Body Corporate 166208 v York Trustees Limited
[2018] NZHC 593
•29 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2801
[2018] NZHC 593
BETWEEN BODY CORPORATE 166208
Plaintiff
AND
YORK TRUSTEES LIMITED
Defendant
Hearing: 12 March 2018 Counsel:
D J Barr and L Kennedy-Perkins for Plaintiff T Bates for Defendant
Judgment:
29 March 2018
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] On 27 November 2017, the plaintiff (the Body Corporate) commenced a liquidation proceeding against the defendant (York). The liquidation claim was served on York on 5 December 2017, and the 10 working day period allowed for York to file its statement of defence expired on 19 December 2017.1
[2]York did not file a statement of defence by that date.
[3] The liquidation proceeding was set down for first call on 26 January 2018. The day before the hearing date, York filed an application for extension of time to file a statement of defence. That application was opposed by the Body Corporate. A fixture date was made to hear York’s extension of time application on 12 March 2018, and the parties have filed affidavits and submissions in support of their respective cases.
1 High Court Rules, r 31.17.
BODY CORPORATE 166208 v YORK TRUSTEES LIMITED [2018] NZHC 593 [29 March 2018]
[4] I now give judgment on York’s application for an extension of time to file a defence.
Background
[5] York is the registered proprietor of a unit (Unit P7) in a unit title development in York Street, Parnell, administered by the Body Corporate. There is an extensive history of litigation between the parties, with disputes having been heard in the Tenancy Tribunal, the District Court and in this Court. And at the date of the hearing on 12 March, York had an application pending in the Court of Appeal for leave to appeal against a judgment of van Bohemen J given on 29 November 2017, in which his Honour declined to grant leave to York to appeal out of time against a decision of the District Court relating to unpaid levies.
[6] York has generally been unsuccessful in its litigation with the Body Corporate, and a number of costs orders have been made against York. By July 2017 the outstanding costs awards in the Tenancy Tribunal and the District Court totalled
$77,824.09. On 21 July 2017, the Body Corporate served a statutory demand on York under s 289 of the Companies Act 1993 (the Act), requiring payment of the $77,824.09 within 15 working days.
[7] York applied under s 290 of the Act for an order setting aside the statutory demand, and that application came on for hearing on 15 November 2017. By then, the Body Corporate had filed a notice of opposition and supporting affidavits, but York had failed to comply with timetable directions for the filing of its written submissions.
[8] At the hearing on 15 November 2017, York withdrew its application to set aside the statutory demand. In a judgment given on 23 November 2017 on the Body Corporate’s claim for costs on the withdrawn setting aside application, Hinton J noted that the explanation given by York’s counsel for the withdrawal of the application was that circumstances had changed since the application had been filed. Specifically, the application by York to this Court to appeal the District Court decision out of time had come before van Bohemen J in early November 2017, and the Judge had indicated that the application was unlikely to be successful. A stay of a Tenancy Tribunal decision,
granted on 24 July 2017, had also been reversed by the time the setting aside application came before Hinton J on 15 November 2017.
[9] In her costs judgment on the withdrawn setting aside application, Hinton J awarded increased costs against York on the basis (inter alia) that the setting aside application lacked merit. Her Honour referred to York’s non-compliance with the timetable order, and to the summary withdrawal of the application when it was called, noting that the reasons for the withdrawal only reinforced the lack of merit in the application, which York had obviously perceived itself.
The Body Corporate’s statement of claim
[10] The Body Corporate’s statement of claim in its liquidation proceeding against York includes the following allegations:
4The defendant company is indebted to the plaintiff in the sum of
$77,824.09 being money due and owing pursuant to costs awards granted by the Tenancy Tribunal and District Court (neither of which has been stayed).
5A notice given pursuant to section 289 of the Companies Act 1993 requiring payment in the sum of $77,824.09 was on 21 July 2017 served on the defendant company.
6The defendant company has neglected to pay the said sum or any portion thereof or enter into a compromise under Part XIV of [the Act] or to secure or compound for the same to the reasonable satisfaction of the plaintiff within 15 working days of the date on which the notice under section 289 of [the Act] was served on it.
7In all of the circumstances it is just and equitable that the defendant company should be put into liquidation.
[11] An affidavit verifying the Body Corporate’s statement of claim, in the standard form required under High Court Rules, was affirmed by Mr McPhail on 15 November 2017. Mr McPhail confirmed that he had knowledge of the facts stated in the affidavit, and that those statements in the statement of claim that related to the acts and deeds of the Body Corporate were true. He affirmed that he believed to be true those statements that related to the acts and deeds of other persons.
The Body Corporate cannot rely on failure to comply with the statutory demand
[12] The grounds on which the Court may put a company into liquidation on the application of a creditor are set out in s 241(4) of the Act. Two of them are relevant in this case. First, s 241(4)(a) provides that a company may be put into liquidation if it is “unable to pay its debts”. Secondly, a company may be put into liquidation if “it is just and equitable that the company be put into liquidation.”2
[13] A company’s failure to comply with a statutory demand creates a presumption that the company is unable to pay its debts, but that presumption is subject to s 288 of the Act.3
[14]Section 288(1) and (2) provide:
(1)On an application to the court for an order that a company be put into liquidation, evidence of failure to comply with a statutory demand is not admissible as evidence that a company is unable to pay its debts unless the application is made within 30 working days after the last date for compliance with the demand.
(2)Section 287 does not prevent proof by other means that a company is unable to pay its debts.
[15] In this case, the Body Corporate did not file its application to liquidate York within 30 working days after the last date for compliance with the statutory demand. The effect of s 288(1) of the Act is therefore that evidence of York’s failure to comply with the statutory demand was not admissible in the liquidation claim as evidence of York’s inability to pay its debts.
Could a liquidation order be made on the basis of the statement of claim without consideration of York’s failure to comply with the statutory demand?
[16] At the hearing, Mr Barr submitted that, notwithstanding the failure to file the liquidation claim within the 30 working days referred to in s 288(1) of the Act, the liquidation claim can still be supported on either of two separate bases:
2 Companies Act 1993, s 241(4)(d).
3 Companies Act 1993, s 287.
(a)Under s 288(2) of the Act the Body Corporate is entitled to prove that York is unable to pay its debts by evidence other than failure to comply with the statutory demand. Mr Barr relies on the pleading at [4] of Body Corporate’s statement of claim that York is indebted to the Body Corporate in the sum of $77,824.09, being money due and owing pursuant to costs awards granted by the Tenancy Tribunal and District Court (neither of which has been stayed).
(b)Alternatively, Mr Barr submits that the Body Corporate is entitled to rely on the pleading at [7] of the statement of claim, that “in all of the circumstances it is just and equitable that [York] should be put into liquidation.”
