STRAWBERRY HILL INVESTMENTS LIMITED, AITKEN AND VAUGHAN v PAEKAKARIKI HOLDINGS LIMITED [2022] NZHC 2802

STRAWBERRY HILL INVESTMENTS LIMITED, AITKEN AND VAUGHAN v PAEKAKARIKI HOLDINGSLIMITED [2022] NZHC 2802 [28 October 2022]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2022-485-323[2022] NZHC 2802UNDER the Property Law Act 2007BETWEEN STRAWBERRY HILL INVESTMENTSLIMITED, WILLIAM STUART AITKENAND LOUISE VAUGHANApplicantsAND PAEKAKARIKI HOLDINGS LIMITEDFirst RespondentMICHAEL OWEN WILLIAMSSecond RespondentMARCELLE THERESA MARIA QUINNWILLIAMSThird RespondentHearing: 5 September 2022Appearances: K R Narayan for ApplicantsA R Davie for RespondentsJudgment: 28 October 2022JUDGMENT OF McQUEEN J[1] The parties to this proceeding sought to work together to develop a property at12 Beach Road, Paekakariki (the Property). Unfortunately, the relationship betweenthe parties has deteriorated and, for reasons which do not need extensive ventilationin this judgment, the development stalled. The parties are agreed that their jointventure can no longer continue. Attempts to settle the matter have been made butwithout success.[2] There is now an application before the Court seeking an order that theapplicants purchase the second and third respondents' share in the Property for a fairand reasonable sum (which they say is nothing)—in effect vesting the Property inStrawberry Hill Investments Ltd (SHIL),1 or Mr Aitken and Ms Vaughan—unders 339 of the Property Law Act 2007 (the Act).2[3] Mr Williams and Ms Quinn-Williams, the second and third respondents,3oppose the application and propose alternatively that the Property is sold with theproceeds of sale shared.Factual background[4] The factual background is detailed and, in many aspects, disputed between theparties. I outline here a brief timeline of events. Disputed matters of fact, wheresignificant to my decision, are mentioned later.The joint venture[5] On 29 January 2021, Mr Williams signed an agreement for the sale andpurchase of the Property for $1,000,000, to be paid by 14 June 2021. Mr Williamstwice failed to settle. On 15 July 2021 the vendors served Mr Williams with asettlement notice demanding he settle the transaction in 12 working days, namely, by2 August 2022.[6] The parties were known to each other as their children attended the sameschool. On 18 July 2021, Ms Quinn-Williams approached Ms Vaughan about thepurchase of the Property. A meeting between the parties took place on 24 July 2021.The Williams informed Mr Aitken and Ms Vaughan as to their plans for thedevelopment of the Property and presented them with a valuation report dated 10 June2021. This report provides a helpful description of the Property and the developmentproposal:1 SHIL is a duly incorporated company of which Mr Aitken and Ms Vaughan are directors andshareholders.2 For convenience in this judgment, I refer to SHIL, Mr Aitken and Ms Vaughan as the applicantsunless it is necessary to refer to them individually.3 For convenience in this judgment, I refer to Mr Williams and Ms Quinn-Williams as therespondents or "the Williams".The land is zoned "Commercial" and is currently occupied by a former PostOffice in the southeast corner, which has been partially converted to aresidential flat, together with an existing two bedroom flat to the rear. It isproposed to upgrade the original building to provide two, two bedroom flatsat the front and convert the existing two bedroom flat at the rear to threebedrooms.Upgrading of the existing building will require a shallow retail area across thefront in order to comply with Local Authority requirements for Commerciallyzoned land.There are also various other buildings on the site, two of which will beupgraded as Artist studios, with another of the buildings to be relocated toprovide a second bedroom for the proposed western front flat.It is also proposed to erect five three storey mews style townhouses on thebalance of the site in the near future.The site has excellent potential, being in a sought after area, and variousscenarios could apply to redevelopment.[7] This report assessed the market value of the Property as $2,056,000. Thevaluation summary provides:Our Valuation is undertaken on the basis that the buildings are retained andupgraded as above with five units to be accommodated elsewhere on the site.And goes on to note a special assumption:That the proposed development can be achieved within the costings provided.[8] In reliance on the valuation report, Mr Williams advised Mr Aitken andMs Vaughan that a future town house project on the site would increase the value ofthe Property to around $9–10 million dollars.[9] On 27 July 2021, Paekakariki Holdings Ltd (PHL) was incorporated for thepurpose of purchasing the Property. Mr Aitkens, Ms Vaughan, Mr Williams andMs Quinn-Williams were the directors of PHL. SHIL and the Williams held equalshares in PHL.[10] No formal joint venture agreement was entered into between the parties. On31 July 2021, Mr Williams provided a draft joint venture agreement to Mr Aitken andMs Vaughan prepared by his lawyer, with details such as each parties' financialcontributions to be filled in by the parties, but this never occurred. However, there isno dispute that a joint venture agreement was entered into between the parties. Iconsider that it may at least be said that the parties had agreed that the joint venturewas between the Williams and SHIL with the Property to be held by PHL as baretrustee for them as tenants in common in equal shares, and that an equal sharingapproach to costs and gains was contemplated.