Manchester Securities Ltd v Body Corporate 172108 [2018] NZHC 169 (16 February 2018)

Last Updated: 8 March 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1191 [2018] NZHC 169

UNDER	The Companies Act 1993
BETWEEN	MANCHESTER SECURITIES LTD Applicant
AND	BODY CORPORATE 172108 Respondent

CIV-2017-404-1478

BETWEEN MANCHESTER SECURITIES LTD Applicant

AND BODY CORPORATE 172108

_Respondent

Hearing:	16 November 2017
Appearances:	Mr M C Harris for Applicant Mr T J G Allan for Respondent
Judgment:	16 February 2018

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

16.02.18 at 3.30 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

MANCHESTER SECURITIES LTD v BODY CORPORATE 172108 [2018] NZHC 169 [16 February 2018]

Background

[1] Manchester Securities Limited, the applicant, asks the court to set aside two

statutory demands pursuant to s 290(1) of the Companies Act 1993 (“the Act”).

[2] The following statement of background from this point to the end of this section of this judgment has been excerpted from the synopsis of submissions which Mr Harris filed on behalf of the applicant. I do not understand that there is any dispute as to its essential outlines:

1. Manchester asks the court to set aside two statutory demands. There is a substantial dispute whether the amounts demanded are due; Manchester has set-offs in excess of both; and the underlying disputes are subject to arbitration. The demands are an attempt to skirt the arbitration process.

2. The demands have their genesis in a long-running dispute about the remediation of a “leaky” apartment complex, the Hobson Apartments. Manchester owns the 12th floor penthouse unit in the complex, of which the respondent is the body corporate.

3. In 2011 the High Court settled a remediation scheme for Hobson Apartments under the Unit Titles Act 1972. In March 2017 Fogarty J granted an application by the Body Corporate to vary the scheme terms. A costs judgment was delivered in June.

4. The 1 June 2017 demand (first demand) claims an interim payment ordered by Fogarty J and ordinary Body Corporate levies. The 4 July 2017 demand (second demand) seeks payment of Fogarty J’s costs judgment.

5. Manchester claims two set-offs against the first demand:

1. The scheme requires Manchester to carry out repairs to its unit and common property on level 12. The scheme (original and as varied) specifically provides for costs incurred by Manchester on consultants and advisors that benefit the Body Corporate and other unit owners to be shared. Manchester claims a set-off for these charges (less its unit-entitlement share of them). The scheme, as varied by Fogarty J, provides for this set-off and for any dispute about the amounts due to be referred to arbitration.

b. The second set-off is for disputed remediation costs claimed by the Body Corporate. First, Manchester says the Body Corporate is claiming amounts that it has already recovered from its insurer. Second, Manchester says the Body Corporate’s claim for repair

costs is overstated because it includes additional costs of closing in the lower level balconies, which constitute betterment. Neither set- off was disposed of by Fogarty J in the variation judgment.

6. Manchester also disputes some small amounts of the first demand, for example miscalculations of interest ...

7. The second demand seeks payment of Fogarty J’s costs judgment.

Manchester claims a set-off for its legal costs incurred in settling the original scheme. The set-off is based on an order by Heath J (confirmed by Fogarty J) that those costs should be treated as costs of the scheme. It includes interest at the scheme rate of 10% from the initial judgment date. In addition, any excess amount from Manchester’s set-off to the first demand can also be applied to set-off the second demand.

(Citations omitted)

[3] There has been an important development since the above statement background was first drafted. That is that the Court of Appeal has since delivered judgment¹ on the appeal against the determinations by the High Court² (“the 2017 judgment”) varying the remediation scheme. The net effect was that the Court of Appeal upheld the 2017 judgment.

The application to set aside and the opposition

[4] The first point is that there were two statutory demands served, one on 1 June

2017 and another on 4 July 2017. The first statutory demand was based upon the 2017 judgment of the High Court dated 3 March 2017, in which the court ordered that the applicant pay a contribution to the repair of the common areas of the building and the sum of $321,264.79 (plus both GST and interest).³ The first statutory demand also included demand that the applicant pay the sum of $226,679 representing body corporate “operating” levies up to 31 May 2017, again with interest.

[5] The grounds upon which the applicant seeks to set aside the first statutory demand are:

1. there is a substantial dispute whether all the amounts sought in the statutory demand are owing or due;

¹ Manchester Securities Ltd v Body Corporate 172108 [2017] NZCA 527.

² Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329.

³ Body Corporate 172108 v Manchester Securities Ltd, above n 2, at [157].

b) the applicant is entitled to set-off against amounts owing to the respondent various costs that in the aggregate exceed the amounts sought in the statutory demand;

c) the respondent has disputed the applicants claimed set-off;

d) any dispute as to the amount of the applicant’s set-off must be determined by arbitration; and

e) it is in the interests of justice for the orders to be made.

