Potter v Duffy [2015] NZHC 2996 (27 November 2015)

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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 HTTP://WWW.JUSTICE.GOVT.NZ/COURTS/FAMILY- COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.

BETWEEN	TERI ANNE POTTER Plaintiff
AND	MARK FRANCIS DUFFY First Defendant THE TRUSTEES OF THE DUFFY TRUST - being TERI ANNE POTTER, MARK FRANCIS DUFFY and LE PINE TRUSTEES LIMITED _{Second Defendants}

Hearing:	19 & 20 November 2015
Appearances:	E Eggleston for the Plaintiff First Defendant in person Second Defendants - appearances excused
_Judgment:	_{27 November 2015}

This judgment was delivered by me on Friday 27 November 2015 at 5.00 pm pursuant to Rule 11.5 of the High Court Rules.

[1] The plaintiff applies for orders dividing a limited pool of relationship property and devolving certain trust property (comprising principally an orchard and dwelling in which she and the first defendant have lived together, albeit separated, for an extended period) on two separate trusts. The second of these applications proceeds, alternatively, in the Court’s inherent jurisdiction and in a claim for specific performance arising out of Trust Deed provisions directed to what would occur in the event the parties’ relationship came to an end. She then seeks orders (alternatively in the Court’s inherent jurisdiction and under s 339 of the Property Law Act 2007) for sale of the trust property and division of the proceeds to the respective new trusts. Certain supplementary orders are sought in terms of balancing payments between the trusts.

[2] During the course of hearing, the parties responsibly reached agreement in relation to many of the issues between them. Two consent memoranda were entered into relating, respectively, to relationship property and trust property. A further “Deed recording Resolution of Duffy Trust” was also executed by the parties.

[3] In respect of the relationship property, I am satisfied that in so far as agreement was possible, the position reached by the parties was fair and reasonable and in accordance with the provisions of the Property (Relationships) Act 1976 (the Act). I make orders by consent accordingly.

[4] In relation to the Trust assets, agreement was possible in respect of a sales process for the orchard property, disposition of various other assets, repayment of the Trust’s liabilities, various adjustments to the parties’ current accounts and for the balance (after the Court’s adjudication on outstanding issues) to be resettled to new trusts as envisaged by the Trust Deed.

(a) The plaintiff’s claim under s 18B of the Act in the amount of $20,000 for post-separation contributions in the form of child care.

(b) The status (whether relationship or separate property) of a coffee roasting machine acquired pre-separation.

(c) The plaintiff’s claim for a share of profits derived post-separation by the first defendant’s operation of the coffee roasting machine.

(a) The first defendant’s claim that an adjustment be made in the respective current accounts to reflect his input into the maintenance and management of the orchard in the period post-separation to the extent it allegedly exceeded the plaintiff’s input by way of financial management and bookkeeping.

(c) Whether an adjustment in the current accounts is required to reflect a debt allegedly owed to the Trust by a mini-digger business established by the first defendant post-separation.

(d) Whether a parcel of Zespri shares identified in the accounts are trust assets.

[7] The parties commenced living together in or about 1980.¹They have two children now aged 24 and 21. Both parents enjoy good relationships with their children. In an early affidavit the first defendant described the plaintiff as a “perfect” mother. She has clearly been very attentive to her children’s needs over an extended period.

[8] For many years the parties have lived on an orchard property on the outskirts of Tauranga which was originally owned in partnership by the first defendant and his late mother (the M F & R I Duffy Partnership). This property was settled on the Duffy Trust by way of Family Court orders dated 26 March 2002.

[9] Two dwellings had earlier been moved onto the property and incorporated into one. This provided substantial (albeit largely unrenovated) accommodation for the family.

[10] In 2000 a coffee roasting machine and grinders were acquired. Thereafter the first defendant operated a hobby business supplying various cafes. The activity appears to have ceased around 2007.

