Foote v Rea HC Tauranga CIV 2009-470-521
[2010] NZHC 737
•19 May 2010
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2009-470-521
BETWEEN JOHN EDWARD FOOTE Appellant
ANDTRACY LEANNE REA Respondent
Hearing: 10 May 2010
(Heard at ROTORUA)
Appearances: Mr E Hudson for Appellant
Mr R Collis for Respondent
Judgment: 19 May 2010 at 9.30 am
JUDGMENT OF LANG J
[on appeal against order setting aside relationship property agreement]
This judgment was delivered by me on 19 May 2010 at 9.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Mr E Hudson, HamiltonMr R Collis, Auckland
FOOTE V REA HC TAU CIV-2009-470-521 19 May 2010
[1] The issue to be determined in this appeal is whether the decision of a Family Court Judge to make an order setting aside a relationship property agreement should be upheld. In order to understand the issues that the appeal raises, it is necessary to briefly record the events that have given rise to the appeal.
The events giving rise to the appeal
[2] The parties met in 1981 and were married on 31 December 1987. During their marriage they had two children, who are now 16 and 13 years of age. They began living apart on 1 December 2001.
[3] On 29 April 2002 the parties signed an agreement that determined issues relating to the custody, care and support of their children. The agreement also provided for relationship property issues as follows:
a) A trust was to be established for the benefit of Ms Rea and the children.
b)The matrimonial home at 58 Wallace Road, Te Puna (which then had a negative equity) was to be transferred to the trust (“the New Zealand trust”).
c) Mr Foote was to pay the sum of NZ$220,000 into the trust. That sum was to be applied in capital improvements to the home (amounting to approximately $50,000) and in reduction of the mortgage registered against the property.
d)The home was to be sold no later than January 2004. Ms Rea had a right of first refusal to purchase the property. If she exercised that right, Mr Foote agreed to leave his equity in the property secured by way of mortgage until 1 December 2012.
e) Ms Rea was to retain other items as her separate property, including household chattels and effects, motor vehicles and a term deposit of
$24,000.
f) Mr Foote was to retain other items as his separate property, including brokerage accounts held by him in the United States amounting to approximately US$450,000.
[4] Ms Rea subsequently applied for an order under s 21J of the Property (Relationships) Act 1976 (“the Act”) setting the agreement aside. Mr Foote opposed the application, and it was the subject of a defended hearing that lasted for three days in the Family Court at Tauranga.
[5] On 8 June 2009 His Honour Judge Maude delivered a comprehensive decision in which he granted Ms Rea’s application. He determined that the agreement ought to be set aside on the basis that it caused serious injustice. The injustice arose by virtue of the disparity between the allocation of property that Ms Rea received under the agreement and that to which the Judge considered she would have been entitled under the Act but for certain transactions that Mr Foote had undertaken prior to the date upon which the parties separated.
[6] The Judge then made ancillary orders. He determined that the sum of
$220,000 that Mr Foote had settled on the New Zealand trust was his separate property. The Judge made an order vesting that sum in Ms Rea as her separate property. He also vested in her the house property situated at 58 Wallace Road, Tipuna.
[7] Mr Foote contends that the Judge made critical errors in the way in which he classified property that Mr Foote owned during the course of the parties relationship. He argues that this led the Judge to reach an erroneous conclusion on the essential issue, namely whether there was disparity between the provision that the respondent received in terms of the agreement and that to which she would otherwise have been entitled under the Act.
[8] In order to understand these issues properly it is necessary to set out the circumstances in which the parties acquired property during the course of their relationship.
The acquisition of property during the relationship
[9] In August 1971 Mr Foote suffered a work-related injury to his back. This meant that he was classified as being unsuitable for employment and was entitled to compensation.
[10] In 1984 compensation in the sum of US$884,000 was paid into an account for Mr Foote’s benefit. He was not, however, entitled to obtain immediate access to that sum. Instead, he received an immediate lump sum payment of approximately US$29,000. Thereafter he began receiving payments of compensation from the account on a monthly basis.
[11] On 16 January 1985 Mr Foote purchased in his sole name a bare section situated in Atascadero, California (“the first Atascadero property”). Mr Foote funded the purchase by using $25,000 of the lump sum compensation payment that he had received, together with loans that he obtained from institutions in America.
[12] Mr Foote then proceeded to erect a substantial dwelling on the section. He funded this through the compensation payments that he was continuing to receive. It was common ground that Ms Rea made no financial contribution to the acquisition of the section or the cost of building the home. At that stage she was engaged in university studies on a full-time basis.
[13] Mr Foote completed construction of the home in 1986, and he and Ms Rea then proceeded to reside in it. In March 1989, whilst the parties were still living in the home, Mr Foote sold the first Atascadero property for the sum of US$310,000. After repaying the mortgage and fees associated with the sale, he was left with the sum of approximately $US195,000.
[14] Mr Foote then acquired two further properties using the proceeds of sale of the first Atascadero property. First, he acquired a section that adjoined the first Atascadero property (“the second Atascadero property”). Secondly, he acquired a property situated at Paso Robles, California. This comprised a section with a small cottage on it. This property had a small loan secured over it.
[15] Mr Foote initially acquired the second Atascadero property in partnership with a building contractor. He and the building contractor then erected a home on the property. In 1990 Mr Foote acquired the contractor’s interest in the second Atascadero property, and in November 1990 he and Ms Rea shifted into it and thereafter used it as their home. The property was mortgage free and had a value of between US$380,000 and US$403,000.
