Official Assignee v Russell Bay Lodge Ltd

[2013] NZHC 1940

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV 2013-488-000221 [2013] NZHC 1940

UNDER  Part 18 of the High Court Rules and the

Insolvency Act 2006

BETWEEN  OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF MICHAEL OWEN PERKINS

Plaintiff

ANDRUSSELL BAY LODGE LIMITED Defendant

Hearing:                   9 July 2013

Appearances:           G A D Neil for plaintiff

No appearance for defendant

Judgment:                2 August 2013

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 2 August 2013 at 4.45pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Meredith Connell, Auckland

OFFICIAL ASSIGNEE v RUSSELL BAY LODGE LIMITED [2013] NZHC 1940 [2 August 2013]

[1]      The plaintiff is the Official Assignee in bankruptcy of the property of Michael Owen Perkins (the Assignee).  He seeks recovery from the defendant (Russell Bay Lodge Limited) of the value of the bankrupt’s interest in a property in France that he says the bankrupt contributed towards the defendant’s purchase of a property known as Russell Bay Lodge (the lodge), together with interest and costs.

[2]      The Assignee says that this value (being the New Zealand dollar equivalent of €300,000) is recoverable either as an insolvent gift, or as a transaction at undervalue, or as a contribution towards the defendant’s property, made within two years of the bankruptcy.

[3]      The proceeding was served on the defendant on 19 April 2013.  It has taken no steps.   The Assignee has filed an affidavit in support of his application.   I am satisfied, on the basis of that evidence, that the Assignee has established his case for the orders sought on each basis of the claim.

Background

[4]      Michael Perkins (the bankrupt) was adjudicated bankrupt on 26 August 2011 on the application of his brother, John Perkins, following a defended hearing.   He had also been unsuccessful in opposing other proceedings leading to the application for adjudication.

[5]      The brothers were joint administrators, in the United Kingdom, of their late mother’s estate.  John Perkins took proceedings in the United Kingdom to recover property  that  he  said  the  bankrupt  had  misappropriated  from  the  estate.    He eventually obtained judgment against his brother which, amongst other orders, required him to restore to the estate a sum equal to the net proceeds of sale of the properties that he was held to have misappropriated.  Two monetary judgments were entered against Michael Perkins in the United Kingdom, and subsequently registered here in New Zealand.  John Perkins then commenced the bankruptcy proceedings in New Zealand.

[6]      The Assignee has established that money from the sale of the misappropriated properties was transferred to New Zealand and was used in property investments undertaken through various entities, including trusts.  However, the only identifiable real property remaining is the lodge, owned by the defendant.

[7]      The defendant was incorporated on 10 September 2010.  It was appointed the sole trustee of Russell Bay Lodge Trust (the trust), which the bankrupt settled by deed of trust dated 9 September 2010.1    The bankrupt was sole director and shareholder of the defendant until 16 August 2011 when his son, Oliver Perkins, was appointed in his place.2   The bankrupt also transferred his shares in the defendant to his son at about the same time.

[8]      The  defendant  purchased  the  lodge  from  its  former  owner  (Mr  David Metcalfe) under an agreement dated 22 September 2010 made between Mr Metcalfe, as vendor, and the bankrupt or nominee, as purchaser.  The defendant was substituted as purchaser under a contract of novation dated 27 September 2010.

[9]      Underlying that purchase was a land swap arrangement effected through two further agreements:

(a)       Mr Metcalfe  agreed  to  purchase  from  the  bankrupt  a  property  in

France registered in the bankrupt’s name (the French property),3 and

(b)Mr Metcalfe agreed to purchase two sections of vacant land in New Zealand from another trust of which the bankrupt was one of the trustees (known as the Perkins Trust).

[10]     Settlement of the defendant’s purchase of the lodge from Mr Metcalfe took

place  on  27  September  2010,  with  the  defendant  being  given  a  total  credit  of

$691,046.06 for the properties transferred to him.  The credit included the sum of

1 The deed of trust gives the power of appointment and removal of trustees to the bankrupt.

2 Save for a short period from 27 September 2010 to 30 September 2010, when a solicitor acting for the bankrupt and his interests was also a director.

