Fraser v Butler
[2017] NZHC 120
•10 February 2017
IN THE HIGH COURT OF NEW ZEALAND GISBORNE REGISTRY
CIV-2014-416-23 [2017] NZHC 120
BETWEEN NEIL ANDREW FRASER
BY HIS LITIGATION GUARDIAN ROSS WILLIAM FRASER
Plaintiff
AND
MARILYN TERESA BUTLER Defendant
Hearing: 14 December 2016 (via AVL) Counsel:
M A Terekia for plaintiff
N Weatherhead for defendantJudgment:
10 February 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The defendant (Ms Butler) applies to strike out the claims made against her by Mr Fraser. Mr Fraser is incapacitated, and he sues by his litigation guardian, Mr Ross William Fraser, who was appointed by order made by the Court on
26 November 2015.
Background
[2] Mr Fraser’s claims are set out in an amended statement of claim dated
13 October 2016. Mr Fraser was originally the owner of a property comprising approximately 86 ha situated in Waimata Valley Road, Waimata Valley, Gisborne (the property). In August 1993 Mr Fraser transferred a half-share in the property to his wife, Katrina Fraser.
[3] Mrs Fraser died intestate in early 2005. Her estate was administered by the
Public Trust Office (the Public Trust).
FRASER v BUTLER [2017] NZHC 120 [10 February 2017]
[4] Mr Fraser was adjudicated bankrupt in or about late 2006 or early 2007, and his one-half share in the property vested in the Official Assignee. The Official Assignee obtained an order from the High Court that the property be sold to satisfy Mr Fraser’s debts, but arrangements were worked out between Mr Fraser and Ms Butler under which a sale by the Official Assignee was averted.
[5] First, the Public Trust indicated that, on payment of the sum of $60,711 which was required to cover the Public Trust’s obligations and costs associated with the administration of the late Mrs Fraser’s estate, the Public Trust would be prepared to transfer the late Mrs Fraser’s one-half share in the property to Mr Fraser. The second leg of the arrangement was an agreement by Ms Butler to pay both the
$60,711 sought by the Public Trust and the amount owing to Mr Fraser’s creditors in his bankruptcy. In exchange for the payments she would make, Ms Butler would be entitled to a 29 per cent interest in the property.
[6] On 1 June 2007 Mr Fraser and Ms Butler entered into a deed recording their arrangement. A copy of the deed was produced by consent at the hearing.
[7] The deed records the background as described above, including the particular amounts required to satisfy the Public Trust ($60,711) and the Official Assignee in respect of Mr Fraser’s creditors ($84,513.37). A mortgage to the ANZ Bank was registered on the title, and it would be necessary to repay that mortgage. The deed recorded that Mr Fraser was unable to raise any money to satisfy those liabilities, but that Ms Butler had obtained a loan offer from the Bank of New Zealand (the BNZ) for $190,000. Both parties understood, and the deed recorded, that it would be necessary to register a mortgage on the property to secure the new lending from the BNZ.
[8] The deed recorded Ms Butler’s willingness to borrow the funds required to complete the transaction “on the basis that she becomes the sole registered proprietor of the property but in doing so will recognise that [Mr Fraser] has an interest in the property and that interest should be satisfied by a partition of the land or a transfer in terms of this agreement to [Mr Fraser and Ms Butler] as tenants in common in the defined share”.
[9] The operative clauses in the deed provided that, on payment of the amount due to the Official Assignee, the Public Trust, and the ANZ Bank, and payment of outstanding rates by Ms Butler, Mr Fraser would transfer to Ms Butler an interest in the fee simple of the property. There was provision for rent payable by a tenant on the property to be payable to Ms Butler.
[10] Clauses 3 and 5 of the deed provided:
3.Ms Butler will make additional payments out of her own income to meet the payments due to the BNZ who shall have a registered first mortgage over the property. Having regard to the situation Mr Fraser has been in and the steps Ms Butler has taken to secure the property, Ms Butler declares and Mr Fraser agrees that the property shall be held by Ms Butler as to 29/100ths for herself and the remaining 71/100ths for Mr Fraser.
5.On the fifth anniversary of the date of this agreement Ms Butler shall either transfer a 71/100ths share in the property to Mr Fraser so that from that date she and Mr Fraser will hold the property as tenants in common, 29/100ths to herself and 71/100ths for Mr Fraser or they shall look at the feasibility of subdividing or partitioning the property to reflect the 29/100ths – 71/100ths ownership arrangement. Both Ms Butler and Mr Fraser will do all things that are necessary and sign all documents that are necessary to give full effect to the terms of his agreement.
[11] The property was transferred to Ms Butler on 15 October 2007, and she has since resided in the house on the property and had the benefit of sole occupation.
