Mu v Body Corporate 312431 [2014] NZHC 2987 (27 November 2014)

Last Updated: 19 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2393 [2014] NZHC 2987

IN THE MATTER	of the Insolvency Act 2006
BETWEEN	DANNI MU Applicant
AND	BODY CORPORATE 312431 Respondent

Hearing:	21 November 2014
Appearances:	Ms Mu in person Mr Singh for Respondent
Judgment:	27 November 2014

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

27.11.14 at 4 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

MU v BODY CORPORATE 312431 [2014] NZHC 2987 [27 November 2014]

Introduction

[1] The applicant, Ms Mu, has applied to set aside a bankruptcy notice which was served on her dated 12 September 2014. On 19 November 2014 her counsel, Ms Woodroffe, made an application for an order declaring that she had ceased to be the solicitor on the record pursuant to r 5.41 of the High Court Rules and to withdraw as counsel. I made orders accordingly. There was no application made to adjourn the opposed hearing of the originating application to set aside the bankruptcy notice which was due to be heard on 21 November 2014. Accordingly that application was heard on that date.

[2] The hearing was made more difficult because of the highly stressed state that the applicant appeared to be in and her limited facility in the English language. However, because of the history of the matter and the fact that full submissions concerning her underlying case had been formulated on her behalf by her former counsel, I considered that it was possible to give her a fair hearing and properly decide the application which was before the Court.

Background

[3] The applicant is the owner of Unit 3 Normanby Mews, 22 Normanby Road in Mt Eden. Her apartment and others in the complex were damaged by water ingress problems. The owners of the units and the body corporate resolved to take action to recover damages in regards to the loss they had suffered as a result of the weather tightness issues. In 2009, all unit owners entered into a “Conduct and Distribution Agreement” which allowed the body corporate to represent the owners in legal action (“the CDA”). The applicant was one of the unit owners who signed that document. Further reference will be made to the terms of that agreement below in this judgment. As part of the CDA a committee was constituted to represent the unit owners and the body corporate. The committee would have oversight of all aspects of claims to be brought. This included the litigation in the High Court which by then the various parties had agreed would need to be taken.

[4] In order to fund the investigations into the claims to be brought a special levy was charged to unit owners including the applicant. On 31 March 2013 she was invoiced $9,234.80 by way of a special levy. She declined to pay that amount and declined to pay other levies which represented her contribution to the costs of the body corporate. In due course the body corporate successfully brought proceedings in the Tenancy Tribunal to recover the unpaid body corporate levies which totalled

$19,094.27. The total amount that the applicant was ordered to pay by the Tribunal was $19,944.27 which included the filing fee. When that judgment was not met the body corporate issued the bankruptcy notice in these proceedings which asserted that the applicant owed the sum of $19,994.27 plus $748 in costs.

[5] It is relevant to the matters which the applicant raises to recount some aspects of the history of the claim which the body corporate and unit owners brought under the supervision and management of the committee established pursuant to the CDA.

[6] In May 2013, the parties to the High Court proceedings settled for a substantial amount of money. The terms of the settlement agreement are subject to confidentiality clauses. However, for the purposes of this judgment it is not necessary to identify exactly how much was agreed to be paid as part of the settlement. What can be said though is the following.

[7] The settlement was entered into by the committee established under the CDA pursuant to the authority in that agreement. Not only did the committee agree on behalf of the body corporate and the owners, the amount of compensation to be paid to the body corporate and each owner but it also agreed to additional conditions in the final settlement agreement. These included that each individual’s portion of the compensation was to be applied first to the remediation costs attributable to that unit owner. This meant that there was no question of a payment of the agreed amounts being made directly to the unit owners.

[8] As it turns out, the amount which the applicant was to receive was not sufficient to cover the costs of repair to her unit. The remediation work has not yet commenced but is to start shortly. However based on the evidence before the Court

it can be said that there is no amount which will be left over for distribution to the applicant after the costs of remediation have been met.