[11] There appears to have been some disagreement as to the financing of theProperty purchase. A document produced at the 24 July meeting suggests that it wasalways intended by the Williams that Mr Aitken and Ms Vaughan provide the securityand $300,000 in cash. It seems that Mr Aitken and Ms Vaughan's family home wasrequired to be put forward as security as it was the only unencumbered propertyavailable; the Williams' properties were already subject to mortgages. Emailexchanges between the parties indicate that Mr Aitken and Ms Vaughan wereuncomfortable with this arrangement. There was also some disagreement as to thebank with which the loan should be made. Ultimately, however, a loan was securedwith Midlands Funds Management (Midlands), in the amount of $1,115,000 (theMidlands loan), consisting of:(a) $765,000 towards the purchase price; and(b) $350,000 in progressive drawings to meet the costs of the development.[12] Security was placed on the Property and Mr Aitken and Ms Vaughan's familyhome at 2 Aperahama Street, Paekakariki (previously known as 7A Tangahoe Street).4The final repayment of the Midlands loan was specified as 12 calendar months fromthe date of advance, which was 2 August 2021.[13] The sale and purchase of the Property settled on 2 August 2021. The purchasewas financed by the $765,000 loan from Midlands and the balance by a cash4 The Williams offered to put up a rental property at 165 Rosetta Road, Paekakariki that they ownedas informal security to be accessed prior to any realisation of the applicants' family home. Thisproperty has since been sold.contribution by the applicants.5 At this time, Mr Aitken and Ms Vaughan furthercontributed:(a) $43,500 by way of six months' interest on the Midlands loan inadvance; and(b) $9,611.75 in penalties for the late settlement of the Property.The subsequent development and relationship breakdown[14] Work on the Property began shortly after settlement. Solid NZ Ltd wasengaged by PHL to undertake the development of the Property. Mr Williams is thesole director and shareholder of Solid NZ. Certain work on the Property wasundertaken by Solid NZ and several drawdowns were made on the Midlands loan inrelation to the development.[15] By 20 December 2021, it appears that the Midlands loan had been exhaustedand some invoices from Solid NZ were unable to be funded. Solid NZ advised itwould no longer be carrying out work on the development as no more funding wasavailable.[16] The parties have different understandings as to how far the development hadprogressed to this point and where the fault for the cessation of the development lies.I do not find it helpful to go into the details, nor do I think there is a need to form aview on these matters in determining this application. It is evident, however, that noneof the flats had been completed and accordingly are not generating rental income atthis time.[17] On 31 March 2022, Midlands requested an independent valuation and quantitysurveyor report in order to understand the "as is" value of the Property and the "cost5 The applicants say that this cash contribution was $245,000. I consider that this must be an error.The purchase price was $1,000,000. A cash contribution of $245,000 would mean that $10,000was paid over the purchase price. I therefore take the applicant's cash contribution as $235,000and proceed on that basis when assessing the parties' contributions later in the judgment.to complete to bring the property to the standards as initially proposed". In light ofthis request:(a) A quantity surveyor concluded that the cost to complete the envisageddevelopment was $874,240.6(b) A valuation report dated 5 April 2022 concluded the market value ofthe Property at that date was $1,100,000.[18] On 11 April 2022 a notice to fix was issued by the Kapiti Coast DistrictCouncil, indicating that building work, including "[s]tructural removals, alterations &substantial structural replacements" had occurred without a building consent.[19] On 19 May 2022, Midlands confirmed that it was not willing to extend theloan, given "comprehensive work remain[ed] to achieve completion" and that "thework required [was] unlikely to be completed". Midlands suggested that the onlyreasonable solution was to place the Property on the market as soon as possible.[20] The parties were not able to agree on a sale at this time. Mr Aitken andMs Vaughan proposed that other builders should be engaged to complete work on thedevelopment. The Williams refused to follow this course on the basis that no fundswere available to pay for such work.[21] The Midlands loan amount at 10 June 2022 was $1,114,993.75. The loan wasto come to term on 2 August 2022, but Midlands agreed to extend this to 2 November2022 to enable this proceeding to be concluded.The issues[22] The absence of a clear agreement between the parties about how the projectwas to be funded and run has led to disagreement between them about what has beenagreed and what should happen next.6 This estimate was later increased to $897,956 in light of comments provided by Mr Williams.