Harbour Reflections Limited v Body Corporate 170989
[2019] NZHC 1338
•13 June 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000811
[2019] NZHC 1338
BETWEEN HARBOUR REFLECTIONS LIMITED
Applicant
AND
BODY CORPORATE 170989
Respondent
CIV-2018-404-000812 BETWEEN
AQUILA HOLDINGS LIMITED
ApplicantAND
BODY CORPORATE 170989
Respondent
Hearing: 4 June 2019 Appearances:
T Rainey for the Applicant
B Martelli for the Respondent
Judgment:
13 June 2019
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
This judgment was delivered by me on 13 June 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Richard Allen Law, Auckland Heaney & Partners, Auckland
T Rainey, Auckland
HARBOUR REFLECTIONS LTD & Anor v BODY CORPORATE 170989 [2019] NZHC 1338 [13 June 2019]
Introduction
[1] The respondent (BC 170989) is the Body Corporate of a development comprising residential apartments at West Harbour, Auckland. It is under the administration of Ms Victoria Toon by appointment of this court made on 12 May 2014. Each applicant is the owner of units within the development.
[2] On 17 April 2018, BC 170989 issued a statutory demand against the first applicant, Harbour Reflections Ltd (Harbour) under s 289 of the Companies Act 1993. It demanded payment of $179,148.49, being the sum stated to be owing on a statement issued by BC 170989 which referred to 14 numbered and dated invoices. The invoices are dated between20 May 2015 and 12 March 2018.
[3] On 17 April 2018, BC 170989 also issued a statutory demand against the second applicant, Aquila Holdings Ltd (Aquila). The sum claimed was $199,049.29. Again, the demand referred to a statement setting out how the sum claimed was made up, this time by reference to 13 invoices bearing dates between 20 April 2015 and 12 March 2018.
[4] Harbour and Aquila both apply to the court under s 290 of the Companies Act for orders setting aside the statutory demands. In August 2017 counsel advised the court that the demands were not pursued to the extent that they included sums claimed as contributions to an adverse costs award against BC 170989 resulting from an unsuccessful claim before the Weathertight Homes Resolution Tribunal. The demands remain extant in relation to invoices rendered against each of Aquila and Harbour for sums said to be owing for operating expenses of BC 170989, and interest. As a result large parts of the voluminous evidence filed in support of and in opposition to these applications may be disregarded, and the issues to be decided by the court are now comparatively confined.
Relevant legal principles
[5] Section 290 of the Companies Act 1993 provides that the court may set aside a statutory demand issued against a company, on the application of that company. Various grounds are provided for. The ground principally relied upon by Harbour and Aquila is that there is a substantial dispute over whether the sums claimed are owing.
[6] Section 290 also provides that a demand must not be set aside by reason only of a defect or irregularity, unless the Court considers that substantial injustice would be caused if it were not set aside. A defect is defined to include a material misstatement of the amount due to the creditor, and a material misdescription of the debt referred to in the demand.
[7] The role of the court on an application under s 290 is only to determine whether there is a substantial dispute, and not to decide the merits of any dispute which may be said to exist. The onus is on the applicant to show that there is arguably a genuine and substantial dispute as to the existence of the debt, but the threshold which an applicant must meet is not high. It is described in the following terms by the Court of Appeal:1
… the statutory scheme … for application to set aside statutory demands [is] a summary proceeding … The section calls for a prompt judgment as to whether or not there is a substantial dispute. The test may be compared with the principles in cognate fields such as applications to remove caveats [and] leave to appeal an arbitrator’s award … The tight time constraints distinguish a s 290 discretion from that, say, exercised on, say, a summary judgment application, where the presence of complex legal issues is not necessarily a bar to a remedy. As with leave to appeal an arbitrator’s award, the hearing should, in the normal course, be short and to the point, and the judgment likewise.
[8] Similarly, in reaffirming this decision, the Court of Appeal said in AAI Ltd v 92 Lichfield Street Ltd (in rec and liq):2
It is important to keep in mind the words of the statute. What the applicant must show is that the dispute it raises has substance; the applicant must explain to the Court what the dispute is; and the dispute so shown must be a real and not a fanciful and not insubstantial dispute … [However] the Court must also
1 Industrial Group Ltd v Bakker [2011] NZCA 142 at [24] – [25].
2 AAI Ltd v 92 Lichfield Street Ltd (in rec and liq) [2015] NZCA 559 at [221].
keep in mind the requirements that what is intended to be a summary hearing should not be converted into a full-blown trial.
