Kemeny v Official Assignee

[2014] NZHC 443

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2011-441-711 [2014] NZHC 443

UNDER  the Insolvency Act 2006

IN THE MATTER             of an appeal from Assignee's decision

BETWEEN  GABOR KEMENY Applicant

ANDTHE OFFICIAL ASSIGNEE Respondent

Hearing:                   4 June and 29 October 2013

Counsel:                  D M Lester for Applicant

D G Dewar for Respondent

Judgment:                12 March 2014

JUDGMENT OF GODDARD J

This judgment was delivered by me on 12 March 2014 at 3.00 pm, pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

GCA Lawyers, Christchurch for Applicant

Thomas Dewar Sziranyi Letts for Respondent

KEMENY v THE OFFICIAL ASSIGNEE [2014] NZHC 443 [12 March 2014]

Introduction

[1]      This is an  appeal by Mr Gabor Kemeny,  of  Sydney Australia, against a decision of the Official Assignee in Bankruptcy of the estate of Mrs Janice Durney, formerly of Hawkes Bay.   Mr Kemeny claims to be the owner of chattels in the possession of Mrs Durney at the time of her bankruptcy.  In the absence of proving his  claim,  property  in  the  chattels  otherwise  passes  to  the  Official  Assignee. Mrs Durney’s  husband  at  the  time  of  her  bankruptcy  (now  deceased)  was  Ray Durney.  Bronwynne, the daughter of Mr and Mrs Durney was at all material times the live-in partner of Mr Kemeny.

Chronology of events

[2]      The Durney family was not united.  In 2007 there were acrimonious dealings, including litigation, between Ray Durney and his daughter Bronwynne.   Mr and Mrs Durney also separated, and became embroiled in a bitter relationship property dispute involving, on Mrs Durney’s side, solicitors and counsel in both Sydney and Auckland.

[3]      The dispute between Mr and Mrs Durney became extremely expensive and by August  2008  legal  fees  in  excess  of AUD275,000.00  had  been  incurred  by Mrs Durney with her Australian lawyers.  By then her lawyers on both sides of the Tasman were requiring payment of their outstanding accounts to be brought up to date.

[4]      Events alleged to have taken place between 12 August and 3 November 2008 gave rise to this litigation.   Mr Kemeny’s original account was straightforward; namely, that he agreed to pay Mrs Durney’s outstanding fees by way of advance to her, secured by a letter from her dated 12 August giving him security over her chattels, as listed therein.  It is common ground that on 22 August Mr Kemeny paid to Mr Durney’s Sydney solicitors AUD275,456.27, which amount was expended on the various billed fees outstanding.  The Official Assignee accepts this was a loan, not a gift.

[5]      While there had been some contemplation that the loan would be repaid from the proceeds of the dispute, that was not to be.

[6]      In  support  of  his  claim,  Mr  Kemeny  relies  on  a  letter  bearing  date

3 November  2008,  in  which  Mrs  Durney  set  out  her  inability  to  continue  her matrimonial dispute with Ray Durney, and acknowledges her inability to repay the advance from Mr Kemeny.  In lieu, she gives Mr Kemeny ownership in the chattels listed in the letter.

[7]      It is on that basis that Mr Kemeny has disputed title as against the Official

Assignee and declines to claim as a creditor in the estate.

[8]      It is now plain that the sequence of events, both in 2008 and later, was not as simple  and  straightforward  as  Mr  Kemeny  first  claimed  them  to  be.    In  2008

Mr Moss, then a solicitor employed as a staff member by Mr Kemeny’s Sydney solicitors, was engaged in assisting resolution of the outstanding fees problem.  One of the problems  was  the absence of  any contemporary correspondence  between Mr Moss  and  Mr  Kemeny.     It  appears  that  Mr  Moss  always  dealt  through Bronwynne, who was living with Mr Kemeny.  She was at the time clearly wishing to assist her mother.  I record that, although Bronwynne clearly played a significant role, she has taken no part in these proceedings.   She and Mr Kemeny apparently parted company in November 2011 and from that point became embroiled in their own relationship property dispute.

