Graham v Fowler HC Auckland CIV 2009-404-6470
[2010] NZHC 1259
•20 July 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-6470
UNDER the Property (Relationships) Act 1976
IN THE MATTER OF an appeal under s 39(2) of the Act
BETWEEN CHRISTINE SARAH TERESA GRAHAM Appellant
ANDBARRY ROBERT FOWLER Respondent
Hearing: 24 and 25 February 2010
Appearances: M J Southwick QC for Appellant
D R I Gay for Respondent
Judgment: 20 July 2010
JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on
21 July 2010 at 12.30 p.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Glaister Ennor, PO Box 63, Shortland Street, Auckland
Craig Griffin & Lord, PO Box 9049, Newmarket, Auckland
Copy to:
M J Southwick QC, William Martin Chambers, 152 Anzac Avenue, AucklandD R I Gay, PO Box 717, Auckland
GRAHAM V FOWLER HC AK CIV-2009-404-6470 20 July 2010
Table of Contents
Para No
Introduction [1]
The F & G Ltd Debt to Mr Fowler of $354,924 [10]
Appellant’s argument The Judge’s reasoning Discussion
[11] [17] [20]
Section 9A(3) [28] Sustenance of separate property – s 17 [33] Ms Graham – debt to F & G Ltd [39] Mustang Charters Ltd [47] Dissipation of relationship property [61] Coco income [80] Sale of property [96] Standing back [105] Result [110]
Introduction
[1] This is an appeal under s 39(2) of the Property (Relationships) Act 1976 (“the
Act”) against a decision of Judge I A McHardy in the Family Court at Auckland.
[2] In a lengthy judgment delivered on 19 December 2008 the Judge identified
18 separate areas of dispute between the parties. They have accepted the Judge’s decision in respect of some of those matters, but a substantial number have now been pursued on appeal.
[3] The parties commenced living in a de facto relationship in June 2000 and separated on 27 February 2006. Shortly after their relationship commenced in June
2000, Mr Fowler signed a relationship property agreement with his former wife under which he retained certain assets including the former matrimonial home situated in Mt Eden which he sold in March 2002. In the meantime, the parties had acquired what the Judge held was their family home at 10/171 Tamaki Drive, Orakei. That property was purchased by Ms Graham and Mr Fowler together; each contributed money and raised separate loans to provide the balance of the purchase price.
[4] In April 2002 Mr Fowler incorporated a company called Mustang Charters Ltd with a Mr and Mrs Adams, to own and operate a charter boat business. There are issues between the parties as to whether advances that Mr Fowler made to that company should be regarded as his separate property, as the Judge held.
[5] In October 2002 the parties received advice from accountants, Davidson & Associates, concerning their financial affairs. The parties are apart as to what their intentions were in implementing that advice. Ms Graham claims that they decided that all their property would be combined and that they would share in any income derived from it equally. Mr Fowler on the other hand asserts that there was an agreement that his prior investments would remain separate property, and only future investments would be joint. The Judge essentially accepted Mr Fowler’s evidence.
[6] In November 2002 the parties incorporated a company called Fowler & Graham Ltd (“F & G Ltd”). That company purchased an apartment at 2/31 Tamaki Drive in Mission Bay. There are disputes about entitlement to a debt in the sum of
$354,924, which the Judge found was owed by the company to Mr Fowler. Other issues raised in relation to F & G Ltd concern the applicability of s 9A(3), and whether Ms Graham can claim an increased share of the relationship property under s 17 of the Act having sustained Mr Fowler’s advance to the company. There is a further issue concerning a debt that the Judge found Ms Graham owed to F & G Ltd.
[7] Ms Graham also asserts that Mr Fowler has by action or inaction caused a diminution in the value of the relationship property, arguing that there has been dissipation in terms of s 18C of the Act for which she is entitled to compensation. That argument arises out of the alleged failure by Mr Fowler to properly maintain
2/31 Tamaki Drive which he occupied after the parties separated, and it is alleged that he failed to maximise income from the apartment or apply income in reduction of the mortgage on it.
[8] Mr Fowler owned two aircraft which he operated as a separate business which he called “Coco Investments”. There are issues as to both the extent of and entitlement to the income produced from that business.
[9] In addition, there is a dispute as to the terms on which the Judge ordered the sale of 2/31 Tamaki Drive.
The F & G Ltd Debt to Mr Fowler of $354,924
[10] In monetary terms, the most substantial issue between the parties was a debt in the sum of $354,924 that the Judge found was an advance by Mr Fowler to F & G Ltd which the company was liable to repay. This was, consequently, to be taken into account in valuing the shares in the company. That sum was applied together with money raised by way of mortgage to fund the purchase by the company, for
$800,000, of 2/31 Tamaki Drive, which was the company’s only asset. In arriving at his conclusion the Judge discussed Mr Fowler’s evidence as to the sources of the funds. He found that the money had come from Mr Fowler’s separate property and that the payments that had been made were advances to the company that had been so recorded in the company’s accounts.
Appellant’s argument
[11] The appellant attacked the Judge’s conclusion that the debt was Mr Fowler’s separate property on the principal ground that the debt was property acquired for the common benefit of both parties and was therefore relationship property under s 8(1)(ee) of the Act. Ms Southwick QC submitted that there were two primary relationship property assets arising in respect of the company. One was the shares, which were acknowledged to be relationship property. The other was the debt back following the advance of $354,924 by the respondent. Ms Southwick noted that this was an interest-free loan. She argued that the debt had been acquired for the common benefit of the parties to facilitate the purchase of the property, which inevitably advantaged both of the parties in their shareholding. The provision of the funding by Mr Fowler had enabled F & G Ltd to raise a smaller loan, and had enhanced the value of the parties’ shares in the company.
[12] In developing her argument Ms Southwick pointed to evidence that both parties had behaved as if they were engaged in a joint venture, pooling their assets
for a common purpose. Both parties had serviced the bank loan that the company had taken out to fund the balance of the purchase price. That loan had been secured not only against 2/31 Tamaki Drive but also against the family home at 10/171
Tamaki Drive. Both parties had also given personal guarantees of the loan. It was Ms Graham’s evidence that she applied all of her employment income and bonuses into repayment of the mortgage, and that all of their available funds had been devoted to that. In addition, a “leaky homes” claim had been made in relation to
2/31 Tamaki Drive in respect of which the parties had acted in concert.
[13] Ms Southwick also referred to the fact that after the parties had agreed to purchase 2/31 Tamaki Drive, they consulted a firm of chartered accountants about financial planning. In a letter dated 24 October 2002 the accountants, Davidson & Associates Ltd, wrote:
You have contracted to purchase a property for $800,000 which will be available for residential rental. At this stage it is possible that in two years time you may decide to live in this property, but in the interim will remain resident in the two bedroom unit. We also discussed the possibility of forming a Trust to protect your assets, especially given the risks involved in operating aircraft in your own name.
We would suggest that you form a LAQC for the purchase of the new property, with a shareholding of 99% to Barry and 1% to Christine. This shareholding will recognise the extra contribution that Barry will make due to his higher income, while giving Christine an interest in the property. If we set the quorum in the Constitution to make all the decisions unanimous, it will give Christine an element of control. The LAQC status of the company will mean that 99% of any losses flow through to Barry and any capital gains will be available for tax free distribution.
