BRODERICK v MENCHAVEZ & ORS [2021] NZHC 557

BRODERICK v MENCHAVEZ & ORS [2021] NZHC 557 [18 March 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2020-404-2203[2021] NZHC 557UNDER THE Property Law Act 2007, ss 339 and 343BETWEEN ALITA MENCHAVEZ BRODERICKApplicantAND BRYNER RUSSEL MENCHAVEZ & ORSRespondentHearing: 15 March 2021Appearances: K Muller for the PlaintiffNo Appearance for the RespondentJudgment: 18 March 2021JUDGMENT OF CAMPBELL JThis judgment was delivered by me on 18 March 2021 at 2:30 pm pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy RegistrarIntroduction[1] Ms Broderick and her son, Mr Menchavez, are co-owners of an apartment at188 Hobson Street, Auckland. Ms Broderick has brought an originating applicationfor an order under s 339 of the Property Law Act 2007 that the apartment be sold. Shehas also made an interlocutory application for an order dispensing with service of heroriginating application on Mr Menchavez.[2] For the reasons that follow, I am satisfied both that I should dispense withservice on Mr Menchavez, and that I should make an order that the apartment be sold.Background[3] Ms Broderick and Mr Menchavez are both residents of Australia. In 2006,when Mr Menchavez was 20 years old, he became interested in purchasing anapartment at 188 Hobson Street, Auckland. He needed bank finance to make thepurchase. Ms Broderick wanted to assist him with the purchase. She was prepared toact as a guarantor for Mr Menchavez, but the bank would lend money to MrMenchavez only if Ms Broderick was on the title as a co-owner.[4] Consequently, Ms Broderick and Mr Menchavez purchased the apartment, asco-owners, in March 2006. At purchase, the apartment was subject to a lease in favourof 188 Hobson Apartments Limited (Hobson Apartments). Hobson Apartmentsoperates a hotel at that address. There was a guaranteed rent for the first two years.Since that time, the rent payable by Hobson Apartments has been based on a formulathat depends on the hotel operations.[5] The purchase price of the apartment was $269,000. Westpac New ZealandLimited (Westpac) provided finance of $210,000, secured by a first mortgage. Thebalance of the purchase price was funded primarily by Ms Broderick. (Ms Brodericksubsequently, in 2015, gifted to Mr Menchavez this contribution to the purchase price.)[6] The arrangement between Mr Menchavez and Ms Broderick was that MrMenchavez would fund the mortgage repayments to Westpac, be responsible formanaging all aspects of the property, and, eventually, benefit from any capital gain onthe property.[7] All rentals received from the lessee, Hobson Apartments, were paid into a jointbank account that Mr Menchavez and Ms Broderick held with Westpac. Those rentalswere initially sufficient to cover the mortgage payments due to Westpac, but from early2008 the rentals were sometimes insufficient to cover those payments. Although thearrangement was that Mr Menchavez would fund any shortfall, there were occasionsin 2008 and 2009 when Ms Broderick had to pay sums herself to cover the mortgagepayments. Ms Broderick's payments at that point totalled about $21,000.[8] When they purchased the apartment together, Mr Menchavez was still livingin the family home with Ms Broderick (and her husband Mr Broderick, MrMenchavez's stepfather) in Melbourne. In 2015, Ms Broderick and Mr Broderick soldthat home and moved to Tasmania. Mr Menchavez chose to remain living inMelbourne.[9] From about 2017, Ms Broderick became increasingly concerned about anoticeable reduction in communication from Mr Menchavez. Several weeks wouldgo by without any contact from him. Ms Broderick communicated with friends of MrMenchavez in order to make contact. It transpired that Mr Menchavez was seeing amental health professional. By the end of 2017, contact had been re-establishedbetween Ms Broderick and Mr Menchavez.[10] In 2018, however, contact once again dwindled. In the meantime, MrMenchavez stopped making any payments into the joint account with Westpac forseveral months. As a result, eight mortgage payments were missed. In late 2018, MsBroderick received a letter from Westpac advising that legal action would be takenover the missed payments.[11] Over Christmas 2018 Ms Broderick was able to meet up with Mr Menchavez.He said he would rectify the situation with Westpac. On 26 February 2019, he madea payment of over $11,000 to cover the missing mortgage payments. He also made apayment of about $1,800 on 11 March 2019. Mr Menchavez has not made any furtherpayments.[12] By late May 2019 there was concern about Mr Menchavez's whereabouts, ashe had not been seen or heard of in several weeks. On 25 May 2019, one of MrMenchavez's friends reported him missing to Victoria Police. The next day VictoriaPolice told Ms Broderick they had located Mr Menchavez but that he wished to remainuncontactable.[13] Mr Menchavez then briefly made contact again with some of his friends. Butsome time in July 2019 Mr Menchavez appears to have simply walked out of theapartment he was renting in Melbourne, leaving most of his belongings behind. MrMenchavez stopped paying rent, and his lease came to an end. Ms Broderick collectedhis belongings and put them in storage. She also listed Mr Menchavez as a missingperson again with Victoria Police.