Gould v Timm

[2013] NZHC 2743

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2012-488-000569 [2013] NZHC 2743

BETWEEN  JANE ELIZABETH GOULD Plaintiff

ANDCHARLES VICTOR TIMM Defendant

Hearing:                   5 August 2013

Appearances:           J R Duckworth for Plaintiff

R C Mark for Defendant

Judgment:                21 October 2013

JUDGMENT OF ELLIS J

This judgment was delivered by Justice Ellis on 21 October 2013 at 4.30 pm

pursuant to R 11.5 of the High Court Rules.

Registrar / Deputy Registrar

Date………………………

GOULD v TIMM [2013] NZHC 2743 [21 October 2013]

Introduction

[1]      Ms Gould sues her former husband, Mr Timm, on an agreement reached between then under s 21A of the Property (Relationships) Act 1976 (the PRA).  On

7 February  2013  she  obtained  (summary)  judgment  for  approximately  $110,000 owing under that agreement but Associate Judge Bell declined to grant summary judgment on the further $300,000.1

[2]      There is no dispute by Mr Timm that the further $300,000 is owing on the face of the s 21A agreement (the agreement).   However he seeks to defend this aspect of Ms Gould’s debt claim on the grounds that the agreement should be set aside either “wholly or in part” under s 21J of the PRA on the grounds that giving effect  to  it  will  result  in  serious  injustice.    The  serious  injustice  relied  upon essentially comprises the inequality that has arisen as a result of subsequent events and the resulting hardship to Mr Timm.

Background

[3]      Mr Timm and Ms Gould are English.  They married in July 1985.  They have three children, two of them grown up.  In 2003 they migrated to New Zealand and lived in Kerikeri.  In England, Mr Timm had been a financial adviser and through that occupation had become a shareholder (approximately one per cent) in Money Portal Ltd, a private English company.

[4]      In New Zealand, the parties formed a family trust called the Amazonica Trust.   Upon the sale of their home in the United Kingdom, and other realisable investments, the parties advanced $675,000 to that trust.

[5]      The trust then purchased a property at Valencia Lane in Kerikeri, which became the family home.  The couple formed a company called Crafty Plants Ltd which operated an orchid business.   An orchid greenhouse was built on the trust

property and the house extended.

1      Gould v Timm [2013] NZHC 92. The $110,000 was owed by Mr Timm as trustee of his family trust.

[6]      Mr Timm and Ms Gould parted ways in December 2006.

[7]      Prior to their separation, between 2003 and 2006, the parties had gifted back to the trust $162,000 of the original settlor loan.  Thus, at the time of separation, the balance of the settlor loan owed by the family trust to the parties was $513,000.

[8]      The relationship property agreement was signed in November 2008.   Both parties received independent legal advice. There is no longer any issue about that.

[9]      The assets for division were the debt owed by the trust (now reduced to

$513,000 by debt forgiveness), Mr Timm's shares in Money Portal Ltd, his shares in Crafty Plants Ltd, insurance policies, bank accounts, motor vehicles and other family chattels.

[10]     The agreement provided that Mr Timm was to keep his Crafty Plants Ltd shares  (which  were  of  little value),  his  motor  vehicle,  life insurance,  and  bank accounts in his name, and his half share of the debt owed by the Amazonica Trust. Mrs Timm was to keep her motor vehicle, life insurance and bank accounts in her name.  In addition, the agreement provided:

6.2Jane will receive the sum of $556,500 in full and final settlement of any relationship property interest, calculated as follows:

(a)       The sum of $256,500 being the remaining balance of Jane's loan to the trust as at the date of the agreement.

(b)       $300,000 being paid to Jane in full and final settlement of any relationship property claim she may have.

6.3The sum of $556,500 is to be paid by the following manner and by the following instalments:

(a)       The Trust shall immediately assume sole responsibility for repayment  of  the $40,000 loan  secured  against the Trust property, which was obtained for Jane's benefit and which would, if not for this agreement, be Jane's sole liability.

