Bartram v Bartram
[2016] NZHC 2706
•16 November 2016
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.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1036 [2016] NZHC 2706
BETWEEN ANDREA CLARE BARTRAM
Appellant
AND
IAN RAYMOND BARTRAM Respondent
Hearing: 25 August 2016 Counsel
J Noble for Appellant
C T Patterson and N J Hartwell for RespondentJudgment:
16 November 2016
JUDGMENT OF WHATA J
This judgment was delivered by me on 16 November 2016 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Boyle Mathieson, Auckland
KPLegal Limited, Auckland
BARTRAM v BARTRAM [2016] NZHC 2706 [16 November 2016]
[1] This is an appeal from a decision of Judge M L Rogers, granting relief pursuant to the Property (Relationships) Act 1976 (the Act).1 The Judge found that the sum of $290,000 contributed by Mrs Bartram to the purchase of the first family home was her separate property; the Judge set aside the contracting-out agreement (the agreement) and he directed that the balance of the real property be divided in accordance with the provisions of the Act.2
[2] Mrs Bartram now appeals that decision on the following grounds:
(a) Ground 1: The Court failed to compare what division of the property would be effected under the agreement and what division of property would be effected if the agreement was set aside.
(b)Ground 2: The Court erred in finding that Mr Bartram would receive assets worth in the vicinity of $20,000, while Mrs Bartram would retain assets worth in excess of $1.4m if the agreement was upheld.
(c) Ground 3: The Court failed to take into account that Mr and Mrs Bartram made decisions with legal and accounting advice to purchase property in the names of persons and companies for taxing and credit protection reasons.
(d)Ground 4: The Court erred in identifying an inescapable tension between cls 3.1 and 5.2 of the agreement.
(e) Ground 5: The Court erred in finding that cl 6.2 of the agreement was inconsistent with cl 4.2(c) of the agreement.
(f) Ground 6: The Court was wrong in finding that 14 Swainston Road, St Johns, Auckland, was owned by IA Holdings Limited, not the
parties, and so was not a family home as defined in the agreement.
1 Bartram v Bartram [2016] NZFC 692.
2 Some personal property was identified as separate property but those items have limited relevance to the appeal.
(g) Ground 7: Overall, the Court was wrong to set aside the agreement. [3] Mr Bartram has cross-appealed on the basis that the Judge erred by:
(a) Finding that the contracting-out agreement entered into by the parties was “broadly similar” to the contracting-out agreement previously drafted by the Mr Bartram’s solicitors;
(b)Considering a range of factors as relevant in determining the adequacy of the advice given to Mr Bartram before he signed the contracting-out agreement;
(c) Failing to give proper weight to a range of factors in determining the adequacy of the advice given to Mr Bartram before he entered into the contracting-out agreement.
The issues
[4] With the benefit of oral argument,3 the appeal raises the following key questions:
(a) Did the Court fail to properly assess the effect of the contracting out agreement;
(b)Did Mr Bartram intentionally ring fence the Swainston Road property for commercial reasons (thereby preventing him from claiming that it is relationship property);
(c) Did Mrs Bartram make the lion’s share of the financial contributions
to the real property subject to the contracting out agreement; and
3 In oral argument Mr Noble for the appellant observed that the appeal grounds based on the interpretation of the agreement (Grounds 4 and 5) and the finding that the Swainston Road property was a family home (Ground 6) were peripheral only and relevant only insofar as it revealed erroneous reasoning.
(d)If the answers to (a) – (c) are yes, whether the contracting out agreement is unjust.
[5] The cross appeal raises a single substantive issue:
(a) Is the contracting out agreement valid, having regard to the advice given to Mr Bartram in advance of execution?
Facts
[6] Mr and Mrs Bartram met on 31 December 2003. In early June 2005 they signed an agreement to buy a property at 15 Rewi Road, Royal Oak, Auckland. The Rewi Road property settled on July 2005. At about this time Mr Bartram obtained advice about a relationship property agreement and had a draft agreement prepared by his solicitor. This was reviewed by Mrs Bartram’s lawyer and another version was prepared, signed by her and sent to Mr Bartram’s lawyer for execution. This version was executed on 28 February 2006. The key terms of the agreement are noted at [13]–[21].
