Mah v DJP
[2014] NZHC 1520
•2 July 2014
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2013-485-4698 [2014] NZHC 1520
BETWEEN M A H
First Appellant
AND
168 GROUP LIMITED Second Appellant
AND
D J P Respondent
Hearing: 19-20 March 2014 Counsel:
T G Stapleton QC for First Appellant
B A Corkill QC and J L Wademan for Second Appellant
R A Newberry and S M Morrison for RespondentJudgment:
2 July 2014
JUDGMENT OF SIMON FRANCE J
M A H v 168 GROUP LTD [2014] NZHC 1520 [2 July 2014]
Table of contents
Paragraph No.
Introduction [1] Issue one : the College Street property [3]
The basis on which College Street was placed in the
parties’ joint names [18]
Applying the conclusion that Ms P was not, to her knowledge, the beneficial owner of the College Street property to the
s 44 application [31]
Was 168 Group Limited entitled to the money? [33] Mr H cannot now deny Ms P’s beneficial interest [36] Order under s 44(2) that 168 Group Ltd repay
the funds distributed to it from the sale of the
College Street property [43]
Issue two : were various items properly classified as
relationship property? [54] The current accounts [55] Money held by Mr H on behalf of his father [60] Shares [63]
Conclusion [69]
Introduction
[1] This is an appeal against aspects of a Family Court decision determining relationship property disputes between Mr H and Ms P following the end of their marriage.1 The parties commenced a de facto relationship in September 1998, were married in October 2002 and their marriage ended in late 2008. It was the second marriage for Mr H. The couple have one child concerning whom Ms P has primary care.
[2] There are two main issues to be determined on this appeal:
(a) whether the Court erred in concluding that the proceeds of the sale of a property in College Street, Wellington (the College Street property) had been disposed of by Mr H in circumstances bringing the disposition within s 44 of the Property (Relationships) Act 1976 (the Act). If the Court did not err in that conclusion, a secondary issue arises as to whether it was correct to require the second appellant, the recipient of the funds, to account for them; and
(b)whether the Court erred in its decisions on whether some discrete property items were or were not relationship property.
Issue one : the College Street property
[3] I turn now to the primary issue on the appeal, which is the assessment of Mr H’s intent when disposing of the proceeds of the College Street property. In doing so I remind myself of the advantages a trial Judge has, but also observe the Family Court expressly declined to make any general credibility findings about the parties. This is a general appeal and the appellate Judge is required to reach his own views in determining whether the appellant has discharged its onus of showing the
outcome under appeal is wrong.2
1 DJP v MAH [2013] NZFC 4577.
2 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141 at
[13]-[17].
[4] Section 44 of the Act allows a Court to make the order sought in this case if it is satisfied that:
a disposition of property has been made by Mr H in order to defeat Ms P’s
rights under this Act.
It is important to note that the test is not just whether the disposition of the property had that effect, but also that it must have been done “in order to have” that effect.3
[5] Mr H and his family are involved in commercial properties. The initial investment vehicle, 168 Group Ltd, was a company incorporated in 1996. It was wholly owned by a family trust formed at the same time, the H Trust.
[6] In 1999 another property was to be purchased. Acting on professional advice it was decided that this would best be done by using the same structure but with new entities. Accordingly, 88RH Ltd was formed to buy the property and 88 Trust was formed to take ownership of all the shares. 88 Trust had different beneficiaries from H Trust.
[7] The next commercial building to be bought is at the heart of this case. It is the College Street property. The process leading up to its acquisition by Mr H and Ms P was complex. The story begins in 2001. Mr H, who is a land agent, was in that capacity brokering a deal for the sale of a Hutt Street commercial property. There was a conditional contract, but the purchaser, Ascot Resources Ltd (Ascot Resources), was reluctant to confirm until a suitable tenant was located.
[8] Wanting to secure the commission, Mr H encouraged the purchaser to go unconditional by indicating that he, or an entity of his, would take a 50 per cent share of the property if it became necessary. Ascot Resources accepted this and
confirmed the contract.
