PENE v PENE [2018] NZHC 3140

PENE v PENE [2018] NZHC 3140 [3 December 2018]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2018-419-127[2018] NZHC 3140IN THE MATTER Of an application for sale of a propertyUNDER Section 339 of the Property Law Act 2007BETWEEN SYRINA EVE PENEPlaintiffAND MARYANNE PENEDefendantHearing: 22 November 2018Appearances: T Burtenshaw and E M Thomson-Learmonth for the PlaintiffJudgment: 3 December 2018Reissued: 4 December 2018JUDGMENT OF MUIR JThis judgment was delivered by me on Monday 3 December 2018 at 12.30 pmpursuant to Rule 11.5 of the High Court Rules.This judgment was recalled and reissued by me on Tuesday 4 December 2018pursuant to Rule 11.9 of the High Court Rules.Registrar/Deputy RegistrarDate:.Solicitors:Norris Ward McKinnon, Hamilton.Introduction[1] The plaintiff, Ms Syrina Pene, seeks an order for sale of a property located at11 Cadman Street, Waharoa, under s 339 of the Property Law Act 2007 (the Act). Shealso seeks supplementary orders under s 343 of the Act. Syrina owns the property astenant in common in equal shares with her sister, the defendant, Ms Maryanne Pene.For convenience I will refer to the sisters respectively as Syrina and Maryanne.[2] Syrina's statement of claim was filed on 16 May 2018 and Maryanne wasserved shortly thereafter. Maryanne has not filed a statement of defence nor taken anyother step in the proceeding. Syrina's application therefore proceeds by way of formalproof.Background[3] The Cadman Street property was previously owned by the parties' mother, thelate Ms Karen Kaukau. On her death the property was transferred to Syrina andMaryanne in equal shares. This occurred in December 2017. Although there was nomortgage on the property there were a number of outstanding accounts in respect ofit, including unpaid rates and various maintenance bills.[4] Between 2 June 2016 and October 2016 Syrina and Maryanne rented theproperty to a third party at $250.00 per week, with the income applied to theseaccounts. In December 2016 Maryanne indicated a desire to move into the propertyherself. On 4 February 2017 the parties entered into a five-year fixed term residentialtenancy in terms of which Maryanne agreed to pay $300 a week into the joint accountof the parties. Maryanne continues to reside in the property. She is said to be livingwith up to nine other people and a dog, which Syrina says she never agreed to.[5] For the first six months of the tenancy rental payments were often late, and on7 November Maryanne advised that she did not intend to pay any further sum, invitingSyrina to "take me to Court, you have more to lose than I do".[6] Syrina's lengthy affidavit in support of her formal proof application recounts along history of uncooperative behaviour on the part of Maryanne who, in response toseemingly reasonable requirements that she meet her financial responsibilities inrespect of the property, has accused Syrina of being "money hungry".[7] There have been various discussions between the sisters about the prospect ofone buying the other out. In May 2016, shortly after the grant of probate, the partiesarranged to meet to discuss this issue. Syrina asked Maryanne what price she had inmind for the sale of her half share. Syrina deposes that Maryanne said she did nothave one, which Syrina found to be disappointing as the whole reason for the meetingwas to discuss a possible sale. In the result, Syrina offered half of the then GovernmentValuation of $148,000, namely $74,000. This was not acceptable to Maryanne.[8] At the point Maryanne advised that she would no longer be paying rent, she inturn presented an ultimatum that one or other needed to buy the other out. She offeredto purchase Syrina's share for $85,000. Syrina then obtained a market appraisal fromL J Hooker which recommended a listing price of $250,000 and a sales range ofbetween $230,000 and $240,000. The appraisal also noted the property required workbefore being put to market. The appraisal was broadly consistent with an earlier oneobtained from Harcourt's in the amount of $249,000.[9] On 22 January 2018 Syrina's solicitor wrote to Maryanne confirming a desireto sell the property. The letter noted that Syrina's half share was worth approximately$125,000 and identified an additional sum of $10,104 as payable by Maryanne for rentand maintenance contributions. The letter suggested therefore a fair sale price was$135,104, but proposed a sale at $125,000 to bring matters to a conclusion.[10] That offer was not accepted by Maryanne. Through her solicitor she indicatedthat she was obtaining her own registered valuation of the property. Such occurred on17 February 2017 but Maryanne has never provided Syrina with a copy of the report.