Body Corporate 172108 v Cummins
[2025] NZHC 1378
•30 May 2025
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-458
[2025] NZHC 1378
BETWEEN BODY CORPORATE 172108
Judgment Creditor
AND
ROBERT JAMES CUMMINS
Judgment Debtor
Hearing: 31 October 2024
Further written submissions on procedural issues 17, 25 and 31 March 2025
Appearances:
J Orpin-Dowell and T Allan for Judgment Creditor R Cummins In Person
Judgment:
30 May 2025
JUDGMENT OF ASSOCIATE JUDGE SKELTON
TABLE OF CONTENTS
Background and procedural history [8]
Legal principles — application for adjudication [38]
Mr Cummins’ application for leave to adduce further evidence and
make further submissions [44]
My assessment [47]
Issues to be determined [59]
Cross-claims [62]
Are the cross-claims disputed? [67]
Merits of the cross-claims [74]
Conclusion on cross-claims [84]
Special circumstances [89]
BODY CORPORATE 172108 v CUMMINS [2025] NZHC 1378 [30 May 2025]
Ability to pay debts [97]
Is it otherwise just and equitable not to make an order for adjudication? [108] Summary of key findings [120]
Result [124]
[1] The judgment creditor, Body Corporate 172108 (Body Corporate), applies for an order adjudicating the judgment debtor, Robert Cummins, bankrupt under s 36 of the Insolvency Act 2006.
[2] The application relates to a series of costs orders, in the sum of $167,522.41 (plus interest), made in favour of the Body Corporate against Mr Cummins. They arise from an ongoing dispute over the repair scheme for a unit title apartment building in Auckland, Hobson Apartments.
[3]Mr Cummins opposes adjudication on the bases that:
(a)he is able to pay his debts;
(b)the judgment debts relied on by the Body Corporate are met by genuinely triable cross-claims against the Body Corporate; and
(c)it is just and equitable that the Court does not make an order of adjudication because it would be futile and the application has been made for a collateral purpose.
[4] After the hearing of the application for adjudication, Mr Cummins applied for leave to file further submissions and adduce further evidence under r 11.8A of the High Court Rules 2016. This application also raised an ancillary privilege issue.1 Mr Cummins also sought an order that the Body Corporate’s application for adjudication not be determined pending the determination of the Body Corporate’s
1 Body Corporate 172108 v Cummins HC Wellington CIV-2021-485-458, 26 February 2025 at [1(b) and (c)].
application dated 19 February 2025 in CIV-2009-404-6868 for further variation of the remediation scheme.2
[5] The parties filed submissions on these procedural issues. After this, it became clear that Mr Cummins was no longer pursuing the application to effectively stay determination of the Body Corporate’s application for an adjudication order.3 The parties agreed that I should determine the remaining procedural issue under r 11A on the papers without any further oral hearing. However, Mr Cummins submitted that if I found I needed to resolve the ancillary privilege issue, then he would seek a further in-person hearing to cross-examine the deponent of an affidavit adduced by the Body Corporate.4
[6] I have determined that leave should not be granted to Mr Cummins to adduce further evidence and/or make further submissions in this proceeding. Therefore, I do not need to determine the ancillary privilege issue. Given these findings, and to avoid further delay in the determination of this proceeding, my determinations on these procedural issues are incorporated into this judgment.
[7] It is first necessary to set out the background and procedural history to this matter.
Background and procedural history
[8] A comprehensive review of the background to this matter is set out in the judgment of the Court of Appeal in CA238/2020.5 It is further traversed in the judgment of Associate Judge Johnston in declining to halt these proceedings,6 and the judgment of Powell J in 2024 in CIV-2009-404-6868.7 I do not propose to repeat the background in full in this judgment. However, I set out below a high-level summary of the background and procedural history.
2 At [1(a)].
3 Body Corporate 172108 v Cummins HC Wellington CIV-2021-485-458, 14 April 2025 [Minute of 14 April 2025] at [5].
4 At [14]–[17].
5 Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17 [Liquidation Appeal Judgment] at [2]–[30].
6 Body Corporate 172108 v Cummins [2023] NZHC 1535 [Halt Judgment] at [3]–[9] and [18]–[31].
7 Body Corporate 172108 v Meader [2024] NZHC 1280 [Powell J Judgment] at [3]–[46].
[9] The parties are in a long-running dispute over the repair of the Hobson Apartments. Manchester Securities Ltd (in liquidation) (Manchester) — of which Mr Cummins is the sole director and shareholder — has been, at all relevant times, the registered owner of unit 12A on level 12, the entire top floor of the apartment building.8 Manchester was originally the sole trustee for Manchester Securities Trading Trust (Trust), a trust associated with Mr Cummins’ interests.
[10] The apartment building was discovered to be leaky and in need of extensive remedial work on all levels. In 2009, the Body Corporate applied to this Court under s 48 of the Unit Titles Act 1972 for approval of a scheme of remediation for the building.
[11] Ultimately, in 2010, Heath J approved a remedial scheme.9 The scheme included specific arrangements with Manchester to carry out the repairs to the unit and common property on level 12 and for Manchester’s contribution to the cost of repair of the building.10 Manchester was to contribute to the repairs of common property on levels one to 11 as well as paying for the work on level 12. Manchester’s liability was to be capped at 11.88 per cent (being the unit entitlement of the level 12 unit) of the total cost of repairs to the whole building. The repairs to levels one to 11 were completed in December 2013.11 However, the repairs to level 12 have not yet been completed.
[12] From 2012, Manchester has refused to pay any contribution towards the costs incurred to remediate levels one to 11. In March 2013 the Body Corporate applied for an order varying the remedial scheme, which was granted by Fogarty J in March 2017, effectively removing the cap of 11.88 per cent.12 Fogarty J also ordered Manchester to make an immediate interim payment of $321,264.79 (plus GST) to the
8 Works undertaken by Manchester on level 12 have resulted in the addition of a small 13th floor. All references to level 12 in this judgment include the new construction at level 13 unless the context specifically requires otherwise.
9 Body Corporate 172108 v Meader (No 3) HC Auckland CIV-2009-404-6868, 31 August 2010; and Body Corporate 172108 v Meader (No 4) HC Auckland CIV-2009-404-6868, 10 February 2011.
10 Body Corporate 172108 v Meader (No 3), above n 9, at [45]–[50].
11 Manchester Securities Ltd v Body Corporate 172108 [2017] NZCA 527 [Variation Appeal Judgment] at [24] and Powell J Judgment, above n 7, at [23].
12 Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329 [Variation Judgment].
Body Corporate.13 This was calculated by identifying Manchester’s contribution to the cost of repairs of common property on levels one to 11 ($513,247.60 plus GST),14 and allowing Manchester a credit for the other owners’ contribution to the estimated cost of carrying out repairs to the common property on level 12 in the sum of
$191,982.81.15 Manchester unsuccessfully appealed the variation decision to the Court of Appeal.16 The Court of Appeal also found that “the scheme has gone badly awry” and “Manchester must take “the lion’s share of the blame”” and “[i]ts conduct can fairly be described as dilatory and prevaricating”.17
[13] In March 2018, the Supreme Court declined Manchester’s application for leave to appeal.18
[14] After the variation decision, the relevant provisions of the scheme relating to the cross-claims asserted by Mr Cummins read as follows:
10.Allocation of Costs
10.1Where Repairs can be identified with a specific Unit, the Cost of such Repairs shall be borne by the Owner or Owners of that Unit.
10.2Where Repairs are carried out to Common Property, the provisions of the Act shall apply.
10.3Subject to any specific provision to the contrary in this scheme, where repairs involve both Units and Common Property, the Cost of such Repairs shall to the extent possible be apportioned to each Owner on the basis of that owner’s legal title to part of the Building.
…
21.2 Manchester shall pay the cost of repairs of common property to all levels calculated in accordance with the unit entitlement (now known as ownership interest) of Manchester’s unit provided however that any Costs incurred by Manchester in respect of project management consultants or other construction-related advisors that do not provide benefit to all other individual proprietors or the body corporate shall be borne solely by Manchester. The costs in respect of project management consultants or other construction-related advisors that Manchester contends provide a benefit to all individual proprietors
13 At [157].
14 At [149], [153].
15 At [153]. This credit was based on the estimated “efficient cost” of carrying out the repairs to the common property on level 12 in 2017 in the sum of $217,865.20.
16 Variation Appeal Judgment, above n 11.
17 At [43]–[44].
18 Manchester Securities Ltd v Body Corporate 172108 [2018] NZSC 19.
(other than Manchester) or the body corporate shall be made available in writing, together with supporting documentation to the secretary of the body corporate. Any dispute about whether benefit is provided to all individual proprietors (other than Manchester) or the body corporate shall be determined under the dispute resolution provisions of this Scheme.
[15] In 2018, Manchester referred a dispute with regard to cl 10.3 of the scheme to arbitration. However, in December 2018, Jagose J granted an interim order prohibiting the parties’ continued participation in the arbitration pending further orders of the Court, on the basis that continuation of the arbitration was unjust.19
[16] Manchester failed to pay the amount of $321,264.79 (plus GST) to the Body Corporate and failed to pay Body Corporate levies after 2012. The Body Corporate issued a statutory demand which Manchester sought to set aside. Manchester contended that it was owed significant sums by the Body Corporate pursuant to cl 21.2 of the remedial scheme which should be set off against the claimed debt.20 The Court of Appeal found that while the claim under cl 21.2 was “not necessarily strong, … the threshold of a clear and persuasive ground showing a set-off [had], by a fine margin, been crossed by Manchester”.21 However, the Court of Appeal found that:22
despite an arguable set-off, and the presence of arbitration clauses and a bona fide dispute, because of Fogarty J’s order for payment immediately and the history we have outlined, we uphold the decision not to set aside the statutory demand.
[17] The Body Corporate then filed an application for the liquidation of Manchester. Manchester unsuccessfully sought to stay the liquidation proceedings. This application was dismissed.23 On appeal, the Court of Appeal found that the application sought to circumvent the previous order of the High Court, affirmed by the Court of Appeal, that “the judgment sum must be paid immediately and that the corresponding statutory demand is not subject to compulsory arbitration about Manchester’s set-off-
19 Body Corporate 172108 v Meader [2018] NZHC 3356.
20 Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 [Statutory Demand Appeal] at [15].
