GOULD (TIMM)V TIMM HC WHA CIV-2012-488-569

GOULD (TIMM)V TIMM HC WHA CIV-2012-488-569 [7 February 2013]IN THE HIGH COURT OF NEW ZEALANDWHANGAREI REGISTRYCIV-2012-488-569[2013] NZHC 92BETWEEN JANE ELIZABETH GOULD (AKA JANEELIZABETH TIMM)PlaintiffAND CHARLES VICTOR TIMMDefendantHearing: 28 January 2013Appearances: J Duckworth for the PlaintiffC V Timm in personJudgment: 7 February 2013JUDGMENT OF ASSOCIATE JUDGE BELLThis judgment was delivered by me on 7 February 2013 at 5:00pmpursuant to Rule 11.5 of the High Court Rules....................................Registrar/Deputy Registrar__________________________________________________________________Solicitors:Wells & Co (James Duckworth) P O Box 38222, Howick, AucklandEmail: jamesduckworth@wellslawyers.co.nzCopy for:C V Timm, 71 Valencia Lane, RD3, Kerikeri.Email: charles@thetimmcorp.co.nz[1] Mrs Gould, the former wife of Mr Timm, sues him on an agreement under s 21A of the Property (Relationships) Act 1976. She claims payments of $416,500 and applies for summary judgment. For this judgment, I will call her Mrs Timm.[2] The couple are English. They married in July 1985. They have three children, two of them grown up. They migrated to New Zealand and lived in Kerikeri. In England Mr Timm had been a financial adviser and through that occupation had become a shareholder (approximately 1 per cent) in Money Portal Ltd, a private English company.[3] In May 2003 they formed a trust called the Amazonica Trust. The trust owns the Kerikeri property where they lived. In December 2003 they and the trustees signed a deed of acknowledgment of loan under which the trustees acknowledged their indebtedness to Mr and Mrs Timm for advances of $675,000. The deed provided that the loan was repayable on 13 May 2033. Under clause 5 the trustees were not under any personal liability or obligation under the deed. The remedies of Mr and Mrs Timm as lenders were limited to the assets of the trust for the time being in the hands of the trustees of the trust. Originally KBH Trustees Ltd had been a trustee, but it later resigned, leaving only Mr and Mrs Timm as trustees.[4] They separated on 13 December 2006. Mr Timm continued living in the trust property at Kerikeri. In about May 2007 they instructed lawyers. There were negotiations which led to the separation and relationship property agreement of 6 November 2008.[5] The assets for division were the debt owed by the trust (now reduced to $513,000 by debt forgiveness), Mr Timm's shares in Money Portal Ltd, his shares inCrafty Plants Ltd (which ran a small horticulture operation on the Kerikeri property), insurance policies, bank accounts, motor vehicles and other family chattels.[6] The parties had divided family chattels. The agreement provided that Mr Timm was to keep his Crafty Plants Ltd shares (which were of little value), hismotor vehicle, life insurance, and bank accounts in his name, and his half share of the debt owed by the Amazonica Trust. Mrs Timm would keep her motor vehicle, life insurance and bank accounts in her name. In addition, the agreement provided:6.2 Jane will receive the sum of $556,500 in full and final settlement of any relationship property interest, calculated as follows:(a) The sum of $256,500 being the remaining balance of Jane'sloan to the trust as at the date of the agreement.(b) $300,000 being paid to Jane in full and final settlement of any relationship property claim she may have.6.3 The sum of $556,500 is to be paid by the following manner and by the following instalments:(a) The Trust shall immediately assume sole responsibility for repayment of the $40,000 loan secured against the Trustproperty, which was obtained for Jane's benefit and whichwould, if not for this agreement, be Jane's sole liability.(b) The sum of $100,000 to be paid within seven days of execution by Jane of this agreement.(c) The balance of $416,500 to be paid within two years of signing of the agreement; Jane acknowledges that $116,500 is payable by the Trust and $300,000 by Charles personally.6.4 The sum of $300,000 referred in clause 5.2(b) [sic] shall incur interest of 5% per annum....6.14 Jane agrees to resign as trustee of the Trust immediately upon execution of this agreement, and acknowledges that apart from the payments specified in this agreement she will no longer be a beneficiary of, or be entitled to any future distribution whatsoever from the Trust.[7] The agreement otherwise contains terms usually found in separation and relationship property agreements. In particular, there is a standard full and final settlement clause and a provision that the property part of the agreement shall be binding on the parties in all circumstances including bankruptcy, the taking of property in execution, separation, reconciliation, dissolution of marriage and death. They signed the agreement before independent lawyers who each provided independent legal advice certificates under s 21F(5) of the Property (Relationships) Act. The agreement also meets the requirements as to form for a deed under s 9 of the Property Law Act 2007.[8] Mrs Timm retired as a trustee of the Amazonica Trust and Mr Timm's lawyerwas appointed as replacement trustee. The deed of retirement and appointment of a new trustee is in conventional form and includes an indemnity in favour of Mrs Timm as retiring trustee.[9] The debt in clause 6.3(a) of the relationship property agreement was repaid. Mr Timm says that the amount was not $40,000 but in fact $39,041.60. Mr Timm paid Mrs Timm $100,000 under clause 6.3(b). He also says that the trust advanced $8,000 to Mrs Gould by way of loan. However, no payments have been made underclause 6.3(c). Mrs Timm's claim is for $416,500 under clause 6.3(c) plus interestunder clause 6.4.