Body Corporate 172108 v Cummins

[2023] NZHC 1535

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-458

[2023] NZHC 1535

UNDER

the Insolvency Act 2006

IN THE MATTER

of the bankruptcy of Robert James Cummins

BETWEEN

BODY CORPORATE 172108

Judgment Creditor

AND

ROBERT JAMES CUMMINS

Judgment Debtor

Hearing:

3 August 2022

Further submissions received: 10 March 2023, 13 April 2023 and
18 April 2023

Appearances:

J Orpin-Dowell for Judgment Creditor K Sullivan for Judgment Debtor

Judgment:

21 June 2023

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

TABLE OF CONTENTS
Introduction	[1]
Factual background	[3]
Issues	[13]
Cross-claim argument	[17]
Effective security argument	[61]
The additional arguments	[79]
Quantum meruit	[79]
Caveat damages	[87]

BODY CORPORATE 172108 v CUMMINS [2023] NZHC 1535 [21 June 2023]

Conclusion  [103]

Result  [107]

Introduction

[1]                 In this proceeding, the judgment creditor, Body Corporate 172108, seeks an order bankrupting the judgment debtor, Robert Cummins.

[2]                 Before  the  Court  for  immediate   determination   is   an   application   by Mr Cummins pursuant to s 38 of the Insolvency Act 2006 for an order halting (staying) the Body Corporate’s application.

Factual background

[3]                 The Body Corporate’s dispute with Mr Cummins (and others) began around 2010 and has continued unabated. From the start, the dispute has been the subject of intense litigation. The factual background is recorded in a number of judgments of this Court and the Court of Appeal.1

[4]                 For present purposes, it is only necessary to recount that the Body Corporate is the entity associated with a multi-storey apartment complex in Hobson Street in Auckland. Mr Cummins has been and remains connected with the owners, past and present, of Unit 12A. Manchester Securities Ltd (in liquidation) is, and has been at all relevant times, the registered owner of Unit 12A, originally as the trustee of the Manchester Securities Trust, and more recently as a bare trustee (of the legal title) for its successors as such.

[5]                 At some point prior to 2010 the building was identified as having weathertightness issues — requiring the Body Corporate and the owners of units in

1      See for example Manchester Securities Ltd v Body Corporate 172108 [2017] NZCA 527, (2017) 19 NZCPR 65; Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455; Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408; Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17; Cummins  v  Body Corporate 172108 [2022] NZCA 68; and Cummins v Body Corporate 172108 [2022] NZCA 658.

the building to commit significant resources to remedial work. The central issue between the Body Corporate and Mr Cummins and his interests has been the proportions in which the Body Corporate and the other unit owners on the one hand, and Mr Cummins and his interests on the other hand, should contribute to the cost of remediation. That is a dramatic oversimplification of a complex dispute, but will serve for present purposes.

[6]                 At an earlier stage in this dispute, the Body Corporate commenced winding up proceedings against Manchester in an attempt to recover substantial outstanding body corporate levies. On 19 February 2020, this Court made an order placing Manchester in liquidation.2 Manchester appealed. On 29 April 2021, the Court of Appeal dismissed the appeal.3 In both this Court and the Court of Appeal Mr Cummins involved himself in argument. Consequently, the Body Corporate secured a costs award against him personally in the sum of $33,818.54.4

[7]                 It is that judgment debt which the Body Corporate is moving to enforce against Mr Cummins in this proceeding. On 13 September 2021, the Body Corporate served a bankruptcy notice. Mr Cummins applied pursuant to s 17(1)(d)(ii) of the Insolvency Act for an order setting aside the bankruptcy notice. On 25 February 2022 this Court dismissed that application.5 Mr Cummins sought the recall of the judgment, asserting that it contained substantial factual and other errors. He also appealed. The judgment was reissued on 13 May 2022 to correct minor factual errors.6

[8]                 In a judgment dated 21  December  2022  the  Court  of  Appeal  dismissed Mr Cummins’ appeal.7 In doing so, the Court of Appeal addressed Mr Cummins’ contention that the Body Corporate was a secured creditor of both Manchester and himself for the purposes of s 14 of the Insolvency Act 2006, as a result of its claim to

2      Body Corporate 172108 v Manchester Securities Ltd [2020] NZHC 198 [Manchester liquidation judgment]. The orders made in the Manchester liquidation judgment were deferred for a period to allow Mr Cummins an opportunity to make arrangements to pay the debt concerned and avoid liquidation. Mr Cummins did not avail himself of that opportunity.

3      Cummins v Body Corporate 172108 [2021] NZCA 145 [Liquidation appeal judgment].

4      Body Corporate 172108 v Manchester Securities Ltd (in liq) [2021] NZHC 1542 at [2] and [11] [Costs judgment]. The quantum of costs was not noted in the Costs judgment, but the amount is not in dispute between the parties in the present proceeding.

5      Body Corporate 172108 v Cummins [2022] NZHC 211[Setting-aside judgment].

6      Body Corporate 172108 v Cummins [2022] NZHC 1031 [Recall judgment].

7      Cummins v Body Corporate 172108 [2022] NZCA 658 [Setting-aside appeal].

be subrogated to Manchester’s lien over the Trust’s assets,  concluding  that  the Body Corporate is not a secured creditor.

[9]Mr Cummins’ application for a halt had been heard on 3 August 2022.

[10]            During the course of that hearing, counsel informed me that issues that would have to be determined in dealing with his application were also before the Court of Appeal in the appeal from my 25 February 2022 judgment. It also emerged that there was other litigation in Auckland relating to a caveat lodged by the Body Corporate against the title to Unit 12A in which some of the same issues might need to be addressed.

[11]            Having heard from counsel in relation to these matters, I concluded that the appropriate course was to await the Court of Appeal’s judgment before issuing a judgment in this case.8 I declined to await the outcome of the Auckland proceedings for two reasons. First, it did not appear to me that the issues in that proceeding were as closely aligned to the issues in this case as were those that need to be determined in the appeal. Second, whereas the outcome of the Court of Appeal decision would of course be binding, the outcome in the proceeding in this Court in Auckland would not. Accordingly, I issued directions requiring the parties, once the Court of Appeal’s judgment became available, to identify any remaining issues, and, to the extent necessary, provide submissions in relation to those.9 As already said, the Court of Appeal’s judgment issued on 21 December 2022.10

[12]The parties have now exchanged submissions:

(a)on 10 March 2023, Mr Sullivan filed and served submissions dealing with the remaining issues advanced on Mr Cummins’ behalf in support of his application;

8      Body Corporate 172108 v Cummins (Minute of Johnston AJ) HC Wellington CIV-2021-485-458, 27 October 2022.

9      Body Corporate 172108 v Cummins (Minute of Johnston AJ) HC Wellington CIV-2021-485-458, 3 February 2023.

10     Setting-aside appeal, above n 7.

(b)on 13 April 2023, Mr Orpin-Dowell responded with submissions on behalf of the Body Corporate; and

(c)finally, on 18 April 2023, Mr Sullivan filed submissions in reply.

Issues

[13]            Counsel differ as to the issues that remain for determination. As a very general proposition, Mr Cummins as the applicant is entitled to determine the grounds on which he wishes to advance his case. Accordingly, I approach the matter on the basis that the Court should deal with the remaining issues as identified by Mr Sullivan on Mr Cummins’ behalf.

[14]            Mr Cummins advances four essential arguments in support of his application, or, perhaps more correctly, three arguments, the third of which has two components. These Mr Sullivan refers to as the “cross-claim point”, the “effective security point”, and two further contentions that he says arise from the Court of Appeal’s 21 December 2022 judgment, that is to say a “quantum meruit point” and a “caveat damages point”.

[15]In summary, Mr Cummins’ contentions are:

(a)First, that he has a cross-claim against the Body Corporate for an amount that exceeds, by some margin, the amount of the judgment debt which would justify the Court staying this proceeding;

(b)Second, that, de facto, if not de jure, the Body Corporate is secured in respect of any amount owed to it by Mr Cummins, including the amount of the judgment debt, and that this too would justify the Court staying the claim;

(c)Third, that, on the basis of the Court of Appeal’s recent judgment, there may be two additional arguments supporting Mr Cummins’ application, that is to say a claim in quantum meruit for costs he personally has incurred and a claim for damages arising from what is said to be the unlawful or unjustified lodging of a caveat against the title to Unit 12A.

