Body Corporate 194481 v Mason - [2016] NZHC 2858

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-3001 [2016] NZHC 2858

UNDER the Companies Act 1993

IN THE MATTER OF

AUCKLAND ALUMINIUM JOINERY LIMITED (In Liquidation)

BETWEEN

BODY CORPORATE 194481
Applicant

AND

KAREN BETTY MASON AND RACHAEL MASON-THOMAS Respondents

On thepapers:

Appearances:

J A McMillan/A Stuart for Applicant
C A Murphy for Respondents

Judgment:

29 November 2016

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 29 November 2016 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules

…………………………………………………….
Registrar/Deputy Registrar

Solicitors:
Kensington Swan (J A McMillan/A Stuart), Auckland, for Applicant
Gregory Simon Law, Auckland, for Respondents

Counsel:
Cathy Murphy, Auckland, for Respondents

BODY CORPORATE 194481 v MASON AND MASON-THOMAS [2016] NZHC 2858 [29 November 2016]

[1] Auckland Aluminium Joinery Ltd held the Rylock franchise for aluminium joinery. In 2011 defects were discovered in apartments in the Phoenix Gardens, a unit title complex in Grafton Road, Auckland. Remedial work was carried out between September 2013 and March 2014. Auckland Aluminium Joinery Ltd supplied and installed aluminium joinery and glazing as part of the remedial work. The body corporate for Phoenix Gardens says that there were defects in the remedial work, including with the aluminium joinery and glazing supplied by Auckland Aluminium Joinery Ltd. The defects showed up apparently as early as April 2014. In February 2016, the body corporate instructed solicitors. They began writing to Auckland Aluminium Joinery Ltd in February 2016. Quantity surveyors instructed by the body corporate have estimated the total repair bill, including GST, consent and consultants’ fees, will be about $4.763m.

[2] In March 2016 Auckland Aluminium Joinery Ltd sold its business. On

23 September 2016 the body corporate’s solicitors wrote to the company setting out the body corporate’s claims and enclosing a draft statement of claim. On 6 October
2016 the shareholders resolved to put the company into liquidation. The respondents are the liquidators.

[3] The body corporate wants to inspect some of the records of Auckland Aluminium Joinery Ltd – those relating to the sales of assets, payment of liabilities, and insurance. The body corporate has applied for an order under s 256 of the Companies Act 1993 to allow it to inspect those records. It accepts that some documents may be privileged and it does not wish to inspect them. It will pay the liquidators’ costs on providing the documents.

[4] The body corporate needs leave under r 19.5 of the High Court Rules to proceed by originating application. The substantive application is straightforward and does not require full pleadings or the more extensive steps required in an ordinary proceeding. Leave is granted accordingly.

[5] The liquidators do not oppose the application. They abide the decision of the court. They have not consented under s 248(1)(c) of the Companies Act to the body

corporate beginning a proceeding against the company while it is in liquidation, but they accept that the body corporate is a contingent creditor whose claim is likely to require investigation. They…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2016] NZHC 2858
Decision Date: 29 November 2016

CaseChat Overview and Summary

In Body Corporate 194481 v Mason, the body corporate for Phoenix Gardens in Auckland sought an order to inspect certain records of Auckland Aluminium Joinery Ltd (AAJ) in relation to its business, assets, liabilities, and insurance. AAJ had supplied and installed aluminium joinery and glazing as part of remedial work for the body corporate, but defects were discovered in the work. The body corporate sought inspection of AAJ’s records to investigate potential claims against the company’s directors, insurers, and others. AAJ had recently sold its business and was in the process of liquidation, with Karen Betty Mason and Rachael Mason-Thomas as the liquidators.

The primary legal issues were whether the body corporate had sufficient grounds to inspect the records of AAJ under section 256 of the Companies Act 1993, and if so, what conditions should apply to such inspection. The body corporate argued that it had good reason to inspect the records to explore its recovery options outside of the liquidation, as the liquidators might lack the resources for extensive litigation. The liquidators did not oppose the application but objected to disclosing privileged documents.

The court noted that a creditor seeking inspection under section 256(1)(a)(ii) of the Companies Act needed to demonstrate a "good reason" beyond mere suspicion or fishing expeditions. The body corporate argued that it had a legitimate interest in investigating possible claims against others, which aligned with the principles of pre-commencement discovery under rule 8.20 of the High Court Rules. The court accepted that the body corporate had a tangible reason to inspect the records, given its interest in pursuing claims against directors, insurers, and potentially others.

The court granted the application, allowing the body corporate to inspect the requested records subject to specific conditions. These included the exclusion of privileged documents, the body corporate covering the liquidators’ costs for compiling and providing the documents, and the body corporate paying the liquidators’ scale costs for the application. The court reasoned that the body corporate had a legitimate interest in exploring its recovery options outside the liquidation, and that cooperation between the parties could lead to efficiencies and better use of resources.

Orders