Vallance v Vallance [2016] NZHC 1964 (23 August 2016)

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UNDER	the Property Law Act 2007
IN THE MATTER	of an application for a sale order pursuant to ss 339 to 343 of the Property Law Act 2007
BETWEEN	CLIVE CONWAY VALLANCE AND ROSS RAYMOND TEMPLETON AS TRUSTEES OF THE ESTATE OF ARNOLD RAYMOND VALLANCE Plaintiffs
AND	CHRISTOPHER JAMES VALLANCE Defendant

Hearing:	15 August 2016 (Determined on the papers)
Counsel:	P J Shamy for Plaintiffs J E Bayley for Defendant
_Judgment:	_{23 August 2016}

[1] The plaintiffs are the trustees in the estate of A R Vallance who died in 2001. At the time of his death Mr Vallance was the owner of a half share of a residential property as a tenant in common with his late wife, Mrs D M Vallance.

[2] Mrs Vallance was a life tenant in her late husband’s estate and continued to live in the house after his death. In October 2001 she sold her half share of the property to the defendant, Christopher Vallance. As a result the plaintiffs and the defendant became tenants in common in equal shares of the house. Issues arose,

VALLANCE & TEMPLETON as trustees of the Estate of A R VALLANCE v VALLANCE [2016] NZHC 1964 [23 August 2016]

[3] On 8 April 2014 the Court issued an interim judgment dealing with the dispute between the parties in relation to the chattels in issue. The Court found that the defendant owned the stove, fixed floor coverings, blinds, curtains, drapes and light fittings in the house.¹

[4] The estate sought an order that Mr Vallance pay occupation rent in relation to his half share of the house. For reasons given in the interim judgment it was not possible to resolve this issue at that time. The judgment contains a discussion of the issue at paragraphs [30] to [38].

[5] On 26 May 2014, following receipt of memoranda from counsel on the outstanding issues raised in the interim judgment, the Court issued a minute in which it recorded the rental rates to be applied for periods within the time that Mr Vallance occupied the house and then laid down the periods for which occupation rent would be payable.²The Court decided:³

(a) Occupation rent for 2012 would be $380 per week. (b) Occupation rent for 2013 would be $400 per week. (c) Occupation rent thereafter would be $440 per week.

[6] Applying these figures to the periods in question, I expressed the following views in relation to occupation rent:⁴

(a) It will run from 1 November 2011, a period of just over three months since Mrs Vallance died.

$380 per week, for the following 12 months, at $400 per week, and for the period since, at $440 per week.

¹_{Vallance v Vallance [2014] NZHC 699, (2014) 16 NZCPR
107 [First Interim Judgment] at [20].}

(e) There would be a reduction of 25 per cent to reflect the prospect that a tenant may have to pay a modest additional sum for use of the chattels which are, in fact, in the property. As a worked example, for one of the weeks where the rent is to start at $400 per week, Mr Vallance would pay $150 per week to the trustees, representing half of that sum less 25 per cent.

[7] I invited counsel to indicate whether occupation rent assessed on that basis would be acceptable. Otherwise I indicated that it would be necessary for the valuers for the parties to be called for cross-examination at a later hearing.

[8] As recorded in an order dated 6 June 2014 counsel were unable to agree on the quantum of rent.⁵I ruled, however, that the starting day for rent would be three months from the date of death of Mrs Vallance and the concluding day would be either the date on which Mr Vallance vacated the property or, if he were to purchase it, the date of settlement. In the event he did purchase the property so the date of settlement is the date to which occupation rent is payable.

[10] On 7 May 2015 the Court issued a second interim judgment which dealt principally with issues arising from the sale of the property. The judgment contains a discussion of occupation rent, once more.⁶This was because there was an issue about whether a sum should be set aside at the time of settlement as an interim payment for occupation rent pending quantum being established.

[11] Two of the witnesses for the plaintiffs and the defendant on the correct quantum of rent for the property were called for cross-examination on 17 June 2016. Affidavits were filed from Ms B Mahoni and Ms N P Edwards for the plaintiffs. An affidavit was filed by Mr A J Brazier for the defendant. Ms Edwards and Mr Brazier

⁵_{Vallance v Vallance HC Christchurch
CIV-2013-409-1572, 6 June 2014 at [15].}

⁶Vallance v Vallance [2015] NZHC 957 [Second Interim Judgment] at [12] to [22].

