Lezaic v Bayne HC Auckland CIV-2010-404-7010
[2011] NZHC 858
•22 March 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-7010
BETWEEN ALEXANDER LEZAIC Appellant
ANDBRENDA SHARON BAYNE Respondent
Hearing: 22 March 2011
Appearances: J Noble for the Appellant
D Smith for the Respondent
Judgment: 22 March 2011
ORAL JUDGMENT OF PRIESTLEY J
Counsel/Solicitors:
J Noble, Boyle Mathieson, DX DP92555, Henderson 0650. Fax: 09 835 9638. Email: [email protected]
D Smith, P O Box 3799, Shortland Street, Auckland 1140. Fax: 09 368 7489
Email: [email protected]
LEZAIC V BAYNE HC AK CIV-2010-404-7010 22 March 2011
[1] This appeal challenges various aspects of a reserved judgment delivered in the Waitakere Family Court by Judge Maude in September 2010.
[2] At an early case management stage in this Court it was agreed that the points of appeal identified by the appellant in his October 2010 notice of appeal were the points at issue. Mr Noble’s detailed submissions have not departed from that.
[3] The points of appeal are effectively five in number. They are:
(a) Whether a loan of $182,390 from the appellant’s father was a
relationship debt. (The Family Court held it was not.)
(b)Whether a transfer of Lot 15, at Te Hue in the Bay of Islands into the sole name of the appellant’s father, should have been set aside. The Family Court set the transaction aside. The two points arising out of this are closely linked being whether, for the purposes of s 44(1) of the Property (Relationships) Act 1976 (PRA), the transfer was with the intention of defeating the respondent’s claim and whether, for s 44(2) purposes, the transfer of the property was for valuable consideration and otherwise than in good faith.
(c) Whether the s 21 agreement, into which the parties entered in May
2007, should have been set aside pursuant to the provisions of s 21J. Again there are two subparts to this point, the first being whether the Family Court was correct to hold for the purposes of s 21J(1) that giving effect to the agreement would cause serious injustice and whether, (the second point), the Judge was correct to consider as a reason the state of the respondent’s mental health when she signed the agreement.
[4] The parties’ relationship lasted for approximately 27 years. They entered into a de facto relationship in 1980 and married in May 2000. They had two children, both of whom are now adult.
[5] It seems that the parties separated in August 2004. Shortly thereafter the respondent filed PRA proceedings in the Family Court. Subsequently, in February
2007, the appellant moved back into a property at 310 West Coast Road in which the respondent had been living since the separation. There is a factual dispute as to whether, at that February date, the couple reconciled (the respondent’s contention), or whether the appellant merely moved back as a flatmate, there being no reconciliation (the appellant’s contention).
[6] On this issue the Judge found in favour of the respondent but, for the purposes of this appeal, nothing hangs on that point. The Judge’s finding was that the parties separated for the final time on 13 October 2007. In the intervening period the respondent’s PRA proceedings had been struck out (through non-appearance it would seem) and the parties had entered into the s 21 agreement on 7 May 2007.
[7] At the date of the parties’ final separation there were substantial sums of money owing to the appellant’s father Mr Lezaic senior. Mr Lezaic lives in Australia. I say more about his involvement shortly.
[8] Assets of substance, however, which fell either to be divided, or alternatively were owned by entities relevant to the parties, were:
TheTe Hue Bay of Islands property. This had been Maori land owned by the respondent’s family but was converted to Land Transfer Act title. It was originally, so it would seem, owned by the appellant and respondent jointly. At some subsequent date (the precise date being uncertain but proximate to the death of the respondent’s father), she transferred the property into the appellant’s sole name. The property appears to be subject to a registered mortgage to Mr Lezaic senior.
Maori land on Great Barrier Island on which the parties at some stage erected a dwelling.
310West Coast Road, Glen Eden. This property appeared to be owned by the A Lezaic Family Trust and was purchased some time in 1995. It is subject to mortgages. It was the property in which the respondent lived after the first separation and in which the reconciliation subsequently occurred. I understand from counsel that the “relationship home” component of the
property is but one flat, the rest of it being rented out.
