggrieved” by the assignment decisions of the Official Assignee and they were not able to challenge the assignments under s 72(5), which required an allegation of fraud;[6]
(b)the Official Assignee was entitled to exercise the power of sale under s 72(4) of the Act without first calling a creditors’ meeting;[7] and
(c)the Official Assignee was entitled on the merits to assign the causes of action to Dean in 2011.[8]
[4] At [2]–[3].
[5] At [15]–[19].
[6] At [4]–[14].
[7] At [20]–[31].
[8] At [35]–[54].
Fogarty J also indicated that he would have granted leave to extend the time for the appellants to appeal against the Official Assignee’s first assignment decision, but that it was unnecessary to do so in view of his decision as to the merits of the second assignment decision.[9]
[9] At [32]–[34].
On appeal to this Court, the appellants challenge all aspects of Fogarty J’s judgment apart from his decisions to apply the provisions of the Insolvency Act 1967 and not to grant leave to extend the time for the appellants to appeal against the Official Assignee’s first assignment decision. Accordingly, we proceed on the basis that there is no challenge to the validity of the first assignment on the ground that there was no consideration for it. Only the validity of the 2011 deed is in issue. The following issues therefore require determination:
(a)Did the Official Assignee have power under s 72(4) of the Act to assign the causes of action to Dean without first holding a creditors’ meeting?
(b)Did Dean acquire an unimpeachable title to the causes of action by virtue of s 72(5) of the Act?
(c)Was a right of appeal available to the appellants under s 86 of the Act?
(d)Did the appellants have standing to appeal under s 86?
(e)What was the correct standard of review of the Official Assignee’s decision?
(f)Was there any good reason to review the Official Assignee’s decisions on the merits?
Before addressing these issues and the submissions for the parties we describe the factual background in more detail.
Background
Dean Lawrence is the son of Alfred and Beverly Lawrence and the brother of Craig. In the mid-1990s Dean, Alfred, Beverly and Craig formed a partnership to run the family farm, Clydevale farm. Clydevale farm was owned by the ANW Lawrence Family Trust (“the Trust”), Alfred and Beverly. Dean and his family were among the beneficiaries of the Trust.
In January 2001, after a falling out between Dean and the rest of the family, Alfred, Beverly and Craig sought to dissolve the partnership. The family then had discussions about how to move forward. Two companies, Glynbrook 2001 Ltd (Glynbrook) and Craigadean Dairy Farm Ltd (Craigadean), were incorporated in 2001. A deed of family arrangement was also prepared to give effect to the discussions. The deed was signed by Alfred, Beverly and Craig in 2002. There is a dispute over when Dean signed the deed.
During the discussions in 2001 it was envisaged that all of the family would continue to farm in central Otago. By late 2003, however, the family’s relationship with Dean had broken down and he moved to the West Coast.
Dean was adjudicated bankrupt on 16 May 2005. He filed his statement of assets and liabilities with the Official Assignee on 20 June 2005.
No meeting of Dean’s creditors was held. In an affidavit dated 3 April 2012 Ms Robyn Cox, the Official Assignee for the South Island, provided further evidence about the reason why there was no creditors’ meeting. By consent we granted leave for her affidavit to be adduced in evidence on appeal. Correspondence from the office of the Official Assignee attached to the affidavit established that:
(a)There was a policy in place not to hold a first meeting of creditors unless a creditor requested one or there was some reason to believe that holding one would be beneficial to the administration of the estate.
(b)By letter dated 23 June 2005 Dean’s creditors were sent a copy of the report of the Official Assignee under s 35 of the Act and invited to file a claim in the estate. Under the heading “Meeting of Creditors” the letter stated:
The Official Assignee has considered the option of holding a creditors’ meeting but has concluded that it is not required pursuant to section 34A of the Insolvency Act 1967 as it will not benefit the administration of the bankruptcy.
Any creditor who considers that a meeting would benefit the administration of this estate should contact me in writing, within fourteen 14 days of the date of this letter. Your reasons for requesting a meeting must be clearly stated.
As no meeting of creditors was in fact held, we infer that no creditor requested one. The appellants did not seek leave to adduce evidence to suggest otherwise.
None of the appellants proved in Dean’s bankruptcy. This may have been for family reasons, but it remains the fact that they did not do so.
Dean was automatically discharged from bankruptcy on 16 May 2008.
With funding assistance from a Mr Grant Paterson, Dean issued the main proceeding against the appellants on 24 August 2009. In essence Dean claims that, under the terms of agreements reached at the discussions in 2001 and pursuant to the 2002 deed of family arrangement, he is entitled to a shareholding in Glynbrook, which the defendants have not granted him. He also claims that as a shareholder in Craigadean the defendants have acted oppressively towards him in terms of s 174 of the Companies Act 1993.
An application by the appellants for security for costs in the main proceeding was granted by Associate Judge Osborne on 16 December 2009.[10] The outcome was that the proceeding was stayed pending payment of security except with respect to inspection and discovery on the second cause of action. In his decision the Associate Judge noted that a difficulty for Dean in succeeding in his claim was that on his bankruptcy his rights of action, which accrued in 2001, would have passed to the Official Assignee.[11]
[10] Lawrence v Glynbrook 2001 Ltd HC Auckland CIV-2009-412-713, 16 December 2009.
[11] At [26]–[30].
On 11 January 2010, in response to the appellants’ challenge to his standing to bring the proceeding, Dean’s lawyers, Russell McVeagh, called Mr Terry Marshall, the Deputy Official Assignee responsible for Dean’s bankruptcy, to clarify the status of Dean’s rights of action. By letter dated 18 January 2010, Mr Marshall replied confirming that Dean had told him of his intention to investigate the possibility of bringing proceedings against his family with a view to establishing rights to a shareholding in Glynbrook and his rights as a shareholder in Craigadean. Mr Marshall noted that at that time he had advised Dean that he had investigated the possibility of similar proceedings at the time of Dean’s bankruptcy, but had formally elected not to pursue them. He also told Dean that to any extent his shares in Glynbrook passed to the Official Assignee they were now assigned back to him. Mr Marshall concluded his letter of 18 January 2010 by stating:
For the avoidance of doubt by this letter, I confirm that, pursuant to s 50 of the Property Law Act 2007, the following are assigned back to Mr Lawrence by the Official Assignee:
(a)any causes of action that Mr Lawrence had regarding Glynbrook and Craigadean shares that vested in the Official Assignee as a result of Mr Lawrence’s bankruptcy which the Official Assignee did not pursue; and
(b)any rights or interests that Mr Lawrence had at the date of his bankruptcy in, or in respect of, Craigadean Dairy Farm Limited and/or Glynbrook 2001.
