MEMELINK v BODY CORPORATE 68792 [2021] NZCA 640

MEMELINK v BODY CORPORATE 68792 [2021] NZCA 640 [2 December 2021]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA281/2021[2021] NZCA 640BETWEEN HARRY MEMELINK ANDCISCA FORSTER AS TRUSTEES OF THELINK TRUST NO 1AppellantsAND BODY CORPORATE 68792RespondentHearing: 9 November 2021Court: Collins, Duffy and Dunningham JJCounsel: D G O Livingston for AppellantsA O'Connor for RespondentJudgment: 2 December 2021 at 9.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants are ordered to pay costs to the respondent for a standardappeal on a Band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Dunningham J)[1] On 1 March 2016, Mr Harry Memelink, as trustee of a trust which ownedsix units in a unit title development managed by Body Corporate 68792 (the BodyCorporate), filed a claim against four other defendants who had roles in the BodyCorporate's management. He alleged there had been mismanagement by the BodyCorporate, in particular, in the use of special levies paid by unit owners. He alsoclaimed that, through a vote taken at an extraordinary general meeting (EGM) whichhe convened, he was now the chairman of the Body Corporate and should berecognised as such.[2] The statement of claim has been variously amended since then but, at its heart,it retains a grievance about whether special levies paid to the Body Corporate wereproperly authorised and used and, if not, whether the unit owners should be reimbursedthose sums.[3] In September 2017 the proceedings were, according to Mr Memelink, placedon hold while the consulting firm Deloitte prepared a report on the disputed levies. InAugust 2018, shortly before the report was produced, Mr Memelink was adjudicatedbankrupt. No steps were taken in these proceedings until 28 September 2020 whenMr Memelink sought to revive them. Shortly afterwards, the Body Corporate, whichwas now named as the sole defendant, applied to strike the proceedings out for wantof prosecution and on the ground they were an abuse of process. The Body Corporate'sapplication to strike the proceedings out was granted by Cooke J in April 2021.1[4] The current plaintiffs, Mr Memelink and Cisca Forster, in their capacities astrustees of the Link Trust No. 1 (the Trust), which owns approximately half the unitsin the development, appeal that decision, saying the Judge failed to take into accountrelevant matters, took account of irrelevant matters, or was plainly wrong whendetermining the threshold test for dismissing proceedings for want of prosecution hadbeen met.[5] At issue is whether the Judge erred in exercising his discretion to strike theproceedings out.Background[6] All parties acknowledge there is a complex history to this matter. Theproceedings have their genesis in complaints raised concerning the amounts levied1 Memelink v Body Corporate 68792 [2021] NZHC 835.against the unit titles in a unit title complex located in Lower Hutt. Mr Memelink saysthere was a decision made by the Body Corporate to build up a long-term maintenancefund to address structural issues in the units, including to re-roof them. A special levywas introduced to do this. Mr Memelink says the building maintenance fund was thenused, without proper authority, on a dispute which arose between the Body Corporateand Transit New Zealand (subsequently named the New Zealand Transport Agency(NZTA)). The dispute arose out of NZTA's purchase and eventual demolition of someof the units in the course of works to realign the State Highway at Petone. By way ofexample, Mr Memelink says that approximately $130,000 was paid in legal fees forthe dispute with NZTA without proper authority. Although the Body Corporateexpected the funds spent on the dispute would be reimbursed by the Crown, that didnot occur.[7] The Body Corporate was eventually placed into administration due to thedysfunction within it and an administrator was appointed by the High Court on18 March 2015.2 The administrator was subsequently replaced on 9 September 2016,3and again on 5 October 2017.[8] Mr Memelink first filed proceedings, as a litigant in person, on 1 March 2016.These proceedings claimed breaches of the Unit Titles Act 2010, the Unit TitlesRegulations 2011 and the Body Corporate's rules in raising and then using the fundsraised under the special levy. He sought a range of relief including repayment ofunauthorised and unapproved levy increases and reimbursement of any incorrectlyauthorised payments by the Body Corporate. He also sought a declaration that theEGM he convened on 21 October 2014 and the resolutions reached in it were valid.These included the removal of the Court-appointed administrator, Mr Greenwood, andthe recognition of Mr Memelink as the chairman of the Body Corporate.