[7] Mr and Mrs Bartram were married on 17 March 2007, and on 27 March 2007 they signed an agreement to sell the Rewi Road property. The proceeds of sale, together with loan monies, were used to purchase, through IA Holdings Limited, a property at 14 Swainston Road, St Johns. Mrs Bartram is currently the sole director of IA Holdings Limited. The purchase settled on 12 December 2007. On 6 January
2009 Mrs Bartram also signed an agreement to buy a property at 130 Gray Avenue, Papatoetoe and this settled on 20 February 2009. The purchase was financed by a combination of cash deposit and loan finance obtained by both Mr and Mrs Bartram in the sum of $264,000 – see [27] below.
[8] At about the time of the Gray Avenue purchase, Mr Bartram’s business was in financial difficulty and on 22 April 2009 liquidators were appointed to his company, Select Brands Limited. In the period 9 June 2009 to 28 May 2010, the liquidators of Select Brands paid $173,949.09 to the trustees of the Bartram Family Trust (Mr
Bartram’s family trust set up pre-relationship). Over this period the Trust made a number of advances to Mr Bartram, namely:
(a) 26 June 2009 – to Mr Bartram, who advances monies to Mrs Bartram, who in turn buys $15,000 worth of Bonus Bonds.
(b) 24 September 2009 – to Mr Bartram, who advances money to Mrs
Bartram who buys $15,000 worth of Bonus Bonds.
(c) 23 December 2009 – to Mr Bartram, who advances money to Mrs
Bartram who buys $45,000 worth of Bonus Bonds.
(d)29 April 2010 – to Mrs Bartram, who advances $40,000 to wife to pay to AMP Home Loans, the mortgagee of 130 Gray Avenue, Papatoetoe.
[9] On 22 October 2013 Mr and Mrs Bartram separated.
The property in dispute
[10] Mr Noble provided a description of the real property up for division. It is not disputed and I adopt it.
[11] The Gray Avenue property was valued at $825,000.00 by Seagars on
5 October 2015 and the mortgage was around $224,000.00, leaving $601,000.00 equity in that property. 14 Swainston Road was valued by Seagars at $1,220,000.00 on 9 October 2015 and by Telfer Young at $1,285,000.00 on 10 November 2015. The midpoint between those two valuations was $1,252,500.00. It was agreed in the Family Court that that would be the valuation of 14 Swainston Road and that the shares in IA Holdings Limited would be the value of the property less the mortgage. The mortgage was $390,000.00. The total equity in Swainston Road accordingly was $862,000.00.
[12] It follows that the total equity in the two properties was $1,463,000.00 at the date of the Family Court hearing.
[13] Letter B of the preamble to the agreement relevantly states:
The parties agree that specific property produced by their individual efforts during their relationship is and should remain separate property but desire that the rest of their property should be shared as relationship property under the general principles of the Property (Relationships) Act 1976 (“the Act”).
[14] Clause 1.1 provides:
1.1 Ian acknowledges that:
(a) The assets referred to in Schedule A are Andrea’s separate
property;
(b) He has made no contribution, whether directly or indirectly, to such property, and that any property bought in substitution of such property, or any increase in the value of such property, is Andrea’s separate property;
(c) He has no claim whatsoever in respect of such property.
[15] Clause 1.4 then states:
1.4In the event Andrea contributes her separate property to the parties’ joint assets, or applies it for the benefit of the parties’ relationship so as to make it impracticable to separately identify her separate property, then such separate property shall become relationship property.
[16] The above clauses are mirrored in respect of Andrea in cls 2.1 and 2.4, which provide:
2.1 Andrea acknowledges that;
(a) the assets referred to in Schedule B are Ian’s separate
property;
(b) She has made no contribution whether directly or indirectly, to such property and that any property bought in substitution of such property, or any increase in the value of such property, is Ian’s separate property;
(c) She has no claim whatsoever in respect of such property.
2.4In the event Ian contributes his separate property to the parties’ joint assets, or applies it for the benefit of the parties’ relationship so as to make it impracticable to separately identify his separate property, then such separate property shall become relationship property.
… from now on any property owned by the parties together … represents the parties relationship property… and shall be owned by them equally subject to clause 4.2.
[18] Clause 4.2 provides for separation as follows:
4.2In the event of separation and/or the sale of the family home, the proceeds of the said sale will be paid as follows:
(a) Repayments of mortgages, outstanding rates (if any), real
estate agent’s commission and legal fees;
(b) Andrea’s contribution of $290,000.00 shall be reimbursed to
her;
(c) After repayment of all mortgages, repayment of the sum of
$290,000.00 to Andrea, payment of real estate agent’s
commission and reasonable legal costs, any balance of the sale proceeds shall be divided between Andrea and Ian in
equal shares.
