Body Corporate 341188 v Kelly

[2016] NZHC 2230

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-785 [2016] NZHC 2230

UNDER	the Insolvency Act 2006
BETWEEN	BODY CORPORATE 341188 Judgment Creditor
AND	STEPHEN ROBERT KELLY Judgment Debtor

Hearing:	21 September 2016
Appearances:	T J P Bowler for Debtor in support T Bates for Creditor to oppose
Judgment:	21 September 2016
Effectivedate ofJudgment:	4 October 2016

ORALJUDGMENT OF ASSOCIATE JUDGE R M BELL (IN CHAMBERS)

Written version of this judgment delivered on 4 October 2016

(See paragraph [52])

Solicitors:

Legal Vision (T Bates), Auckland, for Judgment Creditors

Neilsons Lawyers (TJP Bowler), Onehunga, Auckland, for Judgment Debtor

BODY CORPORATE 341188 v KELLY [2016] NZHC 2230 [21 September 2016]

[1]      Mr Kelly has applied to set aside a bankruptcy notice.  Applications to set aside bankruptcy notices may be heard in court or in chambers.  I discussed this with counsel at the start of the hearing.  There was no objection to this matter being dealt with in chambers rather than in court.  The result of that is that any challenge against this decision is by review rather than by appeal to the Court of Appeal.

[2]      There are three broad grounds to Mr Kelly’s application:

(a)       The bankruptcy notice is defective as it is based on more than one judgment debt.

(b)The  court  should  set  the  notice  aside,  relying  on  the  inherent jurisdiction of the court to prevent an abuse of process.

(c)       He has a cross-claim which he could not set up in the proceedings in which judgment was given against him.

Background

[3]      The  creditor  is   the  body  corporate  for   a   unit   title  development   at

21 Hargreaves Street, St Mary’s Bay, Auckland.  There are four floors of apartments. Above the top floor there are future development units. A future development unit is a unit proposed for development at a later stage, which is shown as such on a staged unit plan.   Mr Kelly and Final Hargreaves Trust Company Ltd owned four future development units: 1, 5, 6 and 9.   As its name suggests, Final Hargreaves Trust Company Ltd is a trust company.   Mr Bowler confirmed that Mr Kelly and Final Hargreaves Trust Company Ltd owned the future development units as trustees.

[4]      The body corporate brought a claim in the Tenancy Tribunal against Mr Kelly and Final Hargreaves Trust Company Ltd for unpaid body corporate levies.   The Tenancy Tribunal granted limited relief - only $5,913.06, whereas the body corporate had  sought  $49,869.26.      The  Tenancy  Tribunal  accepted  the  submission  for Mr Kelly and the company that their liability for levies was limited under s 121(3) of

the Unit Titles Act 2010.   That provides that the owner of a future development unit is liable to pay contributions only from the date that the future development unit is in use as a place of residence or business or otherwise.

[5]      The body corporate appealed to the District Court.  On appeal, Mr Kelly and the company objected that the appeal was out of time.    The District Court Judge upheld that submission in a decision of 23 December 2014.1    The body corporate said that it had brought its appeal within time, given that the Tenancy Tribunal did not give it advice of appeal rights until some time after the date of the decision.  The District Court Judge held that time for appeal ran from the date of the decision,

rather than from the date of receipt of the advice of appeal rights.

[6]      While dismissing the appeal as it was out of time, the District Court Judge considered the merits.  He held for the body corporate that the adjudicator had erred in his interpretation of s 121(3) of the Unit Titles Act.  In the circumstances of the case, he held that the words “or otherwise” applied so as to make Mr Kelly and the company liable for the levies.  He also held for the body corporate on an alternative claim based on quantum meruit.  He did not order any costs on the appeal.

[7]      The body corporate appealed against the District Court decision.   Appeals from the District Court under the Residential Tenancies Act and Unit Titles Act are made only on a point of law.   Mr Kelly and the company did not cross-appeal. Venning J held for the body corporate on the question of time for appeal.2   Time for appeal ran only from the time when the body corporate received the notice of appeal rights, not from the date of issue of the decision.  He accordingly allowed the appeal

and remitted the case back to the District Court “to consider and give effect to the substantive merits of the appeal from the Tenancy Tribunal”.3   He awarded the body corporate costs plus disbursements.  They came to $16,567.00.  There was no appeal against that costs order.  It is a final decision and there has been no stay of execution.

