Body Corporate 203344 v Flores - [2022] NZHC 3410

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2022-404-2199

[2022] NZHC 3410

BETWEEN
BODY CORPORATE 203344

Applicant

AND

RUBEN FLORES and ROSALINDA LAPITAN

First Respondents

ASB BANK
Second Respondent

THE SECRETARY OF THE TREASURY OF NEW ZEALAND

Third Respondent

Hearing: 14 December 2022

Appearances:

N S Skara for the applicant

No appearances for the respondents

Judgment:

14 December 2022

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 14 December 2022 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

BODY CORPORATE 203344 v FLORES and OTHERS [2022] NZHC 3410 [14 December 2022]

Introduction

[1] The applicant is the body corporate for a unit title development at 30 Westward Ho Road, Glen Eden, Auckland. The development is a complex of apartments. The first respondents are the registered owners of unit 18E1 in the apartment complex. The second respondent has a mortgage registered over unit 18E.

[2] The applicant is owed a substantial debt in relation to unit 18E. The debt arises primarily from unpaid levies for remedial works carried out by the applicant to the apartment complex.

[3] The first respondents were adjudicated bankrupt on 6 December 2012. Unit 18E then vested in the Official Assignee as part of the first respondents’ estates in bankruptcy.

[4] On 18 June 2013, the Official Assignee disclaimed, under s 117 of the Insolvency Act 2006, all rights, interests and liabilities that it and the first respondents had in relation unit 18E.

[5] The current debt owed to the applicant in respect of unit 18E is over $374,000 (including a recent levy for repair works beginning on 1 August 2022). Until the debt is paid, it will increase as a result of interest and recovery expenses. The debt will be recoverable from whoever is the current owner of the unit (under s 124 of the Unit Titles Act 2010).

[6] The second respondent’s mortgage over unit 18E secures a debt of approximately $60,000.

Orders sought by applicant

[7] The applicant applied, by originating application dated 15 November 2022, for the following:

1 Together with an accessary unit and a share in an access unit. For convenience, I refer to all of these as “unit 18E”.

(a)An order that unit 18E vest in the applicant under s 119(1)(b) of the Insolvency Act.

(b)An order granting permission under r 19.5 of the High Court Rules 2016 for the applicant to seek the above order by originating application.

(c)A direction under r 18.7 that no parties beyond the named respondents are required to be served.

[8] The application has been served on the respondents. No notices of opposition have been filed. The third respondent has sent a letter to the applicant’s solicitors stating that it does not intend to oppose the application or appear. The second respondent filed a memorandum saying it abided the decision of the Court. There was no appearance by or on behalf of the first…

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: [2022] NZHC 3410
Decision Date: 14 December 2022

CaseChat Overview and Summary

In the matter of Body Corporate 203344 v Flores, the applicant, a body corporate for an apartment complex, sought a vesting order for unit 18E in response to a substantial debt owed by the first respondents, the unit's former owners. The debt primarily stemmed from unpaid levies for remedial works carried out by the applicant. Following the first respondents' adjudication of bankruptcy and the Official Assignee's subsequent disclaimer of the unit, the applicant found itself without a practical means of recovering the debt, which continued to accrue interest and recovery expenses. The applicant, therefore, sought an order for the unit to vest in itself under section 119(1)(b) of the Insolvency Act 2006.

The central legal issue before the court was whether it was fair to make a vesting order in the applicant's favour, given the disclaimer of the unit by the Official Assignee and the absence of any steps taken by the first respondents to reclaim the unit. The court considered whether the applicant, as a party suffering loss or damage due to the disclaimer, was entitled to the vesting order. The court also had to consider whether the vesting order would affect the second respondent's interest as a registered mortgagee.

The court found that it was indeed fair to make the vesting order in the applicant's favour. The disclaimer had left the applicant without a person on whom it could call to meet its levies, and without the vesting order, the debt would ultimately be shouldered by other unit owners. The first respondents had taken no steps to have the unit vested in them and had voiced no opposition to the applicant's application for the vesting order. Furthermore, the applicant assured the court that the vesting order would not affect the second respondent's interest as a registered mortgagee.

The court ordered that the property at unit 18E, including the accessory unit and a share in an access unit, vest in the applicant on the condition that this vesting did not affect the interest of the owner of the registered mortgage. This outcome allowed the applicant to recover the debt owed by the former unit owners and ensured that other unit owners would not bear the financial burden of the unpaid levies.

Orders