Minister of Education v McCartney

[2017] NZHC 47

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2016-441-101 [2017] NZHC 47

BETWEEN

THE MINISTER OF EDUCATION

First Plaintiff

THE SECRETARY OF EDUCATION Second Plaintiff

THE BOARD OF TRUSTEES OF PARKVALE PRIMARY SCHOOL Third Plaintiff

AND

TANIA MAY MCCARTNEY First Defendant

CRAIG ROBERT MCCARTNEY Second Defendant

Hearing:	12 December 2016
Counsel:	M McFarlane for Plaintiffs J F McDowell for Second Defendant
Judgment:	31 January 2017

JUDGMENT OF WILLIAMS J

Introduction

[1]      The first defendant was, for some years, a school administrator with access to her employer’s bank accounts and credit card.  During the course of her employment she stole nearly $170,000 from the school.  She was charged and pleaded guilty.  She was then convicted and sentenced for her offending.

[2]      She and her husband, the second defendant, separated in June 2016, largely as a result, it seems, of the revelations over her offending.  The following month they executed a separation and relationship property agreement.  The agreement provides

that  the  only  significant  asset  of  the  relationship,  the  family  home,  is  to  be

THE MINISTER OF EDUCATION & ORS v MCCARTNEY & ANOR [2017] NZHC 47 [31 January 2017]

transferred to the husband.   The home is said, in the agreement, to be valued at

$395,000 though it is subject to a mortgage of $103,000.1

[3]      The school and the Ministry of Education now sue the wife and husband seeking to recover the value of that which she took from the school, external investigation costs, interest and costs.   The wife is sued in deceit and breach of fiduciary obligation as an employee for the sum lost; and both husband and wife are sued for relief (effectively) by way of declaration seeking to set aside the separation and relationship property agreement.  It is argued the agreement is void pursuant to s 47 of the Property (Relationships) Act 1976 (PRA).  Since the agreement takes the family home outside of the wife’s part ownership, it will frustrate the claim by the school and Ministry to the wife’s half of the value of the home.

[4]      Freezing orders were granted on an ex parte basis by Clifford J on 31 August

2016.  These prevented any dealing with the family home until the application could be argued on notice.2

[5]      The wife filed a formal admission of claim on 20 September 2016 in relation to the sum stolen – but not in relation to the application under s 47.  That application therefore remains to be argued.

[6]      The parties have subsequently agreed that the interim orders should remain until further order of this Court, and that in the meantime a preliminary question as to whether the remaining cause of action in relation to the separation agreement can be dealt with in this Court or whether exclusive jurisdiction in that respect belongs to

the Family Court.  I turn now to answer that question.

1      The narrative in the agreement suggests that the exchange is fair because, during the course of the marriage, the wife also extracted approximately $340,000 of relationship income from the relationship and without the husband’s knowledge.

2      Though I note Mr McDowell advised me at the hearing that the husband has no intention of further dealing in the home and would have given an undertaking to that effect if required.

Relevant provisions of the PRA

[7]      Section 22 provides that every application under the Act must be heard and determined in the Family Court unless there is a provision conferring jurisdiction on another court.

[8]      Section 4 declares the Act to be a code displacing the rules and presumptions of common law and equity to the extent that they apply (as in this case) to transactions between spouses.  Section 4(4) is particularly relevant.  It provides:

Where, in proceedings that are not proceedings under this Act, any question relating to relationship property arises between spouses or partners, or between either or both of them and any other person, the question must be decided as if it had been raised in proceedings under this Act.

[9]      I  take  this  to  mean  that  any  court  seized  of  an  application  that  affects relationship  property,  must  (even  if  it  is  not  the  Family  Court)  decide  any relationship property issues as if the PRA governed the dispute.  Thus, the PRA will trump all other regimes (legislative, or common law) where these may otherwise control relationship property, whatever court the issue is being heard in.

[10]     The  primary  applications  under  the  Act  are  made  pursuant  to  s 25. Section 25(1) entitles the Family Court to determine the shares of any relationship property and to divide any property in accordance with the principles and rules in this Act.  Subsection (2) provides however that these powers are only triggered if the parties are separated, or their marriage dissolved, or the relationship ended, or if one party is either endangering relationship property or is bankrupt.

[11]     Subsection (3) provides that at any time the court may order or declare the status, ownership, vesting and possession etc of any property where such an order is just in the circumstances.  Subsection (5) says s 25 is subject to any other provisions in the Act.

