Johnson v Johnson
[2021] NZHC 840
•20 April 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-144
[2021] NZHC 840
BETWEEN BRYAN EWART JOHNSON, DAVID HOUGHTON WALE and CHRISTOPHER DAN WILLIAMS
PlaintiffsAND
CRAIG BRYAN JOHNSON and MARIA BERNADETTE JOHNSON
First Defendants
AND
LITTLE SCHOOL LIMITED
Second Defendant
AND
JOHNSON PRESCHOOL LIMITED
Third Defendant continued …
Hearing: 22 March 2021 Appearances:
M B Wigley for Maria Johnson in all proceedings
C M Stevens, T Mijatov and H L Stanford for Craig Johnson in all proceedings save transferred Family Court proceeding
M L Greenhough for Craig Johnson in transferred Family Court proceedingO E Jacques Assisting Counsel as amicus in CIV-2018-485-144 and CIV-2020-485-421
Judgment:
20 April 2021
Reissued:
8 December 2021
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 20 April 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
JOHNSON v JOHNSON [2021] NZHC 840 [20 April 2021]
CIV-2020-485-417
BETWEEN MARIA BERNADETTE JOHNSON
Plaintiff
AND CRAIG BRYAN JOHNSON
First Defendant
ANDCRAIG BRYAN JOHNSON, MARIA BERNADETTE JOHNSON and GRANT MAITLAND RICHARDSON,
trustees of the C B and M B Johnson Family Trust
Second Defendants
CIV-2020-485-421
BETWEEN CRAIG BRYAN JOHNSON
Plaintiff
AND LIFE LEARNING
AOTEAROA LIMITED
First Defendant
AND MARIA BERNADETTE JOHNSON
Second Defendant
AND LITTLE SCHOOL LIMITED
Third Defendant
AND JOHNSON PRESCHOOL LIMITED
Fourth Defendant
CIV-2021-485-118
BETWEEN MARIA BERNADETTE JOHNSON
Applicant
AND CRAIG BRYAN JOHNSON
Respondent
Introduction
[1] The first defendants (in CIV-2018-484-144), Craig Johnson (Craig) and Maria Johnson (Maria), were married but separated in December 2014.
[2]The applications before the Court for determination are:
(a)an application by Maria that Craig be directed to answer interrogatories and provide discovery;
(b)an application by Craig that Maria be found in contempt of court for failing to satisfy a costs order in favour of Craig;
(c)that Maria pay costs to Craig following the abandonment of an application by Maria to bring a derivative defence in the name of Johnson Preschool Ltd (“the derivative application”); and
(d)a jurisdictional issue relating to a recently transferred Family Court proceeding.
[3] There are four proceedings being case managed together involving Craig, Maria, their companies and a family trust associated with Craig’s family. CIV-2021-485-118 is a proceeding between Craig and Maria recently transferred from the Family Court. While the four proceedings are case managed together and ultimately will be heard together in a fixture in November 2021, they are not formally consolidated. However, the parties agree that the evidence in each proceeding is available across all proceedings. One of the proceedings (CIV-2020-485-417) has in substance been resolved.
Background
[4] Craig and Maria are equal shareholders and the two directors of Johnson Preschool Limited (JPL). The plaintiffs (in CIV-2018-485-144) are trustees of a family trust connected to Craig (the Abel Trust) – the first named plaintiff, being Craig’s father.
[5] In mid-2011, JPL wanted to acquire a property in St Heliers, Auckland, to establish a new preschool. It is not in dispute that on 13 June 2011, the plaintiff trustees paid $1,000,000 to the joint account of Craig and Maria. While the fact of
the advance is not in dispute, who is ultimately responsible to repay the advance is disputed.
[6] On 14 June 2011, just over $1,000,000 was paid from the joint account of Craig and Maria to the trust account of the law firm acting on the purchase of the St Heliers property on behalf of JPL. The purchase of the St Heliers property settled the same day.
[7] JPL’s financial statements for the financial year in which the plaintiffs’ advance was made, do not record an advance being received from Abel Trust or from Craig and Maria on the basis that they on-advanced the $1,000,000 Abel Trust paid into their personal account.
[8] Maria says she was unaware of the advance from the Abel Trust to JPL. She understood that a loan facility agreement with ANZ National Bank (the ANZ) dated 13 June 2011 was going to be the source of funds for the St Heliers property. The ANZ document records that the facility was made for the purpose of funding the St Heliers purchase.
[9] Craig says the ANZ was too slow to process the loan application which led him and Maria to agree to source the funding from the Abel Trust. Craig notes that the ANZ’s facility, while dated 13 June 2011, was signed by him and Maria on 6 July 2011. The ANZ also made the funds available on 6 July 2011, which were paid into Craig and Maria’s joint account on the same day. The purchase of the St Heliers property had settled the previous month on 14 June 2011.
[10] From the funds received into the joint account of Craig and Maria on 6 July 2011, $800,000 of that sum was used to buy shares in Maria’s name in a New Zealand company called Global Horticulture Ltd of which Craig is a director. It is common ground that those shares are now worth a small fraction of what was paid for them.