[17] Mr Bates takes the position that once it is accepted that York’s failure to comply with the statutory demand cannot be relied upon, the statement of claim is defective. He then submits that the Body Corporate is unable to rely on a bare allegation that the defendant company is unable to pay its debts in support of a liquidation claim based on the “just and equitable” ground.4 If the “just and equitable” ground for liquidation cannot be made out simply by proving that the defendant company is unable to pay its debts, there are no facts pleaded that could support the allegation. Neither the statement of claim nor Mr McPhail’s verifying affidavit provided any factual basis for the Court to conclude that it would be “just and equitable” to put York into liquidation.
[18] The Body Corporate filed a further affidavit sworn by Mr McPhail on 25 January 2018, being the day before the first call of the liquidation claim. Mr McPhail affirmed in this affidavit that York had not paid any part of the judgment debts relied upon by the Body Corporate in its statement of claim. He then referred to the costs award (total $9,810.50) made by Hinton J on York’s withdrawal of its setting aside application, and to the fact that the Body Corporate had made demand of York for payment of that sum by the close of business on 24 January 2018. On 24 January
4 Citing Ebrahimi v Westbourne Galleries Ltd [1972] 2 WLR 1289 (HL), and Heath & Whale on Insolvency, in support of the proposition that the words “just and equitable” are not to be interpreted so as to include matters of the same kind as covered by the other grounds for court ordered liquidation.
2018, the Body Corporate’s solicitors received an email from counsel for York advising that York would pay that costs award.
[19] York’s counsel raised in his 24 January 2018 email the procedural issue under s 288 of the Act, and invited the Body Corporate to withdraw its liquidation claim. In the event that the Body Corporate would not do so, he advised that York would make an application to the Court or file a statement of defence.
[20] Mr McPhail confirmed that, shortly after the Body Corporate’s solicitors received the email from York’s counsel, it also received the $9,851.38 awarded by Hinton J in her costs judgment of 23 November 2017.
[21] Mr McPhail went on in his 25 January 2018 affidavit to refer to other debts owed by York to the Body Corporate. He deposed that, as at 25 January 2018, York owed the Body Corporate $18,234.66 for ordinary levies, amenity charges, interest and debt collection charges, and a further $103,215.17 in respect of a special maintenance levy payable by York pursuant to an extraordinary resolution passed by the Body Corporate in November 2016. The special maintenance levy was said to relate to remedial works to the unit development, together with interest and collection charges on the levy.
[22] Mr McPhail deposed that York had not disputed any part of the special maintenance levy, which related to work to be undertaken on common property at the development. York had disputed portions of the remaining unpaid levies and charges, but it had never made any application for minority relief under subpart (3) of part 5 of the Unit Titles Act 2010 (the UTA).
[23] Mr McPhail then set out details of the amounts then said to be owing by York to the Body Corporate, totalling $199,273.92.
Payments by York since the liquidation proceeding was commenced
[24] On 5 March 2018, York paid the $77,824.09 owing under the judgment debts. It has also now paid the ordinary levies, charges, and interest totalling $18,234.66 (while maintaining that it is not liable for at least part of that amount).
[25] In addition, Mr Bates advised at the hearing on 12 March that York has paid into its solicitors’ trust account the sum of $110,000, being sufficient to cover the special maintenance levy of $103,215.17, plus charges and interest thereon. Mr Bates proposed at the hearing that that sum should remain in York’s solicitors’ trust account until liability for the special maintenance levy can be determined in an appropriate District Court proceeding, and that the Body Corporate’s liquidation claim should be dismissed or stayed while that process is followed. In the alternative, he advised that his client would be prepared to have the $103,215.17 held by an independent stakeholder, or held by the Body Corporate itself on the Body Corporate’s undertaking to keep the amount in a separate interest-earning account pending resolution of the dispute, with the successful party to be entitled to the interest earned on the amount in the period up to the date of the resolution.
[26] None of those options were attractive to counsel for the Body Corporate, who advised in any event that a further meeting of Body Corporate members (or possibly a committee of the Body Corporate) would be required before any such arrangement could be accepted.
Principles applicable to extension of time applications
[27]Rules 1.19, 31.20 and 31.22 of the High Court Rules materially provide:
1.19 Extending and shortening time
(1)The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just.
(2)The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.
31.20 Effect of failure to file statement of defence or appearance
If a person who is entitled to file a statement of defence or an appearance in a proceeding commenced by the filing of a statement of claim under rule 31.3 fails to file a statement of defence or an appearance within the time prescribed, that person must not, without an order for extension of time granted on application made under rule 31.22 or the special leave of the court, be allowed to appear at the hearing of the proceeding.
31.22 Interlocutory applications
(1)When a proceeding is commenced under rule 31.3, an interlocutory application (unless made with the leave of the court) may not be made to the court before the date of hearing specified in the notice of proceeding served with that statement of claim unless it is—
(a)an application for an extension or abridgement of time; or
…
[28] There was little or no dispute between counsel on the principles on which these rules should be applied. The granting of leave must be justified, in the sense that the defendant must demonstrate a fairly arguable case that the debt in respect of which the liquidation proceeding has been commenced was either not due and payable, or that the defendant has a counterclaim or set-off that equals or exceeds the plaintiff’s debt.
[29] The defendant should also properly explain its failure to file documents within the time provided by the rules, and the Court may take into account the fact that the defendant has failed to take advantage of earlier opportunities to contest the plaintiff’s claim. As in all cases involving the exercise of a discretion, the issue of any prejudice is a factor to be taken into account.5
[30] The applicant must provide a proper factual foundation upon which the Court can exercise its discretion. If the failure to comply with the rules is excusable, leave to extend time to file a defence should only be granted if an arguable defence can be shown on the papers.6
[31] A case with some similarities to the present, is the decision of Associate Judge Osborne in Hurunui Estate (2002) Ltd v Hurunui Hotel (2004) Ltd.7 An application for leave to file a statement of defence out of time was filed on the eve of the hearing of the plaintiff’s liquidation claim.