[11] In February 2004 the parties separated. A subsequent short period of attempted reconciliation was unsuccessful, but the parties have continued (for the most part) to live at the Tauranga property, albeit in different wings of the house with a communal kitchen.

[12] Approximately 3.63 hectares of the property’s total area of 9.8 hectares is planted in organic Haywood (green) kiwifruit. Throughout the relevant period mowing, mulching, spraying, fertilising and, for the most part, practical management of the orchard has been undertaken by the first defendant. For her part, the plaintiff has seen to all the associated book work including preparing bank statements, preparing two monthly GST returns and compiling relevant information for year-end financial and tax returns. The orchard has provided some income to the Trust which

proceedings, the plaintiff’s total drawings since separation were $94,167 and those of the first defendant $119,073. The first defendant accepts, however, that two thirds of the plaintiff’s drawings can be attributed to care and support of the children. This agreement is reflected in the “Deed Recording Resolutions of Duffy Trust” referred to in [2] above.

[13] From the plaintiff ’s evidence and from the report of an independent valuer it is, however, clear that the orchard is in a suboptimal condition with poor production rates for its locality. The first defendant attributes this to the absence of resources to undertake required repairs and maintenance, fertilising, etc. The plaintiff says that it is because the first defendant is demotivated and has many other commitments. My assessment of the evidence is that there is some truth in both propositions.

[14] Both prior to and subsequent to the separation, the first defendant undertook a variety of outside employment. This enabled him to maintain a reasonably comfortable lifestyle for the family and, in the period post-separation, for himself. For her part, the plaintiff ’s post-separation income was supplemented by receipt of a benefit. She has a number of serious health problems.

[15] Since separation I am satisfied that the plaintiff has been the primary caregiver for the children. They resided with her in her “wing” of the house, she was the parent who attended to their day to day needs, fed and clothed them, holidayed with them at Mt Maunganui, attended the parent teacher evenings and all the many other responsibilities of a primary caregiver. For his part, the first defendant was often away from the property on account of outside work commitments and, after the separation, he also had several other relationships which resulted in his absence from time to time. In cross-examination he accepted that, post-separation, he was absent approximately 50 per cent of the time and he accepted that the plaintiff was the primary caregiver 90 per cent of the time.

[16] During the period April 2004 to March 2006 the first defendant paid child support of $5,682.75 but there were no payments thereafter.

[17] On 21 December 2012 the plaintiff sought orders for division of relationship property in the Family Court. Those proceedings were transferred to the High Court in June 2014 on account of the Trust issues which also required determination.

[18] In February 2015 the plaintiff sought, by way of summary judgment, orders for the sale of the property and the division of the proceeds of sale. That was declined by Associate Judge Bell in a decision delivered on 24 March 2015. He held that ownership by trustees in a single trust did not lend itself to division under s 339 of the Property Law Act.

[19] Following release of that judgment, the plaintiff’s solicitors wrote to the first defendant seeking resettlement of the Trust on two new trusts as provided for in the Trust Deed. No response was received. In consequence the claim was amended to include the claims for specific performance and exercise of the Court’s inherent jurisdiction previously referred to. At the same time, the plaintiff abandoned various other relationship property claims.

[20] This is dated 22 January 2002. The relevant provisions for present purposes are cls 4.1, 6.1 and 8.1 which are in the following terms.

4.1 Distribution: The Trustees may, after payment of all expenses and other charges to be met from income, and after making or retaining out of, or charging against, the income of the Trust Fund any payments, reserves or other provisions for any of the purposes of the Trust:

(a) pay or apply all or any part of the income of the Trust Fund to or for the benefit of such one or more of the Discretionary Beneficiaries who are then living or in existence;

(b) appropriate all or any part of the income of the Trust Fund to or for the benefit of for such one or more of the Discretionary Beneficiaries who are then living or in existence, contingently upon the reaching of a specified age, or the happening of a specified event.

PROVIDED ALWAYS that as between the Settlors any payment application or appropriation to the other of them as a Beneficiary shall be matched by an equal payment application or appropriation of the other of them.

