Johnson v Johnson HC Auckland CIV 2007-404-008041

[2008] NZHC 2572

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2007-404-008041

BETWEEN  LINDA CLARE JOHNSON Plaintiff

ANDCLIVE ASHLEY JOHNSON Defendant

Appearances: S Abdale for Plaintiff

D R I Gay for Defendant

Judgment:      17 September 2008 at 2 pm

AMENDED JUDGMENT OF ASSOCIATE JUDGE ROBINSON

This judgment was delivered by me on 17 September 2008 at 2 pm, Pursuant to Rule 540(4) of the High Court Rules

Registrar/Deputy Registrar

Date……

Solicitors:           S Abdale, PO Box 460281, Auckland

Wadsworth Ray, PO Box 26-301, Epsom, Auckland

LINDA CLARE JOHNSON V CLIVE ASHLEY JOHNSON HC AK CIV 2007-404-008041  17 September

2008

[1]      The defendant applies for the following:

a)        Summary judgment for the defendant against the plaintiff.

b)In the alternative that the plaintiff’s claim against the defendant be struck out as the claim discloses no cause of action and is an abuse of process.

c)       If summary judgment is not entered in favour of the defendant and the plaintiff’s claim is not struck out, further particulars as to matters contained in the statement of claim.

d)A direction that the costs banding for these proceedings be fixed at band 3C having regard to the gravity of the allegations made by the plaintiff.

Background

[2]      The plaintiffs were married on 10 May 1969. They separated on 31 January

1998. In 1983, they purchased a property at 2 O’Neill’s Avenue, Takapuna. In January 1991, the plaintiff and the three children of the marriage left for Australia. The defendant remained in New Zealand. In March 1992, he negotiated a sale of the property at O’Neills’s Avenue. That sale did not result in sufficient to discharge the mortgages on the O’Neill’s Avenue property. There was a shortfall of $92,085 owing to the ANZ bank.

[3]      In 1993 the parties purchased a property at 6 Boomerang Crescent, Sorrento, Gold Coast. In 1995 the defendant who was insolvent, entered into an agreement with his creditors. In terms of that agreement, he was required to pay his creditors a total of $104,000. He finally settled the arrangement with his creditors by paying a final instalment of $40,000 on 8 August 1997.

[4]      In November 1998, the property at 6 Boomerang Crescent, Sorrento, Gold

Coast was sold under a mortgagee sale.

[5]      In December 1999, the plaintiff commenced proceedings for orders under the Property  (Relationships)  Act  1976.  Those  proceedings  came  on  for  hearing  in October 2002 and in April and May 2003. In a decision delivered on 14 May 2003, Judge P J McAloon made orders relating to the division of matrimonial property. Included in the orders was an order that the loss following the sale of the Boomerang Crescent property amounting to $26,000 AUD was a relationship debt for which each party would be equally responsible. There was also a direction that shares in a company Ashcroft Holdings Limited were to be divided equally between the parties.

[6]      The plaintiff appealed the decision of Judge McAloon and on 29 September

2004, the appeal was allowed in respect of the findings of Judge McAloon relating to the value of Ashcroft Holdings Limited. On allowing the appeal a direction was made for  an inquiry into the value of the shares in Ashcroft  Holdings  Limited pursuant to s 38 Property (Relationships) Act 1976.

[7]      The inquiry was conducted by Mr John Hagen, an accountant of Auckland who concluded that the company had no value.

[8]      The plaintiff claims that she believed the property at O’Neill’s Avenue, Takapuna had been sold by mortgagee sale. During the course of the proceedings, she became aware that in fact the property had been sold by private treaty. She denies agreeing to the sale. She has obtained a copy of the memorandum of transfer. That document purports to be signed by the plaintiff. The plaintiff denies signing the document and has obtained expert evidence to support her claim. The document purports to be witnessed by Mr Mansfield, a solicitor of Auckland. Mr Mansfield concedes that he did not witness the plaintiff’s execution of that document.

