Jespersen v Secretary of the Treasury [2018] NZHC 2603 (5 October 2018)

Last Updated: 16 October 2018

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2017-488-145 [2018] NZHC 2603

UNDER the Property Law Act 2007, ss 339-343, and the Land Transfer Act 1942, s 143

IN THE MATTER of Certificate of Title NZ42C/75 North

Auckland

BETWEEN GRAEME MARK JESPERSEN First Applicant

GRAEME LEONARD ASKELUND Second Applicant

GAVIN CRAWLEY Third Applicant

AND SECRETARY OF THE TREASURY First Respondent

................................./continued

Hearing: 27 August 2018; further memoranda 31 August 2018

Counsel: KT Glover for applicants

M Singh for third respondent

Judgment: 5 October 2018

_{JUDGMENT OF FITZGERALD J}

This judgment was delivered by me on 5 October 2018 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

Jespersen v Secretary of the Treasury [2018] NZHC 2603 [5 October 2018]

Respondents continued

EDWARD ERROL JOHNSTON Second Respondent

OHL LIMITED Third Respondent

ANZ NATIONAL BANK LIMITED Fourth Respondent

ASB BANK LIMITED Fifth Respondent

WENDY RUTH JOHNSTON Sixth Respondent

GERARDUS JOSEF MARIE MAR TENS and ED JOHNSTON & CO TRUSTEES LIMITED Seventh Respondents

DONALD ANZAC GEORGE REYLAND, AILSA GLO RIA REYLA ND and EDW ARD ERROL JOHNSTON

Eighth Respondent

WAYNE MATTHEW McKENNA Ninth Respondent

FAI MONEY LIMITED Tenth Respondent

ED JOHNSTON & CO TRUSTEES LIMITED Eleventh Respondent

Introduction

[1] The time is ripe f or reap ing the bene fits of a f orestry synd icate in r espect of land and a forest located in Northland — that is, to sell theland together with the forest planted on it or sell the rights to harvest the forest only.

[2] The applicants, the third respondent (OHL) and, until recent times, the second respondent (Mr Johnston), are or were partnersin the forestry syndicate. In November

2012, Mr Johnston was adjudicated bankrupt. ¹ The Of ficial Assignee disclaim ed

Mr Johnston’s interest in the underlying land, as well as his rights in relation to the forest. There are various claim s by the re spondents (other than OHL) in respect of Mr Johnston’s interests. Caveats have been lodged against the la nd to protect thos e claims and notice of a relationship prope rty claim has be en lodged by the sixth respondent (Mr Johnston’s former wife).

[3] To realise the forestry syndicate benefits, the applicants seek orders removing the various caveats and claims in relation to Mr Johnston’s share, together with orders that the forestry right and/or the land be sold and the profits distributed between the partners. The proceeds of sale in relation to Mr Johnston’s interests would remain in an accountant’ s trust account pending reso lution of the various claim s to those interests, which would be determined in a later stage of these proceedings.

[4] None of the respondents, other than OHL, appeared atthe hearing in opposition to the application.²

[5] OHL does not oppose orders lapsing the caveats or the sixth respondent’ s notice of claim over the land. Nor does it di spute that the land and/or forestry right ought to be sold. But it opposes several orders sought concerning the process and method of sale.

¹ He was discharged from bankruptcy on 11 March 2016.

2. Most abide the Court’s decision on this stage of the proceeding. Affidavits of service are on the file confirming service on the respondents.

[6] One of the key issues b etween the app licants and OHL is how to broker any deadlock which might arise between them in relation to the sale. As matters presently stand, the three applicant partners are gene rally aligned in their views, with OHL taking a different position on some issues. The parties disagree on what should occur if the th ree applicants agree on a particular sale and its terms, but OHL, as a 25 per cent partner, disagrees. For example, should OHL be able to veto any such sale?

[7] This and other related issues are the subject of this judgment.

Factual background — more detail

The Property and original partnership

[8] The property is roughly 120 hectares, being the land comprised and described as Section 9, Block X,Whangape Survey District Computer Freehold Register number NA42C/75 (Property). The main value in the Property derives from a forest of mature Radiata pine trees which were planted in tw o separate tranches: 49 hectares in 1985 and 60 hectares in 1986. The right to harvestthe trees and retainthe profits from doing so is referred to in this judgment as the “forestry right”.

[9] Mr Graeme Jespersen, the first applicant, who has taken the lead ro le in these proceedings on behalf of the applicants, started the v enture in 198 5. The orig inal partners were:

(a) Graeme Askelund (the second applicant); (b) Gavin Crawley (the third applicant);

(c) Edward Johnston (the second respondent); (d) Graeme Jespersen (the first applicant); and

(e) Peter Jespersen (the first applicant’ s brother, who is not a party to the proceedings).

[10] The origin al partne rs w ere a ll f riends and acqu aintances. The rela tionship between them was and i s one of partnership, and it is agreed that th e Partnership Act

1908 applies to it. No for mal written part nership deed or other written agreem ent governs the partners’ relations.

