Hoch v Hoch

This concerned the partition of a grazing property co-owned by brothers as tenants in common in equal shares. A trustee had been appointed to partition the property, but had proposed a scheme that would produce a “markedly unequal division”. Bradley J varied the scheme of partition so that it would be more equal, and made orders for other monetary adjustments, including to reflect improvements made to the property by both of the brothers.

Bradley J

4 December 2020

Background

Ian and Andrew Hoch are brothers who inherited a grazing property in central Queensland, which they co-own as tenants in common in equal shares. [11]–[14]. Initially the tenure was leasehold, but it was converted into a freehold in 2016. [18]. They never intended to jointly run a business on the property (as their parents had done); instead, they conducted their respective grazing businesses independently of each other on the land. [17].

In late 2016, Andrew Hoch applied to the court for the appointment of trustees to partition the property pursuant to s 38(1) of the Property Law Act 1974 (“the Act”). [19]. Trustees were duly appointed, who in turn briefed a valuer to consider options for partitioning. [20], [44]. Following receipt of the valuers’ report, the trustees proposed a scheme to partition the property into two lots; Lot 1 on the eastern end of the property (to go to Ian Hoch); and Lot 2 at the western end of the property (to go to Andrew Hoch). [48]. The proposed Lot 1 was valued at $2 million, and Lot 2 at $3 million. [92], [100].

By this application, Ian Hoch seeks to vary the trustees’ scheme, so that the property would instead be partitioned into proposed lots worth $2.6 million (for Ian Hoch) and $2.75 million (for Andrew Hoch). In the result, Bradley J agreed to vary the scheme as proposed, and made orders for additional sums to be paid between the parties to achieve equality and to reflect improvements made to the land. [49], [105], [107]–[110].

The reasons of the Court

Bradley J observed that a scheme of partition under the Act served the purpose of terminating a co-ownership so that each owner may “occupy and use a part to the exclusion of the other(s)”. [25]. However, his Honour reviewed a number of authorities which recognised that the circumstances “may prevent an entirely just and proportionate division of the land … so that a financial adjustment may be necessary”. [28]. Such an adjustment may be needed where one owner receives a part of lesser value (with the payment sometimes referred to as “equality money”), or where one of the owners has made valuable improvements to the land. [30]–[37]. As to the latter kind of adjustment, it is established that only “improvements” are recoverable, and that this means “something more than mere repairs and maintenance” (per Meagher JA in Forgeard v Shanahan (1994) 35 NSWLR 206). [37]. Further, as Macrossan CJ said in McMahon v Public Curator (Qld) [1952] St R Qd 192:

“… the amount to which a co-owner making improvements may be entitled against another co-owner in taking the accounts in a partition action, is limited to the actual cost of the improvements, and if the present value of the increment to the property is less than the actual cost of the improvements, he is further limited to that present value.”

His Honour noted that because both Ian and Andrew Hoch were tenants in common in equal shares, the property was to be partitioned “so far as is practicable, to create two new lots of equal value”. [95]. The scheme that had been proposed by the trustees, however, would produce a “markedly unequal division”. [100]. In comparison, although the alternative proposed by the applicant (Ian Hoch) was not perfectly equal, the inequality was of a “much more modest amount”. [106]. His Honour accepted that the proposed variation was, as nearly as possible, an equal division of the property, which should therefore be accepted. [107].

As to whether any financial adjustments were required, his Honour considered that an “equality payment” of $63,145 should be made to equalise the disparity in the values of the lots. [107]. Next, his Honour considered whether any further adjustments should be made on account of the improvements made by both parties on the land over the course of a number of decades. [69]–[85], [109]. This was a fact-heavy analysis for which there was sparse and sometimes conflicting evidence. His Honour applied the aforementioned legal principles in finding that only “improvements” could be accounted for (such as the installation of cottages), and not mere maintenance (such as “controlling regrowth” of vegetation). [150]. Further, that the amount of any adjustment could only be the actual cost of the improvements, or the extent to which they increased the value of the property, whichever was lower. [119]. After a detailed review of the various claims made by both sides, his Honour concluded that “[t]he net position is that Andrew Hoch is due an allowance of $9,517 from Ian Hoch” for improvements. [160].

Accordingly, the court ordered that the scheme of partition be varied as proposed by the applicant; that Andrew Hoch account to Ian Hoch for an “equality payment”; and that Ian Hoch pay Andrew Hoch an allowance for improvements. [161].

W Isdale