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Official Assignee v Petricevic HC Auckland CIV-2009-404-006004 [2010] NZHC 2456; [2011] 1 NZLR 467 (30 July 2010)

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2009-404-006004}

IN THE MATTER OF the Insolvency Act 2006

BETWEEN THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF RODNEY MICHAEL PETRICEVIC Plaintiff

AND RODNEY MICHAEL PETRICEVIC AND MARY JUDITH PETRICEVIC AS TRUSTEES OF THE RM PETRICEVIC FAMILY TRUST

Defendants

CIV-2009-404-006005

IN THE MATTER OF the Insolvency Act 2006

AND

IN THE MATTER OF the Bankruptcy of RODNEY MICHAEL PETRICEVIC

BETWEEN THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF RODNEY MICHAEL PETRICEVIC Applicant

AND RODNEY MICHAEL PETRICEVIC AND MARY JUDITH PETRICEVIC AS TRUSTEES OF THE RM PETRICEVIC FAMILY TRUST

_Respondents

OFFICIAL ASSIGNEE v PETRICEVIC HC AK CIV-2009-404-006004 [30 July 2010]

CIV-2009-404-006007

IN THE MATTER OF the Insolvency Act 2006

AND

IN THE MATTER OF the Bankruptcy of RODNEY MICHAEL PETRICEVIC

BETWEEN THE OFFICIAL ASSIGNEE IN BANKRUPTCY OF THE PROPERTY OF RODNEY MICHAEL PETRICEVIC Applicant

AND RODNEY MICHAEL PETRICEVIC AND MARY JUDITH PETRICEVIC AS TRUSTEES OF THE RM PETRICEVIC FAMILY TRUST

Respondents

Hearing: 1 June 2010

Appearances: H Rennie QC for the Plaintiff

R B Stewart QC for the Defendants

Judgment: 30 July 2010

_{JUDGMENT OF DUFFY J}

This judgment was delivered by Justice Duffy on 30 July 2010 at 4.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Counsel: H Rennie QC P O Box 10242 The Terrace Wellington 6143 for the

Plaintiff/Applicant

R B Stewart QC P O Box 2302 Shortland Street Auckland 1140 for the

Defendants/Respondents

Copy To: G S Caro Ministry of Economic Development Private Bag 92513

Wellesley Street Auckland 1141

[1] The ability to unwind transactions that are suspected of preferring one or more of a bankrupt’s creditors at the cost of others is a fundamental feature of all insolvency legislation. Another such feature is the provision of means to prevent potential bankrupts from disposing of their property in a way that defeats the interests of their creditors, should bankruptcy eventuate. The purpose of these features is achieved, in part, by specifying in the legislation periods of time within which transactions that predate bankruptcy adjudication (antecedent transactions) will be treated as being potentially preferential transactions (suspect transactions), which are open to being unwound. It is a matter of legislative choice as to how far back in time (the relation back period) to set the time periods. For example, under s 194 of the Insolvency Act 2006 (the 2006 Act), an “irregular transaction” may be cancelled if it meets the Act’s criteria for an “insolvent transaction”, and the transaction was made within two years of adjudication.

[2] Once new insolvency legislation has been in force for longer than the relation back period, the suspect antecedent transactions it affects will all have occurred after it came into force. But until then, a literal application of the relation back periods can result in the new legislation treating as suspect antecedent transactions that predate its commencement. This outcome means that the new legislation is having retrospective effect on those transactions.

[3] In general, the law shies away from the idea of legislation having retrospective effect, unless Parliament has made this intention clear: see s 7 of the Interpretation Act 1999. It is usual, therefore, for insolvency legislation to have transitional provisions specifying its effect on transactions that predate it. The 2006

Act attempts this with s 444(3). This subsection should have conveyed how the provisions of the 2006 Act dealing with suspect antecedent transactions are to be applied to transactions that predate the 2006 Act’s commencement. Regrettably, s 444(3) does not do this. Both parties are agreed that when the subsection is read literally, it is “meaningless”. Hence, the need for this Court to define the subsection’s meaning.

[4] Section 444(3) reads as follows:

For the avoidance of doubt, nothing in subpart 7 of Part 3 permits the cancellation of an irregular transaction that was completed before this section came into force, if that transaction could not have been cancelled if this section had not come into force.

[5] An “irregular transaction” is defined in s 192. The definition covers the types of suspect antecedent transactions that were described in the Insolvency Act 1967 (the 1967 Act) as voidable preferences, voidable securities, or voidable gifts. The match between the various types of suspect antecedent transactions provided for in each statute is not exact. There is no need, however, for the purposes of this judgment, to conduct a close analysis of where any differences may lie.

