Marks v Halse
[2021] NZHC 1595
•30 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-1918
[2021] NZHC 1595
UNDER Section 339 and 342 of the Property Law Act 2007 BETWEEN
PHILIP RONALD MARKS
Applicant
AND
GRAEME WILLIAM HALSE
Respondent
Hearing: 14 June 2021 Appearances:
R L Scott and A McClelland for the Applicant D W Grove for the Respondent
Judgment:
30 June 2021
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 30 June 2021 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
MARKS v HALSE [2021] NZHC 1595 [30 June 2021]
Introduction
[1] The applicant, Mr Marks, and the respondent, Mr Halse, are co-owners of a property in Whangamatā. They own the property as tenants in common in undivided shares. Mr Marks owns a 57 per cent share, Mr Halse 43 per cent.
[2] Mr Marks and Mr Halse entered into a property sharing agreement in respect of the property. The agreement has detailed provisions governing the possibility of one co-owner wishing to sell his share in the property. Those provisions do not allow that co-owner to force a sale of the entire property on the other co-owner.
[3] Mr Marks applies under s 339 of the Property Law Act 2007 (the PLA) for an order for the sale of the entire property and the division of the proceeds between him and Mr Halse. Mr Halse opposes. The main issue on the application is whether, given the terms of the property sharing agreement, I should force a sale of the entire property on Mr Halse.
Background to co-ownership and the property sharing agreement
[4] To give context to the property sharing agreement, it will be helpful to explain the capacity in which Mr Halse holds his share in the property, and the background to him and Mr Marks becoming co-owners.
[5] Mr Halse holds his share in the property as trustee of the PRMT Trust. The PRMT Trust was settled by Mr Marks in 2002. The beneficiaries of the PRMT Trust are Andrew and Rachael Lusk.
[6] Andrew and Rachael Lusk are children of the late Richard Lusk, who died in October 2007. Mr Marks was a friend of, and a business partner with, Richard Lusk.
[7] Richard Lusk and his wife had established a trust in February 2000 called the Pacific View Trust. After Richard Lusk died, the trustees of the Pacific View Trust claimed that trust was entitled to a 43 per cent share in the Whangamatā property. Mr Marks was then the sole registered proprietor of the property. The Pacific View
trustees lodged a caveat to protect their claimed interest. Mr Marks applied to have the caveat removed.
[8] The Pacific View trustees and Mr Marks then, in 2011, resolved their dispute by entering into a deed of settlement. Mr Halse was also a party to the deed. Under that deed:
(a)Mr Marks retired as trustee of the PRMT Trust, and appointed Mr Halse as new trustee in his place.
(b)Mr Halse became entitled (as trustee of the PRMT Trust) to be registered as the proprietor of a 43 per cent share in the property. Mr Marks retained the other 57 per cent.
(c)Mr Marks was entitled to register a mortgage over Mr Halse’s 43 per cent share, to secure indebtedness of about $40,000, being out-of- pocket expenses that Mr Marks had incurred as a result of previously owning the 43 per cent share in the property.
[9] Later in 2011, Mr Marks and Mr Halse entered into a property sharing agreement. The agreement recorded that Mr Marks was at the time registered as the sole proprietor of the property, but that as a result of the settlement deed Mr Halse was entitled to be the registered proprietor of 43 per cent of the property.
[10] Clause 2 of the property sharing agreement said the parties would be registered on the title to the property “as tenants in common as to an undivided share corresponding to each parties’ Share”. The clause continued: “despite registration in that manner, their rights relating to the Property are governed by this agreement”. Clause 3 provided that the agreement “shall … continue on thereafter until termination in accordance with the provisions of this agreement”.
[11] Clause 4 provided that the parties were to contribute to all outgoings on the property (including rates and maintenance costs) in proportion to their share of the property. Clause 5 made a similar provision in respect of improvements, except that
it provided that any improvements must first be agreed in writing. In the event that either party failed to pay his share of outgoings or improvements, cl 8 provided that a party could pay the full amount and then demand payment from the other party of the other party’s share.
