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Court of Appeal of New Zealand |
Last Updated: 18 January 2018
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NOTE: THIS JUDGMENT HAS BEEN REDACTED SO AS TO CONFORM TO THE REQUIREMENTS OF AN INTERIM ORDER MADE IN THE SUPREME COURT OF NEW ZEALAND ON 31 MARCH 2006.
NOTE: NO PUBLICATION OF THIS PROCEEDING IS PERMITTED UNDER S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, EXCEPT WITH THE LEAVE OF THE COURT THAT HEARD THE PROCEEDINGS, AND WITH THE EXCEPTION OF PUBLICATIONS OF BONA FIDE PROFESSIONAL OR TECHNICAL NATURE.
IN THE COURT OF APPEAL OF NEW ZEALAND
CA13/05
BETWEEN M Appellant
AND B Respondent
Hearing: 18-20 October 2005
31 January 2006
Court: William Young P, Hammond and Robertson JJ Counsel: D A T Hollings & D J Taylor for Appellant
M W Vickerman for Respondent
Judgment: 22 March 2006
JUDGMENT OF THE COURT
The appeal is allowed by:
item the wife is entitled to
[$45%X].
M V B CA CA13/05 [22 March 2006]
B There is additional relationship property, namely the return
from the interest in the firm from 2 September 2001 to the
date of hearing,
which is a total sum of [$90%X]. In respect of this item the wife is also
entitled to a half share, namely [$45%X].
C There will be interest on the combined sum of [$90%X] at 6%
from
17 September 2004 to 30 June 2006 by which date the capital sum must be
paid.
D The other awards made in the High Court are confirmed.
E The appellant will have costs of $24,000 together
with usual disbursements.
REASONS
Robertson J
[1] – [162] William Young P
[163] – [208] Hammond J
[209] – [274]
ROBERTSON J
Table of Contents
Para No
Introduction [1] History [3] The High Court decision [17] The issues on appeal [18] Policy of the Act [24] Onus of proof [38] The value of the relationship property in the firm [51] Assessment of the Z v Z (No 2) model [52]
High Court Decision [56] Discussion [70] Section 8(1)(l) and Section 9(4) of the Act [100]
Mirror trusts [112]
The relationship between s 15
and spousal maintenance [121]
Section 15 claim [130] The High Court decision [131] Discussion [137]
Spousal maintenance [151]
Conclusion
[158]
Introduction
[1] This case raises questions about economic disparity resulting from
the break- down of a long-term relationship in which
one party has forgone
career opportunities as part of the division of responsibilities within the
relationship. There is particular
focus on the effect of the Property
(Relationships) Act 1976 (the Act) since it was substantially amended in
2001.
[2] Allan J delivered a reserved judgment in the High Court at Auckland
on
17 December 2004 which is now reported as B v M [2005] NZFLR 730;
(2004)
History
[3] M (the wife) and B (the husband) met in 1979 whilst at
university in Auckland. They commenced a
de facto relationship
in early 1980. In December 1980 the couple moved to Wellington where
they were able to obtain
jobs on similar salaries. During this time the
husband, who had completed a LLB, was admitted to the bar. The wife, who had
completed
an MA in sociology, worked in the Department of
Statistics.
[4] The couple married on 13 February 1982.
[5] During 1982-1983, the husband worked in two law firms in Wellington, being involved in a variety of civil and criminal litigation. In April 1984, the couple moved to the Hawke’s Bay for its more clement weather. The husband had been offered a position in an established firm with good partnership prospects.
[6] During the next two years, the wife worked in a variety of
positions, but was unable to find employment which enabled her
to utilise her
tertiary qualifications.
[7] In April 1986, the husband accepted an offer of partnership in a
local firm. The partnership was reasonably short-lived.
He left it in 1989
because a merger with another firm had resulted in difficulties, and a
defalcation by one of his partners had
been discovered. At this time his
remuneration was $80,000 per annum.
[8] In May 1989, the couple moved to the United Kingdom. There the
husband, who was permitted to work as a result of a “Husband’s
Entry
Certificate” (obtained as a result of the wife’s right of abode),
obtained a pupillage, and later a tenancy, in
good London chambers.
[9] The move was a boon to the wife as well as the husband. She
attained a relatively senior position undertaking market research
in a
pharmaceutical company. It was the income from this position which enabled the
parties to make ends meet during the husband’s
pupillage, when he received
little income. The couple purchased a house in Fulham during this time, using
the proceeds of the sale
of a house they had earlier purchased together in New
Zealand as a deposit.
[10] The couple had their first child on 17 September 1993. They
returned to
New Zealand in December 1994.
[11] In 1995, the husband began work at a large Auckland law firm (the
firm) where he remains. They purchased a house, with
the proceeds of the sale
of the house in Fulham providing a significant deposit.
[12] Upon their return, the wife was able to work as a contractor for a
market research company. This involvement came to an
end following the birth
of their second child on 19 March 1996.
[13] On 1 April 1997 the husband became a salaried partner of the firm. Because of the potential for professional liability, the couple established mirror trusts to which their respective interests in the home were transferred. The trusts
acknowledged amounts owing respectively to each of the husband and wife
equivalent to their total equity in the property.
[14] The husband became an equity partner in the firm on 1 April 1999.
His share of the profits increased on a lock step basis
over a five year period
until he achieved full parity.
[15] On 2 September 2001 the couple separated. The wife continued to
live in the family home. After a short period, the husband
commenced a de facto
relationship with another woman. That relationship continues.
[16] The marriage was formally dissolved on 29 February
2004.
The High Court decision
[17] There were a multitude of issues raised before the High Court Judge
but essentially Allan J reached the view that:
• there was no element of super-profit in the husband’s
earnings from his law firm and therefore the husband’s
interest in the
firm had no value and could not constitute relationship property;
• the parties’ interests in the mirror trusts (which owned the
former matrimonial home) were relationship property,
but no orders were made
with regard to them in the absence of evidence establishing the proper value of
their bundle of rights;
• a contingent debt in respect of the husband’s former
partnership was relationship debt;
• there should be a payment under s 15 of the Act of $75,000;
and,
• spousal maintenance for the wife was to be paid at $11,960 per annum until 31 March 2006.
Other orders were made which were not raised in the appeal. There were a
number of other issues which were adjourned for further
consideration if that
should become necessary.
The issues on appeal
[18] Mrs Hollings, for the wife, raised four broad questions for
resolution by this
Court:
(a) What is the relationship property value of the husband’s
partnership in the firm?
(b) What is the relationship property value of the bundle of rights and
interests in the mirror trusts?
(c) How should s 15 operate to address the economic disparity between the
parties?
(d) Is this a case for long-term spousal maintenance?
[19] Under the umbrella of each of the arguments, a number of specific
challenges were made to the approach in the High Court.
There was a general
criticism that the Judge had misunderstood the onus of proof in this area of the
law and had failed to properly
consider and apply the purposes and principles of
the Act. Mrs Hollings submitted that the Court, with a proper appreciation of
the force and effect of the legislation, should re-assess the evidence and make
fresh findings consistent with the underlying social
policy.
[20] Mr Vickerman, for the husband, raised a problem with the framing of the appeal. He submitted that all the issues advanced concern the exercise of judicial discretion and findings of fact made by Allan J. The wife, in Mr Vickerman’s submission, failed to identify any wrong application of principles or any errors of law made by the Judge.
[21] While it is clear that some issues raised by Mrs Hollings
are rooted in findings of fact made by the Judge, they
can still be reviewed
in this Court. I remain mindful of Mr Vickerman’s admonition to pay due
respect and have particular
regard to the trial Judge in matters of valuation
and assessment.
[22] There was no cross-appeal. Mr Vickerman supported the decision of
Allan J
on the same grounds that the Judge had found persuasive.
[23] I have a degree of concern that, although there are some areas in
respect of which there is no appeal, there remain a number
of matters which are
still awaiting resolution in the High Court. It does nothing for this woman and
this man to resolve the past
and get on with the future where litigation with
this flavour and intensity runs on interminably.
Policy of the Act
[24] Before considering the specific questions raised by Mrs Hollings, I
address the general criticisms, made by Mrs Hollings,
of the way Allan
J applied the purposes and principles of the Act in respect of the
super-profits, the mirror trusts, and the
s 15 disparity. This involves an
evaluation of recent amendments to the law of relationship property.
[25] The case before us focuses on the general economic disparity which
can follow separation when familial responsibilities and
functions have been
allocated in such a way as to inhibit the career advancement of one of the
parties.
[26] In 2001, Parliament made significant reforms in this area
of the law in response to the problems arising largely
from the division of
relationship property and maintenance entitlements post-separation. These were
problems identified in Z v Z (No 2) [1997] 2 NZLR 258 (CA) at 275-6
thus:
There is growing recognition that the division of matrimonial property under the Matrimonial Property Act is operating harshly on those women who have forgone their own participation in the workforce, other possibly than on a part-time or temporary basis, and who have supported the advancement of
their husbands' careers by managing the household and caring for
the children of the marriage. At the same time
their husbands who
have remained in employment, have acquired experience, skills or qualifications
which have increased their
earning capacity. At the time of the dissolution of
the marriage they are then in the advantageous position of being able to recover
from the effect of the division of the matrimonial assets and earn, sometimes in
a relatively short time, a substantial income. By
comparison, because of the
role which she has assumed in the marriage, the wife is ill- equipped to rejoin
the workforce and earn
an income. Further, where the efforts of the couple
during the marriage have been directed at building up the husband's
income-earning
potential, the wife's share of the matrimonial home and other
matrimonial assets may not be significant. Many such wives, as in this
case,
become beneficiaries while their husbands continue to earn a substantial
income.
Hence, the essence of the criticism directed at the Matrimonial Property Act
is that, while it achieves formal equality between the
spouses in that the
conventional items of property are divided equally, it does not achieve actual
equality when the husband is left
with the ability to earn a significant income
and the wife is left with little or no ability to earn a living and possibly
little
or nothing in the way of material assets from the marriage to assist her.
The relative hardship is likely to be exacerbated when
the wife, as is likely,
obtains custody of the children or is left to look after them by default. Such
an outcome cannot be easily
reconciled with the objectives of equality and
justice underlying the Act.
[27] Mrs Hollings for the wife argued that a critical objective of the
legislation enacted in response to these issues was to
alleviate the problems
caused by the division of functions within the relationship.
[28] The relevant reforms are encapsulated in amendments made to the Act
by the Property (Relationships) Amendment Act 2001.
The purpose and
principles of that Act are set forth in ss 1M and 1N:
1M Purpose of this Act
The purpose of this Act is—
(a) to reform the law relating to the property of married couples and
civil union couples, and of couples who live together
in a de facto
relationship:
(b) to recognise the equal contribution of husband and wife
to the marriage partnership, of civil union partners
to the civil union, and of
de facto partners to the de facto relationship partnership:
(c) to provide for a just division of the relationship property between the spouses or partners when their relationship ends by separation or death, and in certain other circumstances, while taking account of the interests of any
children of the marriage of children of the civil union or children of the de
facto relationship.
1N Principles
The following principles are to guide the achievement of the purpose of this
Act:
(a) the principle that men and women have equal status, and
their equality should be maintained and enhanced:
(b) the principle that all forms of contribution to the
marriage partnership, civil union, or the de facto relationship
partnership, are
treated as equal:
(c) the principle that a just division of relationship property has
regard to the economic advantages or disadvantages to
the spouses or
partners arising from their marriage or de facto relationship or from the ending
of their marriage, civil union
or de facto relationship:
(d) the principle that questions arising under this Act about
relationship property should be resolved as inexpensively, simply,
and speedily
as is consistent with justice.
[29] Allan J made reference to these principles in his judgment at [36].
At [37] he said:
Subject to the express provisions of the statute, the Court is enjoined to
have regard to both the purposes of the Act as set out
in s 1M and the
principles set out in s 1N.
These two references are the only direct comments the Judge made on
them. Mrs Hollings sees this lack of reference
as demonstrative of the
fact that the principles were not at the forefront of the Judge’s
consideration. She criticised
what she described as the Judge’s failure
to give effect to these in each aspect of the decision making.
[30] There is a fundamental difference of approach between counsel as to how this appeal should be considered. In a nutshell, Mrs Hollings argued that the Court, in determining any application under the Act, should not only begin from a consideration of the purpose and principles in the Act, but should constantly return to them as a lodestone for each individual determination under the Act. She further submitted that, at the end of the exercise, the Court should take an overview of the individual determinations which have been made, and decide whether there is a need
for further adjustment to achieve the purpose of the legislation in light of
the principles.
[31] Mr Vickerman’s position could not have been more different.
He constantly reminded this Court that concepts of justice
and equality had to
be “according to law”. Parliament had provided a number of
mechanisms which could be employed to
achieve the outcomes. Most of these
mechanisms involved a substantial discretionary exercise. An appellate Court
should intervene
only if it was demonstrated that there had been an error of
law, or that the exercise of discretion had no foundation or was otherwise
unavailable to the Judge at first instance.
[32] I do not accept the full thrust of Mrs Hollings’ argument that Parliament has vested the Courts with an open-ended discretion to achieve equality in accordance with an individual Judge’s perception of what is fair and just. Particular emphasis was placed on decisions from overseas, including Moge v Moge [1992] 3 SCR 813; (1992) 99 DLR (4th) 456 (SC) from Canada, and McFarlane v McFarlane; Parlour v Parlour [2004] EWCA Civ 872; [2004] 3 All ER 921 (HL) from England. Whilst these decisions indicate various approaches which Courts have taken in responding to legislative frameworks in other jurisdictions, they must be evaluated within their own fact-specific
circumstances. Our starting point must be how the New Zealand Parliament
has enacted the statute in its current form.
[33] Parliament has determined the assessment and responses which are to
be available to achieve the purposes of the Act
in accordance with the
identified principles. They have, in various discrete areas, indicated the
parameters of operation.
