Strawberry Hill Investments Limited v Paekakariki
[2022] NZHC 2802
•28 October 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-323
[2022] NZHC 2802
UNDER the Property Law Act 2007 BETWEEN
STRAWBERRY HILL INVESTMENTS LIMITED, WILLIAM STUART AITKEN AND LOUISE VAUGHAN
Applicants
AND
PAEKAKARIKI HOLDINGS LIMITED
First Respondent
MICHAEL OWEN WILLIAMS
Second RespondentMARCELLE THERESA MARIA QUINN WILLIAMS
Third Respondent
Hearing: 5 September 2022 Appearances:
K R Narayan for Applicants A R Davie for Respondents
Judgment:
28 October 2022
JUDGMENT OF McQUEEN J
[1] The parties to this proceeding sought to work together to develop a property at 12 Beach Road, Paekakariki (the Property). Unfortunately, the relationship between the parties has deteriorated and, for reasons which do not need extensive ventilation in this judgment, the development stalled. The parties are agreed that their joint venture can no longer continue. Attempts to settle the matter have been made but without success.
STRAWBERRY HILL INVESTMENTS LIMITED, AITKEN AND VAUGHAN v PAEKAKARIKI HOLDINGS LIMITED [2022] NZHC 2802 [28 October 2022]
[2] There is now an application before the Court seeking an order that the applicants purchase the second and third respondents’ share in the Property for a fair and reasonable sum (which they say is nothing)—in effect vesting the Property in Strawberry Hill Investments Ltd (SHIL),1 or Mr Aitken and Ms Vaughan—under s 339 of the Property Law Act 2007 (the Act).2
[3] Mr Williams and Ms Quinn-Williams, the second and third respondents,3 oppose the application and propose alternatively that the Property is sold with the proceeds of sale shared.
Factual background
[4] The factual background is detailed and, in many aspects, disputed between the parties. I outline here a brief timeline of events. Disputed matters of fact, where significant to my decision, are mentioned later.
The joint venture
[5] On 29 January 2021, Mr Williams signed an agreement for the sale and purchase of the Property for $1,000,000, to be paid by 14 June 2021. Mr Williams twice failed to settle. On 15 July 2021 the vendors served Mr Williams with a settlement notice demanding he settle the transaction in 12 working days, namely, by 2 August 2022.
[6] The parties were known to each other as their children attended the same school. On 18 July 2021, Ms Quinn-Williams approached Ms Vaughan about the purchase of the Property. A meeting between the parties took place on 24 July 2021. The Williams informed Mr Aitken and Ms Vaughan as to their plans for the development of the Property and presented them with a valuation report dated 10 June 2021. This report provides a helpful description of the Property and the development proposal:
1 SHIL is a duly incorporated company of which Mr Aitken and Ms Vaughan are directors and shareholders.
2 For convenience in this judgment, I refer to SHIL, Mr Aitken and Ms Vaughan as the applicants unless it is necessary to refer to them individually.
3 For convenience in this judgment, I refer to Mr Williams and Ms Quinn-Williams as the respondents or “the Williams”.
The land is zoned “Commercial” and is currently occupied by a former Post Office in the southeast corner, which has been partially converted to a residential flat, together with an existing two bedroom flat to the rear. It is proposed to upgrade the original building to provide two, two bedroom flats at the front and convert the existing two bedroom flat at the rear to three bedrooms.
Upgrading of the existing building will require a shallow retail area across the front in order to comply with Local Authority requirements for Commercially zoned land.
There are also various other buildings on the site, two of which will be upgraded as Artist studios, with another of the buildings to be relocated to provide a second bedroom for the proposed western front flat.
It is also proposed to erect five three storey mews style townhouses on the balance of the site in the near future.
The site has excellent potential, being in a sought after area, and various scenarios could apply to redevelopment.
[7] This report assessed the market value of the Property as $2,056,000. The valuation summary provides:
Our Valuation is undertaken on the basis that the buildings are retained and upgraded as above with five units to be accommodated elsewhere on the site.
And goes on to note a special assumption:
That the proposed development can be achieved within the costings provided.
[8] In reliance on the valuation report, Mr Williams advised Mr Aitken and Ms Vaughan that a future town house project on the site would increase the value of the Property to around $9–10 million dollars.
