AA v La

[2016] NZHC 3163

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE

THE-FAMILY-COURT/LEGISLATION/RESTRICTION-ON-PUBLISHING- JUDGMENTS.

THIS JUDGMENT MAY BE CITED AND REPORTED AS

VIVIAN V KELLERMAN IN ACCORDANCE WITH PARAGRAPH [149] OF THIS JUDGMENT

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2016-409-663

[2016] NZHC 3163

UNDER

Section 39 of the Property (Relationships Act) 1976

IN THE MATTER OF

an appeal against the judgment of the Family Court

BETWEEN

A A

First Appellant

AND

L A

First Respondent

CIV-2016-409-670

UNDER

Section 39 of the Property (Relationships) Act 1976

IN THE MATTER OF

an appeal against the judgment of the Family Court

BETWEEN

L A

Second Appellant

AND

A A

Second Respondent

Hearing: 31 October 2016

Vivian v Kellerman [2016] NZHC 3163 [20 December 2016]

Appearances:	S Forrester for First Appellant/Second Respondent P Tucker for Second Appellant/First Respondent
Judgment:	20 December 2016

JUDGMENT OF MANDER J

[1]    The two parties, A A (the husband) and L A (the wife), were unable to resolve relationship property issues arising out of their marriage separation. Judge Moran made orders relating to the division of their property.1 Both parties have appealed parts of the Family Court’s decision.

Background

The relationship and the property

[2]    The couple married in Fiji in March 2002. Their relationship lasted for some nine years, during which they had two children who at the time of the Family Court hearing were aged seven and 12 years. In January 2011 they agreed to separate and their marriage was dissolved in April 2013.

[3]    In June 2002, the husband entered into an agreement to buy a property in Woolston, Christchurch (the Woolston property). The property was settled in a family trust (the Trust) which was established at that time. The family lived in the Woolston property, although the bottom floor was used by the husband as commercial premises for his company, TAL.

[4]    TAL had been incorporated in October 1998. The husband was the sole director and shareholder. He had originally operated a successful pet shop that closed in 2007. The husband worked as a builder for the following six months before undertaking a period of study for which he acquired a student loan. Upon completion he established a new business repairing heat pumps which he operated through TAL. The wife worked in retail during this time.

1      A v A [2016] NZFC 5749.

[5]    In April 2008, a second company (the Company) was incorporated for the purpose of acquiring an investment property. The husband was the sole director, and he and the wife equal shareholders. The Company purchased a rundown residence in Phillipstown, Christchurch (the Phillipstown property). Expenditure in relation to that property including its purchase price and renovation costs were funded through borrowing. A first mortgage was secured over the Phillipstown property, while a floating loan was secured over the Woolston property.

[6]    The husband undertook extensive repairs and renovations of the Phillipstown property. It was tenanted until it was ultimately sold in 2014, some three years after separation. The sale proceeds were applied firstly in repayment of the mortgage and secondly in reduction of the balance of the floating loan.

The Family Court decision

[7]    After finding that the Trust was a validly constituted trust and not a sham, Judge Moran turned to the application of s 182 of the Family Proceedings Act 1980. That section provides:

182     Court may make orders as to settled property, etc

(1)On, or within a reasonable time after, the making  of an order under   Part 4 of this Act or a final decree under Part 2 or Part 4 of the Matrimonial Proceedings Act 1963, a Family Court may inquire into the existence of any agreement between the parties to the marriage or civil union for the payment of maintenance or relating to the property of the parties or either of them, or any ante-nuptial or post-nuptial settlement made on the parties, and may make such orders with reference to the application of the whole or any part of any property settled or the variation of the terms of any such agreement or settlement, either for the benefit of the children of the marriage or civil union or of the parties to the marriage or civil union or either of them, as the court thinks fit.

...

(3)In the exercise of its discretion under this section, the court may take into account the circumstances of the parties and any change in those circumstances since the date of the agreement or settlement and any other matters which the court considers relevant.

...

[8]    The Family Court applied the two-stage process identified by the Supreme Court in Clayton v Clayton to the inquiry required to be made under s 182:2

(a)to determine whether the trust was nuptial; and

(b)to assess whether, and if so, in what manner, the Court’s discretion should be exercised.

[9]    The Court was satisfied that, in the circumstances, the Trust was a nuptial trust, finding there to be a clear connection between the marriage and the settlement of the Trust. Judge Moran then proceeded to consider whether she should exercise her discretion under s 182. After concluding that she should do so, the Judge considered the Trust should be varied to provide the parties with an equal share in the value of the Woolston property. Judge Moran also accepted an alternative argument made by the wife that the husband’s powers under the trust deed were so wide-ranging and personal to him as to constitute relationship property under s 2 of the Property (Relationships) Act (the Act), thereby entitling the wife to a one-half share of the equity in the Woolston property.

[10]   The husband, as the sole shareholder of TAL, held a credit balance of $120,000 in his shareholder current account. TAL was incorporated prior to the commencement of the parties’ relationship. At that point in time the current account was clearly the husband’s separate property. Judge Moran found that in the absence of evidence of the balance of the account at the date of marriage and any reliable transactional history, she was unable to identify any relationship property component. It therefore remained separate property.

[11]   Judge Moran made further rulings relating to the financing of the Company’s purchase of the Phillipstown property, including a floating loan which both parties had guaranteed. Other issues dealt with by the Family Court included the husband’s claim for adjustments for post-separation contributions relating to servicing of the floating loan and post-separation payments regarding a motor vehicle and boat. The Family

2         Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.

Court’s approach and the background to these issues and other matters raised on appeal will be referred to in more detail later in this judgment.

[12]   The Court ultimately made an order directing the husband to pay $156,886.30 to the wife as her half share in the Woolston property. The wife was directed to pay the husband $5,371.26 after a series of adjustments were made for amounts owed respectively by the parties in respect of various assets and debts.

The appeal and cross-appeal

Issues to be determined

[13]   The issues raised by the parties on the appeal are manifold. The husband contends the following:

(a)The Family Court erred in the exercise of its discretion under s 182 of the Family Proceedings Act by failing to give or apply adequate weight to the interests of the children who were discretionary beneficiaries under the Trust.

(b)The Family Court erred in finding in the alternative that the husband’s powers under the trust deed were so wide and personal to him as to constitute relationship property under s 2 of the Property (Relationships) Act 1976.

(c)The Family Court erred in failing to deduct the GST portion of the assessed value of the Woolston property for calculation of the value of the amount payable to the wife.

(d)The Family Court erred by calculating the value of the “principal sum” of the Woolston property as at the date of the hearing, which consequently failed to give credit to the husband for his post-separation payments which increased the equity in the property.

(e)The Family Court erred by crediting to the husband repayments of only

$6,000 in respect of post-separation contributions made by him in respect of the Phillipstown property.

(f)The Family Court erred in assessing the value of a boat purchased during the relationship, and failed to give sufficient credit to the husband for post-separation payments he made in respect of loans regarding a Toyota motor vehicle and the boat.

(g)The Family Court failed to make proper allowance for loan advances made by the husband’s mother.

(h)The Family Court did not give proper consideration to how a Working for Families Tax Credit was applied towards reduction of indebtedness.

(i)The Family Court erred in not distinguishing payments made by EQC under the contents insurance policy claim in respect of carpet at the Woolston property which was owned by the trust.

[14]   The wife, by way of cross-appeal, alleges the Family Court erred in the following way:

(a)In finding that the current account of TAL, in the sum of $120,000, was the separate property of the husband.

(b)In finding that a Toyota motor vehicle was owned by TAL and was not relationship property which should have been valued at the date of separation.

(c)In finding that a Visa credit card debt and a loan obtained to repay debt on an earlier credit card were in part relationship property.

(d)In failing to give sufficient consideration to the need to make post- separation adjustments in recognition of the wife’s situation of being excluded from the Woolston property from the date of separation, the

husband’s continued occupation of that property, and the disparity in the parties’ financial circumstances and accommodation.

Approach on appeal

[15]   Appeals to this Court from the Family Court are governed by s 39 of the Act, which imports ss 74-78 of the District Courts Act 1947. Such appeals are categorised as “general appeals” which proceed by way of rehearing. The approach to such appeals is well established following the Supreme Court’s decision in Austin, Nichols & Co Inc v Stichting Lodestar:3

[16]    Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellant Court, even where that opinion is assessment of fact and degree and entails a value judgment. If the appellate Court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Courts assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[16]   However, the Court of Appeal has confirmed that where an appeal lies against the exercise of a discretion an appeal Court will not interfere unless the Judge has acted on a wrong principle, failed to take into account some relevant matter, took account of some irrelevant matter, or was otherwise plainly wrong.4

[17]   As was observed by Heath J in B v F [De Facto Relationship], the approach to be taken in the context of appeals from the Family Court, which will often represent a mixture of findings of fact, evaluative judgment and the exercise of statutory discretion, is not altogether easy.5 His Honour determined the appropriate approach to such an appeal was as follows:6

(a)first, I must take account of the advantage that [the Judge] had of hearing and seeing the witnesses give evidence before him (see Austin, Nichols at para [13]);

3      Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.

