West v Official Assignee

[2007] NZCA 523

IN THE COURT OF APPEAL OF NEW ZEALAND

CA53/06
[2007] NZCA 523

BETWEENLIONEL ANDREW WEST

Appellant

ANDTHE OFFICIAL ASSIGNEE

Respondent

Hearing:11 September 2007

Court:Glazebrook, O'Regan and Arnold JJ

Counsel:Appellant in person (with D P Coles as McKenzie Friend)

G A J Stanish for Respondent

Judgment:20 November 2007 at 3 pm

JUDGMENT OF THE COURT

A        We dismiss the appeal.

B        We award costs to the Respondent of $1,500 plus usual disbursements.

REASONS OF THE COURT

(Given by O’Regan J)

Introduction

[1]       Lionel West appeals against a judgment of Ronald Young J in which the Judge dismissed various causes of action pursued by Mr West against the Official Assignee and the New Zealand Police: West v Official Assignee & Anor HC WANG CIV-2004-403-38 20 February 2006.  This appeal concerns only the causes of action as against the Official Assignee.

Facts

[2]       Mr West did not adduce evidence in support of his claim in the High Court.  The evidence before the High Court therefore consisted of a brief of evidence of a senior insolvency officer, Mr Sayers (which was taken as read) and copies of the correspondence and documents referred to in the brief.  Mr Sayers was not cross-examined.  The following summary of facts is based on the brief and the documents referred to in it.

[3]       Mr West’s father died in January 1984.  His will, in respect of which probate was granted in March 1984, provided that the residue of the estate was to be divided equally between the three surviving children: namely, Mr West and his two sisters.  Mr West was appointed executor and trustee of the estate and the estate’s assets were transferred to Mr West in that capacity.

[4]       In June 1991 Mr West was adjudicated bankrupt with debts owing of $56,645.66.  At that time the only remaining substantial asset of the estate was a property at Raetihi (the property).  The Official Assignee considered that Mr West’s beneficial interest as a residuary beneficiary of his father’s estate passed to the Official Assignee pursuant to s 42 of the Insolvency Act 1967.

[5]       The Official Assignee sought to dispose of Mr West’s beneficial interest in the estate, though it appears that, initially, he failed to distinguish Mr West’s indirect interest in the property as residuary beneficiary of the estate from a direct interest in the property.  The property was independently valued at $32,000 (this figure was significantly less than the government valuation of $50,000).  Following failed attempts by Mr West’s sisters to purchase Mr West’s share of the property from the Official Assignee for $5,000, the property was put on the open market for $32,000 (with the agreement of Mr West’s sisters).  No offers were received. 

[6]       Eventually on 1 August 1994 the Official Assignee accepted Mr West’s sisters’ offer to buy Mr West’s beneficial interest for $8,000.  On 13 February 1995 the Official Assignee applied to be registered as proprietor of the property and executed a memorandum of transfer in favour of Mr West’s sisters.  This purported to transfer the fee simple estate in the property to the sisters.  That course of action appears to have resulted from the Official Assignee’s incorrect belief that, on Mr West’s bankruptcy, the Official Assignee succeeded to Mr West’s position as executor of the estate.  In fact, the transfer was never registered, so the Official Assignee’s error did not have any practical effect on Mr West.

[7]       On 13 June 1994  (ie before the Official Assignee agreed to sell Mr West’s share to his sisters), Mr West was discharged from bankruptcy under s 107(1) of the Insolvency Act.  On 13 February 1995 he sent a fax to the Official Assignee offering to buy back the one third beneficial interest in the estate, which had passed to the Official Assignee on his bankruptcy.  The Official Assignee declined the offer on 16 February 1995, as he was by then bound contractually to sell that interest to Mr West’s sisters.  The sisters paid the sum of $8,000 to the Official Assignee in March 1995. 

[8]       It is difficult to tell from the record how the transaction between the Official Assignee and Mr West’s sisters was finally documented.  The Official Assignee (on behalf of Mr West) and the sisters signed deeds of family arrangement in 1995 and in November 1996, both of which recorded that Mr West’s share in the residue of the estate was assigned to his sisters.  Both of these deeds made provision for Mr West, in his capacity as trustee of the estate, to execute a transfer of the property to the sisters as tenants in common in equal shares, reflecting their 50/50 interest in the estate after they had purchased Mr West’s one third beneficial interest from the Official Assignee.  Mr West refused to sign, so the sisters eventually applied to the High Court to have the property vested in them pursuant to s 52 of the Trustee Act 1956.

