Body Corporate 126001 v Hannam
[2022] NZHC 2746
•21 October 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2003
[2022] NZHC 2746
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(Continued next page)
Hearing: 19 October 2022 Counsel:
T J G Allan and T Kelly for Applicant
D Bigio KC and S Zellman for First Respondent S L Cogan for Thirty-Seventh Respondents
Judgment:
21 October 2022
JUDGMENT OF MUIR J
[Re: Application under Rule 10.15]
This judgment was delivered by me on 21 October 2022 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Grove Darlow & Partners, Auckland
Grimshaw & Co, Auckland
Jeff Morrison & Associates Ltd, Auckland
BODY CORPORATE 126001 v HANNAM & ORS [2022] NZHC 2746 [21 October 2022]
MIKAELE CHARLES WESTERLUND
Third Respondent
JEFFREY LAURENCE FISHER AND LISA FIONA GRANT
Fourth Respondents
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
Nineth Respondent
SNEZANA DACIC
Tenth Respondent
LEANNE JOY GREENHALGH AND PAUL RICHARD GREENHALGH
Eleventh Respondents
COLIN GRANT KENYON AND JANINE LOIS KENYSON
Twelfth Respondents
TONY ALAN HOPKINS AND TRACEY ANN HOPKINS
Thirteenth Respondents
JAMES ANTHONY YOUNG, JENNY JUNE TONG AND NATALIE SAMANTHA TONG
Fourteenth Respondents
ANNA GABRIELLE SOTHERAN AND HAYDEN ROBERT HYAMS
Fifteenth Respondents
FRANCES ANNE SIMEON AND JOHN MICHAEL SIMEON
Sixteenth Respondents
DONELLE MARIE THOMPSON AND PAUL ALISTAIR CRAIGIE
Seventeenth Respondents
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 Respondents
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 Respondent
JAMES KENNINGTON WATSON AND WENDY MIRIAM WATSON-EKSTEIN
Twenty-Seventh Respondents
MELT INVESTMENTS LIMITED
Twenty-Eighth Respondent
ALISON STUART SMITH, CAMPBELL SHAW SMITH AND SCOTT SHAW SMITH
Twenty-Nineth Respondents
JON RIVERS LAMB, LAWREEN LAMB AND BEECH HILL TRUSTEE LIMITED
Thirtieth Respondents
ANGELA MARY GREENHALGH AND BARRY GREENHALGH
Thirty-First Respondents
DOUGLAS SMERDON CARTER, PATRICIA EMILY 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-Nineth Respondents
IAN MARTIN GUILFORD 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 AND PETER GRANT STODDARD CASHMORE AND SELLAR BONE TRUSTEES (2015)
LIMITED
Forty-Nineth Respondents
KAPLANA CHIMANLAL AND SURESH CHINANLAL
Fiftieth Respondents
WESTERN PARK SUBSIDIARY BODY CORPORATE (493826)
Fifty-First Respondent
GREGORY IAN VARLEY AND LAURA ALICE DONALDSON
Fifty-Second Respondents
LISTON TRUSTEE SERVICES LIMITED, MARY WALLACE FRANCIS AND
WILLIAM PETER FRANCIS
Fifty-Third Respondents
TSB BANK LIMITED
Fifty-Fourth Respondent
Introduction
[1] Body Corporate 126001 (the BC) seeks an order under r 10.15 of the High Court Rules 2016 that a separate question be tried in advance of its substantive proceeding which is for an order sanctioning or settling a scheme under s 74 of the Unit Titles Act 2010 (the Act). The separate question which it seeks to have determined is whether, by virtue of an earlier settlement, the first respondents (Hannam/Draper) are estopped from opposing the order sought.
Background
[2] The proposed scheme is in respect of a ten-storey residential development located at 9 Hopetoun Street, Auckland, known as Western Park Apartments. Of the 40 unit holders in the building, only two object to the scheme: Hannam/Draper and the thirty-seventh respondents (Fernandes/Johns). Hannam/Draper own Unit 901 which comprises the nineth and tenth levels of the building. Fernandes/Johns own Unit 801 which is, at least in part, located underneath Unit 901’s balcony.
