Mawhinney v Environment Court

[2015] NZHC 1663

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2503 [2015] NZHC 1663

IN THE MATTER

of the Judicature Amendment Act 1972

and of the Resource Management Act
1991

BETWEEN

PETER WILLIAM MAWHINNEY Applicant

AND

ENVIRONMENT COURT First Respondent

AUCKLAND COUNCIL Second Respondent

Hearing:	On the papers
Counsel:	Applicant in person P Moodley for Second Respondent G A D Neil for Official Assignee
Judgment:	16 July 2015

JUDGMENT OF ELLIS J

This judgment was delivered by me on 16 July 2015 at 4 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:

G A D Neil, Meredith Connell, Auckland

P Moodley, Brookfields Lawyers, Auckland

Copy to Applicant

MAWHINNEY v ENVIRONMENT COURT [2015] NZHC 1663 [16 July 2015]

[1]      On  24  February  2015  Mr  Mawhinney  was  adjudicated  bankrupt  on  the petition of Auckland Council.   The debt owed by Mr Mawhinney to the Council arose from a costs award made by the Environment Court on 14 June 2012 in proceeding ENV-2006-AKL-0005191   (the costs decision).2

[2]      Mr Mawhinney says, and on the basis of the evidence he has filed, I accept, that the costs order was made against him in his capacity as the (sole) trustee of the Waitakere Forest Land Trust (the Trust), as it was in that capacity that he participated in the proceedings in the Environment Court.   Mr Mawhinney is named the “appointor”  of  the  Trust  and,  in  turn,  the  appointor  is  said  to  be  one  of  the

discretionary beneficiaries of the Trust.3

[3]      The present proceeding, in which Mr Mawhinney seeks judicial review of the costs  decision,  was  commenced  in  September  2014,  prior  to  his  adjudication. Mr Mawhinney’s application for a stay of execution of the costs decision pending determination    of    the    judicial    review    proceeding    was    dismissed    on

18 November 2014.4

[4]      On 4 November 2014, the Council applied for security for costs against Mr Mawhinney in the judicial review proceeding.  That application was scheduled for a hearing on 18 March 2015 before her Honour Justice Peters.   During the hearing the Court was advised of Mr Mawhinney’s recent adjudication.  Peters J then directed  the  Official Assignee  to  file  and  serve  a  memorandum  setting  out  her position in relation to the judicial review litigation.

[5]      The Assignee duly filed a memorandum advising the Court of her views:

(a)       that Mr Mawhinney had no standing to pursue the present proceeding;

and

1      Formerly RMA886/98.

2      Mawhinney v Auckland Council [2012] NZEnvC 117.

3      The other discretionary beneficiaries are said to be the appointor’s spouse; his children and grandchildren or any “more remote issue”; any person related by blood, marriage, or adoption; any trust/scheme/plan established by any person for the provision of benefits to a beneficiary; or anyone the appointor appoints. There are no final beneficiaries.

4      Mawhinney v Environment Court [2014] NZHC 2872.

(b)      that she did not propose to pursue the proceeding in his stead.

[6]      The position expressed in [5](a) was based (inter alia) on dicta from Re

Wilson ex parte UDC Finance Ltd, where Tipping J said:5

… What the Applicant wants to do is to be able in her own name to attack the judgment debt. It seems clear to me from the decision of the English Court of Appeal in Boaler v. Power [1910] 2 KB 229 that following an order for adjudication the right to attack a judgment debt vests in the official Assignee in bankruptcy. Indeed the point is put even more strongly in the judgment of the English Court of Appeal where at page 239 Farwell, L.J. says:—

“It is open to the Court in bankruptcy, if it thinks fit, to allow the debtor to contest in the Bankruptcy Court the validity of the petitioning creditor's judgment on the ground of fraud, collusion, or for any other sufficient reason: In re Flatau (1888) 22 QBD 83. But this is the only way in which the bankrupt can contest it: the adjudication, while it stands, is conclusively binding on him: he cannot contest it in any other Court on the ground of fraud or on any other ground.”

That of course demonstrates that once the order for adjudication is made, the bankrupt’s powers to contest the debt are gone and if there is a wish and validity in the proposition that the debts should be contested it is the Official Assignee who must do so.

[7]      The principal  reason  given  for  the position  expressed in  [5](b) was  that Mr Mawhinney’s   bankrupt   estate   currently   has   no   available   assets.      More particularly, the Assignee advised that:

(a)      she is not holding any funds for Mr Mawhinney’s estate;

(b)by Mr Mawhinney’s own admission, the only property owned by him is that which is owned by him in his trustee capacity.  He has said that his personal estate does not extend to any other asset or thing of monetary value;  and

(c)      if the costs order is a trust debt incurred by Mr Mawhinney as trustee, his right of indemnity has vested in the Assignee.

