H v C
[2015] NZHC 1006
•13 May 2015
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV-2014-442-000078 [2015] NZHC 1006
UNDER Section 21 of the Property (Relationships)
Act 1976
BETWEEN
H Appellant
AND
C Respondent
Hearing: 11 May 2015 Counsel:
R T Somerville for Appellant
G P Barkle for RespondentJudgment:
13 May 2015
JUDGMENT OF COLLINS J
Introduction
[1] I am dismissing Ms H’s appeal from a judgment of Judge R J Russell
delivered in the Family Court at Nelson on 23 October 2014.
[2] In his judgment Judge Russell set aside a relationship property agreement signed by Ms H and Mr C on 23 February 2012 (the agreement) following the termination of their relationship. Judge Russell also made a series of consequential
orders concerning the division of the parties’ relationship property.
H v C [2015] NZHC 1006 [13 May 2015]
[3] I am dismissing Ms H’s appeal because Judge Russell’s decision was right in every material respect. Judge Russell correctly assessed the evidence and applied the law appropriately to the facts of this case. Having carefully reviewed the evidence and considered the relevant law, I agree with the conclusion that Judge Russell reached and his reasons for doing so.
Background
[4] Ms H and Mr C met during the course of 1992 to 1993 and starting living together in 1994. I understand they both had their own properties at the time they met. Those properties were sold during the course of the parties’ relationship. Their son was born in October 1994.
[5] On 19 September 1996, Mr C formed a company called TRC Ltd (the company). Mr C was the sole director and shareholder of the company which acquired all of the assets and liabilities of a fish and chip shop business owned by Mr C in Richmond.
[6] On 10 July 1998, the parties purchased their first house together. This was a property in Brightwater. In May 2003 the parties sold their Brightwater home and purchased a property at Queen Street, Richmond.
[7] The next property which the parties purchased was at Hill Street, Richmond. This property was purchased on 18 April 2005 and was financed by way of a mortgage to the ANZ Bank for $435,000. The property at Queen Street was not sold until 1 June 2007. The parties received $174,566 net from the sale of the Queen Street property.
[8] Both counsel advised me the parties purchased other properties during the course of their relationship. No details were provided as to when those properties were purchased and sold.
[9] On 22 May 2006, the company purchased a coffee shop in the Richmond Mall (the Richmond coffee shop). The company paid $400,000 for the plant, goodwill and stock associated with the Richmond coffee shop. This purchase was
financed by the company borrowing $400,000 from the National Bank, secured by the existing mortgage over the parties’ property at Hill Street, and by way of personal guarantees from both parties.
[10] On 4 September 2006, the company’s fish and chip shop business was sold for $160,000. The net proceeds from that sale ($149,000) was applied to pay off debt. At about the same time the company entered into a franchise agreement in relation to a second coffee shop located at the Sands complex at Tahunanui (the Tahunanui coffee shop). A number of delays were incurred in getting the Tahunanui coffee shop established, which was not opened until February 2008.
[11] By April 2008 it was necessary for the parties to increase their debt to the
National Bank by increasing the levels of their personal guarantees.
[12] The Tahunanui coffee shop business was not successful. Mr C appears to have accepted a degree of responsibility for the failure of this business. He acknowledged Ms H reluctantly agreed to that particular venture. The Tahunanui coffee shop closed in February 2011.
[13] The parties’ relationship was beginning to deteriorate at the time the Tahunanui coffee shop business closed. Their first attempt at reaching a relationship property agreement was in March 2011. That draft agreement set out the parties’ broad objectives, which involved Ms H having a home for herself and the parties’ son while Mr C would continue to own and manage the Richmond coffee shop business. At the time the parties were compiling the terms of the draft March 2011 agreement they had the benefit of a valuation of the Richmond coffee shop business. That business was valued at $300,000 in January 2011.
[14] The parties separated on 4 June 2011. The following month they sold the Hill Street property for $785,000 and repaid all debt then owing to the National Bank ($740,924). Two weeks later Ms H entered into an agreement to purchase a section at Heemskerk Place in Nelson. That section was purchased using relationship property and moneys borrowed from the National Bank.
