Bassett-Smith v Dermody HC Tauranga CIV 2010-470-001101

[2011] NZHC 666

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2010-470-001101

BETWEEN  BRYAN JAMES BASSETT-SMITH Appellant

ANDAINSLEY DERMODY Respondent

Hearing:         27 May 2011

Counsel:         C F Allen for Appellant

W J Scotter & K F Shaw for Respondent

Judgment:      1 June 2011

JUDGMENT OF KEANE J

This judgment was delivered by Justice Keane on 1 June 2011 at 5pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

Holland Beckett, Tauranga for Appellant

Harkness Henry, Hamilton for Respondent

BRYAN JAMES BASSETT-SMITH V AINSLEY DERMODY HC TAU CIV 2010-470-001101 1 June 2011

[1]      On 20 November 2009 Mr Bassett-Smith and Ms Dermody separated after a relationship of some seven years; they had married on 24 March 2005. In May 2010

Ms Dermody applied to the Family Court, Tauranga, for orders declaring the status of, and dividing, their property. Mr Bassett-Smith cross-applied seeking division in terms of an ‘agreement’ Ms Dermody signed after advice in April 2009, but has since disavowed. Mr Bassett-Smith did not sign it but now wishes to rely on it.

[2]      The issue whether this ‘agreement’ is governing was set down for hearing first, and sensibly. When they separated, Ms Dermody and Mr Bassett-Smith had two assets of substance. One was the net proceeds of sale of their home, some

$630,000, which they agreed they should share equally. The other was a yacht, the

‘Pacific Rose’, purchased for $209,000 on 22 August 2008 and fitted out for a further  $70,000.  Ms  Dermody  claimed  the  yacht  was  relationship  property  and sought a half share.   Mr Dermody claimed the yacht as his separate property; the status accorded it by the ‘agreement’.

[3]      The  threshold  issue  is  whether  the  2009  ‘agreement’  recorded  an  oral agreement as to the status of the yacht as Mr Bassett-Smith’s separate property reached in principle in excess of a year earlier. Ms Dermody accepts that the funds came from Mr Bassett-Smith's separate property; the proceeds of sale in June-August

2008 of a commercial building in which he had an interest. She accepted that interest to be his separate property in an earlier version of the agreement that she, but not Mr Bassett-Smith, signed in 2008.   In issue, ultimately, is whether that concession extended to the yacht and had, in principle, done so from the outset.

[4]      The second issue, assuming such a contract on ordinary principles, is whether it ought to be validated under s 28H of the Property (Relationships) Act 1976. Mr Bassett-Smith's  failure  to  sign  it  after advice and to  have a lawyer witness  his signature and certify to the fact that he had been advised, renders it void under s 28F. The onus then lay and lies still on Mr Bassett-Smith to demonstrate that his non- compliance did not materially prejudice Ms Dermody or himself. The Judge, furthermore, retained a residual discretion.

[5]      In a decision, dated 12 November 2010, Judge A E Somerville held that in

2009 no agreement at all had been entered into; that Mr Bassett-Smith's omission first to take advice and then to sign the agreement, witnessed and certified by a lawyer, was not merely an omission. He consciously elected, she found, not to enter into the agreement. Whatever he and Ms Dermody might have agreed earlier, and even though Ms Dermody herself had signed the agreement, the Judge found, did not avail  him. The result  is  that  their property is  to  be  divided,  on  Ms  Dermody's application, on the usual statutory principles; and the issue will be whether the yacht has the status of a family chattel to be shared equally.

[6]      On this appeal Mr Bassett-Smith contends that the Judge's conclusion is completely against the weight of the evidence.  Her decision not to validate the agreement, he contends, has caused him a serious injustice. He would not have sold his  interest  in  the  commercial  building,  he  contends,  or  used  the  proceeds  to purchase and refit the yacht, without the assurance of the agreement. He seeks an order under s 21H declaring the agreement be valid or one declaring and validating an oral agreement that the yacht is his separate property.

Two draft agreements

[7]      In  the  early part  of  2008  Mr Bassett-Smith  and  Ms  Dermody agreed  in principle on the sale of their home in Tauranga and the commercial building in Mount Maunganui in which Mr Bassett-Smith had an indirect interest, and on the purchase of a yacht, as it transpired the ‘Pacific Rose’. It was within that context, speaking very broadly, it appears undisputed, that the first version of the agreement was prepared in mid 2008.

