Connolly v Eckhout
[2022] NZHC 293
•25 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-463-18
[2022] NZHC 293
UNDER The Family Protection Act 1955 IN THE MATTER OF
The estate of JAN DANIEL ECKHOUT
BETWEEN
MICHELLE LEE CONNOLLY
Plaintiff
AND
KAREN ELIZABETH ECKHOUT
Defendant
Hearing: 9 February 2022 (by VMR) Appearances:
S R G Judd for the plaintiff
No appearance for the defendant
Judgment:
25 February 2022
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 25 February 2022 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
CONNOLLY v ECKHOUT [2022] NZHC 293 [25 February 2022]
Introduction
[1] Ms Connolly successfully sued the administrator of her deceased father’s estate, Ms Eckhout, under s 4 of the Family Protection Act 1955. The Court awarded her $449,741.57.
[2]Ms Eckhout has failed to pay the judgment debt. Ms Connolly seeks:
(a)an order for the arrest of Ms Eckhout;
(b)sanctions against Ms Eckhout; and
(c)costs on an indemnity basis.
Background
[3] Ms Connolly is the daughter of the deceased Mr Jan Eckhout. Mr Eckhout passed away in October 2017.
[4] Ms Eckhout is Mr Eckhout’s widow. She was appointed the administrator of Mr Eckhout’s estate on 3 October 2018. She is the primary beneficiary under his will.
[5] Ms Connolly was not a beneficiary under Mr Eckhout’s will. In 2019, she brought a proceeding under the maintenance provision of the Family Protection Act against Ms Eckhout, as administrator.
[6] In December 2020, Ms Eckhout travelled to Perth to care for her elderly parents. She has not returned.
[7] On 12 February 2021, Ms Eckhout made a statutory declaration that the value of Mr Eckhout’s estate was $1,560,000. Soon after making that declaration, Ms Eckhout’s solicitor and counsel were granted leave to withdraw. At that point a substantive hearing was scheduled to commence on 27 April 2021. Ms Connolly became concerned about the state and whereabouts of Mr Eckhout’s estate. She applied for a preservation order under r 7.55(3) of the High Court Rules 2016 that Ms Eckhout pay into Court the amount she had declared was the value of the estate.
[8] Fitzgerald J, in a judgment dated 1 April 2021, declined to make a preservation order.1 Her Honour said that the difficulty in making such an order was that the Court was not aware of the nature of the estate’s assets, or where and by whom they were held (Ms Eckhout’s declaration not having provided that information). But her Honour said that Ms Eckhout had a duty as administrator to place such information before the Court. Fitzgerald J therefore ordered Ms Eckhout to file and serve, by 9 April 2021, a statutory declaration as to (among other things) the value of the estate, the form of the assets making up the estate and information as to any distributions made from the estate.
[9] Ms Eckhout failed to file and serve a statutory declaration by 9 April 2021. On 21 April 2021, Venning J extended the time for Ms Eckhout to file and serve the declaration to 12 May 2021. The trial was also adjourned, on Ms Eckhout’s request, to 3 June 2021.
[10] On 14 May 2021, Ms Eckhout’s new lawyers filed a statutory declaration by Ms Eckhout dated 13 May 2021. She declared that of the approximately
$1.676 million that had been held in the name of her late husband, there was now
$642,414.25 in her name in an account with the Commonwealth Bank of Australia (the CBA). Ms Eckhout declared “I have kept this to meet any judgment”. She then provided information as to how she had spent the balance over the previous three years. She concluded by declaring that if the $642,414.25 remaining was insufficient to meet any judgment award in favour of Ms Connolly “I will personally reimburse the estate for any shortfall”.
[11] The following month, Downs J gave judgment in favour of Ms Connolly. His Honour awarded her $350,000 plus costs,2 with the total sealed judgment sum being $449,741.57. The sealed judgment was stated to be against Ms Eckhout as administrator of the estate of Mr Eckhout.
[12] Ms Eckhout failed to pay. Interim charging orders were subsequently made over any funds held by the CBA in Ms Eckhout’s name and over company shares she
1 Connolly v Eckhout [2021] NZHC 727.
2 Connolly v Eckhout [2021] NZHC 1400 at [66].
held. On 29 August 2021, Downs J issued a final charging order over the CBA accounts and the shares for the judgment debt plus further costs. The total amount payable had, by this time, increased to $470,115.22.
[13] For some months, the CBA disputed the New Zealand courts’ jurisdiction over it. Ms Connolly then applied for a sale order, which the Sheriff attempted to enforce against the CBA for many weeks. Eventually, on 6 December 2021, the CBA paid AUD 4,828.05 into Court. That was all that remained in the CBA account that Ms Eckhout had declared, in May 2021, contained $642,414.25.
