Ryan v M & E Ryan & Sons Limited
[2024] NZHC 2499
•2 September 2024
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE
CIV-2021-406-38
[2024] NZHC 2499
UNDER The Property Law Act 2007 BETWEEN
ANTHONY JOHN GUBBINS RYAN and MARIA ELIZABETH RYAN, both of
Seddon, Farmers, in their capacities as Trustees of the Sedgemere Trust Plaintiffs
AND
M & E RYAN & SONS LIMITED, being a duly incorporated company under the Companies Act 1993, having its registered office at Blenheim
Defendant
Hearing: 19–23 February 2024 Appearances:
T G Stapleton KC for Plaintiffs
M J Radich and S A Wadworth for First Defendant D Benson for ANZ Bank
R Foitzik for Marlborough District Council
Judgment:
2 September 2024
JUDGMENT OF CULL J
Table of Contents
Para No.
Introduction [1]
What started the vineyard business?[6]
The Ryan family farming background[6]
Sedgemere[9]
Redgate[14]
The vineyard business[17]
The Agreed Terms [20]
The Agreement to Lease and Sale of Assets[23]
RYAN and RYAN v M & E RYAN & SONS LIMITED [2024] NZHC 2499 [2 September 2024]
The implementation of the parties’ agreement[26]
The dispute [29]
Evidence admissibility challenges [33]
The issues[38]
What were the parties’ intentions and agreement in 2008 – 2009 in relation to Tetley Brook? [40]
The Agreed Terms[50]
The formal Agreement to Lease and Sale of Assets[55] Does the Agreement correctly reflect the parties’ intentions and agreement? [63] Chris’s position [71]
Analysis of the evidence on the parties’ intentions and agreement[81] Total vineyard values or land only? [81]
Was the subdivision intended? [93]
Conclusions[103]
(i)Total vineyard values or land only? [103]
(ii)Is the Agreement accurate? [105]
(iii) Was the subdivision intended? [106] Are there impediments to the Court’s exercise of its discretion under s 339(1)(b) of the Property Law Act?[107]
The Court’s powers under s 339 of the Property Law Act[110]
The legal grounds of opposition[114]What is the relevance or enforceability of the Agreed Terms note?[117] Do s 24 of the Property Law Act and the parol evidence rule apply?[126] Does the pleading in mistake prevent the exercise of the Court’s discretionary powers in s 339(1) of the PLA?[137]
Is the proposed partition precluded by tax implications arising from the
subdivision of the land?[143]
Will hardship be caused by the making or refusal of the orders sought?[153]
Conclusion[159]
Result[162]
Costs[165]
Introduction
[1] Two brothers, John and Chris, both vineyard operators, are in dispute over the division of the 270.1723 hectare Tetley Brook property (Tetley Brook) in the Awatere Valley, Blenheim, which contains their two separate vineyard businesses. Through their respective entities, John and Chris, are the registered co-owners in undivided shares of Tetley Brook where they have each operated their separate grape-growing and winery supply businesses from their separate vineyards for many years.
[2] John and his wife Maria hold 77.857 per cent of undivided shares in Tetley Brook and operate the Sedgemere vineyard. As trustees of the Sedgemere Trust (the
Trust), they seek a division of Tetley Brook under s 339(1)(b) of the Property Law Act 2007 (PLA).
[3] Chris however opposes John’s application. Chris is the sole director of M & E Ryan & Sons Ltd (MER) and he and his wife, Diane are the sole shareholders. They operate the Redgate vineyard and hold 22.143 per cent of the undivided shares in Tetley Brook.
[4] The dispute in this case centres on whether the undivided shares in Tetley Brook relate to the percentage share of the land area or of the total value of the land, vineyards and associated assets of the operation. If John’s application is granted, 85 per cent of the 287.3 ha of Tetley Brook would vest in the Trust and 15 per cent would vest in Chris’s entity, MER. The intended subdivision of Tetley Brook, as currently completed with the issue of five certificates of title, reflects each of the current and respective home blocks currently operated and used exclusively by each of Chris and John.
[5] To resolve the dispute, this Court is required to determine whether an Agreement to Lease and Sale of Assets (the Agreement) accurately reflects the intentions of the parties and their contractual entitlements and obligations. For ease of reference, this judgment will refer to the plaintiff trustees as John and the defendant company as Chris, as each of the entities, the Trust and MER, are the respective entities through which each of the brothers operate their vineyard businesses.
What started the vineyard business?
The Ryan family farming background
[6] John and Chris’s paternal grandparents were Michael and Elsie Ryan. MER was incorporated in 1957 by Michael and his sons, John and Chris’s father and uncle. MER became the entity through which their father Tony and mother June Ryan operated sheep and cattle/beef farming enterprises in the Awatere Valley. Over the years, MER bought, farmed and sold various farms.
[7] Tony and June had nine children, the youngest of whom was John. The children were directed into acquiring rural skills and Tony and June intended to assist each of their children into owning their own farms in due course. Tony died suddenly in February 1990, when John was still a teenager living at home at the time. June continued to operate the farming business through MER.
[8] Although carrying heavy operational and financial pressures, June was described as an astute businesswoman. In July 2000, she saw an opportunity to purchase the property and she registered John and herself as proprietors in unequal shares. This was called the Sedgemere property.1
Sedgemere
[9] In November 2000, four months later, June and John were registered as proprietors in equal shares. June established the Trust, with John and June being the initial trustees.2 They both agreed to sell the Sedgemere property to themselves as trustees of the Trust.
[10] At the time of its purchase, the property was rolling barren land, which had limited productive capacity as a farm because it had no water irrigation. June saw the opportunity to establish vineyards on the Sedgemere property, as the viticultural boom was just starting in the Awatere Valley. To do so required irrigation. June became a proponent of the Blind River Irrigation Scheme, which obtained consent to pipe water from the Awatere River to the Blind River properties, allowing unproductive farmland in the Blind River catchment to be planted in vineyards. On 28 August 2003, Blind River Irrigation Limited was incorporated to supply water for a reservoir.
[11] June and John took steps to establish and develop a vineyard3 and in 2005, John and his mother incorporated the vineyard company Tetley Brook Estate Ltd
1 The Sedgemere property is comprised in CFR MB5B/398 containing 204.58686 with June and John being the registered proprietors in unequal shares of 384999/385,000 and 1/385,000 respectively.
2 From 5 December 2003, when the Trust was established, June was a trustee to 20 September 2018. John has been a trustee since 5 December 2003. Maria, his wife, has been a trustee of the Trust since 20 September 2018.
3 Prior to 2005, on 12 December 2003, Tetley Brook Reserve Ltd was incorporated to own a reservoir, operating an irrigation scheme for the properties in the Lower Tetley Brook Road area, including the Sedgemere/Tetley Brook land.
(TBE).4 This is the current operating company for John’s vineyard business. The second step was the Trust’s acquisition of two further parcels of land. In March 2005, June and John in their capacities as trustees of the Trust were registered as joint tenants in the two parcels of land, containing 28.0194 ha and 37.5843 ha5 respectively.
[12] With the acquisition of the two further blocks of land, the total area of the Trust’s land holdings6 was 270.1723 hectares, which was intended to be developed by TBE as vineyards. This total land holding with the vineyards is called Tetley Brook,7 with each of John and Chris’s vineyard operations. In March 2006, the Trust agreed to lease Tetley Brook to TBE to develop as vineyards for a term of five years from 25 January 2005 with three rights of renewal for three further terms of five years.
[13] John and Maria are now the sole trustees of the Trust. They are also the sole directors and sole shareholders of their vineyard company, TBE.
Redgate
[14] From 1983, June and her husband were MER’s directors but following her husband’s death in 1990, June became MER’s sole director and majority shareholder. In March 2007, Chris became a director of MER and June transferred her majority shareholding to him. In July 2009, June transferred her remaining shares to Chris and ceased to be a shareholder.
[15] In mid-2004, MER sold a farm known as the Kainui Farm. Chris, Diane and their family moved to the homestead on MER’s Craigneuk Farm, where June was
4 TBE was incorporated on 25 January 2005 with John and June as its first directors. June was a director of TBE from 25 January 2005 to 20 September 2018; John has been a director since 25 January 2005. Maria was appointed a director on 20 September 2018. The Trust was the majority (75 per cent) shareholder holding 750 of the 1,000 shares from 25 January 2005 to 4 April 2022, with the balance being held personally by John (12.5 per cent) through the same period and by June, 12.5 per cent) to 20 September 2018 and then 12.5 per cent by Maria to 4 April 2022. All 1,000 shares were transferred to John and Maria as trustees on 4 April 2022.
