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Heeman v Harvey [2018] NZCA 449 (24 October 2018)

Last Updated: 3 December 2018

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA
CA577/2017
[2018] NZCA 449



BETWEEN

DARREN HEEMAN AND DEANNA MARIA HEEMAN
Appellants


AND

GLENN RAYMOND HARVEY
Respondent

Hearing:

5 June 2018

Court:

Cooper, Whata and Thomas JJ

Counsel:

S J Zindel and A R Goodison for Appellants
M Keall for Respondent

Judgment:

24 October 2018 at 3 pm


JUDGMENT OF THE COURT

  1. The appeal is allowed in part.
  2. The orders made by the High Court are confirmed but we make additional orders that:
  1. The respondent must pay the appellants costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
  1. Costs in the High Court are to remain as fixed by that Court.


____________________________________________________________________

REASONS OF THE COURT

(Given by Whata J)

[1] In an agreement dated 19 July 2002 (the 2002 Agreement), Mr Harvey and Ms North sold to Mr and Ms Heeman a “15 ha” block of land as shown on an attached map. That parcel was subsequently surveyed at 11.0442 hectares for subdivision purposes. The Heemans refused to approve the vesting of title based on the subdivision, claiming it breached the 2002 Agreement. Mr Harvey claimed the surveyed parcel reflects what was in fact sold. Simon France J preferred Mr Harvey’s position.[1] He found the parties intended to sell a parcel of land within the specified geographical features rather than a parcel with a specified area.[2]
[2] The Heemans appeal that judgment. They claim the 2002 Agreement and the subsequent conduct of the parties show that the sale of a 15 hectare block was intended. They also challenge the compensatory orders made by the Judge in favour of Mr Harvey.

Background

[3] The following summary is largely based on the pleaded claims and corresponding admissions.
[4] Mr Harvey purchased 44.41 hectares of land at 86 Cable Bay Road, Cable Bay, Nelson, in 1995. By the 2002 Agreement, Mr Harvey and his partner, Ms North, agreed to sell to Darren and Deanna Heeman (the Heemans) “15 ha of the land which will be surveyed in agreement by both parties”. The land is described on the map attached to the agreement. The map, with annotations, is reproduced as figure 1.[3]
[5] The

2018_44900.png

terms and conditions set out in the 2002 Agreement include the following:

(a) The Heemans would be part owners until a title to the middle block became available from the intended subdivision of the property.
(b) The Heemans were to take on $40,000 of the existing mortgage secured over the original property as payment for the middle block and thereby reduce Mr Harvey and Ms North’s mortgage debt by that amount.
(c) When those financial arrangements were in place, the Heemans were to have their names registered as part owners of the original property.
(d) The Heemans were to contribute $5,000 in materials and $5,000 in labour for the construction of a road in the winter of 2002.
(e) The Heemans were to contribute a maximum of $10,000 towards the subdivision of their title.
(f) Mr Harvey and Ms North would not object to the creation and use of an airstrip on the Heemans’ land.
[6] Prior to the signing of the 2002 Agreement, the Heemans also paid the total sum of $40,000 to Mr Harvey and Ms North as part payment for the middle block. The 2002 Agreement contemplated a subdivision within four years but there was no strict requirement for the subdivision to be completed within that timeframe. A formal ADLS sale and purchase agreement was subsequently signed but a copy of it cannot be found. In any event, Mr Harvey became the registered proprietor of a twothirds share of the original property and the Heemans became the registered proprietors of a one-third share of the property.

SBS mortgage

[7] On 18 July 2002, a loan from the Southland Building Society (SBS) to the Heemans was secured over the original property by way of registered mortgage, with a maximum priority sum of $290,000, supported by the personal covenants of Mr Harvey and the Heemans (the Heemans’ SBS mortgage).

Subdivision process and the 2009 Agreement

[8] In May 2008, Ms North and Mr Heeman applied to the Nelson City Council (the NCC) for resource consent to subdivide the original property by subdividing the two existing lots into four allotments to be held in three titles. That application described the proposed lots as follows:[4]
[9]

2018_44901.png

A copy of the subdivision plan filed with the application is reproduced as figure 2:

The NCC granted resource consent for the subdivision as sought in the application on 26 May 2009 (“the subdivision consent”). On 15 June 2009, however, neighbouring landowners (the Andersons) appealed the subdivision decision (“the appeal”).