I do not accept that the purposes and principles in ss
1N and 1M provide the Court with a generalised mandate which can avoid or
obscure the structural framework which Parliament adopted.
[34] At its high point, Mrs Hollings submitted that these sections were of such importance that they would enable a Court to do whatever appeared to it just and reasonable without hindrance or impediment to fulfil the purposes in light of the principles. The underlying philosophy and inspiration is always to be considered, but their operational ambit must be evaluated within the particular statutory
responses which Parliament has enacted. They do not permit Courts to go
further than Parliament was willing to legislate for.
[35] The Chancellor’s foot was amputated many centuries ago.
Doing what is “just” under any legislation (whether
it has a social
context or not) also involves making decisions which are predictable and
consistent. There is a distinct danger
that, in the name of being just,
individualised judicial discretion becomes too predominant.
[36] If a Court, at the end of each relationship property case, is going
to enter into a topping up or discounting exercise in
the name of being just,
then parties and their advisers will not have confidence as to the outcome of
litigation.
[37] There is a degree of truth in the position of each counsel, but a
balanced perspective needs to be maintained. I approach
this case on the basis
that this is an appellate Court interpreting legislation which applies to the
breakdown of a personal relationship
between this woman and this man and the
consequences which flow from that. There always needs to be discipline
and rigour
in any adjudicative process and so it must be here.
Onus of proof
[38] One of the overlays of concern for Mrs Hollings was that
at times the High Court Judge expressed himself in terms
of the onus of proof.
She maintained that to talk of an onus of proof in the area of relationship
property was inappropriate inasmuch
as it created hurdles in accessing justice.
Frequently in this area of the law, claims are advanced by the non-titled
partner (who
more often than not is a woman). The imposition of an onus of
proof would be a further impediment to the obtaining of just entitlements
under the statutory regime given that, in many respects, the relevant
evidence is more than likely in the possession of the
titled partner (who more
often than not is a man).
[39] There is some validity in this concern. The Act is about property rights and entitlements. The Act, and the regulations which have been promulgated pursuant to
it, make it clear that, although there is not a fully inquisitorial system, a
Court needs only to be satisfied about a state of events
which has existed, or
which exists. Notions of onus of proof fit uncomfortably within this legislative
regime.
[40] Allan J referred to Y v Y [1977] 2 NZLR 385 as authority for
the imposition of an onus of proof “where a party seeks to establish, in
the face of opposition, that a particular
asset exists.” In Y v Y,
at 395-6, Chilwell J stated:
The duty to the court lay more on the husband than the wife to ensure that
the court was fully informed. But the wife appeared content
to rely on the
figures allegedly in his bank accounts upon a date irrelevant to this action.
She had remedies available to her for
the production of the proper records; yet
her husband attended for cross-examination without any apparent prior request to
produce
his accounts for the relevant date.
The general principle that the burden of proof lies upon the party who
substantially asserts the affirmative of an issue applies
to applications under
this Act. The wife maintained that the husband had credits in bank accounts: he
replied that there was only
enough in them to meet current commitments.
Despite the husband's somewhat bizarre conduct, the burden of proof remains on the wife. There is no evidence before me as to the state of the husband's bank accounts on 20 January 1977. His statement in his affidavit is to some extent corroborated by the evidence of his expenditure since
20 March. The wife has failed to establish that he had sufficient cash in his bank accounts on 20 January 1977 to justify the court in making any order in
her favour regarding bank accounts.
[41] This was a case decided under the Matrimonial Property Act
1976. Considering the numerous amendments made to this
legislation since 1977,
this case must be read with care. If litigation like it were to come before the
Courts today, the correct
procedural response would be for the husband to
include a statement of his accounts for the relevant date in his affidavit of
assets
and liabilities under r 398 of the Family Courts Rules 2002. Therefore a
true and complete record of the parties’ respective
financial positions
would be before the Court. It is not really a matter of the wife having the
burden of proving her assertion.
[42] Such an approach is supported by the authors of Fisher on
Matrimonial and
Relationship Property where they say at [19.23]:
The role of the Courts under the Property (Relationships) Act is to some degree an inquisitorial one to do justice between the parties rather than to consider a claim in a strictly adversarial context. This is reflected in the
principal objects of the Act ... suggesting an even-handed division between
the spouses or de facto partners rather than an evaluation
of a claim by
one.
[43] In Nation v Nation [2004] NZCA 288; [2005] 3 NZLR 46 (CA), this Court
considered the onus of proof in determining whether, under s 9A of the Act, an
increase in the value of separate property
is attributable to the application of
relationship property. It was held that it was incumbent on an applicant to
provide an evidential
basis for the Court both to conclude that there had been
an increase in value and to assess the extent of that increase. The Court
said:
[69] We agree with the High Court that some guidance as to the
interpretation of s 9A as with other provisions of the PRA, can
be taken from s
1N, particularly s 1N(d), which, in our view, indicates that the Court
should look at matters in the
round and not take an overly technical
approach.
[70] Mr Macfarlane was particularly critical of the comment in
the High Court judgment that concepts of a formal
legal onus may not
be altogether helpful when dealing with matters arising under s 9A. But in our
view this did no more than
recognise the legislative change in s 9A(2), which
has been broadened to incorporate an increase in value of separate property
which is only indirectly attributable to the actions of the non- owning
spouse. The High Court was entitled to see this as a
substantive change from the
law which applied under s 9(3) where the burden on the non-owning spouse to
prove that an increase
in value was directly attributable to his or her
actions was significant.
[71] It should be noted that the High Court did not suggest that the
onus of proof had switched away from the non-owning spouse
— it is clear
from the judgment (at para 59) that there is an onus, but what needs to be
established is easier to prove. The
High Court also correctly identified (at
para 62) that the position in respect of s 9A(1), which has not been amended to
deal with
increases in value indirectly attributable to the application of
relationship property, is unchanged from the old s 9(3) so that
the onus of
proof remains the same. We agree with the High Court’s formulation that a
causal connection which is more than
trivial is required, and we also agree that
matters must be looked at in totality.
[44] And later:
[80] We agree with the High Court that a non-owning spouse will not necessarily need to produce evidence from a valuer giving the valuer’s view on the extent to which the actions of the non-owning spouse have contributed to an increase in value. But it is necessary to establish by evidence that there has, in fact, been an increase in value, and to provide the Court with an evidential basis for assessing how much the increase in value has been.
[45] Such an approach was responsive to the particular situation where
the Court was being required to determine whether
an increase in the
value of separate property, which would ordinarily fall outside the ambit of
the Act, should be considered
relationship property for the purposes of a fair
and just division. In other cases, where the Act does not indicate an onus
either
way, the notion of an onus on one party will be
inappropriate.
[46] The regime of the Act applies whenever people have been in a
relationship which falls within the description in s 1C(1) of
the Act (as
amended in 2005):
This Act is mainly about how the property of married couples [and
civil union couples] and couples who have lived in a de facto
relationship is to be divided up when they separate or 1 of them
dies.
The first issue, therefore, is whether the Court is satisfied that the people
involved have had a qualifying relationship.
[47] If they do, the Act requires the Court to be satisfied as to what
property these people have, whether it is relationship
property, and how it is
to be divided where parties have not availed themselves of the opportunities for
contracting out under Part
VI of the Act.
[48] Once the Court has classified what is relationship property, it must
attribute values. All this depends on the evidence
which is available and not
infrequently the inferences to be drawn from that evidence.
[49] It is not a situation (such as in a conventional civil proceeding) where an absence of evidence means that an asserting party can be denied relief because there is uncertainty. Such an approach would be contrary to the scheme and legislative framework. The law relating to relationship property disputes requires total disclosure and co-operation between people who are parties in such litigation. Section 1N(d) of the Act provides that “questions arising under this Act about relationship property should be resolved as inexpensively, simply, and speedily as is consistent with justice.” The legislation means that, notwithstanding legal title, a party can have an entitlement to be compensated in respect of relevant property held by the other party. This principle will influence any assessment under the Act.
[50] The legislative framework requires that the Judge be satisfied of a
particular state of affairs based on all of the evidence
before the Court.
Rules 392 and 398 of the Family Courts Rules 2002 require that each of the
parties to a proceeding swear affidavits
outlining the background to the
relationship and the application made, and disclosing their assets and
liabilities. These rules
have the dual purpose of advising the Court and the
parties of the issues raised and providing evidence on those issues. Onus will
seldom be a relevant consideration.
The value of the relationship property in the firm
[51] The parties agreed that the husband’s interest in the firm was
relationship property and that it was to be valued in
terms of Z v Z (No
2). The only dispute was about what sum this assessment led to.
Assessment of the Z v Z (No 2) model
[52] Z v Z (No 2) was heard in this Court on appeal directly from
the Family Court. The husband was a partner in a major international
accounting
firm. It involved a claim that the husband’s enhanced earning
capacity and future earnings were property within the Matrimonial
Property Act
1976. In addition, the wife claimed that the bundle of rights possessed by the
husband in the partnership constituted
relationship property. Although the
Court lacked sufficient evidence to make a determination and the case had to be
remitted to
the High Court, it provided some guidance as to approach at
292:
A starting point could be to ascertain whether it was reasonably to be expected at separation that the husband’s share of profits from the partnership thereafter would include an element derived from his membership of the firm as distinct from his own earning capacity. The authorities already referred to in this section of this judgment indicate various approaches that might be considered – all variations of a super-profit (excess earnings) method of valuation involving postulated comparative streams of income available to the husband or comparative costs of generating the same income in other ways. It may be possible to determine whether the expected remuneration is higher than that reasonably able to be commanded by the husband for his skill and responsibilities. It may be possible to identify a cost of replacing the husband’s work and responsibilities by the employment of suitably qualified persons. The
judgment in the New Jersey case of Dugan v Dugan [(1983) 457 A 2d 1]
(although directed to goodwill) is instructive on this aspect.
Alternatively, it might be that conventional methods of assessing a capital
value for a business income stream, as for the purchase
of small businesses, can
be adapted to measure the value of the husband’s future excess profits
entitlement. Should there
be a value attributable to the entitlement to excess
profit shares in the partnership, that together with the entitlement to the
expected retirement benefit, adjusted if considered appropriate for the other
advantages and obligations while a member of the partnership
and after
retirement, will constitute the value of the bundle of rights acquired during
the marriage.
By way of example only, should it emerge that 20 per cent of the
husband’s earnings is derived as “excess earnings”
because of the benefits of partnership, that future income stream together
with the expected retirement benefit would be given
a value at the separation
date. That would be the amount required at that date to produce the future
income adjusted for contingencies
and the impact of other benefits and
obligations provided for in the partnership deed, including the obligations
continuing after
the date of retirement. That is an assessment akin to (but not
the same as) that made of superannuation rights in Haldane v Haldane
[1981] 1 NZLR 554 (CA).
[53] As everyone in the High Court seems to have failed to notice, this
passage is prefaced with the comment that, “as is
often the case in other
fields, valuations may be made by more than one method to verify the
outcome.” Despite this acknowledgement
of other methods of valuation,
this “guidance” became virtually a template in the instant
case.
[54] There remains within that guidance a number of areas which
require judgment and assessment. The value of property
such as this will always
be “a jury issue” and not a rigid arithmetic calculation. While the
Z v Z (No 2) approach to super-profits may have had substantial
advantages in assessing the value of an interest in a multinational
accounting
firm, it will not necessarily be the best vehicle in all
circumstances concerned with an interest in a professional partnership.
Size
and shape will be pertinent factors in determining how best to ascertain a
valuation which is fair and reasonable for both
parties.
[55] Any approach which is adopted must include clear and unambiguous reality checks. Justice between parties will not be achieved in circumstances in which formulaic approaches lead to outcomes which are manifestly unsustainable.
The High Court decision
[56] Allan J noted at [42] the following elements of the Court’s
judgment in Z v Z (No 2):
(a) Enhanced earning capacity post-separation is not
relationship property;
(b) Earnings referable to future effort were not in any event property
in existence at the time of separation. Such property
is not
“acquired” at the time of the proceeding;
(c) But in the case before it, the husband’s partnership, which
included a substantial and established client base, produced
income for the
husband beyond that referable directly to his skills, experience and individual
output. The valuation of that
part of the husband’s income that
might properly be regarded as relationship property called for an approach
akin
to that identifying super-profits to measure the extent, if any, by which
the husband’s expected income as a partner will exceed
the earnings
appropriate as remuneration for his skills (which are his own), and future
efforts.
(d) It might be possible in that way to determine whether the expected
remuneration was higher than reasonably to be commanded
by the husband for his
skill and responsibilities.
[57] He rejected Mr Vickerman’s contention that s 15 of the
Act now dealt entirely with the mischief which Z v Z (No 2) had
identified. That argument was not reactivated before us.
[58] In many ways, Allan J was constrained by the way in which the
parties’ respective cases were presented to him. Everyone
–
witnesses, counsel and as a result, the Judge – became totally captured by
a rigid application of the Z v Z (No 2) model.
[59] Allan J identified at [56] of his judgment what had been
the common approach between the experienced forensic
accounting specialists,
Messrs Hagen and Frankham, who had been instructed by the parties:
(a) The likely future earnings of the husband in his current firm are
determined;
(b) That portion of those earnings reasonably able to be commanded by the husband by reason of his own skill, experience and
responsibilities is determined (by reference to what he would earn otherwise
than as a partner in the firm);
(c) The future growth rate in earnings is established;
(d) The period of time during which the husband will earn the super-
profits is determined;
(e) An allowance is made for the risk that the husband will not in
fact receive super-profits over the period of time so fixed;
(f) An overall assessment of the reasonableness of the
resulting calculation is made (Mr Hagen only; Mr Frankham dissents
from this
proposition); and,
(g) Any other entitlements available to the husband by reason of his
partnership are then allowed for.
[60] Articulating the exercise in that way did not make the task any easier because of the contrasting positions taken by the forensic accountants. Mr Frankham’s conclusion from that exercise was that the property interest in the firm was
$1.341 million whereas Mr Hagen’s conclusion was $182,000.
