Cossio v Cossio
[2018] NZHC 2779
•26 October 2018
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,
11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000814
[2018] NZHC 2779
IN THE MATTER of an appeal under s 39 of the Property (Relationships) Act 1976 and s 124 of the District Courts Act 2016 BETWEEN
THERESA LAI FONG WONG COSSIO
Appellant
AND
MATTHEW COSSIO
Respondent
Hearing: 20 September 2018 Appearances:
R C Knight and T Chubb for Appellant M Vickerman for Respondent
Judgment:
26 October 2018
JUDGMENT OF VENNING J
This judgment was delivered by me on 26 October 2018 at 3.50 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: TGT Legal, Auckland
Ewart & Ewart, Auckland
Copy to: M W Vickerman, Auckland
COSSIO v COSSIO [2018] NZHC 2779 [26 October 2018]
Introduction
[1] Theresa Cossio and Matthew Cossio separated finally on 27 August 2009 and their second marriage was dissolved on 11 April 2013. While they were able to agree on most issues regarding relationship property, one issue they could not agree on was whether the shareholding held by Mr Cossio in J Cosio Ltd (JCL) and Permathene Ltd (Permathene) was Mr Cossio’s separate property or whether Ms Cossio had a claim against the shares.
[2] In a judgment delivered on 28 March 2018 Judge S J Maude held Mr Cossio’s shares in JCL and Permathene were his separate property and Ms Cossio’s claims to an interest in the shares under s 9A and s 17 of the Property (Relationships) Act 1976 (the Act) failed.1
[3] In a subsequent decision Judge Maude awarded costs in Mr Cossio’s favour in the sum of $46,575 together with disbursements of $12,600.2
[4] Ms Cossio initially appealed against the decision that she had no interest in the shares in JCL and Permathene and then, by an amended notice of appeal, appealed the costs decision also.
Relationship background
[5] In 1979 the parties married for the first time. The first marriage was dissolved in January 1982.
[6] In October 1985 the parties married for the second time. In May 1986 they purchased the first family home at 31 Sentinel Road, Herne Bay. Both contributed to the purchase price.
[7] In November 1986 the parties’ first child was born. Mr Cossio was unemployed at the time.
1 Cossio v Cossio [2018] NZFC 2065.
2 Cossio v Cossio [2018] NZFC 3900.
[8] In December 1990 Mr Cossio acquired a 51 per cent shareholding in Permathene and JCL. In October 1991 the parties’ second child was born.
[9] It is accepted that Mr Cossio suffered from addiction to substances. The addiction was cured by 1992.
[10] In 1992 the parties sold 31 Sentinel Road and purchased 41 Sentinel Road, which became the family home.
[11] In July 2000 Permathene Pty Ltd was incorporated in Australia by Mr Cossio and his sister Jane.
[12] In 2002 Mr Cossio became the managing director of Permathene. In 2008 Mr Cossio was diagnosed with hepatitis. Ms Cossio provided care and support for him.
[13] On 27 August 2009 the parties separated. Mr Cossio subsequently relocated to Australia. On 11 April 2013 the parties’ second marriage was dissolved. Mr Cossio has subsequently remarried.
Background to the companies and Mr Cossio’s acquisition of the shares
[14] Permathene was initially established by Mr Cossio’s father, Jose Cosio, in October 1964.3 In general terms it supplies geosynthetic waterproofing systems to the construction, horticultural and agricultural industries. Its business has developed over time.
[15] Permathene operates from premises at Rosebank Road, Auckland. JCL owns the building from which Permathene operates.
[16] Jose Cosio had three children – Mr Cossio, a daughter Jane, and another son. Jose Cosio fell out with the other son during the late 1980s. The son left the business and set up in competition. Following that, in 1990 Jose Cosio apparently decided to
3 Mr Cossio spells his name with two “ss”, his father used one.
transfer the business to Mr Cossio and Jane and to then go and live in the United States to pursue other business ventures.
[17] The evidence regarding the arrangements made at that time is not entirely clear. The best evidence appears to be a note from a draft brief prepared by Jose Cosio’s accountants which gave two options to effect his plans to transfer his shares in Permathene and JCL to Mr Cossio and his sister Jane in the ratio of 51/49 per cent respectively.