[14] Ms Broderick had no contact with Mr Menchavez over the next few months,though she heard he had some activity on social media sites. In February 2020 VictoriaPolice told her that they had found Mr Menchavez living out of a car on a side streetin the Melbourne CBD. Because he was doing nothing illegal, Police removed himfrom the missing persons list.[15] Ms Broderick has had no further contact with Mr Menchavez. She is not awareof any of his extended family or friends having contact with him.[16] Since March 2020, the COVID-19 pandemic has adversely affected the hoteloperation at 188 Hobson Street. This has caused the rent return on the apartment tobe much lower than usual. The rent has been well short of the mortgage payments. InMr Menchavez's absence, Ms Broderick has had to try to cover the shortfall.[17] Ms Broderick works in the tourism and hospitality sector in Tasmania. Thatsector has been affected by the pandemic. This has reduced Ms Broderick's income.[18] This combination of events has caused considerable financial and other stressfor Ms Broderick. She and her husband have no cash reserves to draw on to cover themortgage payments. She has a superannuation fund, but she cannot access that foranother five years.[19] Westpac has provided some relief. It granted a six-month payment freeze fromApril 2020, though interest continued to accrue. Ms Broderick has a hardshipapplication with Westpac, under which she is presently making interest-onlypayments. Full mortgage payments will resume in June 2021. If she had been makingfull mortgage payments over the last four months, she would have had to fund about$3,000 of those payments (after allowing for the rent returns).[20] Ms Broderick has obtained a valuation of the property. After allowing for theexpenses of sale and repayment of the mortgage, there is likely to be a balance inexcess of $100,000.Ms Broderick applies for an order that the apartment be sold[21] In November 2020, Ms Broderick brought an originating application for anorder that the apartment be sold and for division of the proceeds of sale between herand Mr Menchavez.1 She swore a detailed affidavit in support, deposing to the factualbackground I have just set out.[22] In her application Ms Broderick proposed that the sale proceeds (afterrepayment of the mortgage) be applied in the following order:(a) Meeting the expenses of sale;(b) Reimbursing Ms Broderick for sums that she has paid in connectionwith the apartment;(c) Reimbursing Ms Broderick for the cost of this proceeding; and1 Ms Broderick applied for, and was granted, permission to commence her proceeding by way oforiginating application.(d) The balance to be held by Ms Broderick on trust for Mr Menchavez.Service of Ms Broderick's originating application[23] Ms Broderick was directed to serve her originating application on MrMenchavez, Hobson Apartments, and Westpac.[24] Ms Broderick has served both Hobson Apartments and Westpac. Neither hastaken any steps.[25] Ms Broderick has tried, without success, to serve Mr Menchavez. This has ledto her making an interlocutory application for an order dispensing with service on him.Application for order dispensing with service[26] In an updating affidavit dated 4 March 2021, Ms Broderick says that she hashad no further contact, direct or indirect, with her son. She has merely heard of randomoccasions where he has been active on WhatsApp and a couch-surfing website. Shewas recently given a possible address for her son. She passed this address on to aprocess server.[27] The process server has deposed that she was unable to locate Mr Menchavezat the address given by Ms Broderick. She has also deposed that she has sent messagesto Mr Menchavez by WhatsApp and SMS messages. These messages tell MrMenchavez that the process server has legal documents from New Zealand to deliverto Mr Menchavez regarding a property at 188 Hobson. The process server has notreceived any response.[28] Section 341(2) of the Property Law Act 2007 requires that an application for asale order under s 339 must be served on a co-owner of the property. However, s341(3) provides that the court to which the application is made may (among otherthings) dispense with service. Similarly, r 6.8 of the High Court Rules 2016 providesthat, if reasonable efforts have been made to serve documents on a person, and thedocuments cannot be promptly served, the Court may (among other things) dispensewith service. Rule 6.8 also says that such dispensation may be subject to anyconditions that the Court thinks just to impose.[29] It is just to dispense with service on Mr Menchavez. First, Mr Menchavez haschosen to make himself very difficult to contact. Second, efforts have been made toserve Mr Menchavez, and those efforts are reasonable in the circumstances (which areof Mr Menchavez's making). Third, although service has not been effected, theprocess server's messages are likely to have brought to Mr Menchavez's attention thatsome important legal process is underway with the apartment. Fourth, there is someurgency in having the substantive application determined (and that urgency is partlyof Mr Menchavez's making). Fifth, the merits of the substantive application stronglyfavour an order for sale, and that sale will benefit Mr Menchavez (by stopping furtherinterest accruing under the mortgage), rather than prejudice him.