Groom v Bartulovic
[2021] NZHC 2341
•8 September 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-117
[2021] NZHC 2341
BETWEEN PAUL MATE GROOM
Plaintiff
AND
DENNIS JOHN BARTULOVIC
Defendant
Hearing: 4 August 2021 Appearances:
Wendy Andrews for the Plaintiff Sheila McCabe for the Defendant
Judgment:
8 September 2021
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 8 September 2021 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Solicitors:
Vodanovich Law (Ivan Vodanovich) Auckland, for the Plaintiff Burton Partners (Nick Wilson), Auckland, for the Defendant
Counsel:
Wendy Andrews, Auckland, for the Plaintiff Sheila McCabe, Auckland, for the Defendant
GROOM v BARTULOVIC [2021] NZHC 2341 [8 September 2021]
[1] The late Winnie Helen Groom and her brother, Dennis John Bartulovic, the defendant, were partners in a firm, the Bartulovic Groom Partnership, that owned commercial premises in Ellerslie with three shops. The premises had earlier belonged to their father. As children they had worked there when it was a fish and chip shop. Winnie died on 17 August 2019. The plaintiff, Paul Groom, is her son and executor of her estate.1 After his sister’s death Mr Bartulovic gave notice of termination of the partnership to Mr Groom and notice that he would buy out the estate’s interest in the partnership. They did not agree on the price. Under the deed the price was then to be decided by the partnership accountant, Mr Blyth. He has determined that the price payable by Mr Bartulovic to the estate is $1,257,104.14 plus GST (if applicable). Mr Groom sues for that sum and has applied for summary judgment.
[2] Mr Bartulovic, who now lives in Perth, Western Australia but regularly comes back to New Zealand, says that Mr Blyth’s valuation is fundamentally flawed. He also says that Mr Groom involved himself in the business after the termination of the partnership and that counts against his claim.
[3] Mr Groom has proved to the summary judgment standard that Mr Bartulovic is bound by Mr Blyth’s determination. While Mr Groom did involve himself in the business after termination when he should not have, he has shown that Mr Bartulovic did not suffer any loss as a result. That clears away most of the obstacles to completing the purchase, but not all. There is one minor matter that needs tidying up, interest. The case will be called in a chambers list for further orders.
Preliminary matters
[4] On 21 April 2020 the Partnership Law Act 2019 came into force, replacing the Partnership Act 1908. References in the partnership deed to the 1908 Act are now to be read as referring to the 2019 Act.2 That aside, neither side suggested that the change of legislation affected this case.
1 Probate was granted on 31 October 2019.
2 Partnership Law Act 2019, sch 1, pt 1, cl 2(1).
[5] In another cause of action, Mr Groom says that the partnership dissolved on his mother’s death and seeks orders under s 76 of the Partnership Law Act 2019 for the partnership to be wound up, the assets sold, accounts taken and proceeds to be distributed to the partners. Mr Bartulovic opposed on the basis that he and Mr Groom had committed to the process that he had started with his notice terminating the partnership. In light of that opposition, Mr Groom no longer sought summary judgment on that cause of action but reserved his rights to proceed on it, if the summary judgment application on Mr Blyth’s determination failed.
[6] The principles applied on a plaintiff’s application for summary judgment are well established and well known. They were not in dispute.3 For Mr Groom to obtain summary judgment, he has to satisfy me that the result could not possibly be different, if the case went to a defended hearing in the normal way after discovery and after witnesses give evidence in person.
[7] As with most summary judgment applications, there has not been formal discovery. The parties have however provided many documents. The bundle of documents has over 1,500 pages. In April 2020 while the determination was under way, the lawyers agreed to copy each other with correspondence to Mr Blyth. It is not clear that they did exchange correspondence sent before April, but after Mr Blyth gave his determination more documents came to light. All those documents give a clear picture how Mr Blyth carried out his determination.
Background
[8]The partnership deed for the Groom Bartulovic partnership includes:
1.1 The partners shall carry on business in a partnership as landlords/owners of the property at 112 Main Highway, Ellerslie, under the firm name of Bartulovic Groom Partnership.
…
2.1The capital and profits of the partnership shall be held and shared by the partners equally, and they shall bear all losses in the same proportion.
3 They are well summarised in Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26]–[27].
…
4.Termination
4.1The partnership may be terminated by either partner giving to the other not less than three months’ notice in writing at any time.
4.2If the partnership is terminated in any way then the partner who gave notice, or (if no notice is given) the partner in respect of whom the event occurred which gave rise to the termination, may within 21 days after the notice was given or the event occurred give notice to the other partners, or that partner’s personal representative, trustee, or receiver as the case may be, electing either to have the partnership wound up under the Partnership Act 1908, or to purchase the share of the other partner in the net value of such share.
4.3The net value for the purposes of clause 4.2 shall be agreed between the partners or their respective successors in title (as the case may be) or in default of such agreement shall be determined by the partnership accountants. In so determining, the accountants shall act as experts and not as arbitrators, and their professional charges shall be borne by the partners in equal shares.
4.4In agreeing such net value the value of the goodwill of the partnership shall be taken into account.
4.5On a purchase of a share under this clause 4 the purchase money shall be paid within 3 months after the date of termination and with interest at the base or indicator rate of the partnership bankers plus 2% from the date of termination until the date of payment.
[9] Mr Bartulovic’s notice of termination of 13 September 2019 addressed to the executors of the estate of Winnie Helen Groom said:
I refer to the partnership agreement dated 22 June 2012 between Dennis John Bartulovic and Winnie Helen Groom (“Agreement”).
I give three months’ notice pursuant to clause 4.1 of the Agreement terminating the Agreement. The agreement will therefore terminate on 13 December 2019.
On the same date, Mr Bartulovic gave the executors another notice, called a “Notice to Purchase”, which included:
I give notice pursuant to clause 4.2 of the Agreement that I elect to purchase the one-half share in the Property owned by Winnie Helen Groom/her successors in the net value of such share.
For the purposes of clause 4.3 of the Agreement I propose that the net value of that share is $795,000 including GST (if any). Please confirm whether you agree to that value, failing which the net value is to be determined by the partnership’s accountants.
Pursuant to clause 4.5 of the Agreement, the purchase money shall be paid within three months after the date of termination i.e. by 13 March 2020. I suggest that payment and settlement take place on the date of termination, 13 December 2019, subject to probate having been completed by that date. Please confirm whether you agree.
[10] Mr Groom did not accept Mr Bartulovic’s proposed price. On 19 November 2019, Mr Bartulovic’s Auckland solicitors wrote to Don Blyth & Associates Ltd giving notice under cl 4.3 of the partnership deed that the determination of net value was referred to Mr Blyth as the partnership accountant. The letter also proposed a methodology for determining the net value.
