Official Assignee v Black

[2023] NZHC 1331

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2023-409-117

[2023] NZHC 1331

IN THE MATTER

of the Bankruptcies of Nigel Graeme Black and Joanne Kay Black

BETWEEN

THE OFFICIAL ASSIGNEE in bankruptcy of the property of NIGEL

GRAEME BLACK and JOANNE KAY BLACK

Plaintiff

AND

NIGEL GRAEME BLACK and JOANNE KAY BLACK

Defendants

Hearing:	25 May 2023
Appearances:	D M L Dingwall for Plaintiff No appearance by Defendants
Judgment:	30 May 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

[1]    Nigel Black (Nigel) and Joanne Black (Joanne) were adjudicated bankrupt on 20 August 2020. Nigel and Joanne own the property at 158 Munro Road, Cheviot (the property). The Official Assignee’s investigations disclosed that Nigel and Joanne owned the property in their capacity as trustees of the Mountain Meadows Trust (the Trust).

[2]    The accounts for the Trust as at 30 January 2017, record that the trustees (that is Nigel and Joanne as trustees), owed Nigel and Joanne in their personal capacities

$291,240 and $291,239 respectively.

THE OFFICIAL ASSIGNEE v BLACK [2023] NZHC 1331 [30 May 2023]

[3]    The Official Assignee has written to Nigel and Joanne as trustees of the Trust, making demand for payment of their beneficiary current accounts, such being payable on demand.

[4]    Notwithstanding that Nigel disclosed in a Statement of Affairs that the Trust owed him $580,000 (being the approximate total of Nigel and Joanne’s current accounts), after the Official Assignee made demand for payment, Nigel wrote to the Official Assignee saying he disputed the debt.

[5]    Valuations obtained by the Official Assignee indicate that the value of the property is less than the amount owed to Nigel and Joanne. There is also a mortgage on the property.

[6]    Taking into account the mortgage secured against the property and the fact that it is in an earthquake damaged state (EQC and insurance money having been used by Nigel and Joanne to prop up their failed business which led to their bankruptcy), the Official Assignee called for Nigel and Joanne to make a proposal for the pay-out of the equity in the property. However, attempts to resolve matters have not resulted in settlement.

[7]    The Official Assignee has issued summary judgment proceedings against Nigel and Joanne seeking judgment against them as trustees for what the Trust owes them in their personal capacities. The Official Assignee also seeks an order that the Trust assets stand charged in favour of the Official Assignee to the extent of the judgment sum and orders in relation to the sale of the Trust property in order to meet the judgment debt.

[8]    In short, the Official Assignee says she is entitled to exercise the trustee’s right of indemnity against the Trust property.

What the Official Assignee must show to obtain summary judgment

[9]    The Official Assignee must demonstrate that Nigel and Joanne as trustees have no arguable defence to the claim. Nigel and Joanne have not filed any papers in

opposition but nonetheless the Court must still be satisfied summary judgment is appropriate.1

[10]   The Official Assignee has properly brought to the Court’s attention that Nigel disputed the debt. The email in which Nigel raises that dispute has been produced by the Official Assignee. The email appears to confuse the value of equity in the property with Nigel and Joanne’s obligations to repay their beneficiary current accounts. Nigel suggests in the email that the money recorded as being owed to Nigel and Joanne might be owed to third parties. However, the debts are recorded in the Trust accounts as owed to Nigel and Joanne and as I have already noted, Nigel referred to the debt, albeit combining his and Joanne’s debt in his Statement of Affairs, which is a statutory declaration.

[11] In the absence of evidence from Nigel and Joanne and given the limited nature of the email referred to at [10] above, I am satisfied that Nigel and Joanne as trustees, owe themselves in their personal capacities the sums recorded in their beneficiary current accounts.

[12]   Accordingly, there is judgment against Nigel and Joanne in their capacity as trustees for $291,240 and $291,239 respectively.

