THE FISH MAN LIMITED (IN LIQUIDATION) v HADFIELD [2017] NZCA 589

THE FISH MAN LIMITED (IN LIQUIDATION) v HADFIELD [2017] NZCA 589 [14 December 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA432/2016[2017] NZCA 589BETWEEN THE FISH MAN LIMITED (INLIQUIDATION)AppellantAND MARK RICHARD HADFIELDFirst RespondentHALEY PETRINA HADFIELDSecond RespondentHearing: 5 September 2017Court: Asher, Courtney and Gendall JJCounsel: K H Morrison and G A Campbell for AppellantJ D Noble for First RespondentA R B Barker QC as Counsel to assist the CourtJudgment: 14 December 2017 at 11 amJUDGMENT OF THE COURTA The appeal in relation to the substantive orders and directions made byFogarty J is dismissed.B The appeal against the costs orders made by Fogarty J is allowed.C The orders that the liquidators pay the costs of counsel assisting and thefirst respondent are quashed.D The costs awarded to the first respondent in the High Court are to be paidby the appellant.E The costs of the second respondent in the High Court, in the sum of$4,484.41, are to be paid by the appellant.F The appellant must pay the first respondent costs for a standard appealon a band A basis and usual disbursements.G The costs of counsel assisting in both the High Court and this Court are tobe paid out of public funds under s 99A(1)(b) of the Judicature Act 1908.H The determination of the final vesting orders to be made is remitted backto the High Court, to be determined in accordance with Fogarty J'sjudgment.___________________________________________________________________REASONS OF THE COURT(Given by Asher J)Table of ContentsPara NoIntroductionBackgroundThe claims in briefHigh Court judgmentClaim that The Fish Man has suffered a loss under s 119The effect of disclaimerLoss or damageWhen is loss or damage assessed?Conclusion on loss or damageApplication of ss 290 and 304(1) of the ActThe Fish Man's proprietary claimsConstructive trustAn equitable lienConclusion on proprietary interestSubrogationMr and Mrs Hadfield's claimsMr Hadfield's claimMrs Hadfield's claimCostsThe costs of Mrs Hadfield and counsel assistingMr Hadfield's costsResult[1][3][16][24][27][28][38][42][49][50][56][60][74][78][79][82][85][86][93][94][98][104]Introduction[1] This appeal concerns a residential property at 1/16 Cameron Place, Ranui,Auckland (the Property). The first respondent, Mr Hadfield, purchased the Propertyin 2004 with the help of a mortgage. Mr Hadfield was adjudicated bankrupt on6 June 2013. Five months later the Official Assignee (the Assignee) formed the viewthat, taking into account the mortgage sum, the Property had no net value. On27 November 2013 the Assignee formally disclaimed the Property. Now, followingthe property value boom of the last three years, the Property has acquired a significantnet value. Each of the parties to this appeal claims the benefit of that increase in value.[2] There are two broad issues. First, there is a claim by the appellant,The Fish Man Ltd (in liq) (The Fish Man), that, as a creditor of Mr Hadfield, it hassuffered loss or damage as a result of the disclaimer by the Assignee. This involvesthe interpretation of s 119 of the Insolvency Act 2006 (the Act). Second, The Fish Manclaims that, irrespective of any loss or damage arising from the disclaimer, it has aproprietary interest in the Property. The case has some factual and legal complexity,given the intersection of personal insolvency and company insolvency principles, anda claim to a proprietary interest where there are relevant conflicting High Courtdecisions.Background[3] On 6 March 2003 The Fish Man was incorporated by Mr Hadfield.Mr Hadfield was The Fish Man's sole director and shareholder. On 1 September 2004Mr Hadfield purchased the Property. A registered mortgage was granted to theASB Bank Ltd (ASB). On 10 March 2008 that mortgage was replaced by a registeredmortgage to the ANZ National Bank Ltd (ANZ).[4] The Fish Man raised and sold ornamental fish from the Property. There were14 fish tanks with tropical fish installed throughout the house (which subsequentlyleaked and caused rot). A room in the house was used as an office and activities in thehouse appear to have been tailored to fit in around the business.[5] Mr Hadfield commenced a relationship with the second respondent,Mrs Hadfield, in May 2006 and they were married on 6 December 2009. Mrs Hadfieldsays she has paid half the necessary mortgage payments on the Property fromJuly 2006, and all of them since July 2013. Mr and Mrs Hadfield have been living inthe Property throughout, and continue to do so.[6] On Mr Hadfield's uncontested account of events, The Fish Man went intodecline after he suffered an injury and the business had to take on an employee. TheFish Man fell behind in its PAYE tax and GST obligations. The liquidators claim thatby 31 August 2010 there was a PAYE debt of $77,242, comprising PAYE owed,penalties and interest. By July 2010 there was also a GST debt of $66,633.82, whichalso comprised original debt, penalties and interest.[7] The Fish Man was placed into liquidation on 3 November 2010. Henry Levinand Vivien Madsen-Ries, insolvency specialists of the accountancy firm DeloitteNew Zealand, were appointed as joint and several liquidators of The Fish Man.[8] The liquidators alleged that, at the same time that the PAYE and GST debtswere accruing, The Fish Man made payments to or for the benefit of Mr Hadfieldtotalling $119,292. It alleged that Mr Hadfield applied $9,125 of that sum to themortgage to ASB and $29,572 to the mortgage to ANZ. The rest of themisappropriated monies were said to have been used for the general benefit of Mr andMrs Hadfield. On 20 June 2011 The Fish Man commenced proceedings in theDistrict Court at Auckland against Mr Hadfield for $142,762: $119,292 formisappropriated funds, plus $23,470 for a debt owed by Mr Hadfield that had beenrecorded in The Fish Man's financial statements for the year ending 31 March 2009.A default judgment was obtained for that amount on 19 August 2011(the District Court judgment). Mr Hadfield made payments towards this debt totalling$14,988.41. On 6 June 2013 Mr Hadfield was adjudicated bankrupt on the applicationof The Fish Man. The Fish Man filed an unsecured creditor's proof of debt for$133,457.85.[9] Mr Hadfield had worked full-time for The Fish Man, but he claimed that hewas not paid an employee salary. However, The Fish Man's financial records statethat he was paid a modest director's salary. Mrs Hadfield was working full-time for athird party throughout the period of The Fish Man's operation. It seems that theaccounts and affairs of The Fish Man were run in a chaotic manner, and Mr Hadfieldwas unable to provide a coherent account of what occurred. He claimed that hepersonally funded much of the expenses of The Fish Man without remuneration.[10] Mr Hadfield has deposed in defence of his actions that the mortgage paymentswere taken for drawings and rent owed to him for the business's use of the Propertyand expenditure he had met personally. The liquidators contest this and say thatThe Fish Man had separately accounted for rent. Given the District Court judgmentagainst Mr Hadfield and his bankruptcy, there is no need to determine whetherMr Hadfield had any defences to The Fish Man's claim.[11] On 23 November 2011 The Fish Man registered a charging order against theProperty, reflecting the District Court judgment. A caveat that had been lodged earlierwas withdrawn given that the charging order was for a greater sum. However, afterMr Hadfield was adjudicated bankrupt The Fish Man re-lodged a caveat over the titleto the Property asserting a cestui que trust: Mr Hadfield as trustee had allegedlybreached his fiduciary duty as a director by applying funds belonging to The Fish Manin part payment of mortgage principal.[12] In an important event which gives rise to the current dispute, on27 November 2013, approximately five months after Mr Hadfield was adjudicatedbankrupt, the Assignee gave written notice disclaiming the Property under s 117 ofthe Act. On disclaimer the Assignee and Mr Hadfield ceased to have an interest in theland, and, as we will discuss,1 it passed to the Crown. However, the title remained inMr Hadfield's name, and he and Mrs Hadfield continued to live there.