Belle v Pearsall

[2023] NZHC 3147

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2207

[2023] NZHC 3147

UNDER

Property Law Act 2007

IN THE MATTER OF

An agreement for sale and purchase of land and the division of the proceeds of sale

BETWEEN

ANTHONY CARL WARREN BELLE

Plaintiff

AND

LEAH ISOBEL PEARSALL

Defendant

Hearing:

1 November 2023

Appearances:

K J Sheehan for Plaintiff

T M Newman for Defendant

Judgment:

9 November 2023

JUDGMENT OF O’GORMAN J

This judgment was delivered by me on 9 November 2023 at 10 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Kate Sheehan Lawyers, Auckland Keam Law, Auckland

BELLE v PEARSALL [2023] NZHC 3147 [9 November 2023]

[1]    This judgment concerns an application for urgent interim orders, in the context of an application for summary judgment seeking distribution of the proceeds of sale of a property under s 339 of the Property Law Act 2007 (PLA). The plaintiff and defendant were husband and wife but are now separated. After separation, in November 2022 they sold their former family home in Te Kauwhata. The net proceeds are held in a solicitor’s interest-bearing trust account, pending determination of disputed issues between the parties about  how they should be disbursed.   As at     20 October 2023, the balance was $599,413.97. The urgent interim issue is whether part of those funds can be paid out as undisputed.

[2]    The plaintiff relies on settlement discussions to establish what he says is an “undisputed” amount that should now be distributed. The plaintiff’s application dated 31 October 2023 seeks:

(a)an interim order that a certain disputed sum be retained in the solicitor’s trust account for both parties, pending resolution or determination of any claims between them;

(b)an interim order that the balance be distributed to each party’s nominated account on a 50/50 basis together with any interest;

(c)summary judgment in favour of the plaintiff in respect of the sum distributed to the plaintiff under [2(b)] above; and

(d)indemnity costs and/or increased costs and/or 2B costs.

[3]    In accordance with a timetable made on 1 November 2023, this judgment determines:

(a)whether this Court has jurisdiction to make the urgent interim orders sought; and

(b)if so, whether such orders are appropriate, effectively determined on a

Pickwick basis, prior to opposition documents being filed.

Position of parties

[4]    The defendant takes the position that the Family Court has exclusive jurisdiction to determine the subject matter of the application. In summary, the defendant submits:

(a)No settlement has been reached about the interim distribution of the proceeds of sale, as evidenced by this disputed application.

(b)The   application   is,   in   substance,   a    claim    under    the Property (Relationship) Act 1976 (PRA) regarding “relationship property”. As such, the application is within the exclusive jurisdiction of the Family Court. Accordingly, the High Court does not have jurisdiction to consider the application.

(c)Martin v Martin supports the above position as a matter of law and is distinguishable on the facts.1 That case concerned an application by Mr Martin under s 174 of the Companies Act 1993 seeking orders that the business (company assets, as opposed to shares in the company) be transferred to him. Campbell J held that such a claim raised issues that neither the PRA nor the Family Court was designed to deal with. Only the High Court has jurisdiction to hear claims under s 174.2

(d)While the applicant in this proceeding has suggested there might be disputed issues in relation to other property, including that of a limited liability company, no such claims have been made to date. The only application that has been made concerns “relationship property” within the Family Court’s exclusive jurisdiction.

(e)The discretion to transfer proceedings to the High Court under s 38A of the PRA is only exercisable by a “Family Court Judge”.3

1      Martin v Martin [2023] NZHC 2162.

2 At [31].

3      Property (Relationships) Act 1976, s 38A(1).

[5]    The plaintiff’s position is that the balance of the funds, being proceeds of sale, comprise separate property (at least in part), particularly when no Family Court proceedings have been commenced by either party. Separate property falls outside the jurisdiction of the Family Court and falls with the jurisdiction of the High Court. In summary, the plaintiff submits:

(a)Because the parties separated over two years ago and were not living together in the property when it was sold, each party’s share of the balance of the funds falls within the definition of separate property in s 9(4) of the PRA.

(b)As held in Martin v Martin, the Family Court does not have exclusive jurisdiction over every proceeding in which the PRA may have some application.4 For example, the High Court has jurisdiction for claims brought under the PLA and the Companies Act, even if part of the claim comprises relationship property.

(c)Bradford v Te Hei supports the proposition that this Court has jurisdiction to make any orders and/or grant relief in relation to property that falls outside the PRA (i.e., s 9 “separate property”).5

(d)Issues about a limited liability company might arise, particularly if it is placed in voluntary administration or liquidation, and the plaintiff needs the funds to satisfy ongoing financial obligations.

