Haines House Removals Ltd v Jamieson
[2013] NZHC 653
•28 March 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-003969 [2013] NZHC 653
BETWEEN HAINES HOUSE REMOVALS LTD Plaintiff
ANDKATHLEEN MARY JAMIESON First Defendant
ANDTHE REGISTRAR GENERAL OF LAND Second Defendant
CIV-2012-404-003287
AND BETWEEN HAINES HOUSE REMOVALS LTD Appellant
ANDTHE OFFICIAL ASSIGNEE Respondent
CIV-2011-404-003878
AND BETWEEN THE OFFICIAL ASSIGNEE Plaintiff
ANDKATHLEEN MARY JAMIESON AS TRUSTEE OF THE SPEARHEAD TRUST
First Defendant
ANDKATHLEEN MARY JAMIESON AS TRUSTEE OF THE CASTELLO TRUST Second Defendant
Hearing: 20 August 2012
Counsel: R C Mark for Haines House Removals Ltd
D W Grove for Kathleen Jamieson
G A D Neil for the Official Assignee
Judgment: 28 March 2013
HAINES HOUSE REMOVALS LTD v JAMIESON and ORS HC AK CIV-2012-404-003969 [28 March 2013]
JUDGMENT OF DUFFY J
This judgment was delivered by Justice Duffy on 28 March 2013 at 11.30 am, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: R C Mark P O Box 172 Kerikeri 0245 for Haines House Removals Ltd
D W Grove P O Box 130 Shortland Street Auckland 1140 for K M Jamieson
Solicitors: Meredith Connell P O Box 2213 Shortland Street Auckland 1140 (DX CP24063) for the Official Assignee
Copy To: Ellis Law (B Ellis) P O Box 4516 Auckland
[1] Kathleen Jamieson was adjudged bankrupt in 2007 on the creditor’s petition of the appellant, Haines House Removals Ltd (Haines). The bankrupt estate is administered by the Official Assignee. Haines is unhappy with a decision of the Official Assignee regarding his management of the bankrupt estate and, therefore, it has brought this proceeding under s 86 of the Insolvency Act 1967. Haines seeks to have the Court reverse a decision of the Official Assignee to discontinue legal proceedings he commenced against the Spearhead Trust (Spearhead) to recover advances that Ms Jamieson made to Spearhead. Haines has an interest in the recovery of any money due to the bankrupt estate, as this would enhance the prospect of payment for Haines. Ms Jamieson is a trustee of Spearhead and was permitted to intervene and be heard in opposition to Haines’ application. The Official Assignee also opposes the application. The key issue is whether the Official Assignee was right to discontinue the proceedings against Spearhead.
Background
[2] Haines specialises in house removal and relocation. In November 2002, it supplied and delivered a house to Sunnyside Road for Ms Jamieson. The final payment for this work was due on 23 May 2003, but Ms Jamieson did not pay the agreed price.
[3] Ms Jamieson is a trustee of Spearhead and the Castello Trust. She also has a connection with a registered company, Maxwell International Industries Limited (Maxwell). Each of these trusts own property. The Sunnyside Road property was originally purchased in Ms Jamieson’s name but transferred to the Castello Trust after the house had been relocated onto this property.
[4] Eventually, Haines obtained judgment against Ms Jamieson for the debt she owed to it. Still Ms Jamieson did not pay the debt. Haines then commenced bankruptcy proceedings against Ms Jamieson, leading to her being adjudicated bankrupt in September 2007.
[5] Haines was closely involved with the Official Assignee from the commencement of the bankruptcy proceedings because Haines believed that Ms Jamieson was financially able to pay the debt, but that she had removed her ability to do so by transferring assets to Spearhead and the Castello Trust.
[6] In 2010, Ms Jamieson applied for a discharge from bankruptcy. The Official Assignee filed an objection to the application on the basis that the bankrupt estate was owed money by Spearhead and the Castello Trust. The Official Assignee was prepared to commence proceedings against Ms Jamieson as trustee of the trusts to recover the loan advances, provided the proceedings were funded by Haines. It has an interest in the recovery of any money due to the bankrupt estate, as this would enhance the prospect of payment for Haines. Haines was prepared to fund these proceedings, and a deed of indemnity (the funding deed) setting out each party’s obligations and rights to this effect was signed.
[7] The proceedings against both trusts were filed in August 2011. Then, on
7 February 2012, the Official Assignee’s claim against the Castello Trust was struck out, leaving only a claim against Spearhead.
[8] As at May 2012, the proceeding against Spearhead was set down for a three day hearing commencing on 11 June 2012. There were timetable orders in place requiring as follows:
(a) Notice to cross-examine witnesses was to be served by 7 May 2012;
(b) The Official Assignee’s opening submissions and supporting material
was to be filed and served by 21 May 2012; and
(c) Spearhead was to file and serve its opening submission by 4 June
2012.