3  Initially under a “pre-contract” concluded on 13 September 2010, and later recorded in a deed of sale executed on 28 October 2010.

€190,000 (which converts to $346,020) in respect of the French property.   The defendant met the balance by money raised by way of loan from a third party.

[11]     The bankrupt was examined by the Assignee on 17 January 2013.   The bankrupt explained the background to the transaction over the French property:

(a)      The credit given for the French property was negotiated to circumvent restrictions under French law.

(b)In initial discussions between the bankrupt and Mr Metcalfe, it was agreed that the defendant would pay $1.2 million for the lodge, and Mr Metcalfe would pay €300,3254  for the French property,  as its agreed market value.

(c)      Subsequently they established that French law did not permit land swap arrangements involving overseas property, so the parties agreed to reduce the agreed prices for both the lodge and the French property. The price for the French property was reduced to €190,000 (which was the amount secured by mortgage over the French property) and the  sum  payable  by  the  defendant  for  the  lodge  was  reduced  to

$999,672 (that reduction being equivalent to the reduction for the

French property).

(d)The  bankrupt  then  arranged  for  another  entity,  Bay  of  Islands Investments Limited, to pay the sum owing under the mortgage to Mr Metcalfe so that it would appear to the French authorities that Mr Metcalfe was paying the nominated purchase price.

[12]     The bankrupt was asked about the French property in the examination.  The title documents and the deed of sale show the bankrupt as the sole registered owner, and as having full ownership of it.   However, he claimed that he and his son had contributed equally to the cash contribution towards the purchase price, and each had

a beneficial 50 per cent interest in the property (although he alone was liable under

4 Slightly below the sum of €325,000 paid by the bankrupt to purchase that property, so that no capital gains tax was payable on the transaction.

the mortgage).  He also said that he “had a feeling it was a trust” (a claim that is inconsistent with his claim that he and his son each have a beneficial interest).

[13]     Following the examination, the bankrupt was asked (in writing) for a copy of the French solicitor’s file, bank records showing the source of the cash contributions, and a copy of the trust deed for any trust involved in the purchase together with relevant minutes, resolutions and financial statements.  He responded saying that it was his intention to provide all the information requested, but that all paperwork relating to the French property was on file at his son’s home.  He went on to state that he guaranteed the mortgage on the property as trustee of Perkins Trust UK but there was no trust documentation in relation to the mortgage.  He has not provided any further documents since then.

[14]     In his judgment on the application for adjudication Associate Judge Bell recorded the bankrupt’s claim that his son had an interest in the lodge, and that the bankrupt also had an interest but did not identify it as an interest as a trustee.5

[15]     The  bankrupt’s  son  was  present  at  the  hearing  of  the  application  for adjudication.  As the director of the defendant he will be aware of this proceeding and the claims made by the Assignee.  He has not claimed a beneficial interest, nor has he (personally or as director of the defendant) contested the quantum of the relief sought by the Assignee, which represents the full value of the property.

[16]     At another point in the examination the bankrupt was asked what value he received  from  the trust  for contributing the value of the French  property to  its (beneficial) purchase of the lodge.   He stated that the French property was gifted to the trust.   He was unable to say how this occurred, having regard to the documentation showing that the property was transferred directly from Mr Perkins to Mr Metcalfe (not through the trust) and that all that passed to the trust (or more correctly to the defendant as trustee) was the New Zealand dollar equivalent of the sum payable by Mr Metcalfe to the bankrupt under the agreement, enabling Mr

Metcalfe to give the trust credit for that amount against the purchase of the lodge.

5 Perkins v Perkins HC Whangarei, CIV 2010-488-765, 26 August 2011 at [4].

The Assignee sought an explanation of the transaction from the bankrupt’s lawyer,

but no explanation has been forthcoming.

[17]     The Assignee formed the view that the bankrupt transferred to the trust his right to receive payment of the purchase price for the French property, and that this comprised an insolvent gift.  He issued a notice of cancellation of the transaction on

20 February 2013.6     The bankrupt responded to the Assignee’s notice by email

objecting “on behalf of Russell Bay Lodge  Limited”.   In that email  he merely repeated his assertions that he held the French property on behalf of his son and a trust (Perkins Trust UK).

