Gulf Harbour Marine Village Residents' Association Incorporated v Jan Bain Holdings Limited
[2013] NZHC 2223
•29 August 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-1821 [2013] NZHC 2223
BETWEEN GULF HARBOUR MARINE VILLAGE RESIDENTS' ASSOCIATION INCORPORATED
Plaintiff
AND
JAN BAIN HOLDINGS LIMITED
Defendant
| Hearing: | 7 August 2013 |
Appearances: | P J Niven for Plaintiff I M Hutcheson for Defendant |
Judgment: | 29 August 2013 |
JUDGMENT OF ASSOCIATE JUDGE BELL
This judgment was delivered by me on 29 August 2013 at 5:00pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
Buddle Findlay, Wellington, for Plaintiff
The Small Law Firm, Auckland, for DefendantCounsel:
I M Hutcheson, Auckland, for Defendant
GULF HARBOUR MARINE VILLAGE RESIDENTS' ASSOCIATION INCORPORATED v JAN BAIN HOLDINGS LIMITED [2013] NZHC 2223 [29 August 2013]
[1] Jan Bain Holdings Ltd applies for orders restraining advertising and staying the liquidation application by Gulf Harbour Marine Village Residents’ Association Incorporated. The Association’s liquidation application says that it is a creditor of Jan Bain Holdings Ltd for $21,507.35, said to be the amount owing under unpaid invoices for levy contributions and associated costs dated between 1 April 2011 and
28 February 2013 for properties owned by Jan Bain Holdings Ltd at the Gulf Harbour Village, Whangaparaoa. Jan Bain Holdings Ltd did not comply with a statutory demand, so it is presumed to be unable to pay its debts. The grounds of its application for a liquidation order are that Jan Bain Holdings Ltd is unable to pay its debts and that it is just and equitable that the company be put into liquidation.
[2] In its stay application Jan Bain Holdings Ltd says that the statutory demand was not served. It denies that it is liable for levies imposed by the Association. It says that it is solvent and able to pay the debt if it were liable.
[3] The matters for consideration are:
(a) Did the Association serve the statutory demand according to s 387(1)(c) of the Companies Act 1993? (b)
Did the statutory demand come to the actual knowledge of the director
of Jan Bain Holdings Ltd and, if it did not, is that relevant to the court’s decision whether to stay the proceeding? (c)
Does Jan Bain Holdings Ltd have genuine and substantial grounds for disputing the Association’s right to require it to pay levies?
(d)
Does Jan Bain Holdings Ltd have genuine and substantial grounds for disputing particular levies?
[4]
The
Gulf Harbour Marine Village is a residential development at
Whangaparaoa, Auckland. The development includes a waterway on which there are berths allocated for individual residential lots within the development. The
Association was established to manage and control various common facilities of the Gulf Harbour Marine Village. It is the registered proprietor of the Waterway, which consists of the land covered by the body of water – that is, the seabed and foreshore
– plus a strip of land adjacent to the body of water, above the mean high water-mark, called the Residential Fringe. The companies responsible for the original development were Gulf Harbour Developments Ltd and Gulf Harbour Marlin Ltd. Gulf Harbour Marlin Ltd held bare commercial land in the town centre of the village. It is not relevant to this proceeding.
[5] Gulf Harbour Marine Village Residents’ Association Incorporated is established under the Incorporated Societies Act 1908. Its constitution provides for owners of properties within the village to be members, and provides that the Association may impose levies on members. A memorandum of encumbrance registered against the title to each property within the village requires each owner to be and remain a member in good standing of the Association and to comply with the constitution and all the obligations of a member of the Association under the constitution.
[6] Jan Bain Holdings Ltd owns seven properties in Rue d’Amarres, a residential street in the Gulf Harbour village: numbers 17, 19, 21, 23, 25, 26 and 27. 23 and 25 have houses on them. The other properties are bare land. Jan Bain Holdings Ltd bought 17, 19, 21 and 25 in 2010, 23 in December 2011, and 26 and 27 in August
2012.
[7] There are six berths for vessels in the waterway beside the properties owned by Jan Bain Holdings Ltd. The Association says that these berths have not been allocated to Jan Bain Holdings Ltd. Nevertheless it says that Jan Bain Holdings Ltd has been using these berths without its permission by licensing them to other people.
[8] The Association has issued 31 invoices totalling $21,507.35 to Jan Bain Holdings Ltd running from April 2011 to February 2013. These invoices are variously for residential levies, rent for the use of berths, late payment penalties and for legal costs. The position of Jan Bain Holdings Ltd throughout has been that it is not liable to pay any of the invoices.
[9] In response to the Association’s reliance on non-compliance with the statutory demand to say that there is a presumption that Jan Bain Holdings Ltd is insolvent, Jan Bain Holdings Ltd has put in evidence as to its solvency, including evidence showing that it has sufficient cash in hand to pay the amount of the statutory demand if it is in fact liable.
The approach under r 31.11
[10]Jan Bain Holdings Ltd applies under r 31.11:
Power to stay liquidation proceedings
(1) If an application for putting a company into liquidation is made under rule 31.3, the defendant company, or, with the leave of the court, any creditor or shareholder of that company or the Registrar of Companies, may, within 5 working days after the date of the service of the statement of claim on the defendant company, apply to the court—
(a) for an order restraining publication of an advertisement required by rule 31.9 or any other information relating to that statement of claim; and
(b) for an order staying any further proceedings in relation to the liquidation.
