Greig v Body Corporate 392619 (in administration)
[2024] NZHC 2784
•26 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-910
[2024] NZHC 2784
UNDER Part 19 of the High Court Rules IN THE MATTER OF
Section 141 of the Unit Titles Act 2010
BETWEEN
DONNA GAYE GREIG, MARINA ARNOLD, MICHAEL VICTOR SANSOM, STEPHANIE JOY CHARTERIS and JASON JOHN ALEKSICH
Applicant
AND
BODY CORPORATE 392619 (in
Administration) Respondent
AND
FOCUS REMEDIATION LIMITED
Interested Party
Hearing: 12 and 13 September 2024 Appearances:
T J G Allan and B Bao for Applicant
A Holmes and J Lewis for Interested Party
Judgment:
26 September 2024
JUDGMENT OF MUIR J
Applications for transfer of proceedings and directions
This judgment was delivered by me on 26 September 2024 at 10.30am, Pursuant to Rule 11.5 of the High Court rules.
Registrar/Deputy Registrar Date: ……………………………
Solicitors:
Grove Darlow & Partners Hesketh Henry
GREIG v BODY CORPORATE 392619 (in Administration) [2024] NZHC 2784 [26 September 2024]
Introduction
[1]This judgment relates to two applications:
(a)by the Body Corporate (in administration) to transfer District Court proceeding CIV-2023-404-818 to the High Court and consolidate it with the present proceedings;
(b)by the Administrator of the Body Corporate for directions.
Background
[2] On 22 May 2023 this Court appointed Mr Anthony McCullagh (the Administrator), a well-known insolvency advisor, to be administrator of the Body Corporate 392619 (the Body Corporate) — the owner of the common property relating to the Bella Vista residential development in West Auckland. The application for this appointment was made by five proprietors in the development, not on the usual basis of dysfunctionality, but on account of the Body Corporate’s insolvency. That insolvency arose out of liabilities (actual and contingent) to the interested party, Focus Remediation Limited (Focus) on account of repair work undertaken pursuant to a scheme under the Unit Titles Act 2010 (UTA).
[3] Focus has a District Court judgment1 consequent upon entry of an adjudicator’s Determination under the Construction Contracts Act 2002 (CCA) (the Determination).2 That judgment is in the amount of $1,046,096.51 including GST, and interest up until 1 May 2023. The judgment continues to carry a contractual rate of interest expressed as one and a half times the monthly small to medium sized enterprise overdraft rate published by the “Reserve Bank of New Zealand”.3 Interest compounds monthly from 2 May 2023 to date of payment. As at 29 August 2024 Focus calculates the liability on the judgment debt as $1,344,692.91. In addition, it
1 Putting to one side for the moment the precise character of that judgment which the Administrator submits is not a judgment of the court in the usual sense. The proceeding in which the judgment was obtained is that referred to in [1(a)] above.
2 The determination was that of Mary Haggie, Barrister, and is dated 5 April 2023. Entry of the Adjudicator’s determination as a judgment of the District Court occurred on the same day the Administrator was appointed, 22 May 2023.
3 I am informed that the contractual rate peaked at approximately 20 per cent per annum.
says that there are other undisputed amounts owing to it on Provisional Payment Schedules 49 and 50, such that the total amount now payable to it exceeds $2,100,000.
[4] On 28 June 2023, Focus obtained a (varied) interim charging order over two accounts (only one of which — the building account — is now subject to charge) and a final charging order over unit 3G in the development. Unit 3G is owned by the Body Corporate having been surrendered by its former registered proprietor on account of unpaid levies totalling in excess of $600,000. In a technical sense at least, the unit still carries that liability. Likewise, if the unit were to be sold it would inevitably be at a price which reflected the liability.4
[5] The building account has a current credit balance of $221,866.37. Of this, a sum of $115,000 including GST is held on trust as retentions under the remediation contract. There is no dispute that this sum will be payable to Focus in due course (the Administrator says on issue of the code compliance certificate (CCC) for the work, Focus says at the expiration of the defect period).
