Rozee v Zhang
[2019] NZHC 2165
•30 August 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000341
[2019] NZHC 2165
BETWEEN ROBERT WILLIAM ROZEE, BLAIN MORGAN WALLACE CRIGHTON, ELIZABETH ALICE SAWERS, AARON O’BRIEN, PAG PROPERTY HOLDINGS LIMITED and RICHARD NOEL SAWERS
PlaintiffsAND
DONGGEE ZHANG
First Defendant
AND
TRI POWER LIMITED
Second Defendant
Hearing: 22 August 2019 Appearances:
T Grimwood for the Plaintiffs
No appearance for the First Defendant and Second Defendant
Judgment:
30 August 2019
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me at 4.00 pm on 30 August 2019 pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
Anthony Harper, Christchurch
ROZEE v ZHANG [2019] NZHC 2165 [30 August 2019]
Introduction
[1] The plaintiffs, who are six of eight co-owners of a cross-lease development, apply by way of summary judgment for an order for the sale of the property and division of the proceeds of sale, under s 339(1)(a) Property Law Act 2007. The remaining two co-owners are the first and second defendants.
[2] The first defendant has been opposed to the sale of the property. She agreed to accept service by email but has not filed any opposition to the application for summary judgment.1 After service, the first defendant sent, by email, to the plaintiffs’ solicitors what purports to be a statement of defence. That document was not filed with the court. I refer to the document as the statement of defence, but it has no status as such.
[3] The second defendant was initially opposed to the sale of the property but does not now oppose the plaintiffs’ application.
[4] Whilst the application is effectively unopposed,2 I am required to be satisfied that the plaintiffs have discharged their obligation to show that the first defendant has no arguable defence to the claim.
The background
[5] Each co-owner (apart from Richard Sawyers and Aaron O’Brien) owns, as a tenant in common, a one-tenth share of the property at 24 London Street, Richmond, Christchurch (Lot 2 Deposited Plan 21043, Canterbury District Identifier CB18A/1432), and has a lease for a term of 999 years from 4 October 1977 of one flat and one carport (Memorandum of Lease 154927). Messrs Sawyer and O’Brien each own two-tenths shares and lease two flats and carports.
1 Rule 6.7 High Court Rules. After the application and supporting documents were sent to the plaintiff she acknowledged, by email, receipt of them to the plaintiffs’ lawyers. She then sent to the plaintiffs’ lawyers a statement of defence. She was served with the plaintiff’s amended statement of claim by email on 7 August 2019 and emailed the plaintiffs’ solicitors from her email address later that same day about the proceeding.
2 As no papers have been filed with the court in opposition to it.
[6] The first defendant is Chinese and is presently in China. She acquired her interest in the property in February 2016 as a residence while her son is being educated in Christchurch.
[7]The relevant terms of the co-owners’ leases include terms that:
(a)The Lessee is to keep and maintain in good order, condition and repair the interior and exterior of its flat and other amenities serving the flat;
(b)The Lessee is to effect and keep current a comprehensive insurance policy (including cover for fire and earthquake risk) to the full insurable value for such parts of the building as the Lessee holds as a tenant;
(c)In the event of the Lessee’s flat being destroyed by fire, earthquake or any other cause whatsoever during the term of the lease, the Lessee would repair and make good such destruction or damage to the reasonable satisfaction of the Lessors;
(d)In the event of destruction or damage occurring in respect of any part of a building not held by a Lessee pursuant to any lease, the Lessors would with reasonable dispatch repair and make good such destruction or damage and the Lessee would bear a proportionate share of the cost of doing so; and
(e)The Lessors could re-enter and determine the lease without releasing the Lessee from any liability for any previous breach of the lease if the Lessee made any default under the lease which was not remedied within two months of receipt of written notice from the Lessors specifying such breach; and
(f)That in the event of the lease being determined or becoming determinable in a manner provided in the lease, the Lessee could be required by the Lessors to sell its share in the fee simple of the land to such person and at such consideration as may be nominated by the
Lessors and execute all such documents as shall be required to complete the sale.
