Blake v Blake
[2022] NZCA 327
•21 July 2022
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA641/2021 [2022] NZCA 327 |
| BETWEEN | MAYSIE BLAKE |
| AND | BARTLEY BLAKE |
| AND | HMR LIMITED |
| CA645/2021 | ||
| BETWEEN | BARTLEY BLAKE | |
| AND | MAYSIE BLAKE | |
| AND | HMR LIMITED | |
| Court: | French and Gilbert JJ |
Counsel: | D A T Chambers QC for Appellant in CA641/2021 and First Respondent in CA645/2021 |
Judgment: | 21 July 2022 at 3.30 pm |
JUDGMENT OF THE COURT
AThe application by Mr Blake for special leave to appeal against the judgment of the High Court in Blake v Blake [2021] NZHC 756 is declined.
B The application by Mrs Blake for special leave to appeal against the same judgment of the High Court is declined.
CThere is no order as to costs.
____________________________________________________________________
REASONS OF THE COURT
(Given by French J)
Table of Contents
Para No.
Introduction [1]
Background to the appeal against the interim judgment [12]
Valuation of shareholding [13]
Fixing of contributions to increase in value [32]
Declining to vest company asset in Mrs Blake [37]
Leave granted in the High Court [40]
Application by Mr Blake for special leave to appeal additional issues [43]
Valuation of HMR's shares in SCL [47]
Application of s 44 [52]
Determination of contributions to the increase in value — s 9A(2) [72]
Mrs Blake’s application for leave to appeal an additional issue [85]
Outcome [106]
Introduction
Mr and Mrs Blake[1] have been embroiled in protracted litigation under the Property (Relationships) Act 1976 (the Act) following the breakdown of their marriage.
[1]Blake is not the parties’ real surname. Fictitious names have been used as was done in the Family and High Courts in order to protect sensitive personal and commercial information.
They were married in July 1986 and have four children. They separated in July 2016. The value of the property at stake is very significant, in the millions of dollars.
The proceedings began in the Family Court where judgments were issued by Judge Wills.[2] Both Mr and Mrs Blake appealed to the High Court. The appeal was heard by Whata J. The Judge issued two judgments. The first judgment was called an interim judgment[3] and the second the “economic disparity” judgment.[4]
[2]Blake v Blake [2020] NZFC 212 [First Family Court judgment]; and Blake v HMR Ltd [2020] NZFC 211 [Second Family Court judgment].
[3]Blake v Blake [2021] NZHC 756 [Interim judgment].
[4]Blake v Blake [2021] NZHC 2590, [2021] NZFLR 696 [Economic Disparity judgment].
Both parties then applied to Whata J for leave to appeal certain aspects of each judgment to this Court. Leave was required because an appeal in this Court would be a second appeal.[5]
[5]Senior Courts Act 2016, s 60.
Whata J subsequently granted leave to appeal to this Court on a limited number of issues.[6]
[6]Blake v Blake [2021] NZHC 2583 [First leave judgment].
In relation to the interim judgment, the Judge granted Mr Blake leave to appeal in respect of two issues.[7] That appeal has been allocated the file number CA646/2021, the appellant being Mr Blake.
[7] At [24] and [27].
In relation to the economic disparity judgment, the Judge granted Mrs Blake leave to appeal on four issues.[8] That appeal has been allocated the file number CA746/2021, the appellant being Mrs Blake.
[8]Blake v Blake [2021] NZHC 3575 [Second leave judgment] at [14]–[16].
What we are now being asked to decide is whether other issues in respect of which Whata J declined leave to appeal should also be included on appeal to this Court.
Before turning to address those proposed additional issues, we note two preliminary matters.
First, the leave application filed by Mrs Blake originally included an application for leave to appeal the High Court’s declinature of a claim she brought under s 9A(1) of the Act. However, in written submissions she has confirmed she no longer seeks leave to appeal that part of the High Court decision.
The second matter is that the leave application filed by Mr Blake states he wishes to appeal against both the interim judgment and the economic disparity judgment. However, his proposed grounds of appeal relate only to the interim judgment.
Background to the appeal against the interim judgment
As noted by Whata J in his first leave judgment, the application for leave engaged three key findings from his interim judgment.[9]
Valuation of shareholding
[9]First leave judgment, above n 6, at [1].
The first concerned the approach the Judge had taken to the valuation of shareholding in a company called SC Ltd. The shares in that company were originally owned by Mr Blake in his personal capacity and acquired by him before his marriage with Mrs Blake. In 2003 he sold all his shares to another company that he also controlled, namely the respondent HMR Ltd.
HMR was incorporated in 1981. Its sole shareholder was Mr Blake. He was also its sole director and remained so until after separation.
At all relevant times, HMR was the asset-holding company for a highly successful manufacturing and construction business established by Mr Blake before the marriage. SCL was the trading/operational entity through which he operated his business.
In 1986, shortly before their marriage, Mr and Mrs Blake entered into a matrimonial property agreement. The agreement recorded amongst other things that the shares in HMR[10] and SCL would be the separate property of Mr Blake.