[15] In December 2011, the company borrowed a further $90,000 to improve the fittings at the Richmond coffee shop.
[16] On 20 January 2012, Ms H sold the section at Heemskerk Place. The following day she entered into a conditional contract to purchase a property at Stafford Drive, Ruby Bay for $470,000. At the time Mr C was unaware of these developments. Mr C was told about Ms H’s wish to purchase the Stafford Drive property on 27 January 2012.
[17] On 2 February 2012, Ms H’s solicitors forwarded the separation agreement to Mr C and told him that finance for the purchase of the Stafford Drive property needed to be confirmed by 5.00 pm, 3 February 2012.
[18] On 7 February 2012, Mr C signed the separation agreement. On the same day Ms H confirmed the purchase of the Stafford Drive property.
[19] Ms H signed the separation agreement on 20 February 2012. The following week, both parties signed an agreement for a loan for $340,000 with the Nelson Building Society (NBS) to purchase the Stafford Drive property. That finance agreement initially provided for interest-only repayments to be made for one year. Ms H took possession of the Stafford Drive property on 14 March 2012. Ms H’s parents advanced approximately $100,000 towards the purchase of the Stafford Drive property.
[20] On 24 July 2012, NBS advanced $90,000 to the company to refinance the company’s loan to the National Bank. Security for the new loan was provided by Mr C’s parents. The terms of the loan agreement with the NBS in relation to the Stafford Drive property were varied at about this time to provide for interest-only payments on the mortgage for a two year period.
The agreement
[21] The agreement is a comprehensive separation agreement that was executed after both parties obtained legal advice. The most fundamental aspects of the agreement reflected the parties’ long-standing intentions that Ms H obtain a home for
herself and the parties’ son, while Mr C would keep the Richmond coffee shop business. I will explain the provisions in the agreement that are most relevant to the appeal.
[22] The agreement records the intention to purchase the Stafford Drive property and that it was to be financed in part by a loan of $340,000 from the NBS. Even though the loan was in the names of both parties, under the separation agreement Mr C took sole responsibility to repay the loan. The agreement recorded that initially the $340,000 loan from the NBS was to be an interest-only loan but that it would be converted into a principal and interest loan after one year.
[23] The agreement recorded the company was to continue to operate the Richmond coffee shop until it was sold. Mr C was to determine when the business was to be placed on the market, but Ms H’s consent was required in relation to the terms of sale of the Richmond coffee shop. Mr C gave Ms H an indemnity in relation to any ongoing liability related to the Richmond coffee shop. Ms H was to have access to business and accounting information relating to the ongoing operation of the Richmond coffee shop.
[24] The agreement recorded Mr C’s drawings from the company would not exceed $800 per week and that the company’s term loan was not to exceed $90,000. The company’s overdraft was not to exceed $4,000.
[25] The agreement provided that upon the sale of the Richmond coffee shop the company debt to the bank was to be repaid and the balance divided in the following way:
(1) A one-eighth share was to be paid to Mr C.
(2)The remaining seven-eighths share was to be applied to the loan from the NBS in relation to the Stafford Drive property. Any shortfall between the loan to the NBS and the seven-eighths share from the sale of the Richmond coffee shop was to become Ms H’s responsibility.
(3)Ms H was able to veto the sale of the Richmond coffee shop if she was unable to service any shortfall on the loan owing to the NBS.
(4)The shares in the company were to remain relationship property until the loan to the NBS for the Stafford Drive property was repaid. Thereafter the shares in the company were to become Mr C’s separate property.
(5)Mr C gave Ms H an indemnity for all bank advances made to the company.
[26] The agreement contained an acknowledgement Ms H was getting a greater share of relationship property than Mr C, and that there was a need for an unequal division of the parties’ relationship property and for Ms H to provide a home for the parties’ son.
The disparity in allocation of relationship property
[27] Evidence about the value of the Richmond coffee shop and the balance of the parties’ relationship property was presented in the Family Court. There are two aspects to the profitability and value of the Richmond coffee shop business that are relevant.
