Hadfield v Legal Services Commissioner [2016] NZHC 1223 (8 June 2016)

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Hadfield v Legal Services Commissioner [2016] NZHC 1223 (8 June 2016)

Last Updated: 18 July 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-198 [2016] NZHC 1223

BETWEEN	MARK RICHARD HADFIELD Appellant
AND	LEGAL SERVICES COMMISSIONER Respondent

Hearing:	8 June 2016
Appearances:	J Noble for Appellant L Hansen for Respondent
Judgment:	8 June 2016

JUDGMENT OF LANG J

_{[on appeal against refusal to grant legal aid]}

This judgment was delivered by me on 8 June 2016 at 4 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

HADFIELD v LEGAL SERVICES COMMISSIONER [2016] NZHC 1223 [8 June 2016]

[1] Mr Hadfield owes a company called The Fish Man Ltd (in liquidation) (The Fish Man) approximately $133,000. The Fish Man, through its liquidators, obtained judgment against Mr Hadfield for that sum and bankrupted him when he could not meet the judgment. The Fish Man then issued another proceeding in this Court in which it seeks an order that Mr Hadfield’s home be vested in it (the vesting

litigation).¹ The Fish Man is also seeking orders that the home be sold and the debt

owing to it be repaid from the proceeds of sale. Mr Hadfield’s wife is a party to the vesting litigation. She seeks declarations relating to her interest in the property under the Property (Relationships) Act 1976 (the PRA).

[2] Mr Hadfield resists the property being sold, and asks the Court to make an order vesting it in him. Mr Hadfield applied for legal aid to fund his defence of The Fish Man’s claim, but the Legal Services Commissioner (the Commissioner) declined his application. The Legal Aid Tribunal dismissed Mr Hadfield’s appeal

against the Commissioner’s decision on 3 February 2016.² Mr Hadfield now appeals

to this Court against that decision.

Background

[3] Mr Hadfield was the sole shareholder and director of The Fish Man. The

Fish Man was placed in liquidation by order of this Court on 4 November 2010.

[4] On 19 August 2011 The Fish Man obtained judgment against Mr Hadfield in the sum of $148,409.96. Mr Hadfield still owes approximately $133,000 of this sum. The Fish Man bankrupted Mr Hadfield on 6 June 2013 after he was unable to pay the debt. Mr Hadfield’s unsecured creditors including The Fish Man are owed approximately $160,000 in total.

[5] When he was adjudicated bankrupt Mr Hadfield was the sole registered proprietor of a property situated at 1/16 Cameron Place, Ranui, Auckland. Mr Hadfield, his wife and family reside in this property and use it as their family home. On 27 November 2013 the Official Assignee disclaimed the property under s 117 of

_{the Insolvency Act 2006. As a result, the property vested in the Crown.}

¹ _{The Fish Man Ltd v Hadfield HC Auckland CIV 2015 404 1612.}

² Hadfield v Legal Services Agency LAT 006/2015.

[6] The Fish Man will contend in the vesting litigation that Mr Hadfield used monies belonging to it to improve the home. It will say that in doing so Mr Hadfield breached his fiduciary obligation to the company, and that the company therefore has a proprietary interest in the property in the form of a constructive trust.

[7] Mr Hadfield has filed a statement of defence to The Fish Man’s claim. He has also filed a counterclaim seeking an order under s 119(2) of the Insolvency Act vesting the property in him on the condition that he pays such sum to The Fish Man as the Court may direct.

[8] Mr Hadfield’s wife is a party to the vesting litigation. She has filed a statement of defence and counterclaim in which she seeks a declaration that she is entitled to one-half of the equity in the property after repayment of the mortgage and, in the alternative, an order under s 20B of the Property (Relationships) Act 2006 (PRA) quantifying the value of her protected interest in the property under that Act.

[9] The Official Assignee is playing no role in the vesting litigation, but has filed a memorandum asking the Court to consider making an order that all of Mr Hadfield’s creditors be paid from the proceeds of sale if the home is sold.

The Legal Aid legislation

[10] Mr Hadfield’s application for legal aid is governed by the Legal Services Act

2011 (the LSA). Under s 10(2) of the LSA, the Commissioner is required to refuse legal aid to an applicant whose income or disposable capital exceeds a prescribed maximum level. Schedule 1 of the LSA defines both “income” and “disposable capital”.

[11] Clause 4(1) of Schedule 1 provides:

(1) Any resources of a person’s spouse or partner must be treated as that person’s resources unless –

(a) The person is living apart from his or her spouse or partner; or

(b) The person and his or her spouse or partner have contrary interests in the matter to which the proceedings relate; or

(c) Regulations provide otherwise.

