Body Corporate 172108 v Manchester Securities Limited
[2022] NZHC 2982
•15 November 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2021-404-001066
[2022] NZHC 2982
BETWEEN BODY CORPORATE 172108
Plaintiff
AND
MANCHESTER SECURITIES LIMITED
(in liquidation) First Defendant
AND
FLAT BUSH FINANCE LIMITED
Second Defendant
AND
ROBERT JAMES CUMMINS
Third Defendant
Hearing: 17 October 2022 Appearances:
K P Sullivan for the Applicant
K M Wakelin for the Respondents
Judgment:
15 November 2022
JUDGMENT OF VAN BOHEMEN J
[application for particular discovery]
This judgment was delivered by me on 15 November 2022, at 11:00 am Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar Date……………………………..
Solicitors/Counsel:
K P Sullivan, Barrister, Wellington Reeves Lawyers Limited, Wellington Grove Darlow & Partners, Auckland
BODY CORPORATE 172108 v MANCHESTER SECURITIES LTD (IN LIQUIDATION) [2022] NZHC 2982
[15 November 2022]
[1] The plaintiff, Body Corporate 172108, applies for orders requiring particular discovery by the second and third defendants, Flat Bush Finance Ltd (Flat Bush) and Robert Cummins (the Defendants). The first defendant, Manchester Securities Ltd (in liquidation) (Manchester), has taken no part in the proceeding.
[2]Specifically, the Body Corporate seeks orders that:
(a)The Defendants provide affidavits stating whether documents within categories identified by the Body Corporate are or have been in their possession;
(b)The Defendants make all such documents available for inspection; and
(c)Claims to privilege and confidentiality made in an affidavit sworn by Mr Cummins on behalf of the Defendants be set aside.
[3]The Defendants oppose the application.
Relevant background
[4] The Body Corporate has been engaged in numerous proceedings involving the three defendants over the parties’ rights and liabilities in relation to building repairs to the Hobson Apartments situated at 196 Hobson Street, Auckland, particularly with respect to Unit 12A, which comprises the top floor of the building.1
[5] Manchester has been the registered proprietor of Unit 12A since 2006. When it took title to Unit 12A, Manchester was the trustee of the Manchester Securities Trading Trust (the Trust) and owned Unit 12A on behalf of the Trust.
[6] Sage Investments Ltd (Sage) has been a registered first mortgagee on the title since Manchester took title to Unit 12A. To date, Sage has been the primary funder of the remediation works to Level 12.
1 The background to and litigation history of the dispute between the Body Corporate and Mr Cummins, Manchester and Flat Bush is set out in Cummins v Body Corporate 172108 [2022] NZHC 774 [Second Caveat Judgment] at [12] – [68].
[7] Manchester is no longer the trustee of the Trust. In March 2019, Manchester resigned as trustee and Mr Cummins became sole trustee. However, at the direction of Mr Cummins, Manchester has not transferred title to Unit 12A to Mr Cummins.
[8] Mr Cummins is the sole director and shareholder of Manchester and the sole director and shareholder of Flat Bush.
The debt owed by Manchester to the Body Corporate
[9] Since April 2012, Manchester has incurred but has not paid levies issued by the Body Corporate.
[10] On 3 March 2017, Fogarty J varied the terms of a previously ordered remediation scheme for the Hobson Apartments and ordered Manchester to pay the Body Corporate the Judgment Sum of $321,264 (plus GST) (Variation Judgment).2 The Judgment Sum was the amount Fogarty J held to be Manchester’s share of the remediation costs for Levels 1-11 ($513,247.60 plus GST) less the estimated value of the amount Manchester could claim by way of set-off for its share of the costs of repair to the common property on Level 12.3 Fogarty J noted this was a provisional sum and was to be adjusted upon completion of the remediation of Unit 12A.4
[11] Since the Variation Judgment, the High Court and Court of Appeal have repeatedly ordered Manchester to pay the Judgment Sum, plus costs as ordered by the Courts, and have rejected Manchester’s claim that payment of the Judgment Sum can be deferred until the claim Manchester says it has for set-off has been determined.5
2 Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329 [Variation Judgment].
