Body Corporate 85978 v Saint Pauls Asset Management Limited (previously Might Rocket Trustees limited)
[2020] NZHC 2097
•19 August 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2020-485-4
[2020] NZHC 2097
UNDER the Companies Act 1993 AND
IN THE MATTER
of the liquidation of SAINT PAULS ASSET MANGEMENT LIMITED (previously Mighty Rocket Trustees Limited)
BETWEEN
BODY CORPORATE 85978
Plaintiff
AND
SAINT PAULS ASSET MANAGEMENT
LIMITED (previously Mighty Rocket Trustees Limited)
Defendant
Hearing: On the papers Counsel:
D A Bleier for Plaintiff A Gilmore for Defendant
Judgment:
19 August 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Costs)
This judgment was delivered by me on 19 August 2020 at 12.30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
19 August 2020
BODY CORPORATE 85978 v SAINT PAULS ASSET MANAGEMENT LIMITED [2020] NZHC 2097
[19 August 2020]
Background
[1] The background to this costs judgment is set out in my judgment delivered on 27 July 2020 (the July Judgment).1
[2] The July Judgment concerned an opposed application by Body Corporate 85978 (Body Corporate) to liquidate Saint Pauls Asset Management Ltd (St Pauls).
[3] I do not repeat the full timeline of matters from the July Judgment, but highlight some of the key stages:
(i)8 January 2020: statement of claim filed in relation to unpaid Body Corporate levies.
(ii)10 January 2020: balance of unpaid levies cleared, remaining issue of costs.
(iii)16 January 2020: further unpaid Body Corporate levies accrue of $19,330.75. Costs claimed of $6,727 plus disbursements claimed.
(iv)20 January 2020: unpaid Body Corporate levies of $19,330.75 paid.
(v)1 April 2020: a further round of Body Corporate levies falls due.
(vi)3-9 April 2020: St Pauls clears the levies due 1 April 2020.
Application 22 July 2020
[4] When the opposed application came before me on 22 July 2020, there were no unpaid levies owed by St Pauls. The remaining issue was costs.
1 Body Corporate 85978 v Saint Pauls Asset Management Ltd [2020] NZHC 1803.
[5] Body Corporate sought costs pursuant to a costs clause in part of an order made by Churchman J on 21 August 2017 approving a scheme under s 74 of the Unit Titles Act 2010 (the Act), which reads as follows:
8.5If an Owner fails to pay its Levy in the amount and at the time required by the Body Corporate, that Owner is liable for any losses and for all associated and additional costs, expenses and disbursements resulting from such non-payment (including all costs incurred by the Body Corporate in attempting to recover the outstanding Levy and associated costs including legal costs on a solicitor/client basis together with any penalty interest under section 128(2) of the Act).
[6] Mr Bleier, counsel for St Pauls, advised at the July hearing that the present claim for costs was approximately $30,000 but he could not quantify the precise sum.
[7] Therein lay Body Corporate’s difficulty. Body Corporate was no longer a creditor in respect of accrued levies – such having been paid. Body Corporate was a prospective or contingent creditor in respect of its costs, given it had the benefit of the indemnity costs provision set out at [5] above.
[8] As I held in my July Judgment, until costs were quantified, St Pauls had no opportunity to pay them. If the costs had been fixed and paid, Body Corporate would not have standing to pursue liquidation. Body Corporate continued to pursue liquidation despite being paid the Body Corporate levies, as it considered St Pauls had failed to rebut the presumption of insolvency that arose from the original statutory demand not being satisfied.
[9] Accordingly, the outcome of the hearing was to require St Pauls to pay into court the sum of $15,000 that it had previously offered for costs, as a practical means of St Pauls confirming it had the ability to pay costs and to call for submissions in order to fix costs.
[10] Mr Bleier, in his costs submissions, submits the approach I adopted in the July hearing affording St Pauls an indulgence. He submitted that because Body Corporate had established insolvency, it was prima facie entitled to an order for liquidation of St Pauls and was seeking to proceed on the basis of uncontested expert evidence,
challenging the solvency of St Pauls. It is submitted the indulgence was one that Body Corporate could not have foreseen and:
It is only with the benefit of hindsight that the Court has allowed Saint Pauls to avoid liquidation by making payment of the costs.
[11] I do not accept this characterisation of what occurred in the July hearing. As I recorded in the July Judgment, at the time of the hearing there was no quantified indebtedness owed by St Pauls to Body Corporate. There was no debt then due and payable as the costs claim remained unquantified. Indeed, at the hearing, Mr Bleier could not quantify the costs claimed. Nor, at the commencement of the hearing, did Body Corporate have standing to seek liquidation because as it was a prospective or contingent creditor, as it required leave pursuant to s 288(5) of the Companies Act 1993 (the Act) to pursue liquidation. No application for leave was made by Body Corporate prior to the hearing.
[12]The quantum of the Body Corporate’s costs claim is now $64,341.43 made up
as follows: (1) Legal fees in the amount of $55,111.00 (2) Filing and hearing fees $ 1,180.00 (3) Advertising costs $ 335.00 (4) Service fees $ 310.00 (5) Body Corporate management fees $ 690.00 (6) Expert witness costs $ 6,715.43
This is more than double Mr Bleier’s estimate at the hearing of the liquidation.
[13] In my July Judgment, I granted leave to the Body Corporate under s 288(5) of the Act to continue with its application, given its status as a prospective or contingent creditor. As I have said, I was not prepared to place St Pauls into liquidation when, even if it wanted to, it could not satisfy the unquantified costs liability. While St Pauls did not dispute Body Corporate’s ability to rely on the costs clause set out at [5] above, I noted that the clause protects Body Corporate for its costs in attempting to recover the outstanding levies and associated costs, but not otherwise.
