BURGESS V BEAVEN CA CA 371/2009

BURGESS V BEAVEN CA CA 371/2009 20 December 2010NOTE: 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 IN THE COURT OF APPEAL OF NEW ZEALAND CA 371/2009 2010 [NZCA] 625BETWEEN GARY OWEN BURGESS Appellant AND SUSAN NATALIE BEAVEN Respondent Hearing: 5 October 2010 Court: Harrison, Wild and Heath JJ Counsel: G O Burgess, in person, Appellant A M Corry for Respondent Judgment: 20 December 2010 at 11.00 amJUDGMENT OF THE COURTA. The appeal is allowed and the declaration of unequal sharing of relationship property made in the Family Court's judgment of 30 June 2008 is set aside. B. Ms Beaven shall pay to Mr Burgess the sum of $22,000 within three calendar months of the date of this judgment. C. Ms Beaven is entitled to retain as her separate property the benefit of her post-separation dealings with Woodbury in terms of [50] of this judgment. D. Leave is reserved to apply to the Family Court, in terms of [51] of this judgment. E. No order as to costs.____________________________________________________________________REASONS OF THE COURT(Given by Heath J)Introduction[1] Mr Burgess and Ms Beaven married on 18 May 2002. They separated just over a year later, on 20 May 2003. Regrettably, nearly eight years on, despite their short marriage and few assets, relationship property proceedings remain unresolved. [2] On 3 June 2009, this Court granted an extension of time to apply and leave for Mr Burgess to appeal from a judgment given in the High Court at Christchurch on 27 November 2007. 1 The reason for allowing leave was a concern about the approach taken in the Family Court (upheld by the High Court) to assessment of the financial contributions of the marriage partners, in the context of a marriage of short duration.2The procedural history[3] The substantive relationship property proceeding was heard by Judge Strettell, in the Family Court at Christchurch. 3 Leaving to one side credits given to each party for post-separation contributions, the Judge considered that Ms Beaven's contributions to the marriage justified an unequal sharing of relationship property. Ms Beaven received 65 per cent and Mr Burgess 35 per cent. [4] Mr Burgess' appeal was heard by John Hansen J, in the High Court.4 In effect, the Judge considered that $44,000 should be brought back into account for relationship property purposes. He found that a forgiveness of debt from Ms Beaven's mother had not (contrary to the Family Court Judge's view) been forgiven.1 Burgess v Beaven [2009] NZCA 229. Leave had previously been refused by the High Court on 9 April 2008.2 Property (Relationships) Act 1976, ss 14 and 2E (definition of "marriage of short duration").3 Burgess v Beaven FC Christchurch FAM-2005-009-3126, 16 May 2007 [Burgess – First FC judgment].4 Burgess v Beaven HC Christchurch CIV-2007-409-1361, 27 November 2007.[5] That finding required a sum of $40,000 to be brought back to account for relationship property purposes. 5 In addition, because the Judge also found that Ms Beaven used a sum of $4000 from the proceeds of sale of Mr Burgess' pre- marriage property to effect cancellation of a contract to acquire a re-locatable home for another property they were purchasing in North Canterbury, 6 a further adjustment was required. The Judge remitted the proceeding to the Family Court for "[reassessment of] the relative percentage contributions of the parties in the light of [his] judgment".7[6] On 30 June 2008, following receipt of written submissions, the Family Court delivered a second judgment. 8 While having regard, arithmetically, to the findings made by the High Court,9 the Judge declined to reconsider any questions of valuation in respect of the relationship property in issue. 10[7] On reconsideration, Judge Strettell adjusted the percentages in which Mr Burgess and Ms Beaven were entitled to share in relationship property. The amended apportionment was 62 per cent (Ms Beaven) and 38 per cent (Mr Burgess). 11[8] Mr Burgess appealed against the second Family Court judgment, on the ground that the Judge was wrong not to enter into a reconsideration of valuation issues. That appeal was dismissed. 12 Fogarty J took the view that there was an issue estoppel created by the absence of any finding by John Hansen J that the Judge had erred in his approach to the valuation issue. On that basis, he held that Judge Strettell had been right to regard the valuation point as incapable of relitigation. 135 At [28].6 At [16]. This reference is to a property at Medbury acquired after the parties had married: see [12]–[14] below.7 At [30].8 Burgess v Beaven FC Christchurch FAM-2005-009-3126, 30 June 2008 [Burgess – Second FC judgment].9 At [25]-[29].10 At [43].11 At [33].12 Burgess v Beaven HC Christchurch CIV-2007-409-1361, 15 December 2008.13 At [32].