(e)The defendant has raised disputes about other assets that are owned by a company, so those fall outside the jurisdiction of the Family Court.

(f)Even if a claim were brought in the Family Court, there is always a possibility that either party could seek to transfer the claim to the High Court.

4      Martin v Martin, above n 1, at [23].

5      Bradford v Te Hei [2021] NZHC 3485, [2021] NZFLR 649; and Bradford v Te Hei [2022] NZHC 575 [Bradford costs judgment].

(g)Rules 7.55 and 7.57 of the High Court Rules 2016 provide wide powers for the court to make orders for the preservation and transfer of property.

Legal principles

[6]    As explained in s 1C of the PRA, that Act is mainly about how the property of married couples and civil union couples, and couples who have lived in a de facto relationship, is to be divided up when they separate or one of them dies. In those circumstances, the PRA allows applications to be brought for a range of orders. The orders are primarily to do with determining the respective shares of each spouse or partner in relationship property and dividing that property.6 Section 25 also provides for the possibility of interim orders. Under s 25(3), the Family Court may at any time make an order or declaration relating to status, ownership, vesting, or possession of any specific property as it considers just. To avoid doubt, s 25(4) provides that “if proceedings under this Act are pending”, the Court may make an interim order under subsection (3) for the sale of any relationship property and may give directions it thinks fit with respect to the proceeds.

[7]    Section 4 provides that the PRA applies as a code for claims within its ambit, instead of the rules and presumptions of the common law and equity.7 Section 4A provides that every enactment must be read as being subject to the PRA, unless the other enactment expressly provides to the contrary. Whether an application is one under the PRA or another enactment or cause of action is a question of substance rather than form.8 Accordingly, all questions relating to relationship property between spouses and partners, and any other person in any court proceedings, must be decided as if they had been raised in proceedings under the PRA.9

[8]    Section 22(1) of the PRA provides that “[e]very application under this Act” must be heard and determined in the Family Court. This provision is given further effect in s 11(1)(e) of the Family Court Act 1980, which provides that the Family Court

6      Property (Relationships) Act, s 25.

7      See Lobb v Ryan [2023] NZHC 1297 at [37]–[39].

8      Property (Relationships) Act, s 4(4); Martin v Martin, above n 1, at [25]–[27], referencing Kake v Napier [2022] NZHC 2395 at [24]; and Lobb v Ryan, above n 7, at [39].

9      D Hicks Laws of New Zealand Matrimonial and Relationship Property at [11].

must hear and determine all proceedings “that are to be heard and determined by the court under or by virtue of any of the provisions of” the PRA. It follows that the High Court generally has no jurisdiction over any application under the PRA.10

[9]    This does not mean the Family Court has exclusive jurisdiction over every type of civil proceeding between spouses or partners. Nor does it mean the Family Court has exclusive jurisdiction over every proceeding in which the PRA may have some application. As discussed further in [24] and [25] below, there is a long line of authorities, beginning with Jew v Jew, to the effect that the exclusive jurisdiction of the Family Court applies only where a party has applied for orders under the PRA.11

[10]   On the facts, it is common ground that the parties were married, owned the  Te Kauwhata house together, and used it as their family home before they separated. The present jurisdictional issue centres on whether the proceeds from the sale of the family home should be classified as separate property (as opposed to relationship property), and if so, whether this Court has jurisdiction to make interim orders about the payment of those funds while there is presently no competing application of that nature before the Family Court.

[11]   The definition of “relationship property” in s 8(1) of the PRA includes (among other things): (a) the family home whenever acquired; and (l) any income and gains derived from, the proceeds of any distribution disposition of, and any increase in the value of, any property described in s 8(a) to (k).

[12]   Separate property is defined in s 9. Section 9(1) provides that all property of either spouse or partner that is not relationship property is “separate property”. Section 9(4) goes on to set out categories of property that are treated as separate property, including “all property acquired by either spouse or partner while they are not living together as a married couple or as civil union partners or as de facto partners”, subject to the Family Court’s discretion to treat it as relationship property if “the court considers that it is just in the circumstances”.

10     Martin v Martin, above n 1, at [22].

11     Martin v Martin, above n 1, at [23], referencing Jew v Jew [2003] 1 NZLR 708 (HC) at [41] and other subsequent authorities.

[13]   Section 9A also provides for when any increase in the value of separate property, or any income or gains derived from separate property, are to be classified as relationship property.

[14]   Section 10 addresses when property acquired by succession, survivorship or as a beneficiary under a trust or gift is to be treated as separate property.

