Synergy Enterprises Limited v Memelink
[2020] NZHC 1615
•8 July 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2017-485-1048
[2020] NZHC 1615
UNDER sections 187 and 188 of the Unit Titles Act 2010 and section 339 of the Property Law Act 2007 IN THE MATTER
of an originating application for order dissolving Body Corporate 68792,
cancellation of the unit plan and sale and division of the underlying title
BETWEEN
SYNERGY ENTERPRISES LIMITED, INTERCHANGE PROPERTIES LIMITED, JAMES AND CAROLINE MCKERNAN
Applicants
AND
HARRY MEMELINK
First Respondent
LYNX TRUSTEES LIMITED
Second RespondentLUXE ONE LIMITED
Third RespondentSPIDER PROPERTIES LIMITED
Fourth Respondent
On the papers Counsel:
S M O’Sullivan for Applicants H Memelink in Person
K Morrison and H L Hui for Second Respondent
Judgment:
8 July 2020
JUDGMENT OF THOMAS J (COSTS)
SYNERGY ENTERPRISES LIMITED v MEMELINK [2020] NZHC 1615 [8 July 2020]
Table of contents
Introduction [1]
Issues [10]
Background [11]
Related Proceedings [24]
The 202 Proceedings [25]
The 962 Proceedings [31]
The 173 Proceedings [34]
Bankruptcy Proceedings [35]
The 315 Proceedings [39]
The 95/162 Proceedings [42]
Does Mr Memelink have the authority to act on behalf of the Trust? [44]
Is Lynx a trustee of the Trust? [48]
Should the Costs Application against Lynx be stayed? [64]
Does Mr Memelink’s bankruptcy affect his role a trustee? [69]
Should costs be awarded to the Trust? [73]
The law [75]
Discussion [77]
Should costs be awarded to the applicants? [92]
The law [93]
Discussion [98]
Result [107]
Introduction
[1] This decision concerns an application for costs by the first respondent, Harry Memelink (the Costs Application), relating to an application (the Substantive Application) seeking orders for the dissolution of Body Corporate 68792 (the Body Corporate), the cancellation of the underlying unit plan and the sale and division of the underlying title.1 The Substantive Application arose from the dysfunction of the Body Corporate of a unit title development on the corner of Wakefield Street and Hutt Road, Wellington which comprises of fourteen2 principal units (the Development).3
1 Unit Titles Act 2010, ss 187 and 188; Property Law Act 2007, s 339.
2 There were initially 16 units. Two were acquired by the Crown pursuant to the Public Works Act 1981.
3 Body Corporate 68792 v Memelink [2020] NZHC 594 at [8].
[2] After almost two years of delays against a backdrop of conflict between members of the Body Corporate, the applicants discontinued the Substantive Application on 30 October 2019.
[3] The applicants, Synergy Enterprises Limited (SEL), Interchange Properties Limited (IPL) and Caroline and James McKernan (the McKernans), all own units in the Development.
[4] Link Trust No 1 (the Trust)4 owns six of the units in the Development.5 Mr Memelink, one of the trustees of the Trust, is the first respondent. Mr Memelink, purportedly on behalf of the Trust, seeks costs against the applicants under r 15.23 of the High Court Rules 2016 (the Rules).
[5] The applicants oppose Mr Memelink’s application for costs and submit that costs should instead be awarded to the applicants against Mr Memelink and the “other trustee of Link Trust No 1”, with a “substantial uplift”.
[6] The second respondent to the Substantive Application is Lynx Trustees Limited (Lynx) which is now in liquidation. Lynx was a trustee of the Trust but its present status as trustee is unclear. Roy Bassett-Burr is the sole director and shareholder of Lynx and is also Mr Memelink’s brother-in-law. The liquidators of Lynx submit that the Costs Application should be stayed against Lynx under s 248 of the Companies Act 1993, that Mr Memelink’s memorandum seeking costs does not represent their position and that any costs sought against Lynx should be commenced by filing a claim in the liquidation.
[7] The third respondent to the Substantive Application is Luxe One Limited (Luxe One). By 6 September 2019, Luxe One had withdrawn its notice of opposition to the Substantive Application and said it would not seek costs on the basis that costs should lie where they fall. The applicants do not seek costs against Luxe One.
4 The Trust was established by deed, dated 15 February 1995. Mr Memelink was named as the settlor and initial trustee.
5 Units 1, 3, 12, 14, 15 and 16.
[8] The fourth respondent, Spider Properties Limited (Spider Properties), has not filed a memorandum in relation to costs.6 The applicants do not seek costs against Spider Properties.
[9] The current administrator of the Body Corporate is Mr Gambitsis. He has confirmed that he does not seek costs against the applicants.
Issues
[10]I will address the issues as follows:
(i)Does Mr Memelink have the authority to act on behalf of the Trust?
(ii)Should the Costs Application against Lynx be stayed under s 248 of the Companies Act?
(iii)Does Mr Memelink’s bankruptcy affect his role as trustee?
(iv)Should costs be awarded to the Trust?
(v)Should costs be awarded to the applicants?
Background
[11] First, some background. The Body Corporate has had “a long and troubled history of conflict”, resulting in the Body Corporate applying to this Court to be placed into administration. A court-appointed administrator, with two subsequent court-appointed administrators, have managed the Body Corporate since 18 March 20157 (the application and re-applications are referred to herein as the
6 The fourth respondent owned one unit which was sold before the Notice of Discontinuance was issued.
7 Body Corporate 68792 v Memelink (No 1) [2015] NZHC 519 at [1]. For other appointments of administrators, see Body Corporate 68792 v Memelink (No 5) [2015] NZHC 1731 and Body Corporate 68792 v Memelink [2016] NZHC 2146.
202 Proceedings).8 The 202 Proceedings also consisted of orders made to settle disputes between the parties.9 The allegations in the 202 Proceedings included that:
(i)Mr Memelink and a Mr Hamilton (a named respondent in one of the 202 Proceedings) inappropriately left items in a common area and debris, furniture, pallets, building components, timber and rubbish stored in auxiliary units.
