Introduction

[1] Mr Potter appeals against the High Court judgment of Chambers J determining the parties’ property rights following termination of their de facto relationship.

Factual background

[2] A relationship began between Mr Potter and his second cousin, Ms Potter, in January 1996. From that date they had periods together and apart until February 1998 when their combined living arrangements stabilised. Following the birth of their son in April 1998 they decided to buy a permanent family home.

[3] In early September 1998 the couple entered into an agreement to purchase a house and orchard property at Kerikeri for $875,000. Before settlement of the purchase they entered into a property sharing agreement of 29 September 1998 which materially provided:

BACKGROUND

1. John and Louisa have been living together since January 1996.

2. John and Louisa have a son called Tiger Art Potter, born on 12 April 1998.

3. John and Louisa intend purchasing the property at Inlet Road, Kerikeri (Lot 2 DP 79774, CT 36C/436 (North Auckland Land Registry)) (“Inlet Road”) in which they intend to reside. John and Louisa will be registered on the title as tenants in common in equal shares.

4. The purchase of Inlet Road is to be financed solely by John for the purchase price of $875,000.00 cash and without recourse to mortgage finance.

5. John and Louisa intend to form a trust named The John and Louisa Potter Family Trust (“the Trust”) and that Inlet Road subject to a joint lease for life be reserved to them, will be settled on the Trust.

6. John and Louisa wish to record in writing their agreement as to:

(a) Changed circumstances.

(b) Division of proceeds on any sale.

(c) Resolution of any disputes.

(d) Ownership of other property.

 

OPERATIVE PART

The parties agree as follows:

1. John will:

(a) Provide the half share purchase price payable by Louisa for a half share of Inlet Road in consideration of Louisa entering into this agreement.

(b) Join in a lease for life for nominal consideration of Inlet Road to John and Louisa for their joint lives.

(c) Establish a family trust under which Inlet Road will be transferred subject to usual loan back procedures and under which John, Louisa and their children are principal beneficiaries.

2. Louisa will join in the lease back and Trust procedures referred to above.

3. In the event that either John or Louisa elect to leave their domestic relationship, the partition of their rights in respect of the Trust and Inlet Road shall be a matter for negotiation at the time.

…

7. In the event that John and Louisa or the Trust acquire any other property (“the substituted property”) in substitution for Inlet Road their respective shares in the substituted property shall be determined in accordance with their respective contributions to that acquisition.

 

Separate Property

8. Except as expressly provided otherwise in this agreement, the financial income of each party shall be the separate property of that party. Neither party claims the right to share the others income.

9. The following is and shall at all times in the future be the separate property of John:

(a) The property of John listed in Schedule A hereto and all other property owned by him at the date of this Agreement.

(b) Any interest in property acquired by John in his own name out of his separate property after the date of this agreement.

(c) Any property acquired by John from any third party by gift, succession, or survivorship or as beneficiary under any trust.

(d) Any property acquired by John from any third party for inadequate consideration, to the extent of the inadequacy of the consideration.

(e) Any property acquired by John by incurring a liability subsequently forgiven by way of gift, to the extent of that gift.

(f) Any form of property into which the foregoing property or the proceeds thereof may pass.

10. The following is and shall at all times in the future be the separate property of Louisa:

(a) The property of Louisa listed in Schedule B hereto and all other property owned by her at the date of this agreement.

(b) Any interest in the property acquired by Louisa in her own name out of her separate property after the date of this agreement.

(c) Any property acquired by Louisa from any third party by gift, succession, or survivorship or as beneficiary under any trust.

(d) Any property acquired by Louisa from any third party for inadequate consideration, to the extent of the inadequacy of the consideration.

(e) Any property acquired by Louisa by incurring a liability subsequently forgiven by way of gift, to the extent of that gift.

(f) Any form of property into which the foregoing property or the proceeds thereof may pass.

 

Joint Property

11. Notwithstanding clauses 9 and 10, John and Louisa agree that household chattels, furnishings or other items of property acquired by them together after the date of this agreement shall be owned by them jointly.

…

13. These arrangements are in satisfaction of all domestic property claims that either party may now or hereafter have against the other.

[4] The agreement concluded with independent advice acknowledgements and execution clauses in the forms required for contracting out agreements under the then Matrimonial Property Act 1976.