[6] The Court is asked to answer two preliminary questions of law regarding the meaning of s 444(3). These arise because the bankrupt in this proceeding is alleged to have made suspect antecedent transactions that predate the commencement of the

2006 Act. The Official Assignee (the Assignee) wants to know whether and, if so, to what extent those transactions are subject to the 2006 Act.

[7] The first question is:

In CIV 2009-404-6005 does the transitional provision in s 444(3) of the

2006 Act require the Assignee to establish that he could cancel the transactions under section 56 of the Insolvency Act 1967 in addition to proving that the Court should cancel the transactions under ss 194 and 195 of the 2006 Act?

[8] The second question is: “Whether s 444(3) applies to an application by the

Assignee under ss 211 and 212 of the 2006 Act?”.

The first question

[9] The transactions caught by s 56 of the 1967 Act were called “voidable preferences”. The equivalent type of transaction in the 2006 Act is an “insolvent transaction”, which is a specific type of “irregular transaction” (see s 192(1)(a)). Whilst there were other types of suspect transactions under the 1967 Act, the focus of the first question confines the scope of this part of the enquiry to looking at s 56, and those transactions known as “voidable preferences”.

[10] The parties agree that s 444(3) should be read as giving the 2006 Act some effect on suspect transactions that predate the 2006 Act’s commencement. In this regard, they agree that the interpretation given in Reynolds v Glengary Hancocks Ltd HC Auckland CIV 2008-404-4745, 7 July 2009 to a similar transitional provision in s 27(5) of the Companies Amendment Act 2006 is not correct. In Reynolds, the Court interpreted s 27(5) as requiring the Court to continue applying the pre- Amendment Act test to pre-Amendment Act transactions without reference to the revised test introduced by the Amendment Act.

[11] I concur with the parties’ view. The presence of a transitional provision which attempts to specify how the 2006 Act will apply to suspect antecedent transactions indicates Parliament intended that the 2006 Act would have some application to those transactions. Where the uncertainty and, therefore, room for dispute lies is with the extent of this application.

[12] The parties also agree that to make sense of s 444(3), the reference to “if this section had not come into force” should be read to mean “as if this Act had not come into force”. This reading of s 444(3) might suggest that when it comes to the 2006

Act’s effect on suspect antecedent transactions predating its commencement, Parliament intended that only those that could be cancelled under the 1967 Act would be treated as irregular transactions under the 2006 Act. But there is an obstacle to understanding s 444(3) in this way. The 1967 Act treated certain suspect transactions as being voidable, and these were able to be set aside. The terms “cancel” and “cancellation” were not used in the 1967 Act. It follows that when the

1967 Act is read literally, there is nothing in it regarding the “cancellation” of suspect transactions. Unless the reference to “cancel” in s 444(3) is read as referring to a synonymous or similar concept in the 1967 Act, s 444(3) becomes meaningless for a different reason: namely, there are no transactions to which the subsection could ever apply, since the qualifying factor (cancellation) is not found in the 1967

Act.

[13] The plaintiff argues that the type of suspect antecedent transactions to which s 444(3) refers are those that were once subject to s 58(1) of the 1967 Act. This was the provision under the 1967 Act which triggered the setting aside of a voidable

preference transaction. Hence, for the plaintiff the concept of “cancellation” in s 444(3) of the 2006 Act is analogous to the concept of “setting aside” in s 58(1) in the 1967 Act. He contends that once he can show a suspect antecedent transaction could have been set aside under s 58(1), that is enough to make the transaction qualify under s 444(3), and thus enable it to be dealt with as an “irregular transaction” under the 2006 Act’s provisions. The defendants’ argument implicitly rejects any suggestion that the concepts of cancellation in the 2006 Act and setting aside under s 58(1) of the 1967 Act are analogous. Some analysis of how these two concepts operate is needed before a view can be reached on which argument is correct.

The two concepts

[14] Cancellation of “irregular transactions” under the 2006 Act can occur in two ways. The Assignee who wishes to cancel an irregular transaction must file a notice with the Court and serve the notice on certain specified persons (s 206(2)). Under s 206(4), if the persons in receipt of the Assignee’s notice do not object to the cancellation, the irregular transaction is automatically cancelled as against those recipients. Under s 206(6), an irregular transaction that is not automatically cancelled under s 206(4) may still be cancelled by the Court on the Assignee’s application. Thus, under the 2006 Act, cancellation does not actually happen until one of two events occurs: first, by operation of law under s 206(4); or, secondly, by order of the Court under s 206(6). The action of the Assignee in issuing the s 206 notice is no more than an indication of the Assignee’s wish to have the irregular transaction cancelled.

[15] Under the 1967 Act, the way in which the Assignee dealt with voidable preferences (the equivalent of an “insolvent transaction” under the 2006 Act) was completely different. Under the 1967 Act, there were, in effect, two stages during which that Act treated voidable preference transactions as having been set aside.

