Tracey v Tracey
[2024] NZHC 3960
•20 December 2024
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2023-488-90
[2024] NZHC 3960
IN THE MATTER of an appeal of a decision made pursuant to section 21J of the Property (Relationships) Act 1976 BETWEEN
DAVID REGINALD TRACEY
Appellant
AND
CAROL RAE TRACEY
Respondent
Hearing: 7 March 2024 Appearances:
S Henderson and T Edwards for the Appellant A Kennedy for the Respondent
Judgment:
20 December 2024
JUDGMENT OF ROBINSON J
This judgment was delivered by me on 20 December 2024 at 10:00 am pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors:
Henderson Reeves, Whangārei Just Law, Kerikeri
TRACEY v TRACEY [2024] NZHC 3960 [20 December 2024]
Introduction
[1] On 2 September 2006, after 14 years together and 12 years of marriage, David Tracey and Carol Tracey entered into a relationship property agreement (the Agreement) pursuant to s 21 of the Property (Relationships) Act 1976 (the PRA). At that time, their marriage was still a happy one. Unfortunately it broke down almost 15 years later in July 2021.
[2] In a reserved judgment dated 23 August 2023, Judge Howard-Sager in the Family Court at Kaitaia determined that the Agreement should be set aside.1 Although the Judge was satisfied that the requirements of s 21F of the PRA had been complied with, she was also satisfied for the purposes of s 21J that giving effect to the Agreement would cause serious injustice.
[3]Mr Tracey appeals.
Background
[4] Much of the factual background is not in dispute. It is set out at paragraphs [8]–[33] of Judge Howard-Sager’s judgment.
[5] Mr and Mrs Tracey met in December 1992. They were both separated from former partners and had been through relationship property settlements. Mrs Tracey has two children from her previous relationship. Mr Tracey has three. They have no children together.
[6] Around Easter 1993, Mrs Tracey moved to Mr Tracey’s family farm in Tracey Road, Kaitaia. The farm has been in Mr Tracey’s family since the late 1800s. They resided in a home (the Cottage) which Mr Tracey’s father built just after the War in 1948. Mrs Tracey describes the Cottage as being in poor condition and says that living in it contributed to her poor health. Mr Tracey disputes that the Cottage was in such poor condition, but accepts that very little had been done to it since it was built. In any event, Mrs Tracey says that Mr Tracey promised her that he would renovate the
1 Tracey v Tracey [2023] NZFC 9125 [Judgment].
Cottage. Mr Tracey acknowledges that he assured Mrs Tracey he would do so when financial circumstances permitted.
[7] Mr and Mrs Tracey married in March 1994. In that year, Mrs Tracey started a new business exporting flowers to Japan. Mr Tracey enabled his farm to be used as security for Mrs Tracey’s small business loan of $60,000. She set up sheds and a hot house in which to grow the flowers. Mr Tracey assisted by building tables, irrigation and a packing shed. In 1995, Mrs Tracey opened a florist shop in Kaitaia. She says that in 2013, as a result of poor health, she sold that business for the value of the stock. She retained the wholesale flower growing side of the business which she operated until 2021. Her income was minimal. Mrs Tracey confirmed in oral evidence that this business was hers and the income from it was her separate income.2
[8] Mr Tracey worked on the farm and ran an agricultural contracting business in Taupo. His evidence is that he paid for everything relating to the farm and met the household expenses.3
The Agreement
[9] In 2006 Mr Tracey arranged for his solicitor to draft a s 21 agreement. There was some debate as to why the agreement was prepared at this time.4 Mr Tracey’s position is that he and Mrs Tracey had agreed at the outset of their relationship to sign a contracting-out agreement and always conducted their affairs on that basis. The Judge found that the decision to do so in 2006 was prompted by the need to raise finance to build a new family home on the farm property.5
[10] Mr Tracey’s solicitor drafted the Agreement. As noted, the Judge found that it had complied with s 21F of the PRA.6 It is in writing and has been signed by both parties, their signatures have been witnessed, and the lawyers who witnessed the signatures have each certified that they had explained to their respective clients the effect and implications of the Agreement. In the Family Court, Mrs Tracey claimed
2 Judgment, at [14].
3 Judgment, at [15].
4 Judgment, at [16].
5 Judgment, at [133].
6 Judgment, at [91].
that s 21F had not been complied with because she had not received adequate independent legal advice. She said she had only one meeting at Mr Tracey’s solicitor’s office before signing the Agreement and taking it across the road to another solicitor for him to witness her signature. However, the Judge found that the narration on the invoice from Mr Tracey’s solicitor supported his evidence that he and Mrs Tracey met with his solicitor twice. In that regard the Judge found Mrs Tracey was mistaken, but made no criticism of her for that.7
[11] After the second meeting with Mr Tracey’s solicitor, Mrs Tracey took the Agreement to another solicitor. His invoice records that he advised Mrs Tracey of the “presumption of equal provision under the [PRA]”, and that the Agreement was “extremely unequal”. Mrs Tracey remembers being advised that the Agreement was extremely unequal. Mrs Tracey recalls the solicitor wanting to know why she was signing it. He advised her not to do so. When he did, he prepared a disclaimer which Mrs Tracey signed.