[23] The parties accept that the Court may make an order under s 339(1) of the Actto effectively vest the Property in SHIL or Mr Aitken and Ms Vaughan.[24] Ms Narayan, for the applicants, says that vesting the Property in SHIL orMr Aitken and Ms Vaughan through an order under s 339(1) of the Act is theappropriate outcome in light of:(a) the contributions they made to the purchase of the Property;(b) what they are say is a negative financial contribution by the Williamsto the project of - $128,258.81;7 and(c) the security given over their family home and the risk that the securitymay be called up forcing the sale of the home.[25] Mr Davie, for the respondents, submits that the Court may make an order forsale of the Property, also pursuant to s 339(1) of the Act8 and that such an order is theappropriate outcome as vesting the Property in the applicants would be to ignore therespondents' property rights.[26] Mr Davie sets out his instructions from the Williams in relation to thedistribution of sale proceeds as follows:(1) If the property is purchased by neither of the parties then the netproceeds should be split equally. (2) If the property is purchased by the applicants then the net sale proceedsafter repayment of the mortgage should be split equally as per theagreement. The court will be aware that both parties equity positionwas stipulated and agreed to prior to the deal being entered into. Thiswas $300,000 each. This was 50/50.(3) If the applicants purchased then the respondents would be derived ofany benefits from the property including its enormous developmentpotential. The applicants would have obtained [some] and that isobviously why they have not accepted reasonable settlement offers.7 This calculation relies on alleged overcharging by Mr Williams for the provision of buildingservices, which I address later in the judgment. I note, however, that the applicants also indicatetheir willingness for the Court to take into account any contributions of value it finds the Williamshave made.8 With further directions as to the division of the proceeds of the sale made under s 343(d) of theAct.(4) If the respondents purchased the property (an order open to the court)then they would be happy to have a first charge on net equity obtained,in the sum of $300,000 in favour of the applicants, with the balance split50/50.The application[27] As the Court of Appeal has recently noted, the making of orders under s 339of the Act plainly engages judicial discretion:9Exactly how [the existing tenure] is to come to an end, in the absence ofagreement, engages the Judge's discretion. There will be room for differentviews about the right remedy in all the circumstances.[28] The Court may make any orders necessary to bring to a practical conclusionany impasse between co-owners.10[29] Section 342 of the Act sets out mandatory considerations relevant to anapplication under s 339(1):342 Relevant considerationsA court considering whether to make an order under section 339(1)(and any related order under section 339(4)) must have regard to thefollowing:(a) the extent of the share in the property of any co-owner bywhom, or in respect of whose estate or interest, the applicationfor the order is made:(b) the nature and location of the property:(c) the number of other co-owners and the extent of their shares:(d) the hardship that would be caused to the applicant by the refusalof the order, in comparison with the hardship that would becaused to any other person by the making of the order:(e) the value of any contribution made by any co-owner to the costof improvements to, or the maintenance of, the property:(f) any other matters the court considers relevant.[30] I discuss these considerations in turn.9 Robertson v Robertson [2021] NZCA 295 at [22].10 Bayly v Hicks [2012] NZCA 589, [2013] 2 NZLR 401 at [32].Co-ownership (subs (a) and (c))[31] I can deal first with subs (a) and (c) together. PHL is the registered owner onthe title. It holds the Property on bare trust for SHIL and the Williams as tenants incommon. As this Court has observed, "co-owners" under the Act includes tenants incommon and co-ownership in equity".11 I consider both SHIL and the Williams to beco-owners of the Property, each with an equal half-share in the Property.The nature and location of the property (subs (b))[32] The Property is currently in an unfinished, undeveloped state. Both partiesrecognise that the nature and location of the Property mean that it has high potentialfor development, but, at this stage, that potential remains unrealised.[33] Associated with the potential for development is of course risk. Mr Williamssays that he was able to enter an agreement to buy the Property at a good price and theinitial valuation report dated July 2021 supports this proposition. It is not disputedbetween the parties that the property market has declined since the purchase of theProperty, but the parties do not agree what the current value of the Property is.Mr Williams says that the Property could be valued at $9–10 million in future,depending on how it is developed. In the meantime, he refers to the valuation obtainedin October 2021 where the land value was recorded as $1,215,000 and the value of theProperty overall as $1,935,500. On the other hand, the applicants rely on the April2022 valuation of the Property as worth $1,100,000 and an affidavit from a real estateagent who has appraised the Property in July 2022 as being likely to sell for $700,000–800,000 (essentially being its land value).