GCH v SMH

[2014] NZHC 211

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

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

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH  REGISTRY

CIV2013-409-001542 [2014] NZHC 211

BETWEEN  GCH Appellant

ANDSMH Respondent

Hearing:                   4 February 2014

Counsel:                  A M Watkins for Appellant

A Corry for Respondent

Judgment:                20 February 2014

JUDGMENT OF WHATA J

[1]      GCH appeals against the decision of Judge C P Somerville to include $1,500 per week for legal fees when making an award for interim spousal maintenance under s 82 of the Family Proceedings Act 1980.  Section 82 states:

82       Interim maintenance

(1)       Where an application for a maintenance order or for the variation, extension, suspension, or discharge of a maintenance order has been filed, any District Court Judge may make an order directing the respondent to pay such periodical sum as the District Court Judge thinks reasonable towards the future maintenance of the respondent's spouse, civil union partner, or de facto partner … until the final determination of the proceedings or until the order sooner ceases to be in force.

...

GCH v SMH [2014] NZHC 211 [20 February 2014]

(4)       No order made under this section shall continue in force for more than 6 months after the date on which it is made.

(5)       An  order  made  under  this  section  may  be  varied,  suspended, discharged, or enforced in the same manner as if it were a final order of a Family Court.

[2]      With the benefit of argument, the key issues before me are whether the Judge:

(a)      Was wrong in law to allow for legal fees in making an award of interim spousal maintenance in light of the Court of Appeal judgment in C v G where the Court stated that awards of costs are not to be included in periodical maintenance awards;1 and/or

(b)      Erroneously assumed that s 18(b) of the Property (Relationships) Act

19762  (PRA) could be used to subsequently adjust the division of relationship property to take into account the payment of legal fees by the appellant.

Background

[3]      The parties have separated.  They have six children, all of whom are living with the appellant in the family home.  The youngest child is still at school.   The appellant claims there is no relationship property.  By contrast the respondent says there is substantial relationship property3  including land assets currently held in various trusts controlled by the appellant. The appellant, however, says that there are significant debts attached to the relevant land assets and that he has no income. Nevertheless, it is not disputed that the appellant is a trustee of key landholding trusts collectively worth (at least)4 $40 million (the Trusts), and that both parties are discretionary beneficiaries.  Further, indicative of the family’s lifestyle, immediately prior to the separation the parties had planned a family trip overseas for one month at a  cost  of  approximately  $112,000.    They also  previously  enjoyed  the  use  of  a

substantial family home, together with three holiday homes.5

1      C v G [2010] NZFLR 497.

2      Refer [38] below.

3      Counsel indicated that if not relationship property, then property held subject to a constructive

trust in the respondent’s favour.

4      The respondent claims that the various trusts collectively hold at $100m in assets.

5      Refer judgment of Judge Somerville at [42]-[44].

The problem and response

[4]      Mr Watkins for the appellant maintains that the appellant has no ready source of income and is reliant on the Trusts borrowing money to fund his and the family’s expenses.  I understand that these distributions are treated as loans to the appellant by the Trusts.  The effect of this is said to be that the appellant is incurring debt to pay for the respondent’s legal fees in proceedings against the appellant without any real prospect of recovery.  Mr Watkins submits that this is unfair, and as a minimum any funds paid to the respondent to cover her legal fees should be provided by way of lending or distributions to her by the Trusts.  He also indicated that the appellant would not object to both parties being treated on a like for like basis, with distributions to both for legal fees from Trust funds.

[5]      Ms  Corry  for  the  respondent  submits  that  the  appellant’s  like  for  like suggestion is illusory: a prior request for funding from the Trusts was not accepted. In any event, she says that proper accounting for the legal fees could occur on the inevitable  resettlement   of  the  Trusts   (and   Mr  Watkins   accepted   that   some resettlement at a future date is likely).  Ms Corry also emphasised that the appellant is able to call upon asset-rich Trusts for funding while the respondent has no such recourse without intervention of the Court.

