Slade v Slade
[2016] NZHC 133
•11 February 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2747 [2016] NZHC 133
BETWEEN KEVIN GEORGE SLADE
First Plaintiff
KEVIN GEORGE SLADE, MAURICE BARTON, BETTY BARTON and ED JOHNSTONE & CO TRUSTEES LIMITED as trustees of the AMANDA SLADE TRUST
Second Plaintiffs
AND
CAROLYN PATRICIA SLADE First Defendant
CAROLYN PATRICIA SLADE and RAEWYN NONI DURANT as trustees of the SCIADOPITYS HAVEN TRUST Second Defendants
Hearing: 11 February 2016 Appearances:
A R Nicholls for plaintiffs
R Thompson for defendantsJudgment:
11 February 2016
(ORAL) JUDGMENT OF LANG J
[on application for rescinding freezing orders]
SLADE v SLADE [2016] NZHC 133 [11 February 2016]
[1] This proceeding relates to part of the proceeds of sale of a house property situated at 195 Postman Road, Dairy Flat (the property). The property was sold on
18 November 2015, and a portion of the proceeds of sale is currently being held in a solicitor’s trust account by virtue of freezing orders made on a without notice basis by Woolford J on 20 November 2015.
[2] The Court is now required to determine whether the freezing orders should remain in effect.
Background
[3] Mr and Mrs Slade were originally the joint owners of the property, having purchased it in November 2001 with the assistance of a mortgage from a bank. This occurred some four months before their marriage on 15 March 2002.
[4] On 11 June 2004, Mr and Mrs Slade transferred the property into their names as tenants in common in equal shares. Each then immediately transferred his or her share of the property to a family trust. The family trusts continued to own the property as tenants in common in equal shares up until the date upon which it was sold. There is no evidence before the Court regarding the terms on which Mr and Mrs Slade transferred the property to the two trusts.
[5] Mr and Mrs Slade separated in September 2010. Mr Slade remained living in the property after that date. Thereafter, he says he continued to meet all outgoings payable in respect of it.
[6] By March 2015, Mr Slade had accumulated a debt of approximately
$230,000 to the Commissioner of Inland Revenue (the Commissioner). This related to unpaid income tax, together with interest and penalties, for the years ended
31 March 2005 to 31 March 2010 inclusive. The Commissioner obtained judgment against Mr Slade in respect of this debt, and then moved to enforce the judgment by way of bankruptcy proceedings.
[7] Mr Slade was subsequently able to reach an accommodation with the Commissioner under which the Commissioner agreed to halt the bankruptcy proceedings provided Mr Slade paid the tax debt from the proceeds of sale of the property. When the property was sold, each trust received the net sum of
$276,044.40. Mr Nicholls advises me from the bar (because there is no evidence on the point) that the solicitors acting for Mr Slade’s family trust then paid the sum of approximately $255,000 from its share of the sale proceeds to the Commissioner in satisfaction of the debt.
[8] Mr Slade contends that the debt to the Commissioner needs to be taken into account in any division of relationship property between himself and Mrs Slade. He says Mrs Slade should be required to meet one-half of that debt. He expresses a concern that if the funds are ultimately paid to Mrs Slade, she will dissipate them so that she will not be available to meet any judgment he might obtain against her. For that reason he sought and obtained a freezing order in respect of the sum of
$127,449.47 from the share of the proceeds of sale that was paid to Mrs Slade’s
family trust.
Relevant principles
[9] There is no dispute regarding the principles that apply in the present context. As Mr Thompson points out for the defendants, these were conveniently summarised by Katz J in Medtronic New Zealand Ltd v Finch.1 In short, the applicant must:
(a) Establish a good arguable case;
(b)Satisfy the Court that there is a risk that the assets will be dissipated or disposed of and thereby defeat the applicant’s ability to execute any judgment;
(c) Provide a meaningful undertaking as to damages;
1 Medtronic New Zealand Ltd v Finch [2013] NZHC 1253 at [5], citing Bank of New Zealand v
Hawkins (1989) 1 PRNZ 451 (HC) at 452 and Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.
(d)Make full and accurate disclosure of the all material relevant to an application for freezing orders made on a without notice basis.
[10] Mr Thompson has also referred to me to the following passages from the recent decision of Mander J in Miyamoto International New Zealand Ltd v Foster Street Properties Ltd:2
[23] There are essentially three requirements for a freezing order:
(a) Good arguable case — A good arguable case is established if the allegations made are capable of tenable argument and supported by sufficient evidence, having regard to the early stage at which the application has been brought. There is no requirement that the applicant demonstrate its case to be strong enough to entitle it to summary judgment. What is required to meet the threshold is that its case be better than one barely capable of serious argument, but need not have a greater than
50 per cent prospect of success.
…
(c) The applicant must show a real risk of dissipation — It is a requirement to establish a real risk of dissipation. This is central to the freezing order jurisdiction. Of itself, the fact a respondent is going to dispose of assets does not invoke the freezing order jurisdiction unless there is a real risk that a judgment in favour of the applicant will be partly or wholly unsatisfied if the freezing order is not made. Mere suspicion is not enough. Assertion of belief that a respondent may dissipate its assets unsupported by solid grounds justifying that belief is insufficient, although proof of likelihood of dissipation is not necessary. Proof of a real risk of dissipation has been described as circumstances from which “a prudent, sensible, commercial [person] can properly infer a danger of default”; a test which is “not unduly exacting”.
A good arguable case?
[11] After setting out the manner in which the parties have dealt with the property, the statement of claim goes on to aver:
13. The IRD debt is a relationship debt as it relates to debts:
a) Incurred for the purpose of acquiring, improving and/or maintaining the relationship property; and/or
2 Miyamoto International New Zealand Ltd v Foster Street Properties Ltd [2015] NZHC 3086.
b) It was incurred for the benefit of both the First Plaintiff and First Defendant in the course of managing the affairs of the household.