(ii)Mr Memelink, on behalf of the Trust, was constantly in arrears in respect of levies owed to the Body Corporate.
(iii)Mr Memelink’s behaviour caused distress to one of the administrators.
(iv)Obtaining a building warrant of fitness was hindered by disputes. For instance, contractors retained by the administrators to undertake the work required for the warrant claimed they had many negative encounters with Mr Memelink.
(v)Two units owned by the Trust were converted to residential use without consent. The units did not comply with fire safety regulations.
[12] Mr Gambitsis was appointed administrator on 4 October 2017. The 202 Proceedings and the Substantive Application were consolidated on 27 February 2018.10 Costs were dealt with in all 202 Proceedings.11 The only exception related to one decision of Clark J in 2017 which did not mention costs (pursuant to the Rules) but did discuss the avoidable administration expenses incurred by the Body Corporate due to Mr Memelink’s “obstructive approach” and, to a lesser extent, that of Mr Kooiman, the director of Luxe One.12 Clark J agreed those costs should be charged
8 CIV-2015-485-202 (the 202 Proceedings). See below for a summary of the 202 Proceedings at [25]–[30].
9 Body Corporate 68792 v Memelink [2018] NZHC 1735 (reasons) at [2] and [8].
10 Synergy Enterprises Ltd v Memelink HC Wellington CIV-2017-485-1048, 27 February 2018 (Minute of Ellis J).
11 See below for a summary of the 202 Proceedings at [25]-[30]. See also Body Corporate 68792 v Memelink [2016] NZHC 2146 at [26] and Body Corporate 68792 v Memelink [2016] NZHC 2452 (costs).
12 Body Corporate 68792 v Memelink [2017] NZHC 2296 (results) and Body Corporate 68792 v Memelink [2018] NZHC 1735 (reasons).
to those who caused them.13 However, no order was made as there was an absence of evidence from which the Court could accurately conclude the percentage of time spent by the administrator attending to Mr Memelink and Mr Kooiman.14
[13] The Substantive Application was filed in December 2017 on the grounds of the Body Corporate’s ongoing dysfunctionality, there being “no realistic prospect that the Body Corporate will function in the manner prescribed and required by the Unit Titles Act 2010”. Reference was made to unpaid levies from the Trust, Mr Memelink’s conduct and the failure of the court-appointed administrators to bring order to the Body Corporate. The applicants sought the dissolution of the Body Corporate and the sale of the underlying title, which would allow unit owners to realise the capital value of their properties and prevent further loss of income allegedly caused by the conduct of Mr Memelink and, to a lesser extent, Mr Kooiman.
[14] Mr Memelink and Lynx objected to the Substantive Application, stating they had purchased additional units in the Development as investments and had no intention of selling them. They also claimed that selling the underlying title would breach their obligations to their tenants.
[15] Between the filing of the Substantive Application and the discontinuance, there have been multiple delays and extensions of time given. One delay was caused by the time taken for Deloittes to produce a report reconciling levies paid and outstanding since January 2008. Mr Quentin Haines, representing all the respondents at the time, considered that the report might resolve most issues and that the matter should be adjourned until its receipt. However, Clark J held that the report itself would not resolve the foundational dysfunctionality between the Body Corporate owners.15
[16] A major issue in the Substantial Application was mandate, with both the applicants and respondents at one point claiming they represented half and over half of the unit owners respectively.16
13 Body Corporate 68792 v Memelink [2018] NZHC 1735 (reasons) at [36].
14 At [39].
15 Synergy Enterprises Ltd v Memelink HC Wellington CIV 2017-485-1048, 9 April 2018 (Minute of Clark J) at [5].
16 Synergy Enterprises Ltd v Memelink HC Wellington CIV 2017-485-1048, 24 July 2019 (Minute of Thomas J) at [3] and [4].
[17] Issues also arose over the payment of levies. In February 2019, the Body Corporate served a statutory demand on Lynx for the sum of $289,004.59 for unpaid body corporate levies.17 As at 29 August 2019, the applicants contended that the levies owed by Mr Memelink, Lynx, Luxe One and Spider Properties to the Body Corporate amounted to approximately $500,000.
[18] By 2019, the applicants contended that the sale of the underlying title was warranted given Mr Memelink was bankrupt, the Official Assignee had registered caveats against several units owned by the Trust and there was an application for the liquidation of Lynx. Administrators were also pursuing Luxe One.
[19] On 10 September 2019, Lynx was placed in liquidation following the Body Corporate’s statutory demand.
[20] During this time and even after the discontinuance, Mr Memelink faced personal insolvency issues. He was first adjudicated bankrupt on 28 August 2018,18 and declared bankrupt a second time on 9 March 2020.19
[21] By September 2019, the applicants were still pursuing the Substantive Application, although acknowledging that they comprised less than 50 per cent of the unit owners in the Development.
[22] In a case management conference on 5 September 2019, the applicants confirmed they intended continuing with the Substantive Application. Mr Kooiman expressed continued frustrations with the delay and confirmed Luxe One’s withdrawal of its opposition to the Substantive Application. Counsel for the applicants noted that solvency issues might affect some units and suggested the sale of the property was in the best interests of the creditors of those parties. The parties were encouraged to explore alternative dispute resolution.
17 Lynx Trustees Limited v BC68792 [2019] NZHC 1521 at [1].
18 Memelink v Official Assignee [2019] NZHC 1357 at [1], referring to Associate Judge Johnston adjudicating Mr Memelink bankrupt.
19 Re Memelink, ex parte Haines [2020] NZHC 434.
[23] On 30 October, the applicants filed a Notice of Discontinuance (Notice) saying, “the matter is now mute [sic] and circumstances have changed significantly”. The first and second respondents were insolvent, Luxe One had withdrawn its notice of opposition and the unit owned by Spider Properties had been sold. The applicants did not expect any application for costs but said that any application would be opposed.
Related Proceedings
[24]There are related proceedings as follows:
(i)the 202 Proceedings involved the appointment of the administrator of the Body Corporate;
(ii)the 962 Proceedings involved an interim injunction restraining the sale of the family home of Mr Haines (the lawyer for Mr Memelink and the Trust);20
(iii)Mr Memelink’s bankruptcy (the Bankruptcy Proceedings);21
(iv)the 173 Proceedings involved Mr Memelink seeking the reversal of two decisions by the Official Assignee;22
(v)the 95/162 Proceedings, currently afoot, involve the Body Corporate seeking the removal of the trustees of the Trust and seeking to place the Trust into receivership;23 and
(vi)the 315 Proceedings, also currently afoot, involve the setting aside of five statutory demands made against Mr Haines and related entities.24
20 CIV-2018-485-962 (the 962 Proceedings).
21 The Bankruptcy Proceedings spanned multiple proceedings: CIV-2019-485-773, CIV-2019- 485-173, CIV-2017-485-671, and CIV-2018-485-686.
22 CIV-2019-485-173 (the 173 Proceedings).
23 CIV-2020-485-95 and CIV-2020-485-162 (the 95/162 Proceedings).
24 CIV-2019-485-315 (the 315 Proceedings).
The 202 Proceedings
[25] The 202 Proceedings relate to the appointment of the three different administrators of the Body Corporate. In 2015, five judgments were given in the 202 Proceedings. The applicants in that case were the Body Corporate, SEL, the McKernans, the Scheckters and Mr Geoffrey Arden. The respondents were Mr Memelink and Mr de Vries. Brown J appointed Mr Greenwood as the interim administrator of the Body Corporate with several extensions for the parties to resolve their disputes through the administrator.25 Brown J also made orders based on various recommendations from Mr Greenwood’s reports.26
[26] When Brown J appointed Mr Greenwood as the administrator of the Body Corporate he noted: 27
[27] My consideration of the voluminous documentation filed in this proceeding together with the insights which I have gained from hearing submissions from Mr Memelink and Mr de Vries on a number of occasions has led me to the clear view that the degree of dysfunctionality within BC68792 and the polarisation of the positions of the two sides is such that an order under s 141 is not only warranted but essential. My conclusion has been fortified by the information provided in Mr Greenwood’s reports. …
[27] Costs in the 202 Proceedings were awarded to the applicants on a 2B basis. Brown J noted that Mr Memelink and Mr de Vries “ha[d] come close to but not quite crossed the line which would justify an award of increased costs against them”.28
[28] In 2016, Clark J extended the administration and appointed Mr Naylor as administrator. Costs were awarded to the applicants on a 2B basis against Mr Memelink and Mr Hamilton, who were the trustees of the Trust at the time.29 In her costs judgment, Clark J uplifted costs as “Mr Memelink’s unreasonable conduct in resisting not just an obvious but an inevitable outcome combined with the repetitive and irrelevant submissions on the day of the hearing contributed unreasonably to the time and expense”.30
25 Body Corporate 68792 v Memelink (No 1), above n 7, at [9](e).
26 Body Corporate 68792 v Memelink (No 2) [2015] NZHC 854.
27 Body Corporate 68792 v Memelink (No 5), above n 7.
28 At [35].
29 Body Corporate 68792 v Memelink [2016] NZHC 2146, at [26].
30 Body Corporate 68792 v Memelink [2016] NZHC 2452 (costs), at [13].
[29] In 2017, Clark J issued a results judgment for a further extension of the period of administration.31 Clark J also joined IPL as an applicant to the 202 Proceedings and Luxe One and Spider Properties as the third and fourth respondents, respectively.
[30] In the reasons judgment that followed, Clark J noted that the High Court may appoint an administrator for an indefinite period and may do so where there is dysfunctionality and deadlock.32 She declined to direct that the Body Corporate issue a special levy in respect of administration costs but noted that the actions of Mr Memelink and Mr Kooiman “rendered necessary, the administrator’s acts”.33
The 962 Proceedings
[31] On 21 December 2018, Grice J granted a without notice interim injunction restraining the sale of a home owned by Mr Haines and BPE Trustees Limited.34 Mr Memelink and Lynx, as trustees of the Trust, were the respondents. They had intended to sell the property as mortgagees (the Trust had taken an assignment of one of the mortgages over Mr Haines’ property).
[32] On 11 March 2019, Grice J issued a further interim injunction restraining the sale.35 Costs were awarded to Mr Haines and BPE Trustees with a 50 per cent discount.36
[33] The 962 Proceedings were discontinued.37 Costs were awarded to the respondents on a 2B basis for the preparation, filing and serving of the statement of defence along with reasonable disbursements.38 Grice J reasoned that Mr Memelink was entitled to claim legal expenses as a disbursement as a lay litigant but limited this to legal advice that related to the 962 Proceedings, requiring a “clear narration of the attendances and their nature and extent by the lawyers involved”.39
31 Body Corporate 68792 v Memelink [2017] NZHC 2296 (results).
32 Body Corporate 68792 v Memelink [2018] NZHC 1735 (reasons), at [16], pursuant to Unit Titles Act 2010, s 141.
33 At [38].
34 Haines v Memelink [2018] NZHC 3460.
35 Haines v Memelink [2019] NZHC 401.
36 Haines v Memelink [2019] NZHC 1086, at [11]–[12].
37 Haines v Memelink [2019] NZHC 2802.
38 Haines v Memelink [2019] NZHC 2802 at [68] and [72].
39 At [63].
The 173 Proceedings
[34] Mr Memelink and Lynx applied for a reversal of two decisions of the Official Assignee relating to claims against a deceased’s estate. The application was brought in both Mr Memelink’s personal capacity and on behalf of the Trust, with Lynx also named as an applicant.40 The application was dismissed.
Bankruptcy Proceedings
[35]On 28 August 2018, Mr Memelink was adjudicated bankrupt.
[36] On 14 June 2019, Associate Judge Lester dismissed an application to annul the bankruptcy.41 One disputed debt was owed to the Body Corporate. The Judge noted:42
[60] Mr Memelink did not appear to draw a distinction between his personal assets and the assets of the Trust of which he is a trustee. The Trust Deed is not before the Court. From the titles to the Trust properties that have been produced by Mr Memelink, the trustees are Mr Memelink and Lynx Trustees Ltd. Mr Memelink’s brother-in-law [Mr Bassett-Burr] is the sole director and shareholder of the trustee company.
