YYK Limited v Monkey Business Limited
[2017] NZHC 1112
•26 May 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000732 [2017] NZHC 1112
UNDER the Property Law Act 2007 IN THE MATTER
of an application for division of co-owned land under section 339
BETWEEN
YYK LIMITED Plaintiff
AND
MONKEY BUSINESS LIMITED Defendant
Hearing: 25 May 2017 Appearances:
P S J Withnall for Plaintiff
J V Ormsby and T M Ritchie for DefendantJudgment:
26 May 2017
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] YYK Limited (YYK) and Monkey Business Limited (MBL) own, as tenants in common, a property on the corner of Cambridge Terrace and Hereford Street, Christchurch. YYK pleads that it owns an 82.477 per cent share of the land, and MBL owns a 17.523 per cent share. MBL says that YYK owns an 80.73 per cent share and it owns a 19.27 per cent share.
[2] YYK and MBL each intend to carry out development on the land. For that purpose it is necessary that the land be divided into separate areas, for ownership by each of them. They differ on which part of the land each is to receive. The substantive case to determine that, and related issues, is to be heard by the Court
later this year.
YYK LIMITED v MONKEY BUSINESS LIMITED [2017] NZHC 1112 [26 May 2017]
[3] In a case management minute issued on 8 December 2016 the Court recorded that neither party envisages requiring discovery, and that no interlocutory applications were envisaged either.
[4] By memorandum dated 16 March counsel for MBL raised with the Court the need for particular discovery of certain documents, as he had been advised by its expert witnesses that these documents were required for the purpose of preparation of their evidence. By 3 April I had received three memoranda on the point and issued a minute indicating I was not prepared to resolve it on the basis of those memoranda. Because of the proximity of the trial, I considered it necessary to determine the very narrow issue raised in relation to discovery as promptly as possible. I allocated a fixture and made timetabling directions in relation to affidavits. It is implicit in the minute that the memorandum from MBL raising this issue was to be treated as an application, and the memorandum opposing the order was to be treated as a notice of opposition.
[5] The documents MBL seeks by way of discovery are these:
(a) The floor plans of YYK’s former buildings on the property at 107-109
Cambridge Terrace, Christchurch;
(b) Assessed lettable floor levels for the various tenancies within YYK’s
former buildings prior to the date of loss;
(c) If YYK leased its buildings in the period leading up to 21 February
2011, all documentation relating to those leases;
(d) How YYK utilised its buildings on the property; and
(e) Building reports relating to YYK’s buildings on the property, including registered valuers reports completed prior to the date of loss, any engineering assessments, any tenancy schedules (if the buildings were professionally managed, the operating expenses) and any condition reports.
The earlier proceeding
[6] The land in question was the site of the old Christchurch Public Library and the librarian’s house, as well as some additions to the library buildings. In 1982 stratum estates in freehold under the Unit Titles Act 1972 were issued, creating five principal units, and a number of accessory units as well as an area of common property. Principal Units A to D, and corresponding accessory units, were owned by YYK. Principal Unit E, which did not have any accessory units, was owned by MBL. Both enjoyed shared ownership of the common property under s 9(1) of the Unit Titles Act 1972.
[7] All the buildings were substantially damaged in the earthquake of
22 February 2011. Units A to D were demolished. Unit E was deconstructed by MBL. The principal materials which comprised it have been placed in storage, it being MBL’s intention that it will reconstruct the old historic librarian’s house in its original form, on the land, in due course.
[8] YYK brought proceeding 2016-409-349 against MBL and the body corporate applying to the site for orders in relation to the Unit Plan. On 23 August 2016 the Court made an order by consent. Principally, it declared that the Unit Plan was cancelled. Further directions were made, partly relating to the steps required to effect the cancellation, but partly reserving issues which had then been raised in relation to ownership interests of YYK and MBL. It was envisaged that there would be a subsequent proceeding, which is the present proceeding. It would deal with resolution of differences between YYK and MBL in relation to ownership interests. Thus the sealed order of the Court makes express reference to, and provision for, this to occur:
3(b) …
(iii) …(any issue of reassessing ownership interests to be
considered and determined in the pending proceedings);
(iv) Leave be reserved to [YYK and MBL] to apply under s 188(4) of the Act … to vary or modify the terms of these orders in the event an order is made reassessing the respective ownership interests in the pending proceedings.
(v) …but, pending determination in the pending proceedings of
any issue of reassessing ownership interests under the Act,…
3(c) This proceeding and the pending proceedings be consolidated on commencement of the pending proceedings and leave be reserved to the parties at the hearing of the pending proceedings to have all issues relating to the division and value of the respective shares in the land heard, including any issue of reassessing ownership interests under the Act.
Relevant pleadings in the present case
[9] In its statement of claim YYK pleads that it is a co-owner of the land as to an
82.477 per cent undivided share and that MBL is its co-owner of the remaining
17.523 per cent undivided share. It says YYK and MBL intend to carry out their own separate development of the land and it seeks an order that the land be divided into separate titles vesting the land in YYK and MBL in accordance with a plan which is attached to the statement of claim.