Ms Connolly’s application
[14]On 9 December 2021, Ms Connolly filed an application seeking:
(a)an arrest order under r 17.84 of the High Court Rules authorising and requiring an enforcing officer to arrest Ms Eckhout and to bring her before the Court at the time and place specified in the order, and until then, to keep her in safe custody;
(b)sanctions against Ms Eckhout for non-compliance with court orders under s 16(4) of the Contempt of Court Act 2019 and r 17.85 of the High Court Rules, unless she complies with the previous court orders; and
(c)an order that Ms Eckhout pay Ms Connolly’s costs incurred in attempting to enforce the previous court orders, and the costs of this application, on an indemnity basis.
[15]The application was served on Ms Eckhout. She did not appear at the hearing.
[16] Mr Judd appeared for Ms Connolly. His submissions focussed on why an arrest order should be issued. He did not address the sanctions that should be imposed
against Ms Eckhout. That is because sanctions are imposed only once a party has been brought before the Court on an arrest order.3 He briefly addressed me on costs.
[17] A few days after the hearing, on 13 February 2022, Mr Judd filed a memorandum advising that he had that day received an email from Ms Eckhout. He annexed a copy of the email, which had been copied to the CBA. Ms Eckhout stated she would be making a “substantial payment for the Connolly matter hopefully within the next two weeks”. She said the payment “will not be in full but when I can I shall give you the balance”.
Applicable law
[18] Rule 17.84 of the High Court Rules empowers a court to issue an arrest order where certain requirements, primarily drawn from the Contempt of Court Act, are satisfied. The Court has a discretion whether to exercise that power.
[19]Rules 17.83 and 17.84 provide:
17.83Effect of arrest order
(1)An arrest order authorises and requires an enforcing officer to arrest any person named in the order and to bring that person before the court at the time and place specified in the order, and until then, to keep the person in safe custody.
…
17.84Power to issue arrest order
(1)In this subpart,—
…
original court order has the same meaning as court order in subpart 4 of Part 2 of the Contempt of Court Act 2019.
(2)If a person has applied to the court to enforce an original court order or an enforceable undertaking and that person is entitled to make an application under section 16(2) of the Contempt of Court Act 2019, a Judge may issue an order arresting the non-complying party if,—
(a)in the case of an application to enforce an original court order, the Judge is satisfied that the non-complying party has been served with the order and has not complied with it[.]
3 Rule 17.85.
…
[20] The Court is therefore empowered to issue an arrest order when three requirements are satisfied.4
[21] First, the underlying order which the applicant seeks to enforce must be a “court order” in terms of the Contempt of Court Act. Section 16(1)(a) of the Contempt of Court Act defines “court order” as “any interim or final order, decision, decree, direction, or judgment of a court … to do or abstain from doing something, except as provided in section 17”. Section 17 provides that the Court may take action under s 16 to enforce a court order to pay a sum of money only if (relevantly) the default in making payment comes within an exception listed in s 3(2) of the Imprisonment for Debt Limitation Act 1908. Ms Connolly relies on the exception in 3(2)(c) of the latter Act: where the default in payment of a sum of money is by a person acting in a fiduciary capacity and ordered to pay any sum in his or her possession or control. Whether that exception applies is the key issue on this application.
[22] Secondly, the applicant must be entitled to make an application under s 16(2) of the Contempt of Court Act. Section 16(2)(a) provides that a court may enforce a court order on application by the person who sought the order. This requirement is not in issue: Ms Connolly sought the underlying order.
[23] Thirdly, the Court must be satisfied that the non-complying party has been served with the underlying court order and has not complied with it. This requirement is not in issue: Ms Eckhout was served with the underlying court order and she has not paid the judgment sum.
[24] If all three requirements are satisfied, the Court is empowered to issue an arrest order. The Court has a discretion whether to exercise that power: r 17.84 provides that the Court “may” issue an order.
4 Mr Judd’s submissions also addressed s 16(3) and (4) of the Contempt of Court Act 2019. It is not necessary to consider these provisions on this application. They set out the sanctions (such as imprisonment) that a Court may impose for non-compliance with court orders. Those sanctions only need to be considered if and when Ms Eckhout is brought before the Court on an arrest order.
[25] Finally, where a Court is satisfied it should issue an arrest order, the Court commonly directs that the order is to lie in court to provide the non-complying party with a final opportunity to comply with the underlying court order.
Issues
[26]Two issues arise:
(a)Does Ms Eckhout’s default fall within the exception in s 3(2)(c) of the Imprisonment for Debt Limitation Act?
(b)If so, should I exercise my discretion to issue an arrest order?
Does Ms Eckhout’s default fall within the exception in s 3(2)(c) of the Imprisonment for Debt Limitation Act?