[16] Under s 56(1), transactions that qualified as voidable preferences were treated as voidable against the Assignee. When the Assignee was confronted with such a

transaction, he issued a notice under s 58(1). The notice was sufficient in itself to cause the voidable preference transaction to be treated as set aside.

[17] In Re Holm (a bankrupt) [1974] 2 NZLR 455 (SC), part of what Roper J had to decide included whether the 1967 Act had the effect of permitting the Assignee of his own initiative to declare a transaction to be a voidable preference. Roper J was critical of this aspect of the 1967 Act. At 456 he said: “I think the Act and regulations leave a lot to be desired on this question of procedure and may require some amendment”. Nonetheless, he concluded that the effect of s 58 and the prescribed notice in the first schedule to the Insolvency Regulations 1970 was that once the Assignee had given notice under s 58(1), the transaction affected by that notice was set aside, unless the other party decided to challenge the Assignee’s decision under s 86. Once a challenge under s 86 was made, the question of whether or not the subject transaction was a voidable preference was one for the courts. By then, the second stage of how the 1967 Act provided for dealing with suspect transactions was reached.

[18] Under s 86, the courts could decide to confirm, modify or reverse the Assignee’s decision. Until the time for exercising rights under s 86 had passed, any decision the Assignee made under s 56 was potentially subject to reversal or modification by the courts. Thus, it can be seen that under the 1967 Act, although a voidable preference was set aside through the issue of a s 58(1) notice, the finality of this event hinged on either the recipient of the s 58(1) notice not exercising their appeal rights under s 86, or, if there was an appeal under s 86, the outcome of the appeal.

[19] The interplay between ss 58(1) and 86 suggests to me that there was something contingent about the concept of “setting aside” that was brought about through the Assignee issuing a s 58(1) notice. This characteristic is missing from the concept of “cancellation” under ss 206(4) and 206(6) of the 2006 Act. Therefore, cancellation as achieved by ss 204(4) or 204(6) cannot be treated as analogous to setting aside under s 58(1).

Other factors

[20] In addition to the interplay between ss 58(1) and 86, there is another factor that shows that the setting aside achieved by s 58(1) was qualified in a way which serves to differentiate it from cancellation under either ss 206(4) or 206(6). Under s 58, the setting aside that was achieved by the s 58(1) notice was not enough in itself to allow the Assignee to gain possession of the property that was disposed of by the voidable preference, or to obtain valuable consideration in substitution for that property. To recover the property or valuable consideration, the Assignee required an order of the Court under s 58(2). Such orders were subject to ss 58(5) and 58(6). Interestingly, although the language of s 58(1) conveys the impression that the issue of the notice effects the setting aside, (as Roper J found in Re Holm), the language of s 58(5) is more tentative. This subsection states that: “a disposition that has been made in favour of any person may be set aside pursuant to subsection (1)”. The operation of ss 58(2), 58(5) and 58(6) confirm for me the contingent character of a setting aside under s 58(1). This in turn supports the view that a setting aside under s 58(1) is not analogous to cancellation under the 2006 Act.

[21] When it comes to looking for something that is analogous to the concept of “cancellation” in the 2006 Act and which can, therefore, be taken as the reference point for the type of suspect antecedent transactions to which Parliament intended s 444(3) to apply, this can be found in what I have referred to as the second stage of the setting aside process under the 1967 Act. By this, I mean the stage when the status of a suspect antecedent transaction, such as a voidable preference, was finally known. This stage would have been reached when either the time for appealing the s 58(1) notice had expired, or any appeal, which was brought under s 86, was unsuccessful.

[22] Added to this mix is the further qualification that “setting aside” did not of itself result in the effect of a voidable preference transaction being undone. More was required in terms of Court orders under s 58.

[23] This view of what is meant by “cancellation” in s 444(3) would exclude from the subsection’s effect suspect transactions that had not gone beyond the stage of a s 58(1) notice. This means that before a suspect antecedent transaction is subject to the 2006 Act, the Assignee will have to show that the transaction would have been one for which a notice under s 58(1) would have been issued, and, following that event, the transaction would have withstood challenge under s 86, or the procedures in ss 58(2), 58(5) and 58(6). This is contrary to the plaintiff’s argument, but it fits with the view of the 1967 Act which the defendants have invited the Court to adopt.

[24] The conclusion I have reached on the meaning of “cancellation” in s 444(3) fits with the intent and purpose of Parliament. In addition, I consider that the interpretation for which the plaintiff argues faces difficulties overcoming generally accepted principles of statutory interpretation.