5      Re Wilson ex parte UDC Finance Ltd HC Christchurch B348/89, 5 December 1989.  See also Commissioner of Inland Revenue v Neal HC Auckland B1719/97, 2 October 1998 and Hunter v Commissioner of Inland Revenue (2000) 19 NZTC 15,722 (HC).

[8]      The matter was then called again in the judicial review list as directed by Peters J.  The Council urged me to dismiss the substantive claim on the basis of the Assignee’s advice.   But after hearing briefly from Mr Mawhinney I granted him permission to file further submissions addressing issues raised by the Assignee’s memorandum.   It was agreed that I could then determine what course the matter should take on the basis of the papers filed.

[9]      Mr Mawhinney subsequently filed submissions accordingly.   His essential position was based on s 104 of the Insolvency Act 2006, which provides:

104      Property held in trust by bankrupt

Property held by the bankrupt in trust for another person does not vest in the

Assignee.

[10]     He said that the right to bring and pursue the judicial review proceedings was property that he holds on trust for the Trust.   The proposition that such a right is “property” was based on a statement made by Wylie J in the course of an (oral) judgment given in relation to another aspect of this matter, in which his Honour

said:6

[23]      Section 64(1)(e)  and 101(1)  of the Insolvency Act 2006 provide that, on adjudication, all property belonging to a bankrupt, or vested in a bankrupt, vests in the Assignee, without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished.

[24]      The word “property” is defined in s 2 of the Act. It means property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests and claims of every kind in relation to property however they arise.

[25]      The definition is clearly wide enough to catch such rights as Mr

Mawhinney may have under the judicial review proceedings.

[11]     In that case, Wylie J was concerned with an application for interim relief by which Mr Mawhinney sought to restrain the Council from taking any action to enforce  the  costs  order  until  the  judicial  review  proceeding  was  determined. Mr Mawhinney had submitted in that context that, if he was adjudicated bankrupt, it

was “most unlikely” that the Assignee would either herself pursue the application for

6      Mawhinney v Environment Court, above n 4.

review or allow Mr Mawhinney to pursue it.   That submission has proved to be accurate.

[12]     It is, however, apparent that at the point Wylie J’s judgment was issued, the distinction  now sought  to  be drawn between  rights  accruing  to  Mr Mawhinney personally and his duties and obligations as a trustee had not been raised.

[13]     In   any  event,   following  the  filing  and   service  of  Mr  Mawhinney’s submissions, the Assignee filed a further memorandum in which she submitted that the right to bring review proceedings was not “property”, and referring the Court to a number of authorities, to which I shall revert shortly, below.

Discussion

[14]     I confess that I have not found the issues raised both directly and indirectly by Mr Mawhinney to be straightforward.   In particular, there appears to be a divergence of view and analysis in the (mainly overseas) authorities in relation to the question of whether a cause of action is “property” which vests in the Assignee upon

adjudication.7

[15]     In the end, however, I consider that the matter is more usefully approached in a slightly different way.   The starting point is that (as the Assignee submitted in the present case) the authorities are clear that a bankrupt has no standing to appeal the judgment that gave rise to the debt which led to the bankruptcy.8   The most cogent reason for that is not that the right to appeal is itself property that forms part of the bankrupt’s estate which has vested in the Assignee, but that the bankrupt has ceased

to have any interest in either his assets or liabilities (including the judgment debt) and, thus, in the outcome of any such appeal.  Accordingly it is, in my view, quite clear that Mr Mawhinney in his personal capacity is not permitted to appeal the

Environment Court costs’ decision because he no longer has any relevant interest in

7      See  in  particular  Cummings v  Claremont Petroleum NL  (1996) 185 CLR 124; McNulty v Revenue and Customs Commissioners [2012] STC 2110, [2012] UKUT 174 (TCC); and In re GP Aviation Group International Ltd (in liquidation) [2013] EWHC 1447, [2014] 1 WLR 166 (Ch).

8      Heath v Tang [1993] 1 WLR 1421; [1993] 4 All ER 694 (CA).

his liability for that debt.  But that is not, of course, what he is seeking to do in these present proceedings.

[16]     It can next be observed that the same analysis has been applied in the context of proceedings in which a bankrupt has sought to challenge the judgment giving rise to the bankruptcy debt by way of judicial review proceedings: R (Singh) v Revenue and Customs Commissioners.9   In that case, the  issue was whether the bankrupt taxpayer was entitled to bring judicial review proceedings against a decision of the Revenue, which his trustee did not wish to pursue.   The Judge considered that

whether Mr Singh  could bring proceedings  depended  on  whether the  right  was personal to him:10

If it is such a right, then it not only remains vested in Mr Singh but he, and he alone, has the right to assert it. In contrast, if it is not a personal right, he cannot assert it because he has no interest in the outcome of his challenge any more than he would have in the result of a tax appeal if a Determination or assessment had been made.

