[Blake] v [Blake]
[2021] NZHC 2590
•1 October 2021
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2020-4630-18
[2021] NZHC 2590
BETWEEN BARTLEY BLAKE
Appellant
AND
MAYSIE BLAKE
First Respondent
HMR LIMITED
Second Respondent
Hearing: 16 July and 16 September (via VMR) 2021 Counsel:
J Billington QC, K Lellman and L Gamble for Appellant D Chambers QC and E Armstrong for First Respondent
Judgment:
1 October 2021
ANONYMISED JUDGMENT WHATA J
Re economic disparity
This judgment was delivered by me on 1 October 2021 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Thompkins Wake, Tauranga
LeeSalmonLong, Auckland
BARTLEY BLAKE v MAYSIE BLAKE [2021] NZHC 2590 [1 October 2021]
Introduction
[1] In my interim judgment of 12 April 2021, I made findings as to the valuation and division of relationship property.1 Since then, some matters have been resolved by consent, which I address briefly below. However, I reserved my position on the issue of economic disparity.2 Mrs Blake also raised a further claim, namely the interest claimable in the period between the Family Court hearing and the release of the Family Court's decision.3 In this judgment I address those issues.
Admissibility of evidence
[2] Mrs Blake objects to evidence filed by Mr Blake. I have resolved to uphold that objection insofar as Mr Blake's new evidence seeks to introduce matters expressly excluded by this Court in a pre-hearing determination.4 I have, however, allowed specific parts of that evidence. My reasons are set out in a separate ruling, appended to this judgment for ease of reference as Appendix A.
Overview
[3] Mrs Blake claims that she is entitled to a disparity order reflecting the difference between her income and Mr Blake's full earning capacity, including from investment income derivable from a company owned by him, HMR Limited (HML) and its subsidiaries. Mr Blake says that Mrs Blake will derive substantial income from her share of the relationship property, which was valued by reference to the increase in the value of HML and its subsidiaries over the course of their marriage. He says that when that income is taken into account, there is no disparity in income or standard of living between the parties.
[4] In this judgment I resolve that insofar as the income-generating capacity of HML and its subsidiaries is shared between the parties on the division of the relationship property, that income is neutral as between them. I also find however,
1 [Blake] v [Blake] [2021] NZHC 756 [Interim judgment]. As noted in that judgment, the parties’ names and identifying features have been anonymised in this judgment and, where that is not possible (for example, property identifiers) redacted.
2 Under s 15 of the Property (Relationships) Act 1976.
3 [Blake] v [Blake] [2020] NZFC 212 [Family Court judgment].
4 [Blake] v [Blake] [2020] NZHC 2227.
that because of the way the shares in HML's subsidiaries were valued-using a substantial discount to reflect key person risk,5 Mr Blake's full personal earning capacity or personal goodwill was not captured in that share value and is therefore not shared between the parties. On my approach, that personal earning capacity therefore needed to be accounted for in the disparity assessment. Based on the evidence available to me, the key person discount corresponds to a share value of about $4.35-
$7.09 m, annual excess profits in the range $530,000-$860,000 and an income disparity of between approximately $900,000-$1.5 m. However, having regard to the fact that Mr Blake is still recovering from his battle with a terminal disease and remains vulnerable to it, a per annum figure for excess profits in the order of $400,000 (post-tax) is more reasonable. This broadly corresponds to an income disparity figure of $680,000.
[5] Mr Blake claims that I have attributed share and income value to his personal earning capacity where none exists. I reject this contention as inconsistent with the very premise of the key person discount applied in the valuation of the shares, namely that future maintainable earnings (FME) will be less if Mr Blake is absent. Conversely, I find that if he is present, FME will likely be maintained in the short to medium term and this must be factored into Mr Blake's likely future income derivable from those earnings.
[6] In the result, there being no risk of reversing the disparity given the value of the relationship property, a disparity order in the order of $680,000 is just. The final quantum will need to be calculated based on the formula used by the expert for Mrs Blake, Mr Graham.
Economic disparity
[7]In my interim judgment I found that:6
[172] The value of the increase in the relationship property is largely co- extensive with the income-generating capacity of HML (and its subsidiaries)
…. On the outcome I favour, that value is largely shared between the parties.
5 In this judgment I refer to the discount applied to account this key person risk simply as the “key person discount”.
6 (Footnote omitted).
Following Scott that relationship property is not to be taken into account when assessing relative income. It is a neutral factor for both parties.
[173] Mrs Blake's claim to disparity based on Mr Blake's likely future earnings from HML was in part misplaced because that "income generating capacity" has already been factored into the increase in the HML share value which will be shared between them. This point was made by Mr Davis in his evidence, who noted that the future profits from the company are reflected in the value of the shares-a claim for economic disparity would double count the future income. And in light of Scott, it cannot form part of the s 15 assessment.
[174] There is a qualification to this: as noted, HML is likely to perform better than the estimated future maintainable earnings largely because of the key person risk discount used to formulate share value. The difference between estimated earnings with and without the "key person" discount is amenable to a disparity assessment. But as the s 15 disparity claim was not advanced on this basis, I am not in a position to resolve it. Issues of causation also need to be explored. There is also the reality that orders for the division of relationship property are likely to deplete-if not exhaust-HML's cash reserves, reducing the prospect of full drawings in coming years. The fact that Mr Blake's shareholding is reduced will also need to be considered.
Process
[8] I reserved leave for the parties to be heard on this aspect. A timetable was then agreed for the exchange of evidence and submissions, which was done. A further hearing on the issue of economic disparity, together with the hearing of the applications for leave to appeal the interim judgment, took place on 16 July 2021 (the July hearing). With the benefit of argument, I confirmed my view that it remained appropriate to undertake a disparity assessment on both with and without key person discount bases. I noted, however, that if I were to resolve this issue to a conclusion, I would require further evidence by way of a joint expert statement. Alternatively, if that were not acceptable, I indicated that I would simply refer the matter to the Family Court for reconsideration.
[9] The parties considered the experts' joint approach was acceptable. Accordingly, I made orders directing the experts to confer on the issue of the parties' future income, together with timetabling orders for the exchange of further submissions. Following receipt of the joint statement, I invited submissions on specified passages of the judgments of William Young J and Glazebrook J in Scott v Williams concerning the
issue of personal earnings in the context of an economic disparity assessment.7 Counsel filed submissions and at a VMR conference (while subject to COVID-19 Alert Level 4) I invited further submissions on specific matters. This judgment is the product of that exercise.
Evidence and the parties' positions
[10] Given the way matters were argued before me at the July 2021 hearing, it is helpful to summarise the positions of the parties before the Family Court and then before me.