5 These are comprised in CFR 172322 and CFR 172323.
6 In MB5B/398, 172322 and 172323.
7 The 3 original certificates of title, following a subdivision application by TBE, were cancelled (namely 172322, 172323 and 292353) and 5 certificates of title were created, namely records of title 696924, 696925, 696926, 696927 and 696928 issued on 23 February 2016. They are held by the Trust and MER in undivided shares as to 77.857 per cent and 22.143 per cent respectively. In addition, on 28 August 2003, Blind River Irrigation Ltd was incorporated to supply water for the reservoir owned by Tetley Brook Reserve Ltd. It operates an irrigation scheme for properties in the Awatere Valley which own the shares in Blind River Irrigation Ltd.
living and Chris continued working for MER. During 2006 and 2007, John and June as trustees contracted and TBE paid $315,600 for a house to be built as a home for Chris and his family “on part of the land intended for MER’s exclusive possession and separate business in a discrete record of title 696926 comprising 8.3708 hectares.”8
[16] From March 2007 to April 2018, June and Chris were MER’s directors with Chris becoming the sole director from April 2018 to the present. He was also MER’s sole shareholder from 2009 to February 2011, when he transferred a one per cent shareholding to his wife Diane.
The vineyard business
[17] From 2005, June took steps to bring Chris into the vineyard business with a view to MER obtaining exclusive possession of a percentage share in the Trust’s vineyard business, including the land, vineyards and plant and equipment. This involved the development of the terms on which Chris was to be brought into the vineyard business. June and John sought advice from June’s accountant, Mr Forrest and June’s lawyer, Mr Rowe of Gascoigne Wicks.
[18] Acting on Mr Forrest’s advice, June and John did not embark on a subdivision of the land in 2009 because of a potential tax liability. Mr Forrest advised that if the land was sub-divided before the Trust had owned it for 10 years, the Trust could be liable for income tax on the difference in values between the purchase and sale prices. It was decided that the best way to bring Chris into the vineyard business was to make Chris a director and shareholder of MER, with a view to MER obtaining exclusive possession of a percentage share in the Trust’s vineyard business including the land, vineyards and plant and equipment. In that way, MER could have exclusive possession of those designated blocks of land and Chris could operate a separate vineyard business.
[19] By giving Chris this opportunity to have his own vineyard business, June was following the Ryan family approach of assisting their sons into properties and
8 Lot 3, DP 487308 record of title 696926.
livelihoods. This involved the development of the terms on which Chris was brought into the vineyard business.
The Agreed Terms
[20] To bring Chris into the vineyard business, John prepared a note on 17 December 2008 for a meeting that was to occur the next day between himself, his mother and Mr Forrest. The note contained what has been termed by John as “the Agreed Terms”.
[21] In summary, the note, entitled “Agreement of subdivision”, recorded that June, Chris and John had agreed initially that MER would obtain a 20 per cent interest in the vineyard business. This interest included the land and vineyards for MER’s exclusive possession and separate business. It was 20 per cent of the value (not the land area) of the property, inclusive of vineyards and assets. This Agreed Terms note formed the basis of the ultimate instructions and calculations for the formal Agreement to Lease and Sale of Assets (the Agreement). On the Agreed Terms, John and Maria retain 85 per cent of the land area.
[22] Chris disputes this. He submits that he and Diane have no knowledge of John’s note and that there were no ‘agreed terms’ between John and Chris. Chris says neither he nor MER ever agreed to such terms.
The Agreement to Lease and Sale of Assets
[23] By the time the parties were to sign a formal agreement, the percentage sharing between John and Chris had been adjusted from 20-80 per cent to 22.143-77.857 per cent. This is set out at [54] and [124]. On 25 May 2009, June and John as trustees of the Trust, TBE and MER signed an Agreement to Lease and Sale of Assets. John and Maria assert that the Agreement did not contain all of the Agreed Terms and stated some matters incorrectly. Chris and Diane assert that the Agreement accurately reflects the substance of the parties’ contractual obligations.
[24] The Agreement required MER to purchase an undivided 22.143 per cent share in the property for $2,851,000.9 MER would have exclusive possession of that part of the property. The Trust would retain ownership of an undivided 77.857 per cent share of the property and the exclusive possession of the rest of the property, which it would lease to TBE. The Agreement did not state that these shares had been calculated on a total value (and not on a land area) basis.
[25] Additionally, MER would purchase from TBE the improvements situated on their share of the land (including Chris and Diane’s family home) for $3,804,000.10 This amounted to a purchase price of $6,655,000.11 The Agreement provided that the remaining balance was to be left owing as an interest free loan from the Trust to MER and that $604,000 of that loan amount was to be repaid by MER to the Trust “if and when the title is subdivided and titles transferred to [the Trust] and MER respectively”.
The implementation of the parties’ agreement
[26] Since May 2009, both vineyard companies TBE and MER have been operating their separate businesses (grape growing and winery supply) from the property on their separate exclusive possession areas. John, through TBE, has exclusive possession of 85 per cent of the land area of the property.12 Chris, through MER, has exclusive possession over the remaining 15 per cent of the land area.13
[27] John says the agreement was carried out as planned. On 11 May 2015, when the property had been owned for ten years, John through TBE applied for a resource consent for the subdivision of the property into five separate lots and titles, two of which were for MER14 and three for the Trust,15 in accordance with the Agreed Terms. Chris admits that this resource consent was applied for but says that he and Diane did not agree to this, as they did not agree to the Agreed Terms.
9 Plus GST, if any.
10 $3,804,000 plus GST, if any.
11 $6,655,000 plus GST, if any.
12 In Records of Title 696924, 696925 and 696928.
13 In Records of Title 696926 and 696927
14 696926 and 696927.
15 696924, 696925 and 696928.
[28] Nevertheless, the subdivision proceeded and the parties transferred the respective lots to MER and the Trust. All of the required easement instruments were initialled or signed by June, John and Chris. On 23 February 2016, the title plan was deposited, the easements were registered, and five titles for five separate lots were issued. Lots 1, 2 and 5 were issued for the Trust16 and lots 3 and 4 for MER.17 The lots allocated to each of the Trust and MER reflected the separate use and exclusive occupation by those respective vineyard businesses.
The dispute
[29] From 23 February 2016 to 30 November 2017, all steps were taken through the respective legal advisors and ANZ Bank to finalise all outstanding conveyancing and sale and purchase arrangements. By 27 November 2017, the Trust’s solicitors and MER’s solicitors had exchanged letters about the monetary adjustments to be made on settlement for the 2009 harvest income adjustment, sub-division costs, land rates and water rates.
[30] However, on 30 November 2017, MER’s solicitors advised the Trust’s solicitors of the following:
The original Agreement of 2009 [the Agreement] provided for the company [MER] to receive a share of 22.143% of the overall assets of the Trust. It now turns out that the land allocated is more like 15%. Chris has raised this with John and John has told him to get over it. This matter has to be addressed. Something seems to have gone wrong.
[31] The dispute, which has culminated in the refusal by Chris to complete the division of Tetley Brook, is that Chris claims that he is entitled to a 22.143 per cent share of the Tetley Brook land area, not 15 per cent as the proposed division provides.
[32] The parties have since engaged in protracted correspondence, with MER refusing to complete the division of the property. The relationship of John and Chris has broken down. They have since engaged in protracted correspondence and mediation but Chris, through MER, refuses to complete the division of the property.
16 CFR 69624, 696925, and 6969628.
17 CFR 696926 and 696927.
Evidence admissibility challenges
[33] Both the plaintiffs and the defendant have raised admissibility challenges. The defendant seeks a ruling that the unsigned Agreed Terms and the evidence of events from 17 December 2008 to 24 June 2009 are all inadmissible, because the Agreed Terms note is unsigned and unenforceable as a contract by virtue of s 24 of the PLA and its admissibility is precluded by the parol evidence rule.
[34] I declined to make this ruling, as the events both before and after the 17 December 2008 Agreed Terms note seem relevant to the ultimate factual and legal findings, which will determine the status of the document.
[35] Equally, the plaintiffs seek a ruling that the evidence of the defendant’s tax expert Ms Johnson, should be ruled inadmissible because of her non-compliance with the High Court Rules on giving expert evidence and on the grounds that her evidence is not substantially helpful.
[36] I also declined to make such a ruling prior to the commencement of the hearing. I consider those matters go to the ultimate assessment of the evidence, particularly in a Judge-alone trial such as this. Non-compliance with the High Court Rules will ultimately weigh in the assessment of the evidence and whether it is substantially helpful.
[37] I deal with each of those challenges in the context of the issues where they arise.
The issues
[38] The parties could not agree on the formulation of the issues. The critical issue is what was agreed among the parties. In summary, I consider the two issues for determination are as follows:
(a)What were the parties’ intentions and agreement in 2008 – 2009 in relation to Tetley Brook?
(b)Are there impediments to the Court’s exercise of its discretion under s 339(1)(b) of the PLA?
[39]I deal with each of the issues in turn.