[12] Clause 4.6 of Schedule 1 provides the following guidance on the issue of when parties may have “contrary interests” in the matter to which the proceedings relate:

(6) Without limiting the ways in which persons may have contrary interest in a matter, person A and person B have a contrary interest in a matter if –

(a) Person A applies for or is granted legal aid in connection with proceedings against person B under the Domestic Violence Act 1995; and

(b) Either –

(i) Person A is a minor and person B is person A’s

parent; or

(ii) Person A is the spouse or partner of person B.

The Tribunal’s decision

[13] The Commissioner considered that Mr and Mrs Hadfield had the same interest in the vesting proceeding because each was endeavouring to ensure that Mr Hadfield’s home was preserved for the use of the family at the expense of Mr Hadfield’s creditors. As a result, the Commissioner considered he was required to take into account Mrs Hadfield’s income and disposable capital in assessing Mr Hadfield’s eligibility for legal aid.

[14] The Tribunal adopted a similar approach. It observed:

[30] The property is being claimed by a creditor of the applicant, but the High Court has recognised that the applicant’s wife has a separate interest and may have a claim to a share.³ The applicant seeks aid to defend the creditor’s claim and preserve whatever share of the property he can achieve, once the mortgage has been repaid.

[31] In the decisions of 15 October and 20 November, the Commissioner declined aid on two grounds:

(a) The applicant is not financially eligible, as his wife’s income

_{and assets exceed the relevant thresholds.}

³ On 3 September 2015 Associate Judge Bell issued a minute in the vesting litigation in which he observed that Mrs Hadfield arguably held an interest in the property and should therefore be separately represented in that proceeding.

(b) Aid is not justified, as the applicant cannot benefit from the proceedings.

[32] I will deal with each of these in turn.

Applicant financially ineligible

[33] The Commissioner must refuse aid to a person whose income or disposable capital exceeds the relevant thresholds prescribed in regulations, unless the Commissioner is satisfied there are special circumstances; section 10(2).

[34] As the applicant is bankrupt, there is no dispute that he would fall under the thresholds, if only his income and asset position were to be considered. However, the Act requires the Commissioner to have regard to the resources of a spouse or partner. Clause 4(1) of Schedule 1 provides:

(1) Any resources of a person’s spouse or partner must be treated as that person’s resources unless –

(a) The person is living apart from his or her spouse or partner; or

(b) The person and his or her spouse or partner have contrary interests in the matter to which the proceedings relate; or

(c) Regulations provide otherwise.

[35] It is not doubted that if the wife’s resources are to be counted, the applicant would exceed the financial thresholds. So, the availability of her resources is critical to determining his eligibility for aid. The applicant is not living apart from his wife, so the issue is whether they have contrary interests.

[36] The Commissioner acknowledges they have separate interests, but contends their interests are not contrary. The applicant says that the Commissioner’s position is not logical. His lawyer points out that the High Court found they had separate interests and considered that the wife should be separately represented. He submits they are contrary interests, as if either increases his or her share in the property, the share of the other will reduce.

[37] It is self-evident that the applicant and his wife have separate interests, but that does not, of itself, answer the question whether those interests are contrary. Both are parties to the proceedings. From an individual perspective, an increase in the share of one reduces the share of the other. However, I regard the objective of each of them as identical. It is to preserve the property for one or the other or both of them, to the exclusion of the applicant’s creditors, the company, its liquidators and its creditors. Neither the applicant nor his wife will be seeking a share of the property to the exclusion of the other, except to the extent that sole ownership of a share is necessary to ward off creditors.

[38] The regime of the Act treats the separate monies and assets of an applicant for aid and his or her spouse as a combined pool, for the purpose of assessing eligibility for aid. That pooling of resources is hat is expected to occur in the great majority of cases. Clause 4(1) is expressed in mandatory terms. The exceptions are limited.

[39] As noted above, there is an exception when they are both parties to the proceedings with contrary interests. The question for me therefore is whether the wife’s separate claim to a share of the property amounts to an interest or claim contrary to that of her husband, such as the normal regime of the Act is displaced. I find that it is not and the normal regime should apply. The reality here is that their interests are the same, since they both seek to defeat creditors of the applicant and/or of the company and preserve the property in the name(s) of one or both of them for their joint use and enjoyment.

[40] According to the lawyer, the wife is paying a significant amount for a lawyer to represent her interests at the imminent hearing (submissions 4 December). I do not regard it as material that she may have to fund both lawyers, if she can afford to do so. It does not make their interests contrary to each other. If in fact she cannot afford to fund her husband’s lawyer, together with her own, that may amount to special circumstances qualifying him for aid’ section

10(2). He could make another application for aid if it is contended there exist special circumstances.