[5] Clause 1(a) of the agreement required Mr Potter to provide the funds for the purchase of the property. He arranged for payment of the funds from a company of which he was a director. No mortgage was required. No funds were contributed by Ms Potter.

[6] The purchase was settled in October 1998. In accordance with recital 3 and cl 1(a) of the property sharing agreement, title was taken by the couple as tenants in common in equal shares. The family moved into their new home and occupied it over the next six months. Clause 1(c) of the property sharing agreement required Mr Potter to establish a family trust of which the couple and their children would be principal beneficiaries. There were delays in this project while Mr Potter and his advisers studied ways of optimising tax and gift duty consequences.

[7] Estate planning matters were still under consideration when the couple’s relationship broke down in April 1999. Mr Potter moved out of the family home. Ms Potter and their son remained in occupation. The couple never lived together again. Later that year their second child was born.

[8] After initial resistance Ms Potter reluctantly agreed that the property would have to be sold. Disputes over property then emerged. The principal bone of contention was Mr Potter’s claim to the whole of the sale proceeds. When Ms Potter held out for half, he issued these proceedings.

Proceedings in the High Court

[9] At a trial occupying three days Chambers J had to go to considerable lengths to track down the issues. In the end Mr Potter’s principal contention turned out to be that the entire purchase price had been loaned to the couple by a trust called “The John Potter Family Trust”. His alternative argument was that the couple held the property on trust for that trust. In either case the proceeds were said to be repayable to the trust on sale of the property.

[10] In a reserved judgment of 26 April 2002 the Judge found that the parties’ rights were governed by the property sharing agreement. After reciting relevant extracts from the agreement he said:

[28] It is clear beyond any doubt that Mr Potter and Ms Potter were to take the land as tenants in common in equal shares. That is exactly what happened. It is also clear that Mr Potter promised that he would provide the half-share of the purchase price payable by Ms Potter. He did that in consideration of Ms Potter entering into the agreement. There can be no doubt that that was good consideration. By clause 8 of the agreement, Ms Potter agreed that she would have no right to share his income. By clause 9 of the agreement, she gave up the right to make any claim on various kinds of property Mr Potter already owned or might acquire. Clause 13 of the agreement provided that these arrangements were ‘in satisfaction of all domestic property claims that either party may now or hereafter have against the other’. What Mr Potter was achieving was protection from the sort of claim advanced in cases like Gillies v. Keogh [1989] 2 NZLR 327 (CA) and Lankow v. Rose [1995] 1 NZLR 277 (CA).

[29] It is quite true that the agreement envisaged that Mr Potter and Ms Potter would in due course transfer the property to a family trust to be established. That trust has never been established. Mr Potter has failed to fulfil the promise he made in clause 1(c) of the agreement. Instead of doing what he promised to do, Mr Potter has sought to sell the property under s 140 of the Property Law Act. Ms Potter could have restrained that sale on the grounds that it was in breach of the agreement: see clause 4. Initially, Ms Potter did oppose sale. Later, she changed her mind and has agreed that the property can be sold and has further agreed, albeit implicitly, that the trust need not be established. Those parts of the agreement must accordingly be treated as having been varied. Alternatively, this may be seen as a case of mutual waiver: see discussion in Laws NZ Contract, paras. 333-340. In the circumstances that have developed, Mr Potter and Ms Potter remain as tenants in common in equal shares. Each is regarded, by virtue of the parties’ express agreement, as having provided a half share of the purchase price. There is no room for the imposition of a constructive trust as the parties have expressly agreed their property relationship. With Ms Potter’s agreement to relieve Mr Potter of his obligation to join in a lease for life and to establish a family trust and to transfer the property to it, the property remains held by them as tenants in common in equal shares and on sale the proceeds must pass to them accordingly.

[11] The judgment also recorded or resolved a number of other outstanding issues in the division of their property. That judgment was followed by another of 2 August 2002 resolving the conditions of sale, interim suppression, and costs.

