HWD NZ Investment Co Ltd v Body Corporate 392148

[2023] NZHC 526

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-001791

[2023] NZHC 526

BETWEEN

HWD NZ INVESTMENT CO LIMITED

Applicant

AND

BODY CORPORATE 392148

Respondent

Hearing:	28 February 2023
Appearances:	J D Haig and D P MacKenzie for Plaintiff T J G Allan for Defendant
Judgment:	17 March 2023

JUDGMENT OF ASSOICATE JUDGE BRITTAIN

This judgment was delivered by me on 17 March 2023 at 10.00 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Davidson Legal, Christchurch J Haig, Wellington

HWD NZ INVESTMENT CO LIMITED v BODY CORPORATE 392148 [2023] NZHC 526 [17 March 2023]

Introduction

[1]                  HWD NZ Investment Co Limited (HWD) owns nine units in a unit title development at 132 Stancombe Road in Flat Bush, Auckland. The development consists of 47 units spread across three blocks, known as Blocks A, B and C. Two of the blocks were developed by HWD. The buildings were constructed with defects.

[2]                  The Body Corporate responsible for 132 Stancombe Road obtained a scheme of arrangement under s 74 of the Unit Titles Act 2010 (UTA) (the Scheme). HWD has not paid certain levies in respect of the Scheme. The Body Corporate has served statutory demands on HWD for the unpaid levies.

[3]                  HWD has an ongoing proceeding against the Body Corporate, CIV-2022-404- 809. In its substantive claim, HWD alleges an entitlement to a share of a payment made to the Body Corporate by Auckland Council in settlement of negligence claims relating to the building defects.

[4]                  The levies that are the subject of the statutory demand that is sought to be set aside in this proceeding are in respect of HWD’s six units in Block A. The Body Corporate previously served a statutory demand on HWD for unpaid levies in respect of HWD’s units in Block C. HWD applied to set that demand aside, on the basis that its substantive claim against the Body Corporate in CIV-2022-404-809 amounted to a counterclaim or set-off which exceeds the amount of the unpaid levies.

[5]                  That application was heard on 1 December 2022 and declined by my reserved judgment dated 16 December 2022 (the first judgment).1 In the first judgment, I held that HWD had an arguable set-off, but the statutory demand was upheld on policy grounds arising as a result of a “pay now argue later” clause in the Scheme. HWD has appealed the first judgment to the Court of Appeal (the appeal). The background set out in the first judgment2 applies equally in this case and is accepted by both parties.

[6]                  The statutory demand that is the subject of this proceeding includes the unpaid levies in respect of Block A, together with default interest, solicitors’ costs incurred

1      HWD NZ Investment Co Ltd v Body Corporate 392418 [2022] NZHC 3472 [The first judgment].

2      At [5]–[18].

by the Body Corporate, and water charges. The Body Corporate now accepts that there was no basis to include the water charges and its solicitors’ costs.

[7]                  HWD advances the following grounds in support of its application to set aside the statutory demand:

(a)A set-off for the amount that HWD claims in CIV-2022-404-809 is applicable to the statutory demand. This is the same argument that was rejected in the first judgment.

(b)The Body Corporate did not follow the terms of its resolution which required the Body Corporate to issue an informal notice of intent to issue proceedings before issuing a statutory demand.

(c)The quantum of unpaid levies demanded is inconsistent with the total of invoices raised on 27 May 2022.

(d)Interest on the unpaid levies had not fallen due at the time of the issue of the statutory demand.

[8]The Body Corporate resists those arguments and says:

(a)The Court should follow the first judgment and exercise its residual discretion to uphold the statutory demand notwithstanding that HWD may have an arguable set-off.

(b)The debt collection process set out in the Body Corporate’s resolution was a matter of internal management. The resolution does not prevent the Body Corporate from issuing a statutory demand without first issuing an informal notice of intention to issue proceedings.

(c)HWD’s challenges to quantum have no merit and were not raised in its application to set the demand aside or the supporting affidavit.

[9]                  The Body Corporate also argues that HWD’s application was not properly served and is therefore a nullity. HWD submitted that any defect in service could be cured under rr 1.5 and 1.9 of the High Court Rules 2016 (HCR).