[12] Mr Brazier had assessed a market rental for the property on the basis that it did not contain any of the chattels which had been found to belong to Mr Vallance. His instruction to do so was evidently given on the basis of the following passage contained in the interim judgment dated 8 April 2014:⁷

Secondly, the valuation assessment presented in evidence is inadequate for the purpose of assessing rent. I make the following directions:

(a) The trustees are to arrange for a real estate agent practising in residential letting to inspect the property and provide a report, which is to be submitted to the Court, on a reasonable market rental for the property if let on a monthly tenancy, between the beginning of November 2011 and the present. The rent will be assessed on the basis that a tenant would provide the chattels I have found belong to Mr Christopher Vallance. ...

[13] Directions were made in relation to inspection of the property, access to it, forwarding the report to both counsel, and to both counsel having the opportunity to file memoranda with comments on the valuation. I went on to indicate that I would then make a ruling in relation to occupation rental. In the event, as I have related, that is not how this dispute has worked out. The estate did commission a valuation and it was undertaken and supplied as required, but Mr Vallance then commissioned a second valuation (that of Mr Brazier) and the dispute continued as I have said.

[14] As recorded in earlier judgments and minutes, Mr Brazier assessed that any market rental which might be set for the property as a whole must be discounted by

70 per cent to allow for the fact that the tenant would be required to provide the chattels in issue. At the conclusion of cross-examination it had been my intention to hear argument from counsel and then finally determine occupation rent. However, Mr Bayley presented his entire case on the basis that a tenant would physically provide the chattels in question, and relied on Mr Brazier’s assessment of a resulting reduction of 70 per cent in the occupation rent. It was clear from the evidence, however, that the best estimate that had been made of the value of the chattels, if new, was $18,000. As the discount propounded by Mr Brazier well exceeded that figure I was concerned that the way Mr Vallance’s case had been presented, from Mr Bayley’s interpretation of the passage just quoted, led to an unfair and indeed absurd result. I therefore deferred hearing submissions in relation to occupation rent

and adjourned for written submissions at a later date, after indicating to Mr Bayley my concern that he had only adopted one interpretation of the passage in question, and that it appeared to lead to an absurd result in that no landlord would opt for accepting a reduction of rent of some $50,000 rather than providing chattels worth some $18,000 if new (which, of course, the chattels in question were not).

[15] As a result I issued a minute dated 17 June 2016 recording the issue that had arisen.⁸In the minute I set out various passages from earlier minutes on the topic where indications had been given that I had a concern about the extent of the discount which Mr Vallance was seeking to apply to occupation rent. It is convenient to set out again paragraphs [6] to [11] of the minute of 17 June rather than expressing the same points in another way:

May 2015, but also referred to occupation rent. The position then established was set out in paragraph [12]. At paragraph [14] I recorded that I had expressed to Mr Bayley some surprise at the extent of the reduction proposed for his client, though noted that neither his evidence nor any evidence from the agent advising the plaintiffs had been tested by cross- examination. I noted that all of the items in question were in used condition and that at that point Mr Brazier had not given any rationale for his assessment of the 70 per cent reduction in rent by virtue of these chattels not being in the house if it were placed on the market to be rented. I went on to note, however, that s 343(f) of the Property Law Act 2007 provides that an order may be made requiring the payment by any person of a fair occupation rent for all or any part of the property.

[7] After making orders in relation to other aspects of the dispute between the estate and Mr Vallance, I made procedural directions one of which related to making a final assessment of occupation rent, and costs.

[8] Affidavits were filed for the purposes of a fixture before me today by Mr Brazier, for Mr Vallance and by Ms Edwards for the estate. It was apparent on reading Mr Brazier’s evidence that his assessment had been made on the basis stated in paragraph [37](a) of the interim judgment dated 8

The rent will be assessed on the basis that a tenant would provide the chattels I

[9] After Mr Bayley had concluded his cross-examination of Ms Edwards, the valuer called by the estate, I raised with him a concern I had that he had interpreted this term of the direction in a literal sense, namely that the tenant would actually be required to physically provide these chattels, and that as a corollary of this the house must therefore have been offered for rent without those chattels, this being the position which had led Mr Brazier to discount

the rent by some 70 per cent which, on his evidence, reduces the market rent by some $50,000 or more. I pointed out to Mr Bayley that given that the evidence is that new chattels of the type owned by Mr Vallance (his were used) would cost in the order of $18,000, the estate would be most unlikely to present the property for rental without the chattels. I pointed out to Mr Bayley that if the chattels were worth $18,000, it may be arguable that a prospective tenant would have had to pay that sum (assuming new chattels were provided, and that this figure is accurate) and should receive a credit of that sum from the rent the tenant would otherwise pay.