On 3 February 2010 Dean’s lawyers filed a memorandum in the main proceeding attaching the 18 January 2010 letter and noting that the letter should remove the concern Associate Judge Osborne had raised with respect to Dean’s right to bring the claims.
No steps were taken by the appellants at that time to challenge the Official Assignee’s decision to assign the causes of action back to Dean.
The initial stages of the main proceeding continued throughout 2010 and into 2011. On 18 March 2011 the appellants’ lawyers, Downie Stewart, wrote to Mr Marshall seeking clarification of the circumstances in which the assignment by the January 2010 letter had been given, particularly whether it was given for consideration. On 29 March 2011 the appellants filed a second amended statement of defence in which they relied on Dean’s bankruptcy as meaning that he had no standing to bring the claim. The statement of defence did not mention the January 2010 letter from the Official Assignee.
In March 2011 the assignment in the January 2010 letter came to the attention of Ms Cox, Mr Marshall’s superior. Ms Cox reviewed the file and noted that there was no provision for consideration in the assignment. After meeting with Dean’s lawyers and taking advice from both internal and external solicitors, Ms Cox formed the view that Dean’s claims might have some merit. Ms Cox then continued discussions with Dean’s lawyers with a view to securing a return for the estate in bankruptcy.
On 22 August 2011 Ms Cox executed a deed of assignment (“the 2011 Deed”) between the Official Assignee for New Zealand (“the Assignor”) and Dean (“the Assignee”). The introduction to the deed stated:
INTRODUCTION
1.The Assignee was adjudicated bankrupt on 16 May 2005. (“Adjudication”), and discharged from bankruptcy on 16 May 2008.
2.By letter dated 18 January 2010 (“Letter”) the Assignor assigned to the Assignee:
(a)any causes of action that the Assignee had regarding Glynbrook 2001 Ltd and Craigadean Dairy Farm Ltd shares that vested in the Assignor as a result of the Assignee’s bankruptcy and which the Assignor did not pursue; and
(b)any rights or interests that the Assignee had at the date of the Adjudication, in respect of, Craigadean Dairy Farm Ltd and/or Glynbrook 2001 Ltd.
3.The Assignee is the plaintiff in proceeding CIV-2011-912-713 [sic] (“Proceeding”) in which, relying on the Letter, he advances a number of causes of action (“Claims”), including some relating to events that occurred before and/or during his bankruptcy.
4.The Defendants have disputed whether, on the terms of the Letter, the Assignee has standing to bring the Claims. This deed is made, among other things, to confirm that the Assignee has standing to bring the Claims and any other claims whatsoever relating to the Defendants, whether those claims are presently known or unknown, that the Assignee acquired as a result of the adjudication.
5.In entering in this Deed, the Assignor has considered the strength of the Claims and the interests of the creditors of the Assignee’s bankrupt estate.
The 2011 Deed included a definitions section. “Causes of Action” was defined as “all causes of action, claims and choses in action relating to or concerning the defendants” that vested in the Official Assignee on Dean’s adjudication. “Proceeds” was defined as “any liquidated sum paid to [Dean] by any of the Defendants pursuant to a Settlement Agreement or Final Judgment”. The deed defined “Consideration” as 7.5 per cent of the net proceeds of any final judgment obtained in proceedings brought by Dean against the defendants or 7.5 per cent of the net proceeds of any settlement Dean reached with the defendants.
The Deed went on to provide:
Assignment
2.Pursuant to section 50 of the Property Law Act 2007, and at law and equity, Assignor hereby assigns (or to the extent they have already been assigned confirms the assignment of) the Causes of Action and the Proceeds to the Assignee.
Consideration
3.The Assignee agrees to pay the Assignor the Consideration within 20 Working Days of receipt of the Proceeds by the Assignee.
4.The Assignee agrees to meet the Assignor’s external legal costs in relation to the Deed to a maximum of $5,000 plus GST and disbursements.
5.The Assignee indemnifies the Assignor in respect of any reasonable costs incurred by the Assignor in performance of its obligations under clause 7 of the Deed.
On 25 August 2011 Dean filed a third amended statement of claim in the main proceeding relying on both the January 2010 letter and the 2011 Deed to establish his standing to bring the proceeding.
After filing the challenge proceeding on 8 September 2011, the appellants filed an interlocutory application seeking an extension of time under s 86 in which to apply to the Court to reverse or modify the decision to send the 18 January 2010 letter and the letter itself.
Pending the further appeal to this Court, the hearing of the main proceeding was adjourned. We were informed that a new fixture has been allocated for December 2012 in the High Court at Dunedin.
For present purposes it is also necessary to note that the appellants have not sought to strike out Dean’s claims in the main proceeding on the ground that they disclose no cause of action. Nor have they raised any question (at least yet) about the funding of the proceeding by Mr Paterson in the main proceeding.
The High Court judgment
Fogarty J decided for two reasons that the appellants had no standing as “aggrieved” persons under s 86 of the Act:[12]
(a)Applying the binding decision of this Court in Gay v Bruns,[13] rather than the obiter comments of this Court in Edmonds Judd v Official Assignee,[14] the appellants were not “aggrieved” persons because they were not legally worse off in any substantive or procedural way as a result of the Official Assignee’s decisions to assign the causes of action to Dean.
(b)It would be contrary to the scheme of the Act to allow persons who were not able to challenge the disposal of the causes of action under s 72(5) of the Act in the absence of an allegation of fraud to do so by way of appeal under s 86. It would undermine the efficacy and purpose of s 72(5).
[12] At [4]–[14].
[13] Gay v Bruns CA193/98, 17 June 1999.
[14] Edmonds Judd v Official Assignee [2000] 2 NZLR 135 (CA).
Fogarty J examined the two decisions of the Official Assignee to determine whether they were wrong. He rejected the argument for the appellants that the Official Assignee was not entitled to exercise the power of sale under s 72(1) of the Act without first calling a creditors’ meeting.[15] The Judge did so on the ground that s 34A of the Act, which had been inserted by amendment in 1990, gave the Official Assignee a discretion whether or not to call a creditors’ meeting.
[15] At [20]–[31].
The reasons given by Fogarty J for reaching this conclusion were:
[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.
