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Newhaven Waldorf Management Limited v Allen [2015] NZCA 204 (5 June 2015)

Last Updated: 16 June 2015

IN THE COURT OF APPEAL OF NEW ZEALAND
UNDER
BETWEEN

the Declaratory Judgments Act 1908

NEWHAVEN WALDORF MANAGEMENT LIMITED
Appellant
AND
 First Respondent
AND
Second Respondents
Hearing:
18 May 2015
Court:
Ellen France P, Courtney and Kós JJ
Counsel:
N R Campbell QC and M J O'Brien for Appellant T J Rainey and J P Wood for Respondents
Judgment:


JUDGMENT OF THE COURT

A The appeal is dismissed.

  1. The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________


REASONS OF THE COURT

(Given by Kós J)

[1] This appeal concerns a decision by a High Court Judge to join bodies corporate as defendants in a proceeding brought by the manager of the 176-unit Newhaven Estate against a single titleholder.[1]
[2] The proceeding is brought under the Declaratory Judgments Act 1908. It concerns the meaning and effect of an encumbrance registered against each title within Newhaven Estate.
[3] The manager and the titleholders are parties to the encumbrance. Newhaven Estate’s unit titles are organised across five bodies corporate. The bodies corporate are not parties to the encumbrance.
[4] The manager consented to other titleholders joining as defendants. Although many have signalled their intention to do so, none yet has. Instead, four of the five bodies corporate within Newhaven Estate applied to be joined in the proceeding as defendants.
[5] In a judgment delivered in March 2015 Andrews J concluded that the presence of those bodies corporate was necessary in order to adjudicate on and settle all the issues in the proceeding.
[6] From that decision the manager, Waldorf, appeals.[2]

Facts

An estate

[7] Newhaven Estate is located in East Tamaki, Auckland. It comprises 164 unit titles, arranged across five bodies corporate[3] and a further 12 units held in fee simple.[4]
[8] Adjacent to the land comprising the 176 titles, and common property associated with those units, is a separate title on which “Common Facilities” have been developed. A recreation area with tennis court, swimming pool, gymnasium, barbecue facilities and children’s playground will be found there. That separate title is held by the appellant, Waldorf.

An encumbrance

[9] Prior to subdivision of Newhaven Estate into distinct titles, an encumbrance was registered against the base land. The same encumbrance now is registered against each of the 176 individual titles. The encumbrance is given in favour of Waldorf.
[10] It contains, first, a series of express covenants. The titleholders covenant not to change the colour scheme or materials used in the exterior of the building (without Waldorf’s consent), not to change the external appearance of such buildings (again without obtaining its consent) and to maintain, paint and decorate the exterior of the buildings in accordance with the original colour scheme or a new colour scheme approved by Waldorf. Other covenants require the titleholders to maintain the garden and grounds of lands in a neat and tidy condition, mow the lawns and keep the boundary fences in good order. Dangerous animals are excluded. Titleholders must also comply with all rules for the use of the Common Facilities – that is the recreation area referred to at [8] – promulgated by Waldorf.
[11] These covenants are said to be designed to (1) control the use of the Common Facilities, (2) “ensure the operation and enforcement of regulations and covenants benefitting owners and occupiers within Newhaven”, and (3) coordinate provision of services for Newhaven’s benefit, including the supply of utilities.[5] Waldorf may levy Newhaven titleholders’ sufficient sums to ensure that the three purposes described can be achieved.
[12] The essential dispute between Waldorf and the unit holders concerns cl 7 of the encumbrance. This provides for a number of things:

Each member of the Newhaven Community shall pay the Encumbrancee an annual estimate of operating expenses (levies) for the Common Facilities and managing Newhaven, which will be added to the rent charge as set out in this Encumbrance. In the event any member rents their Lot using the Letting Service then the Encumbrancee’s reasonable fees for providing the Letting Service shall be added to the rent charge. Any charges for Utilities shall also form part of the rent charge. The annual rent charge under this sub-clause may be levied monthly. Each year the estimate will be finalised and a statement issued to each member. Shortfalls and surplus’ will be added or deducted to the following years estimate. Should a member sell their property then such member shall apportion such estimate themselves with any new member and shall provide a copy of the notice of sale of their property to the Encumbrancee. The Encumbrancee will determine the start and end of each annual period.

(d) The secondary focus of the appeal was cl 7(i). That provides that the committee is to keep a register of all members and occupants or tenants. Unit holders are required to provide these details to the committee on becoming a titleholder, and upon each change of occupancy. The committee is to provide an up to date copy of the register to Waldorf at least every six months. Waldorf is entitled to refuse entry to persons not named on the register.

