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Body Corporate 183930 v Chua [2016] NZHC 3064 (14 December 2016)

Last Updated: 9 January 2017


IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY



CIV-2015-404-000073 [2016] NZHC 3064

UNDER
The Unit Titles Act 2010
IN THE MATTER
of an Originating Application for Orders Establishing a Scheme under Section 74 of the Unit Titles Act 2010
BETWEEN
BODY CORPORATE 183930
First Applicant
SYNERGISTIC INVESTMENTS LIMITED
Second Applicant
AND
MUI KEE CHUA First Respondent
AND
OTHER RESPONDENTS
As set out in Schedule One to the
Application


Hearing:
9 December 2016
Counsel:
D Bigio QC for Applicants
J Heatlie and J Wood for Fifty Sixth, Sixty Sixth, Seventy Sixth and Eighty Third Respondents
V Burns for Fiftieth Respondent
No appearance for other Respondents
Judgment:
14 December 2016




FINAL JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie

On 14 December 2016 at 4.00pm Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar


Solicitors/counsel:

D Bigio QC, Auckland

Rainey Law, Auckland

Grimshaw & Co, Auckland

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


BODY CORPORATE 183930 v CHUA [2016] NZHC 3064 [14 December 2016]

Introduction

[1] The applicants are, respectively, the body corporate for a unit title development known as Tuscany Towers, located in Ambrico Place, New Lynn, Auckland, and the owner of one of the units in the development. They seek an order under s 74 of the Unit Titles Act 2010 approving a scheme to enable the body corporate to finally settle a repair project pursuant to which remedial works have been carried out on each of the units in the development.

[2] The development consists of 97 units constructed in 16 separate blocks. The units comprise both two and three storey town houses. They had weather tightness issues from the outset. Most unit owners confronted these issues relatively promptly. The majority commenced proceedings in the Weathertight Homes Tribunal, which ended in a settlement in their favour following mediation. Most, if not all, signed two agreements – first an agreement called the Conduct and Distribution Agreement and secondly an agreement known as the Remedial Works Agreement – in relation to the required repairs and providing how they were to be funded. Essentially they agreed to use the settlement proceeds to pay for repairs. They recognised that some owners had been guilty of contributory negligence, and they put in place a mechanism to allow for this. They also made provision for the funding of any shortfall, although this was not initially thought likely.

[3] When the matter first came before the Court, remedial works had already been completed on 68 of the units. The remedial works project had stalled because the settlement proceeds had been exhausted. There was no additional funding in place and 29 of the units in the development were still to be repaired. Unit owners could not agree on a way forward and the applicants proposed a scheme to ensure that the remedial works could be completed and to raise the moneys necessary to pay for them.

[4] The proposed scheme was supported by 47 unit owners who had voted for it at a meeting of the body corporate. However, when it came before the Court, it was opposed by eight unit owners.

[5] The application for approval of the scheme came before me in July/August 2015 and, on 3 September 2015, I issued an interim judgment.1 I made a number of factual findings. Although I endorsed the proposed scheme in many respects, I declined to approve it in its totality. I required that the scheme be amended in three areas:

(a) It should provide for common property, and require owners to meet the costs of repairing common property in accordance with their unit entitlements;

(b) Contributory negligence percentages should be set in accordance with a schedule – Schedule 3 – to the Remedial Works Agreement; and

(c) It should include mediation and arbitration provisions, and not require disputes to come directly to the Court.

[6] Seven of the opposing unit owners appealed my interim decision to the Court of Appeal.

[7] On 24 June 2016, the Court of Appeal issued a minute to the parties.2

It recorded that no formal order had been made by me. It invited the parties to submit a consent order, so that I could approve an amended scheme plan in accordance with my interim judgment. The minute made it clear that only then would the Court of Appeal consider that it had jurisdiction to deal with the appeal.

