A v R HC Christchurch CIV 2003 409 2621

[2006] NZHC 1631

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IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2003 409 2621

BETWEEN  A Appellant

ANDR Respondent

CIV 2004 409 2653

AND BETWEEN            R Appellant

ANDA Respondent

CIV 2006 409 964

AND BETWEEN            A Appellant

ANDR Respondent

Hearing:         25, 26, 27 and 28 September 2006

Appearances: D H Hicks and I M Mitchell for A M Vickerman for R

Judgment:      20 December 2006

JUDGMENT OF CHISHOLM J

A V R HC CHCH CIV 2003 409 2621  20 December 2006

A.       The  Judge’s  interpretation  of  the  effect  of  the  oral  agreement  was correct.

B.       He was entitled to decline to validate the agreement.

C.Great North Road and Manchester Street are the separate property of R.  However, the rental income in a sum yet to be fixed is relationship property and A is entitled to compensation of $20,000 under s17.

D.Apportionment of R’s bank account between relationship and separate property was appropriate.

E.       Section 13 does not apply.  Relationship property is to be shared equally. F.     Subject to C above, the Judge was entitled to disallow A’s claim for

sustenance under s17.

G.       The interest calculation in relation to Helmores Lane was appropriate. H.        The application for updating of valuations is adjourned.

I.The  appeals/cross  appeals  relating  to  A,  B,  D,  F  and  G  above  are dismissed.

J.        The appeals/cross appeals relating to C and E above are allowed.

K.      A telephone conference is to be convened in relation to the application for updating of valuations.

L.       There are no orders as to costs.

INDEX

Introduction Background Family Court Decisions Issues Effect Of The Agreement	[1] [6] [22] [28] [29]
Judge’s Reasoning	[31]
Argument For R In Support Of Appeal	[32]
Argument For A In Response	[38]
Discussion	[44]
Validation Judge’s Reasoning	[77]	[76]
Arguments	[78]
Discussion	[80]

Whether Great North Road/Manchester Street

Are Relationship Property Judge’s Reasoning	[86]	[84]
Argument For R In Support of His Appeal	[91]
Argument For A In Response	[96]
Discussion	[102]
Apportionment Of R’s Bank Account Judge’s Reasoning	[131]	[130]
Argument For A In Support Of Appeal	[138]
Argument For R In Response	[142]
Discussion	[146]
Section 13 And The 3:1 Split Judge’s Reasoning	[156]	[153]
Arguments For A In Support Of Appeal	[158]
Arguments For R In Response	[166]
Discussion	[171]
Sustenance Under Section 17	[187]
Interest Calculation In Relation To Helmores Lane Judge’s Reasoning	[192]	[191]
Arguments	[193]
Discussion	[195]
Updating Valuations	[197]
Outcome	[199]

REASONS

Introduction

[1]      These appeals and cross-appeals under the Property (Relationships) Act 1976 arise from three Family Court judgments which form part of a series of five judgments.    All  those  judgments  arose  from  a  13  and  a  half  year  relationship between A (the wife) and R (the husband) which began in 1983 and ended in 1997. They married in 1987.  There were no children of the relationship.  Substantial assets are involved and a number of important and difficult issues of law arise.

[2]      Judge Somerville found that shortly before entering the de facto relationship A and R agreed orally (the agreement) that they would each retain their own property as separate property.  The Judge concluded that the only effect of the agreement was to regulate the status and ownership of property acquired before or during the time that the parties lived in a de facto relationship.  It did not apply to property acquired

by them after their marriage.  Judge Somerville declined to validate the agreement in relation to post marriage assets.

[3]      After applying the agreement to assets owned by the parties at the time of their marriage (other than the family home), the Judge classified assets acquired during the course of the marriage and still held at the date of separation as either separate or relationship property in terms of the Property (Relationships) Act.  On the  Judge’s  findings  relationship  property  amounted  to  around  $5  million.    He decided that s13 of the Act applied and divided the relationship property between the parties in the ratio of three parts to the husband and one part to the wife with the result that the wife received assets of around $1.25 million.

[4]      R appeals against the determination that the agreement did not apply to assets acquired after marriage.   His position is that the agreement resolves all property issues.   In the alternative he appeals against the Judge’s refusal to validate the agreement and, if that fails, against the determination that two of his properties were relationship property.  He also appeals against the calculation of interest awarded to A in relation to the family home.

[5]      In her appeal and cross-appeals A seeks to adduce updated valuations (this matter  has  been  adjourned  pending  delivery  of  this  judgment)  and  she  also challenges the Judge’s determination that only part of R’s bank account was relationship  property,  his  decision  to  invoke  s13,  his  3:1  apportionment  of relationship property, and his refusal to award sustenance under s17.

Background

[6]      A and R met in late 1978, R having separated from his first wife in 1977 and A from her first husband a little later.   Although A lived with R in his home at Helmores Lane, Christchurch, for a period of around five months from August 1981, the Judge concluded that this did not amount to a de facto relationship in terms of the Act.  His finding that the de facto relationship did not commence until 30 September

1983 is not challenged.

[7]      When the de facto relationship began R was aged 44 years.   He was an extremely successful property developer with an extensive portfolio of residential properties.  In addition he owned the dwelling at Helmores Lane which became the principal residence of the couple.  R had three children aged 14, 12 and 8 years.

[8]      A was 33 years of age and in part-time employment (which she gave up in October 1985).  She had two children, aged 14 and 12 years.  At the commencement of the de facto relationship A sold her home at Idris Road, Christchurch, for $55,000 (which  produced  $43,000  net)  and  moved  into  R’s  home  at  Helmores  Lane. Although the Judge proceeded on the basis that A’s net worth at the beginning of the de facto relationship was $6,000, it was in fact more like $43,000.

[9]      R claimed that before the de facto relationship began he and A entered into a binding agreement defining the status of their individual assets.  This was disputed by A.  For reasons carefully explained by the Judge, he accepted R’s evidence and found that in mid August 1983 the parties entered into a legally binding and enforceable oral agreement in contemplation of entering into a de facto relationship. He also found that if A had not been willing to accept R’s terms their relationship would not have gone any further.

[10]     On the Judge’s findings in his first judgment, which are not challenged, the oral agreement between R and A was to the effect that:

“[37]    … each of them would retain their own property as separate property.   The consideration for her [A] agreeing to make no claim over the family home was his [R’s] promise to assist her to become wealthy in her own right.”

Because the agreement was not in writing and there was no independent legal advice, it did not satisfy the requirements of s21F of the Property (Relationships) Act and was accordingly not an agreement to which s21 applied.   If s21 had applied there would have been no question about the application of the agreement post marriage.

[11]     Nevertheless the Judge concluded that the agreement came within s21P and that in terms of s21R he had to construe the effect of the agreement “as if this Act had not been passed”.  On his analysis the only effect of the agreement was to define the status of properties owned at the time of marriage.  One of the key issues arising

in these appeals is whether the Judge  was right to restrict the operation of the agreement in this way.

[12]     It was accepted by the Judge that as soon as he committed himself to the de facto relationship, R set about increasing A’s net wealth.  A flat at Highgate Avenue, Christchurch, was transferred by R to A upon favourable terms and within a few months  she  sold  the  property at  a  significant  profit.    A  then  invested  the  sale proceeds in a property at Leinster Road, Christchurch, which R transferred to her, again on favourable terms.  A few years later A sold the Leinster Road property at a significant profit.  The Judge also found that from the commencement of the de facto relationship the parties ran their household on the basis that R paid the outgoings on the family home plus the accounts for utility services while A paid for the food and groceries.

[13]     The parties married on 10 January 1987 and separated on 1 June 1997.

[14]     Following marriage the parties  continued  to  use  Helmores  Lane  as  their principal family residence until A vacated when they separated.  Assuming for the moment that the Judge’s decision about the effect of the agreement is correct, this property was obviously relationship property under s8(1)(a), and the Judge so found. The only issues before this Court concerning Helmores  Lane are whether  there should be an updated valuation and whether the Judge’s approach to the question of interest was correct.

[15]     During the marriage a number of properties were acquired and developed. The following table summarises the properties that were still held at separation, the Judge’s findings about the status of those properties, and whether the finding is contested in this Court (assuming the Judge’s decision about the effect of the agreement is correct).  It also gives an indication of value.

IN R’S NAME	IN A’S NAME
•    310 Great North Road, Auckland: purchased	•    Two  fifths  share  in  15  Burrows  Avenue,

by R in  November 1993;    declared to  be relationship property;   that declaration is challenged on appeal; $1,575,0001

•    Manchester Street, Christchurch:  purchased by R in March 1994;      declared to be relationship property;   that declaration is challenged on appeal; $645,000.2

Auckland:    purchased  by  A  in  December

1989;  declared to be A’s separate property as to $179,000 with the substantial increase in  value being relationship property;    that declaration  is  not  challenged  on  appeal;

$850,000 (half share).

•    52 Tutanekai Street, Auckland:   purchased by A in 1991;   declared to be relationship property;  that declaration is not challenged on appeal; $260,000.3

By the time the parties separated all of these properties were unencumbered.  Some further comment is required about each property.

[16]     First, Great North Road and Manchester Street.   The Judge concluded that these properties were relationship property because relationship property (Helmores Lane)  had  been  used  as  security  to  finance  each  purchase.    He  reached  that conclusion reluctantly because he considered he was bound by Eaton v Eaton (1981)

1 NZFLR 27 (HC) and Hebberd v Hebberd [1992] NZFLR 625 (CA).  The Judge’s conclusion is challenged by R who maintains that both properties are his separate property.

[17]     Next,  Burrows  Avenue.    Notwithstanding  that  she  is  registered  as  the proprietor of a two fifths share in Burrows Avenue as tenant in common with the trustees of the Ace Investment Trust (which was settled by R), A maintained that she was actually entitled to a greater interest in the property.  Because the trustees of the trust  were  not  involved  in  the  Family  Court  proceeding  the  Judge  could  not determine the extent of A’s beneficial interest.  However, he did determine that when the  property was  purchased  A  contributed  $179,000  and  that  to  that  extent  the property was her separate property.  Following purchase a house on the property was demolished and units were constructed.  The Judge determined that the increase in value following purchase was relationship property.

[18]     A issued separate proceedings in this Court to determine the extent of her beneficial interest.  Fogarty J determined that A was entitled to a one half share of

1 A contends that there should be an updating valuation.

2   “

3   “

Burrows  Avenue  and  made  an  order  for  its  sale:    A  v  C  & Ors  (High  Court, Christchurch  Registry,  CIV  2004  409  002501,  22  May  2006).      Although  that decision is under appeal and the property has  not  been  sold,  both  parties  were content to proceed on the basis that A’s half share in Burrows Avenue is worth

$850,000.

[19]     Finally,  the  section  at  Tutanekai  Street.    Initially  the  Tutanekai  Street property included a house which was subdivided off and sold.  Although the Judge proceeded on the basis that the section is worth $260,000, A believes it is actually worth considerably less and seeks an updating valuation. As already mentioned, that issue has been deferred in the meantime.

[20]     The remaining asset requiring mention at this stage is R’s Westpac bank account.  The Judge explained in his first judgment:

“[183]   … this cheque account was used to process all of his personal expenditure, rental income, sales and acquisitions of  properties, loan  receipts and payments, and  the  Ace Investment Trust’s receipts and payments.  At any one time, therefore, the funds in his bank account, from time to time of considerable significance, had their origins in a variety of sources.”

When the parties separated this account stood at $851,416.41.  A claimed that the whole of this sum constituted relationship property.   R maintained that it was his separate property.

