Gardiner v Dyer
[2018] NZHC 355
•8 March 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
https://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2017485-30
[2018] NZHC 355
BETWEEN JULIA FRANCES GARDINER
First Appellant
AND
JULIA FRANCES GARDINER AND
PETER JOHN CLARK (AS TRUSTEES OF THE KARAKA TRUST)
Second AppellantsAND
WAYNE DYER
Respondent
Hearing: 29 August 2017 Appearances:
R A Newberry for First Appellants F M Gush for Second Appellant
R J B Fowler QC, G M Letts and R M A Purchas for Respondent
Judgment:
8 March 2018
JUDGMENT OF CHURCHMAN
Pursuant to r 11.5 of the High Court Rules I direct the delivery time of this judgment is
2.30 pm on 8 March 2018
GARDINER v DYER [2018] NZHC 355 [8 March 2018]
Introduction [1]
The trust [5]
The Family Court decision [12]
Approach to relationship property appeals [19]
Facts [21]
Financial positions as at commencement of the relationship [27]
The first appellant’s asset position [34]
The trust’s assets [41]
Occupation of trust property [47]
Respondent’s contributions [51]
Motor vehicles [118]
Other components of loan [143]
Tax and GST liabilities [148]
Family Court’s finding on nature of loan [189]
Issue No 2 setting aside dispositions to Karaka Trust [202]History of the CIP shares [205]
Family Court’s findings in relation to CIP shares [223]
The 2009 CIP share acquisition [250]
Nature of property [259]
Section 44(2)(b) [277]
Other shares [281]
General shares [284]
Issue Three: Section 182 Family Proceedings Act 1980 [298]
Court’s decision on s 182 application [308]
The trust’s position on s 182 [355]
The law on s 182 [361]
Issue four: extent of relationship property [372]
Issue five: absence of a family home [389]
Estoppel [418]
Conclusion [428]Issue two: dispositions to the trust [428]
Issue three: s 182 Family Protection Act 1980 [434]
Issue four: extent of relationship property [437]
Issue five: absence of a family home [438]Costs [440]
Introduction
[1] Julia Gardiner (the first appellant) and Wayne Dyer (the respondent) began a de facto relationship in October 1999, they married on 19 February 2000, separated on 1 June 2012 and their marriage was dissolved in October of 2014.
[2] For the purposes of the Property (Relationships) Act 1976 (PRA), their relationship lasted twelve and a half years.
[3] Both parties had been married previously. There were no children of the relationship but the first appellant had a son, Kevin (not his real name), who was an adult when the parties’ relationship began but who suffered from some addiction and other problems and was dependent upon the first appellant in a way that adult children normally are not. From time to time, Kevin either lived with the first appellant or was financially supported by her. The first appellant had established a trust of which Kevin was the primary beneficiary.
[4] Most of the issues raised in this appeal relate to the trust and to the legal consequences flowing from the operation of the trust and the extent to which the trust’s assets are or should be available for division in these proceedings.
The trust
[5] The first appellant settled the Karaka trust (the trust) on 1 September 1997. This was before the parties were in a relationship and before they had even met.
[6] At the time of settling the trust, the first appellant owned her own house at Karaka Bay Road which she then transferred to the trust for $272,500, being the price she had originally paid for it.
[7] At the time of the transfer to the trust, the Karaka Bay house was subject to a mortgage to the Hong Kong Bank of $150,825.92. The last set of accounts for the trust prior to the relationship commencing in October 1999 are the accounts for the year ended 31 March 1999. They show that, as at that date, the mortgage had been reduced to $145,710.57.
[8] In June of 2001, about 20 months after the relationship commenced, the trust sold the Karaka Bay house with the sale proceeds (after deduction of real estate agents’ commission) being $384,396. The mortgage on the Karaka Bay house at the time of sale was $160,272.
[9] The trust paid $815,934 to purchase a Ventnor Street property (Ventnor Street) with the assistance of mortgage funding from the National Bank. The accounts for the trust for the year ended 31 March 2002 show a National Bank mortgage over Ventnor Street of $486,243. The 10 per cent deposit for Ventnor Street was advanced to the trust by the first appellant utilising funds of some $80,000 from a redundancy payment she received from Merrill Lynch.
[10] Some 13 years after it was purchased, (and after the parties had separated) on 14 July 2014 this property was sold for $1.4 million with the net sale proceeds being
$619,256.62 and the trust settled the purchase of an apartment at Clyde Quay for
$1,864,922 with a mortgage of $1.23 million. The trustees had committed themselves to the purchase of this apartment prior to separation. After separation, the first appellant wanted to substitute a cheaper apartment in the Clyde Quay development but the respondent was opposed to that.
[11] The trust was joined as the second respondent in proceedings issued by Wayne Dyer against Julia Gardiner in the Family Court.
The Family Court decision
[12] Judge O’Dwyer issued a decision in this matter on 19 December 2016 (the Family Court decision).
[13] The first appellant and the trust lodged a joint appeal and the respondent cross- appealed the Family Court decision. The Family Court decision dealt with five separate topics:
(a)Issue one: validity of trust settlements.
(b)Issue two: dispositions to the trust.
(c)Issue three: claim under s182 Family Protection Act 1980.
(d)Issue four: extent of relationship property.
(e)Issue five: absence of a family home.
[14] Of these five issues, the only one not appealed is issue one. All parties have appealed, either wholly or in part, the Family Court decision in relation to issues two to five. The appeals require consideration of multiple PRA provisions including s 2G, s 11B, s 41 and s 44C, as well as s 182 of the Family Proceedings Act 1980.
[15] As the parties, in their submissions to this Court, have referred to the issues as they were numbered in the Family Court decision, I will do the same in this judgment. This means that there will be no reference to an “Issue one”.
[16] As well as alleging various errors in relation to the application of the law, there are also allegations, particularly by the respondent, that the Family Court decision proceeds on the basis of mistakes as to the facts.
[17] The respondent argued that understanding a number of factual matters was “critical to this appeal” including:
(a)the trust’s financial position at the date the parties commenced their relationship/marriage;
(b)the disposition of relationship property from the parties to the trust;
(c)the trust’s financial position at the end of the marriage;
(d)details concerning the tax liability incurred by the respondent and subsequent loan facility which repaid it.1 In relation to the Inland Revenue Department debt and what was said to be the erroneous factual interpretation in the Family Court decision, the respondent went so far
1 Synopsis of respondent at 4.1.
as to say that this was “… relevant to every exercise of the judge’s discretion on each issue on cross-appeal in the submissions.”2
[18] Given the emphasis placed by the parties, in particular the respondent, on alleged errors of fact and the claimed significance of those errors in relation to the application of the statute, before addressing the legal issues that this appeal raises, it is necessary to analyse the relevant evidence to see whether or not the factual findings upon which the Family Court decision was based are supported by the evidence. To the extent that it is alleged the Family Court decision does not make required factual findings on some points, I will also address those. Determining whether the findings of fact made in the Family Court were available to it will resolve a number of the issues on appeal.
Approach to relationship property appeals
[19] Heath J, in the case of B v F, set out the nature of the inquiry of the High Court in a relationship property appeal.3 Following a discussion of the Supreme Court decision in Austin, Nichols & Co Inc v Stichting Lodestar,4 Heath J said:5
[6] Relationship property appeals from the Family Court are governed by s 39 of the Act, which imports ss 74–78 of the District Courts Act 1947 as part of the procedures on appeal. The appeal is by way of rehearing (s 75) and falls within the scope of an appeal of the type to which the Chief Justice referred in Austin, Nichols, at [17]. If the appeal were allowed, this Court may make any decision that it thinks should have been made or remit the proceeding to the Family Court for reconsideration on a basis to be articulated clearly in its decision (s 76(1)).
[7] Application of the Austin, Nichols principles is not altogether easy, in the context of appeals from the Family Court. Many first instance decisions represent a mix of findings of fact (after seeing and hearing witnesses), the formation of an evaluative judgment and the exercise of statutory discretions. Sometimes it is difficult to characterise a particular decision as evaluative, factual or discretionary in nature.
[8]I approach this appeal on the following basis:
(a)first, I must take account of the advantage that [the hearing Judge] had of hearing and seeing the witnesses give evidence before him (see Austin, Nichols at para [13]);
2 Counsel for respondent’s synopsis at [59].
3 B v F [2010] NZFLR 67.
4 Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC).
5 B v F, above n 5, at [6]–[8].
(b)secondly; to the extent that the Judge exercised any discretion in reaching his decision, I must determine whether those discretionary decisions were or were not open to him, based on May v May [1982] 1 NZFLR 165 (CA) and Blackstone v Blackstone [2008] NZCA 312 at para [8];
(c)otherwise, I am free to reconsider the Family Court’s decision and to substitute my own view on questions of fact and evaluation, if I were convinced that the first instance decision was wrong.
[20]I will adopt a similar approach.
Facts
[21] In [14]–[33], the Family Court decision sets out a summary of the background to this matter. I accept that summary and will not repeat it.
[22] As the respondent’s challenges to the factual findings are more extensive than the appellants, I will address them first. The main challenges advanced by the respondent to the Judge’s factual findings are that:
(a)the asset positions of the first appellant and respondent were broadly similar as at the commencement of the relationship;
(b)the trust had little equity at that time;
(c)the first appellant and respondent made similar financial contributions to the trust throughout the duration of the relationship;
(d)that the respondent had applied hundreds of thousands of dollars of cash to the trust and that his physical efforts had significantly increased the value of the trust’s assets.
[23] Examples are the assertions set out in the respondent’s submissions: “… it is demonstrated that Mr Dyer’s financial contributions to both the marriage and the Trust were valuable and not dissimilar to Ms Gardiner’s financial contributions”6 and that
6 Submissions for Cross-Appeal by Respondent dated 28 July 2017 at [104.1.2.9].
Mr Dyer’s “… equity in the Trust was almost identical to Ms Gardiner’s ($54,000 including $27,000 gifting) from [9 October 2000].”7
[24] In counsel for the respondent’s closing submissions to the Family Court, it was said:8
There were limited settlements to the Karaka Trust before Ms Gardiner and Mr Dyer’s marriage and the Trust had little equity when the parties were engaged in August/September 1999. …
[25] The overall picture painted in the evidence of the respondent to the Family Court is perhaps best captured by the statement which says:9
Over the last 12 years and up until our separation we used the Trust together to acquire valuable assets. We borrowed money as trustees to do this. I also applied hundreds of thousands of dollars of cash from my earnings and many years of physical effort (mainly to renovation/improvement to real estate) to build the value of trust assets.