5 See for example Williams & Kettle Ltd v Rangiputa Stock Company Ltd HC Rotorua CIV-2004- 463-15 [14 June 2004].
6 Fresh Cut Flower Wholesalers Ltd v Living and Giving Gift Co Ltd (2001) 16 PRNZ 173.
7 Hurunui Estate (2002) Ltd v Hurunui Hotel (2004) Ltd [2015] NZHC 1152.
[32] The Associate Judge referred to the “threshold requirement” that the defendant must establish that it has, on the documents filed, an arguable defence.8 However, His Honour also referred to the specific jurisdiction with which this case is concerned, noting that “liquidation proceedings in particular should not be protracted for procedural reasons as the rules of Court are designed to assist the speedy resolution of such proceedings”.9
[33] Associate Judge Osborne noted in Hurunui that the defendant’s solvency will also be a consideration, but that the ultimate task for the Court will be to determine where the overall justice of the application lies.10
Evidence for York
[34] Mr Cary, who is employed as an agent and property manager for York, provided an affidavit sworn on 25 January 2018. He deposed to York’s ownership of a penthouse apartment in the York Apartments, which he said was “conservatively valued” at $2,500,000. York was said to have current borrowings of $1,138,000. In addition, a tenant occupying the apartment was paying rent of $1,650 per week, which was more than sufficient to meet all of York’s mortgage repayments, Body Corporate fees, and other outgoings.
[35] Mr Cary deposed that the reason York has failed to pay the various levies and judgments relating to the ordinary levies for hot water and gas was that it considered there was no proper legal basis for those charges. That meant it could not pass them on to the tenant.
[36] The more substantial matter of concern to York, however, was said to be that substantial building works have been completed at the development that may not have been carried out in accordance with current building law. Mr Cary described this as an “ongoing investigation” for York, and said that it was only in the early stages of assessing the issue.
8 At [11], referring to Fresh Cut Flowers Wholesalers Ltd, above n 6.
9 At [10].
10 At [13] and [15].
[37] Mr Cary gave the following account of York’s failure to file a statement of defence by 19 December 2017. The liquidation claim was served at York’s registered office, which is the office of Mr Lyon, the solicitor York engages primarily to carry out commercial and property work. It was never York’s intention to have Mr Lyon act in the liquidation proceeding, but at the time the liquidation claim was served York was dissatisfied with the representation it had had in various litigation matters, and was looking to make a change. Mr Cary said that he was aware that the liquidation proceeding was to be called on 26 January 2018, but was not aware that a defence was required to be filed within 10 working days of service.
[38] Mr Cary attached a copy of an email received from Mr Lyon on 5 December 2017. It advised simply that an application had been received to wind up York, and that “as there is quite a bit of paper” it would be best if York called in to pick the documents up. Mr Cary says that he never sighted the papers, which were retained by Mr Lyon’s office until such time as a suitable solicitor had been found to represent York in the liquidation claim.
[39] Mr Bates' firm was formally engaged on 18 December 2017, but his immediate brief was to look at appeal rights from a judgment van Bohemen J had delivered on 29 November 2017. Mr Cary said that he did mention the liquidation proceeding to Mr Bates, and that Mr Bates asked him to send the papers to him as soon as possible. The documents were then sent to Mr Bates by Mr Lyon’s office, but it appears that Mr Bates did not receive them until he returned to his office on 9 January 2018. At that time, York was advised that the time for it to file a statement of defence had expired on 19 December 2017.
[40] Mr Cary’s evidence is that he then instructed Mr Bates to attempt to negotiate a settlement with the solicitors acting for the Body Corporate. A settlement meeting did take place between counsel on or about 19 January 2018, but it was unsuccessful.
[41] Mr Cary swore a further affidavit on 6 March 2018. No leave had been granted to York to file this further affidavit, but on 8 March 2018 I allowed it to be filed on the basis that the Body Corporate could file an affidavit in reply to it by 9 March 2018.
[42] In his 6 March 2018 affidavit, Mr Cary added to his explanation for York’s failure to get its statement of defence filed on time by saying that an attempt was made by Mr Lyon to send the documents by courier to Mr Bates’ firm on 21 December 2018, but Mr Bates’ firm had closed its offices the day before. As noted above, Mr Bates did not return to work until 9 January 2018.
[43] Mr Cary also addressed in this affidavit York’s position on the claims for the ordinary levies of $18,234.66, and the special maintenance levy of $103,215.17.
[44] The ordinary levies remain the subject of an application for leave to appeal to the Court of Appeal. Mr Cary deposed that if York was successful in obtaining leave, and won the appeal, there would be a set-off of around $19,500 representing gas and/or hot water charges invoiced to York going back to 2005. Essentially, York’s argument was been that the levying of charges for the gas and hot water supplies was done on an estimate basis, there being no individual meters in individual units. York contended that that method of charging is unlawful under s 125 of the UTA, which requires that such charges be made in accordance with owners’ respective unit entitlements.
[45] As for the special levy of $103,215.17, Mr Cary said that York and several other owners have objected to the way the Body Corporate took on the building project. Initially, the concern was over the timing of the project, when market forces were pushing building cost upwards. However, as the works progressed York’s concern grew to encompass the carrying out of significant works without a building consent, on the basis that exemptions provided for by the Building Act were applicable. Mr Cary said that York remained concerned that most of the works being completed with the funds raised by the special levy did require a building consent. He said that York would have supported an all-encompassing building project, completed as part of the one building project, which was fully consented and covered both unit property and common property, but that is not how the Body Corporate has gone about it.
[46] Mr Cary raised as a specific concern the fact that, if York wishes to sell its unit, it will be required to provide warranties to a purchaser as to compliance with the
Building Code and building consent. As matters currently stand, it could not provide those warranties.
[47] Mr Cary raised a particular area of concern relating to building works to the balustrade and wall located on the first level of Unit P7. He said that this building work was completed without a building consent, and remains incomplete, without a cap flashing installed. That allows the direct access of water. Mr Cary expressed the view that had this work been done in accordance with a building consent, the Council would have ensured it was weathertight and built in accordance with the Building Code and the building consent. Mr Cary asserted that moisture readings in the room in Unit P7 adjacent to this balustrade record excessively high moisture readings.
[48] Mr Cary produced with this affidavit a copy of an application for a building consent for work covered by the special maintenance levy. Notwithstanding that the total of the special levies raised in November 2016 for the maintenance contract was
$2,865,332.36, the application for the building consent estimated the value of the works for which consent was sought at only $680,000. Mr Cary inferred from those figures that there must have been nearly $2.2 million worth of work that the Body Corporate considered could be carried out under the statutory exemptions in the Building Act.
[49] Mr Cary referred to the possibility of the Ministry of Business Innovation, and Employment (MBIE) making a determination (or the Court determining in a future proceeding) that a building consent ought to have been issued to cover the repair of the entire building.
[50] Mr Cary then gave further evidence relating to York’s solvency. He produced a valuation report from a firm of registered valuers, valuing apartment P7 at
$1,900,000 as at December 2014. He also referred to a valuation from Real Property Intelligence that put a figure of $2,150,000 on apartment P7, as at 1 July 2017. Mr Cary expressed the view that a likely present value would be near to $2,200,000. That figure, while lower than the figure mentioned in his 25 January 2018 affidavit, would still leave York with an equity of over $1 million in the apartment.