[12] It appears that differences arose between Mr Fraser and Ms Butler fairly early in the piece – Ms Butler served Mr Fraser with a trespass notice, forbidding him entry onto the property, on 1 July 2008, and in or about early November 2008
Ms Butler advertised the property for sale without any prior consultation with Mr Fraser. Mr Fraser responded by registering a caveat against the title to the property on 13 November 2008.
[13] It appears that nothing happened when the 1 June 2012 anniversary date referred to in cl 5 of the deed was reached: Ms Butler has taken no step to transfer the property into the names of the parties as tenants in common in equal shares, and no discussions have been held on the possibility of subdividing or partitioning the property.
[14] Mr Fraser says that, from about September 2013, he has made written requests to Ms Butler to perform the agreement, but she has failed to do so. He says that he has also asked Ms Butler to vacate the house but Ms Butler has refused.
The statements of claim and defence
[15] Mr Fraser commenced this proceeding in May 2014. In his statement of claim, he sought an order for specific performance of the deed by transfer to him of a
71/100ths share of the property, and/or an order directing Ms Butler to co-operate with him to subdivide or partition the property. He also applied for an order directing Ms Butler to vacate the house.
[16] In a statement of defence dated 25 July 2014 Ms Butler pleaded that she had never denied the terms of the deed dated 1 June 2007. She said that she had invited Mr Fraser to submit a proposal for subdivision or partition in October 2013, but Mr Fraser had never co-operated in looking into the feasibility of subdivision or partition. Ms Butler also pleaded that Mr Fraser’s ability to have his interest registered on the title to the property was affected by the existing mortgage to the BNZ, and a statutory land charge registered on the title (a situation of which Mr Fraser had been aware since June 2007). Ms Butler concluded by pleading that, as Mr Fraser’s beneficial ownership in the land was provided for in the deed of
1 July 2007, the orders sought by him in the proceeding were unnecessary.
[17] Mr Fraser filed an amended statement of claim on 30 June 2016. The amended statement of claim pleaded two separate causes of action based on the facts set out above. First, Mr Fraser pleaded that he and Ms Butler are co-owners of the property, and that he has been unable to use his share of the property, and has been denied his entitlement to it. He asked for relief under s 339 of the Property Law Act
2007 (the Act), including an order that Ms Butler pay fair compensation by way of occupation rent for the period between 1 June 2012 and the time of sale of the property, under s 343(f) of the Act.
[18] As a second cause of action, Mr Fraser pleaded breach of contract by Ms Butler in failing to transfer to him the 71/100ths share in the property referred to in the deed. Mr Fraser asked for an order for the sale of the property, under
s 339(1)(a) of the Act, and/or an order for specific performance of the deed by
Ms Butler.
Ms Butler’s strike-out application
[19] Ms Butler applied to strike out the claims on 23 August 2016. The principal contention in the strike-out application is that applications for relief under s 339 of the Act can only be made by a “co-owner”, and Mr Fraser does not qualify as a co- owner in terms of the relevant definitions in the Act. The strike-out application also pleads that the mortgage to the BNZ precludes Mr Fraser’s interest being registered on the title, and that the terms of the deed preclude Mr Fraser claiming an occupation rent from Ms Butler.
Mr Fraser’s second amended statement of claim
[20] Mr Fraser filed a second amended statement of claim dated 13 October 2016. The second amended statement of claim is in substantially similar form to the first amended statement of claim: the substantial amendment is that Mr Fraser added an alternative claim for damages for breach of contract, to cover the possibility that specific performance may not be available due to the mortgage over the property and having regard to s 203 of the Act (briefly, that section provides that a person who accepts a transfer of mortgaged land becomes personally liable to the mortgagee).
[21] The matter came before Associate Judge Sargisson at a case management conference convened on 20 October 2016. The Associate Judge directed that Mr Fraser file a notice of opposition to the strike-out application, and timetable orders were made for the filing of submissions. Her Honour directed that if Mr Fraser wished to rely on his second amended statement of claim for the purpose of opposing the strike-out application, he was to set out in his notice of opposition the respects in which the second amended statement of claim was said to respond to Ms Butler’s strike-out application. He was also directed to file a brief supporting memorandum.
Mr Fraser’s notice of opposition to the strike-out application
[22] Mr Fraser duly filed a notice of opposition, contending simply that his second amended statement of claim discloses a reasonable cause of action against Ms Butler that is appropriate to the nature of the pleading. In the alternative, he says that his second amended statement of claim is capable of further amendment, which he would be willing to make if necessary.
Principles applicable to strike-out applications made by defendants
[23] The applicable principles are now well settled. The leading authority is the Supreme Court decision of Couch v Attorney-General,1 in which the following principles were established:
(1)Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(2)The cause of action or defence must be clearly untenable. As Elias CJ and Anderson J noted, “it is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed”.2
(3) The jurisdiction is to be exercised sparingly, and only in clear cases.
This reflects the Court’s reluctance to terminate a claim or defence
short of trial.
(4)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.3
(5)The Court should be slow to strike out a claim in any developing area of the law, particularly where a duty of care is alleged in a new
1 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.
