Douds v Douds [2018] NZHC 1696 (10 July 2018)

Last Updated: 23 July 2018

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B, 11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE https://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE

CIV-2018-443-000007 [2018] NZHC 1696

UNDER	the Property (Relationships) Act 1976
IN THE MATTER	of an Appeal against the decision of the Family Court
BETWEEN	CYNTHIA HELEN DOUDS Appellant
AND	NIGEL ERIC DOUDS Respondent

Hearing:	5 July 2018
Counsel:	S E Gifford for Appellant A R Laurenson for Respondent
Judgment:	10 July 2018

JUDGMENT OF COLLINS J

Introduction

[1] Following the dissolution of their marriage, Mr and Mrs Douds agreed to consent orders in the Family Court to settle their relationship property dispute (consent orders). It became necessary, however, for them to seek ancillary orders from the Family Court to give effect to the consent orders.

DOUDS v DOUDS [2018] NZHC 1696 [10 July 2018]

[2] On 19 December 2017, the Family Court issued those ancillary orders pursuant to s 33(1) of the Property (Relationships) Act 1976 (the Act). Those orders dealt with three outstanding issues:

(1) the amount of interest payable by Mr Douds to Mrs Douds;

(2) the extent to which Mr Douds had to contribute to improving a property (referred to as the “runoff property”) that has now been acquired by Mrs Douds; and

(3) how the parties needed to account for income received from the “runoff property”.

[3] Mrs Douds now appeals the Family Court’s ancillary order in relation to the amount of interest Mr Douds is to pay Mrs Douds. No challenge is made against the other two issues referred to in [2].

[4] In addition, Mrs Douds maintains her application for orders that a farm and home, which was previously relationship property, but is now owned by Mr Douds, be sold in the event that he defaults in paying whatever sum the Court determines he must pay.

[5] In explaining why I am dismissing Mrs Douds’ appeal, I shall set out:

(1) the relevant background;

(2) the Family Court decision;

(3) the principles that govern this appeal; and

(4) my analysis of the issues.

Background

[6] The parties married in February 1977 and separated in April 2005. They acquired a 50 hectare farm near Eltham and a 7.740 hectare “runoff” property. Their other assets included:

(1) a residential property in Ōākura;

(2) livestock;

(3) farm machinery;

(4) chattels; and

(5) assets used by Mrs Douds in her separate business, which involved her selling second hand clothing, jewellery and other items.

[7] The parties were debt free at the time they separated.

[8] The parties’ dispute concerning the division of their relationship property led to an application to the Family Court and the making of the consent orders on 10 May 2013. The relevant terms of the consent orders provided:¹

The respondent [Mr Douds] shall pay the applicant [Mrs Douds] the sum of

$1,010,000 to settle her entitlement to a half share of the relationship property identified in clauses 1 and 2 of this order. Payment of the sum of $1,010,000 will be satisfied by the respondent paying to the applicant –

(a) The respondent will use his best endeavours to borrow the maximum amount possible to be secured over the home farm (less $30,000 margin for possible overdraft). Such best endeavours to include an initial approach to TSB Bank Ltd. This sum to be paid to the applicant within 14 days of the order being sealed.

(b) By the respondent granting the applicant a registered second mortgage over the two certificates of title for the home farm and a registered first mortgage over the certificate of title for the runoff being CT TNF1/1288 for the balance of the $1,010,000. Both mortgages will be repayable upon demand with a provision that demand will not be made within 12 months from the date of the order provided the respondent complies with his obligations to repay the balance of the

¹ Douds v Douds [2017] NZFC 10240 at [8].

debt to the applicant as quickly as possible. Both mortgages will require the respondent to pay interest to the applicant at an interest rate equivalent to TSB Bank Ltd’s farm loan rate offered as a first mortgage by the bank.

...

