Johnson v Johnson

[2016] NZHC 1606

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-003004 [2016] NZHC 1606

IN THE MATTER	of the Property (Relationships) Act 1976
BETWEEN	TAMARIE ELLIS JOHNSON Applicant
AND	RICHARD OWEN JOHNSON Respondent

Hearing:	8 July 2016
Counsel:	RC Knight, TA Chubb and TM Kelly for Applicant RJ Hooker for Respondent
Judgment:	15 July 2016

JUDGMENT OF ASHER J (final judgment making orders)

This judgment was delivered by me on Friday, 15 July 2016 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Martelli McKegg, Auckland.

Vallant Hooker & Partners, Auckland. RC Knight, Auckland.

TA Chubb, Auckland.

TM Kelly, Auckland.

JOHNSON v JOHNSON [2016] NZHC 1606 [15 July 2016]

Introduction

[1]      On 4 May 2016 I delivered a judgment in this relationship property case.  I

directed at the end:1

Findings have been made on the key issues of disagreement and the proceeding is adjourned for a further  hearing for the making of precise consequential  orders  as  to  payment  and  vesting  giving  effect  to  the judgment.

[2]      I have now received further submissions and there has been a short hearing. There are three issues to be determined.

(a)      Whether Mr Johnson should be ordered that to pay Ms Ellis any sum of money, given that the majority of assets are out of the jurisdiction. Also the related issue of the currency in which any orders are made, and whether there is to be any offset;

(b)Whether interest is payable on any sum ordered to be paid, and if so at what rate; and

(c)      Costs.

[3]      I record that Mr Hooker for Mr Johnson has complained about Ms Ellis’ submissions being filed approximately one day late for this hearing.   He does not claim any prejudice.  It is ironic that Mr Johnson should complain of late filing for reasons  that  I  set  out  later.    I  also  note  that  at  the  time  Mr  Knight  filed  his submissions on behalf of Ms Ellis, Mr Hooker was indicating that he might well not be briefed for the hearing.  The default is minor, and given the lack of prejudice I do not accept the objection.

The sum to be paid

Jurisdiction

[4]      Mr Hooker objects to the making of any order on the basis that it takes into account overseas assets, and would be without jurisdiction.

[5]      Under s 33(3)(i) of the Property (Relationships) Act 1976 (the Act), the Court has the power to order payment of a sum of money by one spouse or partner to the other.   Under s 7, the Act applies to moveable property that is situated in New Zealand or elsewhere.  There are no restrictions on orders for the payment of a sum of money, if under s 33(1) it is necessary or expedient to give effect or better effect to any order made under the provisions of ss 25–32.   The fact that the money is overseas or even if Mr Johnson has placed it out of his control, cannot affect that jurisdiction.

[6]      I have in my substantive judgment made orders concerning the relationship property.   In that decision, I found that Mr Johnson took most of the relationship property by unilaterally transferring relationship monies into a trust that he now says is beyond his control. For the avoidance of doubt, I order that each party is entitled to a one half share of the relationship property.  Under s 33(1) of the Act, the Court may make orders as may be necessary or expedient to give effect or better effect to that order.  This means that the Court can make an order for payment of a sum of money in order to achieve equal sharing.  Given that he has taken the money, I may make an order for a lump sum payment by Mr Johnson to Ms Ellis to achieve equal sharing.

How the payment should be made

[7]      In my substantive judgment I recorded that the parties had agreed on the assets they had at the time of separation, and the values of those assets.2   Mr Johnson had assets under his control of US$381,949.81 and Ms Ellis had assets to the value of NZ$117,025.51.   To equalise, Mr Knight seeks an order that Mr Johnson pay Ms Ellis the sum of NZ$169,215.22.

[8]      Mr Hooker does  not  dispute the arithmetical  correctness  of Mr Knight’s calculation, but he submits that if a payment is to be made it should be divided into two cross-payments, reflecting the assets retained by each party, and the currency of the place where the assets are held.   Mr Johnson should pay to Ms Ellis US$132,462.15 and Ms Ellis should pay to Mr Johnson the sum of NZ$34,322.20.

