Burns 20 Limited v Body Corporate 90898
[2023] NZHC 3160
•9 November 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-348
[2023] NZHC 3160
UNDER section 290 of the Companies Act 1993 IN THE MATTER
of an application to set aside a statutory demand
BETWEEN
BURNS 20 LIMITED
Applicant
AND
BODY CORPORATE 90898
Respondent
Hearing: 11 October 2023 Appearances:
K Kommu for Applicant
M Wolff and H Dempsey for Respondent
Judgment:
9 November 2023
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] The applicant, Burns 20 Ltd (Burns), is a company that is a commercial landlord. The respondent, Body Corporate 90898 (Body Corporate), is the body corporate for a commercial unit title property at 155 The Terrace, Wellington, known as Radio New Zealand House (RNZ House), which has 14 levels and corresponding carparks at the basement level.
[2] Burns is the registered owner of levels 2–4 of RNZ House, together with associated carparks. Burns leases levels 2 and 3 to Radio New Zealand Ltd (RNZ). Level 4 is currently vacant.
BURNS 20 LIMITED v BODY CORPORATE 90898 [2023] NZHC 3160 [9 November 2023]
[3] Burns applies by way of originating application dated 19 June 2023 to set aside a statutory demand served on it by the Body Corporate. The statutory demand is dated 2 June 2023 and seeks payment of the sum of $311,677.37.
[4] The sum claimed relates to alleged outstanding body corporate levies. Burns applies to set aside the statutory demand on the basis that there is a substantial dispute as to whether the alleged debt is owing or is due, and/or that Burns has a counterclaim, set-off and/or cross demand, and/or that Burns is able to pay its debts as they fall due.
[5] The Body Corporate opposes the application on the basis that there is no genuine and substantial dispute as to whether the debt claimed in the statutory demand is owing, Burns’ solvency does not entitle it to avoid the statutory demand process, and Burns has no reasonably arguable counterclaim and/or set-off against the Body Corporate to justify setting aside the statutory demand.
Background
[6] It seems that Burns has had concerns about the amounts charged by the Body Corporate for the provision of utilities within RNZ House since it purchased units in the building. At that time, the body corporate manager was either The Wellington Company Asset Management Ltd or a related entity, The Wellington Company Limited (together referred to as TWC).
[7] The issue appears to have first arisen at the 2017 Annual General Meeting (AGM) of the Body Corporate. At that meeting Mark Engel, sole director and shareholder of Burns, raised a concern about lack of clarity in invoices received for utilities. Mr Engels suggested that an independent person should be appointed to audit the accounts.
[8] In his affidavit evidence, Mr Engel refers to events that have occurred subsequently in relation to the alleged dispute as to amounts charged by the Body Corporate for the provision of utilities including power and gas charges. These events are summarised below:
(a)Between 27 March 2018 and 6 April 2018, Burns raised the issue of an overcharging of electricity charges by the Body Corporate;
(b)On 28 August 2018, Burns’ solicitor emailed TWC regarding a disputed wash-up invoice for common area power and lift costs, contending that the levy invoice was improperly levied as it appeared to result from TWC’s mismanagement in buying and on-selling power;
(c)in or about mid-2019, RNZ installed its own power supply and was therefore separated from the main RNZ House power supply;
(d)in November 2020, Burns received a report from Kiwi Metering & Monitoring Ltd advising of issues in relation to the Body Corporate’s electricity costs including metering issues, metering accounts issues, inconsistent multipliers and the lack of an electricity contract;
(e)in February and March 2021, issues as to the on-charging of utilities by the Body Corporate (via TWC) to Burns remained outstanding and Burns and RNZ were concerned about the lack of detail in the invoices from the Body Corporate (via TWC);
(f)on 25 November 2021, Burns’ solicitor wrote to the Body Corporate and TWC formally notifying them of the issues in relation to power and gas charges and sought certain information to be provided;
(g)on 23 February 2022, Burns was forwarded a copy of a letter provided to other unit owners in the Body Corporate from an independent barrister engaged by the Body Corporate. The independent barrister disagreed with some of the legal points raised by Burns’ solicitor in the letter of 25 November 2021, and also noted:
Pidgeon Judd’s letter goes on (from about para 8) to raise an issue about the Body Corporate’s overall electricity supply arrangements. They refer to RNZ’s electricity consumption being removed from the Body Corporate and resulting in a 35% reduction in the Body Corporate’s overall energy use. They note that this change has not reduced the charges the
Body Corporate is paying, and instead, the Body Corporate’s charges have increased considerably. Pidgeon Judd draw attention to this as a matter requiring investigation.
