JEC no 2 Limited v Official Assignee at Hamilton
[2013] NZHC 3544
•20 December 2013
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2012-419-904
CIV-2012-419-907 [2013] NZHC 3544
UNDER the Judicature Act 1908 and the High
Court Rules
IN THE MATTER of an application pursuant to section
26P(1) and an application pursuant to rule
2.3
BETWEEN JEC NO 2 LIMITED First Applicant
ANDJEC NO 3 LIMITED Second Applicant
ANDTHE OFFICIAL ASSIGNEE AT HAMILTON
Respondent
Hearing: 10 December 2013
Appearances: I W Thorpe for Applicants
C T Gudsell QC and P V Cornege for Respondent
Judgment: 20 December 2013
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 20 December 2013 at 2.30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors: Almao Douch, Crown Solicitor, Hamilton
Counsel: C T Gudsell QC, Hamilton
I W Thorpe, Wellington
JEC NO 2 LIMITED v OFFICIAL ASSIGNEE [2013] NZHC 3544 [20 December 2013]
[1] The Applicants, to whom I shall refer as JEC, seek review of orders that Associate Judge Faire made in a judgment delivered on 10 June 2013, declining JEC’s application to set aside orders that the Judge had made on 5 November 2012.1
[2] The application is made pursuant to r 2.3 High Court Rules and s 26P(1) Judicature Act 1908, on grounds that the Judge:2
...
(a) Incorrectly determined that there was no or would be no miscarriage of justice if orders made on 5 November 2012 were not set aside, when the First And [sic] Second Applicants will be summarily deprived of substantial property and assets without a full hearing;
(b) Failed to apply, misstated or misapplied the correct test to determine whether the bankrupt, Mr Fawcett, was insolvent at the time when the dispositions under challenge were made;
(c) Determined that Mr Fawcett was, or was probably, insolvent at material times when on a correct application of the test of insolvency to Mr Fawcett’s circumstances, he was not insolvent when the dispositions under challenge were made;
...
[3] The application to set aside was fully argued before the Associate Judge and the judgment contains comprehensive reasons. Accordingly, r 2.3(4) applies, which provides:
2.3 Review of decision
(1) An application for a review, under section 26P(1) of the Act, of an order or a decision made by an Associate Judge must be by interlocutory application, which must fully state the grounds of review and what exactly is challenged by the applicant.
(2) Unless a Judge or an Associate Judge directs otherwise, notice of the application must be filed and served,—
(a) if it is made by a party who was present or represented when the order was made or the decision was given, within 5 working days of the order being made or the decision being given; or
...
1 JEC No 2 Ltd v Official Assignee [2013] NZHC 1352.
2 Application for Judicial Review dated 24 September 2013 at [3].
(4) If the order or decision being reviewed was made following a defended hearing and is supported by documented reasons,—
(a) the review proceeds as a rehearing; and
(b) the Judge may, if he or she thinks it is in the interests of justice, rehear the whole or part of the evidence or receive further evidence.
...
[4] The application for review has been brought out of time (through no fault of JEC’s present counsel) and, accordingly, JEC also seeks an enlargement of time. Both applications are opposed.
Background
[5] JEC’s application to set aside was made pursuant to what was then r 15.13
High Court Rules which provided:
15.1 Judgment may be set aside or varied
Any judgment obtained by default may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.
[6] The orders that JEC sought to set aside were made pursuant to ss 206 and
207 Insolvency Act 2006 (“Act”), effectively by default. Although JEC had opposed the orders, ultimately it ceased to be represented and the Judge made the orders in the absence of opposition.
[7] The effect of the orders was:
[8] to cancel three agreements for sale and purchase (“agreements”) in respect of 10 residential properties (“properties”), entered into on or about 4 August 2008 by Christopher Louis Fawcett (now bankrupt, hence the involvement of the Official Assignee (“OA”)) as vendor and JEC No 2 Limited (“JEC No 2”) as purchaser. These orders were made pursuant to s 206 of the Act. At all material times, JEC No 2 has been a trustee of a family trust associated with the Fawcett family. It was a
term of the agreements that JEC No 2 was not required to pay the purchase price for 40 years; and
[9] to order the re-conveyance of the properties subject to the agreements, pursuant to s 207 of the Act.
[10] On 9 November 2012 JEC filed an application to set the orders aside. The OA opposed that application. The application to set aside was fully argued before Associate Judge Faire on 30 May 2013. JEC’s case was that the agreements were not irregular transactions for the purpose of s 206. Associate Judge Faire was satisfied that they were and he declined the application to set aside in his decision of
10 June 2013.
[11] JEC then lodged a notice of appeal to the Court of Appeal against the Judge’s
decision.3
[12] An appeal was not open to JEC. The only course open to JEC was to file an application for review pursuant to r 2.3 High Court Rules. Such application was required to be filed and served within 5 working days. In fact the application was not filed until 24 September 2013, more than three months out of time. The application for review was filed only after JEC’s present counsel was instructed. I add that counsel for the OA had notified JEC of its error on several occasions but JEC was dismissive of that advice (prior to taking advice from its present counsel) and persevered in pursuing an appeal.