[9]      As   a   consequence,   the   plaintiff   commenced   proceedings   against   Mr

Mansfield alleging professional negligence and breach of fiduciary duties. On 10

June 2005, the plaintiffs proceedings against Mr Mansfield were stayed, the Court concluding that the claims by the plaintiff were barred by the Limitation Act 1950.

The plaintiff’s claim

[10]     The plaintiff relies on four causes of action. The first cause of action is based on fraud with regard to the sale of the O’Neill’s Avenue property. The plaintiff claims that the defendant fraudulently forged her signature to the memorandum of transfer. She refers to an entry in the defendant’s notes to his tax returns for 1992 recording a debt of $265,985 owing to the plaintiff which is half the proceeds from the sale of the O’Neill’s Avenue property before the mortgages are deducted. Once the mortgages were deducted, there was in fact no balance available. As already pointed  out,  there  was  a  shortfall  of  $92,085.  The  plaintiff  seeks  judgment  for

$265,985 in respect of this cause of action.

[11]     The second cause of action pleads that the defendant fraudulently attempted to procure a will and enduring power of attorney in the plaintiff’s name without her authorisation, knowledge and consent. At the hearing before me, the plaintiff amended the claim to plead that the defendant did fraudulently procure a will and enduring power of attorney in the plaintiff’s name. In this respect, the plaintiff pleads that she became aware that the defendant had instructed  a firm  of  solicitors  in Queensland to prepare a will and power of attorney for execution by her. Based on that information, she now claims damages for economic loss and associate loss to be proven at the trial.

[12]     The third cause of action pleads fraud in relation to the plaintiff’s belief that she was entitled to income from two trusts namely the O’Neill Family Trust and the Tennyson Family Trust. She claims that the defendant has fraudulently deprived her of the income from those trusts which should have been paid to her during the marriage and seeks judgment for the benefits that she has not received.

[13]     The fourth cause of action pleads fraud with regard to shares in Ashcourt Holdings Limited. She claims that the defendant without her knowledge or consent arranged for bad investments by Ashcourt Holdings Limited and seeks damages for economic and associated loss resulting from such bad investments.

First  Cause  of  Action  –  fraudulent  sale  of  O’Neill’s  Avenue,  Takapuna property.

[14]     Counsel for the defendant conceded that the plaintiff had an arguable case in support of her claim that her signature to the memorandum of transfer had been forged. Consequently, he accepted that to succeed he would need to establish that the plaintiff had no claim notwithstanding the fact that her signature to the memorandum of transfer had been forged.

[15]     The plaintiff claims that she always believed the O’Neill’s property had been sold by mortgagee sale. A sale by the mortgagee in exercise of the power of sale would not require a memorandum of transfer executed by the registered proprietors.

[16]     The defendant in support of the contention that the plaintiff had no claim, raised litigation estoppel, s 4 of the Property (Relationships) Act 1976 and a claim that the cause of action was statute barred because of the effect of the Limitation Act.

[17]     The  plaintiff  commenced  her  proceedings  on  21  December  2007.  It  is submitted  on  behalf  of  the  defendant  that  the  plaintiff  could  with  reasonable diligence have discovered the fact that her signature had been forged to the memorandum of transfer prior to 21 December 2001 and consequently her claim is statute barred because of the effect of ss 4 and 28 of the Limitation Act.

[18]     Section 4 of the Limitation Act requires actions founded on contract or tort to be brought within six years of the date on which the cause of action accrued. Section

28 which applies in cases of fraud provides that the period of limitation is not to begin to run until the plaintiff has discovered the fraud or could with reasonable diligence have discovered it.

[19]     On 20 July 2000 which is more than six years before the plaintiff brought these proceedings, the plaintiff’s solicitors wrote to the defendant’s solicitors seeking the following relating to the O’Neill’s Avenue property.

