Robinson v Whangarei Heads Enterprises Limited
[2015] NZHC 2945
•24 November 2015
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2013-488-223 [2015] NZHC 2945
BETWEEN JOHN CLIFFORD WALTER ROBINSON
Plaintiff
AND
WHANGAREI HEADS ENTERPRISES LIMITED
First Defendant
VICTOR LEONARD FREAKLEY Second Defendant
Hearing: On the papers Appearances:
Plaintiff in person
S R Ebert for Defendants
G Caro for Official AssigneeJudgment:
24 November 2015
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 24 November 2015 at 4:30pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………………
Registrar/Deputy Registrar
Solicitors:
C & M Legal (S R Ebert), New Plymouth, for defendant
Guy Caro, Ministry of Business Innovation and Employment, Auckland, for Official Assignee
ROBINSON v WHANGAREI HEADS ENTERPRISES LIMITED [2015] NZHC 2945 [24 November 2015]
[1] The Official Assignee objects to Mr Robinson’s third cause of action for breach of contract. The Official Assignee says that that cause of action has vested in him under s 101 of the Insolvency Act 2006 and therefore Mr Robinson cannot sue on it. His own proceeding against Mr Freakley under CIV-2015-488-37 overlaps with Mr Robinson’s claim. Opposing, Mr Robinson says that there is no overlap and that he is entitled to maintain the third cause of action under the exception established by case law that rights of action that are personal to the bankrupt do not vest in the Official Assignee on bankruptcy.
[2] I directed written submissions. I am deciding this on the papers.
[3] Mr Robinson was adjudicated bankrupt in December 2012. This proceeding relates to events before his adjudication. Gilbert J set out the background facts to the dispute between Mr Robinson and the defendants in his judgment in the arrest proceeding.1 In addition, I add that on a complaint laid by the defendants, the police prosecuted Mr Robinson for trespass. He was convicted. His appeal against conviction was unsuccessful.
[4] Mr Robinson has filed four statements of claim: on 12 April 2013, 31 March
2014, 8 July 2015 and 2 November 2015. I go by his most recent one.
[5] He pleads that he owned a quarry at Opua but owed Mr Freakley who had a mortgage over the quarry. In August and September 2011 they entered into the first agreement. Under it, he transferred 500 shares in Whangarei Heads Enterprises Ltd to Mr Freakley, who would hold them on trust for him. Mr Robinson would remain director of Whangarei Heads Enterprises Ltd. They would have equal governance and management roles. Mr Freakley would record that the amount owed under his mortgage over the quarry had been reduced by $250,000. Mr Robinson would continue to pay interest on the basis of the full mortgage amount over the quarry.
[6] Under the second agreement, made in October 2011, Mr Robinson and
Mr Freakley agreed that they would each have the option to buy out the other ’s
1 Robinson v Whangarei Heads Enterprises Ltd [2015] NZHC 1147, [2015] 3 NZLR 734 at [6]-[18].
shares on terms that if Mr Freakley bought out Mr Robinson’s share of the company, Mr Freakley would pay Mr Robinson $360,940 plus return an office block, and if Mr Robinson bought out Mr Freakley, he would pay Mr Freakley $450,000. Pending the exercise of the option, Mr Freakley would have management and operation of Whangarei Heads Enterprises Ltd for 12 months from 12 October 2011, and would pay Mr Robison $1,056.47 each month in lieu of interest for Mr Robinson’s share of the company. Pending exercise of the option, Mr Robinson would live in the office block and would be paid certain hourly rates for contract work for the company. If Mr Freakley did not exercise the option before 12 November 2012, Mr Robinson would take over the management of the company and would pay Mr Freakley $1500 in interest for Mr Freakley’s share of the company. Mr Freakley would, in turn, have until 12 November 2013 to exercise the option. If neither of them exercised the option they would return to jointly managing and operating the company.
[7] Mr Robinson alleges breaches of these agreements by the defendants as follows:
(a) non-payment of contract sums due to him in January 2012; (b) in March 2012 unilaterally removing him as director;
(c) in March 2012 and November 2012 issuing trespass notices against him;
(d)in November 2012 using the trespass notice to stop him from complying with the contract;
(e) in November 2013 failing to allow joint management of the company.
[8] Mr Robinson pleads that as a result of the breaches of contract, he has suffered ongoing discomfort, embarrassment and damage to his reputation. He lost the use of the office block as his place of residence. The defendants obtained benefits: Mr Freakley retained control of Whangarei Heads Enterprises Ltd, Mr Freakley has retained all the financial benefits associated with the company, the
company retained full use of the office block and both have benefited from discrediting him. Mr Robinson seeks the following relief:
(a) A declaration that the defendants’ use of the police and court process
was improper;
(b) a declaration that their actions were in breach of contract; (c) general damages in the sum of $20,000;
(d) exemplary damages; (e) solicitor-client costs.