[9]      In other words, the money that is in Oregon, including the money that was removed from the parties’ accounts by Mr Johnson at the time of separation, should be dealt with by way of a debt in USD owed by Mr Johnson, and Ms Ellis’ assets in New Zealand should be dealt with by a payment in NZD by her to him.

[10]     The first thing that must be said about this proposal by Mr Johnson is that it is again a symptom of the considerable unreasonableness he has shown in many aspects of these proceedings.  It is plain that Mr Johnson does not have significant assets in New Zealand.  He has chosen to locate the parties’ funds in Oregon in a trust, and will not disclose any details as to the whereabouts of the money.  The net result of the orders sought would be that Mr Johnson could pursue Ms Ellis for a sum in New Zealand reflecting his half of the assets here, while he would be immune in New Zealand from being sued for the much larger sum that he owed her, and she would be left to pursue that in Oregon.

[11]     Mr Johnson is entitled to a credit for what he is owed, but he should not gain such a strategic advantage.  It makes no sense to not carry out a set-off calculation. Indeed this is required, by way of analogy, by r 11.23 of the High Court Rules. Rule 11.23 provides:

11.23      Judgment for balance of claim over counterclaim

The plaintiff is entitled to judgment on the cause of action for the balance of his or her claim, after deducting the amount of the counterclaim proved by the defendant, if a counterclaim is proved to an amount less than that recovered on the cause of action.

[12]     This is not a claim and counterclaim situation.  However r 1.6 provides that in  cases  where  no  form  of  procedure  is  prescribed  by  any  Act  or  Rules  or Regulations, or by the High Court Rules, the Court may dispose of the cases nearly

as may be practicable in accordance with the provisions of the rules affecting any similar case.

[13]     Ms Ellis’ claim to the monies taken or controlled by Mr Johnson, and his much smaller claim against her for the sums in New Zealand that she controls, work like a claim and counterclaim.  The smaller amount owed to Mr Johnson should be set off against the larger amount owed by him to Ms Ellis.  That is what Mr Knight has done in his calculation. As I have said, the arithmetic is not in contention.  There is no good reason not to make the order in New Zealand dollars, as the exact location of the transferred money is not known.

[14]     I order that Mr Johnson pay Ms Ellis the sum of $169,215.22 in New Zealand dollars.

Interest

Should there be an order for interest?

[15]     In his submissions prior to the substantive hearing Mr Knight had sought interest.  The Court has the power to order the payment of interest under s 33(4) of the Act.  Mr Hooker argues that it is too late for an order for interest to be paid, as such an order was not made in the interim judgment.

[16]     In the interim judgment  I did not make any order as to the payment of interest, because I did not make final orders dividing relationship property.3   I did not order judgment for any amount.  Given that I was not making any order for payment, it would have been premature at that point to direct the payment of interest.  Rather, I invited the parties to either agree on or make submissions on the final figure.4

[17]     The issue of recalling the judgment to order interest was raised.  Mr Hooker submitted that a recall would not be appropriate.  Given my finding that the occasion

did not arise to order interest, the issue of recall of the judgment does not arise.

3      Johnson v Johnson, above n 1, at [94].

4      Johnson v Johnson, above n 1, at [98].

[18]     Mr Hooker submitted that given that the monies are in a trust for the benefit of the children, they have not been under Mr Johnson’s control and he should not have to pay interest.   However, Mr Johnson by his unilateral action has deprived Ms Ellis  of  money  that  she  should  have  been  able  to  enjoy.    Whether  or  not Mr Johnson presently has control over the monies he took (an issue I address later), it is his deliberate action that has deprived Ms Ellis of the funds.

[19]     As I have recorded in my judgment, he took this money by taking cash from various accounts and putting it into other accounts, which he has refused to identify, in the name of a trust.5    The Trust refuses to give details as to what is held and where.  A trustee, Mr Johnson’s mother Mrs Sawyer, has filed an affidavit in which she stated that the trust will not reveal the details of the monies it holds.  Because he has taken this action, he must properly compensate Ms Ellis for her resulting loss. That compensation must include use of money interest.

[20]     Thus, Mr Johnson has had the use of the bulk of the relationship property.  In such a situation, fairness requires that Mr Johnson pay interest on the money he has enjoyed or controlled.  It would be on the net amount, after deduction of the amount Ms Ellis owes him.

