HEEMAN & ANOR v HARVEY [2018] NZCA 449

HEEMAN & ANOR v HARVEY [2018] NZCA 449 [24 October 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA577/2017[2018] NZCA 449BETWEEN DARREN HEEMAN AND DEANNAMARIA HEEMANAppellantsAND GLENN RAYMOND HARVEYRespondentHearing: 5 June 2018Court: Cooper, Whata and Thomas JJCounsel: S J Zindel and A R Goodison for AppellantsM Keall for RespondentJudgment: 24 October 2018 at 3 pmJUDGMENT OF THE COURTA The appeal is allowed in part.B The orders made by the High Court are confirmed but we make additionalorders that:(1) The appellants are entitled to compensation for the value of theshortfall of 3.958 hectares.(2) The matter is remitted to the High Court for the determination ofthe quantum of such compensation.C The respondent must pay the appellants costs for a standard appeal on aband A basis and usual disbursements. We certify for two counsel.D 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 andMs North sold to Mr and Ms Heeman a "15 ha" block of land as shown on an attachedmap. That parcel was subsequently surveyed at 11.0442 hectares for subdivisionpurposes. The Heemans refused to approve the vesting of title based on thesubdivision, claiming it breached the 2002 Agreement. Mr Harvey claimed thesurveyed parcel reflects what was in fact sold. Simon France J preferred Mr Harvey'sposition.1 He found the parties intended to sell a parcel of land within the specifiedgeographical features rather than a parcel with a specified area.2[2] The Heemans appeal that judgment. They claim the 2002 Agreement and thesubsequent conduct of the parties show that the sale of a 15 hectare block wasintended. They also challenge the compensatory orders made by the Judge in favourof Mr Harvey.Background[3] The following summary is largely based on the pleaded claims andcorresponding 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 whichwill be surveyed in agreement by both parties". The land is described on the mapattached to the agreement. The map, with annotations, is reproduced as figure 1.31 Harvey v Heeman [2017] NZHC 2161.2 At [29].3 This map is not aligned to North so that the written annotations are legible.[5] The 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 blockbecame available from the intended subdivision of the property.(b) The Heemans were to take on $40,000 of the existing mortgage securedover the original property as payment for the middle block and therebyreduce Mr Harvey and Ms North's mortgage debt by that amount.(c) When those financial arrangements were in place, the Heemans wereto have their names registered as part owners of the original property.(d) The Heemans were to contribute $5,000 in materials and $5,000 inlabour for the construction of a road in the winter of 2002.(e) The Heemans were to contribute a maximum of $10,000 towards thesubdivision of their title.(f) Mr Harvey and Ms North would not object to the creation and use ofan airstrip on the Heemans' land.[6] Prior to the signing of the 2002 Agreement, the Heemans also paid the totalsum 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 nostrict requirement for the subdivision to be completed within that timeframe. A formalADLS sale and purchase agreement was subsequently signed but a copy of it cannotbe found. In any event, Mr Harvey became the registered proprietor of a two-thirdsshare of the original property and the Heemans became the registered proprietors of aone-third share of the property.SBS mortgage[7] On 18 July 2002, a loan from the Southland Building Society (SBS) tothe 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 ofMr 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 thetwo existing lots into four allotments to be held in three titles. That applicationdescribed the proposed lots as follows:4(a) proposed Lot 1 = 10 hectares;(b) proposed Lot 2 (being the middle block) = 12.5 hectares (28.14 per centof 44.41 hectares);(c) proposed Lot 3 = 12.5 hectares; and(d) proposed Lot 4 = 9.5 hectares, both Lots 3 and 4 totalling 21.9 hectares(Lots 3 and 4 to be held in one title).4 These figures were pleaded in the statement of claim and admitted in the statement of defence.[9] A copy of the subdivision plan filed with the application is reproduced asfigure 2:[10] The NCC granted resource consent for the subdivision as sought inthe application on 26 May 2009 ("the subdivision consent"). On 15 June 2009,however, neighbouring landowners (the Andersons) appealed the subdivision decision("the appeal").