[11] Mr Jespersen states that when the pa rtnership was for med in 1985, it was the partners’ intention at the time to hold the f orest until maturity, which is usually 20 to

26 years from the planting date. That would have meant harvesting the forest in 2012 or 2013, provided prices were favourable to the partners at that tim e. It is not in dispute, however, that the delay in harvesting was justified and now is about the right time to fell the trees.

Changes to the partnership

[12] There have been a number of changes among the partners since the partnership was originally formed. Mr Peter Jespersen’s shares have ultimately been acquired by OHL.³ Further , and as noted earlier , on 20 November 2012, Mr Johnston was adjudicated bankrupt. His shar e in the partnership therefo re ves ted in the Of ficial Assignee on that date. Mr Johnston was discharged from bankruptcy on 1 1 March

2016. Mr Jespersen notes that, technica lly, Mr Johnston’s bankruptcy m eant a dissolution of the partnership, but all the other partners elected to continue.⁴

[13] On 12 July 2016, the Of ficial Assignee disclaimed Mr Johnston’s interests in the partnership, including his interest in the Property and forestry right. The difficulty that creates is that it leaves Mr Johnston’s interests without an owner, and thus no-one who presently can deal with them .⁵ Som e of the orders s ought by the applicants are to overcome this issue, for example, that the Registrar execute any documents required to be executed on behalf of Mr Johnston in re lation to his f ormer interests in the Property and forestry right.

³ FAI Money Ltd, the 10th respondent, owns all of the shares in OHL.

4. No dispute was t aken i n t hat rega rd at t he hearing a nd al l part ies proceed o n t he basi s that t he partnership continues.
5. I was informed at the hearing that Mr Johnston may have applied for vesting orders in relation to his share in the Prop erty and fo rest, though I have no visibility of whether such orders have yet

been made.

Charges against the Property’s title/partnership interests

[14] The Property’s title is currently subject to mortgage number 7178536.3 toANZ National Bank which funded the original purch ase. Monthly paym ents of principal and interest are m ade by the partners. These paym ents increased as a result of M r Johnston’s bankruptcy and, as of August 2017, OHL has not paid its regular contribution. I come back to this topic later in this judgment.

[15] There is also a second mortgage, number C5843454.1, registered against each of Mr Jespersen, Mr Johnston and Mr Askelund’s one-fifth share in the Property in favour of ASB Bank Ltd. Mr Johnston and Mr Askelund each repaid their share of the ASB Bank loan several years ago. The mortgage is now only relevant to a personal loan which rem ains owing by Mr Jespersen to ASB. The a mount outstanding as a t

1 December 2017 was $335,000. Mr Jespersen confirm s t hat the prin cipal am ount reduces each m onth by approxim ately $2,700. An order is theref ore sought to the effect that the balance o f this loan is repaid from the proceed s of sale attributab le to Mr Jespersen’s share in the venture and the mortgage released.⁶

[16] As already noted, Mr Johnston’s share in the Property is subject to six interests registered against the title, being:

(a) 8414551.1 Caveat against th e share of Edward Errol Johnston, by Gerardus Jozef Marie Martens and EDJohnston & CoTrustees Limited dated 11 February 2010 (the seventh respondents);

(b) 8931462.1 Notice of claim against the share of Edward Errol Johnston by Wendy Ruth Johnston dated 2 December 201 1 (the sixth respondent);

(c) 9245412.1 Caveat against the share of Edwar d Errol Johnston by Donald Anzac George Reyland, Ailsa Gloria Reyland and Edward Errol Johnston as to a one-half share andAilsa Gloria Reyland, DonaldAnzac

George Reyland and Edward Errol Johnston as to a one-half share dated

21 November 2012 (the eighth respondents);

(d) 9280147.1 Caveat against the share of Edwar d Errol Johnston by Wayne Matthew McKenna dated 21 December 2012 (the nin th respondent);

(e) 10526017.1 Caveat against the share of Edward Errol Johnston by

Graeme Mark Jespersen dated 8 August 2016 (the first applicant); and

(f) 10570967.1 Caveat against the share/interest of Edward Errol Johnston by FAI Money Limited dated 22 September 2016 (the 10th respondent).

[17] The Property cannot be sold while thes e various char ges and caveats rem ain registered against the title.

The ongoing management of the partnership — current position

[18] Mr Jespersen explains in his affidavit filed in support of the application that he has generally m anaged the partnership’ s business since its in ception. This has included:

(a) paying expenses and arranging for insurance; (b) collecting partners’ contributions;

(c) organising contractors; and

(d) dealing with potential purchasers and valuation issues.

[19] Mr Jespersen notes that up to and including 18 September 2012, contributions by way of capital required for the partnership had been paid on an equal basis. Since

18 September 2012, however , Mr Johnston ceased paying his m onthly contributions and no contributions have been made either by him or the Official Assignee since that date.