These  two  additional  alleged   grounds   were   not   pleaded   in   Mr Cummins’ application for an order pursuant to s 38 of the Insolvency Act. Indeed, they were not the subject of any attention at all prior to Mr Sullivan’s submissions of 10 March 2023.

[16]            Mr Orpin-Dowell submitted that the two “new” arguments (those referred to in [15](c)) are unavailable to Mr Cummins as they have not previously been raised. There is something in that submission. Equally, as Mr Sullivan submits, the Court is sitting in its insolvency jurisdiction in this matter, and must remain astute to ensure that Mr Cummins has every opportunity to defend an application that may result in his bankruptcy. In my view, the proper course is to  deal  with  all  matters  raised  by  Mr Cummins.

Cross-claim argument

[17]            Before addressing the issues that arise on the (primary) cross-claim argument, it is necessary to provide some further context.

[18]            This is not the first occasion upon which the Court has been called upon to consider the cross-claim that Mr Cummins relies on here. The central dispute concerning responsibility for the costs of remedial work to the Hobson Street building was the subject of an application by the Body Corporate for an order approving a scheme of arrangement for the necessary work.11 In a judgment dated 31 August 2010, Heath J endorsed such an arrangement.12 Subsequently, Manchester challenged aspects of the scheme. In a judgment dated 3 March 2017, Fogarty J varied the scheme.13 That decision was affirmed by the Court of Appeal following an appeal by Manchester.14 An application by Manchester for leave to appeal to the Supreme Court was declined.15

11     See Body Corporate 172108 v Meader (2010) 12 NZCPR 101 (HC); and Body Corporate 172108 v Meader (No 2) (2010) 12 NZCPR 181 (HC).

12     Body Corporate 172108 v Meader (No 3) HC Auckland CIV-2009-404-6868, 31 August 2010; and Body Corporate 172108 v Meader HC Auckland CIV-2009-404-6868, 10 February 2011.

13     Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329.

14     Manchester Securities Ltd v Body Corporate 172108 [2017] NZCA 527, (2017) 19 NZCPR 65.

15     Manchester Securities Ltd v Body Corporate 172108 [2018] NZSC 19.

[19]            The essential point is that the scheme addresses, as of course it must, the responsibilities of the Body Corporate and the owners of the various units in terms of paying for the necessary work to the building. From the start, how it does so has been an ongoing bone of contention.

[20]            Mr Cummins and his interests contend that, on the proper application of the terms of the scheme of arrangement, he (or rather the party or parties connected with Unit 12A) has a claim against the Body Corporate for costs incurred in the course of remedial work to Unit 12A. He has consistently asserted that these costs must be offset against any debt owed to the Body Corporate.

[21]            In early 2018, Mr Cummins and his interests commenced arbitration proceedings for the recovery of those costs (the Body Corporate Rules provided for the arbitration of disputes). The Body Corporate has since obtained an order staying the arbitration proceeding until remedial work has been completed.16

[22]            As already said,  one  of  the  key  aspects  of  the  dispute  between  the  Body Corporate and Mr Cummins and his interests has been the latter’s refusal to pay body corporate levies, essentially on the ground that these should be set off against the claim referred to.

[23]            At the time that the Body Corporate took steps to recover the levies by serving statutory demands on Manchester, on 1 June and 4 July 2017, Mr Cummins was the sole shareholder and director and Manchester was the trustee of the Trust, and of course the legal owner of Unit 12A. When Manchester did not comply with the statutory demands, the Body Corporate commenced the winding up proceedings that have already been referred to.

[24]            Manchester then sought an order setting the statutory demands aside on the ground that it had a claim which exceeded by some margin the amount of the levies sought. Manchester’s claim at that stage was already the subject of the arbitral proceedings, with the parties then engaged in a dispute as to jurisdiction.

16     See Body Corporate 172108 v Meader [2018] NZHC 3356.

[25]            In a judgment dated 16 February 2018,  this  Court  declined  to  set  the  Body Corporate’s statutory demand aside.17 Manchester Securities appealed. Its appeal was dismissed.18 The Body Corporate then commenced winding up proceedings. An application was made by Manchester for an order staying those proceedings. In a judgment dated 14 December 2018, this Court dismissed that application.19 Manchester appealed. In a judgment dated 3 September 2019, the Court of Appeal dismissed the appeal.20

[26]            Both Courts treated the Body Corporate’s claim for levies as a claim for a statutory debt which was payable on a ‘pay now, argue later’ basis.21 Both this Court and the Court of Appeal concluded that it would be inappropriate to treat the claim advanced by Manchester as being one that Manchester was entitled to set off against the Body Corporate’s ‘pay now, argue later’ claim for levies.22

[27]            Manchester was wound up by this Court on 19 February 2020. Now, in this proceeding, Mr Cummins in his personal capacity seeks to set up exactly the same claim as a basis for seeking an order staying the bankruptcy proceedings against him.

[28]            How, then, is it contended that Mr Cummins can stand in the position formerly occupied by Manchester in respect of this claim?

[29]            On his behalf, Mr Sullivan submits that there are two  bases upon  which    Mr Cummins is entitled to do so.

[30]            First, by deeds of retirement and appointment executed in December 2018 and March 2019, Mr Cummins was appointed as a trustee of the Trust and Manchester retired as such. Mr Sullivan submits that in terms of s 47 of the Trustee Act 1956

17     Manchester Securities Ltd v Body Corporate 172108 [2018] NZHC 169 [Statutory demand judgment].

18     Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190 [Statutory demand appeal].

19     Body Corporate 172108 v Manchester Securities Ltd [2018] NZHC 3307 [Liquidation stay judgment].

20     Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408 [Liquidation stay appeal].

21   Liquidation stay judgment, above n 19, at [8] and [17]–[18]; and Liquidation stay appeal, above  n 20, at [25]; see also Liquidation stay appeal at [31]–[32] where the Court of Appeal considered it unnecessary to determine whether ordinary levies are charged on a ‘pay now, argue later’ basis.

22 Liquidation stay appeal, above n 20, at [29]–[30].

(since repealed by the Trusts Act 2019), Mr Cummins became entitled to all Manchester’s former rights and obligations, meaning that he is entitled to pursue the claim.23

[31]            Second, Mr Sullivan submits that, in any event, by deed of assignment dated 27 February 2020, Manchester’s interest in the litigation concerning the cross-claims was assigned to Mr Cummins.

[32]            The Body Corporate’s position is that the rights on which Mr Cummins relies have always “sat” and continue to “sit” with Manchester, or, rather, the liquidator of that company, which is still the registered owner of Unit 12A.

[33]Section 47 of the 1956 legislation provided as follows:

47       Vesting of trust property in new or continuing trustees

(1)Where by a deed a new trustee is appointed to perform any trust, then—

(a)if the deed contains a declaration by the appointor to the effect that any estate or interest in any land that is subject to the trust and is not under the Land Transfer Act 2017 or excluded from the operation of this section by subsection (4) thereof or in any chattel so subject, or the right to recover or receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become or are the trustees for performing the trust, the deed shall operate, without any conveyance or assignment, to vest in those persons as joint tenants and for the purposes of the trust the estate or interest or right to which the declaration relates; and

(b)if the deed is made after the commencement of this Act and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by the appointor extending to all the estates, interests, and rights with respect to which a declaration could have been made.

(2)Where by a deed a retiring trustee is discharged under the statutory power without a new trustee being appointed, then—

(a)if the deed contains such a declaration as aforesaid by the retiring and continuing trustees, and by the other person (if any) empowered to appoint trustees, the deed shall, without

23     The Trustee Act 1956 applies as it was the law in force at the time the relevant deed was executed, notwithstanding that it has now been repealed.

any conveyance or assignment, operate to vest in the continuing trustees alone, as joint tenants, and for the purposes of the trust, the estate or interest or right to which the declaration relates; and

(b)if the deed is made after the commencement of this Act and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by such persons as aforesaid extending to all the estates, interests, and rights with respect to which a declaration could have been made.

