LAKE HAYES PROPERTY HOLDINGS LIMITED v PETHERBRIDGE [2014] NZHC 1673 [17 July 2014]

IN THE HIGH COURT OF NEW ZEALAND

DUNEDIN REGISTRY

CIV-2013-412-000451

[2014] NZHC 1673

BETWEEN

LAKE HAYES PROPERTY HOLDINGS

LIMITED

Applicant

AND

LOUISE DURANT PETHERBRIDGE

Respondent

Hearing:

3 April 2014 and 9 June 2014

Appearances:

J V Ormsby and J-L Day for the Applicant

P J Page and K J Logan for the Respondent

Judgment:

17 July 2014

JUDGMENT OF PANCKHURST J

Introduction ............................................................................................................ [1] The issues ............................................................................................................... [4]

The factual background .......................................................................................... [6] Is it “just and equitable” to authorise cancellation of the unit plan? .................... [22]

Jurisdiction [22] The scheme and purpose of the Act [23]

The competing contentions [31]

The “just and equitable” test [45]

Evaluation – conclusions [53] Is an order for sale, purchase, or division of the land appropriate? ..................... [58]

The jurisdiction to unlock a deadlock [58] The available options [65] The contentions relating to the relevant considerations [72]

Evaluation – conclusions [86] An order for sale or purchase? ............................................................................. [91]

The evidence [91] The submissions [94] Evaluation – conclusions [97]

Result.................................................................................................................... [99]

Introduction

[1] Ms Petherbridge owns one unit of a former motel complex on Lake Hayes,

near Arrowtown in Central Otago. The unit enjoys a commanding view of the lake.

Ms Petherbridge regards Lake Hayes as a place of escape and ideal for her work as

an artistic director, actor and scriptwriter. She uses her unit several times a year to

work in peace and to enjoy the surrounds – the mountains, the lake, the simplicity

and the peacefulness. To her it is the aesthetic value, not the monetary value, of the

property that is important.

[2] Lake Hayes Property Holdings Limited (Property Holdings) owns the other

eight units on the site. The directors of the company, Messrs David Smallbone and

Kenneth Cummings, consider that the site requires redevelopment. The units,

constructed in the 1960s, are small, outdated, and no longer provide acceptable

accommodation. A proposal to redevelop the site was initiated, but ultimately did

not proceed. Property Holdings now considers that the property should be sold for

redevelopment. The land and units comprise a unit title subdivision under the

Unit Titles Act 2010. Each unit comprises a strata estate in freehold that may be sold

individually. But, to sell the property for redevelopment it would be advantageous to

sell the land and all nine units as a whole.

[3] Accordingly, Property Holdings has applied to the Court to dissolve the body

corporate and cancel the unit plan under which the units are presently owned and

administered. It also seeks, in the alternative, an order dividing the land to

accommodate Ms Petherbridge’s ownership share, an order requiring it to purchase

her unit at a fair and reasonable price or an order for sale of the whole property and

division of the proceeds. Ms Petherbridge opposes Property Holdings’ application,

particularly the making of any order whereby her interest in the property is lost.

Thereby the aesthetic values of the unit, which she values so much, would be lost to

her.

The issues

[4] The proceeding raises two main issues:

(a) whether it is just and equitable to order that the body corporate be

dissolved and the unit plan cancelled, having regard to the rights and

interests of all affected parties, and

(b) if such an order is made, whether a further order requiring the

purchase of Ms Petherbridge’s share, or for the sale of the whole

property or division of the land, is appropriate.

[5] Jurisdiction to make such orders is provided under s 188(2) of the Unit Titles

Act 2010 (the Act) and s 339(1)(c) of the Property Law Act 2007 (the PLA),

respectively. The former power is exercisable if this Court is satisfied that it is just

and equitable to cancel the unit plan, subject to such conditions and directions as the

Court thinks fit.1 An order requiring purchase, directing a sale, or dividing the land

may only be made after various relevant considerations have been considered,

including the hardship that will be caused to the applicant by the refusal of the order,

as compared to the hardship caused to Ms Petherbridge by making the order.2

The factual background

[6] The land is at 25 Arrowtown-Lake Hayes Road, which is part of the principal

road between Queenstown and Arrowtown. The property is about a 10 minute drive

from Arrowtown and a 20 minute drive from Queenstown. The site comprises

3055 m2, being generally rectangular and running from the roadside down towards

Lake Hayes, with the western boundary closest to the lake but still some distance

from the water’s edge. From this boundary access may be gained to the lake and

also to a walking track which circles the lake.

[7] The nine units are situated nearer to the eastern boundary, the frontage to

Lake Hayes Road, and on about the front two-thirds of the site. This area is of easy

contour, whereas the western one-third of the land area falls steeply away towards

the lake edge. Units A and B are closest to the road on the southern boundary and

have little or no view towards the lake. The other seven units are positioned across

the width of the site, some elevated, with views to the west across Lake Hayes. The

units are constructed of concrete block, with corrugated iron roofs, and are of modest

1 Unit Titles Act 2010, s 188(3).

2 Property Law Act 2007, ss 339 and 342.

size. Ms Petherbridge’s unit, unit D, comprises about 40 m2, being a studio (sitting

and sleeping areas and a kitchen) and a separate bathroom/toilet. Some units have

separate bedrooms, but these are also of modest proportions.

[8] Generally speaking, the units are in need of repair and maintenance. The

units each have accessory units, designated as garages, storage areas and outdoor

forecourts. The balance of the land is common area owned by the body corporate,

but with beneficial ownership vested in the unit owners as tenants in common in

shares proportional to their ownership interest. For example, Ms Petherbridge holds

a 9.15% ownership share in the property.

[9] In 1983 the then owner converted the motel units to unit titles.

Ms Petherbridge’s parents purchased one of the units and over time more units were

sold to individual owners.

[10] In September 2006 Lake Hayes Equity Holdings Limited (Equity Holdings)

purchased eight of the units, I infer from an American citizen who had acquired them

over the intervening period. Equity Holdings planned to redevelop the site into a

complex described as “in the nature of a residence club”. To finance the purchase

and advance the redevelopment Equity Holdings borrowed from the

Southland Building Society (SBS) and from a company now named Roy Project

Company Limited, owned by Messrs Smallbone and Cummings. SBS became the

priority lender upon the signing of a deed of priority.

[11] On 16 June 2008 Equity Holdings entered into a development agreement with

Ms Petherbridge. The agreement recorded that Equity Holdings wished to cancel the

existing unit plan in favour of a new plan consistent with the intended residence club

development. A concept plan contemplated the construction of a multilevel building

comprising nine units, eight of which would comprise the residence club, while

unit 9 would be owned by Ms Petherbridge. However, the agreement was

conditional upon Equity Holdings obtaining the requisite resource consents and

redevelopment finance, as well as achieving a number of presales before

development began. A period of 17 months was allowed for satisfaction of the

conditions.

