Bignell v Hayes HC Rotorua CIV-2010-463-000838 [2011] NZHC 1470 (6 May 2011)

Last Updated: 12 November 2011

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

_{CIV-2010-463-000838}

BETWEEN STEVEN JAMES BIGNELL, ADRIAN HOOGERBRUG AND ALAN FREDRIC SPENCER VANE AS TRUSTEES OF THE S BIGNELL FAMILY TRUST Applicants

AND ROWENA HAYES AND JENNIFER SINCLAIR AS TRUSTEES OF THE CHARON TRUST

Respondents

Hearing: 19 April 2011

Appearances: I T F Hikaka for the Applicants

K G Scott for the Defendants

Judgment: 6 May 2011

_{RESERVED JUDGMENT OF WOOLFORD J}

This judgment was delivered by me on Friday, 6 May 2011at 5:00 pm

Pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Lee Salmon Long, Solicitors, PO Box 2026, Shortland Street, Auckalnd

Olphert & Associates Ltd, Solicitors, PO Box 1717, Rotorua 3040

BIGNELL & Ors AS TRUSTEES OF THE S BIGNELL FAMILY TRUST V HAYES AND SINCLAIR AS TRUSTEES OF THE CHARON TRUST HC ROT CIV-2010-463-000838 6 May 2011

[1] The applicants as trustees of the S Bignell Family Trust apply for orders appointing Messrs J J Cregten and A J McKay of Corporate Finance Limited as receivers of the Awa-iti Partnership (partnership).

[2] The S Bignell Family Trust is one of two partners in the partnership. The other partner is the Charon Trust of which the respondents are the trustees.

[3] On 11 November 2010, the applicants’ solicitors wrote to the respondents giving notice under s 35 of the Partnership Act 1908 that the partnership was dissolved. In that letter, the applicants’ solicitors suggested that the partnership be wound up by either the applicants buying out the respondents’ share in the partnership or the appointment of an independent person (by agreement) to realise the assets of the partnership. The respondents declined to take any steps to wind up the partnership. This application has therefore resulted.

[4] Mr Bignell (a trustee of the S Bignell Family Trust) and Ms Hayes (a trustee of the Charon Trust) are married but their relationship has broken down. They are separated and Property (Relationships) Act proceedings are on foot between them.

[5] The partnership comprises of three properties owned by the two trusts. There are two properties at 32e Ohuirehe Road, Whakatane. Ms Hayes resides in a house at that address. The third property is a house at 171 Lake Terrace, Taupo, in which Mr Bignell resides.

[6] The respondents seek an adjournment of the application. If an adjournment is not granted they oppose the application. They submit that the assets of the partnership are in part relationship property and that the proper forum for determining all aspects of relationship property is the Family Court.

Partnership Act 1908

[7] Section 35 of the Partnership Act 1908 provides for the dissolution of the partnerships by expiration or notice:

35 Dissolution by expiration or notice

(1) Subject to any agreement between the partners, a partnership is dissolved,—

(a) If entered into for a fixed term, by the expiration of that term:

(b) If entered into for a single adventure or undertaking, by the termination of that adventure or undertaking:

(c) If entered into for an undefined time, by any partner giving notice to the other or others of his intention to dissolve the partnership.

(2) In the last-mentioned case the partnership is dissolved as from the date mentioned in the notice as the date of dissolution, or, if no date is so mentioned, as from the date of the communication of the notice.

[8] After the dissolution of a partnership the authority of each partner to bind the partnership, and the other rights and obligations of the partners, continue notwithstanding the dissolution but only so far as may be necessary to wind up the affairs of the partnership and not otherwise.[1]

[9] Section 42 sets out the rights of the partners as to the application of partnership property on the dissolution of a partnership. It provides:

42 Rights of partners as to application of partnership property

On the dissolution of a partnership every partner is entitled as against the other partners in the firm, and all persons claiming through them in respect of their interests as partners, to have the property of the partnership applied in payment of the debts and liabilities of the firm, and to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners of the firm; and for that purpose any partner or his representatives may, on the termination of the partnership, apply to the Court to wind up the business and affairs of the firm.

