John Gilbert v Body Corporate 162791

• Jurisdiction: New Zealand
• Judge: William Young J,Elias CJ,O'Regan J,William Young
• Judgment Date: 02 June 2016
• Neutral Citation: [2016] NZSC 61
• Docket Number: SC 59/2015
• Court: Supreme Court
• Date: 02 June 2016

Between

John Gilbert

First Appellant

QSM Trustees Limited (In Receivership and in Liquidation)

Second Appellant

and

Body Corporate 162791

Respondent

[2016] NZSC 61

Court:

Elias CJ, William Young, Glazebrook and O'Regan JJ

SC 59/2015

IN THE SUPREME COURT OF NEW ZEALAND

Appeal against a Court of Appeal decision which held the appellant receiver was liable for body corporate levies from 14 days after his appointment as receiver, pursuant to s32(5) (liabilities of receiver) and s32(6) Receiverships Act 1993 (liability did not commence until 14 days after a receiver was appointed) — the appellant was the receiver of the second appellant which owned units in the Mid — City complex on Queen Street, Auckland — the second appellant was liable for body corporate fees under s80(1)(f) Unit Titles Act 2010 (responsibilities of owners of principal units — must pay all rates, taxes, charges, body corporate levies…) — whether the levies were due under an agreement — if yes, whether the agreement related to the use, possession or occupation by the second appellant of the property in receivership.

Counsel:

D J Chisholm QC and S M Jass for First Appellant

J F Anderson and T J G Allan for Respondent

• A The judgment of the Court of Appeal is affirmed.

• B There is no order for costs.

JUDGMENT OF THE COURT

REASONS

William Young and Glazebrook JJ [1]

Elias CJ and O'Regan J [60]

WILLIAM YOUNG AND Glazebrook JJ

(Given by William Young J)

Table of Contents

	Para No
Introduction	[1]
The commercial background to the dispute	[3]
The general position as to the priority of body corporate fees	[12]
The basis of the claim against Mr Gilbert	[23]
Are the levies due under an agreement?	[27]
The bases upon which it might be said that the levies are due under an agreement	[27]
The approach of the High Court and Court of Appeal to the agreement issue	[34]
Our approach	[39]
Does the agreement relate to the use, possession, or occupation by QSMTL of property in receivership?	[45]
Relief under s 32(7)	[48]
Solicitor and own client costs	[55]
An equally divided Court	[59]

Introduction

1 QSM Trustees Ltd (in liquidation and receivership) (QSMTL) owns five units (units 3A–3E) in a building at 239 Queen Street, Auckland, known as the Mid City complex. Mr John Gilbert is its receiver. Mr Gilbert and QSMTL are the appellants. Under s 80(1)(f) of the Unit Titles Act 2010 (the 2010 Act) unit owners are required to pay body corporate levies as fixed by the body corporate. By reason of s 32(5) of the Receiverships Act 1993, receivers are personally liable: 1

for rent and any other payments becoming due under an agreement subsisting at the date of the appointment of the receiver relating to the use, possession, or occupation by the grantor of property in receivership.

Under s 32(6) such liability does not commence until 14 days after a receiver is appointed.

2 The respondent is the body corporate of the Mid City complex. It claims that Mr Gilbert is personally liable for body corporate levies from 9 August 2013, being 14 days after his appointment as receiver. A summary judgment application was rejected by Associate Judge Abbott in the High Court. 2 His judgment was reversed by the Court of Appeal which: 3

Mr Gilbert and QSMTL appeal against the Court of Appeal decision.

• (a) held that Mr Gilbert was liable for the levies and interest;

• (b) rejected an application by him for relief against that liability;

• (c) entered summary judgment accordingly; and

• (d) ordered him to pay the body corporate “its reasonable solicitor/client” costs.

The commercial background to the dispute

3 The Mid City complex was built in the 1980s. In 1994 it was redeveloped by its then owner, Mission Developments (Auckland) Ltd (Mission), into its current unit title structure and now consists of:

• (a) a basement;

• (b) a mid level of two floors divided into individually owned units which are used as retail premises; and

• (c) an upper level spread over three floors, in which the five units owned by QSMTL are located.

4 A cinema complex was located on the upper level. This venture was unsuccessful and stopped operating in 1998. More to the present point, there is a land covenant providing for redevelopment of the upper level and the airspace above. This is registered on the supplementary record sheet comprising part of the unit plan. Mission was both grantor and, in its capacity as the then owner of the five upper level units, also the grantee. In litigation in 2006, Venning J held that the then owner of units 3A–3E could enforce the land covenant against the other unit holders and the body corporate. 4 In the event, however, the redevelopment proposed did not proceed.

