GDB v CDB
[2013] NZHC 2054
•21 August 2013
ORDER PROHIBITING PUBLICATION OF NAMES OR IDENTIFYING PARTICULARS OF THE PARTIES AND THE CHILDREN.
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2010-483-315
[2013] NZHC 2054
BETWEEN G D B
Plaintiff
AND
C D B
Defendant
| Hearing: | 18 July 2013 |
Counsel: | G Mason for Plaintiff A Barker for Defendant |
Judgment: | 21 August 2013 |
JUDGMENT OF RONALD YOUNG J
G D B v C D B [2013] NZHC 2054 [21 August 2013]
Table of Contents
Paragraph No.
Introduction [1]
Issues [8]
Was there a 18 November 2009 agreement to end Mr Barnes’
child support obligations detailed in the December 2008 agreement? [19]
Was Mr Barnes in breach of his maintenance obligations
in November 2009? [21]
Total payments [55]
Appropriation [59]
Was the credit balance in the joint account appropriated? [66] Duress [72]
Characteristics of victim [94]
Relationships of the parties [103]
Circumstances under which the release agreement was signed [106]
Coercion and protest [122]
Unconscionable bargain [125]
Child Support Act 1991 [140]
If there was a breach, is Mr Barnes relieved from his obligation to pay child support under the agreement for the period of suspension because of the provisions of the Child Support Act,
or are the damages too remote? [158]
Are Mr Barnes’ obligations to pay a half share of private school fees a child support obligation covered by the provisions of s 20
of the Child Support Act 1991? [170]
Summary [176]
Costs [178]
Introduction
[1] In this judgment the names of the parties are anonymised. This case has previously been before the Court of Appeal on appeal from summary judgment orders. The Court of Appeal decided the case could be cited as Barnes v Barnes (not the parties’ real names). That citation should continue with this judgment.
[2] On 15 December 2008, after six months of separation, Mr and Mrs Barnes signed an agreement which covered a division of their property; the custody and access arrangements for three children; maintenance for the children; and the parties’ obligations for the payment of boarding school fees (the December 2008 agreement).
[3] Mrs Barnes was to have custody of the children. Mr Barnes was working overseas and his access to the children was, therefore, going to be sporadic. Mr Barnes agreed to pay $4,000 per month child support for the three children and to pay half of their private boarding school fees (Mrs Barnes was to pay the other half). Mrs Barnes was to have the matrimonial home transferred to her and Mr Barnes’ half share ($145,000) was to be paid by her to him on or before 30 May 2010.
[4] In November 2009 Mr and Mrs Barnes agreed that Mr Barnes’ $4,000 a monthly child support payment could end (the circumstances under which this occurred are important to this case). When it came time for Mrs Barnes to pay the
$145,000 she refused. She said that when she agreed to end Mr Barnes’ child support obligation, Mr Barnes had been in breach of the agreement and her agreement had been obtained by duress or was an unconscionable bargain. She said she could offset the child support owed to her against her obligation to pay the relationship property settlement.
[5] Mr Barnes rejected this offer and now sues for the $145,000 he said was owing. Mrs Barnes counterclaims for the unpaid child support and unpaid school fees. Apart from denying he was in breach of the agreement regarding maintenance or that there was duress or unconscionability, Mr Barnes says the agreement to pay child support cannot be enforced in the circumstances because of the provisions of the Child Support Act 1991.
[6] The proceedings came before this Court initially by way of a summary judgment application by Mr Barnes. He was successful and the set-off or counterclaim by Mrs Barnes was rejected. Mrs Barnes appealed. The Court of Appeal allowed the appeal and quashed the summary judgment order.
[7] As so often happens, and as the Court of Appeal anticipated, much more is now known about the facts of this case then when it came before both the High Court and the Court of Appeal on the summary judgment application.
Issues
[8] The real issue in this case revolves around Mrs Barnes’ claim that despite the mutual cancellation of the child support agreement it still subsists, that there are substantial maintenance arrears, and that she can off-set those arrears (as well as the arrears of boarding school fees) against the relationship property settlement sum of
$145,000 that she owes to Mr Barnes.
[9] There is no challenge to the plaintiff’s claim that the parties’ agreement provided that Mrs Barnes would pay Mr Barnes the $145,000 by May 2010. And so this sum is payable by Mrs Barnes to Mr Barnes.
[10] As to her cross claim before the Associate Judge and the Court of Appeal, Mrs Barnes challenged whether an exchange of emails between her and Mr Barnes culminating in her email of 18 November 2009 constituted an agreement that Mr Barnes need no longer pay his child support payments. The Court of Appeal called this the “release agreement”. It found there was such an agreement between the parties cancelling the child support obligation.
[11] The December 2008 agreement anticipated that the parties may wish to cancel the agreement as it related to child support. Paragraph 4 of the agreement provided, in part:
Payments will continue until mutually agreed otherwise by G and C.
[12] The Court of Appeal’s conclusion that there was a mutually agreed cancellation of the child support payments left Mrs Barnes to challenge the release agreement on the basis that it was entered into under duress or was an unconscionable bargain. An important component of this argument about duress and unconscionability is the claim that Mr Barnes was in breach of his obligations (or threatening to be in breach) to pay child support of $4,000 per month at the time the release agreement was concluded.
[13] If I conclude that the release agreement was obtained by duress or unconscionability then Mrs Barnes’ case is that the child support component of the December 2008 agreement always existed (the release agreement being a nullity) and there are substantial arrears (also school fees arrears) which can be used to offset her relationship property settlement obligation.
[14] If the duress and unconscionability argument fails then Mr Barnes was released from his maintenance obligations from November 2009. In that situation Mrs Barnes says she can offset the arrears of school fees against the relationship property settlement payment. There was never any agreement that Mr Barnes could stop paying his half share of the private school fees.
[15] The plaintiff’s case is that if this Court finds the release agreement was entered into under duress or unconscionability, then a combination of ss 20, 64 and 65 of the Child Support Act 1991 together mean that when Mrs Barnes applied for a Domestic Purpose benefit and formula assessment, her future entitlement to child support including her future entitlement to a half share of the private school fees pursuant to the December 2008 agreement was suspended or came to an end.
[16] Mrs Barnes says that the provisions of the Child Support Act do not relieve Mr Barnes from the consequences of a finding that the release agreement was entered into under duress or an unconscionable bargain. Her case is that this question is ultimately a question of causation and whether the supervening event of the formula assessment breaks that chain of causation. Mrs Barnes’ case is that it does not and therefore the Child Support Act is not directly relevant to her claim for breach of contract. A final question for resolution is, what damages are payable?
[17] The issues for resolution are, therefore:
(a)Was there an agreement (the release agreement) between Mr and Mrs Barnes on 18 November 2009 that Mr Barnes’ child support obligations in the December 2008 agreement had come to an end?
(b)Was Mr Barnes as at 18 November 2009 in breach of his child support obligations under the December 2008 agreement? This raises two sub-issues; what was the date in each month that Mr Barnes was obliged to pay child support; and as at 18 November 2009 was Mr Barnes in arrears of his child support obligations given the total child support payments he had made to Mrs Barnes? This also raises the issue of appropriation of payments.
(c)Taking account of the conclusions in (b) above and other relevant evidence, was any release agreement reached in (a) entered into under duress or was it an unconscionable bargain?
(d)If the release agreement was entered into under duress or was an unconscionable bargain then does ss 20, 64 and 65 of the Child Support Act suspend or cancel Mr Barnes’ child support obligations under the December 2008 agreement from the time of any formula assessment of his child support obligations under the Act? As part of this issue, was Mr Barnes’ obligation to pay half of the private school fees a child support obligation under the Child Support Act and thereby covered by ss 20, 64 and 65 of the Child Support Act?
[18] I turn now to each of the issues. The detail of the relevant facts can be adequately described as part of each issue for consideration.
Was there a agreement on 18 November 2009 to end Mr Barnes’ child support obligations detailed in the December 2008 agreement?
[19] The answer to this question is yes. In its judgment of 18 June 2012 the Court of Appeal identified the question as “did the parties agree that Mr Barnes’ child support obligation had ended”?
[20] The Court said:1
The last sentence of cl 4 provides that “payments will continue until mutually agreed otherwise by [Mr B] and [Mrs B]”. We hold that Mrs B’s 18 November email combined with Mr B’s solicitor’s email of 25 November in response comprised a mutual agreement between the parties that Mr B’s cl 4 child support payments obligation ceased immediately.
We accordingly answer this issue ‘Yes’.