4      May v May (1982) 1 NZFLR 165 (CA); Blackstone v Blackstone [2008] NZCA 312, (2008) 19 PRNZ 40.

5      B v F [De Facto Relationship] [2010] NZFLR 67 (HC).

6 At [8].

(b)secondly, to the extent that the Judge exercised any discretion in reaching his decision, I must determine whether those discretionary decisions were or were not open to him, based on May v May [1982] 1 NZFLR 165 (CA) and Blackstone v Blackstone [2008] NZCA 312 at para [8];

(c)otherwise, I am free to reconsider the Family Court’s decision and to substitute my own view on questions of fact and evaluation, if I were convinced that the first instance decision was wrong.

[18]   I proceed on the basis that questions of fact and evaluation remain matters for my assessment, however, I need to be cognisant of the findings or views of the Family Court, particularly where the Judge had the advantage of hearing and seeing the witnesses. The orthodox threshold required to be met to successfully challenge the exercise of a Court’s discretion remains. Whether approaching the matter as a general appeal or as an appeal from the exercise of a discretion, the appellant bears the onus of satisfying the appeal Court that the Family Court’s decision under appeal was wrong.7

The husband’s appeal

(a)                The exercise of discretion under s 182 of the Family Proceedings Act 1980

(i)Family Court decision

[19]   Judge Moran exercised her discretion under s 182 of the Family Proceedings Act to divide the value of the trust asset, the Woolston property, equally between the husband and the wife.

(ii)Argument on appeal

[20]   Judge Moran’s decision to exercise her discretion under s 182 is not challenged on appeal. However, the husband submitted that in doing so the Family Court failed to properly consider the interests of the children who were discretionary and final beneficiaries of the Trust.

[21]   The discretionary and final beneficiaries of the Trust were the husband and the wife, the husband’s daughter from a previous relationship and any other child of the

7      Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355 at [40]-[45].

husband which would include the parties’ two children. In support of his argument, the husband made two broad submissions. Firstly, reliance was placed on s 26 of the Act, which reads as follows:

26 Orders for benefit of children of marriage, civil union, or de facto relationship

(1)In proceedings under this Act, the court must have regard to the interests of any minor or dependent children of the marriage, civil union, or de facto relationship and, if it considers it just, may make an order settling the relationship property or any part of that property for the benefit of the children of the marriage, civil union, or de facto relationship or of any of them.

(2)If the court makes an order under subsection (1), the court may reserve such interest (if any) of either spouse or partner, or of both of them, in the relationship property as the court considers just.

(3)An order under this section may be made and has effect regardless of any agreement under Part 6.

[22]   Secondly, that in the exercise of the discretion under s 182 there is no entitlement or presumption of an equal division of the Trust’s property and that the principles of the Act do not underpin any entitlement. Relying on the Supreme Court’s judgment in Ward v Ward, the husband submitted the Court’s task was not to produce the outcome which would have applied if the relationship property had not gone into trust, but to make a fact specific judicial assessment of what is required in each case.8

[23]   The husband submitted that a two-fifth share in the equity in the Woolston property should have been apportioned to each party, with a one-fifth share reserved for the children. It was contended this would alleviate the risk of the children failing to benefit under the Trust and would reserve to them an interest as discretionary beneficiaries. This, it was submitted, accorded with the approach mandated by s 26(1) of the Act which the Court must have regard in recognition of the interests of any minor or dependent children when settling relationship property.

(iii)Decision

[24]   I do not accept that Judge Moran misdirected herself as to the application of  s 182.            The Judge expressly recognised in her judgment that the equal sharing

8      Ward v Ward [2009] NZSC 125, [2010] 2 NZLR 31 at [20] and [30].

principles of the Act do not underpin that provision and that there is no entitlement or presumption as to a 50/50 division of trust property. The Judge specifically directed herself that s 182 allowed her to make orders with regard to the whole or any part of the property settled, or to vary the terms of that settlement.

[25]   In addressing how she should exercise her discretion under s 182, Judge Moran referred to the position of the children who were beneficiaries under the Trust as being a relevant consideration. The Judge noted the children would remain dependent for some years to come on their parents and concluded that their interests, including those of the husband’s child would clearly be served if both parents were “financially enabled” to provide for their needs.

[26]   In considering whether any error was made by the Family Court in dividing the property equally between the two parties, their original expectations and the purpose for which the Woolston property was placed into the Trust needs to be borne in mind. As Judge Moran found, the Trust was settled shortly after the marriage for the benefit of the parties and their children. Its purpose was primarily to protect the family home from creditors and preserve it for the benefit and use of the family, and so it turned out. The Woolston property was used as the family home during the nine year marriage. Throughout, the wife believed she and the husband jointly owned the property and, in that belief, she had signed an unlimited guarantee with the bank for borrowings secured against that asset.

[27]   The husband remains in occupation of the Woolston property. Importantly in the context of the benefit of the half share being apportioned to the wife, the children of the relationship reside with their mother in modest rental accommodation. That arrangement was a relevant factor taken into account by the Court when considering whether to exercise its discretion under s 182. That question was required to be examined “from the perspective of the family unit assuming a continuing marriage and compared to the position under a dissolved marriage”.9 In carrying out that assessment and determining to exercise her discretion under s 182, a decision which was not challenged on appeal, Judge Moran paid particular regard to the interests of

9      See Clayton v Clayton, above n 2, at [66].

the children. That consideration was equally relevant and influential to the issue of how the discretion should be exercised.

[28]   The Woolston property was settled in the Trust to protect it as the family home. The property was not settled as a business asset to serve an investment function, but rather to ensure the family maintained a good standard of living for the benefit of the children of the relationship. I accept the wife’s submission that there could be no suggestion of any interim distribution to the children from the Trust. That was not realistically possible having regard to the financial pressures and obligations of the parties. The position of the children has to be assessed in the context of their continuing dependence on their parents and how their interests would best be served when distributing the Trust’s assets. Their interests were clearly best protected by ensuring their parents had access to what financial resources were available from the marriage to allow them to continue to care, shelter and support their children.

[29]   By adopting this approach, I am satisfied the Family Court had regard to the interests of the dependent children of the marriage as required by s 26 of the Act and that it was not necessary to make a separate order apportioning some part of the value of the Woolston property to the children themselves. The interests of the children of the relationship would not be served by the wife receiving less than an equal share. The position of the husband’s child from his earlier relationship is provided for from his equal share in the equity of the Trust property.

(b)                Whether the husband’s powers under the trust deed were so wide and personal to him to constitute relationship property

(i)Family Court decision

[30]   Judge Moran accepted the wife’s argument that the husband’s powers under the trust deed were so wide-ranging as to be personal to him and therefore constituted relationship property under s 2 of the Act.

[31]   Judge Moran relied upon the Supreme Court’s decision in Clayton v Clayton, where it unanimously held that because of the combination of several clauses in the deed of trust, Mr Clayton was not constrained by any fiduciary duty were he to choose

to exercise his powers in his own favour to the detriment of discretionary and final beneficiaries of the trust.10 It followed that because the trust was in the nature of a nuptial trust those powers were personal to him and therefore property under the Act.

[32]   In applying the same approach to the Trust in this case, Judge Moran had particular regard to the powers of appointment and revocation that the husband possessed as trustee. The Judge referred to his power to appoint the trust capital to himself to the exclusion of any other discretionary beneficiary, and referred to an ability to bring forward the vesting date to one of his choosing.11 Judge Moran considered that the effect of so doing would be to allow the husband to exclude final beneficiaries from deriving any benefit under the Trust.

[33]   Before considering the parties’ respective submissions, it is necessary to briefly review the approach taken by the Supreme Court in Clayton v Clayton.

(ii)The approach taken in Clayton v Clayton

[34]   Based on the powers and entitlements of Mr Clayton under the trust deed, the Supreme Court found the practical effect of the trust provisions was that Mr Clayton, as trustee of the trust, could appoint all the assets of the trust to himself unencumbered by fiduciary obligations to the other beneficiaries. The combination of powers available to Mr Clayton under the trust deed gave him such a degree of control over the assets of the trust that it was appropriate to classify those powers as rights or interests and therefore property under s 2(e) of the Act.

