Ramsey v Mercer [2013] NZHC 2659 (17 October 2013)

Last Updated: 27 November 2013

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2013-488-229 [2013] NZHC 2659

BETWEEN DONALD RAMSEY and LYNETTE RAMSEY

Plaintiffs

AND COLIN WILLIAM MERCER Defendant

Hearing: 14 October 2013

Appearances: P Moodley for Plaintiffs

R Harte for Defendant

Judgment: 17 October 2013

_{JUDGMENT OF ASSOCIATE JUDGE BELL}

This judgment was delivered by me on 17 October 2013 at 4:00pm

pursuant to Rule 11.5 of the High Court Rules.

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

Registrar/Deputy Registrar

Solicitors:

Brookfields, Auckland, for Plaintiffs

R Harte, Whangarei, for Defendant

RAMSEY and RAMSEY v MERCER [2013] NZHC 2659 [17 October 2013]

[1] The plaintiffs and the defendant own the property at 162 State Highway 10, Coopers Beach, as tenants in common in equal shares. The property is Mr Mercer’s retirement home. The Ramseys live at Tuakau. The Ramseys’ proceeding is under Part 6, subpart 5 of the Property Law Act 2007. They seek an order for the sale of the property and the division of the proceeds. They have applied for summary judgment.

[2] 162 State Highway 10, Coopers Beach, is a residential property of 809 m² with a two-storey dwelling house. The lower floor is used is used as a flat. Mr Mercer lives on the upper floor. The property was apparently developed in the

1970s. The property is on two titles: NA76C/555 and NA76C/556. These are cross- lease titles, with the freehold interests divided one-third to two-thirds between NA76C/555 at the front and NA76C/556 at the rear. Flat 1 comprises only the living quarters on the lower level, while Flat 2 includes both the garage on the lower level and the upper floor.

[3] In May 2008 Mr Mercer signed an agreement to buy the property for

$440,000. The purchase was to settle on 20 November 2008. There was a deposit of

$44,000. Mr Mercer did not have the funds to meet the deposit. His sister and brother-in-law (the Ramseys) lent him $44,000 to cover the deposit. Mr Mercer borrowed $220,000 from a bank to buy the property, but he could not raise the balance of the purchase price. The Ramseys came to his help. They lent him, in all,

$220,000. The Ramseys and Mr Mercer entered into an agreement on 19 November

2008 to record the arrangement. It included these provisions:

2 The Coopers Beach property shall be registered in Colin’s name as

to a half share and Don and Lyn jointly inter se as to a half share.

3 Colin shall borrow $220,000 (the loan) from Don and Lyn, which amount includes the deposit of $44,000 to enable Colin to purchase the Cooper’s Beach property.

_{4 Don and Lyn shall pay to Colin, or Colin’s lawyer, on or before the}

20^th day of November 2008 or such other date as is mutually agreed upon, the sum of $220,000.

5 Colin shall repay the loan, without interest, to Don and Lyn upon the settlement of the sale of Colin’s property at 1377 State Highway 1, RD 2, Okaihau (the Okaihau property).

6 Upon payment by Colin to Don and Lyn of the said sum of $220,000

Don and Lyn shall transfer, at Colin’s expense, their interest in the

Coopers Beach property to Colin.

7 Colin shall pay all legal costs pertaining to this agreement and the purchase of the Coopers Beach property, as provided herein.

8 Colin shall be responsible for and shall maintain and pay all outgoings, expenses and maintenance, including mortgage payments, rates and insurance on the Coopers Beach property.

[4] The agreement was prepared by lawyers acting for the Ramseys. A legal secretary of that firm has witnessed the signatures of all parties.

[5] Mr and Mrs Ramsey borrowed funds for the loan to Mr Mercer.

