Thaller v Trotter
[2016] NZHC 1508
•4 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-179 [2016] NZHC 1508
BETWEEN EWALD THALLER
Plaintiff
AND
STEPHEN DAVID TROTTER AS TRUSTEE OF THE STEPHEN TROTTER TRUST
Defendant
CIV-2015-404-444
BETWEEN EWALD THALLER Applicant
ANDSTEPHEN DAVID TROTTER First Respondent
STEPHEN DAVID TROTTER AS TRUSTEE OF THE STEPHEN TROTTER TRUST
Second Respondent
Hearing: 23 - 26 November 2015 Appearances:
G A Ireland for Plaintiff/Applicant
J H Hunter and V M Young for Defendant/RespondentsJudgment:
4 July 2016
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 4 July 2016 at 2.15 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
THALLER v TROTTER [2016] NZHC 1508 [4 July 2016]
[1] This judgment determines disputes between the Plaintiff, Mr Thaller, and the
Defendant, Mr Trotter, as to the extent and division of their relationship property.
[2] The principal matters in dispute are:
(a) Whether each party is entitled to share equally in all or just some of
the assets of a farming partnership they established in 1996
(“partnership”). The asset in dispute under this heading is a residential property in Auckland of which Mr Trotter is and always has been the registered proprietor (“Epsom property”); (b)
Whether Mr Thaller has an interest in “Oakdale”, a 535 acre farm in
Northland. Mr Trotter is the registered proprietor of Oakdale in his capacity as trustee of the Stephen Trotter Trust (“trust”). Mr Thaller contends that he is entitled to a half share in the property; (c)
The extent, if any, to which a debt the trust owes Mr Trotter is
relationship property; (d)
Whether any adjustments are required for post-separation
contributions or whether there are extraordinary circumstances making equal sharing repugnant to justice; and (e)
Whether Mr Trotter should be removed as trustee of the trust and one or more others appointed in his place.1
[3]
Mr
Thaller’s main proceeding is brought pursuant to the Property
(Relationships) Act 1976 (“Act”). In the other proceeding, Mr Thaller claims against Mr Trotter as trustee and, in particular, seeks a declaration that Mr Trotter holds Oakdale as constructive trustee to the extent of a one half share for Mr Thaller.
Mr Thaller also seeks to remove Mr Trotter as trustee.
1 Trustee Act 1956, s 51 and the inherent jurisdiction of the Court.
Background
[4] The parties commenced a de facto relationship in early November 1993, living together until they separated 20 years later, in April 2013. They met in London, where Mr Thaller, who is from Germany, was studying and Mr Trotter working. Mr Thaller was 26 at the time and Mr Trotter 35. They relocated, or in Mr Trotter’s case returned, to Auckland in 1994.
[5] Mr Thaller was employed in New Zealand on a part time basis from October
1995. Mr Trotter is a qualified accountant and was in full time employment from early 1995.
[6] Mr Thaller had no assets at the time the relationship commenced. In fact, he had a (student) debt. Mr Trotter, however, was already well established. He owned the Epsom property and had repaid all debt associated with it, and his evidence was that he also had approximately $500,000 in cash or shares. All of this was separate property under the Act.
[7] The parties lived in the Epsom property, and so it was their family home, from early 1995. Important events thereafter are:
(a) Mr Trotter’s settlement of the trust and its acquisition of some residential units (“units”) for $400,000 in 1995. The units were owned by Mr Trotter’s mother and she lent $230,000 to the trustees to assist with the purchase. Mr Trotter advanced the balance of
$170,000 to the trustees from pre-relationship funds.
(b)The parties’ formation of a partnership in December 1996 (whilst continuing in employment), the principal business of which was raising livestock for sale. Mr Thaller dissolved the partnership by notice on 31 August 2013. There is no written deed of partnership. Subject to my determination in respect of the Epsom property, it is agreed that each party has an equal interest in partnership assets.
(c) The parties’ purchase of a 50 acre farm in Warkworth (“Wyllie Road”) as tenants in common, with Mr Trotter holding an 85/100 share and Mr Thaller a 15/100 share. This division reflected Mr Trotter’s greater financial contribution to the purchase. Mr Trotter’s solicitors drafted a property sharing agreement at about the time the parties purchased Wyllie Road but it could not be signed without Mr Thaller first taking independent legal advice, which he did not do.
(d)In late 1998, the assignment or transfer by Mr Trotter of the debt the trust owed his mother to the partnership, so that the debt became a partnership liability. It is not possible to establish, from the financial records, why or how this was done but all concerned have proceeded on the basis that the transfer was effective and I shall do likewise.
(e) The purchase of Oakdale in 2001.
(f) The parties’ relocation to Oakdale in 2008 and the introduction of the
Epsom property to the capital account of the partnership.