[15]   The general provisions for the division of relationship property are contained in ss 11 to 11B of the PRA:

(a)The starting position in s 11 is that each of the spouses or partners is entitled to share equally in the division of relationship property, including the family home and family chattels.

(b)Section 11A provides the starting point that if the family home has been sold, each spouse or partner is entitled to share equally in the proceeds of the sale as if they were the family home, if certain specified conditions are satisfied.

(c)Section 11B applies if s 11A does not apply. It also requires that there is either no family home, or the family home is not owned by one or other of the spouses or partners. In that case, the starting point is that the court must award each spouse or partner an equal share in such part of the relationship property as it thinks just in order to compensate for the absence of an interest in the family home.

[16]   Whether  an asset will  be dealt  with as relationship property in terms  of     ss 8 and 9A, or separate property in terms of ss 9 and 10, ultimately turns on the classification of assets in existence as at the date of the hearing.12 Nevertheless, classification at the date of hearing often turns on the retrospective classification that

12 Robert Fisher (ed) Fisher on Relationship Property (online ed, LexisNexis) at [11.10]; and Shepherd v Shepherd [2009] NZFLR 226 at [45]–[52], referencing Brown v Brown [1982] 1 NZLR 513 (CA) and Walker v Walker (1983) 2 NZFLR 240 (CA).

an asset had at the date of separation.13 An asset must generally be acquired and classifiable as relationship property by the date of separation if it is to qualify as relationship property at all, subject to special discretions in ss 9(4) and 20E.14

[17]   Only property which at the date of the hearing is still classifiable as the family home can be divided in equal shares under s 11. If the property currently before the court represents the proceeds of a family home sold since separation, there is no relevant family home available for division.15

[18]   When a family home is sold after separation, there are two potential approaches discussed by the learned authors of Fisher on Relationship Property:16

(a)One view (the learned authors consider it the better view) is that the proceeds of sale represent fresh property acquired after separation and are in the first instance separate property. Justice is then achieved by exercising the discretion in s 9(4) to declare the proceeds relationship property and by applying s 11A (providing for each spouse or partner to share equally in the proceeds of sale as if they were the family home), or by exercising the discretion in s 11B to divide those proceeds in equal shares as compensation for the absence of a family home.

(b)The alternative is to give s 8(1)(l) priority over s 9(4). In that case, a similar result is achieved by the proceeds of sale constituting relationship property from the outset, and s 11B can still be applied to achieve equal sharing.

[19]   Accordingly, under either of these methods, it seems likely that the proceeds of sale from the family home would be classified as relationship property, with a consequent right to seek orders under s 25 of the PRA for orders determining the respective shares of each spouse and dividing it.

13 Fisher on Relationship Property, above n 12, at [11.11]; and Shepherd v Shepherd, above n 12 at [47]. See also Birch v Birch [2001] 3 NZLR 413 (HC) at [25]; and Property (Relationships) Act, s 2H.

14 Fisher on Relationship Property, above n 12, at [11.11].
15 At [11.10].

16 At [11.10] and [11.15].

[20]   In Brown v Brown,17 the parties separated in 1975. After they had separated, the husband sold the family home in Dunedin and applied the proceeds in reduction of amounts owed on a Wellington house acquired by him separately post-separation. The sale of the  Dunedin  home  was  completed  three  days  before  the  Matrimonial Property Act 1976 came into force. Upholding the first instance decision of the Chief Justice but by a different route (focussing on assets in existence at the time of hearing), the Court of Appeal held that it was appropriate to exercise the s 9(4) discretion to treat as “relationship property” that part of the husband’s equity in the Wellington property that reflected the proceeds of sale. It observed that, as a matter of construction, the purpose of s 9(4) is to bring forward for consideration as separate property all the property acquired by either spouse during a period of separation so a decision can then be made in terms of the proviso as to whether it would be just to treat some part of such property as matrimonial property.18

[21]   In Thompson v Thompson, the Supreme Court took a similar approach finding that the s 9(4) discretion should be exercised in respect of a restraint of trade payment received after separation, referring to Brown v Brown as an instance of the property in question being acquired after separation from the proceeds of sale of relationship property.19

[22]   There are numerous other examples where the proceeds of sale from the family home (sold post-separation) have been classified as “relationship property”, but usually without any particular dispute or analysis about the method of classification.20

[23]   Bradford v Te Hei does not support the plaintiff. In  Bradford  v  Te  Hei,  PLA proceedings commenced in the High Court were stayed pending determination of PRA proceedings in the Family Court about a de facto relationship of short duration.21  The stay was ordered because the Family Court had exclusive jurisdiction

17  Brown v Brown, above n 12, on appeal from  Brown v Brown (No 2) (1981) 4 MPC 27  per  Davison CJ.

18 At 515.

19 Thompson v Thompson [2015] NZSC 26, [2015] 1 NZLR 593 at [36].

20 See for example Castle v Castle [1980] 1 NZLR 14 (CA); Morris v Morris (1980) 3 MPC 122; Buckman v Buckman (1979) 3 MPC 20; ECB v KDB FC North Shore, 31 August 2005; DPC v PMB [2012] NZFC 1105, [2014] NZFLR 277; NJG v SS [2013] NZHC 914; Lu v Huang [2016] NZHC 2311; and Byakova v Cherry [2020] NZFC 7121.

