Yates v Beecroft & Thomson

[2016] NZHC 3183

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2016-409-513 [2016] NZHC 3183

UNDER	the Property (Relationships) Act 1976
IN THE MATTER OF	an appeal against a decision of the Family Court at Christchurch
BETWEEN	DONALD ROBERT YATES Appellant
AND	BEECROFT & THOMSON Respondent

Hearing:	9 November 2016
Appearances:	P Egden for Appellant S Marsden for Respondent
Judgment:	21 December 2016

JUDGMENT OF MANDER J

[1]      In  March  2015,  Judge  Murfitt  delivered  judgment  dividing  relationship property between the appellant, Mr Donald Yates (Don), and the respondent, the trustees  and  executors  of  the  estate  of  his  late  former  wife,  Mrs Robyn  Yates (Robyn).1   However, some outstanding issues between the parties were not addressed by the Family Court.  In particular, whether Robyn was entitled to compensation for the use made since separation of her share in the equity of a relationship company. A further issue was whether Don should pay rent for the benefit he has received from his occupation of the family home.

[2]      In a supplementary judgment delivered in May 2016, Judge Murfitt awarded

Robyn $162,000 for the benefit Don received from Robyn’s half of the equity in the

1      Yates v Yates (Estate Of) [2015] NZFC 1141.

company since their separation.2    While reference was made in the supplementary judgment to the claim made by Robyn for compensation for Don’s occupation of the family home that issue was not determined.

[3]      Don has appealed the Family Court’s compensatory award of $162,000.  He also wishes to have access to an item of relationship property that has been ordered to be sold, a motor boat, for the purpose of obtaining an up to date valuation. Robyn’s estate seeks to uphold the Family Court’s decision and claims compensation for Don’s occupation of the home since the first hearing in February 2015.

Background

[4]      Because  only  a  discrete  part  of  the  Family  Court’s  resolution  of  the relationship property proceeding is the subject of this appeal it is not necessary to go into detail about the circumstances of the marriage and Don and Robyn’s separation except insofar as it impacts on the issues raised.  I proceed on the basis that matters that were in dispute before the Family Court and which have not been the subject of challenge are now accepted for the purposes of the appeal.

[5]      In October 2003, Don and Robyn commenced living together in Robyn’s home.  The following year Robyn sold her home and it was agreed between them that the proceeds would be invested in the purchase of another residential property at Sefton which would become their family home.   In return Robyn obtained an entitlement to a half shareholding in two companies which Don utilised for the purpose of his business.   There was some evidence the net value of one of those companies which owned the business’s premises, Select Holdings Limited (SHL), was comparable to the funds Robyn contributed to purchase the Sefton property.

[6]      In February 2005, Don and Robyn married.  In 2010, Don suffered a stroke which severely impacted on his ability to manage and participate in the operation of the business.  In August 2011, the couple separated.  Robyn remained in the Sefton

home.   After Don suffered his stroke, his son, Hayden, took over the day-to-day

2      Yates v Beecroft [2016] NZFC 4096.

management  and  control  of  the  business.     I  will  refer  further  to  Hayden’s involvement in the business after the decline in his father’s health.

[7]      In July 2013, Robyn was diagnosed with a brain tumour and she died on

31 August 2013. After her death Don resumed occupation of the Sefton home.

The companies

[8]      Don operated the business through its trading company, Select Reinforcing Limited (SRL).  This company was incorporated in April 1990.  The business was essentially  reliant  on  Don’s  efforts.    He  cultivated  business  relationships  and managed the workplace operation with the help of two or three employees.  SHL was formed in 2000.  As a holding company it owned the land and building from which SRL operated.  Don was the shareholder and director of both companies.

[9]      The global financial crisis in 2009 and the earthquakes of 2010 and 2011 negatively impacted on the profitability of the business.  A severe blow was Don’s stroke in 2010 which forced him to take a limited role and required Hayden to take over the operation of the business.  It was the view of the business’s accountant, Mr Benjamin Collins, that in the absence of Hayden taking over the business it would likely have been forced  to close down  and  that SRL was technically insolvent. Because of SRL’s debt and Hayden’s reluctance to take on a company in such a difficult financial position, a new company, Select Reinforcing (2011) Ltd (SR(2011)L) was formed.  Essentially, the new company took over the business and it continued to trade with variable success over the following years.

[10]     By 2014 the indebtedness of the two trading companies, SRL and SR(2011)L reached a point where it had become unrealistic to expect the business to be able to trade its way out of its increasingly debt burdened state.  Mr Collins’s evidence was there were significant supplier arrears and it was imperative that equity be introduced to keep the companies afloat.  As a result, a decision was made for SHL to sell its land and building and advance funds to SR(2011)L to enable it to repay its debts.

[11]     In July 2014, SHL’s premises were sold for $490,000 to a third party.  After repayment of a bank debt of approximately $13,000 and an adjustment (which is

uncontested)  to  the  credit  of  SRL for  leasehold  improvements,  the  sale  netted

$428,519 to SHL.  The bulk of the proceeds of sale were then advanced by SHL to SR(2011)L in order to retire debt.  As a result, SHL’s only asset of significance was the $428,519 debt owed to it by SR(2011)L.

