Body Corporate 126001 v Hannam

[2023] NZHC 3604

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2003

[2023] NZHC 3604

IN THE MATTER

of Unit Titles Act 2010

IN THE MATTER

of an application under Part 19 Rule 19.2(za) High Court Rules

BETWEEN

BODY CORPORATE 126001

Applicant

AND

GARY KEITH HANNAM AND PATRICIA JOY DRAPER

First Respondents

KEITH OLIVER DIPROSE, LYNETTE PATRICIA CHAPMAN AND STUART IAN CHAPMAN
Second Respondents

MIKAELE CHARLES WESTERLUND
Third Respondent

…/cont

Hearing:

25 September 2023 to 6 October 2023

Appearances:

J Orpin-Dowell and T Allan for the Applicant

D Bigio KC, G Lewis and S Zellman for First Respondents D Nilsson and K Calder for the Fifty-First Respondent

Judgment:

12 December 2023

JUDGMENT OF GORDON J

This judgment was delivered by me on 12 December 2023 at 10 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors (Auckland): Grove Darlow & Partners, Grimshaw & Co, LeeSalmonLong

BODY CORPORATE 126001 v HANNAM [2023] NZHC 3604 [12 December 2023]

JEFFREY LAURENCE FISHER AND LISA FIONA FISHER

Fourth Respondent

SUSAN MARY KINGSTON
Fifth Respondent

AVRIL BARBARA STOTT AND DAVID IAN HAIGH

Sixth Respondents

BRIAN JOSEPH HINCHCO AND SELENA JANE HINCHCO

Seventh Respondents

NIGEL KING
Eighth Respondent

SARAH KATE GREENAWAY
Ninth Respondent

SNEZANA DACIC
Tenth Respondent

LEANNE JOY GREENHALGH AND PAUL RICHARD GREENHALGH

Eleventh Respondents

COLIN GRANT KENYON AND JANINE LOIS KENYON

Twelfth Respondents

TONY ALAN HOPKINS AND TRACEY ANN HOPKINS

Thirteenth Respondent

JAMES ANTHONY YOUNG, JENNY JUNE TONG AND NATALIE SAMANTHA TONG

Fourteenth Respondents

ANNA GABRIELLE SOTHERAN AND HAYDEN ROBERT HYAMS
Fifteenth Respondent

FRANCES ANNE SIMEON AND JOHN MICHAEL SIMEON

Sixteenth Respondents

DONELLE MARIE THOMPSON AND PAUL ALISTAIR CRAIGIE

Seventeenth Respondent

ERIK TORE OLOFSSON
Eighteenth Respondent

ANN SANDRA EVERARD AND GRANT IAN HALLY

Nineteenth Respondents

KAREN  ANN COTES
Twentieth Respondent

DAVID ALEXANDER LLOYD AND TRINA MAREE LLOYD

Twenty-First Respondents

DAVID JAMES WAY
Twenty-Second Respondent

CHERL ROSEMARY DWYER, WAYNE DAVID KEENE AND KM TRUSTEE

SERVICES LIMITED

Twenty-Third Respondents

PHILIP ANDREW JOHNSTONE AND STEPHANIE ROCHELLE JOHNSTONE
Twenty-Fourth Respondents

PAUL FRANCIS QUINLIVAN,
SHELLEY ROZANNE QUINLIVAN AND NEW ZEALAND TRUSTEE SERVICES LIMITED

Twenty-Fifth Respondents

CAMERON ROSS GRIBBEN
Twenty-Sixth Respondents

JAMES KENNINGTON WATSON AND WENDY MIRIAM WATSON-EKSTEIN

Twenty-Seventh Respondents

MELT INVESTMENTS LIMITED
Twenty-Eighth Respondent

ALISON STUART SMITH, ALLEN DONALD SHANKS AND SCOTT SHAW SMITH

Twenty-Ninth Respondents

JON RIVERS LAMB, LAWREEN

LAMB AND BEECH HILL TRUSTEE LIMITED

Thirtieth Respondents

ANGELA MARY GREENHALGH AND BARRYGREENHALGH

Thirty-First Respondent

DOUGLAS SMERDON CARTER, PATRICIAEMILY CARTER AND SOONG YUAN CHAU

Thirty-Second Respondents

HAULTAIN PROPERTIES LIMITED
Thirty-Third Respondent

AVANTI APARTMENT LIMITED

Thirty-Fourth Respondent

MARGARET ELIZABETH WATTS
Thirty-Fifth Respondent

JOHN ANDREW BEDKOBER

Thirty-Sixth Respondent

CLIVE MARIO FERNANDES AND ELIZABETH SCOTT JOHNS

Thirty-Seventh Respondents

PETER DAVID BONE AND SHALE CHAMBERS
Thirty-Eighth Respondents

JOHN NORMAN SISSONS, SUZANNE ELIZABETH SISSONS AND ATACH

LIMITED
Thirty-Ninth Respondents

GERARD JOHN RENNIE, IAN MARTINGUILFORD AND TRISH JANE

Fortieth Respondents

WESTPAC NEW ZEALAND LIMITED
Forty-First Respondent

ANZ BANK NEW ZEALAND LIMITED
Forty-Second Respondent

ASB BANK LIMITED

Forty-Third Respondent

BANK OF NEW ZEALAND
Forty-Fourth Respondent

NEW ZEALAND HOME LENDING LIMITED

Forty-Fifth Respondent

MORTGAGE HOLDING TRUST COMPANY LIMITED

Forty-Sixth Respondent

SOUTHLAND BUILDING LIMITED
Forty-Seventh Respondent

CHUBB INSURANCE NEW ZEALAND LIMITED

Forty-Eighth Respondent

GRANT JENSEN CASHMORE, PETER GRANT STODDARD CASHMORE AND SELLAR BONE TRUSTEES (2015)

LIMITED

Forty-Ninth Respondent

KAPLANA CHIMANLAL AND SURESH CHINANLAL

Fiftieth Respondent

WESTERN PARK SUBSIDIARY BODY CORPORATE (493826)

Fifty-First Respondent

GREGORY IAN VARLEY AND LAURA ALICE DONALDSON
Fifty-Second Respondent

LISTON TRUSTEE SERVICES

LIMITED, MARY WALLACE FRANCIS AND WILLIAM PETER FRANCIS

Fifty-Third Respondent

TSB BANK LIMITED

Fifty-Fourth Respondent

TABLE OF CONTENTS

The building  [9]

Application for orders settling a scheme  [22]

The issues  [46]

Admissibility issues  [58]

The Body Corporate’s proposed scheme  [61]

Issue One: the effect of the 2019 Settlement  [63]

Frustration  [66]

Was the 2019 Settlement conditional on specific repairs?  [93]
Was there a material change in circumstances?  [105]

Whether the Court’s discretion under s 74 of the Act is fettered by the

2019 Settlement  [115]

Conclusion on effect of 2019 Settlement  [118] Issue Two: can the Court consider the Trustees’ two alternative scheme proposals?     [120]

Changes to cost allocation  [132]
Appointment of an administrator  [137]

Dispute resolution processes  [146]

Conclusion  [150]

Factual background – redevelopment proposals since Trust’s purchase

of unit 900  [155]

Redevelopment proposals (2000–2008)  [157]

Redevelopment proposals (2009–2013)  [166]

Redevelopment proposals (2014–2015)  [178]

Redevelopment proposals (2015)  [187]

Redevelopment proposals (2017–2021)  [204]

Temporary waterproofing pending redevelopment  [210]

Redevelopment proposal (current)  [242]

Issue Three: which cost allocation should be approved?  [249]

Discussion  [257]

Issue Four: should an independent administrator be appointed?                  [286]

Legal principles  [289]
Have the owners been properly informed about the state of the building?       [300]
Alleged influence of Mr Guilford  [334]
Alleged animosity towards the Trustees  [337]
Body Corporate not paying for repairs until scheme settled  [348]

Issue Five: other amendments proposed by the Trustees in first

alternative scheme  [355]

Issue Six: Trustees’ second alternative scheme  [358]

Issue Seven: Tisch – five principles in step 3  [369]

Scheme with broad support preferred  [370]
Scheme should be appropriately detailed  [372]

The order has retrospective effect  [380]

Work normally done to the same standard and at the same time  [381]

Terms of the scheme to depart from the scheme of the Act and Body Corporate rules no more than is reasonably necessary to achieve

fairness between unit owners  [382]

Summary of decision  [383]

Orders  [389]

Costs  [393]

[1]    In August 2017 the applicant, Body Corporate 126001 (Body Corporate), commenced this proceeding seeking an order approving a scheme under s 74 of the Unit Titles Act 2010 (the Act). The only opposition was from the first respondents, Gary Hannam and Patricia Draper, as trustees of the GK Hannam Family Trust (the Trust) which owns one of the units in the development.1

[2]    On the eve of what was  to have been a two week hearing commencing  on  11 November 2019, the Trustees reached agreement with the Body Corporate as to amendments to the scheme. On 12 November 2019, Davison J made consent orders in accordance with the settlement reached and documented on 11 November 2019.

[3]    Subsequently, the 37th respondents (the owners of one of the other units in the building) applied to the Court under s 74(8) of the Act seeking orders to vary or set aside the terms of the scheme approved by the Court. On 3 September 2021 Davison J delivered a judgment making an order, not in the terms as sought, but rather cancelling the consent order of 12 November 2019 which had approved the scheme.2

[4]    The Body Corporate refiled its application annexing a scheme in the same terms as had been agreed to by the Trustees.3   A third amended application dated    10 February 2023 was later filed. Again, there is no amendment to the scheme annexed. It is that application that I must decide.

[5]    The Body Corporate has settled with the 37th respondents who now consent to, and support the making of, orders approving the scheme, as do all other unit owners except the Trustees. They now oppose the scheme. The key aspects of their opposition relate to how the costs of repairs should be allocated and who should administer the scheme. The Trustees say an independent administrator should be appointed for that purpose. The Body Corporate says the Trustees are prevented from opposing the application having previously agreed to the Court settling a scheme containing the same terms. In any event, the Body Corporate says its proposed scheme is fair.

1      I will refer to the first respondents as "the Trustees”. Where the context requires, I will refer to them by their individual names.

2      Body Corporate 126001 v Hannam [2021] NZHC 2307, (2021) 22 NZCPR 662.

3      There is a small difference being the addition of a clause in the preamble, which is not material.

[6]    The Trustees say they are no longer bound to consent to the scheme. They say the judgment of Davison J has frustrated the agreement and additionally, the Body Corporate used its powers under the scheme in a manner not contemplated at the time of the agreement in November 2019.

[7]    There is a subsidiary body corporate, Western Park Subsidiary Body Corporate 493826, for the ground floor to level 3 and a unit added to the side of the building (Subsidiary Body Corporate). As the 51st respondent, it supports the Body Corporate’s position in all respects and was separately represented at the hearing. It says the scheme proposed by the Body Corporate remains appropriate and fairly recognises that the damage to the building requiring remediation is limited to the upper levels (levels 4 to 10), and that the cost of remediating that damage is appropriately borne by the owners of units on those floors. It also opposes the appointment of an administrator.

[8]    Within that simple introduction lie a number of issues and layers within each of those issues.

