Scott v Williams

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE

IN THE SUPREME COURT OF NEW ZEALAND

SC 95/2016
[2017] NZSC 185

BETWEEN	SCOTT Appellant
AND	WILLIAMS Respondent

Hearing:	14 and 15 March 2017
Court:	Elias CJ, William Young, Glazebrook, Arnold and OʼRegan JJ
Counsel:	D J Goddard QC, S H Ambler and S L K Shaw for Appellant S L Robertson QC and J M McGuigan for Respondent
Judgment:	11 December 2017

JUDGMENT OF THE COURT

AThe appeal is allowed to the extent set out below.
BThe cross-appeal is dismissed.
CThe vesting order made by the Family Court is restored.
DThe valuation by the Family Court of the respondent’s law practice is restored. The appellant’s share is $225,000.
EAn order in the appellant’s favour of $520,000 is made under s 15 of the Property (Relationships) Act 1976. If not able to be agreed, the parties may file submissions on interest on or before 1 February 2018.
FCosts of $25,000 are awarded to the appellant, plus usual disbursements to be set by the Registrar if not agreed. The Court allows for two counsel.

____________________________________________________________________

REASONS

Para
Glazebrook J	[1]
Arnold J	[276]
Elias CJ	[330]
O’Regan J	[359]
William Young J	[391]

GLAZEBROOK J

Table of Contents

Para
Introduction	[1]
Background	[3]
Vesting order	[17]
Evidence	[17]
Family Court decision	[21]
High Court decision	[27]
Court of Appeal decision	[32]
Parties’ submissions	[37]
Issues	[39]
Association with the properties	[41]
Post-hearing gains	[45]
Valuation issues	[53]
Failure to reconsider	[59]
Conduct	[60]
Summary and conclusion	[64]
Valuation of the legal practice	[67]
Methodology in this case	[67]
Evidence	[71]
Family Court decision	[83]
High Court decision	[85]
Court of Appeal decision	[89]
Ms Scott’s submissions	[90]
Mr Williams’ submissions	[93]
Issues	[95]
Appropriate valuation standard	[96]
Valuation methodologies	[105]
Capitalisation of super profits	[109]
Reliance on M v B	[116]
Factors taken into account	[120]
Retirement	[127]
Remission to the Family Court?	[132]
Summary and conclusion	[137]
Section 15	[141]
The legislation	[141]
Legislative history	[145]
Methods used to date	[157]
Issue	[159]
Expert evidence in this case	[160]
Family Court decision	[166]
High Court decision	[169]
Court of Appeal decision	[173]
Issues	[179]
A different methodology?	[182]
Ms Scott’s submissions	[182]
Mr Williams’ submissions	[188]
Wording of s 15	[191]
Other sections of the PRA	[198]
Support from legislative history?	[201]
General approach	[203]
Available methods to calculate disparity	[206]
Just compensation	[211]
Date compensation assessed	[216]
Comments on Mr Goddard’s calculations	[221]
Remission to the Family Court?	[224]
Was the Court of Appeal approach correct?	[227]
Ms Scott’s submissions	[228]
Mr Williams’ submissions	[236]
Diminution method	[240]
Enhancement method	[245]
Diminution method in this case	[247]
Enhancement method in this case	[251]
Factors taken into account by the Court of Appeal	[253]
Just compensation in this case	[256]
The cross-appeal	[260]
Mr Williams’ submissions	[260]
Ms Scott’s submissions	[261]
My analysis	[262]
Summary of the proper approach to s 15	[263]
Name suppression	[266]
Result	[268]
Appendix

Introduction

Ms Scott and Mr Williams were married in 1981. They separated in June 2007. This judgment[1] concerns the following aspects of their ensuing relationship property dispute:
(a)Should the High Court have made an order (affirmed by the Court of Appeal) that the parties’ residence in Remuera and the adjoining section (the Remuera properties) be sold? This order overturned the Family Court order that they be vested in Ms Scott.
(b)Was the approach taken in the lower Courts to the valuation of Mr Williams’ law firm correct?
(c)Was the amount awarded to Ms Scott under s 15 of the Property (Relationships) Act 1976 (the PRA) correct?
[1]Ms Scott’s application for leave to appeal and Mr Williams’ application for leave to cross-appeal was granted by this Court on 9 November 2016: Scott v Williams [2016] NZSC 149.
I will deal with each of these questions in turn but first set out the background in more detail.

Background

Mr Williams has degrees in law and commerce but has worked all his career in the legal field. In the 1980s he started his own suburban law firm. In 2002 this merged with another sole practice and became a very successful two partner firm. The other sole practice had been operating in the area since 1987. Its principal, Mr D, and Mr Williams had known each other since university.
The bulk of the work of the combined firm is conveyancing, commercial and estate work. There are some seven staff, including two legal executives, who largely deal with the routine conveyancing work. The client base is diverse and derived mostly from the area around where the firm is situated. In any year, the ten largest clients account for only some 16 per cent of the total fees. The firm is very well run and profitable. The gross revenue of the firm ranks above the 75th percentile in the University of Waikato New Zealand Benchmarking survey.[2]
[2]A financial survey conducted by the University of Waikato Institute for Business Research which collects data from accountants and generates financial information on New Zealand businesses.
Ms Scott’s first degree was in commerce. While at university, she worked part‑time as an accounting clerk. After university, she worked as an accountant, first with an accounting firm and then in the commercial sector, ending up by September 1982 as a group accountant for a group of three freight forwarding companies. She resigned from this accounting role in 1984 because the stress was not conducive to the couple’s wish to start a family. After that, she first worked briefly as a real estate agent and, in 1986, commenced study for a law degree.
In 1989 Ms Scott began working as a lawyer but, just prior to the birth of the couple’s first child in 1990, took some ten months maternity leave and then reduced her hours. She resigned from her position before the birth of their second child in 1992. That child was unwell as a baby and toddler and required extensive medical treatment. Ms Scott was the primary caregiver but did provide part-time accounting services for Mr Williams’ law firm and, from 2001 to 2002, also worked part-time for an accounting firm.[3] She resigned from that position to undertake a development on the Remuera section, which did not in the end proceed.
[3]Ms Scott also worked briefly for a finance company in 1994.
After separation, Ms Scott worked for an accounting firm from 2008 until the end of 2010. She attributed her resignation to the stresses of the current proceedings, as well as difficulties she experienced in progression as a result of being an older person in the workplace after an extended time away from full-time work. Since 2011, Ms Scott has been running her own homeware and gift business.[4]
[4]Mr Williams maintains that Ms Scott could have had a successful career in accounting after separation but this issue is not before us. Ms Scott’s actual income is not challenged before this Court.
During their marriage, the parties had built up a substantial pool of assets:
(a)the Remuera properties;[5]
(b)three commercial properties in New Lynn;
(c)a half share in a commercial property in another Auckland suburb;
(d)a beach house in Omaha, a half share in a Fiji property and another property in Auckland; and
(e)Mr Williams’ interest in his legal practice.
[5]The Remuera properties were bought as one property and subdivided in 2004.
As indicated above, the parties separated in 2007. Attempts had been made to settle the division of relationship property but agreement was not reached on all issues. Proceedings were filed by Mr Williams on 9 April 2009. The Family Court hearing began in July 2013, when Mr Williams was 58 and Ms Scott was 53.[6]
[6]The Family Court judgment, originally released in February 2014, says that Mr Williams was 58: Williams v Scott [2014] NZFC 7616 (Judge McHardy) [FC decision] at [8]. The High Court decision, released in October 2014, says that Mr Williams was turning 60 in that month: Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355 (Faire J) [HC decision] at [12]. The only way for this to be possible is if Mr Williams was 58 at the time of the Family Court hearing in July 2013 (not at the date judgment was delivered). For the purposes of these reasons I assume he turns 65 in October 2019. If, however, he was 58 at the time the Family Court judgment was released in February 2014, then William Young J would be right in treating him as turning 65 in October 2020: see below at [465]. Oddly, we have not been able to find the parties’ exact birth dates in the voluminous affidavit evidence before the Court.
By the time of the Family Court hearing, the properties referred to at [8](b) and (d) had been sold. Agreement on some matters had been reached, including Mr Williams purchasing Ms Scott’s share of the commercial property referred to at [8](c) at an agreed valuation.
The dispute between the parties was dealt with by Judge McHardy in a judgment of 27 May 2014. Judge McHardy was able to dispose of a number of issues by way of consent order.[7] The remaining issues were:
(a)the division of the remaining relationship property, including the valuation of Mr Williams’ legal practice and super profits, the valuation of the Remuera properties and whether those properties should be vested in Ms Scott;
(b)a claim under s 15 of the PRA by Ms Scott to address economic disparity as a result of the division of functions during the marriage;
(c)a claim under s 18C of the PRA by Ms Scott for compensation as a result of alleged material diminution in the value of the Omaha property;
(d)a claim by Ms Scott for spousal maintenance;
(e)a claim by Mr Williams under s 18B of the PRA for compensation as a result of contribution to relationship property; and
(f)a claim by Mr Williams for occupation rent.
[7]Including the settlement of the commercial property referred to at [8](c) and [10] above, a Fijian bank account, motor vehicles, Airpoints, chattels, New Zealand bank accounts, insurance and shares in a business: FC decision, above n 6, at [6].
Judge McHardy fixed the value of the Remuera properties as at the date of hearing[8] at $2.75 million and $1.65 million respectively[9] and vested those properties in Ms Scott.[10] He valued the legal practice at $450,000,[11] and the super profits from date of separation to the date of the hearing at $1,093,000.[12] A s 15 order of $850,000 was made to Ms Scott, encompassing both the diminution in earning capacity of Ms Scott and the enhanced earning capacity of Mr Williams.[13] No adjustment was made for Mr Williams’ s 18B claim[14] or Ms Scott’s s 18C claim.[15] No spousal maintenance was awarded.[16] Mr Williams’ claim for occupational rent also failed.[17]
[8]At [292]. Ms Scott had argued that the presumption in favour of the date of hearing as the assessment date should be displaced. This argument was unsuccessful: see below at [26].
[9]At [294].
[10]At [480]–[481].
[11]At [232].
[12]At [243]. Interest of $182,000 to 31 July 2013 plus further interest to be calculated to the date of settlement was also awarded: at [246].
[13]At [366]. Interest was ordered to be paid from the date of the decision to the date of payment:
[14]At [381].
[15]At [413].
[16]At [476].
[17]At [379]–[380].
The Family Court judgment was originally issued on 20 February 2014 but was recalled and reissued to correct calculation errors. In the original judgment, upon the division of relationship property, Ms Scott was to pay Mr Williams $1,032,146.10. After the corrections, the division resulted in Mr Williams being required to pay Ms Scott $51,591.
Judgment on an appeal and cross-appeal against that decision was delivered by Faire J on 17 October 2014.[18] Mr Williams’ appeal was largely allowed with the vesting order overturned and an order made that the Remuera properties be sold at auction.[19] Faire J valued the interest in the legal practice at $300,000[20] but accepted Judge McHardy’s treatment of super profits and interest.[21] He adjusted the s 15 order to $280,000 on the basis that the super profits awarded should have been taken into account as well as Mr Williams’ impending retirement.[22] He also considered that there was no evidential foundation for the enhancement component in the Family Court’s s 15 order.[23] Ms Scott’s cross-appeal on spousal maintenance and various other issues was dismissed, as was Mr Williams’ appeal on s 18B and occupational rent.[24]
[18]HC decision, above n 6.
[19]At [195].
[20]At [108].
[21]At [117]–[118].
[22]At [161]–[166]. No allowance for interest was made: at [170].
[23]At [167].
[24]At [204], [210] and [214].
Leave to bring a second appeal was granted by Faire J[25] on whether the High Court erred in ordering the sale of the Remuera properties,[26] whether the valuation of the legal practice was correct,[27] whether the s 15 order was correct[28] and whether super profits should have been taken into consideration when determining maintenance.[29]
[25]Applications to the Court of Appeal for leave to appeal and cross-appeal amending these questions were denied: Scott v Williams [2015] NZCA 258.
[26]Williams v Scott [2014] NZHC 3385 at [35].
[27]At [41].
[28]At [48].
[29]At [49].
The Court of Appeal’s decision of 29 July 2016 held that Faire J did not err in ordering the sale of the Remuera properties.[30] The Court of Appeal was also satisfied that the High Court valuation of the legal practice was correct.[31] The Court was, however, of the view that Faire J had erred in deducting the super profits sum from his calculation of the s 15 order.[32] The Court of Appeal made a revised order under s 15 of $470,000. The Court also concluded that, in the circumstances of the proceeding, the super profits should have been taken into consideration when determining whether Ms Scott was to receive spousal maintenance.[33]