[12]     After  the  sale  of  SHL’s  property  and  its  advance  of  the  proceeds  to

SR(2011)L, accounts were prepared for the three companies as at 30 September

2014.  Mr Collins, who provided the only valuation evidence of SHL, concluded the equity in SHL was $297,861 and that this represented the value of its shares.  This net asset valuation was not contested by the parties and was accepted by the Family Court.   SR(2011)L was considered to have negative equity of $69,018.   SRL no longer trades, and as at 30 September 2014 was determined to have negative equity of $18,379.

The Family Court decision

[13]     The Family Court held that Robyn’s estate was entitled to share equally in the equity of SHL, which for the purpose of a date of hearing valuation was taken to be the $297,861 figure contained in the accounts for 30 September 2014.3    That determination is not challenged on this appeal.  In the Family Court, Robyn’s estate formally acknowledged that it made no claim in respect of the shares of SRL or SR(2011)L.  This was because there was little apparent equity in those companies, and the cost of a forensic accounting investigation of the financial position of those companies and Don’s use of them for his own purposes was not considered to be

worthwhile.

[14]     Judge  Murfitt   referred   to   the  power  of  the  Family  Court   to   make compensation awards under s 18B of the Property (Relationships) Act 1976 (the Act) for positive contributions made post-separation or pursuant to s 18C in response to post-separation  dissipation  of  relationship  property.    The  Judge  described  these

powers as providing a broad discretion designed to allow justice to be effected

3      Yates v Yates (Estate Of), above n 1 and Yates v Beecroft, above n 2.

within the principles of the Act and tailored to the circumstances of the individual case.4

[15]     The  Family  Court  made  the  uncontroversial  observation  that  the  three companies were operated as a group in a “co-operative mix” for the benefit of Don and his son.5   The Judge noted how the proceeds of the sale of the assets of SHL had been applied to discharge debt owed by the two trading companies and improve the profit and income earning capacity of SR(2011)L.  Reference was also made to the weekly payments Don received as income ($31,000 net per annum) for which he acknowledged he did very little, and his passive role as a director of the company.

[16]     Judge Murfitt considered that in the period since August 2011, the date of separation, Don and his son had benefitted from the equity, described in rounded figures as $300,000 from the sale of SHL’s assets. The Judge then found:

[18]     Bearing in mind this asset was used to mitigate liabilities to pay interest on business debt, it is not unreasonable to fix the benefit of that relief by reference to an interest rate of 12 per cent per annum for the periods referred to.  Over a period of four and a half years, that results in a benefit to SR (2011) Limited (and Don, its director) of $162,000.

[17]     In rejecting the arguments made on behalf of Don, Judge Murfitt held that Don had the advantage of control of the business which had provided him with a passive income since separation and enabled him to divert capital to the related company, SR(2011)L, for the ultimate benefit of his son.   The Judge made the observation, “[i]f this was not a strategy to defeat the respondents claim, then it

comes close to having that effect”.6   The Family Court concluded that overall Don’s

post-separation use of Robyn’s share in the equity of SHL to his benefit entitled her to the compensatory award of $162,000.

The appeal

[18]     Don argued that Judge Murfitt erred in awarding compensation in such a sum

for his use of Robyn’s half share of the value of SHL.   He submitted the Family

Court misapplied ss 18B and 18C of the Act.   Robyn defends the Family Court’s

4      Yates v Beecroft, above n 2, at [15].

5 At [16].

exercise of its discretion on the basis the award, while referencing a calculation of interest on the capital value of her share in SHL, took into account broader factors, including the post-separation changes to the value of the shares and the income received by Don during that period for which he did very little.

Approach on appeal

[19]     Appeals to this Court from the Family Court are governed by s 39 of the Act, which  imports  ss  74-78  of  the  District  Courts  Act  1947.    Such  appeals  are categorised as “general appeals” which proceed by way of rehearing.  The approach to such appeals is well-established following the Supreme Court’s decision in Austin, Nichols & Co Inc v Stichting Lodestar:7

[16]      Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellant 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. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[20]     However, the Court of Appeal has confirmed that where an appeal lies against the exercise of a discretion, an appeal Court will not interfere unless the Judge has acted on a wrong principle, failed to take into account some relevant matter, took account of some irrelevant matter, or was otherwise plainly wrong.8

[21]     As was observed by Heath J in B v F, the approach to be taken in the context of appeals from the Family Court, which will often represent a mixture of findings of fact, evaluative judgment and the exercise of statutory discretion, is not altogether easy.9    His Honour determined the appropriate approach to such an appeal was as

follows:10

7      Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.

8      May v May (1982) 1 NZFLR 165 (CA); Blackstone v Blackstone [2008] NZCA 312, (2008)

19 PRNZ 40.

9      B v F [De Facto Relationship] [2010] NZFLR 67 (HC).

(a)       First, I must take account of the advantage that [the Judge] had of hearing  and  seeing  the  witnesses  give  evidence  before  him (see Austin, Nichols at para [13]);

(b)       Secondly, to the extent that the Judge exercised any discretion in reaching his decision, I must determine whether those discretionary decisions were or were not open to him, based on May v May (1982)

1 NZFLR 165 (CA) and Blackstone v Blackstone [2008] NZCA 312 at para [8];

(c)       Otherwise, I am free to reconsider the Family Court’s decision and to substitute my own view on questions of fact and evaluation, if I were convinced that the first instance decision was wrong.