[61] Mr Frankham adopted the position that the husband’s bundle of
rights interest amounted to between $1.350 million and
$1.446 million on the
basis of a difference between actual earnings and appropriate remuneration of
[$55%X] a year. This was subject
to an annual increase of 4% in each year taken
over ten years. He allowed for a marginal tax rate of 39% and a discount for
time
value of money of 3.78%. He also added the value of other entitlements
including medical care and income protection at another [$5%X]
per
year.
[62] Mr Hagen’s assessment of $182,000 was on the basis that the assessed difference would be in the vicinity of [$20%X] pre-tax or [$12%X] post-tax. He discounted this at a rate of 22% per annum for a period of nine and a half years. Mr Hagen asserted that his discount rate was materially lower than that used in Australia and the USA which increased the overall value of the bundle of rights. (He noted the sensitivity to change in this regard so that if a 10% discount rate was used the figure would be $300,000 but if a 30% discount rate was used it would be
$140,000.)
[63] Having regard to the assessments of the two experts, the Judge
estimated the husband’s future earnings at [71] as [$X]
per annum. The
Judge decided that the time at which the estimates should be taken was the date
of separation. However, he acknowledged
(relying on Clark v Clark [1987] NZCA 140; [1987]
2 NZLR 385) that it was permissible to take into account known events, which
have occurred since that date where the events were reasonably expected
in order
to check the validity of assumptions made at the time of valuation. The
husband’s known salaries from the financial
years ending 31 March 2004
and 31 March 2005 were [$122%X] and [$122.2%X] respectively. The Judge
noted that while
these enhanced profits could not be ignored, they had
occurred post-separation and there was no certainty that his
income from
the firm would remain at that level.
[64] Having rejected various comparative positions suggested by counsel
for the wife, the Judge decided that the best way to determine
super-profits was
to compare the husband’s salary with the salary he could command at the
bar.
[65] On this question, the Judge was confronted not only by
lengthy expert opinion briefs, but cross-examination on
them together with
evidence from the husband and evidence from other legal practitioners. The
expert accountants were dependent
upon base material from others. They had no
particular knowledge or experience as to what a person with the husband’s
skill,
experience and attributes would be capable of earning inside or outside
the firm.
[66] Allan J heard evidence from two Queen’s Counsel who
stated that the husband’s earning capacity was
equivalent to the
husband’s entire salary based on the fact that the husband could do not
only criminal work (both prosecuting
and defending and in the latter both
private and legal aid assignments) but also general civil work.
[67] A former salaried partner in the firm, who is now a successful criminal barrister, also gave evidence. He spoke of his experiences and stated that in his assessment the most that the husband could earn at the independent bar would be [$50%X].
[68] Allan J made no particular reference to this former salaried partner
of the firm’s evidence but concluded that if the
husband had been at the
independent bar he could have earned [$X] per annum which was in line with the
testimony of the silks.
[69] The Judge concluded at [92]:
I have simply been unable to conclude that it has been established that the
husband currently enjoys a level of profits which
so exceeds his likely
earnings at the independent bar, that his current earnings must incorporate a
level of super-profit.
Accordingly, I find that the husband’s likely
future remuneration is no higher than that reasonably able to be commanded by
him by reason of his skill, experience, knowledge and responsibility, and that
therefore none of that remuneration constitutes relationship
property.
Discussion
[70] Allan J held that, on the totality of the evidence which
he considered persuasive, there was no super-profit.
That appears to be the
function of two conclusions. First, the comparable earning figure for a
“clone” of the husband
at the independent bar was not markedly
different from the income the husband could anticipate from the firm. Secondly,
the income
from the firm was to be calculated at the date of separation with
little regard to what advantages might accrue from hindsight.
[71] Before us Mrs Hollings, in attacking the Judge’s conclusion that the bundle of rights had no value, submitted that, on a proper application of the Z v Z (No 2) approach, the value should have been found to have been in the vicinity of
$2.6 million. That conclusion is difficult to accept if the simple but
pragmatic question is asked “is that the sum which
this man and this woman
would have paid in order to acquire the interest in the firm?”
[72] On the other hand I have been persuaded that Allan J’s approach to a comparable earning figure for a “clone” cannot be sustained as against the totality of the available evidence.
[73] In this case the Court has the advantage of information
about what has actually occurred after separation and
such information is of
substantial value. To use it is not inconsistent with Z v Z (No
2).
[74] Although the skill base of the husband and his knowledge and
experience need to be assessed and evaluated, this ought to
be able to be
achieved without the undignified exercise which has emerged here.
[75] I do not think that it is sustainable to view the husband’s
“clone” as working in both the criminal and
civil areas. Although
the husband undertook some general civil work early in his career in the United
Kingdom, upon returning to
New Zealand and being involved in the firm, his work
has been effectively in the criminal arena. It is technically correct to say
that Proceeds of Crime and Bill of Rights cases are civil, but their flavour and
complexion is largely criminal. Such work would
not ordinarily be described as
civil.
[76] The actual as opposed to assumed evidence, which was most relevant
to the position of the husband (and which must be taken
into account), was that
from the former partner in the firm who was now a successful member of the
criminal bar. The Judge did not
comment on this evidence at all. He placed
emphasis on what he heard from the two Queen’s Counsel whose perception
and experience
was in a different arena and therefore must have been of more
limited value. The Judge found nothing which suggested the barrister’s
evidence was not reliable and creditworthy, and the other material did not
justify its being overlooked.
[77] I am satisfied that it could not be reasonably concluded
that, at the independent bar, the husband would
have been earning more
than [$50%X] per annum doing the sort of work which he was undertaking
at the time of separation.
The husband has not worked extraordinarily long
hours. If he were a barrister in the general criminal arena, he would be faced
by the impediments of legal aid and the financial caps on Crown
work.
[78] Mrs Hollings argued that the comparator used by Allan J involved the wrong measure and that the focus should have been on what salaried partners, or even staff
solicitors in the firm, would have earned. She placed emphasis on how much
by way of costs the husband personally generated and suggested
that anything
over and above that was super-profit in terms of Z v Z (No
2).
[79] The premise that anything over and above the remuneration which
needs to be paid to the most junior and inexperienced lawyers
in the firm cannot
be a proper starting point. It would lead to the position that there would be
no-one to ensure that the firm
was managed and operated on a professional and
sustainable basis. There would be too many Indians but not enough
Chiefs.
[80] Similarly, the monthly drawings of partners is of no
assistance in the assessment. It is a matter of administrative
convenience
and does not inform the relevant issues.
[81] In a legal practice structured as this firm was, work was done in
teams. A leader (who would usually be a partner) would
be expected to
supervise, check, train, counsel and support those in the team as well as making
court appearances themselves. When
the husband came back to New Zealand it is
clear that his attraction to the firm was his experience with proceeds of crime
litigation
and related work, coupled with the fact that the firm had a hole in
this area as one of their partners had gone to the independent
bar. There can
be no question but that the existing partners of the firm saw the husband as a
mature man with the skill-set they
required. I do not see the offer of
partnership as a lucky break, but a professional response to his experience and
ability.
[82] In my view an evaluative process needs to be undertaken which has proper regard to the multi-functional nature of the partner’s task, the actual work undertaken as well as what he could reasonably have achieved outside of the firm. On that basis I find that the proper and just starting point for determining the “clone” arrangement as at separation in September 2001 was in the vicinity of [$50%X]. This gives weight to his direct charging, other responsibilities and the testimony of the former partner of the firm about his actual experience.
[83] The second phase of this exercise is to determine the
husband’s actual and potential earnings from the firm at
separation.
[84] The husband had become a salaried partner in the year ending March 1998. He remained as such for 12 months. Thereafter he was an equity partner on a lock step basis which was calculated at 20% rises until he reached full parity in the year ending June 2004. (The firm changed its balance date from March to June in
2002.)
[85] In determining the husband’s interest in the firm, nothing in
the evidence persuades me that his time as a salaried
partner is of direct
assistance in this assessment.
[86] As at the date of separation, a full equity share partners’
income was in the vicinity of [$84-92%X]. Mrs Hollings
argued that this
was not an appropriate measure because, as things turned out, full equity
entitlements increased very substantially
in succeeding years and before long
were in excess of [$120%X]. Even though full partners’ entitlements over
a lengthy period
of time had been in the mid [$80%X], she submitted that the
Court should not be blinkered by this in light of what did happen. As
well as
actual earnings, Mrs Hollings noted additional benefits which were enjoyed by
partners and their families which needed to
be factored into the
equation.
[87] The immediate problem which arises with this looking at the future
is that, although disavowing any entitlement to ongoing
earning capacity (as is
clearly required by the reasoning of this Court in Z v Z (No 2)) adopting
future figures in that manner cannot avoid doing just that. The exercise fails
to reflect the effort, skill and activity
which went into the subsequent returns
and places no weight on the restructuring of the firm which occurred after
separation in early
2002.
[88] Allan J found that at 1 September 2001 [$X] was a fair assessment of the realistic future maintainable earnings. He considered that increases beyond that figure should be viewed as primarily the outcome of individual effort and application, and so not constituting relationship property. I find no reason to differ
from that view. Had I needed to determine the issue afresh, that is the
figure I would have arrived at.
[89] I therefore conclude that there was an annual differential
between the husband’s actual and potential earnings
at the time of
separation and what his own direct industry would have commanded of [$50%X]. In
terms of Z v Z (No 2) this is the level of super-profit which was
available to the husband on an ongoing basis. It can equally be described as
the income
stream from an item of relationship property over which the husband
had control and to which the husband continued to have access.
[90] Although Mrs Hollings had a higher figure for actual income into the
future and a lower figure for the relevant comparator,
her submission was that
this differential should be multiplied out over at least a decade with only
minor discounting factors brought
into the equation.
[91] The sum which emerges from such an approach is several millions of
dollars. I consider that it lacks economic reality. Although
not the sole
question or test, what this couple would have been prepared to pay for the
opportunity to share in that ongoing income
potential has to be evaluated. A
theoretical construct cannot be employed which leads to a conclusion that is
contrary to what
would inevitably occur in a real life situation. A Z v Z
(No 2) analysis was intended to assist in finding a fair and reasonable
value, but there must always be a reality check undertaken. Such
analysis or
any other method of valuation, is a means to an end. In this case a proper
perspective was lost, and the possibilities
of Z v Z (No 2) became an end
in themselves.
[92] There is force in the evidence of Mr Hagen when, in his brief at
[5.37]-[5.39], he said:
5.37 An alternative way to look at the issue is to ask the hypothetical question as to “what B might be prepared to pay to maintain his partnership in [the firm]?” My figure of $180,000 is the equivalent of three years of assumed steady state after tax super-profits.
5.38 This multiple seems at the high end of a reasonable range to me as
it needs to be paid from post tax profits and is consistent
with the multiples
addressed in similar valuations overseas.
5.39 It is critical that the valuation methodology does not get elevated
above the basic question as to what is the value of
the bundle of
rights.
[93] Among the relevant factors to be weighed in deciding on the
multiplier and thereby valuing the super-profits at separation
are the
following:
• The husband was in the vicinity of 50 years of age;
• This was a firm which had a heavy reliance on Crown work.
Notwithstanding it had the advantage of ongoing income and little problem
with bad debts, the work generated fees at a lower level
of remuneration than
existed in many firms; and,
[94] Assessing all relevant matters (and bearing in mind that the future
earnings which arise from personal industry and commitment
are not relationship
property) I consider that, as at the date of separation, the husband had a
relationship property interest in
the law firm at about three times the future
maintainable earnings, namely [$150%X] (pre-tax). As both experts accepted,
its net
value to the parties has to allow for tax at a marginal rate of 39c in
the dollar so the relevant figure is [$90%X]. That is the
sum at which it is
sensible to value their joint relationship property interest in the partnership
as at the date of separation.
[95] It is helpful, by way of confirmation or checking, to note what in fact it cost on the lock step basis. Over the five years during which the earnings of the husband increased on a lock step percentage basis, the difference between a full equity partner’s income and his income was in excess of [$140%X]. On an after tax basis,
this means a sum of approaching [$90%X] was the amount of in the hand income
which was foregone by the husband to acquire his full
equity interest in the
firm.
[96] Consequently I am satisfied that the appeal must be allowed on this point. The husband’s interest in the firm is assessed as being worth [$90%X] as at
2 September 2001. I have not overlooked the additional benefits which were
also available as a partner, but the clone figure would
inevitably have had
increased earnings each year had he been salaried. The added advantages have
been fairly compensated for in
that exercise.
[97] There has never been any question as to the classification of this
interest as an asset which was relationship property and
to which the wife is
entitled to a half.
[98] In the High Court all the evidence, including that of the experts,
was directed towards determining a valuation of the husband’s
interests in
the law firm as at the date of separation. We were informed by counsel that
this was what they considered mandated
by Z v Z (No 2). However, it
raises a difficulty in this case because there is an item of relationship
property which, for three years, was in the
control of the husband. He received
all the benefits and returns therefrom throughout the time that the division of
relationship
property had not occurred.
[99] To some extent, Mr Frankham in his valuation exercise gave some
weight to this factor. However, in my judgment the fair
and equitable way of
dealing with those three years was to consider whether, in terms of the Act, the
income arising from this asset
needed to be assessed and apportioned separately.
Inasmuch as this matter was not directly addressed in the initial hearing, the
Court issued a Minute and a second hearing was held, after the filing of
additional submissions, on this narrow point.
Section 8(1)(l) and Section 9(4) of the Act
[100] The first question which arises is the relevance and effect of ss
8(1)(l) and
9(4).
[101] Section 8 generally defines relationship property. Section 8(1)(e)
specifically provides that: “Subject to sections
9(2) to (6), 9A and 10,
all property acquired by either spouse ... after their marriage ... began is
relationship property.”