[9]       This application came before Doogue J: Martin v West HC WANG M27/99 8 February 2000.  He was satisfied that the sisters had established that they had acquired from the Official Assignee the beneficial interest which Mr West had in the property by virtue of being a residuary beneficiary of his father’s estate.  He therefore made the order sought by the sisters vesting in them as tenants in common the fee simple estate in the property. 

[10]     This Court dismissed an appeal from Doogue J’s judgment: West v Martin & Anor [2001] NZAR 49. Mr West argued that the Official Assignee had no power to sell the beneficial interest because it was protected by s 42(3) of the Insolvency Act, which provides that property held by a bankrupt in trust does not pass to the Official Assignee. That argument was rejected. Goddard J said for the Court at [23]:

That argument misconstrues the plain meaning of s 42(3) and the context of the Insolvency Act as a whole.  The Act provides for all of the property of a bankrupt, including his or her beneficial interests, to be available for distribution amongst creditors, and the definition of “property” in the Act is wide.  The Act also contains protections, such as s 42(3), to ensure that the property of others under the control or in the name of a bankrupt person does not pass for distribution in the bankrupt’s estate.  The Official Assignee’s entitlement to any interest in the property at Raetihi is limited (by s 42(3)) to the appellant’s beneficial undivided one-third share and the Assignee has no interest in any property held by him in his capacity as trustee for others.  His responsibilities as trustee of his sisters’ interests continue and are not affected by his bankruptcy or by the vesting of his interest in the Assignee.

The present litigation

[11]     Mr West’s next step was to sue the Official Assignee, the Department for Courts, the New Zealand Police and the Tenancy Tribunal.  With respect to the Official Assignee, Mr West contended that the Official Assignee was not entitled to sell Mr West’s beneficial interest to his sisters, and that he had done so fraudulently and at a gross undervalue.  All defendants apart from the police applied to have the claims against them struck out.  Master Gendall granted these applications, thus leaving only the claim against the police alive: West v Justice Department HC WANG CP1/2001 3 February 2003. 

[12]     Mr West applied to have Master Gendall’s decision reviewed. Heath J heard the application and allowed it in part: West v Official Assignee & Ors HC WANG CP1/2001 12 June 2003.  Heath J agreed with Master Gendall on all points but one.  He said at [27] that it did not follow from a finding that Mr West’s beneficial interest in the estate passed to the Official Assignee on Mr West’s bankruptcy that Mr West owned an interest in the property which also passed to the Official Assignee.  Heath J said at [32] that although the allegations made by Mr West did not suggest fraud, they could give rise to an allegation of negligence by the Official Assignee.  The negligence would have been in the Official Assignee selling land to which he had no legal or beneficial title.  That ruling was, of course, made in the context of a strike-out proceeding, so Heath J proceeded on the assumption that the allegations made by Mr West were capable of proof.

[13]     Heath J gave Mr West leave to file a properly particularised statement of claim on this one discrete aspect of the case.  All other claims, including one alleging corruption by court officials, were struck out.  Heath J urged upon Mr West the wisdom of seeking legal advice. 

[14]     Mr West appealed to this Court against Heath J’s striking out of the claim against the court officials.  This Court formally dismissed the appeal for want of jurisdiction, but informally noted that it agreed with Heath J’s decision to strike out the claim against the Department for Courts dealing with the actions of court officials: West v Official Assignee & Ors CA144/03 21 September 2004.  This Court also strongly urged Mr West to obtain legal advice.

[15]     Mr West pursued the proceedings against the Official Assignee and the police and the case came before Ronald Young J.  It is clear that, despite Heath J’s suggestion that he should reformulate his claim and pursue only one cause of action (negligence), Mr West maintained pleadings that recited numerous grievances, but did not make a claim against the Official Assignee in negligence.  It is Ronald Young J’s judgment, dismissing all of Mr West’s claims, which is the subject of the present appeal.

Mr West’s grievance

[16]     As Ronald Young J noted at [11], the grievance which Mr West has against the Official Assignee comes down to one simple proposition.  Mr West says that the Official Assignee had no right to sell Mr West’s one-third beneficial interest in the property owned by the estate, because that property had not vested in the beneficiaries of the estate, including Mr West, at the date of Mr West’s bankruptcy and therefore did not pass to the Official Assignee.