[13] No specific reason for the disclaimer was recorded in the formal notice andthere is no affidavit from the Assignee. However, the Assignee confirmed in amemorandum to the High Court that at the time of the disclaimer there was no equityin the Property. The liquidators have now produced a valuation of the Property of$430,000 as at 5 November 2015, two years after the disclaimer, which indicated thatby then there was a significant equity. On 13 July 2015 The Fish Man commenced theproceedings that give rise to the present appeal.[14] The District Court judgment against Mr Hadfield has not been satisfied.The Fish Man was therefore a creditor of Mr Hadfield in his bankruptcy prior to his1 At [33]–[36] below.discharge in the amount of $133,457.85. The names of the other creditors have notbeen disclosed but they totalled $15,018.44.[15] Mr Hadfield was automatically discharged from bankruptcy on 27 June 2016under s 290 of the Act.The claims in brief[16] The power of the Assignee to disclaim onerous property of the bankrupt iscontained in s 117 of the Act, which provides:117 Assignee may disclaim onerous property(1) Subject to section 120, the Assignee may disclaim onerous property.(2) Subsection (1) applies even if the Assignee has taken possession ofthe property, tried to sell it, or otherwise exercised rights of ownershipin relation to it.(3) The Assignee must, within 10 working days after the disclaimer, senda written notice of the disclaimer to every person whose rights are, tothe Assignee's knowledge, affected by it.(4) For the purposes of this section and section 120, onerous property—(a) means—(i) an unprofitable contract; or(ii) property of the bankrupt that is unsaleable, or notreadily saleable, or that may give rise to a liability topay money or perform an onerous act; or(iii) a litigation right that, in the opinion of the Assignee,has no reasonable prospect of success or cannotreasonably be funded from the assets of thebankrupt's estate; but(b) does not include—(i) a netting agreement to which sections 255 to 263apply; or(ii) any contract of the bankrupt that constitutes atransaction under that netting agreement.[17] The disclaimer in this case was presumably based on the second part ofs 117(4)(a)(ii). The Property was subject to a mortgage and other liabilities, and hadno equity.[18] The effect of the disclaimer is set out in s 118 of the Act:118 Effect of disclaimerA disclaimer by the Assignee—(a) brings to an end, on and from the date of the disclaimer, therights, interests, and liabilities of the Assignee and thebankrupt in relation to the property disclaimed:(b) does not affect the rights, interests, or liabilities of any otherperson, except in so far as is necessary to release the Assigneeor the bankrupt from a liability.[19] Section 119 is the key provision in the present case:119 Position of person who suffers loss as result of disclaimer(1) A person suffering loss or damage as a result of disclaimer by theAssignee may—(a) claim as a creditor in the bankruptcy for the amount of the lossor damage, taking account of the effect of an order made bythe court under paragraph (b):(b) apply to the court for an order that the disclaimed property bedelivered to, or vested in, that person.(2) The bankrupt may also apply for an order that the disclaimed propertybe delivered to, or vested in, the bankrupt.(3) The court may make an order under subsection (1)(b) or (2) if it issatisfied that it is fair that the property should be delivered to, orvested in, the applicant.[20] The Fish Man seeks orders under s 119(1)(b) of the Act vesting the Property init so that it may be sold and the proceeds applied in the following order:(a) payment of the costs of sale and court proceedings;(b) payment of the amount secured by the mortgage;(c) payment to The Fish Man up to $133,457.85; and(d) any surplus to be applied as the Court thinks appropriate.[21] It seeks those orders on the basis that it suffered loss or damage as a result ofthe disclaimer to an extent that it is fair, in terms of s 119(3), that the Property bevested in it. In the alternative, it claims a proprietary interest in the land by virtue ofa constructive trust, equitable lien, or by subrogation, created when themisappropriated company funds were used to repay part of the mortgages over theProperty. The Fish Man contends that this proprietary interest continued irrespectiveof any disclaimer by the Assignee.[22] Mr and Mrs Hadfield also rely on s 119 of the Act. Mr Hadfield seeks an orderthat the Property vests in him, relying on ss 119(2) and (3). Mrs Hadfield in hersubmissions on appeal (although it was not pleaded in the High Court), seeks an orderthat the Property vests in her under s 119(1)(a) and (3). There has been no objectionto her seeking that relief on appeal. Mrs Hadfield, in her counterclaim in theHigh Court, based her claim on the Property (Relationships) Act 1976 (PRA) andsought a declaration that she was entitled to half the equity in the Property, and anorder defining her protected interest under s 20B of the PRA. The appeal also raisescosts issues that we will refer to later in this judgment.2[23] The Fish Man asserts that s 304(1) of the Act, which provides that a bankruptis released from all debts provable in the bankruptcy upon discharge, does notdisentitle it from seeking relief under s 119 following Mr Hadfield's discharge frombankruptcy.High Court judgment[24] Mrs Hadfield had been initially represented, but was not able to afford counselfor the trial in the High Court. Prior to the hearing Fogarty J appointed Mr Barker QCas counsel to assist the Court. That appointment was continued in this Court.3 Hisrole was to assist the Court generally, and advance any arguments that could properlybe made on behalf of Mrs Hadfield.2 At [93]–[103] below.3 The Fish Man Ltd (in liq) v Hadfield CA432/2016, 13 February 2017 (Minute of Randerson J).[25] In a judgment dated 29 July 2016, Fogarty J held that The Fish Man had noclaim to the Property under s 119 of the Act.4 He determined that Mr Hadfield couldmake a claim for the Property to be vested in him by reason of s 119(2) of the Act.He also stated that Mrs Hadfield had a "substantial argument" for a half share in theProperty.5 He granted leave for Mr and Mrs Hadfield to file submissions on how theywould like the title to be configured either for them "jointly, or one of them or theother, and possibly as to separate portions".6 Failing any agreement he favouredre-vesting the home in both Mr and Mrs Hadfield in equal shares.[26] He awarded costs to Mr Hadfield against "the liquidator".7 Mr Barker's costswere also to be paid by "the liquidator".8 He stated that the principal creditor ofThe Fish Man was the Inland Revenue Department and the litigation had effectivelybeen brought by The Fish Man, in the public interest, by the Commissioner of InlandRevenue.9Claim that The Fish Man has suffered a loss under s 119[27] The Fish Man claims that, irrespective of whether it has a proprietary interestin the Property, under s 119(1) of the Act it suffered "loss or damage" as a result of thedisclaimer by the Assignee. It claims that it is fair that the Property be vested in it andsold to meets its unpaid debt. Ms Morrison submitted on behalf of The Fish Man that,had the Property not been disclaimed, The Fish Man would have been entitled to ashare in any distribution from its sale, given that Mr Hadfield still owed it $133,457.85of the District Court judgment debt. The consequence of the disclaimer was that therewas no prospect of any distributions for creditors of the bankruptcy. The ability toclaim in the future was lost.The effect of disclaimer[28] We have set out ss 117–119 of the Act. There is nothing to stop a creditor whohas lodged a proof of debt in a bankruptcy from claiming loss or damage arising from4 The Fish Man Ltd (in liq) v Hadfield [2016] NZHC 1750, [2016] NZAR 1198.5 At [98].6 At [99].7 At [101].8 At [102].9 At [102].a disclaimer. Ms Morrison submitted that the Court, in assessing The Fish Man's lossunder s 119(1), must carry out that assessment at the time the proceeding seeking avesting order was filed. It was argued that the sole qualifying condition was whetherThe Fish Man had suffered loss as a result of a disclaimer at the time of filing.