3 At [149] – [155].
4 At [157].
5 Manchester Securities Ltd v Body Corporate 172108 [2017] NZCA 527, (2017) 19 NZCPR 65 [Variation Appeal]; Manchester Securities Ltd Body Corporate 172108 [2018] NZHC 169 [Statutory Demand Judgment]; Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 [Statutory Demand Appeal]; Body Corporate 172108 v Manchester Securities Ltd [2018] NZHC 3307 [Stay Judgment]; Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408 [Stay Appeal]; Body Corporate 172108 v Manchester Securities Ltd [2021] NZHC 365 [Joinder Judgment]; Cummins v Body Corporate 172108 [2022] NZCA 68 [Joinder Appeal].
[12] As acknowledged by Mr Sullivan, counsel for the Defendants, Mr Cummins has chosen to prioritise completing the redevelopment of Unit 12A over payment of Body Corporate levies, the Judgment Sum and other sums ordered by the Courts. Mr Cummins says any debt owed to the Body Corporate will be settled when Unit 12A is sold, once an appropriate point has been reached in the redevelopment, and if there is any residual liability to the Body Corporate.
[13] The Body Corporate says the total debt, including interest, due but unpaid by Manchester stood at $1,318,674.28 (the Manchester Debt) when the present proceeding was commenced. The Manchester Debt continues to increase as further levies fall due and interest accrues.
The present proceeding
[14]In the present proceeding, the Body Corporate has applied for declarations that:
(a) the assets of the Trust, including Unit 12A, stand charged on favour of Body Corporate to the extent of the Manchester Debt plus further debts and interest chargeable against Unit 12A; and
(b) the Body Corporate’s equitable propriety interest in the Trust’s assets ranks ahead of that of Flat Bush.
[15] In their statement of defence, the Defendants admit Manchester has not paid levies due from 1 April 2012 or the Judgment Sum and other sums ordered by the Courts. However, they also say Manchester has substantial cross-claims against the Body Corporate in excess of the amounts claimed by the Body Corporate. They also say Manchester was indebted to Flat Bush for the sum of $2,437,463, as recorded in an Agreement to Provide Additional Security, dated 19 March 2017, between Manchester and Flat Bush (Agreement to Mortgage), and under a general securities agreement (GSA) also dated 19 March 2017. They say that Manchester’s debt is secured by the Agreement to Mortgage and by an all-obligations loan agreement executed by Flat Bush and Manchester on 20 March 2017. For these reasons, the Defendants say that any equitable interest of the Body Corporate is subject to Flat
Bush’s equitable interest under the Agreement to Mortgage under which Manchester granted Flat Bush an unregistered mortgage over Unit 12A.
[16] The Body Corporate’s application has been set down for hearing at a five day fixture commencing 18 May 2023.
The priority dispute
[17] The second declaration sought by the Body Corporate seeks to resolve an issue in dispute between it and the Defendants, namely the respective priorities of the Body Corporate and Flat Bush equitable interests in the Trust’s assets. That question was considered but not determined in a judgment issued on 27 November 2020 in which Gwyn J dismissed an application by Flat Bush for the removal of a caveat registered against the title to Unit 12A by the Body Corporate on 6 December 2019 (Caveat Judgment).6
Discovery
[18] The present proceeding was commenced in June 2021. On 29 September 2021, Associate Judge Bell granted consent to the Body Corporate under s 248(1)(c) of the Companies Act 1993 to bring the proceeding and ordered the Defendants to complete standard discovery by 5 November 2021.7 In granting consent, the Associate Judge observed that the Body Corporate and Flat Bush were not ordinary unsecured creditors and that the contest between them was better resolved by the current proceeding than by requiring the parties to try to fit the dispute into the procedures under Part 16 of the Companies Act.8
[19] Associate Judge Bell recorded that Mr Allan, counsel for the Body Corporate was to write to counsel for Flat Bush and Mr Cummins setting out the scope of discovery and the categories of documents he expected the defendants to disclose.9