O’Neill’s Avenue

We have written to Mr Mansfield who has provided us with a photocopy of his ledger of the O’Neill’s Avenue property. As you are now in possession of the relevant files please now provide: -

1)        A copy of the agreement for sale and purchase.

2)        A copy of the transfer.

3)        Details of all mortgages discharged with the sale proceeds.

[20]     Consequently, the plaintiff’s solicitors and therefore the plaintiff, were aware by  20  July  2000  that  the  O’Neill’s  Avenue  property  had  not  been  sold  by  a mortgagee under the power of sale contained in the mortgage but had been sold by the parties entering into an agreement for sale and purchase and executing a transfer. Faced with this evidence, counsel for the plaintiff properly conceded that the plaintiff’s claim with regard to the forgery of the transfer for the sale of the O’Neill’s Avenue property cannot proceed as the plaintiff must have been aware by 20 July

2000 that the O’Neills Avenue property had not been sold by the mortgagee by exercise of the power of sale under the mortgagee. Furthermore the plaintiff could have obtained at that time a copy of the memorandum of transfer with her forged signature on it. Consequently, the plaintiff can no longer oppose that part of her claim being struck out.

[21]     Having regard to the plaintiff’s concession, it is not necessary for me to consider whether the plaintiff’s claim cannot proceed because of the operation of litigation estoppel or whether the claim cannot proceed having regard to the provisions of s 4 of the Property (Relationships) Act which provides that all proceedings between spouses relating to relationship property are to be determined in accordance with the provisions of the Property (Relationships) Act.

Second cause of Action

[22]     The second cause of action arises out of the plaintiff becoming aware that in

1996 the defendant instructed Keith J Hunter & Associates solicitors in Queensland to prepare a will and power of attorney on her behalf. She is unable to produce any evidence that the defendant did execute the will and power of attorney in her name. The defendant’s explanation with regard to the power of attorney is contained in

paragraph 19 of his affidavit sworn on 9 March 2005 in respect of the proceedings pending in the Family Court at North Shore for orders under the Property (Relationships) Act. He states as follows:

Power of Attorney

19. The first example is the applicant’s allegation that I fraudulently attempted to obtain a will and power of attorney document through a Queensland  lawyer,  Keith  Hunter.  The  facts  of  the  matter,  was  that  a variation of mortgage was requested on the property owned by the Applicant at 6 Boomerang Crescent. I am unsure why I had to see the solicitor, and not Linda, but it may have been that the document needed my signature as guarantor. I found the name of Keith Hunter in the yellow pages, and being local, made an appointment, and had him check the document. While at his offices, he started asking other questions with a view to providing other work  for  us  (touting  for  business,  if  you  like)  by  suggesting  that  the Applicant and I should have wills prepared, but I don’t remember a power of attorney being suggested. My comment was that I was insolvent and did not see any need for a will, and that if he wanted to discuss the matter of a will for the Applicant, he should contact her directly. I found Mr Hunter stuffy and pushy, and I just wanted to get out of his office. There was no benefit for me in being a beneficiary in the Applicants will, as she had no assets, other than a doubtful equity in the house at Boomerang Crescent. If a power of attorney was discussed, then I could see no benefit to myself arising. In fact I had no interest in doing anything other than getting through each day, and would add that I still have no will. I note from my passport that I left Australia on May 8th 1996, the day Keith Hunter was drawing up the documents, which I neither requested nor have any idea if they were ever signed.

[23]    The evidence establishes the plaintiff was aware that Keith J Hunter & Associates had prepared a will and power of attorney on her behalf in November

1996. According to Keith J Hunter & Associates, on 13 November 1996 the plaintiff phoned and objected to payment of costs for preparation of the will and power of attorney. She obviously phoned them because she had received an account from them for the preparation of those documents. Following the telephone conversation with the plaintiff, Keith J Hunter & Associates elected to discontinue any further claim against the plaintiff for the costs of preparing those documents.