[10]At the time the matrimonial property agreement was signed, HMR had a different name.
Both the Family Court and the High Court found that the shares remained the separate property of Mr Blake but that the increase in value of those shares during the marriage was relationship property to be divided between the parties in accordance with their respective contributions to that increase. There is no challenge to that concurrent finding.
In the Family Court, Judge Wills held that as at 1986 the value of shares in HMR was $1,002,000 and the value of shares in SCL was $333,000.[11] The Judge adjusted those figures for inflation so as to express the 1986 value in present-day dollar terms, arriving at a figure of $6,835,197.[12] Because Mr Blake had sold his shares in SCL to HMR in 2003, the valuation of shares in SCL was subsumed within the valuation of shares in HMR.
[11]The value for HMR was agreed by the parties’ respective valuers but not the value of SCL: First Family Court judgment, above n 2, at [164], [171] and [327(a)]. The value for SCL fixed in the Family Court was upheld by the High Court: Interim judgment, above n 3, at [104].
[12]First Family Court judgment, above n 2, at [223].
In assessing the increase in the value of shares in HMR since 1986 for the purposes of the proceeding, the parties through their expert witnesses agreed a valuation date of 31 March 2018. Although the valuers could not agree on the 2018 value and hence the amount of the increase in value, there was no dispute there had been a very substantial increase in the value of shares in HMR between 1986 and 2018.
In the Family Court, the Judge fixed the value of shares in HMR as at 31 March 2018 at $115,113,076.[13] As for the amount of the increase in the company’s share value since the marriage, the Judge fixed that at $113,780,076.[14]
[13]At [327(b)].
[14]At [327(c)].
The valuation of HMR was one of the primary issues in dispute in the High Court as it had been in the Family Court, the most significant point of disagreement being the correct valuation of its shares in SCL.
A complicating factor in determining the value of those shares was that three months before the couple separated and before the valuation date, Mr Blake had entered into a shareholding agreement with their oldest child, John, to sell some of HMR’s shares in SCL to John’s trust. Between 1 April 2016 and 31 March 2018, HMR sold 8.4 per cent of its shares in SCL to the trust for the sum of $833,270. That price was calculated by reference to a formula contained in the shareholding agreement.[15]
[15]In fact the price paid was short of the amount required by the formula.
Mrs Blake, who had consistently opposed any sale of the shares during the marriage, sought an order setting the sale aside under s 44 of the Act.
The general effect of s 44 is that the court will set aside a disposition of property or order the payment of compensation if three prerequisites are satisfied:
(a)the disposition was made in order to defeat the rights of an applicant under the Act;
(b)the absence of either valuable or adequate consideration; and
(c)the absence of good faith on the part of the transferee.[16]
[16]Property (Relationships) Act, s 44(1) and (2).
The section also provides that the Court must deny relief under s 44 if the transferee received the property in good faith and so altered their position in reliance on the validity of the disposition that it would be inequitable to grant relief.[17]
[17]Section 44(4).
In the High Court the Judge found that in selling the shares, Mr Blake’s intention was to defeat his wife’s relationship property claim in respect of the value of those shares and that the consideration paid for them by John’s trust was inadequate.[18]
[18]Interim judgment, above n 3, at [143], [145] and [177(c)(i)].
However because the Judge also found that John had altered his position in good faith and for valuable (albeit inadequate) consideration, he considered it would be unjust to require John’s trust to pay compensation to Mrs Blake under s 44.[19] Instead, the Judge considered the just solution would be to exercise the Court’s powers under ss 18C and 25 of the Act and put Mrs Blake in the position she would have been in had the shares not been sold and HMR at the date of separation still had a 100 per cent shareholding instead of its actual holding of 91.6 per cent.[20] In his assessment, it would be inconceivable that the Court could not remedy a $9.7 million diminution in relationship property value caused by a property transaction entered into in breach of s 44.[21]
[19]At [145]–[146].
[20]At [147].
[21]First leave judgment, above n 6, at [13].
We pause here to interpolate that the Family Court also endorsed a valuation based on a 100 per cent shareholding but not because it considered the sale infringed s 44, but because of a provision in the shareholding agreement. The Family Court construed the provision in question as a buy-back provision enabling HMR to acquire the shares back from John’s trust at the original purchase price. That meant that for the purposes of a valuation based on a hypothetical sale by a willing but not anxious seller who will act in a way that maximises their commercial advantage, it could be assumed that HMR would trigger the buy-back clause and so regain 100 per cent shareholding.[22]
[22]First Family Court judgment, above n 2, at [71]–[82].
Whata J disagreed with the Family Court’s construction of the shareholding agreement, ruling that it did not empower HMR or Mr Blake to force John to sell the shares back.[23]
[23]Interim judgment, above n 3, at [79]–[84].
There has been no cross-appeal against Whata J’s construction of the buy-back clause and therefore the correctness of the decision to adopt a deemed 100 per cent shareholding must rest on the reasoning in the High Court and not the Family Court.