They indicate that the Body Corporate has agreed to review its energy uses and charging practices and ask for full details of that review, including a timeframe for the review to be completed and any reports issued to date.
This request seems eminently reasonable. On the face of things, if a large energy user has been extracted from the overall expense but the energy cost is still increasing, something would appear to be going wrong. It is plainly in the interests of all the members of the Body Corporate to review the Body Corporate’s energy use and purchasing arrangements and to endeavour to minimise both the amount of energy used and the expense of that usage.
This is a factual issue, rather than a legal issue. The Body Corporate administration will understand what steps have been taken and/or are being taken in relation to this issue, and will be able to report on those steps to all Body Corporate members, including Pidgeon Judd’s client.
(h)the 25 November 2021 letter was followed up by Burns’ solicitor on 3 May 2022 requesting further information as follows:
We should be grateful if the body corporate would provide copies of all relevant invoices dating back to when this issue was first raised at the AGM in 2017. In particular we should be grateful if you would provide copies of the invoices from the utility providers and an explanation of how the costs have been apportioned between owners in Radio New Zealand House.
(i)at around this time, the Body Corporate appointed new body corporate managers, Strata Title Administration Ltd (Strata), to replace TWC;
(j)between 27 July 2022 and 11 August 2022, Burns, the Body Corporate and their respective solicitors continued to email each other in relation to how the Body Corporate should on-charge the utilities for RNZ House, and Burns repeated its request for the information sought in the 3 May 2022 letter, and also provided a quote from a professional consultant who could undertake an analysis into what meters exist and what amenities are consumed (and by whom) in the Body Corporate.
[9] In his affidavit, Rasbeer Gill, chairperson of the Body Corporate, outlines steps that the Body Corporate took during the period 2017–2022 in relation to the issues raised by Burns. In summary, he states:
(a)the Body Corporate set up a committee following the 2017 AGM to determine criteria for an independent audit of the Body Corporate’s accounts and the committee included Mr Engel;
(b)the Body Corporate engaged an independent barrister to provide a legal opinion on the issues raised by Burns in relation to the on-charging of the utilities, and responded to the issues raised by Burns’ solicitor;
(c)in May 2022, the Body Corporate obtained a further independent legal opinion on the way in which the Body Corporate charges unit owners for operating expenses (oral advice was provided and this advice has not been disclosed to Burns);
(d)in May 2022 the Body Corporate appointed CBRE Ltd (CBRE) as the building manager and requested CBRE to review the utility charging methodology to ensure it provides a fair and equitable apportionment of utilities amongst unit owners, and to provide recommendations on how to improve utility charging by the Body Corporate;
(e)the Body Corporate invited Mr Engel to provide suggested methodologies for on-charging of utilities, but Mr Engel did not provide any alternative methodology.
2022 AGM
[10] On 25 October 2022, the 2022 AGM Agenda was circulated by Strata. Item 14 of the agenda related to utility on-charging and referred to an updated Net Lettable Area (NLA) methodology and set out a proposed resolution based on the updated methodology.
[11] The NLA methodology had been in place for some time through TWC, but CBRE had recommended amendments to the methodology. The Body Corporate had obtained a legal opinion confirming that “square meterage” is a fair basis to share costs of gas and power. Burns’ position throughout has been that the NLA methodology is not permitted under the Unit Titles Act 2010.
[12] On 7 November 2022, Burns made payment to the Body Corporate of all disputed levies at that stage, totalling $58,740.48. Burns says that it did this solely so that it would be able to exercise its right to vote at the 2022 AGM pursuant to s 96(6) of the Unit Titles Act.
