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Court of Appeal of New Zealand |
Last Updated: 31 May 2019
FOR A COURT READY (FEE REQUIRED) VERSION PLEASE FOLLOW THIS LINK
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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Appellant |
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AND
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First Respondent
HALEY PETRINA HADFIELD
Second Respondent |
JUDGMENT OF THE COURT
___________________________________________________________________
REASONS OF THE COURT
(Given by Asher J)
Table of Contents
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Para No
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Introduction
Background The claims in brief High Court judgment Claim that The Fish Man has suffered a loss under s 119 The effect of disclaimer Loss or damage When is loss or damage assessed?
Conclusion on loss or damage
Application of ss 290 and 304(1) of the Act
The Fish Man’s proprietary claims Constructive trust
An equitable lien
Conclusion on proprietary interest
Subrogation Mr and Mrs Hadfield’s claims Mr Hadfield’s claim
Mrs Hadfield’s claim
Costs The costs of Mrs Hadfield and counsel assisting
Mr Hadfield’s costs
Result |
Introduction
[1] This appeal concerns a residential property at 1/16 Cameron Place, Ranui, Auckland (the Property). The first respondent, Mr Hadfield, purchased the Property in 2004 with the help of a mortgage. Mr Hadfield was adjudicated bankrupt on 6 June 2013. Five months later the Official Assignee (the Assignee) formed the view that, taking into account the mortgage sum, the Property had no net value. On 27 November 2013 the Assignee formally disclaimed the Property. Now, following the property value boom of the last three years, the Property has acquired a significant net value. Each of the parties to this appeal claims the benefit of that increase in value.
[2] There are two broad issues. First, there is a claim by the appellant, The Fish Man Ltd (in liq) (The Fish Man), that, as a creditor of Mr Hadfield, it has suffered loss or damage as a result of the disclaimer by the Assignee. This involves the interpretation of s 119 of the Insolvency Act 2006 (the Act). Second, The Fish Man claims that, irrespective of any loss or damage arising from the disclaimer, it has a proprietary interest in the Property. The case has some factual and legal complexity, given the intersection of personal insolvency and company insolvency principles, and a claim to a proprietary interest where there are relevant conflicting High Court decisions.
Background
[3] On 6 March 2003 The Fish Man was incorporated by Mr Hadfield. Mr Hadfield was The Fish Man’s sole director and shareholder. On 1 September 2004 Mr Hadfield purchased the Property. A registered mortgage was granted to the ASB Bank Ltd (ASB). On 10 March 2008 that mortgage was replaced by a registered mortgage to the ANZ National Bank Ltd (ANZ).
[4] The Fish Man raised and sold ornamental fish from the Property. There were 14 fish tanks with tropical fish installed throughout the house (which subsequently leaked and caused rot). A room in the house was used as an office and activities in the house appear to have been tailored to fit in around the business.
[5] Mr Hadfield commenced a relationship with the second respondent, Mrs Hadfield, in May 2006 and they were married on 6 December 2009. Mrs Hadfield says she has paid half the necessary mortgage payments on the Property from July 2006, and all of them since July 2013. Mr and Mrs Hadfield have been living in the Property throughout, and continue to do so.
[6] On Mr Hadfield’s uncontested account of events, The Fish Man went into decline after he suffered an injury and the business had to take on an employee. The Fish Man fell behind in its PAYE tax and GST obligations. The liquidators claim that by 31 August 2010 there was a PAYE debt of $77,242, comprising PAYE owed, penalties and interest. By July 2010 there was also a GST debt of $66,633.82, which also comprised original debt, penalties and interest.
[7] The Fish Man was placed into liquidation on 3 November 2010. Henry Levin and Vivien Madsen-Ries, insolvency specialists of the accountancy firm Deloitte New Zealand, were appointed as joint and several liquidators of The Fish Man.
[8] The liquidators alleged that, at the same time that the PAYE and GST debts were accruing, The Fish Man made payments to or for the benefit of Mr Hadfield totalling $119,292. It alleged that Mr Hadfield applied $9,125 of that sum to the mortgage to ASB and $29,572 to the mortgage to ANZ. The rest of the misappropriated monies were said to have been used for the general benefit of Mr and Mrs Hadfield. On 20 June 2011 The Fish Man commenced proceedings in the District Court at Auckland against Mr Hadfield for $142,762: $119,292 for misappropriated funds, plus $23,470 for a debt owed by Mr Hadfield that had been recorded in The Fish Man’s financial statements for the year ending 31 March 2009. A default judgment was obtained for that amount on 19 August 2011 (the District Court judgment). Mr Hadfield made payments towards this debt totalling $14,988.41. On 6 June 2013 Mr Hadfield was adjudicated bankrupt on the application of The Fish Man. The Fish Man filed an unsecured creditor’s proof of debt for $133,457.85.
[9] Mr Hadfield had worked full-time for The Fish Man, but he claimed that he was not paid an employee salary. However, The Fish Man’s financial records state that he was paid a modest director’s salary. Mrs Hadfield was working full-time for a third party throughout the period of The Fish Man’s operation. It seems that the accounts and affairs of The Fish Man were run in a chaotic manner, and Mr Hadfield was unable to provide a coherent account of what occurred. He claimed that he personally funded much of the expenses of The Fish Man without remuneration.
[10] Mr Hadfield has deposed in defence of his actions that the mortgage payments were taken for drawings and rent owed to him for the business’s use of the Property and expenditure he had met personally. The liquidators contest this and say that The Fish Man had separately accounted for rent. Given the District Court judgment against Mr Hadfield and his bankruptcy, there is no need to determine whether Mr Hadfield had any defences to The Fish Man’s claim.
[11] On 23 November 2011 The Fish Man registered a charging order against the Property, reflecting the District Court judgment. A caveat that had been lodged earlier was withdrawn given that the charging order was for a greater sum. However, after Mr Hadfield was adjudicated bankrupt The Fish Man re-lodged a caveat over the title to the Property asserting a cestui que trust: Mr Hadfield as trustee had allegedly breached his fiduciary duty as a director by applying funds belonging to The Fish Man in part payment of mortgage principal.
[12] In an important event which gives rise to the current dispute, on 27 November 2013, approximately five months after Mr Hadfield was adjudicated bankrupt, the Assignee gave written notice disclaiming the Property under s 117 of the Act. On disclaimer the Assignee and Mr Hadfield ceased to have an interest in the land, and, as we will discuss,[1] it passed to the Crown. However, the title remained in Mr Hadfield’s name, and he and Mrs Hadfield continued to live there.
[13] No specific reason for the disclaimer was recorded in the formal notice and there is no affidavit from the Assignee. However, the Assignee confirmed in a memorandum to the High Court that at the time of the disclaimer there was no equity in the Property. The liquidators have now produced a valuation of the Property of $430,000 as at 5 November 2015, two years after the disclaimer, which indicated that by then there was a significant equity. On 13 July 2015 The Fish Man commenced the proceedings that give rise to the present appeal.
