Walsh v Gough
[2018] NZHC 3104
•29 November 2018
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2018-488-76
[2018] NZHC 3104
UNDER section 339 of the Property Law Act 2007 IN THE MATTER
of an order for the division of property among co-owners
BETWEEN
MICHAEL EDWARD WALSH
Plaintiff
AND
BARRY JOSEPH GOUGH
Defendant
Hearing: 28 November 2018 Appearances:
R C Mark for the Plaintiff
No appearance by or for the Defendant
Judgment:
29 November 2018
JUDGMENT OF PALMER J
This judgment was delivered by me on 29 November 2018 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Richard Mark, Solicitor, Kerikeri
WALSH v GOUGH [2018] NZHC 3104 [29 November 2018]
Summary
[1] Mr Mike Walsh and Mr Barry Gough own a 178-hectare property near Kaeo, as tenants in common. Mr Walsh applies to subdivide it equally between them. Mr Gough has taken no steps in the proceeding. I am satisfied it is just to subdivide the property as sought and the parties should bear the costs of that equally. I so order.
The proceeding
[2] Mr Walsh has initiated proceedings to split a property, which he owns as a tenant in common with Mr Gough, equally between the two of them. Mr Gough was served with the statement of claim, notice of proceedings and initial disclosure on 22 August 2018. He has failed to give any address for service and has taken no steps in the proceedings. Under r 15.9 of the High Court Rules 2016, if a defendant does not file a statement of defence the plaintiff may seek judgment by formal proof. Mr Gough was advised of that in the notice of proceedings. Mr Walsh has filed evidence, and given evidence before me and seeks judgment.
The property
[3] In 1984, Mr Walsh and Mr Gough pooled their resources and agreed to purchase a property of around 178 hectares,1 at 2539 Waiare Road, Kaeo. It is rural and much of it is steep, with regenerating native bush.
[4] A draft partnership agreement (the Agreement) was drawn up by a lawyer in 1984. Mr Walsh’s evidence before me is that, to the best of his knowledge, the Agreement was signed by both parties but he was never given a signed copy.2 He has put in evidence a draft unsigned version of the Agreement which is the best evidence he has of it. Relevant clauses of the Agreement are:3
“the term of the partnership” means the term of duration of the partnership. The term of the partnership is 21 years unless otherwise shown herein.
…
1 Affidavit of Robert Donaldson, 14 November 2018, at [28].
2 Transcript at page 2/line 1–10 and 27–28.
3 Affidavit of Michael Walsh, 14 November 2018, at exhibit MW-2.
VI THE DURATION OF THE PARTNERSHIP
Subject to the provisions of Section 36 and 38 of the Partnership Act 1908 and notwithstanding anything elsewhere in these presents contained the partnership shall not be wound up or dissolved before the term of the partnership expires without the written agreement by each of the partners provided that the partnership shall enure after the expiration of the term of the partnership without any further formal deed or agreement until such time or times as the partners otherwise resolve.
[5] From the evidence before me, Mr Walsh and Mr Gough appear not to have operated the property in common or in partnership. Soon after purchase, Mr Walsh and Mr Gough agreed they would split the property into equal halves. In 1989, they agreed how to split the property roughly evenly between them, mostly following a sharp ridge line. Mr Walsh got the front half of the property (Lot 1) and Mr Gough got the back half (Lot 2).
[6] Mr Walsh and Mr Gough provided equal funds towards the purchase price and towards the vendor mortgage which was repaid in the early 1990s. The property was transferred to them as tenants in common in equal shares in July 1992, presumably after the vendor financing was satisfied. They have each exclusively possessed and developed the property in accordance with the agreed property split. For example, Mr Gough has built a house, barns and other structures on Lot 2 and Mr Walsh has built barns and other structures on Lot 1. Neither encroaches on the land allocated to the other under the agreed split.