[10] The distribution of assets on final settlement of accounts between the partners after a dissolution of partnership is governed by the rules in s 47 of the Act.

[11] A receiver is defined in s 2 of the Receiverships Act 1993 as meaning a receiver, or a manager, or a receiver and manager in respect of any property appointed either by or under any deed or agreement or by the Court in the exercise of a power conferred on the Court or in the exercise of its inherent jurisdiction.

[12] A grantor is defined as meaning the person in respect of whose property a receiver is, or may be, appointed.

[13] The general duties of receivers and the particular duty of a receiver selling property are set out in ss 18 and 19. They provide:

18 General duties of receivers

(1) A receiver must exercise his or her powers in good faith and for a proper purpose.

(2) A receiver must exercise his or her powers in a manner he or she believes on reasonable grounds to be in the best interests of the person in whose interests he or she was appointed.

(3) To the extent consistent with subsections (1) and (2) of this section, a receiver must exercise his or her powers with reasonable regard to the interests of—

(a) The grantor; and

(b) Persons claiming, through the grantor, interests in the property in receivership; and

(c) Unsecured creditors of the grantor; and

(d) Sureties who may be called upon to fulfil obligations of the grantor.

(4) Where a receiver appointed under a deed or agreement acts or refrains from acting in accordance with any directions given by the person in whose interests he or she was appointed, the receiver—

(a) Is not in breach of the duty referred to in subsection (2) of this section; but

(b) Is still liable for any breach of the duty referred to in subsection (1) and the duty referred to in subsection (3) of this section.

(5) Nothing in this section limits or affects section 19 of this Act.

19 Duty of receiver selling property

A receiver who exercises a power of sale of property in receivership owes a duty to—

(a) The grantor; and

(b) Persons claiming, through the grantor, interests in the property in receivership; and

(c) Unsecured creditors of the grantor; and

(d) Sureties who may be called upon to fulfil obligations of the grantor—

to obtain the best price reasonably obtainable as at the time of sale.

[14] A receiver must keep money relating to the property in receivership separate from other money.[2] Accounting records that correctly record and explain the receipts, expenditure, and other transactions relating to the property in receivership must also be kept.[3]

[15] The Court also retains a supervisory role over receivers.[4]

Applicants’ submissions

[16] The applicants submit that under s 42 of the Partnership Act 1908 and in its inherent jurisdiction[5] the Court may appoint a receiver to wind up the affairs of a partnership with the power of a receiver under the Receiverships Act 1993. They refer to the Court of Appeal’s statement in Sew Hoy v Sew Hoy[6] that the general policy of the Partnership Act is that a dissolved partnership’s affairs should be promptly wound up and the partners discharged from their residual continuing authority and obligations.

[17] While they do not necessarily accept that any of the partnership assets are relationship property, the applicants point to the powers of the Family Court under

_{ss 44 and 44C of the Property (Relationships) Act 1976 to set aside dispositions of}

property made in order to defeat the claim or rights of any person under the Act and to order compensation for property disposed of to a trust. They submit that the appointment of a receiver will not cause any prejudice to those orders being made. A receiver will realise the actual value in the assets and any claims under ss 44 or 44C can be made against the realised value.

[18] The applicants submit that the Family Court does not, in any event, have jurisdiction in relation to the winding-up of partnerships nor does it have the supervisory sole over receiverships accorded to the High Court by the Receiverships Act 1993.

[19] Given the inability of the partners to agree a process for the winding-up of the partnership, the applicants submit that a Court ordered receivership is both necessary and appropriate as the partnership is not functioning and faces liabilities to a range of creditors.

Respondents’ submissions

[20] The respondents outlined the many and varied applications that they have made in the Family Court, one of which is an application for inquiry into matters of fact in issue under s 38 of the Property (Relationships) Act 1976.