[18]     The Assignee  advised  the  bankrupt  by  letter  on  10  April  2013  that  he regarded the transaction to be cancelled (because valid notice was not given).  He also informed the bankrupt that he would be commencing the present application, and would include a claim that the transaction was at an undervalue.

The application

[19]     The Assignee has applied for orders cancelling the transaction and for the defendant to account for the value received for the French property.    He advances four alternative legal bases for the orders sought:

(a)      The transaction comprised an insolvent gift in terms of s 204 of the Insolvency Act 2006 (the Act), the transaction has been cancelled because the purported objection was invalid, and he is entitled to the value of the transaction under s 207 of the Act (there being no basis on  which  the  statutory  defence  under  s  208  of  the Act  could  be available);

(b)The transaction comprised an insolvent gift, and he is entitled to cancellation under s 206 of the Act and to the value of the transaction

under s 207 of the Act (this applies if the objection was valid);

6 Insolvency Act 2006, section 206.

(c)       If  the  transaction  did  not  constitute  an  insolvent  gift,  then  the transaction was at an undervalue in terms of s 211 of the Act and the undervalue is recoverable under s 212 of the Act; and

(d)The transaction comprised a contribution to the defendant’s property and the Assignee is entitled to recover the value of the contribution under ss 213 and 214 (there being no good reason to make an order under s 214(2) for payment of a sum less than the value of the contribution).

[20]     The matters on which the Court must be satisfied are:

(a)      Was the transaction by way of gift?  This requires a determination of the nature of the transaction.

(b)Has  the  transaction  already  been  cancelled?     This  requires   a determination  as  to  whether  a  valid  notice  of  objection  has  been given.

(c)      If the transaction has not yet been cancelled, should it be cancelled as an insolvent gift?

(d)If the transaction is cancelled, should the relief sought be given?  This requires a determination of the value of the transaction and whether any defences are available to the defendant.

(e)      Was   the   transaction   at   undervalue,   and   if   so,   what   was   the undervalue?

(f)      Was the transaction a contribution to the defendant’s property, and if so, is there any basis for ordering payment of less than the value of the contribution?

What was the nature of the transaction?

[21]     Although the bankrupt contended in his examination that he gifted the French property to the trust, that contention is not borne out by any documents provided to the Assignee.  The property itself was certainly not transferred to the trust, and there is no evidence of any transfer of any funds, notwithstanding that the bankrupt was given opportunity to provide evidence.

[22]     Against that background, I accept the submission for the Assignee that the transaction in respect of the French property can be properly be analysed in terms of a gift by way of an equitable assignment by the bankrupt to the defendant (on behalf of the trust) of the bankrupt’s right to receive the purchase price payable by Mr Metcalfe for the French property.  Under this analysis, the defendant then used the assigned rights as credit against the purchase price for the lodge.  I come to this view for the following reasons:

(a)       The bankrupt’s right to receive payment of the purchase price for the

French property is a legal chose in action.

(b)An oral agreement to assign that chose of action can be inferred from the bankrupt’s conduct in making that chose of action available to the trust, to enable it to provide credit towards the purchase of the lodge.

(c)      Under s 50(5) of the Property Law Act 2007 a legal chose in action is treated as having been assigned in equity (whether under an oral or written assignment) if the assignee (the trust) has given valuable consideration for it or the assignment is complete.

(d)Under  s  50(7)  of  the  Property  Law  Act  2007,  an  assignment  is complete when the assignor (the bankrupt) has done everything that needs to be done to transfer his rights in the chose to the Assignee.

(e)      No value has been given by the trust to the bankrupt for the chose, but the assignment  is  complete as  it  is  clear that  the trust  used it  to

complete purchase of the lodge, and that Mr Metcalfe has accepted it as a credit against the purchase price, thereby extinguishing the chose.

[23]     As a general proposition, an assignment requires that:7

...the debtor should be given to understand that the debt has been made over by the creditor to some third person.

