Everest Serviced Apartments Limited v Body Corporate 511909
[2019] NZHC 1987
•14 August 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1191
[2019] NZHC 1987
BETWEEN EVEREST SERVICED APARTMENTS LIMITED
Plaintiff
AND
BODY CORPORATE 511909
First Defendant
STRATA TITLE ADMINISTRATION LIMITED
Second Defendant
Hearing: 14 August 2019 Appearances:
G J Thwaite and Y S Kim for the Plaintiff (also attending, V Heuser)
E St John and C Baker for the First Defendant No appearance for the Second Defendant
Judgment:
14 August 2019
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Counsel:
E St John, Barrister, Auckland
Solicitors:
G J Thwaite, Gregory J Thwaite, Auckland Y S Kim, Gregory J Thwaite, Auckland
C Baker, Price Baker Berridge, Auckland Copy to:
D S McGill and T J Wood, Duncan Cotterill, Auckland
EVEREST SERVICED APARTMENTS LIMITED v BODY CORPORATE 511909 [2019] NZHC 1987 [14
August 2019]
[1] The plaintiff filed an application for summary judgment against the first and second defendants. The first defendant did not file a notice of opposition and affidavits. Instead, it applied for security for costs. The plaintiff’s summary judgment application against both defendants has been put on hold to await a decision on the first defendant’s security for costs application.
Background
[2] The case concerns Park Residences, a block of apartments on the corner of Albert Street and Swanson Street in the inner city. Body Corporate 511909 is a subsidiary body corporate under the Unit Titles Act 2010. It is the body corporate for the residential parts of the building. There is a head body corporate for the entire building and there are other subsidiary bodies corporate. There are well over 200 residential apartments in the building. The second defendant, Strata Title Administration Limited, is the body corporate secretary. Park Residences has only recently been built. It started operation in 2018. The owners of the apartments include owner/occupiers, who live in their apartments, investor/owners, who rent their apartments out on a long-term basis, and owners who allow their apartments to be used for short terms stays. There is a question of terminology about the use of apartments for short term stays. In this proceeding the description, “Airbnb owners” has been used to refer to apartments used for short-term stays. The plaintiff, however, is anxious not to be identified with Airbnb operators.
[3] Everest Serviced Apartments Ltd took one year leases from 50 owners. These were tenancies under the Residential Tenancies Act 1986. With those leases it ran a hotel operation. It says that up until the year ending March 2019 it ran its business successfully and made a profit. There were, however, disputes with the body corporate, Strata and a management company. Everest claims that the body corporate and Strata made it difficult to continue operating inside the Park Residences. The nub of its complaint is that the body corporate and Strata influenced the owners from whom Everest had taken tenancies not to renew their tenancies and many of the owners refused to renew their tenancies with Everest. That stopped Everest’s business in Park Residences. It says that it is looking for other options but has not apparently established a fresh operation anywhere else.
[4] The body corporate’s view of the difficulties in the building can be seen in the report of the building manager and committee for the body corporate’s annual general meeting in March 2019. The report gives a very clear message that the body corporate committee considered that short-term visitors using apartments under Airbnb arrangements caused adverse effects. Facilities were failing from overuse and overloading. Visitors often misbehaved and damaged apartments and common property. The large number of short-term rentals increased the body corporate’s insurance premiums. Damage had resulted in the building not obtaining a building warrant of fitness. It was said there had been drunken parties going into the early hours of the morning with loud, unacceptable noise. Trespassers had come into the building. Security guards had to be engaged and the police had been called a number of times. The body corporate had also engaged drug detection contractors, and contractors to decontaminate apartments to ensure that they were in a liveable and safe condition. The report has a repeated refrain:
Note: Dear owners, please consider to let your units to long term tenants, your help would be highly appreciated.
That report does not specifically name the plaintiff. But other communications from Strata, letters sent to owners on 15 October and 23 October 2018, seem to refer to Everest as one of those responsible for non-compliance with operational rules.
[5] The minutes of the annual general meeting show that a new rule was adopted barring any unit being rented out for less than 30 days unless the owner gave prior notice to the body corporate. There were ancillary rules requiring owners to provide access to body corporate representatives to inspect the short-term rental unit when any suspicious activities were reported. Suspicious activities could mean drug use, use of alcohol, creating loud noises, or interfering with other owners’ quiet enjoyment of their units. Short-term rental tenants and guests would be required to give contact information to the building manager or a representative of the body corporate. That rule may need to be read in the light of Everest’s complaints about two other rules which it contends were invalid.
[6] Everest’s statement of claim is long. It runs to 28 pages and has 178 paragraphs. It sets out at length a narration of events as to its own establishment, the
operation it ran in Park Residences and the disputes and complaints between Everest and the defendants. Mr St John for the body corporate said that of all those complaints there are only two of significance. One was a complaint that the body corporate directed that only one contractor was to be used to install heat pumps. The other was that the body corporate required Everest to provide it with lists of guests occupying its apartments. The tenor of Everest’s case is that it ran a sound operation and it is not to be associated with the body corporate’s complaints about the behaviour of people using Park Residences on short term stays.
[7] The statement of claim pleads that the body corporate and Strata were intent on seeing that Everest was removed from the building and it communicated with the owners of Everest’s tenancies with to influence them not to renew the tenancies for a further year. The statement of claim has these causes of action:
(a)It seeks a declaration that two of the body corporate’s operational rules were ultra vires.
(b)It seeks a declaration that Everest was not in breach of those rules, even if they are valid.
(c)Misleading and/or deceptive misconduct under the Fair Trading Act 1986.
(d)Injurious falsehood.
(e)Defamation.
(f)Intentionally causing loss by unlawful means.
(g)Conspiracy to effect an unlawful purpose.
(h)Conspiracy by unlawful means.
Principles on security for costs application
[8] The body corporate applies for security for costs under r 5.45 of the High Court Rules 2016. Its application says that it has reason to believe that Everest will not be able to pay costs. The ground for its belief is that Everest has stopped business. It also says that Everest’s clam is otherwise weak. It wants security for costs determined for the summary judgment application and for the proceeding generally.
[9] The standard approach on applications for security for costs is to see whether the party applying for security has satisfied the threshold under r 5.45(1). If that threshold is satisfied, the court considers how it should exercise its discretion under r 5.45(2), namely whether to order security. If security is ordered, the court considers what amount should be fixed and finally whether a stay should be ordered.
[10] Applications to fix security before a summary judgment application is heard are unusual. Counsel were aware of only two cases: Tongan Cultural Society v Bank of New Zealand and Rafiq v Media Works TV Ltd.1 They were cited simply as examples where the court has ordered a plaintiff to give security for costs before a summary judgment application was heard but the circumstances of those cases are quite removed from this case. While applications for security for costs may be made, they are rare birds.
[11] Normally an application for security for costs is considered on the assumption that if the defendant is ultimately successful, costs will follow the event so that the plaintiff will be ordered to pay costs. If the court will not order costs against the plaintiff, there is no point in ordering the plaintiff to provide security. Accordingly, security for costs is not always awarded against plaintiffs where there are claims of breaches of the New Zealand Bill of Rights Act 1990.2 A similar point arises with applications for security for costs for a summary judgment application. Costs are not always awarded against unsuccessful plaintiffs on summary judgment applications.3 While costs on interlocutory applications should be fixed and paid when an
1 Tongan Cultural Society v Bank of New Zealand HC Auckland CP811/89, 14 April 1994; Rafiq v Media Works TV Ltd [2014] NZHC 1699.
2 Wright v Attorney General [2019] NZHC 59.
3 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
interlocutory application is decided, summary judgment applications are expressly exempted under High Court Rule 14.8(3). The reason for not ordering costs is that while the plaintiff may fail on the summary judgment application, they may be vindicated at trial. At the summary judgment stage it may be too difficult to see what the outcome might be. All the same the court has, from time to time, ordered costs against an unsuccessful plaintiff in a summary judgment application when it was clear from the outset that the case was unsuitable for summary judgment.4 So when a defendant applies for security for costs against a plaintiff seeking summary judgment, the defendant must show a very strong case on the merits that the summary judgment application will fail and that the court is likely to order costs against the plaintiff.
[12] Although the first defendant asks me to consider security for costs generally for the proceeding, for now I shall deal only with the application for security for the summary judgment application. It is possible to be flexible with security for costs. The security can be staged so that different amounts may be payable at different times. The court can also reserve leave to revisit security for costs to take account of changes in the case as it develops and to deal with any changes in the parties’ financial circumstances.
[13] In this case any decision on the plaintiff’s summary judgment application may be relevant to any later application for security. At this stage I do not have the benefit of a summary judgment decision.
The threshold question
[14] The first question is whether there is reason to believe that Everest will not be able to pay costs on the summary judgment application if costs are ordered. I consider what costs orders might be made if Everest fails. Mr St John suggests Band C should be used to fix the time allocations. That is because of the large number of issues in the plaintiff’s claim. The many causes of action show that both sides will have to spend extensive time in preparation to analyse the ingredients of each cause of action to see whether there is evidence to support them and to show what answers there may be to each issue in each cause of action. Mr St John suggested that a summary
4 See for example Vision Aluminium v McLaughlin HC Christchurch CP 123/90, 8 June 1990.
judgment hearing may take two days. Mr Thwaite accepted that the hearing would run into a second day. As an estimate, using Band C time allocations for costs, the hearing is likely to come to seven days. I assume Category 2 for the case. That would put costs at about $17,000. I assume that if the body corporate succeeds, Strata would also succeed, and the same amount of costs would be ordered for Strata as for the body corporate. Accordingly, Everest will need to be good for about $34,000 to meet any costs orders on the summary judgment application.