Problems with retrospectivity

[25] There is no doubt that s 444(3) is poorly expressed. If the plaintiff’s interpretation of s 444(3) were to be accepted, it would result in a poorly drafted and obscure subsection being able to give the 2006 Act retrospective effect on suspect antecedent transactions that predate that Act’s commencement. This is contrary to the usual understanding of when an enactment will be read as having retrospective effect. In my view, this provides another ground for reading the reference to “cancellation” in s 444(3) as requiring something more than a setting aside as a result of a s 58(1) notice.

[26] As I have outlined at [13], the plaintiff argues that suspect antecedent transactions which predate the 2006 Act can nonetheless be dealt with under that Act if they were the kind of transaction that could have been set aside through the issue of a s 58(1) notice under the 1967 Act. On this view, once the transaction’s vulnerability to the issue of a s58(1) notice is established, the 2006 Act takes effect retrospectively and the transaction can then be treated as an irregular transaction under the 2006 Act. What the ultimate outcome would have been for the transaction under the 1967 Act is irrelevant.

[27] The defendants argue that the plaintiff’s interpretation extends the retrospective effect of s 444(3) beyond its intended meaning. The defendants contend that s 444(3) gives the 2006 Act a more limited retrospective effect. They argue that the 2006 Act can only apply retrospectively to the type of suspect antecedent transaction that would have been set aside under the 1967 Act, either through an unsuccessful challenge under s 86, or through no such challenge being made. In other words, suspect antecedent transactions predating the 2006 Act can only be cancelled under the 2006 Act if they would ultimately have qualified for termination under the relevant provisions of the 1967 Act. This would lead to the outcome where suspect antecedent transactions predating the 2006 Act are at no greater risk of being cancelled now than they would have been under the 1967 Act. This view still gives the 2006 Act some retrospective effect, but in a way that does not offend against the generally understood objections to retrospective legislation.

[28] In support of their argument, the defendants say that the first stage of the procedure for setting aside voidable preferences under the 1967 Act turned on no more than a decision of the Assignee that a transaction was a voidable preference. Under the 1967 Act, this characterisation could later be shown to be wrong as a result of a successful exercise of the s 86 rights. The defendants submit that if the plaintiff’s argument is accepted, suspect antecedent transactions that are potentially explainable as being without irregularity or preferential treatment in terms of the

1967 law will become subject to attack under the 2006 Act. This would mean that the 2006 Act’s provisions were being applied retrospectively to those transactions.

[29] The defendants rely on the presumption in s 7 of the Interpretation Act against retrospective legislation, and argue that the obscurity from which s 444(3) suffers tells against it being interpreted as having retrospective effect.

[30] There are cannons of statutory interpretation which are called upon when a statute is poorly drafted. Francis Bennion Bennion on Statutory Interpretation (5^th ed, Lexis Nexis, London, 2008) at 544 states that:

The basic rule of statutory interpretation is that the legislator’s intention is taken to be that in any case of doubtful meaning the enactment shall be construed in accordance with the general guides to legislative intention laid

down by law; and that where these conflict the problem shall be resolved by weighing and balancing the interpretative factors concerned.

[31] One of the cannons of interpretation is the presumption against retrospectivity. This is a long standing principle which is now expressed in s 7 of the Interpretation Act. The general presumption against retrospectivity would favour an interpretation of s 444(3) which is consistent with the presumption against retrospectivity. This outcome would favour the defendants’ interpretation of s 444(3).

[32] An interpretation that is consistent with the presumption against retrospectivity is how other courts have approached other transitional provisions of doubtful meaning. In Waitakere City Council v Kitewaho Bush Reserve Co Ltd [2005] 1 NZLR 208 (HC) at 213, Randerson J had to interpret s 112(4), the transitional provision in the Resource Management Amendment Act 2003. Randerson J approached the subsection in this way:

As s 112(4) is currently worded, it makes no sense at all. The transitional provision does not make any substantive changes to the principal Act. It simply provides for the transition. The only way in which any sense can be made of s 112(4) is to read it as meaning that any declaration or enforcement proceedings in existence before the 2003 Amendment Act came into force are to be continued and concluded under the principal Act as if the Amendment Act had not been enacted. That would be in accordance with the general prohibition on legislation with retrospective effect ...

[33] The plaintiff has sought to counter the defendants’ reliance on the presumption against retrospectivity by arguing that the interpretation he promotes does not have any retrospective effect. The plaintiff has referred me to a passage in Bennion at 318:

An application is not retrospective where the enactment is applied at a time after its commencement to a state of affairs subsisting at that time, even though that state of affairs came into existence before the commencement.

[34] Before considering the above passage from Bennion, it is worthwhile considering the general comments Bennion makes about retrospective legislation, and how it is generally viewed. Bennion provides a helpful analysis of the principles of statutory interpretation relevant to retrospectivity.