[9] On 27 July 2021, Paekakariki Holdings Ltd (PHL) was incorporated for the purpose of purchasing the Property. Mr Aitkens, Ms Vaughan, Mr Williams and Ms Quinn-Williams were the directors of PHL. SHIL and the Williams held equal shares in PHL.
[10] No formal joint venture agreement was entered into between the parties. On 31 July 2021, Mr Williams provided a draft joint venture agreement to Mr Aitken and Ms Vaughan prepared by his lawyer, with details such as each parties’ financial contributions to be filled in by the parties, but this never occurred. However, there is
no dispute that a joint venture agreement was entered into between the parties. I consider that it may at least be said that the parties had agreed that the joint venture was between the Williams and SHIL with the Property to be held by PHL as bare trustee for them as tenants in common in equal shares, and that an equal sharing approach to costs and gains was contemplated.
[11] There appears to have been some disagreement as to the financing of the Property purchase. A document produced at the 24 July meeting suggests that it was always intended by the Williams that Mr Aitken and Ms Vaughan provide the security and $300,000 in cash. It seems that Mr Aitken and Ms Vaughan’s family home was required to be put forward as security as it was the only unencumbered property available; the Williams’ properties were already subject to mortgages. Email exchanges between the parties indicate that Mr Aitken and Ms Vaughan were uncomfortable with this arrangement. There was also some disagreement as to the bank with which the loan should be made. Ultimately, however, a loan was secured with Midlands Funds Management (Midlands), in the amount of $1,115,000 (the Midlands loan), consisting of:
(a)$765,000 towards the purchase price; and
(b)$350,000 in progressive drawings to meet the costs of the development.
[12] Security was placed on the Property and Mr Aitken and Ms Vaughan’s family home at 2 Aperahama Street, Paekakariki (previously known as 7A Tangahoe Street).4 The final repayment of the Midlands loan was specified as 12 calendar months from the date of advance, which was 2 August 2021.
[13] The sale and purchase of the Property settled on 2 August 2021. The purchase was financed by the $765,000 loan from Midlands and the balance by a cash
4 The Williams offered to put up a rental property at 165 Rosetta Road, Paekakariki that they owned as informal security to be accessed prior to any realisation of the applicants’ family home. This property has since been sold.
contribution by the applicants.5 At this time, Mr Aitken and Ms Vaughan further contributed:
(a)$43,500 by way of six months’ interest on the Midlands loan in advance; and
(b)$9,611.75 in penalties for the late settlement of the Property.
The subsequent development and relationship breakdown
[14] Work on the Property began shortly after settlement. Solid NZ Ltd was engaged by PHL to undertake the development of the Property. Mr Williams is the sole director and shareholder of Solid NZ. Certain work on the Property was undertaken by Solid NZ and several drawdowns were made on the Midlands loan in relation to the development.
[15] By 20 December 2021, it appears that the Midlands loan had been exhausted and some invoices from Solid NZ were unable to be funded. Solid NZ advised it would no longer be carrying out work on the development as no more funding was available.
[16] The parties have different understandings as to how far the development had progressed to this point and where the fault for the cessation of the development lies. I do not find it helpful to go into the details, nor do I think there is a need to form a view on these matters in determining this application. It is evident, however, that none of the flats had been completed and accordingly are not generating rental income at this time.
[17] On 31 March 2022, Midlands requested an independent valuation and quantity surveyor report in order to understand the “as is” value of the Property and the “cost
5 The applicants say that this cash contribution was $245,000. I consider that this must be an error. The purchase price was $1,000,000. A cash contribution of $245,000 would mean that $10,000 was paid over the purchase price. I therefore take the applicant’s cash contribution as $235,000 and proceed on that basis when assessing the parties’ contributions later in the judgment.
to complete to bring the property to the standards as initially proposed”. In light of this request:
(a)A quantity surveyor concluded that the cost to complete the envisaged development was $874,240.6
(b)A valuation report dated 5 April 2022 concluded the market value of the Property at that date was $1,100,000.
[18] On 11 April 2022 a notice to fix was issued by the Kapiti Coast District Council, indicating that building work, including “[s]tructural removals, alterations & substantial structural replacements” had occurred without a building consent.
