Romanes v Romanes
[2018] NZHC 2001
•8 August 2018
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,
11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2018-463-000038
[2018] NZHC 2001
IN THE MATTER of the Property (Relationships) Act 1976 BETWEEN
MICHAEL JOHN ROMANES
Appellant
AND
JOANNE CYNTHIA ROMANES
Respondent
Hearing: 31 July 2018 Appearances:
K Lellman for the Appellant
D Chambers QC and K Hayward for the Respondent M McKechnie for Mikro Holdings Limited
Judgment:
8 August 2018
JUDGMENT OF GORDON J
This judgment was delivered by me on 8 August 2018 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Hollister-Jones Lellman, Tauranga
Lee Salmon Long, Auckland Counsel: D Chambers QC, Auckland
M McKechnie, Rotorua
ROMANES v ROMANES [2018] NZHC 2001 [8 August 2018]
Introduction
[1] This is an application by Mikro Holdings Limited (MHL) to be a party to the appeal filed by the appellant, Michael Romanes, against a decision of Judge Wills in the Family Court dated 29 March 2018 making interim distribution orders and other orders in favour of the respondent, Joanne Romanes.1
[2]The appeal is for hearing in this Court on 2-3 October 2018.
[3]Mrs Romanes opposes the application.
[4] Mr Romanes was represented at the hearing by counsel, Mrs Lellman, but did not seek to be heard on the application.
Background
[5] Mr and Mrs Romanes separated on 6 July 2016, having been married for 30 years.
[6] Before their marriage on 5 July 1986, a s 21 Relationship Property Agreement was signed.2 A second agreement was signed on 1 March 1993.
[7] The Relationship Property Agreement signed just prior to the marriage provided for the parties to retain identified property as their separate properties. Those items recorded as separate property of Mr Romanes included the following:
(a)shares in Concrete Structures (NZ) Limited (CSL); and
(b)shares in MHL.
There were other entities as well as other property recorded in the Relationship Property Agreement. However, it is not necessary to refer to them for the purposes of this judgment.
1 Romanes v Romanes [2017] NZFC 9928.
2 See Property (Relationships) Act 1976, s 21.
The Companies
[8]Judge Wills referred to the companies as follows:3
[8] Over the years of the relationship, the business entities in the control of Mr Romanes developed into a very successful operation centred around pre-cast concrete structures. Mr Romanes is the sole shareholder in Mikro Holdings Limited (“MHL”) and was, until recently, the sole director of that company. MHL holds shares in other companies, including Concrete Structures (NZ) Limited (“CS(NZ)L”), Concrete Structures (Cook Islands) Limited (“CS(CookIs)L”). These companies were in existence at the time the parties married …
[9] MHL was incorporated on 1 May 1981. In October 2017, after the proceedings and the interlocutory application had been filed in the Family Court, two additional directors of MHL were appointed, namely Raymond Cook who is described by Ms Chambers QC, who appeared for Mrs Romanes, as a friend of Mr Romanes and Peter Lewis, described as Mr Romanes’ solicitor. Mr Romanes continues to hold all 250,000 shares in MHL.
[10] CSL was incorporated on 28 January 1986. Mr Romanes is the sole director of CSL. The evidence available at the hearing was that MHL holds 1,933 of CSL’s 2,000 shares. The parties’ eldest son, Paul Romanes, holds the remaining 67 shares. Sixty of those shares were transferred to Paul Romanes on 12 April 2016 and a further seven shares transferred on 8 July 2016.4
Family Court proceedings
[11] The relief sought by Mrs Romanes in the substantive proceeding as recorded by Judge Wills included the following:5
(a)The setting aside of the Relationship Property Agreements;
(b)Determination of the respective shares of the parties in relationship property and orders dividing that property; and/or
3 Romanes v Romanes, above n 1.
4 There is an agreement which is referred to in the judgment of the Family Court described as the “Paul Agreement” for the transfer of further shares. Refer [20] below.
5 Romanes v Romanes, above n 1, at [11].
(c)A finding pursuant to s 9A of the Property (Relationships) Act 1976 (the Act) that the increase in value of separate property owned by Mr Romanes is attributable to the application of relationship property and/or Mrs Romanes’ contributions to it.
