Forest Trustee Limited v Auckland Council

[2013] NZHC 1440

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-000270 [2013] NZHC 1440

BETWEEN  FOREST TRUSTEE LIMITED Applicant

ANDAUCKLAND COUNCIL Respondent

Hearing:                   14 June 2013

Appearances:           D Murray for the Applicant

J A Hilario for the Respondent

Judgment:                14 June 2013

ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

FOREST TRUSTEE LIMITED v AUCKLAND COUNCIL [2013] NZHC 1440 [14 June 2013]

[1]      Forest Trustee Limited (FTL) applies to set aside a statutory demand upon grounds:

(a)       There is a substantial dispute whether or not the debt is owing.

(b)      It has a counterclaim, set off and cross demand in the amount of

$4.5M.

(c)       It has previously been sued by the Council for the same debt and the

Council was unsuccessful.

[2]      The affidavit of Peter Mawhinney dated 22 January 2013 is filed in support. He deposes:

(a)      FLT sold the property in January 2012 and advised the Council of that sale in accordance with s 31 of the Local Government (Rating) Act

2002 (the Act).

(b)Council omitted to process various resource consent applications in respect  of  the  property  for  no  good  reason  and  in  that  process breached their statutory duty.  Mr Mawhinney says that the changes applied  for  would  permit  parts  of  the  land  being  disposed  of separately and would double the value of the property.  He believes an approximate loss of value of $4.5M has occurred and a proceeding for that sum against the Council has issued under CIV 2002-404-4906.

(c)      Previously the Council applied to liquidate FTL.  The Court declined the application because of concerns over service of the statutory demand and the failure by the Council to plead its claim appropriately.

[3]      Mr Mawhinney deposes also that he is a shareholder of FTL in that he holds a share as a trustee for his family trust.

[4]      In its notice of opposition the Council claims:

(a)      Disputes as to rates due can only be challenged pursuant to s 60 of the Act which permits a recalculation of those if rates charges were found to be defective or irregular.

(b)Rates  must  be  paid  in  full  without  set-offs  and  deductions,  cross demand or counterclaim. 1

(c)      The issue of prior proceedings faulted because of a lack of proof that there had been adequate service of the statutory demand upon FTL. That fact does not preclude the reissue of the statutory demand or affect its validity.

(d)      FTL is unable to pay its debts and should be put into liquidation.

[5]      In  her  affidavit  supporting  Council’s  opposition,  Ms  Lanigan  a  Council

manager disputes Mr Mawhinney’s claim to hold a share in FTL as a trustee.

[6]      As to FTL’s claim of a substantial dispute about whether rates were owing,

Ms Lanigan responds:

7.        There can be no dispute regarding the rates debt covered by the

statutory demand in question.

That Section 60 of the Act does not allow a person to refuse to pay rates on the ground that they are invalid.

[7]      Ms  Lanigan states that  the rates are correct and  have been computed  in accordance with the Act.

[8]      Commenting on FTL’s claim for damages, Ms Lanigan refers to the fact that

in that proceeding (CIV 2012-404-4906) the claim of FTL had been struck out from

1 Burke v Western Bay of Plenty DC [2005] NZSC 46.

the  damages  case  –  indeed  without  objection  from  Mr  Mawhinney.    Also  as

Courtney J commented in her case:

[27]      Even if Mr Mawhinney’s claim [in the damages case] were accepted as a bona fide counterclaim based on substantial grounds, that would not automatically preclude the winding up of FTL...   The liquidation of FTL does not interfere with the continuance of that claim.  Had I been required to consider the exercise of the discretion, I would not have regarded the counterclaim as justifying exercising it in FTL’s favour.

[9]      Ms Murray, barrister has been instructed in this proceeding on behalf of the applicant.  When the matter was called before me on 8 February 2012 I scheduled a one day fixture on 29 April 2013 and required the applicant’s reply affidavit if any to be filed and served by 3 April 2013.

Additional documentation

[10]     On  8  April  2013  Mr  Mawhinney,  by  himself,  filed  his  ‘second/reply’ affidavit.   It asserted, for the first time, that Council has never delivered a rates invoice to FTL.  He also claimed that FTL was preparing objections under ss 29 and

39 of the Act whereby the details contained in Council’s rating information database

can be challenged and corrections made.

[11]     Also filed on 8 April 2013 was the affidavit of Anthony Mawhinney who says he is a shareholder of FTL and is its sole director and he says he confirms the contents of Mr Peter Mawhinney’s affidavits.

[12]     On 12 April 2013 Peter Mawhinney filed a third affidavit.   It contained a copy of the sale and purchase agreement by which FTL sold the property to End of the Line Limited on 20 January 2012.  He said a transfer was lodged but registration was requisitioned because it had been prevented by a caveat earlier lodged.   Mr Mawhinney  deposed  that  by  letter  dated  15  February  2012  FTL  informed  the Council that the property in question had been sold.  The letter did not say to whom the property had been sold.

[13]     Mr   Mawhinney   then   provides   further   information   regarding   FTL’s

application for a change and cancellation of a subdivision  consent affecting the

property.  That information attempts to describe the ways in which Council had not adhered to statutory obligations of management of the application.  He provides his assessment of the potential for loss caused because of Council’s actions.

[14]     In response to Mr Mawhinney’s second and third affidavits counsel for the Council wrote to the Court objecting to the contents of the affidavits to the extent they were not confined to a reply but rather attempted to introduce new material i.e. in  particular that  the  rates  demand  had  not  been served;  that  FTL was  not  the ratepayer; that a notice of sale had been delivered to Council; and that fresh allegations of breaches concerning the application for variation of subdivision consent.

[15]     In a fourth affidavit filed at 4:28pm on Friday, 26 April 2013 Mr Mawhinney states that by notice dated 30 September 2012 FTL advised that its postal address was  P O Box  95-157, Swanson  and  that  FTL was  no  longer the owner of the property, and that the owner is End of the Line Limited.

The initial hearing

[16]     On Monday, 29 April 2013 the matter was called before me.  At that time I was scheduled to hear the submissions on the setting aside application.  I commented that there appeared to be much to support the Council’s objections regarding the content of Mr Mawhinney’s second and third affidavits.  Notwithstanding, I directed that the fixture be adjourned to enable the Council to make further investigations in order to respond to the matters raised afresh by Mr Mawhinney.  I also noted:

(a)      It appeared far from clear about just who was the registered proprietor of the property during that period over which rates arrears had accumulated.

(b)      That although Mr Mawhinney said the property was sold [in February

2012] to a company called End of the Line Limited, a loan agreement produced by Mr Mawhinney seemed to suggest that the property in question was indeed owned by another company altogether.

(c)       That Mr Mawhinney had not provided evidence of his authority to act in the capacity of a trustee shareholder of FTL.

[17]     At that time I directed a further hearing of this matter before me today.  I also authorised the Council to file and serve responses to Mr Mawhinney’s second, third and fourth affidavits, by 22 May 2013.

Yet further documentation

[18]     On 8 May 2013 Mr Mawhinney filed a fifth affidavit.   In it he attaches a schedule  containing the  names  of the  various  registered  proprietors  of  the land during the four and a half year period over which rates arrears have accumulated. That schedule shows that FTL became the registered proprietor as from 21 October

2011.

[19]     Mr Mawhinney then uses his affidavit to make submissions in particular to

identify the difference between an “owner” under the Local Government Rating Act

2002, and a “registered proprietor” for the purposes of the Land Transfer Act 1952. He says the former is broader than the latter because an owner is the person who is seized or possessed of an interest in the land whereas the latter is the person named in the certificate of title or other instrument as seized of that interest.   Therefore, although a person may be the registered proprietor, he may not necessarily be the owner.

[20]     Finally in his fifth affidavit Mr Mawhinney in answer to the Courts queries provides his explanation about who was the registered owner of the property at the relevant time and of his right to act as a trustee shareholder of FTL.

[21]     In  concluding  his  fifth  affidavit  Mr  Mawhinney  reports  that  it  became apparent that his third affidavit “was in variance with the version in the casebook. The version filed with the Court contained errors and omissions.  I have sworn an amended version which is annexed hereto”.

[23]     The Court’s impression is that this amended third affidavit really provides Mr Mawhinney a further opportunity to mention other facts in support of his claims that FTL is not the owner of the property and the Council has known of this since about

15 February 2012.  Also further facts were mentioned in relation to claims that the

Council is liable for ‘mismanagement’ of the variation of consent application.

[24]     The Council filed its further affidavit on 10 May 2013.  It provided details of the delivery of two rates invoices by NZ Post to 131 Anzac Valley Road, Waitakere, the registered office of FTL.

[25]     Those  items  were  marked  “return  to  sender”  and  were  returned  to  the

Council.  Copies of the mail items and their envelopes were annexed.

[26]     The deponent stated the Council utilised NZ Post to deliver rates invoices to ratepayers due to share numbers – that there are around 516,000 rating units throughout the Auckland region.

[27]     The Council says it has no control over how NZ Post operates its business or how its employees do their job.  The Council has no control over situations where postal letters are “returned to sender... despite being sent to the correct addressee and the correct address.”

[28]     The Council said as at 9 May 2013 no objection notice under ss 29 and 39 of the Act had been received for the property.  Nor has the Council received the letter dated 15 February 2012 which in any event is noncompliant.

[29]     On 28 May 2013 Mr Mawhinney filed a memorandum of his ‘To Be Joined As Second Applicant’.  The document in fact contains his application for an order that he be added as the second applicant and for an order dispensing ‘as to certification of this application by a solicitor’.

[30]     The grounds upon which he makes that application include:

(b)That Mr Mawhinney is a shareholder in FTL, which share it holds in trust and he has been involved with the property since 1992 and has a detailed knowledge of its ownership.

(c)      That his presence is necessary to settle matters in issue including whether FTL is the ratepayer or that it owes the rates demanded or in relation to whether or not it was delivered a rates invoice.

(d)      That is would be just to have his name added as a second applicant. (e)         There is no prejudice to the Council.

(f)       He cannot afford a lawyer nor would legal aid be available to him.

[31]     Also  filed  at  the  same  time  is  a  ‘Memorandum  By  Intending  Second Applicant For Leave To Adduce Further Evidence’.   Attached to that is the sixth affidavit of Mr Mawhinney.  It is 15 pages long.  In brief it states:

(a)      FTL has never seen the rates invoice dated 1 November 2012 until it was annexed to an affidavit dated 10 May 2013 and that invoice was for $10,921.80.

(b)In previous litigation there have been confusion regarding service of an earlier statutory demand and the Judge considered service had not been effective.

(c)      Mr  Mawhinney provided  copies  of  addresses  where  on  numerous occasions communications to he and FTL have been effected but the evidence of the Council regarding delivery of the rates invoice is confused and supports Mr Mawhinney’s claim that service may not have properly been effected at all.

(d)As  his  fourth  affidavit  shows  on  30  September 2012  the Council received notice that FTL no longer owned the property.

(e)      That there is reason to question Council’s claim of FTL being the owner as being the person who is the registered proprietor whereas under the Act the owner can mean somebody other than in whom registered proprietary is registered and that in this case although FTL was the registered proprietor ownership of the property can be with another – in this case it is The End of the Line Limited.

(f)      That  FTL  remains  as  named  ratepayer  because  the  Council  has omitted to maintain its database.

(g)Mr  Mawhinney  has  already  provided  to  the  Court  proof  of  his authority to act as a trustee for Forest Trust on whose behalf FTL operates.

Resumed hearing

[32]     Concerning Mr Mawhinney’s ‘joinder application’ it seems little additional information has been provided in the documents filed on 28 May 2013 and that which is clearly new should not be admitted.  The documents largely represent Mr Mawhinney’s attempt to again provide submissions in support of the setting aside application.  I informed Mr Mawhinney that the application for joinder was refused.

[33]     The setting aside application is brought about by the company affected.  The Court is not prepared to authorise any other person to be added as an applicant much less one who claims to be a trustee holding one share in that company.

Considerations

Counterclaims and set-offs

[34]     Much has emerged from the flurry of papers filed by Mr Mawhinney himself in which he has raised set-off and counterclaims in defence of the rates debt.  He has explained in some detail why he believes the Council had breached its statutory duty in the processing of an application for a variation of a development consent.  What Mr Mawhinney does not explain is how a claim can be advanced on behalf of FTL

when the events giving rise to the claim have occurred in the period beginning 17

April 2012 i.e. after the property was sold to End of the Line Limited.  Anyway the proceeding concerned, CIV 2012-404-4906, has had the claim of FTL struck out – and indeed as earlier was noted, with Peter Mawhinney’s consent.

[35]     Of further curiosity is the fact that that claim had been brought on behalf of trusts which Mr Mawhinney purports to represent in his capacity as a trustee.  It is unclear how these claims can be pursued by trusts and not pursued on behalf of the company that is the registered proprietor at the time – even though the registered proprietor has already sold its interest in the property to a company that is not a party to the claim against the Council.

[36]     The view of Courtney J regarding the claim against the Council has already been noted in paragraph [8] herein.  I agree with that view.  The existence of a claim would unlikely persuade a Court to defer from granting an order for liquidation if the company was unable to pay its due debts.

Is there a substantial dispute sufficient to warrant the setting aside of the statutory demand?

[37]     The real issues for consideration upon the setting aside application are:

(a)       Whether  proper  demand  was  made  for  payment  of  the  rates  was delivered to FTL.

(b)      Whether FTL owes the rates claimed in the statutory demand.

Was the rates demand delivered?

[38]     FTL was the registered proprietor of the property when the rates demand issued and when it is said that demand was delivered.

[39]     Council records record the address of FTL as being 131 Anzac Valley Road, Waitakere which is also the address of its director Anthony Mawhinney.

[40]     Council evidence is that it delivered the rates invoices by post to 131 Anzac Valley Road, Waitakere.  It says those mail items were marked return to sender by NZ Post and were returned to the Council.  The Council explains the impracticality of ensuring delivery of 516,000 rates invoices except by delivery to the property concerned.

[41]     The requirements of the service of the rates demands are the foundation for creating legal responsibility for payment of those.   Delivery is effected if in the circumstances it could be expected that the recipient would likely have received them.

[42]     In this case the first rates demand envelope was returned.  It noted:

Not at this address.

This is a rental-residential property. Return to sender.

[43]     Subsequently the Council again endeavoured to  effect delivery of its tax invoice  by mail.    This  was  returned  to  the  Council  on  7  November  2012,  the envelope noting ‘Return to Sender’.

[44]     If this comprises the evidence of the Council relating to delivery of their rates demand then in the Court’s view it is inadequate.  Considerations of exigency aside there is sufficient evidence that the property in question contains no post box or other object to which mail could be delivered.   Indeed there is evidence to suggest that delivery may have been effected to a neighbouring property.   Therefore it is not sufficient service when the mail in question is returned to the Council.   It now appears the Council has other addresses to which service could be effected including a postal box number and two email addresses.

Does FTL owe the rates claimed?

[45]     The claim that FTL does not owe the rates has focussed on FTL’s claim to have sold the property to End of the Line Limited in February 2012.   Although evidence of this was provided, no transfer of registered title was effected because a

subsisting caveat prevented registration of any transfer.  Mr Mawhinney insists that notice of the sale was given to the Council.  In his first affidavit Mr Mawhinney said:

3.1FTL sold the property in January 2012, and has advised AC of that sale in accordance with s 31 Local Government (Rating) Act 2002.

[46]     In his second affidavit (8 April 2013) Mr Mawhinney noted:

5.1In an abundance of caution, the applicant is preparing objections under ss 29 and 39 of the Local Government (Rating) Act 2002.

[47]     In his third affidavit Mr Mawhinney deposed:

2.1By notice dated 15 February 2012, the sale of the property by FTL was notified to the Auckland Council.   A true reproduction of the notice is annexed hereto at Exhibit A.

2.3The notice of sale dated 15 February 2012 was in the possession of the respondent at least by 24 October 2012 when a reproduction was included in the bundle of documents prepared [in a related civil proceeding].

[48]     In his fourth affidavit Mr Mawhinney deposes:

1.2By notice dated 30 September 2012, the applicant advised that its postal address was P O Box 95 157, Swanson.  The notice is in the pre-printed form supplied by the respondent for an objection to the rating database.   It also sets out that the owner is no longer the applicant, but End of the Line Limited.  A true reproduction of the notice is annexed hereto at Exhibit A.

1.3      No rates invoice has been delivered to that address.

[49]     The  exhibit  provides  two  email  addresses  and  a  postal  box  number.    It appears to be signed by Anthony Mawhinney.

[50]     Of curiosity to the Court is the fact that this latter document was not referred to in Mr Mawhinney’s first three affidavits yet the date of that document suggests it was available at all times to be referred to in the earlier affidavits.   In the first affidavit Mr Mawhinney referred to having advised the Council of the sale but he was clearly referring to a letter dated 15 February which merely said that Forest Trustee had sold the property.  It did not say to whom.  Nor was the letter signed.

[51]     In his second affidavit he said that he was preparing objections under ss 29 and 39 of the Act.  Why did he not then refer to this document dated 30 September

2012.    Mr  Mawhinney’s  third  affidavit  attached  a  copy  of  the  letter  dated  15

February 2012 as proof that the sale of the property was notified to the Council. Why then did he not refer also to the document dated 30 September 2012?

[52]     Serious questions arise regarding the authenticity of that notice dated 30

September 2012. The Council says it was not received.

[53]     These matters apart, a question remains concerning the Council’s demand for payment of four and a half years of arrears of rates.   Some consideration of the provisions of the Act is required.

[54]     Relevant provisions include:

10       Who is the ratepayer?

For the purposes of this Act, a ratepayer is the person who is named as a ratepayer in the rating information database and the district valuation roll.

11        Entry of ratepayer in rating information database and district valuation roll

(1)       The name of the following persons must be entered in the rating information database and district valuation roll as the ratepayer in respect of a rating unit:

(a)     the owner of the rating unit; or

(b)     the lessee of the rating unit...

...

12       Liability for rates

(1)       The ratepayer for a rating unit is liable to pay the rates that are due on the unit.

...

29       Objections to rating information database

(1)       A person  who is  named  in  the  rating information database as  a ratepayer may object to the information contained in the database on

1 or more of the following grounds:

...

(c)      that information included in the database... is incorrect

...

(2)      Objections must be lodged with the local authority.

...

31       Notification of change of ownership of rating unit

(1)       If an owner of a rating unit sells or otherwise transfers the unit, or any  part  of  the  unit,  the  owner  must  notify  the  relevant  local authority of the sale or transfer within 1 month after the effective date of the sale or transfer.

(2)      Notice under subsection (1) must include –

(a)      the full name and address of the purchaser or transferee; and

(b)      in the case of a sale, the sale price.

(3)       If a person becomes the owner of a rating unit by the operation of law... the person must, within 1 month after the registration of the instrument under which the person became the owner, or 1 of the owners  of  the  unit,  notify  the  relevant  local  authority  of  the following matters:

(a)      that he or she is the owner of the rating unit; (b)    his or her full name and address.

34       Effect of notice on liability for rates

Notice given under sections 31 to 33 does not release any person from liability for any rates that are due before the notice is given.

...

39       Objection to rates records

(1)       A ratepayer... may object to the information contained in the rates records on either or both of the following grounds:

(a)      that the rates are incorrectly calculated;

(b)      that the rates balance shown in respect of the rating unit is incorrect.

(2)      Objections must be lodged with the local authority.

...

44       Notice of rates assessment

(1)      A local authority must deliver a rates assessment to a ratepayer to

give notice of the ratepayer’s liability for rates on a rating unit.

(2)      A ratepayer  is  liable  for  rates  on  a  rating  unit  when  the  local authority delivers the rates assessment for that unit to the ratepayer.

[55]     For the purpose of this case the Council was entitled to treat FTL as the owner of the property and the ratepayer responsible for meeting payment of the rates. In the absence of appropriate notification being given to the Council, the Council was entitled to consider that FTL was responsible for those rates.

[56]     It seems unlikely that the Council has a responsibility to chase former owners for rates arrears.  Mr Hilario said in submissions to the Court that rates are a charge upon the land.  Therefore, that any arrears become the responsibility of the owner of the rating unit at the time the rates demand was issued.

[57]     That may be so but there is some concern with the fact in this case that much more than half the rates in arrears accumulated when the property was owned by other entities. As earlier noted the arrears have accumulated from 2008 until the end of 2012.  FTL did not become the registered owner until 21 October 2011.

[58]     It seems to the Court that the Council must bear some responsibility for explaining what if anything had been done before now in order to collect rates arrears from other entities that were in occupation at relevant times.

[59]     Unfortunately there is too little information available to the Court to reach any conclusions with confidence that all of the rates arrears were properly chargeable to FTL.

Conclusions

[60]     It seems that yet again delivery issues have frustrated the Council’s attempts to collect rates from FTL. As well the Court has concerns about claims for arrears of rates  that  have  accumulated  over  a  period  of  more  than  three  years  whilst  the property was owned by other entities.

[61]     There is sufficient in all of this to accept in the circumstances of this case that there is a serious dispute concerning the debt for which the Council’s statutory demand has been issued.

[62]     Accordingly the application to set aside the statutory demand is granted.

Other matters

[63]     As advised to the Court in the presence of Mr Mawhinney the Court has ordered for future purposes that service or delivery of documents upon FTL or upon Peter Mawhinney or Anthony Mawhinney may be effected upon:

(a)       Peter Mawhinney at: And for

(b)      Anthony Mawhinney at:

Associate Judge Christiansen