OFFICIAL ASSIGNEE v ERWOOD [2013] NZHC 1827

OFFICIAL ASSIGNEE v ERWOOD [2013] NZHC 1827 [13 August 2013]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2010-485-2128[2013] NZHC 1827UNDER THE Insolvency Act 1967IN THE MATTER OF applications pursuant to s 85 and s 119 ofthe Insolvency Act 1967BETWEEN THE OFFICIAL ASSIGNEE INBANKRUPTCY OF THE PROPERTY OFROBERT JOHN ERWOODApplicantAND ROBERT JOHN ERWOODRespondentHearing: 4 June 2013Counsel: PRW Chisnall for ApplicantRespondent in personN Levy as Amicus CuriaeJudgment: 13 August 2013JUDGMENT OF MACKENZIE JThis is a recalled judgment (see minute of 13 August 2013). The original judgment was issued on 23 July 2013. The only change to the judgment is in [43](a) of the original judgment.Solicitors: Paul Chisnall, Barrister, Wellington for ApplicantNicolette Levy, Barrister, WellingtonCopy to: Mr ErwoodIntroduction[1] This is an application by the Official Assignee for orders:(a) granting leave to continue the originating application pursuant to r 19.5 of the High Court Rules;(b) that the respondent's bankruptcy is annulled pursuant to s 119(1)(b) of the Insolvency Act 1967 on such conditions as the Court deems fit;(c) directing, pursuant to s 119(7)(a) of that Act, the payment of such costs incurred by the Assignee in the administration of the bankrupt'sestate as the Court may see fit;(d) releasing the Assignee pursuant to s 133 of that Act from heradministration of the respondent's estate; and(e) awarding costs and giving any other directions the Court deems appropriate.[2] The application was initially made in October 2010. The application was not at that stage pursued because of other litigation. An amended application was filed in August 2012.[3] The application was heard before me on 4 June 2013. Mr Erwood appeared in person and Ms Levy provided very helpful assistance to the Court as amicus curiae. The hearing extended through the morning and continued after the lunch adjournment. At the break, Mr Erwood was presenting his submissions and he completed them in the afternoon. Some days later, Mr Erwood filed a memorandum saying that in the lunch break he had been accosted and threatened outside the Court room by a man who had been stalking him for several months. He said that this had affected his presentation of his submissions after lunch and that, while he had not then asked for an adjournment, he sought a further opportunity to present further submissions. Ms Levy also conveyed to me, through the Registrar, that request by Mr Erwood.[4] I have carefully considered Mr Erwood's request. For the reasons which Igive in dealing with each of the matters in issue, my decisions on the matters addressed in Mr Erwood's submission do not require a detailed examination of thematters which he addressed after lunch. He is therefore not at all disadvantaged by any impairment in his oral presentation. I accordingly am able to deliver judgment without the need for any further hearing.Part 19, High Court Rules[5] I deal first with the preliminary procedural point, the application for permission to commence the proceeding by originating application under Part 19 of the High Court Rules. Mr Chisnall submits that, for similar applications by the Official Assignee, receivers and liquidators that the Court will commonly grant leave to commence the proceedings by way of originating application. I am satisfied that is appropriate here. The only parties affected by the orders made will be the Official Assignee and Mr Erwood. Leave was granted for the original application to be commenced by originating application under Part 19.1 The amended application should similarly be dealt with under Part 19. All of the interlocutory steps preparatory to the hearing have been conducted on the basis that Part 19 applied. To avoid any possible argument about whether the leave granted for the original application may extend to the amended application, I grant leave to commence this proceeding by originating application.Annulment of bankruptcy[6] The first substantive issue is whether Mr Erwood's bankruptcy should beannulled.[7] Mr Erwood was adjudicated bankrupt on 22 November 2007 on the petition of his sister, Mrs Maxted. The petition relied upon non-payment of a debt for costs awarded in Mrs Maxted's favour against Mr Erwood in litigation in which they had been involved. Mr Erwood's bankruptcy is governed by the Insolvency Act 1967(the Act).21 Minute of Miller J, 8 November 2010.2 Insolvency Act 2006, s 444.[8] The bankruptcy has a long and tortuous litigation history. That history is described in many judgments of this Court and the Court of Appeal and it is unnecessary for me to repeat any of the background here. It is sufficient to say that the bankruptcy resulted in a recovery by the Assignee of assets which exceeded, by a considerable margin, the debts which were provable in the bankruptcy, so that there is a sizeable surplus which will be payable to Mr Erwood when the bankruptcy ends.