Vesting order

Evidence

[30]Scott v Williams [2016] NZCA 356, [2016] NZFLR 499 (Ellen France P, Harrison and Kós JJ) [CA decision] at [23].

[31]At [53].

[32]At [81].

[33]At [128].

Three valuers gave evidence in the Family Court on the value of the Remuera properties: Mr Gardner (called by Ms Scott), Mr Buckley (called by Mr Williams) and Mr Swan (a court-appointed valuer). In coming to their valuations, all three valuers considered the location of the Remuera properties, their current condition, the market conditions and comparative sales in the area.
Mr Buckley used a wider geographic scope of comparator sales than the other two valuers. Mr Swan and Mr Gardner considered there was sufficient evidence within Remuera to assess value. Mr Buckley also placed more emphasis on sales in the same street as the properties owned by Mr Williams and Ms Scott. Mr Gardner commented on the sales referred to by Mr Buckley, saying that they were of properties significantly superior to the Remuera properties and that one particular sale relied on by Mr Buckley was considered by real estate professionals in the area to be “significantly in excess of the current market value”. Terralink recorded the sale as being a “non bona fide sale”.[34]
[34]Mr Buckley disputed this, saying it was a “completely above board market transaction”.
Mr Swan elected to make comparisons with similar sized properties and, in light of the resource consent required for pre-1940 structures, compared the Remuera property in its current state “with other improved properties rather than with properties that are able to be redeveloped, as of right”. Mr Buckley did not agree that the fact there was a pre-1940 structure would affect the valuation.
Mr Buckley said in his affidavit that the best method to determine the market value would be to sell the properties on the open market, given the limited availability of similar properties. In cross-examination, Mr Gardner accepted that the best method to value a property was to put it on the market. Mr Swan, when asked in cross‑examination if he was saying that putting the properties on the market was the only way to ascertain the actual market price, replied that he honestly thought “why aren’t these properties being put on the market?”

Family Court decision

Judge McHardy held that Mr Swan’s valuation was the appropriate valuation. He considered that the zoning designation would affect the value of the properties and that there were issues with Mr Buckley valuing “potential value” as against “fair market value”. Further, the fact that Mr Swan and Mr Gardner were within five per cent of each other (and Mr Buckley was not) gave weight to those valuations being in the correct range.[35]
[35]FC decision, above n 6, at [289]–[290].
The Judge was of the view that Ms Scott had raised “compelling reasons” for being able to retain the properties as part of any relationship property division so long as the clean break principle could be met.[36] However, the only reason explicitly identified by Judge McHardy was that Ms Scott operated a business from the home.[37]
[36]At [285].
[37]At [251]. Mr Williams had argued that the business was contrary to the District Plan. Ms Scott said that, if a resource consent was required, she would apply for one, leading the Judge to refer to this argument as a “red herring”.
Other arguments mentioned in the judgment were that Ms Scott offered to sell in 2007 and Mr Williams refused, before himself making an application for sale in 2011, which Ms Scott argued contained deliberate misrepresentations.[38] No specific findings were made on these matters but the Judge said:
[287] … [Ms Scott], in my view, has been genuine in her desire to get to a resolution and this has been frustrated by [Mr Williams] seemingly because of his, at times, woolly thinking which has clouded his judgment and his apparent adoption of a siege mentality which I find was not justified on the evidence. He himself accepted that there had been “flip flops” on his part as to how he saw resolution from time to time but says he did not have that on his own.
[288] This is highlighted by the misrepresentations that have been identified in his application for sale. He represented his position to be something that it simply was not – re purchase of a home for himself.
[38]At [264]–[266].
Judge McHardy held the Remuera properties should be vested in Ms Scott.[39] If, as a result of the division of relationship property, Ms Scott owed Mr Williams an amount she could not pay, however, then the properties would have to be sold.[40]
[39]At [285].
[40]At [286]. Judge McHardy did not accept that each party taking one property would be a fair result given the history of the dispute: at [287].

When the division of relationship property was first computed by the Judge in his judgment released on 20 February 2014,[41] Ms Scott would have had to pay Mr Williams just over $1 million to retain the properties. Judge McHardy gave Ms Scott two months to pay this sum. If Ms Scott was unable to pay, the properties were to be listed for sale. When the corrected version of the judgment was released on 27 May 2014, the new calculations meant instead that Mr Williams was required to pay Ms Scott $51,191.[42]
[41]See above at [13].
[42]FC decision, above n 6, at [485].
Ms Scott had also argued that the s 2G presumption in favour of valuation at the hearing date should be displaced. This was because all other residential and investment property had been valued and sold in 2011/2012. It was argued that this gave Mr Williams a benefit to which he had not contributed and that it was his conduct that had resulted in the delay to the hearing. Judge McHardy was not persuaded by this argument and the valuation date for the property remained as the date of the hearing.[43]

High Court decision

[43]At [292].

Faire J held that Judge McHardy was not justified in departing from the experts’ view that the best method of testing the true value of the properties was by ordering a sale.[44] He did not consider that Mr Williams had unreasonably refused to sell in 2007.[45] In any event, Faire J held that conduct was irrelevant unless it met the s 18A threshold of “gross and palpable” and only then to the extent permitted by s 18A(2) and (3).[46] Further, it was “unfortunate” that, when Judge McHardy first released his judgment, this showed a different financial outcome than in the recalled judgment.[47]
[44]HC decision, above n 6, at [192].
[45]At [179].
[46]At [52] and [55]. The Court of Appeal did not comment on this issue.
[47]At [192]. Earlier in the judgment Faire J had said that he was concerned that the Family Court Judge “cannot have had a clear picture of the relationship property when he made decisions such as the quantum of the s 15 award, due to the significant difference occasioned by the recalled judgment” and that he “would have expected at least some alteration to the Judge’s reasons”:
Faire J accepted that “the relative strengths of each party’s past and present associations with an asset are often the determining factor in resolving conflicting claims to that asset”[48] but considered that in the current case Ms Scott’s association did not outweigh that of Mr Williams.[49] The children were 22 and 20 at the date of the hearing and therefore Faire J placed less weight on their interests than if they had been minors or dependent children living at home. He recognised that ordering the sale would result in an inconvenience for Ms Scott and her business but this did not outweigh the positive factors in favour of a sale.[50]
[48]At [195], citing RL Fisher (ed) Fisher on Matrimonial and Relationship Property (online looseleaf ed, LexisNexis) at [18.54].
[49]At [195].
[50]At [195].
The Judge was also of the view that, given the PRA requires an equal sharing of assets,[51] if a property has the potential to have a significantly greater value, then that is what should be shared.[52] Faire J, relying on GFM v JAM,[53] noted that the properties would have increased in value since the hearing in the Family Court. Further, as in GFM v JAM, the increase in value was passive as a result of the rising Auckland property market, not the endeavours of either party. It would therefore be unjust if the windfall accrued wholly to Ms Scott. Finally, again as in GFM v JAM, Ms Scott had had the benefit of living in the home rent-free since separation.[54]
[51]Pursuant to s 11 of the Property (Relationships) Act 1976 (PRA), which provides that on the division of relationship property, each partner is entitled to share equally in the family home, chattels and any other relationship property.
[52]HC decision, above n 6, at [194].
[53]GFM v JAM [2013] NZCA 660, [2014] NZFLR 418.
[54]HC decision, above n 6, at [194], relying on GFM v JAM, above n 53, at [116]–[118].
An auction was ordered.[55] Faire J noted that Ms Scott’s available capital position when bidding at the auction would be substantially stronger than that of Mr Williams on the basis that Mr Williams would have to pay her a large sum to equalise the division of relationship property when the properties were no longer vested in her, as well as paying the s 15 order and the rates on the properties.[56]
[55]HC decision, above n 6, at [195].
[56]At [193].
Faire J did not address the issue of whether Judge McHardy’s conclusion on the valuation of the properties was correct, given his conclusion that the properties were to be sold on the open market. The cross-appeal on this issue was therefore moot.[57]

Court of Appeal decision

[57]At [197].