[11] The relationship between the parties has now broken down irretrievably.Maryanne continues to be in default of her rental obligations. Meanwhile accountsaccrue in respect of the property, including insurance, rates and water rates. Becauseof her concern about the insurance status of the property, Syrina has personally madea payment of $821.40 to the insurance company, but there are further sums now due.[12] In addition, the property requires repairs and maintenance including to its deckand linoleum in the toilet and bathroom.[13] Syrina states that her position is one of considerable hardship. She lives in aHousing New Zealand rental property in Nawton, Hamilton and supports a sickdaughter and two grandchildren on what she states to be "a very limited income". Sheseeks a sale of the property in order to be able to discharge the mounting accounts nowoutstanding in respect of it and with the hope that her share of the nett proceeds maybe sufficient for her to place a deposit on a small home for herself and her family.[14] Syrina identifies a number of significant contributions made by her withrespect to the property. These in fact commenced before her mother's death becausethere was at that stage a mortgage on the property, which her mother had been unableto service. Indeed she was at risk of losing the house to a mortgagee sale. As a result,Syrina loaned her mother the sum of $8,658 to discharge the mortgage. This was adebt in the estate. However, because the estate's only asset was the house, the estatecould not repay her. Within the last few years of her mother's life she also funded anumber of improvements to the property including the installation of a heat pump,shower dome, water filter and new blinds to a total value of $4,189.[15] In the memorandum filed by counsel in support of Syrina's application forformal proof, compensation was sought in respect of those sums. However, duringthe course of oral argument I raised with counsel whether such claims could besustained, because it seemed to me arguable whether contributions to the propertyprior to co-ownership by the plaintiff and defendant (at least in equity) were mattersthat could be appropriately compensated for under the Act.1 In response, MrBurtenshaw advised that it was not Syrina's intention to proceed with this aspect ofher relief. Nevertheless, I will take into account, in terms of the overall discretion Iam required to exercise, the fact that the plaintiff has made contributions to theproperty prior to co-ownership, for which she is now unlikely to be compensated.1 In particular having regard to the reference in s 342(1)(e) of the Act to "the value of anycontribution by a co-owner".[16] Since the property has been transferred to the parties, Syrina has made thefollowing additional contributions to or in respect of it:(a) Legal fees $1,018.00(b) Insurance $ 821.40Total $1,839.40I am satisfied with the evidence produced in respect of such expenditure.The law[17] The Court's powers to order the sale or division of a property are identified inss 339 and 343 of the Act:339 Court may order division of property(1) A court may make, in respect of property owned by co-owners, anorder—(a) for the sale of the property and the division of the proceedsamong the co-owners; or(b) for the division of the property in kind among the co-owners;or(c) requiring 1 or more co-owners to purchase the share in theproperty of 1 or more other co-owners at a fair and reasonableprice.(2) An order under subsection (1) (and any related order under subsection(4)) may be made—(a) despite anything to the contrary in the Land Transfer Act2017; but(b) only if it does not contravene section 340(1); and(c) only on an application made and served in the mannerrequired by or under section 341; and(d) only after having regard to the matters specified in section342.(3) Before determining whether to make an order under this section, thecourt may order the property to be valued and may direct how the costof the valuation is to be borne.(4) A court making an order under subsection (1) may, in addition, makea further order specified in section 343.