[20] That meant the remaining partners had to meet additional capital requirements, with each b eing liable for a quarter of su ch requirem ents instead of a fifth. The remaining partners have, to varying degr ees, met those cap ital contributions, but not at all tim es. It is no t in dispute that Mr Jespersen met any shortfall. It is also not in dispute that the other partners have reimbursed Mr Jespersen to varying extents.⁷ For these reasons, the applicants seek an orde r for an account to be carried out so that Mr Jespersen is appropriately reimbursed from the proceeds of sale with the additional amounts he has contributed to the partnership over the years. There is no dispute on that order and it is plainly appropriate.

[21] Other difficulties between the current partners have arisen in more recent years. As flagged earlier, there is a divergence between the three applicants on the one hand, and OHL on the other . For exa mple, Mr Jespersen explains that unlike the other partners OHL does not have a regular automatic payment in relation to its share of the amount due to meet monthly mortgage repayments to ANZ. This means Mr Jespersen must communicate by both lett er and usually telephone wi th OHL every m onth to ensure its paym ent is made. Mr Finnigan, on behalf of OHL, in turn explain s th at because of the way in which OHL is set up, it does not have an existing pool of funds from which to make automatic payments and therefore each individual payment must be separately authorised.

[22] In addition, OHL has not paid its shar e of the ANZ m ortgage since August

2017. While OHL raises various issues about not being provided with documents and other information to keep it properly informed of the partnership’s business, this does not adequately explain why it has not continued to make its regular monthly payment of at leas t the ANZ mortgage. Mr Jespersen notes that he has ceased send ing letters to OHL more recently in relation to this mortgage, because he considers it will be more efficient to resolv e th e im balance between the partn ers’ contributio ns when th e Property and/or forestry right is sold.

[23] In anticipation of selling either the Property as a whole (including the forestry right) or just the forestry right, a valuation of the forestry crop has been commissioned

from Forme Consulting Ltd.⁸ For confidentiality reasons, it is not appropriate that the valuation be communicated in the market generally, and it is not necessary to include such details in th is judgment. It was also agreed at the hearing tha t while valuation information should be appropriately shared between the f our rem aining partners, confidentiality should be preserved beyond those parties.

[24] I accordingly make an order that the valuations commissioned for the Property and/or forestry right to date, and the updating valuation discussed at [45](a) below, are not to be disclosed other than to the app licants and OHL, and are not to be disclosed by any of those parties to any third party without all those parties’ consent (or separate court order).

[25] One of the issues between the applicants and OHL is the process for selling the Property and/or the fore stry right. The applicants have al ready received some offers in relation to the forestry right, even in advance of a form al marketing campaign. It seems that OHL has also been approached by one or two inte rested pa rties. Mr Jespersen deposes that in these circum stances, and given an agent’s fee could be in the vicinity of $100,000 or more, there is no need to appoint a listing agent. He and the other applicants see this as an unnecessary cost to the partnership.

[26] OHL, on the other hand, would feel m ore co mfortable w ith a lis ting agent being appointed, both to bring a degree of independence to the process and to tap into a wider market. Mr Singh, counsel for OHL, no ted that in most applications for sale pursuant to s 339 of the Propert y Law Act, a listing agent is appointed and that their fees are simply an “ordinary cost of sale”.

[27] To the exten t tha t only the f orestry r ight is purchased, the applicants have a concern that they, and OHL, as owners of the underlying Property, will be subject to health and safety regulations. For these r easons, the orders sought envisage that any purchaser must be appropriately qualified from a health and safety perspective to engage in the activity of harvesting the fores.t OHL does not take issue with this aspect of the orders, at least as a matter of principle.

The remaining issues between the applicants and OHL

[28] Considerable progress has been made in narrowing the issues since the proceedings were filed. As noted, other than OHL, no other respondent takes an active opposition to the orders sought. As between the applican ts and OHL, t here are no w three key remaining issues. They are:

(a) in addition to the Registrar of the High Court executing any documents reasonably necessary for carryin g out the Court’s orders in rela tion to the share previously ow ned by Mr Johnston, whether the Registrar should also take these steps as relating to OHL’s share (to prevent OHL being able to veto or block a sale to which all other partners agree);

(b) whether an agent should be appointedto manage the marketing and sale process; and

(c) what costs or contributions may be charged against the proceeds of sale, and whether these should include an allowance sought by MrJespersen for his work to date for the part nership, the applicants’ legal costs associated with this application and OHL’s legal costs asso ciated with this application.

The law

Property Law Act

[29] The applicants seek the orders under ss 339 and 343 of the P roperty Law Act

2007 (PLA). Section 339 provides as follows:

339 Court may order division of property

(1) A court m ay make, in respect of property owned b y co-owners, a n 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 sha re 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—

(a) despite any thing 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 required by or under section 341; and	manner

(d) only after ha ving regard to the m atters specified in section

342.

(3) Before determining whether to make an order under this section, the court may order the property to be valued and may direct how the cost of the valuation is to be borne.

(4) A court making an order under s ubsection (1) may, in addition, make a further order specified in section 343.