[9] The essence of the position which the applicant takes is that the committee had no authority to negotiate and agree to a term in the settlement agreement of the kind which has just been discussed. The applicant therefore says that she is entitled to receive out of the settlement funds the full amount of her share of the settlement monies. Further, because she is owed these amounts, and they exceed the amount which she owes in terms of the Tenancy Tribunal order issued on 15 August 2014, the bankruptcy notice against her ought to be set aside. The statutory authority pursuant to which the Court can set aside a bankruptcy notice and the principles governing the exercise of that power will be discussed next. Thereafter I will consider the question of the authority of the committee under the CDA to agree the terms that it did by way of settlement of the High Court litigation.

Grounds for application to set aside a bankruptcy notice and relevant principles

[10] The debtor’s application is based upon the grounds that there is a “general triable set-off” and that “the set-off could not have been put forward in the action in which the relevant judgment was obtained”. The relevant statutory provision is s 17(7) of the Insolvency Act 2006:

17 Failure to comply with bankruptcy notice

(1) A debtor commits an act of bankruptcy if—

(a) a creditor has obtained a final judgment or a final order against the debtor for any amount; and

(b) execution of the judgment or order has not been halted by a court;

and

(c) the debtor has been served with a bankruptcy notice; and

(d) the debtor has not, within the time limit specified in subsection

(4),—

(i) complied with the requirements of the notice; or

(ii) satisfied the court that he or she has a cross claim against the creditor.

...

(7) In subsection (1)(d)(ii), cross claim means a counterclaim, set-off, or cross demand that—

(a) is equal to, or greater than, the judgment debt or the amount that the debtor has been ordered to pay; and

(b) the debtor could not use as a defence in the action or proceedings in which the judgment or the order, as the case may be, was obtained.

[11] I accept the submission on behalf of the respondent that the correct legal test to be applied is the following:

To succeed in setting aside the Body Corporate’s bankruptcy notice, the

debtor must:

(a) Demonstrate that she has a claim of true substance which she genuinely proposes to pursue; and

(b) Establish that she could not, by law, set up the cross claim in the

action on which the judgment that provides the basis for the bankruptcy notice was entered.

[12] I turn to consider the issue of whether the applicant has shown that there is a set-off of “true substance which she genuinely proposes to pursue”.¹

Discussion

[13] In my view, the application cannot succeed. That is because the point has already been decided against the applicant by a decision of the Tenancy Tribunal which is referred to below. In any event, the application proceeds on the basis of a misinterpretation of the contractual arrangements that are central to the circumstances which, the applicant contends, give rise to a set-off. I shall deal with the issue estoppel point first.

[14] As Mr Singh submitted on behalf of the respondent, the matter has already been conclusively decided against the applicant by the decision of the Tenancy Tribunal dated 15 August 2014. The law on issue estoppel is clear. In Re Minter Ellison Rudd Watts, ex parte Hampton, this Court applied the principle to an

_{application to set aside a bankruptcy order:}²

¹ _{Sharma v ANZ Banking Group (New Zealand) Ltd (1992) 6 PRNZ 386 (CA) at 389 per Cooke P.}

² Re Minter Ellison Rudd Watts, ex parte Hampton [2012] NZHC 1715 at [45].

... it is reasonable in the circumstances to regard the earlier decision as a final determination of the issue which Mr Hampton wishes to raise once again — whether Mr Hampton had an arguable claim. That issue was determined, against Mr Hampton. If he now wishes to pursue a stand-alone claim independently of this proceeding by issuing a claim (rather than by seeking to defeat his creditor's enforcement in a summary context) he has that entitlement — what would be unreasonable is if the Court were to allow him to revisit the arguability issue in the context of the creditor's enforcement of the judgment which was obtained through Minter Ellison satisfying the Court that Mr Hampton's cross-claim was not arguable.

