P v S
[2019] NZHC 2608
•14 October 2019
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,
11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
https://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000314
[2019] NZHC 2608
UNDER the Property (Relationships) Act 1976 IN THE MATTER OF
an appeal against a decision of the Family Court at Christchurch
BETWEEN
P
Appellant
AND
S
Respondent
Hearing: 2 October 2019 Appearances:
S Van Bohemen & A L Bayliss for Appellant J Avery & M Bell for Respondent
Judgment:
14 October 2019
JUDGMENT OF DOOGUE J
Introduction
[1] The appellant, Mr P, appeals one aspect of the reserved judgment of Judge A M Manuel in the Family Court at Christchurch, dated 15 May 2019.1
1 P v S [2019] NZFC 2907; reissued on 19 June 2019 with two numerical typographical errors fixed.
P v S [2019] NZHC 2608 [14 October 2019]
[2] In particular, Mr P appeals the Family Court Judge’s finding that the respondent, Ms S, is entitled to compensation pursuant to s 17 of the Property (Relationships) Act 1976 (the PRA) in the sum of $326,300 comprising:
(a)10 per cent of the $2.913 million increase in value of Mr P’s separate property shares in P Contracting Ltd (PCL) over the course of the relationship; and
(b)10 per cent of Mr P’s separate property savings account at separation, valued at $350,000.
The Family Court decision
[3] Judge Manuel began by setting out the background facts of the relationship between Mr P and Ms S. She described the parties as having a “short but eventful de facto relationship”.2 The parties met in Christchurch in mid-2011 and separated on 25 September 2014.3 When they met, Mr P was living in a home he owned at Brooklands. It had been damaged by the earthquakes in late-2010 and early 2011 and had been revalued at a “figure lower than the mortgage debt secured over it”.4
[4] Mr P was working in his company, PCL — a medium-sized civil construction company. PCL had been established by Mr P’s aunt and uncle in 1983 and by 2009 Mr P was the sole shareholder and director, having purchased PCL’s shares for
$460,000. When the parties met there was still a balance of the purchase price owing.5
[5] The financial years ending 2011 and 2012 were “lean ones for PCL”.6 In mid-2011, PCL began looking for a replacement contract engineer. Ms S was employed in June 2011 on a salary of $67,000 with fuel, a phone and a computer provided. She had an engineering degree but was described by the Judge as having “good engineering skills but no practical contracting experience”.7
2 At [1].
3 At [1] and [10].
4 At [11].
5 At [12].
6 At [13].
7 At [15].
[6] At the time the parties commenced their relationship in September 2011, their respective financial situations were very different. Put simply, Mr P was significantly better off than Ms S.8 For the financial year ending March 2011, PCL had a net profit of $13,144.44. The following financial year ending March 2012, the net profit was
$83,600. In mid-2012, Ms S lent the company $5,000 which was repaid five days later. Judge Manuel said this was an example of how precarious the financial situation was for PCL.9
[7] There was a rift between the parties and they separated in September 2012, but Ms S continued working at PCL. In November 2012, she was offered a job at another construction firm with a salary of about $80,500. At that time, her salary with PCL was $72,000 with fuel, a phone and a computer provided. She declined the job offer and remained at PCL.
[8] The relationship was rekindled between November 2012 and January 2013, and before the start of the 2014 school year, the parties recommenced living together.
[9] In the financial year ending March 2013, PCL made a net profit of $675,105. For the financial year ending March 2014, the net profit for PCL was $1,021,351.
[10]The parties had a child who was born on 6 February 2014.
[11] In or about August 2014, Ms S stopped working for PCL and on 25 September 2014, the parties separated for a second and final time. Between [37]–[61] of the judgment, Judge Manuel considered whether Ms S had a claim pursuant to s 9A of the PRA. That is, whether Ms S was entitled to an equal share in the growth in the PCL shares and the savings account by virtue of her actions, whether direct or indirect.10
[12] Having traversed the evidence and the respective submissions, Judge Manuel concluded as follows:11
8 At [17].
9 At [19].
10 At [41].
11 At [61].
Whilst both parties worked in Mr P’s separate property company, and all things being equal it could be expected that the claimant would be able to establish a claim under s 9A(2) PRA, in the circumstances of this case, I find that Ms S has not established sufficient contributions to the property over and above her paid role. Nor has she established a causal connection between her contributions and the increase in value.
[13] Judge Manuel then turned to consider the issue which is at the heart of this appeal, namely s 17 of the PRA and the question of whether Ms S’s efforts preserved PCL in the sense of ensuring its continuing existence or value.
[14] Between [63]–[67] of her decision, Judge Manuel traversed the applicable case law. Subsequently, at [68]–[69], she dealt with Mr P’s submissions as to why Ms S should not be awarded any compensation for efforts made to preserve PCL.
[15]The critical findings are as follows:
[70] Notwithstanding Mr P’s submission to the contrary, and my findings that Ms S’s contributions to the increase in value of the shares were insufficient and not causative under s 9A(2) PRA, I was persuaded, having heard the evidence, that her actions sustained PCL and her claim under s 17 PRA must succeed.
[71] Ms S’s employment in the company coincided with a critical period in the life of PCL. The years ending March 2011 and 2012 were difficult, although unlike the situation with Cloverlea in Rose v Rose, the company was never at serious risk of sale or liquidation. The financial years ending March 2013, 2014 and 2015 then produced a sharp upturn which resulted in challenges of a different kind because generally, company management is easier if change is predictable and gradual.
