CONNOLLY v ECKHOUT [2022] NZHC 293

CONNOLLY v ECKHOUT [2022] NZHC 293 [25 February 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2019-463-18[2022] NZHC 293UNDER The Family Protection Act 1955IN THE MATTER OF The estate of JAN DANIEL ECKHOUTBETWEEN MICHELLE LEE CONNOLLYPlaintiffAND KAREN ELIZABETH ECKHOUTDefendantHearing: 9 February 2022 (by VMR)Appearances: S R G Judd for the plaintiffNo appearance for the defendantJudgment: 25 February 2022JUDGMENT OF CAMPBELL JThis judgment was delivered by me on 25 February 2022 at 3:00 pm pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy RegistrarIntroduction[1] Ms Connolly successfully sued the administrator of her deceased father'sestate, Ms Eckhout, under s 4 of the Family Protection Act 1955. The Court awardedher $449,741.57.[2] Ms Eckhout has failed to pay the judgment debt. Ms Connolly seeks:(a) an order for the arrest of Ms Eckhout;(b) sanctions against Ms Eckhout; and(c) costs on an indemnity basis.Background[3] Ms Connolly is the daughter of the deceased Mr Jan Eckhout. Mr Eckhoutpassed away in October 2017.[4] Ms Eckhout is Mr Eckhout's widow. She was appointed the administrator ofMr Eckhout's estate on 3 October 2018. She is the primary beneficiary under his will.[5] Ms Connolly was not a beneficiary under Mr Eckhout's will. In 2019, shebrought a proceeding under the maintenance provision of the Family Protection Actagainst Ms Eckhout, as administrator.[6] In December 2020, Ms Eckhout travelled to Perth to care for her elderlyparents. She has not returned.[7] On 12 February 2021, Ms Eckhout made a statutory declaration that the valueof Mr Eckhout's estate was $1,560,000. Soon after making that declaration,Ms Eckhout's solicitor and counsel were granted leave to withdraw. At that point asubstantive hearing was scheduled to commence on 27 April 2021. Ms Connollybecame concerned about the state and whereabouts of Mr Eckhout's estate. Sheapplied for a preservation order under r 7.55(3) of the High Court Rules 2016 thatMs Eckhout pay into Court the amount she had declared was the value of the estate.[8] Fitzgerald J, in a judgment dated 1 April 2021, declined to make a preservationorder.1 Her Honour said that the difficulty in making such an order was that the Courtwas not aware of the nature of the estate's assets, or where and by whom they wereheld (Ms Eckhout's declaration not having provided that information). But herHonour said that Ms Eckhout had a duty as administrator to place such informationbefore the Court. Fitzgerald J therefore ordered Ms Eckhout to file and serve, by9 April 2021, a statutory declaration as to (among other things) the value of the estate,the form of the assets making up the estate and information as to any distributionsmade from the estate.[9] Ms Eckhout failed to file and serve a statutory declaration by 9 April 2021. On21 April 2021, Venning J extended the time for Ms Eckhout to file and serve thedeclaration to 12 May 2021. The trial was also adjourned, on Ms Eckhout's request,to 3 June 2021.[10] On 14 May 2021, Ms Eckhout's new lawyers filed a statutory declaration byMs Eckhout dated 13 May 2021. She declared that of the approximately$1.676 million that had been held in the name of her late husband, there was now$642,414.25 in her name in an account with the Commonwealth Bank of Australia(the CBA). Ms Eckhout declared "I have kept this to meet any judgment". She thenprovided information as to how she had spent the balance over the previous threeyears. She concluded by declaring that if the $642,414.25 remaining was insufficientto meet any judgment award in favour of Ms Connolly "I will personally reimbursethe estate for any shortfall".[11] The following month, Downs J gave judgment in favour of Ms Connolly.His Honour awarded her $350,000 plus costs,2 with the total sealed judgment sumbeing $449,741.57. The sealed judgment was stated to be against Ms Eckhout asadministrator of the estate of Mr Eckhout.[12] Ms Eckhout failed to pay. Interim charging orders were subsequently madeover any funds held by the CBA in Ms Eckhout's name and over company shares she1 Connolly v Eckhout [2021] NZHC 727.2 Connolly v Eckhout [2021] NZHC 1400 at [66].held. On 29 August 2021, Downs J issued a final charging order over the CBAaccounts and the shares for the judgment debt plus further costs. The total amountpayable had, by this time, increased to $470,115.22.[13] For some months, the CBA disputed the New Zealand courts' jurisdiction overit. Ms Connolly then applied for a sale order, which the Sheriff attempted to enforceagainst the CBA for many weeks. Eventually, on 6 December 2021, the CBA paidAUD 4,828.05 into Court. That was all that remained in the CBA account thatMs Eckhout had declared, in May 2021, contained $642,414.25.Ms Connolly's application[14] On 9 December 2021, Ms Connolly filed an application seeking:(a) an arrest order under r 17.84 of the High Court Rules authorising andrequiring an enforcing officer to arrest Ms Eckhout and to bring herbefore the Court at the time and place specified in the order, and untilthen, to keep her in safe custody;(b) sanctions against Ms Eckhout for non-compliance with court ordersunder s 16(4) of the Contempt of Court Act 2019 and r 17.85 of theHigh Court Rules, unless she complies with the previous court orders;and(c) an order that Ms Eckhout pay Ms Connolly's costs incurred inattempting to enforce the previous court orders, and the costs of thisapplication, on an indemnity basis.