(3)An express vesting declaration, whether made before or after the commencement of this Act, shall, notwithstanding that the estate or interest or right to be vested is not expressly referred to, and provided that the other statutory requirements were or are complied with, operate and be deemed always to have operated (but without prejudice to any express provision to the contrary contained in the deed of appointment or discharge) to vest in the persons respectively referred to in subsections (1) and (2), as the case may require, such estates, interests, and rights as are capable of being and ought to be vested in those persons.

(4)This section does not extend—

(a)to land conveyed by way of mortgage for securing money subject to the trust, except land conveyed on trust for securing debentures or debenture stock:

(b)to land held under a lease (including a sublease and an agreement for a lease or sublease) which contained any covenant, condition, or agreement against assignment or disposing of the land without licence or consent, unless (before the execution of the deed containing expressly or impliedly the vesting declaration) the requisite licence or consent has been obtained, or unless (by virtue of any statute or rule of law) the vesting declaration, express or implied, would not operate as a breach of covenant or give rise to a forfeiture:

(c)to any share, stock, annuity, or property which is transferable only in books kept by a company or other body, or in manner directed by or under any Act.

(5)For purposes of registration of the deed in any registry, the person or persons making the declaration expressly or impliedly shall be deemed the conveying party or parties, and the conveyance shall be deemed to be made by him or them under a power conferred by this Act.

[34]Mr Sullivan’s contention is that:

(a)the rights in the cross-claim are caught by the phrase “the right to recover or receive any debt or other thing in action”;

(b)these were vested in Manchester Securities and Mr Cummins jointly on the latter’s appointment as an additional trustee in December 2018; and

(c)the same rights were vested in Mr Cummins solely as the continuing trustee pursuant to s 47(2) on Manchester’s retirement as trustee in March 2019.

[35]            The deed of assignment executed in March 2020, seemingly in anticipation of Manchester being wound up, provided:

1.[Manchester]   hereby   assigns,   sets   over,   and    transfers    to [Mr Cummins] all [of Manchester’s] interest as respondent and as applicant or claimant (as the case may be) in the Variation Proceedings, the Arbitration, the Partial Award and the Arbitration Appeal Proceeding.

2.[Manchester] agrees to do all such other acts and to execute all such documents, if any, as may be necessary to perfect assignment of the proceedings to [Mr Cummins].

3.[Mr Cummins] acknowledges that any obligation incurred by [Manchester] in respect of the assignment of the proceedings is subject to the indemnity provided in s38(2) of the Trustee Act 1956.

4.For the avoidance of doubt, the obligation of [Mr Cummins] in terms of any obligation to indemnify [Manchester] is limited to the assets of the Trust and his capacity as trustee thereof.

[36]            Thus it is contended that, whatever rights Manchester formerly held in relation to these claims are now vested in Mr Cummins on one, either, or both of the bases described.

[37]            The first argument advanced on behalf of the Body Corporate in response is that there is not the necessary identity of parties, and that this is fatal to Mr Cummins’ attempt to rely on these claims as equitable cross-claims which must be brought to account in dealing with his application. Whilst the Body Corporate is both the respondent in the arbitral proceeding and the judgment creditor and applicant in this proceeding, the claimant in the arbitral claim was and remains Manchester, whereas

Mr Cummins  is  the  judgment   debtor   and   respondent   in   this   proceeding.   Mr Orpin-Dowell refers to Court of Appeal authority to the effect that, in the generality of cases, there must be absolute identity of parties for a judgment debtor to be able to rely on a such a claim.24

[38]            On its face, that argument appears to me to ignore the point that, if, by reason of 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.

[39]            At very least, my view is that Mr Cummins has an arguable case to that effect. The fact that Manchester remains the registered owner of Unit 12A does not cut across that argument. It is accepted by all parties as I understand it (including the liquidator) that Manchester holds Unit 12A as a bare trustee and has no beneficial interest (which no doubt accounts for the fact that the liquidator has shown no interest in this proceeding).

[40]            The Body Corporate’s second contention is that, just as this Court and the Court of Appeal were not prepared to accept that the cross-claim in the arbitration proceeding was capable of defeating the Body Corporate’s entitlement to pursue proceedings winding up Manchester, it does not provide a proper basis for a stay here.

[41]            Both this Court and the Court of Appeal concluded that the claim in the arbitral proceeding, being a claim for unliquidated damages which might or might not be successful, was no foundation for an argument that the Body Corporate was not entitled to pursue its claim against Manchester for the recovery of levies payable on the basis already described.

[42]            There is, as Mr Sullivan argues, a difference between the issues in the earlier proceeding  Manchester  and  this  proceeding.  In  the  earlier  proceeding  the   Body Corporate was pursuing levies which both Courts accepted were recoverable on a ‘pay now, argue later’ basis. That was an important factor which helped to persuade

24     See for example Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA) at [7]–[12].

both Courts not to set aside the Body Corporate’s statutory demand or stay the application. That  factor  is not present in this proceeding because of course the  Body Corporate’s claim against Mr Cummins is not for body corporate levies.

[43]            Those things said, it is equally true that in this proceeding the Body Corporate seeks an adjudication in reliance on a judgment debt which is payable immediately.25

[44]            Whilst the two types of debt are different, they are plainly analogous. They are both liquidated debts that are payable immediately, which contrasts with the claim advanced by Mr Cummins.

[45]            In my judgment of 28 February 2022 dealing with the opposition to the application to wind Manchester up, I addressed the issue of whether the claim in the arbitral proceeding presented a legitimate impediment to the Body Corporate’s application. Here is what I said in that judgment:26

The existence of a counterclaim that might give rise to a right of set-off to an amount that equals or exceeds the amount of the creditor’s debt — even one that has not been regarded as sufficient to result in a statutory demand being set aside — is a matter that the Court will consider in the exercise of its discretion, though the defendant will need to show that there are clear and persuasive grounds to prevent the Court from appointing a liquidator.27

In its July 2019 judgment in this litigation the Court of Appeal observed that “the existence of an unverified and unliquidated set-off” need not preclude liquidation, even if it is possible that when accounts are taken the liquidator will establish that the Body Corporate is not a net creditor.28

That relatively guarded language no doubt reflects another principle enunciated in Commissioner of Inland Revenue v The Fishing Company to the effect that if an order winding up a company is bound to be futile then that will count against it being made:29

If the insolvent set-off under s 310 results in [there] being no net indebtedness to the Commissioner, then putting the company into liquidation may be futile. The company would stop operating, the staff would be thrown out of work and assets would be realised to meet the costs of the liquidation.

25 See High Court Rules 2016, rr 11.12 and 11.13.

26 Manchester liquidation judgment, above n 2, at [28]–[42].

27 In Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC) at [41] Associate Judge Bell accepted that the “clear and persuasive” grounds test was applicable when the Court is considering the merits of a counterclaim in a defended liquidation application.

28 Liquidation stay appeal, above n 20, at [36].

29 Commissioner of Inland Revenue v Fishing Company [2012] NZCCLR 5 (HC) at [27].

In their submissions, Mr Harris and Mr [Cummins] adopted subtly different approaches in submitting that in the circumstances of this case the Court should decline to make the order sought by BC 172108 winding up Manchester. However, their arguments both ultimately focussed on Manchester’s counterclaim.

Both this Court and the Court of Appeal (and the arbitrator in the arbitral proceeding, I am told) have accepted that Manchester has an arguable claim of one sort or another which if successful may alter the balance of indebtedness as between the parties. I too accept that. Of course, however vehemently the merits of the claim are advanced in argument at this stage, it remains a contested claim for an unliquidated amount that may or may not be successful in whole or in part.