[13] On 8 November 2022, the Body Corporate held the AGM. The AGM involved a lengthy discussion on the proposed methodology for on-charging utilities to unit owners. At some point during the discussion, a new resolution was put forward in substitution for the notified resolution 14. The resolution which was put to the meeting and passed was as follows:
Resolved: That the body corporate is to revert to recovering electricity/gas/water utility costs back dated to the previous billing cycle being January 2022 by utility/ownership interest, and that the Committee is to obtain independent report(s) on alternative recommendations to recover costs fairly this which may be put to owners to consider and if agreed a back dated reconciliation could take place fairly / equitably as appropriate.
RNZ and Mark Engel voted against this, all others in favour.
[14] Burns contends that it did not bring a claim for minority relief under s 210 of the Unit Titles Act in respect of this resolution because, despite requesting a copy of the AGM minutes on 8 November 2022, the minutes were only provided to Burns on 7 December 2022. An application for relief under s 210 of the Unit Titles Act must be made within 28 days of passing of the resolution.
Post-AGM correspondence
[15] On 14 December 2022, Burns’ solicitor emailed Strata, requesting the information sought in the 3 May 2022 letter.
[16] Between 11 January 2023 and 25 January 2023, CBRE (for the Body Corporate) and Burns emailed each other, with Burns disputing the method for apportioning utilities adopted by the Body Corporate.
[17] On 5 May 2023, Burns received letters from CBRE (on behalf of the Body Corporate), following up on previous correspondence in April 2023, and confirming that the sums of $295,280.18 and $2,855.12 were due for Burns’ units. On the same day, Burns responded to CBRE by email, confirming that the amounts were in dispute for reasons communicated previously.
[18] On 19 May 2023, Burns received a letter of demand from the Body Corporate’s solicitor demanding payment of the sums sought in CBRE’s letters of 5 May 2023. The letter stated:
Further to our client’s letters to your client dated 17 April 2023, 28 April 2023 and 5 May 2023, issued in accordance with its resolved debt recovery regime, we note that the sums of $2,855.12 (in respect of Unit P32) and $295,280.18 (in respect of Unit 2) are owing and due for payment by the Company on or before 26 May 2023 (“Outstanding Levies”).
These sums include late payment fees to which our client is entitled, however are exclusive of interest charges and historic levies that have not been calculated in accordance with the Unit Titles Act 2010 (“the Act”) (“Disputed Levies”). We note that our client reserves its rights in respect of interest charges on the Outstanding Levies.
In respect of the Disputed Levies, our client acknowledges that re-calculation of such amounts in accordance with s 121 of the Act is appropriate and is in the process of undertaking this exercise.
[19] On the same day Burns’ solicitor emailed the Body Corporate’s solicitor requesting clarification on which amounts in the letter of demand had been calculated in accordance with the Unit Titles Act, and requesting full documentation to support the calculations.
[20] The Body Corporate’s solicitor responded on 25 May 2023 providing supporting documents. The Body Corporate’s solicitors reiterated that historic levies that had not been calculated in accordance the Unit Titles Act were being recalculated.
[21]On 2 June 2023, the Body Corporate served Burns with a statutory demand for
$311,677.37 in respect of outstanding levies.
Post-statutory demand correspondence
[22] On 7 June 2023, Burns’ solicitor wrote to the Body Corporate’s solicitors noting that:
(a)there was a genuine dispute between the parties in relation to the utility on-charges;
(b)the information provided by the Body Corporate did not comply with Burns’ solicitor’s request of 3 May 2022;
(c)the relevant Body Corporate resolutions striking the claimed levies had not been supplied;
(d)the Body Corporate’s on-charge calculations had not taken into account that RNZ have their own electricity supply, and that level 4 was vacant;
(e) Burns is not insolvent and has funds to pay the amount claimed; and inviting the Body Corporate to withdraw the statutory demand.
[23] The Body Corporate’s solicitor responded on 12 June 2023 reasserting the Body Corporate’s position that the sums claimed under the statutory demand were debts due under the Unit Titles Act.
[24] There was further correspondence between Burns’ solicitor and the Body Corporate’s solicitor between 9 and 12 June 2023 in relation to:
(a)Burns’ request for the relevant resolutions to confirm that the levies comprising the claimed debt in the statutory demand were validly struck; and
(b)Burns requesting an update as to the progress the Body Corporate had made over the last eight months in obtaining independent reports on alternative recommendations to recover utility costs fairly.
[25] On 13 June 2023, Burns’ solicitor emailed the Body Corporate’s solicitor advising that the resolution passed at the 2022 AGM did not meet the requirements of the Unit Titles Act, and that there were issues with the calculation of the sums allegedly due under the statutory demand, and again invited the Body Corporate to withdraw the statutory demand. On the same day, the Body Corporate’s solicitor responded by rejecting Burns’ position and continued to require payment under the statutory demand.
[26] Subsequently, on 16 June 2023, Burns deposited $312,000 into its solicitors’ trust account, and filed and served the application to set aside the statutory demand.
[27] Since the application has been filed, Burns contends that it has learned that some of the claimed invoices under the statutory demand, totalling approximately
$94,000, were for asbestos removal and did relate to the claimed utilities costs. Burns says that it has paid the sum of $94,000 to the Body Corporate. The Body Corporate does not accept that the $94,000 for asbestos removal was part of the amount claimed under the statutory demand. The Body Corporate maintains that the full amount of the statutory demand remains owing.
Legal principles
[28]Section 290 of the Companies Act 1993 states as follows:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
(2)The application must be—
(a)made within 10 working days of the date of service of the demand; and
(b)served on the creditor within 10 working days of the date of service of the demand.
(3)No extension of time may be given for making or serving an application to have a statutory demand set aside, but, at the hearing of the application, the court may extend the time for compliance with the statutory demand.
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
(5)A demand must not be set aside by reason only of a defect or irregularity unless the court considers that substantial injustice would be caused if it were not set aside.
(6)In subsection (5), defect includes a material misstatement of the amount due to the creditor and a material misdescription of the debt referred to in the demand.
(7)An order under this section may be made subject to conditions.
[29] In Confident Trustee Ltd v Garden and Trees Ltd, the Court of Appeal held that:1
[16]The general principles under s 290(4) are well settled:
(a)The onus is on the applicant seeking to set aside the statutory demand to show there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
(c)If such material is available, the dispute should normally be resolved first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise unless such evidence is contrary to the available documents or earlier statements made by the parties.
1 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16] (footnote omitted).
Is there a substantial dispute as to whether the debt is owing or due?
[30] Whether there is a substantial dispute is ultimately a question of fact to be decided after taking into account all the relevant circumstances. An application for an order setting aside a statutory demand has to show a fairly arguable basis on which the applicant is not liable for the amount claimed.2
[31] Burns submits that there is a genuine and substantial dispute as to the alleged debt in the statutory demand and that the issues between the parties would be dealt with more appropriately in standard proceedings.
[32] Burns submits that there is an ongoing dispute regarding how the Body Corporate charges for utilities. Burns contends that this is evident from the chronology of events summarised above. Burns says that it has raised issues since 2017 with regard to:
(a)TWC’s mismanagement of buying and on-selling power (August 2018);
(b)the lack of detail in the invoices from the Body Corporate (February and March 2021);
(c)issues with the power and gas charges and other Body Corporate governance issues (November 2021);
(d)requesting information and documents in relation to the apportionment of utilities between the unit owners in RNZ House (May, August and December 2022);
(e)disputing the method of apportioning utilities adopted by the Body Corporate (January 2023);
2 Stephen Revill and Robyn Merrett Insolvency Law & Practice (looseleaf ed, Thomson Reuters) at [CA290.03(3)](a) and (b).
(f)seeking clarification on how sums demanded by the Body Corporate were calculated and Unit Titles Act compliance issues (May and June 2023); and
(g)requesting that the statutory demand be withdrawn by the Body Corporate given the dispute (June 2023).
[33] The Body Corporate contends that there is no genuine and substantial dispute regarding the debt claimed in the statutory demand. The Body Corporate submits that Burns’ affidavit evidence refers to “long-standing disputes over other historic utility charges” and that these are not the subject of the statutory demand. The Body Corporate submits that the levy which is the subject of the statutory demand has been imposed and calculated in accordance with s 121 of the Unit Titles Act, and is therefore a debt due under s 124.
