Body Corporate 303953 v Wang [2015] NZHC 2039 (27 August 2015)

Last Updated: 2 September 2015

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

CIV-2015-425-000052 [2015] NZHC 2039

BETWEEN	BODY CORPORATE 303953 First Applicant
	STEPHEN MARTIN WILDE Second Applicant
AND	TIAN WANG AND XIAONAN BAO First Respondents AND OTHER RESPONDENTS

Hearing:	26 August 2015
Appearances:	D R Bigio for Applicants No appearance for Respondents
Judgment:	27 August 2015

_{JUDGMENT OF DUNNINGHAM J}

[1] This is an application for an order establishing a scheme under s 74 of the Unit Titles Act 2010 (the 2010 Act) to implement repairs to a unit title development, now known as Beechwood Apartments, located at 716 Frankton Road, Queenstown.

[2] The development consists of 75 units, constructed in 23 separate buildings, comprising duplexes, terraced and single units. Unfortunately, the development suffers from weather-tightness issues and an expert report presented in February 2011 recommended a full re-clad of the complex and a redesign of the roofs.

[3] In May 2011, the Body Corporate issued proceedings against the Queenstown

Lakes District Council, and the construction company responsible for the development, in the Invercargill High Court. A settlement was reached in

BODY CORPORATE 303953 v WANG [2015] NZHC 2039 [27 August 2015]

February 2014 with the defendant parties, although there remains a significant shortfall in the funding required to complete the remedial project, with the current estimate of repair costs being approximately $14,000,000.

[4] The Body Corporate, at an extraordinary general meeting (EGM) held on

31 May 2014, resolved to proceed with drafting an application to the High Court for an order settling a scheme for repair of the buildings comprising the development. The cost apportionment proposals to be incorporated in the scheme were discussed at the AGM held on 28 June 2014, where it was resolved, in general terms, that all direct construction costs would be allocated to the individual units to which they relate, while the indirect construction costs and associated costs of the repairs would be allocated to owners in proportion to their ownership interest.

The scheme

[5] The draft scheme is attached in full to the application and was discussed in both the affidavit evidence of Stephen Wilde, the chairperson of the Body Corporate, and in the submissions of counsel which have been filed. It is unnecessary to go through it in full but, suffice to say, it contains comprehensive provisions as to the duties and obligations of the owners, and the duties, obligations and authorities of the Body Corporate in undertaking the reinstatement work.

[6] Importantly, the scheme records the allocation of costs related to the reinstatement project by allocating all direct construction costs to the individual units to which they relate, whereas indirect construction costs and associated costs are to be allocated in proportion to the utility interest. The explanation for this is that there was a concern, particularly from owners in standalone units, that it would be both inequitable and uneconomic if all project costs were allocated in proportion to the actual repair cost for each unit. As there are significant economies of scale achieved in many areas as a result of the owners working together to get their units repaired, it was considered that these concerns could be partly addressed by sharing the indirect and associated costs of the repair work (such as the architect’s fees, project management fees and scaffolding), in accordance with each owner’s relative utility

interest. That would even out, at least to some degree, the amount each owner would contribute to the overall project cost.

[7] The scheme also incorporates amendments designed to address the concerns that a small number of owners expressed about the Body Corporate Committee being authorised to make all decisions in relation to the reinstatement project without any further involvement of the full owner group. There is now, at clause 5.2, a requirement that the following decisions are to be referred to a general meeting of the Body Corporate:

(a) the decision to accept the quoted project costs from the building contractor;

(b) the decision to enter into the construction contract pursuant to cl 9.1.

[8] For completeness, I note that at the formal proof hearing, counsel sought a minor amendment to the wording of the scheme which was to correct a reference in clause 17.2 where it states “pursuant to clause 20”. There is no clause 20 and it should have read “pursuant to clause 19”. I am satisfied no party is prejudiced by this correction and the version of the scheme I am considering is the one attached to counsel’s submissions dated 20 August 2015 which contains this correction.

Consideration of the application

[9] The application was filed on 5 June 2015. It has now been served on all 74 respondent unit owners and 11 other respondents who are mortgagees or other parties with an interest in the matter, including the insurer. Although, at the

17 December 2014 EGM, only two-thirds of the votes of unit owners were in favour of the scheme, no respondent has filed any opposition to the application and no party has sought to be heard at the formal proof hearing convened on 26 August 2015.

[10] Accordingly, it is simply a matter for me to determine whether I am satisfied that the proposed scheme meets the requirements of the s 74 of the 2010 Act, and it is appropriate for me to settle it in the form proposed.