[14] The District Court judgment against Mr Hadfield has not been satisfied. The Fish Man was therefore a creditor of Mr Hadfield in his bankruptcy prior to his discharge in the amount of $133,457.85. The names of the other creditors have not been disclosed but they totalled $15,018.44.
[15] Mr Hadfield was automatically discharged from bankruptcy on 27 June 2016 under s 290 of the Act.
The claims in brief
[16] The power of the Assignee to disclaim onerous property of the bankrupt is contained in s 117 of the Act, which provides:
117 Assignee may disclaim onerous property
(1) Subject to section 120, the Assignee may disclaim onerous property.
(2) Subsection (1) applies even if the Assignee has taken possession of the property, tried to sell it, or otherwise exercised rights of ownership in relation to it.
(3) The Assignee must, within 10 working days after the disclaimer, send a written notice of the disclaimer to every person whose rights are, to the Assignee’s knowledge, affected by it.
(4) For the purposes of this section and section 120, onerous property—
(a) means—
(i) an unprofitable contract; or
(ii) property of the bankrupt that is unsaleable, or not readily saleable, or that may give rise to a liability to pay money or perform an onerous act; or
(iii) a litigation right that, in the opinion of the Assignee, has no reasonable prospect of success or cannot reasonably be funded from the assets of the bankrupt’s estate; but
(b) does not include—
(i) a netting agreement to which sections 255 to 263 apply; or
(ii) any contract of the bankrupt that constitutes a transaction under that netting agreement.
[17] The disclaimer in this case was presumably based on the second part of s 117(4)(a)(ii). The Property was subject to a mortgage and other liabilities, and had no equity.
[18] The effect of the disclaimer is set out in s 118 of the Act:
118 Effect of disclaimer
A disclaimer by the Assignee—
(a) brings to an end, on and from the date of the disclaimer, the rights, interests, and liabilities of the Assignee and the bankrupt in relation to the property disclaimed:
(b) does not affect the rights, interests, or liabilities of any other person, except in so far as is necessary to release the Assignee or the bankrupt from a liability.
[19] Section 119 is the key provision in the present case:
119 Position of person who suffers loss as result of disclaimer
(1) A person suffering loss or damage as a result of disclaimer by the Assignee may—
(a) claim as a creditor in the bankruptcy for the amount of the loss or damage, taking account of the effect of an order made by the court under paragraph (b):
(b) apply to the court for an order that the disclaimed property be delivered to, or vested in, that person.
(2) The bankrupt may also apply for an order that the disclaimed property be delivered to, or vested in, the bankrupt.
(3) The court may make an order under subsection (1)(b) or (2) if it is satisfied that it is fair that the property should be delivered to, or vested in, the applicant.
[20] The Fish Man seeks orders under s 119(1)(b) of the Act vesting the Property in it so that it may be sold and the proceeds applied in the following order:
- (a) payment of the costs of sale and court proceedings;
- (b) payment of the amount secured by the mortgage;
- (c) payment to The Fish Man up to $133,457.85; and
- (d) any surplus to be applied as the Court thinks appropriate.
[21] It seeks those orders on the basis that it suffered loss or damage as a result of the disclaimer to an extent that it is fair, in terms of s 119(3), that the Property be vested in it. In the alternative, it claims a proprietary interest in the land by virtue of a constructive trust, equitable lien, or by subrogation, created when the misappropriated company funds were used to repay part of the mortgages over the Property. The Fish Man contends that this proprietary interest continued irrespective of any disclaimer by the Assignee.
[22] Mr and Mrs Hadfield also rely on s 119 of the Act. Mr Hadfield seeks an order that the Property vests in him, relying on ss 119(2) and (3). Mrs Hadfield in her submissions on appeal (although it was not pleaded in the High Court), seeks an order that the Property vests in her under s 119(1)(a) and (3). There has been no objection to her seeking that relief on appeal. Mrs Hadfield, in her counterclaim in the High Court, based her claim on the Property (Relationships) Act 1976 (PRA) and sought a declaration that she was entitled to half the equity in the Property, and an order defining her protected interest under s 20B of the PRA. The appeal also raises costs issues that we will refer to later in this judgment.[2]
[23] The Fish Man asserts that s 304(1) of the Act, which provides that a bankrupt is released from all debts provable in the bankruptcy upon discharge, does not disentitle it from seeking relief under s 119 following Mr Hadfield’s discharge from bankruptcy.
High Court judgment
[24] Mrs Hadfield had been initially represented, but was not able to afford counsel for the trial in the High Court. Prior to the hearing Fogarty J appointed Mr Barker QC as counsel to assist the Court. That appointment was continued in this Court.[3] His role was to assist the Court generally, and advance any arguments that could properly be made on behalf of Mrs Hadfield.
[25] In a judgment dated 29 July 2016, Fogarty J held that The Fish Man had no claim to the Property under s 119 of the Act.[4] He determined that Mr Hadfield could make a claim for the Property to be vested in him by reason of s 119(2) of the Act. He also stated that Mrs Hadfield had a “substantial argument” for a half share in the Property.[5] He granted leave for Mr and Mrs Hadfield to file submissions on how they would like the title to be configured either for them “jointly, or one of them or the other, and possibly as to separate portions”.[6] Failing any agreement he favoured revesting the home in both Mr and Mrs Hadfield in equal shares.
[26] He awarded costs to Mr Hadfield against “the liquidator”.[7] Mr Barker’s costs were also to be paid by “the liquidator”.[8] He stated that the principal creditor of The Fish Man was the Inland Revenue Department and the litigation had effectively been brought by The Fish Man, in the public interest, by the Commissioner of Inland Revenue.[9]
Claim that The Fish Man has suffered a loss under s 119
[27] The Fish Man claims that, irrespective of whether it has a proprietary interest in the Property, under s 119(1) of the Act it suffered “loss or damage” as a result of the disclaimer by the Assignee. It claims that it is fair that the Property be vested in it and sold to meets its unpaid debt. Ms Morrison submitted on behalf of The Fish Man that, had the Property not been disclaimed, The Fish Man would have been entitled to a share in any distribution from its sale, given that Mr Hadfield still owed it $133,457.85 of the District Court judgment debt. The consequence of the disclaimer was that there was no prospect of any distributions for creditors of the bankruptcy. The ability to claim in the future was lost.
The effect of disclaimer
[28] We have set out ss 117–119 of the Act. There is nothing to stop a creditor who has lodged a proof of debt in a bankruptcy from claiming loss or damage arising from a disclaimer. Ms Morrison submitted that the Court, in assessing The Fish Man’s loss under s 119(1), must carry out that assessment at the time the proceeding seeking a vesting order was filed. It was argued that the sole qualifying condition was whether The Fish Man had suffered loss as a result of a disclaimer at the time of filing.
