Cummins v Body Corporate 172108
| Jurisdiction | New Zealand |
| Judge | Clifford J |
| Judgment Date | 29 April 2021 |
| Neutral Citation | [2021] NZCA 145 |
| Docket Number | CA238/2020 |
| Court | Court of Appeal |
[2021] NZCA 145
Clifford, Woolford and Mander JJ
CA238/2020
IN THE COURT OF APPEAL OF NEW ZEALAND
I TE KŌTI PĪRA O AOTEAROA
Companies, Insolvency — appeal against a High Court order placing the second respondent company into liquidation — outstanding judgment debt — right of set-off — principles of statutory, equitable, and insolvency set-off, and their interrelationship — English approach to contingent claims of an insolvent company in insolvency set-off — Companies Act 1993
K P Sullivan for Appellant
J B Orpin-Dowell and T J G Allan for Respondents
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A The appeal is dismissed.
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B The appellant must pay the first respondent costs for a standard appeal on a band A basis and usual disbursements.
(Given by Clifford J)
Manchester Securities Ltd (Manchester), the second respondent, was placed in liquidation by order of the High Court at Wellington on 19 February 2020 on the application of the first respondent, Body Corporate 172108. 1 Mr Cummins appeals that decision. He does so with leave: Mr Cummins is the sole shareholder and director of Manchester.
This appeal continues a dispute which has, since 2010, been before various courts on numerous occasions. This Court itself has already set out the background to this dispute in some detail on no fewer than three occasions. 2 In those circumstances, the following, relatively brief, summary will suffice.
Body Corporate 172108 (the Body Corporate) is the body corporate of the unit title property known as Hobson Apartments, 196 Hobson Street Auckland. In the first of its three earlier judgments (the Variation Appeal) this Court described Hobson Apartments as follows:
[5] Hobson Apartments is a 12 storey unit title development in Central Auckland with an unusual feature. The exterior of levels 1–11 is common property owned by the Body Corporate but not the exterior of the 12th floor. Almost all of the 12th floor is private property owned by Manchester. This came about because the 12th floor which is aesthetically and physically different from the rest of the building was constructed separately after the rest of the building had been completed. The 12th floor has a penthouse, Unit 12A, which covers the entire floor. The only common property on the 12th floor comprises the lift and stairwell shafts, ducts and a small recessed area at the rear on the eastern side.
[6] Unit 12A is the largest and most valuable unit in the complex. The ownership interest or unit entitlement of unit 12A is 11.88 per cent. 3
Manchester, as the trustee of Mr Cumming's trading trust, owns Unit 12A.
Hobson Apartments is a leaky building. In 2010 the Body Corporate sought court sanction to empower it to carry out repairs to individual units, including 12A, as well as common property. The Body Corporate proposed a scheme in line with standard unit title principles: that is the Body Corporate would contract for the repairs, with each unit holder paying for the repairs required to its separate property and contributing its unit entitlement of the cost of repairing the common property.
Manchester was the only unit holder to oppose the scheme. Manchester considered Unit 12A was in a far better condition than the rest of Hobson Apartments. Manchester was also mindful of the limited extent of the common property on level 12. Accordingly, Manchester was unwilling to contribute to repair of common property, on the floors below level 12. It wanted to repair Unit 12A, and the common property on level 12, independently of the Body Corporate.