[9]      Mr  Moss  was  instructed  that  Mr  Kemeny  required  security  before  he advanced his money.  By 19 August Mr Moss had prepared a draft deed, which he regarded as incomplete because he had no clear instructions as to the incidence, if any, of interest on the loan.  Importantly, Mr Moss was not told of any intention that there would be a chattels security or told of the letter of 12 August.  The Deed, as prepared by him, provided for security only by way of a charge against real estate. However,   Mr   Kemeny   regards   the   correspondence   between   Mr   Moss   and Mrs Durney’s New Zealand counsel, Mr Dale, as supporting his claim to the chattels.

[10]     That correspondence, however, makes no reference to any chattels security. Mr Dale received a letter from Mrs Durney dated 15 August 2008, confirming the intended transaction was a loan.  However, that letter made no mention of security. It is also of significance that Mrs Durney made no mention to Mr Dale that only three  days  previously  she  had  written  to  Mr  Kemeny,  not  only  acknowledging liability but also pledging her chattels.   Mr Dale said that had she advised him of this, he would have been concerned for her vulnerability and issues over her relationship property with Ray Durney and would have advised her accordingly.  It seems self-evident that if Mrs Durney had written to Mr Kemeny acknowledging liability, as Mr Kemeny contends, the letter to Mr Dale of 15 August would have had no point, nor was there reason for Mrs Durney to have written it.

[11]     In  2010  Ray  Durney  was  adjudicated  bankrupt.   At  a  meeting  with  the Official Assignee on 4 June 2010, and at all times since, both he and Mrs Durney have maintained that the chattels are Mrs Durney’s separate property. A matrimonial property  agreement,  executed  by Ray  and  Mrs  Durney  on  24  November  1986, confirmed Mrs Durney as the separate owner of all their household furniture and effects.

[12]     An email from Mr Moss dated 25 August 2010 was produced in evidence. By that date Mr Moss was employed by Mrs Durney’s Christchurch solicitors, GCA Lawyers.  The email set out instructions given by Ray Durney about the proposed purchase of a shipping business.   It commences, “Hi Gabe” but was sent to Bronwynne’s email address, as Mr Moss apparently still did not have Mr Kemeny’s address. The email records that Mr Kemeny had been discussing the proposed purchase with Ray Durney and asks that he (Mr Kemeny) assist in obtaining finance for the purchase.  The email continues with the advice that if finance is obtained with Mr Kemeny’s assistance, Mrs Durney will put her furniture up as security for the guarantee to be given.

[13]     Mr Kemeny’s evidence is that he never saw that email and would never have entertained the proposition if he had. There was, however, also produced in evidence a letter dated 23 September 2010, signed by Mr Kemeny, confirming that $50,000 deposit for the shipping company purchase would be provided on settlement.

[14]     Various other references to the chattels in 2010 and 2011 were canvassed in evidence, all inconsistent with any concept of ownership or interest in the chattels by Mr Kemeny.

[15]     The  next  significant  document  is  a  letter  dated  23  March  2011  on  the letterhead of a Hawkes Bay firm of solicitors, signed by Ray and Mrs Durney, purporting to acknowledge “the verbal arrangement we made early in 2008”, that “you” (the addressees are Mr Kemeny and Bronwynne) would hold security over the chattels that were part of the furniture at Chesterton.  A list was to be made.  That letter is inconsistent with the security letter and list of chattels dated 12 August 2008 and with the assignment of ownership of 3 November 2008.  Mr Kemeny did not react to that letter, but in October 2011 the Official Assignee drew it to his solicitors’ attention, without response.