[6] The grounds upon which the respondent opposes the making of the orders setting aside the first statutory demand are:

a) the amounts sought to be paid were the subject of a judgment which required immediate payment, being the 2017 judgment;

b) the statutory demand also includes body corporate operating levies of

$226,679 and interest;

c) although the applicant appealed the 2017 judgment, it was not stayed;

d) so far as the applicant raises set-off claims:

i) they are for unliquidated sums; and

ii) they were disposed of by the 2017 judgment (with the exception of the cost of repairing the common property on the roof for which the applicant has $220,000 of the respondent’s money) either because:

a. the variation to the scheme in CIV-2009-404-6868 renders cl 21.2 of that scheme nugatory or because:

b. the set-off credits claimed in CIV-2009-404-6868 were rejected by the Court in the course of dealing with the variation application.

e) the applicant received $2,000,000 from the Auckland Council in satisfaction of all its claims, including costs of consultants;

f) in so far as the unliquidated set-off claims are not excluded by the 2017 judgment and remain alive, they are limited to the flashing junctures at the intersection of L11 and L12;

g) there is no substantial dispute between the parties; and

h) the respondent is solvent, whereas the applicant is insolvent.

[7] The second statutory demand required the respondent to pay the sum of

$206,919.47 representing the amount of the costs order which was made against it in

the 2017 proceeding (“the costs judgment”).⁴

[8] The originating application which the applicant filed seeking to set aside the second statutory demand set out the following grounds:

a) the applicant is entitled to set-off against amounts owing to the respondent various costs that in the aggregate exceed the amounts sought in the statutory demand;

b) the respondent has disputed the applicant’s claim to set-off;

c) any dispute as to the amount of the applicant’s set-off must be determined by arbitration; and

d) it is in the interests of justice for the orders to be made.

[9] The notice of opposition to the second application sets out the following grounds:

⁴ Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 1252.

a) the amount of $321,264.79 (plus both GST and interest) which the applicant was adjudged liable to pay was required to be paid “immediately” in the 2017 judgment.

b) although the applicant has appealed the costs judgment, it has not been stayed;

c) there is an issue as to whether the respondent has not already given credit to the applicant in regard to the costs which were ordered to be paid in a 2010 judgment of Heath J (“costs judgment number 4”).⁵ This followed on from Heath J’s substantive determination (“the 2010 judgment”).⁶ The respondent says that there is no basis for the applicant to argue to the contrary. Reference is made to the costs judgment number 4 which is now set out:

[17] I direct that the solicitor and own client costs and disbursements of both [the respondent and the applicant] shall be regarded as costs of the scheme, with the consequence that they will be paid out of levies based on unit entitlements.

d) there has been no unconditional credit and therefore no application or payment of the costs referred to in the costs judgment number 4 on various grounds, including that the costs judgment number 4 has not been sealed, the respondent gave credit against a levy which was set aside as part of an arbitration award between the parties, and the costs order was in any case set aside by the costs judgment in the 2017 case.⁷

Principles relating to applications to set aside statutory demands

[10] Section 290(4) of the Act provides:

The court may grant an application to set aside a statutory demand if it is satisfied that—

⁵ Body Corporate 172108 v Meader (No 4) HC Auckland CIV-2009-404-6868, 10 February

2011.

⁶ Body Corporate 172108 v Meader (No 2) HC Auckland CIV-2009-404-6868, 19 August

2010.

⁷ I understand that these various grounds in “d)” operate as an alternative to the contention in

“c)” that credit has in fact been given.

(a) there is a substantial dispute whether or not the debt is owing or is due; or

(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c) the demand ought to be set aside on other grounds.

[11] The principles which are applicable when the Court is applying s 290(4) were stated in the judgment of Abbott AJ in this Court in North Harbour Equine Hospital Ltd v DK Little Corporate Trustee Ltd, where the following statement of principle was made:⁸

The general principles which the Court applies in approaching its discretion in this matter are conveniently set out in Brookers Company and Securities Law at CA

290.02(1):

“(1) General principles

...

These principles ... are as follows:

a) The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.

b) The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.

c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.

d) An applicant must establish that any counterclaim or cross demand is reasonably arguable in all the circumstances.

e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.”

[12] The applicant relies predominantly on s 290(4)(b) of the Act. It says there is a substantial dispute whether both demands are due because it has set-offs in excess of

_{both demands. In other words, it has counterclaims available to it. That being so, as}

⁸ North Harbour Equine Hospital Ltd v DK Little Corporate Trustee Ltd HC Auckland CIV-

2006-404-7585, 19 February 2007 at [17].

outlined above, it must demonstrate that there are “clear and persuasive” grounds for

the claims and that there is a “real basis” for the claimed set-off.⁹

[13] I will begin by examining the arbitration issue because this will determine whether I should proceed to explore the grounds raised under each statutory demand.

The arbitration issue

[14] As already noted, the application to set aside each statutory demand asserts that any dispute as to the amount of the applicant’s set-off or cross-claim must be dealt with in accordance with the arbitration agreement which the parties signed. If that contention is correct, then the court is not able to come to even a tentative view about the viability of the counterclaim, cross-demand or set-off which the applicant has put forward. All those issues would need to be considered at arbitration.

[15] Clause 13 of the scheme provides for dispute resolution:

13 Dispute resolution

13.1 The Body Corporate's decision shall be final in all respect all matters arising under this scheme, except where 5 or more Owners whose objection in monetary value cumulatively exceeds $30,000, or where one Unit Owner has an objection which in monetary terms exceeds $10,000. Upon receiving notice of such an objection, the Body Corporate shall refer the matter to arbitration.

13.2 The objecting Owners must give notice to the Body Corporate of their objection within 15 working days of receiving an assessment as to Costs or other notice from the Body Corporate which is the subject of the objection outlining the grounds on which such objection is made. On receipt of the notice the Body Corporate will refer the matter to an arbitrator (to be appointed by the President of the Quantity Surveyors Association) and the arbitrator shall determine the issue under the provisions of the Arbitration Act

1996. The arbitrator's decision shall be final and the costs of the arbitration shall be borne as between the objecting Owners and the other members of the

Body Corporate generally as the arbitrator shall decide.

13.3 No Owner shall be entitled to withhold payment of a Levy on the basis that

_{the matter is in the process of dispute resolution ...}

⁹ Provida Foods Ltd v Foodfirst Ltd [2012] NZCA 326 at [32].

[16] The scheme of the arbitration provision assumes that a party who is liable to pay a levy can bring any disputes concerning the claim to arbitration. The entitlement to arbitrate is subject to certain rules about timing of giving notice that the party requires the matter to be arbitrated. The arbitration scheme can mean that a dispute is dealt with by arbitration rather than through court processes. However, once a court becomes seized of a matter, perhaps because no arbitration notice was ever given, or if given, was not given within the required time, the arbitration provision ceases to be of any relevance.

[17] Associate Judge Bell dealt with a similar argument between the same parties in Manchester Securities Ltd v Body Corporate 172108.¹⁰ In that case, Manchester had also applied to set aside a statutory demand issued by the body corporate. But the statutory demand was based on remedial levies.

[18] The Judge first noted that cl 13.3 is effectively a “pay now argue later”

provision:

[39] I accept the submission as to “pay now argue later”. There is an obvious practical purpose. It enables the body corporate to fund remedial works effectively. Cash flow is assured. Dissident owners who want to contest levies are still required to pay, although they may take their complaints as to the levies to arbitration.

[19] Essentially, the Judge then held that the arbitration provision governed the situation. If the body corporate brought proceedings to recover a remedial levy from a unit owner, the court would apply cl 13.3.¹¹ As the Judge explained:

[41] If the court were to consider the merits of the owner's arguments, it would be deciding something which, under the scheme, must be decided by arbitration. One of the purposes of the Arbitration Act 1996 is to encourage the use of arbitration as an agreed method of resolving commercial and other disputes. Under s 6 of that Act the provisions of schedule 1 apply to an arbitration in New Zealand. The first schedule contains rules applying to arbitration generally. There are rules as to court intervention in arbitrations. Under article 5, in matters governed by the schedule, no court shall intervene except where so provided in the schedule. If the court cannot intervene in any of the limited ways allowed under the first schedule of the Arbitration Act, the court cannot determine the merits of a unit owner's objection to a levy. Ordinarily then, objections to a levy cannot be a defence to a proceeding seeking a payment of a levy by reason of clause 13.3.

¹⁰ Manchester Securities Ltd v Body Corporate 172108 [2013] NZHC 177.

¹¹ At [40].

[42] Even if the parties waived the requirement to take the matter to arbitration, the “pay now argue later” provision would still apply. The body corporate would be entitled to obtain summary judgment on a claim for a remedial levy, leaving arguments as to the merits of the levy to be decided later.

(Citations omitted)

[20] I note that there are occasions where the courts may intervene even though a dispute is to be determined by arbitration. The first is where it can be shown that there is not in fact any dispute between the parties.¹² The courts have interpreted this as meaning that if it can be shown that a party does not have any arguable defence to a claim, then there is no dispute to be referred to arbitration and the matter should not go to arbitration, but may instead remain in court.¹³ The second is to seek interim relief pending arbitration.¹⁴

[21] Manchester had to, therefore, establish that the body corporate either had no arguable defence, so that there was not in fact any dispute to be referred, or that it should have interim relief pending arbitration.¹⁵ It could not do either, meaning the application to set aside the statutory demand was dismissed.

[22] Ultimately, in this proceeding, the respondent submits that:

20. There is no discretion or compulsion for the body corporate to attend arbitration:-

(a) The obligation to pay a levy imposed by a body corporate is a statutory obligation. The body corporate may recover the levy as a debt due, in accordance with s 124(2) of the [Unit Titles Act 2010];

(b) Under the scheme because the amount is not determined on the basis of an “assessment as to Costs or other notice” issued by the Body Corporate. Clause 13.2 only engages with respect to such a notice issued by the Body Corporate ...

¹² Arbitration Act 1996, sch 1, art 8(1).

¹³ Manchester Securities Ltd v Body Corporate 172108, above n 10, at [49]; Cognition

Education v Zurich Insurance Ltd [2012] NZHC 3257.

¹⁴ Arbitration Act, sch 1, art 9(1).

¹⁵ Manchester Securities Ltd v Body Corporate 172108, above n 10, at [53].