[8] The applicants prepared a redraft of the scheme which they considered to be in accordance with my interim judgment. The unit owners

1 Body Corporate 183930 v Chua [2015] NZHC 2122.

2 Gao v Body Corporate 183930 CA 573/2015, 24 June 2016.

who had appealed to the Court of Appeal did not accept that the redrafted scheme reflected my interim judgment. They proposed a timetable within which they would file and serve their own alternative scheme, and which would give others the opportunity to file submissions in reply. They did not consent to me making an order in the terms proposed by the applicants and I declined to do so. I also declined the request that matters should be

timetabled.3

[9] On 23 September 2016, the Court of Appeal dismissed the appeal for want of jurisdiction, and awarded costs in favour of the applicants.4

[10] The applicants now wish to advance their redrafted scheme. Five unit owners remain opposed to this redraft. They are:

(i) Zhanli (Ricky) Tang – the fiftieth respondent (unit 50);

(ii) Qing (Catherine) Gao – the fifty sixth respondent (unit 56); (iii) Hailong (Jason) Liu – the sixty sixth respondent (unit 66);

(iv) Wei Min (Paul) Zhou – the seventy sixth respondent (unit 76);

and

(v) Hongyang (Henry) Cui and Li Chen – the eighty third respondents (unit 84).

(jointly “the opposing owners”).

Further evidence

[11] My interim judgment anticipated that the parties would be able to come back to the Court with a scheme which all supported. I recorded that, if

they were not able to do so, they should file memoranda setting out their


3 Body Corporate 183930 v Chua HC Auckland CIV-2015-404-000073, 21 July 2016.

4 Gao v Body Corporate 183930 [2016] NZCA 458.

respective positions. I noted that it might be necessary to reconvene the hearing.

[12] On 22 December 2015, the applicants filed an affidavit from Mr T M Bates, who was the solicitor engaged by the body corporate’s lawyers – Legal Vision Ltd – to advise the body corporate on the remediation issues. In a minute issued on 25 February 2016, I recorded that it was not appropriate to admit Mr Bates’ affidavit until such time as the appeal had been determined, and noted that there had been no formal application by the applicants seeking

leave to admit the further evidence.5

[13] It has been necessary to reconvene the hearing. However, Mr Bates’

affidavit has since been withdrawn and, as a result, I have not considered it.

[14] The opposing owners have also filed affidavits from Mr Tang, Ms Gao, Mr Zhou and Mr Cui. The applicants have responded with a reply affidavit from Mr Levie, the chief executive of The Home Owners and Buyers Association of New Zealand.6

[15] At the resumed hearing I advised that I would receive all affidavits (with the exception of Mr Bates’ affidavit) de bene esse, pending further consideration.

[16] The Court has power under s 98 of the Evidence Act 2006 to permit further evidence to be filed, and it was common ground that there is a broad discretion to admit further evidence, either for the Judge’s own satisfaction, or if the interests of justice require it.7 It was also common ground that the fact that the evidence was available at the time of the original hearing is not

fatal,8 but that the discretion should nevertheless be exercised sparingly.


5 Body Corporate 183930 v Chua HC Auckland CIV-2015-404-000073, 25 February

2016.

6 See Body Corporate 183930 v Chua, above n 1, at [34].

7 Montego Motors Ltd v Horn [1974] 2 NZLR 21 (SC) at 25; Easton v Cramp

Developments Ltd [1975] 1 NZLR 641 (SC).

8 Proprietors of Hiruharama Ponui Block Inc v Attorney General (No 2) [2004] 1 NZLR

394 (HC) at [9]-[11].

[17] The Court cannot grant permission for further evidence to be filed, if any unfairness caused to any other party by the granting of permission cannot be remedied either by an adjournment or an award of costs, or both. Here, there was no suggestion by either party that there would be any unfairness were the further evidence to be received.

