Hale v Hale HC Hamilton CIV-2011-419-34 [2011] NZHC 1506 (16 September 2011)

Last Updated: 16 November 2011

Judgment: 16 September 2011

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

_{CIV-2011-419-34}

UNDER the Property (Relationships) Act 1976

BETWEEN DONALD KEITH HALE Appellant

AND CAROLYN JEANNE HALE Respondent

Hearing: 17 June 2011

(Heard at Hamilton)

Counsel: A Hinton QC and L Kearns for Appellant/Respondent

EJ Hudson for Respondent/Appellant

Judgment: 16 September 2011 at 2:30 PM

_{JUDGMENT OF TOOGOOD J}

This judgment was delivered by me on 16 September 2011 at 2:30 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

C Murphy/f Lee, Shieff Angland, Auckland: [e-mail]

[e-mail]

K Clews, Hamilton: [e-mail]

Copy:

AE Hinton QC, Auckland: [e-mail]

L Kearns, Barrister, Auckland: [e-mail]

HALE V HALE HC HAM CIV-2011-419-34 16 September 2011

EJ Hudson, Barrister, Hamilton: [e-mail]

Table of Contents Paragraph

Number

Introduction [1] Background and relevant facts [5] The shareholding in the farm company [17]

_{The issue of bonus shares [18]}

The farm company’s sale of land in 2002 and disposition of the proceeds

[22]

_{Disposition of part of the funds held on term deposit [26]}

Mrs Hale’s claims under ss 8(1)(e) and (ee) PRA that all of the bonus shares were relationship property

The claim as to a portion of the increase in value of

Mr Hale’s shares under s 9A(1) PRA and Rose v Rose

The Judge’s findings on the funding of the erection of

the sharemilker’s cottage

The appellant’s challenge to the Family Court’s

_conclusions

[40] [51] [56]
[58]

Whether the $59,380 came from relationship property [61]

_{Were the funds introduced by way of a loan? [65]}

Was there proof that the funds introduced in 1988 contributed to the increase in the value of the shares?

[70]

Application of Rose v Rose [76]

_{The claim as to Mr Hale’s shares under s 9A(2) PRA} [81]

Claim that BNZ term deposit was relationship property –

_{s 8(1)(c) PRA}

[84]

The claim as to the BNZ term deposit – s 8(1)(c) PRA [84] Mrs Hale’s claim under s 17 PRA [97] Result [110] Costs [112]

Introduction

[1] This is a case under the Property (Relationships) Act 1976 (“the Act” or “the PRA”) about the classification of shares in a farming business and a term deposit, the vestiges of the division of property belonging to the parties to a 35-year marital relationship which ended in September 2006 through separation.

[2] The appellant (“Mr Hale”) and the respondent (“Mrs Hale”) have appealed and cross-appealed respectively against a judgment of Judge DR Brown in the Family Court at Hamilton in which the Judge made determinations in a dispute over property said to be worth $2.134 million in total. The parties had previously resolved the division of other relationship property valued at $1.172 million net. The values ascribed to the disputed property when the matter was argued before me are taken from valuations conducted in May 2007. The consequences of any changes in value over the ensuing four years or more were not argued and do not appear to be relevant to the decisions which have to be made.

[3] The Family Court held that bonus shares in a farm company which were issued to Mr Hale in 1988 did not become relationship property at the time of issue. Mrs Hale’s cross-appeal relates to that finding.

[4] The Family Court found, however, that the increase in the value of Mr Hale’s shareholding (including bonus shares) between 1988 and 2007 was relationship property. It was also held that funds placed on term deposit in 2002, following the sale of part of the farm, were also relationship property. Mr Hale has appealed against those decisions.

Background and relevant facts

[5] The Family Court Judge described the brief background in the following terms: 1

[1] The husband and wife in these proceedings, now 79 and 60 years of age respectively, have been able, with the benefit of confident legal advice, to value and divide property comprising their former home, an investment unit, holiday accommodation, extensive bank accounts, bonus bonds and other holdings and entitlements to a total value of $1,440,773.00.2 There is deep dispute with some anger between them however as to whether the wife has any right to now share in the value of the husband’s shareholding in a company formed before they met which owned the family farm, the farms which subsequently replaced it and, now, the relatively small but still very valuable remnant of the last farm. This land is shown in the company’s accounts at a value of $1,307,953.00. The parties are also locked in dispute about a term deposit of $600,000 which is the remainder of the sale proceeds of a 2002 sale of farm land which ended up, and is still, lodged in a joint account in the name of the parties.

[6] Much of the more detailed evidence about the history of the relationship between Mr and Mrs Hale, and their marriage, was not in dispute, so in summarising it I draw on the account given in the judgment of the Family Court. The disputed questions of fact and law will become apparent when I turn to discuss the issues arising on the appeal and cross-appeal.

[7] Mr Hale is a descendent of European immigrants who settled in New Zealand in the mid-1800s. His grandfather, a grandchild of those early settlers, acquired a large block of land in Maramarua of approximately 2,000 acres which he broke in from the bush. Ultimately, the land was divided between his three sons, one of whom was Mr Hale’s father. Mr Hale’s parents farmed their block from the time Mr Hale was about five years old. Mr Hale started working as a paid employee on the farm at around the age of 15, and took over the farm in 1961 when the farm was placed in the ownership of a company, DK Hale Limited (“the farm company”). The purchase arrangements required an initial payment of £5,000, followed by monthly payments until the death of Mr Hale’s father in 1964. Thereafter, the monthly payments were made to Mr Hale’s mother.

[8] At the time of the incorporation of the farm company, Mr Hale held

490 shares and his brother, Bill, 10 shares. Bill’s small shareholding ensured his

right of first refusal in the event of the sale of the farm.

[9] Mr Hale had married six years before the purchase and he, his first wife

Marion and their three children lived on the farm.

[10] From an early age, Mr Hale had been interested in flying and, in 1957, when he was aged 26, Mr Hale began to learn to fly commercially but continued to farm the property. In 1963, he commenced flying full-time commercially and put a manager on the Maramarua farm. From that time on, Mr Hale had virtually no dealings with the day-to-day operation of the farm. His family and he moved to live in Dargaville and, after two years, to Thames from where he continued with his flying duties.

[11] In 1968, Mr Hale and his first wife separated. When they met that year, through her employment, the respondent, Mrs Carolyn Hale, was 17 years old and Mr Hale then aged 38. Mrs Hale fell pregnant and was sent to live with family in Auckland. She lost the baby but remained in Auckland for two years when, against the wishes of her family, she returned to Thames and married Mr Hale on

30 July 1971.

[12] Mr Hale continued to work as a top-dresser. Mrs Hale got a job doing the office work for a local car dealer. She worked there until just before the birth of their first child, Christopher, in 1972. Their second son, Gregory, was born two years later.

[13] When Gregory was six, Mr and Mrs Hale opened, and Mrs Hale ran, a women’s clothing store, leaving it in the hands of an assistant when she went home to be with the boys after school during the week.

