Wang v Lu
[2020] NZCA 673
•21 December 2020 at 4.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA556/2020 [2020] NZCA 673 |
| BETWEEN | JIANPING WANG |
| AND | BIN LU |
| Hearing: | 25 November 2020 |
Court: | Brown, Clifford and Gilbert JJ |
Counsel: | G P Blanchard QC and G E Slevin for Appellant |
Judgment: | 21 December 2020 at 4.00 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed. The application for pt 6 administration of the estate is amended as sought in the appellant’s oral application of 30 July 2020.
BThe first respondent is to pay the appellant costs for a standard appeal on a band A basis and usual disbursements.
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REASONS OF THE COURT
(Given by Clifford J)
Introduction
Jianping Wang, the appellant, is a judgment creditor of Jihong Lu. Mr Lu is now deceased. Mr Wang applied to the High Court for an order that Mr Lu’s estate be administered under pt 6 of the Insolvency Act 2006 as an insolvent deceased’s estate. That application came before Wylie J in the High Court on 30 July this year. At the hearing of that application the Judge declined an oral interlocutory application made on Mr Wang’s behalf to amend the orders he sought, and the substantive application proceeded no further that day.[1] Nor has it since then.
[1]Re Lu [2020] NZHC 1894 [Judgment under appeal].
With leave granted by Wylie J,[2] Mr Wang now appeals the Judge’s interlocutory order declining Mr Wang’s application to amend.
Background
[2]Re Lu [2020] NZHC 2415 [Judgment granting leave].
On 6 August 2019 Mr Wang obtained summary judgment against Mr Lu in the sum of $1.5 million.[3] That same day Mr Lu transferred his interest in a property to the second respondent, his mother Mrs Weihua Zhang for, Mr Wang says, no consideration. Mr Wang has since obtained freezing orders and commenced a proceeding to recover compensation from Mrs Zhang.[4] Mr Wang also issued a bankruptcy notice against Mr Lu in December 2019, which Mr Lu did not comply with.
[3]Wang v Lu HC Auckland CIV-2019-404-545.
[4]Wang v Zhang HC Auckland CIV-2019-404-2583.
Mr Lu died in Taipei, Taiwan, on or about 21 January 2020. Mr Wang commenced his application for a pt 6 order on 7 May 2020. At that point in time, Mr Wang had no formal evidence of Mr Lu’s death nor of the existence of any will.
Pursuant to the orders Mr Wang sought, his interlocutory application was served on the first and second respondents, Bin Lu (Mr Lu’s brother) and Mrs Zhang. In his affidavit in support of his opposition to Mr Wang’s application for a pt 6 administration, Bin Lu deposed that Mr Lu had indeed died and that he had made a will. Bin Lu appended a copy of that will (written in Mandarin) to his affidavit, together with a certified translation thereof.
That will provides, amongst other things, for the payment of a debt or other sum due of NZ$1.6 million to a Lili Wang and for the distribution of the balance of Mr Lu’s estate to Mrs Zhang, Bin Lu, Mr Lu’s children, family members and others. Mr Lu appointed his son Bin Lu as executor, failing him a Bruce Davidson and failing him a David Wong‑Tong.
It is common ground that no application has been made pursuant to the Administration Act 1969 for the grant of probate or for the appointment of an administrator of Mr Lu’s estate, whether by Bin Lu or anybody else. At the hearing of this appeal we were advised by Mr Harlowe, counsel for Bin Lu, that delay reflected complications arising from the fact that Mr Lu had executed his will in Taiwan.
Appeal
Mr Wang commenced his pt 6 application by way of originating application without — as permitted by the High Court Rules 2016 — naming a respondent. In doing so he applied for orders:
(a)granting leave to file his application within four months of death pursuant to s 381(4) of the Insolvency Act;
(b)that notice of his application be served on Mrs Zhang and Bin Lu;
(c)that Peter David Ellis be appointed pursuant to s 385 of the Insolvency Act to administer the estate; and
(d)that costs be paid to him by any party directed to be served who opposes the application.
Mr Wang’s application was first considered by Downs J on the papers. The Judge granted without notice the first two orders sought.
The matter was subsequently set down for an on notice hearing on 30 July.
