[Blake] v [Blake]
[2021] NZHC 756
•12 April 2021
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2020-463-18
[2021] NZHC 756
BETWEEN BARTLEY BLAKE
Appellant
AND
MAYSIE BLAKE
First Respondent
HMR LIMITED
Second Respondent
Hearing: 9-11 November 2020 Counsel:
S Jefferson QC, K Lellman and L Gamble for Appellant
D Chambers QC, I Hikaka and E Armstrong for Respondent
Interim Judgment:
12 April 2021
ANONYMISED JUDGMENT OF WHATA J
This judgment was delivered by me on 12 April 2021 at 5.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Hollister-Jones Lellman, Tauranga
LeeSalmonLong, Auckland
BLAKE v BLAKE [2021] NZHC 756 [12 April 2021]
TABLE OF CONTENTS
Introduction............................................................................................................... [1]
Background............................................................................................................... [4]
Judgment of the Family Court................................................................................. [12]
The effect of the Matrimonial Property Agreements........................................... [13]
The family home and other properties................................................................. [16]
HML valuation..................................................................................................... [18]
Percentage of shareholding and the effect of the shareholders agreement [22]
FME..................................................................................................................... [23]
Multiple................................................................................................................ [25]
Section 9A........................................................................................................... [30]
Section 9A(1) – direct contribution to HML....................................................... [31]
Section 9A(2) – indirect contribution to HML.................................................... [32]
Section 44 – disposition of property.................................................................... [36]
The SCL share sales............................................................................................. [37]
Other assets.......................................................................................................... [40]
Section 15 – economic disparity.......................................................................... [41]
Post-separation contributions.............................................................................. [46]
Section 18C......................................................................................................... [48]
Summary of key findings and orders................................................................... [49]
Restaurant venue.................................................................................................. [50]
Issues on appeal....................................................................................................... [51]
The guiding principles............................................................................................. [52]
The thresholds on appeal......................................................................................... [55]
The numbers............................................................................................................ [58]
The HML valuation................................................................................................. [59]
Common ground.................................................................................................. [61]
Argument............................................................................................................. [62]
The expert positions............................................................................................. [65]
Shareholding........................................................................................................ [79]
FME insurance..................................................................................................... [87]
FME multiplier..................................................................................................... [94]
Value of SCL at date of marriage....................................................................... [102]
Section 9A............................................................................................................. [106]
Section 9A(1)..................................................................................................... [108]
The argument..................................................................................................... [108]
The law.............................................................................................................. [110]
Assessment......................................................................................................... [114]
Section 9A(2) and relative contributions........................................................... [123]
Argument........................................................................................................... [124]
The law.............................................................................................................. [125]
Assessment........................................................................................................ [128]
Sections 44 and 18C.............................................................................................. [136]
The SCL shares.................................................................................................. [139]
The painting....................................................................................................... [148]
Post-separation contributions – s 18B................................................................... [150]
Billy-Jo............................................................................................................... [152]
Restaurant venue................................................................................................ [154]
The family home.................................................................................................... [155]
Restaurant venue.................................................................................................... [159]
Assessment........................................................................................................ [162]
Interest claim.......................................................................................................... [166]
Assessment........................................................................................................ [167]
Section 15 disparity............................................................................................... [168]
Argument........................................................................................................... [170]
Assessment........................................................................................................ [171]
Outcome................................................................................................................ [177]
Direction................................................................................................................ [178]
Costs...................................................................................................................... [180]
Suppression............................................................................................................ [181]
Appendix A............................................................................................................ [183]
Issues on Mr Blake’s appeal.............................................................................. [183]
Issues on Mrs Blake’s appeal............................................................................. [184]
Appendix B ....................................................................................................................
Introduction
[1] This is a large, complex, multi-headed relationship property appeal relating to property valued at between $110 m and $130 m. The issues are identified at [51]. Very few large stones have been left unturned. But, at its core, the appeal is about the just division of relationship property accumulated over thirty years of an essentially traditional marriage. It engages complex valuation evidence and the equally complex application of the principles from leading case law, including Rose v Rose, Clayton v Clayton and Scott v Williams.1 In the result, however, most of the key findings and related orders of the Family Court are, subject to relatively minor refinements and adjustments, supported by this Court. A summary of these outcomes can be found at [177].
[2] The primary difference between the findings of this Court and the Family Court relates to the percentage share of relationship property pursuant to s 9A(2) of the Property (Relationships) Act 1976 (PRA). The Family Court preferred a 60 / 40 split whereas I prefer a 50 / 50 split, less a sum to account for separate property at the commencement of the marriage. The reasons for that difference are explained at [124]-[135], but in short, I consider the contribution by the two spouses to the increase of the value of the relationship property assets to be equal. I also take a different view of the s 15 disparity assessment, which cannot be resolved without further input from the parties.
[3] This judgment is framed by reference to the main issues on appeal. Given the number and complexity of those issues, a detailed summary of the Family Court judgment as well as the expert evidence is provided. This provides important context to the analysis that follows.
Background
[4] Mr and Mrs Blake commenced a relationship in 1979.2 After about eight months they separated. Mrs Blake then worked in the hospitality sector while Mr
1 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1 [Rose]; Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551 [Clayton]; and Scott v Williams [2018] NZSC 37, [2018] 1 NZLR 633 [Scott].
2 The parties’ names and any features identifying them have been anonymised in this judgment, as proposed by counsel and approved by the Court. I thank counsel for their assistance.
Blake set up a civil engineering business, incorporating two companies, SC Pacific Limited in 1981 and SC Limited (SCL) in 1985. The Pacific company was an asset owning company, while SCL was the New Zealand trading entity. As the names of the companies suggest, Mr Blake had secured project work in the Pacific and New Zealand.
[5] In early 1986, Mr and Mrs Blake reconnected and were married on 5 July 1986. Shortly before their marriage, they signed a Matrimonial Property Agreement (the 1986 Agreement), the effect of which was to specify that the shares in the two companies were the separate property of Mr Blake. In February 1987, the name of the Pacific company was changed to HMR Limited (HML). A third company, SC Pacific Limited (SCPL), was incorporated on 13 March 1987.
[6] Mr and Mrs Blake moved into their first home in a lifestyle residential area in 1986. The first of their four children, John, was born in August 1987; Alice in November 1988; Billy-Jo in May 1990; and Ned in November 1991. About this time, HML purchased another property in the area which would become the family home and the B Blake Trust and M Blake Trust (the Trusts) were settled. That property was subdivided with 146 hectares sold to the Trusts as tenants in common on 1 March 1993. The home built on the property remains the family home. The balance of the property was sold to a third party. A second Matrimonial Property Agreement, confirming the first, was also executed in March 1993 (the 1993 Agreement).
[7] In the years that followed, Mr Blake devoted himself to HML and SCL while Mrs Blake assumed the role as the primary caregiver of their four children. HML and SCL proved to be very successful, enabling the family to enjoy a comfortable life while also building a substantial cash reserve. In addition, with the support of HML, Mrs Blake established a hospitality business in November 1999, EBR Limited (EBRL). She was not, however, able to devote herself to it full-time given family commitments, including a three-month stay in overseas in 2000 where Mr Blake was working. EBRL presently has operations at a central North Island tourism and restaurant venue, which opened in September 2016.
[8] In 2010, John raised the possibility of purchasing shares in SCL. This was not supported by Mrs Blake at the time and it was an ongoing source of tension between Mr and Mrs Blake. This issue came to a head at a family meeting in December 2013. The family was divided. John and Mr Blake supported a sale. Mrs Blake, Alice, Ned and Billy-Jo did not. Despite this opposition, HML entered into a sale and purchase agreement of shares in SCL with John through the John Blake Trust (JBT) on 31 March 2016 (the SHA).
[9] Mr and Mrs Blake separated on 6 July 2016. By this time, HML and the Trusts had amassed a significant asset base with an estimated worth of between $110 m and
$130 m, including the family home; an apartment overseas (Overseas property (No 1)); a house overseas (Overseas property (No 2)); other residential properties; a commercial site (where the restaurant venue is located) leased to EBRL; and an art collection. The most significant income-generating assets were the companies owned by HML, including SCL, DRP Limited (DRPL) and RAH Limited (RAHL). However, the profits from EBRL and an associated venture, VH Limited, had been modest to negligible.
[10] It is now common ground that the increase in the value of HML (and its subsidiaries) since the marriage is relationship property.3 The valuation of HML remains one of the primary issues in dispute. Complicating this valuation, 10.3 per cent of HML's shares in SCL have been sold to JBT pursuant to the SHA, of which
8.4 per cent were sold prior to 31 March 2018, being the agreed valuation date. The effect of that sale on relationship property value is a matter to be resolved in these proceedings.
[11] In early September 2016, Mr Blake was diagnosed with a terminal disease. He travelled overseas for treatment with Mrs Blake and Billy-Jo and spent about ten months there. During this time, John assumed primary responsibility for the management of SCL. By the time of the hearing in April 2019, Mr Blake was disease free and reengaged with HML and SCL.
3 Mr Blake claimed before the Family Court that HML was separate property due to the MPAs. That claim was rejected by the Family Court: [Blake] v [Blake] [2020] NZFC 212 [Family Court judgment] at [25]–[36].
Judgment of the Family Court
[12] The central issue before the Family Court, and now this Court, is the division of the relationship property between Mr and Mrs Blake. The following is a summary of the key findings of the unredacted judgment of the Family Court dated 16 January 2020.4 While many matters remain in issue, this judgment provides a helpful narrative of the key background, much of which is not disputed.
The effect of the Matrimonial Property Agreements
[13] The 1986 Agreement and the 1993 Agreement (the MPAs) record the agreement of the parties that properties identified in schedules to the agreement would remain separate property. SCL and HML are identified as the separate property of Mr Blake. The issue before the Family Court was whether the MPAs should be set aside for unreasonableness.
[14] The Judge found that given there is no specific provision in the Agreement making property of the type defined in s 9(3) of the Matrimonial Property Act 1976 dealing with increase in value, the operative part of the 1986 Agreement did not exclude the creation of relationship property through an increase in the value of separate property brought about by the actions of the other spouse or the application of relationship property.5 Given this, the challenge to the reasonableness of the MPAs fell away.
[15] The judgment on this issue is also relevant to the finding that Mr Blake's conduct after signing the 1986 Agreement was consistent with his view of the MPAs; namely, that no relationship property would be created except by design.6
The family home and other properties
[16] The key issues before the Family Court were whether Mrs Blake should compensate Mr Blake for her occupation of the family home after separation, and if so, who should retain it. On the first issue, the Judge found that Mrs Blake should pay
4 Family Court judgment, above n 3.
5 At [32].
6 At [36].
rental of $76,613 (less a deduction for rates paid). On the second issue the Judge concluded that the family home should vest in the M Blake Trust pursuant to s 182 of the Family Proceedings Act 1980. She noted that retention for future generations, the interest of the children and the wider benefit to the family were important considerations.7 The Judge concluded:
[323] Despite the deeply held attachment of both Mr and Mrs [Blake] to [the family home], the combination of the children's views and Mr [Blake's] attitude towards sale warrant the making of an order vesting [the family home] in the [M Blake Trust]. That vesting order is subject to a condition that if [the family home] is placed on the market for sale in the future, that Mr [Blake's] trust should have first option to purchase at market value.
[17] The Judge also directed M Blake Trust to pay an adjustment sum to the B Blake Trust to equalise the division between the Trusts of $1,168,750.