[10] Since the agreement, Money Portal Ltd has failed. In June 2009 it went into insolvency administration with liabilities of £52m. Mr Timm's shares in thecompany are worthless.[11] In opposition to the application for summary judgment, Mr Timm takes a procedural point. In addition, he raises substantive matters. He says that he did not receive adequate legal advice required under s 21F(5) of the Property (Relationships) Act 1976 and the agreement is therefore void. He also contends that enforcement of the agreement would cause serious injustice under s 21J of the Act. As to the payment by the trust, he says that he is not personally liable and refers to the deed of acknowledgment of loan showing that payment is not due until 2033. He also says that the amount payable by the trust is $109,468.40.[12] These questions arise:(a) Is the application for summary judgment invalid for procedural defects?(b) Does the relationship property agreement bind the trustees of the Amazonica Trust?(c) If the trustees are bound, how does the relationship property agreement affect the obligation of the trustees under the deed of acknowledgment of loan?(d) Is the amount owing by the Trust $109,468.40 or $116,500?(e) Did Mr Timm receive adequate independent legal advice under s 21F(5) of the Property (Relationships) Act 1976?(f) Would giving effect to the agreement cause serious injustice?Summary judgment principles[13] The principles for deciding summary judgment applications under r 12.2(1) are well established:1(a) The plaintiff has the onus of satisfying the court that the defendant hasno defence to the plaintiff's claim, that is, that there is no real issue tobe tried;(b) Where there is a dispute of fact on which the case turns, summary judgment is not normally appropriate. The court will not normally attempt to resolve conflicts in the evidence or assess the credibility or plausibility of averments in affidavits;(c) However, the court is entitled to scrutinise affidavits to ensure they pass the threshold of credibility;(d) The court is entitled to take a robust approach to summary judgment cases and to dismiss defences that do not stand up to scrutiny, but that approach must be balanced with judicial caution according to the facts of the case;1 These principles were summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd[2008] NZCA 187, (2008) 19 PRNZ 162 at [26].(e) If the plaintiff establishes that the defendant has no defence on liability, but is unable to prove quantum to the standard required, the court may enter judgment on liability and give directions for the amount of the claim to be determined.[14] There are no jurisdictional bars on summary judgment applications in proceedings to enforce relationship property agreements. Section 21A agreements may be enforced by civil proceedings and are eligible for summary judgment under r 12.1 of the High Court Rules. In a claim on a s 21A agreement, the defendant may oppose by showing that the agreement is not valid, for example because the requirements of s 21F have not been met. The defendant does not have to start a separate proceeding to have the agreement set aside.2 Similarly the power under s 21J to set aside an agreement on the serious injustice ground may be invoked in the course of a proceeding3 and may be run as a defence to a claim on an agreement.[15] A certificate given by a lawyer under s 21F(5) that he or she explained to a party the effects and implications of an agreement is not conclusive that the party did receive independent legal advice before signing the agreement. The case law shows that the courts may look behind the certificate to decide whether the party did receive the required advice.4 In a summary judgment application, the certificate serves a purpose. A party suing on an agreement may rely on the certificate to show that the other party did receive independent legal advice under s 21F(3). If there is no evidence from the other party, the court may find that the claim under the agreement has been proved. To put compliance with s 21F(3) in issue, the party sued must give some evidence to show a defence under that head. To that extent, there is an evidential onus on the party sued, even though the legal onus remains on the plaintiff to show that the defendant has no defence.Is the application for summary judgment procedurally invalid?[16] In correspondence a lawyer formerly acting for Mr Timm noted that theversion of the statement of claim attached to Mrs Timm's verifying affidavit differed2 Grant v Grant [1979] 1 NZLR 66 (CA) at 71.3 Property (Relationships) Act 1976, s 21J(2).4 Ward-Smith v Ward-Smith HC Christchurch CIV-2008-409-1784, 5 February 2009 at [34]-[40].from that filed in court. His point was that some parts of the statement of claim had not been verified under r 12.4(5) of the High Court Rules. The only differences between the two documents are in the prayer for relief. They go to the amounts claimed for accrued interest under clause 6.4 of the agreement and for daily interest under s 87 of the Judicature Act 1908. The statement of claim remains a valid and effective pleading and has been verified, apart from the amounts of contractual interest and Judicature Act interest. The interest can be calculated independently without recourse to the pleading. As the allegations of fact in the statement of claim have been properly verified, r 12.4(5) has been satisfied. There has been no prejudice to Mr Timm. The statement of claim and the application for summary judgment are valid.Does the relationship property agreement bind the trustees of the Amazonica Trust?