Webb v Webb (Cook Islands)

The matrimonial property available for division must reflect debts that are enforceable or likely to be paid. An unsecured personal debt that is both unenforceable and unlikely to be met cannot be used to extinguish the matrimonial pool. The common-law foreign tax principle prevents direct or indirect enforcement in the Cook Islands of a foreign state’s revenue law, absent a treaty or applicable exception. A trust settlement may be ineffective where the person establishing it retains powers making his rights in the trust assets indistinguishable from ownership, even if the arrangement is not a sham. In financial proceedings, reasonable inferences may be drawn from a financially dominant spouse’s failure to disclose, but pure speculation is impermissible. A trust with a real possibility of vesting outside the common-law perpetuity period is void immediately.

The parties were spouses who had lived in New Zealand and the Cook Islands. Following their separation, the wife sought matrimonial property orders under sections 23 and 25 of the Matrimonial Property Act 1976 as incorporated into Cook Islands law. The High Court rejected challenges to two trusts, treated the husband’s New Zealand tax liability as a personal debt, and dismissed the claim. The Court of Appeal allowed the wife’s appeal, holding that the tax debt should not be taken into account because it was unlikely to be enforceable in the Cook Islands, and that the trusts failed to record an effective alienation of beneficial ownership. It valued shares in Solar 3000 Ltd at NZ$2m and awarded the Arorangi Property to the wife. The husband appealed on the tax debt, trust validity and valuation.

Appeal dismissed by a majority of four to one. Lord Kitchin delivered the majority judgment, with Lord Carnwath, Lady Black and Lord Briggs agreeing. Lord Wilson dissented only on the tax debt issue and agreed with the reasoning on the trusts and valuation.

1. Tax debt and matrimonial property. Sections 20(5) and (7) of the Matrimonial Property Act 1976 formed a scheme under which relevant debts are deducted from matrimonial property, while unsecured personal debts are deductible only to the extent that they exceed separate property. A debt qualifies only if it is enforceable or likely to be paid. A debt that is both unenforceable and unlikely to be met cannot reduce the matrimonial pool.
2. Foreign tax principle. The common-law principle against enforcement of foreign revenue laws extends to indirect enforcement, including enforcement through receivers or bankruptcy processes. The Cook Islands is a separate sovereign state, and the judgment debt owed to the New Zealand Inland Revenue Department was, in the absence of a treaty, most likely unenforceable there. Section 173 of the Cook Islands Act 1915 did not compel enforcement and permitted refusal of a foreign revenue claim. The evidence also showed that the husband was unlikely voluntarily to apply the Cook Islands matrimonial property to the debt.
3. Trusts. Applying the reasoning in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17, powers enabling the husband to make himself sole beneficiary, resettle the assets or vary the deed made his rights indistinguishable from ownership. His fiduciary duties as trustee did not cure the powers he held as settlor. The deeds therefore failed to record an effective alienation. The trusts were not shams, but that finding did not prevent their failure on this separate basis. The Board did not need to decide the account-disclosure or uncertainty arguments.
4. Perpetuity. The Webb Family Trust, expressed to continue for up to 60 years, was void immediately because there was a real possibility that a future interest would vest outside the common-law perpetuity period. No final view was expressed on the separate argument concerning the Arorangi Trust’s 21-year period.
5. Valuation. In matrimonial financial proceedings, a court may draw on experience and inherent probabilities where a financially dominant spouse withholds information, provided there is a reasonable evidential basis. The Court of Appeal’s NZ$2m valuation of the Solar 3000 Ltd shares was a permissible broad estimate, not pure speculation. Its conclusion concerning Kuru Investments Ltd was rational and reasonable and should not be disturbed. The award of the Arorangi Property to the wife therefore stood.

Lord Wilson considered that “debts” had the same meaning in section 20(5)(a) and (b), without an enforceability gloss, and that the tax liability had a real prospect of recovery, including through bankruptcy. He would have allowed the appeal on that issue.

1. Privy Council. The husband’s appeal was dismissed. The Board upheld the award of the Arorangi Property to the wife.
2. Court of Appeal of the Cook Islands. On 24 November 2017 the wife’s appeal was allowed. The court excluded the New Zealand tax debt, held the trusts invalid for failure to effect an alienation of beneficial ownership, valued the Solar 3000 Ltd shares at NZ$2m, and awarded the Arorangi Property to the wife.
3. High Court of the Cook Islands. Potter J dismissed the wife’s claim on 23 August 2017. The trusts were held valid and the New Zealand tax debt was treated as a personal debt which exhausted the matrimonial property.