Johnston v Johnston
[2020] NZHC 2197
•27 August 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1429
[2020] NZHC 2197
UNDER the Property (Relationships) Act 1976 and Family Proceedings Act 1980 BETWEEN
ULRIKE URSULA JOHNSTON
Applicant
AND
JAMES CHRISTOPHER JOHNSTON
First Respondent
JOHN WILSON HART, JAMES CHRISTOPHER JOHNSTON AND MASY TRUSTEES LIMITED AS TRUSTEES OF THE MASY TRUST
Second Respondents
Continued over
Hearing: 3 March 2020 Appearances:
K G Davenport QC and A M Cameron for Applicant
J W A Johnson and J J Anson-Holland for Third and Fourth Respondents
Judgment:
27 August 2020
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 27 August 2020 at 2 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
JOHNSTON v JOHNSTON [2020] NZHC 2197 [27 August 2020]
AND THOMAS RUFUS JOHNSTON, RUFUS
LIND JOHNSTON AND COOK ISLANDS TRUST LIMITED AS TRUSTEES OF THE JCJ TRUST
Third Respondents
THOMAS RUFUS JOHNSTON AND JAMES CHRISTOPHER JOHNSTON AS TRUSTEES OF THE NEW ZEALAND
TRUST
Fourth Respondents
Solicitors: K3 Legal Limited, Auckland
Wynn Williams, Auckland
Counsel: K G Davenport QC, Auckland
A M Cameron, Auckland
[1] This judgment determines applications by the third and fourth defendants to rescind an order made by Downs J on 17 July 2019.1
Background
[2] The plaintiff and first defendant, Mrs Johnston and Dr Johnston, separated in 2018. In June 2019, Mrs Johnston commenced proceedings in the Family Court at Auckland, seeking orders under the Property (Relationships) Act 1976 (“PRA”). Dr Johnston has equivalent proceedings on foot in Texas, in the United States, where he lives with the couple’s children.
[3] The other defendants are trustees of various trusts associated with the couple or at least with Dr Johnston. Despite some initial uncertainty, it seems reasonably clear those now named as the third and fourth defendants are the trustees of the JCJ Trust and New Zealand Trust respectively and that there is no “Masy Trust”. Each of Dr Johnston and Mr John Hart has sworn an affidavit to the latter effect. Mr Thomas Johnston is Dr Johnston’s brother and Mr Rufus Johnston his father.
[4] The trust deeds are not before the Court so quite who are the beneficiaries of each trust is unknown.
[5] Dr Johnston and the third and fourth defendants protest the jurisdiction of the Court. Mrs Johnston has applied to set aside these protests.
Orders of 17 July 2019
[6] On 28 June and 3 July 2019 respectively, Mrs Johnston applied, without notice, to the Family Court for orders pursuant to s 43 PRA to restrain the disposition of, first, funds in bank accounts and other investments in New Zealand and overseas and, secondly, gold bars, and other gold (if any) stored at an institution in Switzerland. At Mrs Johnston’s request, the Family Court transferred the proceedings to the High Court on 17 July 2019. Downs J made the orders sought the same day.
1 J v J [2019] NZHC 1674.
[7] Thereafter Dr Johnston, as first defendant, and the third and fourth defendants applied to rescind Downs J’s orders pursuant to r 7.49 High Court Rules 2016, which gives the Court powers to vary or rescind an interlocutory order if satisfied it was wrong.
[8] The parties have since filed extensive affidavit evidence and, as I have said, the first, third and fourth defendants have protested the jurisdiction of the Court.
[9] Mrs Johnston and Dr Johnston were able to agree the terms on which the Court should rescind Downs J’s orders regarding the bank accounts and investments, and no further issue arises on that score. However, despite efforts, no agreement was able to be reached in respect of the gold bars.
Ownership
[10] Before I continue, I should refer to the evidence before the Court as to who owns the bars. Mrs Johnston claims an interest in them of course, as being or deriving from relationship property, or community property as it is termed in Texas.