[14] I have no difficulty with Body Corporate’s reliance on this clause, provided the costs it seeks are properly within the clause and the costs claimed are reasonable.
[15] The difficulty I see for Body Corporate is that by 9 April 2020, St Pauls had paid all its overdue levies. Body Corporate was entitled to pursue costs and indeed on the strength of the clause, recover its costs in pursuing those associated costs.
[16] However, it is clear that the costs incurred by Body Corporate after 9 April 2020 were not so much aimed at recovering costs incurred in collecting unpaid levies, but in seeking the liquidation of St Pauls on the basis that it was insolvent and Body Corporate had found it frustrating to deal with St Pauls over an extended period. Again, once St Pauls paid the Body Corporate costs, Body Corporate lost its standing to pursue liquidation as it was no longer a creditor. It seems that Body Corporate did not turn its mind to that issue. Substantial costs were incurred after 9 April 2020.
[17] Given that following the payments on 9 April 2020, Body Corporate was not a creditor and had no unpaid levies, I find the Body Corporate was not entitled to rely on its indemnity clause after that date, save to the extent it incurred costs to quantify and recover the costs it had incurred in recovering unpaid levies.
[18] St Pauls did make offers in respect of costs, but the fact is they were generally too little, too late. Often they were not even at scale costs. I do not consider St Pauls’ offers are relevant to the fixing of costs one way or the other. The fact is St Pauls did not meet the statutory demand in full and thereby triggered the presumption of insolvency and Body Corporate was entitled to pursue liquidation. At that point, St Pauls became liable for indemnity costs and its offers of something less than indemnity were never going to carry the day.
[19] Accordingly, I find Body Corporate is entitled to its reasonable indemnity costs up to the payment of the arrears on 9 April 2020, together with its reasonable costs thereafter for steps taken to secure its solicitor/client costs related to collecting unpaid levies, that is, its costs to recover its costs.
[20] The costs Body Corporate incurred after 9 April 2020 aimed at achieving the liquidation of St Pauls are not payable pursuant to cl 8.5.
[21] I accept Mr Bleier’s submission that Body Corporate was entitled to issue proceedings in respect of the unpaid levies and to continue those proceedings until the levies were paid, and to have the benefit of the costs clause for those steps. Mr Bleier then submits that following payment on 9 April 2020:
The Body Corporate was entitled to continue with the liquidation proceedings as the statutory presumption of insolvency had been established and the Body Corporate was prima facie entitled to an order for liquidation.
[22] It is in this regard that I consider Body Corporate’s approach lost sight of the need to establish standing and that after 9 April 2020 its entitlement was to have its costs fixed and paid.
[23] The proceedings were pursued after 9 April 2020, essentially because of the animus between the parties. Substantial affidavits were prepared by Body Corporate, including expert evidence aimed at resisting any attempt by St Pauls to rebut the presumption of insolvency. However, this was at a time when the only outstanding issue between the parties was costs which Body Corporate took no steps to quantify.
[24] At the risk of labouring the point, upon costs being quantified and paid, Body Corporate would lose standing to seek the liquidation of St Pauls – it would no longer be a creditor.
[25] Nor do I consider the expert witness expenses to be a recoverable disbursement. The engagement of the expert was aimed not at the recovery of levies, but obtaining the liquidation of St Pauls. Counsel’s fees covering the time to the end of March 2020 total $20,389 (excluding GST). The Court awarded costs dealing with the interlocutory. I assume the Body Corporate is registered for GST and will have recovered that in the ordinary way, so the amount payable by St Pauls pursuant to the indemnity costs provision is less GST.2
2 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR 14.6.03(2)(b)].
[26] That leaves steps between the start of April 2020 and 9 April 2020 and subsequent costs in respect of the fixing of costs.
[27] I do not allow the separate claim for solicitors fees on the statutory demand given the narrations for counsel’s fee include the preparation of the statutory demand and preparing and filing the liquidation proceeding.
[28] To deal with the further costs from 2 April 2020 to 9 April 2020 and in respect of the fixing of costs, I increase the amount of costs to be paid by St Pauls to a total of
$25,000 adopting a robust approach to arrive at a further figure I consider reasonable in all the circumstances.3
[29] In practice, this means I am not awarding costs to Body Corporate in respect of its costs aimed only at achieving the liquidation of St Pauls on the ground that St Pauls had not rebutted the presumption of insolvency. The reason I do not allow those costs is that they fall outside the costs clause. They were also incurred at a time when Body Corporate required leave under s 288(5) before it would have standing to seek the liquidation of St Pauls which it required, as with the payment of levies, it was a prospective or contingent creditor in respect of costs. Rather than put its energies into the fixing of costs, it incurred further substantial costs aimed at seeking the liquidation of St Pauls on the grounds St Paul’s was insolvent. However, those costs were incurred at a time when St Pauls could not pay Body Corporate because the costs were unquantified. Had the costs been quantified and paid, Body Corporate would not have had standing.
[30]That said, the offers made by St Pauls in respect of costs were inadequate.
[31] Accordingly, I award costs to Body Corporate 85978 in the sum of $25,000, plus disbursements as per items 2, 3, 4 and 5 of [12] above.
3 McGechan HR 14.6.03(e)(iv).
[32] I authorise the Registrar to pay the funds currently held in court to Body Corporate 85978.
Associate Judge Lester
Solicitors:
Greenwood Roche, Wellington
Copy to counsel:
D A Bleier, Barrister, Wellington
Copy to:
Mr A Gilmore
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