Jubilee Management Limited (in liquidation) v Sia-Fox

[2013] NZHC 49

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2012-454-184 [2013] NZHC 49

IN THE MATTER OF     the Insolvency Act 2006

BETWEEN  JUBILEE MANAGEMENT LIMITED (IN LIQUIDATION)

Judgment Creditor

ANDBOON KEE SIA-FOX Bankrupt

Judgment:      7 February 2013

JUDGMENT (AS TO COSTS AND EXPENSES) OF ASSOCIATE JUDGE D.I. GENDALL

Under r 11.5 of the High Court Rules I direct the Registrar to deliver this judgment at 3.00 pm on 7 February 2013.

Solicitors:           Fitzherbert Rowe, Lawyers, Private Bag 11016, Palmerston North

MB Ryan, Solicitor, PO Box 12054, Palmerston North

JUBILEE MANAGEMENT LIMITED (IN LIQUIDATION) V BK SIA-FOX HC PMN CIV-2012-454-184 [7

February 2013]

Introduction

[1]      On 7 December 2012 I issued a judgment in this proceeding annulling the adjudication in bankruptcy of the judgment debtor Boon Kia Sia-Fox (Ms Sia-Fox). Earlier Ms Sia-Fox had been adjudicated bankrupt by this Court on 10 August 2012.

[2]      At [32] of my judgment of 7 December 2012  I indicated that the order annulling the bankruptcy of Ms Sia-Fox was to lie in Court and not be released until such time as the Official Assignee’s costs, disbursements and expenses in administering this bankruptcy were paid in full by Ms Sia-Fox.

[3]      Earlier in that judgment at [28] I noted:

[28]     In my view it is clear from all the material before the Court that the Official Assignee has been required to spend considerable time, effort and expense in carrying out its required functions with regard to the bankruptcy of the bankrupt.  As I see it under all the circumstances prevailing here, this is an appropriate case where the costs of the Official Assignee should be paid first  before  release  of  the  order  I  am  about  to  make  annulling  the bankruptcy occurs.

[4]      On that basis, at [30] and [31] of my 7 December 2012 judgment I directed that:

[30]     .... within the next 5 working days (by 14 December 2012) the Official Assignee is to file and serve a memorandum in this Court outlining the total costs, disbursements and expenses she seeks from the bankrupt prior to the annulment order being released.   The bankrupt and the judgment creditor are then to have a further period of 5 working days from that date to file and serve any memoranda they may wish with respect to that issue of costs incurred by the Official Assignee

[31]     ..... those memoranda are then to be referred to me and, in the absence of any party indicating they wish to be heard on the matter, I will make a decision on the reasonable quantum of the Official Assignee’s costs, disbursements and expenses in this matter which I direct are to be paid before the release of the annulment order I am about to make.

[5]      Counsel for the Official Assignee has now filed a memorandum dated 13

December 2012 dealing with these aspects.

[6]      Counsel for Ms Sia-Fox has in turn filed a memorandum of his submissions on  this  costs  question  dated  21  December  2012  and  counsel  for  the  judgment

creditor, Jubilee Management Limited (in liquidation) has himself filed a memorandum on costs dated 20 December 2012.

[7]      Those memoranda have now been referred to me.   No party has indicated they wish to be heard on the matter.  I now give my decision as to the reasonable quantum of the Official Assignee’s costs, disbursements and expenses pursuant to that 7 December 2012 judgment.

Official Assignee’s Position

[8]      The Official Assignee in counsel’s memorandum dated 13 December 2012 submits  that  the  administration  of  Ms  Sia-Fox’s  bankruptcy  here  has  been exceptional in terms of the “number and complexity of the issues and entities with which the Official Assignee has had to deal.”   It is said this is reflected in the considerable time which has been dedicated by the Official Assignee’s staff to the administration of this bankruptcy.

[9]      In  this  regard,  the  Official Assignee’s  time  costs  to  13  December  2012 pursuant to s 274 Insolvency Act 2006 and Regulation 18 Insolvency (Personal Insolvency) Regulations 2007 amount to $26,180.90.  A breakdown of these figures is attached to that memorandum.

[10]     The Official Assignee has also estimated that the further time required to complete administration of the bankrupt’s estate would amount to $1,334.00 making a total time cost of $27,514.90.   It is this amount which is sought by the Official Assignee here for costs.