[22]     I proceed on the basis that questions of fact and evaluation remain matters for my assessment, however, I need to be cognisant of the findings or views of the lower Court, particularly where the Family Court Judge had the advantage of hearing and seeing the witnesses.   The orthodox threshold required to be met to successfully challenge the exercise of a Court’s discretion remains.   Whether approaching the matter as a general appeal or as an appeal from the exercise of a discretion, the appellant bears the onus of satisfying the appeal Court that the Family Court’s

decision under appeal was wrong.11

Section 18B of the Property (Relationships) Act 1976

[23]     The parties are agreed that while Judge Murfitt made reference to both ss 18B and 18C of the Act, the Family Court must have been exercising its discretion under s 18B. That section provides:

18B     Compensation for contributions made after separation

(1)       In this section, relevant period, in relation to a marriage, civil union, or de facto relationship, means the period after the marriage, civil union, or de facto relationship has ended (other than by the death of one of the spouses or partners) but before the date of the hearing of an application under this Act by the court of first instance.

(2)       If, during the relevant period, a spouse or partner (party A) has done anything that would have been a contribution to the marriage, civil union, or de facto relationship if the marriage, civil union, or de facto relationship had not ended, the court, if it considers it just, may for the purposes of compensating party A—

(a)      order the other spouse or partner (party B) to pay party A a sum of money:

11     Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355 at [40]-[45].

(b)       order party B to transfer to party A any property, whether the property is relationship property or separate property.

(3)      In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 86.

[24]     The term “contribution” is defined in s 18 of the Act:

18       Contributions of spouses or partners

(1)      For the purposes of this Act, a contribution to the marriage, civil union, or de facto relationship means all or any of the following:

(a)      the care of—

(i)       any child of the marriage, civil union, or de facto relationship:

(ii)      any aged or infirm relative or dependant of either spouse or partner:

(b)       the management of the household and the performance of household duties:

(c)       the provision of money, including the earning of income, for the purposes of the marriage, civil union, or de facto relationship:

(d)       the acquisition or creation of relationship property, including the payment of money for those purposes:

(e)      the payment of money to maintain or increase the value of—

(i)       the relationship property or any part of that property;

or

(ii)      the separate property of the other spouse or partner or any part of that property:

(f)       the performance of work or services in respect of—

(i)       the relationship property or any part of that property;

or

(ii)      the separate property of the other spouse or partner or any part of that property:

(g)       the  forgoing  of  a  higher  standard  of  living  than  would otherwise have been available:

(h)       the giving of assistance or support to the other spouse or partner (whether or not of a material kind), including the giving of assistance or support that—

(i)       enables  the  other  spouse  or  partner  to  acquire qualifications; or

(ii)      aids the other spouse or partner in the carrying on of his or her occupation or business.

(2)       There is no presumption that a contribution of a monetary nature (whether under subsection (1)(c) or otherwise) is of greater value than a contribution of a non-monetary nature.

[25]     A contribution under s 18B must be of such a nature that had it been made before the termination of the marriage it would have qualified under s 18 of the Act as a contribution to the marriage.12    A common example of such a contribution is where one partner makes his or her share of capital in the family home available to the other for the purpose of allowing that partner to occupy the house.  In the context of such a case, Ronald Young J held, in E v G:13

[24]      The appellant, by providing his half share in the capital in the house to the respondent to use is making a “contribution” in terms of s 18B. Section 18B requires a Judge then to consider whether it is just for compensation to be made for this contribution.  Here the Judge concluded the answer was yes.  I agree.  Finally the Judge is to decide how much (here money pursuant to s 18B(2)(a)) need be paid for the purpose of proper compensation.  Payment of occupational rental has been a way in which a “just” payment of compensation is assessed for exclusive use of the spouse’s capital tied up in the occupied family home.

[26]     The present situation is akin to a claim for occupational rental.   By Robyn allowing her half share in the capital of SHL to be used for the purposes of the business and for the proceeds of the sale of its assets to be subsequently applied to maintain the trading operations of SRL and SR(2011)L, she was making a contribution in terms of s 18B.

[27]     The mere fact that a party has made such a contribution is not, however, of itself sufficient to entitle that party to an award under s 18B.  The Court must also be satisfied that it is just in all the circumstances that such an order be made, and, if so, to assess the appropriate amount of compensation.   In making that assessment the Court will be required to take into account a variety of factors, including the nature

of the assets in question and the specific circumstances of the particular case.14

12     C v C HC Auckland CIV-2007-419-1313, 26 June 2008 at [25].

13     E v G HC Wellington CIV-2005-485-1895, 18 May 2006.

14     C v C, above n 12, at [28]; S v B [2010] NZFLR 1045 (FC), endorsed by Kos J in Griffiths v

The application of s 18B by the Family Court

[28]     Don submitted the approach taken by Judge Murfitt when he described the discretion as “best exercised with a broad brush” was erroneous.15   He submitted the discretion is not unfettered and must be deployed to provide fair compensation for a party’s loss, in order to put a complainant in the same position that he or she would have been had that loss not occurred.  I do not consider it is essential to focus on one party’s loss.  What is required by a Court in the exercise of its s 18B discretion, as

with the discretion under s 2G of the Act, is to “achieve justice” between the parties by ensuring that neither party should benefit, nor be prejudiced as a result of the post-separation conduct of the other party.16

[29]     Essentially, Robyn’s claim distilled to a submission that it was just for her to be compensated for the contribution she made in permitting her share in the equity in SHL to be used by Don.  She received no benefit from allowing Don to utilise the equity in the way that he did after their separation, which would have otherwise constituted a contribution to the marriage had it not ended.  This was to be contrasted with how Don had been able to utilise SHL’s value for the purpose of the continued operation of the business for the benefit of both himself and his son.

