Wilfred v Gan
[2020] NZHC 356
•3 March 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2013-409-001696
[2020] NZHC 356
BETWEEN HARMON LYNN WILFRED (BANKRUPT)
PlaintiffAND
KAIWAN GAN and JUZHEN YU
First Defendants
AND
WIGRAM BASE LIMITED
Second Defendant
Hearing: 21 February 2020 Counsel:
D M L Dingwall for the Official Assignee D J Ballantyne for Carolyn Dare Wilfred
Judgment:
3 March 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 3 March 2020 at 10.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/ Deputy Registrar Date:
WILFRED v GAN and YU [2020] NZHC 356 [3 March 2020]
The application
[1] The plaintiff, Harmon Lynn Wilfred (Mr Wilfred), is a bankrupt. Before his bankruptcy Mr Wilfred was ordered to provide security for the defendants’ costs in this proceeding. His wife, Carolyn Dare Wilfred (Mrs Wilfred), provided the $20,000 that was paid into Court for the purpose (the security sum). The proceeding has been discontinued and the defendants make no claim on the security sum. The contest is between the Official Assignee and Mrs Wilfred as to who is entitled to be paid out the security sum.
The facts
[2] In December 2013, La Famia No.1 Ltd (La Famia) commenced this proceeding. La Famia was placed into liquidation. The liquidator assigned its rights to Mr Wilfred and he replaced La Famia as plaintiff by an order of Dunningham J of 16 April 2015. The order was subject to terms, including that security for costs be provided by Mr Wilfred. Security was to be provided in two tranches, the first of
$20,000 within 10 working days.
[3] Mr Wilfred is stateless having renounced his citizenship of the United States in 2005. He has not been able to work in New Zealand and is not eligible for social security benefits. He has been financially supported by Mrs Wilfred. Mrs Wilfred has also funded his substantial legal costs.
[4] On 28 April 2015, Mrs Wilfred paid $29,115 from her bank account with Westpac New Zealand Limited to the law firm, Canterbury Legal. The payment was receipted into the firm’s trust account in the joint names of Mr Wilfred and Mrs Wilfred. This sum was receipted into the trust account as two amounts. The relevant entries in the trust account ledger record that $20,000 was “Funds received re payment of security for costs to Ministry of Justice.” This was the security sum. The second entry for the balance of $9,115 was “Funds re payment of second defendant’s costs arising from 14/10/14 decision of Whata J”. This was a separate costs liability incurred by Mr Wilfred.
[5] On 29 April 2015, Canterbury Legal paid the security sum to the High Court where it has been held since.
[6] On 15 December 2016, Mr Wilfred was adjudicated bankrupt. The Official Assignee discontinued this proceeding on 11 September 2017. The defendants made no claim on the security sum.
[7] On 30 October 2019, a Deputy Registrar of the High Court sought a direction from Counsel as to how the security sum should be disbursed. Canterbury Legal asked that the money be returned to it as the source of the payment. The Official Assignee requested the money be paid to it on the basis it was the property of Mr Wilfred and vested in the Official Assignee upon his adjudication.
[8] In a minute of 12 November 2019, Osborne J noted Mrs Wilfred’s claim to the security sum. He considered it was expedient the resolution of the question of who was entitled to the security sum should be determined by interlocutory application in this proceeding. He made a timetable on that basis. There was no challenge made to the determination of the dispute using that procedure.
[9] The Official Assignee then filed the interlocutory application that is now before the Court asking for an order the Registrar pay the security sum to the Official Assignee. Mrs Wilfred opposes that application. She asks that the security sum be paid to her.
Mrs Wilfred’s evidence
[10] To give context to what follows, it is convenient to refer to Mrs Wilfred’s evidence. In her affidavit she says:
(a)She paid the security sum to Canterbury Legal on 28 April 2015 with instructions to pay the security sum to the Court to meet the security for costs order.
(b)This was not an advancement of funds between spouses.
(c)She was aware of the risk that the money would be paid directly by the Court to the other parties to the proceeding if costs were awarded against her husband.
(d)She was supportive of her husband and expected the security sum would be returned to her when the proceeding was determined.
