HWD NZ INVESTMENT CO LIMITED v BODY CORPORATE 392148 [2023] NZHC 526

HWD NZ INVESTMENT CO LIMITED v BODY CORPORATE 392148 [2023] NZHC 526 [17 March 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-001791[2023] NZHC 526BETWEEN HWD NZ INVESTMENT CO LIMITEDApplicantAND BODY CORPORATE 392148RespondentHearing: 28 February 2023Appearances: J D Haig and D P MacKenzie for PlaintiffT J G Allan for DefendantJudgment: 17 March 2023JUDGMENT OF ASSOICATE JUDGE BRITTAINThis judgment was delivered by me on 17 March 2023 at 10.00 a.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Davidson Legal, ChristchurchJ Haig, WellingtonIntroduction[1] HWD NZ Investment Co Limited (HWD) owns nine units in a unit titledevelopment at 132 Stancombe Road in Flat Bush, Auckland. The developmentconsists of 47 units spread across three blocks, known as Blocks A, B and C. Two ofthe blocks were developed by HWD. The buildings were constructed with defects.[2] The Body Corporate responsible for 132 Stancombe Road obtained a schemeof arrangement under s 74 of the Unit Titles Act 2010 (UTA) (the Scheme). HWD hasnot paid certain levies in respect of the Scheme. The Body Corporate has servedstatutory demands on HWD for the unpaid levies.[3] HWD has an ongoing proceeding against the Body Corporate, CIV-2022-404-809. In its substantive claim, HWD alleges an entitlement to a share of a paymentmade to the Body Corporate by Auckland Council in settlement of negligence claimsrelating to the building defects.[4] The levies that are the subject of the statutory demand that is sought to be setaside in this proceeding are in respect of HWD's six units in Block A. The BodyCorporate previously served a statutory demand on HWD for unpaid levies in respectof HWD's units in Block C. HWD applied to set that demand aside, on the basis thatits substantive claim against the Body Corporate in CIV-2022-404-809 amounted to acounterclaim or set-off which exceeds the amount of the unpaid levies.[5] That application was heard on 1 December 2022 and declined by my reservedjudgment dated 16 December 2022 (the first judgment).1 In the first judgment, I heldthat HWD had an arguable set-off, but the statutory demand was upheld on policygrounds arising as a result of a "pay now argue later" clause in the Scheme. HWD hasappealed the first judgment to the Court of Appeal (the appeal). The background setout in the first judgment2 applies equally in this case and is accepted by both parties.[6] The statutory demand that is the subject of this proceeding includes the unpaidlevies in respect of Block A, together with default interest, solicitors' costs incurred1 HWD NZ Investment Co Ltd v Body Corporate 392418 [2022] NZHC 3472 [The first judgment].2 At [5]–[18].by the Body Corporate, and water charges. The Body Corporate now accepts thatthere was no basis to include the water charges and its solicitors' costs.[7] HWD advances the following grounds in support of its application to set asidethe statutory demand:(a) A set-off for the amount that HWD claims in CIV-2022-404-809 isapplicable to the statutory demand. This is the same argument that wasrejected in the first judgment.(b) The Body Corporate did not follow the terms of its resolution whichrequired the Body Corporate to issue an informal notice of intent toissue proceedings before issuing a statutory demand.(c) The quantum of unpaid levies demanded is inconsistent with the totalof invoices raised on 27 May 2022.(d) Interest on the unpaid levies had not fallen due at the time of the issueof the statutory demand.[8] The Body Corporate resists those arguments and says:(a) The Court should follow the first judgment and exercise its residualdiscretion to uphold the statutory demand notwithstanding that HWDmay have an arguable set-off.(b) The debt collection process set out in the Body Corporate's resolutionwas a matter of internal management. The resolution does not preventthe Body Corporate from issuing a statutory demand without firstissuing an informal notice of intention to issue proceedings.(c) HWD's challenges to quantum have no merit and were not raised in itsapplication to set the demand aside or the supporting affidavit.[9] The Body Corporate also argues that HWD's application was not properlyserved and is therefore a nullity. HWD submitted that any defect in service could becured under rr 1.5 and 1.9 of the High Court Rules 2016 (HCR).Application for an adjournment and recusal[10] At the commencement of the hearing of this proceeding on 28 February 2023,counsel for HWD made an oral application for orders adjourning the hearing and formy recusal.