[17] The deed of acknowledgment of loan of 8 December 2003 is the starting point for any consideration of the debt between Mr and Mrs Timm and the Amazonica Trust. Mr and Mrs Timm signed the deed separately as lenders and asborrower trustees. The trustees' obligations under the deed can be varied byagreement, which need not take the form of a deed.5[18] Mr and Mrs Timm signed the relationship property agreement as separating husband and wife, but they also purported to impose obligations on the trust by providing for payment by the trust under clause 6.3(c). At the time they were the sole trustees. Clearly, they intended the obligations imposed on the trust to be effective. It is natural to read the agreement as comprising not just an agreement between them as a separating couple but also as an agreement between them as lenders and also as trustees. They were providing for the division of their property on separation and intended to deal with the trust that they had established during their marriage. To bind the trust they did not need the consent of anyone else as they5 Buckland v Commissioner of Stamp Duties [1954] NZLR 1194 (SC) at 1204, citing CentralLondon Property Trust Ltd v High Trees House Ltd [1947] KB 130 and Berry v Berry [1929]2 KB 316.were the only trustees. In effect they were contracting in a double capacity.6Accordingly, the relationship property agreement bound them as trustees.If the trustees are bound, how does the relationship property agreement affect the obligations of the trustees under the deed of acknowledgment of loan?[19] The effect of the property relationship agreement was that the trustees agreed that the amount outstanding to Mrs Timm for her advances, $116,500, would be repaid in two years, rather than in May 2033. However, the relationship property agreement did not change clause 5 of the deed of acknowledgment of loan, the provision exempting the trustees from personal liability and giving the lenders recourse only against the trust assets. Mr Timm as trustee is still entitled to theprotection of clause 5. Mrs Timm's remedies as a lender are limited to the assets ofthe trust for the time being in the hands of the trustees of the trust. She is entitled tosue Mr Timm as a trustee for the trust's liability under clause 6.3(c), but judgment cannot be given against Mr Timm personally because of clause 5. Instead, for that part of her claim, judgment can be given against him only on the basis that the judgment will be enforceable solely against the assets of the trust.[20] Mrs Timm had sought judgment against Mr Timm personally for the trust part of the claim, but after discussion Mr Duckworth for Mrs Timm largely accepted the above approach.Is the amount owing by the Trust $109,468.40 or $116,500?[21] Mr Timm's evidence on this aspect is little more than assertion. In submissions he outlined the nature of the evidence supporting him, saying that bank statements could be produced. Strictly he ought to have given fuller evidence. However, I accept that there is a live issue as to the amount of the trust's debt toMrs Timm. I will give directions for its resolution. Mr Duckworth did not take issue with the course I proposed.6 Young v Schuler (1883) 11 QBD 651 (CA).Did Mr Timm receive adequate legal advice?[22] Section 21F of the Property (Relationships) Act requires that each party must have independent legal advice before signing the agreement and that the lawyer who witnesses must certify that before the party signed the lawyer explained the effect and implications of the agreement.7 If these requirements are not met, the agreement is void, subject to the Court's power to give effect to it under s 21H.8[23] Mr Timm accepts that at the time of the agreement he had an independent lawyer who gave him legal advice as to the agreement, but he takes issue with the quality of the advice he received. His complaint arises because the $300,000 he is topay under clauses 6.2 and 6.3(c) represents a payment for Mrs Timm's claim to anequal share in the Portal Money Ltd shares. As the shares are now worthless, he says that the agreement requires him to pay $300,000 for a valueless shareholding. He says that he could have avoided this if the lawyer had advised him to have the shares valued.[24] His evidence is that he did not have any real in depth discussion with his lawyer at the time, although he does recall the lawyer cautioning him about his estimate of the share value before signing the agreement. The lawyer did not advise him that any valuation or investigation of the share price or the financial and commercial situation of Portal Money Ltd should be undertaken. Mr Timm had not made any inquiries as to share value before signing the agreement.[25] There is no evidence from the lawyer. Mr Timm has not put in evidence anyrecords of communications with his lawyer. As Mr Timm has put the lawyer'sadvice in issue, he has waived privilege for those communications under s 65(3)(a) of the Evidence Act 2006. Mrs Timm has put in evidence copies of some of thecorrespondence between the parties' lawyers. They go to show advice that Mr Timmreceived from his lawyer.7 Property (Relatioships) Act 1976, ss 21F(3) and (5).8 Section 21F(1).