[16] Ms Rea did not contribute financially to the purchase of either the second Atascadero or the Paso Robles property. It is also common ground that she did not contribute towards the outgoings payable in respect of those properties. Mr Foote met all outgoings in respect of both properties from the compensation payments that he was receiving.
[17] In late 1991 or early 1992 the parties came to New Zealand to live. There they acquired a property situated at Taylor Road, Papamoa Beach from Ms Rea’s parents. In order to acquire this property, Mr Foote borrowed the sum of US$140,000 from an American institution. That loan was secured against the second Atascadero property. The parties then lived continuously in New Zealand until 1998, broken only by an 18 month period of travel in Europe that began in
1995. During this period the second Atascadero property and the Paso Robles property were rented to tenants.
[18] In 1992/1993 the parties purchased a section at Dawn View Place, Minden. This property was purchased in the name of Mr Foote, and a home was built on it using a loan from the ANZ Bank.
[19] In 1994 the property in Taylor Road, Papamoa was sold. The proceeds of sale from that property were applied in repayment of the mortgage that Mr Foote obtained from the ANZ Bank for the purposes of acquiring and building the house on the Minden property. The parties then lived in the Minden property until early
1995, when that property was sold. Their first child, Kennessee, was born on 14
September 1994 whilst they were living in that property.
[20] The sale of the Minden property released equity of approximately $310,000. The parties used those funds to finance their trip to Europe in 1995 and 1996.
[21] They returned to New Zealand in 1996 and in August 1997 their second child, Blake, was born. One month later, in September 1997, the parties took their children to live in the United States. There they resided in the second Atascadero property.
[22] In March 1998 the Paso Robles property was sold and the proceeds of sale were used to clear the mortgage registered against the second Atascadero property. As outlined earlier at [17], Mr Foote had used the loan secured against that property to acquire the property situated in Taylor Road, Papamoa.
[23] In July 1999, the second Atascadero property was sold. The net proceeds of sale of the Paso Robles property and the second Atascadero property amounted in total to approximately US$300,000. Mr Foote invested those funds in the United States in his own name.
[24] The parties returned to New Zealand after the second Atascadero property was sold. In August 1999 they jointly purchased the property situated at 58 Wallace Road, Tauranga. They used this as their family home until the date upon which they separated.
[25] In August 2001 Mr Foote transferred the balance of the proceeds of the sale of the second Atascadero property and the Paso Robles property, together with savings accumulated from his compensation payments, to a trust in the United States known as the John E Foote Family Trust. He and his now deceased brother were trustees of that trust.
[26] Four months later, the parties separated.
The Judge’s decision
[27] The Judge was required to determine a large number of issues, several of which are no longer in contention. For present purposes, the Judge’s decision was to the following effect:
(1)The compensation payments that Mr Foote received have always been, and remain, his separate property.
(2)The first Atascadero property was acquired using monies that Mr Foote received from the compensation payments, together with loans that he obtained from American institutions.
(3)The proceeds of sale of the first Atascadero property were relationship property in terms of the Act by virtue of the fact that the parties had used that property as their home during their marriage.
(4)The second Atascadero property and the Paso Robles property were acquired using the proceeds of sale of the first Atascadero property together with, in the case of the Paso Robles property, a small loan.
(5)The fact that the Paso Robles property was purchased using funds that were relationship property meant that the Paso Robles property was also relationship property.
(6)The second Atascadero property was also acquired using funds that were relationship property. That fact, coupled with the fact that the parties used the second Atascadero property as their home during their marriage, meant that the second Atascadero property was relationship property as well.
(7) The proceeds of sale of both the second Atascadero property and the
Paso Robles property were therefore relationship property.
(8)When Mr Foote transferred the proceeds of sale of the second Atascadero property and the Paso Robles property into the John E Foote Family Trust, it amounted to a disposition of relationship property to a trust in terms of s 44C(1) of the Act. It was also made otherwise than in good faith and for valuable consideration.
(9)That disposition had the effect of defeating Ms Rea’s rights to relationship property in terms of the Act, because it removed the sum of US$300,000 from the pool of property that would otherwise have been available for distribution between the parties when they separated.
(10) Once the proceeds of sale of the California properties were removed from the pool of assets available for division, the total value of relationship property that was available for division under the agreement amounted to $55,000.
(11) The removal of the funds that were transferred to the John E Foote Family Trust therefore created a disparity between the value of the assets that Ms Rea received under the relationship property agreement and the sum to which she would otherwise have been entitled under the Act had the disposition not occurred.
(12)This meant that the agreement created serious injustice, and it was therefore appropriate to make an order setting it aside.
[28] The Judge’s classification of the proceeds of sale of the three California properties as being relationship property lies at the heart of the present appeal. For that reason it is appropriate to deal with the correctness of that conclusion first.
Was the Judge’s classification of the proceeds of sale of the California properties as relationship property correct?
[29] The Judge acknowledged that, in accordance with traditional conflict of law principles, the law of California ought to be applied to determine the status of the
three Californian properties. Neither party had, however, adduced any evidence regarding Californian law in relation to this issue. For that reason the Judge applied the principle that, in the absence of evidence regarding the foreign law, the foreign law is presumed to be the same as the home law, in this case the law of New Zealand.
[30] Counsel for Mr Foote accepted that the Judge was entitled to adopt that approach based on the evidence as it then stood. He sought leave, however, to adduce further evidence in support of the appeal. The purpose of that evidence, in part at least, is to provide evidence regarding the law of California as it applied to the status of the three Californian properties. For the reasons that I give later at [91] to [96], I decline to grant leave to adduce the new evidence. The approach that the Judge took regarding this aspect of the proceeding must therefore be regarded as correct. The law of New Zealand must be applied to the property that the parties acquired in California.
