Body Corporate 172108 v Meader [2014] NZHC 2794 (11 November 2014)

Last Updated: 15 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-6868 [2014] NZHC 2794

BETWEEN	BODY CORPORATE 172108 Plaintiff
AND	J M MEADER & ORS First to Forty Eighth Respondents

Hearing:	13 October 2014
Appearances:	T Allan/ T Gavigan for the Plaintiff M C Smith for the First Respondent
Judgment:	11 November 2014

_{JUDGMENT OF THOMAS J}

This judgment was delivered by me on 11 November 2014 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

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

Solicitors:

Grove Darlow & Partners, Auckland. Gilbert Walker, Auckland.

BODY CORPORATE 172108 v MEADER [2014] NZHC 2794 [11 November 2014]

Introduction

[1] The applicant in respect of the interlocutory application for orders as to discovery is the 37th respondent in the proceedings, Manchester Securities Limited (MSL). The respondent to the application is the plaintiff in the proceeding, Body Corporate 172108.

[2] MSL owns the top floor of a 12 story unit title development in Hobson Street, Auckland (the Building).

[3] While the Building is a unit title development, the legal structure is somewhat unusual in that the exterior walls of levels 1 – 11 are common property but the entire

12th floor structure including the exterior walls and roof is the separate property of MSL (save for some items of common property such as the lift shaft, stairwells and ducts).

[4] The Building suffers from weathertightness defects, primarily in levels 1 – 11 but also affecting level 12. The nature and extent of the work required to level 12 is somewhat different from the remainder of the Building, level 12 having been added at a later date and constructed of different materials using different methods.

[5] In 2009 the Body Corporate obtained a building consent to reclad the whole Building including all of level 12. The Body Corporate successfully applied to the High Court for the work to be carried out pursuant to a scheme settled under s 48

Unit Titles Act 1972 (the Scheme). There was a dispute between the Body Corporate and MSL as to the proportion of the costs of the works to be borne by MSL.

[6] There were, it seems, a number of High Court decisions. The end result is that the High Court approved the Scheme. The work to level 12 was to be carried out by MSL at its cost. The High Court capped MSL’s liability at 11.88 per cent (its ownership interest share) of the costs of repairs to the Building. If the level 12 works cost less than 11.88 per cent of the total, MSL will make a top up contribution towards the costs of the works to levels 1 – 11.

[7] The Body Corporate work commenced in July 2012. In February 2014 it received code compliance. The work to level 12 started in September 2012 and is not yet complete. It is apparent that the cost of the level 12 work is likely to exceed the 11.88 per cent cap, meaning MSL will not have to contribute towards the costs of repairing the rest of the Building.

[8] The main proceedings concern the application by the Body Corporate for orders changing the costs sharing terms of the Scheme which would result in MSL paying a greater share of the overall costs. The application is opposed by MSL.

The discovery application

[9] MSL disputes the costs of the works to levels 1 – 11 as alleged by the Body

Corporate. It also disputes that the Body Corporate is entitled to include within the

2010 costs sharing formula the additional costs of closing in the balconies to levels 1

– 11 of the Building instead of undertaking the work covered by the Scheme and for which building consent had been obtained.

[10] On 16 April 2014 the High Court made discovery orders by consent. At issue is whether the Body Corporate has fully disclosed the agreed categories of documents required pursuant to the order as follows:

(a) Documents relating to the decision to close in the balconies, including copies of engineering reports and correspondence with engineers and other consultants involved in making and implementing that decision; minutes of the Body Corporate; and communications between members of the Body Corporate Committee and Secretary relating to that decision.

(b) Contractors’ instructions and variation advice notices, and related

architectural design, engineering and other consultants’ reports.

[11] MSL does not accept that the disclosure of documents relating to the closing in of the balconies and the number of variations to the construction contract is complete. It has refined its request for variations to those enumerated in the

schedule attached to counsel’s submissions. It has reduced by four the number of items sought in the original application as a result of explanations given on behalf of the Body Corporate.

[12] MSL also now seeks discovery of documents relating to the claim against Auckland Council by the Body Corporate, which settled. It requests discovery of the fifth amended statement of claim and the document evidencing the terms on which the proceeding was settled.

Disclosure principles

[13] The Body Corporate commenced the proceeding by way of an originating application under Part 19 of the High Court Rules. Although discovery is not ordered as a matter of course in such proceedings, orders can be made where a case for discovery is made out. As the High Court has noted:¹

...there is reluctance to order discovery [in a Part 19 proceeding], except in a narrow band of marginal cases where the court has genuine difficulty in determining whether a party has made out its case, and where there is substantial reason to believe that discovery would or might well assist that determination.

[14] MSL claims that there are good reasons why discovery is appropriate here:

(a) MSL is a member of the Body Corporate whose role is to serve the interests of all owners;

(b) the Body Corporate has duties under the Scheme to exercise its powers fairly;

(c) given that the Body Corporate has applied to the Court to vary the costs sharing terms settled more than four years ago, it should be prepared to substantiate its own expenditure by making disclosure;

_and

¹ Katavich v Meltzer HC Auckland CIV-2006-404-5968, 29 May 2009 at [15].