[14] Between the births of the two boys, the manager of the Maramarua farm retired and the farm was sold. From the proceeds, the farm company purchased a dairy farm on the Hauraki Plains near Thames, and a run-off property of approximately 160 acres on the Kopu-Hikuai Road. Sharemilkers operated the farm from that time until the bulk of it was eventually sold in June 2002. The run-off was sold in 1980 and part of the proceeds was used to purchase a share in another run-off which was brought in the name of Parakiri Farms Limited. Mr Hale and his brother

were the A shareholders in that company. When this property was sold, the proceeds were divided amongst the B shareholders who comprised Mrs Hale, Mrs Hale’s brother’s wife and their two children, and the three children from Mr Hale’s first marriage.

[15] The Judge held that it was clear and accepted that neither Mr Hale nor Mrs Hale had any direct day-to-day involvement in the running of either the dairy farm or the run-offs. Mrs Hale would accompany Mr Hale on visits at weekends or during the week if the weather ruled out flying. She had some involvement at hay making time, and went to sales with Mr Hale. When a new house was built on the farm, she had a one-off involvement in finishing, tidying, decorating and the like.

[16] On an ongoing basis, Mrs Hale dealt with the office work for the farm company but was paid a modest monthly wage of $600, primarily as a tax-saving device. The Judge found it to be accepted that the top-dressing business was run from the home. Mrs Hale claims to have attended to all the book work and accounts for that business and said she had a significant liaison role in organising and managing the business operations.

The shareholding in the farm company

[17] Understanding how the disputed issues arise between Mr and Mrs Hale requires consideration of the changes in the shareholding of the farm company. The initial paid up capital of the company was represented by 500 $2 shares. On the sale of the Maramarua farm, the original arrangement between Mr Hale, his parents and his brother came to an end and, in 1986, Bill Hale relinquished his ten shares. Nine shares were transferred to Mr Hale but one share was transferred to Mrs Hale to meet the then legal requirement for more than one shareholder.

The issue of bonus shares

[18] In 1988 the capital of the company was increased by $95,000 with the allocation of 47,500 fully paid up shares. Mr Hale’s evidence was that the bonus issue arose as a result of an accounting exercise whereby the capital in the company

was increased by capitalising the Profit and Loss Appropriation account. No additional money was invested into the company by the shareholders and the capitalisation was effected by an accounting process which moved existing shareholders’ funds from one part of the company’s balance sheet to another.

[19] Although it seems Mrs Hale should have been issued 95 shares, based on her entitlement to 0.2 percent of the issue, she was in fact allocated 950 shares bringing her total shareholding, from that date to the present, to 951 shares or 1.98 percent of the total capital. The status of the shares acquired by the parties respectively as a result of the bonus issue was a question the Family Court Judge was required to determine, and remains a matter in dispute on appeal.

[20] In February 1987, Mr Hale transferred 10 of his shares in the company to each of the sons of his marriage to Mrs Hale, Christopher and Greg. Following Greg’s tragic death in an air accident in July 2002, his 10 shares were transferred to Christopher who remains a holder of 20 shares in the company. The shareholding with which these claims are concerned, therefore, is:

 Mr Hale’s 47,029 shares; and

 Mrs Hale’s 951 shares.

[21] I understand it to be common ground that Mrs Hale’s shares are relationship property. Mr Hale says that all of his shares were separate property up to the date his wife and he separated.

The farm company’s sale of land in 2002 and disposition of the proceeds

[22] To understand how the issues have crystallised, it is necessary to return to the narrative of the farm company’s dealings in land, and the financial consequences.

[23] In April 2002, Mrs Hale became a director of the farm company. She managed the bookkeeping for the company although the accounts were prepared by a local accountant, Mr Williams.

[24] In June 2002, the farm company sold 140 acres of the farm, leaving a balance of 32 acres, which land remains the primary asset of the company. The proceeds of the sale of the 140 acres resulted in a deposit of $1.124 million into the farm company’s bank account. On that date, $1.024 million was placed on term deposit by the company’s bank, the Bank of New Zealand, in the name of the company. At that point, therefore, the assets of the farm company comprised primarily the term deposit and the remaining 32 acres of the dairy farm.

[25] The implications of what then occurred are a matter of dispute between the parties, and the Family Court Judge’s findings on them are challenged by Mr Hale. It is convenient to set out the relevant passages from the Family Court judgment:

The term deposit

[45] In 2002 the company sold part of its farmlands and the net proceeds of sale $1,024,000 were placed on term deposit with the Bank of New Zealand under the name D K Hale Ltd. Six days later they were withdrawn from that deposit and deposited in the bank under the name of Mr and Mrs Hale. Mrs Hale says that she did this on the express instructions of Mr Hale.

[46] Over the following years the Bank sent all its correspondence regarding the money to Mr and Mrs Hale at their home address addressed to them personally.

[47] The company accountants continued to treat the deposit as belonging to the company.

[48] The company’s accountant has stated:

“We were always under the belief that this money was still owed by the company and it has always been recorded as a company asset, with the interest earned returned as company income. Had we ever considered that this deposit was no longer a company asset, we would have been required to debit the shareholders’ loan account accordingly, charge interest to them, and return the interest earned by BNZ in their individual returns.”

[49] It is a question of weighing the patterns and probabilities of the situation, the impressions left by the parties in the witness box and the weight that can be attached to the small amount of hard evidence available.

[50] To be weighed is the fact that the company accountants clearly did not know that the money was in the names of the parties. What they would have done (journal entries, interest transfers etc) is irrelevant because they manifestly did not know.

[51] It is important to give proper weight to the context. This was 2002, five years before the parties separated.

[52] I am satisfied that this was not a bank error. The fact that the bank issued a new certificate six days after the first certificate means that Mrs Hale’s position that she told the bank to do so must be clearly preferred. The question then becomes whether, as she says, Mr Hale told her to do so. If she did so without Mr Hale’s authority it must have been for a relationship property purpose which seems improbable in itself five years before separation. It is more improbable when it is appreciated that there is no other sign of any kind (such as hiding away money) to indicate that Mrs Hale was at that or any other stage involved in deceitful property behaviours.

[53] It is then to be weighed that some of the funds were expended for purposes [sic] of property in the names of Mr and Mrs Hale (including a property at Davy Street Thames, the settlement statement for which was addressed to the parties personally).

[54] It is my conclusion that the likely explanation is that on the sale of the farm, Mr Hale was beginning to cash up his ownerships and as part of the process he symbolically shifted the farm company’s monies into the parties’ personal accounts.

Disposition of part of the funds held on term deposit

[26] The only reference in the judgment to the disposition of the funds held on deposit is the Judge’s observation, at [53], “that some of the funds were expended for purposes of property in the names of Mr and Mrs Hale (including a property at Davy Street Thames.” The appellant places emphasis on the manner of the distribution of the whole $324,000 paid out of the deposit, in four tranches between July 2002 and the date of separation. As I will discuss, Mr Hudson also submitted that the decision as to the ownership of the term deposit is informed by the use of part of the funds. It is appropriate and necessary, therefore, to consider those matters more fully.

[27] Mrs Hale’s evidence in the Family Court was that funds were withdrawn in

2002, possibly for the purchase of a motorhome. She said that, in October 2003,

$16,000 was withdrawn for the purchase of a Holden Vectra. She said that a withdrawal of $195,642 in September 2004 related to the purchase of a rental property at Davy Street, Thames referred to by the Judge. She was uncertain as to the purpose for a withdrawal of $17,355 in November 2005.

