Official Assignee v Sharma & Family Trustee Ltd

[2016] NZHC 1843

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-001804 [2016] NZHC 1843

UNDER

Part 32 of the High Court Rules

IN THE MATTER

of the bankruptcy of Sushil Kumar Sharma
(Bankrupt)

BETWEEN

OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF SUSHIL KUMAR SHARMA

Applicant

AND

SHARMA & FAMILY TRUSTEE LIMITED

First Respondent

PAULA MARYANNE SHARMA Second Respondent

Hearing:	On the papers
Counsel:	G A D Neil for the applicant
Judgment:	10 August 2016

JUDGMENT OF PALMER J

This judgment is delivered by me on 10 August 2016 at 1 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Counsel/Solicitor:

Meredith Connell, Auckland

OFFICIAL ASSIGNEE v SHARMA & FAMILY TRUSTEE LTD & ANOR  [2016] NZHC 1843 [10 August

2016]

Summary

[1]      On the application of the Official Assignee, without notice, I grant freezing orders over property of Sharma & Family Trustee Ltd and Ms Paula Sharma in order to preserve from dissipation assets of Mr Shushil Sharma who is bankrupt.  I hold it is within the High Court’s jurisdiction to grant freezing orders in advance of substantive  proceedings.     Ordinarily,  it  would  need  to  have  confidence  the substantive proceedings are in prospect and the basis for the applicant’s claim is clear.   The Court may consider tying the period of the freezing orders to those proceedings, as I do here.  I also hold that the constitutional and legal context means that dispensation for the Official Assignee to offer an undertaking as to damages can be regarded as a general default presumption as can the courts’ expectation that the Crown will meet any order as to damages made by the Court.   I consider this is consistent with s 27(3) of the New Zealand Bill of Rights Act 1990.

Application

[2]      Mr Sushil Sharma is bankrupt.   The Official Assignee is  concerned that Sharma & Family Trustee Ltd (the trustee), the first respondent, and Mr Sharma’s wife Mrs Paula Sharma, the second respondent, may dissipate assets that should be part of the bankruptcy.  The Assignee applies for freezing orders, without notice, to prevent that.

Jurisdiction

[3]      The Assignee intends to serve, on the respondents, notices of cancellation of irregular transactions which have been filed in the bankruptcy proceeding under subpart 7, part 3 of the Insolvency Act 2006 (the Act).   The Assignee applies for freezing orders before that occurs, in order to prevent dissipation of assets.  Once the respondents receive the notices of cancellation they will have 20 working days to raise  any  objection.    If  no  objection  is  raised  the  transactions  will  be  deemed cancelled and the Assignee will be entitled to seek substantive relief under s 207 of the Act.   If objection is raised the Assignee will be required to seek an order of cancellation under s 206 of the Act and then seek substantive relief under s 207 of

the Act. Alternatively, the Assignee may seek orders setting aside the transactions as prejudicial dispositions under s 346 of the Property Law Act 2007.

[4]      I  agree  that  I  have  jurisdiction  to  grant  freezing  orders  in  advance  of substantive proceedings.  That is an implication of the application for freezing orders being able to be made by originating application under r 32.2(4) of the High Court Rules.   There is no requirement in the rules for substantive proceedings to have issued before an originating application for freezing orders is made.   Orders have previously been granted by the Court in such circumstances in Official Assignee v

Scott.1      Ordinarily,  the  Court  will  need  to  have confidence that  the substantive

proceedings are in prospect and the basis for the applicant’s claim is clear, as I do

here.

[5]      A court may consider tying the period of the freezing orders to pending substantive proceedings, as I do here.  The Official Assignee has 30 working days to continue or  renew the  freezing orders through  the Court.   That  should  provide enough time for objection to the notices of cancellation and for subsequent filing of substantive proceedings by the Assignee.  Failure by the Assignee to file substantive proceedings by the time she applies for a continuation or renewal of the freezing orders will count against such an application.

Law

[6]      As confirmed by the Court of Appeal in Shaw v Narain, the well-established requirements for granting freezing orders are that:2

(a)       there is a good arguable case on the substantive claim; (b)     there are assets to which the order can apply; and

(c)       there is a real risk that the respondents will dissipate or dispose of

those assets.

1      Official Assignee v Scott [2012] NZHC 2579.

2      Shaw v Narain [1992] 2 NZLR 544 (CA), Bank of New Zealand v Hawkins (1989) 1 PRNZ 451.

[7]      I  also  need  to  consider  the  overall  justice  of  the  case  and  balance  the protection of the applicant against prejudice or hardship to the respondents.

