Body Corporate 85659 v Young [2018] NZHC 312 (2 March 2018)

Last Updated: 16 March 2018

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2016-485-579 [2018] NZHC 312

BETWEEN	BODY CORPORATE 85659 Plaintiff
AND	LESLIE YOUNG SUZANNE LEE YOUNG Defendants

Hearing:	29 September 2017
Counsel:	A Knowsley and D Hunt for the Plaintiff F B Collins and S A Hawkins for the Defendants
Judgment:	2 March 2018

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1] The plaintiff (the Body Corporate) applies for summary judgment on a claim it has made against the defendants for unpaid levies in respect of 10 residential units owned by Dr and Mrs Young in a unit title development located at 219 Willis Street, Wellington, known as Richard Pearse House (the development).

[2] The total claim is for $104,569.85 (the total of the levies unpaid as at 30 April 2016), together with interest to 30 April 2016 of $53,766.77, “property management recovery costs” of $9708.59, and legal costs of $27,110.11 to 28 April 2016. In addition, the Body Corporate asks for interest at a rate of 10 per cent per annum from 30 April 2016 to the date of judgment, and legal costs from 28 April 2016 to the date of judgment.

BODY CORPORATE 85659 v LESLIE YOUNG SUZANNE LEE YOUNG [2018] NZHC 312 [2 March 2018]

[3] Dr and Mrs Young oppose the application. They say that either the resolutions imposing the relevant levies were invalid (and have not been ratified), or that the Body Corporate should not be permitted to recover the levies in full before it has addressed an issue raised by Dr and Mrs Young under s 126 of the Unit Titles Act 2010 (the UTA), namely that it would be inequitable to attribute to Dr and Mrs Young the full amounts of the levies invoiced to them when other unit owners have derived substantially greater benefit from the work for which the levies were raised than Dr and Mrs Young have. They also say that the Body Corporate has not followed the appropriate procedures for obtaining members’ approval, and for the funding of the work for which the levies were raised.

Background

[4] On 21 June 2017, I gave judgment refusing an interlocutory application by Dr and Mrs Young for an order directing that the Body Corporate’s solicitors, Rainey Collins, may not act for the Body Corporate any further in the proceeding.¹ The following summary of the background to the dispute is substantially taken from that judgment.

[5] The development was completed in 1998, when 100 new unit titles were created. There are four commercial retail units on the ground floor, 24 residential units on levels one and two, and 72 residential units on levels three to eight. Dr and Mrs Young’s 10 units are located on levels one and two.

[6] The ground floor commercial/retail units have very large windows, and the exterior of these units are overhung by a concrete verandah. The units on levels one and two have small windows, inset into and sheltered by concrete walls. The exterior of levels three to eight are principally glass, with the cladding and the windows exposed to the elements.

[7] The dispute arises out of the Body Corporate’s levies relating to the cost of replacing the steel frame windows on levels three to eight with new aluminium joinery and double glazing. Dr and Mrs Young contend that the owners on levels three to

¹ Body Corporate 85659 v Young [2017] NZHC 1370.

eight will obtain far greater benefit from the new window frames and double glazing of their units than they will, and that levying Dr and Mrs Young based on their utility interests in their 10 units on levels one and two is not equitable. As Dr Young put it in his affidavit, “it is unfair to ask us to subsidise and/or provide an interest-free loan to the owners of level three to eight who are the only owners in the building who have received any substantial benefit from this work”.

[8] Dr and Mrs Young have filed an affidavit by a registered valuer, Mr Truebridge, comparing the relative benefits from the work obtained by the owners on levels three to eight, and the owners on levels one and two.

[9] At its annual general meetings (AGMs) in each of the years 2007–2015, the Body Corporate raised levies for the window replacement work on levels one to eight. All unit owners were levied for the work in those years, with the exception of the owners of the ground floor commercial/retail units.