Application for an adjournment and recusal

[10]              At the commencement of the hearing of this proceeding on 28 February 2023, counsel for HWD made an oral application for orders adjourning the hearing and for my recusal.

[11]              HWD had previously applied for an adjournment of its application to set aside the statutory demand on the basis that the application should not be heard until the appeal is determined. Lang J declined to grant the adjournment, stating in his minute dated 16 February 2023:

[5] Nor do I consider it will be a waste of the Court’s resources if the fixture proceeds. It is open to HWD to attempt to persuade the Associate Judge who hears the present application not to follow the approach taken in the earlier case. Alternatively, HWD can accept that the application must be dismissed based on the reasoning in the earlier case, but without prejudice to the argument it wishes to run on appeal. It can then file an appeal against the judgment and ask that it be heard at the same time as the other appeal. This will result in the validity of both statutory demands being finally determined.

[12]                When HWD learned that I was to hear this proceeding, it renewed its application for an adjournment. The application was advanced on the basis that HWD had little prospect of persuading me not to follow my reasoning in the first judgment and was therefore prejudiced in advancing its case.

[13]              I declined the application for an adjournment and for my recusal. Lang J did not direct that I should not hear this proceeding. It remained open to HWD to advance new matters that might affect how the Court exercises its discretion as to whether the statutory demand should stand. It remained open to HWD to adopt the alternative course discussed by Lang J in his minute dated 16 February 2023, and to consent to its application to set aside the statutory demand being declined, but without prejudice to the argument that it wishes to run on appeal. That would have left HWD free to appeal in respect of both statutory demands. HWD chose not to follow that course.

Service of this proceeding

[14]              On behalf of the Body Corporate, Mr Allan submitted that this proceeding is a nullity because it was not served on the Body Corporate in accordance with s 387 of the Companies Act 1993, which sets out mandatory modes of service of documents on companies in legal proceedings. Mr Haig, for HWD, responded that a body corporate incorporated under the UTA is not a company as defined in s 2 of the Companies Act, because body corporates incorporated under the UTA are not registered under the Companies Act. I accept Mr Haig’s submission.

[15]              Section 205 of the UTA prescribes modes of service for documents required to be served under that Act, but not in respect of documents served in any proceedings in any court.3 The Unit Titles Regulations 2011 are also silent on service of documents in a legal proceeding. Regulation 18 requires a body corporate to maintain an address for service, but that is a general requirement rather than a specific mode of service of documents in a legal proceeding.

[16]              Under r 6.12 of the HCR, a document may be served on a corporation incorporated in New Zealand other than a company incorporated under the Companies Act, by personal service on certain nominated officers of the corporation or by leaving the document at the corporation’s registered office. In addition, r 19.12A(2) permits applications to set aside statutory demands to be served at the creditor’s address or the address for payment shown in the statutory demand.

[17]              It is common ground that HWD failed to comply with either r 6.12 or r 19.12A. HWD purported to serve the application to set aside the demand by emailing it to the solicitors acting for the Body Corporate in other legal proceedings between the Body Corporate and HWD, including in CIV-2022-404-809 and the appeal.

[18]              Under r 1.5, this failure to comply with the rules is an irregularity, not a nullity. It is therefore capable of amendment under r 1.9(2). I have no hesitation in holding that service of this proceeding on the Body Corporate’s solicitors shall be deemed to be effective service. The Body Corporate’s solicitors have drawn this proceeding to

3      Section 205(8).

the attention of the Body Corporate; the Body Corporate filed a notice of opposition and has suffered no prejudice.

The quantum of the levies

[19]              When the statutory demand was served on HWD, it included as attachments copies of statements by the Body Corporate to HWD in respect of each of HWD’s six units in Block A, recording the amount of the special levy for each unit, and penalty interest from the due date. The statements confirm that the levies were due in August 2022, consistent with invoices being raised in July 2022, not May.