[9] The claim was immediately the subject of an application to strike out whichwas heard by Brown J in June 2016. As a result, the claims against the individuallynamed defendants were struck out, but the Body Corporate was joined as a defendant2 Body Corporate 68792 v Memelink [2015] NZHC 519.3 Body Corporate 68792 v Memelink [2016] NZHC 2146.and the trustees of the Trust were joined as second plaintiff.4 An amended statementof claim reflecting those changes was filed on 5 August 2016. It advanced many thesame grievances as the first statement of claim, albeit they were now directed at theBody Corporate.[10] A further amended statement of claim was prepared on 30 May 2017, this timeby a lawyer, Mr Haines, instructed by Mr Memelink. Again, it alleged a failure by theBody Corporate to comply with the Unit Titles Act, Regulations and Body Corporate'srules, and claimed that the Body Corporate had not held special levies in a separateaccount as required and had allowed them to be spent on matters that were notapproved by resolution. It seems the statement of claim was never filed in theHigh Court, although the Body Corporate filed a statement of defence to this amendedstatement of claim in early July 2017.[11] Importantly, on 28 September 2017, Mr Memelink filed an affidavit in supportof an application to appoint Anthony Gambitsis as a replacement administrator for theBody Corporate. This was necessary given Mr Naylor, the previous administrator, hadresigned. In that affidavit Mr Memelink said:5. My biggest concern with the operation of the Body Corporate hasalways been the failure of the Body Corporate and successive Courtappointed Administrators to reconcile the levies that I have paid to thebody corporate as both operational and special levies.6. I support Mr Gambitsis appointment because he is committed tocarrying out such an audit of the historical levies and Body Corporateaccounts.7. I agree to be bound by the outcome of the audit of Mr Gambitsis if heis appointed as Administrator. If it is found that there are outstandinglevies then I will pay those promptly at the conclusion of the auditprocess.8. I also agree that if Mr Gambitsis is appointed as Administrator towithdraw the claim against the Body Corporate under CIV-[2016]-485-141. As any such audit will satisfy my concerns as articulated inthat claim.4 Memelink v Martens [2016] NZHC 1285.[12] On 28 August 2018 Mr Memelink was adjudicated bankrupt on the applicationof a law firm, but with the Body Corporate as a supporting creditor.5[13] On 19 October 2018 the Deloitte report was released. Mr Memelink now saysit fails to address the concerns he had about the special levies and therefore providedno resolution to the issues in the proceedings, and so he is not obliged to withdraw theclaim against the Body Corporate as stated in his affidavit.[14] On 21 August 2019 the Body Corporate filed a claim in the bankruptcy ofMr Memelink claiming payment from him as trustee of the Trust of the unpaidcontributions which had been levied on the Trust.6 Mr Memelink challenged the claimon the basis that the contributions which had been levied were disputed. In particular,Mr Memelink claimed:(a) the Body Corporate had failed to comply with the requirements of theUnit Titles Act in imposing the levies and therefore many or perhaps allof the levied contributions which make up the claim were unlawful andunenforceable; and(b) a special levy imposed for the purpose of effecting or funding repairsand maintenance to the roof at the complex, and which the trustees paid,was "misappropriated" by the Body Coroprate and that the trustees hada claim for recovery of the same which can and should be set off againstany levies that are payable.7[15] However, when the dispute came before Associate Judge Johnston, heconcluded:[55] In my view, neither the Official Assignee pursuant to s 234 nor theCourt in the context of an application pursuant to s 238 are required to examinein minute detail every levy to ensure that it was imposed in compliance withall aspects of the legislation and BC 68792's internal management rules. It issufficient for the Official Assignee or the Court to be satisfied that the BodyCorporate had a statutory entitlement and responsibility to levy, has done soand that those levies are prima facie payable.5 As discussed in Re Memelink [2019] NZHC 36.6 The other trustee at the time, Lynx Trustees Ltd, had by then, been placed in liquidation.7 Memelink v Official Assignee [2020] NZHC 2709 at [50].