IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE	
CIV-2018-485-225
[2019] NZHC 569	

BETWEEN	BODY CORPORATE 172108
Plaintiff/Respondent	
AND	MANCHESTER SECURITIES LIMITED
Defendant/Applicant	

Appearances:	J Orpin-Dowell and T Allan for plaintiff/respondent M Harris and H McQueen for defendant/applicant	
Judgment:	25 March 2019	

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Introduction

[1]	In my judgment dated 14 December 2018 I declined to stay liquidation proceedings commenced by the plaintiff, Body Corporate 172108, against the defendant, Manchester Securities Ltd.1 Manchester Securities now seeks leave to appeal from my decision to the Court of Appeal. The Body Corporate opposes the granting of such leave.

[2]	The convoluted background to this dispute is fully set out in a series of judgments of the High Court and Court of Appeal. In my judgment I quoted an outline from the Court of Appeal’s most recent judgment.2 No useful purpose would be served by doing so again.

1	Body Corporate 172108 v Manchester Securities Ltd [2018] NZHC 3307.
2	Manchester Securities Ltd v Body Corporate 172108 [2018] NZCA 190 at [2]–[16].

BODY CORPORATE 17209 v MANCHESTER SECURITIES LIMITED [2019] NZHC 569 [25 March 2019]

Applicable legal principles

[3]	Manchester Securities requires leave to appeal because s  56(3)  of  the  Senior Courts Act 2016 so provides in relation to proposed appeals from interlocutory judgments. The principles that apply to such applications appear to me to be uncontroversial:

(a)	The expectation is that reasons for granting or declining leave are expressed in general terms and brief.

(b)	The leave requirement is a “filtering mechanism” intended to ensure that only appeals on significant matters are allowed — the process weeds out appeals that are trivial or unmeritorious, or merely tactical.3

(c)	The threshold for leave is high and intended to reduce the number of interlocutory appeals.4

(d)	The proposed grounds of appeal should raise matters “of general or public importance” or of sufficient importance to the parties to outweigh the lack of general or public importance.5

(e)	Thus, applications for leave involve balancing the substantive merits of the proposed appeal on the one hand against the inevitable delay in the resolution of the litigation that would result from an appeal on the other.

(f)	The ultimate question is whether, standing back and assessing matters “in a pragmatic and realistic way”, the interests of justice are served by granting leave to appeal.6

3	Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13], affirmed in Fairway Holdings Ltd v McCullagh [2018] NZCA 605 at [11].
4	Finewood Upholstery Ltd v Vaughan, above n 3, at [9](a); and Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [15].
5	Finewood Upholstery Ltd v Vaughan, above n 3, at [9](c); and Ngai Te Hapu Inc v Bay of Plenty Regional Council, above n 4, at [17].
6	Finewood Upholstery Ltd v Vaughan, above n 3, at [14].

[4]	In this case, Mr Orpin-Dowell submits on behalf of the Body Corporate that leave should not be granted to pursue points not taken before this Court. I would not be inclined to put the point as strongly as that. Rather, I would say that, whether any point the applicant is seeking to take on appeal was argued before this Court is a factor to be taken account in assessing the apparent merits of the appeal.

Proposed grounds of appeal

[5]	In its application, Manchester Securities identifies two aspects of my judgment that it wishes to challenge:

(a)	my conclusion that the Court was not required by sch 1, art 8 of the Arbitration Act 1996 to stay the Body Corporate’s liquidation proceeding because of the existence of arbitral proceedings commenced by Manchester Securities; and

(b)	my observation that the levies charged by the Body Corporate to Manchester Securities were obligations of a pay now, argue later nature.

Do the proposed grounds of appeal raise issues of general and public importance?

[6]	I accept Manchester Securities’ starting point that both of those issues may be of some significance. The proper interpretation and application of the Arbitration Act, in particular, is of general and public importance from the perspective of all those involved in dispute resolution. They need certainty as to the applicable rules and when the courts will and will not involve themselves. The issue concerning the nature of the levies imposed by the Body Corporate on Manchester Securities in this case is perhaps of less general or public importance. Nevertheless, the prevalence of commercial and domestic buildings coming under the Unit Titles Act 2010 and its predecessor means that that legislation affects a large number of individuals and businesses.

[7]	Thus, the core issue on this application for leave to appeal is whether Manchester Securities has a tenable argument.

Were the proposed points of appeal raised before this Court?

[8]	The parties’ submissions are diametrically opposed in relation to this. It is elementary that whether or not the proposed points of appeal were raised in this Court will affect the merits of any appeal. As a matter of general principle, appellate courts are slow to permit an appellant to raise issues for the first time on appeal.

[9]	With respect to the first proposed ground of appeal, the essence of Mr Harris’ submission is that the Court had no choice but to stay the proceeding because art 8 applies to any “proceedings”, including a liquidation proceeding under the Companies Act 1993. This is contrary to the approach taken in my judgment, where I approached the issue as a matter of discretion under the general power to stay liquidation proceedings set out in r 31.11 of the High Court Rules 2016, but by reference to the principles underlying art 8.

[10]	On behalf of the Body Corporate, Mr Orpin-Dowell submits that the approach adopted in my judgment was based on the submissions for Manchester Securities, and that the proposition now being advanced is directly contradictory to the position hitherto taken by Manchester Securities. In  this regard,  he points to a passage in  Mr Harris’ written submissions in which he said:

The Arbitration Act (Sch 1 Art 8 (1)) directs a court to stay a proceeding if the matter in issue is the subject of an arbitration. In Salford Estates (No 2) Ltd v Automart Ltd, the English Court of Appeal held that, while the Arbitration Act (UK) did not apply directly to winding up proceeding (and a stay is therefore not mandatory), the court should exercise its discretion in all but exceptional cases consistently with the legislative policy of the Arbitration Act, by granting a stay.

[11]	As Mr Orpin-Dowell says, in the next paragraph Mr Harris submitted that “[t]he same considerations apply in New Zealand”. It may be inferred from those aspects of Mr Harris’ submissions that Manchester Securities accepted that art 8 had no direct application. Certainly, if Manchester Securities had wished to pursue such an argument, one would have expected the point to have been addressed independently in submissions, which it was not.

[12]	On behalf of Manchester Securities, Mr Harris maintains that he did argue that art 8 had direct application and required the Court to grant a stay. He points to the part of his submissions in which he said that art 8 directs a court to stay the proceeding.

[13]	In my view, the interpretation Mr Harris now offers of his submissions was not how they were presented at the time. It was clear from the overall context that Manchester Securities was asking the Court to exercise its discretion to order a stay. In several places, the submissions claimed that it would have been an abuse of process for the Court to hear and determine matters that were already before an arbitrator, which is the language of r 31.11, not art 8. There was also no suggestion in the submissions that the r 31.11 argument was merely a fall-back position.

[14]	In relation to the second proposed ground of appeal, Mr Orpin-Dowell contends that Mr Harris accepted that the levies imposed by the Body Corporate on Manchester Securities are payable on a pay now, argue later basis. Mr Harris does not accept that.

[15]	In an earlier application to set the Body Corporate’s statutory demand aside by Manchester Securities, both this Court and the Court of Appeal made reference to the possibility that the sums due to the Body Corporate by Manchester Securities were payable on a pay now, argue later basis. This was recorded in Manchester Securities’ application for a stay and Mr Harris’ submissions appeared to take this as a starting premise. His submission was that, even if the obligation were of that character, in the context of a liquidation a liquidator would be obliged to set-off the levies and judgment debt against any claim that Manchester Securities might be able to sustain.

[16]	I am satisfied that the point Manchester Securities now says it wishes to raise on appeal — namely that the levies are not payable on a pay now, argue later basis — is not one that was a feature of the argument in this Court. It may be that Manchester Securities did not concede the point. However, it certainly did not contest it.

[17]	In short then, the view I take is that, certainly as formulated in Manchester Securities’ application for leave to appeal, the proposed points of appeal are not ones that were directly before this Court.

[18]	That is a factor that weighs against granting leave, but it is not a fatal one.

Are the proposed points of appeal nevertheless tenable?

[19]	Article 8(1) provides:

A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

[20]	The matter in the arbitral proceeding as it was explained to me is Manchester Securities’ claim against the Body Corporate in relation to costs it has incurred in carrying out work on the 12th floor. Manchester Securities claims that the contribution owed to it by the Body Corporate can be set off against the levies and judgment sum that it is required to pay the Body Corporate. The matter raised in this proceeding is whether the Body Corporate is entitled to an order liquidating Manchester Securities on account of its failure to comply with a statutory demand. The former is a claim under a remediation scheme under s 48 of the Unit Titles Act 1972, which might entitle Manchester Securities to a set off. The latter calls for an exercise of the Court’s jurisdiction to appoint a liquidator under s 241(2)(c) of the Companies Act, which raises more general issues about the ability of Manchester Securities to pay its debts. They are very different matters.

[21]	It is difficult to see how it can be said that the proceeding before this Court is “brought in a matter which is the subject of an arbitration agreement”. Aside from anything else, art 8 provides that a stay granted under that article is to be accompanied by a submission of the issues in the proceeding to arbitration. It is common ground between the parties that the issue in this proceeding — whether a winding-up order should be made against Manchester Securities — is not one that is capable of being referred to arbitration.