Finally, on the merits of the 2011 assignment decision, Fogarty J was not persuaded that the Official Assignee’s decision was wrong.[16] Fogarty J’s reasons for reaching this conclusion were in summary:
(a)The Official Assignee was not required to sell the rights of action to the highest bidder by way of public sale. It would plainly have been impractical and incorrect for the Official Assignee to have tried to have done so in this case where the rights of action were in a bitter family dispute.
(b)The question whether Dean being assisted financially by a friend to bring these claims constituted maintenance and/or champerty would be for the trial judge if raised in the main proceeding.
(c)Having taken advice from both internal and external counsel and having the advantage of High Court preliminary decisions indicating that the proceeding was not without merit, the Official Assignee was entitled to be satisfied that the main proceeding was not hopeless. If the proceeding was an abuse of process because it was utterly hopeless, it would have presumably been struck out.[17]
(d)The Official Assignee was not obliged to consult with the appellants in respect of the assignment. There was no prospect of the rights of action being pursued by anybody other than Dean. If the Official Assignee had dealt with the appellants she could easily have undersold the assets due to a paucity of information or alternatively she would have had to spend a lot of money on litigation for potentially no gain.
(e)The consideration for the 2011 assignment, 7.5 per cent of any return from the subsequent litigation, was a matter of judgment and there were no reasons for differing from it.
[16] At [35]–[54].
[17] Compare Callis v Pardington (1996) 7 NZCLC 261,211 (CA).
We turn now to consider the issues on appeal. In doing so, we address first the issues relating to the powers of the Official Assignee and the unimpeachability of Dean’s title as they were the primary focus of the appeal before us.
Power to sell without creditors’ meeting?
For the appellants, Mr Shiels repeated his submissions in the High Court. He said that the power of sale under s 72 of the Act could not be exercised by the Official Assignee without a creditors’ meeting. He relied on the express terms of s 72(4), which stated:
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:
Provided that the Assignee may, after consulting with any creditor or creditors, sell any property before the date fixed for the first meeting if expenses will be incurred by the delay.
(emphasis added)
Mr Shiels then referred to s 34 of the Act which prescribed the requirements for the first meeting of creditors in the following terms:
34 First meeting of creditors
(1)Except as otherwise provided in section 34A of this Act, or where the Assignee considers that special circumstances would justify the delay, the Assignee shall summon the first meeting of creditors for a day not later than 14 days after the date on which the bankrupt files the statement and answers referred to in section 33 of this Act, or (if the bankrupt fails to file them before the expiration of 14 days after the date of adjudication), for a day not later than 28 days after the date of adjudication. Any such meeting may be summoned by sending a notice of the time and place thereof by ordinary post to—
(a)The bankrupt at his last known address; and
(b)Each creditor named in the bankrupt’s statement of affairs at the address given therein or such address as may be known to the Assignee; and
(c)Such other creditors (if any) as are known to the Assignee.
(2)The Assignee shall at the same time advertise in the prescribed manner notice of the time and place appointed for the meeting.
Mr Shiels submitted that, as the Official Assignee had decided in this case not to summon any meeting of creditors, let alone a first meeting in accordance with the
requirements of s 34, the Official Assignee was prevented by the express terms of s 74(2) from selling the rights of action to Dean. He relied on the decision of this Court in Hamilton v Bank of New Zealand[18] and similar cases[19] to support the propositions that the requirement for a date to be fixed for the first meeting of creditors in s 74(2) was mandatory and that non-compliance rendered the sale void. Mr Shiels accepted, however, that, as the opening words of s 34(1) indicate, the obligation on the Official Assignee to call the first meeting was subject to the provisions of s 34A which had been inserted by amendment in 1990 and which provided:
[18]Hamilton v Bank of New Zealand (1904) 24 NZLR 109 (CA).
[19]Re Morrison, ex parte Official Assignee in Bankruptcy (1905) 25 NZLR 513 (SC and CA); Harris v Richardson [1930] NZLR 890 (SC and CA); Re Calcinai (A bankrupt) [1937] NZLR 701 (SC); Sandeman v Robinson (1877) Knox 382 [NSWSC]; Ross v Necker [1948] SCR 526.
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.
Mr Shiels submitted that s 34A did not assist the Official Assignee in this case because the decision not to summon a meeting of creditors was made after the expiration of the 28 day period stipulated by s 34 which, in this case, was 13 June 2005. Mr Shiels pointed to the letter dated 23 June 2005 from the office of the Official Assignee to Dean’s creditors, which referred to the Official Assignee’s decision under s 34A(a) and gave the notice required by s 34A(b).
He also submitted that by adopting a policy not to hold a meeting of creditors the Official Assignee had unlawfully fettered the exercise of the discretion under s 34A.
There are three difficulties with these submissions for the appellants. First, the Court had power to extend the time requirements stipulated in s 34 under s 10, which provided:
10 Court may extend time
Where by this Act, or by the rules, or by any regulations made under this Act, the time for doing any act or thing is limited, the Court may extend the time, either before or after the expiration thereof, upon such terms (if any) as it thinks fit.
Mr Shiels accepted that the High Court and this Court on appeal could exercise the s 10 power retrospectively to extend the 28 day period referred to in s 34 so that, if following receipt of the Official Assignee’s letter of 23 June 2005 a creditor had requested a meeting, one might have been held in terms of s 34. Mr Shiels also accepted that a retrospective extension of time for this purpose would not prejudice Dean’s creditors, none of whom had requested a meeting following receipt of the Official Assignee’s letter of 23 June 2005, or the appellants, who did not prove in Dean’s bankruptcy. We therefore retrospectively extend the 28 day period referred to in s 34 from 13 June 2005 in the terms set out in order B.
Second, the evidence established that, while the Official Assignee had a policy in place not to hold a first meeting of creditors, the policy was not set in stone because it recognised the exceptions referred to in s 34A, namely, a request from a creditor for a meeting and a decision by the Official Assignee that there was some reason to believe that holding a meeting would be beneficial to the administration of the estate. The existence of these exceptions to the policy meant that no question of unlawfully fettering the exercise of the discretion in fact arose.[20]
[20]Philip A Joseph Constitutional & Administrative Law in New Zealand (3rd ed, Thomson Brookers, Wellington, 2007) at [22.3].
For these reasons there is no ground for challenging the validity of the Official Assignee’s decision to dispense with a first meeting of creditors under s 34A. The question then is whether, when there is no first meeting of creditors, the Official Assignee is prevented by s 72(4) from exercising the power of sale.