(e)She did not gift or loan the security sum to her husband. The security sum was never his and this was never discussed or required.
(f)The security sum was different from other legal costs she had paid at the same time as she knew those payments would not be returned.
(g)She did not take steps for the return of the money once the proceeding was discontinued as she forgot she had paid in the security sum.
(h)She is independently wealthy and has never relied upon her husband for money and he has no claim upon her assets.
(i)She loves her husband and continues to support him.
[11] The Official Assignee never sought to cross-examine Mrs Wilfred on her affidavit. This is unsatisfactory in circumstances where the Official Assignee asks the Court not to accept much of her evidence, particularly as to her intention when providing the security sum. There is no direct evidence to contradict her in important respects. The Official Assignee, however, submits the Court should draw inferences contrary to Mrs Wilfred’s evidence.
Submissions of the parties
Official Assignee
[12]The following factual matters are not disputed:
(a)the source of the security sum was Mrs Wilfred’s bank account;
(b)it was her money when in the bank account; and
(c)the security sum was not advanced to Mr Wilfred as a loan.
[13] The Official Assignee asserts its entitlement to the security sum on two alternative grounds, namely:
(a)that the security sum was property belonging to Mr Wilfred that vested in the Assignee upon his adjudication in bankruptcy under s 101 of the Insolvency Act 2006 because Mrs Wilfred gifted it to Mr Wilfred by way of advancement, or
(b)that the security sum was property that was refundable to Mr Wilfred upon the discontinuation of this proceeding that vested in the Official Assignee under s 102 of the Insolvency Act 2006.
[14]At the hearing, the Official Assignee’s arguments focused on the first ground.
Mrs Wilfred
[15] Mrs Wilfred’s case is that the security sum was and has remained her property throughout. It was not gifted to Mr Wilfred and did not cease to belong to her because she provided it as security for costs. That just meant it was subject to the possibility of a Court direction it be paid to the defendants in the event they became entitled to costs. There being no costs order in the proceeding, the Court should now release the security sum to her because she is the only person entitled to it.
Discussion
Official Assignee’s first ground – s 101 Insolvency Act
[16] Section 101(1)(a) and (b) of the Insolvency Act 2006 provide on adjudication all property belonging to a bankrupt and all powers the bankrupt could have exercised in respect of any property for the bankrupt’s own benefit vest in the Official Assignee. Any rights of the bankrupt in the property are extinguished. As noted above, the
Official Assignee argues the security sum belonged to Mr Wilfred on his adjudication and vested in the Official Assignee at that time.1
[17] It is agreed that the Official Assignee has the onus to establish on the balance of probabilities the security sum was a gift to Mr Wilfred and fell within his bankrupt estate.2
[18] A gift is a gratuitous transfer of property from the owner to another made with the intention it will not revert to the owner. At common law, for a gift to be effective there must be:3
(a)an expression of an intention to gift made by the giver of the gift;
(b)which is assented to by the receiver of the gift; and
(c)actual or constructive delivery of the property to the receiver of the gift.
[19] The common law has been modified in the context of gifts between spouses in certain respects. Relevant to this case are ss 4(3) and 21N(3) of the Property (Relationships) Act 1976 (PRA). These provide:
Section 4(3)
(3)Without limiting the generality of subsection (1),—
(a) the presumption of advancement does not apply between husband and wife:
(b) the presumption of resulting trust does not apply between spouses, civil union partners, or de facto partners.
Section 21N(3)
Regardless of any rule of law, a gift between spouses or partners may be made orally or in writing, and does not need to be made by deed or by delivery.
1 Both ss 101 and 102 are subject to s 104 of the Insolvency Act 2006 which is not relevant for present purposes.
2 Re Monk HC Wellington B107/91, 14 May 1992, per Doogue J.
3 Williams v Williams [1956] NZLR 970 (SC) at 972.
[20] It remains the law that for there to be an effective gift there must be an expressed intention by the giver that a transfer of property be a gift and a correlative assent made by the receiver. It is of the essence of a gift that the giver intends to make a gift.
