BJB v PB [2012] NZHC 1951; [2012] NZFLR 780 (6 August 2012)

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NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION PLEASE SEE WWW.JUSTICE.GOVT.NZ/FAMILY/LEGISLATION/RESTRICTIONS.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-001526 [2012] NZHC 1951

IN THE MATTER OF In the matter of the Property

(Relationships) Act 1976

BETWEEN B J B

Appellant

AND P B

Respondent

Hearing: 2 August 2012

Appearances: D A T Hollings QC and R P McCutcheon for the Appellant A E Hinton QC and C A Lintott for the Respondent

Judgment: 6 August 2012

This judgment was delivered by me on 6 August 2012 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.

he appellant appeals against a decision of Judge McHardy in the Family Court on 22 February 2012 declining her application pursuant to s 25(3) of the Property (Relationships) Act 1976 (the Act) for an interim distribution of relationship property in the sum of $1 million. The application was declined because:

here is a significant dispute as to the extent and value of relationship property;

here is a dispute as to whether the funds held in the foreign currency bank accounts, from which the interim distribution could be met, are relationship property or the separate property of the respondent; and

he appellant had not demonstrated a need for an interim distribution of $1 million.

he appellant appeals on the grounds that the Family Court erred in reaching these conclusions.¹The appellant seeks an order setting aside the decision of the Family Court and an order requiring the respondent to make an interim distribution of $1 million or such lesser sum as the Court considers just.

he appellant also appeals against the Judge’s direction requiring the removal of two of the respondent’s affidavits from the Court file.

TTTThe parties married in 1990 and separated on 29 June 2011. The respondent was an independently wealthy retired German lawyer at the time of the marriage. He had been married twice before his marriage to the appellant and had also had a defacto relationship with another partner. He had three children from two of these earlier relationships.

¹The grounds in the notice of appeal do not specifically refer to the third reason given by the Judge for declining the application listed at “c” above but the appellant argued at the hearing of the appeal that the Judge erred in this respect as well. The respondent did not object to this issue being raised in support of the appeal and I therefore consider it.

he appellant, who was 24 at the time she married the respondent, was a school teacher. Neither of the parties has worked since the marriage. Apart from inheritances contributed by the appellant totalling $330,000, the parties have lived off the capital that the respondent had accumulated prior to the marriage and the income from this capital. The parties have two daughters now aged 19 and 17 years. The older daughter is studying at university and lives with the respondent in the former family home. The younger daughter is in her last year at secondary school and lives with the appellant in rented accommodation.

wo foreign currency bank accounts in the parties’ joint names with a combined balance of approximately $4.4 million;

hree properties in Germany registered in the appellant’s name estimated to be worth approximately $3 million. One floor of one of these properties is tenanted;

$115,000²from a joint cheque account before freezing all joint accounts so that

²The appellant contends that the amount withdrawn was $100,000. The respondent refers to three withdrawals from the cheque account of $100,000, $10,000 and $5,000.

neither party could make further withdrawals, other than the sum of $100,000 which the appellant allowed the respondent to access.

he appellant’s application in the Family Court was for an order directing an interim division of the relationship property to her of $1 million to be satisfied either by the sale of the family home or by payment from the foreign currency accounts. The appellant submitted that the interim payment should be ordered having regard to the appellant’s needs and circumstances, her likely share of the relationship property and the length of time before the substantive claim would be heard.

n her supporting affidavit, the appellant stated that she needed $1 million “as soon as possible” to meet various expenses. These included outgoings relating to the German properties. She explained that if utilities are not paid in Germany “they are dug up and cut off and can be very expensive to re-establish”. She said that she was also concerned about any taxes she may have to pay in Germany in relation to the income from the tenanted property. She stated that she also needed money to meet mounting legal costs, school and tuition fees for her daughter and living expenses including rent. The appellant estimated that she would run out of money by Christmas 2011.

he appellant filed a further affidavit sworn on 31 January 2012 updating her financial position. At that stage only $26,000 remained of the $115,000 she had withdrawn at the end of June 2011. Approximately $35,000 had been paid in legal fees. This did not take into account legal fees associated with the application for interim distribution which were estimated to be another $20,000. She had also met school and tuition costs for the parties’ younger daughter and had other living expenses including rent. The appellant stated that she would like to buy a home but that $1 million would not be sufficient to enable her to purchase a house in a “good suburb” where she would be prepared to live.