21 Bradford v Te Hei, above n 5, at [104]; and Bradford costs judgment, above n 5, at [15] and [16].

to assess whether the applicant for a division had made a substantial contribution to the de facto relationship and whether a failure to make an order under the PRA would result  in  serious  injustice.  The  parties  later  jointly  agreed  to  transfer  that   PRA proceeding to the High Court, and the Family Court so ordered.22 After the transfer,   the   PLA   proceedings   were   stayed   pending   resolution   of    the PRA proceedings.23 Costs were assessed on the basis that the claim was determined under the PRA, not the PLA.

[24]   There are several other cases that support the argument that the High Court retains a jurisdiction to make orders under the PLA or the Companies Act, notwithstanding the wide scope of the Family Court’s exclusive jurisdiction. However, in those cases the relief sought was the sale or partition of real property,24 or concerned third party interests.25 They did not concern the core functions of the Family Court, being to determine classification for the purposes of the PRA and make orders for distribution of relationship property (including on an interim basis):

(a)In Clark v Clark, the parties had separated some four years previously and were divorced at the time of the hearing.26 The wife applied for an order for sale of the matrimonial home by way of summary judgment under s 140 of the Property Law Act 1952 (the 1952 Act). The respondent did not object to orders for sale being made.

(b)In McLean v Cheyne, the husband applied for a sale order under s 140 of the 1952 Act, which the wife (who remained living in the property) opposed as she wished to retain the house as part of a division in PRA proceedings pending in the Family Court.27 Master Gendall found

22 Bradford v Te Hei, above n 5, at [106]; and Bradford costs judgment, above n 5, at [20].

23 Bradford costs judgment, above n 5, at [21].

24 This is the distinction drawn in Gledhill v Gledhill HC Palmerston North M73/96, 8 March 1997. As described in Struan Scott and others Adams’ Land Transfer (online ed, LexisNexis) at [S61.10.4], Master Thomson suggested that the objection in Shorter v Shorter “was not an absolute objection, and that in appropriate cases the summary judgment procedure with respect to the sale of the property, as opposed to determining what should happen to the proceeds of sale, may be appropriate”.

25 Such as Martin v Martin, above n 1, at [27]–[29], in which the Court recognised the separate legal personality of the companies, and the difference in substance between a claim to a company’s assets as opposed to a claim to shares.

26 Clark v Clark [1992] NZFLR 439 (HC).

27 McLean v Cheyne [2003] NZFLR 805 (HC).

there was jurisdiction but declined to exercise it as a matter of discretion.28

(c)In Lung v Liu, the family home was sold post-separation, and the proceeds invested in a new property with the former husband and wife acting as co-borrowers and both on the title.29 The High Court held that the PRA did not exclude the jurisdiction of the High Court to order a sale of the new property under s 339 of the PLA.30

[25]   In any event, there is another line of cases in which the High Court declined jurisdiction in favour of the Family Court:

(a)In Shorter v Shorter, the parties had separated, leaving the wife and one dependent child residing in the house, which had a substantial value.31 The husband brought an application under s 140 of the 1952 Act seeking to force a sale of the house because he was in some financial difficulty. Master Towle considered it wholly inappropriate to open the floodgates to a short-cut method to try and force the disposal of what is usually the most important single item of matrimonial property. He said the High Court “should not be used as a crow-bar to resolve a matrimonial property dispute”.32

(b)In Shirtliff v Albert, the plaintiff applied for orders under the PLA for the sale of a property owned by herself and her former partner, and for directions for sale and division of proceeds with adjustments for occupation rent and rates payments.33 Associate Judge Bell decided that the matter was within the exclusive jurisdiction of the Family Court and therefore the High Court could not give the plaintiff the orders she sought.34 He noted that there were inconsistencies between the

28     At [30] and [58].

29     Lung v Liu [2022] NZHC 3074, [2022] NZFLR 608.

30     At [71]–[72].

31     Shorter v Shorter [1991] NZFLR 286 (HC).

32     At 287.

33     Shirtliff v Albert (2011) 12 NZCPR 551.

34 At [6].

provisions of the PLA for the division of property among co-owners and the provisions of the PRA for the division of relationship property. These inconsistencies were resolved by ss 4(4) and 4A of the PRA, which required the PRA to apply. Although no proceeding had been commenced in the Family Court and the time for doing so had expired, the Family Court retained the power to extend time and would likely do so. Associate Judge Bell commented that the Family Court has a concurrent jurisdiction on issues of general property law, but it has exclusive jurisdiction for the division of relationship property.

