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Court of Appeal of New Zealand |
Last Updated: 2 February 2018
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IN THE COURT OF APPEAL OF NEW ZEALAND
CA68/2009
CA239/2007 [2009] NZCA 399
BETWEEN X Appellant
AND X Respondent
Hearing: 7 May 2009
Court: O'Regan, Robertson and Ellen France JJ Counsel: M J Southwick QC and A Mahon for Appellant
A E Hinton QC and V A Crawshaw for Respondent
Judgment: 11 September 2009 at 9.30am
JUDGMENT OF THE COURT
A Mr X’s appeal against the making of an award under s 15
of the
Property (Relationships) Act 1976 (“the Act”) is
dismissed.
payable on the amount awarded under s 15 of the
Act.
X V X CA CA68/2009 11 September 2009
E We direct that the parties make submissions on the form of the
order to be made by the Court to give effect to this judgment
or the terms on
which the matter should be remitted to the Family Court in accordance with the
timetable at [43] and [44] of the
Reasons.
F The question of costs in this Court is reserved. If the parties
are unable to agree, memoranda may be filed.
G Costs in the Family Court should be determined by that
Court.
REASONS
Robertson J [1] O’Regan and Ellen France JJ [169]
ROBERTSON J
Table of Contents
Para No
Introduction [1] The litigation to date [5] The factual narrative [10] Section 2G [17] Section 15 [46]
Rodney Hansen J’s “parameters” for the determination of quantum [59] Judge Clarkson’s determination of quantum [64] Arguments on appeal [68] Discussion [70] Date of assessment [70]
The elements of s 15 [77] Income and living standards [78] “Significant” disparity [83] “Income” [85] “Living standards” [91] Onus of proof [95] Causation [97] Discretion [110] Quantum [117]
The s 18B claim [150]
Costs in the Family Court
[162] Result
[163] Costs in this Court
[168]
Introduction
[1] This is a further round in the ongoing litigation between Mr and
Mrs X, who separated six years ago, ending a marriage of
21 years.
[2] At the conclusion of the latest hearing, we indicated to counsel
the need for additional assistance with regard to some
simple issues of
historical fact. We set a timetable for those issues to be clarified but, as it
was not complied with, there has
been a regrettable delay in the ability of the
Court to deliver judgment. The memoranda eventually filed indicate that there
remain
a number of areas of dispute. If the parties are unable to resolve these
themselves, it will require yet another hearing.
[3] On this occasion we heard an appeal and a cross-appeal. These
raised issues relating to an order made in March 2008 in
the Family Court under
s 2G of the Property (Relationships) Act 1976 (“the Act”), an award
made under s 15 of the Act,
and a refusal to make an award under s 18B of the
Act. Some peripheral issues arising from an earlier judgment of the Family
Court
were also in contention.
[4] There was an application to produce additional evidence for the
appeal which was not actively pursued and has become unnecessary
in light of our
approach. It is formally dismissed.
The litigation to date
[5] Following a hearing in November 2005, Judge Clarkson delivered a judgment in the Family Court ([2006] NZFLR 361). An appeal against substantial parts of that judgment was heard by Rodney Hansen J in July 2006. In a judgment delivered in March 2007 ([2007] NZFLR 502), the Judge held that an order under s 15 of the Act
should have been made, but that the quantum needed to be determined by the
Family
Court Judge: [2008] NZFLR 512.
[6] There was a further hearing before Judge Clarkson in August and September of 2007. In a reserved judgment of 19 March 2008, the Judge held that Mrs X was entitled to a sum of $240,000 under s 15 of the Act: FC AK FAM 2003-004-002337
19 March 2008.
[7] At the second Family Court hearing, questions were raised before
Judge Clarkson as to the date of valuation of the relationship
property assets.
Emphasis was placed on the need for a consistent approach. At that hearing, Mrs
X made a claim for post-separation
expenses under s 18B of the Act, which was
declined.
[8] There was an appeal to this Court from the March 2007 judgment of
Rodney Hansen J. It could not encompass issues arising
from Judge
Clarkson’s second judgment, and we did not deal with the parts of the High
Court judgment relating to s 15. However,
we considered the other appeal points
raised by Mr X, and delivered judgment on 19 February 2009.
[9] The parties subsequently applied for an extension of time for
appealing to the High Court against the second Family Court
judgment. This was
granted: HC AK CIV 2008-404-008132 20 January 2009 and the appeal was
transferred to this Court for hearing so
there is no High Court judgment on
those issues.
The factual narrative
[10] The following neutral summary of historical facts indicates the
matters of fundamental importance:
• 1980 Mr X commenced work with a large computer sales firm;
• 1981 Mrs X commenced work with a major accounting
firm;
• 1982 parties married and moved to USA where Mr X studied and
obtained an MBA at Harvard;
• 1983 Mrs X obtained work in a temporary capacity in the USA.
She was offered places in MBA courses at both Berkeley
and UCLA, neither of
which she accepted;
• 1984 parties moved to London where Mr X worked for an
international consultancy firm and Mrs X worked as a systems
engineer
in an international computer company;
• 1989 parties decided to move closer to New Zealand and to start a
family.
Mrs X stopped working and the parties relocated to Sydney where husband
continued working for the international consultancy firm;
• 1989 December – daughter was born;
• 1990 family moved to Auckland where husband took up employment
with a large publicly listed company;
• 1991 family shifted to Wellington as a result of Mr X’s
promotion in the public company;
• 1992 May – son was born;
• 1993 family moved back to Auckland;
• 1997 Mr X appointed Chief Financial Officer of the public
company;
• 2000 July – Mr X transferred to Sydney for his work with public company, and the family relocated there; and
[11] From the time of the birth of the couple’s first child, Mrs X
was engaged in managing the household and caring for
the children, with
occasional short periods of assistance from domestic help. She did not engage
in paid employment from 1989 until
after the couple separated.
[12] During annual family holidays at the parties’ beach house in
New Zealand, particularly when friends visited, there
were long
discussions about work/life balance, Mr X’s stress levels in his
occupation as a chief financial officer, and
plans to reduce these when his
contract was completed. He wished to spend more time with family, continue with
charitable work and
be involved in a small business, after a break from
work.
[13] After the move to Sydney, relations between the parties
deteriorated. They undertook counselling without success.
Mr X
negotiated an early end to his employment contract and, in April 2003,
Mrs X and the children returned to Auckland.
Both lower courts held that
by this time the parties had separated.
[14] In July 2003, Mr X moved to Auckland to live with his new partner,
who had purchased a property and begun construction of
a house. In April 2004,
Mr X advanced her an interest-free loan of almost $3 million.
[15] Mr X and his new partner had a daughter in 2005. That year, his partner also purchased a small business of which she and Mr X are currently directors and joint general managers. Mr X receives $65,000 for this role, which requires about three days’ work each week on a flexible basis. He has also continued in his position as a trustee of a charitable trust set up to assist people in learning entrepreneurial skills. He wishes to extend this into a mentoring role. In addition, he hopes to acquire one or two public company directorships. Judge Clarkson noted that Mr X’s future intentions are to look for a small business of his own, with potential for development.
[16] Since separation, Mrs X has been the primary caregiver of the
children. (Currently, Mr X cares for the son about one third
of the time and has
less care of his daughter.) At the time of the first hearing in the Family
Court, Mrs X was working ten hours
per week. In February 2006, she increased
that to three days per week and began looking for a full-time position. In June
2006,
she took up a position as an accounting analyst, with a salary of $55,000
plus a five per cent performance bonus and five per cent
superannuation.
Section 2G
[17] The total property generated by the parties in the course of their
marriage had a net value, at the time of separation, of
about $9 million. No
issues of gift or legacy arise and there has never been any question of unequal
division or the recognition
of separate property rights existing prior to
separation.
[18] A family trust has been created which had gross assets of some $3.4
million. There were debts owing from the trust to each
of Mr and Mrs X of
$985,000. The trust therefore had a net value in the vicinity of $1.5
million.
[19] It was a conventional family trust, the primary beneficiaries being
Mr and
Mrs X, their children, their parents and other remoter issue.
[20] The family trust owned what became the family home in Auckland and
which, at the time of separation, was valued at $1.9
million.
[21] The relationship property owned by the parties themselves (which was
worth in the vicinity of $7.5 million) at separation
included:
• shares in a publicly listed company worth over $3
million;
• a beach house (valued at $870,000);
• a Mercedes car acquired by Mrs X around the time of separation
for
$67,000;
• loans owing by the family trust to Mr and Mrs X totalling $l.980
million;
• money in joint bank accounts totalling (after tax) about
$390,000;
• an investment with Perpetual in Australia. It has decreased in
value over the period and has now been cashed in with
a value net of taxes of
over NZ$1 million;
• a long-term, or “ex gratia”, payment received by Mr
X, which Rodney Hansen J found to have a value
of $82,500 (but that
value is now disputed by Mr X); and
• miscellaneous items including a family loan.
[22] At the time of separation, the family home was leased by the family
trust to a third party. The trust paid the rent on an
alternative residence for
Mrs X and the children for about a year. Once Mrs X and the children
re-occupied the home, the trust paid
Mr X the sum of $1,000 per week for four
and a half years to compensate for not providing him with accommodation. We
were told that
the objective of this was to treat the parties equally. The
trust also paid the outgoings on the house in which Mrs X and the children
were
living.
[23] Section 2G of the Act relevantly provides:
2G Date at which value of property to be determined
(1) For the purposes of this Act, the value of any property to which
an application under this Act relates is to be determined
as at the date of the
hearing of that application by the Court of first instance.
(2) However, the Court of first instance or, on an appeal the High
Court, Court of Appeal, or Supreme Court may, in its discretion,
decide that the
value of the property is to be determined as at another date.
. . .
[24] Judge Clarkson ruled at [76] of her judgment that, given the circumstances, the most straightforward way of dealing with the major items of relationship property which she described as “post-separation controlled assets” was to treat them
as having been divided at separation at their then values. This was seen as
fair as each party had had control of items of relationship
property of broadly
equal values since the date of separation. Neither party disputed the s 2G
decision on appeal: rather, each
had concerns about the implementation of it and
the consequential effect of allocation of particular assets to the other party.
The Judge’s decision did not lead to the making of formal orders and, in
the absence of a High Court appeal, we are left with
an unclear position
which is not easily resolved in the absence of agreement. The
Judge’s decision itself is not
entirely clear: it can be read as finding
that only “post-separation controlled assets” be divided as at
separation
date and, implicitly, the rest be divided at hearing date or that all
relationship property be so divided.
[25] We agree with Judge Clarkson that, in the circumstances of this
case, it is fair and just that the bulk of the relationship
property be valued
as at the date of separation. Any alternative valuation date is just too
difficult and now impractical. That
position, however, is complicated because a
significant part of the property which the parties wish to be included in the
calculation
is the family home owned by the family trust. Fortuitously, the
trust owed the parties an amount which is very close to the value
of the
house.
[26] Mrs X’s cross-appeal challenged two aspects of Judge
Clarkson’s decision in respect of s 2G. The first was what
Mrs Hinton
referred to as the Judge’s indication that $1,000 per week payments to Mr
X by the trust were appropriate: this
was said to be inconsistent with the
vesting of the home in Mrs X as at settlement date. The second was the
Judge’s finding
that Mrs X had enjoyed sole use of the beach house from
the separation date.
[27] We agree with Mrs Hinton that, if the assets are distributed as at
the date of separation, so that Mrs X is treated as owner
of the home from that
date, it is difficult to see the rationale for Mr X’s receipt of a
compensatory $1,000 weekly payment
from the family trust over the four and a
half years that Mrs X occupied the house.
[28] However, it is for the trustees, and not the Court, to determine trust property distribution. In the circumstances as they have emerged an inconsistency has arisen
which has a financial impact upon the legal recognition of what occurred in
respect of the property appropriated to each of the parties
at the date of their
separation.
[29] We do not have jurisdiction to direct the trustees to remedy the
inequities that now exist in respect of trust property apportioned
to Mr and Mrs
X. If the trustees have previously dealt with trust property in anticipation
of certain outcomes as between Mr
and Mrs X, and those outcomes have not
eventuated, then it is open to the trustees to deal with the changed situation.
Their actions
as trustees were performed in good faith and upon premises that
have changed in the process of dividing relationship property.
[30] Our approach to the $1,000 per week payments is similar to that
taken by
Judge Clarkson. We see no reason to disagree with her.
[31] In relation to the beach house, Judge Clarkson found that Mrs X had
had “the major benefit” of the use of it
since separation. Although
she did not make a specific finding that Mrs X was responsible for all outgoings
in relation to the beach
house, that is the logical consequence of her finding.
Mrs Hinton sought an order that Mr X pay half these outgoings (the total
figure
is about $14,000) on the basis that he had had shared use up to January 2006.
The Judge’s finding as to the “major
benefit” of the use of
the beach house was open to her. While it may have been open to her to require
Mr X to make a small
contribution to the outgoings reflecting some use on his
part, we do not see a basis for a sharing of the outgoings on a 50/50 basis.
Any contribution would be minor and we do not have enough information to assess
it. In those circumstances we decline to make the
order sought.
[32] Another issue arises if there is to be a division of property based on separation date valuations and the home is treated retrospectively as having been the property of Mrs X since the date from which she took occupation. The logical consequence of Mrs X being treated as owner of the home is that she should have been paying the outgoings on it during her occupation. It appears, however, that rates, insurance and other outgoings have been paid by the family trust for that period. That is also a matter for the trustees.
[33] If the Judge’s s 2G order is intended to apply only to assets
controlled by each spouse, it is obviously important
that the value of the
property received by each is about the same.