[51] Mr Cary stated that York’s only current creditors are Westpac and one of its shareholders, Mr Murray Price, who is owed money on his current account with York.
[52] Mr Cary asserted that York is in a position to meet all its debts as they fall due, including the contested Body Corporate levies.
Further affidavit tendered at the hearing by York
[53] At the hearing, Mr Bates proffered an affidavit by a registered building surveyor, Mr Barry Gill, which had not been filed (although a copy had been served on the Body Corporate on 9 March 2018). Mr Barr objected to the filing of this affidavit, pointing out that the Body Corporate had had insufficient time to consider it and prepare a response to it. I accepted the affidavit at the hearing on a provisional basis, indicating that I would rule on its admissibility when I delivered my judgment on the extension of time application.
[54] In the affidavit, Mr Gill deposed that he had been “recently engaged” by York to review the remediation work currently being completed at the development. He said that he had considered a number of documents, including a building consent application dated 18 May 2016 and a building consent issued by the Auckland Council on 8 September 2016. He also said that he had considered contract tender documentation for the remedial work, and the complete Council file for the York Street development.
[55] Mr Gill said that he had attended a meeting with Mr Cary of York, and another unit owner at the development, Ms Ben Hassine, on 5 March 2018, and listened to their concerns. Those concerns primarily related to the Body Corporate’s decision, made by a majority of members voting at an extraordinary general meeting held on 16 November 2016, to levy unit owners the total sum of $2,865,332.26 to carry out the works described in the contract tender documents.
[56] Mr Gill said that he had also inspected the site and taken a number of photographs.
[57] Mr Gill noted that the remedial works appeared to have been carried out partly under a building consent issued by the Council and partly under certain statutory exemptions.
[58] Mr Gill stated that he observed several examples of building work at the site that clearly ought to have been the subject of a building consent issued by the Council, but in respect of which no consent appears to have been issued. He referred in this context to a deck balustrade cap flashing junction with the structural columns, located in the common area within the walkways. In Mr Gill’s opinion, the removal of the stucco cladding in this area and the integration of the balustrade cap flashing junction required a consented detail, especially as stucco cladding is no longer able to be installed as part of a direct-fix system under cl E2/AS1 of the Building Code.
[59] In addition to the non-consented detail just referred to, Mr Gill noted patch repairs being carried out to the existing waterproofing membrane to the common walkway areas adjacent to the scupper/rainwater outlets. He observed that this work did not appear to be included within the current building consent. He expressed the opinion that it was unusual for work of this nature, which carries a high risk of future failure, to be carried out without a building consent. Even if these particular works are exempt, they are still required to comply with the Building Code.
[60] Mr Gill noted that water has been pooling on the walkways, indicating that insufficient fall has been provided to the substrate below the existing waterproof membrane. In Mr Gill’s opinion, had a building consent been issued, it would have required a robust detail for this area, including details of how the requisite fall was to be achieved to ensure that the lapped joints between the new and old membrane were not subject to ponding water.
[61] Mr Gill noted the presence of some rusting to the reinforcement within the plaster finish, indicating ongoing moisture issues.
[62] Mr Gill went on to describe discussions he has had with Council officers. He said they have indicated that this particular job is the subject of current review with regard to compliance with the Building Code. In Mr Gill’s opinion, the likely outcome
is that the Council will issue a Notice to Fix, pending receipt of an amended building consent application, accompanied by detailed drawings covering the areas identified by Mr Gill.
[63] Mr Gill noted that the maintenance contract, for which the Body Corporate members agreed to the levy of $2,865,332.26, addresses only the common property. Where the common property interfaces with an individual unit, Mr Gill opined that the Council will be concerned to see consented details for these junctions, fully detailed and then fully built. In his view, the Council will insist on a solution that encompasses not only the common property but also the affected units.
[64] Mr Gill expressed the view that the most efficient method of repair of a complex such as the York Street development, would have been for one consent to be issued encompassing unit property and a common property, typically accompanied by a scheme under s 74 of the UTA. In that way, the repairs could have unfolded as one complete contract and, at the end of the project, a Code Compliance Certificate could be issued for the entire building.
Further evidence tendered by York after the hearing
[65] After the hearing, York applied for leave to file a further affidavit, being an affidavit of Mr Cary sworn on 14 March 2018. The Body Corporate indicated by memorandum from its counsel that it would abide the decision of the Court on whether this further affidavit should be admitted.
[66] In this affidavit Mr Cary confirmed that the source of the sum of $110,000 paid into the Trust account of York’s solicitors just before the hearing on 12 March 2018 was a loan made by a company called Killarney Capital Limited (Killarney) to York’s solicitor, secured by a second registered mortgage over York’s apartment P7. He also stated that a company called Parklane Infrastruct Limited registered a financing statement against York on 12 March 2018. This secured recent shareholder advances and likely future advances made to York by its shareholder Mr Murray Price, through his related entity Parklane Infrastruct Limited.
[67] In respect of the payment made to the Body Corporate on 9 March 2018 covering the outstanding ordinary levies, Mr Cary stated that the payment had been funded by a shareholder advance made by Mr Price (or interests with which he is associated). Mr Cary said that that advance has now been repaid.
[68] The terms of the advances from Killarney and Parklane (in particular, whether they were short-term or long-term advances) were not disclosed in Mr Cary’s further affidavit.
[69] Given that Mr Cary’s further affidavit is directed substantially to matters which only occurred on or about the date of the hearing, I will receive the affidavit in the interests of justice.
Evidence for the Body Corporate
[70] In addition to his affidavit verifying the liquidation claim and his affidavit sworn on 25 January 2018, Mr McPhail provided a third affidavit in opposition to York’s extension of time application. In this affidavit, sworn on 9 February 2018, he referred at length to various defaults and failures by York to comply with timetable directions in this and other proceedings between the parties, including its failure to comply with timetable directions for the filing of submissions on its application to set aside the statutory demand. He said it was “extremely frustrating” that York had now resiled from its recognition that the debts were in fact due and owing (implicit in its withdrawal of its application to set aside the statutory demand).11 He expressed concern that, if York is not liquidated, the Body Corporate would have to return to square one and would “no doubt face another application to set aside a statutory demand, were a fresh demand issued”.
