Watkins v Piotrkowski

[2015] NZHC 2092

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

CIV-2013-443-144 [2015] NZHC 2092

IN THE MATTER

of an application for sale and division of

property under s 339 Property Law Act
2007

BETWEEN

DANIEL EVAN BRUCE WATKINS Plaintiff

AND

ELIZABETH FRANCES PIOTRKOWSKI Defendant

Hearing:	23, 24 and 25 February 2015
Appearances:	R T Wilson and G P Vosseler for Plaintiff Defendant in person with J Totorewa as a McKenzie friend
Judgment:	31 August 2015

JUDGMENT OF M PETERS J

This judgment was delivered by Justice M Peters on 31 August 2015 at 4 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:           QuinLaw, New Plymouth

Counsel:            R T Wilson, New Plymouth

G P Vosseler, Patea

Copy for:           E F Piotrkowski, Taranaki

WATKINS v PIOTRKOWSKI [2015] NZHC 2092 [31 August 2015]

[1]      The Plaintiff and Defendant (“Daniel” and “Elizabeth”) are the registered proprietors of 3 Domain Road, Pungarehu (“the property”) as tenants in common in equal shares.

[2]      Daniel seeks an order that the property be sold with the net proceeds of sale to be divided equally between the parties.1   Daniel also seeks an order that Elizabeth pay him occupation rent from April 2009 at $90 per week.2

[3]      For her part, Elizabeth seeks an order determining the value of Daniel’s contributions to the property and directions as to payment of the appropriate sum from her to him, as she wishes to purchase his interest in the property if it is possible for her to do so.

[4]      The various orders sought by the parties fall to be considered under ss 339 and 343 of the Property Law Act  2007 (“PLA”).   Although Elizabeth has also counterclaimed for an order that Daniel holds his half share on constructive trust for them both, I am able to resolve the issues by reference to the statutory provisions.

[5]      Section 339(1) permits the Court to make an order in respect of property owned by co-owners and, if it does so, to make further orders specified in s 343. The Court may not, however, make an order under either provision without first having regard to the matters specified in s 342.

[6]      The relevant parts of these provisions are:

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

1      Property Law Act 2007, s 339(1)(a).

2      Section 343(f).

(c)       requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.

(2)      An order under subsection (1) (and any related order under subsection (4)) may be made—

...

(d)       only after having regard to the matters specified in section 342.

...

(4)      A  court  making  an  order  under  subsection  (1)  may,  in addition, make a further order specified in section 343.

...

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.

343      Further powers of court

A further order referred to in section 339(4) is an order that is made in addition to an order under section 339(1) and that does all or any of the following:

(a)       requires the payment of compensation by 1 or more co-owners of the property to 1 or more other co-owners:

(b)       fixes a reserve price on any sale of the property:

(c)       directs how the expenses of any sale or division of the property are to be borne:

(d)       directs how the proceeds of any sale of the property, and any interest on the purchase amount, are to be divided or applied:

(e)       allows a co-owner, on a sale of the property, to make an offer for it, on any terms the court considers reasonable concerning—

(i)       the non-payment of a deposit; or

(ii)      the setting-off or accounting for all or part of the purchase price instead of paying it in cash:

(f)       requires the payment by any person of a fair occupation rent for all or any part of the property:

(g)       provides  for,  or  requires,  any  other  matters  or  steps  the  court considers necessary or desirable as a consequence of the making of the order under section 339(1).

[7]      There is no real dispute that Daniel should divest himself of his interest in the property.  The dispute is as to whether the value of Elizabeth’s contributions to the cost of improvements to the property has exceeded the value of Daniel’s (s 342(e)) and, if so, whether any order is required under s 343 in recognition of this.

[8]      I  am  satisfied  that  the  parties’ contributions  to  the  project  were  largely commensurate up until November 2006, when Elizabeth received a substantial inheritance.   Thereafter the value of Elizabeth’s contributions to the cost of improvements is such that provision must be made for the inequality.  I also propose to order payment of occupation rent.

Background

[9]      The relevant facts are these, and in setting them out I address many of the mandatory considerations in s 342.

[10]     The property is a three bedroom home on a site of approximately 1,200m2, situated in a rural township in Taranaki, with a current market value of $120,000.3

[11]     As I have said, Daniel and Elizabeth own the property as tenants in common in equal shares.  The Legal Services Agency (“LSA”) has a charge registered against

3      Hutchins & Dick Valuation dated 11 December 2009 at CB 249.

Daniel’s  interest  in  the  property,  which  it  will  be  necessary  to  discharge  on

implementation of the orders made below.