[23] With regard to the last point, the further contention of the respondent is that it is not an amount assessed by the body corporate which is the subject of the statutory demand in this case. Rather:

There is a judgment against which no arbitral regime can be invoked.

[24] I agree with the respondent. The decision of Associate Judge Bell can be distinguished on the basis that it dealt with levies and therefore came within the ambit of the arbitration provision. Here, the obligation to pay arises from judgments of this Court.

[25] In my assessment, the position which the respondent takes is therefore correct to the extent that orders which have been made by the courts cannot be challenged by means of invoking the arbitration clause in cl 13 of the scheme under s 48 of the Unit Titles Act 2010. The result is that the court must recognise that, in terms of court judgments and orders, an amount of not less than $576,373.98 is owing by the applicant to the respondent. This amount represents the total of the judgment sum ordered to be paid as part of the 2017 judgment, to which is to be added the sum of

$206,919.40, which were the costs ordered against the applicant at the trial.

[26] The effect is that the respondent has a present enforceable claim which the applicant must meet. That is to say, the statutory demand is supported by a debt and because of the deferment effect of cl 13.3, there is no present dispute that the amounts are payable.

[27] Given that conclusion, I will now consider the grounds concerning the first statutory demand. As noted in the applicant’s submissions, the applicant claims a set- off against the amounts sought in the demand of $552,446.

The 2017 judgment for $321,284.79 was ordered to be paid immediately

[28] There is no argument that in the 2017 judgment the applicant was ordered to pay the sum of $321,264.79 (plus both GST and interest),¹⁶ as the respondent sets out

_{in its notice of opposition to this application.}

¹⁶ Body Corporate 172108 v Manchester Securities Ltd, above n 2, at [157].

An obligation to pay immediately?

[29] It is correct that Fogarty J had the expectation that the amount would be paid forthwith but I am not sure that that adds anything to, or influences, the effect that judgments have under pt 11 of the High Court Rules.

[30] The fact that the judge directed that the amount was to be paid “immediately” does not in my view provide an indication that the court was thereby disallowing any right of set-off. It is difficult to see any ground upon which the court would make such an order because it would represent a conclusion that did not follow from interpretation of the parties’ contract or some other defensible ground.

[31] Assuming that there is a dispute about whether or not the direction of the judge in the 2017 judgment that the amount which the applicant was required to pay was to be paid “immediately”, then the words which the judge used in pronouncing judgment would not have the effect of excluding the entitlement that the applicant would otherwise have to set-off against the amount of the judgment. I consider that this point is at least arguable for the reasons I have set out in the previous paragraph. The requirement to repay “immediately” does not therefore prevent the applicant in the present proceeding from raising the question of the alleged debt which the respondent owes to it.

The issue of whether “the proviso” survived the variation of the scheme

[32] In the originating application, which the applicant has filed, express reliance is placed upon the terms of the remediation scheme settled by Heath J in the 2010 judgment.

[33] The submission of the applicant in this regard was as follows:

5. Manchester claims two set-offs against the first demand:

a. The scheme requires Manchester to carry out repairs to its unit and common property on level 12. The scheme (original and as varied) specifically provides for costs incurred by Manchester on consultants and advisors that benefit the Body Corporate and other unit owners to be shared. Manchester claims a set-off

for these charges (less its unit-entitlement share of them). The scheme, as varied by Fogarty J, provides for this set-off and for any dispute about the amounts due to be referred to arbitration.

[34] The point about the arbitration which is set out above will need to be considered further on in this judgment. For the moment, discussion will be limited to consideration of whether the contention is correct that the scheme as varied by Fogarty J actually provided for the set-off. If there was no express mention of the set-off, was it impliedly abrogated by the 2017 judgment?

[35] The position of the respondent is as follows:

15. MSL now claims (post-judgment) that the proviso to clause

21.2 remains part of the scheme as varied and that the Body Corporate is required to refer disputes with respect to these costs to arbitration.

16. Prior to the High Court delivering its Judgment on 3 March

2017 MSL never claimed that it is entitled to set-off these charges of project management consultants or other construction related advisors for the L12 works against operating levies and levies due under the scheme.

17. The Body Corporate does not accept that MSL is entitled to set-off these costs against the levies sought in the statutory demand.

18. All of these invoices relate to MSL’s re-development project situated on its own unit property on level 12. No explanation by either MSL or any of the parties who issued these invoices have provided any explanation for why they provide a benefit to the Body Corporate under clause [21.2 of] the scheme. Accordingly the Body Corporate does not receive a benefit for these costs incurred by MSL.

19. The Court has already declined to refer this matter to arbitration and declined to take MSL’s costs of construction to unit property on L12 into account when awarding the judgment sum.

20. There is no discretion or compulsion for the body corporate to attend arbitration:-

(a) The obligation to pay a levy imposed by a body corporate is a statutory obligation. The body corporate may recover the levy as a debt due, in accordance with s 124(2) of the [the Unit Titles Act

2010];

(b) Under the scheme because the amount is not demanded on the basis of an “assessment as to Costs or other notice” issued by the Body Corporate. Clause

13.2 only engages with respect to such a notice issued

by the Body Corporate. There is a judgment against which no arbitral regime can be invoked.