[102] Section 8(1)(l) provides that relationship property consists of:
“Any income and gains derived from the proceeds of
any disposition of, and
any increase in the value of, any property described in paragraphs (a) to
(k).” The interest in the
firm was property in terms of s
8(1)(e).
[103] I have found that the husband’s interest in the firm at date of
separation is worth [$90%X]. It produced an annual
return before tax of
[$50%X], all of which the husband has had the value and advantage of from the
date of separation until division
occurred.
[104] Section 9(4) of the Act provides:
The following property is separate property, unless the Court considers that
it is just in the circumstances to treat the property
or any part of the
property as relationship property:
(a) all property acquired by either spouse or de facto partner while they are
not living together as husband and wife or as de facto
partners:
(b) all property acquired, after the death of 1 spouse or de facto partner, by the surviving spouse or de facto partner, as provided in section
84.
[105] Mrs Hollings’ argument was that this annual return of [$50%X]
was in and of itself relationship property in terms of
s 8(1)(l) whereas Mr
Vickerman argued that it was property acquired by the husband while they
were not living together and
therefore separate property in terms of s
9(4).
[106] The fact that one party maintains control, benefit and use of an item of relationship property does not give that party a personal or separate interest in that property. Until there is a division and settlement of relationship property, the holding of that interest by the husband did not rob that interest of its classification or character as relationship property.
[107] In terms of s 8(1)(l) the fruits from the property must be
relationship property also. In other words, the husband’s
earnings after
separation had two components. First there was the remuneration for “the
sweat of his brow”. That was
not relationship property. However, his
annual income included a component which was a return on relationship property
which I have
assessed at being [$50%X] per annum before tax.
[108] For the avoidance of doubt, I note that if Mr Vickerman was correct
in his submission that everything the husband received
from the firm after
separation was property acquired after separation, I would have made an order
under s 9(4) that it would be just
to hold that [$50%X] pre-tax of his annual
income was relationship property.
[109] During this three year period (running from separation to the High
Court hearing) the husband’s actual earnings were
as
follows:
7 months to 31 March 2002 [$36%X]
3 months to 30 June 2002 [$20.4%X]
12 months to 30 June 2003 [$101.8%X]
12 months to 30 June 2004 [$122%X]
2 months to 1 September 2004 $122.2%X]
Total: [$300%X]
[110] I find that, in that three year period, there was included within that total sum a gross amount of [$150%X] before tax which was income or gains derived from relationship property. This must be taken into account as another item of relationship property under s 8(1)(l). Tax at 39c in the dollar has to be allowed for as it was received as income in the husband’s hand. This leaves a post-tax sum of a further item of relationship property valued at [$90%X] of which the husband had enjoyed exclusive benefit and use during that three year period. He must now account for it in the division and settlement of relationship property. This computes at [$45%X].
[111] In respect of the total sum owing to the wife of [$90%X] in respect of the interest in the firm as at the date of separation and the returns from it until hearing, interest will accrue at 6% from 17 September 2004 (being the date of hearing) until
30 June 2006 by which time the entire sum must be paid by the husband to the
wife. This interest represents an adjustment for the
time value of
money.
Mirror trusts
[112] The second substantive issue raised was the valuation of a bundle of
rights which each of these parties had in the mirror
trusts which owned what had
been the matrimonial home and which had continued to be the family residence
after ownership was acquired
by the two trusts.
[113] Mrs Hollings, with commendable candour, acknowledged that the sole
reason the issue was advanced was to ensure that there
was a sufficient pool of
relationship property against which the s 15 application could bite. Section
15(3) provides a cap on an
award of this type at the value of the relationship
property of the parties.
[114] In light of the conclusion I have reached as to the proper value of the interest in the firm, the pool of relationship property has been increased by a sum of
$900,000. The total relationship property, excluding any interests in the
mirror trusts, is in the vicinity of $1 million. Mrs
Hollings at her most
optimistic did not suggest an order under s 15 of that magnitude, so the point
has become redundant. However,
for completeness I note some of the
issues.
[115] As with so many aspects of the case, there were markedly different
appreciations of the legal position.
[116] Allan J concluded that the interests in the trusts could be
relationship property, but he made no orders in respect
of them because there
was no evidence from which it was possible to assess and determine the value of
the interests.
[117] Mrs Hollings took the position that the Court could simply look through the trust structures and treat the matter as relationship property available for assessment
and distribution. She noted that this was precisely what the husband had
done in some of the settlement negotiations which had gone
on.
[118] Mr Vickerman, on the other hand, took the view that there was no
property interest in the trusts. The parties had for good
and sufficient
reasons jointly disposed of the interests they had and that the assets of the
trusts were available to be used within
that structural framework and not within
the provisions of this regime.
[119] The current legislation does not entirely remove the protection
offered by a trust. Parliament, in ss 44 and 44C, has provided
specific
statutory provisions that allow the Court to compensate for dispositions of
property made to a trust. Common law remedies,
such as where a trust is deemed
to be a sham, may also be available. It was common ground before the Court that
s 44 had no application
in this case. Whether s 44C could apply need not be
determined and I make no finding with regard to the status, extent or value of
the interest in the mirror trusts which do not require our
adjudication.
[120] There are interests in the trusts which the parties have ample
opportunity to deal with to their mutual benefit under the
general law. The
trustees’ powers could be responsibly exercised having regard to the
rights and interests of the other beneficiaries,
who are the children of the
parties, in a manner which would enable each of them to move
forward.
The relationship between s 15 and spousal maintenance
[121] In making orders under the Property (Relationships) Act 1976 and
Family Proceedings Act 1980 there is a simple sequence to
be followed. If
there is a qualifying relationship, property is classified, valued and divided
equally between the parties. The
Court next makes any adjustments to equal
sharing as provided for in the Act, for example under s 15. Then, and only
then, can an
assessment sensibly be made as to whether one of the parties is
liable to pay spousal maintenance.
[122] The subject matter considered in s 15 of the Property (Relationships)
Act
1976 and ss 63 and 64 of the Family Proceedings Act 1980 is remarkably similar.
Both sections require the Court to look at the effect of the division of
functions in relation to the capacity of the parties to earn
an income after the
relationship ends. Despite this crossover, s 15 awards and maintenance orders
serve distinct purposes and in
my view they should be considered
separately.
[123] The purpose of an order made under s 15 is to compensate a spouse/partner whose economic position, that is income and living standards, is significantly lower than their spouse’s/partner’s because of the effect of the division of functions within the relationship: Property (Relationships) Act 1976, s 15(3). An order results in a readjustment of the division of relationship property and is guided by the principle in
1N(c). The aim of this section is to provide a means by which residual
inequality, in terms of earning capacity and standard of living
that is not
addressed in the division of relationship property, can be dealt with
where it is required in all the circumstances
of the case. A s 15 award
does not permit a Court to exercise a broad and unfettered discretion to redress
economic disparity simpliciter:
I adopt the approach which applied in de
Malmanche v de Malmanche [2002] 2 NZLR 838 at [157] persuasive.
[124] By contrast, the purpose of a spousal maintenance order is
to provide temporary support to enable a party to overcome
the effects of
living together and to adjust to the new circumstances of independent living:
see Webb and others Family Law in New Zealand (12 ed 2005) at [5.1].
This award is designed to facilitate the provision for a
spouse’s/partner’s reasonable needs for
a reasonable period of time:
Family Proceedings Act 1980, ss 63(1), 64(1) and 64A(1).
[125] A determination as to whether a party is entitled to a s 15 award should be undertaken before any assessment is made regarding the need for spousal maintenance. In order for a s 15 award to be made, three hurdles must be overcome: disparity, causation and what is just in the circumstances. In deciding whether a s 15 order should be made, the Court may have regard to the likely earning capacity of each spouse/partner: s 15(2)(a). The assessment of “earning capacity” does not include maintenance. If Parliament had intended that maintenance be included in this determination it would have used the term “income”. This approach was
adopted in P v P [2005] NZFLR 689; (2005) 24 FRNZ 407 (HC) at [65] and
in my judgment the conclusion is correct.
[126] Section 32 of the Property (Relationships) Act 1976 provides that, in
any proceedings under the Act, a Court must have regard
to any order for
maintenance. This provision should not be read as linking any maintenance
inquiry with that of s 15. The purpose
of s 32 is to ensure cogency between the
different determinations made for separating couples that arise under various
pieces of
family law legislation. It also recognises the reality that it is not
uncommon for couples to face multiple legal proceedings at
different times. It
is often the case, as with the situation in front of us, that the issue of
maintenance will be dealt with in
a separate proceeding under urgency to ensure
that a spouse/partner is able to survive financially while the legal proceedings
are
completed. The purpose of s 32 is to ensure that these previous
proceedings are accounted for in any determination made
under the Act.
This approach is supported by subs (2) which gives the Court the power to
cancel, vary, extend or suspend any order
or voluntary agreement.
[127] If the Court determines that an order under s 15 ought to be made,
the award is limited by the relationship property pool.
This limitation is
another indicator that s 15 ought to be considered before any determination
regarding spousal maintenance is
made. Section 15 allows for a readjustment of
relationship property to diminish prospective economic disparity arising from
the
division of functions in the relationship. The need for maintenance can
only be assessed once the division of relationship property
has been
finalised.
[128] The Court has jurisdiction to make an order for spousal maintenance only if it is satisfied that party A is not able to meet their own reasonable needs, because of the circumstances of the relationship, thereby making party B liable to meet those needs. In making this assessment the Court must have regard to any means derived from the division of relationship property: Family Proceedings Act 1980, s 65(2)(a)(ii). Therefore an assessment of party A’s reasonable needs cannot be made until relationship property is divided.
[129] Parliament has made it clear that generally speaking a spouse/partner
is not liable to pay maintenance at the end of their
relationship: s 64(4). It
has created a limited exception to this where there is “reasonable
need” arising from the
different roles the parties took in the
relationship. Given the limited nature of this exception, an accurate
assessment of “reasonable
need” must be made. Reasonable need
cannot be accurately assessed while issues relating to the division of
the
relationship property remain outstanding.
Section 15 claim
[130] The third substantive issue relates to the wife’s claim for an
order to be made under s 15 of the Property Relationship
Act. Again Mrs
Hollings accepted that there was to an extent a domino effect in the various
heads. She acknowledged that the strength
of this claim could well be affected
by the orders which the Court made in respect of the interest in the firm and/or
the questions
relating to the mirror trusts. However, a claim was still advanced
by the wife for at least the amount awarded in the High Court.
The High Court decision
[131] The Judge found that the wife had established, on
the balance of probabilities, that the income and
living standards of the
husband were likely to be significantly higher than hers. I would prefer simply
to say that, on the evidence,
I am satisfied that there was a significant
difference.
[132] Allan J did not accept that there was a causal nexus between the whole of the disparity and the division of functions within the relationship. The wife had submitted that the nexus was demonstrated by four grounds. The first was that the wife had assisted the husband’s career by resigning her position in a city and moving to a provincial area. The second was that, by moving to London where the husband’s ability to work was obtained because of her right of abode, she had further assisted his career to the detriment of her own. The third was that her care for the children on the return from England permitted the husband the freedom to put most
of his energies into his career. The fourth was that the wife’s care
of the children affected her own ability to earn a significant
income.
[133] The Judge considered that the evidence showed that the
success of the husband was attributable more to his
skills and
abilities than the assistance of the wife. He said:
[123] ... The extensive evidence adduced in this case demonstrates that
the husband, while possessed of a relatively ordinary
academic record, is
nevertheless a practitioner of significant ability. He has acquired extensive
experience and is a skilful advocate.
The likelihood is that he would, in due
course, have obtained a lucrative partnership without necessarily undertaking
the move
from [New Zealand] and then to London. As a matter of
causation, I do not believe the wife’s involvement had the
effect
claimed.
[124] Additionally, it is said that the wife’s care of the children
set the husband free to pursue his law career full time,
and that had he been
required to assume an equal share of child rearing responsibilities he would not
have attained his current partnership.
The wife points to the fact that equity
partners in the husband’s firm have not, at least for the most part,
undertaken major
family commitments, and that at least most of them have a
partner who is not engaged in paid employment. The husband denies he would
not
have achieved his partnership in the absence of the wife’s family rearing
contribution.
[125] Given the rapidity of the husband’s rise to partnership in his
present firm, the evidence from a number of Auckland
legal practitioners as to
the husband’s skills and abilities and the wife’s own evidence of
the high regard in which
the husband was held by a senior partner in the firm, I
do not believe I would be justified in finding that the husband was unlikely
to
have secured a partnership had he been obliged to assist more directly with the
care of the children.
[134] But he held that the wife was on stronger ground in arguing that the
division of functions within the relationship detrimentally
affected her own
ability to earn a significant income. The evidence showed that she was an
intelligent, articulate and successful
woman. She had extremely good
references from her time working in London, and the evidence before the Court
from experts in the
field of human resources indicated that had she
continued in her chosen field without the interruption to have children,
she would have been a high achiever, capable of commanding a salary in the
range of $70,000-$90,000.
[135] The husband argued that, to the extent that any disparity may have been caused by the division of functions within the relationship, the disparity is reduced or
extinguished by the wife’s decision not to return to work
full time after the separation. The Judge found substance
in this
argument.
[136] On the Judge’s assessment of the evidence, a sum of
$75,000 was nonetheless justified to address the economic
disparity that
resulted from the division of functions within the relationship. There is, of
course, now the changed circumstance
that the relationship property pool is very
much greater than when the Judge made his assessment and the impact of that
needs to
be considered.
Discussion
[137] The proper starting point for consideration of a claim under s 15 is
the words of the statute itself.
15 Court may award lump sum payments or order transfer of
property
(1) This section applies if, on the division of relationship property,
the Court is satisfied that, after the marriage, civil
union or de facto
relationship ends, the income and living standards of 1 spouse or partner (party
B) are likely to be significantly
higher than the other spouse or partner (party
A) because of the effects of the division of functions within the marriage,
civil
union or de facto relationship while the parties were living
together.
