B V B HC AK CIV-2007-404-004717

B V B HC AK CIV-2007-404-004717 1 May 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2007-404-004717BETWEEN 'B' Appellant AND 'B' Respondent Hearing: 11 March 2008 Appearances: R C Knight for Appellant A C M Fisher for Respondent Judgment: 1 May 2008 at 3:00 pmRESERVED JUDGMENT OF COURTNEY JThis judgment was delivered by Justice Courtney on 1 May 2008 at 3:00 pm pursuant to r 5400(4) of the High Court Rules Registrar / Deputy Registrar Date.. Solicitors: Ellis Gould, P O Box 1509, Auckland Fax: (09) 358-5215 Simpson Grierson, Private Bag 92518, Auckland Fax: (09) 307-0331Counsel: R C Knight, P O Box 2946 Shortland Street, Auckland Fax: (09) 309-8164 A C M Fisher, P O Box 1752 Shortland Street, Auckland Fax: (09) 366-4493Introduction[1] Mrs B appeals against the amount awarded to her by way of interim maintenance. She contends that the Judge erred in assessing her reasonable annual by excluding a figure of $62,248.33 for legal and accounting expenses. [2] Since the Family Court hearing a second issue has arisen, namely Mr B's ability to meet an increased award of interim maintenance. In the Family Court he accepted that he did have the means to do so. Now, however, he says that due to a downturn in his business he is unable to do so. He was given leave to adduce further evidence on this issue. [3] During argument the issues to be determined on appeal moved away from the points on appeal filed and can be fairly articulated as: a) As a matter of law, can accounting and legal expenses be included in an interim maintenance order? b) If Mr B cannot meet an increase in the interim maintenance order made by the Family Court, which of he or Mrs B should be required to resort to capital to meet Mrs B's interim maintenance needs?Approach on appeal[4] An appeal from the Family Court is by way of rehearing and the general approach is that described by Blanchard J in D v S1 :[18] Whilst the High Court will naturally give weight to the views of the specialist Court and may in some cases think it best to remit the case for reconsideration, it is fully entitled to substitute its views on questions of fact[5] That approach is consistent with the recent decision of the Supreme Court inAustin Nichols & Co Limited v Stichting Lodestar2 :[5] The appeal court may or may not find the reasoning of the tribunal persuasive in its own terms. The tribunal may have had a particular advantage (such as technical expertise or the opportunity to assess the credibility of witnesses, where such credibility is important). In such a case the appeal Court may rightly hesitate to conclude that findings of fact or fact1 [2003] NZFLR 81 (CA) at [18]2 [2007] NZSC 103and degree are wrong. [see among other authorities, Shotover Gorge Jet Boats Limited v Jamieson [1987] 1 NZLR 437 (CA) at 440, per Cooke P, for the Court]. It may take the view that it has no basis for rejecting the reasoning of the tribunal appealed from and that its decision should stand. But the extent of the consideration of an appeal Court exercising a general power of appeal gives to the decision appealed from as a matter for its judgment. An appeal Court makes no error in approach simply because it pays little explicit attention to the reasons of the Court or tribunal appealed from, if it comes to a different reasoned result. On general appeal, the appeal Court has the responsibility of arriving at its own assessment of the merits of the case.[6] Where, however, the appeal involves a challenge to the exercise of the Family Court's discretion the approach described in May v May3 subsists, namely that the Family Court Judge must be shown to have applied a wrong principle, taken into account irrelevant factors, failed to take account of relevant factors or be plainly wrong.Applications for interim maintenance under s 82[7] Mrs B's application was made under s 82 Family Proceedings Act 1982 which provides:Interim maintenance(1) Where an application for a maintenance order or for the variation, extension, suspension or discharge of a maintenance order has been filed, any District Court Judge may make an order directing the respondent to pay such periodical sum as the District Court Judge thinks reasonable towards the future maintenance of the respondents [spouse, civil union partner] [or de facto partner] until the final determination of the proceedings or until the order sooner ceases to be in force.[8] The discretion under s 82 is frequently referred to as unfettered, though as Ellen France J recognised in T v H4 the discretion is not unfettered in the sense of not being subject to interference if incorrectly exercised. The approach to be taken is that described in Ropiha v Ropiha5 :The purpose of the provision is obvious enough. It is to protect the position of an applicant who may have inadequate means to meet current needs pending determination of the proceedings, if and so far as it is reasonable in all the circumstances to do so. But the statute does not expressly lay down conditions or criteria as to the granting of an interim order. This is unlike3 [1982] 1 NZFLR 165 (CA) at 169-1704 [2006] NZFLR 561,5655 [1979] 2 NZLR 245 decided in relation to the predecessor of s 82the position that applies where permanent maintenance is sought under s 25. There the Court is required to have regard to the matters set out in s 27(1) and (2). In hearing and determining an application