3 This initially required a conscious desire to remove items from the reach of the Courts (see Coles v Coles (1987) 3 FRNZ 101, 4 NZFLR 621 (CA) at 624) but since the Supreme Court decision in Regal Castings v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 has been held to be satisfied by knowledge of consequences or motive (see Ryan v Unkovich [2010] 1 NZLR 434, [2009] NZFLR 948 (HC) at [33]).
[9] A potential tenant was identified. That tenant owned property in College Street from which it was wishing to move. The tenant took over the existing contract and bought the Hutt Street property, while Ascot Resources and Mr H, together as a joint venture, bought the tenant’s existing building in College Street. Notwithstanding the joint venture, the property was placed solely in the name of Ascot Resources. However, there is no doubt that a joint venture existed.
[10] A feature of the case is that Mr H had a tendency to do a lot of things “off book”. It is not easy therefore to see from the contemporaneous material which of his entities was the joint venture partner. Mr H says it was 168 Group Ltd. The principal of the joint venture partner, Ascot Resources, confirmed there was a joint venture as Mr H said, but could not advance matters as to the actual identity of the other party beyond it being an entity of Mr H. Exactly which entity did not matter to Ascot Resources.
[11] The College Street property acquired by the joint venture consisted of three sites. Two were sold in reasonably quick order but one remained. It is this remaining site that is in dispute in the case. Ascot Resources wanted out, and Mr H thought there was potential to turn a profit on the remaining site if a better tenant could be found. Mr H, therefore, negotiated to buy out Ascot Resource’s share of the remaining property. The purchase price was $560,000. That figure seems not to be a measure of the true value of the property (which was considerably higher) but a reconciliation figure between the joint venture partners. At the time of the purchase the property was nominally in the name of Ascot Resources but 168 Group Ltd beneficially owned a half share. As has been noted following the buy-out of Ascot Resources, the whole property, including 168 Group Ltd’s share, was placed in the name of Mr H and Ms P.
[12] To explain why this happened, it is necessary to step away from the commercial property dealings and look into the personal living situation of Mr H and Ms P. At the start of their relationship each owned a separate house, but in September 1998 a joint residential property was purchased. This jointly owned house was funded by a combination of Mr H’s finances and a mortgage. Ms P did not contribute but agreements were put in place to ensure an ultimate equalisation of
contributions. Then, in March and April of the following year, each of the parties sold their existing individual dwelling, and on 1 April 1999 they moved into the joint home.
[13] That house was sold four years later in April 2003. The net proceeds were placed on deposit, and in November 2003 were formally lent to Ms P and her brother for an investment project they had. The timing of the sale of the family home in April 2003 was significant as it meant the couple owned no principal family residence at the time the College Street property was settled.
[14] The reason why the College Street property went into the parties’ joint names is the key dispute in this case. Ms P says it was decided that the building would be their new home. Although it was a commercial building, they intended to build a residence on the roof. It would be their joint project as the previous house had been.
[15] Mr H disputes that and says it was done as a matter of potential revenue convenience. Due to the serendipitous sale of the matrimonial home shortly before settlement of the College Street property, the couple owned no joint property. Furthermore, they were intending to travel overseas for a year. This presented an opportunity to maximise future options by putting the College Street property into their joint names. If the property was sold quickly it would be less likely to be viewed as dealing if it was in their names and was the only joint property they owned. Additionally, if despite this it was classed as dealing and the profit liable to tax, it would still be much better if the ownership was not in the name of any of the family companies. If one of them was the owner and held to have been dealing in property, the risk would be that other properties owned by that company would become tainted.
[16] Mr H says he raised the idea of putting the property in their joint names. He says the basis on which that was being done was clear. The property was not theirs but was being held on behalf of the entities providing the money. Mr H says Ms P asked about the risks to her that were involved and once satisfied with the answers, agreed to the property being in their joint names. It was agreed that Ms P would be
paid a fee for use of her name – it was to be at least $10,000, but possibly more depending on how well the property ultimately sold.
[17] The College Street property was eventually sold less than a year later. Ms P and Mr H, the vendors, were not GST registered. The purchasers were, however, GST registered so the sale price was expressed as $1.575 million (GST inclusive). The proceeds of the sale were distributed to 168 Group Ltd which was in the process of purchasing another commercial building.
The basis on which College Street was placed in the parties’ joint names.