[11] Counsel for Maria submits: “the bank loan and its relationship to the Abel Trust money is a core issue in the proceeding and the underlying evidence”. Maria denies
she knew about the $1,000,000 payment from the Abel Trust. She says she left the financial side of the business to Craig and, as far as she was concerned, the ANZ funds advance was to fund the St Heliers property.
[12] The ANZ facility documents record the advance was for the purchase of the St Heliers property. Maria says the ANZ would either have assumed the money was for that purpose or, if it was aware the purchase had settled, that its advance was to repay bridging finance used to complete the purchase. In support of this assumption, Maria relies on JPL’s accounts recording that JPL was indebted to the ANZ and not to the Abel Trust.
[13] Craig says the Abel Trust advance was used to acquire the St Heliers property owned by JPL, meaning JPL is liable to repay the plaintiffs whatever JPL’s accounts state.
[14] Maria has issued a cross-claim against Craig in which she pleads the ANZ advance was to fund the St Heliers property and to repay the existing debt to Westpac.
[15] The cross-claim recites that when the ANZ’s facility was drawn down, it was not used to pay for the St Heliers property, nor was it used to repay the Abel Trust advance, assuming Craig intended the advance to be bridging finance for the St Heliers property.
[16] Maria pleads that Craig owed her fiduciary duties which he breached by failing to keep Maria informed of the advance from the Abel Trust or that the funds from the ANZ were neither ultimately used for the purchase of the St Heliers property nor required for that purpose.
[17] In the alternative, it is pleaded that Craig owed Maria duties of care in tort given he assumed responsibility for the couple’s personal and business affairs. Maria pleads Craig breached that duty by “dissipating” the balance of the funds available from the ANZ after the repayment of the Westpac debt when he used those funds to purchase the Global Horticulture Ltd shares.
[18]The tenor of Maria’s case is that Craig alone should be responsible for the
$1,144,924.35 being the ANZ debt after the retirement of the Westpac debt, as he used those funds for a purpose different from that advised to the ANZ and to Maria.
Maria’s application that Craig answer interrogatories
Principles applicable to orders to answer interrogatories
[19] Craig’s counsel, Mr Mijatov relied on the following passage from Tourplan Pacific Ltd v Australian Tours Management Pty Ltd:1
[44] … It is correct that it is not permissible to ask for what amounts to evidence of facts in dispute.2 But the two concepts are closely related.
[45]In BNZ v Gardner, on which ATM [relied], Master Hansen observed:3
In my view, merely because interrogatories seek to obtain an admission of fact which could be proved by a witness at trial, one can no longer say, in the context of the New Zealand rule, that the interrogatory is unnecessary. Depending on the circumstances it may well be that an interrogatory will limit the scope of a witness’s evidence, thus saving time and expense. It may go even further and make it unnecessary for certain witnesses to be called. It seems to me that within the context of the New Zealand rules there must be added to the four objects of interrogatories, listed by Lockhart J in W A Pines Ltd v Bannerman … the aim and object of the rules generally and especially relating to interrogatories mentioned by Barker J at p 4 of Sunde, ie:
(1)The aim of the rules is to arrive at the truth.
(2)The rules are designed to assist the parties in coming to a recognition of the proper issues.
(3)Through that recognition to a settlement of disputes.
[46] Quite clearly, some answers that might ordinarily be referred to as evidence at trial will fall within the appropriate scope of an interrogatory. The question is one of degree. Evidence is that which tends to prove a fact, or that which may demonstrate a fact’s existence. In Westpac Banking Corp v Hart, Tipping J held that interrogatories should not require answers on the basis of a disputed assumption of fact.4 Such answers would amount to evidence of disputed facts rather than primary facts.
1 Tourplan Pacific Ltd v Australian Tours Management Pty Ltd [2017] NZHC 2210 at [44]–[46].
2 Fay v Chirnside (2002) 16 PRNZ 87 (HC) at [15].
3 BNZ v Gardner (1990) 2 PRNZ 278 (HC) at 281.
4 Westpac Banking Corp v Hart (1987) 1 PRNZ 719 (HC) at 726–728.
[20] Questions aimed at “part of the facts” in issue which a party needs to prove are permissible provided the question is not aimed at learning “mere evidence of the facts in dispute”.5 However, the distinction between the two is not always easy to make.6
[21]Accordingly, interrogatories:
(a)must be relevant;
(b)must not assume disputed facts; and
(c)may include questions that may indirectly prove the key facts relied on.7 “Interrogatories must relate to material facts rather than evidence”8, although the distinction may not involve a bright line.
