Body Corporate 95035 v Chang [2014] NZHC 1051 (19 May 2014)

Last Updated: 10 June 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-002361 [2014] NZHC 1051

BETWEEN	BODY CORPORATE 95035 Applicant
AND	RONG YU CHANG, KAN HSIN HUNG CHANG and KENNETH AH KEN KOO First Respondents CBD INVESTMENTS (NZ) LIMITED Second Respondents MARK DANIEL WATSON Third Respondent (intituling cont'd over ...)

Judgment: 19 May 2014

_{JUDGMENT OF COURTNEY J}

This judgment was delivered by Justice Courtney on 19 May 2014 at 4.00 pm

pursuant to R 11.5 of the High Court Rules

Registar / Deputy Registrar

_{Date.............................}

BODY CORPORATE 95035 v CHANG & ORS [2014] NZHC 1051 [19 May 2014]

_{ANDREW MILLWARD PAYNE and}

JULIE MARGARET PAYNE Fourth Respondents

ROGER HAMILTON STEWART Fifth Respondent

SUE CROCKFORD GALLERY LIMITED

^{Sixth Respondent}

PATRICK JAMES LOO Seventh Respondent

JING GANG WANG Eighth Respondent

BARRY MARSH Ninth Respondent

CLAYTON JOHN HILLS AND MICHELLE YVETTE WILSON Tenth Respondents

LLOYD MARK GILMORE AND GRANT JAMES FOX

^{Eleventh Respondents}

RICHARD FRED ACKE Twelfth Respondent

MARILYN LOIS REYNOLDS Thirteenth Respondent

PROPERT-ABILITY LIMITED Fourteenth Respondent

MUHAMMAD SHAHRIR BIN MUHAMMAD ARIFF and GEOK LEE YEO

^{Fifteenth Respondents}

_{JONOTHAN NORRIS BRISCOE and}

PATRICIA ANNE BRISCOE Sixteenth Respondents

IAN ASHLEY PAUL MILL and ANNETTE JOAN MILLS Seventeenth Respondents

VANESSA JEANNE JEANDIN Eighteenth Respondent

HARRY ROY LAW and SUK CHING LIAUW

^{Nineteenth Respondents}

_{ANNE ELIZABETH MOLLOY and}

BRIEN HERBERT CREE Twentieth Respondents

_{LINDA MARGARET BRADY and}

_{BARRY MARSH}

^{Twenty-first Respondents}

PETER IAN HILMER and BEVERLY JOY KOHN

^{Twenty-second Respondents}

NOEL ALLAN PLAYLE and MARGARET PLAYLE Twenty-third Respondents

PATRICIA ANNE NELSON Twenty-fourth Respondents

FLOTSAM LIMITED Twenty-fifth Respondents

_{MICHELLE JOY O’HALLORAN and}

_{KELVIN HILL}

^{Twenty-sixth Respondents}

MALCOLM CRAIG SMELLIE, ROBERT PHILIP SMELLIE and LYNDSAY ANNE SMELLIE Twenty-seventh Respondents

TAN CORPORATE TRUSTEE LIMITED

^{Twenty-eighth Respondent}

GABRIELLE THERESE WILSON, MICHAEL ERIC MARRIS and TRUSTS SB LIMITED

^{Twenty-ninth Respondents}

ROSS NEVIN JOHNSON Thirtieth Respondent

Introduction

[1] In my decision of 29 June 2012 I determined a number of applications affecting the Body Corporate of the Endeans Building in Queen Street, Auckland.¹ I now consider the issue of costs.

[2] The substantive proceeding was triggered by a Notice to Fix (NTF) issued by the Auckland City Council. The work that was required related mainly to water- tightness issues in the roof. In addition, cracks had been discovered in the façade of the building. It was an unusual feature of the Endeans Building unit title and Body Corporate rules that the roof and exterior walls were private property but the responsibility for repairing them fell on the Body Corporate. At the heart of all the

applications was the dispute over whether the 28^th and 29^th respondents, who owned

the penthouse apartments (and therefore most of the roof), should be liable for the majority of the cost of repairing the roof or whether that cost should be shared among all the unit holders through the Body Corporate.