[12] However, things did not go well. In early 2009 Equity Holdings defaulted in

meeting its repayment obligations to Roy Project Company Limited.

Messrs Smallbone and Cummings evaluated their options and decided that, given

their company’s second mortgagee status, a mortgagee sale would not secure

repayment to it in full. Instead they considered that the best option was to purchase

the assets of Equity Holdings. They did so through a purpose-company, the

applicant Property Holdings, paying a purchase price of $1.3m in mid-April 2009.

At the same time Equity Holdings completed a deed of assignment in favour of

Property Holdings whereby its rights under the development agreement were

transferred. Contemporaneously, another deed of assignment was concluded to

transfer the redevelopment consents, architectural plans and associated intellectual

property to Property Holdings. Finally, a deed of accession was signed by

Ms Petherbridge and Property Holdings whereby they covenanted to be bound by the

terms of the development agreement concluded in June 2009.

[13] Property Holdings endeavoured to advance the redevelopment scheme.

Resource consents were eventually obtained following a hearing process. Real

estate agents were retained to effect presales, but without success. No presales were

achieved, perhaps on account of the global financial crisis.

[14] From mid-2011 Property Holdings looked to alternative ways to quit the

investment. The directors considered that one way forward was to acquire

Ms Petherbridge’s unit so that Property Holdings owned and controlled the whole

site. This was seen as a means to make the property more saleable.

[15] In May 2012 Property Holdings made an offer to purchase unit D from

Ms Petherbridge for $245,000, being the market value according to a registered

valuer’s report. Alternatively, the company proposed that the whole site be sold on

the understanding that Ms Petherbridge would receive 9.15% of the net sale

proceeds. Neither alternative was acceptable to Ms Petherbridge.

[16] Instead, Ms Petherbridge retained a resource management consultant,

Mr Don Anderson, to devise an approach acceptable to her. In June 2012

Mr Anderson proposed a subdivision of the land to create a 176 m2 lot in the

south-western corner of the site, upon which would be erected a bedsit for

Ms Petherbridge at her expense. The concept, including development of a right of

way along the southern boundary of the land from Lake Hayes Road, is shown in the

provisional site diagram below.

[17] The proposal entailed some element of compromise on Ms Petherbridge’s

part. The new site is at a lower level and her view would be partially interrupted by

treetops by comparison to the view from her unit D site.

[18] Property Holdings considered the proposal unworkable. The subdivided lot

was smaller than the minimum size permitted under the District Plan, while the

likely cost of the proposal and the creation of the lengthy right of way were seen as

problematic.

[19] In January 2013 Property Holdings made a further offer to Ms Petherbridge.

The first alternative was to purchase her existing unit for an increased price,

$274,500, together with an agreement that if the site as a whole was sold within

12 months for a sum greater than $3m Ms Petherbridge would receive 9.15% of the

excess. The alternative offer was for Property Holdings to build a one bedroom unit

for Ms Petherbridge on the north-eastern corner of the land overlooking

Arrowtown-Lake Hayes Road. The land required for the dwelling would comprise a

separate freehold title. Neither proposal was of any interest to Ms Petherbridge.

[20] In August 2013 Property Holdings filed an originating application seeking

cancellation of the unit plan; and an order under the Property Law Act for the sale of

the land or, alternatively, the purchase of Ms Petherbridge’s interest by it at

valuation.

[21] The proceeding was part-heard in April 2014. Following a site visit, counsel

made submissions directed to cancellation of the unit plan on the understanding that,

if cancellation was authorised, there would be a resumed hearing in relation to the

relief sought, sale or purchase of the land, or a division of the land. I was of the

view that the better course was to complete the hearing and deliver one composite

judgment. Hence, updating evidence was filed and further submissions were made

on 9 June.

Is it “just and equitable” to authorise cancellation of the unit plan?

Jurisdiction

[22] To recap, power to authorise the cancellation of a unit plan lies with this

Court pursuant to s 188 of the Act. The section relevantly provides:

188 Cancellation of unit plan by High Court

(2) The High Court may authorise that the unit plan be cancelled if—

(a) the High Court is satisfied that it is just and equitable that

the body corporate be dissolved and the plan cancelled

having regard to—

(i) the rights and interests of any creditor of the body

corporate; and

(ii) the rights and interests of every person who has any

interest in any unit or in the base land or in any part

of the base land; and

(3) If the High Court makes a declaration authorising the cancellation of

a unit plan under subsection (2), the High Court may by order

impose any conditions and give any directions as it thinks fit, for the

purpose of giving effect to the declaration, including—

(a) directions for the payment of money by or to the body

corporate; or

(b) the distribution of the assets of the body corporate; or

(c) a direction to modify or extinguish, in whole or in part, any

registered interest or caveat or notice of claim entered on the

register in relation to any unit, the common property, or the

base land.

Subsection (4) enables the Court to vary or modify the terms of its decision at any

time before cancellation of the unit plan is effected, while subs (5) empowers the

Court to make such order for payment of costs as it thinks fit.

The scheme and purpose of the Act

[23] The preliminary provisions include a purpose section. Section 3 provides:

Purpose

The purpose of this Act is to provide a legal framework for the ownership

and management of land and associated buildings and facilities on a socially

and economically sustainable basis by communities of individual owners

and, in particular,—

(a) to allow for the subdivision of land and buildings into unit title

developments comprising units that are owned in stratum estate in

freehold or stratum estate in leasehold or licence by unit owners, and

common property that is owned by the body corporate on behalf of the

unit owners; and

(b) to create bodies corporate, which comprise all unit owners in a

development, to operate and manage unit title developments; and

(c) to establish a flexible and responsive regime for the governance of unit

title developments; and

(d) to protect the integrity of the development as a whole.

[24] Cancellation of the unit plan can occur in one of two ways. The owners may

resolve to cancel the plan, facilitating an application by the body corporate to the

Registrar-General of Land to effect cancellation. Alternatively, cancellation may be

authorised by the High Court pursuant to s 188. There is no need to detail the

intricacies of the Act, but mention of some provisions of relevance is warranted and

may provide a better sense of the scheme of the Act.

[25] A unit title development is created by a subdivision of land, whether a fee

simple, or lessee or licensee estate, provided such estate is registered under the

Land Transfer Act 1952.3 Except to the extent that the Act provides, and subject to

any necessary modification, the principles of the Land Transfer Act apply equally to

strata estates in their various forms.4 The land may be subdivided into two or more

principal units, plus accessory units and common property.5 The Lake Hayes unit

title development comprises nine principal units, being strata estates in freehold,

together with accessory units (storage, garage and forecourt areas) attaching to each

unit, as well as a generous area of common property.