[37]Mr Memelink was ordered to pay costs to the Official Assignee.43
[38] On 9 March 2020, Mr Memelink was adjudicated bankrupt for a second time for a failure to pay a debt to Mr Haines, resulting from a costs judgment issued in the 962 Proceedings.44
The 315 Proceedings
[39] On 20 May 2019, Mr Bassett-Burr, on behalf of Mr Memelink and Lynx as trustees of the Trust, served five statutory demands on Mr Haines, BPE Trustees and Quentin Haines Properties Limited.
[40] On 30 August 2019, Churchman J set aside the demands as the “purported debts upon which they are based are clearly disputed” and the mortgage in question
40 Memelink v Official Assignee [2019] NZHC 2639.
41 Memelink v Official Assignee [2019] NZHC 1357.
42 At [60].
43 Memelink v Official Assignee [2020] NZHC 97.
44 Re Memelink, ex parte Haines [2020] NZHC 434 at [24] and [35].
upon which the demands were made had been discharged rather than transferred.45 Churchman J also awarded costs against Mr Bassett-Burr in his personal capacity. This was based on the demands being issued improperly and that Mr Bassett-Burr failed to withdraw them when this was brought to his attention.
[41] This decision is under appeal. An application for an order to strike out the appeal was dismissed by the Court of Appeal on 2 June 2020.46 Of note, one of the grounds for the strike-out application was that Mr Memelink was not entitled to bring the appeal in the name of Lynx and that Lynx should therefore not have been named as an appellant.47 The Court of Appeal declined to make the order to strike out but removed Mr Memelink and Lynx as appellants, substituting them with Mr Bassett-Burr.
The 95/162 Proceedings
[42] In the 95/162 Proceedings,48 the Body Corporate made a without-notice application seeking orders to appoint receivers of the Trust and to remove and replace the trustees of the Trust, Mr Memelink and Ms Cisca Forster.
[43] On 20 March 2020, Clark J dismissed the application although acknowledging the urgency. She noted that, without detailed pleadings, the issues and the basis on which the respondents in that case might contest their removal or the appointment of a receiver were unclear. Clark J instead directed that the matter proceed by way of a statement of claim and a statement of defence. The proceedings remain afoot.
Does Mr Memelink have the authority to act on behalf of the Trust?
[44] Until the Substantive Application was discontinued, Mr Memelink and Lynx acted on behalf of the Trust as trustees and were the registered proprietors of the six units in the Development.49 On 10 September 2019, Lynx was placed into liquidation.
45 Haines v Memelink [2019] NZHC 2169 at [33].
46 Memelink v Haines [2020] NZCA 205.
47 This point is discussed further below at [52].
48 Body Corporate 68792 v Memelink [2020] NZHC 594.
49 As at 2 July 2019. See Lynx Trustees Limited v Body Corporate 68792 [2019] NZHC 1521 at [2].
[45] Mr Memelink purports to act on behalf of the Trust in seeking costs against the applicants. However, the memorandum filed by counsel for the liquidators of Lynx states that “[t]he memorandum as to costs filed by Mr Memelink was not filed on behalf of Lynx and does not represent Lynx’s position”. The question is whether Mr Memelink has the authority to seek costs on behalf of the Trust. The issue is one of trustee unanimity; trustees must act unanimously unless the trust instrument provides otherwise.50
[46] The further complicating factor is that Lynx may no longer be a trustee of the Trust. There is allegedly a deed (the Deed), dated 26 August 2019, by which Lynx resigned as trustee and was replaced by Ms Cisca Forster.
[47] If the Deed is invalid, then Lynx is a trustee and there is no trustee unanimity on the question of costs. If the Deed is valid then Ms Forster is a trustee but there is no evidence of her position on costs.
Is Lynx a trustee of the Trust?
[48] Throughout most of the Substantive Application, Lynx is referred to as the corporate trustee of the Trust. The liquidators say they were provided with the Deed but reserved their position on it.
[49] On 20 March 2020, in the 95/162 Proceedings, the liquidators of Lynx filed a memorandum, noting that they had received the Deed and referred to “[Lynx]’s previous role as a trustee of the Trust”. Mr Memelink and Ms Forster are the named respondents as trustees of the Trust.
[50] On 2 June 2020, in the 315 Proceedings, Mr Memelink’s authority to act on behalf of Lynx was challenged by both the respondents in those proceedings and the liquidators. This was on the basis that “[Lynx] had ceased being a trustee of the Link Trust No 1 on 26 August 2019…”.51 The Court of Appeal judgment concluded that
50 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers NZ, Wellington, 2013) at 122. See also Luke v South Kensington Hotel Co (1897) 11 Ch 121 (CA).
51 Memelink v Haines [2020] NZCA 205 at [4].
Mr Bassett-Burr was the correct party to the appeal but made no further comment as to the nature of Lynx’s relationship with the Trust.
[51]There are, however, doubts over the validity of the Deed.
[52] On 20 March 2020, a judgment in the 95/162 Proceedings noted that the administrator of the Body Corporate raised doubts over the validity of the Deed.52
[53] On 16 October 2019, in a judgment in the 173 Proceedings, Associate Judge Johnston found that Lynx and Mr Memelink were trustees until mid-2019, before commenting, “but I am informed that since then the Trustees have been Mr Memelink and Ms Cisca Forster”.53 But, in making the order to join Ms Forster as a third-named second applicant, Associate Judge Johnston noted he was “relying on Mr Memelink’s assertion as to her appointment”.54 There was no mention of any deed.
[54] In a judgment in the 962 Proceedings55 released six weeks prior to the filing of the memoranda regarding costs, Mr Memelink is recorded to have stated only an intention to replace Lynx as trustee of the Trust.56 The Judge noted the liquidators also said they would oppose such a replacement.57 The hearing was on 18 October 2019 and the judgment was given on 31 October 2019. The Deed was not mentioned despite the case being heard and the judgment being given after 26 August 2019, the day on which the Deed is said to be dated.
