AAL Holdings Limited v Aitken

[2022] NZHC 2973

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2280

[2022] NZHC 2973

UNDER

Section 339 of the Property Law Act 2007

BETWEEN

AAL HOLDINGS LIMITED

Plaintiff

AND

PETER JOHN AITKEN and PETER LOUIS FELSTEAD

First defendants

AND

121 LIMITED

Second defendant

AND

JUSTITIAE TRUSTEE COMPANY LIMITED

Third defendant (discontinued)

AND

XIAOLI DAI

Fourth defendant

Hearing:

7–9 November 2022

Appearances:

D J Chisholm KC and MJW Lenihan for plaintiff AJB Holmes and A J Steel for first defendants

M G Locke and RVM Allen for second defendant

Third defendant excused from attendance on discontinuance S E Wroe for fourth defendant

Date of judgment:

14 November 2022

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 14 November 2022 at 3.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

AAL HOLDINGS LTD v AITKEN [2022] NZHC 2973 [14 November 2022]

[1]    Under s 339(1) and (4) of the Property Law Act 2007, the plaintiff (AAL) seeks orders for division of the property it co-owns with the defendants at 121 Shelley Beach Road in Auckland’s St Marys Bay.

[2]    The defendants own dwellings on cross-leased areas of the property, 121A– 121D,1 while AAL may cross-lease the balance of the property, 121E, for development.2 Division would be to grant freehold title to the defendants of the land subject to their respective cross-leases (and to AAL in respect of the balance). A plan of the proposed subdivision is shown at Appendix A to this judgment.

[3]    The parties would consent to orders in terms agreed at the outset of trial, except the second defendant (121 Ltd) disagrees with the proposed term:

Restrictive covenants will be registered imposing height restrictions … on the title of 121E preventing the owner of 121E from building above Reduced Level 21.7 in respect of 121B and Reduced Level 23.7 in respect of 121A as set out (approximately) in the drawing entitled Annexure C … .

The drawing is shown at Appendix B to this judgment.

[4]    121 Ltd contends instead for a height restriction to “preserve the view from the lounge on the second floor” of the dwelling at 121B. That is a more specific advance on its position for trial, that it required “fair and reasonable height controls over what [AAL] can construct”, as well as compensation for both its detriment and AAL’s benefit in freeholding. For 121 Ltd, Michael Locke further proposed in submission Reduced Level 20.0 apply in respect of 121B.

[5]    Absent unanimity, at issue more generally in terms of s 339 is if the property should be divided and then on what terms.

Background

[6]    The property is a relatively steep north-east facing lot owned jointly as tenants in common in unequal shares by the continuing parties to this proceeding, between whom cross-leases support the original defendants’ four dwellings on discrete areas of

1      AAL since has acquired 121C from the third defendant.

2      Justitiae Trustee Co Ltd v AAL Holdings Ltd [2021] NZCA 281 at [61].

the land. Each dwelling is on building platforms on the higher side of the property with slightly elevated views across the bounding Northern Motorway, Westhaven Marina and the Waitematā Harbour. The unleased balance is the lower section of the land, below the building platforms of the existing dwellings.

[7]    AAL, initially holding a 60 per cent (and each defendant a 10 per cent) share in the property’s fee simple,3 apprehends the balance of the fee simple estate unaffected by cross-leases may support development on further cross-lease of 121E. Alternatively to further cross-lease, by this proceeding, AAL seeks orders dividing the property into freehold titles better enabling development of 121E. In either case, AAL’s interest only is in improving 121E’s saleability: AAL acquired its share of the property in resolution of a bridging loan, made for 121E’s acquisition by its earlier owner, by Bancorp New Zealand Nominees Ltd, to which AAL is a related company. AAL’s director, Nigel Spratt, comprehends 121E is “virtually unsellable because of the cross-lease structure (including the embedded development right), the past and present litigation and the threat  of  litigation  by  the  other  owners”.  Presumably Mr Spratt means ‘even including the embedded development right’.

The law

[8]The Property Law Act 2007 Act provides:

339 Court may order division of property

(1)    A court may make, in respect of property owned by co-owners, an order—

(a)for the sale of the property and the division of the proceeds among the co-owners; or

(b)for the division of the property in kind among the co-owners; or

(c)requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.

