Iak v SAG HC Wellington CIV-2010-485-1694

[2010] NZHC 2427

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-1694

IN THE MATTER OF     the Property (Relationships) Act 1976

BETWEEN  I A K Appellant

ANDS A G Respondent

Hearing:         10 November 2010

Appearances: R P Harley for Appellant

M L Greenhough for Respondent

Judgment:      7 December 2010 at 11.30am

I direct the Registrar to endorse this judgment with a delivery time of 11.30am on the

7th day of December 2010.

RESERVED JUDGMENT OF MACKENZIE J

[1]      This  is  an  appeal  from  a  judgment  of  the  Family  Court  delivered  on

24 August 2010.

[2]      The parties had been involved in a de facto relationship which ended in February 2007.   It was a relationship of short duration.   A relationship property claim was heard in the Family Court before Judge Grace in June 2009.  Under s 14A of the Property (Relationships) Act 1976 the division of relationship property was to be in accordance with the contribution of each partner to the relationship.   In his judgment delivered on 25 June 2009 the Judge assessed the division as 70 per cent to

the respondent and 30 per cent to the appellant.  The Judge made a factual finding

I A K V S A G HC WN CIV-2010-485-1694  7 December 2010

that the relationship commenced on or about 18 March 2005, and it was common ground between the parties that it concluded on 5 February 2007.

[3]      Among the assets in issue were several parcels of shares in EDS Corporation, the respondent’s employer.   This shareholding was described in the judgment in these terms:

[47]In terms of his employment Mr Griffin was granted a number of shares as part of a performance reward, but the exact number of shares  did  not  vest  for  a  three  year  period  and  the  vesting  and number was tied in to how the Company performed over that intervening period. Consequently at the date of separation there were two tranches of shares that were “allocated” to Mr Griffin, but had not at that point vested.

[48]Mr B Higgins, an actuary, had been asked to undertake an actual assessment of the value of the shares based at the date of separation. He undertook that assessment, and although acknowledging that it is a difficult concept, and has to have a number of matters factored in, he reached the view that Ms King’s interest in both tranches amount to a total of US$38,000.00.

[49]As at the date of this hearing those two tranches of shares have vested, and are worth substantially more.

[50]Perhaps unsurprisingly Ms King argues that there should be a date of hearing valuation in respect of those shares whereas Ms Greenhough argues that the Court should stick with the date of separation value. In determining that matter, the Court has the ultimate discretion. In exercising that discretion what is relevant in my view is the fact that in order to have the shares vest in him Mr King was required to continue at his employment (where he was engaged in a managerial position) and ensure that the Company maintained a degree of profitability. It would appear in listening to Mr Higgins that the Company was in some financial difficulty, and has recently been “rescued” by another international company in effect taking it over. The significance of all of this is that Mr Griffin has done what he was required to do in the intervening two years so as to ensure the shares vested in him. Had he not done that then there would have been   nothing   to   vest   and   both   parties   would   have   been disadvantaged.

[51]In my view therefore the appropriate date for fixing the value of the shares is at the date of separation and that date is fixed accordingly.

[4]      The respondent appealed against that judgment.  The question on the appeal was whether the Family Court division was correct.   By a judgment delivered on

3 March 2010, Miller J allowed the appeal, adjusting the division to 61 per cent to the respondent and 39 per cent to the appellant.  The EDS shares were not in issue in

that appeal.   Miller J  described it as common ground that the additional shares acquired by the respondent as part of his remuneration were relationship property and the value of those shares was agreed at $120,047.  For completeness, I note that the  appellant  has  been  given  leave  to  appeal  to  the  Court  of  Appeal  from  the judgment of Miller J, and notice of appeal was filed on or about 4 November 2010.

[5]      The matter was later brought back before Judge Grace by the appellant for reconsideration of four issues.   The appellant’s application took the form of an application for orders giving better effect to orders made under s 25.  Following a hearing on 13 August 2010 the Judge delivered judgment on 24 August 2010.  Two of the four issues involved the EDS shares.   The Judge held that the matter was res judicata.  The appellant now appeals against that decision.

[6]      The EDS shares were issued as performance bonuses to the respondent.  The issue of the relevant shares followed from an initial issue of restricted stock units (RSUs).  In each year, the company made an award of a specified number of RSUs to a number of senior staff, including the respondent.   The shares did not issue immediately, nor, necessarily, in the same number.  The actual number of shares to be issued as  common stock from the RSUs was calculated on the basis of the performance of the company against certain specified targets, over a three year period.   The vesting date of the shares issued under that process was a date some eight weeks after the end of that performance period.

