Memelink v Official Assignee
[2022] NZHC 953
•12 May 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-A-TARA ROHE
CIV-2018-485-363
[2022] NZHC 953
UNDER the Insolvency Act 2006 IN THE MATTER
of an application pursuant to pt 9
BETWEEN
HARRY MEMELINK
Applicant
AND
THE OFFICIAL ASSIGNEE
Respondent
PHILLIP MCKINLEY
Interested Party
Hearing: 16 March 2022 Appearances:
D Livingston for Applicant P Chisnall for Respondent
J Pietras for Interested Party
Judgment:
12 May 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction and background
[1] Mr Harry Memelink was adjudicated bankrupt in August 2018. He applies pursuant to s 238 of the Insolvency Act 2006 for an order cancelling or reducing a determination made by the Official Assignee in relation to a claim against his bankrupt estate made by Mr Phillip McKinley. Mr McKinley has cross-claimed pursuant to s 239 for an order increasing the amount of the same determination. Both applications are opposed.
MEMELINK v THE OFFICIAL ASSIGNEE [2022] NZHC 953 [12 May 2022]
[2]The background can be summarised briefly.
[3] At all material times the trustees of the Link Trust (No. 1) owned a rural property near Paekākāriki. As at the date of this judgment the trustees are Mr Memelink and Ms Cisca Forster. At the time of some of the events that are relevant to this case Mr Memelink had a different co-trustee or different co-trustees. However, for present purposes, that is unimportant. Mr Memelink has been a trustee throughout. He says that in relation to the matters that are in issue in this proceeding he was acting as a trustee. Mr Memelink accepts that if Mr McKinley has a claim (which of course Mr Memelink does not accept) then he would be personally liable. But he says that in those circumstance he would be entitled to be indemnified from the trust assets. No one contradicts those propositions.
[4]The property consists of 113.25 acres on which there is a dwelling.
[5] As at May 2018 the dwelling had been unoccupied for some time, had apparently been vandalised and was in an extremely dilapidated condition.
[6] Mr Memelink and Mr McKinley both say that around this time they entered into an agreement concerning the farm and the dwelling, though their accounts of what they agreed are different.
[7] Mr Memelink’s evidence is that he agreed on behalf of the trustees that they would lease the property to Mr McKinley. He says that the arrangement required Mr McKinley to renovate the dwelling so that he and his family could live in it, and that, in recognition of the effort and expense that that would involve, Mr McKinley would be given a rent-free period. He says that it was agreed that in due course Mr McKinley would fatten cattle on the property, and that the parties would share equally in any profit from the farming operation. Mr Memelink says that he never agreed that Mr McKinley would be paid for his time or reimbursed for out-of-pocket expenses. Somewhat inconsistently Mr Memelink says that when Mr McKinley incurred expenses in relation to the renovation of the property, he and his fellow trustee or trustees “would consider [their] ability to claim expenses and GST for those repairs and the trust would also consider further rent reductions to reflect what he has done on a case-by-case basis so long as the trust approved the expense or further rent
reduction”. Even more inconsistently, Mr Memelink accepted when cross examined that the underlying arrangement was that any value that Mr McKinley contributed to the property would be returned to him in one way or another, by way of discounted rent, reimbursement or farming profits.
[8] Mr McKinley’s account of events differs from Mr Memelink’s in that he says that they agreed that the trustees would remunerate him for his time and reimburse him for his expenses connected with the renovation of the dwelling. He says that whilst the arrangement was to start immediately, he would only start paying rent — agreed at $2,000 plus GST per month — from 1 October 2018, the rent-free period reflecting the fact that the house was unliveable and the parties’ joint expectation that it would take him months to get it into a condition that would enable him and his family to move in.
[9] By the time Mr Memelink was adjudicated bankrupt in August 2018, Mr McKinley had carried out a substantial amount of work on the dwelling. Mr Memelink does not deny this, though he criticises the quality of the work done. About this time, Mr McKinley rendered an invoice for $175,801.65 in which he claimed compensation for his time and reimbursement of expenses. The trustees did not pay this invoice. Following Mr Memelink’s bankruptcy, Mr McKinley submitted a slightly adjusted claim for $167,301.65 to the Official Assignee. Ultimately the Official Assignee allowed a total of $24,999.92.