[34] The Body Corporate relies on the following passage from the decision in Luxe One Ltd v Body Corporate 68792.3 In that case, the applicants who were both unit title owners applied to set aside statutory demands issued by a Body Corporate in respect of levies. Associate Judge Smith stated:4
Even if Luxe had established that it has an arguable cross-claim in a sum which would equal or exceed the amount demanded minus the “prescribed sum” of $1,000 – which I do not think it has – I would have exercised my residual discretion to decline to set aside the statutory demand. Bodies corporate have to continue to function, and they simply cannot function if members withhold payment of ongoing levies, which are necessary to meet essential expenses such as insurance, when there is no challenge to the validity of those levies. Section 3 of the UTA contemplates “a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis” (emphasis added), and a body corporate must be able to act on behalf of all unit owners and for the good of the development as a whole. It cannot do that if members refuse to pay ongoing expenses to which there is no direct, legitimate challenge. In this case, Mr Naylor has provided evidence establishing that the operating levies were validly raised, and of course unpaid levies are “recoverable as a debt due” under s 124 of the UTA.
3 Luxe One Ltd v Body Corporate 68792 [2017] NZHC 2672.
4 At [114] (footnotes omitted).
[35] This passage refers to a requirement for members to pay levies where there is “no challenge to the validity of those levies” and “no direct, legitimate challenge” to the levies.5
[36] In this case, I consider that the evidence before the Court establishes that Burns has a fairly arguable basis for challenging the utility on-charges which are the subject of the statutory demand as discussed below.
Issues as to methodology and calculation
[37] It is apparent from the evidence that, since 2017, there has been an ongoing dispute between Burns and the Body Corporate regarding the way in which the Body Corporate has charged levies for utilities. Mr Gill states in his affidavit evidence that the Body Corporate accepts that Burns has disputed some of the historical levies, which the Body Corporate accepts need to be recalculated and that it is in the process of taking steps to do so. However, I do not accept the Body Corporate’s position that a clear distinction can be made between the acknowledged disputes over historical levies and the 2022 utility on-charges which are the subject of the statutory demand. In my view, the issues raised by Burns in relation to 2022 utility on-charges are part of the ongoing dispute.
[38] There have been issues with the NLA methodology and calculation that was used by TWC. The resolution put forward for the 2022 AGM was to put in place an updated NLA methodology as recommended by CBRE.
[39] At the AGM, following discussion of the resolution, an alternative resolution was proposed and passed that the Body Corporate would revert to recovering electricity/gas/water utility costs from January 2022 by utility/ownership interest. The
5 At [114]. See also Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455 at [66] where the Court of Appeal noted that there are indications in the Unit Titles Act 2010, for example, under s 96(3) (requiring payment of levies to be entitled to vote), that ordinary levies are charged on a “pay now, argue later” basis. However, the point was not discussed in detail or determined as it was not the subject of detailed submissions before the Court. The point was not the subject of any detailed submissions before me; counsel for the Body Corporate did not refer to Manchester Securities Ltd or s 96(3) of the Unit Titles Act and relied on the passage cited above from Luxe One Ltd.
committee was also to seek independent advice on alternative methods for utility on-charging and if an alternative method was agreed, there was to be a reconciliation of the 2022 on-charges backdated to January 2022. The minutes state:
After further discussion there was consensus that the current utility costs including dating back to when the previous recovery ceased in January 2022 are to be recovered on utility interest basis. That the committee is to then seek independent advice / report on any alternative methods and if an alternative is agreed a further reconciliation can be don’t [sic] backdated to January 2022.
[40] This is confirmed in the resolution set out above at [13]. The resolution to seek independent advice on “alternative recommendations to recover costs fairly” seems to be in relation to the 2022 utility costs, not historical levies. However, there is no evidence before the Court that the committee has taken any steps in this regard since November 2022.
[41] The minutes record that, during the discussion on methodologies, Mr Engel proposed invoicing on a metered basis:
Mark Engel advised that we can only invoice on a metered basis and he has put forward a company to provide an independent assessment. Mark stated that TM consultants had done work at the Building in the past and they have a good understanding. It was noted any assessment needs to include how common power it [sic] to be apportioned as well as gas.
[42] The Body Corporate contends that it has provided Burns with all relevant information regarding the 2022 on-charges including all invoices relevant to the statutory demand and break downs of how the sums in question have been apportioned across the unit owners in RNZ House based on utility interests. However, in the letter dated 7 June 2023 from Burns’ solicitor to the Body Corporate’s solicitor, the following issues are raised with regard to the on-charges for 2022 based on utility interest:
Fundamentally, the Body Corporate has erred in their calculations of these on-charges. If we take as an example the supplied electricity recovery document for August 2022.
