North v North
[2013] NZHC 2074
•19 August 2013
RESTRICTION ON PUBLICATIONS TO COMPLY WITH SS11B TO 11D OF THE FAMILY COURTS ACT 1980.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-002070 [2013] NZHC 2074
BETWEEN NORTH Appellant AND
NORTH Respondent
Hearing: 30 July 2013 Appearances:
R C Knight for Appellant
M W Vickerman for RespondentJudgment:
19 August 2013
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 19 August 2013 at 3.00 pm
pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date……………………….
NORTH v NORTH [2013] NZHC 2074 [19 August 2013]
Introduction
[1] Mr and Ms N are party to substantive proceedings under the Property (Relationship) Act 1976 (PRA) that have been on foot since May 2010. One of the outstanding issues is the status of a company, referred to as SOL, and the substantial debts it owed to the Inland Revenue Department (IRD) in respect of PAYE and Kiwisaver arrears dating back to 2009. SOL is controlled by Mr N but Ms N asserts that it is relationship property. This appeal concerns an order made by Judge McHardy under s 25(3) PRA directing that a payment be made to the IRD in respect of this debt from joint funds held in a solicitor’s trust account following the sale of the family home.
[2] Ms N had worked for SOL in an accounting role until November 2010. There is a dispute about the nature and extent of her authority within the company and extent to which she knew of the arrears. There is dispute about the extent to which Mr N knew of the arrears and might be responsible for them through his management of the company.
[3] In November 2012 Mr N filed an application for interim distribution seeking an order for the payment of $167,690 from the funds held in the solicitor’s trust account to the IRD in respect of the PAYE and Kiwisaver arrears. At the same time Ms N filed an application for discovery against non-parties. These applications had been signalled previously. In addition, Ms N filed an application to strike out the affidavit of SOL’s accountant, Roger Hadfield, which had been filed in support of Mr N’s application.
[4] On 25 February 2013 counsel for the parties attended a judicial conference scheduled at 11.45 am for 30 minutes for the purpose of making directions in relation to the interlocutory applications. Judge McHardy acceded to a request by Mr N’s counsel, Mr Vickerman, to deal with the substantive applications, rather than simply make directions. Over the objections by Ms N’s counsel, Mr Knight, Judge McHardy stood the matter down until 2.15 pm and then proceeded to hear both applications.
[5] In a written decision delivered on 21 March 2013 the Judge granted Mr N’s application for an interim distribution,1 dismissed Ms N’s application to strike out Mr Hadfield’s evidence and found it unnecessary to deal with the application for further discovery.2
[6] Ms N appeals Judge McHardy’s decision on the grounds that the Judge: (a) Should not have required the parties to proceed that day;
(b) Did not have jurisdiction to make the order for interim distribution.
(c) Erred in making adverse credibility findings against Ms N without the evidence being tested by cross-examination;
(d) Erred in relying on a valuation that was not in evidence;
(e) Should have considered the application to strike out Mr Hadfield’s
evidence before determining the application for interim distribution.
[7] An appeal against a decision of the Family Court in relation to relationship property matters falls under s 39 of the PRA. The decision under appeal was the exercise of a discretion. On such an appeal the appellant must show an error of law or principle, taking account of irrelevant considerations, failure to take account of a relevant consideration or that the decision is plainly wrong.3
Should the parties have been required to proceed?
[8] When he filed his application for an interim distribution Mr N requested that a half-hour hearing be allocated for it. This was resisted by Ms N’s counsel on the ground that 30 minutes was “hopelessly inadequate” because the evidence was to be contested and Mr Hadfield would be required for cross-examination. Judge de Jong
directed a judicial conference relating to both the discovery and interim distribution
1 I allowed evidence to be adduced at the appeal confirming that the payment has been made to the
IRD.
2 N v N [2013] NZFC 1430.
3 K v B [2010] NZSC 112, [2011] 2 NZLR 1.
applications and on 11 December 2012 the Family Court notified the parties of the conference to be held on 25 February 2013.
