Johnson v Johnstone HC Whangarei CIV-2010-488-000108

[2011] NZHC 860

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2010-488-000108

BETWEEN  MICHAEL CLARKE JOHNSON Appellant

ANDDUWAINE ROBERT JOHNSTONE First Respondent

ANDTHE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED Second Respondent

Hearing:         19 October 2010

Counsel:         R O Parmenter for the Appellant

A B Fairlie and M J Wills for the First Respondent
No Appearance of or for the Second Respondent

Judgment:      15 June 2011

JUDGMENT OF DUFFY J

This judgment was delivered by Justice Duffy on 15 June 2011 at 3.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

Counsel:     R O Parmenter P O Box 1052 Shortland Street Auckland 1140 for the Appellant

Solicitors:   Thomson  Wilson  P  O  Box  1042  (DX AP24512)  Whangarei  0140  for  the

Respondent

Copy To:     New Zealand Guardian Trust Co Limited P O Box 913 Wellington 6140

JOHNSON v JOHNSTONE HC WHA CIV-2010-488-000108 15 June 2011

[1]      This is an appeal against a decision of the Family Court, made under the

Family Protection Act 1955, which awarded the first respondent, Dwaine Johnstone,

60 per cent of the estate of his deceased father (the testator).  Mr Johnstone is the adopted son of the testator.  He opposes this appeal.

[2]      The appellant, Mr Johnson, is the nephew of the testator and was the sole beneficiary under his will.  The size of the estate is moderate, with an approximate net value of $400,000.

[3]      Mr  Johnson  accepted  both  in  the  Family  Court  and  in  this  Court  that Mr Johnstone had a valid claim under the Family Protection Act insofar as the testator, by failing to make any provision for Mr Johnstone in the will, failed to honour his moral duty to Mr Johnstone.   However, Mr Johnson contends that the appropriate  award  is  one  of  $40,000  and  that  the  Family  Court‟s  award  to Mr Johnstone of 60 per cent of the estate was excessive.

Facts

[4]      The testator married Mr Johnstone‟s mother in 1972.   In the same year he adopted Mr Johnstone, who was then aged 10 years.   The family home was in Hamilton.   Mr Johnstone left home when he was a teenager to complete an apprenticeship in Whangarei, where he has lived ever since. There is a question as to whether he was 16 or 18 years of age when he left home, but I do not think this has any material bearing on the outcome of the appeal.   In 1980, the testator‟s will provided for Mr Johnstone‟s  mother and for Mr Johnstone in the event that his mother predeceased the testator.

[5]      Once Mr Johnstone left home, the contact between him and the testator was minimal.    Then  in  1990,  the  testator  and  Mr  Johnstone‟s mother  separated  in acrimonious circumstances.  In 1991 the testator moved to Whitianga, where he lived until his death.  After the testator separated from Mr Johnstone‟s mother, there was approximately a 14 year period when there was no contact between the testator and Mr Johnstone.

[6]      In  1992  the  testator  excluded  Mr  Johnstone  from  his  will  and  provided instead for his nephews, Mr Johnson and his two siblings.  The testator explained in this will that he had not had contact with Mr Johnstone in recent years and that Mr Johnstone would benefit from his mother‟s  estate, which was expected to be substantial.  In July 2000, the testator executed his last will, which provided solely for Mr Johnson.

[7]      Mr  Johnstone  and  the  testator  did  not  resume  contact  until  2004  when Mr Johnstone, who was now married, and his son went to Whitianga to visit the testator.  After this initial meeting, they remained in contact by telephone, but there were no further face to face meetings.   Mr Johnstone telephoned the testator five times, and the testator telephoned Mr Johnstone from time to time to stay in contact with him.  At the time they resumed contact, the testator would have been aged 75 years.  He died in September 2008, aged 79.  There is no evidence to suggest that from the time contact resumed between Mr Johnstone and the testator until the time of his death, there was anything that would have prevented the testator from making another will.

[8]      Mr Johnstone and his family travelled to Whitianga for the funeral, stayed in the testator‟s house, but left before the funeral.  Mr Johnstone explained that prior to the funeral he had learned that he was excluded from the will; and he chose not to attend the funeral as he was concerned about his behaviour.  Later, he applied to the Family   Court   for   provision   from   his   father‟s   estate   under   s   4(1)   of   the Family Protection Act 1955.

