Roberts v Henderson [2016] NZHC 1363 (27 July 2016)

High Court of New Zealand

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Roberts v Henderson [2016] NZHC 1363 (27 July 2016)

Last Updated: 27 July 2016

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV-2016-443-000018 [2016] NZHC 1363

BETWEEN	NADIA ROBERTS Appellant
AND	ALAN DANIEL HENDERSON First Respondent
AND	OLDE HOUSE TRUSTEES LIMITED Second Respondent

Hearing:	30 May 2016
Appearances:	A R H Laurenson for Appellant S E Gifford for Respondent
Judgment:	22 June 2016
Reissued:	27 July 2016

_{JUDGMENT OF DUNNINGHAM J}

Note: The names of the parties in this judgment are fictitious to preserve the

parties’ anonymity.

[1] This appeal concerns the division of property at the end of the marriage of

Nadia Roberts and Alan Henderson.

[2] Over their 16 years together, the two had worked hard to acquire and build up a dairy farm. Some of the land they farmed was purchased by the couple’s family trust in 2008 from Mr Henderson’s parents’ family trust. The purchase price of

$1,800,000 was not paid at the time but was recorded as a debt owing to the parents’ family trust in a loan agreement. Immediately following that purchase, the trustees of the parents’ family trust gifted the debt to Mr Henderson. As the debt is

_{categorised as Mr Henderson’s separate property, the practical effect of the}

ROBERTS v HENDERSON [2016] NZHC 1363 [22 June 2016]

transaction is that Mr Henderson will leave the marriage $1,800,000 better off than

Ms Roberts.

[3] Ms Roberts appeals the Family Court’s determination that she had no entitlement to the $1,800,000, either through relief granted under s 44 of the Property (Relationships) Act 1976 (“the Act”), or through a determination that some or all of the loan was relationship property under s 9A of the Act.

[4] The issues for me to determine are:

(a) did the Family Court err in its application of s 44 of the Act to deny

Ms Roberts’ relief under that section of the Act; or

(b) did the Family Court err in its application of s 9A of the Act to deny

Ms Roberts any entitlement to the loan as relationship property.

How did Mr Henderson’s entitlement to the loan arise?

[5] Ms Roberts and Mr Henderson commenced their relationship in 1997. They were subsequently married on 16 May 1998. At the time of their marriage they were given the opportunity to work on Mr Henderson’s parents’ farm as sharemilkers. That farm comprised 69.29 hectares owned by the Murray Henderson Family Trust (the “MHF Trust”), of which Mr and Mrs Henderson senior were trustees, and

42.67 hectares owned by Mr and Mrs Henderson senior, in their personal capacity.

[6] Ms Roberts used $66,000 which she had inherited from her father on his death towards purchasing a villa which was shifted onto the farm. She and Mr Henderson spent time and money on renovating and enlarging the villa over the years, as well as working on the farm. During this period their two children were born, and Ms Roberts’ time was divided between looking after the children and helping out on the farm as required.

[7] Ms Roberts and Mr Henderson then settled their own family trust, calling it the Olde House Trust (the “OH Trust”). They were appointed trustees of the OH Trust along with a third corporate trustee. They sold their herd to the OH Trust

and that trust also purchased a neighbouring property on Drain Road, near the farm, comprising 125 hectares. The trustees borrowed from the bank to acquire this land.

[8] In 2008, Mr Henderson’s parents decided to transfer the farm to Ms Roberts and Mr Henderson, along with their Fonterra shares, although the transfer was to be to the OH Trust rather than directly to the couple.

[9] This transaction was structured in a way which was designed to assist the couple into the farm and to ensure they did not have to pay for the improvements they had already made to the farm, including the villa they had developed on it. For this reason, the 42.7 hectare parcel being bought from Mr Henderson’s parents was valued excluding the improvements made to it, such as the homestead dwelling which the couple had bought and renovated. The unimproved land was valued at

$1,650,000 plus GST, and the Fonterra shares were valued at $519,394.26. The purchase price therefore totalled $2,169,394 but, on settlement, the OH Trust was only required to pay $1,700,000 plus GST, with the balance of $469,394.26 left owing to Mr Henderson’s parents.