[9] A few days later Ms N filed her application to strike out all or part of Mr Hadfield’s evidence. That resulted in Judge Adams directing a 30 minute hearing to be allocated for that application.
[10] On 21 February 2013, ahead of the scheduled judicial conference, Mr Vickerman filed a memorandum seeking to clarify the purpose of the conference and indicating that he was prepared to argue the interim distribution application at the conference. The Court did not respond.
[11] Mr Knight came to Court expecting a judicial conference. He did not come expecting to argue the substantive application. His client was not present. Despite having indicated that he would require Mr Hadfield for cross-examination, he had not given notice requiring Mr Hadfield to be available. He had not prepared written submissions. His office is in Auckland City and he did not have the time to return and prepare submissions. When the matter was called at 2.15 pm he received from Mr Vickerman a substantial set of written submissions.
[12] It is clear that the Court did not intend the conference on 25 February 2013 to be a hearing of the interim distribution application. Further, as Mr Knight submitted, correctly, under r 175E of the Family Court Rules 2002 the Judge was not entitled to proceed to hear the application given that the parties had been notified only of the requirement to attend a judicial conference and that a notice of opposition to the application had been filed. In these circumstances, I am satisfied that there was procedural unfairness.
[13] Mr Vickerman’s position was that the Judge made the right decision and that no amount of preparation by Mr Knight would have led to a different result. Therefore, notwithstanding any procedural unfairness, there was no basis on which to interfere with the decision. For the reasons that I canvass next, I do not consider that to be so.
Jurisdiction to make the interim distribution order
[14] Mr N’s application was brought under ss 25 and 33 of the PRA. He sought
the following order:
Directing that such amount as may be accepted by the Commissioner for Inland Revenue in full satisfaction of the outstanding arrears of PAYE together with interest and penalties (if any) owing by Solar Outdoor Lighting Limited (SOL) be paid from the funds held in the trust account of Mark Harrison & Associates, solicitors of Waimauku (MHA) in the name of the applicant.
[15] Mr Knight submitted that there was no jurisdiction under either s 25 or s 33 (which allows for ancillary orders to give effect to orders made under s 25) to make an order in the terms sought.
[16] Mr N was, and is, the sole shareholder and director of SOL. Ms N asserted that the business was relationship property, having been started by the parties together. Mr N maintained that when SOL was incorporated he was not in a relationship with Ms N. Nevertheless, the business seems to have been treated by them as relationship property. Following mediation in November 2010, an agreement was reached that Ms N would retain the family home and Mr N would retain the shares in SOL and another related company. However, that agreement was not implemented due to difficulties over identifying the correct value of the business.
[17] An independent accountant, Roger Hadfield, provided an affidavit in support of Mr N’s application for interim distribution. He described identifying PAYE and Kiwisaver arrears of $139,795.59 plus penalties and interest when he began working on SOL’s accounts in September 2010. At the time the application was made the amount outstanding stood at over $420,000. Mr Hadfield considered that PAYE liability (among other things) had not been recorded correctly in the financial statements that Ms N had prepared for the year ending 31 March 2010.
[18] In early 2011 Mr Hadfield contacted the IRD to discuss the PAYE and GST arrears. The GST arrears were resolved but the PAYE arrears remained outstanding, with the company unable to meet them through monthly cash flow. It was Mr Hadfield’s suggestion that he negotiate with the IRD on behalf of SOL to settle
the PAYE arrears using part of the proceeds of the sale of the family home. This was on the basis that SOL’s and IRD’s records suggested that the PAYE arrears were incurred while Ms N had been part of the company management. In Mr Hadfield’s opinion the debt was a relationship property debt. Further, he considered that the settlement proceeds of the Riverhead property would be at risk of attack by the IRD if SOL did not take the initiative and negotiate a settlement of the outstanding amount.
