Memelink v Body Corporate 68792
[2021] NZCA 640
•2 December 2021 at 9.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA281/2021 [2021] NZCA 640 |
| BETWEEN | HARRY MEMELINK AND CISCA FORSTER AS TRUSTEES OF THE LINK TRUST NO 1 |
| AND | BODY CORPORATE 68792 |
| Hearing: | 9 November 2021 |
Court: | Collins, Duffy and Dunningham JJ |
Counsel: | D G O Livingston for Appellants |
Judgment: | 2 December 2021 at 9.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants are ordered to pay costs to the respondent for a standard appeal on a Band A basis plus usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Dunningham J)
On 1 March 2016, Mr Harry Memelink, as trustee of a trust which owned six units in a unit title development managed by Body Corporate 68792 (the Body Corporate), filed a claim against four other defendants who had roles in the Body Corporate’s management. He alleged there had been mismanagement by the Body Corporate, in particular, in the use of special levies paid by unit owners. He also claimed that, through a vote taken at an extraordinary general meeting (EGM) which he convened, he was now the chairman of the Body Corporate and should be recognised as such.
The statement of claim has been variously amended since then but, at its heart, it retains a grievance about whether special levies paid to the Body Corporate were properly authorised and used and, if not, whether the unit owners should be reimbursed those sums.
In September 2017 the proceedings were, according to Mr Memelink, placed on hold while the consulting firm Deloitte prepared a report on the disputed levies. In August 2018, shortly before the report was produced, Mr Memelink was adjudicated bankrupt. No steps were taken in these proceedings until 28 September 2020 when Mr Memelink sought to revive them. Shortly afterwards, the Body Corporate, which was now named as the sole defendant, applied to strike the proceedings out for want of prosecution and on the ground they were an abuse of process. The Body Corporate’s application to strike the proceedings out was granted by Cooke J in April 2021.[1]
[1]Memelink v Body Corporate 68792 [2021] NZHC 835.
The current plaintiffs, Mr Memelink and Cisca Forster, in their capacities as trustees of the Link Trust No. 1 (the Trust), which owns approximately half the units in the development, appeal that decision, saying the Judge failed to take into account relevant matters, took account of irrelevant matters, or was plainly wrong when determining the threshold test for dismissing proceedings for want of prosecution had been met.
At issue is whether the Judge erred in exercising his discretion to strike the proceedings out.
Background
All parties acknowledge there is a complex history to this matter. The proceedings have their genesis in complaints raised concerning the amounts levied against the unit titles in a unit title complex located in Lower Hutt. Mr Memelink says there was a decision made by the Body Corporate to build up a long-term maintenance fund to address structural issues in the units, including to re-roof them. A special levy was introduced to do this. Mr Memelink says the building maintenance fund was then used, without proper authority, on a dispute which arose between the Body Corporate and Transit New Zealand (subsequently named the New Zealand Transport Agency (NZTA)). The dispute arose out of NZTA’s purchase and eventual demolition of some of the units in the course of works to realign the State Highway at Petone. By way of example, Mr Memelink says that approximately $130,000 was paid in legal fees for the dispute with NZTA without proper authority. Although the Body Corporate expected the funds spent on the dispute would be reimbursed by the Crown, that did not occur.
The Body Corporate was eventually placed into administration due to the dysfunction within it and an administrator was appointed by the High Court on 18 March 2015.[2] The administrator was subsequently replaced on 9 September 2016,[3] and again on 5 October 2017.
[2]Body Corporate 68792 v Memelink [2015] NZHC 519.
[3]Body Corporate 68792 vMemelink [2016] NZHC 2146.
Mr Memelink first filed proceedings, as a litigant in person, on 1 March 2016. These proceedings claimed breaches of the Unit Titles Act 2010, the Unit Titles Regulations 2011 and the Body Corporate’s rules in raising and then using the funds raised under the special levy. He sought a range of relief including repayment of unauthorised and unapproved levy increases and reimbursement of any incorrectly authorised payments by the Body Corporate. He also sought a declaration that the EGM he convened on 21 October 2014 and the resolutions reached in it were valid. These included the removal of the Court-appointed administrator, Mr Greenwood, and the recognition of Mr Memelink as the chairman of the Body Corporate.