[11] Mr Blyth gave his determination on 25 November 2020. He fixed the purchase price payable by Mr Bartulovic to the Groom estate at $1,257,104.14 plus GST (if any). There are 10 annexures. It is not necessary to go through all of them. His determination says, among other things:
(a)He carried out the net valuation in terms of cl 4.3 of the partnership deed and fixed the value as at 13 December 2019, the termination date under Mr Bartulovic’s letter of 13 September 2019.
(b)He referred to the assets of the partnership as the property at 112 Main Highway, Ellerslie, a bank account, accounts receivable, prepaid rates and prepaid insurance, with the only liabilities being GST.
(c)He allowed for differences in the partners’ current accounts.
(d)He applied cl 2.1 of the partnership deed to ascertain the net value of the half share.
(e)His determination refers to valuation reports that had been referred to him. The parties had provided him with different valuations and information. He instructed another valuer, Mr Robert Yarnton of Eyles McGough. He adopted Mr Yarnton’s valuation of $2,500,000 as at 22 January 2020. Later in his calculations he allowed a deduction of
$30,000 from half that amount for a “partial value of a half share”.
(f)His determination identifies the purpose of the report and identifies the business interest being valued. He gives his key sources of information and states key assumptions.
(g)The approach and technique he used was:
The net assets valuation approach based on the independent registered valuation of the land & buildings, valuation of other assets and liabilities of the Partnership at cost as at 13 December 2020 (sic)4 based on standard accounting principles.
(h)He made his determination in accordance with the Professional Standards of the Institute of Chartered Accountants in New Zealand.
(i)Apart from his professional association as the partnership’s accountant, he had no other interest or relationship with the instructing party, any of the expert valuers, or with any of the other parties.
[12] Another matter, not directly relevant, goes to explain Mr Bartulovic’s unhappiness with the determination. In September 2019, before he gave his termination notice, Mr Bartulovic instructed Mr Blyth to value a half share of the business. Mr Blyth did not instruct a registered valuer. Nor did he make a detailed accounting analysis of the business. Instead he took advice from a local mortgage broker about capitalisation rates for older shops in Ellerslie. Mr Blyth derived a total annual rent and applied a range of capitalisation rates to obtain three values for a half share: $928,00, $968,000 and $1,062,000, in each case allowing for a contingency if capital improvements are required. This was not a formal determination under the partnership deed. That had not started yet and Mr Groom was not involved. Mr Bartulovic also obtained a report from a registered valuer which assessed the current market value of the premises at 5 September 2019 at $2,050,000 plus GST (if any). With that information, Mr Bartulovic gave his termination notice. He considers that Mr Blyth did an about face on 11 October 2019 when he advised Mr Bartulovic that a formal valuation would involve obtaining an independent valuation from a registered valuer with expertise in the Ellerslie commercial area who
4 A typographical error only. It is clear that he valued the net assets as at 13 December 2019.
would take into consideration current zoning and future proposed zoning of the property for future development potential. In an email of 6 December 2019 to Mr Bartulovic’s solicitor, Mr Blyth said that the information given to Mr Bartulovic in September was not a formal valuation. The buildings were included at cost plus an estimated capital gain, not at market value. Mr Bartulovic had requested the information, not both partners. Mr Bartulovic had specified how he was to go about his assessment.
[13] Mr Bartulovic’s affidavit makes wide-ranging attacks on the merits of the determination, on the process Mr Blyth used, on Mr Blyth’s integrity, on the valuation Mr Blyth relied on, on the valuer and his integrity. He would have it that this was a shoddy process in which he was treated unfairly. He should not be bound by the determination.
[14] His notice of opposition says that the net valuation is unreliable and inaccurate. Mr Blyth and the valuer he used were in a conflict of interest and are not objective or independent. They failed to consider legitimate expert information and submissions of counsel relating to the net valuation.
[15] The major issue in Mr Blyth’s determination is the value of the partnership premises. The synopsis of submissions for Mr Bartulovic alleged that Mr Blyth did not make his determination appropriately because (among other things):
(a)he declined to consider important property valuations brought to his attention;
(b)he did not follow valuation instructions given by Mr Bartulovic’s solicitors;
(c)he erred in interpreting the partnership deed;
(d)the valuations in evidence assumed that the property complied with the Building Act 2004 and did not have seismic issues, but that was not the case;
(e)Two of the valuations, including the one Mr Blyth relied on, assigned development potential, but that was wrong because there were long term leases and no demolition clauses;
(f)Other valuers instructed by Mr Bartulovic reviewed the valuation by the valuer Mr Blyth instructed but Mr Blyth ignored the review;
(g)Mr Blyth did not pass on all relevant information to his valuer; and
(h)Mr Blyth ignored problems with the valuation by the valuer he instructed.
[16] These allege both substantive and procedural errors. That requires a consideration of the basis on which courts do and do not enforce expert determinations and of the way Mr Blyth made his determination.
[17] Expert determination is a form of alternative dispute resolution. It allows for differences to be resolved when the parties cannot agree. The basis for it is contractual. Determinations bind the parties by their agreement. Defining the expert’s task is a matter of interpretation in which the usual rules of contractual interpretation apply. The process is more informal and flexible than litigation and is intended to be quicker and more cost-effective. The expert is typically chosen for their knowledge, skills, experience and independence. Unless the agreement provides otherwise, the expert is not required to follow any particular procedure. They are not required to follow the rules of natural justice.5
[18] Because they have agreed to be bound by the expert’s determination, the parties cannot challenge it merely because they are dissatisfied with the result. On the other hand, they can say that they are not bound if the expert has not done what it was agreed he or she should do. In Jones v Sherwood Computer Services Plc Dillon LJ said:6
On principle, the first step must be to see what the parties have agreed to remit to the expert, this being, as Lord Denning MR said in Campbell v Edwards [1976] 1 WLR 403, 407G, a matter of contract. The next step must be to see
5 Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95 (HC) at [46].
6 Jones v Sherwood Computer Services Plc [1992] 1 WLR 277 (CA) at 287.
what the nature of the mistake was, if there is evidence to show that. If the mistake made was that the expert departed from his instructions in a material respect—e.g., if he valued the wrong number of shares, or valued shares in the wrong company, or if, as in Jones (M) v Jones (RR) [1971] 1 WLR 840, the expert had valued machinery himself whereas his instructions were to employ an expert valuer of his choice to do that—either party would be able to say that the certificate was not binding because the expert had not done what he was appointed to do.
[19] In Legal & General Life of Australia Ltd v A Hudson Pty Ltd, McHugh JA said:7
By referring the decision to a valuer, the parties agree to accept his honest and impartial decision as to the appropriate amount of the valuation. They rely on his skill and judgment and agree to be bound by his decision…While mistake and error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of the contract? If it is, it is nothing to the point that the valuation may have proceeded on the basis of error or that it constitutes a gross over or under value. Nor is it relevant that the valuer has taken into consideration matters which he should not have taken into account or has failed to take into account matters which he should have taken into account. The question is not whether there is an error in the discretionary judgment of the valuer. It is whether the valuation complies with the terms of the contract.
