And So It Is Settled: Copyright can be classified as Relationship Property for the purposes of Relationship Property Settlement in Aotearoa New Zealand

Written by Dr Durgeshree Raman

 

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Recently the Court of Appeal in New Zealand considered for the very first time whether copyrights are ‘relationship property’ for the purpose of a relationship property dispute settlement, where the property in question are works of art. Whilst the Family Court stated no, the Court of Appeal, in agreeing with the High Court, has answered in the affirmative.

The following outlines the prerequisites to qualify intellectual property (IP) as ‘relationship property’ in other jurisdictions before it outlines the key points of Alalääkkölä v Palmer [2024] NZCA 24 and concludes by looking at the sort of IP that might be considered relationship property as a result of this caseand the statutory protection conferred against it.

IP as Relationship Property in other jurisdictions

Alalääkkölä v Palmer demonstrates that the Family Court will have jurisdiction to treat IP as relationship property where: 1) there is no conflict between the relevant family and IP legislations, or where the IP legislation does not take precedence; 2) property is either undefined (as in the UK’s Matrimonial Causes Act 1973) or defined to include any interest in personal property  (as under Ontario’s Family Law Act 1990, s 4(1)); 3) the IP was acquired during the relationship; and 4) there is no enforceable contracting out (of the family legislation) agreement between the parties. The following demonstrates aspects of these through case law.

Alalääkkölä v Palmer: A brief snapshot

Ms Alalääkkölä is a successful artist, who created a number of artworks during her 20-year marriage to Mr Palmer. In their relationship property dispute, it was accepted that the actual artworks that remained in the possession of either party at the end of the relationship were relationship property in terms of the Property (Relationships) Act 1976 (PRA). However, Mr Palmer sought to have ownership of the copyrights in the artworks (‘the copyrights’) that he had so that he could make financial gains from them. Thus, the issue was whether the copyrights constituted relationship property or Ms Alalääkkölä’s separate property.

The Family Court ([2020] NZFC 1635), held that the copyrights were ‘property’, falling within either or both of the categories of property under s 2(c) (any interest in any personal property) and s 2(e) (any other right or interest), of the PRA. Judge Grace also found that while the artworks were relationship property, having been created during the relationship, the copyrights in them, which were severable from the artworks and derived from Ms Alalääkkölä’s skill and authorship, were therefore separate property (at [19] to [23]). Mr Palmer appealed to the High Court.

The High Court ([2021] NZHC 2330, [2021] NZFLR 515) also held that the copyrights fell within the definition of property, particularly under s 2(e) of the PRA. However, having considered that Judge Grace had erred in classifying the copyrights as separate property, it remitted that matter back to the Family Court. In doing so, the High Court noted that while the Family Court had ‘broad’ discretionary powers to make vesting orders, ‘there is no requirement that copyright in a work must follow an order vesting the work in one party or the other (at [49]), indicating that Judge Grace was correct to conclude that the copyrights were severable from the artworks.

Instead of going back to the Family Court, Ms Alalääkkölä appealed the order of the High Court to the Court of Appeal. The questions to be considered were: 1) whether the copyrights were property for the purposes of the PRA; 2) if they were property, how should be classified under the PRA; and 3) if they were property, how should they be treated to ensure equal division of property under s 11(1) of the PRA, there being no ‘extraordinary circumstances’ here that would make equal division ‘repugnant to justice’, as provided for under s 13(1) of the PRA.

In order to determine whether the copyrights were ‘property’, the Court of Appeal first considered the Copyright Act 1994 (CA). Section 14(1)(a) relevantly provides that ‘[c]opyright is a property right that exists, … in original works of … artistic works’. The Court held that copyright comprises a ‘bundle of rights’, which includes the right to make copies of, issue copies to the public and communicate the work to the public (see s 16 of the CA and the Court’s discussion at [20]), but do not include moral rights to the artworks which are dealt with separately under the CA (see Part 4 and s 118). The moral rights were held to belong personally to Ms Alalääkkölä. As copyright is expressly recognized as a property right by s 14(1) of the CA, the Court of Appeal held at [29] that it fell within the definition of ‘property’ under s 2(e) of the PRA which covers ‘any other right or interest’ and also fell within the s 2(c) definition of ‘any … interest in any … personal property’, consistent with the finding of the Family Court.

