Body Corporate 873368 v Otway [2016] NZHC 1070 (23 May 2016)

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BETWEEN	BODY CORPORATE S73368 Plaintiff
AND	ROSALIND KAY OTWAY (NOW ROSALIND KAY WRIGHT) AND HOLFORD SANDFORD TRUSTEE SERVICE COMPANY LIMITED First Defendants PHILLIP HERBERT DORR SHARON LESLEY DORR and DONALD RAYMOND PILBROW Second Defendant

Hearing:	7 and 8 March 2016
Appearances:	D P Shore with N Pouwels-Strang for Plaintiff on 7 March 2016 D P Shore for Plaintiff on 8 March 2016 G Brittain for Defendants
Judgment:	8 March 2016
_Reasons:	_{23 May 2016}

BODY CORPORATE S73368 v OTWAY (WRIGHT) AND HOLFORD SANDFORD TRUSTEE [2016] NZHC 1070 [23 May 2016]

[2] The plaintiff sues the defendants under s 126 of the Unit Titles Act 2010 to recover some of the expenses it incurred in carrying out repairs which it says benefited the defendants’ units substantially more than other units. It is the body corporate for a unit title development, Tower Two, 1 Marine Parade, Mt Maunganui. There is a neighbouring building, Tower One. The defendants each own an apartment on the first floor of Tower Two, apartments 1A and 1B respectively. The building has a podium at street level with shops, and a 10-floor tower on top with residential apartments. There are seven shops and 38 apartments, a total of 45 unit titles. The defendants’ apartments on the first floor have exclusive access to extensive balcony areas on the top of the podium.

[3] For some years, at least since 2009, the shops at street level suffered problems with water ingress. The body corporate investigated the problem, took professional advice and undertook remedial work.¹It levied all the owners to pay for the work. After the work was completed, the body corporate considered that certain units within the complex had benefited more than the others. It contends that the first and second defendants are among those who received additional benefits. In

this proceeding, it seeks to recover the expenses it says it incurred in providing those additional benefits to the defendants’ units. It claims $223,792.46 from each of them under s 126. It applied for summary judgment.

[4] There is no dispute as to the applicable principles. There is a convenient summary in Krukziener v Hanover Finance Ltd.²

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. ... The court must be left without any

real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated. ... The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, when the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherent improbable. ... In the end, the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it.

[5] I emphasise the requirement that in establishing to the satisfaction of the court that the defendant can have no defence to the allegations in the statement of claim, the plaintiff must make out its case on its pleaded causes of action and must negate all affirmative defences put in issue by the defendant. The body corporate presented a case that certain assumptions could be drawn in its favour. These were not uncontroverted facts under s 128 of the Evidence Act 2006. I am unable to make assumptions simply on the say-so of the plaintiff.

(1) This section applies where the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, but the repair, work, or act—

(2) Any expense incurred by the body corporate in doing the repair, work, or act is recoverable by it as a debt in any court of competent jurisdiction (less any amount already paid) in accordance with the following:

(a) so far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt; or

(b) so far as the amount of the debt is not met in accordance with the provisions of paragraph (a), it must be apportioned

among the units that derive a substantial benefit from the repair, work, or act rateably according to the utility interest of those units, and in the case of each of those units, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the amount apportioned to that unit.

(3) Despite subsection (2)(b), if the court considers that it would be inequitable to apportion the amount of the debt in proportion to the utility interest of the unit owners referred to in that paragraph, it may apportion that amount in relation to those units in the shares as it thinks fit, having regard to the relative benefits to those units.

[7] Section 33 of the Unit Titles Act 1972 was an equivalent provision which, while formatted differently, is in substantially the same terms. In Tisch v Body Corporate no.318596, the Court of Appeal said obiter of s 33:³

It provides a mechanism to reallocate repair costs after they have been incurred, and are thus known. It contemplates:

(iii) Reallocation of the cost of those repairs (counsel termed this a “back end adjustment”) if the repairs substantially benefit some unit(s) more than another.

[8] The Court of Appeal also made obiter comments about s 33 in St John’s College Trust Board v Body Corporate No.197230.⁴I consider those comments later. So far as I am aware, this is the first contested case under s 126 of the 2010

Act. It is to a large extent unexplored territory. The way the section is to work in practice has still to be fully worked out.