[26] It is therefore necessary to make some specific findings about the parties and the trust’s relative asset position at the commencement of the relationship and the nature of the contributions that they made to the trust and to the relationship.
Financial positions as at commencement of the relationship
[27] In a letter that he wrote to the Inland Revenue Department on 23 August 2006, the respondent referred to his financial position immediately prior to and at the time of the relationship commencement and said:10
In addition to this in late September 1996 I was recovering from dissolution of my marriage of 10 years and subsequent divorce and could not manage to afford to hold onto my house as I earned only $17,000 that year. I have struggled from this time and subsequently have no assets to speak of.
[28] The first appellant in her affidavit of 19 April 2016 refers to a memorandum filed by the respondent’s counsel dated 4 July 2013 which describes the respondent having, at the commencement of the relationship, “a car and chattels”.11
7 Submissions for Cross-Appeal by Respondent dated 28 July 2017 [104] 1.3.4.
8 Case on Appeal 4132 at [74].
9 Respondent’s affidavit of 24 April 2013 at [8], Case on Appeal at 3701.
10 Case on Appeal 2090.
11 Affidavit of First Appellant, 19 April 2016 at [3], Case on Appeal 3687.
[29] As to the value of the car that the respondent owned at the date of the commencement of the relationship, his own evidence was that it was an Audi 80 worth
$4,000.12
[30] The Family Court decision also found that, at the date the relationship commenced, the respondent had a pre-relationship tax liability of $15,821.13 The quantum of this liability was not in dispute.
[31] Nowhere in the evidence does the respondent suggest a value for the chattels he had at the start of the relationship. The first appellant’s evidence as to the respondent’s chattels was that he brought nothing to Karaka Bay except some kitchen utensils and he brought into Ventnor Street a grey vinyl couch, four bar stools, a bed and the desk he had at his then office.
[32] The respondent’s evidence conflated the parties’ combined asset position at the start of the relationship, for example his statement: “… our net asset position was probably only $200,000 between us (including Trust assets).”14
[33] However, assuming a modest value for the chattels, and taking into account the undisclosed tax debt, I find that at the time of the commencement of the relationship, the respondent’s debts are likely to have exceeded the value of all of his assets. His personal equity at the start of the relationship was therefore nil.
The first appellant’s asset position
[34] The respondent has attempted to minimise the first appellant’s asset position at commencement of the relationship and to equate it with his own. He claimed: “… she had only a modest asset base for a senior share broker.”15
[35] The first appellant’s asset position as at the date the relationship began was that she owned an MGF motor vehicle purchased recently for $30,000, she had a credit in
12 Affidavit of respondent, 24 April 2013, sch J1.
13 Family Court decision at [250].
14 Affidavit of respondent, 24 April 2013 at [6], Case on Appeal 3700.
15 Case on Appeal 1311 at [24].
the Karaka Trust current account of $160,397,16 a household full of chattels worth some $45,000 and $30,000 worth of various shares.
[36] The credit in the current account had arisen some two years previously. The first appellant had transferred her Karaka Bay property and a parcel of shares to the trust. She had begun a programme of gifting to the trust at $27,000 per year, being the maximum amount then able to be gifted without incurring gift duty.
[37] In her narrative affidavit of 18 June 2013 (re-sworn 1 October 2015), the first appellant stated in relation to property owned at the commencement of the relationship: “I also owned a range of shareholdings, some of which were still in my own name and some of which I had transferred to the Trust.”17 No detail is given of the value of the shares owned in her own name. The trust’s balance sheet for the year ended 31 March 1999 records that, as at that date, it owned shares with a value of
$30,145.45.18
[38] The respondent’s estimate of the assets owned by the first appellant as at the date the relationship commenced is set out in his affirmation of 24 April 2013, where, he says: “My recollection is that when we began living together and when we married, Julia’s overall net property position in her own name and through the Trust was approximately $200,000.”19
[39] The respondent’s estimate of the first appellant’s net worth was based on the Karaka Bay property still having a value of $272,000. However, as he acknowledged, this property “was probably worth more than $272,000 (at 31 March 1999)”.20 It sold in June of 2001, some 20 months after the relationship began, for $384,000. It is likely
16 See evidence of Hugh Sutherland (forensic accountant), Case on Appeal 1989 at [1(d)] and 1995 at [9]d. The relationship commenced on an unspecified date in October 1999. The first appellant reduced her current account balance with the trust by a gift of $27,000 on or about 10 October 1999. As Mr Sutherland notes (Case on Appeal 1994–1995), if the relationship commenced after the gift was made, the first appellant’s current account balance at the commencement of the relationship would have been $160,397. If it was made before the relationship commenced, it would have been $133,397.
17 Narrative affidavit of first appellant dated 18 June 2013 [18], Case on Appeal 1775.
18 Case on Appeal 2849.
19 Narrative affidavit of respondent dated 24 April 2013 [44], Case on Appeal 0953.
20 Case on Appeal 0953 at [44].
to have been worth some $330–340,000, rather than $272,000, when the relationship began.
[40] Assuming a current account with the trust of $160,397,21 a car at $30,000, a house full of chattels and some shares, the first appellant’s net asset position as at the commencement of the relationship is likely to have been something over $250,000. Therefore, the respondent’s claims that, at the start of the relationship, the parties’ asset position was broadly similar and that neither had much in the way of assets are incorrect. All of the parties combined equity and all of the trust’s equity at the start of the relationship had been provided by the first appellant.
The trust’s assets
[41] There are no precise figures as to the value of the trust’s assets as at October 1999 when the relationship began. The trust balance sheet for the year ended 31 March 1999 (based on the historical value of Karaka Bay Road at its purchase price two years previously) showed an equity of $47,282.7622 and the accounts for the year ended 31 March 2000 showed an equity of $54,342.50.23
[42] All of the equity in the trust had been provided by the first appellant from her separate property.
[43] The external debt the trust had as at 31 March 1999 was $145,710.53.24 At some stage after 31 March 1999 (it is not clear whether this was before or after the relationship commenced) and between 31 March 2000 there was a further draw on the Hong Kong Bank facility giving a 31 March 2000 balance of $164,448.92.25
[44] I find that, as at the date the relationship commenced in October 1999, the combined value of the first appellant’s separate property and the equity that she had
21 I acknowledge that the $160,397 figure for Ms Gardiner’s current account is different to what is shown at exhibit J1 on Case on Appeal 2849, which shows her current account at $109,482.31. However, I rely on Mr Sutherland’s evidence at Case on Appeal 1991 and 1992 [5] explaining how he has arrived at the figure of $160,397.
22 Case on Appeal 2849.
23 Case on Appeal 2853.
24 Case on Appeal 2849.
25 Case on Appeal 2853.
provided to the trust amounted to some $250,000. All of the first appellant’s current account in the trust was her separate property and she was engaged in a planned programme of gifting that to the trust. To the extent that those gifts were carried out after the relationship commenced, they were gifts of separate property rather than relationship property.
[45] Bearing in mind that we are looking at values as at 1999, the first appellant’s asset position and that of the trust cannot be characterised as minimal, as the respondent has attempted to do.
[46] The respondent has challenged the finding at [194] of the Family Court judgment that the trust’s assets “before the relationship began were at least $200,000 represented in the value of Karaka Bay Cottage”. This statement conflates the equity shown in the trust’s accounts and the current account balance of the first appellant in the trust’s accounts which produce a combined figure of $200,000. A more accurate way the Judge could have expressed this would have been to say that, including the first appellant’s current account advance, the trust’s equity at this point was at least
$200,000. However, for the purpose of this appeal, the important point is that, contrary to the submissions advanced by the respondent, the first appellant and the trust did have substantial equity at the start of the relationship and this was in marked contrast to the position of the respondent. There is no error in the Judge’s findings in this regard.
Occupation of trust property
[47] At the time the relationship began, the first appellant was residing at the trust’s Karaka Bay property. Prior to the relationship commencing, a resolution was passed by the trustees providing the first appellant with a right of occupation of the Karaka Bay property on the basis that she pay all rates and insurance premiums and keep the property in good order. The resolution did not require payment of the interest or principal on any mortgage on the property. This arrangement continued throughout the duration of the relationship.
[48] Throughout the parties’ relationship they resided in a property owned by the trust. Initially, at Karaka Bay and then, for the majority of the relationship, at Ventnor
Street. The obligations on the occupants of the trust property to maintain it as the quid pro quo for the right of occupation are important when it comes to assessing the respondent’s claims that he spent “many years of physical effort” maintaining and improving the value of the trust assets. The obligation to maintain the trust properties was a specific component of the entitlement to reside in the trust properties.
[49] During the relationship, the borrowing secured by mortgage against the trust property or guaranteed by the trustees increased dramatically. The purpose of a lot of the borrowing had nothing to do with the trust or its objects but related to things like the acquisition of a series of expensive motor vehicles by the respondent which were held in his name and treated by him as business vehicles so that he could deduct the purchase costs and interest expenses against his business income, and debts that the respondent incurred such as his tax and GST obligations to the Inland Revenue Department and the cost of legal fees incurred in defending civil proceedings arising from his business. The trust guaranteed a personal loan of the respondent in the sum of $280,000 and this loan and the consequences of the respondent’s post separation default in respect of the then outstanding $200,000 balance were the subject of much submission during the hearing.
[50] The reason that the trust property was used as security for the personal loans entered into by the respondent was that it enabled the respondent to borrow at a lower rate of interest than he would otherwise have been able to and, in relation to the
$280,000 loan, facilitated borrowing that is unlikely to have been otherwise available to the respondent at all given his lack of assets to offer as security and his erratic income. Thus, the trust, by allowing its assets to effectively be used to facilitate business borrowings by the respondent, provided him with a significant benefit during the relationship. The value of that benefit is disputed by the respondent and is relevant to a number of the findings of the Family Court which are challenged in this appeal.
Respondent’s contributions
[51] In order to check the claim by the respondent that he “… applied hundreds of thousands of dollars of cash from (his) earnings … ” to the acquisition of trust property, I first start by verifying what his income was to see whether or not he had
“hundreds and thousands of dollars of cash” available to apply to anything. The next step is to ascertain exactly what Mr Dyer applied his earnings to.