Was Mr Barnes in breach of his maintenance obligations in November 2009?
[21] Clause four of the December 2008 agreement between the parties specified the child support payments were to be made in this way:
Mr Barnes agrees to pay $4,000 per month directly into a bank account nominated by (Mrs Barnes) ...
[22] The agreement did not say on what day of the month payment had to be made.
[23] At least from May 2009 Mrs Barnes said her expectation was that payment would be made early in each month, about the fifth. She says in the six months preceding November 2009 Mr Barnes’ obligation to pay the maintenance was on the fifth of each month. That was so because; over the previous six months Mr Barnes (although in her email of 18 November 2009 she mentioned the previous 12 months) had made maintenance payments in each month within a few days of the fifth of each month.
1 Barnes v Barnes [2012] NZCA 255, (2012) 29 FRNZ 46 at [26]–[27].
[24] In November there was no payment made on the fifth. By the ninth Mrs Barnes complained to her husband’s solicitor by email that the November payment had not been made. On 10 November she again complained by email that no child support payment had been made. She had been due to go to Palmerston North to have a DNA test aimed at identifying whether the youngest (and third) child of the family was Mr Barnes’ biological child. Mrs Barnes said she may have to cancel the appointment if no payment was made. The following day she sent another email. She said no child support payment had been received and she would cancel the appointment because she could not afford to go to Palmerston North. Further, she said given she was almost out of food and had outstanding bills she had no option but to approach Work and Income for assistance.
[25] On 11 November Mr Barnes filed an application in the Family Court for a declaration that he was not the father of the youngest child. This followed some weeks of discussion between Mr and Mrs Barnes. After her email of 11 November, Mrs Barnes applied for and obtained an interim payment from Work and Income of
$100. On 16 November she applied for, and the following day was granted, a Domestic Purpose benefit backdated to 12 November.
[26] On 16 November, Mr Barnes’ solicitors sent a letter to Mrs Barnes (received by her on 18 November). They told her of the paternity application already filed. As to maintenance, they said that the agreement did not specify the date on which the child support payment needed to be made, but simply that it had to be paid each month. They said:
Our client advises that this month’s payment will be made before the end of the month.
[27] Mrs Barnes responded the same day (18 November) by email. She acknowledged the agreement was silent as to a specific date. However, she said Mr Barnes had over the previous 12 months paid on or about the fifth of each month. She said she assumed the payments would be every four weeks not “the eight week unplanned timeframe” she had been informed of. She advised she was now in receipt of a benefit from Work and Income. She then said:
Consequently I will no longer require your client’s monthly support contributions.
[28] Mrs Barnes said that while she had been unable to afford the trip to Palmerston North for the DNA test, she was still prepared to take it and had rebooked for late November.
[29] Mrs Barnes’ case is that paying child support at inconsistent intervals, on any day in each month, is in breach of the December 2008 agreement. She submits that payments had to be made within one calendar month of the previous payment. The October payment was on the fifth, so the November payment was due on the fifth. Whether Mr Barnes’ actions were in breach of the agreement is important in assessing Mrs Barnes’ claim that the release agreement was entered into under duress, or was unconscionable.
[30] The plaintiff’s case is that he did not breach the agreement. He says that cl 4 of the December 2008 agreement allowed him to pay his $4,000 maintenance payment on any day during each particular month. And so when Mrs Barnes cancelled the maintenance agreement on 18 November, Mr Barnes was not in default under the agreement.
[31] The Court of Appeal concluded that it was arguable that cl 4 “required Mr B to make payments at regular monthly intervals”.2 The Court said:
As [Mr Barnes] had paid the past 10 or so payments on or about the fifth of each month, his contractual obligation was to pay on or about 5 November 2009.
[32] The evidence in this trial established that, while payments from May to October 2009 (six) in total were made between the fourth and the eighth of the month, earlier monthly payments from December 2008 to April varied as follows: 16 December, 22 January, 19 February, 3 March (the payment on 3 March was for a period of two months).
2 At [30].
[33] I consider “per month” referred to in cl 4 can only sensibly mean that monthly payments should be a calendar month apart. This is especially so given these were payments for child support. Regularity and predictability would obviously be important to the parties when they agreed on the amount and timing of “per month” payments.
[34] The parties were aware that Mr Barnes worked overseas. Payments might be delayed for a short period given the uncertainty of international money transfers. But nothing in the agreement suggests that the parties intended payment could be at any time each month, effectively at the whim of Mr Barnes.
[35] Given cl 4 of the agreement provided that the $4,000 payments were to be “per month” that must mean payments would be made during the month for that month’s obligation. To satisfy this obligation, payments would have to be made at about the same time each month. Only then would they reflect a consistent level of obligation due over a consistent period of time. This would ensure they were per month payments.
[36] Support for this approach is to be found in Re A Debtor.3 An order was made suspending the execution of a judgment debt so long as the debtor paid an amount on 1 February 1940 and a further sum “per month thereafter”. An issue arose as to whether the further payments could be made at any time during the following month. The Court of Appeal concluded payment was due on 1 March 1940. The Court considered that where an agreement provides for periodical payments they will fall at regular intervals.
[37] I am satisfied that (with an allowance of two or three days) cl 4 of the December 2008 agreement intended that Mr Barnes pay Mrs Barnes the $4,000 each month with approximately a month between each payment. The question then arises, on what day of each month were the payments due?
3 Re A Debtor [1940] 1 Ch 470 (CA).
[38] The agreement is also silent as to when the child support payments were to commence. I must decide what the parties intended based on an objective assessment of the relevant circumstances when the agreement was signed in December 2008.4 In the absence of any specified commencement date I consider the parties would have assumed the agreement came into effect immediately upon signature; that is the day following the signing of the agreement. Both parties signed
the agreement on 15 December 2008 and so the commencement date for child support payments would be 16 December 2008.
[39] In support of this conclusion I note the first payment by Mr Barnes to Mrs Barnes’ account after the agreement was signed was the next day, on 16 December.
[40] Mrs Barnes submits that the use of the phrase “per month” meant that payment should be made “on the corresponding day in the following month”. Thus, whatever the date of payment in a particular month meant the payment in the
following month was due exactly one month later. Because Mr Barnes made a payment in October on the 5th, payment was due in November on the 5th.
[41] I consider there is no evidence to suggest that the fifth of the month was the date the parties chose to commence Mr Barnes’ obligation to pay child support or that they intended each month’s due date would be determined by the previous month’s payment date. If that was so then the obligation to pay child support would have had to have commenced on the fifth of January 2009 given the agreement was
not signed until the 15th of December 2008. The January payment in fact was not
made until the 22nd. There is no evidence that Mrs Barnes objected in any way to the date this payment was made or that she claimed it was a late payment. And so in the absence of any other evidence the parties must be assumed to have intended that the agreement would come into immediate effect.
4 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 44; Investors Compensation Scheme Ltd v West Bromwich Building Society (No. 1) [1998] 1 WLR 896 (HL).
[42] What then of Mrs Barnes’ claim that each payment must be no longer than one month from a previous payment and so when Mr Barnes paid on 3 March 2009 (in fact for both March and April); he was obliged to pay maintenance from then on by the 3rd of each month? This proposition would mean that whenever Mr Barnes paid child support “early” in the sense of less than one month from the previous payment, his obligation to pay each subsequent month moved up to that earlier day.
I note that in fact all subsequent payments would then have been overdue given none were paid by the 3rd.
[43] I reject this approach as one the parties could not have contemplated or intended. There was nothing to stop Mr Barnes paying maintenance early, that is, before the 16th of the month in any or all of the months. This would be of advantage to Mrs Barnes. But when Mr Barnes did pay before the 16th in any particular month, there is no reason to assume the parties intended that he would always have to pay
“early” each month from then on.
[44] After all, if he paid early and then returned to the due date the following month, there would be no prejudice to Mrs Barnes. She had the same amount of money over the same period with some child support paid early.
[45] Mrs Barnes submitted that the evidence subsequent to the agreement showed that her expectation that the child support payments would be made earlier in each month was reasonable. As I have noted, the payments in December, January and February were made on the 16th, 22nd and 19th respectively. There was no evidence of any complaint by Mrs Barnes to Mr Barnes that these payments were late.
[46] Then about two weeks after the payment on 19 February, Mr Barnes paid
$9,950 for the two months of March and April. Then, on 6 May, the payment for May was only half the amount due at $2,007.43.