[9] Then, on 24 May 2012, Haines was informed of the Official Assignee’s decision to discontinue the proceedings against Spearhead. The Official Assignee maintains that he had no option but to discontinue the proceedings, as Haines failed
to honour its side of the agreement in that it had not funded the proceedings in a timely manner as was required by the deed, and so the Official Assignee was unable to prepare for the June hearing in accordance with the timetable orders. Haines, on the other hand, contends that it has been ready and willing to fund the proceedings against the trusts and that any delay on its part has been due to the Official Assignee failing to honour his obligations under the deed. The Official Assignee’s decision to discontinue the proceedings against Spearhead has removed any likelihood of Haines recovering its debt, and so Haines now challenges the Official Assignee’s decision by bringing this proceeding.
The Official Assignee’s decision
[10] The decision is set out in a letter dated 24 May 2012 to Haines from the Official Assignee’s solicitor, Meredith Connell. The letter explained the context behind the decision to abandon the proceedings. The Official Assignee was already in default of court timetabling orders due to lack of funding from Haines; he had informed Haines that time was of the essence; and that he needed to know Haines’ position urgently. As Haines failed to engage with the Official Assignee at any real level, the Official Assignee had proceeded to make a decision on the proceeding’s advancement.
[11] The reasons given for abandoning the proceedings against Spearhead were:
(a) The chances of the claim succeeding were finely balanced, at best.
Even if the proceeding went to trial, the chances of recovering any judgment debt from the trust was seen as uncertain because:
(i) The bankrupt is the trustee; and
(ii)The only asset of the trust is a house that is mortgaged; so once the mortgage is paid out, there may not be any equity left over.
(b) Significant costs would be incurred to progress the matter to trial.
(c) There were outstanding legal fees from Haines, so the Official Assignee was no longer satisfied that Haines would pay any future costs.
(d) The Official Assignee had repeatedly asked Haines for its position.
When that eventuated, Haines’ proposal for an adjournment was not feasible because the consultation process and general indecisiveness of Haines had already delayed the preparation for the proceeding.
(e) If the proceedings were discontinued, there was a reasonable prospect of obtaining a costs award against the trust because all costs incurred to date had been as a result of Ms Jamieson’s breach of statutory duties to provide all necessary material.
(f) If the Official Assignee were to continue with the proceeding, he would be at a risk of a significantly higher adverse costs award if unsuccessful. Although Haines has agreed to indemnify the Official Assignee, given Haines’ approach to date, the Official Assignee could not be satisfied that such a costs award would be paid by Haines.
Haines’ submissions
[12] Haines submitted that in terms of the Court’s approach on s 86 proceedings, the Official Assignee’s decision to discontinue the proceeding was made pursuant to a term of the funding deed, so it was not an exercise of statutory discretion. Therefore, the High Court should follow the approach to general appeals as stated in Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR
141.
[13] Haines argued that the decision of the Official Assignee to discontinue proceedings was unreasonable because:
(a) The decision was based on a default of timetabling orders, so the Official Assignee should have considered other alternatives first, such as asking for an adjournment of the fixture, or assigning the cause of action to Haines;
(b)The Official Assignee did not take sufficient or timely steps to explain the basis for the decision, or to warn Haines or the guarantor under the deed of the decision;
(c) The decision would wrongly deprive Haines of the opportunity to recover from the bankrupt estate;
(d)The Official Assignee failed to give proper weight to Haines’ continuing obligation pursuant to the deed of indemnity to pay the Official Assignee’s costs; and
(e) The Official Assignee failed to give proper weight to the guarantee by
Mr Rodney Haines contained in the deed.
[14] In particular, Haines submitted that the Official Assignee should have at least offered to assign the cause of action to Haines before discontinuing the proceedings. Now, Haines is in the position where it has spent much money on the litigation, but has no prospect of any claim against Ms Jamieson continuing.
[15] Haines was also aggrieved about a lack of consultation. Haines submitted that the relationship between Haines, the Official Assignee and Meredith Connell was akin to a solicitor-client relationship, so that it was incumbent on the lawyers and the Official Assignee to arrange a face-to-face meeting to resolve the differences before discontinuing the proceeding.
[16] At the hearing, Haines also argued that the Official Assignee had failed to comply with the terms of the funding deed regarding the quality of the information to be supplied to Haines. In this regard, it argued that it had not been provided with
the full and detailed information it was entitled to until a very late stage, which was close to the time when the Official Assignee decided to discontinue the proceeding.
Official Assignee’s submissions
[17] The Official Assignee submitted that the Court’s approach to an application under s 86 is uncertain, because the most recent Court of Appeal decision in Glynbrook 2001 Ltd v Official Assignee [2012] NZCA 289 appears to go against previously established High Court authority that the application should be heard de novo (but with strong regard for the decision-maker’s discretion). He submitted that whether a stricter approach as suggested in Glynbrook is applied or not, the primary issue is whether his decision to discontinue the proceedings was, in the assessment of the Judge, reasonable in the circumstances, based on the material presented at the hearing. He also submitted that the deed did not fetter his general discretion under the Insolvency Act.
