The Judicial Committee of the Privy Council Decisions

Potter v Potter (New Zealand) [2004] UKPC 41 (22 July 2004)

Privy Council Appeal No. 20 of 2004

Arthur John Bolton Potter Appellant

v.

Louisa Jane Potter Respondent

FROM

THE COURT OF APPEAL OF NEW ZEALAND

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 22nd July 2004

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Present at the hearing:-

Lord Hoffmann

Lord Hope of Craighead

Lord Scott of Foscote

Lord Walker of Gestingthorpe

Baroness Hale of Richmond

[Delivered by Lord Scott of Foscote]

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1. This litigation has arisen out of the breakdown in the relationship between the appellant, Mr John Potter, and the respondent, Ms Louisa Potter. They are second cousins and began living together in February 1997. They parted for a while but came back together and in April 1998 their first child was born. They decided to move to and buy a home in Kerikeri and in September 1998 entered into a contract to purchase a pro perty ("Inlet Road") for $875,000. Their intention was that Inlet Road would become their family home. Their relationship was, they thought, on a permanent basis.
2. Before their purchase of Inlet Road was completed they took the very wise precaution of signing a written agreement setting out the financial arrangements agreed between them. The written agreement was drafted by the appellant's solicitor. But the appellant very sensibly arranged for the respondent to be given independent legal advice about the agreement and its contents before she signed it. She received that advice and the agreement was then signed by both parties. It was entitled "Property Sharing Agreement" and dated 29 September 1998.
3. The parties moved into Inlet Road together with their son and an older child of the respondent. It was their family home. But unfortunately their relationship deteriorated and in April 1999 the appellant left Inlet Road and returned to live in Wellington. The respondent was pregnant at the time with their second child. Her child was born in December 1999 and she continued to live at Inlet Road with her three children.
4. Following the appellant's departure from the family home in April 1999 he commenced litigation against the respondent. He sought an order for sale of Inlet Road and orders in connection with the proceeds of sale that would have excluded the respondent from any share. The proceedings raised a number of other issues as well, relating to improvements said to have been made to Inlet Road by the appellant, relating to rentals and profits said to have been received by the respondent and for which she was said to be accountable, and relating to various chattels at Inlet Road said to belong to the appellant but to be withheld from him by the respondent. These other issues were settled by the judgment of Chambers J. As to Inlet Road, the respondent agreed that the property would have to be sold and Chambers J made an order to that effect. The only issue still outstanding was whether the respondent was entitled to a share in the net proceeds of sale of Inlet Road. Chambers J held that she was entitled to a half-share. The Court of Appeal agreed with Chambers J. The appellant has now appealed to the Privy Council. He contends, as he had contended before the lower courts, that she is entitled to nothing.
5. Litigation over the division of the proceeds of sale of an ex family home between spouses, or between partners living as spouses, whose relationship has broken up is a regular feature in the courts of most common law countries. In many countries the courts have a broad discretion, conferred by statute, to direct a division fair and equitable to both parties and whether or not the parties are, or were, married. In New Zealand, as their Lordships understand the position, legislation of that nature has recently been introduced. But at the time in question, 1998-1999, there was no such legislation that applied to those who had been living as man and wife but were not married. So the issue between the appellant and the respondent had to be resolved by the application of common law principles, or principles of equity, unassisted by statutory reform.
6. In many cases of this sort, where the courts have to try and decide what the intentions of the parties were at the time they purchased their family home, the courts have to draw inferences about the parties' intentions from their actions at the time of purchase, from the nature of their relationship and from the oral and written evidence placed before the trial judge. But this is not a case like that. In this case the parties took the precaution of signing a written agreement dealing, among other things, with the interests they were to have in Inlet Road. The resolution of this case does not require inferences to be drawn from the evidence. It depends upon the contents and effect of their written agreement.
7. The written agreement, the "Property Sharing Agreement", began with some very important recitals:

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

2. John and Louisa have a son … born on 12 April 1998.

3. John and Louisa intend purchasing the property … 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 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 to 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) ...

(d) ..."

8. The operative part of the agreement contained the following relevant provisions:

"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 loanback procedures and under which John, Louisa and their children are principal beneficiaries.

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

3. In the event that 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.

4. Neither party shall without the prior written consent of the other sell, transfer or otherwise dispose of his or her legal or beneficial interest in Inlet Road or any share or part of that interest.

5. …

6. …

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."

9. The Agreement provided that neither party could claim a share in the income of the other (para. 8), that certain specified assets were to be the separate property of the appellant (para. 9) and that certain specified assets were to be the separate property of the respondent (para. 10). In paragraph 11 the parties agreed that household chattels and items of property acquired by them together after the date of the Agreement would be owned by them jointly. Paragraph 12 was an arbitration provision "in the event that any problem arises with … the interpretation or implementation …" of the Agreement. And in paragraph 13 the parties agreed that

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

10. In the event the intended lease for joint lives was never proceeded with. Nor was the intended family trust ever established. So Inlet Road was not transferred to a family trust as had been contemplated by paragraph 1(c). The appellant's departure from Inlet Road in April 1999 prematurely brought to an end the work in drafting the lease for joint lives and in drafting the proposed family trust that his solicitors had been engaged in.
11. It has never been in dispute that the whole of the $875,000 purchase price of Inlet Road and the costs of the purchase were provided by the appellant. Recital 4 and paragraph 1(a) of the agreement required that he do so. Before Chambers J and the Court of Appeal it was argued on behalf of the appellant that a consequence of these arrangements was that the half of the purchase price and costs attributable to the respondent's half share in Inlet Road should be treated as a loan to her and that the loan should now be repaid out of the proceeds of sale. Chambers J and the Court of Appeal rejected this argument and, in their Lordships' opinion, rightly so. The loan argument was not pressed before their Lordships and nothing more need be said about it.
12. The alternative argument for the appellant, both before Chambers J and the Court of Appeal, was that in the circumstances of the case the respondent's half share in the proceeds of sale was held upon a resulting trust for whoever it was who had provided the purchase price. There was some doubt as to whether the money had been obtained by the appellant from a family trust or from a company with which he was associated or from his own resources. The doubt did not need to be resolved because it was clear that the respondent had not provided the money and that she had known nothing whatever of the family trust or of the company.
13. The resulting trust argument was put rather differently before their Lordships from the way in which it was put in the lower courts. In the Court of Appeal it was argued that, because the lease of the property for joint lives had not been granted, the new family trust had not been established and Inlet Road had not been transferred to the new family trust, a resulting trust in favour of the appellant (or whoever it was who had provided the purchase price) came into existence. The Court of Appeal pointed out, however, that the rationale of a resulting trust was that the settlor, the provider of the money, had retained throughout a beneficial interest. On the failure of the purposes for which the money had been transferred, the transferee, the legal owner of the money or of the property acquired with the money, held the money or property on a resulting trust for the settlor. The well known case Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 was cited as authority. It was argued, also, that the arrangement under which the respondent was to take a half share in Inlet Road was solely in order to achieve certain fiscal advantages and that it had not been intended that she would hold her half share beneficially. This latter argument was an impossible one. The fiscal advantages could only be achieved if the respondent did hold her half share beneficially. As to the resulting trust argument, it was clear from the terms of the Agreement that the respondent was intended to take a beneficial half share in Inlet Road. Chambers J had so held and the Court of Appeal agreed. Inlet Road was owned legally and beneficially by the appellant and the respondent in equal shares. So there was no room for a resulting trust.
14. Before their Lordships Mr Carruthers QC, who appeared for the appellant, as he had before the Court of Appeal (but not before Chambers J), accepted that pursuant to the Agreement and on the transfer of the property to the appellant and the respondent as tenants in common in equal shares the respondent acquired a beneficial half share in Inlet Road. But, he argued, her beneficial half share was subject to defeasance in the event that the parties' intentions regarding Inlet Road expressed in the Agreement were not fully carried out. The frustration of the those intentions brought about by the breakdown in the parties' relationship terminated the respondent's beneficial interest and transferred that beneficial interest to whoever had provided the purchase money. That, at least, is how their Lordships understood the argument.
15. Defeasible interests in land are certainly conceptually possible. In England such interests may, for example, be created under the School Sites Acts. And, subject always to the rule against perpetuities, private trusts may create beneficial interests subject to defeasance on the occurrence, or non-occurrence, of specified events. But defeasance conditions in private trusts are invariably express conditions. The defeasance condition for which Mr Carruthers argues in the present case must be an implied condition. There is no express provision in the Agreement that says that the respondent must forfeit her beneficial half share if the arrangements for the joint lives lease and the new family trust are not carried into effect.
16. The test for the implication into the Agreement of the requisite condition for the defeasance of the respondent's beneficial half share in Inlet Road must, in their Lordship's view, be that the respondent, if asked at the time the Agreement was signed whether the implication of the condition would correspond with her intention, would testily answer "of course". The test has only to be stated to be seen to fail. The respondent, or more likely the lawyer advising her, would have asked very many questions and suggested a number of variations to the Agreement before giving an assent to the inclusion of the suggested implied term. In particular, the respondent, or her lawyer, would be likely to have sought the deletion from the Agreement of paragraph 13 under which the respondent gave up "all domestic property claims" that she might thereafter have against the appellant. It seems to their Lordships impossible for the appellant to succeed in establishing the resulting trust via an implied condition for defeasance of the respondent's beneficial interest to be read into the Agreement.
17. Their Lordships take the same view of the Agreement as was taken by Chambers J and by the Court of Appeal. Inlet Road, once purchased, was to be held by the appellant and respondent as tenants in common in equal shares, at law and beneficially. The whole purchase price was to be provided by the appellant. The appellant was to establish a family trust for the benefit of the two of them and their children and the property, subject to a lease to them for their joint lives, was to be transferred to this trust. In return for the interests she was to get under the Agreement the respondent was to give up all domestic property claims against the appellant that she otherwise might have had. This was a clear, understandable and sensible arrangement. The breakdown of their relationship led to the frustration of their intentions regarding the joint lease and the transfer to the new family trust. But that is no reason to put into reverse the parts of the Agreement that had been implemented. And it is worthy of note that Mr Carruthers, while arguing that the respondent's beneficial interest in Inlet Road and its proceeds of sale had been terminated by the frustration of the provisions regarding the joint lives lease and the transfer to the new family trust, made clear that the appellant regarded the paragraph 13 bar on the respondent's right to bring "domestic property claims" against him as continuing to be contractually binding.
18. Their Lordships will accordingly humbly advise Her Majesty that this appeal should be dismissed with costs.