The greatest hits of Family Property 2008

The greatest family property cases of 2008 are conspicuous by their absence. Four appeals - R v R, X v X, Ward v Ward, and Kerridge v Kerridge are either waiting to be heard, have been adjourned part heard, or are awaiting a decision.

R v R

An appeal from R v R [2007] NZCA 406 was heard in the Supreme Court last year and is awaiting a decision. The case involves sections 9A(1) and (2) (when separate property becomes relationship property) and 17 (sustenance of separate property) of the Property (Relationships) Act 1976 (Act).

The parties were a farming couple who were married for many years and had a family together. Before the marriage, the husband had joined his father and brother in a farming partnership. The partnership farmed three properties. One property belonged to the husband, one was his father’s, and the other belonged to his brother. When the husband’s father died, he and his brother inherited most of that property. The farming partnership never prospered. At times, it didn’t provide enough income to support the family, but Mrs R worked outside the home and her income helped pay the family’s living expenses. She did not work directly on the farm. Eventually, part of the farm property was sold, but, at separation, the partnership debt still exceeded its assets. Decisions in the Family Court, High Court, and Court of Appeal produced see-sawing results.

The case is important because issues about sharing separate property arise so often. Few family property cases reach Supreme Court level.

X v X
An appeal from X v X was adjourned part-heard by the Court of Appeal late last year. X v X is one of the best-known family property cases. It concerns section 182 of the Family Proceedings Act 1980 (FPA) (variation of trusts on dissolution of marriage), but is better known as a case about section 15 of the Act (economic disparity).

The parties were an Auckland couple who had been married for 21 years. They were both highly qualified in commerce. During the marriage, they built up assets worth about $8 million, some of which were held in a family trust. Mr X worked throughout, while Mrs X was an at-home mother. The case was initially heard in the Family Court. It went on appeal to the High Court, and was then sent back to the Family Court for an assessment of Mrs X’s economic disparity entitlement.

X v X has mainly generated interest because it concerns economic disparity – or compensation for career interruption. The economic disparity provisions were included as part of the 2001 amendments to the Act. They have proved to be vexed, and generated a good deal of debate. More guidance about when and how the provisions are to be applied is much needed.

Section 182 of the FPA allows the Court to exercise its discretion if a trust no longer meets the reasonable expectations of the parties because of the divorce, thereby creating a significant unfairness for the applicant. Recently, the Courts have been using this section to vest capital in spouses who would otherwise have missed out on an equal share of relationship assets. The way, and extent to which, the Courts are prepared to use this section is still being explored.

Ward v Ward
An appeal from Ward v Ward [2008] 3 NZLR 383 was to be heard in the Court of Appeal on 19 February. The Ward case also involves section 182 of the FPA.

During their marriage, the parties signed an agreement under section 21 of the Act (contracting out) which was to apply in all circumstances, including separation. Under the agreement, they became equal shareholders in a company which owned the family farm. They then sold all their shares in the company to a family trust. Under the trust deed, the parties had equal control and benefit. A partnership agreement was also signed for the running of the farm. When they separated, there was very little relationship property to be divided. The family trust was deadlocked with Mr Ward living on the farm and running it and Mrs Ward left out in the cold. The Family Court was prepared to order that the shares which had been transferred by Mrs Ward to the existing trust should be transferred to a new trust. On appeal to the High Court, the decision was overturned.

Kerridge v Kerridge
An appeal from Kerridge v Kerridge (31 October 2008, High Court, Auckland, CIV-2006-404-1393, Justice Heath) was heard in the Court of Appeal last month. This was not a family property case – the decision was a refusal to strike out civil proceedings issued by the wife against the husband on the grounds that they were barred by section 4 of the Act (a codification provision), notwithstanding section 51 (which allows parties to a marriage to sue each other in tort, as if they were not married).