(2) The court must treat an application under subclause (1) as if it were an application for an interim injunction and, if it makes the order sought, it may do so on whatever terms the court thinks just.
(3)The inherent jurisdiction of the court is not limited by this rule.
[11] In Taxi Trucks Ltd v Nicholson1 the Court of Appeal set out the approach taken on applications for a stay:
It has long been settled that the Court may under its inherent jurisdiction restrain or stay winding-up proceedings that are an abuse of the Court's process. The abuse consists of using the winding-up procedure, involving as it does the advertising of the petition with the likely consequence of serious commercial damage to the company, as a means of obtaining payment of a genuinely disputed debt. For in general, a winding-up order will not be made where there is a genuine dispute. This is not an inflexible rule, as was stated in and illustrated by Bateman Television Ltd v Coleridge Finance Co Ltd [1969] NZLR 794 (CA), [1971] NZLR 929 (PC); and in this respect the law in New Zealand differs somewhat from that in England, which is more unbending. The principles to be applied appear succinctly in this passage of the judgment of this Court in Exchange Finance Co Ltd v Lemmington
1 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 299.
Holdings Ltd [1984] 2 NZLR 242 at p 245, which follows a reference to the judgments in the Bateman case:
"Obviously the jurisdiction to restrain winding-up proceedings has to be exercised with that settled New Zealand law in mind. We think that the governing consideration can only be whether presenting or proceeding with a petition savours of unfairness or undue pressure. Whether that stigma attaches to a petition must depend on the particular facts. In many cases where there appears to be a genuine and substantial dispute about the present existence of a debt it will be right to grant an injunction. But there will be cases sufficiently out of the ordinary to justify a Judge in holding his hand."
Rule 700K(1) regulates the procedure for making the application. Subclause
(2) directs the Court to deal with the application as if it were an application for an interim injunction and enables the Court to impose terms on any order it makes. Subclause (3) states that nothing in the Rules limits the inherent jurisdiction of the Court. Counsel were agreed, and we think they were right, that there is nothing in R 700K to require modification of the principle enunciated in Exchange Finance Co Ltd v Lemmington Holdings Ltd. The applicant must show a genuine and substantial dispute as to the existence of the debt, and that it would be unfair - as it usually would be - to allow that dispute to be resolved by the Companies Court rather than by action commenced in the usual way. That assessment must be made on the material before the Court, and not on the hypothesis that some other material, which has not been adduced, might nonetheless be available.
[12] That case was decided before the company law reforms of 1993.2 These replaced the old notice under s 218 of the Companies Act 1955 with the statutory demand and provided for applications to set aside statutory demands. These days companies that wish to contest a statutory demand will typically apply to set aside the demand under s 290 of the Companies Act 1993. So stay applications are now less common. But they may still serve a useful purpose, as when the time for applying under s 290 has expired.3
Some preliminary matters
[13] Following a conference on 7 August 2013, I granted the Association leave to file and serve a late affidavit, but on terms. The Association reserved the right to withdraw the affidavit in the light of those terms. At the hearing, I gave it leave to withdraw the affidavit. I have not referred to it in giving this decision.
2 Companies Amendment Act 1993 and Companies Act 1993.
3Heron’s Flight Ltd v NZ Properties International Ltd [2012] 1 NZLR 424 (HC).
[14] In its application Jan Bain Holdings Ltd asserted that it had a counterclaim that exceeded the debt claimed by the Association. There was little in the way of evidence to support any counterclaim. In the hearing it no longer pursued the counterclaim and I do not have to decide whether it has one.
[15] Jan Bain Holdings Ltd asserted and gave evidence as to its solvency. In AMC Construction Ltd v Frews Contracting Ltd4 the Court of Appeal indicated that solvency could rarely be a stand-alone ground for setting aside a statutory demand. It may instead be used as bolstering evidence to support a case that a debt is bona fide disputed. I follow that approach with this stay application. A company’s proof of solvency may go to its defence on the final hearing of a liquidation application,
but it will not normally give grounds to stay the application at the outset, when there is no dispute as to its indebtedness to its creditor.
[16] In the hearing, Jan Bain Holdings Ltd put forward arguments challenging particular invoices by attacking the supposed methodology for setting levies. It had not signalled in evidence or in pleadings that it would run these arguments as to the potential invalidity of these invoices. The arguments were speculative. The Association was caught by surprise. It had not had the opportunity to address that by submissions or evidence. In the circumstances, I held that Jan Bain Holdings Ltd had not put these matters in issue. I have not considered them in this decision.
Service of the statutory demand
[17]The Association relies on service under s 387(1)(c) of the Companies Act:
Service of documents on companies in legal proceedings
(1)A document, including a writ, summons, notice, or order, in any legal proceedings may be served on a company as follows:
...
(c)by leaving it at the company's registered office or address for service; or...
4 AMC Construction Ltd v Frews Contracting Ltd [2008] NZCA 389, (2008) 19 PRNZ 13 at [7].
(2)The methods of service specified in subsection (1) of this section are the only methods by which a document in legal proceedings may be served on a company in New Zealand.
[18] It accepts that a statutory demand is a document in a legal proceeding. It does not rely on any of the other methods of service in s 387.
