Sroubek aka Antolik v Bozhenko
[2023] NZHC 1995
•28 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2463
[2023] NZHC 1995
BETWEEN KAREL SROUBEK aka JAN ANTOLIK
Plaintiff
AND
ALEXANDER BOZHENKO and NATALIA BOZHENKO
Defendant
EKATERINA BOZHENKO
Counterclaim Plaintiff
Hearing: 19 July 2023 Counsel:
Plaintiff in person
W A McCartney for the Defendants / Counterclaim Plaintiff
Judgment:
28 July 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 28 July 2023 at 12 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Davies Law, Auckland
Carson Fox Legal, Auckland
SROUBEK v BOZHENKO [2023] NZHC 1995 [28 July 2023]
Introduction
[1] The plaintiff, Karel Sroubek, and the counterclaim plaintiff, Ekaterina Bozhenko, were in a relationship from 2011 and married in 2016. Following the dissolution of their marriage in 2020, they have been involved in litigation as they endeavour to untangle their financial affairs.
[2] In 2020, Mr Sroubek commenced this proceeding, claiming an equitable interest in a property at 22 Abbotts Way, Ellerslie, Auckland (the property), owned by the defendants, Alexander and Natalia Bozhenko, the parents of Ms Bozhenko. Mr and Mrs Bozhenko live in Russia.
[3] Mr and Mrs Bozhenko and Ms Bozhenko have counterclaimed against Mr Sroubek, claiming amounts allegedly due from Mr Sroubek under a loan agreement, and for outstanding rent in respect of the property.
[4] In 2021, Ms Bozhenko commenced a proceeding in the Family Court seeking orders in respect of relationship property. The relationship property proceeding has been transferred to this Court and consolidated with this proceeding.
[5] Mr and Mrs Bozhenko now seek an order that Mr Sroubek give security for costs in respect of his claim.
Background
[6] On 17 June 2015, Mr Sroubek and Ms Bozhenko successfully bid at auction and signed an agreement for sale and purchase to buy the property for $1,702,000. On 29 June 2015, they met with Bruce Webster, an accountant, to discuss their plans for the property.
[7] An email from Mr Webster to them the day after the meeting records discussion of a possible joint venture as between Mr Sroubek, Ms Bozhenko and Mr and Mrs Bozhenko, for the purpose of subdividing and developing the property.
[8] On 15 July 2015, Mr Sroubek and Ms Bozhenko nominated Mr and Mrs Bozhenko to complete the purchase. The purchase was settled on 17 July 2015. The price was funded in part by a loan advance from ASB Bank of $1,100,000. The balance of the funds appear to have come from Mr and Mrs Bozhenko. Title was registered in the names of Mr and Mrs Bozhenko. Mr Sroubek and Ms Bozhenko moved into the old villa on the property.
[9] The parties have different views as to the basis on which the property was purchased and the contributions made by each party, if any, to the purchase and development of the property.
[10] Mr Sroubek claims that he is beneficially entitled to a 25 per cent ownership interest in the property, which is held on trust for him by Mr and Mrs Bozhenko. Ms Bozhenko estimates that the property is now worth $3,300,000, subject to the mortgage.
[11] The Bozhenkos deny that there is any basis for a constructive trust. They accept that Mr Sroubek carried out work on the villa and made financial contributions towards the development of the property, however, they say that they have claims against him that exceed his contributions to the property. Mr and Mrs Bozhenko counterclaim rent from Mr Sroubek for the period during which he occupied the property. In addition, they claim that Mr Sroubek has defaulted in repayment of a loan that they made to him, claiming $61,000.
[12] The counterclaim plaintiffs are Mr and Mrs Bozhenko and Ms Bozhenko. However, I note that in her affidavit affirmed on 2 May 2023, Ms Bozhenko deposes that the loan is owed to her father. If rent is owed, it would be to Mr and Mrs Bozhenko.
[13] In 2020, Mr Sroubek lodged a caveat against the title to the property. He was required to make an application to this Court to sustain the caveat. There is an interim order that the caveat not lapse pending determination of this proceeding, and an order that Mr and Mrs Bozhenko pay Mr Sroubek costs of $6,692 in respect of Mr Sroubek’s
application to sustain the caveat. The costs order has not yet been paid, although Mr and Mrs Bozhenko accept that they must pay it.