[26] Before a unit plan may be deposited the ownership interest of each unit

owner must be valued to establish the value of that unit as a percentage of the value

of the development as a whole.6 The ownership interest determines each owner’s

beneficial interest in the common property, what share of expenses they must meet

and their entitlements to capital, including in the event of a cancellation and sale of

the assets.7 Ms Petherbridge has a 9.15% ownership interest in the Lake Hayes

development. Accordingly, Property Holdings, as the owner of the other eight

principal units, has a 90.85% interest.

[27] Management of the unit development lies with the body corporate, which is

created upon deposit of the unit plan.8 The unit owners become members of the

body corporate,9 and have the rights described in s 79 of the Act, including all the

rights derived from being registered as the owner of the stratum estate in a unit under

the Act, quiet enjoyment of the unit, and rights to participate in body corporate

decision-making and management. Unit owners are subject to responsibilities

defined in s 80, being in effect duties to comply with the body corporate operational

3 Unit Titles Act 2010, s 16(1).

4 Section 72.

5 Section 16(2).

6 Section 38(1) and (2).

7 Section 38(3).

8 Section 75.

9 Section 76.

rules pertaining to maintenance, repairs and the use, occupation and enjoyment of

their units. The body corporate enjoys defined powers and is also subject to duties.10

It too must comply with the body corporate operational rules and generally

administer and manage the development as a whole to ensure its wellbeing.

[28] One vote is available to each unit at a meeting of the body corporate.11

An

ordinary resolution may be passed by a bare majority of the eligible voters who

vote.12

However, a special resolution requires a 75% vote in favour.13

Cancellation

of a unit plan requires a special resolution.14

Should the body corporate resolve to

cancel the unit plan, the minority may invoke the objection process.15

[29] The objection process is governed by ss 210 to 216, contained in Part 5,

subpart 3 and entitled “Minority and majority relief”. Section 210 provides that

where a resolution is duly passed “any person who voted against the resolution may

apply to the appropriate decision-maker for relief on the grounds that the effect of

the resolution would be unjust or inequitable for the minority.” Similarly, if a special

resolution is not passed, but there was a 65% vote in favour, relief may be sought if

“the effect of the failure of the resolution to be passed would be unjust or inequitable

on the majority.”16

Here the relief provisions need not be relied upon, because

Property Holdings, appreciating that it held the whip hand, filed the present

application seeking the Court’s authorisation to cancellation of the unit plan.

Otherwise, it seems likely that Ms Petherbridge would have invoked the unjust or

inequitable relief provision available to a minority owner.

[30] Finally, I note observations made by a commentator with reference to the

name of the Act. He said:17

“Unit titles” is not a phrase that does justice to the topic. Unit titles are

about communities, about infrastructure, about democracy, about

governance, about management, about property rights, and above all, about

10

Section 84. 11

Section 97(2). 12

Section 97(4). 13

Section 98(4). 14

Section 177(3). 15

Sections 177(4), 212-216. 16

Section 211(1). 17

Thomas Gibbons “In Your Neighbourhood” (2011) 172 NZLawyer 23.

people. These issues go far beyond “title” matters. Fundamentally, these

issues are about neighbours – how people live and work together, how

people’s lives are controlled by others, and what rights they have. Much of

land law is really about contracting parties (buyer/seller, landlord/tenant et

cetera), but unit titles are about neighbours.

The competing contentions

[31] Property Holdings’ case is centred upon the present condition of the units and

the need for complete redevelopment of the site. It considers this an economic

imperative, which should prevail given the company’s majority position as a 90%

owner of the unit development. By contrast, Ms Petherbridge disputes that the units

are beyond their economic lifetime and that redevelopment of the site is the only

available option. That said, she is not totally opposed to redevelopment, provided it

is on terms which result in her having continued use and enjoyment of the property,

whether in unit D or in purpose-built alternative accommodation.

[32] Mr Ormsby advanced four main submissions in support of cancellation.

First, he stressed that Property Holdings and Messrs Smallbone and Cummings are

reluctant owners of the eight units in the development. They did not willingly

acquire the units, rather they were faced with default on the part of the previous

owner and as the second mortgagee purchased a 90% interest in the development to

protect their investment. Counsel went a step further, and argued that

Ms Petherbridge was not so concerned about dissolution of the body corporate and

cancellation of the unit plan. Rather, her essential concern is to retain her ownership

interest in the property so that she may enjoy the aesthetic values of the lakeside

area. Hence, her opposition to the cancellation application was characterised as a

means to an end.

[33] The second argument concerned the majority interest owned by

Property Holdings. Mr Ormsby stressed that the company is a 90.85% owner and is

in a dominant position. It could have passed a resolution in favour of cancellation at

will. More importantly, counsel argued that the scheme of the Act affords primacy to

the views of the majority, and this rendered it inappropriate for the Court to embark

on a merits-based review. Put another way, the Court should not fashion an approach

by simply balancing the competing rights and interests of the unit holders, as this

may result in an outcome at odds with the legitimate interests of the majority owner.

[34] Thirdly, Mr Ormsby characterised the Lake Hayes body corporate as

dysfunctional. Mr Smallbone deposed that the body corporate was effectively

defunct when Property Holdings purchased its units in 2009 and, given events of the

last few years, nothing had been done to revive the body corporate. Ms Petherbridge

confirmed that she was unaware of any body corporate meetings since her parents

purchased her unit in 1983. She attributed this to the majority of the unit owners

being investors, not private owners wishing to enjoy the attributes of the area. She

deposed that the absentee owners “neither had an attachment to the place, nor were

[they] interested in it for anything other than financial gain”.

[35] Ms Petherbridge explained, however, that a married couple were employed to

manage the unit development on behalf of an absentee overseas majority owner and

that this worked for a period. However, she recalled contacting the nominated

insurer of the complex (arranging insurance being a duty of the body corporate), to

find that there was no insurance cover, despite her having written a cheque to meet

her share of the premium. Ms Petherbridge, therefore, arranged cover for her unit

and she has maintained it to the present time.

[36] A similar situation has obtained in relation to maintenance and repairs.

Mr Smallbone deposed that Property Holdings has maintained the septic tanks and

also met the costs of gardening and general maintenance of the grounds. Otherwise,

it appears that little has been done. Ms Petherbridge confirmed that repairs and

maintenance have been a problem for many years. She referred to sewerage issues.

At various times she proposed that the unit development be linked to the mains

sewerage line, which I infer runs along Arrowtown-Lake Hayes Road. She could

make no progress. Ms Petherbridge remained willing to play an active part in the

body corporate, but she:

… gained the impression that the diminishing state of the buildings and land

was certainly not a priority and possibly actually seen as an advantage in

plans to replace the existing buildings with a complex.

[37] Finally, Mr Ormsby submitted that the motel complex is no longer fit for

purpose. They were constructed almost 50 years ago in the mid to late 1960s. Seven

of the units have a combined living/sleeping area and separate bathroom/toilet

facilities. Two of the units are larger, with bedrooms separated from the living areas.

