Ruddock v Brown HC Whangarei CIV 2010-488-253
[2010] NZHC 1806
•23 August 2010
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2010-488-000253
IN THE MATTER OF the Property (Relationships) Act 1976
BETWEEN LEIGH NICOLA RUDDOCK Plaintiff
ANDALLAN MURRAY BROWN First Defendant And Others
Hearing: 17 August 2010
Appearances: S Callanan for Plaintiff
P G Magee for First Defendant
W W Peters for Second to Fourteenth Defendants
M Robertson and K Harvey for Fifteenth Defendants
Judgment: 23 August 2010 at 4:45 pm
JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 23 August 2010 at 4:45 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar
Date: ………………….
Solicitors:
Lewis Callanan, PO Box 35 361, Browns Bay, North Shore City
ThomsonWilson, PO Box 1042, Whangarei
Wayne W Peters & Associates, PO Box 5053, Whangarei
Shieff Angland, PO Box 2180, Auckland
L N RUDDOCK V A M BROWN HC WHA CIV-2010-488-000253 23 August 2010
[1] The plaintiff applies for costs against the 15th defendants on the resolution of issues between them.
[2] Rachel Karen Mason and Karen Betty Mason, the 15th defendants, are insolvency practitioners of Auckland. On 12 February 2010, they were appointed liquidators of four companies by shareholder special resolution. The four companies are:
a) ABL Ltd (In Liquidation);
b) Northland Property Services Ltd (In Liquidation);
c) Whangarei Land Holdings Ltd (In Liquidation); and d) Whangarei Shopping Centre Ltd (In Liquidation).
[3] The directors of all four companies are Allan Murray Brown, the first defendant and his father, Leslie Ivan Brown, the second defendant (generally known as Ivan Brown).
[4] ABL Ltd has 100,000 shares. There was one shareholder, Northland Property
Services Ltd (In Liquidation). The liquidators’ first report shows a deficiency of
$1,130,239 for unsecured creditors.
[5] There are 1,000 shares in Northland Property Services Ltd (In Liquidation). Allan Brown and Ivan Brown each hold one share. The remaining 998 shares are held by Brown Trustees Ltd. This is the sixth defendant. Brown Trustees Ltd is said to be the trustee of the Meridian Trust. The liquidators’ first report says there is a surplus of $901,067 available for shareholders.
[6] There are 1,000 shares in Whangarei Land Holdings Ltd (In Liquidaton). Brown Trustees Ltd is the sole shareholder. The liquidators’ first report says that there is a surplus of $5,104,564 available for shareholders.
[7] There are 1,000 shares in Whangarei Shopping Centre Ltd. Allan Brown and Ivan Brown each own one share. Allan Brown and GA Services Ltd, as trustees of the A M Brown Investment Trust, own 499 shares. Ivan Brown and GA Services Ltd, as trustees of the L I Brown Investment Trust, own 499 shares. The liquidators’ first report says that there is a surplus of $4,673,432 available for the shareholders.
[8] The plaintiff is the separated wife of Allan Brown. They began living together in August 1990. There are two children of their relationship. The plaintiff and Allan Brown married on 20 February 1999. They separated in March 2009. The relationship lasted 18 years seven months. The plaintiff and the first defendant have not entered into an agreement under s21A of the Property (Relationships) Act 1976 dividing property. The plaintiff has not taken proceedings against the first defendant in the Family Court under the Property (Relationships) Act. Instead, she has brought the present proceeding in the High Court.
[9] In general, her case is that relationship property has been transferred into trusts or that her husband is the beneficial owner of property held by trusts during the relationship so as to constitute relationship property. The third to 13th defendants are trustees of these trusts. The trusts are called the A M Brown Investment Trust, the L I Brown Investment Trust, the Blue Pacific Trust, the Meridian Trust, the Paihia Asset Management Trust, the Riverside Trust, the Portside Trust, the A B & L R Family Trust, the OCC Trust, the Harry Brown Trust No. 1, and the Harry Brown Trust No. 3.