(2)    An order under subsection (1) (and any related order under subsection (4)) may be made—

(a)despite anything to the contrary in the Land Transfer Act 1952; but

(b)only if it does not contravene section 340(1); and

(c)only on an application made and served in the manner required by or under section 341; and

3      AAL’s shares may have changed by its acquisition of 121C to include that additional 10 per cent.

(d)only after having regard to the matters specified in section 342.

(3)    Before determining whether to make an order under this section, the court may order the property to be valued and may direct how the cost of the valuation is to be borne.

(4)    A court making an order under subsection (1) may, in addition, make a further order specified in section 343.

(5)    Unless the court orders otherwise, every co-owner of the property (whether a party to the proceeding or not) is bound by an order under subsection (1) (and by any related order under subsection (4)).

(6)    An order under subsection (1)(b) (and any related order under subsection (4)) may be registered as an instrument under—

(a)the Land Transfer Act 1952; or

(b)the Deeds Registration Act 1908; or

(c)the Crown Minerals Act 1991.

[9]    Such orders may be sought under s 341. Section 342 then sets out mandatory relevant considerations on making orders under s 339(1):

342 Relevant considerations

A court considering whether to make an order under section 339(1) (and any related order under section 339(4)) must have regard to the following:

(a)    the extent of the share in the property of any co-owner by whom, or in respect of whose estate or interest, the application for the order is made:

(b)    the nature and location of the property:

(c)    the number of other co-owners and the extent of their shares:

(d)    the hardship that would be caused to the applicant by the refusal of the order, in comparison with the hardship that would be caused to any other person by the making of the order:

(e)    the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property:

(f)     any other matters the court considers relevant.

[10]Section 339(4)’s “related order[s]” are specified at s 343:

343 Further powers of court

A further order referred to in section 339(4) is an order that is made in addition to an order under section 339(1) and that does all or any of the following:

(a)     requires the payment of compensation by 1 or more co-owners of the property to 1 or more other co-owners:

(b)     fixes a reserve price on any sale of the property:

(c)     directs how the expenses of any sale or division of the property are to be borne:

(d)     directs how the proceeds of any sale of the property, and any interest on the purchase amount, are to be divided or applied:

(e)     allows a co-owner, on a sale of the property, to make an offer for it, on any terms the court considers reasonable concerning—

(i)the non-payment of a deposit; or

(ii)the setting-off or accounting for all or part of the purchase price instead of paying it in cash:

(f)      requires the payment by any person of a fair occupation rent for all or any part of the property:

(g)     provides for, or requires, any other matters or steps the court considers necessary or desirable as a consequence of the making of the order under section 339(1).

[11]   The provisions’ history recently has been recounted by the Court of Appeal.4 Earlier, the Court of Appeal considered:5

Under this new broad discretionary regime it is appropriate for a judge to stand back from the submissions and proposals of the parties, and consider what, on an overview, taking into account the relevant considerations, is the most just and practical way through the impasse before the court, even if the answer may not reflect the orders sought by the parties. By definition the cases that come before the court arise where parties are locked into an ownership position which they cannot resolve because of the positions they have taken, and where a way out may be by a path neither has to that point contemplated.

[12]More recently still, the Court of Appeal noted the provisions:6

but:7

… confer a broad discretion on the court to make orders that resolve an impasse between co-owners. The court may make an order sought by one or other party, or a different order that it considers more appropriate.

… a Judge should not lightly come up with a different proposal from that of the parties. Any alternative must be triggered by a relevant consideration. A final decision should not be reached until the parties have had a full opportunity to test the proposal and offer evidence and submissions. The Judge must act in accordance with principles of natural justice and fairness.

4      Yozin v New Zealand Guardian Trust Company Ltd [2019] NZCA 202 at [45]–[60]. See also Thomas Gibbons “Section 339 of the Property Law Act 2007: A Tragedy of the Commonly Owned?” (2017) 25 Waikato L Rev 59.

5      Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [32].

6      Lo v Lo [2021] NZCA 693 at [26], citing Bayly v Hicks, above n 5, at [25] and [32].

7      At [27], citing Bayly v Hicks, above n 5, at [41] and [46].

Assessment

[13]   I turn to s 342’s mandatory considerations, which include at s 342(f) others such as I may consider relevant.

