OFFICIAL ASSIGNEE v MATETE [2014] NZHC 1685

OFFICIAL ASSIGNEE v MATETE [2014] NZHC 1685 [18 July 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2014-404-955[2014] NZHC 1685BETWEEN OFFICIAL ASSIGNEE in the bankruptcyof the property of Chris Heta MateteApplicantAND CHRIS HETA MATETEFirst RespondentROBYN MARGARET MATETESecond RespondentHearing: 16 July 2014Appearances: G Caro for ApplicantA W Johnson and M Beattie for RespondentJudgment: 18 July 2014JUDGMENT OF LANG J[on application for directions under s 225 of the Insolvency Act 2006]This judgment was delivered by me on 18 July 2014 at 2.30 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate[1] The sole issue in this proceeding is whether a redundancy payment received by a bankrupt during the term of the bankruptcy vests in the Official Assignee and isthereby available for distribution to creditors.Background[2] Mr Matete was adjudicated bankrupt on 24 June 2011.1 At the time of his adjudication, he was employed by a major airline in its Technical Operationsdivision. Mr Matete's position was subsequently disestablished, and he ceased to beemployed by the airline as from 28 June 2013. On that date he received the net sum of $91,760.86, comprising a redundancy payment of $66,146.42 and final remuneration in the sum of $25,614.44.[3] The Official Assignee initially made a claim in respect of the whole of thepayment that Mr Matete received. Subsequently, however, the Official Assigneeaccepted that Mr Matete's wife should receive a sum equivalent to one-half of thepayment. The Official Assignee made that decision in exercise of his discretionunder s 163 of the Insolvency Act 2006 ("the Act"). This section permits theAssignee to make an allowance out of the bankrupt's property to any relative ordependant of the bankrupt for the support of any such person.[4] During the hearing, counsel for Mr Matete accepted that the remunerative component of the payment vested in the Official Assignee. The only remaining issueis therefore whether the balance of $33,073.21 also passed to the Assignee. TheOfficial Assignee seeks a direction under s 225 of the Act that he is entitled toproceed on the basis that it did.The legislative scheme[5] Section 102(1) of the Act provides as follows:102 Status of property acquired during bankruptcy1 Mr Matete was discharged from bankruptcy on 24 June 2014, but that fact does not affect theissue decided in this proceeding.(1) Between the commencement of bankruptcy and discharge of the bankrupt,—(a) all property (whether in or outside New Zealand) that the bankrupt acquires or that passes to the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; and(b) the powers that the bankrupt could have exercised in, over, or in respect of that property for the bankrupt's own benefit vest in the Assignee.[6] The Act contains an extremely wide definition of property:2property means property of every kind, whether tangible or intangible, real or personal, corporeal or incorporeal, and includes rights, interests, and claims of every kind in relation to property however they arise[7] There is no dispute that the redundancy payment falls within the definition of"property" for the purposes of the Act. For that reason, there could ordinarily be no dispute that it vested in the Official Assignee by virtue of s 102(1) of the Act.Importantly, however, s 105(2) of the Act provides as follows:105 Effect of other laws(2) Sections 101 to 104 do not affect the operation of any other law that prevents any property from vesting in the Assignee.[8] Mr Matete contends that the redundancy payment falls within a recognised common law exception to the vesting regime prescribed by the Act. He contends that the payment was made on a basis that was purely personal to him, and that it therefore falls outside that regime.The common law exception[9] It is now well recognised that certain causes of action do not pass to theOfficial Assignee upon adjudication. Generally speaking, these relate to causes ofaction seeking damages for bodily injury or injury to reputation. The exception has2 Insolvency Act 2006, s 3.its genesis in cases such as Ex parte Vine, In re Wilson, in which damages obtainedprior to bankruptcy in an action for slander were held not to pass to the bankrupt'strustee.3[10] In Howard v Crowther, an action in tort for damages arising out of the alleged seduction of a servant, Lord Abinger C.B. said:4Nothing is more clear than that a right of action for an injury to the property of the bankrupt will pass to his assignees; but it is otherwise as to an injury to his personal comfort. Assignees of a bankrupt are not to make a profit ofa man's wounded feelings; causes of action, therefore, which are, as in this case, purely personal, do not pass to the assignees, but the right to sue remains with the bankrupt.