Clarke v McAlister

[2018] NZHC 1749

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2018-485-53

[2018] NZHC 1749

UNDER

the Property Law Act 2007

IN THE MATTER

of an application under s 339(1)(c) of the Act

BETWEEN

JOHN MILNE CLARKE

Plaintiff

AND

MALCOLM CLARKE MCALISTER

Defendant

Hearing:	4 July 2018
Appearances:	Mr S Bisley and Ms A Bloomfield for plaintiff Ms P Davidson for defendant
Judgment:	17 July 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[1]    In 1951 Mr Rupert and Mrs Isobel Clarke built a family home at 9 Doctor’s Road, Mataura, Southland. Mr and Mrs Clarke had two children, Madeleine and John, who grew up in the property. John is the plaintiff in this proceeding. Madeleine married Mr Terry McAlister and had one child, Malcolm, who is the defendant.

[2]    Mr Rupert Clarke died in 1972 and Mrs Isobel Clarke became sole owner of the property by survivorship. Mrs Isobel Clarke died in 1997. She left the property  to her children as tenants in common in equal shares, so that Madeleine and the plaintiff each became the owner of a half interest. Madeleine died in 2016. She left her interest in the property to the defendant. As her executor the defendant became the legal owner of a half interest in the property. He is also the beneficial owner. As matters stand the administration of Madeleine’s deceased estate is not complete and

CLARKE v MCALISTER [2018] NZHC 1749 [17 July 2018]

— legally —the property is still owned as to half by the plaintiff and as to half by the defendant in his capacity as Madeleine’s executor.

[3]A feature of this case is the level of agreement between the parties:

(a)they agree that, as a result of unfortunate but ultimately irrelevant family issues, their continued joint ownership of the property is untenable;

(b)the plaintiff is prepared to purchase the defendant’s half interest in the property;

(c)the defendant is prepared to sell his half interest to the plaintiff;

(d)there is valuation evidence from Chaddeton Valuation Ltd to the effect that the market value of the property as at 16 October 2017 was

$124,000. Whether that evidence remains current I am not in a position to say. But the parties agree that it does. In those circumstances it seems appropriate for the Court to accept $124,000 as an agreed market value;

(e)on that basis, it is common ground between the parties that the starting point for considering an appropriate sale and purchase price for a half interest in the property is $62,000.

[4]So far so good.

[5]    Where the parties part company is in relation to the consideration that should be paid by the plaintiff to the defendant for the latter’s half share in the property.

[6]    The parties have apparently attempted but failed to resolve this issue and the plaintiff has commenced this proceeding and applied for summary judgment in order to force the issue.

[7]    The plaintiff seeks relief in the form of an order pursuant to s 339(1)(c) of the Property Law Act 2007, which provides:

A Court may make, in respect of property owned by co-owners, an order:

…

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

[8]Two other provisions that are relevant are ss 342 and 343.

[9]    Section 342 provides that in considering an application for an order under     s 399(1) the Court must have regard to:

(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 343 confers on the Court further powers to make ancillary orders:

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

(b)[fixing] a reserve price on any sale of the property:

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

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

(e)[allowing] 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)[requiring] the payment by any person of a fair occupation rent for all or any part of the property:

(g)[providing] for, or [requiring], 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 plaintiff’s case is that in determining a fair and reasonable price to be paid by him to the defendant the Court should bring to account any disparity in financial contributions made to the upkeep of the property during the period of joint ownership (both before and after Madeleine’s death).

[12]   The plaintiff’s unchallenged affidavit evidence is to the effect that since the death of Mrs Isobel Clarke in 1997 he has effectively paid for the upkeep of the property and in doing so has expended well over $124,000 whereas Madeleine, during her lifetime, and the defendant, since Madeleine’s death, have made only minor contributions (in Madeleine’s case $12,179 and in the defendant’s case $1,126). On that basis the plaintiff says that the defendant’s half share in the property should be transferred to him at no consideration or a nominal $5,000.

[13]   The plaintiff’s application for summary judgment is opposed by the defendant on five grounds.

