THE OFFICIAL ASSIGNEE v BLACK [2023] NZHC 1331

THE OFFICIAL ASSIGNEE v BLACK [2023] NZHC 1331 [30 May 2023]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2023-409-117[2023] NZHC 1331IN THE MATTER of the Bankruptcies of Nigel Graeme Blackand Joanne Kay BlackBETWEEN THE OFFICIAL ASSIGNEE in bankruptcyof the property of NIGELGRAEME BLACK and JOANNEKAY BLACKPlaintiffAND NIGEL GRAEME BLACK and JOANNEKAY BLACKDefendantsHearing: 25 May 2023Appearances: D M L Dingwall for PlaintiffNo appearance by DefendantsJudgment: 30 May 2023JUDGMENT OF ASSOCIATE JUDGE LESTER[1] Nigel Black (Nigel) and Joanne Black (Joanne) were adjudicated bankrupt on20 August 2020. Nigel and Joanne own the property at 158 Munro Road, Cheviot (theproperty). The Official Assignee's investigations disclosed that Nigel and Joanneowned the property in their capacity as trustees of the Mountain Meadows Trust (theTrust).[2] The accounts for the Trust as at 30 January 2017, record that the trustees (thatis Nigel and Joanne as trustees), owed Nigel and Joanne in their personal capacities$291,240 and $291,239 respectively.[3] The Official Assignee has written to Nigel and Joanne as trustees of the Trust,making demand for payment of their beneficiary current accounts, such being payableon demand.[4] Notwithstanding that Nigel disclosed in a Statement of Affairs that the Trustowed him $580,000 (being the approximate total of Nigel and Joanne's currentaccounts), after the Official Assignee made demand for payment, Nigel wrote to theOfficial Assignee saying he disputed the debt.[5] Valuations obtained by the Official Assignee indicate that the value of theproperty is less than the amount owed to Nigel and Joanne. There is also a mortgageon the property.[6] Taking into account the mortgage secured against the property and the fact thatit is in an earthquake damaged state (EQC and insurance money having been used byNigel and Joanne to prop up their failed business which led to their bankruptcy), theOfficial Assignee called for Nigel and Joanne to make a proposal for the pay-out ofthe equity in the property. However, attempts to resolve matters have not resulted insettlement.[7] The Official Assignee has issued summary judgment proceedings against Nigeland Joanne seeking judgment against them as trustees for what the Trust owes them intheir personal capacities. The Official Assignee also seeks an order that the Trustassets stand charged in favour of the Official Assignee to the extent of the judgmentsum and orders in relation to the sale of the Trust property in order to meet thejudgment debt.[8] In short, the Official Assignee says she is entitled to exercise the trustee's rightof indemnity against the Trust property.What the Official Assignee must show to obtain summary judgment[9] The Official Assignee must demonstrate that Nigel and Joanne as trustees haveno arguable defence to the claim. Nigel and Joanne have not filed any papers inopposition but nonetheless the Court must still be satisfied summary judgment isappropriate.1[10] The Official Assignee has properly brought to the Court's attention that Nigeldisputed the debt. The email in which Nigel raises that dispute has been produced bythe Official Assignee. The email appears to confuse the value of equity in the propertywith Nigel and Joanne's obligations to repay their beneficiary current accounts. Nigelsuggests in the email that the money recorded as being owed to Nigel and Joannemight be owed to third parties. However, the debts are recorded in the Trust accountsas owed to Nigel and Joanne and as I have already noted, Nigel referred to the debt,albeit combining his and Joanne's debt in his Statement of Affairs, which is a statutorydeclaration.[11] In the absence of evidence from Nigel and Joanne and given the limited natureof the email referred to at [10] above, I am satisfied that Nigel and Joanne as trustees,owe themselves in their personal capacities the sums recorded in their beneficiarycurrent accounts.[12] Accordingly, there is judgment against Nigel and Joanne in their capacity astrustees for $291,240 and $291,239 respectively.[13] The other aspects of the Official Assignee's claim are firstly, whether theOfficial Assignee is entitled to exercise Nigel and Joanne's right as trustee to beindemnified from the Trust assets in respect of the judgment entered above. Secondly,whether pursuant to that right of indemnity, the Trust assets, including the property,stand charged in favour of the Official Assignee for that debt and finally, whether theTrust assets including the property may be sold to clear the debt.