21 At [42].
22 At [62].
23 Body Corporate 172108 v Manchester Securities Ltd [2018] NZHC 3307 [Stay Judgment].
claims”.24 The Court held that that the application was “an exemplar of a collateral challenge to final decisions of this Court and an abuse of process”.25
[18] Manchester then unsuccessfully opposed the liquidation.26 Mr Cummins (as sole director and shareholder of Manchester) obtained leave to appeal the liquidation decision to the Court of Appeal.27 The Court of Appeal rejected the argument that the asserted cross-claims pursuant to cls 10.3 and 21.2 of the remedial scheme provided a basis for avoiding liquidation. The Court referred to the decision of the English Court of Appeal in Re Bayoil SA, stating:28
[67] In Bayoil SA the English Court of Appeal affirmed the principle that where a debt on which a liquidation is based is genuinely disputed, as established by evidence, it would be an abuse of process to liquidate on the basis of that debt in the situation where the debt on which the petition is based is not disputed, but there is an alleged cross-claim. In doing so, and in summarising its reasoning, the Court said:
Having held that the company had a genuine and serious counterclaim in the arbitration, which it had been unable to litigate, in an amount exceeding the amount of Seawind’s debt, the judge ought to have asked himself whether there were special circumstances which made it inappropriate for the petition to be dismissed or stayed.
[68] That is, the counterclaim was for a known amount. Here, notwithstanding affidavit evidence as to the overall amounts spent by Manchester on the level 12 “remediation”, to date the proportion of those amounts which may properly be claimed under has not yet been established. Contrary to Mr Sullivan’s written (outline) submission, it is not accurate to say the Body Corporate does not dispute that Manchester’s set-off amounts under cl 21.2 are more than its claim in liquidation. Moreover, there are here in our view “special circumstances” of the kind that — even if that were not the case — would have made it inappropriate to defer the petition. Those special circumstances are the circumstances and history of this matter since Fogarty J ordered the payment of the judgment debt.
[19] In July 2021, Mr Cummins was ordered to pay the Body Corporate costs and disbursements of the substantive application to liquidate Manchester in the amount of
$32,818.45.29
24 Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408 [Stay Appeal] at [30].
25 At [29], [38].
26 Body Corporate 172108 v Manchester Securities Ltd [2020] NZHC 198 [Liquidation Judgment].
27 Liquidation Appeal Judgment, above n 5.
28 At [67]–[68] (footnotes omitted) citing Re Bayoil SA [1999] 1 WLR 147 (CA).
29 Body Corporate 172108 v Manchester Securities Ltd (in liq) [2021] NZHC 1852 at [21(b)]. The costs award was made against Manchester and Mr Cummins jointly.
[20] It is apparent that, prior to Manchester being put into liquidation, by deeds of retirement and appointment executed in December 2018 and March 2019, Manchester retired as trustee of the Trust and Mr Cummins was appointed as continuing trustee.30 As retired trustee, Manchester continues to hold the registered legal title of unit 12A as bare trustee for its successors as such.31
[21] On 13 September 2021, the Body Corporate served Mr Cummins with a bankruptcy notice in respect of the judgment debt of $32,818.45. Mr Cummins unsuccessfully applied to have the bankruptcy notice set aside.32 Mr Cummins’ arguments were rejected by the High Court and the Court of Appeal.33 Mr Cummins did not rely on the cross-claims under cls 10.3 and 21.2 previously asserted by Manchester.
[22] Mr Cummins did not comply with the bankruptcy notice, and on 17 March 2022 the Body Corporate filed an application for an adjudication order. In June 2022, Mr Cummins applied to halt the application for adjudication under s 38 of the Insolvency Act. He did so on the basis of alleged cross-claims under cls 10.3 and 21.2 of the scheme previously asserted by Manchester.34 Mr Cummins claimed to be able to use these cross-claims to set off his liability to the Body Corporate as a result of his assumption of the role of trustee of the Trust (pursuant to deeds of appointment and retirement of trustee dated 21 December 2018 and 15 March 2019). Alternatively, he claimed the ability to set off his liability pursuant to an assignment of Manchester’s interest in the litigation, concerning the cross-claims, to him by deed of assignment dated 27 February 2020.35 Associate Judge Johnston found that Mr Cummins had an arguable case that:36
30 Halt Judgment, above n 6, at [30].
31 At [4].
32 Body Corporate 172108 v Cummins [2022] NZHC 211 [Setting Aside Judgment]; Body Corporate 172108 v Cummins [2022] NZHC 1031 [Setting Aside Recall Judgment] - Mr Cummins sought the recall of the judgment, asserting that it contained substantial factual and other errors. The judgment was reissued on 13 May 2022 to correct minor factual errors. He also unsuccessfully appealed: Cummins v Body Corporate 172108 [2022] NZCA 658 [Setting Aside Appeal].
33 Setting Aside Judgment, above n 32, at [33]–[34] and Setting Aside Appeal, above n 32.
34 Mr Cummins also argued that he had a claim for a quantum meruit and caveat damages. However, these arguments were rejected and have not been pursued by Mr Cummins.
35 Halt Judgment, above n 6, at [29]–[36].
36 At [38]–[39]. It is not apparent that the Court was made aware of the Litigation Agency Agreement entered into between Manchester (by its liquidator) and Mr Cummins (as trustee of the Trust) on 28 March 2022. Mr Cummins entered into this agreement well after the deeds of appointment and
[38] …if, by reason of the s 47 of the Trustee Act 1956, or the deed of assignment, or both, Mr Cummins is entitled to stand in the shoes of Manchester, from a legal perspective there would be effective identity of parties and therefore he is entitled to use the cross-claims.
[23]However, he declined to halt the bankruptcy application, holding that:
(a)The Body Corporate is seeking adjudication on a judgment debt which is payable immediately and has been outstanding since July 2021.37 This was analogous to the judgment debt that formed the basis of the Body Corporate’s application to liquidate Manchester.38
(b)By contrast, the cross-claims were nothing more than unliquidated claims for damages in arbitral proceedings that may or may not be successful.39
(c)For this reason, he did not accept there was a proper foundation for a halt of the bankruptcy proceedings. In particular, it was not considered by the Court of Appeal to be a proper foundation for setting aside the statutory demand, a stay of the liquidation proceeding, or overturning the decision to liquidate Manchester.40
[24] Associate Judge Johnston did not consider it made any difference that the courts had previously been dealing with a liquidation application, whilst he was concerned with a bankruptcy application. He explained:41
[57] However, as already emphasised, the debt upon which the Body Corporate’s application for adjudication is based is a long outstanding judgment debt that is payable immediately. That is a basis upon which adjudication proceedings may properly be brought. As I have indicated, there is a sense in which such a debt is directly comparable to a claim for unpaid levies. In any event, a central aspect of both the insolvency and liquidation jurisdictions is that a debtor is liable to be bankrupted or liquidated if unable to pay their debts as they fall due so as to protect the public.
retirement executed in December 2018 and March 2019, and the deed of assignment dated 27 February 2020 relied on by him in his application to halt the adjudication proceedings. The Litigation Agency Agreement is discussed below at [82]–[83], [86], [109] and [118].
37 At [43] and [53].
38 At [44] and [57].
39 At [44]–[45] and [53].
40 At [54].
41 At [57]–[60] (footnotes omitted).
[58] In short, I do not consider that there is anything in the argument based on the difference between insolvency and liquidation proceedings, or at least anything that can affect the outcome in this case.
[59] As the Court of Appeal has said in related proceedings, “The courts’ insolvency jurisdiction is, in origin, equitable. Equity looks to substance and sees through form”. Given that Mr Cummins’ relies upon equitable set-off which originally accrued to Manchester, it is important to remember that such a claim is an equitable defence: “That the defendant has a claim against the plaintiff will not be enough. There must be an equity justifying the claim as a defence”. For the reasons I have tried to identify, I do not consider that there is in this case an equity standing behind Mr Cummins’ application.
[60] Finally, the power to halt an application for adjudication, or eventually to adjudicate a person bankrupt are discretionary powers. As the Court of Appeal said in the liquidation proceedings, the background and history of the dispute between Mr Cummins, his interests, and the Body Corporate, constitute special circumstances which effectively make it inappropriate to defer the Body Corporate’s application for adjudication.
[25] Associate Judge Johnston summarised his conclusions on the considerations relevant to whether to order a halt in this way:42
(a)The history of the litigation: the dispute in this case has been before the courts continuously since at least 2010. Mr Cummins and his interests has refused to pay sums owing to the Body Corporate throughout this time, and the judgment debt in the present case has been outstanding since 30 June 2021. While the Court of Appeal has recognised that Manchester has a plausible claim, both this Court and the Court of Appeal have, time and again, refused to regard that claim, a claim for unliquidated damages that may or may not succeed, as providing a foundation for bringing to an end insolvency or liquidation proceedings. The Court of Appeal has described Mr Cummins and his interests as engaging in “dilatory and prevaricating behaviour”.
(b)The merits of Mr Cummins’ cross claims: for the reasons set out in this judgment, I consider that Mr Cummins’ arguments lack merit, even although there is a claim in existence which remains to be determined.
(c)The stage of Mr Cummins’ cross-claims: I am unaware of when (if ever) Mr Cummins’ claim is likely to be determined, although it is clear that no proceeding alleging quantum meruit or seeking caveat damages currently exists. Given the stay, it seems unlikely that the claim will be determined any time soon. It also appears to me that Mr Cummins’ apparent propensity to take every point he can — good, bad or indifferent — is likely to prolong the time it will take to have his claim determined.
(d)Consequences for the parties: given the history of the dispute between Mr Cummins and his interests, and the Body Corporate, the
42 At [105] (footnote omitted).
consequences of a halt would be to drag the dispute out, further prolonging the Body Corporate’s attempt to recover an outstanding judgment debt. As the Courts have emphasised, the history of the litigation indicates that the balance of equities does not fall in Mr Cummins’ favour.
(e)Consequences for third parties: it appears to me that a halt of the application would be likely to have a negative impact on Mr Cummins’ creditors generally.