It is one of the debts that the body corporate relies on under the bankruptcy notice.

1      Body Corporate No 341188 v Kelly DC, Auckland, CIV-2014-004-577, 23 December 2014.

2      Body Corporate No 341188 v Kelly and Final Hargreaves Trust Company Ltd [2015] NZHC

1647.

3 At [35].

[8]      The District Court Judge who had heard the appeal dealt with the case when it came back from the High Court.  He received memoranda from counsel.  Mr Kelly and the company submitted that there should be a rehearing so as to allow fuller argument.  The judgment of the District Court records that there was a submission under which the respondents accepted liability for the reasons in his earlier decision, but still wanted to be heard on quantum.  Evidence filed this morning shows that that is not quite correct. An affidavit (to which the body corporate did not take objection) has exhibited a memorandum filed on 5 August 2016, in which counsel sought a hearing on both liability and quantum.  Counsel sought the opportunity to argue the interpretation of s 121 afresh.   The District Court Judge did not order a hearing. Instead, he granted relief following the reasons that he had given in his earlier

decision of 23 December 2014.4     He gave judgment for the body corporate for

$38,343.82 plus interest and costs.  The total amount of the District Court judgment is $52,961.20.  That is the second judgment on which the body corporate relies in its bankruptcy notice. The total debt in the bankruptcy notice is $69,528.20.

[9]      There has been another proceeding between the body corporate and Mr Kelly and  the  company,  CIV-2014-303-1182  in  this  Court.    In  that  proceeding,  the plaintiffs are the body corporate and the owners of apartment 4G at 21 Hargreaves Street.  The defendants are Mr Kelly and the company as first defendants (as owners of  the  four  future  development  units)  and  also  the  owners  of  other  future development units (Allenby Group New Zealand Ltd, owner of units 2 to 4, and Social Impact Strategies Ltd, owner of 7 and 8). The statement of claim says that the defendants began development of their future development units without the consent of the body corporate.   The Auckland Council had given a building consent in September 2012.   They began their work on December 2012.   The defendants removed exterior walls on the fifth level and the adjacent roof area.   That was with a view to extending the area of the apartments into a balcony area.  As a result of that work, parts of the building were exposed to water ingress, and that caused damage to common property and unit 4G.   One consequence was that the body corporate’s insurer threatened to withdraw insurance cover.  The plaintiffs sued for three causes of action - breach of s 80 of the Unit Titles Act, negligence and nuisance.   They

applied for an interim injunction on 19 May 2014.  They gave an undertaking as to damages  on  the  normal  terms.    The  injunction  they sought  was  to  restrain  the defendants from carrying out any of the construction work to any part of the building until trial, from transferring any interest in the future development units to any other party so as to defeat any restraint on work, and to allow the plaintiffs or their agents to enter the units on level 5 to make level 5 watertight.

[10]     By a consent memorandum signed by all parties on 30 May 2014, the first defendants (that is, Mr Kelly and the company) and the third defendant, Social Impact  Strategies  Ltd,  gave  undertakings  which  provided  for  them  to  put  a temporary weatherproof protection on level 5 and also to secure a quote to shrink- wrap level 5.  They had stopped work, other than installation of the roofs, and they agreed not to transfer ownership of the future development units while remaining free to arrange refinancing.  Leave was reserved to apply further.

[11]     The body corporate applied to court for further orders.  Winkelmann J gave a decision on 26 June 2014.5   She had appointed a building expert to report on water ingress issues. That expert’s evidence was that there was not adequate waterproofing on level 5 to prevent water entering the building.  Construction had to stop to enable inspection of water ingress issues to be properly examined.  Damage also had to be assessed and remediated.   He recommended a shrink-proof membrane be placed around the scaffolding.

[12]     Winkelmann  J  recorded  that  the  plaintiffs  had  renewed  their  original application because of breaches of the consent orders by the defendants.  Although the defendants had undertaken initial waterproofing, they had not met timetabling orders to provide quotes and they had delayed implementing the shrink-wrap waterproofing solution.  There had been further leaks in the intervening period.  At [37] of her decision, she recorded that the defendants had agreed that they should stop work while the shrink-wrap was being put in place and while the expert would have  the  opportunity  to  undertake  further  inspection  to  identify  ongoing  water ingress issues and damage needing to be rectified.  The plaintiffs were not, however, satisfied with that proposal.  They wanted to have construction on the site stopped

pending the substantive hearing.  That was on the basis that the work being carried out by the defendants was sub-standard and there were health and safety concerns.