What were the parties’ intentions and agreement in 2008 – 2009 in relation to Tetley Brook?
[40] As noted, June was concerned to ensure that her sons had future security by the provision of land and a livelihood. The Tetley Brook land was acquired from MER initially, being formerly landlocked with no access from any road.
[41] It is clear from the sequence of events that from July 2000 to July 2008, June Ryan took steps to establish the Trust and TBE with her son John to ultimately acquire a substantial land holding on which a vineyard could be successfully established. Tetley Brook with 270 hectares was acquired by the Trust to be developed by John as a vineyard, which he commenced doing with the assistance of his mother in 2006. The Trust leased Tetley Brook and improvements to TBE to develop.
[42] Once the Trust had acquired Tetley Brook, June’s attention turned to giving her son Chris an option to come into the vineyard business.
[43] June made her intentions clear when she sent two notes to Chris to drive the family arrangement. They were directive. The first was dated 7 May 2005. It read:18
Christopher I think it is time I put the situation on paper as I see it […] As far as the 20 hectares are concerned it was my idea in the first place, not John’s, he came on board later as I thought it was giving you a better future plus approximately another $700,000-00 without including the debt you will carry.
[44] This note followed the application by MER for a subdivision resource consent for a boundary adjustment between the family farm at Craigneuk and the Sedgemere properties. Four days later on 11 May 2005, Chris received a further note from his mother, which read:
18 The roughly 20 hectares of land referred to in this note and the following note at [44] appears to refer to blocks one and two, which are the vineyard blocks that Chris received. See [84] below.
Christopher, The time has come to make a decision on your future […] If you decide that you want the 19 point something hectares planted plus approximately the 6 hectares including building sites for $400,000-00. THIS IS YOURS’ AND DIANE’S DECISION AND WHAT EVER ONE YOU CHOOSE I WILL DO MY BEST TO MAKE IT WORK.
[45] The terms on which Chris was to be brought into the vineyard business were the subject of discussion between June, John and Chris and developed in accordance with advice from June’s accountant and solicitor.
[46] Following Mr Forrest’s advice that tax consequences could ensue if Tetley Brook was subdivided within 10 years of acquisition, the plan was developed. Chris would become a MER director and shareholder, and certain areas of the Trust’s lands and TBE’s vineyards and plant and equipment would be acquired by MER for Chris’s exclusive possession and separate business. The remaining lands and vineyards would be held by the Trust and TBE for John’s exclusive possession and separate business. That plan also involved John and June paying for a house to be built as a home for Chris and his family on part of the land intended for MER’s exclusive possession and separate business.
[47] The plan progressed, including valuations, meetings at Mr Forrest’s office, and discussions with June, John and Chris.
[48]As John describes it:
Mum was in charge. She was a trustee and a MER director and a TBE director. Chris could not come into the vineyard business unless she agreed. We both trusted Mum to work with Mr Forrest and Mr Rowe and find a solution which would give Chris and me parts of the property for our own use for our own separate businesses to enable us to move forward separately for our futures.
[49] John says that by December 2008, he, his mother and Chris had agreed the terms, which were calculated on a value basis of certain areas of the Trust’s lands and TBE’s vineyards. John gave evidence that he prepared a note headed “Agreement of subdivision” recording the Agreed Terms for a meeting which he and June had with Mr Forrest the following day. John gave the note to Mr Forrest at that meeting on 18 December 2008.
The Agreed Terms
[50] In the note dated 17 December 2008, it recorded that June, Chris and John had agreed the value of a 20 per cent interest in the vineyard business to be $5,620,000, the value of the land and vineyards intended for MER’s exclusive possession and separate business to be $6,240,000, with the outstanding balance payable at settlement of $620,000.19 The land MER would receive if and only if MER’s interests were separated from those of the Trust and TBE was the land intended for MER’s exclusive possession.
[51] Whether those figures were based on the value of the Trust’s land and vineyards or on a land area basis only is where the evidence diverges. John maintains that the Agreed Terms were calculated and agreed on a value basis, not a land area basis alone or any other basis. He says that in calculating the value of the land intended for MER’s exclusive possession and separate business, he excluded the vineyard headlands and calculated the value on a net planted area basis. His net planted area of 150 hectares compared with the headlands inclusive area of 169 hectares in the Trueman valuation report. He says “my net planted area of 150 ha” in his 17 December 2008 note was agreed, having regard to the total harvested area at the 2008 harvest “and our estimate of the 2009 harvest to be slightly more than 150 ha.”
[52] Mr Forrest gave evidence supporting John’s position. Importantly, on 22 December 2008, Mr Forrest wrote to June’s solicitor, Mr Rowe, as follows:
[June and John] have agreed with Chris which land he will receive if ever his interests are separated from those of Tetley Brook Estate Ltd (TBEL) and Sedgemere Trust.
[53]Mr Forrest attached a copy of John’s note and asked Mr Rowe to:
[…] draft into an appropriate legal agreement. The agreement needs to be careful to make it clear that this is what would happen. IF, AND ONLY IF, Chris’s 20% interest is to be separated.
[54] Mr Forrest’s letter included other details which needed to be incorporated into the agreement. It included Mr Forrest’s updated schedule, which adjusted the amount
19 $6,240,000 minus $5,620,000 equals $620,000.
of the bank debt and the percentage share on the basis of the value of the vineyard business to 22.143 per cent. Adjustments were then made to the outstanding balance owed by MER on any future subdivision of the land and also to account for MER’s share of the wind machines, which had been omitted in John’s note. John describes it as follows:
55. On 25 February 2009, Mr Forrest wrote to Mr Rowe about whether Chris’s 20% interest could be owned by his trust rather than by MER. Mr Forrest’s letter (which was copied to Mum, Chris and me) advised that it was not viable for Chris’s share to be transferred to a trust and that “Both will have to be owned by [MER]”. Mr Forrest’s letter advised that, as MER was now acquiring some items of plant/vehicles, the totals required for settlement would need to be amended to allow for the sale of plant/vehicles from TBE to MER. Mr Forrest’s letter concluded by noting that “The adjustment of
$620,000 between Chris and John does not need to be done until the lands are transferred outright to Chris. At present, all that is happening is that he/[MER] is acquiring an undivided 20% share of the land and vineyard”.
56. On 18 March 2009, Mr Forrest sent an email to Mum and me attaching an updated schedule dated 17 March 2009 for MER’s acquisition of 20% of the value of the vineyard business for MER’s exclusive possession and separate business.
57. Mr Forrest’s updated schedule set out the cost to MER of the acquisition of 22.143% of the value of the vineyard business and, after allowing a 15% discount, calculated that the outstanding balance was, in fact,
$659,000. Mr Forrest advised that “Effect is that Chris still needs to pay
$604,000 when land is actually transferred to him. The $604,000 is John’s$620,000 less an adjustment for Chris’s share of the wind machines which John had left out”.
(Emphasis added).
The formal Agreement to Lease and Sale of Assets
[55] Mr Forrest’s letter, which was sent to Mr Rowe, was the basis for drafting the formal agreement for lease and sale of assets. Mr Rowe meanwhile was away on leave for four weeks. Following the communications between Ms Weaver of Mr Rowe’s firm and Mr Forrest, an Agreement for Lease and Sale of Assets was drafted for signature by the Trust, TBE and MER. This formal Agreement is dated 25 May 2009. The accuracy of its wording and its contents are disputed.
[56] The recitals record the background to this Agreement and, it appears, go to the heart of this dispute. Recital A defines “the Property” as the land owned by the Trust
in the three certificates of title “including improvements other than the improvements owned by TBE”.
[57]Recital B then defines the assets owned by TBE. It states:
B. TBE owns all vineyard improvements, plant and equipment, water rights, water company shares and developments for the vineyard including vines and structures, irrigation and wind machines situated on the Property.
[58] The following three recitals set out the basis of the Agreement. Those recitals refer to transferring and/or retaining ownership of the respective undivided shares “in the Property”, with a separate recital recording the sale of assets from TBE to MER. They are described as follows:
C. Sedgemere Trust has agreed to transfer an undivided 22.143% share in the Property to MER and allowing MER to have exclusive possession of that part of the Property shown on the attached aerial photograph marked “A” and on the planting plan marked “B” being the area outlined in pink (“the MER land”).
D. Sedgemere Trust will retain ownership of an undivided 77.857% in the Property and have the exclusive possession of the balance of the Property which it will lease to TBE (“the TBE Leased Area”).
E. TBE will sell to MER all the vineyard improvements situated on the MER Land together with all water rights, shares, certain plant and equipment and the house occupied by Chris Ryan and his family, as described in Schedule 1.
