Rainey v Kwok: why maintenance needs an overhaul

Associate Rachel Rosser has been published in the New Zealand Law Journal. Rachel comments on a recent Court of Appeal case where ongoing maintenance was awarded to a de facto partner for an extended period of time, and explains why the current maintenance system needs an overhaul.

In March 2020, the High Court heard the matter of Kwok v Rainey [2020] NZHC 923. It was a substantive hearing on the near full gamut of relationship property claims possible under New Zealand’s relationship property regime, with some highly interesting findings (particularly in relation to costs as damages, at [244] to [264]). However it had one concerning outcome: it found that Mr Rainey was liable for maintenance to Ms Kwok of over half his yearly income for a period of 3.5 years, which was almost half the length of the relationship itself. On appeal (Rainey ato David Rainey Family Trust v Kwok [2021] NZCA 199), this ruling was overturned, and Mr Rainey was ordered to pay the High Court level of maintenance for a period of two years, and a vastly reduced maintenance sum for a further nine months. This article posits the Kwok v Rainey is a clear example of why the current regime can produce unjust outcomes, why reform is needed and why Family Income Sharing Arrangements (FISAs) may provide the answer. This case illustrates both the inadequacies of the current law and the injustice that can occur when it is improperly applied.

Facts
Wan Lan Kwok, a Hong Kong resident, met David Rainey, a builder from Tauranga, when she was in New Zealand in August 2008. There was evidence that Ms Kwok was working (albeit without a visa). Both were in their mid-forties and had come from previous long-term relationships with two adult children each. They quickly developed a relationship. By 1 March 2009, Ms Kwok was living and working with Mr Rainey in New Zealand. When granted a resident’s visa on the basis of her partnership with Mr Rainey in August 2011, Ms Kwok relocated to New Zealand.

During the relationship Ms Kwok assisted Mr Rainey on building sites with basic labour from time to time and was paid a wage by his company. Mr Rainey was also employed by his company as a builder.

Mr Rainey, having seen his assets halved on two occasions as a result of relationship property proceedings, was committed to the relationship but wanted to protect his own assets. After the couple had lived together for approximately two and a half years, Mr Rainey sought advice from the law firm Gascoigne Wicks (GW) as to how to do so. By this stage Mr Rainey had purchased a section in Tauranga where he intended to build a house. Based on GW’s advice, Mr Rainey set up a trust which was to own the section. Mr Rainey then built a house on the section and they lived there as a couple until the relationship came to an end in September 2016.

Both parties were of modest means. Ms Kwok was 55 at the time of the hearing and had lived in New Zealand on and off for 12 years. Mr Rainey was 54, and unable to work full time as a builder after battling cancer. Mr Rainey has had two previous marriages, and had two adult children with his first wife. Mr Rainey and Ms Kwok had no children together.  In October 2018, Ms Kwok had received an interim maintenance order by the Family Court of $200 per week for six months.  In March 2020 at the High Court hearing, Ms Kwok sought a half share in the house (held in trust), the current account of Mr Rainey’s building company, $785 of maintenance per week and a half share of the family chattels.

Overview of present law 
Post-separation maintenance is governed by the Family Proceedings Act 1980 (FPA). The overarching statutory policy is that neither party to a de facto relationship is liable to maintain the other after ceasing to live together (s64), A ‘clean break’ principle is imposed, which encourages former partners to become self-sufficient. There are statutory exceptions to this general policy.

The relevant sections for determining a de facto maintenance application are ss 64, 64A, 65, 66, 69 and 70. Principally, s 64 deals with maintenance in a de facto relationship (as was the case in Rainey v Kwok). This section provides that each partner is liable to maintain the other only to the extent necessary and where the other partner cannot practicably meet their own reasonable needs because of specified circumstances (s64; s64A). Sections 69 and 70 provide the Court with a broad discretion as to how payment will be made and how it is to be calculated. However, these wide powers are then tempered by ss 64 and 64A, which set out the only circumstances in which one party will be liable to maintain the other after the relationship ends. Section 65 then prescribes matters that the Court must have regard to in determining the amount payable, and certain kinds of conduct and misconduct may also be taken into account (s 66).

Ultimately, the Court can consider any relevant circumstance in determining if the maintenance threshold is met (s64; s64A), and must consider factors relating to both payer and payee’s means and financial responsibilities when determining quantum (s65). It cannot be a punishment for the breakdown of the relationship (G v C FAM-2007-004-2155/2156, 8 October 2008 as cited in C v G [2010] NZCA 128 at [17]).

Having a broad discretion certainly provides the tools for a fact specific result, accepting that there is no one size fits all in maintenance, However, in the writers opinion, the present system also can produce unjust results.

Interestingly, case law on interim maintenance has developed a justice inquiry (Ropiha v Ropiha [1979] 2 NZLR 245 at 247; Cooper v Pinney [2016] NZHC 1633 at [20]), but this ‘sanity check’ has not developed in the final maintenance inquiry.

The High Court judgment
Thomas J ordered that Mr Rainey pay $785 per week for (in effect) 3 and a half years. That was almost half the length of the entire relationship, and in circumstances of both parties being of modest means, both in their forties when they met, no children together and Ms Kwok taking no steps to obtain employment in the four years between separation and the hearing.