[28] These withdrawals left $700,000 on term deposit. By agreement and without prejudice to their respective claims in these proceedings, the parties subsequently withdrew $100,000 post-separation and divided it equally, on the basis that the sum in dispute remained at $700,000.

[29] Mr Hale said in cross-examination that the withdrawal of almost $100,000 in October 2002 probably went into the purchase of the motorhome, a decision which he said he would have made. He agreed that it could have been right that in October 2003 $16,000 was withdrawn to purchase the Holden Vectra car which was initially put into the company’s name but then transferred into the name of Mrs Hale. He agreed also that the $195,000 withdrawal in September 2004 was for the purchase of the Davy Street property, which was put into Mr and Mrs Hale’s joint names. He said that he thought the $17,355 withdrawal in November 2005 may have been used to purchase a boat.

[30] After the hearing of the appeal, counsel assisted me by filing supplementary submissions on matters of law. The memorandum filed by Mrs Hinton QC on behalf of the appellant dealt also with the question of what happened to the withdrawals from the term deposit account. She explained that, at the hearing, Mr Hudson had contended on behalf of Mrs Hale that the four withdrawals to which I have just referred were “used” by the parties for the personal acquisitions referred to by Mrs Hale and were not all put through the farm company’s books. Mrs Hinton QC said that this submission had not been made previously and that even Mrs Hale’s own evidence was not to that effect.

[31] In the course of oral argument, I noted that Mrs Hinton QC referred me to a number of relevant parts of the evidence and that I reserved leave to her to file further submissions in respect of those matters. Mr Hudson protested in his memorandum in response that he could not recall such leave being reserved but took no formal objection. He noted, however, that the evidence given at the hearing was consistent with the submissions he had made orally on appeal. He also argued that the bank statements produced as annexures to the memorandum of counsel for the appellant contained evidence which could have been placed before the lower Court and was prima facie inadmissible on appeal. However, he quite properly

acknowledged that “the correct position ought to be before this Court on appeal” and

did not pursue an objection.

[32] Mr Hudson’s concession is proper, in my view, given that this is a general appeal and that it is open to me to come to a different view of the facts from that taken by the Family Court Judge.3 The evidence, being in the form of annotated bank statements, is reasonably contemporaneous with the transactions described and incontrovertible. It is right in the interests of overall fairness that I should take it into account, given the difficulty Mr and Mrs Hale faced in trying to recall the use of the funds. The submissions which Mrs Hinton QC now makes in respect of the evidence are consistent with the position taken by Mr Hagen, the expert accounting witness

called on behalf of the appellant in the Family Court, and with Mrs Hinton QC’s oral submissions at the hearing of the appeal. For these reasons, I do not consider admitting this evidence on appeal results in any unfair prejudice to Mrs Hale.

[33] The withdrawal in October 2002 was in the sum of $95,000, and was deposited to the farm company’s cheque account on 6 August 2002. It may reasonably be inferred from annotations on the bank statements that the withdrawal was made to meet a GST payment of $94,742 made on 24 September 2002 in relation to the land sale.

[34] Next, the $16,000 withdrawn from the deposit in October 2003 appears also to have been used for farm company purposes. It was deposited into the company’s accounts on 2 September 2003 and appears to have been applied to the purchase of cattle on 18 September 2003 and 2 October 2003 respectively. There is no reference in the annotated bank statements to the funds being used for the purchase of the Holden Vectra.

[35] I am satisfied that in respect of this withdrawal, as with the first in 2002, the recollections of Mr and Mrs Hale when giving evidence in the Family Court were inaccurate.

[36] The third withdrawal in September 2004, which the parties seemed to agree was used to purchase the Davy Street rental property, is acknowledged by both sides to have been treated in the farm company’s accounts as a loan, the sum being debited to their shareholders’ loan account in the year ended May 2005.4 Given the findings of the Family Court Judge that the farm company’s accountants continued to treat the term deposit as belonging to the company, and were unaware that the money had

been placed in the names of Mr and Mrs Hale personally, the treatment of the withdrawn funds by the accountants is neutral insofar as it might be relevant to drawing inferences as to the intentions of Mr and Mrs Hale concerning ownership.

[37] The fourth withdrawal, of $17,355 in July 2005, shows a corresponding deposit to the farm company’s cheque account and it appears to have been used in the purchase of a Hyundai Utility, a company vehicle, in August 2005.

[38] I will return in due course to the significance of the disposition of the withdrawals from the BNZ term deposit in the context of the appellant’s challenge to the determination of the Family Court Judge that the deposit was relationship property.

[39] Since the disputed matters arising in the Family Court and on appeal can be conveniently considered as discrete issues, this judgment now examines the evidence, arguments, Family Court findings, and my views and conclusions issue- by-issue as follows:

(a) The claim under s 8(1)(e) PRA that all of the bonus shares issued in

2002 were relationship property (Mrs Hale’s cross-appeal).

(b) The claim under s 9A(1) PRA that all of the shares in the farm company increased in value as a result of the application of relationship property to the construction of a sharemilker’s cottage on the land.

(c) The claim under s 9A(2) PRA that Mr Hale’s shares were relationship property because Mrs Hale’s actions increased their value.

(d) The claim by Mrs Hale under s 8(1)(c) PRA that the proceeds of the sale of land by the farm company in 2002, which were placed on term deposit in an account in the joint names of the parties, became relationship property.

(e) The claim by Mrs Hale under s 17 PRA that Mr Hale’s separate property (the shares in the farm company) was sustained by the application of relationship property and/or the actions of Mrs Hale.

Mrs Hale’s claims under ss 8(1)(e) and (ee) PRA that all of the bonus shares were relationship property

[40] The first principal issue dealt with by the Family Court Judge was the question of how the bonus shares issued in 1988 should be classified. There is no doubt that all 951 shares issued to Mrs Hale is relationship property, since they were acquired by her after the marriage.5 Seriously disputed, however, is the classification of the 46,550 bonus shares allocated to Mr Hale.

[41] It was submitted on Mrs Hale’s behalf that the bonus shares were “gains” which were not attributable solely to Mr Hale’s separate property represented by the initial shareholding of 490 shares which he acquired when the company was incorporated prior to the marriage.

[42] Section 8(1) PRA provides, so far as is relevant:

8 Relationship property defined

(1) Relationship property shall consist of—

...

(e) subject to sections 9(2) to (6), 9A, and 10, all property acquired by either spouse or partner after their marriage, civil union or de facto relationship began; and

(ee) subject to sections 9(3) to (6), 9A, and 10, all property acquired, after the marriage, civil union or de facto relationship began, for the common use or common benefit of both spouses or partners, if—

(i) the property was acquired out of property owned by either spouse or partner or by both of them before the marriage, civil union or de facto relationship began; or

(ii) the property was acquired out of the proceeds of any disposition of any property owned by either spouse or partner or by both of them before the marriage, civil union or de facto relationship began; and ...

[43] It is also necessary to consider s 9(3) PRA which reads:

9 Separate property defined

...