In what  amounts  to  a  development  of  that  argument,  Mr  Harris  and  Mr [Cummins] emphasised that if the Court were to appoint a liquidator over Manchester then in terms of s 310 of the Companies Act the liquidator would be obliged to have regard to Manchester’s alleged claim. If the liquidator were to reach the conclusion that Manchester’s claim was meritorious then he or she would be entitled to pursue the claim with a view to netting off of the amount of that claim against the judgment debt and any additional amount due to BC 172108. This in effect is an argument that the winding up of the company may be futile.

I am prepared to accept that those factors weigh in favour of the Court exercising its discretion to decline to make an order.

However, the view I take is that those considerations are outweighed by what appears to me to be a more compelling factor.

In my judgement, the most critical factor the Court must consider in exercising its discretion is the prospect of risk to creditors of an insolvent company being permitted to go on trading.

The reality is that if the Court were to decline to make an order winding up Manchester at this point, the merits of Manchester’s claim would not be resolved for some considerable time. The remedial work on level 12 remains incomplete, and the evidence did not persuade me that it will be completed any time soon.

In the meantime, as already said, the position on Manchester’s own evidence is that selected existing creditors will be out of pocket — either Manchester will continue to fund the remedial work with the result that all creditors other than BC 172108 will be paid and BC 172108 (and therefore the unit title holders on levels 1-11 of the building) will remain unpaid, or, unlikely as this may seem, Manchester will have a change of heart, refrain from incurring any ongoing liabilities in respect of remedial work on level 12 and pay BC 172108 what it owes that company. Mr [Cummins’] evidence is clear that the company cannot or will not do both.

Thus it appears to me that if Manchester is not wound up the risks for one group of creditors or another will only escalate.

Additionally, to this point, BC 172108 has elected to use winding up proceedings as an enforcement mechanism. If, in the end, the Court declines

to wind Manchester up, then BC 172108 has other enforcement mechanisms open to it (for example seeking a charging order over Manchester’s assets). It is not difficult to see that were BC 172108 to exercise such remedies here that would involve significant risk for BC 172108, the unit title holders and any other creditors.

For those reasons, and on balance, the view I take is that it would be inappropriate for the Court to exercise its discretion to refrain from making the order sought.

There is no risk-free option here,  and  I  accept  the  point  made  by  both Mr Harris and Mr [Cummins] that an order winding up Manchester will have potentially detrimental consequences for a range of people. Accordingly, in the orders I propose to make, I intend to offer the company a final opportunity to meet its obligations to BC 172108 (and through BC 172108 the other unit holders).

[46]            In addressing the same issue, the Court of Appeal discussed the reasons for dismissing Manchester’s previous appeal against the decision declining to set aside the Body Corporate’s first statutory demand, in these terms:30

In the Statutory Demand Appeal this Court accepted that the circumstances of Manchester’s right of contribution met the test of “clear and persuasive grounds”  for  the  claimed  set-off.  Nevertheless,  it  agreed  with   the  Body Corporate that the circumstances as between it and Manchester were such as to constitute one of those “rare cases” where the Court would decline to exercise the discretion to set aside the statutory demand. It did so for a range of reasons, which we now summarise:

(a)Fogarty J had clearly required Manchester to pay immediately. It had refused to do so. In the Variation Appeal, this Court had confirmed the order required the debt to be paid immediately. The application to set aside was, accordingly, an attempt to relitigate matters already decided.

(b)The Body Corporate’s levies to recover common costs were for the benefit of all unit holders. Manchester’s refusal to pay was unfair as it required other unit holders to bear an unfair burden of the cost of the remediation scheme.

(c)Pursuant to the scheme itself owners were not entitled to withhold levy payments on the basis that the matter was in the process of dispute resolution. The obligation to pay levies under the scheme was special and they should be paid at once, whether or not there was a dispute. That had been the finding of the High Court in relation to an earlier claim for levies.

(d)It was too early for there to be an arbitration, as the costs of the repair of level 12 had not been finalised. Moreover, Manchester had provided a poor level of detail of its cross claim.

30 Liquidation appeal judgment, above n 3, at [25].

(e)Manchester’s conduct had been fairly categorised by the courts previously as “dilatory” and “prevaricating”. Manchester, the courts had found, had to take the “lion’s share of the blame” for the ongoing dispute. That conduct was another reason to decline to exercise the court’s discretion to set aside the statutory demand.

(f)Any rights of arbitration did not affect the amount of, or the “immediate payment” terms of, the judgment debt.

(Footnotes omitted.)

[47]            The Court then turned to Manchester’s application for a stay of the liquidation proceedings on the basis of s 310 of the Companies Act 1993.31 The Court recorded that Manchester’s cross-claim was an unliquidated and contingent asset, and that the courts had consistently rejected the company’s arguments for a set-off.32 The judgment continued that a commercially realistic approach was required, and that this was even more important where the claim relied on was contingent and unliquidated.33 The issue on appeal was identified as whether “given Manchester’s statutory right of set-off and the provisions of s 310, the High Court was in error when it [exercised its discretion to grant] the Body Corporate’s application to liquidate Manchester”, emphasising the equitable origins of the insolvency jurisdiction.34

[48]The Court of Appeal distinguished between legal and equitable set-off:35

(a)legal set-off being confined to debts which at the time when the defence of set-off is filed are due and payable and either liquidated or in sums capable of ascertainment without valuation or estimation; and

(b)equitable set-off being a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account, without it being necessary that the claim and cross-claim arise out of the same contract.

31 Liquidation appeal judgment, above n 3, at [31].

32     Liquidation appeal judgment, above n 3, at [42(a)]–[42(c)].

33     At [42(d)].

34     At [45]–[46].

35     At [49]–[51]; citing Stein v Blake [1996] AC 243 at 251; and Grant v NZMC Ltd [1989] 1 NZLR 8 at 11.

[49]The Court continued:36

As can be seen, therefore, and outside the insolvency context, Manchester — faced with an action by the Body Corporate to recover its debt — would not be able to raise a legal set-off based on its unliquidated, contingent claims for contribution. Rather, it would need to rely on the defence of equitable set-off. The judgments against Manchester in this dispute thus far make it plain that such a claim would be unlikely to succeed.37 Of course, outside that context, Manchester could not bring a claim against the Body Corporate, its claim remaining a mere contingency.

[50]            The Court of Appeal considered there was “more than a little uncertainty” as to whether s 310 of the Companies Act applies in circumstances where an insolvent company’s claim against a liquidator is contingent.38 It recorded that while the position in England had changed, that issue had not been considered in New Zealand.39 In discussing this issue, the Court said that: 40

… there is little if any evidence of the quantum of the unliquidated debt represented by the set-off. The affidavits filed by Body Corporate for the purposes of the hearing before the Associate Judge confirm the continuing reality both of the complexity and length of the “remediation” works on level

12 and the complexities of the overall  legal  relationship  between  the  Body Corporate and Manchester.

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.41 In doing so, and in summarising its reasoning, the Court said:42

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.

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

36 At [51].

37 While the courts’ previous judgments on this issue have found that there was a basis for the  claimed set-off to impeach the statutory demands…they have not gone as far to say that, at that time, the balance of the equities lay in Manchester’s favour. More importantly, those findings are not determinative now that liquidation has already been ordered.

38 Liquidation appeal judgment, above n 3, at [62].

39     At [62]–[63].

40     At [66]–[70].

41 Re Bayoil SA [1999] 1 WLR 147 (CA) at 156.

42 At 155.

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.

Taken overall, if anything the uncertainties surrounding the significance of liquidation set-off increase as time passes, rather than reduce. It will be for the liquidator to determine their approach to the asset of Manchester (such as it is after the recent rearrangements by Mr Cummins — which were not at all well explained to us — of the nature of the arrangements between Manchester and himself) represented by Manchester’s interests in level 12.

Given the history of this matter, whether the liquidator sees those interests as being of any particular benefit to the liquidation is something we would not wish to comment on.

[51]            In this proceeding, Mr Sullivan has emphasised — in strong terms — that the Court of Appeal concluded that there was an apparently legitimate claim that could be advanced (by Manchester at that time). He went on to submit that the question of whether that claim could properly be put up in support of Mr Cummins’ application under s 38 was already determined because the Court of Appeal had described the claim in such terms.