HML valuation
[18] In the Family Court, the most significant difference between the three expert valuers relates to the valuation of the subsidiary company, SCL. There was also disagreement (now resolved) about the value of:8
(a)SCPL, DRPL and RAHL.
(b)The airport hangar.
(c)The restaurant premises.
(d)The quarry property leased by RAHL.
[19] SCL operates a manufacturing and construction business with an equipment hire division. It owns various real estate across the North and South Island, including manufacturing plants and yards in four cities. Real property and buildings are owned
7 At [319].
8 At [61]–[62]. The Family Court judgment also records agreement about the value of artwork and the division of that work between Mr and Mrs Blake—proceeds of sale $857,00 to be divided equally, $37,000 worth to Mrs Blake, $1,459,150 to Mr Blake. The judgment also attributes a value of $35,000 to a boat: at [42].
by HML and leased to SCL. Between 1 April 2016 to 15 January 2018, 9.4 per cent9 of the shares in SCL were sold to the John Blake Trust (JBT) for $684,000 pursuant to the SHA.
[20] A valuation of SCL was undertaken by KGA Limited on 26 March 2014, as at 31 March 2013. This valuation was updated by Mr Wade Glass for these proceedings. Mr Graham and Mr Davis also gave expert evidence about the value of the SCL shares. Messrs Graham and Davis undertook a fair market valuation of the shares in SCL by adopting the capitalisation of earnings method to obtain value. In applying that method, the valuers each assessed the future maintainable earnings (FME) of the company and capitalised those earnings by applying an earnings multiple. They agreed on a valuation date of 31 March 2018 and that the component assets that cumulatively give value to HML should not be separated out and valued as disparate items.
[21]The issues to be resolved were:
(a)The percentage of SCL shares that should be valued to determine the value of HML's shareholding. Either:
(i)the current shareholding of 89.7 per cent;
(ii)the shareholding at 31 March 2018 of 91.6 per cent;
(iii)the date of separation shareholding at 97 per cent; or
(iv)100 per cent of the shares.
(b)The relevance of the shareholders' agreement between HML and JBT and, in particular, whether the formula which fixes the sale price of shares of HML to JBT is determinative of the valuation of the shares.
(c)The assessment of FME for SCL.
9 This was in error. The percentage of shares sold was 8.4 per cent.
(d)The earnings multiple to be applied, in particular:
(i)the appropriate method;
(ii)the weight to be given to relevant factors such as liquidity, key person risk, company size and asset ownership; and
(iii)the impact of the economic outlook.
Percentage of shareholding and the effect of the shareholders agreement
[22] On the first issue, Mr Graham assumed 100 per cent ownership. Mr Davis assumed 91.6 per cent ownership. The Judge found that HML should be treated as having 100 per cent of the shareholding because cl 6 of the SHA empowers HML to acquire JBT's shares at a fixed price in the event of John Blake's death or departure from the company. Judge Wills concluded that the effect of this is that HML may buy back these shares from John Blake at any time according to that fixed formula and thus HML should be treated as having 100 per cent shareholding of SCL. The Judge also found that an adjustment is required for the buy-back price and for the dividends paid to JBT.10 It appears that no adjustment was made. I return to the significance of the SHA and its terms below.
FME
[23] The outcome of the respective FME assessments of Mr Graham and Mr Davis were:11
10 At [82].
11 At [85].
[SC Limited]: Assessment of FME All amounts in $000 Davis 7,845
7
(1,041)
(159)
(1,270)
(271)
(250)
(45)
Graham 7,845
7
(1,041)
(159)
(1,270)
-
(219)
(45)
FME (EBIT) b/f rental charges, insurance and GM/director
remuneration Unrealized exchange gains / losses Premises rent Tenant outgoings (rates and insurances) Plant lease charge (per [HML]) Plant insurance General manager remuneration Director remuneration FME (EBIT) - based on leased plant 4,815 5,117
[24] Mr Davis included the plant insurance of $271,000 as a cost to be deducted from the FME. Mr Graham assumed that a potential purchaser might note that self- insurance had been a successful approach. Although the Judge found that the evidence is scant in relation to the insurance needs of the company, Mr Davis' approach was preferred.12 The Judge said this was simply a matter of judgment about the approach that a prudent investor would take and, on balance, a prudent purchaser of SCL is more likely to insure than not.13 The general manager's remuneration at $250,000 (being Mr Davis' approach) was also preferred.14 The FME figure adopted by the Judge was therefore $4,815,000.15
Multiple
[25] The respective expert methods for arriving at a FME multiple is addressed in detail. For present purposes, it is sufficient to note the Judge observed that Mr Graham
12 At [89].
13 At [89]–[92]. The Judge acknowledges that Mr Blake’s evidence was that the decision to self- insure has been financially advantageous to the business and there has been minimal cost to SCL as a result of any damage to the plant and that the total cost during the period between 2012–2018 was about $10,000.
14 At [95].
15 At [96].
arrived at a multiple in the range of 6-8, and settled on a midpoint of 7, and Mr Davis arrived at a multiple in the range of 4.3-5.2.16
[26] The Judge observed that the primary difference between the valuers was their assessment of the specific company risk. It is evident that the Judge preferred Mr Davis' opinion on this issue. Mr Davis had placed particular emphasis on the following factors:
(a)the relevance of the size of the company;
(b)the extent to which the company is affected by key person risk;
(c)the economic outlook for the construction industry; and
(d)the impact of asset ownership on an investor's required rate of return.
The Judge found that Mr Blake is key to the success of SCL17 and that key person risk is a factor that must be reflected in the multiple, particularly given the relatively small size of SCL.18 Economic growth at about 2 per cent and unresolved issues about the impact of key person risk, together with a reduction in forward work, is said to raise concerns about the future profitability of SCL. The Judge then concluded:
[135] The key person risk and the concern about forward work weighs more heavily in favour of a reduced multiple and accordingly the multiple is fixed at 5.5.
[27] The Judge also referred to the midpoints in the assessments of Messrs Graham and Davis, namely 7 and 4.75, but rejected a midpoint between them, noting that various assumptions and criticisms had to be balanced and considered. The Judge again placed particular emphasis on SCL's small size and exposure to key person risk and the volatility of the industry.19
16 This appears to have been a transcription error, as Mr Davis’ range was 4.2–5.3.
17 Recent success of SCL after Mr Blake stepped down to convalesce was noted by Mr Graham as a reason to place less emphasis on key person risk. But, the Judge appeared to accept Mr Blake’s explanation that there was a large forward book of work at the time: at [128]–[131].
18 At [132].
19 At [137].
[28] In the result, the Judge fixed the FME at $4.815 m and the multiple at 5.5.20 The effect of this was that the value of SCL was fixed at $26,482,500 for 100 per cent of the shareholding.21
[29] As noted, the values of SCPL, DRPL and RAHL are no longer disputed. It is necessary only to record the Judge's primary findings, namely that SCPL is valued at
$205,491 based on expert evidence of Messrs Eggelton (an engineer and valuer) and Graham. DRP Limited is valued at $2,719,333 being the average of the experts' midpoint values and RAHL is valued at $430,000, because of uncertainty around obtaining a long-term lease.22 Similarly, there is no longer any dispute in relation to key assets, including the airport hangar ($340,000 plus GST), the restaurant venue premises ($1,750,000) and the quarry property ($395,000).23
Section 9A
[30] In the Family Court, and in this Court, Mrs Blake claims she is entitled to 50 per cent of the increase in value of the separate property pursuant to ss 9A(1) or (2) of the PRA.
Section 9A(1) - direct contribution to HML
[31] The Judge noted that to succeed in a s 9A(1) claim, Mrs Blake must show that the increase in value or any income or gains derived from the separate property was attributable wholly or in part to the application of relationship property.24 Mrs Blake bases her claim under this heading on work she undertook for SCL, Mr Blake's salary sacrifice and advances made by Mr Blake to HML in 1991. The Judge rejected each of these grounds. The Judge found Mrs Blake's contribution to SCL to be "trivial or minimal category".25 Mr Blake is recorded as having accepted he was underpaid at
$60,000 per annum, but the Judge concluded the evidence does not demonstrate that
20 At [139].
21 At [139].
22 At [156] and [163].
23 At [174], [175] and [179].
24 At [184].
25 At [190].
this salary sacrifice caused an increase in the value of the HML shares.26 The Judge also found that advances to HML in 1991 did not add to the value of the company shareholding noting, among other things, that lending to HML coincided with the purchase of the lifestyle property.27
Section 9A(2) - indirect contribution to HML
[32] Mrs Blake also claimed that the increase in the HML shareholding value was just as much attributable to her as Mr Blake. The judgment records Mr Blake's concession that Mrs Blake's contribution as a wife and mother had a bearing on the value of HML.28 The key issue for the Court was the extent of that contribution. On this, the Court found that:
[214] In cross-examination, Mr [Blake] when asked what share in the business he would be happy to share with Mrs [Blake] accepted that there should be equal sharing of the increase in value from 1986 to 2000. He resiled from that somewhat a little later in his evidence when he took the strong view that from 1999, when Mrs [Blake] established [EBRL], her attention to those traditional roles of wife and mother was diverted. That was on the basis that after that time, Mrs [Blake] was actively engaged in her own business. Despite that, the evidence given by Mr and Mrs [Blake], and the children, does make it clear that regardless of the operation of her business, Mrs [Blake] maintained throughout the relationship, the greater responsibility of the management of the home, caring of the four children at home and at school, engaging in community activities and more lately, supporting the children and grandchild.
[33]And further:
[220] All of Mrs [Blake's] actions have indirectly contributed to the increase in the value of [HML] by enabling Mr [Blake] to devote his time to the business and its development over the whole period of the marriage. [HML] has grown over a long period of time and the actions of Mrs [Blake] have contributed significantly to that growth. ….
[34] Balanced against this, the Family Court acknowledges Mr Blake's pre- marriage contribution and the contribution made by his unique business skill to the value of HML and its subsidiaries.29 In terms of the pre-marriage contribution, the
26 At [195]. The Judge noted that Mr Blake has used money (for example dividends) that would have been available to HML for the benefit of the relationship: at [195].
27 At [200]–[201].
28 At [203].
29 At [225].
Judge noted that the value of the companies in 1986 was $1,002,000 for HML and
$333,000 for SCL. Adjusted for inflation, the Court estimated the direct value of the separate property at $6,835,197, which is approximately six per cent of the increase in value.30
[35]The Judge then concluded:
[225] … Looking at this issue in the round and considering the purchases of land and buildings, the acquisition of assets which are primarily for family use, together with inflationary increase and Mr [Blake's] skills and attributes acquired before marriage, the respective contribution to the increase in value of [HML] are fixed at 60 per cent for Mr [Blake] and 40 per cent for Mrs [Blake].
Section 44 - disposition of property
[36] Mrs Blake claims that Mr Blake disposed of shares in SCL and made purchases which had the effect of diminishing the value of relationship property in breach of s 44 of the PRA. The applicable threshold tests are addressed below at [55]. It is sufficient to note that any disposition of property with the intention to defeat a relationship property claim not in good faith or for valuable or adequate consideration may give rise to relief, including return of the property or compensation.
