Ranolf Company Limited (in liquidation) v Bhana

[2017] NZHC 1816

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

SF 2017-463-2 [2017] NZHC 1816

BETWEEN

RANOLF COMPANY LIMITED (IN

LIQUIDATION) Entitled Party

AND

ASHOK DENNIS BHANA AND JASU MATIO BHANA AS FORMER TRUSTEES OF THE RANOLF TRUST First Liable Party

GEYSERLAND LIMITED Second Liable Party

Hearing:	(on the papers)
Counsel:	A S Botterill for Ranolf Company Limited (in liquidation) No appearance by, or on behalf of other parties
Judgment:	2 August 2017

JUDGMENT OF HEATH J

This judgment was delivered by me on 2 August 2017 at 9.30am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

A S Botterill, Waterstone Insolvency, Auckland

RANOLF COMPANY LIMITED (IN LIQUIDATION) v BHANA [2017] NZHC 1816 [2 August 2017]

Introduction

[1]      Ranolf Company Ltd (in liq) (the Company) was put into liquidation by order of  this  Court  on  1 August  2014.    Mr  Grant  and  Mr  Khov  were  appointed  as liquidators.

[2]      At the time of liquidation, the Company believed that it was the trustee of the Ranolf Trust (the Trust).   The sole asset of the Trust was a property situated in Ranolf Street, Rotorua, comprising a block of 12 residential units.  It was subject to a mortgage in favour of ANZ Bank.  The liquidators brought a proceeding in the name of the Company to facilitate recourse to the property to meet the claims of creditors, and administration costs.  The proceeding was brought against former trustees.  The property was registered in the name of two of them, Mr Ashok Bhana and Ms Jasu Bhana.

[3]      The claim was resolved in favour of the liquidators in a judgment given by Gilbert J on 12 June 2017.1     In the course of his judgment, Gilbert J considered (among other things) whether the Company was a trustee of the Trust at relevant times, whether the Company owed debts to the claimed creditors and whether (and if so to what extent) the liquidators were entitled to be paid costs out of trust assets.

[4]      Relevantly, Gilbert J stated:

[18]	The liquidators have accepted proofs of	debt from four creditors:
(a)	Redco NZ Ltd	$   2,053.35
(b)	Rotorua District Council	$   6,900.46
(c)	Jaafar Holdings Ltd	$  96,055.75
(d)	McDonald Law	$  23,195.10

$128,204.66

…

[48]      The total costs claimed are summarised in Mr Jones’ affidavit and set out at [37] and [38] above.  I have already addressed some of the items falling into the “administration” category.  As noted, many of these appear

excessive.     Of  the  $18,746.15  claimed,  I  consider  that  a  reasonable allowance would be $10,000.  The next item, “investigation” is claimed in the sum of $53,273.75.  Although these costs do not all appear to have been necessary, I allow $40,000 for this item.  The third item, “asset realisation”, is allowed in the sum claimed of $41,699.  The costs incurred relating to the claim by Ranolf against Jaafar appear reasonable and I allow the full sum claimed of $4,226.25.  The legal costs for this proceeding are allowed in the sum of $50,000.  The next item, amounting to $200,572.08, is for costs of the 169 proceeding and is no longer pursued in this proceeding.  The final item, $4,962.25, concerns the costs claimed for the appeal to the Court of Appeal in the 169 proceeding and should not be awarded in this proceeding. This yields a total of $145,925.25.  In addition, I allow the disbursements set out in paragraph 2.5 of Mr Jones’ affidavit dated 10 April 2017 apart from the last item relating to the 169 proceeding. That gives a total of $13,819 for disbursements.

Result

[49]      I make a declaration that Ranolf Company Ltd (now in liquidation)

was a trustee of the Ranolf Trust from 25 May 2004 to 22 July 2015.

[50]      I make an order that Ranolf Trust’s fee simple estate held in the name of the first respondents as trustees in Lot 6, Deposited Plan 2850, identifier SA1C/734 and Lot 7, Deposited Plan 2850 identifier SA935/191 is to stand charged with payment of the debts due to the applicants’ creditors as set out in [18] above and the liquidators’ costs as set out in [48] above.

[51]      In the event these sums have not been paid within 30 days of the date of this judgment, I make an order for the sale of the properties and direct that payment of these sums be made to Ranolf out of the net sale proceeds.

[5]      In one sense, the order that the property stand charged with payment of debts due to creditors of the Company and the liquidators’ costs is somewhat unusual.  By holding that the Company had been trustee of the Trust from 25 May 2004 until 22

July  2015,  the  Judge  was  accepting  that  it  ought  to  have  been  the  registered proprietor of the property at relevant times.  If an order had been made compelling the former trustees to transfer the property into the name of the Company, it would have been for the liquidators to have realised the property for the benefit of creditors and to meet the costs of administration of the liquidation.   That would not have required any sale order, as the liquidators could have attended to sale themselves.  In the circumstances in which the sale order has become operative, it is of an unusual type.