6 Body Corporate 172108 v Flat Bush Finance Ltd [2020] NZHC 3135, (2020) 21 NZCPR 622 [Caveat Judgment].
7 Body Corporate 172108 v Manchester Securities Ltd (in liq) [2021] NZHC 2580 at [5] – [8].
8 At [5].
9 At [8].
Body Corporate’s identification of documents for discovery
[20] On 29 October 2021, Mr Allan wrote to Mr Sullivan noting that, in accordance with Associate Judge Bell’s decision, r 8.7 of the High Court Rules 2016 applied. Mr Allan’s letter identified the particular documents the Body Corporate considered should be discovered as follows:
a.All the agreement(s), contract(s), deed(s), letter(s) of offer, and document(s), evidencing any agreement(s) between Flat Bush Finance Limited and any of the first and/or third defendants relating to the lending of money and/or financial support to any of the first and/or third defendants and/or the Manchester Securities Trading Trust; and
b.All payments/remittance advice, bank statements, ledger statements, trust account statements, correspondence and documents evidencing the advances said to have been made by Flat Bush Finance Limited to any of the first and/or third defendants, including but not limited to those advances described in Recitals A and B of the Agreement to Provide Additional Security dated 19 March 2017 between Manchester Securities Limited and Flat Bush Finance Limited (Agreement); and
c.All payments/remittance advice, bank statements, ledger statements, trust account statements, correspondence and documents, evidencing any payments to Flat Bush Finance Limited by any of the first and/or third defendants in repayment of the advances and/or loan(s) said to be secured by the Agreement; and
d.All the agreement(s), contract(s), deed(s), and document(s) evidencing any assignment of loan(s), advances and/or security between Flat Bush Finance Limited and/or Sage Securities Limited and/or the first and/or third defendants; and
e.All the agreement(s), contract(s), deed(s), and document(s) evidencing any agreement(s) as to priority between Flat Bush Finance Limited and/or Sage Securities Limited and/or the first and/or third defendants.
Defendants’ affidavit of documents
[21] Mr Cummins swore the Defendants’ affidavit of documents on 5 November 2021. In the affidavit, Mr Cummins said he had reviewed the documents in his possession or control that were “truly relevant to the issues before the Court in this proceeding”. The First Schedule to the affidavit listed the documents in respect of which the Defendants claimed neither privilege nor confidentiality. The Second
Schedule listed the documents in respect of which privilege was claimed. The Third Schedule listed the documents in respect of which confidentiality was claimed.
[22]The First Schedule listed:
a.A loan agreement dated 20 March 2017 between Flat Bush and Manchester and a loan agreement dated 29 July 2021 between Mr Cummins, the Trust, Flat Bush and Sage
b.Six accountants’ workpapers for the years ending 31 March 2016 to 31 March 2021;
c.“Accountants’ workpapers as above”;
d.The 29 July 2021 loan agreement between Mr Cummins, the Trust,
Flat Bush and Sage; and
e.A “Priority agreement” dated 29 July 2021 between Sage, Mr Cummins/the Trust and Flat Bush.
[23]The Second Schedule listed:
1.All email and other correspondence with the solicitors and accountants of [Flat Bush], [the Trust] or [Mr Cummins].
2.All email and other correspondence with Philip McGaveston, Director [Sage] and/or his solicitors, accountants or other advisers.
3.Redacted portions of documents listed in the first schedule.
[24]The Third Schedule listed:
1.All email and other correspondence with Philip McGaveston, Director [Sage] and/or his solicitors, accountants or other advisers.
2.Redacted portions of documents listed in the first schedule.
3.All bank statements and trust account statements of [Flat Bush], [the Trust], or [Mr Cummins].
4.All previous financial statements of [Flat Bush], [the Trust] and [Mr Cummins] other than those disclosed in other proceedings.
5.All ledger statements and accounting documents generated by the accountants of [Flat Bush], [the Trust] or [Mr Cummins] other than [the workpapers as disclosed in the First Schedule].
[25] Following the filing of the affidavit of documents, correspondence between Mr Allan and Mr Sullivan ensued.
