Issued
2011
Decision
16 Mar 2011
Appeal Status
Appealed

High Court finds in favour of retrospective departure orders

2011 case note - High Court finds in favour of retrospective departure orders in relation to a child support matter.

Case
B v X & Commissioner of Inland Revenue
Legal terms
Retrospectivity of departure orders

Summary

The non-custodial parent had appealed the findings of the Family Court awarding a departure order from formula assessment in favour of the custodial parent. The non-custodial parent appealed on a number of grounds. The reason the Commissioner intervened in this matter was primarily because of one ground whereby the non-custodial parent argued that there is no jurisdiction for the Commissioner to make retrospective departure orders.

Impact of decision

There are several differing decisions in the High Court as to whether retrospective departure orders from formula assessments can be made. However, in light of IPD v KME [2008] 2 NZLR 523, and now B v X & Commissioner of Inland Revenue it does seem clearer that the recent jurisprudence favours retrospectivity.

As this case is under appeal by the respondent, the Commissioner will seek leave of the High Court to have the "retrospectivity" question of law determined by the Court of Appeal.

Facts

This is a child support matter where the non-custodial parent is challenging a Family Court ruling whereby the Family Court granted an application by the custodial parent for a departure from a formula assessment of child support under the Child Support Act 1991. The formula assessment had been varied to be the maximum allowable for the years in question, as well as two other payments to meet the special needs of two of the children. As Fogarty J put it: "At the heart of the dispute is a contention that the father avoided child support by diverting much of his income to a trust, which he controlled, which in turn returned that income to him in a non-taxable character."

Decision

Issue 1

Fogarty J agreed that departure orders from formula assessments can be granted retrospectively. Although he did emphasise that the criteria regarding the application of departure orders has to take into account the facts and circumstances, not just of the years to which the departure orders will apply but also the facts and circumstances that exist when the application for the departure order is made. This is best summarised in [33] of Fogarty J's judgment:

  • I conclude that retrospective orders can be made. However, considerable care has to be made to ensure that at the time they are made the consequences of such orders are just and equitable and appropriate [s 105(4)].

Issue 2

Fogarty J differed with the calculations as to the non-custodial parent's level of income. He also did not adopt wholeheartedly the evidence of either party's accountants.

Issue 3

Although obiter and not of primary importance to the Commissioner in this case, it is worth noting that Fogarty J seems to disagree with the reasoning of the High Court in F v W (where the District Court was found to not have the equitable jurisdiction to declare a trust a sham). Fogarty J states at [73]:

  • I do not see any issue of sham or not to be resolved by the law of equity. Rather the law of sham is part of the common law of fraud. A sham exists where there is an intention to conceal the true nature of any transaction.

Regarding whether the trust in question was itself a sham, Fogarty J found that while not a sham, he had no problem with the family court attributing the net cashflow of a business as income of the non-custodial parent.

Issue 4

Fogarty J disagreed with the Family Court's quantum of the lump-sum payment required by the departure order. He felt that it was not just and equitable for such a lump-sum payment, and the financial hardship that entails, to be placed on the non-custodial parent. He therefore varied the near $300,000 owing, down to $30,000 plus the two special payments (being $6,372.21 and $5,734.08) and interest.

Child Support Act 1991