The Family Court decision

[9]      The Family Court identified three questions to be considered:

(a)       Had  the  testator  failed  to  meet  his  moral  duty  to  provide  for

Mr Johnstone;

(b)      Had Mr Johnstone established a need for maintenance and support;

and

(c)       If there was a breach of moral duty, how was this to be redressed?

[10]     The Family Court recognised that in redressing a breach of moral duty, it was not  for  the  Family  Court  to  be  generous  with  the  testator‟s  property.     The Family Court also recognised that “need” included emotional as well as material need,  and  that  “support”  included  sustaining  and  providing  comfort.     Since Mr Johnson  accepts  that  Mr  Johnstone  is  entitled  to  some  award  under  the Family Protection Act, I propose to concentrate on the aspects of the Family Court‟s decision that led it to decide to award 60 per cent of the estate to Mr Johnstone.  The Family Court appears to have been influenced by its perception of Mr Johnstone as someone who had both material and emotional needs of maintenance and support.

[11]     At the time of the Family Court hearing, Mr Johnstone lived with his wife and son (who was then aged 16 years).  Mr Johnstone had a mortgage-free house at Whangarei Heads valued at $440,000, which was then in poor repair.  He had neither personal nor business debts.   He ran a business, in partnership with his wife, as a refrigeration engineer.   This business, which was presented as his only source of income, appeared to produce minimal income.  In 2008 it produced a net income of

$3,997.76 and in 2009 it produced a net income of $16,692.   His wife earned no income, apart from that attributed to her share of the partnership, and their son required orthodontic treatment.  As a family, they qualified for Working for Families assistance.

[12]     It is difficult to see how the Johnstone family managed to survive financially on such limited income.   During the hearing, Mr Johnson‟s counsel queried the veracity of Mr Johnstone‟s financial accounts.  The Family Court accepted that this very minimal income did raise such questions.   However, the Family Court found that as it did not have evidence to show whether the low income was due to market forces or to the applicant‟s own choice, it would simply treat the income produced as being low; which in turn influenced the Family Court‟s assessment of the proper provision for Mr Johnstone.

[13]     The Family Court found that Mr Johnstone had “demonstrated a proper need

for provision in the context of his emotional and material needs not having been

met” (at [34]).  The Family Court went on to find that that there was a demonstrated need for assistance to provide repairs and maintenance for Mr Johnstone‟s  house, and also to meet his emotional need to feel recognised and provided for by his father (at [35]).

[14]     The  Family  Court  also  had  regard  to  the  change  in  circumstances  of Mr Johnstone‟s mother and how that would impact on what he was likely to receive from her.  The testator had believed that the ample provision that he had made for his wife on their separation would enable her to make provision for Mr Johnstone from her estate.  However, by the time of the testator‟s death, Mr Johnstone‟s mother was not as well off materially as she was at the time of separation and she was living in Australia.     Thus,  there  was  less  prospect  of  her  having  anything  to  leave Mr Johnstone than the testator believed; nor was she within the jurisdiction of the Family Protection Act, should her material circumstances improve.

[15]     The Family Court accepted that the relationship between the testator and Mr Johnstone was limited (at [20]).  However, the Family Court also found that the breakdown in contact was as a result of the separation between the parents, rather than  anything  that  occurred  between  the  testator  and  Mr  Johnstone.   Thus,  the Family Court concluded that the responsibility for the absence of contact between the testator and Mr Johnstone was mutual.

[16]     The Family Court acknowledged that it must not assess an appropriate award for Mr Johnson.  Nonetheless, it noted that Mr Johnson, as the testator‟s nephew, was further removed from him than was Mr Johnstone.  In this regard, the Family Court noted  that  as  a  nephew,  Mr  Johnson  had  no  right  to  bring  a  claim  under  the Family Protection Act.  Further, Mr Johnson was well provided for financially as he had a home valued at over $1 million.

[17]     The result was that the Family Court found there was a breach of moral duty. The Family Court also found that given the size of the estate and Mr Johnstone‟s need for emotional and material provision, he should be awarded 60 per cent of the testator‟s estate.  The reasons for an award of this size are given at [46]-[47] of the judgment and were as follows:

(a)      Though Mr Johnstone‟s financial need had not been quantified, he nonetheless had a proper need to be recognised by the testator in his estate so as to confirm his position in his father‟s family;

(b)      There was no disentitling behaviour;

(c)       Mr Johnstone was the testator‟s only child; and

(d)Nothing less than 60 per cent of the estate would properly meet the combination of the material and emotional needs of Mr Johnstone.