[26] In a letter dated 29 October 2021, Mr Allan said the documents discovered were inadequate and the claims of privilege and confidentiality were not accepted. Mr Allan asked that full discovery of all relevant documents, including primary source documents be made, and identified particular documents to be discovered including the Priority Agreement dated 29 July 2021.
[27] In a reply dated 18 November 2021, Mr Sullivan took issue with the scope of the discovery sought and the legal basis for the Body Corporate’s equitable interest; asserted that no other documents would be useful but offered information about payments by Manchester to Flat Bush without disclosing relevant documents; asserted that the Priority Agreement was irrelevant and strictly confidential and said the email and other correspondence between Manchester and the Trust’s accountants was confidential, privileged and voluminous.
Second attempt to removing caveat
[28] Two days before Mr Sullivan’s letter, on 16 November 2021, Mr Cummins applied to remove the Body Corporate’s caveat registered against the title to Unit 12A; the same caveat Gwyn J had refused to remove when dismissing the application of Flat Bush in the Caveat Judgment.
[29] In a judgment dated 13 April 2022, I dismissed Mr Cummins’ application and awarded indemnity costs against him because I considered the application to be an abuse of process (Second Caveat Judgment).10
Body Corporate’s application for discovery
[30]The Body Corporate filed its application for discovery on 2 September 2022.
10 Cummins v Body Corporate 172108, above n 1, at [108] and [122] – [127]. Mr Cummins has appealed the award of indemnity costs.
[31] In its application, the Body Corporate seeks discovery of the five categories of documents identified in Mr Allan’s letter 29 October 2022, plus two further categories:
(a)All agreement(s), contract(s), deed(s), and documents(s) referring to the priority of mortgages affecting unit 12A, Hobson Apartments; and
(b)All accompanying document(s) referred to in any of the agreement(s), contracts(s), deed(s), and documents(s) referred to above.
Submissions of Body Corporate
[32] Ms Wakelin, counsel for the Body Corporate, recites some of the history of the litigation and difficulties encountered by the liquidators originally appointed for Manchester in obtaining copies of relevant records where Mr Cummins and Manchester’s solicitor and accountant had attempted to deny access to documents on the basis they were records of the Trust and not of Manchester as trustee.
[33] Ms Wakelin says the Body Corporate expects to see source documents that established the amount said to be owed to Flat Bush. The accountants’ workpapers are not source documents. As a minimum, there should be bank and loan statements to show the deposit of funds and repayments, if any, especially given the evidence that Sage, not Flat Bush, has been funding the Unit 12A redevelopment. Ms Wakelin says these documents are crucial given that, in the event of a sale of Unit 12A, there are unlikely to be sufficient funds to meet the claims of Sage, the Body Corporate and Flat Bush in full.
[34] Ms Wakelin points out that Mr Cummins’ affidavit of documents does not comply with rr 8.7, 8.15 and 8.16 of the High Court Rules. Ms Wakelin says the documents sought are relevant and proportional.
[35] Ms Wakelin refers to the dilatory and non-cooperative behaviour by Mr Cummins in failing to progress the remediation of Unit 12A, the failure by Manchester and Mr Cummins to comply with successive Court orders, Mr Cummins’ attempts to avoid liability on the part of Manchester and himself by Manchester resigning as trustee but Mr Cummins directing Manchester not to transfer title to
Unit 12A to him, as well as the difficulties encountered by Manchester’s liquidators. Ms Wakelin also points to recent advice from Mr Cummins that Sage wishes to withdraw from the project, despite repeated assurances to the Courts from Mr McGaveston, the director of Sage, and Mr Cummins that Sage was the funder of the repairs to Unit 12A.
[36] Given that background, and Mr Cummins’ consistent refusal to cooperate with the Body Corporate, Ms Wakelin submits that the Body Corporate has every reason to be sceptical about any information or assurances provided by or on behalf of Mr Cummins. Ms Wakelin says the Court should require Mr Cummins to provide proper discovery and swear, on oath, that he has provided all relevant documents.
Submissions of the Defendants
[37] Mr Sullivan acknowledges that Mr Cummins’ affidavit of documents does not comply with the High Court Rules. Even so, Mr Sullivan submits the orders sought by the Body Corporate are misconceived and should not be granted.
[38] Mr Sullivan says the application should be considered in the context of the substantive proceeding, which is moot. The declaration the Body Corporate seeks, that its equitable lien has temporal priority over Flat Bush’s equitable mortgage, is irrelevant because Sage and Flat Bush have both agreed that the Body Corporate is to be repaid first from any sale of Unit 12A, regardless of legal and equitable priorities.
[39] Mr Sullivan says Manchester’s financial statements and the accountants’ workpapers establish that Flat Bush has guaranteed a loan of $2 million from Sage to Manchester. The accountants’ work papers show the indebtedness of the Trust over time. In addition, the Body Corporate submissions ignore the “all-obligations” liability assumed by Manchester under the loan agreement executed on 20 March 2017, which extends to future financial accommodations made by Flat Bush for the benefit of Manchester. That includes Flat Bush’s guarantee of an advance of
$2 million by Sage to the Trust under a term loan agreement dated 22 August 2022.
[40] Mr Sullivan says the quantum of the debt secured by Flat Bush’s equitable mortgage is not in issue on the pleadings. Therefore, there can be no justification for the wide range of documents the Body Corporate seeks to discover.
[41] Mr Sullivan also says the Body Corporate’s assertion that it has a better claim than Flat Bush is misconceived. The right to subrogate to Manchester’s equitable lien over the assets of the Trust was inchoate until Manchester was insolvent and Manchester was clearly solvent on 19 March 2017 when it executed the agreement to mortgage with Flat Bush.
[42] Mr Sullivan says the Defendants also take issue with the delay between the correspondence between himself and Mr Allan in November 2020 and the filing of the Body Corporate’s application.
Discussion
[43] Too much of the hearing of the Body Corporate’s application was taken up with Mr Sullivan’s discussion of issues on which Mr Cummins would prefer the Court to focus rather than those before the Court on the Body Corporate’s application. Reading earlier judgments in the history of this litigation, it is apparent this tactic is not new. It has failed at every stage. Its continued deployment is a waste of the Court’s time.
[44] The Body Corporate’s application for discovery is not an opportunity to debate the merits or utility of the Body Corporate’s substantive application. Nor is the hearing an opportunity to rectify or explain the deficient affidavit of documents filed by Mr Cummins. Mr Sullivan’s acknowledgement of the affidavit’s inadequacy contrasts with his letter of 18 November 2021 seeking to justify Mr Cummins’ position.
[45] The Defendants’ complaints of delay by the Body Corporate are without merit. It is apparent the delay was caused by Mr Cummins’ attempt to set aside the Body Corporate’s caveat after Gwyn J had dismissed Flat Bush’s application to the same end.
[46] The simple facts are these. On 29 September 2021, Associate Judge Bell ordered standard discovery to be completed by Flat Bush and Mr Cummins. It follows
that discovery had to be in accordance with rr 8.7, 8.15 and 8.16 of the High Court Rules. The relevant provisions of those rules and pt 2 of sch 9 are set out in the Annex to this judgment.
[47] It is plain the affidavit of documents filed by Mr Cummins does not comply with the rules.
[48] Rule 8.7 requires disclosure of “the documents” that are or have been in a party’s control that respond to the criteria in paragraphs (a) – (d). That is, all documents that respond to the criteria, subject to documents already filed in Court or in the possession of the Body Corporate. It is not open to the Defendants to say they have disclosed sufficient documents for what they assess the Body Corporate’s purposes to be.
[49] The claims to privilege and to confidentiality in the Affidavit of Documents do not comply with rr 8.15(1)(e), 8.16(1)(b) and (c), 8.16(2) and the Listing and Exchange Protocol. In particular:
(a)The Second Schedule does not state the nature of the privilege claimed;
(b)The Third Schedule does not state the nature and extent of the confidentiality claimed;
(c)The group listing of documents for which confidentiality is claimed is not permitted under r 8.16(2);
(d)The description of the documents for which privilege is claimed does not comply with r 8.16(3);
(e)The group listing of documents for which privilege is claimed does not comply with cl 9 of the Listing and Exchange Protocol.
