Body Corporate 172108 v Gundry
[2014] NZHC 954
•9 May 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2013-404-004339 [2014] NZHC 954
BETWEEN BODY CORPORATE 172108
Plaintiff
AND
SIMON GEORGE GUNDRY First Defendant
WALTER WILLIAM HENRY GILL Second Defendant
Hearing: 7 March 2014 (submissions received 21 March, 4, 8 and 15
April 2014)
Appearances:
T Allan and A C Credin for Plaintiff
D Bigio for First and Second DefendantsJudgment:
9 May 2014
(RESERVED) JUDGMENT OF ANDREWS J
This judgment is delivered by me on 9 May 2014 at 11am pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors:
Grove Darlow & Partners, Auckland
Kevin McDonald & Associates, Takapuna
Counsel:
D Bigio, Auckland
BODY CORPORATE 172108 v GUNDRY & ANOR [2014] NZHC 954 [9 May 2014]
Contents
Introduction ..........................................................................................................[1] Background...........................................................................................................[2] Approach to application for summary judgment............................................[19] Submisssions .......................................................................................................[20] Are the scheme levies ultra vires and unenforceable? ....................................[26] Were the levies validly raised? .............................................................................[29]
Should leave be given to the plaintiff to adduce evidence of the special resolution?............................................................................................................[39] Are the defendants required to pay the levies? ...............................................[44]
Do the defendants have a counterclaim or equitable set off?.........................[48] Are the defendants entitled to share in the proceeds of the litigation? .........[56] Is the plaintiff ’s claim a counterclaim or a set off? .........................................[61] Should summary judgment be granted? ..........................................................[65] Interest and costs ................................................................................................[67] Default interest .....................................................................................................[68] Indemnity costs .....................................................................................................[76] Result ...................................................................................................................[79]
Introduction
[1] This is an opposed application for summary judgment in respect of Body Corporate levies alleged to be owed by the defendants to the plaintiff, together with interest and costs.
Background
[2] The plaintiff is Body Corporate 172108, the body corporate for Hobson Towers, a high rise apartment complex at 196 Hobson Street, Auckland (“the body corporate”). The defendants are the registered owners of unit 11C in Hobson Towers.
[3] Hobson Towers is a leaky building. Unit 11C has been affected by water damage as a result of leakage from unit 12, the penthouse apartment above it. At an extraordinary general meeting (“EGM”) of the body corporate held on 16 June 2005, unit owners resolved to bring proceedings against the Auckland Council, seeking damages in respect of alleged negligence and negligent misstatement in respect of the Council’s issuing of a building consent, inspecting building work, and issuing Code Compliance Certificates. The proceedings were filed in August 2005, and were settled in July 2011.
[4] In August 2009, the body corporate resolved to apply to the High Court for sanction of a scheme pursuant to s 48 of the Unit Titles Act 1972 to remediate Hobson Towers (“the scheme”). The scheme was sanctioned by an order made in the High Court at Auckland on 31 August 2010.
[5] The defendants bought unit 11C in August 1996. The unit was transferred to their solicitor, Mr McDonald, in August 1998 to be held on trust for them. It was transferred back to the defendants in June 2008. At all times, the defendants were recorded as the owners of unit 11C in the body corporate’s register of owners, and their contact address was recorded as 10 Tudor Street, Devonport. The body corporate posted notices of meetings, invoices for levies, and minutes of meetings, to that address.
[6] On 7 April 2004 a Ms Fleming, on behalf of the first defendant, Mr Gundry, wrote to the body corporate expressing Mr Gundry’s great concern “at the water damage in Apartment 11C, caused apparently by water leakage from the deck on Unit 12”. Mr Gundry re-sent that letter on 14 April 2004, with a handwritten note that “this problem is now getting bigger”, and that “this as far as I am concerned is a body corporate problem”. The minutes of the body corporate’s annual general meeting (“AGM”) on 14 April 2004 record discussion of Mr Gundry’s concern. The body corporate records do not indicate that Mr Gundry made any claim for loss, damage, or compensation from the body corporate.
[7] The 2005 AGM was held on 18 April 2005. The minutes of that meeting record that unit 11C was represented at the meeting by a proxy in favour of the chairman. The minutes also record a discussion in General Business about “a potential case with the Auckland City Council regarding the approval of the existing monolithic cladding”.