[30]     Don acknowledged that since the sale of SHL’s property, SR(2011)L had the benefit of Robyn’s equity in SHL ($148,930) and that it would not be unreasonable for her to be compensated under s 18B for her loss in not being able to utilise the capital sum.   However, he submitted the Family Court was plainly wrong when it described the directors and shareholders of SRL and SR(2011)L as having had the benefit of the equity, which the Judge referred to as $300,000, from the date the couple separated in August 2011.  Furthermore, that the fixing of the benefit by the application of an interest rate of 12 per cent per annum was unjustifiable.   Don submitted that rate of interest should not have been applied to the whole sum of the equity in SHL because Robyn was only entitled to a half share.   Nor should the

calculation, he submitted, have been made at that inflated rate in respect of the whole

Griffiths [2012] NZFLR 327 (HC) at [38].

15     Yates v Beecroft, above n 2, at [15].

16     Monks v Monks [2006] NZFLR 161 (HC) at [48]-[50], approving the judgment of the Family

Court in Fischbach v Bonnar [2002] NZFLR 705 (FC).

period of the separation, some four and a half years, when the asset was only realised as a result of the sale in mid 2014.

[31]     I acknowledge Robyn’s position that the 12 per cent interest rate was applied in an endeavour to take into account wider considerations than simply the mathematical application of a market interest rate in order to calculate a return from a  capital  sum.    These  are  considerations  that  I  canvas  later  in  this  judgment. However, it appears on the face of the Family Court’s decision that in calculating the s 18B award it did not take into account the changing financial position of the companies over the post-separation period and the different use that was made of SHL’s assets as at the date of separation in 2011, the date of the sale in 2014, and subsequently thereafter.

[32]     The Family Court referred to the relationship asset as being the equity from the sale of SHL’s property in 2014 which was applied to service the business’s debt. In fact it was the net proceeds of the sale, some $428,519, which was used to reduce the other companies’ debts.  However, the very high 12 per cent interest rate, which might have been considered a response to the unilateral way the proceeds of the sale were applied solely for the benefit of Don, attaches to the total four and a half year post-separation period.  Leaving to one side for present purposes the loss of income to Robyn, the application of the 12 per cent rate over such a period appears to overlook the fact that, in the normal way, the equity in SHL was calculated on the basis of a date of hearing valuation and therefore took into account the increasing value of the company’s assets over that period.

[33]     I accept Don’s submission that the approach taken by the Family Court does not accurately reflect when the funds became available to be applied for the purpose of servicing SRL and SR(2011)L’s debt.  The rationale of applying a 12 per cent flat rate of interest to the whole period between separation and the date of hearing to a figure which reflects the valuation of SHL’s shares at the end of that period  is difficult to understand.    That approach appears to conflate two different considerations;  the capital  value of the shares  during the post-separation  period which Robyn lost the opportunity to access for her own benefit; and the benefit

obtained by Don from liquidating SHL’s assets in 2014 and applying the proceeds to the businesses.

[34]     The application of s 18B involves the exercise of discretion and I accept the approach to be taken requires an assessment to be made in the round as to what is just in the circumstances of the particular case.   However, the basis on which the Court has exercised its discretion in the present case does not appear to justify the high interest rate applied and the resulting amount of compensation.  In my view, it is necessary for the s 18B assessment to be examined afresh.

A fresh appraisal

[35]     In  considering whether the discretion under s  18B of the Act should be applied, three questions require to be addressed:

(a)       Did Robyn do anything during the post-separation period that would have been a contribution to the marriage had it not ended?

(b)Would it be just in all the circumstances to make an order under s 18B?

(c)       What amount of compensation should be paid?

Did Robyn make a contribution post-separation?

[36]     Don has acknowledged Robyn is entitled to be compensated for her lost use of the sum of $148,930, representing her half share in the equity of SHL from the time SHL’s property was sold, and which was applied for the benefit of the business. That concession, however, does not extend to the period before the sale of the company’s  property  in  mid-2014.    Nor  does  it  take  into  account  that  had  the company simply been liquidated and the assets  distributed at  that point, Robyn would have been entitled to a significantly greater capital sum than her half share of the equity after the sale proceeds had been applied to pay off business debt.  This resulted in the sole asset of SHL being limited to the debt owed to it by its related companies.

[37]   I am unable to discern why that concession should not extend to an acknowledgment of Robyn’s half share in the equity in SHL which remained tied up in that company between August 2011 until the sale by SHL of its assets in mid

2014.  For the six years of the marriage, Robyn’s share in the equity of SHL was applied for the purpose of the business from which income was generated for the mutual benefit of both parties. After separation, Robyn no longer enjoyed the benefit of any income from the business.   That position is no different from the situation where one party remains in the family home and enjoys the benefit of the other party’s half share in the capital of the asset.

[38]     Robyn was entitled to be compensated for the making available of her half share in the equity of SHL to Don for the purpose of his business.    That was a “contribution” she made, and from which Don benefited, from the date of separation until the date of hearing. After the sale of SHL’s assets, Robyn’s share, or at least her estate’s half share, in the assets of the company was applied to reduce the indebtedness  of  the  two  trading  companies  so  as  to  allow  them  to  continue  to operate.  Robyn is entitled to be compensated for the use made of her share in the relationship property at that time, which was clearly applied to the advantage of Don and his son and to her disadvantage.