[11] On 22 June 2009, Mr Harvey and Ms North then entered into a writtenagreement (the 2009 Agreement) with the Heemans that included the following terms:(a) The Heemans were to pay for the resource consent hearing forthe subdivision, excluding engineering and legal costs.(b) The Heemans were to pay the full costs of concreting the road to thevalue of $40,000 or no less than 40 m of sealed surface, as per therequirements of the subdivision consent.(c) The Heemans were to pay a minimum of one-third of the surveyingcosts associated with identifying the legal boundaries of theright-of-way and titles.(d) The Heemans were to undertake, at their cost, to form the right-of-waythrough the top of the middle block (Lot 2) to service Lots 3 and 4, asrequired by the subdivision consent and District Plan.(e) The Heemans were to pay for any legal costs or costs associated withany challenge under the appeal to the earthworks road constructionundertaken by them.(f) If the Heemans failed to complete works within 12 months of22 June 2009, Mr Harvey and Ms North were entitled to get quotes andappoint a new contractor to complete the work, and bill the full cost tothe Heemans.(g) The Heemans were to pay one-third of surveying costs anddevelopment levies for title to Lot 2.(h) Mr Harvey and Ms North could instruct John Cotton of Cotton & LightLtd to undertake that work without further notice to the Heemans.(i) Completion of the financial and works obligations was to result inthe 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 notconcluded 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 wereissued by the Environment Court modifying the subdivision consent, including arequirement for a bridge to be constructed over the Whakapauaka River. One-half ofthe cost of the bridge was to be met by the Andersons and the other half was to be metby Mr Harvey, Ms North and Mr Heeman.Caveat registered[13] Shortly after the mediated settlement, on 3 March 2011, the Heemans grantedan unregistered mortgage over the original property to Cotton & Light Ltd. Mr Harveysays this mortgage was granted without his permission, although this is disputed bythe Heemans. Cotton & Light Ltd registered a caveat against the title to the originalproperty. Then, on 11 September 2012, SBS advanced the further sum of $19,400 toMr and Ms Heeman, secured by the Heemans' SBS mortgage and the personalcovenants 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 thecompletion of the subdivision of the original property within 12 months of the date ofthat agreement. A registered valuation of the proposed lots dated 5 March 2015assumed that the area of proposed Lot 2 was 11.0442 hectares. It valued the proposedlots under the subdivision as follows:(a) proposed Lot 1 = $110,000;(b) proposed Lot 2 = $160,000 (the middle block); and(c) proposed Lot 3 = $145,000[15] On 6 June 2015, Mr Heeman gave a verbal promise to Mr Harvey that he wouldremove the Cotton & Light caveat and do all things necessary to ensure the sale ofLot 1 was not lost and that titles would issue on time. There was then a furtheragreement, dated 8 June 2015, between Mr Harvey and the Heemans("the 2015 Agreement"). It included the following conditions:(a) The size of Lot 2 was to be increased from 11 hectares to 13 hectares.(b) The Heemans were to sign all documents required to ensure that titlesto Lot 1 and Lots 3 and 4 were issued to Mr Harvey and Ms North andtitle to Lot 2 was issued to the Heemans. They were also to sign alldocuments needed to remove the Cotton & Light caveat to ensure thesale of Lot 1 to Ms Luten.(c) Ms Heeman was to be paid for the two hectares of the land resold toMs Luten.[16] On 10 June 2015, Mr Harvey and the Heemans signed a private individualclient authority and instruction for an electronic transaction for the issue of a title tothe Heemans for Lot 2 totalling 11.0442 hectares, a title to Mr Harvey for Lot 1totalling 10.0070 hectares, and a title to Mr Harvey for Lots 3 and 4 totalling23.3581 hectares. However, the dealing could not be registered because the Heemansfailed 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 becausean 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 interimsubdivision to avoid easement complications otherwise arising from the imminent saleof 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 as 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 bevested exclusively in Mr Harvey and that title to the middle block was to be vestedexclusively in the Heemans. However, this arrangement was without prejudice to theresolution of a dispute as to the agreed area and boundaries of the middle block.5 The Heemans say that they did seek legal advice and assistance to have the caveat removed.