On 22 June 2009, Mr Harvey and Ms North then entered into a written agreement (the 2009 Agreement) with the Heemans that included the following terms:

(a) The Heemans were to pay for the resource consent hearing for the subdivision, excluding engineering and legal costs.
(b) The Heemans were to pay the full costs of concreting the road to the value of $40,000 or no less than 40 m of sealed surface, as per the requirements of the subdivision consent.
(c) The Heemans were to pay a minimum of one-third of the surveying costs associated with identifying the legal boundaries of the rightofway and titles.
(d) The Heemans were to undertake, at their cost, to form the right-of-way through the top of the middle block (Lot 2) to service Lots 3 and 4, as required by the subdivision consent and District Plan.
(e) The Heemans were to pay for any legal costs or costs associated with any challenge under the appeal to the earthworks road construction undertaken by them.
(f) If the Heemans failed to complete works within 12 months of 22 June 2009, Mr Harvey and Ms North were entitled to get quotes and appoint a new contractor to complete the work, and bill the full cost to the Heemans.
(g) The Heemans were to pay one-third of surveying costs and development levies for title to Lot 2.
(h) Mr Harvey and Ms North could instruct John Cotton of Cotton & Light Ltd to undertake that work without further notice to the Heemans.
(i) Completion of the financial and works obligations was to result in the transfer of the freehold title to the Heemans of the middle block of “12 >15” hectares.
[12] Resolution of the appeal took some time and a mediated settlement was not concluded with the Andersons until January 2011. Under the terms of the settlement, there was no alteration to the area of the proposed Lots 1, 2, 3 or 4. On 13 October 2011, because of the settlement of the appeal, consent orders were issued by the Environment Court modifying the subdivision consent, including a requirement for a bridge to be constructed over the Whakapauaka River. One-half of the cost of the bridge was to be met by the Andersons and the other half was to be met by Mr Harvey, Ms North and Mr Heeman.

Caveat registered

[13] Shortly after the mediated settlement, on 3 March 2011, the Heemans granted an unregistered mortgage over the original property to Cotton & Light Ltd. Mr Harvey says this mortgage was granted without his permission, although this is disputed by the Heemans. Cotton & Light Ltd registered a caveat against the title to the original property. Then, on 11 September 2012, SBS advanced the further sum of $19,400 to Mr and Ms Heeman, secured by the Heemans’ SBS mortgage and the personal covenants of the Heemans and Mr Harvey.

Sale of Lot 1 and the 2015 Agreement

[14] In June 2014, Mr Harvey sold proposed Lot 1 to Roelie Luten, subject to the completion of the subdivision of the original property within 12 months of the date of that agreement. A registered valuation of the proposed lots dated 5 March 2015 assumed that the area of proposed Lot 2 was 11.0442 hectares. It valued the proposed lots under the subdivision as follows:
[15] On 6 June 2015, Mr Heeman gave a verbal promise to Mr Harvey that he would remove the Cotton & Light caveat and do all things necessary to ensure the sale of Lot 1 was not lost and that titles would issue on time. There was then a further agreement, dated 8 June 2015, between Mr Harvey and the Heemans (“the 2015 Agreement”). It included the following conditions:
[16] On 10 June 2015, Mr Harvey and the Heemans signed a private individual client authority and instruction for an electronic transaction for the issue of a title to the Heemans for Lot 2 totalling 11.0442 hectares, a title to Mr Harvey for Lot 1 totalling 10.0070 hectares, and a title to Mr Harvey for Lots 3 and 4 totalling 23.3581 hectares. However, the dealing could not be registered because the Heemans failed to remove the Cotton & Light caveat or to secure the consent of SBS.[5]
[17] On 22 July 2015, Ms Luten cancelled the agreement to purchase Lot 1 because an unencumbered title to that property was not available. The Heemans, however, deny that this was due to any default on their part.

The interim subdivision

[18] In early 2016, Mr Harvey and the Heemans agreed to complete an interim subdivision to avoid easement complications otherwise arising from the imminent sale of adjoining land owned by the Andersons (the 2016 Agreement). Furthermore, the NCC had previously advised Mr Harvey and the Heemans on 21 January 2014, that they had five years from the 13 October 2011 consent order to apply for a s 223 certificate and would therefore need to apply by 13 October 2016.
[19] The parties also agreed that title to Lot 1 and titles to Lots 3 and 4 were to be vested exclusively in Mr Harvey and that title to the middle block was to be vested exclusively in the Heemans. However, this arrangement was without prejudice to the resolution of a dispute as to the agreed area and boundaries of the middle block.
[20] In accordance with the 2016 Agreement, the property was subdivided into three titles, each held one-third by the Heemans and two-thirds by Mr Harvey (the interim subdivision). The three titles were to comprise the following lots in areas:
[21] No vesting of separate titles has occurred.