[21] The main issue in this case is whether Mrs Wilfred intended to gift the security sum to Mr Wilfred. The starting point is Mrs Wilfred’s evidence. She says she had no intention to gift the security sum. Consistent with that, she never expressed orally or in writing an intention to gift the security sum. The way the security sum was provided, that is, by payment to a law firm with express instructions as to its use as security for costs, are to my mind consistent with the absence of an intention that Mr Wilfred was to be beneficially entitled to the security sum. Mr Wilfred never had any control over the money. He could not, for instance, instruct the solicitors as to the use of the money. He could not have complained if Mrs Wilfred had revoked her instructions as to its use. The solicitors could not disburse the money except in accordance with her instructions.
[22] The Official Assignee asks the Court to infer on the part of Mrs Wilfred an intention to make a gift to Mr Wilfred of the security sum. It relies upon several matters. None of the matters, viewed individually or collectively, prove the existence on the part of Mrs Wilfred of an intention to make a gift. I consider each in turn.
[23] The primary factor is the existence of affection between Mrs Wilfred and Mr Wilfred and his financial dependency upon her. It is submitted given their relative financial circumstances and affection for one another, Mrs Wilfred was under a natural obligation to provide for her husband such that payments made for his benefit should be treated as gifts in the absence of evidence to the contrary.
[24] The first response to this submission must be there is evidence to the contrary provided by Mrs Wilfred which the Official Assignee has not challenged. But, the submission is unsound for other reasons. It is contrary to s 4(3)(a) PRA, that states the presumption of advancement does not apply between husband and wife. It is also based on outmoded and naïve social-attitudes.
[25] The Official Assignee relies upon Mr Wilfred’s statement of affairs dated 26 January 2017 where he referred to Mrs Wilfred’s “voluntarily contribution.” It is said this indicates an understanding the security sum had been given freely and would not be repaid.
[26] The words are not concerned with the security sum but relate to an appeal against Mr Wilfred’s bankruptcy and accounting assistance. They also do not state any money had been gifted. Regardless, Mr Wilfred’s statement at best reflects only his views.
[27] The Official Assignee then submits there was no discussion between Mr Wilfred and Mrs Wilfred regarding the security sum. If the security sum was not like other amounts she had paid for Mr Wilfred’s legal costs she would have made this clear.
[28] I take Mrs Wilfred’s evidence to be that there was no discussion that the security sum was a gift or a loan. I do not understand she is saying that the security sum was not discussed at all with Mr Wilfred, as it plainly must have been. The Official Assignee chose not to cross-examine Mrs Wilfred and, except as referred to in her affidavit, the content of her discussions with Mr Wilfred cannot be known.
[29] The Official Assignee argues it is significant there was one payment to Canterbury Legal of the security sum and another amount for legal costs. It argues Mrs Wilfred cannot, therefore, claim the security sum was any different from other money she paid to Canterbury Legal that she knew would not be returned to her.
[30] No doubt it was convenient to make one payment rather than two. I do not see how anything can be taken from this when the payment was accompanied with instructions as to how it was to be used. The difference between the security sum and other amounts Mrs Wilfred paid to Canterbury Legal was, according to her unchallenged evidence, that she knew payments of legal costs were “gone” but she expected the security sum would be returned to her.
[31] It is then argued that Mrs Wilfred made no enquires about the security sum for four years after it was paid. I would not expect her to have done so until the proceeding was discontinued, which was not until September 2017. There was a delay of a little over two years until Mrs Wilfred claimed the money. She says this was because she forgot about it. In the context of the very large sums she had paid for Mr Wilfred’s legal costs this is not surprising. As her evidence was not challenged I can take little from the fact of delay.
[32] Finally, the Official Assignee argues Mrs Wilfred could not reasonably have considered the security sum still belonged to her. It argues when it was paid into Court she had given up any rights of ownership over the money. It also submits that she lacked standing to ask the Court to pay the money to her and that Mr Wilfred had more rights in the security sum consistent with his ownership of it.