[15] The plain meaning of the decision in the Tribunal was that it would only be after repairs to the individual units had been completed that it could be ascertained whether there was going to be any money left over which could be paid out to the individual unit owners such as the applicant. In the meantime, the decision concluded, her obligation to pay levies remained. The set-off point was therefore decided against the applicant by the determination of the Tenancy Tribunal and she is bound by it. There has been no material change of circumstances since the Tenancy Tribunal decided that case and the parties remain bound by that decision.

[16] The next issue is the contractual interpretation point. Even had the parties not been bound by the Tenancy Tribunal decision, I consider that it is correct and that the contractual arrangements between the parties rule out any set-off of the kind which the applicant claims.

[17] The point that Ms Mu raises in these proceedings is concerned with the authority that the committee had to negotiate a term of the settlement which effectively precluded a unit owner from claiming a direct payment to him or her of their proportion of the settlement funds but rather requiring those settlement funds to be applied for remediation work. Only after remediation work had been completed, and if there was a surplus left over, would any payment be made to the unit owners.

[18] The Court does not start with any assumption either way on the issue of whether the CDA committee had authority to agree to compensation monies being applied to remediation rather than being distributed to the unit owners. Essentially, the applicant would need to show that there is a reasonable possibility that the Court would in proceedings which she intends to bring adopt an interpretation of the CDA consistent with that which the applicant puts forward in these proceedings. It is

therefore incumbent upon the applicant to show that a Court may, after applying the accepted canons of contractual construction, agree with her view as to what the contract means.

[19] The starting point in interpreting an agreement is to look at the language that the parties themselves used. The language used, appropriately interpreted, is the only source of their intended meaning: Vector Gas Limited v Bay of Plenty Energy Limited.³

[20] There is no doubt that the CDA conferred wide powers on the committee. By

Clause 3 of the agreement it was provided:

3. Committee Powers

3.1 The Committee has full and exclusive authority to represent the Proprietors and the Body Corporate in all matters relating to settlement and conduct of the Proceeding.

3.2 Without limiting clause 3.1 above a simple majority of the Committee shall have the authority to:

(a) Negotiate and effect a settlement of the Proceeding on such terms as the Committee at its sole discretion decide; and

(b) Bind the Body Corporate and all of the Proprietors to the terms of any settlement of the Proceeding.

[21] The CDA also included Clause 5 which reads as follows:

5. Settlement Proceeds

5.1 Any distribution will be subject to the terms of the settlement.

5.2 The balance of the proceeds (“net proceeds”) shall be held in the trust account of Grimshaw & Co in an interest rearing account pending distribution.

5.3 Any monies/levies (including penalties and interest) due and owing from any Proprietor to the Body Corporate shall be deducted from the proprietor’s share of the net proceeds prior to distribution.

5.4 All outstanding reasonable legal and experts’ costs incurred in the settlement of the Proceeding will be paid from the net proceeds prior to distribution.

³ Vector Gas Limited v Bay of Plenty Energy Limited [2010] NZSC 5, [2010] 2 NZLR 444 at [19].

5.5 Settlement proceeds shall be divided between and distributed to the

Proprietors in accordance with unit entitlement.

[22] The following points are relevant to construing the agreement. First of all there are the very wide powers that are conferred upon the committee which is granted full authority in all matters relating to settlement and conduct of the proceeding. They are authorised to effect a settlement of the proceedings “on such terms as the committee at its sole discretion decides”.

[23] Such a mandate would seem more than sufficient to warrant the committee entering into a settlement which contained conditions as to how the compensation monies were to be applied. It is correct that clause 5 which deals with the settlement proceeds refers to the topic of distributions. But that does not mean that the relevant terms of the CDA amounted to an assurance that Ms Mu, or any other owner, would receive what may be termed a cash payout. Clause 5.1 expressly states that any distribution will be subject to the terms of the settlement. The use of the term “any distribution” leaves open the question of whether a distribution will occur at all and, if so, what form it will take. That must mean that if the terms of the settlement excluded such a payout, then its terms would prevail.