[12] The property sharing agreement included detailed provisions governing the possibility of one co-owner wishing to sell his share:
10.If one party wishes to sell, transfer or otherwise dispose of that party’s Share in the Property, then that party (“Selling Party”) must give the other party (“Other Party”) at least one month’s written notice (“Sale Notice”) of the Selling Party’s wish to sell that party’s Share in the Property.
11.On receipt of a Sale Notice, the Other Party will have an option to purchase the Selling Party’s Share in the Property. The Other Party will have one month from receipt of the Sale Notice to exercise the option to purchase, by giving written notice to the Selling Party.
12.If the Other Party exercises the option to purchase, the price to be paid for the Selling Party’s Share in the Property will be the value of the Selling Party’s Share of the current market value of the Property at the time the Sale Notice is given. On receipt of the Other Party’s notice exercising the option, the parties must try to agree on the current market value of the Property. If they cannot agree within one month of the day on which the Sale Notice is given, the current market value of the Property will be determined under cl 19.
13.The settlement date for the sale of the Selling Party’s Share in the Property will be four weeks after the date on which the current market value is agreed or determined under cl 19. The amount to be paid by the Other Party on settlement will be adjusted to take into account any money owing by either party under this agreement.
14.If both parties agree to sell the Property the Property will be placed on the open market for sale at the best price and on the most favourable terms likely to result in the sale of the Property within a reasonable time. Both parties must take all reasonable steps to facilitate the sale of the Property if the entire Property is placed on the market.
15.If the option granted under cl 11 is not exercised, the Selling Party’s share of the Property will be placed on the open market for sale at the best price and on the most favourable terms likely to result in the sale of the share of the Property within a reasonable time. The Other Party must not take any steps to interfere with the sale of the Selling Party’s share of the Property.
16.The minimum price at which the Property will be sold under cl 14 is the current market value of the Property as agreed between the parties, or if the parties cannot agree within one month, then as determined under cl 19.
17.If the Selling Party drops the asking price for the Selling Party’s Share in the Property from the current market value of the Share in the Property as determined under cl 12 or 19, the Selling Party must first offer the Share in the Property to the other Party at the reduced price before the Selling Party can sell its Share in the Property to any other person. Clauses 11 and 12 will apply if the price is reduced.
18.The proceeds of sale of the Property must be applied as follows:
(a)Firstly, in repayment of any registered charges on the Property, rates and any other charges which are required to be cleared to complete settlement;
(b)Secondly, in repayment of the advertising costs and any auction costs incurred on the sale;
(c)Thirdly, in payment of the commission payable to any sales agent;
(d)Fourthly, in payment of legal fees and expenses on the sale;
(e)Fifthly, in payment of fees of any independent registered valuer appointed under cl 19;
(f)Sixthly, in payment of out of pocket expenses incurred by Marks when he was a PRMT trustee as previously agreed between parties.
(g)Any balance remaining will be divided between the parties in accordance with their respective Share, but the amount of each party’s Share will be adjusted to take into account any money owing by that party under this agreement.
19.If the parties are unable to agree on the current market value of the Property under cl 12 or cl 16, then an independent registered valuer appointed jointly by the parties will determine the current market value of the Property.
20.If the parties are unable to agree on the appointment of an independent registered valuer within 14 days, the parties must each appoint a registered valuer to determine the current market value of the Property and the current market value will be the average of the two valuations.
21.The parties agree that on receipt of a Sale Notice, the Other Party may actively seek to find a third party purchaser for the Selling Party’s Share of the Property. In the event that the Other Party advises the Selling Party that it has a third party willing to purchase the Selling Party’s Share of the Property at the current market value, or the reduced value under cl 17, the parties agree that Selling Party shall sell its share of the Property to the buyer found by the Other Party in preference to any buyer other than the Other Party. Neither party shall be permitted to claim any agency fees, commission or costs of whatever nature incurred in connection with seeking of finding a third party purchaser.