(a) pay or apply all or any part of the capital of the Trust Fund to or for the benefit of such one or more of the Discretionary Beneficiaries who are then living or in existence;

(b) appropriate all or any part of the capital of the Trust Fund to or for the benefit of such one or more of the Discretionary Beneficiaries who are then living or in existence contingently upon the reaching of a specified age or the happening of a specified event.

(c) In exercising their discretion with regard to distribution of all or any part of the capital of the Trust Fund the Trustees shall refer to but shall not be under any legally binding obligation to act in accordance with any Memorandum of Wishes addressed to them by the Settlors from time to time, or in accordance with any provisions of the Wills of the Settlors if known to them prior to the death of the Settlors.

PROVIDED ALWAYS that as between the Settlors any payment application or appropriation to one of them as a Beneficiary shall be matched by an equal payment application or appropriation to the other of them.

8.1 In the event of an irreconcilable dispute or marriage breakdown or dissolution or cessation of the relationship between the Settlors, the Trustee shall be compellable to transfer one half of the trust funds to the trustees of a Trust nominated by MARK FRANCIS DUFFY such Trust being on the same terms as this Trust but excluding TERI ANNE POTTER as a beneficiary and the provisos to clauses 4.1, 6.1 and 11.1 and the balance to the trustees of a Trust nominated by TERI ANNE POTTER such Trust being on the same terms as this Trust but excluding MARK FRANCIS DUFFY as a beneficiary and the provisos to clauses 4.1, 6.1 and 11.1.

[21] Evidence in relation to acquisition of the coffee roaster was relatively sparse. The plaintiff deposes that it was purchased in Queenstown in 2000 for $8,499.99 and that it was acquired “from partnership income during the relationship”. Whether her reference to “partnership” is to the former marriage partnership or to income which the family unit received from the M F & R I Duffy Partnership is unclear and the plaintiff was not cross-examined on her affidavit. In his oral submissions the first defendant claimed that the purchase was made by the M F & R I Duffy Partnership but there was no evidence in that respect, nor as to how the purchase was reflected in the Partnership’s accounts (whether as a balance sheet item or taken to the first defendant’s drawings). At no stage does the M F & R I Duffy Partnership appear to have asserted ownership in the asset or an entitlement to revenues from its operation.

[22] Doing the best that I can on the evidence, I conclude that the asset was relationship property financed by the first defendant’s drawings from the M F & R I Duffy Partnership. I am reinforced in that conclusion by agreement between the parties on the first day of trial that the roaster be sold and the proceeds divided

50/50, albeit that, on account of other differences which emerged in discussions, the

[23] Again the evidence was slim. The plaintiff produced a list of accounts raised and moneys received by the business in the period post-separation which she had obtained from the family’s home computer. This showed total revenues of

$35,421.05 for the period 2004 to 2007. However, no profit and loss account was ever produced and there was no evidence from either party in terms of the margin that might be expected from operation of such a business. The plaintiff nevertheless accepts that some deduction is necessary from the gross revenues to reflect expenses.

[24] In submission, Mr Eggleston suggested that this be one third. He relied on the decision of M v B where the Court of Appeal noted that, in respect of relationship property:²

It is not a situation (such as in a conventional civil proceeding) where an absence of evidence means that an asserting party can be denied relief because there is uncertainty. Such an approach would be contrary to the scheme and legislative framework. The law relating to relationship property disputes requires total disclosure and co-operation between people who are parties in such litigation. Section 1N(d) of the Act provides that “questions arising under this Act about relationship property should be resolved as inexpensively, simply, and speedily as is consistent with justice.” The legislation means that, notwithstanding legal title, a party can have an entitlement to be compensated in respect of relevant property held by the other party. This principle will influence any assessment under the Act.

[25] For his part, the first defendant submitted that after allowances for green bean costs, wastage, distribution costs, packing, labour, etc, the profit was no more than one third. But again there was no evidence.