[3] The Body Corporate sought eight declarations. Some related to the construction and validity of certain of the Body Corporate rules. The others were for declarations as to the liability of the unit holders for the work required to be done under the NTF, including orders under s 37(12) of the Unit Titles Act 1972 (UTA) and an order under s 48 sanctioning a scheme (without any specifics being suggested). A group of unit holders (the Chang respondents) supported the Body Corporate’s application. The Body Corporate obtained the declarations it sought in relation to r 2.2(c) and (on appeal) in relation to rule 2.19(e). However, these declarations were not particularly contentious between the parties.

[4] The Body Corporate failed to obtain an order under either s 37(12) or s 48. The real contest on these aspects was fought between the 19^th respondent and the Chang respondents on the one hand and the 28^th and 29^th respondents on the other.

[5] The second application was brought by the 19^th respondent for an order settling a scheme under s 48 UTA. The Chang respondents supported that

_{application as an alternative to an order under s 37(1). I declined to make an order}

¹ Body Corporate 95035 v Chang & Ors [2012] NZHC 1512 affirmed on appeal: Law v Tan

Corporate Trustee Ltd [2013] 1 NZLR 651; [2012] NZCA 620.

under s 37(12) and, although I did sanction a scheme under s 48, it was not a scheme of the kind contended for.

[6] The 28^th and 29^th respondents, who owned the penthouse apartments, cross- applied for a declaration that that one of the Body Corporate rules was invalid, an order under s 48 settling a scheme for work to the building² and an order directing the deposit of a new unit plan that would see the roof and exterior walls rendered common property. It obtained a declaration that r 2.2(g) (relating to the levying of unit holders for work) was invalid. This aspect was significant to the outcome of the case. Its application for s 48 scheme was also successful, with the scheme ultimately sanctioned essentially reflecting the scheme that they had sought. These respondents did not, however, succeed in obtaining an order requiring a new titled plan to be deposited.

[7] The parties have attempted unsuccessfully to resolve the costs issue through negotiation. However, all those who filed submissions were agreed that costs for the post-judgment period, which were largely incurred in settling the terms of the s 48 scheme, should be viewed as benefiting all the parties. I agree with that. I direct that the costs in the post-judgment period be pooled and treated as costs in the scheme, to be shared on the basis of the scheme percentages.

[8] This leaves only the issue of costs in relation to the pre-judgment period. All represented parties filed submissions on the costs issue except for the group of unit owners known as the Chang respondents. I therefore have submissions on costs from the second respondent,³ the 19^th respondents⁴ and the 28^th/29^th respondents.⁵

Some of these parties filed more than one set of submissions, changing their position

_{on some aspects.}

2. The application was actually brought under s 74 Unit Titles Act 2010 but I treated it as one under s 48 Unit Titles Act 1972.
3. CBD Investments (New Zealand) Ltd. CBD was originally a Chang respondent but is now separately represented following a conflict that arose at the appeal stage.

⁴ _{Mr Law and Ms Liauw.}

⁵ Tan Corporate Trustee Ltd, Ms Wilson, Mr Marris and Trusts SB Ltd.

Pre-judgment costs

Relevant principles

[9] Under r 14.1 of the High Court Rules HCR costs are at the discretion of the Court, though are almost invariably fixed in accordance with the principles referred to in r 14.2. However, r 14.1(3) states that the provisions of any Act override the provisions of r 14. This is relevant for two reasons.

[10] First, the Body Corporate’s claim for declaratory relief falls within the

Declaratory Judgments Act 1908, s 13 of which provides that:

The costs of any action, summons, or appeal under this Act shall be in the discretion of the Court and the Court may in the exercise of that discretion order the whole or any part of those costs to be paid by any party, although successful in the action, summons or appeal and may in any case direct that costs awarded to any party shall be taxed either as between party and party or as between solicitor and party.

[11] Secondly, costs on the applications by Mr Law and the 28^th and 29^th

respondents for a s 48 scheme fall within s 48(7)⁶ which provides that:

On any application under this section the Court may make such order for payment of costs as it thinks fit.

[12] These provisions recognise that the usual principle that costs should follow the event will not necessarily be appropriate in the context of declaratory relief or on an application for a scheme under s 48.

[13] However, the applications by the Body Corporate and the Chang respondents for orders under s 37(12) are not subject to any specific provision and fall under the HCR. This means that, strictly, the applications for declaratory relief, orders under s 37 and orders under s48 are all to be treated differently for the purposes of costs. That is not practical. The issues were determined together, with evidence and submissions overlapping. Insofar as the costs on the s 37 application are concerned I am satisfied that departure from the principles in r 14.2 is justified.

