TBS Remcon Limited v Body Corporate 354994 [2016] NZHC 1689 (25 July 2016)

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UNDER	Part 19 of the High Court Rules and the High Court Rule 19.2
IN THE MATTER OF	An application under s 141 of the Unit Titles Act 2010 to appoint an administrator of a body corporate
BETWEEN	TBS REMCON LIMITED Applicant
AND	BODY CORPORATE 354994 _Respondent

Hearing:	20 July 2016
Appearances:	M L Broad and E E S Thode for Applicant G J Christie and D A Rowe for Respondent
_Judgment:	_{25 July 2016}

$2,263,091.81 (including GST). The Body Corporate has paid $1,725,000 of the amount owing but refuses to pay the balance of $586,474.97 without security in the form of a bond to assure repayment of the amount in the event that it succeeds in the arbitration that is now on foot. Alternatively, it wishes to apply to the arbitrator for interim orders addressing its concerns.

[2] TBS has applied for an order under s 141(3) of the Unit Titles Act 2010 appointing an administrator for the express purpose of causing the Body Corporate to pay the outstanding amount. Its position is that the scheme of the CCA requires immediate payment of the outstanding amount and the appointment of an administrator is an available method of achieving that. It appears, however, that an order has not previously been made for this purpose.

[3] The building involved is a leaky apartment block. TBS was engaged to undertake repair work. There have been disputes between the Body Corporate and TBS, one of which resulted in the determination described earlier. As a result of the Body Corporate’s failure to pay the amount due under the determination TBS gave notice of its intention to suspend work. In May 2106 the Body Corporate gave notice of its intention to dispute its liability at arbitration. Negotiations between the parties resolved some of the outstanding issues and resulted in the Body Corporate paying $1,725,000 and TBS returning to work.

[4] The outstanding balance relates to future extension of time costs which the Body Corporate says may not, ultimately, be incurred. It asserts that it is able to pay the balance but wants assurance that it will be repaid in the event it is successful in

_{the arbitration.}¹_{At one stage TBS was
receptive to the suggestion of a bond but}

¹In his memorandum dated 19 July 2016 the Body Corporate’s solicitor, Mr Christie, advised that

recently this aspect of the negotiations has faltered because of the terms required by

[5] Section 141(3) of UTA 2010 confers a broad discretion on this Court to appoint an administrator upon the application of a body corporate itself, a creditor of the body corporate or any person having a registered interest in a unit:

The High Court may, in its discretion on cause shown, appoint an administrator for an indefinite period or for a fixed period on such terms and conditions as to remuneration or otherwise as it thinks fit.

[6] An order made under s 141(3) is flexible; it can confer powers on an administrator that are co-extensive with those conferred on the body corporate or body corporate committee by the UTA 2010 or powers that are more circumscribed:²

The administrator, to the exclusion of the body corporate and to the body corporate committee, has and may exercise the powers of the body corporate and the committee, and is subject to the duties of the body corporate and the committee, or such of those powers and duties as the High Court orders ...

[7] Mr Broad, for TBS, submitted that the appointment of an administrator is an important enforcement mechanism to ensure that bodies corporate comply with their obligations to pay amounts owing in relation to CCA debts. He relied heavily on the “pay now, argue later” philosophy underpinning the CCA. Mr Broad did not, however, cite any case in which an order had been made under s 141(3) to secure payment of a CCA determination, nor, indeed, any case in which an external creditor (i.e. not a member of the body corporate) had applied.

[8] Section 141(3) UTA 2010 is silent as to the grounds that would constitute cause for making an order, as was its predecessor, s 40(2) of the Unit Titles Act

1972. There has, nevertheless, been some judicial consideration of that question,

Viaduct Harbour Ltd v Body Corporate 384911(a sequel to the Low decision).³Both cases (and indeed the other New Zealand cases in which administrators have been appointed) have involved actual or alleged dysfunction of the body corporate, with the application for appointment of an administrator based primarily on that fact. However, dysfunction within the body corporate or body corporate committee has never been regarded as the only circumstance that would justify the appointment of an administrator. In Low Heath J said:⁴

Parliament has provided an open-textured approach for the Court to apply, by using general words as a threshold test. All that is required is for the Court, “on cause shown”, to exercise its discretion to appoint an administrator. The nature of the discretion is emphasised by the ability to appoint a person for a fixed or indefinite period and on such terms as the Court thinks fit. The Court’s ability to limit those powers of a body corporate and the committee that the administrator may exercise supports that view.⁵

... In my view, the general discretion (while it must be exercised in a principled way) should not be fettered. Everything turns on the facts of the particular case, with the Court’s discretion being informed primarily by the functions of a body corporate and the ability of those with responsibility for its affairs to carry out their duties fairly, against the background of the underlying principles on which the Act is based.

[9] In Melview Ellis J identified a number of factors potentially relevant in determining whether cause existed for the purposes of making an order, namely the existence of undemocratic or ultra vires decisions, dysfunctionality, deadlock and majority decisions brought about by improper influence of a third party or decisions which deliberately or unnecessarily harm the interests of the minority. Ellis J did not, however, consider this list to be either exhaustive or necessarily applicable in all cases.

