Ravelich v Manning
[2018] NZHC 255
•27 February 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2590
[2018] NZHC 255
UNDER Section 119(2) of the Insolvency Act 2006 IN THE MATTER
of an originating application that disclaimed property vest in the applicant
BETWEEN
BRETT RAVELICH
Applicant
AND
JAMES WILLIAM OWEN MANNING
Respondent
Hearing: 27 February 2018 Appearances:
Applicant in person
M Lloyd for Respondent
Judgment:
27 February 2018
JUDGMENT OF LANG J
[on application for order that disclaimed property vest in the applicant]
This judgment was delivered by me on 27 February 2018 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
RAVELICH v MANNING [2018] NZHC 255 [27 February 2018]
[1] The applicant, Mr Ravelich, was involved in a business relationship with the respondent, Mr Manning, during 2010 and 2011. Their business involved the operation of a bar on Karangahape Road. The two men formed a company, The Eagle Bar Limited (the company), to operate the bar. They each held shares in the company.
[2] In January 2010 Mr Ravelich transferred his shares to Mr Manning and resigned as a director. There is now a dispute between the two regarding the reasons for the transfer but that is not material for present purposes. Mr Ravelich has always contended, however, that Mr Manning continued to hold the shares on trust for him.
[3] The relationship between the two men went sour in 2011 and Mr Manning issued proceedings in this Court after Mr Ravelich assumed sole control of the bar.1 This led to a counterclaim by Mr Ravelich in which he formally claimed that Mr Manning held the shares transferred to him in January 2011 in trust for Mr Ravelich.
[4] On 22 April 2012 Mr Ravelich was adjudicated bankrupt. This halted Mr Manning’s claim against Mr Ravelich, and Mr Ravelich’s interest in the counterclaim became vested in the Official Assignee.2 The claim and counterclaim were subsequently discontinued with the consent of all parties on 20 June 2012.
[5] Mr Ravelich was discharged from bankruptcy in April 2015. He then instituted a fresh proceeding against the Official Assignee and Mr Manning on 11 August 2016.3 This was struck out by Associate Judge Sargisson on 3 March 2017 because the rights asserted by Mr Ravelich in the proceeding remained vested in the Official Assignee.4
[6] On 22 September 2017, however, the Official Assignee disclaimed his interest in any rights arising out of Mr Ravelich’s business association with Mr Manning. In this proceeding Mr Ravelich seeks an order under s 119 of the Insolvency Act 2006 (the Act) that the disclaimed rights now be vested in him.
1 Manning v Ravelich HC Auckland CIV-2011-404-2189.
2 Insolvency Act 2006, s 101.
3 Ravelich v Official Assignee HC Auckland CIV-2016-404-1871.
4 Ravelich v Manning [2017] NZHC 332.
[7] Mr Manning opposes the application. He says that it would now be unfair on him for the order to be made, and that any claim has no prospects of success.
Preliminary issue
[8] Mr Ravelich commenced this proceeding by way of originating application. An application under s 119 of the Act is not one that r 19.2 of the High Court Rules permits to be brought by way of originating application as of right. For that reason I accept Mr Lloyd’s submission that Mr Ravelich ought to have filed an application under r 19.5 for leave to commence the proceeding by way of originating application.
[9] Mr Lloyd is also correct to point out that r 19.5(3) requires any application for leave to be filed with the originating application. Nevertheless r 1.9 provides the Court with a wide discretion to amend any defects in procedure where that is necessary to enable the Court “to determine the real controversy between the parties”.
[10] I see no prejudice to Mr Manning in the proceeding being commenced by way of originating application rather than statement of claim. There are no contested issues of fact and the issues are straightforward. The originating application procedure therefore lends itself well to the nature of the dispute. For these reasons I grant Mr Ravelich leave to commence the proceeding by way of originating application.
Approach
[11]Section 119 of the Act provides:
119 Position of person who suffers loss as result of disclaimer
(1)A person suffering loss or damage as a result of disclaimer by the Assignee may—
(a)claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the Court under paragraph (b):
(b)apply to the Court for an order that the disclaimed property be delivered to, or vested in, that person.
(2)The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.