[12] The interlocutory orders sought by Mrs Romanes in the Family Court included the following:
(a)That Mrs Romanes be paid an interim distribution of $3,000,000 or any lesser figure that the Court considers appropriate; and
(b)That Mr Romanes be restrained from disposing of property.
[13]Mr Romanes opposed the interlocutory orders.
[14] The Judge was satisfied that Mr Romanes’ shareholding in MHL is property that is susceptible to being identified as relationship property, either in whole or in part.6 The Judge said further:
[32] … given the strength of the s 9A claim against any increase in Mr Romanes’ MHL shares either by subsequent acquisition or by increase in the value of the original shareholding, there is the basis for an order to be made against an identified shareholding. I am satisfied that the vesting of MHL shares in Mr Romanes at a figures subject to a sliding scale can generate an interim distribution to Ms Romanes …
[15] The Judge made orders in relation to the shareholding in MHL, which included the following:7
(a)Fifty per cent of the shares held in the name of Michael Romanes in MHL shall be vested in Michael Romanes as his separate property; and
(b)Michael Romanes shall pay the sum of $2,000,000 on account of those shares which sum shall be distributed by way of interim distribution to Joanne Romanes.
6 At [29].
7 At [32].
[16] As noted above, Mrs Romanes sought orders in the Family Court restraining disposition of any property in the name of Mr Romanes or any other entity in which he has the ability to direct disposition.
[17] In particular, Mr Romanes opposed restraint of the transfer of shares to the parties’ son, Paul Romanes, pursuant to a contractual arrangement between MHL and CSL.
[18]The judgment records:
[56] Mr Romanes wishes to ensure that business operations can continue without interruption. His argument in relation to the sale of shares by MHL to Paul is that the sales will be made pursuant to an existing commercial contract (“the Paul Agreement”) and that neither the company MHL nor Paul Romanes have been served or had the opportunity to set out their position in relation to the application …
[57] … The contractual arrangements between Paul Romanes and MHL for the sale of shares in CS(NZ)L were entered into at a time when the parties’ marriage was in difficulty and in the face of Mrs Romanes’ opposition. Implementation of the sale agreement would, over time, have the effect of placing the shareholding in CS(NZ)L outside the jurisdiction of the Act.
[19]The Judge then turned her mind to the possible effects on third parties, saying:
[58] The preliminary issue to be considered however, is whether it is even appropriate to consider such an application when the third parties involved (Paul Romanes and MHL), have not been served with applications and have had no opportunity to be heard. In considering this issue the need for protection must be balance [sic] against the right of Paul Romanes to be heard in the proceeding. The interests of Paul Romanes can be protected adequately by the making of an interim order which prevents disposition after a certain percentage of shares has been transferred and allows Paul Romanes and/or MHL to make any application for variation or discharge of the restraining order.
[59] An order restraining disposition is appropriate in this case given Mr Romanes’ access to the funds and control of the various companies through his shareholding. Ms Romanes’ position in respect to that transaction can be adequately protected by restricting the transfer of shares to Paul Romanes to a percentage of the shareholding in combination with a direction that Mr Romanes is to ensure that MHL retains the proceeds of any sale undispersed and in an identified fund. For the limited purpose of this application, Paul Romanes and MHL will be joined as parties to these proceedings in the event that an application is filed. The precise terms of the order are set out Appendix B.
[20] The relevant restraining orders are both in respect of Mr Romanes and the third parties and are set out in Appendix B to the judgment of Judge Wills as follows:
Orders restraining disposition of property
(1)An order is made restraining the respondent personally or in his capacity as director, shareholder or trustee of any of the entities subject to the applicants claims, from disposing of assets through the following, until further order of the Court:
(a) Gifting of cash, shares or property assets, subject to paragraph 1(b) and 2(c) and (d).
(b) Donations or gifts of any of the above excluding shares totalling more than $100,000 in any 12-month period commencing from the date of the order. Any donation or gifts made should be accounted for in the respondent’s share of relationship property.
(c) Transfers of company shares to any individual, trust or other company, other than the share transfers provided for in the agreement between MHL and Paul Romanes (the Paul Agreement) referred to in paragraph 4 of this order.
(d) …
…
(3) In the context of CS(NZ)L, MHL, the Blue Baths Limited, Richardson Drilling Limited, Amner Resources Limited and Concrete Structures (Cook Islands) Limited (“the companies”), they shall be able to enter into or continue with transactions as the companies would in the normal course of business. That includes the buying and/or selling of assets for market value in the normal course of business. This excludes any share transfers, which are restrained.