[8]      There was not then and is not now any issue, as I have said, as to the status of the home as relationship property. It had been Mr Bassett-Smith’s home before they met but they had shared it since September 2002. Ms Dermody had contributed capital to it from the sale of her own Tauranga property that she had acquired with help from Mr Bassett-Smith after her father died in September 2002. After sale of their home, eventually effected in December 2008, they lived in a rented property.

They agree still to share equally the proceeds of sale, now some $630,000, and interest.

[9]      Nor was there then, nor is there now, as I have also said, any issue as to the status  of  Mr  Bassett-Smith's  interest  in  the  Mount  Maunganui  property;  a commercial property belonging to a company in which he and his former wife held the  shares.    Mr    Bassett-Smith’s  evidence,  with  which  Ms  Dermody  does  not disagree, is that this interest was his separate property. Nor does she contest, as I understand her evidence, that he only agreed to sell this interest, to fund the purchase of a yacht, as long as she accepted that the yacht was to pass to his children. They disagree rather as to the basis on which this was to take place; as to whether the yacht was to be his separate property or was merely to pass to his children by his will, subject to any right of hers during her lifetime.

[10]     The 2008 draft agreement was prepared not by Mr Bassett-Smith’s usual Tauranga solicitors, Holland Beckett, but by solicitors whom he and Ms Dermody went to, Harris Tate, because, he says, Ms Dermody needed independent advice. That is as far as the evidence extends. There is no evidence to explain why it was that Holland Beckett did not prepare the agreement on instructions from Mr Bassett- Smith. Nor why, conversely, if Harris Tate were to give Ms Dermody independent advice, they prepared the agreements and the wills, and Mr Bassett-Smith and Ms Dermody went to them together.

[11]     This  'agreement' in  2008  recorded  the position  as  it  was  before the  two properties were sold and the yacht purchased. They were then to share equally Mr Bassett-Smith’s home. He was immediately to transfer to Ms Dermody a half interest as a tenant in common in equal shares. She was to have the right to live in it if he died before her. The value of the interest each then had was said to be $350,000. Mr Bassett-Smith, by contrast, was to retain as his separate property his shares in the company that held the Mount Maunganui property. That interest was said to be worth

$430,000, subject to a $33,500 mortgage.

[12]     Ms Dermody says she signed this agreement after advice from Mr Tate, who witnessed her signature and gave a certificate as to the fact of that advice. She says

nothing as to the advice she received, or what she took from it. Mr Bassett-Smith, who was to be separately advised by Holland Beckett, and may have been though here too the evidence is lacking, did not sign it. That may have been, because it became immediately redundant. The Tauranga and Mt Maunganui properties were soon sold and the 'Pacific Rose' purchased. Mr Bassett-Smith principally, but also Ms Dermody, soon began to prepare the 'Pacific Rose' for a voyage around the South Pacific. Ms Dermody then mostly devoted herself to preparing their house for sale.

[13]     On 17 April 2009, at the offices of Harris Tate, Mr Bassett-Smith and Ms Dermody signed wills prepared for them by Mr Tate. Seemingly then, Ms Dermody also signed the second version of the agreement that Mr Tate had recently prepared, once again relying on his advice as to its effect. Mr Bassett-Smith could not then, obviously,  also  sign it.  He had  first to  take advice from Holland Beckett.  It  is undisputed that Ms Dermody delivered there the copies that she had signed. Here too that is as far as the evidence goes. As to the genesis of this draft and roles played by Mr Bassett-Smith and Ms Dermody in settling its terms and as to the advice Ms Dermody received, there is nothing.

[14]     On 24 April 2009 Mr Bassett-Smith and Ms Dermody set sail. In June 2009

Ms Dermody returned to New Zealand after suffering a back injury near Fiji. In September 2009 she rejoined Mr Bassett-Smith in Vanuatu. In October 2009 they sailed back to New Zealand together and began looking for a new home to buy. On

20 November 2009, however, they separated. According to Ms Dermody, this was at the wish of Mr Bassett-Smith. She maintains that he had formed a new relationship in Fiji, after she had returned to New Zealand; an allegation he does not altogether deny.