The construction is predominantly concrete block walls with a painted finish. The

interior linings comprise painted concrete block, or plasterboard walls, with Pinex

tile and sheet ceilings. The joinery, both windows and doors, is aluminium, with

single glazing.

[38] The registered valuer’s report describes the street appeal as average and the

quality of the fittings and fixtures as fair to average. At another point in the report

the fittings are described as dated by modern standards. The interior and exterior

condition of the units is also described as average, but the interiors have been

repainted in recent years. The units each have either a carport, or an uncovered

carpark. The site has some sealed driveways and paths, and there are areas of lawn

and established plantings.

[39] My impression following the site visit was that the motel complex was dated

and that the whole development had a tired feel about it. This, I think, was

consistent with the affidavit evidence concerning the defunct body corporate and the

low level of attention to maintenance since at least 1983, a period of 30 years.

[40] Mr Page and Ms Logan both made submissions in opposition. Counsel

argued that Property Holdings’ primary motivation in seeking cancellation of the unit

title is to achieve a better sale price for the 3055 m2 site. Dissolution of the body

corporate, and cancellation of the unit plan, would render the land more attractive to

prospective developers, particularly if Ms Petherbridge’s interest was subsumed by

the Court making an order for the sale of the entire site, or an order requiring

Property Holdings to purchase the 9.15% interest.

[41] Counsel submitted that no weight should be accorded to the argument that

Property Holdings was a reluctant purchaser. Messrs Smallbone and Cummings are

commercial investors, who purchased eight units from the previous owner with their

eyes open and to protect a mortgage advance. They were on notice in relation to

Ms Petherbridge’s interest, and more importantly, concerning her sentimental

attachment to her unit. The fact that her stratum estate in freehold was no longer

convenient from Property Holdings’ perspective was not a reason to dissolve the

body corporate and cancel the unit plan.

[42] With reference to the body corporate, counsel submitted that it was not

dysfunctional, rather that successive majority owners had neglected their duties

under the Act, resulting in a situation of non-engagement with Ms Petherbridge the

only other unit owner in recent times. It was not a situation of deadlock, because

there had been no endeavour to engage with the minority owner, despite her efforts

to, for example, have the development connected to the sewerage mains.

[43] Ms Logan also disputed that the units are past their economic lifetime. While

maintenance has been deferred, the units remain structurally sound and could be

renovated to become highly desirable – something confirmed in an affidavit from a

registered valuer, Mr Timothy Higgins.

[44] Finally, counsel argued that no weight should be given to the applicant’s

second argument that the scheme of the Act affords primacy to the views of the

majority. Although decision-making by the body corporate is based on a democratic

model, the viewpoint of a minority owner, or owners, can still be heard by virtue of

the objection process. In the final analysis, and even regardless of a 75% vote in

favour of an initiative, the view of the minority may prevail if a resolution is shown

to be unjust or inequitable.

The “just and equitable” test

[45] The leading case on the interpretation of the just and equitable test is

World Vision of New Zealand Trust Board v Seal.18

The unit title development

consisted of six residential units and one commercial unit, the latter being

structurally separate from the building comprising the residential units.

World Vision, the owner of the office block stratum title, applied to the Court for a

declaration dissolving the body corporate and cancelling the unit plan pursuant to the

18

World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC).

Unit Titles Act 1972. Section 46 of that Act was in substance identical to s 188(2) of

the new Act, although it was drafted in a different style.

[46] Heath J, summarised the statutory test in this reasonably lengthy passage,

which I shall quote in full:

[62] The phrase “just and equitable” has a respectable legal pedigree. It is

often used as a test to determine whether a corporate entity should be placed

in liquidation or a partnership dissolved: see s 241(4)(d) of the Companies

Act 1993, s 25(1) of the Charitable Trusts Act 1957, s 15(e) of the

Agricultural and Pastoral Societies Act 1908, ss 90 and 138 of the Friendly

Societies and Credit Unions Act 1982 (in relation to a friendly society and a

credit union respectively), s 282(1)(f) of Te Ture Whenua Maori Act 1993 (a

Māori incorporation) and s 25(e) of the Incorporated Societies Act 1908. The

phrase is also used as the test for dissolution of a partnership or the winding

up of an unincorporated association of persons: s 38(f) of the Partnership Act

1908 and s 17A of the Judicature Act 1908.

[63] When considering the “just and equitable” ground to liquidate a

company, Lord Clyde said, in Baird v Lees 1924 SC 83 at p 90:

“. . . a wider view now prevails regarding the ambit of the discretion

which is entrusted to the Court. This discretion must, however, be

judicially exercised. It is not enough for the Court in exercising it to

have, in the familiar phrase of a decree-arbitral, ‘God and a good

conscience’ before its eyes; grounds must be given which can be

examined and justified.”

Other members of the Inner House concurred with that observation.

[64] It is inherent in Mr Thwaite’s submission that justice and equity are two

criteria to be considered in determining whether to exercise the power

conferred by s 46(1) of the Act. Yet, the authorities analysed in Callaway,

Winding Up On the Just and Equitable Ground (Sydney, Law Book Co Ltd,

1978) suggest to the contrary. In the context of the jurisdiction to order

liquidation of a company on the “just and equitable” ground, Callaway stated

at p 5:

“The Court must balance all the conflicting claims, giving proper

weight to each consideration of right, duty and fairness brought forward

by the parties. The expression ‘just and equitable’ may be regarded as

an example of statutory hendiadys, the reference to equity not being by

way of an additional test but for the purpose of ensuring that the justice

to be applied will be equitable justice, ‘the justice of the individual

case’. Accordingly justice and equity are referred to herein as one

criterion, not two criteria.”

(Citations omitted.)

[47] The Judge then noted that the just and equitable touchstone was to be applied

in relation to two distinct elements, dissolution and cancellation; one could not be

authorised without the other. Further to the analysis quoted above, Heath J also

considered the approach to, and extent of, the s 46 jurisdiction. He concluded that in

terms of approach it was not appropriate to balance the competing rights and

interests of the relevant participants, rather that the applicant must show on the

balance of probabilities that a dissolution and cancellation was just and equitable,

having regard to all relevant rights and interests. With regard to the extent of the

jurisdiction he concluded it “should not be unduly circumscribed”,19

because after all

the jurisdiction is to be exercised with equitable principles in mind. However, the

jurisdiction was to be exercised under the Act, and therefore in circumstances

significantly different to, for example, a business context as arises in a liquidation or

partnership dissolution.

[48] I think that the test is best understood by reference to the words of s 188(2).

This Court may authorise the cancellation of a unit plan if it is satisfied it is just and

equitable that the body corporate be dissolved and the plan cancelled, having regard

to the rights and interests of the creditors of the body corporate and the rights and

interests of every person having an interest in a unit or the base land. The phrase

“just and equitable” means equitable justice, the justice of the individual case. All

matters relevant to the rights and interests of creditors or interest holders must be

considered. And, importantly, the evaluation must be conducted with proper regard

to the scheme and purpose of the Act.