The Court of Appeal was not persuaded that Faire J had erred in ordering the sale of the properties. The Court noted that there was no presumption in favour of vesting orders for the family home.[58] It was satisfied that Faire J had identified four valid reasons why the Family Court had erred:[59]
(a)the PRA requires equal sharing of assets meaning that, if a property has significantly gained in value, this must be shared;
(b)the value of the properties was uncertain and the experts had agreed the best means of testing value was by ordering a sale. In addition, Ms Scott would have half the bid price, half the remaining property and the amount awarded under s 15 to bid with;
(c)Ms Scott’s association with the property did not compel vesting in preference to sale; and
(d)the Family Court Judge had not reconsidered remedies afresh when he corrected his judgment.
[58]CA decision, above n 30, at [24].
[59]At [32].
The Court of Appeal said that uncertainty in value combined with significant passive increase in value meant that, all other things being equal, a sale should have been ordered. It did not consider this was a case where the timing of other real property distributions made a difference because the other property had been distributed and therefore could have been reinvested by each party.[60]
[60]At [33].
Ms Scott had argued that it was unfair that, through the sale order, some property was in effect valued at 2016/17 (so that Mr Williams would share in post‑hearing gains) whereas other property had been valued as at the hearing date.[61] She also maintained her argument that there should be a change in valuation date to July 2011. This in her submission would ensure that the property received by the parties was valued at roughly the same time, so that one party’s share was not “skewed by the effect of the passage of time on value”.[62]
[61]At [21](c).
[62]At [36].
The Court of Appeal was not persuaded by these arguments. It said:[63]
(a)as the Court had upheld Faire J’s sale order no valuation date adjustment was required;
(b)the gain in value was due to inflation and not the effort of one of the parties and therefore should be shared equally; and
(c)Mr Williams did not acquire any advantage by acquiring his share of the matrimonial property as at July 2011 as the proceeds of the sale of the other properties prior to the Family Court hearing were divided equally.
[63]At [38]–[40].
It followed, the Court held, that there was no “skewing” by one party getting real property early and the other getting it late. Both parties got the proceeds of some real property early and both parties would get the proceeds of other real property later. There would, however, be distortion if Ms Scott alone received the gains from an inflationary rise in property values by vesting the Remuera properties at 2011 values.[64]

Parties’ submissions

[64]At [42].

Mr Goddard QC, for Ms Scott, submits that there was no proper basis for the High Court and Court of Appeal to revisit the exercise of discretion by the Family Court directing the vesting of the Remuera properties. In particular, the assumption (with no evidence) that the properties had significantly increased in value between the hearings in the Family Court and those in the High Court and the Court of Appeal was not a proper reason to order a sale. Any uncertainty in value, as demonstrated by the differences in the valuations, was the ordinary level of uncertainty inherent in any property valuation exercise. It is also unfair to value part of the relationship property at one date and the balance at another.
Ms Robertson QC, for Mr Williams, submits that the High Court and the Court of Appeal were correct to make an order for sale of the Remuera properties. The High Court identified errors in the Family Court judgment. In Ms Robertson’s submission the order for sale was rightly made in light of the large proportion the properties represented out of the relationship property pool, the requirement of equal sharing under the PRA and the fact that neither party’s association with the properties outweighed that of the other. Ms Robertson also submits that the value put forward by Mr Williams’ valuer was not an outlier and noted that the appeal against the valuation reached by the Family Court has never been determined.

Issues

I examine the reasons given by the High Court (accepted by the Court of Appeal) for overturning the vesting order as follows:
(a)Association with the properties[65]
(b)Post-hearing gains[66]
(c)Valuation issues[67]
(d)Failure to reconsider[68]
[65]See above at [32](c).
[66]See above at [32](a).
[67]See above at [32](b).
[68]See above at [32](d).
I then deal with the additional submission by Ms Robertson that conduct was wrongly taken into account by Judge McHardy.

Association with the properties

Both the High Court and the Court of Appeal considered that there were no compelling reasons for a vesting order to be made – for example young children or a high level of association with the home.[69] If those Courts considered that compelling reasons are required before a vesting order is made, I do not agree.[70] If there is reasonable opposition of one party to a vesting order or both parties want a vesting order, there would need to be a reason for a vesting order in one of the parties but I do not accept that this reason has to be compelling.[71]
[69]See HC decision, above n 6, at [195]; and CA decision, above n 30, at [31].
[70]The PRA does not prescribe how the division of relationship property is to be implemented.
[71]I accept, however, that, where both parties seek a vesting order, if there is no reason to favour one party over the other ordering a sale may be the fairer outcome.
Where possible, vesting assets in the parties is sensible. It avoids the costs and risks of sale (especially in what in some cases might be a fire sale). When the property has been the family home, the emotional needs of at least one of the parties and the children (even if adult) can be satisfied, while still, with a proper valuation process, satisfying the equal sharing provisions.
In this case the Family Court held that Ms Scott’s attachment to the home (including for business reasons) was greater than that of Mr Williams. I agree. At least by the time of the Family Court hearing, Ms Scott wanted a vesting order. This was on the basis of her attachment to the home and the fact that she was running her business from there. Mr Williams wanted the properties sold. He was thus prepared to accept having only a chance of buying them and therefore accepted the risk that the properties would be lost to both of the parties and their children. Mr Williams had also been equivocal about his attachment to the matrimonial home. He had said in an affidavit sworn in response to an application made by Ms Scott: “I have avoided entering the interior of our [Remuera] home because it has such unhappy and unpleasant memories for me”.
The Family Court Judge also considered that, because of the animosity between the parties, the two Remuera properties had to be treated as a block as it would not be appropriate for the parties to be living next door to each other. I agree this meant that, if there were to be a vesting order, it had to be for both properties.[72] Even though Mr Williams said he was going to onsell the section if he did buy it, this could not be guaranteed.

Post-hearing gains

[72]Ms Scott in any event says that the adjoining section is in fact the back garden to the matrimonial home and that both sections are used as a single residential property.

The main reason given by the High Court and the Court of Appeal for ordering sale was the need to ensure equal sharing in an inflationary market where the value of the properties was uncertain and any post-hearing gains were passive.[73]
[73]Equal sharing is required by s 11 of the PRA, set out above at n 51.
The usual date for valuation of relationship property is the hearing date.[74] Any gains or losses after the hearing date, whether passive or active, are normally not taken into account. There may be particular reasons why post-hearing gains (or losses) should be shared but, if that is so, there would need to be a valuation date adjustment under s 2G(2). I note, however, that this Court has said that, after the enactment of ss 18B and 18C of the PRA, there is less need than in the past to depart from the default position that all relationship property is valued at the hearing date.[75]
[74]Section 2G(1).
[75]Burgess v Beaven [2012] NZSC 71, [2013] 1 NZLR 129 at [25].
Both the High Court and the Court of Appeal referred to the case of GFM v JAM as authority for the approach they took.[76] If that case is authority for the general proposition that inflationary gains accruing after the date of hearing and therefore after the normal valuation date should always be shared, even if there is no valuation date adjustment, then it was wrongly decided.[77]
[76]GFM v JAM, above n 53.
[77]I make no comment on whether the outcome was appropriate in the particular circumstance in that case.
The Court of Appeal quite rightly rejected Ms Scott’s argument that the Remuera properties should be valued as at July 2011.[78] The reasons the Court gave for rejecting that argument did not, however, apply to her argument that it was unfair to order a sale because that would mean post-hearing gains on those properties were shared while the other major asset, the business, had been valued as at the hearing date.
[78]Consistent with Burgess v Beaven, above n 75, at [26].
Since the hearing date in the Family Court, Mr Williams has had the benefit of the whole of his partnership interest in the legal practice, essentially being his share of the super profits earned after the hearing date. He has therefore had funds available to use (either directly or through borrowings) to invest in other assets. That is of course quite appropriate as he had purchased Ms Scott’s share in the partnership as at the hearing date. Ms Scott, by contrast, had invested in the Remuera properties by “buying” Mr Williams’ share in the properties. Any increase in value after the hearing date in the Family Court was therefore rightly hers.
The Court of Appeal seems to have been under the impression that the proceeds from the sale of the Remuera properties are to be shared equally.[79] While that is true in the sense that all relationship property is shared equally, the actual proceeds from any sale would go substantially to Ms Scott, as Faire J recognised.[80]
[79]See above at [35]–[36].
[80]See above at [30].
In effect, by ordering a sale on appeal and therefore having the proceeds come in at a different date than the default valuation date (the date of the Family Court hearing), the High Court and the Court of Appeal were changing the valuation date without clearly indicating that this is what was being done and without explaining why the presumption of valuation at the hearing date was displaced, for only one part of the relationship property. This was not appropriate.
There would usually be unfairness in overturning a first instance decision on vesting in other than a flat market as, unless the valuation dates of other assets are changed, assets will have been valued at different dates. Thus, contrary to the views expressed in both the High Court and the Court of Appeal,[81] the sale order in this case tended to defeat rather than promote equal sharing.

Valuation issues

[81]See above at [29] and [36].