(b)       The  sum  of  $100,000  to  be  paid  within  seven  days  of execution by Jane of this agreement.

(c)       The balance of $416,500 to be paid within two years of signing of the agreement; Jane acknowledges that $116,500 is payable by the Trust and $300,000 by Charles personally.

6.4The  sum  of  $300,000  referred  in  clause  5.2(b)  [sic]  shall  incur interest of 5% per annum.

...

6.14Jane  agrees  to  resign  as  trustee  of  the  Trust  immediately  upon execution of this agreement, and acknowledges that apart from the payments specified in this agreement she will no longer be a beneficiary of or be entitled to any future distribution whatsoever from the Trust.

[11]     Ms Gould has received the $140,000 referred to in 6.3(a) and (b) above.  The

$116,500 owed by the trust and referred to in 6.3(c) was the subject of Associate

Judge  Bell’s  judgment,  although  this  amount  has  not  yet  been  paid.    It  is  the

$300,000 for which Mr Gould agreed to be personally liable that remains at issue. [12]       Ms Gould has complied with her obligations under cl 6.14 of the agreement.

[13]     It is not in dispute that the parties negotiated the agreement on the basis of Mr Timm’s opinion that the Money Portal shares were of significant value.  There was, however, no way in which he was able to ascertain their actual value and there was necessarily,  therefore,  a  gamble  involved.    There  is  evidence  that  suggests  that Mr Timm  may have  thought  at  the  time  that  the  shares  were  worth  more  than

$600,000.   But in any event, there is no dispute that the $300,000 that Mr Timm agreed to pay to Ms Gould was intended, in a general way, to represent half the expected value of the shares.

[14]     In  2009,  however,  Money  Portal  went  spectacularly  into  receivership, through no fault of Mr Timm’s.   It is agreed that the shares are now of no value whatsoever.   That is the unforeseen event that has given rise to the present proceedings.  Mr Timm wishes to have his obligation to pay Ms Gould the $300,000 set aside.

The relevant statutory provisions

[15]     Section 21J PRA relevantly provides:

21J     Court may set agreement aside if would cause serious injustice

(1)       Even though an agreement satisfies the requirements of section 21F, the Court may set the agreement aside if, having regard to all the circumstances,  it  is  satisfied  that  giving  effect  to  the  agreement would cause serious injustice.2

(2)       The Court may exercise the power in subsection (1) in the course of any  proceedings  under this  Act,  or  on  application made  for  the purpose.

(3)       This section does not limit or affect any enactment or rule of law or of equity that makes a contract void, voidable, or unenforceable on any other ground.

(4)       In  deciding,  under  this  section,  whether  giving  effect  to  an agreement made under … section 21A … would cause serious injustice, the Court must have regard to —

(a)      the provisions of the agreement:

(b)      the length of time since the agreement was made:

(c)       whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made:

(d)       whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):

(e)       the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement:

(f)       any other matters that the Court considers relevant.

…

(emphasis added)

[16]     The word “Court” is defined in s 2 as meaning:

(a)       a Family Court; or

(b)      if another court has jurisdiction in the proceedings, that court.

[17]     And “proceedings” are defined as “proceedings under this Act, except in sections 51, 96, and 97(3)”.  None of those sections are applicable here.

[18]     Also relevant is s 21M, which provides for the consequences of invalidity under s 21J.  It says:

2      The issue of whether s 21F was satisfied was determined by Associate Judge Bell.

If an agreement purporting to be made under section 21 or section 21A or section 21B is void or is avoided or is invalid or unenforceable (including an agreement set aside under section 21J), the provisions of this Act have effect as if the agreement had never been made.

[19]     Procedurally, applications under s 21J are governed by the general provisions contained in Part 7 (ss 22 – 53) of the PRA.  Sections 22 and 24 seem particularly relevant.

[20]     Section 22 provides that:

(1)       Every application under this Act must be heard and determined in a

Family Court.

The Family Court has the power to transfer proceedings to this Court under s 22(4).