Mr Mercer’s circumstances

[6] Mr Mercer is retired. He owns a 4 hectare farmlet on State Highway 1 at Okaihau. In 2008 he put it on the market. So far it has not sold. Mr and Mrs Ramsey say that he put the property on the market at too high an asking price. Mr Mercer says that he first put the property on the market in April 2008 for

$649,000 with stock as a going concern. He says that he has lowered the price over the last four years. He is now advertising it for sale for offers less than $300,000, asking just enough to clear the debt to Mr and Mrs Ramsey. The Okaihau property is subject to a mortgage for $270,000 to a bank.

[7] In addition to the Okaihau and Coopers Beach properties, Mr Mercer owns a commercial property at 4 Hawke Drive, Haruru Falls. He has let that building to a panelbeater. The rent covers the interest commitments for the $270,000 mortgage. Mr Mercer says that the Haruru Falls building is on the market for $320,000 but he has told the agent to drop that to $300,000. He says that there is no interest at all in industrial buildings at Haruru Falls; he has a good tenant; and he cannot afford to sell the building for less than the amount of the mortgage, as the rent pays for the mortgage. He receives income from National Superannuation, rent from letting out the lower floor of the Coopers Beach property, rent from letting out the house on the

Okaihau block, grazing, and rent from the commercial building at Hawke Drive. He says that the outgoings consume all his income each month. He does not have anything left each month to service any more debt.

The parties’ positions

[8] The Ramseys seek an order for sale so that they can be repaid the interest- free loan they made to Mr Mercer. They have instructed a registered valuer who has reported the market value of the property in February 2013 at $410,000 (inclusive of GST). On saleability the report says:

The real estate market in Coopers Beach and Far North area in general has slowed significantly over the past 4-5 years with more sellers than buyers for most categories of property putting downward pressure on values. Resort areas in the Far North have been particularly affected by its slow market conditions experiencing substantial value reductions since 2007. The subject property is considered to have reasonable saleability at valuation.

[9] The Ramseys propose that on the sale of the property they should be repaid the entire loan of $220,000. In response, Mr Mercer says that he would want the property to sell for at least $440,000.

[10] The case for the Ramseys is that they took the half interest in the property by way of security for the loan they made to Mr Mercer. The loan was to be repaid when Mr Mercer sold the Okaihau property. The Okaihau property has taken far longer than they expected to sell. They want the loan repaid so that they can in turn pay off their own loan to the bank. This is to enable them to establish themselves for their retirement.

[11] For his part, Mr Mercer says that he has complied with all the terms of the agreement of November 2008. He has paid all the outgoings on the Coopers Beach property. He has marketed the Okaihau land for sale, and continues to market it actively. He has permitted and encouraged the Ramseys to come and stay at Coopers Beach. He denies that the Ramseys are entitled to ask for an order for sale because they contractually bound themselves to wait for repayment and agreed to tie repayment to the sale of the Okaihau land. Their security does not extend to the

right to sell. He does not dispute the loan. He has also offered them an order for sale of the Okaihau property.

Summary judgment applications for orders under Part 6 Subpart 5 of the

Property Law Act

[12] Under s 339 a court can make orders: for the sale of a property and division of proceeds; for the division of the property in kind among co-owners; or for one or more co-owners to buy out the other at a fair and reasonable price. In this case the issue is whether the court should make an order for sale and division of proceeds or not. There are no proposals for one party to buy out the other. As a late afterthought, Mr Harte proposed that the property be divided in kind, given that it was already in two titles. That had not been raised in Mr Mercer’s notice of opposition, in his evidence or in written submissions for the hearing. Mr Moodley was taken by surprise. He had not been given any opportunity to prepare for that argument.

[13] Section 342 provides that the court must have regard to a range of matters:

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.

[14] It has been recognised that these provisions are a marked change from the old provisions for sale of property in co-ownership under s 140 of the Property Law Act

1952. Under the 1952 Act, summary judgment applications were common, because

on an application by an owner with at least a half share the only consideration was whether to order partition or sale. There was no wider discretion.

[15] In contrast, the provisions of subpart 5 provide for a range of orders that may be made. Section 342 provides for a variety of considerations to be taken into account. In Bayly v Hicks,¹ the Court of Appeal followed commentators in recognising that the court now has a broader discretion. The Court of Appeal said:²

Now the summary judgment procedure is not so well suited to s 339 applications.