[26] Mr Cummins applied for leave to appeal against the decision declining to halt the bankruptcy proceedings, but leave was declined.43 Associate Judge Johnston summarised why he had concluded in the Halt Judgment that special circumstances existed as follows:44
[33] It is correct that in my judgment at para [60] I concluded that special circumstances existed. Between paragraphs [37]–[60] I tried to explain why I had reached that conclusion. In broad summary:
(a)the background to this litigation in which Manchester Securities and Mr Cummins have taken every conceivable point, many of which, in my assessment, have been without substantial merit;
(b)the fact that, even if Mr Cummins can claim standing to pursue the claims in question, they are the subject of arbitral proceedings which were commenced years ago, which are stayed and there is no immediate prospect of them being resurrected;
(c)the fact that in this proceeding the Court is dealing with a judgment debt for a sum certain, which is payable immediately and that the claim that Mr Cummins relies on is a claim for an unliquidated amount in arbitral proceedings which may or may not be successful;
(d)the fact that the evidence demonstrates conclusively (despite Mr Cummins’ rather somewhat vehement attempt to persuade me to the contrary) that he is insolvent in the sense that he is unable to meet his debts as they fall due;
(e)the fact that while this dispute is dragged out the necessary remedial work remains incomplete to the serious disadvantage of the Body Corporate and all members.
[27] After leave to appeal was declined by Associate Judge Johnston, Powell J released a decision in CIV-2009-404-6868 on:45
43 Cummins v Body Corporate 172108 [2023] NZHC 3169 [Halt Leave Judgment].
44 At [33].
45 Powell J Judgment, above n 7.
(a)cross applications by the Body Corporate and Manchester (prior to being put into liquidation) seeking declarations as to the effect of the cost allocation provisions in the scheme or, in the alternative, variations to the scheme to reflect their respective contentions as to the appropriate effect of the scheme; and
(b)an appeal by the Body Corporate against a preliminary determination by an arbitrator that he had jurisdiction under the reference to arbitration made by Manchester in 2018.
[28] Justice Powell found that “[t]he responsibility for what has taken place and the future to complete the remediation of level 12 must rest largely with Mr Cummins” as the sole director and shareholder of Manchester.46
[29] Justice Powell found that the asserted cross-claim under cl 10.3 could not succeed.47 He found that cl 21.2 “provides a limited mechanism for Manchester to make claims for consultant fees”. 48 He held:49
[92] It appears from the figures provided by Mr Cummins that as of March 2022 the maximum amount of “project management consultants or other construction-related advisors” claimed to come within cl 21.2 is
$1,194,552.61 (excluding GST). It is thus at most only a reasonably small proportion of the total cost expended by Manchester on level 12. It is, in any event, not clear whether all invoices have been made available still less whether at any point any supporting documentation to justify why those costs benefit all of the other owners or the Body Corporate, and it therefore appears that any claim under cl 21.2 remains pending rather than actual.
[30] Justice Powell considered that the dispute resolution provisions of the scheme (cl 13) should be varied to “make it clear that no arbitration is to be commenced, by Manchester or deriving from Manchester’s claims, prior to issue of a code compliance certificate”.50 Further, it was appropriate there be “some type of timetable to ensure
46 At [10].
47 At [87] and [147](c).
48 At [90].
49 At [92].
50 At [119].
that any arbitration [of the cl 21.2 claim] is commenced promptly after the issue of a code compliance certificate”.51 Justice Powell varied cl 13 to require that:52
13.4In the event a notice of objection is given by, for, under or on behalf of Manchester, arising out of or otherwise derived from any rights provided to or claimed by Manchester under this scheme including any claim based on any claim or entitlement arising out of cl 21.2, the dispute is not to be referred to an arbitrator unless:
(a)the notice of objection is given within 20 working days of a code compliance certificate being issued in respect of all works on level 12 and 13; and
(b)Manchester, or the person or entity claiming for, under or on behalf of Manchester has paid to the Body Corporate prior to the notice of objection being issued:
(i)all levies currently outstanding for level 12 (and 13 (if any)) at the date of the notice of objection;
(ii)the judgment sum of $321,264.79 (plus GST if any) ordered by Fogarty J to be paid by Manchester to the Body Corporate ([2017] NZHC 329); and
(iii)all costs awarded against Manchester in favour of the Body Corporate and unpaid at the date of the notice of objection.
[31]Justice Powell also held:53
[118] In considering this variation I am concerned that the current status quo will continue that Manchester or its successor will not complete the remediation of level 12 in a timely fashion, with the result that the prospect of arbitration will continue to hang over the other owners for some time to come. As a result, I reserve leave for the Body Corporate to seek a further variation to the dispute resolution provisions with a view to restricting the ability of Manchester or its successor to arbitrate in the event the remediation of level 12 is not completed within 6 months of the date of this judgment.
[32] Further, Powell J made Jagose J’s interim orders of 7 February 2019, concerning the arbitration commenced by Manchester, permanent.54
[33] Justice Powell’s judgment has not been appealed by any party. Mr Cummins applied for leave to appeal as a non-party, but his application was dismissed.55
51 At [117].
52 At [116]–[120] and Schedule.
53 At [118].
54 At [145] and [149].
55 Body Corporate 172108 v Meader & Ors (Manchester Securities Ltd) [2025] NZHC 69.
[34] In September 2024, the Court of Appeal declined Mr Cummins’ application for special leave to appeal the Halt Judgment.56 Regarding the cross-claims, the Court of Appeal held: 57
[23] The absence of serious arguability has only been strengthened by the release (after the Associate Judge’s halt and leave decisions) of Powell J’s judgment referred to earlier. As noted, Powell J has permanently stayed the arbitral proceedings, found that the cross-claim under cl 10.3 could not succeed and expressed the view that any residual claim under cl 21.2 “remains pending rather than actual”. So any conceivable strength that Mr Cummins’ cross-claim argument might once have had has all but evaporated.
[35] On 19 February 2025, the Body Corporate filed an interlocutory application in CIV-2009-404-6868 seeking an order further varying the dispute resolution provisions of the remediation scheme. In particular, the Body Corporate sought to insert clauses preventing Manchester Securities Ltd, Sage Securities Ltd and Mr Cummins (and any person claiming by, through or under any of them) from bringing:
any counterclaim of any kind howsoever arising relating to any work or cost incurred in relation to any part of the work on [level 12 of the Hobson Street Apartments] against the Body Corporate or any owner of any unit in the Body Corporate relating to the cost incurred or to be incurred in carrying on the work on [level 12].
[36] This application is before Powell J and has been timetabled for hearing in July 2025.
[37] Since the original costs order which is the subject of the bankruptcy notice, this Court, the Court of Appeal and the Supreme Court have made further costs orders in favour of the Body Corporate against Mr Cummins. He now owes the Body Corporate the sum of $167,552.41, plus interest.58 I understand that Mr Cummins does not dispute the quantum of these judgment debts and that further costs applications by the Body Corporate remain outstanding.
56 Cummins v Body Corporate 172108 [2024] NZCA 303 [Halt Special Leave Judgment]. See also
Cummins v Body Corporate 172108 [2024] NZCA 333 [Halt Special Leave Recall Judgment].
57 At [23].
58 See HG Metal Manufacturing Ltd v Navaratnam [2022] NZHC 2183 at [26]–[27].
Legal principles — application for adjudication
[38] Section 36 of the Insolvency Act provides that the Court may, at its discretion, adjudicate the debtor bankrupt if the creditor has established the requirements set out in s 13 of the same Act.
[39]Section 13 provides:
13 When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a)the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of $1,000 or more to those creditors between them; and
(b)the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c)the debt is a certain amount; and
(d)the debt is payable either immediately or at a date in the future that is certain.
[40] Section 37 provides that the Court may, at its discretion, refuse to adjudicate the debtor bankrupt if:
(a)the creditor has not established the requirements set out in s 13;
(b)the debtor is able to pay his or her debts;
(c)it is just and equitable that the court does not make an order for adjudication; or
(d)for any other reason an order of adjudication should not be made.
[41] A leading authority on the exercise of the discretion is Baker v Westpac Banking Corp.59 In that case the Court of Appeal held:60
59 Baker v Westpac Banking Corp CA212/92, 13 July 1993.
60 At 4–5.
It is proper for the court to consider not only the interests of those directly concerned — the petitioner, other creditors, the debtor — but also the wider public interest. A creditor who establishes the jurisdictional facts set out in s 23 is not automatically entitled to an order. On the other hand, it is for an opposing debtor to show why an order should not be made. The court will give proper weight to the commercial judgment of the petitioner but the oppressive use of the bankruptcy process may be a ground for refusing an order. Another ground may be the undoubted absence of assets but that will not necessarily preclude an order given the range of interests involved including the public interest in the continuing oversight of a bankrupt’s affairs and the disqualifications that go with bankruptcy. In the end the court must balance the various considerations relevant to the case and determine whether the debtor has succeeded in showing that an order ought not to be made.
[42] Recently, in New Zealand Bloodstock Finance & Leasing Limited v Jones, the Court set out the general principles, as developed through case law, that are relevant to the Court’s discretion to refuse adjudication:61
(a)The onus is on the debtor to show why an adjudication order should not be made.
(b)In exercising its discretion, the Court may consider, inter alia, the following factors:
(a)the views of all affected parties, including the petitioner, other creditors and the debtor;
(b)the wider public interest, including whether adjudication is “conducive or detrimental to commercial morality and the interests of the general public”;
(c)the circumstances in which the debt was incurred and whether those circumstances suggest that the creditor is acting unreasonably in pursuing adjudication;
(d)whether adjudication would be pointless in the sense that the creditors are unlikely to receive payment; and
(e)whether adjudication would render the debtor unable to support themselves.
(c)In exercising its discretion, the Court should also remain cognisant of the broader purposes of bankruptcy which include:
(a)allowing for administration of the debtor’s estate in the interests of creditors;
(b)holding the debtor accountable for their debts;
(c)punishing or stigmatising the debtor for misconduct;
61 New Zealand Bloodstock Finance & Leasing Ltd v Jones [2023] NZHC 3542 at [35] (footnotes omitted).
(d)protecting the community from a debtor who runs up credit without being able to honour it; and
(e)allowing the debtor to eventually take up commercial activity once freed from their liabilities after the discharge of their bankruptcy.
(d)Ultimately, the Court must balance the various considerations relevant to an application when concluding whether the debtor has succeeded in showing that the order sought should not be made.
[43] The factors relevant to the Court’s exercise of its discretion under s 37 to refuse to order adjudication are similar to those relevant to the exercise of its discretion under s 38 to halt adjudication.62 If an application for a halt is dismissed, the consequence is often an order for adjudication.63
Mr Cummins’ application for leave to adduce further evidence and make further submissions
[44] Mr Cummins has applied for leave to file further submissions and adduce further evidence after the end of the hearing of the application for adjudication under r 11.8A of the High Court Rules.