The applicant and the respondent agree that the applicant shall market the 7.7470 hectare runoff being all CT TNF1/1288 for sale by tender after taking steps to improve the presentation of the runoff for sale. The applicant and the respondent will each contribute $2,500 (total $5,000) to a fund to enable the applicant to purchase and apply fertiliser, mend fences and/or install new gates, improve the presentation of the shed and any other improvements. The applicant shall be entitled to instruct Chris Schurr or any person of her choice to manage the tender process until 30 June 2013. In the event that this is unsuccessful, the parties agree to instruct Matthew McDonald Real Estate to market the runoff for sale. The applicant and the respondent will cooperate in good faith to market the property. One half of the net proceeds of sale will vest as the applicant’s separate property. One half of the net proceeds of sale will vest as the respondent’s separate property, but he shall forthwith pay his one half share of the net equity to the applicant to reduce the balance of the debt of $1,010,000. The parties will sign all necessary documents to effect such sale and transfer.

[9] As is apparent from the consent orders, Mrs Douds was to market the runoff property for sale by tender after taking steps to improve its presentation. Each party was to contribute $2,500 to a fund to enable Mrs Douds to improve the runoff property. The consent orders provided for a process for the sale of the runoff property, whereby Mrs Douds would be entitled to engage Mr Schurr, a real estate agent, or another person of her choosing, to manage the tender process until 30 June 2013. In the event that process was unsuccessful, the parties agreed to instruct Mr McDonald, also a real estate agent, to market the runoff property. Half of the proceeds of sale were to vest in each party separately, however, Mr Douds was then to pay his half share towards reducing the balance of his debt to Mrs Douds.

[10] On 14 May 2013, Mr Douds paid $680,000 to Mrs Douds in accordance with the consent orders. This left a balance of $330,000 of principal payable by Mr Douds to Mrs Douds, together with interest.

[11] Unfortunately, the sale of the runoff property did not proceed as envisaged. Each party continues to blame the other for the difficulties incurred in selling the runoff property. It is sufficient to summarise in the following way the key events relating to the sale of the runoff property:

• (1) Mr Douds did not pay his $2,500 contribution to the fund that was to be applied towards improving the runoff property.

(2) Mr Douds took steps to market the runoff property by engaging Mr McDonald to try and sell the property. This resulted in an offer to purchase that property for $405,000 plus GST in February 2014.

(3) Mrs Douds rejected the offer of $405,000 plus GST believing, amongst other things the runoff property was worth in the vicinity of $515,000 plus GST.²

(4) Mrs Douds took over the runoff property in May 2014. She endeavoured to market the property and received two offers, one for
$400,000 plus GST and the other for $375,000 plus GST. Both offers were rejected.

(5) Mr Douds continued to pay Mrs Douds interest on the mortgage granted to her in relation to the runoff property. Mr Douds stopped paying interest, however, in May 2015.

(6) On 11 September 2014, Mr Douds proposed a settlement under which the runoff property would be valued at $515,000, the property would be transferred to Mrs Douds, including Mr Douds’ half share of
$257,500, and an additional $60,000 would be paid by Mr Douds to Mrs Douds in full and final settlement of the debt then remaining. That offer was rejected by Mrs Douds.

(7) In an affidavit dated 28 May 2015 in support of applications for further orders in the Family Court, Mr Douds said he would agree to Mrs Douds acquiring the runoff property for $450,000, meaning he would pay Mrs Douds $225,000 towards settlement of his debt to her. That proposal was not accepted.

² A real estate firm had valued the runoff property at $500,000 plus GST in 2012.

(8) Two months later, on 27 July 2015 Mr Douds proposed that Mrs Douds purchase the runoff property for $500,000, with associated conditions. That offer was rejected.

(9) The following year, the parties jointly instructed a valuation company to assess the value of the runoff property. That produced a valuation of just $350,000 plus GST as at 12 September 2016. Mr Douds did not accept that valuation.

(10) Mr Douds commissioned another valuer, who produced a valuation of
$470,000 plus GST as at 25 October 2016. Mrs Douds did not accept that valuation.

(11) Mrs Douds purchased the runoff property for $420,000 plus GST in May 2017. Under this arrangement, Mr Douds still owed Mrs Douds
$120,000 by way of principal.