[8] Prior to the Canterbury Earthquake Sequence of 2010 and 2011, the co-owners individually insured their flats with either IAG New Zealand or AMI Insurance (later, Southern Response). The flats were extensively damaged in the earthquakes. The Earthquake Commission determined that in respect of each flat the cost of repair exceeded its statutory cap. By 13 August 2018, IAG and Southern Response determined that:
(a)To repair the earthquake damage, all flats must be repaired together, and
(b)The flats were uneconomical to repair, and the co-owners’ claims would be settled based on a rebuild.
[9] The co-owners cash-settled their claims with their respective insurers. Since that time, the flats have remained uninsured. This means that there is no insurance cover for damage caused by one co-owner to another co-owner’s property. Because of the earthquake damage, only five of the 10 flats are currently occupied.
[10] Following settlement of the co-owners’ insurance claims, offers to purchase the property were received. Initially, all co-owners (which did not then include the second defendant) agreed to sell. In December 2018, an unconditional offer to purchase the property for $1,080,000 was made by Old Kent Road Investments Ltd (OKR). At a meeting of 7 December 2018, the first defendant said she did not wish to sell the property. She believed property prices were likely to rise and was concerned that legislation has been passed that would prevent her from purchasing another property in New Zealand.3 She said she would only accept OKR’s offer if she was paid compensation and a higher proportion of the sale price than her co-owners.
3 I understand what was being referred to is the Overseas Investment Amendment Act 2018 (2018 No 25).
[11] The position then, as at 7 December 2018, was that there was 90% support (i.e. the owners of 9 out of 10 flats) to the sale. However, later in December 2018, one co- owner, Mr Roy, sold his interest to the second defendant and the second defendant was also opposed the sale.
[12] The offer from OKR expired but was later extended and remains open until 30 September 2019.
[13] Attempts were made to reach agreement with the first defendant. They were unsuccessful. On 7 February 2019, the plaintiffs’ solicitors, Anthony Harper, wrote to the first defendant putting her on notice that the plaintiffs would apply to the court for an order for the sale of the property. The first defendant replied by email on 12 February 2019, that she had received advice from a property lawyer and would not sell.
[14] In April 2019, substantial water leaks were discovered in flats 2 and 7 (the flats of the first defendant and second defendant) causing damage to those flats, as well as to flats 6 and 8. Flats 2 and 7 are unoccupied and the leaks were not discovered for at least one month. The water damage is not covered by insurance.
[15] On 1 May 2019, the first defendant emailed the first-named plaintiff, Mr Rozee, that she that she would agree to the sale of the property provided the court provided the means for her to purchase a replacement property.
The parties’ positions
The plaintiffs
[16] The plaintiffs advance several grounds that they contend warrant the court exercising its discretion to grant the orders sought.
[17] First, all co-owners have settled their insurance claims on the basis that the flats cannot be economically repaired. Some of the flats are not habitable, due to earthquake damage. Repairs to the flats are only viable if all are repaired together, but there are no proposals to undertake repairs or to demolish and rebuild.
[18] Second, the co-owners are in breach of the obligation in the lease to repair and make good earthquake damage. They are also in breach of the obligation to maintain and keep current insurance. The leases are determinable due to the lessees’ inability to economically repair and make good earthquake damage and obtain insurance.
[19] Third, if the co-owners repair or rebuild, they will be assuming a high level of risk. The plaintiffs contend that the repair costs will likely exceed the amounts received in settlement of their insurance claims, and that rebuild costs will likely exceed the market-value of completed flats. They also say that one or more of them may not be willing or able to contribute their share of the repair/rebuild costs, and that there is no prospect that they will be able to agree on, and co-ordinate, repair or a rebuild.
[20] Fourth, the price that OKR has agreed to pay for the property exceeds its market-value.
[21] Fifth, the co-owners are unlikely to be able to sell their flats individually and, in the meantime, all are financially exposed if there is further damage to their flats, as they have no insurance.
