BETWEEN BHARDWAJ FAMILY TRUST LIMITED First plaintiff BAJAJ HOLDINGS LIMITED Second plaintiff JON KIANG SOO Third plaintiff YANG YANG Fourth plaintiff MEAGHAN INVESTMENTS LIMITED Fifth plaintiff NECTARANS LIMITED...
[2024] NZHC 2572
•9 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1448 [2024] NZHC 2572
BETWEEN BHARDWAJ FAMILY TRUST LIMITED
First plaintiff
BAJAJ HOLDINGS LIMITED
Second plaintiffJON KIANG SOO
Third plaintiffYANG YANG
Fourth plaintiff
MEAGHAN INVESTMENTS LIMITED
Fifth plaintiff
NECTARANS LIMITED
Sixth plaintiff
AND
BODY CORPORATE 471999
Defendant
Hearing: 5 February 2024 Appearances:
I J Stephenson and H Struthers for the plaintiffs T Rainey for the defendant
Judgment:
9 September 2024
JUDGMENT OF ROBINSON J
This judgment was delivered by me on 9 September 2024 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules
Solicitors/counsel:
…………………………………………………………………… Registrar/Deputy Registrar
Lane Neave, Auckland T Rainey, Auckland
BHARDWAJ FAMILY TRUST LIMITED & ORS v BODY CORPORATE 471999 [2024] NZHC 2572 [9
September 2024]
Introduction
[1] At 17 Putney Way, Manukau, Auckland there is an eleven-storied, mixed-use, unit title development known as M Central. There are 41 retail or commercial units on the bottom two floors, and 115 residential units on the nine floors above.
[2] The plaintiffs own seven of the 41 retail/commercial units. The defendant is a body corporate which manages M Central in accordance with the Unit Titles Act 2010 (the UTA 2010).
[3] This case concerns the allocation of utility interests to units in M Central, including those owned by the plaintiffs. This is important to the plaintiffs because the body corporate must calculate the levies it imposes on the owners of principal units in proportion to each of their utility interests.1
[4] The plaintiffs claim that the utility interests assigned to principal units were assessed and registered ultra vires the UTA 2010. They say that contrary to s 39(2) of the UTA 2010, the utility interest is not fair and equitable having regard to the relevant benefits and costs to units. In broad terms, the plaintiffs allege that the owners of the retail/commercial units have been assigned utility interests that are unlawfully high, meaning that their contributions to body corporate levies have also been unlawfully high. In particular, the plaintiffs claim that since 2015 the defendant has raised levies from the plaintiffs that are $138,930.40 more than they should lawfully have been, and that the defendant has been unjustly enriched in this amount.
[5]The plaintiffs seek orders:
(a)declaring that the assessment of utility interests is void and of no effect; and
(b)that the defendant pay the plaintiffs $138,930.40, together with interest and costs.
1 Unit Titles Act 2010, s 121(1) and 121(2).
[6]The defendant opposes.
Background
M Central and Body Corporate 471999
[7] Twin Towers Property Limited (TTPL) was the owner of the base land at 17 Putney Way, Manukau, and the developer that converted it from commercial use to a mix of commercial, retail, residential and accommodation uses.
[8] On 23 December 2014, TTPL subdivided the M Central development by depositing Unit Plan 471999. On that date, the defendant body corporate came into existence,2 and the titles to the principal units in the development were issued.
Utility Interests and Ownership Interests
[9] Before a unit plan is deposited, every principal unit must be assigned an ownership interest3 and a utility interest.4
[10] Ownership interests are fixed by a registered valuer on the basis of the relative value of the unit in relation to each of the other units.5 The ownership interest is used to determine a range of matters, including: the beneficial interest of the owner of the principal unit in the common property; and the share that the owner of the principal unit has in the underlying fee simple in the land if the unit plan is cancelled.6
[11] Utility interests are used to calculate the contribution of each unit owner to the levies imposed by a body corporate to establish and maintain its operating account and various funds.7 In the case of the operating account,8 the long-term maintenance fund,9
2 Unit Titles Act, s 75.
3 Unit Titles Act, s 38.
4 Unit Titles Act, s 39.
5 Unit Titles Act, s 38(2).
6 Unit Titles Act, s 38(3).
7 Unit Titles Act, s 121(1) and 121(2).
8 Unit Titles Act, s 115.
9 Unit Titles Act, s 117.
and the any optional contingency fund,10 the levies “must be calculated…in proportion to each unit owner’s utility interest”.11
[12] At 23 December 2014, when TTPL deposited unit plan 471999, s 39 of the UTA 2010 provided as follows:
39 Utility interest (other than for future development units)
(1)Before a unit plan is deposited under s 17(1), 21(1) or 24(2)(a) every principal unit and every accessory unit must be assigned a utility interest.