The claim and counterclaim

[22] Mr Harvey claimed the Heemans refused or neglected to take all steps necessary to implement the agreed vesting of separate titles. Orders were sought to enable the allegedly agreed vesting. Compensation for the subdivision costs and losses, together with enforcement orders, was also sought.
[23] The Heemans counterclaimed that the boundaries should be adjusted so that they are vested with a 15 hectare title to replace the 11 hectare title and that they receive $8,000 toward the cost of the requisite boundary adjustment. They also sought the following contributions:

High Court judgment

[24] Simon France J identified three issues, namely:
[25] On the first issue, Simon France J was satisfied the agreement was for a specified block of land, thought to be as much as 15 hectares in size, but delineated by agreed geographical landmarks ultimately measuring whatever it measured.[6] In reaching this conclusion, the Judge:
[26] On the second issue, the Judge noted Mr Heeman accepted the survey plan, on which the Lot 2 title is based, draws the boundary along the ridgeline as described in the original agreement and in the resource consent application.[12] The Judge therefore concluded that the geographical boundaries reflect the bargain and there was no basis to direct any change.[13]
[27] The final issue dealing with compensation is addressed at some length by the Judge. For present purposes, we simply refer to his key conclusions relevant to this part of the appeal. The Judge found that the 2009 Agreement, as it relates to the costs incurred, was effectively cancelled due to subsequent variations.[14] Therefore, the Judge approached the claims to compensation under the provisions of the Property Law Act 2007. The Judge then recorded that Mr Heeman accepted all the claimed expenses were incurred by Mr Harvey and the real issue was the value of any work done by Mr Heeman as an offset to those expenses.[15] The Judge identified concreting of the access-way as the primary cost,[16] and apportioned this one-third to Mr Harvey and two-thirds to the Heemans.[17] Alleged improvements made by Mr Heeman were deemed to be his choice, though the Judge accepted they would increase the value of the property. Accordingly, the Judge made various orders for compensation in Mr Harvey’s favour, less 10 per cent for Mr Heeman’s improvements to an access-way.[18] Mr Heeman’s claim for costs of a boundary adjustment and retrospective resource consent were rejected, as was a claim based on a cheque payment. The Judge also rejected Mr Harvey’s claim for interest on a payment he made to discharge the SBS mortgage.[19]
[28] In the result, Simon France J made various orders enabling the titles to vest as sought by Mr Harvey, together with orders for compensation.

The appeal

[29] Detailed grounds of appeal were filed. In summary, the Heemans contend the surveyed Lot 2 does not correspond to the description of the parcel referred to in the 2002 Agreement, the application or grant of subdivision consent, the 2009 Agreement, and/or the 2015 Agreement. Rather, they submit:
[30] The Heemans also submit that the 11 hectare parcel does not accord with the evidence of their need for an airstrip located at the bottom end of the property, or the division of the 44 hectare property into three parts, one part for the Heemans and two parts for Mr Harvey.
[31] The compensatory orders are also challenged. It is submitted:

Assessment

[32] We agree with Simon France J about the object of the 2002 Agreement. Mr Harvey and Ms North sold, and the Heemans purchased, a block of land physically defined by specified geographical features. These features were identified on the map attached to the agreement. Contrary to the central thrust of the appeal, subsequent actions (and associated records), including the subdivision application and the 2009 and 2015 Agreements, support the conclusion that the object of the 2002 Agreement was to vest a physically identified parcel of land rather than a fixed acreage of 15 hectares. This also dispenses with the argument made by Mr Zindel that Mr Harvey held four hectares of the land pursuant to an express or resulting trust.[20]
[33] To elaborate, at trial and on appeal, the Heemans focused their claim on the location of the eastern boundary of Lot 2. They say that it was always intended that the eastern boundary follow the ridgeline “above the spring creek”, and not the full length of the ridgeline to the Anderson boundary. We accept the point made by the Heemans that figure 1 and the initial subdivision plan showing Lot 2, suggest that the eastern boundary kinked in an easterly direction more substantially than the surveyed boundary. The effective difference appears to be about 1.4 hectares, being the difference between the respective sizes of Lot 2 and 3 in the subdivision plan (both 12.5 hectares) and the surveyed Lot 2 (11 hectares) and Lot 3 (13.9 hectares). This would have meant more land was available for the Heemans’ air strip. This difference is also reflected in the proposed realignment set out in the 2015 Agreement dealing with the proposed Luten sale.
[34] But the survey plan definitively locates the eastern boundary by reference to “the ridgeline above the spring creek to the Anderson boundary,” as expressly required by the 2002 Agreement. Mr Heeman ultimately conceded this point under crossexamination. This means that whatever was assumed in the subdivision plan, and provided for in the 2015 Agreement, did not accord with what was in fact agreed in 2002.
[35] We are less clear about the location of the western boundary. But the location of this boundary has remained largely consistent since the 2002 Agreement, with Lot 1 identified as about 10 hectares in all subsequent documentation. Relevantly, Mr Heeman obtained the survey plan that formed part of the application for subdivision consent which records that Lot 1 would be in the order of 10 hectares. Like the Judge, we are not prepared to place much weight on Mr Heeman’s evidence that subdivision consent was sought on the basis he would simply adjust it later. Moreover, we are not prepared to impute to Mr Harvey that he had this intention.
[36] What then does this mean for the vesting of titles? The High Court and now this Court is engaged in a process of dividing property owned by co-owners pursuant to the broad remedial powers conferred by ss 339, 342 and 343 of the Property Law Act 2007.[21] Relevant considerations include the extent of any share of the property of any co-owner and any hardship that would be caused by the refusal or grant of the order.[22] Ancillary powers include the payment of compensation and provision for other matters the court considers necessary.[23]
[37] Within this frame, we consider Simon France J was correct to require the vesting to be completed. The surveyed Lot 2 broadly represents the physical block of land in fact sold. However, in disagreement with Mr Keall’s careful and detailed argument, we consider that, objectively assessed, the parties assumed that they were buying and selling a property in the order of 15 hectares or one-third of the existing property. This is reflected in:
[38] For the foregoing reasons, it is evident to us that the Heemans altered their position, including by way of taking out mortgages, undertaking a lengthy and costly subdivision exercise, and made substantial land improvements assuming they were effectively a one-third owner of a 44 hectare property.
[39] We therefore think that while the vesting should be confirmed, Mr Harvey should compensate the Heemans for the difference between the size of the surveyed Lot 2 and the 15 hectare area assumed by them in the 2002 Agreement and subsequently. We so order.