The building

[9]    The proposed scheme is in respect of a 10-storey unit title residential development at 9 Hopetoun Street, Freemans Bay, known as Western Park Apartments (Western Park). The purpose of the scheme is to enable repairs to leaks and, if required, to reclad the exterior of levels 4 to 10. The ground level to level 3 was redeveloped in 2015–2016. The redevelopment was comprehensive; those levels were fully reclad at that time. Those levels do not require remediation.

[10]   The building was constructed in 1988 and originally consisted of 16 residential units occupying levels 4 to 10. Each of those units comprises a principal unit and an accessory unit. Unit A, then a commercial unit, occupied four levels from the ground floor to the third floor.

[11]   In 2015–2016 Western Park Apartments Ltd converted unit A into a subsidiary unit title development with 28 residential units. Each of those units comprises a principal and an accessory unit. Part of the redevelopment involved the construction of Unit 504, a two-storey unit on levels 4 and 5 (described by some as a cling-on unit). Unit 504 is part of the Subsidiary Body Corporate, which is the body corporate for the subsidiary unit title development. The Subsidiary Body Corporate has a 52.4 per cent ownership interest in Western Park.

[12]   The penthouse, known alternatively as unit Q, unit 900, or levels 9 and 10, is owned by the Trustees of the Trust. Unit 900 is on two levels and is surrounded by a deck on level 9. At 564 square metres (m2), Unit 900 has the largest area of all the units by some margin. Its ownership interest,4 is 4.42 per cent.

[13]   By way of comparison, the entire Subsidiary Body Corporate (formerly unit A) was, excluding accessory units, 806 m2 as at 1988. Since then unit 504 has been added. All other units on levels 4 to 8, excluding unit 402, range between 163 m2 and 184 m2. Unit 402 is 306 m2 because of its extra deck.

[14]   A Google photograph of the building is included below.5 As is apparent from the photograph, the level 9 deck forms part of the roof of the building below. The level 4 deck similarly functions as part of a roof over the units below.

4      The same as the utility interest; known as unit entitlement under the Unit Titles Act 1972 [1972 Act].

5      Included in an affidavit of Stuart Wilson, a chartered and registered building surveyor and director of Maynard Marks New Zealand Ltd, called as a witness on behalf of the Trustees.

[15]   Unit 900 has been owned by the Trust since around 1999. From the early 2000s the Trustees (particularly Mr Hannam) have worked on plans for a redevelopment of levels 9 and 10.

[16]   All but three of the owners in the original residential tower purchased their units before the Act came into effect. The three who bought subsequently are the owners of unit 801 (the 37th respondents), unit 501 (the 28th respondent) and unit 401 (the 25th respondents). All three support the scheme as do the other owners of levels 4 to 8.

[17]   Under the unit plan the exterior walls of all the units, including windows and exterior weatherproofing fabric, are unit property, not common property. The cladding is accordingly unit property, not common property. The roof of unit 900, ie the roof of level 10, the skylight and the deck of unit 900, are all unit property.

[18]   The only parts of the building that are common property are the entry and exit doors, building walls fronting the carpark area on the ground floor, exterior walls of the mechanical services core, the capping of the mechanical services core, the internal service and lobby areas on each level, and the basement walls. There is also a small area of common property at the rear part of level 9 which contains mechanical service shafts that extend to the roof of level 10. The air space above the top of the level 9 boundary is common property.

[19]   Unit boundaries between units are: laterally, to the mid-point of any internal walls; and vertically, to the mid-point of the inter-tenancy Dycore concrete slab between each level.

[20]   There is evidence that unit 900 has been leaking since at least May 2001. On at least five occasions since then, the Trustees have represented to the Body Corporate that they intended to carry out a redevelopment of unit 900 that would stop water leaking into units below.

[21]   It is not necessary at this point to traverse issues relating to damage to the building. I simply note that it was against the backdrop of ongoing leaks from unit 900 into the units on level 8, and the absence of any redevelopment of unit 900 by the Trustees (despite representing that they intended to do so), that led the Body Corporate to apply for orders settling a scheme.

Application for orders settling a scheme

[22]   The Body Corporate made its first application for a scheme on 30 August 2017, in order to allow it to carry out work on level 9 to remedy the water leaking from it into the units on level 8 and below. It also sought to allocate the cost of the repairs between the unit owners.

[23]   A separate proceeding also commenced by the Body Corporate in 2017 related to the imposition of levies on the Trustees for costs the Body Corporate claimed it had incurred in relation to legal and consultant fees during 2015 (the Levies Proceeding). These fees were incurred for consideration of the Trustees’ redevelopment plans for levels 9 and 10 and for investigating and developing a remedial solution for repairs to the level 9 deck. The amount involved was approximately $100,000.

[24]   The two proceedings were set down for a two week hearing before Davison J commencing on 11 November 2019. As already noted, the Trustees were the only party opposing the Body Corporate’s scheme application (their grounds of opposition were substantively the same as the grounds they advanced for this hearing).

[25]   The following is but a brief summary of the events relating to the making of the consent order settling the scheme and the subsequent cancellation of that order.

The full details are in the judgment of Davison J.6

[26]   The scheme attached to the 30 August 2017 application included a provision dealing with the allocation of costs as follows:

10Allocation of costs

10.1The Cost of those Repairs to unit property shall be borne by the Owner/s of that unit property.

10.2The Cost of those Repairs to common property shall be paid by the Body Corporate and apportioned among Owners in accordance with the Act.

[27]   On 6 September 2017, the Body Corporate applied for interim orders authorising it to effect temporary repairs to the building pending determination of its application for approval of the scheme. Consent orders were made on 13 November 2017 pursuant to which the Trustees were prohibited from undertaking any construction or repair work to the surface of the level 9 deck without the consent of the Body Corporate or the Court. It was also agreed the Trustees would afford the Body Corporate and its agents reasonable access to the level 9 deck between designated hours to enable the Body Corporate to carry out and install a temporary

6      Body Corporate 126001 v Hannam, above n 2.

repair solution in respect of the water leaking into unit 801 (belonging to the 37th respondent) below.

[28]   Minutes of the Body Corporate Committee (Committee) meeting held on    14 December 2017 record discussion regarding responsibility for carrying out the repairs to the deck of unit 900 and the damage caused to the units below. The minutes of that meeting include the following:

After discussion the meeting formed the view that it was entirely appropriate that any costs associated with both temporary repairs, and the permanent repair solution, together with remediating consequential damage arising from unit 900’s direct actions including the earlier failures to repair, despite multiple commitments, should rest solely with unit 900.

[29]   As a consequence, on 30 April 2018 the Body Corporate filed an amended originating application for an order sanctioning and settling an amended s 74 scheme. The amended application and scheme contained an amended provision regarding the allocation of costs as follows:

10.Allocation of Costs

10.1The Cost of those Repairs to the affected levels shall be borne by the Owner of levels 9 and 10 unless the Repair is a Voluntary Upgrade sought by any other Owner.

[30]   On the evening before the hearing was due to commence, a settlement was reached between the Body Corporate and the Trustees (2019 Settlement). This was reflected in a Deed of Settlement dated 11 November 2019 (the Deed). In short, the agreement was that:

(a)the Trustees would consent to a further amended scheme with a different cost allocation; and

(b)the Body Corporate would no longer pursue the Levies Proceeding.

[31]   On 11 November 2019 a consent memorandum was filed with the Court. Attached to the memorandum was a s 74 scheme that contained amendments in relation to costs. In summary, this amended scheme provided (in relation to cost allocation) that:

(a)“Direct Construction Costs” for work undertaken on a specific unit would be paid for by the individual owner of that unit;

(b)“Indirect Construction Costs” (being preliminary and general costs and scaffolding) would, where more than one unit was being repaired, be shared by those units in proportion to their respective ownership interests; and

(c)repairs to common property at levels 4 to 10 would be paid in proportion to ownership interest (as had always been the case).

[32]   On 12 November 2019 Davison J made an order approving the scheme in the amended form proposed. In accordance with the joint memorandum of 11 November 2019, an order was made for the scheme to lie in Court until 11 November 2020 upon which date it would become operative. The purpose of the order lying in Court for  12 months was to give the parties time to reach an agreement relating to the Trustees’ proposed redevelopment, including the sale of the Body Corporate’s common property (air space) at level 10 to the Trustees as at that point they wished to increase the size of the dwelling.

[33]   The order provided that if the parties did not reach agreement in relation to a development agreement by 11 November 2020, the scheme order would be sealed, released by the Court, and become operative.

[34]   Once operative, the scheme would have retrospective effect to the extent that the Body Corporate could recover from any owner the historic costs of repairs which had been effected to the units during the period after commencement of the proceeding but before the scheme became operative.

[35]   Notwithstanding the existence of historic repairs to unit 900, the Body Corporate and the Trustees agreed the Trust would only be required to contribute an ownership interest share of the costs for historic repairs to unit 900 incurred or made prior to the date of the scheme becoming operative.

[36]   The Body Corporate agreed to discontinue the Levies Proceeding with no issue as to costs.

[37]   After the consent order was made the order lay in Court for a year as provided for, while the parties endeavoured to reach agreement in relation to a development agreement for unit 900. An agreement was not reached. In accordance with the Court order, the scheme became operative on 11 November 2020.

[38]   To back up for a moment, shortly after the scheme was approved, the solicitors for the Body Corporate wrote to the owners of unit 801 (the 37th respondents), whose unit is on the level below unit 900 (in part below the level 9 deck and in part below the level 9 apartment), advising that the Committee would be looking to levy them for the repair costs for unit 801. After an amendment to the sum, this was $185,932. The unit 801 owners said they were adversely affected by the changes to the scheme’s cost allocation provisions that were amended as part of the 2019 Settlement and had not been given sufficient notice of them. On 5 October 2020 the 37th respondents applied for orders varying the cost allocation provisions of the scheme.

[39]   The Trustees opposed unit 801’s application. In other words, they sought to maintain the 2019 Settlement and the scheme as ordered.

[40]   In his judgment of 3 September 2021, Davison J considered that the owners of unit 801 were significantly affected by the amendments agreed between the Body Corporate and the Trustees and as such, ought to have been given notice of them and afforded the right to be heard.7 Rather than granting unit 801 owners’ variation request, the Judge considered the proper course was to cancel the consent order made on 12 November 2019 approving the scheme that had been agreed between the Body Corporate and the Trustees. An order was made accordingly.

7      Body Corporate 126001 v Hannam, above n 2, at [85]–[89].

[41]   The Judge also directed the Body Corporate to effect service of the application (as revised in the 2019 Settlement) on all parties entitled to be heard regarding the scheme.8 The Body Corporate accordingly filed an amended s 74 application on 1 October 2021 seeking approval of a scheme in all material respects identical to that which had formed the basis of the 2019 Settlement with the Trustees. The application was served on all unit holders.9

[42]   Two unit holders filed notices of opposition: the owners of unit 801; and the Trustees.

[43]   The Body Corporate and the owners of unit 801 subsequently reached a settlement and filed a joint memorandum of counsel dated 7 July 2023 advising the Court that:

(a)the unit 801 owners withdrew their opposition to the scheme and now supported the making of an order approving the scheme; and

(b)the unit 801 owners opposed the approval of any scheme that contained different cost allocation rules to those set out in the draft scheme.