[22] It is a legitimate purpose of interrogatories to obtain admissions of facts which support the case of the interrogating party, or damage the case of the party being interrogated:9
“Necessary” does not mean as is suggested in some of the submissions for the defendant airlines, that the questions relate to facts crucial to the interrogating party providing its case. The threshold is not that high. Rather, necessary questions can include questions that may indirectly prove the key facts relied on. They may establish or form a step in establishing the allegations made.10
[23] Set out below are the interrogatories, issues and Craig’s responses. The response to Question 1 is not an issue, but is set out as it is referred to in the responses to other questions which are in issue.
[24]The interrogatories were delivered by Maria and answered by Craig as follows:
Q1. Did you ask the ANZ for the $1.85 million loan stated in the Facility Agreement dated 13 June 2011 between ANZ (formerly ANZ National Bank Ltd) and Johnson Preschool Ltd ("JPL”) for the purpose of the purchase of 34 Long Drive St Heliers, Auckland and to refinance current Westpac debt?
5 Evans v Harris (1992) 6 PRNZ 329 HC at [333].
6 Leishman v Levie [2018] NZHC 2122, [2018] NZAR 1276 at [44].
7 Commerce Commission v Air New Zealand Ltd (No. 6) [2012] NZHC 2113 at [18].
8 Commerce Commission v Air New Zealand Ltd (No. 6), above n 7, at [17].
9 Commerce Commission v Air New Zealand Ltd (No. 6), above n 7, at [18].
10 Shore v Thomas [1949] NZLR 690 (SC) at 695.
The question is put on an incorrect basis. The facility agreement, while dated 13 June 2011, was signed by both Maria and me on 6 July 2011, not 13 June 2011. From the facility agreement it would appear we had initially sought the funding for the purchase of 34 Long Drive, St Heliers and to refinance our joint borrowing from Westpac Banking Corporation.
The bank would presumably have had the details of JPL's agreement to purchase 34 Long Drive, St Heliers when we sought the financing and refinancing facility. This is because the facility agreement records that "the Facility must be drawn in full on 16 June 2011 or as arranged". 16 June 2011 would have been the settlement date for 34 Long Drive. This is the same date as the Jones Law settlement statement for the purchase of 34 Long Drive, St Heliers, which I annexed to my affidavit dated 16 June 2020 as "CBJ2".
ANZ were too slow to process our facility so Maria and I agreed that we would approach the Abel Trust to see if it would lend us sufficient funds for the purchase of the St Heliers property. Abel Trust agreed and lent us $1m which together with Maria and my existing facilities enabled settlement of JPL's purchase of 34 Long Drive. The loan of
$1m from Abel Trust to JPL is recorded in the account of "Johnson, Craig Bryan and Maria, Bernadette", National bank account [REDACTED],11 expressly "FUNDING LITTLESCHOOL". It wasdeposited in our account on 13 June 2011. The following day the amount required to complete settlement of 34 Long Drive, as shown in the Jones Law settlement statement, was paid out by us from the same account. This can be seen from our bank account statements annexed to my affidavit of 4 February 2020 as "CBJ-1 ".
The drawdown of the ANZ facility occurred on the date of execution of the facility agreement namely 6 July 2011. This can be deduced from the payment to our accounts "Johnson, Craig Bryan and Maria, Bernadette", National bank account [REDACTED],12 from Jones Law, of $1,144,924.35 on 6 July 2011. The bank would therefore have known that JPL had already settled its purchase on 16 June 2011 when its funds were paid to Maria and my solicitor, Jones Law, and then transferred to us on 6 July 2011.
The bank had knowledge of our assets and had security through personal guarantees from myself and Maria and a GSA over JPL's assets and first mortgages over five listed properties owned by JPL including 34 Long Drive, St Heliers.
Q2. Did you inform ANZ, either before or after 13 June 2011, that the advance was not to be used for the purpose of the purchase of 34 Long Drive St Heliers?
ANZ did or ought to have known that the facility was not used for the purchase of 34 Long Drive, St Heliers, for the reasons set out above.
11 The bank account number has been redacted from this re-issued judgment.
12 The bank account number has been redacted from this re-issued judgment.
Discussion
[25] I accept the submission of Mr Wigley, counsel for Maria, that Craig does not address the question directly. I direct that he is to do so. The question calls for a yes or no answer. The answer cannot be found in Craig’s response to Question 1.
[26]Question Three reads:
Q3.If yes, what did you state (and when and how) to the ANZ about that other use of the advance?
I object to answering this question on the basis that I am advised it does not seek to ascertain evidence of the primary facts, amounts to fishing and is not relevant to a matter in issue in the proceeding.
Discussion
[27] Mr Mijatov, counsel for Craig, submits this question is asking for evidence of primary facts. To the extent the answer may overlap with what Craig would include in his brief of evidence or his cross-examination, I do not accept such invalidates the question. As set out in the passage from Tourplan13 set out above, some answers might ordinarily be matters that would be included in evidence at trial, but may still fall within the appropriate scope of an interrogatory. The question is one of degree. As the Court in Commerce Commission stated:14
The Court’s determination of whether the interrogatory questions are sufficiently germane to the material facts must in the end turn on an analysis of the relevant issues, and the importance of the questions and their degree of connection to the core facts that must be proven.