[10] The 69 hectares owned by the MHF Trust was to be transferred to the OH Trust at a valuation of $1,800,000, but that purchase price was to be met by the OH Trust executing a loan agreement and memorandum of mortgage in favour of the MHF Trust, which was repayable on demand.

[11] A letter dated 8 May 2008 from the MHF Trust’s lawyer explained that:

On settlement, it is the trustees’ intention to make a capital distribution to [Alan] of the whole of the purchase price of the Trust property. The trustees in my opinion have the appropriate authority to make such a capital distribution under the discretionary powers vested in them under the terms of the Trust.

It then went on to note that:

As far as the shortfall in the purchase of the property for Mr and Mrs Henderson i.e. the sum of $469,394.26 it is intended to make a gift to [Alan] of $54,000 each year until the debt is cleared, together with a provision in Mr and Mrs Hendersons’ wills that if there is any part of that debt still owing at the time of their deaths it will be forgiven under the provision of their wills.

...

The net result of the above is that both properties including the appropriate dairy factory shares will be effectively costing the purchaser trust $1,700,000 plus GST.

[12] Shortly afterwards, in a further letter from the parents’ lawyers dated

14 May 2008, it was clarified that Mr Henderson senior “would like to reserve the obligation to make the annual gifts [of $54,000] because he and his wife feel that they may want to give some assistance to the other five children”.

[13] The transfers took place at the end of May 2008 as planned and, at the same time, the trustees of the MHF Trust vested the debt of $1,800,000 which was owed to that trust, in Alan Henderson personally. That distribution was recorded in a deed which included the following background recitals:

D [Alan] is one of the purchasers set out in the Agreement [for the sale and purchase of the 69 hectare property] and since the age of

16 years he has worked on that property for two of the trustees M-A

Henderson and R-G Henderson (“M and R”). M and R are his mother and father.

E The trustees have been aware of [Alan’s] contributions to the development of the property and after careful deliberation have resolved to recognise that contribution by exercising their discretion and vest in him personally the amount of $1,800,000.00 which is the

sum referred to in the mortgage instrument dated the of May 2008, a copy of which is attached.

day

[14] In a subsequent letter dated 29 October 2008, Mr White, the lawyer acting for the parties and the trustees of the OH Trust, reported to Mr Henderson and Ms Roberts on the various transactions. When reporting on the purchase of the

69 hectare property from the MHF Trust, the letter recorded:

The purchase price has been satisfied by the Trust executing a mortgage in favour of the vendor trust securing the whole of the purchase price. This mortgage has subsequently been distributed to [Alan] as a beneficiary in the vendor trust. This debt is now owed by your trust to [Alan] alone. Given that it is a gift by definition it is “separate” property of [Alan] and not “relationship” property. If your [sic] require further clarification regarding the status of this loan please advise.

[15] When referring to the financing of the purchasers and the loan of $1,800,000 from the MHF Trust, the letter went on to state:

That Trust has transferred the loan to [Alan] and this loan is now owed to him.

[16] The letter from their lawyer also enclosed copies of all relevant documents, including a copy of the deed dated 30 May 2008 vesting the $1,800,000 in Mr Henderson.

[17] Some five years later Mr Henderson and Ms Roberts separated and Mr Henderson applied to the Family Court for a division of property under the Property (Relationships) Act 1976. On the whole, the parties accept there is very little relationship property. Most of the couple’s assets were settled in the OH Trust. I was advised, from the bar, that the parties will make appropriate arrangements to divide and resettle the net assets of the OH Trust on an equal basis so that each of them can continue their separate lives.

[18] The only significant issue in dispute is the status of the $1,800,000 debt owed by the trustees of the OH Trust to Mr Henderson personally.