[47] On at least two occasions from March to November 2009, Mrs Barnes asked Mr Barnes if he could make the maintenance payment “early”. One was by an email on 3 September. Mrs Barnes said in an email addressed to Mr Barnes:
You did not respond favourably [referring to the previous occasion when a request for early payment was made] and instead threatened to withhold child support to the end of the month. Let me know if you have a similar attitude this month as I will endeavour to raise the necessary funds elsewhere.
[48] The basis of the request was Mrs Barnes’ claim that she needed the money early for the children’s expenses. The earlier occasion when a request was also made may have been the previous month, August. On 7 August, Mrs Barnes sent Mr Barnes an email. The relevant portion is as follows:
... by withholding August’s child support payment till the end of the month as you have threatened to do is a clear example of your lack of consideration towards the wellbeing of your children.
[49] In fact, as it turned out, Mr Barnes paid his $4,000 child support on 7 August.
[50] This evidence does not support the contention that when the contract was signed on 15 December 2008, Mr and Mrs Barnes had agreed payment of the maintenance would be made about the fifth of each month. While Mrs Barnes may have come to expect payments on the fifth of each month I do not consider that is what the parties agreed in December 2008 or subsequently.
[51] I am satisfied that the proper interpretation of the contract is that the parties intended it have immediate effect and, therefore, child support payments were due on the 16th of each month. Sometimes Mr Barnes paid his child support payments late and sometimes he paid them early. His early payments did not mean subsequent payments had to be earlier than the due date, the 16th.
[52] Mr Barnes did not make a payment for November on the 16th. He did not accept he had an obligation to do so. His lawyers (on 16 November) told Mrs Barnes that, while he would pay for the month of November he could only say it would be sometime before the end of the month.
[53] On 18 November the release agreement was entered into. Mr Barnes’ failure to pay the $4,000 for November by the 16th meant he was in breach of the December 2008 agreement (subject to my observations at [57]–[68]). Mr Barnes made it clear that he was not going to pay the child support owing on the 18th. And
so even if a few days grace for a late payment could be given under the December 2008 agreement, Mr Barnes made it clear any payment in November would be near the end of the month. This was a clear breach of his obligation to pay by the 16th, assuming a payment was due for that month.
[54] In summary, therefore, I am satisfied that the parties intended the December 2008 agreement would have immediate effect. That meant the agreement commenced on 16 December 2008 with the child support obligation from that date. Mr Barnes agreed to pay per month and so the monthly payments were due on the 16th of each month.
Total payments
[55] The plaintiff says that although Mr Barnes may have missed the deadline in November he was substantially in credit with his child support payments, and therefore did not breach the December 2008 agreement. Effectively, Mr Barnes had already paid the November child support payment given his previous overpayments.
[56] Since the December 2008 agreement, Mr Barnes made the following payments into the relevant bank account (a joint account until June 2009 and solely in Mrs Barnes’ name from then on). The payments commenced in December 2008 and were as follows:
(a) 16 December 2008 – $21,104.72;
(b) 21 January 2009 – $5,214.62;
(c) 19 February 2009 – $3,980.00;
(d) 3 March 2009 – $9,921.28;
(e) 6 May 2009 – $2007.43;
(f) 8 June 2009 – $3,900.71;
(g) 7 July 2009 – $3,975.00;
(h) 7 August 2009 – $3,975.00;
(i) 4 September 2009 – $3,975.00;
(j) 5 October 2009 – $3,975.00.
[57] From these payments must be deducted two tax payments of $9,960 made from the account on behalf of Mr Barnes and other withdrawals by Mr Barnes totalling $2,000, all in December at about the time of the 16 December payment. The account had a credit balance of over $6,800 immediately before the 16 December payment.
[58] Mr Barnes was obliged by the agreement to make no more than 12 (assuming a 16 December start date) monthly payments of $4,000 from December 2008 up to and including November 2009 for that year. He paid into the child support account during this 12 months a total of $62,028.76. After deducting the five payments made to him or on his behalf (totalling $11,996), there is a net balance of $50,032.76, being the total net payments made by Mr Barnes to Mrs Barnes’ account from December 2008 to November 2009. From December to November 2009 Mr Barnes had an obligation to pay an aggregate $48,000 (12 x $4,000 per month) child support. Mr Barnes had, therefore, paid to Mrs Barnes more than required under the
December 2008 agreement for this 12 month period as at 16 November 2009. This meant the November payment had already been effectively paid by the 16th of that month.
Appropriation
[59] Mrs Barnes says, however, that before this “extra money” could be seen as “on account” of the $4,000 per month child support obligation by Mr Barnes, the extra payments must have been appropriated by Mr Barnes to this obligation. Mrs Barnes says there was no such appropriation and, therefore, Mr Barnes is not entitled to use the additional payments he made during the course of the year as “on account” of his child support obligations. Thus, the November 2009 child support payment of $4,000 was unpaid and the December 2008 agreement breached.
[60] As is self evident from the description of the payments,5 Mr Barnes did not, in any calendar month, pay exactly $4,000 to Mrs Barnes. To take some examples, the initial payment of $21,104 was a net amount of just over $9,000 after deducting the payments made to or on behalf of Mr Barnes from the account. The January payment was for $5,200. The February payment was near the monthly payment of
$4,000 but the March payment of $9,900 was apparently for March and April and it seems, part of May, given the May payment was only $2,000. His more recent payments were close to the required $4,000. There is no direct evidence of any express appropriation of the March payment for April and part of May, although Mrs Barnes did not argue that the March payment could not be appropriated to Mr Barnes’ obligation for April and part of May.
[61] In Re Doody Christiansen AJ usefully summarised the requirements of appropriation, which included the following propositions:6
(a)A debtor has a right, when making a payment to a creditor, to appropriate the money to any distinct debt as the debtor pleases. Should the creditor accept the payment, the creditor is then bound to appropriate the money as the debtor directed;
(b)A debtor’s appropriation does not need to be made expressly, but can also be inferred from the nature of the transaction or where the circumstances of the case show that there was an intention to appropriate;
(c)A debtor must appropriate at the time of payment, or the right to appropriate becomes a right to the creditor, a right which persists until it is exercised or it becomes inequitable to rely upon it. Accordingly should a debtor make a payment without making any appropriation to the time of the payment, the creditor has the right to appropriate the payment as they wish;
(d)Appropriation by a debtor requires more than intention. Rather that intention must be communicated to the creditor either expressly or by implication;
(e)The principle that intention must be communicated exists to avoid prejudicing a creditor that relies on their right to appropriation following payment.
5 At [56].
6 Re Doody, ex parte Body Corporate 343562 [2012] NZHC 25 at [22]–[25].
[62] By 15 December 2008 Mr and Mrs Barnes had entered into a comprehensive agreement settling out all outstanding child support and relationship property issues between them. The only monthly debt owing by Mr Barnes to Mrs Barnes was this child support obligation. And so unless any payments over $4,000 in a month are seen as a gift by Mr Barnes to Mrs Barnes, there is only one account that the monthly payments can be appropriated to; Mrs Barnes’ child support account.
[63] I am satisfied that each of the payments made from 16 December 2008 onwards is properly appropriated to Mr Barnes’ child support obligations. At least four of the ten payments made during the year were not close to the $4,000 figure. Larger payments, sometimes months ahead of the child support obligation, were seen by both parties as making up for deficits in other months. The $9,921 payment in March was a payment for March, April and part of May. If Mrs Barnes’ submissions are correct that there was no appropriation of payments, then Mr Barnes’ March payment could not be on account of April and part of May. There was no such complaint by Mrs Barnes. The only inference open is that both Mr and Mrs Barnes intended that this payment be appropriated to the March, April and part of the May obligations.
[64] Mr Barnes had no other financial obligations to Mrs Barnes beyond the maintenance obligations and private school fees. There is no suggestion that any of the amounts paid were on account of private school fees. (Indeed as I understand the situation, none of the children were attending a private school in November 2009.) If the payments were not on account of the $4,000 per month child support, then they could only be some form of gift from Mr Barnes to Mrs Barnes. Given the parties were separated, had comprehensively resolved their relationship property differences, had embarked on new lives and by January 2009 Mr Barnes had been told that the youngest child was not his, financial gifts from Mr Barnes to Mrs Barnes seem unlikely. I am satisfied that each of the payments made by Mr Barnes to Mrs Barnes (net of payments to Mr Barnes’ credit) from December 2008 to November 2009 are properly appropriated to the child support obligation of Mr Barnes under the December 2008 agreement.
[65] The result of this conclusion is that as at 16 November 2009 Mr Barnes had made sufficient child support payments over the previous 12 months such that he was not in arrears on that date. There was, therefore, no breach of the December 2008 agreement by him as to child support.