[12]     As of 1999 Elizabeth was the tenant of the property.  She and Daniel were in a de facto relationship and lived together at the property between 1999 and April

2001  when,  at  Elizabeth’s  request,  Daniel  returned  to  live  with  his  parents, Mr and Mrs Watkins.4

[13]     In May or June 2001, the house was rendered  uninhabitable by fire.   A substantial part was destroyed.   Elizabeth stayed with Mr and Mrs Watkins for a period thereafter and then moved to another address.

[14]     On  2 February  2002,  Elizabeth  entered  into  a  long  term  agreement  to purchase the property (“agreement”), the purchase price of $5,000 to be paid by instalment.  It was also a term of the agreement that Elizabeth, as purchaser, would pay all rates on the property pending settlement.

[15]     Elizabeth had discussed with Mr Watkins whether he thought the house could be made habitable, which he did.   Although not a builder by trade, Mr Watkins had/has know-how and practical experience in such projects.  Mr Watkins described himself  as  “project  manager  and  primary  builder”  of  the  rebuilding  work  that

followed, and I accept that as a fair description of his role.5

[16]     The agreement was settled and title transferred  some four years later,  in

January 2006.

[17]     The gist of Daniel’s case was that he and Elizabeth agreed at the time, that is in 2002, that he and his parents would contribute labour and know-how to rebuilding the affected parts of the house, and for which in return he would have an equal share

in the property.

4      With the parties’ consent I read a decision of Judge M A Courtney in the Family Court at New Plymouth dated 18 May 2011.   The Judge rejected Daniel’s contention of a de facto relationship beyond 2001.   Despite that, Elizabeth and Daniel did, however, continue a relationship of some form or another until 2009.

5 Reply Brief of Evidence of K R Watkins dated 5 February 2015 at [17].

[18]     Elizabeth denied that she and Daniel had reached such an agreement.   Her evidence was that the precise share Daniel was to have was always a matter for subsequent consideration, particularly following her inheritance in November 2006. Alternatively, if agreement were reached, Elizabeth contended that Daniel and his parents took advantage of her when she was incapable of protecting her interests. Both Daniel and Elizabeth have been addicted to drugs at times and Elizabeth has had periods of psychotic behaviour and depression.

[19]     I do not consider anything turns on whether agreement was reached because, as I have said, the parties’ contributions to November 2006 were largely commensurate.  Thereafter, agreement or not, their respective contributions must be addressed pursuant to s 342.

[20]     The rebuilding work took place between mid-2003 and 2009.  Progress was slow due to a lack of funds.   Daniel and Elizabeth were beneficiaries, as were Mr and Mrs  Watkins.    It  was  impossible  to  borrow  funds  from  a  bank  or  any institution  whilst  title  remained  with  the  vendors,  as  it  did  pending  settlement. Mr and Mrs Watkins lent funds for materials (Daniel and Elizabeth made weekly payments to them on account of interest and principal) and Elizabeth applied funds her mother had gifted to her.  Elizabeth also kept up payment of the instalments due under the agreement.

[21]     The  work  undertaken  was  substantial  but  not  completed.    Mr  Watkins prepared plans and took charge of obtaining resource and building consents.   The work itself included cutting out burnt timber in the roof and in the floor in the master bedroom; framing for the main bedroom; rebuilding a bay window; jibbing and stopping; installing all, or much of, a new roof; digging a ditch for a power cable; new plumbing; rewiring (possibly not to a satisfactory standard on the evidence before me); some exterior and interior painting; and the installation of a new double garage.

[22]     Significant  work  remained  outstanding  as  at  April  2009  and  remains outstanding now.  For instance, the kitchen and bathroom have not been lined, and no kitchen fixtures and fittings, including a sink or oven, have been installed.  I note

that the agreement on which Daniel relies was one to complete the work, and in fact that has not occurred.

Settlement

[23]     The purchase was settled in late January 2006, initially solely in Elizabeth’s

name.

[24]     In  July  2006,  Elizabeth  and  Daniel  drew  down  an  interest-only  loan  of

$33,250 from the ANZ, on which each was jointly and severally liable. The title was then registered in Elizabeth and Daniel’s names as tenants in common in equal shares, and a first mortgage registered in favour of the ANZ.

[25]     There was dispute about whether or not title should have been registered in both names.   The short answer is that I am satisfied both parties intended that it should be so registered.