The appeal

[12] On appeal Mr Carruthers (who was not counsel for Mr Potter in the Court below) summarised his argument in the following terms:

30. The appellant’s argument may be summarised in the following propositions -

30.1 the meaning of “provide” (in clause 1(a) of the agreement) is “make available”;

30.2 the parties clearly cannot have intended that their transaction would have been performed in such a way as to attract gift duty;

30.3 the alternative is that the provision was intended as a loan which would be dealt with in due time when the arrangement set out in the agreement had been put in place;

30.4 there was clearly no intention that the respondent would retain a half interest in the property;

30.5 the respondent’s involvement allowed the parties a greater exemption for gift duty annually on the transfer of the property to the trust;

30.6 the non-performance of the agreement does not result in the agreement being “treated as having been varied” or being “a case of mutual waiver”. Rather the non-performance must result in either a resulting trust or a presumption that the provision of half the purchase price was a loan, a presumption which has not been rebutted on evidence.

31. The consequence of this analysis is that from the proceeds of sale of the property, the appellant is entitled to recover the money which he provided as the half-share of the purchase price payable by the respondent.

…

 

H. Conclusion

33. The proper interpretation of a clause is that the appellant would make the half-share of the purchase price available to the respondent on the basis that the provision of the half-share created a debt to the appellant. The proper inference from the arrangements is that there would be a loan to the respondent which would be repayable. The terms of the property sharing agreement, particularly the creation of the family trust would provide the means by which the loan would be repaid by the respondent.

34. As this agreement has not been performed, the arrangements between the parties created a resulting trust in favour of the appellant in respect of the half-share provided by him.

35. The proper order is that the property be sold, that the proceeds be divided equally between the appellant and the respondent, but that the respondent repay the half-share of the purchase price provided by the appellant at the direction of the appellant to the source of funds provided.

Resulting trust incompatible with loan

[13] At the outset it has to be said that the appellant could logically seek to rely upon a resulting trust, or a loan, but not both simultaneously. The object of a resulting trust is to preserve for the settlor a beneficial interest which he or she had retained in the original trust property or its proceeds. The point of a resulting trust is to establish a proprietary interest, or right in rem. A loan, on the other hand, is an advance of money coupled with a contract for its repayment, with or without interest and other ancillary obligations. Even if the money is used to purchase property, and subject to the distinct question of mortgages, the lender acquires no interest in the property acquired. The right to repayment is a purely contractual one operating in personam. Although this distinction was not always clear in the submissions for the appellant, we assume that a trust and a loan were intended as alternatives and will consider each in turn.

Resulting trust principles

[14] In the present context the essence of a resulting trust is that a person providing or contributing to the purchase price of property conveyed partly or wholly into the name of another retains a beneficial interest in the property to the extent of his or her contribution if there is nothing to indicate that he or she intended to confer the beneficial interest on the legal transferee: see, for example, Bateman Television Limited (in liquidation) v. Bateman and Thomas [1971] NZLR 453 (CA) and Efstratiou v. Glantschnig [1972] NZLR 594 (CA). The settlor must have expressed no intention to dispose of his or her beneficial interest. To fill the vacuum, the law presumes an intention to retain the beneficial interest which the settlor has never effectively alienated. The trust “results” from the lack of effective disposition to another.

[15] A refinement to that principle is that where the settlor transfers the legal title to property for an express purpose, the transferee receives it subject to a trust for the attainment of that primary purpose. If, for whatever reason, effect can not be given to the primary purpose effect must be given to the contingent secondary purpose of restoring the property to the settlor. The general principles are set out in Barclays Bank Limited v. Quistclose Investments Limited [1970] AC 567; Baumgartner v. Baumgartner (1987) 164 CLR 137; and Cossey v. Bach [1992] 3 NZLR 612.

[16] In either case the rationale is that notwithstanding the disposition of legal title, the settlor has retained the beneficial interest throughout, in the former case without qualification, and in the latter subject to the contingency that it would be superseded by fresh beneficial interests if and when the stated primary purpose were attained.

Resulting trust argument in this case

[17] In the present case the original resulting trust argument presupposed that Ms Potter’s interim acquisition of a half share as tenant in common reflected only the bare legal title; that the beneficial interest in the property was to remain that of Mr Potter unless and until the couple transferred legal title to a family trust; that as matters never reached that point the beneficial interest never left Mr Potter; and that as the original beneficial owner he was entitled to the whole of the net proceeds on its sale.

[18] Mr Carruthers explained that Ms Potter was given a half interest only “to enable two annual exemptions from gift duty (instead of one) in order to better implement the transfer of the property to the trust.” The point here was said to be that on a subsequent sale of the property to a family trust settled for that purpose the resultant debt back to any particular vendor could be released without incurring gift duty to a maximum of $27,000 per annum. By conferring a half interest in the property upon Ms Potter at the outset there could be two parallel gifting programmes instead of one. That would accelerate the exempt reduction in the debt owed by the family trust.