[72] As a witness, Ms S impressed as single-minded and competent person, albeit somewhat difficult. I have no doubt that she brought these qualities to her role in the company and the relationship for several years which were pivotal for PCL. While I was not persuaded that her actions, direct or indirect, were more than minimal or causative of the increase in the company’s value under s 9A(2) PRA, I find that they assisted in sustaining the company in the sense that it weathered both the famine and feast of the post- earthquake years.
[16] The Judge then traversed further case authorities between [73]–[75] in order to determine quantum of any compensation, concluding:12
The value of the compensation to be awarded to Ms S is assessed at 10 percent of the increase in value of the company shares and 10 percent of the savings.
12 At [76].
In arriving at this figure, I have taken into account the length of the relationship, the nature of her direct and indirect actions and the other benefits she received as outlined by Mr P. The 10 percent sits within the analysis of the s 17 PRA cases as outlined above.
Approach on appeal
[17]This is an appeal pursuant to s 39 of the PRA. Section 39 provides:
39 Right of appeal to High Court
(1)This subsection applies to a decision of the Family Court or the District Court, in proceedings under this Act, to—
(a)make or refuse to make an order; or
(b)dismiss the proceedings; or
(c)otherwise finally determine the proceedings.
(2)A party to proceedings in which there is made a decision to which subsection (1) applies, or any other person prejudicially affected by the decision, may appeal to the High Court against the decision.
(3)The High Court Rules 2016 and sections 126 to 130 of the District Court Act 2016, with all necessary modifications, apply to an appeal under subsection (2) as if it were an appeal under section 124 of that Act.
(4)On the ex parte application of the appellant, the Family Court or District Court (as the case requires) may order that the appellant must not be required under section 126(1) of the District Court Act 2016 to give the Registrar of the High Court security for costs.
(5)Subsection (4) overrides subsection (3).
(6)If the appeal relates to proceedings commenced after the death of one of the spouses or partners, this section is modified by section 93.
[18] Section 127 of the District Court Act 2016 provides that all civil appeals to the High Court must be by way of rehearing.
[19] The Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar held that the proper approach to be taken in appeals of this kind is as follows:13
Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even whether that opinion is an assessment of fact and degree and entails a value judgment If the
13 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
appellate Court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might easily differ. In such circumstances it is an error for the High Court to defer to the lower court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.
[20]However, Heath J said in B v F:14
[7] Application of the Austin, Nichols principles is not altogether easy, in the context of appeals from the Family Court. Many first instance decisions represent a mix of findings of fact (after seeing and hearing witnesses) , the formation of an evaluative judgment and the exercise of statutory discretions. Sometimes it is difficult to characterise a particular decision as evaluative, factual or discretionary in nature.
[21]Heath J said further:
[8]I approach this appeal on the following basis:
(a)First, I must take account of the advantage that Judge Twaddle had of hearing and seeing the witnesses give evidence before him:
(b)Second, to the extent that the Judge exercised any discretion in reaching his decision, I must determine whether those discretionary decisions were or were not open to him, based on May v May (1982) 1 NZFLR 165 (CA) and Blackstone v Blackstone (2008) NZCA 312 at [8].
(c)Otherwise, I am free to reconsider the Family Court’s decision and to substitute my own view on questions of fact and evaluation, if I were convinced that the first instance decision was wrong.
[22] If the appeal is against the exercise of a discretion, the approach in May v May15 continues to apply. May was a case under the Matrimonial Property Act 1976 in which the Court of Appeal held that it would not interfere unless the Judge had acted on a wrong principle, failed to take into account some relevant matter, or had taken account of some irrelevant matter, or was otherwise plainly wrong.
[23] In Williams v Scott, Faire J noted that the appellant bears the onus of satisfying the appellate Court that the decision under appeal was wrong and that those aspects of the Family Court judgment which are alleged to be wrong should be identified in the
14 B v F [2010] NZFLR 67 (HC).
15 May v May [1982] 1 NZFLR 165 (CA).
notice of appeal and points on appeal.16 His Honour also noted that the principles of an appeal by way of rehearing did not apply where the decision appealed from was the exercise of a discretion.
[24]These principles were recently confirmed and summarised by Nation J in
Bethell v Bethell:17
However, the Court of Appeal has confirmed that, where an appeal lies against the exercise of a discretion, an appellant court will not interfere unless the judge has acted on a wrong principle, failed to take account of some relevant matter, took account of some irrelevant matter, or was otherwise plainly wrong.
Family Court factual findings – s 9A(2)
[25] In the context of a comprehensive assessment of the evidence and the law concerning Ms S’s claim to an equal share in the PCL shares and the savings account, Judge Manuel made a number of critical findings.
[26] First, the Judge found that where the evidence of the parties and their witnesses was at odds, the evidence of Mr P and his witnesses was to be preferred.18
[27] Secondly, Ms S’s “extensive” opinion evidence was admissible but found by the Judge to be of little assistance and that very little weight could be given to it.19 The Judge found the evidence of the expert accountants “must be preferred”.20
[28] Thirdly, Ms S’s evidence (that she contributed to the increase in value of PCL, went over and above what she was paid to do and that without her PCL would not have survived) was not only not supported by any independent expert evidence, but also contradicted by the unchallenged evidence of Mr P’s accounting experts.21
16 Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355 at [42].