[24]     Once again, the plaintiff was aware of the circumstances giving rise to this cause of action well over six years prior to the issue of these proceedings. Consequently to continue the claim, in circumstances where the claim is clearly statute barred, is an abuse of process. Furthermore, the plaintiff is unable to establish any loss in the absence of any evidence that the documents were executed by the

defendant and used by him to defraud the plaintiff. The plaintiff can of course remove any risk of a fraudulent will executed in 1996 by the simple device of executing a new will revoking all former wills. Similarly, she has the power to revoke any power of attorney which she believes has been fraudulently executed by the defendant.

Third cause of action – fraudulent use by the defendant of income in the plaintiff’s name from the O’Neil Family Trust and the Tennyson Family Trust

[25]     The evidence produced by the plaintiff in support of this cause of action is contained in two documents. The first is dated 1 May 1995 purports to be on the letterhead of Margot Leigh of Auckland, chartered accountant and is as follows:

1 May 1995

To Whom It May Concern: I wish to confirm that Linda C Johnson is a beneficiary Tennyson Family Trust and receives the sum of NZD $28125 annum from commercial property owned by the trust.

The second document is also on the letterhead of Margot A Leigh and is as follows:

19 January 1995

To Whom It May Concern: this is to confirm that Linda C Johnson receives the sum of NZD $24,000 net of tax per annum from the O’Neil Family Trust. It is payable in equal monthly instalments on the 23rd of each calendar month.

The plaintiff claims that she never received that income.

[26]     The issues relating to these trusts, were the subject of investigation by the Court in the proceedings commenced by the plaintiff for orders under the Property (Relationships) Act. In his affidavit filed in respect of those proceedings sworn on 2

February 2006 at paragraph 8 the defendant advises that in 1995 together with Mr G D Ashley and Mr Horrobin, he proposed establishing the Tennyson Trust. During the course of the Property (Relationships) Act proceedings the defendant was examined with regard to the trust. The Court clearly took the trust into account and accepted the defendant’s explanation.

[27]     Similarly, the O’Neil Trust was considered and investigated by the Court in connection with the proceedings under the Property (Relationships) Act. According to the defendant, income from the O’Neil Trust was used for living expenses for the plaintiff and by the defendant to meet the instalments on the debt of $92,000 owing to the ANZ bank following the sale of the property at O’Neill’s Avenue.

[28]     The plaintiff’s claim to an interest in money available from the O’Neill Trust and the Tennyson Trust was considered by the Family Court in the proceedings under the Property (Relationships) Act 1976. In proceedings under that Act, each party must file an affidavit setting forth their assets and liabilities (see rule 398

Family Court Rules 2002). The defendant was the respondent in those proceedings. If the plaintiff believed the defendant had not made full disclosure of his assets and liabilities, she could seek an order in those proceedings requiring him to attend Court and be examined under oath as to the extent of his assets and liabilities (see r 400

Family Court Rules 2002).

[29]     The hearing before Judge P J McAloon lasted six days. In paragraph ten of his judgment the judge states:

The situation was made more difficult by the fact that the respondent is in many cases a professional trustee for clients for whom he acts. Understandably, when he is holding property on behalf of a client, this factor is not readily able to be appreciated or identified by a person inquiring as to the respondent’s assets.

[30]     As the extent of relationship property was in issue in the proceedings in the Family Court , the doctrine of res judicata and issue estoppel must apply. That doctrine is summarised in Cross on Evidence New Zealand edition page 10,652, paragraph 4.4 as follows:

4.4 Conclusiveness of Court orders

The maxims underlying estoppel by record are interest rei publicae ut sit finish litium (it is for the common good that there should be an end to litigation), and nemo debet bis vexari pro una et eadem causa (no one should be sued twice on the same ground). The practical consequence is that, generally speaking, the order of a Court of competent jurisdiction is conclusive. A separate proceeding may be commenced to have it set aside if it was obtained by fraud. Fraud or collusion in the obtaining of a judgment may be proved by a stranger to the proceedings.