[21]     Having determined that rentals from Great North Road and Manchester Street (which he had already found to be relationship property) had been paid into the bank account, the Judge decided that net rentals amounting to $312,950 could be isolated and he declared that to that extent the bank account was relationship property.  The remainder of the account was declared to be R’s separate property.   Those conclusions are challenged by A who maintains that the whole of the account should have been declared to be relationship property.

Family Court Decisions

[22]     A total of five judgments were delivered by Judge Somerville.  An indication of the vigour with which the matter was contested in the Family Court can be gained from the fact that hearings in that Court occupied nine days and the judgments cover more than 100 pages.  As already mentioned, these appeals/cross appeals arise from the first, third and fourth judgments.  Unless otherwise indicated references in this decision to Judge Somerville’s reasoning or judgments are references to his first judgment.

[23]     The first judgment was delivered on 23 October 2003 following a five day hearing in May 2003.  In that judgment Judge Somerville determined the duration of the relationship, found that the agreement had been entered into, construed its effect (that  it  only  applied  to  the  de  facto  relationship),  declined  to  validate  it  post marriage, determined that Helmores Lane was relationship property, and determined the status of the various assets acquired during the course of the marriage that were still owned at separation.

[24]     After an unsuccessful application by A for an interim distribution (the second judgment) there were further hearings extending over four days which culminated in the third judgment delivered on 7 October 2005.   In that judgment:   the sum of

$312,950 in R’s bank account was held to be relationship property;  post separation rentals from Great North Road and Manchester Street amounting to $614,993 were also held to be relationship property;   the Judge determined that there were extraordinary circumstances that made equal sharing repugnant to justice in terms of s13;  and he ruled that there should be a 3:1 division of relationship property.

[25]     In his third judgment the Judge also gave directions as to the assets to be retained by each party.  The following table gives an indication of the assets retained by each party (on the assumption that all the findings in the Family Court stand).

ASSET	HUSBAND	WIFE
Helmores Lane	$735,0004
Vehicles	$27,488	$8,500
Bank accounts	$312,950	$38,296
Great North Road	$1,575,000
Manchester Street	$645,000
Rent since separation	$614,993	$247,5615
Burrows Avenue	$671,000
Tutanekai Street	$260,000
TOTAL	$3,910,431	$1,225,457

Although a final balancing between the parties to achieve the 3:1 split was required, no final orders to implement that split had been made by the time the appeals/cross appeals were argued in this Court.

[26]     The fourth judgment delivered on 31 March 2006 determined that A should receive interest at 3% from 1 June 1997 (date of separation) based on the valuation of Helmores Lane as at June 2003 ($510,000).   Interest on A’s share of the relationship assets retained by R was to be paid at 8% p.a from 23 June 2005 (reflecting that the values of most of those assets had been fixed at that time).  A was to pay R interest at 8% p.a. on his share of Burrows Avenue and Tutanekai Street from 1 June 1997.  The Judge declined to order costs either way.

[27]     In the fifth judgment delivered on 28 August 2006 Judge Somerville fixed the rental received by A from Burrows Avenue between the date of separation and 31

March 2006 at $233,945 being $247,561 less a 5.5% management fee.  He declared

that those rentals constitute separate property and relationship property in the same

4 This is the most recent valuation referred to in the fifth judgment (see [27] below).

5 This is Mr Vickerman’s figure. I have not attempted to verify it.

proportions as the capital value.  The value of Helmores Lane was fixed at $735,000, being its value at March 2006.

Issues

[28]     As will be apparent already, the issues to be determined by this appeal are:

(i)       Was  the  Judge’s  determination  as  to  the  effect  of  the  agreement correct?  If so,

(ii)      Should he have validated the agreement under s21H?  If not,

(iii)Were the properties at Great North Road and Manchester Street and the rents derived from those properties properly categorised as relationship property?

(iv)Was it open to the Judge to apportion R’s bank account and determine that part of the account was relationship property, or was the whole of the account relationship property?

(v)Was the Judge entitled to apply s13 and, if so, did the 3:1 split arrived at by the Judge accurately reflect the application of that section?

(vi)Was the Judge right to disallow the wife’s claim for sustenance under s17?

(vii)     Was the interest calculation in relation to Helmores Lane appropriate? (viii)  Should there be updated valuations?

Strictly speaking determination of the first or second issue in favour of R should resolve the appeal.  But even if that is the outcome I will still consider the remaining issues in case I am wrong on either of the first two issues.  I will also adopt a similar approach in relation to later issues where the determination of one issue is capable of resolving another issue.

Effect Of The Agreement

[29]     Having decided that the agreement entered into in mid August 1983 was legally binding and that it had been made in contemplation of the de facto relationship, Judge Somerville concluded that s21P applied:

“21P     Agreements made before 1 August 2001 between de facto partners

(1)    This section applies to any agreement—

(a)    that is made, before 1 August 2001, by de facto partners, or by any 2 persons in contemplation of entering into a de facto relationship; and

(b)  that is made with respect to the status, ownership, or division of their property. (2)      An agreement to which subsection (1) applies—

(a)    may relate to existing or future property, or both:

(b)    may relate to the status, ownership, or division of property in either or both of the following circumstances:

(i)    during the joint lives of the de facto partners: (ii)              when 1 of them dies.

(3)    Subsection (2) does not limit the generality of subsection (1).”

1 August 2001 is the date on which the contracting out provisions introduced by the Property (Relationships) Amendment Act 2001 came into force.   There is no challenge to the Judge’s conclusion that s21P applied.

[30]     Given that s21P applied to the agreement and the Judge’s finding that it was valid and enforceable, its effect is governed by s21R:

“21R     Agreements to have effect as if Act not passed

(1)    The following agreements, to the extent that the agreements were valid and would have been enforceable before 1 August 2001, have effect as if this Act had not been passed:

(a)    an agreement to which section 21P applies:

(b)    an agreement to which section 21Q applies, or to the extent that section 21Q

applies.

(2)    This section is subject to section 47.” (Underlining added)

Section 21Q relates to agreements between spouses for the division of property on death and s47 relates to agreements to defeat creditors.  Neither are relevant.  It is the underlined words that require interpretation.

Judge’s Reasoning

[31]     An  insight  into  the Judge’s  reasoning can  be  gained  from  the following paragraphs of his judgment:

“[83]     Section 21R provides that s 21P agreements “to the extent that the agreements were valid and would have been enforceable before 1 August 2001, have effect as if this Act had not been passed”.

[84]     Because of the unusual way in  which this Act was amended in 2001, the Act referred to in s 21R is the Property (Relationships) Act 1976. It is therefore submitted on R’s behalf that I must determine what effect the August 1983 agreement would have had if the Matrimonial Property Act 1976 had not been passed.   I would therefore be required to consider the effect of that agreement in a marriage governed by the Matrimonial Property Act 1963.  That cannot have been Parliament’s intention when passing s 21R, but that is the effect of what it has said.

[85]     It is far more likely that Parliament intended that s 21P agreements would be enforceable to the extent that they were prior to 1 August 2001, as if the amendments made at that time had not been incorporated in the Act.  In my view, the Act referred to in s 21R was intended to be the Property (Relationships) Amendment Act 2001, the error having been caused by the unfortunate way in which these major changes have been incorporated into the principal Act.

[86]     That distinction is properly addressed in s 98, but it is clear from s 21T(3) that Parliament became confused in Part 6 of the Act and referred, by mistake, to the principal Act when it meant to refer to the Property (Relationships) Amendment Act 2001.   I will therefore read s 21R accordingly.

[87]     Counsel are agreed that, for the agreement to be enforceable prior to 1 August

2001, there was no need for any special form.  Nor was it necessary for the agreement to be in writing except in the case of agreements involving interests in land.  As there has been part performance, in this case by R transferring two properties to A in consideration of her entering into the agreement, no difficulty is presented by a  failure to  comply with the Contracts Enforcement Act 1956.

[88]     Had the parties remained in a de facto relationship, therefore, the agreement would have been enforceable prior to 1 August 2001.  The real issue relates to what effect their marriage had on the enforceability of that agreement.  That matter is to be determined as though this issue had come on for hearing prior to 1 August 2001.

[89]     Under  the  previous  legislation,  their  property  was  to  be  divided  under  the Matrimonial Property Act 1976 unless R could establish that there had been a contracting out agreement that the Court was prepared to enforce under s 21.  Such an agreement must have been made either by husband and wife or by “any two persons in contemplation of their marriage to each other”.  The agreement entered into in August 1983 did not qualify under either head.  Nor is there any evidence of any subsequent oral agreement to contract out of the provisions of the Matrimonial Property Act 1976.  A Court hearing this claim prior to 1

August 2001 would have been obliged, therefore, to apply the provisions of the Matrimonial Property Act 1976.  The only relevance of the earlier agreement would have been to regulate the status and ownership of their property during the time that they lived in their de facto relationship.

[90]     I therefore find that, under s 21R, the effect of the August 1983 agreement has been to ensure that, at the date the parties married, all of R’s property that he owned at the time, including the Helmores Lane house, was his separate property and all of A’s property was her separate property.”

R considers that the Judge was wrong in law and has appealed accordingly.

Argument For R In Support Of Appeal

[32]   R claims that s21R means the agreement has effect as if the Property (Relationships) Act 1976, including the 2001 amendments, had not been passed.  His argument is that the agreement applies to both the de facto relationship and the subsequent marriage with the result that all property should be divided according to title.

[33]     Mr Vickerman examined the history of the legislation to demonstrate that the Property (Relationships) Act 1976 exempts agreements made before its enactment in the  same  way  as  the  Matrimonial  Property  Act  1976  (and  before  that  the Matrimonial Property Act 1963) had exempted valid and binding agreements reflecting the common intention of the parties.  He submitted that the words used in s21R “as if this Act had not been passed” mean what they say and that this interpretation is reinforced by other sections (ss19, 20A, 58, 96(4) and 98) in which these words are also used.

[34]     Reference was also made to s2B which requires a de facto relationship to be treated as if it were part of the marriage.  Mr Vickerman contended that Parliament could not have intended a different approach to be applied in different sections.  He also noted that s4 declares the Act to be a code and that further support for his

interpretation can be found in s23 of the Interpretation Act 1999 which declares that an amending enactment is part of the enactment that it amends.

[35]     Counsel noted that in N v N [1999] NZFLR 481 (HC) and MJW v RDW [2005] NZFLR 918 (FC) it was decided that agreements relating to de facto relationships survived marriage.   He also referred to Fisher on Matrimonial and Relationship Property at 5.52 which expresses the view that ss21O, P and R combine to  clarify  that  de  facto  property  agreements  survive  the  transition  into  a  later marriage without the need for another agreement being written up and certified in accordance  with  the  s21F  requirements.     Mr  Vickerman  submitted  that  this conclusion is consistent with conventional interpretation principles and also with the sequence of the sections appearing in Part 6 of the Property (Relationships) Act 1976 under the heading “Contracting Out”.  Particular reliance was placed on ss21S and T.    It  was  argued  that  the  Judge’s  conclusion  in  [86]  of  his  judgment  that “Parliament became confused” is without foundation.

[36]   Mr Vickerman then analysed the changes brought about by the 2001 amendment:  de facto relationships embraced within the regime;  ability of parties to contract out of its provisions and sanctity of such agreements emphasised;  and the threshold for setting aside agreements under s21 lifted.  He noted that in Harrison v Harrison (CA117/04, 10 December 2004) the Court of Appeal had drawn a distinction between contracting out agreements and compromise agreements, the purpose of contracting out agreements being to make provision that differed from the statutory regime.   Under those circumstances, Mr Vickerman submitted, an interpretation of s21R that allows an otherwise binding agreement to be invalidated upon marriage is inconsistent with the underlying statutory intention, and the Judge erred when he allowed himself to be influenced by what he saw as the effect of the marriage on the matrimonial property rights of the wife.