[19] Future property is also specifically addressed:
5.1Any other property acquired in the future by Andrea and Ian together shall be regarded as the relationship property under the Act.
5.2Any other property acquired in the future by Andrea or Ian separately shall be regarded as separate property of the party whose money is applied to the purchase of such property provided that where both parties have made a direct financial contribution to the purchase of such property then that property shall be owned by them in shares corresponding to their respective financial contributions to the purchase of the property.
5.3Subject to this Agreement (and in particular clauses 1.4 and 2.4) all income of any description earned or received by either Andrea or Ian separately (whether from employment or otherwise) shall be regarded as the separate property of the earner or recipient.
[20] Clause 6.2 then states:
6.2In the event of separation, the proceeds from any sale of the family home will be divided pursuant to clause 4.2(a) and (b). Andrea and Ian will divide their remaining relationship property in equal shares.
[21] Schedule A and B record, among other things, the assets that belong to each party individually:
SCHEDULE A
…
4. Any investments in Andrea’s sole name.
…
8. Any other property which at the date of this Agreement is registered
or recorded in Andrea’s sole name.
9.The future earnings of Andrea of whatsoever nature and howsoever and wheresoever derived by her.
…
11. Any other property, whether real or personal, in her sole name, or in respect of which she has a beneficial or legal interest.
…
13.Any other property not specified in this schedule and which at the date of this Agreement is in Andrea’s sole custody, control or possession.
SCHEDULE B
…
3. Any investments in Ian’s sole name.
…
7. Any other property which at the date of this Agreement is registered
or recorded in Ian’s sole name.
8.The future earnings of Ian of whatsoever nature and howsoever and wheresoever derived by him.
…
10.Any other property, whether real or personal, in his sole name, or in respect of which he has a beneficial or legal interest.
…
12.Any other property not specified in this schedule and which at the date of this Agreement is in Ian’s sole custody, control or possession.
The Property (Relationships) Act 1976
[22] Section 21 of the Property (Relationships) Act 1976 (the Act) is in focus:
21 Spouses or partners may contract out of this Act
(1) Spouses, civil union partners, or de facto partners, or any 2 persons in contemplation of entering into a marriage, civil union, or de facto relationship, may, for the purpose of contracting out of the provisions of this Act, make any agreement they think fit with respect to the status, ownership, and division of their property (including future property).
(2) An agreement made under this section may relate to the status, ownership, and division of property in either or both of the following circumstances:
(a) during the joint lives of the spouses or partners: (b) when one of the spouses or partners dies.
(3) This section is subject to section 47.
[23] A contracting out agreement may be set aside pursuant to s 21J, which states:
21J Court may set agreement aside if would cause serious injustice
(1) Even though an agreement satisfies the requirements of section 21F, the court may set the agreement aside if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice.
(2) The court may exercise the power in subsection (1) in the course of any proceedings under this Act, or on application made for the purpose.
(3) This section does not limit or affect any enactment or rule of law or of equity that makes a contract void, voidable, or unenforceable on any other ground.
(4) In deciding, under this section, whether giving effect to an agreement made under section 21 or section 21A or section 21B would cause serious injustice, the court must have regard to—
(a) the provisions of the agreement:
(b) the length of time since the agreement was made:
(c) whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made:
(d) whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):
(e) the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement:
(f) any other matters that the court considers relevant.
(5) In deciding, under this section, whether giving effect to an agreement made under section 21B would cause serious injustice, the court must also have regard to whether the estate of the deceased spouse or partner has been wholly or partly distributed.
The Family Court judgment
[24] The Family Court was confronted with a number of issues which are not germane to this appeal. The key relevant findings were:
(a) Mr Bartram was adequately advised on the contracting out agreement.
The Court rejected Mr Bartram’s claims that he was affected by dyslexia,4 and accepted the evidence of his then lawyer Mr Mahony as to his usual practice and the seriousness with which he regarded his obligations as the certifying solicitor.5 The Judge was not satisfied that Mr Bartram’s claimed recollection as to the absence of advice was correct or credible.6 The Judge found that the requirements of s
21F and s 21F(5) were satisfied7 and declined to declare the
agreement void.
(b) The contracting out agreement should be set aside pursuant to s 21J.
