Bethell v Bethell

[2018] NZHC 3171

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000967

[2018] NZHC 3171

BETWEEN

DIANA HELEN BETHELL

Appellant

AND

SAMUEL JOHN BETHELL

First Respondent

AND

SAMUEL JOHN BETHELL and CHRISTOPHER ROBERT JUDD

as trustees of the Stumpy Trust Second Respondents

Hearing:	26 June 2018
Appearances:	S H Marsden for the Appellant A R Bradley for the Respondent
Judgment:	4 December 2018

JUDGMENT OF NATION J

BETHELL v BETHELL [2018] NZHC 3171 [4 December 2018]

Introduction  [1]

Background  [3]

The relationship in summary  [6]

The appeal and cross appeal  [10]

Approach on appeal  [16]

Claimed wrongful admission of evidence  [21] The status of the debt on current account from the Stumpy Trust to Sam  [39]

The challenge to the categorisation of the residual Hussey Developments

debt as his separate debt  [63]

Value of agreed relationship property assets  [88]

Motor vehicle  [91]

Current assets  [96]

Accounting as to agreed assets  [104]

S 182 FPA – the challenge to the establishment of the Stumpy Trust

as a nuptial settlement  [106]

S 182 FPA – the challenge to the Stumpy Trust’s purchase of the farm

as a nuptial settlement  [134]

S 182 FPA – the challenge to the Judge’s determination the Trust

was insolvent  [152]

S 182 FPR – the exercise of the discretion  [174]

Summary of conclusions  [188]

Costs  [190]

Suppression  [191]

Introduction

[1]    Diana Bethell (Diana) and Samuel Bethell (Sam) lived together on Timpendean Farm in the Weka Pass area of North Canterbury from about 1999 until September 2014. They married on 3 November 2000 and had two children. They separated in September 2014. The farm was owned at that time by the second respondents as trustees of the Stumpy Trust (the Stumpy Trust). The marriage was dissolved on 18 July 2016.

[2]    Issues under the Property (Relationships) Act 1976 (PRA), as to assets held by Sam and Diana personally and Diana’s application under s 182 Family Proceedings Act 1980 (FPA) for a resettlement of the Stumpy Trust, were the subject of a judgment of Judge Murfitt in the Family Court.1 Both Diana and Sam appealed against various aspects of that judgment.

Background

[3]    Timpendean Farm and another nearby farm, Pahau Pastures, had been farmed by three generations of the Bethell family before Sam and his brother Hugh Bethell (Hugh) farmed the properties. Sam and Hugh’s great-grandfather was Marmaduke Bethell. Their grandfather, C D Bethell, was known as Stumpy. Sam and Hugh’s  father, David Bethell, died on 23 October 1998, around the time the relationship between Sam and Diana began. Various estate, trust and company arrangements had been made so that the land and associated farm stock and plant passed from one generation to primarily the male heirs of the next.

[4]    A lawyer for the family, Ben Tothill, set out the history of the farm’s ownership. It is unnecessary for me to detail that history. When the Stumpy Trust acquired Timpendean Farm, Sam acquired a debt from the Stumpy Trust for $3,600,000 and a cash payment of $2,203,222.59 (the succession fund). Judge Murfitt decided that, in terms of s 10 PRA, they were Sam’s separate property. There is no appeal from that decision.

1      Bethell v Bethell [2017] NZFC 9081.

[5]    Bethell Holdings Ltd was incorporated in June 1999 for Sam and Hugh to farm Timpendean Farm and Pahau Pastures. All but two of the 10,000 shares in Bethell Holdings Ltd were owned by Sam and Hugh personally, but their respective trusts retained an option to acquire the shares. Sam and Hugh’s mother held the remaining two shares to make it easier to allocate income to her from the company in a more tax effective way. She also had a life interest in David Bethell’s estate. Bethell Holdings Ltd acquired stock and plant associated with the farming business for value with debts back.

The relationship in summary

[6]    I have read the evidence before the Court by way of both affidavits and through the evidence the Judge heard in the Family Court hearing. I respectfully adopt the Judge’s summary of the parties’ relationship, which is consistent with that evidence and is set out with the perceptiveness of a Judge with considerable experience in exercising the specialist jurisdiction which the Family Court has in this area. For ease of reference, I set out Judge Murfitt’s summary but have deleted certain details as to the children:

[2]        The applicant, Diana, aged 45, is employed as a sales representative in the agricultural sector in North Canterbury. She was raised as a farm girl, and in fact her father had been employed by Sam’s grandfather, who was a substantial landowner and farmer in the district. She is a hard worker, but also an enthusiastic polo player. In fact, Diana has in the past been a professional polo player, representing New Zealand overseas. She agrees this was her passion in life. From October until March each year much of her life centred around exercising her ponies, training them and herself in the sport, travelling and participating in competitions around the country.

[3]        Sam, now 46, was raised at Timpendean and has managed the property since about 1992. During the 1990s he suffered back injuries, which have limited his ability to participate in heavy work on the farms. Increasingly, most of his work has involved management, from behind a desk, with the heavy work being undertaken by paid employees. This back injury has not prevented Sam from enjoying a full recreational life. He has owned his own helicopter and jet boat, which have been used for joy riding and hunting, until relatively recently the helicopter has been sold out of need to liquidate unnecessary assets.

…

[11]      Diana’s evidence is that she and Sam were in a dating relationship through 1998 until they were engaged in early January 2000. She maintained her own flat in Amberley, where she was working as a veterinary nurse until

they became engaged. She says their relationship until then was an intimate one, with her staying overnight at Timpendean with Sam on occasions, and she helping with farm work when numbers were needed.

[12]      Sam’s evidence is that the relationship between him and Diana broke up for a time in 1999 before resuming toward the end of that year. Diana agrees they parted for a period but not as to the timing of this.

[13]      Sam’s father, David Bethell, died on 28 October 1998. At about that time Sam’s brother, Hugh, and his wife, Jane, separated. It would accord with the evidence of Mr Ben Tothill, the Bethell family’s lawyer that Sam and Diana began a relationship at the time of Hugh’s marital difficulties during the winter of 1998. Diana’s evidence is that their relationship began a couple of months before David Bethell died in October.

[14]      Diana agrees that she and Sam parted company for a time in 1999, but she cannot be clear as to when that occurred. She believes it was for a period of six to eight weeks that they were apart. Neither is Sam clear as to when this interregnum in their relationship occurred in 1999.

[15]      At one stage of her evidence, Diana (with a high level of uncertainty) believed it may have been near the end of the polo season in March 1999. Sam (also with uncertainty) believed it may have been later in the year.

[16]      What is clear is that by November 1999, after Diana had mares put to the stallion, her horses were placed on Sam’s land – at his invitation – for the remainder of the 11 months’ foaling.

[17]      During 1999, there was a period when Sam was hospitalised and then bedridden because of a back injury, and needed help in the home. His mother provided some, but so also did Diana. She maintained her own flat in Amberley until she and Sam became engaged in January 2000. However, each week she spent some nights during the week staying at Sam’s home (except for the period of six to eight weeks when they paused their relationship), and during this time, she supported Sam while he was bedridden or while his mobility was impaired.

[18]      During the weekends, Diana was often committed to her polo commitments during the summer and on a few occasions Sam accompanied her. While Sam was laid up with his back injury, Diana clearly recalls that providing home support for Sam was a significant part of her life, and she either stayed overnight with him or called in to see him while commuting to work. Sometimes Sam’s mother stayed overnight, but (understandably) not on the occasions when Diana was there. The best available evidence suggests this occurred during the winter of 1999.

[19]      In summary, Diana recalls the six to eight-week interruption in their relationship occurred from about March – April 1999, while Sam reconstructs that it was later in the year, leading up perhaps to November 1999 when he offered to graze her mares which were in foal.

[20]      The relevance of this is that the Stumpy Trust was formed in May 1999, and the issue of whether it is a “nuptial” settlement will be affected by the nature of the relationship between Sam and Diana at the time it was created.

[21]      Bearing in mind that memories are frail recalling events 18 years earlier, the evidence suggests to me that Sam’s operation and recovery probably occupied the winter months, during which time the trust was formed. That was the period Sam was in an active relationship with Diana. It is unlikely he would have offered her use of grazing facilities in November had they been estranged. More likely, the hiatus in their relationship occurred earlier in 1999, prior to the back operation and recuperation period.

[22]      Corroborative of that is Mr Tothill’s evidence that he had given careful advice to Sam that Diana should not be involved in the farming enterprise, in order to protect Sam against any marital claim. Mr Tothill himself said he was unaware whether Sam was in a relationship or not. It is likely that Sam was cautious about the risk of a marital or de facto claim precisely because he had recently had the experience of a relationship break-up with Diana, and in all likelihood because that relationship had recently rekindled. In 1999 there was quite a significant level of public discussion about the prospect of law reform including the extension of relationship claims to incorporate de facto couples. When the trust was being formulated, Di’s involvement in the farm was certainly a topic at the front of Sam’s mind.

[23]      The Stumpy Trust was formed on 11 May 1999. Sam’s mother (also named Diana) was the settlor. Sam was appointed one trustee, and Chris Judd (another farmer and friend of the family) was appointed the other trustee.

[24]      Sam, his descendants, his “spouse for the time being,” his siblings and their children were beneficiaries.

[25]      The trust was discretionary, in the sense that the trustees have the power to distribute income to any of the beneficiaries. The Trustees have power to distribute capital at the end of the Trust (80 years after its commencement, unless earlier wound up in accordance with the provisions of the trust deed) between such of the beneficiaries as the trustees might choose in their discretion, apart from Sam himself. Clearly, it was anticipated he would retain the income benefit during his lifetime, and the assets of the trust would be available in due course for descendants or other members of the family.

[26]      Significantly enough, the Stumpy Trust however incorporated powers for the trustees to distribute also to Sam’s wife, daughters and nieces.

[27]      For seven years the Stumpy Trust lay fallow as an instrument in the succession planning constructed by Mr Tothill, who acted for the other members of the Bethell Family as well.

[28]      Another part of the structure of the succession plan was the formulation of the company Bethell Holdings Limited (BHL), which occurred on 8 June 1999. The company comprised 10,000 shares, two being held by Sam’s mother, and 4999 being held by each of Sam and his brother Hugh.

