Johnston v Johnston
[2021] NZHC 96
•4 February 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1429
[2021] NZHC 96
UNDER the Property (Relationships) Act 1976 and the Family Proceedings Act 1980 BETWEEN
ULRIKE URSULA JOHNSTON
Plaintiff
AND
JAMES CHRISTOPHER JOHNSTON
First Defendant
JOHN WILSON HART, JAMES CHRISTOPHER JOHNSTON AND MASY TRUSTEES LIMITED AS TRUSTEES OF THE MASY TRUST
Second Defendant
Continued over
Hearing: On the papers Counsel:
K G Davenport QC and A M Cameron for Plaintiff
J W A Johnson and N G Lawrence for Third and Fourth Defendants
Judgment:
4 February 2021
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 4 February 2021 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
JOHNSTON v JOHNSTON [2021] NZHC 96 [4 February 2021]
AND THOMAS RUFUS JOHNSTON, RUFUS
LIND JOHNSTON AND COOK ISLANDS TRUST LIMITED AS TRUSTEES OF THE JCJ TRUST
Third Defendants
THOMAS RUFUS JOHNSTON AND JAMES CHRISTOPHER JOHNSTON AS TRUSTEES OF THE NEW ZEALAND TRUST
Fourth Defendants
Solicitors: K3 Legal Ltd, Auckland
Wynn Williams, Auckland
Counsel: K G Davenport QC, Auckland
A M Cameron, Auckland J W A Johnson, Auckland N G Lawrence, Auckland
Introduction
[1] On 27 August 2020, I dismissed applications by the third and fourth defendants, being the trustees of the JCJ and New Zealand trusts respectively, to rescind an order made in July 2019 pursuant to s 43(1) Property (Relationships) Act 1976 (“applications”, “trustees”, “order” and “PRA”).1 The order, made without notice, restrained any disposition of 12 x 1 kilogram gold bars (“bars”) held in a safety deposit box in Auckland, and estimated to be worth approximately $1.2 million in total.
[2] The trustees seek leave to appeal my judgment. The application for leave is made pursuant to s 56(3) Senior Courts Act 2016.
Background
[3] The plaintiff, Mrs Johnston, and the first defendant, Dr Johnston, are in litigation here and in Texas relating to the division of relationship property.
[4] Dr Johnston is also one of the fourth defendants, along with his brother, Mr Thomas Johnston. Mr Thomas Johnston is also one of the third defendants, along with a Cook Islands trust company, and Mr Rufus Johnston, Mr Thomas Johnston’s and Dr Johnston’s father.
[5] There is a dispute between Mrs and Dr Johnston as to which, if any, assets are or derive from relationship property. On Mrs Johnston’s view of it, the relationship property includes real property in New Zealand, a home in Texas, cash at bank here and abroad, chattels, and gold bars, including those in issue before me and others said to be in Switzerland.
[6] When Mrs Johnston obtained the order, she also obtained an order freezing the proceeds of several bank accounts and lodged notices of claim under the PRA against the certificates of title to the property in New Zealand.
1 Johnston v Johnston [2020] NZHC 2197.
[7] Mrs Johnston and Dr Johnston were able to resolve matters in respect of the bank accounts, but not the bars.
[8] After the order was made, Dr Johnston filed an application to rescind, on the basis the bars were his separate property, and he swore an affidavit to that effect in August 2019. However, in a subsequent affidavit, sworn in December 2019, Dr Johnston advised his evidence had been incorrect and that the fourth defendants had owned the bars, and a property at Dairy Flat (which Dr Johnston had also claimed was his separate property), for five or more years previously, financed by funds also said to be separate property, advanced by the third defendants. The trustees themselves then applied to rescind the order.
[9] The application for leave to appeal is brought on the ground that I made an error of law and several errors of fact in dismissing the applications. I am not persuaded there was any error of law, and such errors of fact as I made were inconsequential. I decline to grant leave to appeal as the application does not meet the criteria by which such applications are determined.
[10] I address the alleged errors as they appear in the submissions in support, hence the omission of any listed in the application for leave to appeal but not pursued in submissions.
Relevant principles
[11] In Finewood Upholstery Ltd v Vaughan, Fitzgerald J described the requirement for leave to appeal as a “filtering mechanism” to “ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made”.2
[12] The principles which govern the grant or refusal of an application for leave to appeal are as follows:3
2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
3 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6] and Lange v Lange [2020] NZHC 3151 at [26]. See also Gong v Commissioner of Police [2020] NZCA 598 at [9].