[44]In summary, the position by the time the hearing commenced was that:

(a)all unit owners other than the Trustees supported the Body Corporate’s application for orders settling a scheme; and

(b)the Trustees opposed the making of orders settling the scheme which they had agreed to consent to as part of the 2019 Settlement.

[45]   Up to the date of the hearing the Trustees, despite their opposition to the Body Corporate’s proposed scheme, had not elected to propose their own scheme or even propose amendments to the Body Corporate’s scheme. It was not until his oral opening

8 At [92].

9      The Body Corporate has since filed a third amended originating application for an order settling a s 74 scheme dated 10 February 2023. The scheme annexed is the same as the scheme annexed to the 1 October 2021 application.

submissions on behalf of the Trustees that Mr Bigio KC proffered an alternative scheme. The main changes involve the appointment of an independent administrator and different cost allocation provisions. But there are other changes as well. A further alternative scheme was suggested on behalf of the Trustees during Mr Bigio’s closing submissions. No written draft scheme was filed. The further alternative scheme would retain the same cost allocation provisions as in the first alternative scheme, but would dispense with an administrator. Stipulated directions for steps to be taken would be set out for the Body Corporate to follow.

The issues

[46]   It is well-settled that there is a three step process the Court follows when considering an application under s 74 of the Act to settle a scheme.10 Although Tisch v Body Corporate No 318596 was decided under the Unit Titles Act 1972 (1972 Act), s 48 of the 1972 Act is materially identical to s 74 of the Act. The Tisch criteria have continued to be applied in cases under the Act. The three steps are:

(a)Step 1: the Court must be satisfied that the building has been damaged or destroyed.

(b)Step 2: if satisfied, the Court must decide whether to settle a scheme. That is, the Court must decide whether a scheme is appropriate in the circumstances.

(c)Step 3: if the Court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.

[47]   There is no dispute that the triggering requirement in step 1 is met. There is evidence before the Court that the building is damaged, although there are differences between the parties about the extent of the damage. All parties agree, however, that unit 900 needs substantial remediation and that this should happen as soon as possible. All parties also accept that remediation of unit 900 could possibly trigger a need to

10     Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 697 at [35] [Tisch].

replace the Dryvit cladding on levels 4 to 8 (but excluding unit 504). They also agree that this will ultimately be an issue for the Auckland Council (Council).

[48]   Step 2 is similarly not in issue. The Trustees support the Court sanctioning a scheme, just not the scheme proposed by the Body Corporate.

[49]   It is step 3 that is in issue. The Trustees’ opposition to the Body Corporate’s scheme falls under four broad headings:

(a)First, they object to the cost allocation provisions in the Body Corporate’s scheme.

(b)Second, they object to the Body Corporate administering the scheme and say that an independent administrator ought to be appointed in place of the Body Corporate.

(c)Third, they take issue with the scope of repairs proposed under the scheme. They say it does not contain sufficient details.

(d)Fourth, they say the scheme has not had the broad support of owners because it has not been the subject of a resolution at a general meeting.

[50]   After setting out the provisions of the Body Corporate’s proposed scheme, I will first consider the following two issues:

(a)the effect of the 2019 Settlement (Issue One); and

(b)whether the Court can consider the Trustees’ two alternative scheme proposals (Issue Two).

[51]   Then, assuming the Court is able to consider the alternative schemes advanced by the Trustees, I will summarise the history of the Trustees’ redevelopment proposals. This background is relevant to the allocation of costs under a scheme.

[52]I will then consider:

(a)Whether the Body Corporate’s cost allocation or the Trustees’ alternative cost allocation should be approved (Issue Three).

(b)Whether an independent administrator should be appointed or whether the Body Corporate should administer the scheme. As part of the context, I will consider the Trustees’ criticisms of the Chair of the Body Corporate and allegations regarding expert reports commissioned by the Body Corporate (Issue Four).

(c)Other amendments in the Trustees’ first alternative scheme (Issue Five).

(d)The Trustees’ second alternative scheme (Issue Six).

(e)Any of the five guiding principles in step 3 of Tisch not addressed in consideration of the above issues (Issue Seven).

[53]   In addressing the above issues I bear in mind the Body Corporate carries the burden of satisfying the Court that the scheme it proposes should be settled.11

[54]   It is important to also set out at this point what the Court does not need to decide. The Court received a large amount of evidence in the form of affidavits, cross- examination of some of the deponents, and reports commissioned at various times since 2001 by both the Body Corporate and the Trustees which addressed issues such as the state of the cladding on the building and various aspects of damage to the building. As well, there are emails and minutes of meetings on these issues.

[55]   However, the Court does not need to determine the scope of repair works to be carried out, including whether levels 4 to 8 of the building need to be fully reclad now.12 The Body Corporate accepts that levels 4 to 8 will need to be reclad at some

11 Gu v Body Corporate 211747 [2018] NZCA 396, [2019] 2 NZLR 463 at [58] [Gu].

12 As already mentioned, unit A (the Subsidiary Body Corporate) was reclad as part of the redevelopment in 2015–2016. There is no suggestion that the levels up to and including level 3 need to be reclad.

point. But whether that occurs now in connection with repairs to unit 900 or in the future is a matter for decision under the Body Corporate’s proposed scheme. Mr Bigio made it clear in opening submissions on behalf of the Trustees, and again in closing submissions, that the Trustees are not insisting that levels 4 to 8 need to be reclad now. (I note this appears to be a change of position from the position adopted before Muir J in October 2022.13 At that time it appeared to be submitted that any works must include a reclad.)

[56]   The current position, as acknowledged by the Body Corporate and by the Trustees, is that the decision as to whether levels 4 to 8 also need to be reclad will ultimately be one for the Council when evaluating an application for a building consent for work on levels 9 and 10.

[57]   That is not to say that all the evidence the Court heard about the state of the cladding and damage to the building is necessarily irrelevant. Some, but only a limited amount, will require referencing when the Court comes to address whether the Court should order a scheme involving the Body Corporate or whether an independent administrator should be appointed (if the Court is able to consider the Trustees’ first alternative scheme).

Admissibility issues

[58]   The Trustees say the Body Corporate’s evidence contains hearsay and non- expert opinion evidence which is not admissible pursuant to s 17 (hearsay rule) and ss 23–25 of the Evidence Act 2006. A schedule of the evidence objected to was provided.

[59]   As a related point, the Trustees also say that certain Body Corporate consultants did not properly qualify themselves in terms of the code of conduct for expert witnesses.14

13 Justice Muir heard an application by the Body Corporate under r 10.15 of the High Court Rules 2016 seeking that a separate question, namely whether by virtue of the 2019 Settlement the Trustees were estopped from opposing the order now sought, be determined prior to trial. The application was declined in Body Corporate 126001 v Hannam [2022] NZHC 2746.

14 High Court Rules, r 9.43 and sch 4.

[60]   It has not been necessary for the Court to address those issues. This is not a case where, for example, there are competing repair options that need to be assessed. I will not be weighing the evidence of the consultants against each other in that sort of context. The evidence of various consultants is only relevant (and then only to a limited extent) in the context of my consideration of whether the Body Corporate should be permitted to administer the scheme or whether an independent scheme administrator should be appointed.

The Body Corporate’s proposed scheme

[61]   I now set out the relevant provisions of the scheme which is attached to the Body Corporate’s third amended originating application:

(a)Clause A of the preamble provides that the repairs may involve private property of at least the units on levels 9 and 10 and possibly the affected lower levels of the building, but not the units in the Subsidiary Body Corporate.

(b)Clause C of the preamble provides that the scheme is intended to authorise the repair to property whether it be unit property or common property.

(c)Clause E of the preamble provides:

This scheme authorises the repair of the damage caused by water ingress into the affected levels of the Building and such other places (if any) are discovered in consequence of repairing the affected levels such that it is intended to cover the whole process of the anticipated repair to the affected levels including any further investigation into the extent of any consequential damage for the purpose of designing a repair solution, the carrying out of the repairs, ensuring the future integrity of the Building, compliance with building regulations and compliance with the Act.

(d)Clause 1 appoints the Body Corporate as the agent of each owner with authority to carry out repairs.

(e)Clause 2 defines the term “repairs”, which is to be given the widest possible meaning.

(f)Clause 3 defines the term “costs”, which is to have the widest possible meaning. Categories of cost for the purposes of cost allocation are defined in the schedule (referred to in [62] below).

(g)Clause 4 confers powers on the Body Corporate to enable it to carry out repairs and its obligations under the scheme.

(h)Clause 5 sets out the duties of the Body Corporate.

(i)Clause 6 authorises the Body Corporate to levy owners to carry out repairs. Relatedly, cl 7 addresses the situation where insufficient funds are received in response to a levy (for example, because an owner defaults on a levy obligation) and authorises the Body Corporate to levy other owners in order to meet the shortfall.

(j)Clause 8 authorises the Body Corporate to borrow money from third parties to fund repairs or fund any defaulting owner.

(k)Clause 9 provides that any funds received pursuant to levies for repairs shall be used to pay for the costs of repairs incurred.

(l)Clause 10 provides that costs are to be allocated between owners in the manner described in the schedule.

(m)Clause 11 addresses matters relating to the accounting of owners’ payments of levies.

(n)Clause 12 provides that the Body Corporate must keep each owner fully informed of the details of repairs and progress by reporting not less than every three months. The clause sets out what the reports to the owner must include.

(o)Clause 13 provides for arbitration of disputes arising under the scheme. In the absence of agreement, the arbitrator will be appointed by the President of the Auckland District Law Society [now The Law Association]. The arbitrator’s decision is final. The clause includes a “pay now, argue later” provision.

(p)Clause 14 addresses insurance.

(q)Clause 15 provides a standard indemnity to the Body Corporate. It does not include liabilities arising from acts or omissions done fraudulently or with wilful misconduct.

(r)Clause 16 addresses the application of the scheme in circumstances where a unit is sold before repairs are completed and paid for.

(s)Clause 17 addresses the situation where an owner comprises more than one person.

(t)Clause 18 sets out owner obligations.

[62]   The cost allocation rules are set out in the schedule to the scheme and are as follows:

(a)The cost of repairs to common property at levels 4 to 10 are to be paid by ownership interest pro rata to ownership interest of the level 4 to 10 units. This applies unless the requirement for the relevant repair arises from an owner requested variation or works undertaken by an owner triggering an involuntary or otherwise unnecessary repair to common property. In that case, the costs will be paid on the same basis as direct construction costs.

(b)“Direct Construction Costs” are those costs directly attributable to work being undertaken on a specific unit and are to be paid by the owner of that unit.

(c)“Indirect Construction Costs”, meaning the preliminary and general costs and scaffolding, are to be paid as follows:

(i)If only one unit is being repaired at one time then the indirect construction costs are paid by the owner of that unit. But the owner of that unit is not required to contribute to the indirect construction costs for the repair of other units (unless some other part of the first unit is also being repaired).

(ii)If one or more units (and/or common property) at levels 4 to 10 are repaired together then the indirect construction costs are paid pro rata in proportion to their respective ownership interests.

(iii)If all units at levels 4 to 10 (and/or common property) are repaired together, such costs are paid pro rata in proportion to the ownership interest of levels 4 to 10.