[14] Ms Southwick submitted that this showed that there was a common intention to “optimise the result”, and there would have been no logic in Ms Graham agreeing to the responsibilities of directorship whilst receiving only one per cent of the shares unless it was clearly understood that the venture was entirely joint. She also noted that the letter from Davidson & Associates made no mention of the need to reflect the alleged separate property contribution made by the appellant.
[15] Ms Southwick placed considerable emphasis on the accounts of F & G Ltd, noting that the accountant who had prepared them, Ms Lynley Pickering (Mr Fowler’s sister) had conceded that the shareholders current accounts had initially
shown one figure as a combined total. Ms Southwick submitted that this implied that the advance made to fund the purchase of 2/31 Tamaki Drive had originally been regarded as a debt owed jointly to both parties. The accounts were only altered after the parties separated to show that the advance had been from Mr Fowler only. There was also evidence from a forensic accountant, Mr Appleby, who expressed the opinion that not only the shareholders current accounts had been altered, but in fact all of the company’s records had been reprocessed in the form of a new ledger in March 2006. In Ms Southwick’s submission, the Judge had not properly considered the facts that showed “the loan was always intended [in] truth as an exercise to benefit the parties jointly”.
[16] There was no suggestion that Mr Fowler had not made the advances in question. The appellant’s argument was that he had done so because the parties had agreed to embark on a joint venture, pooling their assets for the purpose. It was certainly the appellant’s evidence that in November 2002 the parties had decided to commit to a life together and combine their financial position, restructuring all of their finances jointly to obtain the best tax result. On the other hand, it was Mr Fowler’s evidence that they had not “combined” their finances, but only committed to treat future investments as joint ventures. He claimed that they had agreed that all separate investments made up to that time would remain separate, and only future investments would be joint. The discussions with Davidson & Associates had assisted “with the structures and decisions” subsequently implemented.
The Judge’s reasoning
[17] It appears from observations that he made at [86] and [87] of the judgment that the Judge accepted the appellant’s contentions based on Mr Appleby’s evidence that the accounts of F & G Ltd had been reconstructed after the parties’ separation. However, he held at [88] that the evidence confirmed Mr Fowler’s position as to the advances and that the company accounts (presumably, as reconstructed) clearly showed advances being made from the applicant to the company. He continued (again at [88]):
Unless the respondent can establish that those advances have lost their status as separate property they remain the company liability repayable to the applicant. The recording of these advances as being a combined total does not result in there being no other explanation than it is relationship property. One needs to look at the factual situation to be able to determine this. The facts establish that the advances should have been recorded as having come from the applicant.
[18] Later in the judgment (at [117]) the Judge stated that there was no evidence conclusively proving an intention “to transfer his separate property to relationship property” as alleged by Ms Graham. He accepted that Ms Graham may have viewed the position in that way, but if so she had not been entitled to make that assumption. He then said:
[118] I accept the explanation given by the applicant as to the various movements of his separate property on the basis that its separateness has been preserved. My finding is that for the applicant’s advance to F & G to have lost its separate property status, the application would have had to have done more than simply make the payment. There is no evidence to indicate that the applicant saw or intended this transaction as being a transfer of his separate property to relationship property.
[119] The accounting corrections that were done to the financial statements by the applicant’s sister do not, in my view, change things. Whether she prepared the accounts initially in error, or simply did not turn her mind to the implications, is not relevant in my view. The applicant is still able to show his payments into the company and without more, he is entitled to expect that the company will hold those advances on his behalf.
[19] Ultimately, the Judge did not accept, on the facts, that Mr Fowler intended effectively to make a gift to the company of the sum that he advanced to enable the purchase of 2/31 Tamaki Drive.
Discussion
[20] It is plain from Austin, Nichols & Co Inc v Stichting Lodestar[1] that this Court’s obligation on appeal is to consider the facts for itself to ascertain whether the Judge was correct in his conclusion that the advance retained its status as separate property.
[1] Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 (SC).
[21] It is as well to frame the argument about the status of the advance by reference to the relevant statutory provisions. Section 8(1) of the Act defines relationship property. The relevant paragraph of the subsection for present purposes is s 8(1)(ee). It provides that relationship property consists of:
… all property acquired, after the marriage, civil union, or de facto relationship began, for the common use or common benefit of both spouses or partners, if —
(i)the property was acquired out of property owned by either spouse or partner or by both of them before the marriage, civil union, or de facto relationship began; or
(ii) the property was acquired out of the proceeds of any disposition of any property owned by either spouse or partner or by both of them before the marriage, civil union, or de facto relationship began;
[22] The relevant “property” here is the debt that the company owed Mr Fowler (if he is correct) or both parties jointly (if Ms Graham is correct). To bring the debt within the ambit of the provision, Ms Graham must establish that it was property acquired “for the common use or common benefit of both … partners”. This is a question of both law and fact.
[23] The legal difficulty that confronts the appellant was highlighted by Mr Gay when he emphasised that it was the company that had received the advance, and would derive any benefit from it. Any benefit to the parties would accrue to them in terms of the value of the company’s assets, not its debt. While the shares in the company could be regarded as having been acquired for the common use or benefit of the parties it would be straining the language of the statute to conclude that the debt had been acquired for their common benefit.
[24] Ms Southwick submitted that the debt had enabled the company to raise a smaller loan from the bank and that constituted a common benefit for the parties. However, that argument seems to me to overlook the fact that the company is a separate corporate entity. It is the company that derives that benefit, not the parties; and any common benefit of the parties would be limited to the impact on the value of their shareholding. The parties do not derive a benefit from the company being able to borrow a lesser amount from the bank since the only reason that can be claimed is because Mr Fowler separately provided the funds the company would otherwise
have been required to borrow from a third party. In this scenario, the only person benefiting is Ms Graham, and to the extent she benefits, Mr Fowler does not.
[25] This analysis means that the Judge was correct to enquire whether the facts revealed an intention on the part of Mr Fowler effectively to gift half of the contribution that he made to fund the acquisition by F & G Ltd of 2/31 Tamaki Drive. Since it was plain that Mr Fowler had made the contribution from his separate property, it would remain separate property unless s 8(1)(ee) applied. In my opinion the Judge was right to conclude that the evidence did not establish that Mr Fowler intended to make a gift to fund the acquisition because:
a) The facts that both parties serviced the bank loan in respect of the property, that the loan was secured over both 2/31 Tamaki Drive and the family home and that the parties co-operated in respect of the leaky homes dispute are equally consistent with both Ms Graham’s and Mr Fowler’s position in respect of the contributions from the latter’s separate property.
b)There is nothing in the Davidson & Associates’ letter which supports Ms Graham’s contentions. The suggested proportion of share ownership in the company (99 per cent to Mr Fowler, 1 per cent to Ms Graham) is consistent with the fact that his financial commitment was in reality much greater. I do not find it significant that there was no mention of that in the letter since the context of the reference to the shareholding was taxation implications.
c) Ms Graham’s assumption of the responsibilities of a director is explicable on the basis that the parties would share equally in any financial gains made in future in respect of the company’s assets. Further, since the property was the company’s only investment at the time and Mr Fowler had made a substantial advance from his own separate property, it is hard to see much significance, in terms of risk or duty, in the assumption by Ms Graham of the role of director of the company.
d)In agreement with the Judge I do not consider that the accounting evidence establishes Ms Graham’s “joint venture” proposition in respect of the company’s purchase of 2/31 Tamaki Drive. While the shareholders’ current accounts had originally shown one figure as a combined total, Ms Pickering explained that she had had little time to prepare the accounts, that she had incomplete information and she had simply combined the total contributions, intending to revisit the issue when time allowed. In fact it was not until two years after preparation of the first year’s accounts that the true position was shown in the company’s records. Again, Ms Pickering put this down to a combination of inadvertence and a lack of time. Ms Southwick essentially invites the Court to infer that the shareholders’ current accounts originally prepared properly reflected the parties’ intention to pool all their resources, and when the accounts were subsequently changed to reflect the sources of the funds originally contributed to the company, Ms Pickering had simply been acting under Mr Fowler’s instructions. Ms Pickering was asked in cross-examination whether she had checked with Ms Graham before she amended the accounts and she said that she did not believe so. But she was not challenged on her evidence that she originally had incomplete information and had shown one combined total for that reason. Further, it was not put to her that the original accounts had been correct or that she had changed the position shown at Mr Fowler’s direction. In the circumstances I see no reason to take a different view on the accounting evidence than that of the Judge in the Family Court.