[29] We must bear in mind the context in which the Assignee’s power to disclaim onerous property under s 117(1) arises. Under s 101(1)(a) of the Act all property belonging to the bankrupt vests in the Assignee without the Assignee having to take any steps. Under s 101(1)(b) all the bankrupt’s powers in respect of the property also vest in the Assignee. Under s 104 property held by the bankrupt on trust for another person does not vest in the Assignee.
[30] The disclaimer provisions are designed to facilitate the winding up of the bankrupt’s affairs. Disclaimer is often utilised in relation to a bankrupt’s property which is valueless, or after secured liabilities has no value and which may give rise to a liability to pay money or perform any other onerous act.[10] Unprofitable contracts and property burdened with onerous obligations can be disposed of. A common instance of disclaimer is where onerous leases of premises that are no longer required are disclaimed. There is no time limit on the Assignee making the disclaimer.[11]
[31] The consequence of the Assignee ending his or her rights to the property following the disclaimer is that the bankrupt also no longer has any rights in respect of it. As s 118(a) states, the interests and liabilities of both the Assignee and the bankrupt in relation to the property come to an end. The bankrupt cannot be freed from his or her liabilities and yet keep the property. But there may be other persons who are affected by the disclaimer. It was stated by the House of Lords in Hindcastle Ltd v Barbara Attenborough Associates Ltd in relation to the equivalent English provision:[12]
Disclaimer will, inevitably, have an adverse impact on others: those with whom the contracts were made, and those who have rights and liabilities in respect of the property. The rights and obligations of these other persons are to be affected as little as possible. They are to be affected only to the extent necessary to achieve the primary object: the release of the company from all liability. Those who are prejudiced by the loss of their rights are entitled to prove in the winding up of the company as though they were creditors.
[32] The Act clearly contemplates the disclaimer of land. The property that may be disclaimed is the property of the bankrupt which had vested in the Assignee on bankruptcy under s 101. Under s 3 “property” includes real property. There is nothing in the Act to prevent disclaimer of mortgaged land.[13]
[33] Section 118 does not address the issue of who takes title to the disclaimed asset. The issue may not arise where the asset is in the nature of a leasehold interest in abandoned premises, but it assumes importance in a case like this where the asset was real property owned by the bankrupt that appreciates or otherwise becomes of value. The Land Transfer Act 1952 makes no provision for what happens to title upon disclaimer.
[34] In Australia and England courts have commented on the difficulty of deciding who takes title.[14] Fortunately in New Zealand the issue was fully considered by Fisher J in Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee.[15] In the process of a careful analysis with which we agree, Fisher J noted that a disclaimer operates to extinguish both the rights and liabilities of the bankrupt and the Assignee relating to the property disclaimed.[16] Under the doctrine of tenure, the Crown has at all times been the continuous owner of the land itself, and once the fee simple estate of the registered proprietor is terminated by the disclaimer, the use of the land reverts to the Crown and its residual ownership continues.[17] He observed:[18]
With few exceptions, Crown grants of land are now recorded under the Torrens system for registering title to the appropriate estate pursuant to the Land Transfer Act 1952. Nevertheless the title secured to a registered proprietor under the Land Transfer Act is still no more than title to whatever form of estate is held by the registered proprietor in that land, eg, as in this case, an estate in fee simple. The underlying concept of tenure remains. Once the estate in fee simple has terminated, use of the land reverts to the Crown. In strict theory the Crown has at all times been the continuous owner of the land itself.
[35] From the time of the disclaimer the bankrupt registered proprietor ceases to beneficially own the land. If, as here, the Crown has taken no formal steps and the bankrupt remains the registered proprietor, the bankrupt holds title as trustee for the benefit of the Crown. Therefore, in the present case, at the moment of disclaimer beneficial ownership of the Property vested in the Crown, despite the fact that Mr Hadfield is still the registered proprietor and continues to live there with Mrs Hadfield. Any conceptual difficulties concerning the Crown’s ownership of this land do not give rise to direct problems in this case.
[36] The parties to this appeal have correctly assumed that the Property vested in the Crown upon disclaimer. There is no order vesting title in the Crown, and the Crown is not a party to this proceeding. At our request the parties served the appeal on the Crown, and the Crown confirmed that it will not take any steps in relation to the Property and abides by the decision of the Court.
[37] The exercise of the Court’s power under s 119 must be considered against the fact that, if orders are not made vesting the Property in a party, it will be owned by the Crown.
Loss or damage
[38] As we have set out, The Fish Man submits that it has suffered loss or damage because, if the Property had not been disclaimed, what is now a valuable asset would have been available to the creditors of The Fish Man. It seeks a vesting order and orders for sale of the Property so that the proceeds can be applied to the $133,457.85 that it was unable to recover from Mr Hadfield. In support of this proposition Ms Morrison relied on what she claimed was a broad approach that the courts have taken to what constitutes “loss or damage” under s 119 of the Act.
[39] We see no reason why a creditor cannot make a claim under s 119(1).[19] However, loss in the sense of loss merely as an unpaid creditor is not enough; there must be a specific loss arising directly from the disclaimer. The loss must arise not only as a result of the existence of the underlying debt, but because of the disclaimer itself.
[40] It is futile to try and define all of the areas in which a disclaimer can cause loss. Vesting orders under s 119 have been made on a number of occasions over recent years in situations where a third party or a creditor has suffered loss because of their particular relationship to the asset disclaimed:
- (a) In relation to relationship property interests between partners where one partner goes bankrupt, loss to the nonbankrupt partner has been recognised by a vesting order under s 119 on a number of occasions. Thus in Panther v Panther, where the husband and wife were joint owners of two properties which had no value, the disclaimed half interest in each property was vested in the bankrupt’s partner to allow that partner to regularise the title and sell the property.[20] Vesting orders have been granted in similar circumstances in a number of other High Court decisions.[21]
- (b) In Re Body Corporate 201036, a unit owner had become bankrupt and the liquidators had disclaimed the unit title property which had no net value and was affected by weathertightness issues which required work.[22] The unit was vested in the body corporate.
- (c) The Court has also ordered the vesting of causes of action in a bankrupt upon his discharge from bankruptcy.[23]
[41] These cases demonstrate the words “loss or damage” are given a wide interpretation. However, none of these cases have considered the question of when the existence of loss or damage is to be assessed.
When is loss or damage assessed?
[42] The question of when the existence of loss or damage is to be assessed is fundamental to The Fish Man’s claim. The disclaimer caused no loss at the time. The Assignee’s decision is not criticised, and understandably so as the Property had no net value. However, The Fish Man argues that this not fatal, because almost two years later, after an upsurge in property values and with the benefit of hindsight, the disclaimer is said to have caused loss. If the Property had been retained it could then have been sold and a profit made for the benefit of creditors.
