Shailer v Shailer

[2017] NZHC 2871

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIŌEA ROHE

CIV 2017-454-58 [2017] NZHC 2871

UNDER	the Property (Relationships) Act 1976
BETWEEN	WAYNE LAWRENCE SHAILER Appellant
AND	DENISE MINNIE SHAILER Respondent

Hearing:	13 November 2017
Counsel:	J Maassen and S Clark for Appellant G Mason for Respondent
Judgment:	22 November 2017

JUDGMENT OF SIMON FRANCE J

[1]      Mr and Mrs Shailer separated on 7 November 2012 after being married for

30 years. They were partners in a farming operation that operated through a series of partnerships and trusts.   The couple finally settled their relationship property arrangements on 31 August 2016, although agreement was reached earlier.

[2]      A matter left unresolved was whether Mrs Shailer should receive interest on her share of the relationship property for the period from separation to settlement. This matter went to the Family Court which awarded five per cent per annum.1  Mr Shailer

appeals.

1      Shailer v Shailer [2017] NZFC 5777.

SHAILER v SHAILER [2017] NZHC 2871 [22 November 2017]

Facts

[3]      The  farming  enterprise  operated  through  three  entities.    A  partnership consisting of Mr and Mrs Shailer owned some of the farm land and the stock.  There was then a family trust which owned the balance of the land and a trading trust which carried out the farming activity. The partnership and the family trust leased their land to the trading trust, and the partnership bailed the stock to the trading trust. The trading trust then had a share milking contract with the Shailers’ son.  As I understand it,

Mr Shailer  was  also  employed  full  time  working  on  the  Trust’s  farming  and contracting activities, while Mrs Shailer was employed part time to keep the books. She otherwise worked as a nurse.

[4]      This arrangement continued after the separation. Mrs Shailer moved out of the family home (owned by the partnership) and for a period lived in a beach house owned by family entities.  In 2015, following the repayment of her share of a debt owed to the Shailers by the family trust, Mrs Shailer bought a house in the district.

[5]      The partnership continued to receive its usual income for its leased assets and this income was credit to each partner’s capital account in the normal way.  Over the approximately three year period of the separation, Mr and Mrs Shailer were each credited with $111,743 income, and tax was paid on that.

[6]      Mr Shailer continued to live in the family home, and as noted continued to work on the farm on the same basis as he always had.  From the outside, little would seem different. It is apparent the couple always had it in mind that if matters could be agreed, the farm would stay in the family. It would be taken over by Mr Shailer alone or in some sough of arrangement with his son(s).  Ultimately Mr Shailer bought out Mrs Shailer’s half of the partnership assets which were valued at an agreed date by an agreed process.

[7]      The pay out to each partner was $686,502.70.  However, the interest awarded by the Family Court was awarded on a lesser sum to reflect that Mrs Shailer had use of $88,931.84 of partnership funds during the period.  For completeness, I note that throughout the period the couple charged expenses to the trading trust. When the final

partnership accounts were done, the partnership reimbursed the trust over $300,000 in relation to these expenses.

Interest on one party’s share

[8]      The parties were agreed on the relevant principles which are captured by this extract from the judgment under appeal:2

The payment of interest on property arises where there is a gap between the point at which an interest in division of property arises, typically separation, when the entitlement to a share of particular property fixes because time can pass between the point of identifying an entitlement to property and the quantification of that entitlement, and payment out, the fair resolution of property interests requires consideration of the advantage received by a spouse who has held [possession] of property to which the other spouse is entitled.

[9]      In Wicksteed v Wicksteed, Priestly J observed:3

I accept that an award of interest may in some circumstances represent an appropriate exercise of the judicial discretion under s 33 to compensate a part who has been denied or kept out of his or her entitlement. As Fisher (op cit) rightly points out:

Compensation for the interim loss of the use of the capital involved, and for the effects of inflation, is equally appropriate to both judgments and orders.

In this context, the terms “judgment” and “order” may well be interchangeable.

[10]     In the present case, Mr Shailer disputed any award of interest primarily on the basis that it would be double counting since both partners equally received income from the partnership assets during the period of separation. It was argued the effect of an award of interest would be to transfer his partnership income over the period to Mrs Shailer, and thereby create an unjustified disparity.

[11]     Given this primary submission it is convenient to set out the Family Court’s treatment of the partnership income issue, and its reasoning on the payment of

interest:4

2      Shailer, above n 1, at [5].

3      Wicksteed v Wicksteed [2002] NZFLR 28 (HC) at [55].

4      Shailer, above n 1, at [13]–[14] (footnote omitted).

[13]      The applicant appeared to have received income from the partnership, as asserted by Mr Maasen.  The applicant denied receiving that money.  She agreed that the farm paid for her vehicle expenses.  The way that a similar amount of final income was credited to the partners accounts tends to prove that that income was assigned. There is no evidence it was paid.  I accept the evidence of the applicant that it was not paid. The credit has evaporated from the individual partnership accounts.