[10] Dr and Mrs Young challenged the levies fairly early in the piece, and the Body Corporate responded by filing a claim against them in the Tenancy Tribunal. The Body Corporate claimed a total of $47,592.03 for the levies which were then said to be due and owing. By order made on 6 September 2013, the Tenancy Tribunal upheld the Body Corporate’s claim, declaring that the levies imposed on Dr and Mrs Young were valid.²

[11] Dr and Mrs Young appealed to the District Court against that decision, and in a judgment given by Judge J M Kelly on 9 June 2014 the Court concluded that the Tenancy Tribunal did not have jurisdiction to make the order it had made.³ That conclusion was based on s 171 of the UTA, which limits the Tenancy Tribunal’s jurisdiction to hear and determine claims arising under any unit title dispute to the sum of $50,000. Section 171(9) of the UTA also provides that a cause of action must not be divided into two or more claims for the purpose of bringing it within the jurisdiction of the Tenancy Tribunal.

² Body Corporate 85659 v Young NZTT 12/23/UT, 6 September 2013.

³ Young v Body Corporate 85659 DC Wellington CIV-2014-085-0018, 9 June 2014.

[12] Judge Kelly considered that the claim was properly a claim for unpaid levies for all units owned by Dr and Mrs Young, and that the amount claimed for all units exceeded the Tribunal’s jurisdiction. She accordingly made an order quashing the Tribunal’s decision.

[13] The question of proceeding further against Dr and Mrs Young was considered at the Body Corporate’s AGM on 27 August 2014.

[14] In a report prepared for that meeting, the Body Corporate Chairman, Mr Taylor, noted that YPN (the company providing secretarial services to the Body Corporate) would provide an update on the unpaid levies and the Tenancy Tribunal proceeding. Mr Taylor noted that the unpaid levies were well in excess of $100,000, and that was impacting on the Body Corporate’s ability to attend to a number of matters, including some priority items. Mr Taylor noted that provision for legal fees to assist in pursuing the payment of the outstanding levies had been made in the draft annual budget.

[15] Dr and Mrs Young, who reside in the United Kingdom, did not attend the AGM on 27 August 2014.

[16] The minutes of the 27 August 2014 AGM record the following under the heading “Debtors”:

Geoff [Holgate, of YPM] then updated the meeting on the outstanding levies of the Young’s units.

The current position is that the Young’s application to appeal the Tenancy Tribunal’s decision resulted in the District Court quashing the Tenancy Tribunal’s ruling that was in favour of the Body Corporate’s application to have the Young’s pay their levies in full. The District Court did not rehear the case nor handle an appeal, effectively setting the process back to square one after three years. The Judge strongly recommended the Youngs and the Body Corporate communicate to try and reach an agreement.

[One of the unit owners present at the meeting] noted her husband’s legal advice was to not go back to the Tenancy Tribunal but to get legal advice on the best way forward and gave recommendation of a suitable law firm.

Geoff concurred and tabled an estimate from the law firm Rainey Collins to review the file, communicate with the Young’s lawyer to attempt a non- litigious resolution and to file the case with the District Court through to

attending a hearing. The estimate was in the form of range of between

$13,000–$26,000 plus GST.

Geoff then read to the meeting the following submission from [the defendant Dr Young] and [unit owner] Mr Patel:

...

The meeting agreed that the Body Corporate proceed with a legal review of the file and recommendation on the way forward. Once received this will be communicated to the Youngs and [Mr Patel].

Moved: To assist with the cost of this the budget line Miscellaneous will be reduced to $1,000 and the Legal budget line will be increased to $26,000 plus GST.

... carried.

The Committee was authorised to proceed if the legal review recommended filing the matter with the District Court and attending a hearing and if the matter was unable to be resolved outside litigation.

[17] The question of recovery of the levies was referred to Rainey Collins, and they provided a letter of advice on 24 November 2014.

[18] On 20 April 2015, Mr Holgate wrote on behalf of the Body Corporate to Dr Young. Mr Holgate advised that from the Body Corporate’s perspective, having won in the Tenancy Tribunal on the merits (and having been overturned on a technicality), it was now up to Dr and Mrs Young to present the Body Corporate with a counter-proposal that the committee chair could evaluate for presentation to the members at a general meeting. Mr Holgate’s email suggested that such a counter- proposal would be the subject of a vote by majority decision.

[19] Dr Young did prepare a detailed proposal. It was dated 18 May 2015, and it included a proposed decision mechanism and a cost allocation which was said to be consistent with s 126 of the UTA (taking account of the different engineering required for repairing the windows of the units on the upper floors versus the lower floors).