[16] Notwithstanding that comment, there have been successful applications for summary judgment under s 339 of the Property Law Act 2007: Fuller v Smeets, McLeary v Prasad and Coffey v Coffey.³

[17] In a typical summary judgment application the court applies rules of law, particularly rules as to liability, and considers whether a defendant has a defence according to those rules. In contrast, an application under s 339 requires the court to exercise a discretion, taking into account a variety of competing factors which may carry different weight according to the circumstances of each case. It is therefore understandable that an application for summary judgment under s 339 is less straightforward than one under s 140 of the Property Law Act 1952.

[18] On an opposed summary judgment application the court’s decision that the plaintiff has shown that the defendant has no defence is a decision made after considering defences raised by the defendant. It is a decision that the court is confident that judgment can be entered now, without the need for further interlocutory steps (such as discovery and interrogatories) or for a full hearing with witnesses giving evidence in person and subject to cross-examination. The court will not grant summary judgment where it cannot be satisfied that it would be safe to

_{dispense with further interlocutory steps and a full hearing. Cases where further}

¹ _{Bayly v Hicks [2013] NZCA 589, [2013] 2 NZLR 401.}

² _{At [31].}

³ Fuller v Smeets [2013] NZHC 1284; McLeary v Prasad [2012] NZHC 2151; Coffey v Coffey

[2012] NZHC 1765.

information is required or where the court cannot resolve relevant conflicts as to facts will not be suitable for summary judgment.

[19] In some applications under s 339, it may be possible for the court to assess whether it is possible to make a decision at the summary judgment stage, without requiring further steps by way of discovery and without requiring a full hearing with witnesses giving their evidence in person.

The agreement of 19 November 2008 in its context

[20] Mr Mercer entered into the agreement to buy the Coopers Beach property as his retirement home without funds in hand to pay anything towards the purchase price. He had a valuable asset which he hoped to realise to fund the purchase – his Okaihau property. Although he had allowed himself seven months to sell the Okaihau property, he had not managed to sell it. The agreement of 19 November

2008 records how his sister and brother-in-law were to help him out. They advanced him half the purchase price, but they were to be repaid once he sold Okaihau. It was within the contemplation of all parties that the Ramseys were not to have a permanent interest in the property. It was to be limited, only until the Okaihau property was sold.

[21] Mr Mercer enjoys most of the benefits and burdens of ownership. He lives in the property permanently and pays all the outgoings. He carries the risks of any rise or fall in the value of the property.

[22] The Ramseys’ interest in the property is for most purposes fixed at $220,000. Mr Mercer can hold them to that figure by payment on the sale of the Okaihau property. Because of the loan they can require that they should not be paid less. The only benefits they have received so far from their interest in the property is to stay there from time to time.

[23] The parties have referred to the agreement as giving the Ramseys “security”. The agreement cannot be regarded as conferring an interest akin to a mortgage in favour of Mr and Mrs Ramsey. The agreement is not a security in that sense. If

Mr and Mrs Ramsey were to have a security by way of mortgage, the transaction could easily have been documented as such. Instead, Mr and Mrs Ramsey were given an interest as tenants in common in equal shares in the property on the basis that that half interest in the property would be an interest they could hold in the property until their loan was repaid.

[24] Mr Harte referred to an email of 7 December 2012 by the Ramseys to their lawyers which included this passage:

We loaned Colin $220,000.00 so he was able to complete the deal on the property, originally we were only going to give him the deposit money until he was able to sell his Okaihau property, this did not happen, so we raised a loan so he could settle and complete the deal on Coopers Beach, along with the deal he had secured from his bank. He only needed the $220,000 this was to be paid back as soon as he had sold his property, we did not ask for interest on this money only that we needed our names on the title deeds to protect our assets, the money loaned to him, in case something happened to Colin.