An argument

[13] A dispute has arisen between Waldorf and the unit holders. Waldorf has therefore issued this proceeding. It has done so against a single titleholder, the first respondent Geoffrey Allen. He is also the chairperson of the Kauri body corporate.
[14] For present purposes the disputes relating to cl 7(h) and (i) are most important.
[15] The essence of the primary dispute about cl 7(h) concerns the power to levy operating expenses. Not so much for the Common Facilities, but for “managing Newhaven”. Exactly what operating expenses do those words encompass?
[16] Waldorf seeks a declaration that leviable costs under cl 7(h) include (without limitation):
[17] In the case of cl 7(i), what Waldorf seeks is a declaration that Mr Allen and the committee must provide it with an up to date register of all members of the Newhaven community at periods of not less than six months.
[18] Because the pleaded cases are important to the conclusion to be reached in this case, we will spend some time considering the pleadings, so far as relevant.

Pleadings

[19] Paragraph 24 of the second amended statement of claim records that five of the six buildings of Newhaven have individual bodies corporate. Then in paragraph 25, Waldorf pleads:

With respect to the five buildings that have bodies corporate, the Encumbrance is registered against the individual unit titles and not against the common property of any body corporate. By its terms, the Encumbrance does not prevent any of the bodies corporate from exercising their statutory powers under the Unit Titles Act 2010 (the UTA) in relation to common property or otherwise. As Encumbrancee, Waldorf does not assert a right to exercise any powers that can only be exercised by a body corporate under the UTA and does not otherwise seek to prevent the bodies corporate from exercising their statutory duties.

Mr Allen denies this plea in his statement of defence. He goes on to say that the encumbrance created a scheme whereby the encumbrancee (Waldorf) was intended to be the on-site manager for all and each of the bodies corporate. The legislation at the time, the Unit Titles Act 1972, meant that bodies corporate did not own property at all. In its reply, Waldorf denies these additional pleas by Mr Allen.

[20] Paragraph 26 of the statement of claim goes on to plead that:

[N]o individual body corporate has control (or exclusive control) over matters that affect parts of the complex beyond the common property ... or other assets owned by any of the bodies corporate.

That, on its face, is a pleading about the extent of powers of the bodies corporate themselves. It is met in Mr Allen’s statement of defence by a denial. In part, on the basis that paragraph 26 is said to be a submission rather than a pleading.

[21] Paragraph 27 of the second amended statement of claim gives a non-exhaustive list of examples of the “matters” said to lie beyond the scope of the body corporate powers. They include:

... monitoring the maintenance of and/or maintaining accessory units (including car-parks and complex entry areas and corridors which are not common property); monitoring the maintenance of and/or maintaining boundary fences; monitoring and/or participating in coordination of garbage collection across the estate; coordinating and/or monitoring the consistency of colour and finish in the event of repainting the complex; participating in the handling of pest control across the estate; assisting in the handling of complaints from one body corporate against another and/or the owners of Courtside (including notifying of any disturbance issues) monitoring and/or participating in the coordination of security matters across the estate, attendance at the meetings of the bodies corporate; attendance at Newhaven Committee meetings, holding the minutes and the resolutions of the Committee; and monitoring compliance with the covenants set forth in the Encumbrance.

This plea, too, is denied by Mr Allen in his statement of defence.

[22] Paragraph 28 of the statement of claim then pleads that the examples given in paragraph 27 may form part of Waldorf’s services in “managing Newhaven” for the purposes of cl 7(h). It follows that, if upheld, operating costs associated with those services will be levied for by Waldorf under cl 7(h). Mr Allen denies this plea also.
[23] Paragraph 29 of the statement of claim we may pass over. It refers to a historical (but no longer extant) arrangement whereby Waldorf contracted with the bodies corporate to perform certain estate wide maintenance services.
[24] Paragraph 30 is important. It pleads:

Acting collectively, the bodies corporate are appropriately placed to undertake projects and to retain service providers for the overall benefit of the estate – for example, rubbish collection for the estate, maintenance of verges, pest control actions. With respect to such services undertaken collectively by the bodies corporate, Waldorf as Encumbrancee may still, however, exercise a role in monitoring the effectiveness of the services provided and/or relaying any complaints it may receive from the Encumbrancers and/or possibly assisting in any areas where the bodies corporate elect not to organise services for the estate as a whole.

Mr Allen denies this plea.

[25] Paragraph 31 of the statement of claim pleads that “none of the bodies corporate has any authority over the fee simple owners in [Courtside]”. Courtside is, of course, the complex comprising 12 fee simple titles. The plea continues:

[T]he Encumbrancee [Waldorf] can, among other things, represent those owners in estate wide management matters and monitor Courtside owners’ compliance with the covenants in the Encumbrance.