[52]            I reject that submission. It is one thing to conclude that Manchester had, or Mr Cummins has, a viable claim in the arbitral proceedings. It is quite another to say that that claim should bring a stop to this proceeding.

[53]            In the end, what the Court is faced with is a judgment debt which was payable immediately, has been outstanding since 30 June 2021, and in respect of which there is no challenge.  Even if  he is  entitled to pursue  it, what  is put  up in support of  Mr Cummins’ application for a halt remains nothing more than an unliquidated claim for damages in arbitral proceedings which may or may not be successful.

[54]            For that reason alone, I do not accept that that is a proper foundation for a halt of the present bankruptcy proceeding, particularly given it was not considered by the Court of Appeal to be a proper foundation for:

(a)setting aside the statutory demand;

(b)a stay of the liquidation proceedings;

(c)a successful appeal against the orders winding Manchester up; or

(d)a successful appeal against the decision refusing to set aside the bankruptcy notice.

[55]            This conclusion appears to me to be consistent with the authorities, particularly given that they indicate that a halt is intended to provide a debtor with further time to challenge the debt upon which the application for adjudication is based.43 In this case, the Court is dealing with a long overdue judgment debt, which was not challenged, and is asked to balance that judgment debt against an unliquidated claim for damages, which, although it may be arguable, has consistently been rejected by the courts as a proper basis for bringing to an end bankruptcy and liquidation proceedings. In my view, there is no basis for a different conclusion here.

[56]            I have not ignored Mr Sullivan’s additional — and perfectly fair — point that in the earlier litigation involving Manchester, this Court and the Court of Appeal were dealing with winding up proceedings under the Companies Act 1993, and that somewhat different considerations apply here where the Court is dealing with bankruptcy proceedings under the Insolvency Act.

[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.44

43  See  Re  Bank  of  New  Zealand,  ex  parte   Koroniadis   [2013]   NZHC   2865   at   [12];  Waitomo Adventures Ltd v O’Hagan [2014] NZHC 247 at [6]; Waimauri Ltd v Mahon [2022] NZHC 1622 at [39]; and RPW v H [2022] NZHC 2344 at [39].

44 See Insolvency Act 2006, s 37(b); Holdgate v Blocassa Ltd [2007] NZCA 132 at [19]; Companies Act 1993, s 241(4)(a); and Re Tweeds Garages Ltd [1962] Ch 406 (Ch) at 410; affirmed in Commissioner of Inland Revenue v F B Duvall Ltd (2009) 10 NZCLC 264,455 (HC) at [10].

[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”.45 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”.46 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.47

Effective security argument

[61]            Originally, Mr Cummins’ argument was that, at law, the Body Corporate was a secured creditor for the amount of the judgment debt. He now contends that the Body Corporate has “effective security”. Essentially, the argument is that, although the Court of Appeal has concluded that the Body Corporate is not a secured creditor for the purposes of the Insolvency Act, it is for all practical purposes secured for the amount of the judgment debt.

[62]            The Court of Appeal had to determine an appeal from a judgment of this Court refusing Mr Cummins’ application to set aside the Body Corporate’s bankruptcy

45 Flat Bush Finance Ltd v Body Corporate 172108 [2021] NZCA 662 at [17].

46 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [38.4.10]; citing David v Sabin [1893] 1 Ch 523 (CA); and Reeves v Pope [1914] 2 KB 284 (CA).

47 See Liquidation appeal judgment, above n 3, at [66]–[70].

notice.48 One issue before the Court of Appeal was whether the Body Corporate was a secured creditor of Mr Cummins.49 Section 14 of the Insolvency Act 2006 provides that an order of adjudication cannot be made on the application of a secured creditor unless the creditor has established that the amount of the debt exceeds the value of the charge by at least $1,000. Mr Cummins contended before the Court of Appeal that the Body Corporate is a secured creditor for the purposes of s 14.

[63]            The Court of Appeal summarised Mr Cummins’ first argument on this point as follows:50

Mr Cummins says that the body corporate has security for the judgment debt against both Manchester and himself as a result of its claim to be subrogated to Manchester’s lien over the Trust assets. He says this is also a charge over his property because, as sole trustee of the Trust, he is the beneficial owner of the Trust’s assets including Unit 12A. And he says that the body corporate has priority over his other creditors because the body corporate’s claim to an indemnity out of the Trust assets through Manchester, the former trustee, has priority over his equitable interest in the Trust assets as a successor trustee.

[64]            The Court then considered whether, when a creditor of a trustee may be entitled to be subrogated to a right of indemnity from trust assets (and supporting lien), that means that creditor is a secured creditor for the purposes of the Insolvency Act.51 The Court considered this question first in a straight-forward situation involving creditor and trustee, and then in more complex circumstances involving “an original trustee, a successor trustee, and a claim by the creditor against both [the original and successor] trustees”.52

[65]            The Court of Appeal concluded that in neither circumstance was the creditor a secured creditor for the purposes of the Insolvency Act:53

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.54 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.55 The creditor can prove in the trustee’s

48     See Setting-aside judgment, above n 5.

49 Setting-aside appeal, above n 7, at [7].

50 At [8].

51 At [9].

52 At [9].

53 Setting-aside appeal, above n 7, [12]–[15] and [19].

54     Trusts Act 2019, s 86; and Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367.

55     Levin v Ikiua [2010] 1 NZLR 400 (HC) at [121].

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.

Under the Insolvency Act, “secured creditor” is defined to mean a person entitled to a charge on or over property owned by a debtor.56 A charge is defined to include a right or interest in relation to property owned by a debtor, by virtue of which a creditor of the debtor is entitled to claim payment in priority to other creditors. It does not include a charge under a charging order issued by a court in favour of a judgment creditor.57

The entitlement of a creditor of a trustee to be subrogated to the trustee’s right to indemnity out of the trust assets does not amount to a charge for the purposes of the Insolvency Act, for two reasons. First, it is not a right or interest in property owned by the debtor trustee: a claim to be subrogated to the trustee’s rights in relation to trust property is a claim to exercise a right of the trustee against the trust property, not a right in property owned by the trustee. Second, it does not entitle that creditor to payment in priority to other creditors. All creditors of the trustee in respect of trust debts have the same entitlement to subrogation; none has priority over the others. They are in an analogous position to an unsecured creditor with a right of recourse to property under a charging order made by a court: it is precisely because a charging order does not confer any priority over other creditors that it does not qualify as a charge for the purposes of the Insolvency Act.

It follows that a creditor of a trustee in respect of a trust debt is not a secured creditor for the purposes of the Insolvency Act.58

…

It follows that even if Mr Cummins is right that he incurred the judgment debt in a capacity that entitles him to indemnity out of the Trust assets, a proposition on which we express no view, that would not of itself mean that the body corporate is a secured creditor of Mr Cummins … .

[66]            Mr Cummins’ also contended that the Body Corporate should be regarded as a secured creditor because:59

(a)The body corporate is entitled to be subrogated to Manchester’s claim to indemnity and to a lien in respect of the Trust assets.

(b)Because Mr Cummins has now been appointed sole trustee of the Trust, Manchester holds the legal title to Unit 12A on a bare trust for Mr Cummins. He is the equitable owner of the Trust assets. He then holds that equitable interest on trust for the Trust’s beneficiaries.

56     Insolvency Act 2006, s 3.

57     Section 3.

58     The Court also relied upon Aluma-Lite Products Pty Ltd v Simpson [1999] FCA 1105 at [5]; and

Lerinda Pty Ltd v Laertes Investments Pty Ltd [2009] QSC 251, [2010] 2 Qd R 312 at [8] and [14].

59 Setting-aside appeal, above n 7, at [19].

(c)Manchester’s right of indemnity out of the Trust assets takes priority over Mr Cummins’ equitable interest in those assets. The former trustee is entitled to be indemnified before the current trustee can have recourse to the assets, and before the beneficiaries have any claim to those assets.

