Joyce v Bowen
[2014] NZHC 457
•20 March 2014
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 WELLINGTON REGISTRY
CIV 2013-485-4078 [2014] NZHC 457
BETWEEN MR JOYCE First Appellant
AND MR JOYCE, MR P J M AND MR B J K
as trustees of the Joyce Trust
Second Appellants
ANDMS BOWEN Respondent
Hearing: 19 February 2014
Counsel: J J Delany for Appellant
F M Gush for Respondent
Judgment: 20 March 2014
JUDGMENT OF RONALD YOUNG J
Introduction
[1] Mr Joyce and Ms Bowen began living together in 1998 and married in 1999. They separated in 2011. There were no children of their marriage. In the Family Court after the parties separated there was a dispute over the classification of an insurance commission pool worth $182,000; the classification of a $150,000 loan by Ms Bowen to the Joyce Trust (the Trust); and there were applications by Ms Bowen
for orders under s 44C of the Property (Relationships) Act 1976 and s 182 of the
JOYCE v JOYCE, P J M & B J K v BOWEN [2014] NZHC 457 [20 March 2014]
Family Proceedings Act 1980. Other relationship property issues were disputed but they form no part of this appeal.
[2] The Judge in the Family Court concluded that:
(a) the insurance commission of $182,000 was relationship property; (b) the $150,000 was Ms Bowen’s separate property; and
(c) he could make orders under both s 44C and s 182.
[3] As to order (c), at the time of the parties’ separation, there was no family home owned by Mr Joyce or Ms Bowen. The parties lived in a house at Golf Road which was at the time of separation, the Trust’s primary asset. The Trust had bought and sold a number of properties during the marriage at a significant profit. The Judge concluded that Mr Joyce had significantly benefited from the Trust during the marriage. Further, the Judge was satisfied Mr Joyce had transferred relationship property to the Trust. The effect of the Judge’s s 44C and s 182 orders was that Ms Bowen was to receive half of the equity in the Golf Road property. The equity in the Golf Road property was approximately $279,000 (after the Trust had repaid its loans from Ms Bowen). Mr Joyce was required to use his half share ($91,000) of the insurance commission pool to pay Mrs Bishop of her half share in Golf Road. In addition, Ms Bowen received $48,000 from the Trust to make up her entitlement of
$139,000 (half the Golf Road equity) from an order made under s 182.
[4] In this appeal the appellant challenges the two classification decisions relating to the $182,000 commission pool and $150,000 loan and the orders made in relation to s 44C and s 182.
The $150,000 loan
[5] To understand the classification decisions, it is necessary to trace the history of the asset. I begin with the $150,000 sum.
[6] When the parties began their relationship, Ms Bowen had an unencumbered house in Tolhurst Street. Mr Joyce who is an insurance agent had shares in two companies, Cliff Paul & Associates Limited (CP Ltd) and FINANZ Limited (FINANZ Ltd) which were used as vehicles by him to run his insurance agency. Mr Joyce had also set up the Trust in 1997 which by 1998 owned a property at Stellin Street, Lower Hutt in which it possessed $30,000 of equity.
[7] After the parties began living together they shifted into Ms Bowen’s
Tolhurst Street property. This converted that property into the family home.
[8] By the end of 1998 the parties had purchased a house in Rosetta Road for
$300,000 and began living in it. They left the Tolhurst Road property which had the effect of returning that property to Ms Bowen’s separate property.
[9] The parties’ intention was that each would contribute $150,000 to the purchase price of Rosetta Road. Ms Bowen borrowed $150,000 against her Tolhurst Street property. Mr Joyce apparently borrowed his contribution from Guardian Assurance Life Company (later called Sun Alliance) who was the mortgagee of Stellin Street (the Trust property). His borrowing (unlike Ms Bowen’s) was secured against the Rosetta Road property.
[10] In the Family Court Mr Joyce’s case was that the Trust had been the purchaser of the Rosetta Road property and not himself and Ms Bowen. That claim was rejected by the Judge and not challenged on appeal in this Court. That was hardly surprising. The evidence that the parties were the initial purchasers of Rosetta Road was overwhelming.