[17]     There is a fundamental flaw in this contention.  There is no doubt that Mr West’s beneficial interest in his father’s estate passed to the Official Assignee on Mr West’s bankruptcy.  From that time on, any beneficial interest which Mr West previously had had in the property, including the right to call for the fee simple estate in the property to be vested in him and his sisters by the trustee of the estate, passed to the Official Assignee.

[18]     The fact that the property had not vested in Mr West did not mean that his indirect beneficial interest in it was immunised from the consequences of his bankruptcy.  Once he became bankrupt he no longer had any right to have an interest in the property vested in him.  That right passed to the Official Assignee.  It is true that Mr West remained trustee of the estate and that the bankruptcy did not change that.  It is also true that, at some stages during the bankruptcy the Official Assignee had mistakenly acted on the basis that, on Mr West’s bankruptcy, he had succeeded to Mr West’s position as executor of the estate.  But ultimately the transaction between the Official Assignee and Mr West’s sisters was a transaction that had the effect of transferring Mr West’s beneficial interest as residuary beneficiary in his father’s estate to his sisters, leaving them as the only beneficiaries of the estate and, therefore, the only parties with the right to require that title to the property be transferred to them.  The decision of Doogue J (see [9] above) confirms this.

[19]     As this Court noted in Mr West’s previous case before it (see [10] above), Mr West’s beneficial interest in his father’s estate was “property” of Mr West at the time of his bankruptcy.  It therefore vested in the Official Assignee under s 42 of the Insolvency Act: Re Cameron (1987) 9 NZTC 6,187 (HC).  Mr West accepted this.  There could be no basis for challenging a transfer by the Official Assignee of Mr West’s rights as beneficiary of his father’s estate to Mr West’s sisters.

[20]     Even if the Official Assignee purported to sell a one-third interest in the property itself, rather than Mr West’s interest in the estate, Mr West would not have suffered any loss as a result.  Once Mr West’s beneficial interest in the estate had vested in the Official Assignee, that deprived Mr West of his right as a beneficiary to have an interest in the property vested in him by the trustee of the estate.  So even if the Official Assignee purported to sell the underlying interest in the property instead of the beneficial interest in the estate which owned the property, there was no practical difference in the result from Mr West’s point of view, and no loss was suffered.

[21]     Mr West could not complain that the price paid by his sisters was too low, because he had no interest in that transaction.  The only parties who were financially affected by the amount yielded by the deal between the Official Assignee and Mr West’s sisters were Mr West’s creditors.

[22]     More generally, if any action of the Official Assignee had been legally wrong and causative of loss, that loss would have been a loss for Mr West’s creditors under the bankruptcy, not for Mr West himself. As is clear from the decision in Re Cameron, the Official Assignee cannot be liable in damages to a bankrupt unless the effect of whatever the Official Assignee did in breach of a legal duty deprived the bankrupt of a surplus on the bankrupt estate.  That is not the case here: the amount owed to Mr West’s creditors on his bankruptcy was $56,645.66, but the value of the assets realised by the Official Assignee was only $8,297.49 of which only $5,932 was available for payment to creditors.  That entire sum was paid to the Commissioner of Inland Revenue as preferential creditor.  While Mr West made some extravagant claims for damages, his essential argument was that the Official Assignee sold the beneficial interest at an undervalue.  If he was right that the property was worth $50,000 when the beneficial interest was sold, that would suggest the value of the beneficial interest was $16,666.  Even on that basis his ‘loss’ would be only $8,666, which would have increased the amount available to creditors to about $14,600 – still well short of providing any surplus for Mr West.

[23]     In any event, there is no evidence to suggest a sale at an undervalue for the reasons set out at [35] − [36] below.  So even if Mr West’s creditors had brought  an action against the Official Assignee (and if an action in negligence were available to them, about which we express no view) such an action would have been fruitless.  The creditors, like Mr West, could not have established any loss, even if they could have shown any improper action by the Official Assignee.

[24]     A further difficulty with Mr West’s claim is that the only basis on which a claim could be made against the Official Assignee would be in negligence, and, as noted earlier, he did not, in fact, make a claim in negligence against the Official Assignee.  Instead, he pursued numerous fruitless actions which had already been the subject of critical comment by both the High Court and this Court.

[25]     Mr West also indicated in his written submissions that he believed the Official Assignee acted wrongly in completing the sale of the one third beneficial interest in the estate to Mr West’s sisters after Mr West was discharged from the bankruptcy.  However, he acknowledged during the hearing in this Court that that belief was wrong.  We confirm that the correct position is that the Official Assignee was entitled to dispose of Mr West’s beneficial interest once Mr West’s bankruptcy was discharged.  Once Mr West was adjudged bankrupt his property passed to the Official Assignee.  The discharge of bankruptcy did not have the effect of revesting that property in Mr West. 