The claim was immediately the subject of an application to strike out which was heard by Brown J in June 2016. As a result, the claims against the individually named defendants were struck out, but the Body Corporate was joined as a defendant and the trustees of the Trust were joined as second plaintiff.[4] An amended statement of claim reflecting those changes was filed on 5 August 2016. It advanced many the same grievances as the first statement of claim, albeit they were now directed at the Body Corporate.
[4]Memelink v Martens [2016] NZHC 1285.
A further amended statement of claim was prepared on 30 May 2017, this time by a lawyer, Mr Haines, instructed by Mr Memelink. Again, it alleged a failure by the Body Corporate to comply with the Unit Titles Act, Regulations and Body Corporate’s rules, and claimed that the Body Corporate had not held special levies in a separate account as required and had allowed them to be spent on matters that were not approved by resolution. It seems the statement of claim was never filed in the High Court, although the Body Corporate filed a statement of defence to this amended statement of claim in early July 2017.
Importantly, on 28 September 2017, Mr Memelink filed an affidavit in support of an application to appoint Anthony Gambitsis as a replacement administrator for the Body Corporate. This was necessary given Mr Naylor, the previous administrator, had resigned. In that affidavit Mr Memelink said:
5.My biggest concern with the operation of the Body Corporate has always been the failure of the Body Corporate and successive Court appointed Administrators to reconcile the levies that I have paid to the body corporate as both operational and special levies.
6.I support Mr Gambitsis appointment because he is committed to carrying out such an audit of the historical levies and Body Corporate accounts.
7.I agree to be bound by the outcome of the audit of Mr Gambitsis if he is appointed as Administrator. If it is found that there are outstanding levies then I will pay those promptly at the conclusion of the audit process.
8.I also agree that if Mr Gambitsis is appointed as Administrator to withdraw the claim against the Body Corporate under CIV-[2016]-485-141. As any such audit will satisfy my concerns as articulated in that claim.
On 28 August 2018 Mr Memelink was adjudicated bankrupt on the application of a law firm, but with the Body Corporate as a supporting creditor.[5]
[5]As discussed in Re Memelink [2019] NZHC 36.
On 19 October 2018 the Deloitte report was released. Mr Memelink now says it fails to address the concerns he had about the special levies and therefore provided no resolution to the issues in the proceedings, and so he is not obliged to withdraw the claim against the Body Corporate as stated in his affidavit.
On 21 August 2019 the Body Corporate filed a claim in the bankruptcy of Mr Memelink claiming payment from him as trustee of the Trust of the unpaid contributions which had been levied on the Trust.[6] Mr Memelink challenged the claim on the basis that the contributions which had been levied were disputed. In particular, Mr Memelink claimed:
(a)the Body Corporate had failed to comply with the requirements of the Unit Titles Act in imposing the levies and therefore many or perhaps all of the levied contributions which make up the claim were unlawful and unenforceable; and
(b)a special levy imposed for the purpose of effecting or funding repairs and maintenance to the roof at the complex, and which the trustees paid, was “misappropriated” by the Body Coroprate and that the trustees had a claim for recovery of the same which can and should be set off against any levies that are payable.[7]
[6]The other trustee at the time, Lynx Trustees Ltd, had by then, been placed in liquidation.
[7]Memelink v Official Assignee [2020] NZHC 2709 at [50].
However, when the dispute came before Associate Judge Johnston, he concluded:
[55] In my view, neither the Official Assignee pursuant to s 234 nor the Court in the context of an application pursuant to s 238 are required to examine in minute detail every levy to ensure that it was imposed in compliance with all aspects of the legislation and BC 68792’s internal management rules. It is sufficient for the Official Assignee or the Court to be satisfied that the Body Corporate had a statutory entitlement and responsibility to levy, has done so and that those levies are prima facie payable.