[34] The specific items of relationship property to be dealt
with in such an exercise are the house (and associated
loans owing by the
family trust to Mr and Mrs X), the beach house, the Mercedes car and the money
acquired from the sale of the shares
in the publicly listed company.
[35] Taken together, the Auckland house, the beach house and the Mercedes
car have a combined total value of approximately $3
million. That means that
if the Auckland house (along with the beach house and the Mercedes car) is
treated as part of Mrs X’s
relationship property, she will have total
assets almost equivalent to the share of relationship property taken by Mr X,
namely
the $3 million of public company shares.
[36] If the trustees make adjustments which reflect the earlier date for
division, all that will remain is an accounting allowance
in the appropriate
division of the balance of the relationship property. This will not be
difficult as there remains a substantial
sum (the Perpetual investment which has
recently been cashed in) that has not been used by either party. The changes in
the value
of that investment will impact equally upon both of them.
[37] The parties will need to account for other property which they have
retained and the consequences of this judgment will need
to be
reflected.
[38] This approach to the division of the relationship property, which fixes valuations at the date of separation for at least the bulk of the property, is clearly the best approach. It would be difficult to assess accurately the current value of much of the relationship property and fairly reflect what has happened in the six years since separation. For example, the proceeds of the public company shares have been controlled by Mr X. Much of that fund was advanced interest-free by him to his current partner to finance construction of a very substantial home. For Mrs X’s part, the value of the real estate apportioned to her has increased in value (although it may
in recent months have diminished a little), but she has had the benefit and
advantage of the two residential properties during this
time.
[39] To value those items of relationship property at any point other
than the date of separation would necessitate the compilation
and assessment of
a series of speculative intangibles. That would not be to the advantage of
either party.
[40] We consider it appropriate to make an order under s 2G(2) of the Act
in respect of the identified items of relationship
property or,
alternatively, that all relationship property be valued as at that date.
There was no order allocating
specific items of relationship property to the
respective parties in the Family Court and therefore the appeal did not
encompass
that aspect of the case. But we heard argument on the issues
involved and in an effort to avoid further court hearings we indicated
we would
be prepared to make the necessary orders if the parties could agree.
[41] At the conclusion of the hearing, we had anticipated that all that was needed was for the parties to jointly identify the valuations which applied at the date of separation and which appeared to be substantially uncontroversial. However, the subsequently filed memoranda indicate that, in this simple exercise, there is yet again disharmony and dispute. While there appeared to be agreement that all assets be valued at separation date, there was not agreement on the consequences of that. Mrs Hinton even suggested that the separation date approach may need to be abandoned if the Court was not able to resolve the issues arising from the weekly
$1,000 payments to Mr X by the trust. As we have made clear, we cannot
resolve it. But we make it equally clear that the s 2G decision
has been made in
the Family Court and was not challenged before us. It will not
change.
[42] The memoranda schedules also include new items of property which were not properly litigated in either the Family Court or the High Court. Mrs Hinton has raised a claim by Mrs X for a share of the apparently significant number of frequent flyer scheme points held by Mr X at the date of separation which were not the subject of discussion by Rodney Hansen J or a ruling by Judge Clarkson. Items of property which have not been considered in the hearings below cannot be determined
by this Court on appeal. Without a proper evidential foundation, this Court
cannot make assessments.
[43] It will now be necessary for the form of the order to give effect to the outcome of the appeal and the decisions of the lower courts. We intend to provide time for the parties to meet and seek to agree on the outstanding issues. If that occurs a joint memorandum should be filed. That should occur no later than
30 October 2009. If there is agreement on the form of the order to be made,
we are prepared to make it in this Court to avoid the
need for the case to be
remitted to the Family Court. If agreement cannot be reached, the matter will
need to be remitted to the
Family Court for resolution of any outstanding
issues. If there is no agreement, submissions will need to be filed on the
matters
that are to be remitted to the Family Court and the terms of the
remittal. Memoranda should be filed and served according
to the
following timetable:
(a) Mr X by 6 November 2009;
(b) Mrs X by 13 November 2009; and
(c) Mr X’s reply by 20 November 2009.
[44] We are prepared to accelerate this timetable if a quest for
agreement is futile and to extend it if the parties wish to mediate.
Leave is
reserved for either counsel to seek either of these or to seek any alternative
course of action designed to facilitate
finality for the parties without the
need for further court proceedings.
[45] Interest considerations do not arise in respect of the items which are treated as having been divided at separation. There could be questions of interest in respect of the balance of relationship property, but that will require an analysis of the uses to which the money has been put. These issues will also need to be resolved in the Family Court if agreement is not reached.
Section 15
[46] A crucial issue in this appeal is the claim by Mrs X for a
compensatory award under s 15 of the Act. That section provides:
(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 one spouse or partner
(party B) are likely to be significantly
higher than the other spouse of 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.
(4) This section overrides sections 11 to 14A.
[47] The meaning, application and operation of this legislative provision has been seen as problematic. In P v P [2005] NZFLR 689 (HC) Chisholm J commented that “the absence of any meaningful guidance in s 15 about how the quantum of an award is to be calculated is remarkable” (at [68]). In de Malmanche v de Malmanche [2002] 2 NZLR 838 (HC) Priestley J considered s 15, noting that the section’s policy and “interrelationship with other provisions of the Act is of critical importance” (at [150]), and he provided helpful views on its jurisdictional elements.
[48] This Court has considered the section on two occasions: Nation v
Nation [2004] NZCA 288; [2005] 3 NZLR 46 and in M v B [2006] NZCA 535; [2006] 3 NZLR 660. In both of
those cases the s 15 claims were brought as the last of a series of
“staggered” claims, the applicants being
content not to pursue an
award under s 15 in the event of adequate awards under the other property
division sections. Both Nation v Nation and M v B were decided
essentially on their facts, and the total metes and bounds of the operation of s
15 did not need to be comprehensively
addressed.
[49] It appears to me that there are two major circumstances in which the
courts will need to consider s 15 compensation. The
first is when a person has
supported a spouse to obtain qualifications and experience which provide that
spouse with an enhanced
future earning capacity and the court must consider
whether there should be compensation for the person who provided the support.
That is not the position contended for in this case.
[50] The second, which is the situation here, is where one spouse has
foregone pursuing his or her own career while providing
domestic
assistance to the relationship and the principal care of the
children.
[51] All circumstances will be fact specific, and the period of time over
which the compensating payment is to be made will vary,
but it should not be
assumed that, in either situation, it will continue for the potential working
life of either party.
[52] Mrs X claims that she is entitled to an award under s 15 of the Act
because, as a result of being out of the work force for
some 14 years while
caring for their children and maintaining the home, she has been economically
disadvantaged. Her claim was initially
for over $1.5 million, but subsequently
was radically pared back to about $400,000. In his appeal Mr X claims no order
should be
made, while Mrs X contends she should have been awarded a sum greater
than the $240,000 awarded by Judge Clarkson and in the vicinity
of
$400,000.
[53] The case has been characterised by what Judge Clarkson called “extensive and sophisticated” evidence from experts who have testified to the parties’ relative earning capacities, to Mrs X’s past and present potential to achieve professionally
and command a particular income, and related speculation. By its nature,
this kind of evidence is premised on a variety of hypothetical
assumptions and
is subject to contingencies which diminish the value of the resulting analyses
and conclusions.
[54] In his judgment in M v B, William Young P, when considering
the underlying philosophy in this area, said:
[179] I consider a broad brush assessment is necessary to produce
an outcome which is ‘just’ for the purposes
of s 1N(c) and 9(4) [of
the Act] 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.
[55] In the initial hearing in the Family Court, Judge Clarkson found
that there was likely to be future disparity in the income
earned by Mr and Mrs
X. She was not satisfied that there would also be a significant disparity in
their relative living standards,
and considered that any disparity in income and
living standards was not caused by the division of functions in the marriage.
She
accordingly declined to make an order.
[56] On appeal to the High Court, Rodney Hansen J accepted that there was
likely to be a disparity in income, but departed from
Judge Clarkson’s
conclusion that there was not likely to be a disparity in living standards. He
found that, although there
was no disparity in the parties’ living
standards at the time of hearing, it was common ground that circumstances
would change and, in fact, that the assessment of income disparity was made
on the assumption that they would change.
He considered that:
[113] Since separation and, on the Judge’s findings, for the next
four or five years at least, there will be a significant
disparity in the income
of the parties. While income from investments will ensure that neither will be
troubled meeting the necessities
of life, it seems to me inevitable that the
disparity in income will affect the relative standards of living of the parties.
Mr X
will have significant additional discretionary spending available to him.
However it is utilised, it will enhance his quality of
life relative to that of
Mrs X.
[57] Having regard to s 1N of the Act (which sets out the principles
which are to
“guide in the achievement of the purpose of this Act”) which relevantly provides:
1N Principles
The following principles are to guide the achievement of the purpose of this
Act:
...
(b) 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.
the Judge concluded:
[131] Although in relative terms the economic disparity may not be great,
it reflects the continuing disadvantage that has accrued
to Mrs X as a result of
the division of responsibilities in a marriage of 21 years. During that time Mr
X acquired expertise and
experience at the highest levels of the corporate world
while Mrs X is no further ahead in terms of a career than she was when she
first
had children. That is just the sort of inequality that s 15 is designed to
redress. I see no reason for the Court to exercise
its discretion against
providing a remedy.
[58] Having held that there was jurisdiction under s 15 to make an award to Mrs X, Rodney Hansen J remitted the s 15 claim to the Family Court for determination of quantum. Judge Clarkson ordered that Mrs X be awarded
$240,000. It is against that order that Mr X now appeals, and Mrs X
cross-appeals, directly to this Court.
Rodney Hansen J’s “parameters” for the determination of
quantum
[59] In the High Court, Rodney Hansen J set out the parameters by which
the
Family Court Judge was to consider a s 15 award. He said:
[142] ... The determination of Mrs X’s likely earning capacity, but for the division of roles in the marriage, must be the starting point and is arguably the crucial determinant of any award. It requires an assessment of evidence of fact and expert opinion which is properly the province of the Judge who heard the evidence. It is not simply a matter of choosing between conflicting accounts or competing opinions. It calls for a pragmatic judgment of the most likely outcome if Mrs X had continued to advance her career. It is also likely to require further accounting evidence of present values with provision for appropriate discounts on the range of figures available to the Judge.
[60] When the matter was remitted to the Family Court for the quantum
determination, Judge Clarkson described the quantification
formula as
follows:
[7] The loss of income is then calculated by subtracting the current
projected income of Mrs X, from the “but for”
income, over an
18-year period, which represents her predicted retirement date at 60 years. This
is on the basis that given her age
(early 40’s) of re-entry, it is argued
she will never recover to her full earning potential (although Mr X’s
experts
differed from those views). The total achieved will then represent the
full income loss and must then be subject to a number of discounting
factors.
[61] In respect of discounts for contingencies, Rodney Hansen J expressly
rejected the contention of Mr X’s accounting expert
that there ought to be
a 50 per cent discount on the raw “but for” figure for the simple
contingency of causative factors.
He considered that such a discount was
unjustified because he found the division of roles in the marriage was a
“substantial
cause” of the disparity, which, on regular principles,
would warrant full compensation. He accepted, however, that a considerable
deduction was required for the “contingencies of life” which might
have interrupted or prevented attainment of the projected
income. It was common
ground that 50 per cent was an appropriate deduction, given the length of time
over which the projection was
made.
[62] The Judge also considered that there could be some additional
discount to reflect the uncertainties inherent in assessing
the income Mrs X
would have earned “but for the division of roles in the marriage”.
He noted that this additional discount
could be achieved either by making a
higher deduction for general contingencies, or by adopting a “but
for” figure at
the lower end of the available range.
[63] Finally, Rodney Hansen J considered whether the final award under s
15 ought to be the full amount calculated (after allowance
for contingencies),
or half that amount. Noting that the authorities were divided on the point,
Rodney Hansen J favoured the halving
approach:
[153] ... An award of half the amount of the notional loss (after adjustments) will effectively provide compensation for the full amount of the shortfall. This is because whatever sum is awarded both reduces the share of property received by the payer and increases the share received by the payee. In the result, the full amount of the loss is recognised in the division of relationship property.
[154] ... An award under s 15 is intended to redress the disadvantage of one
spouse in relation to the other. It gives effect to the
principle in s 1N(c) of
the Act 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.
Judge Clarkson’s determination of quantum
[64] Before Judge Clarkson, there was extensive and conflicting evidence
as to Mrs X’s likely achievable income over the
course of her career
“but for” her lengthy absence from the workforce during the marriage
and as to her likely achievable
income if she had remained in the
workforce.
[65] There was agreement among the experts that her likely achievable
income would not now exceed $140,000 and, at the time of
the Family Court
determination, Mrs X’s actual income was $55,000. In respect of the
other, more speculative, figure, the
experts were divided over how high Mrs X
may have advanced professionally had her career been uninterrupted.
[66] Rodney Hansen J had not expressed any difficulties with Judge
Clarkson’s assessment on this point, and Judge Clarkson
was not persuaded
to depart from her earlier finding that Mrs X’s intelligence,
organisational skills and drive would in all
likelihood have led her to a
responsible position in a firm or middle-sized company. Judge Clarkson noted
that the “entire
exercise of establishing what Mrs X would have earned had
she remained in the workforce is enormously speculative”, and that
assessing whether 20 year-old skills could be retrospectively assessed to
produce a likely income is “probably an unfair task
to pose”, even
to accounting experts (at [38] – [39]).