This question leads to the third difficulty in the submissions for the appellants. Largely for the reasons given by Fogarty J, we do not agree that Parliament, when enacting s 34A, would have intended to prevent the Official Assignee from exercising the power of sale under s 72 in every case when a decision to dispense with the first meeting of creditors under s 34A had been made. The policy and practical reasons given by Fogarty J support the view that, when s 34A was inserted by amendment to the Act in 1990, Parliament intended the reference in s 72(4) to “the date fixed for the first meeting of creditors” to be qualified by the words “unless the Official Assignee has dispensed with the meeting under s 34A”. In our view it is necessary to read in these words to make the Act work in a practical and sensible manner.[21]
[21]Official Assignee v Noonan [1988] 2 NZLR 252 (CA) at 255; Northern Milk Vendors Association Inc v Northern Milk Ltd [1988] 1 NZLR 530 (CA) at 537; Steele v Serepisos [2006] NZSC 67, [2007] 1 NZLR 1 at [13] and [28]; JF Burrows and RI Carter Statute Law in New Zealand (4th ed, LexisNexis, Wellington, 2009) at 328–332.
We also derive support from the legislative history of s 34A and the principle of statutory interpretation that a later amendment may amend an earlier provision by implication.
The Parliamentary debates at the time of the insertion of s 34A are revealing.[22] On moving that the Insolvency Amendment Bill be read for a third time, the Associate Minister of Justice, the Hon Philip Woollaston, on behalf of the Minister of Justice, noted that it defined the circumstances in which the Official Assignee is not required to call a meeting of creditors.[23] In supporting the Bill, both Warren Kyd and Douglas Graham, as members of the Opposition, emphasised the pragmatic reasons for dispensing with first meetings of creditors. Having noted that “the insolvency section of the Department of Justice had been flooded with a vast number of insolvencies, and had had difficulty coping with them”,[24] and the procedural requirements of the proposed s 34A, Mr Kyd stated that:[25]
It has been found that many of those meetings [ie first meetings of creditors] are futile. The creditors turn up in a mob. A room is booked in the official assignee’s office. They go along to the meeting and then there is no money. There is no point in appointing a liquidator, because there is no money to pay him. That is the reason those meetings have been dispensed with. There is a procedure to give 14 days’ notice to allow any one creditor to call a meeting should one be needed. That proposed section provides a good precaution, because often there is an aggrieved creditor who thinks that the businessman whose business has gone into liquidation has absconded with funds. That person might want a meeting, and the measure provides a procedure to hold such a meeting. The change in [the clause which led to s 34A] is sensible. ... It is there to cut out a lot of the administrative red tape. It is to stop the meetings and the advertising expenses. It is to reduce the job of the Department of Justice, which has become totally inundated with the vast number of liquidations, the like of which has not been seen in the country before.
[22] (8 March 1990) 505 NZPD 575–577.
[23] At 575.
[24] At 576.
[25] At 576.
Having observed that “[t]the provisions are designed to help the official assignee to get on top of his work-load”,[26] Mr Graham then said:[27]
The comments made by [Mr Kyd] that related to the first meeting of creditors were very true. By and large, those meetings are often a waste of time, and most creditors come to the conclusion fairly early on that their chance of recovering any of the debt is remote, and few, if any, ever bother to turn up. It is not as though there will never be a meeting – it is just that the official assignee has a discretion given to him under the Bill.
The comments by Mr Kyd and Mr Graham reflected the practical reality that the Official Assignee would almost always want to sell assets and therefore want to avoid the need for calling first meetings of creditors on every occasion.
[26] At 577.
[27] At 577.
The rule of implied repeal is well-established.[28] As a last resort, if two statutory provisions are totally inconsistent with each other, so that they cannot stand together, the latter in time impliedly repeals the earlier. Applying the rule, Parliament would have intended that the introduction of s 34A in 1990 would have by implication amended or, if necessary, repealed the requirement in s 72(4) for a date to be fixed for the first meeting of creditors before the Official Assignee could exercise the power of sale.
[28]JF Burrows and RI Carter, above n 21, at 453–454.
Our conclusion is not altered by the 1904 decision of this Court in Hamilton v Bank of New Zealand. It concerned the non-compliance by the Official Assignee with the requirement of s 65(1) of the Bankruptcy Act 1892 to offer property, other than perishable property, for sale by public auction or public tender first.[29] Edwards J, with whom the other members of the Court agreed,[30] said:[31]
There is no pretence that in the assignment of the cause of action by the Official Assignee to the plaintiff these conditions have been complied with. Nor can it be contended that it is covered by the last proviso to subsection 1, for it does not purport to be executed in exercise of the power of sale given by section 65. Counsel for the plaintiff contends that this provision is merely directory, but I am not of that opinion. The Official Assignee is a statutory officer, with a seal of office. His office is a creation of the statute, and his whole powers, duties and functions are derived from the statute, and can be exercised only in pursuance of and in compliance with the provisions of the statute. The words of the first subsection of section 65 are quite unequivocal, and in my opinion they are mandatory.
[29]A requirement subsequently replaced by provisions permitting sale by private contract: s 72(2) of the Insolvency Act 1967.
[30] At 144 per Williams J; at 144 per Denniston J; at 147 per Cooper J.
[31] At 143–144.
We agree that, like the requirements of s 65 of the Bankruptcy Act 1892, the requirements of s 72 of the Insolvency Act 1967 were unequivocal and mandatory. But here, unlike the position in Hamilton, the requirement for the sale to occur “after the date fixed for the first meeting of creditors” has been overtaken by the 1990 insertion of s 34A enabling the Official Assignee to dispense with the first meeting of creditors. The consequences of this amendment, to which we have referred, therefore distinguish the present case from Hamilton.
For these reasons we agree with the decision of Fogarty J that the Official Assignee had power to assign the causes of action to Dean without the need for fixing a date for the first creditors’ meeting. The 2011 assignment was therefore valid.
Impeachable title?
For the Official Assignee and Dean, it was submitted that, on the sale of the causes of action by way of valid assignment, Dean had acquired an unimpeachable title by virtue of s 72(5) of the Act, which provided:
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.
Mr Bisley and Mr Chisnall for the respondents submitted that s 72(5) applied in this case because:
a)both assignments were clearly executed “in professed exercise of the power to sell”;
(b)fraud was not alleged; and
(c)even if the power of sale was “improperly or irregularly exercised”, which was not accepted, Dean’s title to the causes of action was unimpeachable.
