Douglas v Douglas

[2013] NZHC 3022

NOTE: PURSUANT TO S 169 OF THE FAMILY PROCEEDINGS ACT 1980, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO

11D OF THE FAMILY COURTS ACT 1980.  FOR FURTHER INFORMATION, PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2013-463-118 [2013] NZHC 3022

BETWEEN  JOHN DOUGLAS Appellant

ANDSARAH DOUGLAS Respondent

Hearing:                   29 July 2013

Counsel:                  D Williamson for Appellant

RO Gowing for Respondent

Judgment:                14 November 2013

JUDGMENT OF KATZ J

This judgment was delivered by me on 14 November 2013 at 4:30 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Wadham Goodman, Palmerston North

Gowing & Co. Ltd, Whakatane

DOUGLAS  v DOUGLAS  [2013] NZHC 3022 [14 November 2013]

Introduction

[1]      John and Sarah Douglas1   began a relationship in 1990 and moved in together in 1992. At that time Mr Douglas was 19 and Mrs Douglas 37.2    Mr Douglas had no children.    Mrs Douglas,  on  the  other  hand,  had  five  children  from  a  previous relationship. Four of those children were dependent on her at the commencement of

the relationship, although for most of the relationship only two children lived with or were dependent on Mr and Mrs Douglas.

[2]      Although Mr and Mrs Douglas had no biological children, towards the end of their relationship they fostered a child, Simon.  In early 2005 they cared for him, as a newborn,  for  approximately  5  weeks.    Approximately  5  months  later,  he  was returned to their care for a further 14 months, following which he was returned to his birth parents. In August 2007, when Simon was 2½ years’ old, he was returned to Mr and Mrs Douglas’s care and remained there until the date of separation, two years later.  Since then Simon has been in the fulltime care of Mrs Douglas.

[3]      Mr  Douglas  worked  full  time  throughout  the  relationship,  rising  to  the position of general manager of a company owned by his father. His salary was

$70,200 as at the date of separation.  Mrs Douglas also had a largely unbroken work history during the relationship, although her work was often part-time, to accommodate her parenting responsibilities.

[4]      Mr and Mrs Douglas separated on 21 August 2009.   Relationship property proceedings ensued, culminating in a judgment of Judge A C Wills in the Family Court at Whakatane (“Judgment”).3   Mr Douglas appeals to this Court in respect of two aspects of that Judgment. This gives rise to the following issues:

(a)       Did the Judge err in making an economic disparity award in favour of

Mrs Douglas in the sum of $63,000? In particular, is the difference in

Mr and Mrs Douglas’s income and living standards post separation

1      Pseudonyms have been used throughout this judgment in place of the names of the parties and their foster child, to protect their identity.

2      There  are  some  inconsistencies  in  the  evidence  as  to  the  parties  relative  ages  at  the commencement of their relationship and precisely when they began living together.   I have adopted the factual findings of the Judge as set out at [2] of the Judgment.

3      JMA v SCA [2012] NZFC 10192.

“because  of”  the  effects  of  the  division  of  functions  within  their

marriage?4

(b)Did the Judge err in ordering Mr Douglas to pay Mrs Douglas the sum of $38,775 by way of spousal maintenance for the period from the date of separation to the date of the hearing in the Family Court?5

Approach on appeal

[5]      The correct approach to an appeal from a Family Court decision in respect of relationship property issues was considered by Heath J in B v F.6   His Honour noted that such decisions often represent a mix of findings of fact (after seeing and hearing witnesses), the formation of an evaluative judgment, and the exercise of statutory discretion.    Taking  this  into  account,  I  adopt  the  general  approach  on  appeal suggested by Heath J, as follows:

(a)      First, I will take into account the advantage that the trial Judge had of hearing and seeing the witnesses give evidence.7

(b)Second,  to  the  extent  that  the  Judge  exercised  any  discretion  in reaching her decision, I will determine whether any discretionary decisions she made were open to her.8

(c)      Otherwise, I am free to reconsider the Family Court’s decision and substitute my own view on questions of fact and evaluations made by the Judge, if I am of the view that the first instance decision was wrong, in accordance with the approach set out by the Supreme Court

in Austin, Nichols & Co Inc v Stichting Lodestar.