[12] The parties returned to the Family Court in November 2017 to seek orders to resolve the outstanding issues relating to the runoff property. Judge Harrison delivered her decision on 19 December 2017.

Family Court decision

[13] I will refer to the relevant aspects of Judge Harrison’s decision under the following heading:

(1) Interest on the balance of the settlement sum.

(2) Mr Douds’ contribution to improving the runoff property.

(3) Accounting for the income received from the runoff property.

Interest on the balance of the settlement sum

[14] It is common ground that the principal Mr Douds owes Mrs Douds under the settlement order is $120,000. The dispute between the parties focuses on how much interest Mr Douds should pay Mrs Douds.

[15] Judge Harrison considered that it would be “unfair and inequitable” for Mr Douds to pay interest calculated on $330,000 from 2015 onwards. There were two reasons for her conclusion:

(1) there was a “lack of mutual understanding” as to an acceptable sale price for the runoff property; and

(2) the intention of the parties in requiring Mr Douds to pay interest was to ensure Mrs Douds received her relationship property entitlement promptly but, because Mrs Douds had “contributed significantly” to the protracted settlement process, that intention had “become redundant”.

[16] Judge Harrison then calculated what she considered a fair and reasonable amount of interest to be. She did so by settling on the midpoint between the offer for the runoff property Mr Douds was prepared to accept ($405,000), and the value Mrs Douds believed the runoff was worth ($515,000). This resulted in a figure of
$460,000. The Judge then subtracted $22,000, representing her estimate of real estate agent and legal costs. This resulted in a hypothetical net sale price of $438,000. The Judge calculated this amount would have reduced Mr Douds’ debt to Mrs Douds to
$111,000. As settlement would have occurred in February 2014, Judge Harrison reasoned that interest should be calculated on the basis of a notional debt of $111,000 from February 2014.

[17] Judge Harrison also accepted evidence that Mr Douds would have been able to pay a further $60,000 to Mrs Douds in October 2014, which would have left a balance of $51,000. Judge Harrison therefore decided that interest from October 2014 should be calculated on the basis of that $51,000. Judge Harrison settled upon May 2017 as
being the end point for interest payments as that was the date that the parties reached agreement on the value of the runoff property.

[18] The Judge calculated that interest in the sum of $4,810 was payable from February 2014 to October 2014 and interest in the sum of $8,563.75 was payable from October 2014 to May 2017. This interest rate was based upon the agreed rate of six per cent per annum. The total interest payable by Mr Douds to Mrs Douds was therefore $13,373.75.

Mr Douds’ contribution to improving the runoff property

[19] Judge Harrison took account of Mr Douds’ failure to pay the $2,500 contribution to the fund that was to be applied to improving the runoff property. She adjusted that amount for inflation, based on the New Zealand Reserve Bank inflation calculator, and held that Mr Douds was liable for the sum of $2,610.73 in relation to his contribution to improving the runoff property.

Accounting for income received from the runoff property

[20] Judge Harrison determined Mr Douds was to account for benefits he received in 2015 and 2016 from income received from the runoff property. Based on the figures provided to her, Judge Harrison concluded that Mr Douds needed to account to Mrs Douds in the sum of $12,000 on account of this factor.

Summary of judgment

[21] Judge Harrison took account of the fact Mr Douds had paid $24,370 in interest during the relevant period. After making the adjustments and allowances summarised at [15]-[20], Judge Harrison concluded that Mr Douds was liable to Mrs Douds for the sum of $123,614.48 payable by 22 January 2018 with penalty interest to apply at a rate of 9.5 per cent to any outstanding amount after that date.

Grounds of appeal

[22] Ms Douds’ appeal is advanced on the following grounds:

(1) That Judge Harrison erred by applying an “unfair and inequitable” test when assessing the amount of interest payable. Ms Douds argues that the consent orders specified that interest would be payable on the outstanding amount until the debt was repaid in full and that there is no scope for applying an “unfair and inequitable” test in these circumstances.