[26] For these reasons I would not differ from the Judge’s conclusion that Mr Fowler had made the advances in question and that the company’s records as altered properly recorded him as having advanced the sum of $354,924.
[27] I consider that sum remained Mr Fowler’s separate property.
Section 9A(3)
[28] Section 9A(3) provides as follows:
(3)Any separate property, or any proceeds of the disposition of any separate property, or any increase in the value of, or any income or gains derived from, separate property, is relationship property if that separate property or (as the case requires) those proceeds or the increase in value or the income or gains are used—
(a)with the express or implied consent of the spouse or partner that owns, receives, or is entitled to them; and
(b) for the acquisition or improvement of, or to increase the value of, or the amount of any interest of either spouse or partner in, any property referred to in section 8(1).
[29] Ms Southwick argued that by making the advance to the company Mr Fowler had used his separate property so as to increase the value of the shares in F & G Ltd. That had the consequence that the advance became relationship property.
[30] Mr Gay submitted however that the advance did not improve the value of the parties’ shares in F & G Ltd; in the company’s balance sheet, the new credit had simply been matched by an equal debt.
[31] I accept Mr Gay’s submission. Since the company’s only asset was the property at 2/31 Tamaki Drive, the purchase of the property must notionally have enhanced the value of the shares in the company. But the enhanced value so arising cannot logically have exceeded the debt back to Mr Fowler.
[32] I reject this ground of appeal.
Sustenance of separate property – s 17
[33] A further ground of appeal advanced by the appellant sought to rely on s 17 of the Act which provides, so far as is relevant:
17 Sustenance of separate property
(1) This section applies if the separate property of one spouse or partner
(party A) has been sustained by—
(a) the application of relationship property; or
(b) the actions of the other spouse or partner (party B). (2) If this section applies, the Court may—
(a)increase the share to which party B would otherwise be entitled in the relationship property; or
(b)order Party A to pay party B a sum of money as compensation.
[34] Ms Southwick submitted that the actions of both parties had sustained F & G Ltd’s debt to Mr Fowler of $354,924. This was because both parties had provided guarantees, and provided security over the family home to enable the company to borrow the amount necessary to purchase 2/31 Tamaki Drive. A bank loan of
$500,000 had been raised by F & G Ltd, and both parties had managed the company’s affairs efficiently and serviced the loan until they separated. Consequently, the company’s ability to repay the loan to Mr Fowler was never at risk. Ms Southwick argued that their actions had protected Mr Fowler’s investment, in effect sustaining the $354,924 advance. She submitted that in the circumstances the Court had and should have exercised on a broad and just basis, the powers given by s 17(2) of the Act. These arguments do not appear to have been advanced in the Family Court, and consequently find no mention in the judgment.
[35] F & G Ltd’s bank loan was serviced by the company, albeit that the parties put it in funds for that purpose.
[36] However, Mr Gay submitted that the chose in action (the $354,924 loan advanced by Mr Fowler) had not been added to, it was F & G Ltd that met the mortgage commitments and there was no proximity between the parties’ conduct in which they directly managed and possibly “sustained” F & G Ltd and the chose itself. Mr Gay also pointed out that since the issue was not raised in the Family Court there was no evidence as to whether the debt owed by F & G Ltd would have been at risk.
[37] I accept that had the parties not ensured that F & G Ltd was able to meet its mortgage commitments in respect of the $500,000 that in turn could have meant that
the company’s indebtedness might have increased to the point where there could have been an issue about its ability to repay the debt due to Mr Fowler. However, I do not consider that it can be said that ensuring F & G Ltd could meet its responsibilities to the bank in respect of the $500,000 had the effect of “sustaining” Mr Fowler’s advance. Once again, Ms Southwick’s argument effectively puts on one side the fact that F & G Ltd was a corporate entity distinct from the parties themselves. The actions that they took, applying relationship property to the company, had the effect of ensuring that it was able to meet its debts. The company would also benefit to the extent that the property which was its only asset increased in value, and its equity in the property grew. The result was that the company’s asset position was protected or enhanced. Both parties benefited from that in terms of the company’s share value.
[38] That does not have the result that Mr Fowler’s loan was sustained. What was “sustained” if anything was the company itself, and its ability to pay its debts. That is a different concept from saying that the debt itself, or the loan which comprised the debt, was itself sustained. I do not consider that it is apt to analyse the position as Ms Southwick contended and I reject this ground of appeal.
Ms Graham’s debt to F & G Ltd
[39] In December 2000 the parties purchased 10/171 Tamaki Drive, Kohimarama as tenants in common. As noted earlier the Judge held that this was the family home. Each party contributed cash and raised separate loans, that were secured by one bank mortgage over that property to fund the purchase price. Mr Fowler repaid his loan (which stood at $56,520) in March 2002 with funds derived from the sale of the separate property in Mt Eden that he had owned prior to commencement of the relationship with Ms Graham.
[40] When 2/31 Tamaki Drive was purchased in November 2002 F & G Ltd raised a loan of $500,000 from the Bank of New Zealand. Contemporaneously the company advanced the sum of $58,731 to the appellant. It was able to do this because it did not require all of the $500,000 to fund the purchase of 2/31 Tamaki Drive. The Judge held that Ms Graham used the $58,731 to repay her outstanding
loan on 10/171 Tamaki Drive. This was in accordance with the recommendations made by Davidson & Associates, who noted that the interest she was paying on that loan was non-deductible. As the Judge noted, this debt was not secured over the family home; the money was part of the funds borrowed by F & G Ltd from the Bank of New Zealand and secured over 2/31 Tamaki Drive.
[41] In the Family Court, Ms Graham contended that because of the joint venture on which the parties had embarked, the loan from F & G Ltd should not be regarded as a debt from her to the company. The Judge said at [153] that there was “no evidence which would suggest that the parties turned their mind to this loan at the time there was discussions about combining their bank accounts and looking at joint investments”. He considered that Ms Graham remained liable to the company in respect of the debt.
[42] Ms Southwick submitted that the loan recorded in the books of F & G Ltd was for the purpose of paying off a debt directly related to the purchase of the family home. She argued that it was artificial and unfair to suggest that the action of substituting the existing family home debt by a new debt that had the effect of saving money for both parties, meant that the loan became a separate debt of Ms Graham. Any debts existing at the date of separation which related to the financing of the family home should be joint debts just as the sole proceeds are jointly owned. She submitted that if the Court concluded nevertheless that the debt was to be regarded as Ms Graham’s debt then s 9(4) of the Act should be applied and it would be just in the circumstances to treat the property as relationship property.