[35] The idea that an enactment is not intended to be retrospective unless Parliament has made this intent clear is a principle of long standing. As authority for this proposition, Bennion (at 316) cites Maxwell On The Interpretation of Statutes (12^th ed, Sweet & Maxwell, 1969) at 215:

It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.

[36] “By necessary implication” is not to be equated with a reasonable implication. This was made clear by the Privy Council in B v Auckland District Law Society [2003] UKPC 38; [2004] 1 NZLR 326 (PC) at [58] when it cited with approval the statement of Lord Hobhouse of Woodborough in R (Morgan Grenfell & Co Ltd) v Special Commissioner of Income Tax [2002] 2 WLR 1299:

A necessary implication is not the same as a reasonable implication...A necessary implication is one which necessarily follows from the express provisions of the statute construed in their context. It distinguishes between what it would have been sensible or reasonable for Parliament to have included or what Parliament would, if it had thought about it, probably have included and what it is clear that the express language of the statute shows that the statute must have included. A necessary implication is a matter of express language and logic not interpretation.

[37] The concern held about retrospective legislation is its artificial nature of treating something to be “what it is not”. Bennion describes this concern at 316:

The essential idea of a legal system is that current law should govern current activities. ... If we do something today, we feel that the law applying to it should be the law in force today, not tomorrow’s backward adjustment of it.

... those who have arranged their affairs ... in reliance on a decision which has stood for many years should not find their plans have been

retrospectively upset.

[38] And later at 316 Bennion states:

Retrospective legislation is ‘contrary to the general principle that legislation by which the conduct of mankind is to be regulated ought, when introduced for the first time, to deal with future acts, and ought not to change the character of past transactions carried on upon the faith of the then existing law. The basis of the principle against retrospectivity is no more than simple fairness which ought to be the basis of every legal rule’.

[39] In New Zealand, Parliament has in s 7 of the Interpretation Act made clear its intention to maintain the long standing principle against retrospective legislation. This section is one of the principles of interpretation to be found in the Act. But s 4 makes it plain that where an enactment provides otherwise, or the context of the enactment requires a different interpretation, the principle against retrospectivity is overridden.

[40] The New Zealand position on retrospective legislation is not substantially different from the English position. The art of interpretation lies in discerning when a poorly drafted statutory provision can be understood to show a contrary intent to the general principle.

[41] The passage in Bennion on which the plaintiff relies states that the application of a new Act to subsisting arrangements is not retrospective. If this argument were accepted, it would avoid the problems the presumption against retrospectivity creates for the plaintiff, given the difficulties from which s 444(3) suffers.

[42] But I have difficulty seeing how completed transactions can be described as subsisting arrangements. The Shorter Oxford English Dictionary (5^th ed, Oxford University Press, 2002) at 3090 defines “subsist” to mean: “Exist, have a real existence, remain in being, continue to exist, continue in a condition or position, remain as a specified thing”.

[43] Applying this definition to subsisting arrangements leads me to conclude that a subsisting arrangement is one that is ongoing, or has a continued existence; whereas I see “completed transactions” as being transactions whose purpose is finalised or spent. Once a transaction has been completed, it has achieved its purpose and effect, and so it ceases to be. I do not consider, therefore, that a completed transaction (which is the term used in s 444(3)) can be equated with a subsisting transaction. It follows that the section in Bennion on which the plaintiff relies has no relevance.

[44] However, there is another section in Bennion that is of interest. This is the section dealing with retrospectivity and events occurring over a period where a part, but not the whole, of the period has elapsed at the commencement of the enactment. Bennion at 322 says that:

... the court decides whether the enactment is subject to the principles governing retrospectivity by determining whether in substance the enactment, in relation to the facts of the case, is a current or future enactment. Only where it is a future enactment will it be retrospective if applied to the case.

[45] In L’Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co Ltd [1994] 1 AC 486 at 526, Lord Mustill referred to this section in Bennion and said:

... the problem of a statute which creates powers exercisable in the future by reference to a continuous period of time antecedent to their exercise and which comes into force whilst that period is running is not new: as witness the discussion in Bennion Statutory Interpretation ... The cases show that the presumption against retrospectivity does not necessarily entail that the period antecedent to the statute should be left out of account.

[46] Lord Mustill, in whose decision is to be found the reasons for the judgment the House of Lords reached, then went on to consider the case law and concluded at

527 that in cases where an intermediate type of retrospectivity was in issue, the court was required to make an assessment of whether the consequences of reading a statute with the suggested degree of retrospectivity were so unfair that it could be satisfied that Parliament did not intend that result:

These cases do not point directly to a conclusion, but they do demonstrate that where an intermediate type of retrospectivity is in issue the purpose of the legislation and the hardship of the result contended for are of particular importance.

