Scott v Williams

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeKós J
Judgment Date29 July 2016
Neutral Citation[2016] NZCA 356
Docket NumberCA58/2015
Date29 July 2016

[2016] NZCA 356

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Ellen France P, Harrison and Kós JJ

CA58/2015

Between
Scott
Appellant
and
Williams
Respondent
Counsel:

Appellant in person

S L Robertson for Respondent

Appeal against a High Court (HC) decision concerning division of property under the Property (Relationships) Act 1976 (PRA) and maintenance under the Family Proceedings Act 1980 (FPA) — the parties married in 1981 and separated in 2007 after 25 years' marriage — the respondent had a successful law firm — the HC overturned a vesting order in the Family Court (“FC”) and ordered the properties to be sold, reduced the FC award for economic disparity under s15 PRA from $850,000 to $280,000 and rejected a claim for spousal maintenance — whether the HC erred in ordering sale of the properties — whether the facts justified any adjustment having regard to the provisions of s 2G PRA — what quantum should awarded under s15 PRA (Court may award lump sum payments or order transfer of property) on grounds of economic disparity — whether the appellant was entitled to spousal maintenance under s64 FPA (maintenance after marriage or civil union dissolved or de facto relationship ends) — the parties names were anonymised.

Held: There was no presumption in favour of vesting orders for the family home. Section 11 PRA (division of relationship property) provided that each spouse was entitled to share equally in the family home. The power to vest instead was discretionary and found in s25(3) PRA (court may at any time make any order or declaration relating to the status, ownership, vesting, or possession of any specific property as it considers just) and s33(3) PRA (ancillary powers of court – Court may order for the sale of the relationship property). Factors supporting vesting of the family home in one party included the interests of any children and the relative strengths of associations between parties and the property. Factors favouring sale included any significant uncertainty as to its value and the presence of substantial increased value of a passive nature which would represent a windfall to the party taking vesting. Where values could be attributed to property with confidence, they were to be contemporary values at the hearing date. The combination of significant uncertainty as to value and significant passive increase in value would, all other things being equal, strongly suggested that sale rather than vesting was the preferable means of achieving the overriding goal of equal sharing. It was not a case where S' degree of association with a house so outweighed that of W as to call for vesting in her, rather than sale on the open market (at which she could bid).

The value of the Remuera properties was quite uncertain, and all experts agreed that the best means of testing the true value of those properties was by ordering a sale (with both parties having the right to bid). No valuation date adjustment was required. A necessary consequence was that neither party gained a windfall, because the value attributed was different to the value determined on the open market. The gain in value in the two properties since 2011 was due to inflation. It was not attributable to the parties' efforts or contribution of one spouse or the other. Such gains should be shared equally.

The parties agreed W's interest in the law practice was to be valued on the basis of the price that would be agreed between a willing but not anxious seller and a willing but not anxious buyer. There had been much common ground between the experts. It was agreed between them that valuation should be based on capitalisation of earnings. The three experts agreed that future obtainable earnings for each partner were $425,000 per annum. The HC had been correct to adopt a multiple of two rather than three based on the suburban nature of the practice, the practice having been built up on the basis of the personal efforts of its two principals, the absence of a partnership development plan, and the fact that the practice would face an issue in five to eight years' time as the current partners sought ways to exit legal practice.

The purpose of s15 PRA was not to remove the disparity altogether. The formula did not refer to the difference between the actual income levels of the two parties, it focused only on S, and on the gap between her actual and “but for” incomes caused by the division of functions. Not on W, and not on his income. The distribution of super profits had not altered the disparity in income-earning capacity post separation of the two parties, its effect was neutral. Applying a 10-year term, in effect running to March 2017, was fair. W may be expected to retire within three years of that date, but S could be expected to continue working beyond that date for eight years, five more than W. The sum produced by a 10-year term (rather than 14) would be approximately $470,000. The s15 PRA quantum must be increased from $280,000 to $470,000. A s15 PRA award was not enduring. Any award should be reduced having regard to a change in W's position brought about by retirement. S could not have further credit for enhancement of the practice value given she was to receive an equal share of that as part of the division of relationship property

The liability to maintain under s64(1) FPA was to the “extent that such maintenance is necessary” to meet reasonable needs where the recipient spouse could not do so for one of the reasons provided in s64(2) FPA. Those included the division of functions within the marriage, a similar consideration to s15 PRA. Section 64 FPA must reflect alternative means available including the sharing of income via super profits and a s15 PRA income shortfall award. The effect of the super profits award conferred a half interest in the practice income received by W from 2008 to 2013 over and above his own notional salary. The existence of that entitlement (which existed from separation, regardless of when division of relationship property occurred) fundamentally affected the extent to which it was “necessary” that further provision be made by way of spousal maintenance. The award of spousal maintenance was not appropriate given that a s15 PRA economic disparity award based on income shortfall was also being made.