Grounds for orders

[8]      The Assignee has filed a comprehensive and detailed affidavit and exhibits by Ms   Ciesta   Bolivia   Stoltz,   the   Senior   Insolvency   Officer   responsible   for administration of Mr Sharma’s bankrupt estate.  On the basis of Ms Stoltz’s evidence I am satisfied that:

(a)      The Assignee has a good arguable case to seek cancellation, as gifts under ss 204 and 205 of the Insolvency Act or as dispositions under s 346 of the Property Law Act 2007, of:

(i)forgiveness of $141,137 of debt, payment of $143,615.15 and transfer of two motor vehicles by and from Mr Sharma to the trustee; and

(ii)      transfer of gold valued at around $150,000 in 2014 from Mr

Sharma to Mrs Sharma.

(b)The trustee and Mrs Sharma have assets to which the orders can apply, including the trustee’s interest in a property at Richardson Rd, Mt Roskill, and Mrs Sharma’s gold.

(c)      There  is  a  real  risk,  given  Mr  Sharma’s  apparent  previous  such actions, that the respondents may dissipate the funds if put on notice of the applications.

[9]      I am satisfied that the balance of convenience and the overall justice of the case favour the applications  being granted.    I note in  this  regard that  r 32.6(3) requires that the orders must not prohibit the trustee or Mrs Sharma from dealing with the assets restrained for the purposes of paying ordinary living expenses, legal expenses relating to the freezing order or disposing of assets or making payments in the ordinary course of business.

Undertaking as to damages

High Court Rules

[10]     Rule 32.2(5) requires that “[a]n applicant for a freezing order must file a signed undertaking that the applicant will comply with any order for the payment of damages to compensate the respondent for any damage sustained in consequence of the freezing order.”

[11]     The mandatory nature of that requirement is somewhat watered down by r 32.6(4) which provides that “[u]nless there are special circumstances, the court must require the applicant for a freezing order to give appropriate undertakings, including an undertaking as to damages.”

[12]     Rule  32.6(4)  should  be  read  as  qualifying  r  32.2(5)  due  to  its  greater specificity and in the interests of making this requirement workable.

The position of the Crown

[13]     Here, the Official Assignee submits she is constrained by the Public Finance Act 1989 from giving a guarantee or indemnity on behalf of the Crown.  I agree that this is so.

[14]     The Official Assignee for New Zealand is an officer of the Crown, and an officer of the court, appointed under the State Sector Act 1988 by virtue of s 399 of the Insolvency Act 2006.  The Official Assignee may sue on behalf of the Crown in her own name, under s 14(1)(b) of the Crown Proceedings Act 1950.   Any undertaking as to damages given by the Official Assignee would be given on behalf of the Crown.

[15]     The  Crown  currently  has  a  somewhat  ambiguous  status  in  litigation compared with other New Zealanders.   Section 17 of the Crown Proceedings Act

1950 provides the Court has power to make all such orders against the Crown that it does in proceedings “between subjects” except for injunctions, specific performance or recovery of land.  Section 18 of the same Act states that “the Crown shall not be required under any rule of court or order to deposit or give security for the costs of

any other party”.  Section 24(4) of the same Act currently provides for appropriation, by permanent legislative authority, of payment of court orders against the Crown.3

[16]     Constitutionally, it is expected that the Crown will honour and abide by orders of the Court. And s 27(3) of the New Zealand Bill of Rights Act 1990 states:

Every person has the right to bring civil proceedings against, and to defend civil proceedings brought by, the Crown, and to have those proceedings heard,  according  to  law,  in  the  same  way  as  civil proceedings  between individuals.

[17]     This suggests the Crown should be subject to the requirement to provide an undertaking as to damages in the same way as are others.

[18]     But part 6 of the Public Finance Act 1989 sets strict limits on the procedures and authorities by which the Crown may borrow  funds or incur expenditure or financial obligations. They include s 65ZC which states:

Except as expressly authorised by any Act, it is not lawful for any person to give a guarantee or indemnity on behalf of or in the name of the Crown.

[19]     Instead, the power to give a guarantee or indemnity on behalf of the Crown is reserved to the Minister of Finance by s 65ZD of the Public Finance Act or, if specified in regulations, to a department by s 65ZE.  An undertaking as to damages would constitute an indemnity for the purposes of the Public Finance Act.