[19] Central to a resulting trust is the absence of any expression of intention on the part of the settlor that the beneficial interest pass to the legal transferee: Gillies v. Keogh [1989] 2 NZLR 327 (CA). With Chambers J, we do not see how that requirement could have been satisfied in the present case. But on appeal there was a further difficulty. It was said that the half interest in the property was conveyed to Ms Potter solely for revenue purposes without prejudice to Mr Potter’s retention of the entire beneficial interest. The difficulty is that gift duty could have been legitimately reduced only if Ms Potter’s half interest had been a beneficial one. A bare legal interest as trustee would have provided no basis for personal participation in a gifting programme for the purpose of the Estate and Gift Duties Act 1968.

[20] As a general principle a party will not be permitted to adduce evidence that in transferring legal title to another he or she intended to retain the beneficial interest if the effect of the evidence would be to disclose that the transfer had a fraudulent purpose. For example it would be fraudulent to hold out that a wife was the beneficial owner if in reality the husband had retained the relevant beneficial interest. Accordingly, in cases where property had been transferred by a husband to a wife to gain revenue advantages premised upon her new beneficial interest, the husband has been precluded from averring in later proceedings that his real intention was to retain the beneficial interest e.g. In Re Emery’s Investment Trusts [1959] Ch 410. The same principle applies where a husband has put property into his wife’s name as a protection against creditors: Gascoigne v. Gascoigne [1918] 1 KB 223; Tinker v. Tinker [1970] P 136 and see further Preston v. Preston [1960] NZLR 385 (CA) (evidence disclosing breach of statute rejected) and Stadniczenko v. Stadniczenko [1995] NZFLR 993. In this situation the settlor is the unwilling beneficiary of a compliment to his honesty. It is assumed that he would not have intended to defraud others by pretending that his wife had a beneficial interest when in reality he had intended to retain the beneficial interest all along.

[21] We understood Mr Carruthers to accept that in the light of this principle there was no point in pursuing the resulting trust argument further. In those circumstances it is unnecessary for us to traverse the other difficulties it would have faced.

Loan from Mr Potter to Ms Potter

[22] The alternative contention was that Mr Potter advanced the $437,500 to Ms Potter by way of loan. In the High Court Mr Potter had argued that it was the John Potter Family Trust that had lent Ms Potter the money. That argument had been rejected by Chambers J, essentially on the basis that there was no evidence to demonstrate any such agreement. Mr Carruthers did not pursue that contention. The new argument is that it was Mr Potter personally who made the loan. Mr Carruthers submitted that this was to be inferred from the wording of the property sharing agreement and from the extrinsic evidence. We consider these in turn.

The agreement on its face

[23] We agree with Chambers J’s analysis of the document. Mr Potter was to provide the cash required for the purchase of the property, together with the forfeiture of any claim he might otherwise have had against the assets of Ms Potter, in return for Ms Potter’s forfeiture of specified present and future property rights. She forfeited the right to claim against his income (cl 8), his existing assets (cl 9(a)) and, broadly speaking, his future property (cl 9(b) – (f) and cl 13) except for household chattels “acquired by them together” (cl 11). The effect was to relinquish not only the prospect of claims founded upon constructive trusts, restitution and estoppel (Gillies v. Keogh supra and Lankow v. Rose [1995] 1 NZLR 277 (CA)) but also the prospect of the statutory claims for de facto partners clearly foreshadowed by September 1998.

[24] In our view there was nothing on the face of the agreement to rebut the natural inference that in providing the full purchase price Mr Potter was making an irrevocable payment for the benefit of both parties. Mr Carruthers sought to overcome the difficulty by focusing upon the word “provide” in the expression “John will: (a) provide the half share purchase price payable by Louisa” in cl 1(a) of the property sharing agreement. He submitted that in context, the word “provide” did not mean “pay” or “give” but “make available”. In support he submitted:

The Shorter Oxford English Dictionary relevantly defines “provide” as follows –

“To prepare, get ready, or arrange (something) beforehand”

“To supply or furnish for use; to yield, afford”

The word “provide” has been interpreted in a broadly similar context to be analogous with “made available”. Watts v. Read [1967] NZLR 865, 867

[25] Although the Oxford English Dictionary includes “to prepare, get ready, or arrange (something) beforehand” as a possible definition of “provide”, that particular meaning is tagged with the qualification “now rare”. One of the primary meanings, such as “to supply or furnish for use”, is clearly to be preferred in the absence of reasons to the contrary.

