Young v Body Corporate 197217 HC Auckland CIV 2007-404-001874
[2008] NZHC 2253
•27 March 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2007-404-001874
IN THE MATTER OF the Insolvency Act 1967
BETWEEN WAYNE GEORGE YOUNG Debtor
AND BODY CORPORATE 197217
Creditor
Hearing: 27 March 2008
Appearances: Debtor in Person
T J G Allan for Creditor
Judgment: 27 March 2008 at 4.15pm
(ORAL) JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by Associate Robinson on 27 March 2008 at 4.15 p.m., pursuant to
r 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Grove Darlow & Partners, P O Box 2882, Auckland
W Young, 1A/10 Ruskin Street, Waterford Apartments, Parnell, Auckland 1052
WAYNE GEORGE YOUNG V BODY CORPORATE 197217 HC AK CIV 2007-404-001874 27 March 2008
[1] The creditor is the body corporate consisting of the owners of individual units in a building at 10 Ruskin Street, Parnell. The debtor is the owner of Unit 1A in that building. Pursuant to the judgment of the District Court at Auckland delivered on
15 February 2007, the debtor was ordered to pay the body corporate $3,494.70 with interest thereon, together with costs. The amount of the judgment was made up of the following:
a) Unpaid partial body corporate levy $1,820.00 b) Balance Grove Darlow’s legal fees $ 853.09 c) Body corporate secretary’s fees $ 731.25
[2] Because of the debtor’s failure to pay the amount of that judgment, a bankruptcy notice was issued by the body corporate on 12 April 2007. By that time, the amount owing was $9,815.18. The extra amount being costs and interest.
[3] On 14 June 2007, an application filed by the debtor and called a notice of intention to oppose a petition, was dealt with on the basis that the application was to set aside the bankruptcy notice. The ground advanced by the debtor in support of the application to set aside the bankruptcy notice, was that he had issued proceedings against a number of parties, not including the body corporate, and that he anticipated receiving sufficient from those proceedings to satisfy the debt owing to the body corporate. However, the ground advanced in support of the application to set aside the bankruptcy notice was that the debtor had a claim set off or cross demand against the body corporate in the proceedings that were pending in the High Court. At that time, the body corporate had not been joined as a party to those proceedings. Consequently, the debtor did not have a claim set off or cross demand against the body corporate that was pending at that time. Consequently, the application to set aside the bankruptcy was dismissed.
[4] Associate Judge Sargisson, in her decision dismissing the application to set aside the bankruptcy notice, made the following comments at paragraph 5 of her decision:
Any claim Mr Young (the Debtor) may have against the defendants in that proceeding does not provide him with a ground for setting aside the bankruptcy notice in this proceeding. In order to establish a counterclaim or set-off, s 19 makes clear that any claim that the judgment debtor relies on as a counterclaim, set-off or cross claim for the purpose of seeking an order setting aside the bankruptcy notice must be a claim against the judgment creditor.
[5] Because the debtor did not comply with the bankruptcy notice, the body corporate issued these proceedings to bankrupt the debtor. In support of the petition, the body corporate relied upon the act of bankruptcy in that the debtor had failed within the requisite time to satisfy the amount claimed in the bankruptcy notice or to satisfy the Court that he had a counterclaim set-off for cross demand against the body corporate which equals or exceeds the sum claimed in which he could set up in the action or proceedings in which the judgment was obtained.
[6] The debtor opposes the petition and seeks a stay of the petition pending the resolution of proceedings he has in this Court against a number of parties. In those proceedings, he has now joined the body corporate as an eighth defendant. That order was made on 9 October 2007.
[7] As the petition was issued on 20 July 2007 before the coming into effect of the Insolvency Act 2006, the petition falls for determination under the provisions of the Insolvency Act 1967. Pursuant to s 26, subsection 2, the Court may dismiss the petition if:
a) The Court is not satisfied that the allegations stated in the creditor’s petition have been proved; or
b) Is satisfied that the debtor is able to pay his debts; or
c) That it is just and equitable not to make an order of adjudication or that for other sufficient cause, no order ought to be made.
[8] At the hearing before me, the debtor initially acknowledged that he had not paid the debt referred to in the body corporate’s petition and that he was unable to pay his debts. Later in the hearing, the debtor attempted to establish that he had paid
the amount claimed by the body corporate in its petition. In support of that contention, he produced to the Court a receipt from Messrs Grove Darlow & Partners dated 19 December 2005 for payment of $9,768.50. On perusing the judgment of the District Court delivered on 15 February 2007, it is patently obvious that the
$9,768.50 paid by the debtor on 19 December 2005 was taken into account by the Court when concluding that the debtor was liable for the sum of $3,494.70 and interest. At paragraph 13 of the judgment, reference is made to that payment in the following way:
[13] The first purported defence in respect of the claim for $1,820 is that there has been double counting. He says that he may have already paid the sum of $1,820 when he paid the sum of $9,768.50 to the creditor. The sum of $9,768.50 was paid to the creditor on 19 December 2005 which is before the date of the notice of 31 March 2006.
[14] Accordingly, it is not possible for him to have included the sum of
$1,820 in the $9,768.50 which was paid on 19 December 2005, because at that time, he did not know what the first instalment would amount to.
