Winders v Winders
[2018] NZHC 860
•30 April 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2455 [2018] NZHC 860
BETWEEN CHRISTOPHER MAX WINDERS
Appellant
AND
JOANNA WINDERS Respondent
Hearing: 13 March 2018 Appearances:
V A Crawshaw and N J Fairley for the Appellant
R J Collis for the RespondentJudgment:
30 April 2018
JUDGMENT OF POWELL J
This judgment was delivered by me on
30.04.18 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Chambers Craig, Auckland
Lawler & Co, Auckland
Counsel: V A Crawshaw, Auckland
R J Collis, Auckland
WINDERS v WINDERS [2018] NZHC 860 [30 April 2018]
[1] The appellant, Christopher Winders, has appealed a judgment of His Honour
Judge T H Druce in the Family Court at Auckland.1
[2] The judgment involved consideration of an agreement between Mr Winders and his then de facto partner and later wife, Joanna Winders, dated 23 January 2007 (“the s 21 agreement”). This agreement was made pursuant to s 21 of the Property (Relationships) Act 1976 (“the Act”) and provided for Mr and Mrs Winders to contract out of the equal sharing provisions contained in the Act. After the breakup of Mr and
Mrs Winder’s marriage Judge Druce set aside the s 21 agreement at Mrs Winders’ request, on the basis that giving effect to the s 21 agreement would cause “serious injustice” in terms of s 21J of the Act.2
[3] Relationship property appeals from the Family Court are governed by s 39 of the Act, which also incorporates the High Court Rules 2016 and ss 126 – 130 of the District Court Act 2016. Section 127 in particular provides that this type of appeal is by way of rehearing, and is therefore governed by the principles articulated in Austin, Nichols & Co Inc v Stitching Lodestar.3
[4] As a result, and for the reasons recently noted by Ellis J in White v Kay,4 because Judge Druce’s assessment of the s 21 agreement was inherently evaluative rather than discretionary in nature, I approach the 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 Judge Druce’s reasoning is a matter for me; and
(c)if I reach a different view from Judge Druce, then I must allow the appeal.
1 Winders v Winders [2017] NZFC 7654.
2 At [62].
3 Austin, Nichols & Co Inc v Stitching Lodestar [2007] NZSC 103 [2008] 2 NZLR 141, at [16].
4 White v Kay [2017] NZHC 1643, [2017] NZFLR 592 at [57].
[5] The sole issue to be determined is whether Judge Druce was correct to set aside the s 21 agreement.5
Background
[6] The s 21 agreement, dated 23 January 2007, was made approximately
14 months after Mr and Mrs Winders had commenced a de facto relationship and some
14 months prior to their marriage in March 2008. There is no dispute that at the time the parties entered the s 21 agreement no property rights under the Act had by that point accrued in favour of either party.
[7] The s 21 agreement was entered after Mr and Mrs Winder agreed to buy a property together, namely 2 Ngake Street, Orakei (“Ngake Street”). Although
Mr Winders contributed $238,000 and Mrs Winders $2,000 towards the purchase of Ngake Street, the parties agreed that Mr Winders would take an 80 per cent interest and Mrs Winders a 20 per cent interest in the property. This was effected through their shareholding in Aihe Ltd, a loss attributing qualifying company, or LAQC, established as the vehicle for the purchase of the property. The details of the arrangement were subsequently confirmed in a shareholders agreement signed on the same day as the s
21 agreement, with the s 21 agreement specifically confirming that the 80:20 interest of the parties in Ngake Street was to be and remain separate property, even if it “subsequently becomes the family home”.6
[8] The s 21 agreement went on to list the separate property held respectively by Mr and Mrs Winders (including the 80:20 interest in Aihe Ltd), and that in relation to such property:
8. Separate Property Generally
8.1 The status of property as separate property and the ownership of that property pursuant to this Agreement shall not be affected in any way by:
5 At [11] of the Family Court judgment Judge Druce noted an alternative argument in the event the s 21 agreement was not set aside, as to whether the property at issue in the appeal had been jointly acquired in March 2010. As a result of Judge Druce’s conclusions, he did not determine this issue. No submissions were made on this point, and the hearing proceeded on the basis that the sole area of contention was whether Judge Druce was correct to set aside the s 21 agreement.