[12] The Judge noted that there were no valuations provided to support the values attributed in the Agreement to Mr Tracey’s separate property at the commencement of the relationship and at the time the Agreement was signed. To this extent, Mr Tracey’s solicitor was not in possession of all relevant information. However, the Judge found that the solicitor’s advice against signing the Agreement was robust, and valuations would likely only have strengthened that advice.8 The Judge found that Mrs Tracey had received adequate independent legal advice but chose to sign the Agreement contrary to that advice.
[13]I set out the contents of the Agreement at [20]–[30] below.
The New Home
[14] In 2008, the parties built a new home on the farm property. They designed, furnished and decorated it together. Although the farm property is in Mr Tracey’s
7 Judgment, at [74].
8 Judgment, at [89].
name only, Mrs Tracey was also a borrower under the loan and mortgage documents they entered into to finance their new home.
[15] In 2016 Mr Tracey renovated the Cottage at a cost of approximately $40,000. It was initially rented to a friend. In 2017 and 2018 Mrs Tracey says she cleaned up the Cottage and paid for repairs, renovations and a heat pump before renting it out as an Airbnb. She paid Mr Tracey $250 a week plus power to enable her to use the Cottage in this way.
[16] In 2020 Mr Tracey’s daughter and her family moved into the Cottage. Soon afterwards, Mr Tracey and his daughter put an “offer” to Mrs Tracey, so that she could receive her share of the property in accordance with the Agreement. This appears to have come about because Mr Tracey says he also offered Mrs Tracey a lifetime interest in the house and hot house complex. He offered her the choice of which house she wished to live in. He offered to pay Mrs Tracey $51,600, which was his calculation of what she would be entitled to under the Agreement. He says he was offering to implement the terms of the Agreement because his daughter and her family had moved to the farm with the intention of buying it. Mr Tracey says he wanted to ensure that Mrs Tracey was looked after, whilst giving his daughter a pathway into purchasing the farm.
[17]Mrs Tracey rejected the “offer”.
[18] In 2021, Mrs Tracey installed a tiny house on the property next to the Cottage. She was intending to use it to operate a crystal healing business.
[19] In March 2021 Mrs Tracey became very unwell. She required surgery and spent seven days in hospital. Shortly after her return home, the relationship between Mr and Mrs Tracey deteriorated. The parties agree that they separated in July 2021, although they continued to live in the same home until Mrs Tracey moved out in March 2022.
The Agreement
[20] The Agreement records that Mr and Mrs Tracey wished to enter into a contracting-out agreement pursuant to s 21 of the PRA with respect to the status, ownership, and division of their property (including future property). Mr Tracey’s evidence is that they both had bad experiences at the end of their previous relationships, which is why they agreed at the outset that they would each keep their property separate.
[21] Mr Tracey’s property with ascribed values as at the date of the commencement of their relationship is set out at cl 2.3.1 of the Agreement, while Mrs Tracey’s property at that time is set out at cl 2.3.2. Mr and Mrs Tracey’s property, with values as at the date of the Agreement (20 September 2006) are set out in schs A and B respectively.
[22]Clause 2.3 of the Agreement provides as follows:
It is agreed by the parties that for valuation purposes the use of the land value provided by Parkinson Valuation in July 1994 and the book value for livestock, machinery and values as at 30/6/93 which coincided with the commencement of their relationship will be used. These are as follows:
2.3.1 David’s Assets as at the Commencement of the Relationship
Land & buildings situated at Tracey Road… being
220.5739 hectares in the name of DR Tracey $380,000.00
Cattle $70,493.00
Sheep $24,926.00
Pigs $1,858.00
Plant & Equipment $11,913.00
Vehicles $22,657.00
TOTAL $511,847.00
David’s Liabilities as at the Commencement of the Relationship
Bank overdraft $19,815.00
Term Loan $4,428.00
Bank Loan $63,508.00
Creditors $5,649.00
TOTAL $93,400.00
Note: Valuations as at the date of this Agreement noted in Schedule A
2.3.2 Carol’s Assets at the Commencement of the Relationship
Vehicles $2,500.00 Cash in bank account
$7,500.00
TOTAL
$10,000.00
2.4 It is acknowledged by the parties that at the commencement of their relationship David’s assets less liabilities totalled $418,447.00 and Carol’s assets with nil liabilities totalled $10,000.
[23] The 220.5 hectares in Mr Tracey’s name is held in two titles. One title is in respect of 41.4 hectares on which the family home and the Cottage is situated. The other is in respect of 179.1 hectares. The property has been valued at $1,950,000 as at 24 February 2022.