[25] Mr Harte focussed on “in case something happened to Colin” to submit that the intention was to protect the Ramseys if Colin was no longer available to confirm the loan and accordingly the co-ownership could be prolonged. The email was sent at the stage where the parties were starting to assert positions. Even so, Mr Mercer is entitled to use it as a statement by the Ramseys against their interests. It cannot however be used as a comprehensive statement of the parties’ intentions.

[26] The context of a family relationship is relevant. As family the parties were less likely to want to deal with each other at arm’s length. There would be a greater element of trust between the parties. A formal registered mortgage in favour of the Ramseys would have jarred. Unlike people in business they did not set out to address all possible contingencies in their agreement. They left loose ends. One of those loose ends was what was to happen if Mr Mercer had trouble selling his Okaihau property.

[27] The agreement is a bridging arrangement. It was not intended to be an arrangement under which Mr and Mrs Ramsey would remain co-owners with Mr Mercer indefinitely. Mr and Mrs Ramsey had funded their interest-free loan to Mr Mercer with a loan they had taken out. They would need to repay it. No doubt

they also had to pay interest on it. Sooner or later Mr Mercer would have to pay them back and they would transfer their interest to him. Just when that would be is a loose end. Neither side would have contemplated in November 2008 that nearly five years later Mr and Mrs Ramsey would still be co-owners of the property.

Events since the agreement

[28] Mr Mercer says that he has been making all reasonable efforts to sell the Okaihau property. For summary judgment purposes, I cannot dismiss that evidence. It cannot be brushed aside under the dictum of Lord Diplock in Eng Mee Yong v Letchumanan.⁴ Any decision whether Mr Mercer has unreasonably failed to take all proper steps to obtain a prompt sale of the Okaihau property is a matter that would have to go to a full hearing. I cannot determine it on the affidavit evidence on this summary judgment application.

[29] What is clear is that Mr Mercer has not been able to fully implement his plan to retire to Coopers Beach mortgage-free. He had to borrow the purchase price entirely. His plan was that from the proceeds of sale of the Okaihau property there would be enough funds available to repay the mortgage to the bank and also the funds lent by Mr and Mrs Ramsey. Nearly five years after he bought Coopers Beach he has not repaid either debt.

The criteria under s 342

[30] I consider the criteria under s 342.

(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.

[31] Formally Mr and Mrs Ramsey are owners as tenants in common of a half share of the property, but their rights are not the same as Mr Mercer’s. The value of their interest is effectively fixed at $220,000. While they can stay in the property, that is not the same as enjoying permanent occupation. Correspondingly they do not

_{have the burden of paying outgoings on the property. But the cost of remaining}

⁴ Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341 per Lord Diplock.

owners is that they must service their loan without any help from Mr Mercer. They cannot dispose of their interest because it must be kept to await transfer to Mr Mercer. At some stage their interest in the property will be realised. One incident of their ownership is the right to apply for an order under s 339.⁵

(b) The nature and location of the property

[32] The property is a two-storeyed residential property at Coopers Beach, suitable for Mr Mercer’s retirement. As one of the few north-facing beaches in New Zealand, Coopers Beach is of course a desirable place in which to spend your retirement years, especially compared to chillier places in more southerly latitudes such as Okaihau. While the property is in two titles, a separation of those titles would not result in an equal distribution between the parties.

(c) The number of other co-owners and the extent of their shares

[33] Mr Mercer is the other co-owner. Formally he has an equal half interest, but he has the benefits (including rent from the flat on the lower level) and burdens of ownership and carries the risk on rises and falls in the value of the property. The agreement envisages that he will become the sole owner of the property.

(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.

[34] In Coffey v Coffey, Associate Judge Osborne said:⁶

[151] An appropriate definition of what constitutes “hardship” is to be

found in the Shorter Oxford English Dictionary:

“The quality of being hard to bear; or hardness of fate or circumstance”

These were the dictionary definitions cited with approval by

Woodhouse P in Director-General of Education v Morrison, ([1985]

2 NZLR 430 (CA) at 433) a case involving accommodation grants

for students payable by reason of “hardship”.