[19] The registered office of Jan Bain Holdings Ltd is Apartment 14, Esplanade Apartments, 2 Queens Parade, Devonport, Auckland. There are three affidavits as to service of the statutory demand. In his first affidavit the process-server said that he served the demand on Friday 1 March 2013 at or about 5:00pm. He spoke to an occupant of the apartment by intercom. The occupant requested him to leave the demand in the secure mailbox by the front door. He did so.
[20] Mr Taylor, the sole director of the defendant, says that that cannot be right. His affidavit confirms that he lives in apartment 14 and that he was present in the apartment at or about 5:00pm on Friday 1 March 2013, because he had been in poor health for some time and rarely left the apartment and because he was preparing for a family vacation. He denies that any statutory demand was served at the time given by the process-server in his first affidavit. He says that the process-server did not speak to him. He points out that there are six mailboxes by the front door to the apartment complex, that they are not secure and documents can be removed, and that the numbering of the mailboxes may mean that the statutory demand was placed in the wrong box. He checked with other occupants of his apartment whether the process-server had spoken to them. The statutory demand had a large number of invoices attached. If the statutory demand had been served as alleged by the process-server, he would have been aware of the demand with its invoices. He met with his lawyer the next day to give instructions on other matters and would have brought the matter to the lawyer’s attention if he had been aware of it.
[21] In his affidavit in reply the process-server says that there was an error in his first affidavit as to the time of service. In fact, he served the demand at about 12:30pm on Friday 1 March 2013. He supports that by producing the invoice to the Association’s lawyers, in which the date and time of service are recorded. He says that at 12:30pm he spoke via intercom to a male occupant of apartment 14. He
explained to the occupant that he had a legal document for Jan Bain. He formed the impression that the occupant seemed to be familiar with Jan Bain. The occupant said he was flat-sitting at the address and that the usual tenant was away. The occupant did not give details of his name, but requested the process-server to leave the demand in the mailbox. He confirms that he put the demand in the letterbox for apartment 14.
[22] It was common ground that if the statutory demand had been left in the mailbox for apartment 14, that was service within s 387(1)(c) of the Companies Act
– that is, the demand had been left at the company’s registered office. The case for the defendant was that the Association had not proved service under the section and that in any event it had not come to the actual knowledge of Mr Taylor, the sole director of the defendant.
[23] It was submitted for Jan Bain that it would be unsafe to accept the evidence of the process-server because of his initial mistake as to the time of service, and because of his error in describing the mailbox as “secure”. Mr Taylor’s evidence, that the document had not been delivered, was to be preferred.
[24] I accept the evidence of the process-server in his second affidavit. The process-server is experienced. I have seen many affidavits of service by him. I am unaware of any case where any affidavit by him as to service has been challenged before. As a process-server, he has every interest in ensuring that evidence he gives as to service is reliable and accurate. An adverse finding as to the reliability of his evidence would have a serious impact on his career.
[25] I accept that his error as to the time of service in his first affidavit appears to be no more than a slip. The invoice supporting service was itself issued on 1 March 2013 and therefore makes the time given for service in the first affidavit, 5:00pm, improbable. The invoice is a contemporaneous record as to service. While Mr Taylor’s affidavit challenges service at 5:00pm on 1 March, there is no evidence from Mr Taylor challenging service at the time given in the process-server’s second affidavit. Mr Taylor’s evidence is not enough to persuade me not to accept the process-server’s evidence.
[26] On the other hand, I accept Mr Taylor’s evidence that he did not actually know about the statutory demand on 1 March 2013 and only found out about service of the demand later.
[27] Associate Judge Abbott summed up the principles in the case law as to service under s 387 of the Companies Act 1993 in Reynolds v Ascot Aluminium Ltd.5 That case involved a notice under s 294 of the Companies Act rather than a statutory demand under s 289, but is applicable here:
[5]The notice is a step in a legal proceeding, and must be served in accordance with s 387 of the Companies Act 1993. There are two aspects to the test for service under s 387:
(a)Service must be effected validly (ie in accordance with one of those methods); and
(b)Service must be effective, in that the party being served must be aware of the matter being served.
[6]In the present case, service clearly was valid (it was at the registered office/address for service of the respondent at the time of service), but equally clearly it was ineffective, in which case the court has a discretion as to the relief to be granted so as to prevent any miscarriage of justice.
Associate Judge Abbott was summarising the approach in authorities such as Delta Installations Ltd v Hamilton Joinery Ltd; Re Spanbild New Zealand Ltd, Argyle Estates Ltd v Bowen Group Ltd, Bond Cargo Ltd v Chilcott, ASB Bank Ltd v Info-
Touch Technologies Ltd and Apparel By Design Ltd v Team Kiwi Racing Ltd.6
[28] Against that, the Association cited the decision of the Court of Appeal in
ANZ Banking Group (NZ) Ltd v Gibson:7
Service at the registered office by leaving the demand there was expressly authorised both by s 460 and by the specific provisions of the debentures. It is implicit in the section and in the debenture provisions, as it is in principle, that such service took effect as from the time the demand was left at the registered office. There is no room for adding a gloss deferring the effective
5 Reynolds v Ascot Aluminium Ltd [2012] NZHC 1787 at [5] and [6].
6 Delta Installations Ltd v Hamilton Joinery Ltd (2003) 16 PRNZ 814 (HC); Re Spanbild New Zealand Ltd (2010) 20 PRNZ 752 (HC); Argyle Estates Ltd v Bowen Group Ltd (2003) 17 PRNZ 57 (HC); Bond Cargo Ltd v Chilcott (1999) 13 PRNZ 629 (HC); ASB Bank Ltd v Info- Touch Technologies Ltd (2000) 14 PRNZ 331 (HC) and Apparel By Design Ltd v Team Kiwi Racing Ltd HC Auckland CIV-2007-404-5790, 21 December 2007.