(2) In determining whether or not to make an order under this section,
the Court may have regard to—
(a) the likely earning capacity of each spouse or partner:
[(b) the responsibilities of each spouse or partner for the ongoing
daily care of any minor or dependent children of
the marriage, civil
union, or de facto relationship:
(c) any other relevant circumstances.
(3) If this section applies, the Court, if it considers it just, may,
for the purpose of compensating party A,—
(a) order party B to pay party A a sum of money out of party B's
relationship property:
(b) order party B to transfer to party A any other property out of party B's relationship property.
[138] Mrs Hollings relied particularly on the interpretation of this
section by Priestley J in de Malmanche v de Malmanche and the more
recent decision of a Full Court of the High Court in P v P.
[139] It is first to be noted that there is a jurisdictional requirement.
The income and living standards of one spouse, after
the division of
relationship property, have to be significantly higher than that of the other
because of the effects of the division of functions within the
relationship. What is axiomatic from that is the need for a causal link between
one and the other.
[140] Section 15 is not a mechanism by which the courts can
circumvent the fundamental principle of equal division of
property. It is only
in those circumstances where there is a proper causal link that a readjustment
of relationship property is
permissible. In the present case, there is no doubt
that the husband’s income and living standards are now significantly
higher
than those of the wife. But the critical question is whether there is a
connection between the one and the other.
[141] The crux of Mrs Hollings’ argument was that once those two
jurisdictional requirements are met, the Court has an open
and unfettered
discretion as to whether or not an order is made and the size of an order. I
consider that Mrs Hollings sought to
read more into s 15 than is available on
the words used by Parliament.
[142] It is not a case in which careful and defined statutory words can be
injected with a generality of discretion by reference
to principles and purposes
which will have the effect of obfuscating the clear meaning of the words
used.
[143] Allan J made a careful assessment of the evidence before him.
He had particular regard to the training, experience,
aptitude and background
of the wife which he was satisfied meant that the division of responsibilities
within the marriage had led
to disparity.
[144] Once again the Judge had the evidence of Mr Frankham for the wife and Mr Hagen for the husband. The former was of the view that a payment in the range of $99,000-143,000 (with a mid-point of $121,000) was justifiable. Mr Hagen
assessed an award at $41,500. Both adopted discounted cash flow methodology
and both made assessments of the risk of non-collection
of future
income.
[145] The Judge carefully noted a number of issues upon which the
approaches of the experts differed. He reached the view that
Mr
Frankham’s approach was to be preferred except for his assessment of the
period of disparity. He found it was not justified
at eight years as Mr
Frankham advocated, but at five years as advanced by Mr Hagen. Having regard to
that, the Judge made an award
of $75,000.
[146] Before us Mrs Hollings adopted an approach which was quite different
to either expert. She submitted that under s 15 the
Court should
determine:
• what is the current income of the husband;
• what is the current income of the wife;
• split the difference;
$500,000.
[147] I find nothing in the words of the statute which supports such an
approach. In fact, nothing suggests that the approach of
Allan J was wrong or
that there was any incorrect exercise of the discretion. Particularly bearing
in mind the forensic accountants’
evidence (in which each expert adopted
similar methodology) I find that the award was within the Judge’s
discretion. Section
15 awards are necessarily a matter of impression and rote
applications of a formula will not be appropriate.
[148] There is a necessity to consider the impact of the re-assessment of the value of relationship property. Mr Frankham’s evidence was predicated on the basis of an interest in the firm at greater than we had concluded so it has no impact on his assessment. Mr Hagen’s expert evidence was not rooted in or bound to the value of relationship property.
[149] In my view the larger pool of relationship property is not a material
alteration which impacts upon the Judge’s exercise
of discretion in this
case. I am satisfied that the award remains a proper exercise of discretion.
It is a bridging device which
remains appropriate.
[150] That ground of appeal is accordingly dismissed.
Spousal maintenance
[151] The final substantive issue raised relates to spousal
maintenance.
[152] This is a further matter where it is necessary to review the current
position in light of the findings made by this Court.
Of particular importance
is the fact that there is now due and owing to the wife an additional capital
sum of [$90%X] upon which
there is interest accruing from September 2004 to the
present time at 6%, which represents a pre-tax income stream of [$5%X] per
annum.
[153] The award for maintenance made by the High Court was challenged by
the wife on the basis that the Judge failed to have proper
regard to her
redundancy in the assessment of quantum and further that he had insufficient
regard to the statutory criteria in s
65(2) of the Family Proceedings Act
1980.
[154] Counsel placed substantial reliance on the approach which has been
adopted in some cases in Canada, Australia and the United
Kingdom. There was
also liberal reliance on comments made by this Court in Z v Z (No 2).
The starting point, however, is the New Zealand statute.
[155] Even allowing for the change in circumstance as a result of the identification of a substantial amount of further capital, and allowing for interest on it since the date of hearing, I am not persuaded to interfere with the order made by the Judge for moderate maintenance on a time limited basis. I conclude that the wife established a reasonable need for spousal maintenance but only at that level and for that short period.
[156] Spousal maintenance is limited by s 64A which provides that spouses
must assume responsibility for their own needs within
a reasonable period of
time. We are dealing with a couple who are the parents of children, the
youngest of whom is only just now
ten years old. They made a joint decision
that the wife should be available to care for their children while they were
young.
The assessment of Allan J to reference the time for which maintenance
was payable to the age of the children was clearly within his
available
discretion.
[157] I am not attracted by the argument of Mrs Hollings that there remains
jurisdiction for an order to continue beyond the end
of March 2006. Both
children will then be over the age of ten. Further, the wife’s financial
position will be finalised
in June of this year. I am satisfied that the time
limited contribution towards spousal maintenance was in all circumstances
reasonable
and should not be interfered with by this Court. After almost five
years of separation, with the children growing up and property
finalised, it is
time for a clean break.
Conclusion
[158] Accordingly in my view the appeal should be allowed first by
assessing the value of the interest in the firm as at the date
of separation as
being [$90%X] of which the wife is entitled to [$45%X].
[159] There is additional relationship property being the return from the
interest in the firm from 2 September 2001 to 17 September
2004 which I value at
another [$90%X]. The wife’s interest thereon is a further
[$45%X].
[160] Interest on the combined sum of [$90%X] at 6% should be
paid from
17 September 2004 to 30 June 2006 by which date the husband must pay the
entire capital sum.
[161] The other orders made in the High Court are confirmed.
[162] The appellant should have costs on the appeal of $24,000, together
with usual disbursements.
WILLIAM YOUNG P
Table of Contents
Para No
Introduction [163] The purposes and principles of the Property (Relationships) Act 1976 [164] The valuation of the partnership interest [166] The allowance for post-separation receipts, interest, spousal maintenance
and the s 15 claim [174]
General [174] Post-separation receipts [175] Interest – a provisional approach [181] Off-setting maintenance and post-separation receipts [183] Section 15 and maintenance – the approach taken by the Judge and
some preliminary views [188]
Drawing the threads together
[206]
Introduction
[163] I am in agreement with the orders proposed by Robertson J and comment
only on the following points:
(a) The purpose and principles of the Property (Relationships) Act 1976; (b) The valuation of the partnership interest;
(c) The allowance for post-separation receipts, interest, spousal maintenance
and the s 15 claim.
The purposes and principles of the Property (Relationships) Act
1976
[164] I approach this case with an awareness of the Act’s provenance
(to which Hammond J has also referred in his judgment)
and, as well, the
purposes and principles set out in ss 1M and 1N. Of particular
relevance is s 1M(c) which provides
that the purposes of the Act are, inter
alia:
(c) to provide for a just division of the relationship property between the spouses ... when their relationship ends by separation ... .
As well, I see as significant the principles expressed in s 1 N(c) and (d)
namely:
(c) the principle that a just division of relationship property has regard to the economic advantages or disadvantages to the spouses ... arising from their marriage ... or from the ending of their marriage
... ;
(d) the principle that questions arising under this Act about
relationship property should be resolved as inexpensively, simply,
and speedily
as is consistent with justice.
[165] I indicate how that purpose and those principles are relevant when I
discuss the particular issues raised by the case.
The valuation of the partnership interest
[166] The valuation exercise involved an inquiry into what the husband
might have been earning at the bar if he were not a partner
in the firm. Such
inquiry was hypothetical in nature. It also necessarily entailed dispute as to
the assumptions which should
be made as to the husband’s hypothetical
alternative career.
[167] I have a number of concerns about this methodology:
(a) Given the underlying logic of the exercise it was in the
interests of the wife to portray the husband’s current
position as a
partner in the firm as primarily a matter of luck and timing. Her attempt to do
so degenerated into a demeaning and
undignified attack on the husband’s
abilities. This attack was very much driven by the dynamics of the process and
this in
itself raises the question whether the methodology was
appropriate.
(b) The costs associated with this aspect of the case were very high – in my view disproportionately so in respect of what was actually at stake. The principle expressed in s 1N(d) – that disputes should be resolved “as inexpensively, simply and speedily as is consistent with justice” – applies. It is inconsistent with that principle to insist on valuation methodologies which commit disputing parties to expense
which is out of scale to what is involved. The courts (and of course the
parties to disputes of this character) may be better to
look for simpler and
cheaper methodologies – involving perhaps rules of thumb (or
“conventional” approaches)
– which broadly capture the
underlying valuation principles. While the values which are produced
in this way will
not be mathematically or actuarially pure, the overall outcomes
(after the costs of the exercise are allowed for) are likely to be
better for
all concerned.
(c) I do not accept the validity of the logic underlying the
personalised nature of the exercise. On the basis of the approach
taken by the
experts in this case, the value of the partnership interest of the husband
depends in part on an assessment of his personal
earning capacity. So assessed,
the husband’s partnership interest would have a higher value than that of
a partner with a
higher personal earning capacity despite both having precisely
the same bundle of rights in, and economic expectations from, the
firm.
(d) Perhaps most importantly, the exercise as applied in this
case produced an outcome in the High Court which was
obviously wrong. The
conclusion reached by the Judge that no economic value should be attributed to
the husband’s interest
in the firm flies in the face of common sense and
experience.
[168] In Z v Z (No 2) [1997] 2 NZLR 258 (CA), this Court suggested - and the suggestion was only provisional because the Court was merely discussing what further evidence might be helpful - that an approach to the assessment of super-profit in respect of an accountant’s interest in his firm would be to determine whether the accountant’s remuneration from his firm was “higher than that reasonably able to be commanded by [him] for his skill and responsibilities” (at 294). It also noted that the relevant super-profit assessment might be able to be derived by reference to the alternative costs of replacing the husband with another suitably qualified person. I do not accept that the Court envisaged the sort of exercise actually carried out in this case, which turns so much on assessments of the husband’s skills and abilities and a
sterile debate as to the details of his assumed and hypothetical alternative
career path.
[169] The courts should encourage a simpler, more straight-forward and less
personalised approach to the assessment of super-profit
– one which is
addressed to the valuation of the firm as a whole and proceeds on a basis which
chartered accountants with an
interest in this area of practice are well able to
address. In my view the relevant super-profit figure adopted should have been
based on an appropriate remuneration figure for a partner in the firm rather
than on an earnings capacity assessment which was so
specific to the
husband.
[170] In this context, I see as instructive the example provided by this
Court in Haldane v Haldane [1981] NZLR 554 in relation to the valuation
of superannuation entitlements. This was an issue upon which much expense could
be incurred with actuarially
based valuation exercises. The judgments in
Haldane provided a methodology which could be applied by reasonably
numerate lawyers and judges. Broadly similar problems arise in
jurisdictions
which permit the recovery of damages for personal injury and
this is particularly so in the assessment of compensation for
future economic
loss. To avoid the high costs of proof in individual cases, judges
in England have adopted
multiplier/multiplicand calculations, directly
resorted to the “Ogden Tables” without supporting actuarial evidence
and prescribed the appropriate discount rate, see the discussion in
McGregor on Damages (17 ed, Sweet and Maxwell) at [35-051] et
seq.
[171] The valuation of companies and partnerships is more difficult than (and thus not as susceptible to rules of thumb as) the superannuation and personal injuries examples which I have just given. But the concept of a super-profit is relatively straight forward. Once a super-profit figure has been established, the value to be attached to the underlying business can be approached, no doubt on a rough and ready basis, as involving a variation of the multiplicand/multiplier approach, where the super-profit is the multiplicand and the multiplier is required to be fixed by the Court. On my review of the material placed before us by counsel, such a multiplier is unlikely to exceed five. In the particular circumstances of this case (including the inability of the partners in the firm to sell their interests on retirement) one would
expect the actual multiplier to be less than five. This simple – I
hope not simplistic – approach provides something
of a reality check in
respect of the very large claims made on behalf of the wife.
[172] I accept that we must resolve the appeal on the basis that the
parties have litigated the case. My concerns about the valuation
methodology
are, in any event, alleviated by the reality that there is no reason for
treating the husband as other than a very competent
criminal lawyer who is
appropriately a partner in his firm. So, on the particular facts of this case,
there is no difference between
an assessment of super-profit on a firm basis as
opposed to a personal basis (ie by reference to the husband’s individually
assessed earning capacity).
[173] I agree with the approach of Robertson J as to the assessment of
super-profit (which he fixed at [$50%X] and also on the value
to be attributed
to the husband’s partnership interest based on that super-profit
figure.
The allowance for post-separation receipts, interest, spousal maintenance
and the s 15 claim
General
[174] Post-separation receipts, interest, spousal maintenance and the s 15
claim all require individual assessment. But it is appropriate
to consider and
determine them in a way which recognises, as fairly as the legislation permits,
the reality that they are all interconnected.
Post-separation receipts
[175] On this aspect of the case, I agree with the conclusion
expressed by
Robertson J.
[176] I accept that from the husband’s point of view the wife is having her cake and eating it too – receiving a capital allowance which reflects a valuation of a future income stream and then receiving separately an award representing some of that future income stream. This is an aspect of the case that has certainly troubled me.