[19] On 19 May 2022, Midlands confirmed that it was not willing to extend the loan, given “comprehensive work remain[ed] to achieve completion” and that “the work required [was] unlikely to be completed”. Midlands suggested that the only reasonable solution was to place the Property on the market as soon as possible.
[20] The parties were not able to agree on a sale at this time. Mr Aitken and Ms Vaughan proposed that other builders should be engaged to complete work on the development. The Williams refused to follow this course on the basis that no funds were available to pay for such work.
[21] The Midlands loan amount at 10 June 2022 was $1,114,993.75. The loan was to come to term on 2 August 2022, but Midlands agreed to extend this to 2 November 2022 to enable this proceeding to be concluded.
The issues
[22] The absence of a clear agreement between the parties about how the project was to be funded and run has led to disagreement between them about what has been agreed and what should happen next.
6 This estimate was later increased to $897,956 in light of comments provided by Mr Williams.
[23] The parties accept that the Court may make an order under s 339(1) of the Act to effectively vest the Property in SHIL or Mr Aitken and Ms Vaughan.
[24] Ms Narayan, for the applicants, says that vesting the Property in SHIL or Mr Aitken and Ms Vaughan through an order under s 339(1) of the Act is the appropriate outcome in light of:
(a)the contributions they made to the purchase of the Property;
(b)what they are say is a negative financial contribution by the Williams to the project of - $128,258.81;7 and
(c)the security given over their family home and the risk that the security may be called up forcing the sale of the home.
[25] Mr Davie, for the respondents, submits that the Court may make an order for sale of the Property, also pursuant to s 339(1) of the Act8 and that such an order is the appropriate outcome as vesting the Property in the applicants would be to ignore the respondents’ property rights.
[26] Mr Davie sets out his instructions from the Williams in relation to the distribution of sale proceeds as follows:
(1)If the property is purchased by neither of the parties then the net proceeds should be split equally. …
(2)If the property is purchased by the applicants then the net sale proceeds after repayment of the mortgage should be split equally as per the agreement. The court will be aware that both parties equity position was stipulated and agreed to prior to the deal being entered into. This was $300,000 each. This was 50/50.
(3)If the applicants purchased then the respondents would be derived of any benefits from the property including its enormous development potential. The applicants would have obtained [some] and that is obviously why they have not accepted reasonable settlement offers.
7 This calculation relies on alleged overcharging by Mr Williams for the provision of building services, which I address later in the judgment. I note, however, that the applicants also indicate their willingness for the Court to take into account any contributions of value it finds the Williams have made.
8 With further directions as to the division of the proceeds of the sale made under s 343(d) of the Act.
(4)If the respondents purchased the property (an order open to the court) then they would be happy to have a first charge on net equity obtained, in the sum of $300,000 in favour of the applicants, with the balance split 50/50.
The application
[27] As the Court of Appeal has recently noted, the making of orders under s 339 of the Act plainly engages judicial discretion:9
Exactly how [the existing tenure] is to come to an end, in the absence of agreement, engages the Judge’s discretion. There will be room for different views about the right remedy in all the circumstances.
[28] The Court may make any orders necessary to bring to a practical conclusion any impasse between co-owners.10
[29] Section 342 of the Act sets out mandatory considerations relevant to an application under s 339(1):
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.
[30]I discuss these considerations in turn.
9 Robertson v Robertson [2021] NZCA 295 at [22].
10 Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [32].
Co-ownership (subs (a) and (c))
[31] I can deal first with subs (a) and (c) together. PHL is the registered owner on the title. It holds the Property on bare trust for SHIL and the Williams as tenants in common. As this Court has observed, “co-owners” under the Act includes tenants in common and co-ownership in equity”.11 I consider both SHIL and the Williams to be co-owners of the Property, each with an equal half-share in the Property.
The nature and location of the property (subs (b))
[32] The Property is currently in an unfinished, undeveloped state. Both parties recognise that the nature and location of the Property mean that it has high potential for development, but, at this stage, that potential remains unrealised.
[33] Associated with the potential for development is of course risk. Mr Williams says that he was able to enter an agreement to buy the Property at a good price and the initial valuation report dated July 2021 supports this proposition. It is not disputed between the parties that the property market has declined since the purchase of the Property, but the parties do not agree what the current value of the Property is. Mr Williams says that the Property could be valued at $9–10 million in future, depending on how it is developed. In the meantime, he refers to the valuation obtained in October 2021 where the land value was recorded as $1,215,000 and the value of the Property overall as $1,935,500. On the other hand, the applicants rely on the April 2022 valuation of the Property as worth $1,100,000 and an affidavit from a real estate agent who has appraised the Property in July 2022 as being likely to sell for $700,000– 800,000 (essentially being its land value).
