Cook v DB and JH Cook Partnership
[2024] NZHC 855
•19 April 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-421
[2024] NZHC 855
BETWEEN DAVID BRYAN COOK
Plaintiff
AND
DB AND JH COOK PARTNERSHIP
First Respondent
AND
JUDITH HUNTER COOK
Second Respondent
Hearing: 8 April 2024 Appearances:
M D W King and D K Kemp for the Plaintiff
C A Gibson and N R Fanning for the Respondents
Judgment:
19 April 2024
INTERIM JUDGMENT OF HARLAND J
Introduction
[1] After 42 years of marriage, Mr and Mrs Cook separated in May 2022. Relationship property proceedings have been issued in the Family Court. One of the issues to be decided will be whether a farm property at Staveley, owned by the DB and JH Cook Partnership (now dissolved), can be purchased by Mrs Cook or will need to be sold. Mrs Cook wishes to maintain the option to purchase the farm so that she and the parties’ son can continue to farm it. Mr Cook contends that they will be unable to raise the funds necessary to do so.
[2] In this case, the parties are deadlocked about how the most significant partnership asset (the farm) should be managed pending sale and how their relationship property proceedings should be resolved.
COOK v COOK [2024] NZHC 855 [19 April 2024]
[3] Mr Cook has now applied to this Court for an order appointing an independent accountant as the receiver and manager of the partnership assets. He seeks an order directing that the receiver and manager sell the partnership assets and wind up the partnership. This application is made under s 76 of the Partnership Law Act 2019.
[4] The application is opposed by Mrs Cook. She submits that such an order is not necessary and would be costly but, more importantly, she submits it would prejudice her ability to retain the farm and would defeat the ability of the Family Court to effect a just division of the parties’ relationship property. However, just before the hearing before me, she proposed the following via her counsel:
1. The present proceedings be adjourned, and the parties attend mediation in good faith on or before 1 July 2024;
2. If no agreement is reached by 2 July 2024, then the Staveley farm be listed for sale. To facilitate the Staveley farm being sold for the best possible price it would be listed by 1 August 2024, or later by agreement, to ensure that it is listed during the Spring and Summer months; and
3. The above agreement would be conditional on Ms Cook receiving
$3,000,000.00 in an interim distribution to enable her to purchase a new home while the remainder of the PRA 1976 proceedings are finalised.
[5]Mr Cook did not respond to this proposal.
[6] I must consider whether the appointment of a receiver and manager is necessary pending the resolution of the parties’ relationship property proceedings.
[7] I have decided to grant the application in part. This judgment sets out my reasons for doing so.
Background
[8] It is not necessary for the purposes of this application to fully traverse the history of the parties’ relationship and the reasons for it ending. The summary provided is therefore deliberately brief.
[9] During the parties’ marriage, they executed a partnership agreement dated 21 March 2008 and formed the DB & JH Cook Partnership (the partnership). The
partnership’s main asset is a 262 ha farm property at Staveley which is divided into two titles. Since 2007, the farm has primarily operated as a deer farm.
[10] The Staveley farm has recently been valued. It has a market value of […]. The farm is not subject to any mortgage. The valuation undertaken of the farm describes the two titles as comprising distinct blocks. The “home block”, purchased by the parties in 2002, comprises 216.1671 ha. The remaining block, purchased by the parties in 2004, comprises 46.5148 ha and is referred to as the “camp block”. For completeness, I mention that two small parts of the farm were sold in 2005 and 2007.
[11] In 2007, the parties entered into a property relationship agreement. The details of this are not directly relevant to this application, however, Mrs Cook’s ability to purchase the farm from Mr Cook is likely to depend on the outcome of her challenge to it given that, if she is successful in her challenge, the amount payable to Mr Cook will reduce. In other words, if she is successful, this will make it more likely she will be able to purchase all or part of the farm from Mr Cook.
[12] The parties have two adult children. Their son, via BB Cook Ltd (BBCL), has “leased” the farm from the partnership since 2012. At that time, no deed of lease was entered into but, nonetheless, an agreement was made about the payments that BBCL was required to make to the partnership. These payments included rental and outgoings, the latter of which included payment of the rates. Mr Cook was appointed as a director of BBCL together with his son.
[13] At the same time the land was leased to BBCL, it purchased the partnership’s stock and plant for $680,000. This was financed by way of a $380,000 loan from Rabobank. Rabobank also provided a $20,000 working capital facility. The partnership provided vendor finance of $300,000 which was provided as an on- demand loan but was interest free. The loan to the partnership remains outstanding.
