Ipsofactoj.com: International Cases [2001] Part 1 Case 15 [NZCA]


COURT OF APPEAL, NEW ZEALAND

Coram

Farrelly

- vs -

Gruar

McGRATH J

DOOGUE J

YOUNG J

20 DECEMBER 2000


Judgment

McGrath J

(delivering judgment of the court)

INTRODUCTION

  1. This is an appeal by Ms Farrelly from the dismissal of her claim to a beneficial interest in property of her former de facto relationship with the respondent, Mr. Gruar. In a judgment delivered on 3 May 2000 in the High Court at Auckland, Potter J found that Ms Farrelly had an expectation of an interest in the assets of the partnership but held that it had been satisfied by benefits she had already received. Mr. Gruar cross-appeals against the finding of an expectation.

    THE CIRCUMSTANCES OF THE CLAIM

  2. The appellant, Ms Farrelly, and the respondent, Mr. Gruar, were in a de facto relationship for approximately eight years between 1987 and 1995. They met soon after Mr. Gruar had entered into a matrimonial property agreement following the break-up of his marriage. In mid 1988 they moved into a house together in Peel St, Westmere which Mr. Gruar owned, and soon after had their first child. They had another child two years later. The relationship encountered difficulties in 1993 and eventually the two separated on 22 May 1995.

  3. At the beginning of the relationship Mr. Gruar was working in the film industry and owned a manufacturing business making wood furniture. He also had significant assets, largely in property with an approximate value of $570,000-$620,000. Ms Farrelly was and is a medical practitioner who, at this time, was working as a psychiatric registrar and had assets of a much lesser value, principally a share of a property in Orakei Rd that she owned with her parents. For most of the relationship Ms Farrelly worked part-time in her profession, was the primary care giver and undertook further studies at University. Mr. Gruar ceased work in the film industry but continued his furniture business and, supported by Ms Farrelly, actively worked on and developed the various properties owned during the relationship.

  4. In 1991 a property at Larchwood Ave was purchased in the name of Mr. Gruar for $240,000. Substantial improvements were undertaken in relation to it from early 1992. The parties then sold their home in Peel St and moved into Larchwood in 1993. This then became the family home until the relationship ended and is the property in which the appellant particularly claims a beneficial interest. The improvements to Larchwood Ave were financed by the sale of a property owned by Mr. Gruar and by finance from the Medical Assurance Society guaranteed by Ms Farrelly. These debts were paid off with the sale of the Peel St property.

  5. A property at Richmond Rd was purchased for $99,000 in May 1993 with title being taken in Ms Farrelly's name. It was financed, in part, by a credit facility from the Medical Assurance Society and from moneys derived from the sale of Peel St. Work on Richmond Rd occupied much time and effort from both parties. Mr. Gruar, for example, spent 17 months full time on the project. The work was largely financed through further borrowings from the MAS which totalled $100,000 by the time the property was sold. In addition Ms Farrelly borrowed $15,000 from her parents. On 16 September 1994 the Richmond Rd property was sold for $241,000 and the Medical Assurance Society advances repaid. Larchwood became mortgage free at this point.

  6. A factory at Rosebank Rd was purchased for $235,000 on 28 February 1995 in the name of Mr. Gruar. The cash funds contributed were $61,000 and came from the proceeds of the sale of Richmond Rd. In addition there was an ANZ Bank loan and $20,000 was provided by Mr. Gruar from a family loan of $15,000 and gift from his mother of $5,000. The property was sold by Mr. Gruar on 1 May 1996, that is twelve months following the parties separation, for $265,000. Mr. Gruar retained the balance of $77,000 after the discharge of the ANZ Bank mortgage.

  7. The value of Larchwood Ave is agreed for the purposes of these proceedings at $450,000 as at the date of separation in May 1995, and $665,000 as hearing date, excluding any improvements since separation. At the time of separation Mr. Gruar owned other property to a value of around $100,000.

    THE HIGH COURT JUDGMENT

  8. Ms Farrelly's claim was based on principles of constructive trust and seeks a beneficial interest in Larchwood, which was and is in Mr. Gruar's sole name. It was common ground in the High Court that the principles to be applied were those stipulated by Tipping J in Lankow v Rose [1995] 1 NZLR 277. In that decision the Court of Appeal held that on the termination of a de facto relationship (in that case of ten years) the division of assets fell to be determined according to whether the party claiming could establish a constructive trust in the property in which the other had legal ownership by virtue of the claimant's contributions during the former relationship. Potter J summarised the four requirements for a constructive trust claim. Ms Farrelly had to show contributions to the property in question, that she had an expectation of an interest in that property, that the expectation was reasonable, and that in all the circumstances Mr. Gruar should reasonably expect to yield an interest to her as claimant.