[34] I do not consider that I have sufficient evidence before me to come to anyconclusion about the current value of the Property. However, irrespective of theabsence of such evidence, it is apparent to me that both the applicants and the Williamssee value in it (although on their own, rather than with their co-owner). The applicantsare seeking to acquire the Property through the application before the Court and the11 Fraser v Butler [2017] NZHC 120 at [44]–[56].Williams have made a settlement offer (discussed further below) premised on themacquiring the Property which was the subject of their submissions.Respective hardships (subs (d))[35] In considering the hardship of both the applicants and the respondents, I firstrefer to what this Court observed in Holster v Grafton:12"hardship" is a value-laden criterion. It suggests an adverse effect which is ofsignificant impact to the applicant. It has to be read consistent with the policyof the statute which respects property rights of tenants in common but seeksto resolve conflicts fairly.[36] The applicants say that they face significant hardship compared to the Williamsif the order sought is not made. They rely on the April 2022 valuation report whichvalues the Property as approximately $15,000 less than the amount owed to Midlandsas at the end of June 2022. They say that this means, if the Property is sold, andparticularly if by way of mortgagee sale, there may be further sums payable toMidlands. This places their family home at risk and also risks the applicants having toforfeit their $300,000 (or thereabouts) cash contribution to the Property.13[37] In Mr Aitken's affidavit he refers further to this hardship:The only reason that we have considered this application to vest the Propertyin SHIL's name is that we are concerned about the significant loss that can bemade if the Property is put on the open market. We are also concerned aboutour home, given that this is the only other property registered on the mortgage.[38] The Williams dispute the hardship claimed by the applicants.[39] First, Mr Williams raises concerns as to the valuation report obtained andprovided to Midlands in April 2022. He prefers instead the valuation report dated5 October 2021 which, as noted above, values the Property at $1,935,000. This is asignificant difference from the April 2022 valuation report and would be sufficient todischarge the mortgage and cover the financial expenditure of the applicants.12 Holster v Grafton (2008) 9 NZCPR 314 (HC) at [50] (footnote omitted).13 I consider the contribution of the applicants to the Property in greater detail below at [54]–[58].[40] Second, the respondents do not accept that the hardship advanced by theapplicants is genuine. The Williams rely on a settlement offer made to the applicantsin August 2022 as being in effect worth $1.45 million (where the Williams wouldacquire the Property, take over the current mortgage and pay the applicants $300,000)which would have meant the applicants would no longer be taking any risk in relationto their home.[41] I accept that if the Property is to be sold, it exposes the applicants to someuncertainty. There is a risk that the Property will sell for less than the loan owed toMidlands and the family home is called on by Midlands to pay the outstanding amount,together with a risk that they are unable to recover the cash contributions they havemade to the Property.[42] As discussed above, there is no evidence before me to allow a conclusion as tothe current value of the Property. What is informative, however, is the interest thatboth parties have shown in acquiring the Property themselves.[43] Also relevant to considering the applicants' hardship is that SHIL has beenapproved for a loan from Midlands with the purpose of refinancing the existingindebtedness between PHL and Midlands. Under this loan, the family home remainsa registered security interest. I note also that in the loan documentation the applicantsprocured from the ANZ when the joint venture was initially being considered, it isapparent that SHIL owns several other properties.14[44] I find it hard to reconcile the new terms of the loan secured by SHIL that placestheir family home as security yet again with the applicants' apparent concern that theymay lose their family home. The loan simply provides enough to refinance the originalloan and pay the associated fees. This implies that SHIL has further capital to continuethe development of the project (given that is not accounted for in the terms of the loan).This is particularly the case where the property in its current state appears unable tobe rented out without further work.14 Mr Aitken confirmed in cross examination his ownership of properties other than the family home.