[37]     Given that R had implemented the agreement post marriage by providing his wife with the benefit of the properties at Tutanekai Street, Great North Road and Burrows Avenue, Mr Vickerman claimed that the proposition that the agreement did not apply to the marriage “confronted those facts”.  He emphasised that both parties had proceeded throughout on the basis that the agreement survived the marriage.

Argument For A In Response

[38]     A’s position is that the Judge’s approach was correct and that s21R means the agreement is to have effect as if the 2001 Amendment Act had not been passed. Thus the agreement only governed the rights of the parties during the period of their de facto relationship and established the classification of assets as at the time of marriage.   From the time of their marriage the Act, as amended in 2001, is to be applied.

[39]   Mr Hicks emphasised the Judge’s finding that the agreement was in contemplation of a de facto relationship, not in contemplation of marriage or with reference to a marriage after the de facto relationship had come to an end.  He said that the possibility of marriage was never considered by the parties, nor was there any evidence that A intended to waive her statutory rights when she entered into the agreement.  In Mr Hicks’ submission the Judge correctly drew a distinction between rights arising from a de facto relationship (constructive trust) and rights arising from marriage (statutory).

[40]     It was also argued for A that the agreement could only have effect according to its terms which did not contemplate that the agreement would apply to a marriage between the parties.   It followed, submitted Mr Hicks, that the agreement had no effect on the statutory provisions governing classification or division of relationship property, except to the extent that it determined the status of property as at the time of the marriage.

[41]     In addition to the reasons given by the Judge, which Mr Hicks supported, two further points were made:

[42]     First, the cases relied on by the husband to support his interpretation are distinguishable.  In the case of MJW v RDW the agreement contained a very wide “full and final settlement” clause which is not replicated by the agreement under consideration.  And in the case of N v N Mr Vickerman had misconstrued the ratio. On Mr Hicks’ analysis Judge Somerville’s conclusion is entirely consistent with N v N.

[43]   Second, the Property (Relationships) Amendment Act 2001 defines the amending  Act  as  “this  Act”  and  the  Matrimonial  Property  Act  1976  as  “the principal Act”.  Thus “this Act” in s21R refers to the 2001 Amendment Act, not the principal Act, and s 23 of the Interpretation Act reinforces this view. To the extent that the Family Court Judge thought that Parliament had made an error he was mistaken. Given the definitions in the 2001 Amendment Act, s21R means precisely what it says.

Discussion

[44]     As   the   Judge   observed,   the   legislative   approach   of   grafting   major amendments on to existing legislation is unusual.  If completely new legislation had been enacted the difficulties now confronting the Court in this litigation might have been avoided.

[45]     Although counsel on both sides proceeded on the basis that it is imperative to determine whether the words “this Act” in s21R mean the 2001 Amendment Act or whether they mean the 1976 Act as a whole, I do not think that this is in fact a key issue.    If  the  2001  Amendment  Act  is  to  be  disregarded  we  go  back  to  the Matrimonial Property Act 1976.  Agreements relating to de facto relationships were not  covered  by  that  Act.    Alternatively,  if  the  1976  Act  as  a  whole  is  to  be disregarded we go back to the Matrimonial Property Act 1963.  The situation was exactly the same.  Agreements relating to de facto relationships were not covered by that Act either.  Therefore, on both interpretations, agreements relating to de facto relationships were only governed by the general law.

[46]     As I see it the issue is somewhat broader, namely, what do the words “… have effect as if this Act had not been passed …” mean.   I will address that issue with reference to the following matters:

Philosophy underlying the contracting out provisions.

Section 21R in context.

Other sections in which the words “as if this Act had not been passed”

are used.

The 2001 Amendment Act.

Section 2B.

Relevant case law.

Consideration of those topics should pave the way for the purpose and meaning of s21R to be determined.

[47]     When the Matrimonial Property Act 1976 came into force on 1 February

1977 it introduced for the first time a code covering property transactions between husband and wife and all questions relating to their matrimonial property.  The Act did not extend to de facto relationships.  Except for some situations which are of no immediate significance, s21 governed the ability of spouses (or those contemplating marriage) to contract out of the Act.  Agreements had to be in writing, each party had to receive independent legal advice before signing, and the witnessing solicitors had to certify that the effect and implications of the agreement had been explained.

[48]     These   provisions   applied   for   almost   25   years   until   the   Property (Relationships) Amendment Act 2001 came into force (contracting out provisions in Part 6 on 1 August 2001, and the remainder of the Act six  months later on 1

February 2002).  As a result of this amending Act the statutory code was extended to include de facto relationships which in most respects were put on the same footing as marriages (civil unions were not included until 2005).  Although there were slight modifications to the contracting out provisions, the underlying philosophy requiring written agreements, independent legal advice, and certification, remained:  see ss21,

21A, 21F.

[49]     Mr Vickerman submitted:

“… the words “… as if this Act had not been passed” have the obvious meaning of requiring the Court to ignore the 1976 Act and its subsequent amendment altogether and instead consider the validity of the agreement free of the additional requirements of s21…”.

It is not easy to reconcile Mr Vickerman’s proposition with the statutory philosophy that has existed since 1977 and still remains.  The statutory philosophy only allows married couples and those contemplating marriage (and since the 2001 Amendment, de facto partners and those contemplating a de facto relationship) to contract out of the statutory regime in writing after receiving independent legal advice.  This is, of course, to ensure that anyone contemplating contracting out is fully informed about the implications of that step.

[50]     There does not appear to be any logical reason why Parliament would have relaxed its longstanding contracting out philosophy by allowing the requirements of s21F to be ignored in cases where a marriage had been preceded by a de facto relationship.  All Parliament was seeking to do was to preserve the status quo for pre

1 August 2001 agreements between de facto partners.   To achieve that it simply needed  to  ensure  that  such  agreements  continued to  have effect  as  if  the  2001

Amendment Act had not been passed.  There was no need to wind the clock back to the situation before the 1976 Act came into force.

[51]     My conclusion is that Mr Vickerman’s argument cannot be reconciled with a fundamental component of the underlying contracting out philosophy.

[52] Before leaving this topic I should address Mr Vickerman’s argument at [33] above to the effect that the 2001 Amendment Act exempts agreements entered into before the amendment came into force in exactly the same way as the earlier legislation had exempted prior agreements. My view is that rather than simply preserving the status quo in relation to agreements entered into before 1 August 2001 by de facto couples, Mr Vickerman’s argument would mean that de facto couples who subsequently married were in a special category where they did not have to meet the s21F contracting requirements that applied to all other married couples.  I do not accept that this was Parliament’s intention.  It was only intending to preserve the status quo for de facto couples.

[53]     Now I consider s21R in context.  It forms part of the Part 6 contracting out provisions comprising s21 – s21T.  These sections cover the following topics:  when persons can contract out;  subject matter of agreement;  model forms of agreement;

procedural requirements;   agreements by minors;   Court may set agreement aside; miscellaneous provisions;  agreements made before 1 August 2001;  and agreements made between 1 August 2001 and 31 January 2002 where marriage or de facto relationship ends before 1 February 2002.

[54]     Section 21O provides that relationship property is subject to the provisions of the Act if neither of the following kinds of agreement apply to the property:  first, an agreement  under  s21  or  s21A  or  s21B  (which  relate  to  spouses  or  partners contracting out of the Act or settling differences and to a surviving spouse or partner and  the  personal  representative  of  a  deceased  spouse  or  partner  agreeing  on  a division of property);  second, an agreement to which s21P or s21Q applies, or to the extent that s21Q applies.

[55]     The group of sections that then follow provide the immediate context for construing s21R:

“Agreements made before 1 August 2001

21P Agreements made before 1 August 2001 between de facto partners

(1)        This section applies to any agreement—

(a)     that is made, before 1 August 2001, by de facto partners, or by any 2 persons in contemplation of entering into a de facto relationship; and

(b)     that  is  made  with  respect to  the  status,  ownership, or  division  of  their property.

(2)        An agreement to which subsection (1) applies—

(a)       may relate to existing or future property, or both:

(b)       may relate to the status, ownership, or division of property in either or both of the following circumstances:

(i)         during the joint lives of the de facto partners: (ii)         when 1 of them dies.

(3)        Subsection (2) does not limit the generality of subsection (1).

21Q Agreements made before 1 August 2001 between spouses relating to division of property on death

This section applies to any agreement—

(a)        that is made, before 1 August 2001, by a husband and wife, or by any 2 persons in contemplation of marriage; and

(b)        that is made with respect to, or to the extent that it is made with respect to, the status, ownership, or division of their property when 1 of them dies.

21R Agreements to have effect as if Act not passed

(1)        The following agreements, to the extent that the agreements were valid and would

have been enforceable before 1 August 2001, have effect as if this Act had not been passed:

(a)        an agreement to which section  21P applies:

(c)       an agreement to which section  21Q applies, or to the extent that section

21Q applies.

(2)        This section is subject to section  47.

21S Agreements made under previous section  21 before 1 August 2001

Any  agreement made  before  1  August  2001  under  section  21  (as  that  section  existed immediately before that date) is to be treated as if it had been made under section 21 or

section  21A (as those sections existed after that date), whichever section is applicable, and this Part applies accordingly.

21T Agreements made under this Part before 1 February 2002, where marriage or de facto relationship ends before that date

(1)        This section applies to any agreement made under section  21 if—

(a)        the agreement is made, on or after 1 August 2001 and before 1 February

2002, by 2 de facto partners, or by any 2 persons in contemplation of entering into a de facto relationship; and

(b)       the agreement is made with respect to the status, ownership, or division of their property—

(i) during the joint lives of the de facto partners: (ii) when 1 of them dies; and

(c)       the de facto relationship ends before 1 February 2002.

(2)        This section also applies to any agreement made under section  21 if—

(a)         the agreement is made, on or after 1 August 2001 and before 1 February

2002, by a husband and wife, or by any 2 persons in contemplation of marriage; and

(b)       the agreement is made with respect to, or to the extent that it is made with respect to, the status, ownership, or division of their property when 1 of them dies; and

(c)        1 of the spouses dies before 1 February 2002.

(3)        The following agreements, to the extent that the agreements were valid and would have been enforceable before 1 August 2001, have effect as if this Act had not been passed:

(a)        an agreement to which subsection  (1) applies:

(b)       an  agreement  to  which  subsection  (2)  applies,  or  to  the  extent  that subsection  (2) applies.

(4)        This section is subject to section  47.”

It seems to me that the rationale behind these sections is reasonably straightforward, as I will now endeavour to explain.

[56]     Until 1 August 2001 de facto relationships had not been governed by statute and de facto partners had been free to enter into their own property agreements. However, the 2001 amendment put an end to that freedom and from 1 August 2001 de facto partners had to meet the same contracting out requirements as married couples, in particular the procedural requirements of s21F.   Obviously Parliament was not prepared to leave agreements made by de facto partners before 1 August

2001 out in the cold.  Hence the introduction of s21P (and s21R).  A plain reading of

s21P indicates that it is confined to de facto relationships.  This is reinforced by the existence of ss21Q and 21S (see [57] and [58] below).

[57]     Section  21Q  covers  the  situation  where  spouses  enter  into  an  agreement before 1 August 2001 relating to the division of property on death.  The logic behind this section is the same as for s21P.   Before 1 August 2001 agreements between spouses relating to the division of property on death were not covered by the Matrimonial Property Act 1976 and spouses  were free to enter into agreements without having to meet the s21 requirements.  From 1 August 2001 such agreements are expressly governed by the contracting out provisions: see s21(2)(b).  Hence the need for s21Q (and s21R).

