Sands v O'Horgan
[2017] NZHC 1524
•4 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-003019 [2017] NZHC 1524
IN THE MATTER OF the Property (Relationships) Act 1976 and
Family Protection Act 1955
AND
IN THE MATTER
of an appeal against the decision of Judge De Jong delivered on 28 October 2016 at the Auckland Family Court
BETWEEN
DAWN JUNE SANDS Appellant
AND
FRANK OʼHORGAN, NOEL OʼHORGAN AND DIANE EVELYN SNOW AS EXECUTORS OF THE ESTATE OF B F OʼHORGAN
First Respondents
DIANE EVELYN SNOW and DAVID FRANK OʼHORGAN AS TRUSTEES OF THE OʼHORGAN FAMILY TRUST Second Respondents
Hearing: 18 May 2017 Counsel:
G Minchin & J Gandy for Appellant
V Crawshaw & S Powrie for RespondentJudgment:
4 July 2017
JUDGMENT OF DUFFY J
This judgment was delivered by me on 4 July 2017 at 1.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
SANDS v OʼHORGAN & Ors [2017] NZHC 1524 [4 July 2017]
Solicitors / Counsel
Thomas & Co, New Lynn West, Auckland Grove Darlow & Partners, Auckland Graeme Minchin, Henderson
V A Crawshaw, Auckland
[1] B O’Horgan died on 25 May 2013. He left $20,000 in his will to the appellant, Dawn Sands. She was his de facto partner from the early 1990s until his death, and they lived together in a property on Meadow Crescent (Meadow Crescent), which was solely owned by Mr O’Horgan. In May 2001, Mr O’Horgan settled a trust (the O’Horgan Family Trust) and transferred Meadow Crescent to that trust. Ms Sands did not learn of this until later. In the Family Court, Ms Sands claimed this transfer was intended to defeat her rights under the Property (Relationships) Act 1976 (PRA), and that she was entitled to relief under s 44 of that Act. Alternatively, she claimed compensation under s 44C of the PRA, or under s 4(1) of the Family Protection Act 1955 (FPA).
[2] Ms Sands was partially successful. On 28 October 2016, Judge de Jong held that:1
(a) Ms Sands and Mr O’Horgan were in a qualifying de facto relationship for the purposes of the PRA.
(b) However, Ms Sands’s claim under s 44 of the PRA was declined as
the transfer was not intended to defeat her rights.
(c) The executors of Mr O’Horgan’s estate were to pay Ms Sands a compensatory award of $50,000 under s 44C of the PRA.
(d)Mr O’Horgan did not breach his moral duty to Ms Sands so as to bring s 4(1) of the FPA into play.
[3] Ms Sands now appeals against Judge de Jong’s decision regarding: (a) his
finding that the transfer of Meadow Crescent was not intended to defeat Ms Sands’s
1 S v Executor of R [2016] NZFC 8970.
rights under the PRA; (b) his assessment of the sum she would receive by way of compensation under s 44C of the PRA; and (c) his finding that Mr O’Horgan’s testamentary dispositions did not breach his moral duty to Ms Sands.
[4] The first respondents are the executors of Mr O’Horgan’s estate. They agreed to abide by the decision of the Court. The second respondents are the trustees of the O’Horgan Family Trust.2 They oppose the appeal.
[5] The respondents do not challenge the finding Ms Sands and Mr O’Horgan
were in a qualifying de facto relationship.
Family Court decision
Did s 44 of the Property (Relationships) Act apply?
[6] In May 2001 Meadow Crescent was transferred to a newly settled family trust before the PRA was amended in 2001. Ms Sands relies on s 44 of the PRA to have the family trust unravelled, which will place Meadow Crescent in the relationship property pool. Section 44 of the PRA provides:
44 Dispositions may be set aside
(1) Where the High Court or the District Court or the Family Court is satisfied that any disposition of property has been made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person (party B) under this Act, the court may make any order under subsection (2).
(1A) The court may make an order under this section on the application of party B, or (in any proceedings under this Act or otherwise) on its own initiative.
(2) In any case to which subsection (1) applies, the court may, subject to subsection (4),—
(a) order that any person to whom the disposition was made and who received the property otherwise than in good faith and for valuable consideration, or his or her personal representative, shall transfer the property or any part thereof to such person as the court directs; or
(b) order that any person to whom the disposition was made and who received the property otherwise than in good faith and for
2 From here on I shall refer to the second respondents as the respondents.
adequate consideration, or his or her personal representative, shall pay into court, or to such person as the court directs, a sum not exceeding the difference between the value of the consideration (if any) and the value of the property; or
(c) order that any person who has, otherwise than in good faith and for valuable consideration, received any interest in the property from the person to whom the disposition was so made, or his or her personal representative, or any person who received that interest from any such person otherwise than in good faith and for valuable consideration, shall transfer that interest to such person as the court directs, or shall pay into court or to such person as the court directs a sum not exceeding the value of the interest.
(3) For the purposes of giving effect to any order under subsection (2), the court may make such further order as it thinks fit.
(4) Relief (whether under this section, or in equity, or otherwise) in any case to which subsection (1) applies shall be denied wholly or in part, if the person from whom relief is sought received the property or interest in good faith, and has so altered his or her position in reliance on his or her having an indefeasible interest in the property or interest that in the opinion of the court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.
[7] The Judge set out the legal principles relevant to s 44:
(a) “Intent to defeat” need not be the dominant or most probable intent; it
is enough that it is one of the purposes of the disposition.