[67] In her final analysis, however, having before her a range of figures
from
$140,000 at the low end and $350,000 at the high end, Judge Clarkson arrived
at a “but for” income figure of $220,000
per annum (valued as at
2004). The Judge then applied an approach advocated by the experts called, and
detailed in the judgment
of O’Regan and Ellen France JJ, and arrived at a
top figure of $242,000 (on Mr X’s expert’s evidence) and a lower
figure of $234,395 (on Mrs X’s expert’s evidence). Judge Clarkson
awarded Mrs X a final figure of $240,000.
[68] Ms Southwick QC submitted that the approach to s 15 taken by
Rodney
Hansen J and applied by Judge Clarkson was wrong. She made the following
points:
(a) In respect of income, Ms Southwick submitted the Judge ignored that
Mr X had not, despite considerable effort, achieved
the $60,000 per annum
directorship that Judge Clarkson had anticipated in her calculation; had
expressed unwarranted scepticism as
to the genuineness of the appellant’s
“easing back” plans; and had failed to take into account that Mr X
had undertaken
to pay maintenance to Mrs X should the Court order him to do
so;
(b) In respect of living standards, Ms Southwick submitted that the
Judge gave inadequate consideration to Mr X’s
work commitments, and
wrongly characterised his current lifestyle as easy. She submitted that the
Judge wrongly considered the
“significant additional discretionary
spending” that would be available to Mr X in her consideration of his
standard
of living. She argued this conflated the two discrete
enquiries regarding income and living standards; and
(c) Ms Southwick contended that, throughout the marriage, Mrs X was not
motivated to work and chose to remain out of the workforce
when that was not
necessary for the maintenance of the family relationship.
[69] Mrs Hinton QC submitted that Rodney Hansen J’s interpretation
of s 15 was correct, and that his “parameters”
for the determination
of quantum ought to stand in all particulars. However, on the question of the
final award sum, she submitted
that the award made by Judge Clarkson ought to be
increased (see [52] above). She also emphasised that both Rodney Hansen J and
Judge Clarkson found that there was a significant disparity in the respective
incomes of Mr and Mrs X, and that Mr X ought not to
be allowed to rely on his
(unrealised) “offer” of maintenance to diminish the strength of Mrs
X’s claim.
Date of assessment
[70] Before us, a preliminary point arose as to the date from
which s 15 assessments should be made.
[71] Rodney Hansen J, in his judgment, said:
[88] At separation the division of functions in the marriage comes to an
end. That is the point at which its effects must be
judged, using whatever
evidence is available at the time of the hearing to inform the
process.
[72] Mr X has argued that this statement by the Judge fails to properly
reflect the mandate of s 15(1), which expressly requires
the assessment to be
“on the division of relationship property”.
[73] Ms Southwick contended that there was confusion as to
whether the assessment is to be made before or after the
division of
relationship property, and that each alternative date of valuation will
differently affect each of the parties.
[74] I view this as more of a semantic than a substantive
concern.
[75] Despite the fact that there has been a degree of infelicity in the
manner in which the Courts have articulated the relevant
date, I am satisfied
that the clear thrust of the provision is that having divided relationship
property, s 15 is available to address
remaining economic disparities. That is,
the date of assessment is the date of separation, but the calculation is made
once it is
known what each party is going to take from the relationship property
pool under the Act’s other provisions.
[76] This was the approach taken by Rodney Hansen J, and it is correct.
It would be artificial to make an assessment under s
15 in a vacuum, ignoring
the economic position of each party after the division of relationship property.
The final s 15 assessment
cannot realistically take place until the relationship
property position of each party is clear.
[77] There are three discrete elements to an assessment under s 15. First, the section is concerned with the “likely income and living standards” of each spouse. That is a prospective test (as discussed in Cunningham v Cunningham HC AK CIV
2003-404-2392 28 November 2003; Chong v Speller (2004) 24 FRNZ 273
(HC)). The assessment must include two distinct facets of economic
wellbeing – both income and standard of living. There
is no guidance in
the section as to which (if either) of income or living standards is the more
important, or whether one is a trumping
measure. The second element is that
there must be a “significant disparity” between the “income
and living standards”
of one party relative to those of the other party.
The word “significant” denotes a more than trivial disparity: a
technical disparity is insufficient for an award under the section. The third
element is causation, which accords with the compensatory
purpose of the section
(s 15(3)).
Income and living standards
[78] Income and living standards are discrete elements of the significant
disparity test (as discussed in both de Malmanche v de Malmanche and
Cunningham v Cunningham). Both elements must be satisfied for an award.
Section 15 is directed at redressing tangible net disparities that result
from division of relationship functions, not simply at compensating
hypothetical disparities that might have arisen but for particular
factual
circumstances.
[79] In many cases, however, there will be a connection between a party’s level of income and their standard (or potential standard) of living, such that it might be artificial to consider each element in complete isolation. During the third reading of the Property (Relationships) Bill in 2001, the Hon Margaret Wilson, as Minister of Justice, assumed that living standards are necessarily linked to income ((29 March
Many instances of unfair outcomes have been drawn to my attention... For example after 35 years of marriage a woman whose sole occupation was bringing up four children is left with a cleaning job, while her husband retains the family farm and maintains his position as a prominent local body
politician. Under the current legislation, the wife has a significantly lower
standard of living after separation. She has no financial
recognition for the
contribution she has made... She is left with few employment skills and few
assets...
[80] How individuals choose to use their assets can impact enormously on
their standard of living, and it should not be assumed
that Parliament expected
courts to enquire into matters of such particularly personal choice. Rodney
Hansen J adverted to this when
he concluded that although “income”
under s 15 ought to be limited to personal earnings, the manner in which a party
elects to deal with their relationship property capital will determine
investment earnings, and therefore their standard of living:
[94] ... the key determinant of investment income will be the proportion
of capital that each party chooses to put into income
earning assets. That will
be largely determined by personal priorities. If Mrs X chooses to retain the
beach house, for example,
her investment income will be substantially reduced.
But I do not think that should be regarded as a source of disparity. Certainly
it would not produce a disparity which could be attributed to the division of
functions within the marriage.
[81] There are many possible permutations of disparity. As noted in
Cunningham v Cunningham, income will often be a critical indicator of
standard of living, and may in some instances be the only basis from which a
disparity
in standard of living can be inferred. In such cases a finding of
income disparity may lead automatically to a finding of disparity
of living
standards, so that strictly speaking income and living standards need not be
considered separately. Although it is not
necessarily required that two
separate analyses be carried out, it is necessary that both economic measures
are satisfied.
[82] Finally, there will be cases, although they will be unusual, where only one of the two measures is met. There might be cases where one party’s income is lower, but not so as to substantially affect their standard of living relative to their spouse. An example would be a case where despite a lower income, a party’s standard of living is nonetheless high because of a new partner’s wealth, or an inheritance. The s 15 test would not be met in such circumstances. There might also be cases in which a party has a lower standard of living, perhaps because of dependent ageing parents, but an income comparable to their spouse. The s 15 test would not be met in those circumstances either.
“Significant” disparity
[83] The significance of any disparity will be established if the disparity is one that will have a material impact on the life of one party. That is a factual question. In the context of two low-earning parties, an objectively small figure may represent a relatively significant disparity, and in the case of two high-earning parties, any disparity will need to be higher before it is “significant” as between the parties. (See, for example, B v B [2004] NZFLR 653 (FC) where an $8,000 disparity was held to be sufficient to satisfy the s 15 test as between two parties who earned
$47,000 and $35,000 respectively.)
[84] At the hearing before us, Mrs Hinton realistically accepted that
there could be some cases where two parties’ incomes
and standards of
living are so high that any “disparity” is insignificant. We do not
consider that this case is in that
category.
“Income”
[85] In the High Court, Rodney Hansen J considered that Judge Clarkson
had been correct to frame income drawn from the parties’
investment of
their shares of relationship property as a “neutral factor” when
considering disparity of income. He reasoned
that both parties would have
theoretically equal opportunities to invest their shares of relationship
property (even though Mr X’s
business nous may better equip him to achieve
higher investment earnings).
[86] Before us, Ms Southwick endorsed Rodney Hansen J’s
exclusion of the prospective income derived from the
parties’
investment of their relationship property. She submitted, however, that
spousal and child maintenance ought
to count as income (citing Cunningham
at [47] and M v B at [125] and [245]). (The question of whether
maintenance ought to be considered part of income is not, however, material to
the
disposition of this case, as maintenance is not being sought by Mrs
X.)
[87] Under the Act’s equal sharing regime, relationship property is divided equally. Parties have an equal ability to derive income from its investment. At the
time of a s 15 award it is not always possible to predict how much actual
income each party will derive from investments, given the
inherently
unpredictable nature of investment returns. Further, the actual income each
party derives from investment of relationship
property will depend on whether
and how various items of property or capital are invested, or, as is the case
with the beach house
in this instance, retained as a lifestyle asset.
Similarly, Mr X’s decision to advance large sums towards a home for
himself
and his new family has substantial consequences for his income stream.
But the Court is not required to sit in judgment on such
personal decisions. The
parties have choices and the disparity test must be undertaken on a
substantially objective basis. The actual
income or standard of living will
only be relevant if it is contrived or artificial.
[88] A party’s income, considered in the round, includes all periodic streams of money. Under the Act’s equal sharing regime, relationship property assets are equally divided. Therefore, it was open to Rodney Hansen J to consider that each party’s potential income from them did not contribute to disparity, and characterise it as a “neutral factor”. However, logically, all income needs to be considered before an assessment of economic disparity between the parties can be made. That is because the significance of any disparity will depend on the potential income available to each party. An income disparity of $20,000, for example, will be significant where the higher earner’s annual income is $60,000 and the lower earner’s is $40,000, but it will be insignificant where the higher earner’s income is
$1 million and the lower earner’s income is $980,000. In
the latter case, the disparity is overwhelmed by the
total income available
to each party.
[89] In the present case, both Judge Clarkson and Rodney Hansen J found that there would be a significant disparity in the likely future earnings of the two parties. There was no issue taken in the High Court with the assessments of Mrs X’s likely future earnings (predicted to be around $65,000 per annum in the short term, rising to $140,000 in four or five years’ time). Although Rodney Hansen J was not utterly satisfied that Mr X’s intentions to “ease back” from his high-earning lifestyle were – however genuine – wholly realistic, he did not disturb Judge Clarkson’s assessment of the future income available to both Mr and Mrs X (Mr X’s likely future earnings
being assessed at $180,000 per annum). In addition, Mr and Mrs X each can
receive
$175,000 per annum from investments.
[90] With concurrent lower court findings on future earned income, there
is no basis for this Court to interfere. I am satisfied
that there is a
disparity between the parties’ likely future earnings, and that it is a
significant disparity. The $175,000
per annum that each party receives from
investment income, although substantial, is not so significant a sum as to
overwhelm that
disparity or render it insignificant in the scheme of the
parties’ total earnings. I do not consider Mr X’s failure
to
obtain directorships as he had hoped he would to be any more relevant than the
claim that Mrs X’s actual income could be
less than was estimated. Each
appears to have had a greater potential to generate income than they chose to
exploit.
“Living standards”
[91] In the Family Court, Judge Clarkson took a broad view of the
parties’ living standards, and concluded that, on various
measures
(housing, cars, access to holidays and travel, and leisure time), Mr and Mrs X
enjoyed a similarly high standard of living.
She did not consider her
conclusion on the parties’ income disparity to undermine the likelihood of
them having an ongoing
comparable living standard. Rodney Hansen J
disagreed:
[107] In my view, this conclusion was overly influenced by a comparison of
the assets and lifestyles of the parties at the date
of hearing and gave
insufficient weight to the changes that would follow, including a continuing
disparity in income. For example,
the Judge took into account Mrs X’s
“almost sole use” of the beach house, which she wanted to continue
using. However
she disregarded the beach house in assessing the income available
to Mrs X from investments. If income disparity is assessed on the
basis the
beach house will be sold, its availability should not be a factor in assessing
disparity in living standards. Conversely,
if Mrs X chose to keep the beach
house and so increase her standard of living, the extent of income disparity
will grow.
[92] Rodney Hansen J accepted Ms Southwick’s submission that the effects of repartnering ought not to be considered under the “standard of living” heading, because such developments have nothing to do with division of functions in the marriage. Wealth from repartnering will not usually be a ground on which a relevant
standard of living disparity is found, but I base that conclusion on an
absence of causation, rather than ignoring the actual effect
of repartnering on
a party’s standard of living.
[93] Like Rodney Hansen J, I am satisfied that there is likely to be a
significant disparity between the living standards of Mr
and Mrs X. As the High
Court Judge noted, the assessment of the parties’ likely future income
levels actually assumes that
their living standards will change. Mrs X will
face the pressures of increasing her hours of employment, while Mr X, on his own
evidence, will ease back into a gentler working life.
[94] Those changes will have a significant impact on the parties’
living standards. If a person’s standard of living
is understood to
include the amount and quality of their possessions, the facilities and services
available to them, the social,
travel and daily lifestyle opportunities to which
they have access, and their net leisure time, then Mrs X will have a lower
standard
of living than Mr X. Both parties may have high standards of living,
but, as Mrs Hinton submitted, the comparative test under s
15 is between the
parties themselves, not between one (or both) of the parties and the community
at large.
Onus of proof
[95] An ancillary issue, and one which arose in M v B, is whether
s 15 imposes an onus of proof on either or both parties. In M v B
this Court considered whether a party seeking compensation under s 15 bears
a conventional civil onus to bring evidence sufficient
for a Judge to conclude,
on the balance of probabilities, that there is a significant disparity in the
parties’ incomes/living
standards. This Court held that there was no
such onus:
[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”... .
[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...
Onus will seldom be a relevant consideration.
[96] That remains the position. Section 15 requires that the
Court must be “satisfied” as to the claimed
disparity before
making an award, but in the context of the Act that simply means that there must
be material before the Court from
which a Judge can determine that the threshold
disparity has been met. There is no burden on any party to discharge any
particular
level of proof. That is consistent with the way this Court has
interpreted the term “satisfied” in other contexts, including
preventive detention (R v Leitch [1998] 1 NZLR 420) and in competition
cases (Commerce Commission v Woolworths Ltd [2008] NZCA 276; (2008) 12 TCLR
194).
Causation
[97] Causation is a critical element of s 15. In M v
B, William Young P characterised the section’s causal requirement
as a “but for” test, considering the division
of functions to be a
necessary, but not sufficient, cause:
[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.” The 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.
[98] In Cunningham v Cunningham, the High Court recognised that
the wife had elected to pursue leisure activities over her career, but need not
have foregone her career
in order to ensure a functioning domestic home.
However, the Court also recognised that:
[58] [The Family Court Judge] concluded, as she was entitled to on the evidence, that the division of roles assisted Mr Cunningham to pursue his professional career free of day to day child care responsibilities and impeded the advancement of Mrs Cunningham’s career as an architect. In my view, that is a sufficient causal relationship...
[99] In de Malmanche v de Malmanche, Priestley J spoke of the
inherently opaque nature of causation in this area:
[164] ... The classic case to which s 15 would apply is a wife
who forsakes advancing her career and instead devotes
herself to supporting her
husband and caring for the children whilst the husband ascends some economic
pinnacle but who leaves the
relationship unemployable and unable to command a
high income and standard of living... Such a scenario illustrates two causal
factors
working in combination, - the adverse effect which the wife’s
role has had on her income earning potential and the
positive enhancing
effect which her role has had on the husband’s income earning
potential.
[100] At the other end of the spectrum, Priestley J noted, are cases where
one party’s significantly higher income or living
standards are solely
attributable to his or her talents or inherited wealth, or where any adverse
effect is a “spent force”
and economic disparity is really a result
of external causes (ill-health, age, ineptitude etc). Those situations would
not meet
the jurisdictional requirements of s 15.
[101] I consider the present case falls at neither end of the causal
spectrum. Considering causation at first instance, Judge Clarkson
compared the
situation of Mr and Mrs X with that of the parties in P v P, where a Full
Court of the High Court was not persuaded that the evidence established that the
husband’s pattern of income as
an orthopaedic surgeon was attributable to
division of functions, and that one of the major reasons for the wife not
re-entering
the workforce was an absence of pressure to do so. Judge Clarkson
found the situation of Mr and Mrs X to be analogous to that in
P v P,
where the family income was sufficient without the wife working, and where
the wife had exercised an autonomous choice not to continue
in
employment.
[102] Rodney Hansen J disagreed, finding that the division of roles in the
marriage between Mr and Mrs X involved choices mutually
made and pursued by both
parties. While acknowledging that it was never crucial to the functioning of the
marriage for Mrs X to devote
herself to domestic life, and that she could have
pursued a professional career, the Judge declined to enquire into the subtleties
of the choices that were presumptively made by both parties:
[116] ... it is not for the Court to suggest that at some point in the marriage a different choice could or should have been made, even if greater
opportunities then existed. That is, as Ms Hinton submitted, to substitute a
retrospective judgment of when it is reasonable for a
person to re-enter the
workforce for joint decision of the parties.
[103] Rodney Hansen J was correct to decline to enquire into the merits of
the presumptively mutual choices of the parties in this
case.
[104] I reject any suggestion that an enquiry ought or needs to be made
into the merits of a decision made by the parties as to
the division of domestic
roles for a causal relationship under s 15 to be established. Mrs Hinton was
correct to submit that where
a state of affairs exists – namely, in this
case, Mrs X’s protracted absence from the workforce and her support
of the children and Mr X – there is a presumption, in the absence
of clear evidence to the contrary, that it was
pursued by both parties to the
marriage. Evidence that a party did not return to the workforce when they could
have, or chose to
pursue a domestic life instead of a professional career, may,
however, be relevant to the Court’s exercise of its discretion
under s
15(3).
[105] Ms Southwick submitted that at all times the decision not to return
to the workforce was that of Mrs X alone, and that at
most Mr X
“capitulated” in it. There is no compelling evidence that was
the case, and to ensure that the
reality of decision-making in
relationships is reflected, it should be presumed that functions within a
marriage are agreed to
by both parties unless that presumption is meaningfully
impugned. The merits of a decision are irrelevant to a s 15 award, which
recognises losses caused by a division of roles, not losses caused by a
speculative assessment of what divisions could have occurred.
[106] I agree with Priestley J’s observation in de Malmanche v de Malmanche that in some cases a party’s higher income or living standard will be solely attributable to natural flair, but I do not consider that to be the case here. Mr X undoubtedly has business acumen and flair, but he also had the benefit of Mrs X’s full-time focus on the couple’s children and maintenance of the home. This avoided the cost that would have fallen on them if both parties had pursued professional careers.
[107] From the evidence, a clear picture emerges of a couple that assessed
the benefit of Mr X’s unencumbered commitment to
a demanding job and put
their combined weight behind that pursuit for the benefit of the
family.
[108] I am satisfied that but for that division of roles within their
marriage, the present potential disparity of earning-capacity
and standard of
living as between Mr and Mrs X would be less. That is not to underestimate Mr
X’s considerable talents, or
to overstate Mrs X’s professional drive
or ability, but to recognise the realities of the division of functions as they
actually
occurred. There is a clear causal link between the division of
functions in their relationship and the potential economic
disparity that
now exists between Mr and Mrs X.
[109] Jurisdiction to make an award under s 15 is
established.
Discretion
[110] Under s 15(3) a court may make an order for a transfer of
relationship property “if it considers it just”.
I am satisfied
that it is just in this case to make an award to Mrs X. Nothing has been shown
which, in terms of the policy of
the Act, would lead the Court to deny
relief.
[111] Section 15(2) provides that the Court may have regard to the likely
earning capacity of each spouse, the respective responsibilities
of each spouse
for children of the marriage, and “any other relevant
circumstances”. On the first measure, Mrs X is
likely to be in a
significantly lower income-bracket than Mr X. She is still the primary
caregiver to the two children of the marriage
(although both children are
approaching ages of independence). I am also satisfied that, on the basis of
other material criteria
(general standard of living, burden of re-establishing a
career, diminished leisure time because of re-entry to workforce) it is
just to
order a compensatory award to Mrs X.
[112] At the first Family Court hearing, Judge Clarkson did not find the jurisdictional elements of s 15 to be satisfied, but she said that even if she had she would have exercised her discretion against an award in this case. She was
persuaded that Mrs X had received many benefits from the arrangements within
the marriage, and that the division of relationship property
would continue to
advantage her. The Judge referred to s 1N(c) of the Act (which provides that
regard is to be had to both advantages and disadvantages to the
spouses arising from their marriage), and concluded in respect of Mrs X
that:
[155] ... I am required to have regard not only to the disadvantages which
have been caused to Mrs X by the marriage ending but
also to the benefits and
advantages enjoyed by each spouse. Mrs X has already had, and will continue to
receive (by sharing the benefits
of the huge capital accrued), the benefits and
advantages of this marriage. Those advantages enabled her to remain out of the
paid
workforce and thus she cannot simply now point to the disadvantages caused
by that decision, the fruits of which she has already
enjoyed, perhaps to the
husband’s disadvantage.
[113] Rodney Hansen J disagreed:
[128] The reasoning of the Judge included factors which were not relevant
to the exercise of her discretion. One was her concern
with the apparent
injustice of providing compensation to Mrs X when she had already had the
“advantage” of remaining
out of the paid workforce and Mr X had
suffered the disadvantage of irrecoverable time lost with his children. It is no
part of the
Court’s role under the Act to place a value on the respective
roles of husband and wife. The purpose of the Act is to recognise
the equal
contribution of husband and wife to the marriage partnership – s 1M(b). In
achieving that purpose all forms of contribution
to the marriage partnership are
treated as equal – s 1N(b)... .
[129] There is no risk that an award under s 15 would result in a double
award or accounting. It should do no more than
compensate for the
economic disadvantage to Mrs X which would otherwise exist notwithstanding an
equal division of property.
[114] The approach of Rodney Hansen J accords with the purpose and scheme of the Act, which is premised on each party to a partnership being equal and viewed as having made equal contributions to the partnership for the purpose of dividing relationship property. Undoubtedly both Mr and Mrs X reaped considerable material advantage from the capital amassed during the marriage. Mrs X had a pleasant lifestyle, but was charged with primary care of the children as their father worked long hours and travelled frequently. But, as a result of the division of functions in the marriage, Mrs X suffered a significant and irretrievable diminution in her earning capacity. To compensate her for that loss is not to permit “double-dipping” but to acknowledge a particular – and statutorily recognised – disadvantage which she sustained. As William Young P noted in M v B, a s 15 award compensates one party
for a loss that “remains real” even where the division of
relationship property improves that party’s capital base.
[115] The s 15(3) discretionary assessment is not amenable to a prescribed
formula, and the justice of an award in any particular
case will depend on a
comprehensive assessment of the parties’ respective financial
positions, their earning prospects
going forward, their current obligations
in respect of any children of the partnership, and other matters that go to the
overall
fairness of an award. Although matters like the extent to which choices
made by the parties have led to present disparities are
not properly part of the
causation assessment under s 15(1), they might weigh in the discretionary
assessment. For example, evidence
of a choice by a claimant party to be
supported by their spouse rather than return to work may speak against the
justice of an award,
even though that choice could not preclude
jurisdiction.
[116] In P v P, the High Court held that simply because a claimant
is well-off as compared to the rest of the community does not mean an award is
inappropriate: the correct comparison is between the parties themselves. In
this case, there is an established potential disparity
between Mr and Mrs X on
the measures provided for in s 15(1) and (2), and they are causally linked to
the division of marital functions
as they occurred. It is just to compensate
Mrs X.
Quantum
[117] The authorities are not consistent on the question of quantification.
I outline the various approaches adopted in the cases
to date, and comments made
upon them by academic commentators and practitioners, before turning to
the specifics of Mrs
X’s award.
[118] Joanna Miles, in her paper “Dealing with Economic Disparity” [2003] NZ Law Rev 535, suggests that s 15 cases will generally fall into one of two categories. First, “personal disparity” cases, where the disparity reflects lost earning power by the claimant spouse, because of opportunities forgone during the relationship. Secondly, cases where the disparity reflects an enhanced earning
capacity by the respondent and the claimant seeks compensation for loss of a
chance to share in the enhancement.
[119] There may be cases that overlap both categories, but the present case
is a “personal disparity” or a “but
for” case. Mrs X
claims that but for the division of functions in the relationship, her career
would have progressed and her
potential income would have been considerably
higher.
[120] Other cases that have considered “but for” claims include
P v P; V v V [2002] NZFLR 1105 (FC); Fischbach v Bonnar
[2002] NZHC 331; [2002] NZFLR 705 (FC) and McGregor v McGregor (No 2) [2003] NZFLR
596 (FC). P v P is most directly on point factually. The
claimant had given up her work as a practice nurse during the
relationship.
Judge Strettell calculated the award in the same manner
Judge Clarkson calculated Mrs X’s award, although the final
award in P
v P was not halved. Associate Professor John Caldwell has argued that the
methodology adopted in P v P provides a workable template for s 15
awards: “The Various Disparities of Section 15” (Family Court
Judges’ Conference,
Gisborne, 24 October 2008) at [34].
[121] In V v V the wife was a qualified primary teacher at the start
of the marriage, but during the marriage she performed a domestic role
and
did not pursue her teaching career. Judge Adams calculated the award on the
basis that but for the division of functions
in the marriage Mrs V would have
been earning $40,000 per annum, and that the shortfall in her earnings would
diminish annually to
zero over five years. The Judge made deductions from
the gross figure for maintenance payments and for the domestic purposes
benefit, and halved the award.
[122] A slightly different approach was taken by Judge Clarkson in McGregor v McGregor where she calculated the difference between what the claimant wife (who was a trained secretary) could earn post-separation and what she would have earned without a career break. Acknowledging the difference would diminish over time, the Judge arrived at a final figure, to which she made adjustments for the value of immediate payment and the risk of future changes. That resulted in a final figure of
$50,000 which Mrs McGregor was awarded in full, as Judge Clarkson considered it
was fallacious to characterise the s 15 award as an item of relationship
property (and therefore amenable to halving) when it is a
unique kind of
compensatory award.
[123] Yet another approach was taken in Fischbach v Bonnar where
Judge Boshier calculated the claimant’s award in part on the basis it
would represent 40 per cent of the husband’s
relationship property. The
Judge was anxious that the final award did not constitute a majority of the
husband’s share of
relationship property.
[124] In their text Relationship Property in New Zealand (2001)
Atkin and Parker suggest that “but for” s 15 awards ought to be
calculated on the basis of disparity in the parties’
incomes, not simply
lost opportunity on the claimant’s part, and that the award ought then to
be refined to reflect the amount
of the disparity that is due to the division of
functions in the relationship. The authors suggest discounts for future
contingencies,
and the availability of a residual discretion to make adjustments
in light of other known circumstances such as debts and liabilities,
childcare
responsibilities, re-partnership, and possibly even factors such as
evidence of violence or inattention in the
relationship. They recommend that
the final award in all cases be halved, on the basis that the disparity ought to
be treated like
an item of relationship property (at 106 –
112).