[45] I also consider that given the evidence of other properties owned by SHIL (orMr Aitken), it seems likely that even if the property is sold for less than what is neededto repay Midlands, the applicants could refinance their loans on other properties oreven sell one of them if necessary. I also observe that the applicants refused thesettlement offer which would have allowed them to recoup $300,000 and have nofurther liability to Midlands. I accept that this was a conditional offer and that it wouldnot have recovered all the money they said was owed to them (being approximately$35,000) but this seems a relatively insignificant loss in the face of the stresses theysay they have been suffering and in the context of a large-scale commercial deal thathas gone so badly wrong for the parties. I am not saying they should have acceptedthis offer, only that I infer from their refusal that they were prepared to prioritise thepossibility of recovering more money, including through developing the Propertythemselves, over the risk of losing their family home.[46] Also informative is Mr Aitken's second affidavit, which says:As mentioned in our previous affidavits, we are willing to make anycontributions the Court sees fit if the Court does consider that the Williamshave made a positive net contribution to the Property.[47] "Any contribution" seems to me to indicate that the applicants really want theProperty to themselves, more so than anything else.[48] Accordingly, I am not satisfied there is a realistic possibility that even on thevalue in the April 2022 valuation report (which is less than the sum due to Midlands)there is a real risk that Mr Aitken and Ms Vaughan will lose their family home.[49] I consider the hardship that arises is the potential loss of the money that theapplicants have contributed to the Property themselves. They are out of pocket for asignificant amount in relation to the Property and there is a risk that they may notrecover it.[50] I turn to the hardship that would be faced by the Williams if the Property isvested in the applicants as sought. It would mean that the respondents lose out on thepotential of a development that Mr Williams identified himself and the value of acompleted development coming to fruition. The respondents would also lose out ontheir property rights as tenants in common for a property in which they wish tomaintain their interest. As this Court has noted, an order defeating the property rightsof a co-owner in such a situation should not be made lightly.15[51] The Williams have also made some financial contribution to the Property. Iturn to the specific contributions of both parties below.Respective contributions to the property (subs (e))[52] To resolve this dispute, it is necessary to determine what contributions weremade by the applicants on the one hand and the respondents on the other. It is then aquestion of deciding how those contributions can best be returned to those parties.There is considerable dispute as to these matters.[53] At the outset, I noted that the factual narrative contains allegations that Iconsider peripheral and ultimately irrelevant to the application before me. Forexample, I do not consider it appropriate, on the material before me, to resolve theallegations from both sides of theft, and I put this to one side.[54] I first consider the applicants' contributions.[55] The applicants submit that as at 17 August 2022 they have contributed:(a) a $245,000 cash contribution to the purchase. As I have concludedearlier, in light of the purchase price and the advance by Midlands I donot accept this to be the applicant's cash contribution to the purchaseand instead find the cash contribution was $235,000;16(b) $43,500 by way of six months' interest on the Midlands loan;(c) $9,611.75 in penalties for the late settlement;15 Lake Hayes Property Holdings Ltd v Petherbridge [2014] NZHC 1673, (2014) 15 NZCPR 590 at[64].16 Above n 5.(d) $20,388.54 in further interest payments;17(e) $6,481.69, being the cost of the first quantity surveyor report requestedby Midlands;(f) $5,783.06, being the cost of the second quantity surveyor report;(g) $1,725 for the April 2022 valuation requested by Midlands; and(h) $2,583.38 for utilities (being half of the total utilities payment).[56] The respondents dispute the expenses relating to the first quantity surveyorreport and the valuation report obtained. They say the decision to obtain these reportswas made unilaterally and the respondents proposed a different valuer and quantitysurveyor.[57] I consider that it is appropriate to take the expenses for the valuation report andquantity surveyor report into account. Whether or not the decision to acquire thosereports from the particular providers chosen was a unilateral decision made byMr Aitkens and Ms Vaughan, the reports were requested by Midlands and thereforehad to be obtained. I note that they were regarded by Midlands as acceptable for theirpurposes. It seems to me that the second quantity surveyor report obtained is the oneprovided by the applicants to support their application and is to be regarded as part ofthe costs of the proceedings rather than a contribution to the Property.[58] I therefore find that the amount the applicants have contributed to the Propertyas $319,290.36 (excluding the second quantity surveyor report).[59] I now consider the Williams' contributions.