[10] The statement of defence contains admissions and denials but the only one which is presently relevant is MBL’s contention that the correct undivided shares in the land are 80.73 per cent and 19.27 percent for YYK and MBL respectively.
[11] In the counterclaim however there are further pleadings of relevance, which are these:
16. The plan proposed by [YYK] would provided [YYK] with a commercial and economic advantage over what [YYK] previously enjoyed including exclusive ownership over much more land frontage to Cambridge Terrace which was previously enjoyed exclusively by [MBL’s] property.
…
19. Taking into account:
(a) The relative values of the parties’ respective shares in the land as they existed;
(b) The use and enjoyment of the land by [YYK] and [MBL] under the defunct body corporate prior to the earthquakes; and
(c) The aesthetic market and amenity value associated with
[MBL’s] property prior to the earthquakes.
[MBL] is entitled, and it is just and equitable to order, a division of the land that does not diminish the market value, or the aesthetic or amenity value of [MBL’s] share or otherwise to adjust ownership interests of the respective parties.
[12] In the prayer for relief MBL asks for an order that the land be divided in accordance with a certain description, but then pleads for an order “alternatively readjusting the ownership interests of the plaintiff and the defendant in the land”.
The reason MBL seeks tailored discovery
[13] MBL seeks tailored discovery because it wishes to advance arguments on trial of this case as foreshadowed in the portions of the sealed order which I have set out. With a view to preparing evidence for that purpose it has instructed Mr T J Naylor, a registered valuer, “to assess the value of the five units which formerly comprised the unit title development created by Deposited Plan 45373 situated at 107-109 Cambridge Terrace Christchurch.” In his affidavit Mr Naylor sets out the matter which he says he would need to assess, and then describes the information that he will require. This is reflected in the terms of the discovery application now before the Court. At para 12 of his affidavit he says he cannot fairly assess the market value of the respective units as at 21 February 2011 without access to the requested information.
YYK’s opposing view
[14] YYK has instructed Mr C N Stanley, also a registered valuer, to advise it on issues arising in this case, and on this application.
[15] When unit titles were created for the buildings on this land in 1982, ownership entitlements were established under the Unit Titles Act 1972. Mr Stanley says:
I understand the issue in the present instance is whether there is any good reason to believe that the relative values between the units at the time when the unit entitlements were calculated, in this case in 1982, no longer reflect more or less the relative values of the units as at the date of cancellation of the Unit Plan.
[16] He goes on to say that as far as he is aware there is no suggestion the unit entitlements were incorrectly calculated in 1982. After recounting some aspects of the history of the property and referring to the current position, he says:
With this history and current situation it is highly doubtful in my assessment that there could be any basis for a reassessment of the ownership interests in this case.
[17] He goes on to say, of particular relevance to the argument presented for YYK
on this application:
If, nevertheless, a reassessment of ownership interests were to be carried out in this instance, the reassessment would not as a matter of accepted valuation approach and practice take into account the historical information Mr Naylor refers to at para 9 of his affidavit. The key information required would be the respective land areas, shape, location and presence of any easements or other interests once the land had been divided and this needs to be established first before any reassessments, if any, of ownership interests can be carried out.
Summary of the respective positions of the parties
[18] In essence, the position of MBL is that it wishes to reassess the respective values of the property owned by each party at the time of the earthquake with a view to that being a factor to be taken into account by the Court when determining how the land is to be partitioned. In contrast to that, the position of YYK is that the Court must determine how the land is to be partitioned, and only once that has been done might it be relevant to review the values of the properties at the time of the earthquake in order to determine how that compares with the values of the land as partitioned in accordance with the order of the Court.
Discussion
[19] The High Court Rules envisage that an order for discovery of documents will be made at a first case management conference, which will follow the giving of initial disclosure, and will either be standard discovery or tailored discovery as defined in the Rules. In this case, neither party sought a discovery order and the minute issued on 8 December recorded that neither party envisaged doing so either. That position changed when Mr Ormsby briefed Mr Naylor shortly thereafter. Although Mr Withnall discussed the terms of rr 8.12, 8.17 and 8.19, in his written
submissions, expressing the view that there does not appear to be a rule in the High Court Rules which now allow for discovery to be ordered, he did not develop this argument in oral submissions. I am satisfied that the Court has power to order discovery in the circumstances of this case. The real issue is whether it should. As Mr Withnall says, a decision on whether to make a tailored discovery order will depend on whether the requested discovery is relevant to the issues before the Court in the present case, and whether that discovery is relevant now.
[20] The respective positions of the parties come down, in the end, to timing. As I have indicated, it is MBL’s position that it is entitled to raise the question of the value of the respective ownership interests of YYK and MBL at the hearing of this case. This entitlement arises under the sealed order made by consent, and also because the Unit Titles Act 2010 envisages that unit entitlements on a Unit Plan will be reconsidered at the time of cancellation of a Unit Plan.1 MBL also says that he will be asking the Court to make an order in relation to the land that is just and equitable and wishes to have valuation evidence to present to the Court which will
be used in argument to support MBL’s position.
