Gollan v Official Assignee
[2013] NZHC 2094
•16 August 2013
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2012-419-000646 [2013] NZHC 2094
BETWEEN JAMES PATRICK GOLLAN
Applicant
AND
OFFICIAL ASSIGNEE Respondent
CIV 2012-419-001698
BETWEEN VERONICA PATRICIA GOLLAN Applicant
ANDOFFICIAL ASSIGNEE Respondent
Hearing: 15 August 2013 Appearances:
G Keene for the Applicants
G Caro for the RespondentJudgment:
16 August 2013
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
16.08.12 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
JAMES PATRICK GOLLAN v OFFICIAL ASSIGNEE [2013] NZHC 2094 [16 August 2013]
[1] These proceedings involve applications by Mr and Mrs Gollan to reverse decisions by the Official Assignee (the Assignee) in connection with their respective bankruptcies. The decisions were to refuse to assign causes of action under the Law Reform (Testamentary Promises) Act 1949 (The TPA claim). The application of Mrs Gollan also challenges the decision to refuse to assign a cause of action under the Family Protection Act 1955 (the FPA claim).
[2] Previously by judgment dated 20 July 2012 Associate Judge Faire dismissed an appeal by Mr Gollan against the decision of the Assignee not to take over and continue a claim against the estate of Mrs Gollan’s mother (Mrs Luders). Judge Faire made orders refusing to reverse the Assignee’s decision not to continue with the claim of Mr Gollan. The learned Judge however left open the question of whether or not Mr Gollan could assign the cause of action. That has led to the current applications being filed.
[3] Mrs Luders died on 28 July 2008.
[4] Mr Gollan was adjudicated a bankrupt on 19 March 2012. Mrs Gollan was adjudicated bankrupt on 5 May 2008 and she was discharged from bankruptcy in about May 2011. As a result of their adjudications their causes of action against Mrs Luders’ estate vested in the Assignee. 1
Mr Gollan’s application
[5] The grounds for the application include, inter alia:
(a) That in the course of refusing an assignment of the TPA claim the Assignee took into account irrelevant considerations because he required an indemnity against any award of costs if the testamentary promises claim failed; and because Mr Gollan had previously assigned the cause of action to a third party, Employment and
Business Services Limited (EBS).
1 Insolvency Act 2006, s 101.
(b) That the TPA claim does not lack merit and is not weak; and that the
Assignee will not be exposed to risk even if the claim fails.
(c) That there would be a benefit to creditors if the claim succeeded.
The claim by Mrs Gollan
[6] Mrs Gollan’s claim is very similar to that of her husband but also includes the FPA claim she has brought against her late mother’s estate. Mrs Luders’ Will bequeathed 4/11ths of her estate to Mrs Gollan, 4/11ths to her sister Mrs Managh, and
1/11ths to each of the three other siblings.
[7] The Assignee became aware in February 2010 that Mr and Mrs Gollan commenced TPA claims in the Family Court in August 2009. They were the executors and trustees of Mrs Luders’ estate. In addition Mrs Gollan commenced an FPA claim at the same time. Mr Jones, the Assignee’s solicitor, filed a memorandum in the Family Court advising that Mrs Gollan’s rights in respect of both claims had vested in the Assignee. The solicitor requested time for the Assignee to assess whether to continue or discontinue that proceeding.
[8] The Assignee then investigated the matter and sought advice from Mr Jones and other counsel as well. He concluded that the likelihood of the claims succeeding was too remote for him to authorise the continuation of them. He was aware there were no funds in Mrs Gollan’s estate, and that he would need funding from creditors to continue the proceeding. His enquiries of those creditors indicated they would not fund court proceedings unless the prospects of success were very good. The Assignee concluded that Mrs Gollan’s proceeding could not continue and as a result her name was struck from those proceedings.
[9] The testamentary promises claim of Mr Gollan proceeded until he was adjudicated bankrupt.