[24] The Agreement provides that all the property set out at sch A is Mr Tracey’s separate property, and all the property owned by Mrs Tracey as set out in sch B was Mrs Tracey’s separate property. In particular, cl 2.2 provides that:
The property at Tracey Road, Victoria Valley as listed in Schedule A is David’s separate property. David and Carol are currently residing in this property. Carol acknowledges that with the exception of a share outlined in clauses 2.3, 2.5.1, 2.5.4 and 2.5.5 the use of the house as a farm residence is not intended to create any beneficial interest in the property for Carol and she agrees not to lodge a caveat against the property now or at any stage in the future, nor bring any proceedings to any Court in law, in equity or under the [Act] claiming any interest in the property except as outlined in the clauses named in this paragraph.
[25] The Agreement also provides that in the event of separation or the death of either party, each party would be entitled to the amount of their assets as at the commencement of their relationship, with Mr Tracey assuming sole responsibility for repayment of his liabilities. The parties also acknowledge that Mrs Tracey would not have to repay any fuel card expenses funded by the farm or Mr Tracey’s contracting business which she had incurred for reasonable household purposes. They otherwise agreed:
2.5.4 That any balance [left] over after the separate contributions are accounted for and after David’s liabilities are paid (as noted in Clause
2.3.1 and 2.3.2) will be divided and repaid to the parties as to a 95% to David and 5% to Carol and this unequal division is made in recognition of the fact that David owned the farm prior to the commencement of the relationship and in recognition of the fact that Carol has been exercising her opportunity to conduct her plant growing business on the farm property and to operate her florist business known as Fresh Flowers for her own benefit to be held as her separate property.
[26] Schedule A sets out all the property that would be classified as the separate property of Mr Tracey, with the following approximate values as at 20 September 2006:
ASSETS APPROXIMATE VALUES
1. Farm situated at Tracey Road, Victoria Valley $900,000.00 2. [Livestock]
60,000.00
3. Farm plant & chattels including vehicles, 4 tractors, 3 [seedsowers], 1 [hay baler], 1 excavator, 2 trailers,
1 utility, 3 small trucks and 1 4-Ton truck
309,000.00
4. Sovereign Life Insurance policy on the life of [Mrs Tracey] (payable only on death)
100,000.00
5. 1317 Affco shares [at] 0.39 c/share as at 1/9/06
513.63
6. 130 AMP shares as at NZD $10.68/share
1,388.40
7. 130 HHG PLC (AMP) shares [at] AUS $230/share as at 1/9/06
373.75
8. ANZ Business Account in the name of [Mr Tracey]
30,000.00
9. Personal chattels
TOTAL
$1,311,275.70
LIABILITIES
1. ANZ Mortgage – Farm finance
60,000 (approx)
2. Marac Finance (3 tractors)
[84,000]
TOTAL
$144,000.00
TOTAL EQUITY
$1,167,275.07
[27] As the Judge noted, the Agreement contains mathematical errors. The total value of Mr Tracey’s assets based on the approximation was $1,401,275.70, not
$1,311,275.70.9 So, Mr Tracey’s total equity as at the date of the Agreement was
$1,257,275.70, not $1,167,275.70.10
[28] In sch B of the Agreement, Mrs Tracey’s separate property was listed and valued as follows:
ASSETS 1. [Vehicle]
6,000.00
2. Personal cheque account
100.00
3. Business chattels & plant[,] 1 shade house and potting shed situated on the Victoria Valley property together with sundry chattels including water pump,
500 gallon water tank, sprayers and sundry florist equipment including the hot house placed on the farm…together
with a chiller and a packing shed
25,000.00
4. Business consisting of [Mrs Tracey’s florist shop] including shop, plant & chattels
[nil]
5. Sovereign Life Insurance policy…on the life of [Mr Tracey] (payable only on death)
$100,000.00
6. Personal chattels
TOTAL
$131,100.00
LIABILITIES
1. ANZ Mortgage
28,000.00
2. ANZ Business account
9,500.00
3. ANZ Credit card debt
7,000.00
4. AMEX Credit card debt
7,000.00
TOTAL
$51,500.00
TOTAL EQUITY
$79,600.00
[29] The Agreement therefore recognised that at that point in time, during the course of their 14 year relationship (and 12 year marriage), Mr Tracey’s equity in the assets he owned at the commencement of the relationship had increased by $838,828.70,
9 Judgment, at [106].
10 Judgment, at [108].
from $418,447 to $1,257,275.70. Mrs Tracey’s total equity had increased by $69,600 from $10,000 to $79,600 (although without the $100,000 ascribed to the value of the insurance policy on Mr Tracey’s life, Mrs Tracey’s net equity in her separate property would be a deficit of $20,400). As noted, the Agreement provided that the increase in value of each party’s separate property over the course of their relationship would also be each of their separate property. Anything else would be spilt 95:5 in favour of Mr Tracey.