[71] Mr McPhail referred to York’s history of paying levies only on the doorstep of the relevant Court or Tribunal. By way of example, York paid $13,271.15 on the day of a Tribunal hearing on 18 November 2015, and on 1 December 2016, the day before a further Tribunal hearing, York paid $31,374.76 (the total amount of outstanding
11 At the time he swore his third affidavit on 9 February 2018, York had not paid the judgment debts which were the subject of the statutory demand and the subsequent liquidation claim.
levies sought at the hearing). York did not inform the Body Corporate or the Tribunal of that payment until the commencement of the hearing. On 6 March 2017, the day of a District Court hearing to rescind a stay of a Tribunal decision, York paid
$54,270.51 (a part-payment of the judgment debt), and then sought an adjournment on the basis of the part-payment.
[72] Going back earlier, York agreed at a liquidation hearing on 26 May 2010 to pay outstanding debts, to avoid liquidation. However, York never cleared its debts to the Body Corporate. Generally, Mr McPhail said that York’s behaviour has forced the Body Corporate to incur significant legal costs in pursuing York for outstanding debts. While the majority of these costs are recovered, there have been portions which have not been recovered.
[73] As for the outstanding levies, Mr McPhail said that the other 59 owners in the York Street departments had generally paid their levies, and they are carrying the shortfall that has been caused by York’s delaying tactics.
[74] Mr McPhail went on to express the Body Corporate committee’s understanding that all work being undertaken is either covered by a building consent or does not require one. In addition, the Body Corporate’s agents were said to be working with the Auckland Council to ensure that any work that requires a building consent will have that consent. He said that York has never made an inquiry with the Body Corporate about this work, which has been ongoing for several months. He attached a copy of the building consent for the relevant work, and a copy of the most recent letter to the Council detailing work carried out without a consent.
[75] Mr McPhail confirmed that York has never challenged the resolution at which the special maintenance levy was raised at the EGM on 12 November 2016. It did not apply for minority relief under the UTA, and would now be out of time to do so.
[76] Mr McPhail provided a fourth affidavit, sworn on 8 March 2018. In this affidavit, Mr McPhail referred to a further costs judgment made in the Body Corporate’s favour by van Bohemen J on 23 February 2018, in the sum of $27,488.28. That sum was paid by York, with the other unpaid judgment debts, on 5 March 2018.
The payment made by York on 5 March 2018 included interest under the Judicature Act 1908.
[77] Mr McPhail said that the total amount owing under the special maintenance levy, as at 8 March 2018, and including charges and interest, was $109,439.73.
[78] Mr McPhail then responded to Mr Cary’s further affidavit sworn on 6 March 2018. In respect of the ordinary levies for gas and hot water, Mr McPhail said that, based on the last four years’ charges, the actual average charge per annum to York has been $705.81, being less than half Mr Cary’s estimate. York’s utility interest in respect of unit P7 is 3.17 per cent. On that basis, if York were successful with its appeal, the hot water charges for the period 6 January 2014 to 31 January 2018 would be
$4,340.48, rather than the amount currently charged of $2,823.22. York would owe more money to the Body Corporate than it has been charged.
[79] Turning to the special maintenance levy, Mr McPhail said that the levy was due for payment on 3 March 2017, but York did not raise any concerns over the building consent with the Council until November 2017. No concern was raised with the Body Corporate itself until 2018.
[80] In January 2017, York’s stance was simply that there was no evidence that the work was required. The Body Corporate responded on 10 February 2017 by writing to York listing the various reports it had obtained, and inviting York to provide the evidence referred to by it, so that the Body Corporate could consider it.
[81] York has since refused to allow the Body Corporate access to apartment P7 to permit construction workers to complete the work on the cap flashing referred to by Mr Cary. There was correspondence in November 2017 and February 2018 over the need to carry out work on the cap flashing. There was further correspondence on 22 February 2018, when counsel for the Body Corporate wrote to York’s counsel reiterating the Body Corporate’s position that the cap flashing had not been installed because York had refused access to complete the work.
[82] Mr McPhail also raised in his fourth affidavit the issue of how the matters now raised by York could give rise to a claim against the Body Corporate. He pointed out that York is only one of 59 apartment owners in the complex, and he questioned York’s apparent view that if it had suffered a loss it could recover that loss from the Body Corporate. He noted that on York’s apparent reasoning, the owners of the other 58 units, who would likely have suffered the same loss, would be equally entitled (with York) to recover their losses from the Body Corporate, and in that scenario the Body Corporate would have to levy all the owners to meet their losses.
[83] Finally, Mr McPhail pointed out that it is not an option for the Body Corporate to “not do business” with York. The Body Corporate is stuck with the situation, and sees no sign that York’s behaviour will change.
Counsel’s submissions
York
[84] In addition to his submissions relating to defects in the Body Corporate’s statement of claim, Mr Bates submitted that there is $2.2 million worth of building works being completed without a consent “and arguably with exemptions”. York has been following this up with the Council since November 2017, but as at the date of hearing had had no adequate response from the Council.
[85] Mr Bates submits that, implicit in any levy raised pursuant to s 138 of the UTA, there is an obligation that works completed under that section of the UTA will comply with the Building Code and the Building Act 2004. If a body corporate raises the levy correctly, but applies the levy to a building project that is outside the ambit of the Building Act 2004 and any building consents that have been obtained, it taints the legitimacy of the levy raised. In such circumstances, the body corporate would be acting outside its statutory powers.
[86] Mr Bates submits that York has valid concerns about the works funded by the special levy being completed without a building consent, and it is entitled to test its concerns fully with MBIE and/or this Court, before paying the levy.
[87] Mr Bates emphasised that all the judgment debts have now been paid by York. Further, in an open settlement letter dated 1 March 2018, York offered to pay all remaining levies by 30 June 2018, notwithstanding that it strongly disputes the claim for the levies. It would not be just or equitable to place York into liquidation where it has been willing to meet the amount alleged to be due, and has made special provision to have funds on hand to meet the amounts claimed pending final resolution of its appeal to the Court of Appeal (ordinary levies) and an MBIE determination of its concerns over the unconsented building work.
[88] As for York’s failure to get its statement of defence in on time, Mr Bates refers to the closure of his legal office on 21 December 2017, when the liquidation claim documents were sent to him. He submits that York was unfortunate in that the matter was allocated to the first available liquidation list in January 2018, when many legal service providers were still returning full-time to their offices. The delay after Mr Bates’ return to work in the new year is sufficiently explained by York’s attempt to resolve matters with the Body Corporate.
[89] Overall, Mr Bates submits that a delay of only 12 working days from 19 December 2017 was not excessive in the circumstances, and has been reasonably explained by Mr Cary. And the delay has not caused any prejudice to the Body Corporate.
[90] Mr Bates submits that York’s failure to follow through on its application to set aside the Body Corporate’s statutory demand is no longer relevant, as the judgment debts that were the subject of the demand have now all been paid. The debts on which the Body Corporate now relies have never been the subject of Court proceedings, and s 124 of the UTA contemplates levies being recovered by ordinary Court proceedings.
