Mead v Graham-Mead
[2015] NZHC 825
•24 April 2015
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2014-443-057 [2015] NZHC 825
IN THE MATTER OF The Property (Relationships) Act 1976 BETWEEN
JOHN CAMPBELL MEAD Appellant
AND
DEBBIE MARY GRAHAM-MEAD Respondent
Hearing: 3 March 2015 Counsel:
A C M Fisher QC and P W Shearer for Appellant
D A T Chambers QC and S E Gifford for RespondentJudgment:
24 April 2015
Recalled and
Reissued:
9 July 2015
RESERVED JUDGMENT OF MACKENZIE J
I direct that the delivery time of this judgment is
3 pm on the 24th day of April 2015
Solicitors: Govett Quilliam, New Plymouth, for Appellant
S E Gifford, New Plymouth, for Respondent
MEAD v GRAHAM-MEAD [2015] NZHC 825 [24 April 2015]
Table of contents
The Judge’s division of property, and the challenges to it [1] Brief history of the relationship [5] The items in issue on this appeal [7] (a) Homestead [7]
(b) Top runoff [19] (c) Herd [22] (d) Fonterra shares [27] (e) Increase in value in the farm properties [45] (i) The home farm [49]
(ii) The runoff properties [58] (f) Indebtedness [65] (g) Past maintenance [73] (h) Adjustment for post separation work [77] Result [80]
The Judge’s division of property, and the challenges to it
[1] The appellant and the respondent began a de facto relationship in 1993 which ended in May 2009. They were unable to resolve relationship property issues, under the Property (Relationships) Act 1976 (the Act), and those were the subject of a five day hearing in the Family Court in June 2014. By a judgment delivered on
15 July 2014, Judge D G Smith determined the division of relationship property.1
The appellant appeals against that decision.
[2] The items of relationship property, and their division, were set out by the
Judge as follows:
[184] On the basis of my findings the relationship property determined is divided as follows:
1 Graham-Mead v Mead [2014] NZFC 5741.
Asset
Homestead
Value
$415,000
Husband’s share
$207,500
Wife’s share
$207,500
Top run off $430,000 $215,000 $215,000 Herd $1,002,985 $501,492.50 $501,492.50 Fonterra shares $586,907.10 $293,453.55 $293,453.55 1256 South Rd
increase
$265,000
$159,000
$106,000
Upper Winks Rd increase $240,000
$144,000
$96,000
Home farm increase
$1,925,000
$962,500
$962,500
Seiko mixer $35,000 $17,500 $17,500 RD1 valuation $17,660 $8,830 $8,830 Agriturf valuation $302,000 $151,000 $151,000 Assorted shares $17,500 $8,750 $8,750 Debt due by Perry $5,000 $2,500 $2,500 Indebtedness as per
accounts ($2,088,392.40) ($1,044,196.20) ($1,044,196.20)
Adjustment for post separation work $50,000 ($50,000)
Totals $3,153,659.70 $1,677,329.80 $1,476,329.80
[3] In addition to that division, the Judge made an award of $18,000 to the respondent for past maintenance. The ultimate order was that the appellant should pay to the respondent $1,476,329.80 for her share of the relationship property, plus
$18,000 in past maintenance.
[4] The following items in that division are challenged by the appellant on this appeal:
(a) the homestead; (b) the top runoff; (c) the herd;
(d) Fonterra shares;
(e) the increase in the value of the land;
(f) indebtedness; and
(g) the award of maintenance.
Brief history of the relationship
[5] The relationship began in 1993. There was an issue between the parties as to the date it began, but it is not in dispute that it was sometime between May and October 1993. They signed an agreement under s 21 of the Act, on 18 October 1993, which identified specified items as the separate property of the appellant and the respondent respectively.
[6] When the relationship began, the appellant was dairy farming on his land and the respondent was a bank branch manager in Manaia, living in a house she owned. When they began living together, they moved into the house on the farm. They had three children, now in their late teens. The appellant worked on the farm, and in other farm ventures with his parents, throughout the relationship. The respondent took maternity leave for the birth of the first child, and subsequently resigned from the bank. She ran the household and was primarily responsible for the children’s care, as well as working on the farm. The Judge regarded the parties as contributing
equally to the relationship, in terms of ss 1M(b), 1N(b) and 18 of the Act.2
The items in issue on this appeal
(a) Homestead
[7] Throughout the relationship the parties lived in a house on what the parties called the “home farm”. That farm was owned by the appellant when the relationship began and was separate property. The Judge held that the homestead and curtilage were relationship property. The Judge adopted a value of $415,000 for the homestead and curtilage, the value agreed between the two valuers engaged by the parties. The appellant challenges the finding that the homestead was relationship
property.
2 Graham-Mead v Mead, above n 1, at [121] – [123]
[8] This ground of appeal relies on the s 21 agreement. The recitals to that agreement record the separate property owned by the appellant and the respondent respectively and the parties’ wish to contract out of the Act to the extent necessary to retain that property as their separate properties. The operative part of the agreement provides:
The parties agree pursuant to s 21 of the [Act] as follows:
(1) The property in Schedule A shall be for all purposes the separate property of the intended husband.
(2) The property in Schedule B shall be for all purposes the separate property of the intended wife.