[11] Mr Blake did not appeal the Family Court's economic disparity order. Mrs Blake did, however, and claimed that in spite of Scott Mr Blake's income should be assessed on the basis of his full earning capacity as an owner of HML, SC Ltd (SCL) and HML's other subsidiaries. Mr Graham initially identified potential future earnings based on the financial performance of HML and its subsidiaries of $6-7 m per annum, and extrapolated this to an economic disparity between the parties' future income of about $12.397 m to the date Mr Blake turned 60, and $22.792 m to the date he turns
65.8 In supplementary evidence Mr Graham offered an alternative approach, namely by reference to the drawings Mr Blake was taking at separation. Based on this, and accounting for Mrs Blake's assumed earnings, Mr Graham arrived at a disparity figure in the order of $3.516 m (to Mr Blake's age 60) or $6.610 m (to Mr Blake's age 65).9
[12] In his evidence in chief, Mr Davis described Mr Graham's approach as unconventional and involving a degree of double counting. He observed, however, that "[t]he Courts have confirmed that it is the future income earning capacity of a party following separation that is the relevant measure of income when considering claims for economic disparity." In this regard, he emphasised:
…. future income for economic disparity is not generally defined to include income from investments / company shares held (other than any market salary assumed in the valuation) because;
7 [Blake] v [Blake] HC Rotorua CIV-2020-463-0018, 27 August 2021 at [3]: I invited the parties to consider William Young J’s comments at [413]–[430], and [460]–[464], and Glazebrook J’s comments at [96]–[104], in Scott v Williams [2017] NZSC 185, [2018] 1 NZLR 507 [Scott].
8 See Interim judgment, above n 1, at [170]. Mr Blake turned 60 on 13 April 2020.
9 At [170].
a.the expected future profits from company shares is reflected in the value of the shares - a claim for economic disparity on this basis would double count the future income; and
b.potential income from the investment of each parties share of the relationship property is assumed to be equal and therefore not a potential contributor to any future difference in income or living standards - so is disregarded.
[13] In his view, as Mr Graham has effectively capitalised his forecast of the resulting future profits of Mr Blake's interests to a business value for division, the proper basis for comparison is the salaries each would receive from their respective businesses to avoid double counting the future profit income.
[14] In relation to salaries, Mr Davis identified a salary of $250,000 for Mr Blake and estimated a salary in the order of $80,000-$100,000 for Mrs Blake, though he said more formal remuneration evidence was required. Mr Davis then examined the parties' living standards, noting historically they enjoyed an annual "income" of about
$570,000.10 Mr Davis also made the point that if future profits are to be considered,
then Mrs Blake's potential income from her share of the relationship property would need to be taken into account. He then provided a table of calculations of likely income based on a percentage share of the relationship property, assuming for that purpose a seven per cent annual return. After tax, Mr Davis extrapolated an income figure in the order of $1.8m-$2.2 m, assuming Mrs Blake held a relationship property share of 40-50 per cent. Given this, he noted any difference in living standards is more theoretical than real. He also observed that this level of income was, for the most part, more than the previous average annual income of $570,000.
[15] Mr Davis noted, however, his view that Mrs Blake's award under s 9A of the Property (Relationships) Act 1976 (PRA) was key for the purpose of assessing whether there would be any practical difference in the couple's respective future living standards, and he could not offer an opinion until that division was known.
10 Mr Davis appears to have resiled from his position as to the meaning of relationship “income” in his July 2021 affidavit. He now says the $570,000 per annum was not “income”, at least for the purposes of s 15. That linguistic mobility may be problematic given that I relied on that assessment for the purpose of my s 9A(1) analysis. Either it was income, in which case, my finding that Mr Blake’s income contribution to the relationship offset any salary sacrifice remains correct, or it was not “income” and my analysis may be faulty, and if so, Mr Blake’s claim pursuant to s 9A(1) must be vindicated. See also my Interim Judgment, above n 1, at [114]–[122].
Issues
[16] Both parties identified problems with my approach to the economic disparity assessment:
(a)for Mrs Blake, Ms Chambers QC submitted that:
(i)contrary to my observation at [176] of the interim judgment the Family Court did not take into account HML's "full" earning capacity, but instead based its assessment on Mr Blake's average annual contribution to the relationship; and
(ii)I was wrong insofar as I suggested at [173] that there may be some double counting of income.
(b)Mr Billington QC, new senior counsel for Mr Blake, claimed any assessment of economic disparity with and without a key person discount was misconceived.
Section 15
[17] Before I address these issues, it is important to place the evaluation in its proper context. Section 15 of the PRA states:
15 Court may award lump sum payments or order transfer of property
(1)This section applies if, on the division of relationship property, the court is satisfied that, after the marriage, civil union, or de facto relationship ends, the income and living standards of one spouse or partner (party B) are likely to be significantly higher than the other spouse or partner (party A) because of the effects of the division of functions within the marriage, civil union, or de facto relationship while the parties were living together.
(2)In determining whether or not to make an order under this section, the court may have regard to-
(a)the likely earning capacity of each spouse or partner:
(b)the responsibilities of each spouse or partner for the ongoing daily care of any minor or dependent children of the marriage, civil union, or de facto relationship:
(c)any other relevant circumstances.
(3) If this section applies, the court, if it considers it just, may, for the purpose of compensating party A,-
(a)order party B to pay party A a sum of money out of party B's relationship property:
(b)order party B to transfer to party A any other property out of party B's relationship property.
(4)This section overrides sections 11 to 14A.
[18]As stated by Glazebrook J in Scott (in summary):
(a)Section 15 permits an order which compensates for disparity in income and living standards between partners after the end of the relationship if this disparity was caused by the division of roles in the relationship. Living standards will be normally (but not always) equated with income.11
(b)The approach taken in X v X [Economic Disparity]12 to the date of the assessment appears to be correct-namely, at the date of separation-but that the calculation is made once the extent of the relationship property and relevant shares is known.13
(c)In long term relationships where one partner has primary responsibility for home-making and/or childcare, and the other partner for income earning activities, the PRA operates on the assumption that any disparity at the end of the relationship is equally attributable to both partners as a result of their role divisions.14
(d)In deciding on a just order, the factors the court takes into account should be directed at the aim of ensuring disparity is removed, but not transferred to the other partner.15
11 Scott, above n 7, at [263] (supported by Elias CJ at [331] and Arnold J at [329]).
12 X v X [Economic disparity] [2009] NZCA 399, [2010] 1 NZLR 601 [X v X].
13 Scott, above n 7, at [216]–[217] (supported by O’Regan J at [388]).
14 At [264].
15 At [253].
(e)The share in and amount of relationship property, and any income from it, is neutral in considering what is a just order as both partners share in relationship property equally. The only relevance of the relationship property pool is to the extent it provides a cap on any order under s 15.16
(f)There is no one prescribed method, formula or approach that can be applied to calculate whether economic disparity exists such that a s 15 order should be made, as there is no single way to prescribe what is just. This will depend on the individual circumstances of each relationship and each partner.17
Full earning potential
[19] I accept Ms Chambers' submission that the Family Court did not approach the economic disparity assessment by reference to the full earning potential of HML and SCL. But the Court's reasoning did proceed (wrongly in my view) on the basis that investment income already shared between the parties could be used to derive likely economic disparity and it did this when it used annual average drawings to measure that disparity.