(b)Nor is it necessary to prove facts from which an intent to defeat is the only possible explanation. Rather, it is enough to prove facts from which the intent to defeat is so much the most probable of the possible explanations that the Court can properly hold it to be the true explanation.
(c) Further, where someone makes a disposition knowing that this will have the effect of defeating their partner’s rights, an intention may be inferred even if they may not have wanted their partner to suffer a loss.
[8] Applying those principles to the present case, the Judge noted Ms Sands’s
submission that the timing was simply too coincidental. He accepted that it was well
publicised in 2001 that the PRA would be amended to cover de facto relationships as of February 2002. Despite this, Mr O’Horgan did not engage in discussions about a contracting out agreement. Instead, he settled his family trust and transferred his home to the family trust.
[9] Nevertheless, the Judge found that there was insufficient evidence to establish that the home was transferred in order to defeat Ms Sands’s rights:
(a) The Judge accepted the evidence of Mr O’Horgan’s youngest daughter that she had numerous discussions with her father about transferring his home to a family trust for asset protection reasons if and when he went into an aged care facility. There was no discussion of changes to the PRA, as she did not know he was in a de facto relationship.
(b)The Judge considered that Mr O’Horgan was a simple man with little education. There was no evidence to suggest that either he or Ms Sands were aware in 2001 of the changes to the PRA or the impact of those changes.
(c) There was no evidence to suggest that Ms Sands had a constructive trust claim in respect of the property. She did not spend money on the property or contribute to the mortgage.
(d)The sale price of the Meadow Crescent property to the family trust represented valuable consideration and was within an acceptable range.
[10] The Judge concluded it was very likely that Mr O’Horgan was simply persuaded by his daughter to protect his home against future rest home or care charges, and thus there was no intention to defeat Ms Sands’s rights.
Compensation under s 44C of the PRA
[11] In the alternative, Ms Sands sought compensation under s 44C of the PRA:
44C Compensation for property disposed of to trust
(1) This section applies if the court is satisfied—
(a) that, since the marriage, the civil union, or the de facto relationship began, either or both spouses or partners have disposed of relationship property to a trust; and
(b) that the disposition has the effect of defeating the claim or rights of one of the spouses or partners; and
(c) that the disposition is not one to which section 44 applies.
(2) If this section applies, the court may make 1 or more of the following orders for the purpose of compensating the spouse or partner whose claim or rights under this Act have been defeated by the disposition:
(a) an order requiring one spouse or partner to pay to the other spouse or partner a sum of money, whether out of relationship property or separate property:
(b) an order requiring one spouse or partner to transfer to the other spouse or partner any property, whether the property is relationship property or separate property:
(c) an order requiring the trustees of the trust to pay to one spouse or partner the whole or part of the income of the trust, either for a specified period or until a specified amount has been paid.
(3) The court must not make an order under subsection (2)(c) if—
(a) an order under subsection (2)(a) or (b) would compensate the spouse or partner; or
(b) a third person has in good faith altered that person’s position—
(i) in reliance on the ability of the trustees to distribute the income of the trust in terms of the instrument creating the trust; and
(ii) in such a way that it would be unjust to make the order.
(4) The court may make 1 or more orders under subsection (2) if it considers it just to do so, having regard to—
(a) the value of the relationship property disposed of to the trust: (b) the value of the relationship property available for division:
(c) the date or dates on which relationship property was disposed of to the trust:
(d) whether the trust gave consideration for the property, and if so, the amount of the consideration:
(e) whether the spouses or partners, or either of them, or any child of the marriage, civil union, or de facto relationship, is or has been a beneficiary of the trust:
(f) any other relevant matter.
[12] With regard to the factors in s 44C(1), as Judge de Jong had already found that Ms Sands and Mr O’Horgan were in a qualifying de facto relationship, he found Meadow Crescent was relationship property, given the changes made to the PRA in
2002 (with retrospective effect). He also accepted the transfer of Meadow Crescent to the trust had the effect of defeating Ms Sands’s claim. Accordingly he found Ms Sands was entitled to make a s 44C claim.
[13] The Judge considered a number of possible options as to compensation, noting that it was in the Court’s discretion to award compensation if it considered it just to do so. These options included:
(a) requiring Mr O’Horgan to pay Ms Sands money out of separate or relationship property;
(b) requiring Mr O’Horgan to transfer separate or relationship property to
Ms Sands; or
(c) requiring the trustees of the O’Horgan Family Trust to pay the whole or part of the trust’s income to Ms Sands for a specified time or amount.
[14] The Judge had regard to the factors listed in s 44C(4), noting that Meadow Crescent was valued around $210,000 to $220,000 in 2001 when transferred to the trust in May 2001. The other relationship property was of negligible value.
[15] The Judge then considered other relevant matters, in particular the argument raised by the respondents that s 13 of the PRA applied. Section 13 gives the Court discretion to depart from the equal property sharing principle if extraordinary circumstances are found to render equal sharing repugnant to justice. This test is stringent, the Judge observed, because the PRA is founded on the principle of equal
sharing. In this case, he did not consider the test was met. The respondents have not challenged this finding.
[16] The Judge then turned to s 16 of the PRA, which he described as another compensatory provision (like 44C) that invites the Court to provide a just outcome:
16 Adjustment when each spouse or partner owned home at date relationship began
(1) This section applies if,—
(a) at the date the marriage, civil union, or de facto relationship began, each spouse or partner owned a home; and
(b) each of those homes was capable of becoming a family home; but
(c) at the time when the relationship property is to be divided, the home (or the proceeds of the sale of the home) of only one spouse or partner is included in the relationship property.