14.The First and Second Defendant should be jointly and severally liable for half of the IRD debt.
15.The First and Second Defendant should further repay the First and Second Plaintiffs for debts incurred for maintaining the relationship property, including:
a) Rates payments;
b) Mortgage repayments;
c) Insurance; and
d) Other maintenance payments.
[12] The reference in paragraph 13 of the statement of claim to the tax debt being a “relationship debt” must be taken to allege that the debt owed by Mr Slade to the Commissioner is one that must be taken into account in any division of relationship property owned by Mr and Mrs Slade. The division of relationship property is governed by the Property (Relationships) Act 1976 (the Act). The references in the same paragraph to the debt being incurred for the purpose of acquiring, improving or maintaining the relationship property and for the benefit of both Mr and Mrs Slade in the course of managing the affairs of the household, are likewise references to issues that arise under the Act. It follows that these issues could only be dealt with in the context of a substantive application under the Act.
[13] At present, the statement of claim does not formally seek orders for division of property under the Act. That is not surprising, because the Family Court has exclusive jurisdiction to deal with originating applications under the Act.3 Although the Family Court may in certain circumstances transfer a relationship property proceeding to this Court,4 the High Court does not have any originating jurisdiction under the Act. It follows that the principal substantive relief that the plaintiffs seek is
under an enactment in respect of which this Court has no jurisdiction.
3 Property (Relationships) Act 1976, s 22.
4 Section 38A.
[14] As the statement of claim presently stands, the plaintiffs face further difficulties. The statement of claim does not appear to recognise that the family trusts have been the legal and beneficial owners of the property since 2004. For that reason they must also be the legal and beneficial owners of the proceeds of sale of the property. The debt owing to the Commissioner, on the other hand, is a personal debt owing by Mr Slade and not by his family trust. Although the debt may need to be taken into account in any division of relationship property owned by Mr and Mrs Slade, that fact of itself cannot entitle Mr Slade to seek repayment of one half of the debt from Mrs Slade’s family trust.
[15] I acknowledge, as the Medtronic decision makes clear, that freezing orders may extend to assets held by trusts.5 That will only be done, however, where the trusts in question hold assets on behalf of the party whose assets are sought to be frozen. There is no evidence in the present case to suggest that Mrs Slade’s trust holds the proceeds of sale on her behalf. The terms of the trust deed make it clear that the trustees must consider the interests of a wide range of beneficiaries, of whom Mrs Slade is but one.
[16] Furthermore, freezing and injunctive orders that extend to property held by third parties are normally made in circumstances where a party to a proceeding has sought to use the third parties to render himself or herself judgment proof.6 There is nothing in the present case to suggest that Mr and Mrs Slade were seeking that objective when they transferred their respective interests in the property to their family trusts in 2004.
[17] As matters stand, the only basis on which Mr Slade could seek to attack the proceeds of sale owned by Mrs Slade’s trust is by way of a claim for reimbursement of the expenditure he has incurred in respect of outoings and/or improvements since the date upon which he and Mrs Slade separated. To date, however, Mr Slade has not attempted to particularise or quantify his claim under this head. Furthermore,
any such claim would inevitably be met with a counterclaim by Mrs Slade’s trust
5 Medtronic New Zealand Ltd v Finch, above n 1, at [11].
6 See eg Shaw v Narain [1992] 2 NZLR 544 (CA) and Allen v Commissioner of Inland Revenue
(2004) 21 NZTC 18,718 (CA).
seeking payment of interest and/or occupation rental based on the fact that Mr Slade continued to reside in the property after the parties separated.
[18] For these reasons, and on the basis of the pleadings as they currently stand, I
have concluded that the plaintiffs have not established a good arguable case.
Disposition
[19] One way of dealing with the deficiencies in the plaintiffs’ pleadings would be to give them time to amend the pleadings so that the legal basis of their claim can be properly understood and the merits of the claim assessed. In the present case, however, it is obvious that the principal aspect of the claim is that under the Act. Given that this Court has no jurisdiction under the Act, I do not consider it appropriate to retain the proceeding in this Court.
[20] This Court has the power under s 46(2) of the District Courts Act 1947 to transfer a proceeding of its own motion to the District Court if the subject matter of the proceeding is within the jurisdiction of that court. It may do so unless the Court is of the opinion that the proceeding is likely to give rise to an important question of law or fact. I do not consider that the present proceeding is likely to give rise to any important question of law or fact. In fairness, Mr Nicholls on behalf of the plaintiffs did not argue to the contrary. For that reason I consider it appropriate at this point to make an order transferring the proceeding to the District Court.
Result: Orders
[21] I make an order setting aside the freezing orders made by Woolford J on
20 November 2015. In order to enable the plaintiffs to consider their options in the
District Court, I direct that this order is not to take effect until 28 February 2016.
[22] I make a further order under s 46(2) of the District Courts Act 1947 transferring this proceeding to the District Court with immediate effect. Counsel for the plaintiffs is to ensure that an order is filed for sealing within 24 hours so as to enable the file to be transmitted quickly to the District Court. It will be for the
District Court to determine whether the proceeding should be dealt with under the civil jurisdiction of the District Court or within the jurisdiction of the Family Court.
Costs
[23] As the successful parties, the defendants are entitled to an award of costs in their favour. They are to receive a single award of costs on a category 2B basis, together with disbursements as fixed by the Registrar. The plaintiffs are to be jointly
liable in respect of those costs.
Lang J
Solicitors:
Thomas & Co, Auckland
Counsel:
R Thompson, Auckland