(5) Unless the court orders otherwise, every co-owner of the property(whether a party to the proceeding or not) is bound by an order undersubsection (1) (and by any related order under subsection (4)).343 Further powers of courtA further order referred to in section 339(4) is an order that is made in additionto an order under section 339(1) and that does all or any of the following:(a) requires the payment of compensation by 1 or more co-owners of theproperty to 1 or more other co-owners:(b) fixes a reserve price on any sale of the property:(c) directs how the expenses of any sale or division of the property are tobe borne:(d) directs how the proceeds of any sale of the property, and any intereston the purchase amount, are to be divided or applied:(e) allows a co-owner, on a sale of the property, to make an offer for it,on any terms the court considers reasonable concerning—(i) the non-payment of a deposit; or(ii) the setting-off or accounting for all or part of the purchaseprice instead of paying it in cash:(f) requires the payment by any person of a fair occupation rent for all orany part of the property:(g) provides for, or requires, any other matters or steps the court considersnecessary or desirable as a consequence of the making of the orderunder section 339(1).[18] An order under s 339(1) can only be made after the Court has had regard to thematters specified in s 342. This provides:2342 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;2 Section 339(2)(d).(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; and(f) any other matters the court considers relevant.[19] Subject to the mandatory considerations in s 342, the Court has a broaddiscretion under the relevant sections to make such orders as are necessary to bring toa practical conclusion any impasse between co-owners.3Discussion[20] With regard to the considerations identified in s 342(1) of the Act, I make thefollowing observations:Section 343(1)(a) and (c), number of co-owners, extent of their shares andshareholding applicant[21] The plaintiff and the defendant each own 50 per cent of the property.[22] The plaintiff's share is therefore substantial. She has legitimate entitlementeither to an income from that share or to redeployment of the capital if required forother purposes. She should certainly not be expected to continue to meet outgoingsand maintenance in respect of the property while receiving no benefit from it.Section 342(1)(b) the nature and location of the property[23] The property is located in Waharoa, a short distance north of Matamata. Fromthe marketing appraisal it presents as a modest dwelling for which comparableproperties can be expected to be available in the market. That said, however, Iacknowledge the sentimental considerations attaching to its former ownership.3 Bayly v Hicks [2012] NZA 589, [2013] 2 NZLR 401 at [32].Section 341(1)(d) hardship caused to the applicant[24] I accept that the plaintiff's position is one of hardship, compounded by whatappears to be a wholly unreasonable refusal on the part of the defendant to meet herfinancial obligations in respect of the property. The plaintiff has an entitlement tomove on with her life for which realisation of her capital in the property is necessary.Because the matter has proceeded by way of formal proof I have no evidence as to thedefendant's circumstances. Nevertheless, I accept that if the property is sold and thedefendant's share is paid to her she will be in a position either to secure alternativerental accommodation, or place a deposit on a similarly modest dwelling.Section 342(1)(e) the value of any contribution made by any co-owner[25] I accept that Syrina has made significant contributions to or in respect of theproperty.Section 342(1)(f) other matters[26] I take into account also the fact that the relationship between Syrina andMaryanne appears to have broken down irretrievably and Maryanne's failuremeaningfully to engage in a process by which she might purchase the plaintiff's share(as evidenced by her refusal to provide a copy of the valuation report commissionedby her). I note also her ongoing refusal to pay rent in circumstances that can only beinterpreted as trying to place maximum pressure on Syrina to settle with her onuncommercial terms.[27] I am satisfied therefore that orders are appropriately made under s 339(1)(a) ofthe Act for a sale of the property and division of the proceeds among the co-owners.[28] In terms of s 343 of the Act I am further invited to:(a) make orders requiring payment of compensation by the defendant tothe plaintiff;(b) fix a reserve price on any sale; and(c) make directions in relation to application of the sale proceeds.[29] In the submissions filed in support of the application for formal proof, counselalso sought orders:(a) terminating the tenancy in favour of Maryanne; and(b) granting possession to Syrina on the basis of her undertaking to exercisepossessory rights only to the extent required to ready the property forsale.