Round v Thompson

[2021] NZHC 827

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-000387

[2021] NZHC 827

UNDER

the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of Martin Charles Round

BETWEEN

MARTIN CHARLES ROUND

Applicant

AND

GARRY PATRICK FRANCIS THOMPSON and DAVID JOHN ROUND

Respondents

Hearing:

13 April 2021

Appearances:

Applicant in person

G M Brodie for Respondents

Judgment:

20 April 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 20 April 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

ROUND v ROUND [2021] NZHC 827 [20 April 2021]

The application

[1]    This judgment concerns an application by Martin Charles Round (Martin) for an order under s 119(2) Insolvency Act 2006 to vest in him certain litigation rights relating to the estate of his late father, Eric Charles Round (Eric) that were disclaimed by the Official Assignee. The application is opposed by the executors of Eric’s last will as well as Martin’s brother, David Round (David), as the sole beneficiary under Eric’s will.

Background to the application

[2]    Eric and his wife, Eileen, had four children, three of whom survived to adulthood. Those three children were named David, Gerard and Martin. David and Martin had no children. Gerard had two children, Sarah and Fraser. Both Eileen and Gerard predeceased Eric.

[3]    Eric and Eileen purchased a house at 2/126 Main Road, Redcliffs in 2007. Upon Eileen’s death in 2009, Eric became the sole owner of the property.

[4]    Eric died on 17 July 2017 leaving a last will dated 26 June 2013. The respondents are the executors and trustees of Eric’s estate. Eric left his entire estate to David.

[5]    Martin was living with Eric at the Main Road property from the middle of 2011. In November 2012, Eric transferred ownership of the property to Martin. Eric then lived in a rest home between September 2015 until his death.

[6]    In 2015, Eric, through David exercising his power of attorney, commenced proceedings against Martin seeking to recover back Eric’s house.1 In a judgment of 14 March 2017, Palmer J found that the house was transferred to Martin as a result of the exercise by him of undue influence on Eric and was an unconscionable bargain. He set aside the transaction and re-vested the property in Eric.

1      Round v Round [2017] NZHC 428.

[7]    Martin was subsequently ordered to pay costs in the proceeding of $60,246 of which only $14,813.09 has been paid.

[8]    The flavour of Palmer J’s view of the case can be gleaned from the following extracts from the judgment:

[82] I consider, on the balance of probabilities that Martin’s influence on Eric led to the property transfer and his influence was undue in the sense that the transfer was not the result of the free exercise of Eric’s independent will. It was the result of Eric’s fear that, if the transfer did not proceed, Martin would leave him. I accept Eric has established he was under the actual undue influence of Martin.

…

[91]   Eric was unable to look after his own interests adequately. Eric’s situation, of being blind and elderly and unable to care for himself meant he was under a significant disadvantage. He was heavily reliant on Martin for his personal welfare and his financial welfare. That situation significantly diminished Eric’s ability to assess his best interests when confronted with an implicit or explicit threat from Martin. As I have found, there was an explicit threat …

[92]   Martin knew Eric relied on him. He knew Eric was acting to his own detriment in transferring the house to Martin. Martin knew, better than anyone else, the state of Eric’s financial situation. Mr Scott’s evidence is that he discussed the prospect of Eric not qualifying for social security assistance at length with Eric and Martin was present. It should have been obvious to Martin that, without substantial assets, Eric would be unable to afford paid care in the future. The fear of others discovering that may have been one of the reasons why Martin so strenuously opposed Eric moving into a rest home. I consider Martin took advantage of Eric’s disadvantage and Eric’s reliance on him. He has not shown the transfer was fair and reasonable. It was not.

[93]      The property transfer was so much to Eric’s detriment, Martin was obliged to refuse it. Instead he suggested it, facilitated it, facilitated Eric not receiving independent advice and kept it secret. Equity will not allow Martin to procure or accept the property transfer in these circumstances. It would be contrary to good conscience to do so.

[9]    Although the Main Road property is presently registered in David’s name, Martin has never vacated the property and has continued to reside there rent free and without making any contribution to outgoings.

[10]   On 12 June 2018, Martin was adjudicated bankrupt on his own application. He says that because of the costs award made against him he was unable to pay a loan that he had taken to purchase antiques. However, David’s evidence is that Martin had other substantial debts and that he had acquired the antiques with Eric’s money.