I accept that all three experts in this case said that the best means of testing value was by sale.[82] That is undoubtedly true but the logic of the position in the High Court and the Court of Appeal[83] is that equal sharing would require properties always to be sold as sale is the only way of ensuring that true market value is obtained, at least in an uncertain, rising or presumably falling market (and markets are usually one of the three).
[82]See above at [20]. The experts’ view was acknowledged by the Family Court: FC decision, above n 6, at [253].
[83]See CA decision, above n 30, at [32](b). See also HC decision, above n 6, at [192].
While different valuers can come to different views on the value of properties, I do not accept that valuations are so uncertain that a court is not able to come to a view on the appropriate valuation to apply for the purposes of s 11(1)(a) of the PRA,[84] whatever the state of the market or however unique the property in question.[85]
[84]As was said by Hardie Boys J “[w]hilst it is no doubt true that in these days of rapidly increasing property prices, any valuation can only be a somewhat transitory thing, nonetheless I am sure it is possible for a qualified valuer to place a fair figure on a property at a given date. If that were not so, there could rarely if ever properly be orders entitling one spouse to buy out the share of the other: and yet such orders are common”: Wesselingh v Wesselingh (1981) 4 MPC 210 (HC) at 211.
[85]And these properties were not unique. All of the valuers found comparators they considered suitable.
If the High Court and the Court of Appeal were concerned that the Family Court Judge may have been wrong as to the value he attributed to the Remuera properties as at the hearing date, then sale at a later date was not an appropriate means of assessing this, except if the market had been flat (and in this case, according to the High Court and the Court of Appeal, there was an inflationary market).[86]
[86]See above at [45].
The proper course if there had been a concern about the proper valuation would have been to decide whether there was an error of principle in the valuation decision (not suggested in this case) and, if not, whether the valuation reached was within an acceptable range.[87] If the valuation was outside the acceptable range, then the appropriate result was not to overturn the vesting order but to adjust the value (and therefore the amount to be “paid” by Ms Scott for the properties).
[87]It is true that this Court has said courts have consistently held that there is one market value and that this value is capable of determination by objective criteria: Worldwide NZ LLC v NZ Venue and Event Management Ltd [2014] NZSC 108, [2015] 1 NZLR 1 at [15]. However, this Court also recognised, at n 12, that “it may be somewhat of a legal fiction that there is only one market price for goods and services” and further that there may be practical difficulties in ascertaining market value, particularly where there is no established market. Valuation is not an exact science, as noted by two of the experts in the current proceedings as well as the High Court and the Court of Appeal: HC decision, above n 6, at [190]; and CA decision, above n 30, at [54].

I am not, however, suggesting that the Family Court did not value the properties appropriately. The fact that the court-appointed (and thus independent) valuer and the valuer called by Ms Scott reached values within five per cent of each other is a strong factor in favour of the Family Court finding.[88] While the valuer called by Mr Williams said he was not taking into account a possible premium over market, I would accept Mr Goddard’s submission that the flavour of what he says suggests that subconsciously he might have been.
[88]FC decision, above n 6, at [275] and [290].
Ms Robertson was critical of Mr Swan’s view that the fact the house was built before 1940 affected its value. There is, however, no indication as to how much the lack of that factor impacted the value given by Mr Buckley. Nor was there any indication in Mr Swan’s evidence as to how much this factor affected the value he reached, apart from relating to his choice of comparator properties.[89] The reason for using comparator sales is to compare like with like and it is therefore difficult to criticise Mr Swan for using comparator sales of properties that share the characteristics of the property to be valued.

Failure to reconsider

[89]See above at [19].

As to the fourth reason (that Judge McHardy did not reconsider the remedies after correcting the errors in the calculations made in the version of his judgment released earlier),[90] it seems to me, if anything, that the correction of the mistake made vesting fairer, given Mr Williams was not going to have to wait two months for his money.[91]

Conduct

[90]CA decision, above n 30, at [32](d).

[91]See above at [25].

Finally, the submission that Judge McHardy wrongly took conduct into account must be addressed.[92] While there is a passage in the Family Court judgment that suggests that Mr Williams’ conduct may have had some influence on the decision, it is not given as an explicit reason by the Judge for the vesting order.[93] For these purposes, I will assume that the Judge did take conduct into account. I do not accept, however, that the Judge’s purpose in making his vesting decision was to punish Mr Williams for any misconduct.[94] That would have been inappropriate.
[92]See above at [27].
[93]See above at [23].
[94]I agree with William Young J on this point: see at [403] of his reasons.
The fundamental point to be made regarding conduct is that it cannot be used to affect one party’s share in relationship property unless the conditions in s 18A are met. This is not to say that the consideration of conduct is not allowed where it is otherwise relevant. For example, in a decision relating to vesting, conduct could be relevant to assessing the parties’ relative attachment to a property.
I agree, however, with Faire J[95] that Mr Williams’ refusal to sell in 2007 was not unreasonable in light of the conditions attached to the offer by Ms Scott. But this does not affect the other factors supporting a vesting order discussed above. Nor does it affect the fact that a sale now will wrongly share post-hearing gains. Therefore, even if Judge McHardy did erroneously take conduct into account, this does not mean that the vesting order should have been overturned.
[95]See above at [27].
I do stress that parties should take care to introduce conduct evidence only to the extent necessary and relevant. This is not an opportunity to air irrelevant grievances. Extensive affidavit evidence was filed by both parties in this case, much of which appears to be irrelevant and should therefore not have been proffered. Judges should refuse to admit irrelevant evidence.

Summary and conclusion

A vesting order can be the simplest, most efficient and most cost-effective way of achieving an equal division of relationship property. Equal sharing can be achieved through a vesting order at an appropriate valuation. In this case the valuation was appropriate.[96]
[96]I agree with William Young J that, considering the background, the decision to vest the properties in Ms Scott was “not particularly surprising”: see at [397] of his reasons.
Valuation of relationship property is done at the hearing date. The High Court and the Court of Appeal were therefore wrong to conclude, absent a valid reason for a valuation date adjustment under s 2G(2), that a vesting order was inappropriate. In particular, they were wrong to hold that passive post-hearing date gains should be shared, particularly in a case where any benefit from other assets accrued to one party only.
For the above reasons, the vesting order made by the Family Court should not have been set aside. Consequently, the appeal on this point should be allowed and the vesting order made in the Family Court restored.

Valuation of the legal practice

Methodology in this case

The valuation method used by all of the experts called by the parties has been referred to as the “capitalisation of super profits”. It requires an estimate of the firm’s future maintainable earnings (FME).[97] There is then a deduction of a notional market salary and for tax. A multiple is applied to the remaining “super profit”. The resulting amount, adjusted for work in progress and partner current accounts, is the value attributed to the firm.[98] The retaining partner’s[99] share in the firm is then calculated. This was the method of valuation used by the Court of Appeal in M v B.[100] The valuation exercise is conducted as at the date of hearing.
[97]The future maintainable earnings can be expressed as earnings before interest, tax, depreciation and allowances (EBITDA), earnings before interest and tax (EBIT), profit before tax (PBT) or profit after tax (PAT). This figure is also often normalised for factors such as non-work related expenditure, shareholder or director salaries above or below market rates, and unusual items that occurred in the past but are not likely to impact on future earnings: Brendan Lyne and Robyn von Keisenberg “Valuation and Expert Financial Evidence in PRA Cases” (New Zealand Law Society Seminar, June 2016) at 37–38.
[98]Lyne and von Keisenberg also add surplus assets (those that are not required for the business to continue operations such as surplus cash or buildings that could be sold and leased back to the business less any costs of realising the asset) and deduct debt to find the total enterprise value: at 39. This step is not apparent in M v B [2006] 3 NZLR 660 (CA).
[99]Meaning the partner to the relationship who retains and remains working in the law firm or other business.
[100]M v B, above n 98, at [171]. It was also briefly mentioned in Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 292.
The couple[101] also shares equally in the retaining partner’s share of super profits (less tax) from the date of separation until the hearing date. This recognises that such super profits are relationship property.[102]
[101]I use this term to distinguish the parties to the relationship from the partners in a law firm.
[102]There was dispute as to the correct calculation of super profits in the Family Court but the decision of the Family Court to use the actual post-separation earnings of the firm rather than estimates was upheld by the High Court and not challenged in the Court of Appeal or in this Court: see FC decision, above n 6, at [241]; HC decision, above n 6, at [117]; and CA decision, above n 30, at [9](c).
As Faire J said in the High Court, Judge McHardy’s calculations appear to be based on an FME of $425,000 (half of $850,000[103]) minus $200,000 (the salary component).[104] This equals $225,000 which, less 33 per cent (tax), gives $150,750. The multiple of three means a valuation of Mr Williams’ interest in the partnership of $452,250, which rounded down gives a value of $450,000.
[103]Mr Williams’ share in the firm, given it is a two partner firm.
[104]HC decision, above n 6, at [81].

The FME figure used by the Family Court in the valuation exercise was not challenged in the High Court[105] and was not specifically addressed in the Court of Appeal.[106] The notional salary of $200,000 allowed to Mr Williams is also not challenged in this Court.[107] The parties still disagree on the appropriate multiple to be applied to the super profit.

Evidence

[105]HC decision, above n 6, at [68].

[106]CA decision, above n 30, at [54]–[55].

[107]The figure was subject to argument in the Family Court but upheld in the High Court: FC decision, above n 6, at [186]–[204]; and HC decision, above n 6, at [92].