[11] Immediately after purchase the parties subdivided the land at Rosetta Road creating a new section which was sold for $53,000. That sum was then used by them as part of the funds to pay for house improvements at Rosetta Road. The renovations undertaken cost about $80,000.
[12] About seven months after the purchase the Trust (at least on one view of the facts) purchased Rosetta Road from Mr Joyce and Ms Bowen. The circumstances regarding the sale of Rosetta Road to the Trust are extremely concerning. Ms Bowen says that she had never agreed to such a sale and was not aware until some time later that the house had been transferred into the Trust’s name.
[13] Of significance is that there is no documentation which evidences the sale to the Trust. There is no evidence of a sale price nor of the terms of any such sale.
[14] However, in the Family Court and in this Court the case proceeded as if the sale was a fait accompli. Given Rosetta Road was subsequently sold to a bona fide purchaser for value nothing could be done to “recover” the Rosetta Road property.
[15] The subsequent accounts of the Trust show that at the time it purchased Rosetta Road the Trust agreed to assume liability for the mortgage obtained by Mr Joyce from Guardian Assurance. This was his share of the original purchase price of Rosetta Road. There was no acknowledgement by the Trust of Ms Bowen’s
$150,000 contribution to the original purchase of Rosetta Road.
[16] There was some suggestion in the evidence in the Family Court that the Trust had purchased the Rosetta Road property for $90,000. The memorandum of transfer recorded the consideration as $90,000. However, there was no clear evidence to establish this claim. A sale at such a price would have involved a substantial gift by Mr Joyce and Ms Bowen to the Trust. Certainly Ms Bowen would not have made any such gift. There was no evidence of such a gift. Such a sale price was also in conflict with the evidence that the Trust took over a $165,000 mortgage at sale which had been secured against the property.
[17] A month or so after the transfer of the property to the Trust, the Trust accounts (for the year ended March 2000) show the value of Rosetta Road as
$360,661 and a debt to Guardian Assurance secured over the Rosetta Road property of $165,000. These accounts, therefore, assumed the Trust had a $200,000 equity in Rosetta Road. I will return to the use of this equity later in the judgment.
[18] Rosetta Road was sold by the Trust in 2005 for $610,000. On sale Ms Bowen was not paid her $150,000. The accounts of the Trust did not acknowledge any debt to Ms Bowen from the time of the Trust’s purchase of Rosetta Road in early 2000.
[19] The Judge in the Family Court took the view that on sale the Trust must have accepted responsibility for Ms Bowen’s $150,000 debt. It was, therefore, repayable by the Trust.
[20] The Judge concluded that that sum was the separate property of Ms Bowen because by the date of separation (the date on which the classification of the property must be determined) the original $150,000 borrowed by Ms Bowen had been repaid by her to the mortgagee of her Tolhurst Road property when that property was sold.
[21] As I understand the appellant’s case, he accepts that the Trust “owes”
$150,000 from the sale of the Rosetta Road property but submits that the $150,000 is owed to Mr Joyce and Ms Bowen. It is relationship property to be divided equally between the parties. As an alternative submission the appellant says if the $150,000 is Ms Bowen’s separate property then the orders under s 44C and s 182 mean effectively that Ms Bowen has been paid twice for her $150,000 contribution to Rosetta Road.
[22] As to the $150,000 and its status, it is necessary to analyse what happened to the $150,000 in the Rosetta Road sale and the Trust’s actions to determine this question. As I have noted there is a lingering concern about the facts on which this analysis must be based. It is based on the assumption that Ms Bowen agreed to sell the property to the Trust when the evidence is that she probably did not.
[23] The appropriate analysis, however, based on that assumption of a sale is as follows. Rosetta Road was sold by the parties to the Trust. There is no suggestion that the sale was at anything other than market value. There is no direct evidence of market value but there is considerable evidence from which a market value can be reasonably assessed.