[30] Mr Tracey says he was always very clear with Mrs Tracey that it was important to keep the farm property separate so that it would be passed on to his family. He says they both understood this, and knew they needed to enter into the Agreement to confirm their arrangement. He says it was agreed at the outset that each party would retain the assets they brought into the relationship, and Mrs Tracey would receive five per cent as a “good will gesture” that reflected the relative values of the assets they each brought to the relationship.
The law
[31] Mrs Tracey signed the Agreement contrary to independent and competent legal advice that she should not do so. Fifteen years later, the marriage has ended and Mrs Tracey asks the Court not to give effect to the Agreement because to do so will cause serious injustice.
[32] The onus is on Mrs Tracey, as the person seeking to set aside the Agreement, to satisfy the Court that a serious injustice would otherwise incur.
[33]Section 21J provides as follows:
21J Court may set aside agreement if would cause serious injustice
(1)Even though an agreement satisfies the requirements of section 21F, the court may set the agreement aside if, having regard to all of the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice.
…
(4)In deciding, under this section, where giving effect to an agreement made under section 21 or section 21A or section 21B would cause serious injustice, the Court must have regard to—
(a)the provisions of the agreement:
(b)the length of time since the agreement was made:
(c)whether the agreement was unfair or unreasonable in light of all the circumstances at the time it was made:
(d)whether the agreement has become unfair or unreasonable in light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):
(e)the fact that the parties wish to achieve certainty as to the status, ownership, and division of property by entering into the agreement:
(f)any other matters that the court considers relevant.
[34] As the Court of Appeal noted in Harrison v Harrison,11 s 21 of the PRA empowers parties to a relationship to contract out of the statutory provisions concerning relationship property, but s 21J, on the other hand, permits such agreements to be set aside on the basis of a “serious injustice”.12 The Court of Appeal held that:13
The consequence is that, at least for contracting-out agreements, “serious injustice” is likely to be demonstrated more often by an unsatisfactory process resulting in inequality of outcome rather than mere inequality of outcome itself. Parties are in general free to agree to quite different arrangements to those otherwise imposed upon them by the [PRA]. It may be different for settlement agreements, as such agreements are entered into in respect of entitlements already accrued and should usually reflect the reality of those entitlements. In this case, however, the settlement agreement was entered primarily in respect of additional rights that would be gained over a period of attempted reconciliation. As such, the position is similar to that for a contracting out agreement.
[35] In Wells v Wells,14 Simon France J set out the following principles in assessing what amounts to a serious injustice:15
(a)serious injustice is a broad discretion which must be exercised in light of the policy underlying the legislation;
11 Harrison v Harrison [2005] 2 NZLR 349 (CA).
12 At [107].
13 At [112].
14 Wells v Wells [2006] NZFLR 870 (HC).
15 At [37].
(b)an important component of the statutory scheme is the capacity of the parties to contract out of its provisions so long as certain procedural requirements are met;
(c)resultant disparity of outcome at the time of separation is relevant, but is not generally as important a factor in contracting out cases as it might be in compromise cases. In any particular case it might of course require considerable weight, but generally it is not seen to be as a determinative or necessarily dominant consideration;
(d)consistent with (c), a comparison as to the outcomes that would be ordered if the [Act] were applied is relevant but not as significant as it might be in compromise cases;
(e)contracting out will usually occur in circumstances where one party has the assets and is pushing for an agreement. The circumstances will often involve pressure, and may involve an issue of whether the relationship will continue in the absence of an agreement. Accordingly, the presence of such circumstances is not generally relevant to the issue of serious injustice;
(f)more than disparity of outcome per se will often be present before serious injustice arises. Concerns with the procedure will often provide that extra factor. Case law will no doubt develop on the issue of what procedural concerns the Court is referring to. I assume that they are something other than a breach of the s 21F requirement;
(g)a discretion exercised in accordance with these considerations will be difficult to disturb on appeal.
Approach on appeal
[36] Although the Court has a “broad discretion” in assessing whether an agreement would cause serious injustice, and that the discretion would be difficult to disturb on appeal, relationship property appeals from the Family Court are governed by s 39 of the PRA, which incorporates ss 126–130 of the District Courts Act 2016. The appeal is therefore by way of rehearing and is governed by the principles set out in Austin, Nichols & Co Inc v Stichting Lodestar.16 This Court must come to its own view on the merits:
[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.
16 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
[37] In White v Kay,17 Ellis J recorded that the Family Court’s assessments under ss 21F and 21J were inherently evaluative, and that:18
I therefore approach this appeal on the basis that:
(a)I must come to my own view of the merits of the case;
(b)the weight I give to [the Family Court Judge’s] reasoning is a matter for me; and
(c)if I reach a different view from [the Family Court Judge], then I must allow the appeal (or the cross-appeal).
