Simpson v Hubbard HC Timaru CIV-2010-476-000581
[2011] NZHC 956
•31 August 2011
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV-2010-476-000581
IN THE MATTER OF THE CORPORATIONS (INVESTIGATION & MANAGEMENT) ACT 1989
BETWEEN RICHARD GRANT SIMPSON, TREVOR FRANCIS THORNTON AND GRAEME CARSON MCGLINN AS STATUTORY MANAGERS OF ALLAN JAMES HUBBARD AND MARGARET JEAN HUBBARD
Applicants
ANDALLAN JAMES HUBBARD AND MARGARET JEAN HUBBARD Respondents
Hearing: 2 June 2011 (In Christchurch) Appearances: F B Barton and S M Grieve for Applicants
A S Butler and C J Curran for Respondents
Judgment: 31 August 2011
RESERVED JUDGMENT OF CHISHOLM J
A The statutory managers’ application is dismissed.
B Further steps should now be taken in accordance with [77]. C Costs to be resolved in terms of [79].
SIMPSON & ORS V HUBBARD HC TIM CIV-2010-476-000581 31 August 2011
Table of Contents
Introduction [1] Application before the Court [4] Statutory context [11] Section 58 Argument for applicants [19] Argument for Mr and Mrs Hubbard [25] Discussion [27] Section 59 Argument for applicants [35] Argument for Mr and Mrs Hubbard [39] Discussion [43] Section 65 [59] Argument for applicants [61] Argument for Mr and Mrs Hubbard [63] Discussion [65] Costs arising from the March hearing [73] Result [78]
REASONS
Introduction
[1] On 17 March 2011 I delivered a judgment concerning the power of the statutory managers to meet legal fees incurred by Mr and Mrs Hubbard with Russell McVeagh.1 Although the statutory managers had also sought a ruling as to their power to take fees for the management of Mr and Mrs Hubbard’s personal assets from those assets, I declined to determine the matter at that time because Mr and Mrs Hubbard had not received proper notice of the request for such a ruling.
[2] Following an adjournment that matter has now been fully argued and this judgment concerns that issue.2 Given that the judgment delivered on 17 March 2011 outlined the background to the statutory management, it is unnecessary to repeat that
information.
1 Simpson & Ors v Hubbard HC Timaru CIV-2010-476-000581 17 March 2011
2 It also addresses an application by the statutory managers for costs in relation to the earlier hearing which was left open when judgment was delivered on 17 March 2011: see [73]-[77].
[3] It should also be added that on 11 May 2011 Mr and Mrs Hubbard commenced judicial review proceedings seeking to overturn the decision placing them in statutory management. That application is to be heard on 7-9 September
2011. Counsel agreed that notwithstanding that development it was appropriate for the statutory managers’ applications that were already before the Court to be heard and determined.
Application before the Court
[4] Although the application has been slightly modified since the previous hearing there is no discernable prejudice to Mr and Mrs Hubbard and I will determine the application in its modified form. The statutory managers seek an order:
That the costs of the statutory management of Allan James Hubbard and Margaret Jean Hubbard (including the statutory managers’ fees and disbursements) be met from the assets of Allan James Hubbard and Margaret Jean Hubbard (in statutory management).
Initially the application relied on ss 58 and 59 of the Corporations (Investigation and
Management) Act 1989 (the CIM Act). However, that was later extended to s 65.
[5] The statutory mangers seek Court approval because they acknowledge that the statutory provisions they rely on do not expressly authorise them to take their costs from Mr and Mrs Hubbard’s personal assets.
[6] As at 28 January 2011 the statutory managers’ costs relating to the management of Mr and Mrs Hubbard’s assets amounted to $891,127.07. This figure includes substantial disbursements. Further unspecified costs have arisen since that time. The statutory managers only seek to recover costs that are properly attributable to the management of Mr and Mrs Hubbard’s assets and accept that there might be issues as to the proper categorisation of some items.
[7] On 21 April 2011 Richard Simpson, one of the applicants, swore an affidavit in support of the application. According to Mr Simpson the situation facing the statutory managers in respect of Mr Hubbard’s entities was ―confused and very
complicated‖. He claims that the statutory managers’ understanding of the financial position of the various entities under statutory management changes daily and a large volume of information ―is yet to be unravelled‖.
[8] Mr Simpson deposes that the statutory managers’ investigations have been prolonged ―in part due to the manner in which Mr Hubbard operated his entities‖. He considers that a vast amount of the statutory managers’ work is attributable to the manner in which Mr Hubbard conducted his affairs and that the costs incurred in
―sorting out this enormous and confused muddle‖ should be met from the Hubbard assets.
[9] Those allegations are strongly denied by Mr Hubbard in an affidavit sworn on
24 May 2011. He said that he never expected that the personal assets of himself and his wife would be targeted by the statutory managers for the purpose of paying their fees and he notes that a Cabinet paper and minute relating to the statutory management states:
...the costs incurred by the statutory managers in connection with the statutory management are to be recovered from the assets of the corporations, but if it transpires that assets of the corporations have been dissipated and cannot be recovered, then the statutory managers are indemnified under section 63 of the Corporations (Investigation and Management) Act 1989.
Mr Hubbard said that he cannot understand why the statutory managers are looking to his assets when they have recourse to a Crown indemnity as well as the corporate assets under management.
[10] The allegations contained in Mr Simpson’s affidavit about the shortcomings in the record keeping of the various entities are ―strongly and utterly‖ rejected by Mr Hubbard. He considers that to the extent that there is any criticism of the record keeping practices (which he vigorously denies), those criticisms would apply equally to his erstwhile Hubbard Churcher partners and the directors of Aorangi Securities Limited (Aorangi). Mr Hubbard believes that it would be unfair for his wife and himself to be personally required to meet the statutory managers’ fees. He also questions the quantum.
Statutory context
[11] Part III of the CIM Act, comprising ss 38-62, provides for the statutory management of ―corporations‖ and ―associated persons‖. It specifies the powers of statutory managers and covers various miscellaneous matters including the power of statutory managers to apply to the Court for directions (s 58) or for additional powers (s 59).
[12] Part IV of the Act, comprising ss 63-76, covers other matters relating to statutory management. It includes a Crown indemnity for statutory managers (s 63), provisions relating to the costs, charges and expenses of statutory managers (s 65), and the power for money appropriated by Parliament to be advanced to statutory managers (s 66).
[13] Aorangi was placed in statutory management by Order in Council made on
20 June 2010 pursuant to s 38 of the CIM Act. This was on the grounds that Aorangi was, or might be, operating fraudulently or recklessly and that it was desirable that Aorangi be declared to be subject to statutory management for the purposes specified in s 39(b). Aorangi comes within the definition of ―corporation‖ in s 2 which means, unless the context otherwise requires, ―a body of persons, whether incorporated or not ...‖
[14] In their capacity as ―associated persons‖ Mr and Mrs Hubbard were also placed in statutory management pursuant to s 40(b) on the grounds that:
(b) The business and affairs of the Corporation [Aorangi] are so closely connected with that associated person that the ... statutory managers would be unable to exercise effectively the powers conferred by this Act in relation to the corporation unless the ... statutory managers ... are appointed as ... statutory managers of the associated person.
For the purposes of Part III of the Act an ―associated person‖ is ―deemed to be a corporation and references in this Part of this Act to a corporation shall be read as references to that associated person‖: s 56(2)(b).
[15] Section 58, which is the first section relied on by the statutory managers to support their application, provides:
58 Statutory manager may apply to Court for directions
(1) A statutory manager of a corporation may apply to the Court for directions concerning the business or property of the corporation, or the management or administration of any such business or property, or the exercise of any powers under this Part of this Act.
(2) On any application under subsection (1) of this section, the Court may give directions concerning the business or property of the corporation, or the management or administration of any such business or property, or the exercise of any powers under this Part of this Act, and every person shall be bound by any such directions.
Mr and Mrs Hubbard contend that s 58 is unavailable because, amongst other things, it only permits the Court to make directions regarding management on issues properly within the scope of Part III and the recovery of management costs is regulated by Part IV.
[16] If the Court finds that s 58 is not available the statutory managers rely on s 59:
59 Court may confer additional powers on statutory manager
The statutory manager of a corporation shall have, in addition to the powers conferred on him or her by this Act, such other powers (if any) in respect of the corporation as the Court, on application by the statutory manager, thinks fit to confer.
Again Mr and Mrs Hubbard dispute that this section is available. They contend that s 59 was not intended to be a vehicle for the recovery of costs because Parliament has made specific provision for the recovery of such costs in s 65.
[17] Finally, the statutory managers rely on s 65(1) on the basis that the expression
―the corporation‖ appearing in that subsection should be interpreted to include
―associated persons‖. Section 65 provides:
65 Expenses of statutory management
(1) All costs, charges, and expenses properly incurred by a statutory manager or a member of an advisory committee in the exercise of the manager's or the member's functions and powers under this Act
(including such remuneration as may be approved by the Minister) shall be payable out of the property of the corporation in respect of which the statutory manager or member is appointed in priority to all other claims.
(2) Notwithstanding subsection (1) of this section, where—
(a) Any such costs, charges, or expenses are properly incurred in respect of a corporation that is subject to statutory management under this Act; and
(b) Any associated person of that corporation is also subject to statutory management under this Act,—
the Court may, if it considers it just and equitable to do so, order that any of those costs, charges, and expenses shall be payable out of the property of the associated person of the corporation.
Once again Mr and Mrs Hubbard challenge the statutory managers’ interpretation. They contend that when the Act is read as a whole it is inconceivable that Parliament could have intended s 65 to be interpreted in that way.
[18] I now examine each of the three sections relied on by the applicants.
Section 58
Argument for applicants
[19] Any recovery of costs by the statutory managers needs to be determined having regard to the overall statutory framework. Section 40 sets a very high threshold before an associated person can be subject to statutory management and in this case that threshold has been met because the affairs of Mr and Mrs Hubbard were so closely associated with Aorangi that the statutory managers also needed to control Mr and Mrs Hubbard’s assets. Logically the same rationale concerning the recovery of costs should apply to both Aorangi and Mr and Mrs Hubbard.
[20] It could not have been Parliament’s intention that the recovery of costs by statutory managers in the type of situation that has arisen would be confined to a Crown indemnity. In other areas of our legal system where administrators are
appointed to administer assets3 Parliament has permitted recovery from the assets or fund involved, and the State is only a funder of last resort.
[21] Section 58 falls within Part III of the Act and s 56(2)(b) makes it clear that the powers conferred under s 58 apply to both corporations and associated persons. It follows that the Court can give directions under that section concerning the property of an associated person, including directions allowing the statutory managers’ costs to come out of the assets of the associated person that are under management.
[22] In this case the business and property of Mr and Mrs Hubbard cannot be put in order and realised without expenses being incurred. Given that the Hubbards created that situation it is only fair and reasonable that they should carry the cost of sorting it out. Put another way, the expenses are a natural consequence of the appointment of statutory managers in relation to the Hubbard assets.
[23] To the extent that the Hubbards seek to confine the operation of s 58 to Part III of the Act, that restriction only applies to the words ―the exercise of any powers under this Part of this Act‖. It does not apply to the other matters covered by s 58(2).
Argument for Mr and Mrs Hubbard
[24] Like counsel for the applicants, counsel for Mr and Mrs Hubbard rely on the overall scheme of the CIM Act. They reach the opposite conclusion for two primary reasons.
[25] First, under s 58 the Court can only direct the applicants to do what they are already permitted to do under the CIM Act. In other words, the section allows the Court to provide directions as to how the statutory managers should exercise powers that already exist. It does not provide a mechanism to extend powers that already
exist, otherwise s 59 which provides that power would be redundant.
3 For example receiverships, liquidations, trusteeships.
[26] Secondly, s 58 is expressly limited to matters dealt with in Part III of the Act and this is also apparent from the three categories contained in subs (1)4 which all relate to matters regulated by Part III. The recovery of management costs is dealt with in s 65 which is located in Part IV of the Act. The fact that the recovery of management costs is located in a different part of the Act reflects the overall scheme of the Act. Equally importantly s 65 is a self contained regime as to costs and it
could not have been Parliament’s intention that the Court would be able to give
directions under s 58 that were incompatible with that regime.
Discussion
[27] I approach this issue at two levels: first, whether s 58 confers jurisdiction to give the directions that are sought; and secondly, if jurisdiction exists, whether the Court should exercise its discretion in favour of giving such directions.
[28] As to the issue of jurisdiction, I am satisfied that s 65 (in conjunction with the Crown indemnity under s 63 and the ability of a statutory manager to obtain an advance from money appropriated by Parliament under s 66) is intended to provide a comprehensive regime for the recovery of costs by statutory managers. The reasons for that conclusion are given at [65]-[72]. Also for reasons that are discussed in the same paragraphs, I am satisfied that the application currently before the Court does not come within that regime.
[29] Given those conclusions I am unable to accept that s 58(2) confers the necessary jurisdiction to give the directions that are sought. That subsection only authorises the Court to give directions:
... concerning the business or property of the corporation, or the management or administration of any such business or property, or the exercise of any powers under this Part of this Act.
I cannot conceive that Parliament intended to confer power on the Court to go beyond and effectively re-write the statutory costs regime by imposing costs in a
situation not contemplated by the statute. On that ground alone I would decline
4 The business or property of the corporation; the management or administration of any such business or property, the exercise of any powers under Part III.
jurisdiction to make the orders sought.
[30] I also accept the proposition that s 58(2) only confers power for the Court to give directions as to the exercise of powers that already exist. Otherwise s 59 would be meaningless and redundant. On my analysis5 the statutory costs regime does not authorise statutory managers to levy costs against the assets of ―associated persons‖ in the situation under consideration. This reinforces my belief that s 58 does not confer the necessary jurisdiction to grant the statutory managers’ application.