[10] The plaintiff is one of the trustees of the A B & L R Family Trust. She is also a discretionary beneficiary of that trust. She is not a beneficiary of any of the other trusts.
[11] The plaintiff’s first cause of action is against the first to ninth, and 11th to
14th defendants. She alleges that they knew or ought to have known that by alienating legal title to relationship property away from the plaintiff and into the trusts, they would defeat her interests in relationship property. She says that the value of relationship property held by the trusts is $9,448,893. She claims judgment for $4,724,446.50, plus interest and costs.
[12] In the second cause of action she says that the A M Brown Investment Trust, the L I Brown Investment Trust, the Blue Pacific Trust, the Meridian Trust, the Paihia Asset Management Trust, the Riverside Trust, the Portside Trust and the OCC Trust were established to defeat her interests in relationship property and/or had the effect of defeating her interest in relationship property. She claims orders setting aside the trusts as sham trusts and asks for judgment for $4,724,446.50.
[13] The third cause of action is directed against the fifteenth defendants, the liquidators. She says that she made demand of the fifteenth defendants that she has a relationship property claim against the companies but the liquidators refused to accept the claim. She claims that the defendants intend to distribute the surplus of
$9,448,893 to the shareholders and says that if the fifteenth defendants are not restrained, the plaintiff will suffer a loss of $4,724,446.50. The orders sought against the liquidators are:
a) An order under s 43 of the Property (Relationships) Act restraining them from distributing the surplus to the shareholders in the companies;
b)An order under s 44 of the Property (Relationships) Act setting aside any distribution already made to the shareholders; and
c) An order for payment of $4,724,446.50, and costs.
[14] The fourth cause of action is against the trustees of the A B & L R Family Trust, the fourth defendants. She says that the former family home at 34 Robinson Road, Whangarei Heads, is owned by the 10th defendants but her husband has had sole occupation since March 2009. She seeks an order under s 33 of the Property (Relationships) Act for the sale of the former home and for the division of the proceeds of sale equally between the plaintiff and the first defendant.
[15] The fifth cause of action is directed against the trustees of the Harry Brown
Trust No. 1 and the Harry Brown Trust No. 3. It claims that since August 1990, the
12th and 13th defendants have received dispositions of relationship property
belonging to the plaintiff and the first defendant and that the 12th and 13th defendants acted in a way that did affect the plaintiff’s interest in relationship property. Orders are sought under s 43 to restrain the 12th and 13th defendants from distributing assets to beneficiaries, or alternatively, an order under s 44 setting aside the distributions. Judgment is also sought for a sum to be assessed by the Court.
[16] For present purposes, the main interlocutory steps taken between the plaintiff and the 15th defendants are:
a) On 2 June 2010, the 15th defendants applied for orders setting aside the statement of claim or for summary judgment;
b)On 11 June 2010, the 15th defendants filed a statement of defence, generally denying the allegations directed against them;
c) On 28 June 2010, the plaintiff filed an application under s 43 of the Property (Relationships) Act seeking an order restraining the 15th defendants from making any distributions to shareholders pending further order of the Court.
d)On 28 June 2010, the plaintiff filed a notice of opposition to the strike-out application with supporting affidavit;
e) On 21 July 2010, the 15th defendants filed a notice of opposition.
[17] At a case management conference on 3 August 2010 before Heath J, the 15th defendants gave an undertaking that they would not distribute any moneys from the four companies in liquidation pending the determination of the proceeding. On that basis, Heath J recorded that it is no longer necessary to make any relief orders under the s 43 application and that application was dismissed subject to argument about costs.
[18] At paragraph [11] of his minute, Heath J said:
On the basis of the undertaking given by the 15th defendants, there is no need for the plaintiff to pursue any substantive claim against them. Subject to the questions of costs, the claim against the 15th defendants shall be struck out, as is the 15th defendants’ application to strike out and for summary judgment.