[49] The facts in World Vision bear some relationship to the facts of this case.

World Vision considered that the office block it owned was outdated and should be

redeveloped. This prompted the cancellation application. In his evaluation of the

facts Heath J said this: 20

… circumstances might arise where it becomes necessary for the Court to

intervene under s 46. If a building has deteriorated through inadequate

maintenance or cannot through the unavailability of funds be maintained

properly, an order might be sought because the building is no longer fit for

its original purpose. Similarly, if a disparate group of proprietors, together

comprising a body corporate, interact so dysfunctionally as to require

intervention from the Court, the jurisdiction may well be exercised on

similar principles to those applied in company or partnership law where

deadlock ensues.

19

World Vision, above n 18, at [84]. 20

At [86].

[50] A second and more recent case is Dominion Finance Group Ltd (in Rec and

Liq) v Body Corporate 382902.21

The case concerned two blocks of apartments, 11

units in one block and seven units in the other, which were damaged in the

Christchurch earthquakes and subsequently demolished. A $16m insurance

settlement followed. As required under the Act, the ownership interests in the units

were re-valued for the purposes of a division of the insurance proceeds. The valuer

engaged by the body corporate concluded that significant adjustments were required

to the ownership interest percentages. A cancellation application pursuant to s

188(2) was filed, in the context of which a minority (five owners) challenged the

reassessment, while the majority (13 owners) supported it. Fogarty J held that the

reassessment percentages were not just and equitable and he restored the previous

percentage figures. Cancellation was authorised, but on terms fashioned by the

Court, as opposed to the terms of the body corporate resolution.

[51] Fogarty J said this with regard to the just and equitable jurisdiction:

[42] The Unit Titles Act is a remedial statute. It was not intended to

undermine basic principles of property law. On the contrary, it was intended

to facilitate the applications of principles of property law to multiple

dwelling and/or commercial units in one building or on one title. The

architecture of the statute is plain, and relevant parts of it have been briefly

described. The property rights protected by the statute are intended to be

robust. It is not possible for a developer to unilaterally decide upon the

relative percentage of the ownership interests of the whole per individual

unit. It has to be a decision by a registered valuer. Likewise, upon the

cancellation of the plan, Parliament intends that the value of the unit at the

time of cancellation be allocated on rational grounds, and fairly, without

oppression of a minority, amongst all the owners of the property.

[43] Equitable remedies were developed because it is not possible to

anticipate all events. In this statute, Parliament has recognised that room

should be left for the Court to exercise its equitable jurisdiction, having

otherwise followed the law, to ensure that all the outcomes of the statute are

just and equitable. The analysis moves on then to examine the legal

consequences of both the resolutions, before judging whether equitable

principles should apply.

[52] The emphasis upon the sanctity of the basic principles of property law is

noteworthy. Fogarty J preferred an approach which reflected the principles of

property law, but left scope for equitable principles to be applied to meet the justice

21

Dominion Finance Group Ltd (in Rec and Liq) v Body Corporate 382902 [2012] NZHC 3325,

(2012) 7 NZ ConvC 96-003; (2012) 14 NZCPR 252.

of the individual case. I agree with, and adopt, these sentiments – although, as will

become evident, I do not think that the principles of property law are a major

consideration in the circumstances of this case, at least with regard to the s 188

inquiry.

Evaluation – conclusions

[53] I can deal with these aspects succinctly. I am satisfied it is just and equitable

to authorise cancellation of the unit plan, and with it dissolution of the body

corporate. In my view the body corporate has been effectively defunct for 30 years

and the motel units are past their economic lifetime. The site requires

redevelopment. I do not think that renovation of the units is a viable option. The

more difficult issue in this case is how Ms Petherbridge’s interest is to be

accommodated, but that is a separate issue to be determined under the Property Law

Act.

[54] In large measure the reasons which prompt these conclusions are evident

from the competing contentions set out above. The facts of the case largely speak

for themselves. The body corporate is defunct. Ms Petherbridge’s evidence

confirmed as much, rather than refuting the contention.

[55] Equally, it is apparent to me that the units are not only tired as a result of a

low-level maintenance regime, but outdated as well. Again, Ms Petherbridge’s

actions tended to confirm this. She agreed to the redevelopment proposal in 2008,

signed the conditional development agreement, but unfortunately that proposal

failed. I suspect that the global financial crisis was a significant contributing factor.

[56] I do not overlook the opinion expressed in Mr Higgins’ May 2014 valuation

report that the units could be renovated. He gave three reasons for this

“assumption”. These were that the property is in high density development in a low

density residential zone and that it is “unlikely that further intensive development of

the nature of this existing property [will] be permitted”. If “renovated”, Mr Higgins

considers that the existing units would be “highly desirable”. Secondly, he considers

that the site is “unique” in terms of location, the westerly aspect, the views and the

high sunshine hours. Thirdly, Mr Higgins pointed to a proposed modern

development facing the Frankton Arm of Lake Wakatipu in which several small

apartments have recently been pre-sold as providing evidence of a market for smaller

apartment units, including units as small as 40m2.

[57] I consider the assumption that the units can be renovated to become highly

desirable to be just that, an assumption. No indication is provided concerning the

scope of work required to renovate the units, nor is the cost of doing so estimated. I

accept that the site is unique, but reliance upon the Lake Wakatipu proposal, a

proposed development, is I think bold. It may never proceed, but even if it does it

will be a modern development, no doubt a building reflecting modern methods and

amenities. Such a development cannot be compared to a 1960s renovated motel

complex.

Is an order for sale, purchase, or division of the land appropriate?

The jurisdiction to unlock a deadlock

[58] Although at this point the parties continue to hold strata estates in freehold,

upon cancellation of the unit plan they will become co-owners in shares proportional

to their former ownership interests.22

At that point, s 339 of the PLA applies.

[59] Section 339 relevantly provides:

339 Court may order division of property

(1) A court may make, in respect of property owned by co-owners, an

order—

(a) for the sale of the property and the division of the proceeds

among the co-owners; or

(b) for the division of the property in kind among the co-

owners; or

(c) requiring 1 or more co-owners to purchase the share in the

property of 1 or more other co-owners at a fair and

reasonable price.

(2) An order under subsection (1) (and any related order under

subsection (4)) may be made—

22

Unit Titles Act 2010, s 180(2).

(a) despite anything to the contrary in the Land Transfer Act

1952; but

(b) only if it does not contravene section 340(1); and

(c) only on an application made and served in the manner

required by or under section 341; and

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

342.

(emphasis added)

The balance of the section prescribes powers relating to valuing the property and for

the imposition of further orders concerning its division.

[60] Whether an order should be made, and the type of order, is to be assessed by

reference to defined considerations:

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.

Section 343 defines further powers of the Court to make ancillary orders and

directions that may be required to effect a sale or division of the property.