(d)The body corporate’s prior right of access to the Trust assets (via Manchester) ahead of Mr Cummins’ right of access to those assets in his  capacity  as  successor  trustee  amounts   to   a   charge   over Mr Cummins’ equitable interest in the Trust assets. That is a charge over property owned by Mr Cummins for the purposes of the Insolvency Act. So the body  corporate  is  a  secured  creditor  of  Mr Cummins.

[67]In respect of this argument, the Court of Appeal said:60

If Manchester had continued as a trustee of the Trust, the body corporate’s claim to be subrogated to Manchester’s right of indemnity and lien over the Trust assets would not mean that the body corporate held a charge over any property of Manchester. As explained above, it would not be a secured creditor of Manchester for the purposes of the Insolvency Act.

That position would not change merely because Manchester retired as a trustee and was replaced by some other person. The appointment of a successor trustee does not by some mysterious alchemy convert a right that did not amount to a charge over property of Manchester into such a charge. That is because nothing material changes: it remains the case that the body corporate’s claim to be subrogated to the trustee’s right of indemnity and lien (a) does not amount to a right or interest in property owned by Manchester, and (b) does not confer priority over other creditors of Manchester in its capacity as trustee.

If the body corporate’s claim to subrogation vis-à-vis Manchester does not render the body corporate a secured creditor of Manchester for the purposes of the Insolvency Act, it is difficult to see how it could be suggested that this claim renders the body corporate a secured creditor of the successor trustee, whether or not that successor trustee is jointly liable for the relevant debt. To the contrary, the argument for secured creditor status is if anything weaker.

The priority that Manchester’s claim to an indemnity has over any claim    Mr Cummins may have to indemnity out of the Trust assets is a red herring. That priority as between successive trustees is quite different from the concept of priority as between creditors. The body corporate does not have a charge over any property owned by Mr Cummins; rather it has a (competing) prior claim to be indemnified out of assets to which Mr Cummins may also be entitled to have recourse, after Manchester. The Trust assets are not assets owned by Mr Cummins in the relevant sense any more than they were owned by Manchester when it was a trustee.

60     At [21]–[24].

[68]            Ultimately, the Court of Appeal considered that as the Body Corporate was not a charge-holder entitling it to recourse to property ahead of other creditors, it was not a secured creditor.

[69]            Now, Mr Cummins advances a watered-down argument which is, however, directed at the same point. He says that, even if at law the Body Corporate is not a secured creditor, it is effectively secured and that the Court should stay this proceeding on that basis, and can do so  knowing  that  there  will  be  no  prejudice  to  the  Body Corporate (or others).

[70]            In order to address this argument it is necessary to provide further background. On 29 July 2021 Mr Cummins entered into an agreement with a company by the name of Sage Securities Ltd (“Sage”). Mr Cummins has obtained finance from Sage for the remediation of Unit 12A, and Sage has a first registered mortgage over Unit 12A as security. Mr Phillip McGaveston is the sole director of Sage. The agreement also involves a company by the name of Flat Bush Finance Ltd  (Flat Bush), of which   Mr Cummins is the sole director and shareholder, and which has also been a source of finance, as the Court understands the position.

[71]            The  argument  advanced  by  Mr  Sullivan  is  that   the  agreement   with   Mr McGaveston and Sage Ltd provides that, on any sale of Unit 12A, Mr Cummins’ debt to the Body Corporate will be paid as part of the overall Body Corporate debt ahead of Sage as mortgagee. The agreement dated 29 July 2021 was put before the Court as an exhibit to an affidavit sworn by Mr McGaveston dated 9 June 2022. The parties to the agreement are Mr McGaveston and Sage (as lenders), Mr Cummins as trustee of the Trust (as borrower) and Flat Bush (as guarantor). The agreement states:

1.In consideration of the loan agreement executed with this agreement, and in order to obtain the final facility contemplated by that agreement, the parties have further agreed to settle all matters in relation to existing loans to the Trust and the respective lender securities as follows:

(ii)the repayment of the final facility shall have first priority from the net proceeds of the sale of the Property.

(iii)following repayment of the final facility, the priority of any proceeds from the sale of the Property, and the claims against Body Corporate 172108 shall be allocated to the repayment

of debt in the proportions 90% to Sage Securities Ltd and 10% to Flat Bush Finance Ltd for the first $10,000,000 of the net proceeds. Thereafter 50% of the net proceeds shall be paid to each lender.

(iv)this allocation of proceeds shall apply irrespective of the priorities reserved in the lenders’ respective security documents until both lenders have been repaid in full.

2.The final facility is to meet completion and related costs substantially in accordance with those contemplated in the Borrower’s emails dated 15 & 22 July 2021, attached, subject to further assessment by the parties at the time the final facility is negotiated.

[72]            In his affidavit Mr McGaveston described these arrangements in the following terms:

3.Sage [Ltd] holds the registered first mortgage over  12A/196  Hobson St (the property). Under the 2021 Agreement, the net proceeds from the realisation of the Sage mortgage and the Trust’s claims against the Body Corporate are allocated between Sage [Ltd] and [Flat Bush Finance Limited].

4.However the 2021 Agreement only applies to the net proceeds of any recovery from the sale of the Property. The Body Corporate must be repaid first — provided it is able to establish that it is in fact a net creditor… .

5.In essence, the Body Corporate will be repaid in full from the proceeds of the sale of the Property in priority to  all  mortgagees.  If  the Body Corporate has not established the net debt position by the settlement date, an appropriate sum will be deducted from the settlement proceeds and held in trust or in a stakeholder account until such time as the net debt position is duly established.

[73]Mr Sullivan’s submitted that, as a result:

… the [Body Corporate] is effectively secured because it is to be repaid first on the sale of the property — ahead of all mortgagees. It can do no better than that in terms of security,

[74]            As Mr Orpin-Dowell submits, the contention that the Body Corporate is secured is illusionary. On the basis of the Court of Appeal’s judgment of 21 December 2022 it is clear that the Body Corporate is not a secured creditor of either Manchester or Mr Cummins. If successful this argument would circumvent that conclusion. But it fails because in fact it has no material impact on Mr Cummins’ ability to pay his debts as they fall due – and there is no indication that the scheme envisaged by the 29 July 2021 agreement will be put into effect within any particular time.

[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.

[78]I reject this argument as a foundation for Mr Cummins’ application for a stay.

The additional arguments

Quantum meruit

[79]            Mr Cummins’ says that he has a claim — based in quasi contract and quantum meruit — for the recovery of costs he has personally incurred in relation to remedial work since Manchester’s liquidation.

[80]            He says that this claim will be more than $2,115,650.20, and that this sum is owed to him by the Body Corporate and other owners. He submits that there is a triable case which could  be  and  should  be  set  off  against  his  judgment  debt.  Mr Sullivan does not ask the Court to determine quantum (except I am taking it to the extent of inviting the Court to conclude that any claim would exceed the judgment debt).

[81]            Mr Orpin-Dowell submits that none of the elements of a quantum meruit claim are made out:

(a)Mr Cummins has not provided services to the Body Corporate. Rather, as a trustee, Mr Cummins has arranged and allegedly paid for work to be performed on Unit 12A. The Body Corporate has no ownership interest in Unit 12A. Therefore, Mr Cummins as a trustee without legal title has provided services to a former trustee who continues to hold legal title. This is not a situation that can give rise to a claim against the Body Corporate in quantum meruit.

(b)To the extent that Mr Cummins has provided services or incurred costs, the Body Corporate has received no relevant benefit from them. The claimed benefits are simply a reformulation of arguments made on the cross-claim. The issue of whether the Unit Titles Act and the scheme of arrangement assigns responsibility for the repairs to Unit 12A to Manchester, irrespective of any analysis of who enjoys the benefits of the works, is an issue in the Auckland proceeding. The claim in quantum meruit is simply a further reformulation of the cross-claim — being a claim for costs allegedly incurred by Mr Cummins in the remediation of Unit 12A which he says the Body Corporate is liable for. Further, the Body Corporate maintains that Manchester, and therefore Mr Cummins, is liable for those costs on a conventional analysis of the Unit Titles Act.

