Jewett Investments Limited v Body Corporate 204096 [2011] NZCA 232 (3 June 2011)

Last Updated: 8 June 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA868/2010 [2011] NZCA 232

BETWEEN JEWETT INVESTMENTS LIMITED Appellant

AND BODY CORPORATE 204096 Respondent

Hearing: 29 March 2011

Court: Stevens, Keane and Fogarty JJ

Counsel: F B Barton & S E M Corban for Appellant S E Eden for Respondent

Judgment: 3 June 2011 at 2.30 pm

JUDGMENT OF THE COURT

1. Appeal against refusal of declaration of invalidity of the resolution for a levy dated 27 April 2010 is dismissed.
2. The respondent is entitled to costs. The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS

Keane and Stevens JJ [1]
Fogarty J (dissenting) [57]

KEANE AND STEVENS JJ
(Given by Keane J)

Introduction

[1] In issue on this appeal is the validity of a $4.3 million levy, dated 27 April 2010, made by Body Corporate 204096 (the body corporate) on the owners of Castle Glade, a 72 unit complex in Birkenhead, Auckland. The purpose of the levy was to complete remedial work to the exterior of the 13 blocks comprising the complex that had already cost at least $7.4 million to remedy. The complex, constructed in 2002-2004, had soon proved not to be weather tight, and had required extensive remedial work to the exterior almost from the outset. At the date of the levy, repairs were still far from complete.
[2] One member of the body corporate, Jewett Investments Limited, which then owned two units, and which had accepted the validity of the earlier levies made, denied any liability to pay its share of this last levy, $122,120. In June 2010 it sought in the High Court a declaration that the resolution authorising the levy, passed at an extraordinary general meeting on 27 April 2010, at which it was not present and of which, it said, it had no notice, was unlawful. The body corporate, it contended, could only levy under s 15 of the Unit Titles Act 1972 to the extent that it was in need of funds to discharge its duty to repair the common property, and it had no such need.
[3] The defective exterior envelope of the complex, affecting adversely all the units in the complex, Jewett accepted, was common property that the body corporate was then still under a duty to repair completely. But by 27 April 2010, Jewett contended, the body corporate no longer had any need to levy. The body corporate, and the majority of owners, had just settled a 2005 High Court claim against the developers, designers, builders and marketers of the complex (the defendants in which included Jewett) to recover the past and still anticipated cost of repair. The body corporate’s solicitors held on trust at the date of the levy $9.8 million, the larger part of the settlement sum agreed, $10.5 million, on which it could rely.
[4] The body corporate opposed any such declaration. The remedial work called for, it said, had been and was always to be met by levying all the owners. The sum in trust belonged not to it but to those owners, all the owners except Jewett, in whose 2005 claim it had necessarily joined. The loss they claimed primarily, comprising the levies they had become liable to meet, had been to meet the cost of remedial work to the common property, which they owned equally, that the body corporate had been obliged to meet under its duty to repair. That cost, all of which was passed on by levy, came eventually to $11.7 million. On settlement, the claimant owners, and with them the body corporate, had compromised a larger claim that included other losses they claim to have suffered, for $17.7 million.
[5] The body corporate contended that, if the sum in trust had been drawn down, and the levy not made, Jewett would have benefited without any right. A term of the settlement (to which Jewett as a defendant was to contribute) was that it was not to benefit. Jewett was said to have sold eight units, after leaks became evident, warranting that it was unaware of any impending cost or liability. With two others, the developer and builder Eastbourne Construction Limited, and the architect, designer and project manager Ottow Burke Holdings Limited, it was required to contribute $425,000 to the settlement.

Jewett's argument

[6] The validity of the levy depended on whether it had been made in compliance with s 15(2) of the Unit Titles Act and that depended on the status of the sum held in trust by the body corporate’s solicitors. The status of that sum in turn depended in part on the nature of the 2005 claim and on the relevant terms of the settlement agreement, dated 15 March 2010, to which both the body corporate and Jewett were parties. It depended, primarily, on a 2008 agreement governing the conduct of the 2005 claim and the distribution of any proceeds, to which the body corporate and the claimant owners were parties, but Jewett was not. It also depended on the resolution made on 27 April 2010, at the extraordinary general meeting, varying that 2008 agreement.
[7] The effect of the 2008 conduct and distribution agreement, Jewett contended, was that any sum in settlement was to go to the body corporate to meet the cost of remedial work, in priority to any right of the claimant owners. It was the property of the body corporate or, if it belonged to the claimant owners, they had expressly or impliedly authorised that priority. By joining in the resolutions authorising the levy and the 2008 conduct and distribution agreement variation, Jewett contended, the body corporate and the claimant owners had enriched those owners at its expense, contrary to the requirements of their own agreement.
[8] The fact, Jewett contended finally, that the settlement agreement, to which it was party, stipulated that it was not to benefit from the settlement, did not alter that reality. By subscribing to the settlement agreement, and contributing to the settlement sum, it met any liability it had as an owner to meet future levies, as well as any it had incurred when it sold the eight units. It only agreed to forgo any claim to any balance to be distributed after the full cost of remedial work had been met from the settlement sum.