[59]Importantly, recital F states:
F. This agreement records the terms to give effect to the parties’ intentions herein.
[60] Under the subheading “Sale of land, vineyard improvements, plant and equipment”, it is described how MER was purchasing its interest in the property and the improvements. The wording of the purchase by MER refers separately to Tetley Brook and a further purchase of the improvements. The wording is as follows:
1.1 MER will purchase an interest in the Tetley Brook property from Sedgemere Trust as to an undivided 22.143% share as tenants in common with a right to exclusive possession of the MER Land. MER will furthermore purchase from TBE the improvements situated on MER’s Land and all water company shares, certain plant, vehicles and equipment as described in Schedule 1 […]
[61] The details of how the purchase price is to be satisfied and how the bank liabilities are to be apportioned are then set out, reflecting that MER will take over the liability for 22.143 per cent of the ANZ National Bank debt.
[62] As I discuss below, the balance of the debt is recorded as owing as an interest- free loan from the Trust to MER, to be repaid “if and when the title is subdivided and titles transferred to the Trust and MER respectively.”
Does the Agreement correctly reflect the parties’ intentions and agreement?
[63] John says that the Agreement did not contain all of the Agreed Terms and further, stated some matters incorrectly. The key contention is the description of MER’s “undivided 22.143 per cent share in Tetley Brook.” The trustees agreed that MER would have exclusive possession of that part of Tetley Brook comprising that undivided share, described in the Agreement as the “MER land.”
[64]What was missing, says John, are the following:
(a)The Agreement did not state that the Trust’s and MER’s respective undivided 77.857 per cent and 22.143 per cent shares in Tetley Brook (the Trust’s land and TBE’s vineyard) had been calculated and agreed on a total value basis and not on a land area basis.
(b)The Agreement did not state if and only if MER’s interests were separated from those of the Trust and TBE, then the MER land would be transferred to MER and the Trust land would be transferred to the Trust.
(c)The wrong land (the Trust land and not the MER land) was outlined in pink in the attachments to the Agreement.
[65] John and Maria rely on the Agreed Terms, which provided for MER to purchase from the Trust an undivided 22.143 per cent interest in the property and business, calculated and agreed on a value (and not on a land area) basis, with the right to exclusive possession comprising that undivided interest. This interest included
planted vineyards and assets. John and Maria deny that Chris is entitled to a 22.143 per cent divided share of the land area of the property.20
[66] The omissions and mistakes in the Agreement were not identified, either at the time the parties signed the Agreement on 25 May 2009 or in the years that followed when the development of the two separate vineyard businesses was underway and the completion of the subdivision and the issue of new titles occurred.
[67] It was not until 30 November 2017 that the current dispute arose. All documentation was prepared and signed by all parties, including Chris on behalf of MER, when Chris’s new solicitors raised the issue of Chris receiving 15 per cent of the land as opposed to 22.143 per cent. It was then that the registration of Chris’s share of 22.143 per cent against the Tetley Brook land was discovered.
[68] Chris and Diane had been advised to receive independent advice about the placement of an easement line and an agreement to surrender easements as the final matter to complete the subdivision. They instructed Mr Radich who advised them on an agreement to surrender a water easement shown on an attached plan. The agreement mistakenly referred to easement A rather than easement B.
[69] Correspondence then ensued about the correction to the identification of the easement. In the course of corresponding with John’s lawyers, Mr Radich drew attention to something that had gone wrong:
Another issue has arisen. The original Agreement of 2009 provided for the company to receive a share of 22.143% of the overall assets of the Trust. It now turns out that the land allocated is more like 15%. Chris has raised this with John and John has told him to get over it. The matter has to be addressed. Something seems to have gone wrong.
[70] This is the nub of the dispute before the Court. It was at that point in November 2017 that the registration of Chris’s undivided share of 22.143 per cent of the Tetley Brook land was realised.
20 Records of Title 696926 and 696927 being transferred to Chris and Diane as the sole registered owner and Records of title 696924, 696925 and 696928 being transferred to John and Maria as the sole registered owners (a 15-85 per cent split of the land area).
Chris’s position
[71] Chris denies that he was party to any agreement that the 22.143 per cent was based on the total vineyard values, as opposed to the land, and refuses to settle the division of shares in Tetley Brook. He claims that he agreed to an undivided 22.143 per cent share of the land, not 15 per cent, and that the land should not be divided.
[72] Chris says that the Agreed Terms cannot be relied on as they are undocumented and made up of recollections, emails and other correspondence, involving various parties to the exclusion of Chris and Diane. Further, they do not comply with s 24(1) of the PLA, given that they are not in writing and signed. Chris relies on the contractual arrangements as reflected in the Agreement in which he and Diane acquired an undivided interest in 22.143 per cent of the whole of the subject land.
[73] To proceed with the current division, Chris says a significant transfer of land and value is made to John and Maria without compensation to him and there are tax implications in any division which the Court may make. Given the unenforceability of the Agreed Terms, Chris wishes to keep the original bargain with John and Chris continuing to co-own the property in undivided shares.
[74] Chris maintained throughout his evidence that he was not a party to the Agreed Terms. Chris was adamant that John had not correctly stated his position in a number of ways.
[75] First, he disputes that it was in 2005 that June decided to bring him into the vineyard business. He says this is an oversimplification because by 2005, he was already involved in the “vineyard business”, as he had been an employee of MER for 10 years. He maintains that he had been involved in the vineyard development on Tetley Brook as MER was the funder of the vineyard development. Chris had been a director of MER from March 2007. He contends there is no separate “vineyard business” which June owned.
[76] Secondly, he strongly refutes that he had agreed to the Agreed Terms. He says no agreement had been reached by December 2008 yet agrees that the ultimate percentage share was based on total vineyard values:
I was not a party to any discussions nor did I conclude any agreement in any capacity at that time. I do not know what John means that the “terms” were calculated on a value basis and not on an area basis. Any discussions at that time were informed by Mr Forrest’s tax advice that any final agreement in relation to the land could only relate to undivided interests. The values we were discussing only related to the value of the undivided interests that the parties were discussing in December 2008 was 20 per cent and 80 per cent. This was later increased to 22.143 per cent on an undivided basis and on the basis that the value of what the defendant was receiving was 22.143 per cent of the total vineyard values.
(Emphasis added).
[77] Thirdly, he says that he did not sign the Agreed Terms note and by virtue of s 24 of the PLA, it is unenforceable against him. He says the Agreement, which he did sign, is the instrument which is enforceable, namely that he is entitled to his 22.143 per cent share of the Tetley Brook land.
[78]Fourth, Chris denies knowing about the subdivision.
[79] On the above basis, Chris asserted that this was the fundamental point of difference between John and himself. He says he agreed to have exclusive possession and separate ownership of 22.143 per cent of the subject land on an undivided basis. He agrees that the grape growing businesses, operated by each of them, match the areas of which they have exclusive possession. But, he says, it is not the same as the underlying ownership of the subject land. He says these are different interests.
[80] Chris makes no claim for compensation. Instead, he seeks that the status quo continue, namely that he and John continue with their separate vineyard businesses on the allocated land, with no division of land required.
Analysis of the evidence on the parties’ intentions and agreement
Total vineyard values or land only?
[81] It is difficult to reconcile the acknowledgement by Chris that he did come into the vineyard business on a “total vineyard values basis” 21 with his assertion that he did not know the basis of the 22.143 per cent calculation. Chris’s position in MER
21 See [76] above.
and his involvement in giving effect to the plan during the relevant period requires assessment.
[82] On the one hand, Mr Forrest confirms that during the course of his involvement from April 2006 onwards, he did not recall meeting Chris. His instructions, to bring Chris into the vineyard business, came from his mother June and his brother John. As he told the Court, Chris could not be brought into, and could not acquire an ownership interest in, the vineyard business unless the owners of the land and the vineyard improvements at Tetley Brook agreed. The owners were June and John as trustees of the Trust and the vineyard improvements on the land were owned by TBE, with June and John as TBE’s directors. Further, as Chris was neither a trustee of the Trust, nor a director of TBE or MER, he could not come into the vineyard business unless his mother agreed. Her agreement in her various capacities was critical.
[83] On the other hand, Chris was appointed a director of MER on 20 March 2007. Chris had to sign a written consent to become a MER director, which he did. It was then that June transferred 14,301 of MER’s 28,600 shares to him. Although he did not meet with Chris, Mr Forrest was satisfied, from Chris’s reference to Mr Forrest’s advice about tax, that June and John were keeping him informed as matters progressed and that Chris did know what was happening.
[84] It is relevant to have regard to John’s note of the Agreed Terms, dated 17 December 2008. It reads:
17/12/08
Agreement of subdivision to = C.M Ryans interest of 20% in Tetley Brook Estate & surrounding land & buildings.
The following values have been agreed to by June Ryan, John Ryan, & Chris Ryan.
Blocks 1+2 per hectare = $200,000 {The best vineyard blocks} Rest of the blocks per hectare = $170,000.