[11]     As to disbursements incurred by the Official Assignee, this is outlined in the

13 December 2012 memorandum at a total figure of $12,189.11.   These include office expenses (including stationery, tolls, postage)of $441.74, external legal fees (for obtaining advice and representation, including in respect of the annulment application) of $11,193.22, insurance on Ms Sia-Fox’s property at 32 Stewart Drive of $124.04 and taxi and rental car charges of $327.90.   In addition, the cost of advertising the annulment of Ms Sia-Fox’s adjudication will amount to $102.22.

[12]     It is this total disbursements amount of $12,189.11 for which an order is also sought by the Official Assignee.

[13]     Counsel state in that 13 December 2012 memorandum that all the Official Assignee’s disbursements bar the sum of $543.96 have already been paid from funds collected  by  the  Official  Assignee.    The  Official Assignee  confirms  the  funds collected  totalled  $39,890.43  of  which  she  has  paid  disbursements  totalling

$11,645.15 leaving a balance of funds held of $28,245.28.  Taking into account the further disbursements of $543.96 yet to be paid, if the Official Assignee’s time costs outlined above totalling $27,514.90, are approved and paid from the balance of funds held, the result will be a shortfall of $186.42 payable by Ms Sia-Fox to the Official Assignee now.

Judgment Creditor’s Submissions

[14]     In  the  memorandum  from  counsel  for  the  judgment  creditor  dated  20

December 2012,  it  is  confirmed that  no  issue is  taken  by the liquidator  of the judgment creditor in relation to the costs sought here by the Official Assignee. However, the liquidator does oppose the proposal by the Official Assignee that her costs  be  paid  from  the  funds  she  currently holds.    The  effect  of  adopting  this proposal, according to the liquidator, would be that a real risk would be created that Ms Sia-Fox would not pay her debts owing to the liquidator.

[15]    In this regard, the principal amount specified in the Bankruptcy Notice originally issued by the judgment creditor against Ms Sia-Fox required payment of the sum of $19,853.58.  It was this amount that Ms Sia-Fox purported to pay to the liquidator to avoid the adjudication order, but which it seems has now ended up in the Official Assignee’s trust account.

[16]     In addition, there is a costs and disbursements award of $6,672.10 against Ms Sia-Fox in favour of the judgment creditor liquidator ordered in the adjudication proceedings which remains outstanding.

[17]     Counsel   for   the   judgment   creditor   contends   that   Ms   Sia-Fox   has demonstrated in the past and in these adjudication proceedings that she will not satisfy Court costs orders unless she is compelled to do so by the Court.   The judgment creditor’s position therefore is that there is a real risk that Ms Sia-Fox will refuse to pay the costs orders against her if that payment is simply to be made by her voluntarily.  In that event, it is suggested the parties will return to the situation they were in that necessitated commencement of the original adjudication proceedings in March 2012.

[18]     The  judgment  creditor’s  position  therefore  is  that  the  annulment  should

require the prior payment to the judgment creditor of the two costs orders totalling

$26,525.68.  It is this total amount which is sought by the judgment creditor.

Ms Sia-Fox’s Position

[19]     In his memorandum dated 21 December 2012 on behalf of Ms Sia-Fox, her counsel Mr Ryan accepts that some contribution ought to be made by her towards the Official Assignee’s costs here.   He contends, however, that rather than the total sought by the Official Assignee amounting to $27,514.40, an award of costs of only

$1,072.40 should be made representing the costs incurred by the Official Assignee up to 15 August 2012.  This is the date it is claimed that Mr Montague, solicitor for Ms Sia-Fox advised the Official Assignee that the judgment debt in question had been paid, that an application for annulment would be filed, and that liability for the Official Assignee’s costs beyond that point would be contested.  It is said that it was during a telephone discussion on 15 August 2012 that Mr Montague advised the Official Assignee’s representative of these facts.

[20]     Indeed the application for annulment was filed on 16 August 2012 and the Official Assignee is said to have been served on 17 August 2012.  By this stage, Ms Sia-Fox contends that the Official Assignee had received confirmation that the debt had been paid.

[21]     Turning now to s 309(5) Insolvency Act 2006 which deals with the present post-annulment situation, this provides:

(5)        If the Court annuls the adjudication on one of the grounds specified in sub- section (1)(a) to (c), -

(a)       The Court may, on the Assignee’s application, fix an amount as reasonable remuneration for the assignee services and order that it be paid, in addition to any costs that may be awarded.

[22]     And  it  is  useful  to  note  in  addition  that,  s  311(2)  Insolvency Act  2006 provides:

(2)       Any contract, sale, disposition, or payment duly made or anything duly done by the Assignee before the annulment –

(a)       is not prejudiced or affected as to validity by the annulment; and

(b)       has effect as if it had been made or done by the bankrupt while no adjudication was in force.