The issue

[15] The issue in the present proceeding is whether the Tribunal was correct to uphold the Commissioner’s decision that Mr and Mrs Hadfield did not have contrary interests in the vesting proceeding. I accept the submission of Ms Hansen for the Commissioner that in the present context the term “contrary interests” means interests that are opposed or completely different.⁴

Approach

[16] I do not consider that the Tribunal’s analysis of the issue of what constitutes a “contrary interest” for the purposes of Clause 4(1) was correct, though it nonetheless arrived at the correct result. The Tribunal’s decision was based on its conclusion that Mr and Mrs Hadfield’s interests were the same because “they both seek to defeat creditors of the applicant and/or of the company and preserve the property in the

_{name(s) of one or both of them for their joint use and enjoyment”.}⁵ _{That conclusion}

⁴ _{Collins New Zealand Dictionary.}

⁵ Hadfield v Legal Services Agency, above n 1, at [39].

was factually incorrect, because Mr Hadfield acknowledges that the Court will require him to pay a specified sum towards the debt owing to The Fish Man before he will be permitted to have the property vested in him. Furthermore, Mrs Hadfield’s claim is not cast in terms that seek the property to be preserved and placed beyond reach of creditors.

[17] More importantly, the Tribunal’s approach amounts to a subjective consideration of the factors motivating the applicant for legal aid and his or her spouse or partner to take steps in a proceeding. I consider that the issue needs to be determined on an objective basis because the subjective approach creates difficulties, not least of which is that the decision can easily be coloured by the personal view of the person responsible for making the decision as to eligibility for legal aid.

[18] I consider that the issue of whether or not spouses or partners hold contrary interests in a proceeding must be determined by comparing their respective legal stances in the proceeding to which the application for legal aid relates. If the claims of one are not opposed or contradicted by the other, the two spouses or partners will not have contrary interests in the proceeding. If they advance opposing or competing claims, however, they will have contrary interests in the proceeding. In that event the Commissioner cannot take into account the means of the other spouse or partner in assessing the applicant’s eligibility for legal aid.

Analysis

[19] Given that background, it is necessary to analyse the respective claims made by Mr and Mrs Hadfield in the vesting litigation. As I have already indicated, Mr Hadfield contends that an order for the sale of the home is not necessary, and that the Court should make an order under s 119(2) of the Insolvency Act 2006 vesting the property in him provided he pays such sums to The Fish Man (and/or others) as the Court may order.

[20] Mrs Hadfield’s stance in the vesting litigation is different. She does not support or resist The Fish Man’s claim that the property be vested in it and then sold. Nor does she support or oppose her husband’s claim for the property to be vested in him. Instead, Mrs Hadfield asks the Court for a declaration that she is entitled to

one-half of the equity in the property after taking into account the mortgage. Alternatively, she asks the Court to define and quantify the protected interest that she holds in the property under s 20B of the PRA.

[21] Section 20B of the PRA provides a spouse or partner with a protected interest in the family home when the other spouse or partner is adjudicated bankrupt. With two exceptions, the protected interest is not liable for the unsecured debts of the bankrupt spouse or partner. The exceptions are where the unsecured debts were incurred by the spouses or partners jointly, and where they were incurred by the bankrupt spouse or partner for the purpose of acquiring, improving or repairing the family home.

[22] In the present case Mrs Hadfield’s protected interest under s 20B will be the lesser of the specified sum (currently $103,000) or one-half of the equity in the home.⁶ The evidence suggests that the property is currently worth approximately

$430,000, and the mortgage secures advances of approximately $162,000. If these figures are correct, Mr Hadfield presently holds equity in the property to the value of approximately $258,000. One half of this sum is $129,000. As a result, Mrs Hadfield’s protected interest in the property under s 20B is likely to be $103,000, being the lesser of the specified sum and one-half of the value of the equity held by her husband in the property.

Decision

[23] During the hearing Mr Noble on Mr Hadfield’s behalf tried to persuade me that Mr and Mrs Hadfield had contrary interests in the proceeding because the amounts they would receive will differ according to whether or not The Fish Man succeeds in its claim. I agree with that submission as far as it goes, but it does not answer the question of whether or not Mr and Mrs Hadfield have contrary interests in the proceeding.

[24] I have concluded that Mr and Mrs Hadfield do not have contrary interests in the vesting litigation because neither party is opposing the claim made by the other.

⁶ Property (Relationships) Act 1976, s 20B(3)(a).

Mrs Hadfield is seeking declarations as to her entitlement under the PRA, but she is not opposing her husband’s claim. Mr Hadfield is seeking to have the home vested in him, but he is not opposing the orders that his wife seeks. For that reason Mr and Mrs Hadfield do not have contrary interests in that proceeding.

Result

[25] The appeal against the decision of the Tribunal is dismissed.

Costs

[26] Mr Noble advises me that Mr Hadfield is legally aided in respect of the present proceeding. For that reason I make no order as to costs at this stage. If the Commissioner wishes to take that issue further, Ms Hansen should file a short memorandum setting out the orders the Commissioner seeks within the next 21 days.

_{I will then set a timetable for Mr Noble to file submissions in response.}

Lang J

Solicitors: