Een v Body Corporate 384911
[2023] NZHC 524
•16 March 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1899
[2023] NZHC 524
UNDER section 10 of the Unit Titles Act 2010 IN THE MATTER OF
an originating application by a minority for relief against resolutions of the majority
BETWEEN
WONG SUN EEN and others Plaintiffs
AND
BODY CORPORATE 384911
First Defendant
PANDY VIADUCT QUAYS LIMITED
Second Defendant
Hearing: 29 November 2022 Counsel:
P L Rice for plaintiffs
R J Hollyman KC, N G Lawrence and W J Revell for second to sixth defendants
Judgment:
16 March 2023
JUDGMENT OF ASSOCIATE JUDGE TAYLOR
[Security for costs – leave to appeal]
This judgment was delivered by me on 16 March 2023 at 4pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
Haigh Lyon, Auckland for plaintiffs
Edmonds Judd, Te Awamutu for first defendantFarry Law Limited, Auckland for second to sixth defendants
EEN & ORS v BODY CORPORATE 384911 & ORS [2023] NZHC [524] [16 March 2023]
PANDEY VIADUCT SUITES LIMITED
Third Defendant
PANDEY VIADUCT SUITES TWO LIMITED
Fourth Defendant
PANDEY VIADUCT SUITES THREE LIMITED
Fifth Defendant
CUSTOM STREET HOTEL LIMITED
Sixth Defendant
AAPC PROPERTIES PTY LIMITED
Seventh Defendant
Background
[1] The Court delivered a judgment dated 29 April 2022 dismissing the second to sixth defendants’ application for an order for security for costs against the plaintiffs.1
[2] The second to sixth defendants (the defendants) filed an interlocutory application for leave to appeal the judgment dated 23 May 2022. The plaintiffs filed a notice of opposition to the application dated 8 June 2022.
[3] On 7 November 2022, the defendants filed submissions in support of the application for leave to appeal and on 22 November 2022 the plaintiffs filed reply submissions.
[4]The matter was heard in the Auckland High Court on 29 November 2022.
Grounds for the appeal
[5] The draft notice of appeal attached to the defendants’ application identified five grounds of appeal. The Court allegedly erred in determining that:
(a)the jurisdictional threshold under r 5.45(1)(b) was not met;
(b)the plaintiffs have valuable property within New Zealand;
(c)the plaintiffs’ claim is not without merit;
(d)the defendants’ conduct was arguably designed to injure the plaintiffs;
(e)the delay in bringing the application weighed against ordering security.
[6]I deal with each of these grounds in turn.
1 Een v Body Corporate 384911 [2022] NZHC 852.
First ground of appeal – jurisdiction – r 5.45(1)(b)
[7] The defendants submit that in determining whether or not the defendants had demonstrated to the Court surrounding circumstances showing reason to believe that the plaintiffs will not be able to pay an eventual award of costs, the Court erred by:
(a)omitting to take account of the affidavit of Mr Fong in reply to the affidavit of Mr Lip of 9 March 2022;
(b)by omitting to take account of the plaintiffs’ own evidence that the reason for an ex-plaintiff selling their unit to Pandey Viaduct Suites Limited (PVSL) is that they could not afford the financial impact of being a party to litigation;
(c)omitting to consider the analysis in Colbart Ltd v Eastpack Ltd:2 this was relied on in oral submissions by the defendants;
(d)giving too much weight to an absence of direct or express evidence of the plaintiffs being unable to pay an eventual award of costs.
[8] In response to this ground the plaintiffs submit that even if this ground is valid, the Court reached the view that there is jurisdiction to make an order for security under r 5.45(1)(a)(i), namely that the plaintiffs are resident out of New Zealand. Hence any appeal to overturn the decision on this jurisdictional point under r 5.45(1)(b) serves no purpose.
[9] My conclusion on this point is that the submission by the plaintiffs is correct. As jurisdiction was established to make an order under r 5.45(1)(a)(i), so the point is moot and any appeal on this jurisdictional ground would serve no purpose.
Second ground of appeal – whether the plaintiffs have valuable property in New Zealand
[10]The defendants submit that the Court erred in the following respects:
2 Colbart Ltd v Eastpack Ltd [2012] NZHC 2175 at [31]–[36].
(a)by omitting to take into account the affidavit evidence of Mr Fong in reply to the affidavit evidence of Mr Lip of 9 March 2022, and in particular the parts of Mr Fong’s evidence set out at 2(c)(i) paras 1 to 11 of the draft notice of appeal;
(b)by omitting to take account of the defendants’ submission that because the relevant vendor did not meet the market, the bid of $42,000 at the auction cannot be regarded as representing the value of any unit;
(c)by omitting to take account of the plaintiffs’ own evidence that the only basis on which the units could be valued is on an investment basis, and on an investment basis the units could not be given any value at all;
(d)by omitting to take into account that, notwithstanding the valuer’s evidence produced by the plaintiffs, the contention in evidence that their units may now earn income, and notwithstanding the opportunity available to the plaintiffs to do so, the plaintiffs did not produce any updating valuation evidence;
(e)by giving too much weight to the submission for the plaintiffs that the purchase by PVSL of ex-plaintiffs’ units at $150,000 established a minimum average value for the plaintiffs’ units generally at $150,000;
(f)by giving insufficient weight to the defendants’ evidence and submissions explaining why, even if the plaintiffs’ units have the value they contend, that is not adequate as evidence of the plaintiffs’ ability to pay an eventual award of costs for the reasons set out at [2](c)(vi), paras 1 to 7, of the draft notice of appeal.
