JORDAN V MARKOVINA HC AK CIV-2010-404-005644

JORDAN V MARKOVINA HC AK CIV-2010-404-005644 27 June 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2010-404-005644BETWEEN CEDRIC OWEN JORDANPlaintiffAND TONY GEORGE MARKOVINADefendantHearing: 27 June 2011Appearances: R Hawk for plaintiffD Carden for defendantJudgment: 27 June 2011(ORAL) JUDGMENT OF LANG J[on application for orders under s 339 Property Law Act 2007][1] The parties to this proceeding are the owners of a 12.33 hectare property situated at Taupaki, to the west of Kumeu.[2] The plaintiff, Mr Jordan, owns one half of the property in his capacity asexecutor and trustee of the estate of the late Ivo Jino Markovina ("Ivo"). The defendant, Mr Tony Markovina ("Tony"), is Mr Ivo Markovina's grandson. Heinherited his half share of the property from his late father, George. Prior toGeorge's death, George and his father Ivo had owned the property as tenants incommon in equal shares.[3] Ivo died in 1976. His estate has yet to be finalised. One of the principal factors holding up the finalisation of the estate has been an inability to determine themanner in which the estate's interest in the Taupaki property is to be realised.[4] Under Ivo's will, Tony and his sister Maree will each receive one quarter ofthe residuary estate. Tony's Aunt Lois has a life interest in the income from the otherhalf of the estate. Upon Lois's death her daughter, Kaylene, will inherit that half of the estate.[5] Tony has indicated for some time that he wishes to purchase the estate'sinterest in the property. For that reason, the estate has applied for orders under ss 339, 341 and 342 of the Property Law Act 2007. Section 339(1)(c) permits the Court to make an order requiring a co-owner to purchase the share in a property of one or more other co-owners at a fair and reasonable price. Sections 341 and 342 provide procedural requirements and safeguards in relation to such an application.Issues[6] Both parties agree that the best solution is for Tony to purchase the estate'sinterest in the property. He says that he has arranged the necessary finance and could complete the purchase within four weeks. The issue that the Court must now determine is what is a fair and reasonable price that Tony should be required to pay.[7] There is no dispute regarding the current market value of the property. The valuers engaged by both parties accept that it has a current value of $990,000. Tony and the estate agree that this provides an appropriate starting point in determining a purchase price that is fair and reasonable.[8] Thereafter, however, the Court is required the following issues:(a) Whether the amount that Tony is to pay should be reduced to reflect improvements he has made to the property at his own expense;(b) In the alternative, whether Tony should be required to pay rental in respect of those improvements;(c) Whether Tony should be required to pay occupancy rent in respect of the dwelling and curtilage;(d) Whether, and to what extent, Tony should be reimbursed in respect of rates that he has paid in respect of the property:(e) Whether Tony should be required to purchase the property on a GST inclusive or exclusive basis; and(f) Whether the amount that Tony is to pay should be reduced to reflect the fact that he is a beneficiary of the estate of Ivo Markovina.a) Should the amount that Tony is to pay be reduced to reflect improvements he has made to the property at his own expense[9] Tony has effected several improvements to the property at his own expense. He contends that the price that he is to pay should be reduced to reflect that fact. Tony spent approximately $75,000 in effecting the improvements. The valuers agree that the improvements have contributed the sum of $66,000 towards the current value of the property made up as follows:Fencing $10,000;Water tank $ 2,000;Main shed $ 5,000;Larger shed $ 9,000;Further shed $20,000;Timber shed $20,000Total $66,000[10] The valuers also agree that, because Tony did not obtain the appropriate local authority consents before erecting the buildings, the value of the improvements should be reduced by $10,000. This means that Tony seeks a reduction in the purchase price of $56,000 to reflect the amount by which the improvements have increased the overall value of the property.[11] The estate submits that Tony should be required to pay the current market value of the property without any reduction to reflect the improvements. It says that he elected to carry out the improvements without reference to the estate, and that the estate should now be entitled to share in the increased value that they have given the property.[12] I have difficulty in following the logic of the estate on this point. It did not contribute in any way at all to the cost of effecting the improvements. It is therefore difficult to see why the estate should be entitled to share in the increase in value that the improvements have created. The estate will, in any event, benefit considerably from the fact that the effect of inflation has been to increase the value of the property markedly over the last five years or so. I accept the submission for Tony that it is fair and reasonable that he should retain the value of the improvements that he has effected at his own cost. For that reason the value of the property should be reduced by $56,000 to reflect the improvements that he has made.b) Should Tony be required to pay rent in respect of the improvements?