Lynx Trustees Ltd v Body Corporate 68792

[2019] NZHC 945

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2019-485-66

[2019] NZHC 945

UNDER

section 290 of the Companies Act 1993

BETWEEN

LYNX TRUSTEES LIMITED

Applicant

AND

BODY CORPORATE 68792

Respondent

Hearing:	29 April 2019
Counsel:	G W D Manktelow for applicant A O’Connor for respondent
Judgment:	1 May 2019

JUDGMENT OF COOKE J

[1]        The applicant is a member of Body Corporate 68792, which is the respondent. There have been long-standing disputes involving the body corporate and other parties.

[2]        By notice dated 1 February 2019, the respondent served a statutory demand on the applicant for an amount of $289,004.59. By application dated 18 February 2019, the applicant applied to set aside the statutory demand, supported by an affidavit from Roy William Bassett-Burr. The application was signed and filed by Mr Bassett-Burr himself. It was not signed or filed by a solicitor, and no solicitor on the record was identified.

LYNX TRUSTEES LTD v BODY CORPORATE 68792 [2019] NZHC 945 [1 May 2019]

[3]        The respondent  has applied to strike out or stay the  application pursuant to   r 15.1 of the High Court Rules 2016 on the basis that it does not comply with r 5.36 as it was not commended by a solicitor.

Basis of application

[4]        There is no dispute that the initial application was not properly commenced. Reliance is placed not only in terms of r 5.36, but also the decision of the Court of Appeal in Re G J Mannix Ltd, which confirmed that no company can bring proceedings in court except through a solicitor.1 In Time Ticket International Ltd v Broughton, the High Court stayed proceedings commenced by a company without a solicitor for this reason.2 In Muse on Allen Ltd v Szekely, the High Court struck out a statement of claim on the same basis.3 In reliance on these authorities, the respondent contends that this proceeding should be struck out. Mr O’Connor argues that the proceeding should be treated as a nullity.

[5]For two inter-related reasons, I do not accept that submission.

Nullities

[6]        The first point is that, as a matter of general principle, alleged defects in processes or challenges to administrative decisions and acts are not addressed by reference to “nullities” or any such related concepts. In A J Burr Ltd v Blenheim Borough Council, the Court of Appeal adopted the reasoning of the House of Lords in London & Clydeside Estates Ltd v Aberdeen District Council, where Lord Hailsham had said:4

… though language like ‘mandatory’, ‘directory’, ‘void’, ‘voidable’, ‘nullity’ and so forth may be helpful in argument, it may be misleading in effect if relied on to show that the courts, in deciding the consequences of a defect in the exercise of power, are necessarily bound to fit the facts of a particular case and developing chain of events into rigid legal categories or to stretch or cramp them on a bed of Procrustes invented by lawyers for the purposes of convenient exposition. … I do not wish to be understood in the field of administrative law and in the domain where the courts apply a supervisory

1      Re G J Mannix Ltd [1984] 1 NZLR 309 (CA) at 311 per Cooke J.

2      Time Ticket International Ltd v Broughton [1996] 2 NZLR 176 (HC).

3      Muse on Allen Ltd v Szekely [2016] NZHC 1131.

4      A J Burr Ltd v Blenheim Borough Council [1980] 2 NZLR 1 (CA) at 4; and London & Clydeside Estates Ltd v Aberdeen District Council [1980] 1 WLR 182 (HL) at 189–190.

jurisdiction over the acts of subordinate authority purporting to exercise statutory powers, to encourage the use of rigid legal classifications. The jurisdiction is inherently discretionary and the court is frequently in the presence of differences of degree which merge almost imperceptibly into differences of kind.

[7]        Since then the approach of New Zealand law has been to emphasise the discretion of the Court in relation to relief when there have been defective processes, non-compliance with requirements, or other errors. Once an error or deficiency has been identified, it is for the Court to decide what relief should be granted. Subject to truly exceptional cases, exercises of a power are to be treated as valid and effective unless and until set aside. When a decision or administrative act is set aside, the Court then decides what the consequences of setting aside are, including by dealing with any consequential action.5 This reasoning applies whether or not the matter is being considered in a judicial review proceeding.

