BODY CORPORATE 85978 v SAINT PAULS ASSET MANAGEMENT LIMITED [2020] NZHC 2097 [19 August 2020]

BODY CORPORATE 85978 v SAINT PAULS ASSET MANAGEMENT LIMITED [2020] NZHC 2097[19 August 2020]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2020-485-4[2020] NZHC 2097UNDER the Companies Act 1993ANDIN THE MATTER of the liquidation of SAINT PAULS ASSETMANGEMENT LIMITED (previouslyMighty Rocket Trustees Limited)BETWEEN BODY CORPORATE 85978PlaintiffAND SAINT PAULS ASSET MANAGEMENTLIMITED (previously Mighty RocketTrustees Limited)DefendantHearing: On the papersCounsel: D A Bleier for PlaintiffA Gilmore for DefendantJudgment: 19 August 2020JUDGMENT OF ASSOCIATE JUDGE LESTER(Costs)This judgment was delivered by me on 19 August 2020 at 12.30pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy Registrar19 August 2020Background[1] The background to this costs judgment is set out in my judgment delivered on27 July 2020 (the July Judgment).1[2] The July Judgment concerned an opposed application by BodyCorporate 85978 (Body Corporate) to liquidate Saint Pauls Asset Management Ltd(St Pauls).[3] I do not repeat the full timeline of matters from the July Judgment, buthighlight some of the key stages:(i) 8 January 2020: statement of claim filed in relation to unpaid BodyCorporate levies.(ii) 10 January 2020: balance of unpaid levies cleared, remaining issue ofcosts.(iii) 16 January 2020: further unpaid Body Corporate levies accrueof $19,330.75. Costs claimed of $6,727 plus disbursements claimed.(iv) 20 January 2020: unpaid Body Corporate levies of $19,330.75 paid.(v) 1 April 2020: a further round of Body Corporate levies falls due.(vi) 3-9 April 2020: St Pauls clears the levies due 1 April 2020.Application 22 July 2020[4] When the opposed application came before me on 22 July 2020, there were nounpaid levies owed by St Pauls. The remaining issue was costs.1 Body Corporate 85978 v Saint Pauls Asset Management Ltd [2020] NZHC 1803.[5] Body Corporate sought costs pursuant to a costs clause in part of an order madeby Churchman J on 21 August 2017 approving a scheme under s 74 of the Unit TitlesAct 2010 (the Act), which reads as follows:8.5 If an Owner fails to pay its Levy in the amount and at the time requiredby the Body Corporate, that Owner is liable for any losses and for allassociated and additional costs, expenses and disbursements resultingfrom such non-payment (including all costs incurred by the BodyCorporate in attempting to recover the outstanding Levy andassociated costs including legal costs on a solicitor/client basistogether with any penalty interest under section 128(2) of the Act).[6] Mr Bleier, counsel for St Pauls, advised at the July hearing that the presentclaim for costs was approximately $30,000 but he could not quantify the precise sum.[7] Therein lay Body Corporate's difficulty. Body Corporate was no longera creditor in respect of accrued levies – such having been paid. Body Corporate wasa prospective or contingent creditor in respect of its costs, given it had the benefit ofthe indemnity costs provision set out at [5] above.[8] As I held in my July Judgment, until costs were quantified, St Pauls had noopportunity to pay them. If the costs had been fixed and paid, Body Corporate wouldnot have standing to pursue liquidation. Body Corporate continued to pursueliquidation despite being paid the Body Corporate levies, as it considered St Pauls hadfailed to rebut the presumption of insolvency that arose from the original statutorydemand not being satisfied.[9] Accordingly, the outcome of the hearing was to require St Pauls to pay intocourt the sum of $15,000 that it had previously offered for costs, as a practical meansof St Pauls confirming it had the ability to pay costs and to call for submissions inorder to fix costs.[10] Mr Bleier, in his costs submissions, submits the approach I adopted in the Julyhearing affording St Pauls an indulgence. He submitted that because Body Corporatehad established insolvency, it was prima facie entitled to an order for liquidation ofSt Pauls and was seeking to proceed on the basis of uncontested expert evidence,challenging the solvency of St Pauls. It is submitted the indulgence was one that BodyCorporate could not have foreseen and:It is only with the benefit of hindsight that the Court has allowed Saint Paulsto avoid liquidation by making payment of the costs.[11] I do not accept this characterisation of what occurred in the July hearing. AsI recorded in the July Judgment, at the time of the hearing there was no quantifiedindebtedness owed by St Pauls to Body Corporate. There was no debt then due andpayable as the costs claim remained unquantified. Indeed, at the hearing, Mr Bleiercould not quantify the costs claimed. Nor, at the commencement of the hearing, didBody Corporate have standing to seek liquidation because as it was a prospective orcontingent creditor, as it required leave pursuant to s 288(5) of the CompaniesAct 1993 (the Act) to pursue liquidation. No application for leave was made by BodyCorporate prior to the hearing.[12] The quantum of the Body Corporate's costs claim is now $64,341.43 made upas follows:(1) Legal fees in the amount of $55,111.00(2) Filing and hearing fees $ 1,180.00(3) Advertising costs $ 335.00(4) Service fees $ 310.00(5) Body Corporate management fees $ 690.00(6) Expert witness costs $ 6,715.43This is more than double Mr Bleier's estimate at the hearing of the liquidation.[13] In my July Judgment, I granted leave to the Body Corporate under s 288(5) ofthe Act to continue with its application, given its status as a prospective or contingentcreditor. As I have said, I was not prepared to place St Pauls into liquidation when,even if it wanted to, it could not satisfy the unquantified costs liability. While St Paulsdid not dispute Body Corporate's ability to rely on the costs clause set out at [5] above,I noted that the clause protects Body Corporate for its costs in attempting to recoverthe outstanding levies and associated costs, but not otherwise.[14] I have no difficulty with Body Corporate's reliance on this clause, providedthe costs it seeks are properly within the clause and the costs claimed are reasonable.