Body Corporate 198245 v Wong

[2013] NZHC 1322

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-007992 [2013] NZHC 1322

BETWEEN  BODY CORPORATE 198245

Plaintiff

ANDY K WONG AND M Y CHONG First Defendants

PINE DEVELOPMENTS LIMITED Second Defendant

C L HUANG AND B BONG Third Defendants

CIV-2010-404-006184

BETWEEN  BODY CORPORATE 198245

Plaintiff

ANDCREATION INVESTMENTS LIMITED (IN LIQUIDATION)

Defendant

Hearing:                   15 March 2013

Appearances:           T J G Allan for Plaintiff

A J Steele for Defendants

Judgment:                6 June 2013

JUDGMENT OF ELLIS J

This judgment was delivered by Justice Ellis on 6 June 2013 at 11.00 am

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date……………………….

BODY CORPORATE 198245 v Y K WONG AND M Y CHONG [2013] NZHC 1322 [6 June 2013]

[1]      On  12  October  2012  I  gave  judgment  in  favour  of  the  Body Corporate plaintiff in these proceedings.  The effect of that judgment was that the defendants were liable for unpaid levies relating to the remediation of a building complex known as The Ridge.

[2]      But because Creation Investments Ltd (CIL, the defendant in CIV-2010-404-

006184)was in liquidation, the relief that was sought and ordered was simply that: (a)      The liquidators were to admit the plaintiff’s claim for unpaid levies; (b)      The plaintiff’s costs were to be a cost of the liquidation.

[3]      In my judgment I reserved leave to the plaintiff to file a further memorandum if further or consequential orders in relation to the liquidators were required.

[4]      Mr Allan subsequently filed a memorandum pursuant to the leave granted.  In it, he sought a further order that:

Judgment is entered for the plaintiff against Creation Investments Ltd (In

Liquidation) for the sum of $157,840 plus interest at 10% per annum from

10 May 2010 to the date of payment and costs in the sum to be determined by the Court failing agreement between the parties.

[5]      He also sought leave to amend his pleadings if that is regarded as necessary. [6]       There is also an outstanding dispute about costs.

[7]      This judgment deals with each matter in turn.

Amended order

[8] Mr Allan said that an order of the kind referred to at [4] above is required so that the plaintiff can take advantage of the execution processes in the High Court Rules, “including but not limited to registering a charging order and selling the property if needs be”. The “property” here is CIL’s interest in Unit F of The Ridge, which (subject to the issue noted below) is the only asset in the liquidation.

[9]      Mr Allan also pointed out that s 248(1)(c) of the Companies Act 1993 (the Act) confers discretion on the Court to order that proceedings against a company that is in liquidation may be continued or that a right or remedy over or against property of the company may be exercised or enforced.  He said that he had been unable to find any authority that indicated that judgment cannot be entered against a company that is in liquidation.

[10]     But the difficulties in my view are these.

[11]     First, there is the point that the proceeding involving CIL solely comprised an application under s 284 of the Act to have the Body Corporate’s claim admitted in the liquidation.  Although, for reasons that are not entirely clear to me, the company was named as the defendant, the proper defendants were necessarily the liquidators.[1]

To  make  an  order  now  against  the  company  itself  would  seem  to  me  to  be

inconsistent with the nature of the underlying proceeding.[2]

[1] I  note  from the  file  that  leave  was  apparently sought  and  granted  to  commence the  CIL proceeding under “s 248(1)(b)”, although that provision does not appear to have any bearing on the matter.  In any event it seems clear that it is customary (and a matter of common sense) to name the receivers as defendants in such applications.   See by way of example only Trinity Foundation Services (No 1) Ltd v Downey (2005) 9 NZCLC 263,917 (HC).

[2] I accept, however, that s 248 may be available to the company where a claim has been rejected but for some reason the plaintiff has failed to challenge a liquidator’s decision under s 284 in time: Sharnick Holdings (in liq) v Sharnick Investments (in liq) HC Auckland M457/IM03, 4

August 2003.

[12]     Secondly, it is difficult to see what would be achieved by making the order sought.  As Mr Scott said, it would not change the Body Corporate’s status as an unsecured creditor in the liquidation and, indeed, if it did effect such a change of status that would be highly problematic as regards other creditors.  In any event, and in light of Mr Scott’s point, it is difficult to see how the high threshold for the grant of leave under s 248(1)(c)(ii) (that it would be “inequitable” to deny consent) could

be met.[3]

[3] Re Red Robin Milk Bar Ltd [1968] NZLR 28.

[13]     Thirdly,  there  is  a  further  complicating  matter.     In  October  2009  the liquidators disclaimed CIL’s stratum estate in the freehold in Unit F pursuant to s 269 of the Act.  Notice of this was given to creditors, including Westpac and the Body

Corporate.

[14]     The legal effect of this disclaimer (the validity of which has not yet been formally or directly challenged) is that it brought to an end the rights, interests and liabilities of CIL in relation to the very property over which Mr Allan wishes to place a charge.  The stratum estate in the Unit has now vested by escheat in the Crown, subject to any order made by the Court under s 269(5)(b) of the Act.   While it is somewhat  strange  that  the  liquidators  have  nonetheless  continued  to  pay  the mortgage  on  the  Unit  (out  of  the  rental  proceeds)  and  to  meet  routine  Body Corporate levies, the reality remains that no challenge or other application in relation

to the disclaimer (whether under s 269(5)(b) or under s 284) has been made.[4]

[4] Although this was known at the time of the trial before me and the liquidator was cross- examined about it, there was no reference to the disclaimer in my judgment.  It seemed to me at the time to be something of a side issue (which was primarily raised in order to question the bona fides of the liquidators).

[15]     While I continue to have every sympathy for the position that the Body Corporate finds itself in, I consider that I am not able to make the further order sought.

Costs

[16]     The dispute about costs has arisen because the Body Corporate also seeks an award of either indemnity or increased 2C costs against all defendants.   The application for indemnity costs is based on the Body Corporate rules, which state (at rule 3.10):

Without prejudice to any other right or remedy available to the Body Corporate, the Body Corporate shall be entitled to recover from a defaulting proprietor any fees, costs or expenditure incurred in the recovery of the contribution of other lawful payment, including solicitor/client legal fees. All such monies shall be recoverable by the Body Corporate as if they were a levy.

[17]     It is trite that the rules of a Body Corporate constitute a “statutory contract”, but Mr Allan did not refer me to any authority about the interaction between the operation of such a contract and the Court’s overriding discretion as to costs under

the High Court Rules, which has been emphasised in some of the cases.[5]

[5] See for example Body Corporate 97010 v Auckland City Council (2001) 15 PRNZ 372 (CA).

[18]     But even a discretion that is ordinarily overriding can be fettered or guided by statute.   And here, it seems to me to be relevant that the provision in the Body Corporate Rules is not only consistent with, but contemplated by, the Unit Titles Act

1972. As Fisher J said in Godoy v Body Corporate 164980:[6]

[6] Godoy v Body Corporate 164980 HC Auckland M1906/98, 14 June 1999.

As I read s 34 [of the Unit Titles Act 1972], a body corporate can recover from a proprietor any expense incurred in taking any statutorily authorised step made necessary by that proprietor's breach of a rule. The act in the present  case  was  the  bringing  of  proceedings  and  pursuing  them  to completion along with the consequential defence of the proceedings brought by Mr and Mrs Godoy. There is also a contractual basis for recovery in the Body Corporate's own rules Rule 2.3(h) and the concluding words of cl 2.3 would have provided a contractual basis for indemnity costs had s 34 not been available. I am satisfied that there is a legal basis for indemnity costs I can see no basis in discretion or reevaluation for denying recovery of the sum claimed.

(emphasis added)

[19]     I note that a somewhat different approach was taken by Faire AJ in Body Corporate  319327  v  Gabrielle's  Trustee  Company  Ltd.  There,  the  plaintiff  also argued it was entitled to indemnity costs under the rules, under s 34. And under r 2.3(k) of the  relevant  Body Corporate Rules,  which  permitted  (inter  alia) the recovery of recovery of legal fees on a client/solicitor basis.

[20]     Faire AJ began by considering whether indemnity costs would have been granted under the rules and formed the view that they would not.  In the context of then considering whether that position would have been altered by virtue of s 34 or the relevant Body Corporate rule, he said:

In my view that does not provide a justification for the Court imposing an order for costs on the first or second defendants in this proceeding. How the Body Corporate exercises its powers pursuant to its Rules is a matter for it and not something that Court should impose one way or the other on any of the parties before it in this proceeding.

[21]     While that analysis may be technically correct it would not in my view be just if it were to be strictly applied in the present case and nor, in my view, would it give rise ultimately to a different outcome.  If the relevant Body Corporate rules and the UTA authorise the Body Corporate to recover its legal costs on an indemnity

basis following litigation of this sort it cannot be right that it should be required to

take separate  debt  recovery action  against  the  defendants.    Requiring  the Body Corporate  to  take  that  approach  would  not  be  consistent  with  the  overarching purpose of the High Court Rules.  That overarching purpose is, in any event, relevant to the exercise of the Court’s costs discretion.

[22]     I therefore order that the defendants are jointly and severally liable to pay the Body Corporate’s  solicitor  client  costs  as  set  out  in Appendix  4  to  Mr Allan’s memorandum dated 16 November 2012, subject of course to any alteration to those costs that may be made as a result of any Law Society revision process.

[23]     For the avoidance of doubt, and as regards CIL/the liquidators, those costs are to be a cost of the liquidation.

Rebecca Ellis J