Bull v Walker HC Auckland CIV 2009-404-6257

[2010] NZHC 623

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-6257

BETWEEN  STEPHEN NEAL BULL Appellant

ANDANNETTE RAE WALKER Respondent

Hearing:         24 February 2010

Appearances: J Natusch for appellant

D E Cutting for respondent

Judgment:      22 April 2010

JUDGMENT OF ALLAN J

In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 3 pm on Thursday 22 April 2010

Solicitors:

Eastland Legal, PO Box 38 890, Howick, Auckland

D Cutting, PO Box 74295, Market Road, Auckland

SN BULL V AR WALKER HC AK CIV 2009-404-6257  22 April 2010

[1]      This is an appeal against certain aspects of the judgment of Judge Adams, given in the Manukau Family Court on 28 August 2009, in which orders were made concerning the division of relationship property between the parties, who were formerly partners.

Factual background

[2]      Mr Bull and Ms Walker (now known as Hunter), entered into a personal relationship in or about 1995.   The relationship ended in May 2005.   During the relationship the parties entered into a contracting out agreement, dated 1 February

2002,  under  the  Property  (Relationships)  Act  1976  (the  Act).    The  agreement included the following provisions:

2.1Stephen acknowledges that the property listed in Schedule A was owned by Annette prior to their relationship commencing, and he therefore acknowledges that the property listed in Schedule A and any property bought in substitution thereof, or any increase in the value of such property, shall be Annette’s absolute and separate property and Stephen shall have no claim whatsoever in respect of such property.   Annette shall be responsible for all outgoings in respect of the property including rates and mortgage payments.

2.2The property listed in Schedule B shall, for all purposes, be the absolute and separate property of Stephen, and Annette shall have no claim whatsoever in respect of such property or the proceeds of sale of it.   Stephen shall be responsible for all outgoings in respect of such property.

2.3All life insurance policies, stock, endowment policies, investments, shares and bank accounts at the date of this agreement shall be the sole and separate property of the party who is entitled to the legal or beneficial ownership of the same.

2.4The parties will not be liable for each other’s separate business or personal debts and will indemnify the other should any demand or enforcement proceedings or judgment be commenced or obtained.

3.        RELATIONSHIP PROPERTY

3.1Any property jointly acquired by Annette and Stephen will be relationship  property,  and  such  property  jointly  acquired  in  the future will be owned by them as tenants in common in shares corresponding to their respective contributions to the acquisition of that property.

3.2All items of family chattels and other belongings (‘family chattels’) presently situated in the property at 66 Reeves Road, Pakuranga, Auckland are owned by the parties as tenants in common in shares corresponding to their respective contributions to the acquisition of those family chattels.

3.3The parties agree to contribute equally to the payment of joint living expenses, and agree that they are responsible for their own personal expenditure.   The term ‘living expenses’ shall include but not be limited to all payments for electricity, gas, telephone and groceries.

…

6.        GENERAL

6.1This agreement shall be binding on the parties in all circumstances in which their property rights would but for this agreement be determined or effected whether by the Act or other statute, common law, resulting or constructive trust or other equitable remedy or otherwise howsoever.

… SCHEDULE A

66 Reeves Road, Pakuranga, Auckland

SCHEDULE B

1994 Isuzu Big Horn (registration YZ1379)

21 foot Pelin boat and trailer

[3]      Ms Hunter had purchased a property at 66 Reeves Road, Pakuranga, in her sole name in May 1995 (that is, at about the time of the commencement of the relationship).  The purchase price was $210,000, funded by a mortgage of $30,000 from the National Bank, a gift of a further $30,000 from Ms Hunter’s father, and the balance by Ms Hunter from her own funds, including those derived from a previous relationship property settlement.

[4]      Mr Bull acknowledges that he took no part in the purchase of Reeves Road, and that he made no financial contribution to its acquisition.   He moved into the home a little later than Ms Hunter.

[5]      In or about April 2004, Ms Hunter refinanced the loan over the Pakuranga property by borrowing $150,000 from Bluestone Mortgages.  Mr Bull guaranteed the loan.   Subsequent to separation, Ms Hunter sold the property and repaid the loan.

Judge Adams directed that, except for a portion which Ms Hunter accepted was her personal responsibility, the balance owing on the loan was a relationship debt which must be discharged by the parties equally.   That ruling forms part of the subject matter of this appeal.

[6]      After separation, Mr Bull applied to the Family Court for an order setting aside the contracting out agreement, arguing in reliance on s 21J of the Act, that to enforce the agreement would give rise to serious injustice.  In a judgment delivered on 12 July 2007, Judge Rogers declined Mr Bull’s application.  The present appeal must therefore be considered in the context of the binding provisions of that agreement.