[28] This question does not ask what other witnesses may say about the advance - for example, what the ANZ Bank Manager may say they were told or knew, or what Maria and Craig’s accountant understood about the advance. The question disallowed in Evans v Harris related to evidence gathered by the defendant from third parties about the matters in issue.15 Here, the question relates to what Craig said about the ANZ advance when it was drawn down – such is relevant to Maria’s cross-claim in the sense set out at above.
13 Tourplan Pacific Ltd v Australian Tours Management Pty Ltd, above n 1.
14 Commerce Commission v Air New Zealand Ltd (No 6), above n 7, at [20].
15 Evans v Harris, above n 5, at 333.
[29] The nature of the issues between Maria and Craig raised in Maria’s cross-claim mean virtually any question Maria asks aimed at supporting her cross-claim will tend to cover issues that Craig may cover in his evidence.
[30] Further, the question assumes the answer to the previous question is ‘yes’. If the answer to Question 2 is ‘no’ then there can be no objection to Question 3 as no response will be required.
[31] Maria’s defence is in effect that Craig used the ANZ advance for his own purposes. Implicit in Maria’s position is that she only agreed to the ANZ advance as she believed it was being used to clear the existing Westpac debt and finance the St Heliers property. Craig’s counsel says the level of detail sought in the answer is not relevant. I do not agree and, in any event, the issue of detail only arises if the answer to the previous question is ‘yes’. If the answer to the previous question is ‘yes’ then it is appropriate that Craig provide full details of what he did tell the ANZ in respect of the use of the advance, as such may well have been relevant to the ANZ’s decision to make the advance. Nor can I see any element of fishing in this request. It is relevant to the matters Maria raises in her cross-claim.
[32] As to the issue of relevance, Craig has approached this from his perspective of the matters in issue. The questions Maria raises are not so much relevant to the merits of Abel Trust’s claim (albeit there is some overlap) but focus on Maria’s cross-claim against Craig. That puts in issue the circumstances on which the ANZ advance was applied for, drawn down, and on what the advance was spent. To the extent the objection that Maria’s remaining questions ask for evidence, that objection is not accepted for the reasons above.
[33]I direct that Craig answer Question 3.
[34]Question four reads:
Q4. Did you inform your father and/or any of the other plaintiffs about the loan referenced in the Facilities Agreement and that a purpose of that loan was the purchase of the property in St Heliers?
The premise of the question is on an incorrect basis - see my answer to question 1 above. I otherwise object to answering this question on the basis that I am advised it is not relevant to a matter in issue in the proceeding.
Discussion
[35] This interrogatory contains two questions. The first is whether the trustees of the Abel Trust were told of the ANZ advance. Secondly, if they were told, were they told that a purpose of the advance was the purchase of the St Heliers property?
[36]Craig says this question proceeds on an incorrect or disputed basis.
[37] I do not accept the objection to both questions. The first question presupposes nothing that is in dispute. It is common ground that the ANZ facility was sought in early June 2011 (the offer being dated 13 June 2011), but not signed and drawn down until 6 July 2011. The question simply asks whether the trustees of the Abel Trust were told of that advance.
[38]I direct that Craig is to answer the first part of Question 4.
[39] The second question does not proceed on a disputed basis if read as relating to the basis upon which the advance was originally sought. It is not in dispute that the ANZ advance was originally sought to fund the St Heliers purchase, as is recorded in the loan offer. Accordingly, I would not see a question aimed at that issue as necessary. If the question is aimed at what was said to the trustees of the Abel Trust at the time of the draw down, then the question does assume a disputed fact. Maria’s position is the ANZ funds were in effect earmarked for the purchase of the St Heliers property, whereas Craig’s position is that original purpose was overtaken.
[40] The second part of Question 4 is therefore oppressive. The application that Craig be directed to answer the second question in Question 4 is declined.
[41] Further, Craig says the questions are not relevant to a matter in issue, saying the discussions between him and the trustees are not relevant “as Mr Johnson’s statement of defence to the claim by Abel Trust admits the advances by the Trust are
loans to JPL”. This submission misses the point that the matter in issue to which the question is directed is Maria’s cross-claim.
[42]Question five reads:
Q5. If yes, what did you state, how and when?
I object to answering this question on the basis that I am advised it does not seek to ascertain evidence of the primary facts, amounts to fishing and is not relevant to a matter in issue in the proceeding.
Discussion
[43] It follows from the directions made regarding Question 4 that Question 5 can only relate to the first part of Question 4.
[44] Depending on the context, questions aimed at proving the existence of contracts, understandings or arrangements are permissible.16
[45] The inter-relationship between Abel Trust and the ANZ advances is referred to in Maria’s cross-claim. Craig’s conduct in respect of both advances and their inter- relationship (if any) is relevant.
[46] I direct that Craig is to answer Question 5 as it relates to the answer he has been directed to give to Question 4. Because Question 5 is an open question, it does not assume the disputed fact that the July advance was for the St Heliers property.
