Krzanic v Sullivan
[2015] NZHC 1861
•6 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-005275 [2015] NZHC 1861
BETWEEN MARINA ZELKA KRZANIC
First Plaintiff
AND
DRAGI PETER KRZANIC AND LUTKA KRZANIC AND MARINA ZELKA KRZANIC Second Plaintiffs
AND
TIMOTHY PETER SULLIVAN Defendant
Hearing: 3 August 2015 Appearances:
H McIntosh for the Plaintiffs
Defendant in personJudgment:
6 August 2015
JUDGMENT OF NATION J
Background
[1] The first plaintiff, Ms Krzanic, and the defendant, Mr Sullivan, lived together in a de facto relationship between 2004 and 2010 and during an attempted reconciliation in 2012.
[2] The second plaintiffs (the trustees) are Ms Krzanic and her parents, as trustees of the DLM Family Trust (the DLM Trust) of which Ms Krzanic is also a beneficiary.
[3] In May 2011, Ms Krzanic began relationship property proceedings against
Mr Sullivan in the Family Court at North Shore. The application was struck out in the Family Court on 29 August 2012 after there had been a directions conference
KRZANIC & ORS v SULLIVAN [2015] NZHC 1861 [6 August 2015]
with a Judge on 2 July 2012. There had been no appearance for Mr Sullivan. Counsel appearing for Ms Krzanic told the Court that he had not been able to obtain instructions. A Judge had directed that, if there was no progress after that conference, the proceedings were to be forwarded to a Judge in chambers for strike out. In an affidavit relating to an interlocutory application before this Court, Ms Krzanic said the proceedings were not pursued because of the attempted reconciliation during 2012.
[4] In these proceedings filed in December 2013, Ms Krzanic sought judgment for $640,000 lent to Mr Sullivan in two instalments during 2005. The trustees sought judgment for $200,000 in respect of loans made by the trustees in 2008, the loans to be repayable in three months with interest at 7 per cent.
[5] On 17 February 2014, Mr Sullivan filed an interlocutory application to strike out the statement of claim on the basis that issues had been previously resolved through the strike out of Ms Krzanic’s relationship property proceedings in the Family Court. That application was dismissed in a judgment of Associate Judge
Christiansen of 18 June 2014.1
[6] By notice filed on 13 August 2014, Mr Sullivan issued various interrogatories for the plaintiffs to answer. Ms Krzanic swore an affidavit in response on 21 August
2014.
[7] On 11 August 2014, Mr Sullivan filed a statement of defence to the substantive claims and a counterclaim. In his statement of defence he denied there were debts owing to either of the plaintiffs. He pleaded that Ms Krzanic’s claim was barred by the Limitation Act 1950. In respect of both parties’ claims, he also pleaded that they had been the subject of the relationship property proceedings earlier commenced in the Family Court and were the subject of a settlement between Ms Krzanic and Mr Sullivan.
[8] In the alternative, through a counterclaim, Mr Sullivan pleaded that whatever interest Ms Krzanic had in these debts was relationship property and that, on a
proper division of relationship property, she would be required to account to him for more than any debt he might owe her. He also claimed to have a beneficial interest in the DLM Trust which had lent him $200,000, the value of which would exceed any debt owed by him to the second plaintiffs. He sought judgment for an amount equal to half of the relationship property and the value of his interest in trust assets.
[9] By interlocutory application dated 28 August 2014, Mr Sullivan applied to have the proceedings transferred to the Family Court. Ms Krzanic filed a notice of opposition on 16 September 2014.
[10] In a judgment of 6 November 2014, Associate Judge Osborne dismissed the application for transfer although he noted that Mr Sullivan’s counterclaim could not remain in the High Court, the Family Court having exclusive jurisdiction to deal with an application for division of relationship property.2
[11] After a telephone conference of 18 December 2014 with counsel for the plaintiffs and Mr Sullivan in person, Associate Judge Bell ordered that Mr Sullivan’s counterclaim in the proceedings and the statement of defence which had been filed to that counterclaim be transferred to the Family Court at North Shore.
[12] There was a further telephone conference with Associate Judge Bell on 17
April 2015. In his minute from that conference, Associate Judge Bell referred to Mr
Sullivan’s defences as including the following:
(a) There was no legal contract for the advances. They were not recorded in writing.
(b) Limitation.
(c) The loan by the second plaintiffs was to a company rather than Mr
Sullivan personally.
(d) Estoppel by agreement.
The Associate Judge referred to these as defences to debt claims.
[13] Associate Judge Bell also referred to Mr Sullivan’s wish to raise matters based on potential relationship claims but noted they were to be dealt with in the Family Court, his counterclaim having been transferred to that Court. He referred to Mr Sullivan’s claim that his possible entitlement under the Property (Relationships) Act might be “set-off” against the debts for which he was being sued, the Judge noted that issues in relation to that might ultimately have to be weighed by the trial Judge in deciding whether to give judgment to Ms Krzanic for the full amount she seeks or whether the possibility of an equitable set-off claim might justify a stay of execution.
[14] Associate Judge Bell went on to set the case down for hearing for two days beginning on 3 August 2015. The timetabling directions included directions that the plaintiffs serve their evidence by 8 May 2015 and Mr Sullivan serve his evidence by
3 July 2015. Counsel for the plaintiffs confirmed the plaintiffs had complied with these directions but Mr McIntosh told the Court that no evidence had been served from Mr Sullivan.
[15] There were a number of other pre-trial issues that have had to be dealt with by the Associate Judges and, in some instances, by a High Court Judge on applications for review but it is not necessary for me to traverse those.
[16] On 29 July 2015, in accordance with timetabling directions, counsel for the plaintiffs filed a chronology and synopsis of opening with the High Court. On that same day Mr Sullivan filed a memorandum in which he told the Court of attempts he had made to advance his counterclaim in the Family Court and of delays that had occurred. Through that memorandum, he referred to a letter he had sent to the plaintiffs solicitors on 13 July 2015. In that letter he had offered to sign an admission of the claims that were before the High Court but on the basis that judgment would not be entered against him until proceedings under the Property (Relationships) Act 1976 had been concluded in the Family Court. In the memorandum itself, he acknowledged that this offer had been rejected and that the plaintiffs insisted on seeking judgment. To avoid a full hearing, Mr Sullivan stated:
… I am advised that a Judgment could be entered but lie in Court pending resolution of the Relationship Property issue. For the removal of doubt, I am happy to undertake to prosecute the relationship property claim expeditiously.
He acknowledged that the plaintiffs appeared determined to secure an enforceable judgment prior to him being able to argue the relationship property defence/counterclaim.
Judgment in respect of the debts
[17] At the hearing which began on 3 August 2015, Mr McIntosh appeared as counsel for the plaintiffs. Mr Sullivan appeared for himself. Mr McIntosh outlined in a general way the background to the present situation. After Mr McIntosh had summarised the background and when he had begun taking me through relevant background documents, Mr Sullivan asked to address the Court. He indicated that he did not wish to deny the debts claimed but did want the opportunity to pursue his potential relationship property claims in the Family Court. He confirmed to me that he no longer wished to rely on the defences that had been originally pleaded and acknowledged that the debts were due and owing. In particular, he confirmed that he no longer wanted to claim that the plaintiffs were unable to pursue judgment for these debts because of a settlement reached in relation to them, associated with the striking out of the earlier proceedings in the Family Court.
[18] Mr McIntosh clarified the precise claims that were being made in relation to the debts to the plaintiffs. I indicated that, with Mr Sullivan’s admissions, judgment would be entered in respect of those debts but that I considered there was an issue as to whether the High Court should stay execution of judgment on terms.
[19] Against that background, it is clear Mr Sullivan has admitted he has a liability to the first plaintiff for the $640,000 she advanced to him in 2005. This Court is not required to make any determination as to whether that debt is a non- personal debt to be treated in a relationship property context as the sole responsibility of Mr Sullivan or whether it is a liability which must be brought into account equally between them. Nor am I required to determine whether, as a loan in Ms Krzanic’s name, this asset is to be treated as her separate property or relationship
property which is to be shared equally with Mr Sullivan and whether it is of any value given matching liabilities for $640,000 to the trustees and to her parents. Those are issues which can be considered by the Family Court in dealing with Mr Sullivan’s counterclaim.
Orders
[20] I accordingly give judgment for the first plaintiff on her claim against the defendant in the sum of $640,000 together with interest under the Judicature Act at 5 per cent per annum from the date proceedings in relation to the debt were filed on 23
December 2013 to judgment.3
[21] With Mr Sullivan admitting there was a loan to him from the second plaintiffs for the sum of $200,000 with interest at 7 per cent and that such debt is outstanding, judgment is entered for the second plaintiffs in the sum of $200,000 together with:
i. interest on $50,000 at 7 per cent per annum from 1 October 2008 to judgment; and
ii. interest at 7 per cent per annum on $150,000 from 1 December 2008 to judgment.
[22] Under the Judicature Act interest will continue to accrue on the judgment debts.
[23] The plaintiff is also entitled to costs on a 2B basis with disbursements to be fixed by the Registrar. If there is any dispute as to what those costs should be, the plaintiffs are to file a memorandum as to what they consider is appropriate by 21
August 2015. Mr Sullivan is to file any submissions in response by 2 September
2015. The memoranda are to be no longer than three pages.
3 Judicature (Prescribed Rate of Interest) Order 2011, s 4.
Stay of judgments
[24] As had been foreshadowed might be necessary in the judgment of Associate Judge Osborne and the minute of Associate Judge Bell, I have considered whether it would be appropriate for the Court to stay execution of these judgments pending the determination of relationship property claims between Ms Krzanic and Mr Sullivan in the Family Court.
Submissions for the plaintiffs
[25] Mr McIntosh accepted that this Court has jurisdiction to order a stay using its inherent jurisdiction without there having been a formal interlocutory application for stay supported by affidavits although he strongly submitted a stay should not be made on such a basis.
[26] Mr McIntosh submitted the Court should not make any determination as to a stay at this point and that it should be the subject of a separate application supported by affidavit evidence to satisfy the Court that there is sufficient merit in Mr Sullivan’s application to justify a stay of execution. He submitted that the Court needed to be particularly vigilant to ensure its processes were not abused, given:
(a) the difficulties and delays the plaintiffs had faced in pursuing their proceedings;
(b)the applications that had been filed to delay progress in the proceedings when Mr Sullivan, or his then counsel, must have known that such applications had little prospect of success, particularly so in respect of the application to strike out the proceedings;
(c) the assertions Mr Sullivan had made in suggesting possible defences or potential counterclaims without those assertions being based on sworn evidence;
(d) Mr Sullivan’s failure to pay costs orders that had been made against him. (The plaintiffs in fact filed an application that the plaintiffs sought
an “unless order” on the basis that Mr Sullivan had refused to pay costs as ordered by Associate Judge Osborne, despite subsequent warnings from the Court that he needed to do so, and his indicating that he would pay those costs by 20 April 2015. Associate Judge Bell declined to make such an “unless order” on 15 June 2015);
(e) there was no equity in the loans of $640,000 from Ms Krzanic to Mr Sullivan against which he could have a relationship property claim because Ms Krzanic’s interest in those loans was matched by a debt of
$540,000 from her to the trustees and $100,000 to her parents;
(f) there could be no justification of a stay of a judgment in favour of the second plaintiffs in respect of the loan of $200,000 from the trust because the trustees’ entitlement could not be subject to any relationship property claim against them. At best, Mr Sullivan might be entitled to bring into account against Ms Krzanic a credit to him for one half of that debt; and
(g) Mr Sullivan had already been dilatory in prosecuting his counterclaim which had been transferred to the Family Court and there was a concern that further delays could occur with those proceedings. In any event, Mr Sullivan’s potential relationship property claims were most unlikely to result in him owing any less than the debts to Ms Krzanic and to the trustees which he now admits.
Submissions for the defendant
[27] In arguing that there should be a stay of any judgment in respect of the debts, Mr Sullivan submitted:
(a) there was support for his relationship property claims and the status he was attributing to the plaintiff’s interest in the advance in the way she had dealt with those assets and liabilities when she had initially filed proceedings in the Family Court;
(b) it had not been his fault that the counterclaim had not been prosecuted as quickly as it should have been by the Family Court; and
(c) he was ready to file a new relationship property application with full supporting affidavits within days, was committed to pursuing those proceedings efficiently and would accept terms of a stay that required him to do so. He was able to pay the filing fees required by the Family Court in relation to those proceedings and was contemplating engaging counsel again to assist him with those proceedings.
Determination
[28] In considering whether or not there should be a stay of the judgment on terms, I have considered the documents in the common bundle including the affidavits filed by Ms Krzanic and Mr Sullivan in the earlier struck out relationship property proceedings from the Family Court and the correspondence that each produced with their affidavits. I have also considered the correspondence which Mr Sullivan produced with his memorandum to this Court of 29 July 2015 concerning steps to progress his counterclaim in that Court. After the hearing, Mr Sullivan also filed with the Court a minute issued by Judge Burns on 4 August 2015 in the Family Court at North Shore relating to that counterclaim.