(d)“Associated Costs”, being consultants’ fees, administration fees, insurance, management fees, territorial authority fees and other similar costs related to the repairs that fall outside the contract with the building contractor, are to be paid by ownership interest pro rata to the ownership interest of levels 4 to 10.

Issue One: the effect of the 2019 Settlement

[63]   The Trustees do not claim that the 2019 Settlement was not binding. Rather, they say in summary that:

(a)The agreement which led to their consent to the scheme in 2019 was frustrated in law because: the parties reached their agreement on the basis that the Court would sanction the proposed scheme; the scheme was set aside by the Court and is no longer sanctioned; and the parties did not agree to be bound in the situation where the scheme was not sanctioned.

(b)The 2019 Settlement was premised on the Body Corporate using the scheme to carry out specific repairs which it did not do.

(c)There has been a material change in circumstances that justifies their current opposition to the Body Corporate’s scheme.

[64]   They also say that the 2019 Settlement agreement cannot bind the Court as to do so would be inconsistent with the discretion the Court must exercise under s 74 of the Act irrespective of any agreement between the parties.

[65]   The Body Corporate and the Subsidiary Body Corporate say that the Trustees’ position is misconceived and should be rejected.

Frustration

[66]   The starting point in determining whether the contract was frustrated is to determine the precise agreement between the Body Corporate and the Trustees. It is apparent that there was an oral agreement reached as a result of negotiations on the eve of the hearing in November 2019. Craig Leishman gives evidence to this effect as someone privy to the negotiations leading up to the 2019 Settlement.15 Evidence of that settlement agreement was recorded in two documents: the Deed and a consent memorandum.

[67]   The Deed was signed by the Body Corporate and the Trustees. The Deed records, among other things as consideration, that the Body Corporate will discontinue the Levies Proceeding against the Trustees. In the section headed “BACKGROUND”, there is reference to an agreement:

C.The Parties have agreed to the High Court making an order in respect of a Scheme but which order is to lie in Court until 11 November 2020, upon which date the Scheme Order shall become operative.

[68]   This Deed was provided to the Court in November 2019 along with a consent memorandum dated 11 November 2019 to which the scheme was appended. In

15   Mr Leishman is the managing director and principal shareholder of Boutique Body Corporates   Ltd (BBCL). BBCL is the body corporate manager for the Body Corporate and the Subsidiary Body Corporate.

reference to the settlement reached between the Body Corporate and the Trustees, the memorandum states that the Body Corporate and the Trustees have reached agreement on the terms of a consent order as follows:

(a)The Court approves the scheme appended to this consent memorandum under s74 of the Unit Titles Act 2010 (“the Scheme Order”);

(b)The Scheme Order shall lie in Court until 11 November 2020 when it shall become operative and shall be binding on each respondent (and their successors and assigns, if any) until the scheme is completed and fully paid;

[69]   Neither the Deed nor the consent memorandum is a written contract. Despite the Deed recording the agreement, it is only recorded in the “BACKGROUND” section. The Deed in fact records the consideration given for the Trustees’ agreement to that particular scheme being put forward. The consent memorandum also only states to the Court what the parties had agreed to for the purposes of the consent order.

[70]   Relying on these two documents, the Body Corporate says the parties reached a binding contractual arrangement to settle, under which the Trustees owe the Body Corporate a continuing obligation to consent to the Court making orders under s 74 of the Act to settle a scheme on the terms agreed between the parties.

[71]   There are two potential ways of construing the agreement between the Body Corporate and the Trustees:

(a)the Trustees agreed to a commitment to consent to orders settling the agreed scheme; or

(b)the agreement was limited to a commitment by the Trustees to sign the particular consent memorandum in 2019.

[72]   The Body Corporate argues for the first interpretation of the contract, saying that the Trustees are obliged to agree to the Court “making an order in respect of the scheme”.

[73]   The second, narrower interpretation of the contract arises because the Deed and the consent memorandum describe the agreement with the qualification that the parties have agreed to an order for the scheme to lie in Court for one year before becoming operative.

[74]   In determining whether there is an agreement still on foot between the parties, and if so, what that agreement is, I look to the Deed and the consent memorandum as relevant extrinsic evidence. The proper approach to interpretation is an objective one, which can be informed by the context surrounding the contract even where there is no ambiguity in the contractual language.16

[75]   Taking into account the Deed and the consent memorandum also accords with the Supreme Court’s discussion of the relevance and admissibility of extrinsic evidence in Bathurst Resources Ltd v L&M Coal Holdings Ltd, where the Court clarified the overlay of the admissibility of evidence under the Evidence Act 2006 in the law governing the interpretation of contracts.17

[76]   I am of the view that the agreement should be read more broadly as the Body Corporate argues. Although the agreement in the Deed and the consent memorandum contains the condition that the order for the scheme lie in court for one year, that does not change what I consider is the common object or main purpose of the agreement between the parties: to resolve the Trustees’ opposition to the Body Corporate’s proposed scheme and therefore agree to the Court making an order in respect of that particular scheme.

[77]   The agreement must be read in the context of the Body Corporate attempting to resolve the water-tight issues in the building and the need to repair the building. The entire aim of the agreement was to resolve these issues with all the unit owners consenting, in particular, the Trustees.

[78]   The reference to when the scheme would become operative in the description of the agreement in the Deed and the consent memorandum is a reference only to the

16     Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].

17     Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.

mechanism by which the scheme would become operative. It does not affect the essential agreement the parties arrived at, which were the particular terms in the scheme.

[79]   Furthermore, the scheme referred to in the descriptions of the agreement is the same scheme that is being put forward by the Body Corporate in the current application. The Trustees agreed to that scheme back in 2019 and aside from the timing of when the scheme would become operative, there is no material difference.

[80]   A broad reading of the agreement is also consistent with the nature of the relationship between the Body Corporate and the Trustees and the context surrounding the negotiations for a scheme. Therefore, I find that there remains an obligation on the Trustees to consent to an order of this Court settling the scheme proposed by the Body Corporate under s 74 of the Act.

[81]   The Trustees say that the agreement was frustrated by Davison J’s judgment in 2021 cancelling the consent order which approved the scheme. Mr Bigio relies on Planet Kids Ltd v Auckland Council and submits that a contract will be frustrated if the circumstances in which the parties intended to be bound have disappeared.18 He says that in this case there was no intention to be bound in a situation where there is no scheme, and because the scheme was set aside, this is such a situation.

[82]   The Body Corporate and the Subsidiary Body Corporate say that the contract has not been frustrated because it must be the common object, or main purpose of the contract that has been frustrated. Mr Orpin-Dowell, counsel for the Body Corporate, submits that the common object was to obtain the scheme orders. He says the cancelling of the consent order approving the scheme in 2021 was a procedural and technical supervening event that has no bearing on the Trustees’ ability to consent to the scheme.

[83]   Mr Nilsson, for the Subsidiary Body Corporate, submits that: the parties did not intend to be released from the 2019 Settlement if the scheme was set aside; the

18 Planet Kids Ltd v Auckland Council [2012] NZCA 562, [2013] 1 NZLR 485. The Court of Appeal decision was allowed on appeal in Planet Kids Ltd v Auckland Council [2013] NZSC 147, [2014] 1 NZLR 149 [Supreme Court Judgment].

contract has not been rendered incapable of performance; and the concerns of the Trustees regarding the 2019 Settlement do not justify their position that the agreement has been frustrated.

[84]   The test for frustration has been expressed in varying ways but common among the expressions is that where the circumstances of a contract have been rendered radically different by reason of some event, and that frustrates the common object of the contract, frustration will likely arise.19

[85]   The Supreme Court in Planet Kids Ltd v Auckland Council recognised that there will be varying factual situations that may give rise to frustration,20 and applied the multi-factorial approach which takes into account the following relevant factors:21

(a)the terms of the contract;

(b)its matrix or context;

(c)the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at least to the extent that these can be ascribed mutually and objectively; and

(d)the nature of the supervening event; and

(e)the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.

[86]   The courts have also upheld a high threshold for a finding of frustration.22 Where future performance has been rendered more expensive, onerous or difficult, the threshold will not have been met.23

[87]   One example of where frustration arises is when the purpose of the contract is rendered unattainable.   On a narrow reading  of  the contract  in  this case, where the

19 For different formulations see, for example: Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 (HL) at 729; National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 (HL) at 700; and Hirji Mulji v Cheong Yue Steamship Co Ltd [1926] AC 497 (PC) at 507.

20 Supreme Court Judgment, above n 18, at [59] referring to the comments of Stephen J in Brisbane City Council v Group Projects Pty Ltd (1979) 145 CLR 143 at 163.

21 Supreme Court Judgment, above n 18, at [60] and [62] citing Edwinton Commercial Corp v Tsavliris Russ (Worldwide Salvage and Towage) Ltd (The Sea Angel) [2007] EWCA Civ 547, [2007] 2 Lloyd’s Rep 517 at [111].

22 Davis Contractors Ltd v Fareham Urban District Council, above n 19, at 729.

23 National Carriers Ltd v Panalpina (Northern) Ltd, above n 19, at 700.

purpose is limited to consenting to the memorandum put forward in November 2019, it could be argued that the purpose has been rendered unattainable by the order of Davison J cancelling the consent order approving the scheme.

[88]   However, as discussed above, I am of the view that the agreement is to be read more broadly than that. The main common purpose of the settlement agreement was to resolve the Trustees’ opposition to the Body Corporate’s proposed scheme and therefore agree to the Court making an order in respect of that particular scheme. The main purpose or common object of the contract has not become unattainable. The settlement agreement has not been rendered incapable of performance.

[89]   Despite Davison J cancelling the consent order approving the scheme because of the procedural issue of the Body Corporate failing to effect service properly on most of the respondents, the purpose of the contract was to have that scheme become operative after one year from the Court orders sanctioning the scheme. That purpose is still attainable as the Body Corporate subsequently effected service and the scheme put forward in the present application is the same as the one before Davison J.

[90]   In opening the case for the Body Corporate, Mr Orpin-Dowell submitted that if there was no binding contract requiring the Trustees to consent to the scheme now, they are nevertheless estopped from resiling from their earlier consent.24 However, in his closing submissions Mr Bigio argued that the agreement had in fact been frustrated. This argument is premised on the existence of a contract.  In response,  Mr Orpin-Dowell submitted in closing there is no need to rely on equitable estoppel because the Trustees’ submission of frustration recognises the existence of a contractual obligation.

[91]   In those circumstances, with both parties agreeing there was a contract, the doctrine of estoppel does not arise. Estoppel allows the law to hold a person to their promises where for some reason a breach of that promise cannot be grounded in an action for a breach of contract. That is not the case here. The question is not whether

24     Relying on Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44] and Wolfe v Wolfe [2021] NZHC 2878 at [78]–[80].

there is a contract but rather how the contract is to be interpreted and therefore whether it has been frustrated.

[92]   For reasons set out above the contract between the Body Corporate and the Trustees was not frustrated.

Was the 2019 Settlement conditional on specific repairs?

[93]   The Trustees say that at the time of the 2019 Settlement the Body Corporate was proposing specific repairs on levels 9 and 10. In support of their position the Trustees refer to paragraph 30 of an affidavit sworn on 16 October 2019 by Alan Ferens, the owner and founder of a building construction company who gave evidence on behalf of the Body Corporate, and an affidavit of Anthony McCullagh, the Chair of the Body Corporate.