In determining the value of that shareholding, both the Family Court and the High Court did so by reference to expert evidence of fair market value based on capitalisation of earnings. Whata J arrived at a valuation of $23,704,848.[24]
Fixing of contributions to increase in value
[24]Economic Disparity judgment, above n 4, at [61(a)]. By contrast, the Family Court fixed the value of 100 per cent of the SCL shares at $26,482,500: First Family Court judgment, above n 2, at [139] and [326(a)(iii)].
The second key finding in respect of which leave to appeal was sought related to Whata J’s application of s 9A(2) of the Act. Section 9A lists the circumstances in which separate property becomes relationship property. Section 9A(2) provides:
(2)If any increase in the value of separate property, or any income or gains derived from separate property, were attributable (wholly or in part, and whether directly or indirectly) to actions of the other spouse or partner, then—
(a)the increase in value or (as the case requires) the income or gains are relationship property; but
(b)the share of each spouse or partner in that relationship property is to be determined in accordance with the contribution of each spouse or partner to the increase in value or (as the case requires) the income or gains.
In the Family Court, Judge Wills noted that in cases of lengthy traditional marriages such as that of Mr and Mrs Blake, the starting point in fixing respective contributions to the increase in value of assets is one of equality.[25] The Judge noted that HMR had grown over a long period of time and that by assuming primary responsibility for the home and the children, Mrs Blake had enabled her husband to devote his time to the business and its development during the many years of the marriage.[26] However, the Judge went on to find that presumption was displaced in this case for two reasons.
[25]First Family Court judgment, above n 2, at [207] and [211]–[212], citing Scott v Williams [2017] NZSC 185, [2018] 1 NZLR 507 at [325] per Arnold J.
[26]At [220].
The first was that it was Mr Blake who had introduced the companies into the property pool and the second was his pre-marriage acquisition of skills and attributes which were “uncommon” and required recognition.[27] Taking those factors into account, she assessed the relative contributions to the increase in value to HMR as being 60:40 in favour of Mr Blake.[28]
[27]At [219] and [221].
[28]At [225].
Whata J disagreed with a differential of that scale which he considered was inconsistent with the Judge’s other finding of equal contributions during the marriage.[29] He held that a proper division in the increase of the value of HMR was 50:50 less $3.5 million to account for the contribution by Mr Blake as at the date of the marriage. He also directed the division was to occur after the $3.5 million had been deducted from the value of the increase.[30]
[29]Interim judgment, above n 3, at [129]–[130] and [133].
[30] At [135].
As explained by Whata J, the purpose of the $3.5 million deduction was to account for the inflation component of the increase in value. The Judge considered that would fairly reflect the distinct contribution made by the separate property to the overall increase in the value of HMR. The figure of $3.5 million was not the full amount of the inflation component but, assuming a starting point of $5.5 million as advocated by Mr Blake’s valuer, it represented 60 per cent. The Judge did not allow a deduction of the full amount because he considered an adjustment was needed to acknowledge Mrs Blake’s indirect contributions.[31]
Declining to vest company asset in Mrs Blake
[31]At [134].
The third key finding in respect of which leave was sought related to a restaurant venue, owned by HMR.
Mrs Blake runs a hospitality business out of the venue and, relying on the Supreme Court decision in Clayton v Clayton [Vaughan Road Property Trust], she sought an order under s 33 of the Act vesting ownership of the property in her.[32] Both the Family Court and the High Court declined to make a vesting order.[33]
[32]Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.
[33]Second Family Court judgment, above n 2, at [46]; and Interim judgment, above n 3, at [165].
In the High Court, Whata J doubted there was jurisdiction under s 33 to make such an order and further held the case could not be brought within the Clayton principles.[34] Mrs Blake’s relief, in his view, lay in the division of the increase in value of HMR, not its specific assets.[35] He was satisfied that given she would receive an equivalent monetary value for 50 per cent of the property, the refusal to make a vesting order would not result in any substantive unfairness.[36]
Leave granted in the High Court
[34]At [164]–[165].
[35]At [165].
[36]First leave judgment, above n 6, at [25].
The two issues in respect of which Whata J granted leave to appeal against the interim judgment both relate to his ruling under s 9A(2).
The Judge formulated the two issues in the following terms:
(a)Was the High Court wrong to have regard to the key person discount?
(b)Did Mr Blake’s pre-marriage contribution of skills and attributes justify a 20 per cent differential in the relationship property division?[37]
[37]At [24] and [27].
The “key person discount” referred to in the first issue is a reference to the Judge’s finding that the valuation should take into account that the earnings of SCL were significantly dependent on Mr Blake remaining involved in the business due to his acumen and experience.[38]
Application by Mr Blake for special leave to appeal additional issues
[38]Interim judgment, above n 3, at [99].
The application which is opposed raises numerous proposed grounds of appeal. They are grouped around three topics:
(a)the proper approach to the valuation of HMR’s shareholding in SCL;
(b)the application of ss 44 and 18C, concerning the disposition of SCL shares by HMR to John’s trust; and
(c)the application of s 9A(2), concerning the increase attributable to the actions of Mrs Blake and the value of her contributions.
