D (CA801/2013) v R [2014] NZHC 369 (5 August 2014)

Last Updated: 28 March 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-5898 [2014] NZHC 369

BETWEEN LN & MJ STANLEY Applicants

AND D P MCDONALD First Respondent

MCDONALD TEXTURES PROPERTIES LIMITED

Second Respondent

L MCDONALD Third Respondent

Hearing: 4 March 2014

Appearances: L Stanley in person (accompanied by Mr G Stevens and

Mr A Howard as McKenzie friends)

JPR Scott for the Second and Third Respondents

Judgment: 4 March 2014

_{JUDGMENT OF BROWN J}

This judgment was delivered by me on 4 March 2014 at 4.30 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors: Martelli McKegg, Auckland

Copy To: L Stanley, Auckland

STANLEY v MCDONALD [2014] NZHC 369 [4 March 2014]

Background

[1] On 22 September 2011 L N Stanley and M J Stanley as the trustees of the Lucy Stanley Family Trust filed an originating application without notice for an order under s 348 of the Property Law Act 2007 (“the Act”) vesting property in Mr D P McDonald and, pending the making of orders under s 348, a freezing order under r 32.2.

[2] On 22 September 2011 Allan J made a freezing order in favour of the trustees over any shares in McDonald Textures Properties Ltd held by either Mr D P McDonald or Ms L McDonald and over the assets of McDonald Textures Properties Ltd until further order of the court. The order was sealed on

23 September 2011. McDonald Textures Properties Ltd and Ms L McDonald were joined as second and third respondents respectively by the order of Asher J dated

29 September 2011.

[3] The assets subject to the freezing order comprised Mr D P McDonald’s

50 per cent shareholding in McDonald Textures Properties Ltd (the second respondent) and the property owned by that company at 4 Dallan Place, Rosedale, Auckland (contained in five separate certificates of title). Pursuant to the freezing order, caveats were lodged over the properties with unique identifiers 159546,

159547, 159548, 159549 and 159550 being the units A-E, 4 Dallan Place, Rosedale,

Auckland (“the caveats”).

[4] The substantive application was heard by Rodney Hansen J on 23 March

2012. In a judgment dated 30 March 2012 his Honour made an order vesting in Mr McDonald the 49 shares in McDonald Textures Properties Ltd that had been transferred by Mr McDonald to Ms McDonald for the purpose only of enabling the carrying out of any execution or similar process against Mr McDonald for the administration of a future bankruptcy of him or arrangement with his creditors.¹

_{Leave was reserved to the parties to apply for further orders.}

¹ Stanley v McDonald [2012] NZHC 597 at [40].

The present application

[5] Mr McDonald has been made bankrupt and his shareholding in the second respondent has vested in the Official Assignee. Ms McDonald has now purchased Mr McDonald’s former shareholding from the Official Assignee.

[6] In those circumstances Ms McDonald and McDonald Textures Properties Ltd apply to the court for the following orders:

(a) Discharging the freezing order dated 22 September 2011; and

(b) Removing the caveats lodged pursuant to the freezing order over the five units at 4 Dallan Place.

[7] The application is made on the basis that the trustees have no claim against either Ms McDonald or the company. The trustees’ rights were as a judgment creditor of Mr McDonald. Consequently there is no longer reason to maintain the freezing orders or the caveats lodged pursuant to those orders.

[8] The application is opposed by Ms L N Stanley. On 24 February 2014 she filed an affidavit which traversed a number of matters including the litigation history to date, the action of the Official Assignee in selling the shares in the company to Ms McDonald and the issue of Property Law Act notices by the ANZ Bank as mortgagee of the Dallan Place units.

[9] The matter came before Lang J in the Duty Judge’s List on 25 February 2014. Noting that Ms Stanley’s affidavit did not appear to relate directly to the issues that the present application raises and the fact that it was important that the issues for the hearing be identified with some precision, Lang J directed Ms Stanley to file a detailed notice of opposition by midday 28 February 2014 together with a brief summary of her submissions. Counsel for the respondents was directed to file submissions in response on Monday 3 March.

[10] While the respondents’ submissions have been received, Ms Stanley did not file either a notice of opposition or a summary of submissions. At the hearing on

4 March 2014 she claimed not to have been aware of that direction despite her having been present at the Duty Judge List when the direction was made and despite the fact that a copy of the minute of Lang J was posted to her.

The hearing on 4 March 2014

[11] Regrettably the conduct of the hearing on 4 March 2014 was less than satisfactory. Ms Stanley sought to raise a number of matters which were not directly relevant to the application for hearing. Although I agreed to Mr G Stevens and Mr A Howard being seated with her as McKenzie friends, Mr Stevens played a progressively more significant role.