[6]      I record for completeness an opportunity was afforded to Mr Watkins to lodge reply submissions after hearing.  I also invited him to take instructions about whether the relevant trusts would be prepared to fund the litigation costs of the respondent on a like for like basis.  Understandably the trustees are working through the issues associated with the advances to the parties for legal fees from trust funds. They advise that if the Trust is in a position to make advances to any beneficiary it is anticipated  that  the trustees  would  make them on the basis  that they would  be debited against their respective current accounts.

The Family Court judgment

[7]      Judge Somerville carefully essayed the relevant law dealing with spousal maintenance and the inclusion or exclusion of legal fees. He concluded:

[36]      It would seem from the cases, therefore, that:

(a)       There is no reason in principle why legal and accounting costs incurred in discrete and unrelated litigation cannot be included in a claim for spousal maintenance if those costs are on-going.   The only difficulty arises when those proceedings and the name of the proceedings involve the same parties.

(b)       If   the   costs   being   sought   are   those   incurred   in   the maintenance proceedings, then the hearing judge must chose (sic) whether to incorporate those expenses in the maintenance claim or consider them in the context of a claim for costs.   In such a scenario, it is understandable why it would be preferable for the Judge to address those expenses in the context of a claim for costs, as that would be a principled consideration informed by the rules.

[8]      The Judge went on to observe:

[37]     The only grey area is where there are two discrete and unrelated proceedings involving the same party.   In other words, the legal and accounting costs being sought in the maintenance proceedings are being incurred in connection with other proceedings between the same parties but being heard at a different time, by a different judge, and concerning different matters.

[38]      If the legal fees for those other proceedings were to be incorporated in the maintenance order, however, the party paying maintenance could well be funding the other party’s legal expenses for those other proceedings as well as their own.  Even with an award of indemnity costs, that party could still find themselves meeting half of the combined cost of the litigation, which is quite contrary to the principles governing awards of costs.

[39]     That is not the case, however, if there is some way in which the payment of legal fees incorporated in an award of maintenance can be taken into account in those other proceedings.   For example, if those other proceedings involve a division of relationship property, then the maintenance paid towards legal fees could be treated as a contribution for which the paying party was entitled to compensation under s 18B of the Property (Relationships) Act.  Clearly, it would be preferable if an interim division of property could be made that would cover these fees, but that is not always possible, especially where there are no easily realisable assets  In this context it should also be remembered that costs are not always awarded in proceedings under the Property (Relationships) Act.

[9]      The Judge then observed by way of conclusion on this point:

[40]      Finally, the Court should always be alert to the possibility that a gross imbalance between the parties at separation of the assets under their control can lead to an oppressive situation where one party is unable to insist on a fair division of the relationship property.   ...

[10]     The Judge then went on to analyse the applicant’s reasonable needs:

[59]     As far as legal and accounting costs are concerned, I consider that the following factors are relevant:

(a)       The relationship property proceedings are separate and discrete from these maintenance proceedings.

(b)       The applicant has no funds available to meet this expense, whereas the respondent appears to have millions of dollars under his control. This is, therefore, a case of a gross imbalance in the post separation division of assets.

(c)       There  is  no  other  funding  available  to  the  applicant,  unless  the trustees of one of the fourteen trusts holding the family assets decide to make a distribution to her as a discretionary beneficiary. Bearing in mind that none of the trustees is even willing to advance her the funds involved in copying the financial information they hold, there is no sign of them advancing funds to assist with her legal fees, and, as a discretionary beneficiary, she has no power to compel them to do so.

(d)       There is no prospect of an interim distribution being forthcoming within the next six months which the applicant could use to meet her legal expenses, or which might encourage her advisors to advance her sufficient credit to proceed to that point, because the respondent contends that there is no relationship property.

(e)       However, the Court deciding the property case has the ability to hold the applicant accountable for the legal fees paid by the respondent as maintenance under s 18B.