[15] The application was served on Ms Eckhout. She did not appear at the hearing.[16] Mr Judd appeared for Ms Connolly. His submissions focussed on why an arrestorder should be issued. He did not address the sanctions that should be imposedagainst Ms Eckhout. That is because sanctions are imposed only once a party has beenbrought before the Court on an arrest order.3 He briefly addressed me on costs.[17] A few days after the hearing, on 13 February 2022, Mr Judd filed amemorandum advising that he had that day received an email from Ms Eckhout. Heannexed a copy of the email, which had been copied to the CBA. Ms Eckhout statedshe would be making a "substantial payment for the Connolly matter hopefully withinthe next two weeks". She said the payment "will not be in full but when I can I shallgive you the balance".Applicable law[18] Rule 17.84 of the High Court Rules empowers a court to issue an arrest orderwhere certain requirements, primarily drawn from the Contempt of Court Act, aresatisfied. The Court has a discretion whether to exercise that power.[19] Rules 17.83 and 17.84 provide:17.83 Effect of arrest order(1) An arrest order authorises and requires an enforcing officer to arrestany person named in the order and to bring that person before the courtat the time and place specified in the order, and until then, to keep theperson in safe custody.17.84 Power to issue arrest order(1) In this subpart,—original court order has the same meaning as court order in subpart4 of Part 2 of the Contempt of Court Act 2019.(2) If a person has applied to the court to enforce an original court orderor an enforceable undertaking and that person is entitled to make anapplication under section 16(2) of the Contempt of Court Act 2019, aJudge may issue an order arresting the non-complying party if,—(a) in the case of an application to enforce an original court order,the Judge is satisfied that the non-complying party has beenserved with the order and has not complied with it[.]3 Rule 17.85.[20] The Court is therefore empowered to issue an arrest order when threerequirements are satisfied.4[21] First, the underlying order which the applicant seeks to enforce must be a"court order" in terms of the Contempt of Court Act. Section 16(1)(a) of the Contemptof Court Act defines "court order" as "any interim or final order, decision, decree,direction, or judgment of a court to do or abstain from doing something, except asprovided in section 17". Section 17 provides that the Court may take action under s 16to enforce a court order to pay a sum of money only if (relevantly) the default inmaking payment comes within an exception listed in s 3(2) of the Imprisonment forDebt Limitation Act 1908. Ms Connolly relies on the exception in 3(2)(c) of the latterAct: where the default in payment of a sum of money is by a person acting in afiduciary capacity and ordered to pay any sum in his or her possession or control.Whether that exception applies is the key issue on this application.[22] Secondly, the applicant must be entitled to make an application under s 16(2)of the Contempt of Court Act. Section 16(2)(a) provides that a court may enforce acourt order on application by the person who sought the order. This requirement isnot in issue: Ms Connolly sought the underlying order.[23] Thirdly, the Court must be satisfied that the non-complying party has beenserved with the underlying court order and has not complied with it. This requirementis not in issue: Ms Eckhout was served with the underlying court order and she has notpaid the judgment sum.[24] If all three requirements are satisfied, the Court is empowered to issue an arrestorder. The Court has a discretion whether to exercise that power: r 17.84 provides thatthe Court "may" issue an order.4 Mr Judd's submissions also addressed s 16(3) and (4) of the Contempt of Court Act 2019. It isnot necessary to consider these provisions on this application. They set out the sanctions (such asimprisonment) that a Court may impose for non-compliance with court orders. Those sanctionsonly need to be considered if and when Ms Eckhout is brought before the Court on an arrest order.[25] Finally, where a Court is satisfied it should issue an arrest order, the Courtcommonly directs that the order is to lie in court to provide the non-complying partywith a final opportunity to comply with the underlying court order.Issues[26] Two issues arise:(a) Does Ms Eckhout's default fall within the exception in s 3(2)(c) of theImprisonment for Debt Limitation Act?