[19] At the same time, Heath J also made orders for the 15th defendants to file and serve an affidavit of documents as to documents held by them for all the companies in liquidation.
[20] The hearing on 17 August 2010 was about costs arising from these matters. Counsel for the first and second defendants had only a limited part in the hearing. This decision does not address the merits of the plaintiff’s claim against any of the defendants except the liquidators.
[21] The plaintiff seeks costs against the defendant of $20,670.50, which includes
$993 for disbursements. It also includes costs for the hearing of the costs application.
[22] The plaintiff’s case for claiming her costs is that the liquidators were obdurate and that the plaintiff was put to a lot of unnecessary work in applying for relief. The liquidators only gave their undertaking in the course of the conference on
3 August 2010, even though the plaintiff had asked for it long before. The plaintiff referred to the initial issue of the proceedings; the 15th defendants’ response of the strike-out/summary judgment application, which she says was bound to fail; the interlocutory application for the restraining order, and associated steps. The plaintiff criticises the liquidators for following the Companies Act 1993. The Property (Relationships) Act is said to prevail over any provisions of the Companies Act that the liquidators might rely on. The 15th defendants ought to have recognised from the outset that the plaintiff had a proper relationship property claim.
[23] The plaintiff’s claims are in respect of the shares in the four companies in liquidation. Given the deficiency for ABL Ltd (In Liquidation), any claim about the shares in that company seems purely academic. Her husband has one share in each of Northland Property Services Ltd (In Liquidation) and Whangarei Shopping Centre Ltd (In Liquidation). These companies were incorporated after the start of the
relationship and she says that they were accordingly relationship property. However, the present proceeding is not a proceeding for the division of property under ss 22-25 of the Property (Relationships) Act. Those proceedings are started in the Family Court: see s 22(1). So the plaintiff is not seeking any orders in respect of the single shares in Mr Allan Brown’s name. Instead, her application is directed at shares held by trusts and by trustees – the third to 13th defendants. She says that dispositions of relationship property which are traceable into these trusts can result in orders being made under s 44 of the Property (Relationships) Act. Alternatively, she says that the trusts themselves are shams, so that the assets of the trusts are in fact held by her husband so as to be subject to orders for division by this Court.
[24] The plaintiff does not claim she is a creditor of any of the companies in liquidation. Before the start of the proceeding, she did allege this, claiming to be a creditor by reason of shareholders’ advances. But that allegation was not pursued. The liquidators pointed out that there were no shareholders’ advances for any of the companies.
[25] The plaintiff does not claim to be a shareholder of any of the companies herself. She does not claim to be a trustee of any of the trusts holding shares. She does not claim to be a beneficiary of any of the trusts holding shares. Under normal rules (outside the Property (Relationships) Act) the plaintiff has no claim against any of the companies in liquidation and is not entitled to any distribution from any of the companies.
[26] As liquidators, the 15th defendants are required to carry out their duties under the Companies Act. In particular, s 254:
253 Principal duty of liquidator
Subject to section 254 of this Act, the principal duty of a liquidator of a company is—
(a) To take possession of, protect, realise, and distribute the assets, or the proceeds of the realisation of the assets, of the company to its creditors in accordance with this Act; and
(b) If there are surplus assets remaining, to distribute them, or the proceeds of the realisation of the surplus assets, in accordance with section 313(4) of this Act—
in a reasonable and efficient manner.
Those duties include the admission and rejection of proofs of debts from creditors under ss 302-312 of the Companies Act and distributing assets under s 313.
[27] Section 313 says:
(1) After paying preferential claims in accordance with section 312 of this Act, the liquidator must apply the assets of the company in satisfaction of all other claims.
(2) The claims referred to in subsection (1) of this section rank equally among themselves and must be paid in full, unless the assets are insufficient to meet them, in which case payment shall abate rateably among all claims.