Mr Tracey and Mrs Tracey’s narrative evidence
[38] Mr Tracey’s evidence is that because they had already had these discussions at the start of their relationship and reached agreement, they did not rush into getting a written agreement signed. Instead, they focused on their businesses and their children. He says they lived in accordance with their (then) oral agreement. Mr Tracey paid for everything relating to the farm while Mrs Tracey used her income for her businesses. Mr Tracey says he paid Mrs Tracey up to $1,100 per month for the household shopping. On his accountant’s advice, this was paid to Mrs Tracey as wages. For her part, Mrs Tracey says she did not receive much income from her flower business, but that she also applied her own income to purchase groceries, buy the children’s birthday and Christmas gifts, and to pay general day-to-day living costs. She considers that her contributions, together with the work it entailed, enabled Mr Tracey to draw less from the farm. She says she did not have any leftover income to save for the future.
[39] Generally, the parties disagree as to the extent of Mrs Tracey’s contributions to the farm, the new house, and running and maintaining the family home. She says she did most of the household chores including running errands, cooking, cleaning and gardening. Mr Tracey does not agree. He says chores were shared and there were no gardens around the house to be done.
[40] Mrs Tracey said in evidence that Mr Tracey required her to contribute to the renovations on the Cottage, but that she could not afford to do so after having put up
17 White v Kay [2017] NZHC 1643, [2017] NZFLR 592.
18 At [57].
sheds and a hot house to grow flowers, and having lent Mr Tracey money to buy stock for the farm. In response, Mr Tracey says he did not require or expect Mrs Tracey to pay for the renovations, but offered her the opportunity to contribute and in return receive equity in the property.
The Judgment
[41] As noted, the Judge found that the Agreement complied with s 21F,19 but accepted there would be a serious injustice to Mrs Tracey to uphold the Agreement such that it should be set aside.20
[42] The Judge properly had regard to each of the factors set out at s 21J(a)–(e).21 Similarly, this Court on appeal is required to reach its own views, and in doing so must also have regard to each of those mandatory considerations. It is therefore sufficient for present purposes to summarise the Judge’s reasoning briefly before turning to my own analysis.
[43] The Judge considered the provisions of the Agreement in some detail.22 She noted how the Agreement valued Mr Tracey’s separate property at the commencement of the relationship in 1992, and at the time of the Agreement in 2006. At that time, the parties valued the separate property at $1,401,275.70 with liabilities of $144,000, leaving equity of $1,257,275.70. This indicated an increase of separate property of
$838,828.70 – approximately a 200 per cent increase. Mrs Tracey’s net equity increased from $10,000 to $69,600, although the bulk of this was the value ascribed to Mr Tracey’s life insurance policy.
[44] The Agreement provides for all of that in the value of Mr Tracey’s property to remain his property.
[45] On the other hand, at the commencement of the relationship in 1992, Mrs Tracey had assets valued at $10,000, made up of the value of her vehicle and the
19 At [91].
20 At [203]–[213].
21 At [102]–[202].
22 At [102]–[147].
money in her bank account. She had no liabilities. At the time the parties entered into the agreement in September 2006, her assets had increased to $131,100, with liabilities of $51,500 and equity of $79,600. This represents an increase in Mrs Tracey’s net equity of approximately 700 per cent.23
[46] The Judge noted that if the 95:5 divide provided for in the Agreement was applied at the time the Agreement was signed, Mr Tracey would receive approximately
$863,007.26 in addition to the original valuation of his separate property of
$418,447.00. On the other hand, Mrs Tracey would receive approximately $45,421.44 in addition to the original valuation of her separate property of $10,000.24
[47] The Judge found that although the Agreement achieved Mr Tracey’s intended purpose of preserving his farm property for his children, in other respects “it did not entirely accord with his intentions”.25 The Judge found this was significant in terms of her analysis of the provisions of the Agreement;26 as well as when having regard to the parties’ wish to achieve certainty by entering into the Agreement.27
[48] In particular, the Judge found that the terms of the Agreement are contrary to Mr Tracey’s intentions in the following ways:
(a)The Agreement did not provide for Mrs Tracey to receive equity in Mr Tracey’s farm property if she contributed to the costs of renovating the Cottage.28
(b)The Agreement did not provide for Mr Tracey’s income to remain his separate property, despite that being his intention.29
(c)It was Mr Tracey’s intention that if the parties separated, he would be responsible for paying for Mrs Tracey’s hot house complex on the
23 At [119]–[121].
24 At [127].
25 At [134].
26 At [134] – [145].
27 At [197] – [198].
28 At [135]–[137] and [197(i)].
29 At [139] – [140] and [197(ii)].
property. However, the Agreement records that as part of her separate property. However, Mrs Tracey would not be able to take it from the farm in the event of a separation, as it is immoveable, and the Agreement records farm property as being Mr Tracey’s. The Agreement does not provide any mechanism for her separate and immoveable property to be valued and paid for by Mr Tracey.30
(d)Although Mr Tracey may have intended that he would be liable for repayment of any bank loans relating to the farm property, the bank required Mrs Tracey also to be a borrower of the flexi-loans taken out to build the family home on the farm property.31
[49] The Judge also thought it significant that the Agreement was signed 14 years into the parties’ relationship and 12 years into their marriage but did not recognise Mrs Tracey’s accrued rights at that time, other than to take them away.32 By the time the Agreement was signed, the parties had been living together in the Cottage for over 13 years. The Agreement contains no recognition that, as a matter of law, Mrs Tracey was entitled to a 50 per cent share in the family home. Instead, the Agreement records that the property is Mr Tracey’s separate property, and that the use of the house as a farm residence does not create any beneficial interest in it for Mrs Tracey.33 Similarly, the Agreement pays no regard to Mrs Tracey’s non-financial contributions to the marriage such as caring for Mr Tracey’s children when they visited, and supporting him in a way that enabled him to travel away from home for his contracting business (which was his primary source of income).34
[50] The Judge also determined that the Agreement was unreasonable when it was signed.35 The Judge did not consider the process around the signing of the Agreement to be unfair, or that Mrs Tracey was under undue pressure or duress. But the Judge had concerns about the contents of the Agreement.
30 At [141]–[142] and [197(iii)].
31 At [144] and [197(iv)].
32 At [146] and [151].
33 At [151].
34 At [152].
35 At [180]; and Property (Relationships) Act 1976, s 21J(4)(c).
[51] First, the Judge found that the value ascribed to Mr Tracey’s net assets at the commencement of the relationship was $418,447. The Judge found this was inflated, given Mr Tracey’s evidence that earlier in the same year he had paid his former wife
$100,000 by way of settlement, being half of what they owned. The Judge reasoned that if Mr Tracey’s net assets at the commencement of his relationship with Mrs Tracey were truly valued at $418,447 then he must have paid his former wife much less than her 50 per cent entitlement, which was contrary to what he said in evidence had occurred.36 Mr Henderson for Mr Tracey says this finding was unfair, and that the values ascribed to the properties as at 1992 were necessarily approximations.
[52] Again, the Judge took into account that the Agreement provides no mechanism to value Mrs Tracey’s separate but immovable property,37 did not recognise the rights Mrs Tracey had accrued during their 14 year relationship, particularly in relation to the family home,38 and did not recognise Mrs Tracey’s financial and non-financial contributions to the marriage partnership.39
[53] In assessing whether the Agreement had become unfair or unreasonable in light of any change in circumstances, the Judge noted that the main asset classified as Mrs Tracey’s separate property was the life insurance policy. But Mr Tracey had ceased paying the premiums and the policy had been cancelled.
[54]The Judge concluded:
[194] It is my determination that the Agreement was unreasonable at the time it was signed and has become even more so with the passage of time. Mrs Tracey’s separate property has been eroded and her rights ignored. There is no review provision contained within the Agreement to reflect the continuing relationship of the parties, which endured for a further 15 years after signing. The Agreement fails to provide for Mrs Tracey to accrue an interest in what would otherwise be relationship property; at the very least, an interest in the family home, which was the motivating factor for signing the Agreement.
[55] As for s 21J(4)(e), the fact that the parties wished to achieve certainty, the Judge found that although Mr Tracey had wanted to achieve certainty as to the status
36 At [172].
37 At [182].
38 At [183].
39 At [184].
and ownership of his family farm, his contracting business and other property, in many respects certainty was not achieved.40 As summarised at [47] above, the Judge set out various ways in which she found the Agreement to operate contrary to the parties’ intentions.41
[56] Finally, in terms of s 21J(4)(f), any other matters the Court thinks relevant, the Judge thought it relevant to note that the parties were in a relationship for approximately 29 years and married for over 27 years before they separated. She found as follows:
[201] Whilst Mr Tracey was well within his rights to request that Mrs Tracey sign a contracting out Agreement, in accordance with the [Act], it must be noted that his lifestyle [post-separation] has not altered. He is still on the farm and has assets to the value of approximately $2,000,000.
[202] Mrs Tracey has “couch surfed”. Her separate property has been greatly diminished by the cancellation of Mr Tracey’s life insurance and the assets associated with her business remain on the farm. If the [debt] classified at Schedule B remains, then her separate property equates to a $20,400 deficit. She will be paid only 5 % of the overall property pool once Mr Tracey’s debt, identified as existing at the commencement of the relationship, is paid.
[57] Taking all these factors into account, the Judge considered there would be a serious injustice caused to Mrs Tracey if the Agreement was upheld.
Submissions
[58] Mr Henderson submits that the Judge failed to place proper weight on the parties’ wish to achieve certainty as to the separate status, ownership and division of their property at the commencement of their relationship, and when they signed the Agreement 14 years later. Understandably, Mr Henderson emphasises that Mrs Tracey signed the Agreement voluntarily after receipt of competent and independent legal advice. He accepts that the 95:5 spilt is stark, but submits it is not unfair. He refers to Mr Tracey’s evidence that the parties agreed at the start of their relationship that “what was his was his, and what was hers was hers”. Mr Tracey says this agreement arose out of their shared experience of feeling “robbed” by the application of the PRA when each of their previous relationships ended.