[91] If an extension of time is not granted to York to file its defence, the Body Corporate will effectively be allowed to liquidate York on the basis of unproved debts.
The Body Corporate
[92] Mr Barr commenced his submissions by noting that the Body Corporate finds itself in the same situation as it was in May 2010, when a previous liquidation claim
against York was granted, but with the liquidation order to lie in Court for two weeks to allow York to pay the debt. Mr Barr submits that it could not be just or equitable to have the Body Corporate bring York to the doorstep of liquidation again before receiving levies which are due and owing. York’s conduct has caused significant injustice for the other 59 unit owners who have had to cover York’s defaults.
[93] Mr Barr submits that York has put forward no cogent evidence of solvency, and it is incapable of paying its debts when they fall due because it refuses to do so, even when ordered to do so by a court. If a company’s management use their power and control to ensure that the company does not pay debts that are due, that company is not able to pay its debts.12
[94] Mr Barr submits that an offer to pay the debt prior to the hearing will not necessarily be determinative of whether a company should be liquidated, particularly if the conduct or position of the debtor is such as to require liquidation in the broader public interest.13
[95] Next, Mr Barr submits that York is a trustee company, and that the interests of the beneficiaries and the trust assets should be taken into consideration by the Court when applying s 241(4) of the Act. The Court has a duty to ensure that trusts are properly administered, and an insolvent trustee company will be unfit to discharge its functions as a trustee.14
[96] On the jurisdiction under s 241(4)(d) to liquidate a company on the just and equitable ground, Mr Barr submits that the section is intended to be flexible, and that each case must be considered on its facts.15 The date at which the assessment of the just and equitable ground should be made is the date of the hearing of the plaintiff’s application.
12 Forward Plastics Limited v NZ Distilled Water Limited [2012] NZHC 1383 at [45].
13 Commissioner of Inland Revenue v Property Ventures Limited HC Christchurch CIV-2010-409-000123 [27 July 2010] at [59(g)].
14 Commissioner of Inland Revenue v Newmarket Trustees Limited [2012] NZLR 207, applying
Commissioner of Inland Revenue v Chester Trustees Limited [2003] 1 NZLR 395.
15 Re Bleriot Manufacturing Aircraft Co Limited (1916) 32 TLR 253 at 255.
[97] On York’s explanation for its failure to file a statement of defence on time, Mr Barr notes that a decision to defend the proceeding only in the week before the scheduled hearing could never justify an extension of time. But even if York did have a reasonable excuse, there are aggravating circumstances which would justify a refusal to extend time. In particular, York is a serial offender with respect to breaching Court directions and causing delays. And having been advised on 9 January 2018 of the need to file a defence, York failed to file an application for leave to defend until the afternoon before the hearing (a delay of a further 16 days).
[98] Mr Barr submits that York has continued to display a cavalier attitude, despite having been subjected to significant judicial criticism in the past. York’s overall conduct justifies a refusal to grant the extension of time.
[99] Mr Barr points to York’s inconsistent behaviour. First, it accepted that the judgment debts would have to be paid (when it withdrew the application to set aside the statutory demand). But it then resurrected the arguments against payment in its statement of defence filed in this Court on 26 January 2018. Finally, it abandoned the defence five weeks later, when (it can be inferred) funds finally became available to it to pay the judgment debts. York’s conduct is more consistent with a party seeking to delay than a party genuinely believing that the claimed debts were not payable.
[100] As for York’s claims relating to the levies, Mr Barr submits that they are not sustainable, and are not genuine disputes.
[101] On the ordinary levies, York’s hope that it will succeed in the Court of Appeal could not give York a right to breach its statutory obligation to pay levies,16 particularly in circumstances where there is a serious question over whether the Court of Appeal has jurisdiction to hear York’s appeal. York is claiming a set-off in respect of a sum that three judicial decisions have now confirmed is owing. And even if York did succeed on appeal, that would not result in a set-off – York would still have to pay the charges in accordance with its utility interest, and that would result in a higher charge to York than the current charge.
16 Unit Titles Act 2010, s 124.
[102] On the special maintenance levy, Mr Barr submits that York’s reasons for refusing to pay lack credibility, due to the inconsistency in the reasons given. But even if the concerns had any validity, they would not give rise to a right of set-off.
[103] York has provided no cogent evidence of why the work required a building consent. It has suggested that work of the value being undertaken requires consent, but there is no mention of “value” in cl 1, sch 1, of the Building Act 2004. And even if consent should have been obtained, there is no legal basis on which the failure to obtain consent would give York a right of set-off against Body Corporate levies. If York had a claim against the Body Corporate, so would every other unit owner. In that situation, each unit owner would claim against the Body Corporate, receive damages, and then the Body Corporate would levy each of the unit owners in order to pay damages to each of them. That would be a nonsensical result.
Discussion and conclusions
[104] In my view, there was sufficient pleaded in the statement of claim, supported by the other material that would have been before the Court, for the Court to draw the inference that York was prima facie unable to pay its debts, and to decide that in the absence of any statement of defence a liquidation order could properly be made. In my view, that was the case even without reference to the pleading that York had failed to comply with a statutory demand.
[105] In Re Taylors’ Industrial Flooring17 the English Court of Appeal expressed the view that if a debt is due and an invoice is sent and the debt is not disputed, then the failure of the debtor company to pay the debt is itself evidence of inability to pay.
[106] In this case, the two debts relied upon by the Body Corporate were judgment debts, and the statement of claim expressly pleaded that neither judgment had been stayed. The Judge hearing the matter would have had before him or her an affidavit of service of the statutory demand, which had attached to it copies of the Tenancy Tribunal award of $14,468.24 made on 8 June 2017, and the District Court judgment
17 Re Taylors’ Industrial Flooring (1990) 8 ACLC 3,081 at 3,086 per Dillion LJ, followed in New Zealand by Associate Judge Osborne in Commissioner of Inland Revenue & Anor v Property Ventures Ltd (In receivership) HC Christchurch, CIV-2010-409-000123 [27 July 2010].
for $63,355.85 made on 11 April 2017. The judge would therefore have had before him or her evidence that York had failed to pay the two judgments for respective periods of five months and seven months, prior to the filing of the liquidation claim.
[107] The Judge dealing with the matter would also have noted that the Body Corporate could not rely on the statutory demand. Further, the judge would almost certainly have been referred to the judgment of Hinton J on the Body Corporate’s cost application following York’s decision to withdraw its application to set aside the statutory demand. In the absence of any defence from York, that judgment would only have reinforced the view that York was no longer disputing the claims on which the liquidation claim was based.