[18] Mr Bigio QC, on behalf of the applicants, objected to the Court receiving the affidavits from Mr Tang, Ms Gao and Mr Cui. He did not object to the Court considering paragraphs [15] to [22] of Mr Zhou’s affidavit. He did, however, object to the Court considering the balance – paragraphs [1] to [14] – of Mr Zhou’s affidavit. The objection to the affidavits of Mr Tang, Ms Gao and Mr Cui was made on the basis of relevance; and the objection to the further evidence contained in paragraphs [1] to [14] of Mr Zhou’s affidavit was made on the basis that it seeks to undo factual findings already made by me in my interim judgment.

[19] Ms Heatlie, on behalf of the opposing owners, did not object to the Court receiving Mr Levie’s further affidavit. Indeed she relied upon an annexure to it in her submissions. She argued that the further evidence was relevant and that it was in the interests of justice to receive it.

[20] The affidavits from Mr Tang, Ms Gao and Mr Cui do not seem to me to add anything to the matter in dispute between the parties. They relate primarily to when, and the circumstances in which, each of the deponents signed the Remedial Works Agreement. That information is not germane to the issues I am required to decide. It is irrelevant and it is excluded by s 7(2) of the Evidence Act.

[21] Paragraphs [1] to [14] of Mr Zhou’s affidavit deal not with the redrafted scheme which the applicants now advance, but rather with the Remedial Works Agreement, whether it was signed by all unit owners and what versions of it they did or did not sign. Mr Zhou says that paragraphs [1] to [14] of his affidavit are intended to ensure that I have before me what the opposing owners say are the correct facts, before making my final judgment.

[22] The discretion conferred by s 98 falls to be exercised sparingly. I have already made findings of fact in relation to the issues Mr Zhou now seeks to raise. There is no explanation for the failure to adduce the evidence at the proper time. The material contained in paragraphs [1] to [14] is not fresh and it could and should have been produced at the initial hearing. While that is not fatal, the evidence does not relate to an issue which should have taken the opposing owners by surprise. Rather it relates to what was a live issue in the proceedings. It is not clear whether the opposing owners

failed to tender the evidence, or elected not to do so.9

[23] Despite Mr Zhou’s assertion noted above, I was left with the distinct impression that the opposing owners wish to adduce the further evidence, not for the purpose of enabling me to determine whether or not to approve the redrafted scheme, but rather to advance a fresh appeal, which counsel for the opposing owners advised will be filed if their opposition is unsuccessful. If that is the case, their remedy is to seek leave to file the fresh evidence before

the Court of Appeal when and if an appeal is brought.10 The principled

approach taken by the Court of Appeal to the admission of fresh evidence should not be undermined by this Court too readily granting an application under s 98.

[24] I decline to admit paragraphs [1] to [14] of Mr Zhou’s affidavit.


Issues in relation to redrafted scheme

[25] In my interim judgment, I endeavoured to summarise the principles relating to scheme approvals.11. Neither counsel sought to persuade me that my summary of the relevant principles was in error, and both accepted that steps 1 and 2 discussed by the Court of Appeal in Tisch v Body Corporate

318596 have been met.12 Counsel also agreed that the Court’s discretion


  1. And see Equiticorp Industries Group Ltd (in stat man) v Hawkins [1996] 2 NZLR 82 (HC) at 85.
  2. Court of Appeal (Civil) Rules 2005, r 45, and see e.g. Erceg v Balenia Ltd [2009] NZCA 48, [2009] NZCCLR 32 at [11].

11 Body Corporate 183930 v Chua, above n 1, at [63]-[70].

12 Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679.

whether or not to approve a scheme is broad and unfettered, and that it enables the Court to do justice to the parties to address the problem that has brought the application before the Court. Both accepted that a scheme which involves an element of cross subsidization may be approved. The essential argument before me turned on whether or not the cross subsidization – which both counsel acknowledged will flow either from the redrafted scheme proposed by the applicants, or from an alternative approach proposed by the opposing owners – was fair as between unit owners in the circumstances which have arisen.

[26] In my interim judgment I went through the factual background in some detail. I will not repeat that analysis. I do, however, note that there have been developments since that judgment.

