Receiver Personally Accountable to Body Corporate

Body Corporate 162791 (Mid City Centre) has struggled for many years with a recalcitrant owner of the former cinema site in Mid City.  Attempts to extract outstanding Body Corporate levies have proved extremely difficult since the cinemas closed many years ago.  There have been various entities controlling the four units which comprised the former cinemas, the latest being QSM Trustee Limited (QSM).  QSM was formed at short notice when the previous proprietor, 239 Queen Street Trustees Limited, was subject to liquidation proceedings in the High Court.  Liquidation proceedings were then brought against QSM when payments of Body Corporate levies were not received.  Two days before the liquidation of QSM was to be heard, the company placed itself into voluntary liquidation and a receiver was also appointed.

Since 13 August 2013 the receiver has remained in control of the units, collecting rental from tenants and utilising Body Corporate services, whilst declining to pay Body Corporate levies.  In addition the receiver attempted to interfere with the common property of other elements of the complex, at one stage installing a fence across a common property arcade.  The Body Corporate successfully obtained an interim injunction to have the fence removed and then sought a permanent injunction raising additional causes of action including that the receiver be personally liable for levies on the five units.  The claim alleged the receiver, as agent for the company in receivership, was in possession of the units, benefiting from the services and receiving rental income from a number of tenants.

The claim against the Receiver was brought by way of summary judgement and the High Court held the actions did not make the receiver personally liable for the levies.  The Body Corporate appealed and a unanimous decision of the Court of Appeal issued on 29 April 2015 finding:
1.    The receiver was personally liable for Body Corporate levies from mid-August 2013 (at at rate of some $39,000 per month).
2.    Interest at 10% per annum was applicable on the arrears in accordance with the Body Corporate’s interest resolution charge.
3.    The Body Corporate was entitled to reasonable solicitor client costs on the proceedings.

The case created a number of significant precedents for Body Corporates, and in particular recognised that receivers were not entitled to take or remain in possession of Units in a Body Corporate, enjoying the benefits of Body Corporate services, without paying for them.

Importantly, the Court of Appeal also rebutted the receiver’s argument that the position of a receiver was similar to a mortgagee in possession and that a “mortgagee in possession is not liable to pay Body Corporate levies”.  The Court noted:

“Pursuant to Section 105(3) of the Unit Titles Act, Body Corporate rules are binding on the Body Corporate, the owners of principal units, any person who occupies a principal unit, and any mortgagee who is in possession of a principal unit.  If the operational rules of a Body Corporate provide that unit holders must pay Body Corporate levies, then clearly there will be an obligation on a mortgagee in possession to pay those levies.  If the Body Corporate’s operational rules require all owners to abide by acts in force in relation to the use, occupation or possession of the unit, as they do in this case, then a mortgagee in possession will be liable to pay levies, because the obligation to do so is contained in Section 80(1)(f) of the Unit Titles Act.”

The decision, whilst significant to the Body Corporate, giving rise to a recoverable debt in the order of $1million against the receiver personally, it is also significant to other Body Corporates frustrated by receivers or mortgagees in possession who fail to meet Body Corporate levies.  The judgement was issued in the Court of Appeal on 21 May 2015 under reference CA213/2014[2015]NZCA185.

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