Among the property listed in sch A is the land which comprised the home farm.
[9] The Judge dealt with the s 21 agreement at some length. He set the agreement aside pursuant to s 21F. He held that the house on the home farm and its curtilage is relationship property, as a homestead, to be shared equally. The appellant challenges that finding. Counsel submits that the s 21 agreement should not have been set aside and that, under the agreement, the whole of the home farm, including the homestead, is separate property.
[10] Before addressing the Judge’s decision to set aside the s 21 agreement, it is necessary to consider the interpretation of that agreement, as it relates to the family home. The family home is a homestead in terms of the definition in s 2 of the Act. As such, s 12 applies, unless the effect of the agreement is to contract out of the operation of s 12. The essential question is whether cl 1 of the agreement (as set out at [8]), read with the recital recording the parties’ wish to contract out of the Act to the extent necessary to retain the property in Schedule A as the separate property of the appellant, has the effect of excluding the operation of s 8(1)(a) and s 12 of the Act.
[11] Neither counsel had addressed that interpretation issue. I raised it with counsel during the course of the hearing and sought further written submissions on it. Counsel for the respondent in their memorandum of 1 April 2015 correctly state the question that I posed: “If the s 21 agreement were enforced, how would that
agreement apply to the homestead having regard in particular to s 12? Or, putting it another way, how was the agreement to be interpreted in the light of s 12?.” The memorandum of counsel for the appellant dated 6 March 2015 addresses a different question. That memorandum says “the issue raised by your Honour is whether the parties are able to contract out of the provisions of the Act relating to the homestead.”
[12] The submissions on both sides have enabled me to reach a clear view on the interpretation of the agreement.
[13] The Act creates a special status for the family home. Under s 8(1)(a), the family home whenever acquired is relationship property. That is reinforced in s 11(1)(a) which specifies that each of the partners is entitled to share equally in the matrimonial home, quite separately from their entitlement to share equally in other relationship property under s 11(1)(c). Section 12 deals with the situation where the family home is situated on an unsubdivided part of land that is not used wholly or principally for the purposes of the household. In that situation, s 11(1)(a) does not apply but instead, each partner is entitled to share equally in a sum of money equal to the equity of either partner or both of them in the homestead.
[14] Because the parties made their home in a house on land which was the separate property of the appellant, the effect of s 12 is that they are each entitled to share equally in a sum of money equal to the equity of the appellant in the homestead, unless on its proper interpretation the s 21 agreement excluded the operation of s 12. I consider that on the correct interpretation of the s 21 agreement, it does not have that effect. It provides that the property on which the homestead is situated shall be for all purposes the separate property of the appellant. Section 12 does not alter that. It gives the respondent a sum of money, not a share in the property. The whole property remains the separate property of the appellant. Clear words would be necessary to exclude the monetary award provided for in s 12. The plain words of the agreement do not exclude a claim by the respondent to a sum of money equal to the equity of the appellant in that part of his separate property which constitutes the homestead.
[15] I do not find any ambiguity in the agreement in this regard. But to the extent that it might be regarded as ambiguous, the very clear status given by the Act to the family home is relevant to the determination of any ambiguity. Both the plain words of the agreement, and the agreement interpreted in accordance with the purpose of the Act to which it was directed, lead to the clear conclusion that the s 21 agreement does not exclude the homestead from the operation of s 12.
[16] The enforceability of the s 21 agreement is, on the claim advanced both before the Judge and on this appeal, relevant only to the homestead claim. My conclusion that this claim is not excluded by the agreement makes it unnecessary for me to deal in detail with the appellant’s challenge to the Judge’s decision to set aside the agreement. I address it only briefly.
[17] If the agreement did have the effect of excluding the homestead from s 12, that would provide further support for the Judge’s conclusion that the agreement should be set aside. The exclusion of s 12 would have been a fundamental departure from an important principle underlying the Act, namely that the partners should have an equal financial stake in the family home, regardless of legal ownership. Independent legal advice making clear to the respondent the extent of that departure would have been imperative. The failure to receive that advice would strongly support the conclusion that the agreement should be set aside.
[18] In their memorandum of 6 March 2015, counsel for the appellant raise another issue, about how the appellant’s equity in the homestead was calculated, having regard to the level of debt. As I note when dealing with the relationship debt, the whole of the debt was treated as relationship debt. For the reasons I give there, no adjustment to the value of the homestead is required to reflect the mortgage at the start of the relationship. I uphold the Judge’s finding that the value of the homestead was $415,000, to be divided equally.
(b) Top runoff
[19] Among the separate property of the appellant, described in paragraph (b) of sch A of the s 21 agreement, was an area of land referred to in the judgment as the top runoff. Although that was identified in the s 21 agreement as the appellant’s
separate property, the Judge’s setting aside of that agreement made it necessary for him to determine the status of that piece of land. The land had been caveated by the appellant in February 1994, but not transferred into his name until June 2003. The Judge held that it was relationship property.
[20] The appellant has since the hearing filed an affidavit from the solicitor who acted for him on the purchase of the property. An application by the appellant for leave to adduce that further evidence on this appeal was not opposed by the respondent. The affidavit shows that the property was purchased and paid for in
1992 but not registered because the transfer sent by the vendor’s solicitors following settlement went astray. The caveat was lodged when this was realised. It took several years for a replacement transfer to be signed.