[17]     Mr Singh submitted that the right to seek judicial review was founded in important constitutional principle which could not be ousted or curtailed by insolvency  law;  his  bankruptcy  was  therefore  irrelevant  to  whether  he  had  a sufficient interest to apply for review.11   But the Judge disagreed.  He said:12

Whether a particular application seeking judicial review is personal in that sense depends on the nature of the review which is sought. … Where the judicial review relates to the tax liability of the bankrupt, as in the present case, the ultimate object in bringing the application is to reduce the tax liability.  Where the tax liability is a provable debt, as in the present case, the bankrupt has no more interest in the result of the judicial review than he would have in the result of an appeal were one available.  The right to bring judicial review is not a personal claim in this type of case.

[18]     I accept that there are arguments potentially to be made against this analysis. In particular it is not clear that the Heath v Tang distinction between “personal” and other rights/causes of action (upon which the Judge’s reasoning was partly based) is

applicable  in  New  Zealand.    New  Zealand  also  arguably  takes  a  more  liberal

9      R (Singh) v Revenue and Customs Commissioners [2010] STC 2020, [2010] UKUT 174 (TCC).

10 At [40]. The distinction drawn between “personal” and other causes of action derives from the

decision in Heath v Tang, above n 8.

11 At [41].

12 At [42].

approach to the question of standing in judicial review proceedings.  And while it might be said that the subject matter of the application for review is the bankruptcy debt, there is arguably also a wider interest at stake, the interest in ensuring that the Executive branch of government and inferior Courts and tribunals act lawfully, fairly and reasonably.

[19]     But in circumstances such as the present I consider that those arguments would not prevail.  In my view an attempt to collaterally attack the costs decision by way of judicial review proceedings (where, by virtue of his bankruptcy, the subject of the costs decision has no right of appeal) would be tantamount to an abuse of process.  And the wider public interest (to which I have referred in the preceding paragraph) can be adequately protected by the Assignee (who may, in appropriate circumstances,  elect  to  continue  the  judicial  review  proceedings).    I  note  that Tipping J’s dicta in Re Wilson appear, in any event, to be wide enough to preclude a

challenge by way of judicial review.13

[20]     That is not, however, the end of the matter.  That is because it seems to me that Mr Mawhinney’s personal interest in the costs’ debt (which no longer exists) is different, and separate, from the interest in the debt that is at least theoretically possessed by the beneficiaries of the Trust.  That discrete interest arises by virtue of the fact that the Assignee potentially has a right to be indemnified for the costs debt

out of the assets of the Trust.14  And so it may be that Mr Mawhinney as trustee has a

duty to protect those assets, and to represent that separate interest.15

[21]     For  that  reason  I  am  unable  to  accept  the  proposition  that,  in  the circumstances  of  this  case,  Mr  Mawhinney’s  bankruptcy  precludes  him  from pursuing the judicial review proceedings in his capacity as trustee of the Trust.  The

fact that the Trust has no separate legal personality has no bearing on that view.

13     At [6] above.

14     Whether the Assignee is entitled to such an indemnity has not been raised as an issue, but it

might turn on  whether the  manner of Mr  Mawhinney’s pursuit of the  Environment Court proceedings was such that the costs of those proceedings cannot be said to have been properly incurred by him.  In that respect I note that the costs were awarded in the Environment Court primarily because Mr  Mawhinney’s “vacillating intransigence” had  resulted in  the  Council incurring unnecessary cost: Mawhinney v Auckland Council, above n 2, at [33]–[37].

15     Although Mr Mawhinney’s bankruptcy might be grounds for his removal as trustee under s 51 of

the Trustee Act 1956, that has not, to my knowledge, occurred.

Accordingly I consider that the Assignee has no say in that matter; the Trust’s assets and liabilities, and in particular the potential obligation to indemnify, remain with the Trust, notwithstanding Mr Mawhinney’s bankruptcy.16

[22]     This  conclusion  does  not,  of  course,  mean  that  it  is  consistent  with Mr Mawhinney’s trustee duties to pursue the application for review and, indeed, it is difficult to believe that it is.  Nor does it mean that security for costs should not be ordered or that grounds do not exist for Mr Mawhinney’s removal as a trustee. Rather, the position simply is that the proper course is for the application for security now to be determined.

[23]     I direct the Registry to reschedule a hearing in that regard as soon as possible accordingly.

“Rebecca Ellis J”

16     This conclusion does not turn on the right to bring review proceedings being Trust “property” or

the application of s 104.