[18]The draft brief prepared by the accountants provided as option one:
2.1 J. Cosio Ltd
2.1.1Declare dividends out of retained earnings prior to a shareholding change. Dividend to be paid to Jose Cosio and Matthew Cossio.
2.1.2Jose Cosio to sell his shares in JCL to MC and Jane (51% and 49% respectively). An interest free, on-demand loan will finance the purchase of these shares.
And under option two:
2.1 J Cosio Ltd
2.1.1Declare dividends out of retained earnings prior to shareholding change …
2.1.2Resolution dated 24 December 1990 a net dividend of
$403,689.47 be declared from retained earnings.
2.1.3Sale of JCL shares
Per R. J. Hodge’s letter of 30 October 1990, paragraph 2:
“Valuation of each company necessary to establish the transfer price of the shares to Matthew and Jane”.
Para 2(b) of said letter further states:
“a sale of shares will be necessary as any other form of transfer would be deemed a gift and subject to Gift Duty.”
Accordingly J C L shares were valued by R. J. Hodge at
$78.00 per share.
Purchase price payable by Matthew - 5,711 shares at
$78.00/share is $428,064.00. …
2.1.4Funding of share purchase
An interest free, on-demand loan made by Jose Cosio to Matthew ($445,458) … for the purchase of JCL shares.
This advance would be repaid by the application of dividends received by Matthew and Jane for the year ended 31 March 1991 and future shares from PPL [Permathene] and JCL.
The brief also provided for the transfer of shares in Permathene (which were held by the J Cosio Trust) via the trust to Mr Cossio and his sister. Under the reference to Permathene it provided the following:
2.2.3 J. Cosio Trust distribute the dividend received from PPL of
$154,729.95 to Matthew and Jane in a ratio of 51:49.
Matthew and Jane will then apply the proceeds of this dividend against the loan due from them to Jose Cosio for the purchase of JCL shares. (see paragraph 2.1.4 above).
[19] It appears that the proposal was implemented and that the shares were transferred in the 51/49 per cent ratio. Mr Cossio’s confirms that:
[JCL] shares, were repaid from dividends and a document dated 31 March 1998 (from the accountants I believe) records that by then there was a balance of only $73,169 outstanding of the original debt owed by me of $445,458. I can confirm that repayments all were made from dividends received from the shares.
[20] The document Mr Cossio refers to shows an opening balance of $445,458 and a balance due as at 31 March 1998 of $73,169.83.
Family Court judgment
[21] In rejecting Ms Cossio’s claim to an interest in the JCL and Permathene shares the Judge concluded that the shares were transferred to Mr Cossio by succession and that:4
(a)There were share transfers made by Mr Cossio’s father to the J Cossio Trust and it then to his son and daughter in respect of the two companies, as envisaged in the option documents …
(b)There was an agreed debt owed by Mr Cossio and Jane in respect of the shares acquired by them from their father in [JCL].
4 Cossio v Cossio, above n 1, at [84].
(c)There were distributions made from retained earnings from [Permaethene] to Mr Cossio and her sister Jane which were in turn paid to Mr Jose Cosio.
(d)There remains a debt owing to Mr J Cossio in respect of an outstanding balance of $73,169.83.
(e)The transactions corroborate what is claimed by Mr Cossio to have occurred by way of succession planning by his father as set out in the options provided to him by the accountants.
(f)That accordingly, the [JCL] shares were transferred by Jose Cosio to his son and daughter for value, establishing debts owed by them to him which were substantially repaid as set out above from retained earnings distributed from [Permathene] to Mr Cossio and Jane, separate property in their hands, such that therefore Mr Cossio’s shareholding in the two companies remains his separate property.
[22]The Judge considered the structure of the succession planning was:5
(a)Distribution of the [Permathene] shares by Jose Cosio to the J Cossio Trust, with then on distribution of the shares to Matthew Cossio and his sister, not by way of sale for value.