[24]     It is not necessary for the assignment to be in writing. An oral agreement can give rise to an equitable assignment, provided there is an intention to assign.  It is not necessary that there be direct evidence of the parties’ intention (or of the act of assignment).     Those  matters  can  be  inferred  from  the  circumstances  of  the

transaction.8  The nature of the transaction can be inferred from subsequent conduct.9

[25]     The fact of an oral agreement to assign can be inferred from the fact that the transaction for the defendant’s purchase of the lodge proceeded using the bankrupt’s right to the purchase price for the French property as a credit towards the obligation to meet the purchase price for the lodge.   It  can safely be inferred that in the discussions over the giving of credit (recorded in email correspondence between the parties), the bankrupt made known to Mr Metcalfe that his debt to the bankrupt was to be applied as a credit against the trust’s debt, and that Mr Metcalfe accepted that. This is borne out by Mr Metcalfe’s solicitors, including the credit in the settlement statement for the lodge, and in the fact that the bankrupt has not sought to call for payment to him of the purchase price for the French property.

[26]     I find that the only sensible construction of the parties’ conduct is that an assignment was intended and was in fact effected.   If this were not the case, the bankrupt would retain the right to payment of the purchase price for the French property.  That does not accord with the bankrupt’s statement that he intended to gift the property to the defendant, and it would be inconsistent with Mr Metcalfe having

discounted the price payable for the lodge.

7 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 (HL) at 462.

8 McMahon v Gilberd & Co Ltd [1955] NZLR 1206 (CA).

9 Levin v Ikiua [2010] NZCA 509; [2011] 1 NZLR 678 at [43].

[27]     An equitable assignment of the chose to the defendant is also consistent with what the bankrupt has said he was doing, but did not put in place (he did nothing to gift the property to the defendant).

Has the transaction been cancelled by the defendant giving a valid objection?

[28]     The notice of objection given to the Assignee’s notice of cancellation was given by the bankrupt, claiming to be a trustee of the trust.  After receiving it, the Assignee obtained (from the bankrupt’s accountant) a copy of the document on which the bankrupt relied for his authority to give the notice of objection for the defendant.  That document was a purported resolution of the trust.  It was signed by Michael  Perkins  personally  and  as  director  of  the  defendant,  and  also  by  the bankrupt as “Reinstated Trustee”. The resolution was

...as of the 10th of January 2012 to reinstate Michael Owen Perkins as a full trustee of the Russell Bay Lodge Trust.

[29]     Leaving aside the fact that the bankrupt had not at any previous time been a trustee, I find that the resolution was ineffective to appoint the bankrupt as a trustee, so as to give him authority to give a valid notice of objection, for the following reasons:

(a)      Under  clause  17.1  of  the  Trust  Deed  of  the  trust,  power  of appointment and removal of trustees is vested in the bankrupt;

(b)The resolution is not expressed as an exercise of the power of appointment and was not signed by the bankrupt as the holder of the power of appointment; and

(c)      Clause 17.7 of the trust deed requires the power of appointment to be exercised by deed (the resolution was not a deed).

[30]     Counsel for the Assignee also submitted that the bankrupt could not exercise the power of appointment in any event because that power was property which vested in the Assignee on adjudication.   He relied on two matters to support this proposition: the broad definition of property in s 3 of the Act, and the recent decision

of the Privy Council in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd, in which that Board held that there was no general rule distinguishing between  a power  and  property and that  the  ordinary meaning  of property could include powers.10   I do not read Tassarruf as making a finding that is broad enough to cover the power of appointment in this case (the Privy Council’s finding was made after examination of the consequences of the removal of the

trustee in that case on property rights).  It is a point that would be better determined following argument on an opposed basis.  Given the findings I have already made I do not need to determine it.

[31]     As the bankrupt was not a trustee of the trust, nor a director of the defendant, he had no authority to give the notice of objection on behalf of the defendant (or, at the very least, there is no evidence of such authority).   I find that the notice of objection to cancellation was invalid and of no effect.  On that basis, the transaction

is cancelled automatically.11

Should the transaction be cancelled as an insolvent gift?