92 Rosier Road, Glen Eden in the appellant’s sole name.
An adjoining property at 92A Rosier Road, which is currently in the name of
the parties’ daughter.
13A Evans Road, Glen Eden purchased in 2004 by the Trust.
17Matama Road Glen Eden, which pursuant to a deed of nomination was owned by an entity known as AHM Limited. By the time of the Family
Court hearing this property had been sold.
Debts
[9] I do not, for the purposes of this judgment, need to examine the debts in detail. Evidence produced by the appellant at the hearing listed debts approximating
$606,000 advanced to the appellant by either his father or his sister between 1984 and 2006. I shall deal shortly with Mr Noble’s submissions on some of those debts. I need to mention, however, the position of the appellant’s father. As a substantial creditor of his son, and also as the purported owner of the Bay of Islands property, one might have expected some detailed evidence from Mr Lezaic senior on these issues.
[10] Such evidence as there was comprised a letter headed “affidavit”, dated 2
January 2009, and addressed to “to who it may concern”. The letter signs off “kind
regards”. Mr Lezaic senior’s signature appears to be witnessed by a Justice of the
Peace in the State of Victoria.
[11] The letter is vague. It does state that his son has received monies “over the last 30 odd years” and “amounting to well over $500,000”. The letter also refers to the respondent having asked him sometime towards the end of 2005, when he was visiting New Zealand, whether he might be prepared to accept the Bay of Islands property “as payment for money owing to me”. He says he accepted this proposal. So, if that is true, very little appears to have been done to implement or record the arrangement in a specific and timely fashion.
[12] The letter also states that he lent the appellant a further $182,000, when the appellant was separated from the respondent, with which a separate company, AHM Ltd, was formed. The balance of the letter is in effect advocacy or the matters of submission, and partisan.
[13] Mr Smith submits to me that it could well be the author of the letter was the appellant himself. He also submits that there is no evidence at all to the effect that Mr Lezaic senior is even aware of the fact that he is now the alleged registered proprietor of the Bay of Islands property. I note those submissions, but in the circumstances do not intend to determine them. In the absence of Mr Lezaic senior it would be unfair of me to do so.
[14] However, Mr Smith is on strong ground when he points to the intrinsically unsatisfactory nature of the evidence from such a prominently involved party. He is also on strong ground when he points out that documents before the Family Court, relating to international transfers over the years from Mr Lezaic senior’s bank to the appellant, had not been specifically referred to by Mr Lezaic senior. Nor, it would seem, is there any formal debt arrangement, other than possibly Mr Lezaic senior’s mortgage registered against the title to the Bay of Islands property. I have no information as to the principal sum secured.
Appeal points.
[15] I prefer, as a matter of logic, to deal with the points raised by the appellant’s counsel in a different order from that set out above (supra [3]). The most fundamental issue must clearly be whether the parties in May 2007, at a stage when they were still cohabiting, resolved in a final way their respective rights and claims under the PRA.
The s 21 agreement
[16] The agreement outwardly complies with the formal requirements of the statute. The appellant, for his part, was independently advised by a West Auckland solicitor, Mr G Presland, who completed the certificate. The respondent was advised by Mr W R Stollery.
[17] The agreement is prospective inasmuch as it refers to the past 2004 separation. It states the parties wish to agree on the status, ownership, and division of property.
[18] Parts of the agreement are inelegantly drafted but I need not highlight that. The operative parts of the agreement are intriguingly contained under the headings “maintenance” and “Trust property”. These are odd subject headings for a relationship property agreement.
[19] The relevant clauses are as follows:
3(a) 92 Rosier Road is to be retained as the appellant’s separate property
with the appellant paying the outgoings and indemnifying the respondent.
4 There is an acknowledgement that 13A Evans Road and 310 West Coast Road are owned by the Trust, it being recorded the parties are both beneficiaries.
5(a) The respondent is granted by the Trust exclusive occupation rights of the “top house” of the 310 West Coast Road property during her life, with her keeping it in a good and habitable state etc.
