BETWEEN ANDREI KLIMENKO Plaintiff AND ANTON KLIMENKO and ANNA GONCHARENKO Defendants

[2023] NZHC 3380

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2362

[2023] NZHC 3380

BETWEEN

ANDREI KLIMENKO

Plaintiff

AND

ANTON KLIMENKO and ANNA GONCHARENKO

Defendants

Hearing:

20 November 2023

Counsel:

P J Stevenson for the Plaintiff

J D Turner and A McIntosh for the Defendants

Judgment:

27 November 2023

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 27 November 2023 at 11 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors/Counsel:

Loughlin McGuire, Auckland McVeagh Flemming, Albany

P Stevenson, Barrister, Auckland

KLIMENKO v KLIMENKO [2023] NZHC 3380 [27 November 2023]

A dispute between father and son

[1]    The plaintiff, Andrei Klimenko, is the father of the first named defendant, Anton Klimenko. The second named defendant, Anna Goncharenko, is Anton’s1 de facto partner.

[2]    Andrei lives in Russia. Anton and Anna live in New Zealand. In 2010, a bank account was opened in New Zealand in the joint names of Andrei and Anton. Between April 2011 and October 2018, Andrei deposited a total of NZD 1,370,713 into the account. Anton had control of the account. He used the funds, at least in part, to purchase residential property in New Zealand, tools and building materials, and a Landcruiser vehicle.

[3]    Andrei says that, by agreement, Anton was to use the funds in the account to purchase residential properties in New Zealand for Andrei’s benefit. Anton says that the funds were an unconditional gift to him, and he was free to use the funds for his own benefit as he saw fit.

[4]    The first property purchased by Anton was 1 Aberley Road in Albany. It is agreed that funds from the account were used to purchase that property. Since then, Anton, either alone or together with Anna, and sometimes using other entities, has been involved in the sale and purchase of 12 residential properties.

[5]    Andrei claims against Anton alleging a resulting or constructive trust. Andrei seeks to trace his funds through the property transactions involving Anton, to establish a resulting or constructive trust in respect of real estate or other property that now constitutes the ultimate fruits of Andrei’s source funding. Given the number of property transactions that Anton has been involved in, that is not an easy exercise.

[6]    The parties have provided discovery. Each party criticises the discovery provided by the other. In this judgment, I determine cross-applications for further discovery.

1      I use the parties first names, given the commonality of surname, and I mean no disrespect to the parties.

[7]    Before I deal with the particular discovery sought by each party, I will briefly set out:

(a)the legal principles applicable to applications for particular discovery;

(b)the basis of Andrei’s case, against which all requests for particular discovery must be measured;

(c)the issues raised by Anton and Anna’s defence; and

(d)the history of discovery to date.

The legal principles applicable to applications for particular discovery

[8]    Standard discovery requires a party to disclose documents that adversely affect that party’s own case, or adversely affect or support another party’s case.2

[9]    Rule 8.19 of the High Court Rules 2016 (HCR) allows the Court to make an order for particular discovery against a party, after the party has already provided standard discovery, where there are grounds for believing that the party has not discovered all relevant documents.

[10]   There is an initial presumption that a party’s affidavit of documents in the earlier discovery is conclusive. The applicant seeking further discovery has the onus of establishing that the existing affidavit of documents is incomplete.

[11]There are four questions to consider:3

(a)Are the documents relevant, and if so how important will they be?

(b)Are there grounds to believe that the documents exist?

(c)Is discovery proportionate?

2      Rule 8.7 of the High Court Rules 2016.

3      Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].

(d)Considering the above factors, is an order for discovery appropriate?

The legal basis of Andrei’s case

Resulting trust

[12]   A resulting trust may arise where a party makes a payment to another party for the purchase of property which is vested in the name of the recipient of the payment. There is a presumption that the payer did not intend to make a gift, and the money or property is held on trust for the payer if they are the sole provider of the money. In the case of a joint purchase, then the property is held on trust for the payer and the recipient in shares proportionate to their contributions to the purchase of the property.4

[13]   In Chang v Lee,5 the Court of Appeal held that the rationale for a resulting trust is that, absent evidence to the contrary, the law presumes a person intends to retain the beneficial ownership of funds which they advance towards the purchase price of a property.

[14]   This presumption can be rebutted by direct evidence of a contrary intention, such as an intention to gift, or by a counter-presumption of advancement. The relationship of parent and child can give rise to a presumption of advancement (a gift), which can be rebutted by evidence of the parent’s intention to retain beneficial ownership. This can lead to what has been described as a battle of presumptions.6

[15]   Ultimately, in the case of competing presumptions, of retention of beneficial ownership or advancement, the issue of intention can be resolved by evidence of actual intention.