[8] Unit owners were advised of the 16 June 2005 EGM by a notice of meeting dated 2 June 2005. The notice of meeting referred to “the discovery of substantial water ingress problems in various areas of the building”, and the agenda item “to discuss and resolve on actions … in relation to the damage caused to the building by water ingress … and what legal action can be taken against those responsible”. The minutes of the EGM record that the defendants gave a proxy for that meeting in favour of the chair.
[9] The members of the body corporate resolved by a majority (recorded as “24/26”), to issue proceedings. The minutes also record that unit owners were to be asked to return an Authority to Act (and later, a “Conduct and Distribution Agreement”) (“the litigation agreement”) by Friday 24 June 2005. That date was extended to 15 July 2005 pursuant to a resolution of the body corporate committee, on 30 June 2005. At that time, the defendants were recorded as being one of 12 unit owners who had not signed the litigation agreement. The defendants never signed the litigation agreement (as was the case with three other unit owners).
[10] At an EGM on 12 September 2005, the body corporate resolved that total legal costs of the proceeding would be borne by those owners who had signed the litigation agreement, and any compensation awarded would be paid only to those participating. The voting was recorded as “12/5”. Clause 11 of the litigation agreement sets out the percentage share of settlement funds for each of the owners who signed the litigation agreement, and provides that settlement funds are to be credited to the owner’s share of the cost of remedial works. Clause 12.2 provides that the parties “do not include the body corporate and/or other unit owners”.
[11] At the AGM held on 1 May 2008, a report was presented concerning remedial work progress. The report referred to the tender price for remedial work to the building. The remedial work was again reported on at the AGM on 14 April
2009.
[12] On 10 August 2009, the registered owners committee of the body corporate (“the body corporate committee”)1 resolved that an application was to be made to the High Court under s 48 of the Unit Titles Act 1972, in relation to the repairs required to Hobson Towers (“the scheme application”). On 26 August 2009, the defendants (and other unit owners) were sent a letter concerning service of the scheme application. Owners were invited to confirm that they would accept service by
documents being sent by courier to a nominated address, with no personal receipt required. The second defendant, Mr Gill, responded for unit 11C, nominating 38
Clarence Street, Devonport as the address for service for 11C. Copies of the scheme application and supporting affidavits were delivered to the nominated address by New Zealand Couriers.
[13] Following interim orders made on 3 March 2010,2 and 19 August 2010,3 an order sanctioning the scheme was made by Heath J on 31 August 2010.4
[14] Unit owners are required to pay body corporate levies each year (ordinary levies). Levies are invoiced for each financial year, in advance. Interest is charged
1 This committee was elected at each AGM.
2 Body Corporate 172108 v Meader (2010) 12 NZCPR 101 (HC).
3 Body Corporate 172108 v Meader (No 2) HC Auckland CIV-2009-404-6868, 19 August 2010.
4 Body Corporate 172108 v Meader (No 3) HC Auckland CIV-2009-404-6868, 31 August 2010.
for late payment. The defendants were sent invoices each year, to their address at
10 Tudor Street, Devonport, for levies charged on unit 11C. The body corporate’s records show that for the financial years ending 31 March 2005 to 31 March 2013 (invoiced between April 2004 and November 2011),5 the defendants paid the ordinary levies, albeit on many occasions late.
[15] For the financial year ending 31 March 2013, the defendants were invoiced for ordinary levies of $4,221.00 (invoice dated 30 April 2012) and $4,221.00 (invoice dated 31 October 2012), pursuant to a resolution passed at the AGM on
24 April 2012. For the financial year ending 31 March 2014, the defendants were invoiced (as at the time this proceeding was issued) $2,013.36 (invoice dated 30 May
2013), pursuant to a resolution passed at the AGM on 1 May 2013. The defendants
have not paid these levies (“the unpaid ordinary levies”).
[16] The defendants have also been invoiced for debt collection costs totalling
$1,877.25. These costs have not been paid.
[17] The body corporate has also raised levies pursuant to the scheme, to pay the costs of remedial works (“the scheme levies”). The defendants have been invoiced (in total) $220,165.03, by four invoices payable on 30 July 2012, 20 February 2013,
20 June 2013, and 15 October 2013. The defendants have not paid any of the scheme levies (“the unpaid scheme levies”).
[18] The body corporate’s claim is for ordinary levies of $10,455.36, scheme levies of $220,165.03, and debt collection costs of $1,877.25. The body corporate also claims penalty interest on the unpaid amounts. The body corporate has applied for summary judgment against the defendants.