[15]     When they separated Mr Bassett-Smith had still not taken advice about, let alone signed, the agreement already signed by Ms Dermody. Before they sailed, he maintains, whether that was the day after they went to the offices of Harris Tate as he thinks, or a week later as the evidence also suggests, he maintains that he was fully preoccupied preparing for the voyage. After they returned, his evidence is that was not to the forefront of his mind. He was distracted. Yet, clearly, as the Judge found, what was to the forefront of his mind was an immediate separation.

[16]     The Judge held that Mr Bassett-Smith could not have acted inadvertently. He had been married three times before and had entered into such agreements more than once.  He  must,  she  found,  have  acted  deliberately.  He  must  have  resiled  from entering into the agreement. There was thus, she found, no agreement capable of being validated. She did not consider, however, why Mr Bassett-Smith might have elected to resile. She treated the fact that he did not sign on advice as in itself decisive. That is the very first issue that arises on this appeal.

[17]     The agreement declared the 'Pacific Rose' to be Mr Bassett-Smith's separate property. His will, consistently, gave to his son Simon the right after his death to use the yacht. In the event that Simon died, or no longer wished to use it, it was to form part of the residue of Mr Bassett-Smith's estate, in which Ms Dermody was to have a life interest, but was to vest eventually in his children. By signing the agreement, after advice ostensibly, Ms Dermody conceded to Mr Bassett-Smith these significant advantages. How can it have been in his interest to resile, especially when he had decided they should separate?

Discretion on appeal

[18]     Mr  Bassett-Smith's  right  of  appeal  is  conferred  by s  39  of  the  Property (Relationships) Act 1976. His appeal is deemed to be one made under s s 72 of the District Courts Act 1947.[1] It confers a right of appeal from the District Court by way

of rehearing against any 'decision'; any 'judgment ... interim or final order'.[2]

[1] Property (Relationships) Act 1976 s 39(3); Family Proceedings Act 1980, s 174(A).

[2] District Courts Act 1947, s 71.

[19]     The issue remains what form of appeal this is. Is it against the exercise of a discretion precluding this Court from revisiting the merits unless the Judge acted on a wrong principle, failed to take into account a relevant matter, took into account an irrelevant matter, or was plainly wrong?[3]  Or is it rather a general appeal by way of

rehearing in which this Court, subject to some error in the decision under appeal, is

charged with revisiting the merits for itself.[4] All decisions of the Family Court are, in the broadest sense, exercises of some statutory discretion, sometimes several.

[3] May v May (1982) 1 NZFLR 165 (CA); Blackstone v Blackstone [2008] NZCA 312; C v W HC New Plymouth CIV 2010-443-192, 28 July 2010.

[4] Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141.

[20]     In resolving this appeal I adopt the approach taken by Heath J in O v S.[5]  I grant the advantage the Judge had in seeing and hearing the witnesses. I consider whether, to the extent that she exercised a statutory discretion, she made any material error as to what she could and did take into account, or any error of principle. To the extent only that I conclude she did make some such error, I look to the evidence afresh and substitute my own view.

[5] O v S HC Hamilton CIV 2009-419-566, 14 August 2009; see also H v P [2009] NZFLR 745; Narayan v Narayan [2010] NZFLR 161.

[21]     In the event that I decide that the Judge did make a material error, I have a choice to make. I have the ability to make any decision I think should have been made or I have the ability to direct a rehearing in the District Court of the entire proceeding or, whether for the first or a second time, any matter that I consider does need to be resolved in the Court first seized with the case.[6]

Contracting out regime

[6] District Courts Act 1947, s 76.

[22]     The two 'agreements' that Ms Dermody signed, but Mr Bassett-Smith did not, rely on the ability of a husband and wife to contract out of the provisions of the Property (Relationships) Act 1976 insofar as it governs their property.[7]  And such agreements, precisely because their purpose or effect is to abrogate or vary rights accorded by the Act, are void under s 21F(1) unless they comply with s 21F(2) - (5):

[7] Property Relationships Act 1976, s 21.