[125] While there is a logic in the approach taken in P v P, and by
Judge Clarkson in the present case, I consider s 15 should not be locked into
any particular prescription. Parties’
circumstances will vary
considerably from case to case, and it is important to retain flexibility in the
application of the section.
In M v B I said, in respect of quantum
determinations under s 15:
[147] ... Section 15 awards are necessarily a matter of impression and rote
applications of a formula will not be appropriate.
[126] I acknowledge that there is a tension created by that position for those who wish to settle without litigation. However, a sensible and realistic assessment of relevant factors is not beyond the reach of skilled practitioners, as generations of lawyers settling personal injury claims demonstrated prior to the introduction of the no-fault accident compensation scheme.
[127] The present case is noteworthy for the volume of evidence called from
specialists who have produced analysis, projections
and
counter-projections. Judge Clarkson was correct when she said that the kinds of
assessments requested of the “experts”
in this case posed an unfair
expectation. I would add that they were an unrealistic expectation.
[128] At all levels, the courts in this case have been inundated with
accounting material and asked to slot figures into formulae
to produce end
figures. I consider that is a misconceived approach to s 15. The section does
not engage the courts in a simple
accounting exercise, but in a sensible jury
assessment role. Precise analysis of each party’s projected financial
situation
is not possible (although informed estimates can be made as they were
here). Financial analyses are less than helpful when they
fail to engage with
the manner in which the parties elect to deal with particular assets. What
happens in the future in this case
will largely be a reflection of the lifestyle
choices that these parties decide to make. That will not often be the position,
but
clearly is so here.
[129] In determining quantum, what is important is the overall
circumstances that gave rise to the disparity between the parties
and what will
be “just between them” going into the future. A court should be
transparent in its assessment of the factors
that contribute to its decision to
make an award, and it must be robust in responding to the evidence that is
available. However,
in the final analysis under s 15(3) there is limited
assistance to be garnered from experts’ projections. No rote formulae
can reliably throw up award sums that are just. The court must determine the
justice of an award on the basis of its assessments
of the parties’
overall financial circumstances, the value of the loss sustained by the claimant
party, and the future earning
potential of each party.
[130] In this case Mrs X clearly sustained a loss in earning potential as a result of her role in a lengthy marriage. She is entitled to an award under s 15 that recognises that loss, and which compensates her over the period in which she is getting back on her feet. I agree with the Judges below that the real question is her likely financial position in the next four or five years.
[131] How stellar Mrs X’s career might have been is speculative and
the type of analysis to which she has been subjected in
this litigation is
demeaning. She had a clear career path which was stalled. She has to move
forward following the break-up of
her marriage and exercise her own initiative,
especially as the children are now near to being independent. However, there are
economic
disadvantages in the meantime which a s 15 award is available to
mitigate.
[132] I agree with Judge Clarkson that, under s 15, Mrs X ought to be
awarded
$240,000. I have arrived at that sum in the following way:
(a) I adopt the “but for” income figure of $220,000
used by Judge Clarkson (and not altered by Rodney
Hansen J). I do not subject
that to any immediate discount.
(b) The estimate of Mrs X’s actual income is $50,000 in the first year of re-entry, $55,000 in the second, and $85,000 in years three to five. Thereafter Mrs X is predicted to plateau at an income of $140,000 per annum. The disparity in annual earnings therefore begins at
$170,000 gross and reduces to $80,000.
(c) Those figures must all be subject to a tax deduction of 39 cents in
the dollar which reduces the yearly disparity to a range
of $103,700 in the
first year to $48,000 in the 12 years during which Mrs X is projected to earn
$140,000 per annum.
(d) There has to be a discount for the time value of the money Mrs X
will receive in advance. This is non-controversial, and
is a diminishing
percentage multiplier attached to each year’s compensation representing
the value to Mrs X of immediate receipt
of the award sum.
(e) I consider that Mrs X’s award should be calculated in terms of a ten year span. I specifically reject the possibility of s 15 providing compensation until a nominal retirement age of 60. Bearing in mind
the financial position of both parties, their capital assets, their
lifestyles and the ages of their children, I am satisfied
that, by 2013 (that is
ten years after separation), the consequences of the division of
responsibilities within the relationship
do not need be further compensated
for.
(f) The total cumulative figure for the ten year period, after
deductions for tax and the diminishing time value factor, is
$363,838.
(g) There must be a discounting of that to recognise
possible contingencies, particularly having regard to
the economic and lifestyle
choices which are available to both these parties.
[133] Judge Clarkson made a 50 per cent deduction. As I am basing Mrs
X’s award on a shorter time span, I have assessed
the position of the
parties and the inevitable compensatory uncertainties as warranting a discount
of one third.
[134] A deduction of one third results in a figure of $242,558. I would
dismiss the cross appeal, on the basis Judge Clarkson’s
award of $240,000
is so proximate to that reached by me that interference in it is not warranted.
Judge Clarkson’s award fairly
reflects the past division of relationship
functions and realistically compensates Mrs X into a future where each party has
responsibilities
to advance their own position as separate
individuals.
[135] This particular s 15 quantification process is not a universal or precise accounting exercise. The basis on which an award is calculated should always be tailored to the facts of a particular case. An award should be realistic compensation for the demonstrable detriment which Mrs X was suffering at the time of separation and fair compensation for the consequences arising from the division of functions in the relationship. Because detailed accounting assessments were available, I have utilised them but reject any suggestion that this is the only way to reach a proper figure for s 15 compensation.
[136] There may still be a discrepancy in fact, but I do not see that as
the relative test. If Mrs X has not been vigorous in her
re-entry into the
workforce so that her actual income has been less than what, in the
experts’ opinion, it could have been,
and if she chooses to maintain
substantial houses in the city and at the beach, she cannot expect to receive
greater compensation
under s 15. Equally, Mr X cannot avoid meeting proper
obligations to his former wife which have been shown to flow from the division
of functions which occurred within their marriage partnership because he wants
to deploy substantial capital in non-earning ways
and restrict his work
opportunities. The fundamental gauge of fair compensation is the difference
between what reasonably and objectively
they could achieve and what they would
have had but for the arrangements in the relationship. What they actually
choose to earn
is not part of the exercise.
[137] It has sometimes been the practice to halve an award, and Rodney
Hansen J
considered that to be the correct approach in this case. He
said:
[153] An award of half the amount of the notional loss (after adjustments)
will effectively provide compensation for the full amount
of the shortfall. This
is because whatever sum is awarded both reduces the share of property received
by the payer and increases
the share received by the payee. In the result, the
full amount of the loss is recognised by the division of property.
[138] A similar view was taken by Judge Adams in V v V and by Judge
Somerville in E v E [2005] NZFLR 313 (FC). Other cases have
simply not mentioned the issue of halving (see for example Fischbach v
Bonnar; B v B; Nathan v Nathan [2004] NZFLR 942 (FC)). Some cases have
considered and rejected the halving step (see for example P v P; McGregor v
McGregor).
[139] Commentators have disagreed on the propriety of halving. Professor
Bill Atkin has argued (“The Disparity in
Economic Disparity”
(New Zealand Law Society Family Law Conference, 2005) at 220) that:
... we need to ensure that in curing one injustice we do not create another. Whatever the claimant receives by way of compensation comes from the other party – as the claimant goes up, the other party goes down. By halving the final figure, we make sure that both meet half way. Failing to halve may mean that the other party incurs a loss that creates a disparity in the other direction.
[140] Mark Vickerman agrees, and argues in “The Disparities of s
15” (Family Law
Conference, Auckland, 22 December 2008) at 15:
[the halving approach] may also be reconciled with the notion that the
financial advantage of one party is an item of quasi property
to be shared
equally... .
[141] I do not accept the premise that a s 15 award is an item of
relationship property to be divided equally. A s 15 award is
not an additional
opportunity to divide relationship property. It is rather an opportunity to
compensate a party who is disadvantaged
at the end of the
relationship.
[142] The language of s 15 provides only that a court may make an award
under s 15 if it considers it just “for the purpose
of compensating party
A”. Section 15(3) does not provide that a s 15 award is available for the
purpose of remedying disparity
in itself (which might warrant a redistribution
without regard to which party sustains which alteration to their relationship
property allocation), or for the purpose of altering the balance of
relationship property division. It provides that one party
may be compensated
by the award.
[143] I find no basis in this case to halve the award. As Associate
Professor Caldwell notes in “The Various Disparities
of s 15”, there
is nothing in the wording of s 15 to suggest that awards should be halved, and
in fact, halving an award might
well diminish a claimant’s compensation
and preserve an existing disparity.
[144] Parliament has determined that compensation under s 15 is to be
applied from one party's relationship property share to the
other’s. I am
not attracted to reading into the section an arbitrary halving criterion as a
means of diminishing the impact
of an award on a respondent party. In
“but for” cases it will be exceptional to halve an
award.
[145] It is an inescapable feature of s 15 that any award to a claimant will diminish a respondent’s share of relationship property, and in that sense, awards under s 15 are unique. It will be in the interests of justice to ensure that awards do not invert the parties’ relative levels of income and standard of living and create a fresh unfairness (see Miles “Dealing with Economic Disparity” at 565).
[146] I would accordingly award Mrs X a compensating sum of $240,000 to be
paid by 30 November 2009 by Mr X.
[147] In what may be viewed as a conservative approach to the difference between what Mrs X was able to earn at separation and what she would have earned but for her role in the marriage partnership, I have had regard to the fact that both Mr X and Mrs X now have substantial capital which was acquired and accumulated during the
21 years of their marriage. Those advantages have already been equally
shared, but on the available evidence there was, at separation,
a clear
disadvantage for Mrs X because of her absence from the workforce in respect of
which s 15 allows for compensation.
[148] I acknowledge that this case is unusual in that the total assets in
contention are such that both parties will have the luxury
of making choices for
themselves as to how much or how little they actually involve themselves in paid
employment, and how much they
are content to maintain an above-average lifestyle
without recourse to paid employment. The various combinations and permutations
which might arise are for them. When the s 15 jurisdiction is bought into play,
the Court must make an assessment on the basis of
the realistic potential of
each and determine what is fair and in the interests of justice.
Interest
[149] Mrs X seeks interest on the s 15 award. Mrs Hinton said the Family Court Judge had not dealt with this aspect of Mrs X’s s 15 claim. In the material filed after the hearing, the parties appear to treat the s 15 award made in the Family Court as requiring an adjustment to the allocation of relationship property, rather than a payment by Mr X after the division of relationship property has occurred. That approach may obviate the need for an interest component. If we are wrong about the parties’ intentions, we reserve leave for Mrs X to seek an award of interest on the compensation award under s 15 for the period up to the date of receipt of that payment by Mrs X. We can then evaluate the merits of the claim in the light of the outcome of the allocation of relationship property and the way in which the s 15 payment is treated.
The s 18B claim
[150] Section 18B of the Act provides:
18B Compensation for contributions made after separation
(1) In this section, relevant period, in relation to a marriage, civil
union, or de facto relationship, means the period after
the marriage, civil
union, or de facto relationship has ended (other than by the death of one of the
spouses or partners) but before
the date of the hearing of an application under
this Act by the Court of first instance.
(2) If, during the relevant period, a spouse or partner (party A) has
done anything that would have been a contribution to
the marriage, civil union,
or de facto relationship if the marriage, civil union, or de facto relationship
had not ended, the Court,
if it considers it just, may for the purposes of
compensating party A –
(a) order the other spouse or party (party B) to pay party A a sum of
money;
(b) order party B to transfer to party A any property, whether the
property is relationship property or separate property.
...
[151] Mrs X sought an order against Mr X under s 18B to reflect the fact
that he had not personally paid maintenance to support
the family since the
parties’ separation.
[152] When cross-examined on this issue in the Family Court, Mr X said that
he was prepared to pay whatever sum he was ordered by
the Court to pay. He has
not, however, made any voluntary payments to Mrs X.
[153] Before Judge Clarkson, the parties acknowledged that they would
equally contribute towards the taxation expense which arose
from the Perpetual
investment fund and from that part of the long service payment which was deemed
by the Court to be their joint
property.
[154] Mrs X, however, sought an order under s 18B for a payment of $75,300 (being half the net value of the children’s expenses and the household costs, after deduction of sums covered by the family trust). I have earlier commented, indirectly, on this matter. The trustees are competent to make whatever provision
they see fit for the children as beneficiaries of the trust. It is open to
the trustees to provide – retrospectively, if they
choose – for
additional children’s expenses in a manner that fairly recognises the
respective contributions already made,
and remaining to be made by the parties,
to the children’s expenses and associated domestic upkeep.
[155] It is clear that what Mrs X seeks is, in substance, maintenance in
lump-sum form. The authorities have been divided on whether
it is appropriate
to make awards under s 18B to parties that have taken on the primary childcare
role. In Stapleton v Stapleton (2004) 23 FRNZ 314 (FC) Judge Boshier
considered that s 18B:
[11] ... requires that non-monetary contributions such as custodial
arrangements, be taken into account.
[156] By contrast, in Loader v Loader [2003] NZFLR 553 (FC) Judge Somerville considered that it was not appropriate to build financial or relationship property incentives into childcare responsibilities. In G v B FC NWP FAM 2002-043-245
1 December 2004, Judge Murfitt accepted that childcare could be
taken into consideration under s 18B but cautioned that
the jurisdiction ought
to be exercised sparingly. He considered that cases where one parent has
abandoned or abdicated all childcare
responsibilities, or manipulated
circumstances to avoid paying child support might be extreme cases in which
s 18B could
have application. But in the usual course other remedies will fit
the child support rubric more neatly.
