BROWN v AKULININ [2020] NZHC 1061

BROWN v AKULININ [2020] NZHC 1061 [20 May 2020]NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHERINFORMATION, PLEASE SEEhttps://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-2384[2020] NZHC 1061UNDER the Property (Relationships) Act 1976IN THE MATTER of an appeal from a decision of the FamilyCourt at Auckland on 25 September 2019BETWEEN NATALIA ALEXANDROVNA BROWNAppellantAND OLEG FATEEVICH AKULININRespondentDate of hearing: 19 May 2020Appearances: B N Snedden and J M Gandy for the appellantB D Hayes for the respondentDate of judgment: 20 May 2020JUDGMENT OF JAGOSE JThis judgment was delivered by me on 20 May 2020 at 4.00pm.Pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarCounsel/Solicitors:Ben Snedden Barrister, AucklandBarry Hayes Barrister, AucklandThomas & Co, Auckland[1] Natalia Brown appeals against the decision of Judge T H Druce in the FamilyCourt at Auckland on 25 September 2019, setting aside her 23 January 2015 agreementwith Oleg Akulinin as to the division of their property.1 As in the agreement, in thisjudgment I refer to the parties respectively as 'Natalia' and 'Oleg'.Background[2] Natalia and Oleg married each other in Russia's Vladivostok on 9 December1999. Their son, Petr, was born on 10 April 2000. (Natalia has another son, Pavel, froma previous relationship, born on 16 July 1992, who appears included in the family.)[3] Natalia and Oleg separated by October 2014. They entered the 23 January 2015agreement (the "agreement"), "in full and final settlement of all claims and rightswhich Oleg and Natalia have or may have against each other in respect of property".The agreement predominantly provided for Natalia to take a 1999/2000th share in theirpreviously jointly-owned family home in Auckland's Avondale, Oleg the 1/2000thbalance, and Natalia the whole of their joint bank account said to amount to some$37,000. Separately-held bank accounts are the parties' separate property.[4] Under the heading 'Family Home', clause 4 of the agreement specified:Oleg records that the Family Home was purchased entirely from contributionsmade by Natalia's family and that he wishes for Natalia to remain in residenceat the Family Home so as to provide a stable Family Home for the Parties'children.The agreement also asserted its terms were agreed, on the basis of the parties' fulldisclosure to each other, as "their own agreement on the extent and value ofrelationship assets compromised by both parties and intended to achieve a divisionthat they consider to be fair". They provided informed waiver of any requirement forindependent valuations, and acknowledged each obtaining and understandingindependent legal advice.[5] In June 2016, Natalia acquired Oleg's remaining share in the family home,Oleg realising $407.50 after payment of his legal fees of $2,120.00 on the transaction.1 Akulinin v Brown [2019] NZFC 7726.At that time, the property was valued at $815,000. In November 2016, Natalia sold theproperty. She says she acquired another property in Northland's Kerikeri, sold toacquire a property in Mangonui, also later sold. Ultimately, Natalia advanced$373,240.08 to Gordon Neil Brown to acquire another Kerikeri property, such to beamong their relationship property. Natalia and Gordon lived together sinceMarch 2016, and married each other on 9 September 2018.[6] In November 2017, under s 21J of the Property (Relationships) Act 1976, Olegapplied to the Family Court to set the agreement aside. Judge Druce concluded:2Drawing all factors into consideration, I am satisfied that giving effect to theagreement would cause serious injustice to [Oleg] due to both the verysubstantial unfairness of the agreement at the time it was entered into and dueto [Natalia]'s subsequent conduct being inconsistent with the core purposethat the parties had at the time of providing a stable family home for theparties' children. Inherent in this was their shared desire to provide for theirchildren's future financial security. Subsequent events suggest that this is nowsignificantly at risk.The Judge set aside the agreement, and directed Natalia to file an affidavit of her assetsand liabilities, including to trace relationship funds from the date of separation.Pending determination of this appeal, the orders are stayed.3[7] Natalia's counsel, Ben Snedden, argues on appeal the Judge's conclusion,based on his understanding Natalia's advance to Gordon was unsecured, wasunfounded and wrong. The correct position is the advance is acknowledged betweenthem, and forms besides a relationship debt to Natalia; and Natalia's sons clearlyremained supported into adulthood. Accordingly, the agreement should be reinstated.Approach on appeal[8] Appeals to this Court from the Family Court are general appeals conducted byway of rehearing,4 in which Natalia bears the onus of satisfying me I should differfrom the Family Court's decision. I only am justified in interfering with that decisionif I consider the decision is wrong – in other words, the Judge erred.52 At [105].3 B v A [2020] NZHC 580 at [42(a)].4 Property (Relationships) Act 1976, s 39(3); see also District Court Act 2016, s 127.5 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13].[9] I then am to come to my own assessment of the merits of the case afresh,without deference to the Family Court (save for some caution in differing on witnesscredibility, when I have not had the advantage of observing the witnesses).6 I may relyon the Family Court's reasons in reaching my own conclusions, but the weight I givethose reasons is a matter for me.7[10] After hearing the appeal I may make any decision I think should have beenmade, or direct the Family Court to rehear the proceeding or consider and determineany particular matter.8Relevant law[11] Section 21J of the Property (Relationships) Act 1976 provides:21J Court may set agreement aside if would cause serious injustice(1) Even though an agreement satisfies the requirements of section 21F, thecourt may set the agreement aside if, having regard to all thecircumstances, it is satisfied that giving effect to the agreement wouldcause serious injustice.