[12]     Section 44 seems to relate to dispositions outside the relationship.  It provides that where the High Court, District Court or Family Court is satisfied that a disposition of property has been made (whether for value or not) in order to defeat a claim or the rights of any person under the PRA, orders may be made requiring

transfer or payment in order to preserve a spouse or partner’s rights.  It thus, on its own terms, contemplates multiple courts having jurisdiction over such disposition.

[13]     Section 47 relates to agreements between relationship partners entered into to defeat the creditors of one of them.  It does not refer to multiple courts in the way that s 44 does.  It provides that where avoidance of creditors is intended (subs (1)) or is the effect of any agreement (subs (2)), such agreement will be void against the creditor (in the case of subs (2) for two years from the date of the transaction). Subsection (5) provides that this provision overrides any other provision in the Act.

Relevant case law

[14]     In Jew v Jew the plaintiff sought a declaration from the High Court under the Declaratory Judgments Act 1908 that property held by a family trust was not relationship property.  The counter-argument was this was a matter for the Family Court to resolve rather than the High Court.  The matter came before Paterson J on review from a decision by a Master to strike-out the proceedings:3

[39]     The issue therefore, in my view, is clearly one of jurisdiction.  The substantive orders which can be made under the Act are set out in s 25 of the Act.   In the main, they are to determine the respective shares of each spouse in the relationship property and to divide the relationship  property  between  the  spouses.    A  crucial  issue  is whether the provisions of s 25(3) of the Act, which allow the court at any time to make an order or declaration relating to the ownership of any specific property as it considers just, mean that the application in this case is an “application under this Act” which must be heard and determined in a Family Court: see s 22(1) of the Act.

[40]      The  question  is  whether  s 25(3)  gives  an  independent  court  the power to make declarations in respect of third parties’ property or whether it is, in effect, a qualification of the provisions of s 25(1).  In ANZ Banking Group (New Zealand) Ltd v Wrightson (1992) 9 FRNZ

1, Robertson J held that the only authorisation to make an order was under s 25(1).  Section 25(2) is a restriction on the circumstances in

which the jurisdiction may be exercised, and s 25(3) is a gloss on s 25(2).  His Honour followed the conclusion of Judge Inglis QC in
Hall v Hall (1989) 5 FRNZ 309 when he held that s 25(3) was no more than supplementary to s 25(1) “so as better to empower the Court to make orders within the general scheme and framework of

the Act.”

3      Jew v Jew [2003] 1 NZLR 708 at [39]-[41].

I accept that the learned author of Fisher on Matrimonial Property noted in para 14.5 that [p]resumably the Court can under s 25(3) make orders as to the status, ownership, vesting, or possession of “separate property” (emphasis added).  While it is not necessary for me to determine whether this statement is correct, I note the author limited it to orders in respect of “separate property”.  In my view, it is inconceivable that the legislature in s 25(3) of the Act intended to give any Court an equity jurisdiction to make status, ownership, vesting or possession orders in respect of third party properties as it considered just.  I prefer the views of Robertson J and Judge Inglis and do not accept that s 25(3) authorises the Family Court to make declarations as to ownership in respect of property owned by third parties.  The “specific property” referred to in s 25(3) must, in my view, be property of one or both of the parties.

[41]      It follows that s 22(1) of the Act requiring all applications under the Act to be heard and determined in a Family Court apply to those applications seeking orders under s 25(1) of the Act.  The exclusive jurisdiction of the Family Court is limited to such applications.  In considering Mr Jew’s application [to] this Court, if it determines the declaration should be made, will not be classifying relationship property.  It will not be ousting the mechanism expressly contained in the Act …  If Mrs Jew alleges that some of the property of the trust is beneficially owned by Mr Jew and is relationship property, or even his separate property, this Court will be required by the provisions of s 4(4) of the Act to apply the principles of the Act to that particular issue.  Section 4(4) contains the authority for it to do so.  On my view of the correct interpretation of the provisions of the Act, the fundamental question, namely, whether this Court has jurisdiction to consider the declaration, is that it does.

