Gollan v Official Assignee
[2012] NZHC 1869
•30 July 2012
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2012-419-646 [2012] NZHC 1869
IN THE MATTER OF the Insolvency Act 2006
AND
IN THE MATTER OF the bankruptcy of JP Gollan
BETWEEN JAMES PATRICK GOLLAN Applicant
ANDOFFICIAL ASSIGNEE Respondent
Hearing: 26 July 2012
Counsel: CT Jones for respondent Appearance: JP Gollan, applicant in person Judgment: 30 July 2012
JUDGMENT OF ASSOCIATE JUDGE FAIRE
[on application to reverse decision of Official Assignee]
Solicitors: Insolvency and Trustee Service, Private Bag 92 513, Auckland
And To: JP Gollan, 30 Brookfield Street, Hamilton 3120
GOLLAN V OFFICIAL ASSIGNEE HC HAM CIV-2012-419-646 [30 July 2012]
The application
[1] Mr Gollan applies for an order to reverse a decision made by the Official Assignee on 26 April 2012. The application is made in reliance on s 226 of the Insolvency Act 2006.
The decision
[2] The Official Assignee’s decision was that he would not seek the leave of the High Court to continue a proceeding commenced by Mr Gollan. The proceeding was commenced by Mr Gollan on 14 August 2009. It seeks relief in the form of an order pursuant to the Law Reform (Testamentary Promises) Act 1949 against the estate of Irene Ivy Maud Luders.
The statutory basis for the application and the decision
[3] Section 226 of the Insolvency Act 2006 provides:
226 Appeal from Assignee's decision
(1) A person (including the bankrupt or a creditor) whose 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.
(2) This section applies to—
(a) an act or decision of the Assignee; or
…
(4) The Court may confirm, reverse, or modify the act or decision.
[4] Section 217(2) of the Insolvency Act 2006 provides:
217 Assignee's general powers
(1) The Assignee has the powers—
(a) necessary to carry out the functions and duties of the
Assignee under this Act; and
(b) conferred on the Assignee by this Act.
(2) In particular, the Assignee has the powers set out in Schedule 1.
[5] The relevant parts of Schedule 1 of the Insolvency Act 2006 for the purposes of this application provide as follows:
Schedule 1 Assignee's general powers
The Assignee has the power to—
…
(c) with the leave of the Court, continue in the Assignee's name legal proceedings begun by the bankrupt before adjudication:
Mr Gollan’s adjudication in bankruptcy
[6] Mr Gollan was adjudicated a bankrupt on 19 March 2012 in the High Court at Hamilton. His estate is being administered by the Hamilton office of the Official Assignee. As a result of his adjudication as a bankrupt his cause of action vests in the Official Assignee.1
[7] Mr Gollan initially submitted that the cause of action under the Law Reform (Testamentary Promises) Act 1949 was a cause of action akin to a personal tort, which therefore does not pass to the Official Assignee in bankruptcy.
[8] This issue was considered by Barker J in re Meller.2 The Court was there concerned with an application under the Family Protection Act 1955. The judgment reviewed the authorities which are helpfully considered in Leach v Official Assignee.3 The authorities disclose that a right of action does not pass where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character and without immediate reference to his rights of property. A claim under the Family Protection Act, however, is not such a claim.
It is, in fact, a proprietary claim.4 It is appropriate to record that there is no provision
1 Insolvency Act 2006, s 101.
2 Re Meller HC Auckland A1247/84, 3 February 1987.
3 Leach v Official Assignee [1975] 1 NZLR 83.
in the Family Protection Act 1955, or for that matter the Law Reform (Testamentary Promises) Act 1949, which prohibits relief granted under either statute from passing to the assignee.
[9] There is no justification for a proposition that a claim under the Law Reform (Testamentary Promises) Act 1949 should be treated any differently, as far as the law of bankruptcy is concerned, from a claim under the Family Protection Act 1955. For that reason, I conclude that Mr Gollan’s action, which is the foundation for his claim in the current Law Reform (Testamentary Promises) proceeding, in fact vested in the Official Assignee by virtue of s 101 of the Insolvency Act 2006 upon his adjudication in bankruptcy.
[10] This conclusion necessitates a consideration of the decision made by the Official Assignee to not seek leave to proceed with Mr Gollan’s Law Reform (Testamentary Promises) proceeding.
[11] A question arises in this case as to the standing of Mr Gollan to bring his application under s 226 of the Insolvency Act 2006. In short, it is accepted that Mr Gollan’s substantive rights have been adversely affected by the decision of the Official Assignee to decline to seek leave to proceed the claim.5 I therefore conclude that he has standing to bring this application.