Levels 2 & 3 owned by our client and leased to RNZ can have no recovery as RNZ have their own separate electricity supply. Please refer to the attached email from Radio New Zealand regarding their consumption of gas and electricity. Further, level 4 is vacant so did not consume any electricity for heating or cooling at all during this period.
There is a significant amount of electricity that has been consumed that has not been captured by check meters that the Body Corporate has seemingly then sought to split amongst owners on a utility interest basis. The Body Corporate has not sought to recover these amounts from the tenants that are consuming this power.
The check meters that the Body Corporate are relying on are over 10 years old and have never been checked or correctly calibrated which has led to this issue.
The only common power that can be split by utility interest is that of the lifts and the foyer. The remainder is [sic] relates to the plant room which needs to be split based on the kilowatt used by the Tenants as a percentage of their check meters.
There is a genuine dispute between our client and the Body Corporate in relation to these on-charges. This dispute is long standing and well known to the Body Corporate. Our client has sought in good faith to attempt to resolve that dispute by requesting information from the Body Corporate (to which they are entitled) to understand the discrepancies, and the Body Corporate has failed to oblige this request.
[43] In addition to the issues referred to in the 7 June 2023 letter, as noted above at [27], there is also a dispute between the parties as to whether some of the invoices supplied by the Body Corporate in support of the statutory demand (in the sum of approximately $94,000) were for asbestos removal rather than utility on-charges. Burns has provided evidence that it has paid approximately $94,000 in respect of invoices for asbestos removal.
[44] In Blue Skys Agency Ltd v Commissioner of Inland Revenue,6 Associate Judge Faire stated in the context of an application to set aside a statutory demand issued by the Inland Revenue for outstanding taxes and levies that:7
All that is required is a consideration of whether or not the applicant has established that there is a sufficient doubt about the calculation of the sum due so that the matter should be the subject of separate proceedings and a detailed examination.
[45] In my view, the issues raised by Burns in the evidence before the Court raise sufficient doubt about the methodology used and the calculation of the sum due that the matter should be the subject of separate proceedings and a detailed examination.
6 Blue Skys Agency Ltd v Commissioner of Inland Revenue HC Auckland CIV-2003-404-3082, 10 August 2004.
7 At [32].
Levies not validly struck
[46] Burns also submits that the levy which is the subject of the statutory demand was not validly struck by the Body Corporate.
[47] Mr Wolff submits that Burn’s arguments in this regard should be given little weight because they were raised by Burns after the statutory demand was served. However, as submitted by Mr Kommu, it was only after the statutory demand was served that the Body Corporate’s solicitor confirmed the resolution it relied on as validly striking the levy.
[48] Burns submits that the resolution in relation to recovering utility costs for 2022 on the basis of utility interest is invalid because the resolution did not comply with s 101(3) of the Unit Titles Act. This section provides that:
101How matters at general meeting of body corporate decided
…
(3) Any matter that is not on the agenda for a general meeting may be discussed at the meeting but, unless all the eligible voters are present at the meeting, no resolution may be voted on and made in respect of that matter except to include that matter on the agenda for a subsequent general meeting.
[49] Burns says that not all eligible voters were “present” at the meeting because a number of votes were exercised by proxy. Mr Kommu submits that the purpose of s 101(3) is to ensure that eligible voters have had the opportunity to consider proposed resolutions before exercising their vote; and that is not possible where a matter which is not on the agenda is raised at the general meeting and some eligible voters are not present in person and are exercising their right to vote by proxy.
[50] Mr Wolff refers to s 102(2) of the Unit Titles Act, which provides “[a] proxy for an eligible voter is entitled to attend and be heard at a body corporate meeting as if the proxy were the eligible voter.” On this basis, Mr Wolff submits that all eligible voters were “present” at the meeting.
[51]I note that s 102(1) of the Unit Titles Act provides that:
102Voting: proxies
(1)An eligible voter may exercise the right to vote—
(a)by being present in person or by audio link, audiovisual link, or other remote access facility; or
(b)by proxy.