for an interim maintenance order the Court is not required to approach the matter in terms of s 27. It is given an unfettered discretion both as to whether an order should be made at all and as to the amount if an order is made. All that can be said is that the making of an order depends on all the circumstances of the particular case. The Court must do what it thinks just. In considering the position of an applicant for an interim order the Court will necessarily pay particular regard to the reasonable needs of the applicant over the period for which the order will subsist and the means likely to be available to the applicant to meet those needs. In assessing those needs the Court will take into account the standard of living the parties had adopted for themselves. And we use the term "means" in the broadest sense to encompass any sums which the applicant could reasonably be expected to earn from his or her own efforts during the term of any interim order together with any other funds available to the applicant during that period.And more recently in Z v Z (No 2)6 :Obviously, "reasonable needs" is not limited to a subsistence level. Nor are reasonable needs necessarily uniform. What constitutes the reasonable needs of one person may not be sufficient to meet the reasonable needs of another. What is appropriate provision for the reasonable needs of a wife in some circumstances may not be adequate for a wife in other circumstances.Can legal and accounting costs be treated as a reasonable need for the purposes of interim maintenance?[9] Mrs B had included in her claim for reasonable expenses a figure of $62,248.33 for legal and accounting expenses. Although not recorded in the judgment it was assumed that part of this figure related to the substantive proceedings on foot between the parties. Mr B accepted that this figure was reasonable but contended that such expenses should not, as a matter of law, be included in an interim maintenance order. [10] The Judge recognised that she had an unfettered discretion in making an order under s 82 and could take into account the principles set out in ss 62 - 66 of the Act, though was not obliged to do so7 . In relation to the legal and accounting expenses the Judge referred to the decision of Allan J in B v M8 and concluded at [31]:6 [1997] 2 NZFLR 258, 277-87 Langridge v Langridge [1987] 2 NZLR 5548 [2005] NZFLR 730 at 779Although both parties have quite properly included in their declaration of financial means and financial sources the existence of both legal and accounting advice in respect to proceedings between them, any recovery must be the matter of a costs argument in respect to specific proceedings there cannot be the opportunity to have two avenues of recovery.[11] The Judge clearly viewed the rationale for excluding such expenses as being the danger that the party reimbursed for such costs might recover twice over. This was the proposition contended for by Ms Fisher for Mr B. She submitted that legal and accounting expenses were inherently different to other types of expenses usually incurred and if provision needed to be made for them that should be done by way of interim distribution of the relationship property rather than by way of maintenance. She said that it was unfair to require one party to meet the legal and accounting costs of another so as to fund the litigation between them, the implication being that this might lead to the party being reimbursed embarking on meretricious litigation or prolonging litigation in a way that would not occur if the costs were being met from his or her own resources. There was also the consequent unfairness of the party paying for those expenses being at risk of a costs award at the conclusion of the proceedings, resulting in him or her effectively paying twice over. [12] Alternatively, Ms Fisher suggested that Mrs B is at present benefiting from the dividends drawn from the company because Mr B is meeting costs for which they are both liable. If he is required to meet Mrs B's legal and accounting costs out of his share of the dividends and they are later the subject of division by the Family Court he will effectively have paid Mrs B twice. For these reasons Ms Fisher submitted that legal and accounting fees should be treated as a question of costs in relation to the proceedings rather than falling within the realm of maintenance. [13] Mr Knight, for Mrs B, submitted that the Judge had erred in proceeding on the basis that, as a matter of law, legal and accounting costs should be excluded from such an assessment. He submitted that a wider view should have been taken of the competing means and needs of the parties and in the circumstances of this case the Judge should have approached the matter in the manner described by the Court of Appeal in Ropiha. He submitted that the following circumstances justified treating these expenses as capable of being the subject of interim maintenance orders:• The length of the relationship (32 years)• The fact that during the relationship Mrs B assumed the role of managing the household and as primary caregiver of the couples' son. As a result she was financially dependent on her husband.• The household had enjoyed a very high standard of living.