K P Malcolm Limited v Malcolm - [2012] NZCA 230

IN THE COURT OF APPEAL OF NEW ZEALAND

CA148/2011
[2012] NZCA 230

BETWEEN K P MALCOLM LIMITED
First Appellant

AND KENNETH PETRIE MALCOLM AND SYLVIA JANE MALCOLM
Second Appellants

AND LINDA MARGARET MALCOLM
First Respondent

AND CLIVE STUART MALCOLM
Second Respondent

Hearing: 3 May 2012

Court: Arnold, Ellen France and Randerson JJ

Counsel: C R Carruthers QC and E J Hudson for Appellants
M S McKechnie for First Respondent

Judgment: 6 June 2012 at 3 pm

JUDGMENT OF THE COURT

A The appeal is allowed in part.

BThe interest of the appellants in the Ferndale property is increased from $663,317.50 to $752,955.00 being 42 per cent of $1,792,750.00, the agreed market value at the date of the High Court hearing.

CThe appellants’ 42 per cent share of Ferndale in terms of this judgment is subject to the condition that they accept sole responsibility for repayment of the $900,000 partially secured over the Ferndale property and indemnify the respondents in respect of that sum and any other liabilities relating to Ferndale.
DThe costs of this appeal are to lie where they fall.

___________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

Para No
Introduction	[1]
The appellants’ contributions	[11]
The acquisition of Ferndale	[14]
Deduction of the notional lease rental	[24]
Other capital contributions claimed by the Malcolm interests	[27]
The Judge’s assessment of the direct contributions made by the Malcolm interests	[29]
Claims to further contributions by the Malcolm interests	[30]
Contributions by Clive and Linda	[34]
The Judge’s approach to the overall assessment of contributions	[42]
First ground of appeal – failing to weigh the relative contributions to Ferndale by the Malcolm interests and by Clive and Linda	[49]
Second ground of appeal – the Judge erred in the method of calculating a notional rental for the use made of Ferndale by the Malcolm interests	[62]
Third ground of appeal – the treatment of fertiliser as a non-capital item	[71]
Conclusions	[75]

Introduction

The first appellant, K P Malcolm Limited, has owned farmland in the King Country for many years. The company is substantially owned by the second respondents, Mr Kenneth Malcolm and Mrs Sylvia Malcolm, through a family trust. Mr and Mrs Malcolm personally own the stock and farm the land as a partnership.
Mr and Mrs Malcolm had three sons and two daughters. The oldest is the second respondent, Clive Malcolm. He left school in 1975 at the age of 15 and began working on the family farm which then comprised two blocks known as Mangaorakei and Ranganui. In 1983, Clive married the second respondent, Linda Malcolm. Both worked on the family farm. Their two children were born in 1988 and 1991 respectively.
A farm known as Ferndale adjoined the Ranganui block. It was purchased in 1993 for $500,000, the entire purchase price being borrowed from the Rural Bank.[1] Title to the property was registered in the names of Clive and Linda Malcolm who took possession on 1 July 1993.
[1] Later, the National…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading K P Malcolm Limited v Malcolm

Details

AGLC: K P Malcolm Limited v Malcolm [2012] NZCA 230
Case: [2012] NZCA 230
Decision Date: 6 June 2012

CaseChat Overview and Summary

This appeal concerns the quantification of the share of the Malcolm interests in a farm known as Ferndale, which adjoined the Ranganui block and was purchased in 1993. Title to the property was registered in the names of Clive and Linda Malcolm who took possession on 1 July 1993. Clive was primarily responsible for the day to day management of farming operations on Ferndale as well as on the existing blocks. All three blocks were managed as a single farming operation with the combined income being received and expenses paid from the farming partnership operated by Mr and Mrs Kenneth Malcolm. In 1997, Clive stopped working on the farm and by October that year he and Linda had left the farm and moved elsewhere. From that time, Clive and Linda have had no further connection with the farm which has continued to be farmed by Mr and Mrs Kenneth Malcolm. Ferndale has remained registered in the names of Clive and Linda. Efforts to resolve the issue of ownership of the subject land have been unsuccessful. In 2008, the company and Mr and Mrs Kenneth Malcolm (to whom we shall refer collectively as “the Malcolm interests”) issued proceedings in the High Court. They sought a declaration that Clive and Linda held the subject land in trust for them and an order vesting the subject land in the Malcolm interests. The proceedings were defended solely by Linda. Clive took no steps and gave evidence for the Malcolm interests. Linda accepted that the Malcolm interests were entitled to a beneficial interest in Ferndale on the basis of a constructive trust so that the sole issue for the court to determine was the quantification of the share in Ferndale to which the Malcolm interests were entitled. The claim by the Malcolm interests proceeded on the basis that they had contributed, both directly and indirectly, to the acquisition, preservation and enhancement of Ferndale. It was common ground that the principles to be applied were those stated by this Court in Lankow v Rose. The claim was carefully particularised and had two main components. The first was that the Malcolm interests had provided the entire purchase price for Ferndale and had made the company land available as collateral security. The second component comprised expenditure which was said to be of a capital nature such as fertiliser, fencing, scrub clearing and provision of a water supply. Each side engaged accountants to provide expert evidence. A large measure of agreement was reached between them. Woodhouse J delivered judgment on 18 February 2011. He determined (subject to final accounting adjustments) that the Malcolm interests were entitled to a share of 38 per cent of the market value of Ferndale at September 2010 which was agreed to be $1,792,750.00 (excluding GST). When the final adjustments were made, it was agreed that the Malcolm interests’ share in Ferndale should be assessed at 37 per cent of the agreed market value. This resulted in a figure of $663,317.50. The Judge made a declaration to that effect but the judgment did not determine how that finding is to be implemented. The Malcolm interests have now appealed submitting that the Judge erred in the quantification of the share of the Malcolm interests in Ferndale. They say that a proper quantification of the share of the Malcolm interests should have been 71.6 per cent which would result in the value of their interest in Ferndale being assessed as $1,283,609. Although a number of points were raised, the essential issues are whether the Judge erred: (a)By failing to weigh the relative contributions to Ferndale by the Malcolm interests and by Clive and Linda. (b)In the method of calculating a notional rental for the use made of Ferndale by the Malcolm interests. (c)By treating the application of fertiliser as a non-capital item. The appeal is allowed in part. The interest of the appellants in the Ferndale property is increased from $663,317.50 to $752,955.00 being 42 per cent of $1,792,750.00, the agreed market value at the date of the High Court hearing. The appellants’ 42 per cent share of Ferndale in terms of this judgment is subject to the condition that they accept sole responsibility for repayment of the $900,000 partially secured over the Ferndale property and indemnify the respondents in respect of that sum and any other liabilities relating to Ferndale. The costs of this appeal are to lie where they fall.

Orders