17 Bethell v Bethell [2018] NZHC 3171 at [19].
18 P v S, above n 1 at [60].
19 At [51].
20 At [55].
21 At [47]–[48] and [54].
[29] Fourthly, the Judge found it difficult to discern exactly what Ms S contributed to the company over and above what she was paid to do.22 Further, Ms S was paid for her work throughout. She produced no independent evidence that her salary and other benefits received (fuel, phone, computer) were below market rate.23
[30] Fifthly, Ms S’s own accounting expert was “misplaced” and although her accounting expert noted that the increase in value of the PCL shares coincided with the time that Ms S worked in the business, the expert did not make a link between Ms S’s role and the increase in value.24 This was summarised very pithily by Judge Manuel who concluded “coincidence is not causation”.25
[31] In addition, Judge Manuel found a number of other issues with Ms S’s evidence:
(a)Ms S discounted the fact that the company had been operating for some 20 years before she started to work there and had an assembled, loyal and experienced workforce and a good reputation and strong relationships in the industry, all of which stood the company in good stead after the earthquakes.26
(b)Ms S credited herself for, and overstated, actions that were part of her job description, including:
(i)obtaining clients;
(ii)drafting policy documentation;
(iii)arranging insurance;
(iv)implementing a fuel system;
(v)reducing and managing debts.
22 At [51].
23 At [57].
24 At [52].
25 At [53].
26 At [56](a)
(c)There was no evidence to suggest the debts were so great that the company would have been in peril “but for” Ms S’s work.27
(d)Ms S credited herself with office administration work which, whilst accepted as being beyond the scope of her paid role, was carried out because she was poor at delegation and resulted in constant issues with a total of three staff leaving, one of whom brought a personal grievance claim against her.28
(e)Ms S credited herself with financial contributions to the company ($5,000 and a personal guarantee) when the sum advanced was paid within days and the personal guarantee was an anomaly.29
(f)Ms S relied on reduced living circumstances at Mr P’s Brooklands home, however Judge Manuel found that money had been spent to make the home more comfortable.30
(g)Ms S claimed she worked in the evenings, weekends and whilst on holiday but provided little or no detail about this.31
(h)Ms S claimed she worked over the 10 weeks that she was on parental leave with their son in 2014 but other than one specific example gave few details about this work.32
(i)Ms S observed a fall in profitability after she left the company as proof of her ability and efforts, but this could be attributed to factors other than her personal involvement.33
27 At [56](b)(v).
28 At [56](e).
29 At [56](c). The Family Court Judge distinguished the respondent’s actions from those of Mrs Rose in Rose v Rose [2009] NZSC 46, where similar contributions were held to be essential on preventing the farm being sold and the vineyard developed.
30 At [56](d).
31 At [56](f).
32 At [56](g).
33 At [56](h).
(j)While both parties contributed income to living expenses, Mr P contributed more and Ms S used part of her income to pay outgoings on her own separate property.34
(k)Ms S claimed indirect contributions, namely that her contribution to the relationship and family enabled Mr P to “carry on with the practical side of the construction work”.35 However, she provided no details as to the extent of her contributions or the impact of her contributions such as how they freed up Mr P’s time or what the effect of that was for PCL.36
[32] Contrary to Ms S’s claims, the evidence was that both parties were fully involved in managing the household, household tasks and childcare.37
[33] It is evident by this examination of the decision that the Family Court Judge took great care to transparently explain her rationale for the findings of fact in relation to the s 9A(2) claim.
Family Court factual findings – s 17
[34] By contrast with the comprehensive and transparent analysis undertaken by the Family Court Judge in her assessment of the s 9A(2) claim, the analysis in respect of the s 17 claim is limited to the three paragraphs set out at [15] above. At [70] of her decision, the Judge gives no reasons for finding that Ms S sustained PCL. At [71], she says PCL was never in peril or at risk of liquidation. And at [72], whilst acknowledging that Ms S’s contributions were no more than minimal, she credits her with “sustaining the company in the sense that it weathered both the famine and feast of the post-earthquake years”. Again, no explanation is given as to how Ms S’s contributions sustained PCL particularly when the expert evidence was to the effect that weathering the famine and feast of the post-earthquake years was inherent in the goodwill of the company, the long-standing relationships built up over many decades
34 At [59].
35 At [58].
36 At [58].
37 At [21] and [59].
and the direct nexus between housing development and incoming work for the company.
[35] Counsel for Ms S submitted that the findings of fact set out in the Family Court judgment38 related solely to the s 9A(2) claim. I do not agree. They are all relevant findings to the background, duration, and character of the relationship, and the direct and indirect contributions that each party made to the relationship, both personal and in the nature of assets each of them had. If the Judge did not rely on those facts (which are not challenged) what could she have relied on?
[36] Further there was nothing the Judge said in her limited findings of the s 17 evidence to suggest that any of those findings were inapplicable to her assessment of the s 17 claim.
[37] Thus the only relevant findings of fact about the matters to be considered in assessing whether or not Ms S discharged the onus in s 17 are those articulated at [47]– [61]. What was necessary was for the Judge to apply the relevant factual findings and undertake a separate analysis of whether Ms S’s contributions amounted to more than assistance and whether she could establish on the balance of probabilities that her efforts preserved PCL in the sense of ensuring its continuing existence or value.