[13] In 2011, when the parties entered into the deed of settlement and the property sharing agreement, Andrew and Rachael Lusk (for whom Mr Halse was holding his 43 per cent share) were, respectively, 23 and 20 years of age. Mr Marks was then in his early 60s.
Why Mr Marks wants the entire property sold
[14] The details of the events that I describe in this section are to some extent in dispute. I therefore provide only a sketch. For reasons that will become apparent, it is not necessary for me to resolve the disputes over detail in order to determine Mr Marks’ application.
[15] Lying behind Mr Marks’ application is his concern that until recently Mr Halse has since 2011 (i) failed to pay anything towards his share of the outgoings on the property (in breach of the property sharing agreement) and (ii) failed to pay anything towards the balance of about $40,000 that was recognised in the deed of settlement. Including interest, the amount owing to Mr Marks as at August 2020 for these two matters was in excess of $80,000.
[16] In August 2020, Mr Halse made two payments totalling a little over $83,000 to Mr Marks in respect of these matters. A balance of about $8,000 is in dispute.
[17] In an affidavit in support, Mr Marks says that, although he is grateful for the payments made to him in August 2020, he continues to pay rates and other outgoings on the property. Annual rates for the property are a little over $4,500. Mr Marks is 72 and has recently retired. He does not want to continue to be the “bank” for Mr Halse or for Andrew and Rachael Lusk in his retirement. Nor does he wish to be in a relationship with them that “constantly requires legal and Court intervention”.
[18] Mr Marks claims that for nearly the last decade he has been attempting to reach agreement with Mr Halse, and with Andrew and Rachael Lusk, regarding the payment of outgoings, including how they should be paid in the future. He says that over those years his solicitors have issued countless demands and correspondence in order to obtain payment. He says that it was only at “the final hour”, once proceedings in the
District Court had been prepared and were about to be filed, that he received the payments in August 2020.
[19] Mr Marks says that the property is bare development land. He says that unless it is sold as a block, it would need substantial investment for subdivision, legal and infrastructure costs. Mr Marks is not prepared to finance development on the property, given the risk of development costs. He says that he has other investment goals in his retirement that are of less risk than developing the property.
[20] He adds that, despite the property being a very desirable one, he and Richard Lusk had always intended it to be a development property and held as bare land. He says it was never a property with which Richard Lusk’s children had any sentimental relationship. Mr Marks describes it as “a piece of dirt”.
[21] Mr Marks says that in 2020 he was approached by a third party who wanted to purchase the property. A draft agreement for sale and purchase was drawn up. This proposed sale was put to Mr Halse (and to Andrew and Rachael Lusk). Mr Marks says that he did not receive a proper response for some time from Mr Halse. This frustrated Mr Marks.
[22] Mr Marks concludes his affidavit in support, dated 29 September 2020, by stating that he holds the “majority share of the property and I wish it to be sold”. He says he was previously open to considering other ways that would benefit the parties but had now reached the decision that “applying for sale is the only sensible option, that all other possibilities are exhausted, along with my patience and funds”.
The steps that Mr Marks has taken under the property sharing agreement
[23] Mr Marks does not, in the body of his affidavit, say much about the steps he has taken under the property sharing agreement to sell his share of the property. However, these steps are reasonably clear from documents annexed to his affidavit, and from the affidavit of Mr Halse in opposition.
[24] On 6 July 2020, Mr Marks gave notice to Mr Halse under cl 10 of the property sharing agreement that he wished to sell his share in the property. The notice stated that Mr Halse had one month to exercise his option to purchase Mr Marks’ share.
