Tovey v Merwood [2012] NZHC 1800 (16 July 2012)

Last Updated: 28 July 2012

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2012-463-0001 [2012] NZHC 1800

BETWEEN CHRISTOPHER NOEL TOVEY Appellant

AND LYNETTE FRANCES MERWOOD Respondent

Hearing: 16 July 2012

Counsel: R O Gowing for Appellant

W Galvin for Respondent

Judgment: 16 July 2012

Reasons: 23 July 2012

_{JUDGMENT OF HEATH J}

This judgment was delivered by me on 23 July 2012 at 4.00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Gowing & Co, PO Box 548, Whakatane

_{Galvin Law Ltd, PO Box 33-1000, Takapuna}

TOVEY V MERWOOD HC ROT CIV 2012-463-0001 [16 July 2012]

The appeal

[1] Mr Tovey appeals against parts of a judgment delivered by Judge Geoghegan in the Family Court at Opotiki on 21 October 2011, in relationship property proceedings. The circumstances in which the Family Court Judge was asked to determine the issues were unusual.

Background

[2] Mr Tovey and Ms Merwood married in October 1987 and separated in 2003. On 13 November 2003, each of them signed an agreement designed to resolve questions of relationship property. Under that agreement, relationship property was to be divided as to 84% in favour of Mr Tovey with the balance of 16% to Ms Merwood. That was done because development work was required on one of the properties that they owned. Mr Tovey was prepared to take the risk of undertaking that development.

[3] On 5 March 2009, more than five years after the relationship property agreement was signed, Ms Merwood sought leave, from the Family Court, to apply to set aside the relationship property agreement.1 Leave was granted on 10 March

2010.2 Directions were made for a further hearing, at which the Judge would

determine whether the agreement should be set aside and, if so, what division of relationship property should be ordered.3

[4] On 27 May 2010, the solicitors for Mr Tovey wrote to Ms Merwood’s solicitors on a “without prejudice except as to costs” (Calderbank) basis.4 They said:

Mr Tovey is keen to avoid the cost of further litigation if the parties are able reach a settlement. He proposes that, subject to his ability to obtain lending from the bank, he pay your client a sum of $60,000.00 which he calculates

1 _{Property (Relationships) Act 1976, s 24(2) and (3).}

2 Merwood v Tovey FC Opotiki FAM 2009-047-26, 10 March 2010, (Judge Geoghegan) at para

_[33].

3 _{Ibid, at para [34].}

4. This is commonly called a Calderbank letter: see Calderbank v Calderbank [1975] 3 All ER 333 (CA) at 342-343.

would represent the unequal division of assets at the time of separation. His offer is made taking the following factors into account:

[5] On 31 May 2010, Ms Merwood’s solicitors responded, indicating that they required “full disclosure from [Mr Tovey] in regard to transactions relating to” the property to be developed, before they could “properly advise [their] client in regard to any settlement”.

[6] On 20 July 2010, also on a Calderbank basis, the solicitors for Mr Tovey wrote to Ms Merwood’s solicitors advising that, in their view, it was unnecessary for the solicitors to obtain the information sought to consider and advise Ms Merwood on the 27 May 2010 offer. Implicitly, this letter left the offer open for further consideration.

[7] On 26 October 2010, Ms Merwood made an application for specific discovery. It was determined on 20 March 2011. It was partly successful.5

[8] On 12 April 2011, Mr Tovey’s solicitors renewed correspondence about the offer of 27 May 2010, again on a Calderbank basis. They referred to the Court’s directions on discovery and provided further information. They concluded by stating:

We refer to our letter of 27 May 2010 and confirm that our clients proposal for settlement on the basis that he pay her $60,000.00 is still open.

The offer was not accepted before the substantive hearing began, on 31 May 2011.

The Family Court’s judgment

[9] At the time when Mr Tovey and Ms Merwood separated, they owned a residential property at Rawinia Place, Te Kaha. It had been purchased in March

1995 as bare land. Subsequently, they built a home and lived there. At the time that the relationship property agreement was signed, on 13 November 2003, this property

_{was listed for sale at $165,000. It was subject to a mortgage in favour of the Bank of}

5 Merwood v Tovey FC Opotiki FAM 2009-047-26, 20 March 2011 (Judge Geoghegan) at para

[19].