[11]     The Judge concluded that it was appropriate that maintenance be paid but did not accept the applicant’s claim of $80,000.  Instead he considered that the applicant is likely to spend $40,000 on legal fees over the next six months, even if informal disclosure is effected.6    He therefore fixed those fees at $1,500 per week.7    Overall he assessed the applicant’s reasonable needs, household expenses and legal fees as totalling $3,235 per week.

[12]     As to the appellant’s claim that he has no resources, the Judge noted the appellant’s  position,  namely  that  his  living  expenses  and  loan  servicing  costs incurred by various trusts over the $14 million of borrowing is funded each year by further borrowing.  It is noted that $3 million was borrowed to cover these expenses.

The Judge then goes on to observe:

6 Refer [62].

7 Refer [64].

[67]     Mrs Hinton QC claimed that the respondent is finding it difficult to continue this practice as he is now encountering resistance from sources that had previously been willing to lend to the trust, but there is no evidence of that.  In my view, the best predictor of the respondent’s ability to fund future expenditure is determined by evidence of his ability to do so in the past.

[68]      Nor am I concerned that the respondent will have to borrow money in order to pay his spousal maintenance, as that is how he has chosen to fund his personal expenditure for years.

Points on appeal

[13]     The points on appeal were helpfully succinct, namely:

(a)       The decision to include an amount of $1,500 per week for legal fees in making an award of interim spousal maintenance at [62] of the decision of Judge Somerville.

(b)       The finding that s 18B of the Property (Relationships) Act 1976 (PRA) could be used to subsequently adjust the amount awarded for legal  fees   as   a  component  of  an  award  of  interim  spousal maintenance at [59](e) of the decision.

(c)       The failure to make an order that any payment by the appellant of interim spousal maintenance is to be deducted from or fully taken into account in respect of any ultimate property or other entitlement that may be awarded to the respondent against the appellant or the various relevant Trusts or alternatively in making an order at all.

(d)       The finding that $1,000 per week is a reasonable amount for rent for the respondent in the circumstances of this case at [47] of the decision.

(e)       The decision to award a total amount of $3,235 per week in interim spousal maintenance at [64] of the decision.

[14]     The appellant also sought, in place of the directions made by the Judge, orders that:

(a)      The total amount of interim spousal maintenance to be paid by the appellant to the respondent be set at a maximum of $1,500 per week, if rental is to be included and excluding any component of legal expenses.

(b)Any payment of interim spousal maintenance be deducted from any ultimate entitlement on the part of the respondent, or alternatively that there be no award.

[15]     At the hearing, Mr Watkins then advised that only two aspects of the decision of the Family Court are appealed against, namely points (a) and (b) recorded above.

[16]     Mr Watkins stated that the appellant does not appeal findings as to the total living expenses and does not proceed with Ground 2(d) of the Notice of Appeal dealing with the reasonableness of the amount for rent.

[17]     Accordingly, at hearing the appellant sought an order that the interim spousal maintenance award be reduced to $1,725 per week.

Argument

[18]     The parties essentially disagree on the effect of the judgment of the Court of

Appeal in C v G.8

[19]     Mr Watkins submits that the Court of Appeal provides clear direction to the Family Court that legal costs of proceeding between the parties must not be included within a maintenance award.   He also refers to RK v DK and the observations of Venning J that:9

[58]      Section 69(1)(b) and (c) are broad enough in their terms to support a lump sum payment for legal costs where the costs may be existing at the date of separation or may have been incurred on a discrete and unrelated matter. But where, as in this case, the legal costs are ongoing and have been incurred in  relation  to  the  proceedings  in  issue,  the  Court  of Appeal  in  C  v  G [Maintenance of former partner:  period of liability] made it clear that such costs should be dealt with in accordance with the Rules of Court. ...