[45] Leave will only be granted to file further submissions in exceptional circumstances, for example, where a new matter has arisen since the hearing which has not been anticipated by counsel.64 Regarding leave to adduce further evidence, Gault J stated in Alderton v Sixty-Six Auckland Ltd:65
Even in the case of further submissions after a hearing, leave is required and will only be granted in exceptional circumstances. At least the same constraint applies to further evidence after a hearing. The conventional requirements for adducing further evidence on appeal — before an appeal hearing — are that the further evidence must be fresh, credible and cogent, and that evidence is not regarded as fresh if it could with reasonable diligence have been produced at the trial. Those requirements assist by analogy when considering whether leave should be granted to adduce further evidence after the hearing in this proceeding.
62 Jason Bull (ed) Insolvency Law & Practice (online looseleaf ed, Thomson Reuters) [Insolvency Law & Practice] at [IN37.02].
63 See, for example, Re Wang, ex parte Westpac New Zealand Ltd (2011) 25 NZTC 20-015 (HC) at [39]; Re Pillay, ex parte ANZ National Bank Ltd HC Auckland CIV-2009-404-4175, 3 December 2009 at [25], [31] and [32]; and Re Wright, ex parte Health Distributors Ltd HC Hamilton CIV-2010-419-121, 5 November 2010 at [6].
64 Practice Note [1968] NZLR 608. See also Body Corporate 172108 v Flat Bush Finance Ltd [2020] NZHC 3135 at [68], [70] and [75].
65 Alderton v Sixty-Six Auckland Ltd [2024] NZHC 2263 at [31] (footnotes omitted).
[46] Mr Cummins seeks to adduce further evidence in this proceeding. In particular, he seeks to rely on a letter from the Body Corporate’s solicitors to the Body Corporate Committee dated 23 October 2024 (advice letter) and minutes of the Emergency Extraordinary General Meeting (EEGM) of the Body Corporate dated 1 November 2024. Mr Cummins says that he wishes to refer to the contents of these documents in further submissions. The Body Corporate says the advice letter is subject to legal advice privilege, that the privilege has not been waived and the letter is inadmissible.
My assessment
[47] It is apparent that the advice letter and minutes of the EEGM relate to the variation application made by the Body Corporate on 19 February 2025 in CIV-2009-404-6868. I have reviewed this application and the EEGM minutes which Mr Cummins put before me. Mr Cummins submits that the advice letter, minutes of the EEGM and the 19 February 2025 application together are relevant to the application for adjudication because they disclose:
that the BC, whilst purporting to deny the existence of valid cross-claims in pursuit of an adjudication order in this proceeding, has contrived to apply to Powell J, whom it perceives to be favourably biased, to retrospectively extinguish the said cross-claims in the Auckland proceeding. That contrivance is an “exceptional circumstance” in the context of the Insolvency Act. The unanticipated new matter that has arisen post-hearing comprises all of the advice letter, the minutes of the EEGM and the 19 February application.
[48] I understand that Mr Cummins intends to submit that the three documents together constitute “tacit acceptance” of the existence and viability of his cross-claims, in particular the claim under cl 21.2 of the remedial scheme. Mr Cummins intends to argue that, because the Body Corporate has tacitly accepted the cross-claims subsist and are “genuinely triable”, the application for an order for adjudication is cynical or oppressive and should be dismissed.
[49] The written and oral submissions of counsel for the Body Corporate at the hearing of the application for adjudication made clear that the Body Corporate does not deny the existence of the asserted cross-claims under cls 21.2 and 10.2, at least as
contingent claims.66 The Body Corporate disputes the claims on the merits, but contends that, even if the claims are “genuine and…of substance”, an order for adjudication is justified because “special circumstances” exist.67 The present position under the remedial scheme is that the disputed claims may ultimately have to be determined by arbitration under cl 13 of the scheme after completion of the works on level 12.
[50] As noted above,68 in his judgment dated 23 May 2024, Powell J reserved leave for the Body Corporate to seek a further variation to the dispute resolution provisions of the scheme with a view to restricting the ability of Manchester or its successor to arbitrate in the event the remediation of level 12 was not completed within six months of the date of the judgment.
[51] The six months to complete remediation of level 12 expired on 23 November 2024. Accordingly, the Body Corporate is now seeking a further variation of the dispute resolution provisions intended to restrict Manchester or Mr Cummins’ ability to pursue any extant cross-claims in arbitration proceedings under the remedial scheme.69
[52] Mr Cummins does not seek to adjourn or stay the Body Corporate’s application for adjudication pending the outcome of the 19 February 2025 application.70 That is because he acknowledges the Body Corporate’s position that the application for adjudication is based on the remedial scheme as it currently stands, not as it would be if the variation application is successful.
66 See Powell J Judgment, above n 7, at [92] in respect of the asserted claim under cl 21.2 of the scheme.
67 Re Bayoil SA, above n 28, at 155A–G and 156C–D. See also Associate Judge Johnston’s findings on “special circumstances” in this case in the Halt Leave Judgment, above n 43, at [29]–[35].
68 At [31].
69 Mr Cummins contends that the leave reserved contemplates “any further variation necessary to effect completion of the remediation of level 12…” as reflected in the sealed judgment rather than a further variation of the dispute resolution provisions of the scheme as stated in [118] of the judgment. However, the scope of the leave reserved and the nature of any further variation to the remedial scheme which the Court considers appropriate at this stage are matters to be determined in CIV-2009-404-6868.
70 Minute of 14 April 2025, above n 3.
[53] In the circumstances, I am not satisfied there is any “contrivance” in the Body Corporate’s 19 February 2025 application in CIV-2009-404-6868. There is no artificiality, inconsistency or contradiction in the approach taken by the Body Corporate. The Body Corporate recognises the existence of the cross-claims under cls 10.2 and 21.2 of the scheme at least as contingent claims, but disputes the claims on the merits. It contends that, even if the claims have merit, Mr Cummins should be adjudicated bankrupt because “special circumstances” exist. As things stand, the cross-claims may have to be determined by arbitration under the remedial scheme if and when the work on level 12 is completed. However, in accordance with leave reserved by Powell J, because the remediation of level 12 was not completed by 23 November 2024, the Body Corporate is now applying for a further variation of the remedial scheme.
[54] The variation application does not involve any “tacit acceptance” that the cross-claims are “genuinely triable” in the sense that the claims are “genuine and… of substance”.71 The express focus of the leave reserved by Powell J and the variation application as filed is to avoid the prospect of arbitration “of any counterclaim of any kind howsoever arising” hanging over the owners indefinitely. Even if the application (together with the underlying advice letter and EEGM minutes) could be construed as “tacit acceptance” that the cross-claims are “genuinely triable”, the Body Corporate’s position is that Mr Cummins should be adjudicated bankrupt nonetheless because “special circumstances” exist. There is no contrivance and the application for adjudication is not cynical or oppressive.
[55] Another aspect of the “contrivance” raised by Mr Cummins is that the advice letter allegedly includes “intemperate language regarding the perception of the author that Powell J lacks impartiality/is favourably biased towards the Body Corporate”. Mr Cummins submits that:
[t]his must at least raise a question mark over any determination of Powell J that is in favour of the Body Corporate in respect of … the Body Corporate’s application to retrospectively extinguish the cross-claims.
[56]In response the Body Corporate submits that:
71 Re Bayoil SA, above n 28, at 155A–G.
There are no exceptional circumstances in the present case that justify the grant of leave. Mr Cummins says that he wishes to make submissions on the legal advice because it includes “intemperate language regarding the perception of the author that Powell J lacks impartiality/is favourably biased toward the Body Corporate”. That is not an accurate reflection of the legal advice. But even if it was, that is not a matter that has any bearing or relevance on the issues your Honour has to determine on the Body Corporate’s application to adjudicate Mr Cummins bankrupt. If there is any substance in relation to Mr Cummins’ complaint of bias (which is not accepted), that is a matter that he will need to address in the proceeding where the bias is said to arise.
[57] As noted above, neither Mr Cummins nor the Body Corporate are seeking an adjournment or stay of the application for adjudication pending the outcome of the Body Corporate’s application for further variation of the remedial scheme. The Body Corporate has made it clear, and Mr Cummins acknowledges, that the application for adjudication is based on the scheme as it stands, and not as it would be if the variation application was successful. In not seeking any stay or adjournment of the application for adjudication, Mr Cummins must be taken to acknowledge that the outcome of the variation application has no bearing on my determination of the application for adjudication based on the current scheme. It follows that any perceived lack of impartiality or “favourable bias” towards the Body Corporate on the part of the judge hearing the variation application cannot have any bearing on my determination. However, as I have previously noted, if Mr Cummins intends to allege lack of impartiality in relation to CIV-404-2009-6868, then this must be raised with the judge in that proceeding urgently.72
[58] For the reasons discussed above, I am not satisfied that there is any “contrivance” nor exceptional circumstances that justify leave being granted to Mr Cummins to adduce further evidence (being the advice letter and minutes of the EEGM) and to make further submissions on this evidence and the Body Corporate’s 19 February 2025 application in CIV-2009-404-6868 for variation of the remedial scheme. I am not satisfied that the allegations raised by Mr Cummins provide any basis for alleging cynical or oppressive use of the bankruptcy process. In the circumstances, I do not need to consider and determine the ancillary privilege issue raised in relation to the advice letter.
72 Minute of 14 April 2025, above n 3, at [8]–[13].
Issues to be determined
[59] It is apparent that the Body Corporate has established the requirements set out in s 13 of the Insolvency Act. The issue is whether I should exercise my discretion to refuse to adjudicate Mr Cummins bankrupt under s 37 of the Act.
[60] The onus is on Mr Cummins to show why an adjudication order should not be made. As noted above, Mr Cummins contends that I should exercise my discretion to refuse to adjudicate him bankrupt because:
(a)he is able to pay his debts;
(b)the judgment debts relied on by the Body Corporate are met by genuinely triable cross-claims against the Body Corporate; and
(c)it is otherwise just and equitable that the Court does not make an order of adjudication because it would be futile and the application has been made for a collateral purpose.
[61] It is appropriate to deal with the cross-claims issue first as Mr Cummins’ argument seems to be that he should not be treated as a debtor of the Body Corporate.