(5) Unless the c ourt orders otherwi se, eve ry co-owner of the property (whether a party to the proceeding or not) is bound by an order under subsection (1) (and by any related order under subsection (4)).

(6) An order un der subsection (1 )(b) (and any related order under subsection (4)) may be registered as an instrument under—

(a) the Land Transfer Act 1952; or

(b) the Deeds Registration Act 1908; or

(c) the Crown Minerals Act 1991.

[30] Section 343 of the PLA provides:

343 Further powers of court

A further order referred to in section 339(4) is an order that is made in addition to an order under section 339(1) and that does all or any of the following:

(a) requires the payment of compensation by 1 or more co-owners of the property to 1 or more other co-owners:

(b) fixes a reserve price on any sale of the property:

(c) directs how the expenses of any sale or division of the property are to be borne:

(d) directs how the proceeds of any sale of the property, and any interest on the purchase amount, are to be divided or applied:

(e) allows a co-owner , on a sale of th e property, to make an of fer for it, on any terms the court considers reasonable concerning—

(i) the non-payment of a deposit; or

(ii) the setting-of f or accounting for all or part of the purchase price instead of paying it in cash:

(f) requires the payment by any person of a fair occupation rent for all or any part of the property:

(g) provides for, or requires, any other matters or steps the court considers necessary or desirable as a consequence of the m aking of the orde r under section 339(1).

[31] Further, s 342 of the Act sets out a number of factors to which the Court must

have regard when m aking an order under s 339(1) and any related orders under s 339(4) of the Act.

[32] The broad legal principles are not in di spute. As confirm ed by the Court of Appeal in Bayly v Hicks , the broad discretion w ithin the above statutory provisions replaces “the rigid requirem ent of the past tha t the court must m ake orders if the criteria s et out in [ predecessor] Acts were proved.” ⁹ Mr Singh also referred to Fogarty J’s observations in Holster v Grafton that:¹⁰

Sections 339–342 of the P roperty Law Act 2007 sho uld be un derstood to be remedial. There remains a basic value or respect for property rights.

[33] Fogarty J also noted that the question of hardship, for the purposes of s 342(d), is to be read consistently with “the policy of the statute which respects property rights of tenants in common, but seeks to resolve conflicts fairly”. ¹¹ Mr Singh submits that while hardship is no t in issue in the pres ent proceeding, it is clear that ss 339 to 342 must be applied having regard to the prope rty rights of co-owners. He says these principles are im portant when determ ining how any deadlock or disagreem ent between the applicants and OHL might be resolved.

⁹ Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [25].

¹⁰ Holster v Grafton (2008) NZCPR 314 (HC) at [43].

¹¹ At [50].

Partnership Act

[34] As the applicants and OHL accept they are in a relationship of partnership, the Partnership Act 1908 is also relevant. Of particular relevance to the key issues outlined above are the following provisions:

(a) section 27(e), which provides that “e very partner m ay take part in the management of the partnership business”;

(b) section 27(b), which in broad term s provides that the partnership must indemnify e very partner in respect of paym ents or liab ilities incurr ed “in the ordinary and proper conduct of the business of the fir m” or “anything necessarily d one for the preservation of the business or property of the firm”;

(c) section 27(f), which provides that “no partn er shall b e e ntitled to remuneration for acting in the partnership business”; and

(d) section 27(h), which provides that “any difference arising as to ordinary matters connected with the partne rship business m ay be decided by a majority of the partners, but no chan ge may be m ade in the nature of the partnership business without the consent of all existing partners”.

[35] All of these provisions are subject to any agreement to the co ntrary between the partners.

Issue 1 — Provision for resolving deadlock

[36] The essence of the order sought by the appl icants in this context is to provide a mechanism by which any deadlock between the applicants on one hand and OHL on the other can be resolved, so that OHL, asonly one of four equal partners, cannot veto or block the sale process.

[37] As discussion progressed at the hearing, however, Mr Glover, counsel for the applicants, accepted that even if such an order were in principle appropriate, it ought

to be fram ed in a m ore “benign” way than originally sought, which referenced OHL as the po tentially “blocking” party. As I made clear at the h earing, each of the three applicants and OHL are equal partners. They accordingly have equal rights to be involved in and take part in the m anagement of the partnership business,¹² as well a s receiving all information concerning the partnership business (for example, materials relating to a potential sale of the Property and/or forestry right).

[38] Accepting that the o rder might be redraf ted to be fram ed i n a m anner which envisages any one of the four partners dissenting, Mr Glover nevertheless submitted that hav ing the Regis trar execu te d ocuments on behalf of the dissenting partner in circumstances where those holding 75 per cent of the partnership interests have agreed on the sale is fair and reasonable, and consistent with both the PLAand the Partnership Act. He noted that pursuant to s 342(a) and (c) of the PLA, the extent of co-owners’ shares in the relevant property are mandatory relevant considerations to be taken into account when considering orders under s 339. Further, and in terms of the Partnership Act, Mr Glover submits that dif ferences are ordinarily resolved by a m ajority of the partners (and the applicants’ proposed or ders require wh at is in ef fect a “supe r majority” in any event). Mr Glover submits that the decisio ns in relatio n to the sale of the forestry right in this case are not a change, “in the nature of the partnership business” for the purposes of s 27(h), which would otherwise require unanim ity. He noted that a ll that is oc curring is th at the p artnership business is being carried out exactly as it has always been intend ed to be, nam ely the ultim ate harvesting of the forest upon maturity.