[47]Question six reads:
Q6.When communicating with Crowe Horwath as to the accounts of JPL for the year ending 31 March 2012:
(a)Did you inform them of a $1 million liability of JPL to Abel Trust?
(b)If yes, what was stated, and when and how, as between you and Crowe Horwath?
(c)Why was the $1 million not included in the JPL 2012 (and subsequent) annual accounts?
16 Commerce Commission v Air New Zealand Ltd (No. 6), above n 7, at [25].
I cannot recall what was said to Crowe Horwath in respect of the Abel Trust loan to JPL made in June 2011, being over nine years ago, but interest on the loans to JPL from Abel Trust was paid by JPL from the outset until around the time that Maria and I separated in December 2014.
Discussion
[48] Mr Wigley submits that Craig is obliged to make enquiries of his accountants if he cannot recall the instructions given. Craig’s submissions do not deal with Question 6.17 Obliging Craig to ask his accountants what they recall is to ask a question about what evidence Craig might call from them. Such a requirement would make the question inappropriate as it would amount to asking about what evidence Craig may have or may call.
[49] Question 6(c) is not directly addressed in the answer provided. I do not know if the payment of interest referred to in Craig’s answer is recorded in the financial accounts. An instruction to JPL’s accountant to record the payment of interest on an advance not recorded in accounts would be relevant to the matters in issue in Maria’s cross-claim.
[50]I direct that Craig is to answer Question 6(c) directly.
[51]Questions 7 and 8 read as follows:
Q7.Did the $1,050,000 paid into your and Maria's savings account on 7 July 2011 ultimately come from the advance by ANZ under the Facility Agreement?
I object to answering this question on the basis that I am advised it is not relevant to a matter in issue in the proceeding.
Q8. Of that sum, was $800,000 used later in 2011 to purchase Global Horticulture shares in Maria's name?
I object to answering this question on the basis that I am advised it is not relevant to a matter in issue in the proceeding.
17 Craig’s submissions were in fact filed prior to Maria’s submissions. However, Craig’s counsel did not take up the leave given to file further submissions.
Discussion
[52] I deal with Question 7 and Question 8 together. Craig submits that what the ANZ funds were used for is not relevant. I am unclear as to why Craig declines to answer these questions, given the answers at paras [12] and [13] of his affidavit of 4 February 2020, which addresses the issues in Questions 7 and 8. Equally, it might be asked why Maria is bothering to interrogate on issues that are already accepted by Craig in his evidence. The 4 February 2020 evidence is as follows:
12.I also deny that that I misled anyone about what the $1m Abel Trust loan would be used for. Maria’s affidavit refers to additional sums, received from ANZ bank around the same time. However the bank statements show that by the time the ANZ money arrived, we had already settled the St Heliers property with the loan from Abel Trust.
13.The bank statements also show that subsequently, on 7 July 2011,
$1,050,000 was transferred to a savings account. It should be noted that $800,000 of that was used later that year to purchase Global Hort shares in Maria’s name. Global Hort is a New Zealand company with a food and beverage business in China. I am a director of Global Hort.
[53] Given this evidence addresses Question 7 and Question 8, I do not consider these questions are necessary but again, given that evidence, it is unclear why the Questions were disputed.
Contempt application
[54] On 3 December 2020, Associate Judge Johnston awarded costs and disbursements totalling $14,689.00 against Maria in Craig’s favour. Those costs related to Maria’s unsuccessful application to bring a derivative action in the name of JPL against Craig. Craig’s solicitors called for payment. When payment was not forthcoming judgment was sealed and served with a further call for payment. The issue of non-payment was raised in telephone conferences before me. Mr Wigley, counsel for Maria, confirmed Maria was aware of the costs award with the suggestion being payment was in hand. When payment was not made, an application was filed seeking an order that Maria be held in contempt of court for non-compliance with the costs order.
[55] A telephone conference was held to address various issues shortly after the contempt application was filed. Immediately prior to the telephone conference,
Mr Wigley filed a memorandum advising that the costs had been paid but acknowledging that Maria would be liable for 2B costs given the contempt application had been filed.
[56] Craig’s counsel advised it appeared the payment had come from Little Schools Ltd and not from Maria personally. Little Schools Ltd (LSL) is another company of Craig and Maria – both of whom are directors and equal shareholders. Given the issue arose immediately prior to the telephone conference, the contempt application was adjourned to be heard on 22 March 2021.
[57] In summary, Craig’s counsel submitted payment had not been made. It was submitted Maria had no right to draw funds from LSL’s account for her own purposes and the payment was not authorised by her co-director, Craig. The costs award was not against LSL. As the payment was unauthorised and as Craig was aware it was unauthorised, Craig was in the position of knowingly receiving an unauthorised payment.
[58] Given the history of the litigation between the parties, Mr Stevens, lead counsel for Craig, submitted Maria could not have reasonably believed she could use LSL’s funds for payment of the costs.