[31] Mr and Mrs Hubbard also argue that directions can only be made regarding management issues that are properly within the scope of Part III of the Act and the recovery of management costs, being regulated by Part IV, is beyond the scope of directions under s 58(2). That argument would certainly be right if the application before the Court is construed as an application for directions concerning ―the exercise of any powers‖ in terms of s 58(2) because such powers are expressly confined to Part III.
[32] Another interpretation is that the application is an application for directions
―concerning the business or property of the corporation‖ on the basis that s 56(2)(b)
deems Mr and Mrs Hubbard to be a corporation. Section 56(2)(b) provides:
56Application of this Part to joint statutory managers, associated persons, and subsidiaries
...
(2) For the purposes of this Part of this Act, unless the context otherwise requires,—
...
(b) Where an associated person of a corporation is declared to be subject to statutory management,...that associated person
...shall be deemed to be a corporation and references in this Part of this Act to a corporation shall be read as references to that associated person or subsidiary, as the case may be.
(Underlining added)
The context does not require this deeming provision to apply beyond Part III of the
Act. Thus the Court only has power to give directions concerning issues relating to
5 See discussion [65]-[72].
the business or property of Mr and Mrs Hubbard that come within the scope of Part III, which does not include the recovery of management costs. Again this supports the proposition that there is no jurisdiction under s 58(2) to make the order sought.
[33] Now I turn to the issue of discretion. Even if my conclusion about jurisdiction under s 58(2) is wrong, I cannot see how I could responsibly exercise the discretion conferred by that subsection in favour of making the order sought. As already indicated, such a step would effectively re-write the statutory costs regime enacted by Parliament by imposing the burden of costs on a category of assets that Parliament had deliberately refrained from exposing to such an order.
[34] For all of those reasons I decline to make an order under s 58(2).
Section 59
Argument for applicants
[35] Section 59 provides the Court with very wide powers. Although those powers must be in conformity with the policy and objects of the Act, that requirement would not be compromised in this case.
[36] In accordance with the policy and objects of the Act Mr and Mrs Hubbard were placed in statutory management for the reasons specified in the Act and this is a case where the interests of protecting a large number of people outweigh the individual property rights of Mr and Mrs Hubbard. In other words, their property rights should give way ―for the greater good‖ which is in accordance with the underlying philosophy of the Act. The Court should confer any additional power that is necessary for the statutory managers to recover their costs from the Hubbard assets.
[37] It was accepted by Wallace J in McDonald v Australian Guarantee Corporation (NZ) Ltd6 that the CIM Act is intended to take over where the ordinary law cannot cope and stronger measures are needed. He also accepted that the power conferred by s 59 was wide and that it conferred the necessary jurisdiction for there to be a pooling of costs. Those observations apply with equal force to the recovery of the statutory managers’ costs from the Hubbard assets.
[38] Re Watson7 is also relevant. In that case the Court accepted that s 59 could be invoked to extend powers already dealt with explicitly in the Act to allow the statutory managers to recover costs incurred in complying with an SFO requisition.
Argument for Mr and Mrs Hubbard
[39] Section 59 was never intended to be used for the recovery of a statutory manager’s management costs. Parliament regulated recovery of those costs in s 65 and it would be surprising if s 59 provided a valid source of power for the recovery of such costs. This is especially so in light of the strong presumptions against statutory incursions into property interests. Moreover, the applicant’s reliance on this provision seeks to circumvent Parliament’s decisions about the circumstances in which statutory management costs may be recovered from an associated person’s assets.
[40] Having advanced detailed submissions about s 65 (which will be covered in greater detail when that section is considered), counsel submitted that Mr and Mrs Hubbard’s approach to s 59 is supported by the limited and ancillary purpose of the ―associated person‖ status under the CIM Act which means that the Hubbard assets are only under management because of their ―interconnectedness‖ with the Aorangi assets. Those matters count against any need for a strained construction of s 59 to provide for the recovery of costs when statutory managers have recourse to the Crown indemnity under s 63.
[41] Common law principles concerning the protection of property interests were developed in detail. It was contended that those property rights should not be taken away without a concomitant right to compensation unless such legislative intention is expressed in unequivocal terms. Various authorities, including Cropp v Judicial Committee8 and Hood v Attorney General,9 were cited. It was noted that when the statutory managers were appointed it was anticipated that any shortfall in costs would be covered by the Crown indemnity.10
[42] If the Court concludes that there is jurisdiction, the Hubbards’ alternative submission is that it would not be ―fit‖ for the order sought to be made. In support of this submission it is contended: the present case falls substantially short of one where an order could properly be made; there is no evidence before the Court to support any allegation of fraud on the part of Mr and Mrs Hubbard; had Parliament considered that a person’s contribution to complexity of managing assets justified an award of costs it would have said so; the alleged complexity does not exist; there is no expectation that an ―ordinary citizen‖ is obliged to manage his or her affairs in any particular way; and in any event the Crown has always anticipated that it might have to bear these costs pursuant to s 63.