(Citations omitted)

[36] I have already noted the notice of opposition which the respondent has filed asserted a wider ground of opposition, being that the variation of the scheme brought about by the 2017 judgment rendered cl 21.2 of the 2010 judgment “nugatory” and, on the alternative ground, that the set of credits claimed in the 2010 judgment were rejected by the High Court in the course of dealing with the variation application.

[37] There is no clear answer available to the question set out in the preceding paragraph (paragraph [35]), which is at the heart of the dispute.

[38] While I accept that the 2017 judgment proceeded on the basis that there should be no obligation on the part of the levels I – XI owners to underwrite or contribute to the cost of repair of the unit property of the applicant, the provision in the 2010 judgment was not, as I read the 2017 judgment, expressly abrogated. There are reasons in principle which can be put forward for justifying a contribution by the level I – XI owners to costs which benefited their property, being costs of the kind which were referred to in cl 21.2 of the scheme (and cited in the 2010 judgment).¹⁷

[39] The roof and walls on level XII are part of the unit property of the applicant. The case for the applicant is that it is possible that because of the physical propinquity of the two parts of the building, money expended on remediating level XII would generate benefits to the part of the building below.

Are the counterclaim costs actually covered by cl 21.1 of the scheme?

[40] Notwithstanding the foregoing conclusion, it is still necessary for the applicant, before it can establish the dispute that it puts forward as a reason why it should not have to pay the amounts referred to in the 2017 judgment, to show that the

counterclaim costs are such that they actually come within the scope of cl 21.2 of the scheme.

[41] Clause 21.2 provides as follows:

Manchester shall not be liable to pay more than 11.88% of the total Cost of the Repairs carried out pursuant to this Scheme provided however that any Costs of Repairs that do not provide benefit to all other individual proprietors or the body corporate shall be borne solely by Manchester. The costs that Manchester contends provide a benefit to all individual proprietors (other than Manchester) or the body corporate shall be made available in writing, together with supporting documentation to the secretary of the body corporate. Any dispute about whether benefit is provided to all individual proprietors (other than Manchester) or the body corporate shall be determined under the dispute resolution provisions of this Scheme.

[42] In this regard, the applicant says:

28. These costs concern the level 12 common property and defects to the main roof and external walls of the complex (which are a Body Corporate expense under the Rules). The practical benefit of the costs is plainly enjoyed by all owners; the Body Corporate has not suggested otherwise.

29. The set-off claimed in the application, totalling $552,446 (incl GST), is the amount of the consultant and advisor costs Manchester claims under the proviso to cl 21.2. This amount alone exceeds the first statutory demand, but the figure will increase when additional costs incurred through 31 October 2017 are added (to be detailed in a supplemental affidavit).

(Citations omitted)

[43] In his affidavit sworn 14 June 2017, Mr Cummins, who is a director of the applicant, summarises the reason why costs were expended for building surveys, architectural design and other consultancy costs. It becomes apparent that remediating the roof was a very expensive exercise in terms of professional fees. Consulting engineers had to be retained to advise on the loadings that would be imposed on the structure as a result of the redesign.

[44] However, it becomes apparent that there is a tension between the position which the applicant is taking and the parameters of the 2017 judgment. The evidence which the applicant puts forward comes close to saying that because the work on level XII is concerned with the roof, it is to be implied therefore that the consultancy costs expended on the repair work must have been for the benefit of the other owners as

well. However, when the 2017 judgment was issued, it cannot have been overlooked that one effect of the judgment would be that, unless costs such as this were explicitly carved out from the costs for which the applicant would be responsible, the applicant would be required to pay for the roofing costs regardless of any element of benefit accruing to the owners of the lower levels as a result of the work. It may be inferred, therefore, that these types of costs were not intended to be recoverable by the applicant and that therefore even if there was no explicit direction displacing cl 21.2, it was implicit in the judgment that the clause would no longer have any effect or, alternatively, it would not have the effect of extending to general roofing repairs as the applicant now contends.

[45] There are other complexities with regard to trying to harmonise both the 2010 and the 2017 judgment. The 2017 judgment does not contain any pronouncement on whether funds which may have been expended in reliance upon the terms of the 2010 judgment were not to be recoverable (once the 2017 judgment amending the earlier scheme took effect).

[46] Another matter bearing on the question is the fact that the amended order which was eventually issued by the court pursuant to the 2017 judgment specifically retained the reference to the applicant being entitled to recover project management consultants costs, with the exception of those that “do not provide benefit to all other individual proprietors or the body corporate”.¹⁸ It is difficult to understand why the provision should have been retained in the order which was sealed by the court if, as the respondent apparently contends, the claims for project management consultants costs in relation to the level XII work were considered by the judge when reviewing the scheme and disallowed.

[47] In summary, to this point, the applicant is able to claim that it has a counterclaim, set-off or cross-demand pursuant to s 290(4)(b) of the Act.