[31] Mr Foote acquired the first Atascadero property using his compensation monies and loans that he obtained from American institutions. As a result, there is no dispute that he acquired that property using his separate property in terms of the Act. It could only become relationship property, and the proceeds of its sale could only become relationship property, if other provisions in the Act operate to produce that result.
[32] The Judge expressed his reasoning and conclusion regarding the status of the first Atascadero property, and the proceeds of sale when it was sold, as follows:
[85] Given that I have concluded that I may look back into the character of the immovable assets in the United States that sourced the funds or moveable asset in dispute, there can be only one conclusion as to whether the funds released from the sale of the first Atascadero property were relationship in character or not and that is that they were relational because of the Court’s ability to apply the family home provisions of the Act to the property for classification purposes. It was the family home when sold.
[33] In referring to the “family home provisions” of the Act the Judge was clearly referring to s 8(1)(a) of the Act, which provides as follows:
8 Relationship property defined
(1) Relationship property shall consist of—
(a) The family home whenever acquired; and
…
[34] Although the Judge did not expressly say so, I infer that he concluded that the proceeds of sale became relationship property by virtue of s 8(1)(l) of the Act, which provides as follows:
…
(l)any income and gains derived from, the proceeds of any disposition of, and any increase in the value of, any property described in paragraphs (a) to (k).
…
[35] As I have already indicated at [27], the Judge also concluded that both the second Atascadero property and the Paso Robles property were relationship property. The second Atascadero property had that classification for two reasons. First, because it was acquired using the proceeds of sale of relationship property, namely the proceeds of sale of the first Atascadero property. Secondly, the parties had used it as their family home for at least some of the time after that they were married. Adopting the same reasoning, the fact that the Paso Robles property was also acquired using the proceeds of sale of the first Atascadero property meant that it, too, was relationship property. The issue to be determined is whether this approach was correct.
[36] Section 2 of the Act provides that the Act shall apply to immoveable property in New Zealand and moveable property whether inside or outside New Zealand. It will only apply to immoveable property outside New Zealand, however, in the event that one of the parties is domiciled in New Zealand. Both Mr Foote and Ms Rea are currently domiciled in New Zealand.
[37] Counsel for Mr Foote accepted that, in considering what orders he should make in relation to the property that the parties owned in New Zealand when they separated, the Judge was entitled to have regard to the manner in which they had acquired the Californian properties during the course of their relationship. He was
entitled to take that approach notwithstanding the fact that the Californian properties constituted immovable property situated in a foreign jurisdiction. The approach that the Judge took in relation to this issue is consistent with the approach taken in Shepherd v Shepherd [2009] NZFLR 226 (HC). In that case the Court held (at [61]) that the courts in New Zealand have jurisdiction to apply the provisions of the Act to moveable property within New Zealand notwithstanding the fact that it represents the proceeds of sale of immovable property overseas.
[38] Counsel for Mr Foote contended that the Judge erred in concluding that the fact that the first Atascadero property was used as the family home at the time that it was sold meant that the proceeds of sale of that property were relationship property. He referred me to a line of authority confirming that the use of a property as a family home does not mean that the property will retain that character for classification purposes under the Act once the parties cease to use it in that way.
[39] In Oakley v Oakley (1980) 3 MPC 127 (HC) the parties lived in a house that the husband had purchased prior to the date of their marriage. By the time they separated, however, they had moved out of that property and had moved into another home. Somers J rejected the submission that the first house retained the status of a matrimonial home under the Act notwithstanding the fact that the parties had moved out of it by the time they separated. In doing so His Honour said at 128:
… Nor do I think it possible to say that having once gained the character of matrimonial property – the home – it thereafter retains that character. That is because its classification in earlier years as the matrimonial home depended on its user. Once it ceased to be the home it reverted to the character it had at marriage. …
[40] Similarly, in Buljan v Buljan (1981) 4 MPC 30 (CA) the parties lived for some time in a property that the husband had acquired prior to the date of the marriage. They eventually moved out of that property and began living in another home that the husband had acquired during the marriage. The Court of Appeal rejected the suggestion that the first property (referred to in the judgment as “the Dublin Street property”) should be regarded as matrimonial property because it had earlier been the matrimonial home. The Court said at 31:
The first issue on the appeal is as to the status of the Dublin Street property under the Matrimonial Property Act 1976. Under s.8(a) the matrimonial home whenever acquired is matrimonial property. But Dublin Street was not the matrimonial home at the time the parties cased living together. The relevance of this is that in terms of s.2(4) where the classification of any particular type of matrimonial property depends on the use to which it has been put, that classification falls to be determined by the use to which it was put by the parties to the marriage or if they had ceased to live together as husband and wife to the use to which it was being put before the parties to the marriage ceased to live together as husband and wife.
There can be only one matrimonial home: that is clear from the definition of “matrimonial home” in s.2(1) of the Act. And as Somers J. said in Oakley (1980) 3 M.P.C. 127 at 128:
“The characterisation of the property falls to be made as at the date the parties separated … Nor do I think it possible to say that having once gained the character of matrimonial property – the home – it thereafter retains that character. That is because its classification in earlier years as the matrimonial home depended on its user. Once it ceased to be the home it reverted to the character it had at marriage”.