Double counting
[20] Ms Chambers submitted that provision for disparity does not involve double counting. Rather, citing X v X, Ms Chambers submitted s 15 is designed to provide equality of outcome and compensate for the economic disadvantage which would exist notwithstanding an equal division of relationship property. But, as Ms Chambers also acknowledged, X v X was not dealing with the specific issue raised in my interim judgment, namely whether double counting arises if future earnings are taken into account in the valuation exercise and in the assessment of the parties' incomes under s 15. Given the way the relationship property was valued in this case-that is, based on the capitalisation of EBIT18 -as Mr Davis observed in his evidence, future profits and thus income from it were largely captured by that value. Subject to my position on
16 At [254] (supported by Arnold J at [271], [327] and [329], and O’Regan J at [271] and [389]).
17 At [265].
18 Earnings before interest and tax.
the effect of the key person discount-as that value is now shared between Mr and Mrs Blake-the corresponding future profits and income of HML and its subsidiaries should be treated as neutral and not "double" counted for the purposes of the economic disparity assessment.
Key person discount
[21] Mr Billington emphasised that key person risk, as reflected in the key person discount, does not affect FME. He says it is common ground among the experts and the parties that FME was derived from the average EBIT over the period financial years ending 2012-2018 and that key person allowance did not affect the FME. Rather, the key person discount affected the multiplier used to fix share value. He submitted, therefore, that an assessment of income (and in turn economic disparity) by reference to FME on a with and without key person discount basis is inherently flawed and misconceived.
[22] I accept Mr Billington's contention that [174] of my interim judgment is, literally construed, erroneous. However, that "error" has semantic significance only in the present context. The observation at [174] is addressed to Mrs Blake's economic disparity claim based on future profitability and Mr Davis' evidence that future profits are reflected in share value. As explained by Mr Davis, key person risk is the risk that "future maintainable income of SCL could fall below the FME" in Mr Blake's absence and this risk was incorporated through an adjustment to earnings multiples and that adjustment flows through to share value.19 It must logically follow that future maintainable income will not fall below FME to the extent assumed in the share valuation if Mr Blake remains present. This is important because the "with Mr Blake present" scenario is not reflected in the SCL share value, and is directly relevant to the disparity assessment because Mr Blake's future personal earning capacity after separation will be based (in the short term at least) on the FME with him present.
[23] As Ms Chambers submitted, William Young J explained the purpose and effect of applying a key person discount in Scott.20 He said:
19 In his 25 June 2021 affidavit (emphasis Mr Davis’ own).
20 In the meaning of William Young J’s statements at [416] and following. See also his discussion at [433], [436], [439] and [440].
[416] The earnings of a firm may be heavily dependent on the personality, history, skills and contacts of the proprietor. In such a case, the firm, even with a full restraint of trade, will suffer a diminution in earnings should the proprietor leave the business. To put this simply, a firm may be worth more to its proprietor than to a purchaser. The difference in values is often referred to as personal goodwill. A prudent purchaser of such firm will allow for this - something which can be achieved either by:
(a)assessing the future maintainable earnings on a basis which assumes that the proprietor is no longer involved with the firm; or
(b)reflecting the likely diminution of earnings on the departure of the proprietor in the multiplier.
[24] It is clear to me that the effect of the key person discount in this case corresponds to Mr Blake's personal earning capacity or personal goodwill referred to by William Young J.21 Notably, Judge Wills, Mr Davis and I identified Mr Blake as key to the success of HML and SCL and identified Mr Blake's ability to generate HML's future work as a matter of particular concern when quantifying the appropriate price earnings multiplier.22 Mr Davis expressed it this way in an appendix to his evidence in chief:
I consider there is very significant key person risk associated with Mr [Blake]. In my opinion, there is potential for significant deterioration in earnings, particularly in the short to medium term, if Mr [Blake] is no longer in the business. Many key client relationships appear to exist between Mr [Blake] and the customers of the business. Mr [Blake] has historically been a key driver of new business development has also driven performance of the business with a rigorous management style that, in my view, would not be easily replicated.
[25] He emphasised this basic point in his evidence in chief at the hearing when referring to key person risk:
... [A buyer] will have their own relationships but certainly they won't necessarily be paying for what Mr [Blake] is currently bringing to the business…
... [Bartley Blake] brings an extra dimension, positive dimension to the business in terms of the way it's run and client relationships, and just that staff
21 I note that fair market value broadly corresponds to implied goodwill. Mr Davis calculated implied goodwill as, 100 per cent of the SCL shares, less net tangible assets of $2,000, being between $16.104–$20.912 m.
22 Family Court judgment, above n 3, at [128]–[131], and [135] and following. See also my Interim judgment, above n 1, at [97]–[99]. Mr Glass in his report also identified Mr Blake’s absence as a reason for declining performance. It is also worth noting that the SHA provides at cls 5.1(v) and
5.2 that a transfer to John Blake occurs on Mr Blake’s death and the full share value is discounted by a further 30 per cent.
loyalty... it and the business will be different if he's not involved ... The business is exposed, he's the founder of the business. He's been there for ... the 40 plus years. [John] has been there [approximately 13-15] years. It's a different proposition and it's the sort of thing you would see in a lot of sort of businesses that are managed by their founders. There's quite a bit of risk around when the ownership is transferred to a new owner.
[26] And, as Mr Davis reiterated more simply in the most recent joint expert statement with Mr Graham:23
Key person risk can be defined as the risk that the key person will no longer be available to the business, or their future contribution be negatively impacted in such a way that the FME adopted in the valuation may not be achieved. ...
[27] As noted by William Young J, the logic for discounting personal earning capacity in the valuation exercise was explained by the Supreme Court in Thompson v Thompson when referring to another case, Briggs v Briggs:24
... In other words, the company with Mr Briggs on board was likely to be appreciably more profitable than it would be without him. Because the higher level of profitability (that is, with Mr Briggs involved) could not be transferred to a purchaser, the value of the business should be assessed on the basis of the lower level of future maintainable profit than that adopted in the Family Court.
[28] William Young J also observed in Scott that personal earning capacity or "personal goodwill" should not be divisible as relationship property because personal earning capacity is not relationship property.25 That is not an issue in this case to the extent that the key person discount reduced the SCL share value and thus the relationship property value. It transpires that reduction was in the order of $4.35-
7.09 m.26
[29] The issue remains, however, as to how Mr Blake's actual ongoing personal earning capacity or personal goodwill should bear on the disparity assessment. In Scott, William Young J suggests that it did not need to be considered if investment income (including any super profit) is to be excluded from the disparity assessment as
23 Dated 20 August 2021 (emphasis added).
24 Scott, above n 7, at [419], citing Thompson v Thompson [2015] NZSC 26, [2015] 1 NZLR 593 at
[33] and Briggs v Briggs (1996) 14 FRNZ 404 (HC).