[14] I therefore approach the question of costs on the entire proceeding as being at my discretion. As was the case in determining the substantive proceeding, I consider

⁶ Replicated in s 74(9) Unit Titles Act 2010.

that costs should be determined on the basis, as much as possible, of what is fair to the unit holders as a whole. I make two general observations, however, before considering the specific factors that I intend to take into account. The first is that in cases involving body corporate matters the body corporate concerned must act as directed by the unit holders. The fact that some unit holders do not agree with the course adopted does not make it unfair and should not necessarily expose the body corporate to costs in the event of failure. Conversely, where a group of unit holders act reasonably in opposing the course taken by the majority represented by the body corporate, nor should they necessarily be exposed to costs in the event of failure. However, if the proceedings become genuinely adversarial and positions are taken that have no merit there is no reason that that fact should not be reflected in costs.

Factors relevant to costs in this case

[15] The factors that I see as relevant in assessing costs are the following. First, the unit holders of this building were in a unique position because of the unusual configuration of the unit title and the rules that had been adopted when the Body Corporate was established. There were genuine, and justified, questions over the validity of the Body Corporate rules. The unit holders were enmeshed in a longstanding and bitter dispute which had significant cost implications for many of the unit holders. In these circumstances it was reasonable for the Body Corporate to seek confirmation of the validity and proper construction of the rules. It was also

reasonable for the 28^th and 29^th respondents to seek a declaration regarding the

validity of r 2.2(g).

[16] Secondly, the greatest cost connected with the proceeding was not the construction and validity of the Body Corporate rules. It was the question of whether orders would be made under ss 37 or 48 (and, if so, in what form) that took up most of the time. Although the Body Corporate sought orders under these sections it did not take positive steps to advance that aspect of its application. In particular, it did not provide any suggested format for such orders.

[17] The Body Corporate maintained that it abided the decision of the Court and, on the question of costs, asserted that because the work largely affected private property it was appropriate for proprietors to bring the applications under s 48. In

fact the Body Corporate did not take an entirely neutral position. It supported the proposals advanced by the 19^th respondent. This reflected the split between unit holders on the question of how the work required by the NTF should be managed and paid for; the majority strongly favoured the 28^th and 29^th respondents bearing most of the cost.

[18] The contest was played out mainly between the Chang respondents and the

19^th respondent on one hand and the 28^th and 29^th respondents on the other. This was the area in which most of the cost of the proceeding lay and, although the Body Corporate might now assert that it played little part in the contest, the issues that had to be determined in relation to the ss 37(12) and 48 applications were vital to the resolution of the dispute between the factions within the unit holders. It is proper in these circumstances to view the Body Corporate as having benefited from the work undertaken by the represented unit holders.

[19] There was strenuous opposition to the s 48 scheme proposed by the 28^th and

29^th respondents. Whilst understandable, given the history, aspects of this opposition were not supportable and lacked merit. In particular, the Chang respondents and the

₁₉^th _{respondent failed to grasp the significance of the damage to the façade and to}

see that the work required to the Endeans building as a whole could not be achieved through an order under s 37(12).

[20] In his costs memorandum dated 20 September 2013 Mr Muir, for the 19^th respondent, refers to my having “conceded” that s 37(12) orders could be made; that rather misses my point that the work required by the NTF and the work needed to the façade had to be dealt with together and it was futile to pursue a course that addressed only the NTF work. The pursuit of an order under s 37(12) reflected a misunderstanding of the real issues that needed to be addressed. An example of this was the evidence from several unit holders that they wished, and were prepared, to undertake work to their own units, without any recognition of the impossibility of numerous unit holders being able to effectively repair the exterior of this building other than through a cohesive scheme of the kind that could be achieved under s 48.

[21] However, I do accept Mr Muir’s submission that the facts that led to acceptance of the scheme proposed by the 28^th and 29 respondents were not self- evident. The predominant characteristic of any scheme under s 48 is fairness to unit holders as a whole, as far as that can be achieved but the legal issues arsing from the Body Corporate rules meant that it was not immediately clear what fairness in this context meant. In particular, it would have been very difficult for these parties to

predict how the Court should approach a scheme where the underlying Body

Corporate rules are invalid.