[13]     At [39] Winkelmann J took into account that a long-term stop-work would be a substantial interference with the rights of the defendants and on the evidence of the defendants that would cause them substantial loss and imperil finance for the project. She accepted the defendants’ case that they should carry out the shrink-wrapping, and rejected the plaintiffs’ proposal that they should do that work.  She made orders along the following lines:

(a)       the defendants  were to  reinstate  the temporary weather protection

(which had come undone);

(b)the defendants were to engage a specified contractor to shrink-wrap level 5 to prevent water ingress and to pay the contractors in full by the due date;

(c)       work on the site was to stop pending further order of the court;

(d)the shrink-wrap contractors were to attend the site twice weekly to maintain the shrink-wrap;

(e)      the  defendants  were  to  appoint  a  project  manager  with  suitable building qualifications;

(f)      there was a continuing restriction on the defendant from transferring ownership or interest in the future development units, subject to the ability to refinance and grant fresh security; and

(g)the stop-work would be lifted if the court was satisfied as to the weathertightness issues.

[14]     The matter came back before the court on 26 February 2015.  The stop-work order was discharged, but on condition that the court-appointed expert was to be allowed to attend group site meetings and to monitor water ingress and shrink-wrap

issues.  Leave was reserved to apply for further orders. Winkelmann J also gave case management directions.

[15]     It appears that little, if anything, has been done in that proceeding in the meantime - until the eve of this hearing.  This case has stimulated Mr Kelly, who has now filed a statement of defence and a counterclaim.

[16]     In  CIV-2014-404-3282  I  made  an  order  putting  Final  Hargreaves  Trust Company Ltd into liquidation on 18 March 2015.  The creditor in that case was a scaffolding contractor who was owed a relatively small sum of money, some $4,000. The effect of Final Hargreaves Trust Company Ltd being put into liquidation is that the body corporate’s claim against it has been stayed under s 248 of the Companies Act.

[17]     Another effect is that any proceedings by Final Hargreaves Trust Company Ltd are in the hands of the liquidator.   While Mr Kelly was a director of that company, his directorship gives him no power to bring proceedings in the name of the company after it went into liquidation.  Any causes of action by the Trust which owned the future development units are held by the trustees jointly. Any proceedings must be brought by both trustees jointly.   There is, so far, no evidence that Final Hargreaves Trust Company Ltd has relinquished its trusteeship or that any new trustee has been appointed in its place.

[18]     As a further development, Mr Kelly and the company no longer own the future development units.  They were transferred by a mortgagee in the exercise of its power of sale. Those transfers were registered on 19 February 2016.

Validity of the bankruptcy notice

[19]     There  is  authority  that  a  bankruptcy  notice  can  be  issued  for  only  one judgment debt.   That goes back to a decision of the English Court of Appeal in Re Low ex parte Argentine Gold Fields Ltd.6     Lord Esher MR gave two reasons.

First, he said that on the language of the statute, the Bankruptcy Act 1883, the

6      Re Low ex parte Argentine Gold Fields Ltd [1891] 1 QB 147 (CA).

bankruptcy notice could only issue for a single judgment debt, not for more.  Second, he said:

Another reason for coming to the same conclusion is that otherwise there would be taken away from the debtor a right that he undoubtedly has to satisfy one of the notices, or to raise a counter-claim, set-off or cross-demand to  it  and  so  prevent  it  being  used  for  the  presentation  of  a  bankruptcy petition.