[11] The policy underlying the exception was subsequently explained by Erle J inBeckham v Drake as follows:5The skill and labour of an industrious man are in the nature of his stock in trade; they would in general be the source of a continuous profit, which could be foreseen, and might be prudently relied on as a ground for giving credit, and the creditors therefore have reason for saying that the benefit of all contracts relating to that source of value, on which they may have relied when they gave credit ought to pass to them. At all events, the reason assigned in deciding some of the cases to be within the exception does not apply, namely, that the creditors cannot legitimately have looked to the pain of the bankrupt from a broken limb, or wounded affection, or blasted character, as a source of profit, they being in their nature casual and unforeseen, and unconnected immediately with property. There is a manifestdistinction between damages from such sources as these last mentioned anddamages in respect of contracts for labour, which is the ordinary andconstant lot of a large portion of society.[12] To similar effect, in Stanton v Collier Lord Campbell CJ observed:6The rule which is to be deduced from Beckham v Drake and Wetherell v Julius7 is that if a cause of action is disclosed which touches only the person of the bankrupt or insolvent it does not pass to the assignees, but that if it touches his estate it does pass to them.3 Ex parte Vine, Re Wilson (1878) 8 Ch. D. 364.4 Howard v Crowther (1841) 5 Jur 914, 151 ER 1179.5 Beckham v Drake (1849) 2 HL Cas 579 at 608-9.6 Stanton v Collier (1854) 23 LJ 116 at 119.7 Wetherell v Julius (185) 10 CB 276, 138 ER 108.[13] In Wilson v United Counties Bank Ltd, a bank had agreed to supervise the financial affairs of one of its clients.8 The client had subsequently been forced into bankruptcy. The bankrupt client and his trustee then jointly sued the bank and its manager in negligence, and obtained an award of damages from a jury at first instance. The award was set aside by the Court of Appeal, and the plaintiffs appealed to the House of Lords. After discussing the principles emerging from earlier cases, including Ex parte Vine, Lord Atkinson observed:9In the present case by parity of reasoning it would seem to follow that the negligence of the defendants gave rise to two distinct cause of action, theone consisting of injury to the bankrupt's estate, the other personal andconsisting of injury to his character, credit and repute; the first passing to his trustee, the second remaining vested in himself. If that be so, independent actions could have been instituted against the defendants, the one by the trustee the other by the bankrupt; each claiming damages in respect of the right of action vested in him. I do not think any insurmountable difficulty is created in the present case by the fact that both sue as plaintiffs, since the damages to which they are respectively entitled have been separately found.[14] More recently, in Heath v Tang, Hoffman LJ described the ambit of the exception in the following terms:10The property which vests in the trustee includes "things in action": seesection 436. Despite the breadth of this definition there are certain causes ofaction personal to the bankrupt which do not vest in his trustee. Theseinclude cases in which "the damages are to be estimated by immediatereference to pain felt by the bankrupt in respect of his body, mind, orcharacter, and without immediate reference to his rights of property": seeBeckham v Drake (1849) 2 H.L. Cas. 579, 604, per Erle J and Wilson vUnited Counties Bank Ltd [1920] A.C. 102. Actions for defamation andassault are obvious examples. The bankruptcy does not affect his ability tolitigate such claims. But all other causes of action which were vested in thebankrupt at the commencement of the bankruptcy, whether for liquidatedsums or unliquidated damages, vest in his trustee. The bankrupt cannotcommence any proceedings based upon such a cause of action and if theproceedings have already been commenced, he ceases to have sufficientinterest to continue them.[15] In Ord v Upton, a bankrupt issued proceedings against a doctor claimingdamages for both pain and suffering and loss of earnings allegedly caused by negligent treatment prior to the bankrupt's adjudication.11 The English Court of8 Wilson v United Counties Bank Ltd [1920] A.C. 102 (HL).9 At 131.10 Heath v Tang, [1993] 1 WLR 1421 (CA) at 1423.11 Ord v Upton [2000] Ch 352(CA).Appeal held that although the single cause of action in negligence fell within thebankrupt's estate, the trustee held it on remedial constructive trust for the bankrupt tothe extent that it comprised a claim for damages for pain and suffering.