[29] In his minute of 4 August 2015, Judge Burns said “it appears the issue estoppel was not raised before Judge Bell”. For the assistance of the Family Court, I note that Mr Sullivan’s strike out application was based on issue estoppel. In his judgment of 16 May 2014, Associate Judge Christiansen stated:4
[22] What is clear is that no claim of issue estoppel arises, neither in personam, nor in rem. There is no cause of action estoppel or issue estoppel. They are not the same claim. In any event it is quite clear from the authority of Gay v Bruns that the Family Court strike out of Ms Krzanic’s application was not a determination, merely a disposition.
[30] Without predetermining matters, it appears from the documents I have seen, the Family Court may need to consider issues as to:
4 Krzanic v Sullivan [2014] NZHC 1375.
(a) whether the advance of $640,000 from Ms Krzanic to Mr Sullivan, and thus her entitlement in respect of the judgment debt relating to that loan, was her separate property;
(b)whether liability for the $640,000 loan was a non-personal or relationship property debt which has to be brought into account between Ms Krzanic and Mr Sullivan; and
(c) if it was a relationship property debt, whether and to what extent it should be brought into account between the parties if the evidence establishes:
i. the loans were made on the basis they would be used to reduce the mortgage or otherwise increase the equity in a property owned by the T and S Sullivan Family Trust at Waterview Road, Devonport, a trust which was largely under the control of Mr Sullivan and of which Ms Krzanic was not a beneficiary;
ii. the loans were made with an agreement between the parties that they would benefit from that property equally, potentially through a new trust which they would establish together;
iii. if there was any such agreement, whether part of that agreement involved Ms Krzanic applying income she obtained from rent of a property at 31 Livingstone Street, Cox’s Bay towards the mortgage on the Waterview Road property and, if so, whether that happened and how that might affect ultimate entitlements; and
iv. as appears to have not been in dispute on the affidavits filed in the earlier proceedings, whether the Waterview Road property continued to be owned by the T and S Sullivan Family Trust until it was sold in early 2010, freeing up net proceeds of $860,000, with the T and S Sullivan Family Trust soon afterwards
purchasing a property at 12 Oxford Terrace for $1,250,000, Mr
Sullivan paying the deposit of $150,000.
[31] With regards to the loans for a total of $200,000 from the DLM Trust to Mr Sullivan made in September and October 2008, there is likely to be an issue as to whether the debt resulting from those loans was a relationship property debt and not personal to Mr Sullivan, given the loans were to enable him to make payments on the mortgage over the Waterview Road property, still owned by the T and S Family Trust.
[32] Related to that, there may be an issue as to the extent to which the loans secured over Waterview Road were used during the relationship by Mr Sullivan to buy through his development company (DCTS Holdings Limited – now struck off) a property at 5 Avenue, Devonport.
[33] Depending on what happened to this property after 2012, there may also be an issue over the status of a property at 13 Calliope Road, Devonport. This property was acquired in December 2008 in part exchange for the sale of the property at 5
Avenue, Devonport by DCTS. The property was bought by Ms Krzanic or her nominee at a price of $1,915,000. In the relationship property proceedings, the parties will have to provide information as to what has happened to this property in the years since 2012.
[34] On the information which is currently available to me, it appears that Mr Sullivan may ultimately be entitled to some credit from Ms Krzanic in settlement of relationship property claims which he might be able to use to pay the debts due to the DLM Trust and Ms Krzanic. On the other hand and having regard to what has happened in relation to the current proceedings in the High Court, it is quite possible that, with up to date and clearer information becoming available to the Family Court, it will soon become apparent that Mr Sullivan’s claims have little merit.
[35] I have regard to the way Mr Sullivan has conducted matters in this Court and his non-payment of costs as ordered by this Court. In this regard, it is relevant that he has abandoned defences that he had earlier pleaded. I also note his assertion in
the pleadings that the loan of $200,000 from the DLM Trust was in fact a loan made to his company was inconsistent with email correspondence between the parties of 5
September 2008 which related to the first $50,000 of that advance. In that email correspondence, Ms Krzanic had made it clear that the advance would be to Mr Sullivan personally and Mr Sullivan responded “I will accept it as an advance to me”.
