NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B,
11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
https://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/	
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-000814
[2019] NZHC 367	

BETWEEN	THERESA LAI FONG WONG COSSIO
Respondent/Appellant	
AND	MATTHEW COSSIO
Applicant/Respondent	

Hearing:	7 March 2019	
Appearances:	R C Knight and T A Chubb for Respondent/Appellant M Vickerman for Applicant/Respondent	
Judgment:	7 March 2019	

ORAL JUDGMENT OF VENNING J APPLICATION FOR LEAVE TO APPEAL

Solicitors:	TGT Legal, Auckland
Ewart & Ewart, Auckland
Counsel:	M W Vickerman, Auckland

COSSIO v COSSIO [2019] NZHC 367 [7 March 2019]

Introduction

[1]	In a decision delivered on 26 October 2018 this Court allowed an appeal from a decision of Judge S J Maude in the Family Court.1 The Family Court Judge had held that Mr Cossio’s shares in a company, J Cossio Ltd (JCL), were Mr Cossio’s separate property because, although the shares were acquired during the marriage, the Judge considered they had been transferred to him as part of Mr Cossio’s father’s succession plan and therefore s 10 of the Property (Relationships) Act 1976 (the Act) applied.

[2]	This Court held that Mr Cossio’s shares in JCL were relationship property. The shares had not been acquired by succession. Applying the decision of the Court of Appeal in Mills v Dowdall2 the Court held the shares were transferred to Mr Cossio for value, namely $445,458, which created a debt owing by Mr Cossio to his father. While that debt was reduced by dividends from a company which was separate property, the shares were not acquired by the reduction of that debt. They were acquired at the time of their transfer to Mr Cossio. The subsequent repayments of the debt that was created at that time, whatever the source, were simply the reduction of a liability.

Application for leave

[3]	Mr Cossio seeks leave to appeal. In support of the application Mr Vickerman submits:

(a)	Mills v Dowdall was not addressed by the Family Court Judge;

(b)	the application of the case in this proceeding extends its reach beyond the facts in Mills v Dowdall;

(c)	the application of Mills v Dowdall in this case conflicts with ss 9, 8 and 10 of the Act; and

1	Cossio v Cossio [2018] NZHC 2779.
2	Mills v Dowdall [1983] NZLR 154 (CA).

(d)	resolution of the application of Mills v Dowdall in this case is a question of law of public interest of significant importance which outweighs the cost and delay of a further appeal. Clarity is desirable.

[4]	Mr Vickerman confirmed he accepted that Mills v Dowdall was correctly decided on its facts but argued that it should be restricted to the situation it involved, namely the transfer of property accompanied by gifting programmes which are no longer applicable.

[5]	There is also the issue of whether the principle in Mills v Dowdall was arguably incorrectly applied by this Court on the facts of the case.

Principles to apply

[6]	Leave will only be granted for an appeal to the Court of Appeal as a second appeal where the appeal raises a question of law or fact capable of bona fide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal. Not every alleged error of law will be sufficiently important either generally or to the parties to justify further pursuit of litigation.3

[7]	I am also conscious of the Court of Appeal’s comments in Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd and Chief Executive of Land Information New Zealand v Luke, of the need to manage the number of second appeals reaching the Court of Appeal and also of the need to reflect proportionality in litigation.4

Applicant’s submissions

[8]	Mr Vickerman submitted that Mills v Dowdall could be distinguished because in that case there were two sequential documented transactions in respect of two assets.

3	Waller v Hider [1998] 1 NZLR 412 (CA) at 413.
4	Downer Construction (New Zealand) Ltd v Silverfield Developments Ltd [2007] NZCA 355 at [36]; and Chief Executive of Land Information New Zealand v Luke [2008] NZCA 43 at [18].

Both assets (the bach and the shares) were sold for value and the consideration was subsequently gifted off. The focus was on the gifting programme.

[9]	He submitted that by contrast, in the present case it was not claimed the shares had been acquired by way of gift. There was no intention to write off the debt. It was to be repaid from the dividends.

[10]	He submitted that as the source of payment of the shares were the dividends Mr Cossio received from the shareholding in another company which was separate property, the shares were paid for from the proceeds of the separate company acquired in that way so that s 9(2) of the Act applied. Had Mr Cossio paid for the shares at the time of acquisition from separate property they would have been his separate property. That he did not do so at the time does not in Mr Vickerman’s submission have a “material bearing” on how he ultimately paid for them.

