Lavery v Lavery
[2018] NZHC 3235
•10 December 2018
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,
11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-693
[2018] NZHC 3235
UNDER the Property (Relationships) Act 1976 IN THE MATTER
of an appeal against a Division of
Relationship Property Order and Costs Order
BETWEEN
MICHAEL DAVID LAVERY
Appellant
AND
MARGARET PATRICIA LAVERY
Respondent
Hearing: 23 November 2018 Counsel:
Appellant in Person
F Ah Mu and K Ah Kuoi for Respondent
Judgment:
10 December 2018
JUDGMENT OF THOMAS J
Table of contents
Introduction [1]
Background [2]
Hearing 13 September 2017 [3]
The family home [4]
Financial assets [6]
Westpac home loan account [7]
Reserved decision 21 November 2017 [12]
Costs decision 3 August 2018 [14]
LAVERY v LAVERY [2018] NZHC 3235 [10 December 2018]
Decision on application for a rehearing 3 August 2018 [16]
The appeal [17]
Final order charging Mrs Lavery with mortgage interest of $944.60 [23]
Analysis [26]
Rates and insurance charged to Mr Lavery [38]
Inheritance [41]
Evidence before the Family Court [42]
$5,000 from Mr Lavery’s father, who died on 9 July 1988 [42]
$20,161.93 from Mr Lavery’s Godmother, who died on 11 May 1989 [45]
$13,022.38 from Mr Lavery’s stepmother, who died on 16 March 2006 [48]
$10,561.89 from Mr Lavery’s grandmother, who died on 22 April 2010 [50]
$15,600 from Mr Lavery’s mother, who died on 11 May 2011 [52]
Evidence adduced for the appeal [58]
Analysis [72]
Result [98]
Introduction
[1] This appeal concerns various decisions of the Family Court relating to the division of relationship property of the appellant, Michael Lavery, and his estranged wife, Margaret Lavery.
Background
[2] In June 2016, Mrs Lavery filed an application in the Family Court for the division of relationship property. In August 2017, Mrs Lavery filed an application for orders for possession of the family home and costs.
Hearing 13 September 2017
[3] A hearing took place on 13 September 2017, as a result of which the Family Court Judge issued an oral decision.1 It appears the hearing had proceeded in a somewhat unusual fashion, with the consent of all parties, in an effort to try to settle matters without the need for a judicial determination. This was successful to a limited extent. At the end of the hearing day, the Judge made certain orders, saying she would give written reasons at a later date in respect of the more contentious issues.
1 Lavery v Lavery [2017] NZFC 7379.
The family home
[4] The Judge granted Mrs Lavery’s application for orders for possession of the family home. It is apparent Mr Lavery’s preference was to purchase Mrs Lavery’s interest in the home but that was simply not possible. The Judge made an order for sale.
[5] Mr Lavery had lived in the home from the time of separation in May 2014. It seems work was required to the home to make it more marketable.2 The Judge ordered that, as from 27 October 2017, Mrs Lavery had the right to occupy the home and undertake that work.
Financial assets
[6] The Judge made an order that Mrs Lavery was to retain as her separate property her AMP Kiwisaver Superannuation account ($9,152.29 as at the date of separation) and bank accounts in her name. Mr Lavery was to retain as his separate property the Co-operative Bank and TAB accounts in his name and any other bank accounts in his name, save for the Westpac home loan account which was used as a revolving credit account (the Westpac home loan account). The Judge held that Mr Lavery had not established the funds in the Co-operative bank account were his separate property and ordered a $20,000 cash adjustment in Mrs Lavery’s favour, to balance the division of the financial assets.
Westpac home loan account
[7] As at the date of separation in May 2014, the outstanding balance of the Westpac home loan account was $43,943,3 plus an additional $5,000 Mr Lavery had advanced to Mrs Lavery for the purpose of her purchasing a motor vehicle. As at the date of the Family Court hearing in September 2017, the balance of the home loan
2 Mrs Lavery’s affidavit evidence was that Mr Lavery was a hoarder and did not maintain the house and grounds while in occupation. She estimated she would incur expenses of $6,375 in preparing the family home for sale, including mortgage payments and insurance costs.
3 Mrs Lavery’s affidavit of 14 August 2017 says the mortgage as at 27 May 2014 was $44,234.54. Mr Lavery says the figure was $46,324.17 inclusive of some costs incurred by Mrs Lavery. I have used the figure taken by the Judge at the hearing on 13 September 2017 which was discussed with the parties.
account was approximately $65,000. Mrs Lavery accepted that certain relationship debts meant she was liable for half of $46,324.17 plus $5,000 in respect of the car, totalling $51,324.17. The Judge agreed with that assessment.
[8] The Judge therefore assessed Mrs Lavery’s liability at half of $51,324.17 plus interest and monthly bank fees for the period from separation to the date of sale. She observed that the final figure would need to be calculated as at the date of sale and information would be required from the bank as to the average interest rate payable for the relevant period.
[9] The balance of the mortgage was to be the sole responsibility of Mr Lavery. The Judge considered Mr Lavery had continued to have the use and benefits of the funds in that account and had used it for his personal expenses from the date of separation. Rates, insurance and mortgage interest had also been paid from the account, estimated to be in the vicinity of around $25,000 over the three-year period. Calculating that to be the equivalent of around $160 per week, the Judge was satisfied it was no more than Mr Lavery would have had to pay had he rented a property rather than occupied the former family home.
[10] Conversely, the Judge declined to make an order for occupational rent for Mrs Lavery. Although she did not articulate the reasons, it can be inferred this was in light of the relatively short period Mrs Lavery was to occupy the property and the effort required by her to prepare the property for sale.