Further evidence
[9] Some of the invoices listed in each of the statutory demands relate to sums charged to Harbour and Aquila respectively for a proportion of an adverse costs award from earlier litigation. Others relate to ongoing body corporate expenses. Interest was also claimed in respect of sums which had not been paid. With the claim for the costs arising from the earlier case having been withdrawn in September 2018, the amounts said to be owing by Harbour and Aquila respectively were substantially reduced, but replacement notices under s 289 were not issued. Rather, BC 170989 left in place the notices it had issued, as it continued to maintain that Harbour and Aquila each remained indebted to it.
[10] The court made a direction on 7 August 2018 that BC 170989 was to file and serve by 14 August 2018 “further evidence addressing the issue of the calculation of the outstanding operating expenses and costs of administration components of the statutory demands”. The Court also directed BC 170989 to advise the Court and the parties “of the precise calculation now in dispute (and by reference to the evidence), being the amount of the statutory demands that the respondent now seeks to uphold”. Both Harbour and Aquila were given a time by which they were to file any evidence in response and any additional memorandum.
[11] Ms Toon filed a further affidavit dated 14 August to which she annexed schedules for Harbour and Aquila respectively, concluding that the total owing by Harbour was $25,558.64, and by Aquila, $31,850.09.
[12] Each of these schedules listed invoices which were not listed on the statutory demands. Mr Martelli for BC 170989 says the previously unlisted invoices included in schedules 2 and 3 to Ms Toon’s second affidavit had been paid in full. Additional moneys were also paid, and those surpluses were, Mr Martelli explained, shown on the statements attached to the demands as payments by Harbour and Aquila of
$4,455.60 and $6,093.59 respectively. So in summary, the new schedules were essentially the same as the ones on the demands.
[13] Mr Ivil, a director of both Harbour and Aquila, swore an affidavit in response to Ms Toon’s second affidavit. He says that neither company accepts Ms Toon’s allocation of certain credits for payments made to BC 170989 by these companies and other entities within a group of which Harbour and Aquila are part. He says neither company accepts that there are outstanding levies for any operational expenses or administration costs. The body corporate has accepted that various entities in the group are entitled to credits against body corporate levies, and the result of applying the credits correctly is that there is no pre-existing balance of operating expenses or administration costs, nor any basis for a claim that any sum is owed by way of interest.
[14] Mr Ivil calculates that of the sum now said to be owing by Harbour ($25,558.64), $16,116.89 is a claim for interest. In the case of Aquila, $20,578.09 is a claim for interest, reducing the claim for expenses and administration costs for Aquila from $31,850.09 to $11,272.
[15] Harbour and Aquila accept that interest may be charged at the rate of 10% on unpaid body corporate administrative and operational expenses from 21 September 2015 onwards, as on that day the body corporate passed a resolution to that effect pursuant to s 128 of the Unit Titles Act 2010. They do not accept that interest may be charged for any period before that.
[16] Ms Toon filed a third affidavit on 31 May, the working day before the hearing. On the interest issue, Ms Toon says that when Mr Ivil was managing BC170988, prior to her involvement, it asserted a right to charge interest on a pre-settlement disclosure statement issued on 12 May 2014 under the Unit Titles Act, and that in any event a resolution to charge interest is not a pre-requisite to a right to do so. On that basis, Harbour and Aquila should pay interest at least from that date.
[17] Ms Toon goes on to give detailed evidence about the credits to which she says both Harbour and Aquila are entitled, for payments made to BC 170989 by various entities within the group. Ms Toon evidently accepts that most of these credits are valid, and she says she has applied these, but disputes the validity of two credits of
$4,500 and $29,900 respectively. This is because she has never seen an invoice for the former, and in relation to the latter she is not satisfied that BC 170989 ever
requested or authorised the work buildings to which it relates. Another company in the Ivil family ownership group instructed that this work be done, and was invoiced for it by the contractor. There is no evidence according to Ms Toon of any authority by BC170989 for this work to have been done. It was carried out by a company related to Harbour and Aquila, and was for work on units also owned by parties related to them. For those reasons she has not been and is not prepared to recognise these credits as claimed.
[18] In this affidavit, Ms Toon also produces three new schedules. The first shows what she sees as the position if the claimed credits are not transferred to Harbour and Aquila. The figures are $25,558, and $31,850 owing, respectively. Each of those figures includes interest. These are the figures also shown in schedules 2 and 4 to Ms Toon’s second affidavit, referred to earlier.
[19] The second schedule to Ms Toon’s third affidavit sets out what she says is the position if the credits claimed by Harbour and Aquila are applied as at 24 September 2015 and apportioned to them on an equal basis. In this event Aquila would owe $9,927, though all of that would be interest, as the total interest included in calculating that sum is $14,480. Harbour would owe $3,670, though again this would entirely comprise interest as the total charged for interest is $10,053.
