Naylor Love Construction Limited v Body Corporate 200012
[2019] NZHC 120
•12 February 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-404-1854
[2019] NZHC 120
UNDER Part 14 of the High Court Rules 2016 IN THE MATTER
of an application under Section 141 of the Unit Titles Act 2010
BETWEEN
NAYLOR LOVE CONSTRUCTION LIMITED
Applicant
AND
BODY CORPORATE 200012
Respondent
Hearing: On the papers Counsel:
C J Booth and M L Broad for the Applicant
T J Rainey and U B Keller for the Respondent
Judgment:
12 February 2019
JUDGMENT OF PALMER J
This judgment is delivered by me on 12 February 2019 at 11.00 am pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors:
Kensington Swan, Auckland Rainey Law, Auckland
NAYLOR LOVE CONSTRUCTION LTD v BODY CORPORATE 200012 [2019] NZHC 120 [12 February
2019]
Summary
[1] Actual and reasonable costs are available for debt recovery under s 59(2)(a) of the Construction Contracts Act 2002 (the Act). That does not include an application to appoint an administrator of a body corporate under s 141 of the Unit Titles Act 2010 (the UTA). Instead, here, costs are awarded on a 2B basis.
The proceeding and its context
[2] Naylor Love Construction Ltd (Naylor) was contracted by Body Corporate 200012 (the Body Corporate) to repair units affected by leaking in Mt Eden, Auckland. A dispute arose between Naylor Love and the Body Corporate which was referred to adjudication under the Act. Naylor received adjudication determinations in its favour in November 2016 and June 2017 for around $3.2 million and $700,000 respectively. Section 60 of the Act provides determinations are binding on the parties despite any judicial review or other proceeding relating to the dispute.
[3] The Body Corporate refused to pay. Naylor succeeded in registering the first determination as a District Court judgment in July 2017, over the Body Corporate’s opposition.1 Naylor applied to register the second determination. In July 2017, the Body Corporate applied for judicial review of the determinations, which was declined by Brewer J in November 2017.2
[4] In August 2017, Naylor applied under s 141 of the UTA to appoint an administrator to the Body Corporate in order to force payment. The Body Corporate opposed the application but, before it was heard, paid up. Naylor discontinued its application but costs remain in dispute. Naylor seeks payment of its actual and reasonable costs under s 59(2)(a) of the Act. The Body Corporate opposes that.
[5] The parties filed several memoranda about costs in March and April 2018. In April 2018, as duty judge, I gave leave for one final memorandum to be filed. Unfortunately, the High Court Registry filed the memoranda and failed to forward them to a judge for decision until January 2019, after counsel enquired about the
1 Naylor Love Construction Ltd v Body Corporate 200012 [2017] NZDC 14435.
2 Body Corporate 200012 v Keene [2017] NZHC 2953, [2018] NZAR 120.
matter. Steps have been taken to ensure that does not happen again. I apologise to the parties on behalf of the court system.
Costs under the Construction Contracts Act 2002
[6] In reforming the law of construction contracts, under s 3, the Act has the particular purposes of facilitating regular and timely payments between parties to a contract, providing for speedy resolution of disputes and providing remedies for recovery of payments.
[7] Part 2 of the Act relates to payments and subpt 3 of that relates to the procedure for making and responding to payment claims. Under s 22, a payer who does not provide a payment schedule within the required time becomes liable to pay the claimed amount. Where the payer fails to do that, s 23(2) provides (with emphasis added):
(2)The consequences are that the payee—
(a)may recover from the payer, as a debt due to the payee, in any court,—
(i)the unpaid portion of the claimed amount; and
(ii)the actual and reasonable costs of recovery awarded against the payer by that court; and
(b)may serve notice on the payer of the payee’s intention to suspend the carrying out of construction work under the construction contract.
[8] Part 3 concerns adjudication of disputes. Subpart 5 of that concerns the effect of an adjudicator’s determination. An adjudicator’s determination is enforceable under s 59. Where a party fails to pay the amount determined by an adjudicator within two working days of receipt of the determination or a later date determined by the adjudicator (with emphasis added in subs(2)(a)(ii)):
(2)The consequences are that the party who is owed the amount (party
A) may do all or any of the following:
(a)recover from the party who is liable to make the payment (party B), as a debt due to party A, in any court,—
(i)the unpaid portion of the amount; and
(ii)the actual and reasonable costs of recovery awarded against party B by that court:
(b)if party A is a party who carries out construction work under a construction contract, serve notice on party B of party A’s intention to suspend the carrying out of construction work under the contract:
(c)apply for the adjudicator’s determination to be enforced by entry as a judgment in accordance with subpart 2 of Part 4.
[9] Section 73 empowers a plaintiff to apply to the District Court for enforcement of an adjudicator’s determination by entry as a judgment. Section 74 requires the District Court to enter the determination as a judgment unless satisfied by the defendant of specified reasons it should not be. Section 77 provides an adjudicator’s determination, entered as a judgment, may be enforced by execution under the District Court Rules 2014.