[8]        In the present case, this means that the original commencement of the proceedings, and the acceptance of the proceedings by the Registrar, is treated as a valid and effective act unless and until it is set aside. The Court’s discretion is then applied to determine the consequences of failure to comply with the rules in relation to that filing. Reliance on the seemingly precise, but ultimately unnecessarily complex and confusing concepts such as nullity, void, voidable, void ab initio and other similar expressions is to be avoided.

[9]        On that basis, and as a matter of general approach, the deficiency in the proceeding should be considered in light of the nature and significance of the deficiency, and the circumstances of the case, rather than addressing whether the proceeding is properly categorised as a nullity.

Rule 1.5

[10]      In any event, the above general proposition of law has been specifically codified in relation to any failure to comply with the High Court Rules 2016. Rule 1.5 provides:

5      For a summary of the law, see Philip A  Joseph  Constitutional  and  Administrative  Law  in New Zealand (4th ed, Thomson Reuters, Wellington, 2014) at [22.10.5].

1.5      Non-compliance with rules

(1)A failure to comply with the requirements of these rules—

(a)must be treated as an irregularity; and

(b)does not nullify—

(i)the proceeding; or

(ii)any step taken in the proceeding; or

(iii)any document, judgment, or order in the proceeding.

(2)Subject to subclauses (3) and (4), the court may, on the ground that there has been a failure to which subclause (1) applies, and on any terms as to costs or otherwise that it thinks just,—

(a)set aside, either wholly or in part,—

(i)the proceeding in which the failure occurred; or

(ii)any step taken in the proceeding in which the failure occurred; or

(iii)any document, judgment, or order in the proceeding in which the failure occurred; or

(b)exercise its powers under these rules to allow any amendments to be made and to make any order dealing with the proceeding generally as it thinks just.

(3)The court must not wholly set aside any proceeding or the originating process by which the proceeding was begun on the ground that the proceeding was required by the rules to be begun by an originating process other than the one employed.

(4)The court must not set aside any proceeding or any step taken in a proceeding or any document, judgment, or order in any proceeding on the ground of a failure to which subclause (1) applies on the application of a party unless the application is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity.

[11]      A rule to similar effect was first introduced by the High Court Rules 1986. It was only the rules prior to the introduction of that rule that spoke of irregularities or nullities.6

6      See Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR1.5.01].

[12]      That appears to be a complete answer to the respondent’s primary contention that these proceedings should be treated as a nullity. The deficiency in the initial application does not make it a nullity. The Court is required to apply r 1.5(2), which involves considering the nature and seriousness of the breach of the requirements and the justice of the case.

[13]      Mr O’Connor argued in response that r 1.5 only applies if proceedings have been correctly commenced in the first place. I do not accept this. A breach of the rules in relation to commencement of proceedings falls within r 1.5(1). That is plain from both the text and the purpose of the rule. It is also confirmed by r 1.5(3), which is an exception to the generally expressed power in r 1.5(2), and relates specifically to originating processes.

[14]      For these reasons, I consider the discretion contained in r 1.5(2) should be applied in this case.

Appropriate orders in the present case

[15]      There are a number of considerations in the present case that suggest that the proceeding should not be struck out, but that directions should be given to ensure the issue of non-compliance is remedied (if it has not already been so remedied) and that the application then be dealt with on its merits.

[16]      First, the primary reason for requiring a solicitor to be the solicitor on the record responsible for the proceedings is to introduce a level of professional responsibility that an officer of the court brings to the nature and content of those proceedings. In this case, Mr Manktelow now appears for the applicant, and he has filed documentation identifying himself as solicitor on the record. It has been explained that he normally acts for the applicant, but that the tight time frames involved in the filing of such applications prevented him being instructed. Given that the applicant now has a solicitor acting as solicitor on the record, it seems to me that the deficiency has largely been remedied. I note that, as a matter of substance, this was the effective outcome of the decision in Time Ticket International Ltd, where

Master Venning stayed the proceedings until a solicitor on the record was identified.7 That was also the outcome of BWIP Ltd v Singleton where solicitors subsequently came on the record, leading the Court to conclude that the irregularity has been cured.8 Whilst Time Ticket  International, BWIP Ltd and Muse on Allen Ltd  do not mention  r 1.5 or its predecessor, the general approach followed in those decisions appears to be consistent with the exercise of discretion under r 1.5.