[34] I do not consider that I have sufficient evidence before me to come to any conclusion about the current value of the Property. However, irrespective of the absence of such evidence, it is apparent to me that both the applicants and the Williams see value in it (although on their own, rather than with their co-owner). The applicants are seeking to acquire the Property through the application before the Court and the
11 Fraser v Butler [2017] NZHC 120 at [44]–[56].
Williams have made a settlement offer (discussed further below) premised on them acquiring the Property which was the subject of their submissions.
Respective hardships (subs (d))
[35] In considering the hardship of both the applicants and the respondents, I first refer to what this Court observed in Holster v Grafton:12
“hardship” is a value-laden criterion. It suggests an adverse effect which is of significant impact to the applicant. It has to be read consistent with the policy of the statute which respects property rights of tenants in common but seeks to resolve conflicts fairly.
[36] The applicants say that they face significant hardship compared to the Williams if the order sought is not made. They rely on the April 2022 valuation report which values the Property as approximately $15,000 less than the amount owed to Midlands as at the end of June 2022. They say that this means, if the Property is sold, and particularly if by way of mortgagee sale, there may be further sums payable to Midlands. This places their family home at risk and also risks the applicants having to forfeit their $300,000 (or thereabouts) cash contribution to the Property.13
[37]In Mr Aitken’s affidavit he refers further to this hardship:
The only reason that we have considered this application to vest the Property in SHIL’s name is that we are concerned about the significant loss that can be made if the Property is put on the open market. We are also concerned about our home, given that this is the only other property registered on the mortgage.
[38]The Williams dispute the hardship claimed by the applicants.
[39] First, Mr Williams raises concerns as to the valuation report obtained and provided to Midlands in April 2022. He prefers instead the valuation report dated 5 October 2021 which, as noted above, values the Property at $1,935,000. This is a significant difference from the April 2022 valuation report and would be sufficient to discharge the mortgage and cover the financial expenditure of the applicants.
12 Holster v Grafton (2008) 9 NZCPR 314 (HC) at [50] (footnote omitted).
13 I consider the contribution of the applicants to the Property in greater detail below at [54]–[58].
[40] Second, the respondents do not accept that the hardship advanced by the applicants is genuine. The Williams rely on a settlement offer made to the applicants in August 2022 as being in effect worth $1.45 million (where the Williams would acquire the Property, take over the current mortgage and pay the applicants $300,000) which would have meant the applicants would no longer be taking any risk in relation to their home.
[41] I accept that if the Property is to be sold, it exposes the applicants to some uncertainty. There is a risk that the Property will sell for less than the loan owed to Midlands and the family home is called on by Midlands to pay the outstanding amount, together with a risk that they are unable to recover the cash contributions they have made to the Property.
[42] As discussed above, there is no evidence before me to allow a conclusion as to the current value of the Property. What is informative, however, is the interest that both parties have shown in acquiring the Property themselves.
[43] Also relevant to considering the applicants’ hardship is that SHIL has been approved for a loan from Midlands with the purpose of refinancing the existing indebtedness between PHL and Midlands. Under this loan, the family home remains a registered security interest. I note also that in the loan documentation the applicants procured from the ANZ when the joint venture was initially being considered, it is apparent that SHIL owns several other properties.14
[44] I find it hard to reconcile the new terms of the loan secured by SHIL that places their family home as security yet again with the applicants’ apparent concern that they may lose their family home. The loan simply provides enough to refinance the original loan and pay the associated fees. This implies that SHIL has further capital to continue the development of the project (given that is not accounted for in the terms of the loan). This is particularly the case where the property in its current state appears unable to be rented out without further work.