[20] Section 126 of the UTA materially provides:

126 Recovery of money expended for repairs and other work

(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—

(a) is substantially for the benefit of 1 unit only; or

(b) is substantially for the benefit of some of the units only; or

(c) benefits 1 or more of the units substantially more than it benefits the others or other of them.

(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.

[21] Dr Young’s proposal also addressed various issues Rainey Collins had raised in their letter of 24 November 2014.

[22] It appears that the Body Corporate never responded to the draft proposal from Dr Young. In any event, no evaluation of it was included in the documents sent out to owners for the AGM convened on 17 September 2015.

[23] Neither of the Youngs attended the AGM on 17 September 2015.

[24] The minutes of the September AGM recorded the following in respect of “Debtors”:

The meeting was advised that, in line with the advice from Rainey Collins lawyers, the matter of the outstanding levies with the Young’s units, unless paid, will be filed with the District Court for full payment. This is on the basis that [the UTA] requires all levies properly struck to be paid in full. Only after the works are completed does [the UTA] allow for discussion on alternative ways of apportioning the costs according to relative benefit from the works.

[25] The Youngs’ solicitors wrote to Rainey Collins on 18 September 2015, raising a number of objections to the Body Corporate’s stated intention to file a claim against the Youngs in the District Court. First, they noted that the Body Corporate’s position appeared to be predicated on an assumption that it was entitled to collect levies first and argue later over whether an adjustment under s 126 of the UTA should be made. The Youngs’ solicitors contended that this alleged “pay now, argue later” regime was not supported by authority. They asked Rainey Collins to identify any reasoning justifying the view that levies must be collected before an adjustment can be made under s 126 of the UTA. The Youngs’ solicitors made it clear that their clients would seek relief under s 126 in response to any enforcement action. They expressed the view that it was inevitable that the court would consider the fairness of the levies, especially where there was common ground that the levies were substantially for the benefit of the upper floor units.

[26] The Youngs’ solicitors invited the Body Corporate to submit a counter- proposal, bearing in mind that the parties were likely to incur significant legal expenses and management time going to court. They suggested that the letter of demand was premature, and contended that the Body Corporate had failed to respond to Dr Young’s constructive attempts at a sensible resolution. They attached to their letter a copy of Dr Young’s proposal dated 18 May 2015.

[27] Rainey Collins replied on 7 October 2015. They confirmed that the Body Corporate was seeking to recover the levies under s 121 of the UTA, and maintained their view that the Youngs were obliged to pay the amounts levied to them and seek any apportionment under s 126 of the UTA after the window replacement work had been completed.
[28] Rainey Collins advised in their letter of 7 October 2015 that, if full payment was not received within five working days, they had instruction to file proceedings for recovery.

[29] The Youngs’ solicitors replied by letter dated 14 October 2015. They rejected Rainey Collins’ views that the Body Corporate had no power to settle on the basis put forward by Dr and Mrs Young and that it was obliged under the UTA to require full payment of the levies.

[30] The Body Corporate convened an extraordinary general meeting (EGM) on 17 December 2015. It is apparent from the agenda that an issue had been identified over the validity of the various resolutions passed between 2007 and 2014 raising levies for the repair works. The agenda noted the following:

The purpose of the proposed levy and ongoing levy schedule change is to bring the levy regime into line with [the UTA].

At the beginning of the window project, the window levy has only been levied against the level one to eight units. At previous General Meetings it was agreed that the ground floor commercial units would pay for their own window replacement when that was required. As this decision was unanimous there were no issues.

Now the Body Corporate is in the position of having to chase unpaid levies in the District Court. Therefore the arrangement for the commercial units has to be reversed so that there can be no challenge of the legitimacy of the way in which the levies have been apportioned.

[31] It will be seen that the agenda appeared to acknowledge that the owners of the ground floor commercial units, who had not been called upon in the earlier resolutions to contribute to the level three to eight window repair work, should have been required to contribute, and that there was a concern over the validity of the earlier resolutions.

[32] The agenda advised that the Body Corporate proposed to levy the owners of the ground floor units, according to their respective Utility Interest shares, an increased amount to cover the additional cost of replacement of the ground floor windows. Ordinary resolutions were proposed that $77,829 be allocated for the ground floor windows replacement, and that the budget approved at the 2015 AGM be recast to add the cost of replacement of the ground floor windows in the levy.
[33] Those resolutions were carried without discussion at the EGM on 17 December 2015.