[6] Issue of the CCC has been delayed by Focus’ suspension of the remediation contract, the appointment of Mr McCullagh as Administrator and related applications.
[7] In April 2024, Focus and the Administrator entered into an agreement whereby, at its election, Focus agreed to undertake (and be commensurately remunerated for) the final works required to obtain a CCC. It is anticipated that the associated costs will be in the order of $300,000. Progress continues in that respect with a seemingly satisfactory relationship between Focus and a new engineer appointed specifically to oversee the CCC application process and related works.
[8] Out of the existing 40 proprietors in the development, 22 have mortgages. A variety of banks are involved. Understandably, the banks will not advance the further funds necessary to pay the judgment debt (in the shares provided for by the scheme under which the apartments were remediated), until a CCC has issued. Those proprietors without mortgages are, in turn, reluctant or assumed to be reluctant about
4 Assuming that the debt had not, by some appropriate mechanism, been forgiven. Whatever approach is adopted, the net recovery for the Body Corporate should be broadly equivalent.
paying levies to discharge the judgment debt until their mortgaged co-owners are in a position to do likewise. All of this places at a premium prompt efforts to obtain the CCC.
[9] In October 2023 I made orders, ultimately without opposition from Focus, which facilitated the Administrator raising the funds necessary to obtain the CCC without the risk that these funds might similarly become subject to a charge in favour of Focus. The relevant funds are now in hand.
[10] In addition to the judgment debt, the Body Corporate faces other claims from Focus which the Body Corporate suggests could be as high as $6,000,000–$8,000,000 in total.5 Focus says that its claims are somewhat less (around $5,000,000 plus GST). It identifies 18 claims which relate to dispute notices or references to arbitration issued by it and which have a total value of $1,002,894.6 It also advances a working day rate claim in the amount of $2,637,000.7 Monetary claims in respect of all matters subject to dispute notices or references (and not otherwise resolved) have been rejected by the former engineer to the contract and, as Focus says, “the ball is now effectively in its court” as to how it wishes to progress them (whether by determination, arbitration, compromise or abandonment).
[11] The Administrator has a mortgage over unit 3G which was taken in advance of his appointment for the purpose of securing his fees.8 This mortgage was registered against the title to the unit prior to Focus obtaining the charging order referred to in
[4] above. It has a priority of up to $1,000,000 plus interest and costs. At this stage, Focus’ charging order is not registered against the title to the unit.
[12] Over the period of April to July 2024 Focus and the Administrator engaged in various without prejudice discussions aimed at resolving the totality of Focus’ claims. The Administrator has however now reached the point where he considers he needs
5 Including what Focus describes as the undisputed amount on top of the judgment debt (refer [3] above).
6 There are a further nine dispute notices, but Focus says that these either do not have values attached to them or have already been resolved through the Determination and form part of the judgment sum.
7 The Body Corporate’s assumption was that this claim had a value of approximately $4,000,000.
8 The Court having been advised of the arrangement as part of the appointment application.
additional professional advice from Mr Kelly Quinn KC (who is fully familiar with the background) and others, before he can progress the discussions further. Mr Quinn in turn needs input from various professionals who were involved with the remediation project.9 Each is a creditor of the Body Corporate.10 Understandably, there is no enthusiasm to assist absent some arrangement in respect of outstanding fees.
[13] In order to obtain the advice he requires from Mr Quinn and, relatedly, to meet part or all of the outstanding professional accounts, the Administrator says he needs to raise a sum of approximately $300,000. Absent a CCC there are difficulties in doing so from traditional sources. Secondary funders have however entered the relevant market. One such funder, BCLS Nominees Ltd (BCLS) has agreed to provide funding of up to $600,000. The company is associated with the Body Corporate secretary Boutique Body Corporate Limited. The Administrator has secured this funding line with a mortgage of the mortgage given in his favour. The mortgage of the mortgage, was, in turn, registered on 22 May 2024.