The Associate Judge went on to say that a unit title holder was entitled to challenge the lawfulness of levies, but that “must be done in a timely way in a separate ordinary proceeding”, and in this case “[t]he trustee owners here have had years to do that and have elected not to do so”.[8]
[8]At [56]–[57].
Mr Livingston, for Mr Memelink, says that as soon as the Court indicated it would not resolve the disputes about the levies in the context of the bankruptcy, Mr Memelink sought case management of these proceedings. Very soon afterwards the Body Corporate applied to strike out the proceedings for want of prosecution and on the grounds they were an abuse of process.
The High Court judgment
The claim to dismiss the proceedings was heard by Cooke J on 12 April 2021. In discussing the history of the claim, he observed that:[9]
[8] An important initial factor arises from the nature of [the] proceeding. It is a challenge to the legality of levying and spending decisions. By their very nature such challenges need to be brought promptly.
[9]Memelink v Body Corporate 68792, above n 1.
Cooke J also noted that in a minute dated 18 May 2017, Clark J had recorded that:[10]
… the claim has now been afoot for over a year. The court file is voluminous yet no progress has been made. The state of the pleadings is such that it is still not feasible to convene a first case management conference. That is unacceptable. The carriage of the [proceeding is] developing an air of abuse of the Court's processes.
[10]At [11].
Cooke J saw that as relevant because as early as May 2017, the lack of progress had “already given rise to the concern that the proceedings were becoming an abuse of process. This was a very clear warning to the plaintiffs that they needed to take action in the proceedings, otherwise they would be regarded as an abuse of process”.[11]
[11]At [14].
Cooke J noted that directions were given for the progress of the proceedings but they were not complied with. While Mr Memelink relies on the bankruptcy proceedings pursued against him in 2017 and 2018 as providing some explanation for not progressing the proceedings, Cooke J noted that “those proceedings rather reinforced the need to have the underlying disputes concerning the levies resolved promptly”.[12]
[12]At [14].
Cooke J then referred to Mr Memelink’s affidavit dated 28 September 2017 which was sworn in related proceedings concerning the appointment of Mr Gambitsis as a replacement administrator for the Body Corporate. Cooke J concluded Mr Memelink’s statement in that affidavit “must be taken to be an election on his behalf to pursue alternative remedies rather than this proceeding”.[13] For all those reasons, he concluded that there was inordinate delay.
[13]At [18].
Cooke J also concluded that the delay was inexcusable. He rejected the suggestion that the delay had been with the agreement of the defendant, because the affidavit of 28 September 2017 recorded a resolution of the proceedings, not simply a deferral of them. He also said that it was difficult to read Mr Memelink’s affidavit as saying he would only withdraw the claim if certain conditions were met.[14] In any event, even if Mr Memelink had not committed to withdrawing his claim, he needed to have acted very promptly if he was proposing to advance this claim notwithstanding his statement in the affidavit. He did not do so. Instead, he allowed some two years to elapse between receiving the Deloitte report and reviving the proceedings.
[14]At [20].
Cooke J also rejected other explanations given by Mr Memelink for why the proceeding was not progressed. Mr Memelink sought to blame his solicitor, Mr Haines, but Cooke J noted that the fact that delays can be attributable to a solicitor does not provide an excuse.[15] Similarly, a decision to pursue alternative remedies does not provide an excuse.[16] He said Mr Memelink’s bankruptcy did not affect his ability to conduct this proceeding as it was being pursued in his capacity as a trustee.[17] The decision to address the issues in the context of the bankruptcy was a strategic decision by Mr Memelink and did not affect his obligation to progress these proceedings promptly. The Judge also rejected the suggestion that personal issues such as Mr Memelink’s physical disabilities and his dyslexia could explain the delays, particularly when Mr Memelink had been “regularly engaging in Court proceedings before this Court” during that period.[18]
[15]Lovie v Medical Assurance Society Ltd [1992] 2 NZLR 244 (HC) at 253.