[20]     As I understand that reason, a debtor presented with a bankruptcy notice which  is  based  on  more  than  one  judgment  may  wish  to  make  alternate  or inconsistent responses to the bankruptcy notice based on the different judgments on which the notice is based.  The debtor might wish to pay one debt but to challenge the other.  A debtor is entitled to comply with a notice without having to apply to the court, for example, by providing security for the debt or tendering payment.  On the other hand, if the debtor wishes to challenge the notice, an application to the court is required. A debtor should not be required to elect between not taking any steps when complying and at the same time have to make an application to the court.   The requirement to include one judgment debt only in the bankruptcy notice is to avoid

that embarrassment to the debtor.  Stout CJ followed that decision in Re Mills.7

[21]     The question came before the Court of Appeal in Edward v Maxted.8    The debtor took the point that the bankruptcy notice was based on three judgment debts. The Court said:9

We do not see Mills as being of assistance in the present case.  The three debts which were referred to in the bankruptcy notice were all costs orders in the same litigation and, in any event, the bankruptcy petition (and the adjudication) was based on only one costs order.   Given the nature of the debts, we do not consider that the Associate Judge erred in declining to set aside the bankruptcy notice because it related to three debts.

[22]     The Court of Appeal did not overrule Re Mills.  It simply recognised that the rationale for the decision in Re Mills did not apply in the particular case before it, and there was no reason for the Judge at first instance to set aside the bankruptcy

notice.      I took  a  similar  approach  in  Far  North  District  Council  v  Pollock.10

7      Re Mills (1913) 32 NZLR 801 (SC).

8      Erwood v Maxted [2012] NZCA 110.

9 At [60].

10     Far North District Council v Pollock [2014] NZHC 2473.

I referred to Re Low, but held that there was no prejudice to the debtor in that case because he was challenging his indebtedness on other grounds.

[23]     Fisher  J  took  a  slightly  different  course  in  Re  Ebbett  ex  parte  Fletcher

Merchants Ltd.:11

It seems to me however that the authorities to which Mr Winiata referred are distinguishable upon the basis that they were concerned with judgments entered in distinct actions.  I do not see how the debtor in a case such as the present one could be said to be in any way disadvantaged by having an ancillary interlocutory order for costs included in the same bankruptcy notice as the substantive judgment itself.   Quite to the contrary, it would be inconvenient, and would cause unnecessary expense to all concerned including the debtor himself (see the distinct filing fees for each bankruptcy notice request) if a multiplicity of bankruptcy notices were called for in a situation such as the present one.   I take the view that it is legitimate to include in one bankruptcy notice the sum paid with respect to a substantive judgment together with any ancillary interlocutory orders as to costs. That is supported by common sense and I can find nothing in the legislation or the authorities to the contrary.

I read the decision of Fisher J as effectively differentiating the case before him from the principle in Re Mills which was based on Re Low.

[24]     In my judgment Re Mills still stands as sound authority that a bankruptcy notice should be based on only one judgment debt.  Notwithstanding that, there may be cases where a debtor may not be embarrassed in the way contemplated in Re Low by two judgment debts having been combined in a single bankruptcy notice.  In that event, it is open to the court to refuse to set aside the bankruptcy notice because of the absence of any prejudice to the debtor.  That is the course I took in Far North District Council v Pollock.  The basis for not setting aside the bankruptcy notice is the discretion conferred on the court under s 418 of the Insolvency Act 2006.

[25]     Noting  the  rationale  in  Re  Low,  Mr  Kelly  says  that  he  wishes  to  deal differently with the two judgment debts in the bankruptcy notice.  He recognises that he cannot challenge the order for costs of this court when the body corporate succeeded on its appeal.  He seeks an extension of time in which to pay that sum. On the other hand, as to the District Court order, he wishes to have that part of the bankruptcy notice set aside in the court’s inherent jurisdiction.  For that, he relies on

the  court’s  inherent  jurisdiction  as  recognised  by  Master  Kennedy-Grant  in

Re Wise.12

Setting aside in inherent jurisdiction

[26]     That point leads to Mr Kelly’s second ground for setting aside.   In effect, Mr Kelly asks me to give him the opportunity to apply to the District Court to have the second decision of the District Court re-heard so as to establish whether liability was correctly found and judgment was correctly given.  In the memorandum filed for Mr Kelly in the District Court on 5 August 2015, counsel did not seek to challenge the finding of fact made in the first hearing, that the body corporate had received its advice of appeal rights only on the date stated by the agent for the body corporate. Instead, it wished to have the court hear fresh argument as to the issue under s 121(3) of the Unit Titles Act. To bolster its argument for re-hearing, the memorandum made the point that the body corporate had obtained an injunction stopping work on the development of the future development units, and said that was relevant to any liability in terms of s 121(3).  At this stage I cannot say whether the District Court Judge did or did not read that memorandum.  I assume in favour of Mr Kelly that he did not read it.   Even so, the District Court’s judgment of 28 August 2015 shows clearly that the judge did give reasons for imposing liability, relying on the reasons he had given in his judgment of 23 December 2014 as to why the future development owners were liable for levies in that case.