6 Section 21 agreement, cl 4.7.
(a) The use to which it is put;
(b) The use to which income or gains from it is put;
(c) The status or ownership of or income or gains from
it;
(d)Any direct or indirect contribution that either party may make to it;
(e)Any direct or indirect application of relationship property to it.
9. Compensatory Payments
9.1 The factors in clause 9.2 of this Agreement shall not give either party any claim for entitlement to:
(a) Any increased share in relationship property;
(b)Compensation from the other party either out of relationship property or separate property.
(c) An interest in the separate property of the other party; (d) Repayment or reimbursement from the other party
either out of relationship property or separate
property.
9.2 The factors referred to in clause 9.1 of this Agreement are;
(a)Direct or indirect financial contributions by one party to the other party’s separate property;
(b)Direct or indirect non financial contributions by one party to the other party’s separate property;
(c)Direct or indirect application of relationship property to separate property;
(d) Division of functions within the relationship;
(e)The fact that a home occupied by the parties is owned by a Trust established for the benefit of one of the parties and that the other party may not be entitled to any benefit under such trust.
9.3 Without limiting clauses 9.1 and 9.2 above, each party waives any right to a claim under Sections 9A, 15, 15A and 17 of the Act.
10. Future Assets
10.1 Subject to clauses 4 and 10.2, the parties agree that any future property acquired in their joint names shall be relationship property and divided in accordance with the Act.
10.2 All other assets acquired separately in their sole name shall be the separate property of that party.
[9] Ngake Street continued to be owned by Aihe Ltd until changes to the tax system resulted in Ngake Street being transferred on 9 March 2010 from Aihe Ltd to the parties personally, in the same 80:20 ratio provided for in the s 21 agreement.
[10] In the meantime, in October 2009, the parties had jointly acquired a property located at 141 Dodson Valley Road, Nelson (“Dodson Valley”), funded by borrowings secured against Ngake Street. A son was born to the couple in January 2010, and in late 2010 Mr and Mrs Winders moved a relocatable house onto Ngake Street, where they remained until their separation in June 2014.
[11] Following separation, Ngake Street was sold in June 2015 for $2.7 million. After payment of all loans and reconciling the Dodson Valley loans, net sale proceeds from Ngake Street totalled $1,901,651. Under the s 21 agreement this would entitle Mr Winders to receive $1,521,321 and Mrs Winders $380,330 of those proceeds.7
[12] Mrs Winders applied on 6 March 2016 to set aside the s 21 agreement. In her application Mrs Winders did not seek to revisit the nature of any of the other separate property identified in the s 21 agreement, and neither party disputed that Dodson Valley, was relationship property for the purposes of the Act and that it stood to be shared equally.
The Family Court Judgment
[13] In assessing whether giving effect to the s 21 agreement would cause serious injustice, Judge Druce considered the s 21 agreement against the provisions of s 21J(4) of the Act, which provides:
21J Court may set agreement aside if would cause serious injustice
…
(4)In deciding, under this section, whether 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—
7 Winders v Winders, above n 1, at [45].
(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 the light of all the circumstances at the time it was made:
(d)whether the agreement has become unfair or unreasonable in the 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 wished 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.
[14] Judge Druce commenced his analysis by focusing on the terms of the s 21 agreement as per s 21J(4)(a) of the Act. These he described as “an uncomfortable amalgam of contradictory recitals and operative provisions”.8 Despite this, and after identifying contradictions in both the recitals and the operative clauses and commenting that “the agreement is plainly internally confused and inconsistent in its purposes”,9 he nonetheless concluded:10
… I consider the intent of the parties to be clear that 2 Ngake Street was always
to be separate property irrespective of their subsequently acquiring the property personally (unless acquired jointly) and irrespective of any relationship property contributions which might be made.
