S V F COA CA707/2011

S V F COA CA707/2011 14 February 2012NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITHSS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHERINFORMATION PLEASE SEEWWW.JUSTICE.GOVT.NZ/FAMILY/LEGISLATION RESTRICTIONS.IN THE COURT OF APPEAL OF NEW ZEALANDCA707/2011[2012] NZCA 10BETWEEN SApplicantAND FRespondentHearing: 7 February 2012Court: Glazebrook, Wild and White JJCounsel: G P Tyrrell for ApplicantS H Marsden for RespondentJudgment: 14 February 2012 at 11:30 AMJUDGMENT OF THE COURTA Leave to appeal is granted to both parties.B Leave is reserved to the Commissioner of Inland Revenue to intervene.C Costs are reserved.D This judgment may be cited as Short v Frank.____________________________________________________________________REASONS OF THE COURT(Given by White J)Introduction[1] Dr S applies under s 120(4) of the Child Support Act 1991 (the Act) for leave to appeal against a decision of the High Court1 where Fogarty J allowed Ms F'sappeal against the refusal of the Family Court to increase the amount of child support payable by Dr S to her to the statutory maximum for the 2011 tax year and retrospectively to and including the 2009 tax year.2Background[2] When Dr S and Ms F separated in 2005 they agreed that:(a) They would share the care of their three sons;(b) Dr S would pay private school fees for their sons which total some $52,000 annually; and(c) The amount of child support payable by either of them would be assessed under the Act.[3] When the first assessment was made by the Commissioner of Inland Revenue (the Commissioner) under the Act in 2007, Dr S obtained a downward variation in child support to reflect the fact that he was paying the school fees. Ms F did not appeal.[4] Ms F subsequently sought to have Dr S's child support reassessed retrospectively to 15 October 2007 by way of an upward departure under the Act to reflect the fact that he had structured his employment as a medical practitioner using a company and family trust to reduce his level of income significantly.[5] The Commissioner in his 2010 and 2011 assessments, however, reduced the child support payable by Dr S on the basis that he was paying the private school feesand refused Ms F's application for an upward variation for the 2011 year.1 F v S HC Christchurch CIV-2010-409-020979, 29 September 2011.2 JCF v BPS FC Chch Fam 2009-009-1865, 25 November 2010 and 16 March 2011.[6] Ms F's appeal to the Family Court against the Commissioner's downwarddeparture orders for the 2010 and 2011 years was allowed on the grounds that;(a) Dr S was choosing to pay school fees out of his capital, when those fees were perfectly capable of being paid for out of income by the children's trust of which he was a trustee. Nobusiness case could be made for this course of action. The only conclusion was that he had structured his affairs in this way in order to qualify under s 105(2)(b)(iii) for a reduction in his child support.(b) Bearing in mind those circumstances and the detrimental impact on Ms F of the reduction in child support caused by the departure, it was neither just nor equitable nor proper that a departure be granted in favour of Dr S.[7] Ms F's application for an upward variation was dismissed.[8] Ms F appealed successfully to the High Court which increased the amount of child support payable by Dr S to her to the statutory maximum for the 2011 tax year and retrospectively to and including the 2009 tax year. Fogarty J held that tostructure one's income to go below the statutory ceiling when the statutory ceiling isalready only a fraction of the assessable income before structuring, can and should be properly characterised as conduct designed to thwart the purposes of the Act. The question of future years was not dealt with by the High Court.[9] On the day of the hearing of the application for leave to appeal, we were provided with a copy of a further decision by the Commissioner dated 20 January 2012 refusing to make a determination on a further application by Ms Ffor an upward departure of Dr S's child support on the grounds that the issues raised were "too complex" and ought to be considered by the Family Court.Grounds for application for leave to appeal[10] Dr S seeks leave to appeal on the grounds that the High Court erred in:(a) The application of its powers under the Act by finding that there were special reasons to order a departure from theformula assessment on Dr S's tax assessable income.(b) In treating the trust income as Dr S's income for the purposesof the Act.(c) In substituting its own view for the lawfully exercised discretion of the Family Court Judge.(d) In holding that the grounds applied by the Family Court Judge in setting aside the downward departure under s 105(2)(b)(iii) of the Act should have been applied so as to amount to special reasons for an upward departure under s 105(2)(c).