  9. The first element considered by Potter J was whether Ms Farrelly had the requisite expectation of an interest in the Larchwood Ave property. Here the parties were in dispute as to the factual position both at the outset and during the course of their relationship. Mr. Gruar's evidence emphasised that at the time he met Ms Farrelly he had recently concluded a matrimonial property agreement with his former wife and that he was considerably distressed and bitter at the extent to which it had been necessary for him in that agreement to divest himself of property. He said he made clear to Ms Farrelly that in entering a relationship with her he had no intention of sharing his property. That the parties had a common intention that they should not marry was said to evidence this.

  10. It was Ms Farrelly's evidence that she did not accept Mr. Gruar's view on this point; in particular insofar as he maintained their common view about marriage was indicative of their attitude to property. Potter J acknowledged that Mr. Gruar had forcedly expressed views at the outset of what she found was a relationship commencing in late 1987 and concluding in May 1995. However the Judge held that events during the course of the relationship overtook that initial position. The parties were committed to a lifestyle which included joint planning of development, and working on their property, in all of which Ms Farrelly participated, subject to her part-time employment and her role as primary caregiver for their children. The Judge held that gave rise, over the period of their shared life, to her expectation that she would have an interest in their family home. Although it must have been apparent to Mr. Gruar he made no effort to dispel the expectation.

  11. Potter J next considered whether the requisite contributions to property had been made for Ms Farrelly to meet the first test in Lankow v Rose. While the claim was for a beneficial interest in Larchwood Ave, the Judge decided that in the circumstances of the case that required consideration of contributions to other properties held during the relationship. Larchwood Ave however was the ultimate property held by Mr. Gruar, and became free of mortgage at the end of the relationship.

  12. The contributions of Ms Farrelly to the relationship included $14,514 from the sale of her interest in the family unit at Orakei Rd, borrowings from her parents, her labour and that of her parents in improvements to various properties held throughout their relationship, her facilitation of borrowings and her salary as she worked part time over the period of the relationship. The Judge found, in particular, that both had worked hard on the properties but that Mr. Gruar had put in more time and did more work. Ms Farrelly on the other hand was the primary caregiver.

  13. The Judge also held that the contributions of the plaintiff, both direct and indirect, could support only a minority interest in the property owned by the partner and was one from which there had to be deducted the value of the benefits she had received. On this point Potter J asked herself the question did the contributions manifestly exceed the benefit Ms Farrelly received.

  14. In an aspect of the judgment on which senior counsel for both parties concentrated their submissions during the hearing of the appeal, the Judge addressed the destination of proceeds of the sale of the Richmond Rd property which was in Ms Farrelly's name. The Judge found that of the net settlement proceeds of $241,335 paid into the couple's living account, $100,300 was repaid to the Medical Assurance Society, and $61,000 was applied to the Rosebank Rd purchase, in Mr. Gruar's name. The Judge treated that benefit to him as a net $40,000 after accounting for his other family contributions. Potter J then addressed what she saw as proceeds paid to Ms Farrelly's:

    Ms Farrelly was paid $90,000 by transfer to her savings account on 27 April 1994. On 7 December 1994 she transferred back $13,000 to the "living" account. Her evidence was that there were joint costs (accumulated bills) of approximately $23,000 to be paid from the sale proceeds of Richmond Rd. It was common ground that she spent $5,000 on a car and $5,000 on a computer which she retained following separation. Thus Ms Farrelly derived in cash or kind an amount in the vicinity of $87,000 from the sale proceeds of Richmond Rd.

  15. Potter J then took stock of the assets held by Mr. Gruar. At the commencement of the relationship his worth was approximately $600,000. Taking the value of Larchwood at $450,000 at the end of the relationship, Mr. Gruar had total assets of $550,000. Ms Farrelly had brought to the relationship only the Orakei Rd contribution of $14,300. At the end she had the computer, car, a further university qualification during the relationship and $77,000. Potter J held that the value of Ms Farrelly's contributions and benefits to the relationship did not exceed what she ultimately took out of it. In her view that was "manifestly so". Accordingly the Judge held Ms Farrelly's expectation of an interest in the assets of the relationship had been satisfied. No award was made on her claim accordingly.