(2) This section also applies if,—
(a) before the marriage, civil union, or de facto relationship began, each spouse or partner owned a home; and
(b) each of those homes was capable of becoming a family home; and
(c) one of the spouses or partners (party A) sold his or her home in contemplation of the marriage, civil union, or de facto relationship; and
(d) at the time when the relationship property is to be divided,—
(i) the home (or the proceeds of the sale of the home) of the other spouse or partner (party B) is included in the relationship property; but
(ii) the proceeds of the sale of party A’s home are not included in
the relationship property.
(3) If this section applies, the court may adjust the shares of the spouses or partners in any of the relationship property (including the family home and the family chattels) according to what it considers just to compensate for the inclusion of the home of only one spouse or partner in the relationship property.
(4) This section overrides sections 11 to 14A.
[17] Section 16 applies if both partners owned a home at the beginning of their de facto relationship and each home was capable of becoming a family home, but only one home is ultimately included in the relationship property pool at the end of the
relationship. When Ms Sands and Mr O’Horgan commenced their de facto relationship no later than 1994, Mr O’Horgan owned the Meadow Crescent property and Ms Sands owned a property at Hilling Street (Hilling Street). (Although Ms Sands’s son had been renting the property pursuant to an alleged rent-to-buy agreement with his mother, the Judge found that this agreement was not actually reached until close to the time of settlement in 2001 when it was formalised by a sale and purchase agreement).
[18] At the outset of the de facto relationship, Ms Sands’s property was valued at around $180,000, i.e. about 85.7 per cent of the value of Meadow Crescent at the time. There was no present-day valuation of Hilling Street because it had been altered and sold, but Meadow Crescent was presently valued at $800,000. Adopting a crude measure of relative values, the Judge estimated that Hilling Street’s hypothetical present value was around $685,600. The difference between the values of both properties was $114,400, meaning a half share would amount to $57,200.
[19] The Judge noted that after Mr O’Horgan died, Ms Sands remained in Meadow Crescent rent free for some time, and the O’Horgan Family Trust met her outgoings. Ms Sands also received the benefit of rental payments from her son for a time. The O’Horgan Family Trust had also met the cost of valuation fees for the proceeding. Taking those matters into account, the Judge considered a payment of
$50,000 represented a just award in the circumstances of this case. That was capable of being paid out of Mr O’Horgan’s separate property from money held by, or due to, his estate.
Breach of moral obligations under the Family Protection Act
[20] The final point for the Judge to consider was whether Mr O’Horgan had breached his moral duty to Ms Sands, “judged by the standards of a wise and just testator or testatrix; and, if so, what is appropriate to remedy that breach”.3 There was a power under s 4(1) of the FPA to make that enquiry. However, the Judge
noted that the courts take a cautious approach to this exercise.
3 Citing Little v Angus [1981] 1 NZLR 126 (CA) at 127.
[21] The Judge recognised that the question of whether and to what extent Ms Sands was entitled to an award under the FPA was affected by the outcome of her PRA claim. She was due to receive an award of $50,000 as a result of his judgment on s 44C, and was also entitled to a payment of $20,000 from Mr O’Horgan’s estate as a result of a bequest from his will. She also had the opportunity to live rent free in his property for up to two years after his death. He found that Mr O’Horgan had not breached his moral duty to Ms Sands.
[22] Although Ms Sands was not entitled to any additional and separate payment, the Judge held that she was entitled to interest on the sum of $20,000 at the rate of five per cent per annum from the date of Mr O’Horgan’s death to the date of payment.
Grounds of appeal
[23] Ms Sands now appeals on the following grounds:
(a) the Judge erred in law and in fact in declining to make orders under s
44 of the Act; and in the alternative;
(b) the Judge erred in law in taking into consideration s 16 of the PRA
when making findings under s 44C of the PRA;
(c) the Judge erred in law and in fact in finding that Mr O’Horgan did not breach his moral duty to Ms Sands.
[24] The appeal is by way of re-hearing and so subject to principles to be derived from Austin, Nichols and Co Ltd v Stichting Lodestar.4
4 Austin, Nichols and Co Ltd v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 (SC).
Section 44 of the Property (Relationships) Act
Submissions
[25] Ms Sands acknowledges that one of the reasons for the transfer of the Meadow Crescent property may have been to avoid nursing home payments. She contends, however, that this does not exclude there being other reasons for the transfer. Mr O’Horgan’s daughter had been encouraging her father to form a trust since 1997, but he did not do so until 2001. From this Ms Sands argues inferentially that there must have been some other catalyst driving him to form a trust at that particular time. Given that his daughter did not know at the time that he was in a de facto relationship, Ms Sands contends it seems unlikely she really knew her father’s mind and what was driving him to form a trust in 2001.
[26] Ms Sands submits that the Judge was wrong to take account of whether Ms Sands had a constructive trust claim in reaching a decision on whether Mr O’Horgan intended to defeat Ms Sands’s rights. She further submits that the existence of potential constructive trust claims was not a relevant consideration for the purposes of a determination under s 44 of the PRA. Nor was the sale price of the property, and whether or not it represented valuable consideration, a relevant point in this context.
