The Supreme Court interprets S 182 of the Family Proceedings Act

The Supreme Court has delivered a well-reasoned and sensible interpretation of s 182.  This is the section that gives the Courts a broad general power to modify all “nuptial” settlements in any manner that it thinks appropriate.  The decision – Ward v Ward [2009] NZSC 125 - was delivered by Tipping J on 8 December 2009.

Sections that correspond to s 182 exist in England and Australia. The analysis that the Supreme Court has made of the purpose and meaning of the section is, so far as I am aware, superior to any analysis that has been given in recent times to the corresponding section in both of those two countries. 

In X v X [2009] NZFLR 956, the Court of Appeal said that s 182 could be invoked when it was “necessary to achieve fairness and justice between the parties …”.  This test could be interpreted in ways that would imperil every nuptial settlement.  Fortunately, the Supreme Court says that this is not a correct assessment of the section’s meaning and purpose.

The Court’s analysis appears to have been driven to a significant extent by two decisions of the Court of Appeal on an earlier version of s 182:  Coutts v Coutts [1948] NZLR 591 and Preston v Preston [1955] NZLR 1251.  These two decisions have languished unnoticed in the Law Reports and so far as I am aware, they were “discovered”, as it were, in the context of the Ward appeal in the Supreme Court.

The Court says that section 182 is “designed to provide relief in a case where the dissolution of a marriage has altered the circumstances so that the legitimate and reasonable expectations in the context of which the settlement was formulated are no longer appropriate.”

“We consider the proper way to address whether an order should be made under s 182 is to identify all relevant expectations which the parties, and in particular the applicant party, had of the settlement at the time it was made.  Those expectations should then be compared with the expectations which the parties, and in particular the applicant party, have of the settlement in the changed circumstances brought about by the dissolution.  The court’s task is to assess how best in the changed circumstances the reasonable expectations the applicant had of the settlement should now be fulfilled.  If the dissolution has not affected the implementation of the applicant’s previous expectations, there will be no call for an order.

The section is not an alternative mechanism to achieve equal sharing.

“… equal sharing principles do not underpin s 182.  The s 182 assessment, which may lead in some cases to equal sharing, is not underpinned by any entitlement to or presumption of equal sharing.  The Court’s task is not to produce the outcome that would have applied if the relationship property had not gone into a Trust.  A fact specific judicial assessment is required in each case.”

“The relief to which the applicant is entitled … is an order restoring [the applicant’s] defeated expectations.   The parties should be restored in an appropriate way to the position they were in, as regards to settlement, immediately after it was made, not immediately before it was made.”

“… s 182 is not a surrogate mechanism for dividing what, but for the Trust, would have been relationship property.”

Applying the principles to the facts

Mr and Mrs Ward had entered into an agreement to co-own the shares of the Company which owned the farming business with which they were involved.  The shares had previously been Mr Ward’s separate property.  The Court was not sympathetic to Mr Ward’s submission that he should get credit for the fact that the shares had derived from his separate property, saying: “… if parties agree to turn their separate into relationship property, they cannot thereafter contend that the property is separate property for the purposes of a s 182 application.  This means that Mr and Mrs Ward must be treated as having contributed equally to the capital of the Trust.”

The couple had contemporaneously created a Trust to own the shares and had signed a Memorandum of Wishes in which they said that “during the remainder of our lives … our interests … shall be treated as paramount and of first priority.”

Following the separation of the parties Mr Ward remained in sole occupation of the farm property and the Trust provided no benefit whatsoever to Mrs Ward.  The Trust itself was dysfunctional and, with a requirement for Trust decision-making to be unanimous, it was likely that the Trust would be in a state of permanent paralysis.

In these circumstances, it was not surprising that the Supreme Court should have approved the creation of two Trusts – one to benefit Mr Ward, and the other to benefit Mrs Ward – so as to “reflect the original expectations of the parties that each would benefit equally from the settlement Trust that they had together established.”

This article has been confined to a description of the principles that the Supreme Court has said should govern the “purpose and meaning” of s 182.  I will refer in a later article to some of the Trusts that are  now at risk of modification under section 182; the Trusts that are less likely to be modified; and how settlors can reduce the possibility of Courts modifying their Trusts under section 182.  But my next article will deal with a recent development of even greater significance:  how a Court has used the bundle of rights doctrine to seize control of a property from the Trustees who own it.