5(b) The Trust is entitled to the garage and downstairs flat rentals of 310
West Coast Road for a period of two years.
6(a) (Repetitively) 13A Evans Road is now declared to be “separate property” of the Trust.
8(a) This is the central clause.
To repay existing indebtedness owed to [the appellant’s father] the parties agree to transfer to him all their estate and interest in [the Bay of Islands property].
In general terms bank accounts, superannuation, insurance policies, and company shares (there being, it is common ground, little or no worth in the company shares), are retained as the parties’ respective separate property.
[20] These simple provisions were, in terms of the deed, intended to be a final settlement. A valuable item of realty, the Bay of Islands property, which at the date of separation and for some years previously had been owned by the appellant, was transferred away to Mr Lezaic senior. There appears to have been no monetary adjustment for what would undoubtedly have been the respondent’s presumed and inchoate one half share in that asset.
[21] Although the respondent is a beneficiary of the Trust, no realty owned by the Trust is transferred to her. The appellant keeps one item of realty (92 Rosier Road) as his separate property. The appellant has a conditional life occupation of one of the flats owned by the Trust at 310 West Coast Road.
[22] The legislative policy of s 21 agreements is important. The Act provides for what is essentially a system of deferred community property. All assets acquired by partners after the start of a relationship are, in general terms, available on termination of the relationship for equal division. In many situations the regime imposed by the
Act might not necessarily suit the interests of all New Zealand couples. There has thus always been the statutory right to contract out. It is not necessary for the purposes of this judgment for me to trace the legislative history or the clear jurisprudence which has evolved over the years as far as s 21 agreements are concerned.
[23] What is clear, however, is that Parliament requires parties entering into such agreements to be independently advised. In terms of ss 21F(1) and (3) an agreement which fails to meet that requirement is void. Certainly, as Mr Noble reminds me, s 21H can save agreements which do not meet the technical requirements of s 21F. But clearly this is not the case here.
[24] At the time the respondent was confronted with this agreement she was, quite apart from the statutory imperatives, clearly in need of competent advice and inquiry. The relationship had lasted for 27 years. There was a complex history of enterprises so far as her husband was concerned. Assets which were enjoyed by the family were owned by a Trust. The respondent had already, on the evidence, been placed in a situation, at the time of her father’s death, of being encouraged to transfer the Bay of Islands property into her husband’s sole name in return for alleged improvements which the husband had made to whanau land on Great Barrier Island.
[25] What was required in May 2007 was close scrutiny of the terms of the agreement; full knowledge of the asset pool (including Trust property); an assessment of whether or not the agreement was objectively in the respondent’s interests; or whether her interests might better be served by her not entering into the agreement at all.
[26] I am absolutely satisfied, for the purposes of this appeal, that the Judge was correct when he found that, regrettably, Mr Stollery’s professional advice and inquiry fell well short of what the interests of his client demanded.
[27] The Judge made a number of comments about the advice phase of the May
2007 agreement. He referred to Mr Stollery (who gave evidence at the Family Court
hearing and whose “scant” file was in evidence), as having provided the respondent
with “stark” advice. There was certainly no solicitor’s file at the time the respondent was seeking the advice. The time spent advising the respondent did not exceed 15 minutes. The solicitor had no details of the parties’ assets and liabilities or the financial position of the Trust and other relevant entities. There were no valuation reports. There is no detail (highly relevant to clause 8(a)) about the indebtedness to Mr Lezaic senior. No advice was given to the respondent as to what rights she may have as a beneficiary of the Trust. She had recently been removed as a trustee in May 2006.
[28] The Judge found as a fact (and to his credit Mr Noble has not attempted to draw the sting of the Judge’s criticism of Mr Stollery), that Mr Stollery’s advice as to whether the agreement was fair or appropriate was limited to his asking the respondent whether she herself thought it was fair.
[29] As the Judge put it, “the most miniscule of enquiry by Mr Stollery would have revealed that there were serious issues with (sic) relation to the way that the parties’ property interests had been dealt with and that at the very least further enquiries should have been made….”