[9] I make suggestions as to how the section is to be applied to this particular case, but they should be regarded as tentative only. The potential for argument as to how the statutory provisions are to apply in a particular case is a pointer that the case is unsuitable for summary judgment. In referring to defences, I shall do no more than indicate the availability of arguable defences. I am not to be understood as holding that those defences are unanswerable. Notwithstanding a large area where

_{fact are not in dispute, in cases of differences, where I set out the
defendants’}

³_{Tisch v Body Corporate no.318596 [2011] NZCA 420,
[2011] 3 NZLR 679 at [25].}

⁴St John’s College Trust Board v Body Corporate No. 197230 [2013] NZCA 35, (2013) 14

version, I do no more than describe facts which they arguably may be able to prove at a later hearing.

[10] While Tower One apparently had similar problems, it has a different body corporate. The way it dealt with the water ingress problems and whether it made claims under s 126 have no bearing on this case.

[11] It is irrelevant whether other remedies are available to the body corporate. In many building defects cases, bodies corporate apply for approval of a scheme under s 74 of the Unit Titles Act for remedial work to be carried out. Under such a scheme owners might be required to contribute on a different basis from their ownership interests under s 38 or their utility interests under s 39 of the Act. There was no scheme under s 74 in this case, but that is not a bar to the body corporate suing under s 126.

[12] Under s 138 the body corporate must repair and maintain among other things the common property, any assets designed for use in connection with the common property and any building elements and infrastructure that relate to or serve more than one unit. Section 138 gave the body corporate the power to undertake the works in this case. The section has a costs recovery provision, s 138(4):

Any costs incurred by the body corporate that relate to repairs or maintenance of to 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.

[13] There is room for overlap between ss 126 and 138. To that extent they may allow concurrent claims. In other areas of the law plaintiffs may choose to sue on one or more concurrent causes of action. I see no reason why a similar approach should not apply here. On the facts in this case, there may be good reason for the body corporate not trying to recover under s 138. Part of its claim is for repairs to the balcony areas used by the first and second defendants. They have put in

surveying evidence to show that their exclusive-use balcony areas are not within their unit properties. That would bar a claim under s 138(4).

[14] Under s 127 a body corporate may recover its costs of repair from a unit owner where the work is necessary because of:

any wilful or negligent act or omission on the part of, or any breach of the Act, the body corporate operational rules, or any regulations by, any unit owner or his or her tenant, lessee, licensee, or invitee.

[15] In this case the body corporate does not rely on s 127 and does not suggest that the defendants were responsible for the damage that required the repair work. There is no evidence that they were responsible. For a claim under s 126 that would not be relevant.

[16] There is another matter that might seem irrelevant: the body corporate’s claims against other unit owners under s 126. The body corporate says that it has resolved to its satisfaction claims against other owners. That does not prevent these defendants opposing the claims against them on their merits. But the availability of claims against other unit owners is relevant under s 126(3). It raises the question of parties. That matter requires more extensive consideration, which comes later.

[17] The body corporate targets the membrane on the balcony on top of the podium as the defect causing the water ingress into the shops at street level. The defendants, however, say that that was only part of the problem. The balcony area was a catchment to collect rainwater. The collection and discharge system could not cope with the volumes of water. It was under-designed. The particular problem appears to be that rainwater came off the walls, as well as falling on the balcony. That may be understandable when windy conditions are taken into account. The defendants have referred to building surveying reports to support their case. They have an arguable basis for their cause. This cause question has a bearing on the extent of benefits of the remedial work.

[18] The remedial work involved removing aluminium joinery to apartments on level 1, removing tiles and membrane of the deck, upgrading gutters to discharge more water, adding a new nib-wall to apartments on level 1, laying a new membrane, installing new joinery and carrying out work in the soffit, especially to structural steel. The total repair costs came to $820,851.93.

Joinery	$158,682.71
Balcony	$647,269.95
Soffit	$148,990.27

[20] Apart from $46,103.41, the body corporate says that the balance is recoverable under s 126 of the Unit Titles Act from particular owners who have received additional benefits. For the joinery work, it says that three units on level 1 are the only ones to benefit. It says that each of the defendants is liable for

$54,429.30 of the joinery costs. That is a claim under s 126(2)(a) of the Unit Titles

[21] The body corporate says that owners on level 1 and the shops on the ground level all benefited from the balcony work and the soffit work. It has allocated the costs amongst all those units according to their utility interests under s 39 of the Unit Titles Act. The total utility interests for all the ground floor and level 1 units come to

1307. Units 1A and 1B have 278 each. That is approximately 22.27 per cent. Claims against each of the defendants under s 126(2)(b) are:

[22] The body corporate can refer to s 138 of the Unit Titles Act for its power to carry out the works in this case. The defendants do not contest that aspect. The Unit Titles Act came into force on 20 June 2011 but under s 220, certain provisions of the

Unit Titles Act 1972 (including s 138) continued in force until 30 September 2012, unless a body corporate agreed by special resolution that those provisions would apply before then. The body corporate did not resolve under s 220 until

22 September 2012. There is also no dispute as to the body corporate’s powers to raise funds for the remedial works by levying all owners under s 121 of the Unit Titles Act.