Was the credit balance in the joint account appropriated?
[66] As at the date of signing the December agreement the joint account had a credit balance of $6,879.02. This was the account from December 2008 to June 2009 that Mr Barnes paid his child support payments to. The December 2008 agreement provided7 that the credit balances in the parties’ bank accounts belonged to Mr Barnes. This provision appears to include the credit balance in the joint account.
[67] Mr Barnes has made no effort since to have this money returned to him and does not appear to have treated it as his property. The balance in the account as at 15 December 2008 is either a gift from Mr Barnes to Mrs Barnes or it is on account of his child support obligations.
[68] The account remained in the joint names of the parties until June 2009 when it was changed into Mrs Barnes’ sole name. Up until that date Mr Barnes could have taken the money from the account in terms of cl 15 of the agreement. He did not do so. By then it seems Mrs Barnes had spent the money assuming no doubt that it was hers.
[69] I consider that this sum is quite different from the monthly child support payments. It seems unlikely Mr Barnes intended the money as a first child support payment given the agreement was signed on 15 December and a significant payment was made by Mr Barnes into the joint account on 16 December. That sum has been treated by me as on account of Mr Barnes’ maintenance payment for December and beyond.
7 Clause 15 said “G shall retain as his sole separate and absolute property: ... Bank accounts”.
[70] As I have noted, Mr Barnes could have taken the money at any time from the account. Given these circumstances I am prepared to accept on balance that Mr Barnes’ actions are more likely to have indicated that he deliberately left the money in the account as a gift to his former wife than intending it as on account of his child support obligations.
[71] In summary, I am satisfied that Mr Barnes deliberately left the joint account to Mrs Barnes and she effectively “inherited” the account and the credit balance with Mr Barnes’ agreement. This sum, therefore, should not be appropriated to Mr Barnes’ child support obligations.
Duress
[72] The Court of Appeal found that the agreement of 18 November 2009 released Mr Barnes from his child support obligations. Mrs Barnes says, even if that conclusion is current, her consent to that release was given under duress or that the agreement reached was an unconscionable bargain.
[73] If either ground is established then Mrs Barnes says the release agreement is voidable. I set out the background facts relevant to both duress and unconscionability in this section of the judgment.
[74] In this case the Court of Appeal identified the relevant principles of duress in this way:8
The current law on duress is accurately and succinctly summarised in paragraph 2 of the headnote in the New Zealand Law Reports of this Court’s decision in McIntyre v Nemesis DBK Ltd:
The test to be applied in determining whether a contract had been procured by duress was: first, whether there had been an “illegitimate threat or the exertion of illegitimate pressures”; and, secondly, if so, did that result in “compulsion or coercion”? In applying the second arm of this test the court had to consider the availability of alternatives and all the relevant circumstances, including: the characteristics of the victim; the relation of the parties; the availability of professional independent advice to the victim; and whether the party said to have been coerced did or did
8 Barnes v Barnes, above n1, at [36].
not protest, or, after entering the contract, took steps to avoid it (see paras [20], [24], [25], [26], [66], [67], [68]).
[75] As to the first limb of the test, the illegitimate threat or the exertion of illegitimate pressure, the Court of Appeal said:9
Dealing with the first arm (or leg) of that test, we hold that Mrs B can reasonably argue that Mr B exerted illegitimate pressure on her, in that he deliberately breached his cl 4 obligation to make child support payments to Mrs B in order to place pressure on her. A breach of an enforceable contract is unlawful: the Court will either enforce the contract, or grant a remedy for its breach. In respect of Mr B’s arguable breach of his cl 4 child support obligation, Mrs B asserted:
[Mr B] must have known the pressure this was going to put me under. He knew my financial position, and that I relied on the monthly payments to feed our family and to live. I am sure that the reason he did it was to try and pressure me to take the DNA test.
[76] Mrs Barnes’ submissions relied upon the unlawful nature of Mr Barnes’ conduct in breaching the agreement by his failure to pay child support payments as they became due and by his statement that he would make monthly payments any time during each month they were due.
[77] I have found that there was no breach of the child support obligation by a failure to pay child support payments when due as at 18 November 2009. That conclusion undermines the defendant’s reliance upon the unlawful nature of Mr Barnes’ conduct.
[78] If I am wrong in concluding that there was no breach of the agreement by Mr Barnes, then irrespective of Mr Barnes’ intention behind his threat not to make the child support payment until later in November (after the due date, the 16th), this was illegitimate pressure on Mrs Barnes.
[79] I do not consider Mr Barnes knew he was acting in breach of the agreement. The advice as to the meaning of cl 4 of the agreement almost certainly came from Mr Barnes’ lawyers (see their letter to Mrs Barnes of 16 November). There is every reason to assume Mr Barnes had legal advice about cl 4 and his payment obligations and he acted on this advice.
9 At [37].
[80] At [37] the Court of Appeal could be seen to be saying the first element of duress required proof there was a deliberate breach of the contract designed to place pressure on Mrs Barnes to enter the release contract.
[81] In this regard I accept Mrs Barnes’ submission to me that (based on R v Attorney-General of England and Wales10 and McIntyre v Nemesis DBK Ltd11) it is enough to establish the first element of duress that there was an illegitimate breach of the contract or a threat to do so. The alleged breach here was the late payment in November and the threat of paying on any day during any of the following months. Assuming then that there was an illegitimate breach of the contract or a threat to do so12 then I am satisfied the first element of duress, the requirement of a breach and/or threat to breach a contract, has been established.
[82] The second limb requires that this illegitimate pressure be at least part of the reason why Mrs Barnes agreed to the release agreement. Mrs Barnes claimed that Mr Barnes’ refusal to pay his child support on time was a way of pressuring her to agree to DNA testing to establish whether Mr Barnes was the youngest child’s biological father.
[83] I do not consider there is evidence to support this claim and it does not match an analysis of the relevant facts. Mr Barnes had been asking Mrs Barnes for some time to take the DNA test because he had been told (by another) that the youngest was not his child. Initially Mrs Barnes resisted the request and delayed. This went on for some months.
[84] In October Mrs Barnes had agreed to the DNA testing. Indeed by late October Mrs Barnes was apologising for the delay and had clearly accepted the DNA testing was appropriate and inevitable. On 11 November 2009, Mr Barnes issued proceedings in the Family Court challenging whether he was the youngest child’s biological father.
10 R v Attorney-General of England and Wales [2004] 2 NZLR 577 (PC) at [16].
11 McIntyre v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463 at [30]–[31].
12 For reasons given I do not accept there was an illegitimate breach or threat to do so.
[85] Mrs Barnes said that she wanted the test completed in Palmerston North rather than locally to avoid what would be an understandable awkwardness for her and the family. By 10 November she had, therefore, agreed to the DNA test and had made an appointment for the 16th at a Palmerston North clinic.
[86] On 10 November Mrs Barnes sent an email to Mr Barnes’ solicitors about the late child support payments. She mentioned in that email that she did not have the money to travel to Palmerston North for the test and if the child support payments were late she could not afford to go to Palmerston North. And so at that stage Mr Barnes had every reason to pay the maintenance for November because Mrs Barnes would then have no reason not to undertake the test. Mr Barnes,
therefore, would have understood from Mrs Barnes’ emails of the 10th and 11th
November to his solicitors, that if he did not pay his child support then there was a risk that the DNA test would be cancelled. Thus, if Mr Barnes’ concern was to ensure the DNA testing was undertaken, then paying what Mrs Barnes saw as her due (the $4,000 for November) as soon as possible after 10 November was in his interests.
[87] And so if Mr Barnes’ intention, by delaying the child support payment, was to ensure the DNA test went ahead, then he knew by 10 November that it was having the opposite effect. The fact that he did not immediately pay the child support payment on 10 November illustrates that the DNA test was not the driving force behind his delay in paying child support.
[88] Finally, Mrs Barnes’ claim that the attempt to pressure her to have the DNA test was the reason for the delayed payment is not based on any evidence as to what Mr Barnes did or said but simply speculation. Nor is there any clear inference from the surrounding facts that this was Mr Barnes’ intention. I reject this claim.
[89] Mrs Barnes’ claim that she agreed to cancel the child support agreement under duress is based on the claim that once Mr Barnes delayed paying the child support for November, she had no choice but to apply for the Domestic Purpose benefit which in turn meant she had to cancel the child support component of the December 2008 agreement.