[29]      BHL was formed as part of the primogeniture structure of estate planning instituted by Marmaduke, Sam’s grandfather in the lights of the time, and the general plan was that farms and farming assets should be left to the sons, in the expectation of preserving the farming assets within the family.

[30]      BHL engaged in the work on the farms owned by the family, including Timpendean and Pahau Pastures. Sam and Hugh undertook work on the farms, management of the properties and also undertook work off those farms within the district, for which they were paid salaries by BHL.

[31]      In July 1999 the company purchased stock and plant from Marmaduke for a cost of $1,124,724. Over the next six years it acquired shares in the two farming companies. Pahau Pastures was a large operation of 1448 hectares, which in 2003 was purchased for $8,400,000.

[32]      The brothers undertook a lot of work rehabilitating and restoring Pahau Pastures, with fencing, irrigation and drainage to the end result it was subdivided and two of three parts were sold for $12,000,000.

[33]      In the meantime, in Sam’s domestic life, he became engaged to marry Diana in January 2000. They married on 3 November 2000.

[34]      Two children were born to the relationship, a son […] born [in] 2003 and a daughter […] born [in] 2006.

[35]      During the course of their relationship, Sam and Diana lived a very comfortable lifestyle. Sam enjoyed flying his helicopter, hunting and generally jaunting around the South Island. Diana travelled within New Zealand most weekends to polo events, and at times overseas to South America and elsewhere for international events. They enjoyed overseas holidays together and their children both attended private schools. On reflection, with the wisdom of hindsight Sam’s evidence is that “we lived beyond our means in a lifestyle supported initially by his inheritance and then by debt raised over the farm.

[36]      In his occupation of farm manager and farmer, Sam has always enjoyed having the latest farm equipment. Diana recalled a meeting with the bank manager and farm advisors late in the relationship that Sam had “metal disease” referring to his habit of buying expensive new machinery. Consideration was given then to leasing rather than buying equipment, but that was not implemented as a strategy immediately. Sam’s evidence did not discount his interest in having the latest, most modern equipment, and he viewed that as a good farm management policy.

[37]      In October 2010, while the family was on holiday in Rarotonga, Sam expressed to Diana his doubts about the viability of the marriage continuing. He had developed interests elsewhere.

[38]      In mid September 2013, the couple agreed their marriage was over, but they lived together as an estranged couple for another year in the family home at Timpendean. Eventually Diana left the home on 8 September 2014.

[39]      One dispute between the parties relates to their date of separation. It might have some impact in relation to Diana’s claim for compensation for post separation behaviours of Sam. I find the couple separated on 8 September 2014. That is the indisputable date when the couple ceased to occupy Timpendean together. Although Diana and Sam had come to realise at least a year earlier that separation was inevitable, and they occupied separate bedrooms in the home, they continued to parent their children, living on a joint income, and presenting to the world as a married couple. For the purposes of

these proceedings, I conclude the couple separated as at 8 September 2014. In fact, the finding matters little in view of later findings in relation to the claims for compensation made by Diana.

[40]      Their marriage has been formally dissolved by an order which was sealed on 18 July 2016.

[41]      [The children] attend school in Christchurch. They share their weekend time between each parent, and it seems both parents are actively involved in parenting their children.

[42]      The farms known as Timpendean and Pahau Pastures were acquired by BHL. The ownership of Timpendean Farm was indirect, through a company Timpendean Farm Ltd (TFL) in which BHL held a majority shareholding (after acquiring the shares held by the mother of Sam and Hugh). The brothers, Sam and Hugh, in 2005 decided to chart their own courses in the farming industry. A new company, Bethell Holdings 2005 Ltd was formed. Timpendean Farm was sold to the Stumpy Trust after the subdivision and part sale of Pahau. The Stumpy Trust acquired huge tax losses from the Marmaduke Estate Trust, and as a consequence income from Stumpy has effectively been tax free.

[43]      The purchase price of Timpendean Farm at $3,600,000 was paid by way of a debt back to Timpendean Farm Limited and the debt back was assigned to Sam by his mother. This was part of a series of transactions constructed by the families’ lawyers to transfer family wealth from one generation to the other. This is described in the deed of family arrangement annexed as Exhibit N to the affidavit of Mr Tothill. The intentions of the deed make it clear the purpose of the deed was to ensure Sam or Sam’s trust obtain exclusive ownership of Timpendean Farm, and that Hugh (or his trust) obtained ownership of the remaining block of Pahau Pastures.

[44]      In 2012 BHL (2005) was wound up and its assets divided between the brothers’ Trusts.

[45]      When Stumpy Trust bought Timpendean Farm from Bethell Holdings 2005 Limited in 2006, it was at a value of $3,600,000. By 2014, the farm was valued at $5,617,000. The trust owed Sam $3,600,000 in relation to the purchase. By that time Sam held a current account of $948,000.

[46]      Significant improvements were undertaken on Timpendean Homestead after 2006. The house was substantially rebuilt, extended and modernised. The swimming pool was renovated, a tennis court was installed and the gardens were substantially developed.

[47]      Timpendean Farm was operated as a mixed cropping and grazing operation until 2011. At that stage, sheep and cattle sales accounted for about one half of the production of the farm.

[48]      From 2011, Sam adopted a different farming strategy. Gradually the farm was destocked and a move to cropping was evident from around 2012. The income from grain production increased from $551,000 to $1,263,000 per annum and that was relatively stable until 2015. By 2013, the farm no longer carried sheep, and sale numbers of cattle increased. In 2010, sales of cattle accounted for $449,000 of annual income, and that increased by 2013 to

$539,000. Since then sales of cattle increased and then plummeted by 2016 to $16,000.

[49]      Like so many farming operations, Timpendean’s survival was funded by debt, and was heavily dependent on commodity prices being maintained. They are vulnerable to unforeseen influences such as prolonged drought. That is exactly what befell Timpendean and many other farms in the Canterbury region for three years from 2014 until 2016 inclusive. Exceptionally dry years resulted in diminished production and diminished returns for farm producers. Mr Melhuish, an experienced accountant, identified the decline in the financial performance of Timpendean Farm from 2011 until 2016, but his brief did not call upon him to investigate the causes for that change. Evidence presented by Mr McCarron, who is the accountant handling the affairs of Sam and the Stumpy Trust, was able to point to several of the underlying causes. Of course, the drought was a very significant factor. In his affidavit he was able to identify a steady decline in the gross margins per hectare experienced by farmers in the region between 2014 and 2016. For example, the medium yield per hectare for barley steadily reduced from $1053 per hectare in September 2014 to $685 in September 2015 and $428 in 2016. Similarly the medium yield for feed wheat reduced during this period from $1604 per hectare in September 2014 to $1079 in September 2015 and $832 in September 2016.

[50]      This has relevance in relation to Diana’s claim that the decline in the fortunes of the Trust’s assets were attributable to mismanagement by Sam, to the extent she should be compensated for his mismanagement. By that time  it is clear the farm was in crisis. Mr McCarron’s evidence indicates that from March 2015 Sam was involved in meetings with an Advisory Group each six to eight weeks, attended by the bank manager, livestock companies and owners, and at times with their advisors. Sam was in regular contact with Mr McCarron, his accountant, to monitor the situation.

[51]      Some land from Timpendean was sold after Diana and Sam separated in 2014, for $485,000. Those proceeds were credited to Sam’s current account in the Stumpy Trust and was paid to Diana. By the time of hearing that capital had been reduced to $391,000 after legal fees had been met.

[52]      Post-separation Sam also paid Diana $4800 per month spousal maintenance, and he paid by agreement $3000 per month extra on account of her relationship property entitlement for six months. Thus she has received a further $18,000 capital payments in anticipation of her property entitlement.

[53]      During the course of the couple’s relationship Sam funded the construction of a grain shed on Timpendean at a cost of $482,000 (rounded). This was funded by ASB debt, and is incorporated in the calculation of the debt owed back to Sam by the trust.

[54]      Eventually, facing tight financial pressures Timpendean was sold to a third party buyer for $6,810,000. The proceeds of sale have been applied to repay debts accumulated by Sam in his business as a sole trader. The trust itself had no creditors other than Sam.

[7]    There was a mistake in the way the Judge referred to both children having been educated at private schools. At the time of the hearing, only their son was at a private

secondary school, it was his first year of such schooling. I also note that Diana ceased playing polo in 2009.

[8]    The farming “vehicles” Sam owned during the marriage included a Cessna aeroplane which cost $252,000. It was sold for $191,000 in the 2011/2012 financial year.  An aircraft hangar for it had cost $32,000.  Sam then purchased a helicopter for

$250,000. It seems to have been acquired primarily for recreational use. It was leased out on occasions but such income did not cover the helicopter’s outgoings.  In 2013,

$125,000 was spent on an overhaul. It was sold in 2017, not long before the Family Court hearing in August 2017, for $150,000.

[9]    Sam paid Diana $4,000 per month from September 2014 to April 2015 for support of herself and their two children, and $4,800 per month from April 2015 to March 2016. In April 2016, Sam reduced the payments to $3,000 per month and from June 2016 to January 2017 to approximately $1,500 per month. In the financial year to 30 June 2016, by way of financial support, he provided a total of $52,200 for Diana and the children. In that year, when Sam had the benefit of living in the Timpendean homestead, his personal drawings were $140,235. From that, he paid the $52,200 just referred to. Of that sum, $18,000 was on account of Diana’s relationship property entitlement.

The appeal and cross appeal

[10]   Diana’s appeal was filed slightly out of time. An application for leave to appeal had to be made. There was no prejudice as a result of the delay. There was no opposition to that application. Leave is formally granted for the appeal to proceed.

[11]Diana appealed against the Judge’s decisions:

1.     to admit evidence from Mr McCarron, an accountant for Sam;

2.     refusing to resettle part of the capital of the Stumpy Trust for the benefit of Diana and her children, and his finding that the Stumpy Trust was insolvent; and

3.     refusing to make orders under ss 18B and C PRA to compensate her for the way she claimed the relationship property pool had been diminished by Sam’s conduct during the separation.

[12]The third ground was not pursued at the hearing of the appeal.