[23] In any particular case, the benefits of expenditure by the body corporate may not correspond to each unit’s particular utility or ownership interest. Some disproportionality is to be expected. Owners can be taken to have bought their units on the basis that expenditure by the body corporate may not correspond to particular utility or ownership interests. Some differences in benefits received amongst different units is par for the course.

[24] Section 126 is one of the exceptions to the general principle that disproportionality of benefits must be accepted as a normal incident of ownership of a unit under the Unit Titles Act. The section allows a body corporate which has carried out any repairs or work to recover its expenses in cases of some kinds of benefits to particular units. Where a body corporate has carried out work that benefits only some units, the general body of unit owners has subsidised benefits conferred on only some. Where it applies, the section provides for recovery of the subsidy. The power to recover the subsidy is discretionary, as Ellis J recognised in

the case of s 33 of the Unit Titles Act 1972 in Body Corporate 198245 v Wong.⁵

[25] The body corporate may recover under s 126 even if the benefiting owners did not ask for the work to be carried out and even if they opposed it. Admittedly it would be difficult to deny that necessary repairs were wanted, but the section is not limited to necessary work. It applies to any repair, work or act by the body

[26] Either side’s assessment of costs or benefits is not determinative. Instead they must be established objectively. That is required for the protection of the benefiting owners. It can hardly be right to require them to pay for benefits which they may not have sought and which cannot be objectively proved. If the body corporate’s opinion were allowed to have sole sway, it would be very tempting for the body corporate on behalf of the majority of owners who paid for works to select only some units as having benefited, so that the costs of works can be thrown onto a minority of owners, even if the works benefited the complex as a whole.

[27] An objective assessment is also required because of the natural tendency for subjective devaluation. Owners of benefiting units will tend to downplay any advantages they are alleged to have received, just as the body corporate may tend to downplay benefits to the complex generally. While such subjective devaluation cannot be determinative, it creates problems for summary judgment applications. The court is unlikely to be able to assess the extent of benefit, when faced with assertions tending to downplay any benefits received. Such factual disputes are not readily resolved in a summary judgment application.

[28] For an owner to be liable to pay expenses under s 126, the unit must have benefited under s 126(1). That requirement means that there must be some change between the situation before the work was carried out and the situation afterwards. A change which does not result in any improvement does not produce a benefit. In assessing benefits, improvements and disadvantages are aggregated to see whether there is a net benefit. It is necessary to avoid what I call the “location fallacy”. The location fallacy arises when work is carried out near a unit and it is then claimed that by reason of that work having been carried out the unit has benefited, without proving any particular advantage to the unit as a result of the work.

[29] A question can arise whether work undertaken as a single project should be divided up into components so as to isolate individual benefits for particular units. It may not be safe to make categorical assertions but in this case it is at least arguable for the defendants that all benefits should be assessed together.

[30] Section 126(1) provides for benefits when the body corporate repair, work or act :

In (c) “substantially” is used differently from in (a) and (b). In the first two it helps identify the benefiting unit or units by excluding others. If the benefit is substantially for the benefit of one unit (or some units) only, it is by definition not for the benefit of any other units. In this context, a synonym would be “mainly”. It recognises that there may be benefits to other units, but they are not significant enough to warrant attention. It says nothing about the extent of improvement for the benefiting unit: it need not be extensive. On the other hand, in (c) “substantially” is used to measure the extent of benefits received by some units compared to benefits to others; the paragraph recognises that all units receive some benefit. In this context the benefit needs to be more than minor, when compared to others.

[31] Section 126(1)(c) requires a comparison of benefits among all the units. The “others” means “all the others”. If there is another unit among the others which has benefited, but the benefits to it are not substantially less than the benefits to the units targeted for an expense claim, s 126(1)(c) is not satisfied.