Surrounding Land & buildings {Not in vineyard, houses etc}= $2,000.000.
Chris capital in property at above values.
Blocks 1+2 {20 hectares total} 20% share 4 hectares = $ 800,000 Rest of the blocks {1230 hectares total} 20% share 26 hectares = $4,420,000 Surrounding Land & buildings {total agreed 2 million} 20% share = $ 400,000
Total = $5,620,000
Agreed subdivision to match the value of above.
Chris house an approx 8 hectares of land & creek = $ 800,000
Blocks 1=2 = $4,000,000
Block 13 {approx. 8 hectares} To be irrigated from Tetley Brook Reserve = $1,360,000 Windmills {2 @ $40,000 each} = $ 80,000 Total = $6,240,000
Chris, his company or trust will owe the outstanding of $620,000 at settlement. Chris’s 20% share in all plant non essential to run a vineyard will be transferred to June & John / their Company or Sedgemere Trust to lower the outstanding amount owed at settlement which include [ Trimmer, leaf plucker, digger, Big tractor, fertigation unit, post driver, all cultivation equipment, woolshed plant, animal health equipment, utes, trucks, atv’s, workshop tools Fuel tanks, silo’s etc.
4 hectares of Tetley brook reserve BRIL shares to be transferred to accommodation property {Junes old house property}.
[85] The note specifically records that the values allocated to the blocks per hectare and the surrounding land and buildings and assets had been agreed to by June, John and Chris. Blocks 1 and 2 are described as the best vineyard blocks and importantly, the note records that there is an agreed subdivision “to match the value of above.” At that point of the parties’ plan, it was estimated that Chris’s capital and property, namely the blocks and surrounding land and buildings, was a 20 per cent share.
[86] Although both parties have differing views on the status of the Agreed Terms note prepared by John, it is plain that it formed the basis of Mr Forrest’s advice on the apportionment of values and the instructions to the solicitors to draft the formal Agreement.
[87] Mr Forrest was adamant throughout his evidence that Chris was brought into, and acquired an ownership interest in, the vineyard business on a “total vineyard values” basis. This is supported by Mr Forrest’s email of 12 March 2009 to Mr Rowe, the solicitor, where he says, “In value terms what Chris will ultimately receive is worth 22.143% of the total vineyard values (using the figures provided by John and adjusting for the windmills).” The 20 per cent figure had been adjusted to 22.143 per cent to account for the bank debt, the harvest and the omission of the windmills from John’s Agreed Terms note. In a schedule dated 17 March 2009 that calculated how much Chris would owe the Trust and TBE, Mr Forrest calculated Chris’s 22.143 per cent share of the vineyard and plant, which is consistent with the values-based approach that John and June instructed.
[88] Mr Forrest’s evidence is further supported by his letter of 27 May 2009 to Gascoigne Wicks, copied to June, John and Chris, which sets out the funding of the purchase of the vineyard with Chris’s percentage shares reflected in the adjusted bank debts, which is consistent with the fact that Chris had been brought into the vineyard business on a total vineyard values basis.22
[89] The 27 May 2009 schedule also set out the final balance owing by MER to TBE and the Trust, which was not payable until the subdivision of Tetley Brook. This reflects cl 1.1(b) of the Agreement, which clearly foreshadows that $604,000 was to be paid by MER “if and when the title is subdivided and titles transferred to the Trust and MER respectively.” The clause is as follows:
1.1(b) iv. The remaining balance is to be left owing as an interest free loan from Sedgemere Trust to MER. $604,000.00 of that loan amount will be repaid by MER to Sedgemere Trust if and when the title is subdivided and titles transferred to Sedgemere Trust and MER respectively. Any balance between $604,000 and the calculated remaining balance after taking into account the 2009 harvest income is to be adjusted via June Ryan’s current account with MER.
[90] Mr Forrest’s evidence is compelling and is supported by his written documentation at the time. He copied Chris into his letter to Gascoigne Wicks on 27 May 2009 and Chris, in consenting to be a director and shareholder of MER, knew or ought to have known the basis upon which MER was to become the entity, through which he would operate his business.
[91] But more compelling than Mr Forrest’s evidence is the evidence given by Chris himself. He accepts that the values for his interests were based on 22.143 per cent of the total vineyard values, as Mr Forrest stated in his email of 12 March 2009. His point of difference is that he wishes to retain an undivided 22.143 per cent share of the subject property rather than acquiring “certain areas”, even though Mr Forrest’s letter and the Agreement clearly foreshadowed that.
22 22.143 per cent ($1,169,915) of the adjusted National Bank debt at 1 May 2009 ($5,283,455) was allocated to MER and was MER’s responsibility from that date.
[92] There are further problems with Chris’s credibility on these issues. Having operated his business on the vineyard lots and had his house built on the household block, there is no suggestion that there should be an apportionment of further land to equate to 22.143 per cent of land share. The contours of the land do not easily accommodate such a variation. The current titles issued on the 2016 subdivision mirror exactly the land upon which Chris, through MER, has had exclusive possession and operation and will be owned by MER on completion of the subdivision.
Was the subdivision intended?
[93] In giving evidence, Chris told the Court that his position was “that there was never, and is not now, any agreement to subdivide the land and to transfer parts of the land to any of the parties on a divided basis and certainly no agreement on the terms the subject of John and Maria’s [a]pplication.” Chris says he knew nothing about the proposed subdivision until the letter from Gascoigne Wicks dated 19 May 2016 informing John, June and Chris that the subdivision had been completed.
[94] This is a rather surprising assertion. He was a co-director with June until 19 April 2018. June plainly knew of and consented to the subdivision and as a director of MER, Chris should have been aware of June’s consent and knowledge, as this was the company which Chris was operating and of which he was a shareholder.
[95] I am unable to accept Chris’s evidence that he did not know the basis of the allocation of the undivided shares. Under cross-examination, he acknowledged he received the letter from Gascoigne Wicks dated 19 May 2016 and said “to be honest, I did not pay any attention to it.”
[96] As his evidence reveals, he knew the reason the shares were undivided was because of the potential tax liability arising from a subdivision before 2015. Indeed, the Agreement at cl 1.1(b)(iv) (at [89] above) envisaged that there would be a subdivision.
[97] Chris’s lack of knowledge about the subdivision was also refuted by the surveyors, Mr McGrail and Mr Adendorff, who each described talking to Chris and his wife, although Mr Adendorff could not identify them by name. Mr McGrail was
certain that he met Chris on 10 April 2015 at his mother’s home. He drove out with Chris and John that afternoon to inspect the relevant features and boundary locations of Tetley Brook in undertaking the survey for the subdivision. In support of his evidence, he produced a follow-up email of 17 April 2015, which he had sent to “John/Chris”. As he said, “I did so because the men I met on 10 April 2015 at Mrs June Ryan’s home were the Ryan brothers, Chris and John Ryan.”
[98] Even the recitals of the surrender agreement note when Chris went to Mr Radich23 that it was agreed amongst the trustees and MER that there would be a subdivision of lands to the exclusion of others, describing the lands for MER to hold and own solely. It noted further that a subdivision to produce the division of lands “and others” was completed.
[99] I consider it is clear from the documents provided during 2015 and 2016 that Chris was involved in the subdivision process from at least 14 December 2015, when June, John and Chris had a meeting with Ms Weaver at Gascoigne Wicks. It was there, that they signed the authority and instruction forms for the steps required to complete the remaining stages of the subdivision and the completion of the easement instruments required for the issuing of five new titles.
[100] Further, on 14 December 2015, Ms Weaver in her email to Mr Williams of the survey firm Aysons, records that “I met with the family today so I will progress this now.” Following that meeting with Ms Weaver, the emails and attachments from December 2015 to 19 May 2016 were sent to Chris and Diane’s email address. Chris signed the easements required for the issue of the five new titles. He received copies of the five new titles on 8 March 2016, followed by Gascoigne Wicks’ reporting letter and tax invoice dated 16 March 2016 for that firm’s services for the Tetley Brook subdivision.
[101] As Mr Stapleton KC argues, Chris’s knowledge of, and consent to, matters from 20 March 2007 to 19 April 2018 were not required to bind MER because there were two directors during that period of time and June had actual or ostensible authority to bind and did bind the defendant company during that period. It is stating
23 See [68] above.
the obvious that the obligations of both June and Chris as directors were to keep themselves abreast of developments affecting the company. Chris, as its managing director, would have, or at least should have, made himself aware of developments affecting the operation of MER.
[102] There is one further aspect of Chris’s evidence which raises doubts about the accuracy of his recollection. He gave evidence that Mr Rowe had explained the Agreement to him when he witnessed Chris’s signature on the Agreement at Gascoigne Wicks offices on 25 May 2009. As was clear from the correspondence, the evidence and the submissions since, Chris is mistaken. Mr Rowe was on leave for four weeks and it was Ms Weaver who attended to those matters in his absence.