[47] Lord Mustill then considered the nature of the claimant’s rights on which the retrospective legislation would impinge. He made it clear at 528 that by this he meant the “generality of rights which Parliament must have contemplated that the claimants would suffer if the section took effect retrospectively”.

[48] In the present case, on the plaintiff’s argument, the application of a relation back period and the provisions of the 2006 Act, when applied to transactions that

were entered into before the 2006 Act came into force, would see the legal incidents of those transactions being susceptible to alteration in a way that may not have been available at the time the transactions were effected.

[49] The defendants argue that the application of the 2006 Act’s provisions to transactions that predate the Act exposes the counterparties to those transactions to a risk of having the transaction cancelled under the 2006 Act when the transaction would ultimately have withstood scrutiny under the 1967 Act.

[50] As is made clear in L’Office Cherifien, the court must balance the actual effect of the retrospectivity against the unfairness that may result. In L’Office Cherifien, the legislation in issue was the application of an amendment to the Arbitration Act 1950, which authorised arbitrators to dismiss claims where there had been inordinate and inexcusable delay, to circumstances where the delay predated the amendment. Before the Amendment Act, there was no provision for dismissing a claim on this basis. The House of Lords found that delay before the passing of the amendment could be relied upon to dismiss a claim under the new power. This circumstance is considerably different from applying new provisions of an insolvency regime to antecedent transactions which the parties entered into when the previous Act was in force. Those transactions may include suspect transactions, but equally they may include bona fide transactions with counterparties that would have withstood scrutiny under the 1967 Act’s voidable preference regime. It is hard to see why the counterparties that have engaged in transactions of the latter type should now find them being challenged, and even cancelled as a result of that challenge, under law that did not apply at the time the transactions were concluded. I consider, therefore, that the nature of the rights involved and the potential for hardship if different treatment is retrospectively imposed supports an interpretation of s 444(3) that would only see the 2006 Act applied to antecedent transactions that ultimately would have been set aside under the 1967 Act, rather than those that merely could have been the subject of a s 58 notice. To read s 444(3) in this way is consistent with the general presumption against retrospectivity.

Use of earlier transitional provision as an interpretation guide

[51] The way in which I propose to read s 444(3) is also consistent with how the

1967 Act expressed its transitional provision. An earlier enactment can provide some insight into the intended meaning of a later statutory provision: see J F Burrows and R J Carter Statute Law in New Zealand (4^th ed, Lexis Nexis, Wellington, 2009) at 252.

[52] Section 169 of the 1967 Act set out its transitional provision:

Nothing in this Act shall make void or voidable any gift, conveyance, transfer, security, charge or other transaction which was made or given or occurred before the commencement of this Act and would not have been void or voidable if this Act had not come into force.

[53] To understand s 169, some understanding of the law that was in force before the commencement of the 1967 Act is required. Under the Bankruptcy Act 1908, the provision dealing with suspect transactions was s 79; which was the equivalent of s 56 of the 1967 Act: see Re Eskay Metalware Ltd [1978] 2 NZLR 46 (CA) at 49. Section 79 deemed certain transactions to be fraudulent and void as against the Assignee. In Re Eskay, the Court of Appeal discussed s 79 and its effect. At 49, the Court of Appeal described the section’s effect in this way:

... s 79(1) merely deemed the preference to be fraudulent. Proof of actual fraud was not required and the transaction itself continued to stand unless and until it had been set aside.

[54] The burden of proving a suspect transaction was fraudulent and, therefore, that it should be set aside rested on the Assignee: see Official Assignee v Wairarapa Farmers Co-operative Association Ltd [1925] NZLR 1 (SC) at 3 where Salmond J said: “The burden of proving that the transaction was a fraudulent preference on the part of the bankrupt lies upon the Official Assignee”.

[55] A statement to the same effect is to be found in Re Aston Ex P Official

Assignee [1956] NZLR 703 (SC) at 705.

[56] It follows that a transaction under the Bankruptcy Act was not actually void or voidable, and so able to be set aside, until such time as the Assignee had discharged his burden of proving the transaction was fraudulent. Until then, a transaction that fell within s 79 was only deemed to be void or voidable. Elsewhere in the Bankruptcy Act there were statutory defences which, if established, prevented a deemed fraudulent transaction from being invalidated: see s 82.

[57] The use of the word “deemed” in s 79 introduces the concept of a two stage approach where transactions are first deemed to be fraudulent and, therefore, void if they fit within criteria contained in s 79, and then at a later time the Assignee had to prove they were fraudulent before they could be found to be fraudulent and so invalidated.