[18] The Official Assignee said that he had considered the following matters: (a) He had control of the proceeding;
(b) Haines was consulted;
(c) The prospects of success;
(d) The prospects of attaining ultimate recovery of any judgment debt;
(e) The significant costs that would be incurred if the matter were to progress to trial;
(f) The inappropriateness at such a late stage of the proceeding of seeking an adjournment to join another party, Maxwell, as defendant;
(g) The potential for recovery of costs; and
(h) Seeking an adjournment to consider new evidence.
[19] In direct response to Haines’ allegations, the Official Assignee says that:
(a) He did consider seeking an adjournment but resolved not to do so because it was inappropriate to apply to join Maxwell and because all the evidence was already available;
(b)He did not consider assigning the claim to Haines because assignment had not been requested, and there was no basis justifying an assignment of the action;
(c) Under the funding deed, no notice was required of any decision made by him, but in any event, he had already informed Haines of the progress of the proceedings, and it was Haines’ failure to engage in the process that led to its abandonment;
(d)He acted reasonably in the circumstances and did not act wrongfully, despite Haines now having no prospect of attaining recovery through the bankrupt estate; and
(e) He did consider Haines’ continuing funding obligations under the deed, but noted that Haines was already indebted to the Official Assignee and had failed to make payment of invoices. There was a strong indication of an inability to pay.
[20] The Official Assignee submitted that overall, it would be unjust and unreasonable to require him to have taken further steps, given the risk of financial loss. He contended that he had a right to discontinue the proceeding, which the Court must recognise under whatever approach to appeal.
Spearhead’s submissions
[21] Spearhead appeared as intervener. It submitted that the approach on appeal should be to impose a high onus, where the Court would only interfere in the case of fraud, lack of bona fide exercise of the Official Assignee’s discretion, or unreasonableness.
[22] Spearhead submitted that there was little merit in the claim, as the Official Assignee had in excess of four years to investigate it, and that Spearhead had produced enough documentation to answer the claim completely.
[23] Spearhead submitted that if an application were made for adjournment, it would have been vigorously opposed. It was ready to be heard and wanted the fixture of 11 June 2012 to proceed, as it requires the claim the Official Assignee has made against it to be finally resolved. One aspect of the claim is a caveat on the property of Spearhead which continues to cause substantial prejudice, as renovation works cannot be undertaken. The mortgagee is now considering steps to enforce the mortgage.
[24] Spearhead submitted that if the appeal succeeded, the Official Assignee would be forced to apply for a new trial and there would be little likelihood of such an application being granted.
Approach on “appeal”
[25] The Supreme Court has delivered two decisions on the scope of appellate jurisdiction. In Austin Nichols, the Supreme Court identified the principles to be applied in general appeals, finding at [16] that those exercising general appeal rights are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion involves an assessment of fact and degree and entails a value judgment. Later, in Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1, the Supreme Court confirmed at [32] the distinction between a general right of appeal and an appeal against the exercise of a discretion. The latter type of appeal being
more restricted; the criteria of a successful appeal being: (a) error of law or principle; (b) taking account of irrelevant considerations; (c) failing to take account of a relevant consideration; or (d) the decision being plainly wrong. These statements of principle were made in the context of what was clearly the exercise of rights of appeal from decisions of lower tier courts or tribunals. The nature of the appeal right in issue will determine the extent to which an appellate court can intervene, which can have a large effect on the outcome of an appeal.
[26] Ms Jamieson’s bankruptcy occurred before the current legislation came into force. Pursuant to transitional provisions in the Insolvency Act 2006, this proceeding is brought under s 86 of the Insolvency Act 1967. Section 86 states:
86 Appeal from decision of Assignee
If the bankrupt or any creditor or any other person is aggrieved by an act or decision of the Assignee, he may, within 21 days from the date of that act or decision or within such further period as the Court allows, apply to the Court, and the Court may confirm, reverse, or modify the act or decision complained of, and make such order as it thinks fit.
[27] The first question to determine is whether s 86 creates a right of appeal in the sense of the appeal rights considered in Austin Nichols or in Kacem v Bashir. The heading of s 86 describes it as an “appeal”. However, before the Interpretation Act
1999, headings in a statute were not part of the interpretative material. In Edmonds Judd v Official Assignee [2000] 2 NZLR 135 (CA), the Court of Appeal referred in quotations to an “appeal” under s 86 and later described a proceeding that was brought under that provision as an application. In Taylor v Official Assignee HC Auckland CIV-2006-404-7115, 26 August 2009, Heath J commented at [49] that: “the s 86 procedure is not truly appellate in nature”.
