Minehan v McGuigan
[2020] NZHC 1686
•14 July 2020
IN THE HIGH COURT OF NEW ZEALAND GREYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA MĀWHERA ROHE
CIV-2019-418-000001
[2020] NZHC 1686
UNDER section 339 of the Property Law Act 2007 BETWEEN
DEA MARIE MINEHAN
First Plaintiff
JULIE MARIE MADIGAN
Second PlaintiffAND
BEDE CHRISTOPHER McGUIGAN
First Defendant
KIERAN HUGH McGUIGAN
Second Defendant
Hearing: 8 July 2020 Counsel:
D L Bell for the Plaintiffs
No appearance for the Defendants
Judgment:
14 July 2020
JUDGMENT OF DOOGUE J
This judgment was delivered by Justice Doogue on 14 July 2020 at 3.00 pm
pursuant to Rule 11.5 of the High Court Rules.
Registrar / Deputy Registrar Date:
Solicitors:
Parry Field Lawyers, Christchurch
MINEHAN & ANOR v McGUIGAN & ANOR [2020] NZHC 1686 [14 July 2020]
Introduction
[1] The plaintiffs and the first defendant are cousins who own three properties near Ross on the West Coast of the South Island. The properties are known as the Totara Valley Block, Paddy’s Block and the Mikonui River Run.
[2] The three properties have been farmed in conjunction with each other in a farming partnership for many years, by the same family through the generations.
[3] The plaintiffs seek an order under s 339(1)(c) of the Property Law Act 2007 (the Act), requiring them to purchase the first defendant’s interest in the properties at a fair and reasonable price and binding the defendant to give effect to the order by transferring his interest in the properties to the plaintiffs; or alternatively an order under s 339(1)(b) of the Act, dividing the properties amongst the plaintiffs and the first defendant.
[4] The first defendant has not taken any steps in the matter, and the claim proceeds by way of formal proof.
Background
[5] The first plaintiff is the executrix of the Estates of Martin John Minehan (Martin) and James Francis Minehan (Jim). Martin and Jim inherited the Totara Valley Block from their father. Martin is the plaintiffs’ father.
[6] Jim and Martin operated the Totara Valley Block as a farm through a partnership called “Minehan Bros” (the Partnership). They then purchased Paddy’s Block and Mikonui River Run as tenants in common in equal shares.
Administration of the Estates
[7] Jim died on 22 January 1994. He left his estate to Martin and to their sister Aileen. Martin and Aileen were both appointed executors of Jim’s estate.
[8] Aileen died on 13 January 2012. She left her estate to her nephews, the first and second defendants. Aileen died before Jim’s estate was administered.
[9] Martin died on 23 August 2014. He left his estate to the plaintiffs, and the first plaintiff was appointed as his executrix. The first plaintiff also became executrix of Jim’s estate.
[10] The net result of the succession is that the first plaintiff inherited a half share of the properties, the second plaintiff inherited a one-quarter share, and the first and second defendants inherited a one-eighth share each. Since the commencement of the proceedings, the second defendant has transferred his one-eighth interest to the first defendant, and the first defendant now has a one-quarter share in the properties.
[11]The properties were distributed to the parties on 29 October 2014.
Subsequent operation of the farm
[12] Although the properties were distributed in specie, Jim and Martin’s Estates (the Estates) continued. The other assets of the Estates remained owned by the Estates and operated by the Partnership.
[13]The Partnership was dissolved on 10 May 2018.
[14] As the executrix of the Estates, the first plaintiff continued to operate the Partnership and then after its dissolution, continued to farm the properties with the assets of the Estate. The first plaintiff lives on the properties, and the second plaintiff lives nearby and visits often to help with the running of the farm.
The farm properties
[15]The properties are situated within the Mikonui River Valley.
[16] The Totara Valley Block is situated at 119 Totara Valley Road. This has been in the Minehan family ownership for several generations. This land is a mixture of good established pasture, with some bush and swampy areas.