[13] The estate contends that, even though Tony effected the improvements at his own expense, he nevertheless should pay rent to reflect the fact that he has had the use of them since they were erected. Tony principally used the buildings as storage facilities for equipment and machinery that he uses in his pile driving business.[14] Again, I have difficulty following the logic of the argument of the estate on this point. If Tony had never erected the improvements, he would never have beenable to use them. Yet the estate would never have had any claim in respect of them. I do not see why it should share in this way in the benefit that the improvements have provided when it did not contribute in any way to the costs of construction. For that reason I decline to direct that Tony should be required to pay rent in respect of the improvements.[15] It is clear, however, that Tony has derived some commercial benefit from the use of the land. I consider that this fact needs to be recognised. That can most appropriately be done by requiring Tony to pay rent in respect of the land on which the buildings are situated.[16] The buildings are located in two separate areas. The newest building was only erected in 2010, and occupies an area further away from the dwelling than the remaining buildings. The valuers agree that an appropriate rent for this piece of land, ignoring the existence of the new buildings but taking into account their potential for commercial development, would be $75.00 per week.[17] Tony said in evidence that he began erecting the buildings in the winter of2010. He has therefore had the use of the land for commercial purposes forapproximately one year. He confirmed during the hearing that he will be in aposition to complete the purchase of the property within four weeks. He shouldtherefore be required to pay rent in respect of the land on which the new building issituated at the rate of $37.50 per week for 52 weeks. This anticipates that Tony willbe able to settle the purchase of the estate's interest in the property no later than 31July 2011. If he cannot do so, rent will continue to be payable at that rate until theland is sold.[18] The valuers agree that, adopting the same valuation methodology, the rentthat Tony should pay in relation to the remaining buildings that he has erected issubsumed within the rental that should be paid in relation to the house and cartilage.For that reason it is not necessary to consider the issue of rent in relation to thosebuildings further.c) What rent should Tony be required to pay in respect of the dwelling and cartilage?[19] Tony has lived in the dwelling on the property since the death of his father in 2001. The dwelling is in a rundown condition. He describes it as a "hovel", and thephotographs that I have seen confirm the accuracy of that description. He accepts, however, that he has a moral, if not legal, obligation to recognise that he has had the use of the dwelling and curtilage on the property since 2001.[20] This issue is not straightforward, because Tony has made payments that he believes constitutes rent. There appears to be no dispute that Tony approached his Aunt Lois in 2002, and paid her the sum of $3,000 in respect of her share of past rent. He also paid Mr Jordan the sum of $2,340 in respect of Maree's share of pastrent. Mr Jordan did not pay that sum to Maree. Instead, he used it to pay outstanding rates in respect of the property. Tony says that he also paid a further sum of $3,680 to his Aunt in cash at some stage in 2003.[21] Mr Jordan says that he has spoken to Aunt Lois, and she does not accept that Tony made that payment. I cannot determine that dispute on the basis of the material before me. In order to resolve it I would need to hear evidence from Aunt Lois and to make a finding of credibility as between Tony and Aunt Lois.[22] Tony wishes the Court to finally resolve the matter now so that there is nofurther possibility of dispute. That being the case, I accept Mr Jordan's evidencewhen he says that Aunt Lois has told him that the payment was not made. Tony has been unable to provide any supporting evidence to confirm that he made the payment. I also find it difficult to believe that Aunt Lois would have forgotten receiving such a substantial sum. I therefore find that Tony did not make the second payment to Aunt Lois.[23] There is also an issue as to whether Tony should be required to pay rental in respect of the period between 2001 and 2005. His counsel points out that any claim for rent in respect of that period might now be statute-barred. I accept that that might legally be the case but, if necessary, I would have found that it would be fairand reasonable to increase the amount that Tony was required to pay the to reflect the fact that he had occupied the property during this period without paying full rent for it.[24] It is not necessary to go down that path. Tony confirmed in his evidence that, provided matters are resolved on a final basis, he is prepared to accept the rent calculations produced by the estate's valuer. These confirm that a proper rent for thedwelling and cartilage for the years between 2001 and 2011 is as follows:Year Period – years Weekly Rate Annual Total2001 0.5 180 46802001 1 180 93602003 1 180 93602004 1 180 93602005 1 200 104002006 1 215 111802007 1 225 117002008 1 235 122202009 1 240 124802010 1 250 130002011 0.5 250 6500TOTAL 110240[25] I therefore consider that an appropriate rent for the entire period is $110,240. Tony is only required to pay one half of that sum, so his share would be $55,120. In addition, Tony must be given credit for the two payments that he made totalling $5,340.d) How should the issue of rates be addressed?