[33] The security sum was held by the Court subject to Dunningham J’s order and until the Court made another order in respect of it. Neither the order nor the relevant High Court Rules concern themselves with the ownership of money provided as security for costs. It is quite possible for a payment to be provided by someone other than the person ordered to provide it and, if the payment is not required, for the Court to order its return to its owner.4
[34] The Official Assignee assumes the payment-out of the security sum would automatically be made to Mr Wilfred or the defendants depending on the result of the proceeding and to no other. This is incorrect. The payment-out is not “a merely automatic ministerial act” and requires an order to replace or vary the order the Court made requiring the payment-in.5 There was, therefore, nothing unreasonable in Mrs Wilfred’s belief the money continued to belong to her and it would, subject to any order of the Court made in the defendants favour, be repaid to her upon the conclusion of the proceeding.
4 See commentary in Rupert Jackson (ed) Civil Procedure 2016: the White Book service (Sweet and Maxwell, London, 2016) vol 2 at [25.12.12].
5 New Zealand Meat Board v Paramount Export Ltd (in rec and liq) (2003) 16 PRNZ 942 at [11].
[35] It is also arguable that notwithstanding s 21N(3) PRA there could be no effective gift of the security sum as it was never delivered to Mr Wilfred. When the security sum was paid to Canterbury Legal it was subject to an express instruction as to its use. Canterbury Legal held the money on trust to use it strictly in accordance with Mrs Wilfred’s instruction. It was paid into Court in accordance with those instructions and has remained there. At no stage did Mr Wilfred take delivery of the money. At no time did he, or Canterbury Legal on his behalf, have possession or control over it. Related to this, the Official Assignee does not identify when it is said the gift was made. There are several possibilities; none of them subject to any consideration in Counsel’s submissions.
[36] Whilst s 21N(3) PRA has removed the requirement of delivery of gifts between spouses and partners Fisher expresses the view, that the section only applies to gifts made orally or in writing and that:6
Consequently, where the intention to make a gift is evidenced by conduct alone, it would seem that conventional principles as to unenforceability of an unexecuted gift…continue to apply.
[37] In this case, Mrs Wilfred did not express an intention to gift the security sum orally or in writing. It follows, according to the view in Fisher, that if Mrs Wilfred had an intention to gift the security sum her intention was unexecuted and unenforceable. I do not need to make any final decision on this question. It is enough that the Official Assignee has failed to satisfy me to the required standard that Mrs Wilfred had an intention to gift the security sum to Mr Wilfred. Its first ground fails.
The Official Assignee’s second ground – s 102 Insolvency Act 2006
[38] Section 102 Insolvency Act 2006 provides that property acquired or passing to the bankrupt between the commencement of the bankruptcy and discharge of the bankrupt vests in the Assignee and any rights of the bankrupt in the property are extinguished.
6 R L Fisher (ed), Fisher on Matrimonial and Relationship Property (NZ) (online ed, LexisNexus) at [3.6].
[39] The Official Assignee’s argument in reliance upon s 102 was not developed. I understand it contends that when the proceeding was discontinued the security sum became refundable to Mr Wilfred. This is incorrect. As I have noted earlier, the payment out of a sum held by the Court as security for costs is not automatic. The Court has never ordered payment-out of the security sum to Mr Wilfred. The Official Assignee’s argument rests on the existence of a Court order that has never been made and, because I have found Mrs Wilfred did not intend to gift the security sum, will never be made. The Official Assignee’s second ground also fails.
Conclusions
[40] The Official Assignee has failed to discharge the onus upon it to establish the security sum was gifted by Mrs Wilfred to Mr Wilfred so the security sum belonged to Mr Wilfred in terms of s 101 of the Insolvency Act 2006. It has also failed to establish the security sum was acquired or passed to Mr Wilfred in terms of s 102 of the Insolvency Act 2006. I am satisfied Mrs Wilfred is the owner of the security sum. This proceeding having been discontinued without any other claims on the security sum it is appropriate that an order be made that it be paid to Mrs Wilfred.
Result
[41] The Official Assignee’s application is dismissed. The Registrar of the High Court is to forthwith make payment of the security sum and interest earned on it (if any) to Mrs Wilfred.
[42] I would urge Counsel to agree on costs but if they cannot agree I will receive memoranda within 21 days which are to be no longer than 5 pages. I will determine costs on the papers unless Counsel request a hearing.
O G Paulsen Associate Judge
Solicitors:
Insolvency & Trustee Service, Christchurch Canterbury Legal, Christchurch
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