Landmark Property Holdings Ltd v Shen Empire Ltd

[2020] NZHC 893

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-1578

[2020] NZHC 893

BETWEEN

LANDMARK PROPERTY HOLDINGS LIMITED
First plaintiff

SGA INVESTMENT HOLDINGS PTE LIMITED
Second plaintiff

PURE CARE NEW ZEALAND
Third plaintiff

Continued overleaf

Virtual hearing:

30 April 2020

Appearances:

D J Chisholm QC for the plaintiffs

T J Rainey, J Heatlie and J M Wood for the first to ninth defendants

K G Davenport QC and C V Walsh for Mr Rainey and Rainey Law

Date of judgment:

4 May 2020

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 4 May 2020 at 3.00pm.

Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Counsel/Solicitors:

David Chisholm QC, Auckland Kathryn Davenport QC, Auckland Carmel Walsh Barrister, Auckland Timothy Rainey Barrister, Auckland Burton Partners, Auckland

Rainey Law, Auckland

LANDMARK PROPERTY HOLDINGS LIMITED v SHEN EMPIRE LIMITED [2020] NZHC 893 [4 May 2020]

AND  SHEN EMPIRE LIMITED

First defendant

NUZCORP INDUSTRIES LIMITED
Second defendant

ELLETT INVESTMENTS LIMITED
Third defendant

KEGG187 LIMITED

Fourth defendant

BALMERE CAPITAL LIMITED
Fifth defendant

ALLEY VIEW LIMITED
Sixth defendant

QUINN COMMERCIAL HOLDINGS LIMITED
Seventh defendant

LUKE RUSSELL NOLA and SANDRA MARIKO BURGHAM
Eighth defendants

DON LENG and THU CHANG LENG
Ninth defendants

BODY CORPORATE 327853
Tenth defendant

[1]    On the present application, the plaintiffs seek to restrain Rainey Law, Auckland solicitors, and Tim Rainey, an Auckland barrister, (together, the “lawyers”) from acting for the defendants altogether or either the first to ninth defendants or the tenth defendant.

Background

[2]    With the exception of the tenth defendant, the parties to this proceeding each together are all the registered proprietors of eighteen retail, office, and residential units (“unit holders”) in a unit title development at Landmark House in Auckland’s central business district. The tenth defendant is the development’s body corporate, whose

operating functions are delegated to a committee, presently constituted by other defendants.

[3]    The development includes a positive covenant by which unit holders are liable to contribute the body corporate’s outgoings as assessed and levied “by reference to Rentable Areas in lieu of … unit entitlements”. Such is to diverge from the statutory liability to contribute in terms of “unit entitlement”,1 to secure contributions proportionate to the benefits obtained from the outgoings. Unit entitlements are determined by reference to each unit’s value, relative to the others. The plaintiffs’ units each are said relatively to be more valuable than any of the defendants’ units.

[4]    In June 2017, the body corporate obtained legal advice from Minter Ellison Rudd Watts, Auckland solicitors, while it was beyond the body corporate’s statutory power to levy outgoings in accordance with it, the divergent covenant nonetheless was enforceable as between unit holders. In May 2019, the body corporate’s annual general meeting resolved to require unit holders’ contributions to a contingency fund (to provide for unbudgeted expenditure)2 in terms of utility interests.

[5]    In this proceeding, the plaintiffs (comprising ground floor retail holders of 34.5% of the development’s utility interests) seek a declaration (and consequent inquiry into damages) the covenant is enforceable against other floors’ commercial and residential holders of the balance of the development’s utility interests (the first to ninth defendants). Alternatively, they seek declarations and orders particular outgoings be recovered by the body corporate under s 126 exclusively from the other defendants (or are not recoverable by the body corporate as levies from the plaintiffs under s 121) of the Unit Titles Act 2010. In a related prior proceeding, the first plaintiff (“Landmark”) seeks minority relief from the body corporate’s May 2019 resolution.3

[6]    Rainey Law and Tim Rainey act for all but the sixth and ninth defendants in this proceeding, and for the body corporate in the related proceeding. In this

1      Unit Titles Act 1972, ss 6(3)(c) and 15, now an “ownership interest”, which by default also is the “utility interest” (although the latter may initially be assigned a different value as is “fair and equitable …, having regard to the relevant benefits and the costs to units”): Unit Titles Act 2010, ss 38 and 39.

2      Unit Titles Act 2010, s 118.

3      CIV-2019-404-1249: Landmark Property Holdings Limited v Body Corporate 327853.

proceeding, the represented defendants (including the body corporate, if required to plead to the allegation) deny the covenant is binding on them. In the other proceeding, the body corporate pleads the covenant “is unenforceable”. The body corporate has applied to strike out the causes of action against it in both proceedings.4

[7]    Landmark queried the body corporate’s “partisan position” taken on the covenant, and its expenditure of funds in the other defendants’ (but not the plaintiffs’) interests, as in breach of committee members’ duty to the body corporate. Landmark sought confirmation the body corporate’s solicitors and counsel had not advised, and would not advise, individual committee members on those duties, or on the covenant’s enforceability. The body corporate, through its solicitors, denied any disqualifying conflict. In the course of further correspondence on the issue, the body corporate’s solicitors and counsel filed defences for each the body corporate and the represented defendants, leading to Landmark’s application for their removal.

Applicable law

—body corporate’s powers and duties

[8]    A ‘body corporate’ is a creature of statute. It is created by the deposit of a unit plan for a unit title development.5 Its members are “the unit holders of all the units in the unit plan”.6 It has all the powers of a natural person of full age and capacity,7 but only to perform its duties or exercise its powers.8 Those powers and duties are prescribed.9 Subject to any permitted discrimination, the body corporate is required in such performance or exercise “to be even-handed. It could not prefer some owners to others. In that sense the body corporate [is] under a fiduciary duty”.10

4      I adjourned those applications for determination after I have determined the present application: Minute, 30 April 2020.

5      Unit Titles Act 2010, s 75.

6      Section 76.

7      Section 77.

8      Section 78; also see Chuan Wu v Body Corporate 366611 [2014] NZSC 137 at [111].

9      Section 84.

10     Jewett Investments Ltd v Body Corporate 204096 [2011] NZCA 232 at [15]. Such is to be distinguished from the dissent’s characterisation at [59].

—lawyers’ duties

[9]Rule 1.20(2) of the High Court Rules 2016 provides:11

A lawyer who acts for a party to a proceeding, or is a party to any proceeding, must not, without the leave of the court, act for any other party to the proceeding who does not have the same interest in the subject matter of the proceeding.

[10]   The phrase “same interest in the subject matter of the proceeding” also is used to define qualification for representative proceedings.12 In that connection, “[i]t is sufficient if the party and those represented ‘have a community of interest in the determination of some substantial issue of law or fact’”.13

—applications to restrain counsel from acting

[11]   Applications to restrain lawyers from acting in proceedings generally engage “the proper administration of justice”:14 “what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice”,15 including “the associated basic need to preserve confidence in the judicial system”.16 The focus is on ‘independence’: solicitors and counsel engaged in litigation are to be free of compromising obligations as may prevent them from discharging their primary obligation to this Court.17

11 The rule has some resonance in Rules 13.5 and 13.6 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, under the heading “Independence in litigation”, requiring lawyers engaged in litigation to “maintain his or her independence at all times”, and to “not act in a dispute for 2 or more parties whose interests are not the same”. The latter rule provides “[i]f … it becomes apparent that the lawyer … will not be able to ensure the discharge of all duties owed to the respective parties, the lawyer … must cease acting for all parties immediately”, but at

13.6.2 conditionally permits continued acting for one party on the other party’s informed consent. However, as such, those are “a matter between the lawyers, their client and, of course, their professional body”: Carter Holt Harvey Forests Ltd v Sunnex Logging Ltd [2001] 3 NZLR 343 (CA) at [21].

12 High Court Rules 2016, r 4.24.

13 Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [2] and [51], citing Carnie v Esanda Finance Corp Ltd (1995) 182 CLR 398 at 408 per Brennan J. See also the judgment of Mason CJ, Deane and Dawson JJ at 404 and the judgment of McHugh J at 427.

14 Black v Taylor [1993] 3 NZLR 403 (CA) at 407.

15     At 406.

16     At 408.

17 Kooky Garments v Charlton [1994] 1 NZLR 587 at 590.

[12]   Careful scrutiny by this Court of claims to disqualification is required, both so as not to deprive parties of counsel of their choice, which is “an important value … [b]ut … not an absolute”18, and to be alive to improper tactical attempts to restrain.19 In the Court’s inherent jurisdiction, the test is if a fair-minded reasonably informed person would find the impugned conduct to risk justice’s fair administration.20

Discussion

[13]   Such considerations are not immediate when the issue is a lawyer acting for more than one party in proceedings. As noted, Rule 1.20 forbids it unless the respective parties have the same interest in the subject matter of the proceeding; if, together, they have a “community of interest”. That characterisation of the foundation for representative proceedings has obvious resonance in the present context.

[14]   Counsel for the lawyers, Kate Davenport QC, preferred to argue the lawyers had no conflict of interest. In this proceeding, the defendants took the same position on the land covenant; so far as relief under s 126 was concerned, no decision yet had been taken by the body corporate to rely on s 126.21 If it is to do so, it would only be after the body corporate took legal advice from a law firm not involved with other parties to the proceeding.

[15]   But that does not address the core issue. The body corporate cannot have a community of interest with the represented defendant unit holders in resisting claims raised by the plaintiff unit holders, when it has a fiduciary duty not to prefer some unit holders over others, and is required to treat all ‘even-handedly’. I am not pointed to, and cannot identify, anything authorising the body corporate relevantly to discriminate between unit holders.

18     Black v Taylor, above n 14, at 409.

19     At 420.

20     At 408.

21 Ms Davenport’s written submissions also contended the second cause of action was “pleaded only against the Body Corporate[;] the [other] defendants cannot take a position”. But the cause expressly is pleaded against all defendants; given its substance is to require recovery of particular outgoings only from them, it would be surprising if the other defendants did not have a position to take.

[16]   That is not to prevent the body corporate from taking any position in the proceeding. It may consider, in exercise of its powers and performance of its duties, a position taken by particular unit holders, whether or not other defendants, is to be preferred. But even adoption of that view does not give the body corporate a community of interest with the position’s proponents. It is still a view only to be maintained in light of its overarching duty to all unit holders.

[17]   Without the requisite community of interest, and acting for the body corporate in this proceeding, the lawyers required leave to act for any other party in the proceeding. Leave was not sought. The lawyers therefore “must not” act for any other party in the proceeding.

[18]   Having nonetheless acted for other parties in the proceeding, the lawyers are confronted with some difficult considerations as to their compliance with the rules of conduct and client care. That is not only in terms of rule 13, but may also be in terms of rules 5, 6, and 7.

[19]   While not directly matters for my concern, the rules inform exercise of my inherent jurisdiction to restraint lawyers from acting. Given the lawyers must not act for other than the body corporate in this proceeding, but do act also for other defendants, the rules may offer “an appropriate guide for the exercise of the inherent jurisdiction”.22

[20]Rule 13.6 provides:

13.6A lawyer or lawyers who are members of the same practice must not act in a dispute for 2 or more parties whose interests are not the same or where the lawyer or practice will be unable to ensure the discharge of any duty owed to any party to the dispute.

13.6.1   If, having commenced to act for more than 1 party to a dispute, it becomes apparent that the lawyer or lawyers who are members of the same practice will not be able to ensure the discharge of all duties owed to the respective parties, the lawyer or practice must cease acting for all parties immediately.

13.6.2   A lawyer or lawyers who are members of the same practice may, however, continue to act for 1 client provided that the other party, after receiving independent advice, gives informed consent at the

22     Black v Taylor, above n 14, at 418–419.

time the dispute arises to the lawyer or practice continuing to act for the other party and no duties to the consenting party have been or will be breached.

[21]   Although rule 13.6.1 indicates a lawyer acting for more than one party to a dispute “must cease acting for all parties immediately”, that anticipates the lawyer initially was entitled to act in the dispute for two or more parties. Therefore either the parties had the same interest, or the lawyer was able to discharge all duties owed to any of them. Only when “it becomes apparent” the latter cannot be maintained is the lawyer required to cease acting for all parties. Nothing in the rules contemplates a lawyer acting for two or more parties whose interests are not the same.

[22]   If, in the course of acting in a dispute for two parties with the same interest, something arose to cause those interests to diverge, it seems implausible the lawyer would be able to ensure discharge of all duties s/he owed to each of them. The lawyer would be required to cease acting entirely. Comparable relief on the present application thus would be condign. I will order accordingly.

Result

[23]   I order Rainey Law and Tim Rainey are restrained from acting for any of the defendants in this proceeding.

Next steps

[24]   I direct this proceeding, together with that in CIV-2019-404-1249, be set down for call in the next duty judge’s list convenient to counsel, allowing the defendants will have first to make some arrangements for alternative representation.

Costs

[25]   In my preliminary view, as the successful party, the plaintiffs are entitled to 2B costs and disbursements on their application. That is because, from what I presently know of it, nothing in the steps taken by them in this averagely complex proceeding required other than a normal amount of time. If that is not accepted by the parties, and they cannot otherwise agree, costs are reserved for determination on short memoranda of no more than five pages – annexing a single-page table setting out any contended

allowable steps, time allocation, and daily recovery rate – to be filed and served by the plaintiffs within ten working days of the date of this judgment, with any response and reply to be filed within five working day intervals after service.

—Jagose J