[28] The Official Assignee acknowledged that a proceeding under s 86 was not a true appeal and referred me to Part 18 of the High Court Rules, which provides the process for commencing these proceedings. Under r 18.1(b), the originating application procedure applies when a party seeks a determination by the court under the Insolvency Act 2006, and the same procedure under the former Part 18 is applied in the case of a determination under a repealed statute like the Insolvency Act 1967 (see r 18.1(xiv)). Further confirmation can be seen from the fact that, unlike other
appeals, there is no security to be paid and no prescribed notice of appeal. The general provisions in the High Court Rules relating to civil appeals are not engaged. This proceeding, despite being intituled as an appeal, involved affidavit evidence, which is in keeping with an originating application, rather than an appeal. The latter are heard on the basis of the evidence that was before the primary decision-maker with a need for application to be made before fresh evidence can be adduced.
[29] In the past, there have been divergent approaches to how applications under s 86 should be dealt with. First, in Murray v Official Assignee HC Hamilton B318/92, 9 September 1992, Penlington J said that the question for the Court was not whether the Official Assignee was right or wrong in reaching his or her decision, but whether, in the Court’s view on the evidence before it, it was the correct decision measured by the standard of reasonableness. Essentially, this advocated for a de novo approach to the appeal. However, the reasonableness of the Official Assignee’s decision was still highly relevant, and the Court recognised that regard must be paid to the Official Assignee’s decision as the person charged with administering the bankrupt’s estate.
[30] Then in Callis v Pardington (1996) 7 NZCLC 261,211 (CA), the Court of Appeal held that it should only interfere in a decision by the Official Assignee in the case of fraud, lack of bona fide exercise of the Official Assignee’s discretion, or unreasonableness. However, in that case, the applicant accepted that this restricted approach was applicable, so there was little argument about it. Andrews J followed this approach in Re Bicknell HC Rotorua CIV-2004-463-883, 6 December 2006 at [45], stating the test as whether the Official Assignee had acted in a manner which was “so utterly unreasonable and absurd that no reasonable man would so act”.
[31] Both Murray and Callis were considered in Edmonds Judd v Official Assignee [2000] 2 NZLR 135 (CA), but unfortunately the two lines of approach were neither reconciled, nor one preferred over the other. In Edmonds Judd, the bankrupt had a claim against Edmonds Judd, which vested in the Official Assignee. The Official Assignee chose to abandon that cause of action so as to make it available for the bankrupt to pursue the action once he is discharged. The Court of Appeal found that the Official Assignee stated he did not intend to pursue
any legal action against Edmonds Judd on the basis of absence of funds, without any attempt to evaluate the merits of the cause of action. The Court of Appeal rejected Hammond J’s focus on whether the Official Assignee had acted unreasonably in an administrative law sense, at [33]:
We are satisfied that Hammond J erred in law in his approach to s 86 and in the application of the jurisdiction under the section. He focussed on whether the Official Assignee had acted unreasonably, in an administrative law analogy sense, assessing the conduct of a public law official exercising a discretion. The Judge accepted that the Official Assignee had not assessed the merits of the possible claim. He put the matter on the basis that the Official Assignee was not in a position to sue and in the result by abandoning the chose the Official Assignee considered he preserved Mr Hobbs’ rights. In doing so Hammond J approached the originating jurisdiction under s 86 too narrowly. Once he had accepted that the Official Assignee had not assessed the merits of the possible claim including the consequences of any decision for the potential defendants and accordingly had failed to consider a relevant matter, he should have gone on himself to exercise the broad discretion conferred by that section.
[32] Whilst the Court of Appeal in Edmonds Judd was critical of Hammond J taking too narrow an approach to his jurisdiction under s 86, it did not expressly address the differences in approach as revealed by Murray or by Callis, even though it had considered each decision. It would seem however that through its criticism of the narrow administrative law approach adopted by Hammond J, the Court of Appeal was favouring the broader approach expressed in Murray to that which it had adopted in Callis. Certainly this appears to be how Judges of this Court have read the decision as following Edmonds Judd, applications under s 86 have been approached on the basis that they are heard de novo.
[33] In Rao v Official Assignee HC Wellington CIV-2006-485-4, 17 October 2007, Clifford J noted that although the Court should apply the de novo approach, the Court should be wary not to interfere too readily with the Official Assignee’s decision to exercise his discretion in administering the bankrupt’s estate, as it would otherwise frustrate the statutory policy of the Insolvency Act 1967 (at [24]). The Judge found that ultimately, the Court should be guided by the standard of reasonableness.