[34] Neither Dr Young nor Mrs Young was present at the EGM, and they did not submit proxy votes. Another unit owner had apparently been asked to represent them, but he arrived after the meeting had closed. The minutes record that this unit owner said that he had been instructed by Dr Young to vote against the resolutions, and that he too would have voted against them.

[35] The EGM minutes record that Mr Holgate referred to an email Dr Young had sent on the morning of the EGM. The email and attached letters were said to be complex, and there had been no time for the chair to get advice on whether they should be tabled at the EGM. The chair then advised the meeting that the circulation of Dr Young’s email and attachment with the EGM minutes would be dependent on the advice of the Body Corporate’s lawyer.

[36] This proceeding was filed on 26 July 2016.

The early Body Corporate meetings

[37] The window replacement programme for the development was discussed at the AGM held on 5 September 2007. The committee was charged with arranging quotes for the work, which was expected to take up to 18 months. A special general meeting would be convened for the purpose of resolving to undertake the work.

[38] The special general meeting was convened on 1 May 2008. The agenda for the meeting notified that the following resolution would be put:

That the body corporate accept the attached proposal ... the actual window replacement cost to be paid by each unit according to the attached schedule.

[39] The notice of meeting/agenda was accompanied by a letter from the Body Corporate chairman to owners, and a schedule setting out costs per room for the window replacement budget. The letter reported that the committee had agreed that there should be a “Window Levy” to all unit owners of the affected rooms. Some
exterior painting and parapet repair work would be undertaken at the same time as the window replacement work.

[40] The total projected cost of the work would be $794,083, of which the overall “window levy” would be $633,600. The budget cost per room for the window replacement contained cost figures for each room on levels one to eight. No costs were included for the four commercial unit owners on the ground floor.

[41] The minutes of the SGM convened on 1 May 2008 recorded the agreement of those present that any increase in the cost of the exercise through rolling out the replacement programme over a number of years (with the costs to be paid from the long-term maintenance fund) was preferable to each owner having to borrow the cost of replacement as a one-off cost immediately.

[42] The minutes went on to record the suggestion that the provision made for the work in the long-term maintenance fund should cover all levels (apart from the ground floor retail units) on the basis that those of levels one to eight that did not then require new windows would be eligible to have their windows replaced by the Body Corporate in the same manner when their windows come up for replacement in the future.

[43] The meeting then charged the committee with the task of presenting a new plan to members at the 2008 AGM, then scheduled for 11 September 2008. It was further agreed that, as the replacement of the windows on level three did not require scaffolding and there were sufficient funds in the long-term maintenance fund to carry out that work, it could be commenced immediately. The quote for the level three windows would be accepted immediately, with the cost of the work to be paid out of the long-term maintenance fund. Owners on levels one to eight would bear all the costs according to their respective unit entitlements.

[44] The window replacement levy was again the subject of discussion at the 2008 AGM, convened on 11 September 2008. In his report sent to owners before the meeting, the chairman noted that the provision in the long-term maintenance fund would cover all levels apart from the ground floor retail units, on the basis that those unit owners on levels one to eight that did not require new windows in this exercise
would be eligible to have their windows replaced by the Body Corporate in the same manner when their windows came up for replacement in the future.

[45] The minutes of the 2008 AGM recorded that there was vigorous debate on the merits of addressing the window replacement programme by unit entitlement, versus apportioning the costs on an actual room-by-room basis. Mr Holgate of YPM expressed the view that the windows were a structural element of the building, and should be treated the same way as any other structural element, such as floors, walls and roof. Under the Unit Titles Act 1972 (the 1972 Act) the responsibility for maintaining structural elements lay with the Body Corporate, to be funded from monies collected from the owners according to their respective unit entitlements. The meeting concluded that a two year payment programme would place too much of a financial burden on the owners, and that a lower levy should be imposed. A motion was put that the long-term maintenance budget provision be reinstated as $74,000, and that the window replacement levy be reduced from $366,000 to $144,000, to be paid according to unit entitlement. The ground floors would be excluded from the effects of the window replacement levy. The motion to reinstate the long-term maintenance provision and reduce the window replacement levy was carried, with three votes against.

[46] A copy of the budget for the year to 31 October 2009, as approved at the 2008 AGM, was sent to unit owners after the meeting. An attached schedule showing the individual levies for the year to 31 October 2009 contained a column headed “Window Levy Adj”, with a dollar amount for each unit. No amount was shown as payable by the owners of the four ground floor retail units.

[47] The 2009 AGM was convened on 2 September 2009. The chairman’s letter sent to members in advance of the meeting noted that some owners had refused to pay the window levy. They had expressed disagreement with the levy methodology based on unit entitlement for levels one to eight.

[48] The 2010 AGM was convened on 8 September 2010. The problem with non-payment of the window levies by some owners remained.
[49] The minutes of the 2011 AGM, convened on 26 September 2011, recorded that the next tranche of 20 windows would be replaced in the course of the upcoming year. Levies sent to members after the meeting continued to include window levy charges to each owner from level one to level eight, with nothing charged to ground floor owners.

[50] The minutes of the 2012 AGM, convened on 12 September, recorded some details of the Body Corporate’s dispute with the Youngs. The minutes noted the Youngs’ contention that they had smaller windows than the levels three to eight windows, and would be financially disadvantaged by that. The Youngs were also then contending that the costs should be met on a unit-by-unit basis, based on the benefit to that unit, rather than by unit entitlement/utility interest. The minutes recorded the Youngs’ contention that the Body Corporate was relying on a resolution that was not supported in law, and that recourse to the long-term maintenance fund for the costs of the window replacement work was not a legitimate use of that fund.

[51] Again, the approved budget sent to members after the 2012 AGM provided for the window replacement fund of $144,000 to be funded solely by the owners of units on levels one to eight.

[52] The AGM for 2013 was convened on 17 September 2013. In his letter to members in advance of the meeting, the chairman noted that the budgeted cost for the window replacement programme was being reduced from $144,000 to $100,000. That was largely to offset an increase in the building insurance premium, and to cover a deficit in the Body Corporate’s 2012/2013 results. The minutes of the 2013 AGM recorded the result of the Tenancy Tribunal claim the Body Corporate had issued against the Youngs, but noted Dr Young’s advice that he intended to appeal the decision.

[53] The approved budget for the year to 31 October 2014 was sent to members after the 2013 AGM. It included the reduced figure of $100,000 for the window replacement fund, and again appended a schedule showing levies for each unit, with nothing payable by ground floor owners for the window levy.

Principles applicable to plaintiffs’ applications for summary judgment

[54] Rule 12.2(1) of the High Court Rules provides:

The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

[55] The proper approach to be taken to such applications was considered by the Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:⁴

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: Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1 at 3 (CA). 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: MacLean v Stewart (1997) 11 PRNZ 66 (CA). 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 where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC). 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: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[56] The Supreme Court has held fairly recently that the fact that the Court may be required to determine questions of law (including issues of contractual interpretation) does not preclude summary judgment. In Zurich Australian Insurance Ltd v Cognition Education Ltd, the Court said:⁵

• [36] ... in other situations falling within the broad test (that is, the “no arguable defence” test applied on summary judgment), there will be what can properly be described as “disputes” even though they are ultimately capable of being determined by a summary process.

[37] To explain, it has been well established in New Zealand since Pemberton v Chappell that a court can properly determine questions of law on a summary judgment application, and that this includes issues of contractual interpretation. The Court of Appeal has accepted that such a determination may be made even though the question of law is difficult and requires argument (including reference to authority). In International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd, a case under the old bill writ procedure, Cooke P, by analogy with the summary judgment procedure which had just

⁴ Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].

5. Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 (footnotes omitted).

been introduced in New Zealand, said that where the facts were adequately ascertained and the Court could be confident that the point at issue turned on pure questions of law or interpretation, it should be prepared “to determine, on adequate argument, even difficult legal questions”. Similarly, in Jowada Holdings Ltd v Cullen Investments Ltd, McGrath J, delivering the judgment of the Court of Appeal, said that a court should be prepared to grant summary judgment “even if legal arguments must be ruled on to reach the decision”.

The issues to be decided on the summary judgment application

[57] The following issues are to be determined:

(1) Is it reasonably arguable for Dr and Mrs Young that the resolutions raising the levies were not valid?

(2) If the answer to issue (1) is yes, is it reasonably arguable for Dr and Mrs Young that the raising and charging of the levies has not been validly ratified by the Body Corporate?