[9] Under s 119(1)(b) of the Act, the Court may annul the adjudication where the Court is satisfied that the debts of the bankrupt have been fully paid or satisfied. It is common ground that Mr Erwood's debts in the bankruptcy have been fully paid orsatisfied.[10] Mr Erwood raises an impediment to a discharge under s 119(1)(b). He submits that the bankruptcy has been annulled by an earlier order of this Court.[11] Part of the tortuous litigation history to which I have referred was a series of attempts by Mr Erwood to annul the bankruptcy. The annulment order was made on 22 November 2007. On the following day, 23 November, Mr Erwood took two steps:(a) he filed an appeal to the Court of Appeal against the order of adjudication; and(b) he applied to this Court for an order for the annulment of the adjudication under s 119(1)(a) of the Act, on the grounds that the order should not have been made.[12] The appeal to the Court of Appeal was subsequently dismissed. The progress of the appeal was not at all straightforward. The history of the litigation over the appeal is detailed in other judgments and I need not describe it here. It is sufficient to note that the first challenge by Mr Erwood to the order for adjudication, the appeal against the adjudication order, was unsuccessful.[13] His second challenge, the application for an order annulling the bankruptcy, came before Associate Judge Christiansen on 21 February 2008.[14] Before that hearing the Official Assignee had filed a report which had been prepared for Mr Erwood's appeal to the Court of Appeal. That report said the total of filed creditors' claims was $218,683.37. The report confirmed that a number ofbank accounts belonging to Mr Erwood had been identified, with funds amounting to $300,331.00. The report said:3The Official Assignee has no objection to an annulment of the bankruptcy being granted provided that:(i) Sufficient funds are available to meet the debts of, or arrangements made, with all known creditors; and(ii) The petitioning creditors' costs and disbursements of $4,200.00 arepaid; and(iii) The Official Assignee's costs and disbursements are paid amounting of [sic] $1,500 and(iv) No creditor objects to the annulment.[15] None of the creditors opposed the annulment, on the basis proposed by the Official Assignee. Associate Judge Christiansen therefore considered it appropriate to allow the application for annulment, on the terms suggested in the OfficialAssignee's report. He said:4The application for annulment is granted, subject to the following terms:(a) Payment of the sum of $215,576.28 to the two creditors who have filed proofs of debt in Mr Erwood's bankruptcy.(b) The payment of the petitioning creditor's costs and disbursements of$4,200.(c) Payment of the Official Assignee's costs and disbursements in thesum of $1,500.(d) The order for annulment shall not be sealed until the Court has received confirmation that the aforesaid payments, costs and disbursements have been paid.3 Maxted v Erwood HC Nelson CIV-2007-442-331, 21 February 2008 at [10].4 At [17].[16] The conditions suggested in paras (i), (ii) and (iii) of the Official Assignee'sreport are reflected in paragraphs (a), (b) and (c) of [17] of the Judge's decision.Paragraph (d) reflected an additional suggestion of the Official Assignee that in the event of an annulment being granted, the order not be sealed until the Court had received confirmation that the costs and disbursements had been paid.[17] Unfortunately, things were not so simple as the Official Assignee's report suggested, and as Associate Judge Christiansen therefore thought. The conditions in [17] of the judgment have never been satisfied. The order was never sealed. Rather, there was lengthy litigation on several fronts, lasting several years, involving a number of parties. Again, the history is described elsewhere and I need not repeat it.[18] The essence of Mr Erwood's submission on this point is that the judgment ofthis Court delivered by Associate Judge Christiansen on 21 February 2008 is effective, so that his bankruptcy has already been annulled and that no annulment is possible now.[19] I had heard Mr Erwood's submissions on this aspect of the case during themorning. This aspect of the case is therefore not affected by the unfortunate incident in the lunch break described at [4]. There can be no disadvantage to Mr Erwood in my deciding this issue now.[20] The question for the Court on this application is whether the order made on 21 February 2008, never fulfilled or put into effect, stands in the way of an order for annulment now. It is clear that it does not. The annulment granted by that order was subject to terms which have not been fulfilled. It is not effective.