Discussion
[13] For the reasons set out below, I do not propose to grant JEC the enlargement of time it requires, but first comment on the merits of the application to review.
[14] JEC submits that Associate Judge Faire erred in declining the application to set aside because the agreements were not irregular transactions falling within
s 206(1) of the Act and there was a risk of a miscarriage of justice accordingly.
3 Notice of Appeal dated 5 July 2013.
Section 206(1) provides:
206 Procedure for cancelling irregular transactions
(1) The procedure set out in this section applies to the following irregular transactions:
(a) an insolvent transaction: (b) an insolvent charge:
(c) an insolvent gift:
(d) a disposition of property to which subpart 6 of Part 6 (setting aside of dispositions that prejudice creditors) of the Property Law Act 2007 applies.
[15] Mr Fawcett was adjudicated bankrupt in September 2010, and so more than two years after execution of the agreements. The effect of this was that the agreements could be irregular transactions only if they fell within s 206(1)(d), that is if they constituted dispositions of property to which subpart 6 of Part 6 of the Property Law Act 2007 (“PLA”) applies.
[16] Subpart 6 applies to the following dispositions:
346 Dispositions to which this subpart applies
(1) This subpart applies only to dispositions of property made after 31
December 2007—
(a) by a debtor to whom subsection (2) applies; and
(b) with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.
(2) This subsection applies only to a debtor who—
(a) was insolvent at the time, or became insolvent as a result, of making the disposition; or
(b) was engaged, or was about to engage, in a business or transaction for which the remaining assets of the debtor were, given the nature of the business or transaction, unreasonably small; or
(c) intended to incur, or believed, or reasonably should have believed, that the debtor would incur, debts beyond the debtor's ability to pay.
[17] Counsel for JEC does not, on this application, challenge the Judge’s finding that s 346(1) PLA was satisfied. Instead, counsel submits that there was no basis for the Judge’s finding that Mr Fawcett was a debtor to whom s 346(2) PLA applied.
[18] On this point, Associate Judge Faire said:4
[52] I accept Mr Gudsell’s submissions. The agreements must have been made with intent to prejudice the Southland Building Society which was pursuing its outstanding loans at the time. By making the transfers under the
4 August 2008 agreements Mr Fawcett simply had no means to satisfy the debts that he was obliged to pay. That may well have been because he
misunderstood his position as guarantor. Nevertheless, when the law is
applied, the conclusion is inevitable that he had insufficient assets to meet the obligations he had undertaken.
[19] It is clear from this paragraph that the Judge considered s 346(2)(a) to be satisfied.
[20] The Judge reached his conclusion after a careful review of the circumstances as they stood at the time of the agreements. In 2004 the Southland Building Society (“SBS”) had made a loan of more than $3.1 million to the C L Fawcett Family Trust (“loan”) to enable the borrower to purchase some land. Mr Fawcett (and another) had guaranteed repayment of the loan. At the time the agreements were entered into, the borrower had defaulted in repayment of the loan; SBS was extending the time for repayment by short periods in the hope of a refinancing; and demands for repayment under the guarantees were imminent. That is what occurred subsequently. The land was sold by mortgagee sale, with a substantial shortfall to SBS. On
17 March 2010 SBS obtained summary judgment against Mr Fawcett for
$1,342,848.85 and he was adjudicated bankrupt thereafter.
[21] Counsel for JEC submits that the Judge erred in the conclusion he reached because the land against which the borrowings were secured had some value at least and, as I have said, another party had also guaranteed the advance from SBS. That, however, counts for little as Mr Fawcett was jointly and severally liable on the
guarantee.
4 JEC No 2 Ltd v Official Assignee, above n 1.
[22] In my view the conclusion the Judge reached was inescapable. The effect of the dispositions to JEC No 2 meant that there was no prospect of Mr Fawcett meeting a demand made by SBS.
Enlargement
[23] Regardless of the merits, this is not a case in which to grant an enlargement of time. Aside from the lengthy extension that JEC requires, the OA is well advanced with realising the properties. Five have been sold, others have been sold conditional on the outcome of this application, and others are being marketed for sale. The OA will have devoted substantial resources to managing the disposal process and has paid outgoings in the course of doing so.
[24] The appropriate course is for the OA to complete the realisation of the assets and distribute the proceeds of sale. Counsel for JEC submits that its delay was due to its impecuniosity and its inability to obtain legal advice. That may be so, but that consequence is not one to be visited on the OA, particularly given the matters referred to in the previous paragraph.
Result
[25] I dismiss the application to enlarge time. Given that, it is unnecessary to dismiss the application for review, although I would have done so if necessary.
[26] JEC is to pay costs to the Official Assignee on a 2B basis, together with disbursements to be fixed by the Registrar.
..................................................................
M Peters J
1
0