Memelink v Body Corporate 68792
[2016] NZHC 1181
•2 June 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-182 [2016] NZHC 1181
UNDER section 17C of the Judicature Act 1908 IN THE MATTER OF
an application to set aside statutory demand
BETWEEN
HARRY MEMELINK AND IAN TREVOR NEILL HAMILTON Applicants
AND
BODY CORPORATE 68792
Respondent
Hearing: 31 May 2016 Counsel:
H Memelink in person
No appearance for Mr Hamilton
D G Dewar for the RespondentJudgment:
2 June 2016
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] On 17 February 2016, Body Corporate 68792 (the Body Corporate) issued a statutory demand against Mr Memelink and Mr Hamilton, as trustees of the Link Trust No. 1 (the trustees). The statutory demand was purportedly issued pursuant to s 17C of the Judicature Act 1908 (the Act). It demanded payment of the sum of
$23,775.75, being the total amount said to be owing by the trustees under costs orders made by this Court on 28 July 2015 and 8 December 2015. The trustees now apply to set aside the statutory demand.
[2] Under s 17A of the Act, the Court may appoint a liquidator of an
“association” if it is satisfied that the association is unable to pay its debts, or that it
is just and equitable that the association be put into liquidation.1
1 Judicature Act 1908, s 17A(4).
HARRY MEMELINK AND IAN TREVOR NEILL HAMILTON v BODY CORPORATE 68792 [2016] NZHC
1181 [2 June 2016]
[3] Section 17A(1) defines “association” as including any partnership, company,
or other body corporate, or unincorporated body of persons other than –
(a) a company or an overseas company, as defined in s 2 of the
Companies Act 1993; or
…
(c) a body corporate that may be put into liquidation in accordance with the provisions of any Act under which it is constituted.
[4] “Inability to pay debts” is defined in s 17C of the Act. This section materially
provides:
17C Meaning of inability to pay debts
For the purposes of section 17A, an association is unable to pay its debts—
(a) if—
(i) a creditor who is owed an amount exceeding $100 by the association has served on the association a demand for payment of that amount by leaving it at the principal office of the association in New Zealand, or delivering it to the secretary or a director or manager or principal officer of the association; and
(ii) the association has for 3 weeks after the demand was served on it failed to pay the amount due or secure the payment of it or compound for it to the satisfaction of the creditor; or
[5] It will be seen that s 17C creates a regime, for “associations”, similar to that available to creditors of companies under ss 288 and 289 of the Companies Act
1993.
Service of the trustees’ setting aside application
[6] On 11 March 2016 Mr Memelink, acting on behalf of the trustees, filed an application to set aside the statutory demand.
[7] There is an issue as to whether the application to set aside the statutory demand was properly served within the time allowed for service of such applications. Mr Memelink acknowledges that the statutory demand was received
by him on 26 February 2016, and he filed the setting aside application on
11 March 2016. That was the last day on which a setting aside application could be filed.2
[8] However the setting aside application also had to be served by
11 March 2016. If it was not served by that date, no extension of time could be given for service.3
[9] The Body Corporate has filed a notice of opposition to the setting aside application, in which it contends that the application has not been validly served. It also pleads that there is no arguable dispute in respect of the debt.
[10] Mr Memelink has not filed any affidavit of service proving that the setting aside application was served within the 10 working days allowed for service. He did file a memorandum dated 2 May 2016, in which he stated that he had completed an affidavit of service regarding the application, and that he would bring the affidavit into Court for filing that day, but no affidavit of service appears to have been filed.
[11] At the hearing on 31 May 2016, Mr Memelink told me that the service copy of the trustees’ setting aside application was not released by the Court for service until three or four days after the application was filed on 11 March 2016. On that basis, service of the setting aside application would have been out of time under s
290(3) of the Companies Act, and the application to set aside the demand would have to be dismissed. Mr Memelink did advise that he emailed a copy of the application to the Body Corporate’s administrator, Mr Greenwood, and that his recollection is that he did that on the same day that he filed the setting aside application. However there is no evidence before the Court that Mr Greenwood
agreed to accept service by email.
2 Section 17B of the Judicature Act 1908 provides that certain sections of the Companies Act 1993 are to apply with any necessary modifications in relation to the liquidation of an association. One of the sections in the Companies Act 1993 which s 17B makes applicable to liquidation proceedings against associations is s 290. Under that section, any application to set aside a statutory demand must be made within 10 working days of the date of service of the demand, and must be served on the creditor within 10 working days of the date of service of the demand.
3 Companies Act 1993, s 290(3).
[12] For the Body Corporate, Mr Dewar says that he himself never received a copy of the setting aside application, which he would have expected to receive if it had been served on Mr Greenwood.
