Cummins v Body Corporate 172108
[2024] NZCA 303
•8 July 2024 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA680/2023 [2024] NZCA 303 |
| BETWEEN | ROBERT JAMES CUMMINS |
| AND | BODY CORPORATE 172108 |
| Court: | French and Ellis JJ |
Counsel: | Applicant in person |
Judgment: | 8 July 2024 at 3.00 pm |
JUDGMENT OF THE COURT
AThe application for leave to appeal is declined.
BMr Cummins is to pay the Body Corporate’s costs for a standard application on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Ellis J)
Mr Cummins seeks leave to appeal from a decision in the High Court refusing to halt the bankruptcy proceedings taken by Body Corporate 172108 (the Body Corporate) against him.[1]
[1]Body Corporate 172108 v Cummins [2023] NZHC 1535 [High Court judgment].
Leave to appeal is opposed by the Body Corporate and was refused by Associate Judge Johnston in the High Court.[2]
[2]Body Corporate 172108 v Cummins [2023] NZHC 3169 [High Court leave judgment]. Following the refusal of leave in the High Court, Mr Cummins is entitled to apply for leave to this Court under s 56(5) of the Senior Courts Act 2016.
The principal (but not the only) ground of Mr Cummins’ proposed appeal is that the Associate Judge was wrong not to have halted the bankruptcy application because he (Mr Cummins) has various triable cross-claims against the Body Corporate. Mr Cummins refers, in particular, to the decision in Re Bayoil SA where the English and Welsh Court of Appeal held that in the absence of special circumstances it would be an abuse of process to liquidate a company where it has a genuine and serious cross-claim in an amount equal to or exceeding the relevant debt.[3]
[3]Re Bayoil SA [1999] 1 WLR 147 (CA) at 156.
As discussed further below, the cross-claims relied on by Mr Cummins here were claims made by Manchester Securities Ltd (in liquidation) (Manchester) against the Body Corporate in arbitral proceedings, seeking to apportion the costs of repairing its unit property on level 12 of the Hobson Apartments in Auckland between it and the other unit holders under cls 10.3 and 21.2 of the scheme settled by the High Court under s 48 of the Unit Titles Act 1972 (the scheme). Mr Cummins says Manchester’s rights in these claims have vested in him. These arbitral proceedings were, however, stayed on an interim basis (pending further order of the High Court) in 2018.[4]
Wider litigation context
History
[4]Body Corporate 172108 v Meader [2018] NZHC 3356 at [22].
The litigation history, of which the present application forms but a small part, was fairly described by the Associate Judge as “complex”.[5] The overarching dispute between Mr Cummins, Manchester and the Body Corporate over the remediation of Hobson Apartments pursuant to the scheme goes back for over a decade. The scheme pursuant to which the remediation work has been carried out (the need for which arose following the discovery that the building had serious weather tightness issues) was first approved by Heath J in the High Court on 31 August 2010[6] and subsequently varied by Fogarty J on 3 March 2017.[7]
[5]High Court leave judgment, above n 2, at [2].
[6]Body Corporate 172108 v Meader (Nos 2 & 3) (2010) 12 NZCPR (HC); and Body Corporate 172108 v Meader (No 4) HC Auckland CIV-2009-404-6868, 10 February 2011.
[7]Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329; aff’d Manchester Securities Ltd Body Corporate 172108 [2017] NZCA 527, (2017) 19 NZCPR 65 [Court of Appeal variation judgment]. Leave for a second appeal was declined in Manchester Securities Ltd v Body Corporate172108 [2018] NZSC 19.
The narrative of the dispute has been set out in a number of previous judgments.[8] An instructive summary can be found in the recent and relevant decision of Powell J in the High Court.[9]
[8]In the High Court judgment, above n 1, at [3], n 1, Associate Judge Johnston referred by way of example only to the Court of Appeal variation judgment, above n 7; Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190, [2018] 3 NZLR 455; Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408; Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17; Cummins v Body Corporate 172108 [2022] NZCA 68; and Cummins v Body Corporate 172108 [2022] NZCA 658, (2022) NZCPR 884.
