Body Corporate 172108 v Manchester Securities Ltd

[2021] NZHC 365

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2009-404-6868

[2021] NZHC 365

BETWEEN

BODY CORPORATE 172108

Applicant

AND

MANCHESTER SECURITIES LIMITED

37th Respondent

CIV-2019-404-1445

BETWEEN

BODY CORPORATE 172108
Applicant

AND

MANCHESTER SECURITIES LIMITED

Respondent

Hearing:	11 September 2020
Appearances:	J B Orpin-Dowell and T J G Allan for Body Corporate 172108 No appearance for Manchester Securities Ltd (in liquidation) K Sullivan for R J Cummins
Additional submissions received:	16 September 2020
Date of Judgment:	3 March 2021

JUDGMENT OF POWELL J

[Application for joinder of R J Cummins as a party]

This judgment was delivered by me on 3 March 2021 at 3.30 pm pursuant to R 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

BODY CORPORATE 172108 v MANCHESTER SECURITIES LIMITED [2021] NZHC 365 [3 March 2021]

[1]                 Robert Cummins has applied pursuant to rr 4.50 and 4.52 of the High Court Rules 2016 in order to be joined as a party in the present proceedings either in substitution or in addition to the present respondent, Manchester Securities Ltd (“Manchester”) which is now in liquidation.

[2]                 The proceedings in issue form part of a protracted and complex dispute over remediation carried out in respect of Hobson Apartments, a 12-storey apartment block located in Hobson Street, Auckland. Manchester is the legal owner of Level 12, which is constructed separately to the rest of the building and is “aesthetically and physically different”, with the only common property on the 12th floor being “the lift and stairwell shafts, ducts and a small recessed area at the rear on the eastern side”.1

[3]                 The history of the matter has been succinctly summarised by Gwyn J in a recent judgment:2

As at October 2009, the building had suffered damage as a result of severe water ingress. The Body Corporate applied under s 48 of the Unit Titles Act 1972 for a scheme of remediation empowering it to carry out repairs under a single building contract to the whole of the complex, including both private and common property.

In 2010–2011, in three judgments, Heath J settled a remediation scheme giving responsibility for the repairs to levels 1 to 11 to the Body Corporate and the Level 12 repairs to Manchester.3 The outcome of those judgments was that a scheme was approved involving a single contract for the repair of the building (the scheme) Manchester would be able to appoint a joint project manager for the Level 12 work. Heath J, noting the unusual ownership structure, allocated costs on the basis that Manchester be required to contribute to the repairs of the common property on levels 1–11 as well as paying for all of the Level 12 work, but with its liability capped at 11.88 per cent of the total cost of repairs to the whole building.4

As the Court of Appeal subsequently described it, after the terms of the scheme were decided there were lengthy delays, escalations and disputes between the parties.5 Manchester had argued before Heath J that it ought to be allowed to immediately proceed to effect its Level 12 repairs, whereas the Body

1      Manchester Securities Limited v Body Corporate 172108 [2017] NZCA 527, (2017) 19 NZCPR 65 at [5].

2      Body Corporate 172108 v Flatbush Finance Ltd [2020] NZHC 3135 at [8]-[19] and [23]-[24].

3      Body Corporate 172108 v Meader (2011) 12 NZCPR 101; Body Corporate 172108 v Meader (No 2) HC Auckland CIV-2009-404-6868, 19 August 2010; and Body Corporate 172108 v Meader (No 3) (2011) 12 NZCPR 181.

4      Body Corporate 172108 v Meader, above n 3, at [49].

5      Manchester Securities Limited v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [8].

Corporate decided to defer its repair work pending trial or settlement of its proceedings against the Auckland City Council over the water damage.6

However, the Body Corporate commenced its construction programme in mid-2012 and its repairs were completed by the end of 2013. The Court of Appeal records that the total cost of the repairs to levels 1–11 was $8,131,002, a 41 per cent increase on the original estimate.7 At the time of hearing this application Manchester’s repairs were incomplete, but the Court of Appeal recorded that in 2016 the likely cost to repair Level 12 was estimated at $2.6 million, a 430 per cent increase from the original estimate.8 In addition to carrying out repairs, Manchester is also undertaking a commercial redevelopment of the property, converting the existing penthouse on Level 12 into three separate apartments. The evidence for FBFL is that the ongoing remediation works on Level 12 are being funded by Sage. Mr Sullivan, for FBFL, says there is no dispute that the Body Corporate is owed levies by Manchester, but arguably Manchester (and Mr Cummins as the new trustee) is owed money by the Body Corporate for the repair costs (the set-off). The final repair bill for Level 12 is not yet known. In those circumstances, he submits litigation over the Body Corporate levies is a waste of resources when the key issues are completing the remediation, ensuring the correct netting off of costs between the parties and getting the mortgagees repaid.

Following a dispute about what Manchester owed the Body Corporate under the scheme, the  Body Corporate  applied  for  variation of  the scheme.  On 3 March 2017, Fogarty J varied the scheme (Variation Judgment).9 The effect of the Variation Judgment was that the scheme of the Unit Titles Act 1972 was reinstated, and Manchester was ordered to pay its unit entitlement share of common property repairs. The Court held that Manchester was liable to pay the Body Corporate $513,247.60 (plus GST), of which $321,264.79 (plus GST) was payable immediately (the Judgment Sum).10

Manchester unsuccessfully appealed the Variation Judgment to the Court of Appeal11 and subsequently sought leave to appeal to the Supreme Court. The Supreme Court declined leave.12

Since April 2012, Manchester has refused to pay its share of corporate annual operating levies. It has also failed or refused to pay the Judgment Sum. Manchester has not disputed that ordinary body corporate levies are payable since 1 April 2012.

In June and July 2017, the Body Corporate issued two statutory demands for the Judgment Sum, together with ordinary body corporate levies and for Fogarty J’s costs judgment, respectively.

Manchester applied to set aside the statutory demands on the basis of a claimed set-off. By judgment of 16 February 2018, Associate Judge Doogue declined to set aside the demands (Statutory Demand Judgment).13

6      Manchester Securities Limited v Body Corporate 172108, above n 1, at [15].

7      Manchester Securities Limited v Body Corporate 172108 above n 5, at [8].

8 At [8].

9      Body Corporate 172108 v Manchester Securities Limited [2017] NZHC 329, [2017] BCL 142.

10 At [153].

11     Manchester Securities Ltd v Body Corporate 172108, above n 1.

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

13     Manchester Securities Limited v Body Corporate 172108 [2018] NZHC 169.

On 13 June 2018, the Court of Appeal dismissed an appeal by Manchester from the Statutory Demand Judgment.14 In doing so the Court acknowledged that Manchester had established an arguable set-off because Manchester paid for some work that would benefit the entire building.15

The Body Corporate commenced liquidation proceedings against Manchester on 12 April 2018. Manchester sought a stay of the proceedings, which was declined by the High Court on 14 December 2018.16 The High Court also found that Manchester was liable to pay the Body Corporate’s costs on an indemnity basis because its application was an abuse of process.17

On 20 December 2018, Manchester applied for leave to appeal to the Court of Appeal against the High Court’s refusal to issue a stay. Leave was granted on 29 March 2019 by Associate Judge Johnston.18 The Court of Appeal dismissed the appeal on 1 September 2019.19 The Court characterised the appeal as a collateral challenge to the Court’s earlier decision in the statutory demand appeal and an abuse of process.20 It ordered Manchester to pay the Body Corporate costs on an indemnity basis.

…

The Body Corporate’s application to liquidate Manchester under s 241(4)(a) of the Companies Act 1993 was heard on 10 December 2019. Associate Judge Johnston placed Manchester into liquidation on 11 March 2020 (the Liquidation Judgment).21 Manchester’s liquidators have consented to the continuation of this proceeding and indicated they will abide the decision of the Court.

Following the Liquidation Judgment, the Body Corporate made further demand for the amounts due and owing to it. A total of $1,039,671.03 was demanded (including interest calculated up to 11 March 2020) as follows:

(a)the Judgment Debt of $369,454.51 plus accrued interest of

$55,924.05;

(b)ordinary levies and accrued interest of $509,440.40; and

(c)        various costs judgments and accrued interest totalling $104,852.07. (citations included)

14     Manchester Securities Limited v Body Corporate 172108, above n 5.

15 At [42].

16     Body Corporate 172108 v Manchester Securities Limited [2018] NZHC 3307.

17     Body Corporate 172108 v Manchester Securities Limited [2019] NZHC 253.

18     Body Corporate 172108 v Manchester Securities Limited [2019] NZHC 569.

19     Manchester Securities Limited v Body Corporate 172108 [2019] NZCA 408.

20 At [5].

21     Body Corporate 172108 v Manchester Securities Limited [2020] NZHC 198.

[4]                 Against that background:

(a)In proceeding CIV-2009-404-6868, the Body Corporate has applied for orders under s 48(6) of the Unit Titles Act 197222 varying and modifying the scheme and Manchester has cross-applied under s 48(1) for variation of the scheme;

(b)In proceeding CIV-2019-404-1445, the Body Corporate has sought to appeal against an arbitral award in relation to a decision by an arbitrator that he had jurisdiction to consider issues between the parties.

[5]                 Mr Cummins argues that the application for joinder is straight forward, noting that generally applications for joinder by replacement trustees are “almost always unopposed”. In his view, the opposition in this case is misconceived, being more akin to a de facto strike out application. Specifically, Mr Sullivan on behalf of Mr Cummins argues that the prerequisites for an order under r 4.50 and/or r 4.52 of the High Court Rules are met on the basis that:

(a)Manchester Securities Ltd (in liquidation) (MSL) retired as the trustee of the Manchester Securities Trading Trust (The Trust). Because MSL is no longer the trustee of the Trust it has no legitimate ongoing interest in the proceedings.

(b)Mr Cummins was appointed trustee in place of MSL.

(c)At the time of the retirement and appointment of trustee the substantive proceedings were on foot, which were commenced as an application by the Body Corporate to amend the Court approved remediation scheme. The Body Corporate has commenced a second proceeding, now consolidated, which appeals interim  findings  of Mr Keene QC as arbitrator.

(d)Prior to retirement as trustee MSL opposed the Body Corporate's various applications and amended applications. It also filed an application to strike out certain aspects of the Body Corporate's application and made its own cross-application to vary the scheme.

(e)It is common ground that MSL's retirement as trustee came about in anticipation of its liquidation. That, in turn, came about because of action taken by the Body Corporate to recover outstanding levies and

22 There is no dispute that the application is appropriately made under the Unit Titles Act 1972 because the scheme was made under the 1972 Act and applies to any applications to vary it until it is completed, cancelled or discharged. Outside of the scheme, the general rules that govern the apartment complex are now those of the 2010 Act.

other debts on a purported "pay now argue later" basis in the knowledge that MSL had established genuinely arguable claims to equitable set-offs in an amount that exceeds the amounts claimed by the Body Corporate.

(f)Mr Cummins has a direct interest as the successor to MSL in all of the proceedings. It is 'necessary or desirable' that Mr Cummins be a party to these proceedings. There is no other party with the standing to oppose the Body Corporate's applications on behalf of the Trust or to pursue the Trust's cross-application.

(g)The opposition to this application is unreasonable and does not meet the high threshold of evidence that would be required to show that it is both unnecessary and undesirable that Mr Cummins be a party. Increased and/or indemnity costs are sought against the body corporate if the joinder application succeeds.

[6]                 In contrast, the Body Corporate disputes that the requirements of either rr 4.50 or 4.52 have been met. While it accepts there could be no issue in relation to joinder if legal title had passed from Manchester to Mr Cummins at the time of the purported change of trustees in March 2019, the decision not to do so makes the actual position quite different. In the Body Corporate’s view, Mr Cummins is attempting to create a situation where:

On the one hand, Manchester is responsible for any obligations to the Body Corporation in relation to the unit on level 12. In particular, he says Manchester and its liquidators are responsible for the payment of body corporate levies.

On the other hand, Mr Cummins can take the benefits of any rights Manchester holds against the Body Corporate. He says Manchester’s alleged set-offs or counterclaims can be raised by both himself and Flat Bush and that he can control the conduct of these proceedings (including by being joined as a party).

(citation omitted)

[7]                 However, in Mr Orpin-Dowell’s submission on behalf of the Body Corporate, the attempt to  become  the  trustee  without  taking  legal  ownership  means  that  Mr Cummins does not have a sufficient interest to satisfy either rr 4.50 or 4.52, and otherwise to the extent that there has been any form of legally valid assignment it still does not provide “a genuine basis for joining Mr Cummins as a party”. Instead it is submitted that the application amounts to an abuse of process that would otherwise mean that joinder is inappropriate. Mr Orpin-Dowell argues that the assignment as it stands amounts to a voidable disposition of assets, has no effect on Manchester’s rights

as they are not assignable and/or are otherwise unlawful, and is void as the purported assignment involves maintenance and champerty.

Discussion

[8]                 Having considered in detail the submissions of both parties, I am satisfied that Mr Cummins’s application as it stands is essentially premature.

[9]First, it does not meet the requirements of r 4.50 of the High Court Rules. Rule

4.50  provides:

In the case of death, bankruptcy, or devolution of an estate of a party to a proceeding by operation of law in circumstances where the complete settlement of all the questions involved in the proceeding is necessary, the court—

(a)must order that a personal representative, trustee, or other successor to the interest (if any) of that party be made a party to the proceeding, or be served with notice of it, in the prescribed manner and form on terms it thinks just; and

(b)may make orders it thinks just for the disposal of the proceeding.