Cross-claims
[62] Mr Cummins submits that he should not be adjudicated bankrupt because he has “established genuinely triable cross-claims against the Body Corporate in an amount that clearly exceeds the total amount of the debts owed to it”. He argues that debts must be assessed on a net basis in the Court’s insolvency jurisdiction.73 Referring to Re Bayoil SA,74 Mr Cummins contends that there is little practical difference between a cross-claim of substance and a serious dispute regarding the underlying indebtedness.75 He says that I should exercise my discretion against
73 See Insolvency Act 2006, s 254.
74 Re Bayoil SA, above n 28.
75 At 154H and 156E–F.
adjudication unless there are “special circumstances” making it inappropriate for the application to be dismissed.76
[63]The asserted cross-claims are:
(a)a claim under cl 21.2 of the scheme in the sum of $1,914,756.75 for costs in respect of project management consultants or other construction-related advisors incurred in the remediation of level 12 which it is contended provide a benefit to the Body Corporate; and
(b)a new claim under cl 10.2 of the scheme in the sum of $164,552.79 as a credit in respect of the Trust’s unit entitlement share of the total cost of common property repairs for the building.77
[64] It is clear that cross-claims can be taken into account by the Court in exercising its discretion under s 37 of the Insolvency Act. This Court has found that the debtor must convince the Court that he or she has “a sound and credible counterclaim or set- off” before the Court will take it into account when exercising its discretion.78 In considering the definition of “cross demand” in the Insolvency Act 1967,79 the Court of Appeal held that there must be a “genuine triable” claim and that the debtor must “demonstrate that he [sic] has a claim of true substance which he genuinely proposes to pursue”.80 More recently, in considering the definition of “cross-claim” in s 17 of the Insolvency Act,81 the Court of Appeal held that the Court must be satisfied that “a genuine triable claim exists both as to liability and quantum”.82 The Court also noted that, although the definition in s 17 suggests a need to identify a liquidated sum, an unliquidated claim in tort has been found to be sufficient.83
76 At 155C and 156C–D.
77 Mr Cummins contends that if the common property percentage of consultants’ costs (9.91 per cent) is taken out of the cl 21.2 claim, the cl 10.2 claim is $361,846.79.
78 Tailored Building Solutions v Evans [2020] NZHC 2208 at [60].
79 Insolvency Act 1967, s 19(1)(d).
80 Sharma v ANZ Banking Group (NZ) Ltd (1992) 6 PRNZ 386 (CA) at 389.
81 Section 17 deals with the act of bankruptcy arising from failure to comply with a bankruptcy notice.
82 Robertson v ASB Bank Ltd [2014] NZCA 597 at [22] and [24].
83 At [24]. See also Liquidation Appeal Judgment above n 5 at [59]–[64] dealing with unliquidated or contingent claims by an insolvent company.
[65] As noted above, after a five-day trial, Powell J found that any cross-claim under cl 21.2 appeared to be “pending rather than actual”.84 In particular, it was not clear whether all the relevant invoices had been made available or whether supporting documentation had been provided which could establish that the claimed consultants’ costs benefitted the other owners or the Body Corporate.85 The Court of Appeal found, on the basis of the Powell J Judgment, including the variation to the dispute resolution provisions of the scheme, that “any conceivable strength that Mr Cummins’ cross- claim argument might once have had has all but evaporated”.86
[66] Mr Cummins now contends that he lodged “comprehensive ‘actual’ (as opposed to ‘pending’) claims under cl 21.2 and cl 10.2 of the scheme” on 26 July 2024.87 He has produced the claims in his affidavit evidence together with his “notice of appropriation of claims” dated 15 August 2024.88
Are the cross-claims disputed?
[67] Mr Cummins contends that there has been no response from the Body Corporate to the claims and therefore there is no “‘actual’ dispute” before the Court in relation to the claims. He says, therefore, there is no need to invoke the arbitration provisions in the scheme and “the conditions precedent to a referral to arbitration” as ordered by Powell J do not come into play. Mr Cummins contends that the current claims may be pursued because “there is no dispute arising from a notice of objection given by, for, under or on behalf of Manchester to trigger the operation of clause 13.4”. Mr Cummins further submits that, if there is a dispute pending, then the Body Corporate will be the claimant and it is:
inappropriate for the Body Corporate to seek to bankrupt me in the face of a viable cross-claim it does not dispute or, if it does dispute it, where it must refer the dispute to arbitration.
[68]It is useful at this point to set out cl 13 of the scheme (as varied) in its entirety:89
84 Powell J Judgment, above n 7, at [92].
85 At [92].
86 Halt Special Leave Judgment, above n 56, at [23].
87 The 26 July 2024 claim document also includes a “Pending Claim: double recovery by the Body Corporate – settlement with Auckland Council 18 July 2011”.
88 The “notice of appropriation” is signed by Mr Cummins as trustee and purports to provide that the claims are to be “applied first to meet the personal debts of the Trustee…”.
89 The changes made by the Powell J variation are italicised.
13.Dispute resolution
13.1The Body Corporate’s decision shall be final in all respect all matters arising under this scheme, except where 5 or more Owners whose objection in monetary value cumulatively exceeds $30,000, or where one Unit Owner has an objection which in monetary terms exceeds
$10,000. Upon receiving notice of such an objection and subject to cl 13.4, the Body Corporate shall refer the matter of arbitration.
13.2The objecting Owners must give notice to the Body Corporate of their objection within 15 working days of receiving an assessment as to Costs or other notice from the Body Corporate which is the subject of the objection outlining the grounds on which such objection is made. On receipt of the notice the Body Corporate will refer the matter to an arbitrator (to be appointed by the President of the Quantity Surveyors Association) and the arbitrator shall determine the issue under the provisions of the Arbitration Act 1996. The arbitrator’s decision shall be final and the costs of the arbitration shall be borne as between the objecting Owners and the other members of the Body Corporate generally as the arbitrator shall decide.
13.3No Owner shall be entitled to withhold payment of a Levy on the basis that the matter is in the process of dispute resolution.
Arbitration of Manchester’s objections
13.4In the event a notice of objection is given by, for, under or on behalf of Manchester, arising out of or otherwise derived from any rights provided to or claimed by Manchester under this scheme including any claim based on any entitlement arising out of cl 21.2, the dispute is not to be referred to an arbitrator unless:
(a)the notice of objection is given within 20 working days of a code compliance certificate being issued in respect of all works on level 12 and 13; and
(b)Manchester, or any person or entity claiming for, under or on behalf of Manchester has paid to the Body Corporate prior to the notice of objection being issued:
(i)all levies currently outstanding for level 12 (and 13 (if any)) at the date of the notice of objection;
(ii)the judgment sum of $321,264.79 (plus GST if any) ordered by Fogarty J to be paid by Manchester to the Body Corporate ([2017] NZHC 329); and
(iii)all costs awarded against Manchester in favour of the Body Corporate and unpaid at the date of the notice of objection.
13.5For avoidance of doubt any dispute as to whether notice has been given in time pursuant to cl 13.4(a) or that all amounts have been paid pursuant to cl 13.4(b) are not matters for arbitration pursuant to cl 13
but fall within the leave reserved provisions of the judgment of Powell J dated 23 May 2024 ([2024] NZHC 1280).
[69] Mr Cummins’ 26 July 2024 claims appear to be interim quantifications of the claims as the works on level 12 are clearly not completed.90 The claims are advanced by Mr Cummins as “the continuing trustee of Manchester Securities Trading Trust (the Trust), the beneficial owner of Unit 12A”. He contends that the claims are “vested in him pursuant to s 47(2) of the Trustee Act 1956”. As noted above, Associate Judge Johnston found in the Halt Judgment that Mr Cummins has an arguable case to the effect that he is “entitled to stand in the shoes of Manchester [meaning] from a legal perspective there would be effective identity of parties”.91 Therefore, in contending that he is pursuing the claims in the capacity of continuing trustee, Mr Cummins is bound by the provisions of the scheme, including the dispute resolution provisions.
[70] Clause 21.2 expressly provides that “any dispute about whether benefit is provided to all individual proprietors (other than Manchester) or the body corporate shall be determined under the dispute resolution provisions of this Scheme”.92 Clause 13 requires there to be a decision or assessment made by the Body Corporate regarding costs and then any owner may give notice of objection. If the monetary value of the objection exceeds $30,000 (where five or more owners object) or $10,000 (where one owner objects), the Body Corporate will then, subject to cl 13.4 (relating to Manchester), refer the matter to arbitration.
[71] There is no evidence before me of any formal decision or assessment by the Body Corporate on Mr Cummins’ 26 July 2024 claims yet. However, the procedural history set out above makes clear that Manchester and the Body Corporate have been in a longstanding dispute regarding cross-claims in respect of apportioning repair costs under the scheme.93 Further, the Body Corporate’s submissions and affidavit evidence
90 In the Powell J Judgment, above n 7, Powell J noted at [117] that: “The quantification of the claim can surely be commenced already, including undertaking a detailed assessment of the dilatory remediation, while the remainder can be completed after the conclusion of works and prior to the issue of the code compliance certificate”.
91 Halt Judgment, above n 6, at [38].
92 See [14] above.
93 For example, see Statutory Demand Appeal, above n 20, at [45], Halt Leave Judgment, above n 43, at [33] and Powell J Judgment, above n 7, at [1]–[5]. It is apparent that Mr Cummins is not pursuing the cross-claim under cl 10.3 of the scheme.
adduced for the application for adjudication indicate that the Body Corporate disputes the current iteration of the cross-claims advanced by Mr Cummins.94 Evidently, when the Body Corporate makes a formal decision or assessment on the cls 21.2 and 10.2 claims (which under the current scheme may not be until the level 12 works are completed) Mr Cummins would give a notice of objection as continuing trustee.