A judicial determination may have the effect of precluding a person from disputing the determination in subsequent proceedings in one of four ways. First because the cause of action in the subsequent proceedings no longer exists: it has been subsumed in the earlier judgment – it is res judicata. This means that the successful party cannot bring a fresh suit on the same cause of action claiming, for example, further loss suffered following the original judgment. There is no discretion to deny the application of the doctrine of res judicata because of special circumstances. Second, it prevents an unsuccessful party attempting, in a subsequent proceeding, to impeach the judgment – cause of action estoppel.

Third, any party in the original proceeding will be prevented from subsequently relitigating an issue which has been finally determined against him or her in the original proceeding – issue estoppel. Finally, in certain circumstances which do not fall within either of the preceding categories, the Court may act to prevent a party from litigating an issue when to do so would amount to an abuse of process.

[31]     In any event, the operation of s 4 Property (Relationships) Act results in this Court being unable to make any orders relating to the money which the plaintiff claims to be hers under the Trust being received by the defendant and applied to his own use. section 4(1) provides:

4 (1)     This  Act  applies  instead  of  the  rules  and  presumptions  of  the common law and of equity to the extent that they apply –

(a)  to  transactions  between  spouses  or  partners  in  respect  of property; and

(b) in cases for which this Act provides, to transactions –

(i)  between both spouses or partners and third persons; and

(ii) between either spouse or partner and third persons.

[32]     The limitation of the effect of s 4(1) was considered by Court of Appeal in Mosaed v Mosaed (1996) 15 FRNZ 15. In that case, the Court of Appeal held s 4 did not preclude a remedy in separate proceedings to account for profits derived following the separation by one of the spouses as a result of breach of a fiduciary duty.

[33]     In Kerridge v Kerridge [2008] NZFLR 30 s 4 was held not to apply to a claim based on negligent misstatement. In that case, the plaintiff claimed the defendant told her a property was being acquired by both of them when in fact the property was acquired by a trust. In that decision it was emphasised that s 4 related

to transactions between the spouses. As it was the lack of such transaction forming the basis of the claim, the Court concluded s 4 did not apply.

[34]     In the present case if the plaintiff is correct the defendant has applied to his own use money the plaintiff received from a trust. If that does not involve a transaction between spouses in respect of property, it clearly involves a transaction between spouses and a third party covered by s 4(1)(b).

[35]     Subject to s 10, any money received by the plaintiff from the trust would be relationship property (see s 8(1)(e)). If the trust was not settled by the defendant then pursuant to s 10(1)(iv) the money received would not be relationship property and pursuant to s 9(1) would be the plaintiff’s separate property. Section 17A(1) provides a remedy to the plaintiff where the plaintiff’s separate property has been materially diminished in value by the deliberate action of the defendant.

[36]     Thus if, as the plaintiff claims,the defendant has deprived her of the money from  the trust  which  was  her  separate property,  then  the  value  of  her  separate property has been diminished by his deliberate actions. As a result, the court can diminish  the  defendant’s  share  in  relationship  property.  Consequently,  as  the Property (Relationships) Act clearly applies, the plaintiff can not bring separate proceedings at common law for recovery of any money which she believes she was entitled to under the trust and which has been taken by the defendant.

[37]     There is no application to set aside the Family Court decision with regard to its findings concerning the O’Neill Trust and the Tennyson Trust. I am therefore satisfied that the plaintiff’s cause of action relating to alleged fraud with regard to these trusts cannot succeed.

Fourth cause of action

[38]     The value of the shares in Ashcourt Holdings Limited was the subject of an investigation by Mr Hagen pursuant to the direction of the High Court. Following that investigation, the Court concluded that the shares had no value. Once again, the

plaintiff must be estopped from bringing further causes of action which relate to the value of the shares for Ashcourt Holdings Limited.

[39]     In any event, she has no right as a shareholder to bring these proceedings. Any loss suffered by the alleged conduct of the defendant would have been suffered by the company. Consequently, it would be necessary for the company to bring any proceedings.