The factual question of whether the repairs on level XII benefited the other owners

[48] The next question concerns the matter of whether, assuming that it cannot be resolved whether the applicant lost its entitlement to recover costs under cl 21.2 as a result of the amendment of the scheme, the professional services for which partial reimbursement of costs is now sought actually did provide any benefit to the proprietors of the lower level units.

[49] The evidence Mr Cummins filed in this proceeding appears to assume that because the applicant carried out repairs to the upper levels of the building, there must, ipso facto, have been benefit to the proprietors of the lower level units. Once again, uncertainties about the effect of the variation orders made in the 2017 judgment arise for consideration. The question is whether claiming on the basis just outlined is at such variance with the orders which were made by the court that it cannot be correct. The basis for stating matters on those terms is that the 2017 judgment was expressed as marking a return to the principles of the Unit Titles Act 2010,¹⁹ which would mean that the proprietor of level XII, the applicant, would be obliged at its own cost to meet the repairs of its own property. Much of the level XII structures though, including the roof, were part of the unit property of the applicant and were not common property. To recover costs for repairs to the unit property would cut across the explicit basis of the 2017 judgment. But if the applicant is not able to recover costs on the basis which Mr Cummins implicitly relies upon, what meaning can be attached to the relics of cl

21.2 which were not expressly abrogated in the terms of the order submitted to the court for sealing by the parties? Could the operation of the clause be limited to project management consultant’s costs for professional services that contributed to work both carried out on level XII and the levels below? The evidence before the court does not establish whether there is any factual basis for concluding that there was work which fell into that category. Theoretically, if the project managers had carried out work which facilitated or assisted work to be done to the common property below level XII, it would come within the literal wording of the residual provisions of cl 21.2.

[50] The 2017 judgment was clear in the determination to return the cost sharing basis for the repairs to the building to that which was prescribed in the Unit Titles Act. As part of that, it included a more rigorous insistence upon categorisation of costs, which were either to the owners’ units or the common property. There was to be no blurring between the two. Why cl 21.2 was retained at all in these circumstances is not clear, as I have already stated. Why it was restricted to only professional services of project management consultants is not clear either.

[51] To return to the central point, though, s 290(4)(b) of the Act requires the court to “be satisfied” that after taking account of the counterclaim, set-off or cross-demand, there is an amount owing that is less than the prescribed amount.

[52] The question then is whether the interpretation which the applicant attaches to cl 21.2 as it appears in the amended scheme is correct. Does the provision mean that any funds expended on level XII for project management services relating to the roof and external walls automatically qualify as being for the benefit of the owners of the lower-level units in the apartments? My conclusion is that such an interpretation is not sustainable, having regard to the overall approach that the judge took in the 2017 judgment.

[53] If cl 21.2 is not to be treated as a dead letter, it may be possible that there may be a different type of narrow benefit that cl 21.2 is aimed at. The type of benefit envisaged may, in other words, not be a benefit that is inferred to accrue to the rest of the building because of enhancements that are carried out to the top level of the building. It may be possible that project management information, which was generated at the same time as the level XII remediation is in progress, solved a problem for the levels I – XI owners about how to construct the interface between the two parts of the building, thus freeing them from the cost of expending funds in obtaining professional advice on that question.

[54] Whatever the correct approach is, the way that the case has been put before me does not suggest that it is correct that cl 21.2 envisages the recovery of the costs of

remediation of level XII on the ground that they must be assumed to result in benefits

being provided to “all individual proprietors (other than Manchester)”.²⁰

[55] The interpretation of the 2017 judgment is not something that can be undertaken in the course of deciding the originating application proceedings which are before the court. It is incumbent on a party in the position of the applicant, though, to at least suggest how a court faced with the task of interpreting the judgment against the background of the 2010 judgment, in the change of circumstances since, could reason its way to a conclusion that matches what the applicant puts forward about the meaning of cl 21.2 that supports the applicant’s argument in this case.

[56] There is also a factual issue in addition to that of the interpretation question. That arises in regard to the amount of the claim based on cl 21.2. The evidence which has been put forward on behalf of the applicant does not enable the court to come to any view as to whether any part of the funds which were outlaid by the applicant on the costs of project management consultants comes within the provisions of cl 21.2. Inferences are just not an adequate basis to assume that this factual issue has been satisfied. For all the court knows, advice may have been received from consultants about such diverse matters as the aesthetics of the level XII remediation, as well as the thermal efficiency of the roofing structure and wall claddings in regard to the level XII part of the building. The advice may have been received on the relative economies of adopting one form of construction or choice of materials over another which would only advantage the level XII owner by reducing the cost of the repair. While it would not be consistent with the principles upon which applications of this kind are decided to insist upon a rigorous analysis of the benefit to the other parts of the building, having regard to considerations such as those I have just listed, and perhaps others, at least some attempt ought to have been made to confront the point. I am not satisfied that it is seriously arguable that the costs which were expended by the applicant resulted in

_{benefit to the other owners in the body corporate.}

²⁰ Clause 21.2.

Set-off disposed of by the 2017 judgment?