[61] Counsel were at odds as to the interpretation of s 339(1)(c).

Property Holdings seeks one of three alternative orders, but its preference is an order

requiring it to purchase Ms Petherbridge’s share at a fair and reasonable price.

Ms Petherbridge contended that it was not competent to make an order requiring

Property Holdings to purchase the 9.15% share because Ms Petherbridge “is not a

willing seller”. Counsel relied on Holster v Grafton.23

In considering an application

pursuant to s 339 Fogarty J said this:

[42] Section 339(1)(c) Property Law Act 2007 does not expressly enable the

Court to impose a sale by valuation upon a co-owner who does not want to

sell her or his share. I do not think such a power should be implied.

[43] However, even if such a power is now present in s 339(1)(c), it does not

follow that the increased power in the Court will lead to a ready imposition

of an order imposing on a person with a proprietary interest a requirement to

sell that interest to a co-owner. Sections 339-342 of the Property Law Act

2007 should be understood to be remedial. There remains a basic value or

respect for property rights. …

Despite his opening observation, Fogarty J fully considered the merits and concluded

that an order requiring the applicant to purchase the co-owner’s share at a fair price

was inappropriate in all the circumstances.

[62] Mr Ormsby, however, doubted the Judge’s observation that s 339(1)(c) does

not expressly enable the Court to impose a sale by valuation upon a reluctant co-

owner. Counsel submitted that the ordinary meaning of the section was that the

Court may require one co-owner to purchase the share of another, if this was the best

solution to a deadlock following assessment of the discretionary considerations

identified in s 342. Indeed, counsel submitted it would be illogical if the Court could

order a sale of the whole property against the wishes of a co-owner, but could not

require one owner to purchase the share of another unwilling co-owner.

[63] With respect, I agree with this submission. I regard the Court of Appeal

decision in Bayly v Hicks24

as in point. This case concerned a substantial property

co-owned by sisters who were deadlocked as to its division into two parts.

Cross-applications seeking different subdivisions were filed in the High Court, but

the trial Judge concluded that a three-lot subdivision was the most appropriate way

forward. The central question before the Court of Appeal was whether the

23

Holster v Grafton (2008) 9 NZCPR 314 (HC). 24

Bayly v Hicks [2013] 2 NZLR 401 (CA).

High Court could order a division other than one sought by the parties. The Court

concluded:

[27] We see nothing in the words of these sections to indicate that the powers

of the court are only to make an order for division along the lines of that

sought by a party to the proceedings. The narrow jurisdiction of the past,

split as it was between the Partition Acts and the 1952 [Property Law] Act is

replaced by a broad discretion, limited by s 339(1), but beyond that turning

on whatever factor appears to the court to be relevant when the broad range

of factors in s 342 and the broad powers in s 343 are considered. There must

be an application under s 339, and the boundaries of the discretion are set out

in s 339(1). However, there is no requirement that the orders made can only

be those that were specifically sought by a party. Such a restriction would

unduly cramp the scope and efficient operation of what is clearly remedial

legislation.

[64] Asher J, in delivering the judgment of the Court, added this:

[32] … Under this new broad discretionary regime it is appropriate for a

judge to stand back from the submissions and proposals of the parties, and

consider what, on an overview, taking into account the relevant

considerations, is the most just and practical way through the impasse before

the court, even if the answer may not reflect the orders sought by the parties.

By definition the cases that come before the court arise where parties are

locked into an ownership position which they cannot resolve because of the

positions they have taken, and where a way out may be by a path neither has

to that point contemplated.

[33] Therefore, we conclude that subject to the parameters of ss 339 and 343

the court is given a broad discretion and has jurisdiction to make orders and

give directions different from those sought by the parties…

While these passages do not directly concern the interpretation of subs (1)(c), they

illustrate the remedial purpose and breadth of the discretion conferred under the new

PLA. In my view, there is no basis upon which to read down, or unduly cramp, the

ordinary meaning of the words used by Parliament, namely that this Court may

require a co-owner to purchase the share of another for a fair price. That said, I

accept, as did Fogarty J, that an order requiring the purchase of the share of an

unwilling co-owner will not be lightly imposed, given that a proprietary interest in

land is at stake.

The available options

[65] Before turning to the considerations identified in s 342, I note the position

reached in relation to the three options posed in the amended originating application

filed recently. Property Holdings sought an order requiring purchase, an order for

sale or an order for division. The latter was the least favoured, and in the course of

argument it seemed to me apparent that neither proposal for subdivision of the land

were feasible.

[66] Both proposals are described earlier. Ms Petherbridge’s proposal is outlined

at [16] and depicted in the site diagram. Property Holdings subsequently made a

counterproposal to build a one bedroom unit in the north-eastern corner of the

property overlooking the Arrowtown-Lake Hayes roadway. Ms Petherbridge is

adamantly opposed to the counterproposal, while Property Holdings is equally

opposed to Ms Petherbridge’s proposal for a subdivision in the south-western corner.

[67] Ms Petherbridge has no interest in owning a one bedroom unit overlooking

the roadway. There would be no lakeside view and traffic noise could also be a

problem. Her present unit appeals to her because of the view it commands of

Lake Hayes and its surrounds, which she can enjoy from inside and from the

forecourt of her unit. It would be unreasonable to foist a roadside subdivision upon

Ms Petherbridge, given these understandable objections.

[68] On the other hand, Ms Petherbridge’s proposal contemplates the creation of a

lot comprising 176m2, whereas the area of Ms Petherbridge’s stratum title is 83m

2.

In addition, the concept requires the creation of right of way and parking/turning

easements, having a total area of 278m2. From Property Holdings’ perspective, the

site area remaining available for redevelopment would be 2600m2, as opposed to the

present total area of 3055m2. This incursion would devalue the site and lessen its

appeal to prospective purchasers.

[69] Further, a land use and a non-complying subdivisional consent will be

required. The minimum lot size for the zone is 600m2, so that the proposed lot is

less than a third of the prescribed minimum. The site standard maximum gradient

for vehicle access is one in six, whereas the right of way to the proposed lot will

require a maximum gradient of one in 4.5. Construction of the right of way will

require significant excavation at the top end and fill at the lower end, together with a

retaining wall along the southern boundary, all of which Mr Anderson (a resource

management consultant) considers are achievable, “but at a cost”. He is also

confident that the consents are obtainable, but he cannot guarantee this.

[70] Despite the fact that Ms Petherbridge would meet the cost of the single storey

flat grass roof unit to be built on the proposed lot, Property Holdings considers that

the land value, the diminution in the value of the site and the cost of forming the

right of way, the building site and its surrounds will considerably exceed the present

value of unit D. Moreover, the consenting process will be time consuming, costly

and whether consents will be granted is uncertain. Were the Court to grant an order

for subdivision, such order would have to be conditional. Section 340 of the PLA

provides that an order for the division of land is subject to the subdivisional

restrictions imposed under the Resource Management Act 1991.25

[71] I am satisfied that the costs and risks associated with Ms Petherbridge’s

subdivision proposal are such as to exclude it as a realistic option. It follows that the

s 342 evaluation should be conducted with the options of sale or purchase in mind.