[15] He concluded his analysis of the terms of the s 21 agreement by noting:11
It is also noteworthy that the agreement makes no provision for changes in circumstances, whether reasonably foreseeable or otherwise, which are often provided for in such contracting out agreements where circumstances change such as the later marriage of the parties or their having children. Is it reasonable for this agreement to ignore the important financial and parenting demands and the corresponding need for financial and non-financial support that the arrival of the children brings with it? I think not.
[16] Judge Druce saw nothing untoward in the fact that in terms of s 21J(4)(b) the agreement had been in place for “some seven years four months”.12 In his analysis of s 21J(4)(c), “whether the agreement was unfair or unreasonable in the light of all the
circumstances at the time it was made”, Judge Druce likewise acknowledged there was “no claim or suggestion that there was any procedural unfairness between the parties when the agreement was entered into”.13 Judge Druce also rejected an argument on behalf of Mrs Winder that the 80:20 ownership of Ngake Street was unfair to her at the time the s 21 agreement was entered into, because Mr Winders’ initial contribution was only 26 per cent of the value of Ngake Street. On the contrary, His Honour observed such an argument failed to take into account the value of the mortgage liability to the parties with regard to their respective contributions such that:14
To provide the applicant with a 20% share of any increase in market value for her $2,000 capital contribution might reasonably be argued as generous to her as a property investor, which is as far as their property interests had reached at that time.
[17] Judge Druce then returned to the theme noted at [15] above, that the s 21 agreement “was unreasonable in making no provision for easily foreseeable changes in the future, such as marriage and having children”.15 In this vein, His Honour went on to state:16
I readily accept that if the agreement had been limited to simply contracting out of the Act in relation to their property interests in Aihe Ltd and, arguably, in 2 Ngake Street more generally, then no unreasonableness would apply. But the agreement “clamped” all of the couple’s future property rights and interests in the straightjacket of a strict separate property regime for the remainder of their lives as a couple when they were only just in the early period of developing their couple relationship. I consider it was unreasonable to expect either of them, and most particularly the applicant, to make a lifetime commitment to how their property interests were to be regulated.
[18] As a result, when considering, pursuant to s 21J(4)(d), whether the s 21 agreement had become unfair or unreasonable due to subsequent changes in circumstances, Judge Druce noted that the “[expected] changes of marriage and the birth of a child have, of course, occurred”.17 Judge Druce recorded both parties had continued with their careers (noting Mrs Winders’ career had been disrupted following
their son’s birth), that the parties had in fact ended up living in Ngake Street, and that if the agreement was enforced the only relationship property asset of significant value was Dodson Valley. His Honour then estimated what Mr and Mrs Winders would get respectively if the s 21 agreement was given effect:18
If the agreement is to be enforced, the only relationship property asset of significant value is the Dodson Valley property and neither party has presented a registered valuation of the property. It did not sell after separation during a period of marketing. Mr Winders estimates the property to be worth approximately $1 million. Both parties agree it is to be sold. Adopting their estimate of value, and deducting the $696,037.27 mortgage debt that was repaid on sale of Ngake Street, the relationship property available for division will be in the region of $250,000-$280,000 after allowing for say $30,000 costs of sale.
In addition, each would receive their respective separate property 80:20 entitlements from the sale proceeds of 2 Ngake Street being $1,901,651 (once the Dodson Valley loan is adjusted for). Mr Winders would receive
$1,521,321 and Ms Winders $380,330. Accordingly, strict application of the agreement results in a disparity from equal division of $570,495.50. Assuming the Dodson Valley property realises net proceeds of say $265,000, total property for division would be $2,166,651 of which Mr Winders would receive $1,653,821 (76.3%) and Mrs Winders would receive $513,080 (23.7%).