[26]     In summary, even if Mr West’s claim had been properly formulated it would have failed on the basis of the evidence before the Court.

The claims made by Mr West

[27]     We now turn to the causes of action which were pursued by Mr West in the High Court.  As noted earlier, Mr West called no evidence in support of his claims against the Official Assignee in the High Court.  In this Court he purported to put in evidence various documents which he said supported his claims.  He did not seek the Court’s leave to do this.  Even if he had done so, there was no basis for granting leave.  None of the proposed evidence is fresh, as it was all available at the time of the High Court hearing.  No reason for the failure to adduce it in the High Court has been given.  It would be unfair to the Official Assignee to make him respond to such evidence for the first time in this Court when no warning of its proposed introduction has been given, and where the documents are tendered informally, so that there is no opportunity for the Official Assignee to challenge them.

Judgment of Ronald Young J

[28]     There were five causes of action pleaded before Ronald Young J in respect of the Official Assignee: misfeasance in public office, breach of the New Zealand Bill of Rights Act 1990 (the Bill of Rights), conversion, breach of fiduciary obligations, and that the Official Assignee acted as a trustee de son tort.  We set out in turn the Judge’s approach to each cause of action and our evaluation of it.

Misfeasance in public office

[29]     The Judge correctly set out the elements for the tort of misfeasance in public officer, as pronounced by this Court in Garrett v Attorney-General [1997] 2 NZLR 332. The Judge found that Mr West had not called any evidence to establish that the Official Assignee was actuated by malice, as required by Garrett, in selling the land in which he had a beneficial interest.  The only evidence Mr West did call was to establish that the Official Assignee disagreed with the estate’s solicitors’ claim that the Official Assignee was not entitled to act in Mr West’s stead as trustee and executor of the estate.  Whilst the Official Assignee did initially err in this respect, we agree with the Judge that this falls far short of the required standard of actual malice and knowledge of unlawfulness.

[30] In any event, the Official Assignee’s error is of no moment, for reasons given at [20] above.

Breach of the Bill of Rights

[31]     Mr West identified s 27 of the Bill of Rights, which safeguards the right to justice, as being breached by his inability to apply for judicial review of the Official Assignee’s disposal of the Mr West’s interest in the property.  Ronald Young J noted that Mr West did not attempt to challenge the Official Assignee’s actions, notwithstanding that s 86 of the Insolvency Act gave him a right to do so.  Given this entitlement, no breach of s 27 could be made out. 

[32]     Ronald Young J also noted that the restrictions in the Insolvency Act on Mr West’s capacity to bring legal proceedings constituted a justified limitation upon his rights under s 27, in terms of s 5 of the Bill of Rights.  We agree.  We would add that this also answers Mr West’s extensive reliance upon Magna Carta: see [38] – [41] below.

Conversion

[33]     Mr West’s allegation is that the Official Assignee converted the estate’s assets.  Ronald Young J dismissed the claim because (1) Mr West’s litigation was not in his capacity as trustee and executor of the estate; (2) conversion is concerned with chattels, not land; and (3) the conversion argument contradicts Mr West’s contention that, as he had no legal interest in his share of the property at bankruptcy, property could never have passed to the Official Assignee.  The High Court Judge was right to dismiss this action for the reasons he gave.

Breach of fiduciary obligations

[34]     Mr West’s primary allegation is that the Official Assignee sold Mr West’s share in the property at an undervalue.  As Ronald Young J noted, this does not fit squarely with the pleading that the Official Assignee breached obligations it owed as a trustee, given the Official Assignee was not acting in such a capacity (even though he may have initially thought he was), and was, rather, acting under the Insolvency Act.  However the complaint is essentially that by selling at an undervalue, the Official Assignee acted improperly.

[35]     Mr West pointed out that his sisters having purchased his one third interest in the estate for $8,000 in March 1995 (implicitly indicating a value for the property of $24,000), later sold the property for $50,000.  Although we were not told when this sale occurred, it must have been after this Court’s judgment on appeal from Doogue J’s judgment (30 August 2000), at which point Mr West was compelled to surrender the property to his sisters. 