[52] In order to establish his income, the respondent engaged an accountant, Michael John Markham (Mr Markham). Mr Markham produced a table headed “Wayne’s salary”.26 This table purported to show that the respondent’s “final net income” over the 12 years of the relationship was $1,482,891.73.
[53] In support of that calculation, Mr Markham produced a letter from the Inland Revenue Department setting out the gross income for the years in question.27
[54] Mr Markham also produced a table headed “Julia’s salary” which set out her net income for the 12 years of the relationship as being $1,996,113.85.28 That table was supported by statements from the Inland Revenue Department which detailed the first appellant’s net income for the years in question after deduction of taxation and ACC earner’s levies.
[55] However, Mr Markham’s calculations did not compare apples with apples. He had significantly overstated the respondent’s taxable income by failing to deduct from it the very substantial expenses incurred by the respondent in producing the income and also including in his figure a calculation for GST. Mr Markham specifically admitted under cross-examination that he had not included the cost of expenses in the income calculation29 and also that he had added into the figure a GST component.30 These omissions result in his calculations as to the respondent’s income significantly misrepresenting what the respondent’s actual income was.
[56] Mr Newberry, counsel for the first appellant, in his submissions in reply, was strongly critical of the reliability of Mr Markham’s evidence. He pointed out Mr Markham’s lack of familiarity with the code of conduct for expert witnesses, the limited range of evidence he reviewed, the obvious errors in important aspects of his
26 Case on Appeal 0554.
27 Case on Appeal 0556.
28 Case on Appeal 0555.
29 Case on Appeal 0367.
30 Case on Appeal 0370.
evidence and his acknowledgement in cross-examination that the trust’s accounts may be correct. There is considerable force in the submission of Mr Newberry that Mr Markham had effectively become an advocate for Mr Dyer.
[57] The first appellant had obtained expert accounting evidence from Hugh Sutherland. In relation to the respondent’s claimed income, Mr Sutherland said:31
Mr Markham’s table of Wayne’s income during the relationship inflates his Net Income by ignoring business expenses, adds GST to the Gross, and does not mention that most of the W/H Tax deducted was in most instances refunded or transferred.
[58]Mr Sutherland also said:32
Subsequently, relationship property was required to pay off Wayne’s IRD debt; which negates/off-sets Wayne’s contributions claims; effectively a double dipping.
[59] In order to calculate the respondent’s actual income over the duration of the relationship, Mr Sutherland started by deducting the GST figure which Mr Markham had added. This produced a figure of $1.28 million and from that figure he deducted the expenses of $990,000 which the respondent had incurred (and which had been accepted by IRD) in generating that income. This produced a figure of $290,000. That produces an average net income figure for the respondent for each year of the 12-year relationship of some $24,000.
[60] Mr Sutherland noted that among the documentation prepared by the respondent there were inconsistencies including “multiple reports with varying business expense totals”. What can be said with certainty is that the respondent’s taxable income fluctuated wildly and that it was much higher in the first half of the relationship than it was in the second half and over the last five years of the relationship it was negligible.
31 Case on Appeal 1989 at [1i].
32 At [1j].
[61] In his narrative affirmation dated 24 April 2013,33 the respondent sets out what he says was his taxable income over the relevant years. These figures are impossible to reconcile with Mr Sutherland’s calculations. However, even on the respondent’s calculations, he made no income in four of the last five years of the relationship. The exception was the year ended March 2010 in which his taxable income was $5,061.70. Rather than just not making an income in the other four years, he appears to have made losses in those years which were carried forward.34
[62] Given that the respondent’s average income throughout the entire duration of the relationship was $24,000 per annum and that in the last five years of the relationship he had virtually no taxable income at all, it is clear that he did not have hundreds and thousands of dollars of cash to apply to anything.
[63] In testing the respondent’s claims that he contributed large sums of cash from his income to the trust, it is also useful to check the evidence as to what exactly the respondent spent his modest income on.
[64] The trust did not have its own bank account. It effectively operated through the first appellant’s bank account. The first appellant used her bank account for her own personal financial dealings and to cover the household and lifestyle expenses of the parties.
[65] Mr Markham undertook an exhaustive analysis of all contributions made by the respondent to the first appellant’s bank account during the course of the relationship.
[66] In cross-examination in the Family Court, the respondent accepted that the first appellant had paid: “… electricity, gas, insurance, food, alcohol, SKY television, housecleaner daily, … wheelie bin … .” He said that he paid the telephone. The telephone would no doubt have been an expense he deducted in relation to the costs of running his business from home.
33 Case on Appeal 0937 [62]–[124].
34 Case on Appeal 1660, 1665, 1680 and 1688.
[67] During the course of an Inland Revenue investigation into his tax affairs undertaken in 2006, the respondent’s expenditure was investigated by the Inland Revenue Department. The investigative report contains the following comments:35
[The respondent] also runs a large expense account for socialising. This includes but is not limited to potential business clients. Apart from $300 per month for food he does not appear to contribute to home expenses. All other expenses are personal ranging from clothing to life insurance, but the majority
$2550 per month goes to the socialising, which taxpayer lists as communication/advertising/other.
[68]The report further said:36
Mr Dyer has indicated that he personally spends quite a lot of his after tax income, some $600 per week, socialising with potential business clients. He says he needs to do this to remain competitive in commercial real estate sales.
[69]The report found that the respondent was living beyond his means and said:37
He must also consider reduction in his social expenses.
If taxpayer is not prepared to take immediate action to curb his excesses then he must face the consequences, possibly bankruptcy.
[70] One of the conclusions in the report was: “Mr Dyer is currently maintaining an excessive lifestyle & not in a position of hardship … .”38
[71] The respondent’s case on appeal, as it had been in the Family Court, was that all of the deposits that he had made into the first appellant’s bank account of $215,000 were contributions to the trust. That is what he obviously told Mr Markham who, in preparing his evidence, has assumed that is the case. Apart from the $62,604 recognised in the trust’s balance sheet as having been contributed by the respondent, there was a fundamental conflict as to what the remaining component of the $215,000 identified by Mr Markham as having been paid into the first appellant’s bank account was actually for. Trying to identify what the payments were for is complicated by the fact that the trust did not have its own bank account and trust transactions (along with most of the household spending) went through the first appellant’s cheque account.
35 Case on Appeal 1613.
36 Case on Appeal 1615.
37 Case on Appeal 1616.
38 Case on Appeal 1617.
[72] Given the significance placed by the respondent on his “hundreds of thousands of dollars” of alleged payments to the trust and his criticism of the Family Courts lack of acknowledgment of these ‘contributions’, it is necessary to come to a conclusion as to what these payments were actually for.
[73] Mr Markham, in his evidence-in-chief, acknowledged that there was a dispute as to whether the funds that the respondent paid into the first appellant’s bank account were, as the respondent had claimed, for “mortgage reduction” or, as the first appellant claimed, his contribution to living expenses. He also specifically acknowledged that he could not resolve that dispute.39
[74]In his affidavit of 27 June 2014 the respondent claimed:40
We took out a mortgage for about $400,000. Julia and I discussed the fact that I should do my best to repay the $400,000 loan as my contribution to the Ventnor Street purchase. In my mind I then had an obligation to transfer funds from my earnings to the mortgage to even out our contribution. I had a moral obligation to do my best in this regard and this is why I began transferring such significant funds to Julia (via lump sum cheques) to repay the mortgage. It was very clear between Julia and me that the lump sum cheques that I was providing to her were for this purpose.
[75] In similar vein are comments in the respondent’s affidavit of 4 February 2016. He claimed that it was the first appellant, not him, that was extravagant and said:41
On one occasion I do remember saying to her, “What is the point of me scrimping and saving and avoiding paying tradesmen so as to reduce/control our debt if you are going to go and buy expensive and unnecessary things?” I was concerned to reduce the debt on our house as fast as possible.
[76] I find that the respondent’s claims that his lump sum payments into the first appellant’s bank account were intended to reduce the trust’s mortgage, that the respondent had any sense of “moral obligation” that he should reduce the mortgage and that he did in fact reduce the mortgage are wholly unfounded and will now set out the reasons for that conclusion.
39 Case on Appeal 0545 at [103].
40 Case on Appeal 1318 at [52].
41 Case on Appeal 3919 at [116].
[77] There is clear evidence that it was the first appellant who paid for virtually all of the parties’ household and lifestyle expenditure.
[78] At no stage throughout the parties’ relationship were the various mortgages on the trust properties reduced by lump sum payments. Indeed, the opposite was true and there was a steady increase in the amount of the mortgages both at Karaka Bay and Ventnor Street.
[79] This increase in the quantum of the mortgages and the debts guaranteed by the trust arose for a number of reasons. The borrowing funded the acquisition by the respondent of a series of expensive vehicles which were the subject of claims by him to the Inland Revenue Department on the basis that the vehicles were used for his business. They funded the respondent’s business debts, such as the funds required to meet his business tax and GST obligations which he underpaid over an extended period of time; they covered the cost of legal fees that he had to pay in relation to a business transaction that resulted in him being sued; and they arose because, over a long period of time, the respondent lived beyond his means and spent a significant portion of his income on socialising with friends/business acquaintances.
[80] The mortgage on Karaka Bay increased by some $20,000 between 31 March 1999 and 31 March 2000 although there is no evidence as to exactly when this occurred or what the money was spent on. It was not reduced between 31 March 2000 and when the property was sold. At the time of purchase of Ventnor Street on 29 June 2001, the Westpac loan was $425,746. At the date of sale, rather than the mortgage having been reduced by the respondent, the amount of the mortgage secured against Ventnor Street had increased by just over $300,000 to $726,383. That increase principally represented an additional loan facility of $100,000 taken out by the trust in 2005 for renovations, a loan (initially) of $280,000 taken out to cover the arrears of taxation owed by the respondent to the IRD and the amount he needed to pay legal fees in relation to litigation he was involved in relating to his business, and a further component of over $100,000 that went on unspecified spending.42 The other component of the loan related to expenditure on vehicles.
42 Affidavit of first appellant dated 19 April 2016, Case on Appeal 3694 at [26].
[81] As well as there being no evidence of the respondent making any payments that actually reduced the mortgage over the trust properties, it seems that a significant amount of the money paid by the respondent into the first appellant’s bank account on account of their household and lifestyle costs, was in fact funded by an increase in debt. In particular, the respondent made payments into the first appellant’s bank account instead of paying his increasing indebtedness to IRD.