(2) Even if a “fair and equitable” test was applicable, Judge Harrison erred by failing to consider fairness and equity from Mrs Douds’ perspective.

(3) The Judge erred in re-calculating the interest from February 2014 when she had previously determined that the unfairness in relation to interest occurred only from 2015.

(4) Judge Harrison erred in valuing the runoff property at $460,000 as at February 2014.

(5) Judge Harrison erred by taking into account the $60,000 that Mr Douds offered to pay Mrs Douds in October 2014 because that offer was made in full and final settlement of Mr Douds’ debt.

(6) Judge Harrison erred by holding that no interest was payable after May 2017. She submits that the date of the resolution of the value of the runoff property is not relevant.

[23] Mrs Douds therefore seeks a total of $206,180. That sum is calculated on the basis of an interest rate of 6.5 per cent applied to $333,000 until May 2015 and on the sum of $120,000 from May 2017. It also includes additional penalty interest of three per cent since May 2015.

Governing principles

[24] Both counsel referred to B v F, in which Heath J explained the following governing principles concerning most appeals from the Family Court:³

(a) First, I must take account of the advantage that [the Family Court Judge] had of hearing and seeing the witnesses give evidence before him [or her]: see Austin Nichols at para [13].

(b) Second, to the extent that the Judge exercised any discretion in reaching his [or her] decision, I must determine whether those discretionary decisions were or were not open to him [or her], based on May v May [1982] 1 NZFLR 165 and Blackstone v Blackstone [2008] NZCA 312 at para [8].

(c) Otherwise, I am free to reconsider the Family Court’s decision and to substitute my own view on questions of fact and evaluation, if I were convinced that the first instance decision was wrong.

[25] In the present case, the hearing before Judge Harrison involved legal submissions only. The first principle referred to by Heath J in B v F is therefore not engaged.

[26] As the decision of Judge Harrison to make ancillary orders under s 33(1) of the Act involved the exercise of her judicial discretion, I should only interfere with her decision if:⁴

(1) I am satisfied Judge Harrison erred in principle; or

(2) Judge Harrison failed to take into account a relevant matter, or took into account an irrelevant matter; or

(3) Judge Harrison’s decision was plainly wrong.

[27] The consent orders made on 10 May 2013 were made pursuant to s 25 of the Act. The ancillary orders made by Judge Harrison on 19 December 2017 were made pursuant to s 33(1) and (3) of the Act. Section 33(1) provides:

³ B v F [2009] NZHC 1165; [2010] NZFLR 67 (HC) at [8], referring to Austin, Nichols & Co Inc v Stichting Lodestar

[2007] NZSC 103, [2008] 2 NZLR 141.

⁴ Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31]- [33].

33 Ancillary powers of Court

(1) The Court may make all such other orders and give such directions as may be necessary or expedient to give effect, or better effect, to any order made under any of the provisions of sections 25 to 32.

[28] Section 33(3) sets out a non-exhaustive list of 14 powers conferred upon the Court when making ancillary orders to those made pursuant to, amongst other provisions, s 25 of the Act. The powers in s 33(3) include the power to order one party to pay a sum of money to the other party and confers discretion on how that payment can be made.⁵

[29] The jurisdiction conferred by s 33(1) of the Act is, however, limited to giving effect or “better effect” to orders made under ss 25 to 32 of the Act. It does not permit the parties to relitigate substantive issues, or the Court to revisit the essential features of the principal orders. The purpose of s 33(1) and (3) is to empower the Court to exercise its discretion to achieve fair and equitable resolution of outstanding disputes. This approach reflects the purposes of the Act, which include:

(1) a “just division of relationship property between the spouses or partners when their relationship ends”;⁶

(2) “the principle that questions arising under [the] Act about relationship property should be resolved as inexpensively, simply, and speedily as is consistent with justice”.⁷

Analysis

Interest on the balance of the settlement sum

[30] Both parties claim to be aiming to give effect to the consent orders. In my assessment, however, neither party is entitled to occupy the moral high ground.