[13]Sam filed a cross appeal. His cross appeal was against the Judge’s decision:

1.          that a debt of $915,270 from the Stumpy Trust to Sam on current account was relationship property;

2.          that a debt of $321,869 and any other liability Sam had arising out of his investment in a company Hussey Developments Ltd (Hussey Developments) was not a relationship debt in terms of s 20 PRA; and

3.          that the settlement of the Stumpy Trust and the disposition of Timpendean Farm to the Stumpy Trust in 2005 were nuptial settlements for the purpose of s 182 FPA.

[14]   By memorandum of 12 November 2018, counsel also asked me to resolve issues as to the value of certain items of relationship property to be brought into account between the parties, issues which were still to be finally determined in the Family Court.

[15]   I deal with the issues pursued on the appeal and cross appeal in an order which will confirm the value of relationship property to be shared between the parties, the value of Sam’s separate property, and the equity in the Stumpy Trust against which the application under s 182 FPA has to be considered.

Approach on appeal

[16]   There was no dispute as to how the appeal is to be considered. Both counsel set out the approach which is to be taken.

[17]   The appeal is by way of rehearing.2 Appeals to the High Court from the Family Court under the FPA and PRA are governed by s 39 PRA and s 174 FPA. Both sections contain an identical provision that the High Court Rules 2016 and ss 126-130 District Court Act 2016, with all necessary modifications, apply to appeals under those Acts as if they were appeals under s 124 of the District Court Act.

[18]   The approach to appeals from the Family Court is well established. The Court is required to reach its own conclusion and not to defer to the views of the specialist Tribunal.3 The appellant nevertheless bears the onus of satisfying the appellate court that it should differ from the decision under appeal. It is only if the appellate court considers the appeal decision wrong that it is justified in interfering with it.

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

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

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

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

2      High Court Rules 2016, r 20.18.

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

4      May v May (1982) 1 NZFLR 165 (CA); Blackstone v Blackstone [2008] NZCA 312, (2008) 19 PRNZ 40 at [8], citing with approval B v B HC Auckland CIV-2007-404-5016, 9 May 2008 at [35].

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

6      B v F [De Facto Relationship], above n 5, at [8].

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

Claimed wrongful admission of evidence

[21]   In September 2013, Sam and Diana agreed their marriage was over however they both continued to live in the home until Diana left on 8 September 2014. There is no dispute now that, for the purposes of the PRA, they began living apart in September 2014.

[22]   In the Family Court, Diana claimed that the value of the property pool had diminished over the separation. She claimed this was because of Sam’s decision to borrow $482,000 to build a grain storage shed on Timpendean Farm, further borrowings to acquire farm machinery and what she said was unnecessarily high personal drawings and poor farming performance.

[23]   Judge Murfitt held there was no justification for a compensation payment under ss 18B or 18C PRA, or any justification for adopting a value for relationship property other than as at the date of hearing. He held there was no evidence that Sam had intended to diminish the value of assets, whether relationship property or his separate property, by decisions he made during the separation. He held there had been no significant change in the farm management plan during the separation. The farming operation had been adversely affected by a prolonged drought. Sam had made purchases of plant which, in hindsight, might have been better avoided but, in part, that was because of how long the drought lasted which was not something he could have reasonably predicted. His spending habits, particularly with regard to the purchase of expensive farm machinery, were nothing new and had been well established before the separation.

[24]   Judge Murfitt considered that Sam’s lifestyle had been no more extravagant than had been enjoyed by the couple before the separation and his payments of spousal support during the separation had been generous.

[25]   Ms Marsden, for Diana, explained the proceedings were set down for a back- up fixture on 28 April 2017. On 7 April 2017, Sam filed an updating affidavit with

information as to the net asset position of all property owned by him and the Stumpy Trust. This appeared to show a serious reduction of the property pool which was the subject of the proceedings.

[26]   Diana was granted leave to file evidence prior to the scheduled April 2017 hearing from Mr Craig Melhuish, a Chartered Accountant, as an expert witness to analyse the financial accounts of the Stumpy Trust and Sam’s sole trader financial accounts. Sam was granted leave to reply.

[27]   Mr Melhuish prepared a report for Diana. When there were only three clear working days prior to the hearing, Sam filed an affidavit and report from his accountant Paul McCarron. Diana objected to the admission of the evidence on the grounds it was broader than a reply to the analysis of the financial accounts, it was not expert in nature and it contained hearsay and opinion evidence.

[28]   Judge Murfitt admitted the evidence. Mr McCarron was cross-examined on his report. Judge Murfitt referred to information Mr McCarron had provided and opinions he had expressed in reaching his decision over the ss 18B and C applications.

[29]   Ms Marsden submitted Mr McCarron’s evidence should not have been admitted for the reasons already referred to. She said it was largely hearsay, based on what Sam had told him about the farming operations, and cash manager rural reports which were projections of future cash flow prepared by Sam. She said Mr McCarron gave evidence as to climatic conditions and crop yields, matters which he was not an expert on, and had relied upon hearsay material which did not relate specifically to Sam’s situation and was prepared by third parties. The information had been provided so late that Diana had not been given an adequate opportunity to respond.

[30]I accept the submissions made by Ms Bradley as to this aspect of the appeal.

[31]   Mr McCarron had a good knowledge of Sam’s farming operations because he had been Sam’s accountant for eight years, had frequent communications and meetings with Sam, and either he or a colleague had met with Sam and his advisers during the drought. He was an accountant specialising in agri-business and had a good

knowledge of how crop farming in the area was affected by the drought. To the extent Mr McCarron had relied on other information or reports in support of the opinions he expressed, those reports were largely public knowledge and likely to be helpful to the Court.

[32]   Before Mr McCarron’s evidence was filed, Sam had filed an affidavit referring to the way Mr McCarron had been involved with his farming business. He gave evidence as to how Mr Melhuish had been mistaken in saying that there had been a change in the farming operation to a cropping and contracting operation only after the separation, resulting in a large capital outlay that was funded by increasing external debt. Through cross-examination, Diana’s counsel was able to explore with Mr McCarron the extent to which he had relied on information given to him by Sam. Through cross-examination of Sam, she could test the extent to which any such information was accurate. To the extent Mr McCarron’s opinion evidence was based on statements made to him by Sam, it was not hearsay evidence because the statements made by Sam to Mr McCarron were statements made by a witness in the proceeding.7

[33]   In commenting on the effects of the drought, Mr McCarron referred to information from apparently reputable sources as to the drought’s impact on crop values and livestock income (for example Roy Evans Limited Agriculture and Farm Management Advisers’ summary of gross margins per hectare for various crops as at September 2014 and September 2015, and NZ Beef and Lamb’s mid season report 2015-2016). This information would quite reasonably have been of assistance to the Judge in dealing with the issues before him over the farm revenue results during the separation.

[34]   Mr McCarron’s report referred to the way Sam had been involved with advisers and the bank, had replaced machinery and had laid off staff. These matters were relevant to the issue of whether or not Sam had deliberately increased debt or reduced profitability during the separation. Some of the evidence as to those matters may have been hearsay, although Mr McCarron and an accounting colleague had been involved, to a significant extent, in what was happening. In preparing accounts, they would have

7      Evidence Act 2006, s 4.

known what was happening regarding staff. Importantly, Diana’s counsel could cross- examine Sam on any of this information, the truth of which might have been in dispute.

[35]   I accept Ms Bradley’s submission that this issue is now of marginal relevance with the appeal over s 18C no longer being pursued.

[36]   I accept the evidence of Mr McCarron was fairly admitted in the exercise of the Judge’s discretion and the ability of the Court under s 12A Family Courts Act 1980 to “receive any evidence, whether or not admissible under the Evidence Act 2006, that the Court considers may assist it to determine the proceeding”.

[37]   It is clear the evidence of Mr McCarron assisted the Court because of the weight the Judge placed on information and opinions expressed by Mr McCarron. I do not consider there was any material error in the Judge doing so. Admission of the evidence was, understandably, of assistance to the Court in seeking to resolve issues between the parties in a way that did justice.

[38]   Admission of this evidence is not a reason for interfering with the decision made in the Family Court.

The status of the debt on current account from the Stumpy Trust to Sam

[39]   Ms Bradley submitted that the Family Court Judge was in error in not finding, on the evidence, that it was “reasonable” to treat Sam’s current account credit with the Stumpy Trust of $915,270 as his separate property, representing monies advanced by him from his separate property, the succession fund.

[40]Ms Bradley submitted the Judge misdirected himself as to the test under s 10(2) PRA when he said:

[70] … it is impracticable to unravel what proportion might be attributable to separate property, and what might be attributable to relationship property. The sources are now so intermingled that I am satisfied the whole sum of

$915,270 must be regarded as relationship property.

[41]Ms Bradley then referred to s 10(2) PRA which states:

10 Property acquired by succession or by survivorship or as a beneficiary under a trust or by gift

…

(2) Property to which this subsection applies is not relationship property unless, with the express or implied consent of the spouse or partner who received it, the property or the proceeds of any disposition of it have been so intermingled with other relationship property that it is unreasonable or impracticable to regard that property or those proceeds as separate property.

[42]She referred to Chisholm J’s statement in S v W:8

It must not only be impracticable, but also unreasonable to regard the property as separate property, a point noted by Holland J in Z v Z at 72-73. Even in situations where the original property is still identifiable, I cannot see any justification for reading down the unreasonable requirement.

[43]   Ms Bradley submitted the Judge was in error in concluding matters on the basis that it was only impracticable for him to unravel what proportion might be attributable to separate property. It had to be both impracticable and unreasonable to have regard to that property as separate.

[44]   It is apparent to me that Judge Murfitt would have considered whether it was both impracticable and unreasonable to identify the whole or part of the advance as separate property.

[45]   Immediately after dealing with the current account debt of $915,270, the Judge dealt with the debt of $3,600,000. In relation to that, he referred to the judgment of Chisholm J in S v W, the protection provided for separate property in ss 10(1) and (2) PRA and the way Chisholm J had said, for property acquired by succession through intermingling to lose its status as separate property, it had to be unreasonable to regard that property as separate.

[46]   As Judge Murfitt alluded to, how accounts are prepared after the end of a financial year may provide a somewhat unrealistic picture as to how a couple operate financially in both business and for family expenses.