[32]     A gift by a bankrupt to another person may be cancelled if made within two years immediately before adjudication.12

[33]     The Act does not contain a definition of gift for this purpose.   “Gift” was defined under s 54(6) of the Insolvency Act 1967 as any disposition made otherwise than in good faith and for valuable consideration.  The learned authors of Heath and Whale on Insolvency have commented on that omission, and have expressed the view that all that the Act requires is that the transaction has the effect to bring about a diminution in the value of the donor’s assets, or to otherwise reduce the value of

the assets that would be available to the Assignee.13   They add that it would then be

for the done to raise any available defence under s 208 of the Act.14  The views of the learned authors have been accepted in this Court.15

10 Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd [2011] UK PC 17; [2012] 1 WLR 172 at [60].

11 Insolvency Act 2006, section 206(4).

12 Section 204.

13 Paul Heath and Michael Whale Heath and Whale on Insolvency (online looseleaf ed, LexisNexis) at

[24.92].

14 Which limits recovery where the recipient acted in good faith, in the absence of reasonable grounds

[34]     I accept the submission of counsel for the Assignee that the substance of the transaction was to effect a diminution in value of the bankrupt’s assets or otherwise reduce the value of assets available in the bankruptcy.  Under s 412 of the Act, the Court can look at the real nature of the transaction rather than the view ascribed to it by the parties.  I find that the bankrupt’s right to receive the purchase price for the French property was gifted to the defendant (by way of the equitable assignment) on

28 September 2010 (as distinct from 28 October 2010 when the sale of the French property was completed), when Mr Metcalfe gave the defendant/trust credit for the purchase price of the property, well within the two years before adjudication on 26

August 2011.

[35]     In case I am wrong in my finding that the notice of objection is invalid, I

make an order pursuant to s 206 cancelling the transaction as an insolvent gift.

What is the appropriate consequence of cancellation?

[36]     Once a transaction is cancelled, the Court may order payment to the Assignee of a sum of money that the Court thinks appropriate, no greater than the value of the property when the transaction was cancelled, and may make any other orders needed to give effect to the order for payment.16

[37]     The Assignee seeks an order that the defendant, as trustee of the trust, pay him  the  value  of  the  French  property  (the  New  Zealand  dollar  equivalent  of

€$300,000), plus interest from the date of adjudication and costs.

[38]     I have considered whether to reduce the value to take into account the money paid to clear the mortgage against the French property.   I do not consider it appropriate to do so.  The mortgage was cleared as part of the giving of value to the trust.  It was not cleared by the trust.  The bankrupt has asserted that the money came from the Perkins Trust.  However, the evidence before the Court suggests that this was part of the money that the bankrupt obtained from the misappropriated property,

and to that extent it can be considered to be traceable to him personally.

for suspecting insolvency, and either gave value or altered position in belief that the transfer was valid.

15 Official Assignee v Mayers [2012] NZHC 34.

16 S 207.

[39]     Putting to one side the contrivance over values to get around French law, the value of the French property was agreed at €$300,000.  I accept that as appropriate value of the property as at the date of cancellation, whether that be pursuant to the Assignee’s notice of cancellation dated 20 February 2013 or pursuant to the order just made, having regard to the evidence that the property was originally purchased by the bankrupt in December 2005 for €300,325.

[40]     The Assignee has also sought interest at 5 per cent per annum from the date of adjudication, being the date at which the value of the property should have come into the Assignee’s hands.17   Under s 207(3) of the Act, any order for payment of the value of the property is additional to any other rights and remedies available to the Assignee.  However, I also take into account that s 207 uses the date of cancellation as the “high water” mark for value.   Until the cancellation occurs, the bankrupt’s estate has a right of claim but no entitlement. I consider that to be the appropriate date for commencement of interest, particularly in the absence of any prior demand.

I find accordingly that the Assignee is entitled to interest at the rate prescribed under the Judicature Act from 20 February 2013, in accordance with my finding that the transaction was cancelled by operation of law from that date.

[41]     The last matter to consider in respect of the claims for an insolvent gift is whether there could be any defence under s 208.  Counsel for the Assignee made the valid point that the defence has not been raised, but I also accept his submission that it could not succeed because the defendant could not establish the constituent elements: that it acted in good faith; that a reasonable person in its position would not have suspected and it did not have reasonable grounds for suspecting, and that the bankrupt was unable to pay his debts without the aid of the gifted property.  The defendant had notice of the bankrupt’s financial predicament (the bankrupt being its director at the time).  Judgment had been entered against the bankrupt at the date of the transaction, the bankrupt had notice of it, the French property was his only asset of value (discussed further below), he was adjudicated less than a year afterwards,

and as a director of the defendant his knowledge is imputed to it and to the trust.