[82] The first appellant’s evidence was that from December 2007 the respondent contributed nothing at all by way of deposit into her bank account in relation to the parties household and lifestyle costs.43
[83] The lack of any contribution by the respondent over the last five years of the relationship is consistent with the evidence that he had virtually no taxable income during that period.
[84] The first appellant tendered the evidence of a forensic accountant, Hugh Sutherland, who had analysed Mr Markham’s evidence and, in particular, the payments made by the respondent into the first appellant’s bank account. He noted that during the period of time when he was making payments into the account, the respondent was not paying the taxes he owed. As Mr Sutherland said:44
Wayne has made payments to Julia’s ANZ bank account, while at the same time built up significant debt with IRD; which one could say funded Wayne’s payments into Julia’s ANZ bank account.
[85]Mr Sutherland gave specific examples justifying his observation on this point.
He analysed the documents prepared by Mr Markham and said:45
(c)Comparing the two documents reveals Wayne was making “contributions” to Julia’s ANZ bank account; rather than paying his burgeoning tax debts.
(i) By example, the list indicates Wayne paid $20,000 on 28 June 2001 to Julia’s ANZ bank account; as at that date Wayne owed
$27,203.02 to the IRD relating to $13,284.34 GST, and
$13,908.68 Income Tax; it is unclear why Wayne did not pay the IRD instead.
43 Affidavit of first appellant 12 November 2013, Case on Appeal 3617 at [13].
44 Case on Appeal 1989 at [1](e).
45 Case on Appeal 1993.
(ii) Wayne’s $25,000 cheque dated 31 May 2002 was deposited into Julia’s ANZ bank account; at the same time the tax debts referred to above remained outstanding, and an additional $11,126.30 Income Tax was now owing, totalling $38,429.32; it is unclear why Wayne did not pay the IRD instead,
(d)Clearly, Wayne had sufficient funds [$45,000] to pay his outstanding taxes; however he chose to make a contribution to Julia’s ANZ bank account instead.
(i)The IRD 2007 Statement is merely a list; Wayne would have received multiple letters and statements over the years; advising him of his IRD debt obligations.
(ii)Yet, Wayne ignored those demands; and continued to prefer paying contributions to Julia’s ANZ bank account.
(e)The significance of all of this is that the IRD was effectively financing Wayne to fund his contributions to Julia’s ANZ bank account; a little like “rob Peter to pay Paul”.
[86] In his affidavit of 25 June 2014, Mr Markham notes that the respondent transferred ownership of an insurance policy on his life to the trust during the relationship. He noted that the premium payments then became a trust expense. He says that Mr Dyer continued to meet the premiums and sets out the various sums paid between the year ended 31 March 2005 and 31 March 2012. He notes that the respondent’s payment of the premiums on the life insurance policy were not recognised as a current account contribution by the respondent after 31 March 2005.
[87] Mr Markham refers to a handwritten note on an email dated 19 December 2006 which he said appeared to be in the handwriting of Peter Clark (the third trustee of the Karaka Trust) which said: “Discussed with Peter Sherwin today. The premiums paid by Wayne i.e. $1291.00 were paid on behalf of Julia — A/cs to adjusted to record this”.46
[88] He then noted that, in the final accounts for the year ended 31 March 2006, Mr Dyer’s current account balance had been reduced from what was set out in the draft trust accounts by $1,291.00 and Ms Gardiner’s increased by the same amount. Mr Clark, in his affidavit of 18 December 2014, acknowledged the incorrect crediting of the premiums for the life insurance policy but said that an adjustment was made in Mr
46 Case on Appeal 0545 at [99].
Dyer’s current account for the 2014 financial year and that: “He has now been credited the life insurance premiums amounting to $1,291 and this has reduced his debt to the trust to $28,135”.47
[89] While it is not clear exactly why this adjustment was made, as Mr Sutherland noted in his evidence, it did not make any difference whether it was the first appellant’s or the respondent’s current account that was credited with the payment. This is because: “… every transaction is ultimately reflected in the current account which is an asset”.48 And therefore “… restating the current account by Mr Markham to split between Julia and Wayne serves no useful purpose.”49
[90] Mr Sutherland is correct in these observations. There is no dispute between the parties that the balance shown in the accounts of the trust for their current accounts is relationship property to be divided as the court directs. It does not matter, for this purpose, whose current account the insurance premium payment was credited to.
[91] In relation to his ultimate removal as a trustee and beneficiary of the trust following the breakdown of the parties’ relationship, the respondent claimed: “As I have been removed as trustee I have no ability to have equal control of our assets/my life savings.”50
[92] He also claimed that the first appellant had “… control and enjoyment … of all my earnings/savings applied to the Trust.”51
[93] As detailed above, it is fanciful for the respondent to suggest that the assets of the trust represent, to any meaningful extent, the proceeds of his “earnings” or his “life savings”. As is detailed in [96], the total value of the assets transferred by the respondent to the trust was $62,604 with most of this value being represented by the
$46,960 worth of shares transferred on 9 October 2000. From that point on, the respondent consistently spent more than he earned and the rise in the trust’s
47 Case on Appeal 1972 at [10.4].
48 Case on Appeal 1991 at [4f].
49 At [4d].
50 Affidavit of Respondent 24 April 2013 [11.2], Case on Appeal 3705.
51 Affidavit of Respondent 24 April 2013 [11.3], Case on Appeal 3706.
indebtedness throughout the relationship can, to a significant extent, be attributed to his activities. The respondent, in his submissions on appeal, has also completely overlooked the fact that, although he contributed $62,604 to the trust in the early years of his relationship with the first appellant, in the years between 2008–2012, when his net income was virtually nil, he received interest free capital advances from the trust. In 2008 $5,000; 2009 $5426; 2011 $14,000 and 2012 $5,000.52 These sums total
$29,426 and explain why the respondent’s current account with the trust was overdrawn by $29,426 at the end of the relationship.
[94] Contrary to the instructions that the respondent gave Mr Markham (that all his contributions to the first appellant’s bank account were contributions to the trust), most of the money he paid into the first appellant’s bank account was his contribution to the parties’ household and lifestyle expenses which were paid from that account. That would have included the parties’ accommodation costs (mortgage interest, rates and insurance) which were paid from this account, but such costs were a small percentage of the parties’ overall household expenditure.
[95] Mr Markham didn’t analyse payments prior to 2001. The first appellant’s evidence was that the parties’ initial agreement was that they would each deposit $600 per month into the first appellant’s bank account to cover household expenses. She attached a statement showing that in the month of April 2000 the respondent had deposited $1000 into her account and in each of the following six months he had deposited $600 with these regular deposits ceasing as at 26 October 2000.53
[96] Mr Markham acknowledged under cross-examination that, if the original arrangement of $600 per month by way of contribution to household expenses had been adhered to throughout the relationship, the total payments by the respondent into the first appellant’s bank account would have been some $93,600 and, if the arrangement had been (as the respondent asserted) for a contribution by him to household expenditure of $600 per fortnight, this would have totalled some $187,000 over the length of the relationship.54
52 Case on Appeal 2004.
53 Affidavit of first appellant dated 16 December 2014, Case on Appeal 3662 at [89].
54 Case on Appeal 0381, lines 5–10.
[97] A matter which appears to have been overlooked by both the respondent and Mr Markham is the fact that in addition to making payments into the first appellant’s bank account, the respondent also received payments from the first appellant, sourced from that bank account.
[98] The first appellant’s evidence was that, when the respondent was short of funds, she would “top up” his income and that these payments totalled approximately
$47,000 over the course of the relationship.55 She was not challenged on that evidence.
[99] Mr Sutherland noted that Mr Markham had not deducted the payments that the first appellant had made to the respondent from her bank account in arriving at the quantum of $215,396 paid by the respondent into the first appellant’s bank account during the course of the relationship.56
[100] There is no doubt that very early in the relationship the respondent did make a significant capital payment to the trust. During the first six months of their relationship, the respondent was working on the sale of the Courier Post building and when it sold he received commission of some $52,000. He initially invested
$52,462.56 on 14 February 2000 in his own name in shares via Merrill Lynch. After several months, he sold some of the shares on which he made a capital gain. The payment for those shares went directly to him. On 9 October 2000, he transferred the balance of the shares, then valued at $46,960.76, to the trust receiving a credit in his current account for that sum.57 The Family Court judgment at [229] incorrectly records the value of the shares at the time of the transfer to the trust in 2000 as being
$50,000. The reason for this is no doubt that this was the figure incorrectly used by counsel throughout the hearing (and on appeal). The 2001 trust accounts show total contributions by the respondent that year of just over $50,000. The difference of
$3,058.36 between the value of the shares transferred is said by the respondent himself to be the sum he paid to architects Novak Middleton in relation to a proposed refurbishment of Ventnor Street.58 The trust accounts for the year ended 31 March
55 Affidavit of Appellant dated 18 June 2013, re-sworn 1 October 2015 [117d], Case on Appeal 1804. See also the bank statements at Case on Appeal 4169–4184.
56 Case on Appeal 1995 [11](e)(ii).
57 Affidavit of the Appellant dated 18 June 2013 re-sworn 1 October 2015 at [119], Case on Appeal 1805.
58 Second narrative affirmation of respondent at [171], Case on Appeal 1352–1353.
2002 record a capital contribution by the respondent of $11,568. The respondent says that this related to his contribution to “general renovations”.59 The total value of the capital applied by the respondent to the trust throughout the relationship (as shown in the trust’s accounts) was $62,604.
[101] The $15,643.24 difference between the total value of the contributions shown in the trust accounts and the $46,960.74 worth of shares is not accurately described as a contribution to “general renovation” as the respondent claimed. It actually related to payments made to an architects firm, Novak & Middleton. The respondent knew someone at this firm and commissioned them to draw plans for renovations to Ventnor Street. However, they charged substantial fees and there was an argument between them and the respondent over those fees. This led to the project being abandoned. The trust received no benefit at all from it and incurred a liability to pay substantial architects fees for work that was never undertaken.
[102] Far from representing the respondent’s “life savings” as claimed by him, this advance to the trust was the respondent’s contribution to defraying the costs incurred by the trust in an entirely unproductive relationship with a firm of architects.