[27] Ms Sands argues that if Mr O’Horgan knew transferring the property to a trust would have the effect of defeating Ms Sands’s rights under the PRA, this would be sufficient to establish the necessary intention under s 44 even if he had not wanted to achieve that result.5 In this regard, the Judge found there was no evidence to show Mr O’Horgan was aware of the changes to the PRA. Ms Sands submits, however, that the Judge should have had recourse to inference: there was widespread media
coverage of the changes at the time; there was conflict within the relationship; and the trust was formed in circumstances of secrecy. Ms Sands further submits that Mr O’Horgan’s lawyer would surely have enquired as to the existence of a de facto relationship, as all lawyers dealing with wills and trusts at the time would have been
well advised of the upcoming changes to the PRA. Mr O’Horgan’s description of
5 See Ryan v Unkovich [2010] 1 NZLR 434 (HC) at [33].
Ms Sands as his “friend” in his will suggests that he deliberately withheld
information about the de facto relationship from his lawyer.
[28] During the course of the appeal hearing Ms Sands developed the argument that it was incumbent on the respondents to produce evidence from the lawyer who had acted for Mr O’Horgan at the time of the trust settlement regarding his state of knowledge about the forthcoming impact of the PRA on de facto relationships. In this regard she referred to the lawyer who had created the trust, Dianne Snow, now being one of the respondents through being a trustee and subsequently an executor of Mr O’Horgan’s will. Ms Sands invited the Court to draw an adverse inference from the fact Ms Snow did not give evidence about the advice she gave to Mr O’Horgan at the time the trust was settled or Mr O’Horgan’s reasons for creating the trust.
[29] On the other hand the respondents submit that Ms Sands’s s 44 claim rightly failed, because she could not establish any evidential foundation for it. They say there was a separate and legitimate reason for the establishing of the trust, namely to avoid exposing his assets to meet the cost of aged care. The delay in the formation of the trust (from the initiation of discussions in 1997) was not material. Importantly, the Judge found that neither Mr O’Horgan nor Ms Sands were aware of the anticipated changes to the PRA at the time: they were both simple people and there was no evidence before the Court as to the extent of the publicity around the PRA changes.
[30] The respondents submit that the Judge was correct in taking into account the point that Ms Sands had no constructive trust claim in the property. What the Judge meant was that there was no reason for Mr O’Horgan to have been on notice at the time of the disposition that Ms Sands had any interest in the property. She had her own property at the time and they each treated their respective properties as separate. This goes to proof of Mr O’Horgan’s lack of intention to defeat Ms Sands’s rights.
[31] It was also appropriate for the Judge to take into account the sale price of the Meadow Crescent property to the trust, and whether or not it represented valuable consideration. Had it been sold at under value, that may have been a factor pointing to an intention to defeat Ms Sands’s rights.
[32] The respondents submit that there is no basis for an inference as to intention:
(a) It is too much of a leap for the Court to infer intention from the mere timing of the transfer to the trust. That would have the result that all dispositions to trusts or third parties around 2001 would be caught by s 44, which cannot have been Parliament’s intention.
(b)Nor is it enough to say that the parties were in conflict in 2001: the Judge found there was insufficient evidence to say exactly when and for how long in 2001 the couple separated.
(c) There was no evidence that Mr O’Horgan was deliberately misleading his lawyer, and indeed that conclusion is inconsistent with the finding that he was a “simple man”.
(d)There is no basis for a presumption that Mr O’Horgan’s lawyer would have been fully aware of the changes to the PRA.
Analysis
[33] The core issue is whether Mr O’Horgan transferred Meadow Crescent to the O’Horgan Family Trust with the intent to defeat Ms Sands’s rights. He is not an available witness. There is no record of what his intent was. Accordingly, his intent must be inferred from the known circumstances. There is the legal principle that knowledge of the fact that transfer of Meadow Crescent to the trust would defeat Ms Sands’s rights can establish intent to defeat such rights. However, reliance on this principle can only work when there is evidence to show that at the time of transfer, Mr O’Horgan knew Ms Sands either had or would in the future gain rights
to Meadow Crescent.6 The state of Mr O’Horgan’s knowledge at the time of transfer
is also something that can only be known inferentially.
[34] The Judge had the benefit of seeing and hearing the witnesses and could
therefore form an impression from their evidence about Mr O’Horgan’s intent and knowledge. Whilst such impressions are necessarily second hand, in circumstances
6 See K v V [2012] NZHC 1129 at [110].
such as these it is even further removed for an appeal Court to then attempt to make similar assessments. Whilst the Judge could form his view from the evidence he saw and heard from the witnesses before him, this Court has no such benefit. The further removed that a Court is from first hand evidence, the more difficult it can become to draw sound inferences.
[35] I see no reason to interfere with the Judge’s assessment of Mr O’Horgan’s intent and knowledge. It was open to the Judge to accept and prefer the evidence of the second respondents to that of Ms Sands when it came to determining the intent behind transferring Meadow Crescent to the trust. Whilst Mr O’Horgan’s children may not have realised their father was in a de facto relationship, they were still able to give a good account of the type of person he was, which would include how well informed he was likely to be about future changes to the law affecting relationship property. Their evidence was enough to support the inference the Judge drew of Mr O’Horgan being “a simple man” and therefore it was more probable he would not have known of the PRA amendments that were to come into force in 2002 (the PRA
amendments).7 I can see no basis for interfering with this finding.
[36] The finding Mr O’Horgan had no knowledge of the PRA amendments makes it very difficult to challenge the Judge’s conclusion on intent because there is no other circumstantial evidence to prove intent to defeat Ms Sands’s rights.