[10] I agree that, whilst dysfunction is the most likely circumstance to produce an application for the appointment of an administrator, the scope of s 141(3) is not limited to that. Section 141(3) clearly contemplates a flexible response to the

³Low v Body Corporate 384911 (2011) NZCPA 142 (HC); Melview Viaduct Harbour Ltd v Body

⁵Heath J referred to the two Australian decisions Filaria Pty Ltd v Proprietors of Units Plan 932 [2002] ACTSC8 and McKinnon v Adams [2003] VSC116 at [20] but did not consider that the statements in those cases suggested any general limitation on discretion to appoint an administrator.

members and creditors of the body corporate. However, Heath J is right that the discretion must be exercised in a principled way. This must mean, at least, that the exercise of the discretion should not conflict with the scheme of the UTA 2010 and should reflect the statutory functions and powers of the body corporate.

[11] The body corporate lies at the heart of the scheme created by the UTA 2010 and UTA 1972. It provides the democratic means by which unit owners operate and manage unit title developments. The appointment of an administrator would take that control away from the unit owners to a greater or lesser extent, depending on the terms of the appointment. The appointment of an administrator therefore has serious consequences for the rights of the unit owners whose only means of expressing their wishes and exercising the full range of their statutory rights is through the body corporate. Whilst acknowledging the wide discretion conferred by s 141(3) I would nevertheless expect that it would only be in the most unusual circumstances that the appointment of an administrator would be justified where a body corporate is capable of functioning in the manner expected by the UTA 2010.

[12] TBS did not suggest that the Body Corporate is dysfunctional, nor that it has made decisions that are ultra vires, nor that it has failed to perform any of its statutory duties. The basis for TBS’ application is simply that the Body Corporate has not paid the amount determined by the adjudicator to be payable. But TBS does not hold a judgment against the Body Corporate; it seeks to have the Court appoint an administrator in the place of a functioning body corporate merely in order to procure payment of the amount outstanding under the CCA determination. I do not consider that these circumstances show cause to appoint an administrator.

[13] First, although creditors of bodies corporate have standing to apply for the appointment of an administrator, this is not the usual means by which debts are enforced. I do not see any basis on which to conclude that s 141(3) was intended as a general method of enforcing debts against a properly functioning body corporate.

[14] Secondly, the use of s 141(3) for this purpose seems to me to run counter to the CCA itself. I have noted that Mr Broad relied heavily on the well-known “pay now, argue later” philosophy underpinning the CCA. In Laywood v Holmes Construction Wellington Ltd the Court of Appeal noted that the CCA was intended to address the problems that had arisen in the construction industry, particularly in

The CCA seeks to achieve its purpose through two processes, one relating to payment claims and the other to adjudication. The latter is at issue in the present case. The CCA establishes an adjudication process which a party to a construction contract has a right to invoke in relation to a dispute under such a contract (s 25(1)(a)) ... This right may be exercised even though the dispute is the subject of proceedings between the same parties in a court or tribunal (s 25(1)(b)). Where the adjudication process has been invoked, that does not preclude the initiation of some other dispute resolution process in relation to the dispute (s 26).

[15] However, the CCA itself provides a mechanism for the enforcement of determinations. Where a claim under the CCA results in a determination that one party is liable to pay money to another (s 48(1)(a)) that determination is enforceable in accordance with s 59, which relevantly provides that:

1. The consequences specified in subsection (2) apply if a party to the adjudication fails, before the close of the relevant date, to pay the whole or part of the amount determined by an adjudicator.

(b) If party A is a party who carries out construction work under a construction contract, serve notice on party B of party A’s intention to suspend the carrying out of construction work under the contract:

⁶Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, p2009] 2 NZLR 243 at [11] –

4. In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of a party unless it is satisfied that the circumstances referred to in subsection (1) exist.

[16] Later provisions in Part 4 Subpart 2 provide for the method of enforcing an

[17] Section 74 provides for limited grounds on which a party liable to pay under a determination may oppose the entry of judgment. Under s 77 an adjudicator’s determination entered as a judgment may be enforced by execution in accordance with the District Courts Rules 1992.

[18] The words “recover ... the payment ... as a debt due ... in any court” in s

59(2)(a) connote an orthodox form of recovery action. It is clear from s 59(4) this is what is contemplated and it is what ss 73, 74 and 77 provide for.

[19] The appointment of an administrator is not a recognised method of recovery under the CCA. In my view the appointment of an administrator in the present case would have the effect of circumventing the process contemplated by the CCA for the enforcement of determinations. It can do no more that create an indirect means of ensuring that the Body Corporate “voluntarily” pays the amount owing without the debt having to be enforced. That does not necessarily preclude application for the appointment of an administrator but the circumstances of this case do not show cause that would justify the appointment of an administrator to take steps in the place of a properly constituted and normally functioning body corporate.

[20] TBS did not offer any reason that the usual path provided for by the CCA for the recovery of an outstanding amount could not be followed. There is no apparent

urgency that would make the delay inherent in normal enforcement proceedings unduly risky for TBS. There mere fact that the CCA contemplates prompt payment of amounts determined to be payable does not create urgency; to the contrary the scheme of the CCA is that normal enforcement proceedings will be taken. As a result TBS has not shown cause that would justify the appointment of an administrator.

[22] The Body Corporate is entitled to costs on a 2B basis with disbursements to be fixed by the Registrar.

High Court of New Zealand Decisions

TBS Remcon Limited v Body Corporate 354994 [2016] NZHC 1689 (25 July 2016)

High Court of New Zealand

TBS Remcon Limited v Body Corporate 354994 [2016] NZHC 1689 (25 July 2016)