It was common ground that in order to obtain leave to extend the scope of an existing second appeal, an applicant must persuade us that the proposed additional appeal grounds raise questions of law or fact capable of bona fide and serious argument involving some interest public or private of sufficient importance to outweigh the cost and delay in extending the scope of the appeal.
The relevant principles were usefully summarised by Whata J in his first leave judgment:[39]
[7] … As stated in Waller v Hider, the Court of Appeal is not engaged in the general correction of error.[40] Rather, its primary function is to clarify the law and to determine whether it has been properly construed and applied by the Court below.[41] Where findings are non-concurrent, and there is a real issue of law or principle at stake, the threshold may be met. However, the principle expressed in s 1N(d) of the PRA must be carefully weighed: issues arising under the Act should be resolved as inexpensively, simply and speedily as is consistent with justice. This calls for close examination of the utility of the proposed appeals.
[39]First leave judgment, above n 6.
[40]Waller v Hider [1998] 1 NZLR 412 (CA) at 412.
[41]At 412.
Mindful of those principles, we turn to consider each proposed ground.
Valuation of HMR’s shares in SCL
Mr Blake contends that the only proper basis on which the shares could be valued was by reference to the mandatory terms of the shareholding agreement which contained a formula for assessing fair market value. In his submission, it was an error on the part of both the Family Court and the High Court to “pretend that the [shareholding agreement] did not exist” and he wishes to advance that point in the appeal.[42]
[42]Under this topic, Mr Blake also submits it was an error to assess the value on the basis of a 100 per cent shareholding rather than the actual shareholding of 91.6 per cent. However the submissions address that issue in more detail under the s 44 topic. We agree that is the more logical place for that issue to be discussed.
We address the separate issue of whether it was an error to assess value on the basis of a 100 per cent shareholding rather than the actual shareholding later in this judgment.[43] The present argument is the general applicability of the shareholding agreement formula to the shares regardless of how many shares were owned by HMR at the date of valuation.
[43]See [68]–[71] below.
Although this proposed ground of appeal is entirely case-specific and not of general importance, we accept that the monetary implications for the parties are very significant. There is said to be a difference of approximately $11 million between the value calculated in accordance with the shareholding agreement and the value as found by Whata J.
We accept that the fact the amounts at stake are substantial is relevant to leave. However, it does not of itself mean that leave should automatically be given. The proposed ground must still be seriously arguable and in our view it is not.
The approach taken by both Courts to determine fair market value for the purposes of the Act by reference to the hypothetical “willing but not anxious” buyer and seller test was entirely in accordance with orthodox valuation principles and established case law.[44] We consider it is not tenable to suggest the Judges should have instead based the valuation on a formula prepared for the purpose of supporting a staged sell-down of equity to a family member. There was ample evidence to support the concurrent findings in both Courts that the formula in the shareholding agreement did not produce a fair market value and that the use of the formula would result in an unjust outcome. We consider that finding unassailable.
Application of s 44
[44]Z v Z [1989] 3 NZLR 413 (CA).
Although Whata J ultimately held that relief under s 44 was not available to Mrs Blake, his finding that the sale of the shares was done in order to defeat her rights together with his finding that the consideration paid by John’s trust was inadequate formed the basis of his decision to adopt a 100 per cent shareholding.
Mr Blake contends there were both factual and legal errors in the High Court’s analysis of s 44 creating a disparity in the order of $18 million. In particular, he seeks to challenge the findings regarding intent and adequacy of consideration. He also seeks to challenge Whata J’s use of “a fictional shareholding” of 100 per cent on the grounds that as a matter of law it was not available as a means to order relief under either s 18 C or s 25[45] of the Act.
Intention to defeat Mrs Blake’s rights
[45]The written submissions refer to s 44 but because Whata J did not order any relief under s 44, we assume that is an error and was intended to be s 25 which the Judge did rely on along with s 18C.
In the Family Court, Judge Wills specifically found the sale was part of a succession plan to secure John’s involvement in the business and that there was no intention on the part of either Mr Blake or John to defeat Mrs Blake’s interests.[46]
[46]First Family Court judgment, above n 2, at [240].
The Judge went on to say that regardless of her factual finding regarding intent, various decisions of the Supreme Court and the High Court have held that if a disposition has the effect of defeating an applicant’s rights and the person disposing of the property knows that, then they are to be regarded as intending to defeat that interest even if that was not their purpose.[47] The authorities the Judge cited in support of this proposition were the Supreme Court decisions of Regal Castings Ltd v Lightbody[48] and Horsfall v Potter[49] as well as the decisions of the High Court in Ryan v Unkovich[50] and K v V.[51]
[47]At [241].
[48]Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 [Regal Castings (SC) judgment].
[49]Horsfall v Potter [2017] NZSC 196, [2018] 1 NZLR 638.
[50]Ryan v Unkovich [2010] 1 NZLR 434 (HC).
[51]K v V [2012] NZHC 1129.