[19] The Family Court determined that the $1,800,000 debt was acquired by Mr Henderson as a beneficiary under a trust settled by a third person. No intermingling of the $1,800,000 with other relationship property had occurred. The Family Court therefore determined that the $1,800,000 debt was Mr Henderson’s separate property, pursuant to s 10(2) of the Act. That decision is not challenged on appeal.

[20] The Family Court then determined that s 44 of the Act did not apply to the vesting of the debt, nor did s 9A(2) apply to alter the status of the $1,800,000 debt, or any part of it. As a consequence Ms Roberts was not entitled to any share of the debt. She appeals that decision on the grounds set out in [4] above.

Approach to appeal

[21] Both counsel referred me to the relevant statutory provisions regarding the scope of the appeal. The appeal is brought under s 39 of the Act, which confers a general right of appeal. Such appeals proceed by way of a rehearing, and are subject

to the principles discussed in Austin, Nichols & Co Inc. v Stitching Lodestar.¹ This means the onus is on the appellant to show that the Family Court’s judgment is wrong. However, in considering the appeal, this Court is entitled to differ from the conclusion of the Family Court, and may form its own opinion, even where that involves an assessment of fact and degree and entails a value judgment.

[22] However, Mr Henderson’s lawyer submitted that the present case also involved an appeal against the exercise of a discretion, as it involved challenges to the application of ss 44 and 9A of the Act in the context of background and facts which were largely undisputed. He said this raised a further hurdle for the appellant because, where a decision involved the exercise of a discretion, the appellant must establish the decision contained an error of principle, or that a relevant factor was not considered, or that an irrelevant factor was considered, or that the outcome was plainly wrong. The Court will not interfere if it is simply a matter of giving different

weight to the factors considered.²

[23] Although the grounds of appeal were expressed as if they were questions of law, in fact the submissions challenged both factual and legal findings of the Family Court Judge. I have, therefore, approached the appeal as a full rehearing, noting that the Judge never reached the point of exercising his discretion under either section because he found they did not apply.

Did the Judge err in applying s 44 of the Act?

[24] The relevant parts of s 44 are as follows:

44 Dispositions may be set aside

(1) Where the High Court or a District Court or a Family Court is satisfied that any disposition of property has been made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person (party B) under this Act, the Court may ... make any order under subsection (2) of this section.

_...

¹ _{Austin, Nicols and Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.}

² May v May (1982) 1 NZFLR 165 (CA).

(2) In any case to which subsection (1) of this section applies, the Court may, subject to subsection (4) of this section,—

(a) order that any person to whom the disposition was made and who received the property otherwise than in good faith and for valuable consideration, or his or her personal representative, shall transfer the property or any part thereof to such person as the Court directs; or

(b) order that any person to whom the disposition was made and who received the property otherwise than in good faith and for adequate consideration, or his or her personal representative, shall pay into Court, or to such person as the Court directs, a sum not exceeding the difference between the value of the consideration (if any) and the value of the property; or

(c) order that any person who has, otherwise than in good faith and for valuable consideration, received any interest in the property from the person to whom the disposition was so made, or his or her personal representative, or any person who received that interest from any such person otherwise than in good faith and for valuable consideration, shall transfer that interest to such person as the Court directs, or shall pay into Court or to such person as the Court directs a sum not exceeding the value of the interest.

...

[25] Mr Laurenson argues that the Family Court was wrong in its application of s 44 in the following ways:

(a) It erred in determining that Ms Roberts must have some prior entitlement or claim to the property subject to the disposition under s 44 of the Act, and to hold that she did not. She did have an entitlement to the $1,800,000 loan because of promises made to her by her husband and/or Mr and Mrs Henderson senior when she “was enticed to enter the farm purchase arrangement”. However, in any event, she need not have any prior entitlement or claim to the property as it is not necessary for the claim to crystallise until after the disposition, for example, it could arise at the point of separation.

