For a Court ready (fee required) version please follow this link

KATHRYN FRANCES BOSWELL V OWEN ROSS MILLAR HC HAM C1V-2007-419-392 [10 APRIL 20131

IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY
CIV-2007-419-392 12013] NZHC 703
BETWEEN	KATHRYN FRANCES BOSWELL
Plaintiff
AND	OWEN ROSS MILLAR
Defendant
Hearing:	5-7 November 2012
Counsel:	R J Hollyman and A J B Holmes for Plaintiff
S J Chatwin and D S Quinn for Defendant
Judgment:	10 April 2013
JUDGMENT OF KATZ J
This judgment was delivered by me on 10 April 2013 at 10:00am
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors:	Spencer Legal, Auckland — mail@spencerlegal.co.nz
Copy to:	R J Hollyman, Auckland — hollymanashortlandchambers.co.nz
A J B Holmes, Auckland — ant.holmes@gmail.co.nz
Chatwin Legal Limited, Hamilton — schatwin@chatwinlegal.co.nz

(e)	In the event that the subdivision consent could not be obtained, the
sale could proceed as a boundary adjustment at Ms Boswell's option.

Introduction
[1]	The plaintiff, Kathryn Boswell, leased part of the defendant, Owen Millar's
farm ("Property") pursuant to a Deed of Lease dated 19 June 2000 ("Lease"). The Lease commenced on 1 June 2000, was for three years and contained a right of renewal for three years. It also contained a right for Ms Boswell to purchase the Property during the term of the Lease or any renewed term, for $150,000.
[2]	In 2004 a new Lease document was signed ("2004 Lease"). The term
commenced on 1 April 2004, with a termination date of 31 March 2007. Ms Boswell gave notice of her intention to purchase the Property in August 2006. Mr Millar denied that she had a right of renewal pursuant to the 2004 Lease. A dispute arose as to whether the 2004 Lease was a renewal of the 2000 Lease or a new Lease. Ms Boswell issued proceedings.
[3]	A settlement agreement was entered into on 12 February 2008 ("Settlement
Agreement"), the first day of trial. The terms of settlement were that:
(a)	Ms Boswell would purchase the Property for $288,000 including
GST;
(b)	Both parties were to co-operate in making an application to the
Hauraki District Council for subdivision resource consent in respect of the Property;
(c)	Mr Millar would be responsible for the costs of the consent
application and all costs associated with the subdivision;
(d)	The agreement for sale and purchase was to be the standard ADLS
form in the Auckland district for rural sales ("ADLS Agreement");

[4]	Various disputes then arose as to the meaning and effect of the Settlement
Agreement and whether it has been breached by Mr Millar. Those gave rise to the fourth amended statement of claim, which alleges various breaches of contract (first cause of action) and which also includes a claim for reimbursement of rent from I April 2007 to I February 2008 (second cause of action). In addition there is a counterclaim by Mr Millar for equitable interest on the purchase price or, in the, alternative, rent from I February 2008 onwards.'
[5]	Prior to trial a number of issues were resolved. As a result, the key issues for
determination are now:
(a)	Did Mr Millar breach the Settlement Agreement by failing to co-operate with Ms Boswell in making an application for subdivision? If so, what relief is appropriate?
(b)	Did Mr Millar breach the Settlement Agreement by entering into it in the knowledge that he would not be entitled to subdivide the Property?
(c)	Is Mr Millar liable for legal and other costs incurred by Ms Boswell in attempting to remedy alleged breaches of the Settlement Agreement by Mr Millar, in circumstances where settlement has now been reached in relation to the alleged breaches?
(d)	Is Ms Boswell entitled to a refund of rent in the sum of $5,250?
(e)	Is Mr Millar entitled to rent or, alternatively, interest on the purchase price for the period pending settlement of the sale?
The claim for rent arises from an application to amend the counterclaim, made during trial, which I allowed.