[24] The sale price of Rosetta Road seven months before the Trust sale was
$300,000, the purchase price by Mr Joyce and Ms Bowen. After the purchase the parties sold off part of the land for $53,000. This sale is likely to have reduced the value of Rosetta Road somewhat. On the other hand the $53,000 and further money, up to approximately $80,000, was then spent on renovating Rosetta Road. This likely increased the value of the property. The Trust itself valued the property at
$360,000 about a month after the Trust purchase (in its March 2000 accounts). The transfer from Mr Joyce and Ms Bowen is dated 29 February 2000.
[25] However, I note the accounts for the Trust for the year ended March 2000 appear to claim the Trust itself had spent approximately $70,000 on property improvements. This seems highly unlikely given the work done by the parties and the fact that the sale to the Trust occurred only about one month before the March 2000 date for the accounts. A sale price, therefore, from the parties to the Trust of $300,000 is a conservative assessment. For this purpose, I adopt it.
[26] Once the Rosetta Road property was sold to the Trust it lost its classification as the family home. The Trust then repaid Mr Joyce his contribution to the Rosetta Road property by taking over responsibility for his mortgage from Guardian Assurance (by then $165,000). But the Trust still owed Ms Bowen her $150,000. No payment, however, was made.
[27] In 2005 Rosetta Road was sold by the Trust for $610,000. By that time Ms Bowen expected payment of her $150,000 but again no payment was made by the Trust. Ms Bowen sold Tolhurst Street and repaid the $150,000 mortgage she had obtained for the original Rosetta Road purchase.
[28] I am satisfied that from this analysis that as at the date of separation (the date of assessment of the status of property)1 the $150,000 owed by the Trust to
Ms Bowen was her separate property.
1 Property (Relationships) Act 1976, s 2F(1)(b).
[29] As I have noted, once the Rosetta Road property house was sold to the Trust its status as a matrimonial home ended. The source of the $150,000 was borrowing against Ms Bowen’s Tolhurst Street property which was her separate property. The
$150,000 was, therefore, a loan by Ms Bowen from her separate property to the
Trust. And so the $150,000 remained and remains Ms Bowen’s separate property.
[30] Further, Mr Joyce and Ms Bowen should have been treated equally by the trustees. And so Ms Bowen should have had her loan to buy the Rosetta Road house also repaid by the Trust upon purchase from Mr Joyce and Ms Bowen. As with Mr Joyce’s borrowing to buy Rosetta Road, Ms Bowen’s $150,000 was her separate property which the Trust, as purchaser, should have repaid. The fact the Trust failed to do so did not change the character of the $150,000. It remained Ms Bowen’s separate property.
[31] Mr Joyce treated the advance to him from Guardian Assurance (used to pay his share of Rosetta Road) as his separate debt. In the sale to the Trust he arranged for his obligation to Guardian Assurance to be taken over by the Trust. It is therefore difficult to understand why he might feel aggrieved with the conclusion of the Family Court given his ex wife’s contribution to Rosetta Road, in this judgment and in the Family Court, is being treated exactly as he was treated.
[32] Interest on the $150,000 was only sought by Ms Bowen from 2005 when Rosetta Road was sold by the Trust. This was frankly a generous approach by Ms Bowen. However, the failure by the Trust to repay Ms Bowen’s loan when the Trust sold Rosetta Road in 2005 meant that interest would inevitably be payable by the Trust. There can be no basis on which the Trust could have expected that Ms Bowen would agree to continue to provide an interest free loan on a property that the Trust had sold for a substantial capital gain.
[33] The Trust took over Mr Joyce’s obligations (including interest payments) under the Guardian Assurance loan in early 2000. This meant his interest obligations ended then. In contrast Ms Bowen continued to pay interest on her loan. If interest is ordered payable to Ms Bowen from 2005 then the Trust is still advantaged by having an interest free loan from 2000 to 2005, from Ms Bowen.
[34] I am, therefore, satisfied that the Judge’s order was correct that interest should be payable on the $150,000 advance as from the date that the Trust sold the Rosetta Road property in 2005.
[35] I, therefore, dismiss this ground of appeal although my reasoning differs somewhat from the Family Court Judge’s.