[19] Judge Druce noted that “most of the capital growth had come from the more than $1.7 million increase in value of Ngake Street due to the “luck” of the investment”.19 He then commented:20
On balance, the success or otherwise of the property investment in Ngake Street was a risk that the parties contractually committed to sharing as two informed investors at the time in January 2007. The increase in value, of itself, is not, I consider, a factor on its own that makes the 80:20 division unreasonable. In contrast, however, all of the changes in circumstances that were reasonably foreseeable at the time the agreement was signed, and which came to pass, including future marriage, the birth of a child, and the family moving to live at Ngake Street, do add to the unreasonableness of the agreement over time. When the parties transferred ownership of Ngake Street from Aihe Limited to themselves personally, they were contemplating making improvements to the property and moving to live on the property even if in the longer term they intended to move to Nelson to live. These changes of circumstances do significantly increase the level of unreasonableness of the operation of the agreement because by March 2010 their relationship property entitlement would have accrued to a point of equal sharing of relationship property but for the contracting out agreement.
18 At [44]-[45]. At the time of the Family Court hearing Dodson Valley had not been sold.
[20] Judge Druce also expressed his concern with the way in which the Aihe Ltd current account had been dealt with, and questioned whether Mrs Winders “may have been seriously prejudiced by all of her income going into the Aihe Limited accounts”,21 although I note was not identified as a matter at issue for the parties in the Family Court, and nor was it argued before me on appeal.
[21] Somewhat surprisingly, although Judge Druce appeared to be dealing sequentially with the s 21J(4) matters, he did not then deal specifically with s 21J(4)(e)
– “the fact that the parties wish to achieve certainty as to the status, ownership, and division of property by entering into the agreement”. Despite this omission, I note Judge Druce had previously commented:22
It is plain that the respondent in particular relied on the agreement when the parties personally acquired Ngake Street in March 2010 and both relied on the agreement when acquiring the Dodson Valley property with the intention of the property becoming their family home in the future.
[22] With regard to the other relevant matters, in terms of s 21J(4)(f), Judge Druce confirmed that there was “no evidence of the couple addressing the issue of renegotiating the agreement at any time”.23
[23] Judge Druce likewise noted that Aihe Ltd had not sought repayment of the company’s March 2010 vendor advance, made at the time Ngake Street was transferred to the parties. This he considered did “significantly ameliorate the disparity of a strict implementation of the agreement and the related shareholders agreement”.24
[24] Weighing the various matters up, Judge Druce concluded:25
The majority of the s 21J(4) matters I am required to consider point to injustice. The terms of the agreement are at the “far end” of the separate property/relationship property continuum for contracting out agreements. Further the agreement itself is internally inconsistent both as to its recitals and its operative sections. It might reasonably be described as a “wolf dressed in sheep’s clothing” for any younger couple embarking on a shared life together
21 At [49].
22 At [38].
23 At [52].
raising a child. Progressively, with the passage of time, it did become increasingly unreasonable given the parties’ marriage, their having a child, and their taking personal ownership of Ngake Street with the clear intention of it being used as a family home (at least in the short term) and then making improvements to the property by placing the re-locatable home on the property. Throughout the period from January 2007 to March 2010 the applicant put all of her earnings into the current account with Aihe Limited yet the account balances show no obvious relationship to the extent of her contributions. Due to her pregnancy and [her son’s] birth, she had a year without income during which the respondent’s ongoing contribution to the company probably continued to increase his shareholder current account while her current account in all likelihood was substantially reduced due to her having no income and yet having an ongoing share of expenses. And, finally, there is the substantial disparity of outcome with the parties received 76.3% vs 23.7% of the property available for division. Their original disparity of assets being $236,000 in January 2007 will have grown to a little over
$570,000 if the agreement is given effect. All these factors point to unreasonableness of the agreement.