[11] Contrary to this, in an affidavit sworn in August 2019, Dr Johnston said the gold bars (of which he said there are 12, weighing one kilogram each) and other assets, including real estate at Dairy Flat, with which I am not concerned, were his separate property in which Mrs Johnston had no interest. Dr Johnston also said some of the bars had been gifted to one of the couple’s children.
[12] Then, in a later affidavit of 19 December 2019, Dr Johnston advised this evidence had been incorrect, and the fourth defendants owned the bars (and the Dairy Flat property for that matter), having purchased them in May 2014 with funds received from the third defendants. For the moment, this evidence has not been confirmed by the other named fourth defendant, Mr Thomas Johnston, even though he, together with Dr Johnston, has sworn an affidavit in respect of other matters on the file.2
2 Joint Affidavit of James Christopher Johnston and Thomas Rufus Johnston (Under Protest to Jurisdiction) sworn 6 February 2020.
[13] In any event, as matters stand presently, the defendants’ position is the bars are owned by the fourth defendants, or they have legal title at least, but there is no evidence as to who are the relevant beneficiaries. At my request, counsel for the third and fourth defendants, Mr Johnson and Mr Anson-Holland, confirmed the third defendants make no claim to any legal or beneficial interest in the bars.3
Section 43 Property (Relationships) Act 1976
[14]Section 43(1) PRA provides:
43 Dispositions may be restrained
(1)Where it appears to the High Court … that any disposition of property is 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 any other person (party B) under this Act, the court may, on such notice being given as the court may direct, by order restrain the making of the disposition or may order any proceeds of the disposition to be paid into court to be dealt with as the court directs.
[15] The fourth defendants submit the Court may only make an order under s 43 if satisfied a disposition is imminent (“about to be made”) and such disposition is intended to defeat the claim or the rights of another, in this case Mrs Johnston. Even then, as appears from the provision, the making of the order is discretionary.
[16] There is competing authority as to what is required to establish the second element and, in particular, whether it is sufficient for an applicant to establish the effect of a disposition may be to defeat his or her claim or rights, whatever the underlying intention. French J took this view in Ryan v Unkovich. Heath J took a different view in Patterson v Davison, to the effect an intention to defeat was required to be proved.4 The Court of Appeal in Potter v Horsfall took the same view as French J, and that is the approach I shall adopt.5
3 Memorandum of Counsel for the Third and Fourth Defendants (Under Protest to Jurisdiction) dated 13 March 2020 at [3].
4 Ryan v Unkovich [2010] 1 NZLR 434; and Patterson v Davison [2012] NZHC 2757.
5 Potter v Horsfall [2016] NZCA 514, [2016] NZFLR 974.
Submissions
[17] Mr Johnson submitted there is no or insufficient evidence of each element, that is there is no evidence on which to anticipate imminent disposition let alone with the requisite intention and, in those circumstances, the Court could not continue Downs J’s orders. Mr Johnson also submitted orders made by the Court in Texas prohibited disposition by Dr Johnston in any event, and these would be sufficient to bind the fourth defendants.
[18] Counsel for Mrs Johnston, Ms Davenport QC, submitted there was sufficient evidence before the Court to establish both elements of s 43, at least by inference.
[19] First, Dr Johnston did not serve his Texas proceedings on Mrs Johnston until 23 July 2019, shortly after Mrs Johnston commenced her proceedings in the Family Court.6 This was despite Dr Johnston having issued his proceedings in Texas in December 2018.7 Mrs Johnston does not accept Dr Johnston’s explanation for the (seven-month) delay, which is that he wished to avoid the couple becoming embroiled in a legal dispute if that could possibly be avoided.