(b)Sale of the shares in [JCL] for value ($0.78 per share) to Matthew Cossio and Jane Cossio, to be funded from distributions from retained earnings held by [Permathene].
[23] Judge Maude ultimately concluded that the shares in both JCL and Permathene were transferred to Mr Cossio as part of Jose Cosio’s succession plan and were the separate property of Mr Cossio under s 10 of the Act.
[24] The Judge then rejected Ms Cossio’s claim to an interest in the shares under ss 9A and 17. He considered that the evidence did not support Ms Cossio’s argument of a direct contribution by her to the shares. The Judge also rejected Ms Cossio’s claim that she had sustained the value of the shares. While accepting that Ms Cossio had earned income for the family, had cared for the parties’ children and had assisted Mr Cossio at times of his addiction and when he suffered from hepatitis, her assistance to the family unit was more limited than that of a stay at home parent because she worked throughout the children’s infancy supported by Mr Cossio’s mother.
5 Cossio v Cossio, above n 1, at [86].
[25] In his costs decision Judge Maude accepted Mr Cossio’s claim for increased costs. He awarded costs on a 2B basis uplifted by 30 per cent. He also ordered Ms Cossio to pay approximately 50 per cent of Mr Cossio’s experts’ fees.
Issues on appeal
[26]The issues on the appeal are:
JCL
(a)Are Mr Cossio’s shares in JCL relationship property?
(b)If not, were the shares sustained by application of relationship property or did Ms Cossio make direct and/or indirect contributions to the company (thereby sustaining the value of the shares) which would entitle her to compensatory adjustment under s 17 of the Act?
Permathene
(c)Were the shares sustained by the application of relationship property or did Ms Cossio make direct and/or in direct contributions to the company (thereby sustaining Mr Cossio’s shares or the value thereof) which would entitle her to a compensatory adjustment under s 17 of the Act?
Costs
(d)Did the learned District Court Judge take account of irrelevant considerations and/or fail to take account of relevant considerations in his assessments as to the Ms Cossio’s liability for costs; and
(e)Was the quantum awarded reasonable in all the circumstances?
[27] Mr Knight confirmed the appellant no longer pursues an argument under s 9A. She accepts she could not establish her actions had contributed to an increase in value of the shares.
Approach to the appeal
[28] As an appeal by way of rehearing the principles and approach established by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar apply.6 However in applying those principles I take account of the observations of this Court in B v F and WPH v ITP.7
JCL shares
[29] The Judge considered the JCL shares were Mr Cossio’s separate property because they had been transferred to him as part of Jose Cosio’s succession plan.
[30] The starting point is s 8 of the Act. As the shares were acquired by Mr Cossio in 1990 (after the second marriage), under s 8(1)(e) the shares were relationship property unless one of the identified exceptions applied. Section 8 provides (as relevant):
8 Relationship property defined
(1) Relationship property shall consist of—
…
(e) subject to sections 9(2) to (6), 9A, and 10, all property acquired by either spouse or partner after their marriage, civil union, or de facto relationship began; and
[31] Sections 9(2) to (6) do not apply. Section 9A is not applicable in the present case. That leaves s 10 as the only potential basis to exclude Mr Cossio’s shares in JCL from relationship property.
[32]Section 10 provides (as relevant):
10Property acquired by succession or by survivorship or as a beneficiary under a trust or by gift
(1)Subsection (2) applies to the following property:
(a)property that a spouse or partner acquires from a third person—
6 Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC).