[9]Body Corporate 172108 v Meader [2024] NZHC 1280 [2024 High Court judgment]. Powell J’s decision was released after the present application and submissions were filed. The Body Corporate quite properly sought to bring it to our attention and made brief further submissions arising. Mr Cummins filed a written response.
Powell J noted that, despite the scheme being in place for almost 14 years:[10]
… Manchester, as the trustee of the Manchester Securities Trading Trust (“MSTT”) between 1997–2019 and acting for the most part under the direction of its sole director and current trustee of MSST, Robert Cummins, has signally failed to complete remediation of level 12, and the evidence confirms level 12 is still not weathertight. Neither Manchester, which (having been placed in liquidation by the Body Corporate for failure to pay amounts owing) now claims it cannot complete the remediation of level 12, nor Mr Cummins have the resources to carry out further work on level 12. This is because the primary funder of the level 12 work to date, … Sage Securities Ltd (“Sage”), is no longer prepared, or does not have the resources, to advance further monies to complete the remediation of level 12.[[11]]
[10]At [5] (footnote added).
[11]As to the involvement of Sage, Powell J later (at [10]) observed:
Although Sage claims to have been in a normal commercial relationship with Manchester (“strictly lender/borrower”) and has a long standing business relationship with Mr Cummins, it is clear that the support Sage has provided to Manchester has far exceeded any rational limits, as has its failure to enforce its mortgage security over level 12 in a timely manner, with the result that Sage’s only hope to recover any of the monies advanced to Manchester is through supporting Manchester’s claims for contribution against the Body Corporate and the other owners of the building.
The Judge went on to explain that, despite many judgments of the Senior Courts and the terms of the scheme itself, as a consequence, Manchester (supported by Sage) still seeks financial contribution from the Body Corporate and the other owners of the building to complete the remediation of level 12, and, ultimately, to recover significant amounts of the monies it has itself expended on remediation works.[12] Powell J then recorded:[13]
[7] Counsel for both Manchester and Sage, while not conceding full causal responsibility on behalf of their clients, acknowledge the attempted remediation and concomitant redevelopment of level 12 by Manchester has been a disaster. This position is also accepted by Mr Cummins who stated in evidence he now bitterly regrets taking on the remediation. The issue has not been resourcing. There is no dispute that Manchester has received more than adequate funding to complete the remediation of level 12, having according to Mr Cummins so far spent nearly $9 million (exclusive of GST) on level 12 as at March 2022, and has throughout been in receipt of plentiful expert advice.
[12]At [6].
[13]Footnotes omitted.
The Judge noted there is little to show for the monies Manchester has spent and little in the way of a clear plan or of reports justifying the work already undertaken. Only limited records of what has actually been done or redone appear to exist.[14] Manchester is now in liquidation and (the Judge said) according to Mr Cummins, at least $1.6 million is still required to make level 12 weathertight and to obtain a code compliance certificate.[15] The Judge then observed that responsibility for what is, on any analysis, a disaster for those involved, “must rest largely with Mr Cummins”:[16]
As the sole director of Manchester, it was his decision to oppose the Body Corporate carrying out the remediation work on level 12, and subsequently taking a “dilatory and prevaricating” approach to the remediation of level 12, notwithstanding it had required a change in the scheme initially proposed by Heath J so it could complete the remediation of level 12 prior to the Body Corporate undertaking its repairs to levels 1–11. There is also no doubt Manchester’s behaviour was substantively enabled by the failure of Sage to impose any discipline on Mr Cummins and Manchester in the way the monies it advanced have been expended.
[14]At [8].
[15]At [9].
[16]At [10] (footnote omitted).
The Judge compared the conduct of Mr Cummins, Manchester and Sage with that of the Body Corporate:
[11] The abject failure of Manchester to complete the remediation of level 12, aided and abetted by Sage, stands in stark contrast to the actions of the Body Corporate. The Body Corporate, having settled its own litigation with Auckland Council, completed the remediation of levels 1–11 by December 2013. Having completed remediation of the rest of the building, the Body Corporate’s focus since then has been to pursue Manchester for Manchester’s contribution to the remediation of the common property on levels 1–11 and has consistently opposed any attempt by Manchester to pass on the costs of Manchester’s remediation of its unit property on level 12.