[9] Neither the Official Assignee nor the defendants submitted that Mr Robinson’s pleadings did not disclose a tenable cause of action. While I have doubts whether proper causes of action are set out in the statement of claim and doubts as to the merits (particularly given that Mr Robinson was convicted of trespass and that his intervening bankruptcy would have prevented him from resuming management of the company in November 2013), I deal with the present question on the basis that he may have tenable causes of action for breach of contract.
[10] In CIV-2015-488-37, the Official Assignee applied for freezing orders under Part 30 of the High Court Rules against Mr Freakley. There is no statement of claim in that proceeding. Freezing orders were made but the matter has not progressed pending settlement negotiations. The Official Assignee seeks an order for transfer back of the 500 shares that Mr Robinson had transferred to Mr Freakley. In the alternative the Official Assignee says that if Mr Freakley’s version of events is accepted, the Official Assignee has claims against Mr Freakley for the balance of the purchase price based on contract and also claims for cancellation and recovery of irregular transactions under ss 204 and 205 of the Insolvency Act 2006, and for prejudicial dispositions under s 346 of the Property Law Act 2007.
Is there an overlap between the Official Assignee’s claims and Mr Robinson’s
claims?
[11] The Official Assignee is the only person who can enforce the irregular transactions provisions of the Insolvency Act. Mr Robinson’s claim does not purport to do so. His claim does not overlap with that part of the Official Assignee’s proceeding. Similarly Mr Robinson does not rely on any prejudicial dispositions under Part 6 subpart 6 of the Property Law Act.
[12] Part of the Official Assignee’s claim is based on the agreement of August/September 2011 referred to in Mr Robinson’s statement of claim, but the Official Assignee’s claim relies on different breaches from those Mr Robinson pleads. The Official Assignee wishes to enforce the provision for the return of the shares alleged to be held on trust. Mr Robinson does not rely on that alleged breach of contract/trust. In his alternative claim the Official Assignee claims against Mr Freakley for non-payment for the shares. Mr Robinson does not sue on that term of the contract, but for non-payment for his services. There is accordingly no overlap.
Has Mr Robinson’s third cause of action vested in the Official Assignee on his
bankruptcy?
[13] Section 101 of the Insolvency Act says:
Status of bankrupt's property on adjudication
(1) On adjudication,—
(a) all property (whether in or outside New Zealand) belonging to the bankrupt or vested in the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; and
(b) the powers that the bankrupt could have exercised in, over, or in respect of any property (whether in or outside New Zealand) for the bankrupt's own benefit vest in the Assignee.
…
[14] Under s 3 “property” is defined:
property means property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise
[15] Clearly the definition encompasses things in action. Case law has recognised, however, that certain rights of action which are personal to the bankrupt do not vest in the Official Assignee. A leading case is Beckham v Drake, where Erle J said:2
The right of action does not pass where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without immediate reference to his rights of property. Thus it has been laid down that the assignees cannot sue for breach of promise of marriage, for criminal conversation, seduction, defamation, battery, injury to the person by negligence, as by not carrying safely, not curing, not saving from imprisonment by process of law.
[16] In Grady v HM Prison Service, Sedley LJ said:3
If within a single claim both kinds of remedy are sought (in other words, if the claim is hybrid), the claim falls outside the exception and vests in the trustee: Ord v Upton [2000] Ch 352, 360. But where one event gives rise to two or more claims, one for damage to property and one for personal injury, the former alone vests in the trustee and the latter remains with the bankrupt:
3(2) Halsbury’s Laws (4th edn reissue) para 436.
Halsbury’s Laws para 435, n 2, lists (with authority for each) the following examples of causes of action which pass to the trustee: breach of contract to deliver goods, or to repair; for commission or other money earned by the bankrupt, other than ‘personal earnings’; for earnings greater than are needed for the maintenance of the bankrupt and his family; for trespass or negligence causing damage to the bankrupt’s property or involving him in pecuniary liability; for misrepresentation or fraud; for relief against a usurious bargain or against forfeiture. The list also includes, on the authority of Beckham v Drake (ante), a claim for wrongful dismissal.
The borderline is marked by such distinctions as that between a claim for damages for a conspiracy which has caused mental and physical distress and loss of reputation (which, if it relates in part to the bankrupt in the way of his business, ranks as property passing to the trustee: see Wenlock v Moloney (1967) 111 Sol.Jo. 437, CA), and a claim for damages for negligence or assault causing personal injury, or for defamation (see Beckham v Drake, ante). There is no bright line.
