Body Corporate 379933 v Form Property Group Limited
[2013] NZHC 2825
•25 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-003302 [2013] NZHC 2825
BETWEEN BODY CORPORATE 379933
Plaintiff
ANDFORM PROPERTY GROUP LIMITED Defendant
Hearing: 25 October 2013
Appearances: S Price for the Plaintiff
T Bowler for the Defendant
Judgment: 25 October 2013
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
25.10.13 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
BODY CORPORATE 379933 v FORM PROPERTY GROUP LIMITED [2013] NZHC 2825 [25 October 2012]
[1] The defendant (FPL) owns a commercial unit at 160 Grafton Road operated by the plaintiff (body corporate). The defendant is a member of the body corporate.
[2] On 19 October 2012 the body corporate served FPL with a statutory demand for payment of outstanding levies (first statutory demand). When payment was not forthcoming a liquidation proceeding was filed and served.
[3] On the day prior to the first call of that proceeding a defence was filed along with an affidavit of its director Mr Kelly.
[4] On 8 February 2013 the matter was called before me at the Auckland High Court. At the hearing FPL’s solicitor Mr Burrell provided an undertaking that the outstanding levies would be paid in full, together with disbursements and costs on a
2B basis, as sought by the body corporate.
[5] That same day the body corporate’s solicitors provided details of the outstanding levies and the 2B costs and disbursements that had to be paid in accordance with Mr Burrell’s undertaking. The total required was $13,860.52. This amount was paid by Mr Burrell into the body corporate solicitor’s trust account on
12 February 2013.
[6] Upon receipt of the payment the body corporate discontinued the first liquidation application.
[7] In acknowledging receipt of that payment on 12 February 2013 the body
corporate’s solicitors noted:
To be clear, this is not a settlement in a sense of a compromise by our client of any claims it has or may have against yours.
[8] By email Mr Burrell responded:
...re the proceedings as a whole, again noted + acknowledged...
[9] The body corporate says that following receipt of that payment there remained a sum of $4,967.85 in costs it had incurred in collecting the outstanding levies. These costs were, the body corporate says, additional to those which were
recovered in accordance with the Court’s award of 2B costs; that the payment by Mr Burrell met in part its costs of collection but was not sufficient to meet all of the body corporate’s costs that were incurred in collecting the levies from FPL. The body corporate’s position is that the discontinuance of the first liquidation application did not amount to a settlement or a waiver of these rights.
[10] The body corporate’s solicitors wrote to FPL on 1 May 2013 seeking payment of the additional costs. Mr Kelly responded refusing to pay the additional costs.
[11] The body corporate says it is now owed $5,032.85 and this was the amount for which its second statutory demand issued.
[12] The second statutory demand was served on 17 May 2013. The body corporate’s liquidation application was filed on or about 20 June 2013 and was given a first date for call on 9 August 2013. The liquidation application was served on 4
July 2013. The proceeding has been advertised and an appearance in support of the liquidation application has been filed by Land House Limited claiming a sum of
$13,234.82.
[13] On 8 August 2013 the day before the first call FPL filed an application for leave to file a defence out of time. Mr Kelly swore an affidavit in support.
[14] The application sought additional time to file a defence. It requested the Court to direct the matter be transferred to the Tenancy Tribunal which has jurisdiction to hear body corporate claims.
[15] Mr Kelly claims his debt obligations were settled by the undertaking given to myself on 13 February 2013 in connection with the first statutory demand. He said he paid the amount that was agreed to settle his obligations.
[16] Mr Kelly also challenges the calculation of additional charges. His primary concern, initially iterated by his affidavit filed in relation to the first statutory demand, is that the body corporate has sufficient funds to effect essential lift repairs
which affect the functionality of his occupation of the body corporate unit. He also complains about an absence of attention to fundamental services in particular to cleaning tasks. Mr Kelly is particularly critical of the actions and the manner of the body corporate’s manager.
[17] The Court does not propose to review those allegations of body corporate failures any further for in the Court’s view they are irrelevant.