7 ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA) at 560.
time of service and to do so would be inconsistent with the recognition of the company as a separate entity, which must be taken to be present at its registered office, and it would also create undesirable uncertainty.
[29] For the Association it was submitted that so long as there was service that complied with s 387 by leaving the statutory demand at the registered office, that was sufficient and there was no room for the exercise of a discretion. The Court of Appeal’s decision in ANZ Banking Group (NZ) Ltd v Gibson, with the requirement to avoid undesirable uncertainty, precluded the exercise of any discretion by the court.
[30] In ANZ Banking Group v Gibson, the matter for decision was whether the bank had made valid demand under its debenture. The bank later appointed receivers when there was no compliance with the demand. That case did not call for the exercise of any discretion by the court.
[31] The matter is different when there is an application to stay a liquidation application. The power to stay a liquidation application, either within the inherent jurisdiction of the court, so as to prevent an abuse of its process, or under r 31.11 of the High Court Rules, allows the court to exercise a discretion. That discretion may be exercised to relieve against hardship.
[32] Even if a statutory demand has been served on the registered office of a company in keeping with s 387(1)(c) of the Companies Act, the fact that the statutory demand did not come to the actual knowledge of the management or directors of the company, while not a stand alone ground, may be a relevant factor in the court’s decision whether to order a stay.
[33] I find that the Association did serve Jan Bain Holdings Ltd by leaving the statutory demand at its registered office on 1 March 2013. That was service under s 387(1)(c) of the Companies Act. The demand did not come to the actual knowledge of Mr Taylor, the director, until later, after the time for applying to set aside the demand had passed. The delay in Mr Taylor finding out about the demand is relevant to the court’s exercise of its power to stay the proceeding.
Is Jan Bain Holdings Ltd liable to pay levies to the Association?
[34] Jan Bain Holdings Ltd gives these grounds for contesting its liability to pay the levies imposed under the Association’s invoices:
(a)Mr Klarwill, chairman of the Association, assured Mr Taylor that it would not have to join the association;
(b)It is not a member of the Association;
(c)As a developer, it is exempt from levies;
(d)Those of its properties which do not have any houses erected on them are exempt from levies;
(e)As no berths have been allocated to it, it cannot be subject to levies payable by a berth-holder;
(f)The Association has double charged it; and
(g)If it is liable, the maximum amount of its liability is $100 per annum, being the amount of the rentcharge under the encumbrance lodged against each title it owns.
[35] It is helpful to set out more of the provisions under which the Association claims the right to levy owners of properties within the Village.
[36] The memorandum of encumbrance is between Cap d’Amarres Ltd, a predecessor in title, as encumbrancer and the Association as encumbrancee. It is registered against each of the lots owned by Jan Bain Holdings Ltd and provides:
Operative Clause
1The Encumbrancer hereby encumbers all of the lots for the benefit of the Encumbrancee for a term of 100 years, commencing on the date of this encumbrance, with an annual rent charge (calculated in accordance with clause 2 below) being payable the one sum by the Encumbrancer in the event of a breach of any of the covenants
contained in clause 4 by the Encumbrancer or the registered proprietor for the time bring of any of the unit title lots.
2The rent charged payable to the provisions of clause 1 above shall be
$100.00.
Covenants
3Notwithstanding any other provisions contained in this encumbrance, the annual rent charge stated in clause 2 shall only be payable if there has been a breach of the covenants contained in clause 4 of this encumbrance by the Encumbrancer or the registered proprietor for the time being of any of the Lots.
4The Encumbrancer covenants with and for the benefit of the Encumbrancee that the Encumbrancer and every registered proprietor for the time being of each Lot for so long as such ownership continues, shall at all times:
a.be and remain a member in good standing of the Encumbrancee, and meet all levies and other lawful impositions levied in respect of the Lots, or the Encumbrancer’s interest in the Lots, by the Encumbrancee;
b.comply with all of the terms of the Constitution and all of the obligations imposed on a member of the Encumbrance pursuant to the provisions of the Constitution, including all rules forming part of or attached to the Constitution, as to the use and enjoyment of the communal facilities by the Encumbrancer or by other owners of dwellings and properties in the Development.
c.make no, nor allow any objection to any submission against any proposed work development or undertaking which the Encumbrancee intends to carry out as part of the Development.
5Section 104 of the Property Law Act 1952 applies to this encumbrance but without prejudice to the Encumbrancee’s right of action at common law as a rent charge. The Encumbrancee shall not be entitled to any of the powers and remedies given to mortgagees and encumbrancees under the Land Transfer Act 1952 and the Property Law Act 1952 and no covenants on the part of the Encumbrancer and its successor in title are implied in this encumbrance other than the covenants for further assurance implied by section 154 of the Land Transfer Act 1952.