[27] As a result of the resolutions passed at an extraordinary general meeting held on 9 August 2014, the body corporate raised additional funds based on the approach to the apportionment of the repair costs that was agreed at that meeting, and which was included in the initial draft scheme prepared by the applicants and supported by 47 of the 97 unit owners. The large majority of owners paid the required contributions, even though the initial draft scheme had not been approved by the Court. They did so, so that the remedial works could be progressed. Work restarted in November 2014, and it continued uninterrupted through to completion on 18 December 2015.

[28] At the time of completion there were outstanding levies; 11unit owners (including the opposing owners) had not paid. As a result, the body corporate was unable to meet the final payment claims made by the builder.

[29] In June 2016, the body corporate imposed a further levy on all owners, this time in proportion to their utility interests. This levy raised sufficient funds to pay the outstanding amounts owed to the builder, although once again the opposing owners refused to pay. Application was then made to Auckland Council for code compliance certificates for all units and they have since been issued. They have been made available to all unit owners.

[30] The opposing owners have not paid any of the levies issued by the body corporate. Nor have they paid the amounts they assert should be paid. Their only contribution to the repair costs to date is their proportion of the settlement proceeds which were obtained at the outset. The unit owners who have paid the assessed levies are carrying the opposing unit owners.

[31] The position is unsatisfactory. The applicants seek that a scheme should be settled and approved by the Court for two reasons. First, owners who have paid levies already assessed will need to have their levies reassessed once a scheme is finally settled. Their actual contributions will have to be compared with their required contributions. There may be additional moneys payable, or repayments may be required. Secondly, there are owners, including the opposing owners, who have refused to pay levies issued by the body corporate, and who say that they will not do so until such time as a scheme is approved.

[32] The redrafted scheme is annexed to this final judgment. It contains a number of relatively minor amendments to take account of the fact that the repairs are now complete. The opposing owners do not take issue with these amendments. Rather, they take issue with the cost allocation proposals contained in schedule one to the redrafted scheme.

[33] The cost allocation proposals contained in the redrafted scheme are based on what was known as proposal A. This was one of the three proposals which were put to unit owners at the extraordinary general meeting held on 9

August 2014. Proposal A received support from 22 unit owners; 47 opposed it and there were some abstentions. Proposal B – which was the subject of the initial application – was supported by 47 unit owners, with 25 against and with one abstention.13

[34] Mr Bigio submitted that the cost allocation proposals contained in the redrafted scheme are fair as between all unit owners, and that expediency and


13 Body Corporate 183930 v Chua, above n 1, at [53].

justice dictate that the redrafted scheme should be approved. Ms Heatlie submitted that the amended scheme does not reflect my interim decision, and that the only fair way to allocate costs is on the basis of each owner’s unit entitlement (or utility interest). She was supported by Mr Burns, acting for Mr Tang.

[35] The redrafted scheme allocates repair costs between unit owners, by requiring them:

(a) to contribute, on the basis of their unit entitlements, to the repair costs incurred in relation to all common property in the complex; and

(b) to contribute to a percentage of the costs incurred for repairs to their individual unit property.

It does not allocate costs by reference to the actual split between common property and unit property found in each unit. Rather, it adopts an average figure across the whole development, and takes into account, on a broad basis, the four different types of units found in the development.

[36] As I noted in the interim judgment, at a relatively early stage in the remedial works project, units in the development were divided into four different types:

(a) Type M – two storey units; (b) Type O – three storey units;

(c) Type P – larger two storey units with a basement porch and deck; and

(d) Type Q – larger two storey units with a basement and terrace.

There are 67 type M units, seven type O units, 16 type P units and seven type

Q units.

[37] As far as I am aware, this categorisation has never been challenged by any unit owner.

[38] Also at an early stage in the remedial works project, a Mr Faulkner, of Yeomans Survey Solutions Ltd, determined that approximately 58 per cent of the exterior weatherproof fabric of the units, on which repair work was required, was within unit property, and that the balance – 42 per cent – was common property.