[11]   On 14 August 2018, Martin commenced a proceeding in the Family Court under the Family Protection Act 1955 (the Act) for further provision from Martin’s estate. He had no right to do so as his rights of action under the Act had vested in the Official Assignee upon Martin’s bankruptcy.2

[12]   On 27 February 2019, the Official Assignee issued a disclaimer under s 117 of the Insolvency Act in respect of:

The litigation rights of Martin Charles Round against David Round, Garry Thompson, and any other potential parties relating to the estate of Eric Charles Round.

[13]   On 10 May 2019, at a directions conference before Judge O’Dwyer in the Family Court, Martin’s proceeding under the Act was stayed pending him making this application to the High Court.

[14]   Martin filed his application on 4 July 2019. Whilst Martin applied for and obtained an order that he be granted leave to commence this proceeding by way of originating application under pt 19 of the High Court Rules 2016, he did not obtain directions as to service and Sarah or Fraser were never served.

[15]   In February 2019, when David made his first affidavit in this proceeding, the estate consisted of cash of a little over $25,000 and the Main Road property. The Main Road property is earthquake damaged. David has provided a registered valuation of the Main Road property as at 6 August 2020 of $230,000. The cash amount will have reduced due to the payment of rates on the Main Road property and legal expenses.

The hearing

[16]   Although originally represented by Counsel, Martin is now representing himself. He did not appear at the hearing. I proceeded with the hearing in his absence. To explain my reasons for doing so it is necessary to set out some of the procedural history of this case.

2      Insolvency Act 2006, s 101.

[17]   As noted, the proceeding was commenced on 4 July 2019. After interlocutory steps were taken it was first set down to be heard on 7 April 2020. The hearing did not proceed due to the COVID–19 pandemic. The parties were not offered a new date of hearing immediately as Counsel considered the case was crying out for a practical solution and preferred to attempt to reach a settlement.

[18]   At a teleconference on 11 June 2020, dates for a hearing in September 2020 were offered. Counsel did not accept those dates because a settlement was contemplated.

[19]   Ultimately, settlement was not achieved. At a telephone conference on 10 December 2020, Martin’s Counsel, Ms Corry, said she could no longer act for him. Soon after, Martin filed a notice of change of representation and address for service and has since represented himself.

[20]   Following the 10 December teleconference, I issued a minute that the case was adjourned to be called in the Associate Judges List on 11 February 2021. Martin was directed to appear in person to agree a timetable for a hearing.

[21]   On 11 February 2021, Martin and Mr Brodie appeared before the Court. It was agreed the application would be heard on 25 February 2021. Directions were made for the filing of submissions prior to the hearing.

[22]   Martin did not file any submissions as he was directed. Mr Brodie did file submissions on behalf of the respondents and for David in his personal capacity.

[23]    On the morning of 25 February 2021, the Registry was advised by email from a third party that Martin was ill and unable to attend Court. The respondents accepted Martin was ill. The case was adjourned for a further hearing to be allocated once Martin recovered.

[24]   After consultation with Martin and Mr Brodie, the case was then set down for a third time to be heard on 13 April 2021. Martin was, again, directed to file his

submissions (by 8 April 2021). Martin was given written notice of the hearing by email and acknowledged receipt of that notice on 4 March 2021.

[25]   On 7 April 2021, the Registry sent a reminder to Martin and Mr Brodie of the 13 April hearing. Martin responded by email that same day expressing confusion about the hearing date, stating he needed to file further papers and that he had a lawyer who was going to represent him who needed time to get up to speed with the case. He said he would be grateful to have a hearing on a later date.

[26]   The Registry responded to Martin on 8 April 2021 attaching my minute setting the case down for hearing on 13 April 2021 as well as Martin’s acknowledgement of receipt of that minute. Nothing more was heard from Martin before the hearing.

[27]Martin did not file his submissions as directed.

[28]   In light of Martin’s email of 7 April 2021, the Registry put the file before me on 12 April 2021 for review. Out of an abundance of caution, I issued a minute stating that having received no further correspondence from Martin, I intended to proceed with the hearing on 13 April 2021.

[29]   When the case was called on 13 April 2021 Martin did not appear. Nothing further had been received that morning by the Registry to explain his non-appearance. Neither Mr Brodie nor David had received any communication from Martin about the matter.

[30]   Mr Brodie asked me to proceed with the hearing and deal with the case on its merits. I agreed to do so. After hearing from Mr Brodie I reserved my decision.

[31]   I proceeded with the hearing as I was satisfied that the interests of justice required me to do so. I had regard to the interests of the parties but also the public interest in achieving the efficient use of the Court’s time and resources.

[32]   This is a straightforward case and has already been allocated a number of hearing dates. Martin agreed to the hearing on 13 April 2021. He was also advised

on 12 April that his late request for a new hearing date was not granted. He provided no explanation for his failure to appear prior to the hearing.

