Manchester Securities Ltd v Body Corporate 172108

• Jurisdiction: New Zealand
• Judge: Asher J
• Judgment Date: 13 June 2018
• Neutral Citation: [2018] NZCA 190
• Docket Number: CA98/2018
• Court: Court of Appeal
• Date: 13 June 2018

Between

Manchester Securities Limited

Appellant

and

Body Corporate 172108

Respondent

[2018] NZCA 190

Court:

Kós P, Asher and Gendall JJ

CA98/2018

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Civil Procedure, Companies — Appeal against a High Court (“HC”) decision which refused to set aside a statutory demand under s290(1) Companies Act 1993 (“CA”) (Court may set aside statutory demand) — dispute concerned leaky building — appellant owned the top apartment — statutory scheme under s48 Unit Titles Act 1972 (“UTA”) (scheme following destruction or damage) reinstated — whether the statutory demand should have been set aside because the dispute should have been referred to arbitration — whether the appellant had a defence of set-off — test to be applied under s290 CA

Counsel:

M C Harris and H E McQueen for Appellant

S F Powrie for Respondent

• A The appeal is dismissed.

• B The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Asher J)

Table of Contents

	Para No
Introduction	[1]
Background	[2]
The arguments	[17]
Arbitration	[20]
The scheme	[20]
The test to be applied	[26]
Are there clear and persuasive grounds showing a set-off?	[37]
Should the claimed set-off have led to the granting of the application?	[44]
Set-off against the judgment sum	[44]
Approach to the exercise of the discretion	[45]
Our decision on the exercise of the discretion	[50]
The ordinary levies	[63]
Conclusion	[67]
Result	[68]

Introduction

1 This is an appeal against a refusal to set aside a statutory demand under s 290(1) of the Companies Act 1993 (the Act). It is far from the usual dispute about a debt. The parties to the appeal are both victims of catastrophic weathertightness failures of their apartment building. These failures have required them to incur very significant expenses in endeavouring to remedy the building faults. It is that gruelling process that has led the appellant, the owner of the top and largest apartment, and the respondent body corporate, representing the other 38 unit title owners, to fall out.

Background

2 It is necessary for us to trace briefly the history of this matter leading to a decision of Fogarty J in the High Court 1 and the appeal from his decision to this Court, 2 as those decisions are the basis of the major amount claimed in the statutory demand.

3 The respondent, Body Corporate 172108, represents the owners of Hobson Apartments, a 12-storey unit title development in central Auckland. The building contains the usual common areas that are owned by the Body Corporate,

including most of the exterior of the building. Unusually, that is not the position in relation to level 12. The level 12 exterior is owned by the appellant, Manchester Securities Ltd (Manchester). The Body Corporate's ownership of the exterior stops short of that level. This feature is explained by level 12 being aesthetically and physically different from the rest of the building, and being constructed separately after the rest of the building had been completed

4 The only common property on level 12 comprises the lift and stairwell shafts, ducts and a small recessed area at the rear of the eastern side. Unit 12A occupies all the top level, and is the largest and most valuable unit in the complex. The ownership interest or unit entitlement of unit 12A is fixed at 11.88 per cent. 3

5 Severe water ingress into the building was apparent by October 2009. The Body Corporate applied under s 48 of the Unit Titles Act 1972 for a remediation scheme empowering it to carry out repairs under a single building contract to the whole of the complex, including the units and the common property. Under s 48, when any building or improvement is damaged or destroyed, the court may settle a scheme for the reinstatement of the building. The court may make orders for the application of insurance money, for payment of money by or to the body corporate, and impose such terms and conditions as it thinks fit. 4 Schemes under s 48 are often used to arrange reinstatement of unit title developments suffering from weathertightness defects. 5 The Body Corporate wanted Manchester to meet its percentage of the costs of all the repairs to common property like any other unit owner, by contributing 11.88 per cent to the cost as per its ownership interest.