[13] Mr Memelink acknowledged at the hearing that formal service of the application by delivery to the Body Corporate was not effected within the 10 working days allowed for service. Given that acknowledgement, I think it was for the trustees to provide evidence that there was some earlier form of service effected within the statutory period. They have not done that, notwithstanding that the Body Corporate’s notice of opposition clearly put in issue the question of service.
[14] There being no jurisdiction to extend the time for service, the setting aside application cannot succeed. It is dismissed accordingly.
Is there a genuine and substantial dispute over the Body Corporate’s claim?
[15] Given my finding that Mr Memelink’s setting aside application was not served in time, there is strictly no need to make any further findings. However counsel and Mr Memelink did make additional arguments directed to the merits of the application, and in deference to their arguments I will set out my views on them.
[16] First, I consider that the trustees did have grounds for a substantial dispute, not over whether all of the amounts claimed by the Body Corporate were owing, but over the Body Corporate’s entitlement to use the procedures in ss 17A – 17C of the Act. That ground was not pleaded by the trustees in their setting aside application, however, and I think its only relevant is on the question of costs. I address the issue in dealing with the Body Corporate’s application for costs, later in this judgment.
[17] On the merits of the Body Corporate’s claims, the trustees have failed to persuade me that they have a genuine, arguable defence to all of the claims made in the statutory demand.
[18] The statutory demand claimed from the trustees the amounts of two separate costs orders made in this Court in favour of the Body Corporate. The first costs order, made on 28 July 2015 in proceeding CIV-2015-485-202, was for the sum of
$19,442.50. The second costs order was made on 8 December 2015 in proceeding
CIV-2015-485-940. It was for the sum of $4,353.25.
[19] It is common ground that the larger of the two costs awards (the $19,422.50 awarded in proceeding CIV-2015-485-202) had not been fully paid by Mr Memelink when the statutory demand was issued (or even when the trustees filed the setting aside application). Mr Memelink acknowledges that he did not pay his contribution to this costs award until 13 May 2016.
[20] As for the costs order for $4,353.25, it appears from Mr Memelink’s written memorandum of 31 May 2016 that he wrongly believed that payment by Cudby & Meade Ltd of a costs award made against it on 8 December 2015 satisfied a costs judgment (in the same amount) which was entered by the Court on that date against the trustees.
[21] On 8 December 2015 I gave judgment on two setting aside applications made by the Body Corporate, which were heard together. The first application, in proceeding CIV-2015-485-940, concerned a statutory demand issued by the trustees against the Body Corporate. The second application, in proceeding CIV-2015-485-941, concerned a separate statutory demand issued by Cudby & Meade Ltd against the Body Corporate. By the time of the hearing on
8 December 2015 both statutory demands had been withdrawn. I made orders setting them aside.
[22] The remaining issue was costs. I awarded costs to the Body Corporate of
$3,750 in each proceeding, with disbursements in each proceeding to be fixed by the registrar. With disbursements, the amount in each proceeding was $4,353.25.
[23] The Body Corporate accepts that Cudby & Meade Ltd has paid the costs awarded against it in proceeding CIV-2015-485-941. But it says that the costs awarded on 8 December 2015 against the trustees have not been paid. I accept that the Body Corporate is correct in that assertion.
[24] At the hearing on 31 May 2015 Mr Memelink made some attempt to suggest that payment of the one set of costs awarded on 8 December 2015 which the parties agree has been paid, was or may have been made by the trustees in satisfaction of the award made against them, and not in satisfaction of the award made against Cudby & Meade Ltd. But in a separate proceeding brought by the Body Corporate against Cudby & Meade Ltd (proceeding CIV-2016-4856-225), in which the Body Corporate was pursuing Cudby & Meade Ltd for sums which included the
$4,353.25 costs award I had made against Cudby & Meade Ltd on 8 December 2015, Mr Memelink filed a memorandum dated 27 May 2016 in which he advised the Court that “the plaintiff [i.e. Cudby & Meade Ltd] has been paid in full”. And in his
31 May 2015 memorandum filed in this proceeding, Mr Memelink said that “the amount of $4,353.25 and further $796 as to costs was paid by the Link Trust No. 1 as stated under requirement of Cudby & Meade Ltd” (emphasis added).
[25] Mr Memelink said in his memorandum of 31 May 2016 that he understood that there was only one award of costs made on 8 December 2015, covering both proceedings. He suggested that Mr Greenwood had the same understanding, but there is no evidence of that before the Court and it seems improbable that Mr Greenwood would have misconstrued the costs orders, which clearly stated that
$3,750 plus disbursements was awarded in each proceeding.