Events following November 2006

[26]     In  November  2006  Elizabeth  received  the  inheritance  to  which  I  have referred.

[27]     On 8 November 2006, Elizabeth repaid the entire debt to the ANZ, which then stood at $33,319.60.

[28]     Daniel agreed to repay Elizabeth his half share over 15 years, with interest at

6 per cent per annum.  On 12 December 2006 Daniel commenced a weekly payment of $32, a sum which Elizabeth gave evidence had been calculated by Mr Watkins.6

Daniel continued the payments until, on his evidence, 13 August 2013.7

[29]     Elizabeth resumed living in the property in April 2009.   The relationship between Elizabeth and Daniel ended shortly thereafter, Daniel having established a relationship with someone else.  That concluded Daniel’s and Mr and Mrs Watkins’

involvement, subject to what I say below.

6      Evidence of E F Piotrkowski Notes of Evidence at 191.

7 Brief of Evidence of D E B Watkins dated 17 January 2014 at [19].

[30]     I turn now to consider the orders appropriate having regard to those facts, the costs  incurred,  the  financial  and  other  contributions  made  by  the  parties,  the evidence as to market value and the issue of occupation rent.

Costs

[31]     On the evidence before me the costs incurred in respect of the property total

$125,000 to $130,000.

Settlement

[32]     The total sum due on settlement was $7,376.42, comprising the purchase price and outstanding and current rates.8   Of this sum, Elizabeth had paid instalments totalling $3,920 and Mr and Mrs Watkins lent the balance required.9

Rebuilding

[33]     The direct expenditure on the rebuilding project exceeded $105,000.

[34]     Elizabeth  prepared  lists  of  the  costs  she  had  recorded  as  having  been incurred, the lists being referred to as “LP4” and “LP5” and covering the period from December 2002 to September 2011.

[35]     Daniel disputed some of the items/quantum claimed.   I am satisfied that

$1,860.39  was  included  in  LP4  in  error  and  that,  at  most,  the  total  should  be

$32,000.10     The costs on LP5 “double count” $6,500 for Plumbwell Limited and include approximately $4,000 for whiteware which has not yet been installed and which I exclude.   Accordingly, the total claimed on LP5 is overstated by at least

$10,500 and should be treated as, say, $75,000, giving a total of $107,500.  Other sums which appear to be disputed were not put to Elizabeth in cross-examination and

many were trivial in any event.

8      Settlement Statement Short & Partners to E P Piotrkowski dated 20 January 2006 at CB 645.

9      This loan, and the loan referred to in [20] above, were repaid from the funds advanced by the

ANZ.

10     Benchmark Building Estimate dated 19 November 2002 at CB 339.

Outgoings and other

[36]     I shall include a sum for rates and insurance, even though these outgoings do not constitute expenditure on the property itself.   The evidence is incomplete but such as it is allows me to estimate that rates for the period from 1 July 2006 to the end of 2014 were approximately $8,000 and insurance $2,500, giving a total of

$10,500 in round terms.11

[37]     Then there are other costs such as the payments made to Mr and Mrs Watkins prior  to  July  2006  and  the  interest  payments  to  the ANZ  whilst  its  loan  was outstanding.  I estimate these total approximately $4,000.

[38]     To these costs Daniel must be taken to have contributed, say, $28,500 being the funds he borrowed first from the ANZ and then from Elizabeth in November

2006; $9,568 being his payments on account of outgoings; and $2,000 by way of the payments to which I have referred in [37].12

[39]     Elizabeth has contributed the balance, being at least $95,000.

[40]   Daniel rejected Elizabeth’s submission that this inequality of monetary contribution required recognition.  Aside from his financial contributions, referred to in [38] above, Daniel put the value of Mr and Mrs Watkins’ labour at $44,800,13 their provision  of  materials  to  the  project  at  approximately  $4,000;  and  $15,600  on account of a reduced payment for board.14    Between mid 2003 and 2009 Elizabeth boarded with Mr and Mrs Watkins, paying $40 per week.   Mr and Mrs Watkins’ evidence was that, in the usual course of events, they would have required Elizabeth to pay $100 per week, with the difference of $60 to be treated as a contribution by

Daniel.15

11     Summary of South Taranaki District Council Rates 2006 – 2014 at CB 39 – 41; and Letter AMI Insurance Ltd to D E B Watkins dated 2 June 2011 at CB 260.