[7]      The respondent engaged Mr Higgins, an actuary, to value his entitlement arising from those RSUs at the separation date.  Mr Higgins analysed two awards of RSUs.   The first was an award of 5,000 RSUs on 31 March 2005, for which the performance period was 1 January 2005 to 31 December 2007.   Mr Higgins noted that the company had achieved 84.75 of the performance target and the respondent was  awarded  4,245  shares  on  25 February 2008.    Of  those,  50  per cent  vested immediately  and  the  balance  were  restricted  from  sale  for  12 months,  until

25 February 2009.   In valuing the rights attaching to the RSUs as at an agreed separation date of 5 February 2007, Mr Higgins noted that at the separation date two of the three required vesting years had been completed and the EDS performance was somewhat behind target.  He considered 70 per cent of the target award to be a

fair assessment at separation date.   He made a further discount of 20 per cent to allow for the resignation and mortality risk for the respondent and market risk for the company, and for discounting to separation date to reflect the remainder of the vesting period until 28 February 2009.  He calculated the average EDS share price over  the  three  year  period  at  1 January 2005,  2006,  and  2007  at  US$24.    He accordingly valued the 2005 award at separation date at:  5,000 x 0.7 x 0.8 x US$24

= US$67,200.

[8]      The  second  parcel  was  an  award  of  4,100  RSUs  on  15 March 2006. Mr Higgins adopted a similar process for valuation to that which he had used for the

2005   RSUs.      The   three   year   performance   period   was   1 January 2006   to

31 December 2008.  He noted that the company’s results for the 2006 financial year were ahead of target on two of three measures and assessed it as reasonable to assume that the target was as likely to be met as not, so made no discount for the factor.   For the contingencies surrounding the future period to elapse before the shares  vest  in  full  and  become  liquid,  he  allowed  an  aggregate  discount  of  40 per cent.   The value of the 2006 award at separation date was accordingly put at:

4,100 x 0.6 x US$24 = US$59,040.

[9]      Mr Higgins also referred to further RSU awards made on 15 March 2007 and

13 February 2008.    He  said  that  those  awards  were  made  post  separation  and accordingly had no value for relationship property purposes.

[10]     Mr Higgins’ valuation for the two relevant parcels of RSUs at separation date was accordingly (in round figures) US$77,000.  That figure was incorporated in the agreement as to the extent of relationship property recorded in [9] of the judgment of Miller J at NZ$120,047.  No challenge was made to Judge Grace’s finding that the appropriate valuation date was the date of separation.

[11]     Counsel for the appellant submits that the Family Court erred in its finding in the judgment of 24 August 2010 now under appeal that the matter of the EDS shares was res judicata on two grounds:

a)       That  the  court  failed  to  include  the  2007  RSUs  in  its  decision delivered   on   25 June 2009,   and   those   RSUs   were   relationship property;  and

b)The valuation of the 2005 and 2006 RSUs relied on in the Court’s judgment of June 2009 was made on the basis that the shares had not yet vested, when in fact they had.

[12]     The appellant’s submission on the first aspect is that the judgment did not address the 2007 shares, so that there has been no decision on those shares and accordingly the Family Court has jurisdiction to make an order in respect of those shares.  The appellant submits that it remains open to the Family Court to make a determination as to whether or not the 2007 award of RSUs constitutes relationship property.

[13]     I  consider  that  the  Judge’s  conclusion  that  this  aspect  of  the  case  was res judicata is  correct.    The  purpose  of  the  hearing  which  led  to  the  judgment delivered on 25 June 2009 was to determine the extent of relationship property, and the entitlement of the parties to that relationship property.  In the passages which I have cited above, the Judge referred to Mr Higgins’ evidence and he adopted that valuation, accepting Mr Higgins’ view that the appellant’s interest in both tranches (the 2005 and 2006 RSUs) amount to a total of US$38,000.   While he did not explicitly  refer  to  Mr Higgins  evidence  that  there  were  further  RSU  awards  in March 2007 and February 2008, his judgment necessarily involves an acceptance of Mr Higgins evidence that those awards were made post separation and accordingly have no value for relationship property purposes.   No finding to that effect was necessary, because that proposition had not been challenged.  Mrs Greenhough for the respondent submits that Henderson v Henderson is entirely on point with the

present case.[1]   There, the Court said:

[1] Henderson v Henderson [1843-1860] All ER 378.

…  The plea of res judicata applies, except in special case, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the  subject  of  litigation  and  which  the  parties,  exercising  reasonable diligence, might have brought forward at the time.

[14]     That proposition does apply here:  the possibility that the 2007 RSUs might be  relationship  property  was  clearly a  potential  issue  in  the  June 2009  hearing. Accordingly, I consider that there is a finding, binding on the parties, to the effect that neither the 2007 nor the 2008 RSUs are relationship property.

[15]     That means that the proper way of challenging that finding, if it were later contested, would have been by appeal against the June 2009 judgment, supported if necessary by an application to adduce further evidence on that appeal.  In this case, there has already been an appeal against that judgment, but this point was not raised.

[16]     Those findings make it unnecessary for me to address the substance of the issues advanced by the appellant.  However, in view of the fact that there is still an extant appeal to the Court of Appeal, it may be desirable for me to address, at this stage, the substance of the contentions raised.

[17]     Mrs Harley advanced argument directed to the factual issue of when the 2007

RSUs were first awarded.   She challenges the factual correctness of Mr Higgins’

assessment that the date of award was post separation.