Amount of interest

[21]     It is necessary to turn to the appropriate rate of interest.

[22]     Mr Knight applied s 87(1) of the Judicature Act 1908 to set out the following calculation:

Rate	# of mths	Time period
5.00%	4 mths	1 Mar – 1 Jul 2011	$    2,820.25
7.50%	6 mths	1 Jul – 31 Dec 2011	$    6,345.57
7.50%	12 mths	1 Jan – 31 Dec 2012	$   12,691.14
7.50%	12 mths	1 Jan – 31 Dec 2013	$   12,691.14
7.50%	12 mths	1 Jan – 31 Dec 2014	$   12,691.14
7.50%	12 mths	1 Jan – 31 Dec 2015	$   12,691.14
7.50%	2 mths	1 Jan – 1 March 2016	$    2,115.19
Simple Interest Total	$   62,045.58

5      Johnson v Johnson, above n 1, at [60]–[63].

[23]     I accept that the correct date for interest starting to run is 1 March 2011.  This is some days after Mr Johnson unilaterally took the money that was held in the various accounts and transferred it to the unidentified accounts of the trust.

[24]     The rate sought by Mr Knight is too high, even though they are the rates set out under the Judicature Act. Actual interest rates have been and are lower.  There is evidence of those rates.   A letter was proffered from Small Business Accounting Takapuna by Mr Knight without objection from Mr Hooker.  It stated:

For the cash bank balances held in 2011 the New Zealand average annual bank Term deposit rates over the years since then can be found on the website Interest.co.nz and summarised for each year as follows :-

·   2011 year 4.67%
·   2012 year 4.47%
·   2013 year 4.20%
·   2014 year 4.08%

[25]     After some discussion, Mr Hooker helpfully accepted that the application of the New Zealand average annual bank term deposit rates as set out in a website was a fair indication of New Zealand interest rates.  Because I do not have up-to-date information of the interest rates I will order that interest be payable from 1 March 2011 at the annual interest rates provided for on the website from 1 March 2011 to the date of delivery of this judgment.

Costs

[26]     Mr Knight on behalf of Ms Ellis seeks costs on a 2B scale with an uplift in respect of discovery and attendances of 50 per cent.  He filed a summary of those costs.

[27]     Mr Hooker argued:

(a)       The District Court Rules  should apply to steps  taken prior to the transfer of the proceedings to this Court;

(b)The applicant’s failure to apply for further and better discovery should limit the costs she claims in relation to discovery;

(c)       In any event, the respondent’s conduct does not justify an uplift of costs in relation to discovery;

(d)      Category A costs should apply to the hearing;

(e)      In  any event,  the  applicant’s  schedule  for  costs  on  a  2B  basis  is

incorrect;

(f)      The applicant should not be awarded costs for second counsel; and

(g)The applicant cannot claim costs for the application to prevent the defendant from defending the proceeding.

[28]     He submitted that costs should lie where the fall on the basis that this is the usual position in relationship property cases.

Costs should lie where they fall?

[29]     Section 40 of the Act provides:

40   Costs

Subject to any rules of procedure made for the purposes of this Act, in any proceedings under this Act the Court may make such order as to costs as it thinks fit.

[30]     The “Court” means a Family Court or “if another Court has jurisdiction in the proceedings, that Court”.  The Family Court Rules do not have any direct application in this proceeding, which has been transferred to the High Court.  The High Court Rules apply.

[31]     The Family Court has a particular costs rule, r 207, which states that costs are at the discretion of the Court.  Under r 207(1) of those rules the Family Court has a discretion as to costs.   Rule 207(2) imports rr 4.2–12 of the District Court Rules

2009 as the discretionary factors that “may apply”.   Rule 14.2(a) specifically provides:

14.2 Principles applying to determination of costs

The following general principles apply to the determination of costs:

(a)   the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:

[32]     It is also to be noted that the Family Court Rules echo the District Court and High Court Rules in requiring proceedings to be dealt with “as fairly, inexpensively, simply and speedily as is consistent with justice.”6   However, r 3 goes on to say:

… and in such a way as to avoid unnecessary formality; and in harmony with the purpose and spirit of the Family Law Acts under which the proceedings arise.