[39] Mr Glover submits that given there has now been this hearing in relation to the sale of the Property and/or the forestry right , it would be inef ficient for the parties to need to come back to th e Court in the even t of future disagreement. In other words , the mechanism for breaking any such deadlock should be built into the current round of orders.

[40] Mr Singh on the other hand notes that even if the order were framed in a more benign way, there is no need to “set in stone” a mechanism at this stage for brokering

any deadlock between the remaining four partners. He submits that the whole process is premature, given that currently there is no deadlock between the partners — and it may well be the case tha t all pa rtners agree on th e ultimate identity of the purchaser and the terms of sale. While Mr Singh notes that the orders s ought by the applicants would provide OHL wi th the opportunity to seek ur gent relief in the event the applicants (holding 75 per cent of the part nership shares) agreed to pro ceed down a particular route, this is in ef fect “flipping the burden” onto OHL to apply for further orders. But, given the absence of any particular issues at this stage, Mr Singh submits the onus should be on the applicants to do so.

[41] Having carefully considered the parties’ written and oral subm issions on this issue, I cons ider it is ap propriate an d efficient to build into the ord ers a process f or resolving any deadlock between the four parties as they embark on the sale process. I have reached this conclusion for six reasons.

[42] First, it was apparent from the hearing, and the post-hearing m emoranda, that there is a degree of division between the applicants on the one hand and OHL on the other. While any future disagreem ent over the term s of a particular sale cannot be predicted, the current atmosphere and relationship between the parties provides fertile ground for such differences to arise.

[43] Second, the parties have already been before the Court and m ade full and extensive subm issions on key aspects of the sale p rocess on which they already disagree, and on the mechanism for brokering any future disagreements. I agree with Mr Glover that it would be inefficient and effectively a duplication of resources and effort for the par ties to have to revisit the Court on the se issues in the future were a deadlock to arise.

[44] Third, I am satisf ied tha t the requ irement for partners holding a 75 per cent share of the Property to agree on a course of action, before the Registrar can execute any docum ents on behalf of a dissenting 25 per cent partner , is an appropriate way forward. In effect, this is “majority rules”, and indeed is akin to a sup er majority for significant transactions in the co rporate field. ¹³ Ultim ately, the f act tha t the 75 per

cent majority position can be im plemented in the face of a m inority dissent is simply the ordinary consequence of holding a m inority share. There is nothing inherently unfair or prejudicial in being in the minority. Nor do I consider the ability for a 75 per cent m ajority to ef fectively “out- vote” a 25 per cent m inority unreasonably undermines that party’s property rights. This approach reflects the baseline position under s 27(h) of the Partnership Act, as set out at [34] above a nd takes into account the extent of co-owners’ shares in the Prope rty, as required by s 342(a) and (c) of the PLA.

[45] Fourth, there are appropriate safeguards built into the orders to protect a partner who disagrees with the majority:

(a) The orders sought require that the sale price is not less than an updated expert valuation to be commissioned.

(b) Further, it would rem ain open to any dissenting ( minority) partner to seek further orders from the Court on an ur gent basis should the need arise.¹⁴ This provides an appropriate “safety valve” for any allege d egregious conduct on the part of th e m ajority, while not perm itting a minority partner to ef fectively hol d the m ajority to rans om over individual issues on the way through. For thesereasons, I do not accept Mr Singh’s submission that requiring a dissenti ng 25 per cent partner to seek orders inappropriately “flips the burden”. Rather, the fact this safety valve exists will ensure reasonableness and discipline throughout the process, and the fact the m inority partner will be required to apply for orders will ensure that party does not take unreasonable positions in an effort to frustrate the process.

[46] Fifth, ultimately all partners’ interests are aligned in wanting to secure the best possible price for the P roperty and/or forestry right, with the lowest costs of sale. These are sophisticated comm ercial part ies with sensible counsel. Given the overriding desire to m aximise the value of the Property and/or the forestry right, I

would expect the prospect of any serious conf lict within the confines of the orders to be made are slim.

[47] Finally, I accept Mr Glover’s submission that the proposed sale does not fall within s 27(h) of the P artnership Act a nd thus requires unani mity. Rathe r, the partnership business is sim ply being carried to its intended and logical conclusion. There is no change being made to the “nature of the partnership business”.

[48] There will a ccordingly be an order in a modified form of that num bered 4 in the orders provided with the application.

