Clayton v Clayton
[2015] NZHC 550
•24 March 2015
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV-2014-463-000112 [2015] NZHC 550
BETWEEN MARK ARNOLD CLAYTON
Appellant
AND
MELANIE ANN CLAYTON Respondent / Cross-Appellant
Hearing: 10 February 2015 Appearances:
M J McCartney QC and K E Sullivan for Appellant
J R Hosking for Respondent / Cross-AppellantJudgment:
24 March 2015
JUDGMENT (1) OF COURTNEY J
This judgment was delivered by Justice Courtney on 24 March 2015 at 4.50 pm
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date……………………….
CLAYTON v CLAYTON [2015] NZHC 550 [24 March 2015]
The issue
[1] Mark Clayton appeals a final maintenance order requiring him to pay his former wife, Melanie Clayton, maintenance of $15,000 per month.1 That figure includes an allowance of $10,000 per month to cover Mrs Clayton’s legal and accounting fees in the relationship property litigation between them that has been on foot since 2007. Mr Clayton asserts that, as a matter of law, such an allowance in the maintenance order is not permitted.2
The case in the Family Court
[2] Because the present decision deals only with a point of law, it is unnecessary to canvass the lengthy procedural history of the litigation and I limit my discussion of the facts to a bare outline of the case in the Family Court.
[3] Mrs Clayton commenced proceedings under the Property (Relationships) Act
1976 (PRA) in 2007. She claimed that an extensive network of business interests controlled by Mr Clayton through companies and trusts was relationship property. She soon found that she could not meet the legal fees required for this litigation. She applied for interim and final maintenance orders. Consent orders were made in
2010. Under those orders Mrs Clayton received the former family home by way of an interim distribution as a means of funding her legal fees. Mr Clayton also agreed to meet the costs associated with the property.
[4] In 2011 the Family Court delivered a decision on the relationship property claim favourable to Mrs Clayton.3 Mr Clayton’s appeal to the High Court was unsuccessful.4 He lodged a further appeal to the Court of Appeal; it was clear that
the litigation would be ongoing.5
1 C v C [2014] NZFC 4193.
2 Mr Clayton has also appealed the decision on other grounds and Mrs Clayton has cross-appealed
The other grounds and the cross-appeal were heard separately and will be the subject of a separate judgment.
3 MAC v MAC FC Rotorua FAM-2007-063-652, 2 December 2011.
4 Clayton v Clayton [2013] NZHC 301, [2013] NZFLR 236.
5 Subsequent to the hearing of this matter the Court of Appeal delivered its decision the effect of which was largely unfavourable to Mr Clayton: Clayton v Clayton [2015] NZCA 30.
[5] Mrs Clayton applied for an order varying the consent orders to increase the monthly maintenance payments to $18,500 until settlement of her relationship property claim on the ground that her current maintenance arrangements were inadequate to meet her reasonable needs, including significant debt relating to professional fees. She claimed that she had incurred $855,113.86 in various professional fees, predominantly legal fees. She had sold the former family home and the proceeds of sale ($722,930.22) had been exhausted meeting legal fees. She had incurred a mortgage on her new (more modest) home and had additional borrowings, all of which had been used to meet outstanding legal fees. She could not meet the legal expenses associated with the appeals from her salary. She said that she had incurred legal costs of $68,058 in the 12 months since the High Court appeal alone and her counsel had indicated that the appeal to Court of Appeal would require a further $100,000.
[6] The Family Court Judge accepted that legal and accounting fees for ongoing relationship property litigation could be included in a final maintenance order:6
There is authority for the proposition that legal and accounting costs can form part of an interim order for maintenance strictly on the basis that these costs are ongoing. This application is not for interim maintenance because there is little confidence that the proceedings will be completed within six months. Depending on the outcome of the appeal in the Court of Appeal, there is the possibility of an application for leave to appeal to the Supreme Court or conversely, matters will be referred back to the Family Court to hear further evidence in relation to three post-separation trusts, pursuant to the High Court judgment, and ultimately to determine the quantum of Mrs Clayton’s entitlement. It is fair to say that this litigation is far from completion. There are many and complex issues and Mr Clayton has demonstrated a willingness to appeal at every opportunity.