Faire AJ’s earlier judgment upon Mr Gollan’s application
[10] As Associate Judge Faire noted when considering Mr Gollan’s appeal he was not dealing with the exercise of a general right of appeal but an appeal against a decision made in the exercise of discretion.
[11] The learned Judge noted the estate was not a large one. That it was comprised solely of a house property with a then current rateable value of $300,000. A mortgage debt of about $146,000 was owing. The Assignee stated Mr Gollan owed debts of $317,550 of which $183,800 was owed to the Commissioner of Inland Revenue.
[12] Mr Gollan agreed that if he was totally successful with his testamentary promises claim he would obtain a surplus of about $40,000 after payment to his creditors of 20 per cent of their claims.
[13] Associate Judge Faire recorded that in the course of his discussion with Mr Gollan, Mr Gollan sought to rely on an agreement with EBS by which he said his cause of action had been assigned to that company prior to his adjudication of bankruptcy. The learned Judge noted that if that was the case then Mr Gollan could not properly assert that he was the person directly affected by the decision of the Assignee and that he should not have filed the appeal.
[14] Then the learned Judge noted:
[27] As the hearing was drawing to a conclusion Mr Gollan advised me that he accepted he would have great difficulty challenging the decision made by the Official Assignee. That was understandable because there had been a considerable discussion as to whether he could satisfy me that the four areas 2 identified by the Court of Appeal in Glynbrook would justify my reversing the Official Assignee’s decision in this case.
[28] For the reasons set out in this judgment I do not consider any of the four considerations that the Court of Appeal identified that I should look at in determining this application would justify my reversing the Official Assignee’s decision.
2 [(1) Error of law in principle; (2) taking account of irrelevant considerations; (3) failing to take account of a relevant consideration; or (4) the decision was plainly wrong].
[29] What, however, was not clear was whether or not the Assignee had ever been properly invited to consider an assignment of the cause of action...
[30] In light of Mr Gollan’s acknowledgement of the weakness of the claim and Mr Jones indicating to me that he would have no objection, at this stage, to my adjourning the application insofar as it might relate to a possible assignment, I have reached the conclusion that an order should be made in respect of part of the application and that part of it should be adjourned to a later date to see if there was any proper foundation for an assignment of the cause of action of the conditions.
Background of current application
[15] Mr and Mrs Gollan say that Mr Gollan’s mother had promised them her home because they were the only two who had looked after her [the promise]. Mrs Gollan’s FPA claim is founded on her claims of care for her mother in particular since Mr and Mrs Gollan moved into Mrs Luders’ house in August 2002.
[16] When the matter of Mr Gollan’s application was dealt with by Associate Judge Faire he had before him two affidavits by Joan Managh (Mrs Managh), the sister of Mrs Gollan. The sisters are two of five siblings aged between 62 and about
75 years.
[17] Mrs Managh has not sworn an affidavit in connection with the proceedings which are the subject of the hearing before this Court at this time. But, notwithstanding, Mr Keene counsel for Mr and Mrs Gollan has served notice requesting Mrs Managh be available for cross examination upon the two affidavits filed for the hearing before Associate Judge Faire.
[18] Mr Caro for the Assignee has responded that Mrs Managh cannot be required to appear for cross examination in a proceeding for which she has not provided an affidavit.
[19] In his most recent affidavit the Assignee, Mr Currie, has indicated that if the Court approves the assignments to Mr and Mrs Gollan then he would not be requiring any indemnities from them.
[20] It is for that reason the applicants’ case before this Court focuses upon the Assignee’s decision not to assign the causes of action because the prospects of success are remote and because any financial benefit to the Gollans and their creditors would be so small as to render the claim as largely a wasted exercise.
Prospect of success
[21] The Gollans challenge claims that they lack credibility and are without corroborating evidence. They dispute claims of poor quality of care given in the last five years of Mrs Luders’ life; or that Mrs Luders suffered from dementia and would not have been competent to make the promises claimed; or that whatever care was provided was no more than could have been expected from members of the family who were living at her home rent free.