[157] In JA v SNA [Economic disparity] [2008] NZFLR 297 (HC) Ronald
Young J agreed with the view taken by the Family Court Judge that s 18B is not
intended to compensate a party for the financial
costs of childcare. In JA v
SNA the applicant party sought an award under s 18B to compensate for money
spent in the household from the date of separation to hearing.
The High Court
Judge declined to apply s 18B to compensate such expenditure:
[24] Mrs A filed a detailed analysis of all money spent by her household from separation to hearing. While a generalisation, she essentially halved that amount and identified that sum as the amount that she should be paid pursuant to s 18B. In my view, s 18B is not intended to provide such compensation. The section was intended to be a way of to providing to a child caring spouse a capital sum which recognises the fact that day to day care of the children has fallen on one parent by virtue of the separation. I
would strongly discourage the preparation, as here, of extensive accounts
identifying every penny of expense incurred.
[158] Judge Clarkson, in this case, adopted the approach of Judge
Somerville in
Loader v Loader and declined to make an award.
[159] This case has been litigated over a protracted period and there is a
real need for it to be brought to an end. In such circumstances,
it might at
first blush be thought desirable to utilise s 18B to award Mrs X a lump-sum
payment reflective of her care and support
of the children. This might seem
appropriate particularly when Mr X has acknowledged his obligation, and
expressed a willingness
to pay maintenance, but there has been no Court
order to compel payment.
[160] It was, however, properly open to Judge Clarkson to decline to use s
18B to award what would effectively be retrospective
maintenance. The reasons
have been cogently expressed in cases which have refused to invoke s 18B as an
alternative to regular
child support provisions. It seems Mrs X has
borne the costs of the children’s expenses as against Mr X, but
the
family trust has been resorted to for some of those expenses, and could have
been resorted to more extensively. This is not
a case in which Mrs X has been
abandoned with sole responsibility for the children, or left in a hopeless
financial position by her
sole care of them.
[161] An application which in substance seeks maintenance by another name
may not appropriately be dealt with under this section.
Judge Clarkson was
fully apprised of Mrs X’s circumstances but was unwilling to use the
provision. It cannot be said that
she was wrong in that decision. The family
trust has substantial assets. If the children cannot be adequately supported by
it,
then a proper application for maintenance can be made.
Costs in the Family Court
[162] Mrs X’s notice of appeal raised an issue about costs in the Family Court. But no ruling on costs has been made by the Court: there is no decision to award or to decline to award costs. Mrs Hinton did not press the point and we simply record
that, if a costs award is sought, that should be done by application to the
Family
Court.
Result
[163] The Court is unanimous on the outcome of both the appeal and the
cross- appeal. We dismiss Mr X’s appeal against the
award made under s 15
of the Act.
[164] We dismiss Mrs X’s cross-appeal against aspects of the
decision of the
Family Court under s 2G of the Act.
[165] We dismiss Mrs X’s cross-appeal in relation to the Family
Court’s refusal to make an order under s 18B of the
Act. We decline to
make an order under that section.
[166] We dismiss Mrs X’s cross-appeal in relation to the quantum of
the award under s 15 of the Act. Leave is reserved to
Mrs X to seek an award of
interest on that award: see [149] above.
[167] Memoranda should be filed on the matters referred to at [43] and [44]
in accordance with the timetable set out in those paragraphs.
Costs in this Court
[168] The question of costs in this Court is reserved. If the parties are
unable to agree, memoranda may be filed.
O’REGAN AND ELLEN FRANCE JJ
(Given by O’Regan J)
Table of Contents
Para No
A different approach to quantum [169]
Nature of the s 15 award [170] Methodology [172] The Family Court decision [177] Expert evidence [182] What the experts agreed on [184] What the experts disagreed on [185] Mrs X’s but for income [186] Actual income earned by Mrs X post separation [187] Contingency discounts [189]
The parties’ arguments [192] Actual income figures [194] Amount of but for income [203] Further ten per cent contingency discount [213] Assessment of but for income [220] Appropriate period of compensation and contingency for
non-collection of future income [222]
Further contingency for uncertainty in but for income?
[224] Date of expected resumption of full-time employment
[225] Conclusions on calculation of income shortfall figure
[226] Halving of income shortfall figure
[227] Overall assessment
[239] Interest
[241] Why we disagree with Robertson J
[242] Outcome
[243]
A different approach to quantum
[169] We take a different view from that of Robertson J on the
method of calculating the quantum of the s 15 compensation
award, though, like
him, we would uphold the award made in the Family Court. We otherwise agree
with his judgment. This judgment
deals only with the quantum issue. The facts
are set out in the judgment of Robertson J and we do not repeat them
here.
Nature of the s 15 award
[170] As Robertson J notes at [51] of his judgment, there was considerable expert evidence before Judge Clarkson about the calculation of quantum. This evidence was directed at the appropriate calculation of what we will call an income shortfall award (ie compensating Mrs X for the fact that her future income would be lower because of the division of roles within the relationship). That can be contrasted with what we will call an enhanced position award. The object of an enhanced position
award is to provide the disadvantaged partner with a share of the enhancement
of the advantaged partner’s future income or living
standards resulting
from the division of roles in the relationship. This could arise for example
where the disadvantaged partner’s
role has assisted the advantaged partner
in gaining qualifications or enabled him or her to commit himself full-time to
work, without
the distraction of child caring responsibilities and the resulting
enhancement to the advantaged partner’s income or living
standards
continues after the separation.
[171] Counsel for Mrs X, Mrs Hinton QC, did not contend for an enhanced
position award before us, and the expert evidence was all
directed to the
calculation of an income shortfall award. We therefore adopt the same approach
as Robertson J in treating this
as an income shortfall case. We also agree that
the focus of the award in this case was on the future income-earning capacity of
Mrs X, rather than on compensation for other aspects of her living standards.
In other words, the focus of the award should be to
provide a sum compensating
for the income shortfall on the basis that this will also have the
collateral effect of improving
Mrs X’s living standards.
Methodology
[172] The basic methodology of the calculation of the compensation award adopted by Judge Clarkson involved calculating a figure representing the present value of the cumulative difference between the future after-tax income which Mrs X could have expected to earn but for her role within the relationship and the after-tax income which she is projected to actually earn if she works to the full extent of her future income-earning capacity. Appropriate allowances are then made to reflect the time value of money and the chances of non-collection of future income (because of reduced time in the workforce for reasons such as death, deteriorating health, changes in personal priorities, re-partnering or early retirement). The outcome of the adoption of this methodology is a capital sum reflecting the net present value of future income that would have been earned by the disadvantaged partner but for the division of roles in the relationship. The resulting award is half that sum.
[173] We acknowledge that calculations based on uncertainties about
future earnings of both partners and inherent in the
calculation of the
“but for” income of the disadvantaged partner mean that the Judge is
required to make judgements on
matters which are inherently imprecise. There
will be room for differences of view on those issues and, as a result, on the
outcome.
However, unlike Robertson J, we do not see any reason to depart from
the fundamental methodology adopted by Judge Clarkson. In
our view, it provides
a workable methodology guiding judges in the calculation of income shortfall
awards meeting the statutory objectives
of s 15.
[174] While there has been extensive expert evidence in this case, the
methodology should be able to be applied relatively easily
in simpler cases.
We see that as providing a basis for negotiated settlements, as the parties will
be able to work out the range
of possible inputs to the model and the impact on
the likely award of the adoption of figures at various points in that range. In
cases involving relationships where the partners have lower earnings than in
this case, and where the absence of the disadvantaged
partner from the workforce
is for a lesser period, the difference between the parties may be able to be
bridged relatively easily
in negotiations. There will at least be a framework
for settlement discussions.
[175] There was no argument before us about the appropriateness of
the methodology used in this case, nor any suggestion
of an alternative one.
In those circumstances, we do not say the methodology is the only appropriate
one for cases of this kind.
Rather, we endorse its use in this case and cases
like it. The methodology is unlikely to provide a complete answer for every
case of this type: the statutory requirement is that the award be just, and that
is the overriding consideration. However, we see
value in providing some
structure for the exercise that judges are required to undertake, which should
enhance the predictability
of awards.
[176] Although there was extensive and sophisticated expert evidence in this case which brought some complexity to the exercise undertaken by the Judge, the underlying methodology was not novel. In a number of other cases, similar approaches have been taken: Robertson J has identified some of these at [120] of his judgment. Judge Adams’ analysis in V v V [2002] NZFLR 1105 (FC) is broadly
comparable. So too are the methodologies applied in McGregor v McGregor (No 2) [2003] NZFLR 596 (FC), P v P [2005] NZFLR 689 (HC), T v T [Economic disparity] [2007] NZFLR 754 (FC) and W v W FC AK FAM 2007-004-663
12 December 2007. These cases are representative of what has
recently been described as the emerging approach to quantifying
s 15 awards:
Vickerman “The Disparities of Section 15” (Family Law Conference,
Auckland, 22 September 2008) at 17. Further,
as Robertson J notes at [120],
Associate Professor John Caldwell, in his paper “The Various
Disparities of Section
15” (Family Court Judges’
Conference, Gisborne, 24 October 2008) at [34], describes P v P as
providing “a possible template for a reasoned and structured approach to
quantum”.
The Family Court decision
[177] Judge Clarkson’s methodology is described at [172] above. She
applied this by using a mathematical model provided to
her by the expert called
by Mr X, Mr Frankham, in the form of a Microsoft Excel “ready
reckoner” on a computer memory
stick. The model required the Judge to
determine four inputs:
(a) The but for income of Mrs X: she determined this to be
$220,000;
(b) A general contingency discount for non-collection of future
income:
she determined this to be 50 per cent;
(c) A further contingency discount for the uncertainty of the
but for income: she determined this to be ten per cent;
(d) The year which, for the purpose of the s 15 claim, Mrs X could
reasonably have been expected to resume full-time
work (and therefore
full re-entry income): the Judge determined this to be at the beginning of 2006
but, because of the characteristics
of the model, this was entered as the tax
year ended 2007.
[178] For each year from 2004 to 2021, the model calculates the annual difference between Mrs X’s but for income ($220,000) and the income she is projected to
actually earn, if working at full capacity. (Mrs X’s assumed
retirement date is 2021, when she turns 60.) From the date of
separation
(2004), however, to the year in which Mrs X could reasonably have been expected
to resume full-time work (the tax year
ended 2007), the model uses the income
she actually earned each year ($2,463 in 2004, $10,609 in 2005 and $12,570 in
2006). Thereafter,
estimated actual income figures are used: $65,000 for 2007
– 2008; $85,000 for 2009 – 2011; and $140,000 for 2012 –
2021.
[179] The model reduces the gross income difference for each year to
produce an after-tax figure. It then applies a factor to the
figure for each
year to reflect the time value of money (this is 0.9853 in 2004, reducing
progressively to 0.5961 in 2021). The resulting
figures represent the net
present value of the annual earnings variance before contingencies.
[180] The model applies the non-collection contingency to each annual
figure. It does this according to two different methodologies
(detailed below
at [191]) one proposed by Mr Frankham and one by Mr Hussey, the expert called by
Mrs X. The steps taken to this
point can be represented by the following
formula, which applies to each year in the period over which compensation is
assessed:
Net present value of annual earnings variance after contingencies = (But for income – estimated actual income)(1 – tax rate)(time-value discount)(non-collection contingency)
[181] The annual figures are summed to give a total net present value of
the earning variance after contingencies. This total figure
is then reduced by
a further ten per cent contingency to reflect additional uncertainty in the but
for income chosen. Finally,
the resultant figure is halved (in accordance
with Rodney Hansen J’s direction), yielding $242,082 on Mr
Frankham’s
calculations and $234,395 on Mr Hussey’s
calculations. The Judge awarded $240,000.
Expert evidence
[182] The extent of the expert evidence in this case was unusual, but this is an unusual case. The area of dispute between the parties on the s 15 issue alone was
such that it was economically viable for both to engage the assistance of
experts in support of their case (Mrs X’s original
claim under s 15 was
for $1.8 million and Mr X’s position was that there should be no award).
We agree with Robertson J that
it would be undesirable to create a methodology
that was unworkable without the assistance of extensive evidence from
experts,
even in cases where the area of dispute is minor. But we do not
think the parties can be criticised in this case where the
stakes were so high
and, since the Judge had the benefit of the expert evidence, we can see no
reason why she would not proceed on
the basis of the benefit that provided to
her. Nor do we see any reason to do so in this Court as Robertson J
proposes.
[183] We note that in England and Wales there is a model having
broadly analogous characteristics which is used by courts
in assessing
compensatory awards for claimants in personal injury cases. This allows for
calculations to be made without the need
for expert evidence of the kind that
was led in this case: see McGregor McGregor on Damages (17ed 2003) at
1198 – 1199. We do not suggest that the degree of rigidity in the
application of that model, which is a feature
in the English context, is
necessary in s 15 awards. Our point is that, with some development of
consensus over time on appropriate
discount factors (in England, the Government
Actuary’s Department publishes detailed tables), the methodology used in
this
case or something similar should be able to be used without the need for
extensive and expensive expert evidence.