[18] In my view, resolution of this dispute is central to the correct resolution of Ms P’s application under s 44 of the Act. It will be recalled that the section requires the Court to be satisfied that Mr H, when distributing the proceeds of the sale to 168
Group Ltd, had it in mind to defeat Ms P’s interest or knew this would be the consequence. If what he says is accepted as established, the property was never beneficially Ms P’s. Instead, to her knowledge it was beneficially owned by the entities that provided the funds for its purchase. In such circumstances, all Mr H is doing is distributing the proceeds to the true beneficial owners. By doing that, he was neither defeating her rights nor attempting to.
[19] By contrast, if the property was indeed purchased to be the matrimonial home, then the distribution of all the funds out of the relationship to a company in which Ms P has no interest provides a solid foundation for the application of s 44. In this regard, the Judge found, and there can be no doubt, that Mr H was well aware of the matrimonial property rules. He was both an experienced land agent and had been through a divorce. He had taken (unsuccessful) steps to arrange a pre-nuptial agreement with Ms P. He would have been aware of the likelihood that the proceeds of the sale of a building that was bought to be the matrimonial home would be relationship property. The reality is that unless Mr H can satisfy me on the appeal that his version of why the property was placed in their joint names is to be preferred, he must fail in his appeal against the s 44 finding.
[20] In addressing this conflict between the parties, I note that the judgment under appeal does not make a definitive finding on it. Inferentially it can be argued that Ms P’s version has been preferred but this seems to be because the Judge considers that a form of estoppel is in operation that prevents Mr H from denying Ms P’s beneficial interest. I will return to this later but for the moment note that the topic has not previously been addressed to the extent which follows.
[21] The first objective fact that Ms P can call on in support of her contention that the building was not owned by her on trust for the entity that provided the funding is the simple fact that the property was put in her name, and there is nothing recording the trust. Second, the matrimonial home had just been sold so it is consistent with her version that this new purchase could be a replacement. The couple had to live somewhere. Third, there is a letter Mr H wrote to his lawyer at the time of sale of the property a year later in which he said:
As the property was intended to be our house, we had not claimed GST on the purchase. We are selling it on the basis of “including GST if any” so therefore we will not be required to pay GST. (emphasis added)
[22] Fourth, there is an absence of contemporaneous records in the accounts of
168 Group Ltd (the alleged beneficial owner) reflecting its ownership interest. Together these represent a reasonable case for Ms P, especially the letter to the lawyer. By contrast Mr H is left to assert that things are not as they seem, that there were no records because it was all off books, and that the letter was not a truthful reflection of the position. His is an onerous task but there are several objective facts that support his position.
[23] First, the overall context is consistent with Mr H’s version. The College Street property was originally purchased sometime prior to Mr H and Ms P becoming the registered owners. It was one of three owned by a joint venture which had nothing to do with the parties as a couple. Further, the 2003 purchase was only for half the property, in that 168 Group Ltd was already the beneficial owner of the other half.
[24] Next, not only was the site a commercial building when initially bought by the joint venture, it was still that when Ascot Resources were bought out, and again still that when ultimately on-sold by Ms P and Mr H. Related to this, Mr H gave unchallenged evidence that development to add residential living facilities was not feasible. There were difficulties with adequate options for access to the roof in terms of safety requirements for getting off in an emergency. Further, if a permit had been sought, earthquake strengthening obligations would almost certainly have been triggered. Mr H also makes points about the sufficiency of the space on the roof top for a residence. He testifies that there is simply not enough room.
[25] The whole idea of a residence would represent quite a change from the basis on which it was originally bought, would require considerable endeavour if it was possible, and would mean that the building was no longer to be sold, but instead retained. In terms of the couple needing a place to live, the building could not immediately provide that and the evidence suggests they were intending to live overseas for a year.
