Body Corporate 81012 v Memelink
[2016] NZHC 1008
•17 May 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2013-485-5775 [2016] NZHC 1008
UNDER the Insolvency Act 2006 IN THE MATTER OF
the bankruptcy of Harry Memelink
BETWEEN
BODY CORPORATE 81012
ClaimantAND
HARRY MEMELINK Judgment Debtor
Hearing: 13 May 2016 and 17 May 2016 Counsel:
C Matsis for the Judgment Creditor
H Memelink in person with Mackenzie Friend K Terpstra
R Stoop for supporting creditors Body Corporate 68792 and
Body Corporate 378945Judgment:
17 May 2016
ORAL JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The claimant (the Body Corporate) has applied for an order adjudicating Mr Memelink bankrupt. It was substituted as the creditor in a bankruptcy proceeding commenced by the Commissioner of Inland Revenue, by substitution order made on 24 June 2014. It relies on an act of bankruptcy by Mr Memelink in failing to comply with a bankruptcy notice served by the Commissioner on
19 September 2013.
[2] The Body Corporate’s application for adjudication pleaded that Mr Memelink was indebted to it in the sum of $85,203.55, comprised as follows:
(a) $38,153.38, being the amount of an award of the Tenancy Tribunal dated 26 June 2013; and
BODY CORPORATE 81012 v HARRY MEMELINK [2016] NZHC 1008 [17 May 2016]
(b) further unpaid levies and legal and professional fees totalling
$47,050.17.
[3] Mr Memelink filed a notice of opposition on 4 August 2014. It set out the following grounds:
(a) Mr Memelink was acting as a trustee of the Link Trust (No. 1) in his dealings with the Body Corporate;
(b)the Tenancy Tribunal award was irregularly obtained, and an appeal to the District Court was pending. A fixture for this appeal had been allocated for 3 November 2013;
(c) the granting of the application would render the appeal nugatory; (d) Mr Memelink is not insolvent and can pay his debts;
(e) reserving all rights, Mr Memelink intended to:
(i)make payment of the Tenancy Tribunal award on terms, including the granting of security;
(ii) make a proposal to his creditors under subp. 2 of p. 5 of the
Insolvency Act 2006;
(f) it would not be just and equitable to make an order of adjudication.
[4] Mr Memelink initially applied for a stay, or halt order, staying the Body Corporate’s adjudication claim pending the determination of his appeal to the District Court against the Tenancy Tribunal award. I declined to grant a halt, but adjourned the matter to 19 August 2014.
[5] On 19 August 2014, I rejected Mr Memelink’s contention that he was not liable to the Body Corporate because he had contracted with it as a trustee of a trust. I adjourned the matter to 16 September 2014, on the condition that Mr Memelink
pay the sum of $100,000 into Court or into an agreed independent solicitors’ trust account, those funds to remain in trust pending further order of this Court. I noted that Mr Memelink’s appeal against the Tenancy Tribunal award was due to be heard in the District Court in early November 2014. Mr Memelink was directed to pay the
$100,000 by 9 September 2014.
[6] Mr Memelink failed to pay the $100,000 by 9 September 2014, but he did pay the sum of $26,290, and at the hearing on 16 September 2014 he advised that arrangements had been made to have the balance of the $100,000 paid by
19 September 2014. I directed that the balance was to be paid by 22 September
2014, and that the case would be called again on 23 September 2014.
[7] Mr Memelink did not pay the balance of the $100,000 before the next call, but was granted a further short adjournment to complete the payment. When the case was next called on 26 September 2014 the money had been paid. The case was further adjourned on that date, on the basis that Mr Memelink would ensure that all levies falling due would be paid strictly on time.
[8] Further calls were made on 28 October 2014 and 11 November 2014. By the time of the hearing on 11 November 2014, no decision had been given on the appeal from the decision of the Tenancy Tribunal.
[9] At the 11 November 2014 hearing, Mr Memelink submitted that the issues raised on the appeal in the District Court might affect not only the $38,153.38 which the Tenancy Tribunal had awarded, but also his liability for further levies falling due after the date (31 March 2013) to which the Tenancy Tribunal decision related. Nevertheless, Mr Memelink consented to payment of $15,000 to the Body Corporate from the funds held in the trust account, and I made a direction accordingly. The balance of the fund was to stay in the trust account pending further order of the Court.
[10] I further adjourned the case until 17 February 2015, on the basis that ongoing levies were to be paid as they fell due by Mr Memelink.