The Court’s approach to an appeal from an Assignee’s decision
[12] In Glynbrook 2001 Ltd v Official Assignee the Court of Appeal gives helpful guidance as to the approach which the Court will take pursuant to s 226 of the Insolvency Act 2006.6 The Court said:7
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
5 Gay v Bruns CA 193/98; CA 194/98, 17 June 1999 at [5].
6 Glynbrook 2001 Ltd v Official Assignee [2012] NZCA 289.
7 Ibid, at [84].
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.
[13] In this case, the decision of the Official Assignee is a decision made pursuant to the powers vested in the Official Assignee pursuant to s 217 and Schedule 1.
[14] Mr Jones rightly submitted, in my view, that a decision by an Assignee whether or not to continue proceedings commenced by a bankrupt before adjudication requires the Assignee to use his or her discretion.
[15] It follows that in this case, I am not dealing with the exercise of a general right of appeal but an appeal against a decision made in the exercise of discretion. The result is, as the Supreme Court explained in Kacem v Bashir that the criteria for a successful appeal are stricter, namely:8
(a) Error of law or principle;
(b) Taking account of irrelevant considerations;
(c) Failing to take account of relevant considerations; (d) The decision was plainly wrong.9
The inquiries made by the Official Assignee
[16] Mr LGA Currie, the Official Assignee in Hamilton, has filed and served an affidavit in relation to this application which sets out the inquiries which were specifically undertaken relative to a possible continuation of the Testamentary Promises claim. Mr Currie became aware of the claim in the context of Mr Gollan’s wife’s bankruptcy. Mrs Gollan was adjudicated on 5 May 2008. Her estate is being
administered in the Hamilton office.
8 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32].
9 Above, n 6 at [87].
[17] Mrs Gollan’s mother, Mrs Luders, died on 28 July 2008. Mr Gollan advised of a potential claim that he and his wife had under the Law Reform (Testamentary Promises) Act 1949 against Mrs Luder’s estate. He advised that he understood that his wife’s rights had vested in the Official Assignee. He said he would forward a copy of the claim to the Official Assignee for consideration. He, in fact, did not do that. There was further contact between Mr Gollan and a lawyer acting for him, which I will not set out further. The next significant development occurred when Mr Currie was advised on 8 February 2010 that both Mr and Mrs Gollan had commenced a Law Reform (Testamentary Promises) claim in the Family Court. The defendants were the executors and trustees of Mrs Luder’s estate. In addition, Mrs Gollan had commenced a claim under the Family Protection Act 1955. Mr Currie expresses concern in his affidavit, that Mr Gollan had filed the applications without advising the Official Assignee, particularly having regard to the fact that he was aware of his wife’s adjudication in bankruptcy.
[18] Mr Currie said that he was aware of the criticism of the Official Assignee in Callis v Pardington and Edmonds Judd v Official Assignee.10 The criticism, he noted, was for allowing unmeritorious proceedings to be taken by a bankrupt. As as result, he says that his practice is: “to take extreme care in deciding to continue litigation that a bankrupt has begun to adjudication”.
Specifically, his practice is to require all relevant documents to be provided to the Assignee’s solicitor so that advice can be obtained on the merits of the claim. In this case the Assignee’s solicitor, Mr Jones, was asked to consider the matter. He first filed a memorandum in the Family Court where the proceedings had been issued on
28 April 2010 advising the Court that Mrs Gollan’s rights of action in respect of both claims had vested in the Assignee and requesting time for the Assignee to assess whether to continue or discontinue the same. Mr Currie next produced the advice that was provided by Mr Jones in writing. Mr Currie considered that advice. He formed the view that the likelihood of the claims succeeding was too remote for him
to authorise the continuation of them. He was aware that there were no funds in
10 Callis v Pardington (1996) 7 NZCLC 261,211; Edmonds Judd v Official Assignee [2000]
2 NZLR 135.
Mrs Gollan’s estate. He would need funding from creditors to continue the proceeding. Mrs Gollan’s creditors were ANZ National Bank Ltd and the Commissioner of Inland Revenue. His understanding was that those creditors would not fund Court proceedings unless the prospects of success were very good. He formed the view that it was unlikely that the creditors would wish to fund claims and accordingly advised Mrs Gollan of his decision not to continue her proceeding on
10 June 2010. As a result, Mrs Gollan’s name was struck out from the proceedings.
[19] With that background it is not surprising that when the issue concerning Mr Gollan’s pursuit of the Law Reform (Testamentary Promises) claim was considered, Mr Currie had considerable background already. He received advice from his solicitor on the merits of the case on 26 April 2012. The matter was again referred to him for decision. He decided that it was not appropriate to proceed with the claim. He came to that view because the claim was no more than a repleaded version of the claim that he had considered in relation to Mrs Gollan’s estate. He formed the view that:
The merits of the claim were weak and that the other reasons for not advancing the claim on Mrs Gollan’s behalf also applied.