[60] It is not disputed that the Williams have contributed $11,705.19 in interestrepayments. The status of the Williams' half of the utility payments is unclear(whether it has been paid, paid in part or is still owing), but I accept that half of the17 This consists of the $11,705.19 interest payment also matched by the Williams and the additional$8,683.35 in interest repayments from the filing of these proceedings to 17 August 2022. Irecognise that further interest may have been paid to Midlands by the parties since that date.utilities is owed by the Williams and consider it relevant to their contribution to theProperty.18[61] The Williams also say that $13,261.03 in outstanding payments is due andpayable to Solid NZ, which must be taken into account. The applicants say, however,that given the quantity surveyor reports, it appears that Solid NZ overcharged in excessof $139,964.00 for the work done towards in developing the Property. It is submittedthat this means that the Williams have made a negative financial contribution to theProperty. The applicants also emphasise the costs associated with ameliorating theunconsented building work completed by Solid NZ.[62] I prefer to put those matters to the side for the purposes of this application.These claims are not appropriately dealt with in the context of a s 339 application.Any claims regarding the alleged overcharging of Solid NZ or amount owed to SolidNZ (being a third party to the current proceeding) can be pursued more appropriatelythrough separate proceedings should that be necessary.19 I do not take these claimedcontributions (or claimed lack of contribution) into account in my analysis.[63] The Williams say they have also contributed $300,000 to the property. The$300,000 is said to recognise the unrealised value of the property due to buying welland the intellectual capital in bringing the deal together. They say that this was theagreed position as the parties entered an equal joint venture. The Williams say theapplicants put in $300,000 cash into the project, and their equity was also $300,000.[64] Mr Williams describes his intellectual property contribution as consisting ofthe following:(a) Buying well in a rising market, such that the applicants were providedaccess to a property they had themselves wanted in the past, but hadbeen out of their price range.18 Ms Quinn-Williams confirms in her affidavit that the Williams are aware of these utility paymentsand are happy to make them. I do not include any penalties associated with the late payment ofthe utility fees as part of their contribution to the Property.19 This is also the case for the allegations of theft mentioned earlier.(b) Identifying how to intensify the land (through high density housing) tounlock a higher value the purchase price.(c) Identifying how to use the existing buildings on the site to provide agood "holding income", putting the townhouse development to the sideand therefore reducing the risk associated with the project.(d) Establishing change of use for the property from commercial use tomostly residential (for which a higher rental income is available) withsome commercial. This also provided favourable tax positions for theparties, including the ability to write off interest against the rentalincome.(e) Understanding the tax law relevant to a development of this kind.(f) Developing a funding strategy for the project.[65] This is contested by the applicants. They say that in fact Mr Williams' "IP" orbuilding knowledge appears to have caused loss to the parties, rather than a benefit.Perhaps most importantly, they do not accept that the Williams are entitled to the valueof $300,000 in circumstances where the anticipated development of the Property hasnot occurred. I set out their submissions on this point in full:67. Mr Williams appears to say that part of the Joint Venture Agreementwas that no matter when the Property was sold, the Williams were toreceive $300,000. He relies on an email exchange between the parties,whereby the Williams promised to place one of their properties on themortgage on a higher priority than Mr Aitken and Ms Vaughan'sFamily Home. The email also says that they would receive $300,000of the equity.68. Mr Aitken and Ms Vaughan agreed. However, this was on theassumption that the Development would be completed and that the165 Rosetta Road property would have a higher priority than MrAitken and Ms Vaughan's Family Home.69. The Development was not completed and so it is nonsensical topresume that the Williams would still be entitled to $300,000. Inaddition, 165 Rosetta Road appears nowhere on the mortgagedocuments. The Williams cannot rely on the term that benefits themto the exclusion of the one that does not. There appears to be aninexplicable determination to recoup $300,000 from the Property,despite the fact that the Williams have made no significantcontributions to it.[66] Various communications between the parties mention the contribution to thejoint venture from Mr Williams, valued at $300,000.[67] On 29 July 2021, Mr Aitken and Ms Vaughan sent an email to the Williams.In it they address the proposed equity contribution, saying:The current structure means we are taking all the risk and putting in all themoney. A suitable finders fee of $30,000 is more appropriate for yourcontribution to the equity as there is no purchase without the equity andassociated risk that SHIL is putting in.