What the experts agreed on
[184] There was considerable agreement between the experts on the essential methodology for calculating an income shortfall award in this case. It is difficult to know to what extent this convergence reflected an attempt by the experts to abide by Rodney Hansen J’s directions for the quantum hearing. As indicated earlier, neither party seriously challenged the methodology adopted in the Family Court; their challenges focussed instead on the inputs to that methodology, the relevance of other factors and the overall exercise of the s 15 discretion. With those caveats in mind, the following are relevant points of agreement between the experts:
(a) Both experts agreed that, in this case, any s 15 award should be
half of the calculated amount. There had been agreement
on this point from
when the proceedings were first heard in the Family Court. However, in his
affidavit for the quantum hearing,
Mr Hussey did point out that this was a
matter for the Court’s determination. The Judge halved the award, but
Mrs X challenges
that aspect of the decision on appeal.
(b) Both experts agreed that Mrs X’s lost income should be
assessed over a period of 18 years from the date of separation,
representing a
predicted retirement age of 60 years: see [178] above.
(c) Mrs X’s likely actual earnings were agreed upon.
Specifically, her income was projected to plateau at a maximum
of $140,000 six
years after resumption of full-time employment.
What the experts disagreed on
[185] The following matters were not agreed upon by the expert witnesses,
and were left for the Family Court Judge’s determination.
Mrs X’s but for income
[186] Mrs X’s future income but for the division of functions in the
relationship was in dispute, as was the method by which
this should be
determined. We deal with this aspect at [203] – [221] below.
Actual income earned by Mrs X post-separation
[187] While these proceedings worked their way through the court system, the parties’ lives continued. Mrs X recommenced employment and, accordingly, her actual income for the years 2004 – 2006 was known by the time of the quantum hearing: see [178] above. The experts disagreed as to whether the calculation of an
award should take into account the income actually earned by Mrs X
post-separation (as opposed to her estimated income for the years
2004 –
2006). If her actual income were taken into account, its practical effect
would be to increase the final award. This
was because Mrs X’s actual
income fell short of her predicted earning capacity (which was based on
full-time employment)
by a significant margin, thereby increasing the
amount by which her but for income exceeded her actual income.
[188] This dispute in effect reduced to a disagreement over the year in
which Mrs X could be expected to have returned to full-time
employment. Mr
Frankham, in his original affidavit, regarded 2004 (ie within a year of
separation) as the appropriate year. He
did, however, deduct $10,000 from Mrs
X’s predicted income for the first two years for childcare. Mr Hussey
assumed that
Mrs X could be expected to begin full-time work in 2006. The
Judge adopted the latter position. But, in doing so, the model
provided
by Mr Frankham automatically included Mrs X’s actual income for 2004
– 2006 (rather than using a nil figure
for each year).
Contingency discounts
[189] A further matter of contention was the magnitude of the
contingency deduction to be made to the difference between
Mrs X’s but for
income and her actual income over the period in question. Both experts agreed
that deductions should be made
to recognise the time value of money and the
possibility of non- collection of future income: see [179] – [180] above.
They
disagreed, however, on whether uncertainty as to the forecast but for
income should require a separate deduction. Mr Hussey was
of the opinion that
the but for income should be set at a level where there is equal probability
that Mrs X’s income would
have exceeded that level as there is that it
would not. Mr Frankham was in favour of an additional contingency factor to
recognise
this uncertainty.
[190] The experts also disagreed over whether to make a contingency discount to Mrs X’s predicted lost income for the years in which her actual income is now known. Mr Frankham maintained that a discount should be applied in order to
recognise the uncertainty of the but for income component of this
calculation. Mr Hussey thought that discounting these
years was
inappropriate.
[191] Finally, the experts disagreed over the precise methodology by which the non-collection contingency should be made each year. Mr Frankham advocated the simplest approach: applying a standard discount of 50 per cent (given the total period of 18 years) each year. Mr Hussey, on the other hand, preferred a sliding contingency approach by which a small discount is made to Mrs X’s assessed shortfall in income for the first year (12.5 per cent), increasing for each subsequent year by an additional 12.5 per cent (ie 87.5 per cent of the calculated shortfall for
2004, 76.6 per cent of the shortfall (87.5 per cent of 87.5 per cent) for
2005, eventually reducing to only nine per cent of the shortfall
for 2021).
This approach responded to the High Court Judge’s observation at [150]
that the level of discount needed to reflect
the length of the period for which
the disparity was projected to continue. It was designed to produce a
cumulative discount of
approximately 35 per cent at seven years and
approximately 50 per cent at 18 years (depending on the other inputs to the
model),
thereby allowing a Judge to determine the year-on-year cumulative
discount. Accordingly, the two approaches have essentially the
same overall
effect for the total period.
The parties’ arguments
[192] Mrs Hinton submitted that Judge Clarkson’s award was too low,
and that it should have been in the vicinity of $400,000.
Her criticisms
were:
(a) She had failed to allow for the substitution of Mrs X’s
actual income for the years following separation until the
date of hearing,
rather than the experts’ projected income for those years.
(b) She had incorrectly assessed the but for income of Mrs X. In particular, she wrongly considered $220,000 to be in excess of a fair mid-point and therefore in need of a further contingency discount of ten per cent.
(c) She had wrongly halved the award.
(d) She had wrongly failed to award interest. [193] We will deal with these
in turn.
Actual income figures
[194] Mr Hussey’s assessment of Mrs X’s actual future
income included a projection that she would earn $60,000
per annum in the year
ended March 2007.
[195] Mrs Hinton argued that Judge Clarkson wrongly refused to take into
account Mrs X’s known income for the period from
separation until the date
of the quantum hearing (see [178] above), instead using the figures which had
been projected by the experts.
She said that this meant that the Judge
took into account the higher projected figures when better information
(actual
figures) was available. In addition, if actual figures were used, she
argued that the non-collection contingency should also have
been reduced to
reflect the shorter period over which there is uncertainty as to the collection
of projected income.
[196] Judge Clarkson considered it would be improper to use the actual
income figures. She said that although Mrs X’s
career progress
had not followed the experts’ predictions, this was something that
was within her control.
If actual income figures were used, this would
“skew” the calculations by reducing the overall non-collection
contingency
to 32 per cent and pushing out the projected achievement of the
maximum income of $140,000 by one year. The Judge appears to have
been
concerned not to endorse a general practice of using actual income figures,
which might provide an incentive for disadvantaged
partners to defer re-entry to
the workforce or minimise their actual income in order to bolster their s 15
claims.
[197] Mrs Hinton said that it was wrong not to use actual figures when they were available, rather than the projections made by experts which were simply assumptions for the purposes of their calculations. She said that there was no reason for concern about perverse incentives, because judges could determine whether a
disadvantaged partner was minimising income to improve the s 15 award. She
said that the use of actual figures (and the consequent
removal of the need for
a contingency deduction) in the present context would be consistent with the
approach which Rodney Hansen
J took to the long term incentive plan (see [55]
– [56] of his judgment and [89] – [93] of this Court’s first
judgment
in these proceedings: [2008] NZCA 20).
[198] For Mr X, Ms Southwick QC said that Mrs Hinton’s argument had
first been made at the quantum hearing in the Family Court,
yet at least some of
the actual figures had been available at the earlier hearings. She disputed
aspects of the actual income figures,
and argued that, even if actual figures
were used, this would not justify the significant reduction in the contingency
discount,
as the uncertainty of receipt of future but for income remained
essentially unchanged.
[199] The practical impact of this dispute on the model used by the Judge
appears to have been limited because the Judge assumed
Mrs X’s full
re-entry into the workforce would occur in the 2007 tax year. The model
therefore used actual figures for the
years before then. However, the 50 per
cent discount recommended by Mr Frankham was retained.
[200] We are satisfied that the Judge’s treatment of this aspect of
the case was correct. The focus of the s 15 quantum
exercise is on the
difference between the actual earning capacity of the disadvantaged partner as
against what he or she would have
been capable of earning but for the division
of roles within the relationship. While the actual income figures may inform the
assessment
of earning capacity in the relevant years, actual earnings will not
necessarily represent actual earning capacity. The extensive
expert evidence in
this case, including projections based on robust assessments, made it
appropriate to deal with the case on the
basis of projections of income capacity
after full re-entry into the workforce, rather than actual income.
[201] The Judge’s treatment of Mr X’s projected future income involved a similar approach. Ms Southwick said that Mr X’s failure to gain appointments to boards of directors, which he had previously anticipated, meant that his actual income was
lower than that used by the Judge to assess whether a disparity existed. She
said that his income should have been calculated on
the basis that there was no
income from board appointments and that there would not be in the future. On
this approach, Mr X’s
earning capacity from the date of separation would
be $120,000, meaning that disparity between the parties’ incomes would
cease
once Mrs X’s predicted actual income reached $140,000. Not
surprisingly, Mrs Hinton rejected that approach.
[202] We see the use of projections based on expert assessments as
appropriate in relation to both elements. We resolve the apparent
inconsistency
of the submissions of each party on this point by adopting projected figures for
both Mr X’s income capacity
at separation and Mrs X’s future actual
income from the time of her re-entry into the workforce, as the Judge
did.
Amount of but for income
[203] Mrs Hinton said that the Judge’s assessment of Mrs X’s
but for income at
$220,000 per annum was wrong. She said $300,000 would have been fair,
and
$250,000 could be fairly described as at the lower end of the available
range. On the other hand, Ms Southwick said it should have
been much lower, at
about $140,000.
[204] The Judge saw the range of but for incomes as $140,000 –
$300,000, and took the mid-point of that range, $220,000 per
annum.
[205] Mrs Hinton said that $140,000 should not have been included in the
range which the Judge used for that calculation. She
said that the experts
accepted that Mrs X could achieve an income of $140,000 notwithstanding a 15
year break from the workforce,
and that logically this meant that she would have
done a great deal better than that if her career had been
uninterrupted.
[206] The $140,000 figure came from the range suggested by Mr X’s expert, Mr Peebles, of $140,000 – $200,000. Mrs Hinton said that Mr Peebles accepted that the range could have been between $200,000 and $300,000 in cross-examination, and therefore the $140,000 figure should have been removed from the range.
[207] Ms Southwick said that this misrepresented the tenor of Mr
Peebles’ evidence: his acceptance of the range
of $200,000 –
$300,000 was subject to a caveat about the level of dedication that would have
been required. His expert assessment
was that Mrs X was unlikely to have shown
the necessary degree of dedication to attain a salary within that
range.
[208] Ms Southwick argued that, in fact, the $140,000 figure at the bottom
of Mr Peebles’ range was the appropriate but for
income. She said that
the income projections at the high end of the Judge’s range assumed that
Mrs X achieved a position
as a chief financial officer, but the Judge’s
conclusion indicated that this was not accepted as being the likely outcome.
She said that the appropriate income for a financial manager/financial
controller (the position directly below that of chief financial
officer) was, at
the 75th percentile, $143,000.
[209] We reject Mrs Hinton’s argument that the $140,000 figure should
have been removed from the range considered by the Judge.
On a fair reading of
Mr Peebles’ evidence, his assessment was that the range was between
$140,000 and $240,000 and his concessions
in cross-examination were conditioned
on assumptions which he did not consider were applicable to Mrs X.
[210] We accept there is some force in Ms Southwick’s submission that
the mid- point taken by the Judge did not appear to
equate to any likely
position to be achieved by Mrs X. If the Judge had considered it likely that
she would have achieved the
position of chief financial officer, a higher figure
could have been expected; on the other hand, if the Judge expected that she
would have achieved the next highest position, a lower figure could have been
expected. Ms Southwick said that the difficulty with
the mid-point taken by the
Judge was that it did not appear to equate to a particular position.
[211] Having reflected on Ms Southwick’s submission, we have concluded that it does not necessarily call into question the use of a mid-point. That may fairly reflect the uncertainty as to which career position Mrs X would have achieved if her career had been uninterrupted. The ultimate figure, though not referable to a particular
position, is referable to the degree of likelihood as to which level of
position would have been achieved.
[212] The assessment of the appropriateness of the but for income selected
by the Judge also requires a consideration of the ten
per cent discount she
applied to that figure. We will consider that issue next, before reverting to
this topic and setting out our
conclusion.
Further ten per cent contingency discount
[213] Mrs Hinton argued that Judge Clarkson had wrongly applied a further
ten per cent contingency discount to the but for income,
which, itself, was the
result of an acceptance of a mid-point between the high and low estimates of the
experts.
[214] In applying that further discount, Judge Clarkson was giving effect
to the following comment made by Rodney Hansen J at [151]
of his
judgment:
In fixing the award I consider the Judge would also be justified in making
some further allowance [ie additional to the contingency
discount for non-
collection] for the uncertainties associated with assessing the income which Mrs
X would have been able to earn
but for the division of roles in the marriage.
Proper allowance for those uncertainties could be achieved by a higher deduction
for contingencies or by adopting an income figure which is at the lower end of
the available range. Either way, speculative elements
of this part of the
exercise should be fairly recognised.
[215] Although the Judge had taken the mid-point of the available range, at
[45] she noted her belief that $220,000 was “on
the intermediate to high
side” and, given the speculative nature of the exercise, she determined
that a further ten per cent
discount was therefore justified.
[216] Mrs Hinton said that the level of income selected by the Judge was not at the mid-point of the range, because the range should have been seen as between
$200,000 and $300,000. We have already rejected that argument.
[217] Mrs Hinton also argued that any contingency should have dealt with the possibility of the but for income being higher, as well as lower. She pointed to the
evidence of Mr Hussey, in which he said that where a mid-point is selected,
the risk of the amount being overstated is offset by the
risk that the amount is
understated, and therefore no contingency allowance should be
applied.
[218] It is difficult to criticise the Family Court Judge for complying
with the directions given to her by the High Court Judge.