Issue 2 — Appointment of listing agent

[49] On the evidence before the Court, th ere has clearly been a reasonably good level of interest in the f orestry right already, prior to any marketing campaign being undertaken. While I accept that a listing agent is a common and expected cost of sale when selling a property, the fact that the partners themselves are equipped to “canvas the market” so to speak is evidenced by the number of offers or expressions of interest that have already been received.

[50] I acco rdingly consider that, at least fo r a lim ited tim e, it is not necessary to appoint a listing agent, which would inev itably generate a reasonably significant commission to be deducted from the proceeds of sales.

[51] However, and as I explored with the parties at the hearing, the “self-managed” sales cam paign in process ought to have a de fined end date. If it is not proving successful a listing agent can be appointed to broaden and deepen the m arketing exercise. The applicants were content with a four-month period for the self-managed campaign.

[52] A mechanism to resolve any differences in relation to the identity of the listing agent can also usefully be built into the orders to be made now. I will make an order that the listing agent is to be agreed by the applicants and OHL, and in the absence of such agreement, to be appointed by the Court from a short list of four potential agents suggested by the parties. To the extent any disagreem ent on the listing agent reflects

a 75/25 per cent split between the four partners, then at least one name on the list must be as nom inated by the 25 per cent dissenting partner. Any request for the Court to appoint a listing agent shall be referred to m e. The request m ay be m ade by memorandum and should include a brief statem ent as to each agent on the short list, in term s of their suitability to be a ppointed. The m emorandum should also be accompanied by evid ence of consen t by each of the propo sed listing agents to act in that role.

Issue 3 — Reimbursement of contributions/costs

[53] As noted earlier, there is no dispute that there will n eed to be an accoun t and reconciliation upon the Property and/or fo restry right being sold, to equalise contributions to date between the remaining partners and for that to be reflected in the distribution of net proceeds.

[54] The following additional costs are also sought to be deducted from the gross sales proceeds and prior to the distribution of net proceeds between the partners:

(a) First, Mr Jespersen seeks reimbursement to him of $300 per month, to reflect his tim e engaged on partners hip business since Mr Johnston’s bankruptcy.

(b) Mr Jespersen also seeks a one-of f paym ent of $5,000 to compensate him for ti me and ef fort in relation to preparing his af fidavit and other attendances in relation to this proceeding.

(c) The applicants seek their reasonab le costs up to the case m anagement conference before Associate Judge Bell, submitting that these properly relate to partnership business (rather than being costs associated with a dispute between partners).

(d) OHL also seeks its reasonable costs on a solicitor-client basis to be paid from the partnership funds, given its view that this application ought not to have been brought.

Payments to Mr Jespe rsen fo r his work in r elation to th e partn ership — th ese proceedings

[55] I do not consider it appropriate or necessary for Mr Jespersen to be remunerated for these matters.

[56] First, s 27(f) of the Partnership Act pr ovides that no partne r is to be p aid remuneration for acting on partnership business. Further, Mr Jespersen confirms that at leas t in the early stages of the partne rship, it was agreed he would m anage the partnership at no char ge to the partners. He says this wa s on the basis that everyone would cooperate. That may have been so, but the position is as reflected in that earlier agreement and the default position under the Partnership Act and there has been no agreement between th e partn ers to the c ontrary. Further , the additional work Mr Jespersen has had to carry out since OHL joined the partnership, while frustrating at times, does not appear extensive or particularly time-consuming.

[57] I consider a “one of f” paym ent for Mr Jespersen’ s preparation and other attendances potentially confuses his role as a partner in the forestry venture and his role as a partner and lawyer in a law firm. Mr Jespersen’s time and efforts in relation to the partnership business reflect his personal position as a partne r; the partne rship has not engaged Mr Jespersen in the cont ext of providing legal services to the partnership.

[58] Accordingly, to the extent Mr Jesp ersen has actually in curred co sts in the ordinary and proper conduct of the businessof the partnership, or anything necessarily done for the preservation of partnership property, then he is entitled to be indemnified by the partnership pursuant to s 27(b) of the Partnership Act. But there is no evidence before me that Mr Jespersen personally incurred costs in this regard.

The applicants’ costs associated with this proceeding

[59] As canvassed with the parties at the hearing, I see a dividing line between costs and expenses incurred in the ordinary and proper conduct of the partnership business, and costs and expenses incurred in connecti on with a dispute between partners. The former are incurred on behalf of, and for the benefit of, the partnership itself, such that

the right of indem nification under s 27(b) of the Partnership Act applies. However , costs associated with a dispute between partners are not properly recoverable from the partnership in this way. In those circum stances, partners engage in litigation in their personal capacity, and not on behalf of the part nership. As such, I consider costs of this type ought to follow the event in acosts award in these proceedings in the ordinary way.

[60] There was not any real d ispute at th e hearing that, at le ast in relation to some aspects of the orders sought (such as orders lapsing the various caveats and notices of claim), the Court’s invo lvement was inev itable and such o rders are for the g eneral benefit of the partnership business.