[39]     Don sought to distinguish the period between separation and the date of the sale of SHL’s property on the basis the trading companies paid the holding company a rental for the use of the premises.  I do not consider that alters Robyn’s entitlement to be compensated for her half share in the equity that was applied for the benefit of the business between separation and the sale.  Firstly, it needs to be remembered that SRL, which paid the rental, was itself a relationship company in respect of which Robyn was entitled to make a claim.  She chose not to do so because of the poor financial position of that company and the difficulty in investigating how Don had used the company for his own benefit.  Secondly, Robyn did not receive any return from SRL’s payment of a rental to SHL.   It did not result in any income being generated for her out of the equity she held in the company.   The only income generated was by the trading company from which Robyn received nothing.

Is it just for compensation to be made for this contribution?

[40]     Robyn emphasised that in assessing whether it was just in the circumstances to make an order under s 18B, it was necessary to consider the wider circumstances which supported an award that went beyond a calculation based upon the application of a market rate of interest to a capital sum which Robyn had not been able to access. She relied upon the observations of Judge Kallinicos, in S v B [s 18B compensation] where, in the context of an assessment of occupational rental and whether an award should take the form of a rental or interest calculated on the capital value of the

parties’ share in the equity of the home, it was noted:17

... there are two separate financial interests at play when family homes are utilised by one party at the exclusion of the other.   One of the financial interests is the capital item, namely the composition of two half-share interests in the subject real estate.  The other financial interest is an income asset which would normally carry benefits of rights of use, enjoyment or rent... In situations where one party retains the other’s share by way of occupation, there is a risk that compensation by way of interest alone might not achieve a just outcome by virtue of interest being a somewhat arbitrary tool.  In such situations it is, in my view, preferable to approach matters by way of assessing occupational rental for the use of the income asset and by way of a share in any increase in the capital component, if any.  The choice of approach will very much depend upon the range and nature of assets at play between the parties in the specific circumstances existing on a case-by- case basis.

[41]     Care is required when drawing an analogy with the situation of one party occupying the family home.  As was explicitly mentioned, the nature of the assets in question and the specific circumstances of the individual case need to be taken into account.

[42]     Judge  Murfitt  did  not  limit  himself  when  considering  the  justice  of  the situation to an assessment of the loss of interest able to be earned as a return on the capital sum tied up in the equity of SHL.  It is apparent the Judge considered there were wider factors at play.  These included Don’s access to a passive income via the business, the benefit of the equity in SHL in support of the overall solvency of the business and the subsequent application of the proceeds of the sale of SHL’s assets for the purpose of financially maintaining the two trading companies.  This resulted

in the diversion of capital to benefit SR(2011)L, and therefore to the benefit of Don

17     S v B [s 18B compensation] [2010] NZFLR 1045 (FC) at [15].

and his son.   I consider the Family Court was correct to take those considerations into account in assessing whether it was just in the circumstances to make an award in favour or Robyn.

[43]     I accept Robyn’s submission that the making of a compensatory award in the circumstances of this case should not be limited to a calculation of interest on a half share of the equity in SHL at the date of hearing.  The benefit which the two trading companies obtained from the sale of SHL’s assets in mid 2014 was to utilise the total net proceeds, some $428,000, to discharge debt and improve their profitability.  The savings  made  by  the  reduction  of  the  cost  of  borrowing,  and  the  opportunity provided to Don and his son to build value in the trading companies as a result of the application of Robyn’s share in the assets of SHL were benefits which  I accept should properly be taken into account when making an appropriate award in the circumstances of this case.

[44]     I  also  consider  the  Family  Court  was  correct  to  recognise  the  so-called passive income which Don received for doing very little other than fulfilling his position as a director of both companies. This wider indirect benefit to Don resulting from the continuation of his business was a factor properly taken into account in assessing a just outcome.

[45]     In my view, all these considerations are matters which can legitimately be taken into account in the exercise of the Court’s discretion under s 18B in the particular circumstances of this case.  In that respect, I consider that Judge Murfitt was correct in referring to these factors in the exercise of his discretion under s 18B. However, the essential question is how these circumstances should translate in terms of the amount that should be awarded to Robyn to reflect these factors.  This leads to the third issue of the assessment of the appropriate amount of compensation.  Judge Murfitt applied a 12 per cent interest rate which resulted in a figure of $162,000. The difficulty with that approach is that it remains opaque as to how the various considerations to which I have referred were assessed in reaching that final figure.

Assessment of compensation

[46]     Don submitted the level of compensation ordered by the Family Court was excessive.  He sought to illustrate that by reference to the way the value of the shares in SHL increased between the date of separation and the first hearing date.  SHL’s premises were the subject of a valuation in July 2012 which determined a value of

$382,000.   Applying that valuation and deducting the figure of $72,000 for the leasehold improvements and the book value of the property as set out in the 2011 statement of financial position and then adding the existing equity as shown in the financial statements, the net value of the company was calculated as being $203,248.

[47]     It  was  submitted  the  value  of  Robyn’s  equal  share  in  SHL  around  the proximate time of separation would have been $101,624.  When compared with the agreed value of her share in the company as at the date of hearing of $148,930, Don argued that Robyn had achieved a capital gain of $47,306 over the post-separation period.  He submitted this should have been taken into account in assessing the level of compensation Robyn should receive as a result of her share in the equity of the company utilised by Don and his son.