[34] Rodney Hansen J in Knight v Official Assignee [2009] NZAR 235 (HC) at
[8]–[9] agreed with Clifford J’s formulation. Rodney Hansen J found that
Austin, Nichols principles should not apply as they were directed towards general appeals, “whereas the appellate function under the Insolvency Act is a specialised one, to be shaped by the words of s 86 itself and the scheme and purpose of the legislation”. Heath J in Taylor v Official Assignee HC Auckland CIV-2006-404-
7115, 26 August 2009 agreed with this approach, stating that the principles set out in Austin, Nichols did not apply because the s 86 procedure is not truly appellate in nature:
[46] Section 86 must be read in conjunction with s 84 of the 1967 Act. Section 84(3) provides that, subject to other provisions of the 1967 Act, “the Assignee shall use his own discretion in the management of the estate”. While the heading to s 86 suggests an “appeal” process (and that is the term commonly used to describe the application made) the procedure is more in the nature of a curial review of an administrator’s decision. An approach to that type of decision proceeds by reference to the reasonableness of the exercise of judgment or discretion by the decision-maker.
[47] There has been some judicial debate about over the approach to a s 86 “appeal”. In Re Callis; Callis v Pardington (1996) 7 NZCLC 261,211 (CA), it was held that a decision of the Assignee ought only to be reviewed in cases of fraud, bad faith or unreasonableness. The alternative view, expressed in a later judgment of the Court of Appeal in Edmonds Judd v Official Assignee [2000] 2 NZLR 135 (CA) at para [30], is premised on the need for the High Court “to consider what in its view is the correct order to make on the material before the Court as measured by the standard of reasonableness”, paying “due regard” to the decision of the Assignee, given his role in administering the bankruptcy.
[35] There are other cases to like effect: they are recorded at footnote 50 of
Glynbrook 2001 Ltd v Official Assignee [2012] NZCA 289. However, in Glynbrook
2001 Ltd, without first addressing the question of whether s 86 created a true right of appeal, the Court of Appeal addressed the s 86 jurisdiction in terms of the standards of review that were discussed in Austin Nichols and in Kacem v Bashir and noted at [84] that:
When considering the question of the standard of review under section 86 of the Act, it is necessary to distinguish between the discretionary powers of the High Court under section 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 of exercising a discretionary statutory power, which is subject to a more limited right of appeal [Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32]].
[36] The Court of Appeal found that the decision of the Official Assignee under review was a statutory discretion granted under s 72. Therefore, the Court was not required to follow the approach mandated in Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141. Instead, the Court stated that the appeal would only succeed if the Official Assignee had made an error of law, taken account of irrelevant considerations, failed to take account of relevant considerations, or if the decision was plainly wrong.
[37] At [87] the Court of Appeal stated:
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 a discretion. This meant that, as the Supreme Court explained in Kacem v Bashir, the criteria for a successful appeal were stricter: (1) error of law or principle; (2) taking into 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 not required to follow the approach mandated by the Supreme Court in Austin Nichols … 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.
[38] This statement of the Court of Appeal suggests that the first step is to identify the statutory power under challenge by the s 86 process, see if it involves the exercise of a discretion or a decision of fact and law and this will determine if the Court reviews the exercise of the statutory power in accordance with Austin Nichols principles, or the principles applicable to an appeal against the exercise of a discretion.
[39] However, I note that in Glynbrook 2001 Ltd, the nature of the s 86 jurisdiction was not directly argued as a ground of appeal before the Court. At [83], the decision records that the issue would be dealt with on the basis of the written submissions. Further, although in the High Court Fogarty J had adopted a less restrictive approach describing himself as “an appellate Judge with full power to agree or disagree or to modify the decisions”, the Court of Appeal found that any error in approach favoured the appellants and so their appeal on that ground failed (see [90]). Thus, there was no need for the Court of Appeal to determine the
standard of review as it related to that case. Indeed, the Official Assignee submitted that the point in issue in the decision was one of standing and that the comments on the standard of review of a s 86 application are obiter. Then there is the silence in Glynbrook 2001 Ltd, regarding the preliminary point of whether s 86 creates a true right of appeal in the sense of the rights of appeal the Supreme Court considered in Austin Nichols and in Kacem v Bashir. This leads me to conclude that the discussion in Glynbrook 2001 Ltd on the standard of review is obiter and if it should go beyond that, then the decision may well have been decided per incuriam. Thus, I propose first to take the standard of review that is most favourable to Haines. There is much High Court authority suggesting that the Court should hear all the material de novo, but be careful not to interfere with the Official Assignee’s discretion too easily, and this is the approach I will first take.
Was the Official Assignee acting in his statutory discretion or under the deed?
[40] The Official Assignee is given powers under s 217 of the Insolvency Act
2006:
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.