[14] Against this background, both the Administrator and Focus jockey for commercial advantage. I have some sense that both sides wish to undermine the others ability to advance their claims or defences by depriving them of the funds to do so. Certainly I am left with the impression that the Administrator sees commercial advantage in trying to resolve the totality of the parties’ differences in “one hit”, and has not, at least until recently, acknowledged a requirement to prioritise raising the money to pay the judgment debt. This despite the fact that although the Body Corporate may challenge the Determination in arbitral proceedings, the CCA regime is emphatically a “pay now, argue later” one. However, the practical reality is that without a CCC his ability to raise the necessary funds is constrained in any event. For its part, Focus no doubt also identifies commercial advantage in keeping the Body Corporate on as tight a rein as possible in terms of its ability to interrogate the (at present) unresolved claims.
9 Being quantity surveyors, programmer co-ordinators, engineers and architects.
10 The respective debts are: quantity surveyor $14,000; programming contractor $11,000; engineer
$62,000; and architect $33,000. I am advised these are the only significant trade creditors of the Body Corporate apart from Focus.
The applications
[15] The Administrator’s application for directions — made pursuant to a reservation of leave in the order appointing him — was originally filed in June 2023. It is now considerably refined and limited to orders:
(a)“[removing] the charging orders made in the Enforcement Proceeding”, either in exercise of the High Court’s inherent jurisdiction or under s 141 of the UTA;
(b)in the alternative, imposing a “moratorium” on Focus enforcing its charging orders for 90 days following issue of the CCC and, in any event, not before giving 30 days’ notice of its intention to do so;
(c)declaring that the Administrator is free to obtain such advice as he seeks (whether from solicitors, counsel, or consultants) and that he may pay for the same either from borrowings, or from monies in the operating account (which account is uncharged) or from monies in the building account which are not subject to trust (ie excluding the retentions).
[16] The Administrator seeks specific authority to be able to meet such of the pre- administration costs of consultants as is necessary to secure their co-operation in assessment of the balance of Focus’ claims. He notes his intention to engage with mortgagees and the owners upon receipt of expert advice with a “go forward” plan for resolving the balance of Focus’ claims and commits to raising a levy of $1,000,000 within 90 days of the CCC being obtained and to pay such sum to Focus.
[17] In addition, the Body Corporate (in administration) maintains its claim to transfer the District Court proceedings to the High Court.
[18] Focus opposes the transfer application. It acknowledges that were it to proceed with a writ of sale in respect of unit 3G, its charging order over that property would first need to be removed to the High Court. It says however that, insofar as any enforcement against the building account is concerned, the District Court procedures offer it some advantages which it is reluctant to forego.
[19] It further submits that there is no proper basis for the High Court to remove its charging orders (whether in exercise of any inherent power or under s 141), nor to impose a moratorium. It says that to the extent the credit balance in the building account exceeds the retentions, this should now be paid to Focus in reduction of the judgment sum with the retentions held in that account following in due course. It acknowledges practical difficulties in effecting any commercially meaningful sale of unit 3G at this stage given the outstanding liabilities in respect of the unit, Focus’ claims on the Body Corporate, and the additional disclosure requirements introduced under the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022.11
The transfer application
Introduction
[20] As indicated, the Body Corporate (in administration) applies for orders under s 89 of the District Court Act 2016 (DCA) for removal of proceeding CIV-2023-004- 818 to the High Court and for an order consolidating that proceeding with the present proceedings. Section 89 provides:
89 High Court Judge may order removal of proceeding into High Court
(1) A High Court Judge may, on application by a party to a proceeding, order the removal of the proceeding into the High Court if the Judge is satisfied that it is desirable to do so.
(2) In deciding whether to make an order under subsection (1), the Judge must have regard to the following factors:
(a)the nature of the case:
(b)the complexity of the case:
(c)the general or public importance of the case:
(d)the amount in issue:
(e)the likely length of the hearing:
(f)the financial resources of the parties:
(g)whether it is otherwise in the interests of justice to make the order.
(3) The order may be made on such conditions, including conditions as to costs or giving security for costs, as the Judge thinks fit.
11 Including certification that the vendor is unaware of any fact that might result in either the vendor or purchaser incurring any other liability — a certification which would not be possible in the present circumstances.