Approach to application for summary judgment
[19] Pursuant to r 12.2 of the High Court Rules, summary judgment may be given against a defendant if the plaintiff satisfies the Court that the defendant has no
5 Since the beginning of the financial year ending 31 March 2009, levies were invoiced in two instalments.
defence to a cause of action in the statement of claim. As the Court of Appeal said in
Kruziener v Hanover Finance Ltd:6
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: … The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated. … The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. … In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
(references omitted)
Submisssions
[20] Mr Allan submitted that the defendants have no defence to the plaintiff ’s claim, and that summary judgment should be entered. He submitted that the defendants’ opposition to the plaintiff’s claim is a counterclaim, not an equitable set off. As a counterclaim, the defendants’ claims were not a defence, and could not reduce or extinguish the plaintiff’s claim and could not lead to summary judgment being denied. Mr Allan further submitted that none of the matters raised by the defendants had any merit.
[21] Mr Allan also referred to clause 13 of the scheme as to dispute resolution which, he submitted, is a “pay now argue later” provision, under which the defendants cannot withhold payment of a levy on the basis of a dispute.
[22] Mr Bigio submitted for the defendants that there is no evidence of any communication with the defendants advising them of the opportunity to participate in the proceedings, and the consequences of not doing so, and no evidence of any communication from the defendants indicating that they did not wish to participate.
He submitted that the plaintiff owed each unit owner a duty of care to ensure that
6 Kruziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
they were fully appraised of the relevance of the litigation to their financial position, and the plaintiff failed to perform that duty in regard to the defendants.
[23] Mr Bigio next submitted that, in any event, the defendants’ failure to join the litigation was not fatal to their ability to benefit from its proceeds, and the plaintiff was in breach of a fiduciary duty to the defendants by denying them access to the proceeds. He acknowledged that any distribution of the proceeds to the defendants would have to take into account a deduction for any legal fees which they should have paid, but were denied the opportunity to pay.
[24] In the circumstances, Mr Bigio submitted, there is a sufficient interdependence between the plaintiff’s claim against the defendants, and the defendants’ claim to a share of the proceeds of the litigation to give rise to an equitable set off such that summary judgment should not be granted. He further submitted that clause 13 does not assist the plaintiff as (first) it cannot be construed as expressly excluding a right of set off and (secondly) the defendants’ claim does not fall to be considered under the dispute resolution cause.
[25] Mr Bigio further submitted that the levies raised by the plaintiff’s body corporate committee under the scheme were ultra vires and invalid. He submitted that although the scheme was prepared and sanctioned under the Unit Titles Act 1972 (“the 1972 Act”), the Unit Titles Act 2010 (“the 2010 Act”) applied at the time the levies were raised, and the plaintiff failed to comply with conditions precedent under the 2010 Act and the Unit Titles Regulations 2011 as to delegation of powers by the body corporate. He submitted that the delegation to the body corporate committee was required to be by way of a special resolution, and that written notice was required to be given to committee members setting out the parameters of the delegated power. He submitted that there was no evidence that either of these requirements were complied with.
Are the scheme levies ultra vires and unenforceable?
[26] It is appropriate to deal with this question first. Mr Allan submitted in reply that the levies were validly raised. In the alternative (and expressly without prejudice to the earlier submission) he submitted that the delegation to the body
corporate committee of the power to raise levies had been ratified by a special resolution carried unanimously by those present in person, by proxy, or by postal vote at an EGM held on 27 March 2014 (“the special resolution”).
[27] Evidence as to the EGM and the special resolution was given in an affidavit sworn and filed after the hearing of the application for summary judgment. The plaintiff sought leave for this affidavit to be adduced. Mr Bigio submitted that leave should not be given. He further submitted that the affidavit raised a claim that was distinct from, and contrary to, the plaintiff ’s contention that the levies had been validly raised, and for that reason could not be considered in the context of the plaintiff’s application for summary judgment.
[28] Two issues arise:
(a) Were the levies validly raised? and
(b)If not, should leave be given to the plaintiff to adduce evidence as to the special resolution?
Were the levies validly raised?
[29] Mr Allan submitted that the “delegation” issue does not arise in respect of levies raised under the scheme, and the defendants’ argument is misconceived, because:
(a) The scheme is a “code”, constituted under the 1972 Act;
(b)Once commenced under the 1972 Act, the transitional provisions of the 2010 Act dictate that the scheme is to be completed under the
1972 Act; and
(c) The scheme specifically imported the processes and procedures of the
1972 Act and the then applicable Body Corporate Rules, neither of which required a delegation to be by way of special resolution.