[10] In Laywood v Holmes Construction Wellington Ltd, the Court of Appeal pointed out the Act provides three remedies for a liable party failing to pay in response to an adjudicator’s determination: debt recovery proceedings; suspension of work; and entry of the determination as a judgment.3 It distinguished the limits of the District Court’s jurisdiction in debt recovery proceedings under s 59(2)(a) from its limits in entering a judgment under s 59(2)(c) and ss 73 and 74.4 In denying leave to appeal, the Supreme Court found the judgment “compelling”.5
[11] In relation to costs, in Salem Ltd v Top End Homes Ltd, the Court of Appeal held the legislative intent behind s 23(2)(a)(ii) is to provide that actual and reasonable costs of recovery of payments due under a construction contract should follow the event.6
[12] In TBS Remcon Ltd v Body Corporate 354994, Courtney J dismissed an application to appoint an administrator under s 141(1) of the UTA for the purpose of effecting debt repayment.7 In doing so, she found s 59(2)(a) contemplated only
3 Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243 at [14].
4 At [21]–[31].
5 Laywood v Holmes Construction Wellington Ltd [2009] NZSC 44 at [2].
6 Salem Ltd v Top End Homes Ltd CA 169/05, 4 April 2006 at [5].
7 TBS Remcon Ltd v Body Corporate 354994 [2016] NZHC 1689, (2016) 18 NZCPR 261 at [12]– [13].
orthodox forms of recovery, the appointment of an administrator under the UTA was not a recognised method of recovery under the Act and the power of appointing an administrator was not intended as a general method of enforcing debts against a properly functioning body corporate.8 She relied on:
(a)Low v Body Corporate 384911, where Heath J considered the general discretion to appoint an administrator should not be fettered;9 and
(b)Gibson v Body Corporate 384911, where Ellis J identified a number of matters as potentially relevant to appointment of an administrator under a previous version of the UTA, relating to undemocratic or ultra vires decisions, dysfunctionality, improper influence or harming the interests of the minority.10
[13] In relation to the parties here, Judge Harrison in the District Court awarded actual and reasonable costs to Naylor on entering the first adjudicator’s determination.11 That was overturned on appeal by Lang J who considered an application under s 73 was not a recovery proceeding for the purposes of s 59(2)(a).12 He observed there is “a respectable argument” applications such as to stay liquidation or set aside a statutory demand or bankruptcy notice amount to recovery proceedings under s 59(2)(a)(ii). But, he said:13
I consider the meaning of s 59 to be plain and unambiguous. Where the adjudication creditor chooses to go down the recovery route under s 59(2)(a), it will be able to recover its actual and reasonable costs of doing so. Where it chooses to go down the enforcement route under s 59(2)(c), the provisions of s 59(2)(a)(ii) do not apply.
[14] Brewer J followed that reasoning in declining to award actual and reasonable costs to Naylor in the judicial review proceeding.14 He agreed “the entitlement to actual and reasonable costs under s 59(2)(a)(ii) is confined to debt recovery
8 At [18]–[19].
9 Low v Body Corporate 384911 (2011) NZCPR 142 (HC).
10 Gibson v Body Corporate 384911 [2012] 1 NZLR 84 (HC).
11 Naylor Love Construction Ltd v Body Corporate 200012 [2017] NZDC 21263.
12 Body Corporate 200012 v Naylor Love Construction Ltd [2018] NZHC 569, [2018] NZAR 613 at [17]–[19].
13 At [21].
14 Body Corporate 200012 v Keene [2018] NZHC 814.
proceedings initiated under s 59(2)(a)”.15 He considered the same applied to the costs of appeal of Judge Harrison’s decision, which was resolved by the judicial review.16
Submissions
[15] Mr Booth submits, for Naylor, that Naylor is entitled to its actual and reasonable costs under s 59(2)(a). He submits TBS Remcon is wrong in limiting the options for recovering payment to orthodox forms of recovery actions. He also submits this case is distinguishable because Naylor first obtained a judgment. In additional submissions, Mr Broad, who appeared in TBS Remcon, submits Lang J’s decision in relation to the costs of registering the determination is both wrong and distinguishable because the application to appoint an administrator amounts to a recovery proceeding. He submits cause exists to appoint an administrator where a body corporate refuses to pay a lawful debt or levy its members to do so. If actual and reasonable costs are not awarded, he accepts ordinary scale costs are appropriate, on a 2C and 2B basis or on a 2B basis for all steps.
[16] Mr Rainey, for the Body Corporate, relies on TBS Remcon in submitting an application under s 141 is not a proceeding to recover a debt in terms of s 59(2)(a) and does not involve the Court ordering recovery of the unpaid portion of a debt. He submits such an application is primarily intended to address dysfunction within a body corporate, not a consequence of insolvency. At most, he submits it might have an ancillary effect of encouraging the voluntary payment of a debt, which is a collateral purpose that does not make it a debt proceeding. He supports Lang J’s judgment. He also objects to the costs claimed as not being reasonable. He submits costs should lie where they fall or, alternatively, be awarded on a 2B basis for all steps.
What costs can and should be awarded?
[17] I agree with Courtney J’s judgment in TBS Remcon that actual and reasonable costs are not available under s 59(2)(a) of the Act in relation to an application to appoint an administrator of a body corporate. Appointment of an administrator under s 141 of the UTA is simply not a debt recovery proceeding, as Low and Gibson
15 At [14].
16 At [16].
demonstrate. It is not reasonable to think Parliament envisaged such an application to be a debt recovery proceeding under s 59(2)(a).
[18] If a plaintiff wishes to have the benefit of actual and reasonable costs of recovering a debt, it should pursue a debt recovery action, rather than apply to appoint an administrator. Furthermore, to be able to recover actual and reasonable costs of recovery they must have been “awarded” by the court. Here, the application was discontinued.
[19] I award costs to Naylor on a 2B basis for all steps in the amount of $8,474 and reasonable disbursements as fixed by the Registrar.
Palmer J
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