(3) Where, before the commencement of a liquidation, a creditor agrees to accept a lower priority in respect of a debt than that which it would otherwise have under this section, nothing in this section prevents the agreement from having effect according to its terms.
(4) Subject to section 311 of this Act, after paying the claims referred to in subsection (1) of this section, the liquidator must distribute the company's surplus assets—
(a) In accordance with the provisions contained in the company's constitution; or
(b) If the company's constitution does not contain provisions for the distribution of surplus assets or, if the company does not have a constitution, in accordance with this Act.
[28] In this case, surplus assets are distributed to shareholders pro rata under s36(1)(c) in the absence of the constitution saying otherwise. To ascertain shareholders, the liquidators are to have regard to the share register under s 125 of the Companies Act. The shareholders are identified in paragraphs [4]-[6] above. The provisions of the Companies Act do not require the liquidators to make any distributions to the plaintiff. If the liquidators were to make any distributions to the plaintiff, that would breach their duty to distribute in accordance with s 313 of the Companies Act.
[29] The plaintiff has at most a claim to share in any distributions to which her husband is entitled, either directly as a shareholder in his own right, or through any distributions made to him as beneficiary of any of the shareholding trusts.
[30] The plaintiff contended against this. In her submission, the Property (Relationships) Act is a code for the division of property between spouses and de facto partners. It applies to transactions not only between spouses and partners, but also between spouses and third parties. The plaintiff referred to s 4(1)(e), s 4(4) and s 4A of the Property (Relationships) Act. In the plaintiff’s submission, the Property (Relationships) Act 1976 trumped the Companies Act and the duties the Companies Act cast on liquidators counted for nothing against her claims under the Property (Relationships) Act.
[31] I do not accept this argument. Putting the matter generally, the position of the liquidators is little different from the position of many third parties who may make payments to a spouse or de facto partner. Other third parties in a similar position are: debtors paying business debts to one of the partners; banks holding funds in accounts in the name of one spouse; tenants paying rent for a property owned by one spouse; insurance companies paying claims under a policy held by one spouse. The general law governs the duties of third parties making payments to a spouse. In this particular case, it happens to be the provisions of the Companies Act, but it could also be banking law, the law of landlord and tenant, general contract law or insurance law. By and large the Property (Relationships) Act does not intrude on these duties of third parties to pay an entitled spouse.
[32] A simple example is De Bruijn v Bank of New Zealand [1991] NZFLR 385 (HC). The wife had deposited the proceeds of sale of the family home in an account in her own name. The husband induced the bank to pay the money out to him. The wife sued the bank. Barker J said:
It seems to me that here there is no matrimonial property question arising between the wife and the bank. Her claim is one based purely on the banker/customer relationship and on a breach of contract by the bank. The bank's claim against the husband is based on his misrepresentation to the Bank. It is only a claim for indemnity in respect of the wife's contractual claim against the Bank.
I do not think that the Act requires the bank to be concerned with matrimonial property questions between the spouses. It was not to know the basis of the matrimonial arrangements between these two people. The cheque presented was a bearer cheque and not marked "account payee only"; the wife was a holder under bills of exchange law and was entitled to negotiate it. A bank is not required to look for breaches of trust and is only
required to take some sort of damage control when it receives notice of a trust, ie that its customer is in possession of money in a fiduciary capacity; then the banker must regard the account strictly in that light. The bank of course may not be a party to any fraud or misapplication of trust moneys, as was said in Paget's "Law of Banking" 192 —
It is not the business or right of a banker, to whom a cheque is presented, to set up the claim of any third person against the mandate of his customer; at the same time, he cannot shelter behind his character of banker to cover complicity in a fraud.
There was nothing in this transaction that should have alerted the bank. In any event the cause of action against the bank is purely in contract. As Mr Parmenter pointed out the matrimonial property is not the money that the plaintiff is now receiving from the bank which is damages, but it is the money which was paid out by the bank to the husband when he persuaded the bank to break the deposit solely in the wife's name.