Mr Blake says ,contrary to what was wrongly assumed by the High Court, Judge Wills’ comments were simply a citation of authorities and not a specific finding the requisite intent existed in this case. We disagree. That is not a tenable interpretation of the Family Court judgment.[52] The paragraphs that follow the reference to the authorities make it clear the Judge considered s 44 was potentially available. Otherwise, there would have been no point to them.
[52]See First Family Court judgment, above n 2, at [241]–[258].
In the High Court, Whata J held that the effect of the authorities cited by Judge Wills was that on the facts of this case Mr Blake must be taken to have intended to defeat, as in hinder, whatever relationship property claim his wife might have in relation to the HMR shares and expose her to potential loss. He stated:[53]
Absence of motive or purpose to cause loss to Mrs Blake and the [advisors’] valuation are not determinative factors. Rather, the fact that Mr Blake carried on with the share sale in the face of Mrs Blake’s strong objections is direct evidence of an intent to carry on with that sale regardless of the impact on her relationship property rights in respect of those shares or any loss she might incur as a consequence. In short, his intention was clear [—] to dispose of the shares whatever the impact on [HMR’s] share value and therefore on Mrs Blake’s relationship property claim.
[53]Interim judgment, above n 3, at [143] (footnotes omitted).
There were thus concurrent findings of the requisite intent, something which is a factor against leave being granted.
However, Mr Blake wishes to advance a further argument that even if there were concurrent findings, then both Judges and indeed a number of other judges before them have misunderstood and misapplied Regal Castings. He contends that, correctly understood, Regal Castings is not authority for the proposition that knowledge of the consequences of a disposition will on its own be sufficient to establish the requisite intent. More is required. There was more, he says, on the facts in Regal Castings — for example the impugned transaction was executed in secret — and what the Court said about knowledge must be seen in that context.
On the face of it, this proposed ground of appeal could potentially involve a question of law of general importance. However, we are not persuaded it is seriously arguable that the courts, including this Court in two recent decisions,[54] have misunderstood Regal Castings.
[54]In Dyer v Gardiner [2020] NZCA 385, [2020] NZFLR 293 at [90], this Court stated that the intention requirements of s 44 may be satisfied where the person responsible for the disposition is aware that the effect of the disposition is to defeat a claim or the rights of another person regarding the property. See also Sutton v Bell [2021] NZCA 645, [2021] NZFLR 610.
In Regal Castings, the Supreme Court was considering an appeal from a majority decision in this Court.[55] The Supreme Court expressly endorsed the reasoning of the minority judgment that “[k]nowledge of a consequence is equated with an intention to bring it about” and confirmed that the majority had erred because it had confused motive or purpose with intention.[56] The Court said it was “essential” to distinguish between the two; it was not necessary to show the transferor wanted the other party to suffer a loss or that it was their purpose to cause it.[57] While we acknowledge that Regal Castings was not about intention under s 44 of the PRA[58] we do not consider that to be a tenable reason to limit its application here. The general principle must be the same.[59]
[55]See Regal Castings Ltd v Lightbody [2007] NZCA 396, [2008] 2 NZLR 153 [Regal Castings (CA) judgment].
[56]Regal Castings (CA) judgment at [99(a)] per William Young P (dissenting); aff’d Regal Castings (SC) judgment, above n 48, at [46] and [54]–[55]; and Regal Castings (SC) judgment, above n 48, at [50] and [53].
[57]Regal Castings (SC) judgment, above n 48, at [53].
[58]It concerned the interpretation of the phrase “intent to defraud creditors” under s 60(1) of the Property Law Act 1952.
[59]Since Regal Castings, the Supreme Court has had occasion to consider s 44 in the case of Horsfall v Potter, above n 49. Mrs Blake places weight on that decision. However, this issue was not specifically addressed by the Supreme Court because on the facts knowledge of the consequences and the motive/purpose of the transaction were aligned.
We conclude there is no reasonable prospect of a challenge to the High Court’s application of Regal Castings succeeding on appeal.
Adequate consideration
For s 44 to be engaged in this case, the disposition has to be made other than for either “valuable consideration” under s 44(2)(a) or “adequate consideration” under s 44(2)(b).
In the Family Court, the Judge held the consideration paid under the share agreement was both valuable and adequate.[60] According to Mr Blake, she reached that conclusion after a “thorough” examination of the relevant law and facts. He says in contrast Whata J’s finding to the contrary was reached without offering any legal or factual justification for overruling the Family Court on this point.
[60]First Family Court judgment, above n 2, at [257].
It is well established that the terms “adequate consideration” and “valuable consideration” have different meanings. What may be valuable consideration must be more than nominal consideration but can fall short of fair market value whereas “adequate” consideration must bear some reasonable relationship to the true value of the property although it may very well be less than that since the term used is adequate, not full.[61]
[61]Welch v Official Assignee [1998] 2 NZLR 8 (CA) at 12.
As mentioned, John’s trust paid $833,270 for an 8.4 per cent shareholding. Whata J found the fair market value for 100 per cent of the shares was $23,704,848.[62] 8.4 per cent of that figure is $1,991,207 which means the price paid fell short of full consideration by $1,157,937. In percentage terms the price paid was only 41.8 per cent of the fair market value.