[36] As a further submission relating to the $150,000, as I understand it, the appellants say that in making orders identifying the $150,000 as Ms Bowen’s separate property, and in addition making orders under s 44C of the Property (Relationships) Act 1976 and s 182 of the Family Proceedings Act 1980, the Court was effectively paying Ms Bowen twice for the same entitlement.
[37] Section 44C provides as follows:
44C Compensation for property disposed of to trust
(1) This section applies if the Court is satisfied—
(a) that, since the marriage[[, the civil union,]] or the de facto relationship began, either or both spouses or [[partners]] have disposed of relationship property to a trust; and
(b) that the disposition has the effect of defeating the claim or rights of 1 of the spouses or [[partners]]; and
(c) that the disposition is not one to which section 44 applies.
(2) If this section applies, the Court may make 1 or more of the following orders for the purpose of compensating the spouse or [[partner]] whose claim or rights under this Act have been defeated by the disposition:
(a) an order requiring 1 spouse or [[partner]] to pay to the other spouse or [[partner]] a sum of money, whether out of relationship property or separate property:
(b) an order requiring 1 spouse or [[partner]] to transfer to the other spouse or [[partner]] any property, whether the property is relationship property or separate property:
(c) an order requiring the trustees of the trust to pay to 1 spouse or [[partner]] the whole or part of the income of the trust, either for a specified period or until a specified amount has been paid.
(3) The Court must not make an order under subsection (2)(c) if—
(a) an order under subsection (2)(a) or (b) would compensate the spouse or [[partner]]; or
(b) a third person has in good faith altered that person's position—
(i) in reliance on the ability of the trustees to distribute the income of the trust in terms of the instrument creating the trust; and
(ii) in such a way that it would be unjust to make the order.
(4) The Court may make 1 or more orders under subsection (2) if it considers it just to do so, having regard to—
(a) the value of the relationship property disposed of to the trust: (b) the value of the relationship property available for division:
(c) the date or dates on which relationship property was disposed of to the trust:
(d) whether the trust gave consideration for the property, and if so, the amount of the consideration:
[[(e) whether the spouses or partners, or either of them, or any child of the marriage, civil union, or de facto relationship, is or has been a beneficiary of the trust:]]
(f) any other relevant matter.]
[38] Section 182 provides as follows:
182 Court may make orders as to settled property, etc
(1) [On, or within a reasonable time after, the making of an order under Part 4 of this Act or a final decree under Part 2 or Part 4 of the Matrimonial Proceedings Act 1963, a Family Court may] inquire into the existence of any agreement between the parties to the marriage [or civil union] for the payment of maintenance or relating to the property of the parties or either of them, or any ante-nuptial or post-nuptial settlement made on the parties, and may make such orders with reference to the application of the whole or any part of any property settled or the variation of the terms of any such agreement or settlement, either for the benefit of the children of the marriage [or civil union] or of the parties to the marriage [or civil union] or either of them, as the Court thinks fit.
(2) [Where an order under Part 4 of this Act, or a final decree under Part 2 or Part 4 of the Matrimonial Proceedings Act 1963, has been made and the parties have entered into an agreement for the payment
of maintenance, a Family Court] may at any time, on the application of either party or of the personal representative of the party liable for the payments under the agreement, cancel or vary the agreement or remit any arrears due under the agreement.
(3) In the exercise of its discretion under this section, the Court may take into account the circumstances of the parties and any change in those circumstances since the date of the agreement or settlement and any other matters which the Court considers relevant.
(4) The Court may exercise the powers conferred by this section, notwithstanding that there are no children of the marriage [or civil union].
(5) An order made under this section may from time to time be reviewed by the Court on the application of either party to the marriage [or civil union] or of either party's personal representative.
(6) Notwithstanding subsections (1) to (5) of this section, the Court shall not exercise its powers under this section so as to defeat or vary any agreement, entered into under [Part 6 of the Property (Relationships) Act 1976], between the parties to the marriage [or civil union] unless it is of the opinion that the interests of any child of the marriage [or civil union] so require.
[39] The Family Court decision with regard to the orders under s 44C and s 182 arose from the transfer of the Rosetta Road property. The Rosetta Road house at the time of transfer to the Trust was the family home and therefore relationship property.2
[40] As a result of this sale both parties lost their claim to a share of Rosetta Road. Further, the transfer of the property to Trust ownership made it appear the Trust had at least $200,000 of equity in Rosetta Road in 2000. This equity would have contributed to the Trust being able to purchase further properties at Kereru Grove and Matai Road and finally Golf Road.
[41] The Rosetta Road property was sold in 2005 for $610,000. That was
$300,000 more than the purchase price in 2000. In 1999 when the parties were married, the Trust had assets of about $30,000 being the equity in a property at Stellin Street. Even if I take the Trust’s annual accounts at face value by 2010 it had
net assets of approximately half a million dollars.
2 Property (Relationships) Act 1976, s 44C(1)(a).
[42] The Trust’s borrowing over the years fluctuated significantly. It is not possible now to reconstruct how much of that borrowing related to the properties and how much funded other separate expenditure by Mr Joyce and his children who were beneficiaries of the Trust. The latter payments were clearly significant sums. In the tens of thousands if not hundreds of thousands of dollars.
[43] By 2011 it seems that the total equity in the Golf Road property, the only property then owned by the Trust, was about $360,000. As the appellants pointed out, however, there was significant borrowing by the Trust shortly before these figures were assessed.
[44] I mention these matters to illustrate that orders under s 44C and s 182 could not in this case be based on any precise analysis. But as the Judge identified, what is clear was that after discounting the monies owing to Mr Joyce and Ms Bowen relating to the Rosetta Road property, that property provided significant capital gain to the Trust which, in turn, the Trust was able to increase by further property trading after the sale of Rosetta Road. It is this capital gain that the orders compensated for.
[45] The Judge in the Family Court made an order under s 44C in Ms Bowen’s favour of $139,000. For the reasons given, in my view, that was neither any form of double dipping as far as the $150,000 loan was concerned, nor was it an inappropriate award. I reject that ground of appeal.
[46] All grounds of appeal relating to the $150,000 (including in relation to interest) fail.
Life Insurance Commission Book
[47] Mr Joyce sold life insurance. At separation there was a life insurance book which was valued at $183,000. Life insurance agents’ sales of life insurance entitle them to commission from the life insurance company, part of which is immediately payable. Further commission payments are paid periodically for as long as the policy is kept current by the policyholder. These future payments are called the commissions “book” and in Mr Joyce’s case have an agreed value of $183,000.
[48] Mr Joyce argued in the Family Court that the book did not belong to him and was not relationship property. The Judge found otherwise.
[49] The evidence in the Family Court established that the life insurance commission book was owned by FINANZ Ltd. That company was, in turn,
99 per cent owned by CP Ltd. CP Ltd was owned by Mr Joyce (40 per cent) the Trust (40 per cent), and Ms Bowen (20 per cent). Mr Joyce was the sole director of both companies.
[50] The Trust’s settlor was Mr P J M (Mr Joyce’s solicitor) and the appointor was Mr Joyce. At separation the trustees were Mr P J M, Mr Joyce and Mr B J K (Mr Joyce’s accountant) and the discretionary beneficiaries were Mr Joyce and any children he might have.
[51] I am satisfied FINANZ Ltd owned the insurance book asset. Mr Sutherland, Ms Bowen’s accountant, conceded that was so in his evidence at trial. Both Mr Joyce’s and Ms Bowen’s accountants agreed that it was FINANZ Ltd that had contracted with life insurance companies to sell life policies and so it was FINANZ Ltd that was entitled to the residual commission payments and therefore owned the “book” asset.
[52] On any notional winding up of FINANZ Ltd, its assets (being the life insurance book) would be payable (after any debts) to its shareholders. Ninety-nine per cent of the shares were owned by CP Ltd. And so that company would receive
99 per cent of the assets of FINANZ Ltd on any liquidation.