The agreement was formulated to afford priority to Mrs Bartram’s contribution to the Rewi Road property, but with the broader intent that specific property produced by their individual efforts during their relationship should remain separate property and that property not specified to be separate property should be treated as relationship
property.8 The Swainston Road property was a family home,9 but
Schedule A defines Mrs Bartram’s separate property as including any property in her sole name. While the Agreement was not unfair at the
time it was made,10 by structuring IA Holdings Ltd in Mrs Bartram’s
4 Bartram v Bartram, above n 1, at [16].
5 At [28].
6 At [33].
7 Above.
8 At [42].
name for tax purposes11 and by purchasing the Gray Avenue property in her name only, giving effect to the agreement would cause serious injustice. Mr Bartram would receive only $20,000 while Mrs Bartram would receive more than $1.4m.12
(c) Setting aside the agreement is not unjust because of the expectations of the parties and the reality of the outcome of the change in the circumstances since the agreement was made.13
(d) The Court ordered that: the agreement be set aside, the sum of
$290,000, derived from the sale of the Rewi Road property and contributed by Mrs Bartram to IA Holdings Limited, be set aside as relationship property; Mr Bartram’s interests in his company is separate property and subject to specified personal property, the balance of the property was to be divided in accordance with the
Act.14
Jurisdiction
[25] The jurisdiction on appeal is not contentious. As noted by Mr Patterson, the relevant principles to be applied on an appeal in relationship property cases are set out in the decision of Randerson J in WPH v ITP.15 Of particular relevance to the
present case:16
On issues of credibility, an appellate court should give appropriate weight to the conclusion of the Judge at first instance who has had the advantage of seeing and hearing the witnesses.
[26] I also agree that attempts to turn an appeal into a de novo rehearing should be rejected and this Court will not reverse factual findings unless there are compelling
reasons to do so.17
11 At [72].
12 At [85].
13 At [86].
14 At [90]–[91].
15 WPH v ITP [2009] NZFLR 745.
Did the Court fail to properly assess the effect of the contracting out agreement?
[27] It is not disputed that:
(a) Mrs Bartram loaned IA Holdings Limited the sum of $301,254 derived from the sale proceeds of Rewi Road;
(b)Mrs Bartram obtained an interest only loan from Sovereign, in the sum of $390,000 – this loan is treated as a debt owed by IA Holdings Limited on the company accounts;
(c) Mr Bartram was a guarantor of this loan;
(d) Mrs Bartram is the sole shareholder in IA Holdings Limited; (e) IA Holdings acquired the Swainston Road property;
(f) The Gray Avenue property was acquired on payment of a deposit of
$66,000, together with loan finance of $264,000 obtained by Mr and
Mrs Bartram; and
(g)The $66,000 is comprised of $37,760.32 from Mr Bartram’s inheritance and from the balance of the joint proceeds of sale of the Rewi Road property.
[28] The Judge found that under the contracting out agreement:
[85] Mr Bartram would receive assets worth in the vicinity of $20,000 while Mrs Bartram would retain assets worth in excess of $1.4m. Such a difference between the parties was never anticipated when the agreement was executed, if anything there was some indication that the parties anticipated Mr Bartram would have the greater assets in the event of separation, given his retention of his [then successful] business as his separate property.
[29] On Mr Noble’s analysis (as developed in argument):
Brokers Limited [1998] 3 NZLR 190 (CA) at 200.
(a) Mrs Bartram made “a direct financial contribution” (for the purposes
of cl 5.2 of the Agreement) to:
(i)IA Holdings Limited, by lending the company her part of the proceeds of the sale of the Rewi Road property ($270,000) and by incurring a debt of $390,000 with Sovereign for the benefit of the company, and
(ii)The purchase of Gray Avenue by taking on 50% of the mortgage and by applying her inheritance, together with her share of the balance of the Rewi Road proceeds, to the purchase.
(b) Mr Bartram’s personal guarantee for the Sovereign lending was not a
“direct financial contribution”.
(c) Mr Bartram made a “direct financial contribution” to the Gray Avenue
property only by taking on 50% of the mortgage.
[30] To illustrate the mobility of this argument, Mr Noble in written submissions submitted that the contracting out agreement results in IA Holdings Limited largely vesting in Mrs Bartram and a 78.6/21.4 split of the Gray Avenue property, but in oral submissions argued that the Gray Avenue split was actually 56/44. The net effect of this, according to Mr Noble, is that Mr Bartram would receive somewhere between
$148,000 and $266,000 (not $20,000) if the contracting out agreement was affirmed. Mr Noble submits that the Family Court erred by not taking this outcome into account.