[27]     That judgment has been sealed.  There is no basis upon which the judgment can be re-called.  The District Court Rules do provide for that the court may re-hear a matter, and I presume that rule is based on similar grounds to the High Court Rules under which the court may order a re-hearing if that is necessary to avoid a miscarriage of justice.  Those rules exist primarily for cases where a party has failed to take a step in the proceeding – for example, not filing a statement of defence in time,  or  appearing  at  a  hearing.    In  this  case,  however,  Mr Kelly  and  Final Hargreaves Trust Company Ltd participated fully in the process throughout, and had legal  representation  throughout.    An  adverse  ruling  went  against  them  in  the judgment of 28 August 2015.  But they had a ready remedy for that.  Even though

they had not cross-appealed against the District Court Judge’s earlier decision of

23 December 2014 (they might not have because that ruling was obiter), they still had the opportunity to appeal against the decision of 28 August 2015.  The decision was on a point of law.  It turned on the interpretation of s 121(3) of the Unit Titles Act.  Given that there was a readily available remedy of appeal, it is understandable that any application for re-hearing should not be used to circumvent the rules for appeals.  The District Courts Act contains time limits within which appeals must be brought.  An application for re-hearing relying on a point of law is really in disguise an  attempt  to  side-step  the time limits  on  appeal.    In  this  case there  has  been considerable delay since the judgment  of 28 August 2015.   There has been no explanation for any delay.  It is inconceivable that time would now be extended in which to appeal from the District Court Judge’s decision.

[28]     I am of the clear view that the decision of the District Court Judge is final and must stand, for better or for worse.  I do not consider that there would be any useful purpose in referring the matter to the District Court to see whether the District Court Judge would wish to hear fresh argument on a point on which he had already given a considered decision.

[29]     This is not the kind of case for which the inherent jurisdiction of the court to set aside a bankruptcy notice is designed.   Cases such as Re Wise are suitable for occasions where a judgment has been entered in another court when a party has not been able to take any step in the proceeding and setting aside is required to remedy an injustice.  As a general rule in bankruptcy, the courts do not look behind final judgments of other courts.  The inherent jurisdiction, in cases such as In Re Wise, is an exception to that.  But it is not appropriate to use that discretion when there has been a final hearing given after the parties have been heard and a reasoned decision has been given in the light of evidence and submissions.

[30]     Accordingly, I rule against Mr Kelly on the second ground in his application. That brings me back to the first ground of his application.   Mr Kelly has not been embarrassed by the bankruptcy notice because he has no reasonable basis on which to apply to the District Court for a re-hearing.  I accordingly rule that he has not been

prejudiced by two judgments combined in the single bankruptcy notice.  I apply the discretion under s 418 of the Insolvency Act and I uphold the bankruptcy notice.

Mr Kelly’s cross claim

[31]     Under s 17 of the Insolvency Act, a bankruptcy notice may be set aside if the debtor satisfies the court that he has  a cross-claim against the creditor.   Under s 17(7), a cross claim is defined:

… cross claim means a counterclaim, set-off, or cross demand that –

(a)       is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay;  and

(b)      the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.

[32]     Courts  have  held  that  a  cross  claim  must  be genuine  and  triable.    That requires the debtor to demonstrate that he has a claim of true substance which he genuinely proposes to pursue.13   There is a reason for requiring the debtor to show a claim of true substance which he genuinely proposes to pursue.  If that test were not required, it would be easy to abuse s 17 by putting up spurious cross-claims which have no hope of success but are designed only to slow down the creditor.  There are certain hallmarks of such spurious cross-claims.   They tend to be for exaggerated sums of money or are based on obscure causes of action or far-fetched facts.  This is one such case.