[11]Costs were reserved.
Reserved decision 21 November 2017
[12] On 21 November 2017, the Judge issued a reserved decision in respect of her reasons for the orders she made on 13 September 2017.4 Of particular relevance to the appeal was her explanation as to why she did not accept the funds in the Co-operative Bank were Mr Lavery’s separate property. She noted the onus on the party seeking to rebut the presumption in s 8(1)(e) of the Property (Relationships) Act
4 Lavery v Lavery [2017] NZFC 9308.
1976 (the Act) and an onus to demonstrate on the facts that s 9(2) applied. The Judge noted that bank accounts which hold a blend of separate property and relationship funds will become relationship property. She reasoned:
[9] Although some of the funds received by Mr Lavery during the course of the relationship were clearly his separate property they lost their separate property status when intermingled with other relationship property funds. The fact that the bank account remained in his sole name did not protect and preserve the funds as his separate property. The court is concerned with the way in which those separate property funds are used.
[10] Mr Lavery was unable to provide evidence which showed these funds had consistently retained their separate property status throughout the relationship. Instead his own evidence indicated that there had been movements in and out of the account and that the account was also used to deposit relationship property funds.
[13] The Judge also addressed Mrs Lavery’s claimed adjustment pursuant to s 18B of the Act for Mr Lavery’s ongoing occupation of the family home after separation. She was in no doubt that Mrs Lavery had made her share of the capital in the home available for Mr Lavery’s sole use following separation and accepted this was a qualifying contribution for the purposes of s 18. She referred to authority to the effect that such a contribution is not sufficient on its own to allow an order to be made under s 18B and that the Court also had to be satisfied that it was just in all the circumstances for such an order to be made. In the Judge’s assessment, the appropriate remedy was for Mr Lavery to be responsible for the increase in the amount of the mortgage from the date of separation in lieu of him paying rent to Mrs Lavery.
Costs decision 3 August 2018
[14] Also relevant to this appeal is the Judge’s costs decision dated 3 August 2018.5 Mrs Lavery sought costs on a 2B basis of $10,324 and disbursements of $4,242.28. Mr Lavery had challenged a number of the individual items claimed, all of which the Judge addressed. Relevant to this appeal, Mrs Lavery also sought reimbursement for rates and insurance she had paid on the family home. Mr Lavery objected to that sum because he was not consulted and he had reached a different figure on his calculations. The Judge said:
5 Lavery v Lavery [2018] NZFC 5352.
[20] I am satisfied that if Mrs Lavery has paid these amounts as she says she has then she is entitled to reimbursement for the full amount paid. No consultation with Mr Lavery was required.
[15] Finally, the Judge addressed Mr Lavery’s objections to the calculation for the final division of relationship property following the sale of the family home, primarily in respect of Mrs Lavery’s mortgage interest liability referred to at [7]. She said:
[22] … I do not accept Mr Lavery’s calculations. As can be seen in the submissions he has made in respect of costs, his calculations cannot be trusted. I prefer the calculations of counsel and have no reason to believe that they are not accurate.
Decision on application for a rehearing 3 August 2018
[16] On the same date, the Judge dismissed Mr Lavery’s application for a rehearing of the hearing conducted on 13 September 2017.6
The appeal
[17] Mr Lavery’s notice of appeal dated 11 September 2018 specifically challenged the interest calculation and “personal payments made on Mrs Lavery’s behalf from the joint mortgage” on the grounds of alleged error of law. He also appealed the costs order, specifically in relation to the rates and insurance sums totalling $660.56, on the grounds they were the only rates and insurance payments Mrs Lavery ever made and, at the time, she was the sole occupier of the family home.
[18]Mr Lavery sought the following relief:
The Order that I want the court to make is simply to apply the interest as per the 13 September 2017 decision of Judge Doyle together with a fair off-set of the personal payments made on Mrs Lavery behalf. (also acknowledged and agreed and documented on 13 September 2017 before Judge Doyle), Plus remove the occupier paid rates and insurance from the Costs Order.
[19] Mr Lavery later applied for leave to amend his grounds of appeal to include the Judge’s determination regarding money he had inherited during the course of the relationship, which he maintained continued to be separate property. He sought a refund of his inheritances.
6 Lavery v Lavery [2018] NZFC 5360.
[20] Associated with the amended grounds of appeal, Mr Lavery applied for leave to adduce new evidence in the form of three documents relating to money invested in bonus bonds.
[21] Although Mrs Lavery filed a notice of opposition in respect of the amended grounds of appeal, submissions filed on her behalf fully addressed that claim. In a telephone conference with Ms Ah Mu, counsel for Mrs Lavery, and Mr Lavery on 21 November 2018, Ms Ah Mu acknowledged that she was able to deal with the question of Mr Lavery’s inheritances in the substantive appeal and had no real objection to the amendment.
[22] In these circumstances and despite the usually high threshold for the admission of further evidence (discussed in more detail below), I was satisfied it was appropriate leave should be granted.
Final order charging Mrs Lavery with mortgage interest of $944.60
[23] When Ms Ah Mu presented Mr Lavery with a draft order for approval, Mr Lavery disputed the calculation of Mrs Lavery’s liability. Ms Ah Mu’s response was that she had calculated Mrs Lavery’s liability based on calculations Mr Lavery presented at the September 2017 hearing. From that, she had calculated Mrs Lavery’s liability to total $944.60. This was to reflect the Judge’s order that Mrs Lavery was liable for the interest and monthly bank fees on half of the outstanding mortgage as at the date of separation, plus $5,000 in respect of money she obtained for a car. This meant Mrs Lavery was liable for half of $51,324.17 plus interest and monthly bank fees from May 2014 to January 2018, a period of three years and eight months (44 months).
[24] Mr Lavery says he made it clear to the Court on at least three occasions that he believed Ms Ah Mu’s calculation was wrong. He says he has approached Westpac Bank to request a calculation but they are unable to assist. He maintains Westpac cannot find a record of its floating interest rates over the period. He calculates the interest amount as $6,679.20 (but using a different mortgage balance, as discussed below), saying he used the interest rates directly from his bank statements.
[25] Ms Ah Mu rests on what she says were the figures Mr Lavery presented at the 2017 hearing. In her submission, Mr Lavery had the opportunity to raise objections when he was presented with the calculations in February 2017 and relies on the observations of the Judge in her decision of 3 August 2018 at [15] above.
Analysis
[26]It is immediately apparent that the calculation of Mrs Lavery’s liability,
$944.60, as contained in the Family Court order is incorrect. The most cursory consideration of the matter confirms that to be the case. $944.60 over a period of 44 months equates to $21.47 per month, or $42.94 per month in respect of the whole, as opposed to half, of the balance of the mortgage to be used in the calculation,
$51,324. On any analysis, that cannot be correct.
[27] A snapshot of the interest rates applicable at various times is seen in extracts from the Westpac home loan account statements filed in the Family Court. For instance, as at 27 May 2014, the interest rate was six per cent per annum.
[28]Using that interest rate as an example results in annual interest of $3,079.44,
$11,291.28 over 44 months, half of which is $5,645.64. That figure does not include bank fees. This simple example demonstrates that the sum included in the Family Court order was clearly wrong.
[29] I therefore cannot agree with the Judge’s observation that there was no reason to believe Ms Ah Mu’s calculations were not correct.
[30] It is apparent that there was no attempt on behalf of Mrs Lavery to establish what the true calculation should be, counsel simply relying on a document put forward by Mr Lavery in September 2017. When faced with a litigant in person, counsel for the other party inevitably carries a greater burden than usual in proceedings. In this case, particularly in light of Mr Lavery’s challenge when presented with the draft order, efforts should have been made to establish what the correct calculation was. The Judge had suggested in her decision of 13 September 2017 that information would be required from the bank.
[31] Mr Lavery has provided the Court with a three-page document containing his calculations. He says the figures he used came from his bank statements. A separate document he provided shows the interest rates have varied over the period in question from 5.40 per cent to 6.50 per cent, with an average of 5.87 per cent over 1,333 days. In the absence of any figures on behalf of Mrs Lavery, and given Mr Lavery’s analysis presents an apparently realistic position, I am satisfied it is appropriate to use Mr Lavery’s calculation of the average interest rate.
[32] Before finalising the calculation, I must address Mr Lavery’s objection to the principal sum on which the interest is to be calculated. This relates to the $5,000 loan Mrs Lavery took in order to purchase a new motor vehicle. Mr Lavery says Mrs Lavery should be solely responsible for the interest on this sum.
[33] In his affidavit of assets and liabilities filed in the Family Court, Mr Lavery deposed to owning a 2001 Daihatsu valued at $2,400 as at the date of separation, with Mrs Lavery owning a Mitsubishi Lancer valued at $700. He accepted the two vehicles were relationship property owned 50:50. Mr Lavery sold Mrs Lavery’s Mitsubishi for
$700 and retained that sum. Therefore, he received $3,100 worth of motor vehicles but was entitled to $1,550 worth only. Conversely, Mrs Lavery received nothing.
[34] Mrs Lavery proposed, and the Judge agreed, that she should be liable for 50 per cent of the loan which enabled her to purchase a new vehicle ($5,000) and half the interest on that loan. The Judge therefore ordered that Mr Lavery was to retain the motor vehicle in his possession and the proceeds of sale of $700 and Mrs Lavery would retain her new vehicle.7 No financial adjustment was required in order to equalise the division of vehicles on the basis that Mrs Lavery was responsible for 50 per cent of the cost of borrowing $5,000 to enable her to purchase a replacement vehicle.
[35] I am therefore satisfied that Mr Lavery’s position in respect of the $5,000 is misplaced. As the Judge decided, that amount was to be added to the outstanding balance of the mortgage as at the date of separation. Mrs Lavery was responsible for half of the principal and half the interest and bank costs.
7 Lavery, above n 1, at [20].
[36] The Judge calculated the outstanding mortgage and the relationship debts for which Mrs Lavery accepted she was liable as totalling $46,324.17. Mr Lavery seeks to increase that by $619.83. Given the Judge was recording a measure of agreement reached at the hearing, it is fair to use the figure of $46,324.17 as including personal bills paid from the mortgage on behalf of Mrs Lavery. This, plus the $5,000 for Mrs Lavery’s car loan, brings the total sum in respect of Mrs Lavery’s 50 percent liability to $51,324.17.
[37] Mrs Lavery is liable for half the interest on $51,324.17, using the average interest rate of 5.87 per cent, being $3,012.73 per annum, and $5,501.33 from the date of separation until the date of sale (January 2018). The correct calculation is:
One-half of $51,324.17 $25,662.09 Interest at 5.87 per cent ($1,506.36 per annum:
$4.13 per day for 1,333 days)
$5,501.33
One-half of bank fees of $316.96
$158.48
Penalty interest in the three months prior to discharge of the mortgage
$15.93
One-half of the $100 security release fee
$50.00
Total
$31,387.83
Rates and insurance charged to Mr Lavery
[38] Although somewhat unusually contained in a costs award, the Judge awarded Mrs Lavery $330.28, being 50 per cent of the rates and insurance paid by her during her occupation of the family home.
[39] The basis of Mr Lavery’s challenge is that Mrs Lavery occupied the family home for this period and that he was held to be responsible for all costs during the period of his occupation from May 2014 to October 2017.
[40] I see no reason to disturb the Judge’s determination in this regard. It is clear from the Judge’s decision that she did not consider Mrs Lavery should be liable for all
costs during her period of occupation of the family home, which was required in order to bring the house into a suitable state for sale.
Inheritance
[41] Mr Lavery claimed $64,200 as separate property, in respect of five separate sums he received during the relationship as inheritances and invested at various times in bonus bonds. Mrs Lavery claimed an interest in the bonus bonds, saying they were relationship property.
Evidence before the Family Court
$5,000 from Mr Lavery’s father, who died on 9 July 1988
[42] Mr Lavery and his siblings each received $5,000 from their father’s estate. Mr Lavery provided a copy of the estate’s trust ledger account showing a payment of
$5,000 to him on 1 September 1988. Mr Lavery said the $5,000 was deposited in a Trustbank account in his sole name and moved around different bank accounts over the years but always held in his sole name. He said that $5,000 was now in bonus bonds. He proffered a printout showing $5,000 of bonds were purchased on 31 October 2016 as evidence of this.
[43] Mrs Lavery said there was no evidence the $5,000 inherited from Mr Lavery’s father was originally deposited in his sole bank accounts and used to purchase bonus bonds in October 2016, 27 years later. She said she and Mr Lavery purchased one of Mr Lavery’s father’s properties in Masterton after his death, as a result of the inheritance, and the $5,000 would have been used for the purchase. The property has since been sold.
[44] Mr Lavery’s response was that the investment property they purchased from his father’s estate in Masterton was financed by a loan of 100 per cent of the purchase price. He said his $5,000 inheritance was not available to be used for the purchase because it was not distributed until some time after they had purchased the investment property.
$20,161.93 from Mr Lavery’s Godmother, who died on 11 May 1989
[45] Mr Lavery provided evidence of this inheritance and when it was paid to him by a lawyer’s letter dated 14 February 1990. Mr Lavery said that money was held separately and $20,000 of it was now in bonus bonds. He provided evidence of purchasing $20,000 of bonus bonds on 31 October 2016.
[46] Mrs Lavery said there was no evidence the money was originally deposited in Mr Lavery’s sole bank accounts and that those funds were used to purchase the bonus bonds in October 2016, 26 years later. She said they purchased a property in Newlands on 23 July 1991 because Mr Lavery had inherited this money. The property was sold in September 1997.
[47] Mr Lavery’s response was that he purchased the Newlands property in his name in about September 1989 and he borrowed 100 per cent of the purchase price to do so. Exhibits to his affidavit of 14 August 2017 reveal he purchased the property in September 1989 for $126,300 and sold it in July 1991 for $117,000. The inheritance from his Godmother’s estate was not received until after the property was purchased.
$13,022.38 from Mr Lavery’s stepmother, who died on 16 March 2006
[48] There is evidence Mr Lavery was paid this sum on 13 July 2006. He said this is also held in bonus bonds: $13,000 purchased on 31 October 2016.
[49] Mrs Lavery said this inheritance was transferred into the Westpac home loan account on 13 July 2006, which was at that time in Mr Lavery’s sole name. She exhibited a copy of the bank statement showing the credit. The bank statement also showed money coming into the account from Mrs Lavery every week, beginning July 2006. She said the Westpac home loan account was used to pay the mortgage as well as other family expenses. She said the same funds credited to the account were not the same funds used to purchase bonus bonds 10 years later.
$10,561.89 from Mr Lavery’s grandmother, who died on 22 April 2010
[50] A letter from the executor confirmed this inheritance, although did not specify the date of payment. There was evidence $10,600 of bonus bonds was purchased on 31 October 2016.
[51] Mrs Lavery disagreed that the funds were used to purchase the bonus bonds in October 2016. She exhibited a copy of the Westpac home loan account dated 7 July 2010, which by this stage was in the names of Mr M D and Mrs M P Lavery, recording a credit of $10,561.89 deposited in June 2010. She noted the bonus bonds of $10,600 Mr Lavery referred to were purchased in October 2016, six years later.
$15,600 from Mr Lavery’s mother, who died on 11 May 2011
[52] Mr Lavery was the sole executor of his mother’s will. The residual estate comprised $78,000 to be divided between the five siblings. There was evidence of payment of $15,600 to Mr Lavery on 22 August 2011. Subsequent withdrawals suggest payments were made from the account to Mr Lavery’s siblings. There was evidence $15,600 of bonus bonds were purchased 31 October 2016.
[53] Mrs Lavery disputed this was held in bonus bonds. She exhibited a printout of the joint Westpac home loan account dated 7 September 2011, recording a credit of
$77,730 on 19 August 2011, notated as Estate A R Lavery.
[54] Mr Lavery said that he and Mrs Lavery always had separate accounts and separate cheque accounts at different banks and never transacted on each other’s accounts. In support of that, he referred to his use of his personal cheque account when he was administrator of his mother’s estate and deposited $78,000 into the home loan account before payments to his sibling beneficiaries. He said:
I have always been aware of my inheritances being “special” funds, that are my separate property. I have always been able to identify those funds as my separate property.