[26] We have little difficulty with the proposition that for legal purposes “provide” can mean “make available” in the sense that the provider gives others access to a stated sum of money or item of property. In a case like the present one the real question is not whether the provider has made money or property available but the terms on which he or she has done so. In principle “providing” can involve a purely temporary transfer of use or possession without prejudice to the owner’s unbroken ownership before, during, and after, the period involved, as in Watts v. Read, supra, where a herd of cows made available for the duration of a sharemilking arrangement was held to have been “provided” for the purpose of the Sharemilking Agreements Act 1937. Alternatively, the “providing” may amount to an irrevocable alienation, as in a situation where shareholders or partners provide capital in the form of cash or business assets upon the incorporation of a company or the formation of a partnership. As usual the meaning is context-dependent.

[27] In the present case, the recitals record that having already lived together for two and a half years the parties were purchasing a property as a home for themselves and their son. There was nothing in the agreement to suggest that it would be anything other than their permanent home. For her part, Ms Potter’s forfeiture of property rights under clss 8, 9 and 13 was irrevocable. There is nothing to rebut the natural inference that Mr Potter’s contribution was in the same category.

[28] Mr Carruthers pointed out that pursuant to cl 1(c) of the agreement the property was to be transferred to a family trust of which the parties and their children would be principal beneficiaries. But the fact that the entire property was to be transferred to a family trust was scarcely an indication that Mr Potter could withdraw half of the funds that he had already provided. Nor would a sale to, or settlement upon, a family trust in these terms foreshadow any restoration to Mr Potter of an interest greater than that to be enjoyed by Ms Potter. Both were to be “principal beneficiaries”.

[29] Nor can we see room for an implication that if the trust were not settled the character of the payment to or for the benefit of Ms Potter would change to that of a loan. It could not have been in the contemplation of the parties that failure to settle the trust would cause an unexpected loss to Mr Potter for which he could reasonably expect compensation. Had the property been settled on a trust with associated leases for life, Mr Potter would have had nothing more than a joint leasehold interest coupled with a theoretical interest as discretionary beneficiary in a trust whose capital was limited to the reversion. The failure to proceed with the trust left Mr Potter in the much stronger position that he was entitled to half the net proceeds upon sale of the property.

[30] We have been unable to find anything on the face of the agreement to support the argument that by providing the whole of the purchase price Mr Potter was making a loan of half that sum to Ms Potter. The next question is whether the extrinsic evidence produces a different result.

Extrinsic evidence as to negotiations and intentions

[31] For the interpretation of the contract Mr Carruthers relied upon a passage from the judgment of this Court in Mount Joy Farms Limited v. Kiwi South Island Co-operative Dairies Ltd (CA 297/00, 6 December 2001, paras [38] and [39]):

[38] The day has long since passed in our Courts where words are to be given a purely literal meaning. The words used are to be given their natural and ordinary meaning, and having regard to what those words as used in a document would convey to a reasonable person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

[39] It is unnecessary to traverse the authorities for these now well established propositions. They include Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 All ER 98; Boat Park Limited v. Hutchinson [1999] 2 NZLR 74; Yoshimoto v. Canterbury Golf International Limited [2001] 1 NZLR 523; WEL Energy Group Limited v. ECNZ [2001] 2 NZLR 1.

[32] It seems necessary to observe that in Mount Joy Farms this Court was not setting out to provide any comprehensive survey of interpretation principles. In particular the phrase “all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract” could be misconstrued if divorced from the context in which Lord Hoffman first used it in ICS Limited v. West Bromich [1998] 1 WLR 896, 913A (HL). Lord Hoffman’s comprehensive survey of principle (912F-913E) included, for example, the acknowledgement that “[t]he law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent” (ibid 913). The extent to which Lord Hoffman’s own gloss upon Lord Wilberforce’s speeches in Prenn v. Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd v. Yngvar Hansen-Tangen [1976] 1 WLR 989 will endure is not yet finally resolved. Arguably such decisions as Melanesian Mission Trust Board v. Australian Mutual Provident Society [1997] 1 NZLR 391, 395 (PC) represent a more conservative tendency although in the end the difference may be only one of emphasis.