4      As required by s 15 of the Property (Relationships) Act 1976.

5      Pursuant to s 63 of the Family Proceedings Act 1980.

6      B v F [2010] NZFLR 67 (HC).

7      Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC) at [13].

8      May v May [1982] 1 NZFLR 165 (CA) and Blackstone v Blackstone [2008] NZCA 312 at [8].

Economic disparity award

Relevant legal principles

[6]      Section  15  of  the  Property  (Relationships) Act  1976  (“PRA”)  relevantly provides as follows:

15Court  may  award  lump  sum  payments  or  order  transfer  of property

(1)       This section applies if, on the division of relationship property, the Court is satisfied that, after the marriage… ends, the income and living standards of 1 spouse… (party B) are likely to be significantly higher than the other spouse… (party A) because of the effects of the division of functions within the marriage…while the parties were living together.

(2)       In determining whether or not to make an order under this section, the Court may have regard to—

(a)      the likely earning capacity of each spouse…

(b)      the responsibilities of each spouse…for the ongoing daily care of any minor or dependent children of the marriage…

(c)      any other relevant circumstances. (Emphasis added)

[7]      Accordingly,  a  significant  difference  in  income  and/or  living  standards between the spouses after the marriage ends will not in itself be sufficient to justify an economic disparity award.  Jurisdiction to make an award will only arise if that difference arose because of the effects of the division of functions within the marriage.   Another way to frame the question is “would the disparity still have existed even if the parties had never lived together?”

[8]      In the leading case of X v X,9 the Court of Appeal concluded that the language of s 15 (and in particular the words “because of”) suggests that the jurisdiction to make an order requires a “but for” causal relationship between division of functions

within the relationship and the subsequent economic disparity.   In assessing whether

9      X v X [Economic disparity] [2010] 1 NZLR 601 (CA) at [201].

there is jurisdiction to make an award in a particular case, there are three discrete elements to assess:10

(a)       The “likely income and living standards” of each spouse. This is a

prospective assessment.

(b)      There must be a “significant disparity” between the income and living

standards of one party relative to the other.

(c)       There must be a causal link between the significant disparity and the effects of the division of functions during the marriage.

[9]      It   was   common   ground   in   the   Family  Court,   and   before   me,   that Mr Douglas’s post separation income and living standards are significantly higher than those of Mrs Douglas.  I will accordingly focus on item (c).   Has this disparity been caused by the division of functions during their marriage?

[10]     This case falls within the classic category of cases described by Priestley J in de  Malmanche  v  de  Malmanche,  where  causation  needs  to  be  assessed  in  a two-pronged fashion:11

(a)       What adverse impact has Mrs Douglas’s role in the marriage had on her income earning potential?

(b)What  positive  enhancing  effect  has  Mrs  Douglas’s  role  in  the marriage had on Mr Douglas’s income earning potential?

[11]     I will consider each issue in turn.

Has Mrs Douglas’s role within the marriage adversely impacted on her income

earning potential?

[12]     The Judge found that Mrs Douglas had prioritised her family commitments and support of her husband ahead of education and accumulation of qualifications.

10 Ibid, at [77].

11     de Malmanche v de Malmanche [2002] 2 NZLR 838 (HC) at [164].

The Judge concluded that, while the division of functions was not the sole reason for the economic disparity, it was a significant cause.

[13]     Mrs Douglas was 37 (or thereabouts) with four dependent children when she started living with Mr Douglas and 54 or so when they separated.     Mrs Douglas has a number of educational certificates, at least some of which appear to have been acquired during the relationship.  These include various certificates from a District Health Board and two certificates from a Polytechnic.

[14]     Of more significance, Mrs Douglas worked almost continuously throughout the relationship, in a variety of roles. This has included some periods of full-time work, although it seems that she has predominantly worked part-time, to accommodate  the  needs  of  her  children.     A  summary  of  her  work  history immediately prior to and during the course of the relationship is as follows:

1989 – 1993:      Home help for the elderly and disabled (part-time).