(2)The utility interest for a principal unit or accessory unit is the same as the ownership interest fixed under s 38(2), unless the utility interest–
(a)is fair and equitable, having regard to the relevant benefits and the costs to unit and is shown in the documentation required to be lodged with the unit plan deposited under section 17(1), 21(1), or 24(2)(a); or
(b)has been reassessed under section 41.
[13] I note that s 39 has subsequently been amended to expressly provide that it is the registered proprietor or the owner who must assign the utility interest, and that if the utility interest is to differ from the ownership interest, the utility interest must be “…fair and equitable, in the view of the registered proprietor or owner, having regard to the relevant benefits and the costs to units”.12
[14] A body corporate may, by special resolution at a general meeting, decide to reassess the ownership interest or the utility interest, or both.13 A reassessment of the ownership interest or utility interest may only be made three years after the deposit of the unit plan or the previous reassessment.14 For a special resolution to pass, 75 percent of eligible voters who vote must vote in favour of the resolution.
10 Unit Titles Act, s 119.
11 Unit Titles Act, s 121(2)(a).
12 Unit Titles Act, s 39(2A), inserted by section 17 of the Regulatory Systems (Building and Housing) Amendment Act 2017.
13 Unit Titles Act, s 41(1).
14 Unit Titles Act, s 41(3).
Utility interests at M Central
On 23 December 2014, the same day that TTPL deposited the unit plan, it also:
(a)lodged a Certificate of Assessment of Ownership Interest with Land Information New Zealand Limited (LINZ), number 9859397.5 (COI); and
(b)issued a Notice of Utility Interests to LINZ, number 9859397.6 (NUI).
[16] The ownership interests for the units in M Central were calculated by a registered valuer, as required by s 38 of the UTA. The NUI was signed on behalf of TTPL. The assigned utility interests were recorded on the supplementary record sheet issued for the titles to the principal units when the unit plan was deposited.
[17] There is a difference between the ownership interest and utility interest assigned to each of the principal unit holders at M Central. In broad terms, the owners of the retail and commercial units on the first and second floors have utility interests higher than their ownership interests, while the owners of the residential units on the third to eleventh floors have utility interests lower than their ownership interests. In a report prepared for the defendant by a registered valuer, Jason Wong of Opteon, dated 6 March 2019 (the Opteon report), Mr Wong observes that:
[u]pon analysis of the Utility Interests, it would appear that the retail units have been increased from the Ownership Interest ratio by approximately 70% while residential units show a decrease in the vicinity of 20%.
[18] Since its inception, the defendant has calculated relevant levies in proportion to each owner’s utility interest, as required by s 121 of the UTA 2010.
The plaintiffs
[19] The plaintiffs each agreed to purchase their units in 2013 and settled their purchases in 2015, as set out in the attached schedule.
[20] Mr Gagandeep Singh is a director and shareholder of the second plaintiff, Bajaj Holdings Limited. Mr Singh confirms that he purchased unit 102 off the plans, having
received marketing material about the costs of the units and the indicative body corporate charges.
[21] The promotional material included a “Preliminary Body Corporate Budget” for a “12 Month Period To Be Confirmed”. This estimated body corporate costs for retail units to be $75 per square metre (sqm). Unit 102 is 46 sqm, so, if accurate, the preliminary budget would result in body corporate charges of $3,450.