[58]     Section 21S ensures that agreements entered into by married couples (or those in contemplation of marriage) before 1 August 2001 which met the requirements of s21 of the Matrimonial Property Act 1976 will still be effective even if they do not meet the slightly modified contracting out requirements introduced by the 2001 Amendment Act.  It also ensures that the new test (s21J) for setting aside agreements is applied.   Given that there are specific saving provisions relating to marriages in s21Q and s21S it is inconceivable that Parliament intended s21P (when read in conjunction with s21R) to duplicate those provisions.

[59]     Apart from those saving provisions, Parliament also made specific provision in s21T for agreements entered into between 1 August 2001 and 1 February 2002 where the de facto  relationship  ends  or  a  spouse  dies  before 1  February 2002. Subsection (1) is effectively an extension of s21P and subs (2) is effectively an extension of s21Q.  Given that subs (1) only applies if the de facto relationship ends, Parliament must have intended to restrict that subsection to de facto relationships. This is significant because subs (3) of s21T uses exactly the same words as s21R (“have effect as if this Act had not been passed”).  In other words, if the purpose in s21T(3) was to restrict the agreement to de facto relationships it is very unlikely that there was a different purpose behind the same phrase in a closely related section (s21R).

[60]     Mr Vickerman identified other sections (ss19, 20A, 58, 96 and 98) where the same phrase (“have effect as if this Act had not been passed”) refers to the 1976 Act as a whole.  I make two observations.  First, this only reflects that the legislature has not been consistent in its use of the expression “this Act”.   For example, s97(1) refers to “… this Act as amended by the Property (Relationships) Amendment Act

2001” which can be compared with s97(5) which refers to “… this Act, as if this Act had not been amended by the Property (Relationships) Amendment Act 2001”. Indeed,  the  Act  is  riddled  with  inconsistencies.    Second,  for  reasons  already explained in [45] above, I do not think that it matters whether “this Act” refers to the

2001 Amendment Act or the 1976 Act as a whole.

[61]     Similarly I do not think there is anything in Mr Hicks’ argument (see [43] above) based on s1 of the Property (Relationships) Amendment Act 2001.  Section 1 of that Act provides:

“1.       Title

(1)       This Act is the Property (Relationships) Amendment Act 2001.

(2)       In this Act, the Act that was previously called the Matrimonial Property Act 1976 is called “the principal Act”.

While the expression “this Act” and “the principal Act” have been applied to the operative provisions of the 2001 Amendment Act, it is clear that there has been no attempt to apply them to the new sections that were inserted into the 1976 Act.  For example, the 2001 Amendment Act inserted a new Part 1 which is headed “Outline of this Act”.   Obviously “this Act” refers to the 1976 Act as a whole.   There are scores of other examples.  And I repeat that I do not think it matters whether “this Act” refers to the 2001 Amendment Act or the 1976 Act as a whole.

[62]     Mr Vickerman argued that the Judge’s interpretation of s21R is incompatible with s2B which provides:

“2B Marriage includes immediately preceding de facto relationship

For  the  purposes of  this  Act,  if  a  marriage  was  immediately preceded  by  a  de  facto relationship between the husband … and the wife …, the de facto relationship must be treated as if were part of the marriage.”

I do not agree.  Section 2B only applies after the 2001 Amendment Act came into force and within a context where de facto relationships and marriages are on a similar footing.   On the other hand, s21R applies to agreements before the 2001

Amendment Act came into force when de facto relationships were on an entirely different footing from marriages.  In particular the rights being given away by those contracting out prior to the amendment were different (in the case of a de facto relationship rights flowing from a constructive trust, and in the case of a marriage extensive statutory rights based on equal sharing).   I believe the two sections are perfectly compatible.

[63]     Finally, I come to the authorities.   N v N and MJW v RDW were cited by counsel.  There is also another Family Court decision, K v F [2005] NZFLR 852.

[64]     Although the decision of this Court in N v N was delivered in 1999 well before the 2001 amendment was enacted, the decision is nevertheless relevant to the present discussion.   It arose from a property agreement entered into in 1990 by a couple living in a de facto relationship.  Although the relationship temporarily ended in 1994 the parties reconciled and they married in 1995.  However, the marriage was short-lived and the parties separated nine months later.  Issues arose about the effect of  the  agreement  which  recorded  a  sharing  arrangement  under  which  assets, primarily a house property, were held by the parties as tenants in common in equal shares.

[65]     Given that this was a marriage of short duration s13 of the Matrimonial Property Act 1976 applied.   The appellant argued that there should not be equal sharing because in terms of s13(1)(c) his contribution to the marriage partnership (primarily to the home) had clearly been disproportionately greater than that of his wife.  The Family Court Judge found that s13(1)(c) did not apply because in terms of the agreement the parties had brought equal property to the marriage, and there was nothing to indicate a disproportionately greater contribution by either of them after marriage.  As will be seen later the fact that there were two steps (before marriage and after marriage) in the Judge’s reasoning process is important.

[66]     On appeal one of the issues before Potter J was whether the Family Court Judge’s conclusion in relation to s13(1)(c) was right.  It was argued by the appellant that when determining contributions to the home the Family Court should have gone behind the agreement.   Having concluded that the Court can look at pre-marriage contributions to an asset, Potter J  agreed with the Family Court Judge that the agreement determined the contributions of the parties to the property at the time of marriage.  She also concluded that there was no reason to disturb the Judge’s finding that after marriage there had been no significant difference in the contributions.

[67]     I agree with Mr Hicks that the ratio of Potter J’s decision is consistent with the conclusion reached by Judge Somerville.  As I have said, Potter J was examining the effect of the agreement on the parties’ contributions to the house property as at the date they married.  Her conclusion that the agreement governed contributions at that  time  is  entirely  consistent  with  Judge  Somerville’s  conclusion  that  the agreement in this case governed the classification of properties (other than the family home) as at the date of marriage.   Moreover, both Potter J and Judge Somerville proceeded on the basis that notwithstanding the subsequent marriage the Court was entitled to recognise the agreement for that limited purpose.

[68]     Potter  J  made  a  number  of  remarks  that  have  been  interpreted  by  Mr Vickerman (and, it seems, by the Family Court Judges in the other two cases yet to be discussed) as supporting the proposition that an agreement entered into by de facto partners precludes the operation of the Act during the course of a subsequent marriage even though the s21F requirements have not been met.   The following passages attracted particular attention:

“I am of the view that in the present case, the Agreement did affect the nature and quality of assets  for  the  purposes of  the  matrimonial property  regime.  It  is  not  the  case,  as  in Illingworth  with  the  application of  the  Joint  Family  Homes  Act  to  the  home,  that  the Agreement merely affected the character of the asset for certain purposes and in certain situations. Whereas, in Illingworth, the Court considered that the status conferred on the property as a joint family should not deny an inquiry into contributions of the parties, in this case justice requires recognition of the parties' intentions as expressed in the Agreement. The Agreement gave effect to the parties' clear intention that all their property be shared equally. The Agreement, in my view, does affect the contributions of the parties to the matrimonial property.

Any decision which failed to recognise the Agreement in these terms, would have undesirable outcomes. A party might be discouraged from marrying if he or she was aware that by marrying, such an agreement would cease to  determine the parties' rights to  property.

Alternatively, a party wishing to resile from such an agreement might deliberately enter into a marriage for a short duration, so that interests would fall to be determined by the Court on the basis of actual contributions to assets rather than under the agreement. Outcomes such as these would be contrary to public policy. When parties to a de facto relationship enter into a valid and binding contract as to the sharing of property, that agreement should determine the interests of the parties in that property if it is subsequently brought into a marriage partnership.

I conclude that the parties made equal contributions to the property which became matrimonial property when the parties married. The Family Court Judge found that after their marriage there was nothing to indicate that either party contributed in substantially greater measure than the other and this is a finding of fact which is not to be disturbed. Accordingly,  it  cannot  be  said  that  the  contribution  of  one  spouse  to  the  marriage partnership has clearly been disproportionately greater than that of the other spouse, and the Judge was correct in his conclusion that s 13(1)(c) of the Act does not apply, and that the matrimonial property should be divided equally.

Conclusion

This Court will only exceptionally interfere with findings of fact by the lower Court.  None of the additional evidence admitted on appeal has led me to findings of fact which would alter the factual situation as found by the Family Court Judge.   Nor do I consider the Family Court Judge was wrong in law.  The 1990 Agreement is valid and binding and represents a fair bargain between the parties. The appellant may not resile from it.”

Once these passages are interpreted in the context of the issues actually before Potter J it becomes clear that the Judge was not suggesting that the agreement ousted the Act in relation to assets acquired post marriage.  If Her Honour had advanced such a proposition I would have disagreed with her.

[69]     The next decision is MJW v RDW which involved an agreement between de facto partners that was entered into in 1995.  The agreement recorded that a house property was to be the separate property of one party and that the other party would have no interest in it.  The parties subsequently married and later separated.  A one half share in the house property was sought by the applicant on the basis that the agreement was no longer binding on her because of the marriage.   Her claim was opposed on the basis that the agreement was still binding notwithstanding their marriage.

[70]     When the matter came before the Family Court the applicant relied on Judge Somerville’s  decision.     However,  the  Family  Court  Judge,  Judge  L  J  Ryan, considered that Judge Somerville’s decision “flies in the face” of N v N and was also contrary to the views of the authors in Fisher on Matrimonial and Relationship Property.  He approached the matter on the basis that the correct interpretation of

sections 21O, 21P and 21R was to make it clear that a valid and enforceable contract entered into by de facto partners in relation to the status or ownership of a property would continue to be valid and enforceable notwithstanding their later marriage. Judge Ryan went on to say that provided a s21P agreement is contractually valid any property which is the subject of the agreement cannot later be the subject of either a declaration or orders under the Act because it cannot be relationship property or separate property.   Instead it is property whose status is dealt with under the agreement and is thereby completely outside the umbrella of the Act.

[71]     It  seems  to  me  that  Judge  Ryan  has  misconstrued  N  v  N  and  has  also overstated the effect of agreements falling within ss21P and 21R.  I agree with him that in the limited sense discussed earlier such agreements remain valid and enforceable notwithstanding the later marriage of the parties.  But if the Judge was saying that such agreements automatically oust the operation of the Act in relation to the status, ownership or division of assets acquired post marriage, I cannot agree with him.  While an agreement might govern the status of assets as at the date of marriage, it cannot (unless it meets the requirements of ss21 and 21F or it has been validated under s21H) govern the status of assets acquired post marriage or preclude the family home and chattels becoming relationship property under s8(1)(a) and (b).

[72]     The final decision is K v F which also involved a situation where parties entered into an agreement while they were living in a de facto relationship.  They subsequently married and ultimately separated.  Judge Druce considered that N v N was authority for the proposition that:

“[34]… where parties to a de facto relationship enter into a valid and binding contract as to the sharing of property, that agreement can and should determine the parties’ interest in that property irrespective of subsequent marriage.    On the face of it, this principle would now appear to be enacted in s 21R (although limited to pre 1 August 2001 agreements).

Having noted that N v N was followed in MJW v RDW but that it did not appear to have  been  cited  to  Judge  Somerville,  Judge  Druce  said  that  he  preferred  the reasoning in MJW v RDW and followed it.   Again I believe the Family Court has misconstrued N v N and has overstated the effect of a pre 1 August 2001 agreement in a situation where there has been a subsequent marriage.