[22]	Nevertheless, as Mr Harris points out, there is no authority on the point in New Zealand. Although the English authority Mr Harris referred me to during the

substantive hearing supports the approach that I took,7 he has subsequently discovered an Australian authority that he says supports the approach he now wishes to take on appeal.8 Mr Harris’ response to the approach I adopted as outlined at [22] above is that the word “matter” in art 8 refers not to the particular legal issue before the Court or arbitrator but to the underlying subject matter of the dispute. He submits that the matter in the present case is whether or not Manchester Securities has an arguable set off, since that will effectively determine whether it would be appropriate for the Court to make an order winding the company up. This would avoid the problem that liquidation proceedings are not arbitral because, on that interpretation, it is not the liquidation proceedings per se that must be subject to a submission to arbitration. That approach is similar to the approach taken by Cooke J in Openyd Ltd v GJ Lawrence Dental Ltd and is consistent with the concept of “one-stop adjudication”.9

[23]	For myself, I think the better approach is to interpret art 8 narrowly as referring to the particular legal issue before the Court and to rely on the general powers of the Court to order a stay in favour of arbitration in appropriate cases. That approach has been followed in several High Court decisions.10 I am not convinced that the drafters of the UNCITRAL Model Law or the New Zealand legislation intended the broader meaning advanced by Mr Harris.

[24]	In any case, the issue is “of some complexity”11 and it would certainly be in the public interest if the Court of Appeal were to settle the matter. I am conscious that I was empathetic in my judgment, and granted indemnity costs to the Body Corporate. That was a reflection of the way Manchester Securities had put its argument before me. If the granting of a stay is a matter of discretion, there is no doubt that Manchester Securities’ application was destined to fail. But if Mr Harris is right that art 8 requires the Court to grant a stay, then those discretionary considerations would be irrelevant. Although I have my reservations about the merits of the appeal, I acknowledge that

7	See Salford Estates (No 2) Ltd v Altomart Ltd [2014] EWCA Civ 1575.
8	See WDR Delaware Corp v Hydrox Holdings Pty Ltd [2016] FCA 1164.
9	Openyd Ltd v GJ Lawrence Dental Ltd [2018] NZHC 1618 at [32]–[35], citing Fiona Trust & Holdings Corp v Privalov [20007] UKHL 40.
10 See Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Ltd [2014] NZHC  1681; GJ Lawrence Dental Ltd v Alusi Ltd [2018] NZHC 1342 at [28]–[29]; and Openyd Ltd v GJ Lawrence Dental Ltd, above n 9, at [37]–[38].
11 GJ Lawrence Dental Ltd v Alusi Ltd, above n 10, at [24].

Manchester Securities’ position is at least arguable. For those reasons, I am compelled to grant leave on the first proposed ground of appeal.

[25]	There is less merit to the second proposed ground of appeal and, had Manchester Securities needed to rely on it, I would have declined leave. In the present case, the relevance of this point is limited to the role it would have played in the overall exercise of my discretion under r 31.11. If Mr Harris is correct that the ordinary levies are not payable on a pay now, argue later basis, then his argument that it was an abuse of process for the Body Corporate to initiate liquidation proceedings despite the potential existence of an arguable set off would have been stronger. But it would not have altered my decision. As Mr Orpin-Dowell points out, even if the ordinary levies are not of that nature, the Court of Appeal made clear that the judgment debt certainly was.12 Manchester Securities’ failure to meet the statutory demand in relation to the judgment debt would have been sufficient by itself to legitimately initiate winding up proceedings.

[26]	However, again, it is fair to acknowledge that the point Manchester Securities wishes to raise on appeal is arguable, and given my conclusion on the first proposed ground of appeal, it is sensible to grant leave on this ground as well. As Mr Harris explains, the clause in the remediation scheme that says levies are not to be withheld “on the basis that the matter is in the process of dispute resolution” does not apply to ordinary levies charged under the Unit Titles Act. And, while the Court of Appeal observed that there are indications in that Act that ordinaries levies are also charged on a pay now, argue later basis, it recorded that the point was not the subject of any detailed submissions before it.13 Despite the point not being taken up before me, I accept that the nature of the obligation to pay ordinary levies under the Unit Titles Act is an open question and one on which Court of Appeal authority would be useful.

Conclusion

[27]	In summary then, whilst I do not accept that the two issues Manchester Securities wishes to argue on appeal were raised in the same way in this Court, both

12	Manchester Securities Ltd v Body Corporate 172108, above n 2, at [57]–[58].
13	Manchester Securities Ltd v Body Corporate 172108, above n 2, at [66].

are tenable, and matters of sufficient public interest to justify the granting of leave. Although I have my doubts about the ultimate merits of the proposed appeal, I consider that the general and public importance of the issues it raises are sufficient to outweigh the delay that will be caused to the liquidation proceeding. On the whole, I am satisfied that it is in the interests of justice to grant leave to appeal, and I do so.

[28]	On those bases, I grant leave to appeal on both the proposed grounds.

[29]	I have not heard from counsel in relation to costs associated with this application. If counsel are unable to resolve costs — as I would expect them to be able to do — they may come back to me by way of memorandum.

Associate Judge Johnston

Solicitors:
Gilbert Walker, Auckland for defendant/applicant
Grove Darlow & Partners, Auckland for plaintiff/respondent