FRASER V BUXTON CA CA166/2009

FRASER V BUXTON CA CA166/2009 16 June 2009NOTE: NO PUBLICATION OF THIS PROCEEDING IS PERMITTED UNDER S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, EXCEPT WITH THE LEAVE OF THE COURT THAT HEARD THE PROCEEDINGS AND WITH THE EXCEPTION OF PUBLICATIONS OF BONA FIDE PROFESSIONAL OR TECHNICAL NATURE. IN THE COURT OF APPEAL OF NEW ZEALAND CA166/2009 [2009] NZCA 247BETWEEN ISHMAEL WILLIAM FRASER Appellant AND JANINE PATRICIA BUXTON Respondent Hearing: 18 May 2009 Court: Glazebrook, O'Regan and Ellen France JJ Counsel: B A Corkhill QC for Appellant F M L Gush for Respondent Judgment: 16 June 2009 at 11.30 amJUDGMENT OF THE COURT A The application for special leave to appeal is dismissed. B Costs are awarded in favour of the respondent for a standard application on a Band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Glazebrook J)Table of ContentsPara NoIntroduction [1]Background [2]The High Court decision [10]First proposed ground of appeal [14]Second proposed ground of appeal [18]Submissions on why leave should be granted [22]Our assessment [25]Result and costs [33]Introduction[1] Mr Fraser applies for special leave to appeal against a judgment of Wild J delivered on 3 December 2008. In that decision Wild J substantially upheld a judgment of Judge Johnston in the Family Court on 23 April 2008, dealing with various disputes over relationship property following the end of Mr Fraser's marriage to Ms Buxton. Wild J declined an application for leave to appeal against his judgment on 24 February 2009.Background[2] The parties married on 12 March 1994. In November 1994, the Cygnet Family Trust (CFT) was established. In December 1994, the trustees of the CFT purchased a property in Delhi Crescent for $300,000. The trustees were the registered proprietors of the property, but their interest was limited to that of remaindermen because a life interest in Delhi Crescent was purchased by each of the parties for $260,000. [3] The purchase of Delhi Crescent was funded by the parties paying a deposit from joint savings of $20,000, a gift to CFT by Mr Fraser of $19,132.50, a gift to CFT by Ms Buxton of $19,132.50 and the sum of $246,500.00 borrowed by theparties from Countrywide Bank. Although the Countrywide loan was to the parties, it was guaranteed by the CFT and secured by a mortgage over Delhi Crescent given by the CFT. [4] In 1996, Ms Buxton's father died and her mother's death followed in March 1997. Ms Buxton was a beneficiary of their estates and a beneficiary of the Buxton Family Trust (BFT). The BFT trust fund was held for the four Buxton children in equal shares. The date of distribution of the trust fund was 16 January 2050, but the trustees had power to make earlier advances of income and capital to the beneficiaries. The BFT's assets comprised a family home at Homebush Road, Khandallah, the vacant section next door, a holiday property at Waikanae Beach and shares in Technology Enterprises Corporation Ltd (TECL), the entity primarily used by the late Mr Buxton for his share investments. [5] While the parties were living in Delhi Crescent, they switched their loan from Countrywide to ANZ. On 23 November 1997, the Delhi Crescent property was sold and one of the properties in Homebush Road was purchased by the trustees of the CFT from the BFT trustees for $467,723.16. At the time of the purchase, the parties obtained a fresh loan from the ANZ under a new loan agreement dated 3 November 1997. The loan amount was $211,244.10 and the security was a first registered mortgage over Homebush Road. The loan was guaranteed by the trustees of the CFT. [6] The purchase of the Homebush Road property was funded by the proceeds of sale of Delhi Crescent of $342,857.43 and by monies obtained from Buxton family entities of $124,865.73. No new life interests were created in the Homebush Road property and the life interests in Delhi Crescent thereby terminated, leaving an unquantified debt owed by the CFT trustees to the parties. [7] On 1 December 1997, $35,000.00 was paid to reduce the parties' ANZ loan, being a distribution received from the solicitors acting on Ms Buxton's mother's estate. This was paid to Kensington Swan under the name of Ms Buxton and then applied to the ANZ loan. On 9 December 1998, $64,387.63 was applied to the ANZ loan. This was part of a larger sum credited to the CFT trustees from the RiyadhInvestment Foundation, an investment vehicle of the late Mr Buxton, and lent by the CFT trustees to the parties. On 17 March 2000, $25,000.00, being a quarter share of the proceeds of sale of the other Homebush Road property, was paid by the trustees of the BFT and deposited to the parties' joint personal account. This was then applied to ANZ loan. It is these three payments, which total $124,387.63, which are in contention with regard to the first ground of appeal. [8] In December 1998, (or Mr Fraser maintains in early 1999) certain assets were transferred directly from the trustees of the BFT to the trustees of the CFT. These transfers are at issue in the second ground of appeal: shares (held by the Family Court to be valued at $103,578.70) and cash totalling $87,405.68. [9] Before any assets were transferred by the BFT trustees to the beneficiaries, Ms Buxton signed a deed of indemnity providing that until the date of distribution of the BFT all distributions were to be treated as advances. However, when the transfers referred to above at [8] were made directly to the trustees of the CFT by the trustees of the BFT there was correspondence and other documentation which implied actual distributions (rather than advances) were being made.The High Court decision[10] Wild J in the High Court held that the three payments, set out at [7] above, were applied to reduce the parties' loan from the ANZ, which he accepted was relationship debt. However, Wild J upheld the Family Court finding that the amounts were Ms Buxton's separate