This pleading is also denied by Mr Allen.

[26] The declaration sought by Waldorf as to clause 7(h) has already been described at [16] above.
[27] Turning now to cl 7(i), Waldorf pleads at paragraph 20 that this clause requires the committee to provide an up-dated list of members of the Newhaven community at least every six months. At paragraph 21 it pleads that this has not been done.
[28] Mr Allen, in his statement of defence, advances a contrary interpretation of cl 7(i). His plea is that the role of the committee is wholly passive, and that it does not have to seek out ownership and occupancy details on Waldorf’s behalf. He pleads that in fact no such details have been supplied to the committee by the titleholders. Waldorf’s reply really repeats its original pleading without more.
[29] The declaration sought is described at [17] above. The dispute about cl 7(i) is less significant than that about cl 7(h).

Procedural history

[30] Waldorf issued these proceedings in March 2014.
[31] Waldorf also applied for directions as to service. It submitted that the proceedings should be served on Mr Allen, the secretary of each of the five bodies corporate (with each secretary being directed to provide copies to their registered members), and to the individual fee simple titleholders in the Courtside complex. Associate Judge Bell declined to give such directions. He noted difficulties associated with any judgment being binding on other titleholders (while acknowledging that the decision would be at least highly persuasive). He sent Waldorf back to consider matters afresh.
[32] Waldorf elected to continue against Mr Allen only. It has consented to other unit holders being joined as defendants, to be represented by Mr Allen’s solicitors and counsel. We were advised that some 70 to 80 titleholders have indicated a wish to be joined. None thus far has.
[33] Instead, in December 2014 Mr Allen and the Kauri, Waterview, Rimu and Parkside bodies corporate together applied for an order joining them as defendants in the proceeding. The essential basis of their application was that the scheme of the encumbrance to be interpreted in the declaratory proceeding was inconsistent with the ability of the bodies corporate to manage their own estates. The presence of the bodies corporate was therefore necessary to adjudicate on the issues in the proceeding in terms of r 4.56 of the High Court Rules. The same counsel would appear for the bodies corporate as Mr Allen. Waldorf would face no greater exposure to an adverse costs award if unsuccessful.
[34] On 6 March 2015 Andrews J granted the application.

The judgment appealed

[35] The judgment of Andrews J focused on the declarations concerning cls 7(h) and 7(i).
[36] As to the former, she accepted the submission by Mr Allen that many of the services for which levies may be charged under cl 7(h) may fall within the obligations imposed on bodies corporate under the Act. She accepted that the bodies corporate therefore:[7]

... have an interest in the outcome of the application for the declarations relating to cl 7(h), and are entitled to be heard on the application.

[37] The bodies corporate’s interests in that declaration could not be put as high in relation to cl 7(i). But, there was force in the submission from Mr Allen that the scheme of the encumbrance concerning provision and collation of membership information could only work effectively with the involvement of the bodies corporate. “That involvement gives the bodies corporate an interest in the proceeding.”[8]
[38] Andrews J concluded: [9]

... the proceeding affects the bodies corporate’s rights and obligations, and ... they have a right to be joined.

Appeal

[39] Waldorf takes three points on appeal:

Discussion

[40] We are clear that the bodies corporate were properly joined in this case, and that the appeal must be dismissed.
[41] On the view we take, it is unnecessary to address the third point taken by Waldorf at all, and necessary to comment only generally on the first. That is because we are clear that on Waldorf’s own pleaded case the bodies corporate do have rights or liabilities which will be directly affected by orders that may be made in this proceeding.
[42] We note that the first limb of r 4.56(1)(b) – “person ought to have been joined” – addresses persons whose presence is necessary for the Court to adjudicate the exact issues arising on the pleadings.[12] The second limb, with which we are concerned here, has other and more extensive work to do.
[43] It is correct that in Pegang Mining Co Ltd v Choong Sam the Privy Council suggested that an appropriate test was to ask:[13]

Will [the intended party]’s rights against or liabilities to any party to the action in respect of the subject matter of the action be directly affected by any order which may be made in the action?

But the approach in Pegang is subject to two important qualifications. The first is that in adopting it the Privy Council expressly endorsed the decision of the Court of Appeal in Gurtner v Circuit.[14] That was a running down case where the defendant had emigrated and could no longer be found. The police attending the accident had noted that he was insured, but had not recorded by whom. The Motor Insurers’ Bureau applied to be joined so they could contest the action. They had no legal obligation to the plaintiff, but they had agreed with the government to meet any judgments against insured motorists not paid by the insurers within seven days. The obligation to the plaintiff was described by counsel for the Bureau as moral rather than legal. The Court of Appeal directed it be joined. Lord Denning MR observed:[15]

It seems to me that when two parties are in dispute in an action at law, and the determination of that dispute will directly affect a third person in his legal rights or in his pocket, in that he will be bound to foot the bill, then the court in its discretion may allow him to be added as a party on such terms as it thinks fit.