[17] Paddy’s Block is situated at State Highway 6, Ross. The majority of this property is situated on the northern side of State Highway 6, one and a half kilometres north of Ross and one kilometre west of the Totara Valley Road. This is a run-off
block which is used in conjunction with the Totara Valley Block. It is generally level and cleared, but is of poor quality and poor drainage and is subject to flooding from the Totara River.
[18] The Mikonui River Run property comprises a large area of river flats within the Mikonui Valley at the end of the Totara Valley Road, 20 kilometres inland from State Highway 6 and 22 kilometres from Ross.
Plaintiffs’ case
[19] As is quite common in intergenerational farming partnerships, relationships have deteriorated to the point where the relationship between the plaintiffs and the defendants is extremely acrimonious.
[20] The plaintiffs say that they have tried to work with the defendants to resolve matters about the properties, but despite numerous attempts over the years they have not been able to resolve agreement about the properties in respect of the following matters:
(a)the day-to-day running of farming operations;
(b)the development of the properties for farming operations, including fencing and the construction of a home on the properties for the farm manager;
(c)borrowing against the properties; and
(d)leasing of the properties.
[21] The plaintiffs say the operation of the farm is marginal without additional investment and that they have had to lend the Partnership $205,537 in order to keep it operational.
[22] Further, they say they have purchased necessities for the farming operation such as fence posts, gates and electrical fencing supplies. They say they have paid for
the materials for new sheep and cattle yards on the Totara Valley Block, and contributed to the purchase of a new tractor.
[23] The plaintiffs wish to invest in the properties but are unable to do so in a situation where negotiations with the defendants have proven impossible.
[24] The plaintiffs are willing, ready and able to purchase the first defendant’s share of the properties for a fair and reasonable price.
Legal framework – the Property Law Act 2007
[25]Section 339 of the Act provides:
339 Court may order division of property
(1)A court may make, in respect of property owned by co-owners, an order—
(a)for the sale of the property and the division of the proceeds among the co-owners; or
(b)for the division of the property in kind among the co-owners; or
(c)requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.
(2)An order under subsection (1) (and any related order under subsection (4)) may be made—
(a)despite anything to the contrary in the Land Transfer Act 2017; but
(b)only if it does not contravene section 340(1); and
(c)only on an application made and served in the manner required by or under section 341; and
(d)only after having regard to the matters specified in section 342.
(3)Before determining whether to make an order under this section, the court may order the property to be valued and may direct how the cost of the valuation is to be borne.
(4)A court making an order under subsection (1) may, in addition, make a further order specified in section 343.
(5)Unless the court orders otherwise, every co-owner of the property (whether a party to the proceeding or not) is bound by an order under subsection (1) (and by any related order under subsection (4)).
…
[26]The Court must also have regard to the following relevant considerations:1
342Relevant 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.
[27] On the weight to be given to the considerations in s 342 listed above, Wylie J commented:2
The words “must have regard to” are not synonymous with “shall take into account”. Nor do they mean “give effect to”. The Court cannot ignore the listed factors. They must be given genuine thought and consideration and such weight as the Court considers appropriate. However, they will not necessarily be decisive in determining whether an order should be made.
[28]The Court may also make the following additional orders:3
343Further powers of court
A further order referred to in section 339(4) is an order that is made in addition to an order under section 339(1) and that does all or any of the following:
(a)requires the payment of compensation by 1 or more co- owners of the property to 1 or more other co-owners:
(b)fixes a reserve price on any sale of the property:
(c)directs how the expenses of any sale or division of the property are to be borne:
(d)directs how the proceeds of any sale of the property, and any interest on the purchase amount, are to be divided or applied:
1 Property Law Act, s 339(2)(d).
2 Bayly v Hicks [2011] NZHC 920, (2011) 13 NZCPR 568 at [33] (footnotes omitted).
3 Section 339(4).
(e)allows a co-owner, on a sale of the property, to make an offer for it, on any terms the court considers reasonable concerning—
(i)the non-payment of a deposit; or
(ii)the setting-off or accounting for all or part of the purchase price instead of paying it in cash:
(f)requires the payment by any person of a fair occupation rent for all or any part of the property:
(g)provides for, or requires, any other matters or steps the court considers necessary or desirable as a consequence of the making of the order under section 339(1).
[29] After reviewing the application of s 339 in previous cases, Associate Judge Matthews held in Keery v Thomas that s 339(1)(c) gave the Court the power to order a co-owner to sell its share.4 A residential property was owned by Mr Keery and his estranged daughter and her husband, and Mr Keery successfully sought an order that Ms Thomas and Mr Thomas must sell him their share of the property. Associate Judge Matthews accepted that:5
… if it is appropriate to make an order under s 339(1)(c) that Mr Keery purchase the share in the property owned by each of Ms Thomas and Mr Thomas, each of the latter parties are bound by that order, pursuant to s 339(5), as well as by any further orders that might be made under s 339(4). As a result they would be bound to give effect to the orders by transferring the property to Mr Keery.
[30] Thus, the Court has jurisdiction to bind the first defendant to give effect to the order by transferring his interest in the properties to the plaintiffs.
Discussion
[31] I shall now apply the mandatory considerations set out in s 342 to the present facts.
The plaintiffs’ shares in the properties
[32] I note the plaintiffs own a three-quarter share of the properties and the first defendant owns a one-quarter share. Thus, the plaintiffs have the majority interest in the properties. This is a factor that weighs in their favour.
4 Keery v Thomas [2015] NZHC 113, (2015) 16 NZCPR 117.
5 At [23].
The nature and location of the properties
[33] The three properties are situated within the Mikonui River Valley. The properties form a farming unit which has been farmed by the parties’ family for generations. The first plaintiff has been working on the land since 1998.
[34] The Totara Valley Block is used for adult cattle. Steers are fattened on this block for sale along with heifers, with some replacements kept and calved before returning to the river block. This property has an estimated total value of $1,150,000.
[35] Paddy’s Block is a run-off block of poor quality that is used in conjunction with the Totara Valley Block. It has an estimated value of $170,000.
[36] Mikonui River Run is a relatively remote grazing property of mixed tenure. It has been run for the last 50 years in conjunction with the Totara Valley Block near Ross. Ninety beef cows are grazed, with calves removed from the property before winter. There is an old homestead and sharing shed, a large fertiliser shed and cattle yards on this property. It has an estimated value of $625,000.
[37] This is not a suitable case for an order under s 339(1)(b) dividing the property in kind between the co-owners, as the property is made of three discontiguous pieces of land. Each of the three pieces of land are different in area and value. The farming business needs all three pieces of land to operate efficiently. The Mikonui River Run is used as the breeding block. The Totara Valley Block and Paddy’s Block are used as finishing blocks.
[38] There is no easy way to separate out a one-quarter share of the properties. A one-quarter section of each of the three pieces of land would be of little use to the first defendant. It would also be extremely difficult to calculate a contiguous piece of the property that represents a quarter of the value of the properties.
The number of other co-owners and the extent of their shares
[39] There are only three interests to protect; the plaintiffs own a three-quarter share of the properties, and the first defendant owns a one-quarter share. Thus, there are no
complexities making severance of the parties’ interests unrealistic and unachievable. Severance of the parties’ interests is very simple in this case. This factor weighs in the plaintiffs’ favour.
Hardship caused by making or refusing an order under s 339
[40]In Holster v Grafton, Fogarty J observed as follows:6
“Hardship” is a value laden criterion. It suggests an adverse effect which is of significant impact to the applicant. It has to be read consistent with the policy of the statute which respects property rights of tenants in common, but seeks to resolve conflicts fairly…
[41] The first plaintiff lives and works on the properties. The stalemate over how to manage the properties has prevented her from being able to build a much-needed new home. She will suffer further hardship from a continuation of this stalemate.
[42] Continuing the current state of affairs would cause hardship in that the defendants have not only refused to allow the plaintiffs to build a house on the properties, but also to borrow against the land. They have failed to engage in any decision that requires the consent of all owners. This has made it difficult for the farming operation to continue effectively.
[43] By contrast, the first defendant does not live or work on the properties and would suffer no obvious hardship from the sale of his share to the plaintiff.
[44] In addition, it would seem possible that all parties may benefit from an end to this stalemate and the acrimony it injects into their relationship. Severance of their interests may help to repair the relationships.
[45] I am satisfied that this factor weighs in favour of the plaintiffs, as refusing their application would cause them undue hardship.
6 Holster v Grafton (2008) 9 NZCPR 314 at [50].
Contributions by the parties to the cost of improvements to, or the maintenance of, the properties
[46] The first plaintiff is the farm manager. The plaintiffs have invested significant funds ($205,537) in the farming operation which would be lost if the order is not made. They are unable to recover this sum without a resolution to the current stalemate.
[47] By contrast, the first defendant has had nothing to do with the farming operation. The defendants have made no contribution to the cost of improvements to, or the maintenance of, the property.
[48]This is a factor which weighs in the plaintiffs’ favour.
Other relevant matters
[49] As far as any other matters that the Court considers relevant is concerned, I have regard to the acrimonious state of the relationship between the parties. I am satisfied that the ability of the parties to reach any agreement in the circumstances is unlikely. I find myself in the same situation as Moore J in Gonsalves v Williams where the continuing, if not escalating, levels of animosity are a factor supporting the need to make an order.7
[50] Although the Partnership has been dissolved, the administration of the Estates of John and Martin cannot be concluded. Each Estate owns a half share in the assets used to operate the farm. As part of the various settlement proposals, the plaintiffs have offered to purchase the assets from the Estates as a going concern. If the Court grants the orders sought, the plaintiffs intend to make an offer to purchase the assets from the Estates. Those Estates will then be able to be finally administered, benefitting both the plaintiffs and the defendants.
[51] I also note the properties form a farming unit which has been farmed by the parties’ family for generations. It is the first plaintiff who has continued this legacy in the current generation, with the assistance of the second plaintiff. Allowing for the
7 Gonsalves v Williams [2014] NZHC 2376.
first defendant to receive appropriate and reasonable compensation for his share of the property would allow this important farming legacy to continue to the next generation.
Other orders inappropriate
[52] The Court has the power to make an order different from that sought by the plaintiffs.8 However, the Court of Appeal has stated that a judge should not lightly come up with a different proposal to that of the parties and would naturally be cautious about making an alternative order, particularly when a good deal of further action is required to obtain relevant consents.9
[53] An order to divide the properties between the parties would not be appropriate here. The farm requires all three properties to operate effectively. Any division would involve further time, surveying costs and legal costs in order to assess how best to divide the properties and whether consents could be obtained to enable such a division.
[54] Furthermore, the first defendant has decided not to actively engage in these proceedings, despite protracted and extensive negotiations. He has thus not sought to persuade the court that division would be appropriate in these circumstances.
[55] In Bunyan v Parish, Muir J considered that the defendant’s decision not to take a role in the hearing was a factor which supported an order that the defendant should sell his share to the plaintiff.10 That factor weighs in favour of the plaintiffs in this case as well.
Decision
[56] In summary, having regard to the factors in s 342, I consider an order under s 339(1)(c) of the Property Law Act 2007 requiring the plaintiffs to purchase the first defendant’s share in the properties at a fair and reasonable price to be warranted.
8 Bayly v Hicks [2012] NZCA 589 at [26]-[27].
9 At [41] and [45].
10 Bunyan v Parish [2016] NZHC 2225, (2016) 18 NZCPR 163 at [44].
[57] I do not consider it fair nor reasonable, given the intergenerational history attaching to this matter and the nature of the properties, to make an order under s 339(1)(b) of the Act dividing the land among the parties.
How is the price to be paid to the first defendant to be calculated?