[11] When the case was called again on 17 February 2015, no decision was available from the District Court on the appeal. I indicated that I did not consider it appropriate to proceed before a determination had been made on the appeal. I adjourned the matter to 19 May 2015, again on the basis that Mr Memelink would continue to pay current levies.
[12] An interim decision on Mr Memelink’s appeal was given by Judge Tuohy on
14 April 2015. The Judge dismissed three of the four grounds of appeal, but his Honour’s findings on a fourth ground of appeal called for consideration of documents, some which may not have been available to Mr Memelink at the Tenancy Tribunal hearing. His Honour directed that a further conference be convened, at which the question of further discovery would be considered.
[13] The adjudication proceeding in this Court was further adjourned on
19 May 2015 and 11 August 2015, when there was still no final decision on the appeal. The proceeding in this Court was also removed from the list by consent on a number of subsequent occasions, pending the release of the final decision on the appeal.
[14] Judge Tuohy gave a reserved decision on the appeal on 18 March 2016, in which he directed a rehearing in the Tenancy Tribunal, limited to the one remaining ground of appeal. The granting of the rehearing was conditional on Mr Memelink and his co-trustee paying the Body Corporate, unconditionally, the amount of the Tenancy Tribunal award (if it had not already been paid).
[15] The Body Corporate’s adjudication application was called again in this Court on 19 April 2016. I directed that the further sum of $23,153.38 was to be paid from the trust account to the Body Corporate. With the sum of $15,000 which had been paid from the funds held on trust in November 2015, the further $23,153.38 brought Mr Memelink’s payments up to the $38,153.38 awarded by the Tenancy Tribunal, thus satisfying the condition imposed by Judge Tuohy on allowing the appeal and directing a rehearing in the Tenancy Tribunal.
[16] At the hearing on 19 April 2016, I identified the following matters for further argument and determination:
(a) Should unpaid levies falling due, but unpaid, in respect of the period after that covered by the Tenancy Tribunal decision be paid from the balance of the funds held in trust?
(b)Should there be a direction that interest be paid on unpaid levies, whether under s 34A of the Unit Titles Act 1972 or under s 128 of the Unit Titles Act 2010?
(c) Is the Body Corporate entitled to costs, and if so should the Court direct that costs are to be paid from the fund?
(d)How does the fact that Mr Memelink’s arguments in respect of levies to 31 March 2013 (i.e. the levies which were the subject of the June 2013 Tenancy Tribunal award) remain unresolved affect the question of payment out?
[17] I made directions for the filing of any further affidavits and submissions directed to those issues, and heard oral argument from counsel and Mr Memelink on them on 13 May 2016.
[18] In an affidavit sworn for the Body Corporate on 28 April 2016, its chairman Mr Hughson deposed that, with the payment of $23,153.38 to be made from the fund to the Body Corporate in accordance with the Court’s directions made on
19 April 2016, levies unpaid by Mr Memelink for the period 1 April 2013 to
28 April 2016 came to $35,781.90. That sum all accrued in the period between
1 April 2013 and November 2014, when adjournments of the adjudication application were granted on the condition that Mr Memelink continued to pay current levies as they fell due for payment.
[19] Mr Memelink says in an affidavit sworn on 6 May 2016 that he paid the levies for October and November 2013, but then suffered a significant injury which required reconstructive surgery and nine months of rehabilitation.
[20] Mr Memelink suggests that issues raised in the Tenancy Tribunal proceeding will or may apply equally to levies falling due after the date to which the Tenancy Tribunal award applied (31 March 2013), and he opposes the Body Corporate’s claim for interest and costs. He submits that the Court should direct that the balance of $64,758.97 remaining in the fund be paid to him.
[21] The Body Corporate no longer seeks an order for adjudication. It asks for leave to withdraw its adjudication application, on the basis that the Court (i) makes an order for costs in its favour (with a substantial uplift on the usual “2B” order, to reflect the manner in which Mr Memelink has conducted his case) and (ii) directs that the unpaid levies of $35,781.90 be paid out to it, with interest thereon at the rate of 10 per cent per annum, from the independent fund. Acknowledging that the Court need not give a judgment on the claims for unpaid levies and interest (the Court only being concerned with the disposition of the money held on trust on an application by the Body Corporate to withdraw its adjudication claim), Mr Matsis proposes that the Court should address the disposition of the remaining $64,758.97 first by considering the Body Corporate’s claim to the unpaid levies, secondly the claim for interest, and thirdly the claim for costs.