[33] It will be seen that in determining the rights between the wife as customer and the bank and also between the bank and the husband, Barker J was applying the general law, not the Matrimonial Property Act (as it was then called).
[34] The Property (Relationships) Act sets up a regime under which ownership by spouses or partners under the general law is adjusted by applying the property division provisions of the Act. The adjustment takes effect on the Court making orders on an application under the Act or on the parties entering into an agreement under the Act. In ordering a division of property, the role of the Court is creative, not declaratory. That is, the Court does not recognise an interest in property that was already in existence, but brings the property interest into existence. Until there is a division of property by court order or agreement under the Act, the parties’ property rights are determined under the general law. Fisher on Matrimonial and Relationship Property (Lexis Nexis) paragraph 1.27 explains the matter helpfully and concludes:
It follows that regardless of initial appearances, s 4(1) is not intended to apply to the period preceding a Court order under the Act: that s 4(4) does not preclude the Court from applying conventional legal principles in respect of that period: that the beneficial interest conferred by s 12(3) operates only in respect of the period between the making of a Court order defining an interest in a homestead and payment of the monetary value; and that notice of a claim registered under s 42 gives notice of an unperfected right to claim under the Act but not notice of an existing proprietary interest in the usually accepted sense.
[35] The same principles apply even more strongly with determining rights between spouses or partners on the one hand and third parties on the other. Except
where the Act expressly provides otherwise, the general law governs relations with third parties. Again there is a helpful explanation in Fisher on Matrimonial and Relationship Property (Lexis Nexis) paragraph 1.39:
As a general principle third parties are concerned only with spouses’ and partners’ conventional interests in property at law and equity. This principle is either expressed in the case of certain transactions (s 19) and debts (s 20A), or is implicit in the scheme of the Act as a whole... The code provisions of s 4(1) are made applicable to transactions between spouses and partners, and each of them, and third persons only “in cases for which this Act provides”. Section 4(4) in general requires a question relating to relationship property to be decided “as if it had been raised in proceedings under this Act” even in proceedings between the parties and any other person. But s 4(4) has no effect upon the substantive principles to be applied if there is nothing in the Act to displace conventional principles at law and equity. In general, third parties neither acquire rights under the Act nor suffer prejudice through an order made pursuant to it. Thus on the one hand the creditors of a spouse or partner derive no assistance from the Act in claiming from the other spouse or partner the half share in a family home to which the first spouse or partner would have been entitled had that spouse or partner brought proceedings under the Act ... On the other hand, proceedings under the Act between the spouses or partners themselves cannot, in general, prejudice the rights of third parties. Accordingly, before spouses or partners can divide their property under the Act they must first make provision for the rights of third parties founded upon a constructive or resulting trust, an agreement for sale and purchase, a mortgage, a company, a partnership, a trust, or under the doctrine of proprietary estoppel. To that general proposition, however, there are certain express qualifications in the case of assignments between spouses or partners affecting third parties ..., purchasers ..., mortgagees..., trust beneficiaries..., and creditors... These are all cases in which, in terms of s 4(2), the Act “expressly provides to the contrary” with respect to transactions between spouses or partners and third persons.
[36] The same principle applies to third parties who hold funds payable to one of the spouses. They are required to pay the spouse entitled under the general law, unless the court has made an order under the Act adjusting property interests between the spouses or they have adjusted their property interests under an agreement under the Act. So a liquidator makes distributions from a company to creditors and shareholders according to the general law, not according to claims under the Act.
[37] Section 4A says:
Every enactment must be read subject to this Act, unless this Act or the other enactment expressly provides to the contrary.