[21] That is clear from the judgment of the Court of Appeal delivered on 17 February 2009,5 being one of a number of judgments delivered by that Court in connection with Mr Erwood's appeal against the order for adjudication. Mr Erwood had also appealed against the judgment of 21 February 2008. In its judgment of5 Erwood v Maxted [2009] NZCA 19.17 February 2009 the Court of Appeal noted that the appeal against that decision was abandoned because no steps were taken to prosecute it.6 The Court went on to say:7The annulment order was made on terms which required payment of specific sums to the two creditors who had then filed proofs of debts, as well as costs in favour of the petitioning creditor and the Official Assignee. It recorded that the order was not to be sealed until confirmation was received that the required payments have been made. This has not happened. There are a number of reasons for this, most relevantly Mr Erwood's challenge toMrs Harley's proof of debt and Mr Erwood's now abandoned appeal against the judgment. Given that the challenge to Mrs Harley's proof of debt isbeing addressed in the statutory context of Mr Erwood's bankruptcy, wethink it clear that the bankruptcy remains in place and that the annulment will not take effect unless and until all payments required under it are made.[22] All payments required under the annulment order have not been made. Thefigure given for the total creditors' claims was challenged in other proceedings, and the total of valid creditors' claims in the bankruptcy was not resolved until a muchlater date. The terms of the order made on 21 February 2008 were never altered, and those conditions remained in place. The conditions to be met before the annulment order could be sealed so as to come into effect have never been met. No order has been sealed.[23] It is clear beyond argument that the order made on 21 February 2008 has not taken effect. The Court of Appeal has specifically held that to be the case. That order does not present any barrier to the making of an annulment order on the present application.[24] I am satisfied that it is in Mr Erwood's interests that his bankruptcy now beannulled, on the present application. He is entitled to an annulment on the grounds that his debts have been paid. That order should be made now. So long as Mr Erwood's bankruptcy continues, the Official Assignee is responsible for the administration of his affairs. That will necessarily involve ongoing costs, which must come out of Mr Erwood's estate. That is not in Mr Erwood's interests. Thatsituation should be brought to an end now.6 At [7].7 At [8].[25] For these reasons, the respondent's bankruptcy will be annulled pursuant tos 119(1)(b) of the Insolvency Act 1967. That order will take effect from today.Costs of the administration[26] The next order sought is an order under s 119(7)(a) of the Act ordering payment of a fee by way of remuneration.[27] Mr Erwood opposes the application. He says that it would be unjust for his estate in bankruptcy to be charged costs, or that he has a counterclaim against which such costs should be set off. Mr Erwood made submissions on this issue, including challenging the quantum of various items of costs.[28] Ms Levy in her helpful submissions as amicus notes that the OfficialAssignee is seeking payment of counsel's costs of some $95,000, and also some$45,000 as a commission based fee. She notes that Mr Erwood is opposed to paying any costs.[29] Ms Levy submits that the level of costs is a direct consequence of the Official Assignee dealing with the affairs of a person whose judgment is impaired by a serious mental order. She notes that many Courts have commented on Mr Erwood'sintelligence and ability to present focused and coherent submissions. However, she submits that the content and number of the decisions involving Mr Erwood demonstrate that he has very limited ability to conduct litigation in a rational and discerning way.[30] The level of costs which the Official Assignee has incurred reflects the reality that Mr Erwood has exercised rights of appeal and challenge to most, if not all, of the decisions affecting him. Mr Erwood's conduct of the litigation, in pursuing every point he could possibly pursue, with a limited ability to distinguish the good and the bad points, has resulted in the Official Assignee incurring costs which any rational assessment of the litigation strategy would have recognised were likely to ultimately be borne by Mr Erwood. The difficulties of the Official Assignee in dealing with Mr Erwood's approach to his bankruptcy are considerable. ButMr Erwood's limitations, well described by Ms Levy, meant that the OfficialAssignee needed to bring an independent view to how Mr Erwood's bankruptcycould be administered at a reasonable cost. I consider that the Court could not approve the payment of costs and fees at the level sought without appropriate scrutiny over the steps taken by the Official Assignee.[31] Mr Erwood has made submissions against the level of costs and expenses claimed. His submissions after the lunch break related in part to this aspect. Mr Erwood's submissions on this point may have been affected by the incident he describes. Also relevant are the very pertinent points made by Ms Levy in her submissions.