[36] I consider that a stay on terms would be in the interests of justice for a number of reasons:
(a) The claims by both the trustees and Ms Krzanic arise out of a de facto relationship where the ultimate entitlements as between Ms Krzanic and Mr Sullivan are to be determined in accordance with the Property (Relationships) Act. To allow a judgment to be enforced in relation to just one aspect of their respective entitlements without taking into account the overall accounting required between them would be contrary to the requirements of s 4(1) and s 4(4) of the Property (Relationships) Act.
(b)While it is true the trustees entitlement in respect of the debt due to them cannot be subject to any claim that Mr Sullivan might have against Ms Krzanic under the Property (Relationships) Act, that debt arises through a loan made by the trustees at the request of Ms Krzanic. In all the circumstances, a Court would be unlikely to allow the trustees to execute that judgment if there is a reasonable prospect that through ultimate resolution of the relationship property proceedings Mr Sullivan would be entitled to have Ms Krzanic contribute to half of the total debt or if his ultimate entitlement under the Act will require her to pay to him an amount sufficient to cover his liability to the trustees.
(c) If either Ms Krzanic or the trustees were to seek to enforce the judgments they have obtained, there would inevitably be an application for stay with evidence to support that application which would then require detailed consideration of the merits of the relationship property
counterclaim now being pursued in the Family Court. That would require the High Court to deal with issues that will now be before the Family Court, putting the parties and the Courts to the burden of duplicate Court hearings dealing essentially with the same issues.
(d)Ms Krzanic’s claim in respect of the debt due to her could have been the subject of new relationship property proceedings commenced by her in the Family Court. Given that the trustees claim was in the High Court, Ms Krzanic could have filed new relationship property proceedings in the Family Court and then applied to have those proceedings transferred to the High Court so that the High Court could consider all matters. It is likely such an application would have been successful. It was thus partly through Ms Krzanic’s choice that substantive issues between the parties are now in the Family Court.
(e) Counsel for the plaintiffs argued that Mr Sullivan should provide evidence on oath setting out the basis on which he claims to have entitlements as against either the first or second plaintiffs for an amount which will extinguish his liability to them in respect of the debts for which judgment has been given. With his pursuing his counterclaim and an application to resolve all relationship property claims as between him and Ms Krzanic, he will have to provide a detailed affidavit as to assets and liabilities in the form required by relationship property rules together with a narrative affidavit setting out the factual basis on which he makes his claims. If he does that, the Family Court and the plaintiffs will be able to assess whether there is any merit in the claims he is making.
(f) If it is apparent there is no merit in his application, it should be possible to have the proceedings resolved in the Family Court without delay.
(g) Terms can also be imposed in this Court to enable both the Family
Court and the High Court to exercise some oversight to ensure that Mr
Sullivan does not abuse the Court’s jurisdiction to avoid meeting his legal obligations in respect of these debts which he acknowledges.
Terms of stay
[37] There will be a stay of these judgments until the further order of this Court on the following terms:
(a) Mr Sullivan is to file a new application under the Property (Relationships) Act covering all claims which he wishes to make, including those in his counterclaim that has been transferred to the Family Court;
(b)Mr Sullivan is to file a detailed list of assets and liabilities in the form P(R)1 required by the Family Courts Rules 2002 together with a detailed narrative affidavit setting out all the evidence he currently has and wishes to adduce in support of the claims he wishes to make;
(c) those affidavits must inform the Family Court and the plaintiffs of his dealings with property through to the final separation and what has happened to that property since then. His narrative affidavit must cover the dealings and property of himself personally and also of any company or trust in which he has an interest;
(d) the above application and affidavits are to be filed with the Family
Court at North Shore by 28 August 2015;
(e) Mr Sullivan is to comply with the directions from the Family Court as recorded in the minute of Judge Burns of 4 August 2015 and with any other directions issued by the Family Court to ensure the efficient progress of those proceedings;
(f) leave is reserved to the above named plaintiffs to apply to this Court for a lifting of this order for stay if Mr Sullivan is in breach of these
conditions or of any directions of the Family Court in the proceedings that are before that Court; and
(g) leave is also reserved to the above named plaintiffs to apply to this Court for a lifting of the order for stay after the issues conference in the Family Court which is to take place pursuant to the minute of Judge Burns of 4 August 2015.
[38] I also direct that a copy of this judgment is to be sent to the Family Court to be held on the file for the proceedings there.
Solicitors:
Greg Kelly Law Limited, Wellington
Copy to defendant.