[7]      There are four grounds of appeal.  I deal with them in the order in which they were argued by Mr Natusch.

Proceeds of sale of the Pelin boat

[8]      At the time of the contracting out agreement, Mr Bull owned a 21 ft Pelin boat.  It is listed in Schedule B to the agreement as his separate property.  The boat was eventually sold for about $20,000.  It is common ground that Mr Bull paid half of the net proceeds, or about $10,000, to Ms Hunter.  Mr Bull claims that he should have this amount back.

[9]      Judge Adams dealt briefly with that claim at [27] of his judgment:

The Pelin boat recorded as being the separate property of Mr Bull under the agreement was sold by him and he paid $10,000 being half of the proceeds to Ms Hunter.  I find that is not offensive to the agreement.  If for whatever reason Mr Bull chose to do that, whether as a gift or as an accommodation for some other transaction that is not a matter which strikes me as being contrary to the agreement.  Accordingly, I make no adjustment in respect of that.

[10]     Each of the parties gave contradictory evidence about the boat.  During her cross-examination at the hearing before Judge Adams, Ms Hunter said:

Mr TWIGLEY:  Now Mr Bull sold a 21 foot Pelin boat didn’t he? … Yes he did.

And he got $20,000 for that and he gave you $10,000, didn’t he? … Yes he did.  He gave it to me.  I didn’t ask for it, he gave it to me, and my father originally bought the boat.

COURT:  Is there an issue in relation to that?

Mr TWIGLEY:  Well, Mr Bull says that that boat was relationship property and  he  sold  it  and  in  accordance  with  what  he  thought  was  fair,  gave Ms Hunter half the money $10,000.

COURT: Can I just check Ms Hunter is it your position that the Pelin boat was in fact 50:50 owned by the two of you or not? … Yes it was.

So that’s all done and dusted isn’t it? … Yes. Okay thank you.

[11]     But later in re-examination Ms Hunter said:

Mr CUTTING:  Now with regard to the Pelin boat you told us that he gave you $10,000. … Yes.

Well in your mind at least was there a specific reason for that? … Yes there was, um, when we got the loan out and bought the potential, um, Mr Bull spent, um $10,000 out of the loan money that wasn’t accounted for, um, to be spent that way but we needed to do that to repair the boat.

But what was the $10,000 for, what did you intend initially to spend it on?

… Um, it was to put a deck on my property. And did that happen? … No.

So are you saying that was compensation? … Well yes, that’s what I thought it was.

[12]     So  Ms Hunter  gives  three  conflicting  accounts.    First  she  says  in  cross- examination both that the $10,000 payment was in effect a gift and that the boat was relationship property, but then in re-examination her contention is that the money represented compensation for a sum of $10,000 that was to be paid to her out of the Bluestone loan, to enable her to put a deck on her property, but which was ultimately spent for other purposes.

[13]     Mr Bull’s evidence is no more satisfactory.  In his affidavit evidence he says:

I did not fully comprehend the contents, effects and consequences of the Agreement.  When I sold the Pelin boat it was my understanding that all our assets including the home were relationship property.  It was on this basis that I gave $10,000 to Annette as her share of the sales proceeds of the Pelin

boat.    Annette  accepted the  money  knowing full  well  that  she  was  not entitled to it.

[14]     But in cross-examination his account is somewhat different.

Mr CUTTING: Are you talking about the aluminium boat? … No, no the 21 foot Pelin boat, the one I gave her $10,000 –

Well, she acknowledges, yes, she got $10,000 from that.   And she says it was because you didn’t put the deck on the house, it was to compensate her because you didn’t put the deck on the house. … No that’s not correct.  I lent her – I felt sorry for her, I lent her the money.

Well she regarded it as a gift, are you sure you didn’t give it to her? … No I

didn’t.

But you are not claiming that back now? … Well it’s separate property, I am yes.  It was a loan, it wasn’t a gift.

[15]     Mr Bull’s case before Judge Adams was that the Pelin boat was his separate property, that Ms Hunter wrongly received half the sale proceeds, and that he should be  compensated.    But  his  explanations  are  conflicting  and  unconvincing.    His affidavit  evidence  is  that  he  was  under  a  misapprehension  about  the  “contents, effects and consequences of the Agreement”.  He says that he gave the $10,000 to Annette, because he understood she was entitled to a half share in the boat   But in evidence before Judge Adams he resiles completely from that explanation, and says that he simply felt sorry for Ms Hunter, and lent her the $10,000.   He denies the payment was a gift.