[33]   Martin was plainly not ready to proceed with the hearing as he failed to comply with directions of the Court requiring the filing of submissions. He has not provided any explanation for that either. It should be noted, in this regard, that Martin is highly educated and worked as an employment lawyer and should be well able to prepare submissions.

[34]   While Martin stated in his email of 7 April 2021 to the Registry that he requires more time to file further papers and to instruct a lawyer, he has not identified what the further information is that he wishes to provide, nor has he identified the lawyer that will accept his instructions. He also has not proffered an explanation for why he has not taken steps earlier.

[35]   The case was set down for hearing with Martin’s consent on the basis that it was ready to proceed. To adjourn the hearing yet again would simply add to the costs of the respondents and David in circumstances where there is no realistic prospect that Martin will be able to pay any order for wasted costs.

Post hearing events

[36]At 5.33 pm on 13 April 2021, Martin emailed the Registry stating:

My apologies for not contacting you sooner. I have been vomiting blood (I have been admitted to hospital twice this year). The defendants include my niece Sarah Round and my nephew Fraser Round but I have never received any documents from them, although my niece acts for her brother who has learning difficulties.

[37]At 5.37 pm the same day, Martin sent the Registry a further email which stated:

I’ve just gone through my email and there is nothing from my brother or his lawyer and nothing in the letterbox.

[38]   Having considered these emails I see no need to reconvene the hearing. As noted, Martin knew the hearing was proceeding and did not raise any issue of ill-health until after business hours on the day of the hearing.

[39]   Martin has provided nothing, such as a medical certificate, to support the assertion that he could not attend the hearing as he was vomiting blood. The fact that he has been admitted to hospital on other occasions is irrelevant.

[40]   There is nothing in the emails to indicate that Martin is ready to proceed with the hearing, nor does he request a hearing.

[41]   His reference to Sarah and Fraser is opaque as he has never served them with the proceeding and not surprisingly they have taken no steps. Furthermore, it is entirely unclear why he would expect any communications from David or Mr Brodie.

The law

[42]   I accept that a right of action under the Act passes to the Official Assignee on adjudication in bankruptcy.3

[43]   I accept also for present purposes that the litigation rights that are in issue were onerous property within s 117(4) of the Insolvency Act which the Official Assignee may disclaim.

[44]   Finally, noting the point was not taken by the respondents, I accept that notwithstanding s 102 of the Insolvency Act, the Court has the power to make a vesting order in favour of Martin notwithstanding that he is an undischarged bankrupt.

[45]Section 119 of the Insolvency Act provides as follows:

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.

3      Gollan v Official Assignee [2012] NZHC 1869; Meller v Tetley-Jones HC Auckland, A1247/84, 3 February 1987; Northcott v Kidd and Imperatrice HC Hamilton M79/96, 6 December 2000.

(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.

[46]The Court’s discretion under s 119(3) is “broad and largely unfettered”.4

[47]   In Goldstone v Goldstone, Toogood J noted s 119(3) provides little guidance about the grounds upon which a vesting order may be made, as the section says only that the Court may do so if it is fair.5 He said:6

… all of the surrounding circumstances should be taken into account so far as they bear on what the Court may consider just, but the Court’s decision must reflect the context in which the application is made.

[48]   After conducting a survey of the case law, Toogood J noted that relevant circumstances to be considered are those that relate to the disclaimed property including, but not limited to:7

(a)the applicant’s former interest in it, if any;

(b)how and when such interest was acquired;

(c)if the applicant had no interest in the disclaimed property, what other relationship formerly existed between the applicant and the property;

(d)whether the applicant has maintained or increased the value of the property to be vested or prevented its transfer to a third party;

(e)the circumstances in which the disclaimed property became vested in the Assignee through bankruptcy;

(f)the rights and interests of third parties, if any, and, in particular, whether they consent to the vesting; and

(g)the consequences of any vesting for the applicant and any other persons.