[21] Consequently, the respondents submit they are at a serious disadvantage in coming to the High Court in respect of the application to appoint receivers of the partnership because Mr Bignell has not given full discovery of relationship property. The respondents say they are therefore not in a position to provide information to the High Court as to the full nature and extent of relationship property in the S. Bignell Family Trust, one of the partners in the dissolved partnership.

[22] The respondents submit that it is also of concern that Mr Bignell’s accountancy company has prepared the financial accounts for the partnership. They point to transactions in the accounts which may have disadvantaged Ms Hayes in terms of relationship property.

[23] The respondents further submit that, notwithstanding the lack of full discovery by Mr Bignell, some of the partnership property must also be relationship property and is therefore subject to the Property (Relationships) Act 1976. As such under s 22(1) of the Act, every application under the Act must be heard and determined in the Family Court. Reference is made to the case of Jew v Jew[7] as authority for the proposition that the High Court should either adjourn the application until the Family Court has determined the issue of relationship property or dismiss the application altogether.

Discussion

[24] The partnership has been dissolved by notice. After dissolution, the parties have limited rights. They can only carry on business for the purpose of winding-up the affairs of the partnership. On the other hand, the parties have the right to have the property of the partnership applied to the payment of its debts and then, as to any surplus, to themselves.

[25] As to the jurisdiction of the Family Court, I note the power of the Family Court under s 33(5) of the Property (Relationships) Act 1976 to appoint a person to sell property and divide, apply or settle the proceeds where it makes an order for the sale of relationship property. It does not however, have the inherent jurisdiction of this Court to appoint a receiver nor does it have the power to supervise receivers under s 34 of the Receiverships Act 1993. The Family Court has not, in any event, identified the relationship property nor has it made an order for its sale so as to be able to exercise its ancillary powers under s 33(5) of the Property (Relationships) Act

1976. The intervention of the High Court is therefore necessary if the partnership’s

affairs are to be wound up.

[26] In my opinion, the case of Jew v Jew is not directly applicable. In that case a declaration was sought that the Jew Family Trust did not hold any property which constituted relationship property in the marriage of Christopher and Michelle Jew. A second declaration was also sought that a matrimonial property agreement was in

_{full force and effect and binding on the plaintiff and defendant.}

[27] Master Lang noted that the plaintiff sought to retain within the jurisdiction of the High Court a contest which, in his view, related essentially to the classification and division of relationship property. The proceedings were struck out and the parties invited to seek the intervention of the Family Court if they remained unable to settle their differences.

[28] This application does not seek to classify and divide relationship property. It merely seeks the appointment of receivers to wind-up the affairs of the partnership. Payments made to the partners from the surplus assets of the partnership will not be made in accordance with the rules as to the division of relationship property. The division of relationship property is clearly a matter for the Family Court.

[29] It is my opinion that the respondents will not be disadvantaged by the appointment of receivers. There are sufficient safeguards in the Property (Relationships) Act 1976 to protect Ms Hayes’ entitlement to her share of relationship property. If Mr Bignell has disposed of relationship property to the S Bignell Trust, then the Family Court is able to make orders under s 44C of the Property (Relationships) Act 1976 for the purpose of compensating her.

[30] If Ms Hayes fears that Mr Bignell is about to make a disposition of property in order to defeat her claim then she can also apply to the Family Court for an order under s 43(1) of the Act restraining the making of the disposition.

[31] In those circumstances, I am not prepared to adjourn the application until after the Family Court has made its ruling on the division of relationship property. It is also clear a Court order appointing an independent third party to wind up its affairs is necessary.

[32] The partnership has been dissolved. It has liabilities to a range of creditors. The partnership’s bank accounts with the BNZ are frozen and incurring expenses. The deadlock between the parties cannot be resolved by agreement. The appointment of receivers will not affect the parties’ substantive rights.