Discussion

[11]	At the outset, nothing turns on the Family Court Judge’s failure to refer to Mills v Dowdall. The case was referred to in Mr Knight’s submission before that Court.

[12]	Mr Vickerman’s principal argument overlooks the substance of the findings in Mills v Dowdall. The ratio decidendi of that case was not dependent upon the intention of the parties to write off the debt or to gift the assets under a gifting programme.

[13]	Fundamental to the decision in Mills v Dowdall was the Court’s focus on the nature of the transaction. As Cooke J said in relation to the bach:5

It must follow that the Acacia Bay property, the debt owing for which was the intended subject of a gifting programme over a period, cannot be treated as a gift to the husband. It is not the fact that the programme was incomplete that compels this result, but the fact that at the start there was an effective transfer of the property for the valuable consideration stated.

[14]	In relation to the shares, Cooke J noted:6

5	Mills v Dowdall, above n 2, at [156]–[157] (emphasis added).
6	At [157] (emphasis added).

Should it emerge that the transferee was never to be under a real liability, because the consideration was to be forgiven instantly and as an inseverable part of the whole operation, the transaction can then be recognised for the purposes of the Act as a gift of the property. It is a solution unavailable, however, when instead of a gift of the property itself a continuing true indebtedness is intended — notwithstanding that ultimate writing off is also intended.

[15]	Cooke J then went on to note that it could not be concluded:7

… that no real liability for the price, even for a very short time, was intended.

[16]	Much the same reasoning was applied by Richardson J:8

On those facts the legal answer seems straightforward and obvious. The appellant acquired both the legal title and the equitable ownership of the shares in one case and the land in the other. He did so under the instrument of transfer. As property acquired by the appellant after the marriage it was brought within the matrimonial property net by s 8(e) unless excluded by any other provision of that legislation.

[17]	Importantly Richardson J noted that commercial men were entitled to order their affairs to achieve the legal and lawful results they intended. It is what they choose to do that counts and their rights and obligations should be determined on that basis except where the legislation determines otherwise.9

[18]	The Court of Appeal has subsequently referred to Mills v Dowdall without any suggestion that it was wrongly decided or that it is no longer applicable.10

[19]	Mr Vickerman also noted that in relation to Mills v Dowdall Richardson J had referred to the availability of s 15 to the husband in that case. He made the point that section is no longer available. However, as I read Richardson J’s decision I do not read his passing reference to s 15 to have been in any way determinative of his reasoning and the principle ratio in the case.

[20]	Returning to the present case, the shares in JCL were transferred to Mr Cossio for value and a debt created. At any time subsequent the father could have called up

7	At [158].
8	At [159].
9	At [160].
10	Ward v Ward (2009) NZCA 139 at [47]; and Clayton v Clayton (2015) NZCA 30 at [61].

the debt. For his part, Mr Cossio could have dealt with the shares as he wished. They were his property from the time of the transfer.

[21]	Mr Vickerman suggested that the word “acquired” in s 9(2) simply means to come to possess, which linked the asset with the means of acquisition, in this case the dividends from the separate property that were used to acquire the shares in JCL. But that submission overlooks that the shares were not “acquired” by the subsequent payments. The shares were acquired by Mr Cossio on the day they were transferred to him. The subsequent payments reduced the debt that existed at that time, or that was owing for the shares.

[22]	In fact the repayments do not appear to have been completed by the end of the exercise. It appears from the Family Court judgment that approximately $73,169 remained owing. As an aside I note the point Mr Knight makes that on the evidence not all the funds used to pay down the debt came from separate property.11 That is not accepted by Mr Vickerman but it is not a point on which the decision in this Court turned nor this application turns.

[23]	On Mr Vickerman’s argument anyone purchasing a house with vendor finance would not acquire their house on settlement, but rather would only acquire it once the payments were made under the vendor mortgage. The difficulty with it is it does not address the effect of part payments or the original transaction.