[16] The Associate Judge went on to say that a unit title holder was entitled tochallenge the lawfulness of levies, but that "must be done in a timely way in a separateordinary proceeding", and in this case "[t]he trustee owners here have had years to dothat and have elected not to do so".8[17] Mr Livingston, for Mr Memelink, says that as soon as the Court indicated itwould not resolve the disputes about the levies in the context of the bankruptcy,Mr Memelink sought case management of these proceedings. Very soon afterwardsthe Body Corporate applied to strike out the proceedings for want of prosecution andon the grounds they were an abuse of process.The High Court judgment[18] The claim to dismiss the proceedings was heard by Cooke J on 12 April 2021.In discussing the history of the claim, he observed that:9[8] An important initial factor arises from the nature of [the]proceeding. It is a challenge to the legality of levying and spendingdecisions. By their very nature such challenges need to be broughtpromptly.[19] Cooke J also noted that in a minute dated 18 May 2017, Clark J had recordedthat:10 the claim has now been afoot for over a year. The court file is voluminousyet no progress has been made. The state of the pleadings is such that it is stillnot feasible to convene a first case management conference. That isunacceptable. The carriage of the [proceeding is] developing an air of abuseof the Court's processes.[20] Cooke J saw that as relevant because as early as May 2017, the lack of progresshad "already given rise to the concern that the proceedings were becoming an abuseof process. This was a very clear warning to the plaintiffs that they needed to takeaction in the proceedings, otherwise they would be regarded as an abuse of process".118 At [56]–[57].9 Memelink v Body Corporate 68792, above n 1.10 At [11].11 At [14].[21] Cooke J noted that directions were given for the progress of the proceedingsbut they were not complied with. While Mr Memelink relies on the bankruptcyproceedings pursued against him in 2017 and 2018 as providing some explanation fornot progressing the proceedings, Cooke J noted that "those proceedings ratherreinforced the need to have the underlying disputes concerning the levies resolvedpromptly".12[22] Cooke J then referred to Mr Memelink's affidavit dated 28 September 2017 whichwas sworn in related proceedings concerning the appointment of Mr Gambitsis as areplacement administrator for the Body Corporate. Cooke J concluded Mr Memelink'sstatement in that affidavit "must be taken to be an election on his behalf to pursuealternative remedies rather than this proceeding".13 For all those reasons, heconcluded that there was inordinate delay.[23] Cooke J also concluded that the delay was inexcusable. He rejected thesuggestion that the delay had been with the agreement of the defendant, because theaffidavit of 28 September 2017 recorded a resolution of the proceedings, not simply adeferral of them. He also said that it was difficult to read Mr Memelink's affidavit assaying he would only withdraw the claim if certain conditions were met.14 In anyevent, even if Mr Memelink had not committed to withdrawing his claim, he neededto have acted very promptly if he was proposing to advance this claim notwithstandinghis statement in the affidavit. He did not do so. Instead, he allowed some two yearsto elapse between receiving the Deloitte report and reviving the proceedings.[24] Cooke J also rejected other explanations given by Mr Memelink for why theproceeding was not progressed. Mr Memelink sought to blame his solicitor,Mr Haines, but Cooke J noted that the fact that delays can be attributable to a solicitordoes not provide an excuse.15 Similarly, a decision to pursue alternative remedies doesnot provide an excuse.16 He said Mr Memelink's bankruptcy did not affect his abilityto conduct this proceeding as it was being pursued in his capacity as a trustee.17 The12 At [14].13 At [18].14 At [20].15 Lovie v Medical Assurance Society Ltd [1992] 2 NZLR 244 (HC) at 253.16 Stewart v Grey River Gold Mining Ltd HC Christchurch A517/78, 19 December 1991 at 8.17 At [24].decision to address the issues in the context of the bankruptcy was a strategic decisionby Mr Memelink and did not affect his obligation to progress these proceedingspromptly. The Judge also rejected the suggestion that personal issues such asMr Memelink's physical disabilities and his dyslexia could explain the delays,particularly when Mr Memelink had been "regularly engaging in Court proceedingsbefore this Court" during that period.18[25] Turning to the issue of prejudice, the Judge concluded that he could not seehow the proceeding could now justly deal with the matters raised. The claim soughtto call into question levying and spending decisions made many years ago and theJudge could not see how this could now "fairly