[29] We must bear in mind the context in which the Assignee's power to disclaimonerous property under s 117(1) arises. Under s 101(1)(a) of the Act all propertybelonging to the bankrupt vests in the Assignee without the Assignee having to takeany steps. Under s 101(1)(b) all the bankrupt's powers in respect of the property alsovest in the Assignee. Under s 104 property held by the bankrupt on trust for anotherperson does not vest in the Assignee.[30] The disclaimer provisions are designed to facilitate the winding up of thebankrupt's affairs. Disclaimer is often utilised in relation to a bankrupt's propertywhich is valueless, or after secured liabilities has no value and which may give rise toa liability to pay money or perform any other onerous act.10 Unprofitable contractsand property burdened with onerous obligations can be disposed of. A commoninstance of disclaimer is where onerous leases of premises that are no longer requiredare disclaimed. There is no time limit on the Assignee making the disclaimer.11[31] The consequence of the Assignee ending his or her rights to the propertyfollowing the disclaimer is that the bankrupt also no longer has any rights in respectof it. As s 118(a) states, the interests and liabilities of both the Assignee and thebankrupt in relation to the property come to an end. The bankrupt cannot be freedfrom his or her liabilities and yet keep the property. But there may be other personswho are affected by the disclaimer. It was stated by the House of Lords inHindcastle Ltd v Barbara Attenborough Associates Ltd in relation to the equivalentEnglish provision:12Disclaimer will, inevitably, have an adverse impact on others: those withwhom the contracts were made, and those who have rights and liabilities inrespect of the property. The rights and obligations of these other persons areto be affected as little as possible. They are to be affected only to the extent10 Hindcastle Ltd v Barbara Attenborough Associates Ltd [1997] AC 70 (HL) at 86.11 Contrary to the position under s 75(1) of the Insolvency Act 1967, where disclaimer had to occurwithin one year of adjudication.12 Hindcastle Ltd v Barbara Attenborough Associates Ltd, above n 10, at 87.necessary to achieve the primary object: the release of the company from allliability. Those who are prejudiced by the loss of their rights are entitled toprove in the winding up of the company as though they were creditors.[32] The Act clearly contemplates the disclaimer of land. The property that may bedisclaimed is the property of the bankrupt which had vested in the Assignee onbankruptcy under s 101. Under s 3 "property" includes real property. There is nothingin the Act to prevent disclaimer of mortgaged land.13[33] Section 118 does not address the issue of who takes title to the disclaimed asset.The issue may not arise where the asset is in the nature of a leasehold interest inabandoned premises, but it assumes importance in a case like this where the asset wasreal property owned by the bankrupt that appreciates or otherwise becomes of value.The Land Transfer Act 1952 makes no provision for what happens to title upondisclaimer.[34] In Australia and England courts have commented on the difficulty of decidingwho takes title.14 Fortunately in New Zealand the issue was fully considered byFisher J in Rural Banking and Finance Corporation of New Zealand Ltdv Official Assignee.15 In the process of a careful analysis with which we agree, FisherJ noted that a disclaimer operates to extinguish both the rights and liabilities of thebankrupt and the Assignee relating to the property disclaimed.16 Under the doctrineof tenure, the Crown has at all times been the continuous owner of the land itself, andonce the fee simple estate of the registered proprietor is terminated by the disclaimer,the use of the land reverts to the Crown and its residual ownership continues.17 Heobserved:18With few exceptions, Crown grants of land are now recorded under theTorrens system for registering title to the appropriate estate pursuant to theLand Transfer Act 1952. Nevertheless the title secured to a registeredproprietor under the Land Transfer Act is still no more than title to whateverform of estate is held by the registered proprietor in that land, eg, as in this13 See Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee [1991] 2NZLR 351 (HC) at 354.14 National Australia Bank Ltd v New South Wales [2009] FCA 1066, (2009) 182 FCR 52 at [18]–[25]; and Re Mercer and Moore (1880) 14 Ch D 287 at 295–296.15 Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee, above n 13.16 At 355.17 At 356.18 At 356.case, an estate in fee simple. The underlying concept of tenure remains. Oncethe estate in fee simple has terminated, use of the land reverts to the Crown.In strict theory the Crown has at all times been the continuous owner of theland itself.[35] From the time of the disclaimer the bankrupt registered proprietor ceases tobeneficially own the land. If, as here, the Crown has taken no formal steps and thebankrupt remains the registered proprietor, the bankrupt holds title as trustee for thebenefit of the Crown. Therefore, in the present case, at the moment of disclaimerbeneficial ownership of the Property vested in the Crown, despite the fact thatMr Hadfield is still the registered proprietor and continues to live there withMrs Hadfield. Any conceptual difficulties concerning the Crown's ownership of thisland do not give rise to direct problems in this case.[36] The parties to this appeal have correctly assumed that the Property vested inthe Crown upon disclaimer. There is no order vesting title in the Crown, and theCrown is not a party to this proceeding. At our request the parties served the appealon the Crown, and the Crown confirmed that it will not take any steps in relation tothe Property and abides by the decision of the Court.[37] The exercise of the Court's power under s 119 must be considered against thefact that, if orders are not made vesting the Property in a party, it will be owned by theCrown.Loss or damage[38] As we have set out, The Fish Man submits that it has suffered loss or damagebecause, if the Property had not been disclaimed, what is now a valuable asset wouldhave been available to the creditors of The Fish Man. It seeks a vesting order andorders for sale of the Property so that the proceeds can be applied to the $133,457.85that it was unable to recover from Mr Hadfield. In support of this propositionMs Morrison relied on what she claimed was a broad approach that the courts havetaken to what constitutes "loss or damage" under s 119 of the Act.[39] We see no reason why a creditor cannot make a claim under s 119(1).19However, loss in the sense of loss merely as an unpaid creditor is not enough; theremust be a specific loss arising directly from the disclaimer. The loss must arise notonly as a result of the existence of the underlying debt, but because of the disclaimeritself.[40] It is futile to try and define all of the areas in which a disclaimer can cause loss.Vesting orders under s 119 have been made on a number of occasions over recent yearsin situations where a third party or a creditor has suffered loss because of theirparticular relationship to the asset disclaimed:(a) In relation to relationship property interests between partners where onepartner goes bankrupt, loss to the non-bankrupt partner has beenrecognised by a vesting order under s 119 on a number of occasions.Thus in Panther v Panther, where the husband and wife were jointowners of two properties which had no value, the disclaimed halfinterest in each property was vested in the bankrupt's partner to allowthat partner to regularise the title and sell the property.20 Vesting ordershave been granted in similar circumstances in a number of otherHigh Court decisions.21(b) In Re Body Corporate 201036, a unit owner had become bankrupt andthe liquidators had disclaimed the unit title property which had no netvalue and was affected by weathertightness issues which requiredwork.22 The unit was vested in the body corporate.