Three valuers gave evidence in the Family Court. Mr Lyne was called by Ms Scott. Mr Weber and Mr Goodall were called by Mr Williams.
Mr Lyne, called by Ms Scott, used a multiple of three. He said this was consistent with M v B[108] but, in adopting that multiple, he had had regard to the relatively personal nature of the services in a smaller legal firm; the risks of the business; the dependence on the small partner group; the age of Mr Williams (and the lack of a compulsory retirement age); the substantial, established and relatively broad client base; the profitability of the firm; consistency in earnings and future prospects; and the competitive and economic environment. Mr Lyne considered three a reasonable multiple, basing this on his experience, including his own database of transactions. The resulting valuation was consistent with a “selection of sale and purchase transactions in the [range] from $45,000 to $450,000” recorded in Bizstats.[109] In particular, Mr Lyne noted a sale of a practice in June 2010 in Christchurch which sold for $500,000.[110]
[108]M v B¸ above n 98.
[109]Bizstats records sales of businesses throughout New Zealand.
[110]Mr Lyne noted that the earnings of the practice were less in that case but the goodwill was higher.
In his second affidavit, Mr Lyne said that he did not consider it plausible that a half-interest in a firm generating earnings of $425,000 per partner per year would only be worth the value ascribed to it by Mr Goodall.[111] Mr Lyne said that he would have strongly advised Mr Williams that he was “giving away significant value” had he decided to sell at this price and that, if he had been approached by purchasers to advise them, he would have told them that they were getting “a steal”.
[111]See below at [79]–[82].
Mr Lyne was asked in cross-examination about the differences between the firm at issue in M v B and Mr Williams’ firm. He accepted that the firms were different. In particular, the number of partners in the firm at issue in M v B was higher and partners are more likely to enter and exit in a bigger firm than in a smaller two partner suburban firm. Mr Lyne said he allowed for the small partner group in coming to his multiple. Mr Lyne also said that the firm at issue in M v B got the vast majority of its work through the Crown warrant, leading to all of the risks inherent in having essentially one customer or client. He noted that the dangers of such dependence had been highlighted by recent reviews of Crown warrants, including reviews of the level of fees. He accepted that there was certainty of work with a Crown warrant so long as it was retained but noted that volume and price was an issue for holders of the Crown warrant.
Mr Lyne did not consider that Mr Williams’ firm, despite its length of time in the area, relied on the partners having a personal relationship with the clients. He considered that the firm’s location, together with its efficiency and reputation, were more important in its success than personal relationships with the partners. In addition, while the clients would have a stronger relationship with one partner than the other, Mr Lyne considered that the structure of a general practitioner firm (as opposed to a boutique firm) was such that clients develop a relationship with the person actually doing the work, often the legal executive. He was satisfied that such relationships would be likely to be transferred within the firm rather than leave with a partner. He thought that there was a minimal risk of the firm ceasing on the retirement of the partners (both being of a similar age). Given the profitability of the firm, there would be a purchaser.
Mr Weber, called by Mr Williams, adopted a multiple of two, after considering the commercial and operating risks associated with the firm, the high dependence placed on the two partners for the revenue and the lack of growth potential in the medium term. He considered it likely that there was substantial personal goodwill and this was of particular relevance in a situation where there had been an amalgamation of two sole practices as recently as April 2002.
In cross-examination Mr Weber agreed that the firm was very well run and that it had maintained consistency of earnings even through the global financial crisis of 2007–2008. The firm was, however, in a well-established area with little potential for growth without further capital expenditure. He considered the growth seen over the last few years was largely a result of inflation or harder work. In his view a multiple of three implied growth, which was possible in M v B given it was a large firm. Growth was, in his view, a key factor influencing a multiple. He agreed that one would hope that there was a residual value in Mr Williams’ firm that was lacking in M v B.[112] Mr Weber also agreed that the other restrictions in M v B that led to a multiple of three being adopted, being Crown work generated at a lower level of remuneration than other firms and the relatively restrictive nature of the work, did not apply to Mr Williams’ firm.
[112]M v B, above n 98, at [93] per Robertson J.
Mr Weber said he would advise a young lawyer to pay $131,000 for the half interest in the firm. Mr Weber also said that he would advise Mr Williams to seek that sum from any purchaser. When asked whether he would advise Mr Williams to sell his interest for $131,000, however, Mr Weber said there was a difference between valuation and price and that it comes down to the value to the owner and how much he would sell his share for in light of having no further access to the asset. Mr Weber said this was a different question again.
Mr Goodall, instructed by Mr Williams after receiving Mr Lyne’s and Mr Weber’s analysis, agreed with a multiple of two. He said that the multiple is a reflection of risk: “the higher the risk, the lower the multiple”. In his assessment a multiple of two was appropriate because the firm, while well-established, attracted work through the reputation of its partners. It was not dependent on a few large clients for the bulk of its billings but, unlike M v B, a level of assured fees was not available and so the multiple adopted in that case was not appropriate. Given the personal relationship between the partners and the clients, the lower multiple of two was appropriate to reflect the potential for loss of clients for an intending purchaser of the interest in the firm.
Mr Goodall was of the view that the multiple of three adopted in M v B was broadly in line with the goodwill payable by an incoming partner into that firm on a lock-step basis and to a large degree justified the use of that multiple.[113] Mr Goodall accepted that four of the reasons relied on in M v B for adopting a multiplier of three (being the age of the husband, the Crown work at a discounted rate, the inability to sell the partnership interest and the specialised nature of the work) did not apply to Mr Williams’ firm.
[113]At [95] Robertson J used the lock-step calculation as a check. Hammond J was of the view that where there is a known lock-step, this ought to be the primary method of assessment:
Mr Goodall was asked if he would advise Mr Williams to sell his interest in the firm for $183,000 (being the updated valuation of the interest he gave). He said: “Well if it was an absolute cash sum, and walk away the answer would probably be no.”[114]
[114]From what followed in cross-examination it appears that this answer assumed a restraint of trade would be given.
In cross-examination, Mr Goodall also said the multiple chosen was “in the context of what someone would notionally pay to buy into the practice”. He said that the risk associated with the firm related to the fact that “the ability to derive those earnings is functional on both those partners continuing in the firm and working as hard as they have apparently historically done”. Mr Goodall said it was inevitable that each of the partners would have “quite a personal following” given the length of time they had each practised in the area and that there was no certainty all clients would be retained if one partner leaves. He did, however, say:
Well I would accept that if the two partners stay in practice together in the foreseeable future and they both maintain good health and so forth there would be minimal risk in terms of the ability to continue to generate, you know, reasonable sort of income.

Family Court decision

Preferring the evidence of Mr Lyne, Judge McHardy adopted a multiple of three. Overall, Judge McHardy was satisfied that Mr Lyne’s evidence reflected the actual concept (a “notional sale”) that the Court must assess, whereas the experts for Mr Williams had somewhat limited their assessment by being influenced by “what might happen in the marketplace”.[115] As well their evidence tended to “reflect more of an approach that the market place is largely determinant” and that the legal practice is a business “for which there is no market”.[116] The Judge said that the enquiry must be as to the realistic commercial value to determine “what, in the absence of a market, a person desiring to buy the legal practice would pay the applicant who is willing to sell it at a fair price but not desiring to sell”.[117] The difficulty with Mr Williams’ analysis was that “it seems to ignore that the market does include [Mr Williams], his partner Mr D and [Ms Scott].”[118]
[115]FC decision, above n 6, at [222].
[116]At [221].
[117]At [223].
[118]At [224].
In the Judge’s view, Mr Lyne’s evidence was “more comprehensive and compelling” and highlighted the flaws in the assessments undertaken by Mr Weber and Mr Goodall.[119] The Judge did not, however, totally accept Mr Lyne’s views as to the risk for the ongoing performance of the legal practice. It is a suburban legal practice and in his view there was a risk another party would set up in competition. This factor influenced Mr Weber and Mr Goodall in their assessments “but to too great a degree”.[120] Mr Williams’ half interest in the firm was valued at $450,000 and Ms Scott was therefore entitled to $225,000.[121]

High Court decision

[119]At [228].

[120]At [231].

[121]At [232].

As indicated above, the FME of the firm was not challenged on appeal.[122] The notional salary was challenged but Faire J did not depart from the $200,000 figure accepted by Judge McHardy.[123] He did, however, adopt a multiple of two rather than three. This gave a value for Mr Williams’ share of the firm of $300,000 and Ms Scott was therefore entitled to $150,000.
[122]See above at [70].
[123]HC decision, above n 6, at [92].
Faire J identified the important features and nature of the firm as a suburban conveyancing firm that relies on prior personal contact with clients for new instructions.[124] Although in theory a restraint of trade should go some distance to preserving the value of the firm, the partners themselves were the reason that the firm is so successful. This means that there was much greater risk than in the case of entry into a large partnership. The comparison Mr Lyne drew was therefore not appropriate as the risk of the firm was greater than in M v B.[125]
[124]At [102].
[125]At [103].

Faire J considered that the firm will face an issue in five to eight years as the partners seek to exit legal practice, particularly as there is no partnership development plan. This was another reason a multiple of two was appropriate: the relative brevity of the remaining length of the partners’ practising lives as against the 50 year old practitioner in M v B.[126]
[126]At [104].
Faire J said:
[105] When I weigh all these considerations, I conclude that there is a greater risk associated with the cost of acquiring this practice. Therefore a multiple of 3 is too high and the comparison that Mr Lyne drew with M v B is not appropriate. I adopt a multiple of 2.

Court of Appeal decision

The Court of Appeal agreed with Faire J’s assessment of the firm’s value.[127] The Court identified as the heart of Faire J’s assessment his disagreement with the multiple applied by Judge McHardy.[128] The Court of Appeal was satisfied that a multiple of three was incorrect. In its view, out of Mr Lyne’s seven factors[129] supporting a multiple of three, only two would support a similar multiple to M v B.[130] The Court said that Faire J considered the evidence with “considerable care” and identified the considerations going against the multiple of three.[131] Faire J then concluded that M v B was not a good comparator because a greater degree of risk would have to be factored in. Consistent with the evidence of two of the experts, Faire J adopted a multiple of two instead. The Court of Appeal did not consider his analysis was capable of being faulted.[132]

Ms Scott’s submissions

[127]CA decision, above n 30, at [53].

[128]At [53].

[129]Set out above at [72].

[130]CA decision, above n 30, at [56]. The Court did not identify these two factors.

[131]Summarised above at [86]–[87].

[132]CA decision, above n 30, at [58].

