201 Limited v Body Corporate 329331
[2018] NZHC 1933
•8 May 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000223
[2018] NZHC 1933
BETWEEN 201 LIMITED
First Plaintiff
202 LIMITED
Second Plaintiff302 LIMITED
Third Plaintiff307 LIMITED
Fourth PlaintiffAND
BODY CORPORATE 329331
Defendant
Hearing: 17 April 2018 Appearances:
D G Hurd for the Plaintiffs
D Bigio QC and T Rainey for the Defendant
Judgment:
8 May 2018
Reasons:
31 July 2018
REASONS JUDGMENT OF HINTON J
This judgment was delivered by me on 31 July 2018 at 4.45 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
David Bigio, Queens Counsel, Auckland David Hurd, Barrister, Auckland
Richard Allen Law Ltd, Ponsonby Rainey Law, Auckland
201 LIMITED v BODY CORPORATE 329331 [2018] NZHC 1933 [31 July 2018]
[1] On 8 May 2018, I issued a results judgment dismissing the plaintiffs’ application for an interim injunction.1 This judgment records the reasons.
[2] The case involves an application for an injunction by four apartment owners in the Ridge apartment complex in College Hill to stop the body corporate entering a contract for repairs. The Ridge complex consists of 33 residential apartments. It has suffered from water ingress for a long time. In 2010, a scheme was authorised by this Court under the Unit Titles Act 1972. In December 2010, the Council issued the body corporate and all owners with a notice to fix under ss 164 and 165 of the Building Act 2004.
[3] The body corporate has spent a number of years investigating the extent of the defects and damage. It has obtained advice from experts on the remedial work required to rectify the damage, prepared plans for that work, obtained building consents, tendered the work to qualified contractors and reached a point where it can proceed with the remedial work authorised by the scheme and required by the notice to fix.
[4] Throughout those years the body corporate has kept all unit owners reasonably informed of developments.
[5] At an extraordinary general meeting held on Wednesday, 26 August 2015 (the August 2015 EGM), the body corporate unanimously resolved to proceed with a design which inter alia enclosed the decks on the southern and eastern elevations of the building by way of a curtain wall.
[6] Until this proceeding, there has been no challenge to the validity of the August 2015 resolution.
[7] Subsequent to the August 2015 resolution, two further resolutions of relevance were passed. At an extraordinary general meeting on Tuesday, 21 March 2017 (the March 2017 EGM), the owners of the units voted 15:13, with two abstentions, directing the committee to make such further decisions as are necessary to secure a
1 201 Ltd v Body Corporate 329331 [2018] NZHC 976.
contract with the preferred tenderer and to raise sufficient levies as they deem appropriate to complete the project. Then on Friday, 16 February 2018 (the February 2018 EGM), the owners of the units voted 16:14, with two non-votes and one abstention, to authorise the body corporate to enter into a building contract with their preferred contractor.
[8] The proposed works now have a tendered price of close to $16 million (including GST), as compared to an estimate three years ago of approximately half that amount.
[9] The body corporate now intends to enter into a contract for the works and the plaintiffs seek to stop it from doing so. Obviously, a key driver for the plaintiffs is the vastly increased cost of effecting the resolutions, but that alone does not form a basis for challenge.
[10]On an application for an interim injunction, the Court has to consider:
(a)Is there a serious question to be tried?
(b)Where does the balance of convenience lie?
(c)What is the overall justice of the case?2
Serious question to be tried
Is the curtain wall cladding betterment and is the work therefore ultra vires?
[11] The plaintiffs’ primary argument is that part of the work which is covered by the proposed contract, is work which the body corporate is not authorised to carry out. The plaintiffs say that the construction of curtain walls to parts of the building, which have the effect of enclosing the deck/balcony on some apartments but not others, constitutes betterment to the former apartments and because the work includes “betterment”, it is ultra vires the body corporate powers. (Mr Hurd makes the point,
2 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC) and (CA) at 142.
inter alia, that all unit owners are intended to be levied rateably for the costs of the remedial work, yet not all the apartments will be “bettered”.)
[12] The work is being carried out in the context of a scheme of arrangement. That scheme, which was sanctioned by the Court in 2010, remains in effect. Mr Hurd initially suggested the work was not being carried out pursuant to the scheme, and that the scheme had effectively lapsed. He sensibly did not press that point. I cannot see any good factual basis for it.
[13] The body corporate is given broad powers under the scheme, which include the power to carry out repairs that might include elements of betterment. The terms of the Court-ordered scheme provide the body corporate with authority “… on each Owner’s behalf to manage, approve and commit each Owner to the Repairs and their respective proportion of the Cost of such Repairs …”. Under clause 2 of the scheme, the term “Repairs” is to be given the widest possible meaning. The body corporate is given broad powers, including the power to modify and re-design the building and to do all work the body corporate considers necessary or advisable to gain code of compliance consent, to ensure that the building is sound and compliant with all regulatory requirements, and that the integrity of the building will be maintained in the future.