[55] In the absence of the Deed being provided to this Court and without hearing from Ms Forster, the purported new trustee, I am unable to come to a definitive conclusion on the validity of the Deed and whether Lynx remains a trustee of the Trust. I will proceed on the assumption Lynx was not removed as trustee and then address the position in the alternative. Both paths lead to the same conclusion; Mr Memelink does not have the authority to act on behalf of the Trust in seeking costs against the applicants.
52 Body Corporate 68792 v Memelink [2020] NZHC 594 at [4](g).
53 Memelink v Official Assignee [2019] NZHC 2639 at [2](b).
54 At [4](b).
55 See above for a summary of the 962 Proceedings at [31]–[33].
56 Haines v Memelink [2019] NZHC 2802 at [19].
57 At [19].
[56] If Lynx was not removed as trustee, then it will remain a trustee unless there is a provision in the Trust’s deed stating Lynx will cease to be a trustee upon insolvency. The Trust deed has not been made available to the Court. For completeness, I note that, as a trustee company in liquidation, Lynx will be unfit to be a trustee.58 The Court has the power to remove Lynx as trustee under the Trustees Act 1956 or under its inherent jurisdiction.59 However the removal of trustees is beyond the scope of this Costs Application and is a matter being considered in the 95/162 Proceedings.60
[57] If Lynx remains as trustee, then the next issue is whether the liquidators stepped into the role as trustee when they stated that Mr Memelink’s position, in seeking costs, does not represent the position of Lynx.
[58] From the commencement of liquidation, a liquidator has custody and control of the company’s assets.61 A liquidator also has all the powers necessary to carry out the functions and duties of a liquidator and the powers conferred on a liquidator by the Companies Act.62 In practice this means adopting all the duties of the directors, which include the duties as a trustee. The liquidator of a trustee company thus has the power to administer the trust of which the company was a trustee.63
[59] In Commissioner of Inland Revenue v Newmarket Trustees Limited, the Court of Appeal canvassed English and Australian cases on this point.64 The Court observed:65
58 Commissioner of Inland Revenue v Newmarket Trustees Limited [2012] NZCA 351 at [69].
59 Trustees Act 1956, s 51(2)(e). See also In re Henderson [1940] 1 Ch 764 and Sapio v Carter [1959] NZLR 848. For the ability of a court to remove a trustee under its inherent jurisdiction, see Butler (ed), above n 50, at 122.
60 See above for a summary of the 95/162 Proceedings at [42]–[43].
61 Companies Act 1993, s 248.
62 Section 260 and sch 6.
63 Commissioner of Inland Revenue v Newmarket Trustees Limited, above n 58, at [71]–[72]. This position, that “a liquidator of a corporate trustee apparently has power to conduct a trusteeship vested in the company” is also the position in England and Wales: Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [22-018]–[22-019]. However, the learned authors in Lewin on Trusts note the reasoning of this “may be questionable, as the liquidator’s duty is to get in and distribute the company’s own assets amongst its creditors and contributories, but the convenience of the result is obvious”. In Australia, in the exercise of trusteeship, the liquidator also has a separate duty to act in a responsible way regarding the trust property and may be liable for a breach of that duty: Re Crest Realty Pty Ltd [1977] 1 NSWKR 664 and Porter v Miller Street Pty Ltd [2008] FCAFC 77.
64 Commissioner of Inland Revenue v Newmarket Trustees Limited, above n 58.
65 At [71]–[72] (footnotes omitted).
[71] In respect of the question of the removal of a corporate trustee in liquidation, the Australian courts have recognised that, as the trust property does not vest in the liquidator, the liquidator of a corporate trustee has the power to administer the trust of which the company was trustee and hence there may be circumstances in which the company should remain as trustee with the liquidator administering the trust until a new trustee is appointed.
[72] None of the Australian cases have suggested, however, that an insolvent trustee company should not be put into liquidation. In each case the question has been whether the company in liquidation should remain as trustee. This question has involved consideration of the administration of the trust in the interests of the beneficiaries. Again, we consider a similar approach should be followed in New Zealand.
[60] With the ability to administer a trust, it follows that the liquidators will step into the shoes of the trustee. Therefore, the views expressed by the liquidators, that Mr Memelink’s position does not represent the position of Lynx, are the views of the trustee. There is no trustee unanimity in respect of Mr Memelink’s application for costs on behalf of the Trust.
[61] In the alternative, that the Deed was valid, then Ms Forster would be the trustee. The issue is that there is no evidence of agreement between Mr Memelink and Ms Forster on the decision to seek costs for the Trust. Ms Forster has made no submissions as to costs nor has she taken any part in the Substantive Application.
[62] As well as the duty to act unanimously (unless a trust instrument provides otherwise),66 trustees also have a duty to actively participate in trust-related decision-making.67
[63] The Trust deed is not before the Court. Ms Forster has made no submissions. Mr Memelink’s memorandum on costs makes no reference to her. For these reasons I am unwilling to conclude that Mr Memelink had the authority to act on behalf of the Trust in seeking costs.
66 Luke v South Kensington Hotel Co, above n 50.
67 Butler (ed), above n 50, at 134 and Selkirk v McIntyre [2013] NZHC 575 at [39]–[45].
Should the Costs Application against Lynx be stayed?
[64] The applicants seek costs against “Mr Memelink and the other trustee”. If the trusteeship has, in fact, changed hands, then there would be no claim against Lynx but against the new trustee.
[65] On the basis that Lynx remains a trustee, the liquidators say that proceedings against Lynx should be stayed and that any costs against Lynx should be sought by way of filing a claim in the liquidation. The liquidators reason that, unless this Court orders otherwise, any claimed costs against them is barred by s 248(1) of the Companies Act which states:68
248 Effect of commencement of liquidation
(1)With effect from the commencement of the liquidation of a company,—
(a)the liquidator has custody and control of the company’s assets:
(b)the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part:
(c)unless the liquidator agrees or the court orders otherwise, a person must not—
(i)commence or continue legal proceedings against the company or in relation to its property; or
(ii)exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:
…
[66]The liquidators do not agree to the continuation of the Costs Application.