• Due to Mrs B's age and lack of work experience she is not able to support herself. [14] Mr Knight pointed particularly to the parties' respective affidavits of financial means, which showed that in the year ended 31 March 2007 Mrs B's income from all sources (superannuation, interest and maintenance) was $63,393.90 whereas Mr B's income from all sources was $556,642. As a result he said that it was appropriate to award a greater sum to Mrs B and Mr Knight relied on Judge Whitehead's observation in Cavanagh v Cavanagh9 :A very special case may also be made out where the liable spouse has considerable means and it would not be unfair for a greater share of those means to be paid out in maintenance.[15] Whether legal and accounting costs may, as a matter of law, be included in an interim maintenance order under s 82 does not appear to have been the subject of judicial consideration. In reaching her decision the Judge referred to the decision inB v M, though without any consideration of the circumstances in which that decision was made. As Mr Knight pointed out, B v M was decided in the context of a substantive determination of relationship property issues and the maintenance being sought was generally post-dissolution maintenance. The legal and accounting costs claimed represented non-recurring past expenditure and Allan J did not give specific reasons for his decision to exclude them from the maintenance order. Although this aspect of the decision was affirmed on appeal there was no specific consideration of the legal and accounting expenses 10 . [16] I do not see any reason that legal and accounting expenses should not be viewed in the same way as any other expense that might form the basis for an application for interim maintenance. In particular I do not accept that they should be9 [1994] NZFLR 365 at 37110 M v B [2006] 3 NZLR 660, 702; (2006) 25 FRNZ 171treated as costs in the cause to be determined at the conclusion of the proceeding. In this regard I agree with the reasons Holman J gave in A v A (Maintenance Pending Suit: Provision for Legal Fees)11 :In my view certain features do put matrimonial proceedings in a special category. First, the factors that, as I have held, in matrimonial proceedings a power exists under s 22 which does not exist as between parties in normal civil proceedings. Secondly, typically in matrimonial proceedings, as in this case, there has been a history of economic dependence of one party to the proceeding upon the otherIn short the whole legal and factual context and the relationship between the parties to matrimonial proceedings is a special one and sui generis; and the analogy with ordinary civil proceedings is unsound.[17] The expenses incurred in resolving the legal issues between the parties are a natural consequence of the separation, as much as the need for the party leaving the matrimonial home to purchase new furniture. In the context of an interim maintenance order I see nothing inherently objectionable about reasonable legal and accounting costs being included and consider that it would be consistent with the approach described in Ropiha v Ropiha and Z v Z (No 2) to treat these expenses as reasonable ones within the broad meaning to be attributed to the needs of the party applying. [18] Further, in this case there is clearly an issue as to the extent to which the accounting costs relate solely to the litigation and to what extent they relate to the general financial arrangements between the parties which seem to be reasonably complex. The Judge recognised that, for the accountant's costs in particular, there was likely to be ongoing payment as a result of the complexity of the parties' finances and it was therefore appropriate to credit some portion of the accounting expenses to her reasonable needs. She adjusted the assessment of Mrs B's reasonable annual costs to reflect what she termed a credit. [19] However, the adjustment was intended to reflect not only the accounting costs unrelated to litigation but also some other items not included in Mrs B's calculation (entertainment, travel, leisure, possible additional tax relating to the rental property, as well as accounting costs unrelated to the proceedings 12 ). The credit ($8,248) was extremely small and there was no effort made to actually identify11 (1 FLR) [2201}12 [35] and [36]the basis on which it was calculated. It seems very little to reflect the intended scope of the credit. [20] Nor do I consider that the possibility of costs being awarded in the substantive proceeding makes it unfair to include legal and accounting expenses in an interim maintenance order. Costs are discretionary. The fact that the party against whom costs are sought may have effectively funded the other party as a result of an interim maintenance order is clearly a matter relevant to the exercise of the discretion. There is no real risk that someone in that position would be faced with having to meet those costs twice over. [21] It follows that the Judge did err in treating the legal and accounting expenses as ones that should not, as a matter of law, be the subject of an interim maintenance order.Can Mr B meet his maintenance obligation from income and if not, which party should have to resort to capital to meet Mrs B's interim maintenance needs?Evidence about Mr B's income[22] Since the Family Court hearing Mr B has asserted that his financial position in terms of both income and borrowing capacity has significantly deteriorated and that he is now unable to meet any award of interim maintenance. He receives a salary of $11,000 