[11] The plaintiffs submit that there is abundant evidence to support the conclusion that the units have value and these are listed at [10] of the plaintiffs’ submissions in opposition to the application as follows:
(a)Mr Lip’s unit was purchased for $499,000;
(b)at the beginning of 2012 the CP Group paid between $120,000 and
$180,000 for residential units and have steadily purchased units over the years;
(c)at the end of 2021, five units were sold to the PVSL for prices ranging from $150,000 to $170,000;
(d)an auction bid of $42,000 was received for one of the plaintiff’s units;
(e)of the 85 units owned by the plaintiffs, 50 are unencumbered;
(f)the plaintiffs intend to rent their units through an alternative room manager;
(g)subject to Covid-19 restrictions, a selection of the plaintiffs’ rooms will be available for booking from 1 December 2021.
[12] Dealing first with Mr Fong’s affidavit, this was taken into account by the Court in reaching its decision. The defendants make much of the issue that the units are encumbered, and therefore not available as security for any award of costs. Emphasis is placed by the defendants on encumbrances by Marsden, the plaintiffs’ room manager in relation to the units and the fact that the Marsden encumbrances needed to be released in respect of the sales of the units to PVSL. In considering this issue in the judgment, my view was that while it is expected that the Marsden encumbrances would need to be released if the units were to form part of the defendants’ Sofitel operation, if the units were to be sold as investment units with the Marsden arrangements in place, such encumbrances may not need to be released. Arguably the units may have a value established in that manner.
[13] The defendants assert that Mr Lawson’s evidence establishes that the units have no value. In fact, Mr Lawson’s evidence on this point was:
[34] Taking account of the current situation of the 85 subject units and restrictive body corporate rules, I am of the opinion the units are unable to be valued on a market related basis.3
[14] It has now been established that such body corporate rules were ultra vires and the units have potential to earn income by being reused as part of a hotel operation or similar. The basis on which Mr Lawson deposed he was unable to value the plaintiff’s units has now changed.
[15] In summary, notwithstanding Mr Fong’s evidence and notwithstanding the reliance by the defendants on Mr Lawson’s evidence (which in my view has been mischaracterised by the defendants) the argument that 50 unencumbered (by mortgages) units, with arrangements in place with Marsden as room manager, in the location of the units have zero value is unconvincing.
[16] In addition, the Court finds that, as submitted by the plaintiffs, that there is a material risk all 85 unit owners will sell units or otherwise dispose of them to defeat a costs award is unconvincing.
Third ground of appeal – whether the plaintiffs’ claim has merit
[17] The defendants submit that the Court erred in the assessment of the merits of the plaintiffs’ claim in the following respects:
(a)by omitting to take account of the defendants’ submissions as to why the first cause of action should not succeed;
(b)by omitting to take account of the defendants’ submission that even if the plaintiffs were to succeed in their causes of action, they would be entitled to no more than nominal damages, as they are currently enjoying a position that is better than the counterfactual position under their first cause of action;
3 Affidavit of James Richard Lawson dated 15 October 2020, BOD vol 1 at 195
(c)by omitting to consider the submissions for the defendants that the plaintiffs have a credibility problem to overcome which bears on the merits of the case with respect to the prospects of success;
(d)by omitting to consider the estoppel and common understanding defences relied on by the defendants and relied on in oral and written submissions, which bear on the prospects of success for the plaintiffs;
(e)by giving too much weight to the observation of Hinton J at an earlier interlocutory stage of the proceeding that the plaintiffs have an arguable case;
(f)by giving insufficient weight to the defendants’ submissions that the plaintiffs were (and are) not responsible for the plaintiffs’ inability to pay costs for the reasons set out at [2](f)(vi), paras 1 to 7, of the notice of appeal;
(g)in stating as a matter of fact that Lighter Quay Hotel Management Limited was part of the CP Group of companies, when this is incorrect;
(h)in stating that the defendants objected to the Lip affidavit of 9 March 2022 being accepted by the Court for filing, and that the Court would admit the affidavit, which was plainly wrong when the defendants stated to the Court they were comfortable for Mr Lip’s affidavit to be received so long as Mr Fong’s affidavit in reply was also received and considered;
(i)in stating that the defendants have subsequently resiled from the resolutions challenged in the proceeding and the finding that the resolutions were arguably designed to injure the plaintiffs, which is plainly wrong in the circumstances where Mr Pandey gave evidence that the resolutions were only intended to protect the security of the building and if the effect complained of by the plaintiffs resulted from the resolutions then they were not for that effect.