[37] Jan Bain Holdings Ltd accepts that it took title subject to the registered memorandum of encumbrance and is accordingly subject to the covenants in that
encumbrance. That concession was well made in light of the decision of the Court of Appeal in Jackson Mews Management Ltd v Menere.8
[38] The Association has from time to time replaced its constitution with a new constitution. The provisions of the constitution referred to in this decision are common to all versions of the constitution.
[39] The objects clause of the constitution includes the following:
3.1The Association is formed to promote the following objects for the benefit of Members:
(a)to provide for the ownership and continued ownership of the Common Facilities by the Association;
(b)to provide a means whereby Members can use and enjoy the Common Facilities including, having regard to the category of membership they hold, the Waterway, and to provide for the management, control and the use of the Common Facilities by Members;
(c)to provide for the proper operation, maintenance, repair, renovation and replacement of parts of the Common Facilities when required;
(d)to provide for the enforcement and regulation of the Owners’ Scheme;
(e)to provide residential Berth Members with licences to use and enjoy their designated Berths subject to the express terms of this Constitution;
(f)to provide for the levying of Members or appropriate classes of Members as applicable, for the purpose of providing funds for, and meeting the costs and expenses, of the Association;
(g)to have as its Members all Owners in the Gulf Harbour Marine Village, and to ensure that all such Owners at all times remain Members of the Association in good standing
...
[40] Clause 4.4 provides for owners of all properties within the village to be members of the Association:
4.4Except as provided in rule 4.1, each Owner shall be a member and only Owners shall be Members and for that purpose:
8 Jackson Mews Management Ltd v Menere [2009] NZCA 563, [2010] 2 NZLR 347.
(a)an encumbrance shall be registered against each Owner’s Title with and for the benefit of the Association whereby each Owner covenants, for the Owner and the Owner’s successors from time to time, that the Owner shall:
(i)for as long as the Owner is the registered proprietor of the Developed Property (and not otherwise) at all times be and remain a Member in good standing of the Association and meet all levies and other lawful impositions levied by the Association in respect of the Developed Property or the Owner’s interest in the Developed Property, and
(ii)at all times, comply with the terms of this Constitution, including the appropriate rules forming part of or attached to this Constitution as to the use and enjoyment of the Common Facilities and (if appropriate) a Berth, applicable to the category and membership the Owner holds,
(b)upon any Owner becoming registered as a registered proprietor of an Owner’s Title, such Owner shall immediately join the Association as a Member and shall remain a Member in good standing throughout that Owner’s term of ownership of the relevant Developed Property.
(c)any Member selling that Member’s Developed Property shall be obliged to procure the incoming purchaser acquiring the developed property to enter into, execute and deliver to the Association an acknowledgement of Membership in the form set out in Schedule 5, effective from the date the incoming Purchaser becomes the Beneficial Owner of the Developed Property.
(d)the Association shall, as soon as convenient, issue to each Member, or new Member, as the case may be a certificate of Membership recording that Member’s interest in the Association and the category of Membership held by the Member and in the case of a Residential Berth Membership identifying that Member’s Berth . ...
...
(g)each Owner shall, immediately upon becoming an Owner, (and thereafter as details change) provide the Association with details necessary for the maintenance of the register of Members pursuant to rule 4.6 and shall, upon entry of the details into the register, become a Member.
[41] Under clause 3.3 the membership of the Association consists of the same number of members as there are developed properties from time to time.
[42] Part 5 imposes a general obligation on each member to properly and fully comply with the terms of the constitution, the rules forming part of and attached to the constitution and with the terms of any covenants given in favour of the Association by any encumbrance against the Member’s title. Part 6 of the constitution confers rights on members to use common facilities.
[43] The constitution provides for categories of membership. Clause 4.2 says:
4.2There shall be three categories of Membership of the Association namely Residential Membership, Residential Berth Membership and Commercial Membership. The category of Membership to be issued to each Member shall in the case of the first issue of that Membership be as determined by the Developer as appropriate having regard to the type and nature of the rights attaching to the Developed Property owned by that Member.
[44] A number of definitions in clause 2.1 are relevant.
(a)“Residential membership”:
“Residential Membership” means a membership of the Association held by a Member by virtue of that Member owning a Dwelling in the Gulf Harbour Marine Village, where that Member does not, under the terms of this Constitution, have rights of use and enjoyment in respect of any Berth.
(b)“Residential Berth Membership”:
“Residential Berth” means a membership in the Association held by a Member by virtue of that Member owing a dwelling in the Gulf Harbour Marine Village where that Member has under the terms of this constitution rights to the use and enjoyment of a Berth linked to that Member’s ownership of the dwelling.
“Commercial membership”:
“Commercial membership” means a membership in the Association held by a Member by virtue of that Member owning a commercial unit in the Gulf Harbour Marine Village.
(c)An “Owner” is a person registered as a proprietor of a Developed Property.
(d)“Developed Property”:
“Developed Property” means a property within the Gulf Harbour Marine Village-
(a) For which has a separate freehold title (including a unit title) has issued, and
(b) Which has been fully developed by the developer as a Dwelling or a Commercial Unit or for any other permitted use.
(e)“Dwelling”:
A Dwelling means a residential property within the Gulf Harbour Marine Village, owned in freehold (including stratum estate in freehold) by a Member.