In addition, he would require Mr Gollan’s full co-operation. He was concerned, having regard to the history of how the proceedings had been commenced, that he would have Mr Gollan’s full co-operation. Mr Gollan disputes this. Mr Currie, however, was also aware of Mr Gollan’s unfortunate past financial history. He was previously adjudicated bankrupt on 1 March 1984, 7 May 1991 and 4 December
2000. The respective estates were administered by Mr Currie’s office.
[20] The estate is not a large one. The material placed before me indicates that the principal asset is a house at Brookfield Street which had a current rateable value in September 2009 of $300,000. The estate’s solicitors record that there is a mortgage of $145,958.97 and that there is also an estate liability to one of Mrs Luder’s children, who is also one of the defendant trustees in the proceeding for $16,589.33.
[21] Mr Gollan takes issue with the amount owing under the mortgage. For the purposes of the examination of the case, though, he accepted that the size of the estate fell within the range of $139,000 to approximately $190,000.
[22] Although it is not set out precisely in the material that was placed before me, counsel’s submissions gave me a summary of Mr Gollan’s indebtedness. Once again, Mr Gollan does not accept all of the claims that are made by creditors. The claims in summary are:
$ Commissioner of Inland Revenue 183,800.00
Loan from Employment & Business Services Ltd 71,450.00
Loan from Asset Finance Ltd 24,900.00
Debt to Legal Services Agency 12,400.00
Debt to Star Bar Ltd 25,000.00
[23] The above indicates a total indebtedness of $317,550. Mr Gollan, for the purposes of this application, was prepared to accept that his indebtedness was approximately $250,000. Although this analysis is incomplete it does serve to give some relativity between the position of creditors in his estate and the maximum likely return from the Law Reform (Testamentary Promises) case. I have some real doubt as to whether there would be any surplus after meeting his creditors that might be of assistance to Mr Gollan personally if he is successful in the Law Reform (Testamentary Promises) case. His position is that he might, if he was totally successful, obtain a surplus after payment of his creditors of about $40,000.
[24] The Law Reform (Testamentary Promises) claim in short is based on the proposition that both Mr and Mrs Gollan looked after Mrs Luders in the later years of her life and on a 24 hour, seven day per week, basis for a period of five years, and before that, with slightly less involvement but also on the basis that they were living in her home. The papers that have been filed by Mr Gollan allege that Mrs Luders made a promise to Mr and Mrs Gollan in October 2006 to give them the house,
subject to a mortgage. The papers do not contain any independent corroboration of the promises as such.
[25] A further and unresolved complication arose in the course of the hearing and at the time Mr Gollan invited me to treat the claim as a personal, rather than a proprietary, claim. He sought to rely on an agreement made with Employment and Business Services Ltd where he said the cause of action had been assigned to that company prior to his adjudication in bankruptcy. If that in fact was the case, the immediate question that arises is why Mr Gollan is before the Court making this application. In short, if that was the case, he could not properly assert that he was a person directly detrimentally affected by the decision of the Official Assignee.
[26] I leave that question to one side for the moment. Mr Gollan did express disappointment that he had not been given an opportunity to directly make submissions to the Official Assignee before the decision was made in his case. In the circumstances I accept that it was understandable that the Official Assignee proceeded in the way he did.
[27] As the hearing was drawing to a conclusion Mr Gollan advised me that he accepted that 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 identified by the Court of Appeal in Glynbrook would justify my reversing the Official Assignee’s decision in this case.11
[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.
[29] What, however, was not clear was whether or not the Official Assignee had ever been properly invited to consider an assignment of the cause of action. The
11 Above, n 6.
possibility of assignment was considered in, Callis v Pardington where the Court of
Appeal said:12
We accept that there will be cases where the Official Assignee may properly decide that he should not pursue a disputed claim because the likely cost is disproportionate to the possibility of benefit to creditors. In such a case, it may be proper for the Official Assignee to assign the cause of action to a party willing to take the risk at that party’s own expense while undertaking to account for part of the proceeds if successful. We do not see how the Official Assignee can properly make such decisions without first evaluating both the strength of the claim and its likely result. That evaluation must be undertaken with such advice as the Official Assignee requires, and incurring such expense as the Official Assignee feels justified.
[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 so far 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 is any proper foundation for an assignment of the cause of action on conditions.
Orders
[31] I make orders that:
(a) The Official Assignee’s decision dated 26 April 2012 to not continue with the claim and to not seek the leave of the Court to do so is confirmed. The application to reverse it is refused;
(b) The application is adjourned to the bankruptcy list at 10am on
20 August 2012 for the purpose of permitting further evidence, if that is appropriate, on the question of whether or not the Official Assignee has received and has made a decision on a request to assign the cause
of action.
12 Above, n 10 at 216.
Costs
[32] I reserve costs.
JA Faire
Associate Judge
9