Official Assignee v MacKenzie
[2022] NZHC 781
•13 April 2022
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2021-419-000176
[2022] NZHC 781
UNDER Insolvency Act 2006 IN THE MATTER OF
The bankruptcy of MALCOLM OWEN MACKENZIE, an application by the Official Assignee in bankruptcy of the property of MALCOLM OWEN MACKENZIE for an
order determining the amount of a creditor’s claim and for directions
IN THE MATTER OF
An application by MALCOLM OWEN MACKENZIE for an order cancelling a creditor’s claim and for directions
BETWEEN
OFFICIAL ASSIGNEE
Applicant
AND
MALCOLM OWEN MACKENZIE
Respondent
Hearing: 9-10 March 2022 Appearances:
P V Cornegé for Applicant D G Hayes for Respondent
M R Taylor for Brian MacKenzie
Judgment:
13 April 2022
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 13 April 2022 at 2.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date …………………………….
OFFICIAL ASSIGNEE v MACKENZIE [2022] NZHC 781 [13 April 2022]
Introduction
[1] Malcolm MacKenzie was adjudicated bankrupt on 30 November 2018, on a debtor’s petition.1 This followed an unsuccessful claim by him in this Court against his father’s estate. A substantial costs award was entered against him in favour of the sibling defendants.
[2] Brian MacKenzie is Malcolm’s cousin. He is an accountant and provided significant forensic accountancy services and support to Malcolm in both the estate and earlier trust litigation.
[3] Brian has filed a claim in Malcolm’s bankruptcy for $316,353 for unpaid services rendered to Malcolm in the estate litigation. Malcolm disputes that claim and says that he and Brian agreed to a “success fee” arrangement only. Because the estate litigation was unsuccessful, Malcolm says that Brian is not entitled to any fee.
[4] These proceedings initially began as an application by the Official Assignee under s 252 of the Insolvency Act 2006, seeking a determination of the amount of Brian’s claim in the bankruptcy. Malcolm has also filed an application seeking a cancellation or a reduction of Brian’s claim.2 The parties are agreed that I should consider both applications as an appeal under s 226 of the Act.3 The critical issues I must determine are as follows:
(a)Does Brian have a valid claim?
(b)If so, what is the quantum of that claim?
Factual background
[5] Malcolm’s father died in December 2013. Shortly after, disputes arose between Malcolm and his siblings in relation to Malcolm’s entitlements to assets
1 Insolvency Act 2006, s 47.
2 Insolvency Act 2006, s 238.
3 An order under s 238, seeking cancellation, is not available because an order cannot be made cancelling a creditor’s claim unless it has been admitted. (The Official Assignee has not formally admitted Brian’s claim).
owned by a family trust called the Pencarrow Trust, and in Donald’s (Malcolm’s father) estate.
[6] Brian assisted Malcolm in relation to both disputes. There were two proceedings brought by Malcolm, one in relation to the Pencarrow Trust and the other in relation to Donald’s estate.
[7]Both proceedings were commenced in about mid-2014.
[8] On 10 July 2014, Malcolm and Brian signed a “fee structure agreement”. This covered both the Trust and the estate litigation. The last two clauses of this agreement read:
The fee to support this work will be on a success fee only: i.e. no improvement or recovery or resolution over and above the current “behind by about
$500,000” position then no payment. It is noted and acknowledged that a full recovery and Malcolm’s hoped for “like for like” compensation claim was unlikely and is not really expected.
The fee for this will be 10 per cent plus GST of the gross amount that Malcolm improves his position over and above the current $500,000 “behind position”. The fee or part of it progressively paid will only become payable when Malcolm is actually paid out himself from the estate or the Pencarrow Trust.
[9] Malcolm and Brian subsequently signed an “updated” fee structure agreement bearing the date 16 August 2014. That document expressly states that it updates the earlier agreement of 10 July 2014. It again related both to the Trust and estate litigation. The final clauses of the updated agreement are the same as the earlier version of July 2014, except the “fee” referred to in the final clause is 12.5 per cent plus GST.
[10] The Pencarrow Trust litigation was settled in mid-2016 and Malcolm received payment of the settlement sum of about $935,000.
[11] The estate litigation could not be resolved out of court and proceeded to a hearing in about July 2018. Malcolm was unsuccessful and a costs award was made against him in the sum of approximately $224,000.
[12] On 25 August 2016, Malcolm made a payment of $150,000, at the direction of Brian, to the Hyperion Trust. That is essentially Brian’s family trust, in which Brian was a trustee and beneficiary.
[13] On 26 August 2016, Brian rendered an invoice to Malcolm for disbursements and expenses in the total sum of $108,684.79. Malcolm subsequently paid this invoice, at Brian’s direction, into the bank account of the Midlands Mortgage Trust.