[11] The submissions of the applicant directed me to the leading authority on such schemes, being the decision of the Court of Appeal in Tisch v Body Corporate 318596.¹ While Tisch was decided under the 1972 Act, the relevant section of that Act (s 48) was essentially replicated as s 74 of the 2010 Act.

[12] The Court of Appeal set out a three-step process when considering an application to settle the scheme:²

(a) The Court must be satisfied that the building has been damaged or destroyed.

(b) If so satisfied, the Court must decide whether to settle a scheme. That is, the Court must decide whether a scheme is appropriate in the circumstances.

(c) If the Court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.

[13] I accept that the first step has been met in this case as the development has been damaged by the ingress of moisture and it requires a full re-clad and a re-design of the roofs.

[14] In terms of step 2, I am satisfied that a scheme is appropriate in the circumstances. The repair project requires significant works which are most efficiently undertaken as one repair project. Given the outcome of the vote on

17 December 2015, it is not clear that the parties agreed to the terms and so it is appropriate that the Body Corporate seeks Court approval of a scheme for managing the reinstatement project and apportioning the costs of that between the individual

_{unit owners.}

¹ _{Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679.}

² At [35].

[15] In considering then whether the scheme before me is in the appropriate terms, I have had regard to the five factors identified by the Court of Appeal to be taken into account when considering the terms of the proposed scheme:³

[45] First, a scheme with a 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 ...

[46] Secondly, the scheme should be appropriately detailed. The more detailed the scheme, the less scope for later misunderstanding an argument about it.

[47] 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 ...

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

the same time ...

[49] 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 ... An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.

[16] In respect of the first consideration I accept that the voting on 17 December shows broad, but not universal, support from the scheme. However, none of those who voted against the scheme have come to Court to articulate what their concerns were. The general principles behind this scheme did get strong support in the earlier June meeting, when 31 of the unit holders present at the meeting voted in favour of the proposal and only three against.

[17] I accept, in respect of the second consideration, that the scheme is appropriately detailed. It has been prepared by lawyers who have familiarity with such schemes, and I am satisfied that it comprehensively sets out the rights and obligations of the parties and includes a range of options for dispute resolution. It has also been modified to make provision for at least two key decision making points to be referred back to the unit owners.

[18] The question of retrospective effect, which is the third consideration, has not been referred to in this case. However, to the extent that costs have been incurred to date in furtherance of the reinstatement project, the scheme will cover that as well.

[19] I have already considered the fourth issue, which is that it is advantageous for all the reinstatement work to be done to the same standard and at the same time, and the scheme will facilitate this.

[20] In respect of the fifth consideration, the scheme will depart from the 2010 Act in one respect, being cost allocation. This is because, normally a unit owner must repair and maintain their own unit and be responsible for the cost of doing so.⁴ The repairs proposed to the weather proofing fabric of the units and car ports, including roofs, have all been determined by the firm Yeomans Survey Solutions Limited, to involve elements of individual unit properties, rather than common property. That would mean the default position for apportioning repair costs would have been for each owner to pay the actual repair cost for their unit, including the indirect and

associated costs of such repairs. However, in this case it has been proposed that the indirect costs be apportioned to each owner in proportion to the utility interest for their unit. As already stated, that proposal found general favour at the 28 June 2014

AGM where those voting had been presented with a comparison between the likely financial impact of allocating those costs to the individual unit owners in proportion with their utility interest and in proportion to their expected repair costs.

[21] I am satisfied that the Body Corporate has consulted fully with the owners and informed them of the implications of the proposed resolutions. The approval of the scheme will ensure that the works are undertaken in a coordinated and integrated manner. The departure from the 2010 Act by apportioning the indirect and associated costs to owners in accordance with their utility interests, is intended to address the inequalities caused if project costs were apportioned in proportion to actual repair costs. As there are significant economies of scale achieved by the owners working together to get their units repaired, I accept it is fair as between unit owners in the circumstances to share the indirect and associated costs of the repair

work by utility interest in order to even out, to some degree, the amount each owner would need to contribute towards the overall project costs.

[22] I am therefore satisfied that the terms of the proposed scheme attached to the submissions of counsel dated 20 August 2015 are appropriate. Accordingly, I order:

(a) The scheme for the reinstatement of the buildings comprising the unit property and common property in Body Corporate 303953, and which is attached to the submissions of counsel for the applicant dated

20 August 2015, is settled pursuant to s 74 of the Unit Titles Act 2010.

Solicitors:

Pidgeon Law, Auckland