[58] Section 169 of the 1967 Act does not refer to transactions that were “deemed” to be void or voidable. It refers instead to transactions that “would not have been void or voidable”. I read this phrase in s 169 as referring to the second stage of the two staged approach the Bankruptcy Act had for dealing with fraudulent transactions. Thus, under s 169, the only suspect transactions predating the 1967 Act that were at risk of being set aside under the 1967 Act were those that would have been invalidated by the Court under the Bankruptcy Act, as a result of the Assignee having proved them to be fraudulent preferences. Those transactions have the same degree of finality about their status as do the second stage transactions I have described in [18] herein. The view I have reached on the application of s 444(3) to suspect transactions predating the 2006 Act is consistent with the transitional provision that Parliament provided in the 1967 Act.

[59] The idea that a transitional provision would cause new insolvency legislation to intrude no further on antecedent transactions than would have been the case under previous insolvency law is consistent with how the courts have historically approached the application of new insolvency legislation to antecedent transactions. In Ex parte Todd (1887) 19 QBD 186, the Court of Appeal of England and Wales found that a new provision introduced by the Bankruptcy Act 1869 was not retrospective and, therefore, even though the Act invalidated voluntary settlements

made within 10 years of bankruptcy, that provision could not be applied to such settlements that were made before the Act was passed. Lord Esher MR said at 195:

... so far as s. 47 is a repetition of s. 91, the legislature obviously intended to replace the old enactment at once by the new one, and that, to that extent, s. 47 must apply to transactions which took place before the commencement of the new Act. But why should we carry it any further, and say that the new part of s.47 applies to antecedent transactions? I can see no reason for doing so, and I think it is a wholesome doctrine to hold that the section is retrospective so far as it is a repetition of the former enactment, but that it is not retrospective so far as it is new.

Conclusion on question one

[60] It follows that for the reasons set out above, I find that the interpretation of s 444(3) that the defendants advocate is the correct interpretation. This means that before an antecedent transaction can be cancelled as irregular under the 2006 Act, the transaction must be the type of transaction that ultimately would have been set aside following analysis in terms of ss 56 and 86 of the 1967 Act.

Question two

Application of s 444(3)

[61] The second question for determination is whether or not s 444(3) applies to an application by the Assignee under ss 211 and 212 of the 2006 Act. The Assignee wants to know if he can apply ss 211 and 212 retrospectively to transactions which predated the 2006 Act, and which he suspects of being at undervalue. Since s 444(3) is the only transitional provision which attempts to give the 2006 Act some retrospective effect, the Assignee wants to know if that provision can assist him.

[62] Sections 211 and 212 apply to “transactions at undervalue”. Section 192 lists the types of transactions that are “irregular transactions”. A “transaction at undervalue” is included in this list. The power to cancel an irregular transaction is found in s 192(2). This subsection lists the irregular transactions that can be cancelled; the list does not include transactions at undervalue. So whilst s 192(1) includes a “transaction at undervalue” in the definition of “irregular transaction”, s 192(2) does not include a “transaction at undervalue” in the list of irregular

transactions that may be cancelled. There is no power elsewhere in the 2006 Act to cancel a transaction at undervalue.

[63] Section 444(3) is directed at the occasions when a suspect antecedent transaction which predates the 2006 Act might be cancelled under that Act’s cancellation provisions. Since cancellation cannot occur in the case of transactions at undervalue, it is difficult to see how s 444(3) could have any application in that context.

[64] Furthermore, the concept of transactions at “undervalue” is a class of suspect antecedent transactions that has been introduced by the 2006 Act. The 1967 Act did not deal specifically with transactions at undervalue in the same way as ss 211 and

212. The provision in the 1967 Act with some likeness to ss 211 and 212 is s 54(3). This subsection treated a disposition for valuable consideration that was less than adequate as being a “voidable gift”. If the Assignee could establish that the inadequacy of the consideration and other relevant circumstances made the disposition a voidable gift, he could recover the value of the difference between what was paid and what should have been paid. The 1967 Act did not provide for this type of transaction to be set aside: see s 58(1) which specifically exempted s 54(3) from those transactions for which a notice under s 58(1) could be issued.

[65] I have already found in answering question one that the type of suspect antecedent transactions predating the 2006 Act to which s 444(3) could apply were those that could be undone under the 1967 Act in a way that had the same outcome as does cancellation under the 2006 Act. Since the type of transactions in the 1967

Act, which most resemble those covered by ss 211 and 212, could never be undone in this way, this would be enough in itself to exclude them from being covered by s 444(3).

[66] It follows that I find the answer to question two is no; s 444(3) does not apply to an application by the Assignee under ss 211 and 212 of the 2006 Act. This means that the 2006 Act has no transitional provision which deals with how, if at all, ss 211 and 212 are to be applied to transactions predating the 2006 Act that are suspected of being at undervalue.