Decision and issue under appeal

[9] In her decision under appeal, dated 1 December 2010, Ellis J gave judgment for the body corporate.[1] The 2008 conduct and distribution agreement, she held, governed the claimant owners’ 2005 claim for their economic loss. It confirmed their right to share fully in the fruits of the claim. It did not state that the fruits were to be applied first and foremost to meet the cost of remedial work still to be accomplished; that was a liability in which all owners shared, claimant owners and non-claimant owners alike, and was rightly to be met by the levy made.[2]
[10] The term of the conduct and distribution agreement then and still most in issue stated that the claimant owners were not to be paid out until remedial work was complete. The Judge held that the term went only to when they were to be paid. Their right to share fully in the settlement sum remained undiminished. She held that the variation to the agreement resolved on 27 April 2010 at the extraordinary general meeting only authorised the body corporate to pay out the claimant owners their share before, instead of after, the remedial work was complete, subject to any offset for their levy liability. In this, she held, they were not enriched and Jewett was not deprived. Jewett had agreed that it was not entitled to benefit from the settlement.[3]
[11] On this appeal, Jewett contends, relying on the grounds that the Judge rejected, that she erred in declining to declare both the levy and the underpinning resolution invalid. Jewett now also contends that the body corporate acted inconsistently with its duty to all owners, and preferred the claimant owners. It does not challenge the right of the body corporate to join in the 2005 claim with some but not all owners, or to enter with them into the conduct and distribution agreement, or to join in the settlement agreement. It continues to rely on all three. In alleging that the claimant owners were preferred its focus is solely on the two 27 April 2010 resolutions.
[12] The issue that this appeal raises is, we consider, correspondingly narrow. But we begin with Jewett’s wider proposition, even though it is advanced only to put in issue the validity of those two resolutions. Jewett challenges the nature of the relationship between the body corporate and all its members and the extent of its powers and duties.

Relations between body corporate and members

[13] The body corporate, a creature of statute and an entity in its own right, could sue and be sued in its corporate name; it could do and suffer all that bodies corporate may do and suffer.[4] Equally, it comprised, and was the sum of, the owners collectively of the development it existed to serve.[5] The development belonged to them, not to it. They owned their units individually.[6] They owned the common property as tenants in common in shares proportionate to their unit entitlements;[7] entitlements that fixed the extent of their rights and liabilities as members of the body corporate.[8]
[14] The body corporate had prescribed duties. It had to insure the buildings and improvements; it had to comply, in respect of the land and buildings, with whatever a competent local authority or public body required; it had to control, manage and administer the common property and keep it in good repair; and it had to discharge any duty imposed by the rules.[9] It had for those purposes the power to levy.[10] More generally, it had all such powers as were reasonably necessary to carry out its duties.[11]
[15] The body corporate, it goes without saying, had to be even handed. It could not prefer some owners to others, unless that was what the Act or the rules called for. In that sense the body corporate was under a fiduciary duty. What that called for was to be assessed against the rights given, the duties imposed and the prescribed processes by which decisions were to be taken. Whether the body corporate had power to join in the claim and enter into the related contracts and what effect those contracts had are matters of conventional interpretation.

Repair of common property

[16] There is no issue on this appeal that the body corporate had the ability, indeed the duty, to undertake the remedial work called for, and the ability to levy all owners up until the date of settlement. Until then, Jewett agrees, the body corporate had no other recourse. All levies made until settlement appear, moreover, to have had the assent of the members of the body corporate. The High Court appears never to have been invited to give its mandate to any scheme.[12]
[17] According to the 2005 High Court claim, in which all owners except Jewett joined with the body corporate, almost all the remedial work required related to the exterior envelope of all units. Jewett's own evidence was that this envelope was common property; and it was so described in the unit plan. Accepting that to be so it fell within the definition of “development” in the rules: “all buildings, structures and other improvements on the Land”.[13] It fell also within that of “common property: those parts of the Development described as common property on the unit plan”.[14]
[18] Under the rules the body corporate was obliged to keep the common property in good repair. It was obliged to:[15]

... repair, maintain, clean, repaint, redecorate and renew when required all parts of the Common Property including entranceways, stairs, lifts, fire escapes, ... plumbing, drainage, electrical, fire protection and other systems and services used or intended for use or enjoyment in connection with the Common Property, and any chattels, fixtures and fittings attached to or intended for the use with the Common Property; ...