[24] A subsidiary point concerns what is meant by a “distribution”. Ms Mu seems to have assumed that a distribution can only mean a cash distribution. However in my view it could extend to paying the monies out to discharge liabilities for remediation of the building. However that may be, the provision in clause 5 which influences my opinion is the express provision that any distribution will be subject to the terms of the settlement. Such language provides an affirmative indication that the committee would be entitled to enter into the type of settlement about which the applicant complains.

[25] Because of the disadvantage that she was labouring under in representing herself, the respondent did not put before the court aspects of the factual background to the dispute which would support the interpretation that she puts forward in support of her claim that she has an arguable set-off or cross claim. While I am reluctant to canvass matters that were not raised in argument before me, given the position of the

applicant as a self-represented litigant, brief consideration should be given to the background against which the parties contracted to ensure that the provisional views which I have set out concerning the meaning of the CDA does not leave any room for the interpretation which the applicant puts forward.

[26] One aspect of the matter to be considered is whether the meaning that the applicant would have the Court attach to the CDA is supported by the background consideration that the financial position of various owners were such, that, having regard to the size of the compensation received under the settlement agreement, they would not be able to raise the additional finance required to complete remediation of their units. The argument might run that in such a circumstance, the individual interests of some of the unit owners may have been better served by distributing their proportion of the settlement money to them so that they could then sell the damaged unit at a discounted price to a party who is willing to assume the burden of completing remediation of it.

[27] However it would not be fair to the respondent to take into account such a matter. There may be answering considerations which deprive the point of any force.

[28] There are also possible grounds of background which would support the position that the respondent takes. It may well be the case that Auckland Council, as the relevant territorial authority and one of the defendants who settled the litigation, would be opposed to any settlement on terms which would enable the unit owners to take their cash and leave behind defective units which were not going to achieve code compliance certification. It was always likely that Auckland Council would insist on settlement monies being used for repairs. That consideration is part of the relevant factual setting in which the owners and the body corporate entered into the CDA. It would be wrong, therefore, to suppose that when the parties authorised the body corporate to negotiate such an agreement in its discretion as it thought appropriate, there was an unstated reservation that it would not be authorised to accept a proposal that the settlement funds be spent on repairs.

[29] The other aspect of the issue is that it was not a matter of indifference to the body corporate whether the compensation payable to individual unit owners was paid out to them or was to be used to repair the building. This is for the reasons identified by the Tenancy Tribunal. Those reasons were that the Unit Titles Act

2010 extended a body corporate’s repair and maintenance duties to building elements and infrastructure which is broadly defined. The Unit Titles Act 1972 only permitted the body corporate to repair common property. The purpose of the extension of obligations was to include leaky building repairs and to avoid the difficulties caused when drawing a distinction between common and private property.

[30] For the purpose of maintenance and repair, certain external and internal components of a building, whilst located in privately owned areas, cannot be viewed as separate from the common areas, if for example, that component needs to be repaired to support the structural integrity of the building as a whole.⁴ The CDA between the body corporate and the unit owners was entered into against that background. The body corporate had an interest in seeing to it that the privately

owned units were repaired as well if it were to ensure that comprehensive repairs were accomplished to the complex as a whole.

[31] Even if it were open to the Court to reconsider the matter, the interpretation which I consider is the correct one as to the contractual arrangements means that the applicant does not have any ground for contending that she has a claim to set off against the unpaid levies. The plain language used in the CDA compels such a result. There are no matters of background which can be said to call for a different interpretation of the CDA to be adopted.

[32] My primary reason for holding against the applicant, though, is that the application cannot succeed because, as noted earlier, the parties are bound by the decision in the Tenancy Tribunal.

[33] For all of those reasons, in my view the application to set aside the statutory demand should be dismissed and I order accordingly.

⁴ See Unit Titles Act 2010, s 138(1) and the definition of “building elements” in s 5.

[34] The parties should confer on the matter of costs and if they are unable to agree, they are to file memoranda not exceeding five pages on each side within 10

_{working days of the date of this judgment.}

J.P. Doogue

Associate Judge