Peterson v Mills
[2020] NZHC 2400
•16 September 2020
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2019-470-126
[2020] NZHC 2400
BETWEEN CARL JAMES PETERSON
First appellant
LYNETTE JOY MILLS
Second appellantTHE PETERSON/MILLS PARTNERSHIP
Third appellantAND
GRAHAM HOWARD MILLS
Respondent
Hearing: 20 July 2020 Appearances:
First, second and third appellants in person J R Sparrow for the respondent
Judgment:
16 September 2020
JUDGMENT OF PALMER J
This judgment was delivered by me on Wednesday 16 September 2020 at 11.30am.
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
Parties/Solicitors
First, second and third appellants in person Holland Beckett Law, Tauranga
PETERSON v MILLS [2020] NZHC 2400 [16 September 2020]
Summary
[1] Mr Graham Mills and Ms Lynette Mills separated. Mr Carl Peterson, Ms Mills’ friend and now personal partner, then agreed to buy Mr Mills’ share of two properties. It was agreed that Ms Mills, who also signed the agreement, would retain business assets on the properties. But ASB Bank declined to allow Mr Mills’ overdraft liabilities to transfer to Mr Peterson. Mr Peterson and Ms Mills sued Mr Mills. Both parties agreed the Agreement had been cancelled but disagreed on who cancelled it and when. The late Judge A P Christiansen made orders under s 43 of the Contract and Commercial Law Act 2017 (the Act) for the sale of one of the properties and application of the proceeds to the ASB mortgage and overdraft and to net debts between the parties.1 Mr Peterson and Ms Mills appeal those orders.
[2] Judge Christiansen’s orders represent a pragmatic solution to the situation but were not explicit in some respects. I clarify and expand the Judge’s orders, making explicit the transfer of title from Mr Mills to Mr Peterson and ordering any interest earned by Mr Mills on the $40,000 he used from the overdraft facility be returned to Mr Peterson. That interest and the $40,000 should be transferred to Mr Peterson as the first step to allow him capital to sell one of the properties as ordered.
What happened?
[3] The facts are set out at more length in Judge Christiansen’s judgments.2 In summary, Mr and Ms Mills were in a long-term business relationship and a de facto personal relationship. The business involved breeding and marketing miniature Highland cattle as well as bed and breakfast lodging and some logging activities. About 2010, they separated. There has been no relationship property division. In October 2014 they started negotiating a division of their assets. The primary assets were two rural properties at Ruatiti and Porongahau, near Waipukurau, which were subject to three mortgages with ASB Bank. There was also a digger.
[4] In May 2014, Ms Mills met Mr Peterson. In May 2015 Mr Peterson agreed to buy Mr Mills’ half share of two properties for $100,000 with a $50,000 deposit to be
1 Peterson v Mills [2019] NZDC 21874 (Peterson v Mills (No 2)).
2 Peterson v Mills [2019] NZDC 9128 (Peterson v Mills (No 1)); Peterson v Mills (No 2).
paid by 31 May 2015, when possession of the properties was to pass. They used the 9th Edition of the REINZ/ADLS Agreement for Sale and Purchase of Real Estate supplemented by additional terms drafted by Mr Peterson and signed on 21 May 2015.3
[5] The terms provided that Mr Peterson would assume responsibility for Mr and Ms Mills’ payments, including the mortgage payments and an overdraft facility with a $50,000 debt, from 15 May 2015. The Agreement envisaged that Mr Mills would remove himself as signatory of the overdraft, with ASB’s consent, and Mr Peterson would take on that liability. They also agreed that Ms Mills, who also signed that part of the agreement (as “joint title holder”), would retain assets on the properties that had been used for the business. However, the Agreement did not contemplate penalties for non-enforcement, what would happen if certain steps were not undertaken or who was to possess the properties prior to completion.
[6] On 26 May 2015, Mr Peterson paid the $50,000 to a bank account in Mr Mills’ name. Implementation of the Agreement went awry when ASB Bank declined to allow Mr Mills’ liabilities under an overdraft facility, secured by the mortgage, to transfer to Mr Peterson. On 19 June 2015, Mr Peterson deposited $40,000 into the ASB overdraft facility. On 23 June 2015, Mr Mills called ASB to reduce the overdraft facility to
$12,000. Mr Mills says he then discovered Mr Peterson did not intend to meet his payment obligations, and that Ms Mills and Mr Peterson had increased the overdraft facility to $52,000. On 14 July 2015 Mr Mills withdrew $40,000 from the overdraft account and transferred it to his own account, where it has been ring-fenced.