[19] So too, the body corporate was obliged to maintain and repair the exterior: to “repair, maintain, clean, repaint and redecorate the exterior of the buildings, structures and other improvements comprised in the Development”.[16] It had, furthermore, the right to enter individual units to repair common property.[17] The common and individual properties were so immediately contiguous that access to the former could depend on access to the latter and defects in the former could and did translate to damage to the latter.
[20] These rules reflected the duties and powers imposed on the body corporate by the Unit Titles Act, most relevantly that in s 15(1)(f), which obliged the body corporate to “[k]eep the common property in a state of good repair” and the correlative power to meet the cost of doing so given by s 15(2), which is central to this appeal. It says this:

The body corporate shall ... ―

(a) Establish and maintain a fund for administrative expenses sufficient in the opinion of the body corporate for the control, management, and administration of the common property, and for the payment of ... repairs and the discharge of any other obligations of the body corporate:

(b) Determine from time to time the amounts to be raised for the purposes aforesaid:

(c) Raise amounts so determined by levying contributions on the proprietors in proportion to the unit entitlement of their respective units.

[21] No issue was ever taken with the body corporate’s exercise of this power until after the settlement of the 2005 claim. Even then, Jewett alone raised the question whether the body corporate by then had funds ‘sufficient’ to meet the cost of the remaining remedial work. That was for the body corporate to determine. But if it could have drawn down the settlement sum, either as its own property or because the claimant owners had agreed for consideration that it might do so, it had more than sufficient means without a levy. If it did not have either of those rights, it had to remain entitled to levy.
[22] The related issue that Jewett raises concerns the ability of the claimant owners at the extraordinary general meeting on 27 April 2010, by the second resolution passed, to vary the conduct and distribution agreement, to distribute to all claimant owners immediately the full fruit of settlement, subject to any set-off for their levy liability. The body corporate was equally a party to the agreement, Jewett contended, and the resolution offended s 15(3):

The body corporate may, pursuant to a resolution of the proprietors, distribute any money or personal property in its possession and surplus to its current requirements among the proprietors for the time being according to their entitlements.

[23] If the sum held in trust did belong to the body corporate, even though it was the fruit of a claim made and funded by the claimant owners only, the remaining owners might have had a right under s 15(3) to share in any surplus, if surplus there was. If, on the other hand, the settlement sum was the property of the claimant owners, s 15(3) could not apply, even if they had permitted the body corporate to draw down that sum for the purpose of remedial work. Any benefit to the non-claimant owners depended on the effect of the conduct and distribution agreement.

Principles of interpretation

[24] The conduct and distribution agreement, like any other contract, is to be interpreted, as Lord Hoffman said in Investors Compensation Scheme v West Bromwich Building Society, on the principle that:[18]

Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

[25] That principle, and those that elaborate it, applies in New Zealand.[19] It is not a licence to rewrite the contract to make it work better, let alone to make the contract conform with the context.[20] Moreover, context assists most when a contract is less than clear. Whether or not it is clear is first to be assessed, and as Richardson J said in R v Securitibank Ltd (No 2), that calls for an appraisal of “the whole of the contract”.[21] The conduct and distribution agreement is, moreover, explicit as to what its relevant context was.
[26] The conduct and distribution agreement, of course, had a statutory context. The development, the body corporate, the relationship between the Body Corporate and the members set out in the rules, all became possible only because of the Unit Titles Act. That does not assist to decide, however, the status of the sum held in trust. The converse is the case. The status of that sum, under the conduct and distribution agreement, went to the validity of the s 15(2) levy.
[27] Nor, equally, is the conduct and distribution agreement to be read subject to the settlement agreement, dated 15 March 2010, cl 12 of which expressly said that Jewett, a defendant party, “is not entitled to any portion of the settlement funds by virtue of its ownership of units 12 and/or 64”. If anything the latter agreement is to be read subject to it. But, if that latter agreement is more consistent with one interpretation of the conduct and distribution agreement than another, that could be relevant.
[28] Finally, we note that in interpreting the conduct and distribution agreement, it was a contract to which Jewett as a defendant in the 2005 claim was not privy, and could not have been. Jewett did not learn about the conduct and distribution agreement in any detail until this case began and Jewett can only now rely on what the agreement says or does not say.

Conduct and distribution agreement

[29] There are three elements of the conduct and distribution agreement that assist in determining the status of the settlement sum and when it was held in trust by the solicitors of the body corporate at the date of the impugned levy. First, the recitals to the agreement; second, the regime it created to conduct and fund the claim; and, third, the terms by which it governed the distribution of the settlement sum.

Recitals

[30] The recitals, entitled “Background”, began by stating that the body corporate and the claimant owners entered into the agreement to govern the conduct of their 2005 claim. They stated equally what the purpose of that claim was. They said this:

The Proceeding relates to the recovery of economic loss suffered by the Proprietors following the discovery of defects and damage to their units (“Units”) and the common property of the Body Corporate. The economic loss includes the cost of all repair work carried to date and the anticipated further cost of repair work required to the common property and the Units in the development as set out in the report on defects and remedial works conducted by Babbage Consultants Limited (“Remedial Works”).