[49]   Not all of the above factors will be relevant in every case and ultimately each case falls to be determined on its own facts.8

4      Robinson v IAG New Zealand Ltd [2016] NZHC 3149 at [50].

5      Goldstone v Goldstone [2019] NZHC 1649 at [17].

6 At [18].

7 At [41].

8      Burgess v Beaven [2020] NZHC 497 at [16].

[50]   In Burgess v Beaven, Associate Judge Lester held that in determining whether it is fair to vest litigation rights in an applicant the Court is entitled to take into account the merits of the litigation rights, the effect of delay in bringing the claim and the interests of the proposed defendants. He said:9

… Determining the fairness of the vesting order sought, in my view, entitles me to consider the strengths of the proposed claim, the effect of delay in the claim being brought and the interests of the proposed defendants. If I am of the view that the proposed litigation rights are not reasonably arguable then it would not be appropriate for this Court to encourage such a claim to be brought by vesting those rights in Mr Burgess. This Court has said that liquidators and the Official Assignee in bankruptcy should not encourage meritless litigation by assigning causes of action which are frivolous or vexatious. In determining whether it is fair to make a vesting order of litigation rights I consider that I should heed the same warning.

Discussion

[51]   Martin’s evidence is contained in two curt affidavits. Apart from establishing the relationships between family members and setting out perfunctorily the background to the application he provides very little by way of support for the order he is seeking.

[52]   Martin says he is an eligible claimant under the Act and he wishes to be heard on the merits of his claim filed in the Family Court. Matters he refers to which might be relevant to the merits of that claim are:

(a)Eric left his entire estate to David.

(b)Eric made no provision for Martin despite doing so in a previous will. The previous will is not before the Court.

(c)Martin says, again with no supporting material, that Eric expressed the view by affidavit in 2013 that as between Martin and David there should be an imbalance under his will in Martin’s favour.

9      At [18] (footnote omitted).

(d)He suffered a breakdown requiring psychiatric treatment in New York where he had obtained a doctorate in Ancient History from Columbia University. There is no further evidence to support the fact of the breakdown or when it occurred or whether it has had any lasting effects.

(e)He moved to Christchurch from Auckland where he was working as an employment lawyer to live with and look after Eric.

(f)David, a qualified solicitor and lecturer in law, has made a success of his life and owns property.

[53]   Notably,  Martin  has  not  filed  replies  to  David’s two affidavits.    David’s unchallenged evidence asserts the following relevant matters, which I accept:

(a)Martin has a problem with alcohol which provides relevant context for the way he has behaved towards Eric.

(b)While living with Eric, Martin paid no rental nor made any financial contributions to the Main Road property.

(c)Martin prevailed upon Eric to pay him $300 per week in addition to receiving sickness and carer’s benefits.

(d)While living with Eric, Martin misapplied Eric’s savings and investments which included amounts from Eric’s national superannuation and government pension as well as substantial grants that Martin arranged for Eric from the Red Cross and the Returned Services Association.

(e)As described in the judgment of Palmer J, Martin exerted undue influence to have Eric transfer to him the Main Road property. 10

10     Round v Round, above n 1.

(f)Martin defended the action for the return of the Main Road property at considerable cost to Eric and has failed to pay the costs award made against him.

(g)As a result of Martin’s actions, Eric was not in a position to pay for his care at the Edith Cavell Rest Home. David contributed to the cost of Eric’s care and in addition paid legal and other costs associated with the Court proceeding against Martin as well as the outgoings on the Main Road property without any contribution from Martin (for which David has since been reimbursed).

(h)Martin settled an insurance claim for earthquake damage to the Main Road property on disadvantageous terms and then failed to apply the proceeds towards the repairs except for minor cosmetic repairs. While David was able to subsequently reopen the claim and a further sum was obtained, this sum was used to reimburse the expenses David had incurred on Eric’s behalf and the ability to repair the earthquake damage to the Main Road property has been compromised.

(i)Martin continues to live in the Main Road property without paying rent or making any contribution to outgoings.

[54]   David says that since Martin took up residence with Eric he caused direct and indirect losses to Eric’s personal wealth by an amount in excess of $614,734.71. Some of the amounts included in this sum are plainly open to challenge. For instance, while I accept Martin has compromised the estate’s ability to repair the Main Road property causing loss, no account has been taken of the $140,795.12 received when the insurance claim was reopened following Eric’s death. I do not think, either, that it can be assumed that but for Martin’s conduct, Eric would have accumulated savings in the later years of his life.

[55]   However, I accept that Martin obtained substantial benefits from Eric in living with him on a rent-free basis while being paid by Eric and receiving benefits. He also misapplied substantial sums of Eric’s money and has not paid the lions-share of the

costs award made against him. In this latter respect, the amounts involved appear to be in the region of $140,000.

[56]   I accept also that Martin caused the estate loss through his continued rent-free occupation of the Main Road property and in forcing it to defend his action in the Family Court, which he had no right to bring.