[16] The existence of the principle has also been recognised in New Zealand.12This case[17] Counsel for Mr Matete contends that the airline made the redundancy payment as compensation for the inconvenience and hurt that Mr Matete would inevitably suffer when he was made redundant. He argues that the payment should therefore be regarded as coming within the common law exception because itamounts to "compensation for a personal loss, arising from a personal injury orinconvenience".[18] There is no doubt or dispute that Mr Matete's former employer made theredundancy payment to compensate Mr Matete for the fact that he was losing his opportunity to remain as an employee. This underlies the Official Assignee'sconcession that the payment cannot be regarded as earnings or remuneration.13 That concession does not, however, answer the more fundamental question of whether the payment falls within the relatively narrow exception recognised by the common law upon which Mr Matete relies.[19] I consider the determinative factor in the present case to be the source from which Mr Matete derived the right to receive the payment. That right did not arise out of a claim by Mr Matete for damages in tort in relation to an injury to his person or reputation. Rather, it arose because the terms of his employment were governed by a collective employment agreement that his trade union had entered into with the airline on 23 October 2012. The agreement prescribed what was to occur in the event that any person covered by the agreement was to be made redundant. It also prescribed the formula that was to be used to calculate redundancy compensation payments. This was based solely upon the number of years of current continuous12 Timmings v Treadgold [1923] NZLR 73 (SC) at 75-76; In re Richter [1929] NZLR 364 (SC) at 365; Official Assignee v Dowling [1964] NZLR 578 (SC) at 582.13 Re New Zealand Seafarer's Union Retirement and Welfare Plans (1996) 1 ERNZ 259 (HC) at 270.service the recipient of the payment had provided to the airline. Mr Matete's right to receive the redundancy payment was therefore a contractual right to receive a specified sum upon the occurrence of a nominated event, namely redundancy. It is not equivalent to a sum paid in settlement of an existing dispute.[20] The facts of the present case have some similarity to those in Cork v Rawlins.14 In that case, a landscape gardener had taken out two insurance policies under which he acquired the right to receive lump sum payments in the event that he became permanently disabled so as to be unable to work. The purpose of the policies was to ensure that the insured had sufficient funds to repay a loan he had obtained from a building society. The insured subsequently suffered an injury that prevented him from working, and lodged claims with the insurer seeking to be paid the benefits to which he was entitled under the policies. The insurer ultimately accepted the claims, but not until after the insured had been adjudicated bankrupt. The trustee then sought a declaration that the payments formed part of the bankrupt'sestate.[21] The bankrupt's counsel argued that the insurance payments were conditional upon the bankrupt's disability, and were therefore also conditional upon his pain andsuffering. He contended that the circumstances giving rise to the payment were therefore so inherently linked to the pain and suffering of the bankrupt that it would be inequitable and contrary to the principles underpinning the insolvency legislation for the payment to be appropriated by the trustee for the benefit of the bankrupt'screditors.[22] The English Court of Appeal rejected this submission. Peter Gibson J noted the absence of any authority supporting the submission.15 He also referred with approval to Beckham v Drake, including the following passage in which Erle J used two examples to demonstrate the significance in the present context of a contractual right to receive a sum of money:1614 Cork v Rawlins [2001] Ch 792 (CA).15 At 799.16 Beckham v Drake, above n 5 at 605."Thus, in respect of promise, the assignees of a patient, if bankrupt, couldnot sue a surgeon for a breach of his promise to use due care in treating a wound, because the damages are assessed by reference to bodily annoyance; but the assignees of the same surgeon, if bankrupt, might sue the patient on his promise to pay remuneration for attendance, because the promise relates to property; and the assignees of a bankrupt could not sue on a breach of promise to marry, but the same assignees might, in my judgment, for the same reason, sue