[26] I must do the best I can against this paucity of evidence. I make an allowance of 60 per cent of gross revenue for expenses and labour, taking into account the first defendant’s significant input in terms of roasting, packaging and distribution, with the result that I determine the profit from operation of the relationship property asset was $14,168.42, of which the plaintiff is entitled to half ($7,084).

[27] The plaintiff seeks an adjustment of $20,000 on account of s 18B of the Act. That section provides:

(1) In this section, relevant period, in relation to a marriage, civil union, or de facto relationship, means the period after the marriage, civil union, or de facto relationship has ended (other than by the death of 1 of the spouses or [partners]) but before the date of the hearing of an application under this Act by the Court of first instance.

(2) If, during the relevant period, a spouse or [partner] (party A) has done anything that would have been a contribution to the marriage, civil union, or de facto relationship if the marriage, civil union, or de facto relationship had not ended, the Court, if it considers it just, may for the purposes of compensating party A—

(a) order the other spouse or [partner] (party B) to pay party A a sum of money:

(b) order party B to transfer to party A any property, whether the property is relationship property or separate property.

[28] For the purposes of s 18B contributions may be of a monetary or non- monetary character with no presumption that those in the former category have any greater value than the latter.³What therefore needs to be proven is that:

discretion in the assessment of what is just in each individual case.⁴She said:

[46] Whether an order is made under section 18B(2) is dependent on the Court’s discretion. A very broad, what the Court considers is just test is applied.

[47] Thus it is not enough for Mr Shandil to prove he has made a qualifying contribution. He has to go one step further and prove it is just that what he has contributed be taken into account.

[30] In the present case the plaintiff relies on her contributions as primary caregiver for the children in the period post-separation. Mr Eggleston refers, in particular, to the first defendant’s acknowledgments that he was absent for extended periods and that care of the children fell, post-separation, substantially to the plaintiff whose commitment as a mother was not in question. He also emphasises the fact that in the children’s interests the plaintiff remained living in very difficult circumstances in an uncompleted home under the same roof as her estranged husband.

[31] Mr Eggleston relied on the Full Bench of the High Court decision in Chong v Speller⁵and Ronald Young J’s decision in JA v SNA⁶in support of the proposition that, in appropriate cases, a capital sum could be awarded to recognise the fact that, by virtue of the separation, day to day care of children had fallen to one party. In the latter case his Honour upheld an award of $15,000 in the Family Court for the care of one child for four years although describing the award as “if anything, on the generous side”.⁷He noted that:

[24] The Judge recognised that s 18B gave the Court a discretion to compensate a parent for post separation contributions to the care of the child. The Judge considered the section was not intended to compensate a parent for the financial costs of the care. I agree with that approach. This was not, however, the approach that the appellant took in the Family Court. Mrs A filed a detailed analysis of all money spent by her household over the years from separation to hearing. While a generalisation, she essentially halved

that amount and identified that sum as the amount that she should be paid pursuant to s 18B. In my view, s 18B is not intended to provide such compensation. The section was intended to be a way of providing to a child caring spouse a capital sum which recognises the fact that day to day care of the children has fallen on one parent by virtue of the separation. I would strongly discourage the preparation, as here, of extensive accounts identifying every penny of expense incurred. This invites the necessary prolonging of such litigation.

[32] In the subsequent Court of Appeal decision of X v X⁸the Court reviewed earlier Family Court decisions including Loader v Loader⁹in which Judge Somerville had considered it was inappropriate to build financial or relationship property incentives into child care responsibilities, and G v B,¹⁰where, although Judge Murfitt accepted that child care could be taken into consideration, cautioned that the jurisdiction should be exercised sparingly on the basis that other remedies would typically fill the child support rubric more neatly.