(2) The court may exercise the power in subsection (1) in the course of anyproceedings 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 ofequity that makes a contract void, voidable, or unenforceable on any otherground.(4) In deciding, under this section, whether giving effect to an agreementmade under section 21 or section 21A or section 21B would cause seriousinjustice, 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 allthe circumstances at the time it was made:(d) whether the agreement has become unfair or unreasonable in the lightof any changes in circumstances since it was made (whether or notthose 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.6 At [13].7 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31].8 Property (Relationships) Act 1976, s 39; High Court Rules 2016, r 20.19(1).(5) In deciding, under this section, whether giving effect to an agreementmade under section 21B would cause serious injustice, the court must alsohave regard to whether the estate of the deceased spouse or partner hasbeen wholly or partly distributed.[12] So far as is relevant here, such agreements may be contracting-out agreementsunder s 21 or settlement agreements under s 21A. Although the Judge refersthroughout to the parties' "s 21 agreement", the agreement was not to contract out ofthe Act's provisions but to settle their differences:9In most compromise cases, the parties will presumably set out to provide fora division of property which accords, at least broadly, to what would beordered under the statutory regime. So where there is a significant discrepancybetween what the agreement provides and the way in which the relevantstatutory regime would have operated, this in itself may well suggest that theagreement is unfair or unreasonable and, as well, may well requireexplanation.In compromise cases, there is a strong presumption "as such agreements are enteredinto in respect of entitlements already accrued[, they] should usually reflect the realityof those entitlements".10 The reality of that entitlement is a presumption of equalsharing in relationship property.11 But, importantly, inequality of outcome with thatentitlement is not a measure of 'serious injustice'.12[13] Section 26 also obliges the Court to: have regard to the interests of any minor or dependent children of themarriage and, if it considers it just, may make an order settling therelationship property or any part of that property for the benefit of the childrenof the marriage or of any of them.Although the Judge refers to "the parties' children" and "their children's futurefinancial security", at the time of the parties' entry into the agreement, Petr was 14,and Pavel 22, years old; at the time of Natalia's sale of the family home, theyrespectively were 16 and 24 years old; and at the time of his decision, 19 and 27.Neither are asserted to be dependent.9 Harrison v Harrison [2005] 2 NZLR 349 (CA) at [85].10 At [112].11 Property (Relationships) Act 1976, s 11.12 Harrison v Harrison, above n 9, at [113].[14] There is no threshold for a finding of 'serious injustice'; the various factors"are to be assessed depends on the circumstances of individual cases, the evidencegiven, and the weighing of that evidence".13Discussion[15] The Judge plainly was troubled by various evidential deficiencies,14 andparticularly those at odds with contentions set out in the agreement. The agreementrecords Natalia and Oleg separated in January 2012; the Judge found the date ofseparation to be by October 2014.15 As has been seen,16 the agreement records Oleg'scontention "the Family Home was purchased entirely from contributions made byNatalia's family"; the Judge found the parties' joint funds were contributed roughlyone-third from Oleg, and two-thirds from Natalia,17 although he allowed the partiesgenuinely may have perceived her funds alone were applied to the property'sacquisition.18 The Judge's financial enquiry was as to the proceeds from the parties'sales of Russian properties, in the face of the parties' incomplete and inadequateNew Zealand financial records.[16] Conversely, the Judge found Oleg to lack credibility,19 particularly in relationto his contentions he was vulnerable to Natalia's control20 and poorly advised on theproposed agreement.21 The Judge came to the view Oleg understood Natalia soughtthe agreement's arrangement to alleviate risk the relationship property entitlements ofany subsequent partner of Oleg's may dilute her sons' inheritance:22The irony of all this is that it is [Natalia] who has remarried, not [Oleg], andthere is no evidence she had protected the boys' inheritance by contracting outof the Act with her current husband.13 Taylor v Taylor [2009] NZCA 579 at [5].14 Akulinin v Brown, above n 1, at [24], [32]–[35], [56], and [59].15 At [48].16 At [3] above.17 Akulinin v Brown, above n 1, at [66].18 At [103].19 At [79].20 At [79]–[80].21 At [87]–[94].22 At [85]–[86].The Judge found absence of such protection "breached" the agreement's intention thefamily home be retained for the parties' children.23 Taken together with the"substantial unfairness" of the agreement at entry, Natalia's subsequent conduct wasinconsistent with the agreement's core purpose, meaning Oleg was here caused seriousinjustice.24[17] I have considerable difficulty with the Judge's conclusions in these respects.First, the Judge identifies the agreement's 'substantial unfairness at entry':25 crystallized in June 2016 when [Oleg] received only $407.50 in satisfactionof his relationship property interest in the family home at a time when theequity value was close to $550,000 and, but for the s 21 agreement, he wouldhave received $225,000.As noted,26 Oleg's