[45] Part 9 of the constitution provides for the imposition of levies and charges. The levies include:
(a)Base levies to cover general Association expenses;
(b)Berth levies payable by residential Berth Members for marine operating expenses; and
(c)Commercial levies.
Levies are to be assessed according to the proportion which a particular property bears to the total value of all the properties within the Village by the application of definitions of “Members Share”, “Property Value” and “Total Value”. Residential berth members pay a berth levy set by the proportion their berth length bears to the total length of all berths. Part 9 provides for members to pay base levies, for residential berth members also to pay berth levies, and for commercial members to pay commercial levies.
[46] If a vendor does not pay a levy, the Association may make written demand and in that event the non-paying member becomes liable to pay interest at a default interest rate, and is also liable for all costs incurred in collecting payment of the levies.
[47] Parts 7 deals with residential berth membership rights. Schedule 1 to the constitution is a berth plan and allocation schedule. It shows particular berths allocated to particular properties within the village. Properties with residential berth membership have the right to enjoy berths allocated to them, subject to complying with berth licence terms. The berth licence terms are set out in Schedule 3 of the constitution.
[48] The constitution also contains special provisions for Gulf Harbour Development Ltd as the original developer. It is both the “Controlling Member” and the “Developer”. Clause 4.5 says:
Developer as Controlling Member
4.5Until the development of the Gulf Harbour Marine Village is fully completed (as determined by the Developer) or the Developer chooses to resign, the Developer shall be the Controlling Member of the Association, regardless of whether the Developer is at any time a Member. The Controlling Member shall have only the rights specified in this Constitution and shall have no other rights or obligations of a Member. No reference in this Constitution to a Member shall be taken as including a reference to the Controlling Member. Upon the development of the Gulf Harbour Marine Village being fully completed, the Developer shall be deemed to have resigned as Controlling Member, and thereafter there shall be no Controlling Member in respect of the Association.
[49] While there is a controlling member, the controlling member is entitled to appoint a controlling member nominee to the committee of the Association (clause 14.4(c)). In general meetings the controlling member is entitled to exercise a number of votes equal to one more than the number of members present at any general meeting (clause 17.2). In committee meetings, the controlling member nominee is entitled to exercise a number of votes equal to one more than the number of other committee members at any committee meeting (clause 14.13). Similarly, while there is a controlling member any resolution in writing signed by 75 per cent of the members entitled to vote in person or by proxy at a general meeting together with the controlling member shall be valid as if passed at a general meeting.
Jan Bain Holdings Ltd’s general objections to payment
Alleged assurance by Mr Klarwill
[50]Mr Taylor, director of Jan Bain Holdings Ltd, says in his affidavit:
When the defendant purchased sections at Gulf Harbour it was given to understand and believe that ownership of marine berths transferred with the title to the sections…
I was told, at the time, by Mr Rod Klarwill (chairman of the plaintiff society) that being a developer the defendant was entitled to use the marina berths and did not need to become a member of the plaintiff society.
[51] Presumably “at the time” refers to the times when the defendant purchased sections. However, those purchases extended over years. Jan Bain Holdings Ltd bought four lots in 2010. Mr Klarwill explains that he was not an office-holder of the Association at that time. He could not have given any assurance as chairman then. Lot 5 was bought in December 2011. Mr Klarwill says he was a member of the committee of the Association at that time, but the status of the committee was disputed. That was not resolved until February the following year. Jan Bain Holdings Ltd became owner of lots 7 and 8 in August 2012. Mr Klarwill was chairman of the committee of the Association at that time. Mr Klarwill denies giving any statements to Mr Taylor at the time of any of these transfers that Jan Bain Holdings Ltd would not have to become a member of the Association because it was a developer or that ownership of the berths transferred with title to the sections.
[52] I find that the evidence by Mr Taylor on this point is so vague and lacking in particularity that I cannot attach any weight to it. It is also implausible. It does not make business sense that the Association would give exemptions from membership.
The evidence comes easily within Lord Diplock’s well-known dictum in Eng Mee Wong v Letchumanan.9
[53] Further, even if Mr Klarwill had given any such assurances, I cannot see any basis on which it could give Jan Bain Holdings Ltd any defence to any liability for levies. There is no evidence that Mr Klarwill had authority to give exemptions from membership or from compliance with the rules of the Association, the provisions of the constitution or the covenants in the memorandum of encumbrance. The constitution does not provide that owners may be exempted from membership. There was no submission that the Association was estopped from recovering levies or that it had waived the right to recover levies.
[54] At the hearing, Jan Bain Holdings Ltd did not rely on this as a stand-alone ground for defence, but used it more as evidence to support its legal arguments on
9 Eng Mee Wong v Letchumanan [1980] AC 331 (PC) at 341.
other grounds. Those other grounds include arguments as to the meaning of the memorandum of encumbrance and the constitution. The memorandum of encumbrance is registered against all titles in the village. It must apply consistently to all owners. It cannot have one meaning for one owner and another for other owners. Its meaning cannot be changed by the kind of evidence that Jan Bain Holdings Ltd is trying to introduce. Similarly the constitution and any rules of the Association must also apply consistently to all owners and cannot vary from one owner to another. This evidence cannot influence the interpretation of the memorandum of encumbrance or the constitution.