[55] In his affidavit of assets and liabilities dated 24 August 2016, Mr Lavery deposed to holding $70,000 in his Co-operative Bank account. He cross-referenced his “narrative affirmation” of 24 August 2017 and said, of those funds only $5,900
was relationship property and $64,100 related to inheritance. In his narrative affidavit, he repeated that comment.
[56]Mrs Lavery’s evidence was:
Mike has never identified his inheritance as his sole property during our relationship. Any money that came into our family was treated as family funds by Mike and myself.
[57] Mrs Lavery filed a further affidavit dated 11 September 2017 addressing the issue of inheritance and said:
Mike had full control of our finances including the operating of our joint bank account. Mike made it known that at times when we had no money, which meant he had to find work, he didn’t need to because he had received a cash injection either through inheritance or other forms. Mike made it clear the cash injections meant he was not required to look for work as the cash injections negated the urgency for Mike to find employment.
Evidence adduced for the appeal
[58] A party to an appeal may adduce further evidence only with the leave of the Court. The High Court Rules 2016 provide that leave will only be granted if there are special reasons for hearing the evidence.8 The general test is that the evidence must be cogent and likely to be material, and could not reasonably have been discovered at an earlier stage.9
[59]Section 39B of the Property (Relationships) Act 1976 provides:
39B Appeals to Court of Appeal
(1)The provisions of the Senior Courts Act 2016 relating to appeals to the Court of Appeal against a decision of the High Court apply to an order or decision of the High Court under this Act.
(2) …
(3)The High Court or the Court of Appeal may, if it thinks that the interests of justice so require,—
(a) rehear the whole or any part of the evidence; or
8 High Court Rules 2016, r 20.16.
9 See for example Dragicevich v Martinovich [1969] NZLR 306 at 308 per North P and 311 per Turner J; Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190 at 193; and Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641 (CA) at 649-650.
(b) receive further evidence.
[60] Despite the heading of s 39B intimating the provision applies only to the Court of Appeal, subs (3)(b) expressly empowers the High Court to receive further evidence if the interests of justice so require. That provision arguably allows the Court broader discretion in hearing fresh evidence than in the High Court Rules 2016. However, recent authority suggests the tests retain considerable similarity, in that the general test of cogency, materiality and freshness still applies.
[61] Recently the Court of Appeal in Hodgson v Hodgson reviewed the authorities on and interplay between the two provisions.10 The Court decided the principles across similar provisions apply, and those require a balancing of interests: namely, the interests of both parties, finality, freshness, credibility, cogency and materiality. The Court determined that, in the case of evidence that is not fresh, there was no practical difference between the two tests: if the evidence is not fresh, the standard to be met before it is admitted will be high.
[62]The Court of Appeal gave the following example:11
[46] A good illustration of a case that met the standard can be seen in Koni v Koni, a case (as it happens) in which the s 39B test was applied. The husband had acted for himself at trial and failed to adduce relevant evidence in support of his case. His first lawyer had withdrawn after taking ill and his second lawyer had been appointed to the Family Court Bench before trial. The husband, it seems, gave up on lawyers at that point and decided to proceed in the Family Court without one. The Court made a series of findings adverse to his interests. The husband appealed, and on reconsidering his strategy, decided to instruct counsel for the appeal. Following advice from counsel in the appeal he sought to adduce further evidence in order to address the deficiencies in his trial evidence. Largely documentary, the evidence related to the relationship property status of shares, the sale of which had partly funded the purchase of an apartment, the status of which was also at issue. In addition, there was evidence in relation to post-separation contributions.
[63] Mr Lavery sought leave to file three documents in relation to his inheritances and bonus bonds. The first is an email from the Bonus Bonds Centre dated 17 January 2018, which states:
10 Hodgson v Hodgson [2015] NZCA 404, [2015] NZFLR 979.
11 Citations omitted.
Dear Michael I confirm the amount of $25,000 Bonus Bonds was purchased in the sole name of Michael David Lavery on 31 August 2011. An amount of
$11,000 was repayed on 10 April 2013 and the $14,000 balance remained untouched until after 2015.
[64] The second document is a copy of the Bond Certificate Mr Lavery says he received some time after April 2013, confirming $14,000 had been invested since 31 August 2011.
[65] The third document was an email from the Bonus Bonds Centre dated 5 November 2018, which says:
Dear Michael, Further to your telephone enquiry, I can confirm that in the period 21 December 1992 to 31 May 2016 your balance in Bonus Bonds was always at least $25,000.00.
[66] From this, Mr Lavery submits there is evidence that he purchased $25,000 of bonus bonds on 31 August 2011, $14,000 of which remained invested in bonus bonds in his sole name from 31 August 2011 until after 2015. He notes that 31 August 2011 was less than four months after his mother had died. As sole executor of his mother’s will, by this point he was satisfied the administration of the estate was complete and a distribution could be made earlier than the standard six months. He says he cashed in the bonus bond some time in 2015 and deposited the amount in his sole name at the Co-operative Bank.
[67] Mr Lavery then refers to the third exhibit confirming that, between 21 December 1992 and 31 May 2016, his balance of bonus bonds had always been at least $25,000. He relies on this to demonstrate that, as from 1992, his $5,000 inheritance in 1989 and $20,000 inheritance in 1990 was kept as his separate property.
[68] In his affidavit in support of his application to adduce new evidence, Mr Lavery said that the two inheritances spent some time invested in his sole name with Trustbank, where he was employed. He said he was unable to provide proof of this given Trustbank was taken over by Westpac in 1996. He said the $25,000 moved several times, even at one stage being a loan to Mrs Lavery’s mother.