[20] Ms Toon annexes a third schedule showing the position if the credits are transferred as at 28 August 2018. In that event Aquila would owe $19,759, including interest of $18,698, and Harbour would owe $13,501, entirely made up of interest amounting to $14,270.
[21] Because of the late filing of this affidavit, Mr Ivil has not responded to this evidence. Mr Rainey says that it is not accepted. By reference to the credits in issue, he notes a direction given to BC 170989 in the following terms to apply the credits to expenses in September 2015:
Hauraki Homes Ltd, as the sole trustee of the Livi Trust, hereby resolves to ratify and confirm the instruction of its sole director, Daniel Ivil, to Body Corporate 170989 given on 24 September 2015 to apply the credits to which it is entitled, to levies raised by the Body Corporate 170989 against the owners
of apartments 5, 6, 7, 9 and 10, and the owners of units F and G, and in particular:
1. Harbour Reflections Limited, which is the owner of units 9 and 10; and
2. Aquila Holdings Limited, which is the owner of units 5 and 6.
Dated this 28th day of August 2018 Daniel Ivil as sole director
[22] A signature appears above the name of Mr Ivil, and the name and signature of a witness, a barrister, Mr S Keall, appear below it.
[23] Mr Rainey says this evidence is not contradicted, and as a consequence the credits owned by the Livi Trust (which I understand to be the credits Ms Toon has not accepted) should have been applied to indebtedness in relation to body corporate administration and outgoings from 24 September 2015 onwards. Mr Rainey says that there is no calculation before the court on the effect of doing that. Although the second schedule produced by Ms Toon in her third affidavit shows a position if the credits are transferred as at 24 September 2015, the court cannot be certain that any sum remains owing under either statutory demand.
[24] Mr Rainey’s reason for this submission stems from his analysis of invoices provided recently by the Body Corporate, and the information contained in each statutory demand. That analysis shows that of the sum claimed against Harbour in the demand, $55,696.97 is for operating expenses and administration costs. In the case of Aquila the figure is $68,969.12. When payments made in March 2018 (Harbour
$15,000; Aquila $35,000) are applied, balances of $40,696.97 and $33,696.12 remain, respectively. But, Mr Rainey points out, Mr Martelli shows these as paid on 6 August 2018 in his oral submissions. That would leave nothing owing of the sum demanded. Mr Rainey says there is a dispute over whether the sums of $15,000 and $35,000 should be applied to the sums claimed in the statutory demands, or to earlier invoices which are not the subject of the earlier demands, but on the analysis of Harbour and Aquila the demands are completely satisfied.
Discussion
[25] Because of the emphasis placed on the question of charging interest, both in affidavits and in argument, I start by reference to it, though for reasons which follow, a finding on this point is not material to the outcome of this case. Harbour and Aquila accept (quite correctly) that interest may be charged by BC 170989 from the date Ms Toon as administrator passed a resolution to that effect, 21 September 2015. I also consider it likely that the administrator is entitled to charge interest on unpaid operating expenses in relation to all overdue invoices, at 10%. It is clear that when Mr Ivil was running the body corporate he regarded interest at 10% as payable, because that emerges from a pre-purchase statement dated 12 May 2014, within that period. It follows that any calculation of sum owing to BC 170989 by Harbour and by Aquila should include interest on unpaid invoices at that interest rate and from that date.
[26] The next issue is whether, and if so when, the two credits which Ms Toon declines to recognise should have been credited against outstanding invoices and interest. The evidence sufficiently establishes, in my opinion, an arguable case that this should have occurred from 24 September 2015. First, that is the date of the first instruction produced in evidence to the body corporate to that effect; and secondly, I find it is arguable that these credits should be recognised. It is not necessary for the Court on this application to reach a conclusion on this issue. Ms Toon gives reasons for not doing so. Harbour and Aquila point to a written direction to do so. This cannot be resolved on the basis of the affidavits.
[27] Given this finding, any calculation of sums owing by either Harbour or Aquila to BC 170989 should arguably be made on the basis of interest being charged at 10% on unpaid sums, and with the claimed credits of $4,500 and $29,900 being applied as at 24 September 2015.
[28] Harbour and Aquila assert that when this is done, nothing remains owing. Ms Toon does not agree. The evidence she gives in relation to sums owing, allowing for the two disputed credits and debiting interest, is contained in Schedule 2 to her third affidavit. If that schedule is accepted as accurate, Aquila still owes $9,927.94, and
Harbour $3,670.42. But as I have related in para [24] Mr Rainey has analysed the basis on which Harbour and Aquila contend no sums in either statutory demand remains payable.