[31] Mr Patterson responded that the Judge did not err by failing to attempt to reach an exact quantification of the division of the property, in accordance with the agreement, and that, even adopting Mr Noble’s assessment, Mr Bartram would have received a disproportionately small amount and the Family Court’s approximate assessment, being $20,000 and $1.4m, made no material difference. In any event, he
submitted that the properties were acquired as part of a joint endeavour and the
Family Court was correct to set aside the agreement to reflect this fact.
Assessment
[32] The threshold test for setting aside a contracting out agreement is where “giving effect to the agreement would cause serious injustice”. The Court of Appeal in Harrison v Harrison observed that serious injustice is likely to be demonstrated more often by an unsatisfactory process resulting in inequality of outcome rather than mere inequality of outcome itself.18 As Simon France J noted in Wells v Wells
disparity is a relevant consideration,19 but the legislative policy is that the parties are
free to agree different arrangements to those otherwise imposed by the Act provided that certain procedural requirements are met.
[33] I agree with Mr Patterson that Mr Noble’s assessment of the effect of the contracting out agreement does not materially affect the validity of the outcome reached by the Family Court. On Mr Noble’s analysis, under the contracting out agreement Mrs Bartram still receives somewhere between five and ten times the distribution that Mr Bartram would receive. This disparate outcome is seriously unjust in the circumstances, because as Mr Patterson submitted, the disputed properties were acquired as part of a joint endeavour. As I will explain below at [38]–[44], Mr Bartram and Mrs Bartram established IA Holdings Limited as a tax efficient vehicle to hold property on their behalf. Both of them were initially directors of the company. Both of them contributed to the company’s finances – Mrs Bartram as creditor and guarantor; Mr Bartram as guarantor. Mrs Bartram accepted
in cross-examination that it was a “joint set up”.20 Both of them also borrowed
money to enable the purchase of the Gray Avenue property. They both made direct and or indirect financial contributions for the purpose of financing the mortgage on that property. I therefore see no reason to disturb the Judge’s findings due to an
apparent failure to correctly calculate the amount distributable under the agreement.
18 Harrison v Harrison (2004) 24 FRNZ 30 (CA) at 53.
19 Wells v Wells [2006] NZFLR 879 (HC) at [37].
20 Mrs Bartram maintained that she had 100 per cent of the shares, which signified a separate interest. As noted at [41], I affirm Judge Rodger’s interpretation of this evidence as more indicative of rancour associated with the failure of the marriage.
[34] As I put to Mr Noble, and while it is not necessary to resolve the appeal point on this basis, I am fortified in this view, because a financial contribution may in ordinary parlance include the provision of a guarantee and in which case, Mr Bartram’s share in both properties should take this into account.21 I also consider that clauses 5.1 and 5.2 contemplate joint ownership of the properties in the circumstances that unfolded. The steps taken by Mr and Mrs Bartram to acquire the
Swainston Road and Gray Avenue properties evince a clear intention to obtain the property “together” for the purpose of clause 5.1. Mr Bartram’s assumption of contingent liability in the form of guarantee enabled a loan to be obtained by IA Holdings Ltd and therefore the acquisition of the Swainston Road property. Furthermore, as the loan to the company was premised on joint and several liability, the Swainston Road property was not “separately acquired” for the purpose of clause
5.2. The mortgage obtained by both Mr and Mrs Bartram to acquire the Gray Avenue property also evinces a clear intention to acquire that property “together” and not “separately”. Conversely, it would be nonsensical for Mr Bartram to expose himself to full liability in respect of both loans and not expect a corresponding entitlement to the property.
[35] Having said this, there are internal inconsistencies in the agreement making it very difficult to be categorical about the effect of the agreement, as the Family Court Judge noted.22 For example, various clauses at Schedules A and B suggest that both of the properties should be treated as Mrs Bartram’s separate property (in light of her sole ownership of the shares in IA Holdings Ltd and the Gray Avenue property). For present purposes it is sufficient to note that the outcome reached by the Judge is not
inconsistent with the clear contractual objective.
[36] In the result, and in the light of the arguments that were presented to this
Court on appeal, I agree with the outcome achieved by setting aside the agreement. As the Judge found, this is consistent with the clear objective of the agreement that
21 Although authority is not needed for this observation, in Patel v Maqbool HC Auckland CIV-
2009-404-7323, 27 May 2010, Wylie J held at [87] that “The assumption of liability which is created by the guarantee of a mortgage can be a contribution to relationship property”. See also [88]–[89].