[21] The evidence establishes, as the respondent now accepts, that the upper runoff is separate property. She submits that the increased value of the upper runoff is to be taken into account under s 9A of the Act. The item listed by the Judge as the top runoff, with a value of $430,000, must therefore be dealt with as follows:
(a) the value at the beginning of the relationship, $165,000, is separate property and must be excluded from the calculation of relationship property; and
(b) the increase in value, $265,000, must be considered under s 9A. I
address this later in this judgment.
(c) Herd
[22] The Judge noted that there was no dispute that the livestock listed in the s 21 agreement was the appellant’s separate property. He held that the issue to be determined was whether any of the current herd is still separate property, either as the original stock or as the direct progeny of that original stock. After a careful consideration of the facts and the law, the Judge held that the entire herd existing at the end of the relationship was relationship property. He then valued the herd, as it was composed at the date of separation, by applying the IRD national average
market values of specified stock determination 2014, to fix the hearing date value of that separation date herd.
[23] The appellant does not challenge the finding that the herd as it existed at the date of separation was relationship property. He submits that the Judge erred in applying hearing date values to the herd as it was composed at the date of separation. He submits that the Judge should have taken into account that the stock numbers were lower at the date of hearing. At the date of separation there had been total livestock numbers of 561, while at the date of hearing that had decreased to 445.
[24] For the herd, the Judge had to determine two things: (a) the extent of the relationship property; and (b) the value of that relationship property.
In determining the extent of the relationship property, he properly did so by reference to the extent of the property, that is livestock numbers, at the date of separation. Actual livestock numbers at the date of hearing were not relevant to the determination of the number of livestock which were relationship property.
[25] The second exercise was to value the livestock which was relationship property. The appropriate date at which to value the property, under s 2G of the Act, was the date of hearing, unless the circumstances were such as to justify the use of another date. There was in this case no basis to depart from the hearing date.
[26] Strictly speaking, what was required was a valuation of such livestock at the separation date as were still owned at the date of hearing, using the values at the date of hearing as the Judge did, plus an accounting for the proceeds of sale of any of the separation date livestock sold or disposed of before the date of hearing. That would have been a difficult and complex factual inquiry. It is not necessary for me to examine the evidence to see whether it is feasible. The approach the Judge took was a convenient and appropriate way of avoiding the need for that factual inquiry, subject to one qualification. That qualification is that the proceeds of sale of any
livestock sold or disposed of between the separation date and the hearing date would be reflected in the bank account, which was part of the total indebtedness. If that debt was reduced by sale proceeds, then valuing that livestock as if it still existed at the hearing date, as the Judge did, might give rise to a risk of injustice to the appellant through double counting. I am satisfied that no such risk arises. As I later describe, the Judge’s treatment of the debt was favourable to the appellant, to an extent that would more than offset any small adjustment which the intermediate sale of livestock might entail. I am accordingly satisfied that there was no error in the Judge’s approach to the herd.
(d) Fonterra shares
[27] As a dairy farmer supplying to a cooperative, the appellant had to hold shares in the company to which he supplied his milk, Kiwi Cooperative Dairies Limited (Kiwi). In the s 21 agreement, his shares in the processing company were identified as his separate property, described as “all shares in Kiwi Dairies Limited”. The appellant’s evidence is that when the s 21 agreement was signed he owned one share in the company. At the end of the relationship, he owned shares in Fonterra Cooperative Group Limited (Fonterra).
[28] The appellant has sought leave to admit further evidence on this appeal in the form of an affidavit from Mr Bayliss, a former director of Kiwi and of Fonterra. That affidavit gives evidence of some of the structural changes in the dairy industry. The admission of that evidence is opposed. I find the evidence gives helpful clarification of industry changes, and I allow it.
[29] Both Kiwi and Fonterra have financial years 1 June to 31 May. As at 31
May 1993, all Kiwi suppliers owned one $1 share per farm. During the 1994 financial year Kiwi made a constitutional change away from that single $1 share per farm to a system where shares were allocated on the basis of one share per five kilograms of milk fat supplied. The total number of Kiwi shares on issue went from
10,000 on 1 June 1993 to 14,746,000 on 31 May 1994. The new shares were issued only to existing shareholders, by bonus issue with no financial consideration. Mr Bayliss’ evidence does not cover the exact date on which that change was made,
or the supply period for which the allocation of one share per five kilograms of milk fat supplied was calculated. In 1997 Kiwi made a further constitutional change which reflected an industry wide change in the payment system from milk fat to milk solids. The basis for shareholding moved from milk fat to milk solids. There was a further change in 2001 when Kiwi moved to a system under which a fair market value for shares was determined. In 2001, when Kiwi and New Zealand Cooperative Dairy Company Limited merged to form Fonterra, one Fonterra share was issued for every Kiwi share.
[30] The appellant’s evidence is that at the beginning of the relationship he held one share in Kiwi. When Kiwi merged to form Fonterra his one Kiwi share had become 65,000 Kiwi shares which in turn became 65,000 Fonterra shares. It seems clear that there must have been changes in the number of Kiwi shares held between
1994, when the first production related Kiwi shares were issued, and 2002, when Fonterra shares were issued. The detail of those changes is not readily apparent from the evidence.