17 The prescribed rate under s 87 of the Judicature Act 1908.

Was this a transaction at undervalue?

[42]     Under ss 211 and 212 of the Act, the Assignee may recover from a person who is a party to a transaction with the bankrupt the difference between the value the other party receives and the value the bankrupt receives, if the transaction was within two years before the adjudication and the bankrupt was insolvent at the time of entering into the transaction.

[43]     Had I not found that the transaction comprised an insolvent gift, I would hold that it is a transaction at undervalue for the following reasons:

(a)       The transaction was within the two year period.

(b)The bankrupt gave value of €300,000, but received no value from the defendant in return.

(c)       The bankrupt was insolvent at the time he entered into the transaction.

[44]     The first two points are clearly established.  Something more needs to be said about the third point, that the bankrupt was insolvent at time of entering into the transaction. That finding is based on the following:

(a)      Judgments  were  entered  against  him  in  the  United  Kingdom  in November 2009 and April 2010 for a total amount of £134,952.55. Those judgments were registered in New Zealand in August 2010 (and took effect from June 2010) and at the same time an award of costs in the sum of $7,463.50 was made against the bankrupt.

(b)The Assignee has given evidence that the bankrupt had insufficient money, or assets available for realisation to produce sufficient money, to satisfy the judgments at the time of the transaction, or at least as a result of entering into the transaction.

(c)      The bankrupt failed to comply with a bankruptcy notice served on him on 18 January 2011, as a consequence of which the application for

adjudication was issued on which he was subsequently adjudicated bankrupt.

[45]     The Assignee has filed an affidavit in support of his application in which he states:

(a)      The bankrupt did not disclose any assets in his statement of affairs dated 26 October 2011, nor any sale of assets in the two years prior to adjudication, nor any transfer of assets to trusts in the five years prior to adjudication.

(b)The bankrupt has a positive obligation to disclose assets: the inference to be taken from the fact that he did not do so is that he has nothing to declare.

(c)      In  an  affidavit  filed  in  the  bankruptcy  proceeding,  the  bankrupt claimed he still had significant assets, all of which were held in trust or by a company.

(d)In his judgment on the application for adjudication,18 Associate Judge Bell recorded that the bankrupt’s wealth in New Zealand was tied up in illiquid assets that were on the market but which he was unable to sell given a low level of demand in the current market.

[46]     At best, therefore, the bankrupt may have had a beneficial interest in the assets, but the evidence shows that they were of a nature that could not be realised within a reasonable time.  I find that he was insolvent at the time of the transaction.

[47]     I find that the Assignee is entitled to recover from the defendant the New

Zealand dollar equivalent of €300,000, as the difference between value received and given in the transaction.

18 Perkins v Perkins, above n 5, at [39].

Was this a contribution to the defendant’s property?

[48]     Where a bankrupt makes a contribution to the property of another, the Court has power to order the recipient to pay the value of the contribution to the Assignee if the contribution was made within defined periods before the adjudication,19  the bankrupt was not paid adequately for the contribution and the value of his or her assets was reduced by the contribution.20

[49]     Under s 214 of the Act, the Court may ascertain the value of the contribution, and can order the recipient to pay less (or refuse to make an order) if the recipient acted in good faith and his altered position in the reasonable belief that the contribution was valid and would not have to be repaid, or if the Court considers it unfair to require repayment.

[50]     A  bankrupt  will  have  made  a  contribution  to  a  recipient’s  property  if (amongst  other  things)  the  bankrupt  has  provided  money  to  buy  land  in  the recipient’s name or on the recipient’s behalf or has paid instalments for the purchase of or towards the purchase of land or other property in the recipient’s name or on the recipient’s behalf.21

[51]     I  am  satisfied  that  the  bankrupt  has  contributed  towards  the  defendant’s property, and that all other prerequisites for an order in the New Zealand dollar equivalent of €300,000 are met.   For the reasons I have already given, I find that there is no basis for an order for payment of a sum less than the value of the contribution.