The defendant’s capacity

[14]   Ms Davidson began her submissions by contending that the plaintiff’s claim was not against the defendant in his capacity as the executor of his late mother’s estate but against him in his personal capacity. On that basis she submitted that, whilst the plaintiff may have had a claim in personam against Madeleine prior to her death, and may now have a claim against the defendant in his capacity as executor, no such claim may be pursued in this proceeding because it has been commenced against the defendant in his capacity as the beneficial owner of a half interest in the property. Her submission was that it followed that the Court is not entitled to take into account any such claim in this proceeding.

[15]There are two difficulties with this.

[16]   First, although the intitulements to the proceeding may not reflect this in the usual way, the plaintiff’s statement of claim dated 26 January 2018 expressly pleads at [9] that “Malcolm currently holds his share of the Property in his capacity as sole executor of Madeleine’s estate”. Thus the plaintiff sues the defendant in his capacity as executor. As Mr Bisley submitted, Madeleine and the defendant in that capacity may be regarded as the same entity. That is enough to dispose of this argument.

[17]   Second, given the breadth of the discretions conferred by sub-pt 5 of pt 6 of the Act, I am not persuaded that even if Madeleine’s estate had been wound up and the half interest in the property transferred into the defendant’s beneficial ownership that would necessarily preclude the Court from having regard to contributions made to the property by the plaintiff prior to that occurring. However, that is a point that can be left for determination in a case where it arises.

Issues of credibility

[18]   The second argument advanced against the plaintiff’s application for summary judgment is that there are credibility issues which  can  only be  resolved  at  trial. Ms Davidson contended that these credibility issues concern the plaintiff’s claim that he paid the bulk of the outgoings on the property while Madeleine was alive because she told him, and he accepted, that she was not in a position to contribute to them herself which was not true. Whether or not that is credible is important, it is contended, because there are other possible reasons for the plaintiff having paid these amounts, some of which might preclude the Court from bringing those payments to account in assessing a fair and reasonable sale and purchase price. In this regard, Ms Davidson posited an arrangement between the plaintiff and Madeleine whereby the plaintiff agreed to pay for the upkeep of the property and absolved Madeleine from responsibility or in short made a gift — or a series of gifts — to her.

[19]   In summary judgment applications the burden remains throughout on the plaintiff to establish that the defendant has no arguable defence to the claim. But where a defendant seeks to rely on a defence in opposing summary judgment there must be a proper foundation for the Court to conclude that there is a reasonably

arguable defence which should go to trial.1 I am not persuaded that the possibility advanced by Ms Davidson is a sufficient basis to prevent the plaintiff obtaining summary judgment in this case. There are any number of possible motivations for the plaintiff taking responsibility for paying the bulk of the outgoings relating to this property for so many years. The plaintiff’s evidence was that he did so because of a belief on his part that his sister was unable to contribute which he subsequently found out to be incorrect. In the absence of any evidence to the contrary, I am prepared to accept that explanation.

The contributions that may be taken into account

[20]   Ms Davidson submits that the legislation only entitles the Court to take into account certain categories of payments in determining a fair and reasonable price for the transfer of an interest in property.

[21]   In this regard, she refers to s 342(e) which sets out one of the considerations to which the Court is obliged to have regard before making an order:

… the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property …

[22]   Ms Davidson submits first that it is not enough for the plaintiff simply to demonstrate that he has made payments in respect of the upkeep of the property. He must establish, so she contends, the extent if any to which any payment is reflected in the value of the property.

[23]   Section 342(e) is not a model of clarity. It talks of the “value” of contributions made by co-owners to the “cost” of “improvements” or “maintenance”. The “value” of a “cost” is a difficult idea. However, in my view, the meaning of the provision is plainly that a party seeking to rely on it is entitled to have brought to account the amount of any qualifying contributions that he, she or it has made. The use of the term “value” instead of “amount” is misleading. Parliament may have adopted this term so as to include non-monetary contributions, such as labour, within the ambit of the section. But it does not mean that the Court must determine the extent to which any

1      Krukziener v Hanover Finance Ltd (2008) 19 PRNZ 162 at [26].

payment contributed to the value of the property. That, it appears to me, would involve the Court in an almost impossible task. I reject this argument.

