M v H
[2017] NZHC 2385
•29 September 2017
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
THE-FAMILY-COURT/LEGISLATION/RESTRICTION-ON-PUBLISHING- JUDGMENTS.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-318 [2017] NZHC 2385
UNDER the Family Proceedings Act 1980 IN THE MATTER
of the Property (Relationships) Act 1976
BETWEEN
M Appellant
AND
H Respondent
Hearing: 11 July 2017 Counsel:
T J Rainey for Appellant
S Jefferson QC for RespondentJudgment:
29 September 2017
JUDGMENT OF BREWER J
This judgment was delivered by me on 29 September 2017 at 4:30 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Rainey Law (Auckland) for Appellant
Haigh Lyon (Auckland) for Respondent
M v H [2017] NZHC 2385 [29 September 2017]
Introduction
[1] On 27 June 2000, Ms M and Mr H entered into a Deed of Agreement as to Present and Future Property. The two had been living together in a de facto relationship since 15 November 1998 and they wished to record by means of the Deed:
F“… their agreement in relation to the status, ownership and division of property now owned and hereafter acquired by them and each of them and, to the extent provided, to contract out of those rules or principles of law (statutory or otherwise) which would or may otherwise now or in the future govern their relationship and the ownership and division of property in relation to each of them”.
[2] The Deed was intended to continue to apply if the two married, which, on
26 April 2008, they did.
[3] In August 2014, Ms M and Mr H separated. Ms M brought proceedings in the Family Court seeking orders dividing relationship property. An important component of the current disagreement between the parties is whether approximately
$1,000,000 held in bank accounts in the name of Mr H is his separate property or relationship property subject to the Property (Relationships) Act 1976 (PRA). That issue was adjudicated as a preliminary point by Judge GS Collin.1
[4] Ms M’s arguments were:
(a) The Deed was not made in contemplation of marriage.2
(b)The Deed, being one which was entered into when the parties were a de facto couple, ceased to have effect when they married.
(c) If, notwithstanding (a) and (b), the Deed survived the marriage and continued to have effect, its proper construction makes the bank
accounts relationship property.
1 [M] v [H] [2016] NZFC 10609.
2 Section 21(1) of the Matrimonial Property Act 1976, in force when the Deed was entered into, provided that a couple contemplating marriage could contract out of the provisions of that Act.
[5] Judge Collin decided:3
(a) The Deed was made in contemplation of marriage.
(b) Even if that were wrong, the Deed was valid pursuant to ss 21R and
21P of the PRA and, notwithstanding the marriage, continued to have effect.
(c) On a proper construction of the Deed, the funds held in Mr H’s business account (the “00” account) are his separate property. There was insufficient evidence of the transactions relating to the other accounts to make a determination. However, if the funds in the accounts came directly from Mr H’s business, then they would be Mr H’s separate property.4
[6] On appeal, Ms M argues that Judge Collin was wrong in every determination he made, except for the finding that the funds in the “00” account are Mr H’s separate property. Mr H supports the Judge’s findings and adds that he should have taken the final step of holding that the funds in the other accounts are his separate property also.
The Issues
[7] This appeal is by way of rehearing.5 I have to consider the material that was before Judge Collin and reach my own view of it in light of the Judge’s reasoning. If I reach a different view from the Judge on any issue, then I must give effect to the view I have reached.
[8] This approach means I have to look at the same three issues that occupied
Judge Collin:
3 At [69].
4 Mr H cross-appeals against the finding that there was insufficient evidence to determine whether the funds in those other accounts came directly from Mr H’s business. It is common ground they did. There is no real dispute that Judge Collin was in a position to make a finding accordingly.
5 K v B [2010] NZSC 112, [2011] 2 NZLR 1 at [31].
(a) Was the Deed made in contemplation of marriage?
(b)Did the Deed, made when the parties were de facto partners, survive their marriage?
(c) If the Deed applies, how does it treat the funds in the accounts?
Was the Deed made in contemplation of marriage?
[9] Upon the introduction of the PRA, Ms M and Mr H became subject to it as they were in a de facto relationship.6 Unless the parties contracted out of the PRA, the bank accounts will be relationship property.
[10] Section 21(1) of the PRA provides:
Spouses, civil union partners, or de facto partners, or any 2 persons in contemplation of entering into a marriage, civil union, or de facto relationship, may, for the purpose of contracting out of the provisions of this Act, make any agreement they think fit with respect to the status, ownership, and division of their property (including future property).
