John Gilbert and QSM Trustees Limited (in receivership and in liquidation) v Body Corporate 162791

This was not a simple unpaid invoice dispute. It came out of a troubled redevelopment and a long-running fight over five upper-level units in the Mid City complex at 239 Queen Street, Auckland.

The upper level had once been used as a cinema complex, but that business failed in 1998. There was also a registered land covenant dealing with redevelopment of the upper level and the airspace above it. That redevelopment background mattered because the levy dispute became tangled up with arguments about roof work, redevelopment rights and who should bear historic costs.

In September 2010, the 239 Queen Street Trust was settled. Its original trustee was 239 Queen Street Trustees Ltd. The trust wanted to acquire the five upper-level units with redevelopment in mind, and it negotiated with the body corporate about levy arrears and the future of the site.

Those negotiations led to a letter dated 24 November 2010. Under that bargain, the trust was to replace the roof and make a small payment towards levy arrears. In return, the body corporate was to write off the balance of the arrears once the roof was completed.

That arrangement did not solve the problem. The roof was not replaced, current levies were not paid, and relations between the trust interests and the body corporate broke down. So the dispute moved from a commercial negotiation into debt recovery and litigation.

Importantly, the upper level was not simply sitting empty. The trust had redeveloped it to some extent and, by early 2012, a market known as Queen Street Market, with about 25 to 30 retailers, was operating there. That commercial use became central to the fairness arguments in the case.

The ownership and insolvency picture then became more complicated. The body corporate issued a statutory demand for unpaid levies against 239 Queen Street Trustees Ltd and applied to liquidate it. Instead of engaging directly with that process, the five units were transferred to QSM Trustees Ltd on 23 January 2013. Two days later, the original trustee company was put into liquidation.

QSM Trustees Ltd then started proceedings against the body corporate to enforce the 2010 arrangement and the redevelopment covenant. It also tried to set aside another statutory demand. Those proceedings were not properly pursued. In July 2013, a company associated with Mr Finnigan, which held mortgage security over the trust assets, appointed John Gilbert as receiver of QSM Trustees Ltd. The next day QSM Trustees Ltd was placed in liquidation.

The body corporate then changed tack. It said that, from 14 days after Mr Gilbert’s appointment, he was personally liable for body corporate levies under the Receiverships Act. Its practical point was simple. The units were still being used for economic gain, and the body corporate was still funding the services that kept the building functioning.

The legal issue sat at the intersection of two different statutory regimes. Under the Unit Titles Act 2010, unit owners must pay body corporate levies fixed by the body corporate. Under s 32(5) of the Receiverships Act 1993, a receiver can become personally liable for rent and other payments becoming due under an agreement already in place when the receiver is appointed, if that agreement relates to the use, possession or occupation of property in receivership.

That created two linked questions. First, were body corporate levies payments due under an agreement, or were they only statutory obligations under the Unit Titles Act? Secondly, if there was an agreement, did it relate closely enough to the use, possession or occupation of the units for s 32(5) to apply?

Those questions sound technical, but the commercial consequence was direct. If the answer was yes, the receiver could be personally liable for levies accruing after the 14-day period. If the answer was no, the body corporate would be left to pursue the owner company instead.

The judges also had to work through the practical setting of unit title ownership. Levies fund the shared services that keep a building operating. The judgment refers to services such as insurance, fire alarm monitoring, annual building warrants of fitness, repairs and maintenance, building cleaning, air conditioning maintenance, rubbish removal, security, water rates and electricity.

That practical setting mattered because the purpose of s 32(5) is to stop a receiver obtaining a benefit for the debtor company or secured creditor without paying for it. So the case was not just about labels. It was also about whether the law should allow continued commercial use of unit title property while the cost of keeping it functioning falls on others.

The Court also looked at the legal character of body corporate rules. One side argued that the relationship between unit owners and the body corporate, together with the operational rules, meant the levies were due under an agreement. The other side argued that the obligation to pay levies existed because the statute imposed it, whether anyone agreed to it or not.

There was also a second-level argument about whether levies really relate to use, possession or occupation at all. Another possible view was that levies are an incident of ownership. That distinction matters because s 32(5) is aimed at payments under agreements relating to use of property in receivership.

The Supreme Court affirmed the Court of Appeal judgment, so the receiver remained liable under the standing result. But that happened because the Court was equally divided. There was no majority Supreme Court reasoning on the key issue.

William Young and Glazebrook JJ would have dismissed the appeal. Their reasoning focused on the practical relationship between the body corporate and the unit owner, the body corporate rules and the continuing receipt of services funded by levies. They considered there were two possible bases for saying the levies were due under an agreement.

One was an implied agreement arising from the receipt and use of services provided by the body corporate, including insurance, maintenance, electricity and other services. The other was the broader relationship between unit owners and the body corporate, including the operational rules that bind them.

Those judges accepted that it was realistic to see unit owners in a unit title development as participants in a joint venture carried on under the statute and the operational rules. On that approach, the members and the body corporate at least implicitly agree with each other to meet their obligations, including the body corporate’s obligation to provide services and the owners’ obligation to pay for them.

They also considered that the relevant agreement related to the use, possession or occupation of the units. In their view, the case was not about a passive mortgagee. It arose in a context where the units had been used for economic gain and services funded by levies had been accepted and used. They saw the purpose of s 32(5) as preventing a receiver from obtaining a benefit for the debtor company or secured creditor without paying for it.