Thus Dublin Street was not matrimonial property within s.8(a). …
[41] In both Oakley and Buljan the husband retained ownership of the original property after the parties ceased to use it as the matrimonial home, and he still owned it at the date of separation. To that extent those cases are factually distinguishable to those in the present case, because all three Californian properties had been sold well before the date upon which the parties separated.
[42] Counsel for Mr Foote referred me, however, to Thompson v Thompson [2000] NZFLR 161 (HC). In that case the husband had owned the matrimonial home prior to the date upon which the parties were married. The husband sold that property before the parties separated, and advanced the proceeds of sale to a family trust that acquired a second property. The parties then used the second property as their home.
[43] Potter J held that, once the husband sold the matrimonial home, the proceeds of sale were separate property. In doing so she said:
[17] Counsel submitted that although in Buljan and Oakley the owner spouse had retained the previous property, the situation was no different when, as in this case, the former matrimonial home had been sold. The proceeds of sale then became the separate property of the owner spouse, in
this case the husband. I agree, and nor did counsel for the wife dispute this proposition. The proposition seems to have been accepted by Judge Robinson at p 13 of his judgment where he quoted s9(2) of the Act:
Subject to subsection (6) of this section and to ss 8(ee) and 10 of this Act, all property acquired out of separate property and the proceeds of any disposition of separate property, shall be separate property.
[18] In essence, the past use of the West Lynn Road property as the matrimonial home was spent when it ceased to be so used by the husband and wife, and was no longer material in determining the classification of that property or the proceeds of its sale, at the date of separation (Evers v Evers [1985] 2 NZLR 209). I conclude that the sale proceeds of the West Lynn Road property were the husband’s separate property.
[44] I consider that the same principles must apply in the present case. Although the parties undoubtedly used each of the Californian properties from time to time as their home, the classification of each property as a family home in terms of s 8(1)(a) of the Act must necessarily have ended at the point at which the property was sold. At that point the proceeds of sale became Mr Foote’s separate property unless some other provision of the Act meant that they could be classified as relationship property.
[45] In reaching this conclusion I have not overlooked the authority upon which counsel for Ms Rea relied, namely L v P [2008] NZFLR 401. In that case the parties had lived in a property that was registered in the name of the male party alone. The property was acquired during the relationship principally by means of a loan that his company was instrumental in arranging. The company also provided the balance of the purchase price. When the property was sold, the sale proceeds were credited in their entirety to his current account in the company. The parties then lived in rented accommodation until they eventually separated. Asher J held that the credit balance in the current account that represented the proceeds of sale of the property was relationship property.
[46] Counsel for Ms Rea contended that L v P was clear authority for the proposition that the proceeds of sale of the family home will be relationship property even if the home was acquired using the separate property of one party alone. Counsel for Mr Foote, on the other hand, submitted that L v P was wrongly decided, and that I should not follow it.
[47] These submissions overlook, however, the manner in which Asher J decided this point. The relevant passages from the judgement is as follows:
[57] There is no doubt that the [U] Rd property, having been acquired after the de facto relationship began for the common use and common benefit of the de facto partners as their home, became relationship property under s 8(1)(a) and 8(1)(ee). There was a challenge to this conclusion in the appellant's written submissions, but the Judge's conclusion was clearly correct.
[58] The sale proceeds were income and gains derived from the disposition of relationship property in terms of s 8(1)(l), which reads:
“(l) any income and gains derived from, the proceeds of any disposition of, and any increase in the value of, any property described in paragraphs (a) to (k). ”
[59] The sale proceeds, therefore, were relationship property. Therefore, the Judge was correct in concluding that the entire $420,000 was relationship property, as that part of the current account was the income and gains derived from the disposition of relationship property, being the [U] Rd property. …
[48] These passages make it clear that the Judge did not reach his conclusion solely on the basis that the property had been the family home in terms of the Act. He also reached it on the basis that the parties had acquired the property for their common use and benefit. For that reason it became relationship property under s
8(1)(ee) of the Act. That conclusion is not surprising, because the Judge had earlier observed at [54] that the property was purchased for the parties to live in.
[49] I therefore do not consider that L v P was wrongly decided. Neither, however, do I consider that it is firm authority for the proposition for which counsel for Ms Rea contends. I note, too, that counsel in L v P do not appear to have drawn the attention of the Judge to authorities such as Oakley, Buljan and Thompson.
[50] Those cases and particularly the binding authority of the Court of Appeal in Buljan, are determinative in the present context. I therefore consider that the Judge erred in concluding that the fact that the first Atascadero property was used as the family home meant that the proceeds of sale of that property were relationship property. The same conclusion must also apply to each of the other Californian properties.
[51] Counsel for Ms Rea contended that this conclusion is not fatal to his client’s case. He submits that, as in L v P, the first Atascadero property was nevertheless relationship property because it qualified as such under s 8(1)(ee) of the Act. If that was the case, the other two Californian properties were also relationship property, because Mr Foote acquired them using the proceeds of sale of relationsip property.
Was the first Atascadero property relationship property by virtue of s 8(1)(ee)?
[52] Section 8(1)(ee) provides as follows:
8 Relationship property defined
(1) Relationship property shall consist of—
...
(ee) subject to sections 9(3) to (6), 9A, and 10, all property acquired, after the marriage, civil union, or de facto relationship began, for the common use or common benefit of both spouses or partners, if—
(i) the property was acquired out of property owned by either spouse or partner or by both of them before the marriage, civil union, or de facto relationship began; or
(ii) the property was acquired out of the proceeds of any disposition of any property owned by either spouse or partner or by both of them before the marriage, civil union, or de facto relationship began; and
…
[53] Counsel for Mr Foote contended that s 8(1)(ee) could not apply to the acquisition of the first Atascadero property either as a matter of law or based upon the evidence.