During the course of that hearing the Judge noted Mr Wang had not, in the orders he sought pursuant to his application, explicitly stipulated an order that Mr Lu’s estate be administered under pt 6: rather, he had applied for a named insolvency practitioner to be appointed to carry out that task.[5] As a result, counsel for Mr Wang made an oral application that the originating application be amended by including an express order to that effect.
[5]Judgment under appeal, above n 1, at [19].
Counsel for Mrs Zhang and Bin Lu acknowledged granting that application involved no prejudice to their clients, but raised concerns as to the position of other beneficiaries who had not thus far been served and who may be interested in the application to administer under pt 6. The Judge responded to that submission, as recorded in his reasons for oral ruling released the next day, in the following way:
[23] Downs J directed service on Mr Bin Lu and Mrs Zhang. In the memorandum filed by Mr Wang’s then counsel, Mr Slevin, which accompanied the application, it was noted that Mr Bin Lu was Mr Lu’s brother, and that Mrs Zhang was his mother and that she might have an interest in his estate. No further information was then available. Mr Lu’s will has only become available after service was [effected] on Mr Bin Lu and [Mrs] Zhang. It is now clear that there are a number of other persons interested under the late Mr Lu’s will, both creditors and beneficiaries. Those persons should be given the opportunity to participate in the hearing of any application made to administer the late Mr Lu’s estate as an insolvent deceased estate under Pt 6 of the Act. As I have noted, if the estate is administered under Pt 6, Mr Lu’s will [will] be suspended. The interests of both named creditors and beneficiaries could well be affected. Further, the estate could end up being administered by somebody other than one of the named administrators.
[24] Given that named creditors and beneficiaries have not been served and (with the exception of Mr Bin Lu and [Mrs] Zhang) are likely unaware of the proceedings, and given the risk of prejudice to those persons, I declined the oral application to treat the application filed as also being for an order that the estate be administered under Pt 6 of the Act. I did allow an adjournment to give counsel the opportunity to consider the position and obtain instructions.
When granting leave to appeal the Judge explained his reason for doing so in the following way:[6]
[18] Normally one would not expect that a decision declining an oral application to amend an originating application would raise an issue of significance or have implications beyond the instant case. One would expect that when such application is declined, the applicant would simply bring a fresh originating application, correcting the omission which necessitated the oral application. That could generally be done promptly and the delays inherent in an appeal would weigh heavily against the grant of leave to appeal the decision declining the oral application.
[19] Here, however, I declined the oral application for one reason only — that the creditors and beneficiaries named in the late Mr Lu’s will had not been served and because I considered that there could be prejudice to them. If a fresh and compliant originating application is filed, Mr Wang will have to apply for directions as to service and the same issue will arise — should named beneficiaries and creditors be served? In my view, there is precedential value in having that issue resolved. I agree with Mr Slevin’s submission that it is important for creditors considering making an application under Part 6 of the Insolvency Act to know which parties are entitled to receive notice of the application.
[6]Judgment granting leave, above n 2.
That appeal was placed on this Court’s fast track appeal process by Brown J in a minute of 15 October 2020.
Analysis
Reflecting the Judge’s reasons for giving leave, and although this appeal was on its terms directed at the High Court’s decision to decline to amend Mr Wang’s originating application, the focus of submissions for Mr Wang was on the implications of the Judge’s expressed view that beneficiaries and creditors generally should be served because of the risk of prejudice to them from a pt 6 administration. The difficulty with that approach is, as we explained during the hearing, there is no decision of the High Court before us determining the persons to be served in Mr Wang’s application which we can correct on appeal. Nor are we in a position to act as a first instance court, and make that decision.
We therefore deal first with the appeal to the extent it relates to the Judge’s decision to decline the application to amend. We then make some observations on the related matter of service.
The Judge’s observation that there was no express application for an order of administration under pt 6 was prompted by the terms of s 385 of the Insolvency Act. As the Judge explained in his written reasons:[7]
[10] I pointed out to Mr Stewart that while s 385 gives the Court power to order that an administrator no longer administer an estate and to appoint the Assignee, the Public Trust or some other appropriate person to administer an insolvent deceased’s estate, such power can only be exercised where [an] application has been filed for an order to administer the estate under Pt 6 of the Act and where the Court is satisfied that the estate is likely to be better administered by somebody other than the named administrator.