[31] The recitals then distinguished the conduct and funding of that claim from the remedial work still being completed by the body corporate for all its members, which was being funded by them by levy. The recitals stated how the claim, as opposed to that remedial work, was to be conducted to completion and funded:

The body corporate is undertaking the remedial works and the Proprietors have been and will be levied for their share of the cost of the remedial works in accordance with their proportion of the unit entitlement.

[32] These recitals, standing alone, stated implicitly, if not explicitly, that any settlement sum received was to recompense the claimant owners (all owners except Jewett) for their economic loss. Unless those owners agreed, either in the conduct and distribution agreement or independently, that any settlement moneys were to be used to meet the cost of remedial work, they were entitled to a full distribution.

Conduct and funding regime

[33] In the text of the conduct and distribution agreement, no less significantly, the body corporate and the claimant owners agreed on a regime to conduct the 2005 claim in which the owners undertook to fund the claim entirely; a liability distinct from that they had as owners to meet any levy for remedial work.[22] The body corporate contributed nothing. Consistently, it was agreed that the claim was to be managed by a committee of claimant owners; a committee on which the body corporate was not represented.[23]
[34] Clause 6.1 of the agreement conferred on the committee:

... full and exclusive authority to represent the [claimant owners] in all matters relating to completion of the Remedial Works, conduct and settlement of Proceeding and any and all other claims that the Body Corporate and/or the [claimant owners] have or may in the future have against any persons in relation to the matters at issue in the Proceeding, whether a party to the Proceeding or not and whether any such claim is known as at the date of execution of this agreement or not.

[35] The succeeding clause authorised the committee to “negotiate and effect a settlement of the Proceeding on such terms as the Owners’ Committee at their sole discretion decide”.[24] It entitled them to “bind the Body Corporate and all of the [claimant owners] to the terms of any settlement of the Proceeding”. The body corporate retained no ability, as a party to the claim or to the agreement, to express any preference, let alone to exercise any power of veto.
[36] The agreement imposed two duties on the committee. The lesser duty was, when making any decisions, to heed the advice of solicitors appointed under the agreement to represent the claimant owners in the conduct of the claim.[25] The greater duty was to account to claimant owners for all moneys received in settlement, to keep them informed and to “ensure that all moneys belonging to the [claimant owners] are dealt with only for those purposes authorised by this agreement”.[26]
[37] Under the regime agreed, it remains to add, the claimant owners and the body corporate appointed an agent to act as the administrator of the claim,[27] and instructed solicitors (not the solicitors of the body corporate) to act on their behalf and to advise them.[28] The secretary of the body corporate was to receive invoices relating to the claim, to gather funding from the claimant owners and to make the payments called for.[29]
[38] This regime, consistent with the recitals, stood independently of that ordinarily governing relations between the body corporate and all its members under the rules; most especially those governing the repair and any related levy. In that usual relationship the body corporate played the central part. Under the independent regime in the agreement, it remained passive.

Settlement and distribution terms

[39] The third element of the conduct and distribution agreement, the element critical to Jewett's case on appeal, comprised the terms governing the distribution of any sum received in settlement.
[40] Clause 11, titled “Settlement Fund”, prescribed the order of priority in which any settlement sum was to be applied. The cost of the claim was to be met first. The balance was to be held on trust. As to that order of priority, cl 11.1 said:

Any funds received in settlement of or as a result of the Proceeding must promptly be:

(a) used to firstly pay all outstanding fees and charges in respect of professional advice undertaken to recover funds; and

(b) the balance deposited into the trust account of the Body Corporate Secretary in the name of the [claimant owners] or with a law firm selected by the Owners’ Committee.

[41] Clause 11.2 concerned the balance to be held on trust. It extended the authority given by cl 11.1(b) to the owners’ committee to decide with whom and on what terms the sum was to be deposited:

When instructing the Body Corporate Secretary or the law firm to hold the funds referred to in 11.1(b) the Owners' Committee must instruct the Body Corporate Secretary or the law firm:

(a) to hold the funds on trust on an interest bearing account or accounts;

(b) if advised by the Owners' Committee, put all or part of the funds held onto fixed term interest bearing deposit or deposits for such term or terms as the Owners’ Committee directs provided that no fixed term is to exceed four months;

(c) not to release the funds (or any part of them) without authority from the Owners' Committee or the meeting of Proprietors contemplated by clause 12.

[42] In stipulating that the settlement sum was to be held “in the name of” the claimant owners cl 11.1(b) confirmed that the trust was for their benefit. Clause 11, as a whole, confirmed equally that the owners’ committee was to be the trustee. The terms of the trust, to which we have already referred in passing, appeared in cl 7.1; they were, essentially, that the settlement sum was to be held for the claimant owners and to be applied only as the agreement contemplated. That the owners' committee chose to place the settlement sum with the body corporate's secretary and usual solicitors, as happened, does not mean that the body corporate enjoyed any competing right. The committee could have placed the funds, for instance, with the solicitors advising on the claim. The choices made were evidently convenient.
[43] Consistent with that trust and the terms creating it, cl 12.1 obliged the owners’ committee to confer with the claimant owners after settlement; only at this point was there any reference to any remedial work still to be completed:

Promptly after any settlement of the proceedings, the Owners' Committee must call a meeting of the Proprietors to:

(a) advise the Proprietors of the terms of the settlement, and that any distribution must be subject to the terms of the settlement; and

(b) determine the process for having the development repaired or repairs completed if this has not occurred already.

