Klimenko v Klimenko
[2024] NZHC 3328
•8 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2362
[2024] NZHC 3328
BETWEEN ANDREI KLIMENKO
Plaintiff
AND
ANTON KLIMENKO and ANNA GONCHARENKO
Defendants
Hearing: 24 July 2024 and 6 September 2024 Appearances:
PJ Stevenson for the Plaintiff
A Klimenko and A Goncharenko, Defendants in Person
Judgment:
8 November 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 8 November 2024 at 4.45 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
P Stevenson, Barrister, Auckland
KLIMENKO v KLIMENKO [2024] NZHC 3328 [8 November 2024]
Introduction
[1] In this proceeding Andrei Klimenko brings a claim against his son and his son’s de facto partner at the time, Anton Klimenko and Anna Goncharenko, in respect of funds deposited by Andrei in an ASB bank account in New Zealand between 2011 and 2018.1
[2] Andrei lives in Russia and pleads that it was agreed that Anton was to use the funds in the ASB account to purchase residential properties in New Zealand for Andrei’s benefit. Anton denies the claim and says instead that the funds were an unconditional gift to him.
[3] In 2021 Jagose J made orders that caveats lodged by Andrei over six properties registered in Anton and Anna’s names were not to lapse on condition that Andrei bring proceedings promptly to determine his claims to a resulting or constructive trust and pursue them diligently.2
[4] Andrei filed these proceedings in 2021 but they have not progressed smoothly since then with the need for a security for costs hearing and multiple discovery applications by both sides and the delays associated with those. These delays eventually led to late adjustments to the close of pleadings date.
[5] Andrei’s claim was originally for either a resulting or constructive trust. However, on the close of pleadings date, Andrei filed an amended statement of claim adding four causes of action, two for breaches of duty against all defendants and the remaining two for knowing receipt and dishonest assistance against Anna.
[6] In addition, Andrei applied for joinder of Anton Klimenko and Anna Goncharenko in their capacity as trustees of the Triple A Family Trust (Trust) (attaching a draft second amended statement of claim) and for particular discovery against the defendants. The further discovery sought was extensive with the categories of documents including bank statements for nine bank accounts in the names of Anton and Anna, some since 2010, plus ten other categories of documents.
1 I refer to the parties by their first names to avoid confusion and intend no disrespect in doing so.
2 Klimenko v Klimenko [2021] NZHC 2592.
[7] Anton and Anna, who now represent themselves, filed a notice of opposition confirming that they oppose joinder and any further discovery on the basis that all relevant information had already been supplied to the plaintiff and that the defendants’ circumstances have changed significantly including that they are no longer in a position to afford legal representation and that they face the likelihood of mortgagee sales of the properties in issue prior to the hearing. The defendants confirmed that they are in severe emotional distress and invited the plaintiff to engage in a constructive dialogue to discuss the possibility of settlement.
[8] The proceedings were at that time scheduled to be heard in a five-day trial commencing on 25 November 2024.
[9] This decision relates to the joinder and discovery applications. At the hearing of those applications a pragmatic solution to the discovery application was discussed given the rapidly approaching trial date and the difficulties arising as a result of the late applications.
[10] Following the hearing, directions were made3 resulting in the defendants agreeing to grant permission to the plaintiff’s expert to write to the defendants’ banks to obtain the bank account records on certain conditions. In addition, the defendants agreed to provide certain classes of documents to establish their current financial position for the purposes of a judicial settlement conference.
[11] After further discussion with the parties, the substantive trial was reluctantly adjourned as it became clear that it would not be possible to complete all the steps necessary prior to the scheduled November trial and that it was unlikely the five days allocated was sufficient in any event. A judicial settlement conference will now proceed on 29 November 2024, one of the days allocated for the trial, as the plaintiff had booked to be in New Zealand then.
[12] In addition, the defendants have filed a new application for the caveats over the properties in issue to lapse (the caveats were previously upheld in 2021). The defendants say the properties may face mortgagee sale if they are unable to be sold
3 Minute of Associate Judge Sussock dated 29 July 2024.
prior to or shortly after the end of the interest only or hardship periods currently agreed with the banks. A hearing of this application is scheduled for 16 December 2024 if the judicial settlement conference is not successful in reaching a resolution.
[13] I issue this decision on joinder and the remainder of the further discovery application on the basis that the application for bank statements for bank accounts in the names of the defendants has been resolved.
Is leave required?
[14] I start by recording that the plaintiff does not require leave for the filing of the first amended statement of claim as it was filed on the close of pleadings date. I comment however that adding four causes of action at such a late stage of the proceedings and in circumstances where the close of pleadings date had already been moved closer to the trial date is not encouraged. Such a step on its own may result in a need to adjourn the trial, significantly compromising the efficient use of the court’s and the parties’ resources.
[15] The plaintiff does however require leave for the applications for joinder and particular discovery. These applications were filed on 3 May 2024. Extensions had been granted by Associate Judge Brittain, at least in respect of further discovery applications, but those extensions had expired by the time of the 22 March 2024 mention in the chambers list.4
[16] Counsel for the plaintiff submits leave is not required on the basis that the applications were filed by close of pleadings. But the default rule does not apply where dates have been set by which interlocutory applications are required to be filed. Both applications therefore require leave.
Should leave be granted?
[17]In order to obtain leave, the plaintiff must show that granting leave: 5
4 Minutes of Associate Judge Brittain dated 4 March 2024 and Associate Judge Sussock dated 22 March 2024.
5 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385.
(a)is in the interests of justice;
(b)would not significantly prejudice the other parties; and
(c)would not cause significant delay.
[18] The threshold for meeting this test is high, with each criterion being described as a “formidable” hurdle.6
[19] The closer the filing date is to the start of the trial, the harder it will be for the applicant to gain leave.7
[20] The five-day substantive hearing that was due to commence on 25 November 2024 has now been adjourned to a 10-day trial commencing on Monday, 12 October 2026.
[21] As a result of the adjournment, joinder or further discovery will not prejudice the new trial date and will not prejudice the defendants, provided that the new discovery orders are confined by relevance and to achieve proportionality. Leave is therefore granted to bring both applications.
Should an order for joinder be made?
Rule 4.56 of the High Court Rules 2016 (HCR) provides:
4.56 Striking out and adding parties
A Judge may, at any stage of a proceeding, order that—
(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
(b)the name of a person be added as a plaintiff or defendant because—
the person ought to have been joined; or
6 Elders Pastoral Ltd v Marr, above n 5, at 385.
7 NZ Iron Sands Holdings Ltd v Toward Industries Ltd [2019] NZHC 2883 at [33].
(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
(2)An order does not require an application and may be made on terms the court considers just.
(3)Despite subclause (1)(b), no person may be added as a plaintiff without that person’s consent.
[23] As set out in McGechan on Procedure, when determining whether to add the name of a person as a plaintiff or defendant, there is first a jurisdictional question, whether the person ought to have been joined or their presence is necessary to adjudicate on and settle all questions in the proceedings (r 4.56(1)(b)(i) and (ii)) is met. If so, the court then has a discretion as to whether to order joinder.8
[24] Counsel for the plaintiff relies on r 4.3 of the HCR which provides that parties may be joined as defendants against whom it is alleged there is a right to relief in respect of, or arising out of, among other things, the same transaction, matter, and event.
[25]The plaintiff relies on the following matters as relevant in this proceeding:
(a)The proposed second defendants are named as the trustees of the Triple A Family Trust (the “Trust”) which was settled on 31 March 2020 pursuant to a deed of trust of that date;
(b)Between March 2020 and September 2020, Anton and Anna either in their personal capacity or as the proposed second defendants purchased the following properties (“Properties”):
[propertyaddress], Mornington, Dunedin, 9011 CT OT360/121;
[property address], Owhata, 3010, CT SA42D/781; [property address], Caversham Dunedin, CT OT131/174; [property address], Invercargill, CT SL117/4;
[property address], Invercargill CT SL5C/704.
(c)These Properties are caveated by Andrei and the caveats were detailed in the original statement of claim, as well as the first amended statement of claim filed in this proceeding on 3 May 2024. (There is
8 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR4.56.07].
another property, [property address], but that is not owned by the Trust, rather it is owned by Anton and Anna in their personal capacities.)
(d)Andrei seeks remedies in respect of these Properties. This is because he paid money into a bank account with the ASB between 2011 and 2018, being ASB [account number], and he alleges that money was either used to purchase these Properties, or in the alternative, that the defendants settled a sum of money on the Trust which can be traced to the money paid by the plaintiff into ASB [account number] (the “ASB account”).
(e)The joinder of Anton and Anna as proposed second defendants to these proceedings is necessary to adjudicate on and settle all questions involved in the proceeding, in particular relating to Andrei’s interest claimed in the Properties.
(f)The joinder of Anton and Anna as proposed second defendants is necessary so that orders can be made in respect of these Properties, including an order for the sale of the Properties, and in respect of the sum of money settled on the Trust by Anton Klimenko personally, which is traceable to Andrei’s money paid into the ASB account.
[26] Importantly, the plaintiff refers to the fact that the defendants have referred to the settlement of the Trust in their statement of defence and the defendants’ discovery includes trustee resolutions for the Trust as well as bank accounts opened in their joint names after the Trust was settled.
[27] It is unfortunate that the application for joinder was made at such a late stage. Counsel for the plaintiff submits that Andrei has been delayed in amending the pleadings and seeking joinder pending issues arising in completing standard discovery and then the further delays with the particular discovery applications.
[28] The Trust is the vehicle through which the defendants hold their property and the defendants have acknowledged through their discovery that the Trust is relevant to the issues in the proceeding. I do not accept that the matters relied on by the plaintiff ought to have delayed the application for joinder. However, I grant the application for joinder as sought as the presence of the Anton and Anna as trustees of the Trust appears necessary to adjudicate on and settle all questions in the proceedings and there appears little prejudice in joining them in that capacity now that the trial has been adjourned.
Should orders for particular discovery be made?
[29] Rule 8.19 of the HCR provides that the Court may make an order for particular discovery against a party if there are grounds for believing that a party has not discovered one or more documents or a group of documents that should have been discovered in the proceeding.
[30] In this case standard discovery orders were made. These require a party to disclose documents both on which the party relies or documents that adversely affect that party’s own case, together with documents that adversely affect another party’s case or documents that support another party’s case.9
[31] Rule 8.18 of the HCR provides that once a discovery order has been made, each party has a continuing obligation to give discovery and offer inspection at all stages of the proceeding, even if that party has filed and served an affidavit of documents that complies with pt 8, subpart 1.
[32] Asher J set out a four-stage process for considering an application for further discovery in Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd:10
(a)Are the documents sought relevant and, if so, how important will they be?
(b)Are there grounds for belief the documents sought exist?
(c)Is the discovery sought proportionate?
(d)Weighing and balancing those matters, in the Court’s discretion, is an order appropriate?
[33] As set out above, following discussion at the hearing on 26 July 2024, the defendants agreed to provide the plaintiff’s expert with access to the bank accounts
9 High Court Rules 2016, r 8.7.
10 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
listed in paragraph 1 of Annexure C to the affidavit of the plaintiff’s expert filed in support of the discovery application. Those bank accounts are accounts in the name of Anton and Anna but which, the plaintiff submits, in some cases appear to be Trust bank accounts. This part of the discovery application has been resolved.
[34] In addition, the plaintiff seeks the following categories of documents as set out in paragraphs 4 to 13 of schedule C to Mr Kemp’s affidavit:
4.Financial statements for Killa Paint Supply NZ Limited for the years ended 31 March 2011 to 31 March 2024. If the 2024 year is not yet available, then management accounts will suffice in the interim. Any loan agreements between the defendants or associate entities.
5.All other records relating to the nature and purpose(s) of the funds paid to Killa Paint Supply NZ Limited by the Defendants or associated entities from 18 August 2011 to current. For example, loan agreements.
6.Tax return records prepared by the Defendants for the purposes of filing their personal tax returns (tax returns as discovered at KIL.139 and KIL.140) and relating to the calculation of the net rental income or net rental loss returned in each tax year. That is, a copy of the rental income profit and loss or schedule (as required to be prepared for tax purposes) e.g. the IR3R.
7.Loan applications for all mortgages and loans sought and/or obtained for all property purchases by the Defendant, the Triple A Trust, Triple A Investments (2015) Limited and Domik Trading Limited. I note that the current discovery appears to include one loan application with Kiwibank from 2015 [ref KIL.146]
8.Financial statements and income tax returns for Triple A Investments (2015) Limited for the financial years ended 31 March 2013 to 31 March 2024. If the 2024 year is not yet available, then management accounts will suffice in the interim.
9.Financial statements and income tax returns for the Triple A Trust, for the financial years ended 31 March 2023 and 31 March 2024. If the 2024 year is not yet available, then management accounts will suffice in the interim.
10.Settlor, trustee, and beneficiary current account ledgers for the Triple A Trust covering all transactions to and from the trust (I assume from 31 March 2020, being the date that the trust was settled) to current.
11.Financial statements for Domik Trading Limited for the financial years ended 31 March 2019 and 31 March 2024. If the 2024 year is not yet available, then management accounts will suffice in the interim.
12.Bank statements, income tax returns and GST returns for Domik Trading Limited covering the period it traded ([Mr Kemp assumes] September 2018 to September 2023 – based on the incorporation of the company).
13.
Lawyer settlement statement for the purchase of the three properties by Domik Trading limited, being:
[35]The plaintiff pleads six causes of action:
(a)for a resulting trust;
(b)for an institutional constructive trust;,
(c)breach of duty and obligation owed to plaintiff;
(d)breach of fiduciary duty and fidelities;
(e)knowing receipt against the second named first defendant only; and
(f)dishonest assistance against the second named first defendant only.
[36] The relief claimed in the first and second causes of action includes declarations that the properties owned in the name of the defendants are subject to the relevant trust, that they be sold and an order that the net sale proceeds are paid to the plaintiff with such further or other relief as is ordered by the Court plus interest and costs.
[37] The third to sixth causes of action seek orders that the defendants pay the plaintiff the sum of $1,370,713 less $150,000, for a total of $1,220,713 plus an account of profits.
[38] The defendants have not yet pleaded to the first amended statement of claim because it was only served on the close of pleadings date and was served together with the application for joinder and draft second amended statement of claim adding Anton
and Anna as second defendants in their capacity as trustees. The defendants were not required to file a statement of defence to the first amended statement of claim given it may have been overtaken by the second amended statement of claim (as it now will be given the application for joinder is granted in this judgment).
[39] Assessing the relevance of the documents sought is compromised by the absence of a statement of defence in response to the second amended statement of claim.
[40] Furthermore, the categories of documents sought in some regards extend beyond standard discovery in respect of the amendments to the first and second amended claims. For example, the categories relating to Killa Paint Supply NZ Limited, a company that Anton is a one third shareholder in. The current pleading is that $116,513.49 was withdrawn from the ASB account and lent to this company between 2011 and 2018. The evidence of Mr Kemp, the plaintiff’s expert, records in respect of the payments to this company:
20.The defendants (specifically Mr Anton Klimenko) own 500 shares (being 33.3% of the issued shares) in this company. Funds from the Joint Account can be traced as being paid to this company, via the Defendants bank account. The financial statements are necessary to determine how these funds have been accounted for and to what extent they are recoverable and/or at risk.
21.Financial statements, including any ledgers or records relating to the Defendants and Killa Paint Supply NZ Limited are also relevant to ascertain their financial dealings with the company over time. For example if there have been subsequent payments from the company to the Defendants (after the initial advances funded from the Joint Account) such as drawings, salary or dividends paid to the Respondent.
22.I consider the above financial information ought to be in the Defendant’s possession or be able to be readily obtainable given Mr Anton Klimenko is a 33% shareholder in the company.
[41] As noted above, the defendants have not yet had an opportunity to plead to the allegations in respect of Killa Paint Supply NZ Limited. Furthermore, the documents sought, to the extent they are not a “fishing” expedition, appear to extend to matters that are only relevant to any account of profits ordered once liability is established by the plaintiff. As Master Faire (as his Honour then was) held in Oraka Technologies
Ltd v Geostel Vision Ltd when discussing discovery in circumstances where the plaintiff seeks an inquiry into damages or an account of profits:11
By deferring discovery against the defendant on quantum matters, the cost of exploring the issue of damages and profits is put off until it is clear that the defendant is liable and the issue therefore requires determination. By limiting the discovery at the first trial, the invasion of confidence necessarily involved in discovery is postponed and if liability is not established is entirely obviated.
[42] In circumstances where the trial has been postponed , I consider that the most efficient course is to make directions for the filing of a statement of defence in response to the second amended statement of claim following the judicial settlement conference and for standard discovery by both the plaintiff and the defendants in respect of the amended pleading (including in respect of ongoing discovery obligations for both parties) and to adjourn the plaintiff’s discovery application for reconsideration following completion of that discovery. I reach this view despite accepting that some of the documents sought may have been discoverable in respect of the original statement of claim. This is because otherwise the further discovery process will be required to be undertaken in multiple steps, reducing efficiency.
[43] I note that before proceeding with the adjourned discovery application, the plaintiff needs to give consideration to whether the documents sought are relevant to liability or to any account of profits and the appropriate timing of any discovery that only relates to an account of profits.
[44] On this basis I decline to make any orders in respect of further discovery by the defendants at this stage but adjourn the application for amendment and reconsideration following the filing of a statement of defence and supplementary standard discovery as directed in the minute to be issued with this judgment.
Result
[45]I order:
11 Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 5 February 2008 at [19].
(a)the plaintiff’s application for joinder of Anton Klimenko and Anna Goncharenko as second defendants in their capacity as trustees of the Triple A Family Trust is granted; and
(b)the plaintiff’s application for particular discovery is adjourned for amendment and reconsideration following the filing of a statement of defence and completion of supplementary standard discovery by both parties in respect of the amended pleading (as directed in the minute issued together with this judgment).
Costs
[46] The plaintiff has succeeded in its application for joinder but no orders have been made in respect of the discovery application. The orders in respect of joinder are likely to have been able to be sought by consent if brought following discovery and prior to the close of pleadings date. Furthermore, the discovery application to a significant extent relates to matters that were only pleaded on close of pleadings and at the same time as the application for particular discovery itself. In respect of a number of the categories sought, it is not therefore a situation where the defendants have failed to discover documents that should have been discovered. In these circumstances I exercise my discretion to decline to award costs in respect of the applications.
Associate Judge Sussock
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