[33]     I clear away one point at the outset.   I accept that the cross claim which Mr Kelly wishes to bring could not be brought in the proceeding in the Tenancy Tribunal in which the body corporate sought payment of its levies.   The District Court and the High Court have no more extensive jurisdiction on appeal than the Tenancy Tribunal.   The cross-claims I am about to discuss were not within the jurisdiction of the District Court or the High Court when they gave their decisions on

the appeals.

13     Sharma v ANZ Banking Group (New Zealand) Ltd  (1992) 6 PRNZ 386 (CA) at 389, and

Robertson v ASB Bank Ltd [2014] NZCA 597.

[34]     Mr Kelly seeks damages against the body corporate because he alleges that it is responsible for financial losses when work was stopped on the future development units after the orders were made against him and Final Hargreaves Trust Company Ltd in 2014.   On his case, the stop-work caused him and the company staggering financial losses.    He puts those losses at $1,988,588.69.    For that, he assesses the value of the future development units on completion.  He has produced valuations in support.  He deducts various costs including mortgages and building costs, and for good measure he adds on a further 15 per cent which he attributes to market growth since the proceedings were started.  While the body corporate has not had adequate opportunity to examine these costings in depth, Mr Bates was able to show that they are very overstated.   While Mr Kelly and the company owned only four future development units, claims are made for units which Mr Kelly and his company did not own.   Obviously they cannot claim for losses for units which they did not own. Clearly also, the 15 per cent for market growth is simply padding to the claim. Notwithstanding that, there is potential for such a claim to exceed the value of the judgment debts against Mr Kelly.

[35]     Mr Bates submitted that there was a lack of mutuality between the cross claim and the judgment debt.   For that, he relied on the dictum of Gallen J in Re Elvin ex parte Sandilands:14

There must be some coincidence, some nexus or correlation between the circumstances out of which the opposing claims arise, some relationship between the parties and this must to some extent be a pragmatic decision which needs to be considered in relation to each particular case.   I do not think that the decisions as to the nature of counter-claims, set-offs, or cross- claims in other contexts necessarily assist.  The purpose of the section is to deal with a lis which exists as between two comparable persons.  Clearly it would be unjust if one, having succeeded in obtaining a judgment against another, were able to enforce that without reference to other related claims which might substantially reduce the obligation to pay.

[36]     It is important not to read that out of context.  In that case, the creditor was an inspector of factories, relying on a Labour Court order for payment of wages.  The creditor was in effect acting as a form of statutory agent for unpaid employees.  The debtors  alleged  a  cross  claim  on  the  basis  of  personal  liability  of  the  Labour

Department  inspector.    Understandably,  in  that  case  Gallen  J  found  a  lack  of

14     Re Elvin ex parte Sandilands [1990] 3 NZLR 124 at 126-127.

mutuality.  Any liability of the Labour Department inspector could not be used to reduce the debtor’s liability for unpaid wages.  But in this case, the body corporate has obtained a judgment based on ownership of future development units and the cross  claims  alleged  by Mr Kelly  are also  based  on  ownership  of those future development units in respect of alleged actions by the body corporate.  For this case, I assume that there is the required mutuality.

[37]     There  are,  however,  obstacles  to  the cross claim.   At  the hearing  I was provided with a statement of defence and counterclaim to the amended statement of claim  in  the  proceeding  under  1182.    That  had  been  filed  in  court  only  on

20 September 2016.  That was notwithstanding the case management directions that Winkelmann J had given in February 2015.  There are two causes of action in the counterclaim.  The first is for breach of undertaking and the second is for abuse of process.

[38]     The first  is  based  on  the undertaking that  the  plaintiffs gave when  they applied for the interim injunction in May 2014.  As I understand Mr Kelly’s case, he says that there was no basis for the interim injunction being ordered.   There was no basis on which the body corporate could apply to stop work, and because he was required to stop work he suffered the crippling losses he has claimed.  He alleges that without any further orders being required, he can immediately look to the body corporate on its undertaking as to damages.

[39]     When a plaintiff applies for an interim injunction and gives an undertaking as to damages, he gives that undertaking to the court, not to the other party.  It is for the court to decide whether the undertaking should be enforced.  Before there can be any liability under the undertaking as to damages, an order by the court directing an enquiry into damages is first required.  The court has a discretion whether to order an undertaking.    Once the case has been heard on the final merits, and the case has gone against the plaintiff, an enquiry is invariably ordered unless there are special circumstances.