14 Mr Aitken confirmed in cross examination his ownership of properties other than the family home.
[45] I also consider that given the evidence of other properties owned by SHIL (or Mr Aitken), it seems likely that even if the property is sold for less than what is needed to repay Midlands, the applicants could refinance their loans on other properties or even sell one of them if necessary. I also observe that the applicants refused the settlement offer which would have allowed them to recoup $300,000 and have no further liability to Midlands. I accept that this was a conditional offer and that it would not have recovered all the money they said was owed to them (being approximately
$35,000) but this seems a relatively insignificant loss in the face of the stresses they say they have been suffering and in the context of a large-scale commercial deal that has gone so badly wrong for the parties. I am not saying they should have accepted this offer, only that I infer from their refusal that they were prepared to prioritise the possibility of recovering more money, including through developing the Property themselves, over the risk of losing their family home.
[46]Also informative is Mr Aitken’s second affidavit, which says:
As mentioned in our previous affidavits, we are willing to make any contributions the Court sees fit if the Court does consider that the Williams have made a positive net contribution to the Property.
[47] “Any contribution” seems to me to indicate that the applicants really want the Property to themselves, more so than anything else.
[48] Accordingly, I am not satisfied there is a realistic possibility that even on the value in the April 2022 valuation report (which is less than the sum due to Midlands) there is a real risk that Mr Aitken and Ms Vaughan will lose their family home.
[49] I consider the hardship that arises is the potential loss of the money that the applicants have contributed to the Property themselves. They are out of pocket for a significant amount in relation to the Property and there is a risk that they may not recover it.
[50] I turn to the hardship that would be faced by the Williams if the Property is vested in the applicants as sought. It would mean that the respondents lose out on the potential of a development that Mr Williams identified himself and the value of a completed development coming to fruition. The respondents would also lose out on
their property rights as tenants in common for a property in which they wish to maintain their interest. As this Court has noted, an order defeating the property rights of a co-owner in such a situation should not be made lightly.15
[51] The Williams have also made some financial contribution to the Property. I turn to the specific contributions of both parties below.
Respective contributions to the property (subs (e))
[52] To resolve this dispute, it is necessary to determine what contributions were made by the applicants on the one hand and the respondents on the other. It is then a question of deciding how those contributions can best be returned to those parties. There is considerable dispute as to these matters.
[53] At the outset, I noted that the factual narrative contains allegations that I consider peripheral and ultimately irrelevant to the application before me. For example, I do not consider it appropriate, on the material before me, to resolve the allegations from both sides of theft, and I put this to one side.
[54]I first consider the applicants’ contributions.
[55]The applicants submit that as at 17 August 2022 they have contributed:
(a)a $245,000 cash contribution to the purchase. As I have concluded earlier, in light of the purchase price and the advance by Midlands I do not accept this to be the applicant’s cash contribution to the purchase and instead find the cash contribution was $235,000;16
(b)$43,500 by way of six months’ interest on the Midlands loan;
(c)$9,611.75 in penalties for the late settlement;
15 Lake Hayes Property Holdings Ltd v Petherbridge [2014] NZHC 1673, (2014) 15 NZCPR 590 at [64].
16 Above n 5.
(d)$20,388.54 in further interest payments;17
(e)$6,481.69, being the cost of the first quantity surveyor report requested by Midlands;
(f)$5,783.06, being the cost of the second quantity surveyor report;
(g)$1,725 for the April 2022 valuation requested by Midlands; and
(h)$2,583.38 for utilities (being half of the total utilities payment).
[56] The respondents dispute the expenses relating to the first quantity surveyor report and the valuation report obtained. They say the decision to obtain these reports was made unilaterally and the respondents proposed a different valuer and quantity surveyor.
[57] I consider that it is appropriate to take the expenses for the valuation report and quantity surveyor report into account. Whether or not the decision to acquire those reports from the particular providers chosen was a unilateral decision made by Mr Aitkens and Ms Vaughan, the reports were requested by Midlands and therefore had to be obtained. I note that they were regarded by Midlands as acceptable for their purposes. It seems to me that the second quantity surveyor report obtained is the one provided by the applicants to support their application and is to be regarded as part of the costs of the proceedings rather than a contribution to the Property.
[58] I therefore find that the amount the applicants have contributed to the Property as $319,290.36 (excluding the second quantity surveyor report).
[59]I now consider the Williams’ contributions.