[103] At the start of the relationship the first appellant was reducing her current account balance with the trust by gifting $27,000 per annum. The respondent adopted the same course and gifted a total of $62,604 to the trust. The difference between the total payments made by the respondent into the first appellant’s bank account of
$215,396, and the amount credited to the respondent in the trust’s account of $62,604 is $152,792. If the “top up” payments made to the respondent by the first appellant from her account of $47,000 are taken into account, a net figure of $105,792 is reached. That equates to average annual net contributions by the respondent to the first appellant’s bank account of $8,463.36 or an average monthly contribution over the duration of the relationship of $705.28.
[104] Almost all the payments identified by Mr Markham were made by the respondent into the bank account in the first three years of the relationship. There is no evidence that these payments were ever utilised in specific reduction of any
59 Second narrative affirmation of respondent at [169], Case on Appeal 1352.
mortgage. In fact, the mortgage borrowing went up over this period. The evidence is consistent with the first appellant’s claims that these payments represented the respondent’s contribution to the parties joint living expenses which were met almost entirely by the first appellant. For a short period at the start of the relationship they were regular but, due to fluctuations in the respondent’s income, they became sporadic lump sum payments. That is also consistent with the notation on the respondent’s bank statement of lump sum payments of $5,000 or $10,000 being coded “J F Gardiner Home”.60 It is further consistent with the first appellant’s evidence that when she spent some $40,000 on new furniture at the time of the purchase of Ventnor Street, the respondent reimbursed her for a proportion of that. Even some of the respondent’s own evidence is consistent with this explanation. The respondent said:61
The 2001 Accounts do not track my payments to Julia regarding the mortgage however given that these were general expense payments to Julia I take no particular issue with that.
[105] The respondent also claimed to have made a significant contribution to the trust by undertaking work on the trust property at Ventnor Street. Typical of his claims was a passage in his affidavit of 24 April 2013 where he said that he had contributed: “… many years of physical effort (mainly to renovation/improvement to real estate) to build the value of trust assets.”62
[106] To test this claim, it is necessary to see just what work the respondent says that he did and whether there is a connection between that work and any increase in value in trust property.
[107] The respondent’s evidence on this point related to his work on the Ventnor Street property. There was a fundamental difference between the positions adopted by the first appellant and the respondent. The respondent claimed that his efforts had significantly improved the value of the property and the first appellant’s evidence was that his work related to largely cosmetic changes made to the property so that it suited the parties’ taste and work relating to the maintenance of property. The first appellant’s
60 Case on Appeal 164, lines 26–34.
61 Second narrative affirmation of respondent at [171.4], Case on Appeal 1353..
62 Affidavit of Respondent 24 April 2013 at [8], Case on Appeal 3701.
position was that Ventnor Street was in excellent condition when it was purchased and did not need any renovations.
[108] The first appellant refers to the fact that the trust borrowed $100,000 (secured by mortgage on the trust property) and paid that money to various tradesmen to redecorate the property to their liking. The first appellant specifically rejected the respondent’s suggestion that the two of them had set about “renovating and extending” Ventnor Street. Her evidence on this point was:63
The previous owners had undertaken a substantial structural renovation of the house which had been fully and beautifully renovated. The Trust did cosmetic things to the house and added a small extension (filling in some of the veranda to the left of the house and putting in a gas fire and chimney). Both bathrooms were also refurbished.
[109] The first appellant tendered the evidence of Mr George Jewett, an experienced real estate agent. His evidence as to the state of Ventnor Street when it was purchased was consistent with the first appellant’s. He said:64
The previous owners of Ventnor Street undertook significant alterations to the house and during the time that the property was owned by the Karaka Trust, there was renovation work including landscaping, refurbishing the bathrooms, and painting of the exterior and interior, the installation of a spa pool and internal decorations including drapes and the like.
[110] The respondent was cross-examined about the state of Ventnor Street when it was purchased and he accepted that, prior to the trust’s purchase of the property, Mr Graeme Pownall, an architect, had undertaken extensive remodelling and refurbishment which had been carried out to an extremely high standard. He also accepted that Mr Pownall had been involved in documenting plans for work undertaken by the trust in 2005 for an 8m² extension and a new fireplace at the western end of the lounge.65
[111] No evidence was produced to establish that any of the work undertaken either by tradesmen or by the respondent actually increased the value of Ventnor Street.
63 Affidavit of Appellant 16 December 2014 [66], Case on Appeal 3651.
64 Affidavit of George Jewett, 28 October 2015 at [16], Case on Appeal 2070.
65 Case on Appeal 161.
[112] The first appellant described most of the work undertaken on the property both by tradesmen paid for by the trust and work undertaken by the respondent as being “aesthetic and none of which increased its value in the end”66 and that seems a fair assessment.
[113] I conclude that the evidence establishes that the respondent did undertake work on the Ventnor Street property, however, that work principally consisted of things like painting, which was maintenance work, and was therefore the obligation of the occupants pursuant to the arrangement with the trustees under which they occupied the property. There was a modest amount of work that went beyond maintenance but there is no evidence that this work actually increased the value of the property.
[114]I conclude that the respondent’s affidavit evidence that:
… I was fully involved and often the main person involved in the purchase and development of the trust’s assets and improvements. I paid hundreds of thousands of dollars into the trust and spent years working hard to improve the trust asset …
is unsupported by the evidence and that the Family Court did not err in relation to any finding about the nature of the contribution made by the respondent to the trust property.67
[115] The only real estate asset owned by the trust during the relationship was the Karaka Bay and then the Ventnor Street properties. These assets were not “developed” nor appreciably “improved”. Ventnor Street was appropriately maintained and redecorated. For the reasons set out above, the respondent’s claim that he paid hundreds and thousands of dollars into the trust and that money was spent on acquiring or developing the trust’s real estate asset is unsustainable.
[116] As to the respondent’s claim that he was “the main person involved in the purchase” of the trust’s assets, the Karaka Bay property was acquired by the trust before he had even met the first appellant and the other trustees of the trust deny he had any involvement in the purchase of Ventnor Street. Mr Clark’s evidence on this
66 Case on Appeal 3672 at [137].
67 Narrative affirmation of respondent dated 24 April 2013 at [14.2], Case on Appeal 0941.
point (on which he was not cross-examined) was that he and the first appellant made the decision to purchase Ventnor Street, not the respondent.
[117] The only other property that the trust purchased was the apartment on Clyde Quay Wharf. The trust entered into a contract to purchase this in February 2011 although the purchase wasn’t settled until after separation. The evidence of the trustees was that this was a joint decision. In any event, the respondent’s claim of Clyde Quay being worth more than the purchase price and the trust thereby having made a substantial profit is unsupported by any evidence. It was worth on settlement no more than what was paid for it.
Motor vehicles
[118] In relation to the remedies claimed by the respondent against the trust assets, it is his contribution to the trust as opposed to his contribution to the relationship that is relevant. However, the respondent seemed to suggest that his contributions to the relationship should also be taken into account. One way in which the respondent claimed to have made a significant contribution to the relationship was by way of motor vehicles. The parties had a string of luxury motor vehicles. However, these were invariably acquired by borrowing and were not assets that appreciated in value. Rather than the acquisition of such vehicles being of assistance to the trust, it had a negative impact in that borrowing against the trust asset, the Ventnor Street property, was used to facilitate the acquisition by the respondent of these vehicles because of the lower interest rate obtainable on a home loan as opposed to a personal loan. The acquisition of the motor vehicles was not a contribution to the trust. The borrowing exposed the trust to the risk of default by the respondent of the type that eventually occurred.
[119] A component of the residual vehicle borrowing remained outstanding as at the end of the relationship. The respondent has attempted to portray this as relationship debt, claiming that he was left “drowning in relationship debt” which he could not meet, and claims that is why he defaulted on his obligations to keep making the loan payments that had been guaranteed by the trust.
[120] The loan obligations that were defaulted on included the money raised by mortgage on the trust’s property to pay the respondent’s tax debts and costs liability in relation to business litigation. A major plank of the respondent’s cross-appeal was that the Judge had erred in not finding that the sums involved were all relationship debt. It is therefore necessary to check whether, as the respondent asserts, these were in fact relationship debts or debts that the trust was otherwise responsible for.
[121] The first appellant’s evidence on the acquisition and use of vehicles is addressed in her affirmation of 27 June 2014. She says:68
The Applicant used vehicle purchases during our relationship to enable him to claim full GST and depreciation on the purchase price, then to sell them at a loss, which also provided him with a tax advantage. He also claimed the interest expense, maintenance and other costs as a tax deductible business expense.
[122] The respondent, on the other hand, attempted to portray the acquisition of vehicles (and the debt that went with them) as being a joint enterprise. His evidence was:69
Motor Vehicles: We both enjoyed having good cars. We bought and sold a lot of vehicles during our relationship. The most expensive vehicle was an Audi vehicle that we purchased for Julia. I see from Mr Markham’s review of our finances that I paid vehicle related expenses of $274,718.41 and Julia paid
$42,678.70. I also took out loans to pay for the motor vehicles in my own name. We also had capital losses (depreciation) across all of our vehicles of about $194,000.
[123] The evidence appears to support the first appellant’s contention that the respondent’s modus operandi was to purchase vehicles in his name so that he could claim the acquisition and running costs on them as being a business vehicle utilised by him in purposes of his business.
[124]The respondent’s evidence was:70
We purchased a newer Audi 80 (YE2002) in my name in late 1999 for
$16,500. I sold my old Audi 80 to Julia’s brother for $4,000 which I applied to the purchase and we met the rest of the purchase price through a combination of a PSIS loan in my name which I serviced and paid off and
68 Affirmation of applicant dated 16 December 2014 at [151], Case on Appeal 3675–3676.
69 Second narrative affirmation of respondent dated 27 June 2014 at [86.2], Case on Appeal 1332.
70 Case on Appeal 1356 at [185].
some funds from Julia. I treated the depreciation on the vehicle and interest on the PSIS loan payments as an expense on my tax returns.
[125]As to the next vehicle (an Audi A4), the respondent said:71
In early 2002 we purchased a red Audi A4 for $45,000. I traded in my Audi 80 (YE2002) for about $11,000 and financed the rest of the purchase with a
$35,500 loan from Allied Finance in my name. It was a balloon finance loan with no instalments and the full balance of $35,500 payable on 8 December 2002 (9 months later). We purchased the Audi in my name so that I could treat it as a depreciating asset in my tax return. We used this as our family motor vehicle and I claimed 80% business use.