Mr Goddard argues that there is an air of unreality in the valuation of the legal practice. Under the High Court’s approach, Mr Williams would continue after the hearing date to earn income in excess of $180,000 after tax for seven years, assuming retirement at 65. Mr Goddard further submits that it is increasingly common for professionals to work to 70 or beyond.[133] In addition, Mr Williams would retain the capital value of his share in the firm when he eventually retires (assuming a sale after retirement).[134] On the approach of the High Court, Ms Scott receives a one-off payment of $150,000. In Mr Goddard’s submission, this is far from equal.
[133]This calculation was based on the super profits calculation for the six years from separation until hearing date of 31 July 2013 of $1,093,000 (after tax).
[134]Mr Goddard points out that a sale was not factored into the valuation in this case, although it was a possibility, unlike in M v B given the nature of the partnership in that case.
More generally, Mr Goddard submits that, in the case of closely held businesses such as law partnerships, a “fair market value” assessment leads to the value of such businesses being underestimated. Instead, a “fair value” assessment should be undertaken. This should be based on what Mr Williams gained and what Ms Scott gave up as a result of his acquisition of her relationship property interest in the firm. In his submission, this methodology gives better effect to the purpose and principles of the PRA. In Mr Goddard’s submission, the focus on fair market value in this case meant Ms Scott was underpaid for her share of Mr Williams’ interest in the firm.[135]
[135]For example, Mr Goddard submits that a conservative FME was arrived at. This is because the average earnings from 2007 to 2011 were used to calculate the FME, when there were increased earnings in the latter years from 2011 to 2013 and there was no indication that these higher earnings would not be maintained.
In Mr Goddard’s submission the issue should be referred back to the Family Court for valuation to be assessed on a fair value basis or, at the least, the Family Court valuation of Ms Scott’s share as $225,000 should be restored.

Mr Williams’ submissions

Ms Robertson supports the valuation of the High Court which was upheld in the Court of Appeal. The High Court set out the correct legal principles, considered the experts’ assumptions and completed a reality check as to what the firm was worth before determining the appropriate multiple of two. This, in her submission, was the correct approach. In her submission, the evidence established that, given the high dependency on the partners, there was risk in the firm maintaining the FME going forward. Nor was it clear that Mr Williams would receive the entire capital sum in an eventual sale or that Mr Williams would continue working for some years beyond his retirement age.
Ms Robertson submits that the fair market value standard is well established and Ms Scott has not raised sufficient policy or legal reasons to depart from this standard. Nor is there evidence about the fair value method before the Court. In her submission, an exercise that requires assessment of what one party has gained and the other has given up is an invitation to introduce numerous subjective and differing valuations of the same asset as denounced in M v B.[136] By contrast, the fair market value standard enhances predictability and certainty in decision-making.

Issues

[136]M v B, above n 98, at [167](b) and (c) per William Young P.

A number of issues arise from the submissions. I propose to deal with these as follows:
(a)Appropriate valuation standard
(b)Valuation methodologies
(c)Capitalisation of super profits
(d)Reliance on M v B
(e)Appropriate multiple
(f)Retirement
(g)Remission to the Family Court?
(h)Summary and conclusion

Appropriate valuation standard

Mr Lyne said that he had adopted for his valuation in this case “fair market value, which is the standard of value typically adopted in relationship property valuations”.[137] Mr Weber also used fair market value,[138] as it appears did Mr Goodall.[139]
[137]In a recent seminar, Mr Lyne said “[t]he intent of the [PRA] suggests that fair value is the applicable standard to be applied but in reality courts have consistently applied the standard of fair market value”: Lyne and von Keisenberg, above n 97, at 33–34.
[138]Mr Weber’s report was on the basis of the fair market value, defined as “the highest price available in an open and unrestricted market between informed, prudent parties, acting at arm’s length and under no compulsion to act, expressed in terms of money or money’s worth”.
[139]See above at [82]. Mr Goodall also said, however, that the value could be assessed as what
Mr Lyne, in an appendix to his first report provided in evidence, differentiates between fair market value and fair value. Fair market value is described in the appendix as the “highest price … that is likely to be able to be agreed for the property between a hypothetical willing buyer and seller in a notional open market, with neither party under any compulsion to transact”. It assumes “the existence of a notional market based on the economic conditions prevailing at the market date” and also that the property would be on the market for a reasonable period.
Fair value is described in the appendix as “distinct” and “based upon the desire to be equitable to both parties” by recognising that the transaction is not on an open market. It assumes the bringing together of a buyer and seller without other potential parties involved. At a minimum, it involves taking into account what the seller gives up and what the buyer acquires.
The aim of any valuation exercise in this context is to ensure a fair and just division of relationship property, in line with the principles and purpose of the PRA.[140] It is possible that this may require, in cases where there is no ready market, that a fair value standard be employed.[141] However, this was raised for the first time in this Court and there has therefore been no consideration of the implications of any change in valuation standard in the Courts below. I thus leave the issue open. The same applies to the issue of personal goodwill discussed below at [102].
[140]See PRA, ss 1M(c) and 1N. See also Reid v Reid [1980] 2 NZLR 270 (CA) at 272; Haldane v Haldane [1981] 1 NZLR 554 (CA) at 562; and Walker v Walker [2006] NZFLR 768 (HC) at 785.
[141]There is no suggestion that a fair value standard would use other than standard valuation methodologies. I therefore do not accept Ms Robertson’s submission (above at [94]) that it would lead to any more subjectivity than a fair market value standard, particularly where the actual market is thin.
I do, however, comment that the manner in which the fair market value assessment has been explained and applied in the leading cases means that there may in fact not be significant differences between the two approaches. This is because in any valuation exercise the retaining partner in the business is treated as a potential purchaser.[142] Indeed, both partners in the relationship can be treated as potential purchasers.[143] In order to ensure equivalence between a potential third party purchaser and the partner retaining the business, it would also be assumed that, if it were purchased by a third party, a restraint of trade would be given.[144]
[142]See Z v Z [1989] 3 NZLR 413 (CA) at 415 per Richardson J.
[143]I use this term for convenience to cover both spouses and partners.
[144]Z v Z, above n 142, at 416.
Especially where both spouses or partners are considered as potential joint purchasers, this will often lead to the same result as a fair value methodology, with the possible exception of the treatment of personal goodwill. If a fair value assessment is used it is likely that any valuation would be on the basis that the personal goodwill of the partner retaining the business would remain with the firm. Under a fair market valuation standard that may not be the case. I do note, however, that in many cases where professional practices are transferred or partners retire, there are attempts made to transfer personal goodwill through, for example, transitional consultancy arrangements.

It seems to me that, in the PRA context, excluding personal goodwill from a valuation of a professional firm may well be inappropriate.[145] The other relationship partner will have contributed, through his or her role in the relationship, to the building up of the personal goodwill.[146] Indeed, in this case Ms Scott says she had a role in marketing. If correct, this would mean that she had been, at least partially, directly responsible for any personal goodwill built up through her efforts.
[145]It is possible that different considerations may apply where a firm is not involved and the issue is the valuation of the business of a “sole trader”, such as a barrister or orthopaedic surgeon. Some of the cases on the latter are set out at [413] of William Young J’s reasons.
[146]All forms of contribution to the relationship are treated equally, whether monetary or otherwise: see in particular s 1M(b), s 1N(b) and s 18 of the PRA.
Further, the retaining partner will continue to benefit from his or her personal goodwill as long as he or she remains with the firm.[147] As I have mentioned above, when the retaining partner does retire, every effort would usually be made to pass on any personal goodwill to any incoming partner.[148]
[147]Taking account of personal goodwill in the valuation of a business does not accord with the approach taken in Briggs v Briggs (1996) 14 FRNZ 404 (HC). To the extent that Briggs was referred to by this Court in Thompson v Thompson [2015] NZSC 26, [2015] 1 NZLR 593, this was in the context of restraints of trade: see at [33]. It was not discussed in the context of valuing of a business for the purpose of the division of relationship property and it cannot therefore be taken as having decided the point.
[148]Often achieved through a lock-step arrangement.
There could also be significant difficulties in distinguishing between personal and firm goodwill. I note further that, if personal goodwill is earning capacity as William Young J maintains,[149] then it would have to be taken into account under s 15. This would increase the complexities already involved in that section.[150]

Valuation methodologies

[149]See for example at [425]–[429] of his reasons.

[150]In this case, neither the High Court nor the Court of Appeal took personal goodwill into account under s 15.

As with the valuation standard, valuation methodologies should be aimed at ensuring a fair and just division of relationship property. This means that the appropriate valuation methodology will depend on the type of business to be valued. Where a business is likely to continue as a going concern and is not very asset dependent, income based valuations, such as a discounted cash flow analysis or a capitalisation of earnings method, discussed below, may be the most appropriate methodologies.
Experts should explain in their evidence why they used a particular methodology and, where appropriate, could compare their results with other possible methodologies or market transactions. However, market transactions must be used with caution in the case of professional firms because of the thin market.

I understand that the capitalisation of super profits approach for the valuation of legal practices has become increasingly used since M v B.[151] While this can be, depending on the circumstances, an acceptable methodology, it should not be thought of as the only possible approach to valuing professional firms. If, in the particular circumstances, a different valuation method is appropriate in order to arrive at a fair and just division of relationship property, then that method should be used. The methodology and result in any case reflects the particular circumstances in that case and the particular evidence given.[152] Treating any case as binding precedent on methodology is not appropriate.[153]
[151]M v B, above n 98.
[152]See the comments of Cooke P in Holt v Holt [1987] 1 NZLR 85 (CA) at 90. See also the comments in Garty v Garty [1997] 3 NZLR 66 (HC) at 70–71.
[153]I accept, however, that there are benefits in terms of certainty and likelihood of settlement in following guidance from earlier cases, as long as the situations are sufficiently similar to justify doing so.
It is sometimes said that any valuation reached must be subjected to a “reality check”.[154] If all that means is that there should not be a slavish reliance on the results of any particular valuation methodology, then this must be correct. The judge should always consider whether the result reached by any particular methodology is fair and just. Any such “reality check” must not, however, be an arbitrary assessment by the judge but must be based on an evaluation of the evidence. The essential question is not what is the right valuation method, but what is the right result, being a result that achieves a fair and just division of relationship property.[155]

Capitalisation of super profits

[154]See for example M v B, above n 98, at [55] and [91] per Robertson J and at [171] per William Young P.

[155]Clark v Clark (1988) 4 FRNZ 567 (HC) at 574.

