R L HUMPHRIES TRUSTEE LTD AS TRUSTEE OF THE R L HUMPHRIES FAMILY TRUST v HUMPHRIES [2016] NZHC 57

R L HUMPHRIES TRUSTEE LTD AS TRUSTEE OF THE R L HUMPHRIES FAMILY TRUST v HUMPHRIES [2016] NZHC 57 [26 February 2016]IN THE HIGH COURT OF NEW ZEALANDNEW PLYMOUTH REGISTRYCIV 2015-443-000066[2016] NZHC 57BETWEEN R L HUMPHRIES TRUSTEE LIMITEDAS TRUSTEE OF THER L HUMPHRIES FAMILY TRUSTAppellantAND KELLY JEAN HUMPHRIESRespondentHearing: 2 February 2016Counsel: S R Ebert for AppellantS W Hughes QC for RespondentJudgment: 26 February 2016JUDGMENT OF SIMON FRANCE JIntroduction[1] The appellant owes the respondent $51,000. The money was lent to the appellant by the respondent and everyone agrees it is now due. However, the appellant resisted summary judgment on the basis that the Property (Relationships) Act 1976 applied, and the proceedings fell within the exclusive jurisdiction of the Family Court. This argument failed in the District Court1 and is now pursued on appeal.1 Humphries v R L Humphries Trustee Ltd [2015] NZDC 18219.Facts[2] The respondent and a Mr Rhys Humphries were first in a de facto relationship and then married. They have now separated.[3] Prior to marriage in 2009, two things happened. First, the R L Humphries Family Trust was created. Assets transferred to the trust included a house Mr Humphries owned and in which the couple were already living. Also transferred was a home owned by Mr Humphries' mother. Mr Humphries is a beneficiary of the Trust; his now separated wife, the respondent, is not. A separate company was incorporated to be trustee. That is the appellant, R L Humphries Trustee Ltd. I am advised orally Mr Humphries is the sole director and shareholder.[4] The second event was a contracting out arrangement. At time of the judgment now under appeal, there had been heard but not determined a challenge in the Family Court by Mrs Humphries to the validity of this agreement. The agreement has now been set aside. An appeal against that decision was to be heard at the same time as this ruling, but was abandoned. Presently there are no other Family Court proceedings.[5] In 2011, so during the course of the marriage, Mrs Humphries received a bequest from a family friend. It appears the bulk of the money was absorbed into day to day living, but $67,000 was lent to the trustee of the R L Humphries Family Trust. The money is recorded in the relevant Trust accounts as a loan from Mrs Humphries. Consistent with this, $16,000 has been repaid, leaving the present judgment sum of $51,000. Mr Humphries says the money was spent on improvements to the house in which the couple were living. It was recorded as a loan because at the time contracting out agreement meant Mrs Humphries had no interest in the property being improved.Judgment under appeal[6] Mrs Humphries filed proceedings and sought summary judgment in relation to the $51,000. The appellant opposed on the grounds that:(a) the Family Court had exclusive jurisdiction;(b) it was not properly to be seen as a loan; and(c) the Court should decline summary judgment in the exercise of its discretion.[7] The first and third matters are pursued on appeal, so my summary of the District Court judgment will be limited to those.[8] Concerning jurisdiction, the appellant's argument was that the situation wascovered by s 4(1)(b)(ii) of the Act. Section 4 is central to the appellant's argumentso I include it in full:4 Act a code(1) This Act applies instead of the rules and presumptions of the common law and of equity to the extent that they apply—(a) to transactions between spouses or partners in respect of property; and(b) in cases for which this Act provides, to transactions—(i) between both spouses or partners and third persons; and(ii) between either spouse or partner and third persons.(2) Subsection (1) does not apply where this Act expressly provides to the contrary (such as in subsection (5)).(3) Without limiting the generality of subsection (1),—(a) the presumption of advancement does not apply between husband and wife:(b) the presumption of resulting trust does not apply between spouses, civil union partners, or de facto partners:(c) the presumption that the use of a wife's income by her husband with her consent during the marriage is a gift does not apply between husband and wife.(4) Where, in proceedings that are not proceedings under this Act, any question relating to relationship property arises between spouses or partners, or between either or both of them and any other person, the question must be decided as if it had been raised in proceedings under this Act.(5) This section does not apply if the de facto partners have lived in a de facto relationship for less than 3 years.(6) However, if the court makes an order under section 25(1)(a) in respect of any relationship property of de facto partners to whom subsection (5) applies, and any question relating to relationship property arises between those de facto partners in any subsequent proceedings that are not proceedings under this Act, then—(a) subsection (5) does not apply; and(b) the question must be decided as if it had been raised in proceedings under this Act.[9] The District Court disagreed, noting that s 4(b) applied only "in cases for which this Act provides", a situation which did not apply here. The Court's viewwas that the present situation involved a contract between Mrs Humphries and a third party, there was no basis on which the Family Court could enforce the debt against the appellant, and that Mrs Humphries was entitled to claim her money. The status of the money in her hands was a separate issue to be determined in the Family Court. The Court did note, however, there could be little dispute the money had retained its character as separate property.[10] Concerning discretion, the Court considered there was no arguable defence, and no circumstances existed to support a deferral of judgment. Intermingling arguments seemed tenuous at best and could anyway be advanced in the Family Court proceedings. I note the appeal ground now focuses rather more on the proposition that the proceeding is an abuse of process as an attempt to circumvent the Family Court processes. As such it differs little from the jurisdiction argument.Decision[11] These issues were recently considered by Associate Judge Smith in Shailer v Shailer,2 a case the appellant submits is incorrectly decided. There the couple had during their marriage transferred assets to a family trust. Each was a trustee of the trust along with a third independent trustee. The Trust purchased property from the Shailers by way of vendor lending which resulted in debts to each of $500,000. These debts were then reduced by equal annual gifts to the Trust by the Shailers.