[31] The Judge dealt with the effect of these changes, and with the appellant’s argument that because the 65,000 Fonterra shares came out of his one Kiwi share which was his separate property, they are also his separate property. In his analysis of the legal position, the Judge said:
[103] The husband’s analysis ignores Section 8(1) which states
relationship property shall consist of – (e) subject to ss 9(2) to (6), 9A and
10, all property acquired after the … de facto relationship began … (ee) for the common use or common benefit of both… partners, if (i) the property
was acquired out of property owned by either partner or by both of them before the de facto relationship began…
[104] There appears to be a presumption by the husband that the fact that he did not pay for the 65,000 shares and that they were substituted for the one share, and therefore not involving any relationship property, that they automatically became his separate property. That would be so if it were not for the fact that s 9 which defines separate property and in particular s 9(2), is expressly subject to ss 8(1)(ee) which in turn is subject to s 9A.
[105] At the time that the husband received the 65,000 shares in his name, they were acquired out of property owned by him and must have been for the common benefit of both partners. If he had not acquired the 65,000 Kiwi Dairies shares, he would not have been able to continue supplying milk to the factory and continue to receive payments. Those payments clearly are
relationship property and therefore the acquisition of the shares was for both
parties’ common benefit. It is necessary then to consider s 9A.
[106] The husband finds himself in the same position as the fishermen who received fishing quota when the quota system came into effect. Swanson v Swanson was a Court of Appeal decision concerning the determination of quota as relationship property. While decided before s 9A came into being the principles on this issue were the same then. Quota was issued to the husband on the basis of the licence he held before the marriage. The licence was not transferable or able to be sold. The Court held though it did have a value and was separate property.
[107] The fisherman argued that the quota was in effect the licence under another name and was therefore separate property. That was rejected by the Court. Both the High Court in first instance and the Court of Appeal said there were two important distinctions, first the quota was transferable and secondly it was limited as to quantity whereas the licence had no such restriction. The quota was not the licence in another name.
[108] The quota was held to be distinct from the licence, was acquired during the marriage and therefore formed part of relationship property unless it came within the provisions of the then s 9.
[32] The Judge also considered aspects of the shareholding which related to the appellant’s wider farming ventures, with his parents. The Judge concluded that of the appellant’s total Fonterra shareholding, 100,326 shares, with a value of
$586,907.10, are relationship property.
[33] The shares fall into four categories:
(a) the initial shares in Kiwi issued on conversion in 1994;
(b)additional shares in Kiwi issued as a consequence of changes in supply after 1994;
(c) shares in Fonterra issued on the Fonterra merger;
(d)additional shares in Fonterra issued as a consequence of changes in supply after the merger.
[34] For the initial Kiwi shares, the Judge’s analogy with the fish quota in issue in
Swanson v Swanson is apt.3 However, like all analogies, it cannot be pushed too far.
3 Swanson v Swanson [1999] 1 NZLR 19 (CA).
It is necessary to examine that case to determine the extent to which the principles stated by the Court of Appeal are applicable here.
[35] The holding of one share in Kiwi was a condition of the appellant’s right to supply his milk to Kiwi.4 It was liable to compulsory surrender if he ceased to be a supplier.5 In these respects, it has some similarity to the crayfishing licence in Swanson v Swanson.6 It was clearly “property” and was, in this case, the separate property of the appellant.
[36] The shares issued on conversion were issued not only because the appellant held the one original share, but also because he had supplied milk to Kiwi over the relevant period. The analogy with the issue of quota in place of the crayfishing licence in Swanson v Swanson is apparent in the following passage from that case:7
Panckhurst J in Fearnley v Fearnley [1997] NZFLR 609 saw it as appropriate to regard the acquisition of quota as flowing from the fact that the husband held fishing licences and had the requisite catch history. In particular, the extent of the allocation depended in part at least on personal exertion.
The quota allocated depended also upon the activities of the licenceholder and on the catch history. Both these extended into the matrimonial period and on the evidence before us involved at least the possibility of a direct contribution from the appellant.
Tipping J expressed the view that no personal exertion was necessary on the respondent's part to acquire the quota. He later indicated that the licence was converted into the appropriate amount of quota whereupon the licence itself was cancelled. Neither of these views reflect the significance of the catch history under subs (1) of s 28EA, nor the indication in subs (4) that commitment to and dependence on the fishery of the licenceholder may play a part. For those reasons we prefer the approach of Panckhurst J, admittedly in a different context, which recognises that the allocation of quota contains on the scheme of the Act, elements other than the possession of the licence itself.
[37] The Court went on to consider whether, because the quota was not the same thing as the licence, and was therefore not acquired out of the separate property, it
constituted relationship property under s 8(e) or (ee). It said:8
4 Cooperative Dairy Companies Act 1949.
5 Section 11.
6 Swanson v Swanson, above n 3.
7 At 26.
8 At 27.
Since, as will appear, we consider that the quota is matrimonial property under s 9(3) we do not have to reach a conclusion in respect of s 8(e). So far as that provision is concerned, the problem in this case is that while the quota is not the same thing as the licence, it derives in part from it. Although as we have already concluded it did not derive wholly from the licence, nevertheless in a significant sense it did so since without the licence, no quota would have been awarded although other considerations played a part in its quantification. Under those circumstances we consider that the nature of the quota is such that it more aptly falls within the ambit of s 8(ee) which is subject to the provisions of s 9(3).