12     Daniel remains indebted to Elizabeth and interest will have accrued on his debt.

13     Closing Submissions on Behalf of Plaintiff, above n 5, at [19.5].

14 Brief of Evidence of K R Watkins dated 5 February 2015 at [72].

15     Elizabeth’s evidence was that she ceased living with Mr and Mrs Watkins in 2007 but I am satisfied that it was 2009.

[41]     I am satisfied that Daniel and Elizabeth’s contribution to the physical work was largely equal.  Mr and Mrs Watkins made a substantial contribution, including know-how and labour.  I am not, however, able to accept the values ascribed to the contributions to which I have referred.  Those values were arrived at in retrospect and depended on Mr and Mrs Watkins’ assessment of value, rather than the assessment of an independent and qualified person.

Market value

[42]     Mr Alistair Dick, a registered valuer of New Plymouth, gave evidence that the current market value of the property was approximately $120,000 and that it would have been likewise in April 2009.

[43]     As  I have said,  I am  satisfied  that  the parties’ wider contributions  were largely commensurate until the funds, first borrowed from the ANZ and then from Elizabeth, were exhausted.  On the evidence of the bank statements produced, that was by August 2007.  There is some evidence that the property had a value of, say,

$60,000 to $65,000 at that time.16     If the advance itself were made on the usual

“two-thirds” basis, the value of the property would have been in the low $50,000s. In closing submissions, counsel for Daniel referred me to an earlier valuation, dated July 2006 and prepared by another valuer in Mr Dick’s firm, which valued the property with improvements at $65,000.17

[44]     Had the property been sold at that time, the parties would have incurred some selling costs and would have been required to repay the ANZ.   Their combined equity would have been no more than $30,000, and possibly less.

[45]     The increase in value thereafter derived from Elizabeth’s expenditure, the labour  of  all  concerned  and  possibly  the  passage  of  time,  although  Mr  Dick’s evidence was that prices were largely stagnant.

[46]     I have concluded that the value of Elizabeth’s contribution to the cost of improvements following receipt of her inheritance constituted 80 per cent of the

16     AMI Policy Schedule Market Value House at CB 562.

17     Hutchins & Dick Valuation dated 4 July 2006.

increase, with the balance of 20 per cent due to Daniel.  The order I make below as to the division of the proceeds of sale is to reflect this inequality.18

Occupation rent

[47]     Daniel seeks an order that Elizabeth should pay occupation rent from April

2009  until  the  time  of  sale,  with  his  half  share  said  to  $90  per  week  on  the assumption that the current market rent is $180 per week.19

[48]     I am not able to accept that as the correct weekly sum.   Although it was attributed to Mr Dick, in fact the assessment was given to him by two real estate agents, neither of whom gave evidence and neither of whom had inspected the property.20    Moreover, the assessment assumed that some facilities would be made available by way of a kitchen.21

[49]     For myself, I would consider rent to Daniel of, say, $30 per week to be reasonable,   bearing   in   mind   the   lack   of   kitchen   facilities,   Daniel’s   lesser contributions and the fact that it has fallen to Elizabeth to pay all outgoings since August 2013.  Rent should run from 1 October 2009, by which time Elizabeth would have been aware that Daniel did not propose to reconsider his earlier decision.

Orders

[50]     It is possible that the parties may be able to agree terms on which Elizabeth acquires Daniel’s interest in the property.   Failing that, however, the property will have to be sold and the sale proceeds divided.

[51]     I ask the parties to liaise as to as their preferred agent(s), whether it is best to proceed by way of auction or private treaty, the solicitor who is to act on the sale and so on.   These matters should be addressed by way of a memorandum or, in the absence of agreement, by separate memorandum, to be filed by 4 pm, 23 September

2015 or such later date as the parties may agree but in any event by 9 October 2015.

18     Property Law Act 2007, s 343(d)

19     Section 343(f).

20     Evidence of A M Dick Notes of Evidence at 196.

21     At 195.

Although Elizabeth was not represented before me I encourage her to consult a solicitor without delay.

[52]     It follows from what I have said that on a sale the proceeds would fall to be divided with a 65 per cent share to Elizabeth and 35 per cent to Daniel, with selling, marketing and legal costs (and all GST) borne in those proportions.

[53]     From his share, Daniel is to repay such sum as is outstanding on the advance from Elizabeth, plus outstanding interest calculated with the same rests and at the same rate.  It will also be for Daniel to repay the LSA and bear any costs incidental to that.

[54]     Elizabeth is to pay Daniel rent as set out above.

[55]     I make no order as to costs.  Each party has had a measure of success and costs are to lie where they fall.

..................................................................

M Peters J