Accordingly, he submitted, the levies had been validly raised. [30] Mr Bigio contested each of the plaintiff’s propositions.
[31] I am inclined to accept Mr Allan’s submission that a s 48 scheme is appropriately described as a “mini code”. Indeed, such a description is consistent with Mr Bigio’s submission (in his written submissions) that:
A scheme under s 48 creates a blueprint for effecting remedial works to a complex suffering leaky building syndrome and requiring repair to both common and unit properties. This is the case for the complex in question.
[32] However, it is not necessary to decide whether the scheme is a “code” and whether it, as Mr Allan submitted, “temporarily renders rights and remedies under [the 1972 Act] inoperative for the time it takes to achieve the objective of the scheme”. This is because I am satisfied that the provisions of the 1972 Act continue to apply to the scheme, pursuant to s 227 of the 2010 Act, which provides:
227 Transitional provision for proceedings under former Act
(1) Except as provided in subsection (2), any proceedings that were
commenced, but not completed, before the date of commencement of this section must be continued and completed in all respects under the Unit Titles Act 1972 as if this Act had not been passed.
…
[33] In Body Corporate 172108 v Manchester Securities Ltd, Katz J held that the
1972 Act continue to apply to the scheme, such that an application to cancel, vary, modify or discharge the scheme could be made under the 1972 Act, until final completion, cancellation, or discharge of the scheme under the 1972 Act.7 With respect, I adopt her Honour’s reasoning as applicable to the issue as to whether the
1972 Act continues to apply to the scheme.
[34] Further, clause 4.3 of the scheme specifically imports the 1972 Act and rules. It provides:
4 Powers
…
4.3Except as specifically varied by the scheme, the Body Corporate shall have all of the powers granted to the Body Corporate under the
Unit Titles Act 1972. The Rules of the Body Corporate shall be
7 Body Corporate 172108 v Manchester Securities Ltd [2013] NZHC 2441.
deemed to be powers granted to the body corporate in relation to the scheme.
[35] Regarding the delegation of the powers and duty of a body corporate, clause 4 of the second schedule to the 1972 Act provides:
Committee of a Body Corporate
4Where there are more than 3 proprietors, the powers and duties of the body corporate shall be exercised and performed by a committee, subject to any restriction imposed or direction given at a general meeting of the body corporate:
…
[36] Regarding meetings of the body corporate, clause 22 provides:
22Save as otherwise provided by the Unit Titles Act 1972 or these rules, all matters at a general meeting of the body corporate shall be determined by a simple majority of votes. …
[37] I accept Mr Allan’s submission that the minutes of the AGM of the plaintiff held on 27 September 2011 establish that the body corporate committee was given authority to act on behalf of unit owners for the purpose of progressing repairs to the building. Further, the minutes of the AGM held on 24 April 2012 show that the committee was given authority to conclude a contract for repairs, and to raise and collect levies such as necessary to cover the costs of repairs.
[38] Accordingly, I reject Mr Bigio’s submission that the levies were not validly raised and are unenforceable. On the contrary, they were validly raised and are enforceable.
Should leave be given to the plaintiff to adduce evidence of the special resolution?
[39] In the light of my decision that the levies were validly raised, and are enforceable, it is not necessary to consider this issue. Nor is it necessary to consider Mr Bigio’s submission that in seeking to adduce the evidence, the plaintiff is signalling a separate, distinct claim, based on the 2010 Act, which is required to be properly pleaded and particularised. However, for completeness, I record that I would give leave, and set out my brief reasons for that conclusion.
[40] Clearly, leave is required for the evidence to be adduced.8 The affidavit was filed after the hearing was completed. As the Court of Appeal said in Elders Pastoral Ltd v Marr, the plaintiff must establish that adducing the evidence is in the interests of justice, will not significantly prejudice the defendants and will not cause a significant delay.9
[41] I am not satisfied that the defendants would be caused significant prejudice if the evidence were admitted. While evidence of ratification would defeat the defendant’s ultra vires argument, they would suffer that prejudice regardless. Pursuant to the special resolution ratifying the earlier levies, the levies could simply be raised again. For similar reasons, not allowing the evidence to be adduced would cause significant delay.