[37] The timing of the transfer in 2001 becomes a matter of coincidence once there is a finding Mr O’Horgan had no knowledge of those amendments. Ms Sands argues that because Ms Shirley O’Horgan first raised the idea of a trust of Mr O’Horgan in 1997 but he did not take any action in that regard until 2001, this shows his reasons for settling the trust were not asset protection from aged care fees. I reject that argument. The advice Ms Shirley O’Horgan gave to her father was not confined to 1997. That was when she first raised the topic because that was when
she commenced work as a nurse in aged care and where she saw the difference
7 At the time Meadow Crescent was transferred to the trust, the relevant legislation was known as the Matrimonial Property Act 1976. When the legislation was amended in 2002 to include property division from de facto relationships it became the Property (Relationships) Act 1976. When discussing whether Mr O’Horgan knew about the forthcoming changes to the law I propose to refer to those changes as the “PRA amendments”.
between how people who had put their properties in trust were treated from those who had not, in terms of liability for payment of fees for this care. The Judge correctly treated her evidence on this topic as something she continued to give to Mr O’Horgan until he acted on it in 2001. By then he would have been approximately
69 years old and perhaps by then he was more open to the prospect he might find himself in need of aged care later in life. The Judge found Mr O’Horgan was a simple man. His only source of income was national superannuation. Faced with the serious step involved in transferring his only asset to a trust, which required him to incur legal fees, it is understandable that he would take time to act on this thought. It is not unusual for people to be reluctant to spend on legal fees when they feel no urgent need to do so or for them to defer facing the prospect that one day they may find themselves frail, vulnerable and in need of aged care. Whilst lawyers may think ahead and make plans for such events, ordinary people often do not. There are reasonable inferences to be drawn from the timing of Mr O’Horgan’s actions in 2001 that do not involve any intent to remove Meadow Crescent from potential claims by Ms Sands.
[38] The Judge’s consideration of whether there was a potential constructive trust claim is relevant in the sense that had there been such a claim, it would have indicated the presence of a threat to Mr O’Horgan’s rights in Meadow Crescent, which may have been a catalyst for him to take steps to try to exclude Ms Sands from having any rights in the property, including by transferring it to the trust. On the other hand there being no such claim is consistent with Mr O’Horgan having no reason to be concerned about any claims Ms Sands might make to the property. Here there is no evidence to suggest Mr O’Horgan had concerns about Ms Sands making a claim on Meadow Crescent, which accords with the inference that the transfer to the trust was not made to defeat her rights to make any such claim.
[39] The fact Meadow Crescent was transferred for valuable consideration is a relevant factor. The receipt of valuable consideration meant that Mr O’Horgan exchanged one valuable asset (Meadow Crescent) for another (the price the trust paid for the property). Where property is transferred in return for a binding financial
obligation there is no gift or transfer at under value.8 The gift element arises where the financial obligations the trust owed to Mr O’Horgan were later forgiven by him. Until forgiven, the debt was an asset of his. The transfer was done in a way that placed Meadow Crescent beyond his personal estate, which was necessary if he was to avoid his personal estate being diminished by aged care fees. The steps that were taken are consistent with intent to achieve that outcome. They may have had the effect of removing Meadow Crescent from the pool of potential relationship property once the PRA amendments took effect, but that is a separate matter for consideration in terms of s 44C. Further, the exchange of Meadow Crescent for a debt from the trust may have brought the debt into the pool of relationship property, in which case it would be the forgiveness of the debt over time that diminished the pool of
relationship property and not the transfer of the property to the trust.9 In this regard
the form of the transaction would take precedence over the substance.10
[40] Ms Sands argues that her relationship with Mr O’Horgan was rocky in 2001 and from this she invites the Court to infer Mr O’Horgan had reason to take steps to defeat her interests in Meadow Crescent. This type of reasoning is dangerous. As at March 2001 the amendments to the PRA were not in force. The existing law required the de facto partner making a claim on the other partner’s property to bring a claim in constructive trust, which required proof of contribution to the acquisition, improvement or retention of the property and that both parties reasonably expected a
share in the beneficial ownership of the property.11 There is no evidence to show
Mr O’Horgan understood this in 2001. If he was unaware of the PRA amendments, as the Judge found, and there is nothing to show he knew of the availability of constructive claims, there is no basis for inferring the rocky state of the relationship would have caused him to take action to put Meadow Crescent beyond Ms Sands’s reach. Indeed he may have thought the relationship would end and that would be the end of the matter. How the potential property rights of parties in de facto relationships were viewed by someone like Mr O’Horgan in 2001 cannot be equated
with how persons might in hindsight view them now.
8 See Mills v Dowdall [1983] NZLR 154 (CA) at 156–157.
9 In 2001 gift duty was payable and when the sale with a debt and mortgage back process was adopted (in order to give valuable consideration for the transfer) the debt was usually forgiven each year up to the maximum amount permitted before gift duty became applicable.
10 See Mills v Dowdall, above n 8.
11 Lankow v Rose [1995] 1 NZLR 277 (CA).
[41] It is a matter of concern that the lawyer responsible for creating the trust and transferring Meadow Crescent to the trust did not give evidence about Mr O’Horgan’s reasons for taking this action, or his state of knowledge at that time regarding the future impact of the PRA on this action. It is particularly concerning given that Ms Snow is a party to this proceeding by reason of being a trustee and an executor. In those roles she is directly involved in the proceeding and so it may have been a short step for her to provide evidence relevant to the Court determining Mr O’Horgan’s intention and how it might fit with s 44 of the PRA. However, there is the question of legal privilege. In Gray v Gray the lawyer who advised Mr Gray in relation to establishing the trust was not called as a witness and the Court simply
commented “[privilege] was not waived”.12 Here, Mr O’Horgan is now deceased.