[108] I conclude, therefore, that this is not a case where, even without any statement of defence from York, it was inevitable that the Body Corporate’s claim would either be dismissed or the Body Corporate would have had to amend its claim and serve the amended claim on York (giving York another opportunity to file a statement of defence).
[109] I turn to the issue of whether York’s failure to file a defence within the period allowed by the rules is excusable.
[110] First, I note that no valid reason has been put forward for York not even troubling to pick up the documents from Mr Lyon’s office on 5 December 2017 or immediately thereafter. By the time an attempt was made to send them by courier to Mr Bates, the time for filing the defence had already expired. York says that at the time it was looking for a litigation solicitor to handle the matter, but any new solicitor would obviously have needed the Court documents before he or she could have given advice on them. York’s lack of urgency (with knowledge that the liquidation claim had been filed, and having previously been involved in a liquidation proceeding in 2010), leaves the clear impression that York had probably accepted at that stage that it had no defence to the claim based on the judgment debts. Any such acceptance would have been entirely consistent with York’s earlier decision not to pursue the application to set aside the statutory demand, and it is of course consistent with York’s later decision to pay the judgment debts.
[111] Nor was any particular urgency displayed in early January 2018. York knew by 9 January 2018 that any statement of defence was already out of time, but it appears to have taken a deliberate decision to defer filing any extension of time application until the day before the hearing, when it was obvious that there was no longer any scope for further delay.
[112] In summary on this point, I do not regard York’s reasons for the delay as compelling. However, the delay is not to be considered in isolation – I am required to consider also whether York might have a reasonably arguable defence to the liquidation claim, or a reasonably arguable counterclaim that might exceed the amount of the Body Corporate’s outstanding claim.
[113] In respect of the judgment debts, it appears that York itself came to the view that it did not. It abandoned its argument on liability for these debts at the time the setting aside application was withdrawn, and it has since paid the debts and the further costs awarded against it by Hinton J and van Bohemen J.
[114] York has also now paid the ordinary levies of approximately $18,200, although it appears that all or part of this sum is still subject to an attempt by York to appeal to the Court of Appeal against a judgment of van Bohemen J given on 29 November 2017. In that judgment, van Bohemen J dismissed an application by York for leave to appeal out of time against the District Court’s decision of 11 April 2017 dismissing York’s appeal from a Tenancy Tribunal decision on the water and gas charges. While there may be some remaining challenge to the ordinary levies, York’s recent payment means that I do not have to consider the claim for these levies, at least on the issue of whether York has a fairly arguable defence to a part of the debt said to be still owing to the Body Corporate.
[115] That is not, however, the position with the special maintenance levy. It has not been paid to the Body Corporate (although it is now held by York’s solicitors in their trust account).
[116] While York voted against the relevant resolution raising the special maintenance levy at the November 2016 EGM, it did not challenge the resolution,
whether by application for minority relief under s 210 of the UTA or by commencing an appropriate court proceeding. Mr McPhail’s evidence is that York’s initial position was simply that the work was not required. It did not raise any concerns over the question of whether a building consent was necessary for the work until November 2017.
[117] York’s argument now appears to be that, if a body corporate raises a levy for building works correctly, but subsequently applies the levy payments to building work that does not comply with the Building Act 2004, the original levy is somehow tainted by the subsequent unlawful work and is (retrospectively) rendered invalid.
[118] I do not accept that argument. The validity of the levy must be judged at the time the levy was passed.
[119] Even if that were not the case, there is no compelling, admissible evidence before me that works have been carried out for which a building consent was required but not obtained. I have set out in some detail the substance of the late affidavit of Mr Gill which was proffered by York, but in my view it would be unfair to the Body Corporate to admit that affidavit, and I declined to do so. The nature of the affidavit, containing as it did expert opinion evidence going beyond what would normally be permissible in a reply affidavit, was such that it should have been submitted by York at the outset, with the application for an extension of time to file a defence. If that had been done, the Body Corporate would at least have had a proper opportunity to respond to Mr Gill’s evidence.
[120] I add that I do not consider that Mr Gill’s affidavit would have made any difference to my conclusion that the application for an extension of time should be refused. While Mr Gill expressed the opinion that some aspects of the building work which have been carried out did require a building consent, the evidence shows that the Body Corporate has been working closely with the Auckland Council and has provided the Council with details of the work so far carried out without a consent (on the basis that no consent was considered to be necessary for that work). The Council has not so far required the work to be stopped, or directed that an additional building consent or consents should be obtained. But the main point is that even if it turns out
that a building consent is required for some of the work that is not the subject of an existing consent, I do not think it is reasonably arguable for York that that circumstance would render the special maintenance levy itself invalid. If in future the Council requires an additional building consent for some aspects of the work, that will be a situation for the Body Corporate to respond to at the time. Its response might be simply to apply for and obtain any necessary building consents. Alternatively, it might decide to vary the special maintenance works, if necessary with the approval of a fresh resolution from the Body Corporate members. But those are not possibilities I have to consider now: the short point is that the levy, once it was raised and was not paid by York within the time fixed for payment, became a debt due by York to the Body Corporate, recoverable as such under s 124(2) of the UTA.
[121] Finally, on the issue of York’s liability to pay the special maintenance levy, there is no sufficient evidence for me to conclude that York might have some arguable counterclaim against the Body Corporate, equalling or exceeding the amount of the Body Corporate’s claim against York. That would be the case even if I had admitted Mr Gill’s late affidavit. There is no evidence that York has suffered any loss, let alone loss of a magnitude sufficient to extinguish York’s liability on the special maintenance levy. And even if such loss had been proved, I accept Mr Barr’s submission that there would still have been significant difficulties for York in claiming damages from the Body Corporate for any such loss. If York had a valid claim, presumably all 59 unit owners would also have valid claims, and payment of any damages would presumably have to be funded by the Body Corporate members themselves.
[122] I conclude that York has not raised a genuine and substantial defence on the issue of its liability to pay the special maintenance levy, and has not shown that it has a fairly arguable counterclaim for a sum that might equal or exceed the amount of its liability on the special maintenance levy.
[123] The remaining substantive issue going to a possible defence, is that York contends that it is solvent. Mr Cary has given evidence that the penthouse apartment owned by York (Unit P7) would likely be worth somewhere close to $2,200,000, and that York has an equity of over $1 million in the apartment. He said that York’s only other creditors are Westpac and Mr Murray Price, a shareholder in York. The problem
with that evidence is that the issue on the liquidation claim is York’s ability or otherwise to pay its debts as they fall due for payment: the fact that its assets might exceed its liabilities, so that it would be solvent on a “balance sheet” solvency test, will not avail it if it is unable to pay its debts as they fall due, or at least within a reasonable time thereafter.18
[124] In this case, there have been lengthy delays in paying the judgment debts, even after the defendant abandoned its application to set aside the statutory demand. That occurred on 15 November 2017, but it was not until 5 March 2018 that the judgment debts were eventually paid. The delay between 15 November 2017 and 5 March 2018 has not been adequately explained.
