Johnson v Simpson

[2013] NZHC 2285

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-006468

[2013] NZHC 2285

BETWEEN

A S JOHNSON

Plaintiff

AND

M L SIMPSON

Defendant

AND

A C STONES AND M L SIMPSON (as

trustees of M SIMPSON Trust) Second Respondents

On the papers

Counsel:

A Fisher for the Applicant

G M Cameron for the Respondents

Judgment:

3 September 2013

JUDGMENT OF GILBERT J

This judgment was delivered by me on 3 September 2013 at 4.00 pm Pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

A S JOHNSON v M L SIMPSON [2013] NZHC 2285 [3 September 2013]

[1]    Ms Johnson1  applies for leave to appeal against my judgment delivered on 24 June 20132  which  allowed,  in  part,  an  appeal  from   a   judgment   of Judge S J Fleming in the Family Court at Auckland.

[2]   Both  parties  appealed  against  the  Family  Court  judgment.    I  dismissed Ms Johnson’s appeal from the Judge’s rejection of her constructive trust claim over the assets of the M L Simpson Trust. I also dismissed all but one of Mr Simpson’s challenges to the judgment.

[3]   The only respect in which I differed from the Family Court Judge concerned the value of Mr Simpson’s life interest in a residential property in Epsom. The value of the life interest depended on Mr Simpson’s life expectancy which the Judge concluded was normal. The available medical evidence, which was not challenged, was that people with the same medical conditions suffered by Mr Simpson have a very limited life expectancy. I therefore considered that an informed, willing, but not over anxious purchaser and a similar such vendor would take this factor into account in assessing the value of Mr Simpson’s life interest in the property.

[4]   In her application for leave to appeal, Ms Johnson identifies six grounds for her proposed appeal to the Court of Appeal. These are that I erred by:

(a)overturning the Family Court’s finding that the evidence fell well short of establishing that Mr Simpson had a reduced life expectancy;

(b)overturning the Family Court’s finding that the only principled basis upon which to calculate Mr Simpson’s life expectancy is by reference to the life expectancy tables;

1       This is not the Applicant’s real name. Pseudonyms have been used for the Applicant and the Respondents throughout this judgment to keep it consistent with the judgment in respect of which leave to appeal is sought. That judgment used pseudonyms to comply with ss 11B to 11D of the Family Courts Act 1980 because it referred to persons under the age of 18 years. The pseudonyms were also used to protect the private medical information traversed in that judgment relating to the First Respondent.

2 [2013] NZHC 1241.

(c)finding that Mr Simpson had a reduced life expectancy in the absence of evidence that Mr Simpson was suffering from a terminal disease and rejecting the actuarial mortality tables;

(d)failing to have regard to the key principles and purposes of the Property (Relationships) Act 1976 including to recognise the equal contribution of the husband and wife to the marriage partnership and to provide for a just division of property between the spouses when their relationship ends;

(e)failing to consider the significance of the applicant’s contribution to the marriage partnership in her constructive trust application; and

(f)failing to consider whether Ms Johnson had a claim in constructive trust in circumstances where, due to Mr Simpson’s conduct, the value of a trust asset has increased (in this case the reversionary interest) resulting in a corresponding decrease in the value of a relationship property asset (in this case the life interest) on the basis that the unjust enrichment of the trust to the detriment of Ms Johnson makes it unconscionable not to recognise such a claim.

[5] Leave to appeal may not be granted unless the proposed appeal raises some question of law or fact capable of bona fide and serious argument involving some interest, public or private, of sufficient importance to outweigh the cost and delay of a further appeal. A second appeal is not generally justified merely to correct error. An  alleged  error  on  a  question  of  fact  will  seldom  justify leave  being  granted

because the primary function of the Court of Appeal hearing a second appeal is to clarify the law and determine whether it has been applied correctly.3

[6]   The first three proposed grounds of appeal do not raise any question of law, nor did they raise any issue of public interest. They all concern Mr Simpson’s life expectancy, which must be determined as a question of fact based on the evidence.

3 Waller v Hider [1998] 1 NZLR at 412.

The medical evidence presented to the Court concerning Mr Simpson’s reduced life expectancy was not contested.

[7] In allowing this part of Mr Simpson’s appeal, I reduced the value of the life interest from the figure of $875,000 adopted by the Judge to $300,000. This had the effect of reducing Ms Johnson’ interest in the relationship property by half of this difference, being the sum of $287,500. However, for reasons which I will now explain, this difference is only partly due to my conclusion that Mr Simpson has a reduced life expectancy. The sum at issue on the proposed appeal is therefore less than this figure.

