Lynx Trustees Limited (in liq) v Memelink

[2020] NZHC 3415

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2020-485-374

[2020] NZHC 3415

BETWEEN

LYNX TRUSTEES LIMITED (IN LIQ)

Plaintiff

AND

HARRY MEMELINK and

CISCA FORSTER in their capacities as the trustees of the Link Trust (No. 1) Defendants

Hearing:

7 December 2020

Appearances:

L Hui for plaintiff

D Livingston for defendants

Judgment:

18 December 2020

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction and background

[1]        This case is another episode in the ongoing litigation between Body Corporate 68792 (BC 68792) and Mr Harry Memelink and his interests.

[2]        The background to the dispute has been described in so many cases by so many judges that it hardly seems necessary to do so once more. However, for contextual purposes, that is what must be done. I do so as briefly as possible.

[3]        BC 68792 is the body corporate connected with a block of residential apartments at 408 Hutt Road in Lower Hutt. For some years, Mr Memelink has been instrumental in the acquisition of apartments in the block. He has procured the acquisition of several unit titles by the trustees of the Link Trust No. 1. The trustees

LYNX TRUSTEES LIMITED (IN LIQ) v MEMELINK and [2020] NZHC 3415 [18 December 2020]

ultimately acquired and still apparently own six units – more than half of the units in the complex.

[4]        The trustees of the Link Trust (No. 1) have changed more than once, but for present purposes it is only necessary to record that:

(a)between  April  2017  and  26   August   2019   the   trustees   were  Mr Memelink  and  the  plaintiff,  Lynx Trustees Ltd (in liq) (“Lynx Trustees”);

(b)the current trustees are Mr Memelink and Ms Cisca Foster.

[5]        BC 68792 and the trustees have been embroiled in a long dispute concerning levies, a significant proportion of which were rendered while Mr Memelink and Lynx Trustees were the trustees of Link Trust (No. 1).

[6]        Primarily, as I understand the position, as a result of this dispute, BC 68792 has been placed in administration. It has had three administrators. The third and current administrator is Mr Tony Gambitsis.

[7]        More recently Mr Memelink has been adjudicated bankrupt and an order has been made appointing liquidators over the affairs of Lynx Trustees.

[8]        In July 2020 Lynx Trustees commenced this proceeding in which it applies for summary judgment against the (current) trustees.

[9]        Lynx Trustees’ core claim is for indemnity in respect of any liability it has to BC 68792 for levies.

[10]      At the first call of the matter, counsel for the parties invited me to enter judgment by consent in respect of some of the remedies sought. I issued a consent judgment on 30 September 2020. As a result, Lynx Trustee’s claim is now confined to the following:

(a)a declaration that the Company is entitled to be indemnified out of the trust fund of the Trust in respect of:

(i)debts incurred by the company as trustee in respect of the Body Corporate’s claim in the sum of $664,250.67;

(ii)the Liquidators’ reasonable remuneration and expenses for the period 15 September 2020 to 30 November 2020 in the sum of $31,017.73;

(b)judgment for the Company against the trustees in respect of the above sums;

(c)interest pursuant to s 10 of the Interest on Money Claims Act 2016 on the sum of $664,250.67;

(d)an order in equity for sale of the Trust’s properties to satisfy the Company’s lien or charge in respect of the admitted debts and the Liquidator’s remuneration and expenses; and

(e)costs.

[11]      BC 68792 has lodged proofs of  debt  with  both  the  Official Assignee  in Mr Memelink’s bankruptcy and the liquidators in Lynx Trustees’ liquidation.

[12]      There  have  been  some  complications  concerning  quantum.  However,  BC 68792’s claim for outstanding levies has been determined to be $664,250.67. That figure is now acknowledged to be correct by both the Official Assignee and the liquidators.

Parties

[13]      A preliminary matter raised at the outset of the hearing concerned the proper defendants. Given the nature of the proceeding the proper defendants are the current trustees of the Link Trust (No. 1) Ltd.  These are, so counsel  jointly inform  me,   Mr Memelink and Ms Forster. Originally Lynx Trustees cited Mr Memelink as first defendant and Ms Forster and a Mr Roy Bassett-Burr, another former trustee, as second defendants. During the course of the hearing I made a consent order that the defendants in this proceeding are Mr Memelink and Ms Forster in their capacities as the trustees of the Link Trust (No. 1). This judgment is intituled accordingly.