[94]   The Body Corporate in response says the 2019 Settlement was not conditional on the Body Corporate carrying out the repairs referred to by Mr Ferens in his affidavit if a development agreement did not eventuate. The Body Corporate also says the Trustees’ position is inconsistent with their repeatedly stated position that they do not want, and have never wanted, like-for-like repairs to be carried out in accordance with the steps described by Mr Ferens. The Trustees have made it clear they wish to carry out some form of redevelopment of levels 9 and 10.

[95]   Mr Ferens is the owner and founder of Inner Sanctum Ltd, a building construction company which operates in the areas of: waterproof membrane construction and solutions; identification and analysis of construction defects; and design and construction of waterproofing solutions in relation to roofs, decks, and wet areas inside or outside houses or buildings.25 In about October 2016, Mr Ferens was contacted by Ian Guilford, the developer of unit A into residential apartments, to assist the Committee in preparing a temporary repair solution to prevent further leaking from the level 9 deck to the apartments below.

25   The Trustees challenged the evidence of a number of the Body Corporate’s witnesses including   on the basis that they had not complied with the Code of Conduct for expert witnesses (High Court Rules, r 9.43 and sch 4). It is not necessary to address that challenge for present purposes. There was no challenge to Mr Ferens’ experience as a waterproofing contractor.

[96]   In his affidavit Mr Ferens states that although the temporary repair solution had resolved water ingress from the level 9 deck, the water ingress issues with the level 9 apartment remained unresolved. In paragraph 30 of his affidavit Mr Ferens sets out various steps that he considered needed to be taken to halt future ingress to level 9 and the levels below. It included work associated with re-waterproofing the entire level 9 deck, undertaking all necessary repairs to the existing structure, and removing and replacing all existing joinery on level 9. Mr Ferens stated that his measures were “a very broad description” of the necessary steps and were not intended to be a specification for the work.

[97]   In the paragraph of Mr McCullagh’s affidavit of 18 October 2019 relied on by the Trustees, Mr McCullagh says that the Body Corporate had embarked on a programme to stop the leaking from both the level 9 deck and the level 9 and 10 dwelling into unit 801, and to repair unit 801. He says two of the three steps necessary had been achieved. He goes on to say that subject to the scheme being passed, the Body Corporate intended to effect a repair to the level 9 and 10 dwelling in accordance with the scope of work suggested by Mr Ferens.

[98]   The work that the Body Corporate undertook was different from the repairs referred to by Mr Ferens. It involved removing the windows and window joinery at levels 9 and 10 and wrapping those levels in a waterproof wrap.

[99]   There is nothing in the Deed or the consent memorandum that explicitly states, or even allows the inference to be drawn, that the 2019 Settlement was conditional on the Body Corporate carrying out the repairs referred to in Mr Ferens’ 16 October 2019 affidavit if a development agreement was not able to be agreed. Any suggestion that the Body Corporate would be limited to the steps in Mr Ferens’ affidavit is at odds with the terms of the scheme the Trustees agreed to, which give the Body Corporate a wide discretion to commission such repairs it considers “necessary or advisable”.

[100]   When Mr Hannam was cross-examined he was referred to paragraph 30 of Mr Ferens’ affidavit. Mr Hannam acknowledged that there was nothing in that paragraph that referred to a development agreement or that the work Mr Ferens referred to would be done if there was no development agreement. Mr Hannam was

asked whether it was a term of the 2019 Settlement that the Body Corporate would carry out the repairs described by Mr Ferens. He denied that it was and said that it was merely his “subjective understanding” that this was what might be done if there was no agreement:

Q So, are you saying that this [the work described by Mr Ferens] was incorporated into the settlement deed that you signed with the body corporate?

A        No, I never said that.

Q So, you had a subjective understanding then that this might be what  would be done if no development agreement was done?

A        Correct.

[101]   Mr Hannam’s “subjective understanding” is not sufficient for that to be a contractual term.26 Further, Mr Hannam’s position that it was merely his subjective understanding is consistent with the evidence of Mr Leishman.  In his affidavit of   28 April 2023 (on which there was no cross-examination), Mr Leishman said that, like the Body Corporate, Mr Hannam knew there was a risk that there would not be agreement over the terms of a development agreement, and in which event matters would default to the agreed scheme terms. There was also no certainty as to the design or scope of the intended unit 900 redevelopment. That was all within Mr Hannam’s plans which were not shared with the Body Corporate.

[102]   The Trustees’ argument on this issue is also inconsistent with their explicitly stated position, over the years through to the hearing, that they do not want and have never wanted like-for-like repairs to be carried out (which is essentially what the repairs mentioned by Mr Ferens in his affidavit would have involved). There is the following in cross-examination:27

QAnd I just want to be clear, if the body corporate were to do the things in paragraph 30 [of Mr Ferens’ affidavit] under the scheme order that it asks the Court to reinstate then you would be happy with that, would you?

A        Given what’s taken place since 2019, no.

…

26     Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 17, at [77].

27     Page 450, l 31–35.

Q … What would you like done, what’s your proposal for the physical structure? What do you want there?

…

Q        Reinstatement of the existing as described by Mr Ferens?

A No I think what would be, make most sense given the experts have contributed towards looking at the deck, the structural defects that were in the building to begin with is that the best thing is to build out over the deck.

[103]   For all the above reasons, I do not accept the Trustees’ position that the 2019 Settlement was conditional on the Body Corporate undertaking specific repairs referred to in paragraph 30 of Mr Ferens’ affidavit of 16 October 2019 if the development agreement was not concluded.

[104]   Even if there had been an implied commitment by the Body Corporate to carry out the specific repairs referred to by Mr Ferens if no development agreement was reached (which I do not find), the appropriate remedy would be to seek to compel the Body Corporate to comply with that commitment or bring a claim for damages, not to resile from the 2019 Settlement.

Was there a material change in circumstances?

[105]   The Trustees say it is not unconscionable for them to oppose the scheme. They say the manner in which the Body Corporate now proposes to use and has actually used the scheme is different from the Body Corporate’s proposal in 2019. I have already made a finding that Mr Hannam’s subjective understanding is not sufficient. It is the objective understanding of the parties that the Court considers.

[106]   The Trustees also say that since the 2019 Settlement, the Body Corporate has undertaken work which has meant they have not been able to live in their apartment. They say the Body Corporate now seeks to sanction this work through the scheme. They say, in this manner, the Body Corporate is using the scheme in a very different way to that which was proposed in 2019. The Trustees say they would never have agreed to the scheme in 2019 if they were aware this could happen.

[107]   However, any events such as the ones the Trustees rely on after the contract was formed and while they are still subject to the terms of the contract does not change their contractual obligations or relieve them of those obligations. Generally parties remain bound by their contract unless and until that contract expires, is terminated or cancelled or frustrated. A material change in circumstances is not sufficient on its own.

[108]   In any event, I do not consider there is a material change in circumstances. Although the parties did not reach agreement in relation to a development agreement for levels 9 and 10, I have found that was not a condition of the 2019 Settlement. The parties expressly agreed that the scheme would come into effect even if no development agreement eventuated. The Body Corporate simply proceeded with repairs to unit 900 as it was entitled to do under the scheme.

[109]   Mr Bigio makes the submission that the works carried out by the Body Corporate to levels 9 and 10 (the deglazing and wrap of unit 900) were unlawful and not authorised by the scheme.

[110]   I do not accept Mr Bigio’s submission. The term “Repairs” is defined widely under the scheme as follows:

2.Repairs

2.1The term Repairs is to be given the widest possible meaning. “Repairs” shall include removal, replacement, alteration, reconstruction, reinstatement, modification, redesign to the Building necessitated for any reason. Except in the case of manifest error, the decision of the Body Corporate as to what constitutes Repairs, shall be final and binding on all Owners. Repairs shall incorporate all work the Body Corporate considers necessary or advisable to,

(a)Repair or remedy the damage to the Building; and,

…

(d)Take such steps, and carry out such works, as are practicable in the opinion of the Body Corporate to ensure the integrity of the Building can be maintained into the future and that water damage to the Building does not recur in the foreseeable future; and,

…

(f)For the sake of clarity Repairs shall include but not be limited to:

…

(vi)All investigatory work into the scope of Repairs, or   the process or work required to remedy any damage or to [effect] any Repairs, carried out at any time and from time to time;

…

[111]   As is apparent, “Repairs” includes “removal”. Therefore, the removal of the windows and window joinery were within the powers of the Body Corporate. The Body Corporate’s decision as to what constitutes a repair is “final and binding” on owners. “Repair” incorporates all work the Body Corporate considers necessary or advisable to ensure that water damage to the building does not recur in the foreseeable future. As any building consent will take time to obtain, the building is required to be protected in the meantime. “Repair” also includes the process or work required to remedy any damage.

[112]   The Body Corporate considered, after reviewing the options, that the wrap would make the building weathertight while the Trustees decided how they wished to proceed with rebuilding, whether within their boundaries or as part of a redevelopment.

[113]   To conclude, I do not consider there is any material change in circumstance since the consent order was made in 2019 that enables the Trustees to avoid their contractual obligations. The Trustees must have recognised there was always a possibility that agreement would not be reached on a development agreement in the 12 month period during which the scheme was to lie in Court. When agreement was not reached, the Body Corporate carried out temporary repairs it was entitled to make under the scheme.

[114]   Although the Trustees have been unable to access their unit for longer than anyone anticipated, that is a consequence of: the cancellation of the consent order approving the scheme as a result of an application by another party; the Trustees’ opposition to their unit being reinstated; and the Trustees’ wish for a redevelopment

(unspecified), which would be an owner requested variation under the scheme and which was for them to propose and specify.

Whether the Court’s discretion under s 74 of the Act is fettered by the 2019 Settlement

[115]   That parties cannot fetter the Court’s discretion under s 74 of the Act does not affect the validity of the 2019 Settlement. Settlements are commonly reached on the basis that the parties agree to seek orders by consent. Agreements of that nature do not fetter the Court’s powers. But that does not mean that they are not binding as between the parties.

[116]   While the Court has a discretion under s 74 of the Act as to whether to order a scheme, at the core of the enquiry regarding the terms of the scheme is that the Court is required to balance the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit holders.28

[117]   The scheme applied for by the Body Corporate is one that all unit owners have agreed to (the Trustees being bound by the 2019 Settlement). In those circumstances, the Body Corporate’s proposed scheme can be said to be fair. Although the Court has a discretion whether or not to make an order, it would be unusual for the Court to decide a scheme is not fair where all owners are agreed on its terms.

Conclusion on effect of 2019 Settlement

[118]   In conclusion on the effect of the 2019 Settlement, I consider the Trustees remain bound by their contractual obligations which prevent them from opposing the scheme. The contract between the Body Corporate and the Trustees was not frustrated. I do not consider there is a basis to allow the Trustees to now oppose the scheme because they did not manage to achieve a development agreement with the Body Corporate. That is effectively what they are doing here.

[119]   However, in case I am wrong in finding that the Trustees remain contractually bound to their agreement to consent to the scheme and accordingly are free to oppose

28     Tisch, above n 10, at [44].

the scheme, I will proceed to conduct the necessary analysis. There is, however, another issue which I need to address first.