But we accept the
validity of the point made by Mrs Hinton that, where a mid-point has been
selected, the contingencies may just
as well be upward as downward. However, we
do not think this deals with Rodney Hansen J’s underlying concern about
the uncertainties
in assessing Mrs X’s but for income. We see this case
as somewhat unusual in that the level of income contended for is very
high, and
those achieving that level of income can be expected to be not only highly
skilled but also extremely dedicated to their
work and focussed on it to the
exclusion of other interests.
[219] Because Mrs X had not accumulated a significant work record prior to
the division of roles leading to the s 15 claim, there
was a higher than usual
uncertainty as to whether she would have exhibited that degree of dedication and
achieved the very high levels
of income for which her expert contended. If
there is a fault in the direction given by Rodney Hansen J, we see it as being
his
provision of a choice between taking the lower end of the range and taking a
higher point which must then be further discounted
for uncertainty. It
seems to us that the former is the appropriate measure, though the latter
leads to essentially the
same result.
Assessment of but for income
[220] The assessment of but for income in this case is unusually difficult for a number of reasons. In other cases, the disadvantaged partner may have had an extensive work record, so that there is some degree of certainty as to the likelihood of career progression. Alternatively, or additionally, the disadvantaged partner’s occupation may be one where there is a reasonably structured promotional path, which also gives some concrete basis for assessing likely career progression. Sometimes, it will be possible to compare the disadvantaged partner to a similarly placed colleague at the time the partner exited the workforce, and make assessments of whether his or her progress would have matched that of the colleague. None of
this is possible in the present case because of the limited work record of
Mrs X and the claim that she would have reached a
very high earning
position which, by definition, will be achieved only by a small number
of very high performing workers.
There is also the difficulty in this case
as to the direction in which Mrs X’s career would have gone: into
commerce, into
an accounting firm or otherwise.
[221] As noted earlier, given the uncertainties that are involved, we consider it would have been preferable to select a figure at the lower end of the available range of possible but for incomes, rather than applying a discount for uncertainty. Judge Clarkson determined that the mid-point ($220,000) was appropriate, but then applied a ten per cent discount, and thus ended up with an effective but for income of just under $200,000. In our view, that reflected the realities of the uncertainty which Rodney Hansen J had identified. If the Judge had found the but for income was
$200,000, we would not have interfered. Since that is, broadly
speaking, the effective outcome of what she did, we consider
it appropriate not
to interfere with her assessment, despite our acceptance of the validity of Mrs
Hinton’s point about the
ten per cent contingency discount.
Appropriate period of compensation and contingency for non-collection of
future income
[222] Another feature of this case is that, on the projected actual incomes, Mrs X’s income will not exceed $140,000 (in 2004 dollar terms). That means that the discrepancy between her projected actual income and her but for income continues for the rest of her working life, ie 18 years from the date of separation. In many cases, such as where the disadvantaged partner has had a reasonably extensive work record before the division of roles in the relationship, or has been out of the workforce for a shorter period, it can be expected that, after a period of getting back up to speed, the partner will relatively quickly reach a salary equal to his or her but for income. Thus, the s 15 compensation figure in those cases will be for the limited period necessary to get the disadvantaged partner back up to the level of income he or she would have been expected to earn but for the division of roles in the relationship.
[223] In the present case, however, we do not see an award dealing with the
first few years after separation as sufficient to meet
the need to compensate
Mrs X on the basis of her but for income. That is because the gap between that
figure and her projected
actual income is not bridged for the rest of her
career. The period over which compensation must be calculated therefore
extends
to 18 years, which greatly increases the uncertainties and risk of
non-collection. The Judge did not need to choose between the
50 per cent
figure suggested by Mr Frankham and the outcome of applying the cumulative
approach suggested by Mr Hussey (that approach
yields a discount of 51.6 per
cent on the figures adopted by the Judge) because they were so similar. Mrs
Hinton suggested that
the Judge’s adoption of the 50 per cent figure was
unduly conservative, but we can see no evidential basis for a less conservative
discount factor given the expert evidence from both sides on this aspect of the
case. However, the appropriate level of discount
is a matter for assessment in
each case, and we do not make any comment on the rate adopted in this case other
than that it is consistent
with what the experts contended for. Obviously,
lower contingency discounts can be expected where the period to which
the calculation relates is shorter.
Further contingency for uncertainty in but for income?
[224] We have already said that we do not agree with the ten per cent
contingency discount for uncertainty. Our preferred approach
would be to remove
the need for that discount by adopting a figure at the lower end of the range of
possible but for incomes. However,
given the minimal practical difference that
would make to the outcome, we do not interfere with what the Judge
did.
Date of expected resumption of full-time employment
[225] Lastly, we agree with the Family Court Judge that it was reasonable to proceed on the assumption of a re-entry by Mrs X into the workforce in 2006, and therefore to enter “2007” into the model.
Conclusions on calculation of income shortfall figure
[226] Accordingly, we uphold the conclusions of the Judge which are
summarised at [177]. That leads to a calculation of the net
present value of
the shortfall between Mrs X’s but for income and her projected
actual income of $484,164 on Mr
Frankham’s approach and $468,791 on Mr
Hussey’s approach.
Halving of income shortfall figure
[227] As noted earlier, Judge Clarkson was directed by Rodney Hansen J to
halve the income shortfall figure.
[228] Mrs Hinton criticised this step in the methodology. She accepted that Mr Hussey had proceeded on the basis that halving was appropriate in his initial evidence, and that Rodney Hansen J had expressed the view that halving was appropriate. However, she said that, notwithstanding a number of judgments and academic articles that suggest halving is appropriate, there is no proper basis for halving the income shortfall figure in this case or in general. Interestingly, however, Mrs Hinton sought an award of $400,000, ie she did not seek a doubling of the Family Court award, which would be the logical outcome if halving was incorrect. Indeed, if the Court had accepted her but for income figure of $250,000 (with no ten per cent uncertainty discount), the income shortfall figure would have been about
$665,000 applying Mr Frankham’s approach. So the $400,000 claimed
would have involved a discount of about 40 per cent, which
is not far short of
halving.
[229] Robertson J has at [138] - [140] referred to a number of academic articles and judgments that have touched on this topic. These reveal a division of views among academics and judges. Our focus is on the appropriateness of halving in this case, where the claim is an income shortfall claim and the method of calculating the income shortfall has been the methodology applied in the present case. We bear in mind that both experts, in giving their evidence on the appropriateness of the methodology, assumed that halving would be a component of that methodology. Ultimately, however, the issue as to the appropriateness of halving the income
shortfall figure comes down to an understanding of what is being compensated
for in this case.
[230] We agree with Robertson J that a s 15 award is not an item of
relationship property to be divided equally. Nor is it a relationship
debt.
We also accept the point made by Associate Professor Caldwell that there is
nothing in the wording of s 15 to suggest that
awards should be halved. But we
do not see any of these points as determinative. There is nothing in s 15 which
gives any guidance
as to how to calculate a just award. The issue is whether
the application of the methodology referred to above, including the step
of
halving the income shortfall figure, results in a “just” award, ie
an amount that provides the compensation that s
15 contemplates.
[231] The loss for which the disadvantaged partner is being compensated in
an income shortfall case is the loss of future earning
capacity brought about by
the division of roles in the relationship. It would be just for the advantaged
partner to pay the full
amount of this if that partner had sole responsibility
for that division of roles. But the reality is that the division of roles
within a relationship is a matter of joint decision.
[232] During the relationship, the economic consequence of the decision is
that there is no earnings contribution by one partner
(or a lower contribution
than would otherwise be the case), and the cost of that is borne by the
relationship partners. In some
cases, there will be no overall cost to the
partners because the division of roles allows the earning partner to increase
his or
her earnings by more than the non- earning partner would have
contributed. To the extent that the foregone income impacts on the
relationship property available at the end of the relationship, the cost is also
shared through the 50/50 regime for division of
relationship property. If the
relationship endured, the consequences of the disadvantaged partner’s
diminished income-earning
capacity would continue to be shared. The end of the
relationship prevents that sharing from occurring unless the Court intervenes
under s 15.
[233] The object of the award under s 15 should be to ensure that the disadvantaged partner is not worse off after the end of the relationship than he or she was during the relationship. In effect, what he or she has lost is the ability to continue the position
that applied during the relationship, ie the sharing of the ongoing
consequences to the disadvantaged partner as a result of the division
of roles.
In principle, therefore, we consider that it is appropriate that the income
shortfall amount derived from the methodology
used in this case should be
halved. That means that Mr X, as the advantaged partner, is required to
pay his share of the
loss represented by the reduced future income-earning
capacity of Mrs X.
[234] We think an example, created by adapting the facts of this case, illustrates this. If Mr X’s ongoing income capacity was $180,000 per year, Mrs X’s but for income was also $180,000 per year, and the contingency for non-collection etc, was the same for both, the disparity in income between them would be entirely attributable to the division of roles within the relationship. In other words, the qualifications, skill etc of the respective partners would be, in market value terms, the same. If it is assumed that Mrs X’s projected future income is $140,000 per year and the award is made on the basis that she has to be compensated by an amount which provides her with an effective annual income of $180,000 per year, that means that Mr X is effectively paying her $40,000 per year in net present value terms through the s 15 award. That effectively increases her income from her projected actual income of $140,000 to $180,000, and reduces his income from $180,000 to
$140,000. In other words, the effect of the award at that level would be to
reverse the disparity in income by shifting the future
losses attributable to
the division of roles in the marriage, in their entirety, from Mrs X to Mr X.
If the award were halved,
the effective position is that Mrs X’s position
is increased to $160,000 and Mr X’s position is reduced to $160,000,
and
the loss is shared equally between the parties.
[235] We see halving of the income shortfall amount as an appropriate component of the methodology used in this judgment. First, it avoids the outcome described above. Secondly, it reflects the fact that, in cases such as this, the disadvantaged partner requires compensation for that part of the ongoing effect of his or her future diminished income-earning capacity resulting from the division of roles which he or she was not already bearing during the relationship itself (and would not have continued to bear if the relationship had continued).
[236] We stress that we are not saying that every method of calculating s
15 awards needs to include a step of halving. We do not
see this approach as
halving the s 15 award; rather, we see it as a step in the methodology used in
this case to calculate the s
15 award.
[237] As noted earlier, Mrs X’s claim as articulated in this Court
did not include a claim for an enhanced position award.
It is therefore not
necessary to deal with that possibility. We observe, however, that we would
take the same approach to such
an award: just as the ongoing detrimental impact
of the division of roles on the disadvantaged partner should be shared by the
making
of a s 15 award, so should the ongoing beneficial effects on the
advantaged partner. If there had been evidence in this case that
the effect of
the division of roles during the relationship was to enhance the income capacity
or living standards of Mr X on an
ongoing basis after separation, the s 15 award
would have needed to reflect that.
[238] We do not consider that the possibility of an enhanced position claim
being made in addition to an income shortfall claim
should affect the way the
income shortfall claim is calculated, including the step of halving the income
shortfall amount. We agree
that, if a claim based on the ongoing enhanced
position of the advantaged partner which is attributable to the division
of
roles within the relationship is properly made out, it needs to be
recognised in addition to the income shortfall component of
the claim. But in
our view, the fact that both an income shortfall claim and an enhanced position
claim were made out would not
be a reason to alter the method of calculating the
income shortfall component of the award if the methodology used in this case had
been applied. Rather, there would be a need to address separately and
additionally the enhanced position claim and augment the income
shortfall
award to ensure that the enhanced position claim is justly
recognised.
Overall assessment
[239] We are mindful of our earlier acknowledgment of the imprecision of the inputs into the model (see [173] above). The statutory test is what the Court considers “just”. In our view, if the methodology we have used has been applied, it
is necessary for the Court to stand back and assess whether the outcome is
just: ie that an award of the amount derived from the application
of the
methodology fairly meets the objectives of the section in the circumstances of
the case.
[240] We consider that an award of $240,000 does achieve the objective of
the section in the circumstances of this case. It is
notable that Robertson J,
while using a different methodology, reaches the same conclusion. An award of
$240,000 is high in dollar
terms, but that is because Mrs X’s earning
potential is also high. The award represents about three per cent of the
relationship
property pool. So the impact of the award is to change the default
50/50 split of relationship property to split of approximately
53/47. There
are no relevant factors that have not already been brought to bear in the
calculation. We are satisfied that the
award is just in the
circumstances.
Interest
[241] We agree with Robertson J’s comments about interest on the s 15
award.
Why we disagree with Robertson J
[242] The principal differences between our approach and that of Robertson
J are: (a) His but for income figure of $220,000 is higher
than that of
Judge
Clarkson (because hers was subject to a ten per cent discount so was
effectively about $200,000). We have adopted Judge Clarkson’s
figure.
(b) He limits the calculation to a nine year span, beginning from the time of separation and uses income figures which assume re-entry into the workforce in 2004 rather than 2006. Our award calculation starts from the position accepted by the experts that the disparity would subsist for 18 years from 2004.
(c) He does not halve the figure that results from his
calculations.
However, the overall effect of his decision to adopt a nine year, rather than
18 year, time span is, broadly speaking, a halving of
what his award would
otherwise be.
Outcome
[243] We agree that the result of the appeal and the cross-appeal is as
stated in the judgment of Robertson J. In particular,
we agree with Robertson
J that Mrs X’s cross appeal in relation to the quantum of the s 15 claim
should be dismissed. We would
uphold the award of $240,000 made by the Family
Court. We would reserve leave to apply for an order that Mr X pay interest on
the
s 15 award on the basis outlined in Robertson J’s
judgment.
Solicitors:
Morgan Coakle, Auckland for Appellant
Haig Lyon, Auckland for First Respondent
Taylor Grant Tesiram, Auckland for Second Respondents
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