[14]      That raised  a question in respect of  costs that may have been incurred by  Mr Bassett-Burr. Prima facie Mr Bassett-Burr may be entitled to seek recovery from Lynx Trustees of any  costs  and  disbursements  incurred.  I  therefore  direct  that Mr Bassett-Burr is to be provided with a copy of this judgment, and I give him leave

to apply for costs should he have incurred any. Any such application should be made within 15 working days of the date of this judgment.

Summary judgment application

[15]      The plaintiff having applied for summary judgment, it is necessary to touch on the principles involved. These are uncontroversial, and Ms Hui and Mr Livingston were on common ground in accepting that, in order to secure judgment on a summary basis, a plaintiff must satisfy the Court that the defendant has no arguable defence.

[16]      The leading authority is the Court of Appeal’s judgment in Krukziener v Hanover Finance1 where the Court summarised the essential principle as follows:

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: Maclean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.

Are the trustees precluded from defending this claim?

[17]      Although Ms Hui did not advance Lynx Trustees’ case on this basis, it appeared to me in the course of argument that the trustees may be barred from defending the application because the arguments raised in opposition have already been determined by the Court.

[18]      Res judicata estoppel applies where a court, tribunal or other decision maker of competent jurisdiction has determined a cause of action or issue. Except by the

1      Krukziener v Hanover Finance [2008] NZCA 187 at [26]–[27].

exercise of an available right of appeal, it is not open to the parties to that determination to challenge it in subsequent litigation. The law bars them from doing so because res judicata – literally, the thing has been adjudicated upon.

[19]      The policy justification for this is that it is in the public interest that there be an end to litigation, and the Courts should not be asked to consider the same dispute more than once.2

[20]      For res judicata to apply, there must be identity of parties, and subject matter, and sufficient co-extensiveness of standard of proof.3

[21]      Whilst it is quite correct that the parties to earlier litigation were not the same parties as are involved here, at a broader level the interests concerned have, in all this litigation, been those of BC 68792 seeking to recover levies against the trustees for the time being of the Link Trust (No. 1), and the trustees resisting the same.

[22]      Whilst this of course is on its face a claim for indemnity by a former trustee against the current trustees, there is no real issue about Lynx Trustees’ entitlement to indemnity, and the trustees have, or, rather, Mr Memelink has, tried to turn the case into a re-run of the dispute between the Body Corporate and the trustees. In that sense, there is an absolute coincidence of interests between the real protagonists in all these cases.

[23]      It appears to me that in such circumstances it would be open to the Court to conclude that all of the issues before it have been considered and determined in earlier litigation and that it is not open to the trustees (or Mr Memelink) to invite the Court to reconsider these in the hope that a different conclusion will be reached.

[24]      Had Lynx Trustees’ case been pleaded and argued on that basis, I would have been inclined to dismiss the trustees’ opposition to Lynx Trustees’ claim on that ground alone. However, given that that was not the argument advanced on the company’s behalf, it is appropriate to at least consider the defences advanced by the trustees.

2      For an overview of the principle and where it fits into the wider equitable principles concerning estoppels, see Halsbury’s Laws of England (5th ed, Lexis Nexis, 2015) Vol 12A at [1603] and Spencer Bower & Handley: Res Judicata (5th ed, Lexis Nexis, 2019) at [1.10].

3      Gregoriadis v Commissioner of Inland Revenue [1986] 1 NZLR 110 (CA) at 114.

The trustees’ case

[25]      On what basis, then, do the current trustees of the Link Trust No. 1 contend that Lynx Trustees, as a former trustee, is not entitled to be indemnified in respect of liability it may have to the administrator of BC 68792 in respect of historical levies?

[26]      Here is how Mr Livingstone summarised the trustees’ contentions in his written synopsis of submissions:

5.The defendants defence is that:

(a)$664,250.57 is based on outstanding levies, interest on outstanding levies, administrator remuneration, legal invoices for the body corporate, and the cost of a report by Deloitte.

(b)the levies are in excess of what they should be under the Unit titles Act 2010. Levies are based on a budget, which levies body corporate members pro-rata according to their total interest in the body corporate. The budget has not been calculated properly.