[8]     The Judge was presented with three valuations of Mr Simpson’s life interest in the property, two from registered valuers, Mr Gamby and Mr Edginton, and one from  an  actuary,  Mr  Davies.    These  valuations  were  $210,000,  $240,000  and

$875,000 respectively. Mr Davies’ valuation of $875,000, which the Judge accepted, was based on the following assumptions and methodology:

(a)Mr Simpson has a normal life expectancy;

(b)the Epsom property will not increase in value over the 53 year period covered by the standard mortality table he used;

(c)the value of the life interest should be derived by calculating the value of the reversion and deducting this from the market value of the property; and

(d)the value of the reversion should be calculated by taking the probability that Mr Simpson  will  die  in  each  year  over  the  next 53 years based on the standard mortality table and applying that probability to the present day value of the property discounted at an after tax rate of 5 per cent per annum. The value of the reversion is then arrived at by aggregating the sums so produced for each year over the 53 year period.

[9]   The two primary reasons for the marked difference between the valuations of the life interest arrived at by Messrs Gamby and Edginton on the one hand and Mr Davies on the other, were:

(a)Messrs Gamby and Edginton based their assessments on the medical evidence that Mr Simpson has a  reduced  life  expectancy whereas Mr Davies assumed that Mr Simpson has a normal life expectancy; and

(b)Messrs Gamby and Edginton assumed that rentals would rise for the purposes of their valuations which were based on the discounted cashflow methodology. Mr Davies assumed that the Epsom property will not increase in value over the next 53 years.

[10] I considered that Mr Davies’ assumption that residential properties in Epsom will not increase in value for the next 53 years could not be justified and was inconsistent with his adoption of an after tax discount rate of 5 per cent per annum over this period. The zero property inflation assumption was just as significant as the assumption that Mr Simpson has a normal life expectancy. Both contributed to the Mr Davies’ overstatement of the value of the life interest. Based on other calculations  carried  out  by Mr  Davies,  it  appeared  that  if  property inflation  of

2.5 per cent per annum was assumed, his valuation would reduce from $875,000 to approximately $550,000.

[11] I further reduced that figure of $550,000 to $300,000 to reflect Mr Simpson’s reduced life expectancy. The amount at issue in relation to the life expectancy point considered in isolation is therefore only half this difference, namely $125,000. I do not consider that this sum is sufficiently significant to justify the further cost and delay of a second appeal.

[12] The fourth ground of the proposed appeal is that I failed to have regard to the key principles and purposes of the Property (Relationships) Act 1976 which are to provide for a just division of property between the spouses when a relationship ends. There  was  no  contest  that  Ms  Johnson  was  entitled  to  half  of  the  relationship

property. The issue was how much that property was worth. I do not consider that this ground of appeal raises any question of law or fact capable of bona fide and serious argument justifying the cost and delay of a further appeal.

[13] The fifth ground of Ms Johnson’ proposed appeal concerns the rejection of her constructive trust claim against the assets of the trust. This claim was rejected in the Family Court and I upheld that decision on appeal. There was no basis for the constructive trust claim because Ms Johnson did not make any contributions to the acquisition, preservation or enhancement of trust assets, nor did she claim otherwise. She confirmed in an affidavit that all of her contributions were for the benefit of herself and her family. In these circumstances, I do not consider that this ground of Ms Johnson’ proposed appeal raises any issue capable of bona fide and serious argument.

[14]The final ground of Ms Johnson’ proposed appeal is that I erred by:

failing to consider whether Ms Johnson had a claim in constructive trust in circumstances where, due to Mr Simpson’s conduct, the value of a trust asset has increased (in this case the reversionary interest) resulting in a corresponding decrease in the value of a relationship property asset (in this case the life interest) on the basis that the unjust enrichment of the trust to the detriment of Ms Johnson makes it unconscionable not to recognise such a claim.

[15] This proposed ground of appeal appears to relate to Ms Johnson’ contention that Mr Simpson increased the value of the trust’s asset, namely the reversion, by abusing alcohol and thereby reducing the value of his life interest. This ground of appeal is not capable of serious argument. First, the constructive trust claim was not advanced on this basis in the Family Court. Second, this issue was not raised in support of Ms Johnson’ appeal to this Court. Third, the proposed ground does not give rise to a tenable basis for a constructive trust claim in any event.

[16] After my judgment was issued, Ms Johnson applied for it to be recalled pursuant to r 11.9 of the High Court Rules so that I could consider awarding compensation under s 18C of the Act on the basis that the value of the life interest had diminished in value as a result of Mr Simpson’s deliberate abuse of alcohol. Ms Johnson acknowledged that no such claim was made in the Family Court and the

issue was not raised in her cross-appeal. In these circumstances, I declined to recall my judgment. I do not consider that it would be proper to allow Ms Johnson to subvert the effect of my decision on the recall application by allowing her to raise this issue in a second appeal, in circumstances where it was not raised in the Family Court or at the hearing of the appeal in this Court.

[17]   For the reasons I have given, the application for leave to appeal to the Court of Appeal must be declined.

Result

[18]     The application for leave to appeal to the Court of Appeal is dismissed.

[19]  The respondents  are entitled  to  costs  in respect  of  this  application  on a 2B basis.

M A Gilbert J