1993 – 1995:      Nurse aide.

1995 – 1999:      Receptionist/administrative     role     at     family     company

(working 9:00 am to 3:00 pm during the school term).

2000 – 2003:      Clerical work at local hospital (full-time).

2003 – 2004:      Sole charge of a retail store (full-time).

2004– 2005:      Life  skills  tutor  for  a  company  providing  support  to individuals within the community.

2006 – 2009:      Employed by Mr Douglas’s father.

[15]     Would Mrs Douglas’s career have followed a significantly different path if she had not entered into a relationship with Mr Douglas?   In my view it is unlikely. It was common ground that Mrs Douglas is a very committed parent.  She was in her mid 30’s with four dependent children when she met Mr Douglas.  The key factors impacting on the type of work Mrs Douglas was able to undertake following the breakdown of her previous relationship were her own skills and educational achievements and her significant parenting responsibilities.

[16]     If she had not met Mr Douglas it seems likely that Mrs Douglas would have continued on the path she was on, pursuing part-time work opportunities which fitted in around school hours while her children were young.   This would have likely progressed to full-time work as her children grew older.

[17]     This   largely  mirrors   what   actually   occurred.      Her   relationship   with Mr Douglas did, however, introduce one additional factor into the equation and it is necessary  to  consider  the  impact  of  that.      As  noted  above,  although  Mr  and Mrs Douglas had no biological children together, they did have one “child of the marriage” – their foster child Simon. Putting to one side the initial 5 week fostering period, Simon was in their joint care for 14 months from early 2006, then again for two years from August 2007 until the date of separation. Mrs Douglas was the primary care giver for Simon throughout this period.

[18]     It is therefore necessary to consider whether Mrs Douglas’s care of Simon for this period of approximately three years (while Mrs Douglas was in her early 50’s) has had a material adverse impact on her post separation income earning potential. In my view it has not.   Mrs Douglas continued to work part-time throughout the relevant period.   There is nothing to suggest that Mrs Douglas’s care of Simon during the period 2006 to 2009 materially impacted on her income earning potential following the end of her marriage in August 2009.

[19]     Viewed as a whole the evidence does not, in my view, support the conclusion that the division of functions within the marriage has materially adversely impacted on Mrs Douglas’s income earning potential following the end of her marriage.

Did Mrs Douglas’s role in the marriage materially enhance Mr Douglas’s income

earning potential?

[20]     The other aspect which needs to be considered is whether Mrs Douglas’s role in the marriage materially enhanced Mr Douglas’s income earning potential.

[21]     The Judge concluded that “but for” the skills and work experience acquired by Mr Douglas during the relationship, he could not have fulfilled the position of chief executive within his father’s company. In my view, however, that mis-states the

relevant test.  Given that Mr Douglas was only 19 or so at the commencement of the relationship it was almost inevitable that he would acquire relevant skills and work experience during the course of the 17-year relationship.  The real issue, however, is the extent to which those skills and experience were acquired because of the division of functions in the relationship.

[22]     At the commencement of the relationship Mr Douglas was working as a motor mechanic in his father’s business.   Mr Douglas then completed an apprenticeship between 1992 and 1995.     Mr Douglas’s father purchased a new business in 1995 and Mr Douglas commenced work for that company.  The next key milestone in Mr Douglas’s career came when his father suffered ill health in 2003. This propelled Mr Douglas into the position of general manager of the family company and he was also made a company director.    Nevertheless, Mr Douglas’s career success has been solid rather than spectacular. As at the date of separation, his salary was $70,200.   It has since increased to $85,000.

[23]     The  evidence  suggests  that  the  skills  and  work  experience  Mr  Douglas acquired  would  likely  have  been  developed  irrespective  of  his  marriage.    In Mr Douglas’s words, he continued on the same path he was always on.   He had significant advantages available to him through his family connections and he took advantage of the opportunities that arose.