[10] In this proceeding, Mr Memelink is challenging the Official Assignee’s decision to allow any amount, and Mr McKinley is contending that at least $50,106.65 (for out-of-pocket expenses) should have been allowed.
The legal landscape
[11] This is not the first occasion in the context of this bankruptcy that a determination by the Official Assignee has been challenged. The Court dealt with earlier applications made by Mr Memelink and other parties on 16 September 2020. In my judgment dated 15 October 2020 I described the statutory framework and the Court’s role in dealing with such challenges.
[12] Rather than repeat the analysis, I set out the relevant paragraphs from my earlier judgment:1
The statutory framework
[5] The obligations of the Official Assignee in dealing with claims by unsecured creditors against bankrupt estates are dealt with in s 234 of the Insolvency Act which provides:
234 Assignee must examine creditor’s claim form
(1)The Assignee must examine each creditor’s claim form and the grounds of the debt, unless the Assignee considers it likely that no dividend will be paid to creditors.
(2)After examining the claim form, the Assignee must, as soon as practicable, do 1 or more of the following:
(a)admit the claim, in whole or in part:
(b)reject the claim, in whole or in part:
(c)require further evidence in support of the claim.
[6] There was general agreement between counsel as to the Official Assignee’s responsibilities under that provision. The Official Assignee is obliged to consider creditors’ claim forms and admit or reject the same, in whole or in part, unless she has concluded that there is unlikely to be any funds available to pay unsecured creditors. the Official Assignee may require additional evidence before making a determination.
[7] The authorities indicate that the onus is on the claimant, and that, whilst the Official Assignee is not obliged to engage in a minute analysis of each claim, before accepting a claim, or any part of a claim, she must be satisfied that there is sufficient supporting evidence.2
[8] The Official Assignee’s determinations pursuant to s 234 of the Insolvency Act are challengeable pursuant to s 238 which provides:
(1)Court may cancel creditor’s claim
(a)The court may make an order cancelling an admitted creditor’s claim or reducing the amount claimed, if it considers that the claim was improperly admitted.
(b)The court may make the order on the application of the Assignee, the bankrupt, or any creditor.
(c)The court must not make an order under subsection (1) unless the creditor who submitted the claim has been served with the application.
1 Memelink v The Official Assignee [2020] NZHC 2709.
2 Walker v Official Assignee [2014] NZHC 975 at [37].
[9] Applications pursuant to s 238 of the Insolvency Act raise de novo the issue of whether the claim is properly founded, and the Court must determine whether the Official Assignee’s determination and the process by which she reached that determination was reasonable.3 Again, the burden rests on the claimant to satisfy the Court that the claim is adequately supported.
[10] Where a creditor’s claim is founded, in part or in whole, on a judgment debt, the Official Assignee or the Court, as the case may be, will start from the position that a final judgment of a Court of competent jurisdiction is prima facie not something which should be looked behind, other than except in exceptional circumstances, such as allegations of fraud, collusion and miscarriages of justice.4
[13] Whilst that analysis referred to s 238, I see no reason why it should not also apply to applications under s 239.
[14] Thus, the Court’s task is to “… make its own assessment of the [claim] and to decide what weight, if any, is to be given to the Official Assignee’s decision…”.5
Official Assignee’s determination
[15] In dealing with the claim against Mr Memelink’s bankrupt estate by Mr McKinley, the Official Assignee needed to address two broad questions:
(a)whether the agreement between the parties included an obligation on the part of the trustees to compensate Mr McKinley for his time, reimburse his expenses or both; and
(b)quantum.
[16] The Official Assignee’s evidence is in the form of an affidavit sworn on 29 November 2021 by Mr Robert McDonald, the officer who, for the most part, was responsible for dealing with Mr Memelink’s bankrupt estate. It is apparent from Mr McDonald’s evidence that the Official Assignee’s focus was less on the first of those issues and more on the second. However, the Official Assignee clearly proceeded on the basis that the trustees had not agreed to pay Mr McKinley for his time but had agreed to reimburse him in respect of out-of-pocket expenses.