[11] The parties did not make an agreement for the purpose of contracting out of the provisions of the PRA. Section 21 cannot apply. But s 21O provides:
Relationship property is subject to the provisions of this Act if neither of the following kinds of agreement applies to the property:
(a) an agreement under section 21 or section 21A or section 21B:
(b) an agreement to which section 21P or section 21Q applies, or to the extent that section 21Q applies.
[12] Section 21S provides that any agreement made before 1 August 2001 under s 21 (as that section existed immediately before that date) is to be treated as if it had been made under s 21 or s 21A (as those sections existed after that date). As Chisholm J explained:7
[58] Section 21S ensures that agreements entered into by married couples (or those in contemplation of marriage) before 1 August 2001 which met the requirements of s 21 of the Matrimonial Property Act 1976 will still be
6 Section 1(2) of the PRA states that the Act came into force on 1 February 1977.
7 A v R [2007] 2 NZLR 399 (HC).
effective even if they do not meet the slightly modified contracting out requirements introduced by the 2001 Amendment Act.
[13] The first issue is, therefore, whether there was an agreement made under s 21 of the Matrimonial Property Act 1976 (MPA). If the Deed was made in contemplation of marriage, as that term is used in s 21(1) of the MPA, then the Deed continues to bind the parties. The PRA will not apply. If it was not, then the parties did not contract out of the PRA and the property division rules within it make the accounts relationship property. Ms M would be entitled to half the funds in the accounts.
[14] Section 21(1) of the MPA provided:
Subject to section 47 of this Act, a husband and wife, or any 2 persons in contemplation of their marriage to each other, may, for the purpose of contracting out of the provisions of this Act, make such agreement with respect to the status, ownership, and division of their property (including future property) as they think fit.
[15] Judge Collin took the view that, in the s 21(1) context, “in contemplation of their marriage” did not mean that the parties had to have formed an intention to marry or that a marriage would likely occur. Instead, for s 21(1) to apply, there has to be a recognition that marriage is a possibility and the parties must intend their agreement to take them outside the default legal position that would otherwise exist under the MPA if a marriage eventuated:
[20] In my view the issue is better framed as whether the agreement was intended to contract out of the Matrimonial Property Act.
[16] The Judge reviewed the context in which the Deed was created. This included the personal positions of the parties, their wish to have a child together, their recognition of the likelihood of marriage and the drafting of the Deed to include references to marriage.8 Both parties were legally represented during the negotiation of the form of the Deed and it was recognised that the legal position relating to the property division of de facto partners was likely to change. There was no dispute that the procedural prerequisites for a contracting out agreement under the MPA had been met. The Judge concluded that the parties intended the Deed to apply after any
marriage that they might enter and to thus take their property division outside the
MPA.9
[17] On appeal, Ms M submits:
(a) Only two classes of people can contract out of the MPA: those who are married and those who are contemplating marriage.
(b)An intention to contract out of the MPA is an additional requirement for any agreement entered into. But such agreement must be made in contemplation of marriage:
52.In our submission in order for the agreement to come within section 21 of the MPA [Ms M] and [Mr H] would have had to be persons who were contemplating their marriage to each other at the time they entered into the agreement.
[18] Ms M submits that contemplation of marriage requires more than an appreciation of the possibility of marriage. It requires an intention to marry imminently. Mr Rainey, for Ms M, submits that this interpretation is consistent with:
(a) Section 8(d) of the MPA which included in the definition of “matrimonial property”, all property owned immediately before the marriage if the property was acquired in contemplation of marriage; and
(b)Section 18(3)(a) of the Wills Act 2007 which provided that wills which would otherwise be revoked by the fact of marriage would be saved if made in contemplation of a particular marriage:
55In both contexts the term “in contemplation of marriage” required that the parties contemplate their imminent marriage. This was true in the context of wills and in the context of property acquired in contemplation of marriage.
