Official Assignee v Knight Coldicutt Limited [2015] NZHC 1429 (23 June 2015)

Last Updated: 15 July 2015

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3350 [2015] NZHC 1429

BETWEEN	OFFICIAL ASSIGNEE Applicant
AND	KNIGHT COLDICUTT LIMITED Respondent

Hearing:	18 June 2015
Appearances:	K H Morrison and L E Meade for Applicant No appearance for Respondent P D Sills for proposed Second Respondent
Judgment:	23 June 2015

_{JUDGMENT OF KEANE J}

This judgment was delivered by me on Tuesday, 23 June 2015 at 4 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Crown Solicitor, Auckland. Knight Coldicutt Ltd, Auckland.

Hornabrook MacDonald, Auckland.

P Sills, Auckland.

OFFICIAL ASSIGNEE v KNIGHT COLDICUTT LTD [2015] NZHC 1429 [23 June 2015]

[1] May Hao was adjudicated bankrupt by order of this Court on 8 December

2010. The Official Assignee, Auckland, who is charged with administering her estate, presently holds funds totalling $321,291.42, which he received from Meltzer Mason Heath, a firm of accountants, as a result of an order of this Court on 9 March

2012.

[2] At the date of that second order MMH held, on Ms Hao’s account,

$1,352,000. An MMH principal, Mr Meltzer, was to have been her trustee for the purpose of an offer she made to creditors in May – June 2010, first of $500,000, and then of $1,352,000, which on 6 December 2010 this Court declined to approve. The sum the Assignee then received under the 9 March 2012 order was deemed to be an asset in Ms Hao’s estate - wages owing to her at the date of her bankruptcy.

[3] The Assignee now wishes to distribute the funds he holds consistent with his duty. But, if he distributes the fund, there is the risk that the Hong Kong government agency, which obtained the restraining orders, or investors there, might hold him personally accountable in equity for doing so, when aware that Ms Hao might have obtained by fraud the fund he now holds.

[4] The Assignee intends, therefore, to apply to this Court for directions under s 225 of the Insolvency Act 2006, authorising him to distribute the fund consistent with his duty, and to serve this proceeding on the Hong Kong government agency and the New Zealand government agencies which registered the restraining orders. In this way he anticipates flushing out any risk of a Hong Kong claim, as well as obtaining immunity in the face of such a claim.

[5] In order to formulate that application the Assignee wishes first to establish as exactly as he can the source of the funds he holds. He is able to say that MMH received the funds it held for Ms Hao in two payments from her then solicitors, Knight Coldicutt. He has from KC the trust account ledger (number 4005), which records that the sums it paid to MMH came from two deposits in favour of Ms Hao. He accepts that this ledger suffices on its face as to one of the two deposits, but not the other.

[6] The Assignee accepts the trust account ledger entry relating to the larger deposit, $65,597,629.70: “Sun Hung Kai Investment Servi Funds transfer from HKD a/c refer spread sheet for detail”. Sun Hung Kai is a publicly listed Hong Kong company, linked by media report to loans raised from the public in Hong Kong for investment in the New Zealand dairy industry. The Assignee assumes that the Hong Kong government agency, which has the restraining orders, ought to be able to verify whether that is so.

[7] The Assignee does not accept on its face the entry relating to the second and smaller deposit, $7,200,000: “Journal from 53782 UBNZ Trustee Co Ltd Set Off between Escrow & deposit payments”. UBNZ Trustee is a company associated with Ms Hao. To make sense of that entry the Assignee wishes to have the relevant entries in the separate trust account ledger to which it refers, number 53782.

[8] On 25 March 2014, acting under s 171 of the Insolvency Act 2006, the

Assignee required KC to disclose that further trust account ledger. On 25 March

2014 KC declined, contending that it related to a client other than Ms Hao, and was subject to the “usual obligation of confidentiality”.

[9] On 28 March 2014 the Assignee said that KC was not bound by that duty where “disclosure is required by law” and again involved s 171.¹ On 4 April 2014

KC again said that the ledger related to a client other than Ms Hao and that the

$7.2M transaction was between that client and UBNZ Trustee, neither of whom were or could be deemed to be Ms Hao. KC also raised an issue about the scope of discovery applied for because the trust account ledger extended to other transactions.

[10] The Assignee could then have required KC to produce trust ledger 53782, and any other required to give it sense, by examining a KC principal under s 165, before a District Court Judge if need be. But because the Assignee only wished to receive any ledgers or ledger entries required to formulate his s 225 proceeding, he elected instead to apply for particular discovery, under r 8.20, in advance of that proceeding.