[26] The next objective fact is that Ms P did not contribute any funds, despite the matrimonial home having just been sold. Instead, the proceeds from that sale were kept separate. Equally significant, no arrangement was put in place recording their respective interests or suggesting that any equalisation was planned. This is not necessarily unusual for a couple, but it is quite different from the arrangements that were made in relation to the prior matrimonial home. Further, the way that the funds from the matrimonial house were later lent on a formal recorded basis suggests that their habit of carefully recording respective interests had not totally been abandoned. If the College Street property was to be the next joint project, the lack of any accounting between them is surprising. Finally, a small but related point is that Ms P does not seem to have taken any objection when the money was dispensed after the sale, again surprising if the building was a joint matrimonial home project. Overall, I regard Ms P’s version of what was happening with the College Street property as suggesting quite a departure from how money was otherwise accounted for in their relationship.
[27] Next, I consider a payment by Mr H to Ms P of $50,000 at the time of the sale of College Street is significant. Mr H says this payment is realisation of the agreement struck that Ms P would be paid for the use of her name. Ms P explains the payment by saying it was made to placate her because she was unhappy that the College Street property was being sold rather than being used for the matrimonial home. One must always be wary about commenting on what is normal conduct, especially when it is based only on the record, but having read numerous affidavits as well as oral evidence, it is a surprising proposition to me that Mr H would make the payment for the reasons alleged by Ms P. The College Street property was not the matrimonial home, nor on the evidence could it ever be. It was not as if its sale meant there would not be a matrimonial home, just that the College Street property would not be that home.
[28] The Judge held this $50,000 was a payment which Mr H “agreed to pay the applicant … possibly to safeguard against any subsequent claim being made by her”. There is no evidential basis for this conclusion. It was not asserted by Ms P as being the reason for the payment and not suggested to Mr H for comment. In these circumstances, I do not consider it is sustainable. One is then left only with the competing explanations given by the parties, and of these, for the reasons given, I prefer that of Mr H. I consider the history of the College Street property is significant and tells very much against the version advanced by Ms P. It is important that the property had first been acquired by the joint venture, and was already half owned by 168 Group Ltd at the time Ascot Resources was bought out. It is also important that it was and remains a commercial building. It is not a property that is suitable for the family home purpose Ms P ascribes to it. The arrangement alleged by Ms P would represent both quite a shift in the previous approach to financial matters, and a complete turnaround in the purposes for which the building was acquired. Finally the $50,000 payment is consistent with Mr H’s overall version of events, and would be a surprising event as explained by Ms P.
[29] In reaching this overall conclusion, it is important not to overlook the matter of the letter written by Mr H at the time of sale. It was written to a lawyer (not his usual lawyer) to explain how the sale proceeds were to be treated, and why GST was not payable. It is on its face a clear acknowledgement by Mr H of the proposition
for which Ms P contends. It is never immediately convincing to have it explained away as a now inconvenient untruth but the overall circumstances already discussed lead me to accept Mr H’s explanation – namely, it was a quick explanation to a new lawyer made in circumstances where its accuracy did not matter. The Judge alluded to this explanation but did not conclude whether he accepted it or not. I do accept it. Mr H was obviously aware of tax issues, and was constantly taking steps to try and preserve his position. Many of these actions appear optimistic at best in terms of their likely effectiveness, but there is no doubt they were matters to which Mr H was alive.
[30] Accordingly, my conclusion is that Mr H did not buy-out the College Street property to provide a prospective matrimonial home. On balance I accept Mr H’s explanation that the property was put in joint names as a matter of convenience to maximise tax options depending on what happened in the future. I find that Ms P was a party to this and knew it was not her property. Having been satisfied as to the lack of risk to her in allowing her name to be used, she agreed to the arrangement for payment of an undetermined fee which ended up being $50,000.
Applying the conclusion that Ms P was not, to her knowledge, the beneficial owner of the College Street property to the s 44 application.
[31] Section 44 of the Act requires proof that:
… any disposition of property has been made, whether for value or not, by
… or by direction of any person [Mr H] in order to defeat the claim or rights
of any person [Ms P] under this Act (emphasis added).
[32] As discussed earlier, the resolution of the conflict in Mr H’s favour should, on its face, determine the s 44 application in his favour. It is impossible to infer that the distribution was in order to defeat Ms P’s interest when she had none, and when the distribution was to the true owners. However, the respondent advances two matters which are said to require a different outcome. First, it is said that there is no evidence 168 Group Ltd was the beneficial owner and was therefore entitled to the money. Because the recipient was not entitled to receive the money, it is said that this allows the inference that the distribution was to defeat Ms P’s interest. Second, it is submitted that there is a line of authority that prevents Mr H asserting to the Inland
Revenue Department that he and Ms P are the beneficial owners, and then seeking to lead evidence to the contrary. The Family Court accepted this submission.