[67] In my view, the liquidators have misconstrued the position. Section 248 bars claims against the company or when exercising rights over the company’s property. However, the Costs Application is against Lynx in its capacity as trustee.69 Any award
68 Emphasis added.
69 Moreover s 248 does not prevent the Court from making an order as to costs. The logic is that costs follow the event and are a consequence of proceedings, rather than legal proceedings themselves: see Linda Howes and others Brookers Company and Securities Law (looseleaf ed,
of costs against Lynx would be an expense incurred in its capacity as trustee. Lynx would be indemnified from the Trust’s assets. In a memorandum filed in the 95/162 Proceedings, the liquidators said they had lodged caveats against the properties of the Trust on this basis.
[68]For these reasons, the Costs Application against Lynx is not stayed by s 248.
Does Mr Memelink’s bankruptcy affect his role a trustee?
[69] Mr Memelink’s status as an undischarged bankrupt does not affect his role as a trustee. Ordinarily, bankruptcy is a ground for removal of a trustee by a court.70 The retention of a bankrupt trustee will rarely be in the interests of the beneficiaries.71 As stated above, the Body Corporate has applied for Mr Memelink to be removed as a trustee of the Trust.72 The Body Corporate has also sought the appointment of receivers for the Trust.73
[70] The Official Assignee made the following observation in a memorandum dated 18 July 2019:74
It seems that ownership of Mr Memelink related properties in the Body Corporate seem to be owned by the Link No 1 Trust to which Mr Memelink and Lynx Trustees Limited are the Trustees. The titles and other information reviewed by the Official Assignee seem to confirm that Mr Memelink’s involvement in this proceeding would be in his capacity as trustee of the Link No 1 Trust and or about personal actions/conduct of Mr Memelink that don’t seem to involve for now, his bankruptcy.
[71] The Official Assignee concluded that she did not have a part to play in the Substantive Application. She also registered caveats against the units owned by the Trust and noted:
Brookers) at [CA248.03], referring to Ōrākei Group (2007) Ltd v Doherty [2008] ERNZ 505 (EC) at [34]–[36].
70 Trustees Act 1956, s 51(2)(d).
71 Dawson v Paul [2014] NZHC 15 at [22], citing Baragwanath J in Commissioner of Inland Revenue v Chester Trustee Services Ltd [2003] 1 NZLR 395 (CA) at [64].
72 See above for a summary of the 95/162 Proceedings at [42]–[43].
73 Body Corporate 68792 v Memelink [2020] NZHC 594.
74 The memorandum stated the Official Assignee’s position in the Substantive Application as being that the Substantive Application did not involve the Official Assignee as the Substantive Application involved Mr Memelink in his capacity as trustee. Moreover, the Official Assignee had registered caveats against the relevant units.
The caveatable interests arise out of a trustee’s right of indemnity from the Trust as to claims filed in Mr Memelink’s bankruptcy that relate to any provable claims against Mr Memelink acting in his capacity as trustee.
[72] Any costs against Mr Memelink, in his capacity as trustee, will be payable from the Trust’s assets.
Should costs be awarded to the Trust?
[73] Although Mr Memelink does not have the authority to represent the Trust, I will nevertheless address Mr Memelink’s application for costs.
[74] Mr Memelink claims costs on a 2B basis for the costs of the Trust’s legal representation. One set of costs is for legal representation by Mr Haines from the commencement of the Substantive Application until August 2018 plus a 50 per cent uplift. Another set of costs totalling $2,110.05 is for services rendered by Holland Beckett Law from 13 February 2019 to 28 August 2019. The invoice for these costs was addressed to First Mortgage Trust, which, Mr Memelink submits, is the lender to the Trust. Finally, Mr Memelink also claims “actual costs” during the period the Trust was “self-represented” by Mr Memelink as trustee. These “actual costs” include the purchase of a printer/scanner, photocopy paper and hiring a reader-writer assistant.
The law
[75] There is a presumption that a defendant is entitled to costs in proceedings which are discontinued (the r 15.23 Presumption):
15.23 Costs
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[76] The r 15.23 Presumption can be displaced where it is just and equitable for a court to make such an order.75 Toogood J recently summarised the relevant principles arising from case law on this issue:76
(a)The reasonableness of the parties’ stances will be taken into account; whether it was reasonable for the plaintiff to bring and continue the proceeding and whether it was reasonable for the defendant to oppose it. It is not sufficient for the plaintiff to show merely that it had reasonable grounds to believe it would be the successful party.
(b)Conduct prior to the commencement of the proceedings may be relevant.
(c)The Court will not consider the merits of the respective cases unless they are so obvious that they should influence the costs outcome.
(d)The reason for discontinuing the proceeding may be relevant. For example, there may have been a change of circumstance rendering continuation of the proceeding unnecessary.
Discussion
[77] The applicants commenced the Substantive Application due to the continuing dysfunction and conflict of the Body Corporate. The building warrant of fitness had not been obtained, allegedly due to the conduct of Mr Memelink. Levies owed by the Trust continued to be outstanding. The court-appointed administrators had administered the Body Corporate for over two years with no resolution of the disputes. Expert evidence filed in December 2017 also suggested that the “highest and best use for the site [was] for redevelopment, as such, it is most likely to achieve a better return for its owners if it is sold as a redevelopment site”. At that time, the prior administrator of the Body Corporate had information that a buyer was interested in acquiring the Development. For the applicants, the sale was therefore the only equitable and sensible way to bring an end to the decade-long dispute.
[78] There was seemingly no alternative to resolving the underlying disputes, which involved Mr Memelink, without resorting to litigation. Mr Naylor, a former
Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12],
[14] and [29] and Human Resources Institute of New Zealand Inc v Elephant Training & HR Ltd
[2016] NZCA 347 [“HRINZ Court of Appeal decision”] at [13].