In the case of C v G [2010] NZCA 128, it was stated that:
… It is wrong in principle to include legal costs in a maintenance order unless they are likely to be an ongoing expense. An order for periodical maintenance is intended to cover expenses which are expected to be ongoing.
Over the past 14 months since the High Court hearing, Mrs Clayton’s legal and accounting costs have averaged approximately $6,500 per month. Her counsel, Ms Hosking, has described it as a “light” year: however, with the Court of Appeal hearing looming, the costs will escalate very significantly as previously mentioned and there is uncertainty as to the extent of ongoing costs. It is on that basis that Mrs Clayton seeks over $12,000 month. In my
6 [24] – [28].
view, once the Court of Appeal hearing is concluded, then the ongoing legal and accounting work may reduce pending the way in which these proceedings unfold.
Mrs Clayton’s legal and accounting costs are significant, partly due to the fact that she has engaged Lady Chambers QC for the upcoming appeal, in addition to Ms Hosking. This is a case, however, that requires very senior and experienced counsel and no issue can be taken with Mrs Clayton’s decision to instruct Queens Counsel.
In order to enable Mrs Clayton to continue to participate in the ongoing legal proceedings, I am prepared to make a periodic award of $10,000 per month to cover specifically legal and accounting costs, that amount reflecting the anticipated $100,000 for the Court of Appeal hearing and inevitable ongoing litigation.
Can legal costs be included in a final maintenance order?
Statutory framework for final maintenance orders
[7] The provisions in ss 64 and 64A of the Family Proceedings Act 1980 for maintenance beyond the immediate period following the dissolution of a marriage or ending of a civil union or de facto partnership reflect the underlying “clean break” principle of that Act; a person’s liability to maintain his or her former spouse or partner is usually expected to be temporary while the other person becomes self- sufficient.
[8] Under s 64 spouses, civil union and de facto partners are required to maintain their spouse or partner following the dissolution of the marriage or end of the civil union or de facto partnership to the extent necessary to meet the reasonable needs of the other person where that person cannot practicably meet his or her needs because of any of the circumstances in s 64(2). But s 64 is subject to s 64A, which imposes a positive obligation on the partners to the marriage, civil union or de facto partnership to assume responsibility for themselves within a period of time that is reasonable in
all the circumstances.7 The corollary is that on the expiry of a reasonable period of
time, neither partner is liable to maintain the other.8
7 Section 64A(1)(a).
8 Section 64A(1)(b).
[9] However, the “clean break” principle is not intended to be applied rigidly so
as to result in unfairness; in Z v Z (No 2) the Court of Appeal said:9
Applied to maintenance after divorce, s 64 is undoubtedly intended to give effect to the clean break principle and encourage the former spouses to become independent and self-sufficient after the dissolution of the marriage but nothing in the wording of the relevant sections or the scheme of the Act requires this objective to be carried through to the point where the provisions operate unfairly and harshly on one or other of the spouses.
[10] Sections 64 and 64A relevantly provide:
64Maintenance after marriage or civil union dissolved or de facto relationship ends
(1) Subject to section 64A, after the dissolution of a marriage or civil union or, in the case of a de facto relationship, after the de facto partners cease to live together, each spouse, civil union partner, or de facto partner is liable to maintain the other spouse, civil union partner, or de facto partner to the extent that such maintenance is necessary to meet the reasonable needs of the other spouse, civil union partner, or de facto partner, where the other spouse, civil union partner, or de facto partner cannot practicably meet the whole or any part of those needs because of any 1 or more of the circumstances specified in subsection (2).