[9] Because of Fogarty J's views, Mr Burgess sought an extension of time and leave to appeal against John Hansen J's judgment. He did not seek to challenge the judgment given by Fogarty J. In granting leave, this Court said:[22] The effect of Judge Strettell's decision was to give the principal benefit of this price inflation over the period of the marriage to the respondent. (It will be recalled that the parties' non-financial contributions during the marriage were equal.) This result was achieved as a result of: (a) the time at which the parties' financial contributions were assessed (one at the beginning of the marriage, one at the end); and (b) the fact that the parties decided to sell the applicant's house and retain the respondent's house, rather than the other way round. If the parties had chosen instead to retain [Mr Burgess'] house and to sell [Ms Beaven's] house, on the logic of Judge Strettell's reasoning [Mr Burgess] would have made the greater contribution. Such an analysis seems to us, arguably at least, to be wrong in principle, and to produce an unjust outcome.The Court took the view that it was "strongly arguable that an injustice [had] been done". 14The relationship property[10] Although Mr Burgess suggested that he and Ms Beaven lived in a de factorelationship before their marriage, it is unnecessary to traverse that issue because it could have no material effect on the outcome of the appeal. We record Ms Beaven's denial of that allegation. [11] At the time of their marriage, Mr Burgess and Ms Beaven each owned properties in Christchurch. Mr Burgess' property was in Wychbury Street (Wychbury), while Ms Beaven's was in Woodbury Street (Woodbury). On their marriage, each of those properties were classified as relationship property. 15[12] Mr Burgess and Ms Beaven decided to pool their financial resources to purchase a property in North Canterbury. As both of them were involved in the14 Burgess v Beaven [2009] NZCA 229 at [22] and [24].15 Property (Relationships) Act 1976, s 8(1)(c).viticulture industry, they were interested in developing a vineyard. In July 2002, in furtherance of that joint goal, Mr Burgess sold Wychbury. The sale price was $129,500; as against a Government valuation as at September 2001 of $130,000. Taking into account repayment of a mortgage and other costs associated with sale, the net proceeds of sale were about $69,000.16 Those proceeds were used to buy a property in Medbury, in North Canterbury (Medbury). [13] Medbury was purchased in August 2002, for $144,000. In addition to funds injected from the sale of Wychbury, a mortgage was obtained from SBS Bank, in the sum of $75,000. In addition, because Mr Burgess and Ms Beaven had registered as a partnership, for GST purposes, a refund of approximately $16,000 was obtained from that source. For the purposes of dividing relationship property, Judge Strettell valued Medbury at $252,000; a valuation fixed as at the date of the first Family Court hearing, in the early part of 2007, 17 about four years after separation. [14] At the time of purchase, Medbury was undeveloped. A caravan was put on the site. From time to time, when working on the property, Mr Burgess and Ms Beaven (or one of them) stayed in the caravan. For the balance of the time, they occupied Woodbury. [15] In September 2001, the Government valuation for the Woodbury property was $128,000. In March 2003, about two months before separation, Ms Beaven entered into an agreement to sell that property, for $160,000. Settlement was effected in June 2003, after separation. After discharge of debts and payment of costs of sale, Ms Beaven received a net sum of $156,642. In the absence of evidence to the contrary, the Family Court Judge found that any increase in value of that property, between marriage and separation, was due to inflation.18[16] Initially, Ms Beaven invested the proceeds of sale. By September 2003, all but $36,400 was withdrawn, to enable Ms Beaven to acquire a property in Cranford16 From reading the various judgments of the Family Court and High Court, we have had some difficulty in reconciling figures used to reflect valuations of property and contributions to the marriage. For that reason, we have rounded such figures in this judgment.17 Burgess – First FC judgment at [39] and [106]. The hearing took place over three days; one each in January, February and March 2007.18 Ibid, at [25].Street, Christchurch. That property was acquired in September 2003 and sold three years later, in November 2006, for $175,000. The net proceeds from sale of the Cranford Street property were $166,000. As a result, Ms Beaven received a capital gain of about $15,000 on sale of that property and retained the sum of $36,400 from the proceeds of sale of Woodbury.The first Family Court judgment[17] In his first judgment, Judge Strettell said: 19[106] In summary, therefore, relationship property consists of the value of Medbury set at $252,000 plus stock and plant less liabilities, $196,534 nett, Cranford Street, $175,000, any additional balance sum received from the sale of Woodbury invested in the bank account together with interest to date, chattels and motor vehicles as agreed, the sum of $750 payable to reflect the respondent's use of $8000 bridging finance, the balance sum of $4050 to the extent it has not been repaid by the respondent post separation.