Body Corporate 361945 v Westpac New Zealand Limited [2014] NZHC 1336 (13 June 2014)

Last Updated: 2 July 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-690 [2014] NZHC 1336

UNDER	the Unit Titles Act 2010, section 74
IN THE MATTER	of The Ridge
BETWEEN	BODY CORPORATE 361945 Applicant
AND	WESTPAC NEW ZEALAND LIMITED First Respondent Continued page 2

Hearing:	28 May 2014 (with amended scheme provided on 13 June )
Appearances:	J P Wood for the Applicant No appearance for the Respondents
Judgment:	13 June 2014

_{JUDGMENT OF ELLIS J}

This judgment was delivered by me on 13 June 2014 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:...............................

Counsel/Solicitors:

J P Wood, Rainey Law, Auckland

T J Rainey, Rainey Law, Auckland

BODY CORPORATE 361945 v WESTPAC NEW ZEALAND LIMITED [2014] NZHC 1336 [13 June 2014]

ASB BANK LIMITED Second Respondent

ANZ BANK NEW ZEALAND LIMITED Third Respondent

BANK OF NEW ZEALAND Fourth Respondent

PEPPER NEW ZEALAND (CUSTODIANS) LIMITED

Fifth Respondent

KIWIBANK LIMITED Sixth Respondent

MORTGAGE HOLDING TRUST COMPANY LIMITED

Seventh Respondent

NEW ZEALAND HOME LENDING LIMITED

Eighth Respondent

STEEL BUILDING PRODUCTS (NORTHERN) LIMITED

Ninth Respondent

CRESSIDA CAPITAL ONE LIMITED Tenth Respondent

RAYMOND CHARLES DAVEY, EDNA JEAN DAVEY AND WAYNE ROSS STOLLERY

Eleventh Respondents

JELLICOE HOLDINGS LIMITED Twelfth Respondent

URIEL INVESTMENTS LIMITED Thirteenth Respondent

ADAMS PROPERTIES LIMITED Fourteenth Respondent

DAVID JOHN FISHER, SANDRA ANN FISHER AND JAMES ALFRED HOGG AND SANDRA ANN FISHER, DAVID JOHN FISHER AND JAMES ALFRED HOGG

Fifteenth Respondents

WILHELMINA MARTHA MITCHELL AND CAMPBELL JOHN MITCHELL

Sixteenth Respondents

MICHAEL THOMAS KINGSNORTH AND SHARLEEN SIMONE KINGSNORTH Seventeenth Respondents

JAMWILL PROPERTIES LIMITED Eighteenth Respondent

CHRISTOPHER LONG Nineteenth Respondent

BRANDT INVESTMENTS LIMITED Twentieth Respondent

JOUNG HEE PARK Twenty First Respondent

DAVID MURRAY HEMPLEMAN AND CHRISTINE MARGARET HEMPLEMAN Twenty Second Respondents

CLERKE INVESTMENTS LIMITED Twenty Third Respondent

GEESON INVESTMENTS LIMITED Twenty Fourth Respondent

MIJIN AHN

Twenty Fifth Respondent

MARK ROY COOPER, JILLIAN ADA COOPER AND KERRY JAMES PALTRIDGE Twenty Sixth Respondents

