Potter v Horsfall
| Jurisdiction | New Zealand |
| Judge | Wild J |
| Judgment Date | 25 October 2016 |
| Neutral Citation | [2016] NZCA 514 |
| Docket Number | CA720/2014 |
| Court | Court of Appeal |
| Date | 25 October 2016 |
and
Wild, Mallon and Williams JJ
CA720/2014
IN THE COURT OF APPEAL OF NEW ZEALAND
Appeal against a High Court decision that the appellant had not established that the Family Court had jurisdiction to make the order an order under s44(2) Property (Relationships) Act 1976 (dispositions may be set aside — orders), and which set that order aside — a property had been purchased and registered in the parties' joint names — the respondent said that it was held on a resulting trust for two companies which had provided funds for the purchase and it was registered in their joint names to take advantage of a tax loophole — the appellant said that this fell within the Potter v Potter line of authority that as a general principle a party would not be permitted to adduce evidence that in transferring legal title to another he or she intended to retain the beneficial interest, if the effect of the evidence was to disclose that the transfer had a fraudulent purpose — whether the parties had held the property on a resulting trust for the companies — whether the case fell within the Potter line of authority — whether the disposition was made “in order to” defeat that claim or right.
J R Billington QC and R A Newberry for Appellant
T G Stapleton QC for First Respondent
RJB Fowler QC for Second Respondent
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A The appeal is allowed.
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B The judgment of the High Court is set aside.
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C The proceeding is referred back to the Family Court for the remaining issues affecting the second respondent under's 44 of the Property (Relationships) Act 1976 to be determined.
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D The first respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.
(Given by Wild J)
In the course of the appellant and first respondent's relationship, a commercial property in College St, Wellington, was registered in their joint names. It was sold profitably about a year later for $1.575 million (GST inclusive). All but $50,000 of the sale proceeds were disposed of by Mr Horsfall for his separate commercial interests. The money went to 168 Group Ltd (168 Group), a company he controlled.
The parties subsequently separated and sought orders for the division of the relationship property. Ms Potter was successful in her claim in the Family Court for a half share of the net sale proceeds. Judge A P Walsh ordered 168 Group to transfer half the net proceeds to Ms Potter, with interest. 1 The Judge made that order under's 44(2)(c) of the Property (Relationships) Act 1976 (the PRA).
Mr Horsfall appealed successfully to the High Court. Simon France J held: 2
… Mr Horsfall disposed of the proceeds of the sale [of the College St property] not to defeat Ms Potter's interest but because Ms Potter did not have a beneficial interest in the property. … The key point is that Ms Potter was not entitled to [the proceeds], and in my view knew that to be so.
Accordingly, Simon France J held Ms Potter had not established that the Family Court had jurisdiction to make the order it had under's 44(2) of the PRA, and set that order aside. 3
In a judgment delivered on 10 June 2015 this Court granted Ms Potter leave, under's 67(1)(a) of the Judicature Act 1908, for a second appeal on the following question of law: 4
Was the High Court correct to find that the disposition of the proceeds of sale of the College St property was not made by the first respondent in order to defeat the claim or rights of the applicant for the purposes of s 44 of the Property (Relationships) Act 1976?
Section 44(1) of the PRA provides:
Where the High Court or a District Court or a Family Court is satisfied that any disposition of property has been made, whether for value or not, by or on behalf of or by direction of or in the interests of any person in order to defeat the claim or rights of any person ( party B) under this Act, the court may make any order under subsection (2).
On this appeal it is not in issue that there was, in terms of s 44(1), a “disposition of property”. It was by Mr Horsfall to 168 Group. The contested elements of s 44(1) are, firstly, whether Ms Potter had any “claim or rights” in respect of the College St property, and, secondly, if she did have a claim or right, whether the disposition was done “in order to” defeat that claim or right.
With the benefit of counsel's submissions, particularly the way the parties' respective cases were condensed in oral argument, we consider answering this first issue requires us to address these prior questions:
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(a) To the extent, if any, that the source of the purchase monies for the College St property is relevant, what was the source of those monies? Specifically, were they in whole or in part relationship property?