(c) The Court has also ordered the vesting of causes of action in a bankruptupon his discharge from bankruptcy.2319 In Rural Banking and Finance Corporation of New Zealand Ltd v Official Assignee, above n 13,the plaintiff was a mortgagee. This was not a bar to the claim.20 Panther v Panther [2016] NZHC 809.21 Re Shallish HC Invercargill CIV-2010-425-000439, 16 September 2010; Re Mitchell [2016]NZHC 2473; Re Stables [2016] NZHC 2519; and Re Hanara [2017] NZHC 902.22 Re Body Corporate 201036 [2016] NZHC 2035.23 Gay v Bruns CA193/98, 17 June 1999 at [13]. This Court did not deal with the issue of vesting,but referred to various orders vesting causes of action in the bankrupt that had been made in theunreported High Court decisions that are referred to.[41] These cases demonstrate the words "loss or damage" are given a wideinterpretation. However, none of these cases have considered the question of whenthe existence of loss or damage is to be assessed.When is loss or damage assessed?[42] The question of when the existence of loss or damage is to be assessed isfundamental to The Fish Man's claim. The disclaimer caused no loss at the time. TheAssignee's decision is not criticised, and understandably so as the Property had no netvalue. However, The Fish Man argues that this not fatal, because almost two yearslater, after an upsurge in property values and with the benefit of hindsight, thedisclaimer is said to have caused loss. If the Property had been retained it could thenhave been sold and a profit made for the benefit of creditors.[43] A party either has or has not suffered loss or damage at the time of disclaimerand there is no principled basis on which to suggest that a further change in the party'snotional position at some later date should be treated as the loss or damage resultingfrom the disclaimer. Section 118(a) of the Act provides that a disclaimer has the effectof bringing to an end on and from the date of the disclaimer the rights, interests andliabilities of the Assignee and the bankrupt in the property disclaimed. The change tothe rights of those persons is immediate at the time of disclaimer, and anyconsideration of loss or damage arising from it must be considered at that time, ratherthan some indefinite later point long after the disclaimer. Allowing parties to apply onthe basis of loss arising at any time in the future creates an inconsistent position asregards other potential applications under s 119.[44] The scheme of the Act is that the Official Assignee is acting for all creditors inmaking decisions. Creditors who are dissatisfied with a decision of the Assignee havea right of appeal under s 226 of the Act, and this must include appeal against adisclaimer decision. An application for an appeal must be made within 15 workingdays of the decision, or within the additional time that the court allows.24 Persons whoconsider themselves to be affected by the disclaimer who are concerned that the wrongdecision has been made, given the potential value of an asset, have the ability to appeal24 Insolvency Act 2006, s 226(3).the decision. It cannot have been intended that a creditor be able to sit on their appealrights whilst the property remains valueless, and then benefit from any subsequentincrease in value through a vesting under s 119.[45] In Re Hanara Associate Judge Smith took a similar view.25 In that case theAssignee of the bankrupt estates of Mr and Mrs Hanara made a claim under s 119 fora vesting of a residential property she had earlier disclaimed in her capacity asAssignee of the estate of Mrs Hanara. Mrs Hanara and her husband had remainedliving on the property although, unlike the position in this case, they had been unableto keep up with payments owing to the mortgagee. As in this case, it was the increasein value of the property that prompted the claim under s 119, but the order was soughtby the Assignee rather than a creditor. The Assignee argued that the creditors ofMr Hanara had suffered a loss as a result of her earlier decision to disclaimMrs Hanara's half interest in the property.[46] Associate Judge Smith held that the Assignee had standing to apply under s 119in her capacity as Assignee of both estates. He determined that although Mr Hanara'sestate had suffered loss because of the difficulties Mr Hanara would have selling theproperty following disclaimer, Mrs Hanara's estate had suffered no loss or damage:[41] In my view the Assignee cannot now say that Mrs Hanara's estate hassuffered loss or damage as a result of the disclaimer. At the time the disclaimerwas issued the evidence shows that there was no equity in the property whichmight have been released for the benefit of Mrs Hanara's creditors, and all thathas happened since then is that three years have passed and the equity in theproperty has increased. [42] As far as Mrs Hanara's estate is concerned, the position is really nodifferent from someone taking a decision to give away a property which is ofmarginal value and comes with some onerous obligations attached. If thatproperty later increases in value, in no sense could it be said that the persongiving it away has suffered "loss or damage". [44] In my view there must be more than a post-disclaimer increase invalue before there can be loss or damage for the purposes of s 119. 25 Re Hanara, above n 21.[47] In no case of which we are aware has any loss or damage been found to giverise to a vesting order, where that loss or damage arises from an increase in value ofan asset after disclaimer.[48] When a creditor makes an application under s 119, the loss or damage claimedmust be more than the creditor's inability to recover because a valueless asset has beendisclaimed. Creditors can have no interest in a property that has no value and willhave a positive interest in seeing it disclaimed if it is incurring expenses which willfurther drain the bankrupt's funds.Conclusion on loss or damage[49] For these reasons, we conclude that The Fish Man has suffered no loss ordamage under s 119. The Property could offer no value to The Fish Man at the timeof the disclaimer.Application of ss 290 and 304(1) of the Act[50] Although we do not have to determine the application of ss 290 and 304(1) ofthe Act, we refer to this briefly. Section 290 of the Act provides for an automaticdischarge 3 years after the bankrupt files a statement of affairs.[51] Section 304 provides that on discharge the bankrupt is released from all debtsprovable in the bankruptcy except those listed in subsection (2). These include:(a) any debt or liability incurred by fraud or fraudulent breach oftrust to which the bankrupt was a party:(b) any debt or liability for which the bankrupt has obtainedforbearance through fraud to which the bankrupt was a party:[52] Fogarty J held that s 304(1) applied and that Mr Hadfield was releasedautomatically from all debts that were provable in his bankruptcy. It was submittedby Mr Barker in the High Court that the claim by The Fish Man could not surviveMr Hadfield's discharge from bankruptcy. This submission raised the question ofwhether the claim by The Fish Man against Mr Hadfield was a claim in fraud as thatterm is used under s 304(2)(a) of the Act. Fogarty J determined that Mr Hadfield'sconduct was not dishonest assistance. Rather he observed it was the:26[C]ommon case of a director of a company continuing to spend on thenecessary inputs, such as food for the fish and retaining the employees, aheadof the tax debts. He did not do this with an intention to defeat the InlandRevenue in the long run, but rather to save the business.[53] He did not regard Mr Hadfield's conduct as being fraud or fraudulent breachof trust of the type referred to in s 304(2)(a). As we have indicated, we do not need todetermine whether Mr Hadfield has acted fraudulently under s 304. That is becausethe statutory genesis of the claim is s 119. This is not a claim against Mr Hadfield butrather a claim for relief brought by a third party, where the party which will have todisgorge the Property is not the bankrupt but the Crown. Mr Hadfield is not beingsued as a debtor and the question of his release from his debts does not arise. Thereforewe see no reason why, despite s 304, this claim for a vesting order could not have beenbrought by The Fish Man as a creditor.[54] However, because we have found that there was no loss or damage suffered atthe relevant time by The Fish Man, we conclude that no vesting order should be madeunder s 119 of the Act.