[7]Judgment under appeal, above n 1.
Part 6 contemplates applications as involving two decisions:
(a)first, on the application of an administrator (s 380) or a creditor or beneficiary (s 381), whether the estate should be administered pursuant to pt 6; and if so
(b)secondly, who should be appointed to carry out that task.
The first decision, that an estate should be administered under pt 6 is governed by the provisions of ss 379–381 relating, in general terms, to an assessment of the adequacy of the assets of the estate to meet the claims of creditors. Section 385 addresses the second of those issues. That scheme reflects, as the Judge observed, that there will be an application for administration under pt 6 and, where the applicant is not an administrator applying themselves to conduct a pt 6 creditor’s administration, an application for the appointment of the person nominated by the applicant for that purpose.
In that scheme the particular role of s 385 would appear to be to give the court power to appoint a different person where an administrator applies intending that they themselves be made the appointee.
As the Judge’s leave decision indicates, were it not for his concern as to issues of service he would have granted Mr Wang’s application to amend the orders he sought. Putting that issue of notice aside, which as we have already observed was not itself part of the Judge’s decision, we see no reason why that application should not have been granted, and accordingly allow Mr Wang’s appeal to that extent.
We now make observations on the question of service.
Pursuant to s 382 of the Insolvency Act, a creditor or beneficiary applicant for a pt 6 administration must give notice of their application in the prescribed manner to the administrator, or if there is no administrator, to the person specified by the court. Where under s 381 the applicant is an administrator, there is no requirement for such notice. Part 6, therefore, clearly indicates that it is enough for a creditor or beneficiary applicant to give notice to an appointed administrator. Where no such administrator has been appointed, it would seem reasonably apparent that a person such as Bin Lu, named as administrator by the testator, would be the person the court would likely order service on.
The Judge was concerned, we note, about possible prejudice to other creditors and the potential beneficiaries.
As to that, the effect of an insolvent administration is to treat the deceased’s estate as if it were the estate of a bankrupt, save in one regard. That is that the automatic appointment of the Official Assignee as trustee in bankruptcy does not apply: the Assignee may be appointed, but so may somebody else. On that basis we fail to see how the position of other creditors of the insolvent estate could be prejudiced. The appointee is required, after all, to administer the estate consistently with the principles of insolvency law generally.
In our view, that is also the case for potential beneficiaries. On the basis the court is satisfied the estate should be administered under pt 6, the potential beneficiaries can only have an interest if the “insolvent” estate actually yields a surplus after the satisfaction of creditors’ claims. Were that to occur, the estate would be administered, as regards the beneficiaries’ claims, pursuant to orders made by the court under s 394 of the Insolvency Act.
The only obvious source of possible prejudice in both situations would be the unsuitability of the proposed appointee in terms of their ability and willingness to administer the insolvent estate lawfully and efficiently. That issue would, in the ordinary course, be explicitly addressed by the court when it considers the application to appoint the named appointee.
Whether there may be circumstances when the views of creditors or potential beneficiaries generally would be relevant to that exercise is a question we need not determine in the abstract. But, we observe that possibility does not appear likely. Given Mr Lu’s appointment of Bin Lu as his administrator, and what we infer are or were the close relationships between Mr Lu, Bin Lu and Mrs Zhang, Bin Lu and Mrs Zhang would appear to be the appropriate persons on whom to serve Mr Wang’s application.
In granting leave, the Judge was concerned not to delay unnecessarily the administration of the estate, and clearly had second thoughts about the reasons for which he had declined Mr Wang’s application to amend. Hopefully, in light of this judgment, the question of service can be dealt with rapidly and the substantive consideration of Mr Wang’s application can be scheduled promptly. But those issues, and the question of service more generally in terms of s 382, will be for the High Court when Mr Wang pursues his now amended pt 6 application.
Result
Mr Wang’s appeal is allowed. His application for the pt 6 administration of Mr Lu’s estate is amended as sought in his oral application of 30 July 2020.
The first respondent is to pay the appellant costs for a standard appeal on a band A basis and usual disbursements.
Solicitors:
Davidson Legal, Christchurch for Appellant
Couch Harlowe Kovacevich, Auckland for First Respondent