[26] In Coxhead v Coxhead the Court of Appeal said of the duty of the lawyer to give independent advice:9The text and the cases to which Thorp J referred rightly affirm that the requirement ... of independent legal advice is no mere formalism. Each party must receive professional opinion as to the fairness and appropriateness of the agreement at least as it affects that party's interests. The touchstone will be the entitlement that the Act gives, and the requisite advice will involve an assessment of that entitlement, and a weighing of it against any other considerations that are said to justify a departure from it. Advice is thus more than an explanation of the meaning of the terms of the agreement. Their implications must be explained as well. In other words the party concerned is entitled to an informed professional opinion as to the wisdom of entering into an agreement in those terms. This does not mean however that the adviser must always be in possession of all the facts. It may not be possible to obtain them. There may be constraints of time or other circumstances, or the other spouse may be unable or unwilling to give the necessary information. The party being advised may be content with known inadequate terms. He or she may insist on signing irrespective of advice to the contrary. In such circumstances, provided the advice is that the information is incomplete, and that the document should not be signed until further information is available, or should not be signed at all, the requirements... have been satisfied.[27] That was a decision on s 21(5) of the Act before the 2001 reforms, but the test has not changed. The decision is still authoritative guidance on the requirement for independent legal advice under s 21F of the current version of the act.[28] The purpose of requiring independent legal advice is to enable the party to make an informed decision whether to enter into the agreement. The lawyer must be able to advise the party of their entitlements under the Act and how the provisions of the proposed agreement stand in relation to those entitlements. The lawyer's job isto advise; it is the client who decides whether to enter into the agreement.[29] The decision whether the advice was adequate will need to take into account a range of matters, including the information available to the lawyer, the informationavailable to the client, the client's level of understanding of both matters of fact andof law, the opportunities for obtaining further information if only partial information is available, any relevant constraints, the circumstances in which the advice was given as well as other matters.9 Coxhead v Coxhead [1993] 2 NZLR 397 (CA) at 403-404.[30] Both Mr and Mrs Timm were aware that the value of the shares in Money Portal Ltd was uncertain. Mrs Timm has put in evidence a copy of a draft agreement prepared in 2007 by other lawyers acting for him. That draft contained a recital that the Money Portal Ltd shares were relationship property but with an uncertain value. For that agreement they were to be treated as worth $1,000,000 pending sale. Mr Timm was to attempt to sell the shares for at least $1,000,000 and if he did he would pay Mrs Timm $600,000 (but subject to certain conditions, including surrendering any interest in the Amazonica Trust). If he could not sell the shares for at least that price within twelve months, the agreement would come to an end.[31] In an email to Mrs Timm in June 2008,10 Mr Timm reported on a conversation with the chairman of Money Portal Ltd that a float or major sale of the company was still some years away. Mr Timm wrote:...If there is a problem and MP has to close then the equity in this house will be in the region of $600,000, which means that I would have no income and not be able to buy a house and I suspect you would not be able to buy a house either. I am not suggesting that this is at all likely but we need to be aware that it is a faint possibility...I still have no idea about value, however. My long term hope was that, on a sale or a float, I would receive a million sterling. That is, though, many years away. It is still possible that the company will be acquired, for a much lesser amount as I believe the plan is to sell whatever. This leads me to estimate that my top expectation at the moment would be 500,000 sterling (I cannot predict a lowest figure) which, two weeks ago, would have been 1,350,000 NZ. Today, with the dollar so strong, this figure would be 1,300,000. Still this is all speculation and I really cannot give you any real idea until Richard gets back to me. Sorry ...[32] Mr Timm says that it was always accepted that the shares in Money Portal Ltd were relationship property. He offered his wife half the shares, but she declined. She wanted to be paid out. That led to them agreeing that he would pay her $300,000 for her claim to an equal interest in the shares.[33] In a letter of 29 October 2008 to Mrs Timm's lawyer, his lawyer advised that Mr Timm had lost his job. He added: "Charles is taking a considerable risk in10 It was about this time that Mr Timm instructed the lawyer who acted for him on the agreementof November 2008.borrowing funds now and agreeing to pay an additional amount in the future."Mr Timm must have been aware of the letter and the risk.[34] The bargain they made for the Money Portal Ltd shares was that Mr Timm would retain them, in the hope that they would be realised later on a sale or float of the company. Mrs Timm agreed to payment after two years of an agreed sum. Neither knew the value of the shares at the time of the agreement nor how much they might be worth later. However, Mr Timm was the one who held the shares and knew directors of the company. Of the people involved (he and his wife and their respective lawyers), he had the best knowledge of the company. He had been a financial adviser and must therefore have had some knowledge of financial matters. All the same, his knowledge of the company was far from complete. The correspondence shows that he was aware of the limits of his knowledge. Notwithstanding that, he was prepared to pay out his wife at a later date in the hope that the realisation of the shares would make it worthwhile. He knew enough to understand that he was taking "a considerable risk" in the words of his lawyer. Healso acknowledges that his lawyer cautioned him about his estimate of the share value. He understood the effect and implications of the agreement for the Money Portal Ltd shares, including the risk that the shares might fall in value, just as they might not. To comply with the Act, the advice his lawyer was required to give him had to be directed to the effect and implications of the agreement, but it did not have to go further.