Official Assignee at Hamilton v Fawcett

[2014] NZHC 25

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-28 [2014] NZHC 25

IN THE MATTER             of the bankruptcy of Christopher Louis

Fawcett

BETWEEN  THE OFFICIAL ASSIGNEE AT HAMILTON

Plaintiff

ANDCHRISTOPHER LOUIS FAWCETT First Defendant

ANDJEC NO 1 LIMITED Second Defendant

ANDJEC NO 3 LIMITED Third Defendant

ANDPETER MATTHEW GRANVILLE Fourth Defendant

ANDANZ NATIONAL BANK LIMITED Fifth Defendant

ANDMORTGAGE HOLDING TRUST COMPANY LIMITED

Sixth Defendant

Hearing:                   10 December 2013

Appearances:           G L Wilkin for the Third Defendant

C T Gudsell QC and P V Cornege for Official Assignee

Judgment:                29 January 2014

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 29 January 2014 at 3 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

OFFICIAL ASSIGNEE v FAWCETT [2014] NZHC 25 [29 January 2014]

[1]      This is an application by JEC No 3 Limited (“JEC”) to vary a freezing order (“order”) made on 31 May 2013 in respect of properties situated at 7 Hemi Place, Tairua (“Tairua property”) and Emmadale Lane, Hamilton.1

[2]      The Tairua property has since been sold and, in its place, the order now applies to funds presently held in the trust account of JEC’s solicitors, those funds deriving from the sale.   In its application, JEC seeks the release of funds to meet various expenses, the most significant expense being JEC’s anticipated legal costs in this proceeding.

[3]      The Plaintiff (“OA”) has consented to the release of funds to meet some expenses but no agreement has been reached on the four items referred to below, including the legal costs to which I have just referred.   As I understand it from counsel,  approximately  $45,000.00  is  in  trust  and  the  effect  of  granting  the application to vary in its entirety would be to reduce that amount by, in round terms,

$20,000.00.

Discussion

[4]      The expenses that JEC wishes to pay are as follows.

[5]      First,  JEC  seeks  to  pay  $990.00  to  Noel  Jessop Architecture,  a  firm  of architects.  The $990.00 is the balance due on invoice 26686 rendered by the firm, and dated 30 April 2013.  I accept the OA’s submission that the instructions for the firm’s work were given when an earlier freezing order was in place.  On the face of it, however, the firm is an unwitting third party caught up in this matter and I vary the freezing order so that the sum due may be paid.

[6]      Secondly, JEC seeks to pay $2,400.00 to Mr Fawcett on account of wages said to have been earned as JEC’s employee but not paid.  Mr Fawcett is a bankrupt (although  he  has  applied  for  a  discharge),  the  First  Defendant  and  is  closely associated with JEC.   From JEC’s bank statements it appears that the company sought  to  pay  funds  to  Mr  Fawcett  but  the  payments  were  reversed  due  to insufficient funds.

[7]      I decline to vary the order to permit payment of this sum.   It was a matter for Mr Fawcett if he kept working in circumstances when JEC was unable to pay him. Moreover, even if I were to permit the payment, the OA would seek an order that the sum be paid to the OA, given Mr Fawcett’s bankruptcy.

[8]      Thirdly, JEC seeks to pay an allowance, put at $200.00 per week, to its director Mr Spackman for his administration of JEC’s affairs.   I do not propose to authorise this sum.   It  is a matter for Mr Spackman whether he continues as a director.

[9]      Fourthly, and this is the most contentious issue, JEC seeks a sum sufficient to allow it to continue to defend the proceedings and in particular an application for summary  judgment.    The  OA  filed  this  application  for  summary  judgment  in August 2013.

[10]     JEC estimates that it requires $15,000 to $20,000 if it is to pay these costs. JEC’s case is that all of its assets are frozen, none are producing an income and JEC will be unable to defend itself in the absence of a variation.  It submits, correctly, that the freezing order does not prohibit JEC from paying legal expenses related to the freezing order and that the funds sought are essential if it is to contest the application

for summary judgment.2

[11]     The OA opposes the release of funds for the payment of costs.  Its case is that JEC has previously applied (non frozen) funds in its accounts to meet expenses that were not company expenses, or which it paid irresponsibly, given its financial position.  The OA has referred me to statements on JEC’s current account since the litigation was commenced which record payments to third parties for items such as rugby club fees, school fees, sporting equipment, hardware, alcohol, lunches and dinners.  In those circumstances the OA says that the order should not be varied, as JEC has been the author of its present impecuniosity.

[12]     The OA also submits that JEC has failed to make full and frank disclosure of its financial position and that the Court cannot be satisfied that JEC cannot fund its defence  in  some  other  way,  including  as  I  understand  it  from  borrowing  the

necessary funds.  I am not satisfied, however, that I should decline JEC’s application for variation on this ground alone.  The OA acknowledged that such assets as JEC does have are subject to the order.  In my view those assets must be the first source of funding for costs.  The OA’s point as to JEC’s previous irresponsible expenditure is well made, but cannot be determinative.   I am satisfied that if I do not grant a variation JEC will not be able to defend the application for summary judgment.

[13]    I add that these proceedings were commenced in January 2011 and the application for summary judgment was made in August 2013, so some two and a half years’ later.  Substantial costs will have been incurred in the interim and I consider that some accommodation should be made to allow JEC to continue its defence to the next stage, that is the application for summary judgment.

Result

[14]     I vary the order:

(a)      to permit JEC to pay $990 to Noel Jessop Architecture, being the balance due on invoice 26686, dated 30 April 2013; and

(b)to permit JEC to incur legal fees and disbursements to defend the application for summary judgment dated 16 August 2013, with payments to be made monthly in arrears upon receipt of invoices from JEC’s legal representatives, such sum not to exceed $17,500.00 (excluding GST) or such greater sum as the Court may allow.

[15]     I make no order as to costs, as each party has had a measure of success. Costs are to lie where they fall.

..................................................................

M Peters J

Solicitors:         Almao Douch, Crown Solicitor, Hamilton

Counsel:           G L Wilkin, Hamilton

C T Gudsell QC, Hamilton