Discussion
[43] Again it is appropriate to begin by determining whether s 59 confers the necessary jurisdiction. Then I will consider whether it would be appropriate for the Court to reach the view that, in terms of the section, it is ―fit‖ to make such an order.
[44] Section 59 was considered by Wallace J in McDonald v Australian Guarantee Corporation (NZ) Ltd which is relied on by the applicants, and again within a short time in McDonald v Australian Guarantee Corporation(NZ) Limited(No 2).11
[45] Although there were several issues in the first case, the issue of immediate relevance was whether s 59 conferred jurisdiction on the Court to make an order for
8Cropp v Judicial Committee [2008] 3 NZLR 774
9 Hood v Attorney General CA 16/04 2 March 2005
10 Cabinet Office Paper ―Statutory Management – Aorangi Securities Limited & Others‖ and Cabinet
Minute annexed to affidavit of Mr Hubbard sworn on 24 May 2011.
11 McDonald v Australian Guarantee Corporation (NZ) Ltd (No 2) (1990) 5 NZCLC 66,191
the pooling of costs. Some 93 companies were under statutory management. Wallace J decided:12
... there is jurisdiction which can be exercised in an appropriate case. Although all the possibilities and contingencies which might render it appropriate to make an order for pooling of costs are not foreseeable in advance, I have primarily in mind a situation where (a) the statutory management is effectively stultified because of the lack of funds in some companies in a Group and (b) it is appropriate, because of the benefits of the statutory management (including any investigation carried out) for companies with funds to bear some part of the cost of the statutory management of other companies in a Group.
The Judge emphasised that this was not a finding that an order for pooling of costs should be made in that case. That was left open for consideration at a later stage.
[46] Wallace J also emphasised that it was not for the Court to devise a ―fair scheme‖ for the pooling of costs. That was for the statutory manager, with the Court having the ability to make an order for pooling if satisfied that such an order was fair and appropriate in all the circumstances. Wallace J also commented that there might be ―considerable argument‖ whenever the Court is asked to make an order for pooling of costs under s 59 and it would be ―for the benefit of all concerned‖ if the Act (including s 65) was amended to clarify the situation concerning the pooling of
costs.13
[47] That decision is of limited assistance. It could not be said in the present case that the statutory management would be effectively stultified if the statutory managers were unable to resort to Mr and Mrs Hubbard’s assets for their costs. They have access to the Aorangi assets. Nor is it a situation, at least on the evidence currently before the Court, where it could be said that Mr and Mrs Hubbard are deriving a benefit from the statutory management which would make it appropriate for them to carry part of the cost.
[48] The second case offers much more assistance. The issue was whether s 59 gave the Court jurisdiction to effectively modify s 51(2) of the CIM Act by granting to the plaintiffs a power, in priority to the rights of the holder of a fixed charge, to
charge costs against an asset that was subject to a fixed charge. Section 51(2) provides that where a statutory manager sells or disposes of any property or assets of a corporation which is subject to a security interest, the person entitled to the security interest must be paid in priority to all other claims, except for the costs of selling the assets.
[49] While Wallace J considered that the s 59 power ―is intended to be a wide one‖,14 he concluded that the legislature had taken considerable care to create a special regime protecting the position of fixed charge holders in s 51(2) and that the order sought by the statutory managers would ―defeat a clear object of the Act (the protection of creditors with fixed charges) contrary to the express provisions of the Act‖.15 He went on to say that if the statutory manager faced difficulty in funding the management it would be necessary to have recourse to s 66. The same considerations arise in this case.
[50] Section 59 was also considered in Re Watson. In that case the statutory managers sought directions as to whether the costs they incurred in relation to criminal prosecutions could be paid out of the property of the corporation under statutory management. The primary submission on behalf of the statutory managers, which Robertson J accepted, was that those costs came within s 65 and were payable accordingly.
[51] However, Robertson J then looked at the alternative proposition which was that if s 65 did not confer the necessary jurisdiction then the Court should use s 59 to confer the necessary power on the statutory manager. In response to an argument that s 59 should not be used to re-write s 65 Robertson J said:16
I acknowledge its logical consistency. However inasmuch as I have rejected the narrow reading of sec 65, consistent therewith I reject any curb on the ability of the Court to provide for proper recompense in a situation such as this. I would be prepared if it were necessary to exercise the power under sec 59 to deal with the managers’ right to remuneration in respect of properly incurred expenses as a result of the activities of the Serious Fraud Office in investigating and prosecuting alleged offences.
