Johnston v Johnston HC Auckland CIV 2008-404-00817

[2008] NZHC 2269

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2008-404-00817

UNDER  The Property (Relationships) Act 1976

BETWEEN  DAVID BRUCE JOHNSTON Appellant

ANDANDREA JANET JOHNSTON Respondent

Hearing:         17 April 2008

Appearances: G M Cameron for the Appellant

S McAnally for the Respondent

Judgment:      23 April 2008

RESERVED JUDGMENT OF PRIESTLEY J

This judgment was delivered by me on 23 April 2008 at 12.00 pm pursuant to Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Date: …………………………

Counsel/Solicitors:
G M Cameron, William Martin Chambers, 152 Anzac Avenue, Auckland 1010
S McAnally, Keegan Alexander, P O Box 999, Auckland

Jackson Whittaker P O Box 60547, Titirangi, Auckland

JOHNSTON V  JOHNSTON HC AK CIV 2008-404-00817  23 April 2008

Background

[1]      This appeal, challenging a reserved judgment delivered in the Family Court by Judge Fitzgerald in January, represents what the Court hopes is the last phase of a protracted dispute between the parties under the Property (Relationships) Act 1976.

[2]      The couple separated in August 2002 after 33 years of marriage.   It is unnecessary to dwell on their personal circumstances.   Suffice to say that the separation engendered great distress and bitterness which became obstacles to the rapid dispatch and settlement of Family Court proceedings.

[3]      Mrs Johnston (“the wife”) began proceedings in March 2003.  The next day Mr Johnston (“the husband”) sought orders to restrain the disposition of property. The parties’ relationship property was extensive.  They owned various apartments, bare land in Takapuna, marinas, valuable chattels, and other property all of which totalled approximately $6 million.

[4]      A  considerable  number  of  interlocutory  applications  and  orders  were necessary before the matter came to trial.   The hearing took place before Judge Robinson in the Auckland Family Court in August 2004.  By that stage a number of issues had been responsibly resolved and were incorporated in consent orders made on 9 August 2004.  The Judge’s decision was released in September 2004.

[5]      The four matters which Judge Robinson had to decide were whether there should be an unequal division of property under s 13; the appropriate valuation date for two motor vehicles which the wife had retained; the classification of jewellery the couple had acquired during their relationship; and the parties’ respective claims for s 18A post-separation contributions.  The wife, who was represented at that stage by Senior Counsel, had also mounted a s 15 economic disparity claim, but this was abandoned when counsel closed.

[6]      The Judge made findings in relation to the jewellery and the other issues. The property was divided up 55% - 45% in the wife’s favour, the Judge being of the view that s 13 applied.

[7]      The husband appealed.  In a judgment in June 2005 Venning J dismissed the appeal as it related to jewellery but allowed the appeal as it related to the s 13 division.  The wife sought leave unsuccessfully from both Venning J and the Court of Appeal to appeal on that issue.   The appellate route was barred to the wife by December 2005.

[8]      There  certainly  were  a  large  number  of  interlocutory  applications  and decisions, both before and after Judge Robinson’s substantive September 2004 decision.  One illustrative example was an application for the sale of various assets, including the bare land at Takapuna, to release funds for the husband who was at that stage without work.  He had lost a highly paid and responsible job in India, so he said as a result of overtures made by the wife to his employer.  In June 2003 Judge Robinson made an order for the interim sale of various assets.  Because of a failure on the part of the Family Court registry, three months were to elapse before the judgment  came into  the hands  of  the parties.    Despite  clear  directions  that  the Takapuna property was to be sold, a further application had to be made, it being the wife’s apparent contention she wanted the opportunity to buy in that asset.  She was unable to do this within the time frame permitted to her by the Family Court.

[9]      I mention this because Mr Cameron pointed to this phase as an example of what the husband believes was the  wife’s intransigence,  leading to  unnecessary interlocutory applications and considerable legal cost.

[10]     In respect of all interlocutory applications, costs have never been fixed.  No attempt has been made by the Family Court to quantify an appropriate figure.  The substantive judgment of Judge Robinson reserved costs.

Judgment of Judge Fitzgerald

[11]     The Court of Appeal’s refusal to grant leave in December 2005 was not the end of the road.  Variously assets were apparently being sold by stakeholders.  The major battle between the parties was over, but skirmishing continued which, by mid-

2007, resulted in further applications being made by both sides.  These were heard by Judge Fitzgerald on 7 November 2007.  By that stage Judge Robinson, who had a

heavy historical involvement with the Family Court proceeding, had become an Associate  Judge  of  the  High  Court  and  no  longer  exercised  Family  Court jurisdiction.