[38] Under s 8(1)(e), I consider that the two requirements for the issue of the new shares, that the appellant held an existing share and supplied the relevant amount of milk, mean that the new shares are so different in kind from the original single share that they are different property. That conclusion is reinforced by the significantly different rights attaching to the new shares. The new shares were a different form of property, acquired after the relationship began, and so fall within s 8(1)(e).
[39] In case I am wrong in that, I also consider s 8(1)(ee). The Kiwi shares issued on conversion were acquired out of the single share owned by the appellant, in terms of s 8(1)(ee)(i). I consider that they were acquired for the common use or benefit of both partners. They were essential to the continued right to supply the milk from the herd which was relationship property. I hold that those shares are relationship property.
[40] In case I am wrong in that, I also consider s9A. Because the original single share had only a nominal value, the relevant increase in value for s 9A is the total value of the shares issued on conversion. Because the appellant’s supply in the relevant period was an essential element of the issue of the new Kiwi shares, I must consider whether there has been any application of relationship property under s 9A(1), or actions of the respondent under s 9A(2), in relation to the supply during that period. As I have observed, the evidence is not clear on what period was used to determine supply. If the relevant period was the 1992/3 season, ending on
31 May 1993, any contribution by the respondent would have been minimal, since the relationship started at the earliest in May 1993. If the relevant period was the
1993/4 season, the relationship had by 31 May 1994 been in existence for such a period that I would conclude that s 9A(1) and (2) would both apply. My conclusions
on other issues relating to the shares means that this point is essentially academic. I
consider it unnecessary to go further than that on the point.
[41] The second category of shares are any further shares issued by Kiwi because of increases in supply. Those shares are quite independent of the first category. They are in no sense acquired out of the original share, because they arise from increases in supply. Any such shares are relationship property, under s 8(1)(e). The evidence does not enable me to quantify this category.
[42] The third category, the original issue of Fonterra shares, were acquired when Kiwi amalgamated to form Fonterra. The terms of the merger proposal were produced in evidence. The issue of shares on amalgamation was complex. My conclusion that all Kiwi shares are relationship property makes it unnecessary for me to consider the effect of the merger on any Kiwi shares which were separate property. If it was necessary to decide the point, I would be inclined to the view that the original Fonterra shares are relationship property, under s 8(1)(e) or (ee). The issue of those shares was dependent on the holding of the same number of Kiwi shares. Holding those Kiwi shares was in turn dependent on supply from the relationship property herd in the immediately preceding season.
[43] The fourth category, Fonterra shares issued after the merger because of increased production, are clearly relationship property under s 8(1)(e).
[44] For these reasons, I uphold the outcome reached by the Judge, that the parties share equally the value of the relevant Fonterra shares. The number of shares, out of the total held for all the appellant’s farming operations, is not in issue.
(e) Increase in value in the farm properties
[45] This aspect of the appeal relates to three items in [184] of the judgment: the
1256 South Road increase, the Upper Winks Road increase and the home farm increase.
[46] It was common ground between the parties in the Family Court, and before this Court, that these three parts of the farm were each the separate property of the
appellant when the relationship began, and that (whether or not the s 21 agreement is set aside) any increase in the value of all or any of those three parcels of land may become relationship property by the application of s 9A(1) or (2) of the Act. The Judge said that the only matters for determination were the values in 1993 and at the date of hearing, and whether s 9A(1) or (2) applies.
[47] The appellant’s submission in the Family Court was that the values should be taken at the date of separation, not the date of hearing, because the assets were and still are the appellant’s separate property. The Judge found no sufficient basis to depart from the default position of hearing date valuation. He considered the issue
of inflationary increase, and Rose v Rose.9 He made no allowance for any inflation
component in the increase in value for the purposes of s 9A, because there was no evidence before the Court as to the effect of inflation on the value of the properties, and because he concluded from the evidence that the driver of farm prices is not inflation but farm returns. For that latter reason, the Judge also rejected as simplistic the submission that the respondent could not have contributed to the increase in value after separation. The Judge quantified the increase in value of each of the three properties between mid-1995 (the date of the first available valuation after the relationship began) and the date of hearing.
[48] The Judge then considered, separately for the home farm, and the two runoffs, whether s 9A(1) or (2) applies.
(i) The home farm
[49] The Judge held that the increase in value of the home farm was attributable, at least in part, to the application of relationship property, because a new milking shed had been built, funded through the relationship bank account, when the home farm was amalgamated with the appellant’s parents’ farm in 2002. He therefore held that s 9A(1) applied, so that the whole increase in value between 1995 (being the date of the first valuation after the relationship began in 1993) and the end of the relationship was, under s 9A(1), relationship property. He divided that equally
between the parties.