2 At [33] (footnotes omitted).
3 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 264 and Couch v Attorney- General, above n 1, at [33].
situation. Particular care is required in areas where the law is confused or developing.4
The issues to be decided
[24] The following issues fall to be decided:
(1)Is it reasonably arguable for Mr Fraser that he is a “co-owner” of the property, and on that basis entitled to apply to the Court for relief under s 339 of the Act?
(2) Is Mr Fraser’s claim for specific performance of the deed reasonably
arguable?
(3)Is Mr Fraser’s alternative (unquantified) claim for damages for breach of the deed reasonably arguable? In particular, what is the effect of the parties’ requirement to explore the possibilities of a subdivision or partition of the property (referred to in cl 5 of the deed) on Mr Fraser’s claim for damages?
[25] I will address each of those issues in turn.
Issue 1: Is it reasonably arguable for Mr Fraser that he is a “co-owner” of the property, and on that basis entitled to apply to the Court for relief under s 339 of the Act?
Relevant provisions of the Act
[26] Sections 339 to 343 of the Act provide:
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
4 Couch v Attorney-General, above n 1, at [33].
(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
(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.
340Order under section 339(1)(b) subject to restrictions on subdivision of land
(1) No order under section 339(1)(b) (and no related order under section 339(4)) may subdivide land contrary to section 11 or Part 10 of the Resource Management Act 1991.
(2) A court that concludes that an order under section 339(1)(b) (or a related order under section 339(4)) would contravene subsection (1) may make an order of that kind that does not contravene that subsection, or may instead make an order under section 339(1)(a) or (c) (and any related order under section 339(4)).
341 Application for order under section 339(1)
(1) An application for an order under section 339(1) (and for any related order under section 339(4)) may be made by all or any of the following people:
(a) a co-owner of any property:
(b) a mortgagee of any property of a co-owner or co-owners if, under the mortgage and sub-part 7 of Part 3, the mortgagee has become entitled to exercise a power of sale:
(c) a person with a charging order over any property of a co- owner or co-owners.
(2) Every person who is one of the following must, if not already a party to the proceeding on that application, be served with a copy of that application:
(a) a co-owner of the property:
(b) a person who has an estate or interest in the property that may be affected by the granting of the application:
(c) a person claiming to be a party to, or entitled to a benefit under, an instrument relating to the property.
(3) The court to which that application is made may, by order made on an application for the purpose, change, or dispense with service on, the people who must be served under subsection (2).
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.
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).
[27] It will be observed that, under s 341 of the Act, an application for relief can only be made under s 339(1) by particular persons. We are not here concerned with s 341(1)(b) or (c) (mortgagee or the holder of a charging order over the property), so Mr Fraser must qualify as a “co-owner” of the property if the Court is to have jurisdiction.
[28] The expression “co-owner” is defined in s 4 of the Act. Unless the context otherwise requires, “‘co-owner’ means a tenant in common or a joint tenant”.
[29] The expression “owner” is also defined in s 4 of the Act. Parts of the definition of “owner” are not relevant in this case. For present purposes, the following part of the definition is relevant:
4 Interpretation
In this Act, unless the context otherwise requires,—
...
owner,—
(a) in sub-parts 4 and 5 of Part 5 and in Part 6, in relation to land, means—
(i) the holder of an estate in fee simple or a life interest in the land; or
...
[30] Sections 339 to 343 of the Act are to be found in sub-part 5 of part 6 of the Act. Part 6 of the Act sets out the special powers of the Court in certain circumstances. Sub-part 1 is concerned with entry onto neighbouring land, sub- part 2 with wrongly placed structures on land, and sub-part 3 is concerned with landlocked land. Sub-part 4 is concerned with trees and unauthorised improvements on neighbouring land, and sub-part 6 is concerned with setting aside dispositions that prejudice creditors.
Submissions for Ms Butler
[31] Mr Weatherhead submits that to succeed with his claim under s 339 of the Act, Mr Fraser would have to qualify as an “owner”, as defined in s 4 of the Act. That means Mr Fraser would have to be registered on the title as the proprietor of an estate in fee simple, whether as a joint tenant or a tenant in common. As Mr Fraser is not a holder of an estate in fee simple as to any particular share, he cannot be a “co-owner” in terms of s 339. He therefore has no standing to apply to seek relief under that section.
[32] Mr Weatherhead acknowledges that the position may have been different under s 140 of the Property Law Act 1952, under which “any party interested” could apply for a partition and division of the relevant land. He refers to Hinde, McMorland & Sim, Land Law in New Zealand (First edition, Thomson Reuters, Wellington, 1997), paragraph 9.050, where the learned authors noted:
It is unclear whether the interest of the applicant must be in the legal estate or can be in the equitable estate. It appears that if the equitable interest is a present equitable interest, such as an interest pursuant to a contract and the doctrine of part performance or pursuant to an express or resulting trust it constitutes an interest for the purposes of s 140.
