Goodwin v Copland
[2015] NZHC 213
•19 February 2015
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV-2013-412-000124 [2015] NZHC 213
BETWEEN WAYNE ERNEST GOODWIN
Plaintiff
AND
BRIAN STEWART COPLAND Defendant
Judgment: 19 February 2015
JUDGMENT OF GENDALL J (Dealt with on the papers)
Issue
[1] Pursuant to a memorandum dated 19 January 2015 filed in this proceeding, the Official Assignee seeks a direction on the question of:
Whether, in light of s 102 of the [Insolvency] Act [2006], a claim that has vested in the Assignee pursuant to s 101 of the Act (being one that the Assignee could properly pursue for the benefit of creditors) could effectively be assigned to the bankrupt during his or her term of bankruptcy.
Background
[2] The facts giving rise to the claim are not important to the question itself but are summarised below to give context.
[3] Mr Goodwin, the plaintiff, was adjudicated bankrupt on 28 March 2013. The present question arises as a result of this bankruptcy.
[4] The bankruptcy arose, as I understand it, out of a signed memorandum settling a proceeding brought by a Mr Copland against Mr Goodwin. The memorandum required Mr Goodwin to pay Mr Copland two sums of money: US$465,000 due by 29 September 2006 and NZ$30,000, for costs, due by 31 August
2006. Failure to meet these obligations meant that an admission of claim signed by
GOODWIN v COPLAND [2015] NZHC 213 [19 February 2015]
Mr Goodwin would be filed in the High Court. In return, Mr Copland was required to cause a defamatory reference about Mr Goodwin to be removed from the website “fraudandscams.com”.
[5] On the 11 October 2006, due to failure on the part of Mr Goodwin to meet these obligations, the Court entered judgement against Mr Goodwin for both sums on the basis of the admission.
[6] Mr Copland then applied for the issue of a bankruptcy notice and brought a bankruptcy application. On 15 August, on the basis that Mr Goodwin failed to comply with the requirements of the bankruptcy notice, Mr Copland applied for an order adjudicated Mr Goodwin bankrupt.
[7] Mr Goodwin opposed the adjudication of bankruptcy. On 28 March 2013, Associate Judge Matthews declined this opposition and adjudicated Mr Goodwin Bankrupt.1
[8] Mr Goodwin claimed that the defamatory references on the website were only temporarily removed which breached an essential term of the contract or alternatively reduced the effect of the contract substantially. As a result, Mr Goodwin sought to cancel the contract on 30 April 2012, notice of which was given to Mr Copland’s solicitors.
[9] Mr Goodwin seeks a declaration that the contract was properly cancelled and cannot be enforced, a declaration that Mr Copland is not entitled to pursue this bankruptcy application on the basis of the admission of judgement signed as part of the settlement, and damages under four headings.
[10] It is this claim that is the subject of the above question.
Relevant Law
[11] The present question primarily deals with the function of s 102 of the
Insolvency Act 2006 (the Act) set out below:
1 Copland v Goodwin [2013] NZHC 652.
102 Status of property acquired during bankruptcy
(1) Between the commencement of bankruptcy and discharge of the bankrupt,—
(a) all property (whether in or outside New Zealand) that the bankrupt acquires or that passes to the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; and
(b) the powers that the bankrupt could have exercised in, over, or in respect of that property for the bankrupt's own benefit vest in the Assignee.
(2) This section is subject to section 104 and section 123.
(3) This section does not apply to property that is vested in the bankrupt under an order made under section 119(3).
Analysis
Prior Regime
[12] Section 102 of the Act replaces s 42(2) of the Insolvency Act 1967. Under the
1967 Act, it was generally considered that a bankrupt was competent to sue in respect of after-acquired property unless and until the Assignee intervened.2 Section
102 expressly changes this position making it clear that vesting of after-acquired property is immediate and does not require the Official Assignee to take any steps.
[13] The question of whether property can be effectively assigned to the bankrupt by the Assignee without it automatically re-vesting in the Assignee pursuant to s 102 as I understand it may not yet have arisen before the courts in New Zealand.
Reasons why an assignment should not be effective
(a) Exemptions provided to the automatic vesting rule
[14] Section 102 provides exemptions to the automatic vesting rules. The most relevant exemption for the issue at hand is the exemption to property that is vested in
the bankrupt under an order made pursuant to s 119(3) of the Act.
2 Gough v Fraser [1977] 1 NZLR 279.
[15] Sections 117 – 119 of the Act consider the disclaimer of onerous property. Under the Act, the Assignee has the power to disclaim onerous property.3 The definition of onerous property provided by the Act includes, “a litigation right that, in the opinion of the Assignee, has no reasonable prospect of success or cannot reasonably be funded from the assets of the bankrupt’s estate.”4
[16] The effect of the disclaimer is that the rights, interests and liabilities of the bankrupt and the Assignee in the disclaimed property are brought to an end.5
However, the bankrupt is able to apply for an order that the disclaimed property is vested in the bankrupt.6 Section 119(3), which specifically provided for an exemption to the automatic vesting rule, allows the Court to make an order vesting the property in the bankrupt if it is satisfied that it is fair that the property should be vested in the bankrupt.7
[17] For the Assignee therefore to effectively assign the litigation right to the bankrupt without it automatically re-vesting, she would have to disclaim the right and the bankrupt would be required to apply to the Court for an order to have the right vested in the bankrupt.
(b) Purpose of Parliament
[18] Throughout the legislative process culminating in the Insolvency Act 2006, the operation of s 102 was specifically considered and the Insolvency Law Reform Bill was amended to reflect the intention of Parliament.
[19] After reading the original Insolvency Law Reform Bill, the Commerce
Committee recommended the inclusion of the s 119(3) exemption clause:8
We also recommend amending clause 102 to state that it does not apply to property that is vested in the bankrupt under a clause 119(3) order. Clause
119(2) allows the bankrupt person to apply for an order that, where the
Assignee has disclaimed particular property as onerous, would vest that
3 Insolvency Act 2006, s 117.
4 Section 117(4)(a)(iii).
5 Section 118.
6 Section 119(2).
7 Section 119(3).
8 Insolvency Law Reform Bill 2005 (14-2) (report from the Commerce Committee) at 5.
property in the bankrupt. A clause 119(3) order gives effect to that application. However, as the provision is currently drafted, any property that is vested in the bankrupt under a clause 119(3) order would automatically vest in the Assignee again, even though the Assignee had already disclaimed that property. Our recommended amendment should prevent this circular process from occurring.
[20] The circular process of automatic re-vesting was, therefore, contemplated specifically during the legislative process and Parliament only saw fit to include the exemption to disclaimed property rather than claims assigned by the Assignee.
(c) Australian Case Law
[21] Although there have been a number of Australian cases that specifically deal with the question in relation to the Bankruptcy Act 1966 (Cth), legislative differences here mean that they are only of limited utility. As has been mentioned, Parliament dealt with the issue of automatic re-vesting by providing exemptions to the rule in s 102 of the Act. These same exemptions, specifically the exemption of disclaimed property, do not exist in the equivalent provisions in the Australian legislation. However, the discussion is still relevant from a policy perspective.
[22] In the Federal Court of Australia case, Meriton Apartments Pty Ltd v Industrial Court of New South Wales, Greenwood J highlighted two of the purposes for the prohibition on assigning litigation rights to the bankrupt:9
The prohibition upon the bankrupt serves two immediate statutory purposes. First, to ensure that estate property is not deployed in the conduct of proceedings by the bankrupt and potentially dissipated and secondly, defendant/respondents ought not be put at further or new risk of action and irrecoverable cost. The vesting of existing actions in the trustee . . . seeks to prevent the dilution of property divisible amongst the creditors by subjecting an existing action to the professional judgment of the trustee . . .
[23] This formed part of the reasoning of Greenwood J where, in accordance with the majority, he deemed the assignment of the action to be invalid. Branson J, on the other hand, took the view that the issues identified by Greenwood J could be avoided
if the bankrupt obtained litigation funding.10
9 Meriton Apartments Pty Ltd v Industrial Court of New South Wales [2008] FCAFC 172 at [143].
10 At [15].
[24] The same policy issues arise in New Zealand. However, as I have noted above, Parliament here has made clear when an assignment will be effective.
Other Matters
[25] Section 221 of the Act does however provide the Assignee with the power to assign a right to sue if it is first approved by the Court:
221 Assignee may assign right to sue under this Act
(1) The Assignee may, if the court has first approved it, assign any right to sue that is conferred on the Assignee by this Act.
(2) The application for approval may be—
(a) made by the Assignee or the person to whom it is proposed to assign the right to sue; and
(b) opposed by a person who is a defendant to the Assignee's action, if already begun, or a proposed defendant.
[26] There is a possible argument open that, because s 102 already provides specific exemptions to the automatic vesting rules, and s 221 was not included as one of these exemptions, any assignment of a right to sue to a bankrupt during his or her term of bankruptcy, may well be ineffective. But in my view s 221 provides a direct right, if approved by the Court, for the Assignee to assign a right to sue to any person (including the bankrupt), as it is a right or property conferred or vested in the Assignee by the Act.
Conclusion
[27] In conclusion answering the question posed at [1] above, an assignment of a right to sue to the bankrupt would be effective if an appropriate application on notice for Court approval is first made by the Assignee or the bankrupt and succeeds in terms of s 221 of the Act. Alternatively, the Assignee could disclaim the action and then the bankrupt could apply to the Court to have the disclaimed action vested in the bankrupt.
...................................................
Gendall J
Solicitors:
Downie Stewart, Dunedin
Copy to Plaintiff
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