(g)The sale of Wyllie Road in late 2013. The proceeds of sale have been divided equally.
[8] Both parties are intelligent and hard working and, whilst together, they largely applied their income to the acquisition of the assets to which I have referred. Mr Trotter arranged and kept the records of their financial affairs, and prepared their financial statements, income tax and GST returns. To the extent that the couple consulted lawyers in relation to their affairs, Mr Trotter gave the instructions and conducted the communications.2
[9] It is common ground that Mr Thaller left the detail of the parties’ financial
affairs to Mr Trotter and that he relied on Mr Trotter to structure matters to mutual benefit.3 I accept Mr Thaller’s evidence that he did not understand the possible
2 Evidence of S D Trotter, Notes of Evidence at 219.
3 At 218.
consequences for him of one form of ownership over another. This is significant as regards Oakdale, given that Mr Trotter holds it as trustee.
Separation
[10] Both parties agree that the relationship was “rocky” for a long period prior to separation. In 2004, Mr Thaller registered Notices of Claim under the Act against the certificates of title to the Epsom property and Oakdale. The parties experienced further difficulties in August 2011 and early 2013, and they separated in or about April 2013. Mr Trotter remained at Oakdale and Mr Thaller moved to Wyllie Road.
Evidence
[11] I heard evidence from both parties and from Mr Brendan Lyne, an expert accountant called by Mr Thaller. Some of Mr Trotter’s affidavit evidence, particularly as regards Oakdale, was in the nature of opinion or submission and therefore inadmissible. Moreover, in several instances the witnesses’ affidavit evidence of important financial transactions was inaccurate and/or almost incomprehensible.4 This has made it more difficult to resolve the dispute between the parties.
[12] I turn now to determine the competing claims.
Partnership assets/Epsom property
[13] The Epsom property was the family home and therefore relationship property from 1995 until some time in 2008. In the course of 2008 the parties left Auckland and moved to Oakdale permanently. Their household effects and contents were likewise moved and the Epsom property was let to tenants and thus earning an income.
[14] The Epsom property was introduced to the partnership as capital in the year ended 31 March 2009. This was done so that the income from the Epsom property
could be set off against the partnership’s losses, and the parties’ collective income
4 As an example of the latter, refer to the Narrative Affidavit of S D Trotter sworn 13 August 2014 at [35] to [37].
tax thereby minimised. Having observed the parties, I am satisfied that it would have been Mr Trotter who decided to do this, but I am also satisfied that Mr Thaller would have agreed in principle to any step likely to result in a reduction of income tax. In any event, from 31 March 2009, the income from the property (net of expenses such as rates, insurance and depreciation) was included as partnership income and the asset was included in the balance of the partnership capital account.
[15] The parties’ cases as to division of the Epsom property or its value come
down to this.
[16] Mr Trotter’s case is that the Epsom property had ceased to be the family home, and had reverted to separate property, at the time it was introduced to the partnership. Counsel for Mr Trotter submits that the Epsom property remains recognisable as Mr Trotter’s separate property.
[17] Mr Thaller’s primary contention is that the Epsom property was the family home, and so relationship property, at the date of its introduction to the partnership. It is common ground that Mr Thaller must succeed if he is correct in this regard. But, if he does not, his submission is that, regardless, each member of the partnership is entitled to share equally in the Epsom property, and each partner’s (equal) share is relationship property subject to equal division, as it is property
acquired after the relationship commenced.5
Was the Epsom property the family home at the date it was introduced to the partnership?
[18] This question gives rise to two separate enquiries. The first enquiry concerns the date when the Epsom property ceased to be the family home and the second concerns the date when the Epsom property was introduced to the partnership.
[19] The answer in respect of this first enquiry is relatively clear. The family home is:6
5 Property (Relationships) Act 1976, s 8(1)(e).
6 Section 2.
(a) … the dwellinghouse that either or both of the … partners use habitually or from time to time as the only or principal family residence …
[20] On this definition the Epsom property ceased to be the family home at some time between August and late November 2008. Both parties were living at Oakdale by August 2008, and preparing to let the Epsom property. They renovated a bathroom at the property in or about October 2008, with the partnership meeting some or all of the cost, the parties had their household contents moved in early November 2008 and the property was tenanted and earning income from late November 2008. Hence the timeframe to which I have referred. If residence is the critical issue (as appears from the definition), then I find that the Epsom property ceased to be the family home in August 2008.
[21] The answer in respect of the second enquiry is less clear. An (undated) journal entry that Mr Trotter prepared does not assist. It records the fact, but not the date, of introduction.