[33] Mr Weatherhead also refers to the Law Commission’s preliminary paper no.
16 — The Property Law Act 1952 – a discussion paper (July 1991).
The Commission dealt with the topic of the division or sale of co-owned property in paragraphs 167-173 of its preliminary paper. It noted: 5
It would be useful if both legal and equitable co-owners could use the section and if it were also to extend to the mortgagee of a co-owner.
[34] In its preliminary paper, the Law Commission posed a number of questions, including whether the court should be given more flexible powers to determine questions of partition or sale between co-owners,6 and whether the court’s power should extend to equitable owners and mortgagees.7
[35] The learned authors of the most recent edition of Land Law in New Zealand submit that the new provisions of the Act make much of the case law prior to 2007 obsolete.8 However they do express the view that the expression “co-owner” as used in the Act includes the co-owners of an equitable estate:9
The persons who may claim a partition include persons claiming under joint tenants or tenants in common by assignment or otherwise. An agreement to assign or demise creates a sufficient interest.
[36] Mr Weatherhead also referred to the recent decision of Thomas J in Read & Ors v Almond,10 a case in which Ms Almond was the sole registered proprietor of the relevant land and the plaintiffs sought orders declaring that she held shares in the land on trust for them. Thomas J considered that the definition of “co-owner” in s 4 of the Act extended to the plaintiffs as tenants in common, notwithstanding that they were not registered on the title to the relevant land as proprietors, and their interests were as beneficiaries under a constructive trust.11
[37] Mr Weatherhead submits that the views expressed by the authors of the most recent edition of Land Law in New Zealand, and by Thomas J in Read & Ors v
5 Law Commission The Property Law Act 1952 – A discussion paper (NZLC PP16, July 1991) at
[173].
6 Question 25.
7 Question 26. Counsel did not refer me to any relevant commentary in the final Law Commission
Report, select committee reports, or Hansard, that demonstrates further consideration of the questions posed.
8 Hinde, McMorland & Sim, Land Law in New Zealand (2nd ed, Thomson Reuters, Wellington
2009) at 13.020.
9 At para 13.021(a), citing Fleming v Hargraves [1976] 1NZLR123 at [127].
10 Read & Ors v Almond [2015] NZH 2797.
11 At [254].
Almond, are incorrect. In his submission, the Act was intended to reform the earlier law, and any interest that is less than a registered estate in fee simple (including an unregistered equitable interest) is insufficient for the holder of the interest to qualify as a co-owner. Mr Weatherhead submits that the court in Read & Ors v Almond did not have sufficient regard to the definition of “owner” in s 4 of the Act, as it applies in respect of part 6. On that account alone, Her Honour’s decision should not be followed.
[38] Mr Weatherhead highlights the fact that the question of whether the holder of an equitable interest should be entitled to access the s 339 regime was referred to by the Law Commission. He submits that the Commission’s recommendations in that respect were not taken up by the legislature when it enacted the Act. While one of the purposes of the Act was to re-state and codify certain aspects of property law, another purpose was to “reform” that law.12 While sub-part 5 of part 6 of the Act is in some measure a codification, it was also intended to reform the law by limiting those entitled to apply for division of land to only co-owners who hold an estate in
fee simple either as tenants in common or joint tenants. A beneficial interest under a trust is not sufficient.
[39] Finally, Mr Weatherhead submits that giving the expression “owner” the extended meaning for which Mr Fraser contends could have been done simply by adopting a definition similar to the definition of “owner” in the Property (Relationships) Act 1976, that is:13
“Owner, in respect of any property, means the person who, apart from this Act is the beneficial owner of the property under any enactment or rule of common law or equity.”
Submissions for Mr Fraser
[40] Mr Terekia relies on the decision of Thomas J in Read & Ors v Almond referred to above. He notes that in that case the shares were held by the defendant on a constructive trust for the plaintiffs, who were not registered on the title, but were nevertheless held to be “co-owners” for the purposes of s 339 of the Act.
[41] Mr Terekia also referred to the English case of Bull v Bull14 in support of the proposition that a tenancy in common is capable of existing in equity. He submits that New Zealand law provides for the co-existence of both legal tenancies in common and equitable tenancies in common, for example through the use of the remedial constructive trust (as in Read & Ors v Almond). He also relies on the commentary in both editions of Land Law in New Zealand, referred to above.
[42] As for the interpretation of the Act itself, Mr Terekia notes that the definitions of the expressions “owner” and “co-owner” do not reference each other. The definition of “owner” does specifically apply to part 6 of the Act, and the expression is used frequently in sub-parts 1-4 of part 6. But it is not used at all in sub-part 5, with which this case is concerned. If Parliament had intended “co-owner” to be defined as narrowly as Ms Butler contends, there would have been no purpose in using the expression “co-owner” in sub-part 5 — the word “owner” could have been used instead. Parliament’s decision that there would be no cross-referencing between the definitions of “owner” and “co-owner”, and that only the word “co- owner” would be used in sub-part 5, supports the view that Parliament intended a broader approach than that proposed by Ms Butler. People having solely equitable interests may qualify as “co-owners” for the purposes of ss 339 and 341.