[14] On 18 November 2016, Brian signed a document confirming that Malcolm had advanced him the sum of $150,000 described as “an on-demand loan”. Clause 4 of that document reads:
Repayment is to be made as required by Malcolm or be fully or partly set by fees due to me on the current MacKenzie estate likely court case/settlement.
[15] Clause 6 refers to “the estate” success fee as documented. On 7 April 2017, Malcolm and Brian signed a letter intended to record that an additional $150,000 loan was to be advanced from Malcolm to Brian. The letter refers to security for the “two advances” (i.e. the two loans of $150,000) being a registered caveat over a property at Kingseat. The letter records there is a mortgage registered over that property in favour of the Midlands Trust.
[16] On 8 May 2017, Malcolm paid $150,000, at the direction of Brian, into the Hyperion Trust.
[17] On 29 September 2018, Brian, his wife Elsje, and Heather MacKenzie, Malcolm’s former wife, signed a “confirmation of loan agreement”. That document records that Brian has a $300,000 loan from Heather.
[18] On 3 October 2018, Heather wrote to Brian requesting/instructing him to pay as soon as possible the legal expenses due to Malcolm’s barrister, Mr Ray Parmenter, out of the “loan proceeds”. The letter expressly refers to the $300,000 loan.
[19] On 22 November 2018, Brian issued an invoice in the name of Auckland Commercial Mortgage Brokers Ltd to Malcolm (invoice number 1529) for
professional services and work done relating to both the estate and the Pencarrow Trust litigation. The total amount of the invoice is $316,353.
[20]On 30 November 2018, Malcolm went into voluntary bankruptcy.
[21] On 5 December 2018, Brian filed a creditor’s claim in Malcolm’s bankruptcy in the sum of $316,353. In support of his claim Brian provided a copy of the invoice of 22 November 2018. The invoice provided to the OA was in the name of Brian personally and contained a different IRD number than the one rendered by the Auckland Commercial Mortgage Brokers Ltd. Brian says that the rendering of the invoice in the name of his company was an oversight by him. The work and services that were the subject of the invoice were carried out by him personally. Brian says he rectified the oversight when he delivered his invoice to the OA.
[22] On 12 April 2019, the OA wrote to Malcolm seeking full details of the following significant funds that he had paid to the following people:
(a)Heather MacKenzie - $253,000 from 2016 – 2018;
(b)Midlands Mortgage Trust - $100,000 in 2016;
(c)Hyperion Trust - $300,000 from 2016 – 2017.
[23]On 22 May 2019, Malcolm responded to the OA and advised as follows:
Heather will explain the $253,000 … The Midland Mortgage Trust received
$100,000 for services supplied in relation to my court case … The Hyperion Trust was paid $150,000 on 25 August 2016 and another $150,000 on 8 May 2017. This money was due to Heather as a result of the distribution of the family trust. It was paid to Hyperion instead of Heather directly as she agreed to making a loan to Brian …
[24] On 20 August 2019, Malcolm wrote again to the OA in response to a further letter from the OA of 14 August 2019. Malcolm noted that Brian’s work for him had been “invaluable”. The letter states that Malcolm had “always reassured” Brian that he would compensate him for all his work when the matter was concluded.
[25]On 27 July 2020, the OA wrote to Brian demanding repayment of the sum of
$190,000. The letter stated that of the funds advanced to the Hyperion Trust by Malcolm, $190,000 remains owing to Malcolm.
[26] In August 2020, Heather filed proceedings in the District Court against Brian seeking judgment in the sum of $190,000.
Relevant legal principles
[27] The onus of proving his claim rests with Brian.4 Brian must establish his claim on the balance of probabilities.5
[28] To establish his claim in Malcolm’s bankruptcy, Brian must prove not only that he is owed something by Malcolm, but how much he is owed. This process is a substitute for what would otherwise have been a general claim against Malcolm (were he not bankrupt). As the Court of Appeal noted in H Investments Ltd (in liq) v Official Assignee,6 there is no basis (in terms of the task faced by someone making a claim) to distinguish between debtors who are bankrupt and those who are not.
[29] In treating these proceedings as an appeal under s 226 (as the parties agree), I proceed on the basis that this is a hearing de novo where the Court may confirm, reverse or modify the Assignee’s decisions.7
Analysis and decision
Issue (a) – Does Brian have a valid claim?
[30] There is no real dispute that there was a fees contract between Brian and Malcolm. The critical question is the terms of that contract (i.e. whether it was a success fee arrangement) and whether its terms were confined to the 2014 written fee structure agreements.
4 H Investments Ltd (in liq) v Official Assignee [2018] NZCA 76, [2019] NZCCLR 11 at [47].
5 H Investments Ltd (in liq) v Official Assignee, above n 4, at [41].
6 H Investments Ltd (in liq) v Official Assignee, above n 4, at [41].
7 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141; see also
Insolvency Law & Practice (online looseleaf ed, Thomson Reuters) at [IN226.03].