[20] In accordance with the 2016 Agreement, the property was subdivided into threetitles, 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:(a) ID686585 Lot 1 area = 10.0070 hectares (the title to Lot 1);(b) ID686586 Lot 2 area = 11.0442 hectares (the title to the middle block);and(c) ID686587 Lots 3 and 4 = 23.3581 hectares (the title to Lots 3 and 4).[21] No vesting of separate titles has occurred.The claim and counterclaim[22] Mr Harvey claimed the Heemans refused or neglected to take all stepsnecessary to implement the agreed vesting of separate titles. Orders were sought toenable the allegedly agreed vesting. Compensation for the subdivision costs andlosses, together with enforcement orders, was also sought.[23] The Heemans counterclaimed that the boundaries should be adjusted so thatthey are vested with a 15 hectare title to replace the 11 hectare title and that theyreceive $8,000 toward the cost of the requisite boundary adjustment. They also soughtthe following contributions:(a) Two-thirds of the cost of the maintenance of the shared right-of-waythrough Lot 2, serving Lot 3, together with $4,500 for immediaterepairs;(b) $6,000 towards concrete driveway repairs and widening, beingtwo-thirds of that cost;(c) $6,000 for earthworks on the right-of-way from Lot 1 to the gateway ofLot 3, being two-thirds of that cost; and(d) $2,714.50 for money owing on the bridge and the right-of-way.High Court judgment[24] Simon France J identified three issues, namely:(a) Was the bargain for 15 hectares, or for a specific block of land ofwhatever size it turned out to be?(b) Does the current title to the middle block properly reflectthe agreement?(c) What was the compensation flowing either way?[25] On the first issue, Simon France J was satisfied the agreement was for aspecified block of land, thought to be as much as 15 hectares in size, but delineated byagreed geographical landmarks ultimately measuring whatever it measured.6 Inreaching this conclusion, the Judge:(a) preferred the evidence of Mr Harvey as more realistic;7(b) identified numerous indicia in the agreement referring to ageographically defined block of land, including by reference to aridgeline above the spring creek;8(c) referred to the subdivision consent application by Mr Heeman whichsought a 12.5 hectare block for Lot 2, delineated by reference to thesame ridgeline;96 Harvey v Heeman, above n 1, at [10].7 At [12].8 At [14].9 At [20].(d) referred to subdivision consenting requirements, noting that for Lot 2to be 15 hectares, Lot 1 would need to be 7.5 hectares, which wouldcount against the grant of subdivision consent;10(e) found unattractive, Mr Heeman's explanation that he applied for a12.5 hectare block, always intending to change the Lot size later;11 and(f) referred to the Lot size of 12 > 15 hectares in the 2009 Agreement.[26] On the second issue, the Judge noted Mr Heeman accepted the survey plan, onwhich the Lot 2 title is based, draws the boundary along the ridgeline as described inthe original agreement and in the resource consent application.12 The Judge thereforeconcluded that the geographical boundaries reflect the bargain and there was no basisto direct any change.13[27] The final issue dealing with compensation is addressed at some length bythe Judge. For present purposes, we simply refer to his key conclusions relevant tothis part of the appeal. The Judge found that the 2009 Agreement, as it relates tothe costs incurred, was effectively cancelled due to subsequent variations.14Therefore, the Judge approached the claims to compensation under the provisions ofthe Property Law Act 2007. The Judge then recorded that Mr Heeman accepted allthe claimed expenses were incurred by Mr Harvey and the real issue was the value ofany work done by Mr Heeman as an offset to those expenses.15 The Judge identifiedconcreting of the access-way as the primary cost,16 and apportioned this one-third toMr Harvey and two-thirds to the Heemans.17 Alleged improvements made byMr Heeman were deemed to be his choice, though the Judge accepted they wouldincrease the value of the property. Accordingly, the Judge made various orders forcompensation in Mr Harvey's favour, less 10 per cent for Mr Heeman's