[7] There is an arrangement with an independent beekeeper who keeps beehives on the property. Mr Walsh and Mr Gough each receive half of the proceeds.4 They each pay half of the rates separately.5 Mr Walsh’s evidence is that the only standing the Agreement had was in their common ownership of the property.6
Proposed subdivision
[8] In 2011 or 2012 Mr Walsh and Mr Gough agreed to subdivide the property along the lines of the agreed split. Mr Walsh applied for a resource consent which was
4 Transcript at 5/5–10.
5 Transcript at 4–31–5/10.
6 Transcript at 4/30–31.
granted by the Far North District Council on 29 March 2012. On 19 May 2012, Mr Walsh and Mr Gough each signed a brief agreement about access to the proposed subdivision. Mr Walsh sent it to the Council on 3 June 2012. His cover letter notes “the subdivision is to effect a dissolution of a long standing partnership of 50% equal shares in OLC270”.7
[9] Once Mr Walsh had sufficient funds, in 2014, he instructed a survey to be undertaken. However, towards the end of 2014, Mr Gough changed his mind and withdrew his consent to the subdivision because, Mr Walsh says, Mr Gough felt Mr Walsh was getting the better half of the property. They then had to deal with a proposed easement for the erection of pylons by Top Energy, mostly through Lot 1. In 2017, easements were registered and compensation paid to both Mr Walsh and Mr Gough. The 2012 subdivision consent expired in 2017.
[10] Mr Gough and Mr Walsh have now fallen out and do not speak to each other on good terms. Sometime after Mr Gough’s change of mind, Mr Walsh’s evidence is he tore up an unsigned version of the Agreement, similar to that before me, and sent it by post to Mr Gough along with letters.8 Mr Walsh’s evidence is the partnership is dead and gone.9
[11] Since 2017, Mr Walsh has continued to pursue subdivision with Mr Gough who has resisted. Mr Walsh’s lawyers have consistently advised negotiation is preferable to litigation (as it usually is) and urged Mr Gough to obtain legal advice. Mr Gough appears to have preferred not to use lawyers. At times, in his email correspondence, he has indicated he is prepared to subdivide on valuation but he has baldly disputed the respective values of the lots and the location of the dividing line. He has not engaged with Mr Walsh’s lawyers when they pointed to evidence to the contrary.
[12] In 2017, Mr Walsh applied for a new resource consent to subdivide the property, into two lots of around 89 hectares each, which was granted in March 2018.
7 Affidavit of Michael Walsh, 14 November 2018, at exhibit MW-11.
8 Transcript at page 3/line 7–15.
9 Transcript at 4/30.
He has sworn an affidavit that he believes the proposed subdivision is fair for both him and Mr Gough because:10
a.the area, of each lot created, is roughly the same; and
b.the land value, of each lot created, is roughly the same; and
c.the type of land, of each lot created, will be roughly the same, and where there is a difference of the type of land between lots, each lot’s differentiating attributes are of about the same value as the others; and
d.the defendant and I will each retain the benefit of the work each has spent on their portion of the Property; and
e.neither the defendant or I will gain at the expense of the other; and
f.the subdivision follows the natural contours of the Property being a razorback ridgeline; and
g.the subdivision reflects the intent of the defendant and me to divide the Property into two equal lots; and
….
[13] Mr Walsh says he is suffering hardship without the subdivision because, until he has separate title to his portion of the property, he cannot do with his land what he wants without Mr Gough’s input. Mr Walsh also explains why he considers three differences between his 2017 subdivision application11 (which he says is the same as the 2012 application),12 and a 2018 subdivision plan modified to accord with the subdivision consent,13 are fair:
(a)Mr Gough agreed in 2012 he did not require a particular right of way;
(b)the 2017 application omitted provision for a water easement to draw household water from Lot 2, which has a minimal impact; and
(c)a bush covenant is required under the Resource Management Act 2001 (RMA).