(c)There is a process to determine what may go in a budget, budgeted expenditure for a body corporate must fall within one of four funds:

i.the operating account fund: this is for expenses which must only consist of the expenses listed at section 115(2) of the Unit Titles Act 2010;

ii.the long-term maintenance fund;

iii.the optional contingency fund;

iv.the optional;

(d)the expenses of the body corporate have not been proven to match the expenses as set out in the budget;

(e)there are strict requirements for the establishment of funds. The body corporate only has one bank account and uses it for special and ordinary levies. The special levies were for the long-term maintenance fund, but it has expended the special levies on expenses which do not relate to the fund;

(f)the overall levy position put forward by the plaintiffs presumes that the special levies remain payable, and the special levies paid by the plaintiffs, which were never used for their intended purpose, do not have to be returned. This does not reflect the requirements of the Unit Titles Act 2010.

(g)Levies must be proved as a debt before civil enforcement action may be taken on the debt. There is no judgment debt on the levies claimed by the plaintiffs;

(h)Legal invoices being recovered by the plaintiffs, are not recoverable under the Unit Titles Act 2010;

(i)the administrator excludes the body corporate members from the administration. Mandatory annual general meetings are not held, and information is denied under section 206 of the Unit Titles Act. The administrator has not served any resolutions on any body corporate members (a mandatory requirement) and therefore no one knows when any of the resolutions presented by the administrator were made in reality. The purported expenses put forward by the administrator do not comply with the Unit Titles Act;

(j)interest is not payable on any outstanding special levies as that fund, although levied, has not been properly established. The resolutions by the body corporate regarding the special levy fund also indicate it was never meant to be subject to interest as members could pay it in as they pleased;

(k)the approved annual budget for the administrator is $15,000, and the administrator is to entitled to receive $109,718.33.

[27]      Indeed, there is nothing new under the sun.4 In one variant or another all of these arguments have been advanced in earlier litigation involving BC 68792 and the trustees. As I read Mr Livingstone’s written submissions, and as he developed these in oral argument, the key points appear to be the following:

(a)first, to the extent that Lynx Trustees’ case is based on an asserted right to indemnity, this is not resisted.  It  is  common  ground  that  the Link Trust (No. 1) deed of trust gives the company such a right in respect of obligations incurred by it in its (former) capacity as a trustee of the trust;

(b)second, the legitimacy of BC 68792’s striking of the levies in the first place is attacked. Mr Memelink commenced proceedings in 2016 challenging the lawfulness of some of these levies. That proceeding has, as I understand it been abandoned and is moribund.5 This is the argument that was advanced as part of Mr Memelink’s challenge to the

4      Ecclesiastes 1:19.

5      Memelink v Body Corporate 68792 CIV-2016-485-141.

Official Assignee’s acceptance of BC 68792’s claim earlier in the year.6 As I concluded there, the contention is that BC 68792 was not acting lawfully in terms of the Unit Titles Act 2010 when striking some or all of the levies concerned. There is no evidential foundation for a general attack on the lawfulness of the levies, and I am certainly not satisfied that the trustees have available to them an arguable case that they – or any of them – are not lawful;7

(c)third, it is said that even if BC 68792 was entitled to strike the levies it did for the relevant period, the evidence does not establish to the necessary standard the quantum now due to BC 68792 by the trustees at the time. Again, I have already dealt with this issue (and on the same evidence). I accept the evidence of BC 68792’s current administrator, Mr Gambitsis. The starting point is the Deloitte report of October 2018 which Mr Gambitsis commissioned at the trustees’ behest to identify the amount of the core debt. The starting figure identified by Deloitte

– the amount due as at August 2018 – needs to be adjusted to reflect factors referred to in my earlier judgment; first for an obvious error made by Deloitte in crediting a payment made by the trustees which was not made; and second to reflect levies struck since the date of the Deloitte report down to the last period during which Lynx Trustees was a trustee. As Ms Hui submits that gives rise to a maximum figure that BC 68792 could claim against Lynx Trustees (in respect of core levies) of $501,086.67;8

(d)fourth, there is the question of the claim advanced by the trustees – or more particularly by Mr Memelink as one of the trustees – that a special levy struck by BC 68792 which was paid by the trustees at the time for the purposes of repairs and maintenance was not used for that purpose. As I concluded in my earlier judgment, I am not satisfied that there is an evidential foundation for that assertion;

6      Memelink v The Official Assignee [2020] NZHC 2709.

7      Memelink v The Official Assignee, above n 5, at [56]-[62].

8      This figure is exclusive of the calculated interest on the unpaid levies, legal costs recoverable by the Body Corporate, costs of the Deloitte report and the court appointed administrator, and the petitioning creditor’s costs.