[26] It appears to be common ground that Tony has made two rates payments totalling $2,209.92. The estate appears to have paid the balance of the rates in respect of the property from grazing fees that the property has earned or from its own resources.[27] There is one possible exception to this. This flows from the fact that the records held by the Rodney District Council show that the Council received four payments totalling $2,560.70 and it is unable to establish a source for those payments. Each of the payments was made to the BNZ Remittance Centre. MrJordan says that he believes that the payments were made by the estate from fundsheld in his firm's trust account. He says that the trust account records show payments being made from the trust account on or around the dates that the Council records show the payments being received.[28] Tony says that he is sure that he made the payments himself. Again, however, he is unable to provide any supporting evidence. Given the fact that he wants me to finally determine all issues today, I conclude that he has not persuadedme that Mr Jordan's evidence on the point is incorrect. No allowance can be madefor these payments.e) Should Tony be required to pay for the property on a GST inclusive or GST exclusive basis?[29] At present, neither Tony nor the estate is registered for GST. Tony does not carry on any taxable activity on the land, so it is difficult to see how the estate could be required to account for GST on the sale of its interest in the property to Tony. The issue is therefore unlikely to arise. I therefore propose to leave it in abeyance until such time as it becomes an issue. The final orders that the Court makes will therefore contain leave to both parties to ask for the proceeding to be listed for mention before me again in the event that GST becomes an issue.[30] The orders that the Court makes should therefore be viewed as being interim to that extent. The issue of what is to be a fair and reasonable price may need to be revisited in the event that the estate is required to pay GST on the sale price.f) Should the amount that Tony is to pay be reduced to recognise that he is a beneficiary of the estate of Ivo Markovina?[31] Tony is aggrieved at the fact that it has taken so long to bring these issues to a resolution. He points out that he has made numerous offers on previous occasions,over many years, seeking to acquire the estate's interest in the property. During thisperiod the value of the property has continued to rise markedly. He feels that he has been penalised by the length of time that the estate has taken to bring matters tofinality. For that reason, he seeks some form of interim solution that permits him to receive an immediate benefit to recognise his one-quarter interest in the estate. Heasks that he be permitted to pay a lesser sum than the full purchase price as a form ofinterim distribution.[32] I am sympathetic to Tony's position on this issue. On the figures as theycurrently stand, and before taking into account Tony's share of the liabilities that theestate must still meet, his one quarter share of the estate will amount toapproximately $130,000. It is not difficult to see why he wishes to avoid borrowingthat sum and paying it to the estate only to have it returned to him at someundetermined date in the future. That is particularly so when the estate has taken solong to administer to this point.[33] It is also important, however, to ensure that any interim distribution does not leave the estate short of funds with which to meet its obligations in the future. Its principal liabilities will be the legal costs that it has incurred, together with any tax liability that it might have in respect of the rental that it is to receive from Tony as a result of the present proceeding.[34] The likely amount of those liabilities should now be readily ascertainable. The estate should therefore now be in a position to calculate the amount that it will need to retain in order to meet its known liabilities. My initial impression is that the amount that Tony is required to pay on settlement should be reduced by approximately $100,000. This would amount to an interim distribution to him in that sum. Tony would thereby provide the estate with approximately $30,000 as his contribution towards its liabilities. An interim distribution at this level could only,however, be justified if the estate's liabilities are unlikely to exceed $120,000.[35] If the estate agrees to this suggestion, it would also need to make animmediate distribution to Maree in the sum of $100,000 once Tony has completedthe purchase of the property.Orders[36] I propose to leave the final form of the Court's orders for resolution at afurther hearing to be held on Wednesday 29 June 2011 at 4 pm.[37] If counsel can reach agreement regarding the form of the orders that the Court is to make, they are to file a joint memorandum to that effect and the hearing will be vacated.[38] I also propose to leave the issue of costs to be determined at the hearing on 30 June. My current inclination is to direct that costs should lie where they fall.Both parties have succeeded to some extent in relation to today's hearing, and forthat reason they should share equally in the costs of the hearing. Should counsel be unable to resolve that issue, I will receive oral submissions on 30 June.Lang JSolicitors:Jackson Russell, AucklandTitirangi Law Centre, WaitakereCounsel:Mr D M Carden, Auckland