25 At [425].
26 See the discussion below concerning key person risk.
directed by a majority in Scott.27 Glazebrook J however observed that if personal goodwill is "earning capacity" as William Young J suggests, then it must be taken into account under s 15 unless that earning capacity has already been included in the valuation of relationship property.28 As I read William Young J's judgment on this point, he too might include full earning capacity, including personal goodwill, unless that personal goodwill had been included in the capitalisation of FME and shared between the partners.29
[30] In any event, I respectfully agree with Glazebrook J. To do otherwise would be to undertake the economic disparity assessment based on a false premise, namely that Mr Blake will no longer be present and thus not contributing to and benefiting from the actual (rather than the hypothetically discounted) profitability of SCL and HML after separation. A discounted rate however still needs to be applied to reflect the usual contingencies.
Disparity
[31] Mr Graham quantified the impact on share value of the key person discount. It is unnecessary to explain the methodology used by Mr Graham as Mr Davis agrees that his quantification is correct. In summary, Mr Graham identifies an uplift in SCL's share value of between $4.35 m and $7.09 m with the key person discount removed. But, as Mr Davis also noted in his evidence, that exercise is only helpful insofar as it expresses capitalisation of income in perpetuity. As Mr Davis further explained, Mr Graham's share value uplift does not build into it the usual risk assumptions applied in a conventional income disparity calculation.30 Rather, that adjusted share value had to be extrapolated to a potential earning and per annum income and to the extent of any disparity then identified as envisaged by Arnold J in Scott.31
[32] As no attempt had been made to extrapolate likely future profitability and an annual income without the key person discount, I directed expert caucusing on this. I noted that any assessment should be capped at the date Mr Blake turned 60, reflecting
27 At [466].
28 At [104], n 315 and [262].
29 At [462] and [466].
30 At [326](b)–(e) per Arnold J.
31 At [326].
among other things the risks presented by Mr Blake's ill health. In response, the experts made the following observations:
(a)Mr Graham has extrapolated a FME valuation impact to a FME increase in the range of $791,672 to $1,290,360 per annum which, adjusted for tax, results in a net income of between $530,420 and
$864,541 per annum for Mr Blake. These outputs assume a discount rate of 15.09 per cent.32 Mr Graham adopts the same estimates for Mrs Blake as those used in his evidence accepted by the Family Court. This produces a disparity quantum between the parties-to the date Mr Blake turned 60-in the order of $913,376 to $1,505,430, with a mid point of
$1,209,403.
(b)Save for his agreement that Mr Graham's calculation appears correct, Mr Davis has refused to engage in the assessment because he says the experts previously agreed there could be no potential for an increase in the FME adopted in the valuation of SCL due to key person risk, and it cannot be regarded in any real economic sense as a potential annual income. He states: "[t]he economic reality is that the potential for an increase in FME because of any key person factor or any additional such income expressed as a function of FME does not exist." Mr Davis maintains that it is not realistic to assume in a valuation exercise in accordance with accepted valuation principles that the key person risks do not exist. He also says that there is "no value to owner" nor "an income equivalent to owner" that can be attributed to the incremental share value that has been calculated by Mr Graham. Mr Davis, however, took the opportunity to correct errors in the disparity assessment he presented in his July 2021 affidavit to arrive at a disparity figure of $193,574. This is based on an annual income for Mr Blake of
$250,000, or $176,580 after tax, and an annual income for Mrs Blake of $90,000, or $69,380 after tax.
32 Mr Davis agreed with this discount rate. Mr Graham explained this discount is the WACC (weighted average cost of capital) implied by the 5.5x EBIT multiple adopted for SCL.
[33] As Ms Chambers submitted, it is unhelpful that Mr Davis refused to engage in the exercise completed by Mr Graham and instead embark on a statement of valuation theory. His strident theoretical position, whatever its valuation logic, is unrealistic, and contrary to the evidence and findings of the Family Court,33 because it assumes that Mr Blake "will no longer be available to the business" and that future profitability and thus FME will decline immediately on separation notwithstanding the fact that Mr Blake will remain with SCL and HML at least in the short term. Moreover, as Ms Chambers submitted, a fair market share valuation is concerned with a hypothetical sale and the key person risk is a hypothetical risk to a third-party purchaser that future profits will decline in Mr Blake's absence. By contrast, economic disparity is concerned with what HML and SCL are worth to Mr Blake in the real world, hence the need to assess potential earnings with him in it. To the extent that the notional share value does not reflect this reality, it provides a false measure of Mr Blake's actual income potential. To reiterate, as William Young J said in Scott:34
To put this simply, a firm may be worth more to its proprietor than to a purchaser.
[34] In his further submissions, Mr Billington nevertheless submits that my key person discount approach is wrong. His submission appears to have six major planks:
(a)There is no additional income above FME that is likely or expected to be earned due to the presence of Mr Blake in the business.
(b)The removal of the key person discount can be characterised as an attempt to increase the value of the shares available for division when, as Mr Davis stated there is no underlying income benefit to Mr Blake to justify that increase in value.
(c)Mr Blake possesses unique skills acquired before marriage, which the Family Court recognised in fixing the division under s 9A(2) at 60 / 40 in his favour.
33 Family Court decision, above n 3, at [294].
34 Scott, above n 7, at [416].
(d)This recognition has been "taken away" by my decision to settle on a 50 / 50 division, and that I have effectively changed the valuation methodology.
(e)Even if that is not correct, William Young J made it clear that unique earning skills are not property, should not be included in the division and are not causally linked to any economic disparity. Mr Billington also submits that Mr Blake must go to work to benefit from those skills and, in contrast, Mrs Blake's current entitlements are in excess of $50 m.
(f)William Young J's observations about personal earnings were inapposite in any case, because he was dealing with professional service firms and personal contribution only.
[35] The first plank is misdirected. There is no claim to additional income above FME. The key impact or disparity in focus is the difference between actual FME and the fall in income below FME likely or expected due to the absence of Mr Blake from the business. The second plank is wrong. The removal of the key person discount is an attempt to identify the likely FME and corresponding income due to Mr Blake's ongoing presence in the business. In this regard, for reasons already expressed, I consider Mr Davis' position to be inconsistent with the reality he emphasised in his evidence in chief: namely, that Mr Blake is a "key person" in terms of the future profitability of SCL.
[36] The absence of underlying income benefit to justify an increase in share value is also a moot point. Share value has not been increased for the purpose of division of relationship property value, though as I will explain below, if Mr Blake wanted to claim a greater share of share value based on his personal characteristics and contribution, then he would need to promote a share value that capitalises FME based on his ongoing presence.
[37] The third and fourth planks mischaracterise the effect of the interim judgment. While my interim judgment does not disaggregate the pre- and intra-marriage personal
contribution of skill and attributes as the Family Court does, Mr Blake's personal contribution is expressly acknowledged but dismissed as providing justification for a 20 per cent differential in relationship property division for the reasons which are plainly addressed to the value of his skills and attributes.35 The relevance of the key person discount is that whatever the value of Mr Blake's contribution, pre- or intra- marriage, it has been largely discounted in the capitalisation of SCL's profits in perpetuity as at March 2018.