22 See, for example, the Judge’s comments at [60] of Bartram v Bartram, above n 1.
specific property produced by individual effort is to remain separate property, while the balance of the property, produced by joint effort, should be shared.
Did Mr Bartram intentionally ring fence the Swainston Road property for commercial reasons (with the consequence that he cannot now resile from it)?
[37] Mr Noble submits that:
(a) Mr Bartram made a conscious decision to separate the Swainston Road and Gray Avenue properties and place them into Mrs Bartram’s hands for commercial reasons, including tax efficiency and immunity from creditor claims.
(b)Mrs Bartram also wanted to protect them from relationship property claims.
(c) Given this background, Mr Bartram should not be allowed to go behind the steps taken to minimise his personal creditor and tax exposure and to treat the property as if it were relationship property, citing Stadniczenko v Stadniczenko,23 Cox v Cox24 and Potter v Potter.25
[38] I find Judge Rodger’s analysis on the evidence to be persuasive. The Judge
found:
[66] Mr Lynch gave evidence that he did not think he was aware at the time of his relevant dealings with Mr and Mrs Bartram that they had entered into a contracting out agreement but he had certainly turned his mind to the relationship property implications, particularly for Mr Bartram. Mr Lynch said (ll.21-26 page 76 NoE)
“I was concerned for Ian that because all of the shares have been registered in Andrea’s name, that he needed to be aware that rightly or wrongly, I mean from my point of view as a tax accountant I thought, well, down the track if something went wrong that could be a problem. But at that point in time I fully understood that it was relationship property.”
23 Stadniczenko v Stadniczenko [1995] NZFLR 993 (FC).
24 Cox v Cox [1992] 1 NZLR 390 (CA).
25 Potter v Potter [2003] 3 NZLR 145 (CA).
[67] Mr Lynch’s evidence was put to Mrs Bartram, including email correspondence between herself and Mr Lynch. Mrs Bartram conceded that Mr Lynch had advised the parties to structure the company as they did for tax purposes but maintained (l.31 page 125 – l.5 page 126 NoE)
Q: So Mr Lynch clearly put these shares in IA Holdings in your
sole name for tax purposes didn’t he?
A: That’s what he did. But I’m saying there’s more than one reason and the reason I wanted it solely and the 1005 shares for me was that I had suddenly realised that I still wanted my marriage to survive but I realised I had to protect myself because Ian had not been straight with me.
Q: And you didn’t discuss that with Mr Lynch before the company was formed did you?
A: No.
[68] Subsequently the parties together met with Mr Mahony and his records of that meeting were also put to Mrs Bartram by counsel for the applicant. The focus of those records was again on the tax benefits of the proposed LAQC structure.
[69] It was put to Mrs Bartram (ll. 1 – 15, page 127 NoE) that Mr Mahony’s notes confirmed that the incorporation and setting up of the company had been a joint venture between the parties:
A: Well I’ve already explained how, what my feelings were about that. You could say it was a joint set up but I still had
100% of the shareholding for the reasons I have already
given.
Q: And what you’re asking the Court to accept now is quite different to what Mr Lynch recalls and what Mr Mahony has recorded in his file note isn’t it?
A: I suppose you could say that, I don’t know. Yeah.
Q: Well there’s no mention there in this note, is there, that you
had all the shares in IA Holdings to protect your asset base?
A: It doesn’t say that there no, of course it doesn’t.
[70] Mr Bartram rejected the suggestion that the company shareholding was vested in Mrs Bartram to protect assets from creditors of his business and noted that the LAQC was established before his business difficulties became apparent. Indeed Mr Bartram’s evidence (ll. 22, page 2 NoE) was that the company was trading well at the relevant time. Mr Bartram was firm in his evidence that the structure was for tax benefits and that is consistent with the records of Mr Lynch and Mr Mahony.
[71] On the evidence I am satisfied that IA Holdings Limited was structured with 100% of the shareholdings in Mrs Bartram’s name for the purposes of tax benefit maximisation rather than to avoid creditors or reflect
actual financial contributions to the company. There is simply no evidence to support any other scenario.