[25] Mr Halse did not exercise his option to purchase Mr Marks’ share. Instead, on 27 August 2020, Mr Halse objected to the validity of Mr Marks’ notice, on the basis it had failed to disclose any sale price. That was not a valid objection, since the property sharing agreement did not require a price to be specified. Nothing turns on this. Mr Marks could have, but did not, act on his notice.
[26] On 2 October 2020, Mr Marks gave another notice to Mr Halse under cl 10 of the property sharing agreement that he wished to sell his share in the property. The notice stated (correctly) that if Mr Halse did not exercise the option, Mr Marks’ share of the property would be placed on the open market. The notice further stated that Mr Marks had a willing purchaser for his share in the property, and that if Mr Halse did not exercise his option to purchase, Mr Marks would enter into negotiations with that prospective purchaser.
[27] On 7 October 2020, Mr Marks filed this application. He did so before the option period under his 2 October 2020 notice had expired.
[28] Mr Halse did not exercise his option to purchase in response to Mr Marks’ 2 October 2020 notice. Andrew Lusk did make an offer to Mr Marks on 30 October 2020 to purchase his 57 per cent share in the property. He was of course free to make such an offer, but the offer was not in exercise of Mr Halse’s option to purchase.
[29] Because Mr Halse did not exercise his option to purchase, cl 15 of the property sharing agreement applied. This provided that Mr Marks’ share of the property would be placed on the open market for sale, and that Mr Halse must not take any steps to interfere with the sale of Mr Marks’ share.
[30] On 28 January 2021, Mr Marks’ solicitors wrote to Mr Halse’s counsel. They attached a valuation that they had obtained for the property. They said Mr Marks was unlikely to accept any offer less than what “is a true reflection of the market value
nominated by the current valuation”. The letter concluded that Mr Marks was not
obliged to accept an offer below what he would expect to receive on the open market.
[31] The parties (and Andrew and Rachael Lusk) thereafter attempted to negotiate an agreed price for the purchase of Mr Marks’ share. Open correspondence was sent in the course of the negotiations. On 16 March 2021, Mr Halse’s counsel wrote to Mr Marks’ solicitors that if agreement could not be reached, the only option available to Mr Marks was pursuant to cl 15 of the property sharing agreement (sale of Mr Marks’ share on the open market).
[32] While those negotiations were progressing, the parties sensibly agreed to postpone the date by which Mr Halse had to file his opposition to Mr Marks’ application. His opposition was dated 15 April 2021, and was supported by affidavits from himself and from Andrew and Rachael Lusk.
[33] Mr Halse said in his affidavit that it had never been his position that Mr Marks was not entitled to realise his share in the property as set out in the property sharing agreement. Mr Halse said that Mr Marks’ position was that, because he wished to sell his share, he was entitled to force Mr Halse to sell as well. Mr Halse said he thought that position was misconceived.
[34] Mr Marks made a reply affidavit dated 23 April 2021. In relation to the steps he has taken to sell, Mr Marks says that he has suggested that “I sell just my share and I have received no response”. I observe that Mr Halse’s counsel’s letter dated 16 March 2021, to which I have referred above, was a response to that suggestion (stating that Mr Marks should be selling his share on the open market).
[35] In his reply affidavit, Mr Marks also says that the property sharing agreement has been breached “considerably”, and that he is seeking a remedy from the court “to relieve myself from the burden of the land owning relationship”. Mr Marks does not explain what attempts he has made (since his earlier affidavit) to relieve himself of that relationship by selling his share on the open market.
Mr Marks’ application, and Mr Halse’s opposition
[36] Mr Marks applies under s 339 for an order that the entire property be sold, on the following grounds:
(a)He is a co-owner of the property.
(b)He holds a majority share of the property, 57 per cent. The land is bare development land.
(c)Since 2011 he has paid and administered all outgoings on the property. This has caused him an unfair burden and hardship.
(d)Mr Halse will benefit from the sale and will no longer have the hardship of meeting the outgoings for the property.