The parties had lived in an apartment in Auckland. It was held by a trust in which Mrs Kerridge had no control or interest. Mrs Kerridge claimed that Mr Kerridge had told her that relationship property was to be used to buy a one half share in the apartment. In fact, it was spent on a business venture and living expenses. She claimed that when she discovered that she had no interest in the apartment she confronted her husband. He told her he would instruct his lawyers to transfer the property from the trust to the two of them as owners.That never happened, and Mrs Kerridge brought a claim based on a constructive trust, negligent misstatement by both the husband and the trustees, negligence by the husband, deceit by the husband and one of the trustees, and negligence by the husband’s lawyers.

Only three of the causes of action against the husband were subject to the strike-out attempt: negligent misstatement, negligence, and deceit. There were also Limitation Act 1950 arguments.

The High Court held that section 51 had primacy over section 4, but struck out the negligent misstatement and negligence claim on the basis that they were time-barred. The case is important, because there are no previous authorities which deal specifically with the scope of section 51 of the Act. Kerridge is likely to define the extent to which civil claims against spouses or former spouses can be pursued.

While those four family property cases await an outcome, decisions were made during 2008 on issues far and wide.

Regal Castings Limited v Lightbody
Regal Castings Limited v Lightbody [2008] NZSC 87 dealt with section 60 of the Property Law Act 1952 rather than the Act, but may overrule implicitly the Court of Appeal decision in OA v Johnson [2007] NZCA 348, about section 47(1) of the Act (transactions to defeat creditors).

The Regal Castings case dealt with similar issues to Johnson – creditors alleging that spouses had entered into transactions to defeat creditors. In Johnson, the Court of Appeal set a high threshold and found no intent. Regal Castings set a lower one, with the Supreme Court finding that the parties disposition of their family home to their family trust was intended to defeat creditor’s rights. If the Regal Castings test had been applied in Johnson, the conclusion may well have been different.

OA v Wilson
OA v Wilson [2008] 3 NZLR 45 involved a bankrupt property developer and creditors who were owed more than $500,000. The Official Assignee argued, unsuccessfully, that the developer’s family trust was a sham. The Court of Appeal commented extensively, albeit obiter, on the law relating to sham and alter ego trusts. For more details, refer to the NZLawyer article “Exorcising the alter ego”, (Issue 91, 27 June 2008).

B v BIn B v B [2008] NZFLR 789, the High Court on appeal from a Family Court decision held that interim maintenance was capable of including legal costs and valuation expenses to prepare for an upcoming relationship property case.

Shepherd v Shepherd
Shepherd v Shepherd (23 October 2008, High Court, Auckland CIV-2008-404-2213, Justice Asher) concerned section 7 of the Act (at what point assets should be classified as moveable or immovable). The property in question was a macadamia nut farm in New South Wales. After proceedings had been started and before the hearing commenced, the husband sold the property. Under section 7 of the Act, the Courts have no jurisdiction over immoveable property outside New Zealand (such as the farm property), but have jurisdiction over movable property (such as the proceeds of sale of the farm property) subject to one of the parties being domiciled in New Zealand. The Court held that the relevant date was the date of hearing, and so the proceeds of sale were to be included as an item in the pool of relationship property.

Fraser v Buxton
Fraser v Buxton (3 December 2008, High Court, Wellington CIV-2008-485-001101, Justice Wild) concerned section 10 of the Act (intermingling of separate property). During the marriage, Ms Buxton had received money and shares from an inheritance. Her husband, Mr Fraser, who was a lawyer, handled all their financial affairs. The parties had a family trust, which held their main assets. The inheritance was used by the trust. The Family Court held that Ms Buxton had acquiesced rather than consented to any intermingling and that the inheritance should remain her separate property. Consent required an active role, not a passive one. The decision was upheld by the High Court on appeal.

Kindly reproduced courtesy of NZ Lawyer Magazine & Andrea Manuel andrea@Oconnellchambers.co.nz 09 913 7432

Posted: 26 Feb 2009