(emphasis added)

[23]     I now turn first to consider the position of the Official Assignee.  As I have noted above, the amount sought here as reasonable remuneration for the Official Assignee’s services pursuant to s 309(5)(a) Insolvency Act 2006 amounts to a total time cost of $27,514.90 together with a total disbursements figure of $12,189.11.

[24]     In the Official Assignee’s first report on Ms Sia-Fox’s bankruptcy under s 309

Insolvency Act 2006 filed in this Court and dated 3 September 2012, the Official

Assignee states at paras (5) and (6).

5.        The bankrupt has refused to give any details of assets to me however she did mention her rental property at 32 Stewart Drive, Wellington.  She has stated that she has a number of properties in Wellington and is a Trustee and Beneficiary of many trusts and that she was solvent.   She has not provided any evidence to support these statements.

6.        Inland Revenue Department has confirmed that the bankrupt has not filed an Income Tax return since 2003.  The bankrupt has said she knew she had an obligation to file these returns as she was a Company Director however she could not afford to pay her accountant to have the work completed.

[25]     In addition, at para (7) of that report, the Official Assignee notes that at that point she had been unable to establish the true level of debt owed by the bankrupt, as a completed statement of affairs (required by s 67 Insolvency Act 2006) had not been supplied by Ms Sia-Fox.  Notwithstanding this, the Official Assignee states that she had spoken to creditors and the claims she was able to establish total $1,081,907.05

with assets of Ms Sia-Fox estimated at only $293,607.70, leaving a shortfall of over

$700,000.00.

[26]     And, in the Official Assignee’s Second Report filed in this Court and dated 13

November 2012, a detailed summary of the actions undertaken in Ms Sia-Fox’s bankruptcy is outlined.   There can be no doubt from this that the bankruptcy in question was “somewhat complex in terms of the history, issues and entities” as confirmed at para 97 of this report.  In addition, it does seem clear that throughout, the Official Assignee experienced difficulties in obtaining information and documentation relevant to the administration of the bankrupt’s estate.

[27]     Issue is taken by Mr Ryan with the length of time spent and the charges levied  by  the  Official Assignee  throughout  her  administration  of  Ms  Sia-Fox’s bankruptcy.   Perhaps somewhat surprisingly given her own lack of co-operation alluded to by the Official Assignee, suggestions are made at para 6 in Mr Ryan’s 21

December 2012 submissions, that the sources of information as to Ms Sia-Fox’s financial affairs were “persons hostile to Ms Sia-Fox namely her husband Mr Fox and the liquidator (of Jubilee Management Limited (in liquidation)).”

[28]     It is also contended by counsel for Ms Sia-Fox that an error occurred in adjudicating her bankrupt and hence the annulment application under s 309(1)(a) Insolvency Act 2006 was made.  As I see the position, this is not correct.  Ms Sia- Fox chose not to attend or be represented at the 10 August 2012 hearing of the bankruptcy application against her.  The bankruptcy order made was properly made on the basis of all information then available to the Court and the judgment creditor. It was only later that the Court was made aware of information concerning payment of the judgment debt prior to that date, which resulted in the order for annulment being made.

[29]     Having been appointed by the Court to administer Ms Sia-Fox’s affairs as a bankrupt, I am satisfied the Official Assignee then embarked properly on that role as she is required to do.

[30]     No order annulling the bankruptcy was made by this Court until 7 December

2012.  Although the application for an annulment had been filed by Ms Sia-Fox on

15 August 2012, it was opposed by the judgment creditor in a Notice of Opposition filed on 5 September 2012.  Certainly, at that point the Official Assignee was in no position to know whether or not the annulment application was likely to succeed. Indeed an affidavit was filed in support of the judgment creditor’s Notice of Opposition  to  the  annulment  application  and  it  deposed  that  the  costs  debt  in question had not been paid to the judgment creditor but instead into a potentially unreachable source, being another bank account operated by the company prior to its liquidation  and  for which  Ms  Sia-Fox  had  signing authority,  and  on  which  the liquidator understood at the time a stop had been placed by the bank.

[31]     In addition, the judgment creditor in this Notice of Opposition contended also that, in any event the Court should under all the circumstances prevailing in the case, exercise its discretion not to annul Ms Sia-Fox’s bankrupt given her extremely complex and disputed financial position.  In this regard, at one point as noted in the Official Assignee’s First Report under s 309, it had been suggested that Ms Sia-Fox was in fact substantially insolvent as, on her own contention, she is said to have owed her brothers some $811,147.20, an amount which itself substantially exceeded any assets she owned.