Compensation orders

[40] Turning then to the compensation orders, we see no reason to depart from the orders made by Simon France J in terms of Mr Harvey’s expenses. Ultimately, he favoured Mr Harvey’s version of events as they relate to the costs associated with the property and we see nothing in the evidence to suggest he was wrong in his assessment. On the contrary, Mr Heeman’s claims comprised:
[41] We also put little store on Mr Heeman’s belated and literal reliance on the recorded agreements about apportionment of costs of the subdivision. We note that the Judge’s finding that the 2009 Agreement was effectively cancelled was not appealed. In any event, Mr Heeman appears to rely on the agreements when it suits, and ignore them when it does not. For example, Mr Heeman claimed in evidence that the 2009 Agreement was “made up” to assist in Environment Court proceedings, yet he relies on this agreement for the purposes of the appeal. Given Mr Heeman’s shifting account, we consider the Judge has fairly provided for the relative contributions of the owners subject, however, to our direction that compensation for the reduced acreage must be paid.

Outcome

[42] Mr Harvey agreed to sell and the Heemans agreed to buy, a geographically defined parcel of land, subsequently surveyed at 11.0442 hectares. However, both parties assumed the area of land sold was in the order of 15 hectares. Therefore, we agree with Simon France J that the geographically defined parcel must vest, but we think the parties’ assumption about the size of the land should be reflected in an order for compensation to the Heemans in respect of the difference. While this outcome falls short of the relief sought by the Heemans, it is mandated by s 343 of the Property Law Act. The balance of the Heemans’ appeal is dismissed.

Result

[43] The appeal is allowed in part.
[44] The orders made by the High Court are confirmed but we make additional orders that:
  1. The appellants are entitled to compensation for the value of the shortfall of 3.958 hectares.
  2. The matter is remitted to the High Court for the determination of the quantum of such compensation.

[45] The respondent must pay the appellants costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
[46] Costs in the High Court are to remain as fixed by that Court.





Solicitors:
Zindels, Nelson for Appellants
Duncan King Law Ltd, Auckland for Respondent

[1] Harvey v Heeman [2017] NZHC 2161.

[2] At [29].

[3] This map is not aligned to North so that the written annotations are legible.

[4] These figures were pleaded in the statement of claim and admitted in the statement of defence.

[5] The Heemans say that they did seek legal advice and assistance to have the caveat removed.

[6] Harvey v Heeman, above n 1, at [10].

[7] At [12].

[8] At [14].

[9] At [20].

[10] At [18].

[11] At [18]–[19].

[12] At [29].

[13] At [29].

[14] At [45].

[15] At [48] and [50].

[16] At [52].

[17] At [53].

[18] At [55]–[56].

[19] At [56].

[20] The trust concept was not argued in the High Court or raised in the points on appeal. We therefore

address this point only for completeness.

[21] Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [25]–[32].

[22] Section 342.

[23] Section 343.

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