[16]   The authors of Trusts — A to Z of New Zealand Law helpfully record a list of factors relevant to ascertaining the true intention of the transferor:7

4      Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL) at 708.

5      Chang v Lee [2017] NZCA 308, [2017] NZAR 1223.

6      Klimenko v Gonschareko [2021] NZHC 2592 at [6].

7      Jessica Palmer Trusts — A to Z of New Zealand Law (Thomson Reuters, online ed) at [26.12.5.2].

a)   The source of financial contributions to the property (as is traditionally relevant in resulting trusts), including how the property was financed, both initially and subsequently;

b)   Whether anything has happened subsequent to initial purchase or conveyance that is relevant to the transferor’s intention at the time of transfer;

c)   Whether anything has happened subsequent to the initial purchase or conveyance which might suggest that the relevant intention has changed (for example, in the case of joint ownership, where one party has financed or constructed an expansion or substantial improvement to the property so that it is now significantly different from that originally acquired);

d)   The wording used in relevant documentation;

e)   Whether the transferor obtained legal advice;

f)   Whether any power of attorney was granted;

g)   The reasons why the property was acquired in the names of, or conveyed to, the existing legal owner/s;

h)   The reasons why (if it be the case) the survivor was authorised to give a receipt for the capital moneys;

i)    The purpose for which the property was acquired;

j)    The control and use of the property;

k)   Tax treatment of the property;

l)    (In the case of joint ownership) how the parties arranged their finances;

m)    How the parties discharged any outgoings on the property; and

n)   The parties’ individual characters and personalities. (Footnotes omitted)

Constructive trust

[17]An institutional constructive trust will arise where:

(a)there have been contributions, direct or indirect, to the property in question;

(b)there is an expectation that the contributor will acquire an interest in the property;

(c)this expectation is reasonable;

(d)the defendant should reasonably expect to yield to the claimant an interest in the property.8

[18]   Plainly, if alleged contributions are a gift then the contributor cannot hold a reasonable expectation of an interest in the property.

The issues raised by Anton and Anna’s defence

[19]   Anton and Anna’s statement of defence raises numerous issues of fact with Andrei’s claim. However, the primary issue is whether Andrei intended his funds to be used for his benefit, or for joint benefits, or as a gift?

[20]   Anna denies knowledge of key facts alleged to give rise to a resulting or constructive trust. Counsel for Andrei submits that this raises issues of accessory liability in equity, which turns on knowledge. I note that the statement of claim does not include a pleading of accessory liability. Even so, Anna’s knowledge of the intentions of Andrei and Anton in respect of the funds will be a live issue at trial.

[21]   Similarly, Andrei seeks to trace his funds into the hands of companies controlled by Anton and Anna. These companies own some of the properties in issue. Knowledge will also be an issue. I note that Andrei has not yet pleaded a cause of action against the companies in question, which will be necessary if Andrei intends to seek the imposition of trust obligations on those companies.

The history of discovery to date

[22]   The parties provided standard discovery in April 2023. Inspection was directed to be completed by 10 May 2023.

[23]   Following provision of the first round of discovery, counsel for both sides raised issues with the discovery, by correspondence. Both parties agreed to provide some further discovery. Unfortunately, counsel did not agree on the scope of the

8      Lankow v Rose [1995] NZLR 277 (CA) at 294.

further discovery required from each party, and there were delays in the provision of the further discovery.

[24]   On 18 August 2023, before Anton and Anna had provided further discovery voluntarily, Andrei filed his application for particular discovery. Anton and Anna provided their further discovery on 13 November 2023, including conveyancing files from solicitors that acted on the purchase and sale of the properties in issue. This further discovery may well satisfy most, if not all, of Andrei’s request for particular discovery.

[25]   However, counsel for Andrei was unable to complete inspection of the further discovery before the hearing on 20 November 2023, so the adequacy of Andrei’s further discovery is yet to be ascertained. Further, at the hearing on 20 November 2023, counsel raised issues regarding the form of Anton and Anna’s further discovery.

[26]    To deal with these procedural matters, and to clarify whether any files of the solicitors that performed conveyancing work for Anton and Anna have been overlooked, I issued directions at the conclusion of the hearing on 20 November 2023. After those directions have been performed, and inspection of the discovery already provided has been completed, Andrei may still wish to pursue further discovery of particular documents.