[35] Mr Timm's complaint that his lawyer should have advised him to have the shares valued is another way of saying that his lawyer should have pointed out to him that the value of the shares was unknown. But the evidence is clear that Mr Timm was well aware of that already and that his lawyer had warned him of it.[36] Mr Timm referred to Coxhead v Coxhead,11 Russell v Russell,12 West v West13and Graham v Graham.14 Coxhead is the leading authority on the requirement for independent legal advice, although the claim of non-compliance failed on the facts in11 Coxhead v Coxhead [1993] 2 NZLR 397 (CA).12 Russell v Russell (2000) 19 FRNZ 124 (HC).13 West v West [2003] NZFLR 231 (HC).14 Graham v Graham (2003) 23 FRNZ 70 (HC).that case. The other cases are examples of the application of the principles inCoxhead. Each of them involved in one way or another a party entering into anagreement without full knowledge of the other party's assets or their value. The lawyers had not adequately addressed the lack of knowledge in their advice. This case is different because Mr Timm was aware that he did not know the value of the Money Portal Ltd shares and his lawyer had cautioned him on that matter.[37] Accordingly, I find that Mrs. Timm has shown that Mr Timm did have adequate independent legal advice before he signed the agreement, because Mr Timm had a clear appreciation of the risk he was assuming and his lawyer had done his bit to bring that home to Mr Timm. No more was required.Would giving effect to the agreement cause serious injustice?[38] Even though Mr Timm did receive independent legal advice and the requirements of s 21F were met, the agreement may be set aside under s 21J if giving effect to it would cause serious injustice. Section 21J says:21J Court may set agreement aside if would cause serious injustice(1) Even though an agreement satisfies the requirements of section 21F, the Court may set the agreement aside if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice.(2) The Court may exercise the power in subsection (1) in the course of any proceedings under this Act, or on application made for the purpose.(3) This section does not limit or affect any enactment or rule of law or of equity that makes a contract void, voidable, or unenforceable on any other ground.(4) In deciding, under this section, whether giving effect to an agreement made under ... section 21A...would cause serious injustice, the Court must have regard to—(a) the provisions of the agreement:(b) the length of time since the agreement was made:(c) whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made:(d) whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):(e) the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement:(f) any other matters that the Court considers relevant....[39] The nub of Mr Timm's case under this head is the extent of the differencebetween what he has received under the agreement and what Mrs Timm receives. His case is that he ought not to be ordered to pay $300,000 when the Portal Money Ltd shares are worth nothing.[40] It is better to assess his complaint against the overall division of assets between him and his wife, first as contemplated under the agreement and then as it would apply in current circumstances. To a certain extent, this exercise is conjectural, because not all values are available. I will assume that there are no significant differences in the values of their respective family chattels, bank accounts and insurance policies that they took under the agreement and will treat the division of those assets as roughly equal. They had established the Amazonica Trust and advanced $675,000 to the trust. Under the agreement Mrs Timm surrendered all interests in the trust. Mr Timm retained the power to appoint a new trustee. The trust was effectively for his benefit, even if his only legal claim was for repayment of his advances. While there is no evidence as to the value of trust assets, I treat them as worth at least $675,000, the amount of the Timms' advances. The $300,000 to bepaid to Mrs Timm assumes a notional value for the shares of $600,000. For the shares and her share of the advances to the trust, Mrs Timm is to receive $556,500, with Mr Timm retaining the shares and the benefit of the trust. On those figures, the agreement favours Mr Timm. Mrs Timm has stipulated for certainty and Mr Timm has assumed the risks that went with the shares and the trust's ownership of theKerikeri property.[41] With the Money Portal Ltd shares having no value, Mr Timm is left with the benefit of the trust, say $675,000, but still has to pay Mrs Timm $556,500. Theresult is that she receives over $400,000 more than he does. While the calculation is conjectural, it is sufficient to show the scale of the inequality.