The capitalisation of super profits methodology is a variant of the capitalisation of earnings approach, which is in turn a simplification of the discounted cash flow analysis.[156] The discounted cash flow analysis calculates the present value of cash flows over a defined period and adds the present value of the terminal, or residual, value of the project or business.[157]
[156]In M v B, above n 98, at [170]–[171] William Young P referred to the use of Ogden Tables in England with regard to personal injury claims and described the super profit method as a variation of this approach. Ogden Tables are actuarial tables published by the United Kingdom Government Actuary’s Department to assist lawyers and judges to assess damages for loss of earnings in personal injury cases: Government Actuary’s Department Actuarial Tables with explanatory notes for use in Personal Injury and Fatal Accident Cases (7th ed, The Stationery Office, London, 2011). See also Harvey McGregor McGregor on Damages (19th ed, Sweet & Maxwell, London, 2014) at [38–070] and following for a discussion of the use of the Ogden Tables.
[157]James R Hitchner Financial Valuation: Applications and Models (3rd ed, John Wiley and Sons, Hoboken (New Jersey), 2011) at 143.
By contrast the capitalisation of earnings approach assumes that one year’s earnings, being the FME, will be generated by the business in perpetuity.[158] It is easiest applied where earnings are stable and growth is at a constant rate, whether positive or negative. As well as growth, the capitalisation rate will depend on the risk profile of the enterprise and the market overall.[159]
[158]Lyne and Von Keisenberg, above n 97, at 37.
[159]The capitalisation of cash flows method assumes that, in addition to growth, risk is constant in perpetuity: Hitchner, above n 157, at 141–142.
One commentator has described the capitalisation of super profits methodology as a:[160]
… useful method of valuation in a small business where an owner spouse works in the business and takes an income from the business. In that case, an allowance can be made for an adequate salary for the effort put in. The balance taken by the owner spouse is then described as excess profit and can be given an ongoing value on a capitalisation basis. The appropriate multiple must be arbitrarily determined in order to arrive at a final figure.
[160]Nicola Peart (ed) Brookers Family Law – Family Property (online looseleaf ed, Thomson Reuters) at [PR2G.07(5)].
A multiple should not be determined “arbitrarily”. There can be no fair and just division of relationship property if any part of the process is arbitrary. Experts must explain all their inputs, including how they arrived at the particular multiple and what it represents (for example how it relates to risk and/or growth). This means explaining the factors taken into account in deciding on the appropriate multiple with, as far as possible, an indication of how much (in numerical terms) the particular factor plays in the assessment as to the appropriate multiple. This enables the differences between the experts to be identified and an appropriate adjustment made if a judge does not accept the evidence of an expert on one or more of the factors relied on by that expert.[161]
[161]See for example DMG v RMG (2003) 22 FRNZ 745 (FC) at [45]–[48].
While regard can clearly be had to multiples used in similar cases, it must be remembered that the multiple in a particular case was chosen as a result of the evidence in that particular case and there must be some caution exercised when making comparisons between cases to ensure like is being compared with like.
The experts in this case did explain their reasoning for the multiple chosen but did not ascribe a numerical value to the factors they saw as important. Further, as noted below, the only choice given by the experts and considered by the Courts below appears to have been between a multiple of either three, as used in M v B, or two.
Mr Weber, in cross-examination, said he had never seen a multiple in excess of 3.5 used in the valuation of a legal firm, meaning that he accepted other than whole number multiples are possible.[162] If only whole numbers are considered, the multiple used makes a large difference to the valuation. Such a large difference may not be justified by the particular factors that lead to the choice of multiple. In this case, as Faire J pointed out:[163]
In short, a multiplier of 1 provides a valuation of approximately $150,000. A multiplier of 2 provides for an overall valuation of approximately $300,000 and a multiplier of 3 provides for a valuation of approximately $400,000.

What I do not see in the report is any indication that:

(a)in a case in which the division of functions in a marriage has been a contributing factor to disparity, the entire disparity is to be assumed to be as a result of such division; or
(b)an assumption that the “personal attributes, training and skills” of the career partner and the contributions they make to earning capacity are irrelevant or should, as a matter of policy, be ignored.
[545]Matrimonial Property Amendment Bill 1998 and Supplementary Order Paper No 25 (109-3) (select committee report) at 18–19.

I do not see the result proposed by the majority as required by ss 1M or 1N and, in particular principles (b) and (c) of the latter section:
(b)the principle that all forms of contribution to the marriage partnership, civil union, or the de facto relationship partnership, are treated as equal:
(c)the principle that a just division of relationship property has regard to the economic advantages or disadvantages to the spouses or partners arising from their marriage, civil union, or de facto relationship or from the ending of their marriage, civil union, or de facto relationship:

I do not see principle (b) as implying that the human capital of the career partner should be seen as attributable equally to both partners. And likewise, I do not see principle (c) as entitling the court to have regard to “economic advantages” which do not arise from the relationship but rather are associated with the natural attributes of the career partner.

Arnold J suggests that where the division of functions in a long term relationship has contributed to disparity, an argument that the disparity has also been contributed to by the career partner’s personal attributes is “incapable of rational resolution”.[546] On his approach if it can be assumed or is established that the division of functions had a causative role in the earning capacity of the career partner, the disparity assessment and resulting order for compensation should proceed on the basis that the entire disparity is because of the division of the functions.
[546]See above at [324] of his reasons.
I do not accept that an apportionment exercise of the kind proposed (and carried out in most of the s 15 cases) is irrational in the sense suggested by Arnold J. It is just one of many evaluative exercises which s 15 requires to be carried out. It is in fact very similar to the assessments of causative potency which the courts are required to make in many situations: by way of example only, when contributory negligence is raised a defence to a claim in tort.

Other problems with the application of s 15

Despite disagreeing with the majority in relation to causation and apportionment, I nonetheless accept that the application of s 15 has been problematic in practice.
The concept of “income and living standards” is uncertain. Is earning capacity a sufficient proxy for this concept? What about investment income (which the majority say is to be ignored,[547] at least if derived from assets sourced in relationship property)?[548] Does it matter that on the division of property one party actually winds up with more of the assets than the other (which is what I think happened here)? Is that to be ignored too? What significance should be attached to parental support, separate property resources, re-partnering and accepting other responsibilities in respect of children not within s 15(2)(b)?
[547]See Glazebrook J above at [260]–[262]; Arnold J above at [329]; and O’Regan J above at [390].
[548]See above at [254] and [258] of Glazebrook J’s reasons.
There is an overlap between maintenance and s 15 awards. Judicial practice as to this is reviewed in the Law Commission’s paper and has not been consistent.[549]
[549]See Law Commission report, above n 543, at [19.59]–[19.67].
Over what period of time should the s 15 calculation be carried out? As will become apparent, I would start the calculation at the time property is divided, an approach which I see as consistent with the wording of s 15(1) which applies “on the division of property” and provides for an exercise which is forward looking in nature (that is in terms of future likely standards of living and income). This language is not easily applied to circumstances as they were prior to division of property, that is as between separation and division. I regard my approach as also consistent with the commentary in the Select Committee Report:[550]
At what date is the economic disparity assessed?
The [Family Law Section of the New Zealand Law Society] asks whether economic disparity under the proposed new sections is to be determined on the date of separation or the date of the hearing. We intend that the disparity in income and living standards should be determined as at the date of the hearing. We are advised that the provision implements this intention. This is consistent with the current approach under the principal Act, which generally provides that property be valued at the date of the hearing. It would be inappropriate for a lump sum to be awarded on the basis of the position of the partners as at the date of separation. This would take no account of changes since the date of separation. For example, the applicant partner may have become employed, so removing or reducing any differences in income and living standards.

On this basis, I would see disparity in income between separation and division of property as best addressed by way of maintenance.

[550]Matrimonial Property Amendment Bill 1998 and Supplementary Order Paper No 25, above n 545, at 19.

As to end point, I consider that considerations of personal autonomy and the clean break principle require some limitation to the period of time which is taken into account. The courts, however, have not provided much in the way of principled guidance on this issue.
Because s 15 compensation is assessed on a once and for all basis and is not capable of review if the assumptions on which it is based are not borne out by events, there is a necessity to allow for contingencies. This provides at best rough justice as the reality will be that the contingencies allowed will seldom reflect the actual course of later events. Furthermore, judicial practice in relation to contingencies has not been particularly consistent. And having regard to the actuarially based Ogden Tables, it is apparent that the allowances for contingencies usually allowed by the courts are too high.[551]
[551]See Government Actuary’s Department, Actuarial Tables with explanatory notes for use in Personal Injury and Fatal Accident Cases (7th ed, The Stationery Office, London, 2011).
Judicial practice as to the factors material to what is a “just” order are reviewed in the Law Commission’s Issues Paper and once again the courts have not been consistent.[552]
[552]See Law Commission report, above n 543, at [18.71]–[18.80].
The cost of running a s 15 argument tends to be disproportionate to the likely outcomes. In part this is a result of the indeterminacy of the language of s 15. There are almost always a number of issues about which it is possible to argue and, more significantly in terms of cost, lead evidence. As well, in the absence of clear judicial guidelines, each case has to be prepared on a one-off basis.
Irrespective of whether s 15 is to be reformed, it would be worthwhile for an official agency (perhaps the Law Commission) to come up with a set of tables similar to the Ogden Tables but based on New Zealand conditions and the s 15 context. This would limit extensive and expensive evidence prepared for each case on a bespoke basis and, as well, produce what I am confident would be more accurate and structured assessments of contingencies.