[32] In this case the body corporate is claiming under s 126(1)(c). It accepts that the repair work benefited the complex as a whole, that is, other units in addition to those it has targeted for expenses claims (only the shops on the ground floor and the apartments on the first floor). That recognition is appropriate. While it does not identify benefits to other units, other decisions have held that in similar cases all units benefit from repairing building defects. In Body Corporate 198245 v Wong, a

(b) The proprietors all have a mutual interest in ensuring that the building as a whole is weathertight and kept in good repair. In the absence of expert evidence on the point, it can reasonably be assumed that if part of the building is not weathertight then that would adversely affect the saleability and value of all units, regardless of whether they themselves are in fact leaky;

(d) Each owner must be taken to have bought into the building knowing, and on the basis, of the division between common and private property in the unit plan and knowing of their responsibility to contribute to the maintenance and repair of the common property as so defined;

Similarly in Simons v Body Corporate Strata Plan No 5181, a Victorian case under the equivalent of s 126, Lush J said:⁷

My reasons for declining to say that the applicant’s unit is the only one to benefit are that the defective exterior wall is not something which the applicant bought and which turned out to be faulty; it is something which all the unit owners bought and I think that, at any rate in relation to a problem of original construction or quality of units constructed in blocks as these are, the body corporate and, therefore, all the unit holders, has an interest in putting the property in an adequate functional condition.

[33] The body corporate’s evidence on benefits is sparse. There are general assertions that the joinery work was for the exclusive benefit of three apartments on the first floor. There is one general statement that joinery was “damaged/defective” but no elaboration. The evidence does not say how the joinery was defective or how the installation of new joinery has improved either of the defendants’ units. As to the balcony, the body corporate’s evidence says that before the works were carried out the rainwater system was overloaded leading to excessive ponding and flooding of the balcony and the waterproof membrane failed. Its evidence does not describe the position after the work was carried out but assumes that there is now a more efficient rainwater discharge system without any consequential ponding on the balconies. The soffit is the underside of the balcony. A portion of the balcony extends over an area of common property but the remainder forms the roof for the ground floor units. On the body corporate’s case, the soffit work substantially benefited units on the first

floor because they have the use of a repaired balcony which their owners can enjoy but which others cannot. The body corporate’s evidence does not describe or attempt to measure the extent of benefit to other units, not even others selected for claims under s 126.

(a) Mrs Wright (formerly Mrs Otway) says that the new joinery now installed is an improvement but she was happy with the old joinery. Mr Dorr says that the only improvement is the new aluminium joinery which has a more modern design and looks better.

(b) As to water ingress into the apartments, Mrs Wright says that the only leak she had was at the single door opening onto the deck which caused some minor damage to the carpet but she did not consider it to be serious. Mr Dorr says they did not have any serious issue with “water getting into our apartment save for a very minor leak at the single door opening to the deck”. There was no wet carpet or any issue with water damage.

(c) As to the balcony, they accept that with the upgrades to the rainwater discharge, there is no problem with ponding. On the other hand they complain about the new membrane. Mrs Wright says that the new membrane feels like sandpaper when you walk on it and it is much harder to clean than the tiles before. Counsel submitted that a site visit was required to show this.

(d) As to the soffit work, they point out that it was not carried out on their unit properties and that it was structural in nature. It benefited the entire development, not just selected units.

[35] There may be an element of subjective devaluation in the defendants’ evidence but in this summary judgment application I cannot discount it as such. They may be proved right.

[36] So far as balcony work is concerned, I take it that rainwater no longer pools on the balcony. There is no evidence as to how bad the problem was before; for example, how long it took for water to clear after rain. No doubt the pooling of water on the balcony would detract from the enjoyment of going onto the balcony, but that may only have been the case during rainy weather when many people would not want to go onto the balcony anyway. Against that, there is the defendants’ evidence complaining of the new membrane. The alleged disadvantages of the new membrane which go against enjoyment of the balcony in dry weather may be set off against the benefits of more efficient stormwater disposal in wet weather. On the fairly perfunctory evidence I am not able to find on a summary judgment basis that the balcony work resulted in a net benefit to the defendants.

[37] The defendants have an arguable point that the soffit work may have been for the particular protection of ground floor units and may have been for the benefit of all units generally, but it did not result in any benefit for them greater than benefits to other units in the complex generally. The soffit work came after the work on the balcony. The problems there had already been fixed. There was an efficient system for the discharge of rainwater falling on the balcony. They point to evidence that work on the soffits was required to repair damage to structural elements which had suffered corrosion as a result of water ingress. For them the claim that the soffit work gave them extra benefits is a case of location fallacy.