[22] The Gollans say that to the extent that any view of this information that has been adopted from what Mrs Managh has previously said about the Gollans should be discounted because Mrs Managh will not make herself available for cross examination.
[23] A testamentary promises claim usually relies upon a promise made in consideration of services and all work provided during the deceased’s lifetime. A claim may be brought if the promise is not honoured appropriately by gift or disposition. A Court can make an award having regard to the value of services provided, the value of the estate, and after consideration of the claims of other beneficiaries.
[24] Mr Keene submits that the veracity of the Gollans should not be prejudged, but instead carefully assessed in the course of evidence presented at a trial. Also, if the evidence of Ms Managh is excluded then any evidence challenging the Gollan’s credibility, Mr Keene submits, is almost nonexistent.
[25] The evidence of Mr and Mrs Gollan of the promise made is now supported by the affidavits of the Gollan’s two children, Candice and Peter who deposed that
Mrs Luders made a number of statements amounting to testamentary promises to give her home to Mr and Mrs Gollan.
[26] The Gollans question the reliability of claims that the quality of care provided by them to Mrs Luders was relatively poor. That evidence was provided by two persons who they say had negligible contact with Mrs Luders during the five years before her death. In contrast there is the Gollans own evidence which, Mr Keene submits, “paints a picture of a basically happy Granny who was very grateful to be part of the Gollan family while bedridden, rather than being on her own in a rest home”.
[27] The Gollans do not accept claims that Mrs Luders suffered from dementia noting there is largely an absence of medical evidence on the point. Although the death certificate referred to Mrs Luders as suffering from dementia for five years prior to her death, the Gollans suggest that it is only in the last nine months of her life that Mrs Luders suffered significantly from the affects of dementia.
[28] Regardless Mr Keene submits there was an insufficient basis from which the Assignee could draw conclusions that Mrs Luders lacked capacity at the time it is said the promises were made.
[29] It is the Gollans case that they provided 24 hours a day seven day a week care for Mrs Luders the value of which far exceeded the value of the free rental accommodation for them.
[30] Mr Gollan no longer asserts that he has assigned his testamentary promises claim to EBS. Indeed clear evidence indicates that EBS neither sought nor accepted any assignment of the testamentary promises claim.
[31] Regarding the Assignee’s position that any quantum award would likely be so small as to warrant the process futile, the Gollans say that in the last year or so the value of the estate property may now have increased to between $350,000 and
$400,000. If so then that would have, they say, a major impact on the financial benefits that would be available to them and their creditors.
[32] As for the fact of the property mortgage debt to Mr and Mrs Managh being in the vicinity of $180,000, the Gollans say they dispute that figure. They argue also that Mr and Mrs Managh are only entitled to ordinary interest and not penalty interest. The Gollans believe the mortgage value is about $120,000. By their calculation the equity in the property should be as much as $235,000. The Gollans are prepared to offer 20 per cent of any financial benefit they derive to the Assignee. By their calculations the creditors (whose debts significantly exceed that sum) could then benefit by up to $46,000, if they receive 20 per cent of their claims.
[33] The Gollans also challenge any requirement by the estate to pay legal fees totalling $53,000. The Gollans believe that 90 per cent of all legal expenditure has been provided to Mr and Mrs Managh in furtherance of their own financial interests as distinct from any financial benefit to the estate and the other beneficiaries.
[34] Mr Keene submits the Assignee appears to have accepted everything presented to him by Mrs Managh’s and the estate’s solicitors who are apparently united in their opposition to the objectives of the Gollans. He also submits that in terms of the documentation presented to the Court it will not be possible for the Court to determine whether or not the testamentary promises claims will be a futile exercise.