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(b) Why was the College St property registered in the parties' joint names? In particular, was it because the parties intended it to be part of their relationship property?
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(c) If “no” to question (b), was the College St property registered in the parties' joint names to conceal the fact that it was beneficially owned by 168 Group and/or 88 Riddiford Holdings Ltd (Riddiford Holdings), both property companies? In particular, was it done to avoid the prospect of either or both those companies being assessed for income tax on any profits from the sale of the College St property?
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(d) If “yes” to question (c), is that reason one Mr Horsfall may advance in a court of law? Specifically, will the Court permit Mr Horsfall to advance that reason in answer to Ms Potter's claim under the Act to a half share of the proceeds of sale of the College St property?
Mr Billington QC's primary submission for Ms Potter was that it mattered not where the purchase monies came from because, once the College St property was registered in the parties' joint names, it became relationship property: s 8(1)(c) of the PRA.
Without derogating from that primary submission, Mr Billington accepted Ms Potter had not contributed any cash towards the purchase. But he submitted the sources of funding were predominantly relationship property because of a series of transactions between various entities entered into during the relationship that resulted in intermingling of funds. Further, he submitted Ms Potter had contributed through effort in other properties and was the beneficiary of profitable transactions by Mr Horsfall during the relationship. Mr Billington did not detail the relevant transactions.
Mr Stapleton QC, for Mr Horsfall, submitted the purchase monies came predominantly from Mr Horsfall's separate property. In particular, Mr Horsfall sold shares that were his separate property in order to contribute to the purchase price. The balance of the purchase price came from Riddiford Holdings, a company formed on 30 September 1999 with one director, Mr Horsfall's sister, and with 88 Riddiford Holdings Family Trust as its sole shareholder. 5 That Trust had been settled on 28 September 1999, two days before Riddiford Holdings was formed. The beneficiaries of the Trust were Mr Horsfall, any trust or superannuation plan of
which he was a member, any children of his, and any charitable purpose trust or institution. The trustees were his sister and “WRM” (the material we have does not indicate who or what WRM is)The evidence establishes that the purchase price of $560,000 was funded by Mr Horsfall (from the proceeds of the sale of shares that were his separate property) and by Riddiford Holdings. That purchase price was only for the 50 per cent share in the property that 168 Group did not already own. Once the purchase was completed, the entire property was registered in the parties' joint names. Thus 168 Group effectively contributed its existing half share of the property.
The source of purchase money can be relevant in relationship property proceedings. Property acquired after the commencement of the relationship is relationship property (s 8(1)(e)) unless it was acquired out of one party's separate property after the commencement of the relationship in which event it remains separate property (s 9(2)). 6 However, Mr Horsfall has not maintained the College St property as his own separate property but registered it in the parties' joint names. In any case, he does not rely on s 9(2) because his position is not that the College St property was his separate property, but rather that it was neither his nor Ms Potter's.
As noted in [8] above, Mr Billington submits the College St property was relationship property because s 8(1)(c) provides property that is “owned jointly” is relationship property. But the definition of “owner” in s 2 of the PRA is a person who is the beneficial owner of the property. 7 Mr Horsfall's position is that he and Ms Potter always held the College St property on a resulting trust for 168 Group and Riddiford Holdings.
We accept that a resulting trust as between the two companies on the one hand, and the parties on the other, would not be excluded by s 4 of the PRA. However, we are not able to accept Mr Horsfall's argument that he and Ms Potter
First, as we explain in [24] below, Mr Stapleton conceded joint registration in the parties' names was effected to avoid a potential liability on the part of the two companies to income tax. That could only be achieved legitimately if the parties became the beneficial owners of the College St property. So the very purpose of joint registration in the parties' names was antithetical to a...
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Sutton v Bell
...to determining the presence or otherwise of the necessary intent. Referring to the approach in Ryan, 51 as approved by this Court in Potter v Horsfall, 52 she summarised that approach in the following way: 53 Thus, the inquiry for establishing intention is directed to the disposing party's ......