[27]   Andrei voluntarily provided further discovery on 13 July and 19 September 2023, by way of the informal provision of copies of documents. Copies of the documents were also provided to the Court, as attachments to the submissions of counsel for Andrei. These documents have not been allocated a separate document identifier, and no affidavit of documents was provided. Accordingly, on 20 November 2023 I made directions for provision of an affidavit of documents in respect of Andrei’s further discovery, and inspection copies of the documents that comply with the HCR.

[28]   Andrei’s informal further discovery may include many of the documents sought by Anton and Anna, but that was not clear to counsel for Anton and Anna by the time of the hearing. Partly, that was because there was no affidavit from Andrei

confirming the searches that he had undertaken, and whether certain documents or classes of documents exist.

Andrei’s application

[29]   I will only comment briefly on Andrei’s application, because it stands adjourned for reconsideration at the next case management conference on 15 December 2023, to allow Andrei’s counsel an opportunity to properly consider the further discovery provided by Anton and Anna on 13 November 2023, together with the further information that will be provided in accordance with my directions made on 20 November 2023.

[30]I adopt my own categorisation, to be used for future reference.

Category 1

[31]   This category comprises the conveyancing files of the solicitors that acted for Anton and Anna, or entities associated with them, in respect of the purchase and/or sale of the 12 residential properties in question. Anton and Anna accept that these files should be disclosed, saying that all available files are included in their further discovery provided on 13 November 2023. That can be reviewed in the case management conference on 15 December 2023.

Category 2

[32]   This category comprises documents relevant to any residential tenancies in respect of the properties. After discussion with counsel during the hearing, it was agreed that the first tranche of further discovery should be limited to the tenancy agreements, and on 20 November 2023 I made an order accordingly.

Category 3

[33]   This category comprises documents relevant to Anton’s purchase of a Landcruiser vehicle, using funds from the account. After discussion with counsel for Andrei during the hearing, it was conceded that discovery of documents in this category was not required, due to the value of the Landcruiser. Documents which

confirm Anton’s withdrawal of funds from the account for this purpose are already available.

Category 4

[34]   This category comprises documents relevant to Anton’s withdrawal of $45,000 from the account on or about 20 November 2013, apparently for the purpose of a loan to a company controlled by Anton. On 20 November 2023, I made a direction for discovery of documents in this category.

Category 5

[35]   This category comprises the bank statements of Anton and Anna and entities that they control. After discussion with counsel during the hearing, it was agreed that the relevance of documents in this category, and the issue of proportionality, were best considered after counsel for Andrei has had an opportunity to inspect the conveyancing files. It may not be necessary to delve into the bank statements. I note that Anton and Anna have not conceded that they are required to provide discovery of their bank statements.

Category 6

[36]   This category relates to the personal files of Anton and Anna in respect of the purchase and sale of the properties.

[37]   Andrei asserts that it is reasonable to expect that Anton and Anna would have kept physical and/or computer files in respect of the purchase and sale of the properties. While that is a reasonable starting point, where Anton has given evidence that he has conducted searches and documents do not exist, then he is entitled to the benefit of the presumption that his affidavit of documents is complete.

[38]   In Anton’s first affidavit of documents, he averred that he and Anna had diligently searched for all physical files. Regarding electronic documents, Anton described the searches conducted on his and Anna’s computers, using key word searches. Anton’s sworn evidence is that all documents disclosed by those searches were included in the first round of discovery.

[39]   Andrei has not pointed to any evidence to support a belief that particular documents in this category exist, sufficient to override the presumption that Anton’s affidavit of documents is complete.

[40]   To confirm the position, on 20 November 2023 I made a direction requiring Anton and Anna to provide further specifics of the search made for physical files, to ensure that the search was appropriate.

Anton and Anna’s application

[41]   In September 2023, Andrei swore an affidavit in opposition to Anton and Anna’s application for particular discovery. In his affidavit, Andrei says that the funds that he deposited into the account represent his life savings. Apparently, a similar submission was made on behalf of Andrei, in opposition to Anton and Anna’s prior successful application for security for costs.

[42]   Although it has not been pleaded, Anton and Anna justifiably apprehend that Andrei intends to advance this evidence at trial, to support a submission that Andrei’s personal circumstances make it unlikely that he would have gifted his lifesavings to Anton, and to the exclusion of his other children.

[43]   To counter this anticipated evidence, Anton and Anna seek discovery of extensive financial information relating to Andrei’s financial position from April 2011 until at least October 2018, being the period during which Andrei deposited funds into the account. Andrei argues that his financial records are not relevant.