[31] The starting point for the interpretation exercise is those written fee structure agreements of 2014. They make it clear that the parties agreed to a success fee arrangement. However, I need to decide whether the parties reduced their agreement on fees to the precise terms of an all-embracing written formula, as set out in those 2014 documents.
[32] This is ultimately a question of intention. The learned authors of Burrows, Finn & Todd state the position as follows:8
In each case the Court must decide whether the parties have, or have not, reduced their agreement to the precise terms of an all-embracing written formula. If they have not, the writing is but part of the contract and must be set side by side with the complimentary oral terms. The question at the bottom is one of intention. In Newman Tours Ltd v Ranier Investments Ltd, Fisher J said:
If the written record appears on its face to be a comprehensive record of an agreement, that in itself would be strong evidence that it was intended to be exhaustive. The more the suggested oral term is in disharmony with the wording of the written document, the more difficult it will be to persuade the court that it was intended to survive the written document. But if, from whatever source, the Court is satisfied as to the parties’ real agreement, it will give effect to that agreement regardless of the form in which it may have been expressed.
The type of contract is relevant. For instance, it is not usual practice for an insurance contract to contain oral terms. However, there are plenty of cases where the Court has been prepared to infer that the parties did not intend the writing to be exhaustive but wishes it to be read in conjunction with their oral statements.
[33] The context is all important in determining the question of the intention of the parties. Initially, Brian and Malcolm may have agreed to a success fee arrangement, but it is important to note that these were family arrangements, with the parties’ dealings fluid and made with a degree of informality. The undisputed evidence is that there were numerous oral discussions between Malcolm and Brian throughout the course of the litigation. I accept the submission of Mr Taylor, for Brian, that this is the very sort of case where the Court can properly infer that the parties’ written record is not exhaustive of their agreement or the agreement ultimately reached.
8 Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn & Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) at 179–180.
[34] I find that there was a supplementary oral agreement between the parties changing the initial arrangements recorded in writing (i.e. success fee only). I acknowledge that all concerned were confident that Malcolm would succeed with the estate litigation and that initially at least, the success fee agreement would have been premised upon a confident assessment of that kind. However, it is clear that the parties’ understanding of the claim continued to develop and evolve as matters progressed, and it is undisputed that Brian provided significant and valuable services to Malcolm. Malcolm remains grateful for those services, albeit that he opposes Brian’s claims.
[35] I acknowledge that Brian never asked Malcolm to pay him any funds apart from the $108,684.79, but the evidence establishes, in my view, that Brian would not be paid until the litigation had been concluded. While that arrangement might be consistent with a success fee arrangement, it is far from decisive.
[36] Malcolm’s email correspondence to the Official Assignee on 20 August 2019 provides support for my finding that there was no success fee arrangement. In that email, Malcolm acknowledged that he was to pay Brian “when the Court case was over”. He also confirmed that:
(a)“Terms were agreed verbally several times over the four or five years”;
(b)“As Brian is family, I didn’t think anything in writing would be needed”;
(c)“I always reassured Brian I would compensate him for all his work when the matter was concluded”; and
(d)“He [Brian] was happy with this arrangement and I greatly appreciated this”.
[37] That email was sent by Malcolm in response to a formal enquiry made by the Official Assignee and, in my view, reflects Malcolm’s understanding of the arrangement agreed with Brian. No mention at all is made of a success fee arrangement and the positive response from Malcolm is quite inconsistent with the claim now being made that no fees are due because the litigation was unsuccessful. I reject Mr Hayes’ submission that Malcolm’s email was ambiguous; if there really was a success fee arrangement, that was the obvious time for Malcolm to have asserted it.
[38] To the extent that there is conflict between the evidence of Brian and Malcolm on these issues, I prefer the evidence of Brian. He candidly acknowledged that the paperwork was incomplete and that as the professional involved, he ought to have taken more care in ensuring that their ongoing arrangements and agreements were recorded in writing. It is clear that he went to considerable lengths to assist Malcolm with his various legal and financial difficulties. I reject Mr Hayes’ submission that the changing of the invoice from Auckland Commercial Mortgage Brokers Ltd to an invoice in Brian’s own name (i.e. for the $316,353) somehow impugns Brian’s credibility. I accept that this was an innocent mistake.
[39] I acknowledge that Brian did carefully and meticulously record in writing the terms of significant agreements between himself, Malcolm and Heather. That includes the various loan documentation. It is somewhat surprising therefore that Brian did not update in writing the ongoing fees agreements reached with Malcolm. However, as I have been emphasising, this was an evolving family arrangement with the intention that Brian was to be paid at the conclusion of the litigation. There was obviously a high degree of trust between the parties, with Malcolm confident that Brian was working very hard on his behalf and a consensus that Brian would ultimately be paid whatever the outcome.