[38] This section is concerned with resolving inconsistencies between the Act and other enactments. It displaces some of the normal rules for resolving inconsistencies. Richardson J stated the standard approach in Stewart v Grey County Council [1978] 2 NZLR 577 (CA) at 583:
It is inevitable that in the complex legislative processes of a modern society there will be occasional conflicts and inconsistencies between the provisions of different statutes. There are well established rules for determining which provisions are to prevail. The starting point, of course, is that there be an inconsistency. If it is reasonably possible to construe the provisions so as to give effect to both, that must be done. It is only if one is so inconsistent with, or repugnant to the other, that the two are incapable of standing together, that it is necessary to determine which is to prevail. In that situation there are two principles for consideration. One is the maxim known as generalia specialibus non derogant. It was explained in Barker v Edger (1898) NZPCC
422, 427; [1898] AC 748, 754, in the following terms:
When the Legislature has given its attention to a separate subject, and made provision for it, the presumption is that a subsequent general enactment is not intended to interfere with the special provision unless it manifests that intention very clearly. Each enactment must be construed in that respect according to its own subject-matter and its own terms.
In such a case the earlier "special" statute continues to have exclusive application to its own subject-matter and the later general Act, although in terms wide enough to extend to the subject-matter of the earlier Act, is held not to have any application to it.
The other is the principle of implied repeal which as it relates to legislation affecting special situations, is expressed in 36 Halsbury's Laws of England (3rd ed) para 712 as follows:
To the extent that the continued application of a general enactment to a particular case is inconsistent with special provision subsequently made as respects that case, the general enactment is overridden by the particular, the effect of the latter being to exempt the case in question from the operation of the general enactment or, in other words, to repeal the general enactment in relation to that case.
In cases where there is a conflict between general legislation and special legislation, these two principles are, in reality, two sides of the same coin. There may be difficulties in some cases in determining which statute is special. There are some situations in which "each enactment may be called general or special according to the point of view from which it is regarded" (Butler v Attorney-General for Victoria (1961) 106 CLR 268, 280).
[39] Section 4A imposes a different test from the rules of generalia specialibus non derogant and implied repeal. But it does not apply if there is no inconsistency
between the Property (Relationships) Act and other legislation. The approach of construing provisions so as to give effect to both, if reasonably possible, still stands.
[40] There is no inconsistency between the duties of a liquidator to distribute according to s 313 of the Companies Act and the claims asserted by the plaintiff to a division of relationship property under the Property (Relationship) Act. The entitlement to a distribution from a liquidator is decided according to the general law. The plaintiff will not be entitled to a distribution under the general law unless and until a Court makes an order under the Property (Relationships) Act that gives her an entitlement to receive a distribution under the general law, such as by vesting shares in her. In the meantime she has an unperfected claim under the Property (Relationships) Act, but that does not impact on the liquidators’ duty to distribute according to the Companies Act.
[41] In her cause of action against the liquidators, the plaintiff has invoked s 43 and s 44 of the Property (Relationships) Act as giving her a claim against the liquidators directly:
43 Disputes may be restrained
(1) Where it appears to the High Court or a District Court or a Family Court that any disposition of property is about to be made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any other person (party B) under this Act, the Court may, on such notice being given as the Court may direct, by order restrain the making of the disposition or may order any proceeds of the disposition to be paid into Court to be dealt with as the Court directs.
(1A) The Court may make an order under this section on the application of party B, or (in any proceedings under this Act or otherwise) on its own initiative.
(2) Any disposition made after an order of the Court under subsection (1) of this section restraining the making of the disposition has been served on or come to the notice of the person disposing of the property, or any auctioneer, agent, or lawyer acting in connection with the disposition, shall be void, and the Court may consider any claim of any person interested and may make such order as it thinks just.
44 Disputes may be set aside
(1) Where the High Court or a District Court or a Family Court is satisfied that any disposition of property has been made, whether for
value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person (party B) under this Act, the Court may make any order under subsection (2) of this section.
(1A) The Court may make an order under this section on the application of party B, or (in any proceedings under this Act or otherwise) on its own initiative.