    CONTENTIONS ON APPEAL

  16. In this Court the principal submission of Mr. Asher QC for the appellant was that the Judge had made an error in her factual finding that Ms Farrelly had received significant benefits as a result of the payment into her bank account of $90,000 from the proceeds of the sale of Richmond Rd. The correct position on the evidence, he argued, was that at the end of the relationship she had $18,000, a computer and a car. But from that sum Ms Farrelly repaid a $16,000 loan to the partnership from Ms Farrelly's parents.

  17. Mr. Asher also submitted that in dismissing Ms Farrelly's claim to an interest in Larchwood Ave, the Judge failed to recognise the substantial contribution she had made to, and sacrifices she had made for, the relationship and the properties the partners owned during its course. He pointed out that she brought an interest in property having a value of $14,500 to the relationship, she contributed all her earnings working part-time for most of the relationship period, she was primary caregiver to the children, she worked on the parties' properties to the extent that her employment and family responsibilities allowed and, in order that they could have a family, sacrificed opportunities to progress her career. It was also claimed for the appellant, that the property at Richmond Rd which was in the appellant's name sold for a profit of $120,000, of which she was entitled to half. Overall Mr. Asher argued that the High Court Judge should have recognised that Ms Farrelly had a beneficial interest of 25 percent in Larchwood Ave (having a value of $162,250 at hearing date) or, alternatively, at least the $77,000 sum by which, he argued, the Judge had erroneously thought she had benefited.

  18. The submissions of Mr. Hindle on behalf of the respondent supported the Judge's finding. It was argued that the Judge was aware that not all of the $77,000 cash sum in the ANZ Bank account (after allowing for expenditure on the car and computer) was available when the parties separated. Her finding was that Ms Farrelly had significantly benefited from the payment. Mr. Hindle also argued that the Judge had taken into account the impact of the appellant's contributions on the property of the relationship but found it was minimal. He also disputed the proposition that the sale of Richmond Rd had produced a profit.

  19. Mr. Gruar also cross-appealed the Judge's finding that Ms Farrelly had an expectation of an interest in property legally owned by him. The submission relied on first, evidence of the parties' agreement or understanding at the outset of the relationship and, secondly, evidence of indications of Ms Farrelly's continuing acceptance during the relationship of that original position. In particular emphasis was placed on Ms Farrelly's attempt to have property concerns addressed during a visit to a lawyer in February of either 1991 or 1992.

  20. In response, the appellant argued that despite what might have been said at the start of the relationship, by 1991 or 1992 Ms Farrelly had reasonably developed the expectation she would have an interest. Nothing, in relation to the meeting with their solicitors or otherwise, dispelled that.

    THE EXPECTATIONS ISSUE

  21. It is convenient to start with the argument of the respondent on the cross-appeal, which challenged the Judge's finding, that the requirement that the plaintiff had an expectation of an interest in property legally owned by the respondent was met. The argument is that it is clear that, at the time the relationship was formed, both parties were of the view that they should not marry and that this understanding was reiterated on a number of occasions during their relationship. It is also clear, it is said, that both regarded the impact on Mr. Gruar of the agreement he had recently concluded with his former wife concerning their matrimonial property was unfair to Mr. Gruar.

  22. The Judge accepted that Mr. Gruar had forcedly expressed views at the commencement of the relationship, but not that he did so thereafter. When in 1991 or 1992 Ms Farrelly attempted to protect her position in discussions with their lawyers, and in particular to give instructions over the parties' wills, Mr. Gruar may well have been adamant in his communications with his solicitor he was not prepared to relinquish any interests in property. Nothing however in the evidence indicated Ms Farrelly was told this by either Mr. Gruar or the solicitors. In those circumstances the Judge relied on the general inference to be drawn from a shared life in finding that Ms Farrelly had a reasonable expectation she would share in property.

