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The Law Commission’s Review of the Property (Relationships) Act 1976

By Maria Hook (University of Otago)

The Law Commission recently released its final Report on the review of the Property (Relationships) Act 1976 (Review of the Property (Relationships) Act 1976 – Te Arotake i te Property (Relationships) Act 1976). The Report proposes significant changes to New Zealand’s current conflict of laws rules relating to relationship property contained in ss 7 and 7A of the Act. In a nutshell, the Commission recommends that:

– the unilateral choice of law rule in s 7 be replaced with a multilateral choice of law rule that applies “the law of the country to which the relationship had its closest connection”;
– this multilateral choice of law rule be subject to any agreement by the parties to apply foreign law, which is defined to include implied choice of law agreements and even substantive agreements made in accordance with foreign law;
– where the Act applies pursuant to these rules, the court’s subject-matter jurisdiction extend to both movable and immovable property wherever located (and that this include the power to make in personam orders in relation to property situated outside New Zealand); and
– the Family Court have jurisdiction to determine claims governed by foreign law.

I do not wish to provide a summary of the Commission’s reasoning here, which is to the point and well worth a read (see Chapter 19). Rather, I would like to share some of my initial thoughts on the recommendations. The proposed approach is an improvement on ss 7 and 7A, which are fraught with problems, and the Commission is to be applauded for making considered use of this opportunity for reform. But in my view the Commission’s recommendations reflect some controversial policy decisions, which will benefit from further discussion.

This post aims to make a modest start on this discussion. Many of the thoughts here expressed are developed in greater depth in an article in the Journal of Private International law, to be published this month, which examines New Zealand’s approach to couples’ property as a matter of first principles (Maria Hook “A First Principles Approach to Couples’ Property in the Conflict of Laws” (2019) 15(2) Journal of Private International Law 1 (forthcoming)).

The values underpinning conflict of laws rules on couples’ property
The Report offers two principal rationales for the proposed approach: the importance of meeting the parties’ reasonable expectations (paras 19.15, 19.17, 19.31, 19.34, 19.55); and the inexpensive, speedy, simple and just resolution of disputes (paras 19.9, 19.38). These principles are worth unpacking further. For example, what does it mean to say that application of the law with the closest connection to the relationship meets the parties’ “reasonable expectations”? Is it that the law with the closest connection is the law that a reasonable person in the parties’ position would have assumed to be applicable? To what extent is this assumption shaped by the respective parties’ interests in having a particular law applied? What are those interests, and how do we reconcile them where they diverge? Are we concerned with parties’ personal feelings of connectedness to any given country, and/or the legal system with which the parties jointly identify? Do socio-political factors play a role as well, so that we recognise the relationship as a social construct? Should we give effect at all to the interests of the wider community within which the relationship is embedded (and hence move away from a strict focus on the parties’ expectations, recognising instead that the expectations must be “reasonable” or legitimate)?

The Commission has provided some clues on these questions. It recommends a presumption that the law with the closest connection be the law of the last place of shared residence, and then lists a number of factors that a court may take into account when determining whether the presumption is displaced. The proposed factors include, for example, “the social and personal connections the partners have with the proposed country”, and the place where any immovable property is located. But the Commission has provided little guidance on why these particular factors are relevant, or how they are to be weighed. In order to work out these questions, it is necessary to ask – as a matter of first principles – what a meaningful connection looks like in the context of these types of disputes. In my view, engaging with this question may well offer more predictability and certainty than a rebuttable presumption in the form proposed by the Law Commission.

The issues covered by the proposed conflict of laws rules
Asking this question also helps to define the appropriate scope of the proposed conflict of laws rules: what are the kinds of issues that the rules should apply to? I have two main concerns about the Commission’s proposal in this regard.

The first concern is that the scope of the proposed multilateral choice of law rule is unclear. The Commission has proposed that, in the absence of choice, the law to be applied “to property disputes between partners” be the law of the country to which “the relationship” had its closest connection. The Report clarifies that the focus is on the relationship as opposed to the individual parties (para 19.34). But this still leaves important questions unanswered. Does the rule apply only to claims that plead rights to relationship or matrimonial property, or does it also extend to, for example, common law and equitable claims between partners, or to claims relying on a court’s statutory discretion to redistribute property upon the dissolution of a relationship (see, eg, Matrimonial Causes Act 1973 (England and Wales))? What about claims that do not distinguish between relationship property and maintenance? Does the rule really only apply where there is a “dispute” between the partners?

These questions are difficult questions of characterisation. Courts routinely have to engage in characterisation when faced with conflict of laws problems, so perhaps it is appropriate that at least some of these questions be left to the courts to work out. However, characterisation necessarily requires an engagement with the values underpinning the rule – which brings me back to my comment in the previous section: that we need to ask as a matter of first principles what a meaningful connection looks like in the context of claims relating to couples’ property.