[24]     It is not in dispute that Mrs Douglas was supportive of Mr Douglas’s career throughout their relationship.   Equally, Mr Douglas was supportive of Mrs Douglas, including supporting her children from a prior relationship.  However, other than his role as foster father to Simon from 2006 to 2009, Mr Douglas had no children (with Mrs Douglas or otherwise).    This case is therefore relatively unusual, in that Mr Douglas would not have been required to invest significant time and energy in childcare responsibilities (to the detriment of his career) if he had not had the support of Mrs Douglas.   That factor distinguishes this case from many others in which economic disparity issues have arisen.

[25]     I therefore conclude that the division of functions within the marriage did not

materially enhance Mr Douglas’s income earning potential.

Conclusion on whether any economic disparity was caused by division of functions in the marriage

[26]     Mr  Douglas’s  current  position  is  largely  attributable  to  the  opportunities within the family business made available to him by his father. Those opportunities would have presented themselves regardless of any division of functions within the marriage.  Other than his commitment as foster father to Simon during the last three years or so of the relationship, Mr Douglas did not have any parenting obligations which would have detrimentally impacted on his career, in the absence of Mrs Douglas’s support.

[27]     Mrs  Douglas  also  worked  throughout  the  relationship.     Her  parenting obligations to children of a prior relationship have placed some (intermittent) constraints on her ability to work full-time.  However, such constraints would have existed regardless of her marriage to Mr Douglas.

[28]     In conclusion, the evidence does not support a finding that the division of functions  within  the  marriage  either  adversely  affected  Mrs  Douglas’s  income earning ability or materially enhanced Mr Douglas’s income earning potential.   It follows that no jurisdiction to make an economic disparity award arises.

Discretion Limb

[29]     Given my conclusion on jurisdiction, it is not necessary to consider whether the Family Court should have exercised its discretion to make an economic disparity award in this case.

Quantum

[30]     Mr Douglas submitted that the net impact of the $63,000 economic disparity award is to, in effect, divide the relationship property 70/30 in Mrs Douglas’s favour. He submitted that the magnitude of the award in this case is substantially out of step with other economic disparity awards.  For example, in    X v X12  the wife was an accountant with an eight-year work history before she took a career break to have

two children.  In that case she received 53% of the pool of relationship property.

12     X v X [Economic disparity] [2010] 1 NZLR 601 (CA).

[31]     I have already concluded that there is no jurisdiction in this case to make an economic disparity award under s 15.  Accordingly, it is not necessary to determine issues of quantum.   For completeness, however, I note that the approach taken to quantifying the award  in  the  Family Court  does  not  appear  to  accord  with  the approach set out in X v X, or otherwise meet the statutory test.

[32]     In X v X the majority (O’Regan and Ellen France JJ) adopted the approach to quantum taken by the Family Court Judge in that case:

[172] The basic methodology of the calculation of the compensation award adopted by Judge Clarkson involved calculating a figure representing the present  value  of  the  cumulative  difference  between  the  future  after-tax income which Mrs X could have expected to earn but for her role within the relationship and the after-tax income which she is projected to actually earn if she works to the full extent of her future income-earning capacity. Appropriate allowances are then made to reflect the time value of money and the chances of non-collection of future income (because of reduced time in the workforce for reasons such as death, deteriorating health, changes in personal priorities, re-partnering or early retirement). The outcome of the adoption of this methodology is a capital sum reflecting the net present value of future income that would have been earned by the disadvantaged partner but for the division of roles in the relationship. The resulting award is half that sum.

[33]     The majority justification for the concept of halving the s 15 award was as follows:

[233] The object of the award under s 15 should be to ensure that the disadvantaged partner is not worse off after the end of the relationship than he or she was during the relationship. In effect, what he or she has lost is the ability to continue the position that applied during the relationship, ie the sharing of the ongoing consequences to the disadvantaged partner as a result of the division of roles. In principal, therefore, we consider that it is appropriate that the income shortfall amount derived from the methodology used in this case should be halved. That means that Mr X, as the advantaged partner, is required to pay his share of the loss represented by the reduced future income-earning capacity of Mrs X.