Not a member of Association
[55] Jan Bain Holdings Ltd also says that it did not join the Association and therefore it is not bound by the constitution or by its rules. However, that overlooks the provisions of the encumbrance, especially clause 4(a) and (b). Under the encumbrance it was required to be a member of the Association in good standing. It became bound by the covenants in the encumbrance when it became an owner of each of its lots. The effect of the encumbrance was to require it to take all steps to ensure that it was a member, including any formalities under clause 4.4 of the constitution. The encumbrance also prevents it contending that it is not a member. On the basis that equity treats that as done which ought to be done, Jan Bain Holdings Ltd cannot rely on any failure to carry out any of the formalities under the constitution to say that it is not a member of the Association. As a member, it is subject to the Association’s powers under or deriving from the constitution to impose levies and collect them.
Jan Bain Holdings Ltd is a developer and owns five vacant lots
[56] Jan Bain Holdings Ltd relies on the fact that it owns five vacant lots as grounds to say that it is a developer and to use that as grounds to resist paying levies. Part of that argument was that Jan Bain Holdings Ltd was claiming to have stepped into the shoes of the Developer and to enjoy the exemption from compliance with the constitution under clause 4.5. The Association very effectively disposed of that argument by referring to the definitions of Developer and Controlling Member in the
constitution to show that Jan Bain Holdings Ltd could not be the Developer or its successor.
[57] The other part of the argument for Jan Bain Holdings Ltd turned on the definitions of “member”, “owner”, “developed property” and “dwelling.” Its case is that a vacant lot has not been fully developed by the Developer so as to bring it within the definition of developed property. As it is not the owner of a developed property, it is not an owner, as defined, and therefore cannot be a member, as defined. The constitution does not provide for payment of levies for vacant lots. The base levy is payable by members, but members are those who own developed properties, as defined, not owners of vacant lots.
[58] At best this argument only helps Jan Bain Holdings Ltd for its vacant lots. It also owns two lots with houses and cannot use this argument to claim exemption from levies for those lots. I also note that the evidence for Jan Bain Holdings Ltd does not show that it intends to develop any of the vacant lots or that it has carried out any development work for any of the vacant lots. Its evidence is consistent with it simply holding the lots for the time being without any intention of carrying out any work on them.
[59] Jan Bain Holdings Ltd accepts that all its lots are within a residential area in the village and that its lots are intended for residential use. None of its properties are commercial units. Its case is that for a lot within a residential area to be liable for levies, it must have a house on it. Only such a lot can be a “dwelling” as defined and come within the definition of “developed property”. Without a house, the property has not been fully developed by the Developer so as to be a developed property.
[60] I accept the Association’s submission that that cannot be right.
[61] Jan Bain’s argument entails reading into the constitution an exception along the lines that owners of residential properties without houses are exempt from levies. The constitution is a very detailed document that sets out to cover comprehensively a very extensive range of matters. Any exemption from paying levies would be a very significant provision of importance not only to those enjoying the benefit of the
exemption but also to those who must carry the extra burden arising as a result of that exemption. It would therefore be expected that any exemption would be expressly provided for in clear terms. Instead Jan Bain’s case relies on reading into provisions a particular meaning, which is not on its face clear or obvious.
[62] Jan Bain’s argument is that a property is not fully developed as a “dwelling” if it does not have a house or other living quarters on it. It is important however to note that “dwelling” has been given an express meaning under the constitution. It is a case of the parties using a private dictionary.10 As defined, a “dwelling” means a residential property, but that does not require it to have a house on it. A residential property is one that is intended for and suitable for residential use. In the context of a development such as the Gulf Harbour Village, a property may be fully developed
by a developer if it has been brought up to a condition where it has its own title, has the benefit of services (access, electricity reticulation, water supply, effluent and stormwater disposal and the like) and can have a house built on it. Under the constitution Jan Bain’s lots were fully developed as residential properties even though they do not yet have houses on them. Once the “developer” had sold them as properties for residential use, they were “fully developed”.
[63] Further, Jan Bain’s argument ignores the combined effect of the requirement under the memorandum of encumbrance to be a member of the Association and the membership requirements under the constitution. Clearly the memorandum of encumbrance and the constitution are intended to operate consistently with each other. An interpretation which gives rise to an inconsistency between the two documents is to be avoided. The encumbrance requires the owner of each lot to be a member. Consistent with that, the constitution provides for only three classes of membership. Any owner subject to the encumbrance must fall within one of those three classes. Jan Bain’s argument acknowledges that there is an obligation to be a member under the encumbrance but says that under the constitution it is not caught by the membership requirements because of the lack of full development on five of
10 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 per Tipping J at [25]:
A private dictionary meaning is a meaning the words linguistically cannot reasonably bear. It is, nevertheless, open to a party to show that, despite that fact, the parties intended their words to have that special meaning for the purposes of their contract. This represents a consensual parallel with cases in which words have a special meaning by trade custom.
its lots. That argument gives rise to an unacceptable disconnect between the encumbrance and the constitution. The Association’s case, that Jan Bain Holdings Ltd is a residential member, makes better sense.
[64] The purpose of base levies is to contribute to the general expenses of the Association. The provisions for imposing levies are to ensure that all members contribute to those expenses on an appropriate and proportionate basis. There is nothing within the provisions, barring the particular interpretation of “dwelling” relied on by Jan Bain Holdings Ltd, that suggests that vacant lots enjoy any exemption contrary to the general purpose of the rules, which is to ensure that all members contribute pro rata to the expenses of the Association. Jan Bain’s argument is inconsistent with the general scheme of the constitution which is that all owners of properties in the village are members of the Association and are subject to levies for their class of property.