The SCL share sales
[37] HML and John entered into the SHA on 14 April 2016, with effect from 31 March 2016. Since then a total of 206 shares (10.3 per cent) of the shares have been transferred pursuant to the SHA. Mrs Blake complains that those transfers were made knowing she objected to them and that the difficulties in their marriage in about 2013 was the catalyst for the sale.31 The Judge did not accept this claim. She found that the intention of both Mr Blake and John Blake was to ensure that John was able to obtain an equity stake in the business creating an incentive to work hard and stay involved in SCL.32 Nevertheless, the Judge said if they knew or should have known that the arrangement to sell the shares would defeat Mrs Blake's interest in the relationship
30 At [225].
31 At [240].
32 At [240].
property, s 44 necessarily applied. 33 However, the Judge noted that HML's shareholding in SCL was assessed at 100 per cent, so Mrs Blake's relationship property claim was not defeated.34
[38] The Judge also examined whether s 44 would have been engaged had the decision to value 100 per cent of SCL shares not been made. This issue was resolved by examining the value of the detriment measured by calculating 9.4 per cent of the fair market value of the SCL shares less the price paid by JBT for those shares. Having found that the shares were worth $26,302,500, the 9.4 per cent was valued at
$2,472,435. The Judge found that, as JBT paid only $648,000, the value of HML's shareholding was reduced by $1,788,435.35 The Court was therefore satisfied that the disposition would defeat Mrs Blake's relationship property interests unless there remained sufficient value in the relationship property asset to satisfy her claim. However, the Judge also found that there was sufficient value in the relationship property to satisfy her relationship property claim.36
[39] The Judge also examined whether, if Mrs Blake's interest was defeated, the shares should be transferred back pursuant to s 44(2)(a) of the PRA or, alternatively, there should be a payment of money pursuant to s 44(2)(b). Subsection (2)(a) empowers return in the absence of "good faith and payment of valuable consideration". Subsection 2(b) empowers money payment unless it is proven that John acted in good faith and paid adequate consideration. The Family Court Judge found that John did not know his mother's relationship property claim would be defeated and that valuable and adequate consideration was paid for the shares, noting that an independent valuation was obtained and a formula included for revaluation.37 On that basis the Judge concluded that the criteria in s 44(2)(a) and (b) in respect of John are not met and that the SHA was not an attempt to defeat Mrs Blake's interest or claim in relationship property. 38
33 At [241], citing Regal Castings Ltd v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433; Ryan v Unkovich [2010] NZHC 434, K v V [2012] NZHC 1129 and Horsfall v Potter [2017] NZSC 196, [2018] 1 NZLR 638.
34 At [243].
35 The percentage of share difference is 8.4 per cent and JBT in fact paid $833,270 for the shares.
36 At [249].
37 At [257].
38 At [258].
Other assets
[40] The Court also dismissed the s 44 claims in respect of Overseas property (No 1); Overseas property (No 2); two aeroplanes; a painting (the painting), and an associated photograph; all paid for by HML. The Court found that as the value of the properties is included in the value of the HML shares, there is no basis for a claim under s 44.39
Section 15 - economic disparity
[41] Mrs Blake sought, and still seeks on appeal, an adjustment from the relationship property to reflect Mr Blake's higher income and living standards at the date of separation. In support of this claim, Mr Graham provided evidence as to alternative compensation that might be payable depending on specified assumptions about Mr Blake's likely future earnings.40
[42]The Judge identified three requirements that must be met:41
(a)there must be significant disparity;
(b)the disparity must be as a result of the effects of the division of functions within the marriage; and
(c)it must be just to make an award of compensation.
[43] Applying Scott v Williams, the date of separation was identified as the time at which the assessment should be made.42 The Judge also said that the assessment should take place in light of the division of the relationship property, because that may have an impact on the income the parties are able to obtain from the separation.43 That was particularly important in this case because Mr and Mrs Blake "effectively lived on the income derived from capital throughout their marriage",44 and if the HML
39 At [265].
40 At [266].
41 At [270].
42 Scott v Williams, above n 1.
43 At [274].
44 At [275].
shares are divided equally among them, they "would have the same access to dividends".45 This is said to distinguish the present facts from the position in Scott v Williams. The Judge also found that Mrs Blake's future income is unknown and the evidence is speculative. She concluded that the best that can be done is to "recognise that the disparity is significant".46
[44] As to causation, the Judge found the deliberate choice for at least the first fifteen years of the marriage was that Mr Blake would be the breadwinner and that while in the second half of the marriage Mrs Blake has been able to establish and grow a business, it needs more time to build. Most relevantly, the Judge concluded that:
[289] It is the existence of separate property and the funds generated from it that is the root cause of the disparity. Mr [Blake] has and will continue to have, access to funds and assets within that separate property company structure through his shareholding in [HML] and role as company director. Without the existence of the separate property, the disparity would be significantly reduced but would still exist because of the impact on Mrs [Blake's] earning ability arising from her adoption of a primary role as home maker and mother throughout the marriage, and more particularly in the first 15 years.
[45] On the justness issue, the Judge adjusted the income figure for Mr Blake to reflect the consequential reduction in funds generated from HML as a result of Mrs Blake's receipt of her relationship property interest. The Judge also considered Mr Blake's health (who was diagnosed with a terminal disease shortly after separation) to be of real significance. At the time of the judgment he was disease-free, but the risk he will not remain free of it appeared significant to the Judge.47 On that basis the Judge concluded that the compensation for economic disparity should be for limited duration: until Mr Blake turns 60. The per annum income figure was also assessed at
$572,000. Mrs Blake's income is that assessed by Mr Graham. The Judge then directed that the extent of economic disparity which would be just can be determined using the formula adopted by Mr Graham and which was endorsed by Arnold J in Scott v Williams.48
45 At [279].
46 At [281].
47 At [294].
48 At [296].
Post-separation contributions
[46] Three areas were identified as requiring assessment in terms of post-separation contributions:
(a)the cost of Billy-Jo's care;
(b)interim distributions to Mrs Blake; and
(c)professional costs payments (not addressed).
[47] The Court observed that agreement had been reached in relation to Billy-Jo's care-that is, each would meet half of her usual costs of $135,000 per year. The Court also records that Mrs Blake accepts she received $2,635,000 by way of interim distributions from Mr Blake, though she says that $400,000 has been put back in via application of funds to the restaurant venue fitout, which had to be completed shortly after the separation.49 Judge Wills accepted that while the shares in EBRL, which runs the restaurant venue, have been assessed at no value, $300,000 paid for fitout was to the benefit of both Mr and Mrs Blake and should be deducted from the interim distributions.50
Section 18C
[48] In the alternative to her s 44 claim, Mrs Blake claims Mr Blake should pay her compensation for loss resulting from the sale of shares to JBT under s 18C of the PRA. The Judge accepted that Mr Blake's actions in transferring the shares diminished the value of HML's shares. But no adjustment was required, however, as this aspect had been dealt with when determining the parties' respective contributions to the increase in value of HML.51
49 At [300].
50 At [301].
51 At [310].
Summary of key findings and orders
[49] The Family Court provided a summary of its findings and related orders. For the purpose of the appeals, the following findings are key:52
(a)The value of assets in HML are:
(i)SCL:
1. Future Maintainable Earnings: $4,815,000.
2. Earnings multiple: 5.5.
3. As at 31 March 2018 enterprise value is $26,482,500.
(ii)DRP Limited: $2,719,333.
(iii)RAH Limited: $430,000.
(iv)Airport hangar: $340,000.
(v)Restaurant premises: $1,750,000.
(vi)Quarry property: $395,000.
(b)The increase in the value of HML is:
(i)The value at 31 March 1986 of HML shares is $1,002,000 and of SCL shares is $330,000.
(ii)The value at 31 March 2018 of HML shares is $115,113,076.
(iii)The increase in value of HML shares from date of marriage to 31 March 2018 is $113,780,076.
52 At [326]–[330].
(c)Section 9A(1) of the PRA does not apply.
(d)Section 9A(2) applies, and Mrs Blake's contribution is assessed at 40 per cent.
(e)A determination of the s 44 application in relation to the JBT share transfer is not necessary.
(f)An order for compensation for economic disparity caused by the division of functions is just, ceasing when Mr Blake turns 60.
Restaurant venue
[50] The Family Court did not vest the restaurant venue as property in Mrs Blake and in a separate judgment53 dealing with an application to restrain HML from disposing of the property the Court found that:
(a)Mr Blake does not have a property interest in the restaurant venue (rather, he has shares in HML which owns the property);54
(b)Mrs Blake has no claim to the property based on constructive trust or resulting trust;55 and
(c)section 33 of the PRA, which empowers the Court to vest property, is not available to vest the property in Mrs Blake.56
Issues on appeal
[51] Multiple alleged errors and issues are raised by the appeals.57 With the benefit of argument, I am able to assemble them as follows:
(a)whether the valuation of HML was wrong;
53 [Blake] v [HMR Limited] [2020] NZFC 211.
54 At [33].
55 At [38].
56 At [45].
57 Refer Appendix A.
(b)whether the Family Court was wrong to dismiss Mrs Blake's claim under s 9A(1) of the PRA;
(c)whether the Family Court was wrong to allow Mrs Blake's claim under s 9A(2) of the PRA;
(d)whether the Family Court's assessment of the relative contributions of the parties to the increase in value of HML was wrong;
(e)whether the Family Court was wrong to refuse to make orders under s 44 of the PRA;
(f)whether the Family Court's assessment of post-separation contributions was wrong;
(g)whether the Family Court's decision to vest the family home in the M Blake Family Trust was wrong;
(h)whether the Family Court's decision not to vest the restaurant venue in Mrs Blake was wrong;
(i)whether Mrs Blake should have interest in the period between the date of valuation and the date of hearing; and
(j)whether the Family Court's assessment of disparity under s 15 of the PRA was wrong.
The guiding principles
[52]Section 1M sets out the purpose of the Act. It states:
1M Purpose of this Act
The purpose of this Act is-
(a)to reform the law relating to the property of married couples and civil union couples, and of couples who live together in a de facto relationship:
(b)to recognise the equal contribution of both spouses to the marriage partnership, of civil union partners to the civil union, and of de facto partners to the de facto relationship partnership:
(c)to provide for a just division of the relationship property between the spouses or partners when their relationship ends by separation or death, and in certain other circumstances, while taking account of the interests of any children of the marriage or children of the civil union or children of the de facto relationship.
[53]Section 1N provides the PRA's principles. That section states:
1N Principles
The following principles are to guide the achievement of the purpose of this Act:
(a)the principle that men and women have equal status, and their equality should be maintained and enhanced:
(b)the principle that all forms of contribution to the marriage partnership, civil union, or the de facto relationship partnership, are treated as equal:
(c)the principle that a just division of relationship property has regard to the economic advantages or disadvantages to the spouses or partners arising from their marriage, civil union, or de facto relationship or from the ending of their marriage, civil union, or de facto relationship:
(d)the principle that questions arising under this Act about relationship property should be resolved as inexpensively, simply, and speedily as is consistent with justice.
[54] While the purposes and principles are clearly stated, their application has proven to be complex and at times controversial. The recent judgments of the Supreme Court in Scott v Williams exemplify that complexity.58 For my part, save where expressly excluded, the organising principle of the PRA is equal sharing, as the authors of Fisher on Matrimonial Property put it:59
The sharing regime rests on the assumption that in general there should be equal division of commonly owned or used property and such property as may be regarded as the product of the marriage, civil union or relationship, subject to powers under which the Court can make adjustments for economic disparities.
58 Scott v Williams, above n 1. See, for example, criticism of the decision in Nikki Chamberlain “The Future of Economic Disparity Redress in New Zealand” (2018) 28 NZULJ 293.