[31] It is regrettable that the consent orders did not provide a robust mechanism for resolving disputes over the sale of the runoff property.

⁵ Property (Relationships) Act 1976, s 33(3)(i) and (4).

⁶ Section 1M(c).

⁷ Section 1N(d).

[32] While the consent orders provided some degree of latitude to the parties to reach agreement over the sale of the runoff property, that flexibility was misguided in this case as neither party has demonstrated an ability to settle their differences.

[33] The process for selling the runoff property required both parties to act cooperatively and in good faith. This did not happen. Mr Douds reneged on his obligation to contribute $2,500 to the improvement fund and proceeded to have Mr McDonald market the property with little input from Mrs Douds.

[34] For her part, Mrs Douds allowed her feelings of mistrust to cloud her ability to make sound judgements about the sale of the runoff property. It should have been apparent to Mrs Douds after she tried to market the property in 2014 and 2015 that the real market value of the property at that time was in the vicinity of $400,000. By that time, three offers had been received, the highest was $405,000 plus GST.

[35] Against this background Judge Harrison was entitled to develop a solution that was fair and equitable to both parties and which gave broad effect to the terms and intentions of the settlement order. She did so by developing and giving effect to the methodology I have explained at [15]-[18]. In particular:

(1) It was reasonable for Judge Harrison to adopt a midpoint between the parties’ respective positions concerning the value of the runoff property in 2014. As explained at [11], there was considerable volatility in the valuations of the runoff property, and the offers from the market demonstrated it was not an easy property to sell. In those circumstances, it was appropriate for Judge Harrison to follow her pragmatic approach when settling upon a hypothetical value for the property.

(2) There was nothing wrong with Judge Harrison’s estimates of the expenses that would have been incurred if the runoff property had been sold to a third party.
(3) It was also appropriate for Judge Harrison to have reasoned that interest should have been calculated on the notional debt of $111,000 from February 2014 because that was the date the property would have been sold, albeit for a lower sum than Mrs Douds considered reasonable.

(4) While Judge Harrison may have been a little generous in giving Mr Douds credit for the $60,000 offer he made in October 2014, I do not consider her approach involved a misapplication of her discretion.

(5) Finally, it was appropriate for Judge Harrison to adopt May 2017 as the end date for interest payments, as that was the date that the parties resolved their dispute over the value of the runoff property. But for that dispute, the debt would likely have been paid off earlier.

[36] The onus on Mrs Douds is to demonstrate that Judge Harrison failed to properly exercise her discretion by erring in one of the ways I have set out at [26]. That is a high onus which Mrs Douds has failed to overcome.

[37] Mrs Douds has not discharged the onus placed upon her because Judge Harrison exercised her discretion in a principled and logical manner that took into account all relevant matters and was not plainly wrong.

[38] On the contrary, Judge Harrison adopted a fair, reasonable and robust approach to determining what interest Mr Douds should pay to Mrs Douds. There is no basis upon which I can properly interfere with the Family Court Judge’s decision concerning the interest payable by Mr Douds to Mrs Douds.

Conclusion

[39] Mrs Douds’ appeal is dismissed.

[40] The orders made by the Family Court on 19 December 2017 are upheld, save for one minor variation, namely, Mr Douds is to pay Mrs Douds $123,614.48 on or before 9 August 2018. That is the sum which Judge Harrison ordered he pay. In my assessment, it is proper that that is the sum he now be required to pay. If Mr Douds
does not do so, he will incur interest at a rate of 9.5 per cent per annum from 9 August 2018.

[41] The appeal from Judge Harrison’s refusal to order the sale of Mr Douds’ farm is dismissed.

[42] Like Judge Harrison, I consider the interests of justice are best served by requiring each party to bear their own costs. This reflects the fact that fault lies with both parties and that the parties must now close this chapter of their lives.

D B Collins J

Solicitors:

Shaun Gifford, New Plymouth for Appellant Govett Quilliam, New Plymouth for Respondent