[14] The work that the body corporate can undertake can include upgrading, as is evident from the plain and ordinary meaning of the words used in the repairs definition, including terms such as “alteration”, “modification” and “redesign”. Importantly, under clause 2.1(d), “repairs” are stated to include, but not be limited to, repairs that result in the building attaining a higher standard of finish or specification than the original standard of construction.
[15] If there is a benefit to some owners, but not others, then there is a remedy by way of application to amend the scheme.
[16] However, clearly not all work constitutes “repairs”, even allowing for the broad definition in the scheme, and if it does not, then the body corporate would be acting unlawfully, which Mr Bigio accepts.
[17] In Wheeldon v Body Corporate 3425253 (which did not involve a scheme of arrangement), Muir J appeared to accept (and Mr Hurd accepted before me) that for purposes of s 138 of the Unit Titles Act 2010 which sets out body corporate duties of repair, work is not in the nature of betterment in its true sense, unless it exceeds what is inevitably required to lawfully remediate the defects. If there is a reduced scope of work which would obtain a consent and a final Code Compliance Certificate from the relevant territorial authority, then the proposed work may be unlawful.
[18] As Mr Bigio argued, the onus is on plaintiff owners who seek to show that repairs fall outside the scope of s 138, not on the body corporate to show that the proposed repairs fall within the scope of its powers and duties.4 An applicant for an injunction has an onus in any event to establish an arguable case.
[19] Mr Bigio submitted that the question of whether the work constitutes betterment such that it ceases to be repairs, has to be determined solely in terms of the scheme of arrangement. He said that arguably s 138 and Wheeldon do not apply, because under the scheme of arrangement the body corporate has an obligation to conduct the repairs which exceeds the duty set out in s 138. The definition of “repairs” is also arguably wider under the scheme of arrangement than under s 138.
[20] I accept Mr Bigio’s proposition that a scheme can grant the body corporate powers which are wider than under the Act and that this scheme does so.
[21] However, ultimately the question here must be similar to the question considered in Wheeldon, and I proceed on that basis. (Mr Bigio accepted that to consider the position under s 138 and Wheeldon, was at least a useful cross-check on the different position he contended applied under the scheme.)
[22] Bearing in mind the burden of proof, I consider there is insufficient evidence from the plaintiffs to establish a reasonably arguable case that the work proposed to
3 Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [147], [148]
and [165].
4 Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) 17 NZCPR 353 at [81]; Wheeldon v Body Corporate 342525 [2015] NZHC 884 at [72].
be carried out does not constitute “repairs”, ie that it includes betterment beyond that flowing from lawful repairs.
[23] First, there is no clear evidence of betterment in any event. There is the affidavit evidence of Mr Hudson, who set up a trust, which owns all the shares in a company, which in turn owns all the shares in the four plaintiffs. Mr Hudson says that, in his opinion the deck enclosure work confers some benefit on the owners of the units whose decks are being enclosed, because the enclosed and weatherproof floor area of those apartments is increased, resulting in what he says is a significant improvement to those units. It cannot be assumed that increased floor area is worth more than the loss of a deck. Mr Hudson is clearly not independent, nor a valuer, and is therefore not qualified to give opinion evidence. Statements by committee members at meetings that a curtain wall system should add value by the internal space provided, do not amount to an arguable case for betterment.
[24] I also consider the plaintiffs have not established an arguable case that any betterment exceeds the inevitable result of lawful repairs. The key point is whether the plaintiffs have provided sufficient evidence of a reduced scope of work that will gain Code of Compliance consent.
[25] The plaintiffs rely on an affidavit of Mark Kearney of Terra Consultants Limited, a town planning, surveying, engineering and construction firm, dated 17 May 2017, which attaches a brief letter signed by Mr Kearney where he says that the cost of implementing the curtain wall solution would be greater than other types of cladding. There is further affidavit evidence from Mr Kearney. He does not sufficiently consider or demonstrate whether any of the alternatives could in fact be implemented, or whether a building consent could be obtained for such a proposal. A full report would be required at a minimum. Mr Hurd said in oral submissions that the alternative the plaintiffs put forward is the original Simonite cladding. However, that is not clear on the face of Mr Kearney’s affidavit, nor is there sufficient evidence to support that alternative in respect of the southern and eastern elevations. It is not enough for the plaintiffs to point to recladding with Simonite being the course adopted on the other elevations and, reversing the burden of proof, expect the body corporate to have to establish that Simonite would not work on the southern and eastern
elevations. There is also again opinion evidence set out in Mr Hudson’s affidavits, but Mr Hudson is clearly unqualified to give that evidence and I place no weight on that material.