[28] First, the net profit of the business was steadily deteriorating. The figures presented to Judge Russell showed the net profit of the business for the financial years ending 31 March 2011 to 31 March 2014 declined in the following way:
2011: $46,482
2012 $13,987
2013 $16,428
2014 $ 2,310
There were a number of legitimate factors that contributed to this decline in the profitability of the Richmond coffee shop business. There was no suggestion Mr C deliberately devalued the profitability of the business.
[29] Second, the value of the business declined from $300,000 as of January 2011 to a value somewhere between $230,000 and $270,000. No issue was taken with Judge Russell’s decision to treat the business as being worth $250,000 at the time of the hearing.
[30] Judge Russell concluded that as at the date of the agreement, Ms H acquired
82.5 per cent of the parties’ relationship property. This figure reduced slightly to
82.2 per cent at the date of the hearing conducted before Judge Russell in August
2014. Ms H does not fully accept these figures. She believes that if company tax credits are taken into account she would have received in the vicinity of a 75 per cent share of the parties’ relationship property.
The proceedings
[31] Ms H commenced proceedings in the Nelson Family Court by applying for specific performance of the agreement and for the Family Court to imply a term into the agreement. In particular, Ms H wanted a term implied into the agreement that the Richmond coffee shop business would be sold immediately, that Mr C pay principal and interest on the loan to the NBS and that Ms H have proper access to banking information relating to the Richmond coffee shop business. Ms H did not pursue her claims before Judge Russell.
[32] After Ms H initiated her proceeding, Mr C lodged a claim under s 21J of the Property (Relationships) Act 1976 (the Act) to have the agreement set aside. I set out s 21J of the Act in the following paragraph. Mr C also sought orders concerning the division and sale of relationship property in the event of the agreement being set aside.
Section 21J of the Act
[33] Section 21J(1) and (4) of the Act provide:
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.
…
(4) In deciding, under this section, whether giving effect to an agreement made under section 21 or section 21A or section 21B 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.
Family Court judgment
[34] Judge Russell provided the parties with a detailed analysis of the relevant facts and law. He correctly concluded the agreement was a “compromise” agreement and set out the relevant legal principles governing applications under s 21J of the Act.
[35] Judge Russell’s findings in relation to each of the six factors in s 21J(4) of the
Act can be summarised in the following way.
Section 21J(4)(a)
[36] The agreement represented each party’s wishes following their separation. Specifically, Judge Russell determined Ms H was to have a house to reside in with the parties’ son and Mr C was to be able to continue to manage the Richmond coffee shop business which was to be sold at a future time at an agreed upon price. Both parties said they understood the terms of the agreement before signing it and neither had issues with the legal advice they each received.
Section 21J(4)(b)
[37] There was no undue delay by Mr C in bringing his application.
Section 21J(4)(c)
[38] The disparity of outcome between the parties was unfair to Mr C against the background that the equal sharing provisions of the Act would have applied had the agreement not been signed.
Section 21J(4)(d)
[39] There had been changes in circumstances since the agreement was signed. Judge Russell decided the agreement continued to be unfair to Mr C because of the disparity of outcome compared to what the Act provides for and that his future obligations under the agreement were unreasonable. Specifically, Judge Russell decided:
(1) the value of the Richmond coffee shop business had reduced from
$300,000 to $250,000. The effect of this was that the agreement was more difficult to implement and Mr C would be required by the agreement to continue operating the Richmond coffee shop business for a longer period of time than was envisaged at the time the agreement was signed;
(2)the financial statements for the Richmond coffee shop business showed a significant reduction to the gross profit and net profit figures, which would have a bearing on the sale price; and
(3)Ms H and Mr C jointly agreed with the NBS to vary the terms of the mortgage from being an interest-only mortgage for one year to being an interest-only mortgage for two years.
Section 21J(4)(e)
[40] The parties knew the terms of the agreement they wanted to achieve, were properly represented by their lawyers and had a period to negotiate and to reflect on the agreement. Both parties said they understood the terms of the agreement when they signed it.