[16]Stewart v Grey River Gold Mining Ltd HC Christchurch A517/78, 19 December 1991 at 8.
[17]At [24].
[18]At [30].
Turning to the issue of prejudice, the Judge concluded that he could not see how the proceeding could now justly deal with the matters raised. The claim sought to call into question levying and spending decisions made many years ago and the Judge could not see how this could now “fairly be done”.[19] For these reasons, the Judge accepted that there had been inordinate and inexcusable delay and that delay had seriously prejudiced the ability to do justice in the case. As a result, it was not in the overall interests of justice to allow the case to proceed. He did not, in those circumstances, need to address the alternative ground that it was an abuse of process under r 15.1 of the High Court Rules 2016, although he concluded “that may be an alternative way of describing the reasons why the strike out application is successful”.[20]
Submissions for the appellants
[19]At [29].
[20]At [32].
Mr Livingston, in thorough submissions, outlined why the appellants considered the Judge erred in exercising his discretion to strike out the proceedings. He accepted the Judge correctly stated the applicable law but submitted the Judge took into account irrelevant matters, disregarded relevant matters, or reached a decision that was plainly wrong when determining whether there was inexcusable delay, serious prejudice, and whether the interests of justice were met.
The appellants take issue with the Court’s observation that levying decisions need to be addressed promptly, saying that was not relevant to the decision to strike out. While delay will make recovery in such cases difficult, Mr Livingston submits this is not, in itself, a reason for conducting levy disputes quickly or categorising them as a special class of proceedings which will be more readily struck out for delay. It simply means that a plaintiff’s chances of recovery are better if the dispute is resolved before, or shortly after levies are expended, but that is an issue for the plaintiff. It is not a ground for holding that levy disputes are a special category of proceedings that may be more readily struck out for delay.
Mr Livingston also takes issue with the conclusion that Mr Memelink elected to pursue alternative remedies, and that this counted against him in the strike out proceedings. First, he said that Mr Memelink’s agreement to place proceedings on hold (which he says is implicit in paragraph 7 of Mr Memelink’s 2017 affidavit addressing this issue) was conditional on Mr Gambitsis and the audit resolving his concerns about the special levies. However, the report from Deloitte simply provided an analysis of what levies each unit had paid, and so whether each unit owner was now in credit or debit. It did nothing to resolve Mr Memelink’s concern that special levies had been used by the Body Corporate for matters unrelated to the purpose of the special levy fund.
Mr Memelink then chose to challenge the levies in the course of the bankruptcy and was surprised by the decision of Associate Judge Johnston which said that the Official Assignee did not have to consider whether the levies were properly raised or calculated. As soon as the Court indicated it would not address the levy issues in the context of the bankruptcy, Mr Memelink promptly sought case management of these proceedings and filed an amended statement of claim.
Mr Livingston also submits that the Court was wrong to conclude that the delay has caused serious prejudice to the Body Corporate. Indeed, he says the conduct of the proceedings is in the Body Corporate’s interests, and it could choose to simply abide the decision of the Court rather than expend resources defending it.
The final basis on which Cooke J’s decision is challenged is the Judge’s conclusion that it is not in the interests of justice to allow it to proceed. Mr Memelink now alleges that the corollary of this decision is that the Court will turn a blind eye to the “potential fraud” which is pleaded in the fourth amended statement of claim. There it is alleged that Patrick Renshaw, who was the Body Corporate secretary for a period up to late 2012, authorised cheques to be paid to both Mr Renshaw’s wife and to a lawyer acting for the Body Corporate. Mr Memelink claims that Mr Renshaw had no ability to be appointed as Body Corporate secretary as he was not a unit owner, and there is no evidence that the expenditure was properly authorised. He says Mr Renshaw was a lawyer who was convicted of extensive fraudulent use of client funds in the early 1990’s, and later, for failing to pay tax and GST. By implication, Mr Memelink suggests these payments need to be scrutinised carefully. It would not be in the interests of justice to strike out the proceedings when there is a pleading of fraud or, at least, of the misapplication of Body Corporate funds.