(e) In taking judicial notice of matters relating to income not in evidence.(f) In not considering whether it was just and equitable or otherwise proper to grant an upward departure order.(g) In incorrectly interpreting and applying the purposes of the Act.(h) In making the orders retrospective.[11] In support of these grounds Mr Tyrrell submitted that:(a) There was a dearth of guidance on whether it was appropriate to go behind the lawful financial structure established by Mr S which did not offend the findings in Penny v Commissioner ofInland Revenue;3(b) The absence of authority relating to this question and its public importance was reinforced by the decision of this Court inDarby v Bolton4 where leave to appeal had been granted in a similar case involving a company and trust structure where the issues included the question whether trust income should be treated as an applicant's income for the purposes of the Act;and(c) The differences of approach between the Family Court and the High Court meant that an appeal to this Court was effectively a first appeal.[12] The application for leave to appeal was opposed by Ms F. Ms Marsden submitted that:(a) The statutory test for "special circumstances" was clear;(b) The relevant principles were well settled in a substantial body of case law, including the decision of this Court in Andrews v Andrews;5(c) The decision of the High Court was based on factual findings made by the Family Court; and(d) The decision in Darby v Bolton was distinguishable on its facts.Cross-appeal[13] In the event that Dr S was granted leave to appeal, Ms Marsden for Ms F sought leave to cross-appeal out of time against the High Court decision not to make3 Penny v Commissioner of Inland Revenue [2011] NZSC 95, (2011) 25 NZTC 20-073.4 Darby v Bolton [2011] NZCA 474.5 Andrews v Andrews [1994] NZFLR 39.a child support order for future years. Ms Marsden submitted that it would assist both the Commissioner and the lower courts for this Court to provide a framework for consideration of complex cases of this nature which were not particularly unusual.[14] While Mr Tyrrell for Dr S opposed the application for leave to cross-appeal, he acknowledged that it would be desirable for the appeal to resolve all these issues for the parties and the Commissioner.Decision[15] We accept that the application of the relevant provisions of the Act to specific cases will depend on the facts of the particular case, but we also accept, particularly in view of the different approaches adopted by the Commissioner, the Family Court and the High Court, and the fact that leave has been granted in the not totally dissimilar case of Darby v Bolton, that leave to appeal should be granted to Dr S in this case.[16] We consider that in this case the questions of law identified in [10](a), (b), (d), (f) and (h) above should be determined by this Court:[17] We do not consider that there is any merit in the issue suggested by Mr Tyrrell in [10](c) that the High Court erred in substituting its own view for the lawfully exercised discretion of the Family Court Judge. In our view the relevant provisions of the Act involved an evaluative exercise in respect of which the High Court was required to make its own assessment: Austin, Nicolls & Co Inc v Stichting Lodestar6 and Kacem v Bashir.7[18] The issues identified in [10](e) and (g) may be raised in the context of the issues in respect of which leave has been granted.6 Austin, Nicolls & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.7 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31]–[33].[19] We also grant leave to Ms F to pursue her cross-appeal. The issue in the cross-appeal will be whether, and if so how, an assessment order for the future may be made.Commissioner of Inland Revenue[20] Although the Commissioner did not intervene in the lower courts or apply to be heard on the appeal, we note that in Darby v Bolton he was represented. In these circumstances and because we suggest that the appeal in this case should be heard at the same time as the appeal in Darby v Bolton we reserve leave to the Commissioner to intervene. For that purpose a copy of this judgment is to be served on the Commissioner and Crown Law which is representing the Commissioner in Darby v Bolton.Result[21] Leave to appeal is granted to both parties.[22] Leave is reserved to the Commissioner to intervene.[23] Costs are reserved.[24] Because of difficulties in later citation of cases, leave is given to cite this judgment as Short v Frank (which are not the parties real names).Solicitors:Weston Ward and Lascelles, Christchurch for ApplicantMortlock McCormack, Christchurch for Respondent