Section 21J(4)(f)
[41] Judge Russell decided:
(1)the parties’ wishes were for Ms H to have a home to reside in with the parties’ son and Mr C was to be able to continue to operate the Richmond coffee shop business until it was sold;
(2) there was no undue pressure on either party;
(3) both parties said they understood the agreement when they signed it;
and
(4)both parties said they were properly advised by lawyers at the time they signed the agreement.
[42] Judge Russell also considered the question of serious injustice from the position of both parties. He accepted that if he set the agreement aside the Stafford Drive property owned by Ms H would in all likelihood have to be sold. Judge Russell appreciated Ms H would be unlikely to receive sufficient net equity from a division of property in accordance with the Act to enable her to purchase
another property. Judge Russell reasoned, however, that if the agreement had reflected each party’s entitlements under the Act, Ms H would never have been able to purchase the Stafford Drive property.
[43] In his judgment, Judge Russell identified the following four factors which
supported Mr C’s position:
(1)the disproportionate division of the value of the property in the agreement when measured against what the Act would otherwise have provided;
(2)the reduction in the value of the Richmond coffee shop between the date of the agreement and the date of the hearing;
(3)the reduced profitability of the Richmond coffee shop business following the signing of the agreement and that Mr C was obliged to make the repayments to the NBS from his drawings from the Richmond coffee shop business; and
(4) there was no undue delay in bringing the application.
[44] Judge Russell identified the following three factors as supporting Ms H’s
position:
(1)the agreement reflected the wishes of the parties following their separation;
(2)the circumstances in which the agreement was signed did not give concern and there was a need to honour the sanctity of the parties’ contract; and
(3) the likely loss of the Stafford Drive property.
[45] Judge Russell decided the disparity in allocation of relationship property was not by itself sufficient to set aside the agreement. He decided, however, the future
obligations and restrictions placed in the agreement upon Mr C increased the injustice he already faced to the point where enforcing the agreement would pass the serious injustice threshold.
[46] The future obligations and restrictions created a serious injustice to Mr C
because:
(1)the agreement enabled Ms H to lock Mr C into having to operate the Richmond coffee shop business for the foreseeable future because the agreement required her consent to any sale terms;
(2)the agreement capped Mr C’s drawings from the business at $800 per week. From that $800 Mr C was required to repay the NBS mortgage on a principal and interest reducing basis; and
(3)Mr C was required to disclose the banking and accounting information of the business to Ms H pending its sale. The shares in the company were not to become Mr C’s separate property until the business was sold.
Principles governing appeal
[47] Relationship property appeals from the Family Court are governed by s 39 of the Act, which imports ss 74 to 78 of the District Courts Act 1947 as part of the procedure on appeal.
[48] The appeal is by way of rehearing.1 The appeal therefore falls within the ambit of Austin, Nichols & Co Inc v Stichting Lodestar.2
[49] In B v F, Heath J correctly recognised the difficulty of applying Austin, Nichols principles in the context of Family Court appeals as many decisions from
Family Court Judges involve a mixture of findings of fact, the formation of
1 District Courts Act 1947, s 75.
2 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
evaluative judgments and the exercise of discretion.3 In this case, Judge Russell’s
judgment contains all three of these elements. [50] I approach this appeal on the basis that:
(1) I must come to my own view of the merits of the case;
(2)if I reach a different view from Judge Russell, then I must allow the appeal;
(3)I may use the reasons of Judge Russell that I agree with to assist in explaining my reasons; and
(4) I will only give weight to the reasons of Judge Russell with which I
agree.
Grounds of appeal
[51] Ms H’s appeal involves an analysis of four of the factors in s 21J(4) of the Act. As part of that analysis Mr Somerville, counsel for Ms H, invited me to conclude Judge Russell was wrong in his conclusion that giving effect to the agreement would cause a serious injustice to Mr C because the agreement reflected the parties’ genuine intentions.