(footnotes omitted)
[19] Mr H submits that “in contemplation of marriage” does not require either a currently pending marriage, or even at the time of the agreement a joint intention to marry:
27… In terms of ordinary and natural meaning, to “contemplate” an event or action is to entertain the possibility of its occurrence; not to intend or even to plan that it will take place. That is, the parties need only to be “contemplating” – and consequently providing for – the contingency of marriage …
(footnotes omitted)
Discussion
[20] First, I accept Ms M’s submission that Judge Collin was wrong to conclude that although Ms M and Mr H had no immediate intention to marry when they entered into the Deed, nor had any plans to marry, that did not matter because the Deed evidenced a joint intention to contract out of the MPA and this sufficed to make the Deed an agreement entered into in contemplation of marriage.10
[21] In my view, Judge Collin’s approach wrongly conflates the requirements of s 21(1) of the MPA. It is correct that an agreement must have been entered into for the purpose of contracting out of the provisions of the MPA. But this is an additional requirement. The threshold requirement is being ‘in contemplation of marriage’. The parties involved must fall into one of two categories to qualify under the section. They must either be husband and wife or they must be “2 persons in contemplation of their marriage to each other”.
[22] Although the phrase ‘in contemplation of marriage’ appears in both the MPA and the PRA, it is undefined. There has been no judicial consideration of the phrase in relation to s 21(1).
[23] It is, therefore, an issue of statutory interpretation. As per s 5(1) of the Interpretation Act 1999, the meaning of the enactment must be ascertained from its text and in light of its purpose.
[24] Two interpretations of the phrase are possible. One, as Ms M contends, is that there must be specific contemplation of an imminent marriage to a particular person. In other words, there must be a clear and present intention to become married.
[25] This interpretation has received support in the case law in relation to s 8(d) of the MPA, which defines matrimonial property as including “[a]ll property owned immediately before the marriage by either the husband or the wife if the property was acquired in contemplation of his or her marriage to the other and was intended for the common use and benefit of both the husband and the wife …”
[26] Although the focus was on whether property was ‘acquired in contemplation of marriage’, the former Supreme Court explored the meaning of ‘contemplation’:11
Most dictionary definitions of the word ‘contemplate’ emphasise serious, studied and attentive consideration. The noun carries those meanings in this context. Because an act considered is feasible, possible, having no impediment or even likely, does not, in my view bring it to a sufficiently high degree of application of thought to say it is in contemplation.
[27] Judge Collin cited two dictionary definitions of ‘contemplation’ which accord with this view.12 Other cases which have dealt with s 8(d) do not provide any assistance on this issue. They have discussed mostly the need for there to be a causative link between the acquisition of the property and the contemplated marriage.13
[28] Justice Simon France discussed the meaning of the phrase indirectly in K v C in respect of the PRA.14 In reference to the phrase, he referred to the “promise of reasonably imminent marriage”.15
[29] Alternatively, there is the broader view of ‘contemplation’ contended for by
Mr H. The phrase should mean that the parties have just given some thought to
11 Plimmer v Plimmer (1979) 2 MPC 153 (SC) at 154.
12 At [14].
13 Smith v Heappey (1980) 3 MPC 171 (HC) at 171-172 per Prichard J; Rodgers v Rodgers (1982)
1 NZFLR 200 (HC) at 203 per Casey J; Charmley v Charmley [1993] NZFLR 149 (FC) per
Judge Inglis; Pepene v Pepene [2001] NZFLR 1061 (FC) per Judge Adams.
14 K v C HC Wellington CIV-2009-485-1300, 17 December 2009.
marriage. In other words, marriage was a recognised possibility. It may occur at some stage in the future. Mr H submits that had the legislature meant to limit the provision to persons actually ‘intending to marry’, it would have used precisely that wording.
[30] There is no indication from the text of the MPA as to which interpretation should be preferred. I will look to see which is consistent with the purpose of the enactment.
[31] The parliamentary discussions of the MPA were premised on the assumption that the parties would be married. The only reference I have found to the phrase was in the context that ‘intended’ or ‘prospective’ spouses can similarly contract out.16
[32] The MPA was focused on remedying past inequalities and unfairness in matrimonial property law. It regarded the concept of marriage as an “equal partnership between two equal persons”.17 In doing so, it went away from previous conceptions of marriage as involving two individuals who each owned their separate property. The concept of matrimonial property was created,18 which helped facilitate an equal division of such property upon the break-up of a marriage.
[33] However, as the then Minister of Justice, Dr AM Finlay, noted in Parliament, “[i]t [was] not the Government’s intention to impose a fixed regime of matrimonial property on all married couples”.19 Contracting out was envisaged, resulting in the eventual inclusion of s 21.
[34] Mr H submitted that the broad interpretation is preferable on policy grounds, referring to a passage where RL Fisher discussed issues arising from prior de facto
agreements in relation to the PRA:20
16 (3 October 1976) 402 NZPD 5115; (23 November 1976) 408 NZPD 4108; Special Committee Matrimonial Property (June 1972); AM Finlay Matrimonial Property—Comparable Sharing, an Explanation of the Matrimonial Property Bill 1975 (White Paper, 1975).
17 Finlay, above n 16, at 3.
18 The concept is now known as ‘relationship property’ in the PRA.
19 (3 October 1976) 402 NZPD 5116.
20 RL Fisher (ed) Fisher on Matrimonial and Relationship Property (looseleaf ed, LexisNexis) at
[5.54].
Another issue … will be that of the true nature of the relationship when the agreement was made. If, on later analysis, it emerged that the parties were not already in, or contemplating entering into, a qualifying de facto relationship when the agreement was made, then on a plain reading of the provision it would appear that it does not qualify for recognition, under the Act, as being “outside” the Act in terms of the property covered by it. But, given that the aim of the provision is clear, namely to fully recognise valid property sharing agreements entered into prior to 1 August 2001 — then a purposive interpretation of the circumstances surrounding the making of these earlier agreements would seem appropriate. Accordingly, in that regard, the provisions of s 2D(3)(b) of the Act (“a Court is entitled to have regard to such matters, and to attach such weight to any matter, as may seem appropriate to the Court in the circumstances of the case”) lends itself to a broader interpretation of what could have been a qualifying relationship when these earlier agreements were made. Accordingly, the provisions of s 2D(2)(e) (“... the ownership, use, and acquisition of property”) could be given particular weight when addressing agreements made by unmarried couples prior to 1 August 2001 …
[35] Reference to this passage is problematic. It refers to de facto relationships. But the MPA did not cover de facto relationships. Indeed, a clause in the Matrimonial Property Bill 197621 which proposed to include de facto relationships within its scope was struck out. References to sections which interpret what constitutes a de facto relationship within the scope of the PRA are not, therefore, helpful to interpreting the MPA.
[36] The MPA is expressly stated to apply only to married couples, namely a husband and a wife. Section 21(1), through the phrase in question, simply recognised the realistic likelihood that if a couple wished to contract out of the MPA, they may have wanted to do so before entering into marriage.
[37] Viewed in this light, the narrow interpretation of the phrase is preferable. Parliament intended the MPA to apply only to married couples. If spouses did not want the comprehensive regime to apply, they had to validly contract out of the MPA. Given the likelihood that contracting out agreements may realistically be entered before marriage, the MPA extended the ability to contract out to parties ‘in contemplation of marriage’. As the MPA applied only to spouses, marriage must have been presently within the contemplation of those parties. It must have been a clear and present intention. Otherwise, the MPA would not apply to them. There
would be no need to contract out of it.
21 Matrimonial Property Bill 1976 (125-1).
[38] Further support is added to this view through the comments of Fisher, who wrote on the MPA shortly after its enactment:22
The Act has no application to parties to an engagement or de facto marriage. Property rights of the former are governed by the Domestic Actions Act
1975; the latter by a miscellaneous collection of remedies drawn from conventional legal principles, eg express and resulting trusts, contract and
equitable acquiescence.
[39] This illustrates the high degree of contemplation required for parties to be said to be in ‘contemplation of marriage’. Even engaged parties might not be covered. Marriage would appear to be required to be imminent. A paper presented on the Matrimonial Property Bill commented:23
The Bill’s object is to provide for the normal situation, and it has been prepared in the belief that most couples entering marriage will be happy to order their affairs in the way provided. But it is no part of the Government’s policy to force married people within the straitjacket of a fixed and unalterable regime of matrimonial property.
[40] The use of the phrase ‘entering marriage’ further supports connotations of immediacy. It does not say ‘most couples who see marriage as a possibility’ or something along those lines.
[41] The phrase ‘in contemplation of marriage’ is also used in s 18(3)(a) of the Wills Act 2007. The usual position under that Act is that a will is revoked when the will-maker marries or enters a civil union.24 But this default rule will not apply if the will expressly says that it is made in contemplation of a particular marriage or civil union or the circumstances show clearly that was the case.25
[42] Counsel for Mr H cited Re Natusch, a case under the equivalent provision26
of the Wills Amendment Act 1955.27 In it, McGregor J discussed a will declared to
22 RL Fisher The Matrimonial Property Act 1976 (Butterworths, Wellington, 1977) at 5.
23 Finlay, above n 16.
24 Section 18(1).
25 Section 18(3)(a).
26 Section 13. The section carved out an exception to the general rule using similar phrasing to s 21 of the MPA: “Notwithstanding anything in section 18 of the principal Act or any other enactment or rule of law, a will expressed to be made in contemplation of a marriage shall not be revoked by the solemnisation of the marriage contemplated.” The wording was subsequently amended through the introduction of s 18 of the Wills Act 2007.
27 Re Natusch [1963] NZLR 273 (SC).
be ‘in anticipation of’ the testator’s ‘intended marriage’. The Judge elaborated on
the phrase:28
What is anticipated connotes a state of mind. A dictionary meaning that is applicable is “to realise beforehand a certain future event”. To contemplate may be to take into account a likely future event. It seems to me that contemplation and anticipation as states of mind are not materially different.
[43] Mr H submits that such a wide interpretation is consistent with the policy behind s 21(1). While I accept that ‘contemplation’ may bear the meaning attributed to it in the passage, the correct interpretation in the current context is dependent on the policy behind the MPA.
[44] I note that in Public Trust v Stirling, a recent decision under s 18 of the Wills Act,29 Heath J found that a will was not made in contemplation of marriage despite the fact that the parties were engaged at the time the will was made.
[45] Judge Collin said:
[19] … The purpose of the provision in the Wills Act is to provide that a will made in contemplation of marriage will continue to have effect upon that marriage taking place, overriding the default legal position whereby it would otherwise be revoked. Likewise the purpose of an agreement made under s 21 is to contract out of the default legal position that would otherwise exist for the division of relationship property.
[46] I agree with the comparison. In both contexts, the legislation empowers contracting parties to avoid specific legal consequences which would otherwise apply by default. In accordance with the identified policy behind the MPA, a high standard must be satisfied in order to avoid those legal consequences. Justice Heath’s decision in Public Trust v Stirling is illustrative of that principle. In terms of the MPA, if the interpretation I have adopted did not apply, any two people in a relationship could contract out of an Act that was not intended to apply to them.
[47] Therefore, the narrow view of the phrase ‘in contemplation of marriage’ is
the applicable one. It may be the case that the modern day legislature would take a different view generally, evidenced by the extension of the PRA to de facto
28 At 275.
29 Public Trust v Stirling [2009] 3 NZLR 693 (HC).
relationships. But I must construe the MPA in its context and avoid retrospective interpretations. The purpose of the MPA was to provide a property division regime for married couples. If such couples wished to contract out, the MPA had to apply to them in the first place. In this respect, they either had to be married or have a clear and present intention to become married.
Application
[48] The modern approach to contractual interpretation requires the Court to ascertain the objective meaning of the contract in light of its factual matrix.30 The aim is to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.31
[49] As long as the reasonable person would regard the background or factual matrix as relevant, there is no conceptual limit on it.32 The background has also been described as including “absolutely anything which would affect the way in which the language of the document would have been understood by a reasonable man”.33 It (relevantly) includes the commercial purpose of the contract, the origins of the contract, the context of the contract, the history of dealings between the parties and the relative states of knowledge and experiences of the parties. Subsequent conduct is also admissible as an aid to interpretation.34
[50] In terms of recitals to agreements, the Court of Appeal has said:35
[36] Recitals to an agreement can assist in contractual interpretation. They can, as here, record the background to entering into the agreement as agreed by the parties, and can therefore form part of the background taken
30 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444; Firm PI 1 Ltd v
Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
31 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 30, at [60]; citing Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffmann.
32 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 30, at [60].
33 Investors Compensation Scheme Ltd v West Bromwich Building Society, above n 31, at 912.
34 Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at
[60].
35 C v B [2015] NZCA 421.
into account when construing the agreement. But, although the recitals can assist in the construction of the contract, they are not themselves operative terms, and therefore should not have undue weight attached to them …
(footnotes omitted)
[51] In the Deed there are numerous references to the parties’ ‘subsequent’ or
‘future’ marriage.36 But it is not expressed overall to be made in contemplation of the parties’ marriage. In fact, Ms M struck out a clause in a draft of the Deed that stated that the parties were in contemplation of marriage because she had not received a valid proposal.37 The fact that clause 6.1.1 of the Deed contemplates that the Deed will need to be re-done in the event of marriage is also relevant.
[52] There is no indication on the evidence that the parties had a clear and present intention to become married. I take into account the subsequent fact that the parties did not get engaged or marry for some eight years after the Deed had been entered into.
[53] Mr H may personally have believed that marriage was highly likely. But his subjective intentions do not align with the objective situation. Furthermore, he wrote a letter to his lawyers dated 17 November 1999 where he said “[Ms M] and I do not presently contemplate marrying, but we do contemplate the possibility of marrying in the future.”
[54] Applying the narrow interpretation, the parties were not “2 persons in contemplation of their marriage to each other”. This accords with Judge Collin’s finding that “the parties had no immediate intention to marry, nor had made any plans to marry”.38
[55] As a result, the Deed was not a valid contracting out agreement pursuant to s 21 of the MPA. Section 21O(a) of the PRA does not apply to save the Deed.
36 In particular, see clauses 2.4, 3.4 and 6.1.1.
37 [M] v [H], above n 1, at [35].
38 At [46].
Did the Deed, made when the parties were de facto partners, survive their marriage?
[56] I have found that Ms M and Mr H did not contract out of the PRA pursuant to s 21O(a) and s 21S.
[57] Mr H alternatively relies on s 21O(b), which requires an agreement pursuant to s 21P. Fisher has set out the requirements for the application of s 21P:39
(a) The agreement must have been made prior to 1 August 2001;
(b) It must have been made by de facto partners or by any two persons in contemplation of entering into a de facto relationship;
(c) It must be contractually valid; and
(d) It must address questions relating to “status, ownership or division of their property”.
[58] It is accepted that the Deed is an agreement to which s 21P applies. The Deed was made before 1 August 2001 between de facto partners to determine the status and ownership of their property. There is no dispute it is contractually valid.
[59] The Deed is thus enforceable in terms of s 21R(1) “as if [the] PRA had not been passed”. It is a valid contracting out agreement.
[60] But Ms M submits that while the Deed is binding and enforceable in relation to property acquired before the parties’ marriage, it is not binding in respect of property acquired after that date. She relies on the High Court decision of A v R:40
[73] … The underlying purpose of ss 21P and 21R is to preserve the status quo in relation to agreements entered into by de facto partners before
1 August 2001. Thus even if the parties to such an agreement subsequently marry the agreement can determine the status, ownership or division of their
assets as at the date of marriage provided, of course, the agreement was valid and enforceable before 1 August 2001. But, assuming the agreement is
not validated under s 21H, it cannot determine the status, ownership or division of assets acquired after marriage (or assets acquired before
marriage which are nevertheless governed by the Act e.g. family home and chattels) unless it meets the requirements of ss 21 and 21F.
39 Fisher (ed), above n 20, at [5.53].
40 A v R, above n 7.
[61] Under the MPA, it was initially unclear whether an agreement “addressing questions of status, ownership or division of property, previously entered into between de facto couples prior to their marriage, then survived the transition into a later marriage, without the need for another agreement being written up and then certified in accordance with the (now) s 21F requirements.”41
[62] However, this Court in N v N eventually held that these earlier agreements remained valid and binding.42 The PRA, in the sections mentioned, now expressly recognises the validity of such agreements. It does not state that such agreements terminate upon marriage. Sections 21O, 21P and 21R combine to clarify any uncertainty. Fisher stated “this approach to the continuing validity of these agreements has been confirmed in two reported cases since 1 August 2001.”43
[63] These cases are K v F44 and MJW v RDW.45 The Family Court in K v F
provided a useful elucidation of the position in terms of this issue:
[34] N v N is authority for the proposition that where parties to a de facto relationship enter into a valid and binding contract as to the sharing of property, that agreement can and should determine the parties' interest in that property irrespective of subsequent marriage. On the face of it, this principle would now appear to be enacted in s 21R (although limited to pre 1 August
2001 agreements).