7 B v F [2010] NZFLR 67 (HC) at [8]; and WPH v ITP [2009] NZFLR 745 (HC) at [17].
(i)by succession; or
(ii)by survivorship; or
(iii)by gift; or
(iv)because the spouse or partner is a beneficiary under a trust settled by a third person:
…
(2)Property to which this subsection applies is not relationship property unless, with the express or implied consent of the spouse or partner who received it, the property or the proceeds of any disposition of it have been so intermingled with other relationship property that it is unreasonable or impracticable to regard that property or those proceeds as separate property.8
[33] The Judge took the view that Mr Cossio’s shares in JCL were acquired from Jose Cosio by way of succession. In coming to that view the Judge referred generally to the matters referred to at [21] above, and considered he was reinforced in that view by:
(a)There was evidence from minutes of a directors’ meeting, which although undated were executed, which identified the number of shares to be transferred to both Mr Cossio and Jane Cossio, and the numbers accorded with those proposed to be transferred in the options document;
(b)A trustees’ resolution executed by Jose Cosio dated 27 December 1990 (in relation to Permathene) was also consistent with the transfer;
(c)A 22 May 1991 letter from Bissett, Hodge and Rainey (authored by R J Hodge) was produced valuing the JCL shares at $872,852.00 ($78.00 per share), which figure also accorded with the share value referred to in the options document;
8 There is no suggestion of intermingling in the present case.
(d)Repayments of the debt owed by Mr Cossio and Jane Cossio were recorded as having occurred between 1990 and 1998, leaving only
$73,169.83 owing by Matthew Cossio of the original debt;
(e)The options document supporting the succession plan relating to Permathene;
(f)No evidence of the distribution of shares in Permathene by the J Cossio Trust to Mr Cossio and his sister, being for value, was adduced and no evidence was adduced as to if the transfer was for value what the consideration would have been.
(g)Evidence of overly generous and imprudent payments from Permathene to Jose Cosio in respect of his purported attempts to develop business in the United States did not amount to evidence of consideration for the transfer of shares in 1990.
[34] In the Judge’s view the documents in totality confirmed Jose Cosio and Mr Cossio’s intent to transfer the JCL shares in the manner set out in the options document which envisaged contemporaneous transactions in respect of shares in both companies, not just to Matthew Cossio but also to his sister.
[35] With respect to the Judge there are a number of issues with that line of reasoning and his ultimate conclusion. First, there appears to be a factual error. The Judge refers to the transfer of the JCL shares from the trustees to Mr Cossio.9 While the Permathene shares were held by the trustees and they were transferred by the trustees to Mr Cossio and his sister, the JCL shares were held by Jose Cosio personally and were transferred by him to Mr Cossio. That is made clear by the options document Mr Cossio relies on and which the Judge referred to. The document refers to dividends to be paid to Jose and Matthew Cossio. Dividends can only be paid to shareholders. Further, the options document also expressly refers to Jose Cosio selling his shares to
9 Cossio v Cossio, above n 1, at [84](a). Although later, at [84](b) the Judge stated that Mr Cossio was indebted to his father.
Mr Cossio and his sister Jane, with the transaction being financed by an interest-free on-demand loan by Jose Cosio.
[36] Next, the Judge failed to analyse in any detail what the concept of succession in this context meant.
[37] The term succession is not defined in the Property (Relationships) Act. The Oxford English Dictionary defines succession as “the action of a person or thing following, or succeeding to the place of, another”; and particularly in the present context, “by succession” is “according to the customary or legal principle by which one succeeds another in an inheritance, an office, etc by inherited right”.10 The concept of inheritance brings with it the concept of a lack of consideration.
[38]In this context “succeed” has been defined in the following way:11
The expression “to succeed to” in reference to property or rights or interests in property is common and imports the act of becoming entitled to the possession and enjoyment of some legal estate or privilege, e.g. “on the death of his father his son succeeded to his father’s estate”. Re Bubnich, Marian v Bubnich [1965] WAR 138 at 140, per Wolff CJ.
[39] Also in this context “succession” has to be read in the context of how other categories of s 10(1)(a) provide for the acquisition of property, namely survivorship, gift or under an independent trust.
[40] While Jose Cosio may have intended to transfer the shares in JCL (and Permathene) to Mr Cossio and his daughter to the exclusion of the other son who he had fallen out with, he transferred the JCL shares for value, and apparently market value. The shares were not left to Mr Cossio and his sister by will. There is no suggestion of an inheritance or succession to the shares in that sense. This was no gratuitous transfer. At the time of the transfer Mr Cossio was still active in business and only retired a number of years later. Jose Cosio wanted to be paid out over time and structured the arrangement accordingly.