[22] Mr Thaller submits that the Epsom property must have been introduced to the partnership by 1 June 2008 (at which point it was the family home), because the partnership financial statements to 31 March 2009 include nine months’ depreciation. I accept the submission for Mr Trotter that this is not conclusive, however, because the notes to the statements indicate that it may have been intended to claim only six months depreciation (that is from 1 October 2008), and that the claim to what was in effect nine months’ depreciation was the result of a mathematical error.
[23] Mr Trotter, on the other hand, relies on the fact that the property came into the balance sheet at a value notified in a local body valuation dated 20 October 2008. That is not determinative either, however, because the valuation was effective as of
1 July 2008; and in any event it is apparent from the journal entry to which I have referred that Mr Trotter was simply adopting the value of the property at the time it was tenanted – November 2008.
Partnership financial statements etc
[24] Counsel for Mr Thaller also relies on the financial statements for the partnership and the parties’ income tax returns, and Mr Lyne’s evidence regarding what might be deduced from these documents. The gist of this submission, which I accept, is that it may be inferred from these documents that the parties were to share equally in all partnership property, including the Epsom property, following the date of its introduction.
[25] The partnership balance sheet included a joint capital account, recording an opening balance, any capital introduced during the year, and a closing balance. The account also included the parties’ drawings so essentially it is a combined capital and current account. It did not reflect individual contributions or the source of capital. Mr Lyne’s evidence is that such occurs when partners are differentiating their respective interests in a partnership. This presentation of the balance sheet did not alter after the Epsom property was introduced to the partnership.
[26] Mr Lyne was also questioned regarding changes to the division of partnership profit and loss.
[27] Up to and including 31 March 2009, partnership profit/loss – and it was a loss in every year up to 31 March 2012 – was apportioned 85 per cent to Mr Trotter and 15 per cent to Mr Thaller. This apportionment was consistent with the ownership proportions of Wyllie Road but it also meant that the bulk of the loss was attributed to Mr Trotter, thereby reducing his income tax. Mr Trotter’s income tax always exceeded Mr Thaller’s prior to 2008, because he was earning more.
[28] However, the parties altered the apportionment to 50/50 in the year ended
31 March 2010, being the first full year in which the Epsom property was reflected in the financial statements. Each 50 per cent included the net income from the Epsom property, including depreciation whilst it could be claimed, and each party returned their 50 per cent in their income tax return.
[29] I consider that change to equal division significant. The reapportionment of earnings might not be conclusive on its own but Mr Lyne’s evidence was that a
taxpayer could only claim depreciation if and to the extent he or she held a beneficial interest in the asset. As each partner claimed 50 per cent of the depreciation, I infer that they considered each partner was entitled to a 50 per cent share in the asset, no more and no less.
[30] I also take into account Mr Lyne’s evidence that the partnership – and therefore the individual partners in equal shares – met costs associated with the Epsom property. As counsel for Mr Trotter submits, many of the costs were in the nature of income expenses, such as rates, insurance and so on. However, there was some capital expenditure on re-carpeting and repairs, in addition to the work to the bathroom referred to above. That too is consistent with each of Mr Thaller and Mr Trotter having an equal share.
[31] Mr Trotter’s submission at trial was that I should not read anything into the presentation of the financial statements and tax returns because they were compiled with a view to minimising income tax. I do not accept this submission. Mr Trotter prepared the financial statements and returns, and both he and Mr Thaller confirmed that the returns were true and correct at the time they were submitted. They are bound by them.
[32] Taking all of these matters into account, I am satisfied that each partner was to have an equal share in the assets of the partnership, including the Epsom property. It does not matter particularly whether that was because it was the family home at the time it was introduced or because that is what they must be taken to have agreed.
[33] Given this conclusion, it is unnecessary for me to address Mr Thaller’s alternative claims pursuant to s 9A(1) and/or 9A(2), which were made in the event that I determined that the Epsom property was Mr Trotter’s separate property. Mr Thaller’s best claim under these provisions was in respect of s 9A(1) and, specifically, to a half share in the increased value of the Epsom property – post October 2008. Any application of relationship property/qualifying actions by Mr Thaller prior to then was de minimis.
Oakdale
[34] Mr Thaller and Mr Trotter started to look for a larger farm in late 2000, the partnership activities having outgrown Wyllie Road. Mr Thaller’s evidence was that he and Mr Trotter looked at about nine farms before deciding on Oakdale.
[35] Mr Trotter executed the agreement to purchase Oakdale in late 2011 and then nominated the trustees, being himself and his father, as purchasers. The purchase was settled on 7 December 2001. The purchase price was $865,000. Mr Trotter Snr died in 2003.
[36] Mr Thaller knew at some point that the trust was the legal owner of Oakdale but his case is that, whatever the arrangements as to legal ownership, his expectation from the outset was that he and Mr Trotter would each have half the beneficial interest in the property, and that is what he seeks.
[37] Mr Trotter’s case is that Mr Thaller has no interest in Oakdale, beyond that of any discretionary beneficiary of the trust.
[38] The claims Mr Thaller pressed most forcefully at trial were for relief on the grounds that Mr Trotter had nominated the trustees as purchasers of Oakdale in order to defeat a future claim by him under the Act (see s 44), alternatively for a declaration that Mr Trotter holds Oakdale on behalf of Mr Thaller to the extent of a
one half share.7
[39] I am satisfied that Mr Thaller succeeds under s 44. Given that, it is unnecessary for me to consider Mr Thaller’s alternative constructive trust claim, or his claim pursuant to s 44C of the Act (compensation for dispositions of relationship property to a trust) or for a declaration that the powers conferred on Mr Trotter by the trust deed comprise a “bundle of rights” which themselves are relationship
property.
7 Thaller v Trotter CIV-2015-404-179.
Purchase of Oakdale
[40] The trustees met the purchase price by selling the units and applying the proceeds of sale of $595,038 to the purchase. Also, the BNZ lent Mr Trotter
$250,000 – personally on the basis of Mr Lyne’s evidence, although the advances are recorded in the trust financial statements as if made to the trustees. The BNZ’s advances were secured against the Epsom property, then the family home, and so, as Mr Lyne also says, relationship property was put at risk. Mr Trotter’s evidence, no doubt correct, is that a loan to him secured against the residential property attracted a lower interest rate.
[41] At the time of the purchase, Oakdale was leased to a third party, potentially until 2007 or 2008. Following settlement, the lessee paid its rent to the trust. The lessee surrendered part of the farm in 2003 and all of it from late 2004, and from then on the partnership had possession and paid rent to the trustees. Mr Lyne calculated that the partnership paid total rent of $326,500 up to 31 March 2013. There was no written lease from the trustees to the partners and no valuation obtained as to the current market rent. Mr Trotter’s recollection was that the partnership paid the same or slightly less rent than the earlier lessee.
[42] The BNZ loans were fully repaid by 31 March 2006. The source of the funds to repay would have comprised rent received from the lessee and relationship property (in the form of Mr Trotter’s salary), totalling approximately $120,000. Mr Trotter’s salary in 2002 and 2003 was advanced to the trust.
[43] Between 2004 and 2012 the partnership also paid approximately $130,000 (subject to minor and immaterial disagreement about some items) for various capital
improvements to Oakdale.8
8 Affidavit of B C D Lyne sworn 9 December 2014, Schedule 11. Works included undergrounding electricity cables; modest improvements to the dwelling; creating and/or maintaining farm tracks; purchasing materials for new fences and erecting the same; and laying concrete in the cattle yard.
Section 44
[44] Section 44 of the Act provides:9
44 Dispositions may be set aside
(1) Where the High Court … is satisfied that any disposition of property has been made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person (party B) under this Act, the Court may
… make any order under subsection (2) of this section.
...
(2) In any case to which subsection (1) of this section applies, the Court may, subject to subsection (4) of this section, —
(a) Order that any person to whom the disposition was made and who received the property otherwise than in good faith and for valuable consideration … shall transfer the property or any part thereof to such person as the Court directs; or
(b) Order that any person to whom the disposition was made and who received the property otherwise than in good faith and for adequate consideration … shall pay into Court, or to such person as the Court directs, a sum not exceeding the difference between the value of the consideration (if any) and the value of the property; or
…
(3) For the purposes of giving effect to any order under subsection (2) of this section, the Court may make such further order as it thinks fit.
...
[45] It follows that I may make an order under s 44(2) if Mr Thaller establishes:
(a) that there was a disposition of Oakdale by or by the direction of
Mr Trotter to the trustees; and
(b) that the disposition was made in order to defeat Mr Thaller’s claim or
rights under the Act. Knowledge of a consequence may be equated with an intention to bring it about.10
9 Section 44(4) is irrelevant and may be disregarded.
10 Ryan v Unkovich [2010] 1 NZLR 434, [2009] NZFLR 948 at [33].
[46] There is no issue as to (a). Mr Trotter “disposed” of Oakdale to the trustees by nominating them as the purchaser and thereby directing the vendor to transfer Oakdale to them.11 The issue is as to (b), and whether the disposition was made in order to defeat Mr Thaller’s claim.
In order to defeat
[47] At the time of the disposition, Mr Thaller was soon to have rights under the Act in the event of separation. The Bill extending the application of the Act to de facto couples received Royal Assent in April 2001, and that extension took effect from 1 February 2002. Section 44(1) is construed to encompass a disposition intended to defeat a future claim which, in this case, was to exist within a matter of
months.12
[48] I did not find Mr Trotter’s denial of knowledge of the amendments to the Act to be plausible. He was an experienced accountant, the amendments to the Act were well publicised, and they would have been of particular interest to the parties. Also, Mr Trotter had instructed Mr Porus to act on the acquisition of Oakdale. Mr Porus is an experienced and respected commercial lawyer in Auckland and I am confident that he would have drawn Mr Trotter’s attention to the amendments, if Mr Trotter were unaware of them.