8      S v W [2006] 2 NZLR 669, (2006) 25 FRNZ 49.

[47]   Sam had a bank account into which the succession fund had been deposited and was earning interest. He had a trading bank account which was used for all farm expenses but also family living expenses. Both he and Diana had credit cards for use on that account. From time to time, monies were transferred to the trading account from the succession fund bank account. At year end, Sam’s accountant analysed the information relating to the operation of that bank account. Sam, presumably with oversight from his accountant, identified payments that had been made for the benefit of the Stumpy Trust, expenses that could be legitimately claimed as business-related expenses, expenses that had to be treated as personal drawings and so on.

[48]   Funds credited to that trading bank account must have included income from farming operations Sam was personally involved in and which was relationship property. Sam’s accountant accepted that trust expenses paid by Sam from his trading bank account, and included in that account, were funds originating out of the farm trading enterprise. Mr McCarron also accepted there was no evidence or information before the Court to identify just what credits on his current account with the Stumpy Trust Sam had derived from the income from his farm trading enterprise.

[49]   In her submissions, Ms Bradley referred to the way Sam’s accountant, Mr McCarron, had identified substantial payments that had been made by Sam for the benefit of the Stumpy Trust:

(1)   $127,214 in the year ending June 2007 for the construction of a four bay implement shed, 10 bay covered yards and the swimming pool;

(2)   $477,725 on 21 January 2008 for the purchase of the neighbouring land, Sidey’s block;

(3)   $54,200 during the year ending June 2008 for accountancy fees, and legal fees for building consents and construction of the tennis court; and

(4)   $319,072 for the building costs of the homestead in the year ending June 2009.

[50]   Mr McCarron did not identify to what extent those payments had been financed through transfers from the succession fund as opposed to other farm income or

personal loans. Although Sam, in his affidavit, claimed these payments had been made from the succession fund, his accountant only identified that the payments were made by Sam.

[51]   Not only was it not possible to identify the precise source of monies in Sam’s trading account at the time those monies were applied for the benefit of the Stumpy Trust but, as Judge Murfitt pointed out, the balance due on his account had fluctuated over time.

[52]   As the Judge noted, in 2001 Sam’s current account had a balance of $103,769. By 2004 it had increased to $310,796. In 2005 it was zero.

[53]   In his submissions in the Family Court, Sam’s counsel also accepted the credit of $915,000 on the current account had arisen in part through an advance of $482,000 made to Sam for his trading activities and then used by him to build a substantial grain shed on Timpendean Farm. On 30 June 2014, Sam’s current account with the Stumpy Trust was in credit for $1,399,125. By 30 June 2015, his current account was worth

$1,411,310.

[54]   Ms Marsden was correct in pointing out that the bank account, from which payments were made for the benefit of the Stumpy Trust with a later credit to Sam on his current account with the trust, included loans or credit personal to Sam and thus relationship property.

[55]   At 30 June 2016, Sam’s current account with the Stumpy Trust was $915,270 after a credit to him of $485,657 from the sale proceeds of the Sidey Block. He used that credit to pay $485,000 to Diana on account of her relationship property entitlement.

[56]   Ms Bradley also referred to Chisholm J’s statement in S v W that the Court should be slow in classifying assets as relationship property where those assets were not acquired from the parties’ joint efforts during their relationship. She suggested it was only because Sam and Diana did not have to pay rent in a cash sense that they ended up with a relationship property pool such as it was.

[57]   The accounts showed however that there was an accounting for rent. The Stumpy Trust was credited with rent from Sam for his occupation of Timpendean Farm. Credited against the liability for rent were payments Sam had made for the benefit of the trust during the financial year. The balance was allocated to Sam as beneficiary income. In that way, the Stumpy Trust was able to avoid paying tax on the net income in its accounts. That arrangement had cash and tax advantages for both the Stumpy Trust and Sam. The trust did not have to pay tax on income distributed to Sam. Sam did not have to pay tax on the income allocated to him as a beneficiary because of his extensive tax losses.

[58]   In terms of the principles and scheme of the PRA, the categorisation of Sam’s current account credit with the Stumpy Trust, as relationship property, is just and reasonable.

[59]   Sam claims, through the current account credit, to retain for himself the benefit of the substantial payments Mr McCarron identified, made for a swimming pool, tennis court and alterations to the home. Normally a couple would expect to have benefited equally from such payments through sharing the value of the family home. Through seeking to have the current account credit treated as his separate property, Sam is seeking to have the benefit of those payments retained by only the Stumpy Trust or himself.

[60]There was no error in Judge Murfitt treating Sam’s current account credit of

$915,270 as relationship property.

[61]   In a recently filed memorandum, Ms Marsden referred to the current account debt being $948,546 and seemed to assert this was the figure at which the account should be brought into account. In his judgment, Judge Murfitt adopted the figure contended for on behalf of Sam as $915,270. There was no appeal from that decision. To the extent the balance due to him reduced over the separation, it was part of the losses from the farming operation over that time. There is no appeal from the Judge’s decision that Sam did not have to compensate Diana for those losses. I bring the current account credit into account at the figure of $915,270.

[62]   By memorandum, Ms Bradley set out how the payment to Diana of $485,000 would be brought into account if Sam’s current account credit with the Stumpy Trust was held to be his separate property. Ms Marsden said she accepted that analysis. I have upheld Judge Murfitt’s decision that the current account was relationship property. From the credit on the account of $1,411,310 at 30 June 2015, Diana has received $485,000 and Sam retained the credit for $915,270. What each received or retained has to be brought into account accordingly.

The challenge to the categorisation of the residual Hussey Developments debt as his separate debt

[63]   Sam received the succession fund payment in 2006. Hussey Developments was incorporated on 30 March 2007 to own a land development at 309 Johns Road on the outskirts of Christchurch. The property was purchased for $2,200,000 with a bank debt of $1,800,000. The land was purchased and developed with the hope it would be rezoned. The zone was not changed. When the company tried to sell the land, it found the regional council had put a contamination notice on the LIM. Sam said he had to advance money to clean up the contamination. Four partners had originally been involved but one had become bankrupt. Sam and another partner had bought out the third partner, with that third partner paying them $50,000 for his share of interest debt.

[64]   In 2017, Sam borrowed $373,800 from the other shareholder: $255,500 was for half of a principal sum reduction required by the bank, $69,000 was for his share of interest payable to the bank for April, May and June 2017, and $49,300 was for his half of clean-up costs.

[65]   The Johns Road property was sold in 2017 for $1,550,000. After repayment of the then bank debt, the net proceeds were nearly $104,000. Those funds were all paid to the other shareholder. Sam said he still owed this shareholder $373,800 for his share of the loan reduction, site clean-up costs and his share of loan interest payments.

[66]   The debt Sam had to the other shareholder was recorded in a deed. In that deed, Sam acknowledged the way he became indebted to that shareholder. By the same deed, the Stumpy Trust guaranteed Sam’s payment of $373,800 to that

shareholder. In submissions, counsel for both Sam and Diana referred to the balance due on this debt as being $321,869.

[67]   Judge Murfitt referred to this as one of two unsuccessful enterprises Sam had become involved in during the relationship. He said both these operations comprised Sam’s separate property.

[68]   One of the operations was an investment Sam made in a company, Limestone Capital Ltd, for a development at 67 Old Main Road. Sam advanced $600,000 to this company in 2007. He said the development was completed and “my investment of

$600,000 returned in 2013”. He did not say there had been any gain or income obtained from the investment.

[69]   Referring to both companies, Judge Murfitt held that, where there are any residual debts, they were Sam’s personal debts and not to be taken into account in the balance sheet of relationship property for division between the couple.

[70]   Ms Bradley contended that Judge Murfitt did not correctly analyse the situation. She said it was Sam’s position that funds he advanced to Hussey Developments came from the succession fund and were his separate property, and any debt due back to him from those advances was his separate property, but this did not apply to the shares. It was Sam’s contention that the debt he incurred was for the s 20(c) PRA purpose of maintaining relationship property and thus a relationship debt.

[71]   Ms Bradley argued the shares could still be treated as relationship property if they were acquired out of separate property. She argued that, if the shares were acquired out of separate property, pursuant to s 10 PRA, they would not be separate property if it was impracticable and unreasonable for them to still be regarded as separate property. Ms Bradley said the Judge had not addressed the issue of whether s 10 applied in this way.

[72]   Ms Bradley submitted that Sam’s farm trading account had been used to acquire the shares in the same way as his credit on his current account with the Stumpy Trust had been obtained. Diana contended the credit on his current account with the

Stumpy Trust had been obtained in a way which meant that credit had to be treated as relationship property. Ms Bradley said Diana should not be able to cherry-pick and argued that, if the current account was to be relationship property, so should Sam’s shares in Hussey Developments have been regarded as relationship property.

[73]   Ms Bradley also argued that, if the status of the shares had not become relationship property through intermingling, the shares could still have lost their status as separate property, pursuant to s 8(1)(ee) PRA, as property acquired for the common use and benefit of both spouses.

[74]   Ms Marsden said it was never submitted in the Family Court that the shares had been acquired for the common use and benefit of the couple so as to be relationship property, pursuant to s 8(1)(ee), or as was otherwise now being contended for on appeal.

[75]   In submissions for Sam in the Family Court, Mr Watkins said Sam had made advances to Hussey Developments of over $521,209 during the relationship. The advances included his share of bank interest and development costs. He submitted that Sam’s initial advances to the company from the succession fund were his separate property but they had been lost. It was submitted the remaining debt of $321,869 to the other shareholder had to be brought into account as part of the relationship property pool.

[76]   As Ms Marsden pointed out in Sam’s affidavit of assets and liabilities filed at the commencement of the proceedings, Sam had claimed his shares in Hussey Developments were his separate property on the basis they had been acquired through separate property. There was no evidence put before the Family Court to support the contention on appeal that the shares were relationship property.

[77]   Under cross-examination in the Family Court, Sam accepted he had always maintained that the “Hussey Developments Company” was his separate property, having been paid for from separate funds but qualified it to some extent in saying “the funding to service the debt” came from within the cash flow of the business, i.e. the

farm account. In submissions for Sam, Mr Watkins said the initial advances to Hussey Developments were Sam’s separate property but these had been lost.

[78]   Any advances made by Sam to Hussey Developments, either when the company was first formed or on account of interest or other expenses incurred during the relationship, had been lost so the status of those advances is no longer an issue. Even if there is a book debt due to him in respect of those advances, any such debt would be worth nothing. Diana is not asking for any of that book debt to be treated as separate property so there is no inconsistency with the position adopted for her over the $915,270 credit Sam has with the Stumpy Trust.