[55] For this reason we do not need to go on to consider whether it is "fair" to vestthe Property in The Fish Man, under s 119(3). If that exercise was carried out wewould have to consider Mrs Hadfield's particular position. What is unusual in thepresent case is that the Property has been kept from mortgagee sale through the effortsof Mrs Hadfield, who retained her job and made the necessary mortgage payments.While she also has had the benefit of living there, there is nothing to suggest she wouldhave done so if the Assignee had not disclaimed the Property.The Fish Man's proprietary claims[56] The Fish Man claims that in any event the Property should vest in it because ithas a proprietary interest in the Property through three forms of equitable interest: aconstructive trust, an equitable lien or subrogation to the rights of the ANZ as26 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [38].mortgagee. The value of the claimed proprietary interest is $49,159, representing themortgage payments wrongly made by Mr Hadfield using The Fish Man's funds. It isclaimed that the misappropriated company funds can be traced into the mortgage andin turn into the Property itself.[57] There is no doubt that it is a breach of fiduciary duty for a director of a companyto use its funds to pay personal debts.27 It was confirmed in Selangor United RubberEstates Ltd v Cradock that a credit from a company's bank account which the directoris authorised to operate is money of the company, which is held by that director ontrust for the company in accordance with its purpose.28 Fogarty J rightly recognisedthat Mr Hadfield had breached his fiduciary duty to The Fish Man by using thecompany's funds to meet his mortgage payments.29 A constructive trust arose inrelation to those funds.[58] As Fogarty J also recognised, a finding of a breach of fiduciary duty is only astarting point when it comes to establishing a proprietary interest in property. Plainlya breach of trust by a fiduciary does not of itself give a beneficiary an interest in allthe fiduciary's property. The fact that The Fish Man's funds were used by Mr Hadfieldto make mortgage payments on the Property does not necessarily create a traceableinterest in the mortgaged Property. The Fish Man funds were not used to purchase theProperty. They were used years after purchase to meet some ASB mortgage payments,and then in respect of an ANZ mortgage, which replaced the original mortgage andwas executed and registered long after the purchase.[59] The usual rule is that misappropriated funds cannot be traced further after theyhave been paid to discharge a debt.30 However the position may be different when itcan be shown that the debt was incurred to purchase a specific and identifiable asset.The question then is whether the plaintiff can trace that later debt arising from the useof the company's funds, back into the asset that was purchased. This is sometimes27 Selangor United Rubber Estates Ltd v Cradock [1968] 1 WLR 1555 (Ch) at 1577.28 That approach has been frequently applied in New Zealand: Sion Consultants Ltd (in liq) v Bason[2015] NZHC 645; Taj Construction Ltd (in liq) v Singh [2016] NZHC 584; and Intext CoatingsLtd (in liq) v Deo [2016] NZHC 2754.29 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [49].30 Re Diplock [1948] Ch 465 at 548–549; and Re Registered Securities Ltd (in liq) [1991] 1 NZLR545 (CA) at 554.referred to as the issue of "backwards tracing". We turn to the first of the threeproprietary arguments raised on behalf of The Fish Man.Constructive trust[60] It is stated expressly in s 118(b) of the Act that a disclaimer by the Assigneedoes not affect the rights, interests, or liabilities of any other person, except insofar asis necessary to release the Assignee or the bankrupt from a liability. It is plain that anyproprietary interest in the land is unaffected by a disclaimer. Therefore ifThe Fish Man has a proprietary claim in the Property, it has survived the disclaimer.Treating the Property as beneficially owned by the Crown, that beneficial interest issubject to all proprietary claims to the Property, including any interest ofThe Fish Man. Such a conclusion must inevitably follow from s 118(b).[61] The Fish Man submits it has a proprietary claim for $49,159. This comprisesin part the ANZ mortgage payments of $29,572 between 1 April 2009 and3 November 2010. As we have stated, that payment was part of the District Courtjudgment against Mr Hadfield. However it also comprises ANZ mortgage paymentsof $19,586.55 made between 1 April 2008 and 31 March 2009. These payments werenot part of the District Court judgment against Mr Hadfield, nor has such a claim beenmade in the bankruptcy of Mr Hadfield or accepted by the Assignee. Mr Hadfield inhis affidavits has disputed liability for these payments. The District Court judgmentdoes not appear to have been based on any proprietary claim, but rather on a debtowing. Mr Hadfield had control of the company funds in circumstances that madehim a constructive trustee. That gives rise to a claim, and the ability to obtainjudgment, but in itself that leaves The Fish Man as an unsecured creditor.[62] Relying on the breach of fiduciary duty in applying the funds to the mortgage,The Fish Man seeks to trace those moneys, both principal and interest, into theProperty. There is no such thing as a stand-alone cause of action of tracing.31 Whattracing can do for a company is to transform the unsecured breach of fiduciary dutyclaim into a proprietary interest in property by showing that company funds have, inbreach of constructive trust, been put into a property which represents those funds in31 Boscawen v Bajwa [1996] 1 WLR 328 (CA) at 334.whole or in part, and from which they can be recovered. It is a process that can beused by a claimant to show what has happened to misappropriated property,32 andwhere it is now. It involves one form of property interest being properly regarded assubstituted for another. So, in the case of Mr Hadfield, if the misappropriated fundshad been used by him to purchase the Property, a proprietary interest would have beencreated.[63] To support the proprietary claim, Ms Morrison relies on the leading Englishcase of Foskett v McKeown and particularly the judgment of Lord Millett. The factsof this well-known case involved a number of purchasers entrusting their funds toMr Murphy and an associate for the purchase of a property which was in fact neverpurchased. Instead Mr Murphy in breach of trust used the purchasers' money to paytwo annual premiums on a whole life insurance policy and later divested himself ofany beneficial interest in the policy. He appointed the policy to be held on trust forthe benefit of his three children. When he subsequently committed suicide the insurerspaid out to the trustees of the policy. The purchasers were held to be able to claimagainst the proceeds of the insurance policy. As Lord Millett explained:33The simplest case [of tracing] is where a trustee wrongfully misappropriatestrust property and uses it exclusively to acquire other property for his ownbenefit. In such a case the beneficiary is entitled to at his option either toassert his beneficial ownership of the proceeds or to bring a personal claimagainst the trustee for breach of trust and enforce an equitable lien or chargeon the proceeds to secure restoration of the trust fund.