[7] On 15 July 2015, Mr Mills purported to cancel the contract. Mr Peterson has not met the ongoing payments required, including on the mortgages since January 2017. The overdraft facility is now at $243,394.81. Ms Mills and Mr Peterson are occupying the properties. There were disputes about several assets, particularly a digger, which Mr Peterson and Ms Mills accuse Mr Mills of removing from the Porangahau property despite having surrendered his claim to it.
3 Common Bundle (CB) 1A/90 at 103.
[8] Mr Peterson and Ms Mills sued Mr Mills. Both parties agreed the Agreement had been cancelled but disagreed on who cancelled it and when. Mr Peterson purported to cancel it in the course of Mr Peterson’s and Ms Mills’ closing oral submissions and in Mr Peterson’s closing written submissions in the District Court.4
The decision under appeal
[9] On 20 May 2019, in the Tauranga District Court, Judge Christiansen issued his first judgment.5 The Judge considered Mr Mills’ purported cancellation was questionable.6 He considered Mr Peterson and Ms Mills operating and assuming responsibility for the overdraft facility would have been very difficult to achieve. He considered Mr Mills did not meet the obligation not to use the facility to his advantage. The Judge considered the parties should have the opportunity to effect the purpose of passing Mr Mills’ share in the properties to Mr Peterson, subject to conditions that would meet the expectation of both sides.7 He considered:8
…there is sense and purpose in providing the parties with an option to negotiate their own outcome, keeping in mind their original intention to transfer Mr Mills’ interest to Mr Peterson in consideration of paying the sum of $100,000 and relieving Mr Mills of any further responsibility for the mortgages or the overdraft facility”.
[10] The Judge noted considerable discretion remained available to the Court if it concluded there had been a cancellation of the contract, under ss 28 and 43 of the Act.
[11] The parties were not able to negotiate their own outcome. On 4 November 2019, Judge Christiansen issued his second judgment.9 He struck out the claims of Ms Mills and the Peterson/Mills Partnership because Ms Mills was not party to the agreement.10 He held the Agreement had been cancelled by Mr Mills, at the latest on the final day of the first hearing.11 He considered the intention of the Agreement was “to ensure Mr Mills received what was agreed to be paid for the purchase price of both
4 CB 1B/472 at [15K], [16L], [19O] and 474 at [30].
5 Peterson v Mills (No 1), above n 2.
6 At [51].
7 At [52].
8 At [54].
9 Peterson v Mills (No 2), above n 1.
10 At [26].
11 At [27].
properties, and for the plaintiffs to resume responsibility for the ASB indebtedness subject to Mr Mills repaying the $40,000 which he transferred to another account of his”.12 Under s 43 of the Act, he ordered:13
(a)the Ruatiti property to be sold, with sale costs to be met by Mr Mills and Mr Peterson;
(b)the proceeds of sale to be applied to the ASB mortgages and overdraft and to any shortfall in the two instalments “paid/payable” to Mr Mills and all remaining funds going to Mr Peterson and Ms Mills; and
(c)if the sale proceeds were insufficient to satisfy the mortgages, the parties were to ask for the Porongahau property to be sold by mortgagee sale and any remaining proceeds to be distributed according to the above directions.
[12] On 8 June 2020 Judge Ingram awarded costs in the District Court in favour of Mr Mills on a 2B basis for $40,078.14 He accepted that a “Calderbank” offer by Mr Mills was so close to the terms of the final judgment to amount to his clear success.15
[13] Mr Peterson and Ms Mills appeal the substantive orders and the award of costs. Mr Mills opposes the appeal. Mr Peterson and Ms Mills have applied for a stay of enforcement while awaiting the outcome of this appeal. They also have an appeal pending in the Court of Appeal against ASB, which had been successful in obtaining summary judgment in other proceedings in the District and High Court.16
12 At [29].
13 At [30]-[35].
14 Peterson v Mills [2020] NZDC 10199 (Peterson v Mills (No 3)).
15 At [9].
16 Mills v ASB Bank Ltd [2020] NZCA 228; Peterson v ASB Bank Ltd [2018] NZDC 14505; Mills v ASB Bank Ltd [2019] NZHC 1505.