[43] A party either has or has not suffered loss or damage at the time of disclaimer and there is no principled basis on which to suggest that a further change in the party’s notional position at some later date should be treated as the loss or damage resulting from the disclaimer. Section 118(a) of the Act provides that a disclaimer has the effect of bringing to an end on and from the date of the disclaimer the rights, interests and liabilities of the Assignee and the bankrupt in the property disclaimed. The change to the rights of those persons is immediate at the time of disclaimer, and any consideration of loss or damage arising from it must be considered at that time, rather than some indefinite later point long after the disclaimer. Allowing parties to apply on the basis of loss arising at any time in the future creates an inconsistent position as regards other potential applications under s 119.
[44] The scheme of the Act is that the Official Assignee is acting for all creditors in making decisions. Creditors who are dissatisfied with a decision of the Assignee have a right of appeal under s 226 of the Act, and this must include appeal against a disclaimer decision. An application for an appeal must be made within 15 working days of the decision, or within the additional time that the court allows.[24] Persons who consider themselves to be affected by the disclaimer who are concerned that the wrong decision has been made, given the potential value of an asset, have the ability to appeal the decision. It cannot have been intended that a creditor be able to sit on their appeal rights whilst the property remains valueless, and then benefit from any subsequent increase in value through a vesting under s 119.
[45] In Re Hanara Associate Judge Smith took a similar view.[25] In that case the Assignee of the bankrupt estates of Mr and Mrs Hanara made a claim under s 119 for a vesting of a residential property she had earlier disclaimed in her capacity as Assignee of the estate of Mrs Hanara. Mrs Hanara and her husband had remained living on the property although, unlike the position in this case, they had been unable to keep up with payments owing to the mortgagee. As in this case, it was the increase in value of the property that prompted the claim under s 119, but the order was sought by the Assignee rather than a creditor. The Assignee argued that the creditors of Mr Hanara had suffered a loss as a result of her earlier decision to disclaim Mrs Hanara’s half interest in the property.
[46] Associate Judge Smith held that the Assignee had standing to apply under s 119 in her capacity as Assignee of both estates. He determined that although Mr Hanara’s estate had suffered loss because of the difficulties Mr Hanara would have selling the property following disclaimer, Mrs Hanara’s estate had suffered no loss or damage:
[41] In my view the Assignee cannot now say that Mrs Hanara’s estate has suffered loss or damage as a result of the disclaimer. At the time the disclaimer was issued the evidence shows that there was no equity in the property which might have been released for the benefit of Mrs Hanara’s creditors, and all that has happened since then is that three years have passed and the equity in the property has increased. ...
[42] As far as Mrs Hanara’s estate is concerned, the position is really no different from someone taking a decision to give away a property which is of marginal value and comes with some onerous obligations attached. If that property later increases in value, in no sense could it be said that the person giving it away has suffered “loss or damage”. ...
...
[44] ... In my view there must be more than a post-disclaimer increase in value before there can be loss or damage for the purposes of s 119. ...
[47] In no case of which we are aware has any loss or damage been found to give rise to a vesting order, where that loss or damage arises from an increase in value of an asset after disclaimer.
[48] When a creditor makes an application under s 119, the loss or damage claimed must be more than the creditor’s inability to recover because a valueless asset has been disclaimed. Creditors can have no interest in a property that has no value and will have a positive interest in seeing it disclaimed if it is incurring expenses which will further drain the bankrupt’s funds.
Conclusion on loss or damage
[49] For these reasons, we conclude that The Fish Man has suffered no loss or damage under s 119. The Property could offer no value to The Fish Man at the time of the disclaimer.
Application of ss 290 and 304(1) of the Act
[50] Although we do not have to determine the application of ss 290 and 304(1) of the Act, we refer to this briefly. Section 290 of the Act provides for an automatic discharge 3 years after the bankrupt files a statement of affairs.
[51] Section 304 provides that on discharge the bankrupt is released from all debts provable in the bankruptcy except those listed in subsection (2). These include:
(a) any debt or liability incurred by fraud or fraudulent breach of trust to which the bankrupt was a party:
(b) any debt or liability for which the bankrupt has obtained forbearance through fraud to which the bankrupt was a party:
...
[52] Fogarty J held that s 304(1) applied and that Mr Hadfield was released automatically from all debts that were provable in his bankruptcy. It was submitted by Mr Barker in the High Court that the claim by The Fish Man could not survive Mr Hadfield’s discharge from bankruptcy. This submission raised the question of whether the claim by The Fish Man against Mr Hadfield was a claim in fraud as that term is used under s 304(2)(a) of the Act. Fogarty J determined that Mr Hadfield’s conduct was not dishonest assistance. Rather he observed it was the:[26]
[C]ommon case of a director of a company continuing to spend on the necessary inputs, such as food for the fish and retaining the employees, ahead of the tax debts. He did not do this with an intention to defeat the Inland Revenue in the long run, but rather to save the business.
[53] He did not regard Mr Hadfield’s conduct as being fraud or fraudulent breach of trust of the type referred to in s 304(2)(a). As we have indicated, we do not need to determine whether Mr Hadfield has acted fraudulently under s 304. That is because the statutory genesis of the claim is s 119. This is not a claim against Mr Hadfield but rather a claim for relief brought by a third party, where the party which will have to disgorge the Property is not the bankrupt but the Crown. Mr Hadfield is not being sued as a debtor and the question of his release from his debts does not arise. Therefore we see no reason why, despite s 304, this claim for a vesting order could not have been brought by The Fish Man as a creditor.
[54] However, because we have found that there was no loss or damage suffered at the relevant time by The Fish Man, we conclude that no vesting order should be made under s 119 of the Act.
[55] For this reason we do not need to go on to consider whether it is “fair” to vest the Property in The Fish Man, under s 119(3). If that exercise was carried out we would have to consider Mrs Hadfield’s particular position. What is unusual in the present case is that the Property has been kept from mortgagee sale through the efforts of Mrs Hadfield, who retained her job and made the necessary mortgage payments. While she also has had the benefit of living there, there is nothing to suggest she would have done so if the Assignee had not disclaimed the Property.
The Fish Man’s proprietary claims
[56] The Fish Man claims that in any event the Property should vest in it because it has a proprietary interest in the Property through three forms of equitable interest: a constructive trust, an equitable lien or subrogation to the rights of the ANZ as mortgagee. The value of the claimed proprietary interest is $49,159, representing the mortgage payments wrongly made by Mr Hadfield using The Fish Man’s funds. It is claimed that the misappropriated company funds can be traced into the mortgage and in turn into the Property itself.
[57] There is no doubt that it is a breach of fiduciary duty for a director of a company to use its funds to pay personal debts.[27] It was confirmed in Selangor United Rubber Estates Ltd v Cradock that a credit from a company’s bank account which the director is authorised to operate is money of the company, which is held by that director on trust for the company in accordance with its purpose.[28] Fogarty J rightly recognised that Mr Hadfield had breached his fiduciary duty to The Fish Man by using the company’s funds to meet his mortgage payments.[29] A constructive trust arose in relation to those funds.