[73]     Final conclusions can now be reached.  The underlying purpose of ss21P and

21R is to preserve the status quo in relation to agreements entered into by de facto partners before 1 August 2001.   Thus even if the parties to such an agreement subsequently marry the agreement can determine the status, ownership or division of their assets as at the date of marriage provided, of course, the agreement was valid and enforceable before 1 August 2001.  But, assuming the agreement is not validated under s21H, it cannot determine the status, ownership or division of assets acquired after marriage (or assets acquired before marriage which are nevertheless governed by the Act e.g. family home and chattels) unless it meets the requirements of ss21 and 21F.

[74]     I agree with Judge Somerville’s interpretation.  To the extent that Fisher on Matrimonial   and   Relationship   Property   at   5.52   seems   to   adopt   a   wider interpretation, I do not think that it accurately states the law.

[75]     This appeal has not been made out.

Validation

[76]     The power to validate an agreement is contained in s21H which provides:

“21H    Court may give effect to agreement in certain circumstances

(1)      Even though an agreement is void for non-compliance with a requirement of section

21F, the Court may declare that the agreement has effect, wholly or in part or for any particular purpose, if it is satisfied that the non-compliance has not materially prejudiced the interests of any party to the agreement.

(2)     The Court may make a declaration under this section in the course of any proceedings under this Act, or on application made for the purpose.”

R contends that if the proper interpretation of s21R is that the agreement did not apply after the marriage (as I have found) it should have been validated under this section.

Judge’s Reasoning

[77]     Having  found  that  the  agreement  did  not  survive  the  marriage,  Judge

Somerville went on to consider whether it should be validated:

“[93] … I am not prepared, however, to entertain such an application in this case as the agreement between these parties was entered into without legal advice at a time when they were simply contemplating a de facto relationship. It would be unthinkable to expect that an agreement entered  into  under  those  circumstances could  later  be  held  to  regulate  the division of property following a subsequent marriage.

[94]     The rights being given away by A when entering into the de facto relationship were quite different from those she would have had if they had been contemplating marriage and there is no evidence that she intended to waive those latter rights.  Accordingly, I am not willing to find that the 1983 agreement constitutes an agreement under s 21 of the Act.  Its only effect is to define the status of the parties’ respective assets at the date of marriage in January 1987.”

R’s application for validation was dismissed accordingly.

Arguments

[78]     In support of validation Mr Vickerman submitted that nothing changed for the parties following marriage and they behaved as though the agreement continued to be binding on them.  R continued to enhance A’s financial situation and they both continued to manage household and living expenses in the same way as they had from the inception of the de facto relationship.  The fact that A was not prepared to contribute capital to Helmores Lane reflected her understanding that the agreement was still in force.   In all the circumstances validation of the agreement would not materially prejudice A and it was unfair of the Judge to decline R’s application.

[79]     Mr Hicks responded that the Judge had adequately addressed this issue and had properly exercised his discretion against validation.   He noted that A had not been cross-examined about whether she  would  have  entered  into  the  agreement regardless of legal advice.  Mr Hicks’ submission was that if she had been advised about the pitfalls arising from the agreement (for example, uncertainty as to its meaning and/or effect) it is extremely unlikely that she would have entered into it.

Discussion

[80]     There are two issues:  first, whether the Judge should have been satisfied that the non compliance had not materially prejudiced A’s interests;  second, whether the Judge was entitled to exercise his residual discretion under s21H against validation. When it comes to assessing the exercise of that residual discretion the usual appellate principles apply.  In other words, this Court will only interfere if R can demonstrate that Judge Somerville acted on a wrong principle, failed to take into account some relevant matter, took into account some irrelevant matter or was plainly wrong:  May v May (1982) 1 NZFLR 165 at 170.

[81]     The onus was on R to demonstrate that the non compliance did not materially prejudice A’s interests:   West v West (No. 2) [2004] NZFLR 164 at [43].   As the Judge said, the rights being given away by A when she entered into the agreement in August 1983 (those arising from a constructive trust) were quite different from those arising from marriage (statutory rights based on equal sharing).  There is no evidence that A intended to waive her rights arising from marriage.   Indeed, the only safe inference is that she did not even turn her mind to the possibility that she might be surrendering property rights in the event of marriage.  Finally, it cannot be assumed that the same agreement would have eventuated if A had taken legal advice, a point that O’Regan J found to be significant in West v West at [52].  Given those factors R could not have surmounted the first hurdle of showing that A was not materially prejudiced by the non compliance.

[82]     Even if I am wrong in that conclusion there is no basis on which I would have been justified in interfering with the Judge’s exercise of discretion.   Nothing has been raised by Mr Vickerman that could support the conclusion that the Judge proceeded on a wrong principle, failed to take into account relevant considerations or had taken into account irrelevant considerations.  Nor could it be said that he was plainly wrong.

[83]     This appeal fails.

Whether Great North Road/Manchester Street Are Relationship Property

[84]     On the Judge’s findings Great North Road was purchased by R in November

1993 for $715,830 and registered in his name.   A facility secured over Helmores

Lane was used to provide banking accommodation of $525,000.  In the event only

$450,000 was drawn down, and by 10 April 1995 R had completely repaid the advance from his separate property by way of several lump sum payments.  In other words, Helmores Lane was used as security for around 18 months.

[85]     Manchester Street was purchased by R on 14 March 1994 for $350,000.  The Judge found that R paid a deposit of $30,000 and used banking facilities secured over Helmores Lane to bridge the balance.  This was repaid by him from his separate property on 22 April 1994.  So Helmores Lane was used as security for about five weeks.

Judge’s Reasoning

[86]   Judge Somerville began by summarising A’s argument:   if an item of relationship property, such as a family home, is mortgaged this amounts to a “disposition” of that property in terms of s8(1)(l) so that the mortgage proceeds are themselves relationship property;  and if the mortgage proceeds are used to acquire new property, that new property becomes relationship property.

[87]     In the Judge’s view an anomaly would arise if the argument in support of A’s case was right.  He explained:

“[154]   Although,  in   the  present  case,   Helmores  Lane   was   used,   throughout  the relationship, as the parties’ principal place of residence, it was owned by R prior to the commencement of the relationship and, but for the provisions of s8(1)(a), would have been his separate property.  If the parties had moved to Auckland during the relationship so that the basement flat at 42 Waitoa Street, Parnell, or one of the Burrows Avenue flats, was their principal residence at separation, then the Helmores Lane property would be R’s separate property.   If Mr Hicks’ argument were to be accepted, the mortgage over that property would amount to a disposition of relationship property (even if it were later repaid) but the sale of it would not. That cannot be right.”

The Judge attributed this “absurd result” to either treating a mortgage as a “disposition” or to treating Helmores Lane as the family home at the time it was mortgaged.  He then explored each of those matters.

[88]     As to whether a mortgage was a “disposition”, the Judge analysed Eaton v Eaton in which Speight J had taken the view that mortgage proceeds raised by the creation  of  a  charge  over  relationship  property  were  themselves  relationship property.  Judge Somerville did not agree with Speight J that upon the granting of a mortgage the mortgagee acquired from the mortgagor an interest in the mortgaged property.   In Judge Somerville’s view a mortgagee obtained a charge over the property, not a legal estate in it, and the charge did not amount to a disposition. Nevertheless he considered that he was bound by Eaton v Eaton.

[89]     Judge Somerville then considered whether Helmores Lane was the family home at the time it was mortgaged.  Having discussed the decision of the Court of Appeal in Hebberd v Hebberd, the Judge commented:

“[168]   The family home and family chattels are in the unique situation of having their status determined, not by when or how they were acquired, but by their use at the time of separation. [This is a reference to s2H(2)(b) which he had discussed earlier.]

[169]     Section 2 defines the family home as the dwelling house used “habitually or from time to time as the only or principal family residence”.  Where the relationship in question has ended, other than by death, the relevant use is the use to which it was being put before the marriage or de facto relationship ended.

[170]     Because the Court’s jurisdiction to divide the family home derives from s 11(1)(a), it is not relevant to determine whether it is separate or matrimonial property.   In other words, if the appropriate use is determined, it does not matter when or how it was acquired. Thus, a property owned before the relationship began or inherited during it, will be divided equally if it can be established that, at the time of separation, it was the family home. However, parties in a relationship can have only one family home, so that difficulties are created, if at the date of separation, the parties own two or more properties which, at various times during the relationship, have been used as the family home.   The other property or properties are classified according to the standard rules in ss 8 to 10.   Examples can be found in Shepherd v Shepherd (1998) 16 FRNZ 605 (HC) and Dawson v Dawson [2000] NZFLR 364 (FC).

[171]     Imagine if R had sold, rather than mortgaged, the Helmores Lane property in 1991 and placed those funds on term deposit where they remained until the date of separation.  If the decision in Hebberd v Hebberd was correct, those funds would be relationship property because they are the proceeds from the disposition of the family home.

[172]     Contrast that with the outcome if the parties had simply moved to Auckland in 1991 and R had retained the Helmores Lane property.   On  the  authorities cited  above, the Auckland property would be the family home and Helmores Lane would be R’s separate property.

[173]     Once again, we have a bizarre result.  The home itself would be separate property, but the proceeds from selling it would be relationship property.   The problem must lie in treating Helmores Lane as the family home in 1991.”

Judge Somerville also considered that if Hebberd v Hebberd was right there would be no point in s11A which provides for equal sharing of the proceeds of the sale of the family home in certain situations.  He considered that Hebberd v Hebberd needed to be revisited by the Court of Appeal.

[90]     Discussion about whether Great North Road and Manchester Street were relationship property was wrapped up by the Judge in this way:

“[177]   Were it not for the decisions of the High Court in Eaton v Eaton and the Court of Appeal in Hebberd v Hebberd, I would have concluded that the funds borrowed by R from Trust Bank and used to assist him with the purchase of 310 Great North Road and 72

Manchester Street were not relationship property and, therefore, did not taint the classification of those properties.

[178]     This would have been based on my determination that the Helmores Lane property was to be treated as R’s separate property in 1991 when the money was raised and that, in any event, a mortgage is not a disposition for the purposes of s8(1)(1).

[179]     I cannot see that I am entitled to distinguish these decisions on the basis that the Act has been amended so as to create a regime substantially different from that which applied at the time of those decisions.  The relevant statutory provisions are unchanged, and the family home has always been divided equally, so that the 2001 amendment has made no change to the regime that has always applied to the family home.

[180]     I am therefore bound to apply these decisions.  Accordingly, I find that the funds borrowed by R against the security of the Helmores Lane property in November 1993 and March 1994 were relationship property.  Because those funds were used in the purchase of

310  Great  North  Road  and  of  72  Manchester  Street,  those  two  properties  must  be relationship property.”

This was a significant finding because the properties have a combined value of around $2,200,000 and it also carried the implication that net rents from those properties became relationship property.

Argument For R In Support Of His Appeal

[91]     Mr  Vickerman  began  his  argument  by observing  that  it  obviously never occurred to R that borrowing over the Helmores Lane property might result in the Great North Road and Manchester Street properties becoming relationship property because  he  had  been  well  placed  to  arrange  alternative  funding.    It  was  only necessary for him to arrange temporary finance because he had lent money to his wife for her developments at Burrows Avenue and Tutanekai Street.  Had he been

aware of the possible implications he would, at the very least, have left the debts owing rather than repaying them out of his separate property.

[92]     On Mr Vickerman’s analysis:   R’s borrowings did not become relationship property solely by reason of their repayment being secured, inter alia, over Helmores Lane;  the borrowings were repaid from his separate property;  the mortgage could not constitute a “disposition” of relationship property unless and until there was default and the mortgagee exercised recourse against Helmores Lane;  consequently Great North Road and Manchester Street were R’s separate property;  Eaton v Eaton is distinguishable on the basis that at separation the equity in the family home had been  depleted  by the  mortgage  secured  against  it;    and  Hebberd  v  Hebberd  is distinguishable on the basis that the debt in that case was outstanding at separation.