[12] After the couple separated Mrs Shailer brought standard civil proceedings seeking payment from the Trust of the debt owing to her. Proceedings were necessary because her ex-husband, as trustee, would not agree to the payment, and unanimity of trustees was required. The proceedings were opposed on the basis that the matter concerned relationship property, and the Family Court had exclusive jurisdiction. The Judge disagreed, considering that although it was an issue between Mrs Shailer and a third party, as contemplated by s 4(1)(b)(ii), the Act did not otherwise provide for it as required by the opening words of s 4(1)(b).[13] His Honour reasoned that Mrs Shailer was the legal and beneficial owner. She could ask the Court, for example, to assign the debt so why could she not seek that it be converted into cash. The Court rejected the proposition that it should go behind the third party status of the Trust and consider the matrimonial property reality. If the parties chose to structure their affairs in a certain way, then the legal consequence should follow.[14] I do not need to express a view on the outcome in Shailer because in my view the situation here is different and more compelling in favour of what has happened. In Shailer the Trust was a mutually agreed vehicle into which matrimonial property assets were equally put. It was part of the couple's joint planning. Here the structure is one sided – the trust is for the benefit of Mr Humphries and Mrs Humphries has no interest in it. Unlike in Shailer, Mrs Humphries is not a trustee or beneficiary, and has no decision making input. She has no control over, or relationship to, the third party entity that is declining to pay a debt due to her. It is a simple case of debt2 Shailer v Shailer [2015] NZHC 250.enforcement, and there is no basis to go behind the structure and inquire into Mr Humphries' situation.[15] Mr Ebert placed weight on ss 4(4) and 4A of the Act which are submitted to mean the matter must be heard by the Family Court:4(4) Where, in proceedings that are not proceedings under this Act, any question relating to relationship property arises between spouses or partners, or between either or both of them and any other person, the question must be decided as if it had been raised in proceedings under this Act.4A Every enactment must be read subject to this Act, unless this Act or the other enactment expressly provides to the contrary.[16] The first point to make is that s 4(4) would not prevent the matter being heard in the civil jurisdiction; it would just impose additional requirements on the process of resolution. Second, for the section to apply the proceeding must involve "a question relating to relationship property". It is important to read this phrase as a complete whole, or otherwise its scope would be much wider than would have been intended. All court proceedings in which a spouse is involved, regardless of the status of the marriage, could potentially be caught if the subject matter of the dispute is relationship property.[17] The weight of authority is against the appellant in situations where there is a third party involved. In Jew v Jew, Paterson J noted:3 Apart from orders which can be made under certain provisions of s 44 of the Act, a Family Court has no jurisdiction in respect of property which is owned by a third party trust. It is not, in my view, contrary to public policy that this Court determine status of property which may inevitably assist in resolving relationship property disputes, but which in itself does not determine matters within the sole jurisdiction of the Family Court It follows that s 22(1) of the Act requiring all applications under the Act to be hears and determined in a Family Court appl[ies] to those applications seeking orders under s 25(1) of the Act. The exclusive jurisdiction of the Family Court is limited to such applications.[18] This approach was followed by Andrew J in AB v EF.43 Jew v Jew [2003] 1 NZLR 708 (HC), at [38] and [41].4 AB v EF [2012] NZHC 722.[19] Jew v Jew is also of relevance to another point relied on by the appellant which concerned the ability to the Family Court to make orders against the third party debtor. Mr Ebert contended for a broad reading of s 25(3) of the Act. Paterson J there reviewed the authorities and concluded s 25(3) was not intended to, and does not, authorise the Family Court to make declarations as to ownership in respect of property owned by third parties.5 Still less in my view would it encompass the present proceeding.[20] As with the Court below, I do not consider these proceedings can be said to involve a question about relationship property. It is doubtful the debt is relationship property but I accept that if s 4(4) applies, that issue needed proper resolution and that has not happened. The preferable view, however, is to see the case as notinvolving "a question relating to relationship property". This is because of Mrs Humphries absolute lack of connection to the debtor. For whatever reason, the transaction was structured as a loan by her to a third party with whom she has no association or ability to control. The underlying Trust arrangement is not part of a mutual matrimonial property planning exercise, and relationship property issues are not engaged. Mrs Humphries is simply recouping a debt. Whether or not there are existing Family Court proceedings should not be determinative;6 rather the underlying issue and the identity of the parties is more relevant.[21] The corollary to this is that the entering of judgment does not determine the status of the money in Mrs Humphries' hands. Whether it is separate property orrelationship property, and whether it is a matter relevant to a fair distribution between the parties is something the Family Court can consider if it is required to.[22] Civil proceedings were an available vehicle to enforce the debt, and indeed in my view the appropriate vehicle given the circumstances. It is common ground the debtor has no defence to the claim. Summary judgment was rightly given, and the appeal is dismissed.5 Jew, above n 3, at [40].6 See Shirtcliffe v Albert [2011] NZFLR 971 where the Family Court was held to have exclusive jurisdiction despite there being no extant Family Court proceedings. At [19] of that judgment several cases are reviewed; the outcomes turn on the particular facts.[23] The parties requested the opportunity to file costs memoranda if agreement could not be reached. Leave is accordingly given._________________________Simon France JSolicitors:C&M Legal, New PlymouthS W Hughes QC, New Plymouth