Equal distribution under the PRA

One of the key aims of the PRA is to recognise that not all contributions to a marriage are financial and that the equal contribution of both spouses should be honoured. Consistent with this purpose, the default position is that the parties are entitled to share equally in the relationship property.

Background

Before meeting Mr Palmer in 1996 and marrying him the year after, Ms Alalääkkölä had enjoyed success as a painter. A graduate of the Academy of Fine Arts in Finland, she attended a master’s program at New York University on a prestigious Fulbright scholarship. Her work was displayed at the Finnish National Gallery, among other art collections.

After 20 years of marriage, Ms Alalääkkölä and Mr Palmer separated in 2017. According to Ms Alalääkkölä, contributions to the marriage were not even. The “promising art career” she had developed had to be sacrificed for the good of the family. By the late 1990s her paintings became the main source of income. This turned her into a self-described “painting machine” and the style of her art reflected a more commercial character. The couple had at no point contracted out of the PRA.

Mr Palmer disagreed with Ms Alalääkkölä’s characterisation. The marriage he recalled was one where both contributed to the commercial success of the art. Ms Alalääkkölä was the artist, but Mr Palmer commercialised the work. This included promoting and marketing the paintings, as well as creating art cards and prints for sale.

How can copyright be classified?

When the couple split, Mr Palmer stated his intention to continue the printing business. Ms Alalääkkölä argued that these were her copyrighted works and Mr Palmer could not continue to profit from them. Ms Alalääkkölä’s focus on the copyright aspect of the works was an important point for the Court to consider. If copyright is not property under the PRA, as Ms Alalääkkölä argued, then it stood to reason that Mr Palmer could not then receive them as relationship property.

Decisions of the lower courts

Family Court

The matter was first heard in the Family Court. There, Judge Grace found the copyright to be the separate property of Ms Alalääkkölä. The works themselves were classed as “relationship property”, but the copyright had been derived from her skill and authorship. These had been accrued pre-relationship.

High Court

At the High Court, Mr Palmer successfully appealed the decision. Justice Isac found at [36] that focusing on the skill behind the creation of the copyright works, rather than the property created, did not align with the focus of the PRA. Justice Isac then pointed out that all kinds of property can exist that stem from skills acquired prior to a relationship’s commencement. Hence, the Court ruled in favour of Mr Palmer.

Ms Alalääkkölä applied for leave to the Court of Appeal. The High Court called the issue a live question with potential consequences for the wider creative community, as well as New Zealand’s relationship property law. Seeing it as a novel point of law (at [11]), the High Court granted leave.

Court of Appeal

At the Court of Appeal, Justice Katz for the unanimous Court considered three questions:

Is copyright “property” for the purposes of the PRA?
If the copyrights are property, how should they be classified in terms of the PRA?
If the copyrights are property, how should they be treated in terms of the PRA?

Is copyright “property” for the purposes of the PRA?

The Court first considered the scope of the notion of property under the PRA. The Court noted that section 2 of the PRA includes the category “any other rights or interests”. Copyright, as stated by section 14 of the Copyright Act, is clearly a property right. The Court agreed with the decisions of the lower courts that copyright is covered under section 2 of the PRA.

Is copyright separate property or relationship property under the PRA?

If copyright were to be classified as separate property, then Ms Alalääkkölä would have to show that she had accrued them prior to the relationship. Ms Alalääkkölä’s argument then was that her property interest in the copyright was naturally bound to her skills as an artist. The development of these skills had occurred during her studies and work prior to meeting Mr Palmer.

However, the Court held that copyright was relationship property. The property interests bound with copyright are wholly distinct from the skills necessary to create copyright. The Court at [43] also agreed with the High Court’s assessment on the relationship between skills and property:

Many skills are gained by people before marriage who then go on to use those skills during marriage to produce or acquire property. This does not put the property so produced or acquired beyond the reach of the PRA.

How should copyright be treated under the PRA, to ensure an equal division of relationship property?

Having found that the copyright in the works was the relationship property of the parties, the Court sought to determine how the division of the property would occur. Division by a court could occur in one of two ways: (a) the copyright is divided between the parties; or (b) Ms Alalääkkölä retains ownership of the copyright. The latter would involve a compensating adjustment made to ensure an overall equal division of the relationship property.

Ms Alalääkkölä was firmly of the view that she should retain the copyright in its entirety. As the author of the works, it was critical that she protect her artistic integrity and future professional interests. Transferring any of the copyright to Mr Palmer could easily lead to a situation where her reputation and business could be negatively harmed. Ms Alalääkkölä expressed her concern that Mr Palmer would flood the market with cheap prints and merchandise, creating obvious complications in her bid to remain a respected artist.

The Copyright Act addresses this scenario. A core function of the copyright scheme is to grant the author of a work exclusive control of that work. At section 98, authors maintain their moral rights; consequently, they are entitled to intervene if the works they authored are being subject to derogatory treatment. It would therefore be Ms Alalääkkölä’s right to prevent the mass replication of her works.

In light of this, the Court saw this situation as one which would go against the “clean break” principle. That is, it would limit Ms Alalääkkölä’s opportunity to function independently of the property held by Mr Palmer. Allowing Ms Alalääkkölä to retain ownership of her copyright would enhance the prospects of the parties being able to move on with their lives.

However, this did not change the classification of the copyright as relationship property. This means Mr Palmer is still entitled to compensation. The amount which he is to be granted will be considered by the Family Court in a future hearing as the Court of Appeal remitted the matter on this point.

On 9 May, the Supreme Court granted leave to Ms Alalääkkölä to appeal the Court of Appeal’s decision.

Conclusion

As a property value, copyright is hard to assess for the purposes of the PRA. Not only is copyright intangible but it is subject to its own piece of governing legislation, the Copyright Act. This grants moral rights to copyrighted works.

Because most forms of property do not come with moral rights, classification of property as relationship property is relatively straightforward under the PRA. However, serious complications occur when a former spouse is able to control images they did not create. As Ms Alalääkkölä retains moral rights, she could object to any appropriation made by Mr Palmer. However, this is impractical when considering the “clean-break” principle.

These factors make the transfer of copyrighted works a difficult task. If the Supreme Court agrees with the Court of Appeal, then this consideration will need to be made going forward for courts and alternative dispute resolution providers.

Family Law Arb-Med Rules

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