[14] In its second year of farming, BBCL borrowed a further $109,000 from Rabobank to purchase additional trading stock. This was a short-term loan, to be paid back by the end of November 2013. However, because further feed was required to
be purchased for the stock, the lending from Rabobank to BBCL was extended to
$550,000.
[15] BBCL also purchased additional machinery, built a new four-bay shed and installed a new water scheme on the farm. This involved BBCL extending its lending further. Mr Cook says he was required to borrow to pay for the water scheme, which he considered to be an unnecessary improvement.
[16] In June 2019, a formal deed of lease was entered into between the partnership and BBCL. Mr Cook contends that the rental paid under the lease is at least half of that which could be claimed by the partnership on the open market.
[17] In September 2019, Mr Cook resigned as a director of BBCL because he was concerned about the level of debt that was being incurred, and his relationship with his son was becoming strained. They disagreed about farming management practices and how the farm should be developed. Mr Cook contends that BBCL’s bankers were also concerned about the level of BBCL’s debt.
[18] BBCL’s bank required its loan to be repaid, following which BBCL sold its capital stock and now runs a grazing operation on the farm. According to Mr Cook, BBCL still owes its bankers about $150,000 and, although it is currently paying rental to the partnership, it has not cleared the rent and outgoings arrears owing to the partnership, in respect of which Mr Cook claims that about $70,000 is his share of that debt. As Mr Cook is retired, the income from the lease payments supplements his government superannuation. There is also the loan that will have to be repaid to the partnership at some point.
[19] Mrs Cook accepts that BBCL has faced pressure from its bankers and interest rates have risen. But, as well, she highlighted that COVID-19 intervened. She submits that this is why the lease payment arrears occurred.
[20] Sadly, it appears that Mr and Mrs Cook separated because of Mr Cook’s perception that Mrs Cook was siding with their son and Mrs Cook’s perception that
Mr Cook was unfairly criticising their son’s farm management practices and was not prepared to continue to support him financially.
Legal principles
[21]Upon the dissolution of the partnership:
(a) every partner is entitled as against the other partners to have the partnership property applied in payment of the debts and liabilities and the remaining surplus assets applied in payment as due to each partner;1 and
(b) in general, the Court will order a sale of partnership assets on dissolution, unless there is an agreement to the contrary.2
[22] I agree with Mr King, counsel for the applicant, that the starting point in this case is that Mr Cook is entitled at law to have the partnership assets sold and the partnership wound up.
[23] The Partnership Law Act 2019 (PLA) does not, itself, specifically and expressly provide for the appointment of receivers in the context of partnership matters, nor does it state what circumstances warrant the appointment of a receiver. As outlined in The Laws of New Zealand:3
… There is no general statutory power expressly vested in the High Court to appoint a receiver when it appears just and convenient to make such an appointment. The High Court however has inherent jurisdiction to appoint a receiver. There are procedural rules which apply when the High Court has appointed a receiver.
…
The court also has jurisdiction to appoint a manager. The function of a manager is to carry on the partnership business under the direction of the court; a receiver does not have this power unless also appointed manager.
[24] After dissolution of a partnership, as has occurred here, the partners in it have limited rights. As outlined in Bignell v Hayes, the partners can only carry on the
1 Partnership Law Act 2019, s 76(1).
2 P R H Webb & R P Smellie (eds) The Laws of New Zealand- Partnership and Joint Ventures
(LexisNexis, online ed) at [198].
3 At [152].
partnership’s business for the purpose of winding up the affairs of the partnership.4 Where a partnership has been dissolved, the appointment of a receiver is prima facie a matter of course.5
[25] The complicating factor in this case is that the partnership assets comprise the majority of Mr and Mrs Cook’s relationship property assets in respect of which there are proceedings issued in the Family Court about their division. Importantly, the Property (Relationships) Act 1976 (PRA) establishes the Family Court’s jurisdiction to hear matters relating to the classification and division of relationship property,6 although proceedings can be transferred to the High Court in certain cases.7
[26] The PRA is a code8 and all other enactments are required to be read subject to it unless they expressly provide otherwise.9 Neither the PRA nor the Receiverships Act 1993 expressly require that the PRA be read subject to either Act. The PRA requires that any question of relationship property arising from proceedings under any other enactment must be determined as if that question arose under the PRA.10
[27] The Family Court does not have inherent jurisdiction to appoint a receiver, nor does it have the power to supervise receivers under s 34 of the Receiverships Act.11 The Family Court has not determined what comprises the parties’ relationship property, neither has it made any order for its sale so as to be able to exercise its ancillary powers under s 33(5) to:
… appoint a person to sell the property and divide, apply, or settle the proceeds accordingly; and the execution of any instrument by the person so appointed shall have the same force and validity as if it had been executed by the person in whom the property is vested.