(3) Subject to section 9A, any increase in the value of separate property, and any income or gains derived from separate property, are separate property.

[44] It was submitted that the accumulated shareholders’ funds which were capitalised to create the bonus issue were derived from unpaid salary and were in the nature of relationship property. On this basis, it was argued for Mrs Hale that s 9(3) PRA did not apply. The Judge found against Mrs Hale on this submission, and she has cross-appealed against that finding.

[45] Applying Watson v Watson,6 the Family Court Judge held that it was the character and origin of the company funds converted into bonus shares which is determinative of their classification. He said:7

If the funds to be converted are in reality unpaid earnings from the efforts of a shareholder spouse they will be classified as relationship property because the fruits of the spouse’s efforts within the relationship are properly so classified within the scheme of the Act. If, on the other hand, the company funds are not the result of the personal efforts of the spouse and are a capital return from a separate property investment, they are not classifiable as relationship property. If the company funds represent both personal efforts of the shareholder spouse and a return on capital it will be necessary for the Court to apportion them accordingly (as was the case in Watson).

6 _{Watson v Watson (1996) 14 FRNZ 571, [1996] NZFLR 673 (CA).}

7 The FC judgment, at [28].

[46] The Judge held that Mrs Hale’s claim must fail because the “unusual circumstances of the case” made it inarguable that the company funds represented the accumulated capital profits of the company, rather than Mr Hale’s unpaid earnings. The Judge found that Mr Hale’s services, labour and contribution to the farm company at the time were negligible to non-existent.

[47] In my view, the argument as to the classification of the bonus shares issued to Mr Hale can be disposed of quickly. This was not the usual case of one partner working on a farm and under-drawing salary which is then accumulated and capitalised into shares.

[48] The evidence before the Family Court, which the Judge was entitled to accept, was that neither party did much to contribute to the running of the dairy farm which was managed by sharemilkers. Mr Hagen’s evidence was that the current accounts in the farm company’s financial statements showed that profits remaining after the sharemilker had taken his entitlement, which were credited to the shareholders’ current account as salaries, were in substance dividends and represented a partial return on the investment. He said they were not salaries in return for effort applied, which would be treated as relationship property.

[49] Mr Hale’s evidence, referred to at [18] above, was not rebutted. The Judge was entitled to find, as he did, that the bonus issue of shares resulted from accumulated capital profits and that the shares issued to Mr Hale remained separate property. I agree both with his analysis of the facts and his application of Watson v Watson. As Doogue J said, on behalf of the Court in Watson v Watson, to the extent that bonus shares: 8

... represent a capital return derived from an existing shareholding which is separate property, as would almost invariably be the case in respect of a bonus issue of shares by a public company, they would be separate property. The test under s 9(3) of the Act in a case such as this is whether the bonus shares are again derived from the separate property.

[50] For these reasons, the Family Court was right to dismiss Mrs Hale’s claim to

_{the bonus shares allocated to Mr Hale.}

8 Watson v Watson at 576 (lines 34-39).

The claim as to a portion of the increase in value of Mr Hale’s shares under

s 9A(1) PRA and Rose v Rose

[51] An argument under s 9A(1) of the Act, made in reliance on the judgment of the Supreme Court in Rose v Rose,9 was advanced by Mrs Hale in support of a claim that the significant increase in the value of Mr Hale’s shares in the farm company prior to separation was relationship property. Although the Family Court Judge related this argument to the bonus shares, if it is valid it must relate to all of Mr Hale’s shareholding.

[52] Section 9A(1) of the Act provides:

9A When separate property becomes relationship property

(1) If any increase in the value of separate property, or any income or gains derived from separate property, were attributable (wholly or in part) to the application of relationship property, then the increase in value or (as the case requires) the income or gains are relationship property.

[53] In Rose v Rose, the Supreme Court said, in respect of the separate property vineyard owned by the husband:10

[30] The valuation evidence establishes that there has been a significant increase in value since 2000. Some of that may well be the product of inflation or a general rise in the value of land in Marlborough suitable for viticulture, but that does not defeat a claim under subs (1) if some part of the increase (excluding anything which is merely trivial or minimal) is attributable to the application of relationship property. Once a causative link is established between the application of relationship property and some such increase in value, the whole of the increase, howsoever the balance of the increase arose, is required by subs (1) to be treated as relationship property.11 Thus, in the present case, if any relationship property was used to fund the development of the vineyard, and there has been an increase since

2000 in the value of Poplars attributable to the presence of the vineyard on the property, after account is taken of the fact that the vineyard is owned by

the partnership, the whole of the increase in the value of the property from

whatever cause will be relationship property and will fall to be divided under

_{Part 4 of the Act.}

9 _{Rose v Rose [2009] 3 NZLR 1.}

10 _{At [30].}

11 Hartley v Hartley [1986] 2 NZLR 64 (CA) at pp 73 and 76; Hight v Hight [1997] 3 NZLR 396 (CA) at p 406. Relationship property exists in the same way under s 9A(2) when a causative link is established between any action of the non-owner spouse and any rise in value of separate property.

[54] In the Family Court, it was argued for Mrs Hale that there were three ways in which relationship property was applied with a resulting increase in the value of the farm company shares. First, it was said that fertilizer was supplied from relationship funds which in some years went beyond the level of application required to simply maintain the soil and, in fact, increased its productivity and therefore the value of the farm. The Judge held that the evidence in the present proceedings fell short of the necessary proof and was simply speculative. I agree with that view.

[55] Second, it was said that between 1981 and 1997, the farm company shareholders’ loan account was in credit and that the company thereby had the benefit of an interest-free loan. The Judge pointed out, however, that it was axiomatic that a loan had to be repaid and the fact that moneys were left interest-free in the company loan account did not result in any increase in the value of the separate property represented by shares in the company. I agree with that conclusion also.

The Judge’s findings on the funding of the erection of the sharemilker’s cottage

[56] Third, it was argued that, in 1988, the parties had advanced $59,830 to the farm company to fund the erection on the farm of a cottage for the sharemilker. This argument found favour with the Family Court Judge.12 He concluded that it was “unarguable that the erection of a house on a farm will necessarily and unarguably increase the value of the farm.”13 The Judge held that it was firmly established under the Act, before the 2002 amendments, that once an increase in value had been shown to be attributable to the application of relationship property, whether in whole or in part, the whole of the increase in value of the separate property was converted to relationship property and not merely that portion attributable to the application of relationship property.14 The Judge observed, again correctly in my view, that it is clear from the judgments in Hartley and Hight (although they preceded the amendments) that only the increase in value after the application of relationship

_{funds is caught by s 9A(1).}

12 _{The FC judgment at [37]-[42].}

13 _{The FC judgment at [37].}

14 Palmer v Palmer (1982) 5 MPC 116; Hartley; Hight.

[57] Applying these principles to the facts as he found them, the Judge said:

[42] The farm company shares are of course the separate property in question. They reflect primarily the value of the farm. Mr Dobson’s uncontroverted evidence was that the company shares were worth $517,000 in May 1989 and it was agreed they were worth $2,134,000 at 31 May 2007 (the last available date). The increase in value for the purposes of s 9A(1) is therefore $1,617,000 and Mrs Hale is entitled to half of that sum.