(3)The Court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.
[12] There is remarkably little authority concerning applications under s 119. Recently, however, this Court considered the section in Robinson v IAG New Zealand Ltd.5 In that case Moore J observed:6
The effect of this provision [s 119(3)] is that the Court enjoys a broad and largely unfettered discretion. It may make an order under s 119(2) if it consider it is “fair” to do so. In the absence of restricted language in sub- section (3), I consider this assessment should be made in a holistic manner and in light of all the surrounding circumstances that the Court considers just.
[13]I propose to adopt the same approach in relation to the present application.
Decision
[14] Mr Ravelich confirmed during the hearing that, if the present application is successful, he will file a new claim against Mr Manning in which he contends Mr Manning held the transferred shares in the company on trust for Mr Ravelich. Mr Ravelich will then seek monetary compensation to reflect the fact that Mr Manning received the entire benefit of the company’s earnings and any profit made on the sale of the business.
[15] I consider two factors are determinative of the application. The first is that Mr Manning has an obvious defence to any new claim under s 11(1) of the Limitation Act 2010 (the Limitation Act). Mr Ravelich’s claim, however it may be advanced, will ultimately be a claim for money. It will therefore be subject to s 11 of the Limitation Act, which provides:
11 Defence to money claim filed after applicable period
(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim's primary period).
(2)However, subsection (3) applies to a money claim instead of subsection
(1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—
5 Robinson v IAG New Zealand Ltd [2016] NZHC 3149.
6 At [50].
(a) the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and
(b) the claim is made after its primary period.
(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—
(a) 3 years after the late knowledge date (the claim's late knowledge period); or
(b) 15 years after the date of the act or omission on which the claim is based (the claim's longstop period).
[16] Mr Ravelich transferred his shares to Mr Manning in January 2011. Mr Manning unequivocally asserted his right to beneficial ownership of the shares on 15 April 2011 in an affidavit sworn in the proceedings referred to at [3]. As a result, any cause of action arising out of the transfer of the shares arose at the latest by 15 April 2011. Mr Ravelich had six years from that date to file any proceeding based on a cause of action arising out of the transfer of the shares.7 The last date for filing such a proceeding was therefore 15 April 2017. Any claim that Mr Ravelich might now file based on such a cause of action would inevitably be the subject of a successful application by Mr Manning for summary judgment on the basis that he has an unanswerable defence to the claim.
[17] Mr Ravelich advised me during the hearing that he believed a claim based on breach of fiduciary duty would not be caught by s 11. Section 12 of the Limitation Act provides, however, that the term “money claim” in s11 includes a claim for monetary relief at common law, in equity or under an enactment. A claim based on alleged breach of fiduciary duty is a claim for monetary relief in equity. It is therefore subject to the six year limitation period imposed by s 11.
[18] Section 11(2) extends the six year period when the claimant has late knowledge of the facts giving rise to the claim, but this does not assist Mr Ravelich for present purposes. He has always been aware of the facts giving rise to his proposed claim. Furthemore, he has attempted to advance the claim in the two proceedings referred to above but his bankruptcy prevented him from having them determined.
7 Limitation Act 2010, s 11(1).
[19] I therefore accept the submission for Mr Manning that it would be futile for the Court to make an order vesting the rights in Mr Ravelich. That would needlessly require the Court and Mr Manning to deal with a new proceeding that had no prospect of success.
[20] Secondly, Mr Ravelich was discharged from bankruptcy in April 2015. Any counterclaim Mr Manning may have had against Mr Ravelich was extinguished at that time.8 As a result, Mr Manning could not now file any counterclaim against Mr Ravelich as he would have been entitled to do if Mr Ravelich had not been declared bankrupt. That would obviously result in unfairness to Mr Manning.
[21] For these reasons I am not prepared to make an order vesting the rights in Mr Ravelich.
Result
[22]The application is dismissed.
Costs
[23] Mr Manning has succeeded and is entitled to costs on a Category 2B basis together with disbursements as fixed by the Registrar.
Lang J
Solicitors:
Chambers Craig Jarvis M Lloyd, Auckland Copy to Applicant
8 Insolvency Act 2006, s 304(1).
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