[22] Sixth, the sale will stem the plaintiffs’ losses. Some are losing rental or have had to move out of their flats but are still having to pay rates (and other charges).
[23] Seventh, with the passage of time, the flats are deteriorating. As noted, recently some flats suffered water damage due to the leaks.
[24] Eighth, it is only by the sale of the whole property to one purchaser that the co- owners will free themselves from the obligation under the lease to make good the earthquake damage. The terms of OKR’s offer includes indemnities from liability arising from any failure to demolish, repair or reinstate improvements on the property or the land and in respect of any failure to meet obligations under the lease.
The first defendant
[25] The first defendant has maintained that she will not sell her flat as she is prevented from buying another property in New Zealand and she requires the flat for four years so that her son can complete his education in New Zealand.
[26] In the statement of defence, the first defendant does not deny that there have been water leaks but says that the building has no value and (illogically given her opposition to the sale) OKR is unconcerned about the water damage. She also acknowledges that offers to pay her compensation were made.
Legal principles
Summary judgment
[27] The application for summary judgment is made pursuant to r 12.2(1) High Court Rules. The principles upon which the Court will act on such applications are well-known. I adopt the principles set out by the Court of Appeal in Krukziener v Hanover Finance Ltd,4 as follows:
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at
341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
4 Krukziener v Hanover Finance Ltd [2008] NZCA 187; [2010] NZAR 307 at [26].
Division between co-owners
[28] The court’s power to order the sale of co-owned property, and the division of the proceeds of sale amongst the co-owners, is contained in s 339(1)(a) Property Law 2007. The authorities explain that, in contrast to the situation prior to the enactment of the Property Law Act 2007, applications seeking the division of property among co-owners under Subpart 5 Property Law Act 2007 require the court to take account of a broad variety of considerations. Those considerations are articulated in s 342 Property Law Act 2007.
[29] The Court is concerned to achieve fairness between co-owners.5 In Bayly v Hicks, the Court of Appeal said:6
[32] The feature of s 140(2) and (3) of the 1952 Act where there was reference to the court making an order “on the request of any party interested …” is not repeated. Under this new broad discretionary regime it is appropriate for a judge to stand back from the submissions and proposals of the parties, and consider what, on an overview, taking into account the relevant considerations, is the most just and practical way through the impasse before the court, even if the answer may not reflect the orders sought by the parties. By definition the cases that come before the court arise where parties are locked into an ownership position which they cannot resolve because of the positions they have taken, and where a way out may be by a path neither has to that point contemplated.
[30] As the court is required to exercise a wide discretion in every case as to the order to be made ̶ usually after hearing from both parties on the matters that bear upon the exercise of the court’s discretion ̶ the summary judgment procedure is not well suited to s 339(1) applications.7 However, there have been a number of successful applications for summary judgment under s 339(1).8 I am satisfied that I am able to
5 Kid Country Te Atatu Limited v Hoy [2019] NZHC 988 at [15].
6 Bayly v Hicks [2013] NZCA 589 at [25].
7 Bayly v Hicks, above n 6, at [31].
8 Fuller v Smets [2013] NZHC 1284; McLeary v Prizard [2012] NZHC 2151; Coffey v Coffey [2012] NZHC 1765; Jacobson v Guo (2008) 9 NZCPR 850; MacKenzie v Smythe [2012] NZHC 1113 and; Official Assignee v Truong [2019] NZHC 1286.
deal with the application by way of summary judgment. The application is unopposed, and I can have proper regard to the factors relevant to the exercise of my discretion.9
The Property Law Act provisions
[31] Pursuant to s 339(1)(a), the court may make, in respect of property owned by co-owners, an order for the sale of the property and division of the proceeds amongst the co-owners. Under s 339(3), before determining to make such an order the court may require that the property be valued.
[32] Section 341(1)(a) provides that an application under s 339(1) may be made by a co-owner of any property. There is no doubt that the plaintiffs and the defendants are co-owners of 24 London Street.