[68] On 1 August 2021, the Williams sent an email to Mr Aitken and Ms Vaughan,stating:Hi Will [Mr Aitken]As discussed we will put the following in writing in our joint ventureagreement: ( or legal words that summarise this better)1. Marcelle and Michael [the Williams] recognise the 'emotional impact' ofputting up Louise and Will's home as security for this loan. Although the Midlandsloan has requested, and been given security over 2A Aperahama St, the PHLdirectors agree to an informal agreement (which will be written up in the JointVenture Agreement) whereby :The Williams Family Trust will offer security over 165 Rosetta Road being ahigher priority than 2A Aperahama St ie if there is a need to sell a property forMidlands security the sale will be in the following order:1st security = 12 Beach Rd2nd security = 165 Rosetta Rd3rd security = 2A Aperahama St2. Marcelle and Michael's equity is agreed at $300K. This is in recognitionof the unrealised value of the property due to buying well and the intellectualcapital in bringing the deal together.[69] Approximately two hours later, Mr Aitken and Ms Vaughan responded, stating:Hi Marcelle and Michael,Thank you for sending this through.1. We agree- 2 Aperahama St2. We agree[70] On 24 December 2021, Mr Aitken wrote to the Williams. He addressed the$300,000, stating:Our understanding of the so called $300,000 was that this would compensateMichael for the extra work that he would put in over the next 5 years on designand project management. This would ensure the project achieved its maximumpotential outcome of subdivision and the building of townhouses. The sumwould only be paid out at this stage and not before. Certainly not in abankruptcy sale, or purchase of shares.[71] This was confirmed in an email sent by the applicants' previous solicitor on3 March 2022 (following the relationship breakdown between the parties) where itwas said:6. Our clients also accept that your clients' equity in 12 Beach Road wasfixed at $300,000 as a way of equalising the financial contributions madeby our clients. This is consistent with the parties' informal joint ventureagreement to divide the net sale proceeds equally once the developmentwas completed.(emphasis added)[72] In my view, the applicants were naïve in proceeding with a joint venture whichinvolved their contribution of significant cash and security over their family homewithout a formal arrangement on which they had obtained legal and financial advice,and despite their obvious initial trepidation. But I do not accept that Mr Williamsshould benefit from the full $300,000 he claims in circumstances where thedevelopment of the Property has not in fact occurred. It defies common sense to thinkthat the value reflected in this sum has been realised at the current stage of thedevelopment. I find that this was not the effect of the agreement between the parties.Rather, they had no agreement in place as to how to deal with the events as they haveunfolded, and the value of Mr William's contribution so far is therefore for me todetermine.[73] I consider that Mr Williams has made a valuable contribution to the project andthat he is entitled to recognition of this in financial terms. On the evidence before me,I am only able to estimate the value of that contribution, but it seems preferable to methat I make an assessment as best I can in the interests of the resolution of the dispute.Recognising that Mr Williams was the original purchaser of the Property, that heperceived a significant development opportunity in it, and that he brought theopportunity to the applicants, I conclude that the value of this contribution can beassessed as 10 per cent of the $300,000, thus $30,000. To my mind, the value fromthe rest of the $300,000 is yet to be achieved.[74] Taking into account the $30,000 contribution ascertained above, the interestrepayment by the Williams of $11,705.19 each and the utilities payment of $2,583.38(matching the sum paid by the applicants),20 I consider the total contribution of theWilliams to the property is $44,288.57. This amounts to $275,001.79 less than thecontribution of the applicants.[75] Finally, I note that I have considered but not allowed for interest on theapplicants' initial equity contributions. I consider that interest is not appropriate in theoverall context of the joint venture and its inherent risk. There was never a guaranteethat the development of the Property would occur as the parties planned and,accordingly, I consider that the applicants are more appropriately rewarded (or not) bythe ultimate outcome of their investment.Conclusion[76] Taking into account all the considerations assessed above, I find that an ordervesting the Property in the applicants is not justified in the circumstances.[77] In summary, it is clear to me that both parties are interested in retaining theProperty, no doubt in recognition of its potential once developed. The parties alwaysintended that they would share equally in the successful development of the Property.In these circumstances, I do not think it is appropriate to permit only the applicants toaccess that opportunity. I take account of the need to recognise the property rights ofboth parties.