[24]	The argument is also contrary to a passage and authorities referred to at Fisher on Matrimonial and Relationship Property:12
“Acquired” appears to be given the same meaning throughout the sub-code for classifying property in ss 8, 9 and 10. Consistent with the definition of “owner” in s 2, it appears that property is “acquired” as soon as a spouse or de facto partner obtains a beneficial interest in it. Further, it will be recalled that “property” includes “any … right or interest” (para [10.2]). Despite isolated suggestions to the contrary, it appears to follow that property is acquired as soon as a purchaser obtains rights under an agreement to purchase, whether or not settlement has been effected and legal title passed. Property is also acquired when an interest is obtained, albeit still subject to a mortgage, when company shares are allotted, albeit not yet paid for, …

11	Reference Brendan Lyne’s affidavit sworn 24 August 2015 at [50]–[59].
12	Fisher on Matrimonial and Relationship Property (3rd ed, LexisNexis NZ Limited) at 10.7.

[25]	Mr Vickerman suggested that his argument was supported by the case of McIlraith v McIlraith.13 He referred to a paragraph in the judgment of Dunningham J that 5,523 B shares in a family farm were:14

… acquired using the funds so distributed [from an intergenerational trust] and they did not lose their character as separate property at that point.

However on analysis that decision does not support the applicant’s case. The evidence established the 5,523 B shares were acquired by the husband because he paid for them from his share of the distribution from that intergenerational trust. The payment was made at the time the shares were acquired. The transaction was a transfer for value and payment made. There was never any debt in relation to the shares.

[26]	If in the present case Mr Cossio had paid for the shares from separate property at the time they were transferred to him they would have remained separate property but that is not what occurred.

[27]	Importantly, in McIlraith in relation to the balance of the 2,877 B shares,
Dunningham J went on to note that:15

[27]	The position of the other 2,877 B shares, which formed the balance of the shares acquired at this time, is different. The respondent [Mrs McIlraith] argues that purchase of the balance of the 2,877 B shares had nothing to do with the Trust because the source of funding was an external loan which was sought and obtained after marriage. The shares were distributed for full value from the Trust as opposed to, say, being distributed in specie. There was, therefore, no element of gift and s 10 cannot apply.

[28]	While this transaction occurred at the same time as the purchase of the 5,523 B shares, using the funds distributed from the Mt Parker Trust, I do not consider it can be said they were acquired “because“ Mr McIlraith was a beneficiary under the Trust as the appellant [Mr McIlraith] submits. The critical distinction is that they were not acquired gratuitously from either the Trust or from his siblings. Furthermore, the fact the loan used to purchase the shares was from a company where the majority of shares were separate property makes no difference to the character of the acquisition. The loan proceeds were also property Mr McIlraith acquired during the marriage and are therefore relationship property. The proceeds were used to buy the shares so they, too, become relationship property.

13	McIlraith v McIlraith [2015] NZHC 2758.
14	At [25].
15	McIlraith v McIlraith, above n 10, footnote omitted (emphasis added).

[28]	Dunningham J’s reasoning on the latter point is consistent with the reasoning of this Court on the appeal and contrary to Mr Vickerman’s case.

[29]	Finally Mr Vickerman referred to s 10 of the Act and submitted it provided that property acquired because a spouse is a beneficiary under a trust settled by a third person is not relationship property unless it became intermingled. It was important to have regard to that as it supported the philosophy of the Act. The status of separate property is to be preserved. Again however, the JCL shares were not acquired by Mr Cossio as a distribution to him as a beneficiary of the trust. He obtained the shares by way of transfer from his father. There was a resultant debt back to his father which was subsequently reduced from time to time.

Conclusion

[30]	Despite Mr Vickerman’s arguments I do not consider there to be any bona fide and reasonable argument to trouble the Court of Appeal with in this case. Mills v Dowdall remains good law. It is not restricted to its facts. The essence of the Court’s reasoning in Mills v Dowdall was that the appellant had acquired both legal title and equitable ownership of the property in return for the assumption of a true debt. The fact the debt was ultimately intended to be forgiven in the case of Mills v Dowdall or repaid (as in the present case) does not alter the fact that an asset has been acquired for value. The subsequent forgiveness of the debt or repayment of the debt does not affect the legal effect of the initial transaction.

[31]	The appeal determined by this Court applied the principle from Mills v Dowdall to the facts of the present case. I am not persuaded that it is reasonably capable of bona fide and serious argument that Mills v Dowdall is confined in the way Mr Vickerman argues for or that the application of it by this Court in this case was incorrect.

Result

[32]	The application for leave to appeal is dismissed.

[33]	There will be costs to the respondent on this application on a 2B basis together with disbursements as fixed by the Registrar.

Venning J