[35]   It was noted that Mr Clayton, in his capacities as principal family member and trustee, had the power to appoint all of the trust capital and income to himself. As settlor, sole trustee, and principal family member, he had the power of appointment of both discretionary beneficiaries and trustees, and could transfer the power of appointment of trustees to another person. He had power to change any provisions relating to the management and administration of the trust. In the present case it was emphasised by the wife that the husband had the same powers under the Family Trust.

10     Clayton v Clayton, above n 2.

11     It is not readily apparent what clause Judge Moran was referring to in relation to the latter ability.

[36]   Three provisions of the Clayton Trust were considered by the Supreme Court to be decisive. The first was a power given to the trustee to pay or apply all or any part of the capital of the trust fund to any one or more of the discretionary beneficiaries. Because Mr Clayton was both a trustee and a discretionary beneficiary, he could pay or apply the entire trust capital to himself.

[37]   The second was a clause which provided for the distribution of the trust capital on the “vesting day”, which Mr Clayton, as the trustee, could appoint. The same clause provided that persons entitled to the trust capital would be such discretionary beneficiaries (of whom Mr Clayton was one) as the trustee appoints, to the extent that any of the trust capital was not appointed to the final beneficiaries. As the Supreme Court observed, Mr Clayton as trustee could therefore appoint the trust capital to himself to the exclusion of any other discretionary beneficiary, and could also bring forward the vesting day to any date of his choosing. This would have the effect of excluding the final beneficiaries from deriving any benefit from the trust. In such an event, that would provide him with both legal and beneficial ownership of the trust capital and the trust would be at an end.

[38]   The third clause of the trust deed identified by the Supreme Court allowed  Mr Clayton as trustee to resettle the trust fund upon the trustees of any trust, which could include any one or more of the discretionary beneficiaries, of which Mr Clayton himself was one. This would allow Mr Clayton to resettle the trust capital on the trustee of a trust which he was a (or the) beneficiary.

[39]   In response to Mr Clayton’s argument that his fiduciary obligations as a trustee constrained his ability to exercise these powers in his own favour to the detriment of other beneficiaries, the same type of argument made by the husband in the present case, the Supreme Court observed that such a submission had to be evaluated against a number of other provisions in the deed that modified the normal duties of a trustee.

[40]   In that regard it was noted that a specific clause of the deed authorised a trustee who was also a beneficiary (as Mr Clayton was) to exercise any power or discretion vested in the trustee in his own favour. A further clause authorised the trustee to exercise any power or discretion conferred on the trustee, even though the interests of

all beneficiaries were not considered by the trustee; the exercise would or might be contrary to the interests of any present or future beneficiary; and/or the exercise would result in the whole of the trust capital income being distributed to one beneficiary to the exclusion of others. Finally, it was noted that another clause authorised the trustee to exercise any power or discretion notwithstanding that the interests of the trustee may conflict with the duty of the trustee to the beneficiaries or any of them.

[41]   The Supreme Court observed those provisions made it possible for Mr Clayton to resolve, as trustee, to apply the trust capital and income to himself (to the exclusion of the final beneficiaries and any remaining discretionary beneficiaries). He would be able to do so without considering the interests of other discretionary beneficiaries or those of the final beneficiaries, even if it meant all of the trust’s capital income was distributed to himself to the exclusion of other beneficiaries. The Supreme Court concluded that those provisions meant that Mr Clayton was not constrained by any fiduciary duty when exercising the trust’s powers in his own favour to the detriment of the final beneficiaries. That he could not remove the final beneficiaries did not alter the fact he could, unrestrained by fiduciary obligations, exercise the trust’s powers to appoint the whole of the trust’s property to himself. The normal constraints of fiduciary obligations therefore were of no practical significance in relation to Mr Clayton’s powers as trustee.

[42]   As a result of the Supreme Court’s analysis of the trust deed, it concluded the combination of powers and entitlements Mr Clayton had under the trust as principal family member, trustee, and discretionary beneficiary, amounted in effect to a general power of appointment in relation to the assets of the trust which could properly be classified as rights which gave Mr Clayton an interest in the trust and its assets for the purposes of the Act.

(iii)Argument on appeal

[43]   The husband argued that his powers of appointment and revocation under the trust deed, and in particular his power as trustee to appoint or exclude a discretionary or final beneficiary did not of itself create rights which should be treated as constituting relationship property. He sought to distinguish the approach taken by the

Supreme Court in Clayton v Clayton on the basis that, in that case, Mr Clayton had an unusual combination of powers under the trust deed, in that he was the settlor, so- called “principal family member”, sole trustee and discretionary beneficiary, and that his powers as “principal family member” and trustee were broad and free from the normal obligations imposed on fiduciaries in family trust deeds.12 In particular, it was noted that a clause in the trust deed with which the Supreme Court was concerned in that case provided that the “principal family member” in his personal capacity and not as a trustee, could appoint any person to become a member of the class of discretionary beneficiaries or remove any person from the class of discretionary beneficiaries.

[44]   In the present case, the husband submitted the combination of powers available to him under the trust deed ought not to have led to a conclusion that such rights constituted property under the Act and therefore relationship property equivalent to the assets of the Trust. In particular, he submitted he remained constrained by his fiduciary duties as a trustee to the beneficiaries of the Trust and was not able to exercise his powers under the trust deed in the type of personal capacity, as Mr Clayton could.

[45]   The wife submitted that the husband’s powers as a trustee under the Trust were akin to those of Mr Clayton. She submitted the husband, as the settlor and sole trustee, could control who the discretionary beneficiaries were and could appoint and exclude them. He had a wide discretion to make payment to discretionary beneficiaries, but most importantly could do so to the exclusion of others as he thought fit. This combined with his personal power to appoint and remove trustees meant he had full practical control of the Trust assets to make unequal distributions to the beneficiaries and to appoint and remove trustees.

[46]   Relevant parts of the trust deed upon which reliance was placed by the wife included:

·     The husband was named as the sole trustee and settlor.

12 At [14].

·     Clause 4 which provides the trustee with discretion to pay out income or capital from the trust fund.

·     Clause 5 lists the discretionary beneficiaries to include the settlor, wife of the settlor, daughter of the settlor, any other child of the settlor, and any other trust of which the settlor is the settlor or beneficiary and where the settlor has natural love and affection for the beneficiaries of that trust.

·    Clause 6 provides discretion to the trustee to apply parts of income or capital of the trust fund to discretionary beneficiaries as the trustee thinks fit for the maintenance, advancement, or benefit of such beneficiaries “to the exclusion of the other or others of them in such shares and proportions and generally in such manner as the Trustee thinks fit and regardless of whether there is any other fund available for the purpose until none of the said Discretionary Beneficiaries are living”.

·     Clause 7 provides that the trustee may pay or apply monies for any of the abovementioned purposes “By payment to the Discretionary Beneficiaries or any of them to the exclusion of the other or others in such shares and proportions generally in such a manner as the Trustee thinks fit”.

·     Clauses 12 and 13 vest personally in the husband the power to appoint and dismiss any trustee.

·     Clause 21(a) and (b) gives the trustee power to appoint any person as a discretionary or final beneficiary and to exclude any person as a discretionary or final beneficiary.

·     Clause 22 provides the trustee with a power to resettle the income or capital of the trust fund as he sees fit to the exclusion of an existing beneficiary.

[47]   Subject to fiduciary obligations, it was submitted that the husband has the power to vest all of the trust property to himself as a discretionary beneficiary. Clause 6 of the trust deed which expressly states that “[the husband] can exclude other

beneficiaries as he thinks fit” was emphasised, as was cl 7(a) which allows the husband in his discretion to make a payment to discretionary beneficiaries or any of them to the exclusion of others in such shares and proportions and in such a manner as he, as the trustee, thinks fit.

(iv)Decision

[48]   On the face of the trust deed there is no apparent limit on the distributions the husband, as trustee, can make to discretionary beneficiaries (including to himself) and that he can make any distributions as frequently as he sees fit to the exclusion of any other discretionary beneficiary. The power of appointment of trustees is personal to him which allows him as the sole trustee effectively to personally control the management of the Trust.

[49]   However, the approach taken by the Supreme Court in Clayton v Clayton requires the totality of the powers and entitlements set out in the trust deed to be assessed collectively to determine whether the powers provided to the husband render the normal constraints of fiduciary obligations to be of no practical significance.

[50]   Because I have upheld the exercise  of the  Family Court’s  discretion under  s 182 of the Family Proceedings Act, it is not necessary for me to come to any concluded view regarding whether the overall effect of the provisions of the trust deed provide the husband with such powers that they are rights exercisable by him which amount in effect to a general power of appointment in relation to the assets of the Trust. In order for me to find the rights the husband enjoys under the trust deed constitute property for the purposes of the Act, I would need to be satisfied that such powers were free from the normal constraints of fiduciary obligations and are tantamount to those of ownership.