(e)As bare land, the property is not the home or dwelling place of the beneficiaries of the trust under which Mr Halse holds his share, Andrew and Rachael Lusk.
[37] In his notice of opposition, Mr Halse primarily relies on the property sharing agreement. He says no hardship would be caused by the refusal of an order to sell the entire property, as Mr Marks “has his contractual rights to sell his share in the property”. He also says there would be extreme hardship to Andrew and Rachael Lusk. In their affidavits in support of Mr Halse’s opposition, Andrew and Rachael Lusk say that the property has sentimental value to them.
[38] Whether the property held sentimental value for Andrew and Rachael Lusk was one of several disputes that arose on the affidavits. Neither party served a notice under r 9.741, under which a party wishing to cross-examine a person who has made an affidavit can require the deponent to be produced at the hearing for cross- examination.
1 By r 19.14, r 9.74 applies to a proceeding commenced by originating application.
[39] As it happens, I find it unnecessary to resolve any of the factual disputes that arose on the affidavits. This is because the disposition of Mr Marks’ application depends on the application of the terms of the property sharing agreement.
Decision
[40] Section 339(1) of the PLA confers on this Court the power to make orders in respect of co-owned property, as follows:
(1)A court may make, in respect of property owned by co-owners, an order—
(i)for the sale of the property and the division of the proceeds among the co-owners; or
(ii)for the division of the property in kind among the co-owners; or
(iii)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.
[41] Mr Marks seeks an order under s 339(1)(a). Such an order may be made only after having regard to the matters specified in s 342 (see s 339(2)). Section 342 provides:
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.
[42] In this case the parties entered into the property sharing agreement. The agreement has mechanisms providing for the sale of the entire property (and the division of the proceeds between the co-owners) and for one of the parties to purchase the other party’s share in the property. The agreement therefore covers much of the same ground as s 339(1) of the PLA. This raises questions as to the extent to which parties are able to vary or exclude by contract the right to make an application under s 339, and about the extent to which a court should take into account such a contract when considering an application under s 339.
[43] It is doubtful that co-owners can contract out of the right to make an application under s 339.2 However, the property sharing agreement does not purport to contract out of the rights under s 339. The comments of Brennan J in Nullagine Investments Pty Ltd, although directed at earlier Partition Acts (of which s 339 is the modern equivalent), remain relevant and informative. His Honour said (emphasis added):3
The purpose of such Acts is to provide a statutory mechanism for terminating the co-ownership of land when the co-owners fail themselves to agree on the manner on which the co-ownership shall be terminated. By affording the remedies provided by the Partition Acts, the legislature has facilitated the alienability of the land itself and alienability of land is a policy which the law supports except where inalienability is required for the protection of a disadvantaged class. Co-owners having the capacity to deal with their respective shares or interests are at liberty to agree the terms on which land will be disposed of or the terms on which the shares or interests of one or more co-owners will be acquired by another or others or the manner in which the land in co-ownership shall be divided. When a term bargaining away the statutory right to apply for an order for partition or sale is part of an agreement which itself provides for the termination of the tenancy in common, the bargain is consistent with the policy of the Partition Acts.
[44] A similar observation was made by Associate Judge Abbott in Ko v Chamberlain. His Honour said:4
I accept that there is a line of authority to the effect that the Court will not order partition where the parties have agreed to arrangements for sale of the land. In Peck v Cardwell the Court was dealing with a joint venture involving a subdivision of land. In both Dimsdale v Robertson and Redwood v Redwood the Courts were dealing with partnership arrangements. The rationale of those cases was that partition was not appropriate because the parties had already
2 Nullagine Investments Pty Ltd v The Western Australian Club Inc (1993) 177 CLR 635 at 650 per Brennan J; Ko v Chamberlain (2007) 8 NZCPR 261 (HC) at [33].