[11] HWD had previously applied for an adjournment of its application to set asidethe statutory demand on the basis that the application should not be heard until theappeal is determined. Lang J declined to grant the adjournment, stating in his minutedated 16 February 2023:[5] Nor do I consider it will be a waste of the Court's resources if the fixtureproceeds. It is open to HWD to attempt to persuade the Associate Judge whohears the present application not to follow the approach taken in the earliercase. Alternatively, HWD can accept that the application must be dismissedbased on the reasoning in the earlier case, but without prejudice to theargument it wishes to run on appeal. It can then file an appeal against thejudgment and ask that it be heard at the same time as the other appeal. Thiswill result in the validity of both statutory demands being finally determined.[12] When HWD learned that I was to hear this proceeding, it renewed itsapplication for an adjournment. The application was advanced on the basis that HWDhad little prospect of persuading me not to follow my reasoning in the first judgmentand was therefore prejudiced in advancing its case.[13] I declined the application for an adjournment and for my recusal. Lang J didnot direct that I should not hear this proceeding. It remained open to HWD to advancenew matters that might affect how the Court exercises its discretion as to whether thestatutory demand should stand. It remained open to HWD to adopt the alternativecourse discussed by Lang J in his minute dated 16 February 2023, and to consent toits application to set aside the statutory demand being declined, but without prejudiceto the argument that it wishes to run on appeal. That would have left HWD free toappeal in respect of both statutory demands. HWD chose not to follow that course.Service of this proceeding[14] On behalf of the Body Corporate, Mr Allan submitted that this proceeding is anullity because it was not served on the Body Corporate in accordance with s 387 ofthe Companies Act 1993, which sets out mandatory modes of service of documents oncompanies in legal proceedings. Mr Haig, for HWD, responded that a body corporateincorporated under the UTA is not a company as defined in s 2 of the Companies Act,because body corporates incorporated under the UTA are not registered under theCompanies Act. I accept Mr Haig's submission.[15] Section 205 of the UTA prescribes modes of service for documents required tobe served under that Act, but not in respect of documents served in any proceedings inany court.3 The Unit Titles Regulations 2011 are also silent on service of documentsin a legal proceeding. Regulation 18 requires a body corporate to maintain an addressfor service, but that is a general requirement rather than a specific mode of service ofdocuments in a legal proceeding.[16] Under r 6.12 of the HCR, a document may be served on a corporationincorporated in New Zealand other than a company incorporated under the CompaniesAct, by personal service on certain nominated officers of the corporation or by leavingthe document at the corporation's registered office. In addition, r 19.12A(2) permitsapplications to set aside statutory demands to be served at the creditor's address or theaddress for payment shown in the statutory demand.[17] It is common ground that HWD failed to comply with either r 6.12 or r 19.12A.HWD purported to serve the application to set aside the demand by emailing it to thesolicitors acting for the Body Corporate in other legal proceedings between the BodyCorporate and HWD, including in CIV-2022-404-809 and the appeal.[18] Under r 1.5, this failure to comply with the rules is an irregularity, not a nullity.It is therefore capable of amendment under r 1.9(2). I have no hesitation in holdingthat service of this proceeding on the Body Corporate's solicitors shall be deemed tobe effective service. The Body Corporate's solicitors have drawn this proceeding to3 Section 205(8).the attention of the Body Corporate; the Body Corporate filed a notice of oppositionand has suffered no prejudice.The quantum of the levies[19] When the statutory demand was served on HWD, it included as attachmentscopies of statements by the Body Corporate to HWD in respect of each of HWD's sixunits in Block A, recording the amount of the special levy for each unit, and penaltyinterest from the due date. The statements confirm that the levies were due in August2022, consistent with invoices being raised in July 2022, not May.[20] HWD's application to set aside the statutory demand is supported by anaffidavit from Lijuan Luo, a solicitor employed by Davidson Legal, the solicitorsengaged by HWD. Ms Luo raised no issue with the quantum of the levies or thepenalty interest set out in the statements attached to the statutory demand. Consistentwith the affidavit evidence, HWD's originating application does not raise anychallenge to the quantum of the levies or the penalty interest.