[10] I raised this with Mr Bayley because I was concerned that he had prepared his entire case on one interpretation of the interim judgment, which I accept was open to him. However, it led to a result which might be thought to have an element of absurdity, namely that rather than spend some $18,000 on chattels, the estate would be prepared to take a reduction in rent of over

$50,000. Arguably, as a matter of commercial common sense, this interpretation of the order was unrealistic and indeed in cross-examination Mr Brazier accepted that to be the position.

[11] I therefore invited counsel to review their respective positions and adjourned the case for written submissions, rather than proceeding with the presentation of written submissions today which could only have been on the basis of the assumption that Mr Bayley had made.

[16] Memoranda were duly filed by both counsel. Mr Bayley’s position is that the Court had directed that the rent be assessed on the basis that the tenant would physically provide the chattels in question. Mr Shamy’s position is that this does in fact lead to an absurd result, and not one that a landlord would accept. Nor, in particular, one that his client trustees could accept given their duties as trustees. Mr Bayley did not seek an opportunity to recast his case, preferring to stick to the literal interpretation of the passage I have quoted.

[17] The initial reservations I had about the assessment of a discount by Mr Brazier were expressed a number of times in earlier judgments and minutes. One of these passages is in the second interim judgment. I said:⁹

As can be seen from Mr Brazier’s report, the chattels which Mr Brazier notionally disregarded are a stove, fixed floor coverings, blinds, curtains, drapes, light fittings, a heat pump and a dishwasher, from inside the house and a greenhouse and a shed from the outside of the house. All of these items are in used condition. No rationale was expressed by Mr Brazier for his assessment, for example a return on the capital that might be expended if a tenant supplied second-hand items within these categories. This is an issue that would need to be explored with Mr Brazier and any valuer called for the trustees, if the question of occupation rent is not resolved by agreement.

Section 339(4) of the Property Law Act 2007 provides that the Court may make a further order, when making an order under s 339(1). The further orders that may be made are set out in s 343. Section 343(f) provides that an order may be made requiring the payment by any person of a fair occupation rent for all or any part of the property. Section 343(g) permits the making of an order that provides for or requires any other matters or steps the Court may consider necessary or desirable as a consequence of the making of an order under s 339(1).

[18] It will be noted that I expressly raised another way in which a discount to the occupation rent might be assessed and that I referred counsel to the requirement of s 343(f) of the Property Law Act 2007 which provides that an order may be made for fair occupation rent.

[19] In his submissions supporting his case Mr Bayley notes that in the minute issued on 17 June 2016 I accepted that his interpretation of the interim judgment was open to the defendant and was its literal meaning. He notes that Mr Brazier read the minute the same way he did. He also notes that Ms Edwards in her evidence talks of a situation where a tenant supplies the chattels. He argues that the result is not absurd, that proceeding any way other than the way he promotes in order to achieve

commercial common sense is not to be invoked retrospectively,¹⁰and says that as a

matter of principle the interpretation he puts on the first interim judgment should not be, as he puts it, reverse engineered based on ex post evidence. Mr Bayley says that the landlord supplying the chattels would result in the words of the interim judgment being construed as having a meaning that they cannot reasonably bear.

[20] Mr Shamy says that the passage under review was in an interim judgment, that the purpose of the exercise before the Court is to achieve a fair result, not to turn it into a debate over the meaning of words in an interim decision and that the extent of the error, as he puts it, on Mr Bayley’s part was evident when affidavits were filed on behalf of the defendant. He notes that Mr Bayley has not sought a further opportunity to present different evidence or argument and says that he is endeavouring to stick to an interpretation which is commercially absurd and, as he puts it, quite ridiculous.

[21] In my opinion Mr Bayley has seized on the wording of the passage in paragraph [37](a) of the first interim judgment without considering it in the context of the dispute as a whole. Once the evidence had been exchanged it was manifestly obvious that his interpretation of the interim judgment would lead to a situation where the cost to the landlord would be over $56,000,¹¹when compared with an outlay for chattels of, at most, $18,000 if new chattels were supplied. It should have been obvious to Mr Bayley and his client Mr Vallance, particularly given the express reference to this in paragraphs [15] and [16] of the second interim judgment dated 7

May 2015 that this could not possibly comply with the requirement that the Court direct the payment of a fair occupation rent. Fair does not mean fair to one side at the expense of the other; it means fair to both sides. Any objective consideration of the requirements of this section in the context of the evidence would have put counsel on clear notice that the interpretation of the first interim judgment he sought to propound would lead to an unfair result.