he respondent was self-represented until sometime shortly prior to the hearing of the application for interim distribution. Having retained legal counsel he

prepared an affidavit sworn on 9 February 2012 in which he made a proposal to enable the appellant’s stated needs to be met. He proposed that school and tuition fees could be met from the income generated by the tenanted property in Germany and that he and the appellant both receive a further $100,000 payable in instalments of $10,000 per month from the foreign currency accounts to enable both parties to meet their living expenses and legal costs. He was opposed to converting unnecessarily large sums from Euros to New Zealand dollars at the unfavourable exchange rate currently prevailing.

he Judge summarised the legal principles applicable when considering an application for an interim order pursuant to s 25(3) of the Act at [10] of his judgment:

The general principles applying to s 25 of the Act are therefore fairly well understood:

he Court’s discretion under s 25(3) [is] wide. When exercising its discretion the Court is not constrained by the factors it can take into account;

ustice to the parties in their particular circumstances is therefore a key consideration in applications for interim distribution;

he amount of any distribution and whether there should be one, to one or both parties is discretionary;

he Court should not vest in a spouse more than that spouse is likely to get on a final order;

he effect of any interim distribution is final even though it is described as interim. It becomes [the] separate property of the party receiving it and it cannot be revisited or recalled;

he Judge noted that the Court would need to be satisfied that any interim distribution would leave sufficient assets available to satisfy any eventual determination of the other party’s share, recognising that at the time of the application for interim distribution there may be substantial unresolved disputes about the extent and value of that share.

rs Hinton QC, for the respondent, advised that the appellant did not pursue her application for an order for sale of the family home in the Family Court. Mr McCutcheon, who appeared for the appellant in the Family Court, did not contradict this. It appears that the application was dealt with on the basis that any interim distribution would be funded from the foreign currency bank accounts.

he Judge noted that there was a dispute as to whether the foreign currency accounts were relationship property. The respondent’s evidence was that the monies in these accounts were sourced from distributions paid to him as the sole shareholder of companies in Lichtenstein, two of which were liquidated in 2007. There appears to be no dispute that the respondent’s shareholding in those companies was his separate property. The monies were then transferred into accounts held in the joint names of the appellant and himself. The respondent says that this was done to ensure that in the event of his death the monies would pass to the appellant and not be available to meet any claims by his former wives or his children from earlier relationships. In the meantime the monies were to be held on trust for him alone pursuant to an express trust. The respondent claims that he beneficially owns the monies in those bank accounts and that they remain his separate property.

he Judge rejected the appellant’s submission that the foreign currency accounts were unquestionably relationship property in terms of s 8(1)(c) of the Act simply because they were held in the parties’ joint names. The Judge stated that he was not able to determine the dispute as to the correct classification of these accounts at the interim hearing. He considered that the evidence would need to be tested before any classification could be made.

he Judge was not prepared to exercise his discretion to make the interim distribution given the significant dispute as to the extent and value of relationship property. He did not consider that it would be appropriate to order the release of

$1 million from the foreign currency accounts in view of the respondent’s claim that those accounts were beneficially owned by the respondent as his separate property. He was also not persuaded that the appellant had demonstrated a need for an interim distribution of $1 million. He accordingly dismissed the application.

here was no dispute as to the correct approach to be taken in dealing with this appeal which is an appeal from the exercise of a discretion. The Court will not interfere with the exercise of the discretion unless it can be shown that it was exercised on an incorrect principle or that the Judge took into account irrelevant considerations or failed to take into account relevant considerations or was plainly

he appellant accepted that the Judge correctly stated the law relating to the exercise of his discretion to make an interim distribution of property pursuant to s 25(3) of the Act. However, Ms Hollings QC, for the appellant, submitted that the Judge erred in the following respects:

n considering that the foreign currency accounts might be the respondent’s separate property despite being held in the joint names of the parties;

n considering that the respondent might be able to demonstrate extraordinary circumstances justifying an unequal sharing of the family home pursuant to s 13 of the Act; and

n overlooking the evidence as to the appellant’s financial position and concluding that the appellant had not demonstrated a need for the interim distribution sought.