[27] The exception in s 3(2)(c) has two limbs. First, the default in payment of a sum of money must be by a “person acting in a fiduciary capacity”. Secondly, that person must have been ordered to pay a sum in his or her “possession or control”.
Is Ms Eckhout’s default one by a “person acting in a fiduciary capacity”?
[28] A “person acting in a fiduciary capacity” includes a person who receives or holds money while in a fiduciary relation towards another person.5
[29] Administrators and beneficiaries under a will have a special fiduciary relationship. One of the administrator’s fiduciary responsibilities is a duty to act even- handedly between beneficiaries.6 That duty extends to prospective statutory claimants, such as those able to claim under the Family Protection Act, at least where the administrator is aware the prospective claim.7
5 Marris v Ingram (1879) 13 Ch D 338 (Ch) at 345 (dealing with the equivalent provision in the Debtors Act 1869 (UK)).
6 Lindsay Breach (ed) Nevill’s Law of Trusts, Wills and Administration (13th ed, LexisNexis, Wellington, 2019) at [20], citing Re Stewart [2003] 1 NZLR 809 (HC), Irvine v Public Trustee [1989] 1 NZLR 67 (CA), and Mackenzie v Mackenzie (1998) 16 FRNZ 487 (HC).
7 Irvine v Public Trustee [1989] 1 NZLR 67 (CA) at [70]; and Sadler v Public Trust [2009] NZCA 364, [2009] NZFLR 937 at [35].
[30] Ms Eckhout was the defendant to an actual claim, not merely a prospective claim. She stood in a fiduciary relation towards Ms Connolly from the time the latter brought her Family Protection Act claim. The Court gave judgment against Ms Eckhout “as administrator of” Mr Eckhout’s estate. Ms Eckhout’s default in paying the judgment sum is clearly a default by a person acting in a fiduciary capacity.8
Was Ms Eckhout ordered to pay a sum in her “possession or control”?
[31] For this limb of the s 3(2)(c) exception, it is sufficient that the money ordered to be paid was at some time in the defendant’s possession or control. It is no answer for the defendant to say that she has since spent the money.9
[32] This limb is clearly satisfied. Ms Eckhout declared, twice, that she was in possession or control of estate funds in an amount that exceeded the eventual judgment sum.
Should I exercise my discretion to issue an arrest order?
[33] It follows from the above that Ms Eckhout’s default in payment of the judgment sum falls within the exception in s 3(2)(c). The Court therefore is able to issue an arrest order. The remaining issue is whether I should exercise my discretion to do so.
[34] I consider it is appropriate to issue an arrest order in this case. Ms Eckhout has knowingly failed to comply with the judgment. She has not provided any excuse, reasonable or otherwise, for her non-compliance. To the contrary, her non-compliance is flagrant. She made a statutory declaration shortly before the judgment that she held
$642,414.25 in estate funds. She declared “I have kept this to meet any judgment”. She concluded by declaring that if that amount was insufficient to meet any judgment she would personally reimburse the estate for any shortfall. The clear implication was that she would continue to keep the $642,414.25 to meet the judgment.
8 Davey v Bourne [1906] 1 Ch 697 (Ch and CA).
9 Middleton v Chichester (1871) 6 Ch App 152 at 157; and Rose v Macdonald (1907) 30 NZLR 741 (SC and CA) at 756.
[35] Those funds would have been sufficient to meet the judgment that Ms Connolly obtained. Ms Eckhout has dissipated those funds, contrary to what she stated in her statutory declaration. She did not appear at the hearing to provide any explanation or excuse for her action.
[36] In these circumstances, I consider Ms Eckhout’s default is so flagrant that this Court should issue an arrest order.
[37] However, it is appropriate for the arrest order to lie in court for a short period, until 25 March 2022, to provide Ms Eckhout with a final opportunity to make payment.
Costs
[38] Ms Connolly seeks an order that Ms Eckhout pay Ms Connolly’s costs incurred in attempting to enforce the judgment, and the costs of this application, on an indemnity basis.
[39] Downs J ordered indemnity costs in favour of Ms Connolly when granting a final charging order. In my view indemnity costs remain appropriate for the enforcement steps taken since then, including on this application. Ms Eckhout has failed to comply with the Court’s judgment. She has also breached her fiduciary duty as administrator by dissipating the estate’s funds.
Result
[40] I issue an order for Ms Eckhout’s arrest. The order is to lie in Court until 25 March 2022. The order will be quashed if Ms Eckhout pays the judgment sum and all costs orders (including the one made in this judgment) by 25 March 2022.
[41] I order Ms Eckhout to pay the actual costs and disbursements reasonably incurred by Ms Connolly, since the final charging order was obtained, in attempting to enforce the judgment, including on this application.
Campbell J
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