Appellate principles

[18]     The  approach  for  a  Court  hearing  an  appeal  against  a  decision  on  a Family Protection Act claim is set out in Little v Angus [1981] 1 NZLR 126 at 127. An appellate court will not substitute its discretion for that of the Judge at first instance unless “there be made out some reasonably plain ground upon which the order should be varied.” The test was recently reaffirmed in Henry v Henry [2007] NZCA 42; [2007] NZFLR 640 at [24].

Discussion

[19]     The Family Court correctly identified the relevant principles to be applied. However, when it comes to the application of those principles, I consider that its approach was plainly wrong.

[20]     The Family Court appears to have been strongly influenced by its perception of Mr Johnstone as someone who had both material and emotional needs of maintenance and support from the testator.  This led the Family Court to conclude that nothing less than 60 per cent of the value of the estate would meet the combination of those needs.

[21]     Williams v Aucutt [2000] 2 NZLR 479 at [52] makes it clear that a court need not expressly find a need for proper maintenance and support. All that it must do is

determine whether adequate provision has been made for the proper maintenance and support of the claimant.

[22]     But in the present case, a key factor on which the award in the Family Court rests is a finding that Mr Johnstone‟s minimal income meant that he was in need of material maintenance and support.  It is necessary, therefore, to examine if this was so,  as  if  it  was  not,  the foundation  for  what  the Family Court  considered  was adequate provision for Mr Johnstone must be re-examined.

[23]     As the son of the testator, Mr Johnstone had a claim for proper support from the testator based on recognition of their parent/child relationship.  However, I differ from the Family Court regarding the strength of Mr Johnstone‟s claim for material maintenance and support from the testator.   For the reasons set out below, I have concluded  that  the  evidence  presented  by  Mr  Johnstone  to  prove  his  need  for material maintenance and support from the testator was unsatisfactory and, therefore, unreliable.  I consider that the Family Court should have been more circumspect in how it viewed the evidence of financial need.  I also consider that the better way of viewing Mr Johnstone is as an adult child having no special needs and having an adequate self-supporting lifestyle that is of his own choosing.

[24]     To show that he earned a minimal income, Mr Johnstone had to do more than present the accounts on which he relied.  That someone of his age and experience, who is a skilled refrigeration engineer, earns so little is odd and requires further explanation.   The 2008  profit  and  loss  account  for his  business  shows  that  his partnership enjoyed a gross profit from trading of $54,900.54.   This account also shows that there were unidentified purchases of $37,000 during that year.  The 2009 profit and loss account shows a gross profit from trading of $77,272.73.   It also records unidentified purchases of $48,489.12.   Both profit and loss accounts also identify specific items that would be expected to be costs incurred by a refrigeration business such as petrol, protective clothing, stationery, supplies, tools, vehicle expenses, telephone costs, etc.   It is hard to see what the unspecified “purchases” cover.  Expenditure of more than half the gross income for each year should be fully itemised and explained.

[25]     Furthermore, the accounts were not prepared by a chartered accountant, they were not audited, nor do they appear to have been prepared for tax purposes.  I note in this regard that the usual statutory declarations that persons make on the accounts they provide to the Inland Revenue Department are absent from the accounts put before the Family Court.   Thus, it is unclear whether the accounts provided in evidence are for Mr Johnstone‟s personal information and administration, or whether they also form the basis of the accounts he provides to the Inland Revenue Department.

[26]   The GST invoices that Mr Johnstone provided do not contain enough explanatory information to be able to determine why the business‟s expenditure appears to exceed or come close to equalling the income.

[27]     The depreciation schedule for the Johnstone partnership for the year ended

31 March 2009 records items such as a boat trailer, washing machine and fridge. These  are  usually  associated  with  domestic  use,  rather  than  business  use.    If Mr Johnstone has been mixing personal and business purchases in the partnership profit and loss account, it would explain how he has been able to survive on such a minimal net income.

[28]     Whilst at first blush the information he has provided shows the Johnstone partnership to have made a very low net profit in 2008 and 2009, the quality of that information is not as  reliable as  it could have been.    Given that he lived in a mortgage free house, that he had no business or personal debts, that there was no additional income from his wife, and that he was a skilled tradesman, the evidence of low net income was questionable.  The Family Court correctly recognised that it had no evidence to explain why Mr Johnstone‟s net income was so low.   I consider, therefore,  that  the  Family  Court  should  have  been  more  circumspect  about concluding that Mr Johnstone‟s low income demonstrated he had a material need for provision, rather than that his income was low through choice.  It should not have accepted Mr Johnstone‟s financial evidence at face value.