[14] Mr Sroubek is a citizen of the Czech Republic. His status as a New Zealand resident is unclear. He was granted residency on 19 September 2018, however the Minister of Immigration later annulled the grant of residency on 12 November 2018, leading to a deportation order. On 8 December 2022, the Immigration and Protection Tribunal declined Mr Sroubek’s appeal against liability for deportation.
[15] I am advised that Mr Sroubek is challenging that decision, by judicial review and an appeal. Mr Sroubek says that he continues to permanently reside in New Zealand, at 145 Bassett Road, Remuera.
[16] Apart from the application for security for costs, this proceeding and the relationship property proceeding are ready to be set down for trial. There have been discovery issues between the parties, however, they now seem to be largely resolved. Mr Sroubek no longer seeks any further discovery from the defendants. Mr and Mrs Bozhenko and Ms Bozhenko have reserved their position regarding further discovery from Mr Sroubek pending determination of the application for security for costs.
Legal principles
[17] The Court has a discretion to grant an application for security of costs under r 5.45(2) of the High Court Rules 2016 if it would be just in all the circumstances to do so. That discretion is, however, only engaged if the threshold test in r 5.45(1) is met. For presents purposes, that will be if the Court is satisfied that the plaintiff is resident out of New Zealand,1 or there is reason to believe that the plaintiff will be unable to pay the costs of a defendant if the proceeding is unsuccessful.2
[18] “Resident” refers to a person’s usual or ordinary place of abode, which will necessarily be a question of fact and degree.3
1 Rule 5.45(1)(a)(i).
2 Rule 5.45(1)(b).
3 Bolton v New Zealand Insurance Co Ltd (1993) 7 PRNZ 71 (HC) at 72.
[19] The Court may draw a reasonable inference that a party will be unable to meet costs from credible evidence of surrounding circumstances.4
[20] Exercise of the Court’s discretion under r 5.45(2) requires a balancing of the interests of plaintiff and defendant, as summarised by the Court of Appeal in A S McLachlan Ltd v MEL Network Ltd:5
[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.
[16] Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.
[21] The following additional principles, extracted from the caselaw, are relevant to the balancing exercise in this application:
(a)While the Court will endeavour to assess the merits and prospects of success of the plaintiff’s claim, there are limits in the ability to do so at a summary stage of the proceeding.6
(b)If the defendant’s conduct has caused the plaintiff’s impecuniosity, that may be a factor against security for costs.7
(c)Delay in applying for security for costs may be a factor against security for costs.8
4 See Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (SC) at 519.
5 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA).
6 McNaughton v Miller [2022] NZCA 273 at [19].
7 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [23](a).
8 Jo v Johnston [2013] NZHC 552 at [18].
[22] If the applicant persuades the Court to exercise its discretion and order security for costs, the Court is then required to determine the amount of security and whether a stay should be ordered pending provision of the security.9
Discussion
The threshold
[23] Mr Sroubek has lived in New Zealand for many years. He appeared at the hearing, self-represented. Prior to the hearing, he personally filed documents in the Registry. I have received no evidence regarding the current state of the litigation that will determine Mr Sroubek’s immigration status. It is obvious that he is strongly resisting deportation. Therefore, I am not satisfied that Mr Sroubek is presently resident out of New Zealand.
[24] However, I am satisfied that there is reason to believe that Mr Sroubek will be unable to pay the costs of Mr and Mrs Bozhenko if he is unsuccessful with his claim, for the following reasons.
[25] In June 2016, Mr Sroubek was sentenced to a term of imprisonment for drug offending. Earlier that year, Mr Sroubek had sold a house that he owned in Glenfield, Auckland. Part of the proceeds of sale were used to make a loan repayment to Mr and Mrs Bozhenko. Ms Bozhenko says that the balance was required to pay legal fees incurred by Mr Sroubek in conducting his defence of the criminal charges. Mr Sroubek was later the subject of an application under the Criminal Proceeds (Recovery) Act 2009, which he eventually settled in 2017.
[26] Mr Sroubek’s evidence and submissions confirm that the business that he operated prior to his imprisonment, Relax (NZ) Ltd, has been liquidated.
[27] On 21 February 2023, Mr Sroubek filed a memorandum explaining that he did not have sufficient funds to allow him to retain counsel to defend this application. During his submissions, he advised the Court that he is continuing to retain counsel in respect of his immigration litigation, and that he will be instructing counsel to
9 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].
represent him at the trial of this proceeding. He says that he is representing himself during the remaining interlocutory stages of this proceeding to save money.