The appellant’s challenge to the Family Court’s conclusions

[58] The appellant’s challenge to the judgment on this point is put on four separate

bases:

(a) There was no evidence as to the source of the contribution. Given the totality of the evidence and the extent to which the relationship finances and the relationship property were subsidised and propped up by the husband’s separate property, it is unlikely that the funds would have come out of relationship property.

(b) The sum paid into the company’s account was an advance or loan, not the introduction of share capital. As such, it did not amount to the application of relationship property because, if the source was relationship property, it remained a relationship property asset which had to be repaid, and was repaid over time.

(c) Even if the sum paid in could be considered to be the application of relationship property, the Judge erred in equating an increase in the value of the land with an increase in the value of the shares in the farm company. Mr Hale did not own the land; the land belonged to the company. What was at issue was classification of the shares. For s 9A(1) PRA to apply, Mrs Hale had to establish that the application of the funds contributed to an increase in the value of the farm company shares. The evidence, however, including that from the applicant’s expert, was that the increase in the value of the company shares resulted from an increase in land values generally. There was no evidence that the erection of the cottage (which the company’s

accounts show replaced an existing cottage and was depreciated over time), made any contribution to the increase in value of the shares.

(d) If the funding of the construction of the cottage did contribute to the increase in the value of the shares, it was insufficiently material to justify classifying the whole of the increase in value as relationship property.

[59] It was further submitted by the appellant that the Judge was right to conclude that there was no established basis upon which the funds, if contributed from relationship property, could be said to have increased the value of the company by reason only of its being interest-free.

[60] A challenge was made to the Judge’s calculations of the amount by which Mrs Hale should be compensated under s 9A(1) PRA, because he had included the amount of the term deposit in the value of the company shares which he divided. By separately treating the term deposit as relationship property, he fell into the error of double-counting. This error was conceded by Mr Hudson, as it had to be, but the concession does not deal with the fundamental question of whether the Judge was right to apply s 9A(1) at all.

Whether the $59,380 came from relationship property

[61] The Family Court Judge did not closely analyse the evidence relating to the appearance in the company’s accounts for the year ending 31 May 1988 of the sum of $59,830 which appears to have been used for the construction of a house for the sharemilker. First, he made no findings as to the source of the funds, the evidence as to which was not extensive. Mrs Hale made no reference to the source of the payment. Mr Hale suggested in cross-examination that the money to build the house probably came out of the farm account by way of an overdraft, but he conceded that there was no evidence in the accounts that the borrowings from the Bank had increased in that way. In the end, he said he could not remember where the money had come from but did not think it would have come out of the parties’ private account.

[62] Mrs Hinton QC submitted that, given the totality of the evidence and the extent to which the relationship finances and the relationship property were subsidised and propped up by Mr Hale’s separate property, it is highly unlikely that the funds would have come out of relationship property. I do not accept that submission. Mr Hale’s gains from the separate property which was his shareholding in the farm company were represented by entries in the company’s financial statements. The farm company’s accounts do not reveal any basis on which it could be said that the funds came from Mr Hale’s returns on separate property.

[63] The way in which the funds for the cottage were treated in the financial statements suggests that the money came into the company’s bank account from an external source. It was represented in the “Statement of Source and Application of Funds” or cashflow statement as “Funds Introduced”,15 and in the summary of shareholders’ loan accounts as “Additional Funds Introduced”.16 Against the background of Mr Hale earning an income as a topdressing pilot, and the possibility

of income being derived from the shop run by Mrs Hale, the most likely and preferable inference is that the funds came from relationship property.

[64] Having come to that view, it is not necessary for me to address Mr Hudson’s alternative argument17 based on the mingling of the funds in the company’s accounts in such a way as to render the introduced funds, automatically, as relationship property.

Were the funds introduced by way of a loan?

[65] In my view, however, the Judge was correct to describe the funds, albeit without analysis, as an “advance”. As the Judge said in relation to the argument that Mrs Hale contributed to the value of the shares by leaving funds in the shareholders’ loan accounts on an interest-free basis, it is axiomatic that a loan has to be repaid.18

Unlike the position where relationship property is applied to and subsumed by an

_{asset comprising separate property, the relationship property represented by the}

15 _{Common bundle of financial statements, p 73.}

16 _{Common bundle of financial statements, p 72 (paragraph 65).}

17 _{Relying on Allan v Allan (1990) 7 FRNZ 102 and B v B [1995] 3 NZLR 320.}

18 The FC judgment at [36].

advance for the cottage remained a distinct relationship property asset which, if it had not been repaid by the time of the separation of the parties, would have been classified as a relationship property asset, with the company having a corresponding liability.

[66] This point is demonstrated in the accounts where the sharemilker’s house is listed as a fixed asset but the company’s term liabilities are increased by reference, in part, to the advance.19 Furthermore, when Mr Hudson cross-examined Mr Hagen on this issue in the Family Court, in answer to a question in which Mr Hudson appears to have acknowledged the existence of a “loan from Mr and Mrs Hale”, Mr Hagen pointed out that, in looking at the issue of a contribution of relationship property in circumstances such as these, it was necessary to take a longer term view than merely looking at one financial year.

[67] The summary of shareholders’ loan accounts (what Mr Hagen described as the “current account”) showed the opening credit balance in 1988 being increased by the introduction of the additional funds of $59,830 and shareholder salaries not drawn, but then being reduced in that financial year by payment of taxation, car expenses, personal drawings and salaries actually drawn. As Mr Hagen said, although funds of approximately $60,000 were introduced in 1988, they were drawn

down over the next three years.20 Mr Hagen’s schedule at page 142 of the common

bundle showed the closing balance of the current account being $118,000 in credit in

1988, but having reduced to $60,000 by 1991. The credit balance in the shareholders’ loan account diminished over the next seven years so that by the end of the 1998 financial year, the loan account was in debit meaning that the shareholders actually owed the company $14,000. It is common ground that by the time of the separation in September 2006, the shareholders were indebted to the company by approximately $250,000.

[68] In those circumstances, it would be wrong to describe the relationship property as having been applied in a way which resulted in an increase in the value

_{of separate property, even if it could be said that there was a direct correlation}

19 _{Common bundle of financial statements, pp 69, 70 and 72.}

20 Common bundle of financial statements, pp 141 (paragraph 19(e)), and 142.

between the building of the sharemilker’s house and an increase in the value of the shares (which the appellant denies).

[69] It is possible to conceive of circumstances in which a substantial interest-free loan is made to a company which is thereby enabled to retain an asset which appreciates in value over the period during which the loan remains outstanding. It might then be said that the increase in the value of the separate property is attributable to the application of relationship property in terms of s 9A(1) but, having regard to the amount of the advance and the subsequent debiting of the shareholders’ account as discussed above, I do not think those circumstances exist here.

Was there proof that the funds introduced in 1988 contributed to the increase in the value of the shares?

[70] The evidence was that the sharemilker’s cottage replaced an existing dwelling on the property. Although it initially represented a significant proportion of the total book value of the company’s assets, it was plainly of less significance compared to the market value of the land and improvements which were valued in 1990 at

$570,000, including buildings which comprised a staff house, two implements sheds, sundry other sheds, three hay barns, a garage and a cow shed.