[33] Section 342 provides that in the exercise of the court’s discretion under s 339(1), the court is required to have regard to the following relevant considerations:
(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; and
(f)Any other matters the court considers relevant.
[34]Under s 343, the court may make further it considers necessary or desirable.
9 Section 342 Property Law Act 2007.
The relevant considerations
The extent of the share in the property of the plaintiffs as co-owners
[35] The plaintiffs and the second defendant (who does not oppose the sale) hold in total a nine-tenths-share in the property. In MacKenzie v Smythe, Associate Judge Gendall (as he then was) considered the fact that the plaintiffs seeking partition held a majority share in the property an important factor in favour of granting the application.
10 The same is the case here, but to a markedly greater degree.
The nature and location of the property
[36] The London Street property consists of a two-storey multi-flat building constructed from concrete block and timber walled framing. There are five flats downstairs (flats 1-5) and five flats upstairs (flats 6-10). There is also a ten-car concrete block carport at the rear of the property.
[37] The property has been valued by Bayleys Valuations on an “as is” basis (all lots being sold together) at $950,000, and a maximum of $3,000,000 if all flats were completed to an “as new” or “as when new” code-compliant condition. On this basis, OKR’s offer of $1,080,000 is above market-value.
[38] It is significant that the flats are comprised in one building that has significant earthquake damage and all repairs must be undertaken together. Understandably, in circumstances where such repairs have been deemed uneconomic, the co-owners have no intention to undertake them. Furthermore, some flats are uninhabitable and will be deteriorating due to the passage of time, and the recent leaks. Plainly, the present state- of-affairs cannot continue. The co-owners only realistic options are to demolish and rebuild or to sell their interests, either individually or collectively.
10 MacKenzie v Smythe, above n 10.
The number of co-owners and the extent of their shares
[39] The plaintiffs’ application is supported by an overwhelming majority of co- owners. The first defendant is alone in her opposition to the application and holds only a one-tenth share in the property.
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
[40] The concept of hardship means more than mere inconvenience and disappointment. It is an adverse effect that has significant impact.11 Hardship must be considered consistently with the policy of the Property Law Act 2017, that respects property rights, in the round12 and by reference to the proposal before the court.13
[41] The hardship to the plaintiffs by the refusal of the orders sought would be significant. In practical terms, the refusal of the orders would mean that the plaintiffs were left with earthquake damaged flats that they can neither repair nor demolish and rebuild. In some instances, those flats are uninhabitable. The plaintiffs would remain in breach of their leases, due to their failure to repair and insure, but in no position to provide a remedy. Even if they could find a buyer for their individual interests, they could not sell free of the obligation to make good the earthquake damage. Furthermore, they would lose the sale to OKR, which is above the estimated market- value.
[42] By comparison, there is no evidence that the first defendant will suffer significant hardship by the making of orders. Whilst she has asserted that she will not be able to purchase another property, she has put no evidence before the court of her status under Overseas Investment Act 2005, whether she may be eligible for an exemption under that Act14 or, indeed, that she has any eligibility to live in New Zealand, or for how long.
11 Ramsey v Mercer [2013] NZHC 2659 at [34].
12 Holster v Grafton (2008) 9 NZCPR 314 at [50].
13 Bayly v Hicks (2001) 13 NZCPR 567 at [61].
14 Sections 61D and 61E Overseas Investment Act 2005.
[43] There does not appear to be anything preventing the first defendant from renting alternative accommodation.
[44] The first defendant’s assertion of belief that property prices may increase is entirely speculation, particularly given the damaged condition of the property.
[45] From the perspective of all co-owners, the plaintiffs’ proposal to sell to OKR has financial advantages and is fair. The sale is to be at a good price and all co-owners are to be treated equally in the division of the proceeds of sale.
[46] I conclude that in the circumstances the hardship that would be caused to the plaintiffs by the refusal of the orders sought would be substantially greater than any hardship that would be caused to the first defendant by the making of the orders.