[38] It is unfortunate that the Family Court Judge did not provide any analysis of how Ms S’s contributions did amount to sustenance under s 17. Both counsel submitted that if I reached the view that the Judge had not taken all relevant matters into account or had taken irrelevant matters into account in considering the s 17(1) claim, then neither party wanted the matter to be remitted back to the Family Court for that exercise to be properly undertaken. Both counsel submitted I should substitute my own view on the questions of fact and evaluation. I therefore proceed on this basis.
38 At [47]–[61].
Relevant law
[39]Section 17 of the PRA provides:
17 Sustenance of separate property
(1)This section applies if the separate property of one spouse or partner (party A) has been sustained by—
(a)the application of relationship property; or
(b)the actions of the other spouse or partner (party B).
(2)If this section applies, the court may—
(a)increase the share to which party B would otherwise be entitled in the relationship property; or
(b)order party A to pay party B a sum of money as compensation.
(3)This section overrides sections 11 to 14A.
[40] In Hebberd v Hebberd, the Court of Appeal held that s 17 involves a two-stage inquiry:39
(a)First, the Court must satisfy itself that a relevant sustaining of the separate property has occurred; and
(b)Second, the Court must consider how to exercise its discretion to adjust the parties’ financial positions.
[41]“Sustain” in s 17(1) has been held to mean to “keep it up or keep it going”.40
[42] In McIllraith v McIllraith, Dunningham J stated that “the onus is on the applicant…to show…that her efforts preserved that asset in the sense of ensuring its continuing existence or value.”41 This is not an easy threshold to meet. As Venning J confirmed in Cossio v Cossio, “to sustain property is a higher threshold than to assist in relation to it.”42
39 Hebberd v Hebberd [1992] 3 NZLR 517 (CA) at 520.
40 French v French [1988] 1 NZLR 62 (CA) at 65; Nation v Nation [2005] 3 NZLR 46 (CA).
41 McIllraith v McIllraith [2015] NZHC 2758 at [15].
42 Cossio v Cossio [2018] NZHC 2779 at [73].
[43] It is in light of these authorities and the facts set out in the Family Court Judge’s decision that I review the relevant case law on the s 17(1) threshold. If I find that the facts in this case meet that threshold, I must move on to exercise my discretion under s 17(2) of the PRA.
Authorities on the s 17(1) threshold
[44] One of the earliest cases to which I have been referred is the Court of Appeal’s decision in French v French.43 That case concerned a farming couple who had been married for almost four years. Prior to the marriage, the husband had acquired the farm which he managed in partnership with his mother and another entity owned by her. The farm’s assets were all owned by the partnership. Both the husband and wife worked on the farm. The wife’s role was akin to that of a farm hand, though the evidence showed she undertook farming herself, maintained the farm and carried out stock work. Upon the couple’s divorce, the wife sought half of the nominal increase in the value of the farm during the course of the marriage.
[45] Cooke P found that the wife’s labour kept the farm and its assets going and accordingly, her actions qualified as sustenance for the purpose of s 17(1).44 Somers and Bisson JJ agreed with this conclusion.45 Somers J further noted that while simple farm labour would not have been sufficient to meet the threshold in s 17(1), the wife’s further actions and assistance were such that the her actions amounted to sustenance.46
[46] In Hebberd v Hebberd, the wife argued that her contributions to a farm and homestead in which she lived with her husband during their marriage of almost six years sustained the value of those assets for the purposes of s 17(1).47 The farm and the homestead had been the husband’s property for some time before their marriage. The wife, in addition to her role in bringing up the children of the previous marriages of each party, also helped on the farm. The Court of Appeal held that the threshold in s 17(1) had not been met, stating:48
43 French v French, above n 40.
44 At 65.
45 At 69 per Somers J; at 71 per Bisson J.
46 At 70.
47 Hebberd v Hebberd, above n 39.
48 At 523.
The wife's contribution to the marriage partnership by the work which she did from time to time on the farm no doubt contributed to the farm profits over the period. It should be noted, however, that personal expenses, including income tax and car expenses, exceeded the net farm profits. This was so even if one ignored depreciation and ignored the losses incurred from the mussel farms. In our view, the wife's contribution must be regarded as having been reflected in the living expenses of the parties and in the standard of living which they were able to enjoy. The evidence does not establish that her contribution "sustained" the farm and its associated assets within any meaning which can properly be attributed to that word.
[47] In Hight v Hight, the parties were married for 22 years and had four children together.49 During their marriage, the couple lived on the husband’s family farm in Kohuratahi (rural Taranaki), held in the name of a company in which the husband owned all but two shares. The farm’s stock was owned by the husband and his sisters but bailed to the company and eventually bought outright by the company. The wife brought into the marriage her savings of between $3000–$4000, a life insurance policy and some chattels. Five years into their marriage, the couple moved to Tauranga where they purchased a property on which they intended to grow kiwifruit and eventually build a family home. For tax purposes, the property was bought by the company. In time, a house was built, aspects of which were completed using the wife’s life insurance policy. For a period of around 11 years, the wife assisted in managing and working the farm at Kohuratahi, allowing the husband to focus solely on the Tauranga development for around four of these years. In light of these facts, the Court of Appeal agreed with the High Court’s determination that the threshold in s 17(1) had been met, concluding:50
On the basis of Elias J's findings of fact concerning what Mrs Hight did at Kohuratahi we have no hesitation in saying that she must very significantly have contributed to preserving the farm and thus sustaining the value of her husband's shares in the company. She was involved in both farm management and farm labour. Her domestic contributions were performed in a farmhouse which was not a matrimonial home. She was forgoing, to the company's advantage, the benefit of a share in a home. We are in entire agreement with Elias J's analysis of the situation in this respect. We reject Mr Heath's submission that the wife's contribution was reflected in the standard of living the parties were able to enjoy. That was certainly not true of life in remote Kohuratahi.