[60] It is not disputed that the Williams have contributed $11,705.19 in interest repayments. The status of the Williams’ half of the utility payments is unclear (whether it has been paid, paid in part or is still owing), but I accept that half of the
17 This consists of the $11,705.19 interest payment also matched by the Williams and the additional
$8,683.35 in interest repayments from the filing of these proceedings to 17 August 2022. I recognise that further interest may have been paid to Midlands by the parties since that date.
utilities is owed by the Williams and consider it relevant to their contribution to the Property.18
[61] The Williams also say that $13,261.03 in outstanding payments is due and payable to Solid NZ, which must be taken into account. The applicants say, however, that given the quantity surveyor reports, it appears that Solid NZ overcharged in excess of $139,964.00 for the work done towards in developing the Property. It is submitted that this means that the Williams have made a negative financial contribution to the Property. The applicants also emphasise the costs associated with ameliorating the unconsented building work completed by Solid NZ.
[62] I prefer to put those matters to the side for the purposes of this application. These claims are not appropriately dealt with in the context of a s 339 application. Any claims regarding the alleged overcharging of Solid NZ or amount owed to Solid NZ (being a third party to the current proceeding) can be pursued more appropriately through separate proceedings should that be necessary.19 I do not take these claimed contributions (or claimed lack of contribution) into account in my analysis.
[63]The Williams say they have also contributed $300,000 to the property. The
$300,000 is said to recognise the unrealised value of the property due to buying well and the intellectual capital in bringing the deal together. They say that this was the agreed position as the parties entered an equal joint venture. The Williams say the applicants put in $300,000 cash into the project, and their equity was also $300,000.
[64] Mr Williams describes his intellectual property contribution as consisting of the following:
(a)Buying well in a rising market, such that the applicants were provided access to a property they had themselves wanted in the past, but had been out of their price range.
18 Ms Quinn-Williams confirms in her affidavit that the Williams are aware of these utility payments and are happy to make them. I do not include any penalties associated with the late payment of the utility fees as part of their contribution to the Property.
19 This is also the case for the allegations of theft mentioned earlier.
(b)Identifying how to intensify the land (through high density housing) to unlock a higher value the purchase price.
(c)Identifying how to use the existing buildings on the site to provide a good “holding income”, putting the townhouse development to the side and therefore reducing the risk associated with the project.
(d)Establishing change of use for the property from commercial use to mostly residential (for which a higher rental income is available) with some commercial. This also provided favourable tax positions for the parties, including the ability to write off interest against the rental income.
(e)Understanding the tax law relevant to a development of this kind.
(f)Developing a funding strategy for the project.
[65] This is contested by the applicants. They say that in fact Mr Williams’ “IP” or building knowledge appears to have caused loss to the parties, rather than a benefit. Perhaps most importantly, they do not accept that the Williams are entitled to the value of $300,000 in circumstances where the anticipated development of the Property has not occurred. I set out their submissions on this point in full:
67.Mr Williams appears to say that part of the Joint Venture Agreement was that no matter when the Property was sold, the Williams were to receive $300,000. He relies on an email exchange between the parties, whereby the Williams promised to place one of their properties on the mortgage on a higher priority than Mr Aitken and Ms Vaughan’s Family Home. The email also says that they would receive $300,000 of the equity.
68.Mr Aitken and Ms Vaughan agreed. However, this was on the assumption that the Development would be completed and that the 165 Rosetta Road property would have a higher priority than Mr Aitken and Ms Vaughan’s Family Home.
69.The Development was not completed and so it is nonsensical to presume that the Williams would still be entitled to $300,000. In addition, 165 Rosetta Road appears nowhere on the mortgage documents. The Williams cannot rely on the term that benefits them to the exclusion of the one that does not. There appears to be an inexplicable determination to recoup $300,000 from the Property, despite the fact that the Williams have made no significant contributions to it.
[66] Various communications between the parties mention the contribution to the joint venture from Mr Williams, valued at $300,000.
[67] On 29 July 2021, Mr Aitken and Ms Vaughan sent an email to the Williams. In it they address the proposed equity contribution, saying:
The current structure means we are taking all the risk and putting in all the money. A suitable finders fee of $30,000 is more appropriate for your contribution to the equity as there is no purchase without the equity and associated risk that SHIL is putting in.