[38] On the defendants’ arguable case the joinery is the only area of benefit. While they allow that the replacement of joinery is an improvement (although they do not accept that the old joinery was defective), I am unable to assess whether that joinery upgrade is so significant as to be substantial when compared with the benefits to other units not the subject of claims under s 126.

[39] The body corporate’s failure to address the benefits to the other units generally is itself a form of subjective devaluation. Subject to more detailed evidence later, it is arguable that there must have been a significant benefit to all owners generally in the water ingress problems on the ground floor being resolved.⁸

Because there is no evidence as to the extent of benefit enjoyed by other units from

the works, it is not possible to compare the benefits received by those units with the benefits received by the defendant’s units so as to establish whether the total net benefits received by the defendant’s units are substantially greater than the benefits to each of the other units not selected for a s 126 claim. Assessing the extent of benefits to different units is a matter of evaluation. It requires fuller evidence than has been given in this summary judgment application. Such an evaluation is not easily made in a summary judgment application.

[40] At this stage, the body corporate has not satisfied me that the defendants do not have a defence to its claim that its remedial work substantially benefited their units under s 126(1)(c). In case I am wrong on that, I consider whether the body corporate has established that the defendants have no defences under s 126 (2) and (3).

(b) so far as the amount of the debt is not met in accordance with the provisions of paragraph (a), it must be apportioned among the units that derive a substantial benefit from the repair, work, or act rateably according to the utility interest of those units, and in the case of each of those units, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the amount apportioned to that unit.

[42] To recap, under s 126(2)(a) the body corporate is claiming $54,429.30 for the joinery work from each of the defendants. Under s 126(2)(b) it is claiming

$137,673.94 for the balcony work and $31,699.22 for the soffit work from each of them as their rateable shares. The division of the claim between the two limbs needs consideration. I suggest that expenses recoverable under (a) are suitable for cases under s 126(1)(a) and (b) – “substantially for the benefit of”. In those cases, the benefits need not be substantial but because they are mainly for a particular unit or units the question of benefit to other units does not arise. It will accordingly be easier to show that units receiving benefits under s 126(1)(a) and (b) have benefited by a distinct and ascertainable amount under s 126(2)(a).

[43] On the other hand, expenses are recoverable under subs (2)(b) only for units that derive extensive benefits. That fits more easily with cases under s 126(1)(c). That is reinforced by the singular “unit” in (a) and the plural “units” in (b). On this basis it seems that a unit benefiting under s 126(1)(a) and (b) could not be subject to an expense claim under s 126(2)(b). Any questions of apportionment would not arise because the benefits were mainly for a particular unit or units.

[44] Here the body corporate does the converse. While its benefit claim is under s

126(1)(c), it makes an expense claim under s 126(2)(a). That means that while it says that the entire remedial work conferred substantial benefits on some units, it may isolate some of that work as having been carried out solely for particular units (the joinery work for the first floor apartments) and charge the costs of that particular work to those units. In cases under s 126(1)(c) where some units have received benefits not shared by others selected for expense claims, the expenses attributable to those extra benefits may be recovered by adjustments under s 126(3), which allows for apportionments having regard to relative benefits. That provision to make adjustments under s 126(3) does not mean that the body corporate’s approach is necessarily wrong. It is at least arguable. In support, the words “so far as the repair, work, or act benefits any unit” suggest that parts of an entire project can be isolated to show benefits to a particular unit by a distinct and ascertainable amount. An advantage of claiming under s 126(2)(a) where it is available is that it saves dealing with apportionment questions under ss(2)(b) and (3).

joinery work. The body corporate’s evidence is little more than assertion. It has not

put the invoices relating to the joinery work in evidence. It has attempted an apportionment of joinery costs, but its witness is not an expert, for example, a quantity surveyor. Its evidence is, on its face, contestable. It has not shown that the defendants do not have any defence under s 126(2)(a).