[52] This subsection indicates that to be “present” for the purposes of s 101(3), an eligible voter must be “present in person”.
[53] Burns also submits that the resolution passed by the Body Corporate at the 2022 AGM did not “fix the date” on or before which the utility levy was due in accordance with s 124(1) of the Unit Titles Act, and therefore the levy has not become payable for the 2022 year.8
[54] The Body Corporate relies on resolution 18 in the minutes of the 2022 AGM which provides as follows:
18 BUDGET AND LEVIES
Beth presented the proposed budget (attached to the agenda) for the Body Corporate for the forthcoming financial year
(i) Resolved: That the Body Corporate adopts a working account budget of $1,198,718.12 and a contingency fund budget of 7.5% of the working budget as a once off for the period 1 April 2022 to 31 March 2023 and sets the levy due date as monthly, due on the first of each month, utilities are recovered separately.
(emphasis original).
[55] The Body Corporate submits that resolution 18 entitles the Body Corporate to levy the unit owners for the 2022 utility on-charges because the resolution accepts the budget for the relevant period and provides that the operating levy is due monthly, on the first of each month, in compliance with s 124(1).9 However, the difficulty with this submission is that resolution 18 appears to exclude recovery of utility on-charges
8 Burns relies on Body Corporate S90876 v Montessori Foundation Ltd [2019] NZDC 23477 at [20]–[23].
9 The Body Corporate refers to Body Corporate No 377466 v Kumar [2010] DCR 553.
from the levy referred to in the resolution. The resolution provides that “utilities are recovered separately”.
[56] I note that in 2021 the Body Corporate received legal advice from an independent barrister regarding compliance with s 124(1) of the Unit Titles Act. The advice stated that:
Pidgeon Judd do appear to be on sounder ground with respect to the dates issued. Section 124(1) of the Unit Titles Act 2010 expressly requires the Body Corporate to fix the date on or before which payments of levies are due. It is not necessarily clear that this should be included in the levy resolution itself. For example, power to fix the dates might be delegated to the Body Corporate Committee. The Body Corporate might see fit to authorise the committee to enter into contracts for work and to fix the dates of levies of the costs of those works depending on when the contractors required payment.
However, where there is no valid Committee delegation and where levies are being fixed by resolutions passed at the Annual General Meeting, then these ought to include dates for payment. As pointed out in the Pidgeon Judd letter, without a due date, a Court asked to make orders for payments of levies could not do so, as it could not be sure that the levy was due and owing as at the time the application was made.
This issue could be fixed by subsequent appropriate resolutions fixing the dates, but it would be preferable that it was not allowed to arise in the first place.
[57] There is no evidence before the Court of any delegation to the Body Corporate committee to fix the dates for the utility on-charge levy for 2022, or, if there was such delegation, that dates were fixed by the committee in respect of the levy which is the subject of the statutory demand.
[58] In my view, Burns has shown a fairly arguable basis on which it is not liable for the amount claimed because the levy which is the subject of the statutory demand was not validly struck.
Summary
[59] Overall, I am satisfied that Burns has established that there is a genuine and substantial dispute as to whether the alleged debt in the statutory demand is owing or due.
Counterclaim, set-off or cross demand
[60] Burns also contends that the statutory demand should be set aside under s 290(4)(b) of the Companies Act on the basis that Burns appears to have a counterclaim, set-off and/or cross-demand on the following grounds:
(a)the Body Corporate has not provided the recalculation of the historical utility levies which were not calculated/struck in accordance with the Unit Titles Act, and this recalculation may result in an overpayment by Burns;
(b)the purported levies comprising the claimed debt under the statutory demand are invalid for the reasons set out above and this would completely off-set the claimed debt under the statutory demand;
(c)the Body Corporate has admitted that some information requested by Burns has not been provided yet, and this supports Burns’ draft claim for declaratory relief (not yet filed) which seeks declarations in respect of the historical levies and is likely to result in a further set-off against the claimed debt; and
(d)Burns contends that there are payments that it has made that are not reflected in the statement from the Body Corporate (via CBRE) received on or about 14 June 2023, and this is likely to lead to a further set-off.
[61]However, there are several difficulties with Burns’ position.