[16]     Judge  Adams  found  it  unnecessary  to  make  a  formal  finding  about  the reasons for Mr Bull’s payment to Ms Hunter.   He ruled that, whether or not the payment amounted to a gift or was an accommodation for some other transaction (presumably in lieu of the earlier promised payment for the deck), the payment was not contrary to the terms of the agreement and there was no need to make an adjustment for it.  In essence, the Judge held that he was not satisfied that Mr Bull had demonstrated there was a proper basis for ordering Ms Hunter to repay the

$10,000.   Given the unsatisfactory state of the evidence (and that of Mr Bull in particular), it is impossible to conclude that the Judge (who had the advantage of seeing and hearing the witnesses under cross-examination) was wrong in reaching his conclusion.

[17]     This aspect of the appeal must accordingly fail.

Repayment of the Bluestone mortgage

[18]     Following separation, Ms Hunter sold the Reeves Road property and repaid the loan to Bluestone Mortgages, secured by first mortgage over that property.  The amount repaid was $151,060.46, a little more than the amount of the original loan. Although, since the loan commenced, the principal sum had been reduced by about

$7,000, the amount to discharge the mortgage was increased by reason of certain fees payable upon early discharge.

[19]     Of the figure of $151,060, Ms Hunter conceded that she should bear sole liability for a sum of $35,586, which had been applied for purposes from which she alone received any benefit.   But she considered that one-half of the balance of

$115,474 ought to be met by Mr Bull.  The amount concerned was $57,737.

[20]     Judge Adam’s rejected Mr Bull’s claim.  He held that:

Although the Bluestone mortgage was secured against the real estate owned by Ms Hunter, it was jointly and severally contracted by the parties and I am obliged to hold pursuant to the terms of the agreement and in accordance with the relevant provisions of the Act which requires the agreement to be given effect, that they shoulder the burden of that debt equally.

[21]     Mr Natusch argues that the Judge either overlooked or misinterpreted clause

3.1 of the contracting out agreement.  His argument, as I understand it, is that:

a)       Section 2 of the Act defines the expression “property” as including

“any debt”;

b)Given that definition, clause 3.1 of the agreement should be construed in such fashion as to lead to an apportionment of responsibility for the repayment of the debt, in accordance with the benefit that each of the parties derived from the loan advance.

[22]     Mr Natusch is critical of the Judge’s finding at [14], where he says:

I record that the loan was raised for a number of purposes including paying off significant credit card debts of both parties and to purchase a boat.  The evidence of the parties varies about these matters but my impression is that the loan was taken out for the general purposes of their relationship to fund items that they were facing as a couple.

[23]     Mr Natusch argues that Judge Adams has failed to take account of evidence from Mr Bull, in which he calculates that only $36,512.58 of the total mortgage advance was used to pay off his separate debts, or applied towards his separate property.  This figure appears in an affidavit sworn on 13 May 2009, which corrects earlier affidavit evidence to the effect that some $59,000 was applied by Mr Bull for his own purposes.

[24]     Mr Bull lists a number of debts refinanced from the Bluestone mortgage advance, and asserts that the balance (beyond his acknowledged share) was paid to Ms Hunter and utilised by her for her own purposes.

[25]     I pause to observe that Ms Hunter’s apportionment suggestion, adopted by Judge Adams, is extremely advantageous to Mr Bull.  By accepting responsibility for one-half of the debt over and above the $35,586 attributable exclusively to her, Ms Hunter has acknowledged equal liability for repayment of a sum which includes the $36,512.58 that Mr Bull acknowledges was applied for his sole benefit .

[26]     The Judge found that the balance of the mortgage advance was applied for general relationship purposes, once Ms Hunter’s separate debts were accounted for. In essence, Mr Natusch’s argument simply rests upon Mr Bull’s assertion to the contrary.

[27]     But it is really common ground that to a large extent this couple pooled their finances in the ordinary way.  To a large degree the Bluestone mortgage was applied in refinancing earlier debts, some of which were jointly incurred, and the balance not attributable solely to one party, was applied for purposes that at least in broad terms were relationship purposes.   It is a proper inference that the couple were living beyond their means, and as an unfortunate consequence of that state of affairs, each has emerged from the relationship in a worse financial position than at its commencement.