(4) This section overrides sections 86 to 88.
[21]The Body Corporate says that, in terms of the discretionary factors in s 89(2):
(a)the District Court charging orders prevent the Administrator from performing his functions because they “cut across” the administration proceeding;
(b)the issues are complex and of public importance;
(c)there are significant amounts in issue;
(d)transfer is desirable in that it will avoid any risk of inconsistent decisions between the District Court and the High Court in circumstances where the High Court has an exclusive jurisdiction in relation to the Administrator’s appointment.
[22] Focus says that this Court has no jurisdiction to make the orders sought by the Body Corporate because of ss 120 and 189 of the DCA, which are again set out in full for convenience:
120 Removal of judgment of District Court into High Court
(1) A judgment creditor or a person on the judgment creditor’s behalf may apply to the court to remove into the High Court a final judgment or an order of the District Court (the judgment) for the payment of an amount of money.
(2) The Registrar must issue a certificate of removal in the prescribed form, which may be filed by the judgment creditor in the High Court.
(3) The Registrar must not issue a certificate of removal—
(a)before the expiry of the time for giving notice of an appeal against the judgment:
(b)if an enforcement proceeding has been issued in relation to the judgment, until the enforcement proceeding has been withdrawn or completed.
(4) No further steps may be taken in relation to the proceeding in which the judgment was given after the Registrar’s certificate has been filed in the High Court.
(5) On the removal of the judgment,—
(a)the judgment may be enforced as a judgment of the High Court, with such fees and costs as may be paid or allowed in connection with the removal and entry of judgment:
(b)no appeal may be brought against the judgment.
(6) A Judge of the High Court may, on the application of the judgment creditor or judgment debtor, set the removal aside on such terms as to costs or otherwise that the Judge thinks fit.
…
189 Removal of charging order into High Court
(1) A charging order may be removed into the High Court in accordance with section 120, which applies with any necessary modifications.
(2) A charging order removed into the High Court is enforceable in the same way as if it had been issued by that court.
[23] It says therefore that no application can be made to remove the judgment or the charging order into the High Court other than on the application of Focus which makes no such application.
[24]The Body Corporate’s rejoinder is that:
(a)the judgment is not really a judgment of the District Court — it is simply registration of another tribunal’s determination or order for the purposes of utilising the District Court’s enforcement mechanisms;
(b)applications for charging orders fall within the definition of a proceeding under the District Court Rules 2014 (DCR) and s 89 of the DCA is therefore engaged.
Discussion
[25]I am not persuaded to grant the orders sought.
[26] First, I do not accept that where a determination is entered as a judgment of the District Court pursuant to either ss 73 or 75 of the CCA, it should be considered anything other than a final judgment of the District Court for the purposes of s 120 of the DCA. Both ss 73 and 75 refer to entry of the adjudicator’s determination “as a judgment”. Such judgment remains final and enforceable, even if a determination is subsequently set aside or quashed by an arbitrator or court, in which case the CCA provides for the subsequent decision maker to allow for any amount paid by one party
to another by virtue of a determination, with the relationship between determinations and proceedings addressed in ss 26 and 27.
[27] In my view there is no valid reason to deprive ss 73 and 75 of the CCA of their natural and ordinary meaning with the result that removal of the judgment from the District Court to the High Court (and likewise any charging order issued in respect of it) is available only on application of the judgment creditor.
[28] Secondly, although I accept that an application for a charging order is a proceeding within the terms of the DCR,12 in that it is an “application to the court for the exercise of the civil jurisdiction of the court other than an interlocutory application”, and although at the point that application was made it could technically have been the subject of an application for removal under s 89, the Body Corporate’s approach ignores the fact that the charging order has already been made. In the result, there is no extant “proceeding” in that respect and the availability of removal to the High Court is governed by s 189 (and inferentially) s 120.