[93]   Mr Vickerman argued that s20 provided the appropriate mechanism for determining the matter.   He noted that this was the route chosen by the Court of Appeal in Hebberd v Hebberd and he submitted that it would be perverse if a debt secured against a jointly owned family home constituted a personal debt of one of the spouses whereas a debt similarly secured but discharged and repaid from separate property was held to convert the object of its application into relationship property.

[94]     Counsel also noted that s2G mandates that the value of relationship property is to be determined as at the date of hearing.  He said that from separation onwards the value of the family home was unaffected by any encumbrance and under those circumstances it would be illogical for the prior encumbrance to be treated as augmenting relationship property at separation.  He also claimed that in terms of s2H Helmores Lane was separate property, not relationship property, at the time it was used as security for the loans.

[95]   Mr Vickerman then embarked on an analysis of s8(1)(l) to support his proposition that the section contemplates a sale or transfer of ownership.   He developed this theme by reference to other sections that refer to dispositions (ss 43,

44, 44B, 44C and 45).  His next submission was that it is not the mortgage, but its servicing and repayment, that are decisive:   Bullians v Bullians (High Court, Hamilton, CIV 2005-419-1283, 7 December 2005, Heath J) and Geddes v Geddes

[1987] NZLR 303. Finally, Mr Vickerman submitted that the mortgage could not constitute the proceeds of disposition of the family home because it did not transfer an estate or interest in the land (s100 of the Land Transfer Act 1952) and upon repayment the primary obligation to repay the mortgage was extinguished (s81 of the Property Law Act 1952).

Argument For A In Response

[96]     The primary submission on behalf of A is that the payment of the mortgage proceeds into the bank account amounted to an application of relationship property in precisely the same way as the increase in value of the husband’s boat in Hebberd v Hebberd reflected the application of relationship property.   Even though Speight J relied on the concept of “disposition” in Eaton v Eaton and the Court of Appeal relied on the concept of applying  relationship property in Hebberd v Hebberd, the difference in terminology does not matter.  Either way Judge Somerville was obliged to reach the conclusion that the two properties were relationship property.

[97]     The argument on behalf of A was developed along these lines:  the proceeds of a mortgage are the product of the mortgaged property;  to receive the mortgage proceeds the mortgagor must yield to the mortgagee some of his bundle of rights to the mortgaged property;  the proceeds of the mortgage are a distinct item of property which cannot be unrelated to the mortgaged property;  such proceeds must therefore be classified either as separate or as relationship property;  it follows from ss8 and 9 of the Act that if the mortgaged property is separate property then the proceeds of the mortgage must have that classification;  and if the mortgaged property is relationship property then the proceeds will be relationship property.

[98]     According to Mr Hicks the ultimate issue is whether Helmores Lane was relationship  or  separate  property  at  the  time  of  the  Trustbank  mortgage.    He submitted that this issue is resolved by Hebberd v Hebberd at 635 and also by Fisher on Matrimonial and Relationship Property at para 11.12, both of which confirm that it was relationship property at the time of mortgaging.

[99]     As A sees the matter, the Judge’s concern about the unfairness arising from having Eaton v Eaton and Hebberd v Hebberd is not justified.  In effect the Judge was questioning some of the fundamental concepts of the Act.  While there might be some potential anomalies, that is why a strong statutory regime exists and why the Judge was obliged to apply that statutory regime.

[100]   Mr Hicks rejected Mr Vickerman’s argument based on s20.  He noted that the Act does not provide a mechanism for any adjustment between spouses or de facto partners to compensate for the payment of relationship debts from separate property. Under those circumstances, observed Mr Hicks, it is difficult to see how a deliberate action by the party owning the separate property from which the relationship debt was paid could be categorised as unjust or unfair.

[101]   Mr Vickerman’s proposition that ss2G and 2H assisted was also rejected by Mr Hicks on the basis that this is not a case of a prior encumbrance being treated as augmenting  relationship  property  at  separation.    To  the  contrary,  submitted  Mr Hicks, the relationship property (Great North Road  and  Manchester  Street)  was acquired out of relationship property (the blended Westpac bank account in which relationship property had been mixed with separate property).   Mr Hicks claimed that Mr Vickerman’s submission regarding s2H ignores and is contrary to Hebberd v Hebberd at 635.

Discussion

[102]   There seem to be five possible statutory avenues by which the mortgaging of Helmores Lane could result in Great North Road and Manchester Street plus the rental income from those properties becoming relationship property (in whole or in part) or A becoming entitled to compensation:

Section8(1)(e), provided that Great North Road and Manchester Street were not acquired out of separate property.

Section 8(1)(l), on the basis that there was a disposition of Helmores

Lane.

Section 9A(1), on the basis that the increase in the capital value of Great North Road and Manchester Street and the rental income was attributable to the application of relationship property.

Section17, on the basis that Great North Road and Manchester Street were sustained by the application of relationship property.

Section20E, on the basis that the debts secured over Helmores Lane were paid or satisfied out of relationship property.

I will now consider each of these possibilities.

[103]   Section 8(1)(e) provides, inter alia, that relationship property consists of all property acquired by either spouse after their marriage.  Both Great North Road and Manchester Street were acquired after marriage.   However, s8(1)(e) is subject to s9(2) which provides that all property acquired out of separate property is separate property.   Judge Somerville expressly found that both Great North Road and Manchester Street were acquired by R out of his separate property.  In other words, he must have been satisfied that the mortgaging of Helmores Lane did not per se negate his conclusion that the two properties were acquired by R out of his separate property.   No-one suggested that this was wrong in principle and under those circumstances I am not prepared to revisit the Judge’s finding that s9(2) applied. That means that s8(1)(e) cannot apply.

[104]   I should add that I do not think that there is anything in Mr Hicks’ submission (see [101] above) to the effect that Great North Road and Manchester Street were acquired out of the “blended” Westpac bank account which was relationship property.  For reasons that will follow shortly, I do not accept that the bank account was relationship property.  Except for the rental component, which on the Judge’s findings could be isolated, the bank account was R’s separate property.  In any event when Great North Road was purchased the account was plainly R’s separate property because no rents had been paid into it.  While it is true that some rents would have been paid into the account by the time Manchester Street was purchased about five months later, the Judge found that the deposit of $30,000 came out of R’s separate

It  is  alleged  by  A  that  these  paragraphs,  especially  [39],  indicate  the  Judge misdirected himself about the test to be applied.

[157]   The  Judge  then  applied  s13  to  the  facts.    Because  of  the  wide  ranging challenge to the Judge’s reasoning it is necessary to quote him at some length:

“Extraordinary Circumstances

[40]     In my view the following circumstances can truly be classified, in combination, as exceptional:

a)        The gross inequality of contribution.

b)        The benefits received by A during the relationship.

c)        The understanding between the parties during the relationship.

[41]     At the commencement of the relationship R held a substantial property portfolio while A had savings of $6,000. Throughout the relationship there was an understanding that not only would A retain her cash sum as her separate property but that R would assist her in building that fund to such an extent that she could be classified as a wealthy woman in her own right.  I have found that this amounted to a binding agreement during the term of their de facto relationship but not once they were married.  Nevertheless, they continued to act as though it were binding to the point that, at the end of the marriage, R was content for A to retain  as  her  separate  property  her  interest  in  the  Burrows  Avenue  and  Tutanekai

Street/Great North Road developments.  Depending on their current value and the extent of

A’s  interest in  the  Burrows Avenue  property, this  could  have  a  net  worth  of  between

$460,000 and $1.24 million.

[42]     For 11 out of the 13 year relationship between the parties they led such a relaxed lifestyle that they were prescribed “work” by a psychiatrist in order to preserve their mental wellbeing.  During the other two years they were actively involved in the two developments at  Burrows  Avenue  and  Tutanekai Street/Great North  Road  intended  by  them  both  to enhance A’s financial position.

[43]     Over $3.6 million of the funds available for distribution were either owned by R at the date the relationship commenced or have been acquired since out of property owned by him as his separate property at that time.  Of that property, over $3.1 million of it has only become relationship property because of a small amount of borrowing for a short period of time over the family home and with no prejudice to A.  I am satisfied that these funds were secured in this way only as a matter of convenience rather than of necessity and could just as easily have been secured over R’s other separate property.  Moreover, the family home over which the loans were secured had been introduced to the relationship by R as he owned it at the date the relationship commenced.

[44]     In the first paragraph of my judgment delivered on 23 October 2003 I said:

“In these matrimonial property proceedings A’s claim, if successful, would see her net worth increase from $6,000 at the commencement of the 13 year relationship to about $2.4 million. This is all the more remarkable having regard to R’s claim, that all of the property in respect of which A claims a share, is his separate property.”

All of the above circumstances are remarkable and qualify as extraordinary circumstances within the meaning of s13.  In the 29 years since the Matrimonial Property Act 1976 was passed  I  have  neither  encountered, nor  seen  a  report  of,  a  similar  case.    It  is  truly extraordinary.

Repugnant to Justice

[45]     I  would  also  consider  that,  because  of  those  extraordinary  circumstances, Parliament would not have intended equal sharing to apply in those circumstances, notwithstanding the general scheme of the Act.

[46]     The equality of division prescribed by s11 of the Act has, as its foundation, the principles set out in s1N namely:

“(a)     The principle that men and women have equal status, and their equality should be maintained and enhanced.

(b)        The principle that all forms of contribution to the marriage partnership, or the de facto relationship partnership, are treated as equal.”

[47]     But the purposes of the Act set out in s1N include not just the recognition of those equal contributions to the marriage partnership, but also provide for a just division which leads to the principle in s1N that “a just division of relationship property has regard to the economic advantages or disadvantages to the spouses … arising from their marriage … or from the ending of their marriage.”  In other words, a just division of relationship property should allow for compensation if one of the parties to the relationship has been unfairly advantaged or disadvantaged.  This explains the compensation payable under s15 and 15A

for economic disparity;  under s16 where the home of one of the spouses has become the family home while a home owned by the other spouse has remained separate property; under s17 and s17A where the separate property of one spouse has been sustained or diminished by the actions of the other or the application of relationship property;   under s18B  and  C  for  post-separation contributions or  dissipation;    and  under  s20E  where relationship property has been used to pay a personal debt of one of the spouses.

[48]     Because $3.6 million of the parties’ relationship property was either owned by R at the date the relationship commenced or acquired later out of property he owned at that time as his separate property, then the effect of R’s relationship and subsequent marriage to A, using 2005 values, has been to diminish his net worth by $1.8 million and enhance A’s worth by a similar amount.  In other words, their relationship/marriage has been to A’s economic advantage and R’s economic disadvantage.  A just division of their property must take that into account. If the only means of doing that is under s13, then Parliament, when setting out the third principle in section 1N must have had this in mind.

[49]     Because the circumstances of this case are so extraordinary and the economic advantage to A and disadvantage to R is so significant, it would be repugnant to justice if I were to order that their relationship property be divided equally.

Unequal Division

[50]     The  share  that  each  party  should  have  in  the  relationship  property  is  to  be determined by their contributions to the marriage partnership.  In that context, contributions of a monetary nature are not presumed to be of any greater value than a contribution of a non-monetary nature.   However, the  non-monetary contributions, although equal,  were considerably less than is generally the case.  For example, neither party engaged in active employment and both enjoyed such a relaxed lifestyle that it could almost be described as indolent.

[51]     Balancing that, is R’s contribution of separate property worth $3.6  million in today’s currency.   In anyone’s language, R’s contribution to the marriage partnership is significantly greater than A’s but by how much?