Conclusion

[40]     For the reasons I have given, none of the causes of action pleaded by the plaintiff can succeed. In these proceedings the plaintiff is attempting to relitigate issues that have already been resolved by the Family Court. I am satisfied that in the interests of both parties, this litigation must come to an end. In those circumstances, I am perfectly satisfied that the appropriate course is to enter summary judgment against the plaintiff in favour of the defendant.

[41]     As I have entered summary judgment in favour of the defendant there is no need for the Court to consider the application by the defendant for further particulars.

Costs

[42]     Counsel  for  the  defendant  sought  an  order  for  increased  costs  and  costs against counsel for the plaintiff. In support of this application it was submitted on behalf of the defendant that the plaintiff had made very serious allegations of fraud, that there was insufficient evidence to justify the making of those allegations, and that the defendant had therefore been involved in increased costs in meeting the allegation of fraud.

[43]     Whilst there was some lack of specificity with regard to the allegation of fraud, there was evidence to justify the claim that the defendant had forged the plaintiff’s signature to the memorandum of transfer relating to the O’Neill Avenue property. That evidence not only was based on the plaintiff’s evidence that she did

not execute the transfer but also on the evidence of a hand-writing expert. There was also evidence that the defendant had presented the transfer to his solicitor who proceeded to witness the signatures on the transfer not withstanding the fact that the plaintiff was not present.

[44]     In  Harley  v  McDonald  [2002] 1 NZLR 1, the Privy Council whilst confirming the power of the High Court to award costs against a barrister personally made it clear that such costs should only be awarded for breaches of duty to the Court and confined strictly to questions capable of summary disposal by the Court, such as failure to appear or conduct which led to an otherwise avoidable step in the proceedings or prolongation of the hearing by gross repetition or extreme slowness in argument or presentation of evidence. In this application by the defendant for summary judgment, I could not conclude that counsel for the plaintiff was in breach of her duty to the Court in a way that could be determined by summary disposal. Counsel for the plaintiff following consideration of the submissions presented by the defendant, conceded that the Limitation Act precluded the plaintiff from relying upon the first cause of action. Thus far from prolonging the hearing, counsel for the plaintiff in making this concession reduced the length of hearing.

[45]     The Court must be careful not to penalise counsel for presenting a hopeless case.  An  order  for  costs  against  counsel  simply because  the  case  presented  by counsel was hopeless, would be a deterrent to counsel representing clients whose cases appear to counsel to be hopeless. If that should happen, there will inevitably be an increase in the number of unrepresented litigants appearing before the Court resulting in longer hearings and causing extra expense to parties who are represented by counsel. It is not uncommon for cases appearing to counsel to be hopeless to actually have some merit.  In  Harley  v  McDonald  the  Privy Council  cited  with approval the statement of Sir Thomas  Bingham  MR  in  Redehalgh  v  Horsefield [1994] Ch 205 at page 234 where he said:

Legal representatives will of course whether barristers or solicitors advise clients of the perceived weaknesses of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is (as Samuel Johnson unforgettably pointed out) for the judge and not the lawyers to judge it.

[46]     Consequently, I have concluded that there are no grounds upon which the Court would be justified in requiring counsel for the plaintiff to personally pay costs ordered against the plaintiff.

[47]     I am also not persuaded that this is a case where the Court should exercise its discretion and order increased costs against the plaintiff. I accept that the plaintiff’s allegation of fraud is serious. I also accept that there was very little merit in the plaintiff’s case. However, the defendant has had the same counsel in these proceedings and in the proceedings in the Family Court. The allegations made by the plaintiff relate to the proceedings in the Family Court. Counsel for the defendant therefore  in  preparing  the  defence  to  these  proceedings  would  have  had  the advantage of the knowledge of the history of the proceedings through the Family and High Courts thus reducing the time involved in preparing the defence. Consequently, I conclude that the defendant is entitled to costs on a 2B basis with disbursements as

fixed by the registrar.

Associate Judge Robinson