Is there any legal impediment to the application of s 8(1)(ee)?
[54] In developing his argument in relation to the law, counsel submitted that “section 8(1)(ee) is subject to s 9A(3) and therefore cannot negate the provisions of s 9(2)”. Section 9A(3) and s 9 (2) provide as follows:
9A When separate property becomes relationship property
...
(3)Any separate property, or any proceeds of the disposition of any separate property, or any increase in the value of, or any income or gains derived from, separate property, is relationship property if that separate property or (as the case requires) those proceeds or the increase in value or the income or gains are used—
(a) with the express or implied consent of the spouse or partner that owns, receives, or is entitled to them; and
(b) for the acquisition or improvement of, or to increase the value of, or the amount of any interest of either spouse or de facto partner in, any property referred to in section 8(1).
9 Separate property defined
...
(2)Subject to sections 8(1)(ee), 9A(3), and 10, all property acquired out of separate property, and the proceeds of any disposition of separate property, are separate property.
[55] The thrust of this submission was that, because the first Atascadero property was acquired using separate property (in the form of the monies that Mr Foote received by way of compensation), it remained Mr Foote’s separate property by virtue of s 9(2) of the Act.
[56] The simple answer to the submission that s 8(1)(ee) cannot negate s 9(2) is that Parliament has made s 9(2) expressly subject to s 8(1)(ee). Parliament has therefore made it clear that s 8(1)(ee) is to have primacy over s 9(2). As a result, s
9(2) will not operate to protect separate property where it is used to acquire property for the common use and benefit of both parties. Such property will become relationship property for the purposes of the Act notwithstanding the fact that it was acquired using separate property.
[57] As one would expect given the wording of s 9(2), s 8(1)(ee) is not expressed to be subject to s 9(2). It is subject only to s 9(3) to (6) and ss 9A and 10.
[58] The wording of s 8(1)(ee) is to be contrasted with s 8(1)(e), which is subject to s 9(2) to (6) as well as to ss 9A and 10. The differing wording used in the two
subsections was the subject of the following observations by the Court of Appeal in
Geddes v Geddes [1987] 1 NZLR 303 at 309:
Subsection 8(e) and (ee) were enacted in their present form by the Matrimonial Property Amendment Act 1980, following the judgment of this Court in Reid v Reid [1979] 1 NZLR 572 (affirmed by the Judicial Committee at [1982] 1 NZLR 147). The previous s 8(e) had been subject to subs (3) to (6) only of s 9. It is now subject to subs (2) as well, but that in turn is subject to s 9(6) which, for the purposes of this case, can be paraphrased as providing that any separate property used with the consent of the spouse owning it for the acquisition of any property referred to in s 8 shall be matrimonial property. ...
... On this basis the first inquiry under s 8(e), on looking at property acquired during the course of the marriage, is whether s 9(2) applies; if so, it never becomes matrimonial property, and must be regarded as excluded from the former subsection altogether. Accordingly s 9(6) can then have no relevance.
[59] As the Court of Appeal indicated in this passage, Parliament amended the subsection in 1980 so as to make s 8(1)(e) subject to s 9(2) as well as to ss (3) to (6), as had previously been the case. It took that step in response to the interpretation given to the former s 8(e) by the Court of Appeal in Reid v Reid [1979] 1 NZLR 572. Parliament had the opportunity at that time to make the former s 8(ee) expressly subject to s 9(2) as well, but elected not to do so. Parliament has also declined to alter the wording of the subsection in the amendments that it has made to the Act since 1980.
[60] For these reasons I reject the submission by counsel for Mr Foote that s
8(1)(ee) cannot negate the provisions of s 9(2). Where a claimant can establish the criteria prescribed by s 8(1)(ee), separate property will create, or be converted into, relationship property notwithstanding the existence of s 9(2).
[61] Although s 8(1)(ee) is subject to s 9A, the function of s 9A is to prescribe further situations in which separate property may create, or be converted into, relationship property. Put another way, s 9A does not operate to protect separate property in the same way that ss 9(2) and 10 do. It therefore does not restrict the operation of s 8(1)(ee). In practical terms the superiority of s 9(6) means that it may operate to create relationship property in circumstances where that result would not be attained through the application of s 8(1)(ee).
[62] Section 8(1)(ee) is also subject to s 9(3) to (6) and to s 10, but none of those provisions have any relevance to the present case.
[63] I therefore do not accept that there is any legal impediment in the present case to the application of s 8(1)(ee).
[64] This leads to the next issue, which is whether Ms Rea can demonstrate that the evidence is sufficient to enable her to rely upon s 8(1)(ee).
Is the evidence sufficient to enable Ms Rea to rely upon s 8(1)(ee)?
[65] The Court must determine this issue on the basis of the evidence alone, because the manner in which the Judge approached the case means that he did not deal with this issue in his decision.
[66] I agree with counsel for Mr Foote that Ms Rea needed to establish the following matters in order to rely upon the provisions of s 8(1)(ee):
(a) The property was acquired after the commencement of the parties’
relationship; and
(b)It was acquired out of property owned by one spouse before the marriage; and
(c) It was acquired for the common use or benefit of both spouses;
Was the property acquired after the commencement of the parties’ relationship?