[62]Economic Disparity judgment, above n 4, at [61(a)].
In our view, in those circumstances it is not seriously arguable that there was a reasonable relationship between the price and true value.
Relief available under ss 18C and 25
Section 18C empowers the Court to order payment of a sum of money to compensate a party where relationship property has been materially diminished in value by deliberate action on the part of the other party. Mr Blake seeks to argue that s 18C did not apply because the HMR shares remained in the company in the form of the purchase price paid by John’s trust.
That argument might be tenable were the disparity between the fair market value and the purchase price not so significant. As it is, we consider the Judge was amply justified in finding that the action of Mr Blake in selling the shares had materially diminished the relationship property, being the increase in value of the HMR shares.[63] The order made was plainly within the scope of s 18C and to contend otherwise is to advance a contention that is not seriously arguable.
[63]Interim judgment, above n 3, at [145].
As for s 25, that too confers a very broad remedial power. It provides that the Court may make any order it considers just in determining the respective shares of each party in any part of relationship property.
Had Whata J not made the order he did, we consider it beyond argument that there would have been an injustice to Mrs Blake as a result of a transfer for inadequate consideration intended to defeat her rights. The order made was thus clearly within the scope of s 25.
Determination of contributions to the increase in value — s 9A(2)
As we understand it, there is and was no dispute that the increase in value of HMR during the marriage was due to the joint efforts of both Mr and Mrs Blake. What is in dispute is the weight to be attached to Mr Blake’s pre‑marriage contributions to the increase in value.
It will be recalled that Whata J fixed contributions to the increase in value by first deducting $3.5 million from the amount of the increase in value on account of the inflation-adjusted value of Mr Blake’s separate property at the date of marriage and then dividing the remainder of the increase equally between the parties. This was a departure from the Family Court decision. The Family Court had fixed the relative contributions at 60:40 in favour of Mr Blake.
On appeal to this Court, Mr Blake contends Whata J was wrong to disturb the Family Court’s differential and seeks to have it reinstated.
As previously mentioned, the High Court has already granted leave to appeal on the grounds of two alleged errors relating to its application of s 9A(2). The notice of application for special leave to appeal also seeks to argue that the High Court erred in:
(a)conflating Mrs Blake’s contributions to the relationship with contributions by her to the increase in value of the HMR shares;
(b)failing to give due recognition to the principles of separate property pursuant to s 9A when reducing the inflation-adjusted value of Mr Blake’s separate property at the date of marriage from $5.5 million to $3.5 million as an acknowledgment of Mrs Blake’s alleged indirect contribution;
(c)finding a lengthy traditional marriage was to be counted as a contribution to the increase in value of the HMR shares; and
(d)failing to take into account when fixing the contribution at 50 per cent the effect of taxation and other realisation costs which would be incurred in order to satisfy the monetary judgment against Mr Blake.
Before addressing these proposed additional grounds, it is important to bear in mind the issues in respect of which leave has already been given, namely whether Mr Blake’s pre-marriage contribution of skills and attributes justify a 20 per cent differential in the relationship property division and the relevance of the key person discount.
As we understand it, those two issues are intended to address a complaint that the Judge erred in his weighing of the respective contributions to the increase in value of the HMR shares and in particular gave no or insufficient recognition to Mr Blake’s skills and attributes acquired before the marriage. The $3.5 million discount was only recognition of the existence of separate property, that is to say recognition of Mr Blake’s contribution to the increase in value by introducing the shares to the property pool in the first instance and took no account of his personal characteristics which the Family Court had described as “uncommon”.[64] As Whata J put it, the central complaint is that all of Mr Blake’s pre-marriage contribution should have been afforded distinct credit over and above the inflation-related increase in the separate property value.[65]
[64]First Family Court judgment, above n 2, at [219].
[65]First leave judgment, above n 6, at [22].
The “key person risk” issue bears on the existence or sufficiency of any recognition for personal characteristics because Whata J considered his approach to key person risk meant the increase in value had already been discounted to accommodate Mr Blake’s personal characteristics.[66] Mr Blake will be arguing that the key person risk is irrelevant to the s 9A(2) analysis, that it is not a recognition of contributions made to the property and nor does it provide any economic benefit to Mr Blake.
[66]Interim judgment, above n 3, at [129]–[130]. See also First leave judgment, above n 6, at [4].
Turning then to the additional proposed questions.
As regards proposed question (a), we are unable to identify any part of Whata J’s analysis that entails conflation of contributions to the property with contributions to the increase in value.
Proposed question (b) raises an issue about the sufficiency of the $3.5 million allowance for the purpose of recognising Mr Blake’s contribution of introducing the property to the pool. However, the bare assertion that the reduction from $5.5 million to $3.5 million failed to take account of the principles of separate property under s 9A is just that, a bare assertion which is not amplified in Mr Blake’s written submissions. We therefore take the matter no further, other than to observe that it is an entirely case‑specific issue.