[69] In explanation for the late evidence, Mr Lavery said that his lawyer, who ceased acting for him a week or so before the hearing in the Family Court on 13 September 2017, had told him that he had already provided sufficient evidence to show his inheritances had been retained as separate property.12 He said he was unaware, therefore, that he should have spent more time trying to gather proof of the whereabouts of the various sums during the course of the relationship.
[70] The new evidence was obviously extremely important to the issue of whether Mr Lavery had kept his inheritances as separate property during the course of the relationship. The situation is analogous to the illustration given in the case of Koni v Koni referred to by the Court of Appeal in Hodgson v Hodgson.
[71] The evidence is cogent and material. I accept it could reasonably have been discovered at an earlier stage. However, I am satisfied that it is in the interests of justice to admit it. The effect of the evidence is that, without it, there is a real risk of a serious injustice to Mr Lavery. As noted above, this issue was discussed at a telephone conference prior to the hearing so the parties were aware the evidence was to be admitted.
Analysis
[72] I accept Mr Lavery’s evidence that he did indeed inherit the five sums. However, Mrs Lavery’s evidence was that the sums were subsequently intermingled with relationship property.
[73] Mr Lavery was served with Mrs Lavery’s application for the division of relationship property in July 2016. He purchased bonus bonds on 31 October 2016 in amounts to reflect the various inheritances which he had received between five and 27 years earlier. In his affidavit evidence in the Family Court, Mr Lavery explained that, in October 2016, he moved and separated the various inheritances into bonus bonds to label each investment with the initials of the relative who had bequeathed
12 Mr Lavery’s lawyer filed an application for declaration she no longer acted for Mr Lavery on 3 August 2017.
those funds to him. While he did not explain where the money came from,13 I can infer, if the joint Westpac home loan account had been used, Mrs Lavery would have provided evidence of that as she did in relation to some of the earlier purchases of bonus bonds.
[74] Mr Lavery’s 2016 purchase of bonus bonds is a red herring. The issue is what happened to his various inheritances during the relationship.
[75] In her reserved decision of 21 November 2017, the Judge discussed Mr Lavery’s Co-operative Bank account which was in his sole name. She said Mr Lavery had the onus to prove the separate property status of the funds in the account and the onus to rebut the presumption in s 8(1)(e) that property acquired after the relationship began is relationship property. She then said that bank accounts which hold a blend of separate property in relationship funds will become relationship property and the onus was on the party who claimed it was separate property to prove its separate nature. She concluded that, although some of the funds Mr Lavery received were clearly his separate property, they lost their separate property status when intermingled with other relationship property funds.
[76] What the Judge did not address, however, was s 10 of the Act, which specifically provides for property acquired by succession (inheritance). Section 10 provides:
10Property acquired by succession or by survivorship or as a beneficiary under a trust or by gift
(1)Subsection (2) applies to the following property:
(a)property that a spouse or partner acquires from a third person—
(i)by succession; or
(ii)by survivorship; or
(iii)by gift; or
(iv)because the spouse or partner is a beneficiary under a trust settled by a third person:
13 Although his evidence was that when he cashed in at least some of the bonus bonds in 2015, he placed the money in the Co-operative Bank account in his sole name – see [66] above.
(b)the proceeds of a disposition of property to which paragraph
(a) applies:
(c)property acquired out of property to which paragraph (a) applies.
(2)Property to which this subsection applies is not relationship property unless, with the express or implied consent of the spouse or partner who received it, the property or the proceeds of any disposition of it have been so intermingled with other relationship property that it is unreasonable or impracticable to regard that property or those proceeds as separate property.
(3)Property that one spouse or partner acquires by gift from the other spouse or partner is not relationship property unless the gift is used for the benefit of both spouses or partners.
(4)Regardless of subsections (2) and (3) and section 9(4), both the family home and the family chattels are relationship property, unless designated separate property by an agreement made in accordance with Part 6.
[77] This changes the presumption in s 8 to a presumption that the property is not relationship property unless, with the express or implied consent of the partner who received it, the property has become so intermingled with other relationship property that it is unreasonable or impracticable to regard it as separate property. The mere fact of intermingling is not enough; it is “coloured by the words ‘unreasonable’ and ‘impracticable’”, which import a pragmatic approach.14 Whether intermingling is present to the degree necessary to dislodge the presumption is largely a question of fact. In respect of separate property in bank accounts, mere mixing of funds may not dislodge the presumption but circumstances such as whether the accounts stayed constant or fluctuated will be relevant.15 Also relevant is policy: it may be “contrary to the spirit of the Act” to deprive a party of their separate property merely because proceeds from an inheritance was located in a joint account for a period.16
[78] There was the need to address first s 10 and the presumption, and secondly, whether, even if the Co-operative Bank account had been used for relationship purposes, Mr Lavery’s inheritances had become “so intermingled” with relationship property that it was unreasonable or impracticable to regard it as separate property.
14 Jackson v Jackson [1984] 1 NZLR 382 (CA) at 383.
15 Flay v Flay (1990) 6 FRNZ 131 (HC); and Branch v Vickery HC Auckland HC57/98, 25 August 1998.
16 Flay v Flay, above n 15, at 133.
Perhaps understandably, given the evidence in the Family Court, the Judge did not address these questions.
[79] In submissions to the Family Court, Ms Ah Mu relied on the intermingling of Mr Lavery’s inheritances into the single bank account used for payment for the mortgage and household expenses, the Westpac home loan account. In her submission, Mr Lavery’s affidavits in the Family Court identified that his inheritances had been paid into that joint bank account. On that basis, Ms Ah Mu submitted the inheritances were intermingled with relationship property and used for household expenses and purchase of investment properties. She referred to Tipping J’s comment in Allan v Allan:17
Where a party pays separate property moneys into a single all-purpose bank account, the character of those moneys as separate property should be regarded as prima facie lost.