BAOSHAN CHIJIALIN SONG AND LINDA CHI

Twenty Seventh Respondents

AK INVESTMENT PROPERTIES LIMITED Twenty Eighth Respondent

YOUNG JAE LIM

Twenty Ninth Respondent

WEBELLE ARCENA TRUSTEE LIMITED Thirtieth Respondent

KWASSIE INVESTMENTS LIMITED Thirty First Respondent

PECUMA PROPERTIES LIMITED Thirty Second Respondent

SMG PROPERTY INVESTMENTS LIMITED Thirty Third Respondent

PLAIN JANE LIMITED Thirty Fourth Respondent

RPR LIMITED

Thirty Fifth Respondent

FREDANN PROPERTIES LIMITED Thirty Sixth Respondent

DEURMEKAAR LIMITED Thirty Seventh Respondent

GUAN PING YEOH AND CHENG FOONG LIM

Thirty Eighth Respondents

SOMPHOU DOUANGSAVAHN Thirty Ninth Respondent

VAUXHALL PROPERTY HOLDINGS LIMITED

Fortieth Respondent

VICKI ROZITA TUNUI Forty First Respondent

PAUL WARWICK HARPER, NEROLIE ANN HARPER AND WYNDHAM TRUSTEES LIMITED

Forty Second Respondents

BAFAC INVESTMENTS LIMITED Forty Third Respondent

STYX HOLDINGS LIMITED Forty Fourth Respondent

NM KEARVELL LIMITED Forty Fifth Respondent

ASHOK PUNA AND HANSA ASHOK PUNA Forty Sixth Respondents

HENZAR PROPERTIES LIMITED AND JANE MOLLY BEZAR

Forty Seventh Respondents

JITEN PRASAD AND ROZY RENUKA PRASAD

Forty Eighth Respondents

IRONSIDE ENTERPRISES LIMITED Forty Ninth Respondent

NICHOLAS JAMES REID Fiftieth Respondent

HAO ZU

Fifty First Respondent

JOHN DAVID ASHTON AND MCDERMOTT AND MCINTOSH TRUST MANAGEMENT LIMITED

Fifty Second Respondents

TREVOR WILLIAM TOHILL AND SUSAN MAY LIND

Fifty Third Respondents

A R ESTATES LIMITED Fifty Fourth Respondent

JONATHAN ANDREW DAVISON Fifty Fifth Respondent

ROBEL INVESTMENTS LIMITED Fifty Sixth Respondent

YUN HEE JEONG AND IN HWA JEONG Fifty Seventh Respondents

ALFREDO LOPEZ AND LIBIA LOPEZ Fifth Eighth Respondents

VAUGHAN LEONARD ANDERSON AND SOO YOUNG ANDERSON

Fifty Ninth Respondents

VICKS SEVEN LIMITED

Sixtieth Respondent

LOY PROPERTY LIMITED Sixty First Respondent

ROUSLAN GERASEMOVICH KIM, SVETLANA MIHALOVNA KIM AND Q.T.L. TRUSTEES (NO.66) LIMITED

Sixty Second Respondents

GEARED FOR LIFE LIMITED Sixty Third Respondent

SAMMY MACHOUCHE Sixty Fourth Respondent

PINEHILL NO.2 PROPERTY LIMITED Sixty Fifth Respondent

ALVIN YU CUBILLAN AND JOYCE GO CUBILLAN

Sixty Sixth Respondents

PIA PASIA

Sixty Seventh Respondent

PETRUS JOHANNES RALL AND ALTA RALL

Sixty Eighth Respondents

GLEN ALAN OLLERENSHAW AND JOANNE MARGARET OLLERENSHAW Sixty Ninth Respondents

MANAGH INVESTMENTS LIMITED Seventieth Respondent

NAE SURA YI

Seventy First Respondent

SARAH HONGMING SHEN Seventy Second Respondent

YVONNE ANN ROSS Seventy Third Respondent

GABRIEL BERGA LIMITED Seventy Fourth Respondent

IN SHIK KIM AND KYUNG EUN LEE Seventy Fifth Respondents

FAY MARGARET NEWBY Seventy Sixth Respondent

TREVOR JAMES STAFFORD AND AUDREY ALICE STAFFORD

Seventy Seventh Respondents

HENAV INVESTMENTS LIMITED Seventy Eighth Respondent

GEORGE MARTIN BRANNIGAN, MAUREEN CARMEL BRANNIGAN AND LARRY FITZPATRICK

Seventy Ninth Respondents

CREDIBLE INVESTMENTS LIMITED Eightieth Respondent

PEA AND BEE LIMITED Eighty First Respondent

ALLAN JAMES WOLLEY AND MAUREEN FRANCES WOLLEY

Eighty Second Respondents

IAN MICHAEL BENSLEY, MICHELLE JO- ANNE BENSLEY AND J.G. HARRIS CORPORATE TRUSTEE LIMITED

Eighty Third Respondents

KYLIE LYN CHAPMAN Eighty Fourth Respondent

BRONWEN ELIZABETH ELLIS Eighty Fourth Respondent

DAVID FRANCES VOS AND SUSAN LESLEY VOS

Eighty Sixth Respondents

INGWE INVESTMENTS LIMITED Eighty Seventh Respondent

RUSSELL WARNER BOYES AND KAY BOYES

Eighty Eighth Respondents

WILLIAM THOMAS LOWMAN AND MAUREEN ANNE MCCRUDDEN

Eighty Ninth Respondents

PGK PROPERTIES LIMITED Ninethieth Respondent

G.E.M GROUP LIMITED Ninety First Respondent

KELVYN FRANCIS CHAPMAN AND LESLEY ANN CHAPMAN

Ninety Second Respondents

TIMOTHY WAYNE DARBY AND COLLEEN ANN DARBY

Ninety Third Respondents

W A WILSON HOLDINGS LIMITED Ninety Fourth Respondent

YUN YAN

Ninety Fifth Respondent

SUSE JERONIMO DOS SANTOS AND NORBERTO DOS SANTOS

Ninety Sixth Respondents

GERARDO CASAS AND MICHELLE CASAS

Ninety Seventh Respondents

PAULINE WILLIAMS Ninety Eighth Respondent

AIG INSURANCE NEW ZEALAND LIMITED

Ninety Ninth Respondent

ZURICH AUSTRALIAN INSURANCE LIMITED

One Hundredth Respondent

[1] The applicant is a Body Corporate formed pursuant to the Unit Titles Act