Conclusions
(i) Total vineyard values or land only?
[103] I find that the 22.143 percentage share, on which Chris was brought into the vineyard business, was based on total vineyard values, as he accepted in his evidence. I am fortified in this conclusion by reference to the correspondence from Mr Forrest and his instructions to Gascoigne Wicks, the solicitors. In the absence of any evidence that the parties intended that Chris should have 22.143 per cent of the land area in Tetley Brook, the reference in the Agreement to an undivided 22.143 per cent share in Tetley Brook is contrary to the parties’ conduct and was a mistake in the drafting of the Agreement.
[104]I conclude that it was not the parties’ intention that Chris would receive a
22.143 per cent share of the Tetley Brook land when it was subdivided. The Agreement and the subsequent registration of the 22.143 per cent undivided share as a tenant in common against the Tetley Brook certificate of title was a mistaken conversion of the 22.143 per cent share of the total vineyard values to a 22.143 per cent undivided share of the land.
(ii) Is the Agreement accurate?
[105] I find that the Agreement does not record the intentions of the parties or reflect the agreement that they reached. The Agreement fails to record the parties’ respective undivided shares in the total vineyard values and instead records the percentage sharing in the land itself. The wrong land has been identified in the Agreement as the TBE leased area and there is no provision in the Agreement that if and only if the land is subdivided and the parties’ interests are separate, that the respective MER land and the TBE leased area will be transferred to the Trust and MER, as the parties had intended. I conclude therefore that the Agreement does not reflect the parties’ intention and agreement.
(iii)Was the subdivision intended?
[106] I consider that the evidence overwhelmingly confirms that the implementation of the subdivision of Tetley Brook reflects and gives effect to the parties’ intentions. The formal Agreement foreshadowed the likely subdivision. The five titles that were issued in 2016 showing lots 1, 2 and 5 to be registered in the Trust’s name and lots 2 and 3 in MER’s name reflects the home blocks of each of John and Chris and their respective vineyards, as they have operated them under their respective exclusive possession for over 15 years. It was always intended that the land would be ultimately subdivided exactly as the subdivision plan and titles have effected, for the future security of each of John and Chris and their respective families.
Are there impediments to the Court’s exercise of its discretion under s 339(1)(b) of the Property Law Act?
[107] John’s case seeks a division of Tetley Brook in kind between MER and the Trust as co-owners of that property. John contends that the Court should exercise its jurisdiction to make orders under s 339(1)(b) to provide the most just and practical way through the impasse between the co-owners, who are otherwise locked into an ownership position which they cannot resolve.
[108] In the amended statement of claim, the plaintiffs have pleaded the mistakes on which they rely for the exercise of the remedial jurisdiction to set the Agreement side by side with the contemporaneous oral terms to determine the parties’ real agreement.
The plaintiffs plead that the Agreed Terms are not merely oral but are contained in contemporaneous documents prepared before and after the Agreement, recording the parties’ conduct. The plaintiffs seek that the Court should do justice between the parties in exercising the remedial jurisdiction to resolve the impasse between them.
[109] Chris opposes the division of the property in kind, contending that the status quo should remain as this was the bargain reached by the parties in the 2009 written Agreement. He says that granting the relief sought by the plaintiffs “would effect a serious injustice and undermine their property and contractual rights.” His contention is that nothing has changed other than a disintegration of fraternal and broader familial relationships and as Chris has continued to meet 22.143 per cent of the overall debt owing since 2009, any division is prejudicial to Chris “in every respect.” While Chris accepts that “the existing co-ownership situation is difficult”, he opposes partition of the land because John would take 85 per cent of the total land area of 287.3 hectares and Chris would take 15 per cent. The division in kind if granted, would occur with no compensation being paid to Chris.
The Court’s powers under s 339 of the Property Law Act
[110] The power of the Court to order a division of property is provided in s 339 of the PLA. Section 339 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.
[111] When considering whether to make an order under s 339, the Court must have regard to the relevant considerations contained in s 342.24 They are:
24 Property Law Act 2007, s 339(2)(d).
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.
[112] Once the Court has exercised its discretion to make an order under s 339(1), the Court has further powers to, among other things, require the payment of compensation by co-owners of the property, fix a reserve price on any sale of the property, direct how the expenses of any sale are to be borne and how the proceeds of any sale or division are to be divided or applied and make orders that requires or provides for any other matters or steps the Court considers necessary as a consequence of the making of the order.25
[113] The authorities and commentaries on the Court’s jurisdiction under s 339 confirm that unlike the former law, s 339 conveys a broad discretion, even enabling an outcome not advanced by either party, so long as statutory limitations and natural justice are observed.26 This case does not require a novel approach to this application but rather, it requires the Court to determine whether the division of property should occur in terms of the parties’ intentions and the registered title plan and certificates of title issued in 2016, or whether the status quo of the undivided shares in Tetley Brook should continue.
The legal grounds of opposition
[114] Ms Radich submits that the Court has no power to order a division in kind on the terms sought by the plaintiffs because the proposed division is inconsistent with
25 Sections 339(4) and 343.
26 Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [27] and [46]; Robertson v Robertson
[2021] NZCA 295, (2022) 22 NZCPR 281 at [11].
the parties’ registered legal ownership and presumptive beneficial ownership and is thus a disposition of land and not a division.
[115] The defendant’s objections and legal arguments in effect mirror the relevant considerations under s 342, as Ms Radich submits. I group them as follows:
(a)What is the relevance or enforceability of the Agreed Terms note?
(b)Do s 24 of the Property Law Act and the parol evidence rule apply?
(c)Does the pleading in mistake prevent the exercise of the Court’s powers in s 339(1) of the PLA?
(d)Is the proposed partition precluded by tax implications arising from the subdivision of the land?
(e)Will hardship be caused by the making or refusal of the orders sought?
[116]I deal with the legal arguments as follows.
What is the relevance or enforceability of the Agreed Terms note?
[117] The Agreed Terms assumed considerable importance in these proceedings due largely to the preceding unsuccessful summary judgement proceeding. Paulsen AJ declined to make a partition application by way of summary judgment because he was not satisfied that the application was suitable for summary judgment. His reason was that the division of land, upon which the plaintiffs sought judgement, did not reflect the parties’ registered legal interests.27
[118] Following that judgment, the plaintiffs amended their statement of claim, pleading that the Agreement did not contain all the Agreed Terms and stated matters incorrectly. Mr Stapleton urged the court in this hearing to find that the Agreed Terms, not the Agreement, reflected the parties’ true agreement.
27 Ryan v M & E Ryan & Sons Ltd [2022] NZHC 2110 [Summary Judgment decision] at [95].
[119] Ms Radich however, challenged the admissibility and enforceability of the Agreed Terms in a number of ways. First, she said that the summary judgment supported the defendant’s position that the Agreement is an enforceable contract. Second, the Agreed Terms is unenforceable as it is not a signed contract and offends s 24 of the PLA. Third, the Agreed Terms is inadmissible, together with the evidence surrounding its making, by virtue of the parol evidence rule.
[120] I deal first with the application of the summary judgment to these proceedings. While the judgment is not binding on these proceedings before me, no issue can be taken with the reasoning of the Associate Judge. He noted that while the plaintiffs may be able to establish that a division of the land on the basis of the parties’ respective areas of exclusive occupation is the just and practical method of resolving the dispute between the parties, it was not appropriate to make such a determination on a summary judgment application, given the numerous disputed questions of fact in the absence of any valuation evidence.28 The Associate Judge also said that if the division was to proceed as the plaintiffs sought, MER would be entitled to compensation. Any entitlement to compensation should be determined in one proceeding.29
[121] Those disputed issues of fact and law were fully argued before me and evidence was adduced from the parties and their witnesses. This included the status of the Agreed Terms note.
[122] As already described above, the Agreed Terms was a note made by John summarising the agreement reached among June, Chris and himself, containing an assessment of the values of the vineyard operation to work out a valuation for the percentage share in the overall vineyard business. Although contested by Chris, I have concluded that it formed the basis of the negotiations over the share that Chris would take in the Tetley Brook vineyard operation, on which Mr Forrest undertook his calculations. Those figures, finalised by Mr Forrest, formed the basis of the instructions to Gascoigne Wicks to draft the Agreement.
28 At [95].
29 At [95].
[123] The Agreed Terms note was not signed by Chris but it was the basis for allocating to Chris the vineyard blocks that he would acquire exclusively together with the assets of the vineyard operation. The note is set out at [84] above.
[124] I consider the note is a contemporaneous document forming the basis of the agreement of the parties, who by their conduct subsequent to the initial formulation of the agreement, effected its implementation. That is, Chris acquired the exclusive possession of his own house block and blocks 1 and 2, labelled “the best vineyard blocks”. The note initially envisaged Chris to have a 20 per cent share but after Mr Forrest had considered the valuations of the property and chattels, adjusted the values to a 22.143 per cent share.