[68] On 1 August 2021, the Williams sent an email to Mr Aitken and Ms Vaughan, stating:
Hi Will [Mr Aitken]
As discussed we will put the following in writing in our joint venture agreement: ( or legal words that summarise this better)
1. Marcelle and Michael [the Williams] recognise the 'emotional impact' of putting up Louise and Will's home as security for this loan. Although the Midlands loan has requested, and been given security over 2A Aperahama St, the PHL directors agree to an informal agreement (which will be written up in the Joint Venture Agreement) whereby :
The Williams Family Trust will offer security over 165 Rosetta Road being a higher priority than 2A Aperahama St ie if there is a need to sell a property for Midlands security the sale will be in the following order:
1st security = 12 Beach Rd 2nd security = 165 Rosetta Rd
3rd security = 2A Aperahama St
2. Marcelle and Michael’s equity is agreed at $300K. This is in recognition of the unrealised value of the property due to buying well and the intellectual capital in bringing the deal together.
[69]Approximately two hours later, Mr Aitken and Ms Vaughan responded, stating:
Hi Marcelle and Michael,
Thank you for sending this through.
1. We agree- 2 Aperahama St
2. We agree
…
[70]On 24 December 2021, Mr Aitken wrote to the Williams. He addressed the
$300,000, stating:
Our understanding of the so called $300,000 was that this would compensate Michael for the extra work that he would put in over the next 5 years on design and project management. This would ensure the project achieved its maximum potential outcome of subdivision and the building of townhouses. The sum would only be paid out at this stage and not before. Certainly not in a bankruptcy sale, or purchase of shares.
[71] This was confirmed in an email sent by the applicants’ previous solicitor on 3 March 2022 (following the relationship breakdown between the parties) where it was said:
6. Our clients also accept that your clients’ equity in 12 Beach Road was fixed at $300,000 as a way of equalising the financial contributions made by our clients. This is consistent with the parties’ informal joint venture agreement to divide the net sale proceeds equally once the development was completed.
(emphasis added)
[72] In my view, the applicants were naïve in proceeding with a joint venture which involved their contribution of significant cash and security over their family home without a formal arrangement on which they had obtained legal and financial advice, and despite their obvious initial trepidation. But I do not accept that Mr Williams should benefit from the full $300,000 he claims in circumstances where the development of the Property has not in fact occurred. It defies common sense to think that the value reflected in this sum has been realised at the current stage of the development. I find that this was not the effect of the agreement between the parties. Rather, they had no agreement in place as to how to deal with the events as they have unfolded, and the value of Mr William’s contribution so far is therefore for me to determine.
[73] I consider that Mr Williams has made a valuable contribution to the project and that he is entitled to recognition of this in financial terms. On the evidence before me, I am only able to estimate the value of that contribution, but it seems preferable to me that I make an assessment as best I can in the interests of the resolution of the dispute. Recognising that Mr Williams was the original purchaser of the Property, that he perceived a significant development opportunity in it, and that he brought the
opportunity to the applicants, I conclude that the value of this contribution can be assessed as 10 per cent of the $300,000, thus $30,000. To my mind, the value from the rest of the $300,000 is yet to be achieved.
[74] Taking into account the $30,000 contribution ascertained above, the interest repayment by the Williams of $11,705.19 each and the utilities payment of $2,583.38 (matching the sum paid by the applicants),20 I consider the total contribution of the Williams to the property is $44,288.57. This amounts to $275,001.79 less than the contribution of the applicants.
[75] Finally, I note that I have considered but not allowed for interest on the applicants’ initial equity contributions. I consider that interest is not appropriate in the overall context of the joint venture and its inherent risk. There was never a guarantee that the development of the Property would occur as the parties planned and, accordingly, I consider that the applicants are more appropriately rewarded (or not) by the ultimate outcome of their investment.
Conclusion
[76] Taking into account all the considerations assessed above, I find that an order vesting the Property in the applicants is not justified in the circumstances.
[77] In summary, it is clear to me that both parties are interested in retaining the Property, no doubt in recognition of its potential once developed. The parties always intended that they would share equally in the successful development of the Property. In these circumstances, I do not think it is appropriate to permit only the applicants to access that opportunity. I take account of the need to recognise the property rights of both parties.