The privilege holder’s personal representatives (after death) are only entitled to assert the privilege where the Judge is satisfied they have a “justifiable interest in maintaining the privilege”.13
[42] The problem in the present case is that seemingly no-one drew the Judge’s attention to the evidence principle that allows a court to draw an adverse inference about the helpfulness of evidence to a party’s case when it has not called evidence and it is within the control of that party to call such evidence.14 Had the principle been raised, the question of the application of legal privilege and whether there were grounds for properly asserting legal privilege could have been explored. But no such
enquiries were made and I am in no position to make them on appeal.
[43] In the present case Ms Sands’s submissions to Judge de Jong invited him to assume that Ms Snow would have drawn the PRA amendments to Mr O’Horgan’s attention. The submissions also stated that the transfer to the trust was done in secrecy without Ms Sands being informed or it being discussed with her. These arguments did not persuade the Judge to view them as outweighing the factors he
relied on to reach his conclusions. I see no reason to differ from him in that regard.
12 Gray v Gray [2013] NZHC 2890 at [43].
13 See Evidence Act 2006, ss 66(2) and 66(3).
14 Ithaca (Custodians) Ltd v Perry Corp [2004] 1 NZLR 731 (CA) at [153]–[155], recently cited with approval in Madsen-Ries v Greenhill [2016] NZHC 3188, [2017] NZCCLR 6 at [36].
[44] The respondents contend it cannot be assumed Ms Snow knew of the effect the PRA amendments would have on the transfer of Meadow Crescent to the trust. That may be so. Further they submit there is nothing to show Ms Snow would have realised at the time the transfer occurred that Mr O’Horgan was in a de facto relationship. Certainly there is no evidence to show it was a factor brought to her attention.
[45] The matters the Judge did take into account were matters he was entitled to take into account, and the inferences he drew from his assessment of the primary facts were open to him. So, whilst evidence from Ms Snow would be relevant and material to the Court finding the property was transferred without knowledge it would defeat relationship property interests under the PRA, that does not mean that absent such evidence the respondents cannot satisfy the Court Meadow Crescent was transferred out of the pool of available relationship property without intent or knowledge such action would defeat interests under the PRA. The enquiry is fact specific; the task is to determine Mr O’Horgan’s actual knowledge and actual
intentions at the time of the disposition.15 In addition, in cases such as this there is
always a risk of viewing what occurred with the benefit of hindsight, which can lead to the Court placing undue weight on matters that may have been of little or no moment to Mr O’Horgan as well as the Court failing to recognise matters that may have influenced him at the relevant time.
[46] Ms Sands argues that Mr O’Horgan was secretive with Ms Snow in that when she was instructed to draw up his will he described Ms Sands as his friend. However, that may be how Mr O’Horgan viewed Ms Sands at the time. He had been spending time in Thailand where he was sexually involved with other women. He and Ms Sands presented themselves to Work & Income as single persons who were not in a de facto relationship. They kept their finances separate. Each had their own property. Each had separate bank accounts. He introduced her to his children as his housekeeper and later as his caregiver. He did not bring her to family events. He maintained a relationship with his ex-wife who he was present with at family events, and over the years he expressed a wish to reconcile with her. The Judge found
objectively that there was a de facto relationship, but that is not to say that at the
15 See Ryan v Unkovich, above n 5, at [41].
time Mr O’Horgan transferred Meadow Crescent to the trust he saw himself as being in a de facto relationship, let alone one that could give rise to property rights for Ms Sands under the PRA amendments. Until Mr O’Horgan’s understanding of a de facto relationship is known, it is hard to assess inferentially to what extent he realised his relationship with her would be viewed objectively by a court as a qualifying de facto relationship. Before the PRA amendments came into effect there was some uncertainty regarding how to identify a de facto relationship and it was not until PRA case law on that topic became available that lawyers, let alone the public, had a good idea of how to identify a qualifying relationship.
[47] Unless Mr O’Horgan realised he was in a qualifying de facto relationship, it is difficult to see how he could have either intended to defeat Ms Sands’s rights under the PRA or known that by transferring Meadow Crescent to a trust he would defeat those rights. For him to have either that intent or that knowledge he needed to first be under the impression he was in a de facto relationship.
[48] The findings the Judge made as to the existence of a de facto relationship were reached on his objective analysis of the evidence; they do not in my view go so far as to find that at the relevant time Mr O’Horgan actually knew he was in what the law would later identify as a de facto relationship.
[49] I am satisfied that the conclusions the Judge reached on the question of Mr O’Horgan’s intent under s 44 were sound and I agree with them, both for the reasons the Judge gave and the additional reasons to which I have referred. Accordingly I reject this ground of appeal.
Compensation under s 44C of the PRA
Submissions
[50] Ms Sands submits that s 16 considerations significantly influenced the Judge in deciding the amount of compensation to award to her under s 44C of the PRA, referring to his value comparisons and calculations. She says that the Judge should not have taken s 16 into account in determining whether she was entitled to compensation under s 44C. When the de facto relationship began (in 1991 at the
earliest, as the Judge found), she had already sold her Hilling Street property to her son in a rent-to-buy arrangement. She and her son had reached an oral agreement to that effect in August 1990, meaning her son had an equitable interest in the property and it was therefore incapable of becoming a family home.
[51] The respondents submit that s 44C afforded the Judge a broad discretion to decide what (if any) compensation was appropriate. There are no grounds to interfere with that discretion on appeal. The award was fair overall to Ms Sands and to Mr O’Horgan.
[52] The respondents contend it is incorrect to say that s 16 of the PRA does not apply because of Ms Sands’s dealings with her Hilling Street property. She was the registered owner of that property in 1994 when the de facto relationship began. She also had a life interest in her father’s property at Trojan Crescent. Either interest would have been able to be used as the family home. It was therefore appropriate to have regard to s 16, which is a remedial section designed to alleviate unfairness. They further contend the Judge made a minor error in Ms Sands’s favour in that he did not take into account her life interest in the Trojan Crescent property.