s Hollings initially submitted that the foreign currency accounts must be classified as relationship property because they are held in the joint names of the parties. On that basis she submitted that the bank accounts would have to be classified as relationship property pursuant to s 8(1)(c) of the Act as property owned jointly by the parties. However, during the course of the hearing, she acknowledged that the mere fact that the accounts are in joint names is not determinative of the issue. She recognised the important distinction between beneficial ownership and legal title and conceded that the respondent’s evidence regarding the alleged express trust would need to be tested before any final determination of the correct classification of this property could be made.

owever, Ms Hollings submitted that the foreign currency accounts would nevertheless have to be classified as relationship property, even accepting the respondent’s evidence, because of s 8(1)(d)(ii) of the Act which provides:

(d) all property owned by either spouse or partner immediately before their marriage... if –

(ii) the property was intended for the common use or common benefit of both spouses or partners.

s Hollings argued that the foreign currency accounts come within s 8(1)(d)(ii) because the funds in those accounts were used by the parties to meet their living expenses during the marriage. She argued that the money in these accounts is therefore relationship property and that the appellant is entitled to an equal share of those accounts. In those circumstances, she submitted that an interim distribution of $1 million was fully justified.

rs Hinton acknowledged that funds withdrawn from the accounts and used by the parties during the course of their marriage became relationship property. However, she argued that the funds remaining in these accounts were never intended for the common use or benefit of both parties. On the contrary, she submitted that

the parties expressly agreed that these funds were to be held on trust for the respondent and were to remain his separate property.

do not accept that the matter is as straightforward as the appellant suggests. I agree with the Judge that the proper classification of these accounts will depend on the facts determined at the substantive hearing. Based on the respondent’s evidence, it is at least arguable that the funds in these accounts remain his separate property. That is a matter that cannot be determined in the context of an application for interim distribution.

iven the respondent’s contention that the foreign currency accounts are his separate property, I agree with the Judge that it would not be appropriate to order an interim distribution to the appellant of $1 million from those accounts. I cannot see any error in the approach taken by the Judge on this issue.

y conclusion on this issue is sufficient to dispose of this appeal given that the Judge was not asked to direct a sale of the family home. However, for completeness, I now consider the other arguments advanced by the appellants.

rs Hinton submitted in the Family Court that if the appellant succeeded in a German court in establishing that the three German properties were the appellant’s sole property this would be one of the circumstances the respondent would rely on in arguing that there are extraordinary circumstances justifying an unequal sharing in the family home pursuant to s 13 of the Act. She contended that if the respondent succeeded with his extraordinary circumstances claim, the appellant might receive no more than 10 percent of the relationship property in New Zealand.

s Hollings submitted that the Court would not be entitled to have any regard to the German properties when considering a division of relationship property in New Zealand. She relied on the Court of Appeal’s decision in

Samarawickrema v Samarawickrema.⁴McKay J, who gave the judgment of the Court, stated at page 20 of the report of the judgment:

Section 7(1) goes further than merely to preclude a classification of a foreign immovable or an order as to its disposition. It precludes any interference by a New Zealand Court in the rights of the spouses in respect of the foreign immovable under the lex situs. The Court may in some circumstances be able to have regard to the existence of the foreign immovable to the limited extent indicated in Enright v Fox, but in doing so it must be careful to ensure that it is not applying to the foreign property the philosophy of the New Zealand statute. The claims in respect of the foreign property are to be decided by the local law, and should not be the subject of compensating adjustments in respect of the New Zealand assets to ensure that the final division of the total assets reflects a New Zealand approach.

he decision in Enright v Fox⁵has no application in the present case. It concerned the application of s 16 of the Act which enables the Court to adjust the shares of spouses in any relationship property in circumstances where both parties had a home capable of becoming a family home at the time of the marriage but the home of only one spouse is included in the relationship property at the time of division.

do not accept Ms Hollings’ submission that a foreign immovable can never be taken into account when considering the division of relationship property. Once the sharing proportions have been determined the foreign immovable may not be taken into account as if it were relationship property in determining the division of such property unless s 16 applies. However, that does not mean that the foreign immovable could not be taken into account when considering an extraordinary circumstances claim under s 13.