[33]     As I see it, this is a High Court case and neither the Family or District Court costs rules apply.  The costs rules of the High Court apply.  However, the rules and practices of the Family Court are not irrelevant.   While there may be differences between the Family Court and the High Court, there should be a similar approach to costs issues in relationship property cases in both Courts.

[34]     There  undoubtedly  was  a  practice  of  not  awarding  costs  in  Property

(Relationships) Act  cases  in  all  Courts,  certainly in  the early days  of  the Act.7

Reason for this can be discerned.  Parties who have a relationship break-up are faced with the need to agree or litigate.  The issues can, through no fault of the parties, be complex and at times finely balanced.  Certainly while the law was being developed in the decades following the Matrimonial Property Act 1976, it was understandable that cases, where there was uncertainty as to the way to approach a problem, had to be fought out in court.  Often it would have been harsh to have placed a costs burden on the party that did not succeed on an argument or arguments.  Moreover, in those early days, there was no scale.

[35]     Over  recent  years  the  principles  in  relationship  property  disputes  have become more established, and the approach to costs has settled and been made

predictable.  The development of scales and detailed rules in the District Court and

6      Compare rules 1.3 and 1.2 of the District Court and High Court Rules.

7      See, for example, Gerbic v Gerbic (1991) 8 FRNZ 518 (HC) at 542.

High Court Rules as to increased or indemnity costs have made calculations more certain. As was stated by Keane J in FT v JML:8

These days the winning party in property relationship cases has a more recognised right to an award on the principle that costs follow the event than was so even a few years ago.  Conversely, the losing party’s misconduct may not now need to be so egregious to justify an award.

[36]     His approach was developed by Duffy J in Van Selm v Van Selm.   She observed:9

While costs decisions are discretionary, the Court should apply the [District Court] regime in the absence of some reason to the contrary. Any departure must be a considered and particularised exercise of the discretion.

[37]     The same approach has been adopted in other High Court cases.10

[38]     Therefore the District Court and in this case the High Court costs regime applies.   In applying those principles there must be particular recognition of the emotional, and at times complex commercial and legal problems that arise when relationships end.11    Even reasonable parties in that situation can have difficulty in finding a solution.  Nevertheless, when a party takes a significant contested position in property relationship litigation, and can be seen as unsuccessful in that litigation, it can be expected that there will be the same costs consequences as there would be in civil litigation.

[39]     In  my  view,  this  proceeding  demonstrates  circumstances  warranting  the award of costs.  The parties had enjoyed a reasonably long term relationship of at least 11 years, and as the bulk of their assets being cash savings, their assets were easily discernible and divided.  The only issues of complexity were issue estoppel, and whether there was saleable goodwill in the companies TNT Communications Inc and TNT Communications Ltd.   That latter issue in itself did not pose any great

challenge for the reasons I set out in the substantive judgment.

8      FT v JML [2012] NZHC 1388 at [32].

9      Van Selm v Van Selm [2015] NZHC 641, (2015) 30 FRNZ 163 at [44].

10     See for example Martin v Marsh [2015] NZHC 416 at [7], and Gibbs v Gibbs [2015] NZHC

3043 at [52].

11     The particular difficulties in dealing with personal relationships is reflected in Care of Children Act costs claims, in which the motives of the parents and best interests of the child can be relevant: see, for example B v B (2008) 27 FRNZ 289 (HC).

[40]     Mr Johnson was proactive, transferring the assets into the trust and out of Ms Ellis’ control,12 and then maintaining an unsuccessful argument of issue estoppel. While he did accept shortly before the substantive hearing that the money he transferred to the trust should be treated as relationship property to his credit, that was only a position taken late in the piece, and if he had been successful in his proceedings he would have forced Ms Ellis to bring a claim in Oregon in respect of

those monies.

[41]     As I perceive it, Mr Johnson’s general stance has been to shut Ms Ellis out of what should have been her half of the assets.  His lack of success in this proceeding is what is important.  I found that Mr Johnson recklessly misled the Oregon court as to the New Zealand proceedings.  He also failed in his claim to alleged goodwill in Ms Ellis’ business, which was the other issue that took a lot of time at the hearing.

[42]     In those circumstances costs should follow the event.  Mr Johnson should pay costs to Ms Ellis.

Should the District Court scale apply to that part of the proceedings preceding the transfer to the High Court?