(2)      The  agreement  must  be  in  writing  and  signed  by  both parties.

(3)      Each party to the agreement must have independent legal advice before signing the agreement.

(4)      The  signature  of  each  party  to  the  agreement  must  be witnessed by a lawyer.

(5)       The lawyer  who  witnesses  the  signature  of a  party must certify  that,  before  that  party  signed  the  agreement,  the lawyer explained to that party the effect and implications of the agreement.

[23]      The Court seized with the case at first instance, the Family Court or this

Court, is nevertheless given the ability by s 21H(1):

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

[24]     The onus of establishing an absence of material prejudice arising from his want of compliance rests on Mr Bassett-Smith, whose non-compliance rendered the agreement void, but who seeks to have it validated. In deciding whether to validate this Court has a residual discretion. It may take into account those factors that it must take into account when asked to set aside an agreement that does comply with s 21F

but is alleged to have caused 'serious injustice'.[8] Section 21J(4) then comes into play:

[8] Section 21J(1).

In deciding ... whether giving effect to an agreement ... 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.

Contract on ordinary principles

[25]     Mr Bassett-Smith accepts that his failure to sign the agreement, after advice, and thus to comply in any sense with s 21F, renders it void unless the Court validates it. His primary ground of appeal is that the Judge went further. She deemed his serial failures to be evidence of a lack of intent on his part to enter into legal relations with Ms Dermody. Effectively, he contends, the Judge merged into one these two distinct issues.

[26]     The Judge was fully alive, however, to the first issue arising under s 21H, whether there was a contract on ordinary principles, void for non-compliance but capable of being validated. She identified explicitly as the first issue that she had to decide whether Mr Bassett-Smith and Ms Dermody intended to create binding legal relations.[9] She was also entitled, when assessing whether Mr Bassett-Smith did have

the requisite intent, to take into account his serial failures.[10] And she set out at some

length how wholesale they were.

[9] Fleming v Beevers [1994] NZFLR 108 (CA); McGill v Crozier (2001) 21 FRNZ 157.

[10] Fisher on Matrimonial Property at 5.73.

[27]     Mr Bassett-Smith is on stronger ground, I consider, when he contends that the Judge took no overt account of four items of evidence supporting, as he contends conclusively, the inference that he did intend to enter into the agreement with Ms Dermody and inadvertently failed to do so.

[28]     First there is his evidence, which Ms Dermody does not dispute, that in early

2008 they agreed, in principle, at least that he would part with the Mt Maunganui commercial property interest, and use the proceeds to purchase a yacht, if she agreed that the yacht was to pass to his children. Second, there is the 2008 'agreement', which became redundant, but to which Ms Dermody subscribed, agreeing that the commercial property interest was his separate property. Third, there is the 2009

'agreement',  which  she  also  signed,  confirming  that  the  'Pacific  Rose'  was  his separate property. Fourth, there is his will, prepared at the same time as the second agreement, in which, treating the yacht as his own, he granted use of it after his death

to his son Simon and a residual interest to all his children.

[29]     Nor did the Judge take into account, overtly, two other items of evidence that Mr Bassett-Smith gave when cross-examined. Then, he agreed as to the second agreement and perhaps also the first, that he played the larger part in settling its terms;  he  gave  Mr  Tate  the  instructions  and  Ms  Dermody  concurred. Also  his admission that, in the first instance at any rate, he met Harris Tate's fee accounts.

[30]     On the face of that wider evidence, to which the Judge did not overtly refer, Mr Bassett-Smith had every reason to execute the 2009 'agreement' after advice and no obvious reason not to; and that makes implausible the Judge's conclusion that he deliberately resiled. That, however, raises a separate but still related issue that the Judge did not then need to go on to consider; whether Mr Bassett-Smith is able to show that his failures rendering the agreement  void did not cause any material prejudice.

Material prejudice and residual issue

[31]     Mr Bassett-Smith can easily demonstrate that he, himself, did not suffer any material prejudice from his want of compliance. The contrary is the case. On the evidence as it is, he is also able to assert that Ms Dermody must have been equally unprejudiced. She signed after advice from Mr Tate, and he certified that he had advised her. On the face of it she made her own independent informed decision.