(c)There has been no acceptance of any services by the Body Corporate. Rather the Body Corporate has consistently maintained that Manchester is solely responsible for the costs of repairs to Unit 12A. It cannot have freely accepted services which it maintains it is not liable to perform or contribute to, and in relation to property in which it has no ownership interest.

[82]A claim in quantum meruit can be established:61

…where the defendant asks the plaintiff to provide certain services or freely accepts services provided by the plaintiff, in circumstances where the

61     Morning Start (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA90/05, 8 August 2006 at [50].

defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services, irrespective of whether there is an actual benefit to the defendant

[83]Further:62

Where a defendant has requested or fully accepted services in circumstances where he has gathered no residual objective benefit from those services, the plaintiff may still recover the reasonable cost of those services if the services were provided and accepted in circumstances where the defendant knew that the plaintiff expected to be recompensed for the services. A case where recovery was allowed, although there was no enrichment of the defendant (if benefit is measured as the economic value of the residue of the services) was William Lacey (Hounslow) Ltd v Davis [1957] 1 WLR 932.

[84]            In my judgment, the primary flaw in this argument is that it rests upon an assumption that Mr Cummins’ case regarding the proper division of costs in the remediation is correct. In other words, in order for such a claim to be genuinely triable, the Court would first have to accept that Mr Cummins has incurred costs for parts of the remediation which are properly, on a correct interpretation of the legislation and the scheme of arrangement, payable by the Body Corporate. Such a conclusion is necessary in order to determine that Mr Cummins has performed services for the Body Corporate which he is entitled to recover. For precisely the same reasons that I have rejected the primary cross claim argument, this contention too must fail.

[85]            Two further difficulties identified by Mr Orpin-Dowell might also be mentioned. First, the Body Corporate has no ownership interest in Unit 12A. Whilst, as a matter of fact, the Body Corporate and its members may benefit from the repair of Unit 12A, the repairs to that property have been performed on it while it remains in Mr Cummins’  control.  The  Body  Corporate  has  consistently  maintained  that  Mr Cummins (or his interests) is responsible for all costs relating to the repair of the property. That does not appear to me to be circumstances in which the Body Corporate has freely accepted services. The second point is that Mr Cummins has not personally performed the services he claims for.

[86]            For those reasons, I do not accept that Mr Cummins has a genuinely triable claim in quasi contract.

62     Villages of New Zealand (Pakuranga) Ltd v Ministry of Health HC Auckland CIV-2003-404-5143, 6 April 2005 at [81].

Caveat damages

[87]            Mr Cummins alleges that the Body Corporate lodged a caveat on the title to Unit 12A improperly, to preclude further borrowing against Unit 12A. He says that this was improper, because the Body Corporate was already in the position that it would be paid first on any sale of Unit 12A, and in knowledge that it would impede the remediation process be preventing further financing. He seeks to rely on the Court of Appeal’s conclusion that the Body Corporate is not a secured creditor, to illustrate that the lodging of the caveat was unnecessary and improper.

[88]            A claim for damages in respect of losses suffered as a result of the lodging of a caveat is made pursuant to s 148(1) of the Land Transfer Act 2017, which provides:

A person, including the agent of a person, who lodges a caveat against dealings without reasonable cause is liable to pay compensation to a person who suffers loss or damage as a result.

[89]            Liability under s 148(1) is dependent on the caveator having had no reasonable basis for the lodging the caveat. Reasonable cause is established where the caveator can show an honest belief on reasonable grounds that they had a caveatable interest.63 It is generally not necessary to show an actually caveatable interest.64 It is, however, open to the court to conclude that a caveat was lodged without reasonable cause where it was lodged for an ulterior motive, rather than to protect the interest claimed.65 Generally, if a caveat is sustained, an action for compensation would fail, because inherent in the sustaining of a caveat is a finding that there was reasonable cause for the lodging of the same.66

[90]            Mr Sullivan submits that Mr Cummins has a triable claim for damages which if recognised, would have the effect of undermining the indebtedness upon which these proceedings are based.

63     Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 at 108.

64     Holmes v Australasian Holdings Ltd [1988] 2 NZLR 303 (HC); affirmed in Couchman v Taylor

(1996) 3 NZ ConvC 192,341 (CA); and Cotton v Keogh [1996] 3 NZLR 1 (CA).

65     Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106.

66     Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257 (HC) at 290.

[91]            Mr Orpin-Dowell submitted  that no claim  for damages  can lie pursuant  to  s 48(1) as the Body Corporate’s caveat has twice been upheld by this Court. Firstly, it was upheld by Gwyn J in November 2020, when Mr Cummins or his interests accepted that the Body Corporate had  a caveatable interest.67    Second,  it was upheld by    van Bohemen J in April 2022.68 Mr Orpin-Dowell’s submission is that any application for damages by Mr Cummins must necessarily fail, and that such a hopeless claim cannot justify a halt of the Body Corporate’s bankruptcy proceeding.

[92]            Given the arguments on this issue, it may be helpful to review the earlier caveat proceedings.

[93]            In her judgment of 27 November 2020, Gwyn J described the interest claimed under the Body Corporate’s caveat. Her Honour did so in the following terms:69

[26]The interest claimed under the Caveat is:

The Caveator, Body Corporate 172108, claims an interest in the affected record of title on the basis that, as creditor of the registered proprietor, Manchester Securities Limited, the Caveator is subrogated to the right of the registered proprietor, Manchester Securities Limited as trustee of the Manchester Securities Trading Trust ("the Trust") to an equitable charge over the Trust's assets as security for the trustee's right to be indemnified out of the assets of the Trust for liabilities incurred as trustee such Trust assets including the affected records of title.

[27]      The Body Corporate asserts that as a creditor of Manchester, it is entitled to claim against trust property by way of subrogation to the trustee's right of indemnity where judgment against Manchester as the trustee would be fruitless.

[94]Her Honour noted that Flat Bush accepted that:70

(a)that Manchester has a right to an indemnity from the assets of the Trust to the extent required to exonerate it from any liability it has incurred in its capacity as trustee of the Trust;

(b)the indemnity gives Manchester the right to an equitable lien over trust assets;

(c)the equitable lien gives Manchester the right to a caveatable interest in Level 12; and

67     Body Corporate 172108 v Flat Bush Finance Ltd [2020] NZHC 3135 (2020) 21 NZCPR 622 [First caveat judgment].

68     Cummins v Body Corporate 172108 [2022] NZHC 774 [Second caveat judgment].

69     First caveat judgment, above n 68.

70 First caveat judgment, above n 68, at [32].

(d)the Body Corporate has acquired those rights by subrogation to the interest of Manchester.

[95]            Gwyn J did not determine the issue of whether Flat Bush or the Body Corporate had the primary equitable interest, and instead concluded:71

It is thus not possible to reach a concluded view on which of the two equitable interests was first in time. Nor is it possible to reach a firm view on who had the better equity. My discussion on the parties' conduct, above, shows that there would also be an arguable case for the Body Corporate in that regard.

In summary, an application under s 143 is not the appropriate mechanism to resolve a conflict as to competing interests. At the caveat stage, the Court needs only to be satisfied that the caveator has an arguable case for the interest claimed under the caveat. It is not a condition for an order sustaining a caveat that the caveator must prove a claim to the extent of obtaining a judgment for indemnity.72 I am satisfied that the Body Corporate has met the appropriate threshold.

I cannot at this juncture reach the threshold of a conclusion that it is patently clear that the Body Corporate's Caveat cannot be maintained. Nor can I reach the conclusion that it is patently clear that the ground for registering the Caveat in the first place no longer exists.

[96]And:73

This is not an appropriate case for exercise of the [Court’s residual discretion to lapse the caveat]. The Body Corporate was entitled to lodge a caveat against Level 12. The amounts owing to the Body Corporate by Manchester remain unpaid. Leaving the caveat in place provides greater protection  for  the Body Corporate than if it were to be removed. If the caveat is removed, the Body Corporate is exposed to the risks of a loss of priority by registration of some other interest and/or of disposal of the property.