[30] These reasons were sufficient to persuade the Judge that the May 2007 agreement satisfied the s 21J(1) criteria of causing serious injustice were it to be put into effect. Although the Judge might, as an alternative route, have held the agreement to be void under s 21F(1) I have no doubt the Judge’s conclusion was correct. The independent advice which Parliament requires was spectacularly deficient. Given the overall policy of the Act, setting aside this agreement was the right result.
[31] I accept Mr Noble’s submission that a reference made by the Judge to the respondent’s mental health when she signed the agreement in May 2007 seems to be at odds with the clinical notes produced in evidence showing mental health consultations and treatment in 2005. People with a past psychiatric history may well continue to be mentally fragile. However, there was no clear evidence for the Judge to weigh the respondent’s 2007 mental health as an additional reason for setting the agreement aside.
[32] That said, I am totally satisfied the Judge’s comment did not tip the balance in favour of setting the agreement aside. The many other reasons relating to inadequate advice, cogently expressed by the Judge, inevitably and correctly led to his conclusion.
[33] Mr Noble’s broad submission, so far as s 21J policy was concerned, was that if there was no significant disparity between the parties so far as the result of the s 21 agreement was concerned, and in particular if it could be established the respondent ended up with approximately 50% of the relationship property, then the fact that she got no or extremely poor advice did not really matter. In counsel’s submissions s 21H buttressed that argument. I reject that submission. As I have already stated the requirement for independent and well informed advice is an essential ingredient for contracting out of the provisions of the statute.
[34] All that Mr Noble could do to try to avoid that result was to submit that, although the advice was defective, the agreement, if implemented, would not have resulted in any significant disparity so far as the end result of the parties was concerned. Mr Noble’s submission in that regard was to first set out the total net relationship property retained by the appellant which he put at approximately
$358,000 (the gross figure being $1.079 million with total debts of $720,000). The counterbalancing value of relationship property retained by the respondent was assessed by counsel at $435,673. Mr Noble arrived at that figure first, by valuing the life interest of the respondent in 310 West Coast Road at a figure somewhat over
$335,000. As Mr Smith rightly comments, this assessment is flawed. First Mr Noble has used the life expectancy actuarial figures contained in a schedule of the Estate and Gift Duties Act 1968 which he has factored into a total figure of
$425,000. Unfortunately $425,000 is the valuation of the entire 310 West Coast Road property, not just the top flat. Secondly I note that this methodology was not before Judge Maude in any shape or form.
[35] The second component of the respondent’s relationship property attributed by Mr Noble is $100,000, being the house on Maori land on Great Barrier Island. That approach is impermissible. Section 6 makes it very clear that nothing in the PRA applies in respect of any Maori land.
[36] Thus I conclude that the Judge’s decision setting aside the s 21 agreement is correct and indeed unassailable.
Setting aside transfer to Mr Lezaic senior
[37] The short answer, it seems to me, of this appeal point (it has two parts), is that the contractual obligation to transfer the Bay of Islands property to Mr Lezaic senior is contained in clause 8(a) of the May 2007 agreement. If the agreement falls, logically the transfer should fall with it. Mr Noble accepted that argument. However, it was not the way the Judge approached the issue. Furthermore there is some force in Mr Noble’s submission that the considerations which apply to setting agreements aside under s 21J are somewhat different from the various statutory tests contained in s 44.
[38] Section 44 provides:
44 Dispositions may be set aside
(1) Where the High Court or a District Court or a Family Court is satisfied that any disposition of property has been made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person [(party B)] under this Act, the Court may … make any order under subsection (2) of this section.
...
(2) In any case to which subsection (1) of this section applies, the Court may, subject to subsection (4) of this section,—
(a) Order that any person to whom the disposition was made and who received the property otherwise than in good faith and for valuable consideration, or his [or her] personal representative, shall transfer the property or any part thereof to such person as the Court directs;
...
(4) Relief (whether under this section, or in equity, or otherwise) in any case to which subsection (1) of this section applies shall be denied wholly or in part, if the person from whom relief is sought received the property or interest in good faith, and has so altered his [or her] position in reliance on his [or her] having an indefeasible interest in the property or interest that in the opinion of the Court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.