[38] Furthermore, HML's value as at 1986 comprised $1.002 m in net assets (as at 1988) and a SCL share value based on an FME of $78,000 and a capitalisation of profits value of $374,000.36 On Mr Blake's approach to share value, the value of his pre-marriage contribution, including his skills and attributes, is already captured by the inflation share value of SCL at inception, 85 per cent of which he was awarded in the interim judgment.37 Moreover, if his pre-marriage contribution of skills and attributes has not been captured by the 1986 valuation,38 it must be a relatively small value compared to the value of the 2018 key person discount, given the FME value as at 1986 was only $78,000, or $152,958 per annum when adjusted for inflation. This is to be compared to the FME in 2018 of nearly $5 m per annum. In reality, whatever the value of the contribution of Mr Blake's pre-marriage skills and attributes, it is dwarfed by the value of the joint contribution of Mr and Mrs Blake to the increase in the value of HML over the course of a 30-year marriage.
35 Interim judgment, above n 1, at [130]–[133].
36 This is based on the evidence of Mr Davis, the expert for Mr Blake. A slightly different spreadsheet value ($1,332,000) was provided by the parties after hearing, based it appears on Mr Davis’ conceding in cross examination that he had included a debt owing of $44,469 in 1986, but SCL was not formed until March 1987. In any event, it is not material to the present issue. I also note that at this time HML did not own the shares in SCL.
37 As the Interim judgment explains at [128] and n 101, the inflation-adjusted value of the SCL shares at inception was $6,833,478 m. The combined value of HML and SCL in 1986 dollars was $1.322
m. The difference is about $5.5 m of which 60 per cent (or $3.5 m) was allocated to Mr Blake. In the result, Mr Blake retained about $4.8 m or 70 per cent of the inflation-adjusted value of the HML and SCL at inception as separate property. The balance, or 30 per cent of the increase ($2 m), was then divided on a 50 / 50 basis. Accordingly, Mr Blake retained $5.8 m (or approximately 85 per cent) of the inflation-adjusted value of SCL. Mrs Blake received just $1 m (or approximately 15 per cent) for her contribution to the inflation-adjusted value of HML and SCL.
38 It may be that the 1986 earnings multiple of 4.6 applied by Mr Davis to derive this value included a key person discount, but that seems highly unlikely given Mr Davis’ evidence in answer to question to the Family Court Judge that “I sort of.. simply dropped [it] in there”.
[39] The complaint that I have taken away recognition of Mr Blake's personal goodwill and effectively changed the valuation methodology is also wrong. Based on a "fair value" valuation, all potential FME, including personal goodwill, must be included in the share value.39 Here, by adopting a conservative key person discount, some or all of that personal goodwill (in the order of $4.35-$7.2 m) has been excluded from the valuation and therefore excluded from the share value. There can be no complaint about unfair division or "taking away" this value because it is not there to be divided or taken away. Put another way, Mr Blake can claim no personal attributes premium where none is included in the share value. Furthermore, if the key person discount is reversed, and applying a 50 / 50 division under s 9A(2), Mrs Blake's share is worth in the order of $14-$15 m; about $2-$3 m more than the present award.
[40] The fifth plank, namely that personal earning capacity is not relationship property, is moot for the reason just stated: it has not been included in the share value. I also disagree that this personal earning capacity is irrelevant to the disparity exercise for the reasons noted above at [30]. Moreover, Mrs Blake's claim is not based on a right to future earnings potential, but to compensation for her contribution to the relationship which has resulted in the future earnings disparity. However, I agree that the fact Mr Blake must go to work to gain the excess profits while still recovering from his battle with a terminal disease is relevant in this case and must be factored into the quantification of income disparity and the assessment of what is just. Unhelpfully, because this aspect was not examined by the experts, I must make that assessment as a matter of impression.
[41] I disagree with the general proposition that William Young J's observations were dealing only with professional firms. On my reading, the cases cited by him were concerned with the treatment of personal earning capacity generally and, if I am wrong about that, the observations made by him logically apply more generally to any company that is reliant on a key person.40 Indeed, William Young J's review of the authorities reinforces the basic point that where a company is reliant on a key person,
39 Scott, above n 7, at [98] and following per Glazebrook J.
40 William Young J refers, for example, to Thompson v Thompson, above n 24, which involved the valuation of a large supplements company valued at between $72.3 m (without a restraint of trade) and $80.3 m (with a restraint of trade) and the treatment of discounts to reflect the potential absence or presence of a key person to the valuation.
that company was likely to be more profitable with them on board than it would be without them.
[42] Finally, as Glazebrook J emphasised in Scott, the essential question is not what the right valuation method is, but what the right result is.41 That requires a realistic appreciation of what the share value actually represents and Mr Blake's actual earning capacity in the real world.
[43] Returning to the available evidence, Mr Graham identifies a net disparity of between $530,420 to $861,541 per annum and a cumulative disparity in the order of
$913,376 to $1,505,430, with a mid-point of $1,209,403. Those figures appear broadly reconcilable with Mr Graham's assessment that full relationship earnings yielded in the order of $4.3 m per annum, that likely full future earnings and value accretion at separation net of tax would be in the range of $6-7 m per annum, resulting in a cumulative disparity of $12.4 m to the date Mr Blake turned 60 and $22.7 m to the date he turned 65. Mr Graham's analysis also clearly shows that Mr Davis' assumption that all future profits will be fully reflected in the share value is wrong. That accords with the reality of the situation: HML and SCL are plainly worth more to Mr Blake (ie, when he is present) than to a hypothetical purchaser.
[44] But Mr Graham's analysis appears to exclude three important qualifiers. First, as noted in my interim judgment, consideration must be given to the fact that HML's cash reserves are likely to be depleted through the property division. And, as Mr Graham accepted in cross-examination, this will impact on drawings for the foreseeable future. The evidence also suggests that due to Mr Blake's absence in 2016 and 2017, the companies' future book work was low as at the date of separation. Second, a realistic approach has to be taken to Mr Blake's health. While that has already been factored into the income disparity assessment, by capping the disparity period at 60, it still requires adjustment, because Mr Blake must go to work while still recovering from his battle with a terminal disease. Third, while a small point, Mr Blake's share of the profits must reflect his actual shareholding at the time of separation of 97 per cent. I therefore consider that an income in the order of $400,000
41 At [105]–[108].
per annum (post-tax), a 25 per cent reduction on the lower-end figure of $530,000 per annum (post-tax), more reasonably represents Mr Blake's likely personal earnings not otherwise shared on the division of the relationship property value. This broadly corresponds to a total disparity quantum, to his age 60, in the range of $680,000.
[45] As to causation, given the clear direction of a majority in Scott to assume economic disparity is caused by the division of spousal roles in the context of traditional marriages, like in this case, I see no reason to depart from that starting point, which I also adopted for the purpose of the s 9A(2) assessment.42 It also appears to be the approach taken by the Family Court in term of the s 15 analysis.43
Justness
[46] As noted above, just compensation should remove disparity and create equality of outcome.44 It should be designed to fully compensate for the disparity and no more.45 A majority in Scott emphasised that the amount of future property and any income from it is neutral in considering what is a just order as both parties share in the relationship property equally.46 In light of that direction, the income disparity sum is, as above, in the order of $680,000.