Decision

[52]     I enter judgment for the Assignee against the defendant for the New Zealand dollar equivalent of €300,000 as at the date of this judgment.  The Registrar is to seal judgment in the equivalent New Zealand dollar amount upon production of evidence

of today’s exchange rate.

19  Two years, but potentially up to five years if the recipient cannot prove that either at the time of contribution or at a later time before adjudication the bankrupt was able to pay his or her debts without the aid of the contribution.

20 Insolvency Act 2006, s 213.

21 Section 213(3).

[53]     I also order that the defendant pay interest on the sum of €300,000 at the rate of 5 per cent per annum from 20 February 2013 (with that sum also to be converted to its New Zealand dollar equivalent at today’s exchange rate).

Costs

[54]     The Assignee seeks costs of $13,731 calculated on a scale 2B basis, together with  disbursements.    Counsel  has  provided  a  memorandum  itemising  the  costs sought (although it contains an arithmetical error in the calculation and I suspect that he intended to show a greater sum).  I accept that the Assignee is entitled to costs on a 2B basis, but make the following comments on the quantum of the costs sought:

(a)      The Assignee has brought this claim on three alternative bases: an irregular transaction in the form of an insolvent gift (with that in turn being made on two possible bases), a transaction at undervalue, and a contribution to the defendant’s property.   The claim to set aside an insolvent gift is required to be made by originating application under

Part 19 of the High Court Rules.22  Although the other two claims rely

on  the  same  facts,  the  High  Court  Rules  provide  for  them  to  be brought under Part 18.23   The Assignee has brought his application by way of statement of claim under Part 18 (by leave of the Court) as the more appropriate procedure to accommodate the different procedural requirements.  One of the grounds for leave was that if leave was not given the Assignee would have to bring two proceedings based on the

same facts, with attendant additional cost.

(b)Schedule  3  of  the  High  Court  Rules  provides  a  scale  for  civil proceedings generally and then makes separate and lesser provision for originating proceedings.   The underlying rationale is that the originating proceedings do not usually need formal pleadings and the interlocutory processes of an ordinary civil proceeding or the same pre-trial processes as ordinary proceedings, and are usually dealt with

faster and more economically.

22 Rule 24.35.

23 Rule 18.1(b)(ix).

(c)      The Assignee  has  claimed  costs  as  an  ordinary  civil  proceeding, except for preparation for the hearing (for which he has claimed 0.5 days instead of the 3 days allowable under the scale, given that it proceeded on a formal proof basis).

(d)The Part 18 claims added little to the work required for the Part 19 claim.  In particular, there was no need for preparation of additional evidence (and it is anticipated that under a Part 19 claim the evidence will be given in an affidavit filed with the application,24  and the cost of preparation will be included in the costs allowable for commencement of the proceeding).  Having said that, I accept that the Assignee filed a substantial affidavit, and that more time than usual

would have been required to prepare it.

(e)      These  points  are  met   by  allowing  for  commencement  of  the proceeding  as  for  an  ordinary  proceeding  (3  days  sought  and allocated) but disallowing the claim for preparation of evidence for an ordinary proceeding (the claim for 2.5 days).  This results in a time allowance  of  7.1  days.    At  $1990  per  day,  that  gives  a  sum  of

$14,129.00.

(f)       Counsel has attached an account for the Assignee’s actual costs up to

30 May 2013, which is less than the costs that I would otherwise be prepared to allow according to scale.  The High Court Rules provide that an award of costs should not exceed the actual costs.25     The Assignee will incur further costs for counsel attending the hearing and sealing this judgment, but  I suspect that the total incurred by the Assignee will still be less than the amount calculated according to

scale.

[55]     The Assignee is to file a memorandum stating the total sum incurred by the

Assignee for legal costs and disbursements, prior to sealing judgment.

24 RR 19.10(1)(b) and 7.20.

25 R 14.2(f).

[56]     The defendant is to pay the Assignee whatever sum is the lesser of his actual costs  or  costs  calculated  on  a  scale  2B  basis  as  assessed  above,  together  with

disbursements as fixed by the Registrar.

Associate Judge Abbott