[35] In terms of her mother’s Will Mrs Gollan, as was Mrs Managh, bequeathed four elevenths’ of their mother’s estate. However, the Will made that gift to Mrs Gollan’s conditional upon her repaying a debt allegedly owing by her to her mother of $57,000. Mrs Gollan disputes she has an indebtedness to her mother’s estate. She says however if her TPA claim fails and if she proves her bequest was not conditional on repayment of a debt, she has a strong claim under the FPA having regard to the 24 hours/7 day care she provided to her mother over the last five years of her mother’s life.
Considerations
[36] Section 226(1) provides:
A person (including the bankrupt or a creditor) who’s interests, monetary or otherwise, are detrimentally affected by an act or decision to which this
section applies may apply to the Court to reverse or modify the act or decision.
[37] It follows, that for Mr and Mrs Gollan to have standing to apply they must have had interests that were detrimentally affected by the Assignee’s decision.
[38] When they were bankrupted their property vested in the Assignee. On discharge from bankruptcy no property re-vests in the discharged bankrupt. Therefore on adjudication the Assignee becomes the absolute legal owner of the bankrupt’s property; that there are no rights or interests in that property that remain with the bankrupt.
[39] Mr Caro submits that the Gollans have no right to require assignments to them nor do they have any greater expectation than any other person to receive an assignment.
[40] It is not enough that the Gollans should be disappointed because the Assignee’s decision does not provide them with their long awaited day in court. Mr Caro submits that because the Gollans have no remaining interest in the causes of action, their monetary interests could only be detrimentally affected if the payments the Assignee was going to receive in consideration of the assignment was sufficient to enable a surplus to be paid to the Gollans after the Assignee had taken its remuneration and all creditors had been paid in full.
[41] Mr Caro submits it is not a proper function of the Assignee to assign the causes of action for a share of the proceeds if successful in the absence of a proper assessment of the strength of the claim and its likely result. In Seimer v Official Assignee 3 Brewer J said at paragraph [35]:
It follows from those cases that if a person, now bankrupt, wishes to continue a proceeding then the law requires the Official Assignee to investigate the merits of the proceeding to a reasonable extent. He can then make an informed decision as to whether he should continue the proceeding. If his decision is that he will not do so, he must decide whether to assign it to the bankrupt. This last decision should be primarily a commercial one. If there is a reasonable possibility that such an assignment might generate a return for the estate that would be a strong reason to make the assignment.
3 [2013] NZHC 513.
[42] It might appear from that statement of Brewer J that an Official Assignee has an obligation to decide whether to assign to the property in any proceeding which the bankrupt has or wishes to pursue. It is not clear that such an obligation arises but it makes sense, as Brewer J indicates, that such consideration is available albeit that an Assignee has no obligation to consider it.
[43] If a Court is going to consider the Gollans’ application in this case then it must accept that in consideration for the assignment sufficient funds would be generated to enable a surplus to be paid to the Gollans after the Assignee has taken his remuneration and after creditors debts have been satisfied.
[44] As earlier noted the total of claims against Mr Gollan was $317,250 of which Mr Gollan concedes an indebtedness of approximately $250,000. In Mrs Gollans bankrupt estate the only creditor to file a claim with the Commissioner of Inland Revenue for approximately $170,000. Therefore the total indebtedness of the Gollans was at least $420,000 and as much as $478,250.
[45] Mr Caro submits that given the size of Mrs Luders’ estate it is impossible for there to be a surplus available to either Mr or Mrs Gollan if the Assignee assigns the causes of action and the claim succeeds and the Assignee is paid a share of the net proceeds.
[46] The Gollans’ calculations of a surplus rely in large part upon their own unverified recalculations of the worth of the estate’s property. The Gollans suggest the property might be worth between $350,000 and $400,000. They have offered reasons for not accepting the “drive-by” assessment of a real estate agent. Notwithstanding the Gollans’ reservations about that agent’s assessment, the Court will certainly prefer that assessment until some better assessment becomes available
– and that has not been provided by the Gollans.
[47] Claims of a surplus assume the Assignee should agree to compromise creditors’ expectations at a level of 20 per cent. Mr Keene submits this is more than would occur if the Gollans took no action at all.