59 R L Fisher (ed) Fisher on Matrimonial Property and Relationship Property (online ed, LexisNexis) at [1.3].
The thresholds on appeal
[55] Both parties favoured the approach laid out by Heath J in B v F (which I adopt) as follows:60
(a)First, I must take account of the advantage that [the Judge] had of hearing and seeing the witness give evidence before him: See Austin Nichols at para [13];
(b)Secondly, to the extent that the Judge exercised any discretion in reaching his decision, I must determine whether those discretionary decisions were or were not open to him, based on May v May (1982) 1 NZFLR 165 (CA) and Blackstone v Blackstone [2008] NZCA 312 at para [8];
(c)Otherwise I am free to reconsider the Court's decision and to substitute my own view on questions of fact and evaluation, if I were convinced that the first instance decision was wrong.
[56] In relation to this last point, the appellant bears the onus of satisfying me that I should come to a different conclusion to the Family Court and only if I am satisfied that the decision of the Family Court was wrong will I be justified in interfering with it.
[57] I also agree with the submissions for Mr Blake that, in relation to all key matters except the issue of interest, the Family Court was engaged in an evaluation which is amenable to general appeal.
The numbers
[58] This is a matter in which calculating the value of the relationship property is so complex that the parties were unable to agree a spreadsheet to represent the various outcomes sought by them. A valiant attempt to do so was filed shortly before this judgment was issued, but even that contained caveats. As a consequence of this, this is an interim judgment anticipating that adjustments may need to be made to accurately reflect the outcomes. I have also rounded the larger sums to the nearest thousand for ease of reference. It is also worth noting that exactitude is somewhat misguided in this case, given the variation within and between expert assessments is large.
60 B v F [2010] NZFLR 67 (HC).
The HML valuation
[59] HML was the main asset of the parties during their marriage. As noted, the Judge assessed the value of this asset at $115.113 m as at 31 March 2018 and the increase in value from the date of marriage as $113.780 m. The primary remaining ground of challenge to this value relates to the 31 March 2018 valuation of SCL at
$26.483 m and a valuation of HML and SCL at the date of marriage of $1.332 m. The 31 March 2018 valuation of SCL was based on the following key findings:
(a)HML owned 100 per cent of SCL.
(b)SCL's FME is $4.815 m.
(c)The multiple applied to the FME is 5.5.
(d)The total value of the shares was $26,482,500.
[60] Each of these findings is contested on appeal, as is the Family Court's assessment of the value of SCL as at the date of marriage. The key issues are:
(a)whether HML owned 100 per cent or 91.6 per cent of the shares in SCL;
(b)whether the SHA formula should have been applied to valuing the SCL shares;
(c)whether the Judge erred by including a cost of insurance in the FME assessment for SCL (and DRPL);
(d)whether the Judge's FME multiple was wrong;
(e)whether the Judge was wrong about the value of SCL at the date of the marriage; and
(f)whether the Judge was wrong to find the value of SCL in 1986 was
$300,000.
Common ground
[61]It is common ground that:
(a)the Judge erred by adopting the enterprise value of $26,482,500 for the value of the shares instead of the equity value. The equity value on the Court's approach was $22.875 m;
(b)assuming a 100 per cent shareholding, a deduction of $833,270 should have been made to account for the amount paid to acquire the shares held by JBT (adjusted to reflect that JBT only paid that amount);
(c)applying the Family Court's approach to the valuation, the equity value of the SCL shares held by HML is $22.042 m; and
(d)a calculation correction is required so that the HML valuation is
$115.647 m.
Argument
[62]Mr Blake contends that:
(a)HML only owned 91.6 per cent of the shares in SCL, as the balance of the shares were held by JBT as at the date of separation and s 44 is not engaged;
(b)the SHA formula for valuing the SCL shares should have been applied, with the effect that the enterprise value of SCL shares would be
$21.3 m61 as at 2018-which he says is not manifestly inadequate having
regard to the Family Court's equivalent enterprise valuation of $26.5 m;
(c)the Judge erroneously applied an "enterprise value" instead of an "equity value" in settling on a FME for SCL-with the result that the
61 The SHA formula for the equity value is $16,198,426.
correct number is $22.875 m at 100 per cent and $20.952 m at 91.6 per cent;
(d)the Judge erred by not making a deduction of $684,000 for the cost of re-acquiring JBT's shareholding; and
(e)the Judge failed in the result to adjust for inflation in calculating the increase in value in HML.
[63] Mrs Blake responds that the Judge was correct to assume HML owned 100 per cent of SCL because HML could force John to return his SCL shares to HML pursuant to the SHA, which envisages a share buy-back on termination of John's employment with SCL. She says that HML would do so to secure the full value of the shares on their sale to a third party. The Family Court's conclusion that HML must be assumed to do so is said to be an orthodox application of Z v Z.62 But Mrs Blake contends that:
(a)the Judge erred in relation to s 44 in that she failed to account for the loss in share value arising from the sale of the shares to JBT;
(b)the Judge erred by including a cost of insurance in the FME assessment because SCL has never taken out insurance;
(c)the Judge's multiple of 5.5 was unexplained and Mr Graham's multiple of 7.8, based on his WACC assessment, should have been applied; and
(d)Mr Davis' assessment of the value of SCL's shares is not supported by any financial accounts and is based on Mr Blake's advice, an interested party.
[64] Both parties also claim that the Court erred in calculating the increase in value of the HML shares over the course of the marriage. I address this issue in the context of the assessment of relative contributions.
62 Z v Z [1989] 3 NZLR 413 (CA).
The expert positions
[65] Before addressing the key remaining issues in dispute about SCL's valuation, it is helpful to set out the different positions adopted by valuation experts, Messrs Graham, Davis and Glass, in more detail. Messrs Davis and Graham agreed that a net assets approach is the most appropriate valuation methodology and identified agreed values for specified assets. A summary of their respective positions as to the valuation of the Blakes' property interests is set out in Appendix B. It should be noted that Mr Davis' value of SCL in Appendix B is based on the SHA formula of $16.198 m.63
[66] By the hearing, as Appendix B shows, the main points of difference related to the value of HML's subsidiaries. On appeal to this Court, only the valuation of SCL remains in dispute, except in relation to the issue of insurance as it concerns both SCL and DRPL. I turn then to explain their respective valuation methodologies, as well as the approach taken by Mr Glass.
[67] Mr Graham adopted a capitalisation of EBIT assessment of FME or enterprise value. EBIT is earnings before interest and tax. Following the assessment of enterprise value, the value of any surplus assets is added and the value of net debt and debt equivalents (such as shareholder loans) is deducted, to derive a 100 per cent equity value for the shares. In his first affidavit, he observed the company's EBIT had been $5.815 m on average since 2012 and considered $7.53 m to be a reasonable estimate.
[68] Mr Graham capitalised expected future maintainable EBIT of SCL using earnings multiples for comparable companies (comparable trading multiples), which reflected their current enterprise value relative to their current earnings levels. He also considered earnings multiples based on recent acquisitions of comparable companies (comparable transaction multiples). He selected a multiple in the range of 6x to 8x EBIT, adopting a midpoint of 7x EBIT, noting that 8.9x EBIT is the median forecast multiple observed for comparable companies in New Zealand and Australia and that 8 is the median of all comparable transaction multiples, while 6.4x EBIT is the median transaction multiple implied by acquisitions of those enterprises which enterprise
63 This is to be compared to his fair market valuation of $17,693,578.
value below $100 m. Based on this, he initially arrived at a midpoint enterprise value of $52.71 m, and after deductions for inter-company liabilities ($964,000) and proposed dividends ($4.498 m), an equity value of $49.103 for SCL.
[69] Mr Graham subsequently revised his assessment on a mid-cycle basis and made normalisation adjustments to arrive at an EBIT of $5.117 m. He refined his selection of companies in light of concerns raised by Mr Davis-including the companies performing similar operating activities, all relevant New Zealand companies and Australian companies with an enterprise value below $150 m, half of which are smaller than $100 m in size. He noted that comparable trading multiples range between 3.6x and 13.6 EBIT, with an overall median of 7.9x EBIT. He adjusted these earnings multiples to allow for a control premium of 25 per cent, the impact of which was to increase the earnings multiples from 7.9x to 9.9x. After considering the earnings multiples which are broadly of similar size to SCL and operate in a similar industry, he considered an earnings multiple in the range of 6x to 8x EBIT for SCL remained appropriate.
[70]Based on these revisions, his valuation fell between $30.7 m (6x EBIT) and
$40.933 m (8x EBIT) and he adopted a midpoint enterprise value of $35.816 m (7x EBIT). He added net cash of $1.854 m and made deductions for inter-company liabilities ($946,338) and dividends ($4.498 m) to arrive at a total equity value between
$27.092 m and $37.325 m. His midpoint was $32.209 m which was and remains his preferred fair market (equity) value for SCL.
[71] Mr Davis also adopted a capitalisation of EBIT approach. He began his assessment of FME by normalising earnings of the business. This involved adding back to reported EBIT the remuneration historically paid to Mr Blake and to John in 2017 and 2018 and the "Hire and Lease" expense paid to HML. He also adopted a mid-cycle basis for his assessment-that is, an assessment of the maintainable earnings of the business at the middle of the economic cycle. He quantified average earnings at $7.845 m prior to normalisation. Unlike Mr Graham, Mr Davis considered it was important to speak to Mr Blake to gain an understanding of the business and the context around the reported results. He is critical of Mr Graham for not doing so. He also considers that Mr Graham's multiplier is overstated because (among other things)
it could only apply to companies that own assets, rather than lease them like SCL. 64 He explains that he made deductions for market rent, tenant outgoings, plant lease, plant insurance and executive remuneration. These are referred to above in the table at [21]. His first brief quantified the FME EBIT at $4.808 m.
[72] Mr Davis' FME multiplier is based on SCL's weighted average cost of capital and assumed long-term company earnings growth rate (WACC). As he explains, the WACC represents market-based estimates of required rate of return of equity and debt investors in an entity/asset of similar risk to the entity/asset being valued, weighted in accordance with an assumed target debt/equity structure considered appropriate for the company. His estimate of WACC was in the range of 15.6-19 per cent comprising a number of key assumptions about the cost of equity (Ke) and cost of debt. Cost of equity includes two main components to reflect risk: market risk and specific company risk premium (SCRP). This is an estimate of the additional return that equity investors would expect as a reward to bearing risks that are specific to the target company. The main variable for market risk is equity beta (Be) which is a measure of market-related risk of the asset relative to the risk of the market as a whole. He estimated "Be" by reference to the same companies relied on by Mr Graham and there is no dispute between them about this.
[73] Mr Davis' SCRP assessment reflected a number of important factors: size of the company, specific person risk associated with Mr Blake, future outlook for the building industry and demands for higher rates of return. Reliance on Mr Blake to generate forward work was identified as a particular matter of concern. His SCRP was assessed at 10 to 13 per cent. Expected earnings growth is another important variable, which he initially assessed at 1.5 per cent.
[74] Having derived his estimate of weighted average cost of capital (WACC), the EBIT multiple is derived as follows: EBIT multiple = 1 / (WACC-g)/(1-tc), where g = long term expected growth rate in earnings and tc = corporate tax rate. Given underlying assumptions about these matters, Mr Davis initially assessed the multiple at between 4.1 and 5.1, with a midpoint of 4.6. In the result, based on a FME of $4.808
64 Mr Davis noted in evidence that of the companies used by Mr Graham for comparison, the median of fixed assets to total assets was 26.3 per cent while the ratio for SCL is 0 per cent.
and earnings multiples of 4.1-5.1, his enterprise value was between $19.713 and
$24.521 m with a midpoint of $22.117 m (applying a multiple of 4.6). Assuming also that HML only held 91.6 per cent of the shares as at 31 March 2018, he assessed their midpoint enterprise value at $18.510 m and midpoint fair (equity) value at $16.946 m.65
[75] However, with the benefit of Mr Graham's second affidavit and expert caucusing, Mr Davis adjusted his FME to exclude unrealised gains and losses from the measurement of FME EBIT and adjusted his EBIT multiple to between 4.2-5.3, having accepted Mr Graham's 2.0 per cent long term growth rate. Mr Davis' assessment resulted in a midpoint enterprise value of $22.870 m and a fair (equity) value of $19.262 m at 100 per cent and $17.634 m at 91.6 per cent.