[64] The Judge in K v F enforced the agreement in its terms pursuant to s 21R. Similarly, in MJW v RDW, the plain meaning of s 21R was invoked. Judge Ryan also expressed reservations over the A v R decision, noting that the Judge did not refer to the N v N decision.46 In my view, the A v R decision is inconsistent with these decisions and I prefer not to follow it. It is, in any event, distinguishable.47
[65] I see no reason to depart from this approach given the plain wording and the purpose of the PRA support such an interpretation. The statutory language is clear
and must prevail. I agree with Judge Collin in this regard, where he noted:
41 Fisher (ed), above n 20, at [5.52].
42 N v N [1999] NZFLR 481 (HC) per Potter J.
43 Fisher (ed), above n 20, at [5.52].
44 K v F [2005] NZFLR 852 (FC).
45 MJW v RDW [2005] NZFLR 918 (FC).
46 At [9].
47 I note that Judge Collin at [52]-[53] of the judgment distinguished A v R.
[54] … there is nothing in s[s] 21P or 21R that suggest that a subsequent marriage of de facto partners alters or curtails the contractual obligations into which they have entered and which s 21R expresses to be valid and of continuing effect “as if this Act had not been passed”.
[66] Therefore, the Deed did survive the parties’ marriage on 26 April 2008 and remains valid and binding on the parties.
Since the Deed applies, how does it treat the funds in the accounts?
[67] Clause 3.2 of the Deed states that “the property listed in Schedule B is and shall for the future be the separate property of [Mr H]”. Relevantly, clause 1 of Schedule B includes a description of what is Mr H’s separate property:
[Mr H’s] business and employment interests from time to time (and in particular, [Mr H’s professional] practice) including all past, present and future: goodwill (if any); work in progress; practice assets and equipment; income (including salary or wages); profits and losses.
[68] But clause 3.4.2 of the Deed changed the classification of property covered by the Deed as at the 10 year anniversary of the relationship. It provided:
In any event, the items listed in clauses 4 and 5 of Schedule A and in clauses
5 and 6 of Schedule B shall cease to be separate property with effect from
16 November 2008.
[69] Therefore, Ms M and Mr H agreed that all property falling within clauses 5 and 6 of Schedule B would cease to be the respective party’s separate property from
16 November 2008.
[70] Clause 5 of Schedule B reads:
All company shares, insurance policies and policy proceeds, investments and moneys held on deposit or in bank accounts which are now or in the future held, listed or registered in [Mr H’s] sole name.
[71] The issue on appeal is simply whether bank accounts associated with Mr H’s professional practice fall within the ambit of clause 1 or, alternatively, clause 5 of Schedule B. Are the moneys in the accounts “moneys held on deposit or in bank accounts … in [Mr H’s] sole name”? Or are they part of “[Mr H’s] business and employment interests”, namely representing income or profits and losses?
Family Court
[72] Judge Collin took the view that one of the accounts (suffix “00”) was “clearly the day to day operating account of [Mr H’s] practice”.48 As it was “exclusively used by [Mr H] in the course of the [professional] practice” without any intermingling, it must remain his separate property in accordance with clause 1.49
Ms M accepts this ruling, and I concur. As the Judge noted, the moneys held in that account “must be part of the [professional] business and represent income or profit protected as separate property”.50
[73] The remaining three accounts are the subject of dispute. From Mr H’s affidavit of 1 October 2012, they are seemingly a mixture of term deposits and accounts receivable. The Judge noted that “no statements are produced in relation” to these accounts.51 As a result, the Judge held that he could not make findings as to the status of those funds, other than to express some comments in principle.52 He commented:53
(a) That if the funds in the [remaining three] investment accounts had their origins solely from [practice] fees received into the -00 account, without any intermingling with other funds, then they are funds protected by Schedule B1 as the income or profit of [Mr H’s professional] practice;
…
[74] His conclusion was:54
…
(b) In respect of the accounts in [Mr H’s] sole name … I am unable to make final determinations in relation to these accounts. However if those funds have their origin in fees earnt by [Mr H] during the
48 At [61].
49 At [62].
50 At [62](c).
51 At [67].
52 At [68].
53 At [68](a).
54 At [69](c)(b).
course of his [professional] practice, which have been invested without intermingling with any other funds, I find that they are [Mr H’s] separate property protected by Schedule B1 as representing income and/or profit of the [professional] practice.
Discussion
[75] Ms M submits that, once invested in the accounts, the moneys ceased to have any real nexus to Mr H’s professional practice and simply became ‘moneys held on deposit or in bank accounts in his sole name’. In particular, she submits:
90.Just as when he used his income to purchase family chattels or to sustain the family home and repay the mortgage on the family home
– once the money was deposited in a bank account in his sole name it came within Clause 5 of Schedule B to the Agreement.