[125] I note also Mr Bates’ advice that in an open settlement letter dated 1 March 2018, York offered to pay all remaining levies by 30 June 2018. That proposed payment date might suggest that York was not then able to pay the amount of the special maintenance levy, notwithstanding that the levy was payable early in 2017.
[126] York did manage to pay the amount of the special maintenance levy, plus accrued charges and interest, into its solicitor’s trust account on 12 March 2018. At the time of the hearing, I did not then have any evidence as to how that payment was funded. If it had been borrowed, York might have been simply adding an additional (possibly short-term) liability to the amount claimed from it by the Body Corporate.
[127] Details of the funding were provided by Mr Cary in his affidavit submitted after the hearing. Mr Cary confirmed that the $110,000 paid on 12 March 2018 into York’s solicitors’ trust account was borrowed by York. Mr Cary did not say when the loan is due for repayment but I accept that the fact that York was able to pay these funds does provide some support for its argument that it is solvent.
[128] But as Associate Judge Bell pointed out in Forward Plastics Ltd v NZ Distilled Water Ltd,19 for the purposes of liquidation claims under s 241(4)(a) a defendant’s solvency does not necessarily mean that it is “able to pay its debts”. His Honour said:
18 Commissioner of Inland Revenue v F B Duvall Ltd (2009) 10 NZ CLC 264,455, referring to the judgment of Plowman J in Re Tweeds Garages Ltd [1962] Ch. 406.
19 Forward Plastics Ltd v NZ Distilled Water Ltd, above n 12.
[41] Insolvency may be one cause of an inability to pay debts but it need not be the only cause. If a company is unable to pay its debts for reasons other than insolvency, it may still be appropriate to appoint a liquidator in the interests of creditors. A company’s inability to pay its debts may arise from actions and policies of those with control and management of the company. If those with effective management and control use their power to ensure that the company does not pay debts that are lawfully due, then the company will not have the ability to pay its debts. A company whose management decides that debts should not be paid is just as unable to pay its debts as a company without sufficient liquidity. Both cases provide grounds for an application to be made for liquidation so the court can consider whether the company should be put into liquidation.
[129] In this case, I do not consider that York has put forward a fairly arguable case that the special maintenance levy is not due and payable, and its decision to pay the money into its solicitor’s trust account, rather than to the Body Corporate, is a decision by those responsible for the management of York that the debt should not be paid. As Associate Judge Bell observed in Forward Plastics, that decision rendered York unable to pay its debts just as if it did not have the liquidity to do so.
[130] Mr Bates submitted that it would be wrong to allow the Body Corporate to proceed to liquidation on the basis of unproved debts. I reject that submission. First, I have not been satisfied that York has made out a genuine and substantial argument that it is not liable for the special maintenance levy, or that it has some counterclaim which would equal or exceed the Body Corporate’s claim. Nor in my view does it matter that the debts relied upon by the Body Corporate in its statement of claim have been paid, and the Body Corporate is now relying on other debts to establish the jurisdictional requirement of inability to pay debts. The essential issue is not the recovery by the Body Corporate of any particular debts, but whether York is unable to pay its debts, and should be put into liquidation on that account.
[131] The final consideration on the extension of time application, as explained by Associate Judge Osborne in Hurunui,20 is where the overall justice of the application lies. I have no doubt in this case that it lies in refusing the extension of time application.
20 Above, n 7.
[132] In my view, York has failed to show that it has a fairly arguable defence to the liquidation claim, whether on the basis that the special maintenance levy is not payable to the Body Corporate, that it has some counterclaim that would or might exceed the amount of the special maintenance levy, or that it is able to pay its debts (in the sense discussed by Associate Judge Bell in Forward Plastics). Nor has York properly explained its failure to file a statement of defence within the time provided by the rules. York’s persistent defaults in meeting timetable orders, and the very nature of the proceeding (liquidation claim, where the times prescribed for taking steps are relatively short, and there is public interest in having the proceeding heard and determined promptly) also point to the conclusion that the extension application should be refused in the interests of justice.
[133] There are two other considerations that point to the refusal of the application. First, the Court hearing the matter at the next call will be hearing the matter after York has had a further opportunity to pay the amount owing in respect of the special maintenance levy. If no liquidation order is then made, York may take any proceedings it may consider appropriate in respect of the building consent issue. Secondly, I take into account the fact that the special maintenance levy is recoverable by statute, under s 124 of the UTA, as a debt due to the Body Corporate. Bodies corporate simply cannot function if members do not pay levies that have been validly raised and are due for payment, and non-payment by a few creates an unfair burden on the many who have paid.
[134] For the sake of completeness, I add that I do not consider that the Body Corporate’s arguments based on the “just and equitable” ground for liquidation could have been relied upon by it. Mr Barr accepted at the hearing that the principle in Ebrahimi21 applied, so that the Body Corporate cannot rely on inability to pay debts as the sole basis for a liquidation order made on the “just and equitable” ground. Amendments would have been required to the Body Corporate’s statement of claim, providing particulars of some separate basis on which it was said to be “just and equitable” to liquidate York. An amended statement of claim including those particulars would have had to be served on York, and in that event I think York would
21 Above, n 4.
have been entitled to a further opportunity to file a statement of defence. Matters such as York’s status as a trustee company, and whether it has been acting in the best interests of its beneficiaries, could only be relevant to the “just and equitable” ground for liquidation, and in my view they cannot be considered on the basis of the statement of claim in its present form.
[135] Mr Barr did invite me to amend the statement of claim, effectively to allow the Body Corporate to run a “just and equitable” argument. However it is not necessary for any amendment to be made. I have concluded that there is a sufficient pleading of inability to pay debts on which the Court could make a liquidation order, and that York has failed to make out its case for an extension of time to file a statement of defence to that claim.
Result
[136] York’s application for an extension of time to file a statement of defence is refused.
[137] The liquidation claim is to be listed for hearing, on an undefended basis, at 10am on 20 April 2018.
[138] The Body Corporate is entitled to costs on the present application. If the parties cannot agree on costs, the Body Corporate may file a memorandum setting out its claim for costs, by 6 April 2018. Any memorandum by York in opposition is to be filed and served by 13 April 2018.
Associate Judge Smith
Solicitors:
Simpson Grierson, Barristers & Solicitors, Auckland for Defendant
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