[26] It is clear, then, that at least some parts of the total sums demanded by the Body Corporate in its statutory demand were owing, both at the date of the statutory demand and at the time Mr Memelink filed the setting aside application on behalf of the trustees. And even if the amount claimed in the statutory demand was overstated (which might have been the case if the one third of the award of $19,442.50 which the parties agree has been paid by another party who was liable on that judgment, was paid prior to the issue of the statutory demand), the overstatement of the amount claimed in the demand would not have been decisive. A statutory demand which overstates the amount of the creditor’s claim may be allowed to stand in respect of
items which are not open to dispute.4
4 United Homes (1998) Ltd v Workman [2001] 3 NZLR 447, (2001) 9 NZCLC 262,605 (CA) at
[46] and 21st Century Investments Ltd v ANZ National Bank [2011] NZCA 548 at [41].
[27] I record that Mr Memelink did raise a number of claims against the Body Corporate, at least some of which are the subject of a proceeding filed in this Court under CIV-2016-485-141. But the trustees elected to pay the costs of
$19,442.50 awarded on 28 July 2015, and their answer to the claim for the costs awarded on 8 December 2015 was not that they should not have to pay these costs (because they have valid cross-claims), but that the costs have in fact been paid (a contention I have rejected).
[28] For those reasons, I am satisfied that there would have been no grounds to set aside the statutory demand in full – at least part of the amount claimed by the Body Corporate was owing and remained unpaid as at the date of the hearing on
31 May 2016.
Costs
[29] In the ordinary course, a creditor who successfully resists an application to set aside a statutory demand would be entitled to costs. However, in this case there are some unusual features. First, it appears that the Body Corporate’s statutory demand was never served on the second of the trustees, Mr Hamilton. But even if it had been, the Body Corporate was not entitled to use the procedures under the Act against the trustees.
[30] At the hearing, Mr Dewar conceded on behalf of the Body Corporate that liquidating the Link Trust No. 1 is not an available remedy. He advised that the Body Corporate accordingly has no intention to, and will not, commence a liquidation proceeding against the trustees on the basis that they are an “association” as defined in s 17A of the Act.
[31] Mr Dewar helpfully referred me to two judgments of Dobson J given in 2012 in litigation between the Bank of New Zealand and Mr David Rowley and Mr Barrie Skinner as trustees of the PPS Asset Trust. In the first of the two judgments, given on 29 October 2012, the learned judge considered that jurisdiction appeared to exist under the Act to make a liquidation order against the trustees of a
trust, on the basis that the trustees were an unincorporated body of persons who qualified as an “association” under s 17A of the Act.5
[32] In the second of the two judgments, given on 19 December 2012, Dobson J referred to his “provisional acceptance” of the availability of s 17A to make orders appointing liquidators to the trusts.6 Apparently with the benefit of fuller argument, the Judge took a different view. He considered that it would be “forced and somewhat artificial” to describe trustees of a trust as an association merely because in literal terms they constituted an unincorporated body of persons. The judge considered the difficulties that would result if two or more natural persons in their capacities as trustees of a trust constituted an “association” for the purposes of
s 17A. There would be an entirely arbitrary result, under which some trusts (those with more than one trustee) would be vulnerable to liquidation under s 17A, while others (those with either a sole trustee or a corporate trustee) would not be caught by the section.7 His Honour concluded that Parliament did not intend trusts to come within s 17A.8
[33] On the authority of the second of the two judgments in Bank of New Zealand v Rowley & Skinner, I think that Mr Dewar was clearly correct in conceding that the liquidation jurisdiction under s 17A – C of the Act is not available to the Body Corporate in this case. Mr Dewar nevertheless asked for an award of costs.
[34] In my view this is not a proper case for an award of costs against the trustees. The starting point is that the Body Corporate issued a statutory demand when it had no entitlement to invoke the liquidation jurisdiction in ss 17A – 17C of the Act. It was the issue of the statutory demand which commenced the process that resulted (inevitably) in Mr Memelink filing the setting aside application; if the statutory demand had not been issued, the Body Corporate would not have incurred costs responding to Mr Memelink’s application to set aside the demand. In the circumstances I think the justice of the case will best be met by allowing costs to lie
where they fall. I accordingly decline to make any order for costs.
5 Bank of New Zealand v Rowley [2012] NZHC 2835, (2012) 25 NZTC 20-150.
6 Bank of New Zealand v Rowley [2012] NZHC 3540, (2012) 25 NZTC 20-157.
7 At [21].
8 At [22].
Associate Judge Smith
Solicitors:
H Memelink, Alicetown in person
Thomas Dewar Sziranyi Letts, Lower Hutt for the respondent
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