1972 (the UTA72) in relation to a unit titled development known as the Ridge. The

1972 Act has been repealed and replaced by the Unit Titles Act 2010 (the UTA10).

[2] The Ridge comprises 93 units arranged in five blocks. The complex is affected by weathertightness issues, particularly in relation to the decks. The complex will continue to deteriorate over time if those issues are not attended to.

[3] In this proceeding the Body Corporate applies for an order approving a scheme under s 74 of the UTA10 giving it the power to repair the defects and to make incidental repairs to the interior of units.

Approach to s 74

[4] In general terms, the approval of a scheme under s 74 is premised on the

Court being satisfied that:

(a) a building comprised in any unit has been damaged or destroyed;

(b) the scheme is necessary and should be granted in order to effect the repair;

(c) the terms of the scheme are such that the Court can impose and that they fairly balance the interests of the unit owners.

[5] Section 74 is materially identical to s 48 of the UTA72 and the Court’s approach to applications made under the newer section is necessarily informed by decisions made under its predecessor. The relevant principles were summarised by the Court of Appeal in Tisch v Body Corporate 318596 as follows:¹

First, a scheme with broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners. This will not invariably be so, because a majority of owners may support a scheme that is unfair to a minority...

¹ Tisch v Body Corporate No 318596 [2011] NZCA 420, 3 NZLR 679 at [45] – [49].

Secondly, the scheme should be appropriately detailed. The more detailed a scheme, the less scope for later misunderstanding and argument about it.

Thirdly, providing that what has been done by the body corporate before the s 48 scheme is actually approved is in accordance with the scheme, the order has retrospective effect...

Fourthly, work should normally be done to the same standard and at the

same time ...

Fifthly ... the terms of the s 48 scheme should depart from the scheme of the Act and from the body corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances. Thus the Act and the body corporate rules remain relevant considerations. An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.

[6] In the present case, Mr Gerard Ball of Maynard Marks Limited has surveyed the cause and extent of the defects in the buildings on the instructions of the Body Corporate. Mr Ball has summarised the main building defects in his affidavit as follows:

(a) The failure of the deck waterproofing membrane;

(b) Poorly designed and/or constructed concrete wall to deck abutment details;

(c) Failure of the paint finish to the external concrete walls; (d) Corrosion of metal balustrades in block A and B;

(e) Inadequate waterproofing to the external wall of block D; (f) Poorly installed balustrade cap flashings in Block E;

(g) Inadequately flashed vertical junctions between weatherboards and wall panels.

[7] The estimated cost of repair was $3,513,240. The results of a tender process subsequently conducted by the Body Corporate suggest, however, that the remediation work will cost $4,425,368.50.

[8] In any event, the buildings are indisputably damaged and the Court’s

jurisdiction under s 74 is therefore engaged.

Why is a scheme required?

[9] Under the UTA10, the repair and maintenance obligations imposed on bodies corporate are contained in s 138, which relevantly provides:

(1) The body corporate must repair and maintain—

(a) the common property; and

(b) any assets designed for use in connection with the common property; and

(c) any other assets owned by the body corporate; and

(d) any building elements and infrastructure that relate to or serve more than 1 unit.

...

(3) The body corporate may access at all reasonable hours any unit to enable it to carry out repairs and maintenance under this section.

(4) Any costs incurred by the body corporate that relate to repairs to or maintenance of building elements and infrastructure contained in a principal unit are recoverable by the body corporate from the owner of that unit as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense was incurred or by the person who is the unit owner at the time the proceedings are instituted.