Accordingly, the appeal against the Official Assignee’s decisions was rendered otiose.
In response, Mr Shiels submitted that, notwithstanding the absence of any allegation of fraud, s 72(5) did not apply because:
(a)The power of sale had not been executed in compliance with s 72(4) (and there was no consideration for the first assignment).
(b)The purpose of s 72(5) was to protect an innocent purchaser, that is a bona fide purchaser for value without notice, and not the former bankrupt. Here, as both the assignor and the assignee knew what had happened, a sale to Dean was not protected by s 72(5).
(c)The deed of assignment had not been executed “in professed exercise of the power of sale”. On the basis of the dictionary definition of “professed”, namely “self-proclaimed”, a simple certificate of compliance with the requirements of s 72 was required. The certificate ought to have recorded the reasons why the Official Assignee was satisfied that a private sale was appropriate and why no meeting of creditors had been held.
As we have already held that the power of sale was executed in compliance with s 72(4), we do not accept Mr Shiels’s first ground.
Neither do we accept Mr Shiels’s second ground. The purpose of s 72(5) was to protect the indefeasibility of title of “any person” acquiring property from the Official Assignee in the exercise of the s 72 power of sale unless fraud was established. The protection provided by s 72(5) was designed to support the Official Assignee’s administration of the Act by encouraging the efficient and efficacious disposal of a bankrupt’s estate. As Barrowclough CJ said in Re Wallace, Ex parte Wallace:[32]
... the administration of the Bankruptcy Act [1908] requires and is designed to achieve a prompt settlement in a more or less summary way of all disputed questions that arise in the bankruptcy. It is a strictly commercial measure dealing with business failures somewhat after the nature of a salvage operation and it is in the interest of the public and of creditors that the operation should not be unduly prolonged.
[32]Re Wallace, Ex parte Wallace [1962] NZLR 531 (SC) at 534.
The breadth of the protection under s 72(5) was reinforced by the nature of the sole exception because it is well-established that an allegation of fraud may not be “lightly” made.[33]
[33]Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2 NZLR 289 at [39].
We therefore see no justification for limiting the expression “any person” in s 72(5) to a bona fide purchaser for value without notice. While no doubt most sales would be to third parties and not to the former bankrupt, we do not consider that, in the absence of fraud, a former bankrupt should be excluded as a potential purchaser. The express exclusion for fraud would ensure that the purchase was bona fide, but more than that was not required. We do not agree that it is necessary to imply the further qualification suggested by Mr Shiels.
We do not accept Mr Shiels’s third ground that the word “professed” in s 72(5) required a certificate of compliance with s 72 from the Official Assignee. The dictionary definition of “profess” is to “affirm, declare or admit openly or freely”.[34] In the context of s 72(5), where “professed” was used as an adjective to qualify the “exercise of the power to sell” under s 72, it meant that the relevant document was made or executed following the Official Assignee “affirming or declaring” that the power of sale had been exercised and accepted. This interpretation of the word is consistent with the purpose of s 72(5) to which we have already referred, because it makes the provision workable. To read in, as suggested by Mr Shiels, a further requirement for a formal certificate of compliance from the Official Assignee to be included in the document evidencing the sale would not have been necessary to implement the purpose of the provision.
[34] Oxford English Dictionary (online ed).
In any event, in the present case, a certificate of compliance from the Official Assignee in the 2011 deed of assignment would simply have confirmed what we have already decided, namely that the Official Assignee did execute the deed in compliance with the requirements of s 72 of the Act. Thus, in the absence of an allegation of fraud, s 72(5) applied and Dean’s title to the causes of action was unimpeachable.
We therefore agree with the Official Assignee and Dean that, subject only to the question whether s 86 of the Act provided the appellants with a meaningful right of appeal to the High Court, s 72(5) had the effect of making the appeals otiose because there is no jurisdiction for an appeal seeking to impeach the title of the purchaser. We turn now to consider the interpretation and application of s 86.
Any right of appeal?
This question arises because s 86 of the Act provided:
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.
Mr Shiels submitted that, notwithstanding s 72(5), the appellants were still entitled to pursue their appeals against the two assignment decisions of the Official Assignee because the High Court retained its discretion under s 86 to “confirm, reverse, or modify” the decisions and to make “such order as it thinks fit.” Mr Shiels relied on the decisions in Willoughby v Official Trustees[35] and Hull v Official Assignee[36] Mr Shiels also submitted that Australian decisions to the contrary, including Re Chirnside, Digby v Union Trustee Co of Australia Ltd,[37] should be distinguished on the basis of differences between the relevant statutory provisions.
[35] Willoughby v Official Trustees [2000] FCA 757, (2000) 102 FCR 261.
[36] Hull v Official Assignee HC Auckland HC13/96 12 December 1997.
[37] Re Chirnside, Digby v Union Trustee Co of Australia Ltd [1929] VLR 217 (VSC).
On this basis Mr Shiels submitted that the High Court, in exercising its wide discretion under s 86, ought to have accepted that the Official Assignee’s decisions were void rather than voidable and therefore ought to have been reversed on appeal. Again Mr Shiels referred to the 1904 decision of this Court in Hamilton v Bank of New Zealand, as well as to the decisions in Webster v Auckland Harbour Board[38] and Mercury Energy Ltd v Electricity Corporation of New Zealand Ltd,[39] and a paper by Jennie Cassie and Dean Knight.[40]
[38] Webster vAuckland Harbour Board [1987] 2 NZLR 129 (CA).
[39] Mercury EnergyLtd v Electricity Corporation of New Zealand Ltd [1994] 2 NZLR 385 (PC).
[40]Jenny Cassie and Dean Knight “The Scope of Judicial Review: Who and what may be reviewed” (paper presented to New Zealand Law Society Administrative Law Conference, August 2008) 63.
Mr Shiels also submitted that, if the decisions were found to be voidable, there was no reason for the Court to validate them. He claimed that there was nothing in the submissions for the Official Assignee or Dean to warrant validation of the decisions, especially if a test of reasonableness were applied.
In response, Mr Bisley and Mr Chisnall submitted that:
(a)Once it was held that Dean’s title was unimpeachable under s 72(5) there was no right of appeal under s 86.
(b)There was no basis on which the High Court on appeal might exercise its discretion under s 86 to reverse the Official Assignee’s decisions in respect of sales protected by s 72(5).