New Zealand of $43,000. The net proceeds of sale to which Judge Geoghegan referred took account of the mortgage and costs of sale.6

[10] Mr Tovey and Ms Merwood owned a second property, at Copenhagen Road, Te Kaha.7 They purchased that property in June 2003, for $105,000. It consisted of two parcels of land, one of which was owned outright by the parties and the other held by them jointly as tenants in common in equal shares with a neighbour. This was the property that Mr Tovey had been prepared (in November 2003) to take the personal risk of developing, in consideration of his wife accepting a fixed sum to

settle.

[11] Remaining relationship property consisted of two motor vehicles, a boat, furniture, household and personal effects.

[12] Judge Geoghegan explained the basis of the November 2003 agreement that had been reached between the parties, as evidenced by the written document:8

(a) ... Ms Merwood would sell the property at Rawinia Place, Te Kaha for the best price she could receive, and from the proceeds of sale would repay the mortgages outstanding over the Rawinia Road and Copenhagen Road properties and would then retain any money surplus to repayment of the mortgages and the costs of sale of the property. It was agreed that Ms Merwood could delay the sale of the property until she achieved “the list price of sale or better”. Until the sale Ms Merwood would be entitled to receive all income from the property and would be responsible for payment of “the Westpac mortgage and rates and insurance on that land”.

(b) ... Ms Merwood would, when required by Mr Tovey, execute a registerable transfer of her interest in the Copenhagen Road property (both Lots 2 and 3) to Mr Tovey. Mr Tovey was to be responsible for all payments in connection with the Copenhagen Road land and in particular “all instalments of principal and interest under any mortgage registered against the Certificate of Title, until the Rawinia Place house is sold, local body rates and insurance premiums, section payments and maintenance of the buildings on that land”.

(c) Subaru and Landcruiser motor vehicles and furniture, household and personal effects which, the agreement provided would be the separate property of the party in possession or control of that item of property as at the date of the agreement.

6 Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011 at para [97], set out at para

_{[18] below.}

7 _Ibid.

8 Ibid, at para [4].

(d) The agreement did not refer specifically to the boat which was owned by the parties and which, Ms Merwood has contended, has a value of some $25,000.

[13] Mr Tovey did, in fact, undertake development of the Copenhagen Road property. The development proved to be profitable. On 5 May 2006, he decided to pay a sum of $20,000 to Ms Merwood. At the same time, he also paid $10,000 to each of their two children. Mr Tovey was asked, in cross-examination, why he had paid the money to Ms Merwood:

A. When we had our original agreement, [Ms Merwood] asked me if I

did alright, could I give her some money and I said I would.

...

Q. And was there any discussion or advice from you to her as to why it was you were able to pay it at that time?

A. Yes I told her what I’d done with the sections.

Q. And had you informed her of any sales, not in particular but the fact that there were sales?

A. Yeah.

Q. And what was the arrangement you told her about paying the money to her?

A. That I’d keep my word and I would have it put across to her bank

account. (my emphasis)

[14] Ms Merwood sought to set aside the relationship property agreement on two broad bases. The first was that she had been induced to enter into it under duress. She asserted that her will had been overborne by domestic violence that Mr Tovey had perpetrated against her. The second was based on the gross disparity in sharing

of property, as evidenced by the agreement itself.9

[15] Judge Geoghegan rejected outright Ms Merwood’s suggestion that she had

signed the agreement under duress.10 The Judge specifically said “I do not accept

_{Ms Merwood’s evidence as to the domestic violence perpetrated upon her during the}

9 _{See para [2] above.}

10 Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011 at para [89].

course of the parties’ relationship”.11 However, he concluded that the gross disparity in division of property in favour of Mr Tovey amounted to a “serious injustice” that required the agreement to be set aside.12 The Judge considered that the “gross disparity” was:13

... likely to have arisen as a result of the understanding between the parties, as misguided as it was, that if one party left the other would be given an opportunity to continue developing the property. While that may have been the understanding of the parties, such an understanding [was] completely contrary to the rights of [Ms Merwood] under the Act.