[125] The note is relevant, it was contemporaneous and it provided the basis of the three parties’ agreement, namely June, John and Chris, in 2008. I deal then with the s 24 PLA argument and the admissibility challenge.
Do s 24 of the Property Law Act and the parol evidence rule apply?
[126] As noted earlier, the defendant objected to the admissibility of the plaintiff’s evidence of events from 17 December 2008 to 24 June 2009 on the basis that the Agreed Terms do not bind the parties, because it offends s 24 of the PLA and the parol evidence rule excludes secondary evidence of a document.
[127] Dealing first with the reliance on the parol evidence rule, the defendant relies on the Law Commission of the United Kingdom in its 1986 report, which said:30
The parol evidence rule forbids the proof of certain kinds of fact. The written contract may be an incomplete or an inaccurate record of what the parties agreed but that the rule binds the party to what was written: extrinsic evidence of terms which were agreed but which were, by accident or design, omitted from the written agreement, may not as a general rule be given; such evidence is shut out by the parol evidence rule.
[128] The defendant relies on the rule both as to the admissibility of the Agreed Terms note and as part of the substantive argument. The substantive argument is that
30 England and Wales Law Commission Law of Contract – The Parole Evidence Rule (Law Com No 154, 1986) at 2.
the Court has no power to order a division in kind because there is no contract in writing for the disposition sought by the plaintiffs and there is “no legal or evidential basis or relevance” to the Agreed Terms.
[129] While the defendant relies on the 1986 United Kingdom Law Commission Report, there have been recent developments in New Zealand and other Commonwealth jurisdictions on the applicability of the parol evidence rule. As the authors of Burrows, Finn and Todd on the Law of Contract in New Zealand report, a majority of Supreme Court Judges have expressed their view extra-judicially that the rule has “faded from view” in New Zealand in preference to the normal evidential rules being used to control the admissibility of evidence.31 Some exceptions to the rule have long been recognised, particularly where a prior oral agreement has not been recorded correctly in the written contract,32 or where there is evidence of a contemporaneous agreement outside the written contract that contradicts the contract.33
[130] In Newmans Tours Ltd v Ranier Investments Ltd, Fisher J considered the parol evidence rule in relation to a written document which appeared to constitute a comprehensive record of an agreement. When faced with contemporaneous but conflicting oral terms, the Judge said the critical issue is one of intention:34
The more the suggested oral terms is in disharmony with the written document, the more difficult it will be to persuade the court that it was intended to survive the written document. But if, from whatever source, the Court is satisfied as to the parties’ real agreement, it will give effect to that agreement regardless of the form in which it may have been expressed.
[131] I have made findings on the parties’ intentions to Chris’s acquisition of his interest in the vineyard operation on Tetley Brook. As is clear from the evidence already canvassed, the Agreement does not give effect to the parties’ intentions. I therefore do not accept Ms Radich’s submissions that the parol evidence rule applies
31 Helen Winkelmann, Susan Glazebrook and Ellen France “Contractual Interpretation” (revised version of paper presented to Asia Pacific Judicial Colloquium, Singapore, May 2019) at [109]– [110]; cited in Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, 2022) at 187.
32 Todd and Barber, above n 31, at 187.
33 Hugh G Beale (ed) Chitty on Contracts (35th ed, Thomson Reuters, London, 2023) at [16-027].
34 Newmans Tours Ltd v Ranier Investments Ltd [1992] 2 NZLR 68 (HC) at 81.
to the admissibility of the events surrounding the Agreed Terms note. Nor do I accept that the Court is restricted to enforcing the Agreement, in the face of evidence to the contrary.
[132] Ms Radich submits that the plaintiffs’ application seeks a disposition of land, not a division of land, as the plaintiffs are seeking to compel Chris to dispose of his undivided interest for a divided interest, which is inconsistent with his legal and beneficial ownership interest. Because the Agreed Terms note is not a document signed in writing for the disposition of land, s 24 of the PLA prevents the Court from making the orders sought. Thus, the Agreed Terms note, she contends, is unenforceable to dispose of Chris’s interest in the property.
[133] I do not accept Ms Radich’s submission. The Agreed Terms note was a written note reflecting the parties’ intentions and agreement and provided the foundation for the formal Agreement. It informs the Court of the parties’ real agreement. Under s 339(1)(b) of the PLA, the Court is concerned with a division of property in kind among co-owners, despite anything to the contrary in the Land Transfer Act 1952.35 The power to make orders under s 339 of the PLA engages judicial discretion,36 which in turn has involved the Court making findings on parties’ intentions in entering into agreements over land.
[134] In Heeman v Harvey,37 the Court of Appeal upheld France J’s conclusion that the object of an agreement for the sale of land for subsequent subdivision was to vest in the purchasers a physically identified parcel of land, defined by specified geographical features, rather than a fixed acreage of land. The Judge found that the features of the land were identified on a map and the subsequent actions of the parties, associated records, the subdivision application, and the two subsequent agreements all supported that conclusion. In making his findings, France J preferred the vendor’s evidence as more realistic.
35 Property Law Act, s 339(2)(a).
36 Robertson v Robertson, above n 26, at [22].
37 Heeman & Anor v Harvey [2018] NZCA 449.
[135] Heeman has remarkable similarities to this application. However, it also serves to illustrate the nature of this Court’s discretion under s 339. As commentators have noted, orders under these provisions can override the interest of the owners as shown on the title.38
[136] I also reject the admissibility challenge raised by Chris, that the events recorded in those contemporaneous documents from 17 December 2008 to 24 June 2009 should not be admitted. These events and documents set out the basis of what was in effect a family arrangement and was undertaken, to avoid any potential tax liability, if the actual subdivision of the separate parcels of land were divided at that time.
Does the pleading in mistake prevent the exercise of the Court’s discretionary powers in s 339(1) of the PLA?
[137] The defendant says that to the extent that the plaintiffs’ case is based on mistakes in the Agreement, the Contract and Commercial Law Act 2017 governs the circumstances in which relief may be granted on the grounds of mistake to a party to a contract. Ms Radich points out that the plaintiffs have not pleaded mistake or rectification and she submits that s 339(1) is not available for a party to seek to avoid the consequences of a contract on the grounds of mistake.
[138] The Court’s jurisdiction under s 339 of the PLA is broad. The Court of Appeal in Bayly v Hicks emphasised the difference, between the narrow jurisdiction of the previous provisions of the UK Partition Acts and the Property Law Act 1952, with the breadth of the discretion under the PLA 2007. Asher J for the Court said:39
The narrow jurisdiction of the past, split as it was between the Partition Acts and the 1952 Act is replaced by a broad discretion, limited by s 339(1), but beyond that turning on whatever factor appears to the court to be relevant when the broad range of factors in s 342 and the broad powers in s 343 are considered. There must be an application under s 339, and the boundaries of the discretion are set out in s 339(1). However, there is no requirement that the orders made can only be those that were specifically sought by a party. Such a restriction would unduly cramp the scope and efficient operation of what is clearly remedial legislation.
38 Neil Campbell and others Principles of Land Law in New Zealand (3rd ed, LexisNexis, Wellington, 2020) at [9.041].
39 Bayly v Hicks, above n 26, at [27].
[139] Consistent with the broad range of factors in s 342 and orders in s 343, the remedial scope of the legislation, designed as it is to resolve disputes among co-owners of land, enables a Court to consider relevant factors, such as omissions or mistakes in the formalising of an agreement between co-owners, and provide appropriate relief where the intentions of the parties have been misrecorded.
[140] I accept the plaintiffs’ submission that it is not necessary to plead rectification, particularly where the remedial jurisdiction of the Court is being sought under ss 339- 343 of the PLA. As Mr Stapleton submits, the plaintiffs have pleaded the omissions and mistakes in the Agreement and the Court can determine the parties “real agreement,” by considering the contemporaneous documents both before and immediately after the agreement and the parties’ conduct in implementing the real agreement between the parties.40
[141] I also observe that the authors of Burrows, Finn and Todd conclude that modern Courts are reluctant to limit a contract to a written document, where to do so would cause injustice.41 Although that is a reference to the constraints of the parol evidence rule, the mistakes in the Agreement, which does not record the parties’ true agreement, reinforces the need for the Courts to do justice between the parties in the exercise of the remedial jurisdiction under the PLA.
[142]I reject the defendant’s challenge on mistake accordingly.
Is the proposed partition precluded by tax implications arising from the subdivision of the land?
[143] The defendant asserts that the tax issues and the consequent tax liabilities arising from the actual subdivision of land is a relevant matter for the Court to consider under s 342(e) of the PLA. Ms Radich submits that the potential of a tax liability, as the parties recognised in 2009, is a further impediment to the Court’s exercise of its discretion.