Issue Two: can the Court consider the Trustees’ two alternative scheme proposals?

[120]   In their notice of opposition to the Body Corporate’s application under s 74 (which was served on all respondents), the Trustees include in their grounds that an independent scheme administrator should be appointed and they object to the Body Corporate’s proposed cost allocation.

[121]   There was no alternative scheme annexed to the notice of opposition, nor did the Trustees apply on notice under s 141 of the Act for the appointment of an administrator. No alternative scheme was annexed to the opening submissions filed in advance of the hearing.

[122]   The first proposed alternative scheme (Option 1) was handed up in the trial during Mr Bigio’s opening submissions. It includes (among other things) provisions relating to the appointment of an independent administrator and a different cost allocation.

[123]   Perhaps sensing the way the wind was blowing from the Court’s observations in discussions with counsel during the hearing over the lack of notice to respondents regarding the appointment of an administrator, Mr Bigio promoted another scheme (Option 2) as an alternative in his closing submissions. There was no draft scheme provided for Option 2 but in substance, under that option the Court could allow the Body Corporate to retain power to undertake the repairs but certain directions regarding steps the Body Corporate must take are proposed. Under Option 2 it is also proposed that if the Body Corporate does not take steps within a certain timeframe (for example 18 months to submit a building consent application), the Trustees would have leave to apply for the appointment of an administrator.

[124]Option 2 retains the amended cost apportionment that is in Option 1.

[125]   The Body Corporate and Subsidiary Body Corporate say that the Trustees’ proposed amendments in relation to cost allocation and the appointment of an administrator are not properly before the Court. They have not been served on all owners and mortgagees. Given that they involve significant changes that are prejudicial to other owners, they cannot properly or safely be sanctioned.

[126]   Mr Bigio submits that the Court has a wide discretion under s 74 and it is not a case of the Court having to accept or reject a scheme presented to it (referring here to the Body Corporate’s proposed scheme). He says the courts have often amended proposed schemes or sent the parties away to prepare amended schemes based on certain principles for the Court to consider again. Mr Bigio provides the example of Body Corporate 183930 v Chua where the Court asked the parties to make provision for certain matters, attempt to reach agreement, and if that was not possible the Court would consider the outstanding matters.29

[127]   Mr Bigio submits that in a situation such as that, it is not necessary to re-serve all of the owners. Those who do not participate would be aware that the Court has a discretion and they will not be heard in respect of terms determined by the Court.

[128]   Mr Bigio endeavours to distinguish the position faced by Davison J earlier in the proceeding. He says that application by the Body Corporate was amended in a material way and it was not re-served on all owners and interested parties. Those parties were entitled to know what the final application was. The same does not apply to changes initiated by the Court. He also says, in this case, the position of the owners is well known and it can be taken that they are satisfied for their interests to be dealt with by the Body Corporate, or as relevant, the Subsidiary Body Corporate, both of which are represented at the hearing.

29     Body Corporate 183930 v Chua [2015] NZHC 2122 at [123]–[124].

[129]   I accept Mr Bigio’s submission that not every change made by the Court to a draft scheme filed requires all respondents to be re-served. The materiality of the change is relevant. As was said by Davison J:30

[85] Not all amendments to a scheme made following service of a s 74 application or Special General Meeting of the members of a Body Corporate at which a proposed scheme has been considered need be re-served or reconsidered. In circumstances where amendments to a scheme do not significantly and prejudicially alter the outcome or application of a scheme so far as unit holders are concerned, amendments to a scheme, without further notice to unit owners may be appropriate.31 The Court must nevertheless be satisfied, that unit owners who may be significantly affected by further amendments to a proposed scheme, following service of the originally proposed scheme, have been given proper notice of the further amended scheme and that their right to be heard in relation to it, is recognised and given effect. …

[130]   However, this is not a situation where changes are being initiated by the Court. An amended scheme has been presented to the Court during the hearing without it having been served on the respondents and where the Body Corporate and Subsidiary Body Corporate were only provided copies during counsel’s opening submissions to the Court. This is effectively a counter application which has not been served.

[131]   In deciding whether to consider the amendments proposed on behalf of the Trustees, the Court needs to consider whether they significantly and prejudicially alter the outcome of the application of a scheme so far as unit holders are concerned. With that in mind I turn to consider each of the two main proposed amendments and a third important, but perhaps less significant amendment, all of which the unit owners have not had a chance to consider.

Changes to cost allocation

[132]The cost allocation in both Option 1 and Option 2 is as follows:

10.1Costs shall be allocated between Owners on an ownership interest basis, subject to clause 10.2 and 10.3 below.

10.2As set out in clause 2.1(g)(vi) above any Owner Requested Variation shall be at the cost of the owner of the unit concerned, and shall be calculated as follows:

30     Body Corporate 126001 v Hannam, above n 2.

31     Re Body Corporate 184013 [2017] NZHC 2194 application to settle scheme for remediation at [21]; Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329 at [69].

(a)The Administrator shall determine the cost of the Repair without the Variation (being a Repair as close as possible to the existing construction that would obtain a building consent and all approvals required by law) and the cost of the Repair with the Variation.

(b)The cost of the Variation payable by the owner of the relevant unit is the difference between the two costs in 10.2(a) above.

10.3The costs of enclosing the level 9 deck together with associated works (as set out at clause 2.1(c) above) shall be calculated as if it were an Owner Requested Variation in accordance with clause 10.2 above, and shall be paid by the Owner of unit 900.

[133]   This proposal fundamentally alters the Body Corporate’s cost allocation provisions.

[134]   Against the Trustees’ proposed cost allocation, I consider how their position in relation to costs has evolved and in particular, as regards notice to other owners:

(a)From November 2019 until October 2021, the Trustees supported the cost allocation provisions in the Body Corporate’s proposed scheme. As already noted, the cost allocation provisions were negotiated as part of the 2019 Settlement.

(b)From October 2021 (when the Trustees filed their first notice of opposition) until 25 September 2023 (on the afternoon of the first day of the trial), the Trustees contested the cost allocation provisions only in connection with the cost of repairing the level 9 deck. In the 2021 notice of opposition they referred to the level 9 deck as being a building element which serves more than one unit. The challenge to the Body Corporate’s cost allocation in that notice of opposition needs to be read in the context of the ground of opposition being one that relates to the deck.

(c)The February 2023 notice of opposition was even more explicitly tied to the level 9 deck. It says for unit 900 to have to pay all “direct construction costs” to the level 9 deck is “manifestly unfair as the

level 9 deck forms a substantial part of the roof over levels 1–8 and fairness requires that all owners contribute to the cost of the roof”.

(d)Neither notice of opposition put the other owners on notice that the Trustees sought (as they now do) to allocate all of the costs of repairing unit 900’s unit property, in accordance with cl 10.1 above, on the basis of ownership/utility interest.

[135]   In this regard, the owners have in fact had less notice than the changes that led to the decision of Davison J to cancel his order approving the scheme. In August 2019 the Body Corporate had in fact written to the owners of unit 801 advising them that it was intending to advance alternative cost allocation proposals, one of which was subsequently agreed to between the Body Corporate and the Trustees and which was included in the consent order: that the cost of the repairs to units 900 and 801 should be borne by the owners of those units. The letter included a schedule of costs for the work to unit 801 and invited the owners to consider whether they wished to appear at the hearing but they did not do so. In other words, the owners of unit 801 had some notice of the possible changes to the cost allocation provisions but the consent order approving the scheme was nevertheless cancelled.

[136]   In his judgment Davison J stated that “[t]he provisions dealing with the repair costs allocation are the central and crucial issues in dispute, …”.32 While the Trustees now propose other changes as well, the cost allocation provisions are no less central and the respondents were not given notice of the changes (apart from the 51st respondent, who received notice through counsel at the hearing).

Appointment of an administrator

[137]   In the Trustees’ notice of opposition, the proposal for an administrator to be appointed was expressed as follows:

(g)In the circumstances an independent scheme administrator ought to   be appointed to ensure that in implementing the scheme the applicant discharges its obligations with skill and care, exercises goodwill and co-operation, faithfully reports to the owners, takes into account

32     Body Corporate 126001 v Hannam, above n 2, at [92].

relevant matters only and does not unnecessarily harm the interests of the first respondents.

[138]   However, that ground was expressed in a general way and did not give the respondents fair notice of the proposal presented to the Court after the hearing had commenced. The reference in the notice of opposition to “the applicant” is clearly a reference to the Body Corporate. The way in which the ground is expressed leads the reader to understand that the Body Corporate will have a role in “implementing the scheme” but with oversight from an independent scheme administrator. However, the proposal put to the Court by the Trustees in Option 1 has the administrator making all decisions in connection with the scheme with no role for the owners/Body Corporate. The administration of the scheme is placed entirely in the hands of an independent administrator.

[139]   This is a significant amendment and is potentially prejudicial to the owners. The proposed amendments remove all of the owners’ decision-making powers. Additionally, the appointment of an administrator comes at a cost to the owners.

[140]   Furthermore, some of the powers and duties of the administrator are framed in a way that will enable the Trustees to receive common property air space rights without having to pay for those rights. In Option 1, under cl 1.2, the administrator is appointed to undertake the “Repairs”. Under cl 2.1(c), “Repairs” include:

[All works necessary to] [r]emove, as far as possible, the weathertightness risks associated with the level 9 deck, including consideration of enclosing the level 9 deck together with associated works; …

[141]Clause 4.2(m) provides:

Should the Administrator deem enclosure of the level 9 deck necessary, the Administrator shall, adjust the unit boundaries and deposit a new unit plan without the necessity of taking the steps set out in section 68(3) of the Unit Titles Act.

[142]Section 68(3) of the Act provides that:

(3)Before making the application to deposit the new unit plan, the body corporate must—

(a)ensure that all of the owners of the units materially affected by the redevelopment have consented in writing to the new unit plan; and

(b)if the existing unit plan relates to a stratum estate in leasehold or licence, obtain the written consent of the lessor or licensor to the redevelopment; and

(c)agree, by special resolution, to the new unit plan.

[143]   An enclosed floor under a pitched roof would be inherently less prone to weathertightness issues than a deck which also functions as a roof. As a consequence, any administrator considering how to remove the weathertightness issues associated with the level 9 deck, and who is directed by the scheme to consider enclosure, will adopt that solution. Once the administrator has made that decision he or she is compelled by cl 4.2(m) to alter the unit plan to accommodate it, without the owners having the opportunity to vote.

(i)his investigation of the level 9 deck; and

(ii)subsequently, his investigation following destructive testing of selected units at various levels of the building. Mr Rankine’s view as at 5 November 2018 was that the cladding had up to five years of life when it must be at the least, reviewed, if not replaced. While there is a three year difference between the combined opinion of those at Babbage and Mr Smith on the one hand, and Mr Rankine on the other, the owners are aware of Mr Rankine’s report (as referred to in [321] above) as it was annexed to his affidavit.

[330]   I accept that criticism of Mr McCullagh’s reporting to the Body Corporate can be made in the following respect. A report for the 21 October 2015 AGM was prepared in Mr McCullagh’s name. In the report it is stated that cladding “replacement will be required in the next 10–40 years”.  That is inaccurate.   Under cross-examination   Mr McCullagh stated that the report was prepared by the Body Corporate secretary

and not signed by him. However, I accept Mr Bigio’s submission that Mr McCullagh should have checked the report issued in his name.