[80] Furthermore, in Ms Ah Mu’s submission, the inheritances justified Mr Lavery not actively seeking employment at various times. It was therefore, in her submission, unreasonable and impracticable to regard the funds transferred into bonus bonds in 2016 as separate property.
[81] Mr Lavery’s evidence was that the Westpac home loan account was also his cheque account. He paid lump sums into that account (which he also referred to as the “bill paying account”) including around $75,000 in respect of various bets/Lotto winnings. It was the account into which his sickness benefit was paid and into which, in December 2016, he deposited $3,000 from some bonus bonds.18 He said, however, the equivalent of his inheritances, $64,200, was in the Co-operative Bank account.
[82] Mr Lavery did not produce printouts or statements from his Co-operative Bank account, other than producing what appears to be a screenshot of his Co-operative Bank account as at 11 September 2017, showing 49 cents in his current account and
$64,200.01 in the “Beemer” account. Apart from exhibits to Mrs Lavery’s affidavit of
17 Allan v Allan [1990] 7 FRNZ 102 (HC) at 108.
18 An extract of the Westpac home loan account also showed a deposit of $10,000 on 11 March 2016 by Mr Lavery with the notation “From Joint BB”. I infer Mrs Lavery produced this at the Family Court hearing as it is marked “Exhibit 1”.
assets and liabilities showing separate accounts,19 the only statements provided by either party in the Family Court related to the Westpac home loan account which was in joint names and which the transaction records and evidence of both parties confirm was used for household expenses.20 This account is also the account through which Mr Lavery’s mother’s residuary estate passed before it was distributed to Mr Lavery’s siblings. Although prima facie money in a joint account loses its separate status, there can be no doubt that, simply because Mrs Lavery senior’s residuary estate was in the joint Westpac home loan account for some days, it did not become relationship property.
[83] The Judge held that Mr Lavery had not established that the Co-operative Bank account was his separate property. She ordered Mrs Lavery to receive a $20,000 cash adjustment in respect of the $64,200 funds in the Co-operative Bank account as at the date of separation. She said Mr Lavery was unable to provide evidence which showed the funds had consistently remained separate property throughout the relationship and his own evidence indicated there had been movements in and out of the account and the account was used to deposit relationship property funds.
[84] There appears to have been some confusion between the Co-operative Bank account and the Westpac home loan account, which was the account used as a household account. Mrs Lavery’s evidence was that the inheritances of around
$13,000, $10,500 and $15,600 in 2006, 2010 and 2011 respectively, were paid into the Westpac home loan account. I cannot find anything in Mrs Lavery’s affidavit evidence in the Family Court which alleges payments through the Co-operative Bank account. Mr Lavery’s evidence confirmed payment of these sums through the Westpac home loan account and said he realised the bonus bonds some time after the parties separated and paid the sum into his Co-operative Bank account. I am therefore unclear of the basis on which the Judge determined that the Co-operative Bank account, as opposed to the Westpac home loan account, had been used to mingle relationship funds during the course of the relationship. The Judge relied on what she described as Mr Lavery’s
19 Mrs Lavery’s Kiwisaver account and bank accounts with three different banks, with total balances of approximately $1,655 as at the date of separation.
20 Mr Lavery’s affidavit of 14 August 2017 explains this “revolving credit mortgage” account was used to pay all income into and live off credit cards and small cash drawings. There was also evidence of a joint Westpac credit card account.
own evidence of movements in and out of the account but Mr Lavery’s evidence was to the effect that any movements were in and out of the Westpac home loan account. The only evidence about the Co-operative Bank account was that funds from the sale of bonus bonds were paid into that account after the date of separation.
[85] The starting point is that Mr Lavery received five different inheritances which, when received, constituted separate property. The issue is whether, with his express or implied consent, those funds became so intermingled with other relationship property that it is unreasonable or impracticable to regard them as separate property.
[86]The evidence from Mr Lavery was that his first two inheritances of $5,000 and
$20,000 in 1988 and 1990 respectively had been in a Trustbank account in his own name, loaned to Mrs Lavery’s mother and then used to purchase bonus bonds in his own name in 1992. The funds were held in bonus bonds until after the date of separation, when they were then placed into the Co-operative Bank account.
[87]I am satisfied that both the $5,000 inheritance from Mr Lavery’s father and the
$20,000 inheritance from his Godmother remain separate property on a s 10 analysis. The evidence discloses that Mr Lavery intended from the start to keep the funds separate. Mrs Lavery can do no more than speculate that $5,000 was used to buy a property from Mr Lavery’s father’s estate and has not refuted Mr Lavery’s evidence to the contrary. Mr Lavery said that was not the case and 100 per cent finance was obtained for that purchase. Mrs Lavery conceded that Mr Lavery was always in control of the finances. Mrs Lavery’s evidence that the $20,000 inheritance from Mr Lavery’s Godmother was used to purchase a property in Newlands is shown on the evidence to be incorrect. Whether Mr Lavery made a loan of $25,000 at some stage to Mrs Lavery’s mother would not preclude the inheritance remaining separate property. There is no evidence these funds became intermingled with other relationship property, for example in the joint Westpac home loan account.