[16] That finding meant that Judge Geoghegan was required to consider the basis on which relationship property ought to have been divided. Because Mr Tovey had acted in reliance on the agreement for many years, had undertaken a “significant number” of transactions based on it and had expended time and effort to improve the developed properties and to prepare them for sale, Judge Geoghegan considered “it would be unjust, some eight years after the parties entered their agreement to fix the

date of valuation at any date other than the date of the parties’ separation”.14 While

satisfied that the agreement should be set aside, the Judge was of opinion that the delay in seeking an order to that effect was unreasonable; any assessment of compensation would be reflected in an award of interest on any amount outstanding.15

[17] The Judge then determined the interests of each party in relationship property that existed at the date of the agreement. His assessment excluded a sum of $20,000 paid by Mr Tovey to Ms Merwood on 5 May 2006, out of the proceeds of sale of the developed property at Copenhagen Road, Te Kaha.16

[18] Judge Geoghegan concluded his judgment by saying:17

[97] Accordingly I assess the parties’ relationship property for the purposes

_{of the orders to be made to be as follows:}

11 _{Ibid, at para [54](a).}

12 _{Property (Relationships) Act 1976, s 21J(1) and Harrison v Harrison [2005] 2 NZLR 349 (CA).}

13 _{Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011 at para [74].}

14 _{Ibid, at para [95].}

15 _Ibid.

16 _{See para [13] above.}

17 Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011, at paras [97]–[99].

Value of Copenhagen Road property $105,000

Net proceeds of sale Rawinia Place $11,356

Value of boat $20,000

Total $136,356

Half share equals $68,178

Less sum already received by Ms Merwood $11,356

$56,822

[98] I have adopted the net proceeds of sale of the Rawinia Place property as the appropriate sum as the property was on the market for sale at the time of the parties’ separation and it is appropriate that the value of the property be referenced by way of the net proceeds of sale given that the sale was effected very shortly after separation. I have made no allowance for furniture, personal effects and other incidental items as there has been no evidence of value for those items.

[99] Accordingly I [make] the following orders:

(1) An order setting aside the relationship property agreement entered into between the parties dated 13 November 2003.

(2) An order requiring Mr Tovey to pay to Ms Merwood the sum of $56,822 together with interest on such sum at the rate of 6% per annum from the date of commencement of these proceedings to the date of judgment. I direct interest from the date of commencement of the proceedings because of the delay on the part of the applicant in commencing those proceedings.

(3) Given that each party has been successful to one degree or other in respect of the proceedings costs are to lie where they fall.

Grounds of appeal

[19] Mr Gowing, for Mr Tovey, submitted that the learned Judge erred:

(a) In holding that the sum of $20,000 paid to Ms Merwood in May 2006 ought not to be deducted from the amount otherwise paid to her, in terms of the judgment.

(b) In awarding interest in favour of Ms Merwood from the date of commencement of the proceeding (5 March 2009) to the date of judgment (21 October 2011).

(c) In directing that costs should lie where they fell.

[20] The second and third points are linked. They arise out of correspondence18 that was not before the Family Court Judge, who reserved costs without realising that any Calderbank offer had been made. The content of the correspondence is said to be relevant both to the time during which interest should run and whether costs should have been awarded in favour of Mr Tovey.

[21] Both counsel accepted that, as the Judge was unaware of the additional correspondence, he had approached questions of interest and costs on an incorrect premise. In recording that, no criticism is intended of the Judge, who was not expressly alerted to the need to reserve costs for further submissions.

[22] Given the amounts that remain in issue, counsel asked me to deal with the costs and interest points, rather than remit them for further consideration by the Family Court Judge.

Analysis

(a) The $20,000 point

[23] Although no detailed reasons were given by the Judge to explain why the

$20,000 was not brought to account, he did say:19

[96] ... As to the sum of $20,000 paid by Mr Tovey to Ms Merwood in 2006

I do not propose to take that into account as it was an ex gratia payment

made by Mr Tovey without reference to the agreement or the parties’

_{respective rights and obligations.}

18 _{See paras [5]–[8] above.}

19 Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011, at para [96].

[24] In the context in which the payment was made, against the backdrop of a relationship property agreement designed to effect a full and final settlement between Mr Tovey and Ms Merwood, the Judge’s characterisation of “ex gratia” is, undoubtedly correct. But once the agreement was set aside the foundation on which Mr Tovey’s promise to pay was made was removed. There was no reason why, if the parties had agreed to equal division, Mr Tovey would have promised to pay, “if [he]

did alright” in the development.20

[25] While it might be argued, as Ms Galvin did, that the Judge put the $20,000 payment to one side in order to achieve “a just division of the relationship property between the spouses”,21 in light of his decision to value as at the date of separation, such an intention cannot clearly be gleaned from the terms of his judgment.