[51]   Judge Moran concluded that this was the effect of the terms of the Trust. In particular that the husband’s exclusive powers of appointment and revocation of discretionary and final beneficiaries, to make distributions to the discretionary beneficiaries (including to himself) to the exclusion of others, and to effect a resettlement of the Trust’s income or capital fund which may exclude an existing

beneficiary, were so wide-ranging as to be personal to him and constituted personal property under s 2 of the Act.

[52]   In arriving at such a conclusion the Court would need to have been satisfied that the terms of the trust deed displaced the husband’s fiduciary obligations. In considering that question the overall effect of the provisions of the trust deed must be examined to assess whether the terms of the Trust amount to a general power of appointment in relation to the Trust’s assets.

[53]   The trust deed does not have the same provisions which the Supreme Court concluded effectively trumped the ordinary fiduciary obligations of a trustee and allowed Mr Clayton to exercise his powers under the trust deed in his favour unconstrained by any fiduciary duties owed to the final beneficiaries. In the present case there is no provision declaratory of the trustee’s entitlement to exercise a power or discretion in his or her own favour for their self benefit. Nor is there a clause which provides for the avoidance of doubt that the trustee will have an unfettered discretion to exercise his powers and discretions conferred under the deed despite the interests of beneficiaries not being considered, or that their exercise would or might be contrary to the interests of present or future beneficiaries. There is no clause in the family trust deed which authorises the trustee to exercise at his discretion any power notwithstanding his interests may conflict with the duty of the trustee to the beneficiaries or any one of them.

[54]   In the absence of such clauses in the trust deed, I am reluctant to affirm the Family Court’s conclusion that the powers conferred on the husband, notwithstanding their literal effect, extinguished his fiduciary obligations to the beneficiaries. Judge Moran did not address this part of the Clayton v Clayton analysis. The Judge was not required to do so given her earlier findings in relation to s 182 of the Family Proceedings Act. Without the benefit of argument addressing the absence in the trust deed of the same type of explicit clauses present in the Clayton trust deed and which directly addressed the conflict between the trustee’s obligations to the beneficiaries and Mr Clayton’s powers allowing him access to the trust assets for himself, I am unwilling to confirm the position taken by the Family Court. For present purposes and

without coming to any final view, I would be inclined to put the Family Court’s finding on this issue aside.

[55]   That approach has no practical effect on the outcome of the appeal because I have upheld the position taken by the Family Court in relation to the s 182 issue.

(c)                 Treatment of GST for the purposes of the valuation of the Woolston property

(i)Family Court decision

[56]Judge Moran determined the value of the Woolston property was to be fixed at

$432,500.00. This sum represented the middle range of the current valuation of the property less the balance of the mortgages secured over the property which totalled

$118,726.99. The Family Court calculated the equity in the property as $313,773.01, which resulted in a half share of $156,886.50.

(ii)Argument on appeal

[57]   The husband submitted that Judge Moran failed to deduct the GST portion of the assessed value of the Woolston property when calculating the value of the amount payable to the wife in respect of the trust asset.

[58]   There is no challenge to the market valuation of March 2016 provided by a registered valuer assessing the market value at $385,000 plus GST (if any) and establishing a market value range assuming repairs and modernisation were complete of $425,000 to $440,000. The process by which that valuation was obtained was set out in worksheets attached as appendices to the registered valuer’s letter. Nor is there a challenge to the Family Court Judge taking a midpoint of $432,500.00. The husband’s submission is that because the Trust is GST registered the figure applied to the Woolston property ought to have been calculated taking into account the GST

portion of the value of the trust asset. husband’s submissions as follows:	The contended for calculation was set out in the
Value of property	$432,500.00
Less mortgages	$118,726.99
$313,773.01

Less GST payable  $56,413.04

$257,359.97

[59]   The husband presently occupies the Woolston property. Judge Moran proceeded on the accepted basis that the husband would retain the Woolston property and the EQC/insurance payout in relation to it, hence the undisputed midpoint valuation figure for the market value of the property in a repaired state.

(iii)Decision

[60]   I do not accept the husband’s approach to the calculation of the value of the property. The registered valuer was charged with providing a current market valuation of the Woolston property. I accept the wife’s submission that the valuation used by the Family Court was not GST inclusive. The valuation provided by the registered valuer, as accepted by the parties, was a market valuation plus GST (if any). When the property is sold the Trust will receive the full benefit of the purchase price, that is the market value of the property plus any GST which is required to be paid upon its sale and required to be accounted to the Inland Revenue Department. The net result will be the Trust (the husband) receiving the full value of the property.

[61]   The calculation put forward as part of the husband’s submission before me would only have application if the market valuation provided by the registered valuer was GST inclusive. In such a case an allowance for GST payable upon the sale of the property would have to be accounted for in the half share payable to the wife. That, however, is not the position.

[62]   Accordingly, I confirm Judge Moran’s approach to the calculation of the value of the Woolston property which was fixed at $432,500.00 plus GST. When the balance of the mortgages secured over the property is deducted from that valuation ($118,726.99) a half share in the equity of the property is $156,886.50. This is the sum the Family Court has ordered the husband to pay to the wife in return for which the trust deed will be varied to remove the wife as a beneficiary. In the absence of such payment being made leave has been reserved to the parties to seek further directions as may be necessary in order to effect a sale of the property.

(d)                The value of the Woolston property and post-separation contributions

(i)Family Court decision

[63]As already noted, the Family Court fixed the value of the property as

$432,500.00 at the time of hearing. The balance of the first mortgage was $85,577.00 and the floating loan secured against the Woolston property for the purpose of purchasing the Phillipstown property stood at $33,249.99 at that time. Applying those figures (plus or minus $100.00) the equity in the property was calculated at

$313,733.01.

(ii)Argument on appeal

[64]   The husband submitted that Judge Moran erred in calculating the value of the Woolston property as at the date of the hearing because this resulted in him not receiving credit for what he described were significant post-separation reductions in the debt that was secured against the property.

[65]   The husband submitted that level of debt is to be compared with the state of the mortgage over the Woolston property as at the date of separation being

$129,004.69. He contends the difference between that figure and the balance of the first mortgage at the time of the hearing, $85,577.00, represents post-separation repayments he made of $43,427.69, which have not been taken into account when dividing the relationship property. The husband submitted either the balance of the mortgage at the date of separation of $129,004.69 should be used as the appropriate value, or alternatively the figure of $85,577.00 as of March 2016 used, and the post- separation repayments of $43,427.69 recognised by the wife crediting him with a half share of those repayments, being $21,713.85.

(iii)Decision

[66]   For a number of reasons, I reject the husband’s claim under this heading. The first difficulty is that there is no evidence which directly establishes the reduction in the mortgage debt was as a result of payments made by him. It does not appear that any specific argument was made in the Family Court for such an adjustment. The issue is not traversed in Judge Moran’s judgment. The wife has identified a

submission that was made before the Family Court in the context of the s 182 Family Proceedings Act argument which referred to the balance on the mortgage on the Woolston property at separation being $129,004.69. However, apart from the contrasting figures between the date of separation and the date of hearing there is no evidence addressing the issue of how the reduction was achieved.

[67]   This difficulty is linked with an ongoing evidential problem that has appeared to plague the proceeding. There is a dearth of complete banking records and a confusing mixing of business and personal expenditure and payments using different accounts and credit cards. No further evidence was adduced on the appeal in clarification of the financial position or record of transactions relating to the reduction of the mortgage balance, nor was any source material in the form of supplementary bank statements or summaries sought to be admitted.

[68]   The wife referred to requests she had made during the course of the Family Court proceeding for the Trust’s bank statements, however, only limited disclosure was forthcoming with statements for only the short period between August 2010 to February 2011 being provided. No statements were provided which documented payments made in reduction of the mortgage loan between separation and the date of hearing. Indicative of the incomplete documentary record was the fact that the only bank statements made available in respect of their household account was limited to the period between August 2010 to May 2011, and no bank statements from the husband’s personal bank account, nor from the Company’s bank account, were produced. It is perhaps unsurprising therefore that in the absence of documentary evidence it does not appear this particular adjustment was contended for by the husband before the Family Court.

[69]   A further difficulty for the husband is that any consideration of payments made by him in reduction of the mortgage between the date of separation and the date of hearing would inevitably have to take into account the benefit he has received from residing at the Woolston property during that period. The wife, in contrast, has been in rented accommodation. Accordingly, any mortgage repayments made by him over the five year period would have to be set off against an accommodation rental payable to the wife in recognition of his use of the family home and the rental she has had to

pay for alternative lesser accommodation. An elementary calculation based on a very modest rental would result in any difference in the balance of the mortgage between the date of separation and the date of hearing being substantially eclipsed.