[49] Mr Trotter also accepted in cross-examination that he knew it would be more difficult for Mr Thaller to claim a share in Oakdale if it were owned by the trustees.
[50] I am also satisfied that it was expected from the outset that the partnership would farm the land. Mr Trotter’s affidavit evidence was intended to convey that there was some uncertainty about this, and that it was only at the time the lessee surrendered the land in about 2003/2004 that he, Mr Trotter, asked Mr Thaller “if he
wanted to be part of the farming enterprise” on Oakdale.13
11 Re Polkinghorne Trust (1988) 4 NZFLR 756, (1988) 3 FRNZ 636 at 640.
12 Ryan v Unkovich, above n 10.
13 Narrative Affidavit of S D Trotter, above n 4, at [59].
[51] I do not accept this evidence. I accept Mr Thaller’s account that it was intended from the outset that the parties would farm the land. The whole point of the purchase was to accommodate the expanding farming operations. Indeed, Mr Thaller’s evidence was that Oakdale was one of the first farms that he and Mr Trotter considered but that they were deterred by the fact that they could not have immediate possession, given the lease.
[52] The essence of Mr Trotter’s response to Mr Thaller’s claim under s 44 was that Mr Thaller knew that the trustees were to purchase Oakdale, that the trustees purchased Oakdale as an investment and that he and Mr Thaller did not have the financial resources to purchase the property.
[53] As to the first point, Mr Thaller did know that the trustees were to purchase
Oakdale but I also accept he:14
[10] … was under the impression from what Steve told me and how he operated the trust that as we were beneficiaries of the trust the fact that the purchase was to be made in the trust’s name was irrelevant ...
[54] As to the second point, there is no evidence that the trustees purchased Oakdale as an investment. There are no minutes of trustee meetings or resolutions recording the purchase. There is no evidence that the trustees obtained any valuation advice. Nor is there evidence that Mr Trotter Snr was actively engaged in a search for an investment property. Mr Thaller’s recollection was that Mr and Mrs Trotter Snr inspected Oakdale once, essentially as interested parents, after Mr Thaller and Mr Trotter had decided upon it. Nor is there any reference to Mr Trotter Snr as a purchaser in the two letters from Mr Trotter to Mr Porus in advance of the acquisition. Nor, as I have said, was there a lease in place from the trustees to the partnership.
[55] As to the lack of financial resources, Mr Lyne considered the parties might have financed a purchase of Oakdale. One scenario he proposed was that they continued to lease the land (even after the original lessee surrendered the lease)
whilst remaining in their employment for a further period whilst they reduced debt.
14 Affidavit of E Thaller sworn 20 June 2015 at [10].
[56] I consider the parties might have financed the purchase in other ways. They might have sold all or part of Wyllie Road. Mr Trotter’s evidence was that they wished to retain Wyllie Road but it may be Mr Thaller would have been willing to sell Wyllie Road if that were the only way of purchasing a larger property.
[57] Another possibility was that the trustees might have agreed to sell the units and lend the proceeds of sale to the parties. In evidence Mr Trotter dismissed this possibility on the basis that he, as trustee, would not have agreed to it. That decision, however, was one for Mr Trotter and his father to make as trustees, in the best interests of the beneficiaries. The evidence at trial was that, by 2001, Mr Thaller and Mr Trotter no longer wished to manage the units, as they had been doing, and which had proved to be time consuming. Accordingly, the trustees might well have been amenable to a sale and a loan.
[58] Also, Mr Trotter accepted that he did not have a discussion with Mr Thaller as to whether they could finance a purchase of Oakdale, or some other property if Oakdale was beyond them, or why they could not afford it and why the trustees would buy it as an investment and so on. There was no reason not to be candid with Mr Thaller if Mr Trotter were really of the view that the parties could not finance the purchase.
[59] Having observed Mr Thaller, and having considered the financial statements for the partnership, I do not consider that he would have been willing to farm Oakdale unless he had a beneficial interest. The parties incurred substantial losses in their partnership operations. Mr Lyne’s evidence was that such losses are commonplace and typically recouped by substantial capital gain when the underlying land is sold. I asked Mr Lyne what advice he might have given if Mr Thaller had asked him whether he should proceed to farm the land without having a beneficial interest in that land. The essence of Mr Lyne’s evidence was that he would have discouraged Mr Thaller from doing any such thing because there would be no benefit to him.
