Body Corporate 204299 v Whyte [2016] NZHC 1164 (31 May 2016)

Last Updated: 14 June 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-002314 [2016] NZHC 1164

BETWEEN	BODY CORPORATE 204299 First Applicant IAN WALTER SAYER and DORIS SAYER Second Applicants
AND	JEREMY KANE WHYTE AND OTHERS First and Subsequent Respondents

Hearing:	16 March 2016 30 March 2016 (joint memorandum)
Appearances:	D R Bigio and L Fry-Irvine for First Applicant J Heatlie and J M Wood for Respondents
Judgment:	31 May 2016

_{JUDGMENT OF HINTON J}

This judgment was delivered by me on 31 May 2016 at 5.00 pm pursuant to Rule 11.5 of the High Court Rules

....................................................

Registrar / Deputy Registrar

Counsel/Solicitors:

J Heatlie and J M Wood, Rainey Law, Auckland

D Bigio, Barrister, Auckland

_{L Fry-Irvine, Pidgeon Law, Auckland}

BODY CORPORATE 204299 v WHYTE AND OTHERS [2016] NZHC 1164 [31 May 2016]

[1] When the owners of Greenwich Park, Grafton bought their units some

16 years ago, they would never have dreamt they would all end up in court over weathertightness issues.

[2] Greenwich Park is located at 3 Burton Street, Grafton, Auckland. It comprises 85 two-storey units, situated in 14 separate blocks.

[3] All units have weathertightness issues that were first raised back in 2001 and must be repaired.

[4] After the usual sad and lengthy history that applies to these matters, the Greenwich Park Body Corporate is seeking approval for a scheme of repair under s 74 of the Unit Titles Act 2010 (the Act). The scheme is opposed.

The issues

[5] The issues here are the weight that ought to be given to the level of support for the scheme and whether the scheme departs from the Act and rules no more than is reasonably necessary to achieve what is fair. These issues have to be determined in terms of s 74 of the Act and the case law that has developed under it.

[6] The aspect of the scheme which the respondents oppose, is the allocation of costs for 20 common property walls. Otherwise, the parties are essentially in agreement. The respondents did raise other points in this proceeding but they and the applicant have since helpfully confirmed, by joint memorandum dated 30 March

2016, that these are agreed.

[7] The 20 common property walls are 20 out of the total 28 end walls in the development, which are designated in the unit plan, as to their exterior not their interior, as common property. The apparent rationale for such designation was that these 20 end walls adjoin common property areas such as footpaths, whereas the other eight end walls and all of the side walls apparently adjoin private or unit properties.

[8] Under the scheme, the Body Corporate proposes that the cost of repair of the common property walls be treated as if they were part of the property of the units to which they are adjacent, i.e. that the common property walls be treated as unit property, rather than common property as they are categorised under the unit plan. The treatment of all walls as unit property will facilitate an agreed block-by-block repair approach.

[9] The respondents are five of the owners of the units that have these common property exterior walls. They object to having to pay the cost of repairing the exterior of these walls and say such cost should be shared across all units, in accordance with the 2010 Act.

The law – s 74 and Tisch

[10] Under s 74 of the Act, the court can settle a scheme, usually on the application of a body corporate, if any building is damaged or destroyed. The court is given powers, not otherwise available under the Act, to make any orders it considers expedient or necessary for giving effect to the scheme, including orders directing application of insurance money; directing payment of money by or to the body corporate and imposing any terms and conditions it thinks fit.

[11] The leading authority on s 74 is the decision of the Court of Appeal in

Tisch v Body Corporate.¹

[12] The Court of Appeal said there were three steps when considering an application to settle a scheme. First, the court must be satisfied the building has been damaged or destroyed. Secondly, the court must decide whether a scheme is appropriate. Third, it must then decide what the terms of the scheme should be.²

[13] The Court of Appeal cited five factors to be taken into account when considering the last of these three steps, namely the terms of a proposed scheme, as

_follows³_:

¹ _{Tisch v Body Corporate 318596 [2011] NZCA 420.}

² _{Tisch at [35].}

³ At [45]-[49].

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 ...

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 cir cumst ance s ... An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners. (Emphasis added)

Can the scheme be approved?

[14] The parties here are agreed that steps one and two of Tisch have been met and they are also agreed that of the five factors relating to step three, the only matters that are relevant here are the first and fifth factors. In other words, I have to focus on what weight ought to be given to the level of support for the scheme and whether the scheme departs from the Act and the body corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances. Of these two factors, the latter factor has more significance in this case.

[15] In terms of the level of support for the scheme, at an extraordinary general meeting on 1 September 2015, two motions were put before the Body Corporate that differed as to treatment of the common property walls. These were:

(a) Motion 1 – that owners pay for repairs to their unit property in accordance with the 2010 Act and all owners of units that contain common property pay repairs to that common property as if it was their unit property [this not being in accordance with the 2010 Act] and that this method is used to create the RCAP in the scheme, and all complex wide repair costs which are not attributable to a specific block of units are allocated across all owners in the entire complex using utility interests. (I have added the bracketed words.)

(b) Motion 2 – that owners pay for repairs to their unit property and all common property costs are shared across all owners in the complex in accordance with the 2010 Act and that this method is used to create the RCAP in the scheme, and all complex wide repair costs which are not attributable to a specific block of units are allocated across all owners in the entire complex using utility interests.

[16] The Body Corporate resolved to adopt Motion 1, which effectively converted for purposes of the scheme, the common property exterior walls into unit property walls, with 42 votes for and 11 votes against.

[17] There was a subsequent resolution approving the draft scheme incorporating Motion 1 and authorising this application, in respect of which there were 50 votes in favour and four against, noting they were in favour of the scheme in principal but against the cost allocation method under Motion 1. There were two votes abstaining.