Included in the substantive matters before Powell J was the jurisdiction of the arbitrator to hear and determine Manchester’s cross-claims (the claims that form one of the bases for Mr Cummins’ application for a halt and for the present application for leave to appeal). So it is presently relevant to note that Powell J made the following directions as to the effect of the scheme:[17]
(a) With regard to remedial work undertaken on Manchester’s unit, the costs are to be borne solely by Manchester pursuant to cl 10.1 of the scheme, subject to any claims Manchester may have pursuant to cl 21.2 of the scheme.
(b) With regard to remedial work undertaken to the common property on level 12, the costs of remediation are to be borne according to unit entitlement pursuant to cl 10.2, subject to any claims Manchester may have pursuant to cl 21.2 of the scheme.
(c) It is only at the junction between Manchester’s unit property and common property that cl 10.3 can have any application. Given the clear effect of cls 10.1, 10.2 and 21.2–21.4, it is not a provision that can be used to claim contribution from the other owners in the building to repairs to Manchester’s unit.
[17]At [147].
Powell J therefore found Manchester’s attempt to arbitrate the effect of cl 10.3 fell outside the dispute resolution provisions in the scheme and was a collateral attack on Fogarty J’s variation judgment and this Court’s judgment on appeal from that judgment.[18]
[18]At [83]. See above at [5], n 7.
As regards the possibility of residual claims by Manchester under cl 21.2, Powell J had found earlier that cl 21.2 does not affect the overall cost allocation between unit property and common property repairs but rather provides a limited mechanism for Manchester to make claims for consultant fees, and even then not in relation to the costs of project management consultants or other construction-related advisors it has incurred with regard to the repair of its own unit property.[19] He said:[20]
[92] It appears from the figures provided by Mr Cummins that as of March 2022 the maximum amount of “project management consultants or other construction-related advisors” claimed to come within cl 21.2 is $1,194,552.61 (excluding GST). It is thus at most only a reasonably small proportion of the total cost expended by Manchester on level 12. It is, in any event, not clear whether all invoices have been made available still less whether at any point any supporting documentation to justify why those costs benefit all of the other owners or the Body Corporate, and it therefore appears that any claim under cl 21.2 remains pending rather than actual.
[19]2024 High Court judgment, above n 9, at [90] and [91].
[20]Emphasis added. Footnote omitted.
Powell J also made an order making the 2018 interim stay of the arbitral proceedings permanent.[21] He awarded costs against both Manchester and Sage, and left it open as to whether there were other individuals or entities against whom costs could be claimed.[22]
The bankruptcy proceedings
[21]At [149].
[22]At [150].
The bankruptcy proceedings with which we are presently concerned are a consequence of Mr Cummins involving himself in the Body Corporate’s attempt, through winding up proceedings, to recover substantial outstanding levies from Manchester, in both the High Court and this Court. As a result of these endeavours, on 30 June 2021 the Body Corporate obtained a costs award against Mr Cummins of $33,818.54.[23] What then happened was set out by Associate Judge Johnston:[24]
[7] It is that judgment debt which the Body Corporate is moving to enforce against Mr Cummins in this proceeding. On 13 September 2021, the Body Corporate served a bankruptcy notice. Mr Cummins applied pursuant to s 17(1)(d)(ii) of the Insolvency Act for an order setting aside the bankruptcy notice. On 25 February 2022 this Court dismissed that application. Mr Cummins sought the recall of the judgment, asserting that it contained substantial factual and other errors. He also appealed. The judgment was reissued on 13 May 2022 to correct minor factual errors.
[8] In a judgment dated 21 December 2022 the Court of Appeal dismissed Mr Cummins’ appeal. In doing so, the Court of Appeal addressed Mr Cummins’ contention that the Body Corporate was a secured creditor of both Manchester and himself for the purposes of s 14 of the Insolvency Act 2006, as a result of its claim to be subrogated to Manchester’s lien over the Trust’s assets, concluding that the Body Corporate is not a secured creditor.
[23]Body Corporate 172108 v Manchester Securities Ltd (in liq) [2021] NZHC 1542 at [2] and [11] [costs judgment]. The quantum of costs was not noted in the costs judgment but, as we understand it, is not in dispute.
[24]High Court judgment, above n 1 (footnotes omitted).