Application for leave
[18] The first matter for consideration is the application of FPL for leave to file a statement of defence out of time. Grounds in support of that application include that there was no debt owing to the plaintiff or at least arguably there was not; that funds are available to meet the claim; that FPL is solvent; that the proceedings are an abuse of process; and there is good reason for the delay in filing a statement of defence.
[19] Consideration of an alternative ground on behalf of FPL namely whether the proceeding ought to be transferred to the Tenancy Tribunal, ought to be considered only if the evidence reveals a reasonably arguable case for leave. As matters presently stand the High Court proceeding is about an application for liquidation and involves solvency considerations.
[20] At the core of the defence of FPL’s confusion regarding its claims of no debt owing is FPL’s misunderstanding of the affect of the settlement reached for the discontinuance of the first liquidation proceeding. In short, whilst it is correct that FPL paid the sum including costs to obtain a discontinuance of that liquidation proceeding, those costs did not resolve FPL’s obligations in connection with its liability to the body corporate. The evidence is the body corporate incurred costs in addition to those covered by the scale 2B costs it agreed to pay.
[21] Whilst Mr Kelly may have believed his obligations to the body corporate were at the time of payment settled, in fact, as his lawyer acknowledged in the brief email exchange immediately prior to payment being made, it was not the case that the compromise was a settlement of all the body corporate’s claims.
[22] Mr Bowler for FPL submits an abuse of process has occurred because the second statutory demand issued for the purpose only of recovering additional costs outstanding to the body corporate’s solicitors.
[23] Pursuant to s 124(2) of the Unit Titles Act 2010 (UTA) a body corporate may recover as a debt due the amount of any unpaid levy together with any reasonable costs incurred in the collection of that levy. There was no corresponding provision in the predecessor to the UTA for no similar provision was contained which included an ability of the body corporate to recover also its reasonable costs incurred.
[24] It follows that a body corporate may recover its reasonable costs provided it sets out sufficient details of those to enable the Court to assess whether or not those costs are reasonable. Further, all costs must relate to the Court proceeding claiming the debt.
[25] Mr Kelly complains about some details provided on behalf of the body corporate’s solicitors to explain their charges. However those complaints are not particularised except in one respect and it is clear Mr Kelly is misconceived if he believes the particular in question is not related to recovery of FPL’s levies.
[26] Mr Bowler submits an abuse of process has occurred and that considerations of res judicata are relevant. In this respect he refers to the order made by myself when the first proceeding was discontinued. However, for there to have been res judicata or in that process an abuse of process FPL must be able to point to a previous decision of the Court by which it is said a particular issue as to costs has already been litigated.
[27] Mr Bowler refers to my minute dated 8 February 2013 in relation to the first liquidation proceeding. It recorded:
Mr Burrell [the defendant’s solicitor] provides his firm undertaking that the debt will be paid in full plus costs as sought in the plaintiff counsel’s memorandum no later than end of day 12 February 2013. On that basis adjourned to list 22 February 2013 at 10:00am with appearances excused if plaintiff agrees.
[28] Subsequently the Court was advised that the payment had been made and leave for granted to discontinue.
[29] There has been no previous decision of this Court determining any issue of
costs upon the body corporate’s claim pursued by its second statutory demand.
[30] In the Court’s view no question of res judicata or abuse of process arises.
[31] The general principles the Court will consider when determining whether to grant an application for an extension of time are summarised by Associate Judge Gendall in Foote v Kelterne Stud Limited1:
(a) An applicant must demonstrate an arguable defence.
(b)If an applicant is unable to pay its debts when due, it may mitigate against the granting of leave.
(c) Considerations of justice will apply.
(d) An explanation for delay needs to be provided.
(e) An applicant must demonstrate a convincing reason for granting of leave, a lack of prejudice and justification for the indulgence.
[32] Mr Bowler submits FPL has demonstrated an arguable defence. The Court does not accept this is so. The body corporate’s position as to recovery was preserved by an email exchange at the time payment was made. Mr Kelly may believe he has settled the debt. It is clear that at the time of payment his then lawyer accepted the payment was not a settlement of all obligations.
[33] Solvency involves consideration about whether a company can pay its debts when due. If they cannot then leave for them to file a defence may be denied.