[33] In X v X the claim made was for $75,300 which was a precise calculation based on half the net value of the children’s expenses and the household costs after deduction of the sums covered by the family trust. The methodology was therefore precisely that which Ronald Young J had rejected in JA v SNA. The Court held that the application was effectively one for retrospective maintenance by another name and that, in rejecting the claim, the Family Court Judge could not be said to have been wrong. In apparent approval of the approach in G v B the Court of Appeal

This is not a case in which Mrs X has been abandoned with sole responsibility for the children or left in a hopeless financial position by her sole care of them.

[34] Mr Eggleston submits that the plaintiff’s application is not one for maintenance “via the backdoor”. Rather, he says, it is one where a capital sum is sought to compensate for the fact that the plaintiff’s options in life were severely constrained by her almost exclusive care of the children for eight years. As indicated, I accept her evidence in this respect (which was not substantially disputed

_{by the first defendant). As a result of his work and other commitments
I accept that}

the first defendant largely abdicated responsibilities for day to day care of the children to the plaintiff whom he obviously had every confidence in as a mother. I accept also that the award upheld in JA v SNA related to one child for four years whereas in the present case there were two children for a considerably longer period. However, I agree with the several observations in the cases about a requirement for restraint in this area as child care is primarily a discharge of parental responsibility, inviting maintenance obligations, not a springboard for a relationship property claim.

[35] As Ronald Young J observed,¹²it is not a simple matter to decide on what is a fair capital sum in such circumstances. He clearly considered the award of the Family Court in that case generous. I consider this is a case where the sacrifices made by the mother to ensure continuity for the children and in terms of their day to day care are such as to warrant a modest capital award which I fix at $15,000.

First defendant’s claim for compensation for input into the orchard and payment of orchard accounts

[36] The first defendant claims that there was a disparity in terms of the contributions which he and the plaintiff made to the orchard business in the 11 years post-separation and asks the Court to recognise this (presumably within its inherent jurisdiction and by way of an adjustment to the current accounts in the Duffy Trust).

[37] In my judgment No 1 I dealt with an application by the first defendant designed to support this claim. Substantially out of time and in the face of trial management orders which specifically precluded him from filing late evidence, the first defendant had, shortly before trial, filed two memoranda annexing correspondence from accountants and from a horticultural management company. I declined to receive this as evidence for the several reasons I set out in my judgment.

[38] In the result, the only “evidence” in support of the first defendant’s position

(a) a spreadsheet annexed to his affidavit from the same horticultural management company identifying its costs for day to day maintenance and management of an unidentified organic orchard (which the first defendant said in submission was of equivalent size) as approximately

(b) an email from the first defendant’s accountants setting out the first defendant’s contentions as to the respective values of his and the plaintiff’s contributions (the latter assessed by the first defendant as

[39] I cannot accept this as evidence in the proceedings. It is unverified, hearsay and speculative.

[40] A further difficulty with the first defendant’s claim is that both the plaintiff’s and independent valuer’s evidence confirms that maintenance of the orchard had, in the 11 years post separation, been inadequate. The valuation variously described the property as “a small, poorly producing Haywood Kiwifruit orchard”, a property “giving the appearance of lacking regular maintenance” and as “clearly [having] issues of management and vine health”. Even if there had been adequate evidence of comparative costs for orchard management, a significant discount would, in my view have been necessary to reflect these factors. As it is, however, I have no adequate/admissible evidence with which to make any assessment of the value of the first defendant’s contribution or the extent to which it exceeded that of the plaintiff. I decline any adjustment in this respect.

[41] In a similar category are the first defendant’s claimed reimbursements. Annexed to one of the late memoranda which I disallowed as evidence was an invoice dated 11 November 2015 from the first defendant to the Duffy Trust with the narration “reimbursement for payments made on behalf of years 2004-2015” and in the amount of $24,756.89, but there were no supporting documents and the “evidence” was otherwise objectionable for the reasons set out in my Judgment No 1.

[42] I decline therefore to make any adjustments in the current accounts in respect of those issues. On multiple occasions the first defendant had been warned by Associate Judge Bell that his position would be inevitably prejudiced if he did not provide timely and adequate evidence. Generous indulgences were given. I must decide the matter on the evidence, not on the basis of claims asserted in submission.