(b) The Family Court erred by finding that the trustees of the MHF Trust had no obligation to provide equity to either of the parties,³ given the promises that were made by the parents as to the overall cost of the farm purchase. In any event, Mr Alan Henderson does now have such an obligation to his wife by virtue of promises he made to her and by virtue of her “clear and undisputed contributions to the marriage”.

(c) The Family Court erred in determining that the transfer by the trustees of the MHF Trust to Mr Henderson was not done “otherwise than in good faith”. In any event, if they did act in good faith, Mr Henderson did not, because he did not ensure that Ms Roberts’ expectation of an entitlement to the loan was protected.

(d) The Family Court was wrong to find that there were no promises that

$1,700,000 would be the only amount ever required to be paid for the farm, and therefore no proper basis on which Ms Roberts could have an expectation or entitlement to the $1,800,000.

[26] In submissions, Mr Laurenson, counsel for Ms Roberts, urged me to interpret and apply the provisions of s 44 by taking a “wide and broad” approach to the Act and by giving effect to the purposes and principles of the Act set out in ss 1M and 1N of the Act, which are to “recognise the equal contribution of the husband and wife to

the marriage partnership”⁴ and to ensure that “all forms of contribution to the

marriage partnership” are treated equally.⁵

[27] I accept that the relevant statutory provisions must be read in light of the purpose of the Act as set out in s 1M, and that, in applying the provisions of the Act, I should be guided by the principles in s 1N. That said, the Act makes specific provision for the classification of some property as separate property, and parties will structure their affairs in reliance on that. I can only override or modify that

_{classification to the extent permitted by the Act in order to achieve the purpose of the}

³ _{Henderson v Roberts and Olde House Trustee Ltd [2016] NZFC 357, at [55].}

⁴ _{Property (Relationships) Act 1976, s 1M(b).}

⁵ Section 1N(b).

Act in s 1M. I approach the application of ss 44 and 9A to the facts in this case in that light.

Were the requirements of s 44 met?

[28] The parties were agreed that s 44 requires the following circumstances to be met:

(a) there must be a disposition of property;

(b) the disposition must be made by, or on behalf of, or by direction of, or in the interests of any person;

(c) the disposition must have the effect of defeating the claim or rights of any other person under the Act;

(d) the disposition must be made with the intention of defeating the

applicant’s claims or rights under the Act;

(e) the disposition must result in the receipt of property by a third party

“otherwise than in good faith and for valuable consideration”.

[29] If these circumstances are not established on the facts then the discretion available under s 44 to order the transfer of the property, or an interest in it, to the applicant does not arise.

[30] There was no dispute between the parties as to whether the first two requirements were met. The transfer by the MHF Trust of the $1,800,000 debt to Mr Henderson was a disposition, and it was in his interests.

Did the disposition have the effect of defeating claims or rights under the Act?

[31] Mr Laurenson submitted that the $1,800,000 loan distributed by the Trust to Mr Henderson was described, in the deed recording the transfer, to be in recognition of Mr Henderson’s wider contributions and commitment to the farm. He argued that, implicitly, this must include Ms Roberts’ contribution to the farm and, unless she is

granted relief under s 44, then “her ability to claim recognition to her contribution to the bringing about of the loan is defeated”.

[32] Mr Gifford’s response is simple. Ms Roberts has no rights or claims under the Act against the trustees of the MHF Trust. As a consequence, she cannot show that the disposition has had the effect of defeating her rights under the Act. If the disposition had not occurred, the OH Trust would still have owed $1,800,000 to the MHF Trust and she would have no basis for claiming an interest in it under the Act. Indeed, ironically, the disposition to Mr Henderson of the sum as his separate property has provided her with the opportunity to pursue claims under various sections of the Act (for example, under s 9A) which would not have been available to her had the disposition not occurred.