[39] It is important to note that subs 2 is itself subject to subs 5. However, although it might have been an available argument to Mr Lezaic senior that he received the Bay of Islands property in good faith and had altered his position to the extent that it would have been inequitable to grant s 44(1) relief, there was not a shred of evidence in that regard, nor was the argument raised before Judge Maude.
[40] Mr Noble’s approach was to focus on the “valuable consideration” limb of s 44(2)(a). In his submission, if there was indeed valuable consideration, then it followed there must be good faith.
[41] Mr Noble also challenged, in a general way, the Judge’s finding that s 44(1) was engaged. Far from the transfer being designed to defeat the respondent’s interests, it was instead designed, in large part, to relieve the couple of the accumulation of debt which they had incurred over the years by borrowing from Mr Lezaic senior.
[42] The Judge, for his part, saw it very differently. He made a general comment that s 44 should be interpreted through the lens of the Act’s purpose and the s 1N principles. I do not disagree with that approach. Simply put, however, the purpose of s 44 is to claw back from third parties dispositions of relationship property to them, particularly where the Court is satisfied a disposition has been made to defeat a claim or right under the Act. As the provisions of subs 2 and 4 make clear, the power to set aside dispositions ought not to be exercised in situations where there is prejudice to people who have received relationship property. The “otherwise than in good faith” requirements are of considerable importance there.
[43] This is not the right case on which the High Court should embark on a close analysis of the meaning of that phrase. Suffice to say, for the purposes of this appeal, that I have no doubt the Judge was correct when he found s 44(1) was engaged. The inclusion of clause 8(a) in an inter partes relationship property agreement is significant. But for that clause, the Bay of Islands property would have been available to both parties for division. The Judge placed some significance on the temporal proximity of the ousting of the respondent as a trustee of the family trust. He pointed too to the failure by the appellant and his lawyer to make any
coherent or active disclosure of relevant assets to Mr Stollery. Finally, he buttressed the issue by referring to a transaction of an “inexplicable” nature a few days before the Family Court hearing, when the Trust, at the appellant’s instigation, apparently raised an overdraft facility to transfer $150,000 to Mr Lezaic senior. This transfer was purportedly to reduce debt owing. But that must call into question the alleged consideration of the transfer for valuable consideration of the Bay of Islands property in the first place.
[44] The Judge also advanced reasons as to why he considered that s 44(2) did not assist Mr Lezaic senior. This included Mr Lezaic’s presumed knowledge that his advances over the years have been used by entities in which he, his son, and daughter-in-law had a financial interest; his knowledge of relationship difficulties; his knowledge of the parties’ separation; and importantly in my view, although not referred to explicitly by the Judge, the total lack of any relevant or cogent evidence from Mr Lezaic senior. I note in that regard that the assertion contained in Mr Lezaic senior’s letter about a discussion in November 2005 between him and the respondent was rejected by the Judge in favour of the respondent’s evidence on that topic that there had been no such discussion. I see no basis to interfere with that finding.
[45] So, in short, I consider the Judge was correct in deciding, for the reasons he articulated, that s 44(1) and (2) were engaged and that the disposition set out in clause 8(a) of the May 2007 agreement, whereby the Bay of Islands property was transferred away from the appellant into Mr Lezaic’s sole name, should be set aside.
Debts
[46] In fairness to Mr Noble, most of his analysis of the status of the various debts between father and son, to which I have referred (supra [9]-[12]) was relevant to his argument that the indebtedness was such that there would inevitably have been valuable consideration to save the Bay of Islands transfer.