(4) An interim restraining order is made restraining disposition of more than 25% of the shares in CS(NZ)L in accordance with the “Paul Agreement”. The proceeds of any shares transferred to Paul Romanes pursuant to the “Paul Agreement” must be held undispersed in a separate fund until further order of the Court. Leave is granted for Paul Romanes or to MHL to apply for a variation or discharge of this interim restraining order.
[21] Neither Paul Romanes nor MHL applied to the Family Court for a variation or discharge of the interim restraining order (4) referred to in [20] above in accordance with the leave given by the Family Court Judge. Mr McKechnie, who appeared for MHL in this Court, said he had only recently been instructed and was not able to give any explanation as to why MHL had not applied to the Family Court in accordance with the leave that had been granted.
Appeal
[22] Mr Romanes’ notice of appeal dated 27 April 2018 seeks the following orders (as relevant to this application):
(a)Setting aside the vesting of 50% of the shares held in the name of the Appellant in Mikro Holdings Limited (“MHL”).
(b)Setting aside the Order that the Appellant shall pay the sum of $2 million on account of those shares by way of interim distribution to the Respondent.
(c)Setting aside the Orders restraining the Appellant from the disposition of assets on the terms set out in Appendix B of the judgment.
…
[23] The notice of appeal does not seek any orders on appeal in relation to the restraining orders directed at third parties. However, the grounds of appeal include the following:
2.13The Family Court Judge was wrong in law to restrain the companies Concrete Structures (NZ) Ltd (“CS(NZ)L”), Mikro Holdings Ltd (“MHL”), the Blue Baths Ltd (“BBL”), Richardson Drilling Ltd (“RDL”), Amner Resources Ltd (“ARL”) and Concrete Structures (Cook Islands) Ltd (“CS(CI)L”) (“the companies”) without making s37 PRA directions that they be served and have the opportunity to be heard. In particular, the Family Court Judge was wrong in law to restrain the disposition of CS(NZ)L shares from MHL to Paul Romanes without hearing from MHL, Paul Romanes or CS(NZ)L.
2.14The Family Court Judge was wrong in law to place MHL in breach of its agreement dated 31 March 2016 with Paul Romanes by restraining the disposition of shares in CS(NZ)L.
2.15The Family Court Judge was wrong to require MHL to hold the proceeds of any share transfer to Paul Romanes undisbursed in a separate fund without hearing from MHL or any evidence as to the impact of the proposed Order on MHL and/or Paul Romanes.
[24] In a minute of the first case management conference for this appeal dated 22 June 2018, Downs J recorded a submission of Mr Romanes that others affected by the decision of the Family Court Judge should be given an opportunity to be heard at the appeal.
[25] Downs J directed that Mr Romanes serve on potentially affected parties the notice of appeal dated 27 April 2018, attaching a copy of the decision of Judge Wills
and the High Court minute. Downs J further directed that anyone wishing to be heard on the appeal must file and serve an application identifying the precise jurisdictional basis to do so, and a submission setting out the case for appellate intervention and relief.
[26] Mr Romanes served the trustees of the JC Romanes Family Trust, the trustees of the MJ Romanes Family Trust, CSL, MHL and Paul Romanes. Only MHL has made an application to be a party to the appeal.
Grounds of application
[27] The grounds of the application are set out in the submissions accompanying the application. MHL says:
8.Any order of the Family Court or of this Honourable Court which requires the vesting of shares in MHL or Concrete Structures (NZ) Limited in persons other than the current shareholders being the Appellant and Paul Henry Romanes may impact on the terms of the agreement of the 31st day of March 2016 [under which Paul Romanes became entitled to purchase shares in Concrete Structures (NZ) Limited from MHL].
9.The shareholders and directors of both Concrete Structures (NZ) Limited and MHL believe that the shares in Concrete Structures (NZ) Limited are held by the Appellant as his separate property and by Paul Henry Romanes as his property.
10.The shareholders and directors of MHL believe that the Family Court Judge was in error in restraining the disposition of shares from MHL to Paul Henry Romanes and in so doing the learned Family Court Judge did not give MHL or Paul Henry Romanes the opportunity to be heard.
[28] Ms Chambers submits that the Court should put aside any issues that are said to affect CSL or Paul Romanes as they have not filed an application to be heard.
