Body Corporate 366567 v Auckland Council

[2019] NZHC 3260

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2014-404-000716

[2019] NZHC 3260

IN THE MATTER OF

“GORE STREET APARTMENTS”

BETWEEN

BODY CORPORATE 366567

First Plaintiff

AMER LIMITED & ORS
Second Plaintiffs

AND

AUCKLAND COUNCIL

First Defendant

CLARK BROWN ARCHITECTS LIMITED

(In Liquidation) Second Defendant

Cont…

Hearing:

9 December 2019

Appearances:

C E Lane for Plaintiffs

C Meechan QC, S C Price and C Fairney for First Defendant

Judgment:

11 December 2019

JUDGMENT OF LANG J

[on interlocutory issues]

This judgment was delivered by me on 11 December 2019 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

BODY CORPORATE 366567 v AUCKLAND COUNCIL [2019] NZHC 3260 [11 December 2019]

PM DEVELOPMENTS LIMITED (STRUCK OFF)

Third Defendant

EQUUS INDUSTRIES LIMITED
Fourth Defendant

MAPEI NEW ZEALAND LIMITED
Fifth Defendant

AQUASTOP LIMITED

Sixth Defendant

CHARLES NORAGER & SON LIMITED (In

Liquidation) Seventh Defendant

HOLMES FIRE & SAFETY LIMITED
Eighth Defendant

FIREPEL KIDD LIMITED
Ninth Defendant

MACDONALD    BARNETT     PARTNERS LIMITED

Tenth Defendant

HOLMES       STRUCTURES       LIMITED (DISCONTINUED)

Eleventh Defendant

CHENERY CONTRACTING LIMITED
Twelfth Defendant

BROOKFIELD CONSTRUCTIONS	(NZ)	MULTIPLEX LIMITED    (In
Liquidation)
First Third Party

DE BOER WATERPROOFING SOLUTIONS NV (DISCONTINUED)

Second Third Party

[1]This judgment deals with three interlocutory issues that have recently arisen.

Application by first defendant for particular discovery against the plaintiffs

[2]        The first defendant, the Auckland Council (the Council), seeks leave to file an application for particular discovery against the plaintiffs. Leave is required because the close of pleadings date has passed. The plaintiffs do not oppose leave being granted. I make an order accordingly.

[3]        The application for particular discovery relates to an agreement entered into by the plaintiffs and known as a “Conduct and Distribution Agreement” (C & D Agreement). The agreement sets out the manner in which any funds derived from the proceeding will be disbursed. The Council seeks discovery of this document because it contends it will be relevant to any award of damages that may be made to compensate the plaintiffs for the GST component of the amount they will pay in undertaking the remedial work to their apartment complex. The plaintiffs object to discovering the document on the basis that it is not relevant to any of the issues raised by the proceeding.

[4]        In Schedule 3 to the current version of the statement of claim the plaintiffs summarise the damages they seek against the defendants to compensate them for the remedial works they will be required to carry out. These amount to $79.6 million. In addition, the plaintiffs seek damages of approximately $11.9 million for the GST they will pay in carrying out those works. During the hearing Mr Lane advised me from the bar that this sum represents the GST payable on the total amount of the remedial works for which compensatory damages are claimed.

[5]        The Council’s concern lies in the fact that the issue of GST is to be the subject of evidence to be given at trial by Mr Graeme Carruthers, a tax expert to be called for the plaintiffs. His brief of evidence contains the following passage:

18. If the Court decides that compensation for repair costs, whether in respect of common property or otherwise, is payable to the body corporate as agent for the owners, I would expect the damages to be forwarded to the owners. The body corporate would then levy those owners on a GST inclusive basis for the cost of the remedial works. The body corporate must account to Inland Revenue for output tax on

those levies. That output tax impost negates the GST input tax arising when those monies are spent. This generates a GST neutral position for the body corporate and the body corporate does not enjoy any windfall.

[6]        On the Council’s behalf Ms Meechan points out that this passage sets out Mr Carruthers’ expectation that, if the Court decides that compensation for repair costs is payable to the body corporate as agent for the owners, he would expect the damages to be forwarded to the owners. She therefore submits that Mr Carruthers has brought the manner in which damages are to be distributed into focus as an issue in his brief of evidence. She submits the Court should not be required to proceed on the basis of Mr Carruthers’ expectation when the true position is likely to be set out in the C & D Agreement. This means that the C & D Agreement is relevant and should be discovered by the plaintiffs.