[71] When the land, including the sharemilker’s house, was sold in 2002, the net proceeds of the sale were $1.124 million, with 32 acres remaining an asset of the company. By that time, the company’s shareholders’ accounts showed a credit balance (a debt owed by the company to the shareholders) of $37,000, following

further advances in 1992 ($30,000), 1995 ($6,000), and 2000 ($36,500).21 Because

of the way in which the shareholder loan accounts fluctuated and then trended towards a debit balance from the peak credit balance of $118,000 in 1988, I consider Mr Hagen’s view to be correct. The result is that the evidence was insufficient to establish that any part of the increase in the value of the shares was attributable to the loan of $59,830 in 1988.

[72] The Family Court Judge also erred, in my view, in equating what might well have been a temporary increase in the value of the land and buildings by the addition

21 Common bundle of financial statements, pp 107, 154 and 237.

of the sharemilker’s house with an increase in the value of the shares in the company. Although he was entitled to take the view that the farm company shares reflected “primarily the value of the farm”,22 more evidence than was available would have been necessary to establish that the increase in the value of the shares from $517,000 in May 1989 to $2,134,000 in May 2007 was attributable in any way to the construction of the sharemilker’s cottage.

[73] In his first report to Mrs Hale’s legal advisers, dated 11 March 2009, Mr Dobson made a comparison between the value of the company in 1981 with its value in 2007 (equating value of the land with the value of the shares), in which he said:23

Notably, the value of the land has increased from $77,077 in 1973 (being the date of original purchase) to $1.08 million in 2007 (based on Jordan Valuers valuation). We note that some land was sold in 2002, the proceeds of which we believe were invested in a BNZ term deposit. If we add the proceeds from the land sold in 2002 to the value of land still held in 2007, the compound annual average growth rate of the land is approximately

10 percent. This figure closely aligns with statistics that indicate the average price per hectare for dairy farms increased by a compound average annual

rate of 9 percent over the 28 years from 1978 to 2006 (being the oldest and

most recent years for which we could obtain statistics).

... Based on the above analysis we conclude that the shares in the Company have increased in value. In the absence of evidence as to substantial improvements made to the land or buildings, we suggest that this increase in value is predominantly the result of inflation and an increase in land values.

[74] In his subsequent report (dated 8 May 2009) he assessed the indicative value of the shares in the company at 31 May 1981 at $148,000, and the value of the shares in the company as at 31 May 2007 at $2.134 million. He did not attribute the increase in value during that period to any cause other than that which he had earlier indicated.

[75] In cross-examination,24 Mr Dobson said he stood by his earlier statement that the increase in value was predominantly the result of inflation and an increase in land values, while reserving the point about the absence of evidence as to substantial

_{improvements made to the land or buildings. There was no evidence of any}

22 _{The FC judgment, at [42].}

23 _{Common bundle of documents, page 155.}

24 Common bundle of documents, page 212.

substantial improvements to the land and buildings other than the construction of the

sharemilker’s cottage in 1988, an asset which was shown as having a book value of

$28,000 in June 2001 and which had been sold by the time of the May 2007 valuation.

Application of Rose v Rose

[76] In Rose v Rose, the Supreme Court said this about the application of ss 9A(1)

and (2):25

[25] Subsections (1) and (2) of s 9A deal with the circumstances in which increases in the value of separate property become relationship property. The basic approach is that if the non-owning partner contributes to an increase in the value of the other partner’s separate property, that increase in value becomes relationship property and thus subject to the sharing rules. The words “wholly or in part”, which appear in both subsections, make it clear that any contribution, other than a minimal one, will result in the whole increase becoming relationship property.

[26] The contribution made by the non-owning partner can arise either from the application of relationship property or from conduct. The only difference between the two types of contribution is that, in the case of the application of relationship property, the ordinary sharing rules apply, whereas in the case of a contribution by the conduct of the non-owning partner the sharing is in accordance with the contributions of each partner to the increase in value. The legislative treatment of increases in value as a species of property in their own right, which must necessarily have been “acquired” during the relationship, supports the view that the effect of the word “indirectly” in subs (2) is that the parties will share increases in the value of separate property unless the actions of the non-owning party have not materially influenced the increase.

Poplars – claim under s 9A(1)

[27] A claimant under subs (1) of s 9A asserting that an increase in the value of separate property should be treated as relationship property bears the onus of proof and must establish:

(a) that the subject property (which is separate property of the other party) has increased in value;14 and

(b) that such increase in value is attributable, wholly or in part, to the application of relationship property.

25 Rose v Rose [2009] NZSC 46, at [25]-[27] (footnotes omitted).

It is to be noted that the Court expressly excluded from the ambit of the sub-sections, minimal contributions or contributions which had not “materially influenced the increase.”

[77] This principle was reflected in the approach which the Family Court Judge took in this case in rejecting as relevant the asserted contribution of relationship funds through the application of fertiliser,26 and the foregoing of interest.27 In my view, the reason the Judge did not reach the same conclusion in relation to the construction of the sharemilker’s cottage was that he did not pay sufficiently close attention to the basis upon which Mr Dobson assessed the increase in the value of the

farm and, therefore, the shares.

[78] In Austin, Nichols, the Supreme Court referred to the following “well-

established principles” for the consideration by an appellate court of the decision which is the subject of the appeal:28

The appellant bears an onus of satisfying the appeal court that it should differ

_{from the decision under appeal.}

It is only if the appellate court considers that the appealed decision is wrong

_{that it is justified in interfering with it.}

The appeal court may or may not find the reasoning of the tribunal persuasive

_{in its own terms.}

The extent of the consideration an appeal court exercising a general power of

_{appeal gives to the decision appealed from is a matter for its judgment.}

On a general appeal, the appeal Court has the responsibility of arriving at its

_{own assessment of the merits of the case.}

26 _{The FC judgment, at [35].}

27 _{The FC judgment, at [36].}

28 Austin, Nichols, at [4]-[5].

[79] Mrs Hale’s claim under s 9A(1) was not an issue on which the Family Court Judge enjoyed any particular advantage through having seen and heard the witnesses. I have had the benefit of comprehensive submissions from senior and experienced counsel for both parties, and time to review the evidence and submissions carefully. I am entitled, therefore, to come to a different view from that of the Family Court, and do so.

[80] For the reasons given above, I consider that the Judge’s conclusion that the increase in the value of the company between 1988 and 2007 was relationship property was wrong and should be set aside:

(a) The introduction of funds in 1988, even if coming out of relationship property, was merely a loan which was subsequently repaid and not an injection of additional capital.

(b) While the construction of the sharemilker’s cottage may have initially increased the value of the farm, there was no necessary correlation between the advance and the increase in the value of the shares.

(c) The evidence did not establish a material causal connection between the construction of the sharemilker’s cottage in 1988 and the increase in value of the shares in the company by 2007.

The claim as to Mr Hale’s shares under s 9A(2) PRA

[81] It was also argued for Mrs Hale, as a third basis for a claim in respect of the shares, that s 9A(2) of the Act applied. That subsection reads:

9A When separate property becomes relationship property

...