for a breach of promise to pay a given sum in case of refusing, on request, to complete a contract of marriage.The substance of the promise, then, for the breach of which this action was brought, relates immediately to the property of the bankrupt, being thepayment of money." [23] Peter Gibson J also referred17 to the following passage from the judgment of Maule J in Beckham v Drake:18There is no doubt that the right to bring an action for an injury to the person, character, or feelings of a bankrupt, does not pass to the assignees, and that the right to bring an action for the payment of money agreed to be paid to the bankrupt does pass. And it appears to me that the present action is in effect an action on a contract to pay money.[24] There are obviously differences between the facts in the present case and those in Cork v Rawlins. In particular, Mr Matete did not acquire the right to receive the redundancy payment by paying premiums that would otherwise have fallen intohis estate and therefore been available for his creditors. Nor can Mr Matete's rightsunder the collective employment agreement realistically be regarded as assets in the same way that an insurance policy can be viewed as an asset. I do not consider, however, that these differences detract from the general principles to be taken from the case. The most important of these for present purposes is that a contractual rightto receive a payment constitutes property that will fall into a bankrupt's estate. Itdoes so because, as the authorities referred to above demonstrate, such a righttouches the bankrupt's estate and not his person or reputation.[25] This principle is wholly consistent, in my view, with the policy considerations identified in the passage from Beckham v Drake set out above.19 In electing to deal with Mr Matete, his creditors no doubt relied at least in part upon the17 Cork v Rawlins, above n 14 at 800.18 Beckham v Drake, above n 5 at 621-622.19 At [11].fact that he had been gainfully employed by the airline for many years. The fact of that employment would have reassured creditors that Mr Matete had a reliable source of regular income from which he could meet his financial obligations. If he was to lose that employment and receive compensation as a consequence, the creditors would be justified in expecting that the compensation would be available to meet those obligations.[26] Had Mr Matete received the payment before he went bankrupt, there would have been nothing to prevent creditors levying execution against it. The fact that Mr Matete was adjudicated bankrupt before he received the payment should not prevent his creditors from now having resort to it through the Official Assignee. Chadwick LJ made the same point in Cork v Rawlins, when he said:20The policy moneys are not now required to repay the building society loan. That loan has been repaid out of other assets. But the policy moneys arerequired for the payment of Mr Rawlins's creditors generally. If they had been received or had become payable before the bankruptcy order was made, there is no doubt that they could – and probably would – have been used for that purpose. The creditors could have taken steps to ensure that they were; by obtaining a garnishee order or a charging order over the right to receive the moneys from the building society. There is no reason in principle why the position should be different once the bankruptcy order has been made. The right of payment was purchased so as to provide for the discharge of MrRawlins's indebtedness to a particular creditor; and, that creditor havingbeen paid out of other moneys which would otherwise have come into thebankrupt's estate, there is no hardship in requiring that the right to paymentfalls into the estate for the benefit of creditors generally.[27] I therefore agree with the submissions for the Official Assignee. I do not accept that the redundancy payment falls within the recognised common law exception to the vesting provisions of the Insolvency Act 2006.Result[28] It follows that the redundancy payment vested in the Official Assignee by virtue of s 102(1) of the Act, and is available for distribution to Mr Matete'screditors. I make a direction under s 225 of the Act that the Official Assignee is entitled to deal with it accordingly.20 Cork v Rawlins, above n 14 at 803.Costs[29] The Official Assignee is the successful party, and as such would ordinarily be entitled to an award of costs on a Category 2B basis. If counsel cannot reach agreement regarding costs, they should file brief memoranda (no more than five pages in length) and I will deal with the issue of costs on the papers.Lang JSolicitors:Ministry of Business, Innovation and Employment, Auckland