[50] The Body Corporate is content to exclude from discovery all correspondence between the defendants and their solicitors, irrespective of whether the documents are subject to solicitor – client or litigation privilege. Leaving that category of documents
aside, I agree that the rest of the claims to privilege and all claims to confidentiality are invalid and should be set aside.
[51] As to the substance of the Body Corporate’s application, it is axiomatic that the scope of discovery is to be determined by reference to the pleadings.11
[52] Issues of detail aside, it is apparent from the pleadings that there is no real disagreement between the Body Corporate and the Defendants that the Body Corporate has an equitable interest in the assets of the Trust with respect to the Manchester Debts, except the Defendants say:
(a)Manchester is not a net debtor to the Body Corporate because of the counterclaims Manchester asserts against the Body Corporate;
(b)Even if Manchester is a net debtor, the Body Corporate’s equitable interest has not crystalised because it has yet to be established that Manchester is insolvent;
(c)Even if Manchester is insolvent, the insolvency arose after 19 March 2017 when Manchester entered into the Agreement to Mortgage.
[53] For the purposes of discovery, the principal issues in contention are when the Body Corporate’s equitable interest arose and whether it has priority over the equitable interest of Flat Bush.
[54] Mr Sullivan says these questions can be determined by the fact Flat Bush’s equitable interest arose on 19 March 2017 and that, because Manchester was still solvent at that date, it follows that the Body Corporate’s interest arose later in time and
11 Chatfield & Co Ltd v Commissioner of Inlands Revenue [2016] NZCA 614, (2016) NZTC 22-084 at [21].
is subject to the Flat Bush equitable interest. On Mr Sullivan’s analysis, discovery need be directed only at establishing:
(a)that Manchester was a creditor of Flat Bush prior to 19 March 2017; and
(b)the nature and extent of Manchester’s liability to Flat Bush under the Agreement to Mortgage and the related agreements entered into on 19 and 20 March 2017.
[55] On Mr Sullivan’s analysis, anything else is irrelevant and outside the scope of discovery.
[56] The difficulty with that analysis is that Mr Sullivan is asking the Court to accept, for the purposes of discovery, the same contentions that were not accepted by Gwyn J in the Caveat Judgment.
[57] In the Caveat Judgment, Gwyn J recorded the positions of the parties as follows:
[40] Both sides accept that whichever party has the equitable interest that arose first will have priority, although that priority can be displaced if the other party has the better equity. It is evident that Manchester registered its caveat before the Body Corporate. To that extent, Manchester's interest is first in time. The Body Corporate says that is not the end of the matter, however, and submits that its equitable interest arose first in time, which should also be considered.
[58]Those positions are reflected in the current pleadings.
[59]Gwyn J went on to state:
[41] To establish that priority of the competing interests ought not to be determined solely on the basis of the time of registration, the Body Corporate relies on Mercury Geotherm Limited (in receivership) v McLachlan where Potter J set out a summary of the principles of determining priority of competing equities, which were subsequently endorsed and adopted by the Court of Appeal in Perkins v Purea. Potter J said:
“[140] The general principles are relatively straightforward. They are not in dispute and may be briefly summarised:
• The holder of the equitable interest that is first in time, all other things being equal, is entitled to priority.
• The burden of proof lies on the person seeking to deprive the holder of the earlier equitable interest of priority, that is, the person seeking to reverse the order of temporal priority.
• The overriding question is: Who has the better equity, bearing in mind the conduct of both parties and all other relevant circumstances?
• The conduct of both the first equity holder and the second equity holder must be considered; the whole conduct of each party is to be looked at.
• The Court can have regard to the conduct of the parties subsequent to the creation of the second equitable interest.
• In New Zealand the postponement of the first to the second equitable interest is not based exclusively on the doctrine of estoppel, but on a more general and flexible principle that preference should be given to what is the better equity in an examination of the relevant circumstances. The question involves general considerations of fairness and justice.