(2) If any increase in the value of separate property, or any income or gains derived from separate property, were attributable (wholly or in part, and whether directly or indirectly) to actions of the other spouse or partner, then—

(a) the increase in value or (as the case requires) the income or gains are relationship property; but

(b) the share of each spouse or partner in that relationship property is to be determined in accordance with the contribution of each spouse or partner to the increase in value or (as the case requires) the income or gains.

[82] It was said that the increase in the value of the shares in Mr Hale’s name was relationship property because it was attributable, in part, to the actions of Mrs Hale. Although the Judge accepted that indirect contributions, such as foregoing a given standard of living, taking care of children, or earning income that enables another spouse to occupy himself or herself with separate property, may be sufficient to found a claim under s 9A(2), he rejected the claim on the facts. He found that for all reasonable intents and purposes no actions on the part of either Mr or Mrs Hale contributed to any increase in the value of the separate property farm company during the course of the marriage. He found that the visits and inspections by Mr Hale, accompanied by Mrs Hale, Mrs Hale’s involvement in hay making, and her remunerated work on the farm company’s books could not conceivably be said to

have increased the farm company’s value.29

[83] I agree with the Judge’s conclusion on this point, and with his rejection of

this basis for Mrs Hale’s claim.

Claim that BNZ term deposit was relationship property – s 8(1)(c) PRA

[84] Following the sale of part of the farm in 2002, the net proceeds of sale were placed on term deposit with the Bank of New Zealand.

[85] Mrs Hale’s claim to a share in the balance of the funds held on the term deposit was based on s 8(1)(c) of the Act. The simple proposition, which the Judge accepted for the reasons set out above at [25], was that although the funds were first placed in the company’s bank account as a result of the partial disposition of farmland which was separate property, it became relationship property when, at Mr Hale’s direction, it was transferred into an account in the joint names of Mr and Mrs Hale personally, as part of Mr Hale cashing up his ownerships. The Court

_{awarded half of the deposit to Mrs Hale on that basis.}

29 The FC judgment at [43].

[86] The approach of the Family Court Judge to the classification of the term deposit seems to have been based on an assumption that the factual issue which determined the outcome of the claim was whether the funds were transferred from a deposit in the name of the company to a deposit in the joint names of Mr and Mrs Hale by Bank error or the unilateral actions of Mrs Hale, or whether Mr Hale

directed the transfer as alleged by Mrs Hale.30

[87] Mr Hudson put his support for the Judge’s approach and findings on the basis that it was simply a matter of determining the ownership of the term deposit, the vital ingredients of which, he said, were that the owner can enjoy the fruits of the property himself and can dispose of the property for his own benefit. Relying on Ayerst (Inspector of Taxes) v C & K (Construction) Limited,31 he submitted that evidence as to how the funds on deposit were used demonstrated that Mr and Mrs Hale treated it as their asset, and that the use of the funds was a key factor in deciding the parties’ mutual intentions. Mr Hudson argued that nothing should be

taken from the way in which the deposit was treated in the company accounts, because the parties had not alerted their accountant, Mr Williams, to the use to which they put the funds from time to time. He supported the view of the Family Court Judge that the absence of shareholder resolutions, journal entries, interest transfers and so on was not decisive of the issue.

[88] Counsel submitted that, on the basis of the evidence given by Mr and Mrs Hale respectively, including Mr Hale’s recollections as to the uses to which the funds were put, it was open to the Family Court Judge to conclude that the asserted private purposes, such as the acquisition of a motor home, a boat, and a car for Mrs Hale, were consistent with an intention by Mr Hale to extract value from the sale of most of the farm owned by the company, by cashing up his ownership and

shifting the money to his wife and himself personally.32

[89] As I have observed, however, the Judge did not have the benefit of considering the implications of the annotated bank accounts submitted by Mrs

_{Hinton QC with her supplementary memorandum.}

30 _{See the FC judgment at [45] and [52], quoted at [25] above.}

31 _{Ayerst (Inspector of Taxes) v C & K (Construction) Limited [1976] AC 167.}

32 The FC judgment at [53]-[54].

[90] The information to be gleaned from the bank statements is not decisive, but it is evidence which tends to indicate that Mr Hale, at least, did not regard the funds held on deposit as having been transferred by the company into the joint names of his wife and himself personally with the intention of using the money for relationship purposes. The evidence of the first, second and fourth withdrawals tends to confirm the appellant’s submission that the deposit not only remained farm company property but was used for farm company purposes. The withdrawal for the purchase of the Davy Street rental property stands apart from the other three withdrawals. Against the background of the uses to which the other funds were put, however, the debiting of the borrowings for the Davy Street property to the shareholders’ loan accounts in the farm company is not as easily dismissed, as the Judge felt he was entitled to do, on the basis that the accountants simply did not know that the money had been placed in an account in the parties’ personal names. That debiting in the financial statements is indicative of a distinction between the known and understood uses of the funds on deposit for company and personal purposes respectively.

[91] In the light of the evidence revealed by the bank accounts, I do not draw the inference which appealed to the Family Court Judge. However, there is a more fundamental reason why, in my view, the Family Court Judge erred in classifying the term deposit as relationship property; namely, the funds were an asset of the company when deposited, not of Mr Hale personally.

[92] Even if it was Mr Hale’s intention (as principal shareholder) that the asset represented by the term deposit should be extracted from the company and transferred into the personal ownership of his wife and himself (which I think must now be doubted), Mr Hale had no power to effect such a purpose merely by instructing the Bank, through Mrs Hale, to transfer the funds into an account in their personal names. He was not the sole shareholder or director and any such distribution of the company’s asset could only be made by the company acting in accordance with the formal procedural requirements.

[93] Mr Hudson did not suggest to me any basis on which the company could simply gift the money to Mr and Mrs Hale, even if the company’s intention to that

effect could be inferred in the absence of any resolution of the directors or shareholders. The company’s funds could only have been distributed to the shareholders by way of dividend. That also would have required a formal resolution, which was never made. More significantly, such a distribution would have created a significant tax liability for Mr and Mrs Hale. That consequence weighs against an inference that Mr and Mrs Hale, as directors of the company, intended to transfer the ownership of the funds on deposit into their names personally and that the need for the company to act formally may be disregarded.

[94] There is simply no evidence that a decision was made by or on behalf of the company to distribute the asset out of its control and ownership. The most that could be said about the legal effect of the transfer of company funds into an account in the personal names of Mr and Mrs Hale is that they became constructive trustees of the funds which were always, and remained, the company’s asset. In my view, the Judge fell into error in failing to consider what evidence existed to demonstrate that the company actually divested itself of the funds placed on deposit. There was none.

[95] For those reasons, the Family Court’s finding that the $700,000 remaining in the BNZ on term deposit was relationship property must be set aside.

[96] Having regard to the outcome of Mr Hale’s appeal and Mrs Hale’s cross- appeal, it is not necessary to consider the late application by Mr Hale, on appeal, for relief under s 13 PRA, which provides the Court with a discretion, where there are extraordinary circumstances, to depart from the principle of equal sharing of relationship property.