[22] There were two aspects of the positions taken by the Chang respondents and the 19^th respondents that I did consider were unreasonable. The first was the not insignificant amount of evidence I heard that was directed towards the issue of whether the Body Corporate had historically acted in accordance with the Body Corporate rule requiring it to repair and maintain the roof and exterior walls. This issue could easily have been determined by reference to the Body Corporate’s minutes. However, several witnesses gave evidence who asserted that the 28^th and

29^th respondents had acted improperly in relation to Body Corporate matters when

they were on the Body Corporate Committee. There was no foundation for these accusations and they took up valuable trial time unnecessarily.

[23] The second was the suggestion that the building was not damaged for the purposes of s 48 and/or such damage as there was should be attributed to a lack of maintenance. Neither argument had any prospect of succeeding.

[24] As against these factors, the application brought by the 28^th and 29^th respondents for an order that a new unit plan be deposited was also doomed to failure because there was no jurisdiction to make such an order.

Fixing costs

[25] Notwithstanding aspects on which I consider that some of the parties acted unreasonably, overall I find that the position is not so clear cut as to justify costs being awarded against any particular party. One solution in this kind of case is to direct that the costs of both body corporate and unit holders be pooled and treated as

costs in the scheme. The rationale for this approach was described by Heath J in

Body Corporate 172108 v Meader:⁷

[13] On the present application the Body Corporate and MSL were engaged in adversarial litigation, in that MSL was endeavouring to protect its own economic interests in respect of level 12 of the complex while the Body Corporate sought a remedy to benefit all other owners. Understandably, there was disagreement between the Body Corporate and MSL as to the fairest way in which those competing interests could be met while ensuring that, for the benefit of all unit owners, the building was remediated and the stigma of being a “leaky building” removed.

[14] Notwithstanding the fractious relationship which developed between MSL and the Body Corporate, I consider the arguments advanced by each has merit and that it was necessary for the Court to intervene to find a solution to balance their competing interests.

...

[16] In the unusual circumstances of this case I consider there is merit in pooling the solicitor and client costs of each party and treating them as costs in the scheme, leaving them to be met through payment of levies in accordance with unit entitlements.

[26] The 28^th and 29^th respondents seek to have costs awarded to them against the Chang respondents and the 19^th respondent in respect of the pre-judgment period, subject to a small deduction to reflect their unsuccessful application regarding a new title plan. They also seek an uplift as compensation for their costs in devising and

applying for the scheme that formed the basis of the scheme ultimately accepted. Alternatively they seek to have the Body Corporate pay them costs by way of a special levy raised for that purpose. They also seek an order under s 48(7) directing the Body Corporate to refund them levies they have paid towards the costs of the Body Corporate proceeding.

[27] The Body Corporate resists costs being awarded against it but if the respondents costs are to be shared between the unit holders, suggests that those costs

_{be added to the costs of the scheme.}

⁷ Body Corporate 172108 v Meader (Judgment No 4) HC Auckland CIV-2009-404-6868,

10 February 2011.

[28] The second respondent⁸ suggests that the actual costs of the represented parties be pooled and treated as costs in the scheme, apportioned according to the scheme percentages (which were different from unit entitlements specified in the Unit Titles Act).

[29] The 19^th respondent resists costs being awarded to the 28^th and 29^th respondents and resists any order that would see those parties avoid contributing as members of the Body Corporate. He does not, however, object to the pooling of all costs and treating them as costs in the scheme.

[30] Because of the unusual factual situation and the consequential legal issues I see this litigation as not only reasonable but probably unavoidable. It was reasonable for the parties to seek confirmation as to the status of the Body Corporate rules. It was also reasonable for the parties to seek a solution in the form of a s 48 scheme. As result, it does not much matter how or by whom those issues were brought before the Court. A solution was needed and all unit holders benefited from the scheme as ultimately settled. It is true that some aspects could have been managed better, particularly some of the positions taken by the Chang respondents

and the 19^th respondent. However, looking at the overall justice of the case I

consider that the interests of all unit holders will be best served by pooling the actual costs of the represented parties and treating those costs as costs in the scheme, apportioned according to the scheme percentages.

[31] Disbursements, including the costs of expert witnesses, are to be treated likewise, save for those with the application for an order that a new title plan be

_{deposited because that application could not have succeeded.}

_{P Courtney J}

⁸ The second respondent was initially a Chang respondent but he and the other former Chang respondents are now separately represented as a result of a conflict arising between them at the appeal stage.