[70]   Because of the lack of evidence adduced before the Family Court on this issue and potential adjustments in recognition of the post-separation accommodation arrangements, it appears understandable this issue was not pursued by the husband’s former counsel before the Family Court. For the reasons provided, the husband has not made out his claim for an adjustment for mortgage repayments between separation and hearing dates.

(e)                 Value of post-separation contributions in respect of the Phillipstown property

(i)Family Court decision

[71]   The Phillipstown property was purchased in May 2008 for $215,000.00. The Company was incorporated for the purpose of purchasing this rental property. The Company borrowed $182,750.00 from Westpac Bank which was secured against the Phillipstown property. A floating loan which had an initial credit of $97,000.00 was also borrowed by the Company, in respect of which the husband and the wife signed unlimited guarantees. The floating loan was also secured over the Woolston property.

[72]   When the Phillipstown property was sold in May 2014 for $260,174.02 (after payment of commission) the mortgage loan which stood at $179,745.09 was repaid. The balance of $76,875.14 was applied to the floating loan and a small sum paid to the husband. This left a residual debt in respect of the floating loan which as at February 2016 stood at $33,149.99. This remains a debt in respect of which both parties are jointly liable pursuant to the guarantees they provided.

[73]   The husband argued before the Family Court that there was a deficit between the rental received on the Phillipstown property and the mortgage repayments in the period between separation and the date of sale. He submitted that he had contributed

$24,062.01 to make up the shortfall and sought an adjustment of $12,031.00 representing the wife’s share of that shortfall for which he paid.

[74]   Judge Moran accepted that any shortfall paid by the husband would have sustained the Company asset and therefore the value of the shares in the Company which constituted relationship property. However, the Family Court regarded an adjustment of $6,000.00 met the justice of the case.

[75]   In approaching the issue, Judge Moran referred to s 18B of the Act which provides the Family Court with a discretion to make an award in recognition of post- separation contributions. Section 18B reads:

18B     Compensation for contributions made after separation

(1)In this section, relevant period, in relation to a marriage, civil union, or de facto relationship, means the period after the marriage, civil union, or de facto relationship has ended (other than by the death of one of the spouses or partners) but before the date of the hearing of an application under this Act by the court of first instance.

(2)If, during the relevant period, a spouse or partner (party A) has done anything that would have been a contribution to the marriage, civil union, or de facto relationship if the marriage, civil union, or de facto relationship had not ended, the court, if it considers it just, may for the purposes of compensating party A—

(a)order the other spouse or partner (party B) to pay party A a sum of money:

(b)order party B to transfer to party A any property, whether the property is relationship property or separate property.

(3)In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 86.

[76]   The husband did not take issue with Judge Moran’s identification that the legal test to be applied is what the Court considers to be “just” in all the circumstances of the case, and that s 18B anticipates a global assessment being made by the Court of each party’s post-separation contributions.

[77]   In examining the issue, Judge Moran observed that a significant issue required to be taken into account was the extent to which the husband had used the floating loan for personal expenditure. The Judge referred to the confusing way in which there had been an intermingling of finances between the various entities, and that it was clear the floating loan had been used by the parties to meet living expenses during their marriage. Judge Moran concluded that there was no evidence to suggest that this

practice by the husband had changed markedly after separation. As a result, the Family Court considered that, while a compensatory adjustment was appropriate in the circumstances, the size of that adjustment needed to reflect the husband’s personal use of the floating loan to meet his own expenses since separation. Accordingly, an adjustment of only $6,000 was determined as appropriate to the meet the justice of the case.

(ii)Arguments on appeal

[78]   The husband on appeal submitted the Family Court erred in only crediting him with $6,000.00 in respect of post-separation contributions to make up the shortfall between the rental and the mortgage repayments for the Phillipstown property. He did not, however, directly challenge the rationale applied by Judge Moran in requiring the wife to only make a $6,000.00 contribution to the shortfall. Nor did his argument on the appeal extend to challenging the Family Court’s finding that the husband had continued to use the floating loan in part to meet his own living expenses. I was not taken to any evidence which suggested that Judge Moran’s conclusion in that regard was made in error.

[79]   In support of the Family Court’s approach, the wife referred to a number of significant unaccounted for transactions authorised by the husband between various entities, the Company, TAL, and the Trust, which effectively made it very difficult to account for funds. Advances from the floating loan account to TAL in 2008 and 2009 were identified, and a lack of evidence regarding the state of the mortgage in respect of the Phillipstown property was highlighted, as was a similar lack of evidence demonstrating that the rental was insufficient to meet the mortgage repayments, or that the husband had made payments from his personal funds.

(iii)Decision

[80]   There is an onus on the husband to establish that Judge Moran erred in the exercise of her discretion under s 18B of the Act in limiting the adjustment she considered just in the circumstances to one of $6,000.00. The husband has failed to discharge that burden and I dismiss that ground of his appeal.

(f)                  Boat and vehicle

(i)Family Court decision

[81]   During the course of the relationship a 1987 Bayliner boat was purchased. A valuation was obtained by the husband in April 2012 which valued the boat at

$6,000.00. The wife obtained a further valuation in August 2014 which valued the boat at $7,500.00 in its current condition. The Family Court assessed the value of the boat for relationship property purposes at an amount equal to the debt incurred to acquire the asset, which at separation stood at $22,337.00.

[82]   In approaching this issue Judge Moran exercised the discretion available to her under s 2G of the Act to decide the value of the boat should be determined not as at the date of hearing but at the date of separation. The Judge did so as a result of her assessment of what she considered to be the husband’s unsatisfactory evidence regarding the marked deterioration in the value of the boat between those dates during which time the asset was in his possession.

[83]   A further vehicle, a Toyota Land Cruiser, was shown as an asset in the financial statements of TAL. The wife contended that the vehicle was used by the husband for personal use and should be treated as relationship property. Judge Moran did not accept this submission, finding the vehicle to be an asset of TAL and that any financial adjustment for personal use should be made through the Company accounts.

(ii)Argument on appeal

[84]   The husband argued that the approach taken by the Family Court to the valuation of the boat was incorrect. As a further separate submission, the husband argued the Family Court had not given him sufficient credit for post-separation payments he made in respect of loans used to purchase the Toyota vehicle and the boat.

[85]   The husband submitted that a joint loan account (the 0859 account) was opened in order to purchase the boat and the Toyota motor vehicle. The husband’s evidence was that this loan had been repaid as at the date of hearing and the account closed by the bank. He maintained he had been unable to obtain the bank statements requested

by the wife relating to this loan and that he no longer had any of the statements in his possession. That notwithstanding, he did obtain an account balance certificate as at February 2011 which, at the time of separation, showed the balance figure to be

$22,337.47. The husband submitted that he should have been credited with post- separation payments made in respect of this loan taken out for the purpose of the purchase of the Toyota motor vehicle and the boat. In recognition of the post- separation payments the husband made to meet this loan, he submitted an adjustment should be made of $11,168.50 in his favour.

(iii)Decision

[86]   The husband did not on his appeal identify how Judge Moran had erred in the exercise of her discretion in determining the value of the boat for relationship property purposes. I do not find her approach to have been plainly wrong. No evidence was placed before the Family Court as to the purchase price paid for the boat. As already noted, the Judge referred to a loan having been obtained in the sum of $30,000.00 to make the purchase. Judge Moran considered that provided some indication of its value when it had been first obtained.

[87]   Both valuers referred to the poor condition of the boat at the time of their inspection. The husband claimed this reflected earthquake damage which the boat had suffered, however, the Judge considered that while she could not discount that some damage had been caused as a result of that event, she did not accept the husband’s evidence of how that could explain the deterioration in its condition.

[88]   One of the valuers related to the Court how, at the time he viewed the boat stored at the Woolston property, the husband had informed him that the stern-drive leg had been damaged in the earthquake and was not attached to the boat. Upon enquiring where the stern leg was, all the husband was able to say was that it was damaged. Mr Lowry, the valuer, made the observation that he found it hard to believe that only the stern leg could have been damaged in the earthquake, which left him to question what kind of condition the boat was in at that time. Mr Lowry commented that if the boat was complete with the stern leg connected and the motor running, and if it was “tidied

up a bit”, he considered it would be worth up to $15,000.00, but that its current market value was only $7,500.00.

[89]   Judge Moran noted that the husband had told both valuers the motor was not going notwithstanding his evidence that he had borrowed $25,000.00 from his mother in December 2008 to put a new engine in the boat. Judge Moran was sceptical about any earthquake damage to the boat being limited to the stern leg which had coincidentally been removed and the husband’s apparent inability to inform as to its whereabouts.