Section 11 provides for the equal division between husband and wife of the matrimonial home and family chattels, unless there are “extraordinary circumstances” under s 14 which render equal sharing of any such property “repugnant to justice”. Section 15 provides that other matrimonial property is to be shared equally, unless the contribution of one spouse to the marriage partnership has been “clearly greater” than that of the other, or in cases falling within s 13 or s 17. Where there are “extraordinary circumstances” under s 14 or “clearly greater contribution under s 15, then the shares are to

be determined in accordance with the contributions to the marriage partnership. What are to be regarded as contributions are set out in s 18. Section 16 enables the Court to make an adjustment where the home of only one spouse is included in the matrimonial property, but at the date of the marriage each spouse had a home capable of being a matrimonial home.

These sections provide the only grounds for departing from the equal division of the matrimonial property. If either or both spouses have foreign immovables, the questions which can arise are: whether they can provide an “extraordinary circumstance” under s 14; whether the contribution of one spouse to foreign immovables in the name of the other can be considered in comparing the contributions to the marriage partnership under s 15; and whether a foreign immovable can be considered under s 16 as a home capable of being a matrimonial home, so as to allow an adjustment to be made. Once the sharing proportions have been established, the matrimonial property must be divided in accordance with those proportions.

As long as it [the foreign immovable] was not classified under the Act, or any order made directly or indirectly affecting its existence and any dealings with it, it could be taken into account for the purposes of s 16, and indeed of s 14.

note that in his written submissions to the Family Court, Mr McCutcheon did not exclude the possibility of a successful claim being made under s 13 of the Act justifying unequal sharing because of extraordinary circumstances. He argued that this was unlikely to be successful, not that it could not conceivably succeed.

he Judge made no comment on the respondent’s submission regarding the German properties or whether they could be taken into account as part of an extraordinary circumstances claim. He simply noted that there was a dispute as to the extent and value of relationship property. He dealt with this at [22] of his judgment:

The purpose of this interim hearing is not to make determinations as to classifications of property, or particularise the values of certain assets. Regard has to be had however to these issues. If there is a clear picture emerging from the evidence then the discretion to award interim distribution would normally be exercised. However there is a significant dispute as to what is the relationship property pool and what is its value. Given this situation the Court cannot in my view exercise its discretion to make an interim distribution. Also there is merit in Mrs Hinton QC’s submission as to the lack of demonstrated need or purpose. That application must fail.

r McCutcheon filed detailed written submissions in the Family Court in support of the appellant’s application for an interim distribution of $1 million. It should be noted that this interim distribution was sought in addition to what were described as “ancillary orders” requiring the respondent to pay the private school fees and directing payment from the foreign currency accounts of outgoings on the German properties and the re-establishment of any utilities that may have been “dug up and cut off”. The appellant also sought spousal maintenance but that application was deferred for later consideration by agreement of the parties.

rs Hinton submitted in the Family Court that the originally stated need for the interim distribution of $1 million was to enable the appellant to buy a house. Mrs Hinton was unable to point to any evidential basis for this submission in the materials available to me for the purposes of this appeal other than the appellant’s evidence, referred to above, that $1 million would not be sufficient to enable her to purchase a house in a “good suburb”.

rs Hinton also submitted in the Family Court that there was no need for an interim distribution of $1 million to meet current living expenses and legal costs because such expenses could be met by the respondent’s offer to release $100,000 to each of the parties in instalments of $10,000 per month.

n these circumstances the Judge considered that there was merit in Mrs Hinton’s submission that there was no demonstrated need or purpose for an immediate interim distribution of $1 million.

s Hollings submitted that the Judge erred in failing to take into account the evidence showing that the appellant needed the interim distribution she had sought.