[76] As a cross-check, Mr Graham applied Mr Davis' WACC methodology. He is particularly critical of Mr Davis' SCRP assessment, noting that the most commonly applied SCRP discounts relate to size and these discounts are typically set at between 2 per cent and 3 per cent, referring to PwC literature on this and his direct experience with broadly similar size companies. He also adopted a 2 per cent growth rate. He assessed the WACC to be 11.2 per cent, which implies a multiple of earnings of 7.8x EBIT. He was therefore satisfied that his multiple range of 6x-8x and his revised FME assessment remained appropriate.
[77] Mr Glass adopted an EBITDA approach to his assessment of SCL's FME. EBITDA is earnings before interest, tax, depreciation and amortisation. Ordinarily, the multiple applied to EBITDA business will be lower. Applying a lower EBITDA multiple to SCL was not considered to be appropriate, according to Mr Graham, because this would ignore the fact that SCL leases its equipment and so has an allowance for this cost of its equipment in EBITDA. In this case, Mr Glass applied a multiplier of between 2.86 and 3.93 for SCL66 (compared with Messrs Davis' and Mr Graham's multipliers of between 4.2-5.3 (Davis) and 6-8 (Graham)). Mr Glass,
65 Mr Davis also assessed the midpoint value of SCL based on the SHA formula at $16.244 m.
66 This figure is the aggregate of the total group. Mr Glass valued each of the divisions of SCL separately. He accepted under cross examination that the pre-cast division was the strongest performing division in the previous 5 years but applied a lower multiple for it than the civil division (of 3.10–4.50).
however, also explained that his median and harmonic mean EBITDA (for comparable companies) are only marginally different from the equivalent EBIT median and mean. In the result, Mr Glass assessed the fair market value of SCL at $16,766,472 with an implied value for HML's shares as $15,349,706. He also assessed the fair market value of the shares by reference to the SHA as $13,991,007.67
[78]In summary, the experts arrived at the following valuations of SCL:
(a)Mr Graham: fair market equity value of $32.207 m (100 per cent).
(b)Mr Davis: fair market equity value of $19.262 m (100 per cent) and
$17.634 m (91.6 per cent).
(c)Mr Davis: SHA equity value of $17.694 m (100 per cent) and $16.198 m (91.6 per cent).
(d)Mr Glass: fair market equity value of $16.766 m (100 per cent) and a SHA equity value of $13.991 m (100 per cent).
Shareholding
[79] Mr Blake submits the Family Court was wrong to assess the value of HML without regard to the fact that as at the date of the valuation, 8.4 per cent of the shares were sold to JBT. I agree. The Family Court incorrectly assumed that HML could force John to sell his shares back to HML pursuant to cl 6 of the SHA and in accordance with the SHA formula for share value. But that clause is only triggered on cessation of employment as stated at cl 6.2 which states:
6.2Cessation of employment: In the event that [John] dies or ceased to be an employee of the Company for any other reason, [HML] will purchase all Shares held by [John] and/or the Trust as at the date of [John's] death or as at the date the employment ceases as the case may be, and [John's] Estate and the Trust will sell such Shares to [HML] on the terms set out below.
67 It is noted that in relation to the 2014 report, upon which the SHA was based, KGL omitted to adjust the enterprise value downwards to allow for adding back equipment lease costs in assessing normalised earnings. This is said to have had the effect of overstating the valuation as at March 2013 by $4.26 m.
[80] By contrast, cls 11 and 12 provide for third party acquisition. In this regard, cls 11.1 and 11.2 state:
11.1No sale: Other than as provided in clause 5, no Participant shall directly or indirectly sell, transfer or dispose of the legal or beneficial ownership of, or the control of, any of its shares otherwise than in compliance with this clause 11.
11.2Sale notice: If any Participant holding not less than 50% of the shares in the Company ("Seller") wishes to sell, transfer or otherwise dispose of the legal or beneficial ownership of, or the control of, all of its Shares ("Sale Interest"), that Participant shall give notice (a "Sale Notice") to the other Participant(s) specifying:
(a)the price which the Seller consider to be the Fair Value for the Sale Interest (the "Seller's Price"); and
(b)any other terms and conditions of sale of the Sale Interest (which shall be described sufficiently precisely to enable an acceptance of the offer in the Sale Notice to constitute a binding contract).
[81]Clause 12 then provides:
12.TAG ALONG/DRAG ALONG RIGHTS
12.1Trigger: notwithstanding the pre-emptive rights set out in clause 11, if fifty percent (50%) or more of the Shares are to be sold to a third party:
(a)Drag along: the vendor(s) shall have the right to require the remaining Shareholders to sell all of their Shares to such third party at the same price (on a per Share basis) as part of the same transaction; or
(b)Tag along: the vendor(s) hereby grant to the remaining Shareholders the right to require the vendor(s) to procure the sale of the remaining Shareholders' Shares prior to the completion of such transaction.
[82] I cannot reconcile the evident meaning of cls 11 and 12 with the prospect that HML could, via cl 6, force the buy-back of the shares at the price JBT paid for them by terminating John's employment.68 Any such purported termination would render
68 Applying orthodox principles of interpretation: Air New Zealand Ltd v New Zealand Air Line Pilots’ Association Inc [2016] NZCA 131, [2016] 2 NZLR 829 at [35]: “When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’ … And it does so by focussing on the meaning of the relevant words … in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary
nugatory the operation of tag along and/or drag along clauses. Furthermore, there is nothing in the context of the SHA to suggest that John or JBT intended to be subject to a forced acquisition pursuant to cl 6, other than on its terms. On the contrary, it is evident that both John and Mr Blake wanted to secure John's long-term future with the company.
[83] Z v Z does not assist Mrs Blake.69 The Court in that case was involved in assessing the value of goodwill and whether the legal practice in that case should be valued with or without a restraint of trade clause. Richardson J observed in that case that "[i]n the hypothetical market the willing but not anxious seller must be taken to seek the maximum price obtainable from what is available for sale."70 Richardson J also said, when contrasting the facts before him to Davidson v Wayman where a restraint of trade covenant could not be implied and valuation proceeded on that basis:
71
In this case a willing but not anxious seller in the hypothetical sale is in a position to maximise the value of goodwill attaching to the business by giving a covenant in restraint of trade and thus must be taken to have done so on the ordinary application of the willing buyer willing seller test.
[84] By contrast, here, on my reading of the SHA, John's shares are not "available for sale" and Mr Blake and HML are not "in a position" to force John to sell his shares to them. On the contrary, any hypothetical sale must refer to the shares available for sale. I therefore find that the starting point for the valuation is that HML owned 91.6 per cent of the shares in SCL as at the date of valuation.
[85] Two related issues, however, come squarely into focus, namely whether the SHA valuation formula is a suitable measure of share (equity) value and if not, whether s 44 is engaged by the share sale to JBT. I accept Mrs Blake's position on the SHA formula. As noted by Ms Chambers QC, shortly before the sale of the shares to John, KJL-the advisors to HML-prepared a report noting that an assessment of the value was
meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”
69 Above n 62.
70 At 299 (emphasis added).
71 At 300 (emphasis added).
made as at 31 March 2013 for the purpose of supporting a staged sell-down to a family member. The midpoint valuation in 2013 based on the SHA formula was $11.557 m 72 while Messrs Glass and Davis made valuations using the SHA formula as at March 2018 of $13.991 m and $17.694 m73 respectively. This is to be compared with current date midpoint fair (equity) market valuations as at 31 March 2018 of $16.766 m (Glass), $19.262 m (Davis)74 to $32.207 m (Graham).75 The SHA also envisages that John would be entitled to 20 per cent of the cash dividends to pay interest and loan principal, the effect of which (as noted by KJL) would mean it would only take 4.6 years for him to pay off the share price assuming 5 per cent interest per annum. The arrangement overall was, based on the expert FME assessments before the Court,76 materially superior to that which would be achieved by a willing but not anxious seller in a hypothetical sale. Again, this is consistent with the evident intention of securing John's ongoing future with SCL.
[86] Given this, s 44 and s 18C come into frame. I address the effect of those sections below.
FME insurance
[87] Mr Davis deducted an allowance for the cost of plant and equipment not presently incurred by SCL because of HML's decision to self-insure these assets. He obtained an indicative estimate of cost of these covers from a local insurance broker, based on information presented in HML's fixed asset schedule regarding SCL's leased
72 It is noted by Mr Glass in his 2018 report, that in relation to the 2014 report, upon which the SHA was based, KJL omitted to adjust the enterprise value downwards to allow for adding back equipment lease costs in assessing normalised earnings. This is said to have had the effect of overstating the valuation as at March 2013 by $4.26 m. The effect of this would have been that shares based on the SHA should have been only $7.297 m.
73 Mr Jefferson referred to a figure of $21,301 being Mr Davis’ assessed enterprise value applying the SHA formula. But that number does not take into account the aggregate shareholder/related party advances and cash less deductions for shareholder/related party loans/dividends payable as required by clause 5. For comparison purposes I have not included a 30 per cent minority discount envisaged by the SHA at 5.1(v), however according to Mr Davis, if the transfer is made pursuant to 5.2. (on Mr Blake’ death) with the 30 per cent discount, the value of the shares is $11.339 m.
74 See Addendum to Joint statement at table 5–10 (Davies). Mr Davies also assesses the fair market value of the 91.6 per cent of the shares at $17.634 m while the equivalent SHA value is $16.198
m. At Table 5–10 and Appendix 1.
75 Appendix 3 of Addendum to Joint Statement.
76 Mr Davies appeared to maintain that the SHA was a valid method for calculating value, particularly in relation to a minority shareholding.
assets. This estimate is $306,000 per annum, which includes $240,000 for insurance coverage of the leased cranes. After a deduction for insurance costs incurred, the resulting insurance cost was assessed at $271,000 per annum. Mr Glass agreed a deduction was appropriate.
[88] Mr Graham considered that a deduction may be reasonable, but only if paired with:
(a)an actual analysis of actual costs incurred for events that would have otherwise been insured;
(b)an estimate of the insurance proceeds that would have been received over the period FY12 to FY1877 if it had insurance cover for its plant and equipment; and
(c)evidence that SCL (or DRPL) did not incur additional costs over the period FY12 to FY18, which had the effect of reducing the number or size of (otherwise) insured events over that time.
[89] As Mr Davis did not produce this information, Mr Graham did not reduce his assessed EBIT based on a "counterfactual" scenario that assumes SCL has third-party insurance. Under cross-examination, Mr Graham accepted, however, that whether insurance was an issue would depend on the "appetite of the acquirer." This was a reasonable concession to make and, notwithstanding the fact that Mr Blake never considered insurance to be necessary, it was not unreasonable for the Family Court to assume that a willing buyer might seek to adjust the value of SCL to account for potential insurance cost, bearing in mind also that it appears SCL is obliged under its leasing arrangements with HML to keep leased equipment insured (which is a likely arrangement if the assets are held at an arm's length a under third party lease).78 I also consider that prospect to be a plausible one and should be factored into the FME assessment.