[42] Further, this is not a case where (if the levies were invalidly raised) the invalidity was because of the content of the earlier resolution, and as such the resolution would remain invalid despite later ratification.10 In the present case, the body corporate had the power to delegate the raising of levies to the body corporate committee. Any invalidity (and I repeat that I have not found any) was due to the process adopted, and this can be remedied by ratification.11
[43] Accordingly, in the event that it is necessary to do so, I would find that it is in the interests of justice, would not significantly prejudice the defendants, and would not cause significant delay to allow evidence of the special resolution to be adduced, and I would give leave accordingly.
Are the defendants required to pay the levies?
[44] It was not submitted that the defendants were not obliged to pay the ordinary levies, nor could it have been. The ordinary levies were properly raised and
invoiced, and the defendants have failed or refused to pay them.
8 See High Court Rules, r 7.7.
9 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA).
10 As, for example, in Wu v Body Corporate 366611 (2010) 10 NZCPR 917 (HC).
11 See Low v Body Corporate 384911 [2011] 2 NZLR 263 (HC) at [30] and [33] and Cabaret
Holdings Ltd v Meeanee Sports & Rodeo Club Inc [1982] 1 NZLR 673 (CA).
[45] I am also satisfied that the defendants are required to pay the scheme levies. The s 48 scheme binds all unit owners in Hobson Towers.12 Clause 4.2(h) of the scheme grants to the body corporate “such other powers and authority as may be necessary to enable it to fully and properly carry out the scheme, including the power
… to levy and charge Owners for the Cost of Repairs.” Clause 6.1 of the scheme provides that the body corporate is authorised to “levy and collect from each Owner from time to time such money as the Body Corporate deems necessary for undertaking, progressing or completing the Repairs.” Clause 6.1 goes on to provide that “for clarity the right to levy includes levies based on reasonable interim or estimated costings, the issue of several progressive levies, or to re-assess and vary levies in light of changing circumstances …”. Further, 6.3 provides that “any levy raised under this Scheme shall have the same legal status as a levy validly raised
under s 15 of the [1972 Act].”13
[46] The defendants have deposed that the s 48 application was not served on them. I have concluded that the defendants’ evidence in this regard is inherently improbable. Evidence is before the Court that the application was served on the defendants. A completed service authority in respect of unit 11C (signed by both defendants) authorised service of the application by way of delivery by courier to
38 Clarence Street, Devonport, with no personal receipt required. The documents were then provided to a courier company for service on that address, as noted in the courier company’s records. No notification as to non-delivery was ever received.
[47] I conclude that the defendants do not have an arguable defence that they were not served with the application for the scheme.
Do the defendants have a counterclaim or equitable set off?
[48] As noted earlier, it was submitted that the plaintiff owed the defendants (and other unit owners) a duty of care to inform them that it intended to issue proceedings, and to invite the defendants to join in the proceedings. I accept that it
is arguable that the plaintiff owed the defendants such a duty. The plaintiff is in a
12 See Preamble C of the Scheme.
13 Section 15 of the 1972 Act required the body corporate to establish and maintain a fund, and to determine from time to time the amounts to be raised for the purposes of the fund, and to levy contributions on proprietors.
proximate relationship with its members, and a reasonable person would foresee that members might suffer harm if not informed of the pending litigation, and their right to join in it.
[49] However, I have concluded that it is not arguable that the plaintiff breached such a duty of care. While the defendants deny ever having received any communications from or on behalf of the plaintiff suggesting it would issue proceedings, I have concluded that the defendants’ evidence is inherently improbable, and lacking in credibility in the face of contemporaneous documents exhibited in the evidence for the plaintiff.
[50] Ms Joanne Barreto deposed that when she took over as secretary/manager of the body corporate in 2007, she received a Register of Owners, as required by s 54 of the 1972 Act. The register set out each owner’s preferred method for communication of matters concerning the body corporate. Ms Barreto deposed that it is the responsibility of owners to provide information necessary to keep the register up to date. Ms Barreto annexed a copy of the Register of Owners she received in March
2007. It shows the address for the defendants as “10 Tudor Street, Devonport”. The Register of Owners as at 17 November 2006 also recorded that address. Ms Barreto exhibited communications from Mr Gundry referring to this address, including the letter sent on behalf of the first and second defendants dated 7 April 2004 (later re- sent with a handwritten annotation signed by the first defendant, dated 14 April
2004).14
[51] Mr Patrick Burke (building manager of Hobson Towers) deposed that to the best of his knowledge and belief, every owner in Hobson Towers had provided the former secretary/manager of the body corporate with an address for the Register of Owners. He deposed that he was aware that the secretary used that address for the purpose of sending notices of general meetings, levy invoices, and copies of minutes.