[19] Although the application was brought under s 25, Mr Vickerman had advanced it on the basis that the order being sought was really akin to a preservation order under r 208B of the Family Court Rules 2002, given the threat to the joint funds in the event that matters could not be resolved with the IRD.
[20] Section 25(3) permits the Court at any time to make “any order or declaration relating to the status, ownership, vesting or possession of any specific property as it considers just”. Section 33 empowers the Court to make “all such other orders and give such directions as may be necessary or expedient to give effect or better effect to any order made under any of the provisions of ss 25-32 of this Act”. Mr Knight’s criticism of the Judge’s decision was that it made no order regarding the status, ownership, vesting or possession of the funds. It simply granted the application in terms of the orders sought.
[21] Mr Vickerman’s response to the jurisdictional challenge was simply that s 25(3) was couched in very wide terms and that the order was effectively an interim distribution to a creditor to preserve relationship property. Given the undisputed status of the funds as relationship property, Mr Vickerman submitted that the true nature of the payment made pursuant to the order must have been an advance to the company by both Mr and Ms N jointly.
[22] It is true that s 25(3) is couched in wide terms and that orders may be made under s 33 to give effect to them. However, no order made under s 33 can confer rights that could not have been obtained under s 25. The extent of the power to make the orders under s 25(3) is perfectly clear and does not include the payment of relationship property to a third party which has no interest in the property.
[23] The Judge could have made an interim distribution in favour of Mr N in the amount sought to enable Mr N to make an advance to SOL so that it could pay the IRD. That would, however, have required the money to vest in Mr N. In this regard, the observations that Paterson J made in Burton v Burton are apt:4
It is therefore my view that there is no power in s 25(3) of the Act which empowers the Court to give possession of a balance in a trust account, or money to one of the spouses without vesting the ownership of the money in that spouse. A vesting order converts the money into the separate property of the recipient spouse. In the circumstances of this case, the Court can vest a specific property, which includes a chose in action, in one or both of the spouses. However, in doing so, it should not infringe the provisions of the Act. In other words, it should not make an order which ultimately means that the Court is unable to make the appropriate orders on the final resolution of the matrimonial property case. It should not vest in a spouse more than that spouse is likely to get on a final order under the Act.
[24] It is possible that the Judge would have made an order for an interim distribution in Mr N’s favour had he realised that the order being sought could not be made. That decision would have depended on the Judge’s assessment as to the likely outcome of the dispute as to the status of the SOL debt and the Judge plainly had significant reservations Ms N account. Mr Knight launched a vigorous challenge to the conclusions that the Judge reached in that regard. He argued that Judge McHardy had wrongly assessed the evidence and had wrongly taken into account evidence that was not before the Court (a valuation of the company). He had also taken into account the evidence of Mr Hadfield before considering Ms N’s application to strike that evidence out. However, I find it unnecessary to consider these points because the matter is properly resolved on the jurisdictional issue.
[25] The main difficulty is that, although there was no jurisdiction to make the order, the payment has already been made and cannot be got back. I consider that the only course available to me is to make a declaration as to the status of the money paid to the IRD as being money vested in Mr N by way of an interim distribution. Under an appeal brought under s 39 PRA, s 76 of the District Courts Act 1947 applies as if this were an appeal under s 72 of that Act. Section 76 grants this Court the power, on hearing an appeal under s 72, to make any decision that should have
been made. Implicitly, this must include an order that the Judge could have made
4 Burton v Burton [2002] NZFLR 172 at [22].
under ss 25 and 33. Such orders include declarations as to the vesting and status of any property.
[26] A declaration of the kind that I propose does not preclude determination in the substantive proceedings as to whether the SOL debt is a relationship debt. That question and any appropriate adjustment under s 18B PRA will await the disposition of the substantive proceedings.
Result
[27] The appeal is allowed. The order made by Judge McHardy is set aside.
[28] There is a declaration that the payment made to SOL was a payment of money vested in Mr N as an interim distribution under s 25(3) PRA.
[29] This decision may be cited as North v North.
P Courtney J
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