10 Oxford English Dictionary (online ed, Oxford University Press, accessed 23 October 2018).
11 David Hay (ed) Words and Phrases Legally Defined (4th ed, LexisNexis, London, 2007).
[41] Finally, the Judge failed to analyse the transaction in relation to the JCL shares and conflated the transfer with the subsequent repayments in determining the transfer was pursuant to a succession so that s 10(1)(a)(i) applied.
[42] It is important to take into account the different nature of the sale of the JCL shares to Mr Cossio and the distribution of the Permathene shares to Mr Cossio. The shares in Permathene were transferred to the trust and ultimately distributed by the trustees to Mr Cossio and his sister as beneficiaries of the trust so that s 10(1)(a)(iv) applied to the Permathene shares. By contrast, the JCL shares were sold by Jose Cosio to Mr Cossio and his sister, with an attendant debt back for their value.
[43] The Judge fell into error in focusing on the source of the repayment of the debt, namely primarily (or apparently in his view entirely) by distributions from Permathene rather than focusing on the transaction underlying the transfer of the shares to Mr Cossio in the first instance and its consequences. A similar situation (in relation to the transfer of shares) was considered by the Court of Appeal in the case of Mills v Dowdall.12
[44] In Mills v Dowdall, as in this case, the husband’s father had transferred shares in the family company to the husband for the express consideration of $2 per share. On the same day the father executed a deed of forgiveness of the whole debt. The husband’s mother later transferred a house to the husband with the consideration secured by a mortgage. There was no intermingling with other matrimonial property. The sole issue before the Court in relation to the shares was whether they were excluded from matrimonial property by s 10(1)(a)(iii) of the Matrimonial Property Act 1976 as having been acquired by the husband by gift. The Court of Appeal upheld Ongley J’s finding that the shares had not been acquired by gift and s 10(1)(a)(iii) did not apply. The Court held that the father’s interest in the shares had been transferred to the husband in return for a binding financial obligation, namely a debt back. The gift in each case had been of monetary sums by way of forgiveness of the debts owing but not of the shares or the land. Both the shares and the house property were matrimonial property.
12 Mills v Dowdall [1983] NZLR 154 (CA).
[45] Cooke J was prepared to accept that the Court does not have to shut its eyes to reality and in some cases the two elements of the transaction (the transfer and gifting) would be so interlinked as to be inseparable, so that no liability would be incurred. He applied the reasoning of the House of Lords in WT Ramsay Ltd v Inland Revenue Commissioners to the case:13
That is to say, if it can be seen that the documents were meant to operate as a series or combination, their effect may be looked at as a whole. Should it emerge that the transferee was never to be under a real liability, because the consideration was to be forgiven instantly and as an inseverable part of the whole operation, the transaction can then be recognised for the purposes of the Act as a gift of the property. It is a solution unavailable, however, when instead of a gift of the property itself a continuing true indebtedness is intended — notwithstanding that ultimate writing off is also intended.
[46] However, on the meagre facts before the Court in Mills v Dowdall Cooke J was not prepared to conclude that no real liability for the price, even for a very short time was intended. A true indebtedness had been created, notwithstanding the ultimate writing off of that debt was ultimately intended.
[47]Richardson J noted that:14
The appellant acquired both the legal title and the equitable ownership of the shares … He did so under the instrument of transfer. As property acquired by the appellant after the marriage it was brought within the matrimonial property net by s 8(e) unless excluded by any other provision of that legislation. The only such exclusion provision relied on is s 10(1). Giving the material words of that subsection their natural and ordinary meaning, the property in question acquired by the husband was not acquired by gift. It was acquired by purchase and the contractual obligation of the appellant to pay the agreed purchase price became the subject of the deed (or deeds) of forgiveness.
[48]Richardson J then went on to note that:15
The true nature of their transaction can only be ascertained by careful consideration of the legal arrangements actually entered into and carried out.
… It is the legal character of the transaction that is actually entered into and the legal steps which are followed which are decisive.