[33] The usual function of s 44 is to return assets to the pool of assets owned by one or both spouses which have been removed from that pool, or which have been prevented from entering the pool, as a consequence of the disposition. To establish a claim under s 44, Ms Roberts must demonstrate that, but for the disposition, she

would have had a claim or a right under the Act, whenever that would have arisen.⁶

Mr Laurenson is correct to say that the claim or right need not have arisen at the time of the disposition, but is to be assessed at the end of the relationship when the parties rights under the Act crystallise.⁷ However, he was unable to demonstrate how, if the disposition had not been made, Ms Roberts would have had a right or claim under the Act to the debt at the time of separation.

[34] Mr Laurenson raised a number of arguments which could best be summarised as explaining why it was “fair” that Ms Roberts should have an interest in the

$1,800,000 loan. However, none of these could be characterised as her having a claim or right under the Act to this sum which was thwarted by the disposition. Her argument that the trustees of the MHF Trust represented to her that the $1,800,000 loan would never need to be repaid is a quite separate argument. It would need to be advanced in a separate claim brought against the trustees of the MHF Trust, perhaps

_{alleging some form of estoppel, (although, even then, there is no evidence before the}

⁶ Adopting the “but for” test applied in S M W v M C [2013] NZHC 396, [2014] NZFLR 71, at

_[73]-[76].

⁷ Ayres v Ayres [2013] NZFC 4368.

Court of what detriment was suffered as a consequence of relying on that representation). However, such a claim is not a “claim or right under the Act”. Similar difficulties arise with the claim that Mr Henderson represented, either expressly or by implication, that the money was not “owed” and would not be repayable.

[35] Thus, none of the evidence as to such statements being made demonstrate that Ms Roberts would have had a claim or interest under the Act, which was defeated by the disposition.

[36] Given my conclusions on that requirement, I do not need to go on to consider the remaining requirements of s 44. However, I record that because the disposition did not have the effect of defeating the claim or rights of Ms Roberts under the Act, it follows that the disposition could not have been made with the intention of defeating her claims or rights under the Act.⁸ While it is clear that the trustees of the MHF Trust intended to benefit Mr Henderson personally, there is no evidence to suggest that they believed Ms Roberts had a claim or right to the loan and therefore intended (in the sense of knowing that it was a likely consequence) to defeat such

claims or rights.

[37] In terms of the last requirement, that Mr Henderson as the recipient of the property received it “otherwise than in good faith and for valuable consideration”, I do not consider that the circumstances demonstrated a lack of good faith. While Mr Laurenson argued that, if Mr Henderson were to “truly act in good faith he would have ensured the disposition was done in a way that also recognised Ms Roberts’ significant contributions to him, to the marriage, and ... to their joint future”, that is to impose a positive obligation on him which goes beyond simply receiving the sum in good faith. Here, the disposition was effected in an open, transparent manner, with full disclosure through the reporting letters of the couple’s solicitors. Mr Henderson understood he was entitled to receive a distribution from the MHF Trust as his separate property, as recognised by s 10 of the Act, and I therefore

_{reject the submission that it was not received by him in good faith.}

⁸ Using the test for an “intention to defeat” set out in the judgment of the Supreme Court in Regal Castings v Lightbody [2008] NZSC 87, [2009] 2 NZLR 433 and applied to s 44 in S M W v M C, above n 4, which simply requires knowledge of the likely consequence of the action.

[38] Given the appellant has failed to demonstrate that the requirements of s 44 are met, the Family Court did not err when it found that that s 44 does not apply to the disposition of the loan to Mr Henderson. The appeal on this ground is dismissed.

Section 9A

Did the Judge err in applying s 9A(2)?

[39] Section 9A recognises circumstances in which separate property can become relationship property. Section 9A(2) provides:

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.

[40] Again Mr Laurenson submits that, in approaching this question, I should adopt a wide application of the principles, and a broad interpretation of the terms of the Act, in order to achieve a just outcome. In support of that submission he cites Clayton v Clayton, where the Court said:⁹

[38] We accept the submission from Mrs Clayton that the property definition in s 2 of the PRA must be interpreted in a manner that reflects the statutory context. We see the reference to “any other right or interest” when interpreted in the context of social legislation, as the PRA is, as broadening traditional concepts of property and as potentially inclusive of rights and interests that may not, in other contexts, be regarded as property rights or property interests.