[14] I have described AAL’s share in the property, its nature and location, and the number of co-owners and the extent of their share at [6]–[7] above. No material evidence was given of parties’ contributions to maintenance of the property, which may be thought irrelevant to my assessment (although 121 Ltd’s director, Brian Hudson, referred to his expenditure on maintenance of the dwelling on 121 Ltd’s cross-leased land).

[15]   So far as s 342(d)’s ‘hardships’ are concerned, “‘[h]ardship’ is a value laden criterion”:8

It suggests an adverse effect which is of significant impact to [one or other party]. It has to be read consistent with the policy of the statute which respects property rights of tenants in common, but seeks to resolve conflicts fairly.

[16]Here, such ‘hardships’ are:

(a)without freeholding, AAL or subsequent owners would be constrained to cross-lease 121E for development; and

(b)with development on freeholding, 121 Ltd contends for a risk 121B may lose its view of the harbour and beyond.

Given the parties’ agreement otherwise to terms for freeholding, the question of any other hardship caused by the making of the order may be thought moot. That essentially is the weight of the expert evidence for each AAL and the defendants (excepting 121 Ltd).

[17]   The planners acknowledge views are an amenity attaching to land. But the factual position under the cross-leases is the permitted building envelope for any development on 121E is unconfined by any other height restriction. And the

8      Holster v Grafton HC Christchurch CIV-2006-409-1982, 18 March 2008 at [50], cited in Bayly v Hicks HC Whangarei CIV-2009-488-547, 19 August 2011 at [60].

counterfactual position under the proposed freeholding, the planners agree, is for further height restrictions “not relate[d] to specific floor levels within [the] buildings or to any typical eye level viewshaft relevant to a nominated viewing position”.

[18]Critically, the parties’ valuers agree:

and

[I]f the current cross lease titles are replaced by new freehold titles which are accompanied by [the] registered height covenant[s] … then the value of the properties at 121 Shelly Beach Road will be enhanced and saleability improved.

[T]he proposed [height restrictions] will be of benefit to each flat owner as these height limits will provide certainty on the maximum permissible height irrespective of any greater development height that may be available under the Auckland Unitary Plan.

[19]   Mr Hudson tendered another valuation, which he contended “evidences the detrimental impact of the [proposed freeholding] on the value of [121B]”. But, to the contrary, that valuation recorded:

The property’s value is affected by the undeveloped land at the front [meaning 121E]. The owners [meaning AAL] have offered to put a height restriction on this, which would allow views from the two upper floors of the dwelling. This would enhance the value as uncertainty will go away. Without this a 20% saleability deduction would apply.

That valuation’s author was not called to give evidence. The author’s comprehension of available views accordingly could not be clarified. But the valuation nonetheless is clear, and confirmatory of the expert valuers’ evidence: freeholding enhances 121B’s value by removing uncertainty as to the height of any development on 121E. That uncertainty is the hardship in the factual, absent an order for division.

[20]   In the counterfactual, then, restriction of view from 121B is not a hardship caused by the order. Restriction of view is a risk endemic in the property’s cross-leased ownership, even if its realisation is made more likely by an order conferring 121E’s greater saleability. Any hardship occasioned by such prospective realisation plainly is offset (and more) by the uplift of all lots’ values on freeholding.

[21]   That leaves if I should assess restriction of view from 121B as a relevant consideration under s 342(f). Such considerations extend beyond valuation alone as the “definitive factor in ordering the division of land between co-owners … to recognise … particular features which attach to land and which have subjective appeal to the parties”.9

[22]For example, in Bayly v Hicks, in proposing “any fair and reasonable division

… to start with Onewhero Bay … divided as near as may be equally between the parties”,10 Wylie J is likely to have had regard for views attainable from the “low and relatively narrow ridge immediately behind Onewhero Bay … [providing] excellent development sites of very high value”.11 That ‘very high value’ is drawn from the beach’s amenity (presumably including for views). The Judge’s proposal expressly extended to similar equal division of “a natural amphitheatre with the bay in the foreground[,] … [affording] panoramic and uninterrupted views over the beach and the Bay of Islands”.12 The “aesthetic value” of “a commanding view” of Central Otago’s Lake Hayes also was a relevant but ultimately not determinative consideration in Lake Hayes Property Holdings Ltd v Petherbridge.13