On the other hand, the agreement did recognise the parties’ very different cash contributions to their first property investment and did protect the respondent’s pre-existing property interests as his separate property. In addition, the agreement does provide certainty as to classification of the only two assets of real value, the parties’ relationship was limited to only seven and [a] half years which limited the escalation of the unreasonableness of the agreement over time, and the parties plainly came to their own bargain as to their respective long-term interests in Ngake Street in which clause 4.7 expressly provided for the possibility of Ngake Street becoming a family home in the future. Further, most of the capital gain achieved from the Ngake Street investment arose from “passive” market factors rather than the investment of financial and non-financial s 18 contributions. Further, the Dodson Valley property is jointly owned and this reflects the intention of the parties that this be relationship property. Finally, the unfairness and unreasonableness of the agreement is significantly ameliorated by the respondent’s concession in not pursuing repayment of the $350,000 owed by the parties to Aihe Ltd. All these factors point to the reasonableness of the agreement (to the extent the respondent seeks to enforce it).
In all these circumstances does giving effect to the s 21 agreement (to the extent the respondent seeks to enforce it) result in serious injustice for the parties? Having taken regard of all the circumstances I am required by s 21J(4) to consider, I have come to the conclusion that to give effect to the
2007 agreement would result in “serious injustice”.
I place particular weight on the rigid and internally inconsistent terms of the agreement itself along with its rigid effect for the remainder of the couple’s relationship irrespective of the likely significant changes in the couple’s relationship over time such as future marriage and the having of children. While it was entirely reasonable for the parties to protect their pre- relationship property assets, it was seriously unreasonable to impose such a separate property regime on all future acquired property including their income earned during their relationship and seriously unreasonable to … remove all rights and claims arising from the application of relationship property to the sustenance or improvement of the respondent’s separate
property (although this latter point has not been [pursued] in this case and its actual effect, if any, is unknown).
I place little weight on the financial disparity that would result from giving effect to the agreement. The simple 80:20 division of 2 Ngake Street was certainly not unreasonable for the initial 3 years. It thereafter became more unreasonable as the couple’s circumstances changed but these changes alone would not amount to serious injustice. It is the extraordinary terms of the agreement that prove to be decisive.
[25] Finally, Judge Druce accepted that Mr Winders was entitled to an adjustment to his share pursuant to s 18B of the Act for improvements carried out to the access road at Dodson Valley post-separation. He found Mr Winders was entitled to be compensated by Mrs Winders in the sum of $33,844.88. This conclusion is not subject to challenge in the present appeal.
Setting Aside s 21 Agreements – Legal Principles
[26] There is no dispute that the leading authority with regard to setting aside s 21 agreements is the Court of Appeal decision in Harrison v Harrison.26 This judgment made it clear that the changes to the Act that took effect from 2001, and which extended the equal sharing regime to de facto and same sex relationships, were very much justified on the basis that those who did not like the new regime were entitled to contract out of it.27 As the Court noted:28
… [T]he legislature consciously set out to establish a higher threshold for the setting aside of agreements than was current when Wood was decided.
[27] The Court went on to observe:29
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 Act. 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.
26 Harrison v Harrison, [2005] 2 NZLR 349 (CA).
27 At [82].
28 At [82].
29 At [112].
[28] Mere inequality of outcome, measured against the overall scheme established by the Act, is therefore insufficient to constitute serious injustice for the purposes of s
21J of the Act.
[29] The underlying principles articulated by the Court of Appeal were further developed by Simon France J in Wells v Wells in the following terms:30
From those cases (and also drawing on Venning J’s judgment in Guan v Chen
…) I take the following principles and observations to apply to the assessment of “serious injustice”:
(a)serious injustice is a broad discretion which must be exercised in light of the policy underlying the legislation;
(b)an important component of the statutory scheme is the capacity of 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 to be seen as a determinative or necessarily dominant consideration;
(d)consistent with c), a comparison 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.
30 Wells v Wells [2006] NZFLR 870 (HC) at [37].
Discussion and Analysis
[30] Applying these principles I am not satisfied that the high threshold set out in s
21J(1), that giving effect to the agreement would cause serious injustice, has been met in this case.