  23. During the eight years of their relationship the parties bought and together worked on properties. Their financial affairs and their domestic affairs became intermingled and, in particular, the finances of their property development became entwined with their general living income and expenditure. Such actions pointed towards implicit decisions that there is to be some pooling of resources. Reliance was however placed by Mr. Gruar on discussions which Ms Farrelly had with their lawyers in 1991 or 1992. It is clear that Ms Farrelly in these discussions was keen to secure protection for her position at that time and that there was discussion concerning the preparation of their wills. Ms Farrelly followed up an initial joint discussion, between her and Mr. Gruar, with one of the lawyers with a further discussion on her own. Mr. Gruar's evidence was that he made it plain in a separate discussion he had with one of the solicitors he was not prepared to relinquish any interests in property. However, as the Judge found, nothing in the evidence indicated Ms Farrelly was told of Mr. Gruar's attitude by either Mr. Gruar or the solicitors. In those circumstances the Judge concluded:

    I consider it reasonable that by 1991 or 1992 Ms Farrelly had developed an expectation from the commitment of the parties to their children and their family lifestyle and from the way in which the properties in Mr. Gruar's name became part of that lifestyle, including the plaintiff's involvement with them in work, planning and financing, that she should have an expectation to an interest in the family home. It appears clear from the evidence that Mr. Gruar made no effort to dispel any such expectation although it must have been apparent to him, if only from attendance at discussions with his solicitors. Rather he preferred to take refuge in silence.

  24. The Judge's conclusions in the circumstances fully accord with the views expressed in Gillies v Keogh [1989] 2 NZLR 327, 347 (CA):

    It seems to me that social attitudes in New Zealand readily lead to expectations by those within apparently stable and enduring de facto relationships, that family assets are ordinarily shared, not the exclusive property of one or the other unless it is agreed otherwise or made plain.

    (per Richardson J)

  25. As the relationship developed, given the inter-mingling of assets, it was inevitable that Ms Farrelly would develop an expectation of sharing in the property of the partners unless Mr. Gruar made clear to her at all times that he was asserting the property was his. We agree with Potter J that, given the way the parties organised their business and personal affairs, silence in the circumstances was consistent only with apparent acquiescence in sharing of ownership. The basis for Ms Farrelly to have an expectation of sharing is established and that expectation was reasonable. For these reasons the cross-appeal fails.

    JUDGE'S FINDING OF BENEFITS

  26. The Judge concluded that the benefit that Ms Farrelly received from the proceeds of the sale of the Richmond Rd property, which was in her name, manifestly exceeded her contributions to the relationship. This finding was the basis of the Judge's decision not to uphold Ms Farrelly's claim for a share of the partnership property. It is not however clear from the key passage of the judgment (set out in para [14] above) whether Potter J found that Ms Farrelly had the personal benefit of $87,000 from the sale of Richmond Rd (or $77,000 after purchase of the car and computer) or whether she had in mind a lesser but nevertheless substantial sum. Nor is it clear what value the Judge put on Ms Farrelly's contributions in reaching the conclusion that their value did not exceed the benefits she received and manifestly so.

  27. Both counsel provided us with an analysis of the destination of funds from the ANZ "83" account from the date of payment on 27 September 1994 to the date of separation on 22 May 1995. The conclusion we reach is that payments totalling $61,000 made towards the purchase of Rosebank Rd can be attributed to the $90,000 received from Richmond Rd. So can the two payments of $5,000 each for the car and a computer which were retained by Ms Farrelly when the relationship ended. Our view is supported by evidence of Mr. Gruar who in his brief accepted that Ms Farrelly left the relationship with $18,000 cash (as well as a vehicle, a computer and her post graduate diploma). We are satisfied $16,000 was repaid to her parents from this sum.

  28. On that basis we conclude that the Judge made a mistake in finding, as she did, that Ms Farrelly derived substantial benefits from the sale of Richmond Rd. As that was the basis for her ultimate conclusion that Ms Farrelly's expectation of an interest in the assets of the former partnership had been satisfied by the benefits she received, and particularly distributions from the proceeds of the sale of Richmond Rd, that conclusion cannot stand. We must therefore assess the other factual findings and, where there are gaps, the evidence on this issue.

    APPELLANT'S CONTRIBUTIONS

  29. Ms Farrelly must show contributions to the property in issue and that in all the circumstances the defendant reasonably should yield an interest. As to initial contributions the Judge found that Mr. Gruar contributed to the relationship property with a value in the vicinity of $600,000 (between $570,000 and $620,000) where Ms Farrelly's contribution was her interest in property to the extent of $14,500.

  30. During the relationship Ms Farrelly contributed her earnings which we accept were approximately $112,000 over the period of the relationship. Mr. Gruar's income, according to his schedule, was calculated to be approximately $164,000. However, alongside Ms Farrelly's income contributions, are her further contribution as primary caregiver to the couple's children.