be done".19 For these reasons, theJudge accepted that there had been inordinate and inexcusable delay and that delayhad seriously prejudiced the ability to do justice in the case. As a result, it was not inthe overall interests of justice to allow the case to proceed. He did not, in thosecircumstances, need to address the alternative ground that it was an abuse of processunder r 15.1 of the High Court Rules 2016, although he concluded "that may be analternative way of describing the reasons why the strike out application issuccessful".20Submissions for the appellants[26] Mr Livingston, in thorough submissions, outlined why the appellantsconsidered the Judge erred in exercising his discretion to strike out the proceedings.He accepted the Judge correctly stated the applicable law but submitted the Judge tookinto account irrelevant matters, disregarded relevant matters, or reached a decision thatwas plainly wrong when determining whether there was inexcusable delay, seriousprejudice, and whether the interests of justice were met.[27] The appellants take issue with the Court's observation that levying decisionsneed to be addressed promptly, saying that was not relevant to the decision to strikeout. While delay will make recovery in such cases difficult, Mr Livingston submitsthis is not, in itself, a reason for conducting levy disputes quickly or categorising them18 At [30].19 At [29].20 At [32].as a special class of proceedings which will be more readily struck out for delay. Itsimply means that a plaintiff's chances of recovery are better if the dispute is resolvedbefore, or shortly after levies are expended, but that is an issue for the plaintiff. It isnot a ground for holding that levy disputes are a special category of proceedings thatmay be more readily struck out for delay.[28] Mr Livingston also takes issue with the conclusion that Mr Memelink electedto pursue alternative remedies, and that this counted against him in the strike outproceedings. First, he said that Mr Memelink's agreement to place proceedings onhold (which he says is implicit in paragraph 7 of Mr Memelink's 2017 affidavitaddressing this issue) was conditional on Mr Gambitsis and the audit resolving hisconcerns about the special levies. However, the report from Deloitte simply providedan analysis of what levies each unit had paid, and so whether each unit owner was nowin credit or debit. It did nothing to resolve Mr Memelink's concern that special levieshad been used by the Body Corporate for matters unrelated to the purpose of thespecial levy fund.[29] Mr Memelink then chose to challenge the levies in the course of the bankruptcyand was surprised by the decision of Associate Judge Johnston which said that theOfficial Assignee did not have to consider whether the levies were properly raised orcalculated. As soon as the Court indicated it would not address the levy issues in thecontext of the bankruptcy, Mr Memelink promptly sought case management of theseproceedings and filed an amended statement of claim.[30] Mr Livingston also submits that the Court was wrong to conclude that the delayhas caused serious prejudice to the Body Corporate. Indeed, he says the conduct ofthe proceedings is in the Body Corporate's interests, and it could choose to simplyabide the decision of the Court rather than expend resources defending it.[31] The final basis on which Cooke J's decision is challenged is the Judge'sconclusion that it is not in the interests of justice to allow it to proceed. Mr Memelinknow alleges that the corollary of this decision is that the Court will turn a blind eye tothe "potential fraud" which is pleaded in the fourth amended statement of claim. Thereit is alleged that Patrick Renshaw, who was the Body Corporate secretary for a periodup to late 2012, authorised cheques to be paid to both Mr Renshaw's wife and to alawyer acting for the Body Corporate. Mr Memelink claims that Mr Renshaw had noability to be appointed as Body Corporate secretary as he was not a unit owner, andthere is no evidence that the expenditure was properly authorised. He saysMr Renshaw was a lawyer who was convicted of extensive fraudulent use of clientfunds in the early 1990's, and later, for failing to pay tax and GST. By implication,Mr Memelink suggests these payments need to be scrutinised carefully. It would notbe in the interests of justice to strike out the proceedings when there is a pleading offraud or, at least, of the misapplication of Body Corporate funds.