[57] It was also submitted for the respondent that the claim for a set-off of the cl

21.2 amounts had been considered and dismissed by the court when giving the 2017 judgment. In my view, Mr Harris for the applicant correctly stated the position when he said that self-evidently these matters were not raised for consideration by the court and that there is no reference to them in the 2017 judgment.

[58] The alternative approach which the respondent took was that even if the matters had not been dealt with or raised as part of the 2017 judgment, they ought to have been. This alternative approach was not pleaded in the notice of opposition which the respondent filed.

[59] The ground is based upon strike out, more specifically abuse of process:²¹

Bhanabhai v Commissioner of Inland Revenue.²² As has been made clear by recent authority,²³ the question of whether this type of argument will prevail is not resolved simply by enquiring whether the claim for relief could or could not have been brought in earlier proceedings. An assessment is required of the background and a “broad, merits-based judgment” must be undertaken.²⁴ This will take account of the public and private interests involved and the facts of the case in order to determine whether a party is misusing or abusing the processes of the court by seeking to raise an issue which could have been raised before.

[60] I do not consider that the court has sufficient material before it which enables this type of judgment to be undertaken. As I understand it, the remediation of level XII of the apartment building continues to this day. While it may seem surprising that it has not been possible to dispose of these issues in litigation spanning some seven years, there may be a reason why the issue about the cross-claim has yet to be brought to judgment. While there has been some apparent reluctance on the part of the applicant to meet its due share of the operating expenses of the complex in the form

_{of ordinary levies, it is not sufficiently clear that it is reluctance to make payments that}

²¹ High Court Rules, r 15.1(1)(d).

²² Bhanabhai v Commissioner of Inland Revenue [2006] NZCA 368; [2007] 2 NZLR 478 (CA) at [59]- [61].

²³ Beattie v Premier Events Group Ltd [2014] NZCA 184 at [44]- [45].

²⁴ Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (HL) at 31.

is driving the late introduction of the set-off to the current litigation. The party should not be prevented from raising an issue in proceedings on the ground of abuse of process unless there is some persuasive evidence showing that the issue has been raised at a late stage in order to obtain some illegitimate advantage. A predisposition to resist making payments of body corporate dues would not in my view seem to provide a solid basis for assuming that it is abusive for the applicant to raise this issue in these proceedings.

[61] The just outcome, I consider, in relation to this issue is that this is not a clear case where an abuse of process argument should be accepted with the result that the applicant is barred from raising the set-off. This ground of opposition is therefore disregarded.

Amounts already recovered in litigation

[62] A further ground of opposition to the application is that it is not open to the applicant to rely upon non-payment of the project management invoices in relation to cl 21.2 because it, the applicant, has already recovered full payment of all qualifying costs through an award of damages that was made in its favour in the Weathertight Homes Tribunal (“WHT”).

[63] The evidence which has been submitted by the respondent in supporting this particular ground of opposition comprises an affidavit by Mr Samuel, the chairman of the respondent. He in turn annexes to his affidavit the particulars of claim which were filed by the applicant in the WHT and an affidavit from a quantity surveyor, Mr Maddren. While I agree that the evidence does provide indications that project management type costs were claimed in the tribunal, it is far from certain that the award of compensation which was forthcoming, $2,000,000, actually included and extended to the cl 21.2 costs. I do not therefore consider that the affirmative matters that the respondent relies upon under this ground of opposition are established with sufficient certainty to amount to a separate ground upon which the originating application for order setting aside the statutory demand ought to be declined. In the end though that does not make any difference to the outcome in this case because of the conclusion that I have reached on other grounds that the application fails.

Conclusion concerning first statutory demand

[64] I conclude that the applicant does not have an arguable set-off arising from cl

21.2 in the sum of $552,446 which it can set off against the amounts claimed for in the first statutory demand.

[65] According to my calculations, if the set-off claimed in regard to items arising under cl 21.2 is ignored, the approximate amended amount of the statutory demand ought to be $391,043.98. This figure may, however, be affected by considerations of interest, costs and possibly GST.

[66] The result of that conclusion is that the remaining set-off and cross-claims which the applicant puts forward as a ground for setting aside the statutory demand are not sufficient order to bring the amount which is claimed in the statutory demand beneath the statutory minimum claim prescribed by s 289(2)(a) of $1000.²⁵

The second statutory demand

[67] The second statutory demand is in the sum of $206,919.47, which is the amount which the applicant was ordered to pay by the costs judgment as costs on the variation proceeding which resulted in the 2017 judgment.

[68] The applicant claims to be able to offset its legal costs relating to the 2010 judgment of the High Court when Heath J settled the rebuilding scheme. As part of the orders that Heath J made as part of that judgment, he directed that the costs of each party were to be costs in the scheme and were to be met by levies. This order was not affected by the 2017 judgment. The applicant claims that costs for the first stage of the litigation to which it is entitled amount to $132,605.32.

Background to second statutory demand

[69] The issue that arises in respect to this matter is as follows.

[70] The first issue is that the applicant submits that the costs order which it obtained as a result of the pooled costs direction that Heath J gave has never been paid to it or applied to its credit.