[90]   In evidence, the husband denied any intention to be obstructive or misleading at the time Mr Lowry had attended to carry out the valuation. He claimed the boat had been very badly damaged following the earthquakes but he was unable to recall what he had received from the insurance company as a result of a claim for the damage, only that the repairs were considerably more than the initial quotes he had received to carry out the repairs. No evidence was adduced by the husband regarding the insurance claim, or about the sum received, nor if any remedial work had been carried out. Judge Moran concluded that the husband had deliberately diminished its value by taking the stern leg and not making it available for either valuer to inspect.

[91]   The Judge found on the evidence that from the date of separation to when the valuations were undertaken, some three and a half years later, the boat’s condition had deteriorated markedly and its value appeared to have at least been halved. It was noted the trailer was neither registered, nor did it have a warrant of fitness, and that the boat would require substantial work before it was seaworthy. Accordingly, Judge Moran was not satisfied that the husband had fulfilled his obligations to reasonably maintain the asset following separation and that a hearing date valuation was not appropriate. The Judge proceeded to value the asset as at the date of separation which for relationship property purposes she fixed as an amount equal to the debt incurred to acquire the asset which at separation stood at $22,337.00.

[92]   Judge Moran made findings of credibility against the husband in relation to his explanation as to how the boat had come to deteriorate over the years since the date of

separation. The Judge found as a fact that the husband had deliberately interfered with the boat for the purposes of lowering its valuation and had failed to maintain the asset.

[93]   There is no evidence of an insurance claim having been applied to repair damage suffered in an earthquake as claimed by the husband. If such a claim had been made it is apparent the proceeds had not been applied to carry out remedial work. I was pointed to no evidence in the record which contradicted or undermined Judge Moran’s conclusions based on her assessment of the evidence presented before her. In the absence of any effective challenge to the Family Court’s approach in finding a date of separation valuation for the boat to be appropriate and the Judge’s reasons for adopting that course, this ground fails.

[94]   Turning to the submission regarding insufficient credit for post-separation payments made in respect of loans used to purchase the vehicle and the boat, it is notable that the affidavit evidence which is referred to in the husband’s submissions does not actually depose to him having made the repayments. His affidavit of 4 February 2015 refers only to the loan having been repaid and the account closed. He then refers to being unable to obtain any documentary records from the bank relating to the repayment of the joint loan account.

[95]   The affidavit evidence is confusing because it refers to two different Westpac accounts (1599 and 0859). The 1599 account is referred to as being a loan for $30,000. The 0859 account is referred to as being for the purpose of purchasing the boat and the Toyota motor vehicle, with a balance at 1 February 2011 of $22,337.47. It appears there has been some conflating of two different loan accounts. On the husband’s evidence there does not appear to be any basis for deducting the $22,337.47 which relates to the 0859 account from the loan figure of $30,000.00 which relates to the 1599 account. The husband produced no bank records to support his claim, asserting that he was unable to obtain such information from Westpac.

[96]   The evidence is unsatisfactory and cannot support the claim which the husband contends for on appeal and which does not appear to have been made before the Family Court. It is not addressed in Judge Moran’s decision. Furthermore, there is an inconsistency in the husband’s approach to the status of the Toyota motor vehicle.

[97]   Judge Moran declined the wife’s application that the Toyota be classified as relationship property. This vehicle was shown as an asset in the financial statements of TAL with a cost price of $12,889.00 and a book value, around the date of separation, of $2,398.00. Judge Moran treated the vehicle as an asset of the Company and that any financial adjustments for personal use would be required to be made through the Company accounts. There was no record within the draft accounts for TAL reflecting any debt owed by the Company to the husband.

[98]   Because of the unsatisfactory nature of the evidence which does not, in fact, support the husband’s claim of having made post-separation payments, in respect of which, confusingly, there appears to be two different loan accounts, I dismiss this ground of appeal. There is insufficient evidence of the husband having personally made such payments and he has failed to discharge the onus upon him to establish such a claim. Assertions that he has been unable to access bank statements or obtain documentary records from the bank, as with the claim contained in his affidavit of being unable to obtain any information relating to the insurance claim in respect of the boat, do not ring true.

(g)                Loans from the husband’s mother

(i)Family Court decision

[99]The husband’s mother, who died in March 2014, advanced the sum of

$40,000.00 through her own trust to be secured by way of a second mortgage over the Woolston property. She also personally provided an unsecured sum of $28,000.00. In April 2004 during the course of the marriage the $40,000.00 loan was repaid and the second mortgage discharged. No issue therefore arises regarding any outstanding obligations or payments made in discharge of this $40,000.00 loan post-separation. I note also that no issue arose in respect of this sum before the Family Court, and any claim made on appeal is unsustainable.

[100]   A further $25,000 was obtained by the husband in December 2008. It was argued before Judge Moran that the loan was advanced by the husband’s mother to be applied to the boat. In relation to this debt, Judge Moran observed that there was no proof that it was actually applied to the boat to improve its value by replacing the

motor. While the Judge was prepared to accept the money may have been advanced for that purpose, in the absence of proof that the loan moneys had been applied to this item of relationship property, Judge Moran was not prepared to find that the loan constituted a relationship debt for which the wife should take joint responsibility.

(ii)Argument on appeal

[101]   The husband submitted that the Family Court made no proper allowance for what he described were loan advances of $40,000.00 and $28,000.00 made to him by his mother, and failed to give proper consideration to the manner in which one or both of the loans were repaid or otherwise satisfied, including by way of post-separation repayments. The husband also submitted that in regard to the $25,000 loan, that it was always intended to be a loan and the Judge erred by not giving it proper consideration.

(iii)Decision

[102]   In relation to the $28,000.00 paid by the husband’s mother to allow for the purchase of the Woolston property, reliance was placed on a solicitor’s file note at the time the husband and his mother attended the solicitor’s office for the purpose of arranging financing for the Woolston property acquisition. The file note records:

[The mother] explained that so far as she was concerned, while she was lending $68,000, $40,000 of this was the amount that would become [her son’s] inheritance in any event so that she did not feel that she would require repayment of this sum at any stage. She was however concerned about the

$28,000 balance which is money that she expects [him] to repay as this is effectively the inheritance of the other four children. ...

... She reiterated that she regarded the $40,000.00 as being [his] inheritance in any event and that she was only concerned about the $28,000 which she regarded as being properly secured by the two forms of security.

[103]   The file note refers to various financial arrangements that were being discussed at the time and various alternatives available to finance the transaction, including proposed guarantees and forms of security. In the statement of account issued by the solicitor for the purposes of settlement of the Woolston property, a $68,000 credit is noted at July 2002 as being a loan advance from the husband’s mother.

[104]   It is therefore apparent from the evidence adduced before the Family Court that of the $68,000 advanced by his mother, only $28,000 was strictly the subject of a repayment obligation. In fact, $40,000 was secured by way of a second mortgage and repaid in April 2004. It follows from the available evidence that the $28,000 balance does not appear to have been subject to a repayment obligation. No such claim was made before the Family Court. The only reference in the Family Court judgment is to a claim for relief in respect of post-separation repayments relating to a loan obtained in December 2008 for $25,000 in relation to the repair of the boat.

[105]   This $25,000 loan the husband claimed to have been obtained from his mother for the purpose of purchasing and fitting a reconditioned motor and propeller for the boat. In that regard, reliance was placed upon a note signed by his mother recording that she had loaned her son $25,000 to pay for repairs to his boat. She recorded that the sum was to be repaid to her on the sale of the boat or earlier if convenient.

[106]   In the absence of evidence that the loan money had been applied to the boat, Judge Moran was not willing to find the loan constituted a relationship debt. Supportive of that interpretation is that, as with the unsecured sum of $28,000.00, no demand has been made for repayment of the $25,000.00 by the husband’s mother’s estate or that such a debt is owed. There is no evidence that the husband has a liability to his mother’s estate or any obligation to account to it for that sum. Wylie J in N v N, citing the English Court of Appeal in Warren v Gurney, observed there is a presumption that the transfer of property from parents to their children is a gift.13 Such a presumption can be rebutted by evidence. While the note signed by the husband and his mother provides some support to classify the advance as a loan, the status of the advance needs to be assessed having regard to the current circumstances. In the absence of any evidence or even suggestion that the husband is required to account to his mother’s estate for that sum, it is appropriate in the circumstances that it be treated as a gift.

13     N v N [Relationship Property: loan] [2010] NZFLR 161 (HC) at [46], citing Warren v Gurney

[1944] 2 All ER 472 (CA) at 473.