[39] The unit categorisations and the 58/42 per cent split have been used as the basis for calculating unit owners’ required contributions in the redrafted scheme.

[40] As I have noted, the redrafted scheme ignores exactly where common property is located. Rather, it seeks to require that all unit owners contribute towards the costs of repairing all common property, in accordance with their unit interests. Thus, if a particular unit has more than 58 per cent unit property, and less than 42 per cent common property, the unit owner would nevertheless pay their share, on a unit entitlement basis, of the 42 per cent common property plus the cost of repairing the individual unit property.

[41] The opposing owners point out that, on the unit plan, the actual mix between unit property and common property differs between individual units. They say that the differing proportions of unit and common property in each individual unit should be taken into account when calculating the required contributions. They suggest that any scheme should be prepared on this basis.

[42] Significant differences would result depending on what approach is preferred.

[43] By way of example, Mr Tang’s unit – unit 50 – is a type M two storey unit. The only part of the unit which is shown on the unit plan as being common property is the roof. Unit 56 – owned by Ms Gao – is also a two storey type M unit. Both the exterior of the first floor, and the roof, are shown on the unit plan as being common property. If the applicants’ redrafted scheme is approved, Mr Tang will be required to pay $115,756 towards the repair of his unit. So will Ms Gao as the owner of unit 56. This is because the same repair work was carried out on each unit. They are both the same size and shape and the repair costs were the same. If the contributions were split on a common property/unit property basis as proposed by the opposing owners, Mr Tang, as the owner of unit 50, will be required to pay $152,719 and Ms Gao, as the owner of unit 56, will be required to pay $112,616. This is because only 55 per cent of unit 56 is unit property, whereas 100 per cent of unit 50 (with the exception of the roof) is unit property. The contribution would differ notwithstanding that the physical work required to repair both units and the costs of the work, were, for all practical purposes, identical. Mr Tang would be required to pay a lot more than the actual cost of repairing his unit.

[44] The difference is compounded if three storey type O units are considered. Generally the owners of such units would pay substantially less. For example, unit 66, owned by Mr Liu, is a three storey, type O unit. The first and second floors of the unit are common property. It is only the ground floor, comprising a garage and porch, which is unit property. Under the applicants’ redrafted scheme, Mr Liu will be required to pay $171,039 because considerably more repair work was required to repair his larger three storey unit. Under a scheme based on an actual division of common property/unit property, Mr Liu will be required to pay only $128,160. Mr Liu, as the owner of unit 66, will pay significantly less than Mr Tang, as the owner of unit 50, notwithstanding that Mr Liu’s unit is a much bigger three storey unit, and notwithstanding that more work was required to repair unit

66 than was required to repair unit 50, and that the actual costs of the work on unit 66 were greater than that on unit 50.

[45] Mr Levie deposes that the alternative approach, favoured by the opposing owners, would result in a transfer of cost from the owners of seven three storey type O units and half the type P units to the owners of the other half of the type P units, the seven type Q units and 10 of the 67 two storey type M units. A table produced by Mr Zhang and annexed to his affidavit shows much the same thing.

[46] In my judgment, the alternative approach contended for by the opposing owners is unfair. There is no reason why the owners of some smaller two storey type M units should contribute more to the repair costs than the owners of larger type O units, or larger type P or Q two storey units.

[47] The approach taken by the applicants ignores the strict unit property/common property apportionment contained in the unit plan. Rather, it seeks to do justice between unit owners, by having regard to the realities which have presented – namely the amount of repair work required to each unit, and the cost of that repair work.

[48] At the initial hearing, the opposing owners argued that the scheme, then propounded by the applicants, ignored common property. I agreed and directed that common property should be taken into account. The applicants have now proposed a scheme which provides for common property. The opposing owners now say that the applicants’ approach to common property is not perfect. They suggest that what is required is a detailed analysis of the amount of common property and unit property in each unit, with the apportionment of costs being in strict accordance with that division.