(d) there is substantial reason to believe that the discovery would or might well assist in determining the application.

Balcony work

[15] The Scheme related to the works covered by the building consent which had been obtained at the time the Scheme was approved. That showed the balconies being repaired on a like for like basis. Some time after that the Body Corporate decided to close in the balconies. MSL says the additional costs of closing in the balconies should not be taken into account in determining the costs of the works to levels 1 – 11 because the costs are betterment rather than remediation.

[16] While the Body Corporate has disclosed the engineering calculations and specifications it has not disclosed the advice on which the Body Corporate based its decision to approve the variation despite consenting to the discovery orders set out under paragraph 10. The decision resulted in a variation costing approximately $1.1 million. It required resource consent and amended building consent. MSL says that in those circumstances it cannot be disputed that the variation was a material one and there must have been advice from the professionals to the Body Corporate setting out the advantages and disadvantages of proceeding with the variation.

[17] MSL refers to a newsletter from the Body Corporate’s manager, Ms Barreto,

dated 7 November 2012 which states:

Structural Steel supporting some balconies was discovered to be allow [sic] too much flex or “bounce” on the balcony. This only is an issue only [sic] if (as we are) glazing in with new ranch sliders – this up and down movement would crush or otherwise break the ranchslider frames and certainly make them non-weathertight and compliant. A new structural steel system has had to be designed for these balconies to ensure that this movement does not happen, and as such has created some delay for these units progress [sic].

[18] Attached to the newsletter was the progress report supplied to the Body Corporate consultants by the building contractor. The building contractor, Bronsan Construction Limited, described the work to the balconies as follows:

The cantilevered balconies to the type A and B apartments have been found to have an excessive amount of deflection within them (Bounce). This creates significant complications when trying to clad the building as

typically cladding should be installed on the basis of little to no movement within the building. To alleviate this issue structural steel is having to be erected to the underside of each balcony so that this movement is mitigated and the cladding can then be completed. Although this only effects the B and D apartments it does mean unfortunately that the scaffold and shrinkwrap does need to remain up longer than intended across all of the north and south elevations.

[19] MSL points to the discrepancy between the advice the Body Corporate gave to the owners and Brosnan’s explanation. The Body Corporate says by an affidavit from the project manager and engineer that Ms Borretto was mistaken in her understanding and that the work to strengthen the balconies was required in any event, the thickness of the balconies not being to code and there being a concern about the transfer effect on the performance of the whole cladding by what was believed to be excessive deflection in the cantilevered balconies.

[20] The project manager in his affidavit sets out three reasons why the decision to close the balconies was made.

[21] MSL’s position remains that it seeks disclosure of the reports connected with the decision to close in the balconies so it can ascertain the scope and costs of the alterations in relation to the work approved under the Scheme.

[22] The Body Corporate agreed to disclose documents relating to the decision and that was ordered by the Court. I am at a loss as to why the Body Corporate now appears to be recanting from its agreement, asserting that certain work was required regardless. Not only was disclosure ordered but MSL is entitled to have the necessary information to determine the ramifications of the changes to the Scheme. It appears that the specification for the work has been disclosed but not the documents relating to the decision. The wording in the affidavits from the Body Corporate manager, the engineer, Mr Holding, and the project manager is the same, stating that:

There are no other “reports” or “letters” or “emails” containing a formal editorialised report of advice. (emphasis added)

[23] Quite what is meant by those words I am not sure. The Body Corporate is required to make disclosure in accordance with the order to which it consented.

Variation items

[24] The same consideration applies to this head of the disclosure. The affidavits on behalf of the Body Corporate purport to give the experts’ opinion on the substantive issue, that is, whether the costs incurred would have been required in any event. That is the matter for trial and MSL is entitled to have the information sought so its own experts can investigate. I appreciate that the Body Corporate has offered a meeting between its experts and those of MSL. There is some disagreement between the parties as to how genuine the offer was and in any event, MSL’s position is that it would like its experts to view the documents prior to any such meeting.

[25] Mr Cummins, director of MSL, points to two examples where, on the face of it, the assertions made by the Body Corporate’s experts that the costs were required in any event are not supported by documented evidence. For example, in connection with the deck sprinklers, the fire engineer’s advice of 25 March 2013 indicates sprinklers were required because the decks were being closed in. Another example is the change from single to double glazing which had a cost implication which must be relevant to MSL’s liability.

[26] In those circumstances I am not satisfied that MSL should be prepared to rely on the assertions by the Body Corporate experts as to whether matters are or are not relevant. The Body Corporate had agreed to provide details of the variations and disclosure should be made.