[33] Wherever the emphasis is placed, the way in which commercial litigation is currently conducted in New Zealand suggests widespread misunderstanding of the limits of extrinsic evidence. It must not be overlooked that the “background knowledge” referred to by Lord Hoffman can be relevant only where stringent requirements are satisfied. Four are of particular importance in the present case.

[34] The first is that although a contract is to be interpreted in its factual setting, there is no justification for invoking rules which exist solely to resolve ambiguities in order to create an ambiguity which, according to the ordinary meaning of the words used in the document, is not there: Melanesian Mission supra at 395. The second is that extrinsic facts can be relevant only if within the mutual contemplation of the parties. Even an objective view of meaning is irrelevant if based on facts within the contemplation of one party alone. The third is that with the exception of known unilateral mistake, non est factum, and rectification, the subjective intentions of the parties are irrelevant. The fourth is that pre-contract negotiations are irrelevant except when used for the very limited purpose of ascertaining what objectively observable facts, as distinct from intentions, must have been within the contemplation of both parties: Eastmond v. Bowis [1962] NZLR 954 (CA) at 959, 960.

[35] It is true that in one of the decisions relied upon in Mount Joy Farms, supra, Thomas J suggested that the parties’ negotiations and draft agreements should be admissible if reliable extrinsic evidence were available to confirm their actual intentions (Yoshimoto v. Canterbury Golf International Limited, supra, paras 59-95 pp 538-549). But it is important to note that when the decision in Yoshimoto was reversed in the Privy Council (Canterbury Golf International Limited v. Yoshimoto (PC 99/01, 15 July 2002) Lord Hoffman took the opportunity to say this:

In a separate section of his judgment, Thomas J expressed the view that his construction was supported by two provisions in earlier drafts of the contract. He said that the normal rule which excludes evidence of pre-contractual negotiations, authoritatively stated by Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR 1381, should be relaxed or departed from. Their Lordships do not think that this is a suitable occasion for re-examining the law because they consider that in this case the evidence is, as Lord Wilberforce predicted, unhelpful. … Their Lordships do not think that it is helpful to try to construe the earlier version of clause 6.3 because it was dropped and the present clause 6.3 substituted. It seems to them pointless to try to speculate upon why the change was made. No doubt each party had their reasons for proposing it on the one hand and accepting it on the other. All a court can do is to decide what the final contract means. (emphasis added).

[36] Accordingly Yoshimoto did not effect any change to established limits to the permissible use of extrinsic evidence for interpretation purposes. Considerable misdirected litigation time might be saved if more effect were given to those limits. In an area of judge-made law no-one could say that the limits are necessarily immutable. But that could scarcely be justification for adducing inadmissible evidence in the meantime. We do not admit inadmissible evidence against the possibility that one day a law change might make it admissible. As McGechan J tartly observed in Well Energy Group Limited v. ECNZ, supra, (general approach approved by this Court [2001] 2 NZLR 1 at 18 para 31) at p 9:

It may seem old-fashioned, but the first step in interpreting words in a document is to read the words concerned. They are the central focus, and the point of departure. Boat Park principles do not require anything different. The question is the meaning of the words used, in light of surrounding circumstances. Reference to surrounding circumstances is particularly appropriate where words used give rise to ambiguity or literal meaning gives rise to unreasonable outcomes. One does not start from surrounding circumstances and on that basis invent wording which might have made more sense but which does not exist. The task is interpretation, not reconstruction.

[37] Once careful regard is paid to those principles, it becomes clear that in the present case none of the extrinsic evidence as to the intentions of the parties is admissible. Accordingly we do not propose to traverse the conflicting evidence on that topic.

Facts within the mutual contemplation of the parties

[38] Mr Carruthers also drew attention to a series of facts which must have been within the mutual contemplation of the contracting parties, Mr and Ms Potter, when they entered into their contract on 29 September 1998. We agree that within the principles just outlined, mutually contemplated facts are admissible for interpretation purposes.

[39] Mr Carruthers first pointed to the facts that the whole of the purchase price came from Mr Potter, that at $875,000 the amount involved was substantial, and that Ms Potter made no contribution to the purchase price. We agree that these considerations were relevant. But as they were included in the recitals previously discussed, they do not add anything to the analysis already undertaken.