Analysis
[53] The Judge found the agreement between Ms Sands and her son for him to buy her Hilling Street property was not concluded until 2001 when it was formalised by a sale and purchase agreement. It was open to the Judge to rely on the written sale and purchase agreement as effecting the sale to her son. I am satisfied that the Hilling Street property was an alternative family home before its sale to Ms Sands’s son. I also accept the respondent’s argument that Ms Sands’s life interest in her father’s former property was another alternative family home. However, no s 44C analysis in terms of the life interest being an alternative family home is required in view of the conclusion I have reached on the Hilling Street property.
[54] When couples each have properties they have acquired before they enter into a de facto relationship and one such property is then used as a family home, s 16 of the PRA operates to remove the inequality that would result from one partner being
able to preserve his or her property as separate property while the other partner’s property is subject to the equal sharing regime that the PRA imposes on relationship property, which is what any property owned by a de facto partner and used as a family home becomes. I consider the Judge correctly applied the discretionary power available to him under s 16 to remedy the inequality that would have occurred here had Ms Sands been able to preserve Hilling Street as separate property which played no part in the parties’ property division, while Meadow Crescent was drawn into the pool of relationship property by reason of being used as the family home. Had Meadow Crescent continued in Mr O’Horgan’s personal ownership, Ms Sands’s claim to it would have been adjusted under s 16 to take account of the Hilling Street property. Accordingly, when it comes to assessing the amount of compensation available for Ms Sands under 44C it is only right that calculation of the compensation include allowance for s 16 factors.
[55] I agree with the Judge that it was appropriate to take s 16 factors into account when it came to assessing s 44C compensation and I agree with the manner in which he reached that compensation. Regarding the latter, apart from the objection to the inclusion of a s 16 analysis, Ms Sands did not dispute the other aspects of how the Judge reached the quantum of compensation.
Breach of moral obligations under the Family Protection Act
Submissions
[56] Ms Sands submits that she was in a relationship with Mr O’Horgan for between 19 and 21 years, which gives rise to a strong moral duty. She says it is well established in case law that the de facto partner of the deceased is the first priority when it comes to the deceased’s moral duty to provide for others. The gift of
$20,000 from Mr O’Horgan’s estate is insufficient to meet her needs for maintenance
and support.
[57] Ms Sands further submits that Mr O’Horgan’s choice to transfer the property to a family trust, rather than contract out of the PRA with her agreement, amounted to deception and unfairly advantaged him.
[58] Ms Sands also says that the respondents had the benefit of Ms Sands caring for their father virtually until his death. Given this and the length of their de facto relationship, she says the offer by the respondents to allow her to live in the property for up to two years after Mr O’Horgan’s death was not reasonable.
[59] The respondents submit that it was proper for the Judge’s decision as to breach of moral duty under the FPA to be informed by his decision to award compensation under s 44C of the PRA.
[60] They say that Ms Sands does not refer to any authority for the proposition that she should have been Mr O’Horgan’s first priority, and point out that the provision of $20,000 from Mr O’Horgan’s estate was generous given that the value of the estate was only about $92,420 in total. In any event, the evidence in this case suggests that Ms Sands was financially independent, having inherited two properties. It was up to her to satisfy the Court that the provision in the will was not sufficient for her maintenance and support. The trustees’ offer to allow her to remain in the property for two years after Mr O’Horgan’s death was generous, especially given that she had no interest in the trust (either as beneficiary or trustee).
Analysis
[61] Ms Sands was to receive $20,000 under Mr O’Horgan’s will. She also received $50,000 compensation under s 44C. The Judge correctly found that the extent to which she could make a claim under the Family Protection Act was affected by the outcome of her claim under the PRA.
[62] However, the Judge made a number of errors in relation to this aspect of Ms Sands’s claim. Those errors favoured Ms Sands. The respondents made no cross appeal against the finding on the Family Protection Act claim.
[63] Regarding the Judge’s errors the following is relevant. On the death of a de facto partner, s 61 of the PRA requires the surviving partner to choose option A or option B. Option A is to make an application under the PRA for a division of
relationship property.16 Option B is not to make an application under the PRA for division of relationship property and to instead receive the bequest given under the will.17
[64] At [129] of his judgment the Judge noted:
[Ms Sands] is also entitled to a payment of $20,000 from [Mr O’Horgan’s]
estate as a result of a bequest under his will.
[65] The Judge then said at [130] of his judgment:
… whether or not [Ms Sands] elected to receive [Mr O’Horgan’s] gift of
$20,000, this Court finds [Ms Sands] is entitled to interest on the sum of
$20,000 at the rate of 5% per annum from the date of … death to the date of
payment. …
[66] Section 63 provides that a surviving partner may not commence proceedings under the PRA for a division of relationship property until that person has elected option A. From the fact the PRA claim is now before me on appeal I infer Ms Sands elected option A. No-one suggested anything to the contrary in the appeal hearing, nor is there anything recorded in the judgment under appeal to suggest the contrary. If Ms Sands has not exercised the election under s 61 the entire proceeding may be a nullity; that question seems to me to be a matter best left for separate analysis, if required, on some other occasion. I propose to proceed on the basis Ms Sands has elected option A.