[53] On any notional winding up of CP Ltd it would have to repay its creditors. Its only creditors were its three shareholders who had advanced money to the company. Their advances had to be repaid. The Trust was owed $107,349, Mr Joyce himself $48,319 and Ms Bowen $5,438. The amount left after repayment of these shareholders’ current accounts and taking account of debts and other assets of CP Ltd was $22,484. This would be payable to the shareholders proportionately and would, as far as the share received by Mr Joyce ($8,994) and Ms Bowen ($4,496) is concerned, be relationship property.
[54] First, I consider the status of the $48,319 payable to Mr Joyce from the notional winding up of CP Ltd (his shareholder account). Mr Joyce’s shareholder account was essentially undrawn agents fees due to him from CP Ltd. Mr Joyce submitted that the $48,319 was his separate property. He points to the fact that before marriage (in 1997) he had a shareholder account with CP Ltd which had a balance in his favour of over $139,000. While it had shrunk to $48,319 by the end of the marriage in 2010, the credit in his shareholders account with CP Ltd remained his separate property.
[55] I am satisfied that the Family Court Judge was correct to conclude that the
$48,319 was relationship property. The balance in Mr Joyce’s shareholders account
with CP Ltd varied widely during his marriage. At times it dropped as low as
$20,000. At other times it was much higher. There were significant withdrawals from the account during the 11 years of marriage.
[56] The original funds to his credit in 1997 would have been withdrawn by him during the marriage and replaced with the fees he earned during the marriage. These fees would have been relationship property. The current credit balance, therefore, was more probably than not all earned during the parties’ marriage. I am satisfied, therefore, that the sum of $48,319 is relationship property.
[57] The amount of $5,438 in Ms Bowen’s account is also relationship property accumulated by her during the marriage. It is common ground that Mr Joyce’s share of $8,994 and Ms Bowen’s share of $4,496 of the residue of CP Ltd’s assets (of $22,484) are relationship property. The total value of relationship property in FINANZ Ltd and CP Ltd is therefore $67,247.
[58] The remaining question, therefore, is whether the sum of $107,349 representing the Trust’s shareholder’s account and payable to the Trust on winding up of CP Ltd is relationship property. I am satisfied that the Judge was wrong and that this remaining sum from the insurance book is not relationship property.
[59] As I have noted there appears to be no dispute that FINANZ Ltd currently owns the insurance book. The respondent claims that given the book was never shown on the asset list of FINANZ Ltd and that the commercial reality was that Mr Joyce was the true owner of the book.
[60] This assertion does not change what was accepted by both parties that the contractual arrangements with respect to the life insurance companies were with FINANZ Ltd and not Mr Joyce. The accounts of FINANZ Ltd make it clear that the company received the payments from the life insurance companies and Mr Joyce received in turn commission from FINANZ Ltd for his work for that company. The fact that the insurance book was not shown in the assets of FINANZ Ltd does not affect this conclusion.
[61] Owner is defined in the Property (Relationships) Act 1976 as:3
owner, in respect of any property, means the person who, apart from this Act, is the beneficial owner of the property under any enactment or rule of common law or equity
[62] FINANZ Ltd is the beneficial owner of the book. Mr Joyce is a shareholder in both FINANZ Ltd and CP Ltd. But that does not grant him any beneficial interest in the assets of either company. Nor does Mr Joyce as a discretionary beneficiary in the Trust have proprietary interests in the Trust’s assets.4
[63] The Judge in the Family Court, however, concluded that Mr Joyce had a “bundle of rights” in the insurance book which meant the book was relationship property. The bundle of rights, the respondent argued, arose from Mr Joyce’s dominating position in both companies and the Trust. He could, the respondent said, effectively control the capital interest in the insurance book as his own property.
[64] The beginnings of authority for the concept of a bundle of rights are found in
Z v Z (No 2).5 There, the husband was a partner in a large international accounting firm. The partnership agreement entitled him to a share of profits. Upon retirement
3 Property (Relationships) Act 1976, s 2, definition of “owner”.
4 Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].
5 Z v Z (No 2) [1997] 2 NZLR 258 (CA).
the remaining partners were required to buy out the departing partner’s share in the firm’s assets (including goodwill). The partner was also entitled to an ongoing retirement benefit if he observed a restraint of trade condition.