[49] Similarly, in the present case, the shares in JCL were transferred to Mr Cossio (following valuation) at $78.00 per share for the significant consideration of
13 At 157, applying WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300 (HL).
14 At 159.
15 At 159.
$445,458.00. A true indebtedness was created. The debt owing by Mr Cossio to his father Jose Cosio for the shares was left as a debt owing on demand. Mr Cossio assumed a real liability for the debt when he acquired the shares which is confirmed by the payments he made over time. The true legal nature of the transaction was a transfer of shares for valuable consideration (the debt).
[50] In an effort to respond to that analysis Mr Vickerman referred to the decision of Elias J in Hobson v Hobson.16 In that case the only property at issue was the husband’s interest in the farm owned jointly with his third party brother. He and his brother purchased the farm from their father in 1974. The entire purchase price was secured by mortgage over the farm but the debt was forgiven on the father’s death in 1977 when the transfer was ultimately registered. The terms of the mortgage did not require payment of interest. Elias J came to the view that the farm was a gift. She noted that whether the transaction was a gift was a matter of fact that turned on the intention of the person transferring the interest assessed from the circumstances at the time. In Mr Hobson’s case the consideration for the transfer was to be characterised as insubstantial. The interest in the farm had been transferred for $2,000. Elias J considered that the evidence suggested a true figure closer to $25,000 would have been appropriate. In her view the disparity in the consideration was incomprehensible except in fulfilment of a clear intent to benefit the husband by substantial gift.
[51] The present case is quite different. The shares were valued prior to transfer. A substantial obligation was created in exchange for the transfer. While Jose Cosio may have intended to transfer the shares and interest in the business to Mr Cossio and his sister Jane to the exclusion of his other child, the transfer was for value. There was no element of gifting or gratuitous transfer. This was not a case of succession in the normal sense which is by way of inheritance or disposition without a concomitant obligation.
[52] The shares in JCL are prima facie relationship property by operation of s 8(1)(e) of the Act. They are not subject to the exception in s 10(1)(a)(i) of the Act.
16 Hobson v Hobson [1999] NZFLR 22 (HC).
[53] Mr Vickerman then noted that Ms Cossio acknowledged the Permathene shares were Mr Cossio’s separate property having been acquired by a distribution from the trust (s 10(1)(iv)). He submitted that, as the source of payment for the shares were dividends from Permathene s 9(2) of the Act applied and the JCL shares were effectively acquired out of separate property so that they were themselves separate property.
[54] However, the JCL shares were not acquired by repayment of the debt that Mr Cossio owed his father in relation to the shares. The shares were acquired at the time of and by the transfer to Mr Cossio with the corresponding debt to his father. Mr Cossio could at that stage have dealt with the shares in whatever way he wished. It would have been open to him to sell them to a third party. What Mr Cossio was left with was a debt owing to his father for the assessed value of the shares.
[55] The shares in JCL existed and had the agreed value of $445,458. The payment down of the debt (whatever the source of the payments) in relation to the JCL shares over time was simply the reduction of a liability.
[56]As Cooke J observed in Mills v Dowdall:17
forgiveness of a debt does not result in the acquisition of any property by the person forgiven. It is simply that his liabilities are diminished or extinguished.
[57] While in the present case there was actual repayment of the debt rather than forgiveness, the principle is the same. Such reductions in the debt do not result in the acquisition of the property in relation to which the debt was originally incurred. All that occurred is that Mr Cossio’s liabilities, i.e. the debt in relation to the shares, were reduced.
[58] For the foregoing reasons I find that the shares acquired by Mr Cossio in JCL in or around 1990 are relationship property.
17 Mills v Dowdall, above n 12, at 156.
The s 17 argument
[59] In the circumstances it is unnecessary to consider Ms Cossio’s alternative argument for an interest in relation to the JCL shares under s 17. However, her argument under s 17 is applicable to her claim to an interest in the Permathene shares which she acknowledges are otherwise separate property.
[60] Given that acknowledgement and that Ms Cossio no longer pursues an argument under s 9A, s 17 is the only applicable vehicle for her claim to an interest in the Permathene shares:
17 Sustenance of separate property
(1)This section applies if the separate property of one spouse or partner (party A) has been sustained by—
(a)the application of relationship property; or
(b)the actions of the other spouse or partner (party B).