Application of general principles of interpretation to ss 211 and 212

[67] This still leaves the question of whether a literal reading of ss 211 and 212, coupled with the 2006 Act’s relation back period for transactions at undervalue are enough to capture suspect transactions predating the 2006 Act’s commencement, which otherwise meet the requirements of those provisions. I do not think that the literal meaning of ss 211 and 212 when combined with the 2006 Act’s relation back period is enough to enable ss 211 and 212 to apply retrospectively to transactions which were completed before the 2006 Act’s commencement. The principles on retrospectivity and the relevant case law that I considered for the first question are against such a proposition.

[68] The reasoning of Ex parte Todd is helpful when it comes to considering whether ss 211 and 212 have retrospective effect. In that case, the relevant new legislation did not contain a transitional provision. The Court of Appeal of England and Wales was faced with a Bankruptcy Act which in part replicated provisions in the previous Act, and in part introduced additional provisions which made certain transactions subject to being set aside for the first time. The Court was prepared to read the Act as having retrospective effect when it came to the provisions which replicated the provisions in the previous Act. The Court did this because otherwise there was the prospect that transactions that were open to objection under the previous Act would no longer be subject to challenge. Lord Esher MR said at 195:

As a general rule an Act of Parliament which affects rights is not retrospective, unless the intention of the legislature that it shall be retrospective is plainly expressed or implied. But, if that part of s.47 which is old be not retrospective, what would be the result? The Act of 1869 is repealed, and a number of settlements to which it applied would be left untouched by reason of the repeal. In determining whether any provision of an Act was intended to be retrospective or not, I think the consequences of holding that it is not retrospective must be looked at, and to my mind it is inconceivable that the legislature, when, in a new Act which repeals the former Act, they repeat in so many words certain provisions of the repealed Act, should have intended that persons who, before the passing of the new Act, had broken the provision of the old Act - who had been doing that which the legislature thought to be wrong - should entirely escape the consequences of their wrongdoing by reason of the repeal of the old Act.

I consider that this reasoning applies with equal force to the present case. Moreover, the usual reasons against retrospective legislation, such as the perceived unfairness

of making past transactions subject to subsequent law, carry no weight when the former law had much the same effect on those transactions.

Limited retrospectivity of ss 211 and 212

[69] For the reasons set out in Re Todd, I consider that ss 211 and 212 can be read as having retrospective effect insofar as those sections might be applied to suspect antecedent transactions that would have been similarly affected by s 54(3) of the

1967 Act, or any other provision in that Act that might have application to a transaction at undervalue. But ss 211 and 212 cannot be applied to a suspect antecedent transaction when to do so would be to impose on that transaction a type of law which did not exist at the time the transaction was completed. To do otherwise would be to permit ss 211 and 212 to have retrospective effect without a proper basis for doing so. In this regard, the 2006 Act does not expressly provide for ss 211 and 212 to be retrospective. Secondly, the statutory language prescribing the relation back period for the sections dealing with irregular transactions can just as readily be understood to have only a prospective effect, so that there is nothing by necessary implication to support ss 211 and 212 having full retrospective effect. Thirdly, s 444(3) reveals the extent to which Parliament intended the 2006 Act to apply retrospectively. The exclusion of ss 211 and 212 from that provision gives further support to the view that Parliament did not intend ss 211 and 212 to have full retrospective effect.

Conclusion on question two

[70] Section 444(3) has no application to ss 211 and 212. The omission to provide expressly for ss 211 and 212 to have some retrospective effect may be due to the same or similar error that caused s 444(3) to be so poorly drafted. The explanation for why the 2006 Act’s transitional provision is as it is can only be guessed. In such circumstances, the best approach is the one that is consistent with established principle. On this approach, to the extent that ss 211 and 212 are similar to s 54(3), or any other provision in the 1967 Act that applies to suspect antecedent transactions at undervalue, reading ss 211 and 212 as having retrospective effect does not offend

against the general presumption against retrospectivity. But beyond this, established principle is against ss 211 and 212 having retrospective effect.

Result

[71] The answer to the first question is yes; the transitional provision in s 444(3) of the 2006 Act requires the Assignee to establish that he could cancel the antecedent transactions under s 56 of the 1967 Act, in addition to proving that the Court should cancel the transactions under ss 194 and 195 of the 2006 Act.

[72] The answer to question two is no; s 444(3) of the 2006 Act does not apply to any application by the Assignee under ss 211 and 212 of the 2006 Act.

[73] Sections 211 and 212 nonetheless have some limited retrospective effect. This turns on whether or not the suspect antecedent transactions to which ss 211 and

212 are applied are of a type for which there was similar provision in the 1967 Act.

[74] The defendants have been substantially successful. Leave is reserved to the parties to file memoranda on costs, should they be unable to agree to the question of costs.

Duffy J