77 Financial years ending 2012 and 2018.
78 It is not clear from the evidence whether the leasing arrangement is current.
[90] There is a residual issue, however, as the quantum of the adjustment. As the Family Court observed, the evidence was "scant"-based on advice given by a local broker who did not give evidence. It appears that only relatively small sums were in fact expended on costs that might have otherwise have been insured.79 Also, that Mr Blake did not consider it necessary to acquire insurance80 and considered it to be "uncommercial" is a strong indicator as to the need for and level of it. Mr Graham's evidence that a prospective purchaser may have an appetite for risk or might be able to mitigate the need for or the quantum of insurance cover is also a valid consideration.
[91] Furthermore, as noted by Ms Chambers, Mr Davis could not confirm that the estimate was determined by reference to standard industry rates, did not advise the broker of SCL's claims history, and could not advise the Court as to what level of adjustment would be required to reflect any discounts that might be applicable to SCL. Ultimately, Mr Davis was forced to concede that he "was guessing" about adjustments that might be needed to reflect these matters. Counsel also made the cogent point that an adjustment was necessary to reflect the costs incurred by SCL to reduce the insurance risk, for example, payment of above-market salaries for good staff, a policy adopted by Mr Blake.
[92] Overall, I consider the evidence to be inadequate to justify the full discount on the FME adopted by Mr Davis which, after the multiplier is applied, equates to a diminution in enterprise value of $1.49 m applying the Family Court's multiple of 5.5,
$1.287 m applying Mr Davis' revised multiple of 4.75 and $1.897 m applying Mr Graham's multiple of 7 (the midpoint between 6x-8x).81 These sums are substantial, even in a case like the present, and can only be justified if there is clear, cogent expert evidence to support them. It was for Mr Blake to provide a sufficient evidential basis to properly quantify the insurance deduction, especially as SCL historically operated without such insurance. But this does not mean the allowance for the cost of insurance defaults to zero, as Mr Graham accepted in his evidence, and it is unhelpful that Messrs Davis and Graham did not reach agreement about quantum.
79 Mr Blake referred to crane incidents at a cost of about $10,000 a car accident, the costs of which were covered by the other party and a truck was involved in an accident which SCL repaired.
80 His view was that SCL was “miles better off” and that insurance was effectively “uncommercial”.
81 As noted by Mr Graham when asked about a relatively small difference between him and Mr Davis in relation to remuneration, it “is not a great sum of money but that has a multiple applied to it.”
[93] Intuitively, a "standard industry rates" approach markedly overstates the position. But more, better information is needed. As the parties do not want the matter referred back to the Family Court, I direct the parties to confer. If agreement cannot be reached, the matter can be referred back to me for final resolution, if necessary with leave granted to adduce evidence on an insurance sum.
FME multiplier
[94] As noted, Mr Graham applied a FME EBIT multiple of 7 while Mr Davis adopted a multiplier of 4.75. Mr Glass uses a smaller multiplier of between 3.6 and 2.8, but that is explicable, and not directly comparable, because he used EBITDA which attracts a lower multiple. This is unjustified given that SCL's EBITDA is effectively EBIT. While his evidence about market conditions is helpful, I prefer the EBIT-based approach taken by Messrs Davis and Graham because of this.
[95] As noted by Judge Wills, the key difference between Messrs Davis and Graham is their respective assessments of risk and the value attributed to that risk. This is best revealed by their respective WACC assessments. Mr Graham adopted an essentially generic value of 2-3 per cent for SCRP while Mr Davis has adopted a value of 10 to 13 per cent for this same risk premium. As the balance of their cost of equity and debt assumptions were largely aligned, their different SCRP assessments effectively produced their divergent WACC: at 11.2 per cent for Mr Graham and at 15.6 to 19 per cent for Mr Davis. Their WACC then converted to their respective EBIT multipliers of 7.8 for Mr Graham and a midpoint 4.75 for Mr Davis.
[96] Mr Graham settled on 3 per cent as that is the common approach taken by the industry to the assessment of SCRP in respect of smaller companies, referring specifically to a PwC publication about this. He is criticised because this approach relates to listed companies, a diversified portfolio of investors and does not allow for liquidity. He is also criticised because he made no inquiries with persons associated with SCL about the particular risks faced by SCL and he has underestimated Mr Blake's significance to SCL. He responds that the PwC approach illustrates the risk ordinarily assumed by the market in respect of small companies and it is an approach taken by him recently in relation to three transactions involving small companies. He
says liquidity is not an issue because 100 per cent of SCL is being sold. He also notes that SCL had the best reported financial performance of any period in 2017 and 2018 under John's stewardship and that the specific risks attaching to SCL will be captured by the EBIT analysis, which is based on mid-cycle performance and averaged over a five-year period.
[97] Mr Davis emphasises that, based on his discussion with persons reasonably closely connected to SCL, there is a very significant key person risk associated with Mr Blake. He foresees potential for a significant deterioration in earnings particularly in the short to medium term. While John was competent in a buoyant market, he did not have his father's experience. Mr Davis notes the 2017 and 2018 performance reflected a large amount of forward work obtained by Mr Blake. He also referred to the state of "stress" evident in the New Zealand construction market, referring to high profile failures. He also considers that the multiples applied by Mr Graham would only apply to companies that had a major operating asset base.
120 The experts appear to have agreed that if HML holds a 100 per cent of SCL, the cash balance will need to be reduced by $180,000.
121 I note that s 18C applies only post-separation to the extent that it does not apply to any part of the shares sold. I am satisfied s 25 applies.
122 At [262].
123 At [265].
124 Citing Re Polkinghorne Trust (1988) 4 NZFLR 756 (HC) and Dyer v Gardiner, above n 107, at [83].
125 Above n 107, at [107].
Post-separation contributions - s 18B
[150] It is common ground that the Family Court was wrong to find agreement had been reached in relation to Billy-Jo's post separation costs of $135,000 per annum. Mr Blake submits that because of this error, the Court failed to address his claim that Billy-Jo's costs totalled $627,148 as at the date of the hearing. He also complains that the Judge erred in holding that both Mr Blake and Mrs Blake had the benefit of monies applied post separation towards the restaurant premises fitout of $300,000. He says that was simply the application of Mrs Blake of her separate property for which he has received and will receive no benefit, noting in particular that value of EBRL is assessed at nil and the contribution by Mrs Blake to EBRL (which operates the restaurant venue) is recorded in her current account in EBRL. Furthermore, if an amount is to be credited, it should be for $150,000.
[151] Mr Blake responds that a significant number of the payments made in respect of Billy-Jo were, according to Billy-Jo, reimbursements of expenses paid on behalf of Mr Blake while she was caring for him overseas. As she was not cross-examined on this, her evidence should be preferred. In relation to fitout of the restaurant venue, Mrs Blake noted that the restaurant venue is owned by HML and receives the benefit of the application of the funds applied by Mrs Blake to that fitout. The effect of this is that the funds were put back into relationship property.
Billy-Jo
[152] As the Family Court did not address Mr Blake's claim in respect of Billy-Jo, I have done so. Mr Blake's evidence was that the sum of $627,148 was paid to Billy Jo on her behalf for travel, living costs overseas, medical costs for her diabetes and significant other medical costs overseas for her treatment. He refers to bank statements colour coded by reference to, among other things, payments in respect of Billy-Jo. Unfortunately, the electronic case book includes no such colour coding. In any event, the statements appear to provide cogent evidence as to the fact payments to or on behalf of Billy-Jo were made. It was Billy-Jo's evidence, however, that a significant portion of these funds were costs associated with Billy-Jo being overseas to support Mr Blake, including Mr Blake's own expenses. As noted, she was not cross-
examined on this, and I am content to proceed on the basis that this is correct. But that does not fully or properly address Mr Blake's claim. Both parties accept that Billy-Jo's post separation costs should be shared. She is dependent on them. Mr Blake paid additional sums to Billy-Jo's care. It appears that Mrs Blake considers that because Billy-Jo's costs were increased due to her being overseas, Mr Blake should be expected to carry those additional costs. But they both accepted that Billy-Jo's presence overseas was appropriate. That being the case, the costs incurred on her behalf there should be shared, except for the accommodation overseas, which is an expense that Mr Blake would have had to incur in any event.
[153] I therefore direct that the parties confer, reduce the sum claimed by the amounts paid on behalf of Mr Blake, including any accommodation cost. All sums paid to Billy-Jo's expenses are then to be equally shared. If the parties cannot agree this sum, the matter may be referred back to me for resolution, with leave to file evidence if necessary.
Restaurant venue
[154] Section 18(1)(e) of the PRA states that a qualifying contribution to relationship property must be the payment of money to maintain or increase the value of the relationship property. The restaurant venue was acquired by HML in June 2015. It was formerly different restaurant venue. EBRL leases the site from HML and has undertaken an extensive fitout of it. It is common ground Mrs Blake applied $400,000 to this fitout from an interim distribution made to her. That sum appears to be reflected in Mrs Blake's current account with EBRL. It is, as Mr Blake submits, recoverable by her from EBRL. But that does not change the fundamental character of the contribution by her, that is to maintain the value of EBRL, which is relationship property. Mr Blake's submission that the value of EBRL is nil is also beside the point. If the fitout were not completed, then the operation of EBRL would be detrimentally affected, inevitably reducing the value of any shares in it. The fitout also enhances the value of the restaurant venue and helps maintain the value of HML and the shareholding in it. That contribution must be recognised to secure a just distribution between Mr and Mrs Blake. I agree, however, that Mrs Blake should only be given
an interim distribution adjustment of $150,000 to reflect that the contribution and benefit is shared.
The family home
[155] Mr Blake contends that the Family Court erred in vesting the family home in the M Blake Trust. He says that the Family Court:
(a)failed to take into account relevant matters, including the various matters which show the strength of his association with the family home;
(b)wrongly equated Mrs Blake's reasons with Mr Blake's reasons, found it a draw and then treated the children's views as the tie breaker;
(c)gave no reasons as to why, insofar as concerns the children's view, Mrs Blake retaining the family home should be preferred over Mr Blake;
(d)wrongly diluted Mr Blake's views for what was no more than a loyalty call;
(e)gave undue emphasis to the views of Alice and Ned, when they were simply supporting their mother rather than identifying a connection to the family home;
(f)did not have regard to Mr Blake's health; and
(g)wrongly elevated Mr Blake's liquidation proceedings to a suggestion that Mr Blake was willing to sell, when Mr Blake in fact described the sale as a "last resort".
[156] For the reasons largely set out in the submissions for Mrs Blake, this appeal ground must fail. Mr Blake's submissions on this point are really no more than an invitation to adopt a different view of the evidence and the merits. Moreover:
(a)the Judge had express regard to Mr Blake's evidence that he was deeply attached to the family home-she said:126
[315] Mr [Blake's] position in relation to [the family home] is that if the competing expectations of him and Mrs [Blake] cannot be reconciled, the property should be sold, and the proceeds distributed equally between the new Trusts. His position however is that he is deeply attached to the property and he says:
It's part of my soul and I didn't go there just to discharge my physical bloody needs it was as much my sort of mental needs and because I felt, and I still feel so strongly about it that, that it's important that the family and the kids all have something they can call home and that they can come back to it through their life and that their kids, you know, their kids and can build up an [affinity] with the place which they do. Everyone does so, you know, my efforts over the weekend were about building that base for the family.