The second concern is with the remaining two conflict of laws rules proposed by the Commission, relating to subject-matter jurisdiction and party choice. The concern is that the scope of these rules is too narrow because, curiously, they are expressed to be unilateral in nature. Thus, the rule on subject-matter jurisdiction provides that the court’s jurisdiction extends to immovable and movable property wherever located, but it applies only once the court has determined that New Zealand is the governing law (see R132). So where the proposed multilateral choice of law rule points to foreign law being applicable, there is nothing in the proposed rules that says that the court has universal subject-matter jurisdiction. Conversely, party choice seems to be relevant only to the extent that the parties have agreed to select foreign law (R134). There is nothing in the proposed rules that says that the court should give effect to a choice of New Zealand law. In both cases the rules proceed from the assumption that New Zealand law (and, more specifically, the Act) has already been identified as being applicable. This is despite the Commission’s rejection of unilateralism more generally in the context of s 7.

The reasoning behind these limitations is not clear. Insofar as subject-matter jurisdiction over foreign property is concerned, there is no reason why a court should have lesser powers under foreign law than New Zealand law (ie the Act). Surely the scope of the court’s subject-matter jurisdiction should be the same, regardless of whether New Zealand law or foreign law is applicable. Indeed, the Commission notes that it sees the proposed inclusion of foreign immovables as consistent with the decision of British South Africa Co v Compania de Moçambique [1893] AC 602 (HL) (see fn 37). But given that there is conflicting authority on this point (Burt v Yiannakis [2015] NZHC 1174, [2015] NZFLR 739 (HC), [55]ff, [73], cf [46]-[47]; Schumacher v Summergrove Estates Ltd [2013] NZHC 1387, [17]), it would be dangerous to assume that a New Zealand court tasked with determining a claim pursuant to foreign law would decide that it has jurisdiction to take into account foreign immovables. In other words, this is a point that would very much benefit from legislative clarification, so its express exclusion from the proposal at least requires justification.

Insofar as the second unilateral “hangover” is concerned, the parties’ ability to select the applicable law, there is again no obvious benefit to restricting the scope of the rule to foreign law. On the contrary, there is every reason why parties should be able to select the law of New Zealand (and hence the new Act) as being applicable, and to subject this choice to the same requirements of formation and validity as choices of foreign law. In fact, parties are currently able to do so under s 7A(1).

The concept of “foreign law agreements”
The conflict of laws often recognises the parties’ ability to choose the law applicable to their relationship. This choice is made, and given effect, in the form of a “choice of law agreement”. If the choice is valid, the chosen law then applies to determine the parties’ substantive rights and obligations. The Commission’s proposal seems to recommend the introduction of a new type of choice of law agreement, a “foreign law agreement”, which is expressed to include substantive agreements made “in accordance with the law of another country with respect to the status, ownership and division of some or all of their property” (R135). This is in addition to express and implied choice of law agreements. All three types of agreement are subject to the same “procedural requirements” of validity, that is, they must be in writing, signed by both partners and meet the legal requirements of a valid agreement under either the putative law or the law of the country with which the relationship has its closest connection (R137).

In my view, there is no need for an express reference to substantive agreements made pursuant to foreign law, which risks conflating questions of choice of law and substantive law. The reference seems to have been prompted by a concern that the current rules are unclear whether a court can uphold a substantive agreement made pursuant to foreign law that fails to satisfy the contracting out provisions in Part 6 of the PRA (see para 19.48). A more appropriate solution to this concern would be to clarify the meaning and effect of implied choice of law agreements (or, indeed, of the proposed multilateral choice of law rule, to the extent that this rule may identify foreign law as being applicable to the partners’ relationship).

Thus, the rules could specify that entry into a substantive agreement in accordance with the law of a particular country is one of the circumstances in which parties are taken to have made an implied choice of law. The chosen law would then apply to determine the existence and validity of the substantive agreement, rather than the “procedural requirements” set out in R137. Hence, there would be no unnecessary conflation of choice of law and substantive law. If there is a concern that substantive agreements should not be enforced unless they fulfil certain minimum requirements (for example, a requirement that they are in writing), then the appropriate course of action would be to introduce overriding mandatory rules to that effect. Conversely, if there is a concern that courts might treat the new equivalent of Part 6 as having overriding mandatory force (see para 19.48), then Parliament could clarify that the new rules do not apply to substantive agreements governed by foreign law.

(Similar observations apply to the Commission’s treatment of implied choice of law agreements, which seems to apply the “procedural requirements” of validity outlined in R137 to the substantive agreement giving rise the implied choice: see M Hook The Choice of Law Contract (Hart, 2016) at 179 on the often tricky relationship between implied choice and rules of formality.)