(2) In any case to which subsection (1) of this section applies, the
Court may, subject to subsection (4) of this section,—
(a) order that any person to whom the disposition was made and who received the property otherwise than in good faith and for valuable consideration, or his [or her] personal representative, shall transfer the property or any part thereof to such person as the Court directs; or
(b) order that any person to whom the disposition was made and who received the property otherwise than in good faith and for adequate consideration, or his [or her] personal representative, shall pay into Court, or to such person as the Court directs, a sum not exceeding the difference between the value of the consideration (if any) and the value of the property; or
(c) order that any person who has, otherwise than in good faith and for valuable consideration, received any interest in the property from the person to whom the disposition was so made, or his or her personal representative, or any person who received that interest from any such person otherwise than in good faith and for valuable consideration, shall transfer that interest to such person as the Court directs, or shall pay into Court or to such person as the Court directs a sum not exceeding the value of the interest.
(3) For the purposes of giving effect to any order under subsection (2) of this section, the Court may make such further order as it thinks fit.
(4) Relief (whether under this section, or in equity, or otherwise) in any case to which subsection (1) of this section applies shall be denied wholly or in part, if the person from whom relief is sought received the property or interest in good faith, and has so altered his or her position in reliance on his or her having an indefeasible interest in the property or interest that in the opinion of the Court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.
[42] When a liquidator makes a distribution under s 313 of the Companies Act, he is simply carrying out a duty under the general law. That does not by itself provide grounds for holding that the liquidator is disposing of property in order to defeat a
claim under the Property (Relationships) Act. In this case there is nothing to suggest that the liquidators are doing anything other than carrying out their normal role as liquidators. The fact that to the liquidators’ knowledge the plaintiff is making claims that the shares in the companies being wound up are relationship property or that she has a relationship property claim for any benefits her husband might receive on the distributions being made does not trigger any liability of the liquidators under s 43 or s 44.
[43] In typical cases under s 43 and 44, there is some action that threatens to or does put assets out of reach of a relationship property claim, so that the assets are not available for division. In this case, any distributions by the liquidators will allow the value of the shares held by the first defendant and the trustees to be realised. The liquidators’ submission that the distributions will assist the plaintiff in proving and making her claim does have some weight.
[44] A spouse making a claim under the Property (Relationships) Act may fear that a payment made by a third party to a spouse may result in the fund being dissipated without the claiming spouse receiving his or her entitlement under the Property (Relationships) Act. The claiming spouse may seek interim relief to freeze funds. In such applications, the claiming spouse will normally have to show that there is some risk of dissipation unless orders are made for protection. When a spouse obtains such an order freezing the payments, orders for costs are not made against the third party. Typically the third party is neutral and has no interest in the issues between the spouses.
[45] Seen against these considerations, the plaintiff’s claim against the liquidators in the third cause of action of her statement of claim was misdirected. It alleged that the liquidators were acting with intent to defeat her claims under the Property (Relationships) Act by making distributions. The cause of action sought a monetary award against the liquidators for $4,724,446.50. The claim that the liquidators had a personal liability was misconceived and did not reflect an understanding of their position as liquidators with duties to perform under the Companies Act.
[46] Given such a claim against them, the liquidators’ response is not altogether surprising. They applied to strike out the pleading against them and for summary judgment of the claim against them. The plaintiff’s cause of action against the fifteenth defendants does not give any grounds for ordering costs against the liquidators.
[47] The plaintiff’s later application for interim relief under s 43 was resolved by the undertaking given in the conference with Heath J. Up until that stage, there had been correspondence between the lawyers for the plaintiff and for the 15th defendants. The correspondence sent on behalf of the plaintiff reflected the stance taken at the hearing, that the provisions of the Property Law Act trumped any position that the liquidators might care to take. An undertaking was insisted on.