14 At 66,195
15 At 66,195
Clearly these observations about the application of s 59 are obiter and the situation before Robertson J was factually dissimilar to the situation that I have to resolve. I do not derive any assistance from that decision.
[52] In my view it would be inappropriate to use s 59 in a way that effectively modifies the costs regime enacted by Parliament through ss 63, 65 and 66. In other words, any attempt to use s 59 in this case suffers from the same problem as the attempt to use s 58.
[53] This conclusion is reinforced by the incursion into Mr and Mrs Hubbard’s property rights that would necessarily arise. Even though Mr and Mrs Hubbard’s assets are under statutory management, those assets still remain the property of Mr and Mrs Hubbard. In Hood the Court of Appeal noted that ―... the Courts will not adopt a construction that takes away existing property rights more than an Act and its proper purpose require‖.17 Burrows’ Statute Law in New Zealand (3rd ed, 2003) at pages 221-222 was cited to support that proposition.
[54] Although the Supreme Court’s decision in Cropp was not concerned with property rights, its observations are nevertheless relevant to the matter under consideration:
[27] Counsel is correct in pointing out that the Courts will presume that general words in legislation were intended to be subject to the basic rights of the individual.18 That presumption naturally applies to words which authorise subordinate legislation...
A similar approach featured in the decision of the United Kingdom Supreme Court in Ahmed v HM Treasury19 which involved Orders in Council restricting the ability of people suspected of terrorism to deal with their funds.
[55] Section 59 could not be expressed in more general terms and it is clear that the powers sought by the statutory managers would affect the property rights of Mr
and Mrs Hubbard. Indeed, the orders sought would result in their assets being
17 At [59]
18 R v Secretary of State for the Home Department, ex p Simms [2000] 2 AC 115 at p 131 per Lord
Hoffmann
19 Ahmed v HM Treasury [2010] 4 All ER 745
reduced by at least $891,000 without compensation. Before the Court conferred such a far reaching power on the statutory managers it would need to be confident that the CIM Act allowed that step to be taken. I have not been persuaded that this is the case.
[56] Again s 65 (coupled with the availability of a Crown indemnity under s 63 and the powers under s 66) is a pivotal factor. Parliament has specifically directed its attention to, and carefully defined in s 65(2), the extent to which an associated person may be required to contribute to a statutory manager’s costs. I cannot accept that it was intended that the Court would have power to modify that regime. If a safety valve is needed the Crown indemnity under s 63 or the power of Parliament to appropriate funds under s 66 will achieve that purpose. Indeed, that seems to have been the understanding when the decisions relating to the statutory management
were made.20
[57] All of those matters apply with equal force to the issue whether the Court could responsibly think ―fit‖ to make an order under s 59. In addition to those matters there is the further complication that the evidence about the extent of Mr and Mrs Hubbard’s assets and whether there is complexity in administering them is disputed. The Court is not in a position to resolve those disputes at this time.
[58] In conclusion I have not been persuaded that s 59 confers the necessary power on the Court to make the orders sought. Even if jurisdiction does exist, I am not satisfied that in terms of that section this is a ―fit‖ case to confer such powers.
Section 65
[59] In their initial written submissions in support of the application to take costs counsel for the statutory managers accepted that s 65(1) did not expressly allow the statutory managers to take the costs of administering the Hubbards’ assets from those assets. They also accepted that subs (2) of that section did not apply in the present
case, but claimed that it illustrated there was ―no specific intention to exempt
20 See [9] above and footnote 10
associated persons from being personally liable for the costs of the statutory
management of the corporation with which they are associated‖.
[60] That stance was modified during the course of the hearing, with the applicants contending (at least as a fallback position if ss 58 and 59 were not available) that s 65(1) does authorise payment of the statutory managers’ costs. Given that development I allowed counsel on both sides to make further written submissions, and I am grateful to them for the comprehensive submissions that were supplied which included reference to the Reserve Bank of New Zealand Act 1989 (RBNZ Act) as an aid to the interpretation of the CIM Act.
Argument for applicants
[61] When it comes to interpreting the word ―corporation‖ in ss 63, 65 and 66 the
definition of ―corporation‖ in s 2 provides the key:
In this Act, unless the context otherwise requires, -
Corporation means a body of persons, whether incorporated or not, and whether incorporated or established in New Zealand or elsewhere. (The underlining has been added by counsel for the applicants.)
Given the qualification ―unless the context otherwise requires‖ the word
―corporation‖ can be used in a flexible way depending on the circumstances. For the purposes of ss 63, 65 and 66 the word ―corporation‖ includes an ―associated person‖. Any other interpretation would be unworkable.