Issue 1: Did Mr Millar fail to co-operate with Ms Boswell in making an application for subdivision?
Express obligation to co-operate
[6]	The Settlement Agreement required the parties to "co-operate forthwith in
making application to the Hauraki District Council ("Council") for subdivision resource consent in respect of the Property." Mr Millar was responsible for "the costs of the consent application and any other contributions or expenses involved in the subdivision."
[7]	Counsel for Ms Boswell submitted that as well as this express obligation to
co-operate, the Settlement Agreement included an implied term of good faith between the parties. He acknowledged, however, that any implied term of good faith would be no broader in scope than the express duty of co-operation.
[8]	Where parties have expressly allowed for co-operation in order to fulfil the
terms of the contract, both parties are under a positive obligation to do all that is reasonably necessary to complete that contractual object.2
Subdivision application — relevant facts
[9]	Both Ms Boswell and Mr Millar gave evidence. In addition there was
considerable contemporaneous documentary evidence before the Court. A number of facts were in dispute. However the key facts in relation to the subdivision application appear to be as follows.
[10]	The Property formed only part of the land on the relevant Certificate of Title and, accordingly, before the sale could be completed a new title needed to be created for the Property either by way of subdivision or boundary adjustment. Ms Boswell had a strong preference for the former course. The Settlement Agreement reflected this and envisaged boundary adjustment as a "fall back" option, at Ms Boswell's
2	Mackay v Dick 6 App Cas 251; Hudson Bay Holdings Ltd v Waitakere Properties Ltd HC
Auckland CIV-2009-404-1134, 28 March 2011; Mercury Energy Ltd v Electricity Corporation of New Zealand HC Auckland CL20/92, 22 May 1995; Bos international (Australia) Ltd v Murphy HC Auckland CIV-2009-404-5589, 31 March 2010.

election. Unfortunately, however, Mr Millar had no more subdivision "rights" in terms of the Hauraki District Plan. Any further subdivision of the relevant land was therefore a discretionary activity.
[11]	Mr Millar retained a surveyor to prepare the subdivision application, which was finalised and lodged on 1 August 2008. One of Ms Boswell's complaints was that she was not given the opportunity to review the draft application prior to it being filed. Mr Millar's evidence was that he found Ms Boswell difficult to deal with and therefore did not deal with her directly, only through his advisers (his surveyor and lawyers). It was therefore up to them to engage with Ms Boswell if they felt they needed information from her in order to finalise the application. It appears however that they did not require any input from her.
[12]	Ms Boswell was aware the application was being made and she received some information regarding it from Mr Millar, his lawyers and/or the Council. She also went into the Council's offices and viewed a copy of the completed application and had phone conversations with Council staff regarding it.
[13]	After the application had been submitted it was referred for a Council Planning Report. That report recommended that consent for the proposed subdivision be declined.
[14]	The application was heard by the Council on 24 November 2008. Mr Millar appeared in person and spoke in support of his application. The reasons for this appear to have been at least partly financial. In addition, Mr Millar had been a Councillor himself for six years. He had lived locally for many years. His view was that a "softly softly" or "friendly" approach was likely to maximise the prospects of success, rather than having a barrister or surveyor represent him. Further, he considered that everything the surveyor who prepared the application could say was already contained in the document itself. The surveyor concurred with Mr Millar's views.

[15]	The Council Consultant and Head Planner both pointed out that Mr Millar had used his one right of subdivision in 2003. They recommended that the subdivision be declined. The Council agreed and declined the application.
[16]	Mr Millar was not willing to pursue an appeal at his own cost. He agreed however that Ms Boswell could bring an appeal in his name, which she did.
[17]	The subdivision was eventually approved by the Environment Court following mediation between Ms Boswell, Mr Millar, and the Council. The agreed settlement required Ms Boswell to surrender a resource consent she had previously obtained and give up a right of subdivision in respect of adjoining land which she owned.
[18]	Against this background, Ms Boswell submitted Mr Millar had breached his "duty to co-operate" in relation to the subdivision application by not consulting with her, not responding appropriately to the negative planner's report, not engaging counsel to appear at the hearing and not funding an appeal.
Discussion
[19]	I am not satisfied that Ms Boswell has proven, on the balance of probabilities, that Mr Millar breached the duty (imposed on both parties) to co-operate in making the resource application. He engaged a professional surveyor to prepare it and paid the costs associated with that. Ms Boswell's criticisms of the content of the document were minor in nature and would not in my view have impacted on its success.
[20]	The duty to co-operate must be interpreted in a pragmatic way, taking into account the relevant factual context. The property transaction involved was of relatively modest value ($288,000). This was not a multi-million dollar subdivision application. Little or no input was actually needed from Ms Boswell in relation to the application. The relevant information was either obtainable from Council records or was in Mr Millar's power and control as land owner, rather than Ms Boswell's as