[42] The courts have recognised that gross inequality in a case that would otherwise call for equal sharing goes towards the injustice of giving effect to an agreement, but have declined to give any fixed rules as to the extent of differences required to set aside an agreement. In Aldridge v Aldridge, a case of an agreement to settle differences, Cooke J said:15The circumstances of marriages, persons and assets differ so widely that I do not think one could usefully generalise as to acceptable or questionable disparities in terms of percentages. It can safely be said though that the greater the disparity between benefits under a challenged agreement and likely benefits on an award under the Act, the readier the Court will be to find that it would be unjust to give effect to the agreement. Disparity is far from the only factor but it is undoubtedly an important one and it is unlikely that an agreement would ever be set aside unless a significant disparity, or at least the reasonable likelihood of one, was apparent.Bisson J said:16I agree with the view expressed by Thorp J, that the power to contract out of the legislation, given to the parties under s 21, would be meaningless if disparity between the provision received by one party in terms of the agreement, and what the same party would have obtained through a contested hearing, were in itself sufficient ground to set aside; and I also agree that in the absence of dishonesty, such as the concealment of assets, or the giving of misinformation by one party to another, the Court would be hesitant to set aside simply on the basis of discrepancy between the agreed settlement and what appears to have been likely to have been settled through litigation unless it is of such an order that the Court cannot accept the result of the settlement as reasonable. However, if the Court does take the view that the terms of the agreement appear in themselves to be unreasonable, it would need to then consider whether there are circumstances which, nevertheless, render the settlement reached a fair one. (Emphasis added).[43] That case was decided when the test was whether it was unjust to give effect to the agreement. The test under s 21J is "serious injustice". In Harrison v Harrisonthe Court of Appeal held that for contracting out agreements serious injustice was more likely to be found in unsatisfactory process than in inequality of outcome, but recognised that the position may be otherwise for settlement agreements:1715 Aldridge v Aldridge [1983] NZLR 576 (CA) at 579.16 At 583.17 Harrison v Harrison [2005] NZFLR 252( CA) at [112].It may be different for settlement agreements, as such agreements are entered into in respect of entitlements already accrued and should usually reflect the reality of those entitlements[44] It recognised that a significant departure from the division under the statutory scheme may be relevant:18In most compromise cases, the parties will presumably set out to provide for a division of property which accords, at least broadly, to what would be ordered under the statutory regime. So where there is a significant discrepancy between what the agreement provides and the way in which the relevant statutory regime would have operated, this in itself may well suggest that the agreement is unfair or unreasonable and, as well, may well require explanation.[45] The serious injustice test was introduced because of dissatisfaction with thecourts' willingness to set aside agreements. In compromise agreements, significantdifferences in outcome remain relevant, but the disparity must be great enough to give rise to serious injustice.[46] In Pountney v Pountney, a case under the former "unjust" test, the Court ofAppeal noted the potential for changes in the value of assets to go to injustice:19Every s 21 agreement by which particular assets are declared to be separate property has the potential for disparity in value in future years, depending perhaps on the market place, perhaps on the use each spouse is able to make of what he or she receives. While a very great disparity will often of itself mean that an agreement is unjust, the reason for it must be considered, and may lead to the conclusion that in trust it justly rewards – or penalises the party concerned.[47] Now for the particular matters to be considered under s 21J.The provisions of the agreement[48] While the agreement shows a general intention to divide assets roughly equally, there are two features to be noted:(a) Mr Timm retained the benefit of the trust, subject to payment to Mrs Timm of her unpaid share of the loan, after taking into account18 At [81].19 Pountney v Pountney CA 45/91, 20 September 1991 at 33.forgiveness of debt. He took the benefit of the reduction in her debt. Retaining the benefit of the trust meant that he was able to continue living in the Kerikeri property.(b) The parties did not know the value of the shares of Portal Money Ltd or when Mr Timm might be paid out on a sale of the company or a float. Mrs Timm was to take a defined sum, $300,000 to be paid after two years, on the basis that Mr Timm would carry the risks and benefits of the share ownership. If the shares were sold at the figures Mr Timm contemplated in his email of June 2008, he would do well out of the agreement.[49] While they are standard, the provisions for full and final settlement and that the division of property should continue to bind in all circumstances are important as showing the parties' agreement to divide relationship property finally. They countagainst re-opening the agreement.The length of time since the agreement was made[50] The agreement was made in November 2008, after the couple had been separated since December 2006. Another four years have passed. Mrs Timm should have been paid out in November 2010. It is relevant that under the agreement she agreed to deferred payment on the basis that the agreed division of property would be carried out. There is an injustice to her in allowing the division of property to be re-opened long after the agreement.Whether the agreement was unfair or unreasonable in the light of all the circumstances at the time it was made[51] It is standard to treat fairness as going to the circumstances in which the agreement was made and reasonableness as going to content and consequences.20For circumstances in which the agreement was made, Mr Timm says that he was under some pressure from his children to settle matters with his wife. He also refers to lack of advice from his lawyer. There is no evidence that he was under any20 Donnelly v Donnelly (1981) 4MPC 52 (HC).greater pressure than any other person entering into a separation and relationship property agreement. I have dealt with his complaint about the advice given by his lawyer. Given that the settlement was worked out over an extended period while he had a lawyer to represent and advise him, there is no triable issue in the circumstances in which the agreement was made.