[71] The respondent asserts that it gave credit for the costs amount, albeit payment of levies on a without prejudice basis, when it took proceedings to enforce a claim for levies against the applicant by issuing a statutory demand in or about April 2011. In the body of the statutory demand, the respondent stated the amount that was being sought, noting that the amount was arrived at after:

without prejudice giving you credit of $132,605.62 on account of money is claimed by you to be costs of repairs

[72] It is a little difficult to understand why the wording set out above was actually adopted because the claim is apparently for legal costs.

[73] The amount which the applicant claimed for the proceedings leading up to the

2010 judgment was the sum of $132,605.32.

[74] In 2012, the applicant says the body corporate questioned the reasonableness of the charges which the applicant was seeking to recover from it.

[75] The background thereafter becomes rather confused. Questions arise as to whether or not there ever was a credit given, whether a statement that a credit was being given on a without prejudice basis was effective for purposes about to be discussed, and whether the costs judgment number 4 that Heath J made following the

2010 judgment survived the 2017 judgment (and which has since been considered on appeal by the Court of Appeal).

[76] The Court of Appeal reviewed the costs judgment, reciting that Fogarty J had directed that the costs be pooled and treated as costs of the scheme, with the consequence that they would be paid out of levies.²⁶ The Court then went on to say:

[74] More controversially in his costs judgment, Fogarty J also set aside

Heath J’s 2011 costs order. Justice Fogarty considered he had

jurisdiction to do that because Heath J had made his costs order not under the High Court Rules but under s 48 of the Unit Titles Act ...

[77] The Court of Appeal noted²⁷ that there were some reservations with the order that Fogarty J made, with the costs judgment recording:²⁸

[24] Justice, however, requires some applications of the direction that the solicitor and own client costs and disbursements of both the Body Corporate and Manchester Securities Ltd shall be regarded as costs of the Scheme. To the extent that paragraph [17] of judgment number 4 (dealing with costs) has been applied between the parties by the Body Corporate prior to March 2013, I do not think those application should be disturbed.

Costs post-March 2013

[25] However, from 18 March 2013 [the date the Body Corporate filed its application for a variation], in my view it would be quite unjust for Manchester’s legal and client costs in opposition to the application to vary the Scheme, to be allocated pursuant to [the 2011 costs order] ...

[78] The outcome of these various matters, as well as subsequent communications between the parties which the Court of Appeal referred to at paragraphs [80] and following, was to the effect that the credit in regard to the $132,605.62 costs order was preserved by the 2017 judgment. It is noteworthy that it was the credit that was preserved when the Body Corporate apparently concluded that, on a without prejudice basis, it would “credit [the] building levy account with the sum of $132,605.62”.²⁹

[79] The Court of Appeal apparently concluded that there had been an application of the amount of the costs order prior to March 2013 and that therefore even though Fogarty J abrogated part of the costs orders that accompanied the 2010 judgment, the part relating to $132,605.62 remained claimable by the applicant even though the respondent, when acknowledging such an entitlement, did so on a without prejudice basis.³⁰ The eventuality against which it was acknowledged on a “without prejudice” basis was the possibility that the respondent would challenge the amount of costs,

_{presumably on the basis of quantum.}

²⁷ At [74].

²⁸ Body Corporate 172108 v Manchester Securities Ltd, above n 4.

²⁹ Body Corporate 172108 v Manchester Securities Ltd, above n 4, at [80].

³⁰ At [81]-[83].

[80] As I understand it therefore, the costs order which was made is enforceable. However, it is presumably open to any legal challenge that the respondent is able to bring against it. Neither the judgment of the two High Court judges nor the Court of Appeal judgment fixed the quantum. The $132,605.62 is the amount which the applicant claims is owing. The respondent has yet to unequivocally admit liability for that sum. If it does not, then it must be open to the applicant to seek an order either by arbitration or through the court fixing the amount of the costs.

[81] The issue then becomes where this leaves the court on determining the present application. There is no doubt that the court actually made the costs order in the 2017 proceedings which is the basis of the statutory demand. However there is also no doubt that Heath J made the orders which the applicant intends to use as a set-off. The Heath J order was varied by the judgment of Fogarty J. As a result of those variations the question arises whether the parties had taken any steps to implement the Heath J costs order prior to March 2013. If they had, it is now too late to undo the effect of Heath J’s order. So long as there is doubt on that issue, it seems to me that there is a reasonable argument available to the applicant that the conditions which Fogarty J attached have or have not been satisfied.

[82] In addition, the applicant contends that it should be entitled to interest on the unpaid costs in the sum of $85,055, meaning that the entire amount for which the applicant arguably has a right of set-off would seem to be approximately $220,000.³¹

If that figure is adopted, then it exceeds the amount of the second statutory demand of

$206,919.47. On that basis, justice in my view requires that the application to set aside statutory demand ought to succeed. There will be an order accordingly.

Costs

[83] The parties should confer on the issue of costs and, if they are unable to agree, are to file memoranda not exceeding four pages on each side within 20 working days.

³¹ The sum of the costs order of $132,605.62, plus interest which the applicant claims of

$85,055, totals $217,660.62 as I calculate it, slightly less than the figure which the applicant has adopted.

J.P. Doogue

Associate Judge