3 Holdgate v Bloccassa Ltd HC AK CIV-2005-404-002693, 4 July 2008 at [5]–[12].
4 See for example Wilkins v Official Assignee [2016] NZHC 1742 [46-[56].
5 Above n 3 at [12].
[17] In his affidavit Mr McDonald explained the approach taken in dealing with Mr McKinley’s claim. This was not a quick process. It generated considerable correspondence and detailed enquiries on the part of the Official Assignee. Ultimately this culminated in a letter dated 25 July 2021 informing Mr Memelink of the determination that the Official Assignee had made. For some reason, this letter was not received by Mr Memelink until 5 October 2021. However, nothing turns on this, as the Official Assignee had already determined the claim by 25 July 2021.
[18] In response to this notification Mr Memelink’s solicitors said that the trustees had:
evidence which indicates there is no debt with Mr McKinley, and that his claim is spurious and opportunistic. He has been avoiding service from the trustees for some time regarding a claim for damage done to the trust’s property.
[19]Mr Memelink’s solicitors went on to ask whether it was:
necessary to challenge this claim through the Court, or is it possible to simply share the trust’s side of this claim with you directly so you can reconsider the claim? We have until 26 October 2021 to file a challenge with the Court otherwise.
[20] Mr McDonald responded saying — correctly, in my view — “that once a claim has been admitted by the Assignee, the only way it can be challenged is through an application to the High Court”.
[21] In his affidavit, Mr McDonald said that he made a conscious decision to limit the extent to which he engaged with Mr Memelink. He said that at an early stage the Official Assignee had alerted Mr Memelink to the existence and quantum of the claim and had received nothing other than “some largely incoherent comments in various emails that suggested [that Mr Memelink] had a possible dispute with Mr McKinley’s claim, there was no concise reason provided by [him] at that time for a dispute”.
[22]Mr McDonald continued:
From my previous dealings with Mr Memelink, I decided that discussing the claim with him would not be helpful in terms of assisting my examination of the claim.
[23] He explained the basis upon which the determination had been made and concluded this section of his evidence in the following terms:
It is my view that I have acted in accordance with s 251 of the Insolvency Act 2006, and that both Mr Memelink and Mr McKinley have the opportunity to apply to the Court under ss 238 and 239 of the Insolvency Act 2006, to review the admission of the admitted claim.
[24] There may be room for more than one view as to whether the approach taken by Mr McDonald was justified.
[25] The issue is whether the Official Assignee should have done more to engage with Mr Memelink. It is certainly true that the Official Assignee was making a decision that would affect both parties, and the general principle is audi alteram partem — that a decision maker should hear both sides before reaching a conclusion.
[26] However, context is important. The statutory regime confers a broad discretion on the Official Assignee and the courts have been careful not to restrict this by treating determinations of the Official Assignee as if they are judicial, or even quasi-judicial, decisions. Ultimately, I have concluded that it was open to the Official Assignee to take the approach that was taken. The Official Assignee was entitled to take into account Mr Memelink’s initial response and other dealings with him. Mr Memelink’s modus operandi has been described elsewhere as involving “prevarication, disputation and obfuscation”.6 The evidence indicates that the administration of Mr Memelink’s bankruptcy has been complex and costly. Further, as Mr McDonald said, and Mr Chisnall re-emphasised in his submissions, it was always open to Mr Memelink to challenge the Official Assignee’s determination in this Court, as indeed he has done.
[27] As to quantum, Mr McKinley’s original claim lodged against the bankrupt estate was, as already said, for a total of $167,301.65. In his evidence, Mr McDonald broke this claim down into tabular form and I reproduce his table below:
Labour (renovation of house) and installation of utilities/services $100,800.00 Hire costs $3,500.00 Receipts for materials $48,571.00 Carpet $8,500.00 Total (65 cent discrepancy) $167,371.00
6 Memelink v Collins & May Law [2020] NZCA 62.
[28] It is apparent from the discrepancy in the figures that Mr McKinley miscalculated the total amount of his claim. When the individual elements were added together by the Official Assignee it came to $167,371.00, rather than $167,301.65. Ultimately, the Official Assignee allowed $24,999.92.