[59] Mr Wigley submitted that as Maria had sought to bring the derivative action for the benefit of JPL, she considered she was entitled to use LSL’s funds to meet the costs award, despite the award being made against her personally.
[60] My preliminary view, as expressed to counsel, was the issue turned on whether the payment from the company was authorised. Mr Stevens submitted that, given it was common ground in the derivative action application the parties were deadlocked, Maria cannot have believed payment was authorised.
[61] Later in the day, Mr Wigley advised Maria had personally made payment of the costs, but without acknowledgment of any fault in paying the costs via LSL. Accordingly, if there was an ongoing breach of the costs order, Mr Wigley submitted it had been cured.
[62] While I am not satisfied Maria had a proper basis for using LSL’s funds to meet the costs award made against her, I am not going to make a finding that Maria was in contempt of court for not paying the costs prior to the payment on the day of the hearing.
[63]Section 16 of the Contempt of Court Act 2019 reads:
16 Certain court orders and undertakings may be enforced
(1)This section applies to—
(a)any interim or final order, decision, decree, direction, or judgment of a court (a court order) to do or abstain from doing something, except as provided in section 17:
(b)any undertaking given to the court if, on the faith of the undertaking, the court has sanctioned a particular course of action or inaction.
(2)A court may enforce the court order or undertaking against the party, non-party, or other person bound by the order or undertaking by taking action provided for in subsections (3) and (4) on application by—
(a)the party who sought the order or undertaking being enforced; or
(b)a person who benefits from, or has an interest under, the order or undertaking; or
(c)the Solicitor-General, if the Solicitor-General is satisfied that there is a high degree of public interest in enforcing the order or undertaking.
(3)The court—
(a)must not proceed further under this section unless it is satisfied that other methods of enforcing the court order or undertaking have been considered and are inappropriate or have been tried unsuccessfully; and
(b)if so satisfied, must make a finding as to whether it is proved beyond reasonable doubt that—
(i)the court order or undertaking being enforced has been made in clear and unambiguous terms and is clearly binding on the person; and
(ii)the person had knowledge or proper notice of the terms of the court order or undertaking being enforced; and
(iii)the person has, without reasonable excuse, knowingly failed to comply with the court order or undertaking being enforced.
[64] Section 16(3)(a) effectively means an application for contempt should be a last resort. Craig had available to him conventional debt collection mechanisms in respect of the costs award. Alternatively, he could have sought an order that unless the costs were paid, Maria’s defence be struck out.
[65] As to costs on this application, I have already mentioned that Mr Wigley accepted costs were payable.
[66] Accordingly, I direct there will be a costs award in favour of Craig on a 2B basis in respect of the contempt application, including an allowance for a quarter day hearing.
Maria’s discovery application
[67] Maria seeks an order for discovery against Craig in proceeding CIV-2018-485-144. While that proceeding has been on foot for some time, Craig did not file a statement of defence in this proceeding until 14 August 2020.
[68] The parties have filed substantial affidavits in this and the other proceedings. Craig resists an order for general discovery in this proceeding, deposing that he has searched for all relevant documents that remain in his possession or control and that such documents have already been produced in the various affidavits filed to date.
[69] At the hearing on 22 March 2021, it is fair to say the discovery obligation focused on the issue of Craig’s emails prior to December 2012. Craig says he no longer has access to emails prior to December 2012 and he refers to having changed computers over the past several years.
[70] Maria has filed an affidavit from someone who describes himself as an “IT security professional”. His evidence is that depending on how Craig’s email system was configured, it may be that emails prior to December 2012 have been retained on the Xtra Mail server and may be recoverable.
[71] I consider the obligation on a party giving discovery to search for relevant documents extends to taking reasonable steps to confirm that emails or electronic documents believed to be unrecoverable are truly unrecoverable. If it is necessary to obtain expert IT assistance to carry out such a search then so be it, but such will not always be necessary. Someone who has the requisite IT skills to check for archived emails or records may do so themselves but should explain their efforts in that regard. However, if it is not clear that such investigations have been made, a party can expect a bare assertion that emails or the like are not recoverable to be challenged.
[72] The focus of the investigation in respect of historical emails is a narrow one, that is, those emails prior to December 2012.
[73] Following discussions with counsel, the following steps appear to be acceptable:
(a)Craig will provide to his counsel his email passwords and any other information required to access his Xtra email account;
(b)an IT expert within Craig’s firm of solicitors, with Craig’s counsel, will investigate whether recovery of the emails prior to December 2012 is possible;
(c)if recovery of the emails prior to December 2012 is possible, the emails will be downloaded/copied to enable a supplementary list of documents to be produced;
(d)Mr Wigley is to advise if he wishes his IT expert to be present during that exercise. For the avoidance of doubt, that would be at Maria’s cost. If Maria’s IT expert is present, then she will be able to view the process of investigating whether the emails can be accessed/recovered but not the contents of individual emails;
(e)while not discussed, I would envisage this process to be completed within 15 working days (that is by Wednesday 12 May 2021); and
(f)leave is reserved to apply for further directions in respect of the suggested means of investigating the recoverability of the emails.