5 On 9 September 2010 Messrs Alan Copeman and Kerry Finnigan settled a trust known as the 239 Queen Street Trust. The original trustee was 239 Queen Street Trustees Ltd (239QSTL). The trust was interested in acquiring the five units on the upper level of the complex with a view to redevelopment. There were associated negotiations between the trust and the body corporate. These negotiations resulted in a letter of 24 November 2010 from the solicitors for the trust to the body corporate which the latter executed. This letter recorded a bargain as to the proposed redevelopment under which, inter alia, the trust was to replace the roof of the building and make a small payment towards the levy arrears and the body corporate was to write-off the balance of the levy arrears once the roof was completed. Its liabilities in relation to historic body corporate levies thus having been conditionally addressed, 239QSTL took a transfer of the five units. The trust has subsequently redeveloped, to some extent, the upper level of the building and, by early 2012, a market (known as Queen Street Market) consisting of 25–30 retailers was operating there.

6 There is no direct evidence from Mr Gilbert in the present proceedings as to the legal basis upon which the market operates. It appears, however, from what we were told by counsel (based on affidavits filed in relation to stay proceedings and not strictly before us) that under a lease of the five units of 1 March 2012 between 239QSTL 5 and a company associated with Mr Finnigan, the lessee (that is Mr Finnigan's company which operates the market) is not required to pay rent to 239QSTL (now, we deduce QSMTL) 6 unless the rental it derives exceeds $1,100,000 per annum. We will come back to this evidence later. It was not before the Court of Appeal when it heard the appeal from the Associate Judge's decision.

7 There has been substantial disagreement between the body corporate and the trust as to the implementation of the 24 November 2010 agreement and more generally as to the trust's rights under the redevelopment covenant. In the result, relations between the trust and the body corporate broke down. The roof of the

building has not been replaced and 239QSTL did not pay current body corporate levies

8 The body corporate issued a statutory demand for payment of the outstanding body corporate levies and, when this was not complied with, applied to put 239QSTL into liquidation. The trust did not engage directly with this process. Rather units 3A–3E were transferred to QSMTL on 23 January 2013 and no opposition was offered to the making of an order for the liquidation of 239QSTL two days later. 7

9 In March 2013, QSMTL commenced civil proceedings seeking to enforce the 24 November 2010 agreement and the redevelopment covenant. QSMTL also applied to set aside a statutory demand which the body corporate had issued in February; this was on the basis that it had a counterclaim against the body corporate for an amount exceeding the amount of the demand.

10 It appears that in July 2013, the trust decided not to contest the proceedings. We say this because:

• (a) QSMTL did not comply with an unless order made on 18 July 2013 in the statutory demand proceedings and its application to set the demand aside was thus dismissed. 8

• (b) A company associated with Mr Finnigan which held a mortgage security over the assets of the trust appointed Mr Gilbert as receiver of QSMTL. The following day QSMTL was placed in liquidation and a Mr Young (who works on the same floor of the same building as Mr Gilbert) was appointed as the liquidator.

• (c) QSMTL did not comply with an order for security for costs made on 11 July 2013 9 in the proceedings against the body corporate with the result that these proceedings were dismissed on 24 October 2013. 10

11 Beyond what might be inferred from the dismissal for non-compliance with procedural orders of the claims made on behalf of the trust, we do not have a view of the merits of the dispute between the trust and body corporate. Indeed, we understand that there is now further litigation between the parties as to the redevelopment covenant which is before the High Court. One thing that is obvious, however, is that the structure through which the five units are owned and operated is well-designed to avoid payment of levies. This structure enabled the trust to render the liquidation proceedings against 239QSTL pointless by the simple expedient of substituting QSMTL as trustee. Then when QSMTL became involved in proceedings likely to result in its liquidation, Mr Gilbert was appointed as its receiver by Mr Finnigan's company and Mr Young, who works in close physical proximity to Mr Gilbert, was appointed as liquidator. The lease to which we have alluded in [6] can be seen as a further cut-out interposed between the body corporate and the assets of the trust.

The general position as to the priority of body corporate fees

12 Under s 75 of the 2010 Act, the deposit of a unit plan creates a body corporate, the members of which are the owners of the units. The body corporate is the legal owner, and the unit holders...