1 [2012] NZHC 3407 at [19].
[34] By an affidavit filed on 24 October 2013 Mr Kelly attaches a copy of FPL’s
annual report for the period ended 30 September 2013. It was completed by:
Eden Epsom Tax Accountants Auckland
October 17, 2013
[35] On a page headed ‘Statement of Financial Performance’ there is reference to
‘forest management income’ of $112,500 and rental received of $11,700 as comprising almost the total income received.
[36] There was no reference to where the income came from and wages are not listed among expenses incurred. Nor has any provision been made for payment of income tax.
[37] Assets are listed to include, it is inferred, the unit at 160 Grafton Road.
[38] The body corporate’s Mr Woodworth has made enquiries concerning the contents of the report and about Eden Epsom Tax Accountants. He reports, inter alia:
(a) The accounts are not on letterhead and the names of the accountant or accountants who actually prepared those accounts have not been provided.
(b) A company called Eden Epsom Tax Limited was struck off on 9
October 2004.
(c) A Google search of Eden Epsom Tax shows the address for that property as 160 Grafton Road i.e. the same property where FPL’s unit is located. Mr Woodworth confirms that no tax or accounting business operates from and has not been operating from the property in the three years that he has been administrator there.
(d)Regarding the reference to fixed assets amounting to $543,045 a certificate of title search indicates one property only owned by FPL and that is the unit in question at 160 Grafton Road.
(e) A title search of that unit shows a mortgage to FM Custodians Limited and a caveat by Land House Limited, the creditor who has filed in support of the plaintiff’s application to liquidate FPL but which is not listed among creditors. The mortgage to FM Custodians Limited does not appear to be recorded in the FPL’s accounts as liabilities.
(f) In the accounts the property is valued at $543,045. A QV report records its capital value at 1 July 2011 to be $330,000. Another identical unit to that owned by FPL was recently sold for $335,000.
[39] There appears to be good reason to question the accuracy of the report, the true identity of its authors, and indeed the solvency of FPL.
[40] Mr Kelly provides two reasons for his delay in filing a statement of defence on behalf of FPL, which was due to be filed by 18 July 2013:
(a) That he was overseas until 17 July and whilst he had a very brief window of opportunity to file a statement of defence upon his return, due to jetlag this was delayed by a few days.
(b) On 23 July 2013 he was involved in a serious car accident.
[41] The evidence disclosed by Mr Kelly in support of these reasons does not really assist FPL. Mr Kelly returned to New Zealand on 16 July 2013 having spent the weekend away from New Zealand in Melbourne. Also, the motor vehicle accident he refers to occurred five days after that date by which the statement of defence was due.
Conclusions
[42] In the Court’s view FPL has not demonstrated an arguable defence. Also it is
the Court’s view it is unable to pay its debts.
[43] Although Mr Kelly told the body corporate that he would not pay the additional charges Mr Kelly did nothing once the statutory demand had been served on FPL. A response was required once the statutory demand was served. If such had indicated there was a challenge to liability for the debt then it is upon a setting aside application that consideration would have been given to disputed claims as to liability.
[44] Instead, and because of FPL’s lack of a response the body corporate has undertaken significant and costly steps to advance the matter to a consideration of its liquidation application. The application has been advertised; and a hearing has been required because of FPL’s late attempts to provide a defence.
[45] Some of the evidence provided as proof of solvency, and as reasons for delay, are very questionable.
[46] In those circumstances the Court is of the view that there is no justification for the indulgence of granting leave and that leave is accordingly refused.
[47] It follows that the Court need not give consideration to transferring the matter to the Tenancy Tribunal. The proceeding for this Court is one concerning a liquidation application and involves considerations not available for a Tenancy Tribunal’s purposes.
Other
[48] Mr Bowler advises FPL has paid a sum into Court equal to the amount of the statutory demand sum. It was paid on the basis that it should be available for payment of the statutory demand if the Court is of the view to make an order for liquidation.
[49] In the circumstances I have adjourned the matter for call in the High Court at
9:00am on Tuesday, 29 October 2013 at which time an order for liquidation will be made if such is still required by the body corporate.
Associate Judge Christiansen