Thompson v Thompson and Others

JurisdictionNew Zealand
JudgeStevens J
Judgment Date08 April 2014
Neutral Citation[2014] NZCA 117
Docket NumberCA701/2013 CA711/2013
CourtCourt of Appeal
Date08 April 2014
Between
Michael Leith Thompson
Appellant
and
Christine Hamilton Thompson
First Respondent

and

Michael Leith Thompson, Dean Alan Ellwood and Bruce Kenneth Dell as Trustees of The M L Thompson Family Trust
Second Respondents

[2014] NZCA 117

Court:

Randerson, Stevens and Miller JJ

CA701/2013 CA711/2013

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal from a High Court decision which held an $8 million restraint of trade payment made to the appellant after the parties separated was the appellant's separate property but that the first respondent was entitled to a share under s9(4) Property (Relationships) Act 1976 (“PRA”) (just in the circumstances to treat separate property as relationship property) — parties had established Nutra-Life Health & Fitness (NZ) Ltd and its holding company which were owned by the second respondent Trust — whether the restraint of trade was for business goodwill or the personal goodwill of the appellant — whether there was a connection between the restraint of trade payment and efforts made during the marriage by the first respondent so that part of the payment became relationship property under s9(4) PRA — whether an extension of a stay of enforcement of consent orders between the parties as to the division of assets should have been granted.

Counsel:

Lady D A Chambers QC for Appellant

A E Hinton QC and S Ambler for First Respondent

V T M Bruton and P Brown for Second Respondents (excused from appearance)

JUDGMENT OF THE COURT

A The appeal is allowed and the cross-appeal is dismissed.

B The decision of the Family Court is reinstated with the result that the payment of the sum of $8 million to the appellant is to be treated as the separate property of the appellant.

C The application for leave to adduce further evidence on appeal is dismissed.

D The stay of execution granted in the High Court is discharged.

E All questions of costs in the High Court and the Family Court are to be determined in those Courts in the light of the judgment of this Court.

F Costs in this Court are reserved on the terms set out in [94].

G In relation to the application by the second respondents for costs, there will be no order for costs.

REASONS OF THE COURT

(Given by Stevens J)

Table of Contents

Para No

An $8 million payment – separate or relationship property?

[1]

Some further background

[8]

The agreement for sale and purchase

[11]

The restraint of trade covenant

[18]

The value of the business and assets

[23]

First issue – relationship or separate property?

[30]

Family Court decision

[30]

High Court judgment

[32]

Submissions for Mrs Thompson on appeal

[35]

Our analysis

[38]

Second issue – relationship property under s 9(4)?

[62]

Family Court decision

[62]

High Court judgment

[63]

Submissions of the parties

[66]

Our analysis

[69]

Third issue – further evidence on appeal?

[83]

Fourth issue – discharge of stay of execution?

[86]

Result and costs

[92]

An $8 million payment – separate or relationship property?
1

Following the dissolution of their marriage in 2005, the appellant, Mr Thompson, and his wife Mrs Thompson, the first respondent, agreed on the division of their considerable assets. These included the family home, a holiday home, various chattels, and the proceeds of the sale of a business, Nutra-Life Health & Fitness (NZ) Ltd (Nutra-Life) and its holding company, Health Foods International Ltd (HFI), which had some 10 years earlier been transferred to the M L Thompson Family Trust (the MLT Trust). The second respondents are the trustees of that Trust. The parties were unable to agree on their respective entitlement to a payment of $8 million, made to Mr Thompson by the purchasers of the Nutra-Life business under a restraint of trade covenant entered into in December 2006, over four years after the parties first separated in 2002.

2

Mrs Thompson's claim to half of the $8 million payment was first determined in the Family Court. Judge Rogers concluded that payment was separate property under s 9(4)(a) of the Property (Relationships) Act 1976 (the Act), and there was no basis upon which it was just to treat any portion of the payment as relationship property. 1 Mrs Thompson appealed to the High Court.

3

Andrews J agreed that the payment was the separate property of Mr Thompson. 2 The Judge then exercised her discretion under s 9(4) of the Act to treat part of the restraint of trade payment to Mr Thompson as relationship property. 3 She considered that there was some connection between the restraint of trade payment and efforts made during the marriage, however, the evidence before the Court was insufficient to allow her to apportion the payment between the amount pertaining to Mr Thompson's business performance during the relationship, and the amount compensating Mr Thompson's for the loss of his future earnings. 4 The Judge held, if the parties failed to reach agreement on apportionment, additional evidence would be required at a further hearing.