[26] In my view, with respect to the Family Court Judge, he elided the rationale for making the $20,000 payment in the context of an agreement that settled relationship property claims, and the quite different circumstances that would have pertained on a hypothetical assumption that the parties had agreed to share equally in relationship property.

[27] In the absence of any foundation to regard the Judge’s decision as an attempt to ensure a “just division” of relationship property, I accept Mr Gowing’s argument that the Judge erred in failing to take account of the $20,000 payment in fixing the amount to be paid to Ms Merwood in satisfaction of her relationship property claim. The effect of that is to reduce the amount to which Ms Merwood was otherwise

_{entitled under the judgment to $36,822.}22

20 _{See para [13] above, first answer of Mr Tovey in cross-examination.}

21 _{Property (Relationships) Act 1976, s 1M(c).}

22 Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011 at para [97], set out at para

[18] above.

(b) The interest and costs points

[28] Mr Gowing relies on the Calderbank letters23 to found his submission that the Judge erred in the period of interest awarded and in directing that costs lie where they fall.24

[29] Mr Gowing submits that interest should be paid only from the date of issue of the proceedings (5 March 2009) to a date in reasonable proximity to the first offer (27 May 2010), by which time the offer ought to have been accepted. He submits that an order for costs would naturally follow in favour of Mr Tovey, if the Court were to accept his contention that the settlement offer was better than that achieved by Ms Merwood in Court and that, reasonably, it ought to have been accepted well before the hearing commenced.

[30] On the question of interest, Ms Galvin points out that Mr Tovey has had, and continues to have, the benefit of relationship property in his possession from the time of separation to the date of judgment. On costs, she alerts me to the fact that the Judge had reserved his decision as to costs on Ms Merwood’s successful application for leave to apply to reopen the agreement on 10 March 2010.25 When viewed on that global basis, Ms Galvin submits that an order that costs lie where they fall was appropriate.

[31] The approach to be taken to Calderbank offers was considered by the Court of Appeal in Health Waikato Ltd v van der Sluis.26 Delivering the judgment of the Court of Appeal, McGechan J said:27

The Calderbank letter procedure gained its first open recognition in England in Calderbank v Calderbank [1975] 3 All ER 333 , a case in the matrimonial jurisdiction where payment into Court was not “a course which would be appropriate” (p 342 per Cairns LJ). Albeit obiter, the English Court of Appeal approved (ibid) the possibility of a protected offer which could be disclosed after substantive decision as bearing upon costs. After some intermediate development, and some doubts, the possibility was revisited and refined in Cutts v Head [1984] 1 All ER 597. The Court recognised an

23 _{See para [32] below.}

24 _{Ibid, at para [99](2) and (3); set out at para [18] above.}

25 _{Merwood v Tovey FC Opotiki FAM 2009-047-26, 10 March 2010 at para [34](j).}

26 _{Health Waikato Ltd v van der Sluis (1997) 10 PRNZ 514 (CA).}

27 Ibid, at 520–521.

offer of settlement before trial, made without prejudice but expressly reserving the right to produce after substantive judgment on questions of costs, was available where issues extended beyond a “simple money claim”. For a claim of the latter variety, payment-in was the appropriate procedure. The practice gained some currency in New Zealand. This Court cautioned in Andrews v Parceline Express Ltd [1994] 2 ERNZ 385 (CA) that like restraint was needed in relation to damages at common law, including general damages for distress, arising from breach of contract. The defendant in that case had made a Calderbank offer of $30,000, each side to bear its own costs. On appeal, plaintiff's damages were upgraded to $29,000. This Court, per Tipping J, observed (at p 398):

While we heard no argument on the point we consider that Calderbank letters must not be allowed to subvert the rules relating to payment into Court. The present was a straight money offer and we can see no reason why at an appropriate time a payment into Court could not have been made. In hindsight, and even without it, Mr Andrews would have been wise to accept the offer made by Parceline as long ago as July 1991. However, Parceline cannot claim the costs advantage of a payment into Court.

The Court awarded the plaintiff and appellant Mr Andrews some costs (at p

399),

but ... tempered as to quantum in the light of the pre-trial offer and the fact that the original claim was on any view of it completely unrealistic.