[10] The concept of “building elements” (which formed no part of the UTA72) is

defined as including:²

... the external and internal components of any part of a building or land on a unit plan that are necessary to the structural integrity of the building, the exterior aesthetics of the building, or the health and safety of persons who occupy or use the building and including, without limitation, the roof, balconies, decks, cladding systems, foundations systems (including all horizontal slab structures between adjoining units or underneath the lowest level of the building), retaining walls, and any other walls or other features for the support of the building.

[11] As s 138 makes clear, although a building element may well relate to or serve more than one unit, it is not necessarily common property. And, as subs (4) confirms, where repairs are required to building elements that are contained in a principal unit it will be the owner of the unit who is responsible for meeting the cost,

_{after the repairs have been effected.}

² Unit titles Act 2010, s 5.

[12] In the case of the Ridge, the principal weathertightness defects relate to the decks, which are clearly within the statutory definition of building elements. The Chairman of the Ridge Body Corporate, Mr Boyes, has explained that on the second and third storey blocks the decks effectively form part of the floor of each upper unit and the ceiling of the units below. And although the principal defect relates to the waterproofing and construction of the decks themselves there is consequential damage to the units adjoining the decks including (but not limited to) other “building elements”. The Body Corporate has been advised that the nature of the defects mean:

(a) that the integrity of the whole building cannot be maintained with-out a full and comprehensive repair;

(b) it is likely that further areas of failure may be identified once the work begins.

[13] In these circumstances the means of apportionment contemplated by s 138 are not regarded as appropriate. It is in the interests of all owners to have the remediation work completed. Moreover, it is more economically efficient for any incidental repairs to individual units (such as to interior linings and carpets) to be done at the same time. And because of the magnitude of the overall repairs required, it is not feasible for the Body Corporate to meet the cost of repairs out of the existing levy accounts and to recover those costs later. There is a need to be able to levy all owners on the basis of the tender price in advance of the remediation work.

[14] It is for all these reasons that a scheme has been approved by the owners and that approval by the Court is now sought.

The terms of the proposed scheme

[15] The proposed scheme is annexed to this judgment. I nonetheless summarise the salient features below.

[16] The Preamble sets out the history to the scheme and attaches Maynard Marks

Limited’s detailed remediation plans.

[17] Clauses 1 and 2 provide the broad and central power to carry out the repairs.

[18] Clause 3 specifies that this power is a general power to do all necessary to undertake the repairs and obtain a code compliance certificate. It provides that the Body Corporate should have any power incidental to the power to repair in order to carry out its duties.

[19] Clauses 4 and 7 provide for the scheme to apply retrospectively to the work already carried out and provides a schedule detailing those costs that were known at the time the scheme was filed.

[20] Clause 5 particularises aspects of the general power. Primarily the sub- clauses iterate that it has the power to engage the persons necessary to design and effect the repairs. Sub-clause (i) responds to a concern by the body corporate about continuity of funding. It provides that, where there is a shortfall due to the default of an owner, the Ridge may borrow those funds and, when it does so, cl 6 makes clear that the cost of doing so is not carried by the other owners but by the defaulting owner. The defaulting owner’s obligation to pay for its share is not extinguished.

[21] Clauses 8 and 9 preserve the general scheme of governance under the UTA10

Act, although it also carves out a subset of powers that may not be delegated to the

Committee of the Body Corporate.

[22] Clauses 10 to 14 detail the decision to engage the contractor and the implications that this has for raising levies and the timing of those levies. It left the decision to proceed with the contract in the hands of the Committee given the knowledge it would have of the amount of levies raised.

[23] Clauses 15 to 19 deal with levies raised pursuant to this scheme:

(a) clause 15 provides that levies struck under the scheme are deemed to be levies raised pursuant to the ordinary levying powers contained in s 121 of the UTA10. In other words, once struck, they become a debt due by the owners to the Body Corporate;

(b) clause 17 provides that ss 126, 127 and 138(4) of the UTA10 (which all require repair costs to be met by the directly affected individual unit owners) do not apply in relation to the subject matter of the scheme (ie the costs of the remediation work);

(c) clause 18 allows for the Body Corporate to raise further levies to make up for any shortfall. While these levies will be levied in the same manner as before, there is a recognition that if there is a shortfall because of a default, the fresh levies need to cater for the likelihood of further default by those owners when setting the level of those levies;

(d) clause 19 provides that where repairs have been effected and paid for but subsequently the Body Corporate receives a refund (such as a GST refund) that is referable to that payment, the unit owners who contributed to it are entitled to their share of the refund regardless of whether they are still an owner at the time the refund is made.