(b) If so, should I exercise my discretion to issue an arrest order?Does Ms Eckhout's default fall within the exception in s 3(2)(c) of theImprisonment for Debt Limitation Act?[27] The exception in s 3(2)(c) has two limbs. First, the default in payment of asum of money must be by a "person acting in a fiduciary capacity". Secondly, thatperson must have been ordered to pay a sum in his or her "possession or control".Is Ms Eckhout's default one by a "person acting in a fiduciary capacity"?[28] A "person acting in a fiduciary capacity" includes a person who receives orholds money while in a fiduciary relation towards another person.5[29] Administrators and beneficiaries under a will have a special fiduciaryrelationship. One of the administrator's fiduciary responsibilities is a duty to act even-handedly between beneficiaries.6 That duty extends to prospective statutoryclaimants, such as those able to claim under the Family Protection Act, at least wherethe administrator is aware the prospective claim.75 Marris v Ingram (1879) 13 Ch D 338 (Ch) at 345 (dealing with the equivalent provision in theDebtors Act 1869 (UK)).6 Lindsay Breach (ed) Nevill's Law of Trusts, Wills and Administration (13th ed, LexisNexis,Wellington, 2019) at [20], citing Re Stewart [2003] 1 NZLR 809 (HC), Irvine v Public Trustee[1989] 1 NZLR 67 (CA), and Mackenzie v Mackenzie (1998) 16 FRNZ 487 (HC).7 Irvine v Public Trustee [1989] 1 NZLR 67 (CA) at [70]; and Sadler v Public Trust [2009] NZCA364, [2009] NZFLR 937 at [35].[30] Ms Eckhout was the defendant to an actual claim, not merely a prospectiveclaim. She stood in a fiduciary relation towards Ms Connolly from the time the latterbrought her Family Protection Act claim. The Court gave judgment againstMs Eckhout "as administrator of" Mr Eckhout's estate. Ms Eckhout's default inpaying the judgment sum is clearly a default by a person acting in a fiduciary capacity.8Was Ms Eckhout ordered to pay a sum in her "possession or control"?[31] For this limb of the s 3(2)(c) exception, it is sufficient that the money orderedto be paid was at some time in the defendant's possession or control. It is no answerfor the defendant to say that she has since spent the money.9[32] This limb is clearly satisfied. Ms Eckhout declared, twice, that she was inpossession or control of estate funds in an amount that exceeded the eventual judgmentsum.Should I exercise my discretion to issue an arrest order?[33] It follows from the above that Ms Eckhout's default in payment of thejudgment sum falls within the exception in s 3(2)(c). The Court therefore is able toissue an arrest order. The remaining issue is whether I should exercise my discretionto do so.[34] I consider it is appropriate to issue an arrest order in this case. Ms Eckhout hasknowingly failed to comply with the judgment. She has not provided any excuse,reasonable or otherwise, for her non-compliance. To the contrary, her non-complianceis flagrant. She made a statutory declaration shortly before the judgment that she held$642,414.25 in estate funds. She declared "I have kept this to meet any judgment".She concluded by declaring that if that amount was insufficient to meet any judgmentshe would personally reimburse the estate for any shortfall. The clear implication wasthat she would continue to keep the $642,414.25 to meet the judgment.8 Davey v Bourne [1906] 1 Ch 697 (Ch and CA).9 Middleton v Chichester (1871) 6 Ch App 152 at 157; and Rose v Macdonald (1907) 30 NZLR 741(SC and CA) at 756.[35] Those funds would have been sufficient to meet the judgment that Ms Connollyobtained. Ms Eckhout has dissipated those funds, contrary to what she stated in herstatutory declaration. She did not appear at the hearing to provide any explanation orexcuse for her action.[36] In these circumstances, I consider Ms Eckhout's default is so flagrant that thisCourt should issue an arrest order.[37] However, it is appropriate for the arrest order to lie in court for a short period,until 25 March 2022, to provide Ms Eckhout with a final opportunity to make payment.Costs[38] Ms Connolly seeks an order that Ms Eckhout pay Ms Connolly's costs incurredin attempting to enforce the judgment, and the costs of this application, on anindemnity basis.[39] Downs J ordered indemnity costs in favour of Ms Connolly when granting afinal charging order. In my view indemnity costs remain appropriate for theenforcement steps taken since then, including on this application. Ms Eckhout hasfailed to comply with the Court's judgment. She has also breached her fiduciary dutyas administrator by dissipating the estate's funds.Result[40] I issue an order for Ms Eckhout's arrest. The order is to lie in Court until 25March 2022. The order will be quashed if Ms Eckhout pays the judgment sum and allcosts orders (including the one made in this judgment) by 25 March 2022.[41] I order Ms Eckhout to pay the actual costs and disbursements reasonablyincurred by Ms Connolly, since the final charging order was obtained, in attemptingto enforce the judgment, including on this application.______________________Campbell J