[36]     In our view the fact that a price of $50,000 was eventually obtained does not indicate any improper conduct on the part of the Official Assignee.  Initial attempts to market the property for $32,000 were fruitless.  The Official Assignee eventually accepted a price for Mr West’s one third interest in the estate of $8,000.  The evidence was that that price reflected the slow market at the time.  The acquisition of that interest gave the sisters joint control of the property which, eventually, was transferred to them by the estate as tenants in common in equal shares.  The $8,000 price was reasonable, given that it was a minority interest and that there were no other buyers for the property other than Mr West’s sisters.  The reality is that it is notoriously difficult to sell an undivided interest in a property to anyone other than one or more of the other owners.  The expense of obtaining partition or sale orders under the Property Law Act 1952 would be an obvious deterrent to arms-length buyers.  The Official Assignee rejected an initial offer of $5,000 by the sisters.

Trustee de son tort

[37]     This is a similar allegation – namely that the Official Assignee meddled in trust assets and improperly sold them.  We agree with Ronald Young J that this claim is meritless.  The fact that Mr West’s interest in the property was a beneficial one did not prevent it from passing to the Official Assignee: see [17] above.  Mr West accepted this.  Therefore the Official Assignee was purporting to do no more than dispose of a beneficial interest in the estate which in turn owned the property.  That beneficial interest had vested in the Official Assignee on Mr West’s bankruptcy. 

Magna Carta

[38]     Ronald Young J did not specifically address Mr West’s claim based on Magna Carta.  Mr West reiterated in this Court the arguments he had made in the High Court.

[39]     The essence of Mr West’s argument is that the broad guarantees of fundamental human rights in Magna Carta somehow circumscribe the ability of the Official Assignee to perform his or her functions under the Insolvency Act.  This point was comprehensively dealt with by this Court in Mr West’s previous appeal, West v Martin, in the following terms:

[24]     The appellant also invited the Court to apply the principles of Magna Carta and the Treaty of Waitangi to the interpretation of s 42(3).  He submitted that the high principles of Magna Carta provide an enduring constitutional safeguard for property rights and have sovereignty over statute law where fundamental freedoms and rights are concerned.  He invited the Court to review the actions of the Official Assignee, in taking and disposing of his beneficial interest in the property, on the grounds of unreasonableness and ultra vires due process.

[25]     Section 15(1) of the Constitution Act 1986 states that “[t]he Parliament of New Zealand continues to have full power to make laws”, reinforcing Parliamentary supremacy.  In 1967, when the Insolvency Act came into force, the situation was governed by the equivalent provision in the New Zealand Constitution Act 1852, which allowed the New Zealand Parliament to make laws for the “peace, order, and good government of New Zealand”.  The laws relating to insolvency, as provided in the Insolvency Act, come within this description.

[26]     A similar application of principle, as contended for by the appellant, was considered in Shaw v Commissioner of Inland Revenue [1999] 3 NZLR 154; and in R v Creser (CA 38/98, 21 May 1998).  In both of those cases, the respective appellants challenged the validity of the statutory provisions in point as inconsistent with the Magna Carta.  The Court held that the supremacy of Parliament foreclosed the argument, just as it must in the present case.  Whilst the Magna Carta is indeed part of the law of New Zealand, by virtue of the Imperial Laws Application Act 1988, it cannot override the clearly expressed will of Parliament in the Insolvency Act or any other Act of Parliament.

[40]     Obviously the Insolvency Act creates incursions on property rights, but Parliament has deemed that these are necessary limitations.  As Richardson J said in Ministry of Transport v Noort [1992] 3 NZLR 260 at 277 (CA):

[I]ndividual freedoms are necessarily limited by membership of society and by duties to other individuals and to the community.

[41]     The endless citation of human rights instruments and constitutional documents does not give substance to the suggestion that the Official Assignee’s role, sanctioned by Parliament to effect a necessary limitation upon property rights, is somehow unlawful.  What must be demonstrated is that the Official Assignee, in performing his statutory role, has acted unlawfully – and for the reasons we have given Mr West has not done so. 

Result

[42]     The appeal is dismissed. 

Costs

[43]     Mr West has had a great deal of forbearance from the Courts, while continuing to pursue baseless and extravagant claims in the face of clear judicial indications that they have no prospect of success.  The Official Assignee seeks costs on this appeal and we see no reason not to make an award on the normal principle that a successful party is entitled to a contribution to his or her costs from the losing party.  We order Mr West to pay to the Official Assignee costs of $1,500 plus usual disbursements.

Solicitors:
Crown Law Office, Wellington for Respondent