[79]   The issue is whether the debt Sam incurred to the other shareholder in 2017, as recorded in the deed, is to be treated as a relationship debt.

[80]   The debt Sam has now, which he seeks to have brought into account as a relationship debt, was to recognise the greater contribution the other shareholder made towards the reduction of bank debt incurred by Hussey Developments, the company’s interest obligations to the BNZ and to clean-up costs the company had incurred.

[81]   The deed in which Sam acknowledges this liability to the other shareholder records that the liability has arisen as a result of Sam and the other shareholder’s joint and several guarantees of advances made by the BNZ to the company, although

$49,300 of the acknowledged debt has been for one-half of the clean-up costs. The parties and Judge Murfitt dealt with the debt as if the issue was whether or not it was a relationship debt. I consider it should more properly have been considered in terms of s 18B PRA. The liability arose after the separation but before the hearing in the Family Court. Accordingly, pursuant to s 18B(2), the Court could have regarded Sam’s acknowledgement of debt as something that would have been a contribution to the marriage if the marriage had not ended. The Court could then, if it considered it just, for the purpose of compensating Sam, have ordered Diana to pay him a sum of money or in some other way have required the debt acknowledged in the deed to be brought into account between the parties in a way that the Court considered just.

[82]   Considering matters that way, Sam could have submitted that the liability referred to in the acknowledgement of debt was not new. At least in respect of what the other shareholder had paid to the bank in interest and for the loan reduction, Sam’s liability resulted from the rights of subrogation which the other shareholder had as against a co-guarantor in meeting debts which were jointly and severally the liability of both guarantors.

[83]   I do not consider it would be just to bring Sam’s acknowledged debt into account between both parties in this way, at least as far as accounting under the PRA is concerned. The debt has arisen out of Sam’s purchase of shares in Hussey Developments. He did claim those shares were his separate property. He claimed that any debt due to him from the company was his separate property on the basis the funds for the advances had largely come from the succession fund. There is no evidence that he intended the acquisition of shares to be for the benefit of both him and Diana. Throughout the relationship, except as to assets in the farming business, accounts had been prepared and legal ownership of assets recorded in a particular way to limit the extent to which Diana, despite being Sam’s wife, could make any PRA claim against what was, in reality, a family farm and home.

[84]   On the evidence before the Family Court, the payments made by the other shareholder during the separation, which resulted in Sam having a liability to that shareholder, not for the purpose of maintaining or increasing the value of the shares in Hussey Developments, were made in an attempt to reduce the loss the shareholders would face on the advances they had made to Hussey Developments.

[85]   The trustees of the Stumpy Trust were a party to the deed in which Sam’s debt to the other shareholder was acknowledged. In reality, the only funds readily available to pay this debt will be the proceeds of sale held for the benefit of the Stumpy Trust following the sale of Timpendean Farm. Sam and his friend, Mr Judd, are the trustees of the Stumpy Trust. Even if any payment the trust makes, pursuant to its guarantee on account of this debt, is recorded in some way as being an advance to Sam, it is unlikely that he will have to personally repay any of that advance.

[86]   Although it is for different reasons, I consider the Judge was correct to hold that Sam’s liability to the other shareholder and any residual debt arising out of his investment in Hussey Developments are to be treated as his personal debts so that they do not have to be brought into account between the parties.

[87]   The fact the Stumpy Trust has this liability as a guarantor does however have to be considered when I deal with Diana’s claims under s 182 FPA.

Value of agreed relationship property assets

[88]   In considering issues as to a potential settlement under s 182 FPA, I wanted to be clear as to the payment Sam would have to make to Diana to achieve an equal sharing of agreed relationship property assets. On reading the submissions, the earlier judgment and relevant evidence, I was uncertain as to this. I sought clarification from counsel. I was told that the parties had gone back to the Judge on certain issues, having been given leave to do so. They asked the Judge to deal with the issues on the basis of memoranda. Counsel were agreed this had not happened. That may well have been because the proceedings were then subject to appeal. On 12 November 2018, the parties, through their counsel, agreed that, pursuant to the Court’s power to do so under r 20.19 High Court Rules, I should now resolve those issues. They also agreed that I should do so on the basis of memoranda counsel were putting before me. I now do so.

[89]The issues that had been unresolved related to:

(a)        the value of Sam’s sole trader current assets;

(b)       the value of a Range Rover retained by Diana on separation; and

(c)        the value of Diana’s savings in a bank account retained by her.

[90]   The issue over Diana’s bank account has now been resolved. The parties are agreed the value of that account is to be brought into account at the date of separation, which is 8 September 2014, as determined by Judge Murfitt. That value is $1,937.

Motor vehicle

[91]   In the Family Court, Sam and his counsel put before the Court a summary of the assets each party had retained. This referred to Diana retaining a Range Rover at a value of $48,000. Sam’s counsel says this was the value of the vehicle at separation and the vehicle should be brought into account at that figure, adopting the common approach of bringing the vehicles into account at their value at separation on the basis that it should be the party who has the use of the vehicle who bears the cost of the depreciation in value between separation and date of hearing.

[92]   Diana, through counsel, referred to evidence that the Range Rover was a 2008 model with a book value in Sam’s 2015 financial accounts of $10,918. Diana’s evidence was that she obtained $20,000 on the trade-in of that vehicle in 2015. She says Sam retained a later 2012 model with a book value in 2015 accounts of $58,922.

[93]   In her affidavit sworn on 10 April 2015 as to assets and liabilities accompanying her PRA application, Diana said the vehicle she owned at that time was a Toyota Prado Land Cruiser to which she attributed a value of $48,000. She said she had purchased it in March 2015, trading in a Range Rover owned during the marriage for $20,000 with Sam’s consent.

[94]   Sam’s 2015 accounts show two Range Rovers having been sold in the year to 30 June 2015.

[95]   On the basis of that information, I am satisfied the relationship property motor vehicle retained by Diana at separation was a Range Rover sold soon after separation for $20,000. The Toyota Prado Land Cruiser was property acquired after separation so need not be brought into account as an item of relationship property. The appropriate value at which to bring the relationship property Range Rover into account is $20,000.

Current assets

[96]   Sam produced a summary with his last affidavit of certain assets he had retained. This was reflected in a summary of his relationship property assets adopted

by his counsel. In going back to the Family Court, Sam’s counsel submitted those assets should be brought into account on that basis.

[97]   Ms Marsden for Sam submitted this schedule did not include sole trader assets of $86,860 which she said Mr Melhuish had identified as sole trader current assets retained by Sam. She said Mr McCarron had accepted Mr Melhuish’s analysis of the accounts. It appears from counsels’ memoranda that the issue to be resolved is whether the value of assets retained by Sam should be increased by that $86,860.

[98]   In his evidence, Mr Melhuish produced a summary of farming assets retained by Sam, with values as at the date of hearing, using information provided by Sam in his third affidavit of 28 July 2017. That affidavit provided updated information following the sale of Timpendean Farm and referred to prices obtained from the sale of certain crops.

[99]   In Mr Melhuish’s summary, where he referred to Sam retaining sole trader current assets of $82,860, he noted there had been no reference to this in Sam’s third affidavit. It was a figure he had adopted from the 2016 financial accounts. Mr Melhuish’s summary took into account the debt which had been repaid to the ASB on the sale of Timpendean Farm and the debt to Heartland Bank at the figure at which it has been agreed that debt should be brought into account. In his updated summary for the hearing, there was no debt then due for current liabilities and non-current liabilities as had appeared in previous years’ financials.

[100]   In cross-examination, Mc McCarron was referred to statements annexed to Mr Melhuish’s report presented with Mr Melhuish’s affidavit. Mr McCarron accepted that those summaries accurately reflected what was in the accounts for the relevant years. The most up to date figures in those summaries were the end of year figures from the 30 June 2016 accounts. It was those summaries which Mr McCarron referred to which he accepted were correct. He was not asked to comment on the further summary Mr Melhuish separately presented and which Mr Melhuish said reflected updated information provided by Sam.

[101]   Before the Family Court was information Sam had provided to obtain Diana’s agreement to his being advanced an initial $300,000 from the proceeds of sale from the farm. That information indicated he had few, if any, current funds available in his farming business. It is likely that any funds he retained as at the date of hearing were from the advances he received from the Stumpy Trust. These are to be brought into account elsewhere.

[102]   On all that information, I consider any current account credit Sam had in his farming operation was likely to have been applied in meeting the costs of the continuing farming business and ultimately in reducing the current account debt which had to be paid from the proceeds of sale of Timpendean Farm. In that way, it has already been brought into account between the parties. Sam should not have to account to Diana for half of that sum.

[103]   Both counsel have confirmed that Sam will have to pay to Diana one-half of the difference between the value of the identified relationship property assets which he is retaining and those which Diana has retained. The resulting position is as follows.

Accounting as to agreed assets

[104]	Diana retains as her separate property:
Horse float	$4,500
Ponies and horses	$5,000
Range Rover	$20,000
John Deere lawnmower (no value)	$0
Bank account	$1,937
Payment on account	$485,000
Monthly payments on account of entitlement	$18,000
TOTAL	$534,437
[105]	Sam retains as his separate property:
Plant	$1,734,800
Less Heartland Bank Ltd debt	- $868,139
Shares	$66,409
Grain	$201,460
Bailage	$180,000
Straw	$40,140

Hay	$18,720
TOTAL	$1,373,390
Difference	$838,953
Adjustment payment required from Sam to
achieve equal sharing	$419,476.50

S 182 FPA – the challenge to the establishment of the Stumpy Trust as a nuptial settlement

[106]           Judge Murfitt held that the Stumpy Trust was a nuptial settlement for the purposes of s 182 FPA. He said, if he was wrong in that conclusion, then the subsequent settlement of Timpendean Farm on the Stumpy Trust was sufficient to be a nuptial settlement.