[31] As demonstrated at [24] above, Judge Druce correctly placed little weight on the financial disparity resulting from the s 21 agreement, and indeed noted that by itself it would not be sufficient to give rise to serious injustice.31 Instead, and as His Honour made clear, his focus was on the drafting of the s 21 agreement, both in terms of “inconsistencies” and “rigidity”. Ultimately this was the “decisive” factor leading to his decision to set aside the s 21 agreement.
[32] With the greatest respect to His Honour it is difficult to see how this provides a basis for determining that giving effect to the s 21 agreement would cause serious injustice to Mrs Winders.
[33] First, it is difficult to see that any inconsistencies in the drafting of the s 21 agreement were in any way material. In particular the “strict separate property regime” prescribed by the s 21 agreement which so concerned His Honour did not prevent Mr and Mrs Winders from subsequently acquiring Dodson Valley as undisputed relationship property, nor has there been any dispute over any of the other properties identified as separate in the s 21 agreement other than Ngake Street. As a result any “inconsistency” or “rigidity” in the drafting of the s 21 agreement is only relevant in so far as it relates to Ngake Street.
[34] With regard to Ngake Street, as Judge Druce specifically found, the parties’ intention was clear from the outset, and reflected in the s 21 agreement; it “was always to be separate property irrespective of their subsequently acquiring the property personally (unless acquired jointly) and irrespective of any relationship property contributions that may be made”.32 Moreover His Honour specifically concluded:33
31 Winders v Winders, above n 1, at [64].
32 At [23].
33 At [47] (emphasis added).
On balance, the success or otherwise of the property investment in Ngake Street was a risk that the parties contractually committed to sharing as two informed investors at the time in January 2007.
[35] Given those conclusions, the fact the agreement provided certainty, in particular, as separate property with regard to both Ngake Street and as relationship property with regard to Dodson Valley, it is difficult to see how any “inconsistencies” or “rigidity” in the drafting in the s 21 agreement could give rise to serious injustice in terms of s 21J of the Act.
[36] The reality is that the s 21 agreement has only been called into question because of the significant profit made from the sale of Ngake Street, which Mr Winders stood to gain 80 percent of if the s 21 agreement was applied on its terms. In circumstances where Judge Druce had concluded that the clear intention of the parties was to keep Ngake Street separate and that “the success or otherwise of the property investment in Ngake Street was a risk that the parties contractually committed to sharing as two informed investors at the time in January 2007”, it is difficult to identify any principled basis to then reach a conclusion that giving effect to the s 21 agreement would cause serious injustice. On the contrary, Mrs Winders has benefited significantly from her investment in accordance with the s 21 agreement. As Judge Druce noted, notwithstanding Mrs Winders initial contribution amounted to less than one per cent of the capital invested by the parties, the s 21 agreement provided her a 20 per cent share in the property. As a result, her investment of $2,000 has risen to some $380,330 over the eight years the investment was owned, in accordance with the s 21 agreement.
[37] Given this position it is difficult to see on what basis the parties’ subsequent marriage, the birth of their son and/or their subsequent move to Ngake Street could add to the unreasonableness of the agreement over time, still less that these factors could give rise to a serious injustice. Indeed the s 21 agreement specifically provided that Ngake Street would remain separate property even if it subsequently became the matrimonial home.34 Having agreed that Ngake Street would remain separate property, it is difficult to see why the lack of any “sunset clause” is material. Nothing in the Act requires such a sunset clause and the absence of any such clause cannot amount to a serious injustice, when the parties’ intentions are otherwise clear.
[38] Likewise the nature of the profit resulting from Ngake Street is irrelevant. As noted at [19] above, Judge Druce appeared to place some weight on the fact that the profit made on Ngake Street was of a passive nature as a ground for suggesting it should be shared equally, and Mr Collis also appeared to place some weight on this in his submissions before me. With respect, this appears to be a neutral factor. If the profit from Ngake Street was a windfall for Mr Winders then so too it was for Mrs Winders. There is no evidence that Mrs Winders contributed to any greater extent in achieving the profit. The division of profit reflected the basis upon which the parties had entered into the investment, and as the authorities under the s 21 agreement make clear, a mere inequality of outcome is insufficient to conclude there is serious injustice in terms of s 21J of the Act.