[43] Mr Terekia also refers to the fact that sub-part 5 of part 6, unlike the earlier sub parts of part 6 of the Act, is not concerned solely with land. Sections 339 to 343 of the Act apply to any form of property. The use of the word “property” in s 339 and following makes it clear that the sections may apply to anything capable of being owned, whether that thing is tangible or intangible, and “property” includes
“any estate or interest in property”.15 Mr Terekia submits that a robust interpretation
of the Act requires a finding that Mr Fraser does have standing to bring an application under s 339.
Discussion and findings
[44] In my view Mr Fraser does qualify as a “co-owner” for the purposes of s 339.
[45] I note first that the definition of “co-owner” in s 4 is not expressly limited to
those who are co-owners of a legal estate, as opposed to an equitable estate.
[46] Secondly, the equivalent position under the corresponding section (s 140) of the Property Law Act 1952 does appear to have permitted a co-owner of an equitable estate in the relevant land to apply. Section 140 was very broadly worded: “any party interested” could apply for the partition and division of the land. I respectfully agree with the authors of the first edition of Hinde, McMorland & Sim, Land Law in New Zealand, that a present equitable interest in the land was sufficient for an
applicant to apply under the section.16
[47] The issue of whether equitable ownership interests should be included in the Act was squarely before the legislature in the form of the Law Commission’s preliminary paper, and of course that paper recommended that the court be given more flexible powers, which should extend to equitable owners and (in certain circumstances) mortgagees. In those circumstances, if the legislature had intended to exclude those holding only a present equitable ownership interest, I think the legislature would have done so by clear language. It did not, and I think the sensible inference is that the legislature did not intend any change to the 1952 Act on this particular point.
[48] Thirdly, I note that the s 339 regime is applicable to all kinds of property, not just land. For most types of property there will be no system of registered ownership, and in such cases it seems likely that “co-owner” was intended to have a broader application than merely those able to demonstrate that they hold formal legal title to the property in question. I note also that the expression “property” is defined in s 4 of the Act as follows:
property —
(a) means everything this is capable of being owned, whether it is real or personal property, and whether it is tangible or intangible property; and
(b) includes any estate or interest in property …
16 Hinde, McMorland & Sim, Land Law in New Zealand, at [32] of this judgment.
[49] The fact that “property” includes an “interest” is also consistent with the view that s 339 was intended to be available in respect of a very broad range of property interests.
[50] The expression “interest” is also used at s 342(a) of the Act, which requires the court to 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” (emphasis added). In my view, the broad meaning of “property” as defined in s 4 is consistent with the wider interpretation of “co-owner” in s 341(1)(a) for which Mr Terekia contends.
[51] Fourthly, I do not accept Mr Weatherhead’s submissions based on the proposition that a “co-owner” for the purposes of s 341 must also be an “owner” as defined in s 4 of the Act. While the word “owner” is used in a number of places in sub-parts 1-4 of pt 6 of the Act, it is not used at all in sub-part 5 of pt 6, being the sub-part with which I am presently concerned. Mr Weatherhead’s submission, if it were correct, would appear to have the consequence that someone holding only a life interest in the property (thus qualifying as an “owner” under the s 4 definition of that expression) would be entitled to access the s 339 regime, even in circumstances where the holder of the life interest would normally have no interest in asking the court to sell or partition the property. On the other hand one can readily understand that the holder of a life interest might have a real interest in such matters as entry onto neighbouring land, wrongly placed structures on land, landlocked land and trees and unauthorised improvements on neighbouring land — matters covered by sub- parts 1-4 of pt 6 of the Act. It is less clear that someone holding a life interest only would have any need for the court’s assistance in compelling the sale or subdivision of the land, or why such a person would have a greater entitlement to access the s 339 regime than, say, the holder of an equitable interest in the land who has the right to call for that equitable interest to be converted immediately into a legal interest.
[52] Fifthly, the broad purpose of the s 339 regime appears to have been to permit those who wish to realise their interest in a property, but who cannot readily do so because ownership is shared with others who do not agree to a sale, to seek the
assistance of the court in realising their interest. Thus, mortgagees who have become entitled to sell are entitled to apply under s 341(1)(b), while mortgagees who have not become entitled to exercise their power of sale have no such right. And holders of registered charging orders over an estate or interest in a property, who might be expected to have an immediate right to apply to the court for an order for the sale of that estate or interest, are also entitled to apply s 341(1)(c). If that is the broad purpose of the s 339 regime, there seems to be to be no good reason why persons with immediate equitable ownership interests in the relevant property would not also have been put within the group of those who are entitled to ask the court for its assistance in realising their individual ownership interest in the commonly held property. For that reason too, I consider that the holders of present equitable ownership interests in a property are within the definition of “co-owner” for the purposes of ss 339 and 341.