Next, in June 2023, Mr Cummins applied in the High Court pursuant to s 38 of the Insolvency Act 2006 (the IA) to halt the bankruptcy proceedings. Section 38 simply provides:
38 Court may halt application
(1)The court may at any time halt the creditor’s application for adjudication.
(2)The court may halt the application on the terms and conditions (if any), and for the period, that the court thinks appropriate.
Mr Cummins contended a halt was necessary because:[25]
(a)he has cross-claims against the Body Corporate for a sum in excess of the judgment debt against him;[26]
(b)the judgment debt is secured for the benefit of the Body Corporate; and
(c)he has a quantum meruit claim against the Body Corporate in relation to costs incurred by him in relation to services he has provided in relation to the remediation, and a claim in damages under s 148(1) of the Land Transfer Act 2017 (LTA) arising from the alleged unlawful or unjustified lodging of a caveat against the title to Unit 12A.
[25]At [15].
[26]Relying, in particular, on Re Bayoil SA, above n 3, at 156.
The Associate Judge declined to grant a halt. He concluded:[27]
[27]High Court judgment, above n 1 (footnote omitted, emphasis in original).
[104] The Court’s approach to applications under s 38 has been described as follows:
Despite the inherent flexibility of the s 38 discretion, certain considerations are invariably brought to account, including:
(a) the history of the litigation and the conduct of the parties in the same;
(b) the impression that the court can gain of the merits of the appeal;
(c) the stage reached in the appeal and any information to hand as to when it may be disposed of;
(d) the relative consequences for both parties of making or refusing the order sought; [and]
(e) any known consequences for third parties.
[105] Inherent in those considerations is the principle that an application under s 38 is directed to a situation where an applicant has an arguable claim against which the debt underlying the application for adjudication can be and should be set off. In this case, the relevant considerations are:
(a) The history of the litigation: the dispute in this case has been before the courts continuously since at least 2010. Mr Cummins and his interests has refused to pay sums owing to the Body Corporate throughout this time, and the judgment debt in the present case has been outstanding since 30 June 2021. While the Court of Appeal has recognised that Manchester has a plausible claim, both this Court and the Court of Appeal have, time and again, refused to regard that claim, a claim for unliquidated damages that may or may not succeed, as providing a foundation for bringing to an end insolvency or liquidation proceedings. The Court of Appeal has described Mr Cummins and his interests as engaging “dilatory and prevaricating behaviour”.
(b) The merits of Mr Cummins’ cross-claims: for the reasons set out in this judgment, I consider that Mr Cummins’ arguments lack merit, even although there is a claim in existence which remains to be determined.
(c) The stage of Mr Cummins’ cross-claims: I am unaware of when (if ever) Mr Cummins’ claim is likely to be determined, although it is clear that no proceeding alleging quantum meruit or seeking caveat damages currently exists. Given the stay, it seems unlikely that the claim will be determined any time soon. It also appears to me that Mr Cummins’ apparent propensity to take every point he can — good, bad or indifferent — is likely to prolong the time it will take to have his claim determined.
(d) Consequences for the parties: given the history of the dispute between Mr Cummins and his interests, and the Body Corporate, the consequences of a halt would be to drag the dispute out, further prolonging the Body Corporate’s attempt to recover an outstanding judgment debt. As the Courts have emphasised, the history of the litigation indicates that the balance of equities does not fall in Mr Cummins’ favour.
(e) Consequences for third parties: it appears to me that a halt of the application would be likely to have a negative impact on Mr Cummins’ creditors generally.