…
• Failure to lodge a caveat promptly to notify an equitable interest is just one of the circumstances to be considered in determining whether it is inequitable that the prior equitable owner should retain his priority.”
(footnotes omitted)
[60]Having considered the positions of the parties in further detail, Gwyn J said:
[56] … as the evidence and submissions before me have illustrated, the question of the priority of the Body Corporate’s equitable interest, vis-à-vis [Flat Bush]’s interest, is far from clear-cut. First, the Body Corporate has an arguable claim that its equitable interest was the first in time because:
(a)the Body Corporate has an arguable claim that its interest arose in 2012, when it first became a creditor of Manchester; and
(b)that argument is not obviously defeated by [Flat Bush]’s claim that Manchester was solvent until 2017. I agree with counsel for the Body Corporate that, in light of the omission of this ground of opposition from [Flat Bush]’s notice of opposition, and the Court of Appeal’s comment that a refusal or failure to pay may amount to insolvency, it is not possible at this interim
stage to reach a concluded view on [Flat Bush]’s assertion that it was solvent until sometime after 31 March 2017.
[57] Similarly, Manchester’s alleged right of set-off cannot be determined at this juncture.
[58] 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.
[61] Nothing of relevance has changed since Gwyn J’s decision. There is an arguable case that the Body Corporate’s equitable interest arose in April 2012 and has priority over the Flat Bush equitable interest, which, the Defendants accept, is based on the Agreement to Mortgage executed on 19 March 2017. I am no more able than Gwyn J to reach a concluded view on the Defendants’ assertion that Manchester was solvent until after 31 March 2017 or on the counterclaims asserted by Manchester.
[62] For those reasons, I cannot order discovery based on acceptance of the Defendants’ positions on those questions.
[63] As Gwyn J observed, and consistently with the principles set out in Mercury Geotherm,12 and approved by the Court of Appeal in Perkins v Purea,13 determining the respective priorities of the competing equitable interests is likely to require consideration of the conduct of the parties; that is, the whole conduct of the parties over the relevant period. Having regard to the principle recognised in Mercury Geotherm that preference should be given to the better equity and to considerations of fairness and justice, the Court will likely want to examine closely the circumstances in which Manchester granted a mortgage over Unit 12 A to its closely related company and, in which it entered into a suite of related agreements in connection with that mortgage, within weeks of Fogarty J’s Variation Judgment ordering Manchester to pay the Judgment Sum as a provisional sum, even if there was to be a later adjustment for the costs of repair to Unit 12A.14
12 Mercury Geotherm Limited (in receivership) v McLachlan [2006] 1 NZLR 258 (HC) at [140].
13 Perkins v Purea [2009] NZCA 541, (2009) 10 NZCPR 851 at [73].
14 Variation Judgment, above n 2, at [157].
[64] Because the conduct of the parties over the whole of the period of the dispute may be relevant to the determination of the respective priorities, it follows that documents relating to the conduct of the parties over that period with respect to the equitable interests asserted are relevant and should be discovered. For these reasons, and given the history of the proceedings, in particular the prevaricating behaviour of Mr Cummins and the entities he controls, I am satisfied the orders sought by the Body Corporate are appropriate. For the same reasons, I do not accept the submissions of Mr Sullivan on behalf of the Defendants.
Result and orders
[65] I grant the application by the Body Corporate for orders requiring particular discovery by the Defendants. However, I do not consider the additional orders sought by Ms Wakelin in her submissions necessary or appropriate. I also simplify the orders in the interests of clarity.