[43] Mr Gay pointed out that Ms Graham’s personal debt in respect of the family home had been repaid in November 2002. The debt to F & G Ltd was incurred at that stage and not before. While accepting, as Ms Southwick submitted, that there was a tax advantage to both parties because of F & G Ltd’s status as a loss attributing qualifying company Mr Gay noted that half of the value of the loan (i.e.
$29,365) would be returned to Ms Graham on the liquidation of F & G Ltd. He argued also that s 9(4) could not apply to a personal debt, submitting that s 20 of the Act constituted a complete definition or code in respect of personal and relationship debts and made no reference to s 9(4).
[44] Quite apart from the issues raised by Mr Gay, I do not see any role for s 9(4) in the present circumstances. The provision only applies to property of the kinds set out in paragraphs (a) and (b), i.e. property acquired by either partner while they are not living together as parties, or property acquired after the death of one partner by the survivor as provided in s 84. Even if the debt could appropriately be regarded as “property” for the purposes of s 9(4), neither paragraph (a) or (b) would apply.
[45] Ms Southwick did not refer to any other provision of the Act that has the effect of making Ms Graham’s debt to F & G Ltd a relationship debt. It does not appear to be covered by any of the paragraphs within the definition of “relationship debt” in s 20(1). There is in fact, no proper basis on which the loan can be regarded as other than Ms Graham’s personal debt and in that respect it may be observed that she is on an equal footing with Mr Fowler who repaid the loan he took out to fund the purchase of the family home out of separate property.
[46] I reject this ground of appeal.
Mustang Charters Ltd
[47] Mustang Charters Ltd (“MCL”) was incorporated in April 2002. Mr Fowler owned half of the shares in the company. The balance was owned by a friend and his wife, Mr and Mrs Adams. The company was incorporated for the purpose of purchasing a boat and engaging in a charter boat operation. From time to time the boat was used for private purposes by Mr Fowler and Ms Graham, although there was a dispute about how often that occurred.
[48] Between 22 April and 3 December 2002 a number of advances were made to MCL out of Mr Fowler’s separate property, and there were also advances made out of relationship property. Ms Graham complains that the Judge erred when he held that Mr Fowler was entitled to have the sum of $25,694 repaid to him as a partial repayment of advances that he had made over the period from 22 April to 14 October
2002 out of separate property totalling $28,150 (only $25,694 was available in the company with which to make repayment).
[49] There was another advance, initially in the sum of $75,000, made, repaid and then partially refinanced as explained by Mr Fowler in paragraph 10 of his affidavit of 28 July 2006:
10. The investment as a shareholder in Mustang Charters Ltd (“Mustang”) was another of my separate property investments, which was made in April 2002.
a.The initial bank loan (Loan 3007) was for $75,000 and not $70,000, and I borrowed that sum from the BNZ, and advanced it as a shareholder loan to Mustang in May 2002.
b.Christine and I agreed that from November 2002, we would look at making any future investments as joint investments. There was by that time approx $59,200 owing on my BNZ loan (described at [20(j)] of my first affidavit), so we arranged a new loan of $70,000 from BNZ (Loan 3010), which was applied:
i. To repay the $59,200 owing on the original $75,000 BNZ
loan, and
ii. To advance a further $10,000 to Mustang.
iii. The $800 difference was retained in F & G (after the loan advance was mistakenly credited first to F & G).
c.We agreed that the new $70,000 BNZ loan would be regarded as a joint loan, and that the new advance to Mustang – being 10,000 +
59,200 + the $800 – would be regarded as a relationship asset.
d. We treated this new loan as a joint investment, and the interest was paid from our joint incomes, which were credited to the F & G rapid repay account. Each month we would deduct (and credit to our -00 joint cheque account)
i. a sum to cover our joint living expenses.
ii. The amount required to pay the instalment on the Bank Loan
3010.
e.But we never acquired a half share in Mustang’s boat. Neither did my shares in Mustang become relationship property, and nor did my first advances to Mustang ($29,250 from Coco accounts, and
$14,250 from my personal savings account), which were made from my separate property.
[50] Mr Fowler also pointed out in his affidavit that Ms Graham had made no payments in respect of the $75,000 loan. It was the subsequent loan of $70,000 that was serviced out of a joint account and had ultimately been repaid by MCL and
advanced to F & G Ltd to enable it to meet body corporate levies. It was treated throughout as relationship property.
[51] There have been various shifts in the arguments advanced on behalf of Ms Graham as to why this aspect of the judgment is incorrect. In the notice of appeal it was alleged that the Judge had erred in finding that a separate property debt totalling $28,150 was properly repayable to the respondent as a priority over a debt due to the parties jointly. Then, in amended points on appeal that were filed on
21 December 2009, it was alleged that the acquisition of shares in MCL was part of the parties’ joint venture and that in the absence of any written agreement to the contrary, all contributions to that venture had also been joint and hence repayable jointly. In the first synopsis of argument that Ms Southwick filed she alleged that the judgment was incorrect in three respects. First, it had failed to take into account
$31,378 being funds advanced and “unaccounted for”. Second, she submitted that it had taken no account of the sum of $14,250 relationship property that had been advanced. Third, she submitted that it took no account of the servicing of the mortgage which had been raised by Mr Fowler to provide some of the funding for the company and secured over the family home.
[52] Ms Graham’s joint venture argument cannot succeed here for the same reasons as those already discussed in dealing with the F & G Ltd debt to Mr Fowler. As to there being unaccounted for funds, Mr Gay in a letter that he had written to Ms Graham’s then counsel on 21 April 2006 had included a schedule as appendix 4 which detailed the advances made to MCL from time to time, and the sources of the funds. The total advanced was recorded in the appendix as being $127,400. Ms Southwick relied on accounts that had been prepared by Davidson & Associates showing the financial position of MCL as at 31 March 2005. That recorded shareholders advances from Mr Fowler of $129,528. It was on this figure that she relied in respect of her argument about unaccounted for funds.
[53] Mr Gay’s letter of 21 April 2006 was attached to Mr Fowler’s first narrative affidavit sworn on 15 June 2006. It was amongst the material considered by the Judge and mentioned in the judgment. Ms Southwick did not present any argument designed to show that the appendix was incorrect. As Mr Gay pointed out, it
accounted for all but about $2,000 of the shareholders advances referred to in the Davidson & Associates accounts for MCL as at 31 March 2005. There is no real basis for suggesting that the Judge erred in this aspect of the judgment.
[54] As to the allegation that the Judge took no account of the sum of $14,250 which was relationship property, advanced to MCL, Mr Gay responded that it had subsequently been acknowledged by Mr Fowler as relationship property and accounted for in the repayment of the mortgage over the family home that secured the initial $75,000 loan that Mr Fowler raised to fund the advance to MCL. I accept that submission.
[55] The argument that the Judge had not taken account of the servicing of the mortgage that had been secured over the family home also cannot succeed. After the initial $75,000 loan was repaid the subsequent loan was a relationship debt and was treated as such having been applied exclusively for relationship purposes by being on-advanced to F & G Ltd. Ms Southwick submitted that the Judge’s decision had the effect of prioritising Mr Fowler’s debt unfairly. However, there was no effective challenge to the Judge’s conclusion that property totalling $28,150 had been advanced to MCL by Mr Fowler out of his separate property.