[41] Schedule 1 of the 2006 Act states (emphasis added):
The Assignee has the power to—
(a) hold property:
(b) begin, continue, discontinue, and defend legal proceedings relating to the property of the bankrupt:
[42] So, under the 2006 Act, discontinuing proceedings is one of the
Official Assignee’s powers. However, this is absent in s 71 of the Insolvency Act
1967:
71 Assignee's general powers
Subject to the provisions of this Act, the Assignee may—
(a) Hold property of every description:
(b) Bring, institute, or defend any action or other legal proceedings relating to the property of the bankrupt, and also, with the leave of the Court in which any proceedings were commenced by the debtor before adjudication, continue the proceedings in his own name:
[43] On the other hand, even if the power is not explicitly stated, the Official Assignee can be seen to have a general discretion to manage the affairs of an estate (emphasis added):
84 Discretion of Assignee
(1) Subject to the provisions of this Act, the Assignee shall, in the administration of the property of the bankrupt, have regard to any resolution of the creditors at any meeting.
(2) In any case where the Assignee or any creditor is of the opinion that any such resolution conflicts with this Act or any rule of law or is unjust or is not fair or equitable, the Assignee or any creditor may, if he thinks fit, apply to the Court for directions in the matter.
(3) Subject to the provisions of this Act, the Assignee shall use his own discretion in the management of the estate.
[44] As far as I can see, there is no restriction on the Official Assignee’s ability to discontinue proceedings in the Insolvency Act 1967. So when he decided to abandon proceedings, the Official Assignee can be seen to be exercising a residual discretion that was available to him as part of the management of the estate. It might also be said that if the Official Assignee has the discretion to “bring proceedings” under s 71(b), he also has the discretion not to bring proceedings, or to decide to discontinue proceedings that he has commenced. Otherwise, he would be doomed to continue to pursue proceedings once he realises that the litigation risk of those that he has commenced does not favour him.
[45] In any event, the fact that the funding deed was entered into does not change the statutory discretion vested in him by the Insolvency Act’s broad powers. Haines submitted that here, the power the Official Assignee exercised when he decided to discontinue the proceeding was derived from the funding deed and not from his
statutory powers. In this way, Haines sought to distance the power from a statutory discretion so as to avoid a standard of review that was confined to viewing matters as an appeal from the exercise of a discretion. However, I do not consider that this submission advances Haines’ case. First, the Official Assignee cannot fetter his statutory power by contracting to restrict them, nor can he expand those powers beyond the scope that Parliament has given them. I consider that his powers under the funding deed must be read in the light of his statutory powers and be subject to the same standard of review as they would be. To see matters otherwise would be to permit the Official Assignee, by contract or deed, to alter the character of powers invested in him by Parliament; this is something he cannot do.
[46] The Official Assignee submitted that in resolving to discontinue the proceeding, he was exercising the general discretion conferred upon him to manage the bankrupt estate. The proceeding was commenced as part of the administration of the bankrupt estate. That the funding deed was entered into did not change that fact. It merely sought to define the rights and obligations of the Official Assignee and Haines as the funding creditor. The Official Assignee argued, therefore, that the funding deed did not alter the general discretion conferred upon him by s 84(3) of the Insolvency Act 1967. That provision empowered him to use his own discretion in the management of the bankrupt estate. I accept this submission but note that the funding deed would have created legitimate expectations for Haines that the Official Assignee would act in accordance with its terms. Insofar as meeting those expectations would not run counter to the lawful exercise of his statutory powers, I consider that the Official Assignee would be bound to comply with them. In this sense, he is no different from any other statutory officer exercising statutory power.
Deed of indemnity: relationship between Official Assignee and Haines
[47] Under the funding deed of April 2011, Haines agreed to indemnify the Official Assignee against all fees and costs arising out of the proceedings. At Clause 4, the deed states that (emphasis added):
The OA will retain full control of the administration of the Estate, the Proceedings and any ancillary matters at all times. As such, the OA may take any decision he deems appropriate in the circumstances, including but not
limited to issuing notices or proceedings, continuing, discontinuing or settling the Proceedings.
[48] At Clause 5, the deed provides that the Official Assignee may consult with
Haines in its decisions, but is under no obligation to do so:
In determining whether to take any action described in Clause 4 above, the OA will take such advice from his legal providers as the OA deems appropriate and may consult with Haines.
[49] And at Clause 9, it says (emphasis added):
If Haines fails to comply with any of the terms of this Deed, the OA may at his sole discretion discontinue the Proceedings or take any such further action he deems appropriate.
Whilst these terms do not directly affect the Official Assignee’s statutory discretion, they do confirm that according to the terms of the funding deed, the Official Assignee was entitled to make his own decision and to discontinue the proceedings, especially if Haines had not complied with its funding obligations, leading to the Official Assignee having no funds to continue with the litigation. Thus, I read the terms of the funding deed as being consistent with the general discretionary power the Official Assignee has under s 84(3) to manage a bankrupt estate.
Key facts
Reporting to Haines
[50] Mr Khan stated in his affidavit that he and Meredith Connell had kept Ms Niblett of Haines informed about updates and changes to the proceeding, especially when new information came to light which could materially change the amount that the Official Assignee could claim (at [45]–[80]).