9 Rose v Rose [2009] NZSC 46, [2009] 3 NZLR 1.
[50] Counsel for the appellant submits that the Judge erred in applying s 9A(1) to the whole of the increase in value of the home farm, from 1995. The appellant does not challenge the finding that improvements made to the home farm involved the application of relationship property under s 9A(1). He challenges the proposition that this section can apply to any increase in value before 2002. Counsel submits that the increase in value which became relationship property is limited to the increase in value after the application of relationship property, that is, after the improvements to the milking shed were made in 2002. He further submits that there was no evidence of the value of the property as at 2002, so that any s 9A award could be only under s 9A(2).
[51] Counsel for the respondent submits that the stance now taken by the appellant is at variance with a concession by his counsel before the Family Court that there was a clear s 9A(1) claim in respect of the home farm and runoffs given the significant bank debt that was accrued and secured over the home farm during the relationship, and an application of relationship property because those borrowings were incurred during the relationship by and as a result of the ongoing farming operation and the funds borrowed and applied to the farm. Counsel for the respondent submits that it would be unfairly prejudicial in the light of these concessions to allow the appellant’s argument on s 9A(1). Counsel further submits that at the trial the only accounts for the farms produced by the appellant were from 2000 onwards. She submits that the appellant’s failure to produce the relevant accounts and documents should not result in an assumption against the respondent’s interests, particularly in the light of her efforts to try and obtain disclosure of information.
[52] Counsel further submits that there was evidence of the application of relationship property to the home farm before the building of the new milking shed and the associated reconfiguration of the farm. Counsel submits that the appellant did not deny using relationship funds on the farm, that all of the respondent’s wages were put into the relationship, and that it is reasonable to infer that the partner’s efforts on improving the home farm over the years from the start of the relationship
involved the use of relationship money. Counsel also refers to the Judge’s finding
that he was:10
… in no doubt that the two of them were in partnership from the time that their relationship began and that they had a common goal to have an efficient a profitable farm to provide the means for them to raise their family.
[53] It is clear that for any increase to be at least in part attributable to the application of relationship property, that increase must be subsequent to the application.11 There was no valuation of the farm at a date close to 2002 when this work was carried out, and the Judge applied s 9A(1) with a starting point of the 1995 valuation.
[54] I first consider whether there was an earlier application of relationship property which would justify the 1995 value starting point. Counsel for the respondent relies on the concession by counsel for the appellant I have recorded at [51]. The funds borrowed as relationship debt were invested in the farming business. There is force in the Judge’s observation that a driver of farm prices is the level of return, which is related to production. The increase in value is therefore partly attributable to the application of relationship property. That justifies the 1995 starting point.
[55] In case I am wrong in that, and the only relevant s 9A(1) application of relationship property is the 2002 work, I address whether it is appropriate to use the
1995 valuation in fixing the value of the increase. Ideally, there should be evidence of value at a date closer to 2002. However, that particular point was apparently not in issue in the Family Court. Because of the way the matter was argued in the Family Court, it would now be unjust to exclude the entire increase in value because of the lack of a 2002 valuation. If faced with a choice between using the 1995 value, or depriving the respondent of any increase in value, I would use the 1995 value, with some adjustment. As it is not necessary to decide the point, I need not address
how that adjustment might be made.
10 Graham-Mead v Mead, above n 1, at [120].
11 Hartley v Hartley [1986] 2 NZLR 64 (CA); Rose v Rose, above n 9.
[56] The next issue is the end point of the increase in value, that is, whether any increase in value after separation is to be included. The relevant item to be quantified is the increase in value of the farm attributable to the application of relationship property. An increase in value after the relationship has ended is unlikely to be attributable, wholly or in part, to the application of relationship property. In Nation v Nation the Court at [78] and [81] appears to accept that the end
point of the calculation will usually be the date of separation.12
[57] The valuer called by the respondent valued the home farm, including the homestead, as at 1 June 2009, which is close to the date of separation, at $3 million. He valued the homestead at that date at $350,000 to give a value for the relevant property of $2,650,000. The valuer called by the appellant valued the property at January 2012. He valued the home farm at that date at $3,220,000, including the homestead. He valued the homestead and curtilage at $470,000, a net figure for the relevant property of $2,750,000. I do not consider that the difference between those figures is sufficient to require any adjustment to the figure arrived at by the Judge. In reaching that conclusion, I have regard to the conclusion I have reached that the Judge’s treatment of the indebtedness was favourable to the appellant.
(ii) The runoff properties
[58] This involves three runoff blocks: the top runoff, 1256 South Road and Upper Winks Road. The Judge dealt with the latter two runoff blocks collectively. He held that there was no evidence of expenditure on those blocks, so that the allocation of the increases falls to be determined under s 9A(2). He applied his earlier finding that the parties’ contributions to their partnership were equal, but said that an allowance should be made to the appellant for owning the properties as separate property. He held that the increases in value of the two runoff properties should be divided between the appellant and the respondent in a ratio of 60 to 40. The Judge did not need to address the increase in value of the top runoff because of
his finding that it was relationship property. I must do so.