[32] Mr Livingston also expresses a concern that a consequence of the decision tostrike out is that it may now be an abuse of process for Mr Memelink to challenge thelawfulness of levies currently being collected, when there would not be acommensurate limitation on the Body Corporate seeking judgment for payment of thelevies. If so, he submitted that would be contrary to the interests of justice.Submissions for the Body Corporate[33] Mr O'Connor, for the Body Corporate, was largely content to rely on theconclusions of the High Court. He pointed out that Mr Memelink had not paid anylevies since August 2018 putting the Body Corporate in an invidious position whereother Body Corporate owners had to be levied to meet the running costs of the BodyCorporate. He also said that the report by Deloitte was never designed to investigatecriminal matters which are now being raised, as Deloitte is not a forensic specialist.[34] In terms of the serious prejudice which the Body Corporate suffers as a resultof the delays in pursuing these claims, Mr O'Connor pointed to the conclusions in theDeloitte report which say the Body Corporate's records only go back to 2008, andthere are not good records prior to an administrator being appointed. It is now nearimpossible for the Body Corporate to respond to the matters being raised byMr Memelink given the passage of time. Furthermore, it appears that Mr Memelinkwishes to set off the levies he currently owes against his claim for refund of levieswhich he says were unlawfully authorised or expended in the past. That would createreal prejudice to the Body Corporate now because of the passage of time. It would beseriously in deficit if it had to refund levies from so far back.DiscussionWas the Judge wrong to conclude there was inexcusable delay?[35] Mr Livingston properly accepts there has been inordinate delay but hesubmitted Cooke J erred in concluding that the delay was inexcusable. However, noneof the grounds raised by Mr Memelink satisfy us the Judge erred in reaching thisconclusion.[36] Even if Mr Memelink had made it a condition of the Deloitte report that itshould fully resolve his concerns about the special levies (and that is certainly notapparent from Mr Memelink's affidavit), we agree he needed to make it clear as soonas the report from Deloitte was received that he was pursuing his claim, and he didnot.[37] We agree with Cooke J there was no impediment to Mr Memelink continuingthe proceedings despite being adjudicated bankrupt in 2018 as they were beingpursued by the Trust. The fact he made a strategic decision to challenge the levies inthe bankruptcy does not excuse the delay. As was held in Stewart v Grey River GoldMining Ltd,21 the pursuit of another remedy in preference to prosecuting a proceedingdoes not excuse delay unless it was done with the defendant's acquiescence. Herethere was no evidence of such acquiescence. We also agree that, given Mr Memelink'sfrequent engagement with the Court during the period 2018 to 2020, there was nothingto suggest his dyslexia, his health issues, his difficulties with his lawyer, or any othermatter affected his ability to progress these proceedings.2221 Stewart v Grey River Gold Mining Ltd, above n 16, at 8.22 Indeed, on the publicly available database Judicial Decisions Online, there are 19 decisions whichinvolve Mr Memelink as a party to proceedings which issued between 28 August 2018 when hewas adjudicated bankrupt and 28 September 2020 when he sought to activate case managementof these proceedings.Was the Judge wrong to conclude there was serious prejudice as a result of delay?[38] The question of whether there is serious prejudice is readily addressed by thereport from Deloitte. The covering letter to the report says:As you are aware, the records of the body corporate are incomplete. For thepast few months we have been working with each unit holder to assemble (inone place) the relevant financial and operational information to enable us toconduct the review. This has been a very slow process as many of the recordswere difficult to locate, incomplete and in some cases had been in storage formany years.We were originally asked (if possible) to complete levy calculations back to1 April 2005 for the current Unit Holders. Unfortunately, the degree of theincomplete information meant that this was simply impossible. Theinformation we have located back in 2005 to 2008 is still not sufficientlycomplete or robust to enable us to prepare even estimate calculations for the2005 to 2008 period, and certainly not accurate enough to use in High Courtproceedings.[39] The letter goes on to say that even for the period from 1 January 2008 to31 January 2018 the report writer had to make certain assumptions, which werechecked with the various unit holders or their legal advisers, before he could reach anyconclusion on the levy position as at 31 January 2018.