[15] The difficulty I see for Body Corporate is that by 9 April 2020, St Pauls hadpaid all its overdue levies. Body Corporate was entitled to pursue costs and indeed onthe strength of the clause, recover its costs in pursuing those associated costs.[16] However, it is clear that the costs incurred by Body Corporate after9 April 2020 were not so much aimed at recovering costs incurred in collecting unpaidlevies, but in seeking the liquidation of St Pauls on the basis that it was insolvent andBody Corporate had found it frustrating to deal with St Pauls over an extended period.Again, once St Pauls paid the Body Corporate costs, Body Corporate lost its standingto pursue liquidation as it was no longer a creditor. It seems that Body Corporate didnot turn its mind to that issue. Substantial costs were incurred after 9 April 2020.[17] Given that following the payments on 9 April 2020, Body Corporate was nota creditor and had no unpaid levies, I find the Body Corporate was not entitled to relyon its indemnity clause after that date, save to the extent it incurred costs to quantifyand recover the costs it had incurred in recovering unpaid levies.[18] St Pauls did make offers in respect of costs, but the fact is they were generallytoo little, too late. Often they were not even at scale costs. I do not consider St Pauls'offers are relevant to the fixing of costs one way or the other. The fact is St Pauls didnot meet the statutory demand in full and thereby triggered the presumption ofinsolvency and Body Corporate was entitled to pursue liquidation. At that point,St Pauls became liable for indemnity costs and its offers of something less thanindemnity were never going to carry the day.[19] Accordingly, I find Body Corporate is entitled to its reasonable indemnity costsup to the payment of the arrears on 9 April 2020, together with its reasonable coststhereafter for steps taken to secure its solicitor/client costs related to collecting unpaidlevies, that is, its costs to recover its costs.[20] The costs Body Corporate incurred after 9 April 2020 aimed at achieving theliquidation of St Pauls are not payable pursuant to cl 8.5.[21] I accept Mr Bleier's submission that Body Corporate was entitled to issueproceedings in respect of the unpaid levies and to continue those proceedings until thelevies were paid, and to have the benefit of the costs clause for those steps. Mr Bleierthen submits that following payment on 9 April 2020:The Body Corporate was entitled to continue with the liquidation proceedingsas the statutory presumption of insolvency had been established and the BodyCorporate was prima facie entitled to an order for liquidation.[22] It is in this regard that I consider Body Corporate's approach lost sight of theneed to establish standing and that after 9 April 2020 its entitlement was to have itscosts fixed and paid.[23] The proceedings were pursued after 9 April 2020, essentially because of theanimus between the parties. Substantial affidavits were prepared by Body Corporate,including expert evidence aimed at resisting any attempt by St Pauls to rebut thepresumption of insolvency. However, this was at a time when the only outstandingissue between the parties was costs which Body Corporate took no steps to quantify.[24] At the risk of labouring the point, upon costs being quantified and paid, BodyCorporate would lose standing to seek the liquidation of St Pauls – it would no longerbe a creditor.[25] Nor do I consider the expert witness expenses to be a recoverabledisbursement. The engagement of the expert was aimed not at the recovery of levies,but obtaining the liquidation of St Pauls. Counsel's fees covering the time to the endof March 2020 total $20,389 (excluding GST). The Court awarded costs dealing withthe interlocutory. I assume the Body Corporate is registered for GST and will haverecovered that in the ordinary way, so the amount payable by St Pauls pursuant to theindemnity costs provision is less GST.22 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at[HR 14.6.03(2)(b)].[26] That leaves steps between the start of April 2020 and 9 April 2020 andsubsequent costs in respect of the fixing of costs.[27] I do not allow the separate claim for solicitors fees on the statutory demandgiven the narrations for counsel's fee include the preparation of the statutory demandand preparing and filing the liquidation proceeding.[28] To deal with the further costs from 2 April 2020 to 9 April 2020 and in respectof the fixing of costs, I increase the amount of costs to be paid by St Pauls to a total of$25,000 adopting a robust approach to arrive at a further figure I consider reasonablein all the circumstances.3[29] In practice, this means I am not awarding costs to Body Corporate in respectof its costs aimed only at achieving the liquidation of St Pauls on the ground thatSt Pauls had not rebutted the presumption of insolvency. The reason I do not allowthose costs is that they fall outside the costs clause. They were also incurred at a timewhen Body Corporate required leave under s 288(5) before it would have standing toseek the liquidation of St Pauls which it required, as with the payment of levies, it wasa prospective or contingent creditor in respect of costs. Rather than put its energiesinto the fixing of costs, it incurred further substantial costs aimed at seeking theliquidation of St Pauls on the grounds St Paul's was insolvent. However, those costswere incurred at a time when St Pauls could not pay Body Corporate because the costswere unquantified. Had the costs been quantified and paid, Body Corporate would nothave had standing.[30] That said, the offers made by St Pauls in respect of costs were inadequate.[31] Accordingly, I award costs to Body Corporate 85978 in the sum of $25,000,plus disbursements as per items 2, 3, 4 and 5 of [12] above.3 McGechan HR 14.6.03(e)(iv).[32] I authorise the Registrar to pay the funds currently held in court to BodyCorporate 85978.__________________________________Associate Judge LesterSolicitors:Greenwood Roche, WellingtonCopy to counsel:D A Bleier, Barrister, WellingtonCopy to:Mr A Gilmore