[52] For reasonableness he relies on the disparity caused by the fact that Portal Money Ltd shares were valueless. For this part of the decision, I assume that the shares were valueless at the time of the agreement, not that their value collapsed later. The parties entered into the agreement not knowing the value of the shares. Mr Timm took a risk, hoping that he would do better on the sale of the shares or the float of the company. He was prepared to accept that giving effect to the agreement would result in some departure from the equal division of assets under the Act. In this case disparity at the time of the agreement, even a significant one, does not necessarily lead to a finding of unreasonableness.[53] In Cox v Cox the Court of Appeal said:21The mere fact that things have not worked out as expected does not, in these circumstances, dictate some rescue by reversal.That must be read in context: one party was trying to escape the consequences of a contracting out agreement made for estate planning after the marriage failed. More to the point is the observation of Williamson J in Hall v Hall:22There must also be many cases where by virtue of economic changes or accidents the return from matrimonial assets is considerably less than had been calculated at the time of a matrimonial property agreement. Indeed the share crash of October 1987 no doubt left some separated persons who had accepted shares as part of their property in a disadvantageous position compared to the other party who had accepted real property.[54] While those matters go to upholding the agreement, there are two aspects that suggest that unreasonableness cannot be ruled out completely at this stage: the complete lack of value of the shares, as opposed to a value somewhat lower than Mr Timm might have hoped; and Mr Timm's apparently limited resources with21 Cox v Cox [1992] 1 NZLR 390 (CA) at 394.22 Hall v Hall (1992) 9 FRNZ 30 (HC) at 37.which to pay Mrs Timm. In this respect the hardship to him may be similar to thehusband's in a case under the former "unjust" test, Moore v Moore.23 There the husband had taken a logging business on separation; the wife had taken the family home and chattels; the husband had undertaken to pay the mortgage on the home. The business had failed in a downturn in the forestry industry. If ordered to pay the mortgage, as required under the property agreement, the husband would have gone bankrupt. It was held unjust to give effect to the agreement.Whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties)[55] Similar considerations apply under this head. If the shares did have some value at the date of the agreement, the later loss of value is a relevant change of circumstances, even if foreseeable. The collapse of Money Portal Ltd is in any case a relevant change of circumstances because it made it clear that the shares wereworthless. Mr Timm has no responsibility for the company's failure. Again, whileMr Timm knowingly took a risk in promising to pay Mrs Timm for the shares, without knowing their value, the hardship in holding him to that promise goes to unreasonableness.The fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement[56] The importance of finality and achieving a clean break after separation counts as much in this case as in any other.Any other matters that the Court considers relevant[57] There is one matter here. Under s 21J and s 21M it is the s 21A agreement that is set aside, so as to leave the provisions of the Property (Relationships) Act to apply. But the agreement in this case went beyond a division of property under s 21A because it also dealt with legal relations between Mr and Mrs Timm and the Amazonica Trust. In particular, Mrs Timm acknowledged that she would no longer be a beneficiary or be entitled to any future distribution from the trust. She23 Moore v Moore (1999) 18 FRNZ 548 (FC).separately resigned as trustee. The current trustees may be able to argue that notwithstanding any setting aside under s 21J, Mrs Timm continues not to be a beneficiary and a trustee. To that extent, setting aside the agreement works an injustice on Mrs Timm, because she cannot be restored to the position she was in before the agreement. On the other hand, Mr Timm may be able to show measures that could be taken to reinstate her rights under the trust deed.Assessment under s 21J[58] The assessment under s 21J requires the court to weigh the competing demands of upholding certainty and finality of agreements and of doing justice in the individual case. By making the test one of serious injustice and inserting a newprovision expressly referring to the parties' wish for certainty,24 Parliament intended that greater weight be given to the demand for certainty and that the claim of injustice had to be more pressing to prevail. In saying this, I do not intend to depart from the statement of the Court of Appeal in Whyman v Public Trustee25 that the"serious injustice" test can be applied directly without putting a gloss on the wordschosen by Parliament, only to put it into context under s 21J.