[56] Ms Southwick also suggested in her second synopsis that the financing of the shares in MCL had resulted in an intermingling pursuant to s 10(2) of the Act with the result that it would be unreasonable to regard the debt to Mr Fowler as a separate property debt. While evidently accepting that Mr Fowler could show the payments totalling $28,150 from his separate property, Ms Southwick argued that the contributions made by the parties out of their relationship property had enabled the purchase to occur and they had met the relevant mortgage outgoings. She submitted it would be “iniquitous” in the circumstances not to rule either that Mr Fowler’s advance out of personal property had been “joint” or that intermingling had occurred in the overall arrangement made. Effectively, as Mr Gay noted, those submissions treated the various advances made to MCL as if there had really only been one loan. He submitted, correctly in my view, that s 10 cannot be applied in the present circumstances because the money advanced by Mr Fowler out of separate property was not within any of the categories of property set out in s 10(1)(a)-(c). In any
event, as he also submitted, there had been no “intermingling with other relationship property” since the funds were held by a separate entity, MCL.
[57] Another argument raised by Ms Southwick in her second synopsis was a suggestion that the Court should hold that the purchase of the shares was for the common benefit of the parties and therefore relationship property under s 8(1)(e). There are a number of problems with that argument. First, it relates to the shares, and the shares in MCL were effectively valueless because the company’s liabilities when the parties separated excluded the value of its sole asset, the boat. In any event, there is no factual finding by the Family Court that the shares in MCL were acquired for the joint benefit of the parties, and I would not be prepared to make such a finding now. I note that the shares were owned only by Mr Fowler when the company was incorporated. The discussions upon which Ms Graham relied about pooling resources and making joint investments occurred later in time.
[58] It must also be remembered that the advance by Mr Fowler which the Judge has held should be treated as his separate property, was clearly shown to have been advanced by him out of his separate property. This is a distinct element of property from the shares in MCL.
[59] Finally, Ms Southwick attempted to rely on s 9(4), arguing that it was “just in the circumstances”, if the Court held that the advance was separate property, to treat it as relationship property. However, as I have earlier held in relation to Ms Southwick’s argument about Ms Graham’s debt to F & G Ltd, s 9(4) only applies in respect of the property referred to in paragraphs (a) and (b). Neither paragraph applies here.
[60] For these reasons, I reject this ground of appeal.
Dissipation of relationship property
[61] In the Family Court, Ms Graham contended that Mr Fowler had caused losses to the parties after they separated for which she was entitled to be compensated
under s 18C of the Act. Issues raised concerned Mr Fowler’s failure to allow use of the proceeds of the sale of 7/171 Tamaki Drive (which occurred on 31 March 2006) to pay body corporate fees owed in relation to 2/31 Tamaki Drive and to pay off other joint debts of the parties. Ms Graham also complained that Mr Fowler had refused to allow the Bank of New Zealand to fix the interest rate on their borrowings with the consequence that an additional two per cent had been charged between November 2006 and August 2007. Further, Mr Fowler had occupied 2/31 Tamaki Drive from September 2007 without paying rent and had received rental from a tenant which had not been accounted for to the company.
[62] After reviewing the rival arguments of the parties, the Judge rejected Ms Graham’s contentions. He thought that she had made unreasonable demands, arising out of an erroneous view of the factual situation. Further, delays to which she had referred in seeking compensation were not all the responsibility of Mr Fowler.
[63] Ms Graham now pursues similar arguments on appeal, raising in particular four issues:
(a) An alleged failure by Mr Fowler to properly maintain 2/31 Tamaki Drive which he continues to occupy.
(b) His failure “to take note of LAQC implications”.
(c) His failure to maximum income from the apartment.
(d)This failure to apply income, including his own income, to the mortgage over the property.
[64] Ms Southwick acknowledged that the LAQC issue was a new one. It concerns the risk of a “claw-back” by the Inland Revenue Department in respect of depreciation claimed, having regard to Mr Fowler’s occupation of 2/31 Tamaki Drive. Ms Southwick conceded that this was not an issue raised on the points of appeal. Mr Fowler accepts that rent must be paid, as I will later discuss. I note in
any event that there is no indication that the Inland Revenue Department has taken or intends to take any steps. Since no issue has arisen, it would not be appropriate to make any order in respect of compensation under s 18C of the Act, and I do not discuss that issue further.
[65] As to the allegation that Mr Fowler had failed to maintain the property at
2/31 Tamaki Drive, that issue was evidently not raised in the Family Court as a dissipation issue. However, in this Court, Ms Southwick has referred to a valuation provided to Mr Fowler dated 24 April 2008 by a registered valuer, Mr Carnachan, who described the property as being “in average decorative condition” and also commented:
While the exterior is in good painted condition and has the appearance of a newer building the interior condition is only average. The carpets are in worn condition and not fitted correctly and missing on the entry stairs. The interior requires repainting to a modern standard. Wall coverings are either not fitted or missing altogether. The entry is overgrown and ill defined. These factors coupled with stigma attached to plaster homes detract from the value of the apartment.
[66] Mr Carnachan assessed the capital value of the property at $1 million including GST.
[67] In cross-examination, Mr Carnachan had conceded that the presentation of the property was “quite poor” and that with remedial work its value could be enhanced. Ms Southwick submitted that he had also agreed that if $40,000 to
$50,000 had been spent on the property then its value might have increased to between $1.15 million - $1.3 million. However, although that proposition was put to him in cross-examination, he did not agree with it explicitly. His actual response was:
I think there is a possibility that for every dollar spent on the property it would reflect well and would probably reflect perhaps more in the range that you are suggesting.
[68] There were also two valuations obtained by Ms Graham from another registered valuer, Mr Jonathan Edwards. In the first, dated 18 August 2006, he noted that the apartment had been subject to “leaky building issues” that were being attended to at the time of his valuation. He assumed that the building would not be
sold until the repairs had been carried out and that they would result in a good quality saleable produce completed to the Council’s requirements. On that basis he gave a valuation of a fair market value generally in the price range of $1.25 to $1.3 million, expressing the opinion that “when well presented a price of close to the top end of range should be well achievable”.
[69] His second valuation was dated 22 April 2008. In it he noted that the exterior of the property had by then been reclad, was well presented overall and recorded that there had been a Code Compliance Certificate issued by the Council. However, he also said that the interior of the property had not been upgraded since “new or thereabouts. The carpet and décor are very dated.” He continued:
We note that the carpets have not been refitted since the reconstruction of the building. They are loose laid without underlay, and in some instances such as the staircase the carpet is missing. This combined with the overall dated décor presents the property “as is” in very poor condition and it would be our conclusion that relatively minor expenditure would represent the property to a somewhat more saleable standard.
[70] He assessed the value of the property at $1.175 million, with a higher price likely to be achieved with new carpet and paint throughout which would be required to mitigate what he described as the “current deserted impression” that the property gave.