[21] Resolution of the issues raised in this case has the potential to be a circuitous process. Two separate parties own the land in shares. If part of the land is appropriated to one party which has a value which differs from the value of that party’s share before division, that may or may not be acceptable to that party. Setting a division without reference to value of each of the divided pieces of land will self evidently be unsatisfactory. On the other hand, without a division a separate portion of the land cannot be valued. Therefore, there may be a number of attempts to arrive at a correct outcome if the aim is to establish by partition two areas which are valued respectively at figures which represent the precise percentage of the value of the title which their respective unit entitlements, whether original or reassessed,
bore. Yet for reasons set out below, that is the legal entitlement of each party.2
1 Unit Titles Act 2010, s 177(7). As distinct from s 45(7) of the Unit Titles Act 1972 which provided that on cancellation of a Unit Plan all property and money would be distributed in accordance with existing unit entitlements.
[22] Another complicating factor is foreshadowed in the valuation evidence presently before the Court. The land does not have the same value per square metre over its entire area. Land on the road frontages, especially the Cambridge Terrace road frontage, will be worth more per square metre than land to the rear of the site. Variable factors such as the location of road access will also play a part in deriving these values. Under the former Unit Plan, MBL owned a principal unit which did not front onto either road, but it also owned a percentage of the common property, which was a driveway, and which did front Cambridge Terrace. It therefore had an interest in land fronting that street, and it is clear from a draft plan produced by Dr McCoy in evidence that it wishes to have frontage onto Cambridge Terrace after partition. Equally, it is clear from the plan attached to the statement of claim that YYK wants the land divided so that the only frontage onto Cambridge Terrace for MBL is its own driveway. Whilst that may in one sense reflect the position under the old Unit Plan, the difference is that YYK does not propose an open car parking area between the bulk of the site it proposes for MBL, and Cambridge Terrace, whereas MBL’s former principal unit had a view across YYK’s accessory units (car parks) to Cambridge Terrace. The value per square metre of the part of the title proposed by YYK for MBL may therefore be less than the value per square metre of the land occupied by MBL’s principal unit previously.
[23] I have set out these issues not because they are before the Court at present, but because they make it plain that the value of the land will be directly relevant to the assessment to be made by the Court in relation to partition. I am conscious of the evidence of Mr Stanley set out at [15] to [17] above. Mr Stanley was not cross- examined so neither I nor counsel was able to test his conclusions. I merely observe, therefore, that it does not appear to take into account ss 177(7) and 185 of the Unit
Titles Act discussed below.3
[24] As I read the pleadings, both sides want an area of land which represents what they presently own. As a matter of logic, finding out the value of what they owned at the time of the earthquake is a starting point for that exercise. I accept that, in the end, the Court on the substantive hearing may not find itself assisted by the evidence that Mr Ormsby wishes to have available to MBL. It cannot for that reason
be regarded as irrelevant, in terms of the test which I must apply on an application for discovery of documents. This issue is squarely raised by MBL on the pleadings.
[25] Although Mr Withnall argued that where parties are going their separate ways and a new Unit Plan is not envisaged, new unit entitlements are not required, that is not what s 177(7) of the Unit Titles Act 2010 provides. A reassessment of ownership interests must be undertaken at the time of cancellation. Where there is to be an ongoing body corporate, it sets the new ownership interests. Where there is not, the assessment of ownership interests enables money and other assets owned by the body corporate to be distributed in accordance with that assessment. Section 185 of the Unit Titles Act provides that on the cancellation of a Unit Plan the body corporate is dissolved. It goes on to provide that unless the body corporate decides, otherwise beforehand, by a special resolution, all property and money must be distributed among the unit owners according to their ownership interests immediately before the cancellation. Each of YYK and MBL therefore has a statutory right to a distribution of the land in accordance with the unit entitlements which existed on the day of cancellation of the Plan. Establishing those entitlements is therefore a necessary part of the cancellation and distribution process prescribed by the Act.
[26] An ownership interest is fixed in the way set out in s 38(2) of the Act; it is fixed by a registered valuer as the relative value of each unit to each other unit. Mr Naylor says he cannot fairly assess the market value of the respective units without access to the documents requested. I find that the documents are relevant to the issues in this case.
[27] As can be seen above, four categories of documents are sought by MBL, and in addition it asks “How YYK utilised its buildings on the property”. That is not a request for discovery of documents. It is to be read as a request for discovery of all documents which show how YYK utilised its buildings on the property.
Outcome
[28] The plaintiff will give discovery of the documents listed in para 5 of the memorandum of counsel for MBL dated 16 March 2017 in accordance with the requirements of Part 1 of Schedule 9 of the High Court Rules.
[29] YYK will pay costs to MBL on a 2B basis together with disbursements fixed by the Registrar.
J G Matthews
Associate Judge
Solicitors:
Greenwood Roche (J P Greenwood), Wellington
Wynn Williams, Christchurch
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