[23]   In discussion with counsel at the hearing, I observed the proposed height restrictions may be thought arbitrary (at least in the sense described by the planners at

[17] above), compared with the purposeful nature of 121 Ltd’s alternative proposal, and therefore for consideration in balance if “necessary or desirable” under s 343(g). That view strongly was contested by AAL’s counsel, David Chisholm KC, who argued

— far from ‘arbitrary’ — the proffered height restrictions constituted a material surrender of AAL’s property rights to enable certainty for improved saleability of all lots on freeholding. I accept that characterisation, but it is not to exclude the possible relevance of unimpeded views from 121B.

[24]   What does exclude the possible relevance of 121B’s unimpeded views is they are not any ‘particular feature attaching to the land’ because, in the factual, cross-lease

9      Bayly v Hicks, above n 8, at [84(c)].

10 At [107].

11 At [45].

12 At [46].

13     Lake Hayes Property Holdings Ltd v Petherbridge [2014] NZHC 1673, (2014) 15 NZCPR 590 at [1], [82] and [89].

of 121E includes a development right to the full extent of the permissible building envelope. Such views as may be available from 121B always were subject to exercise of that development right. Thus unimpeded  views attainable from 121B were not     a feature attaching to the land, but only a possibly temporary privilege obtained from the right’s non-exercise. That also is an inference available from prior litigation between the parties.14 Giving any weight to unimpeded views’ availability accordingly cannot be necessary or desirable as  a  consequence  of the  making of  the order.  121 Ltd’s position would be the same in that counterfactual.

[25]   Finally, although the subject of compensation under s 343(a) may be broader than financial loss, extending to redress for any unfairness in division between co-owners,15 121 Ltd has not established any potentially qualifying unfairness beyond Mr Hudson’s  assertion of “the height benefit that [AAL] will receive”. Neither can   I identify either any compensable detriment to 121 Ltd, or any disproportionate benefit to AAL as may be thought unfair. In any event, given the height restrictions are in reduction of AAL’s rights, no such compensable benefit arises from division as agreed.

[26]   I therefore determine the property should be divided in kind among its co-owners on the agreed terms.

Result

[27]   Under s 339(1) and (4) of the Property Law Act, I order in terms of para 2 of the parties’ joint memorandum dated 7 November 2022.

Next steps

[28]Counsel are to submit draft orders for sealing accordingly.

Costs

[29]   Any application for costs must take into account the agreement specified at para 3 of the parties’ joint memorandum dated 7 November 2022. In my preliminary

14     AAL Holdings Ltd v Dai [2020] NZHC 211 at [31] and [82], upheld in Justitiae Trustee Co Ltd v AAL Holdings Ltd, above n 2.

15     Bayly v Hicks, above n 8, at [35].

view,  from what I presently know,  only AAL’s costs of steps in the hearing plus     a proportionate share of costs of other steps in the proceeding may be recoverable from 121 Ltd as the unsuccessful party: all at 2B in this averagely complex proceeding requiring counsel of average skill and experience, and in which a normal amount of time is considered reasonable for each step. Given AAL required this Court’s order to obtain division, it may be costs in the proceeding are calculated also by reference to 121 Ltd’s 10 per cent share in the property, uplifted to 50 per cent for costs of the hearing to reflect its singular opposition to the otherwise agreed resolution.

[30]   If my  view is  not  accepted by the parties, or they cannot  otherwise agree,   I reserve costs for determination on short memoranda each of no more than five pages

— annexing a single-page table setting out any contended allowable steps, time allocation and daily recovery rate — to be filed and served by AAL within ten working days of the date of this judgment, with any response or reply to be filed within five working day intervals after service.

—Jagose J

Counsel/Solicitors:

D J Chisholm KC, Auckland

MJW Lenihan, Barrister, Auckland AJB Holmes, Barrister, Auckland A J Steel, Barrister, Auckland

M G Locke, Barrister, Auckland S E Wroe, Barrister, Auckland Pidgeon Judd, Auckland

Brown Partners, Auckland

Richard Allen Law, Auckland

appendix A referred æ at Ill abrrve

 

>  Appendix B referred to st [3] above