[7]        Whether or not damages are available to compensate the plaintiffs for the GST they will be required to pay on the remedial works will ultimately depend on the plaintiffs’ tax status. It is common ground that the body corporate is registered for GST and carries on a taxable activity in relation to the apartment complex. Any damages awarded to the body corporate in its own right will therefore be on a GST exclusive basis because the body corporate has the ability to recoup GST paid on remedial works through input credits.

[8]        If compensatory damages for the cost of remedial works were awarded to the body corporate as agent for the second plaintiffs as unit owners, I anticipate that damages could only be awarded for the GST component of the remedial works to the extent that the owners in question were not registered for GST and/or were not carrying on a taxable activity through the use of their units.

[9]        Some of the second plaintiffs may be registered for GST because they carry on a taxable activity, such as deriving rental income, through the use of their units. Like the body corporate, those plaintiffs would not be entitled to damages containing a GST component. Given that the current threshold for GST registration is $60,000, however, it is likely that not all of the unit owners who rent out their units will be registered for GST. Furthermore, unit owners who reside in their units on either a full time or part

time basis are unlikely to be registered for GST because they will not be carrying on a taxable activity.

[10]      The plaintiffs ultimately bear the onus of proof at trial. If the second plaintiffs, and/or the body corporate acting as their agent, seek damages containing a GST component they will need to provide evidence that they are not registered for GST and/or do not carry on any taxable activity using their units. In the absence of such evidence, I do not see how the trial Judge will be able to conclude this aspect of the claim for damages to have been proved.

[11]      Returning to the present application, I do not consider the manner in which the plaintiffs propose to distribute the fruits of their claim is relevant to the issue of whether they are entitled to damages to compensate them for the GST component of the remedial works. This means the plaintiffs are not required to discover the C & D Agreement.

[12]The application for particular discovery is accordingly dismissed.

Application by the plaintiffs to serve supplementary briefs of evidence

[13]      The plaintiffs seek leave to serve supplementary briefs of evidence by Mr Richard Fairhead and Mr David Klosser. Both of these witnesses have already served an initial brief of evidence and a supplementary brief of evidence.

[14]      The latest supplementary briefs deal with water penetration tests that were carried out on joinery from the plaintiffs’ apartment complex in September 2019. The tests were undertaken to ascertain whether the joinery in the building could be refurbished so that it could be used again when the remedial works are carried out. The evidence of both witnesses is to the effect that the joinery failed the water penetration tests. The plaintiffs wish to use this evidence to support their claim that the joinery will need to be replaced rather than reinstated.

[15]      The plaintiffs require leave to serve the supplementary briefs because the time has now passed for service of the plaintiffs’ evidence. Furthermore, in a minute dated

27 July 2019 I directed that the plaintiffs were not to serve any further supplementary evidence without the leave of the Court.

[16]      The Council objects to leave being granted on the basis that the time has come for the plaintiffs to cease serving supplementary evidence. The Council also contends it will be prejudiced in preparing for trial if it is now required to answer the material contained in the latest briefs of evidence.

[17]      I uphold the Council’s submission on this point. I consider the time has now well and truly passed for the plaintiffs to serve further briefs of evidence of this type.

[18]      The Council will no doubt be aware, however, that this may not be the end of the matter. If it calls evidence at trial to challenge the plaintiffs’ stance regarding the unsuitability of the joinery for re-use the plaintiffs are likely to be able to put the water penetration test results to the Council’s witnesses in cross-examination. As I understand the position the Council’s experts were present when the testing was carried out so I see no basis on which it could object to that being done.

[19]      I decline to grant the plaintiffs leave to serve the supplementary briefs of evidence.

Discovery issues

[20]      An issue has now arisen in relation to the adequacy of the plaintiffs’ discovery. This follows the filing and service of the plaintiffs’ eleventh affidavit of documents. This affidavit maintains litigation privilege in relation to several documents, including minutes of meetings of the body corporate held at a time when litigation was in prospect. Recently, however, the plaintiffs have also served a brief of evidence of a Mr Eades. This apparently annexes or refers to documents, including minutes of meetings of the body corporate, that include passages of those documents for which privilege is still maintained in the affidavit of documents. Not surprisingly, the Council seeks clarity as to whether the plaintiffs have waived privilege in relation to these passages.

[21]      This issue is to be remedied by the plaintiffs filing and serving a further affidavit no later than 19 December 2019 expressly confirming that they waive privilege in relation to the passages of the documents for which privilege was formerly asserted.

Costs

[22]      The plaintiffs have failed in their application to serve supplementary evidence, but the Council failed in relation to its application for particular discovery. Those were the only matters that were formally before the Court. In those circumstances there will be no order as to costs.

Lang J

Solicitors: