June Ryan was the driving force within the family setting up adjoining vineyard operations for sons John and Chris in the Awatere Valley, near Blenheim. She brokered an agreement for each to operate stand-alone vineyards on what was previously a single farm, her accountant completing valuations for the split; their lawyers misunderstanding what was agreed then messing up implementation.
A Property Law Act court order was needed to specify the land to be owned outright by each son.
The High Court was told of John and his mother initially developing their 270 hectare family vineyard operations. In 2005, she took steps to have younger son Chris gain an ownership interest.
Should the existing vineyard be subdivided and sold to interests controlled separately by the two brothers, current tax rules would have triggered a capital gains tax liability. It was decided to instead achieve de facto subdivision between businesses owned by the two, with formal subdivision of the land to follow later.
Evidence was given that contours of the former farm meant the two brothers were able to operate independently, planting and cultivating their own vines while sharing equipment.
A 2008 ‘Heads of Agreement’ written up by John after discussions with his mother had envisaged he would take an 80 per cent split of combined operations, brother Chris 20 per cent. Their later formal agreement saw a 78:22 split.
June’s accountant completed business valuations identifying cash adjustments needed as between the brothers to achieve this outcome.
To avoid tax consequences of subdividing the property, it was agreed the two brothers would take title as tenants-in-common in unequal shares. This meant each was part-owner of all the land, though in practice each would occupy only that portion covered by their own vineyard.
Lawyers implementing the final agreement registered John as part-owner of the land with a 78 per cent share, Chris a 22 per cent share.
This became an issue when the two brothers later sought to finalise a legal subdivision of the property, now free of any potential capital gains liability. Chris’ vineyard occupies fifteen per cent of their jointly owned land. He claimed title division should allow him sole ownership of a 22 per cent share of the land; the same proportionate share he held as tenant-in-common.
A family argument followed. Was the earlier 78:22 agreement based on a division of the value of their separate businesses (including the land each cultivated), or division of the land alone?
Justice Cull ruled their formal agreement did not properly reflect the earlier ‘heads of agreement.’ The family arrangement was that the prior de facto separation of the two brothers business interests was based on the value of their respective vineyard operations in which Chris occupied fifteen per cent of the land.
Lawyers had misinterpreted Chris’ 22 per cent share of their combined business operations as being a 22 per cent share of land value.
Justice Cull ruled Chris was entitled on subdivision to registered ownership of only the fifteen per cent of land he currently worked, with no compensation for the further seven per mistakenly recorded as part of his shared ownership.
Ryan v. M & E Ryan & Sons Ltd – High Court (2.09.24)
24.215