She submitted that the appellant needed the distribution to meet living costs for her and her daughter and for legal fees.

he Judge did not overlook the appellant’s evidence but considered that an immediate payment of $1 million was not required to meet the needs described by the appellant in her affidavits. The respondent’s offer appears to be sufficient to meet the appellant’s needs for living expenses and legal fees. The Judge’s conclusion on this was available on the evidence. I cannot see any error on the part of the Judge in concluding that no immediate need for an interim distribution of

t is clear from the judgment that the Judge’s primary reason for declining to order an interim distribution of $1 million to the appellant was that he was not persuaded that the foreign currency accounts, from which the distribution was to be funded, were unquestionably relationship property. He considered, rightly in my view, that it would be inappropriate to order an interim distribution from those accounts prior to the determination of their proper classification. That left the family home as the only available asset from which the interim distribution could be made.

rs Hinton advised that the Judge was told by Mr McCutcheon that the application for sale of the family home was not being pursued. Mr McCutcheon did not dispute this. It appears from the judgment that this is how the Judge dealt with the application. In those circumstances, the Judge cannot be criticised for not directing the sale of the family home.

inally, the Judge was not persuaded that the appellant had demonstrated a need for an immediate distribution of $1 million for her living expenses and legal fees. That conclusion was available on the evidence.

he Judge made no error of law. He did not take irrelevant matters into account or disregard relevant matters. His decision not to exercise his discretion to order an interim distribution of $1 million was not plainly wrong and cannot be

interfered with. The appeal against the Judge’s refusal to make such a distribution must therefore be dismissed.

he appellant objected to the content of an affidavit sworn on 9 September 2011 and filed by the respondent in the Family Court. She applied on 3 October 2011 for an order that the Court decline to read this affidavit or alternatively for a direction that it be replaced by an affidavit removing inadmissible statements including those which she argued were irrelevant, abusive and unnecessarily argumentative. The application was made pursuant to r 158 Family Courts Rules 2002 which provides that the Court may decline to read an affidavit prepared in breach of the Rules.

he appellant’s application in relation to the affidavit was discussed at a judicial issues conference held on 1 November 2011. The Judge’s minute following that conference noted at [6]:

There is an issue as to whether or not the respondent’s affidavit of 9 September 2011 should be not read. The respondent asked to re-write it. The applic[ant] is not pursuing that issue, however the message should be quite clear to the respondent that some of the contents of that affidavit are unacceptable to this Court as being irrelevant or unnecessarily personal and abusive. It is expected that in future, affidavits will deal with the issues, rather than personalities, otherwise there may be cause for the Court to again consider whether or not affidavits should be removed. That affidavit is to remain at this time.

he issue was raised again at the conclusion of the hearing of the application for interim distribution. The Judge dealt with the matter in [24] of his judgment as follows:

There were preliminary issues raised by Mrs Hinton which need to be dealt with here;

(i) The applicant had made an application to have the respondent’s affidavits filed prior to Ms Hinton’s involvement removed from the Court file. The respondent consents to those affidavits being removed and this is to be

actioned by the registrar. The affidavit of 9 February 2012 replaces those affidavits.

he Judge did not refer to a memorandum dated 13 February 2012 filed by the appellant after the hearing in which she objected to the removal of the respondent’s affidavit from the Court file and noted that the appellant’s earlier application related only to the affidavit sworn on 9 September 2011 and not to the further affidavit of the respondent sworn on 31 October 2011.

he appellant appeals this aspect of the judgment as well. She submits that the Judge erred in directing the removal of these affidavits and she seeks an order that they are to remain on the file.

rs Hinton acknowledges that the affidavits may be able to be used by the appellant in cross-examination of the respondent. She submitted that the affidavits contain inadmissible and objectionable material in breach of the Rules and have now been replaced with new affidavits.

he Judge had power under r 158 to direct that the affidavits not be read. He also had power to determine the admissibility of them under r 170. He was entitled to find that the affidavits were in breach of the Rules and that significant sections of them were inadmissible. The appellant herself had made that very submission in support of her application for an order that the 9 September 2011 affidavit not be read and be rewritten. The affidavits can be used by the appellant for the purposes of cross-examining the respondent. I cannot see what other purpose they might now serve given that they have been replaced with affidavits which do comply with the Rules. I consider that the order made by the Judge was available to him and I am not prepared to interfere with it.

f any party seeks costs, they should file and serve a memorandum within seven days of the date of the issue of this judgment. Any memorandum in response should be filed and served within seven days thereafter.

High Court of New Zealand Decisions

BJB v PB [2012] NZHC 1951; [2012] NZFLR 780 (6 August 2012)