(c)If, contrary to these submissions, there was a right of appeal under s 86 and the High Court had a discretion to exercise, there was no reason for the Court to exercise its discretion and reverse the Official Assignee’s decisions, even if they were voidable.
(d)On the contrary, the 2011 assignment was a reasonable decision, which may result in funds for Dean’s creditors. The Court should not exercise its discretion to set aside a transaction for the benefit of creditors, especially in view of the delay by the appellants in challenging the decisions.
For the following reasons, we agree with the contentions for the Official Assignee and Dean.
First, it is unnecessary in this case to decide whether, when the Official Assignee has sold property, s 72(5) precludes any appeal at all against the decision by the Official Assignee to sell. Because section 72(5) states that a purchaser’s title from a sale by the Official Assignee is unimpeachable, it is clear that the High Court had no jurisdiction to do what the appellant had asked it to, namely reverse the assignments. It may be that, in a case where an appellant seeks to challenge the decision of the Assignee, but does not seek to affect the title to the property transferred, the High Court may choose to reverse or modify the decision leading to the transfer, but leave the title to the assignments intact. While the title to the property would not be affected, the statutory decision to make the assignment would be the subject of the Court’s order. There is, however, no need to decide that point in this case.
Second, in this case, where the appellants sought to impeach the purchaser’s title, there was no right of appeal except on the basis of fraud. In the absence of any allegation of fraud in this case, the effect of s 72(5) was therefore to preclude any right of appeal under s 86 because there could be no other basis for the High Court to reverse the Official Assignee’s decisions. As Mr Bisley pointed out, this outcome was consistent with the purpose of the Act, namely, the expeditious and efficient administration of the bankrupt’s estate. Further, if fraud had been alleged, that allegation would need to have been the subject of a separate High Court proceeding requiring pleadings, evidence and a trial with the opportunity for cross-examination, and not an appeal by way of originating application under s 86, which involved a “shortfire” review only.
Third, having considered a number of Australian authorities, including those referred to by Mr Shiels,[41] we have concluded that they are not relevant to this appeal. None of the cases concerned the effect on jurisdiction of a provision like s 75(2).
[41]Re Chirnside, Digby v Union Trustee Co of Australia Ltd, above n 37; CLC Corporation v Read [2000] WASC 109, (2000) 156 FLR 218; Willoughby v Official Trustee in Bankruptcy, above n 35 and Macchia v Nilant [2001] FCA 7, (2001) 110 FCR 101.
Fourth, even if our conclusion is wrong and the appellants did have a right of appeal under s 86, we are satisfied that the High Court would have been right not to exercise its powers under s 86 on the facts of this case because:
(a)the Official Assignee was exercising a discretionary statutory power of sale under s 72(1);
(b)on appeal the High Court would have been reviewing the exercise of that discretionary statutory power;
(c)it would not have been reasonable for the High Court to set aside the assignments (“reverse” them) when they were entered into by the Official Assignee for the potential benefit of Dean’s creditors; and
(d)the Court would not have been involved in determining whether the Official Assignee’s decisions were void or voidable as that distinction is not relevant in this context.[42]
[42]Compare Joseph, above n 20, at [21.9.1].
In our view, therefore, once s 72(5) applied in this case to protect Dean’s title to the causes of action, there was no right of appeal available to the appellants under s 86. On this basis alone the appeal must fail. But in case we are wrong, we express our views on the remaining issues raised by the appellants.
Standing to appeal
Mr Shiels challenged Fogarty J’s decision that the appellants had no standing to appeal under s 86 because they were not “aggrieved” persons. Mr Shiels submitted that the decision in Edmonds Judd v Official Assignee rather than the decision in Gay v Bruns should be followed and that when that was done it was clear that the appellants were “aggrieved” persons with standing to appeal under s 86.
The Official Assignee and Dean supported the decision of Fogarty J.
Gay v Bruns concerned an appeal under s 8(2) of the 1967 Act from an order made by Morris J re-vesting in the bankrupt, Mr Bruns, certain causes of action that (arguably) lay against the appellants. Section 8(2) provided that “persons aggrieved” had standing to appeal to this Court. This Court unanimously held that the appellants were not “persons aggrieved”. Tipping J said:[43]
[4] The concept of an appeal right being vested in someone “aggrieved” by a decision is potentially a wide one. I would not wish unreasonably to restrict its effect. Nevertheless, the concept must have some inherent restriction for it cannot simply mean that someone who is unhappy with a decision can appeal. Gallen and Doogue JJ have referred to a number of cases which bear on the topic. I have endeavoured to summarise their general effect in writing what follows.
[5] The present context is bankruptcy and the powers of the High Court under the Act. The context is such that persons aggrieved are likely to be either people who have claims against the bankrupt, or people against whom the Official Assignee on behalf of the bankrupt’s estate wishes to assert a claim. The decision of the High Court from which it is desired to appeal under Section 8 will, therefore, usually touch upon the position of a person involved with the bankruptcy in one or other of these ways. The necessary limitation on the concept of a person aggrieved must be that the decision affects the person’s position in some legally detrimental way. 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. As a consequence, to qualify as a person aggrieved the intending appellant must show that his or her rights, whether substantive or procedural, have been adversely affected by 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.
[6] The question is, therefore, whether the appellants’ substantive or procedural rights were detrimentally affected by the order vesting the causes of action in Mr Bruns. There can be no detrimental effect of a substantive kind. The vesting order made the causes of action no stronger and no weaker. It did not revive the causes of action if they were already satisfied by a compromise. The appellants’ substantive rights remained exactly the same: to defend the proceedings in the ordinary way; to move to strike them out as already satisfied; and to take any other action in relation to the proceedings which they considered to be to their advantage. Thus the order vesting the causes of action in Mr Bruns in place of the Official Assignee affected no substantive rights of the appellants, let alone in a detrimental way.
[7] The question of procedural rights requires a little more elaboration. The appellants contended that Mr Bruns was more likely to litigate the asserted cause of action than the Official Assignee. While that may well be so, no procedural right of the appellants is thereby infringed.
[43] Gay v Bruns, above n 13, at [4] to [6].
Accordingly, applying the critical test of whether the person was “legally worse off in some substantive or procedural way”, the appellants were not aggrieved by the decision, because they faced the same potential causes of action whether brought by the bankrupt (Bruns) or the Official Assignee. Gallen and Doogue JJ, after citing numerous decisions where the term had been more widely interpreted, agreed.[44]
[44] At [23].