(h)                Working for Families tax credit and reduction of credit card debt

[107]   It is convenient under this heading to also deal with the wife’s cross-appeal regarding Judge Moran’s finding that these were relationship debts.

(i)Family Court decision

[108]   At the date of separation there was a Westpac Gold credit card in the husband’s name with a debt balance of $13,798.86. The husband argued the debt was relationship property and in 2011 he received $9,000 from Working for Families which he applied to the debt, reducing the balance to $4,798.86. He also contended that he continued to make payments reducing the debt further.

[109]   The wife accepted the tax credit received by the husband in 2011 was relationship property, but she argued the credit card debt was personal to the husband because it was held in his sole name and used primarily for his Company’s purposes. She submitted the tax credit should not have been applied as it was in reduction of the husband’s personal credit card debt. The wife argued an adjustment should be made to recognise her half share of the tax credit.

[110]   Judge Moran noted the difficulties that were presented by the incomplete and confusing state of the bank records and that the Court was essentially being asked to reconstruct the accounts. Judge Moran concluded from her perusal of the credit card accounts that while there could be no individual forensic determination of each entry, she was satisfied the husband had used the credit card for both personal and Company expenditure.

[111]   Judge Moran did not adopt the wife’s submission that the Court should infer the credit card had been used primarily for Company purchases in the absence of few monthly payments to the credit card debt being able to be traced to the parties’ joint or personal accounts, and which could therefore be assumed to have been made by TAL. In the absence of a full analysis of the statements, Judge Moran could only estimate the proportion of Company expenditure. On the evidence she considered one third of the credit card debt was relationship property, a figure of $4,599.62.

(ii)Arguments on appeal

[112]   The husband submitted the Family Court erred in not giving proper consideration to the Working for Families tax credit of $9,0000 he applied in reduction of the credit card debt, reducing it to $4,798.86. He submitted he had continued to make repayments in reduction of the Westpac Visa debt and sought an adjustment payment of $2,399.43 from the wife.

[113]   On the hearing of the appeal, the wife emphasised the absence of disclosure by the husband of complete records of the credit card account, with only statements from September 2005 to April 2011 and account summaries for the same period having been produced.

[114]   The wife emphasised the statutory definition of a relationship debt being one that has been incurred by the spouses or partners jointly, or in the course of a common enterprise carried on by the spouses or partners, whether alone or together with another person. Alternatively, the relationship debt was required to have been incurred for the purpose of acquiring, improving or maintaining relationship property, or for the benefit of both spouses or partners in the course of managing the affairs of the household, or for the purpose of bringing up any child of the marriage.14 Having regard to those requirements, it was submitted the credit card debt was owed by the husband and that, in the absence of the parties’ joint account being used to pay such debt, its use must have been other than for relationship purposes.

[115]   The wife made reference three payments recorded in the credit card account in February 2011 for $3,000.00, March 2011 for $500.00, and November 2011 for

$1,000.00. These credits did not come from the joint account because there was no matching debit in the bank statements from that account. In the absence of having access to the husband’s or TAL’s bank statements for this period it was argued that this “snapshot” indicated that debt being incurred on the credit card was for the husband’s own purposes.

14     Property (Relationships) Act 1976, s 20.

[116]   While acknowledging the Family Court’s task was difficult, the wife submitted Judge Moran had erred in failing to make a decision based on the information available to her, limited as it was, and contended the entirety of the debt was personal to the husband. In the absence of him being able to make available full records in relation to the credit cards or bank statements relating to his own account and that of TAL’s, the wife submitted the Family Court should have found the entirety of the credit card debt was personal to him.

(iii)Decision

[117]   The husband’s contention is difficult to follow. Judge Moran took into account the Working for Families payment which the husband applied to reduce this credit card debt. His complaint appears to centre on the Family Court’s decision not to make any adjustment for further payments which he contends he continued to make in respect of this debt.

[118]   This argument is unsustainable. He simply has failed to put forward evidence which proves this to be the case. As submitted by the wife, the Family Court was required to make decisions about the status of the credit card debts amidst a confused and opaque evidential background, a feature of which was the absence of complete records regarding the use of the credit cards and the source of payments applied to manage the debt created. The approach taken by the Family Court has to be considered against the difficulty it faced in having to draw accurate conclusions from a varied and incomplete range of credit card statements and bank records to make an assessment of which (or at least the proportion of which) transactions constituted personal expenses and which were relationship debts.

[119]   The husband, on his own evidence, conceded that in addition to personal expenditure for the wife and himself, he had also used the credit card to meet costs associated with TAL, although as Judge Moran observed his evidence about this issue was otherwise vague.

[120]   Turning to the wife’s argument, I do not accept her submission that the husband was required to take responsibility for the whole of the credit card debt. Ultimately, the Family Court was required to make a broad assessment of the extent to which that

debt could be divided between relationship and personal use. As at the date of separation there was a debit balance of $13,798.86 on the Westpac Gold credit card which was in the husband’s name. There was also a loan balance of $11,279.72 at the date of separation which had been used to repay an earlier credit card debt. Judge Moran estimated the proportion of that debt, which represented relationship spending, to be one-third of the total sum. Applying that approach, the Judge calculated the total relationship debt for both credit cards to be $8,359.52. I do not consider the Judge erred in approaching her assessment in the way she did or that on the state of the evidence such an outcome was unreasonable or unjust.

[121]   The husband, as I have already observed, has failed to prove the post- separation payments he claims to have made and I was taken to no evidence that corroborates such a claim. The wife sought to rely on the self-described “snapshot” evidence of payments to infer that, as the payments must have been sourced from non- relationship accounts, the spending must have been personal to the husband. I do not consider that to be a reasonable inference. The credit card debt was calculated by the Family Court as that owed at the date of separation so had been incurred during the marriage. The three payments sought to be relied upon were made during the year of the separation and their source is unknown. Neither those transactions nor a submission that adverse inferences should be drawn against the husband based on the incomplete financial records provide a proper basis to conclude that all the credit card debt should be considered as the separate liability of the husband.

[122]   The wife’s entitlement to a half share of the Working for Families tax credit was taken into account in the final adjustments between the parties upon making orders at the conclusion of the Family Court’s judgment.

(i)                   EQC payment in respect of chattels at the Woolston property

(i)Family Court decision

[123]   Judge Moran noted the parties received an EQC payment of $22,000.00 for chattels damaged or destroyed in the earthquakes and agreed to divide that payment equally but does not otherwise address the component parts of the claim. It is not clear the Judge was asked to do so. After referring to the EQC payment for chattels being

divided equally, Judge Moran observed that the parties had been unable to resolve more minor issues regarding chattels in the absence of valuation evidence. That appears to reflect the position set out in the wife’s affidavit evidence. There is no direct reference to any issue relating to the carpet.

(ii)Argument on appeal

[124]   The husband submitted that Judge Moran erred in not identifying the sum agreed to by EQC relating to the replacement of the carpet at the Woolston property. In particular, that the Court had not isolated the sum of $5,381.00 which had been quoted by a retailer to replace the carpet and which formed part of the claim which should have been considered as property belonging to the Trust.

(iii)Decision

[125]   As already canvassed earlier in this judgment, the valuation obtained of the Woolston property was based on a market value assuming repairs and modernisation had been completed. On the basis the carpet was required to be replaced as a result of the earthquake damage, I consider the cost of that item should be taken to be part (albeit a very small part) of the market value of the property. The carpet would ordinarily be included as part of the fixtures in any sale of the property. The cost to replace the damaged carpet must therefore be considered to form part of the market value of the property as it was valued for the purpose of the division of the property. Accordingly, I consider there needs to be an adjustment to take into account the

$5,381.00 representing the cost to replace the damaged carpet. Such an approach is also consistent with the agreement that the husband retain the EQC/insurance payout in relation to the Woolston property.

The wife’s cross-appeal

[126]I turn now to the grounds raised by the wife on her cross-appeal.

(a)                 TAL current account

(i)Family Court decision

[127]   TAL was incorporated in October 1998 prior to the commencement of the parties’ relationship. The husband is the sole director and shareholder of that Company and as at the date of separation he had a credit balance in his shareholder current account of $120,000.00. The wife contended in the Family Court that the $120,000 was relationship property.

[128]   Judge Moran held that TAL was incorporated prior to the commencement of the relationship at which point the current account was clearly separate property. On the evidence, Judge Moran was unable to identify any relationship property component of the current account. She found that the current account was the husband’s separate property.