40 At [198].
41 At [134]–[145] and [197].
[59] Mr Henderson submits that the evidence shows that from the outset the parties managed their businesses separately, in accordance with their oral agreement. He says the terms of the written Agreement reflect the unwritten arrangements the parties made at the outset, and there is no serious injustice in holding the parties to those arrangements. He submits that if there is any injustice to Mrs Tracey arising out of the terms of the Agreement, it would be outweighed by the seriousness of the injustice that would arise from setting aside the Agreement that was entered into specifically to enable the parties to decide for themselves how they wished to own and, if necessary, divide their property.
[60] Mr Henderson submits that whether or not Mr Tracey asked or offered Mrs Tracey to contribute to the cost of renovating the Cottage in exchange for equity in the property, this is consistent with their shared understanding that it was ultimately Mr Tracey’s responsibility to pay for the renovation which would be on his property.
[61] Mr Henderson also submits the Judge erred in finding that the Agreement lacked certainty insofar as it disappointed Mr Tracey’s expectation of what he wished it would achieve: for example, Mr Tracey’s intention and belief that his income would be his separate property. He says the fact that the Agreement might not achieve all the parties’ expectations is not inconsistent with their obvious wish for certainty, and is irrelevant to any assessment of serious injustice to the person seeking to set the Agreement aside.
[62] Mr Henderson also says the Judge erred in her assessment of parts of the evidence. Although the Judge expressly did not criticise Mrs Tracey for being mistaken in her belief that she attended only one rather than two meetings with Mr Tracey’s solicitor, Mr Henderson submits that these findings show that Mrs Tracey was an unreliable witness. Although the Judge did not say as much, Mr Henderson submits that the Judge’s findings in respect of the independent advice received by Mrs Tracey42 demonstrates that the Judge found Mrs Tracey to be as unreliable.
[63] Finally, Mr Henderson submits that the Judge placed too much weight on the fact that Mrs Tracey and Mr Tracey were both borrowers of the funds used to build
42 At [77]–[88].
their new home. Mr Henderson submits that if the Court were to determine that the house and the land were Mr Tracey’s separate property – as the parties agreed and expected – the Court would have no difficulty in finding that Mr Tracey is also liable for all the debt too.
Discussion
[64] Given that the appeal is by way of rehearing and governed by the principles set out in Austin, Nichols & Co Inc v Stichting Lodestar,43 I consider the best approach is to carry out my own assessment of the mandatory factors set out in s 21J(4). This Court took a similar approach in White v Kay.44
Section 21J(4)(a) – the provisions of the Agreement
[65]The provisions of the Agreement are set out at paragraphs [20]–[30] above.
Section 21J(4)(b) – the length of time since the Agreement was made
[66] As noted, Mr and Mrs Tracey signed the Agreement 12 years into their relationship and 15 years before they separated in 2021. Shortly after it was signed, they built their new family home. Since then, the farm assets and the family home have increased in value significantly. The evidence tends to show that throughout this time the parties have taken steps to keep their financial affairs separate, although I am also satisfied that Mrs Tracey made significant contributions to their relationship and to their family home.
[67] I accept that it was always important to Mr Tracey that the farm remain in his family, and that he would have explained this to Mrs Tracey. However, I do not accept that Mrs Tracey agreed from the outset that if they were to separate after nearly 30 years together her financial and non-financial contributions would go largely unrecognised.
43 Austin, Nichols & Co Inc v Stichting Lodestar, above n 15.
44 White v Kay, above n 18.
Section 21J(4)(c) – was the Agreement unfair or unreasonable in the circumstances?
[68] The Court must have regard to whether the Agreement was unfair or unreasonable in the light of all the circumstances at the time it was made.
[69] In my view, the relevant circumstances at the time the agreement was made were as follows:
(a)The parties had been living together in the Cottage for 14 years. Their marriage was happy. They were not in any dispute requiring compromise.
(b)Mrs Tracey had been supporting Mr Tracey domestically and also his children when they stayed.
(c)Mrs Tracey knew that Mr Tracey wished to keep the farm in his family.
(d)They ran their businesses separately. Mr Tracey had recently started a farm contracting business in Taupo which saw him working away from home for significant periods of time.
(e)Mrs Tracey had accrued statutory rights to a share of their relationship property (presumptively 50 per cent).
(f)Mrs Tracey had some health issues. She wanted the family home renovated but was not individually in a position to pay for it.
[70] Although not cross-appealed, I add here that I agree with the Judge that the requirements of s 21F were met, and Mrs Tracey signed the Agreement in the face of independent and competent advice not to.
[71] Nevertheless, in light of the circumstances as I find them to have been, I agree with the Judge that the Agreement was unfair and unreasonable when it was made. Mr Tracey’s wish to keep his farm in his family was understandable. However, after 14 years of living together as they did, I do not consider a 95:5 spilt of the parties’
relationship property, after they had retained the value of what they owned at the commencement of their relationship, is fair or reasonable. The Agreement deprived Mrs Tracey of almost all her substantive rights, without compensation. In particular, it deprived her of almost all her rights in her family home and would leave her with insufficient assets to acquire a new home.