[39] As Mr Noble submitted, the observation at [71] that there was no evidence to support another scenario was wrong. It appears from file notes of legal advice that the division of property for testamentary purposes was addressed in the context of a discussion about IA Holdings Ltd. The file note records that 50% of the company was to be left in Mrs Bartram’s will to Mr Bartram. This suggests some forethought was given to the implications of sole shareholder status. It also suggests that the parties thought that Mr Bartram was entitled to 50% of the company. There is also evidence Mrs Bartram sent an email to Mr Lynch, Mr Bartram’s accountant, stating:
The reason I am trying to keep things separate is that all my money is going into this venture and I am trying to protect my asset base from the family business and the trust. When we bought the property it was put into joint names. Ian put no money into it and at the time it was my understanding that his share would appear when he sold his Wellington property which didn’t happen. If the business goes into receivership and there is a claim on his personal assets that would include half his share of the present property.
[40] From this it can be inferred that asset separation and protection was at the
forefront of Mrs Bartram’s mind.
[41] Balanced against this, there is clear evidence from Mr Mahony, Mr Lynch and Mrs Bartram that the ostensible reason for setting up IA Holdings Limited was tax minimisation. There is then evidence that Mr Bartram did not know that the purpose of the company was to enable Mrs Bartram to acquire separate property. This is plausible given the circumstantial evidence. As noted by Mr Lynch, the “IA” in IA Holdings Ltd is based on their first names (Ian and Andrea). Furthermore, joint directorship of the company was contemplated at the time, suggesting that joint control of the company was envisaged, even though Mrs Bartram was the sole
shareholder. It was therefore available to the Judge to find that:26
While Mrs Bartram may have sought after separation to benefit from her
100% shareholding in IA Holdings Limited, I consider that expectation is more indicative of the rancour associated with the failure of the marriage
than any expectations at the time of the agreement was executed or during
the marriage.
26 Bartram v Bartram, above n 1, at [86].
[42] As noted above, Mr Noble cites Cox v Cox and subsequent cases as authority for the proposition that a person who makes an informed decision to structure his affairs for creditor avoidance or tax minimisation purposes cannot latter rely on them to avoid the effect of a contracting out agreement. But each case must be assessed on its own facts. Unlike Cox, this is not a case where it can be said that Mr Bartram had clear advice as to the possible consequences of separating out property to avoid creditor claims or to minimise tax liability. The Judge found, and I agree, that on the balance of probabilities these relationship property implications were not made clear
to him. He had not “run the risk” as Mr Cox had done.27 Furthermore, unlike Cox,
the disputed properties were not a mere gift. It was, as noted, the product of a joint commitment to paying the debt raised to purchase them.
[43] I accept that Gray Avenue was purchased in Mrs Bartram’s name to protect it from Mr Bartram’s creditors. But this does not diminish the commitment made by Mr Bartram to the joint acquisition of the property via loan finance, as Mr Noble appears to accept given his revised calculation as to entitlement under the agreement.28 This fact also distinguishes this case from Stadniczenko v Stadniczenko where the husband seeking to set aside the agreement had no ongoing financial
commitment in respect of the property subject to the agreement.
[44] I therefore agree with Judge Rodgers that, in the circumstances of this case, it would be unfair, in terms of s 21J(4)(a), to treat the Swainston Road and Gray Avenue properties as Mrs Bartram’s separate property. To do so would allow Mrs Bartram to take advantage of a mutual decision to structure their interests in a way that Mr Bartram did not anticipate at the time.
What direct financial contribution did Mrs Bartram make to the real property subject to the contracting out agreement?
[45] Mr Noble submits that Mrs Bartram’s separate property effectively enabled for the Swainston Road and Gray Avenue acquisitions. But, as explained at [27] and [34] those properties were also acquired through loans obtained by them or enabled
by the provision of guarantees. Rental from the Swainston Road property then
27 Cox v Cox, above n 24, at 393.
28 See [29] – [30].
covered the whole of the mortgage the whole time it was owned by IA Holdings Limited. While Mrs Bartram’s loan to IA Holdings Ltd out of the sale proceeds of the Rewi Road property represents a larger direct contribution, it was and is separately recoverable from the company. This arrangement was entirely consistent with the premise of the contracting out agreement at clause 4.2, namely that her pre- existing interest should be ring fenced, while any joint acquisitions should be treated as relationship property. I am not satisfied therefore that I should set aside the outcome on this ground.
In light of the answers to (a) – (c), whether the contracting out agreement is unjust?
[46] For reasons set out above, the Judge’s overarching assessment as to serious injustice was not wrong.