[58] As Fogarty J also recognised, a finding of a breach of fiduciary duty is only a starting point when it comes to establishing a proprietary interest in property. Plainly a breach of trust by a fiduciary does not of itself give a beneficiary an interest in all the fiduciary’s property. The fact that The Fish Man’s funds were used by Mr Hadfield to make mortgage payments on the Property does not necessarily create a traceable interest in the mortgaged Property. The Fish Man funds were not used to purchase the Property. They were used years after purchase to meet some ASB mortgage payments, and then in respect of an ANZ mortgage, which replaced the original mortgage and was executed and registered long after the purchase.
[59] The usual rule is that misappropriated funds cannot be traced further after they have been paid to discharge a debt.[30] However the position may be different when it can be shown that the debt was incurred to purchase a specific and identifiable asset. The question then is whether the plaintiff can trace that later debt arising from the use of the company’s funds, back into the asset that was purchased. This is sometimes referred to as the issue of “backwards tracing”. We turn to the first of the three proprietary arguments raised on behalf of The Fish Man.
Constructive trust
[60] It is stated expressly in s 118(b) of the Act that a disclaimer by the Assignee does not affect the rights, interests, or liabilities of any other person, except insofar as is necessary to release the Assignee or the bankrupt from a liability. It is plain that any proprietary interest in the land is unaffected by a disclaimer. Therefore if The Fish Man has a proprietary claim in the Property, it has survived the disclaimer. Treating the Property as beneficially owned by the Crown, that beneficial interest is subject to all proprietary claims to the Property, including any interest of The Fish Man. Such a conclusion must inevitably follow from s 118(b).
[61] The Fish Man submits it has a proprietary claim for $49,159. This comprises in part the ANZ mortgage payments of $29,572 between 1 April 2009 and 3 November 2010. As we have stated, that payment was part of the District Court judgment against Mr Hadfield. However it also comprises ANZ mortgage payments of $19,586.55 made between 1 April 2008 and 31 March 2009. These payments were not part of the District Court judgment against Mr Hadfield, nor has such a claim been made in the bankruptcy of Mr Hadfield or accepted by the Assignee. Mr Hadfield in his affidavits has disputed liability for these payments. The District Court judgment does not appear to have been based on any proprietary claim, but rather on a debt owing. Mr Hadfield had control of the company funds in circumstances that made him a constructive trustee. That gives rise to a claim, and the ability to obtain judgment, but in itself that leaves The Fish Man as an unsecured creditor.
[62] Relying on the breach of fiduciary duty in applying the funds to the mortgage, The Fish Man seeks to trace those moneys, both principal and interest, into the Property. There is no such thing as a stand-alone cause of action of tracing.[31] What tracing can do for a company is to transform the unsecured breach of fiduciary duty claim into a proprietary interest in property by showing that company funds have, in breach of constructive trust, been put into a property which represents those funds in whole or in part, and from which they can be recovered. It is a process that can be used by a claimant to show what has happened to misappropriated property,[32] and where it is now. It involves one form of property interest being properly regarded as substituted for another. So, in the case of Mr Hadfield, if the misappropriated funds had been used by him to purchase the Property, a proprietary interest would have been created.
[63] To support the proprietary claim, Ms Morrison relies on the leading English case of Foskett v McKeown and particularly the judgment of Lord Millett. The facts of this wellknown case involved a number of purchasers entrusting their funds to Mr Murphy and an associate for the purchase of a property which was in fact never purchased. Instead Mr Murphy in breach of trust used the purchasers’ money to pay two annual premiums on a whole life insurance policy and later divested himself of any beneficial interest in the policy. He appointed the policy to be held on trust for the benefit of his three children. When he subsequently committed suicide the insurers paid out to the trustees of the policy. The purchasers were held to be able to claim against the proceeds of the insurance policy. As Lord Millett explained:[33]
The simplest case [of tracing] is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled to at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund.
[64] The concept of tracing was applied in New Zealand in part in similar circumstances to these in Torbay Holdings Ltd v Napier.[34] In that case misappropriated funds had been used to directly pay for various costs in building a house on the property. It was held that the value of the cheques paid to the suppliers of goods and services from misappropriated funds could be traced into the property. This was an orthodox application of the doctrine of tracing. However, the High Court went further to consider the issue of backward tracing, and determined that payments made from the company’s account towards loans that the directors had secured over the property could also be traced into the property.[35] It was said that the repayments of the loan allowed the defendants to acquire a significant and valuable asset with less debt encumbrance, which could be seen as an increase in the value of the house. This decision was followed in Taj Construction Ltd (in liq) v Singh.[36] Also, in Shannon Agricultural Consulting Ltd (in liq) v Shannon, the High Court traced company funds that were used to repay a mortgage into the mortgaged property, giving the company a proprietary interest in the property.[37]
[65] However in Intext Coatings (in liq) v Deo, the High Court refused to follow the reasoning in Torbay Holdings Ltd v Napier.[38] After a thorough analysis of the relevant case law it was held that it was not possible to trace the company’s money that was used to repay mortgage debts into a proprietary interest in the mortgaged property itself, when the funds had not been used for the purchase. It is necessary for us to consider this conflict in the decisions. Fogarty J in his judgment adopted the approach put forward in Intext Coatings.[39]
[66] The ability to trace backwards has been the subject of academic debate.[40] It was recently considered by the Privy Council in Federal Republic of Brazil v Durant International Corp.[41] This was a case of tracing bribes paid into accounts controlled by the defendant. Part of the claim was to trace three payments into funds held in Jersey accounts, where the transfer of those funds from a New York account into the Jersey accounts occurred before the bribery proceeds were deposited into the New York account. It was argued by the defendant that the three payments could not be traced to the Jersey account because there was no doctrinal basis for backwards tracing.
[67] The Privy Council held:
[38] The development of increasingly sophisticated and elaborate methods of money laundering, often involving a web of credits and debits between intermediaries, makes it particularly important that a court should not allow a camouflage of interconnected transactions to obscure its vision of their true overall purpose and effect. If the court is satisfied that the various steps are part of a co-ordinated scheme, it should not matter that, either as a deliberate part of the choreography or possibly because of the incidents of the banking system, a debit appears in the bank account of an intermediary before a reciprocal credit entry. The Board agrees with Sir Richard Scott V-C’s observation in Foskett v McKeown that the availability of equitable remedies ought to depend on the substance of the transaction in question and not on the strict order in which associated events occur.
(Citations omitted.)
[68] However, the Privy Council also held that it is wrong to say that all money used to pay a debt can in principle be traced into whatever was acquired in return for the debt:[42]
If a trustee on the verge of bankruptcy uses trust funds to pay off an unsecured creditor to whom he is personally indebted, in the absence of special circumstances it is hard to see why the beneficiaries’ claim should take precedence over those of the general body of unsecured creditors.
[69] A court should look at the substance of a transaction, rather than the strict order in which events occur. In those circumstances, when looking at the transaction as a whole, the court may be able to attribute the value of the interest acquired to the misuse of the trust fund. However, a claimant has to establish a coordination between the depletion of the trust fund and the acquisition of the asset which is the subject of the tracing claim.