[22] Mr Brazier candidly accepted in cross-examination that he would not advise a landlord to proceed with letting a property without chattels if it would cost the landlord so much more than purchasing new chattels would. That was an appropriate acceptance of the plain reality of the situation and, in my view, entirely right. It was for that reason that I gave a further opportunity to counsel to consider the position rather than calling for submissions and closing the hearing after the conclusion of cross-examination, and it was for that reason that I issued a minute setting out in clear terms the issue requiring further consideration. Mr Vallance and his counsel elected to press on against a clear indication of my position on this issue, and not to take the opportunity to review their case. That is an election that has been made against a number of references in earlier documents issued by the Court about its concern as to the extent of the discount propounded by Mr Brazier, a plain reference to the requirement of the law that the Court’s assessment must be fair, and their own witness’ acceptance in cross-examination that he would not advise a landlord to proceed in the way being propounded.

[23] Further, whilst the interpretation put on the interim judgment by Mr Bayley was one available interpretation, as I pointed out in the minute dated 17 June,

another interpretation is that if the tenant provided the chattels, he or she should receive a credit equal to their cost from the rent otherwise payable. That accords with the fact that in this case the tenant was in fact providing the chattels in the house, as he owned them, but the estate should not receive rent for its half share of the property without allowing a credit for the value of those chattels. In this case the chattels were already in the house, but Mr Brazier’s evidence was based on the prospect that a house was available to let without these chattels. It would not

necessarily follow that the rent would be reduced by a percentage¹²to reflect that

fact if, for a far lesser sum, the chattels could be purchased from a supplier by the tenant and installed in the house. If that occurred the tenant would be entitled, at most, to a refund of the cost of those chattels by the estate, either by an upfront payment or by a reduction in the rent. I say at most because arguably, given that Mr Vallance occupied the house as a monthly tenant, not under a long term lease, he would be compensated sufficiently by a credit for interest on his outlay as he could remove the chattels when he left.

[24] That interpretation accords with commercial common sense, in the circumstances of this case, and allows the Court to fix a fair rent which takes into account the provision of the chattels by the tenant at the expense of the landlord.

[25] I have considered the evidence given by affidavit and the evidence given in cross-examination in relation to the correct quantum of weekly rental for the entire property, before any adjustment is made for ownership of the chattels. The figures given by the witnesses are close. Mr Brazier presented a table in his affidavit of

12 April 2016 and in cross-examination Ms Edwards accepted that his figures were

Date	Brazier Per Week	Brazier Total	Edwards Per Week	Edwards Total
10 October 2011 – 10 October 2012 (52 weeks)	$400	$20,800.00	$380	$19,760.00
10 October 2012 – 10 October 2013 (52 weeks)	$380	$19,760.00	$400	$20,800.00
10 October 2013 – 10 May 2014 (7 months @ $1,993.33/ $1,906.66 per month)	$460	$13,953.33	$440	$13,346.62
10 May 2014 – 21 May 2015 (53 weeks)	$480	$25,440.00	$440	$23,320.00
Total		$79,953.33		$77,226.62

[26] The starting date of 10 October 2011 is correct as this is three months from the death of Mrs D M Vallance on 10 July 2011. On the evidence before the Court the view of either valuer on the rates applicable to the relevant periods could be accepted. If Mr Brazier’s total is accepted Mr Vallance will have to pay slightly more than if Ms Edwards’ total is accepted. In relation to which set of very close figures is correct, I give the benefit of any doubt to Mr Vallance. Accordingly the starting-point for assessment of rental is $77,226.62. The result is that, apart from the issue relating to chattels, Mr Vallance would pay to the estate $38,613.31.

[27] Neither party introduced evidence of the value of the chattels at the beginning of Mr Vallance’s tenancy. As recorded, the evidence for the estate is that new chattels would be worth $18,000. In the absence of any evidence about the value of the chattels in used form I draw on the Court’s experience and set the value at half that sum, $9,000. Therefore, the rent to be paid by Mr Vallance to the estate is

[28] The same result would be achieved if Mr Vallance went onto the market and purchased second hand chattels for $9,000, thus providing chattels for the purposes

of his tenancy. He would be entitled to a credit for that sum against his obligation to pay rent.

[30] Costs on this, and all other applications before the Court, are reserved. If counsel are unable to agree costs memoranda may be filed within 10 working days.

High Court of New Zealand Decisions

Vallance v Vallance [2016] NZHC 1964 (23 August 2016)