[44]The issues that I need to determine are:

(a)Is Andrei’s financial position at the time of his payments into the account relevant?

(b)Is the range of financial records sought proportionate?

Is Andrei’s financial position at the time of his payments into the account relevant?

[45]   At trial, it will be open to the Court to consider evidence of Andrei’s intention at the time of each of his deposits of funds into the account, to rebut the presumptions of a resulting trust or advancement.

[46]   In my view, it will be open to either party to adduce evidence of Andrei’s personal circumstances at the relevant times, to establish that those circumstances were either consistent or inconsistent with an intention to gift.

[47]   It will be open to Andrei to adduce documentary evidence to prove his personal circumstances at the relevant time. Similarly, it must be open to Anton and Anna to adduce documentary evidence to support their case that Andrei’s personal circumstances at the relevant time were consistent with an intention to gift.

[48]   Therefore, I am satisfied that documents that prove Andrei’s financial position at the time of the deposits are relevant. Discovery of documents that prove Andrei’s financial position at the material times is appropriate, provided that the discovery is proportionate.

Is the range of financial records sought proportionate?

[49]   After discussion with counsel for Anton and Anna during the hearing, a concession was made regarding the scope of the discovery sought by Anton and Anna. Anton and Anna are prepared to limit the scope of this discovery in two respects:

(a)to documents relevant to Andrei’s financial position on 6 April 2011 (the day before his first deposit) and 13 October 2018 (the day after his last deposit); and

(b)to documents relevant to ownership of real estate and funds held in bank accounts, and corresponding liabilities.

[50]   This concession was made on the proviso that there would also be directions requiring Andrei to give discovery of any other documents he intends to rely on at trial

to establish his financial position, and reserving leave to Anton and Anna to seek further discovery of financial records after provision of the next round of discovery.

[51]   This concession deals with one of Andrei’s main objections to providing the further discovery — that the exercise would be onerous and expensive.

[52]It should be relatively straight forward for Andrei to obtain copies of:

(a)all bank statements that evidence the total funds that he legally or beneficially owned on the two dates;

(b)all documents that evidence the real estate that he legally or beneficially owned on the two dates; and

(c)all documents that evidence any corresponding liabilities.

[53]   If Andrei considers that this limited range of documents does not fully or fairly disclose his actual financial position on the two dates, then it is open to him to provide broader discovery.

[54]   Counsel for Andrei submitted that some of these documents have already been provided in Andrei’s further discovery provided informally on 13 July and 19 September 2023. It was not possible for me to assess that submission during the hearing, because the copy of Andrei’s further discovery provided to the Court was not paginated.

[55]   As already noted, on 20 November 2023 I directed that Andrei formalise the further discovery that he has already provided, by provision of an affidavit of documents and copies of the documents that comply with the HCR. Obviously, if some of the documents that I have now determined must be discovered have already been provided, then there need be no repetition in the next round of discovery.

Further orders

[56]   In addition to the orders made in my minute on 20 November 2023, and supplementary minute dated 22 November 2023, I consider that it is appropriate for Andrei to provide further discovery.

[57]   I order Andrei to provide particular discovery of the following classes of documents:

(a)A bank statement confirming the balance of any bank account in any jurisdiction that held funds legally or beneficially owned by Andrei Klimenko as at:

(i)6 April 2011; or

(ii)13 October 2018.

(b)A record of title, or any other document that evidences ownership, of any real estate in any jurisdiction legally or beneficially owned by Andrei Klimenko as at:

(i)6 April 2011; or

(ii)13 October 2018.

(c)Any financial records that evidence any liabilities of Andrei Klimenko as at:

(i)6 April 2011; or

(ii)13 October 2018.

(d)All other financial records that Andrei Klimenko intends to rely on at trial to establish his financial position as at the time of his deposits into the bank account that is the subject of this proceeding.

[58]   Andrei shall provide the particular discovery in compliance with pt 2 of sch 9 to the HCR by 22 December 2023.

[59]   The proceeding is to be called again in a telephone conference at 10 am on 15 December 2023 to review progress with discovery.

[60]Costs are reserved.

Concluding comment

[61]   As noted above and in my minute dated 20 November 2023, I have reserved leave to both parties to further pursue their applications for particular discovery, following the next round of discovery that I have ordered. Before either party does so, I expect counsel to:

(a)properly complete inspection of the documents provided;

(b)confer, and endeavour to resolve issues between the parties by agreement.

Associate Judge Brittain