[12]     The major dispute between the parties at this stage involved (despite a clear mechanism contained in the 9 August 2004 consent orders) the vesting and valuation of William IV antique silver and a painting.  Riding on the outcome of that dispute was the appropriate sum to be paid by the wife to the husband to equalise the division of relationship property.  The husband contended the appropriate figure was

$146,359.   Additionally the husband sought interest or some form as financial compensation for what he termed “the late realisation of assets”.  Both parties sought costs.

[13]     The husband had sworn a lengthy affidavit on 24 May 2007 dealing with the chattels.  He also dealt with delays in settlement and contended that he had been kept out of his money for a lengthy period of time.  He prepared a schedule, which has not been subject to challenge, showing that between 9 August 2004 and mid-April

2007 the relationship property figure owed to him had reduced from approximately

$621,000 to $146,000. Interest was sought on that reducing balance at the Judicature Act rate of 7.5% pa which, with the spread across the various relevant balances, totalled just under $99,000.  The husband’s affidavits also pointed to a much higher interest figure which, he said, exemplified the notional cost of being kept out of his money since 1 May 2003, a date nine months after the parties’ separation.  His clear view (despite the various appeals) was that the dispute should ideally have been settled by that date.

[14]   Thus, before Judge Fitzgerald, the husband was seeking appropriate implementation orders for the silver and the painting; the $146,359 balance; interest in respect of his unpaid relationship property entitlement on a decreasing balance since 2004; and costs, both in respect of the substantive hearing resolved by Judge Robinson in September 2004 and also in respect of the various Family Court interlocutory applications where costs have been reserved.

[15]     On the dispute which had arisen over the antique silver and painting and their correct valuations, the husband was totally successful.  The Judge also accepted the husband’s interpretation of the consent order mechanism.   He fixed the final adjustment figure owing to the husband at $146,359 and directed the wife to pay that sum to the husband.

[16]     The Judge also made an order relating to interest, to which I need to return because of its ambiguity.  The interest rate was 5%.   Interest was to be calculated from the date of the Family Court’s September 2004 judgment to the date the sum was paid.  The wife was also ordered to pay costs calculated on a 2B basis under the District Court Rules.  The balance figure of $146,359 and 5% interest on that sum have apparently been paid.  Counsel are finalising the costs figure.

[17]     On  the  issue  of  costs  for  the  substantive  proceeding  and  the  many interlocutory claims, the Judge formed the view that costs should lie where they fell. His reasoning was along these lines.  He noted that the litigation had been protracted and before the Family Court for almost five  years.   He noted the Court had a discretion under s 40 of the Property (Relationships)  Act  which  was  unfettered. Reference was correctly made to the incorporation of Rule 45 of the District Court Rules by rr 5(2) and 207 of the Family Court Rules 2002.  With reference to s 40 and r 45 the Judge re-emphasised that costs were discretionary.   He referred to R v S [2004] NZFLR 207 and L v W [2003] NZFLR 961, and to the s 1M purposes of recognising equal contribution of husband and wife, provision of a just division of relationship property, and the desirability of resolving questions under the Act inexpensively, simply and speedily.

[18]     The Judge then concluded:

[30]     Proceedings under the PRA are generally and essentially a mutual approach to the Court for it’s (sic) assistance in dividing property whereas normal civil proceedings often involve a contested issue in which one party must wins (sic) and the other loses.  In most PRA cases before the Family Court, where both parties share an interest in having mattes (sic) resolved, and  act  reasonably  toward  achieving  that  outcome,  costs  will  not  be awarded.  However that general rule will be departed from in circumstances where one party has acted in a way that is unreasonable and unjustified and has resulted in the other party incurring unnecessary costs.

[31]     Having  considered  the  material  on  the  enormous  Court  files, including affidavit evidence, judgments of other judges and submissions of counsel I am not persuaded that this is a case where an order for costs is appropriate in relation to the numerous historical applications determined by other judges who reserved the issue of costs.  Each party is to bear their own costs  in  respect  of  all  applications  prior  to  those  I have  been  asked  to determine now.

[19]     On the husband’s claim for interest on the reducing balance between 2004 and 2007 it is difficult to discern, with respect, exactly what the Judge decided, although I tend to the view that he did not allow the claim.  The relevant portion of his judgment, however, has been interpreted by opposing counsel as supporting their respective views.   There is also force in Mr Cameron’s submission that the Judge appears to have misunderstood the period for which interest was being sought.

[20]     Before [19] of his judgment the Judge inserts a major and a bolded heading:

“INTEREST/COMPENSATION

Date of separation to date of hearing.”

He then summarises the husband’s claim that he had been kept out of his share of property for “an inordinate and unjustifiable period of time”.  The Judge adds that the claim is also to compensate the husband for monies still due and owing.

[21]     The wife’s argument before the Judge was that it was inappropriate to raise this claim by way of interlocutory application after the major trial.  If it was to have been raised it should have been advanced in August 2004.  The wife’s submission was the Family Court no longer had jurisdiction to consider the matter.

[22]     The Judge then rightly comments that the August 2004 hearing dealt with four specific matters not already covered by the consent orders.   The Judge then stated:

[22]      There does therefore  arise  a  question as to  whether  res  judicata applies given that, on the face of it, the Court has already been asked to determine the basic property rights of the parties and has done so.   In his judgment of 15 September 2004, Judge Robinson specifically considered and  decided  issues  concerning compensation for  post  separation contributions and he had the advantage of seeing and hearing the witnesses give evidence on dispute matters.   I cannot sensibly resolve the numerous

factual matters that arise in respect of this aspect of the dispute in any meaningful way on the basis of the voluminous untested evidence on file.

[23]      In the circumstances I do not consider it appropriate to make any order for the payment of interest or compensation for the period from separation to the date of hearing.

[23]     Mr Cameron had two criticisms of this last paragraph.   First he correctly pointed out that the husband was not seeking interest from the date of separation to the date of hearing.  (Indeed at all stages the husband had regarded 1 May 2003 as an appropriate date on which settlement should have been achieved.)  All the husband was  seeking  was  interest  on  his  unpaid  entitlement  from  the  time  of  Judge Robinson’s decision.  Secondly Mr Cameron observed there was inevitably a hiatus in [23] since Judge Fitzgerald’s decision was released almost two months after the hearing.

[24]     The second bolded subheading under “INTEREST/COMPENSATION” is “Interest on cash payment due from Mrs Johnston to Mr Johnston”.  I consider it significant that the Judge has referred to “payment” rather than a plural noun.  This is what he said:

[24]     The position is different with regard to the payment due from Mrs Johnston  to  Mr  Johnston  in  terms  of  the  orders  made  for  division  of property.  I am satisfied that the delays caused by the approach she has taken since the date of the judgment, for instance in relation to the issue of chattel vesting and valuation, has been unreasonable and has seen Mr Johnston kept out of his share of relationship property for an unacceptably long period.

[25]     She is therefore ordered to pay interest at the rate of 5% per annum from the date of judgment to the date of payment.

[25]     Mr McAnally submitted that [24] referred only to the $146,359 payment.  Mr Cameron  referred  to  the  words  “in  terms  of  the  orders  made  for  division  of property”, “orders made for division”, and also to “for instance” as indicating that the Judge had taken a dim view of the wife’s unreasonable delays and that 5% interest should attach to the reducing balance to which I have referred.

Discussion

[26]     Mr Cameron’s submissions, as they were developed in writing and orally, attacked the Family Court judgment in the following areas:

(i)The Judge was wrong not to award costs and in particular not to have awarded costs on the various interlocutory applications where costs have been reserved.  On that issue Mr Cameron observed that counsel had failed to draw r 47E of the District Court Rules 1992 to the Judge’s attention (reflecting r 48E of the High Court Rules) which provides that unless there are special reasons to the contrary, costs on any opposed interlocutory application must be fixed when the application is determined.

(ii)“Clarification” was needed as to whether the Judge had allowed the husband’s claim for interest on the reducing balance since 2004.

(iii)      The interest rate of 5% was too low.  Instead Judicature Act interest at

7.5% should be awarded.   In particular Mr Cameron submitted that the Judge had given no reasons to show how or why he had picked the 5% figure.

[27]     Both counsel were agreed that if I considered the Judge was wrong not to have fixed interlocutory costs then I would have no alternative but to remit the issue back to the District Court for re-determination.   Fixing costs for the interlocutory phases in the Family Court is clearly that Court’s prerogative alone.

[28]     Counsel’s final position on the second issue was that, rather than remit the issue back to Judge Fitzgerald for clarification as to what he meant, I should resolve the matter on appeal myself.