[52] Mr Somerville also submitted that Judge Russell erred by not considering as a separate stand-alone factor whether setting the agreement aside would cause serious injustice to Ms H, and the weight which Judge Russell placed on the injustice which Ms H will suffer if the agreement is set aside was insufficient.
Serious injustice
[53] The right of parties to contract out of the relationship property provisions of the Act is a fundamental feature of the Act. The provision of the Act which preceded
s 21J stated that an agreement “shall be void in any case where the Court is satisfied
3 B v F [2010] NZFLR 67 (HC) at [7].
that it would be unjust to give effect to the agreement”. Section 21J(1) of the Act replaced “unjust” with “serious injustice”. Parliament’s intention by making this change was to make it more difficult to set aside an agreement entered into under the Act, and placed a greater onus on an applicant attempting to set aside an agreement.4
[54] The onus of proof is on the party seeking to have an agreement set aside. The onus becomes more stringent when the threshold for setting aside an agreement changed from “unjust” to “serious injustice”.5
[55] In Clark v Sims, Paterson J explained:6
… Not every injustice will entitle a Court to set aside an agreement. There must have been at the time of entering into the agreement, or subsequently because of a change of circumstances, unfairness or a lack of equity of a substantial kind … A Judge, in my view, should not set aside an agreement unless there has been a substantial injustice of sufficient gravity for the Judge to determine that in conscience the Court should intervene. That one party can establish that he or she did not receive what she may have received under the provisions of the Act, will not in itself be a sufficient ground to set aside an agreement, although gross inequality may well be a factor which weighs heavily in the determinative process of the Courts.
[56] In Wells v Wells, Simon France J helpfully summarised principles that apply to an assessment of “serious injustice” in relation to s 21J of the Act.7 I have adopted the following principles from that judgment:
(1)Determining if there is a serious injustice involves a broad discretion which must be exercised in light of the policy underpinning the legislation.
(2)An important component of the statutory scheme is the capacity of the parties to contract out of its provisions.
(3)Disparity of outcome at the time of separation is relevant, particularly in contracting out cases, but it is not necessarily decisive.
4 Clark v Sims [2004] 2 NZLR 501 (HC); Wells v Wells [2006] NZFLR 870 (HC) at [38], referring to Harrison v Harrison [2005] 2 NZLR 349 (CA).
5 Wood v Wood [1998] 3 NZLR 234 (HC) at 235.
6 Clark v Sims, above n 4, at [36].
7 Wells v Wells [2006] NZFLR 870 (HC) at [37].
(4)A comparison to the outcomes that would be ordered if the Act were applied is relevant but not determinative.
(5)More than disparity of outcome will need to be present before serious injustice arises.
(6)A discretion exercised in accordance with the principles governing s 21J of the Act will be difficult to disturb on appeal.
[57] To these principles I would add the objective of ensuring if possible, that the parties achieve a finite separation of property without the need for ongoing financial interdependence. I appreciate, however, that this objective may not always be able to be achieved.
Analysis
[58] The first part of Ms H’s appeal involved a detailed analysis of the way Judge Russell applied four of the factors contained in s 21J(4) of the Act. The gravamen of this part of Ms H’s appeal was that Judge Russell erred by failing to recognise and enforce the sanctity of the agreement reached by the parties.
[59] The second part of Ms H’s appeal challenged the way in which Judge Russell
dealt with the injustice to Ms H which will arise from setting aside the agreement.
[60] I will deal first with the submissions which were directed towards upholding the agreement because of the way s 21J(4) should be applied in this case.
Section 21J(4) – the provisions of the agreement
[61] Mr Somerville very carefully analysed Judge Russell’s judgment and submitted that the terms of the agreement were negotiated openly and fairly by two willing parties, both of whom had the benefit of legal advice and knew to what terms they were agreeing. The fact the agreement provided for an unequal allocation of relationship property was appreciated by Mr C, who agreed to the terms of the agreement.
[62] Mr Somerville submitted Judge Russell erred by placing too much emphasis on Mr C’s future obligations under the contract. He submitted this was a product of the parties’ negotiations and that Mr C agreed to those terms and should therefore be bound by them.