[64] The concept of tracing was applied in New Zealand in part in similarcircumstances to these in Torbay Holdings Ltd v Napier.34 In that casemisappropriated funds had been used to directly pay for various costs in building ahouse on the property. It was held that the value of the cheques paid to the suppliersof goods and services from misappropriated funds could be traced into the property.This was an orthodox application of the doctrine of tracing. However, the High Courtwent further to consider the issue of backward tracing, and determined that paymentsmade from the company's account towards loans that the directors had secured over32 Foskett v McKeown [2001] 1 AC 102 (HL) at 127.33 At 130.34 Torbay Holdings Ltd v Napier [2015] NZHC 2477, [2015] NZAR 1839 at [207]–[232]. Thisdecision was affirmed on appeal in Napier v Torbay Holdings Ltd [2016] NZCA 608, [2017]NZAR 108, although the tracing finding was not challenged and not considered by this Court.the property could also be traced into the property.35 It was said that the repaymentsof the loan allowed the defendants to acquire a significant and valuable asset with lessdebt encumbrance, which could be seen as an increase in the value of the house. Thisdecision was followed in Taj Construction Ltd (in liq) v Singh.36 Also, in ShannonAgricultural Consulting Ltd (in liq) v Shannon, the High Court traced company fundsthat were used to repay a mortgage into the mortgaged property, giving the companya proprietary interest in the property.37[65] However in Intext Coatings (in liq) v Deo, the High Court refused to followthe reasoning in Torbay Holdings Ltd v Napier.38 After a thorough analysis of therelevant case law it was held that it was not possible to trace the company's moneythat was used to repay mortgage debts into a proprietary interest in the mortgagedproperty itself, when the funds had not been used for the purchase. It is necessary forus to consider this conflict in the decisions. Fogarty J in his judgment adopted theapproach put forward in Intext Coatings.39[66] The ability to trace backwards has been the subject of academic debate.40 Itwas recently considered by the Privy Council in Federal Republic of Brazil v DurantInternational Corp.41 This was a case of tracing bribes paid into accounts controlledby the defendant. Part of the claim was to trace three payments into funds held inJersey accounts, where the transfer of those funds from a New York account into theJersey accounts occurred before the bribery proceeds were deposited into theNew York account. It was argued by the defendant that the three payments could notbe traced to the Jersey account because there was no doctrinal basis for backwardstracing.35 Torbay Holdings Ltd v Napier, above n 34, at [230].36 Taj Construction Ltd (in liq) v Singh, above n 28.37 Shannon Agricultural Consulting Ltd (in liq) v Shannon [2015] NZHC 1133.38 Intext Coatings (in liq) v Deo, above n 28, at [93].39 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [87] and [90]–[93].40 The debate is summarised in Matthew Conaglen "Difficulties with Tracing Backwards" (2011)127 LQR 432, written in response to an argument of Lionel Smith that was referred to bySir Richard Scott V-C in Foskett v McKeown [1998] Ch 265 (CA) at 283.41 Federal Republic of Brazil v Durant International Corp [2015] UKPC 35, [2016] AC 297.[67] The Privy Council held:[38] The development of increasingly sophisticated and elaborate methodsof money laundering, often involving a web of credits and debits betweenintermediaries, makes it particularly important that a court should not allow acamouflage of interconnected transactions to obscure its vision of their trueoverall purpose and effect. If the court is satisfied that the various steps arepart of a co-ordinated scheme, it should not matter that, either as a deliberatepart of the choreography or possibly because of the incidents of the bankingsystem, a debit appears in the bank account of an intermediary before areciprocal credit entry. The Board agrees with Sir Richard Scott V-C'sobservation in Foskett v McKeown that the availability of equitable remediesought to depend on the substance of the transaction in question and not on thestrict order in which associated events occur.(Citations omitted.)[68] However, the Privy Council also held that it is wrong to say that all moneyused to pay a debt can in principle be traced into whatever was acquired in return forthe debt:42If a trustee on the verge of bankruptcy uses trust funds to pay off an unsecuredcreditor to whom he is personally indebted, in the absence of specialcircumstances it is hard to see why the beneficiaries' claim should takeprecedence over those of the general body of unsecured creditors.[69] A court should look at the substance of a transaction, rather than the strict orderin which events occur. In those circumstances, when looking at the transaction as awhole, the court may be able to attribute the value of the interest acquired to the misuseof the trust fund. However, a claimant has to establish a coordination between thedepletion of the trust fund and the acquisition of the asset which is the subject of thetracing claim.[70] Fogarty J considered this issue and concluded that for a tracing claim to beupheld there must be the use of money to acquire an asset. He observed:43[90] Tracing is a practical remedy of following money where it isconverted into property. It is not some principle of converting money to aproperty right. There has to be a direct and substantial link between acquiringthe property and the use of the misappropriated money. 42 At [33].43 The Fish Man Ltd (in liq) v Hadfield, above n 4.[71] We agree. It is not correct to broadly assume, as was done in Torbay HoldingsLtd v Napier, that regular mortgage payments made after purchase can be traced intothe secured property. In such a situation there is not the necessary coordinationbetween the depletion of the trust fund and the acquisition of the asset. The focus mustbe on what the payment of the trust funds actually achieves and in particular whetherit leads to the acquisition of ownership of the asset. It is not the case that the value ofthe interest acquired by Mr Hadfield in the Property could be attributed to the misuseof the trust fund. Mr Hadfield acquired his interest in the Property some years beforethe depletion of the trust fund. There is not the necessary transactional connectionbetween the use of the trust funds and the acquisition of the asset.[72] If tracing of mortgage payments is to be used in the way proposed byThe Fish Man, the creditor from whom the funds were taken is elevated to a level ofsecurity beyond that of other unsecured creditors whose funds are used to pay otherdebts. It seems to us that extending tracing in this way would create a rash of newissues, and take the doctrine of tracing beyond its natural boundary. As we have said,there is not the necessary coordination between the depletion of the trust fund and theacquisition of the asset.44[73] We conclude that The Fish Man cannot trace its funds into the Property. It hasno proprietary interest in it, adopting this route.An equitable lien[74] It was not argued before Fogarty J that any equitable lien arose in favour ofThe Fish Man. The Fish Man's statement of claim is brief in the extreme and makesno direct reference to it, although it does plead a beneficial interest in the Property.We are prepared to deal with this submission, which is another way of putting thetracing argument. In our view there is a simple answer to it.[75] The submission is that a constructive trust could be founded on the alternativebasis of an equitable lien over the Property because the mortgage repayments have44 Federal Republic of Brazil v Durant International Corp, above n 41, at [40].improved the Property. Reliance was placed on Lord Millett's observation inFoskett v McKeown:45Where a trustee wrongfully uses trust money to provide part of the cost ofacquiring an asset, the beneficiary is entitled to at his option either to claim aproportionate share of the asset or to enforce a lien upon it to secure hispersonal claim against the trustee for the amount of the misapplied money.[76] As he later stated:46I should now deal with the finding of all the members of the Court of Appealthat the plaintiffs were entitled to enforce a lien on the proceeds of the policyto secure repayment of the premiums paid with their money. This isinconsistent with the decision of the majority that the plaintiffs were notentitled to trace the premiums into the policy. An equitable lien is aproprietary interest by way of security. It is enforceable against the trustproperty and its traceable proceeds. The finding of the majority that theplaintiffs had no proprietary interest in the policy or its proceeds should havebeen fatal to their claim to a lien.[77] We adopt that approach. The concept of an equitable lien turns on the plaintiffbeing able to show a specific interest in the property. For the reasons that we havealready set out in relation to tracing, the mortgage repayments had no direct connectionto the acquisition of the Property. The mortgage repayments were not used to acquirethe Property, and cannot be traced to an interest in the Property.Conclusion on proprietary interest[78] We conclude that The Fish Man had no equitable interest in the Property. Itwas entitled to recover from Mr Hadfield, but that was a personal claim against him.It had a claim in the bankruptcy, and indeed had established that claim in part by ajudgment. The fact that the monies were taken by Mr Hadfield for a variety of personalpurposes, one of which was making mortgage payments, has not given it an interest inthe Property.Subrogation[79] It was also argued before us that The Fish Man has a proprietary interest in theProperty by way of subrogation of the position of the ANZ on the mortgage debt. This45 Foskett v McKeown, above n 32, at 131.46 At 140.issue was not pleaded or argued before Fogarty J. We do not have the benefit of hisfindings.[80] Mr Noble for Mr Hadfield objected to the raising of this point. He complainedthat because of the short notice (two weeks) given by The Fish Man of its intention topursue this argument, he was not in a position to argue subrogation. Mr Barker tookno position, but noted that there are factual issues concerned with a claim forsubrogation. It is clear that there is an ANZ mortgage over the Property, but there isno sufficient evidence as to what the circumstances and terms of that mortgage are, orthe rights to which The Fish Man would be subrogated.[81] We do not have submissions on these matters, or the benefit of an analysis byFogarty J. An appellate court will be very cautious about allowing a new cause ofaction to be raised for the first time on appeal. There appears to us to be force in theclaims for Mr Hadfield that he will suffer prejudice, in that there may be factualmatters of relevance that there has been no opportunity to raise or consider, and he hasnot been able to prepare full argument. In the circumstances we are not prepared toconsider this submission, or elevate it into a ground of appeal.Mr and Mrs Hadfield's claims[82] Mr Hadfield in his pleading asserted that the Property need not be sold to paythe amount owing to The Fish Man and claimed:An order under s 119(2) of the Insolvency Act 2006 that the property be vestedin [Mr Hadfield], and [Mr Hadfield] pay a sum of money to be specified to[The Fish Man].The sum he would pay to The Fish Man has not been quantified.[83] Mrs Hadfield in a fuller pleading refers to her relationship with Mr Hadfieldand claims under the PRA seeking:A Declaration that the [Mrs Hadfield] is entitled to half of the equity (after themortgage only as registered with the ANZ National Bank Limited) in theproperty at 1/16 Cameron Place, Ranui, Auckland.An Order pursuant to section 20B of the Property Relationships Act 1976 forthe purposes of defining the value of her protected interest and entitlementunder that Act.[84] Fogarty J did not address the issue of Mr and Mrs Hadfield's entitlement to theProperty in detail. He noted that Mr Hadfield could make a claim under s 119(2) ofthe Act, and acknowledged Mrs Hadfield's claim to a half interest.47 He stated thatMrs Hadfield had a "substantial argument" for a half share in the Property.48 As wehave set out he sought submissions from Mr and Mrs Hadfield as to how they wouldlike the title to be reconstituted, and failing agreement he favoured vesting the Propertyin Mr and Mrs Hadfield in equal shares.Mr Hadfield's claim[85] We have set out Mr Hadfield's prayer for relief in his statement of defence andcounterclaim.49 In submissions Mr Noble, while strongly opposing the order soughtby The Fish Man, did not make any particular submission on Mr Hadfield's behalf.We have had no submissions on whether any vesting order should be made in hisfavour and the matter has been expressly left for further submissions in the High Court.We therefore are unable to determine his position.Mrs Hadfield's claim[86] In this Court Mrs Hadfield has sought an order that the Property be vested inher under s 119 of the Act. That order was not sought in her statement of defence andcounterclaim, but was treated as available in the High Court.[87] It is not in dispute that, after the disclaimer, Mrs Hadfield assumedresponsibility for making the mortgage payments to avoid a foreclosure by ANZ. Shehas duly met those payments and as a consequence ANZ has not foreclosed and themortgage is still in place with the Hadfields occupying the Property.[88] There are a number of cases where the courts have recognised that, where apartner assumes the obligation to make the mortgage payments after a Property has47 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [97]–[98].48 At [98].49 At [82] above.been disclaimed following the bankruptcy of the other partner, there has been "loss ordamage" for the purposes of s 119 of the Act.50 As a matter of fact, what has happenedin this case is that, despite the Crown assuming beneficial ownership on disclaimer,the Property has remained registered in the name of Mr Hadfield.[89] Mrs Hadfield has a claim under the PRA to half the relationship property, andthis property would include the home in which she and Mr Hadfield have lived.However, this potential claim does not give rise to a proprietary interest in the land,and conventional property principles will apply to her claim.51[90] Given Mrs Hadfield's claim to a protected interest on Mr Hadfield'sbankruptcy under s 20B of the PRA, we accept that she is a person who suffered lossor damage as a consequence of the disclaimer. The effect of the disclaimer wasdifferent for her, as distinct from other creditors. She had a right in respect of theProperty. And as we have said, it is also the case that she has met the mortgagepayments on the Property both before and after Mr Hadfield's bankruptcy. It was hermortgage payments that stopped a mortgagee sale at a time when the Property had novalue.[91] In all the circumstances it seems clear to us that Mrs Hadfield would be entitledto a vesting order for at least a part interest in the Property. However, we have not hadsubmissions on her position in relation to the specific orders that should be made. Aswe have said, Fogarty J expressly left the issue of how the title should be constitutedto be considered after further submissions.[92] Accordingly although we will dismiss the appeal in relation to Fogarty J'ssubstantive orders, it will not be an end to the proceeding. It will have to be remittedback to the High Court for a further hearing to determine how the title is to beconstituted between Mr and Mrs Hadfield.50 Panther v Panther, above n 20, at [12(a)]; Re Shallish, above n 21, at [14]; and Re Stables, aboven 21, at [10].51 Smith v Smith (1978) 1 MPC 197 (SC); and Walker v Walker [1983] NZLR 560 (CA). See alsoFisher on Matrimonial and Relationship Property (looseleaf ed, LexisNexis) at [1.26].Costs[93] The Fish Man also challenges the costs orders made by Fogarty J. The Judgeawarded costs to both Mr Hadfield and Mr Barker as counsel assisting. Those costsorders were made "against the liquidator".52 Following the issuing of the judgmentFogarty J issued a further minute of 17 August 2016 stating:53[5] As a precaution, however, I agree with the suggestion of Mr Barkerand order that the costs of the amicus be met (or booked) in the first instanceas a payment out of public funds under s 99A(l)(b). I confirm that Mr Barker'scosts should be paid by the Registrar and that the liquidator should thereforereimburse the Crown. To that end only, leave is reserved to the liquidator asthe losing party to challenge whether the liquidator should pay to the Registrarthe whole of $9,211.89 or a lesser sum.The costs of Mrs Hadfield and counsel assisting[94] Section 99A(1)(b) of the Judicature Act 1908 states that where counsel to assistappears in any civil proceeding and argues any question of law or fact, the court maymake such orders as it thinks just as to the payment "by any party to the proceedings"or out of public funds of the costs incurred by counsel assisting.54 Fogarty J orderedthat Mr Barker's costs as counsel assisting be paid by the liquidator.55 Fogarty J'sorder was made on the assumption that the litigation had effectively been brought bythe Commissioner for Inland Revenue. He saw it as an issue of simply which Crownaccount would pay the costs of counsel assisting.[95] However, it was not the case that the Commissioner funded the proceeding.The Fish Man has applied to adduce further evidence in this Court in the form of anaffidavit by one of the liquidators, Mr Levin. In that affidavit Mr Levin explains thatthe proceeding was initiated and funded by the liquidators acting on their own account.The application to adduce that evidence was granted in a minute of Randerson J on13 February 2017.56 The Court does not have any jurisdiction under s 99A to order anon-party to be liable for the costs of counsel assisting; the section refers to "parties".52 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [101]–[102].53 The Fish Man Ltd (in liq) v Hadfield HC Auckland CIV-2015-404-1612, 17 August 2016 (Minuteof Fogarty J).54 Section 99A(1)(b) has since been replaced by s 162 of the Senior Courts Act 2016.55 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [102].56 The Fish Man Ltd (in liq) v Hadfield, above n 3, at [9].[96] The appointment of counsel assisting was a result of Mrs Hadfield deciding torepresent herself in the proceeding. The fact that she was represented by counselassisting had nothing to do with The Fish Man, save for the fact that The Fish Manhad initiated the proceedings. In this case The Fish Man has not produced meritlessor irrelevant arguments. In the end Mr Barker assisted not only Mrs Hadfield, but theCourt generally. In our view it would be unfair to order The Fish Man or theliquidators to pay the costs of counsel assisting in the High Court or this Court. Thecosts of counsel assisting should be met by the public fund in the usual way unders 99A(1)(b). We will allow the appeal on this point.[97] Mrs Hadfield has filed an affidavit showing that prior to deciding to representherself in the High Court, she incurred legal costs relating to the early stages of thisproceeding totalling $6,726.62. It seems fair that in respect of those High Court coststhere be a payment to her in addition to the payment from the public fund to meet thecosts of counsel assisting. Applying the usual two-third rule that lies behind theHigh Court Rules 2016 scale of costs, we fix this at approximately two-thirds of theamount of costs that she incurred, namely the sum of $4,484.41.57Mr Hadfield's costs[98] Mr Hadfield has successfully resisted The Fish Man's appeal. He is entitled tocosts on the usual basis from the unsuccessful party, The Fish Man. He is also entitledto costs in the High Court. In relation to the issue of whether the liquidators shouldbe ordered to pay those costs we refer to the affidavit of Mr Levin which makes it clearthat, contrary to Fogarty J's understanding, the costs of the litigation were not paid forby the Commissioner of Inland Revenue, and were in fact paid by the liquidatorsthemselves. The Fish Man did not have sufficient monies available to fund thelitigation.[99] The leading case on the payment of costs by non-parties is Dymocks FranchiseSystems (NSW) Pty Ltd v Todd (No 2).58 In that case the Privy Council found that anon-party could not ordinarily be made liable for costs, and that costs orders made57 High Court Rules 2016, r 14.2(1)(d).58 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145.against third parties are exceptional in the sense of being outside the ordinary run ofcases, where parties pursue or defend claims for their own benefit and at their ownexpense.59[100] In Dymocks Franchise Systems (NSW) Pty Ltd the third party that provided thefunding stood expressly to gain financially should the party it was funding besuccessful. A non-party costs order was made. However it was held that where thenon-party is a director or liquidator who can realistically be regarded as acting in hisor her own interests, costs orders will not invariably be made. The Privy Councilreferred to the following passage from Carborundum Abrasives v Bank ofNew Zealand Ltd (No 2):60The directors of a company may frequently be in a position different fromother non-parties with a direct financial interest in promoting or defendingproceedings. Even where a company is in receivership, directors may have aduty to prosecute or defend a claim through the company in the interests ofcreditors other than the creditor that had appointed the receiver, or in theinterests of the shareholders. Other creditors and shareholders are entitled toexpect that those responsible for the management of the company will use allproper endeavours to ensure that their financial interests are protected or thatthere is a fund out of which such creditors can be paid.[101] Costs orders against third parties are exceptional. They are warranted in caseswhere an entity has funded litigation in order to pursue its own interests, and withoutan order against third parties would have done so without risk to himself or herselfshould the proceedings fail or be discontinued.61 However, it is clear that just becausea dominant director or major shareholder has brought the proceedings, this factor alonewill not justify a third party costs order. Something additional is normally required.In discussing this proposition Millett LJ observed in Metalloy Supplies Ltd (in liq) vMA (UK) Ltd:62It is not, however, sufficient to render a director liable for costs that he was adirector of the company and caused it to bring or defend proceedings whichhe funded and which ultimately failed. Where such proceedings are broughtbona fide and for the benefit of the company, the company is the real plaintiff. The position of a liquidator is a fortiori. Where a limited company is ininsolvent liquidation, the liquidator is under a statutory duty to collect in itsassets. This may require him to bring proceedings. If he brings the59 At [20] and [25]–[29].60 Carborundum Abrasives v Bank of New Zealand Ltd (No 2) [1992] 3 NZLR 757 (HC) at 765.61 Arklow Investments Ltd v MacLean HC Auckland CP489/97, 19 May 2000.62 Metalloy Supplies Ltd (in liq) v MA (UK) Ltd [1997] 1 WLR 1613 (CA) at 1620.proceedings in the name of the company, the company is the real plaintiff andhe is not.[102] We have concluded that it is not appropriate to order the liquidators to meetMr Hadfield's costs personally. We have concerns about the liquidators' pursuit of theclaim, given the lack of any likelihood that a successful claim would have brought anyfinancial return to The Fish Man creditors after the litigation and liquidation costs.Nevertheless, it was not unreasonable for the liquidators on behalf of The Fish Man topursue a proceeding that would lead to a better recovery for creditors, particularlywhen there had been the event of the property owned by the bankrupt increasing invalue, giving rise to a potential equity. There were also High Court authoritiessupporting a proprietary interest claim. The proceeding was far from frivolous orvexatious.[103] We therefore allow the appeal in relation to the costs orders. We will make thecost orders that follow the success of the Hadfields against The Fish Man. Werecognise that these orders are unlikely to realise any payments given the insolvencyof the company, but it is appropriate to make them in any event.Result[104] The appeal in relation to the substantive orders and directions made byFogarty J is dismissed.[105] The appeal against the costs orders made by Fogarty J is allowed.[106] The orders that the liquidators pay the costs of counsel assisting andMr Hadfield are quashed.[107] The costs awarded to Mr Hadfield in the High Court are to be paid byThe Fish Man.[108] Mrs Hadfield's costs in the High Court, in the sum of $4,484.41, are to be paidby The Fish Man.[109] In this Court The Fish Man must pay Mr Hadfield costs for a standard appealon a band A basis and usual disbursements.[110] The costs of counsel assisting in both the High Court and this Court are to bepaid out of public funds under s 99A(1)(b) of the Judicature Act.[111] The determination of the final vesting orders to be made is remitted back to theHigh Court, to be determined in accordance with Fogarty J's judgment.63Solicitors:Meredith Connell, Auckland for AppellantBoyle Mathieson, Auckland for First Respondent63 The Fish Man Ltd (in liq) v Hadfield, above n 4, at [97]–[100].