[32] Van der Sluis was decided before Calderbank offers were expressly recognised by rules of Court dealing with costs.28 The Family Court’s jurisdiction to take account of Calderbank offers can be found in r 207(2)(i) of the Family Courts Rules 2002, with reference to rr 4.10 and 4.11.1 of the District Courts Rules 1990:

207 Costs at discretion of Court

...

(2) In exercising that discretion, the Court may apply any or all of the following DCRs, so far as applicable and with all necessary modifications:

...

(i) 4.10—written offers without prejudice except as to costs:

_...

28 Ibid, at 521. Although judgment was given on 13 May 1997, the issue had arisen before 1

February 1996 when r 46A of the High Court Rules first identified letters sent on a “without prejudice, save as to costs” as a factor to be taken into account in determining costs: particularly r 46A(2)(b). In any event, the new rule would not have applied in that case as the proceeding was heard at first instance in the Employment Court.

4.10 Written offers without prejudice except as to costs

4.10.1 A party to a proceeding may at any time make to any other party to the proceeding a written offer that—

(a) is expressly stated to be without prejudice except as to costs;

and

(b) relates to an issue in the proceeding.

4.10.2 The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.

4.11.1 Effect on costs

4.11.1 The effect (if any) that the making of an offer under rule 4.10 has on the question of costs is at the discretion of the court.

...

[33] In terms of r 4.11.1, the Calderbank correspondence is no more than a factor relevant to costs. In the context of this case, it is significant that none of the letters stated expressly whether costs or interest down to the date of the offer were to be paid in addition to the amount offered. Nor did they identify a period of time within which the recipient was required to consider the offer and respond.

[34] Mr Tovey offered $60,000 to settle the dispute. Once the $20,000 payment is brought to account, Ms Merwood received a judgment for 36,822. The first offer was made on 27 May 2010, over two months after Judge Geoghegan found in favour of Ms Merwood when she sought leave to apply to set aside the relationship property

agreement.29 No allowance was made in the letter of 27 May 2010 for costs incurred

in relation to that application, in respect of which Ms Merwood was successful.

[35] Judge Geoghegan, without knowing of the Calderbank letters, ordered interest from the date of commencement of the proceeding, rather than the date of separation. That gave Mr Tovey an advantage of not paying interest for a period of over five years. There is nothing in the Calderbank correspondence which, in my view, suggests that a different approach should be taken. Interest is ordered to

_{compensate a person for the time that he or she has been kept out of money to which}

29 See para [3] above.

they were entitled.30 In my view, the Calderbank letters have no relevance to the question of interest. For that reason, I would not disturb Judge Geoghegan’s decision in that regard.

[36] On the question of costs, the existence of the Calderbank offers is more problematic. Even though it is likely, arithmetically, that Ms Merwood would have achieved a better result by accepting Mr Tovey’s offer at some time between 27 May

2010 and 30 April 2011 (being a reasonable time after the letter of 12 April 2011 was sent), the fact that no allowance was made for costs in respect of the defended application for leave to bring an application for an order setting aside the agreement indicates that the difference, when one takes account of interest, was probably marginal. In those circumstances, I consider that, even if he had known of the Calderbank correspondence, Judge Geoghegan would have reached the same decision. It is one with which I agree and would not, in any event, reverse on appeal.

Result

[37] For those reasons, the appeal is allowed. The order requiring Mr Tovey to pay Ms Merwood the sum of $56,822 together with interest is set aside. In substitution, the following order is made:

Mr Tovey shall pay to Ms Merwood the sum of $36,822 together with interest on such sum at the rate of 6% per annum from the date of commencement of the proceedings (5 March 2009) to the date of judgment.

[38] The order setting aside the relationship property agreement and the order that costs lie where they fall remain intact.31

30 See Junior Farms Ltd v Cavendish Real Estate Ltd (in liq) CA218/04, 12 April 2006 at para

_{[89], applying Day v Mead [1987] 2 NZLR 443 (CA) at 463.}

31 Merwood v Tovey FC Opotiki FAM 2009-047-26, 21 October 2011 at para [99], set out at para

[18] above.

[39] Mr Tovey has succeeded on the most substantive point. He is entitled to costs on the appeal. They are awarded on a 2B basis, together with reasonable

_{disbursements, both to be fixed by the Registrar.}

_{P R Heath J}

Delivered at 4.00pm on 23 July 2012