[48] To have standing to bring their application the Gollans must show that they are detrimentally affected by the Assignee’s decision. Therefore a person must be legally worse off in a substantive or procedural way in order to have standing to apply under s 86. 4
[49] In his judgment Faire AJ accepted that Mr Gollan has standing to apply. It follows the learned Judge considered Mr Gollan’s substantive rights were adversely affected. This Court does not adopt that same conclusion.
[50] It is clear from the affidavit evidence that any trial of their claims will be strongly opposed. Other estate beneficiaries will likely be involved. Extensive cross examination would occur. Conceivably a number of days will be required for any trial. Significant costs would be payable to lawyers which would not be recovered even if the claim was totally successful.
[51] On any analysis of the valuation evidence the Gollans may likely receive nothing. Arguably for that reason their substantive rights are not affected by the Assignee’s decisions not to assign the causes of action to them.
[52] The Gollans’ position is that there will be or will likely be a favourable outcome that ought to provide a significant benefit to their creditors. Their claim of a promise of the house being given to them is supported they say by the extent of the care they gave to Mrs Luders over the five years before she died. They reject the claims of others criticising the standard of care given. The Gollans challenge claims that Mrs Luders was affected by dementia. They say the signs of dementia were only obvious in the last nine months or so before Mrs Luders died.
[53] Applications like the present one challenging an Assignee’s decision seemingly require a Court to second guess the outcome of TPA or FPA claims. The outcomes of those kinds of actions are seldom predictable. They do however require a consideration of the claims of other beneficiaries when as here, those claims will very much be at the forefront of an opposition to the Gollans claims. Even if the
Assignee got it completely wrong and if the Gollans succeeded in their claim to own
4 Gay v Brun CA 193/98, 17 June 1999.
the house of Mrs Gollan’s mother, some examination needs to be given to the value of that home to see if there was some worth in it from which the Gollans’ creditors might benefit. The Gollans evidence is that there may be a benefit to the creditors. This Court considers otherwise.
[54] When Faire AJ dealt with the matter he noted the house had a rateable value in September 2009 of $300,000. At that time the estate’s solicitors recorded a mortgage of $145,958.97.
[55] In an affidavit of Mr Campion the solicitor for Mrs Luders’ estate he provided a copy of a ‘current drive-by valuation’ prepared by a local real estate agent. It noted that the property should sell for approximately $270,000 by comparison to recent sales of similar run down homes in the Hamilton East area. In a statement of assets and liabilities there is now included a sum of $177,428.71 owed to the Managhs under their mortgage. As well there is noted an amount to be reimbursed to the Managhs in the sum of $62,580.50. Therefore on the most recent assessment the deceased’s estate has net assets of $29,990.79.
[56] The Gollans challenge the amount of interest charged on the mortgage. The penalty rate was 11.5% and the ordinary rate is 9.5%. The mortgage contract penalty rate should apply if the mortgage repayments have not been met – as they have not.
[57] The amount of costs to be reimbursed to the Managhs has been calculated by Mr Campion and by legal counsel Mr O’Neill has been calculated on the basis that two thirds of Mr O’Neill’s fees were attributable to estate costs. The Gollans challenge this claim although it was not addressed in their reply affidavit. The challenge is made through counsel’s submissions. The Court accepts Mr Caro’s submission that there is no evidence that the estate costs have not been properly incurred. Mr Campion’s evidence has not been challenged. He has not been called before this Court for cross-examination.
[58] The Assignee’s evidence records further payments by the Managhs since Mr Campion swore his affidavit. That evidence indicates that the net value of the estate is about $24,000 on a home worth $270,000. Mr Caro calculates that if the ordinary
mortgage interest rate of 9.5 per cent instead of 11.5 per cent penalty rate applied then the net value of the estate would be about $47,000.