[60] Taking all of these matters into account, I am satisfied that Mr Trotter nominated the trustees as purchaser of Oakdale in order to defeat Mr Thaller’s claim or rights under the Act.
Section 44(2) and (3)
[61] Having reached this conclusion, I may make an order under s 44(2) of the
Act. The relevant parts of s 44(2) and (3) (repeated for convenience) provide:
44 Dispositions may be set aside
(2) In any case to which subsection (1) of this section applies, the Court may, subject to subsection (4) of this section, —
(a) Order that any person to whom the disposition was made and who received the property otherwise than in good faith and for valuable consideration … shall transfer the property or any part thereof to such person as the Court directs; or
(b) Order that any person to whom the disposition was made and who received the property otherwise than in good faith and for adequate consideration … shall pay into Court, or to such person as the Court directs, a sum not exceeding the difference between the value of the consideration (if any) and the value of the property; or
…
(3) For the purposes of giving effect to any order under subsection (2) of this section, the Court may make such further order as it thinks fit.
[62] The trustees did not receive Oakdale in good faith. I make no criticism of Mr Trotter Snr but I am satisfied Mr Trotter received the property as trustee intending to defeat any subsequent claim by Mr Thaller. That lack of good faith means that I may make an order pursuant to s 44(2)(a) or (b).
[63] Valuation evidence commissioned by the parties for trial valued the property at $1,990,000 excluding GST if any, as of 7 July 2015. Assuming a sale at that price, the increase in value between the date of purchase and the date of valuation is
$1,125,000. Part of this increase will reflect the parties’ improvements, effected by the application of their labour to work such as fencing, and expenditure which, as I have said, totalled approximately $130,000.
[64] I have considered whether I should apportion the increase in value between the trustees on one hand and the parties on the other, taking into account the extent to which each was the source, directly or otherwise, of the purchase price; the cost of the improvements; and the trust’s receipt of all rent. I do not, however, consider it appropriate to adopt that course given the trustees’ lack of good faith. In those circumstances, the trustees should not share in the increase in value, or at least the share I consider due to Mr Thaller.
[65] Given that, I consider the proper order would be for the registered proprietor of Oakdale, whether Mr Trotter or Mr Trotter and his father’s executor if there has been no transmission, to transfer the property to Mr Thaller and Mr Trotter as tenants in common in equal shares, subject to a debt back to the trustees, in the sum of
$595,038 being the proceeds of sale of the units.15 By my calculation the rent that
the parties have paid to the trust is broadly equivalent to interest at six per cent on that sum. Accordingly, no further order for payment of interest would be required, unless rent has ceased to be paid since separation. In that case provision would need to be made for payment of interest. The trustees should also have security if wished. As appears at the end of this judgment, I refrain from making any orders at present but in principle this is what I consider is required.
Debt due from trustees to Mr Trotter
[66] As at 31 March 2013 – so essentially the date of separation – the trust owed
$223,681 to Mr Trotter. This sum includes $120,000 that Mrs Trotter or her family trust distributed to Mr Trotter, and which he lent to the trust in November 2012. Mr Thaller agrees that part of the debt is Mr Trotter’s separate property, leaving a balance of $103,681. The issue to be determined is whether that balance is relationship or separate property.
[67] Counsel for Mr Thaller submitted that the debt reflected the disposition of relationship property to the trust, and that it should be required to compensate the
parties under s 44C. Counsel for Mr Trotter submitted that any such relationship
15 Property (Relationships) Act, s 44(2)(a) and (3).
property had not been “disposed of” but rather was in a different form, that is the
debt owed.
[68] I accept that submission. In my view the debt is an asset acquired after the relationship began and so is relationship property by virtue of s 8(1)(e), subject to ss 9(2) to (6), 9A and 10 of the Act.
[69] The balance sheet of the trust’s financial statements as of 31 March 1996 records that the opening balance of the debt was $163,278. This represents the funds that Mr Trotter lent to the trustees, from his pre-relationship separate property, for the purchase of the units. Movement in the balance of the debt thereafter is said to reflect:
(a) the partnership’s assumption of the liability to Mrs Trotter, which is reflected in an increase in the debt of $202,147 in 1998;16
(b)advances from the parties (whether directly or in payments from the partnership) totalling $131,000 in round terms. This sum excludes the advance of Mr Trotter’s salary between late 2001 and 2003, which I have treated as part of the purchase price for Oakdale;
(c) an advance from Mr Trotter to the trustees of $57,717 in 2002. These funds derived from a sale by Mr Trotter of shares in Macquarie which appear to have been his separate property;
(d) advances by the trustees to the parties of $209,130;17 and
(e) forgiveness of debt by Mr Trotter of $27,000 in each year from 1996 to 2013, being 18 years, totalling $486,000.