(3) If the answer to issue (1) or issue (2) is no, should summary judgment nevertheless be refused in the Court’s discretion because:

(a) the Body Corporate has not followed the appropriate procedure under the UTA for recovery of the costs of repair/remediation work, or

(b) not all appropriate parties are before the Court; or

(c) the owners of the units on levels three-eight have received substantially greater benefits from the repair work than the owners of units on levels one and two, and summary judgment should not be entered before an apportionment of the costs of the work between all the owners in the development has been made under s 126(3) of the UTA?

[58] I will deal with the issues in that order.

Issue (1) – is it reasonably arguable for Dr and Mrs Young that the resolutions raising the levies were not valid?

Submissions for the Body Corporate

[59] Mr Knowsley submitted that the Body Corporate duly resolved at its AGM on 11 September 2008 to establish the window replacement levy, to be paid by unit entitlement. For the years 2009 to 2015 the budget approved at each AGM included levies for the window replacement work, allocated by unit entitlement/utility interest depending on whether the 1972 Act or the UTA applied at the time. The relevant resolutions sufficiently complied with the 1972 Act when that Act applied, and with the UTA when it came into force. At the 17 December 2015 EGM, the Body Corporate properly levied the owners of the ground floor units for their shares of the cost of the window replacement work, according to their utility interests.

[60] Funds levied for the long-term maintenance fund (as was the case here) were required by s 121 of the UTA to be raised in proportion to each owner’s utility interest, and it was not possible to levy owners other than in accordance with their utility interests.⁶ The position was the same under the 1972 Act: bodies corporate were required to raise levies in accordance with unit entitlement (the equivalent of utility interest under the 1972 Act).

[61] Mr Knowsley submitted that the unpaid levies constitute a debt due to the Body Corporate by Dr and Mrs Young, under s 124 of the UTA.

[62] At the hearing, Mr Knowsley responded to the Youngs’ ultra vires argument by submitting that the early levies were not ultra vires, because they were levied in accordance with s 15(2)(c) of the 1972 Act. Under the 1972 Act and under the UTA, the unit owners were levied the correct amounts for the window work that was being undertaken at that stage. The overall effect of the work being carried out in two stages, has been that all owners, including ground floor owners, have been correctly levied in accordance with their utility interests.

6. Citing Thomas Gibbons Unit Titles Law and Practice (2nd ed, LexisNexis NZ Limited, Wellington, 2015) at [5.3.1].

Submissions for the Youngs

[63] At the hearing, Mr Collins accepted that, as a general proposition, a special targeted levy can be raised for carrying out repair or maintenance work, and that such a levy can be invoiced to members on a utility interest basis.

[64] However, he submitted that all resolutions raising levies for the windows from the AGM in September 2008 through to the EGM held in December 2015 were nevertheless ultra vires because, as the Body Corporate now acknowledges, it failed to include the owners of the ground floor commercial/retail units in assessing the amount of the levies for the window repairs on a utility interest basis.

[65] The attempt made at the EGM on 17 December 2015 to rectify that position by recasting the annual budget to add the commercial ground floor units in the window levy from 1 January 2016 was ineffective: as the earlier window levies were ultra vires, it is reasonably arguable for the Youngs that they were nullities. They were void ab initio and were incapable of being ratified.⁷

[66] Nor could the resolutions passed at the December 2015 EGM be construed as new resolutions passed in substitution for the earlier (invalid) resolutions. The December 2015 EGM resolutions were not expressed to be in substitution for the earlier resolutions, and in its statement of claim the Body Corporate clearly relies on the earlier resolutions.

Discussion and conclusions on issue (1)

[67] The issue is whether the various resolutions for the window repair work passed between 2008 and September 2015 were ultra vires because the ground floor unit owners were not levied.

[68] Mr Knowsley submits there has been no breach because levies have been imposed based on “utility interest” (or “unit entitlement” under the 1972 Act) between 2008 and 2015. In making that submission, he appears to imply that there was no requirement that all of the members of the Body Corporate be levied (even if their

⁷ Citing Butcher v Body Corporate 342525 [2016] NZHC 3128 at [98].

units would not be directly affected by the work that was the subject of a particular resolution).