Was 168 Group Ltd entitled to the money?
[33] The appellant claimed a resulting trust in favour of himself and 168 Group Ltd as beneficial owners of the property. His explanation for why this was a correct statement of the true beneficial ownership was:
(a) 168 Group Ltd was the joint venture partner and so already owned half of the property. Concerning this, the most one can say is that some entity associated with Mr H definitely owned the half share, but there is no independent evidence taking the matter of identity further.
(b) 168 Group Ltd was the entity that bought out Ascot Resources.
Concerning this, what can be observed is that the evidence suggests it was 88RH Ltd that provided $170,000 and that Mr H provided the other $425,344. It was never clear to me how these two facts supported Mr H’s claim that 168 Group Ltd was the beneficial owner of this half.
[34] If a finding was necessary for resolution of the case I do not consider
168 Group Ltd has been shown to have entitlement to all the proceeds it received. However, I do not consider it matters. The case is not about which of Mr H’s family’s associated entities owned the interest. It is about whether the respondent could satisfy the Court that Mr H disposed of the money to 168 Group Ltd in order to defeat her interest. My earlier conclusion that there was a joint venture such that
168 Group Ltd already owned a half share of the property at the time Ms P’s name went on the title, and that Ms P knew and agreed she had no beneficial entitlement in the property once the second half was bought, determines the s 44 application. A lack of clarity as to the true beneficial owner does not affect the analysis.
[35] I have not overlooked that this lack of clarity could be seen to be a more general factor undermining Mr H’s version as to the arrangement that existed when Ms P was put on the title. However, it can be noted that Mr H called unchallenged
expert evidence that the type of off book activity present in this case, and more generally the intermingling of funds, is not unusual in these types of small family related entities. The vagueness as to the exact beneficial ownership is consistent with the general intermingling that seemed to go on. For this reason it does not undermine Mr H’s evidence.
Mr H cannot now deny Ms P’s beneficial interest
[36] The Judge, accepting the respondent’s submission, relied on the following passage from Potter v Potter:4
[20] As a general principle a party will not be permitted to adduce evidence that in transferring legal title to another he or she intended to retain the beneficial interest if the effect of the evidence would be to disclose that the transfer had a fraudulent purpose. For example it would be fraudulent to hold out that a wife was the beneficial owner if in reality the husband had retained the relevant beneficial interest. Accordingly, in cases where property had been transferred by a husband to a wife to gain revenue advantages premised upon her new beneficial interest, the husband has been precluded from averring in later proceedings that his real intention was to retain the beneficial interest, e.g. In Re Emery’s Investment Trusts [1959] Ch 410. The same principle applies where a husband has put property into his wife’s name as a protection against creditors: Gascoigne v Gascogine [1918] 1 KB 223; Tinker v Tinker [1970] P 136 and see further Preston v Preston [1960] NZLR 385 (CA) (evidence disclosing breach of statute rejected) and Stadniczenko v Stadniczenko [1995] NZFLR 993. In this situation the settlor is the unwilling beneficiary of a compliment to his honesty. It is assumed that he would not have intended to defraud others by pretending that his wife had a beneficial interest when in reality he had intended to retain the beneficial interest all along.
[37] The applicability of Potter v Potter to these facts is said to come from the GST tax treatment by Mr H and Ms P when the College Street property was sold. The sale price was $1.575 million (GST inclusive). Mr H and Ms P were not GST registered so did not account for any GST. The purchaser apparently was so registered, and claimed a GST rebate.
[38] The Family Court accepted a submission by the respondent that, by not accounting for GST, the legal owners had declared themselves to also be the beneficial owners. It was then reasoned that given this declaration to the Inland
Revenue Department, Potter was authority to say that Mr H could not now contend
Ms P was not the beneficial owner of her half.