[46] The paragraph provides for apportionment only amongst those deriving substantial benefits. There may, however, be another apportionment to be carried out before that. In cases under s 126(1)(c), the body corporate’s work benefits other units generally, as well as units which derive substantial benefits. Clearly s 126 provides a remedy where work paid for by the general body of owners through their levies subsidises improvements to particular units, but it is not clear that the section can be used to recover from owners of particular units payments (in addition to their liability for levies) to go towards the benefits for all owners generally. That is, some individual owners ought not to be required to subsidise works that benefit the entire complex. The point is that expenditure by the body corporate on work under s

126(1)(c) may benefit a particular unit substantially but, at the same time, benefit all units generally. In those cases where the expenditure has that double benefit, imposing the entire costs on particular units results in their subsidising benefits to all the other units.

[47] When expenditure benefits both particular units substantially and other units generally, apportionment of the expenditure is required. That arises because the Act provides that funds for repairs, maintenance and other work (for example under s

138) are drawn from the operating account under s 115, the long term maintenance fund under s 117 and the optional contingency fund under s 118. Contributions to those funds come from levies under s 121 which are assessed according to unit owners’ utility interests (or ownership interests in the case of any capital improvement fund). Owners are therefore not required to contribute to works for the general benefit of the complex (as opposed to works that confer benefits under s

126(1)) beyond their particular utility or ownership interests. The power to recover expenses under s 126 can be made consistent with that by ensuring that any recovery of expense goes no further than matching the body corporate’s subsidy of benefits

under s 126(1) but not so as to require benefiting owners to pay for works the general body. The text of s 126(2) does not preclude such an interpretation.

[48] On the body corporate’s case the joinery work was only for the apartments on the first floor and not for the complex generally. The defendants do not contest that aspect. Accordingly no apportionment of the costs of the joinery work is required (even though the actual costs have not been adequately proved). That leaves the balcony and soffit work which cost in all $796,260.22.⁹The body corporate has claimed under s 126 for all that except $46,103.41, only 5.78% of the total. Just as the body corporate’s evidence does not describe the benefits to the general body of owners, its case does not provide any justification for the apportionment. Its own

assessment is not conclusively correct. On the face of it, it is arguable that a greater amount should be allocated towards the costs of providing general benefits. Any apportionment is a matter of evaluation which can be made only with evidence as to the extent and importance of the benefits on each side. Such an exercise in judgment is not appropriate on a summary judgment application. The defendants have a clearly arguable defence on the apportionment of costs between the general body of owners and those targeted for expenses claims under s 126(2)(b).

[49] Under s 126(2)(b) expenses (required only to repay the subsidy) are allocated amongst the units deriving substantial benefit according to their utility interests. That is subject to the qualification under s 126(3) that if the court considers such an allocation to be inequitable, it may instead apportion the expense amount in shares as it thinks fit, having regard to the relative benefits to the units.

[50] The defendants put the allocation according to utility interests in issue. They point out that the total utility interests for the units alleged to derive substantial benefits under s 126(2)(b) come to 1,307 of which they have 278 each. They say that the shops below have clearly received very substantial benefits because their water ingress problems have now been successfully remedied. Parts of the structure of the balcony and the membrane are within the units on the ground floor. The

benefits to those units are far more extensive than any that the defendants received. They submit that it is clearly incorrect that they should pay about 44.5 per cent of the expenses, with the shops on the ground floor getting away relatively lightly in comparison.

[51] The body corporate’s response at the hearing was that that was not a defence. In its submission, if the defendants felt hard done because of the standard utility interest allocation under s 126(2)(b), the defendants should pay up and then make contribution claims against the other unit owners for having discharged their liabilities to the extent that the defendants had overpaid.

[52] As to the substantive merits, the body corporate cannot be right. In an application under s 126, the court is required to fix a particular unit’s monetary liability after applying all the tests in the section. That requires the court to consider not only the apportionment under s 126(2)(b) but also any challenges to that apportionment under s 126(3). In a summary judgment application, the body corporate has to satisfy the court that the defendants have no defence. When the defendants raise the appropriateness of the allocation under s 126(2)(b) as an issue, the body corporate must show that that cannot be a defence to its claim. It therefore has to show that the defendants cannot have any argument under s 126(3).

[53] The body corporate did not try to justify the allocation according to utility interests under s 126(2)(b). The defence that there ought to be a different allocation under s 126(3) remains arguable.

[54] Under the body corporate’s argument it can recover on a solidary basis against a particular unit owner in a group of units deriving substantial benefits. It claims that one unit owner ought to carry the burden for benefits received by owners of other units. The argument assumes that they are co-debtors for each other’s liabilities. At the very least, that is contestable.