(b)the children's views are a relevant consideration;127
(c)the Judge's summary of the children's views was plainly available to her-she said:
[320] The children's views are set out in affidavit evidence and [John Blake] was cross-examined about this issue. [Billy-Jo Blake], whose health needs are significant and who both parents believe will return to live at the [family home] at some point, gave evidence that she felt it was in the best interests of the majority of family members for the parent remaining at the [family home] to be her mother. Both [Ned] and [Alice] [Blake] support their mother retaining occupation. [John Blake's] evidence was that he would be at the [family home] with his family whether his father or mother were in occupation.
(d)the weight she afforded to the evidence of Mr Blake's connection and the children's views was a matter for the Judge and I detect no error in this regard;
(e)Mr Blake's health was considered by the Judge expressly in relation to the family home, but also in other parts of the judgment which make it plain that it influenced her decision making;128 and
126 At [315].
127 Clayton v Clayton, above n 1, at [50], [56] and [59].
128 See the Court’s discussion regarding s 15 at [294].
(f)the inference drawn by the Judge from Mr Blake's liquidation proceedings, namely that this suggested a willingness to sell the family home was available to her.
[157] Mr Blake has also provided a "terms of option to purchase [the family home]". This is offered as a supplement to the order made by the Court that the family home will be vested in the M Blake Trust, subject to a condition that if the M Blake Trust proposes at any future time to sell the family home, that the B Blake Trust shall have first option to purchase at the market price to be fixed by a valuer agreed between the parties and failing an agreement, by valuers independently appointed by the Trusts. The proposed terms are opposed by Mrs Blake. She says, in short, that the proposed terms are simply designed to improve Mr Blake's position. She identifies various aspects of the proposed terms which, she says, achieves this.
[158] For my part, it would make sense for the parties to have clearly framed terms of option as the failure to do so may give rise to further litigation. It is not, however, a proper point of appeal but, rather, a matter that should be addressed by the Family Court in the first instance. I make one comment, however. Mrs Blake criticises the terms insofar as they purport to prevent "transfer". She says that this would prevent distribution of the property to a beneficiary or beneficiaries of the M Blake Trust. I am in agreement with Mr Blake, that the object of the condition must be to secure his ability to acquire the land if it is proposed to transfer it to a third party. While a beneficiary may be a legitimate recipient of the property, they will then be free to on- sell the property to any third person. It cannot have been the intention of the Family Court to allow this to occur without the property being first offered to B Blake Trust.
Restaurant venue
[159] Mrs Blake submits that the Court erred in failing to vest the restaurant venue in her. Specifically, she submits that the Court had the power to vest that property under s 33(1) of the PRA as follows:
Ancillary powers of court
(1) 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 many under any of the provisions of sections 25 to 32.
Subsection 33(3)(e) then states:
…
(3) In particular, but without limiting the generality of subsections (1) and (2), the court may make any 1 or more of the following orders:
…
(e) an order for the partition or vesting of any property:
[161] While counsel for Mrs Blake submits they are not aware of any case where company property has been vested under s 33, they note the courts have been open to vest property held by a third party.129 It is further submitted that Clayton v Clayton should be applied by analogy, and that "worldly realism" is important.130 She submits that, in reality, Mr Blake has such effective control over HML's assets that he has an interest in those assets. That fact is said to avoid the Court's apparent concern that such a power of vesting that could produce absurd results, for example, vesting of property held by a publicly listed company. Mr Blake supports the Family Court's reasoning to the effect that s 33(3)(e) does not extend to property held by a company and so has no power to vest the restaurant venue in Mrs Blake.
Assessment
[162] As noted, s 33 confers broad powers on the Court to "make all such orders and give effect to such directions as may be necessary or expedient to give better effect to any order made under any of the provisions of ss 25 to 32 of the Act".131 Section 25 states:
25 When court may make orders
(1)On an application under section 23, the court may-
129 Citing Johanson v Johanson (1993) 10 FRNZ 578 (CA); Hau v Hau [2018] NZHC 881 and Zhou v Yue [2019] NZHC 2167.
130 Clayton v Clayton, above n 1, at [79].
131 PRA, s 33(1).
(a)make any order it considers just-
(i)determining the respective shares of each spouse or partner in the relationship property or any part of that property; or
(ii)dividing the relationship property or any part of that property between the spouses or partners:
(b)make any other order that it is empowered to make by any provision of this Act.
(2)The court may not make an order under subsection (1) unless it is satisfied,-
(a)in the case of a marriage or civil union,-
(i)that the spouses or civil union partners are living apart (whether or not they have continued to live in the same residence) or are separated; or
(ii)that the marriage or civil union has been dissolved; or
(b)in the case of a de facto relationship, that the de facto partners no longer have a de facto relationship with each other; or
(c)that one spouse or partner is endangering the relationship property or seriously diminishing its value, by gross mismanagement or by wilful or reckless dissipation of property or earnings; or
(d)that either spouse or partner is an undischarged bankrupt.
(3)Regardless of subsection (2), the court may at any time make any order or declaration relating to the status, ownership, vesting, or possession of any specific property as it considers just.
(4)To avoid any doubt, but without limiting subsection (3), if proceedings under this Act are pending, the court, if it considers it appropriate in the circumstances, may make an interim order under that subsection for the sale of any relationship property, and may give any directions it thinks fit with respect to the proceeds.
(5)This section is subject to the other provisions of this Act.
(6)In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 91.
[163]Sections 26 to 32 empower the Court to make:
(a)orders to benefit the children in respect of relationship property;132
132 Section 26.
(b)occupation and ancillary furniture orders in respect of the family home or relationship property;133
(c)orders with respect to a tenancy of a dwelling house occupied by either a spouse or partner;134
(d)orders in respect of property in the possession of either spouse or partner under a hire purchase agreement;135
(e)orders relating to insurance policies and superannuation rights;136 and
(f)orders relating to child maintenance and support.137
[164] The evident scheme of this part of the Act is to empower the Court to make any orders it considers just in relation to relationship property or other specified forms of property (including insurance and superannuation rights) in the possession of a spouse or partner. As the Supreme Court found in Clayton, powers and entitlements under a trust deed may qualify as "property" pursuant to s 2 of the PRA where the deed confers a power on a spouse or partner to appoint all of the trust capital and income to themselves.138 The Court also found that the powers and entitlements were relationship property because the trust powers were acquired after the relationship commenced. 139 Theoretically therefore, this form of property may be amenable an order pursuant to s 33 (though that issue was not resolved in Clayton).140 Pursuant to s 25(1)(b), the powers under this part also extend to give better effect to other remedial powers under the Act, including the powers conferred by s 44. I do not therefore discount the possibility that the power in s 33 might extend to land in the ownership of a company, for example where s 44 proceedings have been commenced in respect of that land and interim vesting (as distinct from restraining)141 orders are needed.
133 Sections 27 and 28B.
134 Sections 27 to 28A.
135 Section 29.
136 Sections 30 and 31.
137 Section 32.
138 Clayton v Clayton, above n 1, at [53], [62], [64], [79], [80] and [85] onwards.
139 At [86].
140 At [94].
141 Restraining orders for dispositions about to be made may be made under s 43 of the PRA.
[165] No detailed consideration was given in written or oral argument to the nature of Mr Blake's powers either as majority shareholder or as a director to apply company assets, including the restaurant venue, to himself. In addition, major policy issues relating to the corporate governance were not addressed in argument. But my tentative view is that the reasoning in Clayton does not extend to Mr Blake's powers as a director. A director is subject to statutory duties to act in good faith and in the best interests of the company,142 may not transact with the company unless for fair value,143 may be liable on liquidation to pay compensation for any misapplication of company property144 and may be liable to criminal prosecution for the same.145 It is doubtful given this statutory scheme, that Mr Blake enjoys a property right in respect of the company as defined by s 2 of the PRA. In any event, I consider there is a more fundamental problem with Mrs Blake's claim under this heading. Mr Blake's directorship and shareholding in HML predates the relationship. His corresponding powers, whatever they might be, are therefore not relationship property and the property held by the company is not property otherwise in his personal property acquired after the relationship commenced. Accordingly, I can see no basis in this case for an order vesting HML property in Mrs Blake. Her relief lies in the division of the increased value of HML, not its specific assets.
Interest claim
[166] Mrs Blake seeks interest on the adjustment sum awarded to her, being the sum based on the valuation of the HML shares as at 31 March 2018, for the period between that date and the date of the first instance hearing (29 April 2019). She says that during this time Mr Blake has had the benefit of Mrs Blake's interest in the increase in the value of HML. Mr Blake opposes this on the basis that the valuations on which the increase in value were made included assets valued as at or close to the date of hearing. A schedule of properties is attached which show that many of the properties were valued during 2018 and some in 2019.
142 Companies Act 1993, s 131.
143 Companies Act, ss 139–144.
144 Companies Act, s 301.
145 Companies Act, ss 373–374.
Assessment
[167] I am satisfied that Mrs Blake should have her interest from the date of the valuation to the date of the hearing. Mr Blake has had the benefit of the increased value of all assets since then and should account to Mrs Blake for that part of the value properly belonging to her. That this value might be inflated because some of the valuations in fact took place after the valuation date is a neutral point, as Mr Blake shares equally in that inflation.
Section 15 disparity
[168] In Scott v Williams, Glazebrook J with whom Arnold and O'Regan JJ agreed, stated: 146
[254] ... the share in the amount of relationship property and any income from it is neutral in considering what is a just order as both parties share in the relationship property equally.
[169] Glazebrook J, with whom Elias CJ and Arnold J agreed, 147also summarised the proper approach to s 15 as follows:
[263] Section 15 permits an order to be made which compensates for a 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 normally (but not always) be equated with income.
[264] The assessment of disparity is a broad one and it must be considered in light of provisions in the PRA that treat all contributions made by both partners to the relationship as equal. In long-term relationships where one partner has had primary responsibility for home-making and child-care and the other partner for income-earning activities, this means that the PRA operates on the assumption that any disparity at the end of the relationship is equally attributable to both partners. This assumption can be rebutted but this would not be easy to do in the case of long-term relationships. In shorter or differently organised relationships, the principle of equal contribution may also mean that the assumption applies, but it will likely be much easier to show that all or some of the disparity following separation resulted from something other than the division of functions in the relationship.
[265] The amount of an order under s 15 is limited to the extent of relationship property. Any order made under s 15 must be just. Thus it must compensate for the disparity but cannot create an injustice for the other party. There is no one method, formula or approach that can be applied to calculate
146 Scott v Williams, above n 1, at [420] per Arnold J and [288] per O’Regan J.
147 At [329] and [331].
a s 15 order as there is no single way to prescribe what is just. This will depend on the individual circumstances of each relationship and each partner.
Argument
[170] Mr Blake defends the Family Court decision. Mrs Blake submits the outcome is inadequate. Mrs Blake claims that the Family Court took an unduly narrow interpretation to "income" when assessing the disparity, that is based on Mr Davis' assessment of Mr Blake's average drawings of $572,000 over ten years prior to 2018. She submits that a more holistic approach should have been taken, one that takes into account all money or money equivalent available to Mr Blake. This means that the money from the various entities should be taken into account as assessed by Mr Graham, who calculates the likely disparity on this approach as between $12.397 m and $22.792 m depending on whether the assessment is until Mr Blake turns 60 or 65. This is based on assumed annual earnings. Mr Davis' approach also fails to show that there is significant variation in the drawings, noting for example that Mr Blake took drawings totalling $2.589 m in 2018. Mr Graham also calculated the level of drawings at separation and used this to measure the disparity, which he assessed as between
$3.516 and $6.610 m. Assessment
[171] The application of Scott to the present facts has proved perplexing. Senior counsel for the parties sought in their own way to navigate around the strict application of it, and in particular the principle that the division of the relationship property should be ignored.148 However, I do not consider that is necessary or justified.