[16]     Mrs Durney was adjudicated bankrupt in July 2011.  Mr Kemeny was aware of the possibility but took no steps to protect his position in relation to the chattels. On 26 July his Christchurch solicitors advised the Official Assignee that they acted for Mr Kemeny and Bronwynne.  The letter says that Mr Kemeny and Bronwynne held general security over all Mrs Dale’s personal chattels to secure an advance of approximately $275,000.   It  was not until  23 August that Mr Kemeny sent his solicitors the documents dated 12 August and 3 November claiming ownership.  The claim was formalised to the Official Assignee on 26 September.

[17]     The above summarises the background of events and the essential elements and   difficulties   in   the   claim.   There   were   several   other   documents   and correspondence referred to but nothing that establishes certainty one way or the other.

The Official Assignee declines the claim

[18]     The Official Assignee declined the claim to ownership in a letter dated 11

October 2011.   That letter is now relied on as setting out the Official Assignee’s position.  It refers to Mrs Durney’s claim to ownership at the meeting on 4 August

2010; to the letter of 23 March 2011; to an assertion by Mrs Durney on 28 July 2011 that the money had originally been a gift, changed into a loan when she reconciled

with Ray Durney; and that she had verbally agreed to give security.   It notes inconsistencies  in  Mr  Kemeny’s  position,  and  that  Mrs  Durney  had  sold  some chattels and tried to sell others.

The issue

[19]     The sole issue is whether the letters  of 12 August  and 3  November are genuine.  If they are accepted as such Mr Kemeny is the owner of the listed chattels and has no claim against the estate.  If they are not accepted, the Official Assignee is prepared to consider a proof of debt from Mr Kemeny claiming to be an unsecured creditor.   The Official Assignee’s position is that, on the balance of probabilities, security was not given on 12 August 2008.   The contemporaneous documentary evidence is said to be inconsistent with this.  Likewise, the Official Assignee submits the claimed transfer of ownership did not happen; and the subsequent conduct of Mr Kemeny and Mr and Mrs Durney is inconsistent with Mr Kemeny’s claim.

Applicable law

[20]     The legal principles are not in dispute.  The applicant correctly addresses the test and the distinction to be drawn between decisions that an Official Assignee exercises pursuant to a discretion and questions of fact that ought to be determined on a de novo basis.   Notwithstanding the matter proceeds de novo, the Court is required to have due regard to the Official Assignee’s decision in exercise of the statutory duty of administering the bankrupt’s estate.  The Court is, however, entitled to make its own assessment of the matter.   A good example of the application

principle is in Holdgate and Blocassa Limited v The Official Assignee.1

[21]     It is accepted that what is called for is an assessment of the evidence and to determine whether or not, on the balance of probabilities, Mr Kemeny, the applicant,

is the owner of the chattels and/or holds security in respect of them.

1      Holdgate v Official Assignee HC Auckland B1545/96, 22 May 2001.

Discussion

[22]     The summary of relevant events set out above is the basis for the Official Assignee doubting the veracity of the claim.   Suffice to note that the evidence in support of Mr Kemeny’s claim consists of the existence of the two letters; the accepted fact of his payment to Mrs Durney’s Sydney solicitors; and the contents of his affidavits, confirmed in oral evidence.

[23]     Against Mr Kemeny’s claim is:

(a)      the absence of any contemporary knowledge by any of the lawyers, particularly Mr Moss and Mr Dale, of the chattels security;

(b)      Mrs Durney’s concealment of the assignment from her own counsel,

or at least failure to disclose it to him;

(c)      the   letter   of   23   March   2011   to   Mr   Kemeny,   albeit   through Bronwynne, offering chattels as security, followed by Mr Kemeny offering to put up the requested loan;

(d)      Mr Kemeny’s solicitors’ presentation of the claim, as then formulated,

on 26 July.

[24]     As to what appears to be various side issues, I discount anything Mrs Durney and Ray have said or done since 2008.  Their conduct is consistent with Mrs Durney never having told Ray of the advance by Mr Kemeny or of any security.  If there was a security and/or assignment, as Mr Kemeny contends, Mrs Durney could not have honestly sold chattels (unless those sold were not in the security list).