[34]     In  this  case,  however,  the  Judge  took  the  income  disparity  between Mr Douglas’s  actual  income  as  at  separation  and  Mrs  Douglas’s  actual  income (or, more correctly, what her projected actual income would have been if she had worked  full-time).   The  difference was  $28,000,  which  the Judge  halved.    She therefore concluded that an annual payment of $14,000 was required to address the

economic disparity. A payment of $14,000 for a period of 9 years13 totals $126,000. The Judge then applied a discount (50%) for the present value of the money received and for contingencies (Mr Douglas’s age, his likely improving income capacity, but also having regard to the possibility of career change and ill-health).  That left an award of $63,000.

[35]     The Judge’s approach was therefore based on the income disparity between Mr and Mrs Douglas, rather than the disparity between the future income which Mrs Douglas could have expected to earn but for her role within the relationship (her “but for” income) and her actual income if she worked to the full extent of her current income earning capacity.   The evidence of Mrs Douglas’s “but for” income was sparse and accordingly a robust assessment was called for.   It was not appropriate, however, to simply use Mr Douglas’s actual income as a substitute for Mrs Douglas’s “but for” income.   It cannot simply be assumed that “but for” her role in the marriage Mrs Douglas’s income earning potential would have been identical to that of Mr Douglas.  Indeed, that seems inherently unlikely.

Spousal maintenance

[36]     Section 63 of the Family Proceedings Act 1980 (“FPA”) provides for one spouse to pay spousal maintenance to another to the extent that such maintenance is necessary to meet the reasonable needs of the other party, if they cannot practicably meet those needs because of one or more or the circumstances set out in s 63(2). The policy underlying s 63 is that a spouse must meet his or her own reasonable needs to the extent of his or her capacity or ability. If there is a shortfall between his or her reasonable needs and the extent to which he or she can reasonably meet them, due to the factors set out in s 63(2), then the other spouse is liable to the extent of

that shortfall.14

13Judge Wills noted that Mr Douglas had maintained Mrs Douglas and Simon from the date of separation until the hearing.  She therefore took the date of the hearing as the start date for making the assessment, leaving 9 years until Mrs Douglas reached retirement age at 65.

14          Bruce v Bruce (1984) 3 NZFLR 129 (FC).

Family Court decision

[37]     Following separation, it was apparent that Mrs Douglas could not continue to work for Mr Douglas’s parents.  She was in receipt of a domestic purposes benefit from the date of separation until the date of the Court hearing.  The Judge found that it was not reasonable following separation to expect that Mrs Douglas should work full time, given her child care responsibilities to Simon.

[38]     Spousal maintenance was assessed as being payable at the rate of $275 per week over a period of two years and 37 weeks, being the period between separation and the Family Court hearing.  The Judge accordingly made a spousal maintenance award  in  favour  of  Mrs  Douglas  in  the  sum  of  $38,775,  to  be  offset  against Mr Douglas’s post separation contributions to the family home.

Submissions

[39]     Mr Douglas submitted that the Judge erred in concluding that qualifying circumstances subsisted from the date of separation until the hearing and also noted that the Judge did not articulate which qualifying circumstances in s 63(2) applied. He further submitted that there is no general liability to maintain a spouse until separation.15   The applicant needs show that reasonable steps had been taken to try

and obtain employment.16    This was particularly so given that Simon started school

6 months after separation.

[40]     Mrs Douglas, on the other hand, submitted that it was reasonable for the Judge to conclude that the care of Simon should have been her top priority and that it was  not  reasonable  for  her  to  return  to  work  full  time,  post  separation.    As Mr Douglas had abandoned interest in the child post separation, she was effectively a solo parent, with all the responsibilities that entails.  Further, Mrs Douglas had been unable to find suitable part-time work.  The Judge had not erred in the exercise of

her discretion.

15     Cutler v Cutler (1992) 8 FRNZ 411 (FC).

16     Murdoch v Murdoch [1997] NZFLR 836.

Discussion

[41]     The Judge did not expressly state which of the qualifying circumstances in s 63(2) applied.   It is implicit, however, that the Judge took account (at least) of Mrs Douglas’s limited ability to become fully self-supporting within a relatively short time period and her responsibility for the care of Simon.