[21]     And  s  24  prescribes  time  limits  for  the  making  of  such  applications. Subsection (1)(a) states:

... an application made after a marriage ... has been dissolved by an order dissolving the marriage ... must be made before the expiry of the period of

12 months after the date on which that order takes effect as a final order:

[22]     The Court has a discretion to extend time under subsection (2).

Preliminary issue: does this Court have jurisdiction to set aside part or all of the s 21A agreement?

[23]     The  following  fundamental  points  appear  to  arise  from  the  statutory provisions to which I have just referred.

[24]     First, it is not in my view possible under s 21J “partly” to set aside an agreement.  That is confirmed by s 21M which contemplates that, following a setting aside order under s 21J the division of relationship property in toto will again be at large, and the presumption of equal sharing will apply.

[25]     Such a result appears to me to be of some significance in the present case because an application of that presumption might well result in Ms Gould owing Mr Timm a relationship property debt.  The foundation (for example) for Associate Judge Bell’s earlier decision would be in doubt.

[26]     Moreover, and as Associate Judge Bell noted in that decision, there is the further complication that the agreement here did not just deal with the relationship property issues between the parties, but dealt as well with the Amazonica Trust. How that might be unravelled would not be straightforward.  No doubt there would be further litigation (in the Family Court).

[27]     Next, it seems to me the PRA clearly envisions that the matters sought to be raised by Mr Timm in defence of what is, in reality, a simple debt claim should be dealt with by the Family Court on a specific application made to it.  There is a real argument to be made that (absent an application made in that Court and a subsequent transfer) this Court has no jurisdiction to determine the matter.  That is made quite clear from the terms of ss 22, s 21J(2) and the relevant definitions.

[28]     Relatedly, there is the question of time limits.  The parties separated at the end of 2006 and the s 21A agreement was entered into in 2008.  The Money Portal Ltd shares were known by Mr Timm to be worthless by June 2009.   He became obliged to pay the $300,000 to Ms Gould on 6 November 2010.  Although he may have told Ms Gould at about that time that he was unable to pay, at no stage either then or subsequently did he make any application to the Family Court to have the agreement set aside.

[29]     Perhaps  fortutitously  for  Mr  Timm,  it  took  six  years  before  the  parties’ marriage was finally dissolved.  Thus the time limit in s 24 does not begin to run until 18 January 2012.   Ms Gould filed her statement of claim and application for summary judgment in August 2012 and Mr Timm filed a notice of opposition raising the s 21J “defence” on 25 October 2012.  But in light of the matters to which I refer at  [25]  –  [27]  above  it  seems  likely  that  this  would  not  suffice  for  limitation purposes, because no application to the Family Court has been made.

[30]     If I am correct in the analysis above then Mr Timm would now be out of time to make a proper application in the Family Court.  The fact that he chose to sit on his hands for nearly two years (notwithstanding that it must have been obvious that a dispute was brewing) might well militate against the grant of an extension of time. But that would be a matter for the Family Court.

[31]     These matters all appear to me to be important as they go to this Court’s jurisdiction to determine the matter.  It is unfortunate that none of the points were taken on behalf of Ms Gould, although there was discussion about aspects of them with counsel during the course of the hearing.   But jurisdiction is not capable of waiver.

[32]     My own view is that unless and until there is an order of the Family Court setting aside the s 21A agreement then Mr Timm has no defence to the debt claim. The matter can, therefore, quite simply be determined on that basis.

But assuming jurisdiction, should the agreement be set aside?

[33]     In case I am wrong in the view I have reached about jurisdiction above, however, and in fairness to Mr Timm in light of the way the matter has proceeded, I propose briefly to express my views on the merits of the s 21J matter.