[66]I make the following orders:
(a)In accordance with rr 8.7, 8.15 and 8.16 and pt 2 of sch 9 of the High Court Rules 2016, the defendants are to provide discovery of the following documents:
(i)All documents evidencing any agreement between Flat Bush Finance Ltd (Flat Bush) and Manchester Securities Ltd (Manchester) and/or Robert James Cummins relating to the lending of money and/or financial support to Manchester and/or Mr Cummins and/or the Manchester Securities Trading Trust;
(ii)All payments/remittance advice, bank statements, ledger statements, trust account statements, correspondence and documents evidencing the advances said to have been made by Flat Bush to Manchester and/or Mr Cummins, including but not limited to the advances described in Recitals A and B to the Agreement to Provide Additional Security dated 19 March 2017
between Manchester and Flat Bush (19 March 2017 Agreement);
(iii)All payments/remittance advice, bank statements, ledger statements, trust account statements, correspondence and documents evidencing any payments to Flat Bush by Manchester and/or Mr Cummins in repayment of advances and/or loans said to be secured by the 19 March 2017 Agreement and related agreements;
(iv)All documents evidencing any assignment of loans, advances and/or security between Flat Bush and/or Sage Securities Ltd (Sage) and/or Manchester and/or Mr Cummins; and
(v)All documents evidencing any agreement as to priority between Flat Bush and/or Sage and/or Manchester and/or Mr Cummins.
(b)The above documents are to be made available to the Body Corporate for inspection in accordance with r 8.27 of the High Court Rules.
(c)Except for the claim to privilege for correspondence between the defendants and their solicitors, I set aside the claims to privilege and confidentiality made in Mr Cummins’ affidavit of documents sworn on 5 November 2021.
(d)Any claims to privilege or confidentiality are to be made in accordance with rr 8.15 and 8.16 and pt 2 of sch 9 of the High Court Rules.
Costs
[67] The Body Corporate is entitled to 2B costs. If the Body Corporate wishes to seek increased costs, or if the parties are unable to agree on costs, the parties may file memoranda of no more than four pages.
[68] Any memorandum by the Body Corporate should be filed and served by 5 December 2022. Any memorandum by the Defendants should be filed and served by 16 December 2022.
G J van Bohemen J
Annex: Relevant provisions of High Court Rules 2016
Rule 8.7 of the High Court Rules provides:
Standard discovery requires each party to disclose the documents that are or have been in that party’s control and that are—
(a)documents on which the party relies; or
(b)documents that adversely affect that party’s own case; or
(c)documents that adversely affect another party’s case; or
(d)documents that support another party’s case.
Rule 8.15 provides:
(1)Each party must file and serve an affidavit of documents that complies with this rule, subject to any modifications or directions contained in a discovery order.
(2)In the affidavit of documents, the party must—
…
(e)list or otherwise identify the documents required to be discovered under the order in a schedule that complies with rule 8.16 and Part 2 of Schedule 9; and
(f)state any restrictions proposed to protect the claimed confidentiality of any document.
Rule 8.16 provides:
(1)The schedule referred to in rule 8.15(2)(e) must, in accordance with that discovery order, list or otherwise identify documents that—
(a)are in the control of the party giving discovery and for which the party does not claim privilege or confidentiality:
(b)are in the control of the party giving discovery for which privilege is claimed, stating the nature of the privilege claimed:
(c)are in the control of the party giving discovery for which confidentiality is claimed, stating the nature and extent of the confidentiality:
…
(2)Subject to Part 2 of Schedule 9, documents of the same nature falling within subclause (1)(b), (d), or (e) may be described as a group or groups.
(3)The description of documents for which privilege is claimed under subclause (1)(b) must be sufficient to inform the other parties of the basis on which each document is included in a group under subclause (2).
(4) …
(5)The schedule need not include—
(a)documents filed in court; or
(b)correspondence that may reasonably be assumed to be in the possession of all parties.
Part 2 of Schedule 9 sets out the Listing and Exchange Protocol which prescribes the requirements for the group listing of documents.
Clause 7(1) of Schedule 9 sets out the format of document descriptions to be used in discovery and stipulates that the description of a document should state its document ID, date, document type, author, recipient, parent document ID (where applicable) and privilege category where claimed.
Clause 9 of Schedule 9 provides:
9 Privilege
(1)Parties must agree on any specific privilege requirements for listing and exchange;
(2)Documents for which privilege is claimed may be group listed in accordance with rule 8.16(2);
(3)Documents must be given a description in accordance with clause 7(1), unless the description discloses information contained in a communication for which privilege is claimed;
(4) …
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