[57] The body corporate has claimed against owners separately, even though on its case the apartment owners on the first floor and the shop owners on the ground floor all come within a group in which each benefited substantially. Any owner in that group may defend on the basis that the allocation under s 126(2) is wrong and try, by devaluing the benefits to its own unit, to show that other units have received greater benefits. The risk for the body corporate in going after unit owners individually is that each might defend successfully on that ground, with the result that the body corporate will not obtain 100 per cent recovery from all.

[58] There is, of course, an alternative approach. Instead of suing owners individually, the body corporate might claim against all the owners of units within the substantial benefit group so that the allocations under s 126(2)(b) and (3) can be decided not just between the body corporate and individual owners case by case but between the body corporate and all owners at the same time.

[59] The one-on-one approach can be traced back to common law trials by jury. The alternative, under which everyone is joined, is an equity approach. Richmond J described it in McKendrick Glass Manufacturing Co Ltd v Wilkinson:¹⁰

The practice of the Court of Chancery as regards parties prior to the passing of the Judicature Acts is stated in Mitford, Pleadings in Suits in Court of Chancery, 5^thed (1847) 190 as follows:

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 the settling of 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.

[60] The defendants referred to Simons v Body Corporate Strata Plan no.5181.¹¹

When addressing the contention that the repairs were for more than just the one unit, Lush J identified the issue of parties:

This difficulty would, I think, prevent me from declaring that anyone other than those represented before me benefited, and even a negative declaration that the applicant is not the only one to benefit would affect the rights of others though, of course, since they are not parties to these proceedings they would not be bound by any such declaration.

[61] Clearly, a body corporate wishing to recover as much as possible from owners of units providing substantial benefits should join all owners in a single proceeding so that all questions of benefit and expense allocation can be resolved collectively, in the interests of finality following the Chancery practice described by Richmond J. As the proceeding is presently constituted, with the body corporate taking a one-on-one common law approach, it risks receiving less than 100 per cent recovery, and may not be able to recover the shortfall from other owners. Findings in one proceeding as to the extent of benefits received by particular owners will not bind them if they are not parties. Instead the matter may have to be litigated afresh with the risk of different findings.

[62] Some of the party problems could go away if there were solidary liability. So long as the defendants are people of substance, the body corporate could sue them for the total amount it is claiming for substantial benefits, $796,260.22, and leave the defendants to go after the other benefiting owners for contribution. Section 126 does not support that. It does provide for solidary liability between past and present owners of a unit:

...the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt.

But it does not provide that owners of different units will be liable for each other’s

[63] It is convenient now to refer to the Court of Appeal’s decision in St John’s College Trust Board v Body Corporate 197230.¹²That was an appeal in respect of a scheme under s 48 of the Unit Titles Act 1972. In dealing with a submission on s 33 (the equivalent of s 126 of the 2010 act) the Court said:¹³

(a) It only applies where the body corporate carries out any repair, work or act that is required or authorised by the Act. In this respect there is force in Duffy J’s view that s 33 was enacted to empower the body corporate to act in situations such as those provided by ss 15(1)(g) and 16, where it is bound to carry out work in compliance with a local authority or public body notice which includes work for both common property and individual units. Section 33 provides the Body Corporate with the power to recover from the unit holder a “distinct and ascertainable amount” by which the unit holder takes a benefit.

(b) The value of the individual unit holder’s benefit must be capable of precise definition as a sum certain in order for it to be recoverable as a debt. In normal circumstances, the measure of that benefit would be the cost of the work carried out on the unit.

(c) The court is specifically empowered to apportion liability (being the amount of indebtedness) with such amounts as it thinks fit, rather than in proportion to unit entitlements, where the unit holder with primary liability is unable to meet its debt.

[64] This was obiter. The Court was not deciding a claim under s 33 and was not required to apply its particular provisions. It is therefore not binding. The part of interest here is in (c), which suggests that in the event of non-payment by an owner under s 126(2)(a), other owners in the substantial benefit group can be made to pick up the tab. There is with respect an alternative interpretation. As I have tried to show above, the two limbs of s 126(2) are alternative and apply in different situations: (a) where the units are the only ones to receive benefits, but they need not be substantial, (b) where the units are in a substantial benefit group, but other units have also benefited. On that approach, owners of units under (b), who will not be liable under (a), cannot be required to pay the debts of (a) owners. “So far as the amount of the

_{debt is not met in accordance with the provisions of paragraph
(a)...” is to be read as}

referring to recoverability at law, not recoverability in fact. Besides, the Court’s dictum goes only to making substantial benefit group owners pick up the tab for owners liable under (a); it does not support making owners under (b) liable for each other’s debts.