[69] A “utility interest” is described in s 39 of the UTA. It is assigned to each unit, and it is the same as the “ownership interest” assessed for the unit under s 38(2).⁸ The equivalent in the 1972 Act – “unit entitlement” – is described in s 6 of the 1972 Act. The unit entitlement was required to be fixed by a registered valuer prior to the unit plan being deposited.⁹

[70] Under both the 1972 Act and the UTA, amounts levied to members were to be levied in proportion to each owner’s “unit entitlement” (the 1972 Act) or “utility interest” (the UTA). The relevant provisions are:

Unit Titles Act 1972

15 Duties of body corporate

...

(2) The body corporate shall also --

...

(c) raise amounts so determined by levying contributions on the proprietors in proportion to the unit entitlement of their respective units.

Unit Titles Act 2010

121 Contributions to be levied on unit owners

(1) A body corporate may determine from time to time the amounts to be raised for each fund and impose levies on the owners of principal units to establish and maintain each fund.

(2) The levies must be calculated as follows:

(a) in the case of the operating account, long-term maintenance fund, and any contingency fund, in proportion to each unit owner’s utility interest. ...

(emphasis added)

⁸ Unit Titles Act 2010, s 39(2).

⁹ Unit Titles Act 1971, s 6(1).

[71] The key words “in proportion to”, which appear in both provisions, and the expressions “their respective units” (in the 1972 Act) and “each unit owner” (in the UTA), together imply that the Body Corporate is required to do more than just assess levies on the basis of an individual owner’s utility interest or unit entitlement. The costs are required to be shared amongst all unit owners, according to their unit entitlement or utility interest. Once that is appreciated, it does not matter that there may have been no error in the calculation of the Youngs’ liability for levies according to their unit entitlement, or utility interest; what matters is that there has arguably been an error in the overall exercise, in failing to include every unit owner in the levying exercise.

[72] That view is consistent with the views expressed by Muir J in Wheeldon v Body Corporate 342525, where the learned Judge said:¹⁰

I accept the defendant’s submission that the plaintiffs should not be heard to complain that it is unfair that they have to pay for the costs of repairs and maintenance to building elements and infrastructure ... by ownership interests in the first instance, with the Body Corporate later deciding what recovery steps it will take. I accept that was Parliament’s expressed intention and that people who want to be able to choose how and when they might repair building elements should carefully reflect on whether unit title ownership is appropriate for them.

...

[73] The likely invalidity of the early levies appears to have been acknowledged by the Body Corporate at the December 2015 EGM. The minutes stated:

Geoff advised the meeting that the Chairperson had received legal advice from Jonathon Griffith of Rainey Collins that the EGM should allow members to vote that are in arrears. The reason for this is that it is being argued that the levies have not been legitimately struck, a matter that this meeting’s resolutions will correct.

[74] I conclude that it is at the least reasonably arguable for the Youngs that the 2008 to September 2015 resolutions for the window work were ultra vires, because they excluded from the levy calculations the ground floor units. The obligation was to levy all unit owners, and that included the ground floor owners.

¹⁰ Wheeldon v Body Corporate 342525 [2015] NZHC 884 at [52].

[75] For those reasons, the answer to issue (1) is “yes”.

Issue (2) — If the answer to issue (1) is yes, is it reasonably arguable for Dr and Mrs Young that the raising and charging of the levies has not been validly ratified by the Body Corporate?

Submissions for the Body Corporate

[76] Mr Knowsley submitted that the relevant levies were all validly raised in accordance with the requirements of the 1972 Act and the UTA (on the basis of relevant utility interests). When the issue was raised about the inclusion of the ground floor owners in the levies the position was rectified at the December 2015 EGM.

[77] The overall effect of the two stages of the levies has been that all owners have been levied based on their utility interests, for the full costs of replacing the windows right across the building.

Submissions for the Youngs

[78] For the Youngs, Mr Collins relied on the judgment of Muir J in Butcher v Body Corporate 342525,¹¹ submitting that the resolutions relied on by the Body Corporate were nullities that were incapable of ratification.

Discussion and conclusions

[79] The statement of claim relies on resolutions passed at the earlier AGMs, not on the resolutions passed at the December 2015 EGM. The question on this issue is whether any defects or irregularities in the earlier resolutions were effectively ratified by the resolutions passed at the December 2015 EGM.