[29]     On the issue of the appropriate interest rate Mr Cameron submitted that I

might have to provide some guidance in this area for future Family Court claims.

[30]     It is not necessary to traverse counsel’s argument in any detail.  Mr Cameron laid emphasis on the large number of interlocutory applications which have been required; the wife’s generally obstructive stance and the need to enforce orders; the delays the husband experienced in recovering his full entitlement; and various criticisms of the wife made by the Family Court from time to time.  Mr McAnally for  his  part  emphasised  that  the  Judge’s  orders  were  essentially a  discretionary exercise in respect of which there was no demonstrably wrong principle justifying appellate interference.  Counsel also referred to the emotional and financial history of the marriage and the parties’ respective roles, submitting, in that context, the wife’s stance had been understandable rather than unreasonable.

[31]     The  directed  sum  of  $146,359  plus  5%  interest  from  the  date  of  the September 2004 judgment have been paid to the husband.   The husband is additionally entitled to the 2B costs award.  No further monies are owing either way unless this appeal is allowed.

Decision

[32]     I do not consider that, had the Judge been referred to r 47E of the District Court Rules, he would have reached a different conclusion.  There is some strength in Mr Cameron’s observation that, with the departure of Judge Robinson from the Family Court, Judge Fitzgerald was undoubtedly reluctant to revisit reserved costs on  interlocutory  disputes  with  which  he  had  had  no  involvement.    However, although not a reason in itself to avoid grappling with costs, the departure of Judge Robinson was a legitimate factor to weigh.

[33]     Ideally  costs   should   have   been   fixed   on   some   of   the   interlocutory applications, particularly those where the presiding Judge reached the view that the defended interlocutory hearing had been unnecessary and/or caused by an unreasonable litigation stance.  I am satisfied some of the applications fell into this category.  To the extent that costs were not pursued vigorously at the conclusion of the hearing and to the extent too that, where applicable r 47E was not applied, it could well be the husband has been disadvantaged.  Nonetheless the Judge indicated that  (supra  [22])  he  had  considered  the  affidavit  evidence  and  other  judges’

judgments and was not persuaded that any further orders for costs were appropriate. I do not consider the Judge was wrong to take that approach.   I thus decline to interfere with it.  Remitting the matter back to the Family Court to revisit all historic interlocutory applications where costs have been reserved would serve no useful purpose and would only encourage the parties to rake over the coals and continue their battle.  Enough is enough.

[34]   There is, however, a procedural lesson.   Rule 47E applies to defended interlocutory applications.   The Rule should be  followed by courts  and counsel should raise it.

[35]     On the claim for interest on the reducing unpaid balance, although there are ambiguities in the Judge’s judgment I consider, from its structure, the intention is tolerably clear. The Judge did not intend to award interest in the husband’s favour on any sum other than the $146,359.

[36]     I agree with counsel that no useful purpose is served by remitting the matter back to Judge Fitzgerald for clarification.

[37]     Although it has been possible for the husband to show that since September

2004, and indeed earlier, he has been kept out of his money, I see the delay as being largely a product of the way in which the litigation was run.  When looking at the husband’s position in isolation I have some sympathy with it.   The husband’s 24

May 2007 affidavit in the Family Court, running to 36 pages plus exhibits, sets out a number of asset imbalances and interest calculations.

[38]     Clearly the Judge was of the view that interest on the $146,359 balance figure should run from the September 2004 judgment.  As I have mentioned, (supra [19] and  [35])  the  structure  and  terminology  of  the  relevant  portion  of  the  Judge’s decision suggests that interest attached to that balance figure alone.  I do not consider the Judge was wrong to take that approach.  There would need to be much starker examples of obstruction and delay sheeted home to the wife for interest to attach to other components of the August 2004 – November 2007 reducing balance.  Auction sales were necessary.  Third parties were involved in the realisation of assets.  For 15

months, until the appeal and leave applications in higher courts were resolved, the precise sum owing to the husband was problematic.  Nor is it clear to me whether the wife derived significant monetary benefit from the relationship property during the relevant period.  Valuable chattels, marinas, and bare land do not produce income. (See the factors discussed in Fisher on Matrimonial and Relationship Property (infra [42]).

[39]     In the absence of clear words from the Judge that he was indeed awarding 5% interest on the reducing balance (which I doubt) I can see no compelling reasons to extend the 5% interest award beyond the $146,359 figure.