[25]     Clearly Bronwynne was in a position to have contributed to the pool of evidence surrounding this issue, but she did not appear as a witness for either party. As she was the possessor of the critical letters she could potentially have contributed much to the hearing.   Without the benefit of hearing from either Bronwynne or Mrs Durney,  the  Court’s  decision  must  effectively  turn  on  the  evidence  of Mr Kemeny.  However, much of the apparent inconsistency between Mr Kemeny’s

stated position in 2008 and that of the professional advisers could be explicable if Mrs  Durney  and  Bronwyn  had  concealed  the  pledge  of  the  chattels  from  the advisers.   There was no reason advanced in evidence as to why they should have done this.

[26]     The claimed concern by Mrs Durney in March 2009 about legal fees in Australia is not shown to be related to the non-payment or otherwise of fees incurred up to August 2008; and issue is taken as to whether the legal fees then incurred were all the direct responsibility of Mrs Durney.

Conclusion

[27]     I take the view that there was a loan to Mrs Durney of the amount stated, related to legal fees and that nothing turns on the accounting in the Sydney solicitors’ ledgers of the disbursement of that loan.

[28]     Turning now to Mr Kemeny’s evidence, I find the following factors to be

relevant.

[29]     First, in his first affidavit, Mr Kemeny said that he made the advance on the strength of the letter of 12 August 2008 and that he accepted the assignment of 3

November in repayment of the loan.  But in cross-examination he said he had not acted on the letter of 12 August, as he had considered it insufficient and he had instructed his solicitors that he wanted a proper security document.  He said he had required liability for interest to be included.  It is clear that the solicitors had in fact prepared a Deed incorporating security over real estate but making no reference to chattels; and that they were awaiting but had no clear instructions about interest.

[30]     Second,  the  correspondence  of  26  July  2011  makes  it  clear  that  GCA Lawyers were acting for Mr Kemeny and Bronwynne at that time, and had been directly instructed by Bronwynne, if not Mr Kemeny.  Both the letter to the Official Assignee and the advice given to Bronwynne, as discussed with her, were totally inconsistent with the claim for a prior assignment of the chattels.  Mr Kemeny and Bronwynne had not by that stage terminated their relationship.

[31]     Third, Mr Kemeny was cross-examined at length about his knowledge of the letters and when he saw them.  He was finally adamant that he had seen them when they were said to have been written, in 2008, but he had no clear explanation, given that he and Bronwynne were together in July 2011, as to why they were not made available to his solicitors until 23 August 2011.     There was no suggestion that Bronwynne was involved in this.   Mr Kemeny acknowledged he was aware of the issue about the chattels, but he is unclear as to when.  There is no explanation of the difference between his position as deposed in his first affidavit, that the letter of

12 August was a sufficient security for him to make the loan, and his evidence in cross-examination that he required further security.  I note the fact that he did make the loan without receiving the further security, but this remains unexplained.

[32]     Fourth, the originals of the letters have never been produced.  This is said to be because they are in the possession of Bronwynne, who for some unexplained reason seems to have provided Mr Kemeny with copies, at an indeterminate time, but has not produced the originals; nor was she summonsed to do so.

Result

[33]     This has been a somewhat difficult and quite finely balanced case.   The evidence is neither compelling nor clear-cut either way.  However in the end there is simply no clear evidence to suggest that events occurred as Mr Kemeny claims. Based on the competing documentation and my assessment of Mr Kemeny when cross-examined I am not persuaded that the chattels were either pledged or assigned to him in 2008.  The appeal therefore fails, except to the extent that the payment to the Sydney solicitors is correctly to be regarded as an unsecured advance to the bankrupt.

[34]     The appeal is dismissed.

Costs

[35]     The Official Assignee has now accepted that a loan was advanced and thus Mr Kemeny could be viewed as having been partially successful.  On that basis, and in light of the somewhat finely balanced outcome, I decline to make any order for costs.

Goddard J