The contentions relating to the relevant considerations

[72] It is convenient to review the contentions by reference to four aspects: the

number of co-owners and the extent of their shares, the nature and location of the

property, the value of contributions to improvements and/or maintenance, and

comparative hardship. This will cover the relevant discretionary considerations,

unless “other matters” of relevance emerge.26

[73] As previously noted, there are only two co-owners, Property Holdings and

Ms Petherbridge. The company owns eight of the units and Ms Petherbridge one

unit. Expressed in percentage terms Property Holdings has a 90.85% share in the

property, and Ms Petherbridge a 9.15% share. Upon cancellation of the unit plan,

identical co-ownership shares will exist.

25

Property Law Act 2007, s 339(2)(b) provides that an order under subs (1) may not contravene

s 340(1). 26

Section 342(f).

[74] The nature and location of the property have already been mentioned. The

3055m2 site is in a prime location with panoramic views across Lake Hayes and

beyond. There is also convenient access to the lakeside recreational reserve,

including the walking track that surrounds the lake. Access to the site off

Arrowtown-Lake Hayes Road is good. Two-thirds of the site is of easy contour

before the land falls away towards the lakeside. Ms Petherbridge’s unit, unit D, is

located at about the midpoint across the width of the site, and nearing the point at

which the land falls away towards the lake. Unit D has a commanding view,

whereas at least two units situated closer to the roadway have no, or little, lakeside

view. In my view it would not be feasible to redevelop the site, with

Ms Petherbridge’s unit in situ.

[75] The next consideration is the value of the contributions made by the

co-owners to improvement and/or maintenance of the property. This, I consider, is a

neutral factor. Both co-owners have contributed to the maintenance of the property.

It seems that their contributions reflect the extent of their shares in the property but,

on the other hand, there is nothing to suggest particular contributions made by either

co-owner and warranting recognition in the present context.

[76] I turn, then, to the consideration which commanded most attention in the

course of counsel’s submissions. What hardship will be caused to Property Holdings

by the refusal of an order? And, what hardship will be caused to Ms Petherbridge by

making an order for sale or purchase? This comparative exercise lies at the heart of

this proceeding.

[77] “Hardship” connotes an adverse effect which will be of significant impact

upon the particular co-owner.27

Property Holdings submitted that in assessing

hardship the starting point is its 90.85% interest in the property. Indeed, counsel

submitted that in assessing relative hardship the Court could not ignore a dominant

ownership share and Property Holdings’ reasonable wish to realise the value of its

asset, as compared to Ms Petherbridge’s assertion that her amenity interests

somehow outweigh Property Holdings’ interest. The whole property was valued at

$2.7 m in July 2013, if sold for redevelopment. At the same time the valuer,

27

Holster v Grafton, above n 23, at [52].

Mr Reid, reported that unit D sold on a standalone basis and “without consideration

of any redevelopment potential” was worth $220,000.

[78] In March 2012, after the failure to achieve the pre-sales required to enable the

redevelopment to proceed, Property Holdings offered its eight units for sale through

a Queenstown real estate agent. The listing noted that “of the existing nine titles,

eight are being offered for sale with a redevelopment agreement in place with the

one additional owner”. The property was said to represent a unique opportunity to

develop a world class multi-unit development at a prime location, with resource

consent and plans already approved. Mr Smallbone deposed that over the next

12 months there were a reasonable number of enquiries and site visits, but no offers

resulted.

[79] In the meantime, in May 2012, Property Holdings made an offer to purchase

unit D from Ms Petherbridge for $245,000 or, alternatively, to pay her 9.15% of the

net sale proceeds if the whole property was sold. In January 2013 an increased offer

of $274,500 was made, coupled with an agreement to pay Ms Petherbridge 9.15% of

any excess over $3m received from a sale of the property within the following

12 months. None of the proposals found favour.

[80] In the result, by the time Property Holdings filed this proceeding in

August 2013 it faced a situation of deadlock. It could not negotiate a settlement with

Ms Petherbridge, including by subdividing a lot and building a unit on a roadside

corner of the site. Nor could Property Holdings sell its interest in the other eight

units. The directors consider that Ms Petherbridge’s unit, situated near the centre of

the site, is a major impediment to both the sale of the land and its redevelopment.

Despite its dominant ownership share, the Company can neither realise its equity, nor

redevelop and put the land to its highest and best use.

[81] The case for Ms Petherbridge involved a rather different emphasis. Both

parties purchased unit titles in a unit plan development. This ownership model was

not thrust upon them, rather something they knowingly entered into. The parties

became neighbours in a property development, under a legal framework designed to

make for a socially and economically sustainable community of owners. Although a

democratic model, Ms Petherbridge enjoyed the protections afforded to minority

owners under the Act. Redevelopment of the property, if required, should have

proceeded in terms of the Act.

[82] Lake Hayes has been an important place for the Petherbridge family for many

decades. For over 30 years Ms Petherbridge has owned unit D. She deposed that

she “currently visits Lake Hayes about four times a year. The unit is also used by …

friends and family at least a further four times during the year”. She regards the

surroundings as inspirational and the amenities of unit D as well suited to her needs.

The unit is compact, but she has the use of extensive common property. She enjoys

commanding views of, and easy access to, Lake Hayes. The location is convenient,

being a few minutes’ drive to Arrowtown and a short drive to Queenstown.

[83] Even were she to receive the true market value for her unit, this sum would

not enable Ms Petherbridge to purchase a comparable property elsewhere within the

general area. The only acceptable compromise from Ms Petherbridge’s perspective

is that she is relocated to a lot on the south-western lakeside corner of the site in a

new accommodation unit. She is prepared to meet the cost of the construction of the

unit, if Property Holdings provides the lot, the necessary easements and forms the

right of way and building platform.

[84] Ms Petherbridge does not accept that Property Holdings has tested the market

in relation to selling its interest share, or at least that there is evidence to establish

this. The evidence does not show whether the eight units were offered for sale

individually or as a whole, at what price and on what terms and conditions. The

property was marketed for 12 months from March 2012, but the market has not been

tested over the past 15 months. This is significant, given that the local valuers are in

agreement that the market has shown gradual improvement from month to month

over this period. Hence, Property Holdings should have properly tested the market

in the present environment before seeking orders to purchase, or for the sale of, the

property.

[85] Central to Ms Petherbridge’s argument is the proposition that the purchase of

unit D, or an order for sale, will defeat her property rights. Property Holdings

acquired the eight other units aware of the risks it took in doing so. It also knew of

Ms Petherbridge’s agreement, perhaps insistence, that she receive a unit in the

proposed development. Now that the proposed development has failed,

Property Holdings seeks to dispossess Ms Petherbridge of her property rights to

maximise its commercial return.