[72] Therefore, I do not accept Mr Cummins’ submission that there is “no need to invoke the arbitration agreement in the scheme” and “the conditions precedent to a referral to arbitration do not come into play”. Mr Cummins submits that “[t]he current claims can be pursued as there is no dispute arising from a notice of objection”. Yet, it is not clear how the claims could be pursued by Mr Cummins other than under the provisions of the scheme. Ultimately, if the Body Corporate does not issue a formal decision or assessment in respect of the claims, and the sums claimed are not paid by the Body Corporate, Mr Cummins would be entitled to assume that the claims are not admitted and give a notice of objection.95
[73] Mr Cummins then argues that, if there is a dispute pending, the Body Corporate is obliged to refer the matter to arbitration under cl 13. He argues that it is inappropriate for the Body Corporate to seek to bankrupt him in circumstances where, if it disputes the cross-claims, it must refer the dispute to arbitration. However, this submission ignores the effect of the variation to the dispute resolution provisions of the scheme in the Powell J Judgment. Neither the Body Corporate, nor any other party, can refer the disputed claims to arbitration unless and until the conditions in cl 13.4 have been satisfied. Therefore, the claims cannot be pursued in arbitration under the scheme unless and until those conditions are satisfied.96
Merits of the cross-claims
[74] Mr Cummins contends that the cl 21.2 cross-claim is “very much extant”. He says that all relevant invoices have been provided to the Body Corporate and not challenged, and supporting documentation has been provided to establish the benefit
94 See the arguments advanced by the Body Corporate discussed below at [74]–[83].
95 See Amec Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC) at [68].
96 Subject to any further variation to the scheme.
provided to the Body Corporate.97 However, the Body Corporate submits that the claim remains a contingent claim for an unliquidated amount. The Body Corporate says that Mr Cummins has “merely refer[red] to documents previously provided in the trial before Powell J”. Further, the Body Corporate emphasises that Powell J was not satisfied that all invoices had been provided, nor that there was sufficient supporting documentation to justify why those costs benefitted the other owners or the Body Corporate.98
[75] My assessment is that the 26 July 2024 iteration of the cl 21.2 claim simply asserts that, after deducting Manchester’s 11.88 per cent share, all the consultants’ costs incurred by Manchester for repair of level 12 benefitted the Body Corporate. The claim does not provide substantial supporting documentation and/or expert analysis addressing the issue.
[76]I also note that Powell J found that:99
It is already self-evident that for the Body Corporate to benefit from reports of project management consultants or other construction-related advisors such reports must have had to been provided to the Body Corporate prior to undertaking work of its own.
[77] The information and reports provided to the Body Corporate referred to in the 26 July 2024 claim were all provided after September 2014. The remedial work on levels one to 11 was completed in December 2013. Therefore, it is difficult to see how these reports could have been of any significant benefit to the Body Corporate or all other owners.
[78] There is also an issue as to whether cl 21.2 provides for Manchester to make a claim for consultants’ costs incurred in relation to all works on level 12 or only works on common property. Powell J found that “[t]here is in fact nothing in cl 21.2 that enables Manchester to pass on the costs of project management consultants or other construction related advisors it has incurred with regard to the repair of its own unit
97 The 26 July 2024 claim under cl 21.2 does not appear to contend that there was any benefit to all other individual proprietors.
98 Powell J Judgment, above n 7, at [92].
99 At [115].
property” (italics added).100 However, Mr Cummins contends that, when read in the context of other findings and observations by Powell J and “his actual decision”, this finding does not limit the scope of the cl 21.2 claim. Alternatively, Mr Cummins submits that, even if Powell J’s decision limits the cl 21.2 claim to a proportion of consultants’ costs incurred in the repair of common property on level 12, “the total of the consultants’ costs attributable to common repairs” is $197,294. He emphasises that this “exceeds the amount of the Body Corporate debt”. However, this submission presupposes that all of the consultants’ costs attributable to common repairs on level 12 provided a benefit to the Body Corporate.
[79] Regarding the cl 10.2 claim, Mr Cummins contends that the claim is supported by “numerous invoices … and the Quintons QS report which validates the apportionments”. He further submits that the Body Corporate “has not disputed any of the invoices or the apportionments, nor has it made any attempt to assess any alleged inefficient costs relating to the common property repairs”.
[80] Mr Orpin-Dowell, for the Body Corporate, submits that, like the cl 21.2 claim, this claim is also a contingent claim for an unliquidated sum. He refers to the decision of Fogarty J in the Variation Judgment.101 He notes that Fogarty J allowed Manchester a credit or deduction of $191,982.81 for the other owners’ contribution to repair of the common property on level 12. This was based on the estimated “efficient cost” of carrying out level 12 works in 2017 ($217,865.20).102 Fogarty J allowed the credit “to encourage immediate compliance” by Manchester with the order to pay its contribution of $321,264.79 for levels one to 11.103 However, Manchester has still not complied with the order. Mr Orpin-Dowell also notes that Fogarty J found that the consequences of Manchester’s dilatory remediation of level 12 should not be borne by the unit holders in levels one to 11 as that would be “simply unjust”.104 The Court of Appeal found this conclusion was “unassailable”.105 Mr Orpin-Dowell argues that the fact that the repairs were not carried out efficiently in conjunction with the repairs to
100 At [91].
101 Variation Judgment, above n 12.
102 This was a preliminary estimate provided by a quantity surveyor engaged by Manchester.
103 At [154].
104 At [147].
105 Variation Appeal Judgment, above n 11, at [62].
levels one to 11, and that costs have escalated since 2017, is a consequence of Manchester’s dilatory and prevaricating conduct. He submits therefore, that the credit based on the “efficient cost” of carrying out repairs to the common property in 2017 should represent the maximum amount that the other owners are required to contribute, and neither Manchester nor Mr Cummins should be entitled to make any further claim under cl 10.2.
[81] Mr Orpin-Dowell submits that, even if Mr Cummins is entitled to make a claim for a contribution beyond that based on the “efficient cost” of level 12 common property works in 2017 (which is not accepted), Mr Cummins has made no allowance for the increased costs of dilatory remediation. He says that, before Powell J, Mr Cummins accepted that the costs of “dilatory remediation” cannot be claimed from the other owners.106 Mr Cummins suggests that the Body Corporate has not made any attempt to assess any alleged inefficient costs relating to the level 12 common property repairs. However, it is apparent that Powell J anticipated that Manchester/ Mr Cummins would undertake that assessment in the first instance.107 I note that Mr Cummins’ evidence indicates that the costs of the common property repairs on level 12 are now in the order of $930,000. In the circumstances, it is difficult to see how it could be just for the other owners to have to bear the bulk of this significantly increased cost.
[82] There is also an issue raised by the Body Corporate as to whether the cross- claims remain assets of Manchester.108 Another issue is whether, in any event, Mr Cummins is required to pursue the cross-claims in accordance with the Litigation Agency Agreement entered into between Manchester (by its liquidator) and Mr Cummins (as continuing trustee of the Trust) on 28 March 2022.109 This agreement provides that the Trust has cross-claims against the Body Corporate arising out of the repair works. It provides that Mr Cummins is appointed as agent to preserve and/or continue the pursuit of the cross-claims in the name of Manchester and at his expense.
106 Powell J Judgment, above n 7, at [45].
107 At [117].
108 See at [45] where Powell J found it is “difficult to know where any counterclaims or set-offs originally claimed by Manchester may now reside”.
109 The Litigation Agency Agreement was put before me by Mr Cummins as an attachment to his submissions.
The agent may “pursue such further proceedings as the Agent may seem necessary or expedient to finally determine the cross-claims….”. The agreement also contains distribution provisions which raise an issue as to whether Mr Cummins would receive any “funds available from the realisation of the cross-claims” to pay his judgment debts to the Body Corporate. Clause 3 of the agreement provides for funds to be distributed in the following order:
(a)“[t]o set off against any sums owed by the Principal [Manchester] to the Body Corporate”;110
(b)“[t]o repay or meet any costs of conducting the litigation relating to the cross claims”;
(c)“[t]o pay or reimburse any sums due to, or paid by, the Liquidator”; and
(d)“[t]o the Agent or his successor(s) as trustee of the Trust to distribute in accordance with the terms of the Priority Agreement”.111
[83] The Priority Agreement is referenced in the Litigation Agency Agreement as providing that “the net proceeds of the cross-claims against Body Corporate 172108… shall be allocated 90% to Sage Securities Ltd and 10% to Flat Bush Finance Ltd”. The distribution provisions of the Litigation Agency Agreement, which is apparently binding on Mr Cummins (as trustee), conflict with Mr Cummins’ “notice of appropriation” dated 15 August 2024 referred to above.112
Conclusion on cross-claims
There are clearly unliquidated cross-claims by Mr Cummins under cls 21.2 and
10.2 of the scheme in existence. However, as discussed above, there are significant
110 I understand that Manchester still owes the Body Corporate in excess of $1 million.
111 A fifth category provides: “To the extent realisations exceed amounts due to secured creditors, funds will be distributed to the [liquidator of Manchester] for distribution or payment in accordance with the trust deed of the Trust or Schedule 7 of the Companies Act 1992 as appropriate”.
112 At [66].
issues regarding the merits of the claims both as to liability and quantum which make it difficult to see them as claims of “true substance”.113
[85] Further, as Mr Cummins is aware, on the basis of the current scheme, the cross- claims cannot be pursued in arbitration proceedings under the scheme until a code compliance certificate has been issued in respect of all repair works on level 12. The other conditions in cl 13.4 of the scheme must also have been satisfied, requiring payment of all amounts owed by Manchester to the Body Corporate. There is no certainty as to when, if ever, these events will happen. Mr Cummins’ evidence is that the building work on level 12 ceased on 31 October 2022. Manchester is in liquidation and Mr Cummins’ evidence is that he has no significant assets in his personal (non- trustee) capacity.
[86] There is also an issue arising from the Litigation Agency Agreement as to whether Mr Cummins is entitled to pursue the claims in his own name, and whether any proceeds of the claims could be applied to the judgment debts.
[87] It is difficult to see how Mr Cummins genuinely proposes to pursue the cross- claims as a set off against the judgment debts. He is aware they can only be pursued under the current scheme if events occur which are unlikely to occur. Further, he would be doing so in the face of an agreement signed by him which does not entitle him to pursue the claims in his own name and does not apparently allow for any proceeds of the claims to be applied to the judgment debts.
[88] Overall, I am not satisfied that Mr Cummins has genuine triable cross-claims, or sound and credible cross-claims, such that I should exercise my discretion under s 37 of the Insolvency Act to refuse to adjudicate him bankrupt.
Special circumstances
[89] Even if I am mistaken and Mr Cummins has genuine triable cross-claims, I may still exercise my discretion to adjudicate him bankrupt if I consider “special
113 See above at [64].
circumstances” exist which make it inappropriate for the application for adjudication to be dismissed.114
[90]In the Halt Leave Judgment, Associate Judge Johnston stated:115
… terms such as “special circumstances” defy exhaustive definition, and it seems doubtful that the Court of Appeal would regard it appropriate to attempt any comprehensive analysis. The circumstances of individual judgment debtors are infinitely diverse, and any attempt at a comprehensive definition would ultimately fail.