[26] On the other hand, there is evidence provided by the body corporate (which carries no burden in the present context), that it considered alternative and potentially cheaper options for cladding the exterior of the building, but rejected those proposals on the advice of appointed experts who considered it unlikely that such a proposal would obtain building consent.
[27] The plaintiffs have not provided sufficient evidence to establish an arguable case that the work proposed falls outside the scope of “repairs” under the scheme, and that the body corporate is therefore acting ultra vires.
[28] The body corporate unanimously resolved to proceed with the design enclosing the decks at the August 2015 EGM. That resolution remains in place.
[29] Further, as Mr Bigio submitted if, as a consequence of the August 2015 resolution, there is a benefit to some owners that can be established, then there is still a remedy for the other apartment owners (including the plaintiffs) by way of application to amend the scheme to vary the cost allocation.
The special resolution issue
[30] The plaintiffs argue also that the resolutions passed by ordinary vote (ie by a majority of owners) at the March 2017 EGM and the February 2018 EGM were required to be passed by way of special resolution under s 101 of the Unit Titles Act 2010 and were therefore invalid.
[31] However, after hearing Mr Bigio’s oral argument and after considering the decision of the Court of Appeal in Butcher v Body Corporate 342525,5 Mr Hurd conceded that special resolutions were not required.
5 Butcher v Body Corporate 342525 [2018] NZCA 19.
[32] In Butcher, the Court of Appeal held that an ordinary resolution is sufficient when the committee is exercising delegated power conferred by previous special resolution. The fact that the committee seeks, as a precaution, further confirmation before signing the particular building contract, does not indicate that it is relinquishing its delegated authority. The same circumstances applied here.
[33]Given Mr Hurd’s concession, there is no need to take this point any further.
Other procedural issues
[34] There were various procedural irregularities raised in the original statement of claim, for example in the counting of the votes cast at the March 2017 EGM.
[35] Mr Hurd acknowledged that these were not matters that would in themselves provide grounds for an injunction. They were raised more to cast further doubt on the lawfulness of the outcomes at the various meetings.
Application to cancel, discharge, modify or vary the scheme
[36] On 6 April 2016, the plaintiffs filed an amended statement of claim and an amended application for interim injunction adding two further “causes of action” which included a pleaded application to cancel, discharge, modify or vary the scheme of arrangement under either s 48 of the 1972 Act or s 74 of the 2010 Act.
[37] Mr Hurd argues that there are grounds to justify the Court rescinding the scheme of arrangement, which would therefore justify the issue of an injunction.
[38] I do not consider that even the likelihood of such an order could constitute a ground for, or sustain injunctive relief when no application has even been brought. Such an application cannot be raised as a “cause of action” in this proceeding. It would require a separate originating application, which would also require to be served on all of the members of the body corporate.6
6 High Court Rules 2016, r 19.2(za).
[39] As Mr Bigio submits, the procedural defects facing this argument are more than mere technicalities. The present proceeding is between the owners of four of the 33 units in the complex and the body corporate as the sole defendant. The signalled application to cancel or vary under the Act, has the potential to affect other parties, including other owners of the units in the complex and their mortgagees. Those parties have a right to be served with the relevant application (and affidavit evidence in support) and to be heard on it.
[40] I would also be doubtful as to whether there are in fact good grounds for such an application. To cancel the scheme, the plaintiffs would need to show that the circumstances that led to its being established, no longer existed. That seems to be far from the case. The plaintiffs suggested in this context that the scheme has not been relied upon by the body corporate. The evidence is not consistent with that assertion and as noted earlier, Mr Hurd did not push that point. To vary the scheme, the plaintiffs would need to point to circumstances which would justify a variation and propose an amended scheme outlining why the changes are necessary. In terms of the pleading and evidence to date, the plaintiffs have not pointed to circumstances which would justify a variation, other than a possible variation resulting from betterment.
[41]The proposed “application” does not provide a ground for an injunction.
Application for minority relief under s 210 of the Unit Titles Act 2010
[42] Also added by way of the amended statement of claim was a “cause of action” in the form of an application for minority relief under s 210 in respect of the resolution to proceed with the remedial work which was passed at the February 2018 EGM. Again, the plaintiffs seek injunctive relief on the basis of that “application”.
[43] This pleading faces the same difficulties as the pleading of the application to cancel the scheme. An application under s 210 must be made by originating application and would have to be served on all of the owners and other relevant parties.7
7 High Court Rules 2016, r 19.2(za).
[44] Again, there is also a disconnect between the “application” and the relief sought. Even if minority relief were to be given in respect of the February 2018 resolution, that would not preclude the body corporate proceeding with the repairs on the basis of the earlier resolutions and the delegated powers of the committee. Also, in order for an application for relief by any person who voted against the resolution to be successful, it would have to be demonstrated that the effect of the resolution would be unjust or inequitable for the entire minority (i.e. all 14 opponents), not just the four plaintiffs.8
[45]Again, the proposed “application” does not provide a ground for an injunction.