[22] Mr Singh explains that on settlement the advance body corporate levy payable was $8,662.20, and the next year’s charge was for $11,237.39. Mr Singh says he did not comprehend why the body corporate levies were so high in the first few years. However, he says that when he joined the body corporate committee in 2018 he became aware of a “significant difference” between what owners of retail and residential units paid for the operation of the building, based on the utility interests the developer had set, despite the retail units not receiving any special benefits. He points out that the owners of retail units on the lower levels are levied for lift maintenance, but he considers they receive significantly less benefit from the use of the lift than the owners of the residential units on the higher levels.
[23] Mr Singh says he contacted other commercial and retail unit owners and discovered they were also paying levies they considered to be disproportionate. He says none of these retail unit owners were aware of the body corporate levy allocation process when they purchased their units.
[24] Mr Rainey for the body corporate points out that the plaintiffs received pre- contract disclosure statements describing the significance of the utility interest under the UTA 2010. The standard form agreements for each of the sales contained a specific clause addressing the utility interest of the proposed body corporate. Further, after the unit plan was deposited, TTPL’s solicitors wrote to purchasers, advising of the deposit of the unit plans and provided copies of their respective titles for each principal unit. This title included both the notice of the registration of the COI and the notice of the fixing of utility interest under s 39(2) of the UTA 2010. The pre-settlement disclosure statement required by the UTA 2010 and provided to purchasers by TTPL also disclosed the contributions levied by the body corporate for the unit in question.
Finally, each purchaser had the opportunity to obtain copies of the COI and the NUI prior to settlement.
The Opteon report and the extraordinary general meeting
[25] Susan Lusk is the chairperson of the defendant body corporate. Ms Lusk explains that at the 2018 AGM, the owners of several of the commercial/retail units raised concerns that the units had been vacant for long periods. They believed one of the reasons for this was that their levy apportionment appeared excessive.
[26] In light of concerns that the owners of the retail/commercial units were paying a disproportionate percentage of the body corporate’s expenses, the body corporate instructed Opteon to provide a report on the assigned utility interest. This was to enable the body corporate to consider a reassessment of the utility interests under s 41 of the UTA 2010.
[27] The body corporate also instructed Opteon to prepare a separate report reassessing the ownership interests. This was because the residential units had increased in value significantly since 2014, but the retail and commercial units had not.
[28] Mr Wong confirms that he had been unable to establish the basis on which the existing utility interests were calculated, so could not comment on whether the existing allocation is “fair and equitable”. In evidence, Mr Wong confirmed that, in his opinion, there are several different factors that could be taken into account in assessing whether the assigned utility interests are fair and equitable having regard to the relative benefits and costs to the units.
[29] In the Opteon report, Mr Wong provided what he considered would be a fair and equitable reassessment of utility interests. This was based on the body corporate’s 2018 budget and relied on a separate report into a reassessment of ownership interests.
[30] Ms Lusk explains that the Opteon report was provided to all unit owners prior to the 2019 AGM. A vote of the owners was taken to determine if there was overall support for a reassessment of the utility interest. The result was evenly spilt.
[31] Ms Lusk says it was agreed that the committee would review the matter to see if a more moderate (and acceptable) proposal than the one provided by Mr Wong and Opteon could be developed. The committee considered the issue and recommended a reassessment of utility interests with 33 per cent of the change recommended by the Opteon report.
[32] An extraordinary general meeting (EGM) was held on Saturday, 24 August 2019 to consider a special resolution to reassess the utility interest in line with the body corporate’s recommendations. The EGM considered the following motion:
To consider resolving the following by Special Resolution (which will be a Designated Resolution): That pursuant to section 41 (1) of the Unit Titles Act 2010 (the Act) to approve the method of re-apportionment of the utility interests for all the units under section 41(6) of the Act; being, that the Body Corporate reassess the utility interest for each unit at 33% of the change recommended in the Opteon Report dated 6 March 2019, reference 9363124- B-2, appended to the EGM agenda, and to assign to each unit, on 24 August 2019, the new utility interests.
[33] The motion was voted down, with 55.29 per cent in favour of the proposed special resolution and 44.71 per cent against.
The application
[34] The plaintiffs allege that the utility interests assigned and recorded in the NUI were assessed and registered ultra vires the UTA 2010. They say the assessment of the utility interest was not fair and equitable and failed to have regard to the relevant benefits and costs to units. They seek orders declaring that:
(a)the utility interest assessment of 23 December 2014 is void and of no effect; and
(b)the utility interest for principal units and accessory units at M Central is the same as the ownership interest fixed under s 38(2) of the UTA 2010.