[76] Mr H submits to the contrary that the moneys represent accrued earnings or income from his professional practice, falling instead within clause 1. He contends that to conclude otherwise would be contrary to the way he operated or administered the accounts. In particular, he submits:
83.… it is clear that the on-call and term deposit accounts remained an essential (because available when needed for payment of income tax and GST) and inseparable part of [Mr H’s] business account. Any argument to the contrary flies in the face of both the evidence and business commonsense.
[77] I have already outlined the contractual interpretation principles earlier and I
will apply them.
[78] On a plain reading, these accounts are addressed by both clauses. They are “moneys held on deposit or in bank accounts … in [Mr H’s] sole name”. But, as the moneys came from the professional practice, they come within “[Mr H’s] business and employment interests”, constituting either income or profits.
[79] I must take into account the context. The parties intended to enter into a comprehensive agreement as to the division of their property in the event of a break- up. At this time, Mr H had relatively recently been through a matrimonial property dispute with his first wife. The major assets he retained were associated with his professional practice and his superannuation scheme. Those two major assets are
specified in clauses 1 and 2 of Schedule B of the Deed. These were to always remain his separate property. The Deed evidences that intention:
EIn consideration and contemplation of the foregoing [Ms M] and [Mr H] wish to acknowledge and agree that certain assets now owned or to be acquired in the future by either of them shall be separate property, and generally to record and make provision for the ownership of property and the division of property (other than separate property) should their relationship terminate.
[80] In this regard, the intentions of the parties appear to have been that anything relating to Mr H’s professional practice was intended to be his separate property. But his personal funds became relationship property. If he transferred money from his practice into his personal account, that would break the clause 1, Schedule B link and the money would become relationship property. On the evidence before me, there is nothing to indicate that the money in these accounts was intended for personal use. There is nothing to say that the money in the accounts was no longer part of his business interests.
[81] It is true that the accounts are in Mr H’s sole name. But Mr H is a sole-trader. All the accounts of his practice are in his sole name.
[82] There is no evidence as to Mr H’s intentions for the money. He has submitted that it was available when needed for payment of income tax and GST. But, aside from that, there is no evidence as to what the money was to be used for. Nor where it was to go once investment accounts matured.
[83] The Court of Appeal has accepted that “[t]he absence of evidence … in some circumstances may allow an inference that the missing evidence would not have helped a party’s case.”55 It has further noted that “[w]here an explanation or elucidation is required to be given, an inference that the evidence would not have helped a party's case is inevitably an inference that the evidence would have harmed it”.56 However, there is no submission by Ms M that moneys in the accounts have
been hoarded so as to frustrate the operation of the Deed. There is no evidence from
55 Perry Corp v Ithaca (Custodians) Ltd [2004] 1 NZLR 731 (CA) at [153].
56 At [154].
Ms M that there has been a break in the usual operation of the parties’ joint finances
attributable to moneys being retained in the accounts.
[84] In terms of subsequent conduct, Mr H submits that Ms M has made no attempt to assert or pursue the property rights which she now claims to have enjoyed under clause 5 of Schedule B. I do not find this submission relevant to the period in which the parties were still married, but I accept there is some small significance that Ms M did not claim ownership in the accounts until relatively recently.
[85] In my view, the accounts remain within clause 1 of Schedule B. I agree that there must be a point where income or profit earned from the professional practice is no longer separate property. But I consider putting that money in term deposits does not break the link. There is no evidence to indicate that the accounts were for Mr H’s personal use. They are still sufficiently connected to the professional practice.
Conclusions
[86] I find:
(a) Ms M and Mr H were not “2 parties in contemplation of their marriage to each other” when they entered into the Deed.
(b)They contracted out of the PRA pursuant to s 21O(b) and so the Deed survived their marriage.
(c) The bank accounts are Mr H’s separate property pursuant to clause 1 of Schedule B of the Deed.57
Result
[87] The appeal is dismissed.
[88] The cross-appeal is allowed.
57 Mr H raised a defence of estoppel by conduct. In view of my findings I will not address it.
[89] I make an order suppressing publication of the parties’ names.
[90] I direct, pursuant to r 3.7(3) of the High Court Rules, that no-one other than the parties may access the Court file without the permission of the Court on notice to the parties.
[91] I will receive submissions on costs. Ms M is to file and serve submissions by
20 October 2017. Mr H is to file and serve submissions by 10 November 2017. Ms M may file and serve submissions in reply by 17 November 2017.
Brewer J
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