per month after tax and dividends of $1200 per month. However, he claims that his company, C Co, has faced difficulties over the last financial year, he has received substantially lower dividends from his business than previously, has a fully utilised $750,000 mortgage facility with the National Bank and no prospect of a further dividend until April 2008. [23] Mr B was granted leave to file affidavits regarding his own and the company's financial positions. This included a requirement for a further affidavit from the chief financial officer of the company annexing copies of the company's annual accounts for the last three years as well as preliminary accounts for the current financial year. [24] Mr Knight submitted that the affidavit evidence filed by the chief financial officer, Mr M, did not support Mr B's assertion. Mr Knight pointed to Mr M'sevidence that Mr B received a quarter three dividend in November 2007 (apparently in the vicinity of $70,000) and was expected to receive a quarter four dividend in April 2008 of about $118,000. That dividend is consistent with the final dividend paid in previous years. Mr M exhibited to his affidavit preliminary accounts for the year ending 2007. These accounts showed an after-tax profit for the year ending 2007 of $86,677 more than forecast. Mr Knight also referred to the balance sheet forming part of those accounts which showed declared dividends of $817,070. [25] Ms Fisher submitted that the figure shown on the balance sheet was not correct and that the recently finalised accounts actually showed a dividend figure of about $400,000. She explained that neither she nor Mr B had perceived these figures to be particularly important or ones that would be in issue at this hearing. This I cannot understand, given Mr B's assertions in his affidavits regarding the dividend. [26] Ms Fisher sought leave to call Mr M, which Mr Knight objected to on the ground that Mr B had obtained leave to adduce further evidence on strict terms and should not now be permitted to adduce further evidence without Mr Knight having the opportunity to consider it. I upheld Mr Knight's objection. Mr B's failure to update the Court with the new figures placed both Mr Knight and the Court in an invidious position. I was not prepared to allow further evidence offered in haste without Mr Knight having an opportunity to properly consider it. Mr B knew that C Co's performance and his income were major issues in this case. It was quite unacceptable to suggest in the middle of the hearing that a witness should be called to produce accounts that the appellant had never seen and which contradicted the evidence on which she had proceeded in preparing for the appeal. [27] However, I naturally accept counsel's advice that the figure contained in the balance sheet annexed to Mr M's affidavit is now incorrect and am therefore not able to resolve the question of Mr B's income. If the appeal turned on whether Mr B had sufficient income to meet interim maintenance payment I would remit the matter to the Family Court for that question to be determined. However, these parties have, between them, substantial capital. I have concluded that if Mr B does not have sufficient income to meet his obligations to Mrs B he should resort to capital to do so. As a result it is unnecessary to determine whether he can meet his obligations from his income alone.Resort to capital[28] Ms Fisher submitted that, even if legal and accounting expenses could properly be included in an interim maintenance order, Mrs B has capital and it is not unreasonable to require her to have to resort to that to meet them. In particular Ms Fisher pointed to the fact that Mrs B has received an interim distribution of relationship property to the value of $1.45m, her residence is valued at about $1.8m and at separation she had at least $100,000 in her bank account. Ms Fisher also pointed to the possibility of borrowing or seeking legal aid in the event that Mrs B has insufficient income to meet the legal and accounting costs. [29] Mr Knight resisted the suggestion that Mrs B ought to be required to resort to capital while ultimate distribution of the relationship property is under way. He submitted that Mr B had benefited from receipts from relationship property to a substantial extent and held or controlled a far greater proportion of the relationship property than Mrs B. It was therefore unreasonable to expect Mrs B to access her capital, especially since the bank deposit was arguably separate property. [30] It appears that Mr B's counsel had made this same submission in the Family Court but the Judge did not deal with it, presumably because she viewed it as otiose given her finding that such expenses should not form part of an interim maintenance order in any event. In this Court, too, the submission was directed specifically towards the legal and accounting expenses. However, in light of my conclusion that such expenses may form part of an interim maintenance order, the issue is a more general one i.e. where neither party has the income needed to meet the interim maintenance needs of one but both have capital, which party should be required to resort to the capital. [31] The facts as presented in the Family Court showed unequivocally that Mr B enjoyed a very much greater income than his former wife in the post-separation period. Some of this income was derived from relationship