[18] The plaintiffs submit that the Court cannot come to a clear view at an interlocutory stage on the merits of the claim, defences or the likely award of damages or the credibility of witnesses. In relation to the weight placed by the Court on Hinton J’s judgment at an earlier interlocutory proceeding, the Court is entitled to place weight on this as a matter of discretion.
[19] It is acknowledged that the error pointed out at [17](g) was an error and the point referred to at [17](h) may also be correct but both are irrelevant to the issue of whether leave should be granted to appeal.
[20] My view on this issue is that there are relatively complex arguments to be assessed at the substantive trial and it was apparent that the plaintiffs’ claim was not completely without merit. In a complex matter, any assessment in an interlocutory application will be no more than an impression and cannot be a definite indicator of the outcome after trial.4
Fourth ground of appeal – the defendants’ conduct
[21] The defendants submit that the finding that the resolutions, which were the subject of the earlier proceeding, were arguably designed to injure the plaintiffs was plainly wrong in circumstances where at a very early stage of the proceedings Mr Pandey gave evidence that the resolutions were only intended to protect the security of the building and if the effect complained of by the plaintiffs resulted from the resolutions, then they were not for that effect.
[22] The plaintiffs submit that on the evidence it was clearly open to the Court to make this finding as follows:
(a)In 2015, the plaintiffs commenced arbitral proceedings against the former hotel manager, VQHL, to compel an audit of its financial statements.
4 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 at [21].
(b)On 6 July 2020, before the audit could be completed, Mr Pandey of the CP Group placed VQHL into voluntary liquidation, effectively terminating the previous hotel business and the plaintiffs’ income from the lease of their units.
(c)In August 2020, the plaintiffs became aware of the defendants’ proposal to re-open the hotel without involvement of their units.
(d)On 7 September 2020, the defendants instigated changes to the body corporate rules prohibiting unit owners from operating an Airbnb or other similar accommodation service in their units. The plaintiffs voted against the rule changes but were outvoted. The rule changes prevented the plaintiffs from earning revenue from their units but the units were still subject to levies and rates of approximately $24,000 a year.
[23] The plaintiffs submit that the decision was not plainly wrong to reach the conclusion that the defendants’ conduct was arguably designed to injure the plaintiffs by preventing them from earning any income from their units.
[24] My view in relation to the fourth ground of appeal is that there is an arguable case that the conduct of the defendants was designed to injure the plaintiffs and it is unconvincing that the restriction the defendants sought to introduce into the body corporate rules related to the protection of security of the building.
Fifth ground of appeal – defendants’ delay
[25] The defendants allege that the Court erred in respect of treating the defendants’ delay in bringing the application for security for costs as a factor in declining the application for the following reasons:
(a)by giving too much weight to the nominal time from when the statement of claim was filed in the proceeding as establishing delay as a disentitling factor;
(b)by giving insufficient weight to the stage of progress in the proceeding at which security for costs was applied for as demonstrating nor disentitling delay;
(c)by giving insufficient weigh to the plaintiffs’ own submission that any alleged delay in bringing an application for costs did not cause the plaintiffs any real prejudice in the proceeding;
(d)by giving insufficient weight to prior decisions of the High Court in which an order requiring security for costs was granted at a much later stage of a proceeding than the application in the present case;
(e)by giving insufficient weight to the submission that any alleged delay may be accounted for by discounting steps already taken in the proceeding, which is in any event is a consideration of general application to security for costs.
[26] The plaintiffs on the other hand submit these are matters in the exercise of discretion as to the weight to be given to the various matters and are not a legitimate ground for appealing the exercise of a discretion.
[27] My view in this respect is the delay by the defendants in bringing the application for security for costs was a relatively minor factor in the decision, and consequently is not a substantial ground of appeal for appeal.
Overall conclusion in relation to the grounds for appeal
[28] In my view, the grounds for appeal set out by the defendants do not justify granting leave to appeal. A high threshold exists for granting leave to appeal and allegation of errors of law or fact is generally insufficient. The alleged errors must be of sufficient merit and relate to sufficiently important issues to outweigh the cost and delay of the appeal.5 In this instance, in my view, for the reasons set out above, they do not.
5 Ngai Te Hapū Inc v Bay of Plenty Regional Council [2018] NZCA 291.
[29] In my view the overriding factor in favour of declining the defendants’ application for security for costs is that the plaintiffs have substantial property in New Zealand which even if the lowest view of its value is taken is available to meet an award of costs.
Is there general or public importance in the appeal or is it sufficiently important to the applicant to outweigh the lack of general or public importance?
[30] In my view, the appeal does not raise any issues of public interest or importance. It involves the application of settled principles to specific facts of the case.
Orders
[31]The defendants’ application for leave to appeal is dismissed.
Costs
[32] Costs are reserved. Counsel are directed to endeavour to agree costs in respect of the application. If costs are not agreed within 20 working days of the date of this judgment, then:
(a)counsel for the plaintiffs is to submit a memorandum as to costs (not exceeding five pages) within five working days of the expiry of the 20 working day period;
(b)counsel for the defendants is to submit a memorandum in reply (not exceeding five pages) within five working days of receipt of the memorandum of counsel for the plaintiffs.
[33]Costs will then be decided on the papers.
Associate Judge Taylor
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