[29] I accept, as a matter of principle, that were Focus to attempt recovery of the sum charged in the building account by way of garnishee proceedings under s 180 of the DCA, that would, in turn, amount to a separate proceeding for which application could be made under s 89 of the DCA for removal to this Court.13 However, any attempt by a judgment debtor to move a garnishee proceeding into the High Court, when the judgment creditor does not seek to do likewise with the underlying judgment, is sufficiently anomalous that the High Court may choose to decline the transfer under its s 89(1) discretion. Because no garnishee proceeding has been brought the issue is at this stage academic. I confine myself therefore to provisional observations only.
[30] I therefore decline the Body Corporate’s application for transfer on the basis it has no standing to bring the application. It follows that I also decline the associated application for consolidation.14
12 District Court Rules 2014, r 1.4(1).
13 In respect of the charging order over unit 3G, recovering is by writ of sale which can only be conducted by the High Court.
14 On the obvious basis that there is no one court for the proceeding to be consolidated in.
The Administrator’s application for directions
Removal/moratorium
[31] The Administrator seeks “removal of [Focus’] charging orders” or alternatively a “moratorium” on the exercise of any further enforcement step.15
[32] The Administrator says that I may grant the relief sought by reference either to s 141 of the UTA or in the Court’s inherent jurisdiction.
[33]I start with s 141, which I set out in full:
141 Appointment of administrator
(1) The body corporate, a creditor of the body corporate, the chief executive, or any person having a registered interest in a unit, may apply to the High Court for the appointment of an administrator.
(2) In the case of a layered unit title development,—
(a)a head body corporate or parent body corporate may apply to the High Court for the appointment of an administrator of any 1 of its subsidiaries:
(b)a subsidiary body corporate may apply to the High Court for the appointment of an administrator of its parent body corporate.
(3) The High Court may, in its discretion on cause shown, appoint an administrator for an indefinite period or for a fixed period on such terms and conditions as to remuneration or otherwise as it thinks fit.
(4) The remuneration and expenses of the administrator are to be met out of the operating account.
(5) The administrator, to the exclusion of the body corporate and the body corporate committee, has and may exercise the powers of the body corporate and the committee, and is subject to the duties of the body corporate and the committee, or such of those powers and duties as the High Court orders.
(6) The administrator may, in writing, delegate any of the powers vested in the administrator and may revoke any delegation at any time.
(7) The High Court may, in its discretion on the application of the administrator or any other person referred to in subsection (1), remove or replace the administrator.
15 I adopt the text of the amended orders provided to the Court during the course of argument. The original application was for declarations including that the Administrator’s right of indemnity had priority over all of the Body Corporate’s unsecured debts and that he had a lien over the Body Corporate’s property which has “priority over a charge to the same extent as the right of indemnity has priortity over debts secured by the relevant charge”. I intend to address the substance of the relief the Administrator seeks — essentially an ability to conduct the administration free of the charging orders.
(8) On any application made under this section the High Court may make any order for the payment of costs as it thinks fit.
(9) As soon as an administrator is appointed, the administrator must lodge with the Registrar a sealed copy of the order of the High Court making the appointment.
[34] For the Administrator, Mr Allan submits that in contrast to personal insolvency16 or corporate insolvency,17 where a body corporate is placed in administration as a result of an inability to pay its debts as they fall due, there is no specific statutory regime for dealing with its assets and liabilities. He refers to the observation by William Young and Glazebrook JJ in Gilbert v Body Corporate 162791 that:18
… the provisions of the 2010 Act are not expressed in the manner which might be expected if the purpose was to create a statutory code to the exclusion of all other rights and obligations. Most relevantly, the Act makes no provision for the remedies available for breach of the rules, for instance as to injunctive relief, perhaps of a mandatory nature, or damages. This could be explained on the basis that the legislature just expected the courts to fashion remedies around the statutory regime. Usually, however, when a purely statutory regime is created under which rights and obligations come into existence, the legislature does specify, often with considerable specificity, the remedies which are available where duties are breached or rights are infringed.
[35] This is not a case involving breach of rules or infringement of rights, inter se, between body corporate members. It is a case which has its simple origins in a body corporate faced with remediation bills19 which it does not have the present capacity to pay absent further levies on the Body Corporate members which (without a CCC) they are unable to or unwilling to pay.