3 Nullagine Investments Pty Ltd v The Western Australian Club Inc (1993) 177 CLR 635 at 650 per Brennan J.
4 Ko v Chamberlain (2007) 8 NZCPR 261 (HC) at [33].
agreed on a process for sale. The Courts effectively sanctioned the proposed method of alienation of the land rather than allowing a party to circumvent the agreement by seeking partition. These cases are therefore consistent with the objectives of partition, to facilitate alienation of land where there is a deadlock between joint tenants or tenants in common.
[45] Both sets of comments apply to the property sharing agreement, which I find to be consistent with the policy underlying s 339. I conclude, therefore, that the agreement is valid, and should be taken into account in determining the application under s 339.
[46] The property sharing agreement provides that if, as happened, Mr Halse does not exercise the option to purchase Mr Marks’ share in the property, there are only two possibilities:
(a)Mr Marks and Mr Halse agree that the entire property should be placed on the market.
(b)In the absence of such agreement, Mr Marks is to put his share in the property on the market.
[47] It is clear that no agreement was reached between Mr Marks and Mr Halse to place the entire property on the market. It follows that the remaining possibility, under the property sharing agreement, is for Mr Marks to put his share of the property on the market. Mr Marks himself acknowledged this on 2 October 2020, in the sale notice that he served on Mr Halse.
[48] That is the mechanism by which Mr Marks agreed he would sell his share in the property (in the events that have happened). More importantly (in the context of an application for an order that the entire property be sold), the property sharing agreement is very clear that in these circumstances Mr Marks is not entitled to force Mr Halse to join in a sale of the entire property. Clause 14 provides that the entire property will be placed on the market “if both parties agree to sell the Property”.
[49] In my view, in the absence of any suggestion that Mr Halse (or Andrew and Rachael Lusk) are interfering in Mr Marks’ attempt to sell his share – and there is no
such suggestion – it is very difficult to see why the Court should, under s 339, force upon Mr Halse the very thing (a sale of the entire property) that Mr Marks and Mr Halse had agreed would happen only if both parties agreed. Mrs Scott, for Mr Marks, put forward two reasons that the Court should nonetheless make an order. I find neither persuasive.
[50] The first reason was that Mr Halse had, for many years, failed to reimburse Mr Marks for outgoings under the agreement. I accept that Mr Halse breached the agreement in that way. But Mr Marks has not purported to cancel the agreement on the grounds of such breach (and it would likely be impossible for him to do so, given that he has continued to rely on and thereby affirmed the agreement). The agreement remains in force, and both parties are bound by it.
[51] Mrs Scott’s second reason was that it was unrealistic for Mr Marks to sell his 57 per cent share. She said that it was unlikely that a purchaser would wish to acquire a mere 57 per cent share in the property, or unlikely that a purchaser would pay a price that reflected a 57 per cent share of the market value of the entire property. I accept that is a likely difficulty for Mr Marks. But that difficulty is precisely the eventuality the parties contemplated when entering into the property sharing agreement. It is an eventuality that could have fallen on either party.
[52] In light of the property sharing agreement that Mr Marks entered into, I conclude that no hardship would be caused to him by the refusal of his application, since he remains free to sell his share in accordance with that agreement. Hardship would be caused to Mr Halse if I made the order, since the order would conflict with his contractual rights under the agreement. Mr Marks’ application seeks the Court’s assistance to act inconsistently with that agreement. That inconsistency is, under s 342(f), a relevant matter that points strongly away from making the order sought. The other relevant matters under s 342 are neutral.
[53] Having considered the matters in s 342, and for the reasons set out above, I decline to make the order sought by Mr Marks.
Result
[54]I decline Mr Marks’ application.
[55] Mr Halse is entitled to costs. I encourage the parties to reach agreement on costs. Failing agreement, brief memoranda (no longer than three pages, excluding relevant annexures or schedules) are to be filed: Mr Halse by 16 July 2021, Mr Marks by 23 July 2021.
Campbell J
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