[65] The Court of Appeal described the bundle of rights in this way:6
As at the date of separation the husband had a beneficial interest in all the assets of the partnership including goodwill; he also had a right to share in its profits, including future profits, a right to a retirement benefit, and a number of other entitlements as well as an expectation of continued membership and the security afforded by it, until anticipated retirement. That expectation clearly extends beyond the life of the present deed and includes entitlement to benefits of the kind presently covered by it. These may be described as the bundle of rights provided by the partnership deed.
[66] In Walker v Walker the Court of Appeal considered the categorisation of a debt owed to the husband by a family trust.7 The Court held that interests in a trust where a spouse is a settlor, trustee, appointor or beneficiary may be relationship property.
[67] The Court said:
[38] We agree the fact the debt is a private debt can lead to complications in valuation. For instance, if a debt owed by a family trust cannot be paid or can be paid only in part, the devaluation of the debt may be compensated for, at least in part, by an increase in value of one party’s or both parties’ interests in the trust – whether his, her, or their interests as settlor, trustee, appointor, or beneficiary, which interests may be relationship property.
…
[48] Thirdly, the wife should not suffer because of a perhaps unwise concession on her part. It seems to have been assumed in the Family Court that the debt was to become the husband’s property. Further, the wife seems to have conceded that certain other assets, which were relationship property and which are related to the debt, were to become the husband’s property. Those other assets were:
(a) the directorship of the trustee company; (b) the shares of the trustee company;
(c) the power to appoint and remove directors of the trustee company;
(d) the power to appoint and remove trustees of the trust;
6 At [286].
7 Walker v Walker [2007] NZCA 30, [2007] 2 NZLR 261.
(e) the parties’ discretionary interests under the trust.
[49] Indeed, those items of property appear never to have been valued. Those five items of property, plus the debt, formed a very valuable package, as together they confer control of the company. The assumption that “the package” was to pass to the husband is confirmed by the draft orders counsel submitted after the hearing. Had the wife put ownership of the package in issue and offered $2.275 million for it, as she could easily have done, the husband would have had to match the offer. Indeed, on the evidence, she could have sensibly offered more than $2.275 million for the package, as the company had by date of hearing restored its profitability and control of the package gave control of the company. The only reason the husband has felt confident about arguing for the lower value of the debt is his assumption that he would be acquiring the package.
[68] I note that the “bundle of rights” concept has come under some criticism from commentators. The Law Commission report pointed out that the:8
… concept of the bundle of rights raises considerable questions about the future judicial treatment of what tend to be very common trust structures in New Zealand. Such a fundamental shift in the legal treatment of powers and interests related to such trust structures, and in the approach to settlor “control” of trusts, demands considerably greater consideration and debate than has taken place thus far.
[69] And Professor Nicola Peart of the University of Otago has criticised the courts’ failure to determine beneficial ownership in accordance with orthodox trust principles when applying the bundle of rights doctrine.9 She has also criticised an argument advanced by the respondent in this case: that holding the power to appoint trustees can convert a discretionary interest to a full beneficial property interest.10
As she points out, an appointor does not have control over the assets of the Trust. The trustees do. If the appointor is a trustee (as Mr Joyce is with respect to the Trust) his power to appoint and remove trustees is subject to fiduciary duties to exercise the power honestly and in good faith.11 The bundle of rights concept
appears to assume that this duty will be breached by the appointor trustee.
8 Law Commission Some issues with the use of trusts in New Zealand – Review of the Law of
Trusts: Second Issues Paper (NZLC IP20, 2010) at [4.39].
9 Jessica Palmer and Nicola Peart “Trust principles overlooked” [2011] NZLJ 423.
10 Nicola Peart “Trusts and Relationship Property” (paper presented Family Court Judges’
Conference, Wellington, 2011) at 21.
11 Andrew Butler “The Trust Concept, Classification and Interpretation” in Andrew Butler (ed)
Equity and Trusts in New Zealand (2nd ed, Thomson Rueters, Wellington) at [3.1.5(3)].