[51] Haines takes a different view. In the course of its submissions, it directed me to various items of correspondence between Ms Niblett and Mr Khan. It submitted that these communications demonstrated that the Official Assignee was not providing Haines with sufficient information as was required by the funding deed.
[52] The exchange of communications reveals that, from the outset, Haines wanted to have more hands-on control over the litigation than the Official Assignee would permit. Similarly, initially the Official Assignee simply provided invoices showing the sums owing for the litigation. Haines wanted a breakdown of time spent, hourly rates and so on. However, later the Official Assignee did provide invoices from Meredith Connell. There is no correspondence that suggested to me that Haines was genuinely disputing the charges incurred under each invoice on the ground that the charges were excessive, or that work had not been done. Nor did the contemporaneous exchanges reveal that Haines had delayed paying the invoices because it was unhappy with the level of information it had been receiving. At the material times, other excuses for the delays in payment were given by Ms Niblett.
[53] If insufficient information was the true basis for the delays in paying the invoices, I would have expected to see it raised at the forefront of Haines’ communications with the Official Assignee; it was not. I am satisfied that it was not an issue at the relevant time, in which case I do not consider that Haines can raise it now as a factor that demonstrates the unreasonableness of the Official Assignee’s conduct towards Haines, or as a factor that shows the decision to discontinue the proceedings against Spearhead was wrong.
Funding concerns
[54] In around March to April 2012, invoicing and failure to pay the amounts owing became a problem. By then, there were four unpaid invoices. When Mr Khan emailed Ms Niblett with the invoices, he did not receive a response. He then sent another invoice for further work on 2 May 2012 and asked that it be paid no later than 11 May 2012.
[55] In April 2012, Spearhead had filed an affidavit regarding financial information in the proceedings against it. The Official Assignee referred the affidavit to its accountant. The accountant’s advice was referred to Meredith Connell. They took it into account and provided advice in a memorandum of 3 May 2012. By now, Meredith Connell had formed the view that the claim against Spearhead was finely balanced. They considered that although there was still
a basis for the Official Assignee to pursue the claim, the outcome was seen as being dependent on the factual and credibility findings made by a Judge, so success was not guaranteed.
[56] Against a background of unpaid invoices and the new discouraging advice from Meredith Connell, the Official Assignee was not prepared to instruct Meredith Connell further. Meredith Connell was not prepared to undertake work, until the outstanding fees had been paid. Meredith Connell notified Ms Niblett of this on 7 May 2012. These developments were occurring in a context where there was a court timetable requiring actions to be taken, and Spearhead was pressing for resolution of the proceedings against it.
[57] As at 17 May 2012, the invoices remained outstanding and no fees had been paid since around December 2011, so matters were at a standstill, despite court timetabling deadlines approaching. This made it imperative for the Official Assignee to make a decision as to the future of the case. The Official Assignee asked Meredith Connell to inform Haines of the latest developments. Meredith Connell did so, noting the funding concern.
[58] On 17 May 2012, Ms Niblett said that she needed to talk to Mr Haines about whether to proceed and that she would provide his position as soon as possible. On
22 May 2012, Meredith Connell noted that time was of the essence, and if Haines does not provide its position, the Official Assignee would proceed to make a decision without Haines’ input.
[59] On 23 May 2012, Haines had still not paid the overdue invoices. The Official Assignee was by then in default of timetabling orders. Spearhead was alleging prejudice as a result of the Official Assignee’s timetabling default. As Haines had failed to engage with the Official Assignee, the Official Assignee resolved to make his own decision in respect of the proceedings’ continuation.
[60] On that same day, at 11.55 am, Haines contacted Meredith Connell to ask Meredith Connell to join Maxwell to the proceedings and seek an adjournment to do so. Maxwell was an associated company of Ms Jamieson, but had been struck off
the Register at the time. Haines suggested joining Maxwell because it might expose Ms Jamieson’s irregularities with Inland Revenue so as to persuade her to reach an out of court settlement. None of this was directly relevant to the issues being litigated in the proceeding against Spearhead. The suggestion was no more than a tactical ploy that raised a collateral and purported vulnerability of Ms Jamieson in her own right. As an officer of the court, it would have been improper for the Official Assignee to attempt to obtain an adjournment for such a purpose: see Re Anderson HC Hamilton B213/89, 14 April 1992 which recognised the Official Assignee as an officer of the Court and guardian of the public interest.
[61] Ultimately, after weighing up the various issues, the Official Assignee resolved to discontinue the proceeding against the Spearhead Trust. Given the context in which the decision to discontinue was made, I consider that it is readily understandable. It is difficult to see how the Official Assignee could have done otherwise. As a litigant in this Court and as an officer of the Court, he owed responsibilities to the Court not to waste the Court’s time. Last minute adjournments are never welcome and particularly when there is no proper excuse for them. Here, the funding difficulties could not have formed a proper excuse because they had been known about well in advance. The Official Assignee could have found himself in a position where the Court required him to proceed, irrespective of the funding position vis-à-vis himself and Haines. Regarding the other suggestions Haines gave for adjourning the proceeding, for the Official Assignee to have advanced these as a basis for an adjournment would have been irresponsible.