[48]     Don’s analysis of the capital benefit to Robyn as a result of the increase in the value of SHL’s shares was not disputed.  However, Don was also the benefactor of that increase in the capital value.  The right to share in both the inflationary increase in  an  asset’s  value and  to  be recompensed  for  the loss  of the property is  well

recognised in the case law.18   Don’s analysis does not address the advantage to him

from Robyn’s share in the capital being permitted to remain in SHL for the benefit of the trading companies’ business.  Nor does it reflect the lost opportunity to her from not being able to obtain income from that capital which remained tied up in SHL for no return.

[49]     In mid-2014 SHL was effectively liquidated.  Instead of the net proceeds of the sale being equally distributed to the two owners of the company, all the cash was applied to retire debt owed by the trading companies.  Robyn’s half share in the net

proceeds of the sale was $214,259.50.  That sum would have represented her share in

18     Aalders v Stevens (1989) 5 FRNZ 198 (CA); Blackie v McKewen (1994) 11 FRNZ 666 (HC);

Kalff v Kalff [1996] NZFLR 577 (HC).

the value of the company as a result of the sale.  Having made that observation it is also necessary to take into account the fact that SHL and SRL were operated in conjunction to support  the business, as they had been  during the course of the marriage.   SRL was also a relationship company, and it is not open to Robyn to simply take the benefit of the asset-rich SHL and absolve herself from taking any responsibility for related  relationship  liabilities arising from  the indebtedness  of SRL.  The fact remains, however, that the whole of the net proceeds of the sale of SHL’s assets, $428,590, were applied to discharge debt owed by the trading companies which significantly benefitted the non-relationship company SR(2011)L, and allowed it to continue to trade for the benefit of Don and his son.

[50]     The calculation of the adjustment also needs to take into account the passive income which Don received throughout the post-separation period.   He was being paid $600 per week, which amounted to a net salary of $31,200 per annum.  Don submitted these payments did not result in any loss to Robyn for which she should be compensated.  He suggested the income paid may have been subsidised by his son being paid a lesser amount than he was otherwise entitled at a market rate for the services he provided to the business, or that such payments were funded by lending arrangements. There was no direct evidence of this however.

[51]     In examining the application of s 18B, the Court is required to achieve justice between the parties in the individual circumstances of the case.  I consider there to be a sufficient causal nexus, albeit perhaps an indirect one, between Robyn allowing her share in the equity of SHL to remain unrealised to her during the post-separation period, both before and after the sale of that company’s assets, and the business being able to afford to pay Don this passive income.  Robyn received no benefit from the continued operation of the business, and in particular received no income or return from the business, whereas Don received an annual salary for doing very little. It follows that this accumulating disparity should be recognised as a component part of compensation paid to Robyn.

[52]     The question of the compensation needs to reflect the various considerations discussed and result in a realistic and reasonable award in favour of Robyn which fairly reflects the contribution she made in allowing her capital in SHL to be applied

in the way it was over some five years between the date of separation and the second hearing in April 2016.  In my view, that can be achieved by awarding the aggregate of the following three calculations.

[53]     Firstly, by taking the average of the calculated equity as it stood as at 31

March 2011 and 30 September 2014, being $101,624 and $148,930 respectively, and applying an interest rate of five per cent over 4.66 years.  This equates to a return of

$29,189.54 ($125,277 x 5% x 4.66 years).

[54]     Secondly, in order to reflect the unilateral use to which Don applied the net proceeds of the sale of SHL’s assets in mid-2014 for the benefit of the trading companies, and therefore to himself and his son, I would add as a component of the compensation the sum of $29,996.   That sum has been calculated on the basis of Robyn’s 50 per cent share of the net sale proceeds of SHL’s assets which amounts to

$214,259, applying an increased interest rate of seven per cent over the two years between the sale of the Ryans Road property and the date of the second hearing.

[55]     The third component is an adjustment for the passive income received by Don during the post-separation period.  I accept that some adjustment is required to be made to reflect fees that arguably could have been legitimately paid to Don in his capacity as a director of the two trading companies.  The fact remains, however, that by his own admission he did not work or contribute to the running of the business. On the basis that Don on the available evidence could have been entitled to a stipend of $300 per week ($15,600 per annum), I would award Robyn a half share in the balance, which multiplied over 4.66 years amounts to the sum of $36,348.

[56]     Adding each of these component parts, I arrive at a total compensation award of $95,533.54.   There is a degree of arbitrariness in choosing to approach the assessment or calculation by applying a particular process or combination of mechanisms  in  preference  to  other  approaches.    I  have  little  doubt  that  Judge Murfitt’s approach of applying an increased rate of interest was chosen by him in an attempt to reflect the benefit to Don from Robyn allowing her share of the capital in SHL to be applied in the way it was over the post-separation period.  As is apparent

from my assessment, I consider that this approach led to a higher compensatory award than was justified in the circumstances.

[57]     As is apparent from the present case, there will often be a number of various factors to be taken into account in assessing what is a just and fair award under s 18B of the Act in the circumstances of a particular case.   I have sought to link my calculations to the benefits received by Don compared to Robyn and the lost investment opportunity to Robyn from allowing Don to retain control over her share in the equity of SHL.  It is hoped by doing so there is a level of transparency as to how the award has been arrived at.