As Robertson J has pointed out, part of the problem is that the valuation
exercise was carried out as at the date of separation.
[177] At trial the wife sought to capture the subsequent earnings by
building them into the separation date value. While I accept
that this approach
is inconsistent with a true analysis of what the partnership was worth as at the
date of separation, it is perfectly
clear that the post-separation earnings of
the husband were in issue in the case.
[178] If, at the date of separation, the husband had owned shares in a
publicly listed company, the dividend income which he subsequently
derived on
those shares prior to a final relationship property wash up with the wife would
plainly be relationship property. A similar
approach would apply in a case
where the husband owned shares in a private company (say a fishing company with
a substantial capital
investment in vessels and quota) although there would have
to be an allowance for remuneration for the husband’s own exertions.
The
same approach would be appropriate in this case if the husband’s firm had
been structured as a limited liability company
(assuming that such a structure
was legally permissible). In such a case, it would be appropriate for the Court
to apportion the
income he earned from the separation date down to the hearing
date between return on capital (which would be relationship property)
and salary
(which would be separate property). For this purpose, it would not matter
whether the income derived by the husband
was denominated as dividends
or salary. Given this context, it seems to me to be obvious that the
proportion of the husband’s
income between dates of separation and hearing
which represent super-profit are able to be classified as relationship
property,
[179] I consider a broad brush assessment is necessary to produce an outcome which is “just” for the purposes of ss 1N(c) and 9(4) and conforms to the principle expressed in s 1N(c) that a “just division” requires the Court to have “regard to the economic advantages” to the husband “arising from” the marriage and its ending. What is “just” for the wife, must, of course, not be at the expense of what is unjust for the husband. But I see no injustice to the husband in taking a plain words approach to the language of the statute and in particular to ss 8(1)(l) and 9(4). I do not see an actual (as opposed to an apparent) doubling up in the award to the wife. I
have reached this view by considering, as a check, what the wife
would have received if there had been a hearing date
valuation.
[180] The difficulties thrown up by this aspect of the case leave me with
the view that in cases of this sort the parties should
not too quickly assume
that a separation date valuation is appropriate.
Interest – a provisional approach
[181] The wife has a prima facie entitlement to interest on half the value of the husband’s interest in the firm assessed from the date of separation and a further entitlement to interest from at least September 2004 on the relevant proportion of the post-separation receipts. Interest at 6% pa (as proposed by Robertson J) on the half share in the value of the firm as at separation date ([$45%X]) would produce approximately [$8%X] if calculated down to 1 September 2004. Annual interest at
6% on the total of the relevant awards (the share in the partnership and the
post- separation receipts, ie [$90%X]) is [$5.4%X].
[182] I see two possible doubling up difficulties with awards of interest:
first, in respect of the value of the firm, the wife
is also receiving an award
which is referable to income derived from the relationship property interest in
the firm; and, secondly
any interest will be on top of spousal maintenance which
was assessed without having regard to such interest income. I am not
particularly
troubled by the first of these difficulties (given depreciation in
the value of money since September 2001 and appreciation in the
value of the
husband’s partnership interest since then in respects which are not
closely associated with his personal endeavours).
The second difficulty is,
however, more problematical, and I will revert to it later in this
judgment.
Off-setting maintenance and post-separation receipts
[183] Between April 2002 and 1 April 2004, the husband paid spousal maintenance of $2,500 per month (ie at an annual rate of $30,000 pa). He paid a further $7,735 from 1 April 2004 until 1 September 2004. He made child support payments at
$1,675 per month until 31 March 2003 and then from April 2003 until May 2004 at
the rate of $1,125 per month. There were also other payments that, to a
greater or lesser extent, were for the benefit of the wife
and/or children. All
of this raises the question whether the payments made by the husband,
particularly those made by way of spousal
maintenance, ought to be off-set
against the awards which we have made in respect of post-separation receipts. I
propose to discuss
this issue primarily by reference to the spousal maintenance
that has been paid as the merits of the husband’s position are
perhaps
strongest as to those payments.
[184] Those who make periodical payments to former partners sometimes seek
to categorise them (either when paid or later) as
being on account of
relationship property entitlements. For the reasons given by Hammond J, I think
that the courts should
be slow to countenance such categorisation where the
reality is that the money is required for the former partner’s support.
If such payments are, in substance, maintenance, they should be so categorised
and not taken off relationship property entitlements.
[185] I, nonetheless, see this case as involving a set of circumstances
which are atypical because on the basis of our findings
the wife has, in effect,
had an income stream from the firm between the date of separation and the date
of hearing, albeit that she
did not know it. If it had been appreciated during
that period that the wife was in effect sharing in the income of the
firm, she could have had no fair entitlement to maintenance and such
payments as were made would properly have been regarded
as being on account of
her eventually assessed entitlement.
[186] If the post-separation receipts are relationship property only by virtue of s 9(4), it would be open to the Court to make an adjustment for maintenance in terms of its assessment of what is “just”. But if the receipts are relationship property under s 8(1)(l), there is no obvious jurisdictional basis for reducing the wife’s entitlement. Given that the wife is entitled to rely on s 8(1)(l) as well as s 9(4), I see no basis for off-setting the maintenance payments against the award in respect of post-separation receipts. The decision of this Court in Walker v Walker [2002] 1 NZLR 155 is relevant albeit that it arose in a very different context. In issue there was whether a taxation liability associated with the creation of an item of relationship property but not specifically deductible under s 20 of the Act (as it then was) should be allowed
for in the division of the parties’ relationship property. This Court
concluded at [37] that since the Act was a code, the
Court should not make
adjustments to what the Act declared to be relationship property otherwise than
as was provided by the Act.
[187] In the course of preparing this judgment I wondered whether s 18B of
the Act might apply so as to allow an off-set for the
payments made by the
husband to which I have referred in [181]. It may be arguable that those
payments (or some of them) can be
treated as being in the nature of
contributions by the husband, which, if it were not for the ending of the
marriage, would have
been contributions to it. On the other hand, s 18B was not
invoked by Mr Vickerman and we have thus not heard Mrs Hollings as to
its
applicability. Had the husband sought to rely on his post- separation
financial contributions, I imagine that the wife
would have made a
counter-balancing claim in relation to her post-separation non-financial
contributions, including her
care of the children. The applicability of the
section in these circumstances is far from clearly established, see for instance
Speller v Chong [2003] NZFLR 385 (FC) affirmed sub nom Chong v Speller
[2005] NZFLR 400 (HC), S v S [Compensation] [2005] NZFLR 218 (FC) and
compare Loader v Loader [2003] NZFLR 553 (FC). I will revert to this
point later in the judgment, see [206] below.
Section 15 and maintenance– the approach taken by the Judge and some
preliminary views
[188] Allan J concluded that the wife’s income earning capacity at
the time of the hearing was in the range of $40,000-45,000
pa, that her future
capacity was in the order of $70,000-$90,000 pa and that it would take her
around five years to achieve her full
income earning potential. That five year
gap was the subject of the award under s 15 of $75,000.
[189] The Judge fixed spousal maintenance at the rate of $11,960 pa to be paid until 31 March 2006. In doing this he acted on the basis that the wife’s needs at the time could be quantified at approximately $36,000. In his judgment he saw his award of maintenance as appropriate to “provide a final bridge to the point” at which she became responsible for her own needs.
[190] The Judge’s overall approach can be looked at in the following
way (albeit that this is not how he explained it):
(a) The wife was required to assume full responsibility (ie for the purposes of both maintenance and s 15) for her own support by
31 March 2011;
(b) For the period up to 31 March 2006, the shortfall between
her reasonable needs and available income was addressed
by an order for the
payment of spousal maintenance; and
(c) The period between 31 March 2006 and 31 March 2011, was
addressed by the s 15 award.
[191] In analysing the scheme of the Judge’s orders in this
way, I am not approaching the case on the basis that
s 15 is intended to
provide for capitalised maintenance. On the other hand, a s 15 award which has
been properly assessed may obviate
or reduce the need for maintenance. My
assessment of the wife’s reasonable needs for the purposes of spousal
maintenance
is that they do not exceed what the Judge found to be her eventual
earning capacity. This is why I have analysed the effect of
the Judge’s
orders in the manner just set out.
[192] I should also make it clear that the Judge dealt separately with
child support which he fixed at $22,000, albeit only until
the end of March
2006. So if the relevant figures are aggregated, the Judge proceeded on the
basis that the wife’s reasonable
needs for herself and her children for
the period up to 31 March 2006 were approximately $58,000 pa.
[193] In her arguments before us, Mrs Hollings noted that at the time of the hearing before Allan J the wife had been made redundant, but her primary arguments focused on the disparity between living standards of the husband and the wife. The Judge saw the redundancy issue as being of little relevance and I agree with his assessment. The broader disparity question raised by Mrs Hollings is more difficult.
[194] The husband’s earnings for the 31 March years in 1998, 1999,
2000, and
2001 were [$24%X], [$25%X], [$36.8%X] and [$51.2%X] respectively. By
September 2004 his annual income was in excess of [$120%X]
and was
thus dramatically higher than it had been in the years preceding separation.
It was increasing rapidly at the time
of separation.
[195] The relevant sections of the Family Proceedings Act 1980 (ss 63-66) confine maintenance awards to what is necessary to provide for the “reasonable needs” of the applicant, see ss 63(1) and 64(1). So they are not expressed in the terms one would expect if the legislature intended the courts to make awards of maintenance by way of redistribution of the income of the wealthier party. I therefore find the Canadian and English cases relied on by Mrs Hollings (Moge v Moge [1992] 3 SCR 813;
(1992) 99 DLR (4th) 456 (SCC) and McFarlane v McFarlane;
Parlour v Parlour
[2004] EWCA Civ 872; [2004] 3 All ER 921 (HL)) of little relevance.
[196] Under s 65(2)(a) of the Family Proceedings Act, the current income of
the husband is relevant to the fixing of maintenance
but this relevance is only
as to the proportion of the wife’s reasonable needs which should be met by
the husband. In assessing
what those needs are, the husband’s present
earnings are not relevant. Instead, the statute directs the attention of the
courts
to the parties’ shared standard of living when they were still
living together, see ss 63(2)(c) and 64(2)(c).
[197] On this basis, the wife’s reasonable needs can fairly be capped by reference to the shared standard of living at or around (ie in the years immediately preceding) separation. In light of the figures to which I have already referred and the requirement to consider child support separately, it is difficult to see how her reasonable needs could exceed what could be met from a pre-tax income in the range of $70,000 - $90,000, which, coincidentally, is what the Judge regarded as being her eventual earning capacity. On the Judge’s approach she should be able to achieve earnings at that level by 2011 and, as I have noted, any shortfall between such needs and her ability to meet them in the period from 31 March 2006 and 2011 is addressed by the s 15 award.
[198] That leaves in issue spousal maintenance as fixed by the Judge.
Viewed on a stand-alone basis, the figure fixed may have
been slightly on the
low side, but, allowing for the child support and the tax-free nature of the
payments in the wife’s hands,
such shortfall is limited. As well, we must
now recognise and allow for the interest to which the wife is now presumptively
entitled
on the awards in relation to the partnership interest and the
post-separation receipts which, at 6% pa on [$90%X], comes
to [$5.4%X] pa.
Given that we propose to award interest on that basis, I am not prepared to
interfere with the spousal maintenance
award.
The section 15 claim
[199] The wife invoked s 15 to obtain both compensation for diminution in
her income earning capacity associated with the division
of functions within the
relationship and a redistribution of what she regarded as the husband’s
enhanced earning capacity arising
from the same division of functions. I
accept that both compensatory and redistributive exercises may be appropriate
under s 15,
a view which accords with P v P [2005] NZFLR 689; (2005) 24
FRNZ 407 (HC) at [56] and de Malmanche v de Malmanche [2002] 2 NZLR 838
(HC) at [164]. As will become apparent, I see compensation for impairment of
earning capacity as likely to be easier to obtain than
a redistribution of the
other party’s allegedly enhanced earning capacity.
[200] A woman who stays at home and looks after children frees up her
partner’s time and energy, and in this way, may facilitate
an enhancement
of his earning capacity. Thinking along these lines is reflected in s 15 and in
some circumstances, such an enhancement
of earning capacity will properly be
redistributable under s 15. But, as this case illustrates, it is not always easy
to move from
the general to the specific.
[201] In G v G [2003] NZFLR 289 (FC) Judge Ellis (in the context of a claim for a compensatory award under s 15) stated at [127] that the test for causation was that “the ‘division of functions’ must not only be a ‘real and substantial cause’ but must be the principal cause of the economic disparity.” This puts the jurisdictional bar too high. The “principal cause” of the husband’s present earning capacity is his skill as a
lawyer. But that consideration alone does not preclude a redistributive
award. For instance if the division of functions between
the husband and the
wife resulted in the husband having opportunities to develop his earning
capacity without which he would
not have been able to fulfil his potential,
the case would be within s 15. Nonetheless, the language of s 15 (and in
particular the
words “because of”) suggests that the jurisdiction to
make an order requires a “but for” causal relationship
between
division of functions and economic disparity. The husband’s position in
this case, broadly, is that if the wife had
worked throughout the marriage (ie
pursued her career) he would not personally have assumed any resulting shortfall
in child-rearing
and domestic responsibilities but that, instead, nannies and
the like would have been employed. In a case where the relevant income
is
sufficiently high to warrant a redistributive s 15 claim, such an argument will
often be able to be plausibly deployed. Indeed,
I see no obvious answer to this
argument on the facts of this case.
[202] There are also broader considerations that support the
husband’s position. The clean-break principle (somewhat attenuated
as it
now may be) points against s 15 being used to require a continuing economic
relationship between parties whose relationship
has terminated. An award of the
size sought by the wife would have to be paid over time (either directly to the
wife or by way of
repayment of any loan which the husband might take out).