[70] Fogarty J considered this issue and concluded that for a tracing claim to be upheld there must be the use of money to acquire an asset. He observed:[43]
[90] Tracing is a practical remedy of following money where it is converted into property. It is not some principle of converting money to a property right. There has to be a direct and substantial link between acquiring the property and the use of the misappropriated money. ...
[71] We agree. It is not correct to broadly assume, as was done in Torbay Holdings Ltd v Napier, that regular mortgage payments made after purchase can be traced into the secured property. In such a situation there is not the necessary coordination between the depletion of the trust fund and the acquisition of the asset. The focus must be on what the payment of the trust funds actually achieves and in particular whether it leads to the acquisition of ownership of the asset. It is not the case that the value of the interest acquired by Mr Hadfield in the Property could be attributed to the misuse of the trust fund. Mr Hadfield acquired his interest in the Property some years before the depletion of the trust fund. There is not the necessary transactional connection between the use of the trust funds and the acquisition of the asset.
[72] If tracing of mortgage payments is to be used in the way proposed by The Fish Man, the creditor from whom the funds were taken is elevated to a level of security beyond that of other unsecured creditors whose funds are used to pay other debts. It seems to us that extending tracing in this way would create a rash of new issues, and take the doctrine of tracing beyond its natural boundary. As we have said, there is not the necessary coordination between the depletion of the trust fund and the acquisition of the asset.[44]
[73] We conclude that The Fish Man cannot trace its funds into the Property. It has no proprietary interest in it, adopting this route.
An equitable lien
[74] It was not argued before Fogarty J that any equitable lien arose in favour of The Fish Man. The Fish Man’s statement of claim is brief in the extreme and makes no direct reference to it, although it does plead a beneficial interest in the Property. We are prepared to deal with this submission, which is another way of putting the tracing argument. In our view there is a simple answer to it.
[75] The submission is that a constructive trust could be founded on the alternative basis of an equitable lien over the Property because the mortgage repayments have improved the Property. Reliance was placed on Lord Millett’s observation in Foskett v McKeown:[45]
Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled to at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.
[76] As he later stated:[46]
I should now deal with the finding of all the members of the Court of Appeal that the plaintiffs were entitled to enforce a lien on the proceeds of the policy to secure repayment of the premiums paid with their money. This is inconsistent with the decision of the majority that the plaintiffs were not entitled to trace the premiums into the policy. An equitable lien is a proprietary interest by way of security. It is enforceable against the trust property and its traceable proceeds. The finding of the majority that the plaintiffs had no proprietary interest in the policy or its proceeds should have been fatal to their claim to a lien.
[77] We adopt that approach. The concept of an equitable lien turns on the plaintiff being able to show a specific interest in the property. For the reasons that we have already set out in relation to tracing, the mortgage repayments had no direct connection to the acquisition of the Property. The mortgage repayments were not used to acquire the Property, and cannot be traced to an interest in the Property.
Conclusion on proprietary interest
[78] We conclude that The Fish Man had no equitable interest in the Property. It was entitled to recover from Mr Hadfield, but that was a personal claim against him. It had a claim in the bankruptcy, and indeed had established that claim in part by a judgment. The fact that the monies were taken by Mr Hadfield for a variety of personal purposes, one of which was making mortgage payments, has not given it an interest in the Property.
Subrogation
[79] It was also argued before us that The Fish Man has a proprietary interest in the Property by way of subrogation of the position of the ANZ on the mortgage debt. This issue was not pleaded or argued before Fogarty J. We do not have the benefit of his findings.
[80] Mr Noble for Mr Hadfield objected to the raising of this point. He complained that because of the short notice (two weeks) given by The Fish Man of its intention to pursue this argument, he was not in a position to argue subrogation. Mr Barker took no position, but noted that there are factual issues concerned with a claim for subrogation. It is clear that there is an ANZ mortgage over the Property, but there is no sufficient evidence as to what the circumstances and terms of that mortgage are, or the rights to which The Fish Man would be subrogated.
[81] We do not have submissions on these matters, or the benefit of an analysis by Fogarty J. An appellate court will be very cautious about allowing a new cause of action to be raised for the first time on appeal. There appears to us to be force in the claims for Mr Hadfield that he will suffer prejudice, in that there may be factual matters of relevance that there has been no opportunity to raise or consider, and he has not been able to prepare full argument. In the circumstances we are not prepared to consider this submission, or elevate it into a ground of appeal.
Mr and Mrs Hadfield’s claims
[82] Mr Hadfield in his pleading asserted that the Property need not be sold to pay the amount owing to The Fish Man and claimed:
An order under s 119(2) of the Insolvency Act 2006 that the property be vested in [Mr Hadfield], and [Mr Hadfield] pay a sum of money to be specified to [The Fish Man].
The sum he would pay to The Fish Man has not been quantified.
[83] Mrs Hadfield in a fuller pleading refers to her relationship with Mr Hadfield and claims under the PRA seeking:
A Declaration that the [Mrs Hadfield] is entitled to half of the equity (after the mortgage only as registered with the ANZ National Bank Limited) in the property at 1/16 Cameron Place, Ranui, Auckland.
An Order pursuant to section 20B of the Property Relationships Act 1976 for the purposes of defining the value of her protected interest and entitlement under that Act.
[84] Fogarty J did not address the issue of Mr and Mrs Hadfield’s entitlement to the Property in detail. He noted that Mr Hadfield could make a claim under s 119(2) of the Act, and acknowledged Mrs Hadfield’s claim to a half interest.[47] He stated that Mrs Hadfield had a “substantial argument” for a half share in the Property.[48] As we have set out he sought submissions from Mr and Mrs Hadfield as to how they would like the title to be reconstituted, and failing agreement he favoured vesting the Property in Mr and Mrs Hadfield in equal shares.
Mr Hadfield’s claim
[85] We have set out Mr Hadfield’s prayer for relief in his statement of defence and counterclaim.[49] In submissions Mr Noble, while strongly opposing the order sought by The Fish Man, did not make any particular submission on Mr Hadfield’s behalf. We have had no submissions on whether any vesting order should be made in his favour and the matter has been expressly left for further submissions in the High Court. We therefore are unable to determine his position.
Mrs Hadfield’s claim
[86] In this Court Mrs Hadfield has sought an order that the Property be vested in her under s 119 of the Act. That order was not sought in her statement of defence and counterclaim, but was treated as available in the High Court.
[87] It is not in dispute that, after the disclaimer, Mrs Hadfield assumed responsibility for making the mortgage payments to avoid a foreclosure by ANZ. She has duly met those payments and as a consequence ANZ has not foreclosed and the mortgage is still in place with the Hadfields occupying the Property.
[88] There are a number of cases where the courts have recognised that, where a partner assumes the obligation to make the mortgage payments after a Property has been disclaimed following the bankruptcy of the other partner, there has been “loss or damage” for the purposes of s 119 of the Act.[50] As a matter of fact, what has happened in this case is that, despite the Crown assuming beneficial ownership on disclaimer, the Property has remained registered in the name of Mr Hadfield.