The appeal was allowed in part. The quantum of compensation payable under s15 PRA was increased from $280,000 to $470,000. The appeal was otherwise dismissed.

JUDGMENT OF THE COURT

A The appeal is allowed in part. The quantum of compensation payable under s 15 of the Property (Relationships) Act 1976 is increased from $280,000 to $470,000.

B The appeal otherwise is dismissed.

C No order for costs is made in this Court.

Table of Contents

Background

[3]

Outcome below

[9]

Leave for second appeal in relationship property cases

[10]

Orders for sale

[15]

Judgments below

[16]

Did the High Court err in ordering sale of the Remuera properties?

[21]

Do the facts justify any adjustment having regard to the provisions of s 2G of the Property (Relationships) Act 1976?

[35]

Valuation of legal practice

[44]

Judgments below

[44]

Was the High Court determination that the legal practice interest of the appellant had a value of $300,000, correct?

[52]

Section 15 award

[60]

Judgments below

[61]

Appeal

[76]

Should an order allocating a share of super profits from separation date to hearing date be taken into account in fixing compensation for this period?

[79]

Should any award be reduced having regard to a change in the non-claiming party's position brought about by retirement?

[95]

Was the High Court in error in the actual calculation undertaken for super profits because it did not take into account a contingency or present value discount?

[101]

Is an enhancement award justified in this case?

[103]

What considerations should a court take into account in fixing a percentage of property as the basis for a s 15 award?

[112]

Maintenance

[114]

Judgments below

[114]

If a share of super profits is awarded, should that be taken into consideration when determining a party's obligation to maintain and the other partner's entitlement to maintenance?

[120]

Summary

[129]

Costs

[130]

Result

[133]

REASONS OF THE COURT

(Given by Kós J)

Ms Scott and Mr Williams separated in June 2007 after 25 years' marriage. Nine years later they are still embroiled in a relationship property dispute. Most issues have now been resolved in the Family Court 1 and High Court. 2 But Ms Scott was

granted leave by the High Court 3 to appeal against four aspects of the High Court judgment:

(a) the correct valuation of Mr Williams' partnership interest in a law firm;

2

This judgment anonymises the parties. We are satisfied good reasons exist to maintain the anonymisation directed in the courts below. Essentially that is because of some of the content of the earlier judgments.

Background
3

The parties married in 1981. Mr Williams is a lawyer, currently aged in his early 60s. He started his own practice in the 1980s. The practice prospered. He eventually merged with another practitioner to form a successful two-partner firm.

4

Ms Scott, now aged in her mid-50s, trained and worked initially as an accountant. She resigned from that work in 1984. She studied for a law degree, graduated in 1988, and commenced employment with a law firm.

5

The couple had children in 1990 and 1992. The second child was unwell and required extensive treatment and hospitalisation on several occasions. Ms Scott became primary caregiver and homemaker. She supported Mr Williams' practice by providing accounting services and legal opinions. Ms Scott recommenced work as

an accountant in 2001 for about a year. She continued to assist her...

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2 cases
  • Little v Little
    • New Zealand
    • High Court
    • 29 March 2022
    ...(4) This section overrides sections 11 to 14A. 43 The legislative history to s 15 was summarised by Arnold J in the Supreme Court in Scott v Williams. 14 The provision was a response to a perceived deficiency in the way the then Matrimonial Property Act 1976 addressed the position of nonc......
  • Little v Little
    • New Zealand
    • High Court
    • 29 March 2022
    ...wrong to halve the award arrived at by applying the diminution method. 46 47 48 49 At [327]. At [215]. At [475]–[476]. Scott v Williams [2016] NZCA 356, [2016] NZFLR Glazebrook J noted that the first step under the diminution method is to calculate the difference between the disadvantaged p......

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