[126] As to the acquisition of a Range Rover in 2002, the respondent’s evidence was:72
I do not recall the precise details but as I recall I traded the red Audi A4 to repay the $35,500 Allied Finance balloon payment due on the vehicle and in October 2002 we purchased a Range Rover for $50,000 in my name. … We paid a $10,000 deposit on the Range Rover and financed $40,012. We used the Range Rover as our family vehicle and I also claimed a portion of its use as an expense on my tax return.
[127] However, only some three months before the respondent claimed that the Range Rover had been purchased as a “family vehicle”, the first appellant had purchased a VW Beetle.73 At the time the respondent purchased the Range Rover the first appellant therefore already had a recently acquired vehicle of her own.
[128] The use of the trust to underwrite the cost of the vehicle purchases made by the respondent is illustrated in the passage of his evidence relating to refinancing the Range Rover. The respondent said:74
In October 2003 we took out a National Bank loan for $46,662.80 to repay the Allied [F]inance loan on the Range Rover and interest. This meant that we could have finance on the loan used to buy the Range Rover at the lower home loan interest rate and we used the Trust assets as security for the loan and the transaction went through Chapman Tripp’s trust account. … I met all loan instalments on this National Bank loan and treated the interest as a tax deductible expense.
71 Case on Appeal 1356–1357, at [186].
72 Case on Appeal 1357 at [188].
73 At [187].
74 At [189].
[129] In November 2005, the parties bought a 2004 Audi A4 2.4m Cabriolet. Although the car was intended to be principally used by the first appellant this arrangement was also structured so that nominally the car was in the respondent’s name and he was able to claim financing costs as a business deduction. Once again, the trust underwrote this transaction.
[130] The details are set out in an email from the respondent to Derek McLeod at the National Bank dated Saturday 23 July 2005. The relevant text reads:75
Was wanting to swap cars around Sell my range rover to julia and buy an audi I need to Sell my range rover to julia for $30,000 (we will keep the range rover in her name) Buy her beetle for $30,000 Trade in her beetle for $30,000 Buy audi for $65,000 Pay off existing loan approx $35,000 Get new loan $65,000 (means i have to put in $5,000 cash) I was wanting to pay off on say 48 months can you do a deferred/balloon payment (or interest only portion) of say
$40,000 so the payments stay around $1,200 month let me know what you think regards wayne.
[131] In his evidence, the respondent portrays this sequence of events as being solely for the benefit of the first appellant. He says:76
The other consequence of these transactions was that I was then left with an
$88,000 loan which had arisen entirely from the purchase of motor vehicles for us but the loan was disconnected from our vehicles. I then serviced this loan in full right until the end of our relationship.
[132] The respondent overlooks the fact that because the transaction was structured in this way he was able to obtain a significant tax deduction in relation to the acquisition and financing costs.
[133] Another feature of this transaction (that was also repeated in other borrowing transactions undertaken by the respondent) is that the loan of $88,000 drawn down and paid to the respondent was substantially greater than the funds of $54,000 actually needed to buy the car after allowance for the trade-in.77 It is not clear what the respondent did with the balance of the funds. There is some reference to the respondent referring to it as “working capital” but no evidence at all as to what he
75 Case on Appeal 3850.
76 Case on Appeal 1360 at [196].
77 See National Bank loan agreement dated 10 November 2005, Case on Appeal 3864.
actually spent it on.78 This is relevant because approximately $37,000 of this particular loan was still owing as at separation.79 The trustees had guaranteed the $88,000 loan to a limit of $100,000.
[134] The respondent acknowledged that some $37,000 of the original $88,000 loan guaranteed by the trust was outstanding as at separation, however, he categorised this as a relationship debt. He said:80
It is incorrect of Julia and very unfair of her say that somehow the $88,000 car loan (which I had repaid down to only about $37,000 when we separated) should somehow be my personal debt. It is entirely a family debt taken out for our joint benefit.
[135]This is not an accurate description of the purpose of the loan. Only some
$54,000 of the $88,000 loan was used to fund the acquisition of the car. The respondent had also represented to the IRD that the vehicle acquired was his and used by him for work purposes, justifying substantial claims for deductions for acquisition, financing and running costs. The respondent is now asserting that despite his unequivocal and sustained representations to IRD that the vehicle was acquired by him and used by him largely in the course of his business, that was not actually the case. That is an unattractive proposition. It is similar to the situation addressed by the Supreme Court in Horsfall v Potter where the majority of the Court found that the fact that Mr Horsfall had made a representation to the IRD that Ms Potter was a beneficial owner of a property was significant in determining the parties intention at the time.81
[136] In May 2007, the parties bought a 1999 Mercedes CLK 430 which the respondent asserts “… was a family vehicle for the both of us”.82 It seems that funds from the sale of the Range Rover were used to fund this purchase.
[137] A year later, the parties bought yet another Audi and once again structured the transaction so that the respondent could claim tax relief on the purchase and financing costs. His evidence on this point was:83
78 Case on Appeal 3677 at [152.5].
79 Case on Appeal 1360 at [196].
80 At [196].
81 Horsfall v Potter [2017] NZSC 196 at [59]–[60].
82 Case on Appeal 1361 at [197].
83 At [198].
In May 2008 we decided to upgrade Julia’s Audi (which was in my name) and we purchased a 2007 Audi Cabrio 3.2 Quattro in my name using the Audi A4
2.4 M Cabriolet as a trade in for $39,900. We paid the $40,000 difference through Julia’s ANZ Platinum credit card (although this was paid off by drawing against the Trust loan facilities (from the Karaka 1 account)). Although we purchased the vehicle in my name initially and I claimed depreciation on the vehicle in my tax returns we transferred the car to Julia’s name before our separation and she retains it.
[138] The pattern of purchasing expensive vehicles with the respondent deducting the costs continued. The respondent’s evidence was:84
In August 2010 we traded in the Mercedes for $14,000 and purchased a 2005 Porsche Cayenne for $66,000. We took finance in my name for $47,000. …I treated the depreciation on the Porsche as a business expense.
[139] The Porsche was sold in February 2011 with the respondent receiving the net balance after repayment of finance costs of $900.85
[140] At the time the respondent was purchasing vehicles such as the Mercedes or the Porsche which he said were purchased as family vehicles, his net income was minimal. The purchases were clearly structured to maximise the taxation benefits to the respondent.
[141] As to whether or not most of them were family vehicles, as asserted by the respondent, the first appellant’s evidence was:86
The majority of the vehicles were purchased for the Applicant’s own personal/ business use, and I was not allowed to drive them.
The Applicant purchased the Mercedes in my name (even though it was his vehicle and I was not allowed to drive it), but signed the sale and purchase agreement himself.
[142] As far as the Porsche was concerned, the first appellant’s evidence was that she was only allowed to drive it when the respondent was drunk and that the vehicles were acquired by the respondent in his name so that he could claim various tax deductions on the basis that the vehicles were business vehicles used by him for work purposes. I find that these vehicles were not “family vehicles” in any normal sense of the word.
84 At [199]
85 At [200]
86 Case on Appeal 3676 at [152.2]–[1152.3].
I further find that one of the benefits that the respondent derived from the trust during the relationship was the ability to acquire luxury vehicles by having the trust guarantee the loans he took out to finance them. This was a particular advantage during the latter half of the relationship when the respondent’s taxable income was virtually nil and his ability to borrow without the backing of the trust would have been very limited.
Other components of loan
[143] In addition to the loan which the respondent defaulted on at the end of the relationship covering moneys to finance cars, it also contained components relating to quite separate activities. These were funds borrowed by the respondent and guaranteed by the trust to permit the respondent to pay the IRD outstanding income tax and GST obligations and associated liabilities, and funds borrowed by the respondent to meet the cost of legal proceedings he had been drawn into in connection with his work as a real estate agent. The respondent has consistently portrayed these sums as being relationship debts. It is therefore necessary to check whether these were, in fact, relationship debts.
[144] The respondent’s account of what these loans related to is set out in his narrative affirmation of 24 April 2013. He says:87
14.7At the date of separation I had the following debt facilities with the ANZ/National Bank, guaranteed by the trustees of the Trust to a limit of $280,000:
14.7.1A flexi home loan with a balance owning [sic] at that date of
$166,000 and a limit of $177,000; and
14.7.2A home loan (table loan) with a balance owing at that date of
$35,000.
14.8These facilities are both in place by arrangement with Julia and are both relationship debts. It was financially advantageous for us to structure these loans in this way during our marriage.
14.9The first facility, with a balance of $166,000, relates primarily to the payment of GST and income tax liabilities built up during the marriage and the legal costs associated with civil proceedings arising from my work during my marriage.
87 Narrative affirmation of respondent dated 24 April 2013 at [14.7]–[14.10], Case on Appeal 0943.
14.10The second facility, with the balance of $35,000, is the remaining balance of a refinance loan of $88,000 that Julia and I drew down, in my sole name, in November 2005. This loan covered a payment of
$54,000 required to upgrade our family motor vehicle to a new Audi. The loan was in my name because I was able to treat the vehicle as a business vehicle and the costs associated with it were treated as a business expense for tax purposes.
[145] Although the respondent says that “these facilities are both in place by arrangement with Julia”, the correct position is that they were put in place with the consent of the trustees of the trust, not just the first appellant. In relation to the statement “it was financially advantageous for us to structure these loans in this way…”, the correct position is that it was financially advantageous to the respondent for the trust to guarantee his borrowings and to allow him to access the lower interest rates available to the trust, and to allow him to borrow such a large sum of money at a time when his income was erratic. There was no financial advantage at all to the trust. The vehicles, the respondent’s outstanding tax and GST liabilities, and his business legal costs had nothing to do with the trust and could not in any way be said to be its liability.
[146] At [14.10] of the respondent’s 24 April 2013 affirmation set out above, the respondent confirms that of the original $88,000, of which some $35,000 remained outstanding as date of separation, only $54,000 had been required to finance what he describes as the “family motor vehicle”. He does not identify what the remaining
$34,000 was used for and the best description we have is the first appellant’s one that it was “working capital” required by the respondent for his business purposes.