(Emphasis in original)

[20]     Ms Corry says that the observations in C v G deal only with awards of costs in  the  maintenance  proceedings  themselves,  not  separate  proceedings,  and  that RK v DK concerned a final maintenance order, and in any event should not be construed as precluding the inclusion of legal fees in interim maintenance orders in appropriate circumstances.  Reference is made to the decision of Kos J in Hodson v

Hodson10   where  it  is  observed  that  payment  of  ongoing  legal  costs  might  in

8      C v G [2010] NZFLR 497.

9      RK v DK [2011] NZFLR 468 (HC).

10     Hodson v Hodson [2012] NZFLR 257 (HC).

appropriate circumstances be included in an interim maintenance award.  Ms Corry also highlighted a number of Family Court decisions that provided for legal fees in an interim maintenance context.11

[21]     As to the second limb of the appeal, Mr Watkins submits that there was no proper basis to conclude that legal fees paid could be reimbursed under s 18B. All of the assets that might be available for distribution are held in the various trusts and do not qualify as relationship property for the purposes of s 18B. Any suggestion to the contrary  is  speculative  and  not  a  proper  basis  for  the  Judge  to  conclude  that restitution might be achieved under that section.  Mr Watkins accepted however that s 182 of the Family Proceedings Act might provide a basis for restitution on the resettling of the Trusts.

[22]     Ms Corry responded that both regimes afforded the opportunity for restitution if that proved to be equitable and therefore there was no obvious error of reasoning on the part of the Judge.

Assessment

Scope of s 82

[23]     Section 82 is framed in broad terms:

... any District Court Judge may make an order directing the respondent to pay  such  periodical  sum  as  the  District  Court  Judge  thinks  reasonable towards the future maintenance of the respondent's spouse, … until the final determination of the proceedings or until the order sooner ceases to be in force.

[24]     Maintenance is defined in equally broad terms:12

Maintenance means the provision of money, property, and services; and includes-

(a)       In respect of a child, provision for the child's education and training to the extent of the child's ability and talents; and

11     JMC  v  KTC  FAM-2009-012-001090 (Dunedin) 15  September  2010;     AMG  v  S(SG)  (FC) Auckland FAM-2011-004-002021, 16 December 2011; Bratten v Bratten [2013] NZFC 2171.

12     Family Proceedings Act 1980 s 2.

(b)      In respect of a deceased person, the cost of the deceased person's funeral:

[25]     The breadth of the discretion conferred by s 82 was described by the Court of

Appeal in Ropiha v Ropiha:13

The purpose of the provision is obvious enough.  It is to protect the position of an applicant who may have inadequate means to meet current needs pending determination of the proceedings, if and so far as it is reasonable in all the circumstances to do so.  ..... It is given an unfettered discretion both as to whether an order should be made at all and as to the amount if an order is made.  All that can be said is that the making of an order depends on all the circumstances of the particular case. The Court must do what it thinks just.

[26]     This has been acknowledged in various authorities.14

[27]     On the question of legal expenses, Courtney J in B v B could see no reason why legal  fees  should  not be viewed in the same way as  any other expense,15 observing that “resolving legal issues between the parties are a natural consequence of the separation, as much as the need for the party leaving the matrimonial home to purchase new furniture”. Courtney J also observed:

[20]     Nor do I consider that the possibility of costs being awarded in the substantive proceeding makes it unfair to include legal and accounting expenses in an interim maintenance order.  Costs are discretionary.  The fact that the party against whom costs are sought may have effectively funded the other party as a result of an interim maintenance order is clearly a matter relevant to the exercise of the discretion.  There is no real risk that someone in that position would be faced with having to meet those costs twice over.

[28]     The dicta in B v B however must now be considered in light of the decision of the Court of Appeal in C v G concerning the provision for litigation costs in a final maintenance order under s 64 of the Act.  The Court was persuaded that “it is wrong in principle to include legal costs in a maintenance order unless they were likely to

be an ongoing expense”.16   It said that the proper course was to deal with litigation

costs “in accordance with the rules of the Court”.17   It is worth recording the Court’s

observation that:

13     Though dealing with the predecessor of s 82 – Ropiha v Ropiha [1979] 2 NZLR 245 (CA).

14     T v H [2006] NZFLR 560 (HC); Hodson v Hodson [2012] NZFLR 252 (HC).

15     B v B [2008] NZFLR 789 (HC) at [16].

16 At [52].

17     Ibid.

[52]     ... The inclusion of costs in a maintenance order assumes an outcome in favour of the beneficiary of the order which may not be justified for a range of reasons when the maintenance order is made. Such issues could include the existence of pretrial offers or the impact of legal aid where applicable.