[59] The Gollans believe the Managhs have received interest from funds invested from the deceased’s estate of Mrs Luders and that there should be a set off against the interest payable on the mortgage. No evidence has been provided in support of this claim.
[60] Unquestionably the Assignee has to assess the likely outcome of the Gollans’ claims. The evidence suggests that even if totally successful basic economics do not support a sufficient monetary outcome, much less any likely return for creditors.
[61] An Assignee is not expected to foretell the litigation outcome. He needs only make an assessment of the likely result. Affecting that assessment would in this case be the lack of independent corroboration of a promise. The evidence from the Gollans’ children is not independent. Mr Caro comments that care should be taken regarding the children’s evidence because their affidavits have clearly been drafted by the same person. He said many of the paragraphs in each affidavit are identical.
[62] The evidence of Mrs Luders’ mental capacity could negatively impact on the
Gollans’ claims of a testament promise.
[63] The Gollans have lived rent free in Mrs Luders’ house since she died five years ago. The Court agrees with Mr Caro that the value of that benefit would also likely have to be taken into account.
[64] The Gollans’ credibility will likely be tested at trial. Both have a history of multiple bankruptcies. Mr Gollan has recently been imprisoned for violent offending. He has previously been convicted of being involved in the management of a company whilst prohibited, and for unlawfully taking a motor vehicle.
[65] It is clear that the Assignee came to the conclusion that the causes of action lacked merit. He had obtained the advice of solicitors from within and outside his office. He also took into account the information provided by the Gollans, including
the opinion of their lawyer. In considering that, as Mr Caro submits, the Assignee had to ask himself whether a return for the bankrupt estates was likely. That is clearly what he did.
[66] By their mother’s will Mrs Gollan and Mrs Managh both received a 4/11ths share of the residue of their mother’s estate. Those shares were four times greater than those bequeathed to their siblings.
[67] The Will required Mrs Gollan to repay a debt of $57,200. Mrs Gollan disputes owing that money to her mother. The matter is of no relevance anyway because with the discharge of her bankruptcy Mrs Gollan was discharged from any debt to her mother’s estate. Therefore, by her mother’s Will, Mrs Gollan stands to gain a 4/11ths share of the estate, even though the evidence indicates that to be a very modest return.
[68] Mr Caro asks the Court to refuse to assign the FP claim on the basis that it lacked merit because a 4/11ths share of the residue of the estate represented a discharge of Mrs Luders’ moral duty.
Conclusion
[69] The Assignee has concerns that the appeal process appears focussed on the reasonableness of his exercise of a discretion about whether or not to assign an interest in a proceeding to a bankrupt or his nominee. The Assignee’s position appears to be that the process of appeal/review ought to be approached de novo – much in line with the conclusion reached by Duffy J in Heinz House Removals
Limited v Jamieson 5. In that case Her Honour decided to adopt that standard of
review most favourable to the applicant, namely that the Court should hear the matter de novo but be careful not to interfere with the Assignee’s discretion too easily.
[70] In that event an applicant may bear a responsibility to prove to the Court there should be an assignment of a claim, rather than requiring an Assignee to justify
5 [2013] NZHC 653.
reasons for refusing it. More so, because it would be incumbent on a bankrupt seeking an assignment to establish that they have standing i.e. to establish that they are detrimentally affected by the decision of the Official Assignee to refuse to assign. Because the bankrupt has no property in the right to a claim a bankrupt bears a responsibility to show that in consideration of an assignment there was sufficient to enable a surplus to be paid to the bankrupt after the Assignee had taken his remuneration and all creditors were paid in full or at least to a level they would agree.
[71] These comments notwithstanding it is the Court’s clear view that there is no worth in the assignment of the TPA claim and the FPA claim because the costs of pursuing them would rule out any likely return for the creditors.
Judgment
[72] The applications for review of the Assignee’s decision refusing an assignment of the applicant’s testamentary promises and family protection causes of action, are dismissed.
[73] Costs are reserved and will be fixed upon application.
Associate Judge Christiansen
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