[147] The respondent’s case rested on the proposition that sums borrowed by him during the relationship to be utilised by him in connection with his business, whether it be by way of the provision of “working capital” or by way of payments for tax and GST which he had neglected to pay or legal costs he had incurred, were “relationship debts”. That assumption needs to be examined.
Tax and GST liabilities
[148] The respondent had a chequered history with the IRD. He had been the subject of six IRD assessments prior to the marriage.88 As at the date the relationship commenced, he already had an outstanding tax debt of $15,821. This tax debt (which clearly had nothing to do with the relationship) was part of the amount borrowed by the respondent and guaranteed by the trust.
[149] Notwithstanding that the respondent had six previous tax arrears cases since 1992, he did not file tax returns for five years from 1999 to 2004. On his own evidence, the respondent had shifted address and not advised the IRD of his new address and, when they tracked him down to Ventnor Street, he ignored correspondence from them in April 2003 and April 2004.89
[150] The respondent also acknowledged in cross-examination that, until he received a letter from the Inland Revenue Department in 2005 saying that he owed them just on $200,000 for unpaid tax, GST and shortfall penalties, the first appellant had no idea that he was in arrears with his taxes.90
[151]The first appellant’s evidence on this point is:91
I didn’t know anything about the debt until [Mr Dyer] received a letter at home one day, and I happened to be there when he received it. He turned quite pale and took the letter upstairs to open it, which was unusual given neither of us had ever had any difficulty with the other knowing of the contents of our correspondence. I followed him and when I confronted him about it he was forced to admit he owed the IRD over $200,000.
Issue four: extent of relationship property
[372] The respondent challenged the finding that the $60,000 of legal fees incurred by him in the course of running his business was relationship debt. I have already addressed this issue and upheld the Court’s finding.
[373] The first appellant also challenged the Judge’s findings in relation to the extent of the relationship property. The part of the judgment challenged is the statement which said: “The parties resolved division of chattels, bank accounts and credit card debts…”187
[374] The first appellant agrees that the division of chattels had been resolved but says: “However, they had not resolved bank accounts and credit card debts and other sundry relationship property issues.”188
[375] Counsel for the first appellant annexed as Sch D to the submissions an extract from his written submissions in the Family Court which records that “the parties are agreed that family chattels have been divided and require no further adjustment” but, after referring to various matters including credit card debts and bank accounts finishes with the claim: “Sum required for Mr Dyer to account to Ms Gardiner to bring these matters into equality $7,420.”
[376] Immediately following this is a statement that “Mr Dyer has unpaid costs totalling $7,000 to date, $6,000 due to Ms Gardiner and $1,000 due to the Second Respondent”.189
[377] A further allegation is that the Judge failed to take into account the cost of debt servicing incurred by the first appellant when Mr Dyer defaulted on the loans in June
187 Family Court Judgment at [9].
188 Updated Submissions of Counsel for First Appellant at [44].
189 Schedule D to Submissions of First Appellant.
2013 and Ms Gardiner had to take out a personal loan to cover the debt. The interest component over the term of the loan was submitted to be $41,250.
[378] In response to these issues the respondent asserts that, at the commencement of the Family Court hearing, counsel for all parties confirmed to the Judge that the matters for determination were the matters that the Judge dealt with.190 It is impossible to reconcile this submission with the detail in the extract from the submissions of counsel for the first appellant referred to above.
[379] The Family Court clearly hasn’t dealt with matters such as credit card debits, bank accounts, costs, or interest on the $200,000 loan.
[380] In relation to the $7,000 outstanding costs award the respondent submits that: “… these awards were stayed by the Family Court to be dealt with in conjunction with other costs matters following the final fixture.”191
[381] In these circumstances, it is not appropriate for this Court on appeal to rule on costs in the Family Court and impossible to ascertain which of the competing contentions as to what the Family Court was told were the issue requiring consideration. These matters will have to be remitted to the Family Court for consideration.
[382] There is some confusion in the Family Court judgment as to exactly what the consequences for the trust and the first appellant were of the respondent defaulting on the $200,000 personal loan. At [172](4), the judgment says:
The guarantee provided by the Trust to Mr Dyer in respect of that loan, resulted in the Trust having to repay the $200,000 to the ANZ Bank. The Trust was obliged to sell shares to generate income to meet that debt.
This is not correct. The trust did not sell shares.192
190 Submissions in Reply by Respondent at [28].
191 At [32].
192 This was accepted by Ms Gush, counsel for the trust, in oral submissions.
[383] Counsel for the first appellant dealt with this matter in his updated submissions of counsel for the first appellant dated 28 July 2017. Attached to those submissions were a copy of supplementary affidavit of the first appellant dated 4 July 2013. In that affidavit she confirms what had previously been set out in her narrative affidavit of 18 June 2013 that she had to take out a $200,000 personal loan to cover the amount required by the ANZ to fulfil the guarantee obligations of the Karaka Trust in relation to the personal loan that the respondent defaulted on.
[384] Attached to that affidavit is a copy of the loan agreement entered into by the first appellant. Also attached to the affidavit is a copy of a covering letter from the bank to the first appellant. The loan agreement records the sum advanced as being
$200,000. It records a guarantee from the Karaka Trust guaranteeing the full amount of the loan. The term of the loan is for 60 months. The loan is interest only and repayable in full on 17 June 2018. The interest component is described as being
$49,499.75.
[385] In an oral response on this point, Mr Fowler QC submitted that, as the first appellant was residing in the trust’s property post-separation, it was appropriate for her to meet the trust’s borrowings. However, this submission is misdirected in that the loan that the respondent defaulted on was not in any way connected with borrowing used to acquire the house.
[386] The ANZ loan entered into on 17 June 2013 is a personal loan advanced to the first appellant. No part of the loan was advanced to the trust. The first appellant is obliged to make the interest payments. The risk for the trust is that if the first appellant is unable to make the interest payments, or to repay the loan when it falls due, the bank will call up its guarantee.
[387] The respondent submits that the trust is no worse off and that instead of guaranteeing his $200,000 personal loan, it now guarantees the first appellant’s
$200,000 personal loan. That overlooks the point that, until such time as the first appellant agreed to enter into a personal loan, the trust was very much at risk and had the first appellant not agreed to do that the trust would have had to refinance the loan
itself. If the first appellant is not able to repay the loan where it falls due later this year, the trust will once again be very much at risk.
[388] The issue of where the interest liability on the new loan should fall is a matter that needs to be dealt with. It is unsurprising that, given the Judge’s misconception that the trust sold shares to the sum of $200,000 to meet its guarantee, that she did not consider the issue of interest. However, that now needs to be done and it is appropriately done in the context of the Court addressing the other outstanding issues in relation to the extent of the relationship property such as bank accounts, credit cards and costs.
Issue five: absence of a family home
[389] Section 11B of the PRA provides that where there is no family home or the family home is not owned by one of the spouses or partners or both of them then:193
… the court must award each spouse or partner an equal share in such part of the relationship property as it thinks just in order to compensate for the absence of an interest in the family home.
[390]In relation to the application of s 11B, the Court posed the question as being:194
The question is whether it is just to order that Mr Dyer have a greater share in the relationship property in the current account to compensate for the absence of an interest in the family home.
[391] The Judge concluded that it was appropriate that the respondent receive the whole of the remaining balance in the current account of $116,000 together with interest at five per cent from 1 June 2015.
[392]The justification for this was said to be:195
It is necessary to apply the purpose of the Act, which is to recognise the equal contribution of husband and wife to the marriage partnership and the principle in s 1N(b) that all forms of contribution to the marriage partnership are treated as equal. Mr Dyer did not make as significant financial contributions to the marriage partnership as Ms Gardiner but he made contributions of a non- financial nature. Ms Gardiner has argued that Mr Dyer has exaggerated those
193 Property (Relationships) Act, s 11B.
194 Family Court Judgment at [283].
195 At [286].
contributions or that they are offset by his borrowings and increase of debt. However, those contributions should not be dismissed lightly.
[393] The Judge also noted that because Ms Gardiner had been able to remain in the trust property since separation, the absence of a family home did not have the same impact on her.
[394] The first appellant challenges the ability of the Court under s 11B to order a differential division of relationship property and points to the mandatory language in s 11B(2) which says “.. the Court must award each spouse or partner an equal share in such part of the relationship property as it thinks just”. [Emphasis added]
[395] On the face of things, that submission is correct. The language in the section is mandatory.
[396] The wording of s 11B(2) reflects the historical situation where the Matrimonial Property Act enacted in February 1977 distinguished between core family assets (matrimonial home and family chattels) which were subject to equal division and other matrimonial property which was subject to division in accordance with contribution to the marriage. In that context, the ability of the Court to award an equal share in any part of the relationship property was a useful remedy where no family home existed or when the family home was not owned by either of the spouses.
[397] However, as of 1 February 2002, s 11 of the PRA provided that each of the spouses or partners, on division of relationship property, were entitled to share equally not just in the family home and chattels but any other relationship property.
[398] The respondent relies on three cases to justify the proposition that notwithstanding the literal wording of s 11B the Court has a discretion toward an unequal share in the relationship property.
[399] The first of the cases relied on is M v M, a decision of Judge O’Dwyer in the Family Court at Dunedin.196 The relevant parts of that judgment are contained in just two paragraphs. At [98] the Judge said:197
[Counsel] submits that where there is no family home the Court must award an equal share in relationship property to compensate for the absence of an interest. I do not accept that submission. The Court is not obliged to award an equal share in relationship property. The Court has discretion whether to make an award if it thinks it is just to do so and, if so, what award to make.
[400] There is no explanation by the Court as to where the claimed discretion comes from or why the literal wording of s 11B does not apply.
[401] In any event, the comments are obiter because the Court held that equal division of the relationship property in that case was appropriate.198
[402] The respondent also relied on a decision of the High Court in Meng v Loveridge.199
[403] In that case, the Family Court had awarded a spouse 65 per cent of the relationship property under s 11B in order to compensate for absence of family home. The spouse had appealed that seeking an award of 100 per cent of the relationship property.
[404] The High Court analysis occupies only one paragraph. The relevant parts of which say:200
I do not accept Mr Venter’s submission that the Family Court Judge exercised her discretion on “a wrong basis”. On the contrary, it is clear from her decision that the Judge took into account the relevant purpose and principles in ss 1M and 1N of the Property (Relationships) Act 1976 and reached a decision which resulted in Ms Meng receiving a significantly greater share of the relationship property than Mr Loveridge. There is no basis for altering the decision reached and for awarding Ms Meng 100 per cent of the relationship property.