[61] I acco rdingly consider it is app ropriate to m ake an order that the applicants’ reasonable actual cos ts associated with ord ers 1, 2 and that aspect of order 4 dealing with th e Joh nston sh are, are to be p aid ou t of the proceeds of sale of the Property and/or forestry right. I do not consider it is appropr iate to sim ply say tha t all reasonable costs incurred by the applicants upto the first case management conference ought to be recoverable from the proceeds of sale.

[62] There will a ccordingly need to be a division of the applic ants’ costs be tween those asso ciated with the rem oval of th e cav eats and no tice of claim, and those attributable to issues between the ap plicants on the one hand and OHL on the other . To the extent the parties cannot agree the a ppropriate split, then a court order will be required. Given the nature of these proceeding and the amounts in issue, I would firmly encourage the parties to seek to agree thesegranular matters. To do so, the parties will need to take a reasonab le and prag matic approach, and a reasonably “broad brush” approach may be necessary to determ ine an appropriate allocation of the applicants’ costs between the two categories.

[63] I consider a sim ilar position applies in relation to OHL’s costs. OHL ’s costs have been incurred as a result of the court proceedings. It has participated by disputing fellow partners’ positions. OHL’s costs are not those which can properly be considered to be incurred in the ordinary and proper conduct of the business of the firm.¹⁵

¹⁵ Partnership Act 1908, s 27(b)(i).

[64] Accordingly, and like the applican ts’ costs in relation to suc h matters, OHL’s costs are more appropriately dealt with by way of a costs award in the norm al way. Issues raised by Mr Singh at the hearing about the necessity of the proceedings, e forts to resolve them and so on are routinely dealt with on costs applications. That ought to be done in this case also.

Partnership accounts

[65] A residual issue arose in post-hearing memoranda. The orders sought by the applicants envisage an account ing firm preparing an acc ount for distribution of the proceeds of sale after h aving regard to vari ous matters set out in the o rders (such as equalisation of contributions, paym ent of valuation and other expenses from the proceeds of sale and so on). OHL ’s pos t-hearing m emorandum now seeks an order that full partnership accounts be prepared, as well as an account for distribution of the proceeds of sale.

[66] I do not propose to make such an order. It was not the subject of the applicants’ application, or any discussion or submission at the hearing. It is not appropriate for OHL to seek such an order in a post-subm ission memorandum, which was to address the wording of the various orders, depending on the Courts’ ruling on issues canvassed at the hearing.

Result and costs

[67] I accordingly propose to make orders in term s set out in the schedule to this judgment. I consider it appropriate to provide the orders to the parties in draft before they are form ally made, to the exten t any minor textual changes need to be m ade to them. For ease of reference, changes to the orders from those originally accompanying the application are shown in mark up in the attached schedule.

[68] The parties are to file a joint memorandum, or separate memoranda, within five working days of the date of this judgm ent setting out any comments or suggestions on the final for m of the orders. This shoul d not be taken as an opportunity to raise new issues or attempt to re-argue matters already raised at the hearing or canvassed in this judgment.

[69] Any party seeking costs in relation to these proceedings m ay file and serve a memorandum within 15 working days of the date of this judgment. Any memoranda in reply are to be filed and served within a further five working days. No memorandum is to exceed five pages in length.

[70] Counsel for the applicants is to ensure that a copy of this judgm ent is served on each of the respondents.

Fitzge rald J

Solicitors: GM Legal, Auckland (G Muller)

V odanovich Law, Auckland (I Vodanovich) Glaister Ennor, Auckland

Craig Griffin Lord, Auckland (CN Lord) Smith & Partners, Auckland (PW Smith)

T eei Associates, Auckland

SCHEDULE OF ORDERS

1. Lapsing the following caveats registered in respect of the 1/5^th share formerly held by Edward Errol Johnston ( Johnston Share) in relation to the property comprising 120.916 hectares more or less being the land described as Section

9 Block X Whangape Survey Distri ct Com puter Freehold register no. NA42C/75 (Property), being:

(a) 8414551.1 Caveat against the share of Edward Errol Johnston by Gerardus Jozef Marie Martens and ED Johnston & CoTrustees Limited dated 11 February 2010;

(b) 9245412.1 Caveat against the share of Edward Errol Johnston by Donald Anzac Geor ge Reyland, Ailsa Gloria Reyland and Edward Errol Johnston as to a one half share and Ailsa Gloria Reyland, Donald Anzac Geor ge Reyland and Edward E rrol Johnston as to a one half share dated 21 November 2012;

(c) 9280147.1 Caveat against the share of Edward Errol Johnston by

Wayne Matthew McKenna dated 21 December 2012;

(d) 10526017.1 Caveat against the share of Edward Errol Johnston by

Graeme Mark Jespersen dated 8 August 2016; and

(e) 10570967.1 Caveat against the share / interest of Edw ard Errol

Johnston by FAI Money Limited dated 22 September 2016.

2. Lapsing notice of claim no. 8931462.1 da ted 2 Dece mber 201 1 lodged by Wendy Rut h Johnston against the share of the Property form erly held by Edward Errol Johnston.