[29] As to the grounds set out in ground 8 above, Ms Chambers submits that this was not an outcome sought by Mrs Romanes in her interlocutory application.
[30] As to the belief of the other two directors of MHL referred to in grounds 9 and 10 above, Ms Chambers submits this is an attempt at advancing evidence from the Bar and those statements should be ignored.
[31] Ms Chambers also submits that the interests of MHL have been, and will continue to be, adequately advanced by Mr Romanes. MHL is entirely owned and controlled by him. Mr Romanes has always treated and used MHL funds and assets as his own. He has never made a distinction between the company and himself until now.
[32] Finally, Ms Chambers submits that, in any event, MHL will not be affected by the points on appeal.
Jurisdiction
[33] The first issue to be resolved is whether there is jurisdiction for MHL to be heard on the appeal. This involves a consideration of two issues:
(a)Do the High Court Rules apply or is s 37 of the Act the relevant statutory provision; and
(b)If the latter provides the jurisdictional basis for MHL to be heard on the appeal, is it “too late”, as Ms Chambers submits?
High Court Rules or s 37?
[34] In its application to be a party to the appeal dated 17 July 2018, MHL did not identify the basis for the order sought. Nor was the basis identified in the attached two-page submissions.
[35] In supplementary submissions dated 26 July 2018, Mr McKechnie submits that the application is made in reliance on r 4.56 of the High Court Rules (the Rules). By reference to r 4.56(1)(b), Mr McKechnie says that joinder of parties as a plaintiff or defendant may be made in two situations:
(a)Where the party ought to have been joined; or
(b)Where the parties’ presence may be necessary for the effectual and complete adjudication of all questions in the proceeding.
[36] MHL says it ought to have been joined as a party, or if not, then certainly it will be affected by the adjudication of questions which arise on the appeal and ought therefore to have the opportunity to be heard.
[37] Mr McKechnie submits that in terms of r 4.56, an order adding a party may be made at any stage of the proceedings: there is no set procedure for adding parties; notice has been given to all parties on behalf of MHL as is required by the Rules; the Court has a discretion as to whether or not to add parties under the rule; and where jurisdiction exists under the rule, the Court will favour joinder.
[38] Ms Chambers submits that joinder under r 4.56(1) is not the proper procedure. She says s 37 of the Act applies.
[39] Despite his written submissions relying on r 4.56(1), in oral submissions Mr McKechnie seemed inclined to accept that s 37 of the Act applies rather than the Rules.
[40]Section 37 provides:
37 Persons entitled to be heard
(1)Before any order is made under this Act, such notice as the court directs shall be given to any person having an interest in the property which would be affected by the order, and any such person shall be entitled to appear and to be heard in the matter as a party to the application.
(2)In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 92.
[41] I consider that Ms Chambers is correct in her submission that s 37 is the relevant provision for the reasons she advances, namely s 37 provides for a procedure for affected parties to be heard; s 4 of the Act is expressly stated to be a code and therefore a procedure other than s 37 is precluded.
[42] I am assisted in reaching this conclusion by a decision of Chilwell J in Martin v Martin.8 That case was a husband’s application under the Matrimonial Property Act 1976. The hearing before Chilwell J related to procedural matters. The question for
8 Martin v Martin (1982) 1 NZFLR 307 (HC).
determination was whether one of the sons had properly been joined as a party. The Judge referred to s 37 of the Matrimonial Property Act, and held that the son was plainly a person entitled to appear and be heard under that section.9 However, the complaint was that the son had been prematurely and wrongly joined as a party under the (then) Code of Civil Procedure.
[43]The Judge then referred to the relevant Rules10 and stated:11
Rules 61 to 64 (inclusive) cover the joinder of defendants and R 90 gives the Court, in civil proceedings, the power to ensure that all proper parties are joined so that the Court is able effectually and completely to adjudicate upon and settle all the questions involved in the action.
It is my judgment that s 37 of the Matrimonial Property Act provides the code for parties. The Rules are an enactment and, as such, have to be read subject to the Matrimonial Property Act — s 4(3). Rules 61 to 64 and R 90 can have no operation in the sense of determining who may be parties. Essentially it is a question of election by the third party whether he appears and is heard. Once he makes the election then, so long as he has an interest in the property which would be affected by the order, he becomes a party by virtue of his appearing and being heard …
Section 37
[44] Ms Chambers submits that it is too late for MHL to give notice that it wishes to be a party to the appeal. She submits that the words “Before any order is made under this Act” in s 37 relate to an order made by the Family Court. The order has already been made.