The scheme eventually sanctioned by the High Court provided for Manchester to repair level 12 (individual and common property) pursuant to a separate contract, and the Body Corporate would repair levels 1 to 11 (individual and common property). 4 Manchester's total liability would be limited to its unit entitlement (11.88 per cent) of the overall cost of repairing Hobson Apartments (common and separate property) as incurred (i) by the Body Corporate under its level 1 to 11 contract and (ii) by Manchester itself under its level 12 contract. That approach was based on the then current estimate that the total cost of all repairs would be $6,250,000, comprising $5,750,000 for levels 1 to 11 and $500,000 for level 12. Manchester's unit entitlement liability (11.8 per cent of $6,250,000) would be $742,500. Manchester would therefore, in addition to paying the $500,000 to repair level 12, be liable to contribute $242,500 to the costs of repairing levels 1 to 11. 5
Things did not go according to plan. By 2017:
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(a) Manchester had made little, if any, progress on the repair of level 12. Level 12 was not in the condition initially assumed and the estimated
costs of its repairs were continuing to increase: by June 2012 to around $1.1 m, 6 and by early 2016 to around $2.30 m. 7 -
(b) The Body Corporate had completed the repair of common levels 1 to 11 at a final cost of $8,131,002.55. 8
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(c) Manchester had not paid any amount levied by the Body Corporate for the level 1 to 11 common property repairs. Its view was that, as the cost of repairing level 12 was now greater than its, capped, 11.88 per cent contribution to total costs, the Body Corporate owed it money. 9
Against that background, the Body Corporate applied to the High Court to amend the scheme by the removal of the special Manchester payment arrangements, so as to revert to the standard approach of separate liability for separate property, and unit entitlement liability for common property. Fogarty J was in no doubt that justice, and the scheme of the Act properly understood, required such an amendment. 10
Thus, Manchester was to pay the full cost of repairing its separate property on level 12. The cost to repair the common property on level 12 would be met by all unitholders (Manchester included) pro rata their unit entitlements. Finally, Manchester would also be liable for its unit entitlement share of the repair costs for the levels 1 to 11 common property.
Fogarty J realised, however, that in making those changes he needed to address the financial position at the time they would take effect. The evidence was, the Judge accepted, that the repair of the common property on levels 1 to 11 had cost $4,320,266 and that the cost estimate for the repair of the common property on level 12 was, at that point, $217,865.20. 11
On the basis the Judge reasoned: 12
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(a) Manchester owed the Body Corporate $513,247.60 for common property repairs (11.88 per cent of $4,320,266).
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(b) Manchester's unit entitlement liability for estimated level 12 common property costs was $25,882.90 (11.88 per cent of $217,865.20), meaning other unit owners' liability to reimburse Manchester was $191,982.81.
In those circumstances the Judge was prepared to allow Manchester a credit for that amount “if only to encourage immediate compliance by Manchester with this Court's order to the benefit of all the other unit holders”, so that Manchester could be said to owe the Body Corporate — as things then stood 13 — $321,264.79. 14
The Judge summarised the effect of his decision amending the scheme in the following way:
[157] The effect of that order is [to] set aside the limit of 11.88 per cent and to reinstate the policy of the Act. Second, as indicated in paragraph [146], I order Manchester to pay to the Body Corporate for the benefit of the unit holders of levels 1 to 11 the sum of $321,264.79 (plus GST) as a provisional sum. That sum [is] to be adjusted upon completion of remediation of the property on level 12 to the extent that the Maddren 15 figure of $217,865.20 varies.
(Footnote added.)
Manchester unsuccessfully appealed Fogarty J's judgment varying the scheme to this Court. 16 Notwithstanding, Manchester has never paid the amount Fogarty J in 2017 ordered to be paid immediately. Nor has it since then paid levies to the Body Corporate. Nor are its repairs to level 12 complete: even now that remains an elusive prospect.
Since the decision of this Court dismissing Manchester's appeal against Fogarty J's variation judgment, the Body Corporate has sought to enforce the payment of that judgment debt: first, by way of statutory demand, 17 then by the filing of an application for winding up, 18 and finally at the hearing of that application. 19
Manchester has, unsuccessfully, resisted each of those enforcement steps. It has based that unsuccessful opposition — as it based its opposition to the Body Corporate's application to amend the scheme and as Mr Cummins bases this appeal — on what is said to be the significance of rights of set-off Manchester has against the Body Corporate's claim for the payment of the 2017 judgment debt, and of arbitral rights as regards its dispute with the Body Corporate. In doing so Manchester points to its rights under paragraphs 10.3 and 21.2 in particular of the scheme which, as relevant, provides as follows:
10. Allocation of Costs
10.1 Where Repairs can be identified with a specific Unit, the Cost of such Repairs shall be borne by the Owner or Owners of that Unit.
10.2 Where Repairs are carried out to Common Property, the provisions of the Act shall apply.
10.3 Subject to any specific provision to the contrary in this scheme, where repairs involve both Units and Common Property, the Cost of such Repairs shall to the extent possible be apportioned to each Owner on the basis of that owner's legal title to part of the Building.
21. Specific arrangement with Manchester Securities Ltd in respect of level 12
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21.2 … The costs in respect of project management consultants or other construction-related advisors that Manchester contends provide a benefit to...
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