[36] Mr Allan submits that the similarities between a body corporate to whom an administrator is appointed on account of insolvency and a company to whom an administrator has been appointed under the Companies Act 1993 are such that I should import into the unit title environment, all, or at least most, of the regime under s 15A of the Companies Act, including importantly, prohibition on enforcing charges over any property of a company without the administrator or court’s consent.20
16 Insolvency Act 2006.
17 Companies Act 1993 and Receiverships Act 1993.
18 Gilbert v Body Corporate 162791 [2016] NZSC 61, [2018] 1 NZLR 1 at [42].
19 Some or all of which it may ultimately chose to dispute and $1,046,096.51 (plus interest) of which are subject to a judgment debt.
20 Companies Act, s 239ABC.
[37] I am not persuaded by that approach. I note at the outset, the reservations expressed by William Young and Glazebrook JJ in Gilbert about infilling a statutory regime where it might be expected to have created a statutory code. More significantly, s 141 itself points in the opposite direction to that contended. That is because, as recognised in the authorities,21 the administrator’s powers under s 141(5) are reductive in the sense that they are those of the body corporate and the committee or such lesser powers as the High Court orders.22
[38] Although there are parallels between a company and a body corporate established under the UTA, there are also fundamental differences, which in my view, make the Administrator’s invocation of the corporate and personal solvency regime inapposite. In particular:
(a)Both the UTA (and the scheme for remediation of the Bella Vista apartments) entitle the Body Corporate to issue levies and take action to recover them. In that sense, its “insolvency” is a function of its failure to raise adequate levies in the past (acknowledging, as I do, the practical impediments which the Administrator now faces).
(b)The Administrator’s statutory right to call for further levies and the obligation of the unit owners (and any future unit owners) to pay them
21 See for example, TBS Remcon Ltd v Body Corporate 354994 [2016] NZHC 1689 at [6] and Low v Body Corporate 384911 HC Auckland, CIV-2010-404-5280, 2 September 2010 at [33]. Although in the same judgment Heath J referred to s 46 as providing an “open textured approach” that was specifically in relation to the circumstances in which applications for appointment of an administrator can be made. I acknowledge that in Norman v Body Corporate 193764 HC Auckland CIV-2009-404-6570, 27 June 2011, Woolford J at [30] held that s 141 allows a court to given an administrator powers that he or she may not have under the rules applicable “if they are clearly inadequate to enable justice to be done” however, this was in the specific context of justice “as between proprietors”, not as between the body corporate and its creditors.
22 The position is similar in Australia. New Zealand’s original legislation the Unit Titles Act 1972 was closely modelled on legislation enacted in in Victoria and New South Wales. Although each state has its own unit titles legislation, none purport to expand the Administrator’s powers beyond those of the Body Corporate. In Clay v Owners of Carinya Court Rockingham Strata Plan 25819 [2018] WASC 191 at [67] to [69], Jenkins J stated of the Western Australia provision:
[69] When an administrator is granted the powers and functions of the strata company he or she has all the powers and functions of the strata company. The mechanisms by which the strata company acts only through the council or the proprietors in general meeting are not required and do not apply. This does not mean that the administrator has more powers than the strata company. The powers of the administrator remain those that are granted to the strata company under the Act. What is different is the mechanism by which those powers and functions are exercised. They are not exercised through council or the proprietors in general meeting. Rather they can be exercised by the Administrator.
means that the Body Corporate’s insolvency cannot be measured simply by comparing its cash assets against its liabilities. I accept Focus’ submission that the liability of the Body Corporate is not limited in the same way as a limited liability company given that it has recourse to the resources, not only of its current owners, but also future owners, to pay its debts.
(c)That liability of unit owners to pay levies to meet the Body Corporate’s debts continues even if the unit plan were to be cancelled, and the Body Corporate accordingly dissolved.23
[39] Nor, even if I had the jurisdiction under s 141 to remove the charging orders or declare them unenforceable, would I exercise that power on the facts as presented.