[15]     In  Yeoman v Public Trust  Ltd,4  Associate Judge Bell  was  confronted  by multiple applications under the PRA and the Family Protection Act 1955 some of which had began in the High Court and some in the Family Court.  Associate Judge Bell found, partially in reliance upon Jew v Jew that this Court and the Family Court had concurrent jurisdiction under the PRA.5

So long as this Court does not decide the division of relationship property, but decides the ownership of assets under general property rules, it will not encroach  on  the  exclusive  jurisdiction  of  the  Family  Court  under  the Property (Relationships) Act.

[16]     In  AB  v  EF6,  Andrews  J  adopted  and  applied  this  developing  line  of authorities in relation to property vested in a family trust and a company.

4      Yeoman v Public Trust Ltd [2011] NZFLR 753.

5 At [61].

6      AB v EF [2012] NZHC 722, [2012] NZFLR 661.

[17]     The husband says these authorities do not apply because they all related to dispositions to a third party to defeat the rights of a spouse (the sort of situation described by and the focus of s 44).  Rather, the present case involves a disposition to a spouse within the relationship (or at least formerly so) in order (it is alleged) to defeat a third party creditor.  In this case, the husband argued, a decision to declare void a relationship property agreement must quintessentially relate to the core functions of the Family Court under the PRA and there can be no reason for another court to be involved in resolving that issue.   In this sense, it was argued that the principle espoused by Associate Judge Bell does not cover the situation here.

[18]     I should also mention three decisions cited by the Ministry.   In Harvey v Gateshead Investments Ltd,7  Monocrane NZ Ltd (in liq) v Moncur,8  and Felton v Johnson,9 this Court and (in Felton), the Supreme Court, all in proceedings commenced in the High Court, proceeded to assess applications by creditors for s 47 declarations without contest as to jurisdiction.  Mr McFarlane argued that those cases

demonstrate that jurisdiction in this Court to deal with such application has long been assumed without controversy.

My view

[19]     The line of authority beginning with Jew v Jew is now longstanding.  It ought to be followed unless there is a good reason not to follow it.  I do not consider that line is distinguishable in the manner suggested by Mr McDowell for the husband.  It is true that Jew, Yeoman and AB all relate to s 44 situations involving an asset owned by a third party.  But Paterson J’s principle is stated more broadly than just the s 44 context.     The  exclusive  jurisdiction  of  the  Family  Court  is  limited  only  to applications covered by s 25(1).  Section 25(3) – covering declaratory remedies – is not exclusive to the Family Court in at least two situations involving the rights of third parties:

(a)       Where (as in Jew itself) the property is vested in a third party; and

7      Harvey v Gateshead Investments Ltd [2012] NZHC 1059, [2012] BCL 362.

8      Monocrane NZ Ltd (in liq) v Moncur [2014] NZHC 3012.

9      Felton v Johnson [2006] NZSC 31, [2006] NZFLR 759.

(b)Where, as here, the property is claimed by a third party not in the relationship.

[20]     These cases are not about property division between spouses under the Act, but about the rights of third parties.

[21]     Associate Judge Bell was right (with respect) when he considered in Yeoman that this Court has concurrent jurisdiction as long as it is not engaged in dividing relationship property in accordance with the particular rules in that regard contained in the PRA.10     While its effect is to undo a division agreed by the relationship partners, s 47 really imports an external rule reflective of s 60 of the Property Law Act 1952.  The purpose of both provisions is to stop debtors using transactions to

avoid their creditors, and, in the particular case of the PRA, to stop spouses and partners using relationship property agreements for that purpose.  The effect of s 47 is to return any property division between partners to the PRA’s default rules not to interfere in them.  There is no reason for this Court to defer to the Family Court in that respect.

[22]     It is true, as I noted earlier, that s 44 specifically refers to multiple courts likely to be seized of the issue of third party property rights, and s 47, which only relates to claims by third party creditors, does not, but I do not see that as decisive. Section 4(4) (referred to above) covers that situation.

[23]     Of  course  it  is  not  for  me  to  decide  whether  it  is  appropriate  for  such declaration to be made, but if it is, that does not exclude the possibility that any special rules applying to the division of relationship property in this case, even if the agreement is set aside, will not produce at least some of the evening out effect that

the husband claims he should get.

10     Yeoman, above n 4, at [61].

[24]     I find that this Court has jurisdiction to deal with the matter accordingly and that the interim orders were properly made.

Williams J

Solicitors:

Sainsbury, Logan & Williams for Plaintiffs

John McDowell, Barrister & Solicitors for Second Defendant