[10]              As Mr Orpin-Dowell has submitted, none of the three identified circumstancesin r 4.50 apply in this case. Specifically, there has been no death, bankruptcy, or devolution of Manchester’s estate by operation of law.

[11]              Likewise, r 4.52(1) only allows for the making of an order that the proceeding be carried on by continuing parties and a new party:

… if, after a proceeding has commenced, there is an event causing a change or transmission of interest or liability (including death or bankruptcy) or an interested person comes into existence, making it necessary or desirable—

(a)that a person be made a party; or

(b)an existing party be made a party in another capacity.

[12]              As Mr Orpin-Dowell has pointed out, apart from the assignment there has been no relevant change or transmission of interest or liability for the purposes of r 4.52(1) and specifically:

(a)Legal ownership of all relevant trust property remains unchanged. It was previously held by Manchester as trustee. Despite its retirement, Manchester and Mr Cummins agreed that Manchester would continue to hold the legal title.

(b)No change has been made to the beneficial ownership of the trust property.

[13]              On this issue, I accept  that s 47 of the Trustee Act 1956 does not assist      Mr Cummins as it does not apply to “any estate or interest in any land that is subject to the trust” if the land is “under the Land Transfer Act 2017” as it is here. In any event, the deeds appointing Mr Cummins as the sole trustee expressly provided that the trust property was to remain with Manchester pending the transfer of legal title to him, an intention reiterated in the 2 June 2020 deed removing Manchester as a trustee. Given that position, I am satisfied that as Manchester remains in existence and continues to hold ownership of the property it remains properly joined into the proceeding. On the other hand, given the history of the litigation between the parties, the attempt by Mr Cummins to be joined as a party only in his capacity as a trustee amounts to an attempt to continue to participate in the proceedings while continuing to attempt to delay payment of those sums that go with the ownership of the property and which the Courts have consistently directed be paid. As such I have no hesitation in concluding the same is an abuse of process and given those circumstances, I do not consider it is necessary or desirable that Mr Cummins be made a party at this time.

[14]              Given  my  conclusion,  I  have  considered   whether   I   should   dismiss  Mr Cummins’s application but conclude that to do so would not assist the ultimate disposal of the proceedings.

[15]              First, it would mean that the issue of the amounts that the courts have consistently held are currently owing to the Body Corporate would continue to drag on unresolved, while at the same time it would not preclude a further application at a later time in the event that Mr Cummins was able to take legal ownership from Manchester. In this regard, it  is  relevant  that  Mr  Cummins  indicated  to  the  Body Corporate that he would take legal ownership immediately prior to the hearing. I note also that the Body Corporate has confirmed that it could not oppose joinder of Mr Cummins had legal ownership of the trust assets been achieved.

[16]              In those circumstances, I consider the best course is to give Mr Cummins the opportunity to effect the transfer of the trust assets to himself as trustee. As the parties agree, in the event he does so this will make him liable as trustee for those amounts currently outstanding from Manchester to the Body Corporate. Upon payment of those sums he would then appropriately be joined to the proceeding as the trustee of the trust. This would have the effect of ensuring that the amounts currently outstanding to the Body Corporate would not continue to distort the proceedings and enable instead the parties to move on to the substantive issues. In addition, as at that point Manchester will have no further role to play, it would be removed from the proceedings unless there is any genuine reason for it to remain.

[17]I therefore make the following orders:

(a)within 14 days of the date of this judgment:

(i)Robert Cummins is to register a transfer or transmission of the title to the unit on Level 12 from Manchester to himself (proof of which registration at LINZ is to be provided to the Court and the Body Corporate). The Body Corporate is to consent to that transfer as part of these conditions; and

(ii)he is to pay the Body Corporate all of the amounts owed by Manchester to the Body Corporate at the time of its liquidation, without deduction or set-off.

(b)In the event that Mr Cummins completes the matters set out in [17](a) within the time specified, he is to be joined as a respondent to both proceedings (CIV-2009-404-6868 and CIV- 019-404-1445) in place of Manchester Securities Limited (in liquidation).

(c)In the event that Mr Cummins does not complete the steps set out in [17](a) within the time specified, the application for joinder is dismissed.

(d)Leave is reserved for the parties to apply for any further orders necessary to give effect to the matters set out in [17](a).

(e)Costs on the application for joinder are reserved. A memorandum on behalf of the Body Corporate is to be filed within two weeks of the final outcome of the application being known. Mr Cummins will then have two weeks to respond following which I will determine the issue on the papers.

(f)In the event that Mr Cummins is joined as a party in accordance with [17](b) a telephone conference is to be convened within three working days to discuss timetabling for the hearing of CIV-2009-404-6868 and CIV-019-404-1445.

Powell J