[47] As noted by Robertson J in X v X, in a passage cited with approval by Glazebrook J, it would be artificial to make an assessment under s 15 of what is just in a vacuum, ignoring the position of each party after the division of the property.47 The application of this reasoning by Robertson J can be found in the following passage:
[88] …. An income disparity of $20,000, for example, will be significant where the higher earner's income is $60,000 and the lower earner's is $40,000, but it will be insignificant where the higher earner's income is $1 million and the lower earner's income is $980,000. In the latter case, the disparity is overwhelmed by the total income available to each party.
42 Scott, above n 7, at [204] per Glazebrook J; [323] and following per Arnold J; and [345] per Elias CJ.
43 At [282]–[289].
44 At [211] per Glazebrook J.
45 At [214] per Glazebrook J.
46 At [254] per Glazebrook J; at [386]-[389] per O’Regan J; and at [329] per Arnold J (and see [271] per Glazebrook J).
47 X v X, above n 12, at [76]; and see Scott, above n 7, at [217] and [218] per Glazebrook J.
[48] In the present case, the relationship property value reflects substantial past profits and the capitalisation of future profits derived from HML's subsidiaries, totalling about $110 m to be shared equally. When set in this context, the future income disparity between the parties appears very small. However, Glazebrook J (with support from Arnold and O'Regan JJ) also noted in Scott that investment income (including any super profits) derived from relationship property shared equally is a neutral factor and not relevant to what is just, except as a cap on the order.48 That comment was made in the context of rejecting the Court of Appeal's approach in that case, which included regard to the proportion of the total relationship property that the disparity quantum represents. Therefore, unless the compensatory order will reverse the disparity in terms of income and standards of living, Mrs Blake is entitled to be so compensated.
[49] I have come to the view that it will not. I am conscious of the fact that the resources available to Mrs Blake will be substantial and by any ordinary measure her standard of living will not be adversely affected on the division of the relationship property. I am also conscious of the fact that Mr Blake must work to make the income identified in this judgment. That will in fact bear negatively on his standard of living, especially given his present vulnerability. But I am satisfied that the substantial discount already applied to the calculation of Mr Blake's future income adequately reflects his underlying vulnerability and the impact of going to work on him. In those circumstances, all other things being equal in terms of the division of relationship property, Mr Blake enjoys a much higher potential earning capacity than Mrs Blake and there is ample relationship property to make the compensation without any risk of unjust reversal of that disparity. Furthermore, the driving principle of s 15 is equality of outcome. There is a risk that still further subjective de-valuation, of either the contribution made by Mrs Blake or the disparity, will undermine the achievement of this clear legislative goal.
Outcome
[50] Given where I have got to, I do not consider the order made by the Family Court is justified. I set it aside as part of my general power to achieve what is just on
48 Scott, above n 7, at [245] and [271] per Glazebrook J; [329] per Arnold J; and [389] per O’Regan J.
the totality of the appeals, and instead make an order in the final sum to be calculated on the basis of a per annum income figure of $400,000 (post-tax) for Mr Blake, as set out below at [62].49 I also dismiss Mrs Blake's appeal against the quantum of the Family Court's economic disparity as she has not succeeded in obtaining an uplift in the disparity award.
Leave to appeal
[51] I should indicate that, if Mrs Blake were to make an application for leave to appeal my judgment on this point, I would be minded to grant it if the 50 / 50 division of relationship property under s 9A(2) is also challenged. A critical component of the outcome in this case is the caveat "all other things being equal in terms of the division of the relationship property". That does not hold with a 60 / 40 split under s 9A(2). Furthermore, with the benefit of further argument and evidence, I accept that if the relationship property division remained at 60 / 40, it is seriously arguable that Mrs Blake would be entitled to a corresponding or increased disparity order. The 60 / 40 outcome implies that a significantly disproportionate share of the increase in the value of HML is attributable to Mr Blake's personal contribution of skills and attributes and thus the corresponding value is his personal goodwill and excess profits. As the value of this personal goodwill (approximately $21-$27 m)50 is not shared as part of a 60 / 40 relationship property division, Mr Blake's personal earning capacity represented by the value of that personal goodwill appears relevant to the income disparity assessment.51 I have noted a majority of the Court in Scott held it should be presumed under s 15 that any such disparity is equally attributable to both partners, particularly in a lengthy marriage.52 It must therefore be seriously arguable that a compensation
49 I make no adjustment for interest on that sum (that is, from the period of separation to judgment). I am satisfied I ought not do so on justness grounds. I note also that there is no evidence on the interest component. See Scott v Williams [2018] NZSC 37, [2018] 1 NZLR 633 at [12], wherein the Court noted that expert evidence was required.
50 The relationship property increase in value of HML is $108 m. The 20 per cent difference (between 60 per cent, being $64.8 m and 40 per cent, being $43.2 m) is $21.6 m. The full inflation-adjusted value of SCL at the inception of the parties’ marriage is $6.835 m. Together, the full difference is
$28.4 m. The value of SCL in 1986 dollars was $1,376,720. The net differential inclusive of inflation is therefore about $27 m.
51 See Scott, above n 7, at [104], n 315 and [262] per Glazebrook J.
52 Scott, above n 7, at [204] per Glazebrook J; [323] and following per Arnold J; and [345] per Elias CJ.
order responsive to the disparity should be made given the likely scale of that disparity. I raise this only to save the time and cost of a further round of litigation in this matter.
Interest
[52] At the VMR conference recently held, it was brought to my attention for the first time that Mrs Blake seeks interest in respect of the sums owing to her in the period between the hearing in the Family Court (commencing 29 April 2019) and the day before the date of the Family Court's judgment (16 January 2020) of $933,216 (based on an interest rate of 2.7 per cent). As I indicated to Ms Chambers, it is too late to raise this claim. The assessment of what is just in this case has been complex and decisions have been made assuming likely outcomes. Indeed, claims like this, which bear on the quantum of the division of the relationship property, should be specified at the outset, so that the full implications of that claim are made clear. It is also a matter that Mr Blake was entitled to contest, in much the same way he contested the claim to interest in the period between the hearing and the agreed date of valuation. He has not had the opportunity to do so.
[53] I record for completeness, and to provide context for the present claim, the parties have agreed interest at a rate of 2.7 per cent per annum from the date of the valuation (31 March 2018) to the date of the Family Court hearing. Mrs Blake is also statutorily entitled to five per cent interest on sums owing to her and not paid since the first judgment. A schedule of these sums has been helpfully provided by Mrs Blake. However, these figures need adjustment in light of my disparity award.
Option to purchase the family home
[54] In his appeal from the Family Court decision, Mr Blake sought amendments to the condition requiring notice of an intention to sell the family home. I did not consider this was properly a matter for appeal and should be addressed by the Family Court in the first instance. However, at the hearing of the parties' applications for leave to appeal my interim judgment, the parties agreed it should be resolved by me in the interests of finality. Mr Blake then provided a draft condition, together with draft orders for sealing. Mrs Blake agreed that the draft orders were reasonable, but she was concerned that Mr Blake may use the particularised terms of the option to
attempt to lodge a caveat over the property. She provided an amendment that she submitted meets this concern and is consistent with the clean break principle. She also submitted that the no caveat clause is consistent with the legal position.