The capital positions of the parties

In most cases involving s 15(1), the capital positions of the parties will be similar at the point at which property is divided. If so, and assuming that there are no other significant factors bearing on standard of living and income, s 15(1) can be applied primarily by reference to an earning capacity comparison. This is essentially what happened in the Family Court in the present case. I, however, have some reservations whether this was appropriate here.
I find it by no means easy to form an accurate view of the asset positions of the parties, and particularly that of Mr Williams, following the division of relationship property. I am, however, left with the impression that the capital position of Ms Scott on division, but prior to the s 15 adjustment, was distinctly stronger than that of Mr Williams. This is because of: (a) the inclusion of super profits in the relationship property pool; and (b) a significant proportion of Mr Williams’ assets being tied up in his business. In any event, it would be well‑open to Ms Scott to sell the Remuera properties, acquire a smaller house and have a substantial sum left over which would produce an investment income. While I accept that the inconvenience to her of shifting from the Remuera properties justified vesting them in her, I see that conclusion as more difficult to justify in a context in which she wishes to retain those properties and, at the same time, be compensated in respect of an income shortfall which she could, at least in part, easily make up with investment income if she sold the Remuera properties.
Because this line of argument was not pressed by counsel for Mr Williams I will not pursue it in these reasons. In any event, as it turns out, the point is largely taken care of by treating Mr Williams’ continuing share of the super profits of the firm as being investment income on his interest in the firm and thus not material for the purposes of the s 15 assessment. But while this achieves what might be thought to be a fairish outcome, it does so in a way which highlights the indeterminate nature of the concept of “income and living standards”. On the approach adopted, there is what I see as an arbitrary exclusion of the standard of living advantages derived by Ms Scott from living in an expensive home in Remuera and her potential investment income should she chose to sell the properties which is more or less balanced out by an equally arbitrary exclusion of the super profit component from the assessment of Mr Williams’ future income. It follows that the exercise which is carried out will not reflect reality of the income and living standards each is likely to enjoy.

Income and living standards: the relevant period

I would start the calculation at the date of hearing; this being the time of “division of property”. As is apparent, I see this as consistent with the language of s 15 and the wider statutory scheme in terms of which maintenance orders are available. I think it also reflects the reality in this case that, for the period between separation and date of hearing, Ms Scott has been credited with half the super profits of the firm (along with a not inconsiderable amount of interest). Although property, the super profits were also an income stream. This was the primary reason why Judge McHardy did not make a maintenance order.[553] If maintenance was not appropriate for the period between separation and division, I find it difficult to see why this period should be brought into account for the s 15 assessment.
[553]See FC decision, above n 498, at [474]-[479].
In assessing the earning capacity of each of the parties, I would terminate the calculations on the 65th birthday of Mr Williams. My principal reason for doing so is the need to recognise personal autonomy, particularly in the context of the clean break principle. As well, there is the practical consideration that, the longer the period of calculation, the greater the uncertainties in relation to contingencies. Both Mr Williams and his business partner have had health issues and, the more extensive the period of assessment, the greater the difficulty in allowing for associated risks. There are also other contingencies which would have to be allowed for. For instance, if the period goes past Mr Williams’ 65th birthday, there is the possibility of a reversal of disparity should Mr Williams retire and Ms Scott carry on working.
The evidence as to their ages is in fact rather vague. On the basis of what I have read, I will treat Mr Williams as turning 65 in October 2020.[554]

Mr Williams: income and earning capacity

[554]Given that I am in disagreement with the majority on the outcome of the s 15 claim, nothing turns on the precise accuracy of this assumption.

There is scope for dispute as to how Mr Williams’ income/earning capacity should be calculated. His share of the future maintainable earnings of the firm is $425,000 and it may be (as I have postulated) that this provides the most appropriate basis for calculation, albeit some allowance would have to be made for the value of the firm calculated on the basis of the capitalisation of the super profit component ($225,000) of the future maintainable earnings. On the approach taken by the majority, however, his earning capacity should be assessed as representing his salary (of $200,000), on the basis that the super profit is to be treated as the investment return on property (being his goodwill).
As will be apparent, I am prepared to go along with the approach of the majority on the basis that it is in effect a quid pro quo for not making allowance for Ms Scott’s potential investment income. I see this as resulting in an assessment of disparity based on two arbitrary but largely counter-balancing decisions.
For the reasons just given, and despite my reservations, I will proceed on the basis that Mr Williams’ earning capacity is $200,000.

Ms Scott: income and earning capacity

Ms Scott’s case, largely accepted by Judge McHardy, was that but for the division of functions in the marriage, her earning capacity would have been in the order of $330,000 a year at the time of the hearing.[555] This involved the assessment of a career which never happened and was necessarily highly contingent. I note that broadly similar issues arise in jurisdictions in which damages for loss of earning capacity are required to be assessed in respect of early stage careers that are terminated by accident. Some guidance may be obtained from the associated jurisprudence.[556] In the present case, however, this is of no moment as I see the upper end of the disparity calculation as capped by the assessment of Mr Williams’ earning capacity at $200,000 per annum.
[555]FC decision, above n 498, at [342].
[556]Reviewed in Harvey McGregor McGregor on Damages (19th ed, Sweet and Maxwell, London, 2014) at [10-080] and following.
The Judge’s assessment of Ms Scott’s actual earning capacity at $84,000 per annum was not challenged.

Valuation

The disparity which falls for assessment represents the difference between $200,000 and $84,000 per annum. I propose to value that disparity on the basis that, until Mr Williams turns 65, it represents the difference after tax between $200,000 and $84,000.
In M v B, I referred to the Ogden tables which are used in England and Wales for the calculation of damages for loss of earning capacity.[557] They are designed for use in personal injuries litigation and to some extent reflect that context: particularly in relation to the discount rates. As well, and awkwardly in the present context, the underlying data informing the tables presuppose an age of retirement for women of 60.[558]
[557]M v B, above n 522, at [170].
[558]Actuarial Tables, above n 551, at [43].
English law and practice as to discount rates in respect of damages for personal injuries reflect the assumption that the proceeds of an award will be invested in government stock with the income derived taxable and inflation thus not protected against.[559] This can result in the apparent contradiction of a negative discount rate.[560] As well, and more generally, I am at least sceptical whether a loss of earning capacity resulting from personal injury is necessarily to be treated as the same as a loss of earning capacity resulting from an agreed division of functions in a relationship, particularly as the clean break principle applies to s 15 but obviously not in personal injuries assessments. I am generally inclined to see the discount rates built into the Ogden tables as too low for s 15 purposes.
[559]See the discussion and the cases cited in McGregor on Damages, above n 556, at
[560]See for instance: Damages (Personal Injury) Order 2017 (UK).
For ease of arithmetic, I adopt a discount rate of three per cent which is the largest of the discount rates built into the Ogden tables.
Applying the Ogden tables as best I can[561] I would assess the disparity as follows:
[561]This is far from an ideal exercise as it requires some “off the tables” extrapolation which would plainly best be done with actuarial assistance (which I do not have).

Disparity assessment June 2014–October 2020[562]
Years	Period (years)	Earnings	Multiplier to retirement (mortality)	Multiplier to retirement (other)	Multipliers combined	Loss (A)
June 2014 to October 2020	6.33	$77,720.00[563]	5.37[564]	0.9[565]	4.83[566]	$375,620.76

[562]Figures in this table are rounded whereas the calculations were undertaken with non-rounded figures; this may lead to some minor discrepancies.

[563]This figure was reached by taking the salaries of both parties and using the Inland Revenue’s “Tax on Annual Income Calculator” <brc2.ird.govt.nz> to give after tax figures and then taking the differential. Thus: $200,000 after tax is $143,080; $84,000 after tax is $65,360; and the difference between $143,080 and $65,360 is $77,720.

[564]Multiplier for loss of earnings to pension age 65 (males) at 3 per cent, assumes 59 years old: Actuarial tables, above n 551, Table 9 .

[565]This is an “off-table” estimation, premised upon Table A, Actuarial Tables, above n 551, at 17. Note was taken of this warning: “Tables A to D include factors up to age 54 only. For older ages the reduction factors increase towards 1 at retirement age for those who are employed and fall towards 0 for those who are not employed. However, where the claimant is older than 54, it is anticipated that the likely future course of employment status will be particularly dependent on individual circumstances, so that the use of factors based on averages would not be appropriate. Hence reduction factors are not provided for these older ages”: at [42]. Mr Williams was categorised as “D” due to his education and as “employed”. The 0.9 multiplier adopted was extrapolated from this data.

[566]The “current approach” to dependency was adopted: see Actuarial Tables, above n 551, generally at [52]–[59]; and specifically at [60]–[63]. Mr Williams’ multipliers were calculated as shown in the table. Ms Scott’s multiplier on this approach was 5.44: see Multiplier for loss of earnings to pension age 60 (females) at three per cent, assumes 54 years old: Table 8 at 43. No additional adjustments were made at step (6). Pursuant to step (7) the lower multiplier is to be used, hence 4.83.

On this basis, the earning capacity differential is $375,620.76. Half of this is $187,810.38.

A just order

I would fix compensation at $188,000.

Solicitors:
Tompkins Wake, Hamilton for Appellant

North Harbour Law, Auckland for Respondent

at [367].

at [10].

at [230]–[232]. As there was no lock-step in place in this case we do not need to decide on the appropriateness of using the lock-step, either as a check or a primary methodology.

Mr Williams might be prepared to pay to retain his interest in the firm.

at [309]–[310] on this issue. The diminution and enhancement methods also involve to some degree hypothetical earning figures. Mr Goddard’s methodology does involve some uncertainties as to future earnings but it works from known figures (current earnings of both parties). In this regard, it is better than the methodologies currently used.

at [279]–[292]. See also [356] of Elias CJ’s reasons where she agrees with [323] of Arnold J’s reasons.

at [234]–[235]. Mr Goddard recognises that half of the sum calculated under his expectation methodology should be a cap so that there is not reverse disparity created: see below at [230].

Ellen France JJ. It is apparent that I take a different view from that of the Chief Justice as to what was decided in X v X: see at [340]–[341] of her reasons. The Court in that case endorsed an approach of calculating diminution since separation: see X v X at [132] per Robertson J and [177], [184](b) and [226] per O’Regan and Ellen France JJ. I do agree that a maintenance order could be made for the period between separation and date of hearing but I do not agree that this is the only option. If a maintenance order is made, then it would of course need to be taken into account when considering any application made under s 15, as I set out at [200].

at 182–188.

at [190]–[195].

at [96]–[97].

NZFLR 514 (HC).

[38‑118]–[38‑125].

[2017] NZSC 185

11 December 2017