Adjustment for occupation of the home under s 18B

[58]     No claim was made by either party at the first hearing for their occupation of the family home since separation.  By that time each had occupied the family home for approximately equal periods.   The benefit that had been received by Robyn during her lifetime was offset by the benefit received by Don between the date of her death and the first hearing in February 2015.  By the time of the second hearing in April 2016, Don had occupied the home for a period approximately 9 months longer than Robyn, and by the date of the hearing of this appeal by some 16 months.

[59]     At  the second  hearing,  Judge Murfitt  rejected Don’s  submission  that  the Court did not have jurisdiction to entertain Robyn’s claim for occupational rent. However, the Judge noted difficulties for Robyn in prosecuting her application at that time.  It had only been brought after the conclusion of the evidence at the first hearing and, in the absence of a claim of this type having been pursued at the first hearing, relevant evidence had not been led.  In that regard, it was noted this may have included evidence of expenses incurred by Don in maintaining the property and repairing it.   Additionally,  it  was  observed  there were assets  which  Robyn  had retained post-separation and the benefits she received from retaining those assets would need to be quantified.

[60]     While the Judge made reference to his intention to return to this topic at the conclusion of his supplementary judgment, the issue of Robyn’s s 18B claim was not revisited.   Don submitted that Judge Murfitt chose not to exercise his discretion.

However, it is apparent the issue was formally put forward for the Family Court’s

consideration and that, while jurisdiction was accepted, it was not dealt with.

[61]     One of the obstacles to the Family Court addressing Robyn’s application was the paucity of evidence led in relation to the issue.  On the appeal, Robyn has sought leave to file evidence from a registered valuer as to the current market rental of the property and from her daughter who is an executor of her estate.  Don has filed his own affidavit to address the issue.  Because the matter was formally raised for the Family Court’s consideration and it accepted jurisdiction to consider that claim, there is no barrier to the matter being raised on appeal.  In the absence of the Family Court addressing itself to the issue, it is necessary for me to assess the merits of the claim and exercise my own discretion pursuant to s 18B of the Act.  For that purpose, I formally grant leave to the parties to file the affidavit evidence in support of their respective positions.  That evidence, however, was not tested by cross-examination and there clearly are some controversial aspects.

[62]     The starting point is the assessed market rental of $475 per week.   This evidence is accepted by Don.   However, he submitted the relevant period for the purpose of any s 18B exercise would be from August 2015 to the date of the second hearing (13 April 2016).19   Robyn contended the relevant period should extend to the date of the hearing of the appeal.  I do not accept that submission.  The words of the provision are clear, and the relevant period is to be calculated from the date of

separation to the date of hearing the application.  While it may be arguable the issue is being ventilated for the first time on appeal, the words of s 18B(1) are explicit and refer to “the date of hearing of an application under this Act by the Court of first instance”.

[63]     Applying the market rental of $475 per week to the relevant nine month period results in a sum of $18,525.  Half of this sum is $9,262.50.  It is indisputable that Don is entitled to credit his payment of the insurance and rates during this

period. A half share amounts to $1,518.61.

19     The August 2015 date provides for each party having an equal period of two years occupation since the date of separation.

[64]     Don has made claims for other expenses relating to the property.   In his affidavit he refers to the  circumstances of his reoccupation of the address after Robyn’s death.  In particular, he refers to items having been taken from the house, including personal tools and equipment.   As a result, and on the advice of his solicitor,  the  locks  were  changed  and  the  property  secured  by  deadbolts.    Don deposes to damage done to the property as a result of forceful re-entry and the need for a set of garage doors to be replaced by insurance.   No evidence was filed to contradict Don’s claim, however, given the timing of the filing of his affidavit in response to the evidence in support of the s 18B claim, I doubt it was practical before the hearing of the appeal for such evidence to be prepared.  In any event, this part of Don’s evidence was always likely to be contested.  Without oral evidence and cross- examination, which would no doubt have resulted in further expense to the parties, it is difficult to make any determinative findings about some of Don’s claims.

[65]     In respect of Don’s claim for an adjustment for lock replacement ($797.90), insurance excess for damage to garage doors ($400), and the cost to restore the grounds to their previous state following Robyn’s death ($1,127), I would allow a 50 per cent adjustment.   There are invoices which substantiate the expenses incurred and I consider an equal apportionment of these costs as the most equitable approach in the circumstances.   In respect of the work carried out on the grounds this will ultimately be to the benefit of the capital value of the property which I understand is to be sold.  When those sums are added to the cost of rates and insurance, the total amount of the adjustment is $2,681.06.

[66]     Don also made a claim for reimbursement for property damage and expenses incurred by him when returning to the family home in September 2013.  I am not prepared to make an adjustment for that claimed item.  Apart from the allegations made by Don there is no supporting evidence tendered to corroborate the loss he contends he has suffered.  Put simply, I am not in a position to make a reasonably accurate assessment of this aspect of his claim.

[67]     Don also made a claim for a half share of boat insurance between 2011 to

2016.  This is related to an ongoing issue between the parties relating to a motorboat and trailer which was retained by Robyn when the couple separated in August 2011.

Don has appealed the Family Court’s refusal to allow him to inspect the boat in order to have it independently assessed and valued.  I deal with that issue in the final part of the judgment below.