[29]     As the applicant seeking to establish a claim based, in part, on a need for material maintenance and support, the burden was on Mr Johnstone to provide the

Court with reliable information on that topic.   In this regard, a Family Protection claim is no different to any other claim: see Re Franich CA 101/79, 18 June 1981 at

13: “[t]he maxim „He who alleges must prove‟ is no less applicable to claims under the Family Protection Act than it is to other classes of litigation.”

[30]     In the present case, the Family Court commented on the absence of any forensic accounting evidence examining Mr Johnstone‟s business accounts (at [32]). Insofar as this was a reference to Mr Johnstone‟s failure to produce such evidence, the Family Court was right to make this comment.  But insofar as it might suggest that the Family Court considered it was for Mr Johnson to produce such evidence, (which is how Mr Johnson has interpreted this paragraph), this was an error on that Court‟s part.

[31]     Later in Franich, at 16, McMullin J found that having regard to the paucity of information supplied by the claimants in that case (three daughters of the deceased from his first marriage), the Judge at first instance had ordered too high an amount of further provision for them.  At 17, McMullin J referred to the “scantiness of relevant material in the affidavits of the claimants.”   He concluded that it was not for the Court, when faced with inadequate information, to make assumptions in the claimants‟ favour:

If the claimants do not make the requisite disclosure, the Court should not assume in their favour the existence of factors which would justify an award at the higher end of the scale.

[32]     In Franich, the total provision that the claimants had been awarded ($37,500) came to half of the capital value of the estate.   The Court of Appeal reduced the awards  to  a  payment  of  $9,000,  with  an  immediate  payment  of  $7,500  to  one daughter with the remainder and $5,000 each to the other two daughters being paid out on the death of the widow.

[33]     In Mr Johnstone‟s case, the paucity of information on his need for material maintenance and support is due to the poor quality of the evidence on that topic. However, the impact is the same as in Franich.  I consider that if an applicant under the Family Protection Act seeks to establish that he or she has a need for material maintenance and support, it is incumbent on him or her to provide the Court with

reliable and credible evidence that is sufficient to discharge the burden of proof to the civil standard of proof.  This is especially so given that Family Protection claims are  dealt  with  using  affidavit  evidence  that  is  not  usually  tested  by  cross- examination: see Re Meier (deceased) [1976] 1 NZLR 257 at 258: “in other than exceptional cases, cross-examination is neither necessary nor desirable.”

[34]     Thus, the Family Court was wrong to rely on the financial information of low income which Mr Johnstone provided.   The paucity of reliable evidence on his financial circumstances means that he cannot discharge the burden of proof when it comes to deciding if he has a need for material maintenance and support.  He should, therefore, be treated no differently from other adult children of relatively modest means who can adequately provide for themselves and their families.  In this regard, I consider that whilst such persons would enjoy and benefit from enhancement of their material circumstances, they are not in need of such provision.   Seen in this light, it is difficult to see why Mr Johnstone should be entitled to 60 per cent of the estate.

[35]     The  relevant  principles  to  apply  when  quantifying  awards  to  such  adult children in recognition of their membership of a testator‟s family are to be found in Williams v Aucutt, Henry v Henry, and Auckland City Mission v Brown [2007] 2

NZLR 650.

[36]     The Court of Appeal in Williams v Aucutt noted at [52] that where there is no economic need, a legacy of a moderate amount will be enough to recognise the place of an adult child in the testator‟s family and other such emotional and ethical considerations.

[37]     In Henry v Henry, the Court of Appeal reiterated the approach to be taken from Williams v Aucutt and from Auckland City Mission v Brown at [54]:

In both Williams v Aucutt and Auckland City Mission v Brown the focus was on what was required to remedy the failure to make adequate provision in the will ... It is likely that the Court‟s remarks about conservatism were also focused on the extent to which the will should be disturbed when a failure to make adequate provision is established.  The law is clear on that: the award to the claimant should be no more than is necessary to remedy the failure. This Court‟s concern appeared to be that that approach was not being strictly

followed.  So, in that context, conservative means simply “no more than the minimum necessary to make the adequate provision.”

[38]     At [55], the Court of Appeal in Henry v Henry made it clear that the “call for conservatism” was not limited to the question of how to remedy a failure to make adequate provision.  When it came to determining whether adequate provision had been  made,  there  was  the  same  need  for  conservatism  and  more  than  just  a perception of unfairness was required before a Court would disturb a will.