[53] I do not think the views set out above are affected by the provisions of the Act that require service of s 339 applications on particular parties. Section 341(2) contemplates a range of parties who are to be served with a copy of an application made under s 339. Not surprisingly, other co-owners must be served (s 341(2)(a)). Secondly, persons having an estate or interest in the property that may be affected by the granting of the application must be served (s 341(2)(b)), as must persons claiming to be a party to, or entitled to a benefit under, an instrument relating to the property (s 341(2)(c)). While a person claiming a current equitable interest in property as beneficiary under a trust instrument might well come within s 341(2)(c) of the Act, I do not think the fact that such a person is entitled to be served under s 341(2)(c) means that that person is not a “co-owner” of the property. There may be a range of holders of equitable interests under trust instruments whose interests are not such that they could be called “co-owners” (for example, where a trust instrument has conferred an equitable easement or similar interest in the relevant land). Similarly, a person who has an estate or interest in the property that may be affected by the granting of the application (s 341(2)(b)) would presumably include a range of people who are not co-owners of the property; for example, a mortgagee of the property that has not yet become entitled to exercise its power of sale. In short, the fact that a person may come within the specific categories of persons described at
s 341(2)(b) or s 341(2)(c) does not mean that that person does not also qualify as a
“co-owner” for the purposes of the s 339 regime.
[54] The authority referred to me since the enactment of the Act, Read & Ors v Almond,17 is consistent with the foregoing interpretation. While Thomas J did not appear to give significant attention to the issue, her Honour’s interpretation of the meaning of “co-owner” suggests that she did not consider the Act to have effected any relevant change to the position as it was understood in the 1952 legislation. The fact that the Judge’s conclusion related to beneficiaries under a constructive trust,
rather than to a beneficiary under an express trust such as Mr Fraser, does not affect the matter (equitable interests are created by both forms of trust (express and constructive)). The conclusion that I have come to is also consistent with the views expressed by the learned authors of Land Law in New Zealand.18
[55] It might be that Mr Fraser has other remedies available to him, for example under the Trustee Act, but I do not think the existence of any such other remedies (if they are available, a matter on which I express no view) could provide a basis for declining any relief under s 339 of the Act to which Mr Fraser would otherwise have been entitled.
[56] For the foregoing reasons I find for Mr Fraser on issue 1, and decline to strike out his claim under s 339 of the Act.
Issue 2: Is Mr Fraser’s claim for specific performance of the deed reasonably
arguable?
Submissions for Ms Butler
[57] Mr Weatherhead submits that the existence of the BNZ’s mortgage on the title, and Mr Fraser’s knowledge of it from the outset, preclude any claim for specific performance. That is because the BNZ cannot be compelled to give up its security or be forced to accept Mr Fraser as mortgagee. A transfer is impossible in those circumstances, and the claim for specific performance is accordingly untenable.
[58] Mr Weatherhead points to Mr Fraser’s acknowledgement in the deed that Ms Butler would be making payments out of her own income to meet the payments due to the BNZ. And clause 4 of the deed provided that:
Notwithstanding the terms in which the property is held, [Ms Butler] shall be entitled to all the income including rent received from the property.
[59] Even if a transfer to Mr Fraser were possible, s 203(1) of the Act provides that if a person accepts a transfer of mortgaged land the person “becomes personally liable to the mortgagee for payment of all amounts and the performance of all obligations secured by the mortgage and … performance of all other covenants express or implied in the mortgage”. Mr Weatherhead submits that personal liability of that sort is not appropriate in Mr Fraser’s a situation, where he is incapacitated and represented by a litigation guardian. Although Mr Fraser seeks to be put in the position of accepting a transfer subject to mortgage, he would face a situation detrimental to his own interests.
Submissions for Mr Fraser
[60] Mr Terekia acknowledges that an application for specific performance may face the difficulty that the BNZ was not a party to the deed, and cannot be compelled to consent to a transfer of the 71/100ths share of the property to Mr Fraser. However it has always been Mr Fraser’s view that Ms Butler is responsible for the mortgage debt, in accordance with the deed.
Discussion and conclusions on issue (2)
[61] The granting of specific performance is a matter within the discretion of the court.19 In the context of contracts for the sale of land, Richardson J stated in Foreman v Hazard:20
Land is always treated as being of unique value in respect of which the common law remedy of damages is inadequate, so that the remedy of specific performance is available to the plaintiff as a matter of course unless, following settled principles, the Court refuses the remedy.
[62] Mr Weatherhead has highlighted in his submissions that the BNZ cannot be compelled to consent to a transfer of the 71/100ths share of the property to Mr Fraser. This raises two separate issues:
(a) Is specific performance reasonably arguable if a third party’s interest
is involved?