6 This was opposed by Manchester. It wished to repair all of level 12 itself, and not to contribute to the cost of any other work. At the time it was thought that the leaks were principally emanating from the failure of the cladding at the levels below level 12. Manchester was prepared to manage its own repairs, and asked to be excluded from any repair solution involving a single contract to the whole building. Manchester and the Body Corporate could not agree therefore on the terms of the

scheme. There was an impasse on the terms of the scheme and proceedings were filed in the High Court

7 The scheme was subject to multiple contested hearings, and four judgments were issued by Heath J between 3 March 2010 and 10 February 2011. 6 The outcome of these judgments was that a scheme was approved involving a single contract for the repair of the building as a whole. Manchester would be able to appoint a joint project manager for the level 12 work. As regards the cost allocation, Heath J noted the unusual ownership structure and considered a fair solution would be to require Manchester to contribute to the repairs of the common property on levels 1–11 as well as paying for all of the level 12 work, but on the basis that its liability would be capped at 11.88 per cent of the total cost of repairs to the whole building. We will refer to some of the provisions of the scheme later in this judgment.

8 In 2010 and 2011 before Heath J, the indicative figure for the repairs was a total estimated cost of approximately $6.25 million, being $5.75 million for the repairs to levels 1–11 and $500,000 for the repairs to level 12. Unfortunately after the terms of the scheme were decided there were lengthy delays, escalations and disputes between the parties. The repairs to levels 1–11 were completed on 12 December 2013 at a total cost of $8,131,002, a 41 per cent increase on the original estimate. The remediation costs of level 12 also proved to be far more expensive than expected. Indeed they are still not completed. As at 2016 the likely cost to repair level 12 was estimated at $2.6 million, a 430 per cent increase from the original estimate of $500,000. On that basis the final cost of repairs to the whole building was likely to approach something close to $10.7 million as compared with the original estimate of $6.25 million. Because the work to level 12 is still not completed, it is impossible to know with any degree of certainty what the final total cost of repairs to the whole building will be.

9 On 18 March 2013, when it had become clear the costs were far greater than anticipated when the scheme was approved, the Body Corporate applied for an order

varying the scheme approved by Heath J, so as to avoid what it claimed would be an unjust outcome. Whatever the final figure, it was clear by that stage that the repairs to level 12 would exceed 11.88 per cent of the total cost of repairing the building. Because of the 11.88 per cent cap on Manchester's liability, Manchester did not have to contribute anything to the repairs to common property on levels 1–11, and was also entitled to a payment from the Body Corporate for the repairs to level 12. Therefore, the owners other than Manchester were contributing far more than expected to the common property on levels 1–11, but would also be required to make a payment to Manchester in respect of the repair to the common property on level 12, which was also much greater than expected

10 After a defended hearing over five days, Fogarty J issued a decision granting the Body Corporate's application to vary the scheme. 7 Fogarty J agreed with the Body Corporate that the costs blow out had rendered the logic of the scheme unjust. It could not be right that Manchester should avoid making any contribution to the cost of remediating the common property other than level 12. 8 He reinstated the unit titles statutory scheme and removed the cap of 11.88 per cent enjoyed by Manchester. 9 That meant that Manchester was liable to contribute $513,247.60 plus GST to the repair of the common property on levels 1–11 and no less than $25,882.39 plus GST to the uncompleted repairs to the common property on level 12. The cost of the latter was estimated at $217,865.20.

11 He allowed a credit of $191,982.81 for the costs Manchester would pay in the first instance for the repair to the common property on level 12 in addition to its own 11.88 per cent contribution ($217,865.20 less $25,882.39 is $191,982.81). This meant its net liability figure in respect of the common property at all levels was $321,264.79 ($513,247.60 less $191,982.81 is $321,264.79). In the nature of things, the repairs to level 12 were unlikely to be lower than the estimate and accordingly $321,264.79 plus GST was the minimum cost. 10

12 Fogarty J determined that Manchester should make an interim payment of that sum immediately. 11 The Judge therefore formally ordered Manchester to pay to the Body Corporate $321,264.79 plus GST as a provisional sum. That sum was to be adjusted upon completion of remediation of the common property on level 12 to the extent that the estimate of $217,865.20 varied. 12

13 Manchester appealed Fogarty J's decision to this Court. It raised a number of grounds of appeal, including a submission that an order for a cash payment had never been sought by the Body Corporate in the High Court. In a...