property for three reasons. First, he considered that the payments made did not have Ms Buxton's consent. Her passive role was more one of acquiescence and thus the three payments did not lose their status as her separate property. [11] Secondly, he held that the amounts applied to reduce the parties' ANZ loan could be traced to the unquantified debt (relating to the termination of the life interests) owed by the trustees of the CFT to the parties. Thirdly, in respect of the payment of $64,387.63, he held that there was no dispute as to the source of those funds: Ms Buxton's inheritance. The amount was directly traceable to the CFT andthen to the CFT's documented loan to the parties. It was not directly applied to the repayment of the ANZ loan. [12] As to the sums referred to at [8] above, Wild J held that the legal character of these transactions had to be seen as advances to Ms Buxton from the trustees of the BFT then advanced by her to the CFT. Wild J held that the trustees of the BFT had transferred the assets to its beneficiaries (including Ms Buxton) before the distribution date stipulated in the BFT trust deed. In terms of the BFT trust deed, any such transfers could only be advances, because the date of distribution had not yet arrived. There was obviously no expectation that those advances would ever have to be repaid but this could not change their character. Neither could the fact that the sums resulted from the sale of shares transferred directly to the trustees of the CFT by the trustees of the BFT or related entities (undertaken in this manner for Australian stamp duty purposes. [13] Accordingly, Wild J held that the assets should be treated as Ms Buxton's separate property. This was because the advances were properly viewed, at the date of separation, as a debt owed by Ms Buxton to the BFT. He noted that a debt owed to a third party by one party to a relationship is not "relationship property", as defined in s 8 of the Property (Relationships) Act 1976 (the Act). The s 2 definition of "property", as including "any debt or anything in action", refers to a debt owed toa party or the parties to the relationship, not to a debt owed by one of them to a third party.First proposed ground of appeal[14] The first proposed ground of appeal is:Did the application of property to the parties' ANZ loan (relationship debt) which payments had no consequences as to the quantum of debt owed by the CFT to the parties, provide Ms Buxton with a traceable interest in that debt whether in equity or by acquisition under s 9(2)?[15] On Mr Fraser's behalf, Mr Corkill QC first submits that the three payments were applied to the ANZ debt (a refinanced loan) long after the parties had used the earlier Countrywide loan to acquire life interests in the property owned by thetrustees of the CFT. Mr Corkill submits that such life interests became, on the sale of Delhi Crescent, an unquantified debt owed by the trustees of the CFT to the parties. He then says that, where funds are used to discharge a debt incurred in earlier acquiring an asset, the purchased asset cannot be treated as the traceable product of the funds so paid: Re Registered Securities Limited [1991] 1 NZLR 545 at 554 (CA) and Bishopsgate Investment Management Limited v Homan [1995] 1 All ER 347 at 354 (CA). Mr Corkill submits that this Court should consider whether the equitable rules of tracing (as per Bishopsgate) apply in a relationship property case such as the present. [16] As an alternative, Mr Corkill submits that, where an asset is acquired partly out of separate property and partly out of relationship property, the asset so produced is prima facie relationship property: C v T [matrimonial property] (1999) 18 FRNZ 441 (HC); Allan v Allan (1990) 7 FRNZ 102 (HC). The issue then is whether tracing can properly occur to establish acquisition under s 9(2) of the Act. [17] The High Court in declining leave to appeal on this ground held: (a) Ms Buxton did not consent to an intermingling of $124,387.63. Credit must be given to her for that sum in the property "wash-up" between the parties. (b) The Courts have never applied equitable tracing principles when considering intermingling in relationship property cases. (c) Even were the equitable tracing principle of Bishopsgate to be considered, it would not apply here because the parties' life interest was acquired with the aid of the money the parties borrowed from the ANZ.Second proposed ground of appeal[18] The proposed ground of appeal Mr Fraser wishes to advance is:Does the form/substance analysis considered by the High Court entitle the trust transactions to be deemed by the Court as being transactions from the BFT to Ms Buxton, and then from Ms Buxton to CFT, with a deemed debt from the CFT to Ms Buxton?[19] This ground of appeal relates to the shares and cash referred to at [8] above. The issue is whether there had been distributions by the trustees of the BFT to the trustees of the CFT (as Mr Fraser had submitted in both the Courts below), or whether the transfer of those assets should be regarded as advances by the trustees of the BFT to Ms Buxton and then lent on to the trustees of the CFT. [20] Mr Corkill submits that it was not open to the Court to go behind the transactions undertaken by the two trusts as this was the true nature of the transaction (ie a distribution directly from the trustees of the BFT to the CFT trustees). He submits that Wild J, in recharacterising the transaction in the way he did, misapplied the principles in Mills v Dowdall [1983] NZLR 154 (CA). [21] Wild J declined leave on this point because the High Court decision involved the application of well settled law to undisputed facts.Submissions on why leave should be granted[22] With regard to both grounds of appeal, Mr Corkill submits that the amounts involved are not inconsiderable as far as these parties are concerned. In his submission that alone would merit a finding of