Having determined that the copyrights were property, the Court of Appeal then considered whether they were separate or relationship property. Relationship property includes property acquired after the relationship began, regardless of whether it is owned jointly or separately (s 8(1)(e) of the PRA). Separate property is all property acquired before and after the relationship, all gifts and inheritances, and specific types of other property (ss 9, 9A and 10 of the PRA). Whilst Judge Grace considered Ms Alalääkkölä’s personal artistic skills as tied to the copyrights, Isac J of the High Court differed in this respect. Isac J held that despite the fact that Ms Alalääkkölä’s skills allowed the copyrights to exist, when those skills were applied towards creating the artworks during the relationship, the copyrights in those works ‘became relationship property, as it came into existence during the relationship’ and expressed that to approach it otherwise would allow anyone with skills entering into a relationship and producing property during the relationship to ‘be able to avoid the equal sharing presumption on the basis that the skill was ‘theirs’,’ the result of which would be inconsistent with the scheme of the PRA (see [36] of the High Court judgment).

The Court of Appeal considered that copyright attaches automatically once an original artwork is created, as under s 14(1) of the CA. Although Ms Alalääkkölä argued that her skills and qualifications were an intrinsic part of the property interest in the copyrights, the Court considered that those were an intrinsic part of her as an individual artist and thus non-transferable and not property for PRA purposes. This was distinct from the artworks themselves, which carried the bundle of rights, which inter alia comprised the property rights in the copyrights of her artworks. Therefore, the copyrights which attached to the artworks (to which her personal skills had been applied) were property. Even though Ms Alalääkkölä became the sole legal owner upon creation of each artwork (as per s 21 of the CA), this did not matter to the classification of property under the PRA, which approaches classification of property based on when and how it was acquired rather than based on legal or equitable ownership. Moreover, the PRA provides that ‘[e]very enactment must be read subject to this Act, unless this Act or the other enactment expressly provides to the contrary’ (s 4A). As the CA does not contradict the PRA, the Court of Appeal concluded that Isac J was correct to find that there was nothing in either of the statutes to suggest that Parliament intended to remove IP from the reach of the PRA.

Having concluded that the copyrights were relationship property, the Court of Appeal then considered whether the copyrights should be divided, or whether Ms Alalääkkölä should retain ownership of the copyrights with a compensating adjustment from other relationship property. The Court reflected on the objective of the CA, which is to confer protection to creators for their intellectual and creative efforts which are personal in nature, and to promote creativity by granting them control over the commercialisation of their creations. Bearing in mind the ‘clean break’ philosophy of the PRA, conferring Ms Alalääkkölä ownership over the copyrights would enable the parties to move on independently. Therefore, the Court considered that it was appropriate to allow Ms Alalääkkölä to retain ownership of all the copyrights and for Mr Palmer to receive compensatory adjustments from the other relationship property.

Future Implications of Alalääkkölä v Palmer

The Court of Appeal found that ‘[r]ecognising intellectual property acquired during a relationship as relationship property is consistent with the PRA’s recognition that although the contributions of the partners to a relationship may be different, they are both valuable’ (at [44], consistent with s 18 of the PRA). This judgment is applicable not only to non-registerable IP such as copyrights and trade secrets but other types of registrable intellectual property as well, such as trademarks, patents, designs, plant variety rights and geographical indicators. While IP can be subject to the PRA, section 21 of the PRA allows spouses/partners the freedom to self-determine the division of their relationship property upon divorce/separation. The courts respect parties’ rights to conclude such agreements and will only interfere where enforcing them would cause ‘serious injustice’ (as per s 21J of the PRA). Morevoer, since Wood v Wood [1998] NZFLR 516, there is greater onus to meet the threshold to have a valid contracting out agreement set aside.

Dr Durgeshree Raman
Dr Durgeshree Raman
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Dr Durgeshree Raman has been lecturing at Te Piringa - Faculty of Law, University of Waikato since completing her doctoral studies on transboundary freshwater governance in 2015. Durgeshree has taught a range of law papers including Equity, Trusts, Succession, Family, Crimes, Evidence and Legal Systems. She has a number of publications including the most recent - Raman, D and Chevalier-Watts J, Equity, Trusts and Succession (2nd ed, 2022, Thomson Reuters). Durgeshree is also an enrolled Barrister and Solicitor of the New Zealand High Court and has previously worked as a Lawyer and Judges’ Research Counsel.

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