Is the contracting out agreement valid having regard to the advice given to Mr
Bartram in advance of execution?
[47] It is not necessary to respond on this issue, but given the effort expended on it, I propose to address it briefly. As stated in Coxhead v Coxhead:29
The text and the cases to which Thorp J referred rightly affirm that the requirement under subs (5) of independent legal advice is no mere formalism. Each party must receive professional opinion as to the fairness and appropriateness of the agreement at least as it affects that party's interests. The touchstone will be the entitlement that the Act gives, and the requisite advice will involve an assessment of that entitlement, and a weighing of it against any other considerations that are said to justify a departure from it. Advice is thus more than an explanation of the meaning of the terms of the agreement. Their implications must be explained as well. In other words the party concerned is entitled to an informed professional opinion as to the wisdom of entering into an agreement in those terms. This does not mean however that the adviser must always be in possession of all the facts. It may not be possible to obtain them. There may be constraints of time or other circumstances, or the other spouse may be unable or unwilling to give the necessary information. The party being advised may be content with known inadequate terms. He or she may insist on signing irrespective of advice to the contrary. In such circumstances, provided the advice is that the information is incomplete, and that the document should not be signed until further information is available, or should not be signed at all, the requirements of subs (5) have been satisfied. Subsection (8)(a) does not
29 Coxhead v Coxhead [1993] 2 NZLR 397 (CA) at 403–404.
protect one who ignores or disregards advice. If there is any remedy for such a one, it can only be under subs (8)(b).
[48] Mr Patterson submits that:
(a) The Court was wrong to conclude that the draft agreement prepared by Mr Mahony and the final agreement prepared by Mrs Bartram’s lawyers were broadly similar – but unlike the final agreement, the draft agreement did not seek to define how future property would be divided.
(b)The Court erroneously took into account the role of the certifying lawyer, Mr Mahony, and that Mr Bartram did not challenge the advice given – because (on the evidence) the time spent on advising about the contracting out agreement was minimal, Mr Mahony could not recall what he advised, the absence of challenge is hardly a compelling factor and that Mr Bartram remained unequivocal about the very limited nature of the advice he received.
(c) Mr Mahony conceded under cross examination that acquired “together” in clause 5.2 meant in their joint names, and there is no evidence to show that Mr Bartram was advised about this.
(d)The Court failed to take into account a number of factors and, in particular, the lack of evidence supporting a finding that robust advice was given about the final agreement and the unorthodox and complicated provisions for joint and separate property.
[49] I perceive no error in the Judge’s approach to the application of the Coxhead guidance. Mr Bartram claimed first that he was dyslexic and that Mr Mahony simply pushed the agreement across the table to sign. There was no expert evidence supporting the dyslexia claim, so the Judge correctly gave this little weight. The Judge then correctly applied High Court authority30 in attributing significant weight
to the certification provided by Mr Mahony and focusing on testing whether Mr
30 Ward-Smith v Ward-Smith HC Christchurch CIV 2008-409-1784, 5 February 2009.
Mahony applied his usual standards when certifying the agreement. He said that his usual practice was to go through the agreement clause by clause. It was then available to the Judge to prefer the evidence of Mr Mahony about this. She found him to be a candid witness. It appears from available file notes that the time spent on the agreement may have been limited, but one of them reads that Mr Bartram is “happy with it”. The evidence that Mr Bartram did not challenge an invoice for the advice given, while not a matter deserving of great weight, is relevant to the issue of whether advice was in fact given. The Judge then rejects as implausible the prospect that a solicitor fully cognisant of his certification responsibilities would simply push the agreement across the desk for execution by a client. That too was a finding available to her.
[50] I accept that it appears that the judgment assumes at [21] the drafts of the agreements were broadly similar, when there were clear differences in terms of the specific provisions dealing with separate property, particularly Schedules A and B. But while the precise mechanics of the final agreement have caused considerable difficulty in the circumstances of this case (as the Judge obviously recognised elsewhere in her judgment), the clear common feature of the agreements is that jointly acquired property is to be treated as relationship property and separately acquired property is to be treated as separate property. In this sense, the Judge’s observation at [21] was not materially wrong.
Outcome
[51] The appeal and cross appeal are dismissed. Costs should follow the event. My current thinking is that the appellant is entitled to costs on the appeal less 25% to reflect the respondent’s success on the cross appeal. If the parties cannot agree, memoranda of no more than five pages may be filed within 10 working days.