tenant and prospective purchaser. However, Mr Millar's surveyor and lawyers were authorised to contact Ms Boswell or her advisers as appropriate or necessary.
[21]	Ms Boswell was also entitled to put in her own submission (and speak to it at the hearing) if she believed there were additional matters which should be brought to the Council's attention. She chose not to do so. She was fully aware of the content of the application, and the negative planner's report, prior to the Council hearing. She therefore knew that the application faced serious obstacles, due to the fact that Mr Millar had no more subdivision rights. She did not, however, offer at that stage to surrender one of her own subdivision rights as a possible solution. That offer was only made later, once the initial application had been declined. That may well have been a prudent course in the circumstances. However, it is a decision that cannot be laid at Mr Millar's door.
[22]	Further, in my view the duty to co-operate did not include a requirement that Mr Millar incur the significant expense of retaining counsel to appear at the Council hearing or to pursue an appeal on his behalf. As an experienced Council member himself, Mr Millar was entitled to choose to represent himself at the Council hearing. His surveyor supported that decision. It was suggested that Mr Millar deliberately sabotaged the application, causing it to fail. I reject that suggestion. He had little motive to do this as he had already incurred most of the costs in respect of the application by the time of the hearing.
[23]	Even if there were a lack of co-operation on the part of Mr Millar (contrary to my findings) Ms Boswell has failed to establish that such a breach caused the application to fail in circumstances where it would otherwise have succeeded.
[24]	This is apparent from the appeal process itself. Even with a highly experienced resource management barrister advocating for the subdivision application, the Council was unwilling to grant the subdivision application on its merits. The agreed settlement (following mediation) required Ms Boswell to surrender one of her own subdivision rights in respect of adjoining land which she owned. She chose to do this rather than proceed by way of boundary adjustment, the alternative option envisaged in the Settlement Agreement. She presumably would

not have done so if she had believed (or been advised) that the appeal to the Environment Court had good prospects of success.
Issue 2: Did Mr Millar breach the Settlement Agreement by entering into it knowing that he would not be entitled to subdivide his land?
[25]	Ms Boswell alleges that Mr Millar breached the Settlement Agreement by entering into it knowing that he would not be entitled to subdivide his land so as to give Ms Boswell title of the Property. As a matter of law, I have real doubts as to whether Mr Millar can have breached the Settlement Agreement based on his state of knowledge prior to that agreement actually being entered into.
[26]	In any event, I do not accept that Mr Millar knew at the time of signing the Settlement Agreement that the subdivision application would fail. It was a discretionary application and accordingly there was at least some prospect it would succeed. Both parties must have known, however, that success could not be guaranteed. That is why the Settlement Agreement included boundary adjustment as an alternative option (at Ms Boswell's election).
[27]	I accept Mr Millar's evidence that he would not have incurred the substantial costs associated with the application if he knew that it would be a total waste of time and money. If he had known that there was no prospect of a subdivision application succeeding then the logical course would have been to inform Ms Boswell of this and include only the boundary adjustment option in the Settlement Agreement.
Issue 3: Liability for legal and other costs in relation to issues which have now been settled
[28]	Ms Boswell alleged a number of other breaches of the Settlement Agreement. However these were all resolved prior to the trial. Accordingly the only issue remaining in relation to these matters is whether Ms Boswell can recover certain costs (primarily legal) that she incurred in resolving these issues. In particular, she claims the following sums:

(a)	
The above calculations proceed on the basis of Mr Millar's assumption as to how the Spencer legal costs totalling $5,750 should be allocated.