[107]           Judge Murfitt set out succinctly the reasons why he had reached the first conclusion:9

[111]           I have found as fact that the Stumpy Trust was formed in May 1999 at a time when the relationship between Sam and Diana had rekindled, after they had paused their relationship for six to eight weeks. The relationship was a serious one. Sam was mindful of the risk that Diana might have some form of claim over the farm and he was anxious to avoid that. In that respect, the prospect of a marriage to Diana was alive in his mind, even though he was motivated to establish a shield against possible claims by her. The trust deed however made specific provision for Sam’s wife to be a capital beneficiary, amongst a class of other members of the Bethell Family including his children, siblings, nieces and nephews.

[112]           These factors are sufficient in my view to enable the Stumpy Trust to be classified as a nuptial settlement.

[113]           Even if I am wrong in that conclusion, then I am satisfied that the subsequent settlement of property on the Stumpy Trust in order to acquire Timpendean is sufficient to classify the Stumpy Trust as a nuptial settlement.

[108]           On the cross appeal, Ms Bradley submitted that Judge Murfitt had not correctly applied the test in Clayton v Clayton as to whether there was a nuptial settlement because, on the evidence, he could not have found there was a connection or proximity between the establishment of the trust and the marriage.10

9      Bethell v Bethell, above n 1.

10     Clayton v Clayton (Claymark Trust) [2016] NZSC 30, [2016] 1 NZLR 590.

[109]           Ms Bradley submitted the Stumpy Trust was settled on 11 May 1999 when the parties had either just been through a period of separation or were going through a period of separation some eight months before their engagement in January 2000 and 18 months before their marriage. She said, at the time the trust was settled, it could not be said on the evidence that the relationship was serious nor the prospect of marriage alive.

[110]           Ms Bradley also argued it could not be contended Sam was anxious to avoid a claim. She contended the trust was settled to protect family wealth for succession planning purposes, as had been the history of succession planning within the family through several generations. She submitted, the settlement of the trust as part of a succession planning exercise, with no connection to this particular marriage, was evidenced by:

·      The lengthy succession planning documentation that was set in the affidavit of Mr Tothill.

·      The succession planning exercise started after Sam’s father died (in October 1998) when the parties had only recently started dating.

·      Sam’s brother’s trust was settled at the same time.

·      The names of the trusts confirm the non-nuptial nature of the Trust; the Stumpy Trust being named after Sam’s grandfather and the Marmaduke Trust after his great Grandfather.

·      Both the Stumpy Trust and the Marmaduke Trust were identical in their material terms.

·      Final beneficiaries who could expect to receive the capital at the end of the trust were prioritised to ensure that children and other relatives by blood receive first with any wife only receiving last after all other family options were exhausted.

[111]           My conclusions on this issue reflect, to a significant extent, the submissions made by Ms Marsden for Diana.

[112]In Clayton, the Supreme Court said:11

What is a nuptial settlement?

[31]      As noted above, in Ward this Court did not deal with the issue of whether there was a nuptial settlement in that case. In the leave judgment, this Court said that it “declined to give leave on the ground of whether what occurred in this case was a settlement within the meaning of s 182 because we are of the view that the decision of the Court of Appeal on this point is undoubtedly correct”.

[32]      The Court of Appeal in Ward emphasised that there “should be a generous approach to the interpretation of the term ‘settlement’”. The Court said that this was the traditional approach, giving as an example the case of Blood v Blood where it was said:

Those words [nuptial settlement] are extremely wide, and I am anxious that they should not, by any construction the Court may put upon them, be narrowed in any way. To narrow them would be undesirable for this reason: the various circumstances which come before the Court, and for which this section is brought into operation, are so diverse that it is to my mind extremely important that, so far as possible, the Court should have power to deal with all the cases that come before it, and, in dealing with them, to meet the justice of the case. I, therefore, do not desire to see any narrow interpretation placed upon the words of the section.

[33]      The Court of Appeal in Ward went on to say that to come within the term “settlement” as used in s 182, any arrangement must be one that “makes some form of continuing provision for both or either of the parties to a marriage in their capacity as spouses, with or without provision for their children”. It was also made clear that discretionary family trusts can be settlements for the purposes of s 182. Further, property acquired by a trust after it is settled can also come within the definition of settlement. This is because the settlement is “the trust itself and any trust property (whenever acquired) must be part of the settlement”.

[34]      We agree with the analysis of the Court of Appeal in Ward. We add that we see the requirement that the settlement be for both or either of the parties “in their capacity as spouses” as meaning only that there must be a connection or proximity between the settlement and the marriage. Where there is a family trust (whether discretionary or otherwise) set up during the currency of a marriage with either or both parties to the marriage as beneficiaries, there will almost inevitably be that connection. As Lord Penzance said in Worsley v Worsley:

The Court would have a great difficulty in saying that any deed which is a settlement of property, made after marriage, and on the parties to the marriage, is not a post-nuptial settlement.

[35]      An exception may be where the trust is set up by a third party and there are substantial other beneficiaries apart from the parties to the marriage and their children. The other view may be that, as long as the trust has the relevant connection to the marriage and one or both of the parties are beneficiaries, the trust will be a nuptial settlement. But we do not need to

11     Clayton v Clayton (Claymark Trust), above n 10.

decide this point. In this case the trust was set up by Mr Clayton during the marriage and there were no substantial other beneficiaries.

[36]      The test may be more difficult to meet where there is a settlement made before marriage and a future spouse is named as a possible beneficiary but, at the time of settlement, there is no particular spouse in contemplation. One view may be that once a marriage has taken place and the spouse identified, then there will be the necessary connection with the marriage. Even if that is not the case, however, it may be that each disposition of property to such a trust after marriage could constitute a post nuptial settlement.

[37]      A settlement does not cease to be a nuptial settlement because other parties may benefit from it. Indeed, the fact that the children of a marriage may benefit has been seen as a strong indication of a nuptial trust. It has been held that a settlement does not cease to be nuptial because a spouse by a later marriage might benefit. The same can be said where children of any future marriage could benefit. It has even been held that the fact that a settlement is expressed to terminate on divorce is irrelevant.

[38]      Finally, we comment that the exercise of deciding whether a settlement is a nuptial settlement is, where the settlement is in written form, primarily one of construction of the settlement documentation. This documentation would be construed in accordance with ordinary principles, while remembering that a generous approach to the issue of whether a settlement is a nuptial settlement is required.

[113]           Section 182 FPA permits the Court to enquire into “any ante nuptial or post nuptial settlement made on the parties”. It thus gives the Court jurisdiction to deal with such a settlement made before a marriage. It is well established the section will apply where the settlement is for the benefit of either party. The issue in Clayton, as in this case, was whether there was a connection or proximity between the settlement and the marriage. What does that mean?

[114]           It is significant that the Supreme Court said the connection or proximity has to be between the settlement and the marriage. It will not be sufficient that the trust deed contemplates a marriage taking place at some stage.

[115]           The Supreme Court in Clayton recognised that the terms of the trust deed and the particular range of beneficiaries may indicate it was not a nuptial trust.

[116]           Consistent with this, Peters J, in Da Silva v Da Silva, held that a trust established during the settlor’s daughter’s marriage was not a nuptial trust.12 The

12     Da Silva v Da Silva [2016] NZHC 2064.

daughter and her five children were beneficiaries. At the time the trust was settled, it acquired shares in a commercial property. Peters J held there was insufficient connection or proximity between the settlement and the marriage in that case. The settlor had established the trust for the benefit of herself, her daughter and the daughter’s children. She found the settlor had made a deliberate decision not to include Mr Da Silva as a beneficiary. Neither he nor the settlor’s daughter had been appointed as trustees when the trust was created.

[117]           In Kidd v Van den Brink, the settlor settled a trust in 1990.13 He and his first wife had recently separated. At the date of settlement, they had four children aged between 16 and 22. None of the children were married. Under the trust deed, the final beneficiaries were the children of the settlor. The discretionary beneficiaries included the settlor’s children and any wife of any final beneficiary. Ms Kidd and one of the settlor’s children, Mr Stephen Van den Brink, began living together in August 1998. They had a child, separated in 2006 and their marriage was dissolved in August 2008. They were living in a home belonging to the trust. Ms Kidd sought a resettlement from that trust pursuant to s 182.

[118]A full High Court said:14

[28] In our view the plain words of s 182 reinforce the importance of the referability of the particular marriage to the settlement. The juxtaposition of the settlement “on the parties” with the power to make orders “with reference to … any property settled” suggests that a qualifying settlement will be primarily directed towards and provide for the benefit of the particular family unit; that is, the husband and wife and their children. The assumption of the existence of the marriage and its continuation is the qualifying nuptial characteristic. Tipping J’s discussion of the classical ante-nuptial settlement in Ward at [14] highlights its unitary nature and its necessary degree of connection, both physically and temporally, to the particular marriage. “The parties”, being “the parties to the marriage”, will be the principal beneficiaries of a qualifying settlement.

…

[32]      We agree with Ms McCartney that Ms Kidd does not have to establish that the trust was created in contemplation of this particular marriage. The test is whether the settlement is referable to the particular marriage. However, we agree with Mr Thorp that the trust was no more than a settlement created before this marriage. All the settlor’s children were unmarried at settlement;

13     Kidd v Van den Brink [2010] NZCA 169.

14     Kidd v Van den Brink HC Auckland CIV-2009-404-4694, 21 December 2009.

the deed was not specific or related to any particular marriage. At best the instrument contemplated that a marriage, rather than the particular marriage between Mr Van Den Brink and Ms Kidd, might occur. That contingency was possible but incidental to the primary objects, and its occurrence would simply qualify a child’s spouse for membership of a wide class entitled to the trustee’s consideration for a benefit.

[33]      The trust was not premised upon the existence or continuation of this marriage. Its purpose was not to make continued provision for this marriage; there was no temporal or physical link. Ms Kidd, her husband and their child were not collectively the principal beneficiaries. The trust’s purpose was to provide for a range of individuals who might include Stephen Van Den Brink’s wife while they remained in the state of marriage or, as Mr Thorp points out, any other person who married one of the settlor’s children.

[34]      Furthermore, an order under s 182 would affect the rights or interests of third parties. For example, a direction that the trustees make capital provision for Ms Kidd from the assets of the trust, as is sought here, would fetter the wide discretionary powers and purposes set out in clause 5.1. Section 182 does not contemplate interference with the rights enjoying [sic] by nominated beneficiaries other than the members of the immediate family unit created by this marriage. That prospect illustrates the misconception underlying this application.