Edmonds Judd v Official Assignee concerned a review, under s 86 of the 1967 Act, of a decision of the Official Assignee to assign causes of action that vested in it pursuant to a bankruptcy, back to the ex-bankrupt. It was conceded that Edmonds Judd was, substantively, an aggrieved creditor. The issue of standing was therefore not fully argued before the Court.[45] The Court noted,[46] however, that the Gay v Bruns interpretation of “aggrieved” appeared to run counter to the approach taken to the interpretation of that phrase in recent years.
[45] Edmonds Judd, above n 14, at [18] and [20].
[46] At [20].
For the following reasons, which largely reflect the judgment of Fogarty J, we consider that we should follow the decision of this Court in Gay v Bruns rather than the obiter comments of this Court in Edmonds Judd v Official Assignee:
(a)The text of s 86 entitled “the bankrupt”, “any creditor” or “any other person” to apply to the Court to review an act or decision of the Official Assignee, if the bankrupt, creditor or person was “aggrieved” by the act or decision. An applicant for review did not have an automatic right to apply. There was the statutory condition precedent that the applicant be “aggrieved”. To make sense of this condition and to give it meaning, an objective, rather than a subjective standard of assessment was required. In other words, it was for the Court, not the applicant, to determine whether the applicant was “aggrieved” so that the condition was met.
(b)To determine whether a person is “aggrieved” for the purposes of a particular statute, it is necessary to consider the context in which the expression appears in light of the purposes of the Act as a whole. While decisions on the expression “aggrieved” person in other statutes will not necessarily be of assistance, it is noteworthy that in Marks v Director of Health and Disability Proceedings this Court rejected the argument that the expression “aggrieved person” in s 57 of the Health and Disability Commissioner Act 1994 should be given “a liberal, non-technical meaning.”[47]
(c)In the context of the Insolvency Act 1967 the approach of this Court in Gay v Bruns reflected the purpose and scheme of the Act which was designed to limit the nature and scope of challenges to decisions of the Official Assignee. Other provisions such as s 8 (general rights of appeal) and s 99 (a right of appeal against the Official Assignee’s estimates of the value of a contingent debt on rejection of proofs), which also referred to “aggrieved” persons, only made sense if the person concerned had a proper interest in the outcome of the bankruptcy that objectively met the test.
(d)The approach of this Court in Gay v Bruns was also consistent with the interpretation of the same expression in English and Australian bankruptcy legislation.[48]
(e)If defendants to causes of action assigned by the Official Assignee could be seen as “aggrieved” persons for the purposes of the Act, this would create a conflict with those creditors who proved in the bankruptcy and who, accordingly, would have an interest in the causes of action being assigned for value.
[47]Marks v Director of Health and Disability Proceedings [2009] NZCA 151, [2009] 3 NZLR 108 at [21], [38] and [56]–[62].
[48]Re Sidebotham (1880) 14 Ch D 458 at 465 (CA) and Macchia v Nilant, above n 41, at [31] and [36]. The expression has been replaced with “detrimentally affected” in s 226(1) of the Insolvency Act 2006.
Following the decision in Gay v Bruns, we are satisfied that the appellants were not “legally worse off in some substantive or procedural way” as a result of the Official Assignee’s decisions to assign the causes of action to Dean. The appellants still have the opportunity to defend Dean’s claim based on the causes of action in the main proceeding. By inviting the Court to prefer the decision in Edmonds Judd, Mr Shiels effectively recognised that this would be the result if we decided not to do so.
Our decision that the appellants were not “aggrieved” persons in the context of s 86 means that they lacked standing to bring an appeal under that provision. Their absence of standing provides a further reason for rejecting their appeal.
Standard of review
The appellants’ notice of appeal states that Fogarty J:
... erred in law in holding that that before reversing or modifying an act or decision pursuant to section 86 Insolvency Act 1967 he needed to reach the view that the decision under appeal is wrong.
Mr Shiels submitted, in reliance on Edmonds Judd v Official Assignee[49] and a line of High Court decisions,[50] that an appeal under s 86 was a hearing de novo where the Court was entitled to consider the correctness of the Official Assignee’s decision on the merits. Mr Shiels further argued that in exercising his or her discretion under s 72, the Official Assignee must recognise a basic principle of bankruptcy law that, following the orderly administration of the bankrupt’s estate and distribution of available funds to the creditors, neither the bankrupt nor the creditor has any claim on the other. But otherwise Mr Shiels did not really pursue this ground of appeal in the course of the argument before us. We will therefore deal with the issue briefly on the basis of the written submissions.
[49] At [39].
[50]Rao v Official Assignee HC Wellington CIV-2006-485-4, 17 October 2007 (Clifford J) at [24]; Knight v Official Assignee [2009] NZAR 235 (HC) (Rodney Hansen J) at [8]–[9]; Re Gifkins HC Auckland CIV-2009-404-281, 25 May 2009 (Allan J) at [19]; Taylor v Official Assignee HC Auckland CIV-2006-404-7115, 26 August 2009 (Heath J) at [46]–[49].
When considering the question of the standard of review under s 86 of the Act, it is necessary to distinguish between the discretionary powers of the High Court under s 86 to confirm, reverse, or modify the Official Assignee’s act or decision and to make such order as it thinks fit and the nature of the statutory provisions under which the Official Assignee acted or decided. This distinction is important because the standard of review by the High Court will depend on whether or not the Official Assignee was making a decision that is subject to a general right of appeal or exercising a discretionary statutory power, which is subject to a more limited right of appeal.[51]
[51] Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32].
In the present case the acts or decisions of the Official Assignee that are the subject of the appeal under s 86 were made under s 72(1) of the Act, which provided:
72 Power of Assignee to sell
(1)Subject to the provisions of this Act, the Assignee may sell the whole or any part of the property of the bankrupt by public auction or public tender on such terms and conditions as he thinks fit, with power to buy in at any auction or to rescind or vary any contract for sale on such terms as he thinks fit, and with power also to sell the whole thereof to any person or to sell the same in parcels and in any order.
Under this provision the Official Assignee had a discretionary power to sell the property of the bankrupt. The exercise of the power was expressly “Subject to the provisions” of the Act. This express limitation reflected the well-established principle that a discretionary statutory power must be exercised lawfully in accordance with its purpose, the policy and objects of the particular Act, and any other relevant statutory requirements.[52]
[52]Unison Networks Ltd v Commerce Commission [2007] NZSC 74, [2008] 1 NZLR 42 at [53]–[55].