[91] Mr Cummins submits that where a debtor has genuine triable cross-claims and the Court proceeds to make an order for adjudication on the basis of “special circumstances”, the Court is exercising a “reverse” discretion.116 He submits that there is an onus on the Body Corporate to establish “special circumstances”, but it has adduced no evidence, and relied entirely on the halt decision of Associate Judge Johnston.117 Therefore, he submits, I should not find that there are “special circumstances”.
[92] However, to the extent that there is any onus on the Body Corporate in this regard, I consider the onus has been satisfied. The Court of Appeal has already found that special circumstances exist in the context of this case in the Liquidation Appeal Judgment:118
… Here, notwithstanding affidavit evidence as to the overall amounts spent by Manchester on the level 12 “remediation”, to date the proportion of those amounts which may properly be claimed under has not yet been established. Contrary to Mr Sullivan’s written (outline) submission, it is not accurate to say the Body Corporate does not dispute that Manchester’s set-off amounts under cl 21.2 are more than its claim in liquidation. Moreover, there are here in our view “special circumstances” of the kind that — even if that were not the case — would have made it inappropriate to defer the petition. Those special circumstances are the circumstances and history of the matter since Fogarty J ordered the payment of the judgment debt.
114 Re Bayoil SA, above n 28, at 155C and 156C–D.
115 Halt Leave Judgment, above n 43, at [39].
116 Mr Cummins refers to Popely v Popely [2004] EWCA Civ 463 at [81].
117 Halt Judgment, above n 6.
118 Liquidation Appeal Judgment, above n 5, at [68].
[93] Associate Judge Johnston also found that special circumstances exist in these proceedings in the Halt Judgment.119 His finding was endorsed by the Court of Appeal in refusing leave to appeal the Halt Judgment:120
[25] But in any event, we agree with the Associate Judge, that the wider litigation context strongly militates against the grant of leave here. There can be no doubt that the legitimate interests of the Body Corporate and the other unit title holders are being grossly prejudiced by its continuation. The interests of justice clearly favour the denial of leave.
[94] I am satisfied that the circumstances and history of this matter as summarised above,121 and as relied on by this Court and the Court of Appeal, constitute special circumstances, making it inappropriate to dismiss the Body Corporate’s application for adjudication. There has been a protracted and convoluted dispute since 2009 over the repair of the Hobson Apartments in which Mr Cummins has played a central role. The application for adjudication arises from judgment debts from a series of proceedings in which Mr Cummins has been unsuccessful, and costs have been awarded against him. It is particularly significant that, after a five-day trial, Powell J found that:122
The responsibility for what has taken place and the future to complete the remediation of level 12 must rest largely with Mr Cummins. As the sole director of Manchester, it was his decision to oppose the Body Corporate carrying out the remediation work on level 12, and subsequently taking a “dilatory and prevaricating” approach to the remediation of level 12, notwithstanding it had required a change in the scheme initially proposed by Heath J so it could complete the remediation of level 12 prior to the Body Corporate undertaking its repairs to levels 1-11.
[95] The legitimate interests of the Body Corporate and other unit owners are being grossly prejudiced. In particular, the necessary remedial work on level 12 has still not been completed, and the ongoing disputes, litigation and delay in determination of these bankruptcy proceedings are prejudicial to their interests.
[96] This pattern of conduct by Mr Cummins, including serial litigation and inability to pay costs awards made against him, should not be allowed to continue unchecked. An intervention by way of an order for adjudication is needed, triggering
119 See above at [24]–[26].
120 Halt Special Leave Judgment, above n 56, at [25].
121 At [8]–[37].
122 Powell J Judgement, above n 7, at [10] (footnotes omitted).
the disqualifications of bankruptcy and bringing Mr Cummins’ affairs under the scrutiny of the Official Assignee.
Ability to pay debts
[97] The issue here is whether Mr Cummins is able to pay his debts as they are incurred, either immediately or within a reasonable time. As stated by the Court of Appeal in Holdgate v Blocassa:123
[19] … If unable to do this, the debtor may be declared bankrupt even though he or she has more assets by value than liabilities. Put another way, a debtor will not necessarily avoid bankruptcy by showing a positive balance sheet. It is the capacity to pay either immediately or within a reasonable time that is critical. …
[98] It is apparent that Mr Cummins is unable to pay his debts as they are incurred, either immediately or within a reasonable time.124 The debts owed to the Body Corporate are judgment debts for costs going back to July 2021. Mr Cummins has not been able to meet any of these debts in nearly four years.
[99] Mr Cummins states in his affidavit evidence that he has no significant assets in his personal (non-trustee) capacity. He contends that he has incurred the judgment debts in his capacity as trustee of the Trust. However, even if that is so, as previously found by the Court of Appeal in this case:125
[10] Where a trustee incurs a debt for the purposes of the trust, the trustee is personally liable for that debt. If the trustee meets the debt out of their own resources, they are entitled to an indemnity out of the assets of the trust. The trustee has a lien (also sometimes described as a charge) over the trust property to protect that right of indemnity.
[11] The trustee’s lien does not equate to beneficial ownership of the trust assets, as Nettle J explained in Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue.
A trustee whose only claim in respect of trust assets is a right of indemnity does not in that sense hold trust assets on trust for himself beneficially. He holds the assets on trust beneficially for the beneficiaries, albeit subject to a right, which is treated in equity as proprietary, to satisfy obligations out of the trust fund. The existence
123 Holdgate v Blocassa Ltd [2007] NZCA 132 at [19].
124 See the findings made in the Halt Judgment, above n 6, at [60] and Halt Leave Judgment, above n 43, at [33].
125 Setting Aside Appeal, above n 32, at [10]–[12] (footnotes omitted).
of the right of indemnity, proprietary though it may be, is not sufficient to change the essential nature of the beneficial interests which are held for the beneficiaries.
[12] A creditor of the trustee may in some circumstances be entitled to be subrogated to the trustee’s right of indemnity, and to the lien. But the primary remedy of the creditor is to claim the debt from the trustee. If it is not paid, the creditor may bankrupt the trustee. The creditor can prove in the trustee’s bankruptcy, and is entitled to be paid out of the trustee’s general assets, ranking equally with all other unsecured creditors. The trustee’s right of indemnity out of the trust assets, and supporting lien, are assets that form part of the estate of the bankrupt trustee. All of this is elementary, and was not disputed before us.
[100] Mr Cummins contends that when the cross-claims are brought into account he is in fact solvent. He argues that the judgment debts have not fallen due for payment for the purposes of determining solvency because they are met by “genuinely triable” cross-claims.126 However, as discussed above, I am not satisfied that the cross-claims are genuine triable claims and, in any event, “special circumstances” exist which make it inappropriate to dismiss the application for adjudication. Further, there must be sufficient evidence before me of ability to pay the debts within a reasonable time.127 Here, there is no certainty as to when, if ever, the cross-claims could be pursued by Mr Cummins and whether he could apply any proceeds to the judgment debts.
[101] Mr Cummins also contends that he has entered into an arrangement with Manchester’s secured creditors, Sage Securities Ltd (Sage) and Flat Bush Finance Ltd (FBFL) (the mortgagees). He contends that the effect of the arrangement is that any debts incurred by Mr Cummins as trustee, including debts to the Body Corporate, would be met from the sale of the level 12 unit ahead of payment to the mortgagees.128 Mr Cummins says these arrangements are binding on Sage and enforceable by him and “most likely” by the Body Corporate “in the context of future settlement arrangements on the sale of the unit and the withdrawal of its caveat”.
126 Mr Cummins relies on Re Bayoil SA, above n 28, at 154H and 156E–F.
127 Insolvency Law & Practice, above n 62, at [IN37.04(1) and (2)].
128 There is conflicting evidence as to when this alleged arrangement was entered into. There is evidence of an agreement on 29 July 2021. However, Mr Cummin’s evidence in this proceeding also refers to an agreement in December 2019.
[102] This argument was also raised before Associate Judge Johnston as part of Mr Cummins’ unsuccessful application to halt the bankruptcy proceeding. Associate Judge Johnston found:129
[75] In other words, the agreement does not enable Mr Cummins to pay the judgment debt in question, or to secure further finance for the remediation of Unit 12A. This is an issue because the effect of the 29 July 2021 agreement is contingent on the remediation works being completed and Unit 12A sold, the prospect of which does not appear to be any closer than it was in 2009.
[76]Mr Orpin-Dowell submitted:
In short, the agreement does not make the Body Corporate a secured party and it does not show that Mr Cummins is solvent. At best for Mr Cummins, it is a matter that might be considered at the substantive stage but it does not provide a basis for granting a halt.
[77] In short, the situation remains that there is a judgment debt that has been outstanding since 30 June 2021. There is no indication that Mr Cummins’ ability to pay that debt is anything other than contingent on events occurring that are largely beyond his control.
[103] Before me, Mr Orpin-Dowell submits that the arrangements are between Mr Cummins and Manchester’s mortgagee; the Body Corporate is not a party. Therefore, he submits the arrangements provide no assurance that the Body Corporate will be repaid in priority to other parties. The arrangements, such as they are, could be varied at any time. He also submits that, at best, the arrangement might allow for the Body Corporate to be repaid on completion of the works to level 12, but there is no guarantee when, if ever, that will happen. He maintains that completion of the level 12 works is contingent on events beyond Mr Cummins’ control.
[104] Mr Cummins’ evidence before me is that it was always intended that the unit would not be sold before completion of the remedial works. However, work ceased on 31 October 2022 and “[t]he upshot is that the unit will now need to be sold “as is”, but the Body Corporate’s priority (including for the Debt) remains”. He states that FBFL will now sell the unit as mortgagee.
[105] Mr Cummins also contends that, recently, the Body Corporate has engaged, or is about to engage, a preferred contractor to complete the level 12 building work. He submits that the Body Corporate has proposed that the property be sold to the preferred
129 Halt Judgment, above n 6, at [75]–[77].
contractor with monies being paid to the Body Corporate and the liquidator of Manchester. Further, all litigation, including the bankruptcy proceedings, would be ceased. Mr Cummins has attached an exchange of emails to his submissions. The email exchange records that amounts would also be paid by the purchaser to Mr Cummins and Sage. However, the final email dated 14 October 2024 records that the parties “have been unable to reach a deal by the required deadline” and “these discussions, as contemplated are at an end”.
[106] There is no evidence or information before me of any further negotiations or arrangements after October 2024 as to completion of the remedial works on level 12 and/or sale of unit 12A.