[28] Absent agreement, the intervention of the High Court is likely to be necessary if the partnership’s affairs are required to be wound up.
4 Bignell v Hayes HC Rotorua CIV-2010-463-838, 6 May 2011, at [24].
5 Moses v Stark [2023] NZHC 1955 at [33], citing P R H Webb & R P Smellie, above n 2, at [153];
Sobll v Boston [1975] 1 WLR 1587 at 1590, [1975] 2 All ER 282 at [286].
6 Property (Relationships) Act 1976, s 1C.
7 Section 38A.
8 Section 4.
9 Section 4A.
10 Section 4(4).
11 Bignell v Hayes, above n 4, at [25].
[29] In Mikkelsen v P & D Mikkelsen Partnership, the High Court held it had jurisdiction to appoint a receiver to wind up a partnership while there were concurrent PRA proceedings before the Family Court.12 In that case, the partners had agreed to sell the partnership assets, but they disagreed about how these assets would be sold.13 The plaintiff therefore sought an order that a receiver be appointed with powers to sell the partnership property and to make advances and payment of capital to the parties. The Court appointed a receiver but restricted the powers of the receiver. The Court was clear that, if questions of relationship property were to arise, they had to be resolved in accordance with the PRA.14
[30] In its consideration, the Court in Mikkelsen referred to Kake v Napier15 and Lung v Liu,16 which concluded that a contractual dispute and an application under the Property Law Act 2007 respectively were separate matters over which the High Court had clear jurisdiction in the PRA context. In Mikkelsen, the Court further noted that an application to appoint a receiver was substantively an application under the PLA and not possible under the PRA.17
[31] Though not considered explicitly in the judgment, Mikkelsen effectively follows Clifford J’s decision in Trotter v Trotter, where the Judge approved of the Family Court Judge’s statement that, because the PRA is a code, it was unhelpful “to apply the mischief of the Partnership Act…” when the Act and cases decided under it “set out a number of very specific principles to be applied when dividing relationship property”.18
[32] In Trotter v Trotter, the Judge referred to Coles v Coles, where Bisson J awarded a $6,000 share of partnership profits pursuant to the PRA, not pursuant to s 45(1) of the Partnership Act 1908, finding that the Partnership Act “must be read
12 Mikkelsen v P & D Mikkelsen Partnership [2023] NZHC 1006.
13 At [11].
14 At [43].
15 Kake v Napier [2022] NZHC 2395.
16 Lung v Liu [2022] NZHC 3074.
17 Mikkelsen, above n 12, at [42].
18 Trotter v Trotter CIV-2007-454-000334, 6 November 2007 at [48].
subject to” the PRA.19 Referring to s 4A of the PRA, Clifford J found that to remain so.20
Is the appointment of a receiver necessary?
[33]Mr Cook’s concerns are as follows:
(a) BBCL is not properly maintaining the farm, which is eroding its value;
(b) the delay in selling the farm will prejudice the parties because the property market is softening and bank/lending interest rates are rising; and
(c) BBCL has been in breach of its obligations to pay rent and/or outgoings and is unlikely to meet future payments owed to the partnership.
[34] Mrs Cook submits that Mr Cook’s concerns are unfounded but, in any event, given her suggested timeframe for resolution, a receiver is not necessary and would be an unwarranted expense.
[35] I outline the basis for each of Mr Cook’s concerns and determine whether they are concerns that justify the appointment of a receiver and manager.
Maintenance issues
Weed control
[36] Mr Cook contends that BBCL has not prioritised weed control in recent times and has allowed ragwort and gorse to increase in area and density on the farm. He provided photographs showing ragwort and gorse in areas which he says were previously productive pasture. He deposed that the failure of BBCL to keep on top of the ragwort and gorse was compounded by the parties’ son undertaking far more re- grassing via ploughing rather than direct drilling, with the ploughing method leading to greater spread of weed seed.
