Flat Bush Finance Limited v Body Corporate 172108 [2021] NZCA 622 (24 November 2021)

Last Updated: 30 November 2021

IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA

CA360/2021 [2021] NZCA 622

	BETWEEN	FLAT BUSH FINANCE LIMITED Applicant
	AND	BODY CORPORATE 172108 Respondent

Court:	Kós P and Clifford J
Counsel:	K P Sullivan for Applicant J B Orpin-Dowell and T J G Allan for Respondent
Judgment: (On the papers)	24 November 2021 at 10.30 am

JUDGMENT OF THE COURT

1. The application for leave to appeal is declined.
2. The applicant must pay the respondent costs for a standard application on a band A basis with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Clifford J)

Introduction

• [1] The respondent, Body Corporate 172108, has commenced winding up proceedings against the applicant, Flat Bush Finance Ltd (Flat Bush), on account of unpaid body corporate levies. Flat Bush unsuccessfully applied to the High Court for orders staying that proceeding and restraining any advertisement of it.^[1] Associate Judge Johnston subsequently declined Flat Bush’s application for leave to appeal that decision of his to this Court.^[2]
• [2] Flat Bush now applies to this Court for leave to appeal the decision of the High Court declining it relief in the face of the Body Corporate’s winding up proceedings.^[3]
• [3] We record for completeness that Flat Bush originally applied for an interim stay of the substantive liquidation proceeding pending determination of this application. Flat Bush has since confirmed that an undertaking provided by the Body Corporate is acceptable, so that application was disposed of accordingly.

Background

• [4] For a considerable period of time the Body Corporate has been in dispute with one of its unit holders, Manchester Securities Ltd (Manchester). Mr Robert Cummins is the sole shareholder and director of Manchester. That dispute has occupied the courts on numerous occasions. It resulted in the Body Corporate obtaining an order for the liquidation of Manchester in the High Court at Wellington in February 2020.^[4] Mr Cummins and Manchester unsuccessfully appealed that decision to this Court.^[5] Manchester’s dispute with the Body Corporate is summarised in that decision and need not be repeated here.^[6] As now relevant:

(a) Manchester owned Unit 12A of Hobson Apartments as the trustee of the Manchester Securities Trading Trust (the Trust). The Trust is used by Mr Cummins for commercial purposes, and the Trust Deed records he is a beneficiary by virtue of his status as settlor.

(b) In March 2017 Manchester agreed to grant a mortgage over Unit 12A to Flat Bush. Mr Cummins is also the sole shareholder and director of Flat Bush.

(c) In December 2018 Mr Cummins was appointed as an additional trustee of the Trust. On 15 March 2019 Manchester retired as a trustee of the Trust, leaving Mr Cummins as its sole trustee. Notwithstanding that, Manchester remained the registered proprietor of Unit 12A.

(d) On 4 December 2019 Manchester (by then no longer a trustee of the Trust but still the registered proprietor of Unit 12A) executed a mortgage of Unit 12A in favour of Flat Bush. That mortgage has not been registered. It is protected by a caveat lodged on 6 December 2019. That caveat ranks after a registered first mortgage in favour of Sage Securities Ltd.

(e) On 12 December 2019, two days after the hearing of the Body Corporate’s petition to wind Manchester up, Sage Securities Ltd gave its consent to Flat Bush entering into possession of Unit 12A.

(f) The High Court ordered Manchester to be wound up on 19 February 2020.^[7]

(g) Shortly after that judgment was given, Mr Cummins attempted to register a mortgage against the title to Unit 12A in favour of Flat Bush. He also purported to assign Manchester’s interest in the litigation against the Body Corporate to himself.^[8] In March 2020 Flat Bush then foreclosed on its mortgage and entered into possession of Unit 12A. We adopt Associate Judge Johnston’s description in his leave judgment of those arrangements as a scheme furthered by Mr Cummins “to rearrange things so as to leave Manchester Securities Ltd as a mere shell and transfer the ownership of Unit 12[A] to himself”.^[9]