[90] In the Court of Appeal judgment in this case, the Court adopted the approach of the Court of Appeal in McIntyre v Nemesis DBK Ltd.13 It approved the summary of the test of duress in the head note of McIntyre reported in the New Zealand Law Reports.
[91] As to the second part of the test for duress, the extract quoted from McIntyre
said:14
In applying the second arm of this test, the Court had to consider the availability of alternatives and all the relevant circumstances, including: the characteristics of the victim; the relation of the parties; the availability of professional independent advice to the victim; and whether the party said to have been coerced did or did not protest, or, after entering the contract took steps to avoid it.
[92] Further, the Court of Appeal in this case noted that Mrs Barnes needed to show her agreement to end the maintenance obligation was “an intentional submission arising from the realisation that there is no other practical choice open to her”.15
[93] I consider each of those issues and the overall circumstances.
Characteristics of victim
[94] The parties had separated in late 2008, sometime before the December 2008 agreement. Although the child support payments of $4,000 a month were expressed as payments for the children, in fact they seem to have been maintenance for both the children and Mrs Barnes.
[95] Mrs Barnes had neither paid employment nor any source of regular income apart from the $4,000 per month payment. Mr and Mrs Barnes had originally shifted to facilitate employment for Mrs Barnes. That employment did not work out for Mrs Barnes and she no longer holds the registration required to perform it.
13 McIntyre v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463.
14 At 463.
15 Barnes v Barnes, above n1, at [38].
[96] By November 2009 Mrs Barnes had been in a relationship with another man, Mr A (whom she describes as her partner) for some time. As it turned out he was the father of the youngest child who had been born before Mr and Mrs Barnes’ separation (and was the subject of the DNA tests). The $4,000 per month payment was agreed at a time when Mr Barnes believed this child was his biological child.
[97] In addition to her $4,000 per month payment from Mr Barnes, Mr A had provided some financial support for Mrs Barnes since the child support agreement was signed in December 2008. Up until November 2009 he had paid her $9,230 in that 12 month period. It is unclear how much of this money was a loan. In emails to Mr Barnes, Mrs Barnes said he also provided firewood and meat for the family.
[98] Mrs Barnes said that her new partner (Mr A) was contributing generously to the running of her household. Mrs Barnes had also been working toward a business degree but it seems unlikely that such a degree would have assisted her in obtaining employment in the rural area where she lived.
[99] And so Mrs Barnes’ total direct financial support in the 12 months from December 2008 to November 2009 was almost $60,000 (tax paid). Further, Mrs Barnes had neither rent nor mortgage payments to meet on the house she lived in.
[100] The email exchanges between Mrs Barnes and Mr Barnes and his lawyers illustrates Mrs Barnes had a clear, firm view of Mr Barnes’ obligations both financial and emotional toward the children. Mrs Barnes asked Mr Barnes for early monthly child support payments from time to time but made it clear that if there was no early payment she would make other financial arrangements. She stressed her new partner’s generosity.
[101] Further, Mrs Barnes had a cabin on her property which she rented from time to time although there is no evidence as to the yearly income this produced.
[102] Finally, Mrs Barnes had no legal advice regarding her circumstances and decisions in November 2009.
Relationship of the parties
[103] This aspect of duress can be particularly relevant where there is said to be a significant discrepancy in power or authority between the parties. There is nothing to suggest that in a broad sense there was any inequality between the parties. Mrs Barnes was largely reliant upon Mr Barnes for her income and in that sense was beholden to him. But there is nothing to suggest in the correspondence and particularly in the email exchanges between Mrs Barnes and Mr Barnes’ solicitor that Mrs Barnes was in any sense cowed by the situation she found herself in.
[104] Mrs Barnes did not seek legal advice. Mr Barnes did seek legal advice. And so in that sense Mr Barnes enjoyed a significant advantage over Mrs Barnes.
[105] Mrs Barnes’ evidence was that she did not get legal advice because she felt she could not afford it. It is difficult to assess exactly why Mrs Barnes did not get legal advice about the December 2008 agreement given the disagreement between her and the lawyers for Mr Barnes about when the payments were due each month. Reading the emails sent by Mrs Barnes at this time, I have the strong impression that she was confident she could deal with the matter and did not need to involve a lawyer. She expressed clear and firm views as to the situation and what Mr Barnes should or should not be doing. But there can be no doubt that she did suffer a disadvantage by failing to get legal advice.
Circumstances under which the release agreement was signed
[106] As I have noted, Mrs Barnes’ case is that because of Mr Barnes’ actions in stopping her maintenance payments, she had no choice but to obtain a social welfare benefit to support herself and the children and in turn she was left with no choice but to abandon the child support agreement.
[107] In refusing to pay his child support obligations on time, Mrs Barnes maintained that Mr Barnes must have known he would be putting her in an impossible financial position. Mrs Barnes, therefore, would inevitably have to seek State support to live.
[108] I do not consider the facts support these contentions. Firstly, the money received by Mrs Barnes over the previous 12 months did not suggest that Mrs Barnes was forced to live a hand-to-mouth existence during that time. In addition to the
$60,000 per annum I have previously mentioned, Mrs Barnes said that her new partner had also generously provided food and firewood for the family. In addition she mentioned some part time work and some rental income from the cabin. This illustrates that Mrs Barnes was relatively well off before November 2009.
[109] Given those circumstances it is not possible to say that Mr Barnes must have known that a “late” payment would cause Mrs Barnes immediate serious financial pressure.
[110] Further, given the payments that Mr Barnes had made exceeded the $4,000 per month for the 12 months through to and including November, Mr Barnes had every reason to believe that Mrs Barnes had received the money she was due for November and indeed part of December. In addition Mrs Barnes had begun the year with a $6,000 credit in her account, money which Mr Barnes was entitled to by virtue of the December 2008 agreement.
[111] However, it does seem that by 16 November Mrs Barnes did not have sufficient money to continue to run her household. She obtained an emergency $100 grant from Work and Income and then applied the following week for a Domestic Purposes benefit. She borrowed $900 from her partner to pay what she described as overdue household accounts. However, on examination, those accounts showed that at least some were not overdue and in one case an account was paid early to obtain a modest discount.
[112] Further, Mrs Barnes did have access to other financial resources to tide her over what was a short term lack of money. By 18 November when she received the letter from Mr Barnes’ lawyers, she knew that Mr Barnes was not saying he would stop paying child support. He was saying that he would pay it later in the month of November. He accepted the obligation to pay the $4,000 once per month but said it could be on any day of the month that he chose. Mr Barnes was creating uncertainty about the date of future child support payments but not the fact of payments each
month. For November the payment late in the month would require some bridging money for Mrs Barnes (from about the 16th of the month) to keep the family going until, at the latest, 30 November (when the payment had to be made).
[113] At the time Mrs Barnes applied for a benefit on 16 November, she needed money to bridge, at most, the two week gap until 30 November. Under Mrs Barnes’ logic, from then on monthly payments would have to be no more than a month ahead given a November payment that was, at the latest, on the last day of the month. From then on Mr Barnes could only make payments one month or less apart on the 30th or 31st of each of the following months. If he paid at any other time during the month he would be paying early which would advantage Mrs Barnes.
[114] I am satisfied Mrs Barnes could have borrowed money from her partner or her parents or obtain a temporary advance from Work and Income to tide her over for the few weeks involved. As counsel for Mr Barnes suggested, Mrs Barnes could have obtained a benefit for that time and then abandoned the benefit when the child support payment was made by Mr Barnes. These actions would in all likelihood have avoided the need to apply permanently for a benefit and thereby have avoided triggering the child support formula assessment.
[115] Mrs Barnes’ parents are, it seems, relatively well off financially. While Mrs Barnes described them as in receipt of National Superannuation, they have paid over $20,000 per annum for one and up to a total of $40,000 per annum for two of their grandchildren to go to a private school.
[116] Given Mrs Barnes’ parents circumstances, borrowing money for a few weeks, (at the most $2,000 to $3,000) seems a reasonable alternative. Mrs Barnes had already received $1,000 by a combination of $100 from Work and Income and $900 from her partner covering the early part of November. These were all realistic alternatives.
[117] In evidence Mrs Barnes maintained that because the uncertainty about the timing of child support payments had been “going on for months ...” and payments of child support had only “eventually” been received, she had been forced to seek help from Work and Income.
[118] In fact as counsel for Mrs Barnes stressed, Mr Barnes had made regular early monthly payments from about May onwards. While he had responded to a request for an earlier child support payment by saying he could make payments anytime during the month in fact, until November he did not do so. As I have found he more often made payments early than late.