10 Affidavit of Michael Walsh, 14 November 2018, at [23].
11 Affidavit of Michael Walsh, 14 November 2018, at exhibit MW-8.
12 Affidavit of Michael Walsh, 14 November 2018, at exhibit MW-3.
13 Affidavit of Michael Walsh, 14 November 2018, at exhibit MW-10.
[14] Mr Walsh has filed affidavits from two surveyors, as expert witnesses, and made them available to give evidence though that did not prove necessary. Mr Robert Donaldson, of Donaldson’s Surveyors Ltd, gives evidence of obtaining the 2012 and 2018 resource consents and starting a survey in 2014 which was interrupted by Mr Gough. He states the 2018 subdivision plan complies with the 2018 resource consent and both lots need to be surveyed because no new limited titles may be issued under the Land Transfer Act 2018.14 Otherwise his evidence supports that of Mr Walsh.
[15] Mr Alistair Nicholls of Telfer Young (Northland) Ltd gives evidence of being instructed, apparently by Mr Gough and Mr Walsh, to prepare a valuation report to assess the compensation due for the proposed pylon easement in 2017. He states both parties advised him they were happy to subdivide the property into two equal sized portions as per the 2012 subdivision plan.15 He provides evidence Mr Gough owns two 16 hectare blocks adjacent to, and across a stream from, Lot 2.16 In Mr Nicholls’ expert opinion, the key difference between the lots are the house sites.17 The house site on Lot 1 is more elevated, with views affected by the pylons whereas the house site on Lot 2 is more private without affected views. He considers the land values of Lots 1 and 2 are equivalent, excluding improvements, and the market value of the improvements is far higher on Lot 1 than Lot 2.18 He considers the ridge line is the logical route to divide the property and optimises the utility and value of the two lots.19
[16] Mr Nicholson provided an updated affidavit on 20 November 2018 to the effect the three differences between the 2017 subdivision plan and the 2018 subdivision plan do not affect the relative values of Lots 1 and 2.
Law of subdivision of land held in common
[17] Subpart 5 of Part 6 of the Property Law Act 2007 empowers the Court to make decisions about co-owned property. A co-owner may apply for a court order under s 339, subject to the requirements in s 341. The Court has a “broad discretion”, under
14 Affidavit of Robert Donaldson, 14 November 2018, at [26].
15 Affidavit of Alistair Nicholls, 15 November 2018, at [20].
16 At [21] and exhibit AN-3.
17 At [28].
18 At [27] and [29].
19 At [30].
s 339 to order the sale, division or purchase of a co-owned property.20 Such an order binds every co-owner. Sections 340 and 339(2)(b) provide that an order to divide co- owned land cannot override the RMA regime regulating subdivisions. Section 343 empowers the Court to make further related orders.
[18] Section 342 sets out the considerations to which a court must have regard in making orders under ss 339 and 343:
(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.
[19]The court is to strive to reach the most just solution it can.21
Should the property be subdivided?
[20] It is unfortunate the relationship breakdown between Mr Walsh and Mr Gough has prevented them from reaching agreement on this issue. It also unfortunate Mr Gough chose not to engage with the court process if he wanted to avoid subdivision. As a result of his lack of participation, I have been required to rely upon Mr Walsh’s evidence.
[21] On the basis of that evidence, including the expert evidence of Mr Donaldson and Mr Nicholls, I am satisfied I should order subdivision of the property on the basis sought by Mr Walsh. The boundary is logical and reflects the parties’ earlier agreement. The relative area, value and extent of the two lots of the subdivision is
20 Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [25].
21 del la Varis-Woodcock v Thomaes [2017] NZHC 1041, (2017) 18 NZCPR 686 at [13].
consistent with the extent of the co-owners’ shares, their agreement in 1989 and what each has put into the property. Each co-owner receives the value of the contributions he made to the improvements on the property, which means Mr Gough receives a more valuable property than does Mr Walsh. And Mr Gough already owns two blocks adjacent to the block he will receive.