[55] At the VMR conference this issue was addressed again. It became evident that unless there was agreement between the parties, this matter would have to be dealt with in the Family Court, or on appeal in the Court of Appeal. Ms Chambers then took instructions and agreed to the draft condition. Given the foregoing, I am content to make an order pursuant to s 182 of the Family Proceedings Act 1980 in the terms annexed as Appendix B. For completeness, nothing in this judgment should be taken as adopting a position on whether the condition confers or does not confer a caveatable interest.
Trusts' cash equalising sum
[56] The parties have calculated the equalising cash payment from the M Blake Trust to the B Blake Trust at $1,168,750. An issue arose as to whether this amount should be deducted from Mrs Blake's cash judgment sum. Mrs Blake submitted that it should not because it is a sum owed by the M Blake Trust and not her personally. But, in reality, the value of the trust property forms part of the overall relationship property to be shared. I resolved therefore that it should be deducted from Mrs Blake's cash judgment sum.
Result
[57] I set aside the Family Court's economic disparity order and replace it with an order payable to Mrs Blake by Mr Blake calculated on the basis of an adjusted per annum income figure (post-tax) for Mr Blake of $400,000, in a sum to be finally quantified on the basis in [62] below.53
[58] I decline to make an order for interest in respect of the sums owing to Mrs Blake in the period between the hearing in the Family Court (29 April 2019) and the date of the Family Court's judgment (15 January 2020).
53 For clarity, as noted above I make no order for interest on that sum.
[59]I make orders for:
(a)Interest at an agreed interest at a rate of 2.7 per cent per annum from the date of the valuation (31 March 2018) to the date of the Family Court hearing.
(b)Post-Family Court judgment interest at five per cent.54
[60] Post-judgment interest at five per cent for the period from 1 October 2021 until the date of final payment.
[61] I make an order pursuant to s 182 of the Family Proceedings Act 1980 in the terms annexed as Appendix B.
Quantification
[62] The parties helpfully produced spreadsheets identifying the outcomes of my judgments. These are the material outcomes:
(a)The value of SCL is $23,704,848.
(b)The value of HML is $113,064,663.
(c)The increase in HML value to be shared is $108,232,663.
(d)Total relationship property value is $110,518,222.
(e)The value of each party's share in the relationship property is
$55,259,111.
[63] In respect of the s 15 order and interest, the parties are to file a joint memorandum quantifying:
54 The parties did not dispute that post-judgment interest should be calculated at five per cent.
(a)the final disparity sum on the basis of an annual income figure, post- tax, for Mr Blake of $400,000. The adjustment is to be calculated by reference to Mr Graham's table at "Appendix 1" of his joint memorandum with Mr Davis dated 20 August 2021 (namely, applying his method and discounts otherwise); and
(b)interest payable.
[64] In addition, as indicated to counsel, the parties are to confirm the final cash sums payable as between the parties in their joint memorandum. I will then make final orders for payment of those sums accordingly.
Costs
[65] While Mrs Blake's position has materially improved from the Family Court decision, I remain of the view that costs should lie where they fall, because the outcome belies the extent of the success shared on the numerous points of appeal, including in respect of the present economic disparity decision. I nevertheless grant the parties leave to file submissions, no longer than five pages' length.
APPENDIX A
Admissibility of evidence ruling
[66]Mrs Blake objects to the following evidence, filed by Mr Blake, being read:
(a)an affidavit of Mr Blake addressing issues under s 15 of the PRA, sworn 25 June 2021, in its entirety;
(b)affidavit of Dr Michelle Anne Head, sworn 25 June 2021, in its entirety; and
(c)paragraphs [14]-[77] and [81] of an affidavit of Anthony Bruce Davis, sworn 25 June 2021.
[67] I allowed the evidence to be provisionally admitted on the basis that I would rule on its admissibility as part of this judgment.
[68] Mrs Blake complains that Mr Blake has used this process to adduce evidence that was previously excluded by Edwards J and in relation to a matter not appealed by Mr Blake.55 In this regard, Edwards J refused leave to adduce evidence about:
(a)the resignation of John Blake as general manager of SC Limited (SCL) and the resulting share buy-back transaction between HMR Limited (HML) and SCL;
(b)the loss of four other senior staff in SCL;
(c)the inability of HML to sell SCL;
(d)updated valuation evidence of HML's overall interests in SCL and DRP Limited (DRP);
55 [Blake] v [Blake] [2020] NZHC 2227.
(e)updated economic evidence in light of COVID-19; and
(f)updated property valuation evidence.
[69]Ms Armstrong, for Mr Blake, also submitted that:
(a)the affidavits are largely updating affidavits seeking to reopen factual matters which would require further evidence and cross examination;
(b)the evidence is selective and missing key information; and
(c)Mr Davis' affidavit traverses irrelevant matters, including re-valuation evidence.
Assessment
[70] I disregard the above evidence insofar as it might relate to the valuation of the relationship property as at March 2018 (the parties' separation and the valuation date). To do otherwise would amount to an abuse of process: Mr Blake would achieve by side route, after the High Court appeal hearing, that which he could not achieve directly prior to the appeal hearing. In effect, it would also open the valuation issue for re-consideration without obvious justification or in a manner that is fair to both parties. In addition, Mr Blake appealed the decision of Edwards J. That appeal has now been withdrawn. This reinforces the inappropriateness of admitting that evidence now. Furthermore, as this Court is engaged in an exercise of assessing economic disparity as at March 2018, evidence relating to subsequent events is also largely irrelevant and, in any event, is unfairly prejudicial to Mrs Blake as that evidence has not and cannot now be fully tested.56 I turn now to the significance of this in terms of specific parts of the evidence.
[71] Paragraph [7] of Mr Blake's evidence and paragraphs [14]-[18] of Mr Davis' evidence provide an update of the financial performance of SCL since 2018. Based
56 As explained by Glazebrook J in Scott v Williams [2018] NZSC 37, [2018] 1 NZLR 633 [Scott] at
[46] and following, gains and losses after a hearing are not normally taken into account and, if they are, the valuation date would need to be adjusted.
on that evidence, the financial performance of SCL has steadily declined, with profitability and future work declining. Edwards J excluded evidence of this kind and, for reasons already expressed, it is inadmissible.
[72] Paragraphs [2]-[3] of Mr Blake's evidence refers to John's departure, while his evidence at [9]-[13] refers to asset depletion as a result of him paying Mrs Blake her relationship property share. Edwards J excluded the former evidence as, for the reasons just stated, it is inadmissible. The asset depletion appears to have occurred outside the disparity period adopted by the Family Court and endorsed by me, so it has limited relevance in any event. Moreover, on my approach, asset depletion as a result of relationship property orders is to be assumed for the purpose of the disparity assessment.
