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Having your cake ...?

29 March 2018 - By Sally Morris and Georgia Angus

A review of the Supreme Court’s decision in Horsfall v Potter

Having been registered as the beneficial owner of a half share of a property, Ms Potter was entitled to a half share of the sale proceeds regardless of how the initial purchase was funded.

On 21 December 2017, the Supreme Court released its decision in Horsfall v Potter [2017] NZSC 196. The case examines the circumstances in which a jointly owned property might not be beneficially owned by the parties on the title. Although this decision largely turned on the court’s view of the evidence, the court sets out some general principles to be applied when considering spouses' intentions and whether these give rise to a trust.

An illustration of a house being sawn in two


Mark Horsfall and Diana Potter met in 1997. They started living together in 1998 and married in October 2002. Ms Potter refused to sign a contracting out agreement before the wedding, despite Mr Horsfall’s attempts to persuade her to do so. The Supreme Court noted that this undoubtedly put Mr Horsfall on notice that, if the relationship ended, there was the prospect of a relationship property dispute.

Mr Horsfall’s background was in property development, management and investment. He also worked as a commercial real estate agent. Mr Horsfall incorporated several companies to deal with the different aspects of his business:

  • 168 Group Ltd was incorporated in 1996 to own a commercial property. It is wholly owned by the Mark Horsfall Family Trust, which was settled by Mr Horsfall in March 1996.
  • Horsfalls Ltd was established in 1998. This company was a licensed real estate company and took over Mr Horsfall’s real estate business.
  • 88 Riddiford Holdings Ltd was incorporated in 1999 to buy the property at 88 Riddiford Street, Wellington. Mr Horsfall said he incorporated this company to develop the property without tainting 168 Group Ltd for tax purposes.

Purchase of College Street property

In 2001, Horsfalls Ltd was acting for the vendor of a commercial property in Hutt Road, Wellington. A conditional sale and purchase agreement was entered into between the vendor and Ascot Resources Ltd. To encourage Ascot to complete the purchase, Mr Horsfall told Ascot that an entity of his would purchase a 50% share in the property. In reliance on this joint venture, Ascot confirmed the purchase.

Ascot never settled the purchase of the Hutt Road property. Instead, a company that owned three properties in College Street took over the Hutt Road contract on the basis that Ascot would acquire its College Street properties. It appears that Ascot and Mr Horsfall agreed that an entity of Mr Horsfall’s choice would be the beneficial owner of 50% of the contract to purchase the College Street properties. Eventually, Mr Horsfall confirmed that 88 Riddiford Holdings Ltd would be that entity.

The settlement date for the purchase of the properties was 31 January 2003. Two of the three College Street properties were on-sold before that date. In January 2003, Ascot and Mr Horsfall agreed that an entity associated with Mr Horsfall should buy out Ascot’s interest in the third College Street property. The property was transferred into the joint names of Mr Horsfall and Ms Potter.

The College Street property was eventually sold in 2004 and Mr Horsfall transferred virtually all of the sale proceeds to 168 Group Ltd.

Ms Potter’s claim under section 44

Mr Horsfall and Ms Potter separated in April 2008. The parties were unable to agree on the division of their relationship property, which led to Family Court proceedings.

Ms Potter brought a claim under s 44 of the Property (Relationships) Act 1976 (PRA) relating to the College Street property. She claimed that the property was relationship property, as it was owned by the parties jointly. Ms Potter said the property was purchased in the parties’ joint names because they intended to build an apartment on the top floor, which would become their family home. Therefore, when Mr Horsfall transferred the sale proceeds to 168 Group Ltd, this was to defeat her rights under the Act and she was entitled to relief under s 44.

Mr Horsfall’s position was that the beneficial owner of the College Street property was 168 Group Ltd. He denied that the parties ever intended to live in an apartment on the property. He claimed the legal ownership of the property was just a strategic ruse, to limit the risk of scrutiny from Inland Revenue and any potential adverse consequences that may arise as a result. Accordingly, he argued that as neither the property nor the proceeds were relationship property, the transfer of the proceeds to 168 Group Ltd was not for the purpose of defeating Ms Potter’s rights.

Decisions in the lower courts

In the Family Court, Judge Walsh found in favour of Ms Potter. This decision was reversed in the High Court by Simon France J but reinstated by the Court of Appeal. In reaching this conclusion, the Court of Appeal relied heavily on Potter v Potter [2003] NZLR 145 (CA).

Supreme Court majority decision

The Supreme Court dismissed the appeal by a majority. William Young J gave the judgment.

Potter v Potter

As a starting point, the majority of the Supreme Court considered the relevance of the decision in Potter v Potter. In that case, the parties purchased a property as tenants in common but Mr Potter funded the purchase price. The parties entered into a property sharing agreement with the intention that the property would be transferred to a family trust. However, the parties separated before the transfer was completed.