[52]     It is at this point that it is appropriate for me to consider the expectations under which the parties managed their affairs throughout the relationship.  R always anticipated that A would leave the relationship a wealthy woman in her own right.  They both worked together on the two developments to that end.  Although Mr Hicks submitted that it would scarcely be fair if the informal property agreement which was not upheld under s21 could be introduced through the back door to protect R under s13, nevertheless, there is the example of Pickering v Pickering  (1993) 11 FRNZ 240 where the Court of Appeal, when finding that there were extraordinary circumstances that rendered equal sharing repugnant to justice, held that there had been a de facto division of property between the parties which, although not effective under s21, reflected a joint appreciation that the home in which the wife was living should be her separate property.

[53]     In the present case, however, I believe that the existence of the understanding between A and R should be used, not to bolster R’s claim but A’s, as it could hardly be considered fair to her if an unequal division of the relationship property resulted in her receiving less than the parties had always understood would be her entitlement under their informal agreement.

[54]     In the end, the Court is unable to be precise about these calculations but I consider that a division of 3:1 in favour of R would be fair to both parties.  Although it would still see R  suffering  a  significant economic  disadvantage with  A  benefiting  from  an  equivalent

economic advantage, that must be balanced against the expectation of both parties that A

would leave the marriage a wealthy woman.

[55]     On my rough calculation, a 25% award in favour of A would see her net worth after the division had been effected of between $1 million and $1.25 million.  In my view that is a just entitlement after a relationship of 13 years during which she contributed very little other than love and companionship.”

Arguments For A In Support Of Appeal

[158]   A’s position is that the circumstances of this case did not meet the extremely high threshold set by s13 and that there should have been equal sharing.   Her fall back position is that if unequal sharing is justified it should be on the basis that R receives no more than 60% which would recognise that he had contributed to the relationship half as much again as A.

[159]   Mr Hicks claimed that the Judge had failed to apply the correct test because he had treated the passage quoted from P v P at [39] of his decision as a comprehensive statement of the test under s13.  In other words, the Judge had failed to give proper weight to the repugnant to justice limb of the test.  It was also alleged that the Judge had generally failed to apply the s13 test with its intended rigour.

[160]   It was also argued that the Judge fell into error by taking into account that after their marriage the parties had applied the agreement as though it was binding, despite his earlier finding that it did not survive the marriage.  Mr Hicks submitted that this approach was incompatible with Bergner v Nelis (High Court, Auckland Registry, CIV 2004-404-149, 19 December 2005, Heath J).

[161]   A theme that the Judge failed to have regard to all the material evidence or to consider the evidence objectively was developed by Ms Mitchell with detailed reference to the evidence.  She submitted that the Judge had ignored, or at least not referred to, large portions of the evidence favourable to A and that overall he had displayed a particularly unfavourable attitude towards A during the hearing as was illustrated, inter alia, by some of the questions he had asked A.

[162]   It was submitted that the Judge’s comment that A had contributed “little beyond love and companionship” is indefensible and that the Judge had plainly

overlooked her contribution to Burrows Avenue.   Mr Hicks noted that in his first judgment at [236] the Judge had expressed the view that the increase in value of A’s share of Burrows Avenue (which he had found to be relationship property) should be shared equally.  However, there was no mention of this in his third judgment.

[163]   It was also claimed that the Judge’s lack of even-handedness was reflected in other parts of his judgments.  Amongst other things counsel referred to the Judge’s statement at the beginning of his first judgment that A’s net worth at the commencement of the relationship was $6,000 (which overlooked the Idris Road property) and to the repetition of this error in the third judgment.

[164]   Section 18 also featured in the argument on behalf of A.  With reference to s18(1)(b) it was claimed that the Judge failed to take into account undisputed evidence that A paid for food and groceries, cooked, and looked after the garden.  It was also claimed that the Judge had failed to take into account that in terms of s18(1)(g) A had foregone a higher standard of living because  R chose to accumulate rather than apply his substantial income towards a higher standard of living (this being reflected in his modest drawings).  Finally, with reference to s18(1)(h)(ii) it is alleged that the Judge did not take into account A’s assistance with her husband’s GST returns.

[165] Mr Hicks argued that the Judge became mesmerised by R’s financial contributions and failed to keep them in proper perspective which was contrary to such authorities such as Williams v Williams [1979] 1 NZLR 122 (CA) in which it was stressed that the inquiry must not be limited to monetary contributions. The Judge also failed to take into account Dalton v Dalton [1979] 1 NZLR 113 (CA) in which the Court indicated that it was right to have regard to the expectations of the parties as to the role of each of them in the marriage partnership and the manner in which they chose to organise their financial affairs. And the Judge had failed to appreciate that Reid v Reid [1979] 1 NZLR 572 (CA) offered a comparable set of circumstances.

Arguments For R In Response

[166]   In broad terms R’s position is: the Judge applied the correct test;  R’s very high score in relation to relevant s18 contributions can be contrasted with A’s contribution in respect of the management of the household and the performance of household duties;   the conclusion reached by the Judge was open to him on the evidence;  and this Court is being asked to re-assess the evidence and substitute its own impression which would be contrary to appellate principles.

[167]   With reference to the allegation that the Judge was wrong to take into account the parties’ reliance on the agreement post marriage, Mr Vickerman said that the reality is  that  the  parties  did  conduct  themselves  as  though  the  agreement  was binding upon them and this led R to make exceptional efforts to enrich his wife, with no gain for himself, which must be regarded as extraordinary.   He submitted that Bergner v Nelis is distinguishable and that in any event it is contrary to English v Vorstman (CA166/98, 16 November 1998).

[168]   Mr Vickerman said that it seemed  to  be  inferred  by A  that  disparity of financial contributions would never be sufficient to justify finding extraordinary circumstances.     He  traversed  numerous  authorities  to  counter  that  point  and submitted that ultimately a finding of extraordinary circumstances must be a matter of judicial impression within the boundaries of the legislation and decided cases. But, by definition, for the circumstances to be extraordinary those circumstances are unlikely to have been encountered previously or within an identical factual matrix. Therefore, he submitted, this Court should not lightly disregard the words of an experienced Family Court Judge when he observed that in the 29 years since the

1976 Act was passed he had never encountered or seen a report of a similar case.

[169]   Mr Hicks’ assertion that Reid v Reid is similar was rejected by Mr Vickerman on the basis that the unique features in this case are the agreement and R’s performance of that agreement by enriching his wife.    Mr  Vickerman  provided calculations to demonstrate that there had been a dramatic increase in A’s wealth (Mr Vickerman’s figure that the increase  was  234  times  her  capital  position  at

commencement of the relationship cannot be accurate because it fails to take into account Idris Road).

[170] A’s contributions to the marriage were described by Mr Vickerman as “ordinary at best” on the basis that there were no children;   management of the household was shared;.  A provided no income other than rents received from her properties;  R provided income;  A provided no relationship property;  R did;  she paid nothing towards R’s separate property;   he contributed significantly to her separate property;   her contributions  towards  his  separate property were  greatly exaggerated, uncorroborated and flatly contradicted by independent witnesses;  and such contributions as A did make were met and exceeded by those of R and were often paid for by him.

Discussion

[171]   The first issue is whether the Judge was entitled to invoke s13.

[172]   Mr Hicks claimed that the Judge had used Judge Inglis’ test in P v P relating to extraordinary circumstances as a comprehensive test and had thereby failed to properly consider the repugnant to justice limb.   I do not accept that submission. When the judgment is read as a whole it is clear that the Judge considered both limbs of the test.

[173]   It is also alleged that he failed to apply the test with its intended rigour. Again I reject the complaint.  On my reading of the judgment there is nothing that is capable of supporting this broad proposition.   Each case will depend on its own facts.

[174]   The third allegation is that the Judge fell into error by taking into account that the parties had acted after marriage as though the agreement was binding, despite having found that it did not survive the marriage.  This was, of course, a finding of fact and I do not accept that the Judge was precluded from making such a finding and taking it into account.   It is true that in Bergner v Nelis Heath J held that a previously invalidated agreement between the parties was irrelevant to the question of whether the s13 threshold test had been passed.   However, as Mr Vickerman

pointed out, that decision appears to be incompatible with English v Vorstman, a decision of the Court of Appeal, which had not been cited to Heath J.  Moreover, Heath J has now granted leave for Mr Nelis to appeal to the Court of Appeal.  I am not prepared to apply Bergner v Nelis.

[175]   Given the Judge’s findings I think it was open to him to reach the conclusion that s13 applied.  As I see it the real issue is whether his 3:1 split properly reflected the requirements of the section and the evidence before him.   In this regard there were extensive submissions on behalf of A, primarily from Ms Mitchell.   Those submissions seem to come down to three primary allegations:   first, the Judge’s starting point that A was worth $6,000 at the beginning of the relationship was wrong;   second, there is a fundamental inconsistency between the first and third judgments;   third, the Judge’s assessment that A had contributed very little other than love and companionship was demeaning and overlooked contributions made by her.

[176]   The Judge approached the matter on the basis that A’s net worth at the commencement of the relationship was $6,000.  However, as already noted, that is not accurate.  In 1978 A received $6,000 plus a trailer sailer as a result of a division of matrimonial property with her first husband.  The following year she bought Idris Road which she sold for $55,000 (which produced $43,000 net) when she entered into the de facto relationship with R.  Thus her net worth at the commencement of the relationship was around $43,000.

[177]   By the time Burrows Avenue was purchased in 1989 A was able to contribute the initial capital of $179,000.   In the meantime she had owned Highgate Avenue and Leinster Road.  The Judge found that A’s contribution of $179,000 to Burrows Avenue was her separate property.   It seems to follow that although the Judge understated A’s net wealth at the commencement of the de facto relationship, this error did not carry through because the figure used by the Judge in relation to Burrows Avenue accurately reflected the capital contributed by her to that property. Thus the first point raised on behalf of A does not seem to be particularly significant in a substantial sense.

[178]   The next allegation concerning an alleged inconsistency between the first and third judgments is much more significant.  In his first judgment the Judge said:

“[236]   In the light of R’s contribution, but also recognising that A contributed as well, I

consider that increase in value should be shared equally.” (Underlining added)

This is a reference to the huge increase in the value of Burrows Avenue after it was purchased by A and the Ace Investment Trust.  Clearly the Judge’s view at that time, having recently heard the evidence and turned  his  mind  to  contributions  to  the property, was that the increase in value that did not belong to the Trust should be shared equally by A and R.

[179]   In his third judgment delivered almost two years later the Judge reminded himself of his comments about Burrows Avenue in specified paragraphs of his first judgment, including [236], and concluded that there was no reason to depart from his previous ruling fixing A’s separate property interest in Burrows Avenue at $179,000. Later in that judgment he considered whether s13 applied, decided that it did, and arrived at his 3:1 split.  I cannot find any indication that he actually took into account his initial view that there should be equal sharing of the relationship property component of Burrows Avenue.  The topic is not mentioned and his comments and conclusions do not seem to be consistent with this factor being taken into account.

[180]   As far as I can see the Judge has overlooked the view expressed in his first judgment.   This is not totally surprising given the extraordinarily complex factual and legal issues he was attempting to resolve, coupled with the passage of time. Even with the benefit of the Family Court judgments I have found this to be one of the most difficult appeals that I have been called upon to resolve notwithstanding that I have been spared having to make any factual findings.   My conclusion is, therefore, that there is an anomaly between the first and third judgments and that the conclusion  expressed  in  the  first  judgment  should  be  given  significant  weight because it was expressed soon after the relevant evidence had been presented.

[181]   The third allegation arises from the Judge’s comment in his third judgment with reference to the 3:1 split in favour of R that:

“[55]     …In my view that is a just entitlement after a relationship of 13 years during which she contributed very little other than love and companionship.” (Underlining added).