[88]Mr Lavery concedes he has some difficulty with the inheritances in 2006 of
$13,000 from his stepmother and in 2010 of $10,000 from his grandmother which were both deposited in the Westpac home loan account. There is no evidence to suggest those funds were kept separate. Therefore, those two inheritances were clearly
intermingled with relationship property, with the implied or express consent of Mr Lavery, from the time they were obtained until Mr Lavery purportedly put that money into bonus bonds in 2016, a significant period of time later. It is therefore unreasonable to regard those two inheritances as separate property.
[89] There remains the question of Mr Lavery’s $15,600 inheritance from his mother in 2011. The difficulty is that I do not have a comprehensive picture of movements of funds in and out of bonus bonds. Evidence adduced for the appeal by way of an email from the Bonus Bonds Centre was that there was a minimum of
$25,000 in bonus bonds in Mr Lavery’s sole name between 1992 and 2016. Mr Lavery’s claim that his purchase of $25,000 of bonus bonds in 2011, $14,000 of which was in respect of his mother’s inheritance, means that there should have been evidence from Bonus Bonds that, as from 31 August 2011 until May 2016, there was always a minimum of $39,000 invested in bonus bonds. There is therefore a gap in the evidence, caused perhaps by the way Mr Lavery framed his queries with the Bonus Bonds Centre.
[90] Mr Lavery produced a schedule detailing his records of his mother’s estate. He was sole executor. That schedule shows a balance of $78,000 and records as at 22 August 2011:
Deposit to John and Tina’s account $15,600 Telegraphic xfer to Judy $15,600
Telegraphic xfer to Jeff $15,600 Alan’s inheritance $15,600 Mike’s inheritance $15,600
[91] Mrs Lavery refers to the Westpac home loan account statement which records a deposit of $77,730 into the Westpac home loan account on 19 August with the particulars “Estate A R Lavery”. It then shows three relevant withdrawals:
22 August – John & Tina Lavery $15,600 22 August – [no reference] $31,250
31 August – 100140 $25,000
[92] Those payments out total $71,850 as against the funds from Mrs Lavery Senior’s estate of $77,730, a difference of $5,880. It can reasonably be said that the first two payments are payments to John, Judy and Jeff (the $31,250 not having a notation but equating to just over two times the legacy to each child of $15,600). What then happens is more obscure. Although Mr Lavery’s ledger refers to Alan’s and Mike’s inheritance of $15,600 each on 22 August, there is no corresponding transfer out of the account around that date. There is the withdrawal of $25,000, evidently by cheque (as confirmed by Mr Lavery). There is no affidavit evidence from him to this effect but in the High Court he said that sum represented $14,000 of his inheritance and $11,000 in respect of his brother. Because the transaction record is incomplete, it is not clear whether there were subsequent payments made to Mr Lavery’s brother, Alan, the sibling to whom there is no obvious payment.
[93]The evidence is therefore less than perfect.
[94] There is then the evidence from the Bonus Bonds Centre that $25,000 of bonus bonds was purchased on 31 August 2011 (matching the cheque for $25,000 on the same date). $11,000 was repaid on 10 April 2013 and $14,000 has remained untouched until after the date of separation. There is no evidence to show the $11,000 flowed through the Westpac home loan account on repayment. Given Mr Lavery’s comments at the High Court hearing, he asks the Court to accept that that $11,000 effectively was paid to his brother.
[95] The facts are that $77,730, which was paid into the Westpac home loan account, was evidently Mr Lavery’s mother’s residuary estate. Within 12 days, all of that sum, save for $5,880, had been withdrawn from the Westpac home loan account. While there is not a complete record of transactions, it is obvious that $25,000 of that money was used to purchase bonus bonds in Mr Lavery’s name, $14,000 of which he retained until after the date of separation. I cannot comment on whatever arrangements he might have made with his siblings, Alan in particular. What is clear, however, is that the $14,000 of bonus bonds owned by Mr Lavery can be linked to his inheritance from his mother.
[96] That Mr Lavery’s inheritances of $5,000, $20,000 and $14,000 was invested by Mr Lavery in bonus bonds in his sole name is inconsistent with Mrs Lavery’s assertion that the money was treated as household funds and effectively Mr Lavery’s contribution to the household during periods of his unemployment. To the extent there was any intermingling of those funds with relationship property (which I doubt), I am not satisfied it was with either the express or implied consent of Mr Lavery. Those inheritances remain separate property.
[97] Mr Lavery’s statement of assets and liabilities said the value of the Co-operative Bank account (into which the bonus bonds had been paid) as at the date of separation was $70,000, of which only $5,800 was relationship property.21 Given my conclusion that $39,000 of Mr Lavery’s inheritances are separate property, he is entitled to retain $39,000 plus half of the $31,000 balance of the account. This means Mrs Lavery is entitled to receive $15,500 from the account.
Result
[98] For the reasons given, the appeal is allowed. The Family Court order made on 31 August 2018 and sealed on 3 September 2018 is varied as follows:
(a)The sum of $944.60 credited to Mr Lavery and debited from Mrs Lavery in respect of the home loan account and bank fees is deemed deleted and replaced with the figure of $5,725.74 ($5,501.33 interest plus one-half of bank fees, penalty interest and the security release fee).
(b)The adjustment to the financial assets whereby Mr Lavery is debited with $20,000 and Mrs Lavery is credited with $20,000 is deemed deleted and replaced by a debit from Mr Lavery of $15,500 and a credit to Mrs Lavery of $15,500.
21 Mr Lavery’s affidavit in fact said $5,900 was relationship property but this was corrected in a later affidavit because his total inheritances were $64,200.
(c)Mr Lavery being self-represented, there is no issue as to costs.
Thomas J
Solicitors:
Ah Kuoi Law, Wellington for Respondent
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