Broderick v Menchavez
[2021] NZHC 557
•18 March 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-2203
[2021] NZHC 557
UNDER THE Property Law Act 2007, ss 339 and 343 BETWEEN
ALITA MENCHAVEZ BRODERICK
Applicant
AND
BRYNER RUSSEL MENCHAVEZ & ORS
Respondent
Hearing: 15 March 2021 Appearances:
K Muller for the Plaintiff
No Appearance for the Respondent
Judgment:
18 March 2021
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 18 March 2021 at 2:30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
BRODERICK v MENCHAVEZ & ORS [2021] NZHC 557 [18 March 2021]
Introduction
[1] Ms Broderick and her son, Mr Menchavez, are co-owners of an apartment at 188 Hobson Street, Auckland. Ms Broderick has brought an originating application for an order under s 339 of the Property Law Act 2007 that the apartment be sold. She has also made an interlocutory application for an order dispensing with service of her originating application on Mr Menchavez.
[2] For the reasons that follow, I am satisfied both that I should dispense with service 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 an apartment at 188 Hobson Street, Auckland. He needed bank finance to make the purchase. Ms Broderick wanted to assist him with the purchase. She was prepared to act as a guarantor for Mr Menchavez, but the bank would lend money to Mr Menchavez only if Ms Broderick was on the title as a co-owner.
[4] Consequently, Ms Broderick and Mr Menchavez purchased the apartment, as co-owners, in March 2006. At purchase, the apartment was subject to a lease in favour of 188 Hobson Apartments Limited (Hobson Apartments). Hobson Apartments operates 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 formula that depends on the hotel operations.
[5] The purchase price of the apartment was $269,000. Westpac New Zealand Limited (Westpac) provided finance of $210,000, secured by a first mortgage. The balance of the purchase price was funded primarily by Ms Broderick. (Ms Broderick subsequently, in 2015, gifted to Mr Menchavez this contribution to the purchase price.)
[6] The arrangement between Mr Menchavez and Ms Broderick was that Mr Menchavez would fund the mortgage repayments to Westpac, be responsible for
managing all aspects of the property, and, eventually, benefit from any capital gain on the property.
[7] All rentals received from the lessee, Hobson Apartments, were paid into a joint bank account that Mr Menchavez and Ms Broderick held with Westpac. Those rentals were initially sufficient to cover the mortgage payments due to Westpac, but from early 2008 the rentals were sometimes insufficient to cover those payments. Although the arrangement was that Mr Menchavez would fund any shortfall, there were occasions in 2008 and 2009 when Ms Broderick had to pay sums herself to cover the mortgage payments. Ms Broderick’s payments at that point totalled about $21,000.
[8] When they purchased the apartment together, Mr Menchavez was still living in the family home with Ms Broderick (and her husband Mr Broderick, Mr Menchavez’s stepfather) in Melbourne. In 2015, Ms Broderick and Mr Broderick sold that home and moved to Tasmania. Mr Menchavez chose to remain living in Melbourne.
[9] From about 2017, Ms Broderick became increasingly concerned about a noticeable reduction in communication from Mr Menchavez. Several weeks would go by without any contact from him. Ms Broderick communicated with friends of Mr Menchavez in order to make contact. It transpired that Mr Menchavez was seeing a mental health professional. By the end of 2017, contact had been re-established between Ms Broderick and Mr Menchavez.
[10] In 2018, however, contact once again dwindled. In the meantime, Mr Menchavez stopped making any payments into the joint account with Westpac for several months. As a result, eight mortgage payments were missed. In late 2018, Ms Broderick received a letter from Westpac advising that legal action would be taken over 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 made a payment of over $11,000 to cover the missing mortgage payments. He also made a
payment of about $1,800 on 11 March 2019. Mr Menchavez has not made any further payments.
[12] By late May 2019 there was concern about Mr Menchavez’s whereabouts, as he had not been seen or heard of in several weeks. On 25 May 2019, one of Mr Menchavez’s friends reported him missing to Victoria Police. The next day Victoria Police told Ms Broderick they had located Mr Menchavez but that he wished to remain uncontactable.
[13] Mr Menchavez then briefly made contact again with some of his friends. But some time in July 2019 Mr Menchavez appears to have simply walked out of the apartment he was renting in Melbourne, leaving most of his belongings behind. Mr Menchavez stopped paying rent, and his lease came to an end. Ms Broderick collected his belongings and put them in storage. She also listed Mr Menchavez as a missing person 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 Victoria Police told her that they had found Mr Menchavez living out of a car on a side street in the Melbourne CBD. Because he was doing nothing illegal, Police removed him from the missing persons list.
[15] Ms Broderick has had no further contact with Mr Menchavez. She is not aware of any of his extended family or friends having contact with him.
[16] Since March 2020, the COVID-19 pandemic has adversely affected the hotel operation at 188 Hobson Street. This has caused the rent return on the apartment to be much lower than usual. The rent has been well short of the mortgage payments. In Mr 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. That sector has been affected by the pandemic. This has reduced Ms Broderick’s income.
[18] This combination of events has caused considerable financial and other stress for Ms Broderick. She and her husband have no cash reserves to draw on to cover the mortgage payments. She has a superannuation fund, but she cannot access that for another five years.
[19] Westpac has provided some relief. It granted a six-month payment freeze from April 2020, though interest continued to accrue. Ms Broderick has a hardship application with Westpac, under which she is presently making interest-only payments. Full mortgage payments will resume in June 2021. If she had been making full 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 the expenses of sale and repayment of the mortgage, there is likely to be a balance in excess 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 an order that the apartment be sold and for division of the proceeds of sale between her and Mr Menchavez.1 She swore a detailed affidavit in support, deposing to the factual background I have just set out.