improvements10 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].to an access-way.18 Mr Heeman's claim for costs of a boundary adjustment andretrospective resource consent were rejected, as was a claim based on a chequepayment. The Judge also rejected Mr Harvey's claim for interest on a payment hemade to discharge the SBS mortgage.19[28] In the result, Simon France J made various orders enabling the titles to vest assought by Mr Harvey, together with orders for compensation.The appeal[29] Detailed grounds of appeal were filed. In summary, the Heemans contend thesurveyed Lot 2 does not correspond to the description of the parcel referred to inthe 2002 Agreement, the application or grant of subdivision consent, the2009 Agreement, and/or the 2015 Agreement. Rather, they submit:(a) the 2002 Agreement refers to a 15 hectare parcel, demarcated by anon-linear or kinked ridgeline which is materially different from thesurveyed linear ridgeline;(b) the application for subdivision and the grant refer to a block of12.5 hectares, not 11 hectares;(c) The 2009 Agreement refers to a lot size of 12 > 15 hectares, not11 hectares; and(d) The 2015 Agreement affirms the commitment by the parties to a15 hectare block, by referring to a 13 hectare block together withcompensation for the loss of 2 hectares.[30] The Heemans also submit that the 11 hectare parcel does not accord with theevidence of their need for an airstrip located at the bottom end of the property, or thedivision of the 44 hectare property into three parts, one part for the Heemans and twoparts for Mr Harvey.18 At [55]–[56].19 At [56].[31] The compensatory orders are also challenged. It is submitted:(a) In the 2002 and 2009 Agreements, the Heemans only had to contributespecified sums, which they did or, in the case of concreting, did byequivalent work (which the Judge did not fully credit them for).(b) Mr Harvey was to pay the other costs, but the Judge only found himliable for a partial share of them.(c) The Heemans should have compensation for the costs required toobtain a retrospective resource consent in relation to earthworks neededto improve the right-of-way.(d) The Heemans should have compensation for the costs of any boundaryreadjustment to achieve 15 or 13 hectares.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 physicallydefined by specified geographical features. These features were identified on the mapattached to the agreement. Contrary to the central thrust of the appeal, subsequentactions (and associated records), including the subdivision application and the 2009and 2015 Agreements, support the conclusion that the object of the 2002 Agreementwas to vest a physically identified parcel of land rather than a fixed acreage of15 hectares. This also dispenses with the argument made by Mr Zindel that Mr Harveyheld 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 thelocation of the eastern boundary of Lot 2. They say that it was always intended thatthe eastern boundary follow the ridgeline "above the spring creek", and not the fulllength of the ridgeline to the Anderson boundary. We accept the point made bythe Heemans that figure 1 and the initial subdivision plan showing Lot 2, suggest that20 The trust concept was not argued in the High Court or raised in the points on appeal. We thereforeaddress this point only for completeness.the eastern boundary kinked in an easterly direction more substantially than thesurveyed boundary. The effective difference appears to be about 1.4 hectares, beingthe difference between the respective sizes of Lot 2 and 3 in the subdivision plan (both12.5 hectares) and the surveyed Lot 2 (11 hectares) and Lot 3 (13.9 hectares). Thiswould have meant more land was available for the Heemans' air strip. This differenceis also reflected in the proposed realignment set out in the 2015 Agreement dealingwith 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 requiredby the 2002 Agreement. Mr Heeman ultimately conceded this point undercross-examination. 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 agreedin 2002.