[71] The evidence before the Family Court clearly established that the state of the interior needed further work to ensure that on sale the value of the property would be maximised. Ms Southwick submitted that Mr Fowler had refused to carry out renovations in spite of Ms Graham’s requests that work be carried out on the property. Although it is correct that Ms Graham asked for work to be done, in the end agreement was not reached as to the extent or nature of what should occur. I do not consider in the circumstances that Mr Fowler’s actions or inaction have resulted in a material diminution in the value of the property. Rather, the position is that if the property were sold in its current state it would not realise what it might if further money were spent on it. That is a different proposition from the concept of diminution in value set out in s 18C(2).
[72] As to the alleged failure to maximise income from 2/31 Tamaki Drive, Ms Southwick refers to the fact that from September 2007 when he commenced occupation of 2/31 Tamaki Drive, Mr Fowler has not paid rent to F & G Ltd. Further, Ms Graham complains that the property should have been tenanted from January to September 2007 and also refers to the fact that for the period from September 2007 down to May 2008, Mr Fowler received rent from a boarder in the sum of $270 per week.
[73] Although he mentioned these issues in his judgment (at [185]), the Judge declined to make any order under s 18C in respect of them. He returned to the issue later in his judgment when dealing with an argument raised by Mr Fowler that Ms Graham should pay an “occupation rental” in respect of her occupation of the family home at 10/171 Tamaki Drive. At [213] he said:
Rusbridge[2] is authority for there being no jurisdiction to award occupational rental. There are other complicating factors also given that 10/171 is owned by a Trust and 2/31 is owned by a company. Those legal entities have their own means of remedy if a rental is to be considered. I am not prepared to now impose a rental structure on either individual through these proceedings.
[2] Rusbridge v Rusbridge HC Auckland AP92/98, 10 September 1999.
[74] However, in the section of his judgment headed “Consequent orders”, the Judge made orders in respect of F & G Ltd. Having noted that it would have to be liquidated he said, at [217](d):
…There is a need for the parties to work in a co-operative way with a liquidator. This co-operation will need to include agreements as to reimbursements to each party for payments they have made on behalf of F & G and agreement as to the rental that needs to be paid for their period of occupation post the remedial work being completed. I was left with the impression that both parties accepted the commercial realities here and the need for co-operation.
[75] In dealing with the family home he did not make similar observations in respect of Ms Graham’s ongoing occupation of 10/171 Tamaki Drive since the date of separation.
[76] Mr Gay pointed out that Ms Graham had also occupied 2/31 Tamaki Drive for a period of three months (which explains the Judge’s reference to “their period of
occupation” in the passage just quoted). However, for most of the time since separation, Ms Graham had resided in 10/171 Tamaki Drive. I do not consider there could be any warrant in the circumstances to conclude that Mr Fowler’s occupation of 2/31 Tamaki Drive without payment of rent should be treated as having resulted in a dissipation of relationship property. The mechanism contemplated by the Judge ought to ensure that he accounts for an appropriate amount for rental in the liquidation of the company, as the Judge has required.
[77] The final issue that needs to be addressed here is Ms Graham’s contention that Mr Fowler failed to apply any income, including his own income, in reduction of F & G Ltd’s mortgage. The result has been an accrual of interest increasing the amount owed to the bank. Mr Gay submits that Mr Fowler was not obliged to make payments in reduction of F & G Ltd’s mortgage debt (unless demand were made on the personal guarantee that he gave). He also notes that the mortgage secures not only the moneys borrowed by F & G Ltd, together with interest, but also body corporate levies and fees, and rates for both 10/171 and 2/31 Tamaki Drive.
[78] Once again, I do not consider that Ms Graham’s allegations can amount to any action or inaction which “diminished in value” the relationship property. I accept Mr Gay’s submission that Mr Fowler was not obliged to make such payments.
[79] This ground of appeal also fails.
Coco income
[80] At the time when their relationship commenced, Mr Fowler owned two aircraft which were a Piper Tomahawk and Cessna 172. He operated them as a separate business under the name “Coco Investments”. He kept a separate bank account for the income produced and paid all expenses from those accounts. The Judge recorded at [122] that as a consequence of a mediation Ms Graham agreed on
28 December 2006 that the aircraft were Mr Fowler’s separate property. The Judge then noted Ms Graham’s claim that she had assisted Mr Fowler in maintaining the
aircraft, so that by her work, services and indirect assistance, the income or gains from the aircraft were relationship property under s 9A(2) of the Act.
[81] Having discussed the rival contentions of the parties and the evidence, the
Judge said, at [139] – [141]:
[139] Income from the Coco aircraft should not be regarded as relationship property. There is no clear evidence of any decision on the applicant’s part to change its status. The evidence does not establish that the actions of the respondent in respect of the aircraft were anything more than minimal. Even if I am wrong in that finding then her share in the Coco income which would reflect the value of her actions would result in a minimum or trivial award to her. The income stream from the aircraft was something that existed at the time the parties got together. I accept that there were significant costs in maintaining the aircraft and that there was no evidence to suggest that income which came from a separate property source was converted to relationship property.
[140] I accept the applicant’s submission the actions of the respondent were more than compensated for on a quid pro quo basis from the benefits that she enjoyed from the aircraft, the flying opportunities and the occasional holidays that the parties had when one of the planes was used.
[141] The situation that existed in the Kelly v Phillips[3] and Boyd v Jackson[4] fact situations were quite different from this fact situation. There was no pooling of resources in respect of Coco. The applicant here contributed to the relationship from his primary employment.
[3] Kelly v Phillips [2000] NZFLR 409.
[4] Boyd v Jackson FC Napier FP041/363/01, 6 March 2003, Judge Inglis QC.
[82] Ms Southwick submitted first that the Judge erred when he found that the income earned from the aeroplanes from the start of the 2001 tax year to 31 March
2006 (within a month of when the parties separated) only exceeded the expenses of running and maintaining them by $11,415. She submitted that conclusion, which was based on a schedule that had been prepared by Mr Fowler, was not supportable. The principal reason for that submission was an acknowledgement by Mr Fowler that at the date of separation the sum of $104,584 was in the Coco bank account. She also referred to evidence by Mr Fowler that at the commencement of the relationship he had cash and equity of approximately $336,600, yet claimed to have separate property totalling $595,934 comprising the money in the Coco bank account, his contribution to 2/31 Tamaki Drive, investments in MCL, a deposit on
10/171 Tamaki Drive and final payment of his mortgage in respect of 10/171 Tamaki
Drive. Ms Southwick submitted that there was a figure of $259,334 unaccounted for on Mr Fowler’s own figures. She contended that the only asset that could account for this difference was the income from Coco so that the figure provided to the Court was clearly incorrect.
[83] Mr Gay noted in response that there was no evidence other than that given by Mr Fowler regarding the net Coco income over the six year period down to the end of March 2006. There was, however, some support for his evidence in respect of a taxation calculation summary which had been prepared by Ms Pickering for the year ended 31 March 2006. The summary shows that in that period, Mr Fowler received net income from the Coco aircraft of approximately $20,311. That suggests that the figure of $11,415 in respect of the six year period to 31 March 2006 is plausible. It also seems likely, as Mr Gay submitted, that money in the Coco bank account built up from time to time before costs incurred (including provisional tax payments) in respect of the aircraft were paid.
[84] In response to Ms Southwick’s submission that there was essentially a substantial amount of unaccounted for money on the basis of the figures given in evidence by Mr Fowler, Mr Gay submitted that she had erred by taking figures from different dates, the advance of $354,924 having been made to F & G Ltd in November 2002, the advances to MCL having occurred in the period from April to October 2002, the repayment of Mr Fowler’s personal loan in respect of 10/171
Tamaki Drive occurring on 5 March 2002 and the figure of $104,584 being the balance in the Coco account at the date of separation on 27 February 2006.