Discussion and conclusions
The claim for the unpaid levies
[22] In my view Mr Memelink has not provided any evidential foundation for a finding that the sum of $35,781.90, being unpaid levies for the period after
1 April 2013, is not due and owing to the Body Corporate. While he makes some suggestion that his liability for those levies may be affected by the outcome of the remaining issue to be determined by the Tenancy Tribunal, there is in my view nothing in the evidence to support that contention.
[23] Following the March 2016 judgment of Judge Tuohy, the only remaining issue in the Tenancy Tribunal is whether any person voted on a Body Corporate resolution which imposed any of the levies which are the subject of the Tenancy Tribunal claim, when that person was prohibited from so voting by s 96(3) of the Unit Titles Act 2010 (or, in respect of earlier levies, by r 28 of sch 2 Unit Titles Act
1972). Section 96(3) provides that an otherwise eligible voter may not vote unless all body corporate levies and other amounts that are from time to time payable to the body corporate in respect of his or her unit have been paid.
[24] Mr Memelink had raised an issue that some parties who had voted on the imposition of levies for one or more years prior to 31 March 2013 had not in fact paid up their own levies, and were accordingly disqualified from voting.
[25] I do not have evidence before me in this proceeding that the same issue applies or may apply in respect of amounts levied by the Body Corporate for the period from and after 1 April 2013. The Body Corporate’s application for adjudication included a clear claim for levies falling due after 1 April 2013, and one would have expected that if some levies imposed by the Body Corporate for the period from and after 1 April 2013 were affected by the same issue which remains to be determined by the Tenancy Tribunal (in respect of levies imposed before
1 April 2013), Mr Memelink would made that clear in his affidavits in this Court. But it is not clearly stated in the numerous affidavits he has filed since the Body Corporate’s adjudication application was served on him.
[26] In his submissions for the hearing on 13 May, Mr Memelink raised another issue, over steps the Body Corporate has taken recently to reassess the ownership interests of the unit holders under s 41 of the Unit Titles Act 2010. Section 41(1) provides that the ownership interest or utility interest may be reassessed for each unit if the Body Corporate decides by special resolution at a general meeting to reassess the ownership interest or the utility interest, or both.
[27] Mr Memelink contends in his submission that the levy percentages were recently reassessed and found to have significant differences, with all units in the building above his own unit having underpaid their required portion of levies by up
to 70 per cent per month. He contends that the “shortfall in levies” has resulted in the Body Corporate being obliged to borrow to cover its costs, and his own levies subsidising the shortfall which should have been paid by the owners of other units. He contends that those other units have been unjustly enriched, and that it is not fair or reasonable that he be made to pay the disputed levies.
[28] In my view there is nothing in this argument. There is no evidence that any reassessment under s 41 has actually been completed, and Mr Matsis assures me that it has not. In those circumstances the recent moves towards a s 41 reassessment cannot affect Mr Memelink’s liability for levies validly imposed in 2013 and 2014 (the period with which the issue of payment out from the independent fund is concerned).
[29] For today’s purposes, the issue I have to decide is not whether Mr Memelink is liable to the Body Corporate for the entire $35,781.90, but whether, pending the resolution of any dispute over his liability, the money should be paid to the Body Corporate, remain in trust, or be refunded to Mr Memelink.
[30] In the circumstances of this case, I am satisfied that the $35,781.90 should be paid out, unconditionally, to the Body Corporate. That will not preclude the possibility of argument by Mr Memelink in the Tenancy Tribunal over the extent of his liability for that sum, if he wishes to raise any such argument. If there is such a dispute, and Mr Memelink prevails, it may be that the Body Corporate will have to refund some of the money to Mr Memelink.
[31] In directing that the $35,781.90 be paid out to the Body Corporate I take into account the apparent weakness, on the affidavits filed in this Court, of any contention that Mr Memelink is not liable for the $35,781.90, and also the fact that other unit holders in the development have continued to pay their levies during the relevant period. If there is any issue over the validity of levies imposed in the period (and it is by no means clear that there is) it would presumably affect all unit holders, but if all unit holders took the view that they were entitled to withhold payment of levies the Body Corporate simply could not function. Mr Memelink has always had the right to refer any dispute over levies to the Tenancy Tribunal, and he has not done
that. In those circumstances I consider there is force in Mr Matsis’ submission that Mr Memelink should not be afforded preferential treatment (in being permitted to withhold payment of levies pending an ultimate determination) over other unit holders who have continued to pay their levies.