[62] First, to establish that a statutory demand should be set aside under s 290(4)(b), the sum in the statutory demand less the counterclaim or set-off must be less than the prescribed amount ($1,000) or otherwise must extinguish the amount of the statutory demand. A contingent and unquantified counter claim or set-off cannot assist under s 290(4)(b).10 The potential counterclaims or set-offs put forward by Burns are
10 Revill and Merrett, above n 2, at [CA290.04](6).
contingent and unquantified and Burns’ draft claim for declaratory relief in relation to historical levies does not seek monetary relief.
[63] Secondly, two of the grounds referred to above appear to relate to payments made by Burns for historical levies. Burns contends that the recalculation of these historical levies may result in overpayments by Burns which would give rise to a counterclaim and/or set-off. The Body Corporate refers again to Luxe One Ltd.11 In that case Associate Judge Smith stated as follows with regard to the issue of reconciliation of historically paid levies:12
In his substantive submissions for Spider, Mr Haines relied on the proposition that there had been a lack of reconciliation of historically paid special levies. Had that point been expanded on for Spider, drawing on the submissions Mr Haines made for Luxe, I would similarly have held that the provisions of the UTA (for example ss 130 and 131) do not support the submission that there was an obligation on the Body Corporate under which historically paid special levies had to be, or even could be, applied to “offset” currently owed operating levies.
[64] The decision in Luxe One indicates that there is no obligation on the Body Corporate to set-off any overpayments that may be determined in respect of levies paid by Burns for utility on-charges in previous years against the 2022 utility on-charges.
[65] Thirdly, it seems to me that Burns’ argument in relation to invalidity of the levy which is the subject of the statutory demand is more appropriately considered as part of the issue of whether there is a substantial dispute as discussed above.
[66] For these reasons, I am not satisfied that Burns has established that the statutory demand should be set aside under s 290(4)(b) of the Companies Act.
Ability to pay debts as they fall due
[67] Burns submits that it is able to pay its debts as they fall due. Burns has provided evidence that it has deposited funds into its solicitors’ trust account which would cover the amount claimed in the statutory demand.
11 Luxe One Ltd v Body Corporate 68792, above n 3.
12 At [170] (emphasis original).
[68] The Body Corporate submits that solvency is not determinative of the application to set aside the statutory demand.
[69] In AMC Construction Ltd v Frews Contracting Ltd, the Court of Appeal stated:13
The first question is whether the solvency of a company can of itself constitute a ground why the demand ought to be set aside under s 290(4)(c). The solvency of a company will very often be relevant to a consideration of the grounds in subs (4)(a) and (b). The Court must evaluate whether there is substantial dispute or a cross-claim. The Court must make an assessment whether the case is one where, as frequently occurs, the account is disputed as a means of buying time to pay, or whether the grounds for the dispute are genuine. An examination of the company’s solvency will often be a useful aid in determining whether the refusal to pay is the result of a bona fide dispute as to liability or whether it reflects an inability to pay.
In cases such as that solvency is relevant not as a separate ground under subs (4)(c), but as a relevant consideration under subs (4)(a) and (b). …
We would not wish to rule out the possibility that the solvency of the company might constitute a stand alone ground for setting aside a notice under para (c). However, we consider that such cases are likely to be extremely rare. If there is no dispute as to the company’s liability, so that para (a) and (b) cannot be invoked, it is difficult to imagine circumstances in which the company should be able to avoid paying a debt, merely by proving that it is able to pay that debt.
[70] In the present case, I consider that the fact that Burns has deposited the amount claimed in the statutory demand into its solicitors’ trust account is a factor which supports the finding I have made above that there is a genuine and substantial dispute as to whether the debt is owing or due.
Result
[71] The statutory demand is set aside under s 290(4)(a) of the Companies Act 1993.
[72] My preliminary view is that costs should follow the event and that Burns is entitled to 2B costs and disbursements as fixed by the Registrar. If either party
13 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [5]-[7] (emphasis original).
disagrees with that preliminary view, then memoranda may be filed (not exceeding three pages, excluding costs schedules) and costs will be determined on the papers.
Associate Judge Skelton
Solicitors:
Pidgeon Judd Law Ltd, Auckland for Applicant Morrison Kent, Wellington for Respondent
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