19 Coles v Coles HC M.60/81, 21 October 1985 at 24.
20 Trotter v Trotter, above n 18, at [50].
[37] Mrs Cook does not accept these criticisms and refers to the valuation undertaken by the registered valuer, Paul Cunneen:
Moderate infestations of ragwort are evident on the hill area. It is a weed that, if left unchecked, can be difficult to control and typically it requires hand spraying or pulling to be really effective… This is currently not at a level where it is a major problem but is nearing a level where, if left to seed, will become so relatively quickly. Ragwort control is important as plants produce massive numbers of viable long-lived widely disbursed seeds that can quickly colonise the best spots within a paddock. It tolerates a broad range of temperatures and soil moisture conditions.
…
Although no soil tests were available, paddock applications of fertiliser and lime were provided plus visual inspection, suggests pastures are well maintained. There are some minor weed infestations but ragwort on the hill needs attention as it is a prolific seeder and can rapidly spread.
[38] I conclude that Mr Cunneen’s report largely confirms that Mr Cook’s concern about maintenance, particularly in relation to ragwort, is well-founded. Mr Cook appears to have over-estimated the extent to which this will devalue the farm (claiming that it would devalue it in the tens if not hundreds of thousands of dollars), but it is nonetheless a matter that is legitimate for him to raise, and it is a matter which clearly requires close management.
[39] I note that Mr Cunneen’s inspection occurred on 6 December 2023 and, despite Mrs Cook’s more recent affidavit of 13 March 2024 in which she deposes that the parties’ son continues to follow good farming practices (including weed control), there is an absence of detail about exactly what is being undertaken by BBCL in this regard. The difficulty with this and other matters of concern to Mr Cook is that he has no access to the farm and is unable to independently verify that the practices being undertaken are appropriate.
Track maintenance
[40] Mr Cook outlined his concern that “various tracks around [the farm] have become rutted out with significant potholes in them”.
[41] There is no suggestion that this has devalued the farm and Mrs Cook refers to Mr Cunneen’s valuation which records that “some of the lanes need potholing in part”.
Mrs Cook’s evidence is that these issues refer to the lanes around the home block and BBCL is attending to this with shingle filing, grading and compaction. She considers this to be a minor issue overall, given the number of tracks on the property.
[42] Again, Mr Cook has not had the benefit of independently verifying what has been done but his concerns are, at least in part, validated by the valuation report.
Drainage
[43] Mr Cook is concerned that previously productive pasture is reverting to reeds and water-filled ponds/drains. He provides a selection of photographs showing what are described as “water-filled gullies/ponds with reeds”. Mr Cook contends this has been caused by BBCL’s failure to mole plough 5-6 wet paddocks/areas on the farm which he said is something that needs to be attended to every eight years or so.
[44] Mr Cunneen records that, at “the base of the rolling downs [there] are small wet areas of rushes which have been mole ploughed to improve drainage over the years. Ongoing maintenance is required to avoid reversion.”.
[45] Again, the reference in the farm valuation supports, to some extent, Mr Cook’s concern but, again, there is no independent evidence filed on behalf of BBCL or Mrs Cook to explain the farm management practices that are being implemented and/or monitored, apart from Mrs Cook’s reference to BBCL grazing one area recently, which is said to reduce the rushes and improve drainage.
Fencing maintenance
[46] Mr Cook referred to various broken fence posts and provided a selection of photographs to his evidence to support this contention.
[47] Mrs Cook referred to the farm valuation which notes that the fencing is of “very good standard”. In her evidence, she outlines that BBCL continues to maintain the fencing.
[48]Mr Cook’s concern is not echoed by the independent valuation report.
Conclusion
[49] I am satisfied that the matters raised by Mr Cook concerning farm management and good farming practices have been confirmed, to some extent, by the independent valuation evidence. Apart from in relation to fencing, it does not appear that they are directly linked to the value which the farm will realise if sold, although it is impossible to be entirely accurate about this without independent evidence about the farm management practices that are currently being employed. It is reasonable for Mr Cook, as an equal partner, to be informed about what is being done to preserve the value of the farm.
[50] Given the complete breakdown in the parties’ relationship and the obvious difficulties between the parties’ son and Mr Cook, it makes sense for the current management of the farm to be independently overseen. This conclusion tends to support the appointment of a receiver and manager for this purpose.
BBCL breach of obligations
[51] Mr Cook contends that his son owes the partnership at least the amount outlined above. Mrs Cook does not dispute that this outstanding debt must be dealt with in the final accounting between the parties that will be necessary.