(2) The circumstances referred to in subsection (1) are as follows:
(a) The ability of the spouses, civil union partners, or de facto partners to become self-supporting, having regard to—
(i) the effects of the division of functions within the marriage or civil union or de facto relationship while the spouses, civil union partners, or de facto partners lived together:
(ii) the likely earning capacity of each spouse, civil union partner, or de facto partner:
(iii) any other relevant circumstances:
...
(c) The standard of living of the spouses, civil union partners or de facto partners while they lived together.
(4) Except as provided in this section and section 64A,—
(a) neither party to a marriage or civil union is liable to maintain the other party after the dissolution of the marriage or civil union:
(b) neither party to a de facto relationship is liable to maintain the other de facto partner after the de facto partners cease to live together.
9 Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 292-293.
64ASpouses, civil union partners, or de facto partners must assume responsibility for own needs within reasonable time
(1) If a marriage or civil union is dissolved or, in the case of a de facto relationship, the de facto partners cease to live together,—
(a) each spouse, civil union partner, or de facto partner must assume responsibility, within a period of time that is reasonable in all the circumstances of the particular case, for meeting his or her own needs; and
(b) on the expiry of that period of time, neither spouse, civil union partner, or de facto partner is liable to maintain the other under section 64.
(2) Regardless of subsection (1), if a marriage or civil union is dissolved or, in the case of a de facto relationship, the de facto partners cease to live together, one spouse, civil union partner, or de facto partner (party A) is liable to maintain the other spouse, civil union partner, or de facto partner (party B) under section 64, to the extent that such maintenance is necessary to meet the reasonable needs of party B if, having regard to the matters referred to in subsection (3),—
(a) it is unreasonable to require party B to do without maintenance from party A; and
(b) it is reasonable to require party A to provide maintenance to party B. (3) The matters referred to in subsection (2) are as follows:
(a) the ages of the spouses, civil union partners, or de facto partners: (b) the duration of the marriage or civil union or de facto relationship:
(c) the ability of the spouses, civil union partners, or de facto partners to become self-supporting, having regard to—
(i) the effects of the division of functions within the marriage or civil union or de facto relationship while the spouses, civil union partners, or de facto partners were living together:
(ii) the likely earning capacity of each spouse, civil union partner, or de facto partner:
(iii) the responsibilities of each spouse, civil union partner, or de facto partner for the ongoing daily care of any minor or dependent children of the marriage or civil union or (as the case requires) any minor or dependent children of the de facto relationship after the dissolution of the marriage or civil union or (as the case requires) after the de facto partners ceased to live together:
(iv) any other relevant circumstances.
Is it permissible to include an allowance for legal expenses in an order under s 64?
[11] Ms McCartney QC, for Mr Clayton, advanced four main arguments against including legal expenses in an order under s 64. First, she submitted that the wording of s 64 makes it clear that the legislative intention is not to include legal and accounting costs incurred in post-separation litigation that have nothing to do with the financial circumstances and arrangements of the parties during the marriage. She argued that the required causal nexus between inability to meet claimed reasonable needs and the qualifying circumstances identified at s 64(2) is not satisfied in a case such as this because Mrs Clayton’s inability to meet her legal fees is unrelated to her ability to become self-supporting having regard to the factors identified at s 64(2)(a). In particular, she argued that the legal costs were so significant that neither party could have met them from their respective incomes even during the marriage, and therefore Mrs Clayton’s inability to meet them now cannot be linked to any of the qualifying circumstances.
[12] I do not accept this submission. It overlooks the “catch-all” provision in s 64(2)(a)(iii) which permits the Court to take a broad view of the circumstances that have led to the party seeking maintenance being unable to meet his or her reasonable needs. Following Z v Z s 64 was amended and s 64A introduced specifically to allow the Court to consider a wider range of circumstances in determining maintenance and provide the Court with greater flexibility in doing so.10
[13] I consider that s 64(2)(a)(iii) can extend in appropriate cases to include the need to resolve the relationship property dispute. Most people require their share of relationship property in order to re-establish themselves and meet ongoing living expenses. When one party is engaged in extensive litigation with a former spouse over relationship property, it is as much a cost in his or her budget as any other legitimate personal expense.