(e)finally, Mr Livingston contended that certain categories of expenses – not levies but BC 68792’s costs – are not recoverable by BC 68792 against Unit Title Holders under the Unit Title’s Act. That may well be correct. But it is beside the point. Lynx Trustees is seeking a declaration that it is entitled to an indemnity in respect of debts incurred by it, whatever they may be. It is simply not possible in this case to determine the scope of BC 69892’s claim. Aside from anything else the Body Corporate is not a party.

[28]      In summary then, the view I take of the defences advanced by the trustees in this proceeding is:

(a)Lynx Trustees is almost certainly estopped from raising the substantive contentions that it does as these have been pleaded and disposed of in earlier litigation between parties with essentially the same interests as the protagonists here;

(b)In any event, those substantive contentions are for the most part without merit;

(c)To the extent that there are any genuine issues raised in defence of Lynx Trustees’ claim, it appears to me that it will be possible to address these in dealing with remedies.

Remedies

[29]That brings me to the remedies now sought by Lynx Trustees.

[30]As already said, Lynx Trustees’ claim is primarily one for indemnity.

[31]      It is common ground that Lynx Trustees is prima facie entitled to indemnity pursuant to the Link Trust (No. 1) deed of trust,9 and Mr Livingston did not contend otherwise.

9      See also Trustee Act 1956, s 38; the right of indemnity arises in equity too: Octavo Investments v Knight (1979) 27 ALR 129.

[32]However, the question is, indemnity against what?

[33]      In my judgment, Lynx Trustees can only claim indemnity against liability that comes home to roost, that is to say a liability established at the suit of BC 68792 and in respect of any amount recoverable or recovered against it.

[34]      Against that background, in my judgment, Lynx Trustees’ prayer for relief (quoted at [10]) is misconceived in several respects. Taking the remaining components of the claim in order:

(a)For the reasons already outlined, it appears to me that Lynx Trustees is entitled to a declaration that it has a right of indemnity in respect of any liability arising from its trusteeship between April 2017 and September 2019. The trustees are entitled to such an order under the Link Trust (No. 1) deed of trust.10 In my view, it would be both inappropriate and unnecessary for the Court to put a figure on this. The indemnity will extend to levies legitimately determined to be payable to BC 69892 in respect of the relevant units over that period of time together with any other costs, interest and the like ordered to be paid to BC 688792 or its administrators in respect of the same period of time;

(b)I am not satisfied that in addition to a declaration in the terms referred to in (a) above Lynx Trustees is entitled to a money judgment. It strikes me that the two would cover the same ground and that the declaration is the appropriate remedy;

(c)In (a) above I have already dealt with the question of interest;

(d)I am not prepared to make an order in the terms sought in para [d] of the prayer for relief. This is not the appropriate point to make such an order. The declaration of indemnity is sufficient. What Lynx Trustees effectively seeks is a pre-emptive order for the enforcement of any indemnity. Such enforcement mechanisms will only become relevant

10     See also Trustee Act 1956, s 38; the right of indemnity arises in equity too: Octavo Investments v Knight (1979) 27 ALR 129.

at a later stage, no doubt following a demand and a failure to meet the same. I am not prepared to make any pre-emptive order at this stage;

(e)As the successful party, the Lynx Trustees’ is prima facie entitled to an award of scale costs. However, not having heard from counsel in relation to costs I am not prepared to reach a concluded view at this stage. I would expect counsel to be able to resolve costs but if that is not possible then they may file memoranda in the usual way and I will deal with costs on the papers.

Receivership

[35]      Since the hearing of this matter the parties have filed memoranda relating to a judgment of Dobson J dated 13 October 2020. Ms Hui submits that the defendants have not paid the $262,451.70 they were ordered to pay to BC 68792 by a certain deadline, and that as a result the Link Trust (No. 1) is in receivership. Mr Livingstone says that the required payment has been made, and therefore that there is no receivership.

[36]      Such material as is before the Court (informally at least) demonstrates that there is a dispute as to whether the payment has been made and therefore whether the Trust is in receivership. The Court is not in a position to rule on this issue in this proceeding. In any event, this has no impact on the current application for summary judgment, concerning as it does whether Lynx Trustees is entitled to be indemnified out of the assets of the trust.

Associate Judge Johnston

Solicitors:

Meredith Connell, Auckland for plaintiff

Livingston & Livingston, Wellington for defendants