[62] Comparison with the RBNZ Act does not advance the matter. Parliament did not intend that Act to operate alongside the CIM Act or that the CIM Act should impliedly be read in the same way as express provisions in the RBNZ Act. Despite similarities in drafting there are significant overall differences between the two Acts and whereas the RBNZ Act applies only to a limited class of persons the CIM Act is capable of applying to a far wider group of persons. Moreover, the flexibility in interpreting the word ―corporation‖ provided by s 2 of the CIM Act does not have a counterpart in the RBNZ Act.
Argument for Mr and Mrs Hubbard
[63] Section 65 of the CIM Act regulates the ability of statutory managers to obtain management costs, charges and expenses from the property of the managed corporation and, in limited circumstances, from the property of an associated person. That section does not permit statutory managers to seek the costs of managing an associated person from either a managed ―corporation‖ or that ―associated person‖ except in the limited circumstances specified in s 65(2), which do not apply here. As is apparent from its legislative history s 65 it reflects a deliberate legislative policy and there are no gaps that need to be filled. It establishes a logical and comprehensive scheme as to the payment of statutory managers’ costs.
[64] Guidance as to the interpretation of s 65 is available by reference to the statutory management regime in the RBNZ. Section 148 of that Act, which is the provision functionally equivalent to s 65, makes specific provision for the recovery of management costs from associated persons. This reflects a Parliamentary intention that the two Acts would operate in different ways. Significantly the two Acts were enacted in the same year and Parliament has had ample opportunity to bring the CIM Act and RBNZ Act into alignment but, despite amendments to both Acts, has not done so.
Discussion
[65] When the CIM Act was enacted in 1989, s 65 provided:
65 Expenses of statutory management
All costs, charges, and expenses properly incurred by a statutory manager in the exercise of the manager's functions and powers under this Act (including such remuneration as may be approved by the Minister) shall be payable out of the property of the corporation in respect of which the statutory manager is appointed in priority to all other claims.
Except for the absence of any reference to ―a member of an advisory committee‖, that section is now the current s 65(1).
[66] Subsection (2) of s 65 was added by the CIM Amendment Act 1994. It is worth quoting that subsection again to emphasise that it is specifically aimed at the payment of costs, charges or expenses from the property of an ―associated person‖:
(2) Notwithstanding subsection (1) of this section, where—
(a) Any such costs, charges, or expenses are properly incurred in respect of a corporation that is subject to statutory management under this Act; and
(b) Any associated person of that corporation is also subject to statutory management under this Act,—
the Court may, if it considers it just and equitable to do so, order that any of those costs, charges, and expenses shall be payable out of the property of the associated person of the corporation. (Emphasis added)
Having turned its mind to the extent to which costs should come from the property of
―associated persons‖, Parliament decided that this should only happen in the very specific situation described in that subsection. It is common ground that this case does not come within that subsection.
[67] Several factors count against the statutory managers’ proposition that the power to pay costs, charges and expenses ―out of the property of the corporation‖ in s 65(1) should be construed as ―out of the property of the corporation or associated person‖:
(a) If that was the proper interpretation the addition of subs (2) in 1994 would have been unnecessary and Parliament would have simply added the words ―or associated person‖ to s 65.
(b)It would also mean that the two subsections in s 65 are internally inconsistent because in subs (1) the words ―corporation‖ and
―associated person‖ would carry an amalgamated meaning whereas in subs (2) the two concepts are decoupled. This would be very unusual statutory drafting, to say the least.
(c) The proposition is incompatible with s 56(2)(b) which expressly confines the deemed amalgamation of ―corporation‖ and ―associated
person‖ to Part III of the Act. If Parliament had intended a similar amalgamation to occur in Part IV, or even within specific sections in Part IV, it would have said so.
(d) The interpretation that the statutory managers seek to place on s 65(1)
is also incompatible with the immediately preceding section:
64 Corporation not entitled to be consulted about exercise of powers
Except as otherwise provided in this Act, no corporation to which this Act applies, and no director or other officer of any such corporation, shall be entitled to be consulted or informed as to the exercise or possible exercise of any of the powers conferred by this Act.
The reference to directors and officers makes it is clear that this section was only intended to refer to a ―corporation‖ as defined in s 2. The same can be said of s 68. In fact, with the exception of s 65(2), all the sections in Part IV can be sensibly and logically read on the basis that references to a corporation are confined to corporations as defined in s 2.
(e) A logical and workable statutory scheme exists without implying the words that the statutory managers are seeking to imply in s 65(1).
(f) This can be compared with the difficult and inconsistent statutory organisation and format that would arise if the statutory managers’ interpretation was accepted.
In short, I do not accept that the interpretation advocated on behalf of the statutory managers was intended by Parliament.
[68] When it comes to Parliament’s intention I agree with counsel for Mr and Mrs Hubbard that the RBNZ Act offers some useful insight. Like the CIM Act, the RBNZ Act provides for statutory management, except that in the case of the latter Act it is confined to registered banks. Both Acts were enacted in 1989 and there are
striking similarities between the statutory management regimes created by each Act, with some of the provisions being virtually identical.
[69] It is particularly significant that both Acts make provision for an ―associated person‖ to also be subject to statutory management. Like s 65 as originally enacted, s 148 originally made specific provision for the recovery of costs, charges and expenses incurred by the statutory manager out of the corporate (registered bank) assets but there was no provision for those costs, charges and expenses to come out of the property of the ―associated person‖.
[70] In 2003 s 148 of the RBNZ Act was amended to read:
148 Expenses of statutory management
(1) All costs, charges, and expenses properly incurred by a statutory manager or a member of an advisory committee in the exercise of the manager's or the member's functions and powers under this Part of this Act (including such remuneration as may be approved by the Bank) shall be payable out of the property of the registered bank or associated person of the registered bank or a subsidiary of the registered bank in respect of which the statutory manager or member is appointed in priority to all other claims.
(2) The statutory manager may, with the approval of the Bank, apportion the costs, charges, and expenses referred to in subsection (1) between the registered bank and any associated person or subsidiary of the registered bank that is also subject to statutory management in the amounts that the statutory manager considers just and equitable.
... (Underlining added)
I note in passing that the underlined words that were inserted in 2003 are virtually identical to the words that the statutory managers say should be read into s 65(1) of the CIM Act.
[71] Less than one year after the RBNZ Act was amended in relation to the ability of statutory managers to recover their costs, charges and expenses from the assets of an ―associated person‖, the CIM Act was also amended with reference to the same subject matter by the addition of s 65(2). But the amendments were totally different. Unlike the amendment to s 148, s 65(2) is confined to a very specific situation (which does not apply in this case). Had Parliament intended to create the type of
regime that the statutory managers contend, it would have simply adopted the RBNZ
formula.
[72] The subject matter and timing of the amendments indicates that Parliament must have intended to create two significantly different regimes in relation to the taking of costs from the property of ―associated persons‖. What the applicants are effectively inviting the Court to do is apply the RBNZ regime to the CIM Act. That could not have been Parliament’s intention, and I am not prepared to interpret s 65(1) in that way. The statutory managers’ application cannot succeed.
Costs arising from the March hearing
[73] This issue was left open when judgment was delivered on 17 March 2011 because the outcome depended on whether or not the statutory managers would be able to recover costs from Mr and Mrs Hubbard’s assets under management (it is my understanding that they do not have any other assets from which costs could be recovered). The conclusion that I have reached means that the statutory managers’ application for costs against Mr and Mrs Hubbard in relation to the March hearing cannot succeed.
[74] In any event, Mr and Mrs Hubbard were the successful party in that litigation. Consequently, even if there had been power to make an order for the statutory managers to recover their costs from the Hubbard assets, the principle that costs should follow the event would have counted against such an order being made.
[75] There is, however, a further issue concerning the costs arising from the earlier hearing. Prior to the March hearing the statutory managers agreed to pay Mr and Mrs Hubbard’s reasonable solicitor/client costs and disbursements relating to that hearing. Russell McVeagh have now claimed costs and disbursements totalling
$178,059.33 for the period from 22 December 2010 to 24 March 2011. The statutory managers have questioned whether such costs are fair and reasonable.
[76] Although I was informed from the Bar that further information was going to be provided by Russell McVeagh to the statutory managers, I am not sure how far
that has progressed. At one stage the possibility of the costs being examined by the independent lawyer appointed pursuant to para [54] of the judgment delivered on 17
March 2011 was raised. However, no finality was reached and I am not sure whether that possibility is likely to be carried any further.
[77] It would be appreciated if counsel could submit a joint memorandum (or if necessary individual memoranda) as to how this aspect might be progressed. Alternatively, they might prefer to seek a telephone conference so that the matter can be discussed.
Result
[78] The application by the statutory managers for an order that they be permitted to take the costs of managing Mr and Mrs Hubbard’s personal assets out of those assets is dismissed.
[79] My initial impression is that Mr and Mrs Hubbard should receive costs on this application. However, memoranda should be submitted if agreement cannot be reached. Any such memoranda should not exceed three pages.
Solicitors:
Anderson Lloyd, P O Box 13831, Christchurch
Russell McVeagh, P O Box 10-214, Wellington
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