[29]     Completing the picture, the Court stated:

[54]    The costs rules now applicable evince a clear statutory policy that awards of costs in proceedings of the kind at issue here are to be dealt with on a principled basis generally following the detailed rules relevant to the case at hand.

And:

... To include awards of costs in periodical maintenance orders would cut across the policies behind the costs rules. (emphasis added)

[30]     Taken  together,  the  observations  in  C  v  G18   provide  clear  direction  that awards of costs should not be included in an interim maintenance order, because that would  undermine  the  proper  application  of  the  costs  rules.  But  I  reject  the submission that the Family Court may never take into account legal expenses involving litigation between partners in an interim maintenance award, for the following reasons.

[31]     First, overlapping statutory provisions should be interpreted where possible to achieve consistency between them.19 In this case, I prefer an interpretation of s 82 that fulfils its protective purpose, while at the same time giving effect to the clear statutory policy on awards of costs as asseverated by the Court of Appeal. In my view a coherent position can be achieved provided that the inclusion of legal fees in an interim maintenance order (if otherwise appropriate) does not pre-empt the final award of costs in the relevant litigation.

[32]     Second, the Court of Appeal in C v G expressly rejected the inclusion of “awards of costs” in maintenance orders because that would preclude the ordinary application of the cost rules. This is not a matter of semantics. The Court was

concerned to ensure that interim maintenance did not usurp the exercise of discretion

18 Refer above at [18].

19     Refer J F Burrows and R I Carter Statue Law in New Zealand (4th ed, LexisNexis, Wellington,

2009) at 449.

to make awards of costs. Notably the Court of Appeal was dealing with a decision where no award of costs was made on the proceedings, because it was evident that the Judge had taken into account legal expenses as a factor in increasing the maintenance order from $990 per week to $1,100 per week.20 As such, the maintenance order was tantamount to an award of costs, cutting across the statutory policy just mentioned.

[33] Third, the Court of Appeal refers (albeit obliquely) to the potential for legal fees to be paid for “ongoing” expenses: refer [54]. That potential is not consistent with the prospect that legal fees can never be included in a maintenance award.

[34]     Fourth, in this case, interim maintenance was premised on later recovery of costs and without prejudice to any final costs award. Nor has it been suggested that legal aid is available, and as far as the Family Court judge was concerned, pre-trial funding by agreement was remote.21  I will refer to this latter assumption below, but the concerns expressed by the Court in C v G do not obviously resonate here.

[35]     Fifth, Venning J in RK v DK rejected an appeal seeking legal costs given the strong direction given by C v G.   But in that case no provision was made for recovery of the costs paid or a mechanism whereby there could be a proper accounting for legal costs paid following any final award of costs.

[36]     Sixth, I do not accept the appellant’s concern that a lack of certainty will follow from upholding the Judge’s decision.22     By their very nature interim maintenance  awards proceed  on  the basis  that  the final  outcome of family and relationship property disputes is unknown. The critical issue is whether an interim maintenance award will further the protective statutory purpose envisaged at s 82, while leaving the proper reconciliation of entitlements to a later date. In this regard the certainty provided by C v G is simply that interim maintenance cannot pre-empt

that final accounting exercise in terms of litigation costs.

20 Ibid at [29].

21     Refer [59](c).

22     A matter emphasised in the respondent’s reply submissions filed after the hearing.

[37]     Given the forgoing, I do not consider that the Judge erred in principle. I

therefore turn to the second issue, namely whether the Judge was correct to rely on

18B of the PRA as a method whereby payments for legal fees could be properly recouped.