Elias CJ and O’Regan J disagreed. In their view, the obligation to pay levies arose under the Unit Titles Act itself, not under an agreement. They said there was no proper basis to imply an agreement to comply with obligations that are binding whether the parties agree to them or not. On that approach, the levy payment was not due under an agreement for the purposes of s 32(5).

They also rejected the idea that the body corporate rules themselves were an agreement in the relevant sense. In their view, the rules were binding because the statute said they were binding, not because they operated as a contract. They considered the statutory obligation to pay levies was complete in itself.

Because they reached that conclusion, Elias CJ and O’Regan J did not need to decide the second issue finally. But they said there was force in the view that levies relate to ownership rather than use, possession or occupation. They also thought s 32(5) was better read as applying to leases and similar arrangements involving the use of another person’s property.

The result was a 2-2 split. In that situation, the Court of Appeal judgment was affirmed. The receiver therefore remained liable under the standing result, and there was no order for costs in the Supreme Court.

The safest way to use this case is as a practical risk warning. It shows how body corporate levies can become a major commercial issue when unit title property is in financial distress, tied up in redevelopment conflict, or still being used while ownership structures shift around.

Do not read the case as saying every receiver will always be personally liable for levies. The Supreme Court did not settle the reasoning. But do not read the split as comfort either. The Court of Appeal result stood, and two Supreme Court judges strongly supported liability where the property continued to be used for economic gain while body corporate services continued to be supplied.

The case also shows that courts may look closely at commercial reality. Here, the judgment records a layered structure involving a trust, a replacement trustee, liquidation steps, a receiver appointed by a company associated with one of the trust interests, and a lease arrangement associated with the market operation.

That does not mean every complex structure is improper. But it does mean a business should not assume that internal arrangements will make levy exposure irrelevant if the premises are still being used and the body corporate is still carrying the cost of keeping the building operational.

For buyers and lenders, the lesson is equally direct. A unit title property is not just a title and a floor plan. It comes with a body corporate relationship, a levy history, operational rules, shared services and possible disputes that can affect value, timing and exit options.

For businesses already occupying unit title premises, this case is a reminder that levies are not a side issue. They fund the services that keep the building lawful, insurable and usable. If those costs are not being met, the problem can quickly move from background noise to the main commercial pressure point.

For insolvency practitioners and secured parties, the case is a warning to focus early on the practical facts. Is the property still being used? Is anyone still trading from it? Are services still being supplied? Is income, licence revenue or some other commercial benefit still flowing from the premises? Those facts may shape both legal risk and the fairness picture a court sees.

If your business is buying or funding unit title premises, start with the levy position. Ask for current levy statements, arrears details and any information about special levies or major works. A low purchase price can stop looking attractive very quickly if the building has unresolved cost-sharing problems.

Then review the wider body corporate material. Minutes, operational rules, repair history and redevelopment disputes can all affect the real cost and usability of the property. This case shows how roof issues, redevelopment rights and levy arrears can become tightly connected.

If your business already owns unit title premises, keep levies visible in your cash flow planning. They fund the services that keep the building lawful, insurable and usable. Falling behind can trigger debt recovery and complicate any future sale or refinance.

If you are a lender, secured party or receiver, map the ownership and occupation structure carefully. Check title ownership, trust arrangements, leases, licences, management arrangements and any side agreements about redevelopment or building works. In a distressed file, these arrangements can obscure who is responsible for what.

Also check whether the property is still being used for commercial benefit. In this case, the existence of a market operating from the upper level was an important part of the body corporate’s argument. Ongoing use can change the practical and legal risk profile.

Finally, do not assume a live dispute with the body corporate will pause the commercial consequences. Even where there are arguments about redevelopment rights or historic bargains, the building still needs to be insured, maintained and operated. Those costs keep running.

The body corporate sought summary judgment against the receiver. In the High Court, Associate Judge Abbott rejected that application. The Court of Appeal reversed that decision, held the receiver liable for levies and interest, rejected relief from liability, entered summary judgment and awarded the body corporate its reasonable solicitor and client costs.

Mr Gilbert and QSM Trustees Ltd appealed to the Supreme Court. The Supreme Court delivered judgment on 2 June 2016. It affirmed the Court of Appeal judgment and made no order for costs.

The important point for business readers is that the Supreme Court did not produce a majority view on the legal reasoning. Two judges would have held the receiver personally liable. Two judges would have allowed the appeal and restored the High Court result. So the Court of Appeal outcome stood, but the reasoning remains contested at the highest level.

That means the case is useful and commercially important, but it should be applied with care. It is strongest as a warning about practical risk in distressed unit title situations, especially where the property continues to be used and the body corporate continues to fund the services that keep it operating.

If you are buying a unit title commercial property, this case is a reminder that levy arrears are not just a historical accounting item. They can affect settlement, pricing, lender appetite and the real cost of ownership from day one.

If you are lending against unit title property, do not focus only on title and mortgage priority. Check the body corporate relationship, the arrears position and whether the premises are still being used in a way that could create pressure for levies to be paid as an ongoing operating cost.

If you are stepping into a distressed project, be careful where redevelopment promises, repair obligations and levy arrears overlap. A dispute about one issue does not stop the building from needing insurance, maintenance and compliance work.

If you are appointed as a receiver over a company that owns unit title property, get a clear picture immediately of occupation, income and services. The legal position is not fully settled by a majority Supreme Court ruling, but this case shows that personal liability arguments can be serious and commercially significant.

If your business trades from unit title premises under a related-party structure, make sure the documents and payment flows match the commercial reality. Where a building is still being used for economic gain, unpaid levies can become a focal point in any later dispute.