Evaluation – conclusions

[86] I am satisfied that the parties are deadlocked. I do not accept the contention

that it is premature to make orders under s 339 because the current market has not

been tested. Realistically, Property Holdings can only market the property on the

same basis as was employed in 2012-2013. It is essential to sell their entire holding,

or nothing. To sell the units piecemeal, and run the risk of selling some units and not

others, would make no commercial sense. Given their present condition, I consider

it unlikely that the units would be saleable to individual purchasers. Moreover, I

think the only commercially sensible course is to offer the whole property for sale as

a redevelopment proposition. Otherwise, unit D presents as an impediment to selling

the property at all, or at least selling it for a reasonable price.

[87] To achieve this would require that Ms Petherbridge’s property rights be

sacrificed, whichever form of order is made. I accept that imposing an order which

defeats the property rights of a co-owner should not be done lightly. It is a step of

last resort.

[88] Here, however, the interest in terms of the whole property is small. It was

acquired in 1983 as a unit title. Ms Petherbridge became a minority owner and must

have been aware that at some point a majority of the unit owners might favour

redevelopment and on a basis with which she disagreed. This was always a potential

consequence of acquiring an interest in a unit title development. Thirty years on, she

must face this unpalatable reality. In my view, a personal identification with the area

and even a love of the property based on a 9.15% share cannot prevail at the expense

of the interest of the majority owner. Also, preservation of the 9.15% share would

perpetuate the deadlock.

[89] I am also influenced by the nature of Ms Petherbridge’s usage of her unit.

Were it her permanent home and if she would be unable to adequately re-house

herself as a consequence of an order for purchase or sale, the outcome could well

have been different. But, despite the undoubted enjoyment which her time at

Lake Hayes provides, the fact is that she makes about four visits per year, as do

family and friends. Put bluntly, this level of usage is slight when viewed in the

context of the present and likely future usage of the property as a whole

[90] For these reasons, I am well satisfied that an order for sale, or purchase, must

be made. I turn to which type of order is most appropriate.

An order for sale or purchase?

The evidence

[91] Property Holdings favours an order requiring purchase. In that event, it

wishes to honour the offer first made to Ms Petherbridge in January 2013. This was

to pay $274,500, together with a side agreement that if the property is sold within

12 months for a sum greater than $3m Ms Petherbridge would receive 9.15% of the

excess. An updated valuation report prepared by Mr Douglas Reid assessed the

current market value of unit D to be $220,000. Mr Reid also provided a report, dated

6 May 2014, in which he valued the property, if held in single ownership and sold for

redevelopment, at $2.7m. Ms Petherbridge’s share would be $247,050, before

deduction of sale costs.

[92] Ms Petherbridge did not adduce evidence concerning the fair and reasonable

market price of unit D. Instead, Mr Higgins provided a valuation report dated

19 May 2014 in which he expressed the opinion that the cost of an equivalent

property to Unit D would be $365,000. This figure was not arrived at on a willing

buyer/willing seller basis. Rather, Mr Higgins assessed the cost of a comparable

replacement property, offering similar amenity values and situated in the same

general locality.

[93] Mr Higgins considered that the most comparative properties were apartments

in a proposed development facing the Frankton Arm of Lake Wakatipu. The

development, Residence du Lac, included units ranging in size from 40m2 to 71m

2.

Five of the smallest units have been sold off the plans for prices ranging from

$295,000 to $345,000. Mr Higgins extrapolated a comparable value figure of

$365,000 for unit D. He considered that although the units in Residence du Lac will

be of modern construction and have modern fittings, this “difference” was offset by

the superior location, westerly aspect and winter sunshine hours enjoyed by unit D.

The $365,000 comparable value figure also reflected some gradual improvement in

the property market over recent months.

The submissions

[94] I sought and received further submissions from counsel concerning the

valuation evidence. Both parties accepted that “a fair and reasonable price” in

s 339(1)(c) connotes a conventional willing buyer/willing seller market value.

Property Holdings submitted that its offer to pay $274,500 was considerably in

excess of a fair and reasonable price, given the current valuation for unit D of

$220,000.

[95] Ms Petherbridge, however, submitted that a s 339(1)(c) value was not the end

of the matter; “the Court should look to make an order … to compensate

Ms Petherbridge for the windfall [to Property Holdings] and the hardship she will

face”. Section 343 was invoked by which the Court can make a further order in

addition to an order under s 339(1). Such order may require payment of

compensation to a co-owner, fix a reserve price, direct how sale expenses are to be

borne, direct how sale proceeds are to be divided, require payment of fair occupation

rent, or direct anything else that the “Court considers necessary or desirable as a

consequence of the making of the order under s 339(1)”.

[96] Here, counsel contended that Property Holdings stand to receive a “windfall

gain” as a result of being able to sell the whole property as a redevelopment site.

That is, the site sold as a whole is considered to be worth $2.7m, whereas Mr Reid

valued unit D at $220,000, suggesting that the “mathematical” value of all nine units

was approximately $2.4m. Hence, the “windfall gain” was $300,000. Secondly,

counsel argued that s 343 enabled the Court to compensate Ms Petherbridge for the

hardship she will face, given that the cost of a comparable replacement apartment

will be $365,000.

Evaluation – conclusions

[97] I seriously doubt that s 343 is a vehicle to make a further order of the kind

sought by Ms Petherbridge. Section 339(1)(c) contemplates a co-owner receiving a

fair and reasonable price for their share in the property. This is the basic entitlement.

In my view s 343 enables ancillary orders to be made where in justice some

adjustment is required as between the co-owners, whether arising following a

petition or a sale. Despite the broad terms of the section, I do not read it as

contemplating payment of compensation over and above payment of the fair market

price. But it is not necessary to define the bounds of the section in this case.

[98] The market value of unit D is $220,000. Property Holdings remains prepared

to pay $274,500, plus 9.15% of the excess should the property sell within 12 months

for more than $3m. Given the intrinsic value of unit D, this is a good offer.

Result

[99] I make a declaration authorising the cancellation of the unit plan for the

property of 3055m2

at 25 Arrowtown-Lake Hayes Road. Should any further

conditions or directions be required to give effect to this declaration, leave is

reserved for such to be sought pursuant to s 188(3) of the Unit Titles Act 2010.

[100] I also make an order pursuant to s 339(1)(c) of the Property Law Act 2007

requiring Property Holdings to purchase the 9.15% share of Ms Petherbridge in the

property for the sum of $274,500. Further, I order that Property Holdings is to pay

Ms Petherbridge 9.15% of the excess if the property is sold within 12 months for a

sum greater than $3m.

[101] Costs are reserved. If the parties cannot reach an accommodation,

memoranda may be filed.

Solicitors: Wynn Williams, Christchurch Gallaway Cook Allan, Dunedin