[17] Mr Robinson’s first cause of action is for abuse of process: his second is
alleged to be malicious trespass, arrest and prosecution. Again, on the assumption
2 Beckham v Drake (1849) 2 HLC 579 at 604, 9 ER 1213 (HL) at 1222.
3 Grady v HM Prison Service [2003] EWCA Civ 527, [2003] 3 All ER 745 at [12]-[14].
that these are tenable causes of action, neither the Official Assignee nor the defendants take the point that those causes of action have vested under s 101. They accept that they are personal to Mr Robinson. In part, Mr Robinson’s claims for breach of contract overlap other causes of action he has pleaded. To the extent that these concurrent causes of action overlap, it would be odd for one cause of action to remain with Mr Robinson and the other to vest in the Official Assignee. Those parts of his third cause of action which are directed at Mr Robinson being treated as a trespasser in breach of contract do not, for present purposes, differ from allegations in the other causes of action alleging that he was wrongly treated as a trespasser. They are personal to him.
[18] Further, the allegations of loss of use of the office block are also personal to Mr Robinson as they come within the decision of the English Court of Appeal in Rose v Buckett.4 There the plaintiff sued for trespass to premises and for conversion. While there was no substantial damage done to premises or goods, it was alleged that the plaintiff had suffered great personal inconvenience and annoyance to himself and his family by being wrongfully deprived of his property and the quiet enjoyment of his house and premises.5 The cause of action had not vested in the trustee on bankruptcy.
[19] The above parts of Mr Robinson’s third cause of action did not vest in the Official Assignee under s 101. That leaves the following aspects: breaches of contract in his removal as director, failure to allow for joint management and failure to make contract payments. For these matters, Mr Robinson does not plead financial loss. He accepts that any claim for financial loss belongs to the Official Assignee. He is concerned only with the personal injury to himself. While he has not pleaded them, these parts of his cause of action involve elements of financial loss, elements
that go to property rather than to person. That makes them hybrid claims.
4 Rose v Buckett [1901] 2 KB 449 (CA).
5 Approved in Wilson v United Counties Bank Ltd [1920] AC 102 (HL) at 131 per Lord Atkinson.
[20] The question of hybrid claims has stumped some of the best legal brains. In Beckham v Drake Parke B, normally authoritative, addressed the question where only part of the damage was recoverable for the personal injury to the bankrupt:6
…that part could not be transferred to the assignees, and ought not to be lost;
… Who then are to sue for the breach of contract where part belongs to the assignee, part to the bankrupt? … Either the right of action on the contract must be divided, and each sued, or the right of action altogether must remain in the bankrupt or altogether be transferred to the assignees, or both must join, the contract being entire, and to sue for the damages. In the first two cases the plea would be good, in the last two bad; … I should feel considerable difficulty in deciding the question, but this case does not depend on it …
This passage is useful as setting out the various options available.
[21] In Mulkerrins v PricewaterhouseCoopers, Lord Millett described it as “one of the more intractable problems in the law of insolvency”.7 He also did not decide the question.
[22] One source of the difficulty is that a cause of action cannot be split. While it was recognised in Grady v HM Prison Service8 that one event might give rise to two or more claims, so as to allow for separate causes of action, that is not possible where there is only a single claim, but different heads of damage.
[23] In Wilson v United Counties Bank Ltd,9 a bankrupt and the trustee in bankruptcy together sued a bank for negligence in handling the affairs of the bankrupt (before bankruptcy). The trustee recovered for financial losses, the bankrupt for the injury to his credit and reputation. The House of Lords considered that there were separate and distinct causes of action, but in Ord v Upton the English
Court of Appeal demurred. That did not represent current law.10
6 Beckham v Drake, above n 2, at 628-629 and 1231.
7 Mulkerrins v PricewaterhouseCoopers (a firm) [2003] UKHL 41, [2003] 1 WLR 1937 at [6].
8 Grady v HM Prison Service, above n 3.
9 Wilson v United Counties Bank Ltd, above n 5.
10 Ord v Upton [2000] Ch 352 (CA) at 368.
[24] Ord v Upton involved a claim in negligence where the damages claimed were for both loss of earnings (financial), and pain and suffering, loss of amenity and loss of mobility (personal). Aldous LJ said:11
That being so, any damages awarded may have to be split between a trustee in bankruptcy and the bankrupt. It follows that Mr Ord should retain the right to the damages for pain and suffering and the right to the damages for past and future earnings vested in the trustee. That leaves the question of how those rights are to be enforced. I believe that when there is but one cause of action which includes a head of damage relating to property, then the cause of action vests in the trustee as it does not fall within an exception to the general rule. If so, the right to recover the damages which are personal and any damages recovered are held on a constructive trust for the bankrupt by the trustee.