[20]Knox J put the matter pithily in Nikko Hotels (UK) Ltd v MEPC plc:8
If he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity.
[21] In an article surveying Australian case law, also useful guidance for New Zealand, Setting Aside Expert Determination – a Comprehensive Review,
Grant Lubofsky considers challenges under these heads:9
(a)a failure to apply the correct methodology;
(b)a failure to value the correct subject matter;
7 Legal & General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 (CA) at 335– 336.
8 Nikko Hotels (UK) Ltd v MEPC plc [1991] 2 EGLR 103 at 108.
9 Grant Lubofsky “Setting Aside Expert Determination – a Comprehensive Review” (2018) 92 ALJ 529 at 533.
(c)a failure to act impartially;
(d)arithmetic or mechanical errors;
(e)a failure to give reasons or alternatively, sufficient reasons; and
(f)in prescriptive circumstances, manifest error or an error of law.
He also notes that a determination is likely to survive challenge where it is alleged that the expert:10
(g)erred in the exercise of a discretion;
(h)failed to provide complete procedural fairness; or
(i)proceeded on incomplete or insufficient evidence.
[22]These aspects of the partnership deed can be noted:
(a)Under cl 4.3 the accountants make their determination only if the partners cannot agree the price to be paid. The absence of agreement is resolved by the accountants’ decision, which under the partnership deed fixes the price. As such it binds the partners.
(b)The net value is to be ascertained at the date of termination. The agreement does not say so expressly, but it is implicit. As the purchasing partner is to take the share of the other at the termination date, the value of the share should be fixed at that date.
(c)The accountants are to decide the price payable by the partner giving the notice to purchase under cl 4.2. That is the price for “the share of the other partner in the net value of such share”. “In the net value” is better understood as “at the net value”. “Net value” means the value of the share of the partnership assets after taking liabilities into account. Under cl 2.1 the partners share capital and profits equally and losses in
10 At 539.
the same proportion. Under cl 4.4 goodwill of the partnership is included in the net value.
(d)Under cl 1.1 the business of the partnership is commercial landlord. The premises are a significant asset of the business.
(e)Under cl 4.3 the parties appointed the partnership accountants as the experts. As accountants they can be expected to be skilled in accounting matters but not in property valuation. They would need to rely on the expertise of others to value the premises.
(f)The accountants are likely to be already familiar with the affairs of the partnership, especially its accounts. That gives them information not necessarily shared by other accountants, who would have to come up to speed.
(g)The accountants are also likely to be familiar with the partners. They are not as independent as others who have had no dealings with the partnership.
(h)The accountants are to act as experts, not as arbitrators. They do not have to follow the Arbitration Act 1996 or comply with natural justice.
(i)The agreement does not require the accountants to follow any particular procedure. It does not say how they are to go about ascertaining the value of the premises.
(j)The agreement does not require the accountants to give reasons.
(k)There is no saving for “manifest error”.
[23] Mr Blyth did not lack for reports and advice by registered valuers. He was provided with:
(a)a report by Darroch Ltd in September 2 19, commissioned by Mr Bartulovic, giving a value of $2,050,000 plus GST as at 5 September 2019;
(b)a report dated 14 November 2019 by Gribble Churton Taylor Ltd, commissioned by Mr Groom, giving a value of $2,975,000 plus GST as at 22 October 2019;
(c)a report dated 22 January 2020 by Mr Yarnton of Eyles McGough Mr Blyth commissioned, giving a value of $2,650,000 plus GST as at that date;
(d)a report by Seagars dated 14 May 2020, commissioned by Mr Bartulovic, giving a value of $2,540,000 plus GST as at 15 January 2020;
(e)a report dated 8 July 2020 by Gribble Churton Taylor Ltd, commissioned by Mr Groom, giving a market value range of
$2,700,000 to $2,900,000 plus GST as at 22 October 2019;11
(f)a letter dated 15 June 2020 by Seagars to counsel for Mr Bartulovic on non-recoverable operating costs;
(g)a letter dated 21 July 2020 by Seagars to counsel for Mr Bartulovic commenting on the Gribble Churton Taylor valuation of 8 July;
(h)a letter dated 27 July 2020 by Gribble Churton Taylor Ltd to Mr Groom’s counsel commenting on Seagars’ valuation of 21 July 2020;
(i)a letter by Mr Yarnton of Eyles McGough dated 15 October 2020 giving a value of $2,500,000 plus GST as at 22 January 2020;
11 It also gave an “investment approach value” of $2,810,000.
(j)a letter by Mr Yarnton dated 22 October 2020 addressing the matter of partial interest; and
(k)a letter by Mr Yarnton dated 23 November 2020.
[24] As well, he received a review of Mr Yarnton’s first report by Seagars. Mr Bartulovic also gave him reports from building experts, Prendos on seismic issues and Argest on building warrant of fitness compliance.
[25] The reports were circulated. Counsel for Mr Bartulovic and Mr Groom made written submissions to Mr Blyth, advocating for their respective clients and responding to what the other said.
Did Mr Blyth value the correct subject matter?
[26] Mr Bartulovic would not be bound by the determination if Mr Blyth had valued something other than what was required under the deed. Both sides accept that he did assess the net value of the late Mrs Groom’s share in the partnership and that is what was required. He valued the share at the termination date, the correct date. Mr Bartulovic complains that as a result of Mr Groom’s actions, the business did less well from the date of termination to the end of May 2020, and therefore Mr Blyth should have valued the business at the later date. According to advice given by Mr Bartulovic’s valuer, the value of the property fell between the termination date and May 2020. That was not because of anything Mr Groom did but reflected the impact of COVID-19 and the associated restrictions on retail tenancies. May 2020 was not the termination date or the date for valuing the premises. Mr Blyth would not have followed his instruction if he had taken the later date. Mr Bartulovic’s complaint against Mr Groom is better considered as part of his set-off argument against Mr Groom.
Did Mr Blyth apply the correct methodology?
[27] Mr Bartulovic says that Mr Blyth did not follow the instructions given by his solicitors. That does not mean that Mr Blyth had to do what Mr Bartulovic’s lawyers
said, just because they said so. That would mean that his determination was not independent. Instead I take Mr Bartulovic as saying that the methodology proposed by his lawyers was the only correct one and Mr Blyth went beyond the instruction in the deed by using another methodology. In Glaister v Amalgamated Dairies Ltd, Heath J held that the meaning of the instruction given to the expert was a question of law to be determined by the court and was not a matter for the sole judgment of the expert.12
[28] In their letter of 19 November 2019 to Mr Blyth giving him notice under cl 4.3 of the partnership deed to fix the net value of Mrs Groom’s share, Mr Bartulovic’s lawyers set out what they contended was the correct methodology to ascertain the net value. They did not want Mr Blyth to take the development potential of the premises into account. They said among other things:
Our client’s position is that the agreement clearly and unequivocally requires that the valuation be based on an assessment of the value of the business undertaken by the partnership on the date the purchase notice was issued. Accordingly, the methodology should be based on:
(a)an assessment of the market yield of the rental business of the Partnership by capitalising the net income at an appropriate market- derived return in order to arrive at a capitalised figure; and
(b)a subsequent adjustment of that figure taking into account property specific matters, including rental surplus/shortfall, vacancy, commissions, inducements, refurbishment expenses, unrecovered operating expenses and capital expenditure.