Expenses relating to a water easement dispute - $15,558 (being
surveyor fees of $3,932 and legal costs of $11,626).
(b)	Expenses relating to dispute over location and size of a new water
pipeline installed to service the Property - $4,194 (being Spencer legal costs of $2,000 and surveyor/plumber fees of $2,194).
(c)	Expenses relating to dispute over GST - $4,319 (being accounting
fees of $2,319 and Spencer legal fees of $2,000).
(d)	Expenses relating to dispute as to who was liable for making the
house code compliant - $1,750 (being Spencer legal costs).
[29]	These claims total $25,821.3 The factual context in which each of these claims arises is as follows.
Water easement issues
[30]	The subdivision application approved by the Environment Court included a water easement over Mr Millar's land in order to provide water to the Property. The relevant easement followed the existing water supply line to the Property which crossed Mr Millar's land and also land owned by his daughter. In September 2010 Mr Millar applied to the Council for an order amending the subdivision plan so as to remove the existing water easement.
[31]	The Council agreed to the water easement being removed, but advised Mr Millar that water supply to the house was required under the Building Act. The parties were unable to agree as to who was responsible for ensuring a water supply to the Property and how this would be best achieved. Ms Boswell had a preference for the existing water easement across Mr Millar's land, whereas Mr Millar's preference

was that water be supplied from the Council mains on Edwin Rd, along Goldfields Rd (a paper road).
[32]	The parties were scheduled to attend a Judicial Settlement Conference in relation to this issue on 19 October 2011. However, the day before the conference the parties reached a compromise which provided that Mr Millar would construct, at his own cost, an underground water supply connection to the Property from the Council water supply on Edwin Street along Goldfields Road. If that was not possible the previous water easement was to be reinstated. Consent orders were made accordingly.
[33]	Ms Boswell claims for the legal and other costs incurred by her in reaching this compromise.
Issues relating to location and size of a new water pipe
[34]	Following the making of the consent orders, Mr Millar proceeded to install a water pipe of 15mm internal diameter to the Property, along the new agreed route. The consent orders did not specify a particular pipe size. I accept Mr Millar's evidence that the Property had previously been serviced by a 15mm pipe. Ms Boswell, however, was of the view that a 15 mm pipe was inadequate for the needs of the Property. She said that if Mr Millar did not dig up the new 15mm pipe and replace it with a 25mm one she would take the issue back to Court.
[35]	After a relatively brief debate between the parties as to the necessity for a 25mm pipe Mr Millar agreed (within 14 days of Ms Boswell raising the issue) to dig up the new 15mm water pipe and replace it with a new 25mm water pipe, at his own expense.
[36]	A further issue which arose in relation to the water pipeline was that a short portion of it diverted from the paper road and went across Mr Millar's land. The reason for this appeared to be that the contractor who installed it (Mr Millar was on holiday at the time) had to avoid a tree and went to the left of it rather than the right. Ms Boswell appeared to be of the view that this was possibly deliberate and for some

ulterior purpose, possibly to do with her future security of water supply (or lack thereof). I reject that suggestion. In any event, she insisted that the pipe be moved, which Mr Millar somewhat reluctantly agreed to, again at his own cost.
[37]	Ms Boswell now seeks to recover the costs she incurred in relation to these issues.
GST
[38]	Various GST issues between the parties were resolved by compromise. Ms Boswell now seeks to claim the costs she incurred in pursuing her GST claims and negotiating a resolution of them. It seems clear however that Ms Boswell's major claim in relation to GST (as originally pleaded) was misconceived. It was subsequently abandoned. I note that Mr Millar has not sought to recover from Ms Boswell the costs he incurred in resolving that particular GST claim in his favour.
Compliance issues relating to the house
[39]	In 2001 Ms Boswell moved a house onto the Property, renovated it and established it as her home. Mr Millar fmanced the purchase of that house. The Settlement Agreement provided for the ADLS Agreement to be used. As a consequence Mr Millar had to warrant on settlement that the Property, including the house, complied with all relevant consents and requirements. However, there were a number of outstanding compliance issues with the house.
[40]	From Mr Millar's perspective this was a somewhat unfortunate and unexpected consequence of incorporating a reference to the ADLS Agreement into the Settlement Agreement. In particular, his evidence was that he had reached an agreement with Ms Boswell in 2001 to the effect that she would complete the last minor work required to render the house (which she had arranged to move onto the Property and was living in) compliant. Mr Millar's understanding was that Ms Boswell and her then partner (who was at the time a co-lessee) would deal with the Council in this regard. He said that Ms Boswell's partner subsequently confirmed to him that the house was indeed compliant. Accordingly, when Mr Millar