[32]     On the evidence as it is, however,  Mr Bassett-Smith cannot exclude the possibility that Ms Dermody executed the agreement, as she now asserts, not understanding its status and effect and unaware, though she does not explicitly say so, that the 'Pacific Rose' might by then have become a family chattel in which she might have an equal share; a chattel 'used wholly or principally ... for family purposes'. He cannot exclude outright either her evidence that, while she was aware of the term in his will relating to the yacht, that merely confirmed that until his death it was theirs to share.

[33]     The immediate status of the 'Pacific Rose' might then have been equivocal. Mr Bassett-Smith, apart from purchasing it from his own funds, had worked on it intensively to prepare it for their shared voyage. Ms Dermody had done less. As she

said herself, she had been preoccupied with the sale of their home. How often they had taken out the yacht together, and in the most literal sense used it, was not in evidence. The yacht in all likelihood, however, would have become a family chattel once they embarked on their Pacific voyage; and it certainly would have become so once, as they then intended, they began to treat it as their home for half the year. Was Ms Dermody advised as to these possibilities?

[34]     Mr Tate, the solicitor who prepared the two 'agreements', and who advised Ms Dermody throughout, did not give evidence. All that Ms Dermody's present solicitors have is a letter from Mr Harris, a director of Harris Tate, a limited liability company. He, having spoken to Mr Tate and Ms Dermody, sets out a series of matters, none of which touch whether Mr Tate was able to be truly independent in the advice he gave to Ms Dermody. Nor does the letter have any status as evidence. Mr Harris did say he would send to Ms Dermody's solicitors Mr Tate's files relating to the 2008 and 2009 agreements. Whether they have them and what the files record I was not told.

[35]   The issue thus remains whether Ms Dermody did know what she was compromising potentially; and that question is sharpened by the absence of any evidence as to how Harris Tate came to be instructed and why, and whether, when Ms Dermody signed the agreement on advice, they were truly independent. These have to be fatal residual concerns.

Conclusions

[36]     The Judge made, I consider, a material error when she held that Mr Bassett- Smith and Ms Dermody never entered into the 2009 agreement, because he did not execute it on advice. She failed to take account of the wider body of evidence that supports Mr Bassett-Smith's assertion that, however inexplicably, his failures were inadvertent and that he had every interest in executing the agreement. The appeal must be granted for that reason alone.

[37]     There is, at the same time, a complete dearth of evidence as to whether Ms

Dermody received  independent  and  accurate  advice  before she signed  the 2009

agreement. The essential questions are these. Why did Harris Tate, not Holland Beckett, prepare the two agreements and the two wills? How could Harris Tate then advise Ms Dermody independently? What advice did Mr Tate give Ms Dermody and how accurate and  adequate was  it?  Did she know what rights, if any, she was compromising?

[38] On the evidence as it is, I am unable to reach any safe conclusion on any of these issues; that in paragraph [36] as well as those in paragraph [37]. I am unable equally to begin to weigh Mr Bassett's interest in having the agreement declared and validated against Ms Dermody's opposed interest in having her entitlement assessed on ordinary statutory principles. I see no alternative but to remit the case to the District Court for rehearing on wider evidence.

[39]     That ought not to impose any inordinate burden. The original hearing was confined and the next hearing can be expected to be also. What will be essential at the resumed hearing is that Mr Bassett-Smith and Ms Dermody, to the extent that they are able to do so, give more complete evidence on the issues as to which the present evidence is largely silent. There will also be a need for evidence from Mr Tate.

[40]     In such cases as these it is usual for privilege to be waived by the one who engages and instructs the lawyer, whose independence and advice is in question. Here even that involves a question. Harris Tate, as their letter to Mr Dermody's present solicitors suggest, regard her as their client. Yet Mr Bassett-Smith appears to have engaged them, even perhaps to have instructed them, and he paid their account. In the interests of finality, as to this issue at any rate, Mr Bassett-Smith and Ms Dermody should agree on a complete waiver. If a waiver is withheld by one or both it will be for the Judge to decide what inference that calls for.

[41]     I grant the appeal and remit the case for rehearing. That is no victory to either

Mr Bassett-Smith or Ms Dermody and costs will lie where they fall.

P.J. Keane J