This finding was attacked by Ms Mitchell on the basis that it cannot be reconciled with uncontested evidence about A’s contributions in terms of s18(1).   These contributions fell into three categories.

[182]   First, it was said that there was uncontested evidence of a contribution by A to the management of the household and the performance of household duties under s18(1)(b).  In her affidavit of 3 December 2001 A said:

“13.     On a personal level from the early 1980’s I looked after R like a baby. I cut his hair throughout our relationship and washed his hair for many years.   I washed and ironed his clothes.  After I moved into his home at the end of August 1983 (and during the time I was there in 1981) I used to put his clothes out for him each day.

14.       R did not do anything around the house.   He never did any dishes and if it was raining he would never think to bring the washing in.  He only occasionally did the lawns  and  I  was  responsible  entirely  for  the  garden  and  trimming  the  front boundary and side hedges four times a year with hand clippers until 1993 and then electric shears.   I washed the inside and outside windows myself throughout the relationship. He did not even make a cup of tea saying that that was woman’s [sic] work.   His attitude did change during the last two years of our marriage but I essentially undertook all household duties from prior to me moving into his home in

1981.

15.       From the time we lived together – and even before, R would eat at my house on a regular basis.   I bought the groceries, newspaper, clothes and the like from my earnings throughout our relationship and particularly from when I moved in to his home in 1983.  In addition [I] purchased the birthday and Christmas presents for his children generally from monies I earned.

16.       I was of necessity a very thrifty housekeeper. I even darned R’s socks.  He favoured thick Everest type socks and I would darn these for maximum wear and turned collars on his shirts for a number of years.”

Except to the extent that he asserted that they frequently dined out at restaurants, R does not appear to have directly challenged A’s evidence.   Indeed, under cross- examination he acknowledged that A was a good housekeeper.  Moreover, it does not seem to have been disputed that by and large A paid for food and groceries.  It is difficult, therefore, to reconcile A’s contribution over 13 and a half years under s18(1)(b) with the Judge’s comment that she contributed little other than love and companionship.

[183] Second, Ms Mitchell argued that there was undisputed evidence of a contribution by A under s18(1)(g) in that she had foregone a higher standard of living than would otherwise have been available.  The undisputed evidence relied on by Ms Mitchell was in the form of R’s drawings from 1984 to 1998.  However, when the evidence is taken as a whole I am not prepared to place any significant weight on the alleged contribution under s18(1)(g).

[184]   Third, Ms Mitchell relied on assistance or support under s18(1)(h).   In his first affidavit R acknowledged that A had carried out work on some of his properties. Examples are:   helping with painting at Dominion Road;   making drapes for the bedrooms in five of the flats at Whitmore Street, helping with re-painting, making drapes for two bedrooms and laying vinyl in front of the shower at Lichfield Road; making  drapes  for  townhouses  at  Coombes  Road;    helping  clean  windows  and putting vinyl in two toilets at Great North Road;  and some typing and checking of the rents off against bank statements every so often.  Even allowing for  R’s stance that A was paid for most of this work, it is clear from R’s concessions that A made contributions in terms of s18(1)(h) that went well beyond love and companionship.

[185]   In the end result I have been persuaded that the Judge’s premise that A contributed  little  other  than  love  and  companionship  was  harsh.    Had  it  been necessary for me to determine the issue, I would have decided, first, that the Judge failed to give proper weight to contributions under s18(1)(b) and s18(1)(h) and, second, that he had also failed to bring into play his initial conclusion that the parties should  share  equally in  the  increase  in  value  of  the  relationship  component  of Burrows Avenue.   I would have substituted a 60:40 split of relationship property (still in favour of R) for the 3:1 split arrived at by the Judge.

[186]   In conclusion A’s appeal in relation to s13 is allowed.  Relationship property is to be shared equally.  As indicated in [154], this reflects my view that Great North Road and Manchester Street are not relationship property.   Had I reached the conclusion that the two properties and the rentals therefrom were relationship property I would not have been prepared to disagree with the Judge that s13 applied but I would have altered the split from 3:1 to 60:40.

Sustenance Under Section 17

[187]   A’s claim for sustenance under s17 was based on the assistance that she provided to R during the relationship by helping him with his rent portfolio, involvement in the purchase and financing of properties, ringing around for quotes in connection with the developments, assisting with GST returns and cleaning out and redecorating rental properties.

[188]   The Judge rejected the claim in the following paragraphs:

“[242]   Although  A  undoubtedly  did  some  of  this  work,  I  find  that  the  extent  and significance of it is exaggerated for the same reasons given in para 227 above.  Whatever she did was de minimus and does not deserve compensation having regard to the lifestyle that R’s wealth permitted her to enjoy.   I consider that the following passage from R’s second affidavit nicely encapsulates that lifestyle:

In about 1995 [A’s] psychiatrist, [PG], told her and myself she required a job to keep her mind occupied as she had nothing to do.  In fact the same psychiatrist told me that I needed to find something to do and recommended I become a volunteer for Meals on Wheels.

[243]     There will be no compensation under s 17.

A has appealed against that determination on the basis that her assistance in relation to her husband’s separate property investments justifies an award of $50,000. Although Mr Hicks said that this appeal would not be pursued if A received 50% of the relationship property, I assume that he was not contemplating the outcome in relation to Great North Road or Manchester Street that has eventuated.  Under those circumstances I will proceed to consider the appeal without reference to Mr Hicks’ concession.

[189]   In French v French [1988] 1 NZLR 62 Cooke P observed at 65:

“If the work and services, as well as being contributions to the marriage partnership, sustain the separate property of the other spouse, the Act allows a discretionary award under s17. In deciding whether to exercise the discretion in favour of an applicant the Court should, in my view, consider the circumstances of the case as a whole, including the extent of the matrimonial property and hence of the applicant’s share therein.  There may be cases where that share adequately compensates a wife, for instance, for her total contribution to the marriage partnership. A discretionary award under s17 might then not be called for …”.

This is an appeal against the exercise of the Judge’s discretion.  Even if I had not arrived at the conclusion that there should be equal sharing, I would not have upheld this ground of appeal.   No error justifying the intervention of this Court has been demonstrated.

[190] A’s appeal in relation to s17 is dismissed (although this does not affect the award given under this section at [127] above).

Interest Calculation In Relation To Helmores Lane

[191]   R challenges the Judge’s award of interest in relation to Helmores Lane from

1 June 1997 (date of separation) on a value established six years later (June 2003). However, there is no challenge to the rate of interest (3% per annum).  In essence R’s complaint is that A has been doubly compensated in relation to Helmores Lane.

Judge’s Reasoning

[192]   In his fourth judgment the Judge noted that in Wicksteed v Wicksteed [2002] NZFLR 28 Priestley J had approved a passage in Fisher on Matrimonial Property at

17.46 to the effect that interest represents an adjustment for being deprived of a residual share of the property.  Having noted that Helmores Lane is an appreciating asset and that R had had the use and enjoyment of it since the parties separated on 1

June 1997, the Judge said:

“[7]     R should compensate A for his use of the Helmores Lane home and an award of interest is the only relevant way of doing so but it would not be fair to R if this interest were calculated on the June 2005 value … [$735,000] or to A if it was based on the 1997 valuation.  Instead it will be based on the June 2003 figure of $510,000 and calculated from

1 June 1997.”

Judge Somerville then noted that the home was not a commercial investment, that the standard of accommodation enjoyed by R had been marred by deferred maintenance and that the large increase in its value since separation would not be matched by an increase in its rental value.  On his calculation interest at 8% would equate with a weekly rental of $785 which he said was too high, whereas 3% would reduce it to $294 which he considered to be more realistic.

Arguments

[193]   Mr  Vickerman  argued  that  the  increase  in  value  arising  from  the  2003 valuation was compensation enough for A having been kept out of her share of relationship property and that the backdating to separation effectively provided A with double compensation.   He argued that it was wrong in principle to award A interest from a date earlier than the date on which her share had been assessed.  He also alleged that the Judge’s reasoning was obscure and that the Judge seemed to have approached the matter on the basis that somewhere between the two possible extremes would do.

[194]   In reply Mr Hicks submitted that the calculation of interest on any basis other than the present value of properties would be unfair because it would penalise the party who had been unable to invest in the current market because his or her share of relationship property capital had been withheld.   He noted that there had been no interim payment to A and that in P v P [2005] NZFLR 689 (HC), this Court had ordered interest to be paid on the basis of a valuation obtained long after interest had commenced to run.

Discussion

[195]   The  Judge  decided  that  the  appropriate  way  to  compensate  A  for  being deprived of her share in Helmores Lane was to arrive at an interest rate based on a notional rental of Helmores Lane.   That is why he chose the 2003 valuation in conjunction with the low interest rate of 3% per annum.   I cannot see that this approach was wrong in principle and in my view it was fair to both parties.  There was no element of double compensation.   No error in the exercise of the Judge’s discretion has been demonstrated.

[196]   R’s appeal in relation to the award of interest in relation to Helmores Lane is dismissed.

Updating Valuations

[197]   Although A’s application for updating valuations still needs to be heard, I

think it would be helpful if I expressed some preliminary views.

[198]   There has now been a considerable delay since the most recent valuations were obtained.   This delay is not the fault of either party, both having brought appeals  against  the  judgments  of  the  Family  Court  in  relation  to  several  very complex  issues.     Since  the  valuations  were  obtained  there  has  clearly  been significant inflation in property values and it is extremely doubtful that an award of interest could achieve justice between the parties.  Thus my preliminary view is that all valuations should be updated.   Although different considerations apply to Tutanekai Street my preliminary view is that an updated valuation should also be obtained for that property to ensure that  there  is a  just  division  of  relationship property between the parties.

Outcome

[199]   In summary the outcome of the appeals and cross-appeals is:

(a)      The Judge’s interpretation of the effect of the oral agreement in terms of s21R was correct.  While the agreement determined the status of assets (other than the family home) held by the parties at the date of their marriage, the Act governed the status of the family home and chattels as well as the assets acquired after marriage.   R’s appeal is dismissed.

(b)There was no error in the Judge’s refusal to validate the agreement under s21H. R’s appeal is dismissed.

(c)      The mortgage over Helmores Lane did not result in Great North Road and Manchester Street becoming relationship property.    Those properties are R’s separate property.  However, to the extent that the rental  income  is  attributable  to  bridging  finance  secured  over

Helmores Lane that rental income is relationship property in terms of s9A(1). The figure is to be calculated in accordance with [123]. In addition A is entitled to the sum of $20,000 by way of compensation under s17. R’s appeal is allowed in part.

(d)It was appropriate to apportion R’s bank account.  The rental income attributable to the bridging finance (in a sum yet to be determined) is relationship property and the remainder of the account is R’s separate property.  A’s appeal is dismissed.

(e)      All relationship property is to be shared equally.  If I had upheld the Judge’s finding that Great North Road and Manchester Street and the rents from those properties were relationship property I would have altered the sharing ratio from 3:1 to 60:40.  A’s appeal is allowed.

(f)      Subject to (c) above, the Judge was entitled to reject A’s claim for sustenance under s17.  A’s appeal is dismissed.

(g)      There was no error in the interest calculation relating to Helmores

Lane.  R’s appeal is dismissed.

(h)A’s application for updated valuations is adjourned.   A telephone conference is to be arranged by the Registrar so that further steps in relation to this issue can be discussed.

[200]   There will be no orders as to costs.  This reflects that both parties have been partially successful and partially unsuccessful and that the appeals raised several complex and difficult issues.

[201]   Leave is reserved to the parties to apply further should the need arise.

Solicitors:           Cunningham Taylor, Christchurch

S Anderson, Auckland (Counsel: M Vickerman)