[18] However, Judge Strettell considered there were factors favouring a (net) "sale price value" of Woodbury attaching to Ms Beaven's contributions, for s 14 purposes: 20a) There was no evidence to suggest Mr Burgess made any tangible contribution to the property which might have been reflected in an actual increase in value. b) During the year of the marriage the value of the home was increased by $40,000, being the amount of the debt forgiven by Ms Beaven's parents' family trust. 21c) An approach of that type was justified by the need to secure a "just division" of relationship property. 2219 At [106].20 At [71].21 At [71](b). The Judge relied on Illingworth v Illingworth [1981] 1 NZLR 1 (CA) as authority for the proposition that such an increase in value should be treated as a contribution by Ms Beaven for s 14 purposes.22 At [71](c), citing s 1N(c) of the Property (Relationships) Act 1976.[19] By setting the value of Ms Beaven's contribution to Woodbury at the final net sale price, the need to factor in the forgiveness of the loan as a separate contribution was avoided. However, some adjustment was required later because the finding about a forgiveness of debt was reversed on appeal. [20] The Judge considered that Mr Burgess' and Ms Beaven's non-financial contributions to the marriage were "comparable". 23 However, based on (what he regarded as) "a clear imbalance" in financial contributions, unequal sharing was directed. 24 Judge Strettell held that Ms Beaven's contributions to the marriage had "clearly been disproportionately greater" than those of Mr Burgess.25 The division of 65 per cent to 35 per cent, in favour of Ms Beaven, was the outcome of that funding. 26The High Court judgment[21] Mr Burgess appealed to the High Court. His appeal was determined in a reserved judgment, delivered on 27 November 2007. The parties had identified three issues for determination. The first and primary issue, relating to an additional $44,000 of relationship property was, as noted above, decided in Mr Burgess' favour, and was remitted back to the Family Court; it does not require our further consideration. However, the second and third issues remain live, and the second is effectively the subject of this appeal. [22] In summary, John Hansen J dismissed an argument that the net sum available from Wychbury Street of $68,700 should be increased to $112,580 to allow for inflation. The High Court Judge found that Mr Beaven should not be entitled to take the benefit of increases in value of Woodbury due to inflation during the course of the marriage. He found that Judge Strettell was correct to assess Mr Beaven's contribution as at the date Wychbury was sold and the money was applied to23 At [78].24 At [79].25 Property (Relationships) Act 1976, s 14(2)(c).26 At [80].Medbury. The Judge's conclusion on this point was the reason for this Court's decision to grant Mr Burgess leave to appeal (see [9] above). [23] Finally, John Hansen J rejected an argument that Ms Beaven had unlawfully used relationship property – that is from the proceeds of sale of Cranford Street. The Judge dismissed an argument that Judge Strettell wrongly gave Ms Beaven full credit for an increase in the value of the property pool of $48,000.The second Family Court judgment[24] On remission to the Family Court, Judge Strettell regarded his task as no more than a review of the parties' contributions, in light of the High Court judgment, and the recalculation of entitlements based on that and any further evidence available. 27 The Judge was not prepared to consider wider issues raised by Mr Burgess. [25] The Judge also declined to reconsider a valuation of Medbury, which Mr Burgess had originally elected to retain but then wished to sell. Judge Strettell did not consider that there was any real merit in revaluing relationship property. [26] Subject to post-separation adjustments, the final distribution of relationship property was set out by the Family Court Judge as follows: 281. The sale proceeds of Cranford Street $166,113.09 2. The net value of Medbury 196,534.00293. Interest 6,535.14 4. Westpac balance 3,428.56 5. Caravan 1,500.00Total $374,110.79Percentage Mr Burgess : $374,110.79 divided by 38 per cent 142,162.1127 Burgess – Second FC judgment at [8].28 At [44]29 This figure took account of stock, plant and liabilities: see [17] above.Percentage Ms Beaven: $374,110.79 divided by 62 per cent 231,948.68Analysis(a) Unequal sharing[27] Was the Family Court Judge right to order unequal sharing? In the context of a marriage of short duration, it was necessary for the Judge to be satisfied that the contributions of one spouse to the marriage had "clearly been disproportionately greater" than the other. 