[89] Mrs Hadfield has a claim under the PRA to half the relationship property, and this property would include the home in which she and Mr Hadfield have lived. However, this potential claim does not give rise to a proprietary interest in the land, and conventional property principles will apply to her claim.[51]
[90] Given Mrs Hadfield’s claim to a protected interest on Mr Hadfield’s bankruptcy under s 20B of the PRA, we accept that she is a person who suffered loss or damage as a consequence of the disclaimer. The effect of the disclaimer was different for her, as distinct from other creditors. She had a right in respect of the Property. And as we have said, it is also the case that she has met the mortgage payments on the Property both before and after Mr Hadfield’s bankruptcy. It was her mortgage payments that stopped a mortgagee sale at a time when the Property had no value.
[91] In all the circumstances it seems clear to us that Mrs Hadfield would be entitled to a vesting order for at least a part interest in the Property. However, we have not had submissions on her position in relation to the specific orders that should be made. As we have said, Fogarty J expressly left the issue of how the title should be constituted to be considered after further submissions.
[92] Accordingly although we will dismiss the appeal in relation to Fogarty J’s substantive orders, it will not be an end to the proceeding. It will have to be remitted back to the High Court for a further hearing to determine how the title is to be constituted between Mr and Mrs Hadfield.
Costs
[93] The Fish Man also challenges the costs orders made by Fogarty J. The Judge awarded costs to both Mr Hadfield and Mr Barker as counsel assisting. Those costs orders were made “against the liquidator”.[52] Following the issuing of the judgment Fogarty J issued a further minute of 17 August 2016 stating:[53]
[5] As a precaution, however, I agree with the suggestion of Mr Barker and order that the costs of the amicus be met (or booked) in the first instance as a payment out of public funds under s 99A(l)(b). I confirm that Mr Barker's costs should be paid by the Registrar and that the liquidator should therefore reimburse the Crown. To that end only, leave is reserved to the liquidator as the losing party to challenge whether the liquidator should pay to the Registrar the whole of $9,211.89 or a lesser sum.
The costs of Mrs Hadfield and counsel assisting
[94] Section 99A(1)(b) of the Judicature Act 1908 states that where counsel to assist appears in any civil proceeding and argues any question of law or fact, the court may make such orders as it thinks just as to the payment “by any party to the proceedings” or out of public funds of the costs incurred by counsel assisting.[54] Fogarty J ordered that Mr Barker’s costs as counsel assisting be paid by the liquidator.[55] Fogarty J’s order was made on the assumption that the litigation had effectively been brought by the Commissioner for Inland Revenue. He saw it as an issue of simply which Crown account would pay the costs of counsel assisting.
[95] However, it was not the case that the Commissioner funded the proceeding. The Fish Man has applied to adduce further evidence in this Court in the form of an affidavit by one of the liquidators, Mr Levin. In that affidavit Mr Levin explains that the proceeding was initiated and funded by the liquidators acting on their own account. The application to adduce that evidence was granted in a minute of Randerson J on 13 February 2017.[56] The Court does not have any jurisdiction under s 99A to order a non-party to be liable for the costs of counsel assisting; the section refers to “parties”.
[96] The appointment of counsel assisting was a result of Mrs Hadfield deciding to represent herself in the proceeding. The fact that she was represented by counsel assisting had nothing to do with The Fish Man, save for the fact that The Fish Man had initiated the proceedings. In this case The Fish Man has not produced meritless or irrelevant arguments. In the end Mr Barker assisted not only Mrs Hadfield, but the Court generally. In our view it would be unfair to order The Fish Man or the liquidators to pay the costs of counsel assisting in the High Court or this Court. The costs of counsel assisting should be met by the public fund in the usual way under s 99A(1)(b). We will allow the appeal on this point.
[97] Mrs Hadfield has filed an affidavit showing that prior to deciding to represent herself in the High Court, she incurred legal costs relating to the early stages of this proceeding totalling $6,726.62. It seems fair that in respect of those High Court costs there be a payment to her in addition to the payment from the public fund to meet the costs of counsel assisting. Applying the usual two-third rule that lies behind the High Court Rules 2016 scale of costs, we fix this at approximately twothirds of the amount of costs that she incurred, namely the sum of $4,484.41.[57]
Mr Hadfield’s costs
[98] Mr Hadfield has successfully resisted The Fish Man’s appeal. He is entitled to costs on the usual basis from the unsuccessful party, The Fish Man. He is also entitled to costs in the High Court. In relation to the issue of whether the liquidators should be ordered to pay those costs we refer to the affidavit of Mr Levin which makes it clear that, contrary to Fogarty J’s understanding, the costs of the litigation were not paid for by the Commissioner of Inland Revenue, and were in fact paid by the liquidators themselves. The Fish Man did not have sufficient monies available to fund the litigation.
[99] The leading case on the payment of costs by non-parties is Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2).[58] In that case the Privy Council found that a non-party could not ordinarily be made liable for costs, and that costs orders made against third parties are exceptional in the sense of being outside the ordinary run of cases, where parties pursue or defend claims for their own benefit and at their own expense.[59]
[100] In Dymocks Franchise Systems (NSW) Pty Ltd the third party that provided the funding stood expressly to gain financially should the party it was funding be successful. A non-party costs order was made. However it was held that where the nonparty is a director or liquidator who can realistically be regarded as acting in his or her own interests, costs orders will not invariably be made. The Privy Council referred to the following passage from Carborundum Abrasives v Bank of New Zealand Ltd (No 2):[60]
The directors of a company may frequently be in a position different from other non-parties with a direct financial interest in promoting or defending proceedings. Even where a company is in receivership, directors may have a duty to prosecute or defend a claim through the company in the interests of creditors other than the creditor that had appointed the receiver, or in the interests of the shareholders. Other creditors and shareholders are entitled to expect that those responsible for the management of the company will use all proper endeavours to ensure that their financial interests are protected or that there is a fund out of which such creditors can be paid.
[101] Costs orders against third parties are exceptional. They are warranted in cases where an entity has funded litigation in order to pursue its own interests, and without an order against third parties would have done so without risk to himself or herself should the proceedings fail or be discontinued.[61] However, it is clear that just because a dominant director or major shareholder has brought the proceedings, this factor alone will not justify a third party costs order. Something additional is normally required. In discussing this proposition Millett LJ observed in Metalloy Supplies Ltd (in liq) v MA (UK) Ltd:[62]
It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. ... The position of a liquidator is a fortiori. Where a limited company is in insolvent liquidation, the liquidator is under a statutory duty to collect in its assets. This may require him to bring proceedings. ... If he brings the proceedings in the name of the company, the company is the real plaintiff and he is not.