[80] In Butcher v Body Corporate 342525, Muir J held that a body corporate cannot ratify a resolution that was ultra vires at the time it was made:¹²

¹¹ Butcher v Body Corporate 342525 [2016] NZHC 3128.

¹² At [98] citing Peter Watts QC Bowstead and Reynolds on Agency (19th ed, Sweet & Maxwell, London, 2010) at [2-502]. See also Yee Good Fortune Investments Ltd v Body Corporate 392619 [2017] NZHC 723 at [108].

Ratification

[98] At the EGM on 17 June 2015 the Body Corporate passed by a unanimous vote the resolutions appearing in Appendix A. The plaintiff challenges these resolutions on the basis that it is not possible to ratify a nullity. As a basic proposition that is unarguable. Every unauthorised action, whether lawful or unlawful (except an action which is in its inception void) is capable of ratification. If an action is ultra vires at the time it was taken, it is a nullity and cannot be ratified. The purpose of the doctrine is to facilitate the correction of procedural and technical defects with a view to preventing unnecessary litigation.

[81] If, as I have already found, it is reasonably arguable for the Youngs that the earlier resolutions in this case were ultra vires at the time they were made, the EGM resolutions could not have had the effect of ratifying those resolutions. This is not a case where errors in the resolutions to be corrected were arguably procedural or technical in nature; what is said for the Youngs is that the Body Corporate took steps that were outside its powers. It is clearly arguable for the Youngs that there was no effective ratification in those circumstances.

[82] For those reasons, the answer to issue (2) is also “yes”.

Issue (3) — If the answer to issue (1) or issue (2) is no, should summary judgment nevertheless be refused in the Court’s discretion because:

(a) the Body Corporate has not followed the appropriate procedure under the UTA for recovery of the costs of repair/remediation work, or

(b) not all appropriate parties are before the Court; or

(c) the owners of the units on levels three-eight have received substantially greater benefits from the repair work than the owners of units on levels one and two, and summary judgment should not be entered before an apportionment of the costs of the work between all the owners in the development has been made under s 126(3) of the UTA?
[83] As my answers to issues (1) and (2) are both “yes”, there is strictly no need to deal with this issue. However in case the matter should go further, I make the following comments on the possibility that the Youngs might be directly liable to the Body Corporate under either s 126 or s 138 of the UTA.

[84] Mr Knowsley submits that Dr and Mrs Young could still be liable to the Body Corporate under s 126 of the UTA, which provides a mechanism for the Body Corporate to recover as an expense the costs of work done, if that work benefits any unit/s by a distinct and ascertainable amount once completed.

[85] I would not have considered such a claim suitable for determination on a summary judgment application. Any s 126 determination would have the potential to affect other unit owners who are not before the Court, and a s 126 assessment would necessarily require an evidential enquiry that would be beyond the scope of the present application.

[86] Mr Collins referred to a possible argument that a body corporate need look no further than s 138(4) of the UTA as the basis for its entitlement to recover repair costs from an owner. Section 138(4) provides:

138 Body corporate duties of repair and maintenance

...

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

...

[87] In Yee Good Fortune Investments v Body Corporate 392619, Gordon J considered that while a body corporate may recover repair costs from a unit owner under s 138 once the work is complete, if a special levy is purportedly raised beforehand, then it must be done in accordance with s 121 of the UTA.¹³ I have already found it arguable for the Youngs that this was not so. But more fundamentally,

¹³ Yee Good Fortune Investments v Body Corporate 392619, above n 12 at [59].

the Body Corporate has not put its case forward as a s 138 claim. It is clear from the AGM minutes that the levies were intended to be imposed on all unit title holders collectively (except those on the ground floor). And as at the date of the hearing, no work had been done on the Youngs’ unit, so it is difficult to see how the Youngs’ share of the overall window repair cost could be characterised as costs incurred relating to repairs or to maintenance of building elements “contained in” their unit.

[88] I would not have entered summary judgment for the Body Corporate under s 126 or s 138 of the UTA.

Results

[89] The application for summary judgment is dismissed. In accordance with the usual practice in those circumstances, costs are reserved.




Associate Judge Smith

Solicitors:

Rainey Collins, Wellington for the Plaintiff Gibson Sheat, Wellington for the Defendants