40 Newmans Tours Ltd v Ranier Investments Ltd, above n 34, at 81. See [130] above.
41 Todd and Barber, above n 31, at 190.
[144] The defendant called Ms Johnson as an expert witness to give evidence setting out the sections of the Income Tax Act 2007 which could apply if the subdivision is finally brought into effect.
[145] Mr Stapleton applied to exclude Ms Johnson’s evidence on the grounds that she did not comply with the mandatory requirements of r 9.43 of the High Court Rules 2016 and s 26 of the Evidence Act 2006 in giving expert evidence. As I have indicated at the outset of this judgment, I declined to make admissibility rulings, as this was a Judge alone trial and I would assess the evidence in terms of its weight.
[146] Having heard Ms Johnson’s evidence, I was not satisfied that she had been adequately briefed and a number of her assumptions were based on the defendant’s view of the facts. I note that Ms Johnson was cautious in the way in which she framed the potential for tax liability and from her answers I formed the view that she had effectively been asked to try and find a tax liability.
[147] The potential tax liability issue was not fully argued before me. There was limited analysis in the evidence of key Income Tax Act provisions. On the evidence as it was presented, I am not satisfied that s CB 6 of the Income Tax Act 2007 necessarily applies. This defines income as an amount derived from disposing of land having acquired it with the intention of disposal. From the chronology, Tetley Brook was owned by the Trust from 2000 and 2005 to 2009. It has continued to be owned for over 15 years by the Trust and MER in their undivided percentage shares. June was both a trustee and director of MER. This was a family based operation, moving from farming to vineyard development for the purpose of providing June’s sons with a future livelihood and bringing Chris into the vineyard business. It is clear from the evidence that the property was not acquired by the Trust with an intention of selling off the land into multiple lots, as Mr Forrest confirms, but with the intention of developing the land as vineyards for the benefit of both brothers with an ultimate division of the property between them as agreed. The property was developed by TBE as vineyards under a long term lease and for the 15 years since 1 May 2009, has been operated by each of the Trust and MER as their separate Sedgemere vineyard and Redgate vineyard businesses.
[148] Section CB 21 provides a specific exclusion of farmland or agricultural businesses from the operation of CB 12 which imposes a tax liability for a development or a division that has begun within 10 years of the date the land was acquired. As the facts in this judgment reveal, the division of Tetley Brook into undivided shares and exclusive possession of parts of the property was to provide two separate operations for each of John and Chris, to enable them to carry out their separate grape growing and winery supply businesses from their respective vineyards from 1 May 2009.
[149] From the development of the land and the intentions of the parties, the land was not acquired for the purpose of a further subdivision or development into multiple lots but a family vineyard business. It does not appear to me to be an undertaking or scheme involving “development or division work” into lots that is “not minor”.42 What has happened here is the division of land dividing the blocks of vineyards and house properties between the two family based entities, to be owned exclusively and separately by each of Chris and John through their respective entities.
[150] From the submissions, it appears that the division is excluded in terms of CB 21 or alternatively, comes within the relative safe harbour of CB 12, where there is an absolute safe harbour if costs on the subdivision or disposal of land incurs costs of
$50,000 or below.
[151] I consider that the tax liability issue has been pressed as a possible outcome, but I do not make such a final tax determination. It is not for this Court to determine whether there is or is not a tax liability. That is a matter for the Commissioner of Inland Revenue. What I must assess is whether a potential tax liability is a relevant hardship consideration, which impedes the exercise of the Court’s discretion under s 339 of the PLA.
[152] On the evidence before the Court, I do not consider that a potential tax liability, if one arises, prevents the Court from making the orders as sought. Although precautionary steps were taken in 2008 to ensure that no tax liability was incurred, I
42 Commissioner of Inland Revenue “IS 20/08 Income tax – when is development or division work ‘minor’?” (2020) 32(9) Tax Information Bulletin 10.
am not persuaded that there is a real likelihood that one now exists. If I am wrong, and a tax liability does arise as a result of making the orders sought, I consider that any tax penalty, if imposed, is outweighed by the hardship that would result from refusing the orders sought, which I canvass below.
Will hardship be caused by the making or refusal of the orders sought?
[153] I deal finally with the defendant’s overall submission that the granting of the relief sought by the plaintiffs would effect a serious injustice and undermine the defendant’s property rights. The underlying premise of the defendant’s submissions and evidence in this case is that because the Agreement describes Chris’s 22.143 per cent undivided share in the property, his expectation is that he would receive that percentage in land. The defendant’s submission is that if the existing tenancy in common between the parties in their respective percentage shares is divided, the plaintiffs would take 85 per cent of the total land area and the defendant would take 15 per cent of the land area. It is then submitted that “the division “in kind” would be undertaken with no compensation being paid to the defendant.”
[154] I have considerable difficulty with this over-riding submission. The first is that despite Chris accepting that the 22.143 per cent was based on the total vineyard values, he seeks 22.143 per cent in the land. It was never in the contemplation of the parties, as I have heard the evidence, that the land should be divided into 77-22 per cent shares. The exclusive possession to each of Chris and John was done on the basis of the percentage value of the planted vineyard blocks and the house blocks for each of them. It was not done on a percentage sharing of the land itself. As I have already found, the realisation that the actual land contained within the new issue of titles that MER would receive in the subdivision plan as 15 per cent was not discovered until the final signing of the outstanding easement. The parties had continued in their separate vineyards for 15 years without demur.
[155] Secondly, while the defendant claims that the effect of granting this application will “require the defendant to accept a divided 15 per cent interest in the subject land without compensation,” no application has been made by Chris for compensation or for any money exchange. This was a specific consideration raised by the Associate
Judge in the summary judgment decision. Instead, Chris maintains that he is entitled as a tenant in common to the possession of the whole of the land, even when he has not had access to the exclusive possession of John’s vineyard and house blocks over the 15 years. Further, Chris has also not identified what areas of land would be appropriately transferred to him to equate with his contended 22.143 per cent of the land.
[156] The third matter, which the Court must consider, is the hardship that would be caused to the applicant by the refusal of the order in comparison with the hardship of any other person.
[157] Chris has acknowledged that the existing co-ownership is difficult and that this dispute has led to familial disharmony and dissension. It defies logic now to contend that with this impasse between Chris and John, the status quo should remain for no other reason than Chris wishing to retain, in concept only, a 22.143 per cent share of the land. That this was never intended becomes evident when one looks at the configuration of Tetley Brook into the respective titles now issued, for MER and TBE respectively.
[158] I reject Chris’s position therefore, that he acquired his undivided interest in the Tetley Brook land and some plant for good and valuable consideration which cannot be disturbed without a significant amendment to the commercial arrangements implemented in reliance on the Agreement. The flaw in his argument is that the commercial arrangements were implemented in reliance on the fundamental premise, foreshadowed in the Agreed Terms and indeed, in the Agreement, that the undivided shares would ultimately be divided in accordance with the land stipulated for MER’s and TBE’s exclusive occupation.
Conclusion
[159] I am satisfied that the orders for division as sought by the plaintiffs should be made.
[160] The subdivision and the five titles issued in 2016 mirror the parties’ intentions and the parties’ true agreement, that Chris receives a 22.143 per cent share of the total
vineyard value and retains in his exclusive possession the MER land, which he has occupied and operated his vineyard business upon for over 15 years.
[161] I also consider that the impasse between John and Chris, causing familial estrangement to the Ryan family, should not continue and become intergenerational. I am satisfied that significant hardship will be caused to John, his family and to the future generations of both Chris and John’s children if the orders are refused.
Result
[162]The application for division of the Tetley Brook land is granted.
[163] The orders for division of the land sought by the plaintiffs are granted under s 339(1)(b) of the PLA, as follows:
(i)Tetley Brook comprising the plaintiffs’ Sedgemere vineyard and the defendants’ Redgate vineyard divided in kind between the parties.
(ii)Records of title 696926 and 696927 Marlborough Land Registration District are transferred to the Defendant as the sole registered owner of the lands in those titles.
(iii)Records of Title 696924, 696925 and 696928 Marlborough Land Registration District are transferred to the Plaintiffs as the sole registered owners of the lands in those titles.
[164] The further relief sought by the plaintiffs is granted in terms of the amended statement of claim from [4]–[12].
Costs
[165] In the event the parties cannot agree, costs memoranda of no more than five pages may be filed; for the plaintiff, within four weeks of the date of this judgment, and for the defendant, a reply within a further three weeks.
Cull J
Solicitors:
Hardy-Jones Clark, Blenheim, for Plaintiffs Radich Law, Blenheim, for Defendant
ANZ Bank Legal Department, Wellington, for ANZ Bank
Marlborough District Council Legal Department, Blenheim, for Marlborough District Council
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