The letter says that this methodology is consistent with the terms of the agreement. “Net value” means the value of the selling party’s share in the partnership having regard to the net assets and liabilities of the business. The net assets were those of the particular business, not the potential business of the partnership: “One does not value a butcher’s business on the basis it may one day change to a bakery”. The thrust of the argument was that when valuing the estate’s share in the partnership, potential future uses of the property by way of further development should be ignored. Development value was irrelevant. This was said to be in accordance with the intention of the original parties. The lawyer said he had spoken to an earlier accountant of the partnership and the solicitor who prepared the partnership deed. They had
12 Glaister v Amalgamated Dairies Ltd [2003] 1 NZLR 829 (HC) at [44], [46]–[48].
allegedly confirmed Mr Bartulovic’s instructions that the deed be drafted to ensure that the purchasing partner pay only the uplifted book value of the business, but not have to pay “an unfair uplift based on a perceived development value of the land”.
[29] As to the last aspect Mr Bartulovic has not given any evidence about the alleged drafting instruction. Nor have the former accountant and the lawyer. The statements in the lawyer’s letter about the drafting instructions are hearsay and inadmissible. They are also irrelevant as they go only to the parties’ subjective intentions, which are immaterial unless rectification were sought. Mr Bartulovic has not sought rectification.
[30] Putting that irrelevancy aside, is the interpretation proposed by the lawyers correct? Mr Blyth did not think so. He explained his thinking in a letter of 3 March 2020 to Mr Dale QC, counsel for Mr Bartulovic:
Please note Clause 2.1 of the Partnership Deed dated 22 June 2020 (sic) states
“The Capital and profits of the partnership shall be held and shared by the partners equally and they shall bear all losses in the same proportion”
Capital equals assets less liabilities.
Assets of the Partnership include the fixed asset Land, Buildings at 112 Main Highway Ellerslie plus current assets including bank account(s) and accounts receivable.
Profits include trading profits and capital profits/gains
Capital profits / gains includes realisation of fixed assets less cost price less related accumulated depreciation recovered. Any accumulated depreciation recovered is included in trading profit.
When Robert Yarnton’s, of Eyles McGough, valuation methodology is applied to the land and buildings at 112 Main Highway Ellerslie there will be a capital profit which is required to be shared by the partners equally in terms of clause 2.1 of the Partnership Deed dated 22 June 2012 which is required to be taken into account when determining the net value of the Partnership.
Note that if the land and buildings at 112 Main Highway Ellerslie is valued at less than current market value, on a willing buyer and willing seller basis, for net valuation purposes then the buying partner would obtain more than their equal share of the partnership is contravention of clause 2.1 of the Partnership Deed dated 22 June 2012 as the purchasing partner would be able to sell the property immediately after purchase at market value receiving an additional capital profit related to the half share purchased over and above the purchase price of the related half share purchased for the land and buildings at 112 Main Highway Ellerslie.
[31] I agree with his interpretation. In Firm PI 1 Ltd v Zurich Australian Insurance Ltd the Supreme Court stated the approach for contractual interpretation, including:13
… the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a reflection of the fact that contractual language, like all language, must be interpreted within its overall context, broadly viewed. Contextual interpretation of contracts has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity. More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.
…
While context is a necessary element of the interpretive process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[32] For this case, neither side submitted that more evidence was needed to put the partnership deed in its proper context. Nor was it suggested that more interlocutory steps and oral evidence were required before deciding its meaning. The relevant background is that the late Mrs Groom and her brother agreed to own and lease out the Ellerslie premises as partners in equal shares, sharing equally the gains and losses.
[33] I derive the following from applying the deed to the circumstances of this case. It provides for termination by one giving notice to the other. Either partner may give notice. There is no preference. They can give notice at any time. The partner giving notice of termination may require the partnership to be wound up under the Partnership
13 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]– [61], [63] (citations omitted). Affirmed in Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85 at [43].
Act 1908. That would involve the assets being realised and the proceeds distributed to the partners. Neither should be better off than the other. Subject to adjustments for such matters as differences in drawings, the distributions must be equal. The partner giving notice of termination also has the option of buying out the other by giving a notice to purchase. The purchase price is the net value of the other partner’s share. Because capital, profits and losses are to be borne equally under cl 2.1, again subject to any adjustments for such matters as differences in drawings, the purchase price should equal the value of the other partner’s share. In negotiations the partner receiving the notice to purchase can test the value of the offer by proposing a reversal
– to buy out the interest of the partner giving notice at the price they have offered. The accountant must set the net value of the share on the same basis.
[34] The market value of the property is the price agreed between a willing, but not anxious, buyer and a willing, but not anxious, seller. If a buyer would take into account a property’s development potential, that may go to the price they are willing to pay. Development potential that influences the purchase price is relevant to value, which is taken into account in establishing the capital and profits of the partnership. That value is shared equally, including when working out the net value of a partner’s share.
[35] Accordingly, the partnership deed did not require Mr Blyth to apply the approach proposed by Mr Bartulovic’s solicitors, which would have given Mr Bartulovic a gain not shared with the estate. Mr Blyth applied the correct methodology under the deed.
Did Mr Blyth make an independent determination?
[36] The partnership deed required Mr Blyth to make the determination, not anyone else. He could not give a determination in his name when someone else had in fact made it. His determination had to be independent in that sense. He was not a rubber stamp for Mr Groom or Mr Bartulovic.
[37] Kendall on Expert Determination says that a distinction must be drawn between being independent on the one hand and reaching an independent decision on
the other hand.14 The fact that the specified expert has a conflict of interest does not usually provide grounds for disqualification or grounds of challenge if that expert is in fact appointed – it is even possible for the contract to name one of the parties as the decision-maker.
[38]As to partiality Kendall says:15
Thus partiality in the context of expert determination generally requires actual bias or a real danger of injustice resulting from the alleged bias and not just conflicts of interest or apparent lack of independence. However, in cases concerning litigation in the courts and arbitration, the appearance of partiality, from an objective standpoint, can be enough to disqualify.
[39] In Midland Montague Leasing (UK) Ltd v Tyne and Weir Passenger Transport Executive,16 the expert attended a meeting with one of the parties and discussed tactics for dealing with the other side. The court said that the expert should have remained aloof from the discussions but did not find the decision invalid as a result of partiality.