[40] The Administrator criticises Focus for, he says, endeavouring to obtain a “preference” in respect of the monies (in addition to the $115,000 which is imprinted with a trust) held in the building account. Again, he invokes a lexicon, in my view, more appropriate to personal insolvency or liquidation under Part 16 of the Companies Act.
[41] As Mr Allan acknowledges, there is a real issue as to whether the Body Corporate may be liquidated under Part 16, despite the fact that the relevant procedures apply to “associations” and “any other body corporate to which this Part applies under any other enactment”.24 He submits that Part 16 requires a “conventional paradigm, of an incorporated body with commercial interests”, unlike a body corporate under the Act. The issue is, however, largely academic. All parties acknowledge that it would be demonstrably against the interests, not only of the Body Corporate’s creditors, but of its members for it to be placed in liquidation. It would likely blight the development for at least the foreseeable future, if not its economic life.
[42] There is also something of an irony in the Administrator’s characterisation of Focus’ charging order over the building account as an endeavour to obtain a
23 Unit Titles Act 2010, s 185.
24 Companies Act 1993, s 240.
preference, when what he apparently seeks is the flexibility to apply non-trust amounts in the building account to the payment of other creditors, so that their services might be secured (or even to apply the amount to legal costs going forward). To the extent the Administrator is animated by preference concerns, a principled approach would be to apply the non-trust monies, pari passu, by reference to the approximately $120,000 of claims made by the subsidiary creditors and the undisputed claims made by Focus.
[43] In any event, the orders which are sought are unnecessary at this stage for the following reasons.
(a)There is no current application for a garnishee order in respect of the building account, nor application to move the judgment into the High Court for the purposes of a writ of sale against unit 3G, nor suggestion that these are imminent. Were such applications to be brought, and if the Administrator considered there to be a proper legal basis to do so, he could bring an application for stay or interim injunction. The court should not be required to deal with every potentiality when it can adequately deal with the realities as they arise.
(b)On the Administrator’s own affidavit evidence, he is not at present constrained in his further assessment of Focus’ contingent claims. That is because he is mortgagee under a registered mortgage with a priority of $1,000,000, which has itself been made available as a registered security against a credit line. There is no restriction, at this stage, on him drawing down against the credit line to pay the subsidiary creditors and secure their cooperation in the context of the further inquiries he considers necessary. There may be a theoretical risk in the context of a theoretical liquidation of the Body Corporate, that these creditors might be exposed to a preference claim25 but, given the reality that all of the Body Corporate’s debts will, in due course, need to be paid or compromised by a levy on the Body Corporate members, these are not considerations which, in my view, should concern the Court further.
25 Noting that under the terms of his appointment the Administrator himself has no personal liability except in the case of dishonesty.
(c)Again, were Focus minded to take steps under its charging order over unit 3G which had the potential to frustrate the drawdown under the facility, the Administrator could, if his advice supported it, bring an application for a stay or for injunctive relief. At this stage I consider the prospects of Focus seeking a writ of sale in respect of the apartment, remote at best. Having regard to the Administrator’s mortgage, outstanding levies in respect of the apartment, the current absence of a CCC, the judgment debt, contingent claims by Focus and the existence of other creditors, the prospect of any meaningful recovery under a writ of sale procedure must be close to nil.26
(d)The worst case scenario from the Administrator’s perspective, is that he is delayed in undertaking the further investigations which he has identified, until after the CCC has issued. Although it is not possible to identify yet an actual date when that will occur, all parties interests are served by ensuring it is sooner than later. At the point the CCC issues, the Administrator has committed to raising a levy to be applied against the judgment debt.27 At the point the judgment debt is discharged, so too will the charging orders, at which point the Administrator will be free to deal with the other creditors as he sees fit.
(e)Although I appreciate that the Administrator may see commercial advantage to the Body Corporate members in endeavouring to negotiate one, all in, settlement and that his negotiations with mortgagees may be simpler in that context, I do not consider that sufficient justification to superimpose, over Focus’ existing statutory rights, orders for removal of charging orders or for imposition of moratoria.