[30] By Minute dated 22 November 2018 I pointed out to counsel that I did notconsider the High Court had jurisdiction in this respect having regard to the provisionsof ss 50, 77(2)(g) and 82 of the Residential Tenancies Act 1986. That position is nowaccepted by counsel who advises that application will imminently be made to theTenancy Tribunal to terminate the tenancy.[31] In my Minute I further inquired whether Syrina sought to have her presentapplication adjourned pending such order from the Tribunal. In response, counselsubmits that a sale order should be made now because it is possible that the TenancyTribunal proceedings will result in arrears being brought up to date and that no orderterminating the tenancy will then be made. In that event Syrina would seek to havethe property sold as an investment property with a fixed term tenancy expiring 20December 2021.[32] I consider such proposals fairly balance what I have concluded is Syrina'sentitlement to orders under s 343 of the Act and Maryanne's rights under herresidential tenancy agreement. However, because there is some uncertainty as to howprecisely matters will unfold before the Tenancy Tribunal it is appropriate to reserveleave to Syrina to apply for such variation and/or any additional orders as may benecessary to effect the "clean break" the parties, in my view, require.Compensation[33] In my view Syrina is appropriately compensated from Maryanne's share of thesale proceeds for half of the contributions identified in para [16] above. The total ofsuch compensation is $919.70.[34] In addition she is, in my view, also appropriately compensated for Maryanne'soccupation of the premises.4 I assess the value of that compensation as $7,850.00, asof 31 July 2018, plus an additional sum of $150.00 per week for every week thereafteruntil the defendant vacates the property. This equates to Maryanne's unpaid rent underthe tenancy agreement. Such obligations may, however, be made good in the contextof Syrina's intended Tenancy Tribunal proceedings, in which case this aspect ofcompensation is to be limited to such additional rental (if any) as has not been paid atthe point the proceeds of sale are split.Reserve[35] As indicated, the current valuation of the property for rating purposes is$148,000, and the most recent real estate agent's appraisal recommends a listing priceof $250,000 and sale within the range of 92–96 per cent of that sum. To allow for anyadjustments in the market since that time I consider an appropriate reserve price inrespect of the sale to be $225,000. However, in terms of the leave which I am reservingto Syrina, she may seek a variation to this reserve price if, after reasonable endeavoursto sell the property, the reserve I have fixed is considered unachievable. I accept thatlatitude should be allowed in terms of whether the sale is conducted by private treatyor auction process.Disposition of sale proceeds[36] The submissions of counsel propose that the sale proceeds be applied in thefollowing order:4 Section 343(f) of the Act.(a) The relevant costs of sale, including legal conveyancing fees,advertising, auctioneer and real estate agent's costs and any costsassociated with representation of the property for sale.(b) Reimbursement to Syrina of the sum of $8,769.70 in respect ofcontributions and unpaid occupation rent together with the sum of $150per week for every week after 31 July 2018 until the defendant ceasesoccupation.(c) The balance to be paid to Syrina and Maryanne's nominated bankaccounts in equal shares subject to the order as to any order as to costsin the present proceedings.[37] There is in my view an illogic in that proposal in that to compensate Syrinaproperly for Maryanne's unpaid contributions and Syrina's entitlement to an allowanceunder s 343(f), compensation needs to be paid from Maryanne's half share, not the nettsale proceeds prior to division. In Bayly v Hicks the Court of Appeal observed that theCourt's broad discretion on a s 339 application could include orders and directionsdifferent from those sought by the parties.5 Ordinarily there would need to be anopportunity to comment on the Judge's own proposals,6 but I consider thatunnecessary in the context of the error I have identified because the change is toSyrina's benefit and Maryanne has taken no steps in this proceeding.[38] The orders made out at the conclusion of the judgment reflect what I considerto be the correct approach to reimbursement.Costs[39] Syrina seeks costs on her application. In her counsel's initial memorandum,these included costs of $1,878 on an unsuccessful earlier application to commence theproceedings by way of originating application. However, after discussions betweencounsel and the Bench during the course of the formal proof hearing this aspect of theapplication was abandoned.5 Bayly v Hicks [2012] NZA 589, [2013] 2 NZLR 401 at [27].6 At [34].