[40]In Macro v Thompson (No 3) Robert Walker J said:17
… when the court is considering a decision reached by an expert valuer who is not an arbitrator performing a quasi-judicial function, it is actual partiality, rather than the appearance of partiality, that is the crucial test. Otherwise auditors (like architects and actuaries) with a long-standing professional relationship with one party (or persons associated with one party) to a contract might be unduly inhibited, in continuing to discharge their professional duty to their client, by too high an insistence on avoiding even an impression of partiality.
[41] Because the partnership deed required the partnership accountants to determine the net value, it was always likely that Mr Blyth would already have dealt with the partners. It would be wrong to say that he should not make the determination because he already knew or had dealt with the partners. That would make the determination clause in the deed unworkable. While he appointed Mr Blyth to make the
14 Clive Freedman and James Farrell Kendall on Expert Determination (5th ed, Sweet & Maxwell, London, 2015) at [14.13-1].
15 Kendall on Expert Determination, above n 14, at [14.12-4].
16 Midland Montague Leasing (UK) Ltd v Tyne and Weir Passenger Transport Executive (unreported) Ch, 23 February 1990. As a copy of the decision is not available, I have gone by the account given in Kendall at [14.12-4].
17 Macro v Thompson (No 3) [1997] 2 BCLC 36 (Ch D) at 65. Affirmed in Ackerman v Ackerman
[2011] EWHC 3428, [2011] WLR (D) 394 (Ch D) at [276].
determination, Mr Bartulovic’s belated complaint that Mr Blyth should not have acted is beside the point.
[42] As far as Mr Bartulovic is concerned, Mr Blyth lost his independence when he decided not to apply the valuation methodology of his September 2019 but indicated that a formal valuation would be required. But taking that step is not evidence of a lack of independence, as it was open to an accountant in Mr Blyth’s position to seek expert valuation advice. Mr Bartulovic attributes Mr Blyth’s change on the valuation question to Mr Groom:
Clearly, however, he changed his approach due to pressure placed on him by Mr Groom. Between them Mr Groom and Mr Vodanovich persuaded Mr Blyth to entirely revisit the approach he was required to provide. I believe that as a result of this pressure Mr Blyth completely lost his independence and objectivity.
[43] Mr Vodanovich is the solicitor acting for Mr Groom in this dispute. Mr Bartulovic disapproves of Mr Groom instructing Mr Vodanovich. Mr Vodanovich had acted for the partnership on a tenancy matter in 2018 on Mrs Groom’s instructions, but not on any other matters. Mr Bartulovic did not apply for an order barring Mr Vodanovich from representing the estate in this matter. The circumstances do not suggest that Mr Vodanovich had any inside knowledge about Mr Bartulovic, that would stand in the way of his acting for the estate in its dispute with Mr Bartulovic.
[44] On 23 November 2019, Mr Blyth emailed Mr Groom and Mr Vodanovich asking for their comments on that part of Mr Bartulovic’s lawyer’s letter of 19 November 2019 dealing with the drafting instructions. Both Mr Groom and Mr Vodanovich responded, Mr Vodanovich with robust comments about what he saw as a lack of merit in the contention. Mr Blyth followed Mr Vodanovich’s suggestions.
[45] Mr Bartulovic sees that as a lack of independence. But when an expert receives contentions from one party, he is entitled to put those contentions to the other side for their response. Not doing so may be unfair and could expose the expert to suggestions that he was under the influence of the party making the contentions.
[46] Mr Bartulovic also tries to make something of Mr Vodanovich addressing Mr Blyth as “Charlie”, whereas others call him “Don”. Mr Blyth says that he has always been called Charlie since childhood.
[47] None of these matters raise any arguable support for Mr Blyth lacking independence. Mr Bartulovic’s complaint is bare assertion not backed by evidence.
[48] Mr Bartulovic says that the determination was flawed because Mr Blyth should not have engaged Mr Yarnton as his valuer. The parties had each presented valuations of the property with quite different values. It made sense for Mr Blyth to use another valuer to assist. He had not dealt with Mr Yarnton before. Mr Yarnton was a suitable valuer. His letter of 28 January 2020 explains that he had many years’ experience in the retail sector specialising in valuing retail properties in Ellerslie, Remuera, Parnell and Ponsonby. Their emails in December 2019 and January 2020, in which Mr Blyth instructed Mr Yarnton, told him the purpose of the valuation and gave him information, are consistent with any professional engaging another to provide a report. They are unremarkable.
[49] Mr Bartulovic says however that there is an association between Mr Groom and Mr Yarnton. This is said to be through Mr Groom’s passion for sailing. He belongs to the Royal New Zealand Yacht Squadron and is prominent in the Stewart 34 Owners Association. The late Ian Littler, who died in 2016, was also a member of the association and was considered a Stewart 34 stalwart. Mr Littler’s daughter, Robyn, is married to Mr Yarnton. Mr Bartulovic infers that Mr Groom knows Mr Yarnton. His evidence does not however suggest any connection between Mr Blyth and Mr Yarnton and he accepts Mr Blyth’s statement that he had not used Mr Yarnton before.
[50] Mr Groom says that he has not met and does not know Mr and Mrs Yarnton and would not recognise them if he saw them. He knows Mrs Yarnton’s brother, Mr Ross Littler, as another yacht owner, but does not socialise with him.
[51] Mr Bartulovic’s case is that the valuation by Mr Yarnton cannot be relied on because of the alleged association between Mr Groom and Mr Yarnton.
For argument’s sake I assume that Mr Groom’s denial that he is acquainted with Mr Yarnton may not stand up under cross-examination. I also assume that it is arguable for Mr Bartulovic that if Mr Blyth engages a valuer who does not make an independent valuation, the determination may fail for lack of independence. Even so, that does not mean that Mr Blyth was not entitled to rely on Mr Yarnton’s valuation. The evidence shows that Mr Yarnton acted independently. There is nothing to show an argument for actual bias on his part.
[52] Mr Yarnton initially valued the premises at $2,650,000. Mr Blyth sent the valuation to the parties. In response Mr Bartulovic’s lawyers arranged for another valuation practice, Seagars, to review Mr Yarnton’s report. They provided a technical peer review on 12 March 2020. It was not a fresh valuation. On 14 May 2020 Seagars gave their own valuation report giving a value of $2,540,000. Mr Bartulovic also arranged for reports by consultants, Prendos on seismic risk and Argest on building warrant of fitness issues. This was with a view to showing that substantial expenditure was required to bring the premises up to standard. Both counsel made written submissions to Mr Blyth, beginning with Ms Andrews’ letter of 28 May 2020 and ending with her email 28 July 2020.
[53] In an email of 6 August 2020 Mr Blyth asked Mr Yarnton to review attachments to the email, give comments and advise of any changes to his valuation of 20 January. There are 20 attachments: the partnership deed, the notice of termination, the notice of purchase, reports from valuers and building consultants, Mr Dale’s email of 27 July and Ms Andrews’ email of 28 July. The attachments included the Seagars review of 12 March, the Seagars valuation report of 14 May and the reports by Argest and Prendos.