[28]     Mr Natusch sought to draw strength for his argument from the circumstance that, when the Bluestone loan was first advanced, the mortgagee directed Mr Bull to obtain independent legal advice, because it recognised that he might derive no direct benefit  from  the  transaction.    But  was  simply  a  consequence  of  the  fact  that Ms Hunter was the sole owner of the property upon which the debt was secured. The fact of that security is no more than a distraction.  It is the loan itself and the purposes for which the proceeds were applied that are to be taken into account in determining where responsibility for repayment lies.

[29]     Very often a Court is unable to disentangle the detail of relationship finances, and is left with no alternative but to make a broad assessment upon the footing that relationship debts are to be shared equally.  This is such a case.

[30]     In my opinion, Judge Adams was perfectly correct to determine that Mr Bull must  bear  responsibility  for  $57,737  of  the  Bluestone  advance.    That  outcome reached by the Judge accords with the general principles laid down in ss 20 and 20D of the Act.

Contributions to the Bluestone mortgage

[31]     The argument here is that the Judge incorrectly failed to make an allowance in Mr Bull’s favour in respect of his contributions to mortgage repayments.  Mr Bull relies upon clause 2.1 of the agreement, which stipulates that Ms Hunter is to be responsible for all outgoings, including rates and mortgage payments.

[32]     Mr Bull claims that he made contributions totalling $28,000 in respect of mortgage payments, a sum that he considers totalled about 80% of the mortgage outgoings of the parties while they were together.   He continued to make some payments after separation.

[33]     The Judge said:

[20]     As  to  the  proposition  that  the  mortgage  had  been  reduced  by

$28,000, the figures clearly demonstrate that the mortgage had been reduced by $5000 at most, but I do not see it as appropriate to make any adjustment

on that account because the parties were arranging their payments for respective items during the first year of the mortgage (a period of the loan when they were still together) and I think there will be an unfairness to Ms Hunter for me to make an adjustment on that account.  It seems to me that this was simply a consequence of the way in which they managed their household and should be recorded as ‘water under the bridge’.

[21]      Mr Bull continued to pay the mortgage interest for a period of time after they separated in May 2005 and then reduced it and later stopped paying.   Looking at the matter in the round, I do not find that there is a situation here requiring one party to make an adjustment to the other in respect of the actual payments that were made for the loan whilst it was still owing.

[34]     Mr Cutting argues that  clause 2.1 of the  agreement has effectively been superseded by the refinancing transaction.  It cannot have been in the contemplation of the parties that Ms Hunter’s initial obligation to meet mortgage payments in respect of the loan of $30,000 should apply also to a new advance of $150,000, some of which was applied for Mr Bull’s separate benefit, and some (as the Judge properly found) for the joint benefit of the parties.  I accept that submission.

[35]     The  financial  affairs  of  the  parties  were  substantially interwoven,  to  the extent that the Judge was perfectly justified in making a broad assessment of what was fair.  He was therefore entitled to reach the conclusion that Mr Bull’s payment of a share of the outgoings was “water under the bridge”.

[36]     This aspect of the appeal must also fail.

Costs

[37]     Mr Bull appeals against two orders for costs.   The first is an order against him in the sum of $1,800, made in the course of the judgment of 28 August 2009. The second is an order for costs of $1,200 against Mr Bull made when the Judge refused an application for rehearing of the earlier application on 14 October 2009.

[38]     The present appeal is solely against the judgment of 28 August 2009.  There is nothing before the Court in respect of the later rehearing application.   I am not prepared to deal with an appeal from an order in respect of which no notice of appeal has been lodged.

[39]     That leaves for consideration the costs order of $1,800.  Mr Natusch advises the Court that Mr Bull was in receipt of a grant of legal aid prior to and during the hearing before Judge Adams.  Counsel for Mr Bull had been under the impression that notice of the grant of legal aid had been given in the usual way to the Court and to counsel for Ms Hunter, pursuant to s 21(1) of the Legal Services Act 2000.  In fact no such notice had been given.

[40]     Mr Natusch  relies  upon  s  40(2)  of  the  Legal  Services  Act  2000,  which provides that:

No order for costs may be made against an aided person in a civil proceeding unless the Court is satisfied that there are exceptional circumstances.

[41]     That subsection  is principally designed to catch cases in which the behaviour of an aided person is vexatious or otherwise an abuse of the processes of the Court, and so deserving of an award of costs to the other party, despite the grant of legal aid.  The real issue for determination here is whether it is appropriate for the Court to make an order, even though Mr Bull was in receipt of legal aid, in circumstances where Ms Hunter was unaware of the grant, and therefore proceeded on the footing that Mr Bull (like her) was funding the proceedings himself.