49 Hight v Hight [1997] 3 NZLR 396 (CA).
50 At 409.
[48] Nation v Nation was another farming case in which the wife sought compensation pursuant to s 17 for her contributions to the farm on which the couple lived for the 28 years they were married.51 The farm was half owned by the husband’s grandfather and a discretionary trust in which the husband was a beneficiary. The farm eventually became wholly owned by the husband. It was accepted by the husband that during the marriage, the wife was heavily involved in the work of the farm and would even manage it alone for four or five days at a time while he was away on fishing trips. The High Court rejected the wife’s claim. The Court of Appeal overturned this aspect of the decision, holding that the wife’s work on the farm amounted to sustenance within the ordinary meaning of s 17(1) as interpreted in French. The Court went on to say:52
[132] On even the most literal view of s 17, it is difficult to see how her actions could not be regarded as sustaining the farm and thus her husband’s separate property interest in it. For instance the work she did fencing and irrigating the property must be regarded as at least maintenance and therefore involving sustenance. Spraying and mowing the orchard are in the same category. When the husband was away fishing and she was running the farm, she was necessarily responsible for keeping the farm going and thus, in accordance with the approach taken by Cooke P in French, sustaining the farm.
[49] In Hale v Hale, a company predominantly owned by the husband and formed before he met his wife, owned the family farm, the farms which subsequently replaced it and the farm at the time of the couple’s divorce after 35 years of marriage.53 The wife assisted the husband to a limited extent in the operation of the farm (though his contribution to the operation of the farm was also limited) and did office work for the farm company for a wage of $600 per week which was primarily for tax-saving purposes. The husband appealed the Family Court’s ruling that his shareholding in the company was relationship property. In allowing the appeal, Toogood J had to turn his mind to an alternative argument under s 17 which had not been decided in the Family Court.
[50] Having considered French, Hebberd and Nation, Toogood J noted that the wife’s contribution was less of that in Nation; any contribution to the running of the
51 Nation v Nation, above n 40.
52 At 70.
53 Hale v Hale HC Hamilton CIV-2011-419-34, 16 September 2011.
farm was reflected in the extent to which retained profits were distributed for living expenses and other payments which benefited both parties.54 Even taking the most liberal meaning of “sustenance”, Toogood J was not satisfied the wife’s contribution sustained the value of the company.55
[51] In Hyde v Hyde, the husband had owned rural land for 15 years before he married his second wife.56 After one year of marriage, the couple built a family home on the land. While the husband carried out most of the building, the wife did help and was responsible for the interior of the home. Six years later, the couple built a granny flat adjacent to the family home for the wife’s mother to live in. Soon after, however, the couple decided to separate. The Family Court awarded the wife compensation under s 17, equivalent to 20 per cent of the total increase in value of the husband’s property. Ellis J upheld this decision on appeal, noting that the award recognised the wife’s contributions — by way of off-farm income and other work — to the farm, but also took into account the fact that most of her contributions went to sustaining the homestead portion of the property (covered by s 12 of the PRA), to which s 17 did not apply.57
[52] In LPC v NJC, a couple were married for five and a half years.58 The value of each party’s assets at the start of their relationship was vastly different; the net equity of the wife’s two properties was $40,000, while the husband’s net worth was in excess of $4 million. Among his assets, the husband owned all but two shares in a company which owned several farms, one on which the couple lived during their marriage. Upon separation, the wife relevantly claimed compensation for sustaining the value of the husband’s shares in the company due to either the application of relationship property to the company’s assets, or by her actions.59 In particular, she claimed that her contribution to farming-related activities allowed the husband to devote more time to dairy farming on one of the other farms owned by the company. The Family Court
54 At [107].
55 At [109].
56 Hyde v Hyde [2011] NZFLR 35 (HC).
57 At [44].
58 LPC v NJC [2012] NZFC 1884.
59 The wife made a similar claim under s 17 in respect of a property acquired by the husband prior to, and solely owned by him throughout, the marriage. She was successful in this claim given the direct involvement she had in maintaining that property. The claim in respect of that property is therefore not an appropriate comparator for present purposes.
Judge rejected this claim, finding that “her involvement in farming and domestic chores was minimal”.60 Nor did the Judge find the evidence supported the wife’s claim that her actions freed up her husband to devote time to dairying.61 Her role in the husband’s company was similarly minimal. Accordingly, her claim under s 17 in respect of the husband’s shares in the company failed.