[32] For all of the foregoing reasons, I direct that the sum of $35,781.90 is to be
paid from the funds in the independent solicitors’ account to the Body Corporate.
The Body Corporate’s claim for interest
[33] The Body Corporate claims interest at the rate of 10 per cent per annum under s 128 of the Unit Titles Act 2010. That section provides:
128 Interest on money owing to body corporate
(1) If a unit owner owes money to the body corporate under section 121,
124, 125, 126, or 127, interest accrues in respect of so much of the debt as remains unpaid.
(2) The amount of interest charged by a body corporate in relation to any unpaid debt must not exceed 10% per annum.
[34] I am not satisfied that it would be appropriate to direct that any part of the funds held in the independent trust account should be paid to the Body Corporate to cover its claim for interest. I reach that view for the following reasons:
[35] First, the Body Corporate did not make any express claim for interest in its creditor’s application for adjudication. The application stated that the $85,203.55 then claimed comprised the amount of the Tenancy Tribunal award together with “unpaid levies and legal and professional fees…”
[36] Secondly, it is not clear that the Body Corporate’s resolution in which an interest rate of 10 per cent on unpaid levies was imposed, related to the levies which are principally in issue now, namely those falling due between April 2013 and November 2014. The Body Corporate relies on a resolution made at an annual general meeting on 9 December 2010, as the basis for its claim to interest at 10 per cent per annum. The minutes of that meeting show that the issue of arrears of levies was raised under General Business. A motion was put to the meeting that all unit
holders be provided with a statement of outstanding levies by 21 January 2011, and that they be given 21 days to pay in full. The minutes went on to state:
If any levies remain outstanding after that 21 day period, the Body Corporate is authorised to commence legal proceedings and interest is to be charged on the unpaid levies at the rate of 10% per annum in accordance with s 34A of the Unit Titles Act [1972].
The interest to be accrued from 21 January 2011.
[37] The first thing to note about the resolution is that the decision to impose interest at the rate of 10 per cent on unpaid levies appears to have been directed at the particular outstanding levies that were due as at the date of the meeting: it does not appear to be generally directed at levies which may be overdue in the future. Secondly, it may be that the voting at this meeting is affected by the issue that remains to be dealt with in the Tenancy Tribunal.
[38] For those reasons, I do not think it appropriate to direct that any part of the funds in the independent solicitors’ account be paid out to the Body Corporate to reflect its claim for interest at the rate of 10 per cent per annum under the Unit Titles Act. Nor is there currently a basis for interest at the statutory rate of 5 per cent per annum on the Tenancy Tribunal award (which has the effect of a District Court judgment under s 107 of the Residential Tenancies Act 1986). The Tenancy Tribunal decision was quashed by Judge Tuohy in his March 2016 judgment on the appeal, and accordingly can no longer provide a basis for a claim to statutory interest on a judgment.
[39] For the foregoing reasons, I decline to make any direction for payment out from the fund to reflect the Body Corporate’s claim for interest. Of course that does not mean that the Body Corporate might not have such a claim: it will be for the Body Corporate to give further consideration to that, and if considered appropriate, make an appropriate claim against Mr Memelink which can be resolved by the Tenancy Tribunal if need be.
The Body Corporate’s claim for costs
[40] Although the Body Corporate has asked for leave to withdraw its application for adjudication, it does so on the basis that judgment should be entered against Mr Memelink for substantial costs. I am satisfied that a costs award in favour of the Body Corporate is appropriate.
[41] At the time it made its application for an adjudication order the necessary bases for such an order were all present. Section 13 of the Insolvency Act provides:
13 When creditor may apply for debtor’s adjudication
A creditor may apply for a debtor to be adjudicated bankrupt if—
(a) the debtor owes the creditor $1,000 or more or, if 2 or more creditors join in the application, the debtor owes a total of
$1,000 or more to those creditors between them; and
(b) the debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
(c) the debt is a certain amount; and
(d) the debt is payable either immediately or at a date in the future that is certain.
[42] At the date the Body Corporate made its application, there was clearly a debt in an amount certain (the Tenancy Tribunal award), and at that time the award was payable immediately (a stay of execution of the Tenancy Tribunal judgment pending the hearing of the appeal had been lifted by order of the District Court made on
26 May 2014). Mr Memelink did not challenge the pleaded act of bankruptcy, namely his failure to comply with the bankruptcy notice which the Commissioner of Inland Revenue had issued.