[40]     In this case there has not been a final hearing on the merits.  The case is still pending.  A failure on the ultimate merits cannot therefore be any basis on which

Mr Kelly could require the court to enforce the undertaking.   Instead, Mr Kelly seems to be saying that the injunction ought never to have been ordered – in other words, it was flawed from the outset.

[41]     A similar question arose in Usher’s Brewery Ltd v P S King & Co (Finance) Ltd.15    In that case, after an injunction had been discharged, the defendants applied for an enquiry as to damages.  Plowman J reviewed the authorities and said:

It is in my judgment established by the authorities that an inquiry as to damages will not be ordered in these cases until either the plaintiff has failed on the merits at the trial or it is established before trial that the injunction ought not to have been granted in the first instance.

In that case the Judge was not satisfied that the injunction ought not to have been granted in the first instance.   He adjourned the application until there had been a hearing on the ultimate merits.

[42]     In this case, there has not yet been any application to the court for an enquiry as to damages.  And until the court orders an enquiry as to damages, Mr Kelly does not have a cause of action based on the undertaking as to damages.   He does not have a current triable claim for that.  He may have a claim in the future, but to have a triable claim he must have a current cause of action.

[43]     Moreover, there is no point in his claim that the injunction ought never to have been ordered.   That becomes clear when regard is had to the way that the interim injunction proceeding progressed in this court.   Initial undertakings were given on 30 May 2014 by consent.  Mr Kelly can have no objection to undertakings which he freely gave.  He cannot contend that he was improperly restrained when he agreed  to  the  restraint.    Winkelmann  J’s  decision  of  26  June  2014  shows  that Mr Kelly and the other defendants consented to orders that they stop work on the exterior of the building and that they carry out the shrink-wrap work in accordance with the detailed quote.  She upheld that position over the contrary position of the plaintiffs who argued that they should carry out the shrink-wrap work themselves. Again, given the defendant’s consent to orders that they stop work until they carried

out the shrink-wrapping, Mr Kelly can hardly complain that the order ought not to

15     Usher’s Brewery Ltd v P S King & Co (Finance) Ltd [1972] 1 Ch 148, at 154.

have been made.  In short, his argument that he now has some right of action based on a flawed interim injunction decision is hopelessly misconceived.

[44]     There is a further objection aside from the absence of any court order for an enquiry  into  damages  and  the  absence  of  any  merits.    That  is  a  question  of Mr Kelly’s standing.   As I have mentioned, the causes of action are held by the trustees of the Final Hargreaves Trust.    That is both the company and Mr Kelly. Mr Kelly has sued in his own name alone.  He is not suing as a trustee.  There is nothing in his case to show that his causes of action have now vested in him as opposed to being held by the trust.

[45]     I add that Mr Bates showed other reasons for casting doubt on the merits of the claim.  He noted the exaggerated amounts claimed.  He also noted that there are real problems with causation.   He referred to an affidavit by Mr Peter Harrison showing that Mr Kelly and Final Hargreaves Trust Company Ltd attributed their inability to complete the work not to any restraints imposed by the order stopping work but on a lack of co-operation from a financier.  It is usually not appropriate to use  causation  arguments  for  peremptory  strike-outs,  but  the  evidence  does  go towards showing the weakness of Mr Kelly’s claims.

[46]     The  other  cause  of  action  is  for  the  tort  of  abuse  of  process.     The counterclaim pleads that the predominant purpose of the injunction proceedings was to prevent the first-named first defendant continuing with the development of the future development units and, as such, it amounted to an abuse of process which gave rise to a liability in damages.

[47]    The tort of abuse of process is distinct from the tort of malicious civil prosecution.   Both  torts  are recognised  in  the decision  of the Privy Council  in Crawford Adjustors v Sagicor General Insurance (Cayman) Ltd.16    In Robinson v

Whangarei Heads Enterprises Ltd,17  Gilbert J reviewed authorities in Australia and

16     Crawford Adjustors v Sagicor General Insurance (Cayman) Ltd [2013] UKPC 17, [2014] AC

366.

17     Robinson v Whangarei Heads Enterprises Ltd [2015] NZHC 1147, [2015] 3 NZLR 734.

England on the tort going back to Grainger v Hill18  and leading up to the Privy

Council’s decision in Crawford Adjustors.

[48]     In Crawford Adjustors, Lord Sumption said:19

The essence of the tort is the abuse of civil proceedings for a predominant purpose other than that for which they were designed.  This means for the purpose of obtaining some wholly extraneous benefit other than the relief sought and not reasonably flowing from or connected with the relief sought. The paradigm case is the use of the processes of the court as a tool of extortion,  by putting pressure on  the  defendant  to do  something wholly unconnected with the relief, which he has no obligation to do.

[49]     There is also a useful explanation of improper motive in the decision of the

High Court of Australia in Williams v Spautz. The majority said:20

To say that a purpose of a litigant in bringing proceedings which is not within the scope of the proceedings constitutes, without more, an abuse of process might unduly expand the concept.  The purpose of a litigant may be to bring the proceedings to a successful conclusion so as to take advantage of an entitlement or benefit which the law gives the litigant in that event.

Thus, to take an example mentioned in argument, an alderman prosecutes another  alderman  who  is  a  political  opponent  for  failure  to  disclose  a relevant pecuniary interest when voting to approve a contract, intending to secure the opponent’s conviction so that he or she will then be disqualified from office as an alderman by reason of that conviction, pursuant to local government legislation regulating the holding of such offices.  The ultimate purpose of bringing about disqualification is not within the scope of the criminal process instituted by the prosecutor.  But the immediate purpose of the  prosecutor  is  within  that  scope.   And  the  existence  of  the  ultimate purpose cannot constitute an abuse of process when that purpose is to bring about a result for which the law provides in the event that the proceedings terminate in the prosecutor’s favour.

[50]     That  is  helpful  for  understanding  the  purpose  of  the  body  corporate  in applying for the interim injunction in this case.   The body corporate has a responsibility for the maintenance and upkeep of building elements within a unit title development.21   That includes a duty to deal not only with common property but also building elements that are unit property.22    The body corporate and the owners of

apartment 4G had a proper interest in applying to the court to deal with the damage

18     Grainger v Hill (1838) 132 ER 769 (Comm Pleas).

19 Above n 14, at [149].

20     Williams v Spautz (1992) 174 CLR 509 at 646.).

21     Unit Titles Act 2010, s 138.

22     See the decision of the Court of Appeal in Wheeldon v Body Corporate 324525(Bridgewater Bay

Apartments) [2016] NZCA 257.

to the structure of the development at 21 Hargreaves Street.   There was a water ingress problem.   It is notorious that if water ingress problems are not addressed promptly the ongoing damage can be serious and enormously costly to repair. Prevention is clearly better than cure.  More seriously, the body corporate was also threatened with loss of insurance cover.  It was obviously responsible for the body corporate to take proceedings to address the matter.  The judgment of Winkelmann J shows that they tried to deal reasonably with Mr Kelly to resolve the problem before coming to court.  She held that that delay was responsible and did not count against the body corporate.  The objects for which the body corporate applied to court were entirely within the contemplation of the law – that is, to secure interim protection from tortious conduct which threatened to cause ongoing damage to the unit title development.  It is entirely possible that the members of the body corporate did not view Mr Kelly with any great favour and that they did wish that he would go away and stop creating more problems in their block of apartments.  Whether that amounts to the alleged ulterior purpose is another matter.  But, even if that were proved, that would  not  make  the  injunction  proceedings  an  abuse  of  process  based  on  the

authorities set out by Gilbert J in Robinson v Whangarei Heads Enterprises Ltd.23

The claim of abuse of process is also entirely misconceived.  It stands no show of success.

Outcome

[51]     I regard both causes of action as spurious and designed only to delay the payment of the judgment debts which are undoubtedly due to the body corporate. Accordingly, for the reasons I have given, I dismiss the setting aside application.

[52]     Time for applying for a review of this decision will not run from today, but from the date on which the written version of this decision is delivered.

[53]     I make an order for costs in favour of the body corporate against Mr Kelly under category 2 band B.  Counsel are to confer as to costs.  If they cannot agree

costs, memoranda may be filed.

23     Above n 17.

[54]     The result of this decision is that time for complying with the bankruptcy notice has now expired and time has started to run under s 13 of the Insolvency Act.

………………………............

Associate Judge R M Bell