[74] As to the balance of the discovery application, nothing was produced to suggest Craig’s claim that he had already produced all relevant material was incorrect.
[75] As to costs on this application, I did not hear from counsel, but my first reaction is that costs should lie where they fall. There has been a measure of success on both sides. Craig’s bare assertion that his emails were unrecoverable was, in my view, insufficient. But, on the other hand, Maria did not establish the need for further discovery beyond saying that an order for general discovery is the norm. While that may be the case, this situation is far from the norm given the number of proceedings being dealt with together and with the agreement that evidence will be available across all proceedings.
Costs application – abandoned application
[76] The parties had agreed to a consent order that Maria could defend the claim against JPL despite it being deadlocked, that is, a derivative defence as opposed to a derivative claim. That consent order was revoked by Associate Judge Johnston in his judgment of 3 July 2020.18 Further in that judgment, Maria’s application to bring a derivative claim in the name of JPL against Craig was dismissed.
[77] With the original consent order in respect of the derivative defence having been set aside, Maria took the view that her application in relation to the derivative defence could be reactivated, and she did so.
[78] The derivative defence application was also going to be heard on 22 March 2021 but was withdrawn on 16 February 2021.
[79] Craig brings a wasted costs order in respect of that reactivated derivative application.
18 Johnson v Johnson [2020] NZHC 1563 at [70].
[80] The memorandum in support of Craig’s application for costs begins its chronology relevant to the wasted costs claim with the 23 July 2020 appeal against Associate Judge Johnston’s judgment of 3 July 2020.
[81] The appeal was ultimately deemed to be abandoned with Maria apparently taking the last step even after the deemed abandonment of creating a drop box on 5 November 2020 with the case on appeal.
[82] I am satisfied that events between 3 July 2020 and 5 November 2020 in relation to the abandoned appeal cannot found an application for wasted costs in this Court – wasted costs arising from an abandoned appeal are for the Court of Appeal to rule upon.
[83] That means attention turns to the steps taken in this Court in relation to the reactivated application. A precursor to the reactivation of the application was a memorandum on behalf of Maria dated 17 November 2020 attaching an opinion from senior counsel as to why Associate Judge Johnston’s judgment was considered to be incorrect. The application was reactivated by memorandum dated 20 November 2020 and ultimately abandoned on 16 February 2021.
[84] The material upon which an accurate assessment of wasted costs could be made is not before the Court. Mr Wigley suggested a costs award of $500, whereas Craig claimed wasted costs in the vicinity of $30,000.
[85] I am satisfied scale costs would not capture the wasted costs in this situation. Without attempting to arrive at an exact figure, there were approximately eight memoranda and/or telephone conferences that touched on this issue between the application being reactivated and abandoned. I have included in that figure the memorandum that attached senior counsel’s opinion as Craig’s counsel obviously had to digest what was being raised with the Court in that regard. Notwithstanding the limited material, both counsel left it to me to arrive at a figure.
[86] On the subject of quantum of wasted costs, McGechan on Procedure says the amount awarded is very much a matter of “impression and best judgment of the court at the time”.19
[87] Time spent by Craig’s counsel in respect of the reactivated application can truly be said, in my view, to have been wasted. This is not a matter of applying scale costs; I am trying to arrive at costs that are being thrown away.
[88] Keeping in mind that costs related to the abandoned appeal play no part in the assessment and on an admittedly broad-brush approach, I fix wasted costs at $7,500 to be paid by Maria to Craig.
Rule 400 of the Family Court Rules 2002
[89] On 25 February 2021, proceedings between Craig and Maria under the Property (Relationships) Act 1976 were transferred to this Court.
[90] Prior to transfer, Maria had sought an order under r 400 of the Family Court Rules 2002 that Craig, prior to the substantive hearing, be cross-examined as to the accuracy of his statement of assets and liabilities filed at the outset of the Family Court proceedings.
[91] In my Minute of 12 March 2021, I queried whether such an application could continue in this Court, given my preliminary view that the transferred proceeding was now governed by the High Court Rules 2016. This became a further issue to be addressed on 22 March 2021.
[92] Mr Wigley referred to a decision of Rodney Hansen J in Heatley v Heatley, confirming that the High Court Rules undoubtedly apply to transferred proceedings.20 In that decision, Rodney Hansen J said:21
It is not clear, however, that the rules require a statement of claim to be filed in circumstances such as the present. The effect of s 22(5) [now s 38A(4) of
19 Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HRPt14.16A(4)], citing Jeffreys v Morgenstern [2013] NZHC 1361 at [34].
20 Heatley v Heatley [2012] NZHC 2728, (2012) 3 NZTR 22-031.
21 At [6].
the Property (Relationships) Act 1976) appears to be that the applications filed in the Family Court are to be regarded as compliant with the High Court Rules. The Rules themselves do not provide otherwise. Rule 5.25, which stipulates the way in which a proceeding is to be commenced, does not assist. Nor do rr 5.64–5.69 which relate to proceedings transferred to this Court under ss 43, 44 or 45 of the District Courts Act 1947.