[70] Although counsel for Mr Trotter submitted that many of the advances
referred to above derived from Mr Trotter’s separate property, in fact the only
identifiable separate property is the opening balance and the proceeds of sale of the
16 As I have already said, I am not able to comprehend the accounting treatment of this liability.
17 Affidavit of B C D Lyne affidavit, above n 8, at [132](c), (d) and (e).
Macquarie shares. Mr Trotter has long since forgiven those sums, alternatively they have been so intermingled with relationship property that it is impossible now to recognise them.
[71] To conclude, Mr Trotter must have the $120,000 to which I have referred. The balance of the debt is relationship property and subject to equal division.
Other assets
[72] Subject to the above, it is agreed that the balances of bank accounts, including a Kiwisaver account, at the date of separation, the value of shares held in publicly listed companies and any dividends received thereon, and the value of motor vehicles are to be divided equally.
Extraordinary circumstances
[73] Mr Trotter counterclaimed for an order dividing the parties’ relationship property on an unequal basis.18 This order is sought pursuant to s 13 of the Act, which provides:
13 Exception to equal sharing
(1) If the court considers that there are extraordinary circumstances that make equal sharing of property or money under section 11 or section
11A or section 11B or section 12 repugnant to justice, the share of each spouse or partner in that property or money is to be determined in accordance with the contribution of each spouse to the marriage or
of each civil union partner to the civil union or of each de facto partner to the de facto relationship.
(2) This section is subject to sections 14 to 17A.
[74] The extraordinary circumstances relied on may be summarised as follows.
[75] First, Mr Trotter brought the Epsom property and what he estimated to be
$500,000 to the relationship.
18 Thaller v Trotter CIV-2015-404-444.
[76] Secondly, Mr Trotter was in full-time employment until July 2008, whilst Mr Thaller was employed part-time, and Mr Trotter earned a substantially higher income that Mr Thaller throughout. Mr Lyne calculates that Mr Trotter earned approximately $734,000 and Mr Thaller, including superannuation and a redundancy payment, $343,000.19 Mr Thaller also had the benefit of the rental income from the units and the Epsom property when it was let.
[77] Mr Trotter also considers that he worked much more diligently than Mr Thaller in their joint endeavours, that he took fewer holidays, and that he was also responsible for all of the accounting work.
[78] Counsel for Mr Trotter referred me to numerous cases in which the Court has been required to determine whether extraordinary circumstances exist so that one party should have a greater share in the relationship property.20 I have considered all of those cases. As counsel herself rightly acknowledged, a case for unequal sharing is not easily made out, particularly in a relationship of 20 years duration. This case falls well short, for the following reasons.
[79] I am satisfied that – looked at in the round – contributions to the relationship were largely commensurate. It is often the case that one partner earns substantially more than the other and it is not uncommon for one to be in full-time employment and the other in part-time. On the basis of the evidence before me, both parties were committed to their joint endeavours and particularly the farming partnership. To the extent that Mr Thaller worked fewer hours in paid employment, I am satisfied he made up for it with assistance in running the household and other enterprises. For instance, Mr Thaller moved to Oakdale six months before Mr Trotter so in that period all of the work on that farm fell to him. I am also satisfied that the successful result achieved on the post-separation sale of Wyllie Road was due in large part to
Mr Thaller’s endeavours, admittedly whilst Mr Trotter was working on Oakdale. I
19 See schedules 1 to 4 inclusive of the Affidavit of B C D Lyne sworn 9 December 2014.
20 De Malmanche v De Malmanche (2002) 22 FRNZ 145 (HC); Castle v Castle [1977] 2 NZLR 97 (SC); Martin v Martin [1979] 1 NZLR 96 (CA); Johnston v Johnston HC Auckland CIV 2004-
404-005565, 28 June 2005, per Venning J; Joseph v Johansen (1993) 10 FRNZ 302 (CA); I v I (1994) 12 FRNZ 490 (DC); Wilton v Crimmons (2003) 23 FRNZ 357 (DC); Brenssell v Brenssell (1995) 13 FRNZ 572 (HC).
do not propose to make any award in Mr Thaller’s favour in respect of that property.
Overall I am satisfied that the contributions were equivalent.
[80] This essentially leaves the financial contribution that Mr Trotter made through the assets he introduced at the outset. Again, it is not unusual for one party to have a residential property at the time a relationship commences and for that to become the family home and subject to equal division. The Epsom property had been the family home for 13 years when it was introduced to the partnership. I do not consider any provision for Mr Trotter is required in respect of that asset.
[81] Nor do I consider the additional $500,000 in cash and shares adds to Mr Trotter’s claim. Of this sum, Mr Trotter advanced $170,000 and $57,000 (being the proceeds of sale of Macquarie shares) to the trustees. His forgiveness of those debts was a matter for him. He also introduced $130,000 to the partnership as capital on the purchase of Wyllie Road. It was open to Mr Trotter to make that a loan requiring repayment but he did not. Again, that was a matter for him.