[40]     Thus, on the basis that counsel would prefer me to determine the matter rather than remit it back to the Family Court for clarification, my judgment is that the husband’s claim for interest on the entire post-August 2004 reducing balance should fail.  The Judge’s approach (if I have correctly interpreted it) involves the exercise of a discretion.  Doubtless the merits as he saw them were evenly poised.  But having awarded the husband interest on the outstanding balance figure of $146,359, I do not consider the Judge was wrong to limit his interest award to that component.  I too adopt that approach.

[41]     Finally  the  issue  of  the  interest  rate.    Mr  Cameron  is  correct  with  his observation that the Judge gave no reasons for alighting on the 5% figure.

[42]     On the function and place of interest awards in relationship property disputes the distillation in Fisher on Matrimonial and Relationship Property (at 18.46) is a useful starting point.   Inflation over relevant periods (which interest clearly compensates) is an important factor.

The need to compensate for inflation has been authoritatively established.  In practice, realistic interest rates have been set in many cases.  In others, for reasons which are unclear, interest has been set at rates well, below current rates of inflation, or has been allowed for only part of the period during which inflation has operated, or has been omitted altogether.  Inevitably in such cases the share carefully arrived at under ss 8 to 20F will, by the date on which it is received, have reduced to a fraction of its original value.  In the meantime there will be a corresponding bonanza to the party fortunate enough to receive the entire equity.  This may be difficult to reconcile with one of the principal aims of the Property (Relationships) Act 1976, namely

“to recognise the equal contribution of husband and wife to the marriage partnership, and of the de facto partners to the de facto relationship partnership” (s 1M(b)).

In times of low inflation, an award of interest may serve a different function. It is not infrequent for one party to have the use and benefit of relationship property for a period  after  separation.    Unless this  can  be justified,  for example as part of the other party’s obligation to maintain, the party who has been disadvantaged should receive some form of compensatory adjustment and this may be achieved by an award of interest. Thus, the party who is deprived of a share of the relationship property should, in the absence of any other relevant factor, be entitled to interest on the unpaid portion of that party’s share at the expense of the other party who has had the benefit or the use of both parties’ share in the property.   Such interest should  not  be granted or withheld in order to punish, and delay in making payments is not in itself the basis for an award.  Instead, interest represents an adjustment for being deprived of a residual share of the property.

[43]     It is not possible to ascertain, because he makes no mention of it, whether the Judge assessed inflation over the relevant period and/or whether he considered a range of commercial and bank rates.   There is no criticism of the Judge in this observation since I do not know whether counsel’s submissions addressed those topics.

[44]     The 7.5% rate prescribed in s 87(3) of the Judicature Act 1908 (contrasted to the 11% rate in s 62B(4) in the District Courts Act 1947 both of which may be altered by Order in Council) is clearly a figure which needs to be weighed.  Of some relevance, perhaps, is the observation that interest is taxable.   Care needs to be exercised to ensure that the ensuing net interest figure does not dip below inflation rates.

[45]     I am of the view that the 5% figure fixed on by the Judge should not be altered.  Although not of universal application, it is a legitimate observation that the

7.5% rate, which will usually apply across the board to commercial disputes, might not always be appropriate in a family law context.   In this case the balance figure was  driven  largely by chattels  valuations  and  realisation  figures  rather  than  by commercial assets.  Furthermore, making allowance for the taxation factor, the net interest payable to the husband would not dip below an assumed inflation rate of 3% (or slightly lower).

[46]     For these reasons I decline to adjust the 5% figure.

Result

[47]   For all these reasons the appeal must be dismissed.   I decline, in the circumstances, to remit back the issue of interlocutory costs to the Family Court. The ambiguities inherent in the judgment I have dealt with as best I can.

[48]     The parties’ longstanding dispute is thus at an end.

Costs

[49]     Although, in a situation where an appeal has failed, the respondent would normally be entitled to costs, I consider that in the peculiar circumstances of this appeal costs should lie where they fall.

[50]     Both  counsel  have  conducted  their  cases  in  a  responsible  and  restrained fashion for which this Court is grateful.   An important part of the appeal was the appellant’s understandable desire to seek clarification of aspects of the Family Court judgment where what was intended was unclear.  Benefit to both parties has flowed from that exercise.  I am also mindful of the fact that the wife might well have been exposed to costs awards in the Family Court had they been fixed at the preferable time.  Thus I consider a costs award is not warranted.

………………………

Priestley J