[44] The second, more important qualification is that the Privy Council was at pains to avoid adopting any fixed, general rule in relation to joinder, recognising the wide variation in circumstances attending any particular case. A distinction between “legal interests” and “commercial interests” was expressly rejected as unhelpful. Rather, the Privy Council observed:[16]

In their Lordships’ view one of the principal objects of the rule is to enable the court to prevent injustice being done to a person whose rights will be affected by its judgment by proceeding to adjudicate upon the matter in dispute in the action without his being given an opportunity of being heard. To achieve this object calls for a flexibility of approach which makes it undesirable in the present case, in which the facts are unique, to attempt to lay down any general proposition which could be applicable to all cases.

Partly in consequence of that, partly reflecting Equity’s more expansive attitude to participation,[17] and perhaps partly a reflection of the inherent jurisdiction to also permit intervention, the approach taken in New Zealand to joinder has long been regarded as liberal.[18]

[45] In McKendrick Glass Manufacturing Company Ltd v Wilkinson Richmond J referred to Equity practice, citing Mitford:[19]

It is the constant aim of a Court of equity to do complete justice by deciding upon and settling the rights of all persons interested in the subject of the suit, to make the performance of the order of the Court perfectly safe to those who are compelled to obey it, and to prevent future litigation. For this purpose all persons materially interested in the subject ought generally to be parties to the suit, plaintiffs or defendants, however numerous they may be, so that the Court may be enabled to do complete justice by deciding upon and settling the rights of all persons interested, and that the orders of the Court may be safely executed by those who are compelled to obey them, and future litigations may be prevented.

That practice was found to have made its way into the rules, governing actions of all kinds, and to underlie what is now the second limb of r 4.56(1)(b).[20]

[46] This Court has previously noted that r 4.56 imposes “a fairly low threshold”.[21] A cause of action need not necessarily be advanced (or lie) against a defendant to be added.[22] Indeed, where the plaintiff opposes joinder, a cause of action against the additional defendant may not be apparent unless the Court orders re-pleading by the plaintiff. It is the nature of the impact of the proceeding on the additional defendant’s rights that is important. As Pegang and Gurtner make clear, these are not necessarily confined to legal rights, although the case for joinder may be stronger in such a case.[23] Joinder for the defendant is not without risk, of course. It will be bound directly by an adverse outcome, and exposed to costs.
[47] When we turn then to the pleadings in the present case, it is readily apparent from them that the rights and liabilities of the bodies corporate qua titleholders (such as Mr Allen, others who join as defendant, but in reality all of them regardless) will be affected by determination of the issues arising in the proceeding against Mr Allen. The rights and liabilities of bodies corporate in a unit title context are defined by the Act and by the body corporate rules. Subject to those instruments, they may do anything a natural person of full age and capacity may do.[24]
[48] Paragraphs 26 and 27 of Waldorf’s second statement of claim – set out at [20] to [21] above – then plead limits on the powers of the five bodies corporate. The thrust is to oust or limit control of bodies corporate beyond areas of common property. The sources of those limits are not clear on the pleadings – unsurprisingly given the function of pleadings. They may be based on the Act, the rules, the encumbrance or the limits of the bodies corporate’s own titles. Then paragraph 30 of the statement of claim[25] alleges that the encumbrance empowers Waldorf to “[monitor] the effectiveness” of certain services the bodies corporate provide titleholders.
[49] There is no doubt that these pleadings assert limits to the powers and duties of the bodies corporate. To the extent upheld, they will directly affect the working of those bodies. It is no answer to say these bodies are not bound by any judgment to which they are not a party, or that no declaration claims a specific right as against them. Their members, or some of them, will be parties, and bound. And to that extent, the effect is conveyed. If titleholders’ rights and liabilities are defined by the judgment, the bodies corporate’s rights are likely also to be altered by reason of the inability of titleholders to act inconsistently with the judgment.
[50] Why does this matter? It is because Waldorf asserts the right to undertake certain services and charge titleholders for them. The titleholders (or many of them) do not want Waldorf to do this. That is because they prefer to control these matters themselves. And in many cases, to perform the services themselves through their bodies corporate. If Waldorf has the rights, in practice the bodies corporate will not. The titleholders will not be prepared to pay twice, for the vindication of parallel rights. In practice, who has the rights to perform these services (and where) is in conflict. That conflict is largely between Waldorf and the bodies corporate.
[51] If the foregoing is so, then the bodies corporate should be heard. Waldorf cannot assert limits to the powers and duties of these bodies in their pleadings and then be permitted to complain when those same bodies wish to be heard in answer to Waldorf’s assertions. The pleadings referred to are material steps in the case made for the relief sought against Mr Allen and his fellow titleholders. Otherwise they would not feature in the statement of claim.
[52] The context of the preceding discussion is the issue about cl 7(h) of the encumbrance. We express no view about cl 7(i). As Mr Rainey was constrained to accept, Waldorf’s case here has far more limited conflict with the rights and liabilities of the bodies corporate. Given our conclusion above, the point is immaterial.
[53] Finally, we note Mr Campbell’s third argument: his criticism of the decision of this Court in Puredepth Ltd v NCP Trading Ltd holding appeals from a joinder order under r 4.56 are from an exercise of discretion.[26] There the Court said:[27]