[119] Mrs Barnes’ evidence was that she was told by Work and Income that if she wished to obtain a Domestic Purposes benefit she would have to abandon the child support agreement. In evidence Mrs Barnes said Work and Income told her she could not receive any further financial assistance while she was in receipt of the benefit. This evidence is contrary to the documentary evidence provided by Mrs Barnes which was given to her at the time she obtained her benefit.
[120] A letter from Work and Income to Mrs Barnes on 17 November informed her she had been granted a benefit. The letter made it clear that if she received further income she had to declare it and such extra income could affect her benefit. The letter did not say Mrs Barnes had to abandon the child support agreement. I doubt the accuracy of Mrs Barnes’ claim that Work and Income told her she had to abandon her child support agreement. I accept it is likely she was told she could not have both a state benefit and the benefit of $4,000 per month from Mr Barnes.
[121] When she finally agreed to end the child support obligation of Mr Barnes on 18 November, she knew that he was not refusing to pay his maintenance. Given that he had paid maintenance for the previous 12 months there was no reason to suppose he would stop paying now. Mrs Barnes did not claim that is what she believed in her evidence. She simply said that once she had obtained a Domestic Purpose benefit she believed that she had to cancel the child support component of the December 2009 agreement.
Coercion and protest
[122] Mrs Barnes did not suggest to Mr Barnes in November 2009 that he was forcing her to cancel the child support agreement. When Mrs Barnes cancelled the agreement she knew Mr Barnes was not proposing to stop paying child support. He had paid his child support, if somewhat erratically, (but more than required) over the previous 11 months. Nor did Mrs Barnes take steps to avoid the release agreement. She continued to receive the benefit and made no demand of Mr Barnes. It was only after he sought his property settlement payment that Mrs Barnes raised the duress argument.
[123] In summary, therefore:
(a)I am satisfied there was no breach of the child support agreement by Mr Barnes. Given the importance of the claim of a breach to Mrs Barnes’ case, I conclude that her claim that the release agreement entered into under duress falls at the first hurdle;
(b)If there was a breach or threatened breach of the child support agreement by Mr Barnes then I am satisfied the first limb of duress is established – that there was illegitimate pressure on Mrs Barnes from Mr Barnes;
(c)I am not satisfied the second limb of duress has been established. This is not a situation where Mrs Barnes was forced to obtain a Work and Income benefit nor was Mrs Barnes forced by circumstances created by Mr Barnes to agree to release him from the child support agreement.
[124] I am satisfied the release agreement was not entered into by Mrs Barnes while under duress.
Unconscionable bargain
[125] As to the ingredients of such a “defence”, in this case the Court of Appeal said:16
In Gustav & Co Ltd v Macfield Ltd this Court summarised, in a non-exhaustive way, the principles of unconscionable dealing. The Supreme Court has endorsed those principles. Applied here, we agree with Mr Baker that the focus of the principles is on two broad questions:
(a)whether Mrs B was under a qualifying disability or disadvantage; and
(b)whether it was unconscionable for Mr B to take advantage of that.
[126] The Court concluded that there was an arguable case for unconscionability. They said:17
We accept Mr Barker’s submission that the evidence here provides Mrs B with a reasonable argument that she was under a qualifying disability when she entered into the release agreement. Because of Mr B’s breach of his child support obligation, she had run out of money to support the children and had no alternative but to apply to Work and Income for financial assistance.
We also accept Mr Barker’s further submission that Mrs B can reasonably argue that it is unconscionable to allow Mr B to take the benefit of the release agreement. The factors Mrs B can rely on in support of the argument of unconscionability are broadly the same as those that give support of her duress argument. Briefly to recap, they are:
(a)The release agreement was entered into in the course of dealings between former spouses over financial support for their children. It was not at all a commercial context.
(b)Mr B was aware of Mrs B’s reliance on his monthly child support payment, and of her financial situation generally.
(c)The financial pressure Mrs B was under resulted from Mr B’s breach of his cl 4 child support obligation.
(d)Mr B deliberately breached his cl 4 obligation in order to put pressure on Mrs B, in respect of the paternity dispute.
(e)Mr B had legal advice and was acting through his lawyer. Mrs B did not and was not. There is nothing in Mrs B’s contemporary emails to indicate that she fully understood the implications of her entering into the release agreement.
16 Barnes v Barnes, above n1, at [47].
17 At [49] and [50].
(f)The agreement gave Mrs B no benefit, indeed the converse. The evidence indicates that the Domestic Purposes benefit gave her only about half the $4,000 per month provided for in cl 4. There was a correspondingly substantial benefit to Mr b.
[127] I have concluded that there was no breach of the agreement by Mr Barnes. I have, therefore, reached a different conclusion with respect to the Court’s conclusions at [49]–[50], both as to breach and motive.
[128] As to [50](b) and (c), for reasons I have given, Mrs Barnes’ financial circumstances were not as dire as she maintained. What must be kept in mind is that Mr Barnes was not saying he was ending his child support payments. He recognised he had a monthly obligation and so Mrs Barnes knew she would get $4,000 each month. Indeed, as I have illustrated, Mr Barnes had been generous in his payments. The difficult feature was Mr Barnes’ view that he could make his child support payments any time each month. But for reasons I have given, after the November payment (assuming it was paid on the last day of the month), Mrs Barnes would inevitably receive payments within one month or earlier.
[129] Mrs Barnes’ case was that she gave up her right to child support in the December 2008 agreement in order to be eligible for a Domestic Purpose benefit at a rate significantly below her maintenance entitlement. She says she did so without any advantage to herself and that this illustrates the bargain was oppressive to her and, therefore, unconscionable.
[130] What must be kept in mind is that there was no bargain between the parties in this respect. Mr Barnes did not ask or require Mrs Barnes to give up her child support payments under the agreement. Nor did his actions force Mrs Barnes permanently onto a Domestic Purpose benefit. Ultimately her decision to apply for a benefit and its associated requirements of an assessment of Mr Barnes for maintenance was a decision that she took. It is difficult to see how this could be described as a bargain between the parties which was oppressive to her.
[131] In any event, in assessing oppressiveness of the bargain, regard must be had to the full circumstances under which Mr Barnes agreed to pay the $4,000 per month for child support and the circumstances under which Mrs Barnes came to agree to end these payments.
[132] It is clear that Mr Barnes entered into the child support agreement in the belief that the youngest child was his and, therefore, he had an obligation to support her. As it turned out the youngest child was not Mr Barnes’ biological child. The child’s biological child is Mrs Barnes’ current partner. In assessing true oppressiveness in the release agreement bargain, it is proper to have regard to the true “bargain”. Here, Mr Barnes’ child support obligations should only have been two thirds of the $4,000 per month or $2,760 per month (approximately).
[133] Mrs Barnes was giving up this payment for $478.95 per week which was a combination of her Domestic Purpose benefit and a family tax credit.18 This payment totalled $2,150 per month. Mrs Barnes also enjoyed weekly payments of her benefit as opposed to monthly payments of her $4,000 and a guaranteed date of receipt of the weekly payments in contrast with Mr Barnes’ position on the monthly payments.
[134] While this is a clear inequality of some $600 per month, I do not consider it is in the category of an oppressive bargain. As to bargaining weakness, Mrs Barnes did not have legal advice when she agreed to the release agreement. On the other hand there was no bargaining between the parties.
[135] As I have noted, Mr Barnes did not suggest the child support agreement should end. Nor did he provoke a situation where Mrs Barnes was compelled to cancel the agreement.
[136] As to unconscionable conduct, I do not consider that this has been established. Mrs Barnes has to prove that Mr Barnes has taken advantage of Mrs Barnes by imposing an unconscionable bargain on her. There must be a morally reprehensible action by Mr Barnes relating to the child support payments
18 Letter from Work and Income, 17 November 2009 to Mrs Barnes.
which effectively forced Mrs Barnes to cancel the agreement, that is, to enter into the offending bargain, the release agreement.
[137] As I have noted, however, Mr Barnes could hardly be said to have acted reprehensibly as far as the child support was concerned. In November 2009 he had paid more than his child support obligations. He had (as I have found) gifted Mrs Barnes a further $6,800 she was not entitled to in terms of the relationship property agreement. He had paid his child support for the preceding 12 months every month. He had never threatened to end the child support payments. His child support payments in November were late. But overall I do not consider that it can be said that Mr Barnes’ actions in entering into the bargain were morally reprehensible. What cannot be doubted is the decision to cancel significantly advantaged Mr Barnes.