sufficient importance to justify the second appeal. He also submits that there are plainly difficult and important legal issues involved, which will have impact beyond the case. In his submission, the extent to which it is appropriate to apply tracing principles in a relationship property case is an issue which has potential implications for other cases. [23] Further, he submits that trust-to-trust distributions occur all the time to avoid repeating gifting programmes and for asset protection. In his submission, the effect of the High Court judgment is that those transactions are nonetheless open to be recharacterised, with the consequences for trusts or individuals that they owe monies of which they were previously unaware. In Mr Corkill's submission, the factors ofdelay and cost are not sufficient in and of themselves to deny the application for leave. [24] On behalf of Ms Buxton, Ms Gush submits with regard to the first ground of appeal that the case is answered by the fact that, pursuant to s 10(2) of the Act, Ms Buxton did not consent to her inheritances becoming relationship property and that this finding was not appealed. As to the second question, Ms Gush submits it was based purely on the factual matrix in this case. In her submission there is no merit in either ground of appeal and to grant leave will only cause further unnecessary delay and cost. Further, Wild J's decision to decline leave has not been shown to be wrong.Our assessment[25] We do not consider that the case justifies a second appeal. Our main reason is that the exact factual situation is unusual, unlikely to re-occur and very complex. Any issues of principle are inextricably tied in with the unusual factual matrix. This must limit any general public importance the case may have had. We now set out a number of subsidiary reasons for denying special leave. [26] With regard to the first ground of appeal, we first note that the funds in question were clearly Ms Buxton's separate property before they were used in reduction of the ANZ debt. All dealings with the funds were directed by Mr Fraser. Ms Buxton did not consent to the dealings. In the circumstances, there can be no substantive unfairness in the result reached by the Courts below. [27] We also note that Mr Corkill's submission regarding s 9(2) does not appear to have relevance to the factual situation present here. In this case, as the original payments came from Ms Buxton's inheritance, we accept Ms Gush's submission that s 10 of the Act is engaged. The High Court was therefore not required to look at the status of the property under s 9(2). In terms of s 10, it was open for the High Court to hold that the property was not relationship property for, pursuant to s 10(2), Ms Buxton did not consent to the intermingling of her separate property with relationship property.[28] Secondly, the equitable tracing cases referred to on behalf of Mr Fraser relate to overdrawn accounts. They do not appear to be authority for the wider proposition put forward by Mr Corkill (see at [15] above). Thus, the cases are not (in any obvious sense) applicable in relation to payments made with regard to loans specifically taken out to acquire identified assets: see generally on this point Smith "Tracing into the Payment of a Debt" (1995) 54 CLJ 290 at 293 where the author argues that money which is used to pay a debt can be traced into what was acquired in exchange for the assumption of that debt. In his view, the incurring of the debt is the means of acquisition of the item and the money being traced is the means of "acquisition" or extinguishment of the debt. [29] If life interests had been created in the Homebush Road property at the time of its purchase, then the ANZ loan (which was a new loan entered into at the time of the purchase) would have related directly to those life interests. In the particular circumstances of this case it would not be obviously erroneous to treat the ANZ loan as attaching to the unquantified debt owed by the CFT to the parties, which was a substitute for the life interests. The ANZ loan can be seen as having been directly used in "purchasing" the unquantified debt from the CFT. [30] In any event, as Wild J held in his leave judgment, equitable tracing rules have not been strictly applied in relationship property cases that involve an assessment as to whether intermingling has occurred under s 10(2) of the Act: seeFisher on Matrimonial and Relationship Property (2008) at [11.62]. [31] With regard to the second proposed ground of appeal, the findings in the High Court depended on the characterisation of the transfers of assets from the BFT as advances to Ms Buxton, because of the particular terms of the trust deed and the particular terms of the transfers. It seems to us that what is being challenged is a factual finding of Wild J that, despite some of the documentation indicating that there may have been an actual distribution to the CFT, this was not the intention of the BFT trustees or (in all the circumstances) the actual substance of the transaction. Factual challenges are not on the whole prime candidates for a second appeal and Wild J's conclusions appear open to him, particularly in light of the deed of indemnity referred to at [9] above.[32] In any event, because Wild J's decision was tied to the facts of this particular case, the decision has no wider application to trust-to-trust distributions generally and is certainly not authority for the proposition that trust-to-trust distributions risk in other circumstances being treated as advances or risk having the form of the transfer (ie trust-to-trust) ignored.Result and costs[33] The application for special leave to appeal is dismissed. [34] Costs are awarded in favour of Ms Buxton for a standard application on a Band A basis plus usual disbursements.Solicitors: Chris Ritchie, Solicitor, Wellington for Appellant Mabel Sue, Solicitor, Lower Hutt for Respondent