There was a dispute over the sale proceeds from the property. Mr Potter claimed the property was held on resulting trust for him. He said the only reason Ms Potter was allocated a half interest in the property was to facilitate a quicker gifting programme, relying on the exemptions from the gift duty regime that was then in force.

The Court of Appeal in that case considered “[t]he difficulty is that gift duty could have been legitimately reduced only if Ms Potter’s half-interest had been a beneficial one”. The court held that in those circumstances, “[i]t is assumed that [Mr Potter] 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”.

On appeal to the Privy Council, this finding was not challenged. However, the Privy Council commented that Mr Potter’s argument was impossible. The court noted that the fiscal advantages could only be achieved if Ms Potter did hold her half-share beneficially. Accordingly, she was the legal and beneficial owner and there was no room for a resulting trust.

It has been held in cases following Potter v Potter that this principle can be confined to circumstances where the presumption of advancement applies and the presumption can only be rebutted by evidence of the underlying fraudulent purpose. The Supreme Court noted that in accordance with s 4(3) of the PRA, the presumptions of advancement and resulting trusts do not apply to this case. Accordingly, the court considered that Mr Horsfall’s claim should be addressed in terms of what the documents say and an assessment of the common intention of the parties, particularly the understandings of Ms Potter.

Common intentions of the parties

The court observed that, on the face of the documents, Ms Potter obtained a half interest in the property and, in the absence of a shared common intention that the property be held on trust for another party, she acquired a joint beneficial interest in the property.

A right to property that depends on the common intentions of the parties has a “contractual flavour” and brings into play the Contract and Commercial Law Act 2017 (CCLA). Section 73 of the CCLA provides that no person is entitled to any property under a disposition made by or under an illegal contract. The court held that on Mr Horsfall’s best case, he and Ms Potter acquired the College Street property in accordance with an informal oral agreement between them that they would purchase the property jointly to conceal the identity of the true owner and mislead the Commissioner of Inland Revenue. However, s 73 of the CCLA renders such a trust of no effect. It follows that, subject to the possibility of relief under the CCLA, Mr Horsfall and Ms Potter were the beneficial owners of the property.

Despite this finding, the court noted that Potter v Potter is still relevant. Where the circumstances surrounding the transfer of property and the direct evidence are equivocal, it may be that the case for a trust rests substantially on the basis that the only reason for putting the property in the name of the transferee was to secure a tax advantage. In those circumstances, the Supreme Court considered it open for a court to conclude that since the hoped for advantage could legally be obtained only if beneficial as well as legal ownership were transferred, the understanding between the parties should be construed accordingly.

Was the College Street property relationship property?

As set out above, the Supreme Court considered that the beneficial ownership in the College Street property was acquired jointly unless this was inconsistent with the common intention of the parties.

The court did not find anything in Mr Horsfall’s evidence regarding what he said to Ms Potter that would be inconsistent with the property and the proceeds of its sale being relationship property. In considering Judge Walsh’s findings in the Family Court, the majority found that he must be taken to have accepted the critical evidence of Ms Potter and rejected the narrative advanced by Mr Horsfall. Although the majority accepted that it was open to Simon France J to reach a different view of the facts, the court considered Simon France J’s assessment to be incomplete and faulty. Ultimately, the court restored Judge Walsh’s findings of fact and held that there was no resulting or other trust.

Were the payments made in order to defeat Ms Potter’s rights?

After concluding that the property was relationship property, the court found no escape from the conclusion that Mr Horsfall’s actions were for the purpose of defeating Ms Potter’s claims. Mr Horsfall’s business affairs were conducted in a way to result in him having control of the assets but nonetheless having a low assets profile. The court held that this was to protect his wealth from claims, including claims under the PRA.

Elias CJ’s dissent

Elias CJ dissented. She considered that the only question in application of s 44 was whether Ms Potter was a beneficial owner of the College Street property at the time of its sale. If she was, the court could infer that the payment of the proceeds of sale to 168 Group Ltd was a disposition in order to avoid the proceeds falling within “property owned jointly” under s 8(1)(c) of the PRA. Elias CJ did not consider that any basis other than the joint ownership of the property could give rise to a claim under s 44.

In considering the evidence, Elias CJ agreed with the approach taken by Simon France J and concluded that Ms Potter was not a beneficial owner of the College Street property when it was in her name.


It will be difficult for a party who jointly registers the title of a property in his or her spouse’s name to avoid potential tax liability to later argue that his or her spouse held title as trustee only and had no beneficial interest in the property. This is because, in those circumstances, the desired benefit can legally be obtained only if beneficial as well as legal ownership is transferred. Even if it can be established that there was a common intention between the parties, this opens to the door to the CCLA, rendering the common intention trust of no effect. Ultimately, a party in Mr Horsfall’s shoes will not be able to have his or her cake and eat it too.

Sally Morris is a partner and Georgia Angus a senior solicitor at Morris Legal in Auckland.

Last updated on the 29th March 2018