[43] So the Body Corporate was clearly entitled to issue the adjudication proceeding. The only reason it now seeks leave to withdraw the application for adjudication is that Mr Memelink has since posted the sum of $100,000 as security for the amounts claimed by the Body Corporate, and has thus demonstrated his ability to pay the Body Corporate’s claims.
[44] The subsequent quashing of the Tenancy Tribunal decision on appeal does not in my view affect the conclusion that the Body Corporate was entitled to apply for an adjudication order when it did. On the evidence produced in this Court it is highly improbable that Mr Memelink, as one of a number of owners of units in a development which can only continue to operate if each unit owner makes an appropriate contribution to the common expenses, could have owed the Body Corporate less than the $1,000 which was sufficient to provide a basis for the adjudication application.
[45] Accordingly, I am satisfied that there is a basis to award costs to the Body Corporate. Mr Matsis originally sought solicitor-client costs on the basis of s 124 of the Unit Titles Act 2010, including in respect of matters arising between the Body Corporate and Mr Memelink before the Body Corporate’s application for adjudication was filed. However Mr Matsis has drawn my attention to the decision of Venning J in Body Corporate 366611 v B.E.M.A. Property Investments Ltd, in which the Court held that the provisions of the Unit Titles Act do not oust the Court’s jurisdiction in relation to its ability to make an order for costs in proceedings before
it.1
[46] Section 124 of the 2010 Act provides that the amount of any unpaid levy is recoverable by the Body Corporate as a debt due to it, together with any reasonable costs incurred in collecting the levy. In the B.E.M.A case, Venning J noted that the starting point is that, as the proceeding was before the High Court, the relevant provisions of p 14 of the High Court Rules applied. In particular, where part or all of the costs application was for reasonable solicitor-client costs (i.e. indemnity costs),
as is the case here, r 14.6(4)(f) applied.2
[47] Mr Matsis does not seek indemnity costs for all of the attendances in this Court. He accepts that an award of costs on a 2B basis is appropriate for attendances after Mr Memelink paid the $100,000 into Court and the case was adjourned while
the parties were waiting for the result of the District Court appeal. He seeks
1 At [11].
2 Body Corporate 366611 v B.E.M.A. Property Investments Ltd [2015] NZHC 31.
solicitor-client costs in respect of the period before Mr Memelink paid the $100,000 he was directed to pay, and for the hearings on 19 April and 13 May 2016.
[48] On a 2B basis, Mr Matsis calculated costs to 18 April 2016 at $10,222.00 with disbursements of $615. I accept those calculations. There was a further $640 incurred as a scheduling fee for the hearing on 13 May 2016. Allowing for $892 for each of the hearings on 19 April 2016 and today, and a half day on 13 May 2016 ($1,115), I calculate that costs on a 2B basis calculated to today would be
$13,121.00.
[49] I do not think there is a case for indemnity costs here, but I do think an uplift on scale is appropriate in respect of the failure by Mr Memelink to comply with the Court’s directions on a number of occasions in 2014, and his taking or pursuing arguments on a number of occasions which lacked any merit. I have already referred to Mr Memelink’s failures to comply with directions relating to the payment of the
$100,000, and his arguments relating to his position as trustee, and the more recent argument relating to the reassessment of unit interests, should not have been pursued.
[50] Also, I take account of Mr Memelink’s repeated filing of late documents, often on the morning of a hearing. That practice contributed to costs and delays which should have been avoided. Weighing it up, I think that the appropriate award of costs to the Body Corporate is the sum of $17,500, plus disbursements of $1,255. I make orders accordingly, and direct that those costs and disbursements are to be paid to the Body Corporate from the balance of the funds in the independent trust account.
[51] After those payments are made to the Body Corporate, the remaining funds in
the independent solicitors’ trust account are to be paid to Mr Memelink.
[52] On the fourth issue which I identified at the hearing on 19 April 2016,3 I have already covered the reasons for the payment out of the $35,781.90 to the
Body Corporate, and I have not made any direction relating to payment of interest.
3 The issue is set out at para [16](d) of this judgment.
The costs award stands irrespective of any success Mr Memelink might have on the remaining issues in the Tenancy Tribunal.
[53] Finally, I make an order granting leave to the Body Corporate to withdraw its adjudication application.
Associate Judge Smith
Solicitors:
Gault Mitchell Law, Wellington for the judgment creditor
H Memelink, Lower Hutt in personThomas Dewar Sziranyi Letts, Lower Hutt for supporting creditors
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