[39] I do not accept this analysis is correct. In my view the GST treatment turned on the status of the legal owners who were not GST registered. GST had not been claimed on the original purchase and was not accounted for on the sale. I also consider the circumstances to be quite different from those existing in Potter. In that case, Mrs Potter’s status as beneficial owner was a key component from the outset.
The Privy Council (on further appeal)5 observed that it was clear from the terms of
the agreement that Mrs Potter was to take a beneficial interest from the outset. That is not so here. The property was placed in their names but intended to be held beneficially for the entities that provided the funding for the purchase. It was not known for how long it would be owned.
[40] I consider the focus on the GST treatment when the property was sold was incorrect in this case in terms of the resulting trust issue. It could be in a particular case that activity some time down the line legitimately supports an inference as to the arrangements that were made at the time of purchase. But once it is established that at the time of purchase a resulting trust was created, I do not consider Potter to be saying later tax treatment changes the beneficial ownership or prevents evidence being led as to the true ownership arrangements. It is also to be observed that here the beneficial ownership is held, at least in part, by a third party entity, again a quite different situation from Potter.
[41] It follows that neither issue raised by the respondent leads me to draw a different conclusion about the s 44 analysis. Mr H disposed of the proceeds of the sale not to defeat Ms P’s interest but because Ms P did not have a beneficial interest in the property. It is, as I have observed, open to considerable debate whether
168 Group Ltd was entitled to all the proceeds, but that is not an issue relevant to this stage of the inquiry. The key point is that Ms P was not entitled to them, and in my view knew that to be so.
[42] I accordingly allow the appeal and hold that the respondent did not establish that the Court had jurisdiction to make orders under s 44(2) of the Act.
Order under s 44(2) that 168 Group Ltd repay the funds distributed to it from the sale of the College Street property6
[43] The original pleadings in the Family Court had an element of confusion within them. The pleadings referred to an application to set aside dispositions both to named trusts, and to 88RH Ltd and 168 Group Ltd. However, the language consistently used was that the dispositions being challenged were those that had “the effect of defeating the claim or rights of Ms P”.
[44] Talking about the effect of a disposition is a pleading under s 44C of the Act. Unlike s 44, which requires it to be established that the disposition was made in order to defeat a person’s interests, s 44C only requires that the disposition have that effect. Importantly, however, s 44C is limited to dispositions to trusts. This means that, if as it appeared to be, the pleading was made under s 44C, 168 Group Ltd was not at risk.7
[45] The confusion as to whether it was s 44C or s 44 was raised during deferred closing addresses. The Court approved an oral amendment to the pleadings clarifying that what was involved was a claim under s 44 of the Act. However, it appears no specific consideration was given to whether appropriate notice and opportunity had been afforded 168 Group Ltd.
[46] Relevant to this issue is s 37 of the Act which provides:
37 Persons entitled to be heard
(1) Before any order is made under this Act, such notice as the court directs shall be given to any person having an interest in the property which would be affected by the order, and any such person shall be entitled to appear and to be heard in the matter as a party to the application.
(2) In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 92.
6 Given my conclusion on the primary challenge, this matter falls away. However, it is appropriate to separately address it should any issue arise as to the correctness of my first conclusion.
7 Section 44F which relates to qualifying companies was also inapplicable.
[47] The matters on which 168 Group Ltd might rely, to defeat an application under s 44(2) that it return the proceeds, are that it received the proceeds in good faith and for valuable consideration, or that it received the funds in good faith and has altered its position such that it would be inequitable to order relief.
[48] It is common ground that formal notice was never given to 168 Group Ltd. Mr Newbury submits, however, that no miscarriage has resulted because all those who might give evidence on behalf of the company did so, and the key personnel were aware of the proceedings.
[49] Mr Newbury notes that Mr H’s mother, Mrs H, is the sole director and now sole shareholder (as trustee) of 168 Group Ltd, and that the trustees of the H Family Trust, which is the beneficial owner of the shares, are Mrs H and Mr Leonardus Dale. Both of these people were witnesses in the proceedings, as of course was Mr H who is an advisory trustee of the Trust. Thus, it was submitted, the company effectively had notice, and that it has had opportunity to put forward whatever material it wished.