[85] Mr Gay also submitted that the balance in the Coco account was not relevant to the issue of what separate property Mr Fowler had applied towards various assets during the relationship. He noted that Mr Fowler had not been cross-examined on the argument now presented by Ms Southwick and submitted that Mr Fowler had been able to establish that the funds for the advances that he had made to F & G Ltd and MCL had come from his bank accounts and were sourced entirely from his separate property.
[86] I accept Mr Gay’s submissions. There is in my view no basis on which I could conclude that the Judge erred in deciding that the income earned by the aircraft exceeded the expenses by only $11,415 in the six years down to 31 March 2006.
[87] Ms Southwick next challenged the Judge’s conclusion that income derived from the aircraft was separate property under s 9(3) of the Act. In this respect, she referred to Boyd v Jackson[5] on which she relied for the proposition that even if the aircraft were separate property, the income that flowed from their use should be regarded as relationship property because it was income earned after the relationship began. The aircraft could not have been operated without “the considerable
maintenance undertaken” by Mr Fowler; as she put it, the separate property could not derive income on its own. As a qualified aircraft engineer, Mr Fowler had been able to undertake such work himself. Further, the fact that Mr Fowler was also earning income from other sources should not have a bearing on the definition of income. If the income in question was compensation for personal effort it must be relationship property under s 8(1)(e).
[5] Boyd v Jackson above n 4.
[88] Section 8(1)(e) is, of course, subject to s 9(2). Subject to provisions which are not relevant to this part of the argument, s 9(2) provides that all property acquired out of separate property is separate property. Income derived from the use of separate property would be within its provisions, as the Judge held. Here, the net income derived from the aircraft was not substantial and neither was the work carried out by Mr Fowler. It was his evidence that he worked on them for about eight to ten hours for every 100 flying hours; that over the six years from 25 June
2000 to the end of February 2006 the aircraft only flew 1,360 hours, an average of 19 flying hours a month, or an average of 228 hours per year. In other words, annual maintenance that he carried out would involve a period of a little less than 23 hours. Over a six year period he would have carried out about 138 hours of maintenance.
[89] There is support for Mr Fowler’s evidence about the time spent on maintenance in the form of an e-mail from a Mr Bruce Ricketts, the chief engineer of North Shore Aviation Services Ltd that was attached to his affidavit of 10 March
2008 as exhibit “J”. The letter concerned the Cessna aircraft and was based on Mr Ricketts’ knowledge of the plane’s recent history and condition. The estimate was of ten hours labour for 100 hours flight time with the possibility that an experienced Cessna engineer might be able to save up to another two hours on that. Ms Southwick did not refer me to evidence to the contrary.
[90] The Judge listed the actions carried out by Ms Graham that she claimed had contributed to the Coco income as oil changes, bleeding the brakes, general help including occasional vacuuming of the interior of the aircraft. Ms Southwick claimed that was an inadequate summary of the evidence that had been given. She referred in particular to Ms Graham’s cross-examination by Mr Gay noting Ms Graham had given evidence of greater contributions to maintenance. She noted that the flying of the aeroplanes had been described by Ms Graham as “a huge part of
our life”. Having considered the evidence to which Ms Southwick referred[6] I accept
that there was evidence that Ms Graham flew the aircraft on occasions for purposes associated with their commercial use in addition to the matters listed by the Judge. However, in terms of actual maintenance, the matters referred to by the Judge appear to have correctly described the position.
[6] Her reference was to pages 1126 line 25 to page 1130 of the notes of evidence.
[91] In fact, Ms Graham’s comment that flying the aircraft was a “huge part” of the couple’s life is not limited to actions that they took to maintain the aircraft and in context, as Ms Southwick appeared to acknowledge in her submissions, related also to simply flying the aircraft. I infer that most of that would have been for recreational use, although Ms Graham did describe occasions when she had flown the aircraft for commercial purposes.
[92] With respect to hours spent actually flying the aircraft for commercial purposes, there is no quantification to which I was referred of the actual time spent on that activity. Ms Graham also conceded in cross-examination that at the time of the separation, she had logged about 150 hours of flying time, so that describes an outer bound of the extent to which she could have contributed to the Coco income in respect of flying activities, although a good deal of that would have been flying for recreational purposes. Even assuming in her favour that about half of that time was
spent on flights which directly or indirectly were related to generating the income,
75 hours in a period of about six years represents under six per cent of the time that the aircrafts were actually flown. Taking account also of the limited hours spent on maintenance, I do not consider that the Judge erred in finding that the actions of the respondent in respect of the aircraft could result in no more than a “trivial award”, especially having regard to the conclusion I have already reached about the net income generated by the aircrafts.
[93] In the end, it is fair to say that there were conflicting claims on these issues by the parties, but the Judge preferred the evidence of Mr Fowler. He concluded, at [139], that the evidence did not establish that the actions of the respondent in respect to the aircraft were anything more than minimal. I have not been persuaded that there is any basis on which I should disturb that finding.
[94] I add that the facts of this case are far removed from Kelly v Phillips[7] and
[7] Kelly v Phillips above n 3.
Boyd v Jackson[8] as noted by the Judge at [141]. [95] Consequently, I reject this ground of appeal.
[8] Boyd v Jackson above n 4.
Sale of property
[96] In the amended points on appeal, Ms Graham alleged that the Judge erred in directing that the property at 2/31 Tamaki Drive was to be sold at a “Dutch auction” with a “minimum figure”. It is said that the method directed by the Judge although allowing either party to purchase at the minimum price of $1 million, in fact gave an unfair advantage to Mr Fowler because only he would be in a position to purchase the property at that price. Further, it was claimed that the minimum figure of $1 million was not supported by the evidence which suggested that the proper minimum figure should be $1.25 million. It was also alleged that Mr Fowler had taken deliberate steps to lower the value of the property and that he should have been required to correct the position prior to sale in order to maximise value.
[97] Ms Southwick submitted that the Judge had erred by referring to a “Dutch auction”, that being an auction in which the price is gradually reduced by the auctioneer until a buyer is found. Mr Gay agreed that the Judge had used the wrong term. However, what the Judge said at [215] of the judgment makes his intention reasonably plain:
[215] The properties of 10/171 and 2/31 are to be sold. The applicant proposes that if one or other of the parties wish to purchase either property, the price can be determined by way of a “Dutch auction”. It was suggested that there is to be a reasonable time, say one month, in which the party may settle a purchase. Either party may acquire one, both or none of the properties. If neither party is willing to purchase at the minimum figure (as given by Mr Carnahan for both parties) then that property can be sold on the open market with leave to come to the Court on 48 hours notice for further directions to implement the orders made.
[98] The reference to the “minimum figure (as given by Mr Carnahan for both parties)” must be seen in context as referring back to Mr Carnachan’s affidavit of
2 May 2008 (although I do not follow the reference to it having been given for both parties) in which he gave the value of 2/31 Tamaki Drive of $1 million. Ms Southwick noted that at [53] the Judge had recorded that the Edwards’ valuation was $1.175 million, although she noted that Mr Edwards had also referred to a range between $1.25 and $1.3 million. In the circumstances, she submitted that setting a sale figure of $1 million at which Mr Fowler, but not Ms Graham was in a position to purchase it, unreasonably disadvantaged Ms Graham. She also suggested that on the evidence Mr Fowler had deliberately kept the property in a state which would reduce its value for valuation purposes. She argued that in all the circumstances the proper approach would be for the property to be placed on the open market in a fashion which could not be taken advantage of by either party. She also sought a direction that the cosmetic issues raised should be dealt with prior to sale.