[35] The plaintiffs also allege that, to the extent their utility interests exceed their ownership interests, the defendant body corporate has acted in excess of its statutory
power by charging levies in accordance with those utility interests. Accordingly, the plaintiffs allege that since 2015 the body corporate has overcharged them by $138,930. The plaintiffs also allege that the body corporate has been unjustly enriched by that amount. They seek an order that the body corporate pay them $138,930, together with interest and costs.
Submissions
[36] Mr Stephenson for the plaintiffs emphasises that the default position under s 39 of the UTA 2010 is that ownership interests and utility interests will be the same. When that is so, a body corporate’s operating costs will be shared between unit owners in proportion to the value of their property rights, as determined by an independent and objective registered valuer.
[37] Mr Stephenson submits that the utility interests recorded in the NUI are not fair and equitable and are unrelated to any objective assessment of the relative benefits and costs to units. He relies on the evidence of a solicitor, Thomas Gibbons, who practices in this area. Mr Gibbons considers it is difficult to see how a developer could have regard to relevant benefits and costs without reference to a detailed budget setting out the expenses a body corporate would have to meet. With reference to the defendant body corporate’s earliest available budget, prepared in 2016, Mr Gibbons concludes that:15
Based on the budget, it is my view that most expenses are for the benefit of the body corporate as a whole and cannot be attributed to specific units or some units only. While some costs may be attributable to some units in particular circumstances, there are few items of this nature.
[38] This is consistent with Mr Singh’s evidence that the owners of the retail and commercial units do not receive any special benefits that are not also enjoyed by the owners of the residential units.
[39] On this basis, Mr Stephenson submits that there was no proper basis to assign utility interests that were different from the ownership interests. He says the NUI is ultra vires the UTA 2010, and the body corporate has acted ultra vires the UTA 2010
15 Affidavit of Thomas Nathanael Gibbons, 11 August 2022.
in purporting to adopt the NUI and raise levies in accordance with it. Finally, he submits that the effect of a finding that the NUI is void is that the utility interests should be determined in accordance with the default position under s 39, namely that they should be the same as the ownership interests.
Discussion
Are the utility interests ultra vires?
[40] I agree with Mr Rainey that there can be no complaint that the assignment of utility interests was ultra vires the body corporate, for the simple reason that the body corporate did not assign the utility interests. The body corporate only came into existence when TTPL filed the until plan, 16 by which time TTPL had already assigned the utility interest, as required by s 39 of the UTA 2010. The NUI was signed and filed for and on behalf of TTPL, not the body corporate.
[41] In any event, I also agree with Mr Rainey that the Court cannot conclude on the evidence available that there was any breach of s 39(2)(a) of the UTA 2010 (as it was in 2014) that would invalidate the assignment of utility interests by TTPL, as set out in the NUI.
[42] There is no evidence before the Court to explain the basis upon which TTPL assigned the utility interests.17 Ms Lusk confirms that the body corporate has no reason to believe that TTPL did not consider the assigned utility interests to be fair and equitable having regard to the relevant benefits and costs to the units in December 2014. She inferred that TTPL had concluded that the expenses of the body corporate would be higher because of the retail and commercial units, and that those units would benefit from that expenditure.
[43] Mr Wong considers that “there are many approaches” as to how budgeted expenses might be divided up between unit holders on a “fair and equitable” basis, and that there are several different factors that may be taken into account in assessing
16 Unit Titles Act, s 75.
17 TTPL subsequently amalgamated with Park View Holdings Ltd on 30 June 2016. Park View Holdings Ltd went into liquidation on 31 January 2017 and was removed from the Companies Register on or about 10 April 2017.
utility interests. He records in the Opteon report that he was unable to establish the origin of the existing utility interests and consequently cannot comment on the basis or methodology of how they were calculated, or whether they are “fair and equitable”.