3. That the Property and/or the right to harvest and remove the radiata pine trees currently grown on the Property (Forestry Right) be sold on terms acceptable to the owners (subject to paragraph 4(b) below ), with the proceeds divided between the owners as set out below, provided that:

(a) the sale price is not less than an expe rt valuation of reserve price shall be the current m arket value of the Property or the Forestry Right as applicable as assessed by Forme Consulting in September 2018; and

(b) any agreement entered into for thein the event of a sale of the Forestry Right alone, the owners being reasonably satisfied that the p urchaser, or any other person or entity ca rrying out the harvest of the f orest on the purchaser’s behalf, be with a reputable com pany which has had in the past and still has a proven tr ack record of conducting forestry operations in accordan cewill comply with the approved code of practice for safety and health in forest operations as published by Work Safe New Zealand;

4. That the Registrar of the High Cour t ex ecute any docu ments reaso nably necessary for carrying out the above orders in relation to:

(a) the 1/5^th sh are in th e Propert y previously owned by

Edward Johnston; and

4.(b) any otherthe 1/5 ^th share in the Property owned by OHL Limited, if the other three owners all agree that a sale should take place on term s which com ply with paragraph 3 above . If a requ est is to be m ade of the Registrar to execute documents in accordance with this paragraph 4(b), the party or parties m aking such a request are to give the owner of t he 1/5 ^th share 10 working days’ prior notice ofsuch a request being made.

5. That if the P roperty and/or the forestry right has not been sold on or before a date being four m onths after the date of these orders, any party m ay apply to the Court for the appointm ent of a listing agent, such application to be made in the manner addressed at [52][ ] of the judgment.

5.6. That, on settlement of the sale of the Property or Forestry Right, the following steps occur:

(a) the applicants repay the first m ortgage on the Property in favour of

ANZ National Bank Limited, being no. 7178536.3;

(b) Graeme Jespersen repay from the anticipated share of the net proceeds the personal loan which he has wi th ASB Bank secured by the second mortgage on the Property in favour of the bank1/5 ^th shares of Graeme Jespersen, Edward Johnson and Graem e Askelund in favour of the bank, being no. C584354.1, provided that such amount does not exceed Graeme Jespersen’s share; and

(c) that the balance be he ld in the trust account of UHY Haines Norton

Accountants pending that party completing accounts for distribution.

6.7. That, within 5 working days after settel ment, UHY Haines NortonAccountants prepare an account for distribution of the net p roceeds of sale after having regard to the following:

(a) the account will provid e for equal 1/5 ^th shares of the net pro ceeds of sale for each of Graeme Jespersen, Graeme Askelund, Gavin Crawley, OHL Limited and in respect of the J ohnston Share, as adjusted for the matters set out below;

(b) Graeme Jespersen’ s sh are will be reduced to take accou nt of the repayment of the second mortgage at paragraph 65(b) ab ove and if there is any shortfall it is to be funded out of the shares over which the mortgage was secured;

(c) from the net proceeds receiv ed following repaym ent of the first mortgage will b e deduc ted re asonable costs of UHY Haines Norton

Accountants and the cost of the forestry valuation obtained from Forme Consulting in Septem ber 2018 and a ny other costs as agreed by the parties or directed by the Court in terms of paragraphs [ ] to [ ] of the judgment, the applicants’ reasonable costs in relation to this application and any other costs as directed by the Court including those relating to Graeme Jespersen’s work for the partnership if applicable;

(d) Graeme Jespersen has m ade additi onal cap ital contr ibutions to the partnership in respect of a mounts wh ich ought to have been paid by other partners or in relation to the Johnston Share, and UH Y Haines Norton Accountants will adjust the share of proceeds so that each party will have made equal capital contributions for the period commencing September 2012 through to the date ofthe distribution of sale proceeds.

7.8. That any party has leave to apply to the Court for review of the account prepared by UHY Haines Norton Accountants within 5 working days after the account being sent to the parties’ nominated email addresses (Review Period). If the Court directs UHY Haines Norton Accountants undertake such a review, that rev iew shall be c ompleted a nd sent to the parties ’ nom inated em ail addresses within 10 working days of the Court so ordering.

8.9. That the p roceeds of sale be d istributed in accordance with the account prepared by UHY Haines Norton Accountants within 5 wo rking days after expiry of the Review Period if no applicaiton is served on that party within that period, except for the final net proceeds in respect of the Johnston Share which shall be held in the trust account of UHY Ha ines Norton Accountants on interest bearing account pending further order of this Court.

10. That any party has leave to seek further or other orders , save that any application for orders s ought to the ef fect of pr eventing or deferring the Registrar from executing any docum ents in accordance with paragrap h 4(b) above is to be filed and served within 10 working days of t he relevant party being given notice that the Registrar will be req uested to ex ecute documents in accordance with paragraph 4(b). If no such application is filed within that time period, the Registrar m ay proceed to execute docum ents in acco rdance with paragraph 4(b)..

9.11. A confidentiality order in terms of [24] of the judgment.