[29] Against that background, I turn to the matters that the Court must now determine.
[30] I record that the material that was before the Official Assignee is before the Court. In addition, the Court has the benefit of having heard from Mr Memelink, Mr David Barker, Mr Murray Wright, and Ms Cisca Forster, all of whom were cross-examined on their affidavit evidence.
The parties’ agreement
[31] I am satisfied that the Official Assignee was correct to conclude that the parties’ agreement was that the trustees would not pay Mr McKinley for his time but would reimburse him for out-of-pocket expenses incurred in relation to the refurbishment of the dwelling. My reasons for reaching that conclusion are as follows:
(a)it is by no means implausible to imagine an agreement between Mr Memelink and Mr McKinley that the latter would expend his time in the refurbishment of the dwelling to house himself and his family, provided that the trustees agreed to a rent holiday coinciding — more or less — with the period of refurbishment;
(b)as Mr Pietras submitted, it is far more difficult to imagine anyone in Mr McKinley’s position agreeing to incur substantial out-of-pocket expenditure in order to improve another party’s property with no entitlement to recover the same;
(c)there is evidence of exchanges between Mr Memelink and Mr McKinley in which Mr Memelink sought details of Mr McKinley’s expenditure. Mr Memelink appears to have anticipated having to explain why, if he did not agree that Mr McKinley would be reimbursed
for his expenses, he was interested enough in these to enquire about them. His pre-emptive explanation recorded at [7] above makes no sense. These exchanges were put to Mr Memelink in cross-examination as being an indication that such expenses could be passed on to the trustees by Mr McKinley. He refused to accept that. In my assessment, his responses were evasive. He seemed to suggest that the trustees sought this information with a view to securing some sort of tax benefit, but on the basis that they did not have to reimburse Mr McKinley. Those two propositions are mutually inconsistent — at least in the absence of tax fraud. Let me be quite clear. I am not suggesting that Mr Memelink or his fellow trustee or trustees were engaged in, or even contemplating, anything in the nature of tax fraud. There would be no basis for any such suggestion. What I am saying is that these implausible explanations for requesting details of the out-of-pocket expenditure are indicative of an arrangement whereby the trustees were to reimburse Mr McKinley for the same;
(d)various meetings that took place between the parties were recorded, and, with the agreement of all concerned, transcripts were before the Court. Although the relevant passages are somewhat delphic, the broad thrust of the exchanges suggest that Mr Memelink recognised an obligation to reimburse Mr McKinley for his expenses; and
(e)finally, when, around June 2018, the parties came to negotiate the terms of formal leasing arrangements, the draft documentation is consistent with the suggestion that the trustees were to reimburse Mr McKinley. The fourth schedule of the draft agreement to lease contains a ‘schedule of improvements being carried out by tenants’, which were to remain the property of the tenant until paid for by the landlord.
[32] Accordingly, like the Official Assignee, I approach the issue of quantum on the basis that the parties had agreed that the trustees would not pay Mr McKinley for his time, but would reimburse him for possible out-of-pocket expenses.
Quantum
[33] Although, as already said, the Official Assignee’s office consciously limited the amount of contact it had with Mr Memelink, it certainly cannot be said that Mr McKinley’s claim was not scrutinised closely, and I am satisfied that the process was fair and thorough.
[34] Mr McDonald’s evidence confirms that the claim which was lodged in late 2018 was not finally determined until mid-2021. Mr McDonald confirmed that preliminary enquiries were made of Mr McKinley as to the basis of his claim. The description he provided then coincides with his affidavit evidence in this proceeding.