[67] There does not appear to be any dispute regarding this issue. The parties commenced their relationship in 1981 and the property was acquired in 1985. It was therefore acquired after they commenced their relationship.
Was the property acquired out of property owned by one spouse before the marriage?
[68] Counsel for Mr Foote argued that this element could not be satisfied on the evidence, because Mr Foote only became finally entitled to the compensation monies after the marriage. He submitted that Mr Foote’s entitlement did not occur until after Mr Foote underwent surgery that was not successful in 1983. He did not receive the funds that enabled him to purchase the first Atascadero property until 1984, which was approximately three years after the parties had begun their relationship. For this reason counsel for Mr Foote submitted that it was not possible to say that the first Atascadero property was acquired out of property that Mr Foote owned prior to the relationship.
[69] I propose, for reasons that will shortly become obvious, to leave this point open for the time being. It is certainly arguable that the entitlement to compensation arose at the time that Mr Foote suffered the injury in August 1971. The fact that his entitlement may not have been finally quantified until after the unsuccessful surgery in 1983 would not affect the fact that he had the entitlement to compensation of one form or another. Presumably the surgery was designed to ameliorate the injury so that Mr Foote would be capable of some forms of work. The fact that remedial surgery took place does not, however, affect the fact that Mr Foote’s injury had already incapacitated him so that the entitlement to compensation had arisen.
Was the property acquired for the common use or benefit of both parties?
[70] As counsel for Mr Foote submitted, this issue must be determined as at the date upon which the property was acquired.
[71] Mr Foote’s evidence regarding the first Atascadero property is as follows:
14. ON 16 January 1985 by utilising the lump sum payment I purchased a building section in Atascadero, California. The property was purchased in my name. I obtained a construction loan from a Teachers’ Credit Unit, SESLOC and I purchased and moved onto the property a 16 ft caravan where I lived while the property was being constructed. The applicant lived in an apartment a few miles away.
15. THE applicant was engaged in fulltime university study and therefore was not involved with the construction of the property, nor did she contribute any funds towards the costs.
16. THE applicant had a Student Visa with a no employment condition attached to it. She used her assumed identity for employment purposes. The money she earned went to pay her tuition and living costs and she purchased her own vehicle.
17. I had my own car and we maintained separate accounts and continued dating casually.
18. BY 1986 the first Atascadero house was completed and I moved into the house. We agreed that the applicant would move in and pay me $125.00 per month rent. She continued working and attending university fulltime and I assisted by helping her study, typed her papers and loaned her money for tuition.
[72] The tenor of Mr Foote’s evidence is clearly to the effect that the acquisition of the property and the construction of the house upon it was his project, and that Ms Rea played no part in it. The wording that he uses in his affidavit makes it clear that he acquired the property in his own right, and that he never considered that it was to be for the common use or benefit of both himself and Ms Rea.
[73] Ms Rea responded by saying:
10. Para. 15 – I was involved in my university studies as encouraged by the Respondent. During the construction the Respondent participated in very physical work on the project including lifting carrying and landscaping. The project to build our family home on the section in Atascadero was a joint effort intended to provide a family home for us. I had significant input into the interior choices of the home including colors, kitchen and bathroom fixtures and carpet.
11. Para. 18 – It is nonsense to suggest that the Atascadero house was the Respondent’s own home. We were a couple and made all decisions jointly. I was by then a full-time university student encouraged by the Respondent to succeed and obtain a University Degree.
[74] There is therefore a clear conflict in the evidence on this point, and the issue cannot be determined unless that conflict is resolved.
[75] Normally an appellate court faced with this situation would have the benefit of the cross-examination of the parties and the reasoning adopted by the Judge in his decision. The Judge at first instance would also enjoy an obvious advantage in this
context, because he saw and heard the witnesses. As a result, he would be in the best position to determine which version of the facts should be accepted.
[76] Unfortunately, however, neither counsel cross-examined the opposing party regarding this aspect of their evidence. The evidence of both parties therefore remains unchallenged, and there is no way of knowing what they might have said if they were pressed on the issue. The situation is also complicated by the fact that the Judge did not deal with the issue at all in his decision.
[77] Sometimes a conflict in the evidence can be resolved on appeal by applying logic and common sense. In the present case, however, competing arguments run both ways.
[78] Some aspects of the evidence suggest that the first Atascadero property must have been acquired for the use or benefit of both parties. By way of example, common sense would suggest that, as in L v P, the only reason that Mr Foote would construct the house that he built on that property would be to create a home for the use and benefit of both himself and his then wife. That is, in fact, what happened. They both lived in and used the property as their home until the date upon which it was sold.
[79] Counsel for Ms Rea also referred me to a letter that Mr Foote wrote to Ms Rea after the parties separated. In that letter Mr Foote described the houses that the parties had lived in and said:
... We have had several remarkable houses. In fact, since we were married, we have had nothing but fine houses, good cars, and comfortable lifestyle. Plenty of money was needed, and we both enjoyed spending it.
[80] Then, when referring to the house on the second Atascadero property, Mr
Foote speaks of “our big house on the hills overlooking Atascadero”.
[81] On the other hand, it is clear that Mr Foote was always scrupulous in keeping his finances separate from those of Ms Rea. His apparent obsession about this aspect of their relationship suggests that, although he may have been happy for Ms Rea to live in the Californian properties from time to time, he never intended that they
should ultimately be for the common benefit of both himself and Ms Rea in terms of s 8(1)(ee).