[52] Notices of AGMs and EGMs and proposed agendas were sent to unit owners at the address set out in the Register of Owners. Minutes of meetings were also sent
to those addresses. The defendants were sent invoices for levies on the due dates to
14 See [6], above.
the Tudor Street address. As noted earlier, the defendants paid ordinary levies (up to the financial year ending 31 March 2013) albeit, on many occasions, late. They were sent notices for failing to pay levies on the due date to the Tudor Street address. Ms Barreto deposed that they never disputed the claim for interest on the basis of their not having received the original invoices.
[53] I am satisfied that it is reasonable to infer that the defendants did receive mail sent to 10 Tudor Street, Devonport. Indeed, such an inference is inescapable.
[54] I am also satisfied that the defendants were sent copies of notices of AGMs, EGMs and of minutes of such meetings. As noted earlier in this judgment, both the notices of meetings and the minutes refer to the proceedings. They record discussions about the claim against the Council, and they record settlement of the proceeding.
[55] Accordingly, I am satisfied that it is not arguable that the plaintiff breached its duty of care to the defendants. The defendants have provided nothing in support of their claim of a breach of duty beyond their bare assertion that they did not receive communications from the plaintiff. Here, the facts warrant a realistic and robust approach to the evidence.
Are the defendants entitled to share in the proceeds of the litigation?
[56] Section 54 of the 2010 Act provides:
54 Ownership of common property
(1) The common property is owned by the body corporate.
(2) The owners of all the units are beneficially entitled to the common property as tenants in common in shares proportional to the ownership interest (or proposed ownership interest) in respect of their respective units.
[57] Section 223 (a transitional provision) provides:
223 Ownership of common property
On the date on which this Act comes into force, the ownership of the
common property of each existing unit title development referred to in s 219 is vested in the body corporate for that unit title development.
An “existing unit title development referred to in s 219” is:
(1) … an existing unit title development means the stratum estates to
which a particular unit plan within the meaning of the Unit Titles Act
1972 relates where the unit plan—
(a) was deposited for the commencement of this Act; and
(b) has not been cancelled.
(2) An existing unit title development is a unit title development under this Act and the body corporate for the unit plan that relates to that unit title development is, for the purposes of this Act and for all other purposes, the body corporate for that unit title development.
[58] The defendants rely on the judgment of the Supreme Court in North Shore City Council v Body Corporate 188529 (Sunset Terraces).15 In that case, the Supreme Court considered whether a body corporate could sue for damages suffered by the common property in a multi unit building when the common property was not owned by the body corporate. The High Court and Court of Appeal had held that the body corporate could pursue a claim in respect of the common property on behalf of unit owners, and could recover damages on behalf of unit owners who were not parties to the proceeding. The Supreme Court said:16
The foundation for a body corporate’s ability to sue in circumstances such as the present is s 13 of the Unit Titles Act 1972. Section 13(1) provides that a body corporate shall be capable of suing and being sued in its corporate name and of doing and suffering all that bodies corporate may do or suffer. Section 13(2) provides that, without restricting the generality of subs (1) the body corporate may sue for and in respect of damage for injury to the common property caused by any person, whether that person is a unit proprietor or not.
With respect to the arguments advanced by the Council on this part of the case, it is hard to see why the body corporate cannot do what, on the plain words of s 13(2) it is empowered to do. The subsection is obviously intended to enable bodies corporate to sue on behalf of unit holders who, as tenants in common, own the common property. How the body corporate deploys the fruits of any successful proceeding pursuant to s 13(2) is not an issue that arises on the appeals, nor is it an issue which should lead to reading down of the plain terms of s 13(2). While the loss caused by damage to common property may be suffered by the unit owners rather than by the body corporate itself, s 13(2) allows the body corporate to sue for that loss on behalf of the unit owners.
[59] The plaintiff relied on the judgment of Venning J in Body Corporate 189855 v North Shore City Council (Byron Avenue), where the owners of two units had not
15 North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158, [2011]
2 NZLR 289 (SC) at [55].
16 At [57]–[58].
joined in the proceeding, or sued for loss in relation to their individual units.17
Mr Allan submitted that the owner of one of those units was not credited with his unit’s entitlement in the damages award to the body corporate for common property. However, it is clear from the judgment that the reason that owner was not credited with any of the proceeds of the claim was because he was the principal of the developer of the defective building and as such had responsibility for, and full knowledge of, the defects.