[45] I do not accept that submission. In general terms, on appeal from a decision of the Family Court, an appellant seeks orders overturning or amending orders made in the Court below. In other words, orders are made in this Court in proceedings under the Act. That is not a strained reading of the words “Before any order is made under this Act”.
[46] Further, Ms Chambers’ interpretation would unduly confine the operation of s 37. In this case, the third party, MHL, is intimately connected to Mr Romanes.
9 Section 37 of the Matrimonial Property Act 1976 is identical to s 37(1) of the Property (Relationships) Act.
10 Judicature Act 1908, sch 2.
11 Martin v Martin, above n 8, at 311-312.
However, there may well be persons or parties whose interests may be affected, but who do not have a close connection with either party in the Family Court, for example, banks. Such entities may not be aware of the proceedings in the Family Court. To exclude their ability to be heard on appeal would, in my view, be contrary to the purposes of s 37.
[47] However, I consider that the approach by both Mrs Romanes and MHL in the submissions made on behalf of each of them misses the reality of what has occurred here. I have already referred to para [59] of the judgment of Judge Wills in [19] above, but I set it out again at this point for ease of reference.
[59] An order restraining disposition is appropriate in this case given Mr Romanes’ access to the funds and control of the various companies through his shareholding. Ms Romanes’ position in respect to that transaction can be adequately protected by restricting the transfer of shares to Paul Romanes to a percentage of the shareholding in combination with a direction that Mr Romanes is to ensure that MHL retains the proceeds of any sale undispersed and in an identified fund. For the limited purpose of this application, Paul Romanes and MHL will be joined as parties to these proceedings in the event that an application is filed. The precise terms of the order are set out Appendix B.
(Emphasis added)
[48] The Family Court Judge has already recognised that MHL has an interest in the property that would be affected by interim restraining order (4) in Appendix B to her judgment. She has made a (contingent) order that MHL will be joined.
[49] All that is required is that MHL apply in the Family Court for a variation or discharge of interim restraining order (4) in Appendix B which is set out in [20] above. On filing such an application, the Judge has directed that MHL will be joined as a party to the proceeding.
[50] As a party to the proceeding, MHL is then entitled to be heard on the appeal on the issues affecting it in terms of interim restraining order (4) in Appendix B.
[51] For the avoidance of doubt, it would not be necessary for an application by MHL in the Family Court to be heard by that Court before the hearing of the appeal.
The Judge made it clear that MHL will be joined as a party in the event that an application is filed.
[52]As a party in the Family Court, MHL is then entitled to be heard on the appeal.
[53] I make it clear that MHL may only be heard in relation to its interest in property which would be affected by the order. Matters relating to whether or not Mr Romanes’ shares in MHL are held as his separate property would fall outside what was contemplated by the Judge and, in any event, outside s 37. That would preclude any submissions by MHL regarding the “beliefs” of the directors referred to in paras 9 or 10 referred to in [27] above. Those are matters for Mr Romanes.
[54] In the end, however, the extent of the submissions will be under the control of the Judge hearing the appeal.
[55] When Judge Wills’ decision is analysed in this way, all the other submissions made by the parties fall away and it is not necessary to address them.
Conclusion
[56] On the making of an application in the Family Court for a variation or discharge of interim restraining order (4) made by Judge Wills, and set out in Appendix B to Judge Wills’ decision, MHL is then joined as a party to the proceedings and is entitled to be heard on the appeal, but only to the extent it has an interest in the property affected by that order.
Order for filing of submissions
[57] MHL is to file and serve submissions on the appeal by 17 August 2018 (which is the same date on which Mr Romanes is to file and serve his submissions).
Costs
[58] I encourage MHL and Mrs Romanes to agree costs and to file a joint memorandum. If agreement can be reached, such memorandum is to be filed within 15 working days of the date of this judgment. If agreement cannot be reached, then
MHL may file its memorandum within five working days of the date for the joint memorandum and Mrs Romanes within a further five working days. As Mr Romanes did not take a position on this application, the question of costs in relation to him would not seem to arise.
Gordon J