[58] Section 339(1)(c) refers to the purchaser paying a “fair and reasonable” price. In other cases, this has been established from a professional valuation.11 In Vallance v Vallance, Associate Judge Matthews concluded that no allowance for real estate agent commission or other sale expenses should be given in determining the price.12
[59] The plaintiffs have engaged Quotable Value Limited (QV) to value the properties. QV’s market valuation report dated 4 February 2015 and subsequent updated report of 27 July 2018 were provided to the defendants, in an attempt to negotiate a resolution. The defendants have not contested these valuations, nor obtained an alternative valuation. The plaintiffs sought a further updated valuation from QV, which is dated 19 September 2019 and is the most recent valuation of the properties. It assesses the total value of the properties at $1,600,000.13
[60] The plaintiffs say a fair market rate for them to purchase the first defendant’s one-quarter share of the properties is $400,000.
[61] Given the length of time since the last valuation and the fluctuations that have been evidenced by the successive valuations in this matter, I consider there needs to be an updated valuation filed so the value of the first defendant’s interest can be fairly and reasonably calculated in light of the current circumstances.
11 Keery v Thomas, above n 4; Bunyan v Parish, above n 10.
12 Vallance v Vallance [2015] NZHC 957 at [9].
13 This total removes $50,000, being the estimate value of a Department of Conservation grazing licence in the Mikonui River Run. This licence is an asset of the Partnership and not the subject of this application.
Costs
[62] Counsel for the plaintiffs submitted the Court should order costs against the first defendant in their favour.
[63] The dual presumptions that apply are that costs follow the event, and that the losing party should pay costs to the successful party.14 There are no exceptional circumstances in this case to displace those presumptions and costs will follow the result.
[64]The plaintiffs seek an award of increased costs over and above 2B.
[65] In Bradbury v Westpac Banking Corp, the Court of Appeal described increased costs as warranted where “there is failure by the paying party to act reasonably” and indemnity costs “where that party has behaved either badly or very unreasonably”.15 The High Court Rules 2016 provide that the Court may order a party to pay increased costs if it fails, without reasonable justification, to accept an offer of settlement.16
[66] Counsel for the plaintiffs submitted 2B costs in this proceeding are $17,803.50. Further, she submitted that the first defendant’s behaviour has been completely unreasonable and seeks an order for increased costs, with a 50 per cent uplift on 2B costs, resulting in $26,705.25. Together with disbursements of $4,600, the plaintiffs seek a total of $31,305.25.
[67] I am satisfied that the cost of the proceedings has been necessitated by the actions or inactions of the first defendant. However, I require the plaintiffs to file a memorandum itemising the legal costs and disbursements in proper schedule form and making some optional calculations for the court to review (showing different rates of uplift, at 10 per cent, 15 per cent, 25 per cent and 50 per cent), before I settle on the award of costs to be made in this case.
14 High Court Rules 2016, r 14.2(1)(a).
15 Bradbury v Westpac Banking Corp [2009] NZCA 234; [2009] 3 NZLR 400 at [27].
16 High Court Rules, r 14.6(3)(b)(v).
Orders
[68]I make the following orders and directions:
(a)An order requiring the plaintiffs to purchase the first defendant’s one quarter share in the properties WS1A/1016, WS3A/640, WS3A/397, WS2D/174, WS2C/1187, WS2A/947, WS1B/1313, and WS1A/554 (part cancelled).
(b)The plaintiffs shall obtain an updated valuation of the properties from a registered valuer and file that in Court.
(c)A costs order will issue in favour of the plaintiffs. The quantum will be determined after the Court receives the memorandum directed in (d).
(d)The plaintiffs shall submit a memorandum itemising the legal costs and disbursements they submit should be paid by the defendant on a 2B basis.
(e)Such costs as the Court determines are proper shall be deducted from the purchase price.
(f)The Court will then calculate the precise amount owed by the plaintiffs to the first defendant, to purchase his share in the properties.
(g)Leave is reserved to the plaintiffs to apply for other orders as may be necessary to give effect to these orders.
Doogue J
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