[54] Mr Yarnton did not reply until October. He was busy with a significant arbitration and other work. His letter of 15 October discusses the Darroch and Gribble Churton Taylor valuations and the Prendos seismic report. The seismic rating would not influence his valuation. He had then been advised that there are non-recoverable costs of $7,113 per annum. That information had come from Mr Bartulovic and his valuers. Mr Yarnton revised his valuation in light of that. His new value was
$2,500,000. That letter did not deal with the Seagars report, but he addressed that in
his letter of 22 October 2020. He noted that both he and Seagars had adopted the same capitalisation rate of 4.75 per cent. Seagars had also valued the premises at 29 May 2020, but he had not been instructed to value at that date. Seagars had made a partial interest valuation, with a discount of 13 per cent. He enclosed a copy of a decision Seagars relied on, Commissioner of Inland Revenue v Flaxbourne Trust.18 He considered that Seagars’ deduction was considerably higher than that decision. In his view, a discount if any is extremely subjective, but allowed “a very nominal discount” of 2.5 per cent, $30,000. He assessed the value of the half share at $1,220,000.
[55] On 10 November Mr Blyth sent Mr Yarnton a letter from Mr Bartulovic dated 18 June. Attachments to the email included the Argest and Prendos reports. Mr Blyth referred to the Seagars reports which Mr Yarnton had already received. Mr Blyth asked Mr Yarnton to advise any changes to his earlier valuation and reminded him of the purpose of the valuation. In his reply of 23 November Mr Yarnton addressed Mr Bartulovic’s letter, giving reasons for not accepting his contentions. Mr Blyth issued his determination on 25 November, adopting the value of $1,220,000 given by Mr Yarnton.
[56] That evidence shows clearly that neither Mr Blyth nor Mr Yarnton were acting at the behest of Mr Groom and that they were not actually biased in his favour. Mr Blyth appreciated that Mr Bartulovic and his advisors had provided relevant information that could affect the value of the premises. He asked Mr Yarnton to consider that information and, if appropriate, revise his valuation. Mr Yarnton did consider the information and made adjustments that favoured Mr Bartulovic. In that, Mr Blyth and Mr Yarnton displayed the independence expected of them.
Mr Bartulovic’s procedural objection
[57] The partnership deed does not say how the accountants are to go about their determination. There is no evidence that the parties agreed or instructed Mr Blyth how he was to go about his determination, apart from Mr Bartulovic’s lawyers’ attempt to persuade him to adopt an incorrect methodology. Mr Blyth could decide what
18 Commissioner of Inland Revenue v Flaxbourne Trust (1983) 6 NZTC 61,953 (HC).
procedure to follow. He was not an arbitrator. In Barclays Bank plc v Nylon Capital LLP, Thomas LJ said:19
As I have said, there is no procedural code for expert determination, in contradistinction to arbitration. The activities of an expert are subject to little control by the court, save as to jurisdiction or departure from the mandate given. Unless the parties specify the procedure, the expert determines how he will proceed: it is rare for what might be perceived as procedural unfairness in an arbitration to give rise to a ground for challenge to the procedure adopted by an expert…
I therefore accept that if the parties have chosen such a process and the dispute falls within the jurisdiction of the expert, then they must be held to it, whatever view might be taken as to the appropriateness of the procedure for the matters submitted to the expert.
[58] That however is subject to some qualification in New Zealand. Two decisions of the Court of Appeal in the context of engineers certifying under construction contracts recognise a duty to act impartially, Nelson Carlton Construction Co (in liq) v A C Hatrick (NZ) Ltd and Canterbury Pipelines Ltd v Christchurch Drainage Board.20 That arguably applies to other expert determinations. In the first, North P said that, if the certifier hears from one party representations which are of such a nature as to be calculated to influence him in arriving at his determination, then he must afford the other party the opportunity of answering what is alleged against him. That was applied in this case, as both sides supplied Mr Blyth with their valuations, Mr Blyth gave them the valuation he commissioned, each side used the opportunities given to them to submit on the issues and the other side’s submissions and to provide more information about valuation and the state of the building.
[59] Notwithstanding that, Mr Blyth was criticised for the way he went about his determination. The complaint is that Mr Blyth did not pass on all relevant information to Mr Yarnton. Specifically, Mr Blyth did not send to the valuer, Mr Yarnton, letters he received from Mr Dale QC dated 18 and 19 June, 13 and 15 July to consider and respond to. In the hearing Ms McCabe focused most on the letter of 18 June. In that letter Mr Dale included copies of Seagar’s review of 12 March and their report of 14 May. He requested that they be forwarded to Mr Yarnton for consideration.
19 Barclays Bank plc v Nylon Capital LLP [2011] EWCA Civ 826, [2011] WLR (D) 235 at [37]– [38].
20 Nelson Carlton Construction Co (in liq) v A C Hatrick (NZ) Ltd [1965] NZLR 144 (CA) and
Canterbury Pipelines Ltd v Christchurch Drainage Board [1979] 2 NZLR 347 (CA).
His letter submitted on valuation issues and advocated for Mr Bartulovic, including proposing a buy-out price of $870,000. Mr Blyth’s email of 6 August with 20 attachments asking Mr Yarnton to review the attachments, give comments and advise of any changes to his valuation of 20 January included the reports Mr Dale had sent, but not Mr Dale’s letters of 18 and 19 June, and 13 and 15 July. The attachments did include Mr Dale’s email of 27 July and Ms Andrews’ response of 28 July.
[60] The omission of Mr Dale’s letters in the materials for Mr Yarnton is said to invalidate Mr Blyth’s determination. The objection is on a matter of procedure. It was for Mr Blyth to decide what procedure he should follow. He was the expert to decide the net value. He had engaged Mr Yarnton as a valuer to assist him in that. The parties put their cases to him. He could decide whether he wanted Mr Yarnton’s comments on Mr Dale’s submissions or whether it was sufficient for Mr Yarnton as the valuer assisting him to receive the valuation materials without the legal submissions as well. He was even-handed. He did not give Mr Yarnton the other submissions for Mr Groom either. It was a matter for his professional judgment and it is not for me to say whether he should or should not have sent Mr Dale’s letters to Mr Yarnton.
Mr Bartulovic’s objections to the merits of the value adopted by Mr Blyth for the premises
[61] Mr Bartulovic says that Mr Blyth should not have accepted Mr Yarnton’s valuation of $2,500,000 because it was flawed. That is notwithstanding that it is close to the value of $2,540,00 given by his valuers, Seagars. Reasons given for not accepting Mr Yarnton’s valuation given in October 2020 are that Seagar’s peer review had found fault with Mr Yarnton’s January valuation; Mr Blyth did not consider the other valuations; all valuations assumed that the property complied with the Building Act 2004 and did not have seismic issues, but reports from building consultants, Argest and Prendos, showed that was not the case; and it was wrong to accept that the premises had development potential because the leases had years to run and there was no demolition clause.