[30] I will therefore make an order dispensing with service of the originatingapplication on Mr Menchavez. This will be subject to conditions requiring MsBroderick to take steps to communicate to Mr Menchavez, by WhatsApp and SMSmessages, (i) the substantive orders that I will be making and (ii) in due course, theoutcome of the sale (in particular, the amount of any balance that Ms Broderick holdson trust for Mr Menchavez).The substantive application for sale and division of proceeds[31] Section 339(1) of the Property Law Act confers on the Court a discretion tomake an order for the sale of co-owned property and the division of the proceeds.Section 339(4) provides that a court making such an order may, in addition, make anyfurther order specified in s 343. Relevantly to this application, s 343 provides thatthose further orders may include an order directing how the expenses of any sale areto be borne, and an order directing how the proceeds of sale are to be divided betweenthe co-owners.[32] Section 342 stipulates relevant considerations to the exercise of the discretionsunder ss 339(1) and (4):342 Relevant considerationsA court considering whether to make an order under section 339(1) (and anyrelated order under section 339(4)) must have regard to the following:(a) the extent of the share in the property of any co-owner by whom, orin respect of whose estate or interest, the application for the order ismade:(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 refusal ofthe order, in comparison with the hardship that would be caused toany other person by the making of the order:(e) the value of any contribution made by any co-owner to the cost ofimprovements to, or the maintenance of, the property:(f) any other matters the court considers relevant.[33] It is clearly appropriate to order the sale of Ms Broderick and Mr Menchavez'sapartment. Most telling is the hardship that would be caused to Ms Broderick if I wereto refuse the order. She is currently under significant financial strain. This has comeabout primarily because Mr Menchavez has neglected, since March 2019, to takeresponsibility for the mortgage payments. If I do not make the order, this financialstrain will increase, particularly once the interest-only mortgage payment arrangementends. A mortgagee sale is then likely to eventuate, with the risk of Ms Broderick beingexposed to liability for any shortfall.[34] By contrast, it is unlikely that any hardship would be caused to Mr Menchavezby a sale order. The sale is likely to be to his benefit, given that it will avoid a possiblemortgagee sale, and the balance of the net proceeds will be held for him on trust. Theonly conceivable downside for Mr Menchavez is that, if he planned to hold theproperty for many years to come, he will be disappointed by the sale. But hisbehaviour in recent years is not consistent with him having such a plan.[35] For those reasons, I will be making an order for the sale of the property. I willalso be making the further orders sought by Ms Broderick for the division of theproceeds of the property. The only caveat to those orders is that Ms Muller, counselfor Ms Broderick, advised me at the hearing that she needed to confirm the amountthat Ms Broderick had paid in connection with the property. I will be making ordersthat allow for that amount to be quantified and approved by the Court.[36] I will also, to ensure that the sale order can be given practical effect, make anorder authorising Ms Broderick to enter into any agreements, or sign or execute anydocuments, necessary to effect a sale of the property. I will reserve leave to MsBroderick to apply for any further orders that may be necessary.Result[37] I make an order dispensing with service of the originating application on MrMenchavez.[38] I direct Ms Broderick to take steps to communicate to Mr Menchavez, byWhatsApp and SMS messages:(a) That this Court has ordered that the unit at 188 Hobson Street is to besold, with the net proceeds of sale (after the expenses of sale, repaymentof the mortgage, and reimbursement of Ms Broderick for her mortgagepayments and for the costs of this proceeding) to be held by MsBroderick on trust for Mr Menchavez; and(b) In due course, the outcome of the sale (in particular, the amount of anybalance that Ms Broderick holds on trust for Mr Menchavez).[39] Pursuant to ss 339(1) and 343 of the Property Law Act, I make the followingorders:(a) For the sale of the property known as Unit G.09 at 188 Hobson StreetAuckland (the Property), being a stratum estate in freehold, Unit G.09Deposited Plan 356167 (Identifier 229052), by listing and negotiation,or by auction;(b) Ms Broderick is authorised to enter into any agreements, or sign orexecute any documents, necessary to effect the sale of the Property;(c) Expenses of the sale of the Property are to be borne equally betweenthe two co-owners;(d) The net proceeds of the sale of the Property, and any interest on theproceeds, are to be applied in the following order (subject to [40]below):(i) Meeting the expenses of the sale of the Property;(ii) Reimbursing Ms Broderick for sums paid by her in connectionwith the Property;(iii) Reimbursing Ms Broderick for the cost of this proceeding;(e) The balance of the net proceeds are to be held by Ms Broderick on trustfor Mr Menchavez.[40] I direct that before Ms Broderick may be reimbursed in accordance with[39](d)(ii) and (iii) above, the amounts of such reimbursements are to be approved bythis Court.[41] Leave is reserved to Ms Broderick to apply for any further orders that may benecessary.______________________Campbell J