[35]      We agree with Judge Adams. There is not the necessary degree of qualifying connection between the settlement and this particular marriage …

…

[37] In our judgment Ms Kidd’s claim that the Van Den Brink deed of trust is an ante-nuptial settlement is unarguable.

[119]           So, in Kidd v Van den Brink, the full High Court found that the wife did “not have to establish that the trust was created in contemplation of this particular marriage. The test is whether the settlement is referable to the particular marriage.”15 In the circumstances of that case, the Court had no difficulty in holding this had not been established.

[120]           In deciding whether settlement of the trust had a sufficient connection with the marriage, it is unrealistic to look only at the situation as at the date of the deed, here 11 May 1999. It was Mr Tothill’s evidence that it was after Sam’s father died (23 October 1998) that there developed an intention that Timpendean Farm and Pahau Pastures would be settled into a trust for the benefit of Sam and Hugh and to establish the farming equipment and business in a company.

15     At [32] (my emphasis added).

[121]           It was Diana’s evidence that she and Sam started dating in the winter of 1998 and the relationship quickly became serious. She spent each weekend at the Timpendean Farm homestead with Sam and often stayed during the week, travelling back to Amberley where she worked each day. She said it was around the time of David Bethell’s death in October 1998 that Hugh and his wife separated and by 1999 she and Sam were in a committed relationship.

[122]           In his first affidavit, Sam agreed their relationship began shortly before his father died in October 1998. He did not contradict the way Diana had characterised their relationship in late 1998-early 1999. He did say they began living together at the end of summer 2000 after he proposed, and they were married in November 2000.

[123]           It also seemed to be accepted in cross-examination of Diana that, around the end of 1998, she was a party to the discussions that Sam and Hugh had about how they would farm Pahau Pastures and Timpendean Farm together in the future.

[124]           Under cross-examination, Diana acknowledged that, over the summer from November 1998 through until March 1999, she was often away at weekends with polo. I do not consider that was inconsistent with their being in a serious relationship at that time. Judge Murfitt also accepted Diana’s evidence, as he was entitled to, that after Sam suffered a serious back injury in an accident in the winter of 1999, she helped look after him at the homestead, commuting to work from there, staying with him two or three nights a week.

[166]           On settlement of the Timpendean Farm sale, Sam signed a deed dated 28 July 2017. By way of background, it recorded that he had obtained loan facilities from ASB bank which at 30 June 2017 totalled $3,329,578.76. The trustees had provided ASB with a guarantee and indemnity for Sam’s liabilities to the ASB, secured by a mortgage over the trust’s property, Timpendean Farm. With settlement on 30 June 2017, to obtain a release of the mortgage, Sam had to repay the ASB loans for a total of $3,329,578.76. The deed recorded that the trust had lent him the funds required to do  so.   Sam  acknowledged  the  trust  had  lent  and  he  had  borrowed  the  sum of

$3,329,578.76, such sum being provided to repay his debts to the ASB on 30 June 2017.  He also acknowledged he had been advanced, and was in debt to the trust for,

$100,000 paid to him on 30 June 2017 and $200,000 paid on 21 July 2017. The deed recorded that he would repay the total loans on demand.

[167]           By virtue of that acknowledgement of debt, the trust thus had a credit against Sam for $3,629,579 which it was entitled to off-set against the separate property debt of $3,600,000 due from the trust to Sam. Not only was it entitled to that credit, pursuant to the deed of acknowledgement of debt signed by Sam, it would also have

been entitled to a credit for the total amount paid to the ASB through the right to subrogation which a guarantor has as against the principal debtor when the guarantor pays the debts of a principal debtor pursuant to the guarantee.

[168]           Ms Bradley submitted that, if the trust had a credit in this way, Sam would be left with a residual debt which would have to be brought into account between the parties equally as a relationship debt.

[169]This is incorrect. Diana is not contending that the whole or any part of the

$3,329,579 debt should be treated as Sam’s personal debt. Accepting it as being a relationship debt, it has nevertheless been paid by the Stumpy Trust. The trust was and is entitled to a credit as against Sam for the payment it made. With that credit, the original debt due from the trust to Sam had nearly been extinguished. Other farm debt has already been taken into account in arriving at a net value of the relationship property assets Sam had retained at the time of the Family Court hearing.

[170]I accept Judge Murfitt did make an error in not offsetting against the

$3,600,000 debt the Stumpy Trust had to Sam (his separate property) the credit which the trust had as against Sam for $3,329,579. He also did not offset against the

$3,600,000 debt the further $300,000 the trust advanced to Sam by way of loan around the time of sale.

[171]           With the trust’s payment of $3,329,579 for Sam’s personal bank debt, the balance due to Sam on his separate property loan to the trust of $3,600,000 would thus have been:

Sam’s loan to the trust

$3,600,000

Less payments made by the trust for

Sam’s bank debts

 $3,329,579

Balance due to Sam

$270,421

[172]           Leaving aside the advances of $600,000 and the further advance of $321,869 which the trust will have to make for Sam, the balance of monies the Stumpy Trust received from the sale, which could have been considered on a s 182 application, are as follows:

Net proceeds of sale	$3,335,852
Less balance of separate property debt due from trust to Sam	$270,422
Less amount due to Sam and Diana on relationship property current account debt	$915,270
Total debits	$1,185,692	$1,185,692
Balance available	$2,150,160

[173]           Of that sum, Sam has already been advanced $600,000. The trust will also have to pay the $321,869 residual Hussey Developments debt for his benefit. The Stumpy Trust will not be insolvent. The basis on which Judge Murfitt exercised his discretion as to whether there should be a s 182 resettlement was thus in error.

S 182 FPR – the exercise of the discretion

[174]           It was Diana’s case that the issue should not be remitted back to the Family Court for further consideration and, on appeal, I should exercise the discretion available on a s 182 application to vest half of the remaining assets in the Stumpy Trust on a trust for the benefit of her and the children of the marriage.

[175]           Rule 20.19 High Court Rules provides that the High Court may on appeal make any decision it thinks the Family Court should have made.

[176]           It was not suggested for Sam that the question of a s 182 resettlement should be remitted back to the Family Court. Both parties need the certainty of knowing where they stand as far as the trust is concerned.24 It is thus appropriate for me to make a decision as to whether there should be a resettlement and, if so, what that resettlement should be.

[177]           I have regard to the way in which the Supreme Court said in Clayton that the discretion should be exercised. Importantly, the principles of the PRA do not underpin s 182 and there is no presumption as to an equal resettlement of trust assets.25

24     Family Proceedings Act 1980, s 182(3); Clayton v Clayton (Claymark Trust), above n 10, at [57].

25     Clayton v Clayton (Claymark Trust), above n 10, at [65].

[178]           With a discretionary family trust, the situation which might justify a resettlement has to be considered from the perspective of the family unit, assuming a continuing marriage and comparing that to the position under the dissolved marriage.26

[179]           The purpose of the exercise of the discretion is to prevent one party unfairly benefiting at the expense of the other in the changed circumstances arising from the dissolution of their marriage. In order to remedy the situation, the court makes a general comparison between the position had the marriage continued and the position that exists after the dissolution.

[180]           In exercising its discretion under s 182, the court can take into account any circumstances it considers relevant in deciding what orders are necessary. It is the circumstances which exist at the time the application is heard after the dissolution which are relevant. I have had regard to the factors identified in Clayton as relevant considerations in that case.27

[181]The circumstances I consider most relevant in the current situation are:

(a)  Before a resettlement, Sam will have retained or will benefit from the following:

Net value of relationship property assets retained by

him

$1,373,390

Half of the $915,270 Stumpy Trust current account

credit

$457,635

Advances already made from the Stumpy Trust (of which $270,422 could be treated as being due to him for the   balance   of   his   separate   property   advance  of

$3,600,000 after credit to the trust for the payment it

made of $3,329,579 for his bank debts)

$600,000

Further payment to be made by Stumpy Trust for his

debt to the other shareholder arising out of Hussey Developments debt

   $321,869

Total

$2,752,894

Less payment to be made to Diana to achieve equal

division of various relationship property assets

    $419,476

26 At [53].

27     At [57]-[60].

Net Total $2,333,418

(b)  Before a resettlement, Diana will have received or be entitled to:

Various relationship property assets retained by her

$31,437

Payments made to her on account of her relationship

property entitlement

$503,000

Half of the $915,270 Stumpy Trust current account

credit

$457,635

Further payment from Sam to equalise relationship property division

   $419,476

Total

$1,411,548

(c)  When the parties separated in 2014, the family had been living in the Timpendean Farm homestead for 14 years. With a tennis court, swimming pool and the significant alterations carried out in 2009, it would have been a comfortable home. Had the marriage continued and had the farm not been sold, Diana could objectively have expected to continue enjoying the benefits of that home with her children as they grew up. With the sale of the farm, she could have expected that these proceeds of sale would have been used to purchase a new home for the family.

(d)  During their marriage, Sam and Diana had been able to use the security provided by the Stumpy Trust to support an expensive lifestyle. Sam had also been able to use that security to make off-farm investments. But for the ending of the marriage, they and their children would have been able to continue benefiting from that security.

(e)  With the dissolution of their marriage, it is now likely that only Sam will be able to benefit from the trust in this way. It is likely, consistent with the way the trust was administered during the marriage, that the trust’s funds will now be utilised in accordance with Sam’s wishes and needs rather than for the longer term benefits of his children. Without a resettlement, he, his new partner and to a lesser extent his children when they are in his care will thus, through the trust, be able to benefit, in terms of their standard of living, in ways that are not likely to be possible for Diana. The way in which Sam and his new partner were able to continue occupying

the homestead on Timpendean, with the high level of drawings for personal expenditure over the three years between separation and the sale of the property, was consistent with this.

(f)  Diana’s earnings now are modest, approximately $33,600 per annum in 2017, working as an agricultural sales representative. She has already had to utilise some of the $503,000 paid to her on account of living and legal expenses. In his affidavit, Sam referred to the $18,000 he had paid in monthly instalments on account of her PRA entitlement as being payments he had made for her financial support. At the time of the hearing in the Family Court on August 2017, the cash available to her was $391,000 but it is likely to be significantly less than that now.