[82] I have also taken into account what I consider to be Mr Trotter’s favouring of his own position, or his family’s, in some respects. I have already referred to the circumstances in which Oakdale was purchased and Mr Trotter’s lack of candour with Mr Thaller.
[83] Another instance arises in respect of the debt owed to Mrs Trotter. There was some dispute at trial about whether interest was payable on this debt. It was not unreasonable to pay interest given that Mrs Trotter’s loan has always been repayable on demand. What is noteworthy, however, is that as at the date of separation Mrs Trotter’s debt had still not been repaid. In fact, since the debt was assigned to the partnership, the parties have paid interest on it at six per cent per annum, totalling (on Mr Lyne’s evidence) some $191,000 up to and including 31 March 2013. The fact that the debt has been outstanding for so long is in marked contrast to Mr Trotter’s very prompt repayment of all third party debt, such as that owed to the BNZ.
[84] It follows that I am not persuaded that this is a case where extraordinary circumstances make equal sharing repugnant to justice. I decline to make the order sought.
Adjustment for post-separation contributions etc
[85] Mr Trotter seeks an adjustment for post-separation contributions. In principle I am satisfied that each party should have some financial recognition of the work they have undertaken in the partnership operations since separation, and I would expect that Mr Trotter will be entitled to the greater recognition given that he remained on Oakdale. Account will also need to be taken in respect of the use and application of relationship property since separation, with appropriate allowance for reasonable expenses.
[86] On the evidence before me, I am not able to make any determination as to what provision for these items should be made but I expect the parties to seek to resolve the point without the assistance of the Court.
[87] Mr Thaller did not seek recognition of his post-separation contributions in respect of Wyllie Road if he was to have an equal share in the various assets in dispute. Given that, I put this claim to one side.
Appointment of new trustees
[88] Mr Thaller sought a declaration that the trust is a “sham” or “illusory”.21 I am not satisfied that such a declaration is warranted but I accept counsel for Mr Thaller’s submission that it is expedient to appoint a new trustee or trustees in substitution for Mr Trotter.22 Many of Mr Trotter’s actions have been inconsistent with his duties as a trustee. By way of example Mr Trotter has, wrongly, approved payments to himself during the period in which he has been the sole trustee.23
Moreover, a trustee is required to act in the best interests of the beneficiaries of the trust and to act impartially. I am not satisfied that Mr Trotter is capable of fulfilling
these obligations, as Mr Thaller is a beneficiary of the trust.
21 Thaller v Trotter, above n 7.
22 Trustee Act 1956, s 51. The trust deed does not provide a minimum number of trustees.
23 Deed of Trust Stephen Trotter Trust dated 24 November 1995, cl 12.1.
[89] The trustee or trustees to be appointed in substitution for Mr Trotter is a matter on which I shall require the assistance of counsel.
Result
[90] Each partner has an equal share in the assets of the partnership, including the
Epsom property. Each share is relationship property and subject to equal division.
[91] Mr Trotter disposed of Oakdale to the trustees in order to defeat Mr Thaller’s claim or rights under the Act. In the absence of some alternative order agreed by the parties, the registered proprietor of Oakdale is to transfer the property to Mr Thaller and Mr Trotter as tenants in common in equal shares, subject to a debt back to the trustees in the sum of $595,038.24 Interest is payable at six per cent per annum in the circumstances to which I have referred. The trustees are to have security over Oakdale if they wish.
[92] Of the debt due from the trustees to Mr Trotter as of 31 March 2013,
$120,000 is Mr Trotter’s separate property. The balance is relationship property.
[93] No extraordinary circumstances exist rendering equal sharing repugnant to justice.
[94] The parties are to endeavour to agree:
(a) an appropriate payment for work each has undertaken in the partnership operations since separation; and
(b)the sums due from one to the other in respect of the use and application of relationship property since separation, with appropriate allowance for reasonable expenses.
[95] I have not made orders for the sale of any assets. The parties may seek to agree how assets are to be sold or otherwise.
24 Any alternative order is to be advised to the Court by 4 pm, 1 August 2016.
[96] It is expedient to appoint another trustee or trustees in place of Mr Trotter. The parties should consider who might be suitable and file a memorandum or memoranda in that regard on or before 1 August 2016.
[97] I reserve leave to apply.
[98] Having succeeded, Mr Thaller is entitled to an award of costs and disbursements. The parties may file memoranda if they are unable to agree.
..................................................................
Peters J
Solicitors: LawWorks, Auckland
Glaistor Ennor, Auckland
Counsel: J H Hunter, Auckland