[35] We are less clear about the location of the western boundary. But the locationof this boundary has remained largely consistent since the 2002 Agreement, with Lot 1identified as about 10 hectares in all subsequent documentation. Relevantly,Mr Heeman obtained the survey plan that formed part of the application forsubdivision 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 evidencethat 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 nowthis Court is engaged in a process of dividing property owned by co-owners pursuantto the broad remedial powers conferred by ss 339, 342 and 343 ofthe Property Law Act 2007.21 Relevant considerations include the extent of any shareof the property of any co-owner and any hardship that would be caused by the refusalor grant of the order.22 Ancillary powers include the payment of compensation andprovision for other matters the court considers necessary.2321 Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [25]–[32].22 Section 342.23 Section 343.[37] Within this frame, we consider Simon France J was correct to require thevesting to be completed. The surveyed Lot 2 broadly represents the physical block ofland in fact sold. However, in disagreement with Mr Keall's careful and detailedargument, we consider that, objectively assessed, the parties assumed that they werebuying and selling a property in the order of 15 hectares or one-third of the existingproperty. This is reflected in:(a) the express language of the 2002 Agreement;(b) subsequent division of the 44 hectare property, one-third tothe Heemans and two-thirds to Mr Harvey;(c) the 2009 Agreement where the costs of surveying are allocated on thesame basis; and(d) the 2015 Agreement in which compensation for any shortfall below the15 hectares on the final boundary adjustments was envisaged.Mr Harvey's conduct in entering into that agreement in those terms isinconsistent with his subsequent assertions as to what was originallyagreed.[38] For the foregoing reasons, it is evident to us that the Heemans altered theirposition, including by way of taking out mortgages, undertaking a lengthy and costlysubdivision exercise, and made substantial land improvements assuming they wereeffectively a one-third owner of a 44 hectare property.[39] We therefore think that while the vesting should be confirmed, Mr Harveyshould compensate the Heemans for the difference between the size of the surveyedLot 2 and the 15 hectare area assumed by them in the 2002 Agreement andsubsequently. We so order.Compensation orders[40] Turning then to the compensation orders, we see no reason to depart from theorders made by Simon France J in terms of Mr Harvey's expenses. Ultimately, hefavoured Mr Harvey's version of events as they relate to the costs associated withthe property and we see nothing in the evidence to suggest he was wrong in hisassessment. On the contrary, Mr Heeman's claims comprised:(a) works done by him without Mr Harvey's express agreement and/orbased on unsubstantiated oral agreements;(b) asserted expenses paid without any corroborating invoices;(c) asserted repair costs without supporting information; and(d) estimates of costs yet to be incurred, again without supportinginformation.[41] We also put little store on Mr Heeman's belated and literal reliance on therecorded agreements about apportionment of costs of the subdivision. We note thatthe Judge's finding that the 2009 Agreement was effectively cancelled was notappealed. 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 thatthe 2009 Agreement was "made up" to assist in Environment Court proceedings, yethe relies on this agreement for the purposes of the appeal. Given Mr Heeman'sshifting account, we consider the Judge has fairly provided for the relativecontributions of the owners subject, however, to our direction that compensation forthe reduced acreage must be paid.Outcome[42] Mr Harvey agreed to sell and the Heemans agreed to buy, a geographicallydefined parcel of land, subsequently surveyed at 11.0442 hectares. However, bothparties assumed the area of land sold was in the order of 15 hectares. Therefore, weagree with Simon France J that the geographically defined parcel must vest, but wethink the parties' assumption about the size of the land should be reflected in an orderfor compensation to the Heemans in respect of the difference. While this outcomefalls short of the relief sought by the Heemans, it is mandated by s 343 ofthe 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 additionalorders that:a) The appellants are entitled to compensation for the value of the shortfallof 3.958 hectares.b) The matter is remitted to the High Court for the determination of thequantum of such compensation.[45] The respondent must pay the appellants costs for a standard appeal on a bandA 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 AppellantsDuncan King Law Ltd, Auckland for Respondent