Complaints against particular invoices
Double charging by the Association
[65] Jan Bain Holdings Ltd is on stronger ground in identifying invoices where it has been double charged. These are invoices 135, 298, 663, 923 and 1278. The Association accepts that these charges totalling $1,352.24 are double-ups and should be deleted.
No charges for marina berths
[66] Jan Bain Holdings Ltd is also on strong ground in contending that it should not have to pay invoices for marina berths totalling $9,190.12.11 It is common ground between the parties that Jan Bain Holdings Ltd has not been allocated any berths. Instead, it has purported to sub-license out berths outside its properties to third parties. The Association may have good grounds for contending that Jan Bain had no right to sub-license berths when those berths had not been allocated to it. It
may even have a cause of action in trespass or waiver of tort. In this case it did not
try to make out such a claim. It appears that any such claim would be for an unliquidated sum. The Association has not claimed as a prospective or contingent creditor for those invoices and has not sought leave under s 288(5) of the Companies Act. The constitution does not give the Association any power to charge Jan Bain Holdings Ltd levies for unauthorised use of the berths. The Association accepted that it did not have that power and that the invoices for these charges were disputable.
Remaining invoices
[67] The remaining invoices total $10,964.99. They are for base levies on the two lots with houses, the five lots without houses, penalty interest for non-payment and legal fees for recovery costs. Now that Jan Bain’s general arguments that it cannot be liable for base levies have been rejected, it does not have any basis for objecting to these remaining invoices. It is liable for the invoices for the base levies, for penalty interest for not paying those invoices and for the Association’s legal costs on recovery action. It has no basis for disputing its liability under these invoices.
The effect of the rentcharge
[68] Jan Bain says that if it is liable, its liability should be capped at $100.00, the amount of the rentcharge under the memorandum of encumbrance. That shows a misunderstanding of the effect of the memorandum of encumbrance. It enables the Association to enforce the covenants under the encumbrance against the registered proprietor for the time being. Under clause 3 of the memorandum Jan Bain is relieved from paying the rentcharge if it has not breached any of the covenants in clause 4, but clause 3 is not the Association’s only remedy for a breach of the covenants. The Association can also enforce them directly, that is, by suing Jan Bain for breaches or by claiming payment for debts arising under those covenants. It would do Jan Bain no good to offer to pay only the amount of the rentcharge. That will not discharge it from the encumbrance. The Court of Appeal made this clear in
Jackson Mews Ltd v Menere.12
[69] Jan Bain Holdings Ltd has shown that even though the statutory demand was served on it under s 387 of the Companies Act, its director did not find out that the demand had been served until it received this proceeding. Although it is out of time to make an application under s 290 to set aside the statutory demand, it is not too late for it to say that it disputes the debts on which the Association relies. Its evidence as to its solvency goes towards its genuineness in disputing its liability. Nevertheless, no matter how genuinely it might contest its liability, it cannot escape the fact that under the encumbrance and the Association’s constitution it is generally liable for levies imposed by the Association. It has however shown that there is a substantial dispute as to its liability under some of the Association’s invoices: where it has been double charged and invoices for its alleged unauthorised use of berths. It would be an abuse of process on the part of the Association to continue with its liquidation application in reliance on those invoices which are disputable. On the other hand, there is no abuse by the Association in relying on the remaining undisputed invoices. The Association is entitled to continue with its application on the basis that it is a creditor of Jan Bain for $10,964.99.
[70] The outcome is that Jan Bain has been only partly successful in its stay application. It has not shown that the entire liquidation application is an abuse of process. All the same it is entitled to an order safeguarding it against the liquidation application being based on disputed liabilities, when the court has not given leave under s 288(5) of the Companies Act.
[71] The parties agreed that if I found against Jan Bain, there should be an interim restraint on advertising to give it time to pay.
[72] I acknowledge the possibility of error on my part in calculating the undisputed invoices. To allow for any such errors to be addressed, the parties will be entitled to ask for a recall.
[73] The parties have had mixed success. In the light of that I invite them to confer as to costs. If they cannot agree, I will decide costs on the papers.
(a)The application for a stay is dismissed;
(b)In this proceeding, the Gulf Harbour Marine Village Residents’ Association Incorporated may not assert that it is a creditor of Jan Bain Holdings Ltd for $1,352.24 for invoices 135, 298, 663, 923 and 1278 or for $9,190.12 for invoices 2065, 2166 and 2127, unless it first obtains leave as a prospective or contingent creditor under s 288(5) of the Companies Act 1993;
(c)Leave is reserved to recall the judgment to address any calculation questions;
(d)The Gulf Harbour Marine Village Residents’ Association Incorporated is restrained from advertising this proceeding until 13 September 2013, but may advertise the proceeding after that date if the parties have not sooner settled;
(e)The parties may file memoranda as to costs, if they are not able to agree. The party filing second should file its memorandum within 5 working days of the first memorandum;
(f)The case is to be called in the companies’ list on Friday 11 October 2013 at 11.45 am. If the parties sooner settle, they may ask for the case to be called in an earlier list for the proceeding to be withdrawn.
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Associate Judge R M Bell
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