[138] Mrs Barnes’ decision to cancel the child support agreement is puzzling. Perhaps she thought she would end what she saw as Mr Barnes’ control of her life through the threat of unpredictable payments. Mrs Barnes herself struggled in her evidence to identify why she had cancelled the agreement. Ultimately it was a poor and unnecessary decision by her, now regretted. These points illustrate that, while the release agreement resulted in a windfall for Mr Barnes and therefore an uneven bargain, Mrs Barnes was not suffering from a sufficiently obvious disability nor did Mr Barnes take advantage of any disability she may have had.
[139] I therefore reject the claim of unconscionability.
Child Support Act 1991
[140] The plaintiff’s case is that even if the release agreement was obtained under duress or was an unconscionable bargain, the provisions of ss 20, 64 and 65 of the Child Support Act prohibit Mrs Barnes enforcing the December 2008 agreement relating to child support while she was in receipt of a benefit and while Mr Barnes is subject to a formula assessment for child support.
[141] Broadly the plaintiff’s argument is that once Mrs Barnes obtained a Domestic Purpose benefit, she triggered the mandatory formula assessment provisions of the Act, along with the above three sections which provide that Mr Barnes’ obligation under the December 2008 agreement is either suspended or has come to an end. The defendant disputes the application of the Child Support Act in these circumstances.
[142] I am satisfied that s 20 of the Child Support Act applies here and that Mr Barnes’ obligations to pay child support under the December 2008 agreement are suspended while he is subject to a formula assessment. I am satisfied s 65 does not apply in these circumstances and the agreement of December 2008 is not cancelled.
[143] The Child Support Act is not without its interpretative difficulties. If an eligible custodian of children (here, Mrs Barnes) applies for a social security benefit then they must also apply for a formula assessment of child support with respect to
the liable parent unless they are prepared to accept a significant diminution of their benefit.19 Mrs Barnes applied for and obtained a social security benefit and applied for a formula assessment relating to Mr Barnes. The Commissioner accepted the application for a formula assessment as is required in terms of the Act.20 Mr Barnes then became liable to pay under the assessment on the day of the application.21
[144] The effect of this process on the child support December 2008 component of the agreement between the parties is set out in s 20 of the Child Support Act 1991. It provides as follows:
20 Suspension of voluntary agreements
Where—
(a)A custodian of a child and a liable parent have entered into an agreement providing for the payment of money towards the support of the child; and
(b)The liable parent becomes liable to pay child support under a formula assessment to the custodian in respect of the child,—
19 Child Support Act 1991, s 9; Social Security Act 1964, s 70A.
20 Sections 14 and 17.
21 Section 18(d).
the liability of the liable parent to pay money towards the support of the child under the agreement shall be suspended for such time as child support is payable under the formula assessment.
[145] I am satisfied that Mrs Barnes is the “custodian”. She is the “sole or principal provider of ongoing daily care for the children”.22 I am also satisfied that Mr Barnes is a liable parent. He is liable to pay child support.23
[146] With the application of s 20 Mr Barnes’ maintenance obligations were therefore suspended as from 17 November 2009. They continue to be suspended given Mr Barnes continues to be subject to a formula assessment for child support.
[147] However, Mr Barnes goes further. He says that the effect of s 65 of the Act is to cancel the December 2008 agreement from the date of the formula assessment. My conclusion is that s 65 does not apply in the circumstances of this case. I am satisfied that s 65 of the Act applies only to registered (the Act refers to “accepted”) voluntary agreements and not (as here) to voluntary child support agreements that have not been registered under the Act.
[148] The Child Support Act provides for the registration of voluntary child support agreements. There are statutory requirements as to their contents.24 Once registration is accepted the Commissioner takes over enforcement of the agreement.
[149] Section 64 provides:
64 Election to terminate liability under voluntary agreement
(1)The person to whom child support or [domestic maintenance] is payable under a voluntary agreement that has been accepted by the Commissioner may, by written notice given to the Commissioner, elect that the liability of a person to pay child support or [domestic maintenance] under that agreement is to end from a specified future date.
22 See s 8(2)(a).
23 See s 2, definition of “liable parent”.
24 Sections 48 and 55.
(2)The notice must be—
(a)In the appropriate approved form; and
(b)Verified as required in the form of notice; and
(c)Accompanied by such documents (if any) as are required by the form of notice to accompany the notice.
(3)A document that accompanies the notice must also be verified as required by the form of notice.
(4)If any such election is made,—
(a)Nothing in this Part of this Act or any other provision of this Act shall apply to any money that becomes payable in accordance with the agreement after the date of the election; and
(b)Any money payable in accordance with the agreement after the date of the election may, without prejudice to any mode of recovery, be recovered by any person in any District Court.
(5)An election made under subsection (1) of this section shall be irrevocable.
[150] Section 64 is concerned with the circumstances where a recipient of child support by virtue of a registered voluntary agreement, elects to end the “liability of a person to pay child support under that agreement”. The election is not an end to the obligation to pay child support under the voluntary agreement but to end the fact that the agreement is “registered” under the Act. The election is not to end the agreement itself. The effect is for the custodial parent to lose the enforcement advantage of the Commissioner’s obligation to enforce such agreements.
[151] Section 65 provides:
65 Child support voluntary agreement no bar to application for formula assessment
(1)The existence of a voluntary agreement shall not prevent a person who is a qualifying custodian or a liable parent in relation to that agreement from applying to the Commissioner for formula assessment of child support under Part 1 of this Act.
(2)Where, in relation to a voluntary agreement made in relation to a child and to the persons who are respectively the qualifying custodian and the liable parent in relation to that child in terms of that agreement,—
(a)The qualifying custodian or the liable parent makes a properly made application for formula assessment of child support in relation to that child; and
(b)In terms of that application those same persons are respectively the qualifying custodian and the liable parent in relation to that child,—
the qualifying custodian is deemed—
(c)To have elected under section 64 of this Act that the liability of the liable parent to pay child support in respect of the child under that agreement is to end with the day before the day on which that formula assessment is to first apply; and
(d)To have met the requirements of subsections (2) and (3) of that section.
[152] Section 65 makes no mention of a registered voluntary agreement. On the face of it, therefore, it appears to apply to voluntary agreements that are not registered as was the case here. But for two reasons I am satisfied s 65 applies only to registered agreements. The first reason arises from s 47 of the Child Support Act 1991. This section provides as follows:
47 Application of this Part
(1)This Part of this Act applies where either—
(a)The parties to a voluntary agreement for child support in respect of a qualifying child; or
(b)The parties to a voluntary agreement for [domestic maintenance],—
want the Commissioner to administer the agreement in accordance with this Act.
(2)The parties to a voluntary agreement for child support may be—
(a)The parents of the child; or
(b)A parent, or the parents, of the child and an eligible custodian of the child who is not the child's parent.
[153] Section 65 is within Part 3 of the Act and is therefore covered by s 47. Unless s 47 can be read down in some way, s 65 is limited to voluntary agreements the parties want the Commission to administer, those that I have called registered agreements.
[154] The second reason to assume s 65 applies only to registered voluntary agreements, relates to the interrelationship between ss 20 and 65. Section 20 provides that where there is a voluntary agreement and a liable parent becomes liable to pay child support by way of a formula assessment then the voluntary agreement is suspended. This logically follows. The alternative is that the liable parent would be liable to make two separate child support payments for the same children, one under the voluntary agreement the other under the formula assessment. Suspension only is also appropriate because if for any reason the formula assessment ends, then the voluntary agreement should be reactivated.
[155] It therefore makes no sense for s 65 to apply to the very same circumstances; where a voluntary agreement for child support is entered into and subsequently a formula assessment of child support liability obtained. If s 65 applies to voluntary agreements that are not registered, then in contrast to the suspension provision in s 20, s 65(2)(c) provides that liability to pay under the agreement ends as if a s64 election has been made.
[156] The s 64 election is concerned with an election to end the registration of the voluntary agreement, not the effect of the agreement itself. Similarly “that agreement” in s 65(2) must refer to the registration of the agreement. And so looked at broadly ss 64 and 65 are concerned with registered voluntary agreements where a custodial parent elects to cancel registration of the agreement (in s 64) or where an application is made for a formula assessment (s 65) and there is a registered voluntary agreement. In both cases the liable parent’s liability to pay under the registered agreement ends. The voluntary agreement in both situations is effectively “deregistered”. The Commissioner can no longer be required to enforce the agreement.