[34]     The applicable factors under s 21J were carefully discussed by Associate Judge Bell in his February judgment between [39] and [58].  I agree with his analysis in all respects and so do not intend to repeat it here.   At [59] the learned Judge concluded:

[59]      ... If Mr Timm’s claims of injustice were based only on the fact that he entered into the agreement not knowing the value of the shares and that they turned out to be worth much less than he would ever have expected, Mrs Timm would be on strong ground in arguing that Mr Timm had knowingly taken the risk on the value of the shares.   The fact that he has received less than he is entitled to under the act is not enough to downgrade the binding effect of the agreement.  However, there is another element in Mr Timm’s case – the hardship argument.  His case is that he would have very real difficulties raising the funds to pay out Mrs Timm.  This aspect was not fully explored in evidence, but there is enough to suggest that even if he were able to have recourse to trust assets (after the trust had met its liabilities to Mrs Timm), he  may be left with relatively little of substance.    In  a summary judgment application, full evidence on the point is not required. The hardship factor means that there is proper room for argument  that, notwithstanding the provisions of the agreement and that he knowingly took a risk on the value of the shares, he should not be held to the agreement. Mrs Timm has not shown that that is not arguable.  Instead the case should go to hearing for a fuller consideration with more evidence than has been provided so far.   That fuller consideration will of course also take into account injustice to Mrs Timm in not upholding the agreement.

[35]     Accordingly, at the hearing before me, Mr Timm did give evidence about hardship.  I largely accept that evidence which I do not propose to detail here.  In short, the Kerikeri property is for sale but the market for such properties is both small and depressed.  His businesses are nascent and not yet doing well.  He said that at the moment he simply cannot afford to pay the $300,000.  As I have said, I accept that.

[36]     For her part, Ms Gould appeared to think that Mr Timm does have the means to pay the debt, or at least to reach some compromise with her about it.  She spoke of possibly  receiving  a  subdivided  part  of  the  Kerikeri  property  in  lieu,  although Mr Timm says there are difficulties with that.  Both parties struck me as somewhat obdurate in their positions.   My sense, however, was that Ms Gould would not, ultimately, wish to see Mr Timm bankrupted, and I hope that is the case.

[37]     As  Associate  Judge  Bell  noted,  there  are  other  cases  where  potential bankruptcy of the liable party has been regarded as grounds for setting aside: an agreement.3    That case was, however, decided under the original section that had a lower “injustice” threshold.

[38]     Like Judge Bell, I consider that the complete worthlessness of the shares together with Mr Timm’s present impecuniosity, are the factors that would weigh most heavily in favour of setting aside the agreement here.  Against that, however, can be balanced Mr Timm’s voluntary assumption of risk, the considerable effluxion of time and Mr Timm’s continued inaction.

[39]     There is the further (and in the end, compelling) point that the consequences of setting aside this agreement would be difficult.   Because Mr Timm, I think, proceeded on the basis that the part of the agreement requiring him to pay the

$300,000 could somehow be severed and set aside, counsel did not really turn their minds to this issue.  I have already indicated my view that s 21J does not appear to permit such a course; everything would once more be at large.  I have set out some

of the problems that most obviously then arise at [24] to [26] above.

3      Moore v Moore (1999) 18 FRNZ 548 (FC).

[40]     Accordingly, even if I had jurisdiction to set aside the agreement I would decline to do so.

Conclusion

[41]     I find that Mr Timm has no defence to Ms Gould’s debt claim against him.

That is because:

(a)       He is contractually obliged to pay the debt by the s 21A agreement.

(b)      He has made no application to the Family Court to have the s 21A

agreement set aside and is now out of time to do so.

(c)      Unless  such  an  application  had  been  made  and  the  proceeding transferred, this Court has no jurisdiction to determine such an application.

(d)Unless  and  until  the  s  21A  agreement  is  invalidated,  it  stands according to its terms and the money is owing.

(e)      Even if this Court did have jurisdiction, I would not have set the agreement aside.   While I accept that its operation will give rise to hardship, that is outweighed by the other factors I have referred to at [38] and [39] above.

[42]     Mr Timm must therefore pay to Ms Gould the sum of $300,000 together with interest calculated at a rate of five per cent per annum pursuant to cl 6.4 of the agreement from 7 November 2008 to the date of judgment.

[43]     Ms Gould is also entitled to her costs on a 2B basis.

Rebecca Ellis J