[107] Therefore, even if the arrangement with the mortgagees might allow for payment of the Body Corporate on sale of unit 12A “as is”,130 there is no evidence or information before me of any current negotiations or sale process in this regard. There is no certainty as to whether 12A could be sold “as is” and, if so, when that might happen. Accordingly, there is insufficient evidence before me of Mr Cummins’ ability to pay his judgment debts going back to July 2021 within a reasonable time.
Is it otherwise just and equitable not to make an order for adjudication?
[108] Mr Cummins’ first argument under this head is that an order for adjudication would be futile. He says that the Body Corporate would be unable to prove in the bankruptcy prior to the cross-claims being determined “as the balance of the account between the parties is a credit for the judgment debtor”.
[109] However, it is not necessarily the case that the Body Corporate would not be able to prove in the bankruptcy prior to the cross-claims being determined. I have found above that I am not satisfied that Mr Cummins has genuine triable cross-claims or sound and credible cross-claims such that I should exercise my discretion to refuse to adjudicate Mr Cummins’ bankrupt. It seems to me that a practical and useful purpose of adjudication would be to allow for independent investigation and review
130 I also note that the evidence of the arrangement before me indicates that the Body Corporate would only be paid if “it is able to establish that it is in fact a net creditor”.
of the cross-claims by the Official Assignee.131 This would enable review of whether the cross-claims are vested in or have been assigned to Mr Cummins as he contends, and assessment of the relevance of the Litigation Agency Agreement. As part of this investigation and review, the Official Assignee may also consider the extent to which the mutual credit and set off provisions of s 254 of the Insolvency Act apply in respect of the unliquidated cross-claims.132
[110] Mr Cummins does not expressly raise absence of assets in his notice of opposition as a basis for futility. However, if Mr Cummins is relying on his alleged absence of significant assets, I am not satisfied this is a basis for refusing to order adjudication. It is well established that the uncorroborated evidence of the debtor is insufficient to establish absence of assets.133 Here the only evidence is the largely uncorroborated134 statement of Mr Cummins in his affidavit evidence that:
I have no significant assets or liabilities in my private (non-trustee) capacity.
In this context I refer to “significant” as being in excess of $30,000 and …
[111] As submitted by Mr Orpin-Dowell, there is no independent verification of this statement. Another practical and useful purpose of adjudication would be to allow the Official Assignee to investigate the position with regard to Mr Cummins’ assets. This could ensure, for example, that assets have not been transferred to a family trust or exist in the name of another person for Mr Cummins’ benefit. There could also be an investigation into whether Mr Cummins is entitled to any rights of indemnity against the Trust’s assets in respect of the judgment debts, and as to the current position regarding the Trust’s assets.
[112] Even an undoubted absence of assets will not necessarily preclude an order for bankruptcy, as the circumstances may be such that the debtor ought in the public
131 See Insolvency Law & Practice, above n 62, at [IN37.11] and Bank of New Zealand v Koroniadis
[2013] NZHC 2865 at [12].
132 See Liquidation Appeal Judgment, above n 5, at [59]–[64] and Halt Judgment, above n 6, at [47]– [50].
133 See the authorities collated at Insolvency Law & Practice, above n 62, at [IN37.08(1)].
134 Mr Cummins provides a one-page document, in the form of a Declaration of Trust dated 11 July 2008 signed by him and witnessed, purporting to establish that he has no beneficial interest in the shares he owns in Flat Bush Finance because the shares are held on trust for his children.
interest to be subject to the scrutiny and control that go with bankruptcy. As Fisher J put it in Re Fidow:135
The public interest in exposing and controlling an insolvent debtor is one which exists quite independently of the separate question of debt collection by his immediate creditors.
[113]As held in Re Hamon, ex parte Coromandel Independent Living Trust:136
…one of the objectives of bankruptcy is to make the debtor accountable for his or her debts. I understand this to mean that it is not in the public interest that a debtor should be able to default on her debts and for there to be no apparent consequence. Such an approach would subvert the expectation that individuals will repay their debts. Accountability also means that there is a process that acknowledges the harm that is done to those who suffer loss at the hands of defaulting debtors.
[114] As discussed above,137 the circumstances and history of this matter reveal a pattern of conduct by Mr Cummins, involving serial litigation and inability to pay costs awards made against him. It is not in the public interest that this conduct should be allowed to continue unchecked. An intervention by way of an order for adjudication is needed.
[115] Mr Cummins’ second argument under this head is that the Body Corporate has brought the application for adjudication for an improper or collateral purpose. Mr Cummins refers to the Court of Appeal’s decision in M v H, where the Court stated:138
For the reasons given earlier, and for the reasons articulated in Re Majory, we do not consider a meaningful distinction should be drawn between the rules governing abuse of process strictly so called (in other words, abuse of the court’s process) and abuse of the statutory bankruptcy process. It follows that we consider that an application for adjudication made for an improper or collateral purpose may be annulled even where it is not the petitioner’s sole purpose. As in the abuse of process cases discussed, we consider “substantial” purpose is the appropriate benchmark. Substantiality may well be established if, for example, the application for adjudication would not have been made “but for” the collateral purpose. That enquiry naturally invites consideration of the other questions highlighted in the bankruptcy cases, including whether the debtor is, in fact, insolvent and whether
135 Re Fidow [1989] 2 NZLR 431 (HC) at 444.
136 Re Hamon, ex parte Coromandel Independent Living Trust [2016] NZHC 392 at [13] (footnote omitted).
137 At [89]–[96].
138 M v H [2024] NZCA 243, [2024] 3 NZLR 44 at [139].
bankruptcy is, in the circumstances, futile. There must, of course, be evidence capable of establishing the existence of the collateral purpose.
[116] Mr Cummins argues that the Body Corporate can have no expectation of a dividend in the bankruptcy and there is no public interest involved. Therefore, he contends the Body Corporate must have a collateral purpose for pursuing the matter. He says the Body Corporate cannot meet the “but for” test as there is no objectively rational basis for seeking adjudication. Mr Cummins appears to suggest, with reference to the email exchange,139 that the Body Corporate’s collateral purpose is “to use the bankruptcy proceeding as leverage for the discounted sale of the property”. He also contends that the collateral purpose is to frustrate his ability to pursue the claims under cls 21.2 and 10.2 of the scheme.
[117] There are a number of difficulties with this argument. First, the Body Corporate may have an expectation of a dividend in the bankruptcy, for example, if it is established that Mr Cummins has a right of indemnity against the Trust’s assets in respect of the judgment debts incurred. The Body Corporate submits that an order for adjudication is in the public interest, and I have found that is so.
[118] Further, there is no evidential basis for the existence of the alleged improper or collateral purpose. The application for adjudication was filed on 17 March 2022. The application cannot have been made for the substantial purpose of frustrating the ability of Mr Cummins to pursue cross-claims under cls 21.2, 10.3 and 10.2 of the scheme. That is because Mr Cummins had not at that stage sought to pursue the cross-claims himself. The Litigation Agency Agreement was entered into on 28 March 2022. Mr Cummins raised the cross-claims to set off his liability to the Body Corporate for the first time in his application to halt the bankruptcy proceedings filed in June 2022. The cross-claims have been raised by Mr Cummins to attempt to frustrate and defeat the bankruptcy proceedings rather than the other way around. The restrictions on the ability of Mr Cummins to pursue the cross-claims arose from the cross applications by the Body Corporate and Manchester to vary the scheme which were determined in the Powell J Judgment.
139 Discussed above at [105].
[119] Nor could the application for adjudication have been made for the substantial purpose of using the bankruptcy proceeding as leverage for the discounted sale of the property. On the evidence and information before me, at least until late 2022, there was no intention on the part of Manchester, Mr Cummins and the mortgagees to sell unit 12A before completion of the remedial work. Further, the email exchange put before me by Mr Cummins appears to record that the Body Corporate only became involved in negotiations for a potential sale of the unit in late 2024. Primarily, this appears to have been an attempt to have the long-overdue remedial works on level 12 completed.
Summary of key findings
[120] I am not satisfied that Mr Cummins has genuine triable cross-claims, or sound and credible cross-claims, such that I should exercise my discretion under s 37 of the Insolvency Act to refuse to adjudicate him bankrupt.
[121] Even if I am wrong and Mr Cummins has genuine triable cross-claims, “special circumstances” exist which make it inappropriate to refuse to adjudicate Mr Cummins bankrupt.
[122] There is no or insufficient evidence before me of Mr Cummins’ ability to pay his debts going back to July 2021 within a reasonable time.
[123] I am not satisfied that it is otherwise just and equitable to refuse to adjudicate Mr Cummins bankrupt because adjudication would be pointless or because the Body Corporate has sought an order for adjudication for an improper or collateral purpose.
Result
[124] For the reasons set out above, I am not satisfied that I should exercise my discretion under s 37 of the Insolvency Act 2006 to refuse adjudication. However, I am prepared to make orders which give Mr Cummins a final opportunity to pay the outstanding judgment debts.
[125]I make the following orders:
(a)An order pursuant to s 36 of the Insolvency Act 2006 adjudicating Robert James Cummins bankrupt.
(b)The order in (a) above will come into effect at 4.00pm on Tuesday 24 June 2025 provided that the Body Corporate has earlier that day filed and served an updated solicitor’s certificate under r 24.20 of the High Court Rules as evidence that the debt remains unpaid.
(c)The order in (a) above will not come into effect if, prior to 4.00pm on Tuesday 24 June 2025, Mr Cummins pays to the Body Corporate the outstanding judgment debts in the sum of $167,522.41 together with interest calculated pursuant to the Interest on Money Claims Act 2016, and the Court is advised this has occurred.
(d)If (b) above applies, then my preliminary view is that the Body Corporate is entitled to costs on a 2B basis and reasonable disbursements. If the parties are unable to agree costs, then memoranda may be filed (not exceeding three pages excluding costs schedules) and costs will be determined on the papers.
(e)If (c) above applies, counsel for the Body Corporate should file and serve a memorandum advising how the Body Corporate wishes to proceed. For example, counsel should advise whether the Body Corporate seeks to withdraw the application for adjudication under s 15 of the Insolvency Act, and whether costs are claimed.140 Mr Cummins will have five working days to file and serve a memorandum in response.
Associate Judge Skelton
Solicitors:
Grove Darlow Partners, Auckland for Judgment Creditor
140 See Smith and Partners (a firm) v Laurenson [2014] NZHC 389 at [14]–[16].
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