[20]              HWD’s application to set aside the statutory demand is supported by an affidavit from Lijuan Luo, a solicitor employed by Davidson Legal, the solicitors engaged by HWD. Ms Luo raised no issue with the quantum of the levies or the penalty interest set out in the statements attached to the statutory demand. Consistent with the affidavit evidence, HWD’s originating application does not raise any challenge to the quantum of the levies or the penalty interest.

[21]              I am satisfied that the levies and the penalty interest set out in the statutory demand, supported by the statements attached to the statutory demand, constituted a debt due that the Body Corporate was entitled to enforce by a statutory demand under s 289 of the Companies Act.

Interest

[22]              Mr Haig advanced a further argument in respect of interest included in the statutory demand, relying on Associate Judge Lester’s decision in Safari BBQ Products Ltd v Safari Vervaardiging CC.4 That case was concerned with default interest that had accrued under a contract and included in a statutory demand. Associate Judge Lester held that the interest was not a debt due and owing at the date of the statutory demand because prior to the issuing of the demand, the creditor had not calculated or invoiced the interest.5

4      Safari BBQ Products Ltd v Safari Vervaardiging CC [2022] NZHC 2741.

5      At [19]–[21].

[23]              Whether or not interest has accrued and is due under a contract will always depend on the interpretation of the contractual provisions in question. In this case, the Body Corporate’s right to default interest arises pursuant to s 128 of the UTA and the Scheme. Further, the Body Corporate has issued statements to HWD setting out the default interest that has accrued. Copies of those statements were attached to the statutory demand. I find that the penalty interest had accrued and was due and payable at the time the statutory demand was issued.

The Body Corporate’s failure to follow the debt collection procedure set out in its resolution

[24]              The Body Corporate held an extraordinary general meeting on 14 February 2022. At that meeting, the Body Corporate passed an ordinary resolution:

The current debt collection for corporate owners be amended to issue a “Notice of Intent to Issue Proceedings” immediately upon any default, to be followed by a Statutory Demand under the Companies Act failing the notice not being satisfied in full within the time given.

[25]              There is no evidence that the Body Corporate issued an informal notice of intent to issue proceedings before issuing the statutory demand in this case. Mr Allan submitted that this was not surprising, given that HWD had clearly signalled that it would not be paying the levies.

[26]              Mr Haig did not refer to any specific provision of the UTA regarding the consequences of the Body Corporate failing to implement the terms of an ordinary resolution of the type in question.

[27]              I do not accept that any failure by the Body Corporate to follow its own internal debt collection procedure alters the fact that the levies comprise a debt owing in terms of s 289(1) of the Companies Act, able to be enforced by a statutory demand.

[28]              At most, the Body Corporate’s failure to follow its own internal procedure for collecting debts might amount to a factor to be taken into account when the Court exercises its residual discretion to uphold the statutory demand. However, any failure by the Body Corporate to follow its own internal policy for collecting debts is insufficient to overcome the compelling “pay now argue later” policy argument that

supports an exercise of the Court’s discretion to uphold the statutory demand, as set out in the first judgment.

HWD’s set off

[29]              HWD’s claims in CIV-2022-404-809 amount to a set off or counterclaim. For the reasons set out in the first judgment, I decline to set the demand aside due to the existence of a “pay now argue later” clause in the Scheme.6

The amount due

[30]              The Body Corporate acknowledges receipt of a payment of $390,000 from HWD after the statutory demand was issued. The Body Corporate accepts that the statutory demand should not have included the legal costs and the water charges. On that basis, the amount due under the statutory demand is $1,007,929.99.

Result

[31]              The application by HWD  to  set  aside  the  second  statutory  demand dated 5 September 2022 is declined.

[32]              I order HWD to pay the Body Corporate $1,007,929.99 within 10 working days of the date of this judgment pursuant to s 291(1)(a) of the Companies Act 1993.

Costs

[33]              The Body Corporate is the successful party, and costs should follow the event. I request that counsel confer regarding costs. If counsel are unable to agree on costs, then I direct:

(a)the respondent shall file and serve written submissions on costs by 24 March 2023;

(b)the applicant shall file and serve submissions on costs by 31 March 2023;

6      The first judgment, above n 1, at [91]–[93].

(c)I will determine costs on the papers.

Associate Judge Brittain