Allowance should be made for the personal autonomy of the husband. It
does not
seem right that his freedom to switch career (perhaps to go on the bench) or to
retire, should be as circumscribed as it
would be if an award of the size sought
by the wife were made. Allowance must also be made for the contingencies of
life. A substantial
redistributive award made now would be very unfair if the
husband were to develop cancer and die.
[203] When I was listening to the arguments advanced by Mrs Hollings, I
formed the view that in large measure the wife was seeking
to be compensated for
the breakdown in the marriage and this, in my view, lies outside the scope of a
s 15 assessment.
[204] In that context, I am simply not persuaded that a redistributive award would be warranted or just.
[205] On the other hand I have no difficulty with the approach taken by
Allan J to the award (in essence compensatory) which was
made. The key factual
premises which underpinned his assessment are those stated in [188] above. He
quantified the award by reference
to the evidence of the accountants and it
undoubtedly has an acceptably rational underlying logic.
Drawing the threads together
[206] I do not see the s 15 award as now being redundant by reason of the
wife’s success on the issues already discussed.
The s 15 award
compensates her for a loss of earning capacity which remains real even though
her capital base has been improved
by the awards which have been made. Nor do
those awards impair the husband’s financial position to such an extent as
to make
the s 15 assessment unjust.
[207] I agree with the general approach taken by the Judge to the
inter-relationship between his spousal maintenance and s 15 determinations.
Contrary to what has sometimes been said in the cases (cf P v P), I do
not think the order in which spousal maintenance and s 15 determinations are
made is particularly important. What is important
is that the overall
assessment is coherent and in accordance with the overall statutory scheme. I
am satisfied that the approach
taken by Allan J was appropriate.
[208] As is apparent from what I have said, I have more difficulty with the inter- relationship between post-separation receipts, interest and spousal maintenance issues. Because I am of the view that s 8(1)(l) does not permit an off-set between spousal maintenance (and similar payments) and the award for post-separation receipts, I think that if there is a legal basis for any off-set it must be found in s 18B. This section, however, was not invoked by Mr Vickerman and it is far from clear to me that he could have done so successfully (see [185] above). In those circumstances I do not propose to resort to it here. On the other hand, to limit the extent to which there may be unjust doubling up generally, I am prepared to confine the award of interest on the relationship property interest in the firm and the post-separation receipts so that interest starts to run only from 17 September 2004.
HAMMOND J
Table of Contents
Para No
Introduction [209]
The question of approach to the 2001 legislation
(a) The conceptual approach: towards substantive equality [212]
(b) The difficulties of fragmented cases [225]
The capital awards
(a) The value of the interest in the firm [228]
(b) Section 8(1)(1) of the Act [242] The mirror trusts [243] The income awards
(a) Introduction [245]
(b) This case: spousal maintenance [259]
(c) Economic disparity [266]
Introduction
[209] I am grateful to Robertson J, who has undertaken the burden of
setting out the circumstances in which this appeal has arisen,
and the relevant
issues. I have also read the judgment of the President, in draft.
[210] I agree with Robertson J and the President as to the appropriate
result with respect to the “capital” and
the
“income” awards in this case, and on the consequential awards
of interest and costs, although my reasoning
is not on all fours with them at
some points.
[211] For that reason, and because this appeal is an important one in relation to some of the issues arising out of the Property (Relationships) Act 1976 (the PR Act), and the accompanying changes relating to spousal maintenance made to the Family Proceedings Act 1980 (the FP Act) in 2001, I think it appropriate to add some observations of my own.
The question of approach to the 2001 legislation
(a) The conceptual approach: towards substantive
equality
[212] Practically all the major developments in family law in the western
world, from the mid-20th Century onwards, have been directed towards
“equality” (see, for instance, Baroness Hale of Richmond, From
the Test Tube to the Coffin: Choice and Regulation in Family Life (Hamlyn
Lectures, 1996), and the leading judgment of Lord Nicholls of Birkenhead in
White v White [2000] UKHL 54; [2001] 1 AC 596).
[213] This was reflected in the philosophical basis of the Matrimonial
Property Act
1976: marriage was to be seen as a partnership with both parties contributing
equally (albeit in different ways) to the relationship
and the family. Both
partners were to share equally in the relevant property, although there were
exceptions for some marriages
that fell outside the normal paradigm.
[214] Even so, the law was inadequate. It failed to resolve the problem
that the parties might have distinctly unequal earning
power. This gave rise to
the situation that sometimes the woman came away in the worse position from a
divorce. This was not because
she did not have half of the “family
assets”, but rather she was simply not in as good a position to
support
herself after divorce. This was particularly true of an older
woman, who had herself often had a partially developed career
interrupted
distinctly to assist her husband in his vocation. A very good illustration of
this phenomenon was Z v Z (No 2) [1997] 2 NZLR 258 (CA), which was much
canvassed in this case. There the husband’s income (as an accountant)
was over $300,000 yet the wife was
receiving only $7,000 by way of Social
Security benefit. Any claim to “equality” in such a context rings
somewhat hollow,
whether judged by equality of outcome or equality of
opportunity, or on any other basis.
[215] This phenomenon had come about because the 1976 Act had in large part depended on notions of formal equality. But it came to be appreciated that this formal equality had failed somewhere, and that concepts of substantive equality ought to be considered.
[216] As long ago now as 1988, under the guidance of
the Rt Hon Sir Geoffrey Palmer, when he was Minister
of Justice, a
Working Group on Matrimonial Property and Family Protection (which included
the now Speaker of Parliament and
the now Chief Justice) addressed some of the
concerns that had arisen (see the Report of the Working Group on Matrimonial
Property and Family Protection, Department of Justice, Wellington, 1988).
This Working Group made a series of recommendations which were designed to
address the
position of the financially weaker spouse. These included a wider
base for matrimonial property, making it easier to reach property
held in trust
or by companies, the encouragement of awards of lump-sum maintenance, and
certain other matters.
[217] In the result, the PR Act (which came into force in 2001)
incorporated much of the valuable work of this Working Group. But
it went
further. In particular, the court was to be given power to order payments of a
compensatory character where there is a disparity
in income earnings, and living
standards.
[218] What has happened conceptually, over close to a half century, is that
the basis of a woman’s claim has been slowly extended
from obligations
once based on purely moral grounds, through claims grounded on relatively
narrowly perceived “needs”,
to an approach based on real
equality. This last concept is based upon the proposition that there
are no material
differences between men and women in the context of modern,
egalitarian marriage. Hence any difference in treatment amounts to
discrimination
and constitutes a violation of important equality principles.
But the argument goes further than that - what may be needed (and
the new
legislation recognises) is compensation for differences created by the
very institution of marriage. This is where the notion of substantive - or
real - equality comes so strongly into play.
[219] This distinct evolution in legal conceptions is, as I have suggested, reflected in the history of the New Zealand legislation and the PR Act. For instance, s 1N of the PR Act provides for equal contribution and just division, but not just “formal” equality. Section 1N(a) provides that equality “should be maintained and enhanced” and 1N(c) specifically requires that regard is to be had to economic advantages or disadvantages to a spouse or de facto partner from the end of the marriage.
[220] The 2001 amendments made to the FP Act - in particular s 64(2) and s
64A - as to spousal maintenance are designed to “sit
alongside” the
PR Act reforms, and give our courts the ability to more fully address disparity
issues.
[221] There can be no doubt then about the purposes that the new legislative
“package” sought to achieve. That is critically
important because
under the Interpretation Act 1999 legislation is to be considered not only in
terms of its text, but in light of
the statutory purposes.
[222] It should be recalled in this connection that as long ago now as
1979, in Reid v Reid [1979] NZCA 30; [1979] 1 NZLR 572 this Court noted that legislation
of this character is not a technical statute, it is social legislation of the
widest general application.
That case was affirmed, on appeal, by the Judicial
Committee of the Privy Council: [1982] 1 NZLR 147. The 2001 amendments were
clearly designed to address the further social problems which had revealed
themselves in the operation of the earlier statute. The
legislation has to be
approached with this background in mind, and in the same spirit.
[223] There is something to be said for the proposition that,
implicitly, if not explicitly, the scheme of this legislative
package as it
now stands, is in part restitutionary: the wife in a paradigm case such as the
present, is to be compensated for benefits
that she has conferred on the husband
and that he retains for himself after the divorce. In that sense, the
wife’s losses
are related to the husband’s gains. There is then, of
course, the question of the valuation of the benefit conferred. Often
it will
relate to the very valuable, life-long, income stream the husband has been able
to attract. How the conferment of the benefit
is to be remedied (that is, in
income or capital terms, or some admixture of the two) is a more open
question.
[224] Even if the language of restitution is rejected, that of
“rehabilitation” would not be inappropriate. What matters
in the
sort of case under consideration here is that the wife has to be put more
closely back to where she would have been, but for
the effect of the marriage
role.
[225] The PR Act goes on, in particularised ways, to deal with how distinct
kinds of property are to be dealt with. In statutory
terms, reductionism was
always going to be necessary. No legal system could leave
“purposes” to operate by themselves.
There have to be some specific
rules.
[226] That said, one of the great difficulties with dispute resolution in
this subject area is that the legislation assumes that
at some stage it is
possible to have an accurate, static, “snapshot” on which the
adjudicating court can be satisfied
that the purposes and principles of the Act
have been satisfied and that there is a “proper” award. But one of
the
practical forensic difficulties which arises is that in the marriage
breakdown situation the parties negotiate; sometimes they litigate
parts of
matrimonial property and maintenance disputes; and routinely it is not possible
to get a realistic grasp of the overall
outcome until well into this train of
events. And routinely the sands have been shifting under the parties’
feet as the dispute
or the litigation has progressed.
[227] With that reality in mind, and some of its associated consequences
notwithstanding, I consider there is real force in Ms Hollings’
argument
that, as best it can, a court does have a responsibility in terms of the
purposes of the PR Act, and the FP Act, to stand
back and ask whether the
overall scheme of the legislation has been satisfactorily met in the
circumstances of the particular case.
I reject the contrary argument, which
must be that an “award” in this subject area is somehow simply the
sum of its
parts. What is required is a “just” award, having regard
to the principles and purpose of the legislation. Exactly
how the award is
constructed is a matter for the circumstances of the particular
case.
(a) The value of the interest in the firm
[228] It was common ground between the parties that the husband has an
interest of a “property” character in his law
firm, and that it is
relationship property. If that interest has a value, it would therefore be
split equally between the parties.
[229] I agree that the husband’s interest in the firm should be
valued at [$90%X] as at 1 September 2001, for the purposes
of the PR
Act.
[230] In reaching that conclusion, however, I would give primary emphasis
to what my colleagues appear to regard as only a “checking”
point.
To my mind, in any valuation situation, the law should prefer actualities to
abstracted and somewhat hypothetical calculations,
or rules of thumb, whenever
that is possible.
[231] This law firm had a relatively orthodox scheme by which the
attainment of a full (or “equity”) partnership could
only be
attained by foregoing income, in a “lock- step” arrangement. The
husband elected (and one can presume to the
wife’s knowledge) to subscribe
to that arrangement. As Robertson J notes, the in-hand income sum which the
husband was required
to forego during the relevant five-year period was
approximately [$90%X]. That was the “cost” to him of joining the
partnership on a full basis, and can fairly be taken as a measure of the worth
of his interest in the partnership. It is also what
anybody else would have had
to pay to join the firm.
[232] This interest was in effect “key money” foregone by the husband, which, when paid, unlocked the full equity potential of the firm for him. Admittedly it is not an ongoing interest in the same sense as goodwill, and as I apprehend it, to leave the partnership is to leave that interest behind. But that is not to deny the intrinsic worth of the interest, for so long as the husband continued in the firm. And there was no evidence that the husband was contemplating a professional move. All the evidence was that he is content where he is. That would hardly be surprising, given that the husband, even when he achieved full equity status, was taking out of the firm
far more in drawings than what he individually brought into the firm by way
of fees. And, by reason of the Crown Warrant, the firm
has a very secure
income.
[233] In indicating the reasoning I prefer as to the valuation in the
present instance, I would not however wish to be taken as
indicating any doubts
as to the usefulness of the super-profits method of valuation, in appropriate
circumstances.
[234] The term “super-profit” (as meaning “extra surplus
- value”) seems to have been first used by Karl
Marx in Das Kapital
(1867). In modern accounting practice, it has a close affinity to goodwill.
It may be considered as the value of “super- profits”
that a
practice can earn where the fees from the relevant work substantially exceed the
cost of the provision of those fees.
[235] This methodology has routinely been used in relation to
professional practices. To take only one example - I think
notorious - when the
National Health Service was established in 1948 in the United Kingdom, the
administration of the day compensated
General Practitioners for giving up their
right to sell goodwill in order to become part of the National Health Service.
The ban
on sale of goodwill for a medical practice remained for some years until
it was subsequently modified, for what were thought to be
good and sufficient
reasons. Super-profits was then the method used for valuing the
interest.
[236] As the experts in this case testified, accountants have different methodologies for making this calculation. But in general, the way it works (using a medical example) is that if a general practitioner’s practice was making $100,000 profit per partner from its work and the practice was offered for sale, the purchaser would aim to replace the partners with salaried doctors, and would deduct from the level of profit per partner the market value of the cost of the salaried GPs who would have to do the work. If the total cost of employing a salaried GP is getting close to (say)
$100,000, there would then be little return on the investment, and very little value in the goodwill or in the practice. But super-profits would arise if the profits per partner had been $150,000 per annum, but their work could be replaced at the cost of
$100,000 per partner. There would then be super-profits of $50,000, and a related value for the goodwill or interest in the practice.
[237] Having said that, super-profits is only one of several well-established approaches to valuation, which I endeavoured to outline in Garty v Garty [1997]
3 NZLR 66 (and in which I also expressed some concern about “rules of
thumb”
approaches to valuation issues).