(b) Is the BNZ’s consent to a transfer required?
[63] On the first point, The Law of Contract in New Zealand discusses at 21.4.2 the appropriateness of the remedy of specific performance.21 In Butler v Countrywide Finance Ltd22 Hammond J considered that what is required of a court is a context-specific evaluation of which remedy is most appropriate in the circumstances of a given case. In relation to the effect of a given remedy on a third party (or on the public), the judge said:
The older notion that a private lawsuit is entirely one between a plaintiff and a defendant is increasingly becoming outmoded.
[64] The authors of The Law of Contract in New Zealand also say:23
… the primary function of contract is to fulfil the parties’ expectations. Any bias in favour of damages is founded simply on matters of history and the relationship between common law and equity and nowadays is not easy to justify.
[65] In my view Mr Weatherhead’s reference to the need for consent from the BNZ to the transfer of Mr Fraser’s 71/100th share, and the effect of s 203 of the Act, do not provide a knock-out blow for Ms Butler.
[66] First, Mr Weatherhead says transfer is an “impossibility”, but the deed expressly makes provision for a transfer. The deed states in clause 3 that “[Ms Butler] will make additional payments out of her own income to meet the payments due to the BNZ”. It is in that context Ms Butler and Mr Fraser agreed that
the property would be held by Ms Butler as to 29/100ths for Ms Butler and the
21 Burrows, Finn and Todd Law of Contract in New Zealand (5th ed, Lexis Nexis, Wellington,
2016) at 876.
22 Butler v Countrywide Finance Ltd [1993] 3 NZLR 623 (CA).
remaining 71/100ths for Mr Fraser. On the face of it, any payments to the BNZ which might be required as a result of Ms Butler complying with her obligations under the deed would be her responsibility.
[67] Secondly, I note that there is nothing before the court at this stage to show that the BNZ’s consent to a transfer of a 71/100ths share to Mr Fraser (assuming such consent would be necessary) will not be obtained. As far as the BNZ is concerned, it may be that it will be content with Ms Butler’s covenant to accept responsibility for the full amount advanced, coupled with its first mortgage security over the property. Subject to what is said in the next paragraph of this judgment, the effect of s 203 of the Act would appear to be no more than to give the BNZ an additional covenantor, in the form of Mr Fraser.
[68] Thirdly, I note that the s 203(1) requirement that a person who accepts the transfer of land subject to a mortgage becomes personally liable to the mortgagee, is expressly subject to anything to the contrary expressed or implied in the mortgage or any other instrument (s 203(3) of the Act). It may be arguable for Mr Fraser that the deed qualifies as another “instrument”, and that the provision for Ms Butler to make payments to the BNZ is a provision “to the contrary” for the purposes of s 203(1).
[69] Whether or not Mr Fraser sufficiently complied with any obligation he may have owed Ms Butler under the deed to “look at the feasibility of subdividing or partitioning the property” is a matter on which the parties disagree. Mr Fraser says in his second amended statement of claim that from September 2013 he requested that Ms Butler perform her obligations under the deed, but she failed to do so. On a strike-out application I am required to assume that that contention will be capable of proof at trial.
[70] The matters to which I have referred require determinations on disputed questions of fact, and as such they are unsuitable for determination on a strike-out application. It is enough to find, as I do, that Ms Butler has failed to show that Mr Fraser’s claim for specific performance is clearly untenable. I accordingly find for Mr Fraser on issue (2), and decline to strike-out the claim for specific performance.
Issue 3: Is Mr Fraser’s alternative (unquantified) claim for damages for breach of the deed reasonably arguable? In particular, what is the effect of the parties’ requirement to explore the possibilities of a subdivision of partition of the property (referred to in cl 5 of the deed), on Mr Fraser’s claim for damages?
[71] Mr Fraser’s unquantified claim for damages rests on the interpretation of cl 5
of the deed.
Submissions for Ms Butler
[72] Mr Weatherhead notes that the second amended statement of claim includes in the prayer for relief a claim for “damages” for breach of contract. The breach alleged is that the defendant failed to take steps to perform clause 5 of the agreement by transferring a 71/100th share of the property to the plaintiff.
[73] Mr Weatherhead refers to the provision in clause 5 of the deed that, as an alternative to a transfer of the shares, the parties “shall look at the feasibility of subdividing or partitioning the property to reflect the 29/100ths-71/100ths ownership arrangement”. He submits that it is only after exhausting all feasible options (including looking at the feasibility of subdividing or partitioning) that Mr Fraser could have any claim for damages.
[74] Mr Weatherhead submits there can be no breach giving rise to a liability for damages, as Mr Fraser has failed to negotiate with Ms Butler in respect of the feasibility of subdividing or partitioning, such as through the preparation of a scheme plan, obtaining valuations of the respective interests, and discussing the matter with the BNZ. He submits that particulars are required showing how Mr Fraser has met his part of the mutual obligation to look at the feasibility of subdividing or partitioning.