[18] The opposition clearly came from those whose common walls were being treated as unit walls. The opposition would support Motion 2.

[19] While the scheme can probably still be said to have broad support, I agree with the respondents that, in circumstances where the dividing line is between those for whom the scheme improves their rights and those for whom the scheme trenches upon their rights, a court must be cautious about the weight given to the level of support. This was similarly the case in the Tuscany Towers litigation.⁴

[20] I did not take Mr Bigio to place any particular weight on the fact that the scheme has broad support. It was similarly accepted by both parties that it did not really make any difference whether there were five respondents (as here) or one.

[21] The key point, and the parties were both agreed on this is: do the terms of the scheme 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?}

⁴ Body Corporate 183930 v Chua & Ors (Tuscany Towers) [2015] NZHC 2122 [3 September

2015].

[22] The Body Corporate says there are three key reasons why the departure from the Act, in terms of treatment of the 20 common walls, is reasonably necessary to achieve what is fair as between unit owners. These are:

(a) To help support a block-by-block approach to repairs;

(b) Consequently to help support the ability of each block to individually access FAP financial contributions;

(c) To create what is believed to be a consistent and fair approach to repair cost allocations having regard to all the circumstances.

[23] Mr Bigio agreed that, although listed in that order, the primary factor he relies on is (c).

[24] The essence of this argument is that, out of a total of 207 exterior walls across the 85 units in the development, 187 exterior walls are unit property and 20 are a mixture of unit property and common property. So, 65 units have exterior walls that are entirely unit property, and 20 units have a mixture of unit property and common property exterior walls. The applicant argued that this mixture of unit property and common property across all exterior walls creates an inconsistency when costs are allocated between all units in the complex under the Act. When the Act is used to allocate costs, as proposed by the respondents, 20 units that have both unit property and common property walls will pay for repairs to their unit property walls only, plus their utility interest share in the repair costs for the common property portion of the walls. The remaining 65 units, that are made up of entirely unit property walls, must pay for repairs to all walls in their unit, plus their utility interest share and the repair cost for all common property walls in the development.

[25] The fact that there is this uneven treatment of the 20 walls, is said by the applicants to have been an error in the first place. The respondents dispute this. In any event, it was accepted that, error or not, the point is immaterial.

[26] I agree with Mr Bigio that the treatment of certain only of the end walls as common property appears inconsistent and even possibly unfair to those whose unit walls are all unit property.

[27] The concern I have though, is that this “inconsistency” is no more than a reflection of the “inconsistent” effect of the unit plan and the Act. It seems to me that an applicant must do more than point to an “inconsistency” in the unit plan to establish reasonable necessity and fairness as between unit owners in departing from the unit plan and the Act.

[28] As the Court of Appeal pointed out in Tisch, when buying into a unit title development, owners acquire contractual rights, with a consequential expectation that legal relationships between them will be governed accordingly. The starting point must be that unit holders should adhere to the statutory scheme they bought into, and to the body corporate rules by which they agreed to abide.

[29] A party seeking to depart from the scheme needs to point to something more than the effect of the scheme itself. If it were otherwise, then a significant majority could rewrite the unit plan to the detriment of a minority who had relied on it when acquiring title, and that formed a part of that very title. That is why Tisch says departure from the terms of a scheme has to be no more than is reasonably necessary.

[30] Further, as I understand it, the effect of the scheme in terms of the reallocation of cost of the 20 common property walls is not minor, involving each of the 20 relevant unit owners in additional cost of about $20,000.

[31] I enquired whether the fact that this is far from routine maintenance, which is generally what is anticipated under the Act as being shared with regard to common property, was relevant, or alternatively, whether the lack of foreseeability of the drastic situation that has arisen was relevant. It was accepted by Mr Bigio that they were not.

[32] The two remaining reasons advanced by the Body Corporate (block-by-block approach and FAP package), also are not sufficient to tip the balance in favour of departure from the unit plan and the Act.

[33] Mr Bigio submitted that, with a block-by-block approach, it was particularly important to ringfence costs for each block as much as possible and thereby minimise future levies (for the common walls) being raised on a block, after repairs are completed to that block. I agree that it would be highly desirable to ringfence costs as much as possible, but, again, it is not reasonably necessary to do so to give effect to the scheme. Further, ongoing levies can be made and will be required in any event, as Mr Bigio acknowledged, albeit for more minimal overhead-type costs (such as legal fees, architect costs and wash-up levies).

[34] As to the FAP point (Financial Assistance Package from the Ministry of Business, Innovation and Employment), the position had changed somewhat by the hearing date. There was no longer a deadline for application and it appeared that blocks would be able to obtain FAP contributions independent of each other, regardless of the common wall issue. It is difficult to see why not.

[35] It was argued by Ms Heatlie that the Court has no power to reallocate common property costs under s 74 of the Act. I do not need to consider that wider point, as the relevant aspect of the scheme does not meet the test in s 74, amplified by Tisch, in any event.

Conclusion

[36] For the reason that it departs from the Act and rules more than is reasonably necessary to achieve what is fair as between unit owners, I decline to approve the scheme promulgated by the Body Corporate. Costs are reserved.

[37] I agree with the parties that the scheme seems otherwise to qualify for approval under s 74. I invite Mr Bigio to immediately file a memorandum setting out the order(s) sought. It should address why the material aspects of the then

altered scheme comply with s 74. Hopefully Ms Heatlie can record the respondents’

consent. I should be in a position to issue a further brief judgment immediately.

[38] Finally, I wish to record my appreciation of the assistance provided by counsel. It is clear that both parties were represented by experts in the field.

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Hinton J