(2)If this section applies, the court may—
(a)increase the share to which party B would otherwise be entitled in the relationship property; or
(b)order party A to pay party B a sum of money as compensation.
(3)This section overrides sections 11 to 14A.
[61] Section 17 involves a two-stage process.18 Ms Cossio relies on both aspects of s 17(1), so the first issue is whether the value of the Permathene shares have been sustained by application of relationship property, or by Ms Cossio’s actions during the marriage. If either is established, the second issue becomes whether this Court should exercise its discretion under s 17(2) to increase Ms Cossio’s share in the relationship property or to order Mr Cossio to compensate her.
[62] In terms of s 17(1)(a), Mr Knight argued that relationship property was applied to sustain the Permathene shares. There was evidence that Mr Cossio had applied
18 Hebberd v Hebberd [1992] 3 NZLR 517 (CA) at 519–520; French v French [1988] 1 NZLR 62 (CA) at 65.
relationship property to Permathene in the nature of an interest free loan for $30,000 to the company. That loan was still owing as at the date of separation. Mr Knight also submitted the Judge had failed to take into account Mr Cossio’s undrawn income in Permathene in the year ended 31 March 2010 which effectively provided working capital interest free to that company in addition to the other contributions. The Judge had acknowledged both earlier in his judgment but did not refer to the loan or undrawn income again when considering the s 17 argument.
[63] As to s 17(1)(b), the actions relied upon by Ms Cossio as her personal contributions included:
(a)her engagement throughout the marriage in employment earning income for the family;
(b)her care for the parties’ children; and
(c)her assistance to Mr Cossio at times of addiction and when suffering from hepatitis and her assistance to the family unit, which was more limited than that of a stay at home parent because she worked through the children’s infancy.
[64] While the Judge did not directly deal with the s 17(1)(a) point he considered that Ms Cossio had not established any direct contribution to the shares held by Mr Cossio in either JCL or Permathene or Permathene Pty Ltd by her personal actions.19 (The parties agree there is no value in Permathene Pty Ltd.) In dealing with the s 9A argument before him the Judge also considered that it appeared between 1990 and separation the value of Permathene had decreased rather than increased.
[65] Mr Knight argued the Judge took an overly restrictive approach to s 17. He submitted that separate property could be sustained either directly or indirectly, and that Ms Cossio’s contributions outlined above had indirectly sustained the shares in Permathene.
19 Cossio v Cossio, above n 1, at [140].
[66] Mr Vickerman submitted that the Court should be slow to interfere with the Judge’s exercise of a discretion under s 17.
[67] Mr Vickerman submitted there was no evidence of anything outside the normal incident of contributions to a relationship in this case. Permathene’s business actually went backwards and there was no evidence it would have failed further or that further moneys were saved by the introduction of the loan (which was de minimus) or by Ms Cossio’s actions.
[68] I agree with the Judge’s assessment that Ms Cossio’s personal contributions did not sustain Mr Cossio’s shares in Permathene. However, I differ somewhat in my reasons for this conclusion. There is relevant authority to be considered. In C v C this Court held that separate property can be sustained either directly or indirectly under s 17.20 Secondly, the Court of Appeal has observed that separate property can be sustained even if its value diminishes.21 In Nation v Nation, the Court of Appeal affirmed that property is sustained if its value or existence is kept going through maintenance or preservation.22
[69] Nevertheless, I find the Judge reached the correct outcome on this issue for the following reasons.
[70] The present claim falls well short of situations where the courts have made awards on the basis of s 17(1)(b) contributions. For example, in Nation v Nation, the wife maintained the farm in question by fencing and irrigating it.23 She also ran the farm when the husband was away.
[71] In C v C, the wife contributed directly to the maintenance of the farm in question by working hard over many years on its operation and administration.24 She also contributed indirectly to its maintenance by taking primary care of the children
20 C v C [2012] NZHC 3159, [2013] NZFLR 534 at [117]; see also RL Fisher (ed) Fisher on Matrimonial and Relationship Property (looseleaf ed, LexisNexis) at FN 3 of [14.13].