[57]   The onus is upon Martin to satisfy the Court that it is fair that the litigation rights vest in him. He has failed to put before the Court sufficient evidence to satisfy me that is the case. In his affidavits he has said little more than the rights of action exist and he wants to pursue them. That is not sufficient. On that basis alone the application fails. In any event, I am satisfied that it would be demonstrably unfair to vest the litigation rights in Martin for several reasons.

[58]   Eric’s estate is modest. Its value reflects that his wealth was substantially diminished during his lifetime as result of Martin’s actions. Martin obtained the benefit of Eric’s wealth and has apparently squandered it. Furthermore, at the date of his death, Eric was a creditor of Martin for costs which will never be paid. It would be incongruous that the Court would sanction his pursuit of a claim against the estate in those circumstances.

[59]   For Martin to successfully bring a claim under the Act he must establish that Eric breached a moral duty to provide for his proper maintenance and support.11 Under s 5(1) of the Act, the Court may refuse to make an order “in favour of any person whose character or conduct is or has been such as in the opinion of the Court to disentitle him to the benefit of such an order”.

[60]   I exercise caution in assessing the merits of Martin’s proposed claim but Martin has not challenged David’s affidavit evidence. The evidence is to the effect that Martin took advantage of Eric in several respects. Martin exercised undue influence over Eric when he was elderly and frail to have Eric transfer his house to Martin. He misapplied substantial sums of Eric’s money for his own benefit. He defended Eric’s claim to recover the house at considerable cost to Eric. He lived, and continues to live, rent

11     Family Protection Act 1955, s 4.

free in the property. He put Eric in the position of being unable to afford his own care and then contributed nothing to assist him.

[61]   In the undisputed circumstances, I am satisfied that Martin will either be unable to establish any breach of Eric’s moral duty towards him or that s 5 of the Act is engaged and he has disentitled himself to any provision from the estate. I consider Martin’s ability to pursue to a conclusion a successful claim under the Act is vanishingly small. I take the same view that Associate Judge Lester took in Burgess v Beaven that it would not be appropriate for the Court to encourage Martin’s claim when he has not demonstrated he has reasonable prospects of success.12

[62]   Further, Martin has not set out what he seeks to achieve in his proposed proceeding. It can be inferred he wishes to remain in occupation of the Main Road property on an indefinite basis. David has offered this as he appreciates that the realities of Martin’s circumstances are such that if removed from the property he will have nowhere else to go. David has also offered to give an undertaking to the Court in a form presented at the hearing that would allow Martin sole occupation of the Main Road property on what appears are most reasonable terms. David is a lecturer in law and I have no doubt he would not have offered the undertaking had it not been his intention to act in accordance with it whether or not it is required of him by the Court. In those circumstances, I consider the Court would be unlikely to grant Martin any relief beyond what David has already offered even if Martin could, contrary to my view, establish Eric had breached his moral duty.13

[63]   The interests of third parties must be considered. David, in his personal capacity, and Sarah and Fraser are the only persons, other than Martin, with any possible interest in Eric’s estate. David opposes the application for the substantial reasons set out in his affidavit. He has reached an accord with Sarah and Fraser to pay them one-third of the registered value of the Main Road property once Martin has ceased to occupy it. What David, Sarah and Fraser will ultimately receive from the estate has been much diminished by Martin’s actions and it would be unjust that their entitlement should be further diminished by vesting the litigation rights in Martin.

12     Above n 8.

13     Re Bidien (1991) 8 FRNZ 108 (HC).

[64]   I also consider it relevant that Martin was adjudicated bankrupt on his own application. He has not put before the Court any details of his financial position upon bankruptcy. On what is before the Court it can be inferred he had no assets available to his creditors. His affidavit makes a connection between his decision to adjudicate himself bankrupt and the costs award that was made against him. Martin must have known that upon adjudicating himself bankrupt the costs award would be irrecoverable in his bankruptcy, but also that his rights of action against Eric’s estate would vest in the Official Assignee.

Result

[65]   Martin has failed to satisfy me that it is fair the litigation rights be vested in him. His application is dismissed.

[66]   The respondents are entitled to their costs on a 2B basis with reasonable disbursements.

[67]   I do not require David to provide the undertaking to the Court he has offered. The application will fail without it. I do not consider it would be correct to require it in those circumstances.

[68]   Mr Brodie advises that in the event Martin’s application is dismissed the counter applications that the litigation rights vest in David or the respondents are not pursued and they are dismissed on that basis.

O G Paulsen Associate Judge

Solicitors:

Fern Law (GPF Thomson), Christchurch (Counsel: Geoff Brodie, Christchurch) for Respondents (Applicant, in person)