[16] The wording of the rule makes it plain this appeal is against the exercise of a discretionary decision. Puredepth accepts the onus is on it to identify errors of substance or principle that justify this Court interfering with that decision.

The approach taken in Puredepth appears to have been conceded by counsel in that case. It is clear that r 4.56(1)(b)(ii) imposes no bright line jurisdictional threshold. Rather, as we have explained, it imposes a flexible standard. The application of that standard will depend on contextual analysis. As the authors of McGechan on Procedure observe, “the jurisdictional question has tended to become intertwined with the discretionary question [whether joinder should be ordered], particularly the different approaches as to exercise of discretion depending upon whether application is made by plaintiff, defendant, or otherwise”.[28]

[54] Given our finding on the first two issues, it is unnecessary for us to express a final view on this argument and we refrain from doing so. Whichever approach is taken, the judgment to join the bodies corporate was correct.

Result

[55] The appeal is dismissed.
[56] Costs should follow the event. The appellant must pay the respondents costs for a standard appeal on a band A basis and usual disbursements.







Solicitors:
Hesketh Henry, Auckland for Appellant
Rainey Law, Auckland for Respondents

[1] Newhaven Waldorf Management Ltd v Allen [2015] NZHC 383.

[2] Newhaven Waldorf Management Ltd (Waldorf).

[3] These are called “Parkside”, “Rimu”, “Kauri”, “Waterview” and “Jarrah”. The latter has not applied to join these proceedings.

[4] These fee simple units are in a single complex known as “Courtside”. It does not have a body corporate.

[5] Waldorf is entitled to supply utilities (power, gas, telecommunications, security, landscaping, etc) to the titleholders as long as its supply is on similar terms to other suppliers in the same or similar markets.

[6] Herein, “the Act”.

[7] At [25].

[8] At [28].

[9] At [29].

[10] Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1.

[11] Puredepth Ltd v NCP Trading Ltd [2010] NZCA 392 at [16].

[12] A C Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR4.56.07].

[13] Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 (JCPC) at 56.

[14] At 55; Gurtner v Circuit [1968] 2 QB 587 (CA).

[15] At 595, in reliance on the judgment of Lord Esher MR in Byrne v Brown (1889) 22 QBD 657 (CA) at 666–667.

[16] At 55.

[17] McKendrick Glass Manufacturing Company Ltd v Wilkinson [1965] NZLR 717 (SC) at 723–725.

[18] See for example McKendrick Glass Manufacturing Company Ltd v Wilkinson, above n 17; Westfield Freezing Co Ltd v Sayer & Co (New Zealand) Ltd [1972] NZLR 137 (CA); Arklow Investments Ltd v Ngai Terangi Iwi Inc CA 42/94, 1 June 1994.

[19] McKendrick Glass Manufacturing Company Ltd v Wilkinson, above n 17, at 723; John Mitford A Treatise on the Pleadings in Suits in the Court of Chancery (5th ed, V&R Stevens and G S Norton, London, 1847) at 190.

[20] At 724–725.

[21] Beattie v Premier Events Group Ltd [2012] NZCA 257 at [24].

[22] See the authorities collected in Beck and others, above n 12, at [HR4.56.09].

[23] Pegang Mining Co Ltd v Choong Sam, above n 13; Gurtner v Circuit, above n 14.

[24] Unit Titles Act 2010, s 77(2).

[25] See at [24] above.

[26] Puredepth Ltd v NCP Trading Ltd, above n 11, at [16].

[27] Footnote omitted.

[28] Beck and others, above n 12, at [HR4.56.08].

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