[62] Property valuation is not exact. Valuers working independently but using similar data may give different values for the same property. Mr Blyth is an accountant, no doubt skilled in valuing businesses and business interests, but not real
estate. At the outset the parties presented him with widely different valuations. It was open to him to instruct another valuer, allow the parties to comment and give them the opportunity to obtain fresh valuations. He could also refer their responses to his valuer. Having received answers from his valuer, it was open to him to adopt his valuer’s revised valuation. In doing all that Mr Blyth did not go outside the task given in the partnership deed. His steps are consistent with those of an accountant without property valuation expertise trying to ascertain the value of the property with the assistance of someone with the required skills in that area. The partnership deed does not require him to give reasons or to justify the value he adopted. Mr Blyth answered the right question: what is the value of the premises? Whether his answer is right is not for me to say.
Mr Bartulovic’s criticism of other parts of Mr Blyth’s determination
[63] Mr Bartulovic put in evidence a letter he had received from another accountant commenting on accounting aspects of Mr Blyth’s determination. It is clear from the letter that the accountant did not have complete information and his comments are qualified accordingly. They are also general. His comments do not however suggest that Mr Blyth did not follow the instruction given in the partnership deed. These aspects of Mr Blyth’s determination also bind Mr Bartulovic. It does not matter that another accountant might take another view.
[64] Mr Bartulovic’s lengthy affidavit refers to other matters, but they do not show any grounds for reviewing or setting aside Mr Blyth’s determination. Mr Groom’s sailing connections, the late Mrs Groom’s relationship with a Mr Tregonning and Mr Vodanovich’s association with them have nothing to do with this case.
[65]Mr Groom has shown that the determination binds Mr Bartulovic.
Form of order
[66] Mr Groom seeks a money judgment against Mr Bartulovic for the amount of Mr Blyth’s determination plus interest and costs. A money judgment is given for an
established liability that is unconditionally payable to the plaintiff.21 In this case Mr Blyth has fixed the price, but payment is not unconditional. Mr Bartulovic can require the assets to be made over to him on paying the price. Payment and transfer are interdependent. The appropriate relief is an order to pay upon Mr Groom making over the estate’s interest in the partnership assets to Mr Bartulovic.
Mr Groom’s involvement in the business after the termination date
[67] This matter does not affect the validity of Mr Blyth’s determination, but it raises an issue about the extent of relief Mr Groom can claim. Mr Bartulovic says that Mr Groom involved himself in the affairs of the partnership after the termination date. He says that Mr Groom acted improperly in these respects:
(a)barring any capital works on the property without his consent;
(b)reversing his earlier approval for Mr Bartulovic to obtain reports by the consultants, Argest and Prendos;
(c)requesting rent holidays as COVID-19 relief for tenants during the pandemic lockdown in 2020;
(d)giving written approval for a tenant seeking consent to assign their lease;
(e)alleging that Mr Bartulovic had breached his obligations as partner.
[68] Mr Bartulovic’s evidence includes emails between him and Mr Groom where Mr Groom maintains that he is still a partner and has a say in running the business. This statement in an email of 28 May 2020 is an example:22
We are partners and all aspects of the partnership agreement apply equally to us otherwise you would not be communicating at all.
21 Ex parte Chinery (1884) 12 QBD 342 (CA) at 345.
22 Mr Bartulovic also relies on a statement in an email of 3 October 2019, but I have disregarded that, as the partnership had not yet terminated.
[69] Mr Groom’s involvement seems to have come to an end towards the end of May 2020, apparently after he took advice.
[70] It is arguable for Mr Bartulovic that after termination of the partnership on 13 December 2019 the only interest of the estate of the late Mrs Groom’s was in being paid for being bought out. Mr Groom as executor of the estate could have no say in running the business after termination. Section 41 of the Partnership Act 1908 and s 75 of the Partnership Law Act 2019 provide that, after dissolution partners have continuing authority so far as may be necessary to wind up the affairs of the partnership and to complete unfinished transactions. As described by Mr Bartulovic, Mr Groom’s actions went beyond that. Moreover these provisions do not apply in the circumstances of this case. Citing a Queensland case, Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd,23 and referring to the equivalent English provision, Lindley & Banks on Partnership says:24
The section only applies on a general dissolution and has no application on a technical dissolution brought about by the retirement or expulsion of a partner, nor where one partner buys the other’s share out on a dissolution.
(Emphasis added)
[71] Mr Groom’s ongoing involvement in the business could make a difference if he had caused any loss to Mr Bartulovic. An argument for Mr Bartulovic might run that Mr Groom’s position was akin to that of an unpaid vendor pending completion, who is liable to the purchaser for wilful damage to the property and is required to take reasonable care to preserve the property. The analogy is not exact, because here Mr Bartulovic as purchaser had already taken over and had, or should have had, sole charge. But the point remains that after termination Mr Groom had no authority to make decisions for the business or to tell Mr Bartulovic how to run the business. If Mr Groom caused loss, the amount of the loss may be deductible from the price as a matter of equitable set off for breach of contract. That would be an equitable set off
23 Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd [2002] QCA 210, (2003) 1 QDR 320.
24 Roderick l’Anson Banks Lindley & Banks on Partnership (20th ed, Sweet and Maxwell, London, 2017) at [13-62].
of the sort recognised by the Supreme Court in Property Ventures Investments Ltd v Regalwood Holdings Ltd.25
[72] To avoid this, Mr Groom needs to show that it is not arguable that he caused any loss or damage through the matters Mr Bartulovic complains about. Mr Groom has done that.
(a)As to carrying out capital works, Mr Bartulovic was free to arrange them himself. He does not say what works he would have carried out. He was not beholden to Mr Groom who could not stop him by requiring his approval first. On this Mr Groom was ineffective. Mr Bartulovic has not given any reason for believing that not doing any capital works in the first half of 2020 caused him any loss.
(b)Mr Bartulovic arranged for Argest and Prendos to make reports. He provided quotes and details to Mr Groom who gave his approval in an email of 17 March 2020. Later Mr Groom reneged on his approval. Mr Bartulovic obtained the reports and used them in his submissions to Mr Blyth. Mr Groom’s reversal of his approval had no effect.
(c)There were internal discussions between Mr Groom and Mr Bartulovic as to rent relief for the tenants. Mr Bartulovic says that Mr Groom chopped and changed, first proposing rent relief, then pulling back from that. The leases in evidence were the standard ADLS/REINZ lease. Under cl 27.5 a tenant may obtain a reduction in rent if they cannot access the premises as a result of epidemic restrictions. Mr Groom did not unilaterally give rent relief to the tenants, which they would otherwise have been lawfully required to pay. Mr Bartulovic was content to give the tenants relief while their premises were closed during the COVID-19 lockdowns. His evidence gives the impression that was his decision. He does not suggest that Mr Groom caused him any financial loss on the rent relief question.
