The High
Court set aside a relationship property agreement because it was too heavily
weighted in favour of one spouse. There
was serious injustice to the husband with an agreement giving his former
partner a controlling say over his future business operations.
Described as Mr C and Ms H, the court was told
the couple started living together in 1994, separating after a relationship
lasting some seventeen years. They had
one son. During that time they bought
and sold a number of properties in the Tasman area and operated first a fish
and chip shop and later a couple of coffee shops. In March 2011 a draft relationship property
agreement was drawn up setting out their respective objectives: she was to get
a home for herself and their son; he was to continue ownership and operation of
the coffee shop. They separated three months
later and a final agreement was signed in February 2012. Subsequently Ms H
purchased a new home financed by a $340,000 mortgage co-signed by Mr C and with
$100,000 lent by her parents. Mr C
refinanced bank borrowing for his coffee shop with his parents providing
security for the $90,000 loan. The relationship
property agreement sat in the background.
This agreement gave Ms H an 82% interest in relationship assets. In addition the agreement restricted Mr C’s
drawings from the business to $800 a week and limited business borrowings to
$94,000. He was free to sell the
business at a time of his choosing, but Ms H had a right of veto over any
sale. Mr C was entitled to only a
one-eighth share of the net sale proceeds, the rest was to be applied in
reducing their joint mortgage on her home.
Any subsequent shortfall on this mortgage was to be Ms H’s sole
responsibility. When Ms H later sued to
enforce the agreement, Mr C applied to have it set aside under the Property (Relationships)
Act on the grounds of serious injustice.
The fact Ms H was to receive some 82% of
relationship property was not, by itself, a serious injustice. The agreement acknowledged their wishes that
a home be provided for Ms H and their son.
Ms H disputes she is getting an 82% share, claiming it is closer to 75%
when tax credits are taken into account.
Justice Collins said Mr C’s ongoing
responsibilites and obligations under the agreement created a serious injustice. His former spouse had a controlling say in
ongoing business activities and held a right of veto over any sale. Profitability of the coffee shop declined
over the last year of their relationship and over the subsequent three years
from some $46,400 in 2011 through $16,428 in 2013 and to $2310 in 2014. There were legitimate business reasons for
the decline in profitability, His Honour said.
There was no suggestion Mr C deliberately ran down the business.
The decrease in value of the coffee shop
coupled with Ms H’s measure of control over the business meant the relationship
property agreement as a whole was unjust to Mr C and was set aside.
Ms H said this will force a sale of the home
occupied by herself and their son. She
was able to buy the property in the first place only because of the
disproportionate share she received from relationship property. The reality is, said Justice Collins, the
agreement was so heavily weighted in her favour that it catalysed a serious
injustice to Mr C.
H. v. C.
– High Court (13.05.15)
15.046