[49] I agree that the applicants’ approach is not perfect. Rather, it is a pragmatic approach advanced in an attempt to broadly do justice to all unit owners. It has to be considered against the rather fraught background to this application, the shifting grounds of the opposing owners’ opposition, the fact that the works are now completed and the fact that the opposing owners are benefiting from them, although they have not paid in full for that benefit.

[50] I am satisfied that the redrafted scheme proposed by the applicants responds appropriately to the direction in my interim judgment to provide for common property, and that it requires owners to meet the costs of repairing common property in accordance with their unit entitlements.

[51] The redrafted scheme also takes into account contributory negligence, in accordance with Schedule 3 to the Remedial Works Agreement, as required by me.

[52] The opposing owners continue to argue that contributory negligence should not be taken into account at all.

[53] I have already dealt with these issues in my interim judgment.14 My reasoning stands. All of the opposing owners signed the Remedial Works Agreement. They are seeking to advance arguments which may have been open to other unit owners, but those owners have not taken issue with the applicants’ proposals. If the opposing owners wish to take issue with the findings in the interim judgment, then the appropriate forum in which to do so is the Court of Appeal.

[54] Finally, the amended scheme includes arbitration and mediation provisions as directed by me.

[55] In my judgment, the redrafted scheme proposed by the applicants is fair to all owners as a whole:

(a) I accept that it did not gain the majority support of unit owners when it was put to a meeting in August 2014. The alternative proposal, based strictly on the actual apportionment of unit property and common property within each unit, has never

been put to unit owners at all.




14 Body Corporate 183930 v Chua, above n 1, at [113].

(b) There is no dispute that the redrafted scheme is appropriately detailed.

(c) The repair work done to the units has been done to the same standard on each unit.

(d) The scheme does not depart from the scheme of the Act. It is broadly consistent with ss 126 and 138. There is nothing in the legislation which directs that repairs be funded strictly by reference to unit entitlements or to the amount of common property/unit property in each unit in a unit title development. Indeed an alternative based on this approach would be inconsistent with the Act because it would treat all unit property as if it were common property.

[56] In my view, the redraft scheme does no more than is reasonably necessary to achieve what is fair between unit owners in the circumstances as they now stand. It takes into account common property in the complex, albeit not exactly where it is located. It is based on a categorisation of unit types which was undertaken some considerable time ago and which has not been

disputed.15 It is based on the estimated costs of repairs, and it avoids

penalising those owners whose units were repaired later as against those owners whose units were repaired earlier. It requires contributions based on unit size, which, in my judgment, is appropriate given the uniformity of repair work done across the complex. It does not ignore the importance of maintaining the overall integrity of the development and it acknowledges that cladding is a building element which affects more than one unit.

[57] In contrast, an alternative along the lines proposed by the opposing owners would shift the burden of paying for the repair costs from the owners of three storey units to many of the owners of two storey units. This is

notwithstanding the fact that, physically, the three storey units required


15 See Body Corporate 183930 v Chua, above n 1, at [20].

substantially more repair work, at a greater cost. The opposing owners’ alternative begs the question – why should the owners of larger units receive a substantial discount from the actual cost of repairing their units, at the expense of the owners of smaller units? There is no statutory direction requiring the Court to authorise this sort of cross subsidization, and there is no principled basis for it.

[58] I am satisfied that the redrafted scheme is fair as between all owners, and I approve the same.

Costs

[59] The applicants are the successful party and they are entitled to their reasonable costs and disbursements.

[60] I direct that:

(a) Within 10 working days of the date of this final judgment, the applicants are to file a joint memorandum advising what costs and disbursements they seek;

(b) Within a further 10 working days, the opposing owners are to file a memorandum in reply.

[61] I will then deal with the issue of costs and disbursements on the papers unless I require the assistance of counsel.









Wylie J

Annexure












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