[32]     In the light of all these matters and, notwithstanding the contentions to the contrary advanced by counsel for Ms Sia-Fox, I am of the view that the Official Assignee in this case, in carrying out her obligations to administer Ms Sia-Fox’s estate, acted properly in continuing her administration efforts even after the annulment application had been filed in August 2012.

[33]     The  next  issue  which  arises  therefore  relates  to  the  quantum  of  costs, expenses and disbursements sought now by the Official Assignee.

[34]     As to this, counsel for Ms Sia-Fox in his submissions raises a number of issues concerning work which was said to be undertaken by the Official Assignee. No real specifics of these complaints is provided to the Court however.

[35]     And, as I have noted above, there can be no doubt in my view that the administration  of this  bankruptcy up  to  the date of the  annulment  order was  a complex and difficult one with little co-operation or assistance provided to the Official Assignee by Ms Sia-Fox and her interests.   Indeed, her ongoing disputes with her previous partner and the liquidator of the judgment creditor would seem to have permeated her approach to all issues, including the view she took of the Official Assignee’s role in this matter.

[36]   That said, I reach the conclusion that the level of costs expenses, and disbursements sought here by the Official Assignee cannot really be seen as anything other than generally reasonable in all the circumstances.   Certainly there is a reasonable daily breakdown of cost charges provided to the Court by the Official Assignee here (with details of the Officer involved, time engaged and charges levied, and a brief comment as to the work undertaken).  And, in my view, it is difficult to escape the conclusion that Ms Sia-Fox by virtue of her lack of co-operation and the difficulties the Official Assignee deposes she caused in the administration of her estate, might well be seen as the author of her own misfortune in much of this.

[37]     On the issue of quantum however, there is one rider to all of this.   In my view, two complaints advanced before me by Mr Ryan as counsel for Ms Sia-Fox are justified.  These are first, the Official Assignee’s (unquantified) disbursement claim for external legal fees on the annulment application itself, and secondly, the disbursement claim for $327.90 taxi and rental car charges.

[38]     As  to  the  external  legal  fees  claim  on  the  annulment  application,  my  7

December 2012 judgment made it clear that costs on that application were to lie where they fell.   Although unquantified, in my view external legal fees on that application were likely to be in the region of $4,000.00, and a reduction of this amount is to be made from the Official Assignee’s $11,193.22 disbursement claim for these fees.

[39]     And, on the question of the taxi and rental car disbursement charge, there is no explanation of this of any kind advanced by the Official Assignee.  It is presumed also that it related to the attendance of external counsel at the annulment hearings in

Palmerston North, and as such it is also disallowed.   The $327.90 disbursement claim is also to be deducted from the total disbursement claim of $12,189.11.  These deductions of $4,000.00 and $327.90 will mean that a final reduced disbursement amount of $7,861.21 is to be allowed.

[40]     An order is now made therefore in terms of s 309(5)(a) Insolvency Act 2006 fixing the following amounts as reasonable remuneration for the Official Assignee’s services here:

(a)       As to the Official Assignee’s costs, the sum of $27,514.90;

(b)       As to the Official Assignee’s disbursements, the sum of $7,861.21. [41]       This leaves outstanding the question of costs owing to the judgment creditor.

As I have noted above, the principal amount specified in the original Bankruptcy Notice issued against Ms Sia-Fox by the judgment creditor totalled $19,853.58.  In addition, costs and disbursements ordered in favour of the judgment creditor on the original adjudication proceedings totalled $6,672.10.

[42]     I see no reason here why these costs of $19,853.58 and $6,672.10 should remain outstanding after the annulment order made earlier is sealed.  Concerns have been expressed over whether these amounts will be paid by Ms Sia-Fox, given difficulties which have been experienced in the past in obtaining payment of any amounts outstanding from her, and in my view those concerns are not overstated.

[43]     Under these circumstances therefore, I take the view that these costs amounts of $19,853.58 and $6,672.10 should be paid to the judgment creditor from the funds presently held by the Official Assignee. An order to this effect is now made.

[44] And, so far as the Official Assignee’s costs of $27,514.90 and disbursements of $7,861.21 fixed at [40] above are concerned, the order made at [32] of my 7

December 2012 judgment for annulment of Ms Sia-Fox’s bankruptcy is to lie in Court and not be released until such time as Ms Sia-Fox has provided sufficient funds to the Official Assignee to pay and settle these amounts in full.

‘Associate Judge D.I. Gendall’