[12] After allowing a considerable degree of latitude towards both Ms Stanley (who purported to depute Mr Stevens) and Mr Stevens, ultimately I asked Mr Stevens to be seated (he refused on a number of occasions explaining that he had a sore back) and to be silent. When he declined to be silent, I directed the security officer to have Mr Stevens removed. Eventually the police were called. On the advice of the security officer I retired which was greeted with applause from Ms Stanley and the group of people supporting her in the courtroom.

[13] After a period Ms Stanley and her supporters left the courtroom. I returned to court and heard submissions from Mr Scott in support of the application. I indicated that I would make the orders sought and that I would issue my written reasons later in the day.

Discussion

[14] Ms Stanley has had the misfortune to own a leaking building. She was successful in her proceedings against Mr McDonald in the Weathertight Homes Tribunal obtaining an award of $332,897.00. Mr McDonald’s appeal to the High Court was dismissed.² However, Mr McDonald having been declared bankrupt, Ms Stanley found herself in the unfortunate position of being an unsecured creditor

_{of a bankrupt.}

² McDonald v Stanley HC Auckland CIV-2011-404-2623, 16 September 2011.

[15] As counsel for the applicant notes, Mr McDonald’s bankruptcy is not an attempt to defeat his debtors. Mr McDonald is genuinely bankrupt and subject to all the restrictions that imposes, including his assets vesting in the Official Assignee.

[16] The Court has considerably sympathy for Ms Stanley who explains in her affidavit that, being unable to recover the damages awarded, she is now forced to sell her property. Naturally enough she feels that she has suffered a very considerable injustice, a feeling which is compounded by the years of stress and upset she has endured in the course of the litigation about her property. Perhaps not surprisingly she has reacted unfavourably to the present application. The steps she has taken include:

(a) Alleging that the representatives of the Official Assignee acted negligently in selling the shares in the company to Ms McDonald;

(b) Questioning the Official Assignee’s valuation of the Dallan Place

units; and

(c) Serving a number of individuals employed either by the Official Assignee or the ANZ Bank with documents purporting to be notices requiring them to be present at the hearing of this application and listing their names in the heading of the documents as if they had been joined as parties to the proceeding (which they have not).

[17] It is not the role of this Court in the context of the present application to engage with (a) and (b) above. The present application concerns only the fate of the freezing order made by Allan J on 22 September 2011. The object of a freezing order is to restrain a person against whom a claim is made from disposing of, dealing with or diminishing the value of that person’s assets. As its name implies, it is an order designed to hold a position while a primary dispute is determined. Its temporary nature is reflected in r 32.8 which states that a freezing order must reserve leave to the respondent to apply to the court to discharge or vary the order and that such an application must be treated as an urgent application by the Court.

[18] The situation which the Court is confronted with here is that the substantive application has been heard and determined by Rodney Hansen J. Mr McDonald is now bankrupt and his assets have vested in the Official Assignee. The freezing order, to the extent that it restrained any disposition by Mr McDonald, is now spent. In those circumstances it is proper that the freezing order should be discharged.

[19] The Official Assignee agreed to sell the company shares to Ms McDonald and transferred those shares to her on 12 December 2013. It is suggested that that transfer may have amounted to a breach of the freezing order, albeit counsel for the respondents describes it as a technical breach.

[20] I doubt that the transfer was a breach of the freezing order. The order was directed to Mr McDonald and Ms McDonald. I do not consider that the order was intended to apply to the Official Assignee once Mr McDonald was declared bankrupt and his assets had vested in the Official Assignee. However if, contrary to my view, the sale by the Official Assignee was in contravention of the freezing order, I sanction that transfer. I do not consider that it is necessary to rescind the transfer and to require the shares to be transferred back to the Official Assignee in order that, once the freezing order is discharged, the transfer can be undertaken afresh. I agree with the submission of counsel for the respondents that there is no point in insisting on a remedy for the assumed breach when the net effect will be the same.

Orders

[21] The freezing order made on 22 September 2011 is discharged. I order that the caveats lodged, pursuant to the freezing order over the properties with unique identifiers 159546, 159547, 159548, 159549 and 159550 being the units A-E,

4 Dallan Place, Rosedale, Auckland, be removed.

[22] The transfer of the shares in McDonald Textures Properties Ltd by the Official Assignee to Ms L McDonald on 12 December 2013 is sanctioned in the event that such transfer constituted a breach of the freezing order.

[23] The Registry is directed not to accept for filing in this proceeding any documents which list in the heading as respondents any persons who have not been joined as respondents in this proceeding by an order of the Court.

_{[24] No issue of costs arises.}

Brown J