Body Corporate 68792 v Memelink

[2020] NZHC 594

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-96

[2020] NZHC 594

IN THE MATTER

of an application to appoint Receivers to a Trust, pursuant to the Court’s inherent

jurisdiction

IN THE MATTER

of the Court in its equitable jurisdiction

BETWEEN

BODY CORPORATE 68792

Applicant

AND

HARRY MEMELINK AND CISCA JOHNETTE FORSTER AS TRUSTEES OF LINK TRUST NO. 1

Respondents

Hearing:	On the Papers
Counsel:	A O’Connor for Applicant
Judgment:	20 March 2020

JUDGMENT OF CLARK J

[1]                  The applicant Body Corporate 68792, by its administrator Anthony Gambitsis, applies for leave to commence by way of originating application a proceeding in which orders are sought:

(a)appointing receivers of Link Trust No. 1; or, in the alternative,

(b)substituting and replacing the trustees of Link Trust No. 1 (the Trust).

[2]                  The ground for the without notice application for leave to commence the action by originating application is really the interests of speed. Specifically, the ground is

BODY CORPORATE 68792 v MEMELINK AND CISCA FORSTER AS TRUSTEES OF LINK TRUST NO. 1 [2020] NZHC 594 [20 March 2020]

stated to be that “it is in the interests of a general body of creditors that this proceeding be dealt with expeditiously by [the Court]”. The application is made in reliance on dicta in Bank of New Zealand v Rowley and Skinner as Trustees of the TPS Asset Trust.1

[3]                  In his memorandum filed in support of the application counsel states the application is being made “in some desperation” as the ongoing conduct of the trustee, Mr  Memelink,  and  the  non-payment  of  accruing  levies  is   “crippling”   the Body Corporate. The current debt to the Body Corporate in unpaid levies is said to now exceed $800,000.

[4]                  Mr Gambitsis was appointed as the administrator in October 2017. In his affidavit filed in support of the application Mr Gambitsis deposes as to:

(a)Mr  Memelink’s  lack  of  cooperation  within   a   short   time   of   Mr Gambitsis’ appointment and Mr Memelink’s persistent failure to comply with directions;

(b)Mr Memelink’s refusal to pay applicable levies;

(c)Mr Memelink’s pursuit of claims in the courts and Tenancy Tribunal and his accusations of dishonesty and illegality against Body Corporate officers, counsel, and Mr Gambitsis’ predecessor administrator;

(d)his (Mr Gambitsis’) belief that Mr Memelink will “[not] ever perform his responsibility as a trustee conducting a business to meet [the] lawfully accruing debts”.

(e)the “seriously perilous” situation for the Body Corporate as it does not have funds sufficient to maintain the already excessive insurance premium;

1      Bank of New Zealand v Rowley and Skinner as Trustees of the TPS Asset Trust [2012] NZHC 3540.

(f)his belief Mr Memelink appears to be continuing the property business as a bankrupt without the permission of the Official Assignee; and

(g)his doubt as to the validity of a deed pursuant to which a new trustee has been appointed and whether the Trust is complying with its legal obligations in that regard.

[5]                  I accept, unhesitatingly, Mr Gambitsis’ judgement that order must be brought to what he described as the “absolute chaos Mr Memelink brings to [his] business relationships” and that Mr Memelink’s performance of his responsibilities as a trustee should be the subject of judicial scrutiny. There is unquestionable need for expedition. But it is well-established the originating application procedure cannot be used simply as a shortcut for urgent cases.2

[6]                  The originating application itself is made under the inherent jurisdiction and  s 51 of the Trustee Act 1956. While some applications under s 51 of the Trustee Act have been permitted to proceed by way of originating application, as far as I have been able to determine they were cases not involving questions of disputed fact.

Particularised pleadings were not therefore necessary.3

[7]                  The High Court has observed that it is customary for proceedings involving the replacement or removal of trustees to be dealt with under pt 19 of the High Court Rules 2016. But the Court of Appeal has taken issue with the observation stating that applications under the Trustee Act are generally required to be brought under pt 18 of the High Court Rules and that the originating application procedure is not appropriate where factual issues are in dispute.4

[8]                  Mr Gambitsis cannot be certain what other assets and property the Trust holds. To his knowledge the Trust has a substantial rental revenue income but does not pay levies to any  of  the  three  body corporates  in  which  it  holds  units.  Nor  does  Mr Gambitsis believe there is a proper set of financial statements for the Trust or that there is any proper information detailing the assets and liabilities of the Trust. What

2      Hong Kong and Shanghai Banking Corp Ltd v Erceg (2010) 20 PRNZ 652 (HC) at [26].

3      See for example Re Mead [2019] NZHC 497 at [7].

4      Jones v O’Keeffe [2019] NZCA 222 at [51].

does seem to be indisputable is that Mr Memelink, through Link Trust No. 1, holds ownership of six of the 14 units comprising Body Corporate 68792 but has paid no levies since Mr Gambitsis’ appointment in 2017.

[9]                  Mr Gambitsis asks the Court to assist him as the Court appointed administrator, and assist the owners of the other units, by appointing two insolvency practitioners as receivers or substituted trustees. I understand Mr Gambitsis’ sense of urgency.

[10]              It is necessary, however, that the application for relief proceeds by way of statement of claim and statement of defence. As was the case in Hennessy v Hennessy,5 without detailed pleadings the issues, and the basis on which the respondents may contest their removal or the appointment of a receiver, are unclear.

[11]              As to BNZ v Rowley upon which the application relies, that judgment, as I read it, was the exercise of what Dobson J described as a “novel” jurisdiction in which BNZ applied for orders to place the defendant trusts into liquidation. The basis for the application was s 17A of the (now repealed) Judicature Act 1908, which enabled the Court to place an “association” into liquidation. The question was whether an association included a trust.

[12]              The decision and the dicta upon which counsel rely will have some relevance to the actual application for orders but I have not found it relevant to determining whether this ex parte application for leave to proceed by way of originating application should be granted. Although I have concluded the application must be declined, I propose to make orders that are intended to achieve the expedition Mr Gambitsis seeks and that I regard as vital.

[13]              Plainly, it is in the applicant’s interests to file and serve a statement of claim without delay. It is not necessary to timetable that step. Rule 5.47 of the High Court Rules requires a statement of defence to be filed within 25 working days unless the Court otherwise orders. I do order otherwise.

(a)Any statement of defence must be filed no later than 12 working days

5      Hennessy v Hennessy [2018] NZHC 3119.

after the day on which the statement of claim and notice of proceeding are served on the defendants.

(b)A case management conference before me is to be convened within three working days after filing and service of the statement of defence.

(c)This judgment should be served, with the statement of claim, on the defendants so there can be no uncertainty about the timeframe for filing and service of a statement of defence.

(d)I bring to the applicant’s attention r 5.62 which, depending on the content of the statement of defence, may or may not apply. Again, it will be in the applicant’s interest to file any reply as soon as possible. A direction is unnecessary.

[14]              In concluding I observe that if a defendant does not file a statement of defence within the required number of working days a plaintiff may seek judgment by default,6 and the proceeding may be listed for formal proof without notification to the defendant.7

Disposition

[15]              The application to commence the proceeding by way of originating application is dismissed.

[16]I make directions in accordance with [13](a)-(c) above.

Karen Clark J

Solicitors:
Steve Gill Law, Lower Hutt for Applicant

6      High Court Rules 2016, 15.9.

7      Rule 15.9(2) as considered in Walls v Ulstermann Holdings Ltd (in Liq) [2019] NZSC 126 at [9]– [10].