Relevant law
[14] Section 124 of the District Courts Act 2016 provides that a party to a proceeding in the District Court may appeal to the High Court. Under s 127, the appeal is by way of rehearing. Under s 128, the High Court may make any decision it considers should have been made or direct the District Court to rehear or enter judgment for a party and make an order as to costs.
[15]Relevantly, s 43(1) of the Act provides:
43 Power of court to grant relief
(1)When a contract is cancelled by any party, the court may, if it is just and practicable to do so, make an order or orders granting relief under this section.
(2)The relief may be granted in the course of any proceeding or on application made for the purpose.
(3)An order under this section may—
(a)direct a party to pay to any other party the sum that the court thinks just (subject to section 35):
(b)direct a party to do or refrain from doing, in relation to any other party, any act or thing that the court thinks just:
(c)vest the whole or any part of any relevant property in a party:
(d)direct a party to transfer or assign the whole or any part of any relevant property to any other party:
(e)direct a party to deliver the whole or any part of the possession of any relevant property to any other party.
Should the orders be overturned?
Submissions
[16] The written submissions of Mr Peterson and Ms Mills, who represent themselves, err on the side of relitigating all the issues that were considered by the District Court, as well as some others. It is not clear what some of their purported grounds of appeal mean. But at the hearing Mr Peterson submitted, on behalf of himself and Ms Mills, that there were two main errors in the District Court judgment. The first is that he and Ms Mills, rather than Mr Mills, had the right to cancel the
Agreement and so the outcome should have biased towards them. The second error is the Judge’s finding that Ms Mills was not a bona fide party to the Agreement. Mr Peterson also emphasises that Mr Mills removed the digger from the property on 5 May 2015 and commenced logging, but submits the digger should have been transferred with the properties.
[17] Ms Mills submits they are not at odds with Mr Mills over possession of the properties and the Agreement was witnessed by a lawyer who advised them it was a legal document. She submits Mr Mills’ taking of the $40,000 is what triggered the difficulties. She also says a potential purchaser is currently interested in purchasing the Ruatiti property and they need the $40,000 returned so they can ready the property for sale. Mr Peterson and Ms Mills seek a variety of remedies, which I address below.
[18] Mr Sparrow, for Mr Mills, submits none of the grounds of appeal can succeed, many are immaterial and many were not pleaded in the District Court. He submits the District Court was correct that Ms Mills was not a party to the Agreement; she was more of a witness. He submits Mr Peterson and Ms Mills have no legal basis on which to bring a claim for the digger as it is a relationship property matter, and the Agreement was not a relationship property agreement. He accepts there was a slip in the District Court judgment in attributing the attempt at cancellation of the Agreement at the hearing to Mr Mills rather than Mr Peterson. He sought to have it corrected, but it was not. Otherwise, he submits it does not matter much who cancelled the Agreement, the Judge granted relief as he saw fit and the appeal should be dismissed. He acknowledges the judgment under appeal is not explicit that title should be transferred to Mr Peterson and it should be. Alternatively, Mr Sparrow submits the High Court should make appropriate directions to resolve the matter without returning it to the District Court. He rightly objects to comments by Mr Peterson that he considers disrespectful and offensive to the Judge. He notes the current total indebtedness to the ASB Bank is $545,620.07 and the $40,000 withdrawn by Mr Mills on 14 July 2015 remains ringfenced. Mr Sparrow responded to the relief sought by Mr Peterson and Ms Mills.
The appeal
[19] Judge Christiansen’s second judgment erred as to who purported to cancel the Agreement during the hearing. But, whoever cancelled the Agreement, the parties agree that it was cancelled and there is a measure of common ground between them on the appropriate relief. Relief is available under s 43 because the contract was cancelled and does not depend on who cancelled it.
[20] I am more troubled by the finding that Ms Mills was not a party to the Agreement. She was clearly a signatory of the additional terms drafted by Mr Peterson, albeit as “joint title holder”. And there were elements in the Agreement that related directly to her interests and made her a donor and recipient of property. For example, cl 15 of the conditions of the sale and purchase agreement indicates that Mr Mills was surrendering his interest in the overdraft account to Ms Mills and suggests she and Mr Peterson were partners of a going concern. Clause 19 divided the cattle between her and Mr Mills and left her share of the cattle with the property as a going concern. Clauses 20 and 21 provided that all the building materials and tools remaining on the property would remain for her benefit. Even if she was not a party to the Agreement, she has rights under it pursuant to s 12 of the Contract and Commercial Law Act 2017. This could affect the dispute about the digger.