[13]   The other aspects of the Official Assignee’s claim are firstly, whether the Official Assignee is entitled to exercise Nigel and Joanne’s right as trustee to be indemnified from the Trust assets in respect of the judgment entered above. Secondly, whether pursuant to that right of indemnity, the Trust assets, including the property, stand charged in favour of the Official Assignee for that debt and finally, whether the Trust assets including the property may be sold to clear the debt.

[14]   In respect of this part of the relief sought I gratefully adopt the analysis of Panckhurst J in Official Assignee v Smith.2 The following borrows heavily from his

1      Nigel was aware of the hearing on 25 May 2023 having emailed the Court the morning of the hearing referring to the hearing that day and he and Joanne were served with the Minute recording the hearing date.

2      Official Assignee in Bankruptcy of the property of Michael Owen Perkins v  Smith  [2013] NZHC 3217.

Honour’s judgment from [20]–[30] which, other than changing the names of the parties, I have effectively duplicated.

[15]   The judgment debt obtained by the Official Assignee relates to an amount owed to Nigel and Joanne in their personal capacity at the time of their adjudication. The right to recover the amount advanced to the trustees of the Trust by Nigel and Joanne is their personal property which vested in the Official Assignee. The Official Assignee standing in the shoes of Nigel and Joanne, has obtained judgment against the trustees for that debt as above.

[16]   Whether the Official Assignee can effect recovery against the property of the Trust depends on Nigel and Joanne’s rights as a trustee. The trustees are entitled to be indemnified from the Trust assets in respect of liabilities they have incurred.

[17]   Here, the Official Assignee acquired not only Nigel and Joanne’s rights to recover the advances, but also their right to be indemnified from the Trust assets as well.

[18]   Nigel and Joanne made the advances to themselves in one capacity and received them in another.

[19]   I am satisfied that Nigel and Joanne as trustees, acquired a right to be indemnified from the Trust property when the advances recorded in the beneficiary current accounts occurred. The Trust Deed here provides that the trustees:

“… shall be entitled to be fully indemnified out of the Trust fund in respect of any losses and of all claims, demands, costs, actions, proceedings, outlays and expenses incurred by the Trustees in the administration and management of the Trust.

[20]   In addition, a trustee’s right to be indemnified is expressly provided for in s 81 of the Trusts Act 2019 (the Act). This right to be indemnified vested in the Official Assignee as property of the bankrupt.3

3      Insolvency Act 2006, s 101(1)(a).

[21]   While it is not clear what the advances were used for, the financial statements of the Trust record the existence of the debt owing by the trustees to Nigel and Joanne.

[22]   As to whether the right of indemnity confers a proprietary interest in the assets of the Trust, Panckhurst J was satisfied that the trustee’s right to indemnity includes a proprietary interest in the property of the Trust by virtue of an equitable lien.4

Is an order for sale appropriate and on what terms?

[23]   Again, I refer to Panckhurst J’s analysis. A trustee’s right of indemnity may be exercised through the sale of Trust property. The trust deed may authorise as much or absent a power of sale and the deed, a Court order may be obtained.

[24]   The Official Assignee seeks an order for sale. I agree that is an appropriate course given the Official Assignee has been unsuccessful in attempting to resolve matters directly with Nigel and Joanne over some extended period.

[25]   Mr Dingwall, counsel for the Official Assignee, referred to other authorities where orders for sale had been made in the same terms sought in this proceeding.5

[26]   Accordingly, I make orders in terms of paras (a) to (e) of the statement of claim. Mr Dingwall did not seek a costs order. Accordingly, there is no order as to costs.

Associate Judge Lester

Copy to:

Insolvency & Trustee Service, Christchurch N G and J K Black, Christchurch

4      Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; Re Suco Gold (1983) 7 ACLR 873; Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745; Official Assignee v Menzies & Palmer HC Auckland, CIV-2010-404-5457, 14 February 2011.

5      Official Assignee v O’Neill HC Auckland CIV-2012-404-4198, 5 September 2012; Official Assignee v Fox, HC Palmerston North, CIV-2020-454-43, 19 November 2020, Associate Judge Johnston (there being no judgment in respect of orders that were made orally, albeit the sealed order was produced to the Court).