[21] I am satisfied that the levies and the penalty interest set out in the statutorydemand, supported by the statements attached to the statutory demand, constituted adebt due that the Body Corporate was entitled to enforce by a statutory demand unders 289 of the Companies Act.Interest[22] Mr Haig advanced a further argument in respect of interest included in thestatutory demand, relying on Associate Judge Lester's decision in Safari BBQProducts Ltd v Safari Vervaardiging CC.4 That case was concerned with defaultinterest that had accrued under a contract and included in a statutory demand.Associate Judge Lester held that the interest was not a debt due and owing at the dateof the statutory demand because prior to the issuing of the demand, the creditor hadnot calculated or invoiced the interest.54 Safari BBQ Products Ltd v Safari Vervaardiging CC [2022] NZHC 2741.5 At [19]–[21].[23] Whether or not interest has accrued and is due under a contract will alwaysdepend on the interpretation of the contractual provisions in question. In this case, theBody Corporate's right to default interest arises pursuant to s 128 of the UTA and theScheme. Further, the Body Corporate has issued statements to HWD setting out thedefault interest that has accrued. Copies of those statements were attached to thestatutory demand. I find that the penalty interest had accrued and was due and payableat the time the statutory demand was issued.The Body Corporate's failure to follow the debt collection procedure set out in itsresolution[24] The Body Corporate held an extraordinary general meeting on 14 February2022. At that meeting, the Body Corporate passed an ordinary resolution:The current debt collection for corporate owners be amended to issue a"Notice of Intent to Issue Proceedings" immediately upon any default, to befollowed by a Statutory Demand under the Companies Act failing the noticenot being satisfied in full within the time given.[25] There is no evidence that the Body Corporate issued an informal notice ofintent to issue proceedings before issuing the statutory demand in this case. Mr Allansubmitted that this was not surprising, given that HWD had clearly signalled that itwould not be paying the levies.[26] Mr Haig did not refer to any specific provision of the UTA regarding theconsequences of the Body Corporate failing to implement the terms of an ordinaryresolution of the type in question.[27] I do not accept that any failure by the Body Corporate to follow its own internaldebt collection procedure alters the fact that the levies comprise a debt owing in termsof s 289(1) of the Companies Act, able to be enforced by a statutory demand.[28] At most, the Body Corporate's failure to follow its own internal procedure forcollecting debts might amount to a factor to be taken into account when the Courtexercises its residual discretion to uphold the statutory demand. However, any failureby the Body Corporate to follow its own internal policy for collecting debts isinsufficient to overcome the compelling "pay now argue later" policy argument thatsupports an exercise of the Court's discretion to uphold the statutory demand, as setout in the first judgment.HWD's set off[29] HWD's claims in CIV-2022-404-809 amount to a set off or counterclaim. Forthe reasons set out in the first judgment, I decline to set the demand aside due to theexistence of a "pay now argue later" clause in the Scheme.6The amount due[30] The Body Corporate acknowledges receipt of a payment of $390,000 fromHWD after the statutory demand was issued. The Body Corporate accepts that thestatutory demand should not have included the legal costs and the water charges. Onthat basis, the amount due under the statutory demand is $1,007,929.99.Result[31] The application by HWD to set aside the second statutory demand dated5 September 2022 is declined.[32] I order HWD to pay the Body Corporate $1,007,929.99 within 10 working daysof the date of this judgment pursuant to s 291(1)(a) of the Companies Act 1993.Costs[33] The Body Corporate is the successful party, and costs should follow the event.I request that counsel confer regarding costs. If counsel are unable to agree on costs,then I direct:(a) the respondent shall file and serve written submissions on costs by 24March 2023;(b) the applicant shall file and serve submissions on costs by 31 March2023;6 The first judgment, above n 1, at [91]–[93].(c) I will determine costs on the papers.____________________Associate Judge Brittain