4

Mr Thompson appeals this finding under s 9(4) on the basis that Andrews J erred in the exercise of her discretion, and wrongly allowed further evidence to be admitted. Mrs Thompson cross-appeals against the finding the restraint of trade payment was Mr Thompson's separate property.

5

Immediately prior to the Family Court hearing, the parties had negotiated a series of consent orders in respect of the division of their assets. 5 These determined who would own which assets, and included an adjustment payment to be made to Mr Thompson. In August 2013, Andrews J granted a stay of enforcement of these consent orders, to expire 48 hours after the issue of her substantive judgment. 6 Following delivery of the substantive judgment, the Judge granted an extension of the stay of execution pending further order of the Court. 7

6

Mr Thompson appeals against these decisions granting a stay of execution on the basis that the High Court did not have jurisdiction to grant a stay or, in the alternative, the Judge was in error in granting the stay.

7

The issues for determination on appeal are as follows:

  • (a) Is the $8 million payment relationship or separate property?

  • (b) Should any portion of that payment be treated as relationship property under s 9(4) of the Act?

  • (c) Should leave be granted to either the appellant or the first respondent to adduce further evidence on appeal?

  • (d) Should the stay of execution be discharged?

Some further background
8

The background facts are not in dispute. The following summary draws on the outline in the High Court judgment. Mr and Mrs Thompson married in 1971. They had five children (now all adults) and had been married for nearly 31 years upon their separation in August 2002. Mr Thompson had many years experience working in the health foods/dietary supplements industry. In 1972 he was employed by Healtheries of New Zealand Ltd (Healtheries), later becoming a director. In 1984,

he resigned and established Nutra-Life. A holding company for Nutra-Life and associated companies, HFI, was incorporated in 1989. Mr and Mrs Thompson sold their respective shareholdings in HFI to the MLT Trust in 1994
9

Having separated in August 2002, their marriage was dissolved on 25 July 2005. In December 2006, the trustees of the MLT Trust sold the business and assets of HFI and two other entities (the HFI Group) to companies associated with the Next Capital Health Ltd (Next). The purchase price was $72.3 million. The sale agreement was conditional upon, among other requirements, Mr Thompson entering into a restraint of trade covenant. Upon entering into the covenant on 21 December 2006, Mr Thompson received a payment of $8 million. It is common ground that the sale of HFI Group was at a very good price, and a significant factor in achieving that price was Mr Thompson's agreement to enter into the restraint of trade covenant.

10

Because of its importance to the issues we have to decide, further detail on the sale of the HFI Group to Next is necessary. We now turn to examine the specific commercial agreements involved.

The agreement for sale and purchase
11

The parties to the agreement for sale and purchase (the sale agreement) were HFI, Nutra-Life and Nutra-Life Health & Fitness (Aust) Pty Ltd as vendors (HFI/Nutra-Life), the trustees of the MLT Trust as covenantors, three Next-related companies as purchasers, and Next as guarantor. This agreement included the sale of the business and assets as a going concern. The sale involved assets in New Zealand and Australia as well as intellectual property (IP Assets).

12

The purchase price was calculated under clause 3 of that agreement as follows:

3.1 Purchase Price for Assets

The Purchase Price for the purchase of the Assets and the assumption of the Assumed Liabilities shall be the sum of $72,300,000, adjusted in accordance with clause 3.2, allocated as follows:

  • (a) for the Assets (other than the Goodwill and the IP Assets), for the IP Assets, and for Assumed Liabilities, the amounts agreed by the Vendors and the Purchaser prior to Completion and formally recorded in the Completion Statement (being comprised of the elements set out in clause five of the First Schedule); and

  • (b) for Goodwill, the balance of the Purchase Price.

[13] It is common ground that few adjustments were required under cl 3.2, resulting in a total purchase price very close to the stipulated sum of $72.3 million. This comprised an amount of approximately $22.9 million for the Assets and a total of $49.4 million for Goodwill and IP Assets. The term “Assets” was defined in cl 1.1 as:

prepayments (to the extent specified in the Completion Statement), the Fixed Assets, the Inventories, the Book Debts, the IP Assets and the Goodwill (but excluding, for the avoidance of doubt, the Excluded...

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