[24]   The second point raised by Ms Davidson in relation to s 342(e) is whether payments by the plaintiff in respect of rates and insurance — which make up a significant proportion of the payments paid by him over the years — are payments that relate to improvements or maintenance. She submitted that rates and insurance are regular holding costs and not associated with improvement or maintenance.

[25]In reply Mr Bisley submitted:

(a)first, although one might not regard payments for rates or insurance as naturally relating to improvements or maintenance, it would be curious if the Legislature had not intended such payments to be included in the mix;

(b)second, he referred me to s 342(f), which requires the Court also to have regard to  “… any other matters the Court considers relevant”, and     s 343, which expressly entitles the Court to make ancillary orders including orders for the payment of compensation between co-owners.

[26]   I have reached the conclusion that regard can properly be had to rates and insurance payments when assessing a fair and reasonable price for sale and purchase under s 339(1)(c). In Lang v Moore Wallace J found it hard to see why a proper adjustment of accounts between co-owners should not include the payment of interest pursuant to a mortgage, insurance and rates which have effectively sustained the property.2 Such payments appear to me to fit within a broader sense of the word “maintenance”. Wallace J’s approach has recently been followed by this Court in Bunyan v Parish.3

[27]   In any case, the payment of rates and insurance could surely be considered under s 342(f) or ordered as compensation under s 343(a). As Muir J observed in

2      Lang v Moore (1989) 1 NZ ConvC 190,239 (HC).

3      Bunyan v Parish [2016] NZHC 2225, [2017] NZAR 931 at [38].

Bunyan v Parish the supervisory jurisdiction of the Court under sub-pt 5 of pt 6 of the Act is broadly similar to the principles of equity that predominate in the context of constructive trusts.4 It would be odd in those circumstance to ignore contributions made by one party because they do not clearly fit the wording of s 342, which, after all, is just one consideration drawn from a non-exhaustive list of relevant considerations.

[28]   On those bases, my conclusion is that the plaintiff is entitled to summary judgment.

[29]That leaves the issue of quantum.

[30]   The plaintiff’s financial contributions exceed half the value of the property. However, in Lang v Moore,5 Wallace J accepted that no allowance should be made for outgoings that are no more than a quid pro quo for the free use of a non-occupier’s share of the property. In this case neither party has ever occupied the property on a permanent basis. It has been treated as a family holiday home since Mrs Isobel Clarke died in 1997. The evidence is that the plaintiff visits the property once or twice a year for relatively lengthy period of time, whereas the defendant has only visited the property once since his mother died in 2016. Thus the plaintiff has enjoyed measurably more use of the property than the defendant over recent years.

[31]   In those circumstances, it is legitimate to make an allowance for the fact that the plaintiff has enjoyed greater benefits from his contributions to the property than the defendant. My assessment is that substantial justice will be done if the plaintiff’s disproportionate use of the property were to be allocated a value of $15,000.

[32]Against that background, I make the following orders:

(a)pursuant to s 339(1)(c) of the Property Law Act 2007 I order the plaintiff to purchase the defendant’s half interest in the property;

4 At [33].

5      n 2.

(b)I direct that the plaintiff pay the defendant $15,000 in consideration for the latter’s half interest;

(c)pursuant to s 343(c) I direct that if both parties engage their own solicitors in relation to the formalisation of the transaction each is to bear his own costs and if they elect to engage one firm of solicitors to act for them both then they are to bear the costs equally;

(d)As to the costs, I have not heard from counsel, and cannot determine them. If counsel cannot resolve costs, as I would expect them to be able to do, then they may file memoranda and I will deal with them on the papers.

Associate Judge Johnston

Solicitors:

Buddle Findlay, Wellington for the plaintiff V J Owen, Wellington for the defendant