[44] In anticipating that the terms of settlement might affect the nature and timing of distribution to the claimant owners and that they might need to consider how future remedial work was to be accomplished, cl 12.1 did not qualify, let alone remove, their right to the settlement sum. It did no more than identify two potentially complicating factors. The first would have arisen as a result of the settlement struck by the owners' committee. The second was an issue that the claimant owners, all the owners except Jewett, would have had to consider anyway. Jewett's claim to a declaration hinges eventually, and exclusively, on cl 12.2.
[45] Jewett contends that in cl 12.2 the body corporate and the claimant owners agreed that any settlement sum should be applied first to the cost of any remedial work remaining, and that the claimant owners accepted that they were entitled only to any balance remaining, if any at all. Like the Judge, and essentially for the reasons she gave, we consider that interpretation implausible and unsustainable.

Clause 12.2

[46] Clause 12.2 said this:

The balance of the settlement moneys (if any) after the Remedial Works are completed shall be distributed to the [claimant owners] in shares equal to the [claimant owners'] unit entitlements in the Body Corporate (or as may be otherwise required in accordance with the terms of the settlement or as a result of the Proceeding) less any sum levied against the [claimant owner] under clauses 4.1 or 4.2, or such other costs relating to the Remedial Works and/or Proceedings as may be previously levied, then remaining unpaid. For the avoidance of doubt, a [claimant owner's] share shall be determined in accordance with their unit entitlement notwithstanding that they may no longer own their Unit(s).

[47] Jewett relies on the words with which cl 12.2 begins, “[t]he balance of the settlement moneys (if any) after the Remedial Works are completed shall be distributed ... ”, to say that the “balance” must have been anything left once the cost of the remaining remedial work was met. We disagree. The “balance” of the settlement sum about which cl 12.2 spoke, we consider, was that resulting after the two deductions cl 12.2 expressly called for had been made: (i) the cost of the claim, to which cl 11.1(a) gave priority and the subject, independently, of levy under cl 4.1; and (ii) the claimant owners’ separate liability for any levy made by the body corporate for remedial work.[30]
[48] The words “after the remedial works are completed”, by contrast, did not expressly require any deduction to be made from the settlement sum; and, when regard is had to the agreement as a whole and its context, we agree with the Judge that those words could only have been intended to dictate when the claimant owners were to be entitled to a distribution. That was to be after remedial works were complete.

Conclusions

[49] Like the Judge, we consider that the body corporate, notwithstanding the settlement, was obliged to levy the owners for the substantial cost of remedial work still outstanding, which was $4.3 million. Accordingly, the levy made by resolution on 27 April 2010 was made validly. To obtain a “sufficient” fund the body corporate needed to levy a sum of that order.
[50] The settlement sum held in trust by the body corporate's solicitors, $9.8 million, was not an asset of the body corporate. It was the fruit of the claim brought by the claimant owners (all the owners except Jewett) to pursue their economic losses, the levies for remedial work, past and anticipated, the loss of value to their units as a result of stigma, and consequential costs. It was not a claim that the body corporate brought, or needed to bring, to recover the past and future costs of repair. It was entitled to, and had, passed those costs immediately to the owners by levy. It was only a party to the claim because, to recover their economic losses, the claimant owners had first to establish the costs to the body corporate from which their levies derived.
[51] Nor was the body corporate entitled under the conduct and distribution agreement to draw down the settlement sum to meet the cost of remedial work. To do so would have cut across the clear terms of the trust created by the terms of that agreement, the beneficiaries of which were the claimant owners and not Jewett. The cost of remedial work (past and future) was, as that agreement contemplated, to be met by a further levy on all members of the body corporate.
[52] The second 27 April 2010 resolution, varying the conduct and distribution agreement, served only to accelerate the date on which the claimant owners received their entitlement. They remained liable for their share of the past and future cost of remedial work, that fixed by past levies and the levy that day. Indeed, as cl 12.2 contemplated, the body corporate received their levies from the settlement sum before the balance was distributed. In this the claimants obtained no advantage. The non-claimant owners only had to meet their levy liability, past and future, without recourse to the settlement sum, because they had not been claimants.
[53] Jewett's proposed declaration is irreconcilable with the provenance of the settlement sum and the conduct and distribution agreement. By pursuing this declaration, Jewett has sought to avoid its liability as a non-claimant owner to meet its share of the cost of the final remedial work, $122,120. That is a cost that it has attempted to pass to the claimant owners, who brought and funded the claim, by attempting to have that cost met from the settlement sum.
[54] The most that Jewett can say is that the claim settled was not just to recoup the individual unit liabilities of the claimant owners, it was for the full cost of the remedial work, and would have included the cost of repairs made to the two Jewett apartments reflected in Jewett's own past and future levy liabilities. But that would only have been reflected in the settlement if the claimant owners had recovered the full cost of remedial work, and it is not suggested they did so. The full claim was for $17.7 million and it was compromised for $10.5 million. What proportion of their unit liabilities the claimant owners actually recovered is not in evidence.
[55] Jewett has pursued this declaration, moreover, in the face of the settlement agreement. It has sought to avoid the effect of that agreement by saying that it then also settled its claim as an owner to meet any future liability for remedial work, when the only claim it settled was that for breach of vendor warranties. It has sought to say that the declaration does not offend the term of that agreement, denying it any right to benefit from the settlement sum, when that is plainly what it has sought to do.
[56] Jewett's appeal is dismissed. The body corporate is entitled to costs. Jewett must pay the respondent costs for a standard appeal on a band A basis and usual disbursements.