[44] Both Mr Wong and Mr Gibbons considered the utility interests with reference to expenses in a particular budget. Mr Wong used the 2018 budget (together with his proposed reassessment of ownership interests) to propose a reassessment of the utility interests. For his part, Mr Gibbons conducted a review of the 2016 budget and concluded that almost all the expenses incurred were for the equal benefit of all unitholders. However, it does not follow from the fact that Messrs Wong and Gibbons might reassess the utility interests that they were not fair and reasonable in 2014. As Mr Wong acknowledged in the Opteon report, costs are not consistent and vary each year. What amounts to a “fair and equitable” allocation of those costs having regard to the benefits and costs to the units can change over time. That is why the UTA 2010 contains a mechanism for the body corporate to reassess utility interests every three years, based on what unit holders consider to be fair and reasonable.18
[45] As Mr Rainey points out, the assessment of utility interests in 2014 was necessarily predictive. They were assigned before the body corporate came to exist. As Ms Lusk infers, TTPL might well have predicted that the retail and commercial units would increase the body corporate’s expenses at M Central, and that the owners of the retail and commercial units would benefit from the additional expense. TTPL might have taken into account that for owners of the retail and commercial units the body corporate levies would be a deductible expense, but for owner occupiers of residential units they would not. In any event, the evidence does not satisfy me that in December 2014 the utility interests were unlawful or ultra vires because they were not fair and equitable having regard to the relevant benefits and costs to the units. I consider much stronger evidence would be required, particularly given that s 41 of the UTA 2010 provides owners with a mechanism to reassess the utility interests themselves, provided they are fair and equitable having regard to relevant benefits and costs.
18 Unit Titles Act, s 41.
[46]For these reasons, I decline to make the declarations sought.
Were the levies ultra vires?
[47] Even if I had been satisfied that, as at 23 December 2014, the utility interests were not fair and equitable having regard to the benefits and costs to the units, I would not have found that the levies raised by the body corporate were ultra vires.
[48] As noted, TTPL assigned the utility interests before the body corporate came into existence. From its inception, the body corporate was required by s 121(2) of the UTA 2010 to calculate levies in proportion to each unit owner’s utility interest. Contrary to the plaintiffs’ claim, the body corporate would have been acting unlawfully if it had calculated levies in any other way.
[49] Again, the UTA 2010 provides a mechanism for the body corporate to reassess the utility interests if it is fair and equitable to do so. At M Central the proposed reassessment failed. As matters stand, the body corporate must calculate levies based on the utility interests recorded in the NUI.
Unjust enrichment?
[50] For completeness, I record that even if I had found the assignment of the utility interests and the body corporate’s levies to be ultra vires, I would not have found the body corporate to have been unjustly enriched by the receipt of those levies from the plaintiffs.
[51]The three principal elements of unjust enrichment can be summarised as:19
(a)proof of the defendant’s enrichment by receipt of a benefit;
(b)corresponding deprivation by the plaintiff; and
(c)the absence of any juristic reason for the enrichment.
19 P Twist, J Palmer and Marcus Pawson, Laws of New Zealand Restitution (online ed) at [9].
[52] I accept Mr Rainey’s submission that the body corporate has not received a benefit. It has merely raised a levy which it was required to raise to meet the expenses it has to pay on behalf of all the unit owners. The body corporate may distribute any money surplus to its requirements in the same proportion in which it was raised.20
[53] If the body corporate had been calculating levies in proportion to utility interest that were incorrect, some owners would have been paying too much, and some would not have been paying enough. But the amount the body corporate received to pay its expenses would have been the same. Therefore, the body corporate would not have received any benefit from the application of incorrect utility interests.
[54] The only parties who could potentially be said to have benefited in these circumstances are the owners of the residential units who have paid less than they should have paid because their assigned utility interests are unlawfully low. In those circumstances some relief or reimbursement might be available against those owners, (although I agree with Mr Rainey that facilitating this would be problematic). But I do not consider a remedy would be available against the body corporate on the basis that it had been unjustly enriched.
Result
[55]The plaintiffs’ claims are dismissed.
[56] The defendant body corporate is entitled to costs. If these cannot be agreed, then the body corporate should file a memorandum of not more than five pages (excluding attachments) within 20 working days. The plaintiffs should file a memorandum, also not more than five pages, 10 working days later. I will deal with costs on the papers unless I require further assistance.
Robinson J
20 Unit Titles Act, s 131.
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