76 Royal Forest and Bird Protection Society of New Zealand Inc v Northland Regional Council
[2019] NZHC 449 at [7]
administrator of the Body Corporate, had suggested litigation to settle the disputes. Mr Greenwood, his predecessor, also supported this action.
[79] A judicial minute issued on 24 July 2019 suggested engaging in alternative dispute resolution, although at that time key members of the applicants were overseas.77 This suggestion was reiterated in a subsequent minute on 6 September 2019.78
[80] However, contradictory submissions were made by the applicants and Mr Memelink as to alternative dispute resolution. Mr Memelink suggested that the applicants had declined mediation and that he had offered to purchase the units owned by the applicants. The applicants contended that Mr Memelink had neither suggested mediation, nor made any such offer.
[81] By 29 August 2019, three of the four respondents were either declared bankrupt or in the middle of insolvency proceedings. The fourth respondent, Spider Properties, was in the process of selling its unit. The applicants therefore reasoned that, by October 2019, it was conceivable that the interests in the Development would be held by assignees or liquidators and therefore that the dissolution of the Body Corporate and sale of the title to the Development was in the best interests of all parties.
[82] The applicants justified their decision to discontinue proceedings by noting that circumstances had “changed significantly”. Two respondents were now insolvent. Luxe One had withdrawn its opposition to the Substantive Application. The unit owned by Spider Properties had sold.
[83] The position is analogous to that in Warin v Warin.79 In that case, a plaintiff had been awarded summary judgment and a sale order was made over the defendant’s property. The defendant applied to restrain the sale. The plaintiff eventually discontinued the sale order proceedings. The Court held the discontinuance to be
77 Synergy Enterprises Ltd v Memelink HC Wellington CIV 2017-485-1048, 24 July 2018 (Minute of Thomas J) at [6].
78 Synergy Enterprises Ltd v Memelink HC Wellington CIV 2017-485-1048, 6 September 2019 (Minute of Thomas J) at [8].
79 Warin v Warin [2019] NZHC 2875.
reasonable as it was “uneconomic” to pursue it, given the bankruptcy proceedings and the Property Law Act notices issued against the defendant.
[84] In the present case, the Substantive Application was for the division and sale of the Development in order to move on from the decade-long difficulties. Mr Memelink had (allegedly) caused the applicants significant costs as alluded to in these and the related proceedings. The applicants were placed in an impossible position. But with Mr Memelink and Lynx insolvent and the Trust owing substantial Body Corporate levies, it would be uneconomic to proceed to a hearing of the Substantive Application.
[85] Furthermore, the context suggests it would be just and equitable not to award costs to the respondents.80 Due consideration must be given to how the respondents, in particular Mr Memelink, have acted. There is no doubt that the actions of Mr Memelink and, to a lesser degree, the other respondents precipitated the Substantive Application. In fact, the Substantive Application was an escalation of matters after the court-appointed administrator of the Body Corporate had been unable to alleviate the dysfunction of the Body Corporate.
[86] To summarise, the r 15.23 Presumption is that costs should be awarded against the party who discontinues proceedings. In the present case, it is just and equitable to displace this presumption. The applicants acted reasonably when they commenced the Substantive Application and when they discontinued it.
[87] Even if the presumption were not displaced, the Trust would not be able to recover costs for the following reasons.
[88] First, the costs relating to Mr Haines lack an evidential foundation. The applicants submit that there are doubts Mr Memelink owes money to Mr Haines for his legal services, given that Mr Memelink has claimed Mr Haines acted fraudulently and that Mr Memelink “ought to have no liability to him”. In addition, there is no formal invoice for services rendered.
80 FM Custodians Ltd v Pati [2012] NZHC 1902, at [29].
[89] Secondly, the Trust would only be entitled to disbursements but not costs for the times Mr Memelink purportedly represented it. Successful litigants in-person can recover disbursements but not costs.81 While there may be exceptional circumstances that justify departing from this rule,82 no such circumstances exist in the present case. Therefore, the Trust would not be able to claim costs but only disbursements.
[90] Thirdly, I would not be prepared to exercise the Court’s discretion to award disbursements to the Trust. Mr Memelink claims the purchase of the printer/scanner, photocopy paper and the hiring of a reader-writer assistant as disbursements. Although this Court has taken a “liberal approach” when awarding disbursements for lay litigants,83 the conduct of Mr Memelink, as discussed above, weighs against the exercise of the discretion under r 14.1 to order that Mr Memelink’s disbursements be paid by the applicants.
[91] For these reasons, the Trust is not entitled to any costs or disbursements against the applicants. It is therefore unnecessary to address Mr Memelink’s claim for a 50 per cent uplift of costs.
Should costs be awarded to the applicants?
[92] The applicants also seek costs. The applicants submit that, through the course of the Substantive Application, the total costs paid were $83,748.00.84 The applicants calculate $16,502.00 of costs on a 2B basis. The applicants add that “[i]f the Court is to award costs to the Applicants a substantial uplift is respectfully sought”.
The law
[93] The Court retains a general discretion in r 14.1 as to costs, which overrides general principles relating to discontinuance.85 Having found the r 15.23 Presumption
81 McGuire v Secretary for Justice [2018] NZSC 116, [2019] 1 NZLR 335.
82 McGuire v Secretary for Justice at fn 42, referred to in Haines v Memelink [2019] NZHC 2802 at [61]. See also Re Collier (a bankrupt) [1996] 2 NZLR 438 (CA) at 441–442.
83 Knight v Veterinary Council of New Zealand (31 July 2009) HC Wellington CIV-2007-485-1300, Clifford J at [8].
84 The invoices themselves were not attached.
85 Oggi Advertising Limited v McKenzie (1998) 12 PRNZ 535 (HC) at 536; FM Custodians Ltd v Pati, above n 80, at [12]; and Kroma Colour Prints Ltd v Tridonicatco NZ Ltd, above n 75, at [12].
is displaced, the question is whether this discretion should be exercised to award costs to the applicants.