[40] I reject Mr Hayes’ submission that Brian’s ‘family arrangement’ argument suggests there was no intention to create legal relations. In my view, there undoubtedly was a contract between the parties; as noted above, the real issue is the terms of that contract. I also reject Mr Hayes’ estoppel arguments. They lack merit.
[41]For all these reasons, I find that Brian has established that he has a valid claim.
Issue (b): What is the quantum of Brian’s claim?
[42] Brian claims to be owed $316,353 for his services. This is a claim for 900 hours at a rate of $300 plus GST and mileage.
[43] Brian accepts that he did not keep time records, but I accept he has taken care in reviewing the extensive emails and work undertaken to reach a claim of 900 hours.
[44] The evidence is unclear, and Brian has not established that the parties did reach an agreement on the specific rate of payment for his services. In the context of these informal family arrangements that is not altogether surprising. In the circumstances, I find that the quantum of Brian’s claim is to be assessed on a quantum meruit basis. There is support for that approach in the following passage from the learned authors of Civil Remedies in New Zealand:9
Where the parties have failed to specify the rate of payment, quantum meruit may be granted as a remedy for an action based on the express agreement. In such cases, not only is the event to which quantum meruit responds not unjust enrichment, but also the measure of recovery is not assessed by the defendant’s gain but by the extent to which the plaintiff should be remunerated.
[45] In approaching the issue of the extent to which Brian should be remunerated, I agree with the submission of Mr Taylor that the Court should look to do justice between the parties. It is undoubtedly fair that Brian should be reasonably compensated for the significant work he performed for Malcolm over many years. Information about the market price of Brian’s services will be relevant to assessing the extent to which he should be remunerated.10
[46] I accept that Brian’s involvement in the estate litigation would have reduced the sums payable to the lawyers and the expert accountants. The litigation was conducted over a period of four years. Both Malcolm and Heather acknowledged that Brian had put an enormous amount of time and work into the litigation and that his work was invaluable.
[47] In addressing the issue of reasonable compensation, it is also relevant to take into account that these were family arrangements and the reasonable expectation that Brian would be generous with his time. Some account should also be taken of the outcome of the litigation, albeit no success fee was agreed to.11
9 Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Thomson Reuters, Wellington, 2011) at 391. See also Northlake Investments Ltd v Wanaka Medical Centre Ltd [2019] NZHC 3443 at
[229] and following.
10 Electrix Ltd v The Fletcher Construction Co Ltd [2020] NZHC 918 at [97].
11 See cl 9.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, where a relevant factor in determining the reasonableness of a solicitor’s fee includes the results achieved (cl 9.1(c)).
[48] It is clear from the cross-examination of Brian that there is some duplication in the time claimed in the invoice at issue. It is also clear that Brian, a chartered accountant, should bear some responsibility for the lack of time records and the failure to ensure that the fee arrangements (as they evolved) were reduced to writing.
[49]The evidence is that the legal fees for the estate litigation amounted to around
$90,000 and experts’ fees were approximately $15,000. I accept that I can infer that those fees were lower than would otherwise be the case because of Brian’s work. Equally, however, in a quantum meruit context, such as here, Brian’s fees should bear some proportion to those of the other experts involved.
[50] Taking all of these factors into account, I conclude that fair and reasonable remuneration for Brian is $225,000. In reaching that conclusion, I accept that the $300 per hour is in the circumstances a reasonable charge-out figure.12
[51] I accept that Brian has genuinely sought to try and separate the estate litigation services out from those relating to the Pencarrow Trust. However, it is not apparent from the records supplied and the evidence before the Court that this has been done in a systematic and mathematical fashion. There are clearly entries in the records provided for irrelevant work, such as Brian attending to Malcolm’s will, and a significant number of entries relating to the Pencarrow Trust. There remains a regrettable degree of uncertainty (including the fact that some of Brian’s records were destroyed by the Onehunga fire) and the matter must ultimately be determined in cases of this kind by the application of key principles.
Result
[52] I conclude that Brian has a valid claim. The appeal against the decision of the Official Assignee not to admit Brian’s claim in Malcolm’s bankruptcy is granted. Brian’s claim should be admitted.
12 See Electrix Ltd v The Fletcher Construction Co Ltd, above n 10, at [97] and [98]. Market value of services is particularly relevant here, as there does not appear to be circumstances likely to materially diverge the cost of the services from the market value.
[53] I further find, on a quantum meruit basis, that the quantum of Brian’s remuneration is $225,000 plus GST.
[54] As to costs, I am of the preliminary view that Malcolm, as the losing party, should pay costs to Brian on a 2B basis plus disbursements. If the parties cannot agree on costs, then memoranda are to be filed (no more than three pages) within 14 days.
Associate Judge P J Andrew
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