[14] Identifying and valuing relationship property can easily lead to lengthy disputes and significant legal fees. It is true that many such disputes are resolved
10 The Matrimonial Property Amendment Bill 1998 and Supplementary Order Paper No 25 (Select Committee Report) at 20, as discussed by the Court of Appeal in C v G [2010] NZCA 128 [2010] NZFLR 497at [34].
without recourse to litigation or, if litigation ensues, then at least without recourse to trial. Nonetheless, it is unrealistic to imagine that these cases do not also result in the parties incurring significant legal fees. The costs of legal advice, accountants and mediators are high. The level of expense is very likely to prevent some parties from becoming self-supporting if that party’s resources are substantially taken up by legal costs. Worse, if that party cannot meet the required legal costs from their resources they may be excluded from advancing a legitimate claim under the PRA.
[15] The second argument is the apparent injustice of requiring one party to effectively fund the litigation against them. It is said that this would encourage or, at least, reward meretricious litigation and discourage settlement. Moreover, without specific conditions there is no obligation on the recipient to actually use the funds for legal costs as opposed to simply enhancing his or her lifestyle.
[16] It is understandable that there should be resistance to what appears to be a requirement to fund litigation against oneself. That, however, is to mischaracterise the nature of an allowance for legal costs in a maintenance award. The payment does no more than place the party seeking maintenance in a position that will assist him or her to become self-supporting. There are protections against unfair or wasted expenditure; a maintenance order is always subject to the Court’s assessment of what is reasonable and the Court can require an undertaking regarding the use to which the allowance will be put. If the recipient of the maintenance truly is advancing a meretricious case the paying party will have a remedy by way of a strike-out application or a costs award (including increased and indemnity costs).
[17] The third argument raised on behalf of Mr Clayton was that including legal costs in a final maintenance order cuts across the statutory costs regimes under which costs are to be fixed at the conclusion of the case and, in general, reflect the outcome. This argument was rejected in the UK case of A v A.11 Its facts, though unusual, reflect a not uncommon situation; the husband controlled substantial assets and the wife did not. The legal fees involved in establishing the wife’s claim were
enormous. The husband could afford his legal fees. The wife could not. Holman J’s
11 A v A (Maintenance Pending Suit: Payment of Legal Fees) [2001] 1 WLR 605, cited in B v B
[2008] NZFLR 789 (HC).
response to the argument that legal costs should be determined in the usual way at the end of the proceedings, was:12
[Counsel for the husband] submitted in effect that costs are costs and that the proper way to deal with them is at the conclusion of proceedings, when the outcome is known. In this respect he submitted, there is no difference between matrimonial proceedings or any other kind of civil litigation in which one party cannot obtain any contribution to costs from the other party until the end. I do not agree. In my view certain features do put matrimonial proceedings in a special category. First, the fact is that, as I have held, in matrimonial proceedings a power exists under section 2213 which does not exist as between parties to normal civil proceedings. Secondly, typically in matrimonial proceedings, as in this case, there has been a history of economic dependence of one party to the proceedings upon the other…. In short, the whole legal and factual context and relationship between the parties to the matrimonial proceedings is a special one and sui generis; and the analogy with ordinary civil proceedings is unsound.
[18] Nor is there any real risk of the paying party effectively paying twice over through an award of costs if he or she is unsuccessful. If that party fails in any step of the litigation the fact that the other party’s legal costs were effectively met through the allowance in a maintenance order should be a factor to be taken into account in determining whether costs should be allowed and, if so, at what level. The purpose of costs is, ordinarily, to require the unsuccessful litigant to make a contribution towards the other party’s legal expenses. Where the legal expenses have already been met from the maintenance order no contribution would be required. Different considerations might apply if the circumstances were such as to justify indemnity costs for very bad or unreasonable conduct. But in the usual course, since the successful party has already had legal expenses met by way of a maintenance award, it would be unnecessary to impose a further award of costs.