[41] Here, Mr Laurenson submits that s 9A “provide[s] tools that this Court may

use to achieve a just outcome for Ms Roberts which is in accordance with the

_{principles in ss 1M and 1N”. While he argued that the Family Court Judge failed to}

⁹ Clayton v Clayton [2016] NZSC 29.

apply the purpose and principles of the Act in declining to apply s 9A to the loan, I observe he can only bring those purposes and principles into account where the provisions of the Act give him scope to do so. The issue is whether the circumstances of this case do afford such scope.

[42] Mr Laurenson’s argument in support of Ms Roberts’ claim under s 9A(2) of the Act can be summarised as follows. Mr Henderson’s interest as a discretionary beneficiary of the MHF Trust is property in terms of s 2 of the Act. The value of Mr Henderson’s separate property interest as a discretionary beneficiary of the MH Trust was “generally nil or minimal until in May 2008 when it increased significantly to a $1,800,000 distribution”. The increase in value can be attributed to the actions of Ms Roberts, as the distribution was made in recognition of Mr Henderson’s contributions to the farm since he was 16 years of age until 2008 when the distribution was made and this period includes the period the parties were in a de facto relationship and then a marriage. There is, therefore, a “clear causal nexus between the actions and contributions of Ms Roberts to the discretionary distribution received by Mr Henderson from his parents’ trust”.

[43] The relief sought is that the entire $1,800,000 loan be declared to be relationship property and any interest claimed on the loan is also declared to be relationship property.

[44] Mr Gifford’s response was to say it was erroneous to treat Mr Henderson’s interest as a discretionary beneficiary under the MHF Trust, and Mr Henderson’s interest as the recipient of a capital distribution from that trust, as being one and the same property interest. In any event, there was no evidence about the value of Mr Henderson’s discretionary interest before or after the disposition occurred and there is no evidence of any increase in value of Mr Henderson’s interest as a discretionary beneficiary.

[45] In terms of Mr Henderson’s interest in the capital distribution from the MHF Trust, Mr Gifford concurred with the Family Court Judge who held there had been no increase in value of the $1,800,000 loan owned by Mr Henderson since he acquired it and consequently s 9A(2) could not apply.

[46] While I accept those submissions, I also consider the plain wording of the deed precludes Ms Roberts from arguing that, if there was an increase in value, it was attributable, at least in part, to her actions. The deed expressly provides that the distribution was made to reflect Mr Roberts’ individual contribution to the farm property from age 16 and there is no evidence which I consider supports a contrary factual finding.

[47] While it is not strictly necessary to do so, I consider, in any event, that the couple’s joint contribution to improving the value of the farm asset has been recognised by the fact that the couple were able to purchase the land from Mr Henderson’s parents for a value which excluded the improvements the couple had made to it. In addition, the couple had the benefit of not paying interest on either the loan to Mr Henderson’s parents or the $1,800,000 loan, while they were married, and this has been to the benefit of the OH Trust, in which Ms Roberts has a beneficial interest.

[48] In summary, I am satisfied that the distribution was made by the trustees to Mr Henderson alone, in recognition of his contribution to the farm to that date. It was at that point that Mr Henderson’s separate property entitlement to the

$1,800,000 loan crystallised. Ms Roberts can only have a claim to any increase in the value of that separate property from that date. As there has been no increase in the value of that separate property, there can be no claim under s 9A(2) of the Act.

[49] The Family Court Judge’s finding that there was no jurisdiction to apply s 9A of the Act was not erroneous in fact or in law and the appeal on this ground is also dismissed.

Outcome

[50] The appeal is dismissed on both grounds.

[51] The question of costs is reserved. However, as the parties have already confirmed that the appeal is a Category 2 appeal, and that the standard time allocation should apply, I expect that costs can be agreed.

Solicitors:

Govett Quilliam, New Plymouth

Shaun Gifford, New Plymouth