[40] Furthermore, as Mr O'Connor explained, Deloitte simply could notdifferentiate between the payment of special and general levies in the relevant periodand the analysis which Deloitte provided was the best that could be done in thecircumstances. Given the lack of records, and the inability to forensically analysewhat was done as a result of the passage of time and the appointment of successiveadministrators, the Body Corporate would now be seriously prejudiced in trying torespond to the claims being made.[41] In addition, as Mr Livingston himself noted, various unit holders from thatperiod have since sold up or been bankrupted, and some have shifted overseas. Thisis confirmed by records of ownership of the unit titles contained in the Deloitte reportwhich show some units have had multiple changes of ownership in the period from2003 to 2018 covered by the report. That means it would now be virtually impossibleto rectify past errors with the levies even if they were established.[42] While Mr Livingston is correct that such disputes are not strictly in a specialcategory, the Judge was nevertheless correct to take into account as relevant theprejudice that can accrue to the defendant when stale Body Corporate levy disputesare pursued. The claim would have been difficult enough to defend at the time it wasfiled. Those difficulties have been exacerbated by the passing of time.Was the Judge correct to conclude that dismissing the claim was in the interests ofjustice?[43] Mr Memelink relies on two submissions to say it is not in the interests of justiceto dismiss the claim. The first is that the High Court failed to take into account"evidenced and pleaded fraud or misappropriation of body corporate funds" by theBody Corporate secretary, Mr Renshaw. The second is the risk that Mr Memelinkwould, as a consequence of the High Court's judgment, be unable to challenge theBody Corporate levies currently owing.[44] We do not consider the purported allegation of fraud adds anything to theclaim. Contrary to Mr Memelink's submission, there is no express pleading of fraudagainst Mr Renshaw in the fourth amended statement of claim. The narrative sectionof that statement of claim simply refers to the fact of Mr Renshaw's convictions forfraud and then says he signed numerous cheques which Mr Memelink says are"inexplicable and unauthorised".[45] The fact Mr Renshaw is a convicted fraudster, and was involved in themanagement of the Body Corporate, does not, without more, constitute a pleading offraud. The evidence relied on is a sequence of photocopied cheques paid by the BodyCorporate to the lawyer engaged by the Body Corporate between 2009 and 2012 todeal with the dispute with NZTA. This is no more than an extension of the claim thatthe Body Corporate was not authorised to use funds which Mr Memelink maintainswere raised for one purpose, for a different Body Corporate purpose. There are alsocopies of cheques which are made out to Mr Renshaw's wife which are signed bytwo Body Corporate committee members. Mr Renshaw's explanation was that thesewere for secretarial services. Whether or not this was a proper use of funds may beopen to question, but it does not amount to clear evidence of fraud, as is required forsuch a pleading to count against striking out the proceedings.[46] An associated submission that Mr Renshaw could not, in law, hold such officefor the Body Corporate because he was not a unit owner falls away when the recordsof ownership contained in the Deloitte report are checked. Mr Renshaw jointlyacquired one unit with Mr Memelink in 2011 and two further units with Mr Memelinkin 2012.[47] Finally, Mr Memelink's concern that he could not challenge current levies forillegality or other deficiency if the claim was struck out is misplaced and, in any event,was considered by the Judge. He did not consider it was an impediment to strikingout the proceeding which was primarily directed to historic issues. As the Judge said"[w]hether Mr Memelink can commence new proceedings, or defend proceedingsbrought by others, is a separate question that will need to be addressed in light of thisand other judgments".23 We agree. The Judge was correct to conclude that this is nota matter which suggests striking out the claim is contrary to the interests of justice.Result[48] For the above reasons, we are satisfied Cooke J made no error when exercisinghis discretion to strike out the proceedings under r 15.2.[49] The appeal is dismissed.Costs[50] The appellants are ordered to pay the respondent costs for a standard appeal ona Band A basis and usual disbursements.Solicitors:Livingston & Livingston, Wellington for AppellantsSurridge & Co, Porirua for Respondent23 High Court judgment, above n 1, at [31].