Summary of reasons for discontinuance
[62] I am satisfied that the decision the Official Assignee reached was a correct and proper decision. It was the only reasonable decision available to him. When the reasons for discontinuance are considered, I think that they all point to one outcome.
Assignee had control of proceeding
[63] The Official Assignee was entitled to make any decision he considered appropriate both under the funding deed and under s 84(3) of the Act. Before he
made the decision to discontinue, the Official Assignee did seek Haines’ input. But Haines failed to engage with the Official Assignee in a meaningful way; so, in the face of urgency, I consider that he was entitled to make his own decision.
Prospects of success
[64] According to the Official Assignee’s legal advisors, the chances of the claim depended very much on credibility and, therefore, the outcome was far from certain. This was a reasonable basis to rely on. Given the funding difficulties, it is hard to see how with this advice in mind as well he could have continued with the proceeding.
Prospect of recovery of judgment debt
[65] Even if the proceeding were successful, recovery of the judgment debt was uncertain because it was unclear whether there was actually any equity left in Spearhead’s property to pay the judgment debt.
Significant costs would be incurred to progress the matter to trial
[66] There were already outstanding legal fees of $45,000. Given Haines’ lack of commitment to pay, the Official Assignee was unsure whether Haines would continue to fund the proceedings. If not, he would have to use public money and then seek recovery from Haines, which would have taken the Official Assignee away from the administration of other estates. Public money could be utilised more efficiently elsewhere.
Inappropriateness of seeking Maxwell to join as defendant
[67] Haines considers that the Official Assignee should have sought an adjournment to add Maxwell to the proceedings. The Official Assignee did not see it as appropriate because:
(a) Maxwell had been struck off the Companies Register in 2008;
(b) The likelihood of obtaining recovery was low;
(c) Proceeding against Maxwell was unlikely to achieve any benefit for creditors;
(d)The issues raised about tax and GST were irrelevant to the claim against the Spearhead Trust (it seemed more like a tactic to encourage Ms Jamieson to come to settlement); and
(e) The Court would be unlikely to grant an adjournment to join a party that was struck off the Register and, therefore, non-existent.
[68] The Official Assignee’s reasons for refusing to adopt Haines’ ploy are sound
and responsible. He could not have done otherwise.
Costs matters
[69] By abandoning the claim then, there was a reasonable prospect of obtaining a costs order against the Spearhead Trust because the costs incurred had been as a result of Ms Jamieson’s breach of statutory duties. If the Official Assignee were to continue the proceeding, he would put himself at risk of having a costs order made against him if he did not succeed with his claims. Although the Official Assignee was indemnified by Haines for any adverse costs award, the Official Assignee could not be satisfied that such a costs award would be paid by Haines.
Assignment of claim
[70] Under the Insolvency Act 1967, the Official Assignee has the power to sell any property of the bankrupt:
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.
[71] As seen in Glynbrook 2001, this power could be used to sell and assign a cause of action to another party. The Official Assignee acknowledges that he did not consider this option, but says that he was under no obligation to do so. Indeed, it is observed that the normal process under s 72 is to sell the property by public auction or tender, which is clearly not appropriate in this case. While Glynbrook 2001 Ltd said that the Official Assignee did not have to conduct a public auction before assigning the cause of action, that was in the context of a bitter family dispute. There would also have had to have been a first creditors’ meeting, which would prolong the process.
[72] The complications involved in such an action would inevitably have led to more costs, which the Official Assignee was, with reason, not prepared to pay at the time. It would also have led to longer delays. I consider that whilst, in principle, assignment of the claim to Haines was a possibility, by the time matters had reached the stage which they were at in late May 2012, it was too late to consider this option. In terms of the Official Assignee’s obligations to the Court, which include an obligation to behave as a responsible litigant, to effectively force the hand of the Court on an adjournment by assigning the proceeding so late in the day to Haines would have been unreasonable conduct. The time for considering that as a possible way of dealing with matters was past. The Official Assignee and Haines had committed to a particular course of conduct; had Haines wanted to follow the alternative of having the proceedings assigned to it, it could have sought that outcome much earlier on.
[73] In short, having looked at the matter afresh, I am satisfied that the Official Assignee arrived at the only possible decision that was reasonably open to him. Since on a view of matters that is most favourable to Haines I have concluded that the s 86 “appeal” must fail, I do not propose to consider the issues in terms of the stricter tests adopted by some courts. This is one of those cases where the standard of review has not affected the outcome.
Result
[74] The appeal is dismissed. Leave is reserved to file memoranda on costs. Any application for costs should be filed within 15 working days of delivery of this judgment.
Duffy J
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