[43] The unchallenged evidence of the forensic accountant called by the plaintiff (Mr P Moriarty) is that, post-separation, the Duffy Trust had recharged certain costs and interest to the first defendant “trading as Mini-Digger Services”. Mr Moriarty refers to work papers from Wood Walton Accountants (accountants to Mini-Digger Services), describing the original recharge of $6,549 as “Expenses paid for boat and digger from Trust”. In the following year a further recharge of $463 has occurred. For the period 2007 to 2009 interest was charged to Mini-Digger Services at levels Mr Moriarty describes as “high relative to the balance owing”. By the end of the

2009 financial year the total amount owing is recorded in both the accounts of the Trust and the first defendant/Mini-Digger Services as $15,117. Thereafter, interest does not appear to have been charged.

[44] In closing submissions the plaintiff confined her claim in this respect to the initial recharges ($7,012) and two years of interest at 10 per cent, which Mr Moriarty deposes was a reasonable rate having regard to the indebtedness of the Trust to its bankers and its high overdraft interest rate. In the event, the total debt claimed is

debt arose as a result of a “coding error”, but no evidence was offered in this regard.

[46] I am satisfied, based on recognition of this debt in the first defendant’s own accounts for an extended period and without apparent objection, that the debt is properly payable. I am invited to make any necessary adjustment in the current accounts with the result that the plaintiff’s current account with the Trust is increased by $4,207 and the first defendant’s decreased by the same amount.

[47] Paragraph 27 of the Amended Statement of Claim pleads that the assets of the Duffy Trust include Zespri shares to the value of $23,376.00. In response to an earlier iteration of the pleading, the independent trustee admitted that the Trust assets included, “approximately 14,610 Zespri Group Limited shares”.

[48] Consistent with that admission, dividends in the shares have at all relevant times been paid to the Trust and the shares have been reflected in the Trust’s balance sheet since 2004.

[49] However, the first defendant disputes their status as Trust property. He submits that the shares were formerly owned by M F & R I Duffy Partnership and that he has been unable to identify any document of transfer to the Trust. There is, however, no evidential foundation for that submission.

[50] I find on the balance of probabilities that the shares do represent an asset of the Trust. There has been no earlier challenge by any of the trustees to that position and the balance sheet and dividend position is highly persuasive, as is the admission of the independent trustee.

[51] The parties’ Second Memorandum of Consent (Trust Property) effectively invites me to make a declaration as to ownership of the Zespri shares. I do so in the result section of this judgment.

(a) make consent orders in terms of the parties’ Memorandum of Consent (Relationship Property) dated 20 November 2015 held on the Court file.

(b) order that the parties’ coffee roasting machine be sold either by public auction or Trade Me listing and the proceeds divided 50/50 between

the plaintiff and first defendant (or alternatively that the first defendant purchase the plaintiff’s interest in the machine for half of its agreed value of $8,500 within 12 days of delivery of this judgment).

(c) order that the first defendant pay to the plaintiff the sum of $7,084 on account of profits derived from operation of the coffee roasting machine.

(d) order that the first defendant pay to the plaintiff the sum of $15,000 on account of her post-separation contributions.

(a) make orders by consent in terms of the Memorandum of Consent (Trust Property) and Deed Recording Resolutions of Duffy Trust both dated 20 November 2015 and held on the Court file.

(i) plaintiff - $31,757 (the parties’ agreed sum less $4,207 on account of the Mini-Digger Services liability).

[54] I reserve leave to the parties to revert to the Court on seven days’ notice in relation to the proper accounting treatment of any of my orders or as to implementation of the sale process envisaged in their agreement.

[55] Mr Eggleston invites me to reserve costs. In the event these are unable to be agreed, memoranda may be filed.

High Court of New Zealand Decisions

Potter v Duffy [2015] NZHC 2996 (27 November 2015)