[53] Conversely in Ormsby v Ormsby van Salem, the Family Court upheld a claim by the husband that his actions sustained the value of a farm owned by his (late) wife of 49 years, half of which had been acquired prior to their marriage and the other half during the marriage.62 The husband asserted he undertook the bulk of the farm work while he lived on the farm and improved the pasture for dairy farming. The wife’s estate denied this. The Family Court found that the husband did sustain the farm’s value by his actions, at least while he lived on it.63 Some compensation was therefore appropriate for his contributions during this time, though it could have been more had his contributions been continuous and consistent during this period.64
[54] Finally, I turn to McIlraith v McIlraith, another farming case.65 In that case, a husband and wife lived and worked on a farm for most of their marriage which lasted some 36 years. While the farm was owned by a company wholly owned by the husband, it was farmed by the husband and wife in partnership and the partnership owned the stock and plant on the farm. After separating, the wife claimed, amongst other things, that her actions had sustained the value of the husband’s shares in the company. The Family Court agreed on the basis that the parties’ combined efforts allowed them to retain the farm through recession and droughts, and the wife earned off-farm income to subsidise household expenditure which sustained the company’s activities. On appeal to the High Court, Dunningham J held that the evidence did not support the Family Court Judge’s conclusion that the wife earned off-farm income that helped sustain the farm through recession and drought.66 However, Dunningham J was satisfied that the s 17(1) threshold was nonetheless met given the wife’s broader
60 At [87].
61 At [88].
62 Ormsby v Ormsby van Salem [2012] NZFC 9016.
63 At [78].
64 At [80].
65 McIlraith v McIlraith, above n 41.
66 At [53]–[55].
contributions which allowed the couple to retain the farm throughout this period. In particular, the Judge stated:
[56] However, that is not the end of the inquiry. It is clear from the affidavit evidence that this period was an extremely stressful time on the farm, and the couple were at real risk of losing the farm if they did not rein in their personal expenses, and seek financial assistance. I consider there is broader evidence to show Mrs McIlraith made a significant contribution during this period and her actions contributed to the couple’s ability to retain the farm during this difficult period. Mrs McIlraith says “it was a terrible time and we both just tried to survive each day in hope. We stopped spending and had a very frugal lifestyle”. Selling up was an option they considered seriously. To avoid that, Mrs McIlraith, in addition to the usual work she did running the household and assisting on the farm, worked with her husband to formulate proposals to get them through this difficult period. These included “writing to our bank, our solicitors and occasionally MPs to assist with the grant of a Rural Bank advance”. The family also faced the additional trauma at this period of having their son diagnosed with leukaemia.
[57] I am satisfied that without the sacrifices Mrs McIlraith was prepared to make during that period of time, and her assistance to get bridging funding, the family would not have been able to make it through this difficult period and retain the farm. These actions helped preserve the asset of GFCL and thus sustained it.
[58] Furthermore, the application of the proceeds of the couple’s life insurance policies to reduce debt in the period 1988-1990 was a further instance of how the couple sought to reduce outgoings to keep the farm going. Thus while this contribution did not qualify as warranting recognition under s 9A it forms part of Mrs McIlraith’s contribution to sustaining the farm asset of GFCL under s 17.
My evaluation of the evidence
[55] The onus is on Ms S to show on the balance of probabilities not just that she rendered assistance but that her efforts preserved PCL in the sense of ensuring its continuing existence or value.
[56] While the cases to which I have referred provide some guidance on the application of s 17, they were, as each case must be, determined on their particular facts. In this respect, they are of limited use. In particular, it is not necessarily helpful to compare the contributions provided by the claimants in those cases to those of Ms S. Again, whatever contributions she asserts sustained the values of PCL must be analysed in the context of her relationship with Mr P as a whole.
[57]Ms S submitted that she had “sustained” PCL’s value by:
(a)utilising her financial knowledge and skill, plus overall managerial ability;
(b)working over and above normal working hours and days;
(c)living in substandard accommodation;
(d)foregoing career advancement training during her time at PCL;
(e)contributing to the family so as to free Mr P up to devote himself to PCL at a higher level than would otherwise have been the case; and
(f)providing a loan and a guarantee to support PCL’s financial position.
[58] PCL was set up by Mr P’s aunt and uncle in 1983 – 36 years ago. Mr P had worked in the business from the age of 16/17. He became the sole shareholder in 2002, some nine years before he met Ms S. As a report prepared by EY in 2017 recognised, PCL had an established labour force of experienced workers. It also had long-established relationships with both customers and lead contractors which was an advantage in securing work in the construction market.
[59] This was a company that was never at risk in the sense of threatened liquidation. Whilst it took some creative debt management to remain afloat, it was never at risk of going into liquidation. The expert evidence was to the effect that the “feast and famine” to which the Family Court Judge referred was normal cyclical activity for a company such as PCL.
[60]Expert opinion found that:67
Our research concluded that there is a high correlation with changes in residential building consents and PCL’s earnings: i.e. when residential consents rise and fall, so too do PCL’s earnings. While much of the growth in the period 2011 – 2014 resulted from demand for new subdivisions following on from the September 2010 and February 2011 earthquakes, residential consents prior to that time had been depressed since the GFC crisis and a return to pre-2009 levels was always likely to occur.
67 Affidavit of AGF at [88]–[89].
The high correlation with PCL’s revenue and earnings with movements in residential building consents numbers existed prior to the commencement of the relationship between Ms S and Mr P, during their relationship and has continued after their relationship has ceased.
Utilising her financial knowledge and skill plus overall managerial ability
[61] Ms S set out in extensive detail in her affidavit of 30 January 2017 what she says she contributed to the sustenance of PCL. The evidence establishes that Ms S has exaggerated her efforts in this regard. Either her efforts were well within her job description or she sought credit for efforts undertaken by others. Having heard and seen the witnesses the Judge preferred the evidence of Mr P’s parents and the independent financial experts including Ms S’s own expert. I see no reason to differ.