Mr Livingston also expresses a concern that a consequence of the decision to strike out is that it may now be an abuse of process for Mr Memelink to challenge the lawfulness of levies currently being collected, when there would not be a commensurate limitation on the Body Corporate seeking judgment for payment of the levies. If so, he submitted that would be contrary to the interests of justice.
Submissions for the Body Corporate
Mr O’Connor, for the Body Corporate, was largely content to rely on the conclusions of the High Court. He pointed out that Mr Memelink had not paid any levies since August 2018 putting the Body Corporate in an invidious position where other Body Corporate owners had to be levied to meet the running costs of the Body Corporate. He also said that the report by Deloitte was never designed to investigate criminal matters which are now being raised, as Deloitte is not a forensic specialist.
In terms of the serious prejudice which the Body Corporate suffers as a result of the delays in pursuing these claims, Mr O’Connor pointed to the conclusions in the Deloitte report which say the Body Corporate’s records only go back to 2008, and there are not good records prior to an administrator being appointed. It is now near impossible for the Body Corporate to respond to the matters being raised by Mr Memelink given the passage of time. Furthermore, it appears that Mr Memelink wishes to set off the levies he currently owes against his claim for refund of levies which he says were unlawfully authorised or expended in the past. That would create real prejudice to the Body Corporate now because of the passage of time. It would be seriously in deficit if it had to refund levies from so far back.
Discussion
Was the Judge wrong to conclude there was inexcusable delay?
Mr Livingston properly accepts there has been inordinate delay but he submitted Cooke J erred in concluding that the delay was inexcusable. However, none of the grounds raised by Mr Memelink satisfy us the Judge erred in reaching this conclusion.
Even if Mr Memelink had made it a condition of the Deloitte report that it should fully resolve his concerns about the special levies (and that is certainly not apparent from Mr Memelink’s affidavit), we agree he needed to make it clear as soon as the report from Deloitte was received that he was pursuing his claim, and he did not.
We agree with Cooke J there was no impediment to Mr Memelink continuing the proceedings despite being adjudicated bankrupt in 2018 as they were being pursued by the Trust. The fact he made a strategic decision to challenge the levies in the bankruptcy does not excuse the delay. As was held in Stewart v Grey River Gold Mining Ltd,[21] the pursuit of another remedy in preference to prosecuting a proceeding does not excuse delay unless it was done with the defendant’s acquiescence. Here there was no evidence of such acquiescence. We also agree that, given Mr Memelink’s frequent engagement with the Court during the period 2018 to 2020, there was nothing to suggest his dyslexia, his health issues, his difficulties with his lawyer, or any other matter affected his ability to progress these proceedings.[22]
Was the Judge wrong to conclude there was serious prejudice as a result of delay?
[21]Stewart v Grey River Gold Mining Ltd, above n 16, at 8.
[22]Indeed, on the publicly available database Judicial Decisions Online, there are 19 decisions which involve Mr Memelink as a party to proceedings which issued between 28 August 2018 when he was adjudicated bankrupt and 28 September 2020 when he sought to activate case management of these proceedings.
The question of whether there is serious prejudice is readily addressed by the report from Deloitte. The covering letter to the report says:
As you are aware, the records of the body corporate are incomplete. For the past few months we have been working with each unit holder to assemble (in one place) the relevant financial and operational information to enable us to conduct the review. This has been a very slow process as many of the records were difficult to locate, incomplete and in some cases had been in storage for many years.
We were originally asked (if possible) to complete levy calculations back to 1 April 2005 for the current Unit Holders. Unfortunately, the degree of the incomplete information meant that this was simply impossible. The information we have located back in 2005 to 2008 is still not sufficiently complete or robust to enable us to prepare even estimate calculations for the 2005 to 2008 period, and certainly not accurate enough to use in High Court proceedings.
The letter goes on to say that even for the period from 1 January 2008 to 31 January 2018 the report writer had to make certain assumptions, which were checked with the various unit holders or their legal advisers, before he could reach any conclusion on the levy position as at 31 January 2018.