[82] With considerable regret I have concluded that it is not possible for me to determine this important issue based solely on the untested and conflicting evidence contained in the affidavits. It will be necessary, in my view, for the parties to be cross-examined on this point and for submissions to be made on the application of the section to the Californian properties. For that reason I have concluded that the proceeding will need to be remitted to the Family Court so that this issue can be resolved based on such further evidence as the Judge in the Family Court may consider appropriate. Although the procedure to be adopted will be a matter for the Judge, the provision of further evidence may not be required. It may be sufficient for counsel to cross-examine the parties on the evidence that they have already given, and for submissions to be made based on the evidence as a whole.
[83] Notwithstanding this conclusion, it is still necessary for me to determine whether Mr Foote should be permitted to adduce further evidence in support of another aspect of his appeal.
Should Mr Foote be permitted to adduce new evidence in support of the appeal?
[84] Counsel for Mr Foote seeks leave to adduce further evidence in support of the appeal. That is opposed by counsel for Ms Rea.
[85] The evidence seeks to address two issues. First, as I have already indicated at [30], it relates to the law of California as it applied to the three Californian properties. Secondly, it relates to the validity and enforceability of documents that Ms Rea signed on 29 March 1989, 23 June 1989 and 25 September 1991. In these documents, referred to as “Grant Deeds”, Ms Rea purported to gift any interest that she held in the Californian properties to Mr Foote. Mr Foote therefore has an obvious interest in persuading the Court to give effect to the documents.
[86] Each of the documents related to immovable property situated in California. For that reason the Judge in the Family Court was required to consider the conflict of laws principles that apply to immovable property in foreign jurisdictions. He dealt with this issue as follows:
[104] [Counsel for Mr Foote] in his submissions drew my attention to the laws of conflict and in particular to the words of Asher J in Shepherd v Shepherd [2009] NZFLR 227. He quoted Asher J at paragraphs [19] and [20]:
[19] To interpret s 7 in its legal context, it is necessary first to consider the conflict of law principles that would generally apply to immovable and movable property. The underlying principle is set out in Dicey and Morris Conflict of Laws (14 ed 2006, vol 2) at para 23-062:
23-62 As a general rule, all questions that arise concerning rights over immovables (land) are governed by the law of the place where the immovable is situate (lex situs). The general principle is beyond dispute, and applies to rights of every description. It is based upon obvious considerations of convenience and expediency. Any other rule would be ineffective, because in the last resort land can only be dealt with in a manner which the lex situs allows.
[20] This approach requires that substantive rights in land be determined in accordance with the laws of the country in which the land is situated. This is because substantive rights may differ from country to country, and there are practical difficulties in a New Zealand court determining rights to land in another country, as well as the barrier of the general principle that such issues are best determined by the law of the country concerned. Once immovable property is sold and becomes movable property, such as funds in a bank, the position changes. In the family context it is widely accepted that the governing law as regards movables in the absence of an agreement is that of the matrimonial domicile: Dicey and Morris Conflict of Laws (14 ed 2006, vol 2) at para 28-
008.
[105] What Mr Herbert did not go on to point out in his submission was that, in the absence of evidence made available to a home Court as to the applicable law in a foreign country where an immovable asset is situated, the foreign law is to be presumed to be known as the home law.
In particular, I refer to the commentary of Fisher on Matrimonial and
Relationship Property Law at the foot of paragraph 1.63:
The result of failing properly to prove the foreign law which is alleged to apply is exemplified by Callwood v Callwood [1960] 2
All ER 1; [1960] AC 659 (PC). See also Livingstone v
Livingstone (1980) 4 MPC 129, per Somers J, and Pool v Pool
[1984] NZ Recent Law 57, discussed by McLachlan, above para
1.58, n 4. If not properly proved, the foreign law will be presumed to be the same as New Zealand law. Note also the
Judicature Amendment Act 1935, s 4.
[106] In Livingstone v Livingstone referred to by Fisher, Somers J
remarked:
“It was not suggested on behalf of either party and no evidence was led to support the fact that the law either of Canada or Scotland differs in any material way from that of New Zealand. The proof of any variance lies on the party asserting it – Nelson v Birdport (1984) 8 BEAV.527; CF s 4 of the Judicature Amendment Act 1935. In those circumstances the Court must apply the law of New Zealand treating any other relevant legal system as being the same.
[87] The Judge went on to point out that there was no evidence before him as to the status in Californian law of any of the documents. For that reason he was obliged to apply New Zealand law to them. The documents purported to be agreements under which the parties were attempting to contract out of the provisions of the Act. In order to achieve that object the agreements needed to satisfy the criteria that s 21F of the Act. None of the agreements satisfied those criteria. For that reason the Judge declined to give effect to them.
[88] Mr Foote now wishes to adduce expert evidence regarding the law in California as it relates to documents such as this. That evidence is designed to show that the documents are valid and would be legally enforceable in California.
[89] The test for admitting new evidence on an appeal is set out in r 20.16 of the
High Court Rules. It relevantly provides:
20.16 Further evidence
…
(2)In all other cases, a party to an appeal may adduce further evidence only with the leave of the court.
(3) The court may grant leave only if there are special reasons for hearing the evidence. An example of a special reason is that the evidence relates to matters that have arisen after the date of the decision appealed against and that are or may be relevant to the determination of the appeal.