[50] This is not an unreasonable proposition for the respondent to advance but I do not consider it can prevail. The plain fact is that the company is entitled to notice and did not receive it. The pleadings never made its jeopardy clear, and the amendment which did so only occurred during closing submissions after all evidence had been led. The matters on which 168 Group Ltd might rely to defeat an application for an order under s 44(2) against it were not specifically addressed in the evidence-in-chief of the relevant witnesses. One cannot say whether
168 Group Ltd could have presented a better case upon receiving proper and independent advice by a lawyer (had it chosen to obtain representation). It certainly cannot be dismissed as a possibility.
[51] Whilst there is plainly some merit in the respondent’s position, I do not consider it is plain enough to overcome a fundamental deficit. 168 Group Ltd is a separate entity which was at risk of being ordered to pay a large sum of money. It was entitled to proper notice of that and the opportunity to obtain independent legal
advice. It is not a deficit that can be easily overlooked, and I am not satisfied that a miscarriage has not resulted as a consequence.
[52] The Act gives an appellate Court wide discretion in terms of the orders it may make. Mr Corkill QC urged that the whole s 44 issue be referred back to the Family Court so that 168 Group Ltd might have the opportunity to be involved in the resolution of whether Mr H’s disposition to it was done by Mr H in order to defeat Ms P’s interests. I would not have acceded to that. Those who might contribute to that issue gave evidence in awareness of the relevant legal issues and in circumstances where both parties were legally represented. I would not have seen a basis to reopen that part of s 44.
[53] Accordingly, I note for the record that if this was a live issue, I would have directed the Family Court to rehear the issue of whether an order should be made against 168 Group Ltd, it having been established that the disposition by Mr H was made in order to defeat Ms P’s interests.
Issue Two : were various items properly classified as relationship property?
[54] The last section of the judgment under appeal dealt with a discrete number of items of property. The issue was either whether the items were relationship or separate property, or whether their quantum should be recognised as relationship property.
The current accounts
[55] At the time of separation, Mr H was owed money by each of three businesses
– his real estate company, 168 Group Ltd and 88RH Ltd. It was accepted that the debts were relationship property, but Mr H argued that each figure should be adjusted by a direct crediting of the equivalent balance at the time the relationship started. To illustrate, concerning the real estate business at the start of the relationship in 1999, the balance was $67,681.00. When the relationship ended it was $131,855. Mr H says the extent of the relationship property should be the difference between these two figures, thereby crediting him for his separate property contribution.
[56] The Family Court disagreed. In relation to each account it noted that over the period of the relationship funds had come in and out of the accounts, and the year end balances had fluctuated significantly. To take again the real estate account, at the end of the second year of the relationship, it was minus $4,000 and then the next year it returned to a credit of $54,000. These fluctuations continued for a number of years with a $60,000 credit balance dipping the next year to minus $37,000 before returning the following year to a $50,000 credit balance.
[57] The Family Court noted that in addition to these fluctuating year end balances, there had over the years also been substantial deposits and withdrawals. Mr H’s preference for “off balance sheet transactions” made it very difficult to try and classify the source of the funds coming into the accounts. It was clear that not all the deposits were from separate property, and generally there had been considerable movement of funds to and from other associated family entities.
[58] Given these circumstances the Judge applied Allan v Allan.8 It had there been held that the concept of “intermingling” contained in s 10(2) of the Property (Relationships) Act (which deals with property acquired by succession or survivorship, or as a beneficiary) can also be applied to other separate property. The test was whether it was now unreasonable or impracticable because of intermingling to analyse whether some of the funds had remained separate property.
[59] Mr Stapleton QC did not contend the authority relied on by the Judge was incorrect or inapplicable, but rather submitted that an outcome of no recognition for the separate property status of the original funds was unjust and therefore contrary to the principle of justice he submitted underlay s 25 of the Act. I do not agree. The concept of intermingling was properly applied to the individual item in dispute, namely the funds in the current account. Indeed, the Court’s approach was, with respect, a plainly correct approach. It does not advance matters to claim that decisions on an individual item in a complex overall case result in injustice. There are other provisions that make overall adjustment possible if the facts justify it. A conclusion of intermingling, with the result that tracing was not a reasonable option,
was a fair evaluation of this item.