FOGARTY J

[57] I find that I disagree with my colleagues. The principal difference between myself and the majority is that I think that “after” (emphasis added) in cl 12(2) of the conduct and distribution agreement should be read literally, as at a time after the remedial works have been completed. This interpretation is reinforced by considering the obligations of the body corporate at the time it entered into the agreement. Second, the proceedings being taken by the body corporate were necessarily for the benefit of Jewett as a proprietor, even though Jewett was also a defendant. Third, the body corporate, as a party to the settlement agreement, could not contract out of its obligations under s 15 of the Unit Titles Act. That context makes cl 12 of that agreement refer naturally to the surplus after completion of the remedial works.
[58] This case is difficult because the litigation was funded by only some of existing unit holders and some past unit holders who incurred costs against the risk of no returns. But sympathy for their position does not enable the body corporate to escape its definition in s 12 and the constraints of s 15. The correct starting point for the interpretation of agreements to which a corporate entity with limited powers is a party, is to presume that the entity normally acts intra vires. The terms of both clauses in each agreement can be read consistently with the body corporate’s powers: in the case of the conduct and distribution agreement, literally; and in the case of the settlement agreement, it is an available interpretation.

The powers and obligations of the Body Corporate

[59] The common property is held by all the registered unit proprietors as tenants in common: s 9(1) of the Unit Titles Act. The unit proprietors for the time being are the body corporate: s 12(1). The body corporate is not a legal person distinct from the proprietors, who “be the Body Corporate” (emphasis added): s 12(2). The powers of the body corporate are to be exercised by a committee of the proprietors on behalf of all the proprietors.[31] Inevitably the individual members of, and the committee as a whole, have fiduciary obligations to all the registered proprietors. The body corporate may sue for and in respect of damage to the common property caused by any person, whether that person is a proprietor or not: s 13(2). The body corporate is obliged to keep common property in good repair, both under the Act (s 15(1)(f)) and by its rules: r 2.2.1.

The litigation

[60] Before the litigation commenced, the body corporate and a number of current and past unit holders (it would appear) entered into the conduct and distribution agreement to agree on the future conduct of the proceeding and the settlement of any and all claims. The parties are described as being the body corporate and “THE PARTIES SET OUT IN THE SCHEDULE HERETO (“Proprietors”)”. According to Mr Maconaghie, a member of the Body Corporate, the parties set out in the schedule are all the registered proprietors except: Jewett; the trustees of the Birkenhead Property Trust who owned unit 27 and were associated with another defendant; and unit owners who bought units after the proceedings commenced, but took no assignments from vendor unit owners who remained as plaintiffs.[32] Clause 4.1 provides the power to levy the second plaintiffs to pay costs. Some of the second plaintiffs are called proprietors “notwithstanding that they are no longer a member of the Body Corporate” (see cl 4.1(b)). Accordingly, it is plain that it is confusing for the agreement to call the second plaintiffs “the proprietors”, when under s 2 of the Unit Titles Act 1972 the proprietors are only the registered proprietors. The agreement itself does distinguish proprietors from registered proprietors, in cl 4.2, which restates the statutory duty on registered proprietors to complete the remedial works, appearing in s 15(1)(f).
[61] Under the Act the body corporate makes decisions by its committee constituted under the rules or by all the (current) proprietors. Mr Maconaghie says he is a member of the “Body Corporate Committee”, and made his affidavit on its behalf. It is possible that the “Owners’ Committee” may be a different committee. Then again it may not. The common seal of the body corporate is fixed to the conduct and distribution agreement by two signatories: Karen Hadlee, described as “Secretary Body Corporate Owner’s Committee”; and by R Tindall, who signs under the title “Signature of Body Corporate Secretary/Proprietor”. Ms Hadlee signs the settlement agreement for the body corporate, and, separately, for the second plaintiffs.
[62] The body corporate as first plaintiff and the second plaintiffs sued the North Shore City Council and four other respondents for the cost of repair to the building, which included “a full reclad of the development”.[33] The reclad was of common property.
[63] The statement of claim did not seek separate relief for the body corporate as first plaintiff, from the second plaintiffs. The pleadings were drawn seeking judgment principally for the cost of repairs, the cost of which was estimated in the pleadings at $11.5 million approximately. In addition there were further remedies sought: 20 per cent of the repair cost for stigma; consequential losses, such as lost rental income; and general damages of $25,000 for each second plaintiff.[34] The pleadings reflect the particulars alleging essentially faulty construction of the exterior cladding – which is common property.