[9] The debtor has filed voluminous affidavits in his opposition to the body corporate’s petition. In none of those affidavits has he suggested that he has paid the amount referred to in the body corporate’s petition. In view of his acknowledgement at the commencement of the hearing that the sum had not been paid, and in view of the fact that at no stage until later in the hearing did he claim that the sum had been paid, I conclude that the debt is still outstanding.
[10] The debtor has not produced any evidence to establish that he has solvent and able to pay his debts. In fact, he informed me at the commencement of this hearing that he was unable to pay his debts. Consequently, the first two basis upon which a debtor can defend the petition have not been made out because I am satisfied that the allegations contained in the body corporate’s petition have been proved and that the debtor is unable to pay his debts.
[11] The only defence to this petition is a claim by the debtor that it is just and equitable not to make an order of adjudication and that there are other sufficient causes justifying the refusal on the petition.
[12] Just prior to the hearing, the debtor applied for a stay of the petition. Counsel for the body corporate acknowledged that in appropriate circumstances, the Court could stay the petition. It was also acknowledged on behalf of the body corporate that one of the grounds justifying a stay would be to await the outcome of other proceedings instituted by the debtor for recovery of money which would enable the debtor to pay the amount claimed in the creditor’s petition.
[13] In support of his claims that it is just and equitable and that there are sufficient grounds for refusing the petition or ordering a stay, the debtor relies on other proceedings he has brought which are pending in this Court. Those proceedings are brought by the debtor against a number of defendants including the Auckland City Council, architects and now the body corporate for the cost involved in remedying defects in the construction of the debtor’s unit. The debtor has produced a draft report regarding the weather tightness of his unit. From that report and from the evidence produced to me at this hearing, it is clear that the units at Ruskin Street have been the subject of claims against contractors and others arising out of the failure of the units to be weather tight.
[14] The body corporate has from time to time levied the individual unit holders for costs involved in remedying the defects. The debtor claims that the body corporate was negligent in the way it arranged for the defects to his unit to be remedied and brings his claim against the body corporate on that basis.
[15] The body corporate is not a building contractor. It is made up of the individual unit holders and its function is to, amongst other things, operate the units. In the exercise of its function, there have from time to time been meetings of unit holders when decisions have been made with regard to remedying the defects alleged to have occurred in the construction of the units.
[16] It is also clear that work is still in progress in remedying the defects to the units.
[17] I am required to determine whether in those circumstances it is just and equitable to stay or dismiss the body corporate’s petition to enable the debtor to
continue with his action against the body corporate and others. In this respect, I must take into account the fact that failure on the part of the debtor to pay his levies to the body corporate places a corresponding burden on the other unit holders to make up the deficiency. Furthermore, if the debtor is successful in his action, most if not all funds recovered must be applied by the debtor to rectifying the defects in his unit. Only when those defects have been rectified should any surplus be applied to payment of his other creditors, including payment of the outstanding levies. As a member of the body corporate, if the debtor is successful in his action against the body corporate, he will be required to make an appropriate contribution to the amount he is to receive.
[18] As the debtor has acknowledged being unable to pay his debts, it maybe possible for the defendants in the proceedings he has commenced to obtain an order for security under Rule 60 High Court Rules. If such an order was made, the proceedings commenced by the debtor would be stayed.
[19] As pointed out by Master Kennedy Grant in Re Fox, ex parte Commissioner of Inland Revenue (2001) 20 NZTC 17, 230, it is for the debtor to satisfy the Court that it is just and equitable not to make an order of adjudication or that there are other sufficient causes justifying refusal of the petition.
[20] In that case, Master Kennedy Grant pointed out that in the exercise of its discretion, the Court should consider the interests of those directly concerned, namely the petitioner, other creditors, the debtor and also the wider public interest.
[21] As already pointed out, an unusual feature in this case must be the relationship between the debtor and the body corporate. The debtor is insolvent. At a very late stage in these proceedings, he has decided to join the body corporate as an additional defendant to other proceedings so that he can obtain a stay of these proceedings. He has produced no evidence to establish the strength of his claim against the body corporate or indeed against the other defendants in those proceedings. As he is impecunious, he could obtain legal aid to fund legal representation.
[22] There appears to be no dispute as to the claim that the units are leaking. The body corporate is in the process of attending to those defects. In those circumstances, it would be preferable for the members of the body corporate to pull their resources to funding costs of repairs and costs of obtaining contributions to those repairs from those who are ultimately responsible, rather than be involved in bitter disputes and costly litigation between themselves. Of course, if the debtor had a legal opinion establishing a strong claim, there would be good grounds for considering his request to dismiss or stay the petition. In the absence of such an opinion, I conclude that he has not established to be just and equitable or there to be sufficient other cause to either stay the petition or dismiss the petition.
[23] The granting of this petition does not necessarily result in the dismissal of the proceedings by the creditor against the body corporate and others in respect of the leaks to his unit. In appropriate circumstances, those proceedings can be continued by the Official Assignee. However, the Official Assignee is unlikely to continue unmeritorious proceedings.
[24] For the reasons I have given therefore, the application to stay the petition is dismissed. The petition is granted and the debtor is now adjudicated bankrupt.
Associate Judge Robinson
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