(g)  The value of Timpendean Farm, including the homestead, when acquired by the trust was reflected in the $3,600,000 debt which was assigned by Sam’s mother to Sam and initially retained by him as separate property. The home and the associated farm was acquired by the Stumpy Trust during Sam and Diana’s marriage. However, the value of that land increased significantly over the duration of Sam and Diana’s marriage. That gain was achieved through the way Hugh and Sam continue farming both Pahau Pastures and Timpendean Farm after 1999 and through the way Sam continued farming Timpendean Farm after it was settled on the Stumpy Trust in 2005. Those gains were achieved through the commitment Sam made to the farming operations.

(h)  Sam was supported in that commitment by Diana, even if mainly through the support she provided as his wife and the mother of his children. Because they relied heavily on the work of employed staff on Timpendean Farm, neither may have been involved in all the physical work associated with the farm to the extent that can happen on many farms. Sam’s strength was said to be with financial management but nevertheless the retention of Timpendean Farm until it was sold was something to which they both contributed. Diana’s contribution to this was not to be minimised. There were challenges for the parties, both as to their marriage and at times as to

Sam’s ability to cope with all the challenges of farming this property. Sam and Diana met those challenges as a partnership.

(i)  There had been a pattern of succession planning and the establishment of various trusts to try and ensure the farms, with which the Bethell family had been involved, stayed within the family, primarily through male heirs. With the sale of Timpendean Farm, that purpose for the Stumpy Trust is no longer achievable. As Judge Murfitt found, it was anticipated that the assets of the trust would be available in due course for descendants or other members of the family. Sam’s financial circumstances now mean this may well not be achievable.

(j)  The Trust was set up primarily for the benefit of Sam and his immediate family, including his wife and children. That purpose can be achieved through a resettlement now of trust funds for Diana and their children on a s 182 application.

(k)  Sam had the benefit of being able to stay on Timpendean Farm for the three years after the parties’ separation, until the property was sold. During that time, he had the benefits of the lifestyle associated with Timpendean which both parties had valued highly. He was able to use the security of Timpendean and the guarantee provided by the Stumpy Trust to maintain drawings at a generous level. In contrast, the payment made to Diana following the trust’s sale of the Sidey Block and the distribution from the trust to Sam of $485,000 could only have enabled Diana to purchase a modest home, certainly not one that supported the lifestyle Sam continued to have through his occupation of Timpendean and the associated overdraft facilities.

(l)  Sam has made a significant contribution to the current equity in the Stumpy Trust through the way his succession fund, together with personal loans or income from the farming operation, were used to help pay for significant capital improvements to Timpendean Farm. His separate property, the loan of $3,600,000, has also effectively been used to repay significant relationship debts that had been incurred in connection with the

farming business but also the parties’ living expenses. Balanced against that however has to be the fact that, through the trust’s ownership of Timpendean Farm, Diana was unable to benefit from an entitlement she might otherwise have anticipated through a claim in respect of the homestead. There was also no potential for her to bring any claim she might have had under s 9A PRA to part of the increase in the value of the farm that may have resulted either from her indirect contributions to that increase or from the application of relationship property such as monies borrowed personally by Sam used to make improvements to the farm. Those improvements included construction of a four bay implement shed and 10 bay covered yards.

(m)  On the sale of Timpendean, Sam retained significant machinery and plant, the acquisition of which had been a priority for him in his farming operations. Significant costs had been incurred during the separation in replacing some of that machinery but with what he perceived were benefits important to him. He has retained those benefits through the retention of that plant and, in doing so, is able to continue with his contracting business. The value of that plant at the time of the Family Court hearing was some $1,734,800 but there was debt secured over machinery to Heartland Bank of $869,000.

(n)  Sam does not own a home and is currently renting a property. His two children, although still at school, regularly spend time with him. Consistent with a pattern of education within his family over several generations, he would like to have both children attend expensive private schools, as their eldest child is already doing. That is not a priority for Diana. Given the reality of the financial circumstances which both parents face, it may be that it can no longer be treated as a priority, just as Diana may have to accept that her wish to be able to purchase a farm may not be realistic.

(o)  There is a real risk that the capital remaining in the Stumpy Trust will be further eroded through the financial pressures Sam is likely to face with his continuing contracting business and the associated debt.

(p)  In an affidavit of 28 July 2017, Sam said that, in the three months leading up to the sale of the farm, he was not able to pay debts or pay himself as the bank overdraft was at its limit. He said he had to continually request funds to be released from his trust to meet normal living expenses and pay school fees. He sought Diana’s agreement to a distribution to him from the anticipated proceeds of sale. With the request, he provided a cash flow report for the period 1 July 2017 to 30 November 2017. For that six month period, it was predicted his cash deficit, allowing $50,000 for his personal expenses, would be $680,000.

(q)  In 2017, Sam sought and the Judge directed there should be a distribution from the monies held in Duncan Cotterill’s trust account of $300,000 because of Sam’s “dire need of access to capital”. Sam said in an affidavit he needed a capital distribution to pay wages and PAYE for staff, interest on a Heartland Bank loan for machinery, monthly rental including then overdue rental, and to support himself and his children. Those expenses included private school fees for his son.

[182]           The advances of $600,000 Sam has already received from the trust as well as the payment of his Hussey Developments debt are or will be payments of the sort the trust would likely have had to make even if the marriage had continued. It is thus appropriate for me to consider a potential resettlement in terms of the funds that will be available to the trust after all such payments.

[183]           I calculate the funds now available to the Stumpy Trust, from which there could be a resettlement, as follows:

Net sale proceeds

$3,335,852

Less payment of current account credit to Sam and

Diana

$915,270

Advances already made to Sam

$600,000

Payment to be made to the other shareholder re

Hussey Developments

   $321,869

Total

$1,837,139

Balance of monies held in Duncan Cotterill’s trust

account

$1,498,713

[184]           In all these circumstances, I consider it appropriate that there be a resettlement of $300,000 held to the credit of the Stumpy Trust in Duncan Cotterill’s Trust Account to a new discretionary trust to be established by Diana for the benefit of herself, her children and grandchildren, and other beneficiaries as provided for in the Stumpy Trust deed, but to the exclusion of Sam, his siblings or their spouses.

[185]           Resettlement of that matter should ensure that, with the assistance of her trust, Diana will have available for herself and her children a home of a reasonable standard, either in Christchurch or elsewhere in Canterbury, and capital to provide a measure of financial security. But for the dissolution, that security would have been available to her through the way she and the children would have been able to continue benefitting from the capital in the Stumpy Trust, as they did during the marriage.

[186]           Sam will be retaining the assets he needs to carry on his contracting business. He does have the debt associated with those assets. He may be able to service that debt by carrying on his contracting business. Alternatively, he could reduce or clear that debt through the sale of the assets. He will no longer have the major debt that were associated with his farming business. He will have had the benefit of the advances already received and will no longer have a debt to the other shareholder arising out of his unfortunate investment in Hussey Developments. The Stumpy Trust will have approximately $1,200,000 available to assist in the purchase of a home for Sam, from which his children might also benefit. Some of that capital could be of assistance to the children for their education if Sam and his fellow trustee consider this prudent.

[187]           In terms of the trust deed, the payments of $600,000 which the trust has already made to Sam have been recorded as advances or loans. But for those advances, the trust would still have owed Sam $270,427 on the debt due to him of $3,600,000. The trust will also have to record Sam as having a liability to it for the amount which the trust has to pay in respect of the residual Hussey Developments debt. There would appear to be little prospect of Sam ever being able or required to repay such advances. As part of a resettlement on a s 182 application, it would be appropriate to order that the net value of advances of $600,000 already made to Sam, and the amount paid for Sam in respect of the Hussey Developments residual debt, should be treated as capital

distributions to him. I would be prepared to make such an order if, with advice, Sam considers such an order would be to his advantage. Leave is reserved for him to seek such an order.

Summary of conclusions

[188]On the appeal and cross appeal, I thus conclude:

(a)        there was no error in the Judge admitting as evidence in the Family Court hearing the last affidavit and report of the witness Mr McCarron;

(b)       Sam’s current account credit with the Stumpy Trust in the sum of $915,270 was relationship property to be shared equally between Sam and Diana;

(c)        any residual debt which Sam has arising from his investment with Hussey Developments, in particular his debt to the other shareholder of $373,800, is his personal debt and not to be brought into account equally with Diana under s 20 PRA;

(d)       Diana’s motor vehicle retained by her at separation is to be brought into account at a value of $20,000;

(e)        Sam does not have to account to Diana for a trading account credit of

$86,860;

(f)         the settlement of the Stumpy Trust and the settlement of the Timpendean Farm on the trust were nuptial settlements which the Court had the power to review pursuant to s 182 FPA;

(g)       the Judge in the Family Court made an error in proceeding on the basis the Stumpy Trust was insolvent so that there was no fund which could be resettled for the benefit of Diana and her children; and

(h)       in all the circumstances, it is appropriate for there to be a resettlement of funds held by the Stumpy Trust into a new discretionary trust for the benefit of Diana and her children. The amount which should be resettled on that new trust is $300,000.

[189]           Leave is reserved to either party to seek further directions or orders that may be necessary to give effect to this judgment. In particular, leave is reserved for Sam to seek an order that the advances of $600,000, less the balance of debt due to him, and any further advances in respect of the Hussey Developments debt is to be resettled on him as a capital distribution.

Costs

[190]           If either party wishes to pursue an application for costs and no agreement can be reached over this, memoranda are to be filed in support of each party’s position. In this Court, Diana has been the successful party. Allowing for the upcoming holiday period, if she wishes to pursue an application for costs, she is to file a memorandum in support within two months. A memorandum on behalf of the respondents is to be filed within six weeks of receipt of Diana’s memorandum. Any reply is to be filed within a further two weeks. The memoranda are to be no longer than seven pages.

Suppression

[191]           The parties were identified by name in the judgment of the Family Court. No party has sought suppression of the parties’ names or any information that might identify them. There is a reference in this judgment to the parties having children. Without leave of the Court, there would thus be a restriction of certain reports of the proceedings identifying the parties and, through them, the children.28 This judgment is not about the children. The principle of open justice has to be recognised. In the circumstances, I grant leave, as referred to in s 11B(3) Family Courts Act for the parties’ names to be used in any report of the proceedings.

Solicitors:

S H Marsden, Barrister, Christchurch Duncan Cotterill, Christchurch.

28     Family Courts Act 1980, ss 11B, 11C.