Mrs Hale’s claim under s 17 PRA

[97] In the Family Court, Mrs Hale made a residual claim under s 17 of the Act. That section reads:

17 Sustenance of separate property

(1) This section applies if the separate property of 1 spouse or partner

(party A ) has been sustained by—

(a) the application of relationship property; or

(b) the actions of the other spouse or partner (party B). (2) If this section applies, the Court may—

(a) increase the share to which party B would otherwise be entitled in the relationship property; or

(b) order party A to pay party B a sum of money as compensation.

(3) This section overrides sections 11 to 14A.

[98] Because he had found in favour of Mrs Hale in her claim under s 9A(1), it was unnecessary for the Family Court Judge to consider the arguments advanced under this provision. Mr Hudson reiterated them on appeal, however, in case the Family Court’s rulings under s 9A(1) PRA were set aside on appeal. It has become necessary for me to deal with them.

[99] A full Bench of the Court of Appeal considered the application of s 17 PRA in Nation v Nation.33 The Court took an ordinary meaning approach to the definition of the word “sustained” in the section, adopting the observation of Cooke P in French v French,34 that:

In the ordinary sense, to sustain something is to keep it up or keep it going, and that is exactly what the wife helped to do with the farm, stock and plant.

[100] The Court of Appeal also noted that in French, Cooke P had suggested that a reasonably liberal use of the power under s 17 would go far to exclude injustice associated with the rigidities of the then s 9 of the Act.35

[101] The Court also endorsed the broadly similar approach taken by the Court of

Appeal in Hebberd v Hebberd.36

[102] French and Hebberd were farming cases, as was Nation. In each case, the wife worked on the farm. In French, the wife gave evidence that she did considerable work in helping with such activities as shearing, docking, drenching,

_{lambing, mustering, moving electric fences, moving stock, maintaining sheep yards,}

33 _{Nation v Nation [2004] NZCA 288; [2005] 3 NZLR 46; [2005] NZFLR 103; (2004) 23 FRNZ 783 (CA).}

34 _{French v French [1988] 1 NZLR 62 (CA), 65;}

35 _Ibid.

36 Hebberd v Hebberd [1992] 3 NZLR 517; (1992) 9 FRNZ 132 (CA).

helping with stripping and replacing fences, and with deferred maintenance such as clearing up of old scrap iron and old trees. In his judgment on the appeal, Cooke P said that, by the wife’s labours in helping the husband maintain his farm, stock and plant, she automatically helped him to earn whatever benefit there was by way of inflation. In that case, the Court agreed on a sum of $30,000 as a compromise under s 17 to which all three members of the Court were able to agree.

[103] The judgment of the High Court in Hebberd,37 provides little information as to the amount of work done by the wife. The marriage relationship lasted five-and- a-half years during which the couple lived on the farm which had been owned by the husband for some considerable time before he met the wife. In the High Court, the Judge found:38

It cannot be said that the wife’s actions or efforts helped to provide any of the funds used to purchase the assets [acquired out of separate property], nor in any real way to create or maintain them.

He declined to hold that the matrimonial property was applied to sustain them.

[104] The Court of Appeal observed, however, that the wife’s contribution to the marriage partnership by the work which she did from time to time on the farm no doubt contributed to the farm profits over the period.39 But the Court went on to say that the wife’s contribution must be regarded as having been reflected in the living expenses of the parties and in the standard of living which they were both able to enjoy. In those circumstances, the evidence did not establish that the wife’s

contribution “sustained” the farm and its associated assets within any meaning which could properly be attributed to that word. The wife’s claim under s 17 failed.

[105] In Nation, the Court said the following about the work done on the farm by the wife:

[131] In his judgment, Judge von Dadelszen recorded concessions made by the husband as to the work carried out by the wife. The husband accepted that "she was pretty involved in farm work". She would be left in charge of the farm for up to four or five days at a time when he went away on fishing

37 _{Hebberd v Hebberd (1987) 4 NZFLR 410..}

38 _{At 415.}

39 At 523.

trips. She dagged sheep, worked the dogs and mustered sheep. She dealt with lambs when they had the staggers. She helped with fencing, general work and irrigation around the farm. She was involved in spraying, mowing and irrigating the orchard and, in the later years of the marriage, she cleaned and administered for shearers.

[132] On even the most literal view of s 17, it is difficult to see how her actions could not be regarded as sustaining the farm and thus her husband’s separate property interest in it. For instance the work she did fencing and irrigating the property must be regarded as at least maintenance and therefore involving sustenance. Spraying and mowing the orchard are in the same category. When the husband was away fishing and she was running the farm, she was necessarily responsible for keeping the farm going and thus, in accordance with the approach taken by Cooke P in French, sustaining the farm.

[106] The Court concluded that it was clear, on those facts, that the wife’s work on the farm amounted to sustenance within the ordinary meaning of s 17(1). It made an allowance of $35,000 in respect of the wife’s contributions over a period of 28 years.

[107] The evidence in the present case shows much less of a contribution by Mrs Hale than was evidently made by the wife in Nation. I have already noted that the Family Court Judge found that neither Mr Hale nor Mrs Hale made much of a contribution to the running of the farm. Such contribution as each of them did make can be said to have been reflected in the extent to which retained profits were distributed through the shareholders’ accounts for living expenses and other payments which benefited both parties.

[108] In Nation, a much more significant effort on the part of the wife resulted in a relatively modest sustenance allowance of $35,000. In French, the Court agreed on a compensatory figure of $30,000, again on the basis of greater effort than there was in this case.

[109] Giving the meaning of sustenance derived from French and Hebberd, and taking the most liberal view possible in order to exclude any apparent injustice, I remain satisfied that the evidence in this case falls far short of justifying any award in Mrs Hale’s favour under s 17(1). Her application under that section is declined.

Result

[110] Mrs Hale’s cross-appeal on the classification of the bonus issue of shares to

Mr Hale is dismissed.

[111] Mr Hale’s appeals against the Family Court’s decisions as to the classification of the increase in the value of the farm company shares, and of the term deposit, are upheld. The judgment of the Family Court is set aside and judgment entered for Mr Hale as follows:

(a) All of Mrs Hale’s shares in DK Hale Limited, the farm company, are

relationship property.

(b) Mr Hale’s shares in the farm company are separate property.

(c) The $700,000 held on term deposit with the BNZ, in an account in the names of Mr and Mrs Hale, prior to the without prejudice distribution of $100,000, is Mr Hale’s separate property.

Costs

[112] The Family Court Judge made no order as to costs, although they had been sought by Mrs Hale in the event that her claim succeeded. She appealed against the Court’s failure to make a decision in that regard.

[113] As agreed by counsel at the hearing, the parties are invited to confer as to the payment of a contribution to costs in both the Family Court and this Court on appeal. In the event of there being no agreement, counsel for Mr Hale are invited to file a memorandum as to costs within 20 working days of the date of this judgment. Counsel for Mrs Hale shall have 20 working days from the date of service of any such memorandum in which to file and serve a memorandum in reply.

[114] Leave is reserved to either party to apply for such further or other orders as may be necessary to give effect to the substantive decisions on appeal.

..............................................

Toogood J