[60] I accept that the comments of the Supreme Court in Sunset Terraces together with s 54 of the 2010 Act, provide the defendants with an arguable claim to a share of settlement proceeds, proportionate to their ownership interest, despite the litigation agreement providing otherwise. If the defendants’ claim to be entitled to a share of the litigation proceeds succeeds, then the plaintiff’s action in not distributing settlement proceeds to them is arguably a breach of trust.
Is the plaintiff ’s claim a counterclaim or a set off?
[61] In Hamilton Ice Arena Ltd v Perry Development Ltd, the Court of Appeal defined equitable set off as:18
[A] right vested in a defendant facing a money claim by a plaintiff to use its own money claim against the plaintiff to absolve itself wholly or partially from its obligation to the plaintiff.
Set off is a shield, or defence. It does not have a separate existence in its own right, and cannot give rise to a judgment for the defendant against the plaintiff. Instead, it limits the plaintiff’s ability to obtain a judgment against a defendant.
[62] A counterclaim gives the defendant a right against the plaintiff that is independent of the plaintiff’s claim against the defendant. A counterclaim is for all purposes except execution an independent proceeding.19 The existence of a
counterclaim is not a defence to summary judgment.20
17 Body Corporate No 189855 v North Shore City Council HC Auckland CIV 2005-404-5561, 25
July 2008 at [369].
18 Hamilton Ice Arena Ltd v Perry Development Limited [2002] 1 NZLR 309 (CA) at [3].
19 See Laws of New Zealand Set-off and Counterclaim (online ed) at 1.
20 See Pemberton v Chappell [1987] 1 NZLR 1 (CA).
[63] I accept Mr Allan’s submission that the matters raised by the defendants raise issues which are substantially different from the question as to whether they are liable to pay the outstanding ordinary and scheme levies. There is no sufficient interconnection between the plaintiff’s claim and the defendants’ claim. There is no factual overlap between the two claims; the plaintiff’s ability to raise ordinary and scheme levies, and the defendants’ ability to bring a claim in negligence, are
distinct.21
[64] I note that as a result of this finding, it is not necessary to consider Mr Allan’s application to amend the statement of claim to include a pleading founded on cl 13 of the scheme, or Mr Bigio’s opposition to that application.
Should summary judgment be granted?
[65] The final issue to consider is whether the Court should exercise its discretion to not grant summary judgment, pursuant to r 12.2(1) of the High Court Rules. The relevant principles were set out by Associate Judge Matthews in Wroxton Finance Ltd v Walton, and may be summarised as follows:22
(a) There is only the most limited scope for exercising the discretion against entering summary judgment where injustice is not claimed.
(b)The Court will not allow the summary judgment procedure to be used oppressively.
(c) The residual discretion may be invoked to avoid oppression or injustice.
(d)The Court may consider the commercial purpose of a contract which a plaintiff seeks to enforce.
21 See Roberts Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 (HC) and Shearer v Krammer CA120/97, 22 September 1997.
22 Wroxton Finance Ltd v Walton [2013] NZHC 1560 at [30]–[33].
[66] In the present case, there is nothing that suggests that residual discretion should be exercised. In the circumstances, I am satisfied that the plaintiff is entitled to summary judgment against the defendants.
Interest and costs
[67] Before setting out the order for summary judgment, it is necessary to refer to
the plaintiff’s claims for default interest and indemnity costs.
Default interest
[68] In its statement of claim, the plaintiff claimed interest on the judgment sum at
10 per cent per annum, this being the specified interest payable by unit owners on unpaid levies, pursuant to a resolution passed at the AGM held on 24 April 2012. At the hearing, Mr Allan sought leave to amend the claim for interest, in relation to scheme levies.
[69] The amendment sought to increase the claim for interest on scheme levies to
18 per cent per annum, as from 11 September 2013. In support of the application, Mr Allan referred to clause 8 of the scheme, pursuant to which the plaintiff has authority to fund building repairs on such terms as the plaintiff determined, to on- charge interest and any other fees and expenses relating to any loan obtained for the repairs, and to charge defaulting owners for so much of the principal, fees, interest, costs and expenses as related to that owner’s unpaid levy.