[94] Human Resources Institute of New Zealand Inc v Elephant Training & HR Ltd (HRINZ v ETHRL) is a useful case in this analysis.86 Costs (up to a specific date) were awarded to HRINZ, the party who discontinued proceedings. ETHRL attempted to set up an organisation in competition with HRINZ. “Chartered Human Resources Institute” was its proposed name. HRINZ claimed this breached the Fair Trading Act 1986. Within ten days, ETHRL agreed not to use the proposed name via a letter dated 9 October 2014, yet proceedings continued for months before HRINZ applied for leave to discontinue.
[95] This Court, upheld on appeal,87 held that the plaintiffs acted reasonably up until 9 October 2014 when the substantive complaint had been resolved. Actions after that point were not reasonable and did not displace the r 15.23 Presumption. HRINZ kept proceedings alive due to its “desire to widen the ambit of the settlement negotiations beyond the issue of the name of the new organisation”.88 The Court awarded costs to HRINZ up until 9 October 2014 and the defendants were entitled to costs after that date.
[96] In Jaundzems v Clapshaw, the plaintiffs discontinued proceedings seeking an order that a single share in a company be transferred to them.89 The discontinuance occurred after one of the defendants executed the share transfer on their own accord. The plaintiffs then applied for costs on the basis that the defendants conceded to their demands. The defendants opposed the application on the basis the proceedings had been commenced unreasonably.
[97] The Court held that, while the plaintiffs did have an arguable claim, the defendants acted reasonably in defending the proceeding, noting that proactively executing the share transfer was more reasonable than incurring the significant cost of
86 Human Resources Institute of New Zealand Inc v Elephant Training & HR Ltd [2015] NZHC 2636 [“HRINZ High Court decision”].
87 HRINZ Court of Appeal decision, above n 75.
88 HRINZ High Court decision, above n 86, at [20].
89 Jaundzems v Clapshaw [2012] NZHC 3239.
defending a High Court proceeding.90 Therefore the presumption was not displaced, “or certainly not to the extent that the plaintiffs should be entitled to costs”.91 To balance both positions, and as the defendants did not seek costs, the Court ordered costs to lie where they fell.
Discussion
[98] I have concluded that the commencement and discontinuance of the Substantive Application was reasonable in the context of all the circumstances, thus displacing the r 15.23 Presumption.92 However, having discontinued, the applicants would not in the usual course be entitled to costs.
[99] A relevant consideration is the change in the percentage of unit owners that supported the Substantive Application. Although the Unit Titles Act requires only one owner of a unit in a body corporate to apply to this Court to make an order for the dissolution of a body corporate and cancellation of a unit plan,93 a clear majority is an important factor when deciding whether it is “just and equitable” to make such an order, among other considerations. 94
[100] As at 24 July 2019, the applicants believed they represented around half the unit owners.95 By the time the applicants discontinued the Substantive Application in October 2019, the applicants acknowledged they comprised less than half of the unit owners.96 At least one of the applicants discontinued their involvement in the Substantive Application in July 2018 and there are doubts whether the applicants ever constituted a majority of the owners of the Body Corporate to begin with.
90 Jaundzems v Clapshaw, above n 89, at [19]–[20].
91 At [23].
92 See above at [73]–[86].
93 Unit Titles Act 2010, s 187(1)(c).
94 Compare Re Body Corporate 44426 [2015] NZHC 3284 where the Court cancelled the unit plan for the Phoenix Timeshare Resort. The application to the Court seeking that order was unopposed. Compare also Re Body Corporate 46051 [2019] NZHC 922 the Court upheld a resolution, passed by “well over 75 per cent” of unit owners, to dissolve Body Corporate 46051 and cancel the underlying unit plan for the Village Resort.
95 Synergy Enterprises Ltd v Memelink HC Wellington CIV 2017-485-1048, 24 July 2019, (Minute of Thomas J) at [3].
96 Synergy Enterprises Ltd v Memelink HC Wellington CIV 2017-485-1048, 6 September 2019, (Minute of Thomas J) at [2].
[101] It is difficult to speculate as to whether a majority of the unit owners would have supported the Substantive Application had it proceeded to a full hearing. It is also difficult to speculate whether, at a full hearing, this Court would have nevertheless found it “just and equitable” to dissolve the Body Corporate and cancel the underlying unit title if only a minority of unit owners supported the Substantive Application.
[102] This conflict has lasted for an extensive period. The Substantive Application was almost two years old before its discontinuance. Unlike in HRINZ v ETHRL, there was no point during the Substantive Application when the substantive complaint was resolved. There was not a clear turning point after which the continuation of proceedings was “unreasonable”.
[103] The present case is also distinguishable from Jaundzems v Clapshaw where the defendants took the initiative to resolve the dispute and avoided the costs of court hearing. Unlike those defendants, none of the respondents ever took any such proactive steps to bring a practical resolution to the dispute. In fact, the actions of the respondents delayed proceedings on several occasions.
[104] Despite the actions of Mr Memelink and the delays caused in the Substantive Application by all the respondents, the fact remains that the applicants discontinued proceedings and represented less than half of the unit owners in the Body Corporate by the time they did so. While the actions of the respondents, in particular Mr Memelink, are sufficient to displace the r 15.23 Presumption, this is not to the extent that an award of costs to the applicants is justified.
[105] I am satisfied the appropriate result is that costs should lie where they fall. It is therefore unnecessary to address the issue as to whether a “substantial uplift” should be awarded.
[106] For completeness, I note that if costs were awarded, there would be some practical difficulty in enforcing the award. Costs would be awarded against the Trust. The practical difficulty might arise given the 95/162 Proceedings97 that are underway which seek to place the Trust into receivership due to unpaid body corporate levies.
97 See [42]–[43] above for a summary of the 95/162 Proceedings.
Result
[107]For the reasons given, costs are to lie where they fall.
Thomas J
Solicitors:
Wotton Kearney, Wellington for Applicants
Meredith Connell, Auckland for Second Respondent
And to: Steve Gill Law, Lower Hutt for Mr Gambitsis (Administrator)
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