[331]   There is also a statement in one of Mr McCullagh’s affidavits. Mr Bigio points to Mr McCullagh’s affidavit of 30 August 2017 in which he says:

… the BCC have also engaged the services of new additional consultants to develop a permanent or final repair solution for level 9 deck, namely:

…

(d) Mr Shawn McIsaac, a façade engineer who is reviewing earlier consultant’s work and the relationship between level 9 deck and façade. Mr McIsaac [is] one of a handful of façade engineers recognised by territorial authorities in New Zealand for their expertise in the weathertightness of multi-story developments.

[332]   Under cross-examination Mr McCullagh acknowledged that the Body Corporate  did  not  proceed  with  Mr  McIsaac.  I  agree  that  what  is  stated  in  Mr McCullagh’s affidavit gives a misleading impression. However, even when added to the inaccuracy regarding the time frame for recladding, referred to in [330] above, that is not sufficient to take the scheme out of the hands of the Body Corporate.

[333]   Further, I agree with Mr Bigio’s submission that schemes are not designed to be punitive in nature or for resolving old grievances. This is what seems to be happening here with the Trustees’ criticisms of the Chair of the Body Corporate.

Alleged influence of Mr Guilford

[334]   It will be recalled that Mr Guilford is the director and shareholder of Western Park Apartments Ltd, which was the developer of unit A in 2015–2016. It is submitted on behalf of  the  Trustees  that  a  scheme  administrator  is  required  because  of  Mr Guilford’s influence. It is said that Mr Guilford could veto any decisions of the Body Corporate because he holds a 52.4 per cent vote.

[335]   This criticism can be addressed in short order. It is the Subsidiary Body Corporate collectively that has 52.4 per cent of the vote. Mr Guilford’s ownership interest is around five or six per cent. Further, while Mr Guilford has in the past been both a Committee member and the Chairperson of the Subsidiary Body Corporate, and

in his capacity as Chair he was a member of the main Body Corporate Committee, he no longer holds any of those positions.

[336]Accordingly, I do not accept the allegation made in relation to Mr Guilford.

Alleged animosity towards the Trustees

[337]   It is alleged that the Chair of the Body Corporate and the Committee have engendered a high level of animosity towards the Trustees such that they will not be treated fairly.

[338]   Mr McCullagh denied those allegations in his affidavit of 18 October 2019. He said:

87. There is no doubt that there is a high degree of frustration and, in consequence of that, some owners have expressed anger. I am unaware of that being elevated to “animosity”. The only organised strategy are the two proceedings; to require by this section 74 application certainty about who is going to pay for what in connection with the repairs to L8&9 (because we as the owners below level 9 believe that Gary should pay for them for the reasons outlined) plus any future repairs and, in the ‘levy proceeding’, the BC is seeking payment for costs incurred in consequence of their actions. The Court must make a decision because certainty is better for everyone; people must know where they stand on this issue so that when they sell their unit they can foreshadow to purchasers what their liability is or might potentially be.

[339]   Mr McCullagh was not cross-examined on this evidence. Nor was the allegation put to any of the Body Corporate witnesses who were Committee members at various times and who swore affidavits in support of the Body Corporate’s application.

[340]   The only person to whom the allegation was put was Mr Ferens. He denied the allegation but in any event, I put that to one side because Mr Ferens is a contractor and not a member of the Body Corporate.

[341]   In support of the allegation Mr Bigio referred to three items of evidence. The first is what was termed the “blood nose” note, a document provided on discovery written by an unidentified Committee member. It is a one-page document dated 4 May

2016 and contains a series of bullet points. Mr Hannam is the focus of the note. The bullet points include the following:

For whatever reason, he will not desist unless he gets a serious blood nose. The strategies we might follow could be:

·Class action?

·Injunction of some sort?

·Court requirement to participate? (J Muir decision)

·Caveat on property

[342]   To give the note some context, on 2 May 2016 the solicitors for the Trust had written to the Body Corporate advising of the Trust’s application to have MBIE review the Council’s decision to grant the building consent applied for by the Body Corporate (refer to [202] above). The letter noted that as a result of s 183 of the Building Act, the works proposed by the Body Corporate may not proceed.

[343]   On 4 May 2016 the Committee held two meetings. The first was with two solicitors from Brookfields at Brookfields’ offices. The minutes of the meeting record there was a discussion about the 2 May 2016 letter from the Trust’s solicitors, the process that would follow and the action steps. The minutes of the second Committee meeting later that day indicate that a number of matters were discussed, including the MBIE application, as well as a number of other unrelated matters.

[344]   I agree that the note clearly indicates frustration at the then situation (now over seven years ago), but it does not reflect what was discussed, at least as recorded in the minutes of either of the two meetings that day. Further, it was not put to any witness that the Body Corporate did in fact adopt a strategy to give Mr Hannam a (metaphorical) “blood nose”. Nor was it put to any witness that any subsequent steps taken by the Body Corporate were part of some improper strategy.

[345]   Second, Mr  Bigio  referred  to  the  Levies  Proceeding  instituted  against  Mr Hannam which had been settled as part of the 2019 Settlement. In the course of cross-examination, Mr Bigio referred Mr McCullagh to the “blood nose” note and the references in that note to strategies that could be adopted by the Body Corporate.

Mr Bigio then put to Mr McCullagh that one of the actions that was later adopted was that proceedings were issued in the District Court to recover the costs the Body Corporate said it had expended in considering the July 2015 development proposal.74 Mr McCullagh agreed that proceedings had been issued. However, it was never put to Mr McCullagh that the proceeding was commenced for an improper motive, that the bringing of the proceeding reflected animosity towards the Trustees, or that the proceeding was part of any strategy. Nor was there any questioning linking the proceeding to the “blood nose” note. If that kind of allegation is to be made, it needed to be put to Mr McCullagh in plain terms. It was not.

[346]   The third item relied on by Mr Bigio related to damage to the membrane on the level 9 deck noted by Mr Ferens and reported to the Body Corporate. As Mr Orpin- Dowell submits, it is not surprising that the Body Corporate then took steps to protect the membrane. In any event, following an exchange of correspondence between the solicitors for the Body Corporate and the Trustees, the matter was brought to an end. It was not put to any Body Corporate member in cross-examination that the steps taken were motivated by any ill-will towards the Trustees.

[347]   For all the above reasons, I do not accept that the Chair of the Body Corporate or the Committee have engendered a high level of animosity (or any level of animosity) towards the Trustees.

Body Corporate not paying for repairs until scheme settled

[348]   The Trustees say that the appointment of an administrator is also justified on the basis the Body Corporate did not proceed to carry out repairs to unit 900 once the scheme order was cancelled.

[349]   I do not accept that criticism. Once the order was cancelled, the Body Corporate re-served its application the following month and applied for a priority fixture. In making that application, the Body Corporate made clear its position that a

74     Later transferred to the High Court.

scheme order needed to be made before works could progress.    That position is recorded in the judgment of this Court on the application for a priority fixture:75

[8] The practical situation is that staged temporary repairs have been required to the first respondent’s property at unit 900 and it is presently uninhabited. The staged temporary repairs were required to prevent leaking into units below it, including units 801, 803 and 402. While it will take an estimated two years to redesign and obtain a building consent for the rebuild or redevelopment of unit 900 with a permanent structure complying with the building code (and it will then take a further period to construct the permanent structure) the BC says the parties need to know the basis upon which the costs of that work are to be allocated.

[350]   There is also no evidence that the Trustees communicated to the Body Corporate that they wished the Body Corporate to produce designs for a like-for-like replacement of unit 900 pending the decision on the application for a scheme. I accept Mr Orpin-Dowell’s submission that it is not credible for the Trustees to criticise the Body Corporate for not undertaking like-for-like repairs to unit 900 after the scheme order was cancelled in circumstances where:

(a)the Trustees had never wanted like-for-like repairs (as already discussed in this judgment);

(b)they opposed historic costs being included in the scheme which created a risk that any costs incurred would not be recoverable; and

(c)they indicated they were progressing their own plans for the development of unit 900 but did not specify what they were.

[351]   In conclusion, I do not consider the grounds that the Trustees advance for the appointment of an administrator have been made out. The Body Corporate is not otherwise dysfunctional. I accept that the Body Corporate is capable of functioning in the manner expected by the Act. In those circumstances, the Court will not step in to appoint an administrator, especially in the circumstances that exist here where the issues facing the Body Corporate and the decisions to be made under the scheme will have an economic impact on owners.

75     Body Corporate 126001 v Hannam [2022] NZHC 158.

[352]   What it comes down to in my view is that the Trustees are seeking the appointment of an administrator because they are unhappy with decisions made by the majority. An administrator will not be appointed for that reason. The majority unit holders are entitled to conduct the affairs of the Body Corporate. They should not have an administrator appointed to carry out their tasks unless the circumstances require that.76 I have found they do not.

[353]   If one were to rake over the coals for the last 20 years, there may well have been occasions where there have been strong differences of opinion between the Trustees and other unit owners. But in the absence of dysfunction and real impropriety, schemes are not about righting past wrongs.

[354]   The Trustees’ proposal for an administrator is partly grounded in what they say are their concerns about decisions regarding repairs that may be made in the future once a scheme is ordered. In the absence of any impropriety in the past conduct of the Body Corporate on which such concerns may be grounded, there is no basis for appointing an administrator.

Issue Five: other amendments proposed by the Trustees in first alternative scheme

[355]   A large number of changes in the Trustees’ Option 1, amending what is proposed by the Body Corporate, are as a consequence of Option 1 containing provisions for the appointment of an administrator and a different cost allocation. No further discussion is required as to those consequential amendments. They fall away with my decision that there is no basis for appointing an administrator and that the Body Corporate’s cost allocation provisions are appropriate.

[356]   Any other additions or deletions proposed by the Trustees in relation to the Body Corporate’s scheme either: are unnecessary; exclude the possibility of there being a two-stage construction process (even the Trustees now say that they are not insisting that the whole of levels 4 to 10 be reclad as part of the redevelopment of levels 9 and 10); remove what is an appropriate acknowledgement in the Body

76     Filaria Pty Ltd v Proprietors of Units Plan 932 [2002] ACTSC 8 at [38] cited in Gibson, above n 68, at [65].

Corporate’s text of the uncertainty that exists in any construction process, for example what may be found when the cladding is removed; remove what is an appropriately wide definition of repair; add to the text which would create practical issues out of the control of the Body Corporate with requiring demolition to be coupled with immediate reinstatement; inappropriately remove a provision requiring compliance with “pay now”, a pre-condition of commencing arbitration, which may encourage litigation and put cashflow at risk; or inappropriately remove a clause designed to ensure that cost allocation rules are not “trumped” by the Act in relation to common property.

[357]   In short, I do not consider any of the Trustees’ proposed amendments by way of deletion or additions should be made to the Body Corporate’s proposed scheme.

