Extensor Advisory Limited v Body Corporate 313609

[2021] NZHC 174

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1939

[2021] NZHC 174

BETWEEN

EXTENSOR ADVISORY LIMITED

Applicant

AND

BODY CORPORATE 313609

Respondent

Hearing:

On the papers

Counsel:

J E G San Diego and C Harnett for applicant

Respondent by its administrator, Centurion Management Services Ltd (C Craig)

Judgment:

16 February 2021

JUDGMENT OF KATZ J

[Costs]

This judgment was delivered by me on 16 February 2021 at 11:00am Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Doug Cowan, Barristers and Solicitors, Auckland

Copy to:              Respondent (by its administrator, Centurion Management Services Ltd)

EXTENSOR ADVISORY LIMITED v BODY CORPORATE 313609 [2021] NZHC 174 [16 February 2021]

Introduction

[1]    Extensor Advisory Limited seeks costs from Body Corporate 313609 in relation to an application that Extensor filed (but subsequently discontinued) requesting the appointment of an administrator to the Body Corporate.

Background

[2]    Body Corporate 313609 is the body corporate responsible for 19 units built on land leased from Bracken Trustees No. 1 Limited (“Bracken”) in Onehunga. In June 2019, the ground rent was adjusted to reflect market value, in accordance with the lease. The Body Corporate engaged Extensor Advisory Limited to contest Bracken’s ascribed value. Due to financial difficulties, Body Corporate 313609 paid only a portion of Extensor’s invoice.

[3]    Extensor unsuccessfully pursued the remaining debt for a number of months, before issuing debt recovery proceedings in the District Court. On 20 May 2020, judgment by default was given in favour of Extensor for $6,465.25, the sum owing plus interest.1 On 27 May 2020, Extensor sent a letter of demand to the Body Corporate. The following day it informed the Body Corporate that if payment was not made in full in seven days an application would be made under s 141 of the Unit Titles Act 2010 to appoint an administrator for the Body Corporate.

[4]    Meanwhile, the Body Corporate had failed to pay the increased ground rent due to Bracken. Bracken obtained judgment against the Body Corporate for

$246,523.98. On 18 September 2020, Bracken moved to appoint an administrator by originating application under s 141 of the Unit Titles Act 2010. On 13 October 2020 the High Court appointed Centurion Management Services as administrator.

[5]    Unaware of these developments, on 7 October 2020 Extensor filed an originating application seeking the appointment of an administrator for the Body Corporate. On 23 October 2020, Extensor served the documents on the former manager of the Body Corporate. He informed Extensor that he was no longer the

1      Extensor v Body Corporate 313609 DC Auckland CIV-2020-004-321, 20 May 2020. The judgment was, in an oversight, given for $14,145.25; the judgment was recalled and corrected.

manager and apparently said he would pass the documentation on to Centurion, although it is not clear whether he did so. In any event, Centurion was not formally served.

[6]    The Body Corporate, under its new administrator, subsequently paid the debt due to Extensor. Extensor then withdrew its application to appoint an administrator.

[7]    Extensor now seeks the costs it incurred in filing the application, on the basis that the application was reasonable and necessary to get the debt paid. It seeks costs on a 2B scale basis, in the sum of $6,205.57.

[8]    The Body Corporate submits that, given that Extensor discontinued its proceeding, the Body Corporate would normally be entitled to costs. The Body Corporate does not, however, seek costs. Rather, it submits that the appropriate course is for the Court to direct that costs lie where they fall. The Body Corporate submits that Extensor’s application would have failed had it gone to trial (because an administrator had already been appointed) and was in any case premature.

Should Extensor be awarded costs?

[9]    Rule 15.23 of the High Court Rules 2016 provides that unless the court orders to the contrary, a party who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance. Hence, the default position is that Extensor ought to pay costs to the Body Corporate. Rule 15.23 is subject to r 14.1’s general discretion as to costs.

[10]   The default position under r 15.23 may be displaced if it is just and equitable to do so. This may apply, for example, where the plaintiff would have succeeded had there not been a change of circumstances, but the change in circumstances obviated the need for the proceeding.2

[11]   Extensor submits that in practical terms they were successful, and hence ought to receive costs. Extensor says its judgment debt was only paid after it had applied to

2      Opus International Consultants Ltd v Colac Bay Vision Ltd [2015] NZHC 1782, [2015] NZCCLR 19 at [8]; See also The Star Trust v Hamilton City Council [2016] NZHC 821.

appoint an administrator. It was not aware that another creditor had already applied to have an administrator appointed (and subsequently succeeded in that application).

[12]   In Body Corporate 81381 v Trebe, a Body Corporate sued a developer over leaky building issues.3 The developer went into liquidation. The Body Corporate sought and received permission to continue the litigation. A mediation was then held, and settlement was reached. The Body Corporate then withdrew its proceedings. Master Gendall considered that the key factor was whether the plaintiff and defendant had acted reasonably and noted that the Court will only speculate on the merits in rare cases. He also noted a decision from Master Lang where his Honour considered that the plaintiffs had been forced to institute the proceedings to make the defendant pay their debt, and hence the Court had determined that costs should lie where they fall when the proceeding was discontinued.4 Master Gendall was satisfied that the Body Corporate had acted reasonably and that the process was justified. He considered that the facts were exceptional, and ordered that costs lie where they fall.

[13]   I accept that Extensor had been pursuing its debt for many months and was unaware that an administrator had recently been appointed when it filed its proceeding. I am satisfied that Extensor acted reasonably in bringing the proceeding. Extensor had made extensive efforts to secure payment of its debt prior to seeking the appointment of an administrator. The default presumption, that Extensor (as the discontinuing plaintiff) should pay costs to the defendant has been displaced. I am not persuaded, however, that Extensor can fairly be characterised as the successful party, justifying an award of costs in its favour.

[14]   Although Extensor did not realise it at the time of filing, its application was doomed to fail as another creditor had already appointed an administrator. Further, it is not clear whether there is a direct causative link between Extensor’s application and the payment of its debt. Rather, it seems that the appointment of Centurion as administrator may well have been the key factor, as the Body Corporate’s debts appear

3      Body Corporate 81381 v Trebe NZ Ltd (in liq) HC Wellington CIV-2003-485-332, 10 September 2003.

4      Marsh v Marsh HC Auckland M 320/IM02, 26 August 2002.

to have been settled soon after that appointment (as was no doubt the intention of Bracken, who secured the appointment of an administrator).

[15]   Taking these various factors into account, it is my view that costs should lie where they fall.

Result

[16]I order that costs are to lie where they fall.

Katz J