(c)As discussed above, in Bradford v Te Hei the Court applied the principles in Shirtliff v Albert.35

[26]   Following on from the above, the Family Court has the exclusive jurisdiction to hear and determine the subject matter of this proceeding, namely (in substance) issues concerning the classification of the proceeds of sale of the Te Kauwhata property (the former family home) for the purposes of ss 8–11B of the PRA, whether any interim orders are appropriate under s 25(3), and any final orders of division and distribution. While there is no present application under the PRA, that is the forum for determination of any such disputed issues (including the interim position), subject to any transfer orders that may be made under s 38A of the PRA (a discretion exercisable by a Family Court Judge). I find that the Family Court’s jurisdiction is exclusive for the substantive nature of the relief sought in this proceeding, for the reasons explained in Shirtliff v Albert.

[27]   I agree with the defendant that vague references to potential company law issues are irrelevant. This application solely concerns classification and distribution of the proceeds of the family home, which falls within the Family Court’s exclusive jurisdiction. Any discretion to transfer proceedings to the High Court under s 38A of the PRA is only exercisable by a “Family Court Judge”.36

35     Bradford v Te Hei, above n 5, at [104].

36     Property (Relationships) Act, s 38A(1).

Discretion

[28]   Even if the High Court had a concurrent jurisdiction and could appropriately determine the present urgent application for interim relief, I do not consider that this is a situation where those orders would be suitable in the interests of justice, prior to the defendant filing her opposition documents or seeking orders in the Family Court.

[29]   The plaintiff is understandably frustrated that the proceeds of sale have not been paid out for around one year now, particularly if the parties should be able to agree on an undisputed amount.

[30]   However, for whatever reason, the parties have not reached agreement on the interim or final position as between them. Disputed issues currently remain about how the proceeds should be classified and distributed, and meanwhile legal costs are continuing to accrue.

[31]   The provisions of the PRA operate on assets in existence as at the date of the hearing. I am not prepared to make orders that would potentially prejudice the defendant’s opposition of the distribution that the plaintiff proposes, and her right to make an application to the Family Court.

[32]   The timing pressures arising from the acquisition of a new property result from the plaintiff’s own choices, have not suddenly arisen, nor have they suddenly changed in nature. They do not justify any orders now on a Pickwick basis.

[33]   This jurisdiction decision does not preclude the plaintiff from seeking interim relief. If he wishes, the plaintiff may make his own application to the Family Court for an interim distribution, subject to the privilege issues referred to below.

Without prejudice material

[34]   Section 57 of the Evidence Act 2006 protects privilege in respect of communications that were:

(a)intended to be confidential; and

(b)made in connection with an attempt to settle or mediate the dispute between the persons.

[35]   The plaintiff’s position is that by 31 October 2023 negotiations had reached the point of a concluded agreement, so s 57(3) of the Evidence Act applies to enable enforcement of the terms of a settlement agreement as to the interim position.

[36]   That proposition is rejected. It is clear from the content of those exchanges and the substance of the urgent interim relief sought by the plaintiff that the parties had  not  reached  any  concluded  agreement  about  interim  arrangements  as  at   31 October 2023. While a figure was proposed in an offer made on behalf of the defendant, there was no concluded agreement as to the way it would be deducted and the terms on which it would be held. The plaintiff’s different position on those issues amounts to a counter-offer. In those circumstances, it was inappropriate for the plaintiff to breach privilege by filing copies of the correspondence and by referring to the content of what had been discussed.

Conclusion

[37]   I am satisfied that this Court does not have jurisdiction to determine the subject matter of this proceeding, because those matters fall for determination by  the  Family Court under the provisions of the PRA. I accordingly dismiss the proceeding under r 5.49(6)(a) of the High Court Rules.

[38]   The defendant has been successful on these issues. If the parties cannot agree costs, then the defendant may file a memorandum by 5 pm on 21 November 2023, and the plaintiff may file a memorandum by 5 pm on 5 December 2023, for costs to be determined on the papers.

O’Gorman J