• [5] In June 2020 the Body Corporate struck the levies on the unit holders. Flat Bush contested its liability to pay that amount, and unsuccessfully opposed the Body Corporate’s winding up proceedings on the basis that, as a mortgagee in possession of Unit 12A but not receiving rental income from it, it had no obligation to pay the Body Corporate levies.
• [6] In rejecting that argument, the Associate Judge relied on decisions of the Supreme Court and this Court to the contrary effect.^[10] Those decisions concerned litigation between Body Corporate 162791, Mr John Gilbert and QSM Trustees Ltd (QSM).
• [7] Mr Gilbert was the receiver of QSM, a member of the Body Corporate as owner of several units. The litigation concerned Mr Gilbert’s personal liability under s 32 of the Receiverships Act 1993 to pay levies incurred and owing by QSM since his appointment. Mr Gilbert’s principal argument — upheld by the High Court as being arguable in declining the Body Corporate’s application for summary judgment^[11] but reversed on appeal^[12] — was that, contrary to the Body Corporate’s claim, s 32(5) of the Receiverships Act did not impose personal liability on him. That is, the obligation to pay levies was not one which arose “under an agreement subsisting at the date of the appointment of the receiver relating to the use, possession, or occupation by the grantor of property in receivership”.^[13]
• [8] On appeal, Mr Gilbert supported the High Court judgment by arguing, as a fresh argument, that if a mortgagee in possession was not liable to pay body corporate levies then neither was a receiver appointed by a mortgagee.
• [9] This Court dealt with the new argument in the following way:^[14]

[60] We do not consider that this submission is soundly based. There is no statutory provision to the effect that mortgagees in possession are not liable for the payment of body corporate levies. Rather pursuant to s 105(3) of the Unit Titles Act [2010], body corporate operational rules are binding on the body corporate, the owners of principal units, any person who occupies a principal unit, and any mortgagee who is in possession of a principal unit. If the operational rules of a body corporate provide that unit holders must pay body corporate levies, then clearly there will be an obligation on a mortgagee in possession to pay those levies. If the body corporate’s operational rules require all owners to abide by Acts in force in relation to the use, occupation or possession of the unit, as they do in this case, then again a mortgagee in possession will be liable to pay levies, because the obligation to do so is contained in s 80(1)(f) of the Unit Titles Act.

• [10] In dismissing the appeal against that decision, the Supreme Court observed:^[15]

[47] We do not see this interpretation as being commercially unfair or unreasonable. A receiver who is not prepared to accept the on-going costs associated with a unit should not accept appointment. It is always open to a mortgagee to sell a unit or to go into possession (albeit that on the approach of the Court of Appeal, the latter course would also carry an obligation to pay body corporate levies). What is not consistent with the spirit of, and thus policy underlying, s 32(5) is for a receiver to make use of a unit but not meet the associated costs.

• [11] In applying for leave to appeal, Mr Sullivan for Flat Bush submitted the comments both of this Court and of the Supreme Court were not necessary for the decisions (obiter dicta), and accordingly they were not binding on the Associate Judge. Whilst the Associate Judge recognised that matter, and chose to follow them because of the persuasive character of the judgment of this Court in particular,^[16] Mr Sullivan said we should grant leave because the point — whether s 80(1)(f) of the Unit Titles Act 2010 imposes an obligation to pay body corporate levies on a mortgagee in possession of a unit — is arguable.

Analysis

• [12] The principles applicable to an application for leave to appeal an interlocutory judgment of the High Court, as cited by the Associate Judge in his leave decision,^[17] are well settled. They were summarised by this Court in Greendrake v District Court of New Zealand^[18] and have recently been confirmed in Ding v James.^[19] They are:

(a) a high threshold exists;

(b) the applicant must identify an arguable error of law or fact;

(c) the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;

(d) the circumstances must warrant incurring further delay; and

(e) the ultimate question is whether the interests of justice are served by granting leave.