[22] The issue that has given me pause for thought is whether the partnership is still in place and, if so, what difference that makes. Mr Mark submits the 21-year period of the partnership has expired and, even if it enured under cl VI, it has been terminated either by notice under s 35 of the Partnership Act 1908, through Mr Walsh ripping it up and sending it to Mr Gough, or by their mutual agreement to subdivide the property.
[23] After considering Mr Mark’s submissions, Mr Walsh’s evidence, and the other evidence before me, I am satisfied the partnership is not currently on foot and, even if it is, makes no difference to the orders I make:
(a)The 21-year term of the partnership has expired. Section 35 of the Partnership Act 1908 is expressed to be “subject to any agreement between the partners”. At cl VI, the Agreement provides the partnership shall enure (or continue) at law “until such time or times as the partners otherwise resolve”.
(b)The parties do not appear to have operated a partnership, by carrying on a partnership business, with partnership books and division of profits, as envisaged in the Agreement, at any point. But, in any case, in 2011 or 2012, the parties agreed to subdivide the property and dissolve the partnership. This is evidenced by the 19 May 2012 agreement they signed about access for the purposes of subdivision, in the context to the reference to dissolution of the partnership in Mr Walsh’s cover letter to the Council of 3 June 2012. That, in combination with Mr Walsh’s and Mr Nicholls’ evidence, shows Mr Gough agreed at the time. Having agreed to the dissolution of the partnership consistent with cl VI, Mr Gough could not change his mind and unilaterally resurrect of the partnership.
(c)Even if there were still a partnership in effect at law, that does not affect my jurisdiction to order subdivision or even sale under s 339 if that is just. Land held in common as partnership capital has been ordered to be sold under that provision.22
[24] Because the subdivision proposed by Mr Walsh is consistent with the resource consent already granted, I do not need to make orders on an interim basis. I make the order sought, as stated below.
Costs of subdivision
[25] Mr Walsh also seeks an order for equal payment of the costs of subdivision by the parties, in relation to both the costs he incurred in the 2012 subdivision application, and the costs of the 2018 subdivision.
[26] I do not consider it just to impose a cost burden on Mr Gough in respect of the 2012 application. There is evidence Mr Gough initially agreed to proceed with that application and then changed his mind. But I do not have evidence of any cost-sharing agreement and Mr Walsh elected not to pursue any application to court in relation to that subdivision. Multiple subdivision applications were not strictly necessary, even if Mr Gough contributed somewhat to the circumstances that led to this point. The 2018 consent obtained is materially more beneficial to Mr Walsh in not requiring him to pay development contributions. The costs of the 2012 application will lie where they fell.
[27] However, I consider it is fair for both parties to bear the costs of the 2018 subdivision equally. I have concluded it is a fair and equal subdivision which benefits both parties. Mr Gough obtains the more valuable property, when the value of the improvements is included. I direct Mr Gough and Mr Walsh must each pay half of the reasonable costs incurred to date, and yet to be incurred, in effecting the 2018 subdivision of the property, as supported by third-party invoices.
22 Gregory v Simpson [2014] NZHC 818; Jespersen v Secretary of the Treasury [2018] NZHC 2603.
Result
[28]I order:
(a)Under s 339 of the Property Law Act 2007, the property at 2539 Waiare Road, Kaeo, NA 1145/78 in the North Auckland Land Registration District, must be divided between the current co-owners, Mr Michael Walsh and Mr Barry Gough, as described in exhibit MW-10 of Mr Walsh’s affidavit of 14 November 2018.
(b)Under s 343(c) I direct the reasonable costs of effecting the 2018 subdivision of the property, supported by third-party invoices, incurred to date and yet to be incurred, in, be paid equally by the parties.
(c)I award costs, on a 2B basis, and reasonable disbursements to Mr Walsh.
Palmer J
Walsh v Gough [2018] NZHC 3104
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