Section 18B Property (Relationships) Act

[38]     Section 18B states:

18B      Compensation for contributions made after separation

(1)       In  this  section,  relevant  period,  in  relation  to  a  marriage,  civil union, or de facto relationship, means the period after the marriage, civil union, or de facto relationship has ended (other than by the death of 1 of the spouses or partners) but before the date of the hearing of an application under this Act by the Court of first instance.

(2)       If, during the relevant period, a spouse or partner (party A) has done anything that would have been a contribution to the marriage, civil union, or de facto relationship if the marriage, civil union, or de facto relationship had not ended, the Court, if it considers it just, may for the purposes of compensating party A-

(a)      order the other spouse or partner (party B) to pay party A a sum of money:

(b)      order party B to transfer to party A any property, whether the property is relationship property or separate property.

(3)       In proceedings commenced after the death of 1 of the spouses or partners, this section is modified by section 86.

[39]     On its face this provides the Family Court with a wide jurisdiction to take into account contributions made by one spouse to another spouse after separation by way of an order for compensation.

[40]     It may be that the Family Court could be persuaded at a future date that the respondent  should  account  for  the  legal  fees  paid  to  her  by the  appellant.  But assuming that an award of interim maintenance is, at law, a contribution for the purposes of the PRA, any compensation relies on an assessment of what is “just” in the circumstances. By contrast, as the Court of Appeal stated, the discretion to award costs is now circumscribed by detailed costs rules (though ultimately to achieve the same objective).   To replace this carefully circumscribed discretion with the very

broad discretion afforded by s 18B therefore runs headlong into the objections raised by the Court of Appeal in C v G.

[41]     There are potentially other problems, including whether there is or will be any relationship property against which an order for compensation might attach.  I express no view on that because it requires a full assessment of the facts not before this Court.  But it serves to illustrate the problem inherent in the solution proffered by Judge Somerville.

[42]     Accordingly, while I do not consider that Judge Somerville erred in principle, I am unable to agree that s 18B of the PRA provides, in this case, the proper mechanism to account for any final awards of costs.

Resolution

[43]     The facts in this case appear somewhat unusual.  The appellant is not paying anything directly out of his earnings, but rather I am advised he is incurring a debt to the Trusts to cover expenses. There was no serious suggestion that this approach to payment of his expenses will cease (though concern has been expressed about the ongoing ability of the Trusts to secure funding for distribution to beneficiaries). Mr Watkins also made it plain to me that the appellant was, if necessary, prepared to proceed on a like for like basis, so that both parties could draw on the Trusts for assistance with legal fees and other expenses treated as a distribution to them.

[44]     The answer to the problem of legal costs is therefore obvious – a like for like distribution to the parties from the Trusts to cover legal expenses would avoid pre- empting any final award of costs, because the distribution is to the account of the respondent, not the appellant.  Parity of distribution would also avoid allegations of unfairness.   While it is beyond the power of this Court in the context of these proceedings to direct the Trusts to make provision in this way, I can make the interim maintenance order conditional on the respondent accepting that any payment of her legal fees sourced from the Trusts may be treated as a distribution to her from the Trusts. This outcome preserves the appellant’s position on any subsequent costs award, while achieving s 82’s interim protective purpose.

[45]     In   the   event   that   the  Trusts   are   unwilling   or   unable   to   make   the abovementioned distributions the parties are to advise the Family Court of this, with supporting affidavit evidence so that the interim maintenance order can be reconsidered.

[46]     The appeal is therefore allowed to the extent that the interim order must be modified in terms of [44] above insofar as concerns legal fees. As this mechanism was not specifically addressed with  counsel,  I grant leave to  the parties to file submissions on the precise wording of the order for interim maintenance within five working days. The parties should confer before reporting to the Court.

Costs

[47]     While I have found there to be an error as to method, the Judge was correct in principle, namely that interim maintenance may include provision for legal expenses where those expenses are ongoing and does not pre-empt an award of costs.  I am therefore not minded to grant costs in this appeal.  Submissions may nevertheless be filed in ten working days, with a further five working days for replies.

Solicitors:

Duncan Cotterill, Christchurch

Godfreys Law, Christchurch