8 Allan v Allan (1990) 7 FRNZ 102 (HC).
Money held by Mr H on behalf of his father
[60] For some time Mr H has been managing his father’s money. Mr H’s records
show the original balance held on behalf of his father to have been just over
$200,000. At the time of separation it was around $130,000. Mr H declared this sum to be one of his liabilities.
[61] Ms P disputed it was a relationship liability, saying there was no evidence as to the funds ever coming into the relationship pool. The Judge agreed, and concluded it was not a relationship debt. Mr H appeals on the basis that the correct analytical route is to ask if the asset is relationship property. If not, it should be excluded from the pool.
[62] I consider the appellant’s argument misses the point. It is clear that the money is not a relationship asset. It is Mr H’s father’s money. What is not apparent is where that money is, or ever was. There is no evidence from Mr H as to what he did with it when taking it over. Was it banked somewhere, for example, into a joint account? Ms P says she never saw it, and there is no contrary evidence. Absent such evidence, the Judge was correct to say that the pool of relationship property is not diminished by that sum.
Shares
[63] At one point Mr H borrowed $500,000 from one of the companies to enable him to trade in shares. Mr H proceeded to do so, apparently being quite active for a period. All the activity was conducted through a single trading account.
[64] Two issues arise. First Mr H sought to claim that despite being traded through the same account as all the other transactions, shares he owned in two companies had remained his separate property. Second, Mr H claimed he made a loss on his share dealing and this should be treated as a relationship loss.
[65] Dealing first with the separate ownership claim, the Family Court again applied an intermingling approach. The trading in numerous companies, including these two, had all been done through the one account. There were a lot of
transactions and the trading had been carried out over a lengthy period of time. The Judge also observed that funds in addition to the $500,000 had been added and it was again too difficult to trace the source of that money. Accordingly the shares were held to be relationship property. Mr H originally appealed this but did not pursue it at the hearing.
[66] However, it was argued that if, as was held, all the shares were relationship property, the Family Court must be wrong to have disallowed the claimed loss. Again, however, as with the issue of the father’s money, I consider the appellant’s submission misunderstands the basis on which the Court held against Mr H which was not as to the nature of any loss but whether the fact of a loss had been proved.
[67] Nothing said on the appeal causes me to differ from the Judge’s assessment. Such evidence on this as there was appears to have come only from a spreadsheet compiled by Mr H during the hearing, and produced at a late stage. It was not expert evidence establishing the loss and explaining the basis on which the size of the loss had been calculated.
[68] I am not satisfied that the Judge has been shown to have erred in not considering the loss to be established.
Conclusion
[69] I allow the appeal and hold that the evidence was not sufficient to satisfy a Court that Mr H disposed of the proceeds of the sale of the College Street property in order to defeat Ms P’s right. I consider the evidence showed that Ms P was never the beneficial owner of the property and that she had agreed to be paid a sum of money for the use of her name on the title. The disposition of the proceeds of the sale was not done to defeat her interests.
[70] Had I reached a different view on that, I consider the order made against
168 Group Ltd was made in breach of 168 Group Ltd’s right to be heard, and must be quashed. I would have affirmed that s 44(1) had been established, and referred the matter back only to the extent of allowing 168 Group Ltd to contest the making of an order against it.
[71] Finally, in relation to the issue of whether the Family Court erred in its decisions on whether some discrete property items (the current account balances, the money held on his father’s account, and the question of the status of an alleged share trading loss) were or were not relationship property, I confirm the findings of the Family Court and dismiss this aspect of the appeal.
[72] Concerning costs, in order to assist the parties to avoid further expense, I
indicate a preliminary view:
(a) 168 Group Ltd has been completely successful and on the face of it is entitled to scale costs, and reasonable disbursements;
(b)Mr H and Ms P have both had success. I consider at this point that the greater success lies with Mr H, and the parties should agree to him receiving a percentage of scale costs. I suggest the balance of success lies somewhere around 65/35, which would have the net affect of an award of 30 per cent of scale.
[73] The parties are of course free to differ from these indications and may file memoranda if there is no agreement. The matter will then be determined on the
papers.
Simon France J
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt
Langford Law, Wellington
Sievwrights, Barristers & Solicitors, Wellington
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