[40] Next Mr Carruthers pointed to the facts that the agreement for sale and purchase had been signed by Mr Potter alone and that the purchasers were recorded as “John Potter and Louisa Potter or nominee both of Russell”. We agree that this was admissible extrinsic evidence. As to its relevance, Mr Carruthers submitted that it demonstrated that Mr Potter was dominant in the transaction and that the reference to “or nominee” signalled the prospect, even at that early stage, that the transferee of legal title might be a family trust rather than Mr and Ms Potter.

[41] We do not think that those considerations advance the matter. The addition of the words “or nominee” to the name of the purchaser is common enough in agreements of this kind and indicates little. Even if some form of estate planning had been envisaged at the time of that agreement what matters is what the parties intended by the time they entered into the property sharing agreement. By that stage they had resolved that, at least in the first instance, Ms Potter would take a half share in the property as a tenant in common. The property sharing agreement left no room for the possibility that legal or beneficial title was intended to bypass Mr and Ms Potter and go directly from the original vendor to the trustees of a family trust.

[42] The next extrinsic fact said to be relevant was exposure to gift duty. Mr Carruthers submitted that had Mr Potter paid $437,500 to or for the benefit of Ms Potter without any corresponding loan or reservation it would have exposed the parties to gift duty.

[43] We agree that pursuant to s 61 of the Estate and Gift Duties Act 1968 gift duty is payable in respect of a “dutiable gift”, that pursuant to s 63 “dutiable gifts” relevantly include “property … comprised in gifts made by any donor to any donee”, that pursuant to s 2(2) “gift” includes “any disposition of property … without fully adequate consideration in money or money’s worth passing to the person making the disposition”, and that pursuant to the same definition “where the consideration in money or money’s worth is inadequate, the disposition shall be deemed to be a gift to the extent of that inadequacy only.” Accordingly, if the consideration provided by Ms Potter under the property sharing agreement did not constitute adequate consideration in money’s worth for the $437,500 relevantly provided by Mr Potter, and subject to the distinct question of annual exemptions, the transaction would have attracted gift duty.

[44] The next question is whether the consideration provided by Ms Potter constituted “adequate consideration in money or money’s worth”. In principle the contractual extinction of a right to make present or future claims to matrimonial or relationship property constitutes good consideration for gift duty purposes. Statutory effect has been given to this in s 75A(2) and (3) of the Estate and Gift Duties Act 1968. While s 75A had no application to de facto marriages at the time of this property sharing agreement, the broader principle has always applied – see, for example, Re Curin; CIR v. Van Doorne (1983) 2 NZFLR 198.

[45] A different question is the value to be attached to the rights forfeited. The value of statutory or common law relationship property rights may not be easy to assess particularly where, as here, they are relinquished at the commencement of what is intended to be a long term relationship. Nor is it irrelevant that by 1998 it was well known that reform of de facto property rights was imminent. We do not think that at the time of the property sharing agreement the value of Ms Potter’s future relationship property rights was necessarily less than $437,500. Still less would that have been apparent to the parties or their advisers. There is nothing here to rebut the prima facie meaning of the agreement discussed earlier.

[46] Finally Mr Carruthers referred to the facts that prior to the property sharing agreement the relationship had been one of “short duration” and that it had “not been an easy one”. The parties had had a relationship of only about two and a half years of which only the latter portion was stable. But whatever the history, the fact that they were purchasing the home in which they and their son were to live, and that they contemplated a family trust for themselves and their present and future children, indicates that they saw the relationship as a permanent one. Beyond that inference we do not think it possible to go. For the legal reasons discussed earlier, their actual motives and intentions are irrelevant. The history of the relationship does not advance the matter.

[47] We have not found anything in the extrinsic evidence warranting a departure from the interpretation of the property sharing agreement suggested by an examination of the document itself. When cl 1(a) provided that “John will … provide the half share purchase price payable for Louisa for a half share of Inlet Road in consideration of Louise entering into this agreement” the plain and ordinary meaning was that his payment would be absolute and irrevocable. No loan was involved.

Result

[48] The appeal is dismissed. The appellant must pay the respondent’s costs in the sum of $5,000 plus disbursements (including reasonable travel and accommodation costs) to be fixed, if necessary, by the Registrar.

Solicitors:
Sygrove Law Office, Wellington for Appellant
Thomson Wilson, Whangarei for Respondent