[6]... The following considerations [are] recognised as relevant on an application for leave to appeal:
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
Error of law
[13] Section 43(1) PRA permits the Court to restrain a “disposition of property ... about to be made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of”, in this case, Mrs Johnston, under the PRA.
[14] The trustees contend I made an error of law in construing the words “in order to defeat the claim or rights of any other person” in s 43(1) PRA.
[15] These words also appear in s 44(1) PRA, which permits the Court to make orders in respect of a disposition already made, if satisfied the disposition was made “in order to defeat the claim or rights of any person” under the PRA.
[16] In the past, views in the High Court have been divided as to whether an applicant under either provision must prove the existence of an actual intention to defeat, or whether intention may be inferred if the respondent would know a disposition would have that effect.
[17] In Ryan v Unkovich, and in the context of s 44, French J considered it would be sufficient for an applicant to establish the respondent would have had knowledge of the effect.4 The Court of Appeal took this same approach in Potter v Horsfall, another case concerning s 44.5
4 Ryan v Unkovich [2010] 1 NZLR 434 (HC) at [33] and [41]-[42].
5 Potter v Horsfall [2016] NZCA 514, [2016] NZFLR 974 at [41].
[18] I relied on French J’s decision in the present case concerning s 43. The trustees contend this was an error and that the correct approach, at least under s 43, is that taken by Heath J in Patterson v Davison, which preceded the Court of Appeal’s decision in Potter.6 Heath J’s view was that evidence of an actual intention to defeat was required. Heath J did not seek to draw any distinction between ss 43 and 44. He simply differed from French J.
[19] In opposing the application for leave to appeal, counsel for Mrs Johnston referred me to [90] of the Court of Appeal’s recent (2 September 2020) decision in Dyer v Gardiner, in which, apropos of s 44, the Court said:7
The intention requirements of s 44(1) of the Act may be satisfied where the person responsible for the disposition is aware that the effect of the disposition is to defeat a claim or the rights of another person to the property that is the subject of the disposition.
[20] This led me to ask counsel for the trustees whether they wished to continue to pursue this point. In response, they advised they do not consider Dyer v Gardiner necessarily resolves matters as regards s 43, and submit it would be helpful for the Court of Appeal to consider whether the words “in order to defeat” in s 43(1) are to be construed and applied in the same way as in s 44(1).
[21] Notwithstanding this submission, given the Court of Appeal authorities, I do not consider there is an arguable question of law that these same words, in these consecutive provisions, are to be construed or applied differently. The trustees have not advanced any reason why a distinction should be drawn between the provisions, so that awareness or knowledge of the effect suffices under s 44, but not s 43. It follows I am not persuaded there is any arguable error of law.
Errors of fact
[22]The trustees also submit I made several errors of fact.
[23] Before I address these, I should set out the reasons I was satisfied the grounds for an order continued.
6 Patterson v Davison [2012] NZHC 2757 at [38]-[39].
7 Dyer v Gardiner [2020] NZCA 385, (2020) 5 NZTR 30-014 at [90] (citations omitted).
[24] First, one reason the trustees advanced in favour of rescinding the order was that it was unnecessary. This was said to be because all defendants were bound by a Court order made in the Texas proceedings which had the effect of preserving the status quo in respect of all property, including the bars. I accepted that order was binding on Dr Johnston but was not satisfied it bound any other defendant.
[25] Secondly, Mrs Johnston alleged that, in breach of that same Texas order, Dr Johnston had arranged for some of the couple’s personal effects to be removed from storage and delivered to the address where he and the children were living. Dr Johnston acknowledged that this had occurred, but said there was good reason for it and the value involved was trivial in any event.
[26] Thirdly, I took into account that the domicile of the New Zealand Trust had been relocated from New Zealand to Texas, with no explanation as to why.
[27] Fourthly, the nature of the bars meant they were readily moved, or able to be converted to cash which itself could be speedily transferred offshore.
[28] Fifthly, there is an issue as to who owns or has an interest in the bars, and when the case is further advanced it is quite possible there will be an issue as to the source of the funds used to purchase them. Mrs Johnston claims an interest in the bars. Dr Johnston’s evidence at the outset was the bars were his separate property — not an uncommon assertion by one spouse against another. Then, as I have said, it was contended the fourth defendants were the owners of the bars, had been for some time, and the third defendants were the source of the funds used to acquire them. This change in position reinforced my already held view that ownership and quite possibly the source of funds used to purchase the bars would need to be resolved at trial.