[6]      The solicitors for the liquidators provided a letter of instruction to the Sheriff. The  Sheriff  was  concerned  about  three  aspects  of  the  instructions.    They  were referred to me for further direction.

[7]      In a Minute issued on 26 July 2017, I summarised the points in issue and invited the solicitors for the liquidator to make further submissions, if they wished to do so.  In identifying the issues, I said:

[3]       Two of the issues are:

[a]       Is the Sheriff required to make demand for the judgment sum?

[b]       Is it necessary for personal service of documents associated with the sale order to be made, or is the Sheriff entitled to rely on the order for substituted service of 16 June 2015?

[4]       A third issue was raised as to whether chattels should be sold first, in accordance with r 17.77 of the High Court Rules.   I am satisfied that the order made by Gilbert J authorises sale of the properties, rather than chattels. On that basis, there is no need to sell chattels before the two properties.

[8]      Mr Botterill, for the liquidators, filed a further submission on 28 July 2017, responding to the two remaining issues.   I have considered those submissions and now give rulings to enable the Sheriff to complete the sale process.

Is the Sheriff required to make demand for the judgment sum?

[9]      As previously indicated, the proceeding before Gilbert J was not an orthodox action to recover a debt.  Rather, it sought to confirm the Company’s status as trustee of the Trust, and its ability to use property to meet debts incurred by the Company.

[10]     Mr  Ashok  Bhana  and  Ms  Jasu  Bhana  were  joined  as  former  trustees. Geyserland Ltd was joined as it had (purportedly) been appointed as a “subsequent trustee”.2

[11]     No steps were taken by any of those parties to defend the proceeding as no formal order was sought against any of them.   However, Ms Bhana did attend the hearing and was allowed to make submissions to Gilbert J.  No address for service

was filed by any of the former trustees against whom the proceeding was brought. Geyserland Ltd took no steps.  A creditor that was ordered to be served did not wish to be heard.

[12]     In those circumstances, I consider there is no need for any further demand to be made. The essence of Gilbert J’s decision was to allow the Company, as trustee, to have the property sold to meet debts owing, and administration costs.  The purpose of the judgment was to provide a mechanism through which the property could be sold to achieve that goal.  No money was ordered to be paid by either of the former trustees, or the subsequent trustee.  To achieve that goal, the order was structured so that the property stood charged with the moneys owing, with a right to sell if other

steps were not taken to satisfy the liquidators’ claims.3

Is further personal service required?

[13]     Mr Botterill submits that personal service is not required.   He refers to an order for substituted service that was made on 16 June 2015, in respect of the proceeding that gave rise to Gilbert J’s judgment.

[14]     Rule 17.72 of the High Court Rules governs service on a liable party when a sale order is to be executed.  It provides:

17.72   Service of notice of sale on liable party

At least 7 working days before the sale, an enforcing officer must serve a copy of the notice referred to in rule 17.71 on the liable party –

(a)       At the liable party’s address for service; or

(b)      If the liable party has not filed an address for service, at the liable

party’s last known residential address.

[15]     The unusual nature of Gilbert J’s order has given rise to the service issue.  As previously stated, neither Mr Bhana nor Ms Bhana is liable to pay the amounts ordered personally.   Nor is Geyserland Ltd.   In essence, the sale order is being enforced to allow the party who ought to be registered proprietor to sell.  In those

circumstances, the liable parties have no interest in whether the sale proceeds, other than to ensure the best possible price is attained.

[16]     Rule 6.8 of the High Court Rules deals generally with the topic of substituted service, or dispensation of service.  Relevantly, r 6.8 provides:

6.8 Substituted service

If reasonable efforts have been made to serve a document by a method permitted or required under these rules, and either the document has come to the knowledge of the person to be served or it cannot be promptly served, the court may—

…

(c)       subject  to  any  conditions  that  the  court  thinks  just  to  impose, dispense with service of a document on a person and give to the party  by  whom  the  document  is  required  to  be  served  leave  to proceed as if the document had been served.

[17]     Given  that  the  former  or  subsequent  trustees  do  not  have  any  personal interest in the proceeds of the sale of the property, I make an order dispensing with the service otherwise required by r 17.72.

[18]     I make it clear, however, that if a surplus were to eventuate after sale, the Company would need to apply any residual funds in accordance with the Trust instrument.

[19]     The liquidators will need to be mindful of that obligation.  The Company, as trustee, continues to owe fiduciary obligations to the beneficiaries of the Trust.

Result

[20]     For those reasons, I give the following directions to the Sheriff:

(a)       There is no need to make any demand on the liable parties before enforcing the order for sale.

(b)There is no need to serve the liable parties with the notice under r 17.72 of the High Court Rules.

[21]     No order as to costs.

P R Heath J

Delivered at 9.30am on 2 August 2017