[28] During his submissions, Mr Sroubek advised the Court that he is now employed in an information technology role, earning $55,000 per annum. He has previously stated his occupation to be a student. There is no evidence of Mr Sroubek’s current occupation or income.
[29] Mr Sroubek asserts that he does have the means to meet an adverse costs order, but Mr Sroubek has elected not to adduce any evidence regarding his current financial position. There is no evidence of any resources that he may have available to him to meet an adverse costs order.
[30] Considering what is known about Mr Sroubek’s financial position since 2015, the inference can be drawn that he will be unable to meet costs.
[31] This is not a situation where the defendant’s conduct has caused the plaintiff’s impecuniosity.
The balancing exercise
The merits of Mr Sroubek’s claim
[32] Mr Webster’s email dated 30 June 2015 records discussion of a development proposal for a subdivision of the property into three titles, with Mr and Mrs Bozhenko to keep two titles, including the existing villa, and one title to be transferred to Mr Sroubek and Ms Bozhenko. Mr Webster gave advice on possible ways that the development could be structured, considering tax consequences.
[33]The email records:
Originally it was intended that Jan [Mr Sroubek]/Kata [Ms Bozhenko] would have an ownership share but the Bank would not loan on that basis as it affected the Bank’s lending ratio.
[34]The email discussed the possibility of a written agreement:
There is nothing precluding an agreement … between Parents, Jan and Kata stating that the property is being held in Trust by Parents on behalf of all three and that it is their intention that Jan/Kata will put in $250,000 to enable the subdivision to go ahead …
[35] The email discusses how the venture might be structured so that Mr Sroubek and Ms Bozhenko would acquire a 25 per cent “share of the action”, including assuming responsibility for servicing part of the interest costs on the ASB mortgage. Mr Webster recommended that the parties record any such arrangement in a deed.
[36] Ms Bozhenko says that the proposal discussed at the meeting with Mr Webster did not proceed because Mr Sroubek was unable to raise $250,000, and “nothing was ever agreed” with her parents.
[37] It is evident that matters did not proceed as originally envisaged and as discussed with Mr Webster on 29 June 2015. As is often the case with arrangements between family members, matters evolved over time.
[38] Mr and Mrs Bozhenko and Ms Bozhenko now seek to portray the arrangement as one that evolved into a conventional landlord and tenant relationship. That is not a fair portrayal based on the evidence available at this stage.
[39] There is no evidence of a written tenancy agreement. Mr Sroubek has produced two emails from Ms Bozhenko to their accountant which provide instructions to the accountant regarding “rent for the house” of $29,000 for the year ended 31 March 2017 and $28,500 for the year ended 31 March 2018. Mr Sroubek was imprisoned during those years, but he says that this was a continuation of the arrangement that had been in place since the property was purchased. He says that the arrangement was that he and Ms Bozhenko, via their company, paid agreed amounts to Mr and Mrs Bozhenko to be utilised to service the ASB mortgage.
[40] Based on the limited documentary evidence available to the Court at present, it is not possible to form a preliminary view on the nature of the payments from Mr Sroubek and Ms Bozhenko, or their company, to Mr and Mrs Bozhenko after the settlement date, which appear to have been treated as a rent expense by the person or entity that made the payments. Whether the payments were truly rent, or a mechanism
by which Mr Sroubek and Ms Bozhenko contributed to the joint venture’s mortgage payments, is a matter for trial.
[41] The same difficulty arises in respect of loan advances from Mr and Mrs Bozhenko to Mr Sroubek. The parties agree that Mr Sroubek repaid $161,000 to Mr Bozhenko following the sale of his Glenfield property in 2016 and that Mr Bozhenko subsequently agreed to refund $61,000 of that money to the Crown as part of the settlement under the Criminal Proceeds (Recovery) Act. Mr and Mrs Bozhenko say that this results in a short payment to them of $61,000 and that Mr Sroubek remains liable for that amount. Mr Sroubek says that Mr Bozhenko agreed to waive payment of the final $61,000 due to enable the development of the property to proceed. That issue can only be resolved by viva voce evidence at trial.
[42] What is clear is that Mr Sroubek personally carried out work, and arranged work by others, to renovate the villa and to prepare for subdivision of the property. Mr Sroubek says that his expenditure on other contractors totalled $51,018.90. Ms Bozhenko says that it totalled $20,600.89.