Choice of law agreements – safeguards
The freedom to select the applicable law is a powerful principle that should be accompanied by effective safeguards to protect vulnerable parties and relevant public policy interests. One of the main reasons for reforming ss 7 and 7A, in my view, is that s 7A does not provide sufficient safeguards in this regard. Unfortunately, the Commission’s proposal offers no substantial improvement on the status quo.

First, the proposed rules recognise – or continue to recognise – the power to make an implied choice of law (cf para 19.47, where the Commission notes that s 7A does not currently recognise implicit choices of law; but see Bergner v Nelis HC Auckland CIV-2004-404-149, 19 December 2005 at [24]; The Choice of Law Contract at Ch 7 s V.B.2). This means a party may be treated as having entered into a choice of law agreement in circumstances where the party did not have an opportunity to make a deliberate or well-informed choice. Courts have traditionally taken a very generous approach to inferring choice of law agreements. I have argued elsewhere that that approach is misconceived as a matter of contract law (See The Choice of Law Contract at Ch 6), but there is nothing in R135 to suggest that courts ought to break with the traditional approach and exercise restraint in inferring choices of law.

The Commission’s preference for recognising implied choices of law seems to be motivated by a concern that substantive agreements that are made in accordance with a particular foreign law, but that do not contain an express choice of law clause, may turn out to be unenforceable under ordinary choice of law rules (see para 19.60). If it is indeed desirable that substantive agreements (cf “foreign law agreements”, R135c) should be upheld in accordance with the law by reference to which they were made, it is the objective choice of law rule – the rule identifying the law in the absence of choice – that can be used to achieve this result. In other words, the law by reference to which the agreement was made will be the applicable law by virtue of being the law of the country with the closest connection to the relationship.

Second, R135 recommends that the choice of law agreement be valid if it satisfies either the putative chosen law or the law of the country with which the relationship has its closest connection. This lex validitatis approach makes it more difficult for a party to argue that the choice of law agreement is invalid. The rule favours the validity of the agreement, because even if it is invalid under the putative chosen law, it may still be valid (and hence enforceable) under the law of the country with which the relationship has its closest connection, and vice versa. In essence the rule allows for “double dipping”.

Third, the only direct rules of validity prescribed in R137 are that the agreement be in writing and signed by both partners. These rules do not go far enough. That is because the substantive law applicable to the choice of law agreement (ie the putative chosen law or the law of the country with which the relationship has its closest connection) ordinarily provides only general rules of agreement. In particular, substantive law rules dealing specifically with substantive agreements relating to couples’ property (such as the rules in Part 6 of the Act) do not usually apply to choice of law agreements, because choice of law agreements are not substantive agreements (for example, a choice of law agreement is not an agreement “with respect to the status, ownership, and division” of property” within the meaning of s 21 – unless, of course, the agreement is a substantive “foreign law agreement” as envisioned in R135c). Therefore, questions that are specific to the choice of law agreement must be resolved directly by the New Zealand conflict of laws. For example, it is unlikely that the applicable law could be used to impose a requirement that the parties obtain independent legal advice as to the meaning and effect of the choice of law agreement (see The Choice of Law Contract at 113, Ch 7 s VIII.B). Similarly, the applicable law often provides no rules relating to the parties’ capacity to enter into a choice of law agreement (see The Choice of Law Contract at Ch 7 s VI).

In my view, these are important matters that the New Zealand conflict of laws should regulate. Given the potentially far-reaching implications of choice of law agreements, it is concerning the parties would be able to enter into such an agreement without having obtained any legal advice as to its meaning or effect, or without needing to satisfy any requirements of legal capacity. For example, a stay-at-home partner could be bound by a choice of foreign law that has the effect of keeping the partners’ property entirely separate, when under the law of the country most closely connected to the relationship the partners’ property would have been shared equally. Such a choice should only be available if the partners were aware that the choice of foreign law would affect their respective entitlements in this way.

(To be clear, my argument here is not that the New Zealand conflict of laws should prescribe rules of validity for substantive “foreign law agreements” (see above). So there is no concern in this context, as the Commission suggests, that such rules “would impose a significant burden on the partners” and “invalidate many agreements that had been made pursuant to the law of the nominated country, undermining the autonomy of partners who enter into an agreement in good faith” (para 19.60)).

Fourth, the proposed rules do not provide for a power to set aside the choice of law agreement on grounds of procedural or substantive unfairness. Rather, any injustice will have to be cured in accordance with the general public policy exception, which imposes a high threshold (R139). Whether such a power is desirable is a difficult question (see The Choice of Law Contract at Ch 8 s III). There would be a real concern, for example, that the rule would lead to time-consuming mini-trials on the validity of choice of law agreements. But it is an option that is at least worth discussing, and its absence underscores the overall laissez-faire approach of the proposed rules.

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