Use of settlement monies

[64] Given this setting, it would have been a breach of the above provisions of the Act for the owners’ committee or the body corporate committee to pass proceeds obtained from a claim for the repair of the common property to a subset of proprietors carrying the cost of the litigation, in derogation of all the registered proprietors who “be” the Body Corporate.
[65] Clauses 11 and 12 provide:

11. Settlement Funds

11.1 Any funds received in settlement of or as a result of the Proceeding must promptly be:

(a) used to firstly pay all outstanding fees and charges in respect of professional advice undertaken to recover funds; and

(b) the balance deposited into the trust account of the Body Corporate Secretary in the name of the Proprietors or with a law firm selected by the Owners’ Committee.

11.2 When instructing the Body Corporate Secretary or the law firm to hold the funds referred to in 11.1(b) the Owners’ Committee must instruct the Body Corporate Secretary or the law firm:

(a) to hold the funds on trust on an interest bearing account or accounts;

(b) if advised by the Owners’ Committee, put all or part of the funds held onto fixed term interest bearing deposit or deposits for such term or terms as the Owners’ Committee directs provided that no fixed term is to exceed four months;

(c) not to release the funds (or any part of them) without authority from the Owners’ Committee or the meeting of Proprietors contemplated by clause 12.

12. Use of Settlement Funds

12.1 Promptly after any settlement of the proceedings, the Owners’ Committee must call a meeting of the Proprietors to:

(a) advise the Proprietors of the terms of the settlement, and that any distribution must be subject to the terms of that settlement; and

(b) determine the process for having the development repaired or repairs completed if this has not occurred already.

12.2 The balance of the settlement monies (if any) after the Remedial Works are completed shall be distributed to the Proprietors in shares equal to the Proprietors’ unit entitlements in the Body Corporate (or as may be otherwise required in accordance with the terms of the settlement or as a result of the Proceeding) less any sum levied against the proprietor under clauses 4.1 or 4.2, or such other costs relating to the Remedial Works and/or Proceedings as may be previously levied, then remaining unpaid. For the avoidance of doubt, a Proprietor’s share shall be determined in accordance with their unit entitlement notwithstanding that they may no longer own their Unit(s).

[66] Stepping back, cls 11 and 12 set out a progression of steps. Both clauses, read together, do not deprive the body corporate, and so thereby its registered proprietors, who are the body corporate, of the benefits of the claim for damages to repair the common property. Clause 11.1(b) cannot be read as distributing the proceeds of the claim to the second plaintiffs as beneficial owners. This is because the use of the funds is governed by cl 11.2, and via cl 11.2(c), by cl 12.
[67] Clause 12.1(a) might suggest a general power of distribution as per the terms of settlement, even in breach of the Act. However, as already noted, cls 11 and 12 are intended to be read together as a sequence of steps. Clause 12.2 clearly addresses distribution of the balance “(if any) after the Remedial Works are completed ...”.
[68] The reference to unpaid levies, in cl 12.2, is plainly a reference to levies imposed prior to the receipt of the funds. The words are not contemplating a further levy between satisfaction or settlement of the claim and completion of the remedial works.

The settlement

[69] Jewett was one of the parties signing up to the settlement agreement. It was not suggested, nor could it be, that cl 12 was a waiver by Jewett of its entitlements as one of the body corporate to the benefits of the settlement. Its directors were not privy to the terms of the conduct and distribution agreement.[35]
[70] Clause 12 is ambiguous. It can be read as a complete exclusion of Jewett from any benefit from the settlement, whether that be direct receipt of cash, or the indirect benefit of the funds being used to repair. But such a meaning is strained given the context; that is, an agreement to settle a claim for the cost of repair. It can also be read as excluding Jewett from any direct share in cash of the settlement. The latter meaning is more consistent with the obligations of the body corporate. On an armchair consideration of the terms of the settlement Jewett, at the time it entered into it, was entitled to assume as part of the context that the body corporate was acting on behalf of all its current unit holders, including Jewett.