[33] I am satisfied that the proposed receivers are both experienced and independent of the parties. If appointed they will have a general duty under the Receiverships Act to act in good faith and for a proper purpose. The receivers will also have a specific duty to the partnership to obtain the best price reasonably obtainable as at the time of sale of any partnership property.

[34] I note the concerns of the respondents, both that the partnership accounts were prepared by Mr Bignell’s accountancy firm and that Mr Bignell will be able to buy the house property in which he is residing in a “sweetheart deal” with the receivers. In that case, I am prepared to make two specific orders to allay those concerns. The first is that the receivers are to satisfy themselves of the accuracy of the partnership accounts prepared by Stretton & Co Ltd, in particular, the loan of

$302,710 from the C. Bignell Trust before paying creditors of the partnership. The second is that, in the absence of agreement between the parties, the three properties are to be sold through a public marketing process undertaken by an independent real estate agent nominated by the President of the Real Estate Institute of New Zealand.

Result/Order

[35] The application is granted. The following orders are made:

(a) John Joseph Cregten and Andrew John McKay of Corporate Finance

Limited are hereby appointed receivers of the Awa-iti Parnership.

(b) The receivers shall have all powers of receivers under the

Receivership Act 1993.

(c) Rules 7.61 and 7.64 of the High Court Rules do not apply to this appointment.

(d) The receivers shall be remunerated at the receiver’s standard charge out rate for this work and this is to be paid as a first charge on the assets of the partnership.

(e) The receivers shall file reports as required by the Receivership Act

1993.

(f) The receivers are authorised to do all things reasonably necessary to realise partnership property and discharge partnership obligations, including:

(i) Obtain relevant independent legal advice as required, the cost of which will be met from partnership funds.

(ii) Demand and recover, by action or otherwise, income of the property in receivership.

(iii) Issue receipts for income recovered.

(iv) Manage the property in receivership, including, if deemed necessary, remove tenants.

(v) Exercise the power of sale of the property in receivership.

(vi) Borrow monies during the course of the receivership, and charge partnership assets if necessary.

(vii) Commence litigation proceedings in the name of the partnership.

(viii) Insure the property in receivership.

(ix) Repair and maintain the property in receivership.

(x) Take possession of books or documents that relate to the property in receivership and that are in the possession or under the control of the partnership.

(xi) Exercise, on behalf of the partnership, a right to inspect books or documents that relate to the property in receivership and that are in the possession or under the control of a person other than the partnership.

(xii) After the realisation of the property in receivership, discharge all liabilities of the partnership (including partner advances and loans), to the extent that funds allow.

(xiii) After having discharged all liabilities of the partnership, distribute the surplus (if any) to the members of the partnership in accordance with their equity in the partnership.

(xiv) In deciding the equity of the partners in the partnership the receivers shall have the power to decide the appropriate equity division themselves, engage a third party to assist with deciding the appropriate equity division or apply to the Court for directions as to the appropriate division.

(xv) Leave is reserved to the receivers to apply to the Court on 48 hours notice for any urgent orders as may be necessary in the course of the receivership.

(xvi) Upon completion of the realisation of assets and payment of all liabilities, apply to the Court for orders terminating the receivership.

(g) The receivers are to satisfy themselves of the accuracy of the partnership accounts prepared by Stretton & Co Ltd, in particular, the loan of $302,710 from the C. Bignell Trust before paying creditors of the partnership.

(h) In the absence of agreement between the parties, the three properties are to be sold through a public marketing process undertaken by an

independent real estate agent nominated by the President of the Real

Estate Institute of New Zealand.

_{[36] The applicants are entitled to costs on a 2B basis.}

Woolford J

---

[1] Partnership Act 1908, s 41.
[2] _{Receiverships Act 1993, s 21.}
[3] _{Ibid, s 22.}
[4] _{Ibid s 34.}
[5] _{Redwood v Redwood (1908) 28 NZLR 260 (SC).}

[6] Sew Hoy v Sew Hoy [2001] 1 NZLR 391 (CA) at [62].

[7] Jew v Jew (2002) 22 FRNZ 479 (HC).