[90] As the learned authors of McGechan on Procedure note at HR20.16.01, an appeal generally proceeds on the evidence that was presented to the Court at first instance. The rule is not designed to allow parties to have an opinion to bolster their case with new evidence on appeal. It is now well-established that the discretion to grant leave is sparingly exercised. The general test is that the evidence should be cogent and likely to be material, and that it could not reasonably have been discovered at an earlier stage. The appeal should not be regarded as a new trial in which either party has the opportunity to re-run its case in a way that remedies shortcomings in the evidence that may have been identified in the judgment under appeal.
[91] In the present case there can be no doubt, as counsel for Mr Foote fairly accepted, that the evidence was available at the time of the hearing in the Family Court. There was nothing prior to that hearing to prevent counsel who then appeared for Mr Foote from obtaining the evidence and placing it before the Court. There is no explanation for counsel’s failure to take that step prior to the hearing before Judge Maude. In the absence of any explanation, I infer that counsel who then appeared for Mr Foote did not turn his mind to the need for the evidence to be called.
[92] The evidence would clearly have been material to the outcome in the Family Court. Had the Judge been presented with acceptable evidence regarding relevant California law, he would have been obliged to apply the law in California as he found it to be. To that extent the new evidence is also potentially material to the outcome of the appeal.
[93] Whether or not the evidence is cogent is, however, another matter. If leave is granted, counsel for Ms Rea seeks leave to respond by adducing expert evidence in opposition to that of Mr Foote’s expert. The brief of evidence that counsel for Ms Rea wishes to tender challenges the evidence of Mr Foote’s expert in material respects.
[94] As counsel acknowledged during the hearing, the conflict in the evidence of the two experts cannot be resolved without cross-examination. That in itself presents problems, because both experts reside overseas. It is likely that arrangements would
need to be made for cross-examination to be undertaken by video link. That, in turn, will inevitably create further expense and delay. All of this highlights the unsatisfactory situation that arises when a party endeavours to fill a vacuum in his or her case at first instance by attempting to adduce further evidence on appeal.
[95] Taking these factors into account I have concluded that it would not be appropriate to admit the new evidence. The fact that it was not led at first instance is a short-coming in the case for Mr Foote that the Court should not permit him to remedy on appeal. To do so would be to allow him to bolster his case in an impermissible way.
[96] Several other factors persuade me that the evidence should not be admitted at this stage. First, it is clear from comments that the Judge made in his decision that the interlocutory stages of this proceeding involved numerous difficulties. These appear to have been caused to a significant extent by a reticence on the part of Mr Foote to provide information regarding his financial affairs in the United States. Ultimately, Ms Rea was forced to proceed to trial without full disclosure from Mr Foote regarding these issues. That being the case, I consider that it would be inappropriate for the Court at this stage to grant him the indulgence of adducing further evidence when that evidence ought to have been adduced prior to the hearing in the District Court. It would be an indulgence that Mr Foote does not deserve.
[97] Secondly, there needs to be finality regarding this litigation. It has now been on foot for several years. The amount at issue is not great in monetary terms although, no doubt, it is of great importance to the parties. Both of them must have incurred very considerable expense in bringing the litigation to its current state. It is regrettable that yet further expenditure will inevitably be required before the matter is finally concluded. In my view the Court has an obligation to reduce the future cost of these proceedings so far as it can do so. If the dispute between the two experts is permitted to be introduced at this stage, there will be considerable additional expense for both parties.
[98] For these reasons I decline leave to adduce further evidence. I also decline to disturb the Judge’s conclusions in relation to the status of the so-called Grant Deeds.
Other matters
[99] Counsel for Mr Foote made submissions to me on two other matters.
The Papamoa debt
[100] Counsel contended that the Judge had failed to take into account the fact that, in order to purchase the Papamoa property, Mr Foote obtained an advance from a source or institution in the United States. As recorded earlier at [17] and [22], that advance was secured against the second Atascadero property and was ultimately repaid when the Paso Robles property was sold. Counsel for Mr Foote contended that the Judge had failed to give Mr Foote credit for the fact that the debt that the parties incurred to purchase the Papamoa property was effectively repaid by Mr Foote alone.
[101] In my view the validity of this submission is likely to turn upon the ultimate classification of the Paso Robles property. If it was Mr Foote’s separate property, the submission may have some merit. If it was relationship property, it would not. Given the fact that this issue was not raised during the hearing in the Family Court, I do not propose to address it further on appeal.
Interest
[102] Counsel have agreed that any interest that might be payable to Ms Rea under the Judicature Act 1908 is to be payable at the prescribed rate for each period in respect of which the interest is payable. There is no need for the Court to address this issue further.
Result
[103] The application to file Amended Points on Appeal is granted. [104] The application for leave to adduce further evidence is declined.
[105] The appeal is allowed in relation only to the issue of whether or not s 8(1)(ee) applies so as to classify the Californian properties, and the proceeds of sale of those properties, as relationship property in terms of the Act.
[106] The proceeding is remitted to the Family Court for determination of that issue only.
[107] In all other respects the appeal is dismissed.
[108] I make no order discharging or varying the orders that were made in the Family Court. The Judge in the Family Court may, however, need to re-consider the appropriateness of those orders in light of his ultimate conclusion regarding the status of the Californian properties. Should he do so, the Judge will need to have regard to the current ownership of the Wallace Street property and the fact that it is now subject to a mortgage to a third party.
Costs
[109] Both parties have succeeded to some extent in relation to the issues that the appeal raised. For that reason my tentative conclusion is that costs should lie where they fall.
[110] If either counsel advocates a different approach, a memorandum to that effect should be filed and served within 14 days of the date of this judgment. Should that occur memoranda in opposition and reply are then to be served at intervals of 14 and
7 days respectively.
Lang J
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