[157] Where the s 64 situation applies (where the custodial parent has sought the deregistration) the voluntary agreement continues and so ensuring a continued obligation to pay child support. Where in s 65 a formula assessment is sought, the agreement is deregistered. The Commissioner can no longer be required to enforce the agreement. This logically follows from the fact that the liable parent has an obligation to pay child support under the formula assessment. And in that situation by virtue of s 20 the voluntary agreement itself is suspended so long as the formula assessment applies. The result of this analysis is that ss 64 and 65, therefore, can have no application to the current situation.
If there was a breach, is Mr Barnes relieved from his obligation to pay child support under the agreement for the period of suspension because of the provisions of the Child Support Act, or are the damages too remote?
[158] Mrs Barnes submits that Mr Barnes is not relieved from the consequences of paying in terms of the child support agreement by virtue of the Child Support Act. She says ultimately the damages recoverable are a question of causation and whether the supervening event of the formula assessment breaks the chain of causation.
[159] Mrs Barnes says, based on Monarch Steamship Company Ltd v Karlshamns Oljefabriker, that Mr Barnes has breached the agreement.25 Damages are recoverable for that breach. The application for a formula assessment does not break that chain of causation.
[160] Monarch Steamship deals with the issue of remoteness of damage when loss is caused by both a breach by one of the parties to a contract and the supervening operation of law. The case was concerned with a ship carrying a cargo of soya beans in 1939. The ship had been chartered by a Japanese company to transport the beans from Korea to Sweden.
[161] The ship had previously been fuelled with poor quality coal which had badly damaged the boiler. Monarch did not know how serious the damage was and the ship sailed in May 1939 planning to arrive two months later in Sweden. Because the boilers were significantly damaged, the ship could only travel at half speed and then
25 Monarch Steamship Co Ltd v Karlshamns Oljefabriker [1949] AC 196 (HL).
spent some two months being repaired. The ship was in Port Said being repaired when World War II broke out. The United Kingdom Government then ordered the ship not to go to Sweden but to sail directly to Glasgow. It arrived in Glasgow in October of that year.
[162] As it turned out no alternative soya beans were available to the company in Sweden. Additional shipping had to be arranged to transfer the beans from Scotland to Sweden. Monarch was sued for providing an unseaworthy ship. Monarch pointed to the war risk clause in the contract which said the contract would be deemed to be fulfilled upon delivery of the cargo in compliance with United Kingdom Admiralty orders. In this case into the port of Glasgow. Eventually Monarch conceded it had breached the contract by providing an unseaworthy ship but argued the damages were too remote.
[163] The issue, therefore, before the House of Lords was whether the additional shipment costs from Glasgow to Sweden were a foreseeable consequence of the breach. Mrs Barnes argued that Lord Wright in Monarch identified the fundamental principle relevant to this case when he said “the illegality was due to the appellant’s own act and is not available as a defence to the injured parties claim”.26 Mrs Barnes, therefore, argued that if the intervening statutory cause of the plaintiff’s loss is a foreseeable consequence of the breach, then it should not act as a defence to that claim.
[164] I am satisfied that the proper approach here as to whether the damage was too remote or sufficiently direct requires a close factual examination. In Monarch the House of Lords concluded that it was reasonably foreseeable that if the ship was delayed by unseaworthiness in breach of contract, war might break out (it was 1939) and the ship would therefore be prohibited from carrying the beans directly to Sweden and that Monarch would be responsible for any extra cost in transhipping the beans to Sweden.
26 At 229–230.
[165] Applying those principles to the facts of this case, it was reasonably foreseeable that if Mr Barnes breached his obligation to pay under cl 4 Mrs Barnes would require alternative support. It was further reasonably foreseeable that if Mrs Barnes required alternative support, she might apply for a formula assessment. Indeed, cl 4 of the agreement contemplates that in the absence of a payment, Mrs Barnes would apply for a Domestic Purpose benefit and in turn for a formula assessment.
[166] It is also, in my view, reasonably foreseeable that such an action might have legal consequences. Here, the legal consequence is that Mr Barnes’ liability to pay would be suspended. However, in Monarch the legal consequence was only that performance could not be effected by a British ship. Performance of the contract could still be achieved by transporting the beans from Glasgow to Sweden by using a neutral ship. The extra costs of alternative performance were, therefore, recoverable.
[167] But in this case performance of the contract could only be achieved by Mr Barnes paying Mrs Barnes $4,000 per month for child support each month. But s 20 of the Child Support Act prohibits any alternative method of achieving performance of the contract.
[168] Once a formula assessment is in place, s 20 provides that Mr Barnes’ liability to pay money towards the support of the child under the agreement is suspended. This is obviously intended to ensure that such a person in Mr Barnes’ situation is not liable for child support payments both by virtue of the voluntary agreement and the formula assessment. Parliament cannot have intended that while Mr Barnes was paying child support payments under a formula assessment, he was also accruing a large debt for child support payments under the voluntary agreement.
[169] Thus, the effect of s 20 is that Mr Barnes’ obligation to pay under the voluntary agreement does not exist while he is obliged to pay child support by a formula assessment. Performance under the contract is, therefore, suspended for that period. There is, therefore, no failure of performance and no damages recoverable.
Are Mr Barnes’ obligations to pay a half share of private school fees a child support obligation covered by the provisions of s 20 of the Child Support Act 1991?
[170] The plaintiff submits that his obligation to pay school fees in terms of the December 2008 agreement is part of a voluntary agreement for child support. The plaintiff says that the maintenance payments together with the obligations to pay private school fees are together child support payments. In terms of s 20 of the Act, therefore, the agreement between Mr and Mrs Barnes that Mr Barnes pay half the private school fees is suspended while Mr Barnes is subject to a formula assessment for child support.
[171] Child support is defined in the Act. It provides as follows:27
child support means any payment required to be made under this Act by any person towards the support of a qualifying child, whether under a formula assessment or a voluntary agreement or an order of the Court:
[172] Here, we are concerned with the parties’ voluntary agreement of December 2008. Clause five of the agreement provides as follows:
C and G agree that the children will attend private boarding schools at the age appropriate and that this cost will be split equally between them.
[173] The payment of a half share of private boarding school fees is, I consider, a payment of money toward the support of a qualifying child under a voluntary agreement. The payment of private boarding school fees covers accommodation and food at the school boarding establishment as well as a sum toward the education of the child. It is, therefore, a payment toward the support of the children. As such, it is a child support payment and, therefore, subject to suspension under s 20 where a formula assessment has been sought and obtained.
[174] I note that Mr Barnes appeared to suggest that because Mrs Barnes was not, in terms of cl 5, herself paying her half share of the children’s school fees personally this would excuse Mr Barnes. Mrs Barnes’ half share (in fact all of the school fees currently) are being paid by Mrs Barnes’ mother. There is nothing in the agreement which would prevent Mrs Barnes’ mother paying Mrs Barnes half share of the
27 Section 2, definition of “child support”.
school fees. In any event, even if this was objectionable in terms of the agreement, it would not excuse Mr Barnes’ obligation.
[175] I am, therefore, satisfied Mr Barnes’ obligation to pay a half share of the children’s boarding school fees is “the payment of money towards the support of the child” in terms of s 20(a) of the Act. Mr Barnes has now become liable to pay child support under the formula assessment.28 His liability to pay this money toward the support of his children under the agreement is, therefore, suspended while he is subject to the formula assessment.
Summary
[176] To return to the issues identified at [17]. I am satisfied:
(a)there was an agreement on 18 November 2009 to end the child support agreement (the release agreement);
(b)Mr Barnes was not in breach of his child support payments as at 18 November 2009. Payments of child support were due on the 16th of each month. Mr Barnes had by 16 November already paid his November child support payment. His “over payments” during the preceding 12 months were appropriated to his child support “account”;
(c)the release agreement was not obtained by duress nor was it an unconscionable bargain;
(d)even if the release agreement was an unconscionable bargain then Mr Barnes’ obligation to pay child support under the December 2008 agreement (both the $4,000 per month and the private boarding school fees) is suspended by s 20 of the Act from the date on which the formula assessment for child support was applied to Mr Barnes.
28 Child Support Act 1991, s 20(b).
[177] The effect of this judgment is that the plaintiff should have judgment for
$145,000 against Mrs Barnes. Mrs Barnes counterclaim/set off is dismissed.
Costs
[178] If the plaintiff seeks costs, memoranda should be filed with 21 days and the respondent to reply within a further 14 days after the expiry of the 21 days.
Solicitors:
G Mason, Barrister, Palmerston North A Barker, Barrister, Auckland
Ronald Young J
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