[42]     Mr Cutting argues that there are exceptional circumstances and that the costs award ought to be upheld because Ms Hunter was prejudiced in that:

a)       She may well have decided to apply for legal aid herself, since she was eligible to do so;

b)She may have opposed Mr Bull’s grant at an earlier stage because she believed his entitlement was questionable;

c)       The order for costs was made primarily by reason of the fact that Mr Bull had adopted an intransigent attitude in the context of earlier interlocutory applications aimed at the sale of a launch “Potential”, (although it must be said that nothing in Judge Adams’ costs order reflects that consideration).

[43]     Judge  Adams  gave  an  oral  decision  at  the  conclusion  of  the  hearing  on

28 August 2009.   The judgment concluded by dealing with costs in the following way:

In respect of the big issue Ms Hunter has succeeded and I take into account that she made reasonable concessions in relation to that item.  There was a contest in relation to the boat where, in my view, in the big picture clearly she should have had the boat to reduce the amount of indebtedness.  I make an order for costs against Mr Bull in the sum of $1,800.

[44]     It is common ground that the costs order was made at a time when the Judge (like Ms Hunter and Mr Cutting) were unaware that Mr Bull was in receipt of a grant of legal aid.  The Judge was not therefore required to turn his mind to the impact of s

21(1), or to a consideration of whether exceptional circumstances existed.

[45]     The effect of a failure to give notice under s 21(1) was considered by Miller J in JAG v SJM HC Wanganui, CIV-2005-483-223, 22 November 2005.  There, His Honour said:

[26]      …  The  purpose  of  the  notification  requirement  is  to  allow  the opposing party to take account of its prima facie inability to recover costs from the aided person.  That may affect the opposing party’s conduct of the litigation.  For example, it may encourage settlement. As Ms Crooks pointed out, it also allows the opposing party to complain to the Legal Services Agency if the aided person appears to be incurring costs unnecessarily.

[27]     It  has  been  held  that  costs  may  be  awarded  against  the  lawyer concerned personally:   Stephens v Stephens [1999] 1 NZLR 633, Jones v Wiremakers Ltd [2000] 1 ERNZ 33.  But my attention was not drawn to any case in which failure to give notice led to an award of costs against the aided person.  On the contrary, in Maroux v Sociedade Commercial Abel Pereira da  Fonseca  [1972]  2  All  ER  1085,  1092,  Megarry  J  accepted  that  the lawyer’s failure to give notice under the corresponding English rule did not affect the aided person’s eligibility for aid or deprive him of his statutory protection for costs.

[28]     The jurisdiction to award costs against counsel for failure to give notice was held in the same case to be primarily compensatory in nature. That raises a further difficulty in this case, for there was nothing to suggest that the delay in giving notice added to the respondent’s costs.  The Court might  well  reach  the  view  that  the  appellant’s  cavalier  approach  to Registrar’s lists was explicable by her own indifference to costs, but it does not follow that loss was caused by counsel’s failure to notify.

[29]     I agree with the Judge that compliance with s 21 is important.  But it does not follow that breach amounts to exceptional circumstances justifying an award of costs against the aided person.  It might arguably do so if the lead provider’s failure to comply was attributable in some material way to

the aided person.   In other circumstances, the better view is that it may justify an award of costs or disciplinary action against the lawyer concerned, whose duty it is to comply with the notice requirement.

[46]     I agree with Miller J’s analysis.  It is simply not possible for this Court on appeal to review what Judge Adams might have done with respect to costs, had he been aware of the existence of a grant of legal aid to Mr Bull.  It would have been necessary for him to take into account the issues raised by Mr Cutting, and to consider also the course of the trial in the context of the history of the proceeding as a whole.  In doing so, he would be entitled to have regard to the s 21(1) breach, but in the light of the observations of Miller J, the breach of itself would not amount to an exceptional circumstance justifying an award of costs against Mr Bull, unless perhaps it could be shown that the failure to give notice was in some material way attributable to him.

[47]     In the foregoing circumstances the appropriate course is to remit the costs order of 28 August 2009 back to Judge Adams for reconsideration.

Result

[48]     The appeal against the costs award of 28 August 2009 is allowed.   The question of costs in respect of the proceedings heard on that day is remitted back to the District Court for rehearing, in the light of circumstances concerning legal aid now known to the Court.

[49]     The appeal is otherwise dismissed.

[50]     The Court understands that Mr Bull is in receipt of legal aid for the purposes of the present appeal.  Costs are therefore reserved.  If the further assistance of the Court is required in respect of costs on the appeal, counsel may file memoranda.

C J Allan J