The Crown is not required to provide an undertaking as to damages

[20]     The courts have recognised, on a number of occasions, that the restrictions and obligations on the Crown constitute a special circumstance justifying dispensing with the requirement on it under r 32.6(4) to provide an undertaking as to damages when the Official Assignee or other emanation of the Crown applies for a freezing

order.4   In doing so the Courts recognise that the Crown will meet any order that the

3      In 2015 the Law Commission recommended reform of s 17, retention of the substance of s 18 and modification of s 24(4) in Law Commission The Crown in Court: A Review of the Crown Proceedings Act and National Security Information in Proceedings (NZLC R135, 2015).

4      For example, Official Assignee v Fry HC Auckland CIV 2009-404-436, 4 February 2009 at [33]- [34]; Labour Inspector, Ministry of Business, Innovation and Employment v Civic City Ltd [2013] NZEmpC 196 at [40]-[43]; Commissioner of Inland Revenue v Dymock [2013] NZHC

3016 at [11].

Court may make as to damages.5    I agree that such dispensation for the Crown in providing an undertaking as to damages is a reasonable limit on the right in s 27(3) of the New Zealand Bill of Rights Act 1990.  It is justified in a free and democratic society,  in  terms  of  s  5,  by  the  public  interest  in  public  sector  financial accountability.

[21]     In Official Assignee v Honk Apartments Ltd Heath J stated that dispensation from providing an undertaking as to damages should not be regarded as a general statement of principle and that each case will turn on its own facts.6   However, I am satisfied that the constitutional and legal context means that the dispensation for the Official Assignee  to  offer  an  undertaking  can  be  regarded  as  a  general  default presumption as can the Courts’ expectation that the Crown will meet any order as to damages made by the Court.

[22]     I agree that these presumptions apply here.  I dispense with the requirement on the Official Assignee to provide an undertaking as to damages.

Orders

[23]     I order that:

(a)      Sharma & Family Trustee Ltd and Paula Maryanne Sharma (the respondents), are restrained from removing any of the assets listed in the  next  subparagraph  from  New  Zealand  or  from  disposing  of, dealing with, or diminishing the value of those assets, whether they are in or outside New Zealand.

(b)      This freezing order applies to:

(i)All property of every kind, whether tangible or intangible, real or  personal,  corporeal  or  incorporeal,  and  includes  rights,

interests,  powers  and  claims  of  every  kind  in  relation  to

5      See, for example, Labour Inspector, Ministry of Business, Innovation and Employment v Civic

City Ltd at [43].

6      Official Assignee v Honk Apartments Ltd HC Auckland CIV-2009-404-6222 at [12]-[13].

property  however  they  arise,  of  Sharma  &  Family Trustee Limited as trustee of the Paula Maryanne Sharma Trust, including  but  not  limited  to:  the  property  situated  at  348

Richardson Rd, Mt Roskill, more fully described in identifier

NA126B/667; and monies.

(ii)All property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, powers and claims of every kind in relation to property however they arise, of Paula Maryanne Sharma, including but not limited to gold that was declared by Sushil Kumar Sharma to have a value of approximately $150,000 in early 2014.

(c)      This order does not prohibit the respondents from dealing with the assets covered by the order for the purpose of:

(i)       paying ordinary living expenses; or

(ii)      paying legal expenses related to the freezing order; or

(iii)disposing  of  assets,  or  making  payments,  in  the  ordinary course of your business, including business expenses incurred in good faith.

(d)As the freezing order was made without notice, it will have no effect after 30 working days from the date of this order, unless on or before that date, it is continued or renewed by this Court.  The respondents are entitled to be heard by the Court on any application for continuation or renewal of the Order.

(e)      I reserve leave to the respondents to make an interlocutory application to the Court to discharge or vary the order.  Such an application may be filed and served, with supporting affidavits, on 3 days notice.

(f)      This order does not affect anyone outside New Zealand until it is declared enforceable by the Court in the relevant country (in which case it affects a person only to the extent that it has been declared enforceable) unless the person is:

(i)a person to whom this order is addressed, or an officer of that person, or an agent appointed by power of attorney of that person; or

(ii)a  person  who  has  been  given  notice  of  this  order  at  that person’s residence or place of business within New Zealand; or

(iii)a person who is able to prevent acts or omissions outside the jurisdiction of this Court that constitute, or assist, a breach of this order.

(g)      This order does not prevent, in respect of assets located outside New

Zealand, any third party from complying with:

(i)what it reasonably believes to be the third party’s obligations, contractual  or  otherwise,  under  the  laws  of  the  country  in which those assets are situated or under the proper law of any contract between the third party and a respondent; and

(ii)any  orders  of  the  courts  of  that  country,  provided  that reasonable notice of any application for such an order is given to the Official Assignee’s solicitors.

[24]     I reserve costs in relation to this application.

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

Palmer J