The ultra vires levy

[71] Section 15 provides:

15 Duties of body corporate

(1) The body corporate shall—

(a) Subject to the provisions of this Act, carry out any duties imposed on it by the rules:

(b) Insure and keep insured all buildings and other improvements on the land to the replacement value thereof (including demolition costs and architect's fees) against fire, flood, explosion, wind, storm, hail, snow, aircraft and other aerial devices dropped therefrom, impact, riot and civil commotion, malicious damage caused by burglars, and earthquake in excess of indemnity value:

(c) Effect such other insurance as it is required by law to effect or as it may consider expedient:

(d) Subject to sections 45, 46, 47, and 48 of this Act, forthwith apply insurance money received by it in respect of damage to any building or improvements in rebuilding and reinstating the said building or improvements so far as the rebuilding or reinstatement may lawfully be effected:

(e) Pay the premiums in respect of any policies of insurance effected by it:

(f) Keep the common property in a state of good repair:

(g) Comply with any notice or order duly served on it by any competent local authority or public body requiring repairs to, or work to be performed in respect of, the land or any building or improvements thereon:

(h) Subject to this Act, control, manage, and administer the common property and do all things reasonably necessary for the enforcement of the rules:

(i) Do all things reasonably necessary for the enforcement of any lease or licence under which the land is held:

(j) Do all things reasonably necessary for the enforcement of any contract of insurance entered into by it under this section.

(2) The body corporate shall also—

(a) Establish and maintain a fund for administrative expenses sufficient in the opinion of the body corporate for the control, management, and administration of the common property, and for the payment of any insurance premiums, rent, and repairs and the discharge of any other obligations of the body corporate:

(b) Determine from time to time the amounts to be raised for the purposes aforesaid:

(c) Raise amounts so determined by levying contributions on the proprietors in proportion to the unit entitlement of their respective units.

(3) The body corporate may, pursuant to a resolution of the proprietors, distribute any money or personal property in its possession and surplus to its current requirements among the proprietors for the time being according to their unit entitlements.

(4) For the purposes of effecting any policy of insurance under the provisions of subsection (1) of this section the body corporate shall be deemed to have an insurable interest in all the buildings and other improvements on the land.

(5) Any policy of insurance authorised by this section and effected by the body corporate in respect of any buildings or other improvements on the land shall not be liable to be brought into contribution with any other policy, save another policy authorised by this section in respect of the same buildings or improvements.

[72] The duty on the body corporate to levy comes as the very last provision in the list of obligations on the body corporate, s 15(2)(c). Plainly it is to be used when more funds are needed. Subs (3) then deals with distribution of surpluses. One can see that the provision in cl 12.2 of the conduct and distribution agreement for distribution of surpluses to the proprietors picks up on the language of s 15(3). At the time of the levy the Body Corporate had sufficient funds from the settlement ($9,830,674.89) to complete the repairs (estimated at $4.3 million) and so had no need to levy funds. Therefore, s 15(2)(c) could not be used. I would allow the appeal.[36]

Solicitors:
Hesketh Henry, Auckland for Appellant
Shieff Angland, Auckland for Respondent

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[1] Jewett Investments Ltd v Body Corporate 204096 HC Auckland CIV-2010-404-4236, 1 December 2010.
[2] At [19]–[20].
[3] At [21].
[4] Unit Titles Act 1972, s 13(1).
[5] Section 12(2).
[6] Section 4.
[7] Section 9.
[8] Section 6.
[9] Section s 15(1).
[10] Section s 15(2).
[11] Section 16.
[12] Unit Titles Act, s 48.
[13] Definition of “Development” in Rules of Body Corporate Number 204096, r 1.1.
[14] Definition of “Common Property”, ibid.
[15] Rule 2.2.1.
[16] Rule 2.2.3.
[17] Rule 2.1.1.

[18] Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912.
[19] Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81–82.
[20] Craggy Range Vineyards Ltd v Campbell [2008] NZCA 96 at [28], [50].
[21] Re Securitibank Ltd (No 2) [1978] 2 NZLR 136 (CA) at 168.
[22] Clauses 4.1, 4.2.
[23] Clause 5.
[24] Clause 6.2.
[25] Clause 7.2.
[26] Clause 7.1.
[27] Rule 1.1.
[28] Rule 3.1.
[29] Rule 2.1.
[30] See cl 4.2.

[31] Unit Titles Act 1972, s 37 and cl 4, sch 2; Rules of Body Corporate Number 204096, r 2.4.

[32] That proposition does not seem to square with the first schedule, which lists different owners of unit 27. A fully executed copy of the agreement is not exhibited.

[33] 7th Amended Statement of Claim (dated 31 August 2009) at [15](a).

[34] By way of example see [15], ibid.

[35] See Jewett Investments Ltd v Body Corporate 204096 HC Auckland CIV-2010-404-4236, 1 December 2010 at [18].

[36] The High Court heard an application by the Body Corporate for summary judgment. Jewett did not seek summary judgment. The litigation would likely, however, end there as there would be an issue estoppel on the vires point, so there is no need for a formal declaration as sought in the statement of claim.