receipt included legal fees of $2,120. The Judge's focus on equalsharing in the family home's value is to disregard his own finding Oleg onlycontributed one-third of the cash toward its $465,000 purchase price. The agreementrecords a $267,000 mortgage to New Zealand Home Loans. But the only New ZealandHome Loans financial records in evidence seem to record a $10,000 loan. I cannotidentify what contributions Oleg made to the property's mortgage. Natalia's evidence,consistently with her insistence only she contributed to the property's acquisition, wasonly she paid the mortgage. Nonetheless, the evidence also is Oleg's wages were paidinto the parties' joint account held at Westpac, in reduction of its floating home loan,which appears to be in the order of $266,000, but cleared by November 2014. Theagreement's divergence from the statutory regime only suggests, and does notsubstantiate, its unfairness. The explanations proffered are inadequate, but thatinadequacy does not convert into unfairness in itself.27[18] Second, the agreement's clause 4 imposes no obligations. It is instead astatement of Oleg's assertion the family home was acquired "entirely fromcontributions made by Natalia's family", and his wish Natalia remain in residencethere "to provide a stable Family Home for the Parties' children". Although the Judge23 At [74].24 At [105].25 At [73].26 At [5] above.27 At [12] above.reconstructs the parties' $383,500.00 financial contributions to their joint bank accountto arrive at the third shares between Oleg and Natalia,28 he also records the familyhome was acquired with a contribution of $182,500.00,29 after which both parties wereresponsible for making mortgage repayments on the balance, Oleg ceasing suchpayments in November 2014.30 So Oleg's assertion to the contrary is wrong. Neithercould Oleg require Natalia to remain in residence at the family home. The agreementexpressly recognises Natalia may wish to sell the family home, and gives her an optionto purchase Oleg's share at registered valuation. But the $200,000 balance ofcontributions to the joint bank account is not addressed further, and the Judge is unableto trace other funds had by either party, while acknowledging they also should be takeninto account "on any fair s 21 agreement".31[19] Third, Natalia's subsequent conduct was not in issue between the parties: itarose instead in questions of her from the Judge; and those questions stopped short ofenquiring as to any steps she may have taken to protect her advance to Gordon.32 TheJudge appears to have inferred from her answers no steps had been taken. Whether ornot she was required to take any steps, the uncontested evidence permitted to be raisedon this appeal is her advance to Gordon is recorded in a Deed of Acknowledgment ofDebt, entitling her to register a notice of claim against the titles, and constitutingrelationship debt to her. In semi-mutual wills, Natalia and Gordon leave a life interestin each other's property used as their relationship home to the other, with residualinterests to their respective children. Oleg's counsel, Barry Hayes, expressly concededin oral submission "the debt is secured".[20] The Judge therefore erred in his opposite conclusion. Mr Hayes urges I shouldconclude giving effect to the agreement nonetheless would cause serious injustice toOleg. He argues Oleg cannot be considered to have given "genuine consent" to it; had"real regrets" about its operation when Natalia sold the family home; was susceptibleto Natalia's influence of its contents; and received inadequate independent advice inrelation to the agreement's content and operation.28 Akulinin v Brown, above n 1, at [57]–[66].29 At [71].30 At [42].31 At [70].32 B v A, above n 3, at [29].[21] 'Serious injustice' is to be assessed from both parties' perspectives.33 Given thesignificant evidential inadequacies, I cannot make a balanced assessment.The agreement does not reflect the facts as found by the Judge, but the evidence doesnot establish a complete counterfactual to that depicted in the agreement. Thefundamental point is Natalia and Oleg voluntarily entered into an agreement they knewto be at odds with reality, but that reality remains obscure in very material ways. I amunable to determine if giving effect to the agreement, in that reality, would causeserious injustice. Neither can I conclude it would not.[22] Faced with those difficulties, and recognising the Family Court's specialistexpertise in addressing the division of relationship property, I reluctantly conclude thebetter course is to remit the matter to the Family Court for rehearing on all the evidence(including that for which leave was granted to be adduced on appeal). While the partiesare to be in undesired continuation of the proceeding, it very much is a circumstancethey have brought upon themselves in seeking to avoid presumed equal sharing. I donot exclude the prospect the Family Court may grant leave for filing of furtherevidence, such as was contemplated after the agreement was set aside.Result[23] The Judge's decision is quashed. I direct the Judge to rehear the proceeding.Costs[24] In my preliminary view, as the successful party, Natalia is entitled to 2B costsand disbursements on her appeal. That is because, from what I presently know ofthem, nothing in the steps taken by her in this averagely complex proceeding requiredother than a normal amount of time.[25] If that is not accepted by the parties, and they cannot otherwise agree, costs arereserved for determination on short memoranda of no more than five pages – annexinga single-page table setting out any contended allowable steps, time allocation, anddaily recovery rate – to be filed and served by Natalia within ten working days of the33 Harrison v Harrison, above n 9, at [102]–[106].date of this judgment, with any response and reply to be filed within five working dayintervals after service.—Jagose J