[42]     Mr Douglas’s reluctance to have Simon returned to their care in August 2007 was widely canvassed in the evidence.  However, it was not contested on appeal that Simon is a child of the marriage for the purposes of the statutory scheme.  Between the date of separation and the Family Court hearing Mr Douglas took little or no responsibility for the day to day care of Simon.  Mrs Douglas accordingly had sole responsibility for Simon’s care, which  stands out as a qualifying circumstance.

[43]   Accordingly there were at least two (and possibly more) qualifying circumstances in terms of s 63(2).  Jurisdiction to make a spousal maintenance award therefore existed.

Quantum

[44]     Mr Douglas did not take issue with the claimed shortfall of $275 per week to meet Mrs Douglas’s reasonable needs.  Rather, his primary focus was on the duration of Mrs Douglas’s entitlement to a spousal maintenance award and the extent to which  Mrs  Douglas  could  or  should  have  secured  employment  to  bridge  the shortfall.  In particular, Mr Douglas was of the view that Mrs Douglas should have made greater efforts to secure employment post-separation, particularly given that Simon started school six months after the date of separation.

[45]     Mrs Douglas’s evidence, on the other hand, was that she had been unable to find suitable work and that the Judge was correct to find that it was not reasonable to expect her to work full-time, given her responsibilities to Simon.

[46]     In my view it was open to the Judge to find that it was not reasonable to expect Mrs Douglas to return to work full time between the separation date and the hearing date in the Family Court.   It is also necessarily implicit that the Judge

accepted Mrs Douglas’s evidence that she had been unable to find suitable part time

work once she left the employment of Mr Douglas’s parents.

[47]     The evidence suggests that Simon has at least some special needs.    He was only four and a half at the time of separation, and seven at the date of hearing.  It was open to the Judge to find that a transitional period of support was appropriate given Mrs Douglas’s age, limited earning potential, and childcare responsibilities.

[48]     The amount and duration of the award was within the discretion of the Judge. Appellate courts will not generally interfere with the exercise of a trial Judge’s discretion unless he or she has failed to take into account relevant factors, took into account irrelevant factors, or was plainly wrong.  None of these criteria apply in this case. The award was possibly on the generous side, particularly in terms of its duration.  It was, however, within the range available to the Judge on the evidence before her.

Summary and conclusion

Economic disparity award

[49]     I have concluded that jurisdiction to make an economic disparity award under s 15 of the PRA does not arise in this case  as the division of functions within the marriage has neither materially adversely impacted Mrs Douglas’s income earning potential  nor  materially  enhanced  Mr  Douglas’s  income  earning  potential.  This aspect of Mr Douglas’s appeal must accordingly be allowed.

[50]     It is not necessary for me to make any findings as to the appropriate quantum of an economic disparity award, given that no jurisdiction to make an award exists. I note, however, that the Judge’s approach to the assessment of quantum did not follow that suggested in X v X.  The approach in the Family Court was based on the income disparity between Mr and Mrs Douglas, rather than the disparity between the future income which Mrs Douglas could have  expected to earn but for her role within the relationship (her “but for” income) and her actual income (if she worked to the full extent of her current income earning capacity).

Spousal maintenance award

[51]     Jurisdiction to make a spousal maintenance award existed, as there were at least two (and possibly more) qualifying circumstances in terms of s 63(2) of the FPA.  The amount and duration of any spousal maintenance award was within the discretion of the Judge and was within the range properly available to her.   This aspect of the appeal accordingly fails.

Result

[52]     The appeal is allowed in respect of the economic disparity award of $63,000 made to the respondent.  That award is accordingly quashed.  The appeal in respect of the spousal maintenance award is dismissed.

[53]     My preliminary view is that costs should lie where they fall.   If the parties take a different view, leave is reserved to file memoranda.  Any memorandum from the appellant is to be filed within 15 working days of the date of this judgment, with any response from the respondent to be filed within 10 days thereafter.

[54]     Finally I note that pursuant to s 169 of the FPA any report of this proceeding must comply with ss 11B and 11D of the Family Courts Act 1980.  I note further that pseudonyms have been used throughout the judgment to minimise any risk of the

parties being identified.

Katz  J