signed the Settlement Agreement he did so on the understanding that there were no outstanding compliance issues relating to the house. Accordingly, his position was that he would have had a defence to Ms Boswell's claim of $3,407 under this head pursuant to the Contractual Mistakes Act or otherwise.
[41]	Ultimately however, Mr Millar formed the view that the most pragmatic (and cost effective) way forward was to simply pay the $3,407 incurred in making the house compliant, without admission of liability.
[42]	Ms Boswell now claims legal costs of approximately $1,750, which she incurred in negotiating this outcome.
Discussion
[43]	Counsel for Mr Millar submitted that the sums claimed are not legally claimable as damages. They relate to attempts on the part of Ms Boswell to remedy the alleged breaches. They are not losses which flow from the alleged breaches.
[44]	I accept that submission. Ms Boswell is not entitled to recover any of the costs claimed. They are not damages, but claims for legal and other expenses which have flowed from Ms Boswell attempting to enforce her alleged rights under the Settlement Agreement. The courts have consistently held that such expenses do not form part of the compensatable loss as a head of damage.4 They are not damages that were or should have been within the parties' contemplation at the time the contract was formed. As Henry J stated in Herbison v Papakura Video Ltd (No 2):5
To hold otherwise would make solicitor/client costs recoverable as damages for breach of contract as a matter of principle (being a natural consequence reasonably expected to flow from the breach). Such is not the law as I understand it.
[45]	It is frequently the case that issues or disputes arise in the course of the performance or implementation of contracts that require one or both parties to incur
4
Herbison v Papakura Video Ltd (No 2) [1987] 2 NZLR 720 at 735; Pegasus Group Ltd v
QBE Insurance (International) Ltd HC Auckland CJV-2006-404-6941, 1 December 2009 at [234]-[235] per Winkelman J.
5	Herbison v Papakura Video Ltd (No 2) [1987] 2 NZLR 720 at 735.

expense (for example in obtaining legal advice) to resolve. This case was no different. Ultimately, however, all the issues were resolved, without admission of liability on either side. In such circumstances it is not now possible to obtain recovery of the costs associated with reaching a negotiated settlement, under the guise of contractual damages.
Issue 4: Is Ms Boswell entitled to a refund of rent in the sum of $5,250?
[46]	Ms Boswell paid rent to Mr Millar from 1 April 2007 to 1 February 2008 totalling $5,250. She submitted that this should be deducted from the purchase price. She relied on interim Court orders made pursuant to a consent memorandum dated 27 March 2007. Paragraph 1(b) of that memorandum provided that:
For so long as she is in possession of the property Ms Boswell shall pay rental of $487.13 (plus GST) per month (first payment date being 2 April 2007, 1 April 2007 being a Sunday). Should it be determined that Ms Boswell had the right to exercise an option to purchase, any rental paid by her from 1 April 2007 shall be set-off against the purchase price payable under the option.
[47]	Ms Boswell submitted that these consent orders continued and did not merge in the Settlement Agreement. Further, although the Court did not ultimately "determine" that Ms Boswell had the right to exercise an option to purchase, she submitted that the issue had effectively been "determined" by the Settlement Agreement itself.
[48]	In my view the interim Court orders were superseded by the Settlement Agreement, which fully and finally settled the issues between the parties. In any event, the Court orders would have no application. It has never been "determined" that Ms Boswell had the right to exercise an option to purchase. The proceeding was settled by way of the Settlement Agreement and without the need for the Court to make any determination.
[49]	The Settlement Agreement itself cannot be said to "determine" that Ms Boswell had the right to exercise an option to purchase under the Lease. The Settlement Agreement is a new contract that clearly represents a compromise position. The option to purchase would have given Ms Boswell the right to purchase