[44] For completeness, I also refer to the Administrator’s proposition that I should discharge the charging orders in my inherent jurisdiction. That submission is made in
26 I note in any event that the charging order over unit 3G is unregistered. Without registration a charging order does not take priority. See Raynor Asher and Graham Kohler Laws of New Zealand Creditors’ Remedies: Charging Orders Against Land (online ed) at [83].
27 His schedule identifying the amended orders sought on the application specifies $1,000,000 but depending on what other sums are available to him (including credit facilities), that levy may need to be higher to discharge the judgment debt.
reliance on Roberts Petroleum Ltd v Bernard Kenny Ltd,28 in which the House of Lords held that a charging order should not be made absolute where it would have the effect of creating a preference over the general body of creditors, because this “averts an unseemly scramble by creditors to achieve priority at the last moment” and “establishes a clear working rule and avoids uncertainties”.29
[45] In New Zealand that principle has been applied in the case of a personal insolvency,30 and in the case of the winding up of a Māori corporation under Part IV of the Māori Affairs Amendment Act 1967.31 However, both these cases arose in an orthodox insolvency environment. For the reasons previously indicated, I have significant reservations about whether an equivalent approach is appropriate in the context of an insolvent body corporate under the UTA.
[46] In any event, for the reasons previously indicated, I would dismiss any appeal to the Court’s inherent jurisdiction having regard to the underlying merits of the Administrator’s application.
Application to raise funds
[47] Mr McCullagh seeks a declaration that he is free to obtain advice (whether from a solicitor, counsel, experts or consultants) in relation to what he identifies as “the 27 notices of dispute”, to be paid for either by borrowing, or from the building account or from the operating account or a combination of these.32
[48] It will be apparent from what I have previously said, that absent Focus’ agreement, which may be possible on a pari passu basis, the building account cannot, while the charging order stands, be applied for the purposes identified. There is no similar charging order in respect of the operating account.
28 Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 1 All ER 564 (HL).
29 As above, at 576 lines f–j.
30 Oranga Holdings Ltd v Duke [1994] 3 NZLR 732.
31 Rural Banking and Finance Corporation of New Zealand v Proprietors of Maraetaha No 1D (in liq) HC Gisborne, CP15/88, 29 August 1988.
32 Acknowledging that of the sum held in the building account, $110,000, is held on trust.
[49] The Administrator does not require my imprimatur to raise money, either by loan or levy, to obtain the advice which he says he needs or to meet any earlier account which experts or consultants require to be paid or compromised before providing the assistance he requires.
[50] The terms of his appointment specify that he shall “have all of the powers of the Body Corporate and the committee under the [Unit Titles] Act, modified as noted in this schedule”. Under s 84 of the UTA the Body Corporate has the powers and duties set out, inter alia, in s 130 of the UTA. This in turn provides:
130 Spending, borrowing, and investing money
(1) A body corporate may—
(a)spend or borrow money; and
(b)invest any money in any investment authorised by law for the investment of trust funds.
…
[51]By virtue of ss 84(1)(k) and 121 he also has the power to levy.
[52] Nothing in the terms of his appointment limits these powers. Moreover, the terms of the appointment declare that he is “acting as agent of the Body Corporate and has no personal liability to any person except in the case of dishonesty”. He requires no further directions from me to seek and pay for the advice that he requires.
Result
[53] I dismiss the Body Corporate’s application for transfer of District Court proceedings CIV-2023-004-818 to the High Court and associated application for consolidation.
[54]I dismiss the Administrator’s application for directions.
[55] For the avoidance of doubt, nothing in this judgment restricts the Administrator’s ability to bring any application for stay or interim injunction should any step be taken by the interested party which he considers materially prejudices his administration of the Body Corporate and for which there are proper grounds in law to restrain further action.
Costs
[56] These follow the event and are allowed on a 2B basis. I allow one and a half days for the hearing on the basis that, when the application was originally called on 10 October 2023, the time available on that day was applied to the mutually productive purpose of establishing a practical mechanism by which monies could be raised (including from mortgagees) to fund the works necessary to obtain a CCC.
[57] If the parties cannot agree costs (which is my expectation) brief memoranda (maximum three pages plus any schedule) may be filed.
Muir J
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