[18]     The date of separation was not in issue in the Family Court.  The parties were agreed that it was 5 February 2007.  The Judge recorded that in [1] of his judgment dated 25 June 2009.   The document which was in evidence in the Family Court recording the grant of the 2007 RSUs to the respondent was a document issued by EDS to the respondent.   That recorded that the respondent had been granted “performance vesting restricted stock units of EDS common stock, subject to restrictions described in this agreement”.   There was a performance RSU target award  of  3,500.    The  document  said:    “This  grant  is  made  pursuant  to  the performance RSU award agreement dated as of March 15 2007 between EDS and you, which agreement is attached hereto and made a part hereof”.  That agreement contained the following:  “This performance RSU award agreement … is made and entered into effective as of March 15 2007 (the “date of grant”)”.

[19]     March 15 2007 was of course after the date of separation.  Mrs Harley bases her submission that the 2007 RSUs should be included as relationship property on a

document obtained by the appellant after the June 2009 hearing in the Family Court. That is a report by EDS filed with the United States Securities and Exchange Commission which records the following:  “On February 5 2007, the Compensation and Benefits Committee of the Board of Directors of EDS approved the grant of performance vesting restricted stock units and stock options to EDS’ executive officers effective as of March 15 2007”.  The document records:  “All PRSUs and stock options will be awarded under the amended and restated 2003 Incentive Plan of EDS.

[20]     It is not entirely clear that the grant of the RSUs to the respondent was covered by the decision of the Compensation and Benefits Committee of the Board of  Directors  of  EDS  made  on  February 5 2007.    That  refers  to  several  named executive officers, who do not include the respondent.  But even assuming that that resolution  of  the  directors  did  extend  to  the  issue  of  the  2007  RSUs  to  the respondent, I do not consider that that has the result that the date of issue of the RSUs should be taken as February 5 2007.   Whatever preliminary steps may have been taken by the board, it is clear that the operative date of the issue of the award was  15 March 2007.    That  effective  date  is  included  in  the  notice  given  to  the Securities and Exchange Commission, and it is the effective date of the documentation entered into between EDS and the respondent.  That was the correct date to use in determining whether there was relationship property in existence at the date of separation.

[21]     That conclusion makes it unnecessary for me to consider whether events which occurred on 5 February 2007 in the US could give rise to relationship property in respect of a relationship which ended on 5 February 2007 in New Zealand, having regard to time differences between the two countries.

[22]     For these reasons, this appeal, so far as it relates to the 2007 RSUs, must fail.

[23]     The second issue relates to the valuation of the 2005 and 2006 RSUs.  In his valuation, Mr Higgins made a discount for the contingencies involved in the fact that the RSUs did not give rise to an award of shares which the respondent could sell until dates after the separation date.  In fact, the 2005, 2006 and 2007 EDS shares

became vested in August 2008 upon the merger of EDS and HP.  Ms Harley submits that this fact should have been reflected in Mr Higgins’ valuation of the shares at the date of separation.  His valuation was finalised on 8 December 2008, in response to a request from counsel for the respondent dated 14 July 2008.  The shares apparently vested in August 2008, as a result of the takeover.

[24]     This  is  an  aspect  which  was  known  at  the  date  of  the  hearing  before Judge Grace in June 2009.  It could have been explored at that hearing.  In fact, it was touched on then.   In cross-examination at the hearing before Judge Grace in June 2009, Mr Higgins was asked whether he realised that the EDS stock had in fact all vested by then.  He said that he had recently become aware of that.  The possible implications of that factor on his valuation were not explored beyond that.

[25]     The implications of the August 2008 vesting were clearly a matter which was, or should have been, addressed at the original hearing.  The implications of that vesting on Mr Higgins’ valuation was a topic which could have been pursued in cross-examination.   The Judge accepted Mr Higgins’ valuation in accordance with his report.  This matter was the subject of an application by the appellant to Miller J for recall of his judgment of 3 March 2010.   In a minute issued on 12 April 2010

Miller J said:

[2]Although   described   as   a   recall   application,   the   application effectively seeks to reargue the appeal.   IAK contends that the distribution of EDS shares was overlooked, and the decision to not take into account direct financial contributions of $134,375 and non- financial contributions that she made by allowing her property to be used as security.

[26]     The application for recall was dismissed.   The appellant has subsequently sought  to  reopen  the  issue  before  Judge Grace.    That  was  not  an  appropriate procedure.   Again, the proper course would have been to seek to adduce further evidence on the appeal.   That was not done.   On the facts, any application would inevitably have failed, because the evidence as to the date of vesting was not fresh, so as to meet the test for admission of new evidence on an appeal.  I am satisfied that Judge Grace’s conclusion that this aspect too is res judicata is correct.

[27]     For these reasons, the appeal is dismissed.

[28]     The respondent is entitled to costs on this appeal, which I fix on a 2B basis.

“A D MacKenzie J”

Solicitors:           S Dyhrberg, Solicitor, Wellington for Appellant

Costa Varuhas & Co for Respondent