[21] But I agree with Mr Sparrow’s submission that the ownership of the digger is a relationship property matter. Sections 21 and 21A of the Property (Relationships) Act 1976 provide that spouses may settle disputes over property by agreement. Section 21F sets out the requirements for a relationship property agreement, including that the parties have independent legal advice before signing it. That requirement was not met so Ms Mills has no claim to the digger as relationship property.17
[22] Even apart from that, I do not consider Mr Peterson and Ms Mills have a valid claim to the digger under the Agreement. Mr Peterson submitted to the District Court
17 The plaintiffs contend Mr Mills had legal advice from a Mr Levenbach, but an email from Mr Levenbach dated 30 July 2015 records he did not know about the agreement until 29 July 2015 (CB 3/146). There is no evidence Mr Mills had independent legal advice regarding relationship property. Mr Stemmer recorded in a 29 July 2015 letter that he acted for Mr Peterson and implied he acted for Ms Mills but gave no indication there were any relationship property issues at stake (CB 3/135).
that the digger was included within the definition of “tools” in the agreement. But it is not obvious that a digger is a “tool”. In an email of 10 May 2015, Mr Peterson said to Mr Mills “I note you are keeping the quad bike and the digger” and asked for clarification.18 Mr Peterson submits he was stating a fact, not indicating agreement. But it could be read either way. On 12 May Mr Peterson said:19
You have not answered my question about building materials/tools on the farms for the farms. I assume you were referring to the quad bike and the digger, and nothing else. Please confirm ASAP so I can confidently go ahead with the contract.
[23] Mr Mills wrote “happy to go with building materials/tools as entered”.20 In his affidavit, Mr Peterson writes that he had “every reason” to believe Mr Mills had surrendered his claim to the digger.21 But I do not consider, on the basis of this context, Mr Peterson and Ms Mills have proved on the balance of probabilities that the parties meant the phrase in the Agreement “all tools used on the properties and existing on the properties for maintaining the properties will remain on the properties for the benefit of Lyn Mills” to have included the digger.22
[24] I do not make any orders for damages for the costs of Mr Peterson and Ms Mills keeping up the properties as they did not wholly do so and they have been occupying the properties rent-free. I do not make any orders in relation to proceeds of logging, the justification for which I do not consider is established on the balance of probabilities.
[25] I consider Judge Christiansen’s orders under s 43 of the Act represent a reasonably pragmatic solution to the situation. However, they were not explicit in some respects, such as the transfer of title. I maintain the Judge’s orders but clarify and expand on them.
18 CB 3/46.
19 CB 3/51.
20 CB 3/52. Mr Peterson appears to have misquoted this email in his submissions to the District Court to the effect Mr Mills said “happy to go with tools used in maintaining the properties and remaining on the properties”, but the sentence in the email is as quoted above.
21 Affidavit of Carl Peterson, 22 February 2019, at [15].
22 CB 1/103.
Result
[26] I uphold the appeal only to the extent that I clarify and expand on the orders made by Judge Christiansen. I order:
(a)The title of the two properties will be transferred forthwith from Mr Mills to Mr Peterson.
(b)Mr Mills will forthwith return the $40,000 Mr Peterson paid him with interest under s 62B of the District Courts Act 1947.
(c)Within three months of steps (a) and (b) being both completed, Mr Peterson will sell the Ruatiti property, with sale costs to be met equally by Mr Mills and Mr Peterson.
(d)The proceeds of sale will be applied to the ASB mortgages and overdraft and to any shortfall in the two instalments “paid/payable” to Mr Mills and all remaining funds will go to Mr Peterson and Ms Mills.
(e)If the sale proceeds are insufficient to satisfy the mortgages, and Mr Peterson cannot negotiate an alternative arrangement with a lender, the Porongahau property will be sold and any remaining proceeds will be distributed according to the above directions.
[27] I do not see any basis on which to overturn Judge Ingram’s decision to award costs to Mr Mills, given the Calderbank offer. Costs for the appeal will lie where they fall.
Palmer J
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