(ii)Arguments on appeal

[129]   The wife submitted the Family Court erred in declining to classify the current account as relationship property. In doing so, she reiterated her arguments made in the Family Court. She sought to rely on the evidence that could be gleaned from the limited record that had been made available from TAL’s bank account for the period between August 2008 and March 2009. She submitted this “snapshot” showed a pattern of advances made to TAL during that period from the joint floating loan facility entered into for the purpose of purchasing the Phillipstown property which was secured against the Woolston property. In November and December 2008 four payments totalling $13,000.00 were made to the Company. The husband also during that period made two advances totalling $10,000.00, in October 2008 and March 2009. Because these payments had been made during the course of the relationship from sources that would otherwise constitute relationship property it was submitted the advances should be considered as relationship property dispositions.

[130]   The wife had asked the Family Court to draw the inference that from this pattern of deposits made during this six month period from joint borrowings or from the husband’s account, these sums contributed to the credit balance of the current

account. The wife submitted the funds that were accumulated in the shareholder account had not been obtained as a result of the Company’s activities but had been achieved as a result of external funds being regularly applied to the Company from relationship sources. The current account should therefore also be considered relationship property.

[131]   The wife further submitted the unsatisfactory position regarding the Company’s bank records and the lack of any valuation of the state of the current account as at the date of hearing was not of her making, and she expressed concern about the adequacy of disclosure made by the husband. She submitted that the husband should not benefit from his material non-disclosure which should be a factor taken into account in her favour on the basis the limited banking records that are available indicate a significant portion of the current account was sourced from relationship property.15

[132]   The husband maintained the stance he had taken in the Family Court that the status of the current account as separate property had not changed throughout the course of the marriage and that, even if it was designated to be relationship property, it had no real value because of the lack of equity in TAL as at 31 March 2011 which is proximate to the date of separation. In the absence of the Company having any resources with which to repay the debt there was no real value in the shareholder’s current account.16

(iii)Decision

[133]   The Family Court correctly identified that the current account credit, as with any other asset, must be classified as relationship or separate property and that the origins of the asset will inform its classification. Because TAL was incorporated prior to the commencement of the parties’ relationship, the current account was clearly the husband’s separate property at that point in time. The wife was therefore required to show that during the course of the relationship the character of the current account had changed such that it should now be categorised as relationship property.

15     Haldane v Haldane [1981] 1 NZLR 554 (CA); Coupe v Coupe (1979) 2 MPC 39 (SC); Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293 at [186].

16     Citing Prendergast v Murray-Prendergast FC Manukau FAM-2004-092-924, 29 May 2006.

[134]   Judge Moran noted the reliance the wife placed on the advances made to the Company in the six month period between August 2008 and March 2009, to which I have already referred. However, the Judge considered this was an insufficient basis upon which to accept the wife’s submission that the current account was “likely to constitute advances made by the husband and the wife”.17 As a result, the Family Court was not willing to find that the husband’s current account was relationship property.

[135]   Having reviewed the evidence relied upon by the wife, I, too, consider there is an insufficiency of evidence to conclude the current account should be considered relationship property. The six month period is a relatively short period when considered against the nine year marriage and there is no means by which to gauge how the six payments relied upon impacted on the current account balance, if at all. No doubt there were other transactions which occurred over the years of the marriage involving TAL and the other entities with which the parties were linked. In the absence of greater analysis across a wider period, no reliable conclusions can be drawn as to whether the current account balance at the time of separation had become relationship property. I accept that adverse inferences can be drawn against a party where there has been material non-disclosure of relevant records, but the type of inference sought to be made by the wife is akin to speculation.

[136]   As already observed, a feature of this case is the incomplete documentary information and lack of reliable financial evidence upon which the Court is able to rely. As Judge Moran observed on a number of occasions, the Court was effectively being asked to reconstruct the parties’ accounts in order to make determinations regarding the status of various items of property, including the husband’s current account. The wife has not brought me to the position where I can conclude the Family Court erred in declining to classify the husband’s current account as relationship property on the basis of the type of “sample” evidence upon which she relied. Accordingly, I dismiss that ground of the wife’s cross-appeal.

17     A v A, above n 1, at [88].

(b)                 Toyota motor vehicle

(i)Family Court decision

[137]   Judge Moran held the Toyota motor vehicle was an asset of TAL. She found the vehicle was listed as an asset of TAL and rejected that it should be treated as a family chattel. The Judge declined to designate it as relationship property.

(ii)Argument on appeal

[138]   The wife sought to argue that the Family Court erred in finding the vehicle was not relationship property. She submitted the motor vehicle should have been treated as a family vehicle in respect of which the parties jointly had beneficial ownership notwithstanding its registration in TAL’s name.

(iii)Decision

[139]   It appears that the wife’s argument regarding the status of the motor vehicle was made as a reserve submission to the husband’s contention that he be afforded credit for post-separation payments in respect of loans regarding this vehicle and the boat. He claimed that he had taken responsibility for the payment of the loan after separation and that an adjustment should be made crediting him for payments he had since made.

[140]   I have rejected the husband’s submission that the wife has some responsibility for the payment of such a loan or that he should receive credit for any post-separation payment. Part of my reasoning for so doing was that Judge Moran had declined the wife’s application that the Toyota be classified as relationship property because it was listed as an asset of TAL. In the absence of any evidence of a debt having been owed by the Company to either the husband separately or jointly with the wife in respect of the financing of the purchase of this motor vehicle, and having found that the wife had no responsibility for any past debt which may have been paid by the husband in respect of this vehicle, I do not consider Judge Moran’s finding regarding the classification of this asset should be disturbed.

(c)                 Credit card debts

[141]I have dealt with this aspect of the wife’s cross-appeal at [107]-[122].

(d)                 Contributions

(i)Family Court decision

[142]   Upon separation, the husband remained living in the Woolston property while the wife paid for alternative rental accommodation. The wife did not apply to the Family Court to be compensated so Judge Moran made no findings on this point.

(ii)Argument on appeal

[143]   The wife submitted that Judge Moran failed to consider the post-separation benefits that the husband had obtained as a result of being able to occupy the Woolston property. In so doing she referenced the Judge’s discussion of s 18B of the Act where the Judge assessed the extent to which the husband should be compensated for payments made between the date of separation and the sale of the Phillipstown property, during which he claimed to have continued to pay the difference between the rental and the repayment installments on the floating loan which was secured against the Woolston property. The wife acknowledged that she had made no application to the Family Court to be compensated for the husband’s occupation of the Woolston property while she had paid for alternative rental accommodation.

(iii)Decision

[144]   In the absence of any detailed evidential analysis of the respective financial positions of the parties regarding the living arrangements which apparently have endured since their separation, I am not in a position to make an award under s 18B of the Act in recognition of any occupational rental that the husband may have been required to pay the wife. No details regarding rates and insurance and other expenses relating to the Woolston property have been brought to my attention. These issues were simply not traversed either before the Family Court or me.

[145]   In my view, it is sufficient that the type of considerations urged upon me by the wife for the first time on appeal appear to have been taken into account by the Family Court when assessing the wider circumstances of the parties when it considered what was just when dealing with the husband’s claim for compensation for post-separation payments. Such factors formed part of my reasons for upholding the Family Court’s approach to allowing only a limited adjustment of $6,000.00 for the husband’s post-separation contributions.

[146]   I appreciate that the wife is making an application under s 18B in her own right, but in the absence of that application having been advanced before the Family Court as a discrete issue, in my view, it can only be properly raised on the appeal for the first time by reference to the Court’s consideration of s 18B in the context of the husband’s claim. As I have already held, I consider the Family Court Judge made no error in her approach to that issue which I consider must, at least to some extent, have included an assessment of the wife’s post-separation circumstances.

Result

[147]   Having reviewed the various grounds raised by the husband and by the wife on her cross-appeal, the only adjustment I consider requires to be made is to recognise that a component of the EQC claim for chattels damaged in the earthquake, namely the $5,381.00 for the replacement of carpet, should, as with the EQC/insurance payout for the damage to the Woolston property, be credited to the husband. I allow his appeal to that limited extent. The husband’s remaining grounds of appeal are dismissed. Similarly, the points of appeal raised by the wife are dismissed.

Costs

[148]   With the exception of the one discrete point I have identified relating to the replacement carpet, the husband has been unsuccessful on his appeal. Notwithstanding the wife’s lack of success on the points raised on her cross-appeal, I consider that on balance the husband to be the unsuccessful party on the appeal. My preliminary view is that having regard to the respective merits of the parties’ arguments he should be required to pay 75 per cent of the wife’s costs on a 2B basis. I provide that indication only as a guide to my present thinking on costs, reflecting as

it does the relative success of the parties and in particular the wife’s success in having the Family Court’s decision substantially upheld. Should counsel wish to be heard on the issue, they should exchange and file memoranda in the usual way (not more than three pages).

[149]This judgment may be cited as Vivian v Kellerman.

Solicitors:

Joynt Andrews Solicitors, Christchurch Geddes Maciaszek, Christchurch