[19] Conversely, if the party receiving the maintenance is unsuccessful there is no reason that the successful party should not be entitled to obtain costs. The rationale of the maintenance order is to equip the recipient party to engage in litigation. Having been placed in a position to meet his or her reasonable needs from the maintenance payments, there is no principled reason to treat that party as different from any other litigant who knows that the risk of a costs award is to be taken into
account in determining whether to proceed with any particular step in the litigation.
12 At 612.
13 Section 22, Matrimonial Causes Act 1973 provides for both interim and periodical maintenance.
[20] Ms McCartney relied heavily on the Court of Appeal’s decision in C v G14 to support her argument. C v G concerned an appeal against a final maintenance order which had included an allowance for legal costs rather than imposing a costs award in the usual way. The parties had already entered into full and final settlement arrangements regarding all other aspects of their relationship, including relationship property, so there was no ongoing litigation between them. The Court of Appeal held that legal costs should not have been included in the maintenance order and that the proper course was to have dealt with them separately in accordance with the costs regime:15
We are satisfied that the legal costs should not have been included in the maintenance award. We accept Ms Hollings’ submission that it is wrong in principle to include legal costs in a maintenance order unless they are likely to be an ongoing expense. An order for periodical maintenance is intended to cover expenses which are expected to be ongoing. The legal costs in this case were more properly regarded as a one-off debt. The proper course was to deal with the litigation costs as a separate issue in accordance with the rules of court. The inclusion of costs in a maintenance order assumes an outcome in favour of the beneficiary of the order which may not be justified for a range of reasons when the maintenance order is made. Such issues could include the existence of pre-trial offers or the impact of legal aid where applicable …
The costs rules now applicable evince a clear statutory policy that awards of costs in proceedings of the kind at issue here are to be dealt with on a principled basis generally following the detailed rules relevant to the case at hand. The costs rules allow (amongst other things) for costs to be increased or decreased on specified criteria. In general terms, however, the rules are designed to promote consistency by providing for specified rates of costs applied to allocations of time for particular steps in the litigation. To include awards of costs in periodical maintenance orders would cut across the policies behind the costs rules.
(emphasis added)
[21] In RK v DK, which was factually similar to C v G in that it concerned a final maintenance order, there were no relationship property proceedings on foot and the allowance sought for legal costs appears to have related to costs already incurred in the proceeding, Venning J treated C v G as authority for the proposition that legal
costs could not be included in such an order:16
14 C v G [2010] NZCA 128, [2010] NZFLR 497.
15 At [52] and [54].
16 RK v DK [2011] NZFLR 468 (HC) at [58].
Section 69(1)(b) and (c) are broad enough in their terms to support a lump sum payment for legal costs where the costs may be existing at the date of separation or may have been incurred on a discrete and unrelated matter. But where, as in this case, the legal costs are ongoing and have been incurred in relation to the proceedings in issue, the Court of Appeal in C v G made it clear that such costs should be dealt with in accordance with the rules of court.