12 Nation v Nation [2005] 3 NZLR 46 (CA).
[59] Counsel for the appellant submits that it was not demonstrated that the respondent made contributions, directly or indirectly, which resulted in the runoffs increasing in value. The respondent did not make direct contributions and there was no evidence of relevant indirect contributions. The runoffs generated a rent-free return for the couple, which points against any indirect contribution to a material increase in value of the runoffs and that in reality the increased value of the runoffs over the years resulted from market forces and inflation. The appellant submits that the s 9A(2) finding regarding the runoffs should therefore be overturned. Alternatively the appellant submits that the Judge applied the wrong test in determining the relationship of 60/40 and that at best the respondent’s contributions to the increased value of the runoffs during the relationship were minimal, and there should be either no award or an award of no more than 10 per cent of the increase in value.
[60] Counsel for the respondent again relies on the appellant’s concessions at the Family Court hearing, and the absence of the pre-2000 records. She submits that if the s 9A(2) award is to be reassessed the respondent should be given the opportunity to adduce further evidence and to conduct further cross-examination of the appellant’s witnesses. She submits that the submission that there was no evidence of indirect contributions is incorrect in that the respondent’s wages whilst employed in the first couple of years of the relationship were spent on the household, and that she gave up her job to raise three children, take care of the household and help out on the farm and business where needed. These contributions allowed the appellant more time to work and manage the farm and to increase its value. Counsel for the respondent further submits that the 60/40 allocation of the increase for the two runoffs was appropriate having regard to the Judge’s findings of contributions by the respondent and his evaluation of the relative contributions of both. She submits that there is no basis for departure from a hearing date valuation to assess the increase in value.
[61] I can deal with all three runoff blocks together. I consider there is no material difference between them for present purposes. The appellant’s submission seeks to distinguish between the home farm, and the runoffs, by reference to their use. I am not satisfied that the distinction between the home farm as an operational farm, and
the runoffs as a rental property, is justified on the evidence. In his affidavit, the appellant described the home farm as comprising all the land in the s 21 agreement.13
[62] The Judge has found, in my view with a proper evidential foundation, that the respondent made a contribution to the farming operation. I consider that there is no proper evidential basis for limiting that contribution to the home farm, to the exclusion of the two runoffs. I therefore uphold the Judge’s finding that the increase in value in the two runoffs is relationship property under s 9A(2). I find that the increase in value in the top runoff is likewise relationship property.
[63] It is therefore necessary to determine the share of each partner in that increase in value in accordance with their respective contributions to that increase. The approach to that determination was described in Rose v Rose in these terms:14
[46] Although an increase to be divided under s 9A(2) is classified as relationship property, it must be remembered that the Court under para (b) is engaged upon the task of evaluating contributions to the increase in value rather than, as under subs (1) and generally under Part 2, dividing relationship property in the manner directed by Part 4 of the Act. Section 9A(2) gives no guidance about how this task is to be performed but a significantly different approach from that under subs (1) is plainly required. The principles found in s 1N (equality of men and women, equality of contributions to the marriage partnership and just division of relationship property having regard to economic advantages or disadvantages arising from the marriage) have little or no application under s 9A(2)(b). Nor does s 18 which deals with contributions to the marriage, rather than contributions to an increase in value of a particular piece of separate property. The circumstances in which that increase occurred require careful assessment but arithmetical exactitude cannot be achieved and in the end the evaluation of the relative contributions is likely to be a matter of general impression.
[47] A level of complication is provided by a seemingly unsatisfactory consideration. It is that in many cases a major portion of the increase in value will have been the product of inflation or of a general rise in the value of a certain kind of property (here it is the increase in value of property with a suitability for viticulture). In reality, neither of these factors results from the actions of either party during the marriage, yet the subsection none the less requires them to be weighed as contributions to the increase in value. One possible approach would be to put such factors to one side, determine the relativity of the other contributions of each spouse and then divide the inflationary or general increase in the same ratio as the other contributions. In many, perhaps most, instances that would not, however, give adequate recognition to the fact that the property was, and remains, separate property
13 Second affidavit of John Campbell Mead dated 16 July 2012, at [9].
14 Rose v Rose, above n 9.
(only the increase being relationship property) and that, if it had not been brought to the marriage or acquired during the marriage as separate property, there would have been no asset to produce the inflationary or general gain. Normally the fairer approach is therefore that the ownership of the separate property from which these increases in value sprang should be treated under s 9A(2)(b) as a contribution made by the owner spouse. The Court should then evaluate that contribution together with other contributions to the increase in value which it identifies as having being made by the owner spouse, and should weigh the aggregate of those contributions against the identified contributions of the non-owner spouse to that increase.
[64] The apportionment must necessarily be somewhat arbitrary, as there is no feasible means of quantifying the respective contributions to an increase in value which arise from the ownership of the land on the one hand, and other contributions on the other. The Judge who heard the evidence was better placed than I am to make that assessment. In making his assessment, the Judge took into account that the driver of farm prices is not inflation but farm returns, and that production is the driver for returns. The production of the farm resulted from the efforts of both partners. I have not accepted the appellant’s submission that the runoffs are to be regarded as separate from the balance of the farming operation. The appellant has not satisfied me that the Judge’s apportionment of the increase in value on a 60/40 basis was wrong. That apportionment applies also to the top runoff.