property and some from personal exertion. If Mr B continued to have a level of income that enabled him to make payments on an interim basis to his former wife, then there would be no reason to depart from that position merely because legal and accounting expenses were now included in the maintenance order. If he no longer has that level of income then thequestion is whether it is he or Mrs B who should be required to resort to capital to meet Mrs B's interim maintenance needs. [32] In the present case, the parties had followed the same pattern throughout their marriage. Mr B worked in his business and Mrs B looked after the household and their child. There appears to have been no expectation that Mrs B would be required to maintain herself and the standard of living enjoyed by the parties was very high. Mr B continues to work. Mrs B is not expected to work because of her age. [33] The purpose of interim maintenance, as discussed in Ropiha v Ropiha is to protect the position of the party who does not have adequate means pending determination of the substantive proceedings. It is apparent that how this is best done will be a question to be decided on the facts of each case. As a general proposition, it is undesirable for either party to have to diminish capital assets in order to maintain themselves. In Robinson v Robinson13 Williams J observed that where parties were affluent there should be no call on them to sell assets simply to maintain themselves while the ultimate distribution of the relationship property was proceeding. Of course the facts of that case were somewhat different; the husband had substantial income and control over income-producing relationship property whilst the wife had some capital (possibly separate property) but little income. The history of the marriage had been one of the husband working in a professional practice and the wife tending to the house and children. The Judge held that the husband should be required to continue to maintain his former wife on an interim basis, notwithstanding that she had access to some capital. [34] There is some assistance to be gained from the decision in Young v Peebles14in which Potter J upheld an award maintenance which, because of a decrease in the husband's salary, would require him to draw on his capital resources. However, the reason for the decrease in the husband's salary was a management decision taken by the company which the husband and his family controlled to build up equity through decreasing his drawings. Thus, the level of the husband's income was within his control. There is no evidence that that is the position in this case.13 [2000] NZFLR 91614 HCAK AP 103-SW99 26 October 1999 Potter J[35] Whilst it is entirely appropriate for a party who enjoys substantial income to provide interim maintenance for another who does not, especially if that is the manner in which the parties had arranged their affairs throughout their married life, there is no general principle by which to determine which party should resort to capital in order to maintain the other where both have capital and neither have income. This is a question of fact that should be dealt with in a way that is consistent with the overall factual context of the case. The relevant factors include the extent of the capital held by each party and the nature of the assets. Where, for example, the capital asset is the primary residence of one and the other has access to capital unconnected with his or her primary residence the obviously preferable course would be for the maintenance costs to meet by resort to that asset. [36] In this case both parties have capital assets other than their residences. In both cases it appears that some of the assets are separate property and some are relationship property. Ms Fisher did not take any issue with Mr Knight's assertion that the $100,000 in Mrs B's bank account at separation was separate property. Conversely it appears that some of the shares in C Co are the separate property of Mr B. [37] However, most of the relationship property is under the control of Mr B. Without attempting to identify and value the various assets the position appears to be generally as follows. Mr B has deposed that there is about $13m of relationship property and the affidavits suggest that of the relationship property, Mrs B controls the property at Beach Road and an apartment at Takapuna, each worth about $1.8m. Mr B controls the rest, either directly or as trustee of the family trust. In rough terms this leaves Mr B with capital under his control of more than $9m and Mrs B with capital of about $3.6m. [38] Further, it is not the case that Mr B has no income. He still has income and will continue to have income since he is still working and will continue to receive a dividend even if it is at a lower level than previously. In comparison, Mrs B is not working and is not expected to work. Against the background of the long marital relationship in which Mr B produced the income and controlled the assets I consider that the appropriate course is for Mr B to have recourse to capital to meet his interim maintenance obligations to Mrs B if his income is no longer sufficient.Result[39] The appeal is allowed. Parties may address the question of costs by memorandum filed on behalf of: a) Mrs B by 16 May 2008; b) Mr B by 23 May 2008; c) Mrs B in reply by 30 May 2008. ____________________ P Courtney J