[24] Clauses 20 to 22 provide for accounts to be kept. I was advised that cl 22 involves a minor departure from other schemes that have been previously approved. Although the default position is that the accounts pertaining to the scheme will be audited annually, it provides that the owners may dispense with the audit by special resolution. The clause mirrors the ordinary power of a body corporate to dispense with audited accounts on its yearly budget in s 132(8) of the UTA10.

[25] Clauses 23 to 25 provide for regular reporting. Such information would not ordinarily be information an owner would be entitled to receive as of right under s 206 of the UTA10.

[26] Clause 26 allows for the possibility that this scheme may need to be varied or extended and may return to this Court for further orders.

[27] Clause 27 provides for an indemnity to those in the Body Corporate who need to take active roles in ensuring the scheme is carried out.

Application of the Tisch factors

Support for the scheme

[28] The evidence before me was to the effect that the proposed scheme has broad support. Turn-out for the EGM that approved the scheme was relatively high. Apart from one owner who voted irregularly, the Body Corporate members who attended (in person or by proxy) were unanimous in their approval of a scheme.

[29] There was, however, a division on the means of cost apportionment under the scheme. Ultimately, two-thirds of the owners wanted levies to be struck on the basis of utility interest³ whereas the remainder wanted them to be struck on the basis of an equal division between all units.

[30] Mr Wood submitted, however, that this split is not symptomatic of a deeply divided body corporate where each side is committed passionately to its respective position. I accept that submission, for the reasons that follow.

[31] First, and as I have said, the owners broadly accept that they are all affected by the defects and all should contribute to their remediation.

[32] Secondly, the practical difference between the two positions is not great. Prior to the February 2014 EGM a breakdown of the differences between the two calculations for each unit holder was prepared and distributed. The breakdown shows that there is an almost 50/50 split between those owners who will do (slightly) better under one method of apportionment than the other; those better off under a utility interest split are in a small majority (48:45). Moreover, for all but three owners the difference shown on the breakdown was less than $2,000 and for 54

owners the difference will be smaller still, less than $1,000.⁴

[33] Thirdly, there are separate proceedings in this Court (CIV-2013-404-1223)

_{brought on behalf of the owners against the Auckland Council for its part in causing}

³ _{In this unit title development, utility interest and ownership interest are identical.}

⁴ It should, however, be noted that the schedule was based on the estimated cost of repair, whereas the tendered costs of repair are higher. The differences between the two means of apportionment are therefore likely to be somewhat greater.

the owners’ losses. Whichever apportionment is selected will be reflected in the basis upon which each owner will calculate their loss in that proceeding and apportionment of any money received in judgment and/or following a settlement. For the very great majority of owners who are parties to that litigation, the mode of apportionment is ultimately likely to be immaterial.

[34] Lastly, none of the owners took steps in the present proceeding to oppose the application for approval of the scheme. That reflects what I accept is the fact of the matter, namely that there is little practical incentive for any particular owner to take a stand one way or another and that as a group, they are content to have resolved the matter through voting at the EGM.

[35] In my view, therefore, it can safely be concluded that the scheme has broad support.

Appropriate detail

[36] I consider that the proposed scheme is appropriately detailed. Notwithstanding the absence of opposition to it, Mr Wood went through the clauses carefully with me and the clauses were also compared with the terms of other schemes that have been approved. Some minor changes have been made as a result of the hearing.

Retrospective effect

[37] The scheme expressly applies retrospectively and thus will have the effect of approving steps that have necessarily already been taken by the Body Corporate in relation to the remediation process.

Work done to same standard and at same time

[38] This is one of the principal aims of the scheme.

Extent of departure from the scheme of the UTA10

[39] Mr Wood submitted that the scheme departs no more than necessary from the UTA10 Act. It deals fairly with the members as it retains them in the decision making process, provides for them to be informed and allows them the power to return to this Court. I agree.

[40] I am therefore satisfied that the draft scheme is appropriate and I order that the scheme should be settled under s 74 of the UTA10 accordingly.

Rebecca Ellis J