[39] Overall, I accept Ms Crawshaw’s submission that Judge Druce did not give sufficient weight to the fact that the parties were entitled to contract out of the Act in order to achieve certainty,35 and in the absence of serious injustice were entitled to have that agreement recognised by the Court. This is particularly so given Judge Druce confirmed (as noted at [16] above) a complete absence of any procedural issues of the type noted in the authorities set out above.
[40] The s 21 agreement in this case was not at all at the “far end” of the separate property/relationship property continuum for contracting out agreements, as suggested by Judge Druce. Nor was is it in any form a “wolf in sheep’s clothing”. The s 21 agreement simply set out clearly the obligations of the parties and in particular that Ngake Street would remain separate property on a basis set out in the agreement. As Mr Crawshaw submitted, given Judge Druce accepted the clarity of the parties’ intentions, to not uphold the s 21 agreement would not only be contrary to the authorities, it would more generally remove any certainty of outcome for those seeking to contract out of the Act as they are entitled to do. As a result the appeal must be allowed.
Decision
[41] The appeal is allowed. The s 21 agreement is reinstated. The sale proceeds of
2 Ngake Street, Orakei are to be dealt with in accordance with terms of the agreement taking into account the s 18B orders made by Judge Druce, which are not affected by this judgment.
[42] Mr Winders is entitled to costs on a 2B basis. In the event that any issue arises with the calculations and costs I shall determine the issue following the submission of memoranda of no more than three pages.
[43] Finally, as noted in the judgment, the parties’ relationship property at 141
Dodson Valley Road, Atawhai, Nelson has not sold and, in accordance with the joint memorandum submitted by counsel, by consent I make orders for the sale of the property on the terms set out in the Schedule to this judgment, reserving leave for the parties to return to the Court for further directions should that be necessary.
Powell J
SCHEDULE
1.Either party may view the property within four weeks of the date of Court's decision with a view to considering whether further work needs to be expended on the property to ready it for sale.
2.If work is required to ready the property for sale, such work will be carried only by agreement between the parties and within two weeks of the date of inspection.
3.If either party wishes to purchase the other's interest in the property, an independent valuation shall be obtained by an agreed valuer and failing agreement by a valuer appointed by the President of the New Zealand Law Society, Auckland Branch. ("the appointed valuer"), who shall value the property ("the agreed valuation sum").
4.If there is no agreement as to either party purchasing the other's interest in the property, the property shall be marketed for sale by an agreed real estate agent, and failing agreement as to a real estate agent by an agent recommended by the independent valuer who can conduct the valuation of the property. For the avoidance of any doubt, either party is entitled to purchase the property by participation in the sale process described in this paragraph, by offering to purchase above the highest offer received.
5.The method of sale of the property shall be as recommended by the real estate agent appointed. In the event an auction is recommended, the parties shall agree on the reserve price and failing agreement, the reserve price shall be determined by the appointed valuer.
6.If either party purchases the other's interest in the property, the equity in the property shall be calculated as follows:-
a. Agreed valuation sum or agreed sale price;
b.Less mortgage at the time of sale of Ngake Street's sale, being $698,000 (the amount repaid to Westpac Bank on the sale of Ngake Street secured over the property);
c. Equity to be halved.
7.If the property sells, the respondent's share in the property shall be calculated as follows:
a.Net sale proceeds after payment of real estate agent's commission and legal costs associated with sale;
b.Repayment to either party of any further agreed costs expended towards sale of the property;
c.Less mortgage at the time of sale of Ngake Street's sale, being $698,000 (the amount repaid to Westpac Bank on the sale of Ngake Street secured over the property);
d. Equity to be halved.
8.Leave is reserved for either party to seek further directions from the Court in relation to the sale of the property should it be necessary to do so.
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