[43]     Rule 14.13 of the High Court Rules provides that proceedings within the jurisdiction of the District Court must not exceed the costs recoverable in that Court unless the Court otherwise directs.   I am mindful of the fact that the scale in the District Court is lower than that in the High Court. In considering whether District or High Court-level costs would be appropriate, the Court may have reference to (i) the amount of the claim and judgment; (ii) the nature and complexity of the proceeding; (iii) the kind of factual and legal issues raised by the pleadings; (iv) whether the case

raises matters of public important; and (v) the parties' approach to the litigation.13

[44]     It is relevant that s 38A(4) of the Property (Relationships) Act provides:

38A Transfer of proceedings to High Court

…

12 See [19].

13     Fuehrer v Thompson [1981] 1 NZLR 699 (CA); cited with approval more recently in Little v Jull

[2014] NZHC 871.

(4)   Any proceedings transferred to the High Court by an order made under subsection (1) continue in that court as if they had been properly commenced there.

[45]     This is some indication that after a transfer from the Family Court, the whole proceeding is to be regarded as a High Court proceeding for costs purposes.

[46]     The proceedings commenced in the District Court and initial affidavits were filed there until the proceedings were transferred, ultimately by consent, to this Court.  The case has been hard fought throughout.  From my perception there has been no change in the effort and charge-out rates and disbursements incurred throughout the proceeding.  I do not see any reason to differentiate between the two scales in terms of time spent or complexity.

[47]     Although  I  have  observed  that  this  case  had  no  particular  practical complexity, the issue estoppel legal issue that arose was an important point of some difficulty.   In all the circumstances I propose applying the High Court scale throughout.

Costs uplift for costs for discovery

[48]     On 20 September 2013 Ms Ellis successfully sought an order for tailored discovery in the Family Court.  This order had still not been complied with at the date of the first case management conference in the High Court on 15 April 2015.

[49]     The discovery order was not complex.   In particular, what was sought was details of the bank accounts, highly relevant to the tracing of the monies taken by Mr Johnson.  Through this period Mr Johnson did not accept that he had to account to Ms Ellis for half the money he had transferred.

[50]     Mr Knight has, in my view, accurately described what were “serial failures and/or refusals to comply with the discovery order” by Mr Johnson.  These failures straddled  the  period  when  Mr  Johnson  appeared  for  himself.    It  was  not  until May 2015 that Mr Johnson made his first attempt (one of several) to comply with the orders. The Court on a number of occasions gave Mr Johnson more time in which to

meet his obligations.  It was a situation where there could well have been an order made debarring him from defending the case, so extreme were the failures.

[51]     Eventually   Ms   Ellis   applied   for   an   unless   order.      I   observed   on

14 September 2015 that she had behaved “entirely properly” in endeavouring to get the information she sought.14     Ultimately the relevant details showing where the monies had gone have never been disclosed by Mr Johnson.  This issue ceased to be so critical once Mr Hooker was involved, at which time the concession was made that the money taken by Mr Johnson had to be regarded as relationship property. The fact remains, however, that Ms Ellis has no idea what has happened to the money  and  it  can  be  expected  that  she  will  have  difficulties  in  tracing  it  and executing any judgment.

[52]     I also record that I do not accept Mr Johnson’s claim that he does not know or cannot find out where the money has gone.  The trust is clearly controlled, at least to a considerable extent, by his mother Mrs Sawyer.   She is unmistakably an unconditional supporter of Mr Johnson.   I have already found that Mr Johnson

misled the Oregon court.15     I do not go so far as to say that he is deliberately

misleading this Court on the discovery issues.  However, in my view he could have provided the bank account details that were sought, by pressuring the trustees to do so, but he has chosen not to pursue those details and provide them.   I draw this inference from the fact that he chose to place this particular money into the unnamed accounts shortly after separation, he chose the particular accounts, and his mother with whom he has a close relationship is a trustee.   He must be seen as having hidden the money.

[53]     There  was  a  failure  to  comply  with  the  directions  of  the  Court,  and specifically in terms of r 14.6(3)(b)(iv) a failure without reasonable justification to comply with an order for discovery.   In all the circumstances I consider that the

50 per cent uplift sought by Ms Ellis in respect of discovery failures is warranted.