The value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property
[47]There was no evidence about this and so this criterion is neutral.
Other matters the court considers relevant
[48] There are two matters that appear to me to have significance. First, the evidence is that the first defendant was initially supportive of the proposal to sell the property. If amendments to the Overseas Investment Act 2005 affect her, it remains that in the absence of any proposal to repair or rebuild her stance that she will occupy her flat for a further four years, regardless of the state of the property and the contrary interests of her co-owners, is entirely unrealistic.
[49] Second, while I accept the first defendant’s property rights are a factor to be considered, she is unable to assert an entitlement to continue to occupy her flat against the wishes of her co-owners in circumstances where she is in substantial breach of her lease with no prospect of providing a remedy.
The result
[50] I am satisfied that the first defendant has no defence to the plaintiffs’ claim. The plaintiffs’ summary judgment application therefore succeeds, and I make the following orders in terms of the application:
(a)An order, pursuant to section 339(1) of the Property Law Act 2007, directing the sale of the property at 24 London Street, Christchurch, being all that land comprised and described in Lot 2 Deposited Plan 21043:
(i) Flats 1-10 Deposited Plan 39617;
(ii) Carports 1-10 Deposited Plan 39617; and
(iii) Records of title: CB18A/1428; CB18A/1429; CB18A/1430; CB18A/1431; CB18A/1432; CB18A/1433; CB18A/1434; CB318A/1435; CB18A/1436 and CB18A/1437,
to any purchaser on the same or more favourable terms than the terms in the sale and purchase agreement attached to the plaintiffs amended statement of claim and marked Schedule “A”; and division of the proceeds as among the co-owners pursuant to section 339(1)(a) of the Property Law Act 2007;
(b)An order that the first named plaintiff, Robert William Rozee, is authorised to sign all documents necessary to effect the sale including the agreement for sale and purchase and all authorities and instructions that may be necessary;
(c)An order pursuant to Section 339(4) of the Property Law Act 2007 that:
(i) The sale price is to be no less than $1,080,000 (including GST, if any);
(ii) Each co-owner’s liability under an Agreement for Sale and Purchase is limited to any default by them in respect of their unit;
(iii) Anthony Harper will, on behalf of the parties, act as the conveyancing solicitors for the Property;
(iv) On settlement of the sale of the Property, the sale proceeds will be paid to Anthony Harper’s trust account and Anthony Harper shall distribute the sale proceeds to the registered co-owners of the Property as follows and in the following priority:
(A)Anthony Harper will pay or reimburse any amounts legally required to be paid in connection with the sale of the Property (e.g. Council rates);
(B)Anthony Harper will discharge all mortgages over the Property;15
(C)Anthony Harper will pay or reimburse costs and expenses reasonably incurred in connection with the sale of the Property (e.g. legal conveyancing fees); and
(D)Anthony Harper will pay a one tenth share of the sale proceeds to each unit co-owner after deducting any amounts paid in respect of each unit under (A), (B) and (C) above.
(d)The parties are granted leave to apply to the court for directions in respect of the implementation of Orders (A), (B) and (C) above.
15 I am advised by counsel that the first defendant does not have a mortgage and that any mortgage of other co-owners can be cleared from their share of the proceeds of sale.
Costs
[51] The plaintiffs are successful and are entitled to costs. They do not seek costs against the second defendant but recognising that there are two defendants, they seek one-half of scale costs (calculated on a 2B basis) from the first defendant for the steps taken to make the application but scale costs from 7 August 2009 (by which time only the first defendant opposed the sale). That is reasonable and I so order.
[52] Accordingly, costs are fixed in favour of the plaintiffs and against the first defendant in the sum of $9,191.50 plus disbursements of $730 in accordance with the plaintiffs’ counsel’s memorandum of 16 August 2019.
[53] The plaintiffs also sought an order for the deduction of the plaintiffs’ costs from the first defendant’s share of the sale proceeds but have provided no authority for the making of such an order. In the absence of some authority, I decline to make such an order.
O G Paulsen Associate Judge
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