Overall, the Body Corporate has an arguable case that its caveat should be maintained. It is not clear that adequate  protection  is  provided  by  the  Unit Titles Act. The Body Corporate is therefore entitled to maintain its caveat.

[97]On those bases, the caveat was sustained.

[98]            On 13 April 2022,  van  Bohemen  J  addressed  a  further  application  by  Mr Cummins pursuant to s 142 of the Land Transfer Act for the removal of the  Body Corporate’s caveat. Mr Cummins alleged that the caveat must be removed to

71     At [58]–[60].

72     Official Assignee v Menzies HC Auckland CIV-2010-404-5457, 14 February 2011 at [30].

73     First caveat judgment, above n 68, at [66]–[67].

enable him to raise finance for ongoing remedial work. The Body Corporate opposed the application on the basis that Mr Cummins was re-litigating issues that had already been determined by Gwyn J.

[99]            His Honour agreed that Mr Cummins was seeking to re-run the same argument as had been advanced before Gwyn J.74 He was not satisfied that the Body Corporate’s legitimate interests would not be prejudiced if the caveat was removed.75 His Honour concluded:76

In summary, the arguments advanced by Mr Sullivan do not satisfy me that the legitimate interests of the Body Corporate would not be prejudiced if its caveat were removed. In addition, even if I had been so satisfied, in the circumstances of the present case, I would have seen no case for exercising the Court’s residual discretion to remove the caveat.

I do not accept Mr Sullivan’s submission that the litigation history concerning Unit 12A is largely irrelevant. The history shows that Mr Cummins and entities under his direction and control have pursued a deliberate course of refusing to pay debts owed to the Body Corporate, despite numerous Court orders that those debts must be paid immediately. They have also continued to assert that payment of those debts can be delayed pending the resolution of cross-claims in an arbitral process, despite clear directions from the Court of Appeal that the debts were to be paid irrespective of the cross-claims and arbitration. In the meantime, Mr Cummins and his entities have continued to prioritise their interests over those of the Body Corporate and the other owners of the units in the Hobson Apartments. Those owners have had to endure the stress and disruption caused by unfinished repairs to the top level of their apartment building and the succession of efforts by Mr Cummins and his entities to avoid paying the money owed to the Body Corporate.

The current application is another example of that course of conduct.

In that regard, the evidence Mr Cummins has adduced in support of the application does not satisfy me that he has a genuine need to refinance in order to complete the work on Level 12. There is no evidence from Sage to establish why its position as funder has suddenly changed. The information provided concerning the arrangements between Sage, Flat Bush and Mr Cummins is opaque and incomplete. There is no evidence of any attempts to secure alternative finance approach to, let alone agreement with, an independent funder. Mr Cummins’ statements about the work required to complete Level 12 and the timeline for completion are not supported by independent evidence. Mr Gray’s evidence calls into question the reliability of Mr Cummins’ statements.

74 Second caveat judgment, above n 69, at [92].

75 At [94]–[96]; citing Pacific Homes Ltd (in Receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA) at 656.

76 At [103]–[109]. For completeness I note also that van Bohemen J concluded that Mr Cummins’ application for the removal of the Body Corporate’s caveat was an abuse of process, and that strike out would have been justified had the application not been dismissed – see [122]–[125].

While it is unnecessary to make findings as to credibility, the evidence falls well short of persuading me that there is an adequate basis for ordering the outcome advocated by Mr Sullivan.

For  all  these  reasons,  I  dismiss  Mr  Cummins’  application  that  the Body Corporate’s caveat registered against the title to Unit 12A be removed.

[100]        Against that background, it is clear that Mr Cummins’ argument in this case is yet another attempt to litigate issues that have already been determined by this Court. I accept Mr Orpin-Dowell’s submission that any claim for damages by Mr Cummins pursuant to s 148(1) must fail. Not only is it clear that the Body Corporate had reasonable grounds for lodging its caveat, but that issue has already been determined

— and its use in this proceeding, as in the proceeding dealt with by van Bohemen J, constitutes an abuse of process.77 This is not an argument that is capable of undermining the judgment debt upon which this proceeding is based. It cannot, therefore, be a basis for a successful application for a halt of the bankruptcy proceedings.

[101]        For completeness, I note also that van Bohemen J considered that an award of indemnity costs was appropriate in the caveat proceedings, stating:78

The Body Corporate seeks indemnity costs. I consider that an award of actual and reasonable costs is appropriate in this case. The application is an abuse of process and another example of dilatory and prevaricating behaviour by the Cummins’ interests.

[102]        Mr Cummins appealed against that costs award, seeking substitution of it with an award of scale costs on a 2B basis. Very recently, the Court of Appeal dismissed that appeal.79 In giving the reasons of the Court, Palmer J stated:80

…[van Bohemen J] was entitled to conclude that there had been no material change of circumstances. Mr Cummins wanted the caveat removed and the Body Corporate was not satisfied its interests would be sufficiently protected. Gwyn J had already rejected the arguments that the Body Corporate’s interest was already effectively secured and that the Body Corporate’s subrogation was only an entitlement.81 Mr Cummins’ stated need to find a new funder was not a new circumstance as far as the Body Corporate was concerned. As van

77     Second caveat judgment, above n 69, at [122]–[125].

78 Second caveat judgment, above n 69, at [127].

79     Cummins v Body Corporate 172108 [2023] NZCA 226.

80 At [17]–[18]. In relation to this judgment, Mr Orpin-Dowell filed and served a memorandum bringing the Court of Appeal’s judgment to my attention. Mr Sullivan objected to his having done so. I do not understand why. In any event, I was already aware of the judgment.

81 First caveat judgment, above n 68, at [65]–[77].

Bohemen J said, the Court’s residual discretion to remove a caveat will be exercised cautiously and only when the Court is satisfied that doing so would not prejudice the legitimate interests of the caveator.82 Both judges were being asked to exercise the same discretion on materially the same basis.

Mr Cummins was not challenging any of the findings in Gwyn J’s judgment. So, strictly speaking, his application may not have been a direct collateral attack on that judgment. But it was a second attempt to achieve what had not been achieved earlier, without a material change of circumstances. Accordingly, we do not consider van Bohemen J erred in considering that the application was an abuse of process. That provided an adequate basis for van Bohemen J to exercise his discretion to award indemnity costs. The threshold for overturning the award is not met.

Conclusion

[103]        In my judgment, none of the arguments advanced on Mr Cummins’ behalf justify a halt of the Body Corporate’s application for adjudication.

[104]        The Court’s approach to applications under s 38 has been described as follows:83

Despite the inherent flexibility of the s 38 discretion, certain considerations are invariably brought to account, including:

(a)the history of the litigation and the conduct of the parties in the same;

(b)the impression that the court can gain of the merits of the appeal;

(c)the stage reached in the appeal and any information to hand as to when it may be disposed of;

(d)the relative consequences for both parties of making or refusing the order sought; [and]

(e)any known consequences for third parties.

[105]        Inherent in those considerations is the principle that an application under s 38 is directed to a situation where an applicant has an arguable claim against which the debt underlying the application for adjudication can be and should be set off. In this case, the relevant considerations are:

82 Second caveat judgment, above n 69, at [95].

83     Waimauri Ltd v Mahon [2022] NZHC 1622 at [40]; citing Michael Wilson and Partners Ltd v Sinclair [2020] NZHC 2546 at [9].

(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 “dilatory and prevaricating behaviour”.84

(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 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.

84 Second caveat judgment, above n 69, at [127].

(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.

[106]        For those reasons, I am not prepared to exercise the Court’s discretion to halt the Body Corporate’s application for adjudication.

Result

[107]        Mr Cummins’ application for an order halting the Body Corporate’s application for adjudication is dismissed.

[108]        I reserve costs. If counsel are unable to resolve costs they may file and serve memoranda in the usual way.

Associate Judge Johnston

Solicitors:

Grove Darlow & Partners, Auckland for Judgment Creditor Core Legal Ltd, Masterton for Judgment Debtor