[20] Secondly, Mrs Johnston sets little store by the order referred to in [17]. Mrs Johnston contends that order also required, inter alia, the couple’s assets to remain as and where they were. However, without consulting her, Dr Johnston arranged for some or all of the family’s personal effects, including books, personal papers and some furniture, to be taken out of storage and delivered to the address where he and the children are staying. Dr Johnston’s response to this is he did so for very good reasons, including minimising his expenses, and in the interests and wellbeing of the children, and the value involved is inconsequential.
[21] Mrs Johnston also relies upon an order recently made by the Court in Texas to the effect the New Zealand Trust, of which the fourth defendants are the trustees, is domiciled or sited in Texas. This order was made on the fourth defendants’ without
6 Affidavit of Ulrike Ursula Johnston in Support of Interlocutory Application to Set Aside the First, Third and Fourth Defendants’ Protest Against Jurisdiction sworn 12 February 2020 at [33].
7 Affidavit of James Christopher Johnston Under Protest to Jurisdiction sworn 26 July 2019 at [10].
notice application, and they subsequently informed this Court the order had been made.
[22] Then there is the substantial change in evidence as to who owns the gold bars and, assuming it is the fourth defendants, who is a beneficiary of the New Zealand Trust.
Discussion
[23] This application is finely balanced. However, taking all matters into account, I decline to rescind or vary Downs J’s order.
[24] I have reservations as to whether the fourth defendants are bound by the Texas orders referred to in [17]. I accept those orders bind Dr Johnston but I am uncertain of the position as to Mr Thomas Johnston.
[25] Then there is Dr Johnston’s breach, or alleged breach, of the Texan order as regards the couple’s personal effects, however well-intentioned his actions may have been. The reason for the relocation (if that is the correct word) of the domicile of the trust is unexplained. The trustees are not obliged to give their reasons of course, but silence raises an obviously question as to the trustees’ purpose. In addition, the asset
— gold bars — is readily moved or converted to cash, which itself may be speedily transferred elsewhere.
[26] I must also make clear my concern at the fundamental change in Dr Johnston’s evidence as to ownership of what is a valuable asset. To assert in an affidavit the bars were entirely his separate property and that one of the children had an interest in one or more of them, and then in another affidavit several months later to assert the fourth defendants have owned them on trust for the last five years or so is an important change in position. This is not to be critical of Dr Johnston but to say I have reservations as to who, in the final analysis, may prove to be the owner, not only between Dr Johnston and the fourth defendants, but as regards Mrs Johnston’s interests. I also take into account the absence of evidence from Mr Thomas Johnston on the point.
[27] From these matters combined, there is sufficient to infer a risk a disposition of the asset is about to be made, and such would have the requisite effect. For these reasons, I am not persuaded Downs J erred in making the order he did, although I have had the benefit of vastly more evidence.
[28] Having reached this decision, there are two further points I mention. First, by a memorandum from counsel, Mr Johnson, of 13 March 2020, the fourth defendants made what I considered a sensible proposal to resolve this matter, being similar to one first offered by Dr Johnston, likewise as a means of resolving the matter. In his memorandum, Mr Johnson advised he is instructed the bars are in safety deposit box 3198 at the Commonwealth Vault in Auckland. The fourth defendants proposed someone from the vault count and weigh the bars in the presence of a local, independent lawyer, and thereafter the bars be held in a separate safety deposit box pending further order of the Court or agreement between the parties. The lawyer would report back to all concerned on the number of gold bars and their weight, and confirm their storage in a separate safety deposit box.
[29] This proposal was largely but not entirely acceptable to Mrs Johnston and her proposed variation was not acceptable to the fourth defendants. I left it with counsel on the basis they would advise if they reached agreement. Absent such advice, I shall continue Downs J’s orders for the reasons given, but the parties should advise if they have reached or do reach agreement.
[30] The second point is that plainly it may be necessary to revisit the orders depending on the outcome of the application to set aside the protests to jurisdiction.
Result
[31] I dismiss the third and fourth defendants’ applications of 12 February 2020. I reserve leave to apply. Costs on this application are to lie where they fall, given the offer of resolution extended via Mr Johnson’s memorandum.
Peters J
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