[238] More fundamentally, I adhere to the view that the long-established
principle should continue to obtain that, in the absence
of a market, a court
must ascertain as best it can what a person desiring to buy the particular asset
would have to pay a vendor
willing to sell at a fair price, but not desiring to
sell, and weigh the factors on each side likely to arise as the result of
genuine
and responsibly conducted negotiations by the particular parties (see
Hatrick v Commissioner of Inland Review [1963] NZLR 641 (SC and
CA)).
[239] I remind myself too, of what Cooke P said in Holt v Holt
[1987] 1 NZLR 85 (CA) at 90:
Money value is simply what is obtainable in an actual or notional
market. In some cases, such as shares quoted on the stock exchange, it is easily
ascertained. [Other cases are more difficult.]
[Italics added.]
[240] I think this case is at what Cooke P would have described as the
“easier” end of the scale: we know what the actual cost of
entry was (and can derive from it the relevant value) in this particular
instance. But there will be less usual situations
in which the super-profits
method may be more appropriate, or indeed the only, method which is
available.
[241] Finally, calls for simplicity have a certain siren attraction, but if the “clean break” principle is to have any real force, particularly in the case of the affluent, quite sophisticated actuarial techniques are required to calculate the once-and-for-all capital sum which (if invested on assumptions about yields and tax rates) will provide a “sufficient sum” to meet a proper award. (See, for instance, the “Duxbury” calculation as it became known, in the United Kingdom: F v F (Duxbury Calculation: Rate of Return) [1996] 1 FLR 833 and B v B (Financial Provision) [1990] 1 FLR 20).
(b) Section 8(1)(l) of the Act
[242] I agree that the fruits from this partnership interest were also
relationship property, during the period identified by Robertson
J. And that
the husband’s annual income included a component which was a return on
that relationship property, which I agree
should be assessed at being [$50%X]
per annum before tax. The result is (and for the reasons given by
Robertson J) that
there was a further item of relationship property
valued at [$90%X] for which the husband must now account, in a sum of [$45%X],
to the wife.
The mirror trusts
[243] As this Court indicated in Nation v Nation [2004] NZCA 288; [2005] 3 NZLR 46,
in some circumstances interests in trusts can be brought into account. For
myself, I reserve for another day, when the issue squarely
arises, whether it is
possible to entirely “look through”, as counsel termed it, a trust
set up by one or other of the
parties.
[244] The question to my mind simply does not arise in this case, because
the parties have real equality in respect of the existing
trusts, and either of
them could apply for a range of remedies to realise their interest. To put it
another way, the trusts have
not put the property subject to those trusts,
“beyond the reach” of the other of them: see Nation v
Nation.
The income awards
(a) Introduction
[245] Conventionally a distinction is drawn between “capital”
and “income”, and I turn now to consider all
the matters which could
be grouped under the head of “income”. This includes past
maintenance, possible future maintenance,
and any adjustments for
“economic disparity” between the future income of the husband and
the wife.
[246] This subject area has been seen to be fraught with difficulty. There seems to have been much dispute within the legal community as to what is meant by “needs”,
disputes within the wider community over what justice really requires in
cases like the present, and it is suggested from time to
time that Parliament
has not particularly assisted the resolution of disputes in this subject area by
the language it has used. For
myself, I wonder whether the difficulties have not
been overdrawn.
[247] I begin this way. Prior to the coming into force of the 2001
amendments relating to property and maintenance, the conventional
approach was,
and in a large number of cases will continue to be, to look first to a
resolution of the disposition of property interests,
followed by an award of
maintenance where necessary and appropriate: see Fisher, Matrimonial and
Relationship Property at [1.70]. This is reinforced by s 65(2)(a)(ii) of
the FP Act, which requires that regard be had to the means of the particular
spouse including means “derived” from any division of property under
the PR Act. Under s 64 of the FP Act, there is
an obligation on the husband to
meet the “reasonable needs” of the wife, but subject to the
provisions of what is now
s 64A (that is, that a spouse must assume
responsibility for his or her needs within a reasonable time).
[248] The 2001 reforms require amongst other things an inquiry into the
ability of the parties to be, or to become, self-supporting
having regard to the
effects of the division of functions within the marriage while the parties were
living together or had lived
together; their living standard, whilst together;
the likely earning capacity of each party; and any other relevant
circumstances.
[249] This change to the law relating to “income” was
enacted alongside the changes which were made to the
PR Act. The
significance of this is that these statutory reforms also reflected, in real
measure, the broad Parliamentary concerns
to which I have earlier
referred.
[250] There are at least three significant consequences which arise out of these changes. First, the sharp distinction in practice between “capital” and “income” which prevailed for so long has inevitably been blurred. Secondly, as I earlier suggested, our Courts are faced with a distinct Parliamentary imperative to see that the wife (as is the usual case) does not come out of a long-term relationship with formal equality with respect to the property split, but no real equality because her
income position has been grossly disadvantaged. Thirdly, as I will shortly
suggest, consequentially, the concept of “needs”
has necessarily
broadened.
[251] One suspects that Parliament would be surprised that the legal
profession is having difficulties with the relevant principles,
which are
relatively straightforward, whilst no doubt it would recognise the difficulties
which will necessarily arise in the day-to-day
application of those principles.
But that is what our Courts are required to address.
[252] The principles are that the husband or the wife, as the case may be,
has an obligation to recognise that the marriage has
ended, that each party must
go their own way, and that to the extent that it is reasonably possible each
party is expected to become
self-supporting within a reasonable period of time.
Until then his or her reasonable needs must be met. I regard this
aspect of the law as quite uncontroversial on the basis of the 2001
amendments.
[253] The new factor introduced by the 2001 reforms was that one party may
have stood outside the workforce for such a time or in
such a manner that she
has to be assisted for an appropriate period of time and to a respectable
extent, with greater income support
than “needs” in the older and
narrower sense of hearth and home. Quite how that is to be effected must
necessarily be
context specific.
[254] At the other extreme, there are some cases where there is
simply gross income disparity between the husband and
wife. She, a brilliant
financial advisor, earns $1,000,000 per year; he, returning to work as a
competent IP technician after divorce,
earns $100,000 per year. Both,
post-divorce, are doing more or less what they were doing before he took time
out during the
marriage to play with his computer and learn to cook.
There is nothing in the legislation which requires an “evening out”
of this situation, and it would require outright (and doubtless many would say,
outrageous) social engineering to read it into the
legislation.
[255] The rather more difficult (and usual) cases lie between the two extremes of the case of a wife who has to be given a very distinct “leg up”, and the extreme (but naturally caused) disparity to which I referred in [254]. In this middle (and often
muddled) ground, the wife has given some assistance to the husband in his
career, goes back to work as soon as she reasonably can
after a split, struggles
to make a go of it as best she can, still has over-lapping obligations of one
kind or another with respect
to the children, and may or may not re-partner,
whether advantageously or not. Cases in this sort of area are necessarily going
to be context specific.
[256] What troubles me however in dealing with these problem cases, is that
what is appropriate in the case of a particular claimant
should not be seen
narrowly as to “reasonable needs”. The word “needs”, in
other words, should not be read
down to something like the necessities of life.
They may include a respectable period of grace for re-entry (and retraining) in
the work-force, having regard to that person’s life situation. And his
or her living standard may have been distinctly depressed,
long-term, to an
extent which is unjust. The 2001 amendments were intended to “provide
the courts with greater flexibility
in regard to the award of spousal
maintenance and to address economic disparities where a matrimonial property
settlement does not
do so” (to use the words of the House of
Representatives Supplementary Order Paper of Tuesday 16 May 2000).
[257] This wider view of the concept of “needs” or “financial provision” has been adopted elsewhere. I refer to cases such as Moge v Moge [1992] 3 SCR 813; (1992)
99 DLR (4th) 456 (SC) in Canada; Mitchell v Mitchell
(1995) FLC 92/601 in
Australia; and McFarlane v McFarlane; Parlour v Parlour [2004] 2 All
ER 921 (HL) in England. As a matter of principle, a Court should not be
niggardly in its approach to the problems faced by a wife (or a husband)
in the
paradigm case in respect to making the best that person can now make out of the
grossly changed circumstances of that person’s
life. Where a bright line
is drawn, is where the claimant in effect wants a slice of what amounts
to the naturally occurring better income prospects of the other
party, which has
little or nothing to do with what was brought about by the particular
circumstances of the marriage.
[258] There is one other general observation I wish to make under this head. It simply cannot be right as a matter of legal principle to say that the spouse who has to make very direct lifestyle changes - for instance in upskilling or retraining and matters of that kind - must first finance those steps out of his or her lawful property
entitlement, before resorting to income support obligations. That
contention is simply the same sour old wine, in a new
bottle.
(b) This case: spousal maintenance
[259] This was a strongly, even bitterly, contested aspect of this
litigation. The husband contended that any liability on his
part to maintain
the wife had long since been well and truly exhausted. He conceded that the
wife was entitled to a period of post-separation
maintenance and support while
she endeavoured to re-establish herself. But he maintained that a period of
three years since separation
had been sufficient for her to achieve that
objective.
[260] The wife said that eventually she hoped to be able to find suitable
work and re-establish herself, but because of continuing
child-care commitments
at least initially, and for a time, that work should be part-time. In fact the
wife had been working, as
the Judge recorded, between 20 and 22 hours per week,
and earning something in the order of $15,000 net per year, but she became
redundant from that work during the course of the hearing.
[261] The difficulties are obvious. A woman (now in her early 50s) with
distinct credentials and opportunities for her own life
had deflected those
opportunities in support of the family. She then faced the difficulties - well
detailed in the evidence, and
which need not be rehearsed here - of turning her
life around whilst faced with subsisting obligations to children and
“restarting”
a career in her 50s. I would not underestimate the
difficulties inherent in such a course, and more importantly, they are well
apparent
on the evidence in this case.
[262] My concern, as this Court observed in Z v Z (No 2) (at [294-5]), is that care has to be taken not to press the clean-break principle too far. One of the difficulties with formal equality approaches to relationship property and maintenance was that the notion that women ought to be able to remain financially independent of former husbands after divorce could be too readily invoked to castigate dependent women in the very name of those equality principles.
[263] The learned Judge dealt carefully with this vexing issue. He
delivered his judgment in December 2004, and concluded:
[201] I agree that this is not a case in which the wife is
entitled to indefinite post-dissolution spousal maintenance.
The separation
occurred in September 2001, more than three years ago. However, the parties
have yet to effect the division of relationship
property and in the immediate
future there is likely to be a good deal of reorganisation as the partners
readjust their assets and
finances. In particular, it may well be necessary
that the present family home be sold and the wife and children re-housed
elsewhere.
And there is the question of afternoon (and presumably holiday) child
care discussed above.
[202] In those circumstances it is proper that a maintenance order be made
in respect of the wife, but it will be for a limited
period.
[264] The Judge then engaged in an entirely orthodox consideration of the
material which was adduced by both parties. Ultimately
he reached the
conclusion that spousal maintenance, but temporally limited to 31 March 2006,
should be awarded.
[265] For myself, I do not think I should interfere with the Judge’s
spousal maintenance orders, time limited as they are, even
though I think they
are on the light side. On the usual appellate principles, I feel obliged to
leave intact the award made by the
Judge which was, functionally, necessary
interim maintenance.
(c) Economic disparity
[266] Section 15 of the PR Act recognises that even when relationship
property and spousal maintenance issues have been addressed
there may not be
substantive or “real” equity between the parties. The law does not
require an outcome of arithmetical
equality. Where there is a significant
disparity in income and living standards, current or potential, the section
comes into play,
if there is a linkage with the division of functions during the
marriage.
[267] There was much argument as to whether there was in this case a proper linkage for the purpose of the application of s 15. But as I read the judgment under appeal, the Judge accepted, as a finding of fact, that the division of functions within the marriage had detrimentally affected the ability of the wife to earn a significant
income (see [126]), and for a significant period of time. There was ample
evidence to support that view.
[268] Given the Judge’s findings of fact in this case as to the
post-separation circumstances of the husband and the wife,
I would have thought
that this was a relatively obvious case for resort to be had to s
15.
[269] The Judge came to the view that an award of $75,000 was appropriate,
and ordered that it was to be paid by the husband
to the wife from
his share of relationship property.
[270] Mr Vickerman did not, as I understand it, challenge that award.
However
Ms Hollings contended that it is inadequate, and by a significant
margin.
[271] The calculation of awards under s 15 have not exactly been a model of
clarity in some lower court judgments. I remark that
it is important that
Judges spell out how such awards are reached. The parties are entitled to
reasons, and appellate Courts have
to be able to review them.
[272] It seems to me that, in the context of his judgment, what
Allan J was recognising was that there was going to
be a diminution in the
wife’s living standard for quite some time after the spousal maintenance
ceased. That is what the $75,000
really represents. It is the
functional equivalent of a lump sum for future maintenance. Whether one
says it is $15,000
(tax-free) for five years, or $25,000 a year (tax-free) for
three years, or whatever, is not spelled out. However, the general direction
of
this aspect of the s 15 award was correct in principle. Effectively,
“support” would have to be continued for several
years, because of
the disparity. I am not disposed to interfere with that award.
[273] To my mind, the more difficult issue is whether there should here be an additional restitutionary element under s 15. The argument would be that the husband has “gained” a secure, high, long-term income, to some extent as a result of the wife’s “contributions”, for which she has not otherwise had just recompense. That is really what Ms Hollings’ is contending for: a continuing slice of the future
income, although, in fairness, I did not understand her to be arguing for
some kind of income equalisation.
[274] The difficulties such an argument faces in this case can be shortly
put, and rest on two factual points. The husband only
reached his secure, high
plateau of earnings during the course of the matrimonial unravelling; he is a
late-comer to the high earners
table. And the wife has already been compensated
for her contributions to his getting to that place at the
table.
Solicitors:
B Hopkins, Solicitor, Auckland
Geoffrey M Joyce & Co, Solicitors, Auckland
NZLII:
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