_{[152] Cooke J observed in the same case that (ibid, at 436):}

⁵ _{Property Law Act 2007, s 341(1)(a).}

⁶ Coffey v Coffey [2012] NZHC 1765.

“In ordinary usage hardship does not necessarily connote extreme privation or the like.”

Cooke J was referring to and repeating a particular definition of “hardship” which appears in various dictionaries (including the Oxford) as an alternative to the definitions favoured by the Court of Appeal.

[153] Woodhouse P in Morrison referred with approval to the observation of Mayo J in Returned Sailors' Soldiers' and Airmen's Imperial League of Australia (Henley and Grange Sub-Branch) Inc v Abbott [1946] SAStRp 39; ([1946] SASR 270, 273) that the word “hardship” was:

“capable of being descriptive of adverse repercussions of every kind.”

In the specific context of s 342, the concept of “hardship” was considered by Fogarty J in Holster v Grafton ((2008) 9 NZCPR 314 (HC)). His Honour said:

“‘Hardship’ is a value-laden criterion. It suggests an adverse effect which is of significant impact to the applicant. It has to be read consistent with the policy of the statute which respects property rights of tenants in common, but seeks to resolve conflicts fairly.”

[154] This passage was referred to by Wylie J in Bayly v Hicks (HC Whangarei CIV-2009-488-547, 19 August 2011). His Honour added that hardship needed to be considered both in the round and by reference to the partition proposals advanced by the parties (ibid, at [61]).

[155] While mindful of the observations of the Court of Appeal in Morrison not to limit the concept of hardship in s 342 of the Act to severe suffering or privation, I would not view the term as embracing mere inconvenience or disappointment. Such lesser impacts might fall for consideration under “other matters relevant” under s 342(f) of the Act but do not semantically fall within the concept of hardship.

[35] The hardship to Mr Mercer is that if the property is sold he will have to leave Coopers Beach. He may go back to Okaihau and live in the farmhouse there. That property is presently tenanted. I note that he receives a grazing income from the property. It is unlikely that at his age he would revert to full-time care of the property. The hardship to the Ramseys from not making an order is that they will not be able to be repaid the loan, at least for the foreseeable future. They will need to continue funding their own borrowings from other income and will not be able to reduce their debts, when they had reasonably hoped to be able to clear the debt by earlier repayment by Mr Mercer.

(e) The value of any contributions made by any co-owner to the cost of improvements to, or the maintenance of the property

[36] Mr Mercer has met all the outgoings including the costs of maintenance and upkeep. That, however, is consistent with the terms of the agreement and with the Ramseys holding their interest in the property only for a limited time.

(f) Any other matters the court considers relevant

[37] These matters are clearly relevant: the parties’ agreement and its looseness, Mr Mercer’s inability to sell Okaihau and the time since the agreement.

Assessment

[38] Mr Harte submitted that clause 6 of the agreement was the exclusive way by which the Ramseys could realise their interest in the property. Until Okaihau was sold or Mr Mercer was held not to have made due efforts to sell Okaihau (not something I can decide in this application), the Ramseys could not insist on realising their interest in the property. That submission treats the agreement as one that sets out comprehensively how the parties were to own the Coopers Beach property. It overlooks its looseness. It also disregards one of the purposes of applications under s 339. Invariably when people become co-owners of a property, there will be some sort of agreement among them as to their co-ownership. Such agreements can range from vague understandings to detailed prescriptions, as in rules for gated communities. When agreements expressly provide for the circumstances before the court, the agreement will govern whether and which remedies are available. But often agreements between co-owners do not address the circumstances the court has to consider. In those cases s 339 allows the court to make orders, notwithstanding any agreements.

[39] That is the case here. While both sides may have confidently expected Mr Mercer to sell Okaihau without undue delay, that has not happened. The agreement has not addressed that circumstance. It remains open to the court to consider granting relief because of that circumstance.