[102] We have concluded that it is not appropriate to order the liquidators to meet Mr Hadfield’s costs personally. We have concerns about the liquidators’ pursuit of the claim, given the lack of any likelihood that a successful claim would have brought any financial return to The Fish Man creditors after the litigation and liquidation costs. Nevertheless, it was not unreasonable for the liquidators on behalf of The Fish Man to pursue a proceeding that would lead to a better recovery for creditors, particularly when there had been the event of the property owned by the bankrupt increasing in value, giving rise to a potential equity. There were also High Court authorities supporting a proprietary interest claim. The proceeding was far from frivolous or vexatious.
[103] We therefore allow the appeal in relation to the costs orders. We will make the cost orders that follow the success of the Hadfields against The Fish Man. We recognise that these orders are unlikely to realise any payments given the insolvency of the company, but it is appropriate to make them in any event.
Result
[104] The appeal in relation to the substantive orders and directions made by Fogarty J is dismissed.
[105] The appeal against the costs orders made by Fogarty J is allowed.
[106] The orders that the liquidators pay the costs of counsel assisting and Mr Hadfield are quashed.
[107] The costs awarded to Mr Hadfield in the High Court are to be paid by The Fish Man.
[108] Mrs Hadfield’s costs in the High Court, in the sum of $4,484.41, are to be paid by The Fish Man.
[109] In this Court The Fish Man must pay Mr Hadfield costs for a standard appeal on a band A basis and usual disbursements.
[110] The costs of counsel assisting in both the High Court and this Court are to be paid out of public funds under s 99A(1)(b) of the Judicature Act.
[111] The determination of the final vesting orders to be made is remitted back to the High Court, to be determined in accordance with Fogarty J’s judgment.[63]
Solicitors:
Meredith Connell, Auckland for Appellant
Boyle Mathieson, Auckland for
First Respondent
[3] The Fish Man Ltd (in liq) v Hadfield CA432/2016, 13 February 2017 (Minute of Randerson J).
[4] The Fish Man Ltd (in liq) v Hadfield [2016] NZHC 1750, [2016] NZAR 1198.
[5] At [98].
[6] At [99].
[7] At [101].
[8] At [102].
[9] At [102].
[10] Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70 (HL) at 86.
[11] Contrary to the position under s 75(1) of the Insolvency Act 1967, where disclaimer had to occur within one year of adjudication.
[12] Hindcastle Ltd v Barbara Attenborough Associates Ltd, above n 10, at 87.
[13] See Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee [1991] 2 NZLR 351 (HC) at 354.
[14] National Australia Bank Ltd v New South Wales [2009] FCA 1066, (2009) 182 FCR 52 at [18]–[25]; and Re Mercer and Moore (1880) 14 Ch D 287 at 295–296.
[15] Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee, above n 13.
[16] At 355.
[17] At 356.
[18] At 356.
[19] In Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee, above n 13, the plaintiff was a mortgagee. This was not a bar to the claim.
[20] Panther v Panther [2016] NZHC 809.
[21] Re Shallish HC Invercargill CIV-2010-425-000439, 16 September 2010; Re Mitchell [2016] NZHC 2473; Re Stables [2016] NZHC 2519; and Re Hanara [2017] NZHC 902.
[22] Re Body Corporate 201036 [2016] NZHC 2035.
[23] Gay v Bruns CA193/98, 17 June 1999 at [13]. This Court did not deal with the issue of vesting, but referred to various orders vesting causes of action in the bankrupt that had been made in the unreported High Court decisions that are referred to.
[24] Insolvency Act 2006, s 226(3).
[26] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [38].
[27] Selangor United Rubber Estates Ltd v Cradock [1968] 1 WLR 1555 (Ch) at 1577.
[28] That approach has been frequently applied in New Zealand: Sion Consultants Ltd (in liq) v Bason [2015] NZHC 645; Taj Construction Ltd (in liq) v Singh [2016] NZHC 584; and Intext Coatings Ltd (in liq) v Deo [2016] NZHC 2754.
[29] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [49].
[30] Re Diplock [1948] Ch 465 at 548–549; and Re Registered Securities Ltd (in liq) [1991] 1 NZLR 545 (CA) at 554.
[31] Boscawen v Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328 (CA) at 334.
[32] Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102 (HL) at 127.
[33] At 130.
[34] Torbay Holdings Ltd v Napier [2015] NZHC 2477, [2015] NZAR 1839 at [207]–[232]. This decision was affirmed on appeal in Napier v Torbay Holdings Ltd [2016] NZCA 608, [2017] NZAR 108, although the tracing finding was not challenged and not considered by this Court.
[35] Torbay Holdings Ltd v Napier, above n 34, at [230].
[36] Taj Construction Ltd (in liq) v Singh, above n 28.
[37] Shannon Agricultural Consulting Ltd (in liq) v Shannon [2015] NZHC 1133.
[38] Intext Coatings (in liq) v Deo, above n 28, at [93].
[39] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [87] and [90]–[93].
[40] The debate is summarised in Matthew Conaglen “Difficulties with Tracing Backwards” (2011) 127 LQR 432, written in response to an argument of Lionel Smith that was referred to by Sir Richard Scott V-C in Foskett v McKeown [1998] Ch 265 (CA) at 283.
[41] Federal Republic of Brazil v Durant International Corp [2015] UKPC 35, [2016] AC 297.
[42] At [33].
[43] The Fish Man Ltd (in liq) v Hadfield, above n 4.
[44] Federal Republic of Brazil v Durant International Corp, above n 41, at [40].
[45] Foskett v McKeown, above n 32, at 131.
[46] At 140.
[47] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [97]–[98].
[48] At [98].
[50] Panther v Panther, above n 20, at [12(a)]; Re Shallish, above n 21, at [14]; and Re Stables, above n 21, at [10].
[51] Smith v Smith (1978) 1 MPC 197 (SC); and Walker v Walker [1983] NZLR 560 (CA). See also Fisher on Matrimonial and Relationship Property (looseleaf ed, LexisNexis) at [1.26].
[52] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [101]–[102].
[53] The Fish Man Ltd (in liq) v Hadfield HC Auckland CIV-2015-404-1612, 17 August 2016 (Minute of Fogarty J).
[54] Section 99A(1)(b) has since been replaced by s 162 of the Senior Courts Act 2016.
[55] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [102].
[56] The Fish Man Ltd (in liq) v Hadfield, above n 3, at [9].
[57] High Court Rules 2016, r 14.2(1)(d).
[58] Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145.
[59] At [20] and [25]–[29].
[60] Carborundum Abrasives v Bank of New Zealand Ltd (No 2) [1992] 3 NZLR 757 (HC) at 765.
[61] Arklow Investments Ltd v MacLean HC Auckland CP489/97, 19 May 2000.
[62] Metalloy Supplies Ltd (in liq) v MA (UK) Ltd [1996] EWCA Civ 671; [1997] 1 WLR 1613 (CA) at 1620.
[63] The Fish Man Ltd (in liq) v Hadfield, above n 4, at [97]–[100].
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