[70] In a second affidavit, Ms Barreto deposed that in late May 2013, the body corporate was facing significant cash flow issues resulting from unpaid scheme levies and increased construction costs. The body corporate committee resolved to raise a further building levy and, on 27 August 2013, entered into a term loan facility agreement (“the term loan”) to fund the cash flow shortage. It also resolved to on- charge unit owners who had failed to pay scheme levies with the interest cost for the term loan. The interest rate under the term loan was 18 per cent (lower rate). The defendants and three other unit owners who have failed to pay scheme levies since September 2013 have been charged interest at 18 per cent for unpaid scheme levies.
[71] Mr Bigio did not dispute that clause 8 of the scheme authorises the plaintiff to borrow funds and to on-charge interest attributable to a defaulting owner’s unpaid levies. However, he submitted that the resolution to enter into the term loan and to on-charge interest suffers from the same procedural defects as the original resolution to raise levies; that is, they are ultra vires.
[72] Mr Bigio also submitted that the plaintiff had failed to give evidence of draw- down dates for the term loan, the basis of the allocation of the loan advanced to the defendants’ levy account, and the interest calculations on the account.
[73] I have found that the resolutions to raise levies were not ultra vires. For the same reasons, I reject Mr Bigio’s submission that the resolution concerning the term loan and interest charges are ultra vires.
[74] As to the allocation of the loan to the defendants, Ms Barreto deposes that
$150,000 was allocated against their unpaid levies out of $300,000 drawn down against the loan on 11 September 2013. She says that a further sum of $260,000 was drawn down on 24 September 2013, of which $98,000 was allocated against the defendants’ unpaid levies. A copy of the plaintiff’s ledger for the defendants’ unit records the allocation on 11 September 2013 of $150,000, but records two sums ($86,000 and $14,000) for 24 December 2013. I note that the amended statement of claim alleges that $100,000 was allocated to the defendants on this date.
[75] I am satisfied that leave should be given for the statement of claim to be amended so as to claim 18 per cent interest on the term loan (as attributed to the defendants’ unpaid levies) for those periods where interest on the term loan has been charged at that rate. I am also satisfied that the resolutions concerning the loan and interest are not ultra vires, and the plaintiff is entitled to claim that interest. However, I accept that the plaintiff should provide further evidence as to draw downs on the loan, the basis of allocation to the defendants’ unpaid levies, and the calculation of interest.
Indemnity costs
[76] In its resolution of 24 April 2012, the body corporate also resolved that all costs and expense incurred in recovering unpaid levies from a defaulting proprietor were to be charged to that proprietor. Clause 7.3 of the scheme provides that an owner who fails to pay a levy “shall be liable for any losses and for all associated and additional costs, expenses and disbursements resulting from such non-payment (including all costs incurred by the Body Corporate in attempting to recover the outstanding levy and associated costs).”
[77] The plaintiff therefore seeks costs in relation to this proceeding on an indemnity basis. An affidavit has been sworn by Ms Credin, annexing invoices totalling $61,482.19, for attendances up to 7 March 2014.
[78] Mr Bigio again submitted that the resolution to charge all costs was ultra vires. For the reasons already set out, I reject that submission and find that the plaintiff is entitled to costs on a solicitor-client basis. Further, I am satisfied that the costs charged up to 7 March 2014 are reasonable.
Result
[79] I order that the plaintiff is entitled to summary judgment against the first and second defendants in the sum of $232,497.64 (being the total of the sums set out at [18] above).
[80] The defendants are ordered to pay interest on the ordinary levies (in total
$10,455.36) and debt collection costs ($1,877.25) from the date on which each instalment of the said levies was due to be paid until payment is made (including after judgment).
[81] The defendants are ordered to pay interest at 10 per cent on the scheme levies (totalling $220,165.03) from the date on which each of the levies was due to be paid, until 11 September 2013.
[82] The defendants are ordered to pay interest at 18 per cent per annum on the scheme levies as from 11 September 2013, until the date of payment, subject to the plaintiff providing evidence as to the dates of draw downs on the term loan, the basis of allocation to the defendants’ unpaid levies, and the calculation of interest.
[83] The defendants are ordered to pay reasonable solicitor/client costs relating to this proceeding to the plaintiff. The plaintiff ’s costs as charged up to 7 March 2014 are accepted as reasonable. The plaintiff is to provide evidence as to any costs after
7 March 2014.
Andrews J
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