[17]      Second, and related to the first point, the time frames for filing an application to set aside a statutory demand are tight. The consequence of the respondent successfully striking out the proceeding will be that the applicant cannot bring a fresh application in time. I see no reason why such adverse consequence should follow from the breach of the rules in the present case. The applicant should be able to have its application determined on its merits.

[18]      Third, the respondent does not contend at this stage that there is no substance to the application that is made by the applicant. It foreshadows an argument that the applicant is acting in a manner that is inconsistent with the findings of an audit into what amounts were owed by members of the body corporate. Mr O’Connor suggested that the application was a ruse designed to delay the inevitable liquidation of the applicant. But in the absence of a full argument relating to the amount claimed in the statutory demand, I am not in a position to form a view on whether there is substance to the application or not.

[19]      Mr O’Connor also argued that the applicant would not be deprived of a right to have its case considered on the merits as the applicant could still resist the subsequent liquidation proceedings. He argued that the failure to pay on receipt of a statutory demand creates a presumption of insolvency only. But these submissions assume that the only issue to be determined in such proceedings is whether the applicant is solvent. The application which the respondent seeks to strike out is an application that the amount demanded in the statutory demand is in dispute, and the demand should be set aside. If the strike out application is successful, the applicant

7      Time Ticket International Ltd v Broughton, above n 2.

8      BWIP Ltd v Singleton [2012] NZHC 3174 at [37].

will be deprived of an ability to contend that the amount claimed is in dispute. That is a separate question from whether the applicant is solvent.

[20]      I see greater force in Mr O’Connor’s criticisms of Mr Bassett-Burr’s affidavit. It does appear to raise matters of marginal relevance. Mr O’Connor advised the applicant had stopped paying levies in March 2017. I also understand that an audit was undertaken, potentially with the support of Mr Memelink who is associated with the applicant, the purpose of which was to determine who owed what. It is said that the applicant is now seeking to dispute the findings of that audit. If that is so, the issues may be more confined than the affidavit presently suggests.

[21]      I indicated to Mr Manktelow during argument that the applicant would need to do more than simply raise complexity or create confusion. The applicant will need to demonstrate with clarity why the applicant argues that the amounts claimed in the statutory demand are not payable. That may involve demonstrating what the findings of the audit were, and why they do not correctly identify what the applicant owes.

Outcome

[22]      For the above reasons, I do not consider it appropriate to strike out the proceeding, which will effectively deprive the applicant of an ability to argue that the debt is disputed. The application should simply be dealt with on its merits.

[23]The application to strike out or stay this proceeding is dismissed.

[24]      Given that the proceeding was deficiently brought and the applicant is benefiting from an indulgence, there will be no award of costs in the applicant’s favour on the unsuccessful application by the respondent.

Procedure from here

[25]      In responding to the criticisms of Mr Bassett-Burr’s affidavit, Mr Manktelow applied for leave to file a further affidavit. He emphasised the purpose of that further affidavit would be to reduce the issues that are raised in the affidavit currently filed. Mr O’Connor opposed that course.

[26]      In the circumstances, I am prepared to direct that a further affidavit can be filed by the applicant. But it seems to me that any further affidavit needs to reduce what is placed in issue. In effect, this is to ensure proper oversight of the proceeding by the solicitor now on the record. For that reason, the affidavit should replace the existing affidavit filed by Mr Bassett-Burr. I direct that it be filed within 10 working days of the date of this judgment. Mr O’Connor sought 20 working days to respond, but that seems to me to be excessive. The respondent is to file its affidavit(s) and any other papers in opposition within 15 working days of filing and service of the applicant’s replacement affidavit.

[27]      Mr Manktelow suggested a two-hour hearing would be sufficient to deal with the application. Mr O’Connor said that he was not able to give an estimate at this stage. I direct that the matter be given a half day hearing once the affidavit(s) in opposition are filed. Mr O’Connor is to indicate when he files the affidavit(s) in opposition whether a shorter period of time would be sufficient.

Cooke J

Solicitors:

G Manktelow, Lower Hutt for applicant Surridge & Co, Porirua for respondent