[63] In considering the provisions of the agreement, sight should not be lost of two key purposes of the Act, namely the need:8
(1)to recognise the equal contribution of a de facto partner to the de facto relationship partnership; and
(2)to provide for a just division of the relationship property between parties when their relationship ends.
[64] In deciding if giving effect to the terms of the agreement would cause a serious injustice, it is important to assess the extent to which the terms of the agreement depart from the statutory presumption of equal allocation of relationship property. It is a matter of assessing the degree of the resulting inequality in the context of all relevant circumstances.
[65] In my assessment, Judge Russell was correct when he concluded Mr C’s ongoing responsibilities and obligations under the agreement created a serious injustice for him. In particular, the following provisions of the agreement creates a serious injustice for Mr C:
(1)The requirement that Mr C operate the Richmond coffee shop business for an indefinite period combined with cl 4.7 of the agreement, which states the net sale proceeds were to be allocated on the basis of Ms H receiving a seventh-eighth share of the net proceeds.
(2)Clause 4.2 of the agreement which provides Mr C will determine when the business is to be sold, but under cl 4.8 Ms H has control over the sale process.
(3) Clause 4.6 which caps Mr C’s drawings at $800 per week when his
weekly expenditure is well above that figure.
(4)Clause 4.8 which provided Ms H with an effective right of veto over the sale of the business.
Section 21J(4)(b) – the length of time since the agreement was made
[66] While Mr Somerville properly submitted that the length of time between the agreement and the application was not significant, it was nevertheless a factor that needs to be considered when assessing the impact on Ms H of the agreement being set aside.
[67] I agree with Judge Russell that the delay in applying to set aside the agreement was not a factor that counts against Mr C, particularly as he gave notice of his intention to do so on 2 December 2013. The impact of setting aside the agreement on Ms H is a factor which I evaluate in paragraphs [73] to [80] of this judgment.
Section 21J(4)(d) – whether the agreement has become unfair or unreasonable in light of any changes in circumstances since it was made
[68] Mr Somerville properly accepted Judge Russell correctly identified the decrease in the value of the Richmond coffee shop as a factor that he needed to take into account. Mr Somerville submitted, however, that the extent of the decrease in the value of the business was not significant. Mr Somerville suggested “in reality not much [had] changed [other than] a slight decrease in value rather [than] the
increase that Mr [C] was hoping for”.9
[69] In assessing the evidence, I have been drawn to agreeing with Judge Russell. The consequence of the drop in value of the Richmond coffee shop business was that Mr C would have far greater difficulty selling the business and fulfilling his obligations under the agreement. He has, as Mr Barkle submitted, been placed in a most invidious situation.
Section 21J(4)(e) – the fact the parties wish to achieve certainty
[70] Mr Somerville submitted that the greatest virtue of the agreement was that it provided the parties with certainty. He emphasised how important it was to both Mr C and Ms H for their future financial positions to be resolved, and that it was as much in Mr C’s interest for him to have certainty as it was for Ms H.
[71] In ordinary circumstances there would be much force to Mr Somerville’s submission. Unfortunately, however, in this case, there is scope for significant uncertainty about the parties’ financial positions because of the way the agreement has been framed. While the decision to sell the business appears to be that of Mr C’s, Ms H maintains control over the process. There can be no reasonable certainty that Ms H will necessarily follow advice about the wisdom of accepting what others may consider to be a reasonable offer for the Richmond coffee shop business. In the unusual circumstances of this case, the agreement has had the effect of creating, not resolving uncertainty.
[72] In my assessment, the effect of the change in circumstances since the parties entered their agreement concerning the decrease in value of the Richmond coffee shop business, combined with the uncertainty about the parties’ future financial positions created by Mr C’s ongoing obligations under the agreement, created an agreement which, if given effect to, would result in a serious injustice for Mr C. The parties’ future financial positions are not capable of determination with reasonable certainty. This is a case in which Judge Russell needed to exercise his discretion to set aside the agreement.