As for proposed question (c) — holding that a lengthy traditional marriage was to be counted as a contribution to the increase in value of separate property — we find the question somewhat puzzling. The presumption of equality in such cases is settled law and we are unaware of any reason to reconsider it.
Proposed question (d) seeks to challenge the 50:50 differential on the ground that it failed to take into account the effect of taxation and other realisation costs which will be incurred when withdrawing funds from HMR in order to satisfy any monetary judgment against Mr Blake in favour of Mrs Blake. This question in the context of s 9A(2) is new.[67] That is to say it was not the subject of any leave application in the High Court. We note further that Mrs Blake claims it was not even raised at the substantive hearings in either the Family Court or the High Court and she questions how the judges can be criticised for failing to respond to an argument that was never put to them. It is entirely case-specific, does not involve a question of general importance and in the absence of any detail does not appear to entail a sufficiently important private interest.
[67]Leave was sought and declined in the High Court in respect of a similar question in the context of the valuation of HMR: See First leave judgment, above n 6, at [12(c)], [14] and Appendix A.
For the reasons traversed above, we decline to grant leave in respect of any of the proposed questions advanced by Mr Blake. In our view, none of them meets the requisite threshold.
Mrs Blake’s application for leave to appeal an additional issue
It will be recalled that as also happened in the Family Court, the High Court declined to make an order vesting ownership of one of HMR’s assets — the restaurant venue — in Mrs Blake. Whata J also declined to grant Mrs Blake’s leave to appeal that aspect of his decision.[68]
[68]First leave judgment, above n 6, at [25].
HMR purchased the restaurant venue during the marriage in June 2015. The venue is important to Mrs Blake because she operates her business out of it. She has a connection to the venue and therefore disputes the view (taken by Whata J in his first leave judgment) that payment of a monetary sum is sufficient and that vesting is not necessary to do justice.[69]
[69]At [25].
Mrs Blake argues leave should be granted and relies on two alternative arguments:
(a)It is seriously arguable that s 33(3)(e) and 33(3)(j) of the Act empower the Court to make orders vesting any property — not just relationship property or property in which a spouse/partner has an interest — as part of the division of relationship property.
(b)Alternatively, if contrary to the above it is necessary for one spouse/partner to have an interest in the property to give the Court jurisdiction under s 33(3), then it is seriously arguable that such an interest does exist in the present case under Clayton v Clayton principles.
It appears to have been the first argument that was the focus in the Family Court whereas in the High Court it was the second argument.
Section 33 is headed “Ancillary powers of court”. Subsection (1) states:
The court may make all such other orders and give such directions as may be necessary or expedient to give effect, or better effect, to any order made under any of the provisions of sections 25 to 32.
The section then goes to provide a non-exhaustive list of the types of orders the Court may make.[70] The list includes at s 33(3)(e) an order for the partition or vesting of any property and at s 33(3)(j) an order for the transfer of land or any interest in land.
[70]Property (Relationships) Act 1976, s 33(3).
In the Family Court, Judge Wills pointed out that s 33 does not confer an originating jurisdiction. Its purpose is to enable the implementation of substantive orders already made under other provisions of the Act.[71] In light of that purpose, the words “any property” that appear in the section should, the Judge considered, be construed as confined to property which is or could be dealt with in the making of orders under ss 25 to 32. That in turn meant there must be an interest held by one of the parties in the specific piece of property for which a vesting order is sought.[72]
[71]Second Family Court judgment, above n 2, at [40].
[72]At [43].
In this case neither Mr nor Mrs Blake had any beneficial interest in the restaurant venue.[73] It was not relationship property and it was not separate property. It was owned by HMR, a different legal personality from its shareholder and director, Mr Blake. A shareholder has no beneficial interest in the assets owned by a company.[74]
[73]See at [22]–[23], [30]–[33] and [36].
[74]At [23], citing Strait Views Ltd v Hannaway (2005) 6 NZCPR 725 (HC) at [23] and [28].
In challenging that reasoning, Mrs Blake acknowledges that s 33 is an ancillary implementation provision but submits that just as the High Court ordered Mr Blake to pay her a sum of money ($51,929,647) to give effect to its orders declaring her substantive rights to the property pool, there is no reason why it could not have used another method of implementation. Mrs Blake argues that s 33(3)(e) does not require that the property to be vested or partitioned must be either relationship property or separate property.
As regards authority, Mrs Blake submits that the case law on the scope of s 33 is limited and inconsistent,[75] making the issue one of general importance warranting guidance from this Court. Although not aware of any case in which the Court has made an order in respect of company property under s 33(3)(e) or 33(3)(j), she argues the courts have been open to the possibility of making orders in respect of third parties. Mrs Blake cites as examples the following decisions: Johanson v Johanson,[76] Hau v Hau,[77] and Zhou v Yue.[78]
[75]As an example of inconsistency, she cites the contrast between the decisions of the Family Court and the High Court in Turner v del la Varis [2020] NZFC 10016; and Turner v del la Varis [2021] NZHC 776, [2021] NZFLR 418.