[70] Whatever the exact extent of such a doctrine, I do not consider it can apply in this case. First, as I have noted, FINANZ Ltd clearly owns the insurance book. In contrast with the facts in Z v Z, Mr Joyce has no beneficial interest in the trust assets or indeed any of the company assets. As far as the Trust is concerned, while Mr Joyce is the sole appointor, there are three trustees two of whom are professional persons. They owe fiduciary duties. Mr Joyce, therefore, cannot dominate the Trust. Nor can Mr Joyce unilaterally remove trustees. The two professional trustees are also liable for breach of trust should they fail to act independently or in breach of the Trust Deed. I cannot see good cause to assume that they will fail to act independently or in breach of the Trust Deed.
[71] I am satisfied that the appropriate approach to this case is an orthodox one. I reject the claim that there is any evidence to suggest that Mr Joyce is effectively the true owner of all of the insurance book. Mr Joyce and Ms Bowen own as relationship property $67,247 as their share of the assets of CP Ltd.12 The remaining value of the assets of CP Ltd are owned by the Trust. There is no “bundle of rights” relating to the Trust or the companies which could give property rights to Mr Joyce.
[72] Mr Joyce and Ms Bowen are therefore entitled to share equally the $67,247 representing relationship property in the insurance book and the other assets of CP Ltd. The remaining sum of approximately $107,000 is the property of the Trust.
[73] This conclusion affects the s 44C and s 182 orders. The Judge in the Family Court assumed all of the $183,000 value of the insurance book would be payable to Ms Bowen. Ninety-one thousand five hundred dollars was Ms Bowen’s half share. Ms Bowen was to receive Mr Joyce’s half share of $91,500 as s 44C compensation for the sale of Rosetta Road. However, Mr Joyce’s share of CP Ltd in this judgment is reduced to $33,623 (half share of $67,247).
[74] The Judge in the Family Court concluded that there was a disposition of relationship property to the Trust (the Rosetta Road property) as required for a s 44C order. He concluded given that disposition Ms Bowen was entitled to a half share in the equity in the Golf Road property. This property was owned by the Trust but had
in effect been the family home. There was no evidence before the Court at the hearing as to the equity in Golf Road. The Judge ordered a valuation to be obtained from which the amount owing on the mortgage at the date of hearing of the proceedings was to be deducted. Mr Joyce’s interest in CP Ltd is now only $33,623. That is his only property and therefore the limit of any order that can be made under
s 44C.13 The valuation of Golf Road (as ordered by the Judge) was $545,000, the
equity $279,027 and Ms Bowen’s half share therefore $139,513. Ms Bowen will receive $33,623 as a result of this judgment leaving therefore $105,890 to pay.
[75] In the original notice of appeal the orders under s 44C and s 182 were challenged at the hearing. Those challenges were not pursued. As I have noted the Judge found the jurisdiction for an order under s 182 established although there does not appear to be any s 182 order.
[76] The Judge intended to make an order under s 182 requiring the Trust to pay the difference between half of the equity in the Golf Road property less the s 44C payment. Given the absence of any challenge to this aspect of the Family Court judgment I take the same approach. I propose in addition to the s 44C order to make an order pursuant to s 182 for payment by the Trust to Ms Bowen of $105,890.
Other matters
[77] In this appeal Mr Joyce claimed that the Judge had not classified, nor valued, nor made orders for the division of other property as sought by the parties. The property in question was mostly items of modest value. The respondent disputes the appellant’s claim. The sealed order from the Family Court does not deal with any of the items identified by the appellant under this claim. If the appellant believes that the Judge has not dealt with all matters of property raised by the parties before him, then those matters should be referred to the Judge for his further consideration. This would require the parties to identify the items remaining in dispute and the relevant evidence references. It is not a matter for an appellate court, however.
Orders
[78] The parties should present a draft joint order of the Court giving effect to my conclusions in this judgment. If a joint order cannot be agreed upon then separate memoranda may be filed.
Costs
[79] The parties may feel that each have been successful in part and that no order for costs would be appropriate. However, if costs are sought then the party seeking costs should file a memorandum in support within 14 days and in response within a
further 14 days.
Ronald Young J
Solicitors:
J J Delany, Wellington
F M Gush, Upper Hutt
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