21 French v French, above n 18, at 69 per Somers J.
22 Nation v Nation [2005] 3 NZLR 46 at [124]–[126] and [133], following French v French [1988] 1 NZLR 62 (CA) at 65, 69 and Hebberd v Hebberd, above n 18, at 521.
23 Nation v Nation, above n 22, at [132] and [134].
24 C v C, above n 20, at [117], referring to [108] and [110].
and all household matters. This Court was satisfied the husband would not have been able to keep the farm going without her contributions.
[72] In McIlraith v McIlraith, the wife helped prevent the loss of the farm in question by living a frugal lifestyle, running the household, assisting on the farm and formulating proposals with her husband to survive the difficult period.25
[73] In all of these cases the spouses made direct contributions to the asset in question. By contrast, Ms Cossio’s evidence was that she had no involvement whatsoever with the day to day running of Permathene. Ms Cossio’s claim is that her contributions were indirect in that her personal income and her assistance as a mother and homemaker enabled Mr Cossio to give his full time, attention and commitment to developing and managing Permathene. While it is true that in C v C and McIlraith v McIlraith, each spouse was found to have sustained the farms indirectly by running the household and caring for the children, this was in addition to their significant direct contributions to the farms. To sustain property is a higher threshold than to assist in relation to it.26 In my view, Ms Cossio’s indirect contributions to Permathene are too remote to have sustained the value of the shares in the company.
[74] However, that leaves the issue of the contributions under s 17(1)(a) which were not directly addressed.
[75] I accept Mr Knight’s submission that there was value to Permathene in the interest free loan advanced to it from relationship property of $30,000 and also for the benefit of the acknowledged under drawing of salary for part of the last year the parties were together. Both would have sustained the value of the shares to the extent that they were examples of direct financial assistance which permitted Permathene to keep operating or at least assisted it to do so. In so doing relationship property was applied to sustain the value of Mr Cossio’s shares in Permathene. I disagree with the Judge’s conclusion that the recording of the $30,000 advance as a debt in Permathene’s books
25 McIlraith v McIlraith [2015] NZHC 2758 at [56]–[57].
26 Hebberd v Hebberd, above n 18, at 521, citing Mitchell v Mitchell (1983) 2 NZFLR 182 (HC) at 188.
rendered the loan incapable of sustaining the company’s shares. Some allowance to take account of the benefit of the loan and the undrawn income is required.
[76] Mr Vickerman submitted in reliance on French v French, that in this case the extent of the relationship property adequately compensates Ms Cossio for her total contribution to the marriage partnership even if s 17(1) applied.27 He noted the family home in Herne Bay has dramatically increased in value augmented by renovations undertaken with income from the company.
[77] While the value of the matrimonial home may have increased in value, to the extent the increase was largely inflationary, there is no reason Ms Cossio should not share equally. If there is merit in the argument that the value has been increased by the application of income from Permathene that should be considered in the context of the overall adjustment. If it is simply Mr Cossio’s income then again there would seem to be no reason to set that off against Ms Cossio’s claim under s 17.
Result
[78] The appeal is allowed. The finding of the Family Court that the shares in JCL are separate property is set aside. The shares in JCL are relationship property.
[79] The $30,000 interest free loan to Permathene and the portion of the undrawn salary for the year ended 31 March 2010, (prior to separation) sustained the value of the Permathene shares. To that extent relationship property was applied to sustain the separate property of Mr Cossio. That supports an award to Ms Cossio under s 17 in relation to the Permathene shares. The value of the contributions will need to be assessed. It may be modest.
[80] The matter is remitted to the Family Court for a further hearing or rehearing to determine the consequences of the outcome of this appeal.
[81] The costs award in the Family Court must also be set aside on the basis of the success Ms Cossio has had on this appeal. The costs were awarded on the premise Ms
27 French v French, above n 18, at 65.
Cossio had a weak claim. The costs in the Family Court are remitted to the Family Court to be re-assessed overall in light of the outcome of the appeal and this judgment.
Costs
[82] The appellant is entitled to costs on this appeal on a 2B basis together with disbursements as fixed by the Registrar.
Venning J
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