Section 21J(4)(f) – any other matters
[73] There are two elements to Ms H’s second ground of appeal. First, it was submitted by Mr Somerville that Judge Russell erred when he assessed the injustice to Ms H as part of the exercise he undertook when applying the factors in s 21J(4)(f) of the Act, rather than as a discrete stand-alone exercise. Second, Judge Russell failed to pay sufficient weight to the injustice Ms H will suffer if the agreement is set aside.
[74] I do not think Judge Russell erred in the way suggested by Mr Somerville when he presented his submissions in support of the first limb of Ms H’s second ground of appeal.
[75] The language of s 21J(1) of the Act requires a Court considering an application to set aside an agreement to have “… regard to all the circumstances …”. “All the circumstances” encompasses consideration of the unfairness that will be suffered by the party seeking to uphold the agreement. No Court should set aside an agreement if doing so will cause equal or greater injustice to the party supporting the agreement. This approach is consistent with the observations of Gendall J in LT v TT, when he said unfairness had to be assessed “in the round” by considering the
issue of serious injustice from the perspective of both parties.10
[76] Judge Russell was very aware that setting aside the agreement would likely cause Ms H to have to sell the Stafford Drive property. When dealing with his analysis under s 21J(4)(f) of the Act, Judge Russell said:11
The question of a serious injustice needs to be looked at from the position of both parties … the discretion to set aside the agreement should not be exercised if to set aside the agreement on the basis of serious injustice to one party creates a similar or greater injustice to the other.
In this case it is accepted that if I set aside the agreement the Stafford Drive property owned by Ms [H] will have to be sold. She would need to find alternative accommodation. She said it would be unlikely that she would receive sufficient net equity from a division of property in accordance with the Act which would enable her to purchase another property of her own. The parties’ son … is now almost 20 years of age and is self-supporting.
10 LT v TT (cited as T v T) HC Blenheim CIV-2008-406-208, 17 March 2009 at [35].
11 H v C [2014] NZFC 8537 at [62]-[63].
[77] Ultimately, Judge Russell concluded that the serious injustice that would be caused to Mr C in giving effect to the agreement outweighed any injustice to Ms H. Judge Russell appeared to accept that concerns about Ms H losing her home were:12
… tempered somewhat by the fact that she would not have been able to acquire the home at all had she not received the disproportionate division of property under the agreement and the $340,000 of the purchase price being jointly borrowed, but solely funded by Mr [C] from his operation of the [Richmond] Coffee House pending its sale.
[78] Judge Russell was correct to consider the impact of Ms H losing her home as a consideration under s 21J(4)(f) of the Act. He was not required to give that issue further consideration as a stand-alone factor or to treat it as being anything other than a matter that it was properly considered under the heading of “Any other matters the Court considers relevant”.
[79] The weight which Judge Russell placed on the injustice to Ms H of setting aside the agreement involved a finely balanced assessment of the parties’ circumstances, including the fact that Ms H had purchased the Stafford Drive property in reliance upon the agreement. Also relevant is the fact Ms H works part- time as a teacher’s aide and has a low income.
[80] I can, however, find no fault with the approach taken by Judge Russell and the conclusion he reached in relation to this particular issue. The fact Ms H is likely to have to sell the Stafford Drive property is a source of considerable regret. However, the reality is the agreement was so heavily weighted in her favour that it catalysed a serious injustice to Mr C. Returning the parties to a position that is closer to where they should have been may result in Ms H losing the benefit of the agreement, including the Stafford Drive property, but that is not in itself a serious injustice.
Conclusion
[81] Ms H’s appeal is dismissed.
12 H v C, above n 11, at [72].
[82] The orders made by Judge Russell concerning the division and sale of the
Stafford Drive property and Richmond coffee shop remain in force.
[83] Ms H is in receipt of legal aid. In these circumstances no order for costs is appropriate.
Solicitors:
Rob Somerville Lawyer, Nelson for Appellant
Symns Law, Nelson for Respondent
D B Collins J
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