…
The authorities are only consistent with the conclusion that the trustee is entitled to the damages for past and future loss of earnings and is not entitled to the damages for pain and suffering. As there is a single cause of action, it vested in the trustee. There is in my view nothing in that conclusion which imposes practical difficulties with which the law cannot deal. The trustee as constructive trustee would have to account to the bankrupt for the property which he obtained inadvertently or by arrangement in an action which vested in him for the benefit of the creditors. The idea that the cause of action should vest in the bankrupt would not be acceptable and compulsory joinder of both could lead to difficulties when the claim for loss of earnings was small compared with the potential costs of the litigation. In such a case the trustee, if the cause of action vested in him, would have to consider carefully his duty to the bankrupt and would probably, if requested, assign the cause of action to him.
[25] That is the best solution that I am aware of. I accept it, barring one aspect.
[26] The Official Assignee’s submission makes it clear that the Official Assignee has no interest in pursuing Mr Robinson’s hybrid causes of action. Mr Robinson can therefore not count on co-operation from the Official Assignee in pursuing his claim. Should that be an insurmountable difficulty? There may be possible remedies under the Insolvency Act under which Mr Robinson could challenge the decision of the Official Assignee not to lend his name to the proceeding. But there is a more direct avenue. Given that the Official Assignee would pursue any claims in part as constructive trustee for Mr Robinson, it seems open to follow the usual procedure when a person claiming an equitable interest does not have the co-operation of the
person with legal title. That is, to allow the beneficiary to join the legal owner as
11 At 369-371.
one of the defendants. In Vandepitte v Preferred Accident Insurance Corprn of New
York Lord Wright said:12
The trustee then can take steps to enforce the performance to the beneficiary by the other contracting party as in the case of other equitable rights. The action should be in the name of the trustee; if, however, he refuses to sue, the beneficiary can sue, joining the trustee as a defendant.
[27] In The Aliakmon Lord Brandon said:13
If, however, the person is the equitable owner of the goods and no more, then he must join the legal owner as a party to the action, either as co- plaintiff if he is willing or as co-defendant if he is not. This has always been the law in the field of equitable ownership of land and I see no reason why it should not also be so in the field of equitable ownership of goods.
[28] In Roberts v Gill, Lord Collins said about a claim by a beneficiary suing on a
trust’s cause of action:14
Consequently it has been the consistent practice (noted in Annual Practice
1887-1888, p 223; Harmer v Armstrong [1934] Ch 65, 93, per Romer LJ) for almost 300 years that, where a beneficiary brings an action in his own name to recover trust property, the trustees should be joined as defendants. Daniell’s Chancery Practice, 7th ed, vol 1, p 176 states: “such an action cannot, however, be maintained without the personal representative being a party”. To put it differently, it would be “procedurally improper to continue without the addition … which is proposed”: McGee, Limitation Periods, 5th ed (2006), para 23.025. The purpose of joinder has been said to ensure that they are bound by any judgment and to avoid the risk of multiplicity of actions: Lewin on Trusts, 18th ed (2008), para 43-05. But joinder also has a substantive basis, since the beneficiary has no personal right to sue and is suing on behalf of the estate, or more accurately, the trustee.
[29] In Ord v Upton, Aldous LJ described the trustee in bankruptcy as holding under a constructive trust, rather than an express trust. That should not make a difference. The trusteeship will be identified when the bankrupt asserts the hybrid claim. If the Official Assignee as (identified constructive) trustee will not join in the proceeding, it should be open to the bankrupt to bring the claim while joining the
Official Assignee as defendant.
12 Vandepitte v Preferred Accident Insurance Corprn of New York [1933] AC 70 (PC) at 79.
13 Leigh and Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] 1 AC 785 (HL) [The Aliakmon] at
812.
14 Roberts v Gill & Co [2010] UKSC 22, [2011] 1 AC 240 at [62].
[30] The ability to join the Official Assignee as a defendant also meets Aldous LJ’s objection to compulsory joinder. He seems to have contemplated that both trustee and bankrupt would be joined as plaintiffs, with the risk that the trustee would be drawn into unprofitable litigation. That difficulty can be avoided by the bankrupt suing as sole plaintiff, with the Official Assignee as defendant not taking an active part in the proceeding and not running up heavy litigation costs.
[31] Given this general approach, Mr Robinson may sue on hybrid causes of action by naming as a party to the proceeding the legal owner of the causes of action, the Official Assignee. As the Official Assignee is unwilling to sue, he should be joined as a defendant.
Result
[32] Mr Robinson’s third cause of action of breach of the contract does not overlap with the claims by the Official Assignee in CIV-2015-488-37. The proceedings can be run separately.
[33] To the extent that Mr Robinson’s claims are concurrent with his claims in his first two causes of action, they do not vest in the Official Assignee under s 101 of the Insolvency Act.
[34] Mr Robinson’s claim in contract for loss of use of the office block is personal and has not vested in the Official Assignee under s 101.
[35] The remaining parts of Mr Robinson’s third cause of action are hybrid. He
may continue them if he joins the Official Assignee as a further defendant.
……………………………………..
Associate Judge R M Bell
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