[47] The major debt, the subject to a specific appeal point, was the debt labelled
“K15” in the Family Court, being $182,390 loan. There are a number of reasons
why I consider that debt cannot possibly have the status of a relationship debt. First the date of the advance, on the appellant’s own evidence, was August 2006, at which stage it is effectively common ground between the parties that they were separated. Secondly the advance was not used to acquire any relationship property or property in which the parties have any direct interest. Rather it was used (pursuant to the appellant’s nomination) to acquire a property owned by AMH Ltd at Hallam Street. That property had been sold by the time the matter got to Court. Mr Noble pointed out that on the appellant’s evidence the sale proceeds of Hallam Street, $10,000 was diverted to become the deposit on 17 Matama Street (shown in the relevant settlement statement) and $40,000 was used as the deposit on a property purchased in Richardson Road which unfortunately never eventuated. The $40,000 deposit was forfeited.
[48] Although Matama Street appears to have the status of relationship property I decline to find, as did the Judge, that this somehow or other confers relationship debt status on the original $182,000 loan. There is force in Mr Smith’s submission that the definition of “relationship debt” contained in s 20 cannot possibly apply to the original advance of $182,000 from Mr Lezaic senior. The loan was not joint. It was not applied to common enterprise. It was not used to acquire, improve, or maintain relationship property. There is no common benefit to the household or for bringing up children.
[49] I do not need, for the purposes of this appeal, to scrutinise the Judge’s findings on the various components of the debt (exceeding $600,000), incurred with the appellant’s father. Mr Smith conceded that although the Judge had fixed on a figure of slightly in excess of $90,000 which counsel considered was $20,000 too high, the $90,000 figure was acceptable. That seems to me to be a proper concession. That portion of the Judge’s judgment dealing with debts from [53]-[57] does not strike me, when seen against the interpretive requirements of the s 20 definition, as incorrect. In any event nothing of substance hangs on the classification of the debt.
[50] I note in fairness to Mr Noble, as I have stated at the outset of this section of my judgment, his overarching submission that, were it to be established that the
indebtedness to Mr Lezaic senior was in the main relationship debt, then ipso facto the transfer to him of the Bay of Islands property might be reasonable. The evidence, however, falls short of establishing that the bulk of the alleged consideration was relationship property debt. And in any event the entire transaction was flawed for the other reasons I have discussed.
Conclusion and additional comment
[51] I am satisfied that all points of appeal advanced have, for the reasons I have stated, failed. Accordingly the appeal is dismissed.
[52] I agree with Mr Noble’s somewhat rueful comments at the outset of the appeal hearing that (other counsel being involved at the hearing in the Family Court) the appellant’s case in the Family Court was inadequately prepared and the evidence presented by the appellant was unsatisfactory in a number of areas. Whether better preparation and more evidence (assuming it was available), would have brought about a different result is problematic.
[53] What is interesting about Judge Maude’s judgment is that his undoubtedly correct findings and rulings have unfortunately not brought any finality for the parties. The situation of debts as between relevant entities; mounting interest; the signalled need to bring proceedings under s 182 of the Family Proceedings Act 1980; and the Judge’s direction that counsel should confer over appropriate orders, all demonstrate that unfortunately the central issue of what is the respondent’s precise entitlement remains obscure.
[54] The overall impression I have (which has in no way coloured my judgment), is that throughout the relationship, the appellant, with financial assistance from his father, has indulged in a number of speculative activities. As Mr Noble pointed out, the appellant is a sickness beneficiary. I am unmoved by the submission that the appellant’s assumption of the obligation for trust outgoings and borrowings was an onerous obligation so far as the s 21 focus was concerned. But nonetheless there is, I consider, a considerable risk that the net assets available to this family may continue to erode if the nettle of settlement is not grasped.
[55] My respectful suggestion to counsel is that they take active steps to have this matter listed in the Waitakere Family Court as soon as possible. I also record a comment I made to counsel during argument that issues of family honour, realism, and pragmatism should really bring about a solution whereby, regardless of arithmetical calculations, some unencumbered asset is transferred to the respondent as her separate property so that she has, for the rest of her life, some form of financial security to recognise her entitlements under the statute and her 27 year involvement in the relationship.
Costs
[56] There was no dispute at the initial hearing before White J that the 2B category applied. The appellant has failed. There is thus an order that the appellant pay the appropriate costs of the respondent on the 2B scale.
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Priestley J
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