[78] Accordingly, I conclude that offering the Property for sale is the fairest option. Both parties will have the opportunity to bid on the Property and take on its
20 Given the Court is not aware whether the utilities payments owed by the Williams have been paid (or paid in full) yet, there is an element of artificiality to this assessment. However, I consider it would be unfair to regard the utilities payment by the applicants (which is only half of the total utilities) as a contribution above that made by the Williams in relation to utilities.
development potential and both can be confident as far as is possible that a fair market value is therefore achieved.
[79] I understand the concern that a sale of this kind, like a mortgagee sale, may have the effect of lowering the ultimate purchase price because third parties perceive that a sale is inevitable. Unfortunately, this is often an inevitable outcome when parties to a dispute are not able to agree on a path to resolution. I refer to a recent decision of this Court that recognised that while a sale order exposed the parties to potential hardship, a sale order was nevertheless required to end the stalemate between them.21 I consider that this risk is mitigated here where it is apparent that both parties are interested in purchasing the Property. The parties may be able to agree between themselves that one of them will purchase the Property and at what price, given the backdrop of a Court order requiring the sale of the property and determining the parties’ respective contributions.
Division of sale proceeds and compensation orders
[80] The question remains as to how the proceeds of sale are to be shared between the parties given my conclusion about the differing contributions made by the parties. The Act does not specify the basis for a division of the proceeds of a sale, which is to be determined “under the principles of contract, equity, partnership, or whatever aspect of the law is applicable to determine the issues between the co-owners”.22
[81] In my view, the parties intended that they would share equally in the Property, including in its financing costs. On that basis I consider that the cost of the financial contributions made by the parties and any net proceeds of the sale should be shared equally by both parties. For the avoidance of doubt, the expenses of a sale are also to be shared equally.
[82] Under s 343 of the Act, the Court is able to make in addition to an order under s 339(1) an order requiring the payment of compensation by a co-owner to another. I order that the Williams must pay SHIL half of the difference ($275,000) between the
21 Cuthers v Cuthers [2020] NZHC 1851.
22 Jody L Foster A Practitioner’s Guide to the Property Law Act 2007 (2nd ed, Lexis Nexis, Wellington, 2015) at [14.26.5].
parties’ respective contributions, being $137,500.23 This is payable on settlement of the sale of the Property. I consider this compensation payment to be fair and, in light of the settlement offers made by the Williams,24 will not amount to significant hardship to them.
[83] Midlands has first call on the proceeds of sale of the Property as a result of its mortgage over the Property. Accordingly, Midlands must be repaid what is due following the sale of the Property.
[84] If there are insufficient funds to repay Midlands, the applicants and the Williams are to pay half each of the outstanding amount to Midlands (noting their obligations as guarantors under the mortgage).
[85] If there are net sale proceeds above and beyond the Midlands loan amount, they are to be shared equally between SHIL and the Williams.
Result
[86] I order the sale of the Property, pursuant to s 339(1)(a) of the Act. Under s 343(e), both co-owners are permitted to make an offer on the Property. The expenses of sale are to be shared equally.
[87] I order pursuant to s 343(a) of the Act that the Williams pay compensation to SHIL of the sum of $137,500 on settlement of the sale of the Property.
[88] I order pursuant to s 339(1) that any remaining net proceeds of sale are to be shared equally by SHIL and the Williams.
[89] If there are insufficient funds to repay Midlands, the applicants and the Williams are to pay half each of the outstanding amount to Midlands.
23 I observe that commentary on the Act indicates that consideration of orders that are different from those sought and argued by the parties must be clearly notified to the parties so that they may be heard on them. I do not consider that the order I make for compensation is a new proposal. It is ancillary to the order made under s 339 which was envisaged and discussed at the hearing. I note also that the parties’ submissions expressly contemplated a compensation order as a possibility.
24 I note also that Ms Quinn-Williams has stated that her income is $270–300,000 per annum.
[90] I encourage the parties, together with their legal advisers, to agree on the practical steps necessary for implementing a sale of the Property. If the parties have paid additional interest to Midlands that has not been taken into account, they should also be able to calculate the effect of that on the compensation sum ordered.25
[91] In any event, leave is reserved to seek further directions from the Court if required.
Costs
[92] Should any party wish to seek costs, they must file a memorandum (of no more than five pages) within ten working days of the date of this judgment with any reply to be filed within a further five working days.
McQueen J
Solicitors:
Martelli McKegg, Auckland for Applicants Treadwells, Wellington for Respondents
25 The same goes for further utility payments.
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