[62] Her contributions in this regard did not amount to anything more than fulfilling the terms and conditions of her paid employment. Neither counsel was able to identify any cases where a s 17 claim was made out where the claimant’s contributions were undertaken as properly remunerated employment.
Working over and above normal work hours and days
[63] There is, on the evidence, little or no detail in support of Ms S’s claim that she worked over and above normal work hours and days. As the Family Court Judge found:68
But other than one specific occasion referred to in her oral evidence (when she was involved with an issue arising with the local council) she gave few details about this work.
[64] The Judge was correct to characterise the position in that way. It can hardly be said that working on one such occasion would have preserved PCL in the sense of ensuring its continuing existence or value.
Living in substandard accommodation
[65] The parties met in mid-2011 and spent time living at Ms S’s property until they moved into the property in Brooklands (the alleged substandard accommodation) in
68 At [56](g).
April 2012. The parties initially lived there for a period of five months. In September 2012, Ms S acquired a property at Akaroa Street and moved into that property with her son from a previous relationship as the parties also separated around that time.
[66] The parties reconciled sometime between November 2012 and January 2013 and recommenced living in the Brooklands property in February 2013. In January of the following year they moved to Ohoka so that February 2013–January 2014 was the second period of time living at the Brooklands property.
[67] Throughout 2013 to January 2014, Ms S rented out the Akaroa Street property, applying to her mortgage over that property a combination of the rental received, child support payments from her previous relationship as well as her income from PCL. In addition, the parties borrowed from PCL to pay for a heat pump at the Akaroa Street property, and also applied some of these borrowed funds to the payment of the mortgage, rates and insurance for the property from late 2012 to when it was tenanted.
[68] Similarly, while the home in Brooklands was less than ideal for a family, money was spent by the parties to make it more comfortable. This was during the same time funds were being spent on the Akaroa Street property.
[69] It is not clear to me what evidence in that factual matrix Ms S can rely on to say that living at the Brooklands property and diverting her income from PCL to the Akaroa Street property caused a preservation of PCL’s value.
Foregoing career advancement training during her time at PCL
[70] In November 2012, Ms S was offered a position working for McConnell Dowell as a Site Engineer. Her evidence is that she put her own career on hold to sustain PCL. Whilst it is clear that she wanted to prioritise making the relationship with Mr P work when it was faltering again, what is unclear is what actual practical effect her remaining at PCL had on the continued existence of the company, particularly in light of the findings as to her abilities and the amount of time she actually spent working at [61]–[64] above.
Domestic contributions
[71] During their relationship, Mr P and Ms S lived with Ms S’s son from a previous relationship and, after February 2014, with their own son. The parties’ son was born with dislocated hips and required extra care. Ms S claims she provided love and support to Mr P, looked after the two children and took care of the household tasks, freeing up Mr P to focus on PCL.
[72] There is no evidence of an uneven balance in the relationship in respect of domestic responsibilities. On the contrary, Mr P and Ms S’s domestic responsibilities were evenly shared. Both parties were fully involved in domestic duties including household tasks and childcare. Further, both parties made payments for the benefit of the family unit, though I note that the greater share of expense payments was made by Mr P.
[73] While I do not doubt Ms S’s love for Mr P during their relationship nor her love for her two sons, the evidence does not support her claim that she provided a disproportionate contribution to the parties’ domestic affairs. Nor does it support the conclusion, given that I find there was an even balance in the parties’ domestic responsibilities, that Ms S’s domestic contribution sustained the value of PCL.
Financial contribution to the company and personal guarantee
[74] On 19 July 2012, Ms S lent PCL a sum of $5,000 to pay an essential account. She claims that PCL’s financial situation was such that it did not have the funds to pay this amount, nor could Mr P pay it personally.
[75] Further, on 14 March 2014, Ms S signed a personal guarantee for PCL, in respect of a debt owed by PCL and required by its bank, ANZ. This guarantee was limited to $51,000 and was only released following the parties’ separation. Ms S sought independent legal advice before signing the guarantee.
[76] Ms S relies on these two events to support her claim that she was involved in the day-to-day financial management of PCL, and that she was more than simply an employee. The evidence, however, does not support such assertions. First, they are
both one-off events, the impact of which cannot be said to have preserved PCL. The
$5,000 loan was repaid within a matter of days and the personal guarantee appears to be an anomaly, granted in March 2014 when PCL did not have an overdraft but rather had about $750,000.00 in its bank account. Again, there was no evidence of financial peril such that but for Ms S’s actions, any creditor including the bank could have moved to sue or place PCL into liquidation.
Summary of my evaluation
[77]In summary, I find that:
(a)the parties’ relationship was at best a total of 2 years and 10 months and not “several years” as claimed by Ms S;
(b)Ms S was a paid employee of PCL (salary plus benefits) and that there is no evidence she was paid below market rate;
(c)Ms S’s evidence that she made contributions “over and above her paid role” were for the most part without basis and overstated;
(d)while Ms S did forgo a job opportunity, this was by choice and in the context of attempting to preserve the parties’ relationship, both of which had no bearing on PCL’s value;
(e)the parties had shared parenting and domestic duties; and
(f)while Ms S provided a small loan and guarantee for the benefit of PCL, these were one-off events that did have the impact of preventing PCL from finding itself in a situation where it risked being put into liquidation by its creditors.