[172] The value of the increase in the relationship property is largely coextensive with the income-generating capacity of HML (and its subsidiaries) -see discussion of expert evidence above at [65]-[103]. On the outcome I favour, that value is largely shared between the parties. Following Scott that relationship property is not to be taken into account when assessing relative income, it is a neutral factor for both parties.
148 Citing academic criticism, Nikki Chamberlain “The Future of Economic Disparity Redress in New Zealand” (2018) 28 NZULJ 293.
[173] Mrs Blake's claim to disparity based on Mr Blake's likely future earnings from HML is therefore also, 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 the division of relationship property is likely to deplete-if not exhaust-HML's cash reserves, reducing the prospect of full drawings in coming years.149 The fact that Mr Blake's shareholding is reduced will also need to be considered.
[175] While it is regrettable to come this far without a satisfactory resolution of this issue, the quantum involved is such that care is needed. As the parties resist having this matter referred back to the Family Court, I will invite submissions on the process to be followed in this Court. To the extent that it may assist the parties, my present view is that any disparity adjustment in this case is likely to be modest, bearing in mind that the order for compensation cannot create an injustice.150
[176] For completeness, if I am wrong and the Family Court was correct to take into account HML's full earning capacity, I have examined whether the Family Court otherwise erred in its assessment of the disparity. I am satisfied that the Family Court did not. More specifically, while imperfect, it was available to the Family Court to assess the disparity at about $570,000 per annum, being the average drawings over a ten-year period and given the likely impact of the depletion of cash reserves on HML
149 A similar finding was made by the Family Court at [290].
150 I note in this regard that Glazebrook J at [216] tentatively endorsed the approach in X v X [Economic Disparity] [2010] 1 NZLR 601 (CA), namely that the final calculation is made once the extent of the relationship property is known.
drawings for the foreseeable future-Mr Graham accepted as much under cross examination but felt constrained by Scott to ignore this effect. But that confused the assessment of earnings from relationship property with the assessment of the effect of the division on relationship property order on future earning capacity. The present case is illustrative of the significance of the difference. If, as a consequence of the division of relationship property, Mr Blake needs to reduce HML's cash balance, sell shares in HML or borrow, his earning capacity will be reduced accordingly. I am also satisfied it was available to the Court to cap the disparity assessment as at the date Mr Blake turned 60.
Outcome
[177]In summary:
(a)On the valuation of HML:
(i)The starting point for the valuation of HML should have been based on HML holding 91.6 per cent, but as the sale of the shares to JBT infringed s 44, the Court was correct to assess the HML value based on a 100 per cent shareholding-see [79]- [86].
(ii)The Judge was correct not to use the SHA formula-see [85].
(iii)The Court did not err in including the cost of insurance, but more information is needed on the cost of insurance-see [87]- [93].
(iv)The Court's assessment of the FME multiple was not wrong-see [94]-[101].
(v)The Judge was not wrong about the value of SCL as at the date of marriage-see [104].
(vi)Overall, subject to agreed adjustments (see [61]) and an adjustment in respect of the insurance, the Judge's assessment of the enterprise value of HML was correct.
(vii)The equity value is the proper value for the purposes of the valuation of SCL and HML.
(b)On the application of s 9A:
(i)The Judge was not wrong to find that s 9A(1) was not engaged- see [114]-[122].
(ii)The Judge incorrectly divided the increase in value pursuant to s 9A(2) -the 'increase' in value should be evenly shared (but only after $3.5 million has been deducted to account for Mr Blake's separate property at the commencement of the marriage)-see [128]-[135].
(c)On the application of s 44 and s 18C:
(i)The sale of shares to JBT infringed s 44-Mr Blake intended to defeat Mrs Blake's relationship property claim, and while JBT paid valuable consideration, it was inadequate-see [139]-[147].
(ii)The proper remedy is to proceed with the valuation of HML as if the sale of shares did not happen-see [147].
(iii)Section 44 is not engaged in respect of the painting-see [148]- [149].
(d)On the post-separation contributions:
(i)Mr Blake's contribution to Billy-Jo's care should have been assessed and I direct the parties to confer, reduce the sum claimed by Mr Blake to account for the amounts paid on his
behalf, including any accommodation costs. All sums paid to Billy-Jo's expenses are then to be equally shared-see [152]- [153].
(ii)One half of Mrs Blake's contribution to the fitout of the restaurant premises is a qualifying contribution pursuant to s 18(1)(e) -see [154].
(e)The Family Court was not wrong to vest the family home in Mrs Blake- see [155].
(f)The Family Court was not wrong to refuse to vest the restaurant premises in Mrs Blake-see [164]-[165].
(g)Mrs Blake should have interest in the period from the date of valuation and the date of hearing-see [166].
(h)Further information is needed to resolve the s 15 claim, but I would presently resolve it on the basis that any residual disparity is unlikely to be unjust- see [170]-[175].
Direction
[178] The final quantification will need to occur once all the relevant adjustments have been made in accordance with the above orders.
[179] As noted, the parties prefer that the final resolution stay with this Court. On that basis, I invite submissions on a process from here to address these remaining matters, within ten working days.
Costs
[180] My present view is success (and failure) have been equally shared and costs should lie where they fall. Costs are, however, reserved pending a final judgment.
Suppression
[181] This interim judgment will be issued to the parties only. A redacted judgment will be issued, alongside a final judgment, in due course.
Appendix A
Issues on Mr Blake's appeal
[182]The issues to be determined on Mr Blake's appeal are:
(a)Whether the Family Court erred in treating the "buy-back" provision in the SCL SHA with John Blake and JBT as giving HML the (ostensibly or effectively unfettered) right to acquire the JBT shares and thus treating HML as the 100 per cent owner of SCL at 31 March 2018.
(b)Whether the Family Court erred in not using the SHA formula (in cl 5.1(v)) to fix the equity value of the SCL shares as between Mr and Mrs Blake in these proceedings.
(c)In the alternative, whether the Judge erred when determining that the appropriate multiple for SCL should be 5.5.
(d)Whether the Judge erred in respect of SCL by conflating enterprise value with equity value thus overstating the net equity value for 100 per cent of the SCL shares.
(e)Whether the Judge erred in failing to adjust the effect of inflation which she had determined and thus incorrectly calculating the relevant increase in the value of HML from the date of marriage to 31 March 2018.
(f)Whether Judge erred when assessing the parties respective contributions to the increase in value of HML pursuant to s 9A(2) at 60 per cent for Mr Blake and 40 per cent for Mrs Blake.
(g)Whether the Judge erred in not addressing the request for compensation by Mr Blake pursuant to s 18B for his post-separation support of Billy Jo.
(h)Whether the Family Court erred in holding that the parties had agreed to settle Billy-Jo's costs at $135,000 per year when it was only Mrs Blake who had agreed to pay that sum; Mr Blake did not agree that the s 15 post-separation contributions for Billy-Jo were limited to $135,000 per year.
(i)Whether the Family Court erred in holding that Mr and Mrs Blake had both had the benefit of $300,000 which Mrs Blake had applied post- separation, from her separate property funds, towards the restaurant premises fitout.
(j)Whether the Family Court erred in vesting the family home in the M Blake Trust pursuant to s 182 of the FPA as a result of failing to take into account relevant matters and taking account irrelevant matters.
(k)Alternatively, whether the Family Court failed to sufficiently particularise the terms of the first option given to the B Blake Trust.
Issues on Mrs Blake's appeal
[183]The issues for determination on Mrs Blake's cross-appeal and the appeal are:
(a)Whether the Family Court erred in calculating the increase in value of the HML shares over the course of the marriage.
(i)This turns on the valuation of two of HML's subsidiaries, SCL and DRPL, and on the Family Court's assessment of the value of SCL at the date of marriage.
(b)Whether the Family Court erred in dismissing Mrs Blake's claim under s 9A(1) of the PRA.
(c)Whether the Family Court erred in fixing the respective contributions to the increase in value of HML under s 9A(2) of the PRA at 60 per cent for Mr Blake and 40 per cent for Mrs Blake.
(d)Whether the Family Court erred in refusing to make orders under s 44 of the Act.
(e)Whether the Family Court erred in assessing the quantum of Mrs Blake's claim under s 15 of the PRA.
(f)Whether the Family Court erred in failing to consider Mrs Blake's claim for interest on the cash adjustment sum payable by Mr Blake to Mrs Blake.
(g)Whether the Family Court erred in failing to vest the restaurant premises in Mrs Blake.
Appendix B
| All amounts in $000 | ||||||
| Owner | % owned at DOS | % owned at 31 March 2018 | Davis | Graham | ||
| Company shares | ||||||
| [HMR Limited] Including: | [Bartley] | 100% | 100% | 105,329 | 122,200 | |
| [SC Limited] | [HML] | 97.0% | 91.6% | 16,198 | 32,209 | |
| [DRP Limited] | [HML] | 100% | 100% | 2,595 | 3,552 | |
| [RAH Limited] | [HML] | 100% | 100% | 430 | 430 | * |
| [EB Limited] | [HML] | 100% | 100% | 1 | 1 | * |
| [SC Pacific Limited] | [Bartley] | 95% | 95% | 97 | 205 | |
| [EBRL Limited] | [Maysie] | 100% | 100% | - | - | * |
| [VH Limited] | [Maysie] | 100% | 100% | - | - | * |
| [B Blake Trust & M Blake Trust Partnership] | [B Blake Trust / M Blake Trust] | 100% | 100% | 4,210 | 4,210 | * |
| Personal assets | ||||||
| [B Blake] current account – [HML] | [Bartley] | 100% | 100% | 56 | 56 | * |
| [M Blake] current account – [EBRL] | [Maysie] | 100% | 100% | 236 | 236 | * |
| Chattels (excl. art collection) | Joint | 100% | 100% | |||
| Art collection | Joint | 100% | 100% | 1,582 | 1,582 | * |
| [...] boat and trailer | Joint | 100% | 100% | 30 | 40 | |
| Mazda [...] | [Bartley] | 100% | 100% | 5 | 5 | * |
| BMW [...] | [Maysie] | 100% | 100% | 4 | 4 | * |
| Alpha Romeo | [Bartley] | 100% | 100% | 9 | 9 | * |
| Bank accounts | ||||||
| [M Blake ANZ 00] | [Maysie] | 100% | 100% | 3 | 3 | * |
| [M Blake ANZ 25] | [Maysie] | 100% | 100% | 1 | 1 | * |
| [M Blake Kiwibank 00] | [Maysie] | 100% | 100% | 0 | 0 | * |
| [M Blake Kiwibank PIE online] | [Maysie] | 100% | 100% | 139 | 139 | * |
| Credit card [ANZ 94] | [Maysie] | 100% | 100% | (3) | (3) | * |
| Credit card [ANZ 47] | [Maysie] | 100% | 100% | n/a | n/a | * |
| [B Blake ANZ 00] | [Bartley] | 100% | 100% | 39 | 39 | * |
| [B Blake credit cards ANZ 07 / 32] | Joint | 100% | 100% | 8 | 8 | * |
| [K] trust account | [Bartley] | 100% | 100% | - | - | * |
| Loan to [Jane Short] | [Bartley] | 100% | 100% | 10 | 10 | * |
| Value of total property pool ($000) | 11,738 | 128,727 | ||||
| Agreed values / figures marked with * | ||||||
5
0
1