[22] In her application Ms Broderick proposed that the sale proceeds (after repayment 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 connection with the apartment;
(c)Reimbursing Ms Broderick for the cost of this proceeding; and
1 Ms Broderick applied for, and was granted, permission to commence her proceeding by way of originating 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 Mr Menchavez, Hobson Apartments, and Westpac.
[24] Ms Broderick has served both Hobson Apartments and Westpac. Neither has taken any steps.
[25] Ms Broderick has tried, without success, to serve Mr Menchavez. This has led to 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 has had no further contact, direct or indirect, with her son. She has merely heard of random occasions where he has been active on WhatsApp and a couch-surfing website. She was recently given a possible address for her son. She passed this address on to a process server.
[27] The process server has deposed that she was unable to locate Mr Menchavez at the address given by Ms Broderick. She has also deposed that she has sent messages to Mr Menchavez by WhatsApp and SMS messages. These messages tell Mr Menchavez that the process server has legal documents from New Zealand to deliver to Mr Menchavez regarding a property at 188 Hobson. The process server has not received any response.
[28] Section 341(2) of the Property Law Act 2007 requires that an application for a sale order under s 339 must be served on a co-owner of the property. However, s 341(3) provides that the court to which the application is made may (among other things) dispense with service. Similarly, r 6.8 of the High Court Rules 2016 provides that, if reasonable efforts have been made to serve documents on a person, and the documents cannot be promptly served, the Court may (among other things) dispense
with service. Rule 6.8 also says that such dispensation may be subject to any conditions that the Court thinks just to impose.
[29] It is just to dispense with service on Mr Menchavez. First, Mr Menchavez has chosen to make himself very difficult to contact. Second, efforts have been made to serve Mr Menchavez, and those efforts are reasonable in the circumstances (which are of Mr Menchavez’s making). Third, although service has not been effected, the process server’s messages are likely to have brought to Mr Menchavez’s attention that some important legal process is underway with the apartment. Fourth, there is some urgency in having the substantive application determined (and that urgency is partly of Mr Menchavez’s making). Fifth, the merits of the substantive application strongly favour an order for sale, and that sale will benefit Mr Menchavez (by stopping further interest accruing under the mortgage), rather than prejudice him.
[30] I will therefore make an order dispensing with service of the originating application on Mr Menchavez. This will be subject to conditions requiring Ms Broderick to take steps to communicate to Mr Menchavez, by WhatsApp and SMS messages, (i) the substantive orders that I will be making and (ii) in due course, the outcome of the sale (in particular, the amount of any balance that Ms Broderick holds on 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 to make 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 any further order specified in s 343. Relevantly to this application, s 343 provides that those further orders may include an order directing how the expenses of any sale are to be borne, and an order directing how the proceeds of sale are to be divided between the co-owners.
[32] Section 342 stipulates relevant considerations to the exercise of the discretions under ss 339(1) and (4):
342 Relevant considerations
A court considering whether to make an order under section 339(1) (and any related 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, or in respect of whose estate or interest, the application for the order is made:
(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 of the order, in comparison with the hardship that would be caused to any other person by the making of the order:
(e)the value of any contribution made by any co-owner to the cost of improvements 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’s apartment. Most telling is the hardship that would be caused to Ms Broderick if I were to refuse the order. She is currently under significant financial strain. This has come about primarily because Mr Menchavez has neglected, since March 2019, to take responsibility for the mortgage payments. If I do not make the order, this financial strain will increase, particularly once the interest-only mortgage payment arrangement ends. A mortgagee sale is then likely to eventuate, with the risk of Ms Broderick being exposed to liability for any shortfall.
[34] By contrast, it is unlikely that any hardship would be caused to Mr Menchavez by a sale order. The sale is likely to be to his benefit, given that it will avoid a possible mortgagee sale, and the balance of the net proceeds will be held for him on trust. The only conceivable downside for Mr Menchavez is that, if he planned to hold the property for many years to come, he will be disappointed by the sale. But his behaviour 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 will also be making the further orders sought by Ms Broderick for the division of the proceeds of the property. The only caveat to those orders is that Ms Muller, counsel for Ms Broderick, advised me at the hearing that she needed to confirm the amount
that Ms Broderick had paid in connection with the property. I will be making orders that 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 an order authorising Ms Broderick to enter into any agreements, or sign or execute any documents, necessary to effect a sale of the property. I will reserve leave to Ms Broderick to apply for any further orders that may be necessary.
Result
[37] I make an order dispensing with service of the originating application on Mr Menchavez.
[38] I direct Ms Broderick to take steps to communicate to Mr Menchavez, by WhatsApp and SMS messages:
(a)That this Court has ordered that the unit at 188 Hobson Street is to be sold, with the net proceeds of sale (after the expenses of sale, repayment of the mortgage, and reimbursement of Ms Broderick for her mortgage payments and for the costs of this proceeding) to be held by Ms Broderick on trust for Mr Menchavez; and
(b)In due course, the outcome of the sale (in particular, the amount of any balance 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 following orders:
(a)For the sale of the property known as Unit G.09 at 188 Hobson Street Auckland (the Property), being a stratum estate in freehold, Unit G.09 Deposited Plan 356167 (Identifier 229052), by listing and negotiation, or by auction;
(b)Ms Broderick is authorised to enter into any agreements, or sign or execute any documents, necessary to effect the sale of the Property;
(c)Expenses of the sale of the Property are to be borne equally between the two co-owners;
(d)The net proceeds of the sale of the Property, and any interest on the proceeds, 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 connection with 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 trust for 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 by this Court.
[41] Leave is reserved to Ms Broderick to apply for any further orders that may be necessary.
Campbell J
0
0
1