Section 21J(4)(d) – has the Agreement become unfair or unreasonable in the light of any change in circumstances?
[72] In my view the Agreement has become more unfair and more unreasonable over time. Her health has continued to suffer. She reduced and then closed her floristry business. Mr Tracey’s life insurance policy has lapsed.
[73] Together with Mr Tracey, she built their new family home in 2008. She has looked after their home while Mr Tracey was away working for significant periods. She was liable to the bank for the funds they borrowed to build the home. But under the Agreement she has almost no interest in it.
[74] In White v Kay, heard in 2017, Ellis J observed that “if the [agreement in that case] was unfair and unreasonable in the circumstances as they were in 2004, the possibility of it becoming less so overtime… is remote”.45 I agree with Judge Howard-Segar that the same can be said in this case.46
Section 21J(4)(e) – the parties’ wish to achieve certainty
[75] The Court must have regard to the fact that the parties wish to achieve certainty as to the status, ownership and division of property by entering into the Agreement. I agree with Brewer J’s observation in SB v GMH47 that this factor will invariably favour upholding an agreement.48
[76] The Judge determined that although the parties sought certainty, it was not achieved.49 That was because the Judge found that, in various ways, the Agreement
45 White v Kay, above n 18, at [70].
46 Judgment, above n 1, at [186].
47 SB v GMH HC Hamilton CIV-2010-419-887, 14 December 2010.
48 At [66].
49 Tracey v Tracey, above n 1, at [198].
does not fully accord with the parties’ subjective intentions.50 I accept Mr Henderson’s submission that the Agreement, if upheld, would be interpreted objectively, in accordance with the ordinary principles of contract interpretation. The fact that the contract may not accord with a party’s subjective intention does not mean it is objectively uncertain. In any event, s 21J(4)(e) presupposes that the parties sought to achieve certainty.51 As Brewer J put it, s 21J(4)(e) does not pose a question, it makes a statement.52
Section 21J(4)(f) – any other matters the Court thinks relevant
[77] I agree with the Judge that it is relevant to stand back and look at how the Agreement would operate at the end of the parties’ 29 year relationship.
[78]The land and buildings belonging to Mr Tracey and that were valued at
$380,000 at the commencement of their relationship and $900,000 as at the date of the Agreement in September 2006 are now valued at approximately $2,000,000. That capital appreciation will derive partly from the family home that Mr and Mrs Tracey built together. However, under the Agreement, Mrs Tracey will be entitled to no more than five per cent of that. On the other hand, Mr Tracey and his family retain the farm and remain in the family home.
[79] As noted, the life insurance policy that was Mrs Tracey’s most valuable asset under the Agreement no longer exists. On the face of the Agreement, her net equity in the remaining separate property is negative. She leaves the relationship in poor health and with insufficient funds to acquire a new home.
[80] Taking all these factors into account, and having regard to all of the circumstances, I agree with the Judge that giving effect to the Agreement would cause serious injustice to Mrs Tracey. I accept Mr Henderson’s submission that it is highly relevant that Mrs Tracey signed the Agreement having received independent and competent legal advice not to, and that by entering into the Agreement the parties wished to achieve certainty as to the status and ownership of assets, including that
50 At [134]–[145] and [197].
51 Harrison v Harrison, above n 11, at [91].
52 SB v GMH, above n 50, at [66].
Mr Tracey would retain the family farm. I also accept that the authorities make clear that disparity between the parties to a s 21 agreement is unlikely of itself to constitute serious injustice.
[81] However, in my view, this is a relatively rare case where the disparity of outcome between the parties, after nearly 30 years of marriage, is a dominant consideration, and the 95:5 spilt of assets in his favour would amount to a serious injustice for Mrs Tracey. In 2006 the Agreement deprived her of accrued rights, without compensation. That was unfair and unreasonable. That unfairness and unreasonableness has compounded over time. Under the Agreement, Mrs Tracey has almost no interest in the family home that she built with Mr Tracey in 2008 and to which she has made financial and non-financial contributions ever since.
[82] Mrs Tracey acknowledges Mr Tracey’s wish to retain the farm in his family. It may be that, in the final analysis, this will be achieved. During the course of the hearing I received some evidence about the current status of the negotiations between the parties. It has not been necessary for me to refer to that, but I strongly encourage the parties, with the assistance of their experienced counsel, to use their best endeavours to resolve the outstanding issues between them.
Result
[83]The appeal is dismissed.
[84] Mrs Tracey is entitled to costs. If they cannot agree then Mrs Tracey should file written submissions of not more than five pages in length (excluding attachments) within 20 working days. Mr Tracey should file submissions of similar length in response within a further 10 working days. I will deal with costs on the papers unless I require further assistance.
Robinson J
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