Issue Six: Trustees’ second alternative scheme

[358]   In closing submissions Mr Bigio promoted a further scheme (Option 2) as an alternative to Option 1. In Option 2, the Court would allow the Body Corporate to retain power to undertake the repairs but with a direction as to the steps it must take and with timeframes for doing so. The cost apportionment would be the same as for Option 1. I have already decided the cost apportionment in the Trustees’ Option 1 would not be fair.

[359]   Mr Bigio submits that Option 2 carries the risk that the Body Corporate will continue to prevaricate and misuse its powers, but, he submits, it would be preferable to the “unfettered discretion” in the Body Corporate’s proposed scheme. Under Option 2 it is proposed that if the Body Corporate does not take steps within a certain timeframe, for example 18 months, to submit a building consent application, the Trustees would have leave to apply to the Court for the appointment of an administrator.

[360]   Mr Orpin-Dowell submits that there is a significant degree of irony with the submission that the Body Corporate has “prevaricated” given that over the preceding 20 years, Mr Hannam has not obtained a single building consent for any one of his development proposals (all of which have been approved by the Body Corporate) other than the “ambitious plans” for a four level redevelopment in 2015. There is force in

that submission.    Further, I have already found that the Body Corporate has not misused its powers to date.

[361]   I agree that setting a deadline for the building consent will not assist as there are a number of prior steps that will be out of the control of the Body Corporate. For example, in evidence Mr Hannam said that he wanted the work to unit 900 to be in accordance with the 2017 resource consent (since lapsed). It was apparent from his evidence that the only plans that presently exist are the outline plan attached to the 2017 application for resource consent. The Trustees will first need to obtain a resource consent for the work before a building consent can be applied for.

[362]   Additionally, as this would be an owner requested variation under the scheme, the Trustees would need to provide the Body Corporate with working drawings that could then form the basis of a building consent application. Added to that, there needs to be factored in the availability of consultants and the time they would take to complete what is required of them. There may well also be issues raised by the Council in pre-submission meetings.

[363]   Other directions that Mr Bigio submits should be included as steps the Body Corporate should be required to take are: an urgent investigation into fire safety concerns raised by the Trustees’ witness Per Olsson regarding the cladding; to engage a designer to prepare concepts and designs for a reclad of levels 9 and 10; and to engage such sub-consultants as the designer may recommend.

[364]   As to the first of the above proposed directions, I note that the evidence was that the Council was aware of the Grenfell Tower fire (in London) and took steps to review buildings in Auckland to determine whether there were any with similar cladding. The building in this case was not identified in that review. Also, as part of the 2015–2016 redevelopment, a fire report was prepared encompassing all levels of the building. The design was reviewed and approved by the New Zealand Fire Service and the Council raised no issues with the cladding on the upper levels or fire safety.

[365]   As to the second and third proposed directions, they are not realistic given the Trustees’ position that they wish to redevelop unit 900.

[366]   In any event, I agree with the further submission that Mr Orpin-Dowell makes that Option 2 is unlikely to provide a solution that assists the parties in a practical sense. As Mr Orpin-Dowell says, it is in the interests of no owners for the issues with the building not to be addressed. That is why the Body Corporate has brought the application.

[367]   Finally, if the Trustees consider that the Body Corporate is not proceeding expeditiously under the Body Corporate’s proposed scheme, this could be referred to arbitration under the scheme and as well, I will be giving the parties leave to seek further directions from the Court.

[368]   In conclusion, I do not propose to make an order in terms of the Trustees’ Option 2.

Issue Seven: Tisch – five principles in step 3

[369]   To the extent that I have not already addressed any of the five principles in step 3 of Tisch, I do so now.

Scheme with broad support preferred

[370]   It is said that the rationale for preferring a scheme with broad support is that the greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners. This will not invariably be so, because a majority of owners may support a scheme that is unfair to the minority.77 However, where the issue relates to the method or scope of repairs or aesthetics, broad support is likely to be highly persuasive.78

[371]   In this case, all owners but the Trustees, who now oppose after initially agreeing with the Body Corporate’s scheme, support the scheme. Mr Bigio submits that because the scheme has not been the subject of a resolution at any general meeting, it cannot be said that it has broad support. I do not accept that submission. The application was served on all owners. They have filed affidavits supporting the

77     Tisch, above n 10, at [45].

78     LV Trust Holdings Ltd v Body Corporate 114424 [2012] NZHC 3578 at [61].

scheme. The support from owners on levels 4 to 8 is given despite the fact that ownership interest-based contributions would actually be to their financial benefit. This reflects the democratic way in which this Body Corporate operates. The owners have their own, and proper sense of what is fair. Although the method of allocating costs is in issue, I have already held that the Body Corporate’s proposed cost allocation provisions are fair.

Scheme should be appropriately detailed

[372]   In making a determination on this issue I bear in mind the purpose of a scheme. A scheme is not required in order to carry out repairs. If all owners agree on how to proceed, a scheme is unnecessary.79

[373]   The benefits of a scheme include that: it allows a body corporate to carry out repairs when there is not unanimity between owners; it can empower a body corporate to take necessary steps, for example, forcing owners to vacate their property; and it avoids potential ultra vires issues by allowing the court to sanction the repair of common and unit property by the Body Corporate and to do so to the same standard and at the same time.80

[374]   In this way, a scheme provides the framework to allow repairs to be carried out. It does not necessarily specify the scope of the repairs themselves and the form of specific plans or specifications. This, in part, reflects the reality that the actual scope of works that will be required will not necessarily be known until remedial works are underway. I, therefore, do not accept Mr Bigio’s submission that the scheme is insufficiently detailed in that there is no repair plan or scope of repairs. Nor do I accept the submission that the purpose of the scheme is to avoid a proper repair of the building. That was a submission made in opening the case for the Trustees. In closing it was said for the Trustees that they were not insisting on a complete reclad in the context of a redevelopment of unit 900 and that the issue as to whether the rest of the building will need to be reclad will be for the Council.

79     Tisch, above n 10, at [37].

80     Tisch, above n 10, at [34].

[375]   The merits of competing repair options are for the Body Corporate to decide, not the Court. Bodies corporate are frequently faced with choices about how to manage repairs. It is not the role of the Court on a s 74 application to evaluate the competing merits of alternative repair options.81

[376]   As already noted, there are differing views between the parties about the scope of damage to the building and the timing of when various works may need to be carried out. Those issues, and any resulting disputes in relation to them, are matters to be resolved under the framework provided by the scheme. In my view the scheme, as proposed by the Body Corporate, has an appropriately detailed framework. If substantive disputes do arise they can be determined by a suitably qualified expert acting as an arbitrator.

[377]   In any event, I do not consider it is open to the Trustees to complain about the scope of what may be permitted under the Body Corporate’s proposed scheme when:

(a)over many years they have signalled an intention to redevelop unit 900 but have not committed to a particular redevelopment; and

(b)they have previously threatened to sue the Body Corporate for damages if the Body Corporate were to carry out repairs to unit 900 on a like- for-like basis (before they were ready to rebuild) and those repairs were subsequently demolished as part of their own redevelopment.

[378]   I consider the scheme is appropriately detailed. It is not so prescriptive in a way that would not leave room for the Body Corporate to accommodate any reasonable redevelopment plans for unit 900 proposed by the Trustees. This is all consistent with the purpose of a s 74 scheme, which provides a Court-approved framework for the Body Corporate carrying out repairs but does not necessarily settle the precise scope and specifications of the repairs to be carried out.

81     Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [73]–[76]; and

Body Corporate 324525 v Stent [2017] NZHC 2857 at [190].

[379]   I consider that the scheme proposed by the Body Corporate appropriately provides for a forward-looking framework for decisions regarding repairs. The Court is not concerned with the merits of decisions to be made in the future under the scheme. To the extent the Trustees may be dissatisfied with decisions made by the Body Corporate in the future, they are protected by their ability: to seek arbitration under the scheme in relation to matters arising under the scheme; to seek relief under s 210 of the Act if the effect of a resolution would be unjust or inequitable for the minority (in relation to matters outside the scheme); to seek ancillary orders or directions from this Court under leave,  which I will reserve; or  to apply to vary the scheme under    s 74(8) of the Act.

The order has retrospective effect

[380]   I have already addressed this issue in the context of the cost allocation provisions in the Body Corporate’s proposed scheme which provides for the recovery of retrospective costs.

Work normally done to the same standard and at the same time

[381]   This principle does not particularly apply here. As already noted, the parties agree that the reclad of levels 4 to 8 will not necessarily need to be undertaken at the same time as the redevelopment of levels 9 and 10 unless this is a Council requirement or unless the need to do so becomes apparent in the course of any further investigations.

Terms of the scheme to depart from the scheme of the Act and Body Corporate rules no more than is reasonably necessary to achieve fairness between unit owners

[382]   I have already effectively addressed this issue in the context of the various issues discussed above, particularly in the context of determining that the Body Corporate’s proposed cost allocation provisions are fair.

Summary of decision

[383]   The contract between the Body Corporate and the Trustees, pursuant to which the Trustees agreed to consent to a scheme in the same terms as the scheme before the

Court, has not been frustrated. The Trustees remain contractually bound to consent to the Body Corporate’s proposed scheme. It is, therefore, not open to the Trustees to oppose the scheme proposed by the Body Corporate.

[384]   In the alternative, it is not open to the Court to consider the two alternative schemes proposed by the Trustees as they were not served on all respondents.

[385]   In case I am wrong in my decisions in [383] and [384] above, I have considered the terms of the Body Corporate’s proposed scheme as applied for and the Trustees’ two proposed schemes.

[386]   There are no grounds for appointing an administrator and the Trustees’ cost allocation is not fair as between unit owners. Nor is there a basis for other amendments proposed by the Trustees.

[387]   The Body Corporate has satisfied the burden of proof as regards the terms of its proposed scheme. It achieves fairness between all unit owners. The scheme is a fair and practical framework for addressing current and potential issues with the building.

[388]   I will exercise my discretion under s 74 of the Act to order a scheme in the terms as applied for by the Body Corporate.

Orders

[389]   The first respondents remain contractually bound to consent to the provisions of the scheme (the Scheme) annexed to the third amended originating application by Body Corporate 126001 (the Body Corporate) dated 10 February 2023.

[390]   The provisions of the Scheme are approved under s 74 of the Unit Titles Act 2010 (the Act) and shall be binding on the Body Corporate, the respondents and owners (and their successors and assigns, if any) until the Scheme is completed and fully paid for.

[391]   The Body Corporate and respondents (and their successors and assigns) have leave to apply for ancillary orders or directions as necessary.

[392]   The Body Corporate shall file and serve on each respondent (or their successors and assigns, if any) by memorandum, notice when the Scheme is concluded in all respects, such service to be effected by sending a copy of the memorandum to the respondents’ and owners’ addresses as recorded pursuant to s 85 of the Act.

Costs

[393]   Costs are reserved. If the parties are able to agree costs, a joint memorandum is to be filed and served within 25 working days of the date of this judgment.

[394]If costs cannot be agreed:

(a)the Body Corporate and the Subsidiary Body Corporate are to file and serve their memoranda within 10 working days of the date for the joint memorandum; and

(b)the first respondents are to file and serve their memorandum within  10 working days of the date of service of the second of the two memoranda referred to in (a) above.

[395]   Memoranda are not to exceed six pages (excluding attachments). I will determine costs on the papers.

Gordon J