[78] Accordingly, I conclude that offering the Property for sale is the fairest option.Both parties will have the opportunity to bid on the Property and take on its20 Given the Court is not aware whether the utilities payments owed by the Williams have been paid(or paid in full) yet, there is an element of artificiality to this assessment. However, I consider itwould be unfair to regard the utilities payment by the applicants (which is only half of the totalutilities) as a contribution above that made by the Williams in relation to utilities.development potential and both can be confident as far as is possible that a fair marketvalue is therefore achieved.[79] I understand the concern that a sale of this kind, like a mortgagee sale, mayhave the effect of lowering the ultimate purchase price because third parties perceivethat a sale is inevitable. Unfortunately, this is often an inevitable outcome when partiesto a dispute are not able to agree on a path to resolution. I refer to a recent decision ofthis Court that recognised that while a sale order exposed the parties to potentialhardship, a sale order was nevertheless required to end the stalemate between them.21I consider that this risk is mitigated here where it is apparent that both parties areinterested in purchasing the Property. The parties may be able to agree betweenthemselves that one of them will purchase the Property and at what price, given thebackdrop of a Court order requiring the sale of the property and determining theparties' respective contributions.Division of sale proceeds and compensation orders[80] The question remains as to how the proceeds of sale are to be shared betweenthe parties given my conclusion about the differing contributions made by the parties.The Act does not specify the basis for a division of the proceeds of a sale, which is tobe determined "under the principles of contract, equity, partnership, or whatever aspectof the law is applicable to determine the issues between the co-owners".22[81] In my view, the parties intended that they would share equally in the Property,including in its financing costs. On that basis I consider that the cost of the financialcontributions made by the parties and any net proceeds of the sale should be sharedequally by both parties. For the avoidance of doubt, the expenses of a sale are also tobe shared equally.[82] Under s 343 of the Act, the Court is able to make in addition to an order unders 339(1) an order requiring the payment of compensation by a co-owner to another. Iorder that the Williams must pay SHIL half of the difference ($275,000) between the21 Cuthers v Cuthers [2020] NZHC 1851.22 Jody L Foster A Practitioner's Guide to the Property Law Act 2007 (2nd ed, Lexis Nexis,Wellington, 2015) at [14.26.5].parties' respective contributions, being $137,500.23 This is payable on settlement ofthe sale of the Property. I consider this compensation payment to be fair and, in lightof the settlement offers made by the Williams,24 will not amount to significant hardshipto them.[83] Midlands has first call on the proceeds of sale of the Property as a result of itsmortgage over the Property. Accordingly, Midlands must be repaid what is duefollowing the sale of the Property.[84] If there are insufficient funds to repay Midlands, the applicants and theWilliams are to pay half each of the outstanding amount to Midlands (noting theirobligations as guarantors under the mortgage).[85] If there are net sale proceeds above and beyond the Midlands loan amount,they are to be shared equally between SHIL and the Williams.Result[86] I order the sale of the Property, pursuant to s 339(1)(a) of the Act. Unders 343(e), both co-owners are permitted to make an offer on the Property. The expensesof sale are to be shared equally.[87] I order pursuant to s 343(a) of the Act that the Williams pay compensation toSHIL of the sum of $137,500 on settlement of the sale of the Property.[88] I order pursuant to s 339(1) that any remaining net proceeds of sale are to beshared equally by SHIL and the Williams.[89] If there are insufficient funds to repay Midlands, the applicants and theWilliams are to pay half each of the outstanding amount to Midlands.23 I observe that commentary on the Act indicates that consideration of orders that are different fromthose sought and argued by the parties must be clearly notified to the parties so that they may beheard on them. I do not consider that the order I make for compensation is a new proposal. It isancillary to the order made under s 339 which was envisaged and discussed at the hearing. I notealso that the parties' submissions expressly contemplated a compensation order as a possibility.24 I note also that Ms Quinn-Williams has stated that her income is $270–300,000 per annum.[90] I encourage the parties, together with their legal advisers, to agree on thepractical steps necessary for implementing a sale of the Property. If the parties havepaid additional interest to Midlands that has not been taken into account, they shouldalso be able to calculate the effect of that on the compensation sum ordered.25[91] In any event, leave is reserved to seek further directions from the Court ifrequired.Costs[92] Should any party wish to seek costs, they must file a memorandum (of no morethan five pages) within ten working days of the date of this judgment with any replyto be filed within a further five working days.McQueen JSolicitors:Martelli McKegg, Auckland for ApplicantsTreadwells, Wellington for Respondents25 The same goes for further utility payments.