[40] Time is relevant. Obviously the Ramseys could not have insisted on the property being sold shortly after they made the agreement. The agreement contemplated that Mr Mercer should have time to sell Okaihau. But the point must come where the Ramseys can properly say that Mr Mercer has had enough time to sell. The bridging aspect of the agreement means that they were not to be locked in indefinitely. Mr Mercer first put Okaihau on the market in April 2008. That was five and a half years ago. He has had more than enough time to sell Okaihau.

[41] It is arguable that Mr Mercer may suffer greater hardship through having to leave Coopers Beach and go back to live at Okaihau than the Ramseys will suffer through being kept out of their money. There is not enough evidence to make a true comparison of relative hardship but on a summary judgment basis I assume that Mr Mercer will suffer greater hardship. But comparison of hardship is not the only criterion. The risks each side assumed also count.

[42] The agreement was primarily to assist Mr Mercer into his retirement home. The assistance Mr and Mrs Ramsey gave him was not to be indefinite. Mr Mercer’s plans have not proved workable. He was the one who took the risk in making the move to Coopers Beach without having the funds in hand to meet the costs of buying Coopers Beach. He took the risk in borrowing and assuming the obligation to repay. Now that his plans have not worked out he should carry the loss. It would not be just for him to transfer the risk arising from his inability to sell Okaihau to the Ramseys, who provided him with interest-free bridging finance. Mr Mercer cannot use his inability to sell the Okaihau property as a reason to avoid hardship to himself, but to continue to impose hardship on the Ramseys. I am accordingly satisfied that the Ramseys have shown that Mr Mercer does not have a defence to their claim for relief under s 339.

[43] The next matter is to consider what relief to order under s 339. There is no proposal for one side to buy out the other under s 339(1)(b). It does not appear that either can do so. Mr Harte’s suggestion of a division in kind came late, unheralded and unsupported by evidence. Mr Moodley could not be expected to respond to it. Allocating one title to one party and one to the other would divide the property between the parties two-thirds/one third. That would not be a fair division according

to their respective shares and the values of those shares. There was no evidence to show that the cross-lease titles could be divided in some other way. I am satisfied that there is no arguable basis for orders under s 339(1)(b) and (c). That leaves only an order for sale under s 339(1)(a).

[44] Having assessed the relevant considerations under s 342, I am satisfied that Mr Mercer does not have an arguable defence to the application for an order that the property be sold. The sale is necessary to enable Mr and Mrs Ramsey to be repaid the sums they advanced to Mr Mercer. He does not have any other ability to repay the loan to them. That inability is reflected in the fact that he has not been able to sell the Okaihau property, or the Haruru property. No useful purpose would be served by dismissing the summary judgment application and giving directions for a fuller hearing at a later date to determine whether the property should be sold.

[45] It is also clear that from the proceeds of sale, the Ramseys should be repaid not just their half share in the property but also the loan. The court can make such a direction as to the division of the proceeds of sale under s 343(d) of the Property Law Act.

[46] There remains the question of the conduct of the sale. The plaintiffs propose that there should be a sale by way of auction, with a reserve fixed at the sum of

$410,000. At this stage, I regard it as premature to give any directions as to sale. There may be a number of ways by which the property could be sold – by listing with a land agent, by putting the property up for tender, or sale by auction. I have no way of knowing which is appropriate. Nor could I decide which land agent should be given the job of marketing the property or what other particular directions are required. Instead, I trust that my ruling that the property ought to be sold may be sufficient to allow the parties to work together on the sale of the property. If need be, a protocol may be required to ensure that the property is sold on an agreed basis. I hope counsel will be able to confer and agree on that.

[47] Accordingly, I adjourn this application to Monday 18 November 2013 for a further telephone conference. I trust that in that time the parties will have reached

agreement on how a sale ought to be conducted. If the parties have not been able to reach agreement, I may give further directions after hearing the parties.

[48] The plaintiffs are entitled to costs. If the parties are unable to agree costs, they will be fixed on 18 November.

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

Associate Judge R M Bell