30[28] The concept of a "clearly greater contribution" had its genesis in s 15 of the Matrimonial Property Act 1976, in the context of the division of a balance of matrimonial property. It was transferred into the arena of relationships of short duration when the Act was amended and renamed the Property (Relationships) Act 1976 (the Act) in 2001. [29] The original form of s 15(1) of the Matrimonial Property Act provided that each spouse would share equally in matrimonial property (other than a matrimonial home, family chattels and homestead) unless "his or her contribution to the marriage partnership has clearly been greater than that of the other spouse". In 1983 Parliament amended s 15(1) by changing the order of the critical words from "clearly been" to "been clearly". 31 This change reflected a preference for the views expressed by Woodhouse J in Reid v Reid32 over those of Cooke J in the same case. 33So, the new test was whether the contribution of one spouse had "been clearly greater" than the other. [30] Section 14 of the Act has changed the wording of this provision back to the original form in which s 15(1) was expressed, save for the introduction of the word "disproportionately". Under the present legislation the question is whether the30 Property (Relationships) Act 1976, s 14(2)(c).31 Matrimonial Property Amendment (No 2) Act 1983, s 5.32 Reid v Reid [1979] 1 NZLR 572 (CA) at 586.33 At 599.contribution to the marriage by one spouse "has clearly been disproportionately greater" than that of the other.34[31] Section 14(2)(c), by adopting the order of words "clearly been", focuses on a quantitative assessment of contributions to the marriage. That accords with the view expressed by Cooke J about the same words in Reid v Reid.35 The addition of the word "disproportionately" requires a qualitative evaluation to be added when a decision is made about whether unequal sharing should occur. Not only must (for example) the quantum of the financial contribution made be clearly greater, it must also have brought a disproportionate benefit to the other party, having regard to the tangible and intangible contributions made by the other spouse. [32] Expressed in that way, the words "clearly been disproportionately greater" can be seen as readily applicable to the particular problems that arise in a marriage of short duration in which, in general terms, financial contributions are more likely to carry more importance than non-financial ones. In this case, the question is whether Ms Beaven's contributions were disproportionately greater, in that sense.(b) Relationship property at the date of separation[33] Section 1M(c) of the Act states that one of its purposes is "to provide for a just division of the relationship property between the spouses or partners when their relationship ends by separation . . .". For property to be "relationship property" it must fall within one or more of the categories set out in s 8. The first task of any Court in relationship property proceedings is to identify the property falling under that head, as at the date of separation. [34] About six months before Mr Burgess and Ms Beaven married: a) Wychbury had a Government valuation of approximately $130,000. b) Woodbury had a Government valuation of approximately $128,000.34 Property (Relationships) Act 1976, s 14(2)(c).35 At 599.[35] There were no other assets of significance brought to the marriage. [36] Wychbury was sold in July 2002 for $129,500. After taking account of repaying the mortgage and other costs of sale, Mr Burgess contributed about $69,000 of the proceeds to the purchase of Medbury. Having been acquired during the marriage, Medbury was relationship property. [37] At the time that the parties separated: a) Medbury was relationship property. While not used by the Family Court Judge, there was evidence before him that Medbury was valued at $175,000 as at 18 May 2003,36 only two days before separation. b) Woodbury was still owned by Ms Beaven. At the time of separation it had been sold for $160,000. [38] The inflationary component of the sale price of Woodbury was $32,000; or, 20 per cent of the gross sale price. On the other hand, based on the 18 May 2003 valuation, the inflationary component of Medbury was $31,000; or approximately 18 per cent of the May 2003 valuation. [39] Had the Judge focused on those aspects, the relationship property and their respective values could have been easily assessed as at the date of separation. To value each property at that date would have avoided the need to untangle the subsequent dealings by Ms Beaven with the proceeds of the sale of Woodbury. It would also have enabled the capital gain she made on the sale of Cranford Street and the additional interest earned on a portion of the proceeds of Woodbury to have been retained by her with no further adjustment. 37[40] In our view, the Family Court Judge erred in principle in failing to determine relationship property by reference to property actually held at the date of separation36 Burgess – First FC judgment at [40]. It is unclear whether this valuation is inclusive of stock and plant and net of liabilities, or otherwise. However, as the Judge used the 2007 on a net basis and referred to this valuation by way of comparison, we treat the values as a fair comparison for relationship property purposes.37 See [16] above.and by failing to apply truly comparable values to that property as at that date. In our view the High Court Judge also erred in upholding that approach.