[32] An order under s 119(7)(a) would have the practical effect of precluding any subsequent challenge by Mr Erwood to the level of fees. An issue estoppel would arise. Further, the decision of this Court in unlikely to end the dispute. There is a very high probability that it would be taken further.[33] I do not consider that it is appropriate to make the order sought. I am not in a position to subject the fees to the level of scrutiny which would be necessary before an order could be made approving those fees so as to preclude any further challenge to them. Also, I would need to consider giving Mr Erwood the further opportunity, which he has sought, before I could properly make such an order.[34] An order under s 119(7)(a) is not a prerequisite to the deduction of costs and fees properly incurred in the administration of the bankruptcy. Section 104(1)(a) gives such fees and expenses a first priority in the application of the property of the bankrupt.[35] I consider that the preferable course is to leave the Official Assignee to invoke the priority conferred by s 104(1)(a) in respect of both fees and expenses and remuneration. That would include any fees properly incurred on the present application. An order under s 119(7)(a) is not appropriate. An order for costs on the present application is also inappropriate.Release under s 133[36] Before an order under s 133 could be made, the requirements of s 132 must be met, and the application must be advertised under s 133(1). The accounts required under s 132 cannot be finalised until the bankruptcy has been fully administered. In the light of the order I have now made annulling the bankruptcy, that can now be done.[37] Mr Chisnall suggested that this proceeding should be adjourned to enable the necessary steps to be taken. I do not consider that is appropriate in this case. It is desirable that this judgment deal finally with all of the issues now before the Court. I do not consider that a further adjournment is appropriate. The present application, so far as it seeks an order under s 133, will therefore be dismissed, without prejudice to the ability of the Official Assignee to bring a further application once the steps in s 132 have been completed.Final matters[38] This judgment deals finally with all issues currently before this Court in the present proceeding. It is a final judgment, and no further interlocutory proceedings in this Court are possible in this proceeding.[39] This conclusion to the proceeding brings to an end Ms Levy's appointment asamicus curiae. I express to Ms Levy the appreciation of the Court for her willingness to undertake a difficult and demanding task, which she has ably performed. She has provided considerable assistance to ensure that everything that could be advanced to support Mr Erwood's submissions has been brought to the Court's attention.[40] While this proceeding is at an end, it leaves open the possibility of a challenge by Mr Erwood to the release application which is likely to be made by the Official Assignee. I think it desirable to make two points clear about any such challenge.[41] The first is that, in any further litigation in which Mr Erwood is involved, consideration should be given to whether a litigation guardian will be necessary. There is considerable force in Ms Levy's submission that Mr Erwood's litigioushistory demonstrates a clear inability to conduct litigation in a rational and discerning way. The material available, including that relating to his mental capacity, indicates clearly that consideration should be given to whether Mr Erwoodis an 'incapacitated person' as defined in r 4.29 of the High Court Rules in any future litigation in which he may seek to become involved.[42] The second point is that, if Mr Erwood does become involved in any future litigation relating to his bankruptcy, the fact that he is no longer an undischarged bankrupt will be relevant to the conduct of that litigation. The Court has in the past appointed counsel as amicus curiae, who have provided assistance to Mr Erwood as well as to the Court. Mr Erwood cannot expect that such steps would be taken in the future. If Mr Erwood requires the assistance of counsel, he should anticipate that the only assistance available to him from counsel will be from counsel instructed by him.Result[43] I make the following orders:(a) the respondent's bankruptcy is annulled pursuant to s 119(1)(b) of the Act, with effect from today;(b) the application for directions under s 119(7)(a) of the Act is dismissed;(c) the application for release of the Official Assignee under s 133 of the Act is dismissed, without prejudice to the ability of the Official Assignee to bring a further application for release;(d) there will be no award of costs on this application."A D MacKenzie J"