14     Johnson v Johnson HC Auckland CIV-2014-404-3004, 14 September 2015 [Minute No 6].

15     Johnson v Johnson, above n 1, at [55]

Second counsel

[54]     Ms  Ellis  seeks  costs  for  second  counsel  in  this  proceeding.    From  my perception second counsel, Ms Chubb, provided a very valuable contribution both in terms of her research, support for Mr Knight, and submissions.  If this had been a significant civil proceeding I would have had no hesitation in awarding costs for a second counsel.  However, I hesitate to do so in this family context.  I am mindful of the need to take into account the domestic nature of the proceeding, and the need for speedy and inexpensive litigation.   I must also take into account the fact that the assets of the parties total less than $500,000.  I note that Mr Hooker, save for a short period where he was assisted by a very junior lawyer, appeared on his own.  He has been able to fully present his client’s case.

[55]     Despite the excellent contribution on the part of Ms Chubb and the absence of any criticism on my part of the decision that she should be involved, I am not prepared to increase costs further by adding costs for second counsel.

Other matters

[56]     On two relatively small aspects of the case, Ms Ellis was unsuccessful.  Her argument that the value of her shares in the company should be assessed at the time of the hearing failed.  Also she did not succeed in having Mr Johnson debarred from defending the case.  However, these issues did not occupy a great deal of time, and looked at in the round do not significantly diminish her success.  Indeed, the level of Mr Johnson’s default warranted an application to debar from defending.  These do not warrant any costs adjustment.

[57]     I see no reason why the standard category 2B should not apply. Although this was not a case of great complexity, neither was it a simple case given the issue estoppel issue, and Mr Johnson’s uncooperative attitude particularly in relation to the monies that he took, discovery and the value of the businesses.

[58]     Mr  Hooker  submitted  that  the  invoices  of  Ms  Ellis’ accountant,  totaling

$25,990  and  $9,272.05  were  excessive.     He  compared  his  experts’  costs  of

$19,360.55 against Mr Davis’ total of $35,262.05.

[59]     It is relevant that I accepted Mr Davis’ opinion.  I did not accept that of the other expert, although this was because I found the information that he relied on was incorrect.  In all the circumstances I accept Mr Hooker’s submission that parity of accountants’ fees can be relevant in assessing reasonableness.

[60]     I do not accept Mr Hooker’s submission that Mr Davis’ is disentitled to costs or must have them reduced because he advised Mr Knight on cross-examination issues for the trial.   While an expert must be independent, within reason that accountant can assist counsel on matters to be explored in cross-examination of another  accountant,  providing  that  accountant  does  not  adopt  a  partisan  or adversarial approach.  I have no reason to believe that such an approach was adopted by Mr Davis.  The fact that he did do some work that was to directly assist Ms Ellis at the trial will be reflected in the reduced cost award.

[61]     I have decided in the end that the fair result is to award all the costs of Mr Davis’ first invoice, but not the second.  This is somewhat arbitrary, but reflects the fact that not all his work was for the Court, and he did some work as an advisor to Mr Knight.  Mr Davis’ costs are therefore fixed at $25,990.

[62]     Mr Hooker argued that there should be some deductions to take into account tax payable.  He did not give any good reason for this or refer to any authority, and I do not consider it appropriate to make any such deduction.

Result

[63]     I  order  that  Mr  Johnson  pay  Ms  Ellis  the  sum  of  NZ$169,215.22. Mr Johnson is to pay Ms Ellis interest on that sum at the average annual bank term deposit rate, adjusted throughout from 1 March 2011 to the date of this judgment.

[64]     Mr Johnson is to pay Ms Ellis scale costs on all the attendances, together with all reasonable disbursements.  There is to be on a 2B basis, with a 50 per cent uplift for all discovery attendances, as set out in the summary Mr Knight attached to his submissions. The costs are for a single counsel.

[65]     The disbursements sought are to be paid by Mr Johnson, with one adjustment in that the amount payable for the expert Mr Davis is fixed at $25,990.

[66]     Both parties have had some success in this application.  But Ms Ellis has had the greater.  Mr Johnson is to pay Ms Ellis costs of $5,000 in respect of these costs issues.

……………………………..

Asher J