  31. The Judge found that both Ms Farrelly and Mr. Gruar worked hard on the properties they owned but that Mr. Gruar put in longer hours and did more work. Mr. Asher argued that a special contribution by Ms Farrelly should have been recognised in the form of a $60,000 share of the profit which he contended result from the Richmond Rd transaction. We accept that the evidence shows a profit sharing intention in relation to that property. However, we also accept Mr. Hindle's submission that there was no such profit. Overall, however, we are persuaded that Ms Farrelly has demonstrated contributions to the property of the relationship sufficient to found a claim in constructive trust.

  32. The next issue is the extent to which Ms Farrelly's beneficial interest should be recognised. That requires us to consider her contributions against what the defendant can reasonably be expected to yield in the circumstances. The most significant circumstance on the facts of this unusual case is that at the end of the relationship Mr. Gruar's assets were worth $550,000, of which value Larchwood Ave comprised $450,000. His asset position had deteriorated in that at the outset his assets totalled in the vicinity of $600,000. Ms Farrelly had her car and her computer for which she had paid $10,000. Although she had also secured an additional educational benefit in the form of a post graduate diploma, we take the view her asset position was also less than when the relationship was formed. That is because we consider the $14,500 she received from the sale of Orakei Rd is to be regarded as a contribution to the property of the relationship.

    VALUE OF APPELLANT'S CONTRIBUTIONS

  33. The assessment of the value of the appellant's contributions is of course to be made in the context of the principles of constructive trust. At the heart of the concept is the proposition that in the circumstances of a de facto relationship one partner may be enriched by contributions of the other in circumstances in which it would be unjust to allow the recipient of the benefit to retain it. Gillies v Keogh [1989] 2 NZLR 327, 342 (per Richardson J).

  34. In the same case Cooke P observed that the degree of sacrifice by the claimant is not always, although it will often be, a guide to the measure of any unjust enrichment of the recipient. He also emphasised that the measure of the sacrifice can go beyond monetary contributions and, in a longer union, include foregone opportunities in life (pp 333-4).

  35. In the present case we have upheld the Judge's finding that Ms Farrelly had an expectation she would share in the property of the relationship and that in the circumstance that expectation was reasonable. We are satisfied that she made contributions to the property of the relationship of both a direct and indirect kind. The issue of greatest difficulty in the case, however, is the requirement in a constructive trust claim that a person in Mr. Gruar's circumstances should expect to yield reasonably to Ms Farrelly's interest and the extent to which it is reasonable he should yield. As Tipping J put it in Lankow v Rose: "The Court stands as his conscience" (p 294).

  36. In this case we take the view that the main contributions by Ms Farrelly were of the kind that are contributions to a common household. In particular the lifestyle of the partners cost more than their incomes, but they each enjoyed the benefit of those contributions in the course of their relationship. The way they financed their living expenses eroded the benefit that might otherwise have arisen from added value to or inflationary gains from their properties, depending on market conditions. That ultimately was to the cost of Mr. Gruar as the principal owner of assets of the relationship. Of particular importance in assessing the reasonable position of Mr. Gruar in relation to Ms Farrelly's expectation is that his asset position had actually declined over the period of the relationship. This also goes to the extent of unjust enrichment of Mr. Gruar as a result of Ms Farrelly's contributions and has the consequence that in this unusual case the degree of considerable sacrifice by Ms Farrelly is not a true guide to the extent of unjust enrichment. On the other hand the asset decline is not the only consideration.

    DECISION OF THE COURT

  37. In the end the Court's responsibility in this case is to focus on contributions, direct and indirect, to property. Doing that broadly, in a case where arithmetical precision is impossible, we conclude that a person in Mr. Gruar's position would reasonably expect to make a payment to Ms Farrelly. The legal requirements for such a claim are all satisfied. In our view the appropriate payment is $40,000. The sum reflects her position at the end of the relationship, but takes into account that it is fixed and will be paid over five years later.

  38. The appeal is allowed to the extent that, in full satisfaction of her claims against his property, judgment is entered against Mr. Gruar in favour of Ms Farrelly for $40,000. In other respects the appeal is dismissed, as is the cross-appeal.

  39. Given that outcome there will be no order for costs in this Court. If, as a result of this decision, questions of costs arise in the High Court they are to be decided by that Court.


Cases

Lankow v Rose [1995] 1 NZLR 277; Gillies v Keogh [1989] 2 NZLR 327

Representations

R Asher QC and R Hacking for Appellant (instructed by Shieff Angland, Auckland)
R C D Hindle and L Kearns for Respondent (instructed by Gubb & Partners, Auckland)


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