[52] Currently, the rental and outgoings are being paid by BBCL, but Mr Cook considers this is only because he has filed these proceedings. Whether or not this is the case, the fact is that the debt to the partnership appears to now be more under control and not increasing. This aspect of BBCL’s performance and its impact on the income available to the partnership is of less concern. However, ongoing oversight of it is, in my view, required.
Conclusion
[53] Given the complete lack of communication between Mrs Cook, Mr Cook and their son, I have reached the view that the appointment of a receiver and manager is necessary in the meantime to preserve the partnership assets and to oversee matters relating to them, including monitoring the income derived from them. I note that the
lease with BBCL records a termination date of 31 May 2022 but there is one further right of renewal for three years from 1 April 2022, with a final expiry date of 31 May 2025. How that impacts on the partnership is a matter that will be necessary for the receiver and manager to consider.
[54] I am not however persuaded that it is necessary or appropriate for a receiver and manager to be authorised to sell the partnership assets and wind up the partnership at this point. I have reached this decision because the PRA proceedings have yet to be determined and the ability of Mrs Cook to purchase Mr Cook’s share in the partnership may be a possibility, especially given the fact that the property is in two titles. Even though Mr Cook submits that this is not a realistic possibility, I am unable to agree with him on the information before me.
[55] Having said that, I am satisfied that the evidence establishes that Mrs Cook has not, to date, prioritised the arrangements she will need to make to enable her to purchase the property by actively seeking out financing options. Although I accept that a final figure was not able to be obtained until the valuation was received, there was nothing to stop Mrs Cook obtaining her own valuation earlier or commencing discussions with any bank to be conducted on the basis of the rating valuation of the farm property.
[56] The parties have agreed to transfer the PRA proceedings from the Family Court to the High Court. I was advised that an application for transfer had previously been filed in the Family Court by Mrs Cook but was, until this hearing, opposed by Mr Cook. He no longer opposes the application and both parties agree that convening a settlement conference in the High Court would be beneficial in the hope that this process will resolve all matters. I am prepared to arrange this if the parties can attend to the mechanics of the transfer from the Family Court.
[57] Mrs Cook has provided a reasonable alternative solution to the sale of the farm by a receiver. Her suggestion is outlined above at [4], but I am not persuaded that it is appropriate for these proceedings to be adjourned until 1 July 2024. Neither am I persuaded that mediation is a workable way of resolving the impasse that has been
reached between these parties. A settlement conference is more likely, in my view, to reach a conclusive outcome.
[58] Mrs Cook was prepared to agree to the farm being listed for sale after 2 July 2024, but she accepts that, to achieve the best possible price, it should be listed by 1 August 2024 or later by agreement. I am persuaded that Mrs Cook’s suggestion about the farm being placed on the market and her timeframe for that to occur is a reasonable one.
Result
[59] The application by Mr Cook to appoint a receiver is granted in part. To be clear, I intend to make the order sought in para 1(a) of the notice of originating application. Andrew Oorschot will be appointed as the receiver and manager of the partnership. I will not be authorising Mr Oorschot, at this stage, to sell the partnership assets and wind up the partnership or terminate any lease with BBCL. I will authorise those matters occurring after 2 July 2024, should that be necessary.
[60] A settlement conference can be convened on either 4 or 10 June 2024 should the property relationship proceedings be transferred to the High Court well before then. Should the settlement conference not resolve issues to do with the sale of the partnership assets, counsel are to file a joint memorandum, or separate memoranda if that is not possible, outlining the further steps necessary to resolve any order for sale. A judicial telephone conference will be convened before me thereafter, no later than two weeks before 2 July 2024.
[61] The orders should specify what the receiver and manager is authorised to do pending 2 July 2024. Some of the cases provided to the Court by counsel include the kinds of orders that may be appropriate. The provisions of the Receivership Act 1993 are also relevant. I direct that counsel file a joint memorandum if possible and if not separate memoranda outlining the orders that should attach to the appointment of the receiver and manager. Such a memorandum or memoranda are to be filed no later than 5.00 pm on 26 April 2024. I will deal with the further orders on the papers.
Costs
[62] I reserve the question of costs. It may be that costs can be resolved at the judicial settlement conference. If no agreement is reached, Mr Cook is to file a memorandum as to costs within 14 days of the judicial settlement conference. Any response by Mrs Cook is to be filed within a further 14 days. Each memorandum is to be no longer than five pages. I will thereafter deal with costs on the papers.
[63] If the judicial settlement conference does not proceed, I will convene a case management conference to discuss further progress.
Harland J
Solicitors:
Lane Neave, Christchurch
Cunningham Taylor, Christchurch.
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