An appeal under s 86 challenging the exercise by the Official Assignee of the discretionary power of sale under s 72(1), as in the present case, was therefore not the exercise of a general right of appeal but an appeal against a decision made in the exercise of discretion. This meant that, as the Supreme Court explained in Kacem v Bashir,[53] the criteria for a successful appeal were stricter: (1) error of law or principle; (2) taking account of irrelevant considerations; (3) failing to take account of a relevant consideration; or (4) the decision was plainly wrong. On an appeal of this nature the High Court was therefore not required to follow the approach mandated by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar,[54] which applies to a general right of appeal. In light of Austin, Nichols and Kacem v Bashir, characterisation of the appeal as de novo does not assist resolution of the issue in this case, where the real issue is the standard of review.
[53] At [32].
[54] Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
In the present case the appellants challenged both the legality of the Official Assignee’s decisions and the merits of them. The legality challenge related to the alleged non-compliance with the creditors’ meeting requirements of ss 34 and 72(4). The merits challenge related to the reasonableness of the decisions to enter into the assignments of the causes of action.
If the legality challenge had succeeded, the decisions would have been set aside on the ground of error of law, but for the reasons we have already given the legality challenge failed.
To succeed in the merits challenge, the appellants needed to show that the Official Assignee had taken account of irrelevant considerations, failed to take account of relevant considerations or that the decisions were plainly wrong. Fogarty J reviewed the decisions “as an appellate Judge with the full power to agree or disagree or to modify the decisions”. It is unclear whether Fogarty J meant to indicate that he was taking a more stringent approach than that required by Kacem v Bashir. However, because any error in approach was in favour of the appellants, this ground must fail. In reaching this conclusion we have adopted the appellate approach required by Austin Nichols & Co Inc v Stichting Lodestar.[55]
The merits of the Official Assignee’s decision
[55] At [4]–[5].
The appellants also challenge Fogarty J’s decision on the merits of the Official Assignee’s decision to enter into the 2011 deed of assignment. They made four points, namely, that the Official Assignee:
(i)paid no regard to the statutory limitations of time and manner on the power to sell;
(ii)made the decision without any reference to the appellants’ solicitors, who had taken an active interest;
(iii)gave no consideration to whether there were other ways of obtaining value from the claimed causes of action, including from the appellants;
(iv)gave no consideration to the principle that discharge from bankruptcy should give finality to creditors and bankrupt.
Mr Shiels then submitted that the Court should reverse the Official Assignee’s decision because:
(i)the release of the Official Assignee from potential claims by Russell McVeagh and/or Dean was an improper element of the underlying agreement.[56]
[56] Baral v Official Trustee in Bankruptcy [1999] FCA 77, (1999) 89 FCR 422.
(ii)the claims were very old. On the premise that the 2010 assignment was invalid, it was their age as at August 2011 that was relevant, which was already more than six years since any pre-bankruptcy cause of action arose;
(iii)it assigned to an impecunious ex-bankrupt old and difficult causes of action;
(iv)proceedings following the assignment were prima facie being unlawfully maintained; and
(v)the Court had no ability to assess what, if any, recovery was likely for the estate.
For the following reasons, we are not satisfied that the appellants have established that Fogarty J erred in deciding not to reverse or modify the Official Assignee’s decision to exercise the power of sale under s 72 of the Act and to assign the causes of action to Dean.
First, for the reasons we have given, it has not been established that the decision involved any error of law. The decision complied with the requirements of ss 34A and 72(4).
Second, we agree with Fogarty J that the Official Assignee was not obliged to consult with the appellants before entering into the deed of assignment and that the assignment was the only way of achieving the possibility of a recovery for the creditors.[57]
[57] See above, at [34](d).
Third, the principle of finality did not preclude the Official Assignee from assigning the causes of action in the circumstances of this case where they provided a possible means of recovery for creditors.
Fourth, there is no evidential foundation for the suggestion that the assignment was motivated by a desire to avoid litigation. Ms Cox did not depose in her affidavit that she was influenced in her decision to assign by a threat of litigation by Dean and she was not cross-examined on her affidavit evidence. Furthermore, the decision in Baral v Official Trustee in Bankruptcy is not authority for the proposition that it is improper for the Official Assignee to seek an indemnity. In that case it was held that it was not improper to do so.[58] The release of the Official Assignee from potential claims by Russell McVeagh and/or Dean was not an improper element of the underlying agreement.
[58] At 433.
Fifth, issues relating to the age and difficulty of the causes of action, the question of champerty or maintenance and the likelihood of recovery will all be able to be raised and be determined in the main proceeding.
Finally, an examination of the consideration given by the Official Assignee to the assignment, including the advice taken, reinforces our conclusion that no ground for impugning the decision on the merits has been established. It is apparent from the Official Assignee’s letter of 6 September 2011 that she took into account that:
(a)Dean’s claim was likely to be the only means of recovering anything for the creditors, who had received nothing to date;
(b)the Official Assignee could not advance the claim by any other means apart from assigning it to Dean;
(c)any resulting return would be achieved at no further cost to the taxpayer;
(d)the Official Assignee has a duty to obtain a return for creditors where possible;
(e)there was independent legal advice on the strength of the claim;
(f)no strike-out or defendant’s summary judgment application had been made; and
(g)two High Court judges had found the claims to be arguable.
The decision was therefore not plainly wrong.
Summary
For the reasons we have given, we are satisfied that:
(a)The Official Assignee had power under s 72(4) of the Act to assign the causes of action to Dean without first holding a creditors’ meeting.
(b)In the absence of any allegation of fraud, Dean acquired an unimpeachable title to the causes of action by virtue of s 72(5) of the Act.
(c)The Court therefore had no jurisdiction to exercise in this case in an appeal by the appellants under s 86 of the Act.
As we have indicated, we are also satisfied that:
(a) the appellants had no standing to appeal under s 86; and
(b)applying the correct standard, there was no good reason to reverse or modify the Official Assignee’s decisions on the merits.
Result
The appeal is therefore dismissed.
The appellants are ordered to pay costs to each of the first and second respondents for a standard appeal on a band B basis together with usual disbursements.
Solicitors:
Downie Stewart, Dunedin for Appellants
Crown Law Office, Wellington for First Respondent
Russell McVeagh, Wellington for Second Respondent
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