[73] Mr Davis' evidence at paragraphs [19]-[37] provides a summary of the impact of my judgment in terms of the division of the relationship property. It was always anticipated the parties would provide an update. Those paragraphs of his affidavit are relevant insofar as a final quantification is required. It is therefore admissible.
[74] Mr Davis' evidence at paragraphs [42]-[61] appears to present a wide-ranging review of the evidence presented to the Family Court and its subsequent findings.57 It appears to be directed to the significance of my decision on the relationship property division under s 9A(2) of the PRA on the Family Court's economic disparity award under s 15. I accept this evidence is relevant to the residual economic disparity assessment I must make. Similarly, the evidence at paragraphs [62]-[77] appears relevant to the assessment of economic disparity.
[75] Dr Head's evidence refers to Mr Blake's health, as do paragraphs [4]-[6] of Mr Blake's affidavit. I consider this evidence is relevant to the broader justness component of the disparity assessment and therefore admissible.
[76] On that basis, the evidence at paragraphs [2]-[3] and [7] of Mr Blake's evidence and paragraphs [9]-[18] of Mr Davis' evidence is inadmissible. The balance of the evidence is admissible.
57 See Family Court judgment, above n 3.
APPENDIX B
[77] Pursuant to s 182 of the Family Proceedings Act 1980 I make the following orders, on the terms sought by the parties:
(a)The terms of the B Blake Trust are amended as follows:
(i)The current clause 1(e)(ii) is deleted and replaced with "Bartley Blake".
(ii)The current clause 6 is deleted and replaced with:
6. THE statutory power of appointment of new Trustees hereof shall be vested in the Settlor during his lifetime and, after his death in the administrator or the executors or trustees for the time being of his estate and if at any time after his death and the winding up of his estate there shall be no such administrator, executor or trustee able or willing to act then in the person or persons in whom the said statutory power is vested by the Trustee Act 1956 or any statutory modification thereof for the time being enforced.
(iii)The current clause 13 is deleted and replaced with:
13A. SUBJECT to clause 13B and notwithstanding anything contained or implied in this deed, no Trustee who is also a beneficiary shall exercise any power or discretion vested in the Trustees in his or her or its favour.
13B. ANY power or discretion vested in the Trustees may be exercised in favour of a Trustee who is a Beneficiary by the other Trustee or Trustees.
(b)The terms of the M Blake Trust are amended as follows:
(i)The current clause 1(e)(ii) is deleted and replaced with "Maysie Blake".
(ii)The current clause 6 is deleted and replaced with:
6.THE statutory power of appointment of new Trustees hereof shall be vested in the Settlor during her lifetime and, after her death, in the administrator or the executors or trustees for the time being of her estate and if at any time after her death and the winding up of her estate there shall be no such administrator, executor or trustee able or willing to act then in the person or persons in whom the said statutory power is vested by the Trustee Act 1956 or any statutory modification thereof for the time being enforced.
(iii)The current clause 13 is deleted and replaced with:
13A. SUBJECT to clause 13B and notwithstanding anything contained or implied in this deed, no Trustee who is also a beneficiary shall exercise any power or discretion vested in the Trustees in his or her or its favour.
13B. ANY power or discretion vested in the Trustees may be exercised in favour of a Trustee who is a Beneficiary by the other Trustee or Trustees.
(c)The historic property in the South Island at [redacted] and more particularly described as [redacted], is to be sold and the net proceeds divided equally between the Trustees of the B Blake Trust and the trustees of the M Blake Trust.
(d)The following property is to be vested in the Trustees of the B Blake Trust:
(i)"Gulf Island" [redacted]; and
(ii)"Renovated historic property in South Island" [redacted]
(e)The family home comprised in [redacted] and more particularly described as [redacted], is vested in the Trustees of the M Blake Trust, namely, Maysie Blake and Alice Blake, subject to the following conditions:
(i)that if the trustees of the M Blake Trust decide at any time in future to sell the family home, then the trustees of the B Blake Trust, namely, Bartley Blake, Ward Aspdin and Beverley Monier, shall have first option to purchase the family home at market price, such price to be fixed by a valuer appointed by the parties, and failing agreement of the parties, by a valuer independently appointed by two valuers, one valuer appointed by each of the Trusts or failing agreement by the two valuers, by the President for the time being of the New Zealand Institute of Valuers;
(ii)the price nominated by the appointed valuer shall be the "market price" (inclusive of GST), and the sum payable by the trustees of the B Blake Trust to M Blake Trust in exercising this option;
(iii)to better give effect to the terms of the option, the trustees of the M Blake Trust, in the event they intend to sell the family home are to provide 15 working days written notice to the trustees of the B Blake Trust of their intention to sell the family home (the sale notice);
(iv)on receipt of the sale notice, the trustees of the B Blake Trust have the right to exercise this option to purchase the family home by notifying the trustees of the M Blake Trust in writing within 15 working days of receipt of the sale notice (the purchase notice);
(v)on receipt of the purchase notice from the B Blake Trust, the trustees of the M Blake Trust and the B Blake Trust are to agree to a nominated valuer to fix market price but in the event that agreement cannot be reached as to the appointment of the valuer, then the trustees of the M Blake Trust and B Blake Trust will each appoint one valuer to independently appoint the valuer and failing agreement shall notify the President of the Institute of Valuers, requesting that a valuer be appointed by him or her to carry out a valuation at their joint expense to fix the market price in accordance with (ii) above;
(vi)on completion and receipt of the valuation, the B Blake Trust will, within five working days either elect to proceed or withdraw from the exercise of the option (notice to proceed);
(vii)in the event the B Blake Trust elects to proceed the notice to proceed shall include an agreement for sale and purchase in the then most recent form approved by the Real Estate Institute of New Zealand and by the Auckland District Law Society, the terms of which shall be modified as follows:
(A)The B Blake Trust will not be required to complete the purchase earlier than 21 working days from the date of service of the notice to proceed (settlement);
(B)The purchase price shall be in accordance with the valuation and subject to adjustments for rates and any other charges payable in respect of the family home;
(viii)prior to settlement, the trustees of the M Blake Trust will be required to repay and discharge:
(A)any mortgage registered against the title; and
(B)any security interests registered pursuant to the Personal Property Securities Act 1999 on any chattels passing with the sale;
(C)so that the sale and purchase may proceed on the normal terms of a conveyancing transaction, each party bearing their own costs;
(ix)in the event that the purchase price is not paid in full on the settlement date, the trustees of the M Blake Trust will, in addition to any other remedies be entitled to interest payable at the rate of 7.5 per cent from the settlement date until settlement is completed and/or cancellation, whichever is the later of the two.
(x)This first option to purchase will only operate whilst Mr Blake is alive and will expire on his death.
(f)The Trustees of the M Blake Trust are to pay an adjustment sum to the Trustees of the B Blake Trust to equalise the division between the Trusts of $1,168,750.
(g)Cash in bank accounts held by the B Blake Trust & M Blake Trust Partnership (Trust Partnership) is to be transferred equally to the Trustees of the M Blake Trust and the Trustees of the B Blake Trust.
(h)In their capacity as Trustees the parties are to dissolve the Trust Partnership.
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