Her Honour, citing Slater v Slater [1983] NZLR 166 (CA) at 174, held that parties cannot be expected to be self-supporting until they have received their share in relationship property.

The appeal
The High Court decision was overturned in part. The Court of Appeal (Cooper, Gilbert and Goddard JJ) held that a reasonable period for Ms Kwok to become self-supporting would be two years, had she had her relationship property. Because Ms Kwok did not have her share for four years (due to the High Court litigation), a period of two years at $785 per week and nine months at $200 per week was ordered.

The Court also held that her Honour was wrong to impose the inflexible principle of requiring relationship property before partners can be expected to support themselves.

Worryingly, the Court of Appeal did not think it was necessary to determine Mr Rainey’s actual income because he could earn a “reasonably good income” as a builder. When dealing with parties of modest means (not the Mr Clayton’s of the world:  see Clayton v Clayton (Vaughan Road Property Trust) [2016] 1 NZLR 551, [2016] NZFLR 230, [2016] NZSC 29)) actual affordability should certainly be a relevant circumstance to take into account (s65). That aside, the maximum actual income for Mr Rainey referred to in the decision was approximately $80,000 per annum. Payment of $785 per week equates to approximately $40,000 per annum. The Court therefore considered it reasonable for Mr Rainey to pay in effect 50% of his income to Ms Kwok whilst paying all outgoings and expenses for the family home (including the mortgage). Ms Kwok also benefitted from the delay caused by litigation by the increase in value of the family home.

Issue: unfair and uncertain
Despite the broad discretion, in practicality, the Court’s inquiry is very applicant/payee focused. Certainly, where a more traditional relationship exists, the current maintenance provisions do the job. However, it is the writer’s view that where the ‘payer’ is not a high-income earner, the outcome can cause real financial harm. The Court’s inquiry does not seem to place enough weight on the functions of the relationship and actual affordability for the respondent. Under the FPA, it must still be reasonable for the respondent to pay maintenance and for it and be causally connected to the relationship. It can lead to unpredictable outcomes.  In Rainey, Ms Kwok claimed that her age and inability to speak English prevented her from being able to gain employment.  Yet those factors existed when she first came to New Zealand before meeting Mr Rainey, and she had taken no steps to improve her circumstances post-separation.

Proposed Reform
In 2017, the Law Commission undertook a review of the relationship property regime in New Zealand and sought to modernise it in line with New Zealand’s changing society. Ultimately, the Law Commission recommended that s 15 of the Property (Relationships) Act 1076 (PRA), ss 63, 64, and 82 of the FPA be repealed and replaced with a FISA regime. A partner would only be entitled to a FISA if their relationship was 10 years or longer (unless the parties had children together) or the applicant’s contributions to the relationship either advanced the respondent’s career or was at the sacrifice of the applicant’s career. Subject to orders for adjustment where serious injustice is caused, there would be a cap on the time period for which maintenance could be paid (for up to five years) and a statutory formula for calculation of payments. The formula is based on the family income received during the relationship (as opposed to future earning capacity).

A key focus for FISA is ensuring that partners are only entitled to FISA if their financial need is connected to the relationship. The Commission commented that if it was not, it should be the State’s responsibility to financially support that person.

In 2019, the Government responded to the FISA proposal, accepting that the current PRA framework is no longer fit for purpose. It declined to give effect to the recommendations at the time but will consider them concurrently with the Law Commissions review of succession law. The Law Commission is currently reviewing submissions on succession.

The Court of Appeal in Rainey v Kwok made no specific comment on the social policy of maintenance, the need for justice in maintenance orders or the Law Commission’s PRA recommendations. This despite hearing submissions on the points as comparison tools for the Court’s maintenance assessment.

Will FISA work?
In effect, FISA will work like the Inland Revenue’s child support scheme via a default implementation system. Like the child support scheme, FISA is recommended to have set calculation formulas that can apply immediately on separation but be adjusted by the Court if necessary to prevent injustice. In the writers opinion, the FISA system is a step in the right direction to anchor the core principle of a causal connection between a party’s needs and the obligation to support . The certainty provided by predicable eligibility characteristics (length, children, contributions – albeit with some flexibility as is necessary) is a key benefit. The predictability of the scheme also paths the way for parties to resolve their own maintenance issues without necessarily needing to use the clogged justice system or incur legal fees.

The most beneficial aspect is the heightened eligibility threshold. Anecdotally, the writer knows many relationships that easily meet the de facto threshold (s2D of the PRA) but are not of such a level of seriousness where the parties commit to financially supporting one another on separation, particularly for relationships in the younger adult generation.

Had the FISA scheme been in place, Mr Rainey may have avoided liability to maintain Ms Kwok. This would have been a fair result given that this was a late-in-life relationship for parties with no children together and modest means.

Next steps
The legal profession now eagerly awaits for the Law Commission finishing its review on succession law. With the Government’s acknowledgement that the system needs to change, it is hoped that a new system can be predictable, user friendly and, above all, only applicable in circumstances where the seriousness of the relationship justifies ongoing support.

This article was published in the December 2021 edition of the New Zealand Law Journal