[11] Since then Natural Dairy (NZ) Limited, a company registered in the Cayman Islands, has disclosed that it is the entity KC elected not to name as its client. Its secretary has given an affidavit confirming that it made the $7.2M payment to UBNZ Trustees on 25 May 2010 for the reason narrated in trust ledger 4005, out of funds raised from the Hong Kong public between December 2009 – February 2010.

[12] NDNZL seeks by order to be joined as second respondent to the Assignee’s application for particular discovery against KC, in order to assert its claim to confidentiality because KC abides the decision of this Court. The Assignee in turn opposes NDNZL’s joinder application.

Joinder application

[13] In order to decide whether NDNZL is entitled to be joined to the Assignee’s particular discovery application, I must assess whether its presence as a party is “necessary to adjudicate on and settle all questions involved” in that application.²

[14] I am satisfied that NDNZL’s presence as a party is necessary. The very reason why the Assignee has brought the particular discovery application is to obtain the trust account ledger or ledgers which KC has declined to disclose on the ground that it owes a duty of confidentiality to NDNZL. But KC will abide the decision of the Court and so unless NDNZL is joined its claim for confidentiality will go by default. It is the natural contradictor.

[15] In the event, furthermore, that I grant the Assignee’s particular discovery application, as I intend to do, NDNZL ought to be entitled to be heard, I consider, as to the extent to which its confidentiality claim has a bearing on the extent to which KC is entitled to claim confidentiality, when completing its affidavit of documents.³

Particular discovery

[16] The first issue which arises on the Assignee’s particular discovery application

under r 8.20 is whether it may be brought under that rule, which allows targeted

discovery in advance of a proceeding by an “intending plaintiff”, against an

“intended defendant”, involving a “claim for relief”.

[17] An application under s 225 is not a claim for relief against an intended defendant. It is an application for directions on “any question concerning the operation of this Act”, the Insolvency Act 2006, the effect of which can be to render the Assignee immune from personal liability. Section 225(2) says:

An Assignee who acts under a direction of the Court discharges his or her duty in relation to the question for which the direction was sought, and it does not matter that subsequently the direction is invalidated, overruled, or set aside or becomes ineffective.

[18] The s 225 application the Assignee contemplates, I was told, is likely to be brought under Part 18 of the Rules of this Court. Though that is by way of statement of claim it does not require the naming of a respondent or defendant, even where there are entities, as there are here, with an interest in the outcome, like the Hong Kong government agency, which are to be served. Nor does it require, in a literal sense, a “claim for relief”.

[19] In the event that r 8.20 does not apply, however, I am satisfied that the Assignee is entitled to particular discovery under r 1.6, which enables this Court to dispose of any case where there is no procedure prescribed “as nearly as may be practicable in accordance with the provisions of these rules affecting any similar

case”. That rule has been invoked in cases not unlike this.⁴

[20] The issue then is whether as r 8.20(1)(a) requires, it is “impossible or impracticable” for the Assignee to “formulate” his s 225 application without particular discovery of the further trust account ledger or ledgers he seeks.

[21] NDNZL contends that the Assignee is already able to formulate his claim by relying on the entry in trust account ledger 4005, relating to the $7.2M loan, complemented by the disclosures which NDNZL itself has made. NDNZL contends that the Assignee is intent rather on disclosure to prove his claim, and that is beyond the scope of r 8.20.

[22] A s 225 application is not, however, a conventional claim for relief in which later general discovery may have a natural part to play. It is an application for directions, which must be formulated as exactly as possible from the outset, particularly where, as here, it may attract opposition.

[23] The issue is rather, I consider, whether NDNZL’s claim to confidentiality, first asserted by KC, bars the Assignee particular discovery. I conclude that it cannot. The answer lies, as the Assignee said, in the rules governing the conduct of lawyers, which permit the disclosure of confidential information where ‘disclosure is required by law’.⁵

[24] As the Assignee said to KC, he may require by notice under s 171 “any document relating to the bankrupt’s property, conduct or dealings”, and he has the distinct power to examine a KC principal under s 165 to which I have referred. Particular discovery, whether under r 8.20 or r 1.6, must equally displace KC’s general claim to confidentiality.

[25] As to the residual issue concerning the extent of discovery, that ought to be answered by the circumscribed nature of the Assignee’s application. He seeks only to discover when and for what reason the $7.2M deposit recorded in ledger account

4005 first came into KC’s trust account. That may emerge from entries in ledger

53782 or may require disclosure of entries from yet other ledgers.

[26] In any event, once KC files an affidavit of documents any issue about the confidentiality of its trust account ledgers, or of entries within those ledgers, may be assessed concretely as was the case in Port Nelson v Commerce Commission.⁶ At that point also, I envisage, NDNZL will be able to be heard.

Orders

[27] I grant the Assignee’s application for particular discovery in the terms in the draft order filed, and a scale 2B award of costs together with disbursements as fixed by the Registrar.

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Keane J