[67] Sections 76 and 77 of the PRA apply where the surviving partner elects option A. In those circumstances, s 76(1)(a) provides that every gift to the surviving partner in the will of the deceased partner is treated as having been revoked. However, s 77 of the PRA goes on to provide the Court may order that on the application of the surviving partner he or she may nevertheless receive all or any of the gifts left to them under the will, if the Court is satisfied that it is necessary to avoid injustice. So, in principle, despite having chosen to bring proceedings under the PRA, Ms Sands could still be entitled to take the bequest of $20,000 if the Court
thought it necessary to avoid injustice.
16 Property (Relationships) Act 1976, s 61(2).
17 Property (Relationships Act, s 61(3).
[68] However, the Judge did not expressly apply s 77 of the PRA. Instead at [130] of his judgment he appeared to assume it unnecessary to identify the basis on which Ms Sands would take the $20,000 payment. He then went on to award interest of
5 per cent per annum from the date of Mr O’Horgan’s death until date of payment.
[69] The documents the parties filed for the appeal do not include any notice application filed in the Family Court. Accordingly, I do not know whether Ms Sands made an application under s 77 of the PRA or not.
[70] The Judge’s power to allow Ms Sands’s entitlement to the gift of $20,000 under s 77 of the PRA would require her to have made that application. The powers in s 77 of the PRA cannot be exercised by a judge of his or her own volition. Accordingly, I cannot approach the matter as if the Judge had made an order under s
77 of the PRA because I have no proper basis for doing so.
[71] The other way the Judge could have permitted Ms Sands to take $20,000 together with the interest he awarded to her would have been if he made the award as part of the Family Protection Act claim, but he did not do this. The judgment includes a declaration that Mr O’Horgan did not breach his moral duty to Ms Sands.18
[72] At the appeal hearing the respondents never suggested Ms Sands was not entitled to receive the testamentary gift of $20,000 plus the interest the Judge ordered. Nor have they formally challenged by cross appeal her entitlement to this sum of money. For the moment I propose to proceed on the basis she is entitled to this sum and to consider if it should be increased under the Family Protection Act.
[73] Mr O’Horgan’s estate at the time of his death had a value of approximately
$92,000. Section 94 of the PRA provides for how orders for payment under the PRA are to fall. They can fall against relationship property, but if there is insufficient or no relationship property they can fall against the whole estate of the deceased. Here the Judge treated the estate as comprising mainly separate property of approximately
$92,000. This seems to me to be the only source of funding to pay the s 44C
18 See S v R Estate above n 1, at [131](d).
compensation. Payment from the whole estate would deplete the estate to the sum of approximately $52,000. Section 94(6) provides that property affected by such an order does not form part of the estate for the purpose of the Family Protection Act. Accordingly, Ms Sands’s Family Protection Act claim has to be assessed on the basis the available estate has a value of $52,000.
[74] Ms Sands contends a gift of $20,000 is a breach of Mr O’Horgan’s moral duty to her as his de facto partner, and so she asks the Court to award her something more. She brought her Family Protection Act claim to increase the gift and she now appeals against the Judge’s decision not to do so.
[75] Section 57 of the PRA provides that nothing in that Act prevents Ms Sands from bringing a Family Protection Act claim. Any such claim has to be assessed against an estate of $52,000.19 Mr O’Horgan has children. The value of the estate is low. In such circumstances I consider that the moral duty he owed to Ms Sands would have been discharged by the gift of $20,000 with the addition of interest at
5 per cent per annum, which the Judge found to be payable from the date of his death to the date of payment. I make this finding in circumstances where I have heard no argument from the respondents disputing Ms Sands’s entitlement to receive the
$20,000 and there is no cross appeal against her receiving this sum.
[76] As matters stand Judge de Jong has done no more than recognise Ms Sands receiving $20,000 under Mr O’Horgan’s will. However, I am satisfied that once Ms Sands brought her proceedings under the PRA she lost the right to take any gift to her under the will. Unless a court makes an order that Ms Sands is entitled to the
$20,000 I find it hard to see how she will be able to lay claim to it.
[77] The question of payment of a sum of money from Mr O’Horgan’s estate is before me as an appeal under the Family Protection Act. I propose to use the powers available to me in the context of that aspect of the appeal to regularise Ms Sands’s
entitlement to a payment from the estate.
19 See Property (Relationships) Act, s 94(6).
[78] I find that there is no lawful basis for Ms Sands to receive the payment of
$20,000 as a gift under the will. This is because under option A she was required to forgo any gift under the will. However, that would leave her with nothing from Mr O’Horgan’s estate. I find it would be a breach of moral duty for Ms Sands to receive nothing under Mr O’Horgan’s will. Accordingly, I propose to allow the appeal to the extent that I find that under the Family Protection Act Ms Sands is entitled to a payment of $20,000 from Ms O’Horgan’s estate together with 5 per cent interest per annum from date of Mr O’Horgan’s death until date of payment. Such payments are in substitution of the interest awarded by the Judge and his incorrect recognition of her entitlement to take the $20,000 gift under the will. So by a different route I have reached the same outcome as the judge.
Result
[79] The appeal is allowed in part to the extent that pursuant to s 5 of the Family Protection Act I direct that Ms Sands is to receive a payment of $20,000 from Mr O’Horgan’s estate together with 5 per cent interest per annum from date of Mr O’Horgan’s death until date of payment, those payments being in substitution of the gift of $20,000 under the will and the Judge’s order that the respondents pay Ms Sands interest of 5 percent per annum on this sum from the date of Mr O’Horgan’s death until the date of payment. The balance of the appeal is dismissed.
[80] Leave is reserved to the parties to file memoranda on costs.
Duffy J
0
3
0