[59] In a summary judgment application the plaintiff has to show that the defendant has no defence to the claim. In this case that means that Mrs Timm must show that Mr Timm does not have any arguable defence that the agreement should be set aside under s 21J. If Mr Timm's claims of injustice were based only on thefact that he entered into the agreement not knowing the value of the shares and that they turned out to be worth much less than he would ever have expected, Mrs Timm would be on strong ground in arguing that Mr Timm had knowingly taken the risk on the value of the shares. The fact that he has received less than he is entitled to under the act is not enough to downgrade the binding effect of the agreement. However,there is another element in Mr Timm's case – the hardship argument. His case is that he would have very real difficulties raising the funds to pay out Mrs Timm. This aspect was not fully explored in evidence, but there is enough to suggest that even if he were able to have recourse to trust assets (after the trust had met its liabilities to24 Property (Relationships) Act 1976, s 21J(4)(e).25 Whyman v Public Trustee [2005] NZLR 696 (CA) at [47] – a case under s 88(2) of the Property(Relationships) Act.Mrs Timm), he may be left with relatively little of substance. In a summary judgment application, full evidence on the point is not required. The hardship factor means that there is proper room for argument that, notwithstanding the provisions of the agreement and that he knowingly took a risk on the value of the shares, he should not be held to the agreement. Mrs Timm has not shown that that is not arguable. Instead the case should go to hearing for a fuller consideration with more evidence than has been provided so far. That fuller consideration will of course also take into account injustice to Mrs Timm in not upholding the agreement.Outcome[60] Mrs Timm has succeeded in showing that as trustee Mr Timm has no defenceon liability to her claim for payment under the agreement. Mr Timm's defence unders 21J to the agreement for the division of relationship property is not a defence to her claim against him as trustee. The agreement of November 2008 is also an agreement between the Timms as lenders and the Timms as trustee borrowers. Even if Mr Timm succeeds on his serious injustice defence, only the provisions for division of property will be set aside. Mrs Timm will still be able to enforce her rights against the trustees, as the provisions of the agreement binding the trustees are enforceable independently of the provisions for division of property.[61] Mr Timm accepts that as trustee he is liable to Mrs Timm for the sum of $109,468.40, but there is a live issue as to the additional $7,031.60 she claims.[62] Mr Timm does not have a defence under s 21F of the Property (Relationships) Act that he did not receive adequate independent legal advice, but he does have an arguable defence that the agreement should be set aside on the serious injustice ground. The case will go to a full hearing on that defence. The finding of an arguable defence means that there is a live issue which requires the case to take the ordinary course for a defended proceeding.[63] I make these orders:(a) Mrs Timm recovers judgment against Mr Timm as trustee of the Amazonica Trust for $109,468.40 plus interest on that sum at 5 per cent per annum from 6 November 2010 to the date of judgment. The judgment is not enforceable against Mr Timm personally but is enforceable against the assets of the Amazonica Trust;(b) For the claim for the additional $7,031.60 against the trust, byMonday 18 February 2013 Mr Timm is to file and serve an affidavit setting out the evidence he relies on as a defence to that part of the claim. Mrs Timm is to file and serve any affidavit in reply byThursday 28 February 2013. The case will be included in the summary judgment list on Monday 11 March 2013. I will hear argument then whether Mrs Timm can obtain summary judgment on that part of the claim. That call will also be used for case management;(c) Mrs Timm recovers 2B costs on the District Court scale under r 14.13 of the High Court Rules, as the amount of the judgment is within the jurisdiction of the District Court. The order for costs is not enforceable against Mr Timm personally, but is enforceable against the trust assets. If the parties cannot agree on the amount of costs, I will hear the parties on that on 11 March 2013. If Mrs Timm later succeeds against Mr Timm on the balance of her claims in this case, the costs ordered now may be taken into account in any later application for costs against Mr Timm;(d) The summary judgment application against Mr Timm personally (that is, not for any trustee liability) is dismissed. The case will continue as a standard defended proceeding;(e) Mr Timm is to file and serve a statement of defence to the statement of claim by 18 February 2013. The statement of defence may plead the defence under s 21J of the Property (Relationships) Act, but maynot rely on any defences on which I have ruled against Mr Timm in this decision;(f) Mrs Timm is to file and serve a reply to any affirmative defences by28 February 2013; and(g) Further case management directions will be given on 11 March 2013. The parties are to confer as to discovery before then. I expect to be able to give directions through to a hearing. The parties should advise how many witnesses they are likely to call and the likely hearing time required............................................R M BellAssociate Judge