[35] Mr McKinley provided the Official Assignee’s office with details as to the work he carried out and the expenses he claimed to have incurred in renovating the property. I do not understand any of this to be the subject of challenge. Mr Memelink’s argument is not that Mr McKinley did not spend time and incur expenses in relation to the renovation of the property. His primary contention is that he never agreed that the trustees would pay Mr McKinley for his time or reimburse him for the expenses.
[36] Mr McDonald was told by Mr McKinley that the relationship between the parties “disintegrated around the time of Mr Memelink’s bankruptcy”. He put that down to Mr Memelink being demanding and wanting serial changes to the work. He also appears to have complained that Mr Memelink started putting pressure on him to pay rent before the renovation work was completed which he suggested was inconsistent with their agreement.
[37] Having received Mr McKinley’s claim dated 2 July 2019, Mr McDonald describes further information being sought and ongoing correspondence and other communication between the Official Assignee’s office and Mr McKinley.
[38]He concludes this aspect of his affidavit evidence by saying that:
There was a lot of information provided and this took my team a significant amount of time to work through. In addition, we sought legal advice regarding how to deal with the claim.
[39] Mr McDonald goes on to confirm the Official Assignee’s determination of the claim. The Official Assignee allowed nothing for Mr McKinley’s $100,800 claim in respect of labour. Also disallowed was the lion’s share of the claim for reimbursement of expenses. In the end, all that was allowed was:
(a)an invoice dated 15 August 2018 for electrical work in the sum of
$8,953.38;
(b)an invoice dated 21 August 2018 in respect of plumbing work for
$4,796.09; and
(c)a proportion of an invoice dated 1 August 2018 for carpeting in the sum of $11,250.45.
[40] As I understand the position, the Official Assignee concluded that these were the only expenses that Mr McKinley could demonstrate to have been incurred solely for the purposes of the renovation.
Mr Memelink’s argument
[41] In his submissions on behalf of Mr Memelink, Mr Livingston submitted that there was no evidence before the Official Assignee or the Court that Mr McKinley had paid these three invoices, or that the items that they related to remained in the property. On those bases, he contended that they should not have been allowed (even if it had been agreed that Mr McKinley was to be reimbursed for his expenses).
[42] It is not correct to say that there was no evidence that Mr McKinley had paid the invoices. Mr McKinley’s evidence was very clear that he did, and, although Mr Memelink required Mr McKinley to be brought before the Court for cross-examination, in the end, he was not cross-examined and challenged on this.
[43] The Official Assignee was not in a position, and nor is the Court, to determine whether or not the items in question were in the property as at the date on which Mr McKinley and his family vacated it. The evidence is that Mr McKinley left the property on or about 16 December 2018. He admits having removed some items,
given the falling out between the parties, and because it was apparent to him that he was not going to be paid. The Official Assignee’s evidence is that, to the extent necessary, due allowance was made for the items removed. In particular the carpet that was removed resulting in Mr McKinley’s claim in respect of carpet being adjusted to reflect this.
[44] In my view, the Official Assignee was quite justified in concluding that Mr McKinley paid the relevant invoices, and nor in my view was it incumbent on the Official Assignee conclusively to establish that the items covered by the invoices remained on the property immediately after Mr McKinley had vacated it.
[45] More generally Mr Livingston submitted that the trustees obtained no benefit from the work done by Mr McKinley, essentially because of damage to the property that was discovered after he and his family had vacated it.
[46] This was based on an allegation that when Mr McKinley left the property he damaged it. Indeed, Mr Memelink said in his evidence that, beyond removing items, Mr McKinley actively vandalised the property.
[47] Mr McKinley denied damaging the property. He admitted that the property was messy when he left. He also accepted that he left abusive messages for Mr Memelink. But he denied doing any damage beyond removing certain items including the carpet as already referred to.
[48] One of the witnesses called by Mr Memelink, Mr John Wright, deposed to the state of the property when he inspected it some time after Mr McKinley vacated it:
9Electrical fittings had been ripped out of the walls and the light fittings ceiling which in turn damaged the jib around the light fitting.
10The kitchen cabinetry had to be reassembled as it had been dismantled ready to be taken away.