[68]     In  respect  of  Robyn’s  claim  for  occupational  rent,  I  make  an  award  of

$6,581.44.

The boat

[69]     In evidence provided by Don before the Family Court, he estimated the value of the boat and trailer as being some $85,000.  The boat is a seven metre aluminium craft with a Yamaha 200 outboard motor, together with auxiliary motor, GPS system, fish finder, and incidental accessories.   The boat and its outboard, as at February

2015, were of some 24 years vintage.  The valuation obtained on behalf of Robyn in

2012 assessed the vessel with all electronics at $21,700.  Another valuer, instructed on behalf of Don, who was not able to sight the vessel, assessed its worth as being

$58,000.   Don has been denied access to the boat for the purpose of providing a more accurate valuation.

[70]     None of the parties wish to retain the boat.   In his March decision, Judge

Murfitt rejected Don’s submission that the boat be vested in Robyn at a value of

$58,000.20    The Judge was not satisfied that was an accurate estimate either of the present value of the boat, nor at the time the parties separated in 2011.  The Family Court considered the fairest approach was to direct the boat be prepared for sale and that it be sold by a dealer or by such other means as the parties may agree.  The net proceeds of sale were to be held in a solicitor’s trust account pending final division of relationship property.

[71]     The subject of the boat was returned to by Judge Murfitt in his supplementary judgment of May 2016.21   Reference was made to concerns that Don harboured that the boat had been used and damaged during the post-separation period.  However, earlier similar suggestions that had been made at the first hearing had not been

substantiated on  the evidence.    Judge Murfitt  commented  that  he had  not  been

20     Yates v Yates (Estate Of), above n 1, at [95].

21     Yates v Beecroft, above n 2.

persuaded the boat had been used by Robyn or her son, at least in such a way as to lead to any additional decline in its value.  At the April hearing, Judge Murfitt noted that he had received no evidence on that issue.  The Judge confirmed his position that the boat be sold for whatever price it could fetch on the open market and be divided between the parties.

[72]     In confirming that position, the Family Court rejected Don’s application for an order that he be able to inspect the boat with a valuer in order to establish the condition of the boat and obtain reassurance that all the equipment was intact.  Don has appealed that refusal, arguing that an injustice could arise if it is found the boat has been damaged or that items of equipment are missing.

[73]     Robyn’s response was that evidence was given about the boat by Robyn’s daughter who is an executor of her estate at the first hearing.  The Judge found as a fact that the boat had remained in storage since separation and had not been used.  In the absence of evidence to the contrary it was submitted there is no basis upon which to disturb the Family Court’s finding.

[74]     The issue of the boat is clearly the source of suspicion on Don’s part and has created further tension between the parties.  I have little doubt the approach taken by Judge Murfitt was in an endeavour to progress resolution of the protracted relationship property dispute and to bring some finality to the proceeding.  On the other hand, the boat is an item of relationship property and Don is aggrieved that he has  not  had  access  to  it  for  the  purpose  of  making  his  own  assessment  of  its condition and market value.

[75]     I note the boat is now over 25 years of age and is an item of property notoriously subject to high levels of depreciation.  Essentially, Don seeks access to the boat for the purpose of potentially re-litigating the Family Court’s finding that the boat has not been ill-treated or damaged during the post-separation period whilst it has been outside his control.  However that issue has already been decided by the Family Court and findings of fact made by Judge Murfitt on the basis of the evidence adduced before him to which he refers in his judgment of February 2015.  No further evidence was sought to be adduced before me on the appeal.

[76]     Judge Mufitt, after noting the age of the boat, the death of Robyn, and the incapacity of Don, considered that in the circumstances the fairest approach was to direct its sale by an independent dealer and the proceeds split.   I agree.   Don’s concerns were ventilated before the Family Court but ultimately the Judge was not satisfied there was any misconduct which resulted in a decline in the boat’s value.

[77]     In his affidavit, Don refers to having paid $3,769.52 to insure the boat over the post-separation period.  He is entitled to be credited with Robyn’s equal share of that cost.   Beyond that adjustment, I do not consider in the circumstances Judge Murfitt erred in directing the sale of the boat without providing Don the opportunity of inspection.  In the absence of him providing a sufficient evidential foundation to warrant delaying the disposition of this item of relationship property for the purpose of allowing him to reopen issues regarding the history of the boat, about which the Family Court has already ruled, I consider the need for finality prevails.

Result

[78]     Don’s appeal in respect of the Family Court’s s 18B order is allowed.  The s 18B compensation award of $162,000 is quashed and in its place I make an order for the sum of $95,533.54.

[79]     Don’s appeal in respect of the motor boat is dismissed, although I direct he be paid $1,884.76, being Robyn’s half share of the cost of insurance.

[80]     Robyn’s cross-appeal seeking a s 18B award for occupational rent for Don’s nine months occupation of the family home up until the date of hearing is allowed.  I make an order awarding her $6,581.44.

Costs

[81]     On balance, I consider both parties can claim some level of success on the appeal.   Don has overturned the Family Court’s decision but Robyn has been successful in maintaining a significant compensatory award.  She succeeded in her claim for an occupational rent.  I am presently minded to let costs lie where they fall.

If the parties do wish to be heard on the issue of costs they should exchange and file memoranda (not more than three pages) in the ordinary way.

Solicitors:

Peter Egden Barrister, Christchurch

Stephanie Marsden Barrister, Christchurch