[48] For their part, the liquidators’ lawyers made constructive proposals for resolving the matters. In particular, in a letter of 30 June 2010, they offered an agreement by the liquidators not to make any distributions until the proceeding had been determined in return for the liquidators being released from the proceeding without any orders as to costs. Co-operation with making documentation available was also offered. The plaintiff rejected this because an undertaking to the Court had not been offered.
[49] The liquidators’ offer was a reasonable one. It is unfortunate that matters were not resolved at that early stage.
[50] Before the conference with Heath J on 3 August 2010, the first defendant indicated through his counsel’s written memorandum that he had no objection to distributions being postponed until the matters had been finally determined. In my judgment, that concession by the first defendant was necessary from the liquidators’ point of view. It relieved the liquidators from having to make distributions to him and the trusts associated with him in the interim.
[51] As independent and neutral third parties holding assets to be distributed, the liquidators are not likely candidates for orders for costs. The plaintiff was not able to provide any authorities showing that third parties in that position had been the
subject of costs orders. I see no reason in principle or under the High Court Rules why people in the position of independent fund holders should be subjected to costs orders when one spouse seeks interim protection. There is nothing in the facts of this case or the way that the liquidators have run their defence that requires an order for costs them.
[52] The plaintiff’s application for costs against the liquidators is accordingly dismissed.
[53] The liquidators countered with an application for costs of their own. There is merit in their argument that they were brought into the proceeding needlessly and that the plaintiff could have managed matters better by simply seeking interim protection without having to join the liquidators as defendants and threaten them with a liability of over $4 million. The steps the liquidators took to protect their position, by filing an application to strike out and for summary judgment, plus filing a statement of defence, were appropriate. I reject the plaintiff’s arguments that these steps were an abuse of process. They were clearly conventional steps taken in response to a very significant claim made against them.
[54] But it is another matter to accede to the liquidators’ claim for costs now. I understand that the plaintiff does not have significant resources. She has undertaken major litigation. The way the case has run so far suggests that the proceeding will be arduous and costly. She is not in a position to absorb significant costs orders now. On the other hand, the liquidators can include the costs they have incurred in this litigation in their claims for expenses incurred in the liquidation of the companies. In the short term, they are protected in any event. Their costs incurred as a result of this litigation will fall on the assets to be distributed to the shareholders. In these circumstances, it is appropriate to defer any claim by the liquidators for costs. Once the Court has determined the merits of the plaintiff’s claim, the impact of the present applications and the involvement of the 15th defendants in the case on the assets to be distributed will be able to be ascertained. The Court may then make orders for costs which will affect how the burden of the liquidators’ costs will fall between the plaintiff and the defendants. If required, I find that these matters are special
circumstances under r14.8 of the High Court Rules for not fixing costs to be paid now.
[55] It would be helpful in the meantime if the liquidators could keep records which will allow the costs of the litigation to be separated out from the other costs of the liquidation.
[56] I make these orders:
a) The plaintiff’s application for costs against the 15th defendants is dismissed;
b)The 15th defendants’ application for costs against the plaintiff at this stage is dismissed, but leave is reserved to the 15th defendants to apply again for costs, if that should prove necessary;
c) The 15th defendants are entitled to recover their costs incurred in these proceedings from the assets to be distributed in the liquidation of the four companies: ABL Ltd (In Liquidation); Northland Property Services Ltd (In Liquidation); Whangarei Land Holdings Ltd (In Liquidation); and Whangarei Shopping Centre Ltd (In Liquidation);
d)As between the plaintiff and the defendants, the allocation of the liquidators’ litigation costs is a matter to be determined by the Court on or after deciding the merits of the plaintiff’s claim.
e) The plaintiff’s claim against the 15th defendants is struck out;
f) The 15th defendants’ application for strike out and for summary judgment against the plaintiff is dismissed;
g) The undertaking given by the 15th defendants recorded in the minute
of Heath J of 3 August 2010 remains on foot.
R M Bell
Associate Judge
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