Conclusion of no serious question to be tried
[46] For the above reasons, I do not consider the plaintiffs have established that there is a serious question to be tried and the application for grant of an interim injunction therefore fails on that ground.
Balance of convenience
[47]In case I am wrong, I go on to consider the balance of convenience.
[48] In this regard, the plaintiffs say they would be deprived of their remedy if an injunction is refused, as the body corporate will proceed very shortly to sign the contract. That would mean that they would be faced with meeting the costs of the curtain walls, which would be to the betterment of some units and not to theirs. It would also mean that they would be out of their apartments for, they say, approximately two years, which did not seem to be disputed.
[49] As Mr Bigio says, there is nothing stopping the plaintiffs from making application to the Court under s 74 of the 2010 Act to vary the terms of the scheme, placing more of the costs on those whose units are allegedly being improved in value and less on the plaintiffs. If the disproportionate benefit point is valid, and that is the
8 Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314, (2015) 16 NZCPR 509 at [16].
essence of the plaintiffs’ case, such an application would materially deal with the first aspect of detriment. As to the second aspect, it was not and could not be contested by the plaintiffs that significant remedial works are required in any event and that the plaintiffs and the other apartment owners will therefore necessarily be out of their apartments for some considerable time. There was no evidence from the plaintiffs as to what time they would be likely to be out of the apartment complex in any event. In those circumstances, I do not consider they have met the onus on them of establishing detriment in terms of a longer exit period than would otherwise be the case.
[50] The defendant says that it will suffer significant detriment if an injunction is granted, in that works will be delayed; there is likely, or possible, loss of the contractor, and likely increased costs resulting from delay.
[51] The plaintiffs accept that there might be increased costs, but point out that there may also be greater savings resulting from a varied scope of works if the plaintiffs are ultimately successful.
[52] I accept that there is likely to be some detriment to the body corporate, albeit not to the extent that Mr Bigio claims. For example, it is difficult to see that further time in complying with the notice to fix could be particularly material when that notice was issued seven or eight years ago and the Council has not at any time sought to enforce the notice. However, there must be some real risk of losing the contractor or of further escalation in the contract price. The body corporate is operating in what is clearly a difficult and unpredictable market.
[53] I consider it is also relevant to the balance of convenience that the body corporate has kept its members informed throughout;9 that the issues and scheme of arrangement already go back over a period of more than eight years, and that the plaintiffs have not acted with the speed that was probably required in these circumstances. They have known since at least April 2017 of the March 2017 resolution and indeed, their lawyer wrote in April 2017, saying that if the body
9 Although Mr Bigio said the body corporate had kept all owners fully informed, it did not seem that the information regarding the curtain walls had been as full as it could have been.
corporate did not agree to withhold the works, an injunction would be sought. I wholly appreciate that in circumstances such as this, and given the costs involved, the plaintiffs would be doing everything they could to avoid having to actually issue Court proceedings and I make allowance for that, but unfortunately in a situation such as this, it would have been desirable for them to have acted sooner. However, as will be apparent from the findings I have already made, this is not particularly critical to the outcome of the case.
[54] In short, I would not consider in any event that the balance of convenience weighs in favour of the plaintiffs. In particular, in my view the plaintiffs can to some degree address their grievance in terms of the alleged betterment that may flow to some of the units, but not to theirs.
Conclusion
[55]The plaintiffs have not established there is a serious question to be tried.
[56]In addition, the balance of convenience weighs in favour of the body corporate.
[57] Consistent with the overall justice of the case, I therefore declined the application for an interim injunction.
Costs
[58] Mr Bigio asked that I reserve costs and invite submissions. The body corporate is to file its submissions as to costs within 14 days and the plaintiffs within a further 14 days.
[59] I should add that I do have considerable sympathy for the plaintiffs and the costs that they and the other apartment owners are facing, especially given the very substantial increase in those costs. Many owners will simply not be able to afford costs at that level. These matters are very stressful for all concerned. I have already noted that, without criticising the body corporate who seem to have done a very thorough job, the information regarding the reason for the very significant cost hike
and the costings of the curtain wall does not seem to have been as full as it could have been. This may be relevant to costs. Also, I hope that, given the very large price hike, the body corporate is taking careful note of, or at least paying due consideration to Mr Kearney’s evidence, before committing to the building contract. Understandably, the body corporate will be wanting to get on with it, but such a huge cost might merit a voluntary pause for thought.
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Hinton J
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