[22] However, Whata J read C v G more narrowly in GCH v SMH.17 It concerned an interim maintenance order made under s 82 FPA but had factual similarities with the present case. The appellant claimed that he could only meet his maintenance obligations by borrowing from trusts of which he was a beneficiary and asserted that there was no relationship property. The respondent claimed that there was substantial relationship property in the form of land assets held by trusts that the appellant controlled. Whata J treated C v G as applying equally to interim maintenance orders but did not accept that its effect was to preclude the Family Court from taking litigation expenses into account in making interim maintenance
awards:18
Taken together, the observations in C v G provide clear direction that awards of costs should not be included in an interim maintenance order, because that would undermine the proper application of the costs rules. But I reject the submission that the Family Court may never take into account legal expenses involving litigation between partners in an interim maintenance award …
[23] Among the reasons that the Judge gave for this conclusion was the fact that in C v G “the Judge had taken into account legal expenses as a factor in increasing the maintenance order … As such, the maintenance order was tantamount to an award of costs, cutting across the statutory policy just mentioned”.19
[24] The Court of Appeal’s comments at [52] of C v G strongly suggest that legal costs could be included in a final maintenance order where they are “ongoing”. As against this, some of the reasons given for its decision would have the effect of excluding legal costs in all maintenance orders, such as the statement that the inclusion of costs in a maintenance order assumes an outcome in favour of the beneficiary of the order which may not be justified. However, because the factual
position was so different from the present kind of case and the arguments I have
17 GCH v SMH [2014] NZHC 211, (2014) 20 FRNZ 727.
18 At [30].
19 At [32].
canvassed not fully considered, the better course, in my view, is to treat C v G as being confined to cases in which there is no ongoing litigation between the parties and therefore no ongoing legal expenses.
[25] The final argument raised against making an allowance for legal fees in final maintenance orders was the lack of any adjustment mechanism by which the paying party could recoup funds paid as maintenance at the conclusion of the proceedings. Ms Hosking, for Mrs Clayton, submitted that there was ample scope for the Court to make adjustments at the end of the proceedings to reflect Mrs Clayton’s receipt of funds. She proposed s 32 PRA as that mechanism. Section 32 provides that:
(1) In any proceedings, the court must have regard to —
(a) any order made under the Family Proceedings Act 1980 for the maintenance of a spouse or partner; and
…
(2) In any proceedings, the court, if it considers it just, may —
(a) make an order under the Family Proceedings Act 1980 for the maintenance of a spouse or partner:
(b) discharge, vary, extend, or suspend an order made under the Family
Proceedings Act 1980 for the maintenance of a spouse or partner:
…
(3) An order made under this Act in respect of relationship property is not sufficient by itself to support —
(a) an application under section 99 of the Family Proceedings Act 1980 for the discharge, variation, extension, or suspension of an order for the maintenance of a spouse or partner; or …
[26] The wording of s 32 suggests, however, that it only operates de futuro. There is no means under s 32 by which monies already paid under a maintenance order could be recouped. Likewise, the compensatory provisions in the PRA do not contain any mechanism that would permit an adjustment of the division of relationship property to recognise previous maintenance payments.
[27] This problem has prompted the suggestion that putting a party in funds to meet legal expenses through interim distribution of relationship property is
preferable to making an allowance in a final maintenance order.20 That proposition is uncontroversial in the sense that it is only once the division of relationship property has been resolved that parties will know with any certainty whether there is a need for ongoing maintenance and, if so, the extent of that need. Interim distributions of relationship property are therefore an appropriate means of generally hastening the path towards independence. Where it is inevitable that there will be distribution and practical to make an interim distribution, I would agree that this is the preferable course. Difficulties arise, however, in cases where the relationship property is not amenable to interim distribution or where, as here, there is a serious dispute about whether the property controlled by one spouse is, in fact, relationship property.
[28] In my view, however, the search for an adjustment mechanism is unnecessary; if legal expenses are treated in the same way as any other ongoing expense required for a period to assist one party to achieve self-sufficiency, there is no reason to expect that any adjustment will be required.
Result
[29] I have concluded that the statutory scheme for final maintenance orders does not, either as a matter of statutory interpretation or for any policy reason, preclude a final maintenance award making an allowance for legal expenses in relation to ongoing litigation between the parties. The appeal on this point is therefore dismissed.
Parties may address the issue of costs by way of memorandum filed on behalf of the respondent within 14 days, the appellant within a further seven days and the
respondent in reply within a further seven days after that.
P Courtney J
20 In GCH v SMH Whata J considered a “like for like” distribution from a family trust to fund legal
costs was preferable to an allowance in a final maintenance order.
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