[99] Mr Gay submitted that the Judge’s intention was to allow both parties the opportunity to purchase and he chose the lower valuation figure to assist them. He also noted that in closing submissions before the Family Court, then counsel for Ms Graham had submitted that if the Court deemed that the market value of the property was $1 million, then the respondent would wish to have the opportunity to purchase the property from F & G Ltd at that price. Mr Gay rejected Ms Southwick’s argument that Mr Fowler had wrongly refused to carry out
renovations. In this respect, he noted the evidence that Mr Fowler had always wanted both properties sold and referred to affidavits that Mr Fowler had sworn as well as correspondence from counsel indicating that.
[100] Notwithstanding Mr Gay’s submissions, I consider that the best course to follow will be for the property at 2/31 Tamaki Drive simply to be sold on the open market as requested by Ms Graham, and without mention of a minimum price. I say that for a number of reasons. First, I am conscious that the valuations which were before the Family Court may now be out of date, but it would be undesirable for there to be any further delay in the resolution of this matter. Second, it appears that if an opportunity were afforded to Mr Fowler to purchase the property for the sum of
$1 million, Ms Graham may feel aggrieved since she could not now afford to purchase at that price, and considers that the property is in fact more valuable. The only sure way of testing that is by sale on the open market. Third, given the time that it has taken for the resolution of the dispute between the parties, there has inevitably been a build-up in the company’s indebtedness in respect of the property and it is important that its value be maximised to the extent possible.
[101] The third issue underlines the problem that in the past the parties have not been able to reach agreement on the steps that should be taken to ensure that the property is marketed to best advantage. In all the circumstances, the solution that presents as most likely to produce an outcome that is fair to both parties is to direct that the property be sold to a third party, ie that it not be purchased by either Mr Fowler or Ms Graham, unless there is agreement to the contrary.
[102] One difficulty that must be confronted in granting relief on this issue is that contrary to the provisions of r 20.9 of the High Court Rules the notice of appeal did not specify the relief sought. In her second synopsis of submissions, Ms Southwick submitted that the Court should direct that the apartment should immediately be placed on the market for sale and that prior to marketing, the moneys obtained by the respondent from a boarder should be utilised to carry out repairs and maintenance suggested by an agreed real estate agent to be necessary. The difficulty I have with that approach is that such is the extent to which these parties have been unable to agree on issues between them, a process requiring them to agree on any matters
arising out of the sale would likely be fraught with difficulty. For example, what works should be carried out could well be the subject of dispute. Reaching agreement on a real estate agent who could specify the extent of the repairs would in my view also likely be the cause of difficulty.
[103] On the other hand if the Court simply orders the sale of the apartment that might encourage the parties to reach agreement on any works that need to be done to enhance its value and on the identity of the agent or agents who are to be responsible for marketing it. In my view the quickest and most sensible solution at this stage is simply to direct that the apartment be sold subject to terms which should be specified in the Court’s order. Having indicated that that should be done I will invite memoranda from counsel as to the terms that should apply and make a final order once I have considered their memoranda. The order will provide that unless the parties agree it is not to be purchased by either of them, or any person or company that either is connected with. I do not intend to stipulate a minimum price.
[104] I do not envisage a further hearing, before settling the form of the order.
Standing back
[105] Ms Southwick submitted at the outset that the decision of the Family Court was such as to have left the parties in a very different position and that the disparity was such as to indicate that important principles of the Act cannot have been properly taken into account. She referred to s 1M which states that one of the Act’s purposes is:
(c)to provide for a just division of the relationship property between the spouses or partners when their relationship ends by separation or death, and in certain other circumstances, while taking account of the interests of any children of the marriage or children of the civil union or children of the de facto relationship.
[106] She also relied on principle (b) in s 1N whereby a principle that is to guide the achievement of the purpose of the Act is:
(b)the principle that all forms of contribution to the marriage partnership, civil union, or the de facto relationship partnership, are treated as equal:
[107] Ms Southwick referred to the observations made by Hammond J in M v B[9] at
[9] M v B [2006] 3 NZLR 660.
[227] that:
… there is real force in Ms Hollings’ argument that, as best it can, a Court does have a responsibility in terms of the purposes of the PR Act, and the FP Act, to stand back and ask whether the overall scheme of the legislation has been satisfactorily met in the circumstances of the particular case. I reject the contrary argument, which must be that an “award” in this subject area is somehow simply the sum of its parts. What is required is a “just” award, having regard to the principles and purpose of the legislation. Exactly how the award is constructed is a matter for the circumstances of the particular case.
[108] I have left this issue until this point so that it may be approached in the context of the conclusions that I have expressed on the various issues raised in Ms Graham’s detailed argument. With the exception of the issue concerning the sale of 2/31 Tamaki Drive it will be seen that I have been able to conclude that the decisions made by the Judge in the Family Court were correct, and even on that issue the order I propose reflects at least to some extent a shift in Ms Graham’s position. This was a largely fact driven dispute to which the detailed provisions of the Act had to be applied. The consequence of doing that leads to the outcomes that have been discussed. While this Court of course respects the views expressed by Hammond J, it needs to be recognised that Robertson J in the same case took a different approach when he said at [33] – [34]:
[33] Parliament has determined the assessment and responses which are to be available to achieve the purposes of the Act in accordance with the identified principles. They have, in various discrete areas, indicated the parameters of operation. I do not accept that the purposes and principles in ss
1N and 1M provide the Court with a generalised mandate which can avoid or obscure the structural framework which Parliament adopted.
[34] At its high point, Ms Hollings submitted that these sections were of such importance that they would enable a Court to do whatever appeared to it just and reasonable without hindrance or impediment to fulfil the purposes in light of the principles. The underlying philosophy and inspiration is always to be considered, but their operational ambit must be evaluated within the particular statutory responses which Parliament has enacted. They do not permit Courts to go further than Parliament was willing to legislate for.
[109] In the present case I am not persuaded that a more just outcome would be achieved by direct appeal to the purposes and principle on which Ms Southwick relied. I am not satisfied for example, that there is any respect in which it could be said that Ms Graham had experienced an economic disadvantage arising from the relationship or from its termination. The point being made appears to be simply that as a result of the orders in the Family Court Mr Fowler will have more significant assets than Ms Graham. But that simply reflects the extent to which property of his was and remains separate by virtue of application of the detailed provisions of the Act.
Result
[110] I direct that the property at 2/31 Tamaki Drive is to be sold forthwith. The parties should confer on the terms that are to apply as to the real estate agent or agents who are to market it and as to the method of sale. I do not contemplate making an order for the carrying out of any work on the unit prior to its sale. That of course may be done by agreement if the parties agree. Memoranda should be filed whether joint in the case of agreement or individually otherwise, within 15 working days.
[111] The appeal is otherwise dismissed.
[112] Effectively Mr Fowler has succeeded on the appeal and is entitled to costs which are to be fixed in accordance with category 2 and on a band B basis.
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