Furthermore, as Mr O’Connor explained, Deloitte simply could not differentiate between the payment of special and general levies in the relevant period and the analysis which Deloitte provided was the best that could be done in the circumstances. Given the lack of records, and the inability to forensically analyse what was done as a result of the passage of time and the appointment of successive administrators, the Body Corporate would now be seriously prejudiced in trying to respond to the claims being made.
In addition, as Mr Livingston himself noted, various unit holders from that period have since sold up or been bankrupted, and some have shifted overseas. This is confirmed by records of ownership of the unit titles contained in the Deloitte report which show some units have had multiple changes of ownership in the period from 2003 to 2018 covered by the report. That means it would now be virtually impossible to rectify past errors with the levies even if they were established.
While Mr Livingston is correct that such disputes are not strictly in a special category, the Judge was nevertheless correct to take into account as relevant the prejudice that can accrue to the defendant when stale Body Corporate levy disputes are pursued. The claim would have been difficult enough to defend at the time it was filed. Those difficulties have been exacerbated by the passing of time.
Was the Judge correct to conclude that dismissing the claim was in the interests of justice?
Mr Memelink relies on two submissions to say it is not in the interests of justice to dismiss the claim. The first is that the High Court failed to take into account “evidenced and pleaded fraud or … misappropriation of body corporate funds” by the Body Corporate secretary, Mr Renshaw. The second is the risk that Mr Memelink would, as a consequence of the High Court’s judgment, be unable to challenge the Body Corporate levies currently owing.
We do not consider the purported allegation of fraud adds anything to the claim. Contrary to Mr Memelink’s submission, there is no express pleading of fraud against Mr Renshaw in the fourth amended statement of claim. The narrative section of that statement of claim simply refers to the fact of Mr Renshaw’s convictions for fraud and then says he signed numerous cheques which Mr Memelink says are “inexplicable and unauthorised”.
The fact Mr Renshaw is a convicted fraudster, and was involved in the management of the Body Corporate, does not, without more, constitute a pleading of fraud. The evidence relied on is a sequence of photocopied cheques paid by the Body Corporate to the lawyer engaged by the Body Corporate between 2009 and 2012 to deal with the dispute with NZTA. This is no more than an extension of the claim that the Body Corporate was not authorised to use funds which Mr Memelink maintains were raised for one purpose, for a different Body Corporate purpose. There are also copies of cheques which are made out to Mr Renshaw’s wife which are signed by two Body Corporate committee members. Mr Renshaw’s explanation was that these were for secretarial services. Whether or not this was a proper use of funds may be open to question, but it does not amount to clear evidence of fraud, as is required for such a pleading to count against striking out the proceedings.
An associated submission that Mr Renshaw could not, in law, hold such office for the Body Corporate because he was not a unit owner falls away when the records of ownership contained in the Deloitte report are checked. Mr Renshaw jointly acquired one unit with Mr Memelink in 2011 and two further units with Mr Memelink in 2012.
Finally, Mr Memelink’s concern that he could not challenge current levies for illegality or other deficiency if the claim was struck out is misplaced and, in any event, was considered by the Judge. He did not consider it was an impediment to striking out the proceeding which was primarily directed to historic issues. As the Judge said “[w]hether Mr Memelink can commence new proceedings, or defend proceedings brought by others, is a separate question that will need to be addressed in light of this and other judgments”.[23] We agree. The Judge was correct to conclude that this is not a matter which suggests striking out the claim is contrary to the interests of justice.
Result
[23]High Court judgment, above n 1, at [31].
For the above reasons, we are satisfied Cooke J made no error when exercising his discretion to strike out the proceedings under r 15.2.
The appeal is dismissed.
Costs
The appellants are ordered to pay the respondent costs for a standard appeal on a Band A basis and usual disbursements.
Solicitors:
Livingston & Livingston, Wellington for Appellants
Surridge & Co, Porirua for Respondent
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