[29]I turn now to the alleged errors of fact.
Trust deeds
[30] In [4] of my judgment, I said the trust deeds of the JCJ and New Zealand trusts were not before the Court and thus I did not know who were the beneficiaries of each. That was incorrect at least in relation to the New Zealand Trust, although the error is
immaterial. Documents annexed to an updating affidavit of 12 February 2020 identify the beneficiaries of the New Zealand Trust as the couple’s two children. In a separate affidavit sworn on 11 June 2020, Mr Thomas Johnston says the beneficiaries also include some charities.
Disposition “about to be made”
[31] The trustees contend I erred in finding that a disposition was “about to be made” because there was no direct evidence of the same and the reasons I gave for inferring that it was about to be made were incorrect. I considered, and still consider, the inferences I drew were open to me, but I accept the trustees take a different view of the matter.
Finding that there was evidence that Mrs Johnston may have an interest in the relevant assets
[32] I did not find there was evidence that Mrs Johnston may have an interest in the bars. It is Mrs Johnston’s case that she has an interest in them. Whether she does will be an issue at trial.
Finding that the evidence of Dr Johnston was inconsistent
[33] The trustees submit I was wrong to express reservations about the change in Dr Johnston’s evidence as to who owned the bars, as the change was clearly and logically explained.
[34] Clearly and logically explained or not, such a change raises an issue as to a deponent’s reliability.
Delay in service
[35] Dr Johnston delayed for seven months in serving Mrs Johnston with his legal proceedings in Texas. Mrs Johnston relied on this delay as indicative of what she considers to be Dr Johnston’s secrecy. Dr Johnston denied this, and explained his delay as arising from a desire to avoid inflaming matters further. I did not rely on the delay in reaching my decision.
Relocation of personal effects
[36] The trustees contend I questioned Dr Johnston’s intentions in relocating assets from storage. That is incorrect. Dr Johnston did not deny the relocation, or that it was a breach of the order of the Texas Court he maintained was binding on him and which was said to make any order in New Zealand unnecessary. Dr Johnston’s case was the breach was warranted and inconsequential.
Stating that the Texas Court made order re New Zealand Trust on a ‘without notice’ basis
[37] The gist of one of Mrs Johnston’s submissions was that the application to relocate the domicile of the New Zealand Trust was made without notice to her, as it was. In [21] of my judgment I stated that the application was made “without notice”. The trustees have informed me that the application was made on notice to interested parties, as required by the Texas Trust Code, but that Mrs Johnston was not such a party. I ought to have said the application was made without notice to Mrs Johnston but cannot see anything turns on that omission.
Change of domicile of the New Zealand Trust
[38] In my judgment I said the trustees could have explained their reasons for changing the domicile of the New Zealand Trust but had not done so. Counsel submits I was wrong in this regard, although it is not apparent to me that I was. That said, I was under the impression that the change had occurred recently when it appears it had not. I formed that impression from the trustees’ affidavit of 6 February 2020, in which they said the Texas Court had issued a declaratory judgment on 29 January 2020 “confirming that the situs of The New Zealand Trust is San Antonio, Texas”. I understood that to be a reference to the date of the change, whereas in fact it had occurred in 2011.
Conclusion
[39] I am not persuaded there is an arguable error of law. I did make the errors of fact referred to, but I do not consider them to be of general or public importance, nor of sufficient importance to the trustees to outweigh any lack of general or precedent value associated with the proposed appeal. Nor am I persuaded the circumstances
warrant the further delay associated with an appeal or that the interests of justice are served by granting leave. I say this for the following reasons.
[40] First, Mrs Johnston, Dr Johnston and the trustees are in dispute about many valuable assets. The bars are only one. Absent settlement, it will be some time before all the issues between the parties are litigated and determined. An appeal against my judgment, concerning one asset only, would delay the parties in progressing the wider litigation, and increase the overall cost of resolution.
[41] Secondly, the trustees have not said why they require access to the bars now. In addition, on the trustees’ submissions to me prior to judgment, rescission of the order would have no practical effect. The trustees’ case before me was that the order of the Texas Court restrains them from disposing of the bars. The trustees also offered a sensible compromise, which Mrs Johnston did not accept, which would have ensured the bars’ retention in New Zealand.
[42] So, on the evidence and submissions before me, there is no practical advantage in an appeal, but the disadvantages of delaying progress in the litigation generally and increased cost.
Result
[43] I decline leave to appeal. The trustees must pay Mrs Johnston’s costs and disbursements on this application.
Peters J
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