[29] There are substantial obstacles in the way of the court in accepting Ms Toon’s calculations, over the view of Harbour and Aquila. First, schedule 2 was served as an exhibit to Ms Toon’s third affidavit on 31 May 2019, just one working day before the date set down for argument of these applications, 4 June 2019. No formal application for leave was made to the Court prior to the affidavit being filed and served. There is little doubt that if any such application had been made, and opposed, the fixture would have had to have been vacated in order to give Harbour and Aquila a fair opportunity to respond. Whilst during argument Mr Rainey did not formally oppose the court admitting this affidavit into evidence, he made the point, quite fairly, that his clients had not had an opportunity to consider it fully, let alone file evidence in reply. The court admitted the affidavit, but for reasons which I now set out there remain significant difficulties in assessing the true financial position, and in reconciling the position now asserted for BC 170989 with the information in the statutory demands in issue.
[30] I therefore turn to examine Schedule 2 to Ms Toon’s third affidavit in the context of the schedules attached to each of the statutory demands. There is no reconciliation of these documents presented in evidence for BC 170989. Ms Toon simply attaches the schedules and describes the conclusions which they show. The Court has therefore been placed in the position of having to compare the two sets of documents without the assistance of evidence. Mr Rainey’s analysis leads to a conclusion that no part of the sum, claimed in either demand, remains unpaid.
[31] I find it impossible to satisfactorily reconcile Schedule 2 on the third affidavit with the statements attached to the statutory demands. As far as I am able to see, not one figure in the column in Schedule 2 relating to Harbour appears in the schedule attached to the statutory demand against Harbour. The same applies in relation to Aquila. I appreciate that in schedule 2 Ms Toon is presenting figures based on allowing credits which she does not accept, but how that schedule relates to the
demands from her perspective is obscure. I find Mr Rainey’s analysis on point and helpful. I find an arguable defence to each claim.
[32] Even accepting Ms Toon’s evidence there is a very material misstatement of the sum claimed to be owed in each of the statutory demands. The demand against Harbour claims $179,148.49. Schedule 2 states that a figure of $3,670.42 is owing. If the disputed credits are not allowed (which affects the calculation of interest) Ms Toon says $25,558 is owing. The figure claimed in the demand served on Aquila is
$199,049.29. According to schedule 2 Aquila owes $9,927.94. Ms Toon says $31,850 is owing if the disputed credits are not allowed. Section 290(5) provides that a demand must not be set aside by reason only of a defect in the demand unless the Court considers that substantial injustice would be caused if it were not set aside. There is no question that each statutory demand is manifestly defective. It would be an understatement to say that there is a material misrepresentation of the amount due. I would describe it as a massive overstatement. That alone, though, is not sufficient reason to set the notices aside. A substantial injustice must be shown.
[33] I have formed a clear view that substantial injustice would be caused to both Harbour and Aquila by not setting the notices aside. First, I take into account the extent by which the sum now said to be owing (albeit with a disputed acceptance of two sums claimed to be credits) when compared with the sums claimed in the demands.
[34] Secondly, there has been no opportunity for the evidence given in Schedule 2 to be considered by either Harbour or Aquila. It was filed 9 months late and just before argument was to be presented to the court. BC 170989 was given a fair opportunity to present its case fully by the direction made by the Court in August 2018. Instead Harbour, Aquila and the court are being asked to accept at face value a complex schedule which appears to bear little if any resemblance to the schedules attached to the statutory demands.
[35] Thirdly, conflicts in the evidence referred to earlier leaves real doubt over the correct financial position for the reasons given above.
[36] For these reasons I am left in no doubt that allowing the statutory demands to remain in place with their manifest defects would be substantially unjust.
[37] Further, the evidence before the court is sufficient to show a very real possibility that neither Harbour or Aquila owes anything to BC 170989. Each has established an arguable defence. On further analysis at a trial, of course, that may not turn out to be the position, but BC 170989 elected to pursue recovery by use of the s 289 procedure when the difficulties standing in the way of so doing should have been plainly evident in August 2018 when it withdrew the portion of the quantum in each demand which related to the adverse costs in the WHRT. If not then, certainly when Mr Ivil responded to Ms Toon’s second affidavit it should have been plain that there were issues raised which made the continuing use of statutory demands an inappropriate procedure. The position was not improved by presenting evidence at the last minute, outside the Court’s timetable and well beyond the point where Harbour and Aquila could respond.
Outcome
[38] On the application by Aquila, the statutory demand dated 17 April 2018 is set aside.
[39] On the application by Harbour, the statutory demand issued on 17 April 2018 is set aside.
[40] Harbour and Aquila have succeeded and are entitled to costs. As discussed with counsel there will be one award of costs against BC 170989, but each of Harbour and Aquila is entitled to disbursements fixed as necessary by the Registrar.
Associate Judge Matthews
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