11The electrics, switchboard, lights and plugs had to be repaired by a certified electrician and the account for this was over $3000
12We had to replace the water pump with had been removed, repair some the piping in the house which had been ripped out.
13The hot water services had been removed, califont, regulator and gas tanks outside had been removed and the piping in the ceiling had been bent and cut.
14The laundry had been stripped to the wall, no tub, no taps.
[49] In the end, the evidence appears to me to establish that Mr McKinley carried out a considerable amount of work on the property. When he vacated the property he removed certain fixtures and fittings which no doubt diminished the value of the work to some extent. In due course it was discovered that the property had been damaged. However, there is no reliable evidence as to who was responsible for this damage and when any damage was done.
[50] To the extent that the value of the work carried out by Mr McKinley was diminished by damage, Mr Wright confirmed that the property was not secure. It is thus quite possible that any such damage occurred after Mr McKinley had left the property, particularly as the property had been the subject of vandalism in the past.
Mr McKinley’s application
[51] In advancing Mr McKinley’s application Mr Pietras submitted that the Official Assignee had applied an “impossibly high standard”.
[52]Mr Pietras refers me to Walker v The Official Assignee7 in which Whata J said:
[37] Given the very straightforward scheme of sub-pt 9, and the bankruptcy context generally, I consider that the reference to “evidence” simply contemplates that the creditor will provide cogent information, or proof, to enable the Official Assignee to examine the claim for purposes of commencing the claim’s process.
[53] As Mr Pietras said Whata J went on in that case to reject a submission that the claim must be “certain”.
[54] In my view, Walker v The Official Assignee is nothing more than an orthodox application of well-established principles. The fact that the legislation refers to “evidence” does not require the Official Assignee to be able to demonstrate that a
7 Walker v The Official Assignee [2014] NZHC 975 at [37].
claim was certain to any particular standard. All the law requires is that the Official Assignee has evidence which logically demonstrates the validity of the claim.
[55] I accept Mr Pietras’ overarching submission that the Official Assignee was only obliged to consider the appropriate material and make a determination which flowed logically having regard to that material.
[56] Mr Pietras submitted that in this case “there was no logical reason why the Official Assignee approved Mr McKinley’s claims for electrical and plumbing works, and carpet costs, but declined his claims for equipment hire, building materials, fuel costs and waste disposal”.
[57] It is true that those items are all out of pocket expenses and in that sense items in respect of which Mr McKinley might legitimately have had a claim.
[58] However, it does not appear to me to follow, as Mr Pietras submits, that those items are “all materially improve the value and condition of the property”.
[59] In his evidence, Mr McDonald explained why the Official Assignee did not accept that these expenses were expenses that were necessarily connected to the property in the same way as the expenses that were allowed.
[60] In short the Official Assignee concluded that Mr McKinley had not demonstrated that costs incurred in respect of equipment hire, building materials, fuel costs and waste disposal were entirely, or even predominantly, connected to the property. I agree.
Summary
[61] In the end, the view I take is that the Official Assignee applied an appropriate degree of rigour to the assessment of the claim. The conclusions the Official Assignee reached appear to me to be well within the range of those conclusions which were reasonably available.
[62] In short, I am satisfied that the determination made by the Official Assignee in relation to Mr McKinley’s claim was correct.
Outcome
[63] For those reasons, I am not prepared to depart from the Official Assignee’s determination. Both applications by Mr Memelink and Mr McKinley are therefore dismissed. The Official Assignee’s determination in relation to the claim against Mr Memelink’s bankrupt estate is confirmed.
[64] It appears to me that at least as between Mr Memelink and Mr McKinley both parties have been successful and unsuccessful in equal measure, and costs should be left to lie where they have fallen. The Official Assignee’s position may be different. However, as I have not heard from counsel, I reserve costs. I expect that counsel will be able to resolve them. If not they may come back to the Court by memorandum in the usual way.
Associate Judge Johnston
Solicitors:
Livingston & Livingston, Wellington for applicant
The Office of the Official Assignee, Wellington for respondent Thomas Dewar Sziranyi Letts, Lower Hutt for interested party
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