[93] In that case, the existing pleadings were regarded as sufficient without their needing to be a further statement of claim filed.
[94]Mr Wigley’s submission was as follows:
It is submitted that, just as s 22(5) (now s 38A(5)) means that the originating pleadings are to be regarded as compliant in the High Court, so too should the existing procedural construct, including the r 400 application be regarded as compliant and applicable. The Court must therefore continue to apply r 400 as though applicable in the High Court. In any event, rule 191 applies to enable the necessary modification to accommodate continued application in the High Court of r 400 FCR or its equivalent.
[95] Mr Wigley acknowledges there is no provision in the High Court Rules 2016 equivalent to r 400 of the Family Court Rules 2002 (FCR). He submits that because the proceeding was transferred with an extant interlocutory application, albeit one not recognised in the High Court Rules, r 1.5 of the High Court Rules applies which provides that a failure to comply with the Rules is an irregularity and not a nullity.
[96] Alternatively, Mr Wigley relies on the High Court’s inherent jurisdiction, submitting that the need to address deficiencies in the statement of assets and liabilities should apply regardless of which court the matter is being heard in. He submits that procedure should not get in the way of substance if there is a need to address deficiencies.
[97] Ms Greenhough, counsel for Craig in the relationship property proceeding, submits that, given there is no rule similar to r 400 FCR in the High Court Rules, there is no jurisdiction in this Court to order Craig to be cross-examined prior to the substantive hearing as to his affidavit of assets and liabilities.
[98] When proceedings are transferred to this Court, they are conducted under the High Court Rules, not under an amalgam of the rules that applied in the Court in which
the proceedings were originally filed. The interests of certainty alone dictate that be the result when a proceeding is transferred.
[99] I am only being asked to determine whether there is jurisdiction to undertake a r 400 FCR examination in this Court, and not whether such would be ordered.
[100] I am satisfied that the application for an examination under r 400 FCR does not survive transfer to the High Court. Section 38A(4) of the Property (Relationships) Act 1976 is clear that any proceedings transferred to this Court continue as if they have been properly commenced in the High Court.
[101] Reliance on r 400 FCR is not available in this Court, even if the application had been commenced prior to transfer.
[102] It might be thought Mr Wigley’s reference to the inherent jurisdiction of this Court means the door is always open for an application pursuant to the inherent jurisdiction. The issue before me was whether the r 400 FCR application survived the transfer to this Court and I consider it did not.
[103] If an application under the inherent jurisdiction was made then obviously such would have to be considered, but I do not make this comment to encourage such an application.
[104] There is merit in Ms Greenhough’s point that affidavits as to assets and liabilities are filed early on in a relationship property proceeding. She says that by and large they tend to have been overtaken by the fixture in any event. Given the agreement that the evidence in one proceeding will be available across all proceedings, I anticipate difficulty in limiting the scope of cross-examination to matters directly related to the statement of assets and liabilities.
[105] The r 400 FCR application is dismissed on the basis that it is based on rules that do not exist in the High Court jurisdiction.
[106] There is no order as to costs in respect of the r 400 FCR application. Nor is there an order for costs in respect of the argument on 22 March 2021 about the
jurisdictional issue as the point was one raised by me and appears to have been an unanticipated consequence of the transfer, which was made by consent.
[107] The remaining issue in the relationship property proceedings relates to the production of documents by Maria. Mr Wigley agrees there has been default in that regard by Maria. Counsel are dealing with that issue between them and, in acknowledgment of the breach, by consent, there is an order that Maria is to pay Craig
$500 effectively by way of wasted costs incurred in that issue being pursued. No other directions in that regard are sought, but no doubt will be raised again in the telephone conference that counsel have requested be held only in relation to the relationship property proceeding.
[108] That telephone conference will take place at 12.30pm on Thursday 29 April 2021.
Results
[109] In relation to Maria’s application that Craig answer interrogatories, I direct Craig answer Questions 2 and 3, the first part of Question 4. Question 5 as it relates to his answer in Question 4, and Question 6(c).
[110] Maria was not in contempt of court for failing to pay the costs awarded in favour of Craig prior to the date of the hearing. However I direct there will be costs awarded in favour of Craig on a 2B basis in respect of the contempt application, including an allowance for a quarter day hearing.
[111] In relation to Maria’s application for discovery against Craig, I direct the parties follow the steps set out at [73] of this judgment. Costs on that application should lie where they fall.
[112] I direct that Maria pay $7,500 by way of wasted costs to Craig for the period between her reactivating her derivative defence application on 20 November 2020 and abandoning it on 16 February 2021.
[113] Maria’s application for an order under r 400 of the Family Courts Rules 2002, is dismissed.
[114] I direct that Maria pay Craig $500 by way of wasted costs incurred in the issue of the production of documents being pursued.
Associate Judge Lester
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