9	Hieber v Hieber [1991] 1 NZLR 315 (CA).

6
Ballard v Shutt (1880) 15 ChD 122.
7
Fletcher v Lancashire and Yorkshire Railway CoTrustees1902] 1 Ch 901. 

Fraser v Perpetual Mustees Estate. [1978]1 NZLR 620.

the Property for approximately $140,000. The purchase price in the Settlement Agreement is, however, $288,000 including GST. There is no admission of liability. There is no basis for finding that the Settlement Agreement "determined" that Ms Boswell had the right to exercise an option to purchase under the Lease.
[50]	Ms Boswell is therefore not entitled to a refund of rent in the sum of $5,250.
Issue 5: Is Mr Millar entitled to rent or, alternatively, interest on the purchase price?
[51]	Mr Millar claims interest on the purchase price for the period of just over four years between the Settlement Agreement and the settlement of the ADLS Agreement on 19 March 2012, on the basis of an "implied equitable promise to pay interest". In the alternative, Mr Millar seeks rent from 1 February 2008 until the date of settlement.
[52]	Mr Millar says that Ms Boswell had all the benefits of the Property during this period, while retaining the benefit of the full purchase price. Mr Millar meanwhile was continuing to meet expenses such as rates.
Claim for equitable interest
[53]	Counsel for Mr Millar relied on Ballard v Shutt,6 Fletcher v Lancashire and Yorkshire Railway Company7 Fraser v Perpetual Trustees Estate,8 and Hieber v Hieber9 in support of a submission that a purchaser who takes possession of a property before the possession date stated in the agreement is under an implied obligation to pay interest on the unpaid balance of the purchase price, provided there is no contrary provision in the contract.

[54] Ms Boswell submitted that the claim for equitable interest was misconceived for the following reasons:
(a)	The terms of the Settlement Agreement are clear: "consideration
$288,000 including GST to be paid forthwith on title becoming available". In other words, Ms Boswell was under no obligation to pay the purchase price until title was available.
(b)	There is no indication of any obligation to pay interest, One could
readily have been agreed.
(c)	In those circumstances there is no entitlement to have received the
purchase price earlier, and therefore no entitlement to interest on the purchase price.
[55] I accept Ms Boswell's submissions. Mr Millar's claim for equitable interest is not made out on the facts of this case. The parties could have addressed the issue of interest in the Settlement Agreement, but chose not to.
Claim for rent in the alternative
[56] The alternative claim for rent fails for the similar reasons. The Settlement Agreement was entered into in February 2008 and Ms Boswell ceased paying rent from that time. There were no demands from Mr Millar for rent between then and settlement date, over four years later. Indeed the counterclaim itself did not include a claim for rent prior to trial. Both parties appear to have proceeded on the basis that rent was not payable after the Settlement Agreement was entered into.
[57] The Settlement Agreement was clearly intended to set out the full terms of the parties' settlement. There is nothing in that agreement, or the ADLS Agreement which it imported, which required Ms Boswell to pay rent pending settlement.

Result
[58]	The plaintiff has failed in her breach of contract claims and also in her claim for rent pursuant to the consent orders. The defendant's counterclaim for equitable interest on the purchase price, or rent in the alternative, also fails.
[59]	As to costs, the applicable principle is that costs follow the event, and that the losing party should make a reasonable contribution to the costs of the successful party. Both the claim and the counterclaim were unsuccessful. However the key focus of the case was on the various claims made by the plaintiff. Virtually all of the evidence was directed to such matters. The issues raised by the defendant's counterclaim involved almost no additional evidence. The legal issues raised by the counterclaim were narrow in scope,
[60]	It is therefore my preliminary view that costs should be awarded to the defendant on a 2B basis, together with expenses as approved by the Registrar. If either party takes a contrary view, or costs cannot be agreed based on this indication, leave is reserved to file memoranda. Any memorandum from the defendant is to be filed and served within 21 days. Any response from the plaintiff is to be filed and served within 14 days of the defendant's memorandum being filed. I will then determine costs issues on the papers.