[39]     At [56], the Court of Appeal in Henry v Henry made it clear that there was to be no departure from a conservative approach when dealing with claims based on financial need:

The principle is the same: the amount by which the will is disturbed should be  no  more  than  is  necessary  to  make  adequate  provision  for  the maintenance  and  support  of  the  claimant.     That  applies  whether  the claimant‟s case is based on financial need or on a broader need for support or both.

Thus, it is not for the Court to be generous with the testator‟s estate, or to attempt to

re-write his will according to the Court‟s notions of fairness.

[40]     In  the present  case,  I consider that  a wise  and  just  testator  would  view Mr Johnstone as an adult son with whom there had been minimal contact since he had left home, but in circumstances where there was no disentitling conduct.  Whilst it is correct that the relationship of parent and child has primacy in our society, the extent of a parent‟s moral duty to provide maintenance and support for a child on the parent‟s death depends to a large degree on the nature of the relationship, its closeness, and the conduct of the parent and child towards each other: see Flathaug v Weaver (2003) 22 FRNZ 1035 (CA).  In the present case, apart from the time when Mr Johnstone lived in the same household as the testator, their contact with each other was minimal; and neither attempted to rectify this.  The one visit in 2004 and the infrequent telephone contact after that cannot change matters.  Looked at overall, theirs was not a close parent/child relationship.

[41]     Further, given the lack of contact between the testator and Mr Johnstone when Mr Johnstone was an adult, he cannot assert that his efforts contributed to the estate.

[42]     By adopting Mr Johnstone and caring for him between the age of 10 years and when he left home (at either 16 or 18 years), the testator took on the responsibilities and obligations of parenthood towards Mr Johnstone at a time when he was young and vulnerable.  But this is not a case where, when the testator was later elderly and vulnerable, Mr Johnstone reciprocated in kind.

[43]     I have already found that there is no reliable evidence of financial need.  It is not, as was recognised in Franich, for the Court to speculate about Mr Johnstone‟s financial circumstances.   He is best treated as someone whose circumstances are modest but sufficient for his comfort.

[44]     In circumstances such as these, a wise and just testator would be looking to leave  provision  that  ensured  that  Mr  Johnstone  was  recognised  as  part  of  the testator‟s family, but no more than that.

[45]     I consider that an award of $80,000, which represents 20 per cent of the value of  the  estate,  will  make  proper  provision  for  Mr  Johnstone‟s  maintenance  and support.   It demonstrates recognition of Mr Johnstone as the testator‟s  only son whilst at the same time allowing for the limited contact that there was between them and the absence of any properly proven financial need.  It provides him with some capital to effect an improvement in his circumstances (including repairs to his house) and to have something in reserve for future contingencies.  This takes account of his modest means without treating him as needing financial provision.   It is for this reason that I consider $80,000 to be more proper provision than the amount of

$40,000  that  Mr  Johnson  argues  for.    The  size  of  the  award  also  respects  the testator‟s testamentary freedom to dispose of the bulk of his estate to a relative with whom he had a strong, close and ongoing association.

[46]     The  evidence  shows  that  the  testator  had  a  strong  relationship  with  his nephew, Mr Johnson, who is the sole beneficiary under the will.   Indeed, there is

evidence to suggest that the testator saw Mr Johnson as his son, and that the relationship  they  each  had  strongly  resembled  a  close  father/son  relationship. Mr Johnson is a member of the testator‟s wider family and a relative with whom the testator enjoyed a strong relationship.

[47]     The testator was entitled to recognise Mr Johnson in his will.  I consider it would be wrong to treat Mr Johnson as though he were a stranger to the testator, simply on the basis that the Family Protection Act would not enable him to bring a claim against the testator‟s estate.  It is not for the Court to re-write a testator‟s will in  accordance  with  the  Court‟s  perception  of  what  is  fair  as  between  family members.

Result

[48]     The appeal is allowed.   The award to Mr Johnstone of 60 per cent of the value  of  the  estate  is  set  aside.     In  substitution  thereof,  this  Court  awards Mr Johnstone the sum of $80,000.  Any advance payments that have already been made to Mr Johnstone are to be deducted from the $80,000.

[49]     The  appeal  was  categorised  as  category  2B  for  the  purpose  of  costs. Mr Johnson, as the successful appellant, can claim for costs on this basis.   The parties have leave to file memoranda on costs.

Duffy J