[65] In a claim under s 126(2), the body corporate must give credit for any amount already paid. In this case it is not in dispute that the defendants paid the levies imposed to fund the remedial work. Those payments were arguably towards the expenses the body corporate incurred in providing the benefits they received. The body corporate’s evidence did not identify any payments made by the defendants and claimed judgment without giving credit for those payments. When I raised the matter, counsel for the body corporate said that the defendants could claim credit for those payments later.

[66] I do not accept that. The time for the defendants to raise these matters is before judgment. After judgment, they will be barred from raising any matter that they could have raised by way of defence. That is to preserve the finality of judgments and stop matters being re-litigated.

[67] There is a possible argument that in the case of mixed benefits under s 126(2)(b), where work benefits all units generally and some units substantially, there may be some apportionment of payments already made so that credit is given only to the extent that any payments could be attributed to the substantial benefit portion of the remedial work. The extent of any apportionment would be clearly contestable. In a summary judgment application, the body corporate would have to give credit for the full amount of the payments, while leaving the amount of any apportionment to be resolved at a final hearing.

[68] The body corporate has not shown that the defendants do not have a defence, to the extent that they may claim credit for the body corporate levies already paid for the work.

[69] The body corporate included a charge for GST in its invoices to the defendants. I queried this in the hearing, but neither side had prepared argument on the point. I signal the matter for consideration later. Section 126 allows a body corporate to defray expenses it has incurred in carrying out repair, work or other acts (for which it will already have been charged GST and where it will have levied its members including charges for GST). Expenses under s 126 are net. Where the purpose is to reallocate expenses, it is not so clear that an expense claim to repay a subsidy should include GST.

[70] The Goods and Services Tax Act 1986 provides for a body corporate under the Unit Titles Act to charge unit owners GST on levies. Under s 5(8A), a levy or other amount paid to a unit title body corporate by a member is treated as being consideration received for services supplied by the body corporate to the member. If the body corporate is registered under the Goods and Services Tax Act, members of the body corporate registered under the GST Act may claim deductions for supplies by the body corporate. That can include charges other than on a member’s

ownership interest or utility interest.¹⁴But s 126 may be a special case. When the

body corporate has carried out works which it has funded by levying owners including for GST, the tax on the supply (the work conferring benefits) has already been paid. My question is whether it should be paid a second time on a claim under s 126.

[71] While the body corporate is required on its summary judgment application to show that the defendants do not have any defences to the allegations in its statement of claim, it has failed to do that in a number of respects. This case is complex. Many of the decisions are matters of evaluation which are not suitable for summary

1 Their units did not receive substantial benefits under s 126(1)(c) when compared to benefits to others in the complex not chosen for s 126 claims.

2 The costs claimed for the joinery work under s 126(2)(a) have not been proved.

3 Under s 126(2)(b) the body corporate has not addressed the allocation of benefits between units generally and those deriving substantial benefits. They should not be required to subsidise work carried out for the general benefit of the complex.

4 The costs for benefits under s 126(2)(b) should not be allocated among the group of substantial benefit owners according to their utility interests, but in a way that reflects more closely relative benefits under s 126(3).

5 They are entitled to credits for payments they have already made towards the work for which they are charged.

[73] The defendants sought costs for preparation and the hearing of the summary judgment application. I accept their submission that after the notice of opposition and affidavits in opposition to the summary judgment application were filed, the body corporate ought to have realised that it could never succeed in a summary judgment application.

[74] The defendants will accordingly have their costs for preparation and for the hearing, but not their costs for filing their notices of opposition and affidavits in opposition to the summary judgment application. Those costs are reserved.

[75] I direct a case management conference for Wednesday 8 June 2016 at 9.00 am.

[76] Before the conference, the plaintiff may wish to reassess how it wishes to continue the proceeding. For example, it may wish to consider joinder of other parties or to amend its pleadings. I accordingly do not direct the defendants to file and serve a statement of defence before that conference. I would be grateful if counsel could confer as to directions required at the case management conference.

High Court of New Zealand Decisions

Body Corporate 873368 v Otway [2016] NZHC 1070 (23 May 2016)

High Court of New Zealand

Body Corporate 873368 v Otway [2016] NZHC 1070 (23 May 2016)