196 M v M FC Dunedin FAM-2003-005-66, 27 November 2006.
197 At [98].
198 At [99].
199 Meng v Loveridge HC Hamilton CIV-2010-419-452, 24 August 2010.
200 At [29].
[405] At [286] in the present case, the Judge specifically refers to the principle in s 1M(b) that all forms of contribution to the marriage partnership are treated as equal and notes that although the respondent’s financial contributions were not as significant as the first appellants, he made contributions of a non-financial nature. She does not, however, make any finding that the contributions of the respondent were greater than those of the first appellant, merely that they were different.
[406] The respondent also relied on Roberts v Henderson notwithstanding that case related to s 9A rather than s 11B.201 At [43] of the respondent’s submissions in reply, a passage from Roberts v Henderson is set out which reads:
I accept that the relevant statutory provisions must be read in light of the purpose of the Act as set out in s 1M, and that, in applying the provisions of the Act, I should be guided by the principles in s 1N.
[407]However, immediately after the quoted passage Dunningham J said:202
That said, the Act makes specific provision for the classification of some property as separate property, and parties will structure their affairs in reliance on that. I can only override or modify that classification to the extent permitted by the Act in order to achieve the purpose of the Act in s 1M.
[408] Later in the judgment, in relation to the argument about the application of s 9A Dunningham J said:203
While he argued that the Family Court Judge failed to apply the purpose and principles of the Act in declining to apply s 9A to the loan, I observe he can only bring those purposes and principles into account where the provisions of the Act give him scope to do so.
[409] The Court went on to find that s 9A(2) did not apply. Accordingly, there is nothing in this decision which assists the respondent in his argument in relation to s 11B. Section 11B does not give the Court scope to depart from its unequivocal wording.
201 Roberts v Henderson [2016] NZHC 1363 at [27].
202 At [27].
203 At [41].
[410] The respondent also relies on a passage from the commentary in Westlaw which says, in relation to s 11B: “If there is relationship property from which compensation could be ordered, the Court has a discretion in regard to division.”204
[411] Counsel for the respondent is critical of counsel for the first appellant in having referred to that part of the Westlaw commentary which said:205
This section is largely redundant under the general scheme of the Property (Relationships) Act 1976 because the compensation is to be paid out of relationship property which will normally be divided equally in any event.
without referring to that part of the commentary set out in the preceding paragraph. However, the commentary in Westlaw further goes on to say:206
If the jurisdictional requirements in s 11B(1) are met, the Court must compensate each spouse for the absence of a home by awarding them each an equal share in such part of the relationship property as it thinks just.
[412] This comment is not able to be reconciled with the later comment in Westlaw set out above and relied on by the respondent.
[413] The only authority that Westlaw gives for the proposition that the Court has a discretion in relation to the division of relationship property if the requirements of s 11B are met is the High Court decision in Meng v Loveridge.207
[414] In Meng v Loveridge, s 11B is dealt with very briefly by the Court. There is no discussion of why the clear wording of s 11B that:
… the Court must award each spouse … an equal share in such part of the relationship property as it thinks just … .
is able to be departed from.
[415]I therefore decline to follow that decision.
204 Westlaw NZ Family Property, Thomson Reuter, s 11B at [PR11B.03].
205 At [PR118.01]; updated submissions of counsel for the first appellant at [61].
206 [PR11B.03].
207 Above n 199, at [29].
[416] As Dunningham J noted in Roberts v Henderson, the Court can only apply the principles in ss 1M and 1M where the provisions of the Act provides scope to do so.208 Here, the only remedy given by s 11B(2) is to award an equal share in relationship property to compensate for an absence of interest in a family home.
[417] Accordingly, I set aside the finding in [289] of the judgment that the respondent receives the whole of the remaining balance in the current account of $116,000. As relationship property, the current account balance has to be divided equally. Whether the current account is to be taken at $116,000 as the Judge held or $46,255 as submitted by the first appellant 209 (or some other sum) will depend on the findings that the Family Court has to make in relation to issues such as bank accounts, credit cards and costs.
Estoppel
[418] In oral argument Mr Newberry developed an argument that was not foreshadowed in the notice of appeal or in his written submissions. The argument was that, given the position set out in the correspondence with the Inland Revenue Department in 2006 and 2007, the respondent was estopped from now asserting that he had any interest in the trust.
[419] Unsurprisingly, Mr Fowler objected to this point being raised. Mr Newberry’s response to that was to say that it was raised in response to points argued by the respondent.
[420] I am not prepared to permit Mr Newberry to raise, at this late stage, an argument of estoppel in the form that he developed it in his oral submissions.
[421] However, that does not mean that the representations made by the respondent to the IRD are completely irrelevant. They are one of the factors which go to establishing the expectation that he had as to the effects of him having advanced, during the first three years of the marriage, some capital sums to the trust.
208 Roberts v Henderson [2016] NZHC 1363 at [41].
209 Updated submissions of counsel for first appellant at [68].
[422] In correspondence with the IRD, the respondent made representations which are inconsistent with him now saying that he had an expectation of an interest in the trust that would support the application of s 182.
[423] The letter written on behalf of the respondent by Grant Thornton to the IRD on 6 March 2007 said:210
The trust was formed prior to the relationship between Wayne and his wife, and as such the family home has been funded by pre-relationship assets (irrespective of the fact he has no legal claim to any of the trust assets anyway).
[424]The letter went on to say:211
[The respondent] has no entitlement to any money from the Karaka Trust, and was only added as a potential beneficiary following his marriage to Julia; the independent trustee will exercise his discretion to ensure the “pre- relationship” nature of the trust is maintained.
[425] During cross-examination, the respondent accepted that he had had a role in drafting this letter and approved the statement set out above.212
[426] Because the issue of precise legal entitlements on separation is a matter of law, and the respondent is not a lawyer, he cannot be estopped from submitting that the legal position is now different to what he thought it was in 2007. However, he cannot be permitted to say that the representations he made to the IRD were not true and did not reflect his understanding or expectation at the time. They support a conclusion that, at the time the contributions which the Family Court identified as a post-nuptial settlement were made, the respondent did not reasonably have an expectation that following separation sometime in the future, the trust would continue to meet his accommodation costs.
[427] As to expectation, the respondent’s lawyer also placed some emphasis on the contents of a memorandum of wishes executed by the first appellant. However, whatever was in those documents, they cannot have influenced the respondent’s expectation at the time the contribution was made as the evidence was that the first
210 Grant Thornton letter to IRD of 6 March 2007; Case on Appeal at 1763.
211 At 1765.
212 Cross-examination of respondent Case on Appeal at 0176 line 17 and 0188 line 20.
time the documents were disclosed to the respondent was in the course of discovery in relation to the Family Court proceedings. The inquiry as to expectation is the expectation as at the time the post-nuptial settlement was made.
Conclusion
Issue two: dispositions to the trust
[428] The Judge’s findings in relation to the CIP shares are unsustainable and are overturned. There was no evidence that the first appellant appreciated that the right to nominate who purchased the shares was relationship property, therefore, the requisite intention to remove the property from the relationship pool was absent. Separately, I find that the trust gave valuable consideration for the acquisition of the 2001 parcel of shares being the $45,000 received from the first appellant and credited to her current account balance and its entry into the limited recourse loan.
[429] In relation to the 2009 parcel of shares, the Court’s finding that s 44(2)(b) was engaged because “consideration for the share nomination was not adequate” is unsustainable and is overturned.
[430] It is not appropriate to exercise a discretion to require the trust to transfer the 2009 shares or any part of them to the respondent because the trust actually paid for the shares and the price was market value. It would be inequitable to require transfer or compensation in those circumstances.
[431] No question of valuing the shares at the date of separation or otherwise arises and neither does the issue of failure to compensate the respondent for dividends earned by the trust on the shares.
[432]In relation to the finding made by the Judge that it was appropriate to vest all
$278,604 of the property gifted in the respondent, the Judge’s finding that, in gifting sums advanced to the trust, neither party had the intention of defeating a possible claim by the other is upheld. Section 44C is not engaged. In terms of s 44(2)(b) the only remedy authorised is to require a person to pay a sum not exceeding the difference between the value of the consideration (if any) and the value of the property. Here,
there was no such difference and accordingly no remedy is available under s 44(2)(b). The fixing of the separation date value for property is not available as a remedy under s 44(2)(b).
[433] There is no basis for the awarding of half of the trust’s general shares valued as at separation date to the respondent and no basis for any compensation for gifting because of the substantial benefits received by the respondent from the trust during the relationship.
Issue three: s 182 Family Protection Act 1980
[434] The Judge’s finding that any remedy available under this section would not be more than the $216,107 already awarded is overturned. There is no basis for any remedy under s 182.
[435] The mortgage payments and other payments on behalf of the trust which the Judge found to be a post-nuptial settlement do not, in the circumstances of this case, amount to a post-nuptial settlement.
[436] The mortgage, rates and insurance payments are already recognised in the current account balances of the parties with the trust. There was no expectation by the respondent as to a post-separation benefit arising from payment by the parties of occupancy costs. There is no unfair benefit to the first appellant that needs to be remedied so as to engage s 182.
Issue four: extent of relationship property
[437] The Judge’s finding on the separate debt is upheld. Issues relating to the bank accounts, credit cards and costs in the Family Court are remitted to the Family Court for decision as is the issue in relation to the claim for interest on the loan entered into by the first appellant post-separation following the default by the respondent on the personal loan in his name.
Issue five: absence of a family home
[438] The wording of s 11B is mandatory and the only remedy that the Court can award under this section is to award an equal share in the relationship property. The parties already share equally in the relationship property. Awarding the whole of the current account balance is not available and the Family Court’s award to that effect is overturned. The current account balance (whatever it is determined to be after the Court’s finding on the extent of the relationship property) is to be divided equally.
[439] No issue of estoppel arises in relation to the representations made by the respondent to the Inland Revenue Department.
Costs
[440] The appellants having been successful are entitled to costs. I invite counsel to agree upon costs but if they are unable to agree, the appellants are to file a memorandum within 14 days of the date of this decision and the respondent is to reply within 14 days of that.
Churchman J
Solicitors:
R A Newberry for First Appellant F M Gush for Second Appellant
Thomas Dewar for Respondent/Cross-Appellant
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