[27] The Body Corporate has raised the issue of disproportionality, that is, whether the costs of disclosure are out of all proportion to the claim. It points out that significant costs have been incurred by the Body Corporate to date by reason of it and its experts having to work through thousands of documents to isolate those sought. They have also spent time considering which documents are relevant. I accept the submission from MSL that, had disclosure been made as agreed rather than the experts purporting to determine what was and was not relevant, quite some cost could been avoided. In any event, the assessment is that some $5,000 will be required in order to complete the Body Corporate’s disclosure obligations. I am not

satisfied that is disproportionate in the context of the overall cost of the Scheme, notwithstanding that MSL is obliged to contribute a portion only of that cost.

[28] In making these decisions it is relevant to note the obligations of the parties pursuant to the Scheme. The Scheme deals with the repair of the Building. By definition “repair” does not cover the works required to close in the balconies as it is work not included in the original building consent. It may lead to a better result for a number of reasons but it was not the work the Scheme was designed to cover. The work has a cost implication. The costs in respect of which MSL has a liability are the costs relevant to the repair. MSL is entitled to the information it seeks in order to assess the impact on its liability of the work to close in the balconies and indeed any other variations to the works included in the Scheme.

[29] Relevant too is the fact that, in undertaking the works pursuant to the Scheme, the Body Corporate’s decision is final except if five or more owners’ objections in monetary value exceed $30,000 or one unit owner’s objection exceeds

$10,000. In that case the dispute goes to arbitration. That is an indication of the level of materiality in contemplation at the time the Scheme was approved. It is also relevant to note the provisions concerning the works to be undertaken by MSL whereby MSL is under an obligation to be transparent from the outset and to give information to and consult with the Body Corporate in respect of its decisions and prices.

Settlement agreement

[30] What was not covered by the discovery order is the second category of documents sought by MSL. This relates to the basis on which a claim against the Auckland Council filed by the Body Corporate was advanced and settled. MSL had received a copy of the fourth amended statement of claim. It seeks the fifth amended statement of claim and the document evidencing the terms on which the proceeding was settled.

[31] This is opposed by the Body Corporate on the basis that the documents were not covered by the order for tailored discovery; they are not relevant to the proceeding, being one commenced by an originating application; and the application

is in fact an attempt to obtain discovery of the settlement document without complying with proper procedure. In any event, the Body Corporate asserts privilege or confidentiality over the documents.

[32] The Body Corporate’s claim against the Auckland Council was in negligence seeking damages for the costs of repairing the common property. While most of the unit owners joined the proceeding to sue for the costs of repairing their unit property, MSL did not. Indeed, MSL purchased level 12 being on notice of the weathertightness issues as is confirmed in correspondence from Mr Cummins to the Council supplied as part of this proceeding.

[33] It appears that the fourth amended statement of claim did not exclude MSL’s share of the common property from the Body Corporate’s claim, although MSL says it sought and received assurances that its share of the common property would not be included in the Body Corporate’s claim. MSL then says that it is probably safe to assume that the settlement agreement under which a substantial payment was made by the Council encompasses MSL’s share of the common property. The settlement proceeds have been distributed amongst the owners who joined the litigation personally and no part of the proceeds have been accounted for to MSL.

[34] MSL says that the settlement of the Body Corporate’s claim is relevant to the issue before the Court in the application to vary the Scheme. It says that, regardless of whether MSL is entitled to a share of the settlement proceeds, it is relevant to the Court’s assessment of the Body Corporate’s application.

[35] Any claim which MSL might have against the Auckland Council would appear to be out of time and indeed, as noted, MSL purchased with knowledge of weathertightness issues. I accept the Body Corporate’s submission that any claim MSL might have against the Body Corporate for a share of the proceeds of any settlement of the Body Corporate’s claim against the Council would need to be brought by way of an ordinary proceeding rather than somehow being part of the Body Corporate’s application made by way of an originating application. There is no real connection between the application before the Court and any claim MSL might have in respect of the settlement.

[36] I agree with the Body Corporate that MSL is effectively trying to conflate two issues, that is the amount MSL should properly pay towards the repairs of the Building and how MSL would pay its share. Any part of the settlement to which MSL might be entitled is relevant to the second of those questions. MSL elected not to be part of the claim against the Auckland Council.

[37] Although, cases such as LV Trust Holdings Ltd v Body Corporate considered whether a scheme under s 74 of the Unit Titles Act 2010 could provide for payment of compensation, this is not the issue in this case.²

[38] I accept that determination of what sum MSL ought to be required to contribute to common property repairs is separate from whether MSL might have a claim to the settlement proceeds in the proceedings between the Body Corporate and the Auckland Council.

Result

[39] For the reasons given the Body Corporate is to make full disclosure in respect of items A and B of the application but is not required to make disclosure of items C and D.

[40] In the circumstances, the parties may decide costs should lie. If there is not agreement, costs will be dealt with by me on the papers upon the filing of memoranda, required from MSL within 21 days and from the Body Corporate within

_{28 days of this decision.}

_{Thomas J}

² LV Trust Holdings Ltd v Body Corporate 114424 [2012] NZHC 3578, (2012) 14 NZCPR 344.