[75] Mr Weatherhead also submits that damages need to be quantified in order to be reasonably arguable. The statement of claim does not specify any loss or detriment suffered by Mr Fraser.
Submissions for Mr Fraser
[76] Mr Terekia acknowledged in his oral submissions that a requirement for the parties to negotiate on partition or subdivision might raise some difficulty for Mr Fraser. Nevertheless, damages have been sought in the alternative in respect of the alleged failure of Ms Butler to comply with cl 5 of the deed, and quantification of loss can be dealt with at trial.
Discussions and conclusions on issue 3
[77] Both parties say they have complied with their obligations under the deed to the best of their ability. In his second amended statement of claim Mr Fraser says that from September 2013 he made written requests to Ms Butler to perform her obligations, but she has failed to do so. Ms Butler says that she never denied the terms of the deed, and that she invited Mr Fraser to submit a proposal for subdivision or partition in October 2013. She says it was Mr Fraser who did not co-operate in looking into the feasibility of subdivision or partition.
[78] Those are matters which involve disputed questions of fact, and they are clearly not appropriate for resolution on a strike-out application. For the purposes of this application I am required to proceed on the basis that what Mr Fraser has said in his second amended statement of claim will be capable of proof at trial.
[79] There may be a question whether the obligation to “look at the feasibility of subdividing or partitioning the property” under cl 5 is certain enough to be enforceable. Normally, any “agreement to agree” would require machinery to resolve undecided issues, in order be enforceable. The learned authors of Law of Contract in New Zealand say:24
The position is different if the parties have intended to create a contractual arrangement, albeit with some matter reserved for future agreement, if the parties have also expressly or impliedly shown a willingness that the matter be resolved by some third party or by a court, if the parties themselves fail to agree in the future.25 In such cases the courts will … seek to find some procedure which will allow the matter to be determined.
24 Law of Contract in New Zealand, above n 21, at 89.
25 Citing Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] NZLR 433 (CA) at 446; Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3
[80] The deed does not include a mechanism to give effect to the “subdivision or partition” provision if the parties do not find a feasible way forward.
[81] However I am only concerned here with whether Mr Fraser has an arguable claim for damages on the (admitted) basis that Ms Butler has failed to transfer the
71/100th share to him, and the (presumed) basis that she has failed or refused to
perform her obligations under the deed (including any obligation to investigate the subdivision or partition option).
[82] Even if the mutual obligation to “look at the feasibility of subdividing or partitioning” were void for uncertainty, I do not think it can be said with any certainty that the consequence of such a finding would not be that Ms Butler was left with the simple obligation to transfer the 71/100ths share to Mr Fraser. If that was her obligation there is nothing in the deed which made the obligation conditional on her obtaining the consent of the BNZ to the transfer, and there is no pleading by Ms Butler that a refusal by the BNZ to consent to the transfer has resulted in the contract being frustrated within the meaning of the Frustrated Contracts Act 1944.
[83] In those circumstances I do not see Mr Fraser’s claim for damages as being beyond reasonable argument. I accordingly decline to strike out that part of his claim.
[84] However I do not think it reasonable that quantification of the claimed losses can be left to be dealt with at trial. There will be an order directing Mr Fraser to provide further particulars of the nature and amount of losses alleged to have been caused by Ms Butler for which damages are claimed, within 45 working days of the date of this judgment.
[85] I do not presently see a basis for any particulars order against Mr Fraser directing him to particularise how he has met his part of the mutual obligation to look at the feasibility of subdividing or partitioning. Mr Fraser’s case is plain from
his second amended statement of claim: he is contending that in or about
NZLR 486 (CA) at 495; Schulz v McArthur Ridge Investments Ltd [2015] NZCA 298 at [46]- [47].
September 2013, and on other occasions since then, he has requested in writing that Ms Butler perform her obligations under the deed, but she has failed or omitted to do so. There may or may not be an issue as to whether Mr Fraser has provided sufficient particulars of how Ms Butler has allegedly “failed or omitted to perform the Agreement”, but I do not presently have before me any application for those particulars.
Result
[86] The application to strike out Mr Fraser’s claims is dismissed.
[87] Mr Fraser is directed to provide further particulars of his claim for damages, including the nature and amounts of the losses allegedly suffered, within 45 working days of the date of this judgment.
[88] As Mr Fraser has substantially succeeded in his opposition, he is entitled to costs. I award costs in his favour on the strike-out application on a 2B basis, reduced by 10 per cent to reflect Ms Butler’s partial success in obtaining an order for particulars of Mr Fraser’s damages claim. In addition, Mr Fraser is entitled to the full amount of any disbursements he may have incurred on the application, as fixed
by the registrar.
Solicitors:
Woodward Chrisp, Gisborne for Plaintiff
Wilson Barber & Co, Gisborne for Defendant
Associate Judge Smith
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