[76]Relying on the obiter comments made in the case: Johanson v Johanson (1993) 10 FRNZ 578 (CA) at 581.
[77]Hau v Hau [2018] NZHC 881, [2018] NZFLR 464.
[78]Zhou v Yue [2019] NZHC 2167.
However, those decisions are all cases where the property in issue was either owned by one of the spouses jointly with the third party[79] or where there was a claim of beneficial ownership by one of the spouses against the third party,[80] or conversely a third party was claiming beneficial ownership of a property legally owned by one or both of the spouses.[81]
[79]Hau v Hau, above n 77.
[80]Hau v Hau, above n 78; and Johanson v Johanson, above n 76.
[81]Zhou v Yue, above n 78.
Thus in Zhou, the High Court held that the Family Court had jurisdiction to make a vesting order sought by the third party because in its “inventory-taking” function the Court would decide whether under s 25(3) the property was relationship property owned by one or both of the spouses and that determination would inevitably also decide that the third party either did or did not own an interest in the property as he claimed. The third party was a party to the proceeding and jurisdiction existed under s 33(e) or 33(3)(j) for the Family Court to give better effect to its determination of the ownership of the property.[82]
[82]At [54].
The crucial distinction between these cases and this one is that in all the other cases the beneficial ownership of the property and hence its status under the Act was the subject of an order under the Act to which the s 33 vesting power was thus truly ancillary. Here there is no contest about the legal and beneficial ownership of the restaurant venue: it is the property of HMR and always has been.
The interpretation of s 33 being advocated by Mrs Blake does such violence to the ancillary nature of the section and to the property rights of third parties that we do not consider it is seriously arguable. In short, we can say with confidence that it is a step too far and has no prospect of succeeding on appeal.
Turning then to the alternative argument founded on the Supreme Court decision in Clayton.[83] Clayton was a case about trust structures. The husband in that case owned a block of land. During the marriage, he executed a declaration of trust settling the property on a trust of which he was the sole trustee and a discretionary beneficiary. The other discretionary beneficiaries included his wife and their children. Under the trust deed, the husband had the power to appoint or remove discretionary beneficiaries and trustees. It also gave him the power in his capacity as trustee to pay or apply all of the capital to any of the discretionary beneficiaries, to bring forward the vesting date and to resettle the trust fund. The deed further empowered a trustee who was also a beneficiary to exercise a power in his own favour, to exercise powers without considering the interests of all beneficiaries and in a way that might be contrary to the interests of all beneficiaries.
[83]Clayton v Clayton, above n 32.
The Supreme Court held that although the trust was not a sham, the combination of powers and entitlement conferred on the husband amounted in effect to a general power of appointment in relation to the assets of the trust and were rights which gave him an interest in the trust assets for the purposes of the Act.[84] The powers conferred on him were relationship property and because he could appoint the entire assets to himself at any time, the value of the power was equal to the value of the net assets of the trust.[85]
[84]At [68]–[70], [80] and [114]–[117].
[85]At [98(a)] and [104]–[107].
In the course of its reasoning, the Supreme Court held that the definition of “property” under the Act was broader than traditional concepts of property and that it must be interpreted in a manner that reflects the fact it is social legislation and with a sense of “worldly realism”.[86]
[86]At [38] and [79].
The Clayton principles have never been applied to corporate structures but Mrs Blake says whether they should be is an important issue for determination by this Court. She points out that New Zealand families increasingly have assets held in companies. And that is likely to increase now that Clayton makes it more difficult for spouses/partners to structure their way out of the Act by using trusts.
In her submission, there is a strong argument that the Clayton principles should apply and that a distinction between trusts and companies is not sustainable. Just like the husband in Clayton, Mr Blake has such extensive control over the assets of a third party that consistent with the policy of the Act and the extended definition of property he should be regarded as having an interest in those assets.
We agree that the potential application of Clayton to companies is a question of general importance. However, we are satisfied that the present case is not the appropriate vehicle. That is because even if the Clayton principles are as a matter of law capable of applying to companies, Mrs Blake’s proposed appeal on this point cannot succeed. That is because Mr Blake’s directorship and shareholding in HMR pre-dates the commencement of his relationship with Mrs Blake. It follows, as noted by Whata J in his first leave judgment, that whatever Mr Blake’s powers might be in relation to HMR they are not relationship property.[87] Classification of the relevant powers in Clayton as relationship property was pivotal to the reasoning.
[87]First leave judgment, above n 6, at [5].
We therefore decline Mrs Blake’s application for leave to appeal.
Outcome
The application by Mr Blake for special leave to appeal against the judgment of the High Court in Blake v Blake [2021] NZHC 756 is declined.
The application by Mrs Blake for special leave to appeal against the same judgment of the High Court is declined.
Neither party having succeeded, there will be no order as to costs.
Solicitors:
LeeSalmonLong, Auckland for Appellant in CA641/2021 and First Respondent in CA645/2021
Tompkins Wake, Tauranga for Respondents in CA641/2021 and Appellant in CA645/2021
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