[40] I accept, however, the balance of the plaintiff's costs calculations totalling$12,427 including disbursements. These are particularised in the schedule attached tothis judgment.[41] In addition, the plaintiff claims an uplift of 30 per cent on this costs awardunder r 14.6.7 Because the matter proceeds by way of formal proof and therefore noneof the factors in r 14.6(3)(b)(i)–(iv) are engaged, the plaintiff relies on r 14.6(3)(b)(v),which permits an uplift where the party against whom costs are sought has failed: to accept an offer of settlement under r 14.10 or some other offer to settleor dispose of the proceeding.[42] I do not consider such an increased costs award appropriate. Syrina has madetwo offers to purchase the property. The first was at a level of half the current Councilrating valuation. Significantly, when Maryanne made an offer to purchase the propertyfor a broadly similar amount it was unacceptable to Syrina. So Syrina cannot be heardto say therefore that Maryanne's rejection of her offer was unreasonable.[43] The second offer was that Maryanne purchase her share for $125,000 (whichincluded allowance for Maryanne's various contribution and arrears). That appears tohave been a reasonable offer but I do not have any information from which I can safelyconclude that Maryanne had the financial resources to purchase on these terms. Againtherefore I cannot be satisfied that the offer was declined "without reasonablejustification".[44] I accept that the defendant's conduct has, since she obtained occupation of theproperty, been obdurate but increased costs awards are, apart from their role in relationto settlement offers, primarily focused on obduracy in the conduct of proceedings.Such is not the case here.[45] I therefore decline the application for increased costs.7 High Court Rules 2016, r 14.6.Result[46] I make the following orders:(a) That the plaintiff is authorised to sell the property situated at 11 CadmanStreet, Waharoa, being Lot 3, Deposited Plan SA 21C/1176 SouthAuckland 3024 on the following terms:(i) The plaintiff is to appoint L J Hooker Matamata as real estateagent to act on the sale.(ii) The property is to be sold by either auction or by private treatyand in either case at a minimum sale price of $225,000.(iii) In the absence of orders by the Tenancy Tribunal terminatingthe residential tenancy in favour of the defendant (or the tenancybeing otherwise lawfully terminated), the property is to be soldsubject to the existing residential tenancy agreement dated 4February 2017.(iv) No sale may be made to the plaintiff or interests associated withher without further application to the Court.(v) The plaintiff is authorised to engage Norris Ward McKinnonSolicitors to act in respect of the sale.(vi) The plaintiff is authorised to sign all such documents as arenecessary to effect a transfer of the property.(vii) Norris Ward McKinnon are authorised to act on the sale,transfer and subsequent division of the sale proceeds.(b) That the proceeds of sale be applied as follows:(i) To the plaintiff by way of reimbursement (or by way of directpayment to relevant third parties) of the costs and expensesassociated with the sale including legal, conveyancing fees,advertising, auctioneer and real estate agent's costs, payment ofarrears of rates, water rates and insurances, and any requiredmaintenance to the property.(ii) The nett sum after deduction of such costs to be divided intotwo equal portions.(iii) From the defendant's 50 per cent share, the following sums tobe paid to the plaintiff:1. The sum of $12,427.00 on account of costs as calculated inaccordance with the Schedule annexed hereto.2. The sum of $919.70, being 50 per cent of the total value ofthe items specified in paragraph [16] hereof.3. Such sum as is necessary to compensate the plaintiff inrespect of the defendant's occupation of the property sinceDecember 2016 having regard to:a. the plaintiff's entitlement to 50 per cent of an assessedoccupation nett of $300 per week.b. a liability of $7,850 as at 31 July 2018 and $150 perweek thereafter.c. such sum as the defendant has paid (either voluntarilyor pursuant to order of the Tenancy Tribunal) at thepoint division of the proceeds is made.(iv) The balance held to the plaintiff and defendant's respectiveaccounts is to be then paid to them or at their direction.[47] I reserve leave to the plaintiff to apply to the Court for a variation of theseorders to the extent necessary to give practical effect to the sale and to subsequentdivision of the proceeds thereof.__________________________Muir J