[43] The value of the non-financial contributions is also disputed. There is no evidence before me of the current state of the development of the property. During the hearing, Mr Sroubek advised the Court that a resource consent was granted, however, no evidence of that has been produced. There is no evidence of the current value of the property, other than Ms Bozhenko’s estimate that it is worth approximately $3.3 million.
[44] If the arrangements between Mr Sroubek, Ms Bozhenko and Mr and Mrs Bozhenko give rise to an equitable interest for Mr Sroubek and Ms Bozhenko in the property, then that equitable interest is likely to be jointly held.
[45] In my view, Mr Sroubek has a tenable claim that he and Ms Bozhenko share a joint equitable interest in the property. It is not possible to form a preliminary view on what the extent or value of that equitable interest might be.
[46] It is not possible to form a preliminary view on whether the equitable claim might be confined to one for equitable compensation only, and if so, whether the claim would be exceeded by a set off by Mr and Mrs Bozhenko for outstanding loans and/or rent.
[47] Mr and Mrs Bozhenko consented to the interim order sustaining the caveat, which requires the existence of an arguable case for an equitable interest in the property. Mr Sroubek’s substantive claim needs to be determined.
The relationship property proceeding
[48] Ms Bozhenko says that she separated from Mr Sroubek in 2017. The date of separation is yet to be determined by the Court.
[49] Even if separate equitable interests in the property arose for Mr Sroubek and/or Ms Bozhenko prior to separation, those interests are likely to be relationship property, although that is an issue for trial. The equitable interests of Mr Sroubek and Ms Bozhenko in the property, if any exist and whether joint or several, may be the only relationship property.
[50] To consider the respective claims of Mr Sroubek and Ms Bozhenko under the Property (Relationships) Act 1976, the Court will need to determine whether either or both of them hold an equitable interest in the property, and whether such equitable interest is relationship property or separate property. The position is similar in respect of any outstanding loans from Mr Bozhenko to Mr Sroubek.
[51] Mr and Mrs Bozhenko are directly interested in the Court’s determination of the issues that will arise under the Property (Relationships) Act, and need to be parties. Irrespective of whether Mr Sroubek’s claim proceeds, Ms Bozhenko’s relationship property claims and Mr and Mrs Bozhenko’s claims against Mr Sroubek would still need to be determined together.
[52] The interests of justice are best served by all claims between these parties proceeding to hearing. An order for security for costs may stymie that.
Delay
[53] Mr Sroubek commenced this proceeding in 2020. At the time, Mr and Mrs Bozhenko were aware of Mr Sroubek’s conviction and sentence of imprisonment; the settlement of the claim under the Criminal Proceeds (Recovery) Act; the sale of his Glenfield property and the likely exhaustion of any net sale proceeds; and Mr Sroubek’s apparent lack of assets and income. They did not, however, apply for security of costs until now.
[54] The only factor that appears to have changed in the interim is the determination of the Immigration and Protection Tribunal dated 8 December 2022, declining Mr Sroubek’s appeal against his liability for deportation, and Mr Sroubek’s decision to self-represent in this proceeding on the basis that he cannot afford to retain counsel.
[55] Given my finding that the relevant threshold that has been met is that there is reason to believe that Mr Sroubek will be unable to meet an adverse costs order, the decision of the Immigration and Protection Tribunal is not directly relevant. If, after appeal and review, Mr Sroubek’s remains liable for deportation, that would be a factor to take into account in the balancing exercise and would be a change in circumstances justifying a late application for security.
[56] Mr Sroubek’s statement in his memorandum regarding his inability to afford to continue to retain counsel to represent him in this proceeding does no more than confirm a financial picture that was already apparent to Mr and Mrs Bozhenko. There is no explanation as to why Mr and Mrs Bozhenko did not make an application for security for costs earlier in the proceeding.
[57] However, I do not place any weight on the delay in making the application for security. The determinative factors are the merit of Mr Sroubek’s claim and the overlay of the relationship property proceeding.
Result
[58] Although Mr Sroubek may face evidential difficulties at trial, his claim is tenable. Resolution of his claim is required to determine the claims of Mr Sroubek
and Ms Bozhenko under the Property (Relationships) Act. For these reasons, I find that it is just in all the circumstances that there is no order requiring Mr Sroubek to give security for costs. The application by Mr and Mrs Bozhenko is dismissed.
[59]Mr Sroubek is self-represented, so there is no order as to costs.
[60] The proceeding is adjourned for a case management conference, to be allocated by the Registrar.
Associate Judge Brittain
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