25 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231.
(d)One tenant sought consent to an assignment of their lease. Mr Groom favoured giving consent, provided Mr Bartulovic did as well. Mr Bartulovic had misgivings and wanted more information. He was not satisfied and refused consent. Mr Groom was concerned at potential liability under s 228 of the Property Law Act 2007 for unreasonably refusing consent. In the end there was no assignment. As Mr Bartulovic prevailed, he cannot say that Mr Groom caused him any loss on this matter.
[73] In short, while it must have been annoying to Mr Bartulovic to have Mr Groom tell him how to run his business, it is not reasonably arguable that these matters caused him any loss that would warrant a deduction from the price payable to the estate.
[74] Mr Bartulovic also complains about a letter of 1 May 2020 by Mr Groom’s solicitor to Mr Dale alleging that Mr Bartulovic was in breach of his duties as a partner in not providing financial and lease records to allow Mr Blyth to complete his determination. This was not about Mr Groom trying to involve himself in the business after termination. The solicitor was relying on the duty of disclosure between partners.26 To allow the buy-out price to be fixed, Mr Bartulovic as one partner was required to supply documents and information to Mr Blyth. Mr Groom as executor of his mother’s estate could require Mr Bartulovic to comply.
[75] Although he did not refer to it as Mr Groom treating himself as a partner, Mr Bartulovic describes the termination in October 2020 of a tenancy for a hair salon. The lease had expired earlier in the year. The tenants stayed on in a month-to-month tenancy and gave Mr Bartulovic notice of termination on 21 October 2020. Mr Bartulovic alleges that Mr Groom made false representations to the tenants that the premises were going to be demolished, but he offers no admissible evidence to support that allegation. He has put in evidence emails from the tenant, the property manager and a real estate agent who offered to find a new tenant, but none of them suggest that Mr Groom had some part in the tenants giving notice. There is an email dated 22 October 2020 from Mr Groom to the land agent referring her to the property
26 Conlon v Simms [2006] EWHC 401 (Ch), [2006] 2 All ER 1024 at [193]–[199]; upheld on appeal on this point in Conlon v Simms [2006] EWCA Civ 1749, [2008] 1 WLR 484.
manager. That was innocuous. On 27 October Mr Groom emailed the property manager that he did not need to be included in the email chain.
Interest
[76] Mr Bartulovic has received the income from the premises since termination. He pays interest for his use of the estate’s funds since then. Here is cl 4.5 of the partnership deed again:
On a purchase of a share under this clause 4 the purchase money shall be paid within 3 months after the date of termination and with interest at the base or indicator rate of the partnership bankers plus 2% from the date of termination until the date of payment.
Mr Bartulovic says that it is not fair that he should pay interest, but that is beside the point. The agreement is clear that he must.
[77] Interest on the price found by Mr Blyth runs from 13 December 2019, the termination date. The purchase price was payable on 13 March 2020, but the price had not been fixed then. While Mr Blyth fixed the net value of the estate’s share, under the deed he does not fix the interest. Mr Groom must prove the rates and amount of interest. Interest rates have fluctuated since December 2019 but the general movement is downwards. Mr Groom has provided a calculation of interest up to 4 December 2020 of $67,620.18, applying an interest rate of 6.08 per cent up to 17 March 2020 and 5.33 per cent afterwards.
[78] An email from the partnership’s bank, ASB, dated 1 December 2020 gives three interest rates at 13 December 2019:
Rural base rate 6.68% p.a.
Floating base rate 2.80% p.a. Corporate indicator rate 4.08% p.a.
Another document from the bank gives interest rates as at 23 May 2021:
Business base rate 8.87% p.a.
Rural base rate 5.67% p.a.
Floating base rate 1.52% p.a. Corporate indicator rate 2.84% p.a.
There is no evidence of interest rates at other dates. The calculation for Mr Groom uses the corporate indicator rate.
[79] While it can be assumed that the rural base rate does not apply to an urban business, the evidence does not say why the corporate indicator rate applies instead of the floating base rate or the business base rate. For Mr Bartulovic it is arguable that the lowest rate applies. The floating base rate did not remain the same throughout. It fell but I do not know the dates of changes or all the rates. The interest rate payable under the deed is a minimum of 2 per cent per annum, as the bank would not have charged negative interest on its overdrafts. But I cannot say how much more the interest is. That has still to be proved. Mr Bartulovic must pay interest on the price from 13 December 2019 until the date of payment at 2 per cent per annum, but Mr Groom may still prove the actual rate of interest.
Completing the purchase
[80] Mr Bartulovic will need to complete the purchase by paying Mr Groom as executor of his mother’s estate the net value of Mrs Groom’s share in the partnership as fixed by Mr Blyth plus interest from 13 December 2019 to the date of settlement. At the same time Mr Groom will make over to Mr Bartulovic the estate’s interest in assets of the partnership, that have not already been transferred. That will involve a transfer of the premises into Mr Bartulovic’s sole name. As in a decree for specific performance, I would ordinarily set a date for settlement. I wish to hear from the parties before doing so.
[81] I was unsure of the GST status of the transaction. On 5 August 2021 I issued a minute asking counsel to confer. In their joint memorandum of 3 September, counsel have given an agreed position. Provided Mr Bartulovic registers for GST in his own right, the transfer will be zero-rated for GST. I am grateful that the parties have resolved that matter. They have explained the reasons for the agreed position, but it is not necessary to set them out here.
Outcome
[82] Although I do not make it now, there will be an order for Mr Bartulovic to pay Mr Groom as executor of his mother’s estate the sum of $1,257,104.14 plus GST and interest on that sum from 13 December 2019 to the date of payment, on Mr Groom transferring to Mr Bartulovic those assets of the partnership which have not so far already been made over to him. The date of transfer has still to be fixed. The interest will be at least 2 per cent per annum, but the actual rate has still to be decided. The transfer will be zero-rated if Mr Bartulovic has registered for GST.
[83]This matter will be called in my chambers list on Friday 24 September at
2.15 pm for further orders, which may include setting a date for settlement. If the parties are still apart on interest, it may necessary to put in place some interim arrangement to allow settlement to be completed while securing the amounts in dispute. See Property Ventures Investments Ltd v Regalwood Holdings Ltd27 and cl 10 of the current version of the ADLS/REINZ agreement for sale and purchase of real estate.
[84] Mr Groom is entitled to costs. If the parties cannot agree costs, memoranda are to be filed and served in time for the chambers call on 24 September and I will deal with costs then.
…………………………………….
Associate Judge R M Bell
27 Property Ventures Investments Ltd v Regalwood Holdings Ltd [2010] NZSC 47, [2010] 3 NZLR 231.
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