(c) Were there unequal contributions to the marriage?[41] It is necessary for us to start again in light of our views about the assets that constituted "relationship property" and the dates on which they should be valued to achieve a truly comparable approach. This will mean also making some adjustments to post-separation contributions to take account of benefits that ought to have accrued to Ms Beaven when she settled the sale of Woodbury after separation and used the proceeds for her own purposes. As this exercise is being completed nearly eight years after separation, it can (unfortunately) be little more than a "broad brush" assessment. [42] Viewed at the date of separation, there was no material difference between the financial contributions of the spouses. Each had provided a property. Wychbury had been used for a joint purpose. The increases in value for both Woodbury and Medbury, as at the date of separation, were due to inflation, in which both spouses should have shared equally. In the absence of any finding by Judge Strettell that there was any inequality of contribution in a non-financial sense, in our view, the presumption of equal sharing was not displaced on application of s 14(2)(c) of the Act. [43] The final calculations made by Judge Strettell in his second judgment38 can be used for adjustment purposes. When calculating relationship property it is necessary: a) to remove the sale proceeds of Cranford Street and, to replace that with the sale price of Woodbury. b) to change the date at which Medbury was valued from the date of the first hearing in the Family Court to the date of separation.38 See [26] above.In order to do justice between the parties, 39 we have made a downward adjustment to the assessment of the Medbury value, to minimise the risk of double counting of assets, due to (possible) inclusion of stock and plant in that valuation. [44] By removing the sale proceeds of Cranford Street and replacing that element of the equation with the sale price of Woodbury, Ms Beaven's post-separation dealings with the proceeds of Woodbury are not confused with relationship property actually owned by the parties at the date of separation. [45] Adjusting (and rounding) the Family Court Judge's calculations: 40Relationship propertyi) Value of Medbury at separation 41 $165,000 ii) Value of Woodbury at separation 42 $160,000 iii) Westpac balance 43 $3500 iv) Caravan $1500.00 Total $330,165 [46] From those calculations, it is clear that the parties contributed roughly equally to relationship property. In our view, there is no basis for an unequal distribution under s 14(2)(c). In finding otherwise, the lower courts erred. [47] Adopting an equal sharing approach, Mr Burgess and Ms Beaven each obtain an interest in relationship property of $165,082.50. From that, post-separation adjustments, in terms of those set out in the Family Court Judge's figures, must be brought to account. Relevant adjustments are:39 Property (Relationships) Act 1976, s 1M(c).40 See [26] above41 See [37](a) and [43] above.42 See [37](b) above.43 See [26] above.i) Mr Burgess (mortgage payments) $21,769.00 ii) Ms Beaven Mortgage arrears $3800 Interest $6535.14 Total $10,335.14 [48] So far as post-separation adjustments are concerned, there was a net benefit to Mr Burgess of $11,433.86. That means that the parties were entitled to receive: a) Mr Burgess: $176,516.36 b) Ms Beaven $153,648.64 [49] On that basis, Mr Burgess' entitlement increases from $165,082.50 to $176,516.36. While, ostensibly, Ms Beaven's share in relationship property reduces to $153,648.64, she retains the benefit of all of her post-separation proceeds of sale of Woodbury. It will be necessary to take a broad brush approach to the order required to give effect to that finding, having regard to the length of time that has passed since separation.Result[50] The appeal is allowed. The finding of unequal division of relationship property is set aside. [51] We order that Mr Burgess is entitled to receive from Ms Beaven a sum of $22,000, to reflect the difference between our analysis and the orders made in the Family Court. That sum shall be paid within three months of the date of thisjudgment. Ms Beaven is entitled to retain the benefit of her post-separation dealings with Woodbury. 44[52] In the unlikely event that there are any difficulties in implementing that order, leave is reserved to either party to apply to the Family Court for further relief. Having regard to the nature and extent of the relationship property litigation, we do not expect that further intervention from the Family Court will be necessary. [53] As Mr Burgess appeared in person and obtained more limited relief than he sought, there will be no order as to costs.Solicitors: H Dawson, Dawson Innes, Christchurch for Respondent44 See [49] above.