[15] The body corporate’s evidence to suggest that Everest would not be able to pay costs relies on its ceasing business. Everest, however, has a response. The response came late, only on 7 August after the case had been called before Gault J on 6 August. It produced evidence of a bank statement for a savings account with the ANZ Bank showing funds of $96,000.00 on 6 August 2019. It has also given evidence of steps it is taking to recover from the owners’ bonds paid for the residential tenancies. It is confident of recovering at least $37,000 and says that there are other sums which are undisputed. Its evidence shows that some owners are disputing whether Everest should have a full refund of the bonds.
[16] The body corporate is somewhat critical of this evidence. It says that Everest could have done more by providing financial statements. Everest has alleged that it traded profitably but it provides no financial statements. Mr St John says that it is not known where Everest got the funds in the bank account from and there is no assurance that those funds will not be dissipated.
[17] All the same, funds in hand is a very good sign of solvency. The amount is enough to cover any orders for costs for both the body corporate and Strata. Everest’s directors will appreciate that they personally will be in difficulty if they were now to dissipate funds after having told the Court that there are funds in hand which are enough to cover any order for costs on the summary judgment application. Having embarked on litigation the directors need to make sure that the company can meet any liabilities it incurs in that litigation, including any orders for costs made against it during the proceeding. As it is, I am satisfied that the threshold for making an order for security for costs has not been met. There is reason to believe that the company will be able to pay costs if it fails on the summary judgment application.
Costs
[18] Recognising that I was not going to make an order for security for costs Mr St John addressed me on costs on the security for costs application. The affidavit attaching the bank statement was filed on 6 August. An amended notice of opposition, relying on the fact that the company held to cover an order for costs was only filed on 7 August. Mr St John says that his solicitors only passed those new documents on to him on 7 August. With that evidence, Everest had belatedly shown grounds for resisting the application for security for costs. If the body corporate at that stage considered it could no longer pursue the application for security for costs, it might have withdrawn it and I would probably have left costs to lie where they fall. As the body corporate continued its security for costs application, it is appropriate that it should pay costs for those steps taken after Everest filed its documents on 6 and 7 August. That would cover Everest’s costs on submissions and for the appearance today. I allow costs of one counsel only.
[19] I do not, however, dismiss the application for security for costs. That is to be held over. I do that because formal dismissal of the security for costs application may lead to difficulties with a fresh application and arguments that leave is required when the first application was unsuccessful and special circumstances need to be shown.5 As I have indicated that the question of security may need to be revisited as the case develops, I do not want to preclude the body corporate from raising the matter afresh later on.
General comment
[20] I make some general comments. Both counsel addressed me on the merits of the summary judgment application. I am not required to decide the summary judgment application. I am not sitting in court. But I have to say, for my part, that there are many parts of the plaintiff’s claim that seem unsuitable for summary judgment. The plaintiff is seeking summary judgment on liability only and I am not concerned with relief.
5 High Court Rules 2016, r 7.52.
[21] The first cause of action raises what may be close to pure questions of law, that is, assessing the validity of operational rules. That may require legal argument as to the interpretation of the rules and the body corporate’s rule-making powers under ss 105 and 106 of the Unit Titles Act 2010. But even that seemed to involve factual issues. Mr Thwaite contended that the rules were inappropriate and misconceived because there were better ways the body corporate could manage the administration of Park Residences without relying on these rules. They are said to be overbroad and inappropriate for the problems facing the body corporate. That seems to involve a factual inquiry which may be unsuitable for determination in a summary judgment application.
[22] The second cause of action seeking a declaration of compliance with the rules seems to rely on arguments whether the rules apply to Everest as an occupier of the apartments. It requires consideration of the definitions of “owner” and “occupier” in the rules and that under s 105(4) of the Unit Titles Act occupiers can be bound by operational rules. Everest’s case is arguable but after hearing from counsel I am not sure it is a lay down misère for Everest.
[23] All the other causes of action raise intensely factual issues that would be very difficult to decide on a summary judgment application. They raise questions as to the circumstances in which misrepresentations were made, as to the meanings of words, as to the intentions of the body corporate and Strata and their motivations. Those matters can typically only be decided after a full trial. Simply because a plaintiff can construct an arguable case does not mean that summary judgment ought to be granted.
[24] The pleadings seem in many ways to be defective. In particular the causes of action for injurious falsehood and defamation do not adequately articulate a case to which the defendants can properly reply.
[25] I invite the plaintiff to consider whether it can properly pursue an application for summary judgment on its case as it now stands. The plaintiff has the option now to withdraw its application for summary judgment without any costs consequences because the defendants have not taken any formal steps in opposition to the application.
[26] I adjourn the summary judgment application to the summary judgment list on 27 August 2019. That is to allow the plaintiff to review whether it will continue its summary judgment application. If it intends to pursue the application, directions for hearing can be given on 27 August. Mr St John says he will not be available on that date. He should instruct other counsel to appear in his place. If Everest withdraws its summary judgment application, further directions for a case management conference may be given. The plaintiff should indicate whether it will amend its pleadings.
[27] Leave is reserved to the body corporate to bring on the security for costs application on notice to Everest.
[28] Costs for today are Category 2. Counsel are to confer whether bands B or C apply.
Associate Judge R M Bell
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