Mr Cummins’ proposed appeal
Mr Cummins’ seeks to appeal the Associate Judge’s decision on the grounds that the Judge erred as follows:
(a)as regards the cross claims:
(i)at [53] of his judgment in giving weight to the facts that the bankruptcy proceedings were based on an unchallenged judgment debt (payable immediately and outstanding since 30 June 2021) and that Mr Cummins’ cross-claims involved merely an unliquidated claim for damages in (stayed) arbitral proceedings which had not been determined;[28]
(ii)at [57] of his judgment in placing weight on the fact that it is a central aspect of the bankruptcy jurisdiction that a debtor is liable to be bankrupted if they are unable to pay their debts as they fall due, and so to protect the public, because the judgment debt has not fallen due because it is met by the cross-claims;[29] and
(iii)in finding that the history of the matter gives rise to special circumstances which would, in any event, warrant dismissing the halt application;
(b)in finding at [84] and [85] that there is no genuinely triable quantum meruit claim because (among other things) the Court would need first to accept that Mr Cummins had provided services to the Body Corporate, the costs of which he is entitled to recover;
(c)at [100] of his judgment in finding that the claim for damages under s 148(1) of the LTA must fail because the Body Corporate had a reasonable basis for lodging the caveat and the issue has been already determined; and
(d)more generally, (at [105(c)] and [105(d)] of his judgment) in finding that:
(i)the fact Mr Cummins takes every point he can is likely to prolong the time it will take to determine his cross-claims; and
(ii)a halt of the bankruptcy proceedings would prolong the Body Corporate’s attempt to recover its judgment debt.
[28]Mr Cummins says it is not necessary that a cross-claim be for a liquidated amount: the test he is “required to meet is that [his] cross-claims must be genuine and triable, which is not in dispute in the proceeding. It is sufficient that [he] may be successful in the arbitral proceedings[.]” Mr Cummins also says that it is irrelevant that the judgment debt is payable immediately or unchallenged.
[29]Until the cross-claims are determined, he says, “in practical terms, the position is the same as if the Body Corporate’s outstanding debt was itself disputed”.
The Associate Judge refused to grant leave to Mr Cummins bringing such an appeal. It is unnecessary for present purposes to refer to his reasons for doing so, other than to note that no issue is now taken with the Judge’s jurisdictional view that a refusal to grant a halt was an interlocutory decision from which no appeal lay as of right.[30] For completeness, however, we record that we agree with that view.
Should leave be granted?
[30]High Court leave judgment, above n 2, at [7].
The principles governing applications for leave to appeal an interlocutory decision are well known and have been articulated (for example) by this Court in Greendrake v District Court of New Zealand and Ngai Te Hapu Inc v Bay of Plenty Regional Council.[31] They have been summarised as follows:[32]
(a) a high threshold exists;
(b) the applicant must identify an arguable error of law or fact;
(c) the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the significance or implications of such error either for the particular case or for the applicant or as a matter of precedent must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
[31]Greendrake v District Court of New Zealand [2020] NZCA 122 at [6]; and Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [12].
[32]Jessica Gorman and others McGechan on Procedure (looseleaf ed, Thomson Reuters) at [SC56.07].
Proceeding on the assumption that the proposed grounds of appeal referred to could be said to involve errors of law (and without deciding that point), we consider they are neither seriously arguable, nor of a kind that have any general or public importance.
The absence of serious arguability has only been strengthened by the release (after the Associate Judge’s halt and leave decisions) of Powell J’s judgment referred to earlier. As noted, Powell J has permanently stayed the arbitral proceedings, found that the cross-claim under cl 10.3 could not succeed and expressed the view that any residual claim under cl 21.2 “remains pending rather than actual”. So any conceivable strength that Mr Cummins’ cross-claim argument might once have had has all but evaporated.
Moreover, as a matter of fact, no quantum meruit claim has been brought and it is, in our view, indisputable that the lodgement by the Body Corporate of the caveat has been litigated and relitigated, and never with an outcome favouring Mr Cummins or his interests. Indeed, the attempt to relitigate the issue has been called an abuse of process in the High Court.[33]
[33]Cummins v Body Corporate 172108 [2022] NZHC 774 at [122]–[125]. See also generally Body Corporate 172108 v Flat Bush Finance Ltd [2020] NZHC 3135, (2020) 21 NZCPR 622.
But in any event, we agree with the Associate Judge, that the wider litigation context strongly militates against the grant of leave here. There can be no doubt that the legitimate interests of the Body Corporate and the other unit title holders are being grossly prejudiced by its continuation. The interests of justice clearly favour the denial of leave.
Result
The application for leave to appeal is declined.
Mr Cummins is to pay the Body Corporate’s costs for a standard application on a band A basis and usual disbursements.
Solicitors:
Grove Darlow & Partners, Auckland for Respondent
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