[14] In respect of this part of the relief sought I gratefully adopt the analysis ofPanckhurst J in Official Assignee v Smith.2 The following borrows heavily from his1 Nigel was aware of the hearing on 25 May 2023 having emailed the Court the morning of thehearing referring to the hearing that day and he and Joanne were served with the Minute recordingthe hearing date.2 Official Assignee in Bankruptcy of the property of Michael Owen Perkins v Smith [2013]NZHC 3217.Honour's judgment from [20]–[30] which, other than changing the names of theparties, I have effectively duplicated.[15] The judgment debt obtained by the Official Assignee relates to an amount owedto Nigel and Joanne in their personal capacity at the time of their adjudication. Theright to recover the amount advanced to the trustees of the Trust by Nigel and Joanneis their personal property which vested in the Official Assignee. The Official Assigneestanding in the shoes of Nigel and Joanne, has obtained judgment against the trusteesfor that debt as above.[16] Whether the Official Assignee can effect recovery against the property of theTrust depends on Nigel and Joanne's rights as a trustee. The trustees are entitled to beindemnified from the Trust assets in respect of liabilities they have incurred.[17] Here, the Official Assignee acquired not only Nigel and Joanne's rights torecover the advances, but also their right to be indemnified from the Trust assets aswell.[18] Nigel and Joanne made the advances to themselves in one capacity andreceived them in another.[19] I am satisfied that Nigel and Joanne as trustees, acquired a right to beindemnified from the Trust property when the advances recorded in the beneficiarycurrent accounts occurred. The Trust Deed here provides that the trustees:" shall be entitled to be fully indemnified out of the Trust fund in respect ofany losses and of all claims, demands, costs, actions, proceedings, outlays andexpenses incurred by the Trustees in the administration and management ofthe Trust.[20] In addition, a trustee's right to be indemnified is expressly provided for in s 81of the Trusts Act 2019 (the Act). This right to be indemnified vested in the OfficialAssignee as property of the bankrupt.33 Insolvency Act 2006, s 101(1)(a).[21] While it is not clear what the advances were used for, the financial statementsof the Trust record the existence of the debt owing by the trustees to Nigel and Joanne.[22] As to whether the right of indemnity confers a proprietary interest in the assetsof the Trust, Panckhurst J was satisfied that the trustee's right to indemnity includesa proprietary interest in the property of the Trust by virtue of an equitable lien.4Is an order for sale appropriate and on what terms?[23] Again, I refer to Panckhurst J's analysis. A trustee's right of indemnity may beexercised through the sale of Trust property. The trust deed may authorise as much orabsent a power of sale and the deed, a Court order may be obtained.[24] The Official Assignee seeks an order for sale. I agree that is an appropriatecourse given the Official Assignee has been unsuccessful in attempting to resolvematters directly with Nigel and Joanne over some extended period.[25] Mr Dingwall, counsel for the Official Assignee, referred to other authoritieswhere orders for sale had been made in the same terms sought in this proceeding.5[26] Accordingly, I make orders in terms of paras (a) to (e) of the statement of claim.Mr Dingwall did not seek a costs order. Accordingly, there is no order as to costs.______________________________Associate Judge LesterCopy to:Insolvency & Trustee Service, ChristchurchN G and J K Black, Christchurch4 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; Re Suco Gold (1983) 7 ACLR 873;Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745; Official Assignee v Menzies &Palmer HC Auckland, CIV-2010-404-5457, 14 February 2011.5 Official Assignee v O'Neill HC Auckland CIV-2012-404-4198, 5 September 2012; OfficialAssignee v Fox, HC Palmerston North, CIV-2020-454-43, 19 November 2020, Associate JudgeJohnston (there being no judgment in respect of orders that were made orally, albeit the sealedorder was produced to the Court).