• [13] We are satisfied the proper application of those principles results in Flat Bush’s application for leave being declined. The legal point may be arguable, but that consideration is outweighed by the relevant features of the proceedings in which it arises. In particular, and as Mr Orpin-Dowell submitted for the Body Corporate in opposition to Flat Bush’s application:

Given the history of the matter, an appeal against the substantive decision appears almost inevitable. The interests of justice favour having a single appeal following the High Court’s substantive decision, rather than, as seems likely given the strength of the proposed appeal, separate interlocutory and substantive appeals.

• [14] Nor will substantive appeal rights be rendered nugatory. As sole shareholder and director of Flat Bush, Mr Cummins would most likely be recognised as having status to appeal, as was the case in this Court’s hearing of the appeal against the decision to wind up Manchester.^[20]
• [15] We therefore decline Flat Bush’s application for leave to appeal.
• [16] We make one final observation. The point must be approaching when the substance of the ongoing dispute as being one between Mr Cummins and the Body Corporate is to be recognised. As can be seen, behind the various companies involved in these protracted proceedings is Mr Cummins himself:

(a) Mr Cummins noted in a reply affidavit of 9 July 2021:

8. To that end, I have made an offer to settle both of the [Flat Bush] proceedings, essentially by paying the disputed operating levies in return for a release of the Body Corporate’s caveat. True copies of my letter to the committee to this effect dated [16] June 2021 and 30 June 2021 are attached ...

(Emphasis added.)

(b) In one of those letters referred to, Mr Cummins said:

4. [Flat Bush] will be in a position to provide on‑going funding if it is able to register its mortgage and potentially arrange an assignment of that mortgage to a third party financier. Absent such funding, my ability to continue to the building work will be restricted and completion will inevitably be delayed further.

(Emphasis added.)

• [17] The courts’ insolvency jurisdiction is, in origin, equitable. Equity looks to substance and sees through form. There are specific provisions in the winding up jurisdiction enabling the pooling of assets of related companies and to make directors liable for the debts of the company in certain circumstances.^[21] Putting the real substantive dispute before the courts will save all concerned, and in particular the Body Corporate, its unit holders and the courts themselves, from the burden of these proceedings, which in form may be regular but which continually fail to address that true substance.

Result

• [18] The application for leave to appeal is declined.
• [19] The applicant must pay the respondent costs for a standard application on a band A basis with usual disbursements.

Solicitors:
Core Legal Ltd, Masterton for Applicant
Grove Darlow & Partners, Auckland for Respondent

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^[1] Body Corporate 172108 v Flat Bush Finance Ltd [2021] NZHC 555 [Stay judgment].

^[2] Body Corporate 172108 v Flat Bush Finance Ltd [2021] NZHC 1184 [Leave judgment].

^[3] Pursuant to Senior Courts Act 2016, s 56(5).

^[4] Body Corporate 172108 v Manchester Securities Ltd [2020] NZHC 198.

^[5] Cummins v Body Corporate 172108 [2021] NZCA 145.

^[6] At [2]–[30].

^[7] Body Corporate 172108 v Manchester Securities Ltd, above n 4, delaying the effect of the order until 11 March 2020 so Manchester had the opportunity to meet its obligations and avoid liquidation, which it did not.

^[8] Stay judgment, above n 1, at [3]–[4].

^[9] Leave judgment, above n 2, at [10].

^[10] Stay judgment, above n 1, at [29]–[43].

^[11] Body Corporate 162791 v Gilbert [2014] NZHC 567 at [41].

^[12] Body Corporate 162791 v Gilbert [2015] NZCA 185, [2015] 3 NZLR 601 at [63].

^[13] Receiverships Act 1993, s 32(5).

^[14] Body Corporate 162791 v Gilbert, above n 12.

^[15] Gilbert v Body Corporate 162791 [2016] NZSC 61, [2018] 1 NZLR 1 (footnote omitted).

^[16] Stay judgment, above n 1, at [45].

^[17] Leave judgment, above n 2, at [14].

^[18] Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].

^[19] Ding v James [2021] NZCA 578 at [18].

^[20] Cummins v Body Corporate 172108, above n 5, at [1].

^[21] Companies Act 1993, ss 271 and 301.