(f) Indebtedness
[65] The Judge dealt very briefly with the relationship debt. He noted that both counsel accepted the bank debt at separation was $2,074,000. With some further indebtedness shown in the 2009 accounts, the total indebtedness was $2,088,392.40. The Judge apportioned that equally between the parties.
[66] Counsel for the appellant submits that it was inappropriate to quantify the farm debts at the date of separation, rather than at the date of hearing. By then, the total debt had increased by about $600,000.
[67] It was not inconsistent for the Judge to quantify the debt at the date of separation. It would have been inappropriate to use the date of hearing. As I have said in relation to the herd, the relevant date at which to quantify the extent of the relationship property would ordinarily be the date of separation. As the quantum of
the debt is a monetary liability, no issue of its valuation, as distinct from its quantification, arises. Section 2G, which deals with valuation of the property so quantified, is not relevant to this exercise.
[68] There was no clear evidence of the way in which the additional debt incurred by the appellant after separation had been used. There is no evidence that it has been applied to preserving or increasing the value of relationship property in a way which would justify treating the further borrowing post separation as relationship debt.
[69] There is another issue about the judge’s treatment of the indebtedness which I raised with counsel in a minute issued after the hearing, and which I have referred to earlier in this judgment. That is that the Judge treated the whole of the debt at the date of separation as relationship debt. I am not satisfied, either from the submissions initially made or from the submissions in response to my minute, that all of the debt should have been held to be relationship debt.
[70] The land on which the farm business was operated was owned by the appellant as his separate property, and he has retained that separate property, so that only the increase in value has been taken into account as relationship property. The land was not mortgage free when the relationship began. The value of the appellant’s separate property was his equity in the land, not the total value of the land. It would therefore appear, at least at first sight, that some part of the total debt should have been the separate debt of the husband, to reflect that original indebtedness on the land. If that debt was subsequently repaid, from relationship property or as a result of being replaced by relationship debt, then either that debt should be treated as separate property or the consequent increase in the appellant’s equity in the land ought itself to become relationship property. Counsels’ memoranda address briefly the evidence about the source of the funds to repay the appellant’s separate debt, but not to the extent that I can properly make factual findings about it.
[71] This is not an issue which was raised (except by me) in the appeal and I do not think it is appropriate to venture into it. There is no cross-appeal by the respondent. I simply observe that it seems to me that the Judge’s treatment of the
whole of the debt as relationship debt, and apportioning it equally to both parties, appears favourable to the appellant. I have taken that into account on other aspects of this appeal, where I have referred to it. It also makes it unnecessary for me to deal specifically with the appellant’s challenge to the Judge’s factual findings about whether a debt to the appellant’s parents had been written off.
[72] I do not disturb the Judge’s quantification of the relationship debt as the debt
owing at the date of separation.
(g) Past maintenance
[73] The Judge considered whether the respondent should receive an award for past maintenance, from the separation to the hearing. He reviewed the parties’ outgoings, and noted a shortfall between the income and expenses of the respondent, which had resulted in a credit card debt at the date of hearing of $18,000. He awarded that sum as past maintenance.
[74] The appellant submits that no award should have been made because the respondent had earlier discontinued a spousal maintenance application, and that was part of the consideration for an agreement under which she received a distribution from a family trust. The respondent submits that the earlier application was under the Family Proceedings Act 1980, whereas the present award was under s 32 of the Act.
[75] It appears that the submission that the withdrawal of the earlier maintenance claim precluded an award was not raised before the Judge. The Judge proceeded on the basis that a claim for ongoing spousal maintenance was still a possibility, and that he was dealing only with past maintenance.15 I do not consider that it is appropriate to deal with this issue on appeal, in those circumstances. There is insufficient material for me to assess whether the withdrawal of the earlier claim might raise an issue estoppel against the respondent.
[76] For these reasons, I decline to intervene.
15 Graham-Mead v Mead, above n 1, at [196].
(h) Adjustment for post separation work
[77] The Judge allowed compensation under s 18B of the Act for contributions made by the appellant for work on the farm between the date of separation and the date of hearing. The farm was operated by sharemilkers, but the appellant also had input into running the farm. The respective valuers assessed the appropriate remuneration for that work in the range of $20,000 to $30,000 per annum. The Judge noted that it was unclear whether these figures took into account that the appellant had the use of the home. He also assumed that tax would be payable if the payment had been made to a worker. He allowed a sum of $100,000, or $20,000 per annum for five years.
[78] Counsel for the appellant submits that the allowance was too low.
[79] The Judge who heard the evidence was best placed to make that assessment. He fixed a figure at the bottom of the range in which he found the valuer’s evidence to fall. I am not satisfied that this was wrong.
Result
[80] For these reasons, the appeal is allowed, to the extent that the finding that the top runoff formed part of the relationship property is set aside. I substitute a finding that the value of the top runoff at the beginning of the relationship, namely $165,000, is the separate property of the appellant, and the increase in value, namely $265,000, is relationship property to be divided 60 per cent to the appellant and 40 per cent to the respondent. In all other respects the appeal is dismissed.
[81] The respondent has been substantially successful on the appeal. Her counsel acknowledged the need for the one adjustment which I have made. In these circumstances the respondent is entitled to costs, which I fix on a 2B basis.
“A D MacKenzie J”
0
0
0