Conclusion on interest

[14]      Bearing in mind that the authorities referred to specifically focus the entitlement to interest on a conceptual framework of capital preservation, there is no basis to refuse an award of interest.  The applicant seeks payment in respect of settlement funds in the sum of $686,502.70 at the rate of 5 percent from 7 May 2013 which is six months after separation, until the date of judgment.  She accepts that the sum of cash taken by her at separation should be deducted from the sum upon which Mr Shailer is to pay interest. The rate sought  is 5 percent.   That is  a reasonable rate, for a  reasonable  period. Although Mr Mason conceded that a lower rate could be considered, upon standing back and considering the totality of events, I consider that there is force in his submission that the rate is not unreasonable given the move in property prices over the applicable period.

[12]     Mr Shailer maintains on appeal the award of interest is wrong.  The whole of para [13] of the judgment is challenged as being incorrect.  The partnership income could not, and did not, evaporate.  Accounting evidence was called at the hearing to show that its treatment was orthodox and that it benefited each partner equally.  It is noted that money now payable to Mrs Shailer as a consequence of the award of interest at five per cent is roughly approximate to Mr Shailer’s gross share of the partnership income.

[13]     It is submitted that once the issue of partnership income is properly addressed, capital preservation cannot provide a basis for awarding interest since the capital was producing income credited to Mrs Shailer during the period.

Decision

[14]     As Mr Mason emphasises, the appeal is from an exercise of discretion.  He points to the observations of the Court of Appeal in Rose v Rose:5

We do need to explain our approach to interest. The appellant sought an order that the order made by the Family Court (that interest run from the date of the Family Court hearing to date of payment at six and a half per cent on any sums

5      Rose v Rose [2007] NZCA 406, [2008] NZFLR 167 at [89]–[90].

unpaid) stand but that the respondent should pay interest at nine per cent from the date of this Court’s judgment until payment.

Section 33(4) of the Act gives the court a wide discretion to order the payment of interest and there is no specified limit on the rate of interest.  In this case, Judge Grace concluded that interest should be fixed at six and a half per cent per annum.  The Judge in setting that rate treated the period in question as being “reasonably stable” from an economic perspective (at [102]).  We see no good reason for departing from the approach taken by the Family Court and so reject the appellant’s suggestion that a higher rate is warranted.

[15]     The reference in that passage to s 33(4) is a reference to the ancillary powers provision in the Property (Relationships) Act 1976 which provides:

(4)       Where under any order made under this Act one spouse or partner is or may become liable to pay to the other a sum of money, the court may direct that it shall be paid either in 1 sum or in instalments, and either with or without security, and otherwise in such manner and subject to such conditions (including a condition requiring the payment of interest) as the court thinks fit.

[16]     There are aspects to para [13] of the judgment under appeal that are open to challenge.  The doubts inherent in the reference to apparent income, the observation that the evidence “tends to prove it was assigned”, and the statement that there was “no evidence it was paid” are not consistent with the clear documentary evidence, bolstered by evidence from the accountant, that indeed all these things did happen. Mr Mason submitted that all the paragraph was saying was that Mrs Shailer did not get the money in her hand.  Even if that were so, and it is not an obvious reading, it is an incorrect analysis if its import is to say Mrs Shailer did not get the benefit of the money.  Nor is the concept of evaporation correct for the same reasons.

[17]     In my view the Court’s treatment of the receipt of income by the partnership during the period was incorrect. How much it informed the Court’s decision to award interest is open to debate but I consider it is appropriate for me to reach my own view on the matter.

[18]     Mrs Shailer’s case is that the realities need to be looked at.  Mr Shailer was able to carry on as if nothing had changed.  He continued to do the same work on the same basis, continued to live in the same house, and in the end acquired all the farming enterprise.  In the interim she moved out of the family home, was never going to be the owner of the farm and had to re-establish herself. During that time although overall

inflation was low, nationally house prices rose dramatically.6  Purchasing a new home is the thing a person almost always has to do after separation and Mrs Shailer was no exception.  It is submitted that independent of any issue of what was happening with the partnership assets during the separation, these realities support an award of interest for Mrs Shailer being “out of her capital” for the three years of separation.

[19]     I agree, and consider that these are no doubt the considerations that underlie the Family Court decision.  I do not accept Mr Maasen’s underlying proposition that the discretion under s 33(4) to award interest must be tied directly to preservation of capital or countering inflation.  They are certainly reasons for awarding interest, but there is nothing in the language of s 33(4) nor the authorities to so strictly limit it. The task is to achieve a just and equal outcome, and it is fact specific.7   It was submitted, for example, that it was irrelevant to the analysis whether Mr Shailer or a third party acquired the farm, but I do not agree. The reality here is that throughout the three year period all the arrangements always had in mind that Mr Shailer would acquire the farm, and that is relevant to whether Mrs Shailer should receive interest for being out of her capital for this period. The fact that income was received by the partnership on its asset during that period is certainly a relevant factor but does not prevent an award of interest. For the reasons summarised earlier I agree with the Family Court that it is an appropriate outcome here.

[20]     The appeal is dismissed.  The respondent is entitled to an award of costs for a standard appeal together with reasonable disbursements to be fixed by the Registrar if

necessary.

Simon France J

6      The figure provided was 46 per cent, although no figures for the Palmerston North area were provided.

7      See, for example, the comments of Priestly J in Wicksteed, above n 3, at [41].