Has the s 17(1) threshold been met?
[78] Having evaluated the evidence, the first question for this Court is whether Ms S has met the threshold for “sustenance” in s 17(1) of the PRA. In my view, she has not.
[79] Most of the cases on which Ms S relies provide little or no support for her position. French, which provides a comparable relationship length to that in the present appeal, involved direct physical labour and farm management in a two-person operation which satisfied the s 17(1) threshold. This was also held to have occurred in Ormsby at least during the period the husband lived on the farm. Conversely in LPC, the wife did not meet the threshold for the opposite reason; the evidence suggested her contributions to both the farming operation and the husband’s company were minimal. The same conclusion was reached in Hale despite a significantly longer period of marriage.
[80] Like French, both Nation and Hight were farming cases in which the claimant wife contributed direct physical labour or provided farm management which ensured the farm could continue generating income. In both of those cases, it was found that the wife had taken an active role in the management of the farm in addition to her domestic contributions, which had had the effect of either enabling the husband to devote time and effort to other income-generating operations, or ensuring that the husband could take a break from the farm’s operation without detrimental consequences to the couple’s finances. Even in Hyde, the wife’s devotion to the interior of the home freed the husband to manage other aspects of the construction and farm operation.
[81] The difficulty in applying these cases to the present appeal is that family farming is often a two-person operation. Unless the farming operation is outsourced to a farm manager, the two key parties are those in the relationship. Therefore, the success of the farm often hinges on equal devotion to that success, which may manifest in physical labour, management of the farm or responsibility for domestic affairs. The present appeal is not comparable to these cases in that Ms S was simply an employee of PCL, not the only employee of PCL. In other words, PCL was not a two-person operation in which success could only be achieved through equal contributions by Mr P and Ms S.
[82]Nevertheless, of the cases I have discussed, I consider Hale, LPC and McIlraith
to be of most assistance to the present appeal. This is because together, these cases
share two salient features of Mr P and Ms S’s relationship being Ms S’s employment in Mr P’s company, and the difficulties experienced by the company.
[83] In both Hale and LPC, work performed by the claimant wife in the husband’s company was considered insufficient to meet the threshold in s 17(1) because the work was either nominal, remunerated, or both. That is also the situation in the present appeal. Ms S was remunerated throughout her time at PCL. As the Family Court Judge observed, there was no claim that the remuneration or other benefits received were inadequate.69 Further, while Ms S’s situation differs slightly to those in Hale and LPC in that she did not perform nominal work at PCL, the evidence does not support her claim that she performed work above and beyond the scope of her role nor what she was paid to do. Indeed, many of the activities to which Ms S referred were within scope. Further, much of PCL’s profitability can be attributed to the post-earthquake years, not to Ms S’s contribution to the company. This is evident when comparing the company’s end-of-financial-year performances before and after the earthquake. Accordingly, the observation of Somers J in French applies; without more, Ms S’s paid employment with PCL is not enough to meet the threshold for sustenance in s 17(1).
[84] As for the difficulties experienced by the company, in my view, the present appeal is distinguishable from McIlraith. In that case, there was clear evidence of hardship experienced by the family unit as well as the adoption of necessary lifestyle changes to mitigate the difficulties experienced by the farming operation. This included significant reductions in spending and assistance provided by the claimant wife in obtaining finance. Without the wife’s contribution, it was a real possibility that the farm would have had to be sold.
[85] Ms S points to several factors which she says satisfy the s 17(1) threshold in a similar vein to McIlraith. In particular, she points to her financial contribution of
$5,000 to the company, the reduced living circumstances while the parties lived in Brooklands, and her domestic contributions which she says enabled Mr P to carry on
69 P v S, above n 1, at [57].
with the company’s construction work. For the reasons I have already stated, the evidence simply does not support these submissions.
[86] Overall, neither the evidence before the Family Court nor the evidence before me supports the conclusion that Ms S’s contributions sustained the value of PCL. While I do not downplay her contributions to the relationship as a whole (including her employment with PCL and her domestic contributions), they do not meet the threshold in s 17(1). In other words, I am not satisfied that her contributions kept PCL going.
[87] Accordingly, I consider that the Family Court Judge erred in her conclusion that the threshold in s 17(1) was met. Because of this, I am not required to move on to the second step in the application of s 17 and exercise my discretion under s 17(2).
Result
[88] Given the meaning of sustenance derived from French and Hebberd, and taking the most liberal view possible, I am not satisfied that Ms S has met the requisite threshold for establishing her claim that her efforts and contributions to her relationship with Mr P sustained the value of PCL.
[89] I therefore find the Family Court Judge erred in law at [76] of her decision in awarding compensation to Ms S. As a result, it is unnecessary for me to deal with competing arguments as to the accurate value of the company and savings account as advanced by both counsel during the appeal.
[90] The appeal is therefore allowed and the Family Court decision is quashed on this one discrete point.
[91] Counsel for Mr P is invited to file a memorandum as to costs within 20 working days of the date of this judgment. Counsel for Ms S shall have 20 working days from
the date of service of any such memorandum in which to file and serve a memorandum in reply.
Doogue J
Solicitors:
Mortlocks Lawyers, Christchurch Corcoran French, Kaiapoi
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