[3] The s 74 application has its genesis in long-running water ingress problems from the balcony into Unit 801. In general terms, the BC says these are the result of degradation of the nineth level balcony membrane over time and penetrations to the membrane made by Hannam/Draper. It says that because of Hannam/Draper’s failure to adequately remedy the problem over years, it has an obligation under the Act to undertake the works so as to ultimately protect the fabric of the building.
[4] The very extensive history to the BC’s s 74 application is set out in a lengthy judgment of Paul Davison J, delivered on 3 September 2021.1 My summary of the relevant background can, therefore, be very economical.
[5] The BC made its first application for a s 74 scheme on 30 August 2017. This provided for the cost of repairs to unit property to be borne by owners of the property under repair and for the cost of repairs to common property to be borne by the BC and apportioned in accordance with the Act. On 30 April 2018, an amended application
1 Body Corporate 126001 v Hannam [2021] NZHC 2307.
was filed whereby it was proposed that the cost of repairs to the affected levels were to be borne by Hannam/Draper, unless the repair was in the category of a voluntary upgrade sought by any other owner.
[6] In separate proceedings against Hannam/Draper, the BC also sought to recover costs incurred by it in reviewing a redevelopment proposal advanced by them and in determining the appropriate scope of remedial works to the balcony. The sum involved was approximately $200,000. At that stage, no other party opposed the s 74 application which, together with the levy proceeding, was set down for hearing on 11 November 2019. Two weeks were allocated.
[7] However, late in the evening of 10 November 2019, a settlement was reached between the BC and Hannam/Draper. This was reflected in a deed. In summary, the agreement was that:
(a)Hannam/Draper would consent to a further amended scheme with a different cost allocation mechanism.
(b)The BC would no longer pursue its levy claim.
[8] On 11 November 2019, a consent memorandum was filed with the Court. Attached to the memorandum was a second amended s 74 scheme. Essentially, this provided that:
(a)“Direct construction costs” for work undertaken on a specific unit in the building would be paid for by the individual owner of that unit.
(b)“Indirect construction costs” (being P&G costs and scaffolding) would, where more than one unit was being repaired, be shared by those units in proportion to their respective ownership interest.
(c)Repairs to common property at levels four to ten would be paid in proportion to ownership interest (as had always been the case).
[9] On 12 November 2019, this Court made orders approving the scheme in the amended form proposed. In accordance with a joint memorandum, the operative date for the scheme was deferred until 11 November 2020 to enable further discussions between the BC and Hannam/Draper about their redevelopment proposals. These proposals did not ultimately come to fruition.
[10] Shortly after the scheme was approved, the solicitors for the BC wrote to Fernandes/Johns, advising that the Court had sanctioned the s 74 scheme and that the BC Committee would be looking to levy them the repair costs for Unit 801. Subsequently, an invoice was raised for $228,827, although this was ultimately reduced to $185,932.
[11] Fernandes/Johns subsequently sought an order, under s 74(8) of the Act, varying or setting aside the scheme approved on 12 November 2019. Their principal argument was that because of the significant change in the allocation of costs between the second and third versions of the scheme they had been substantially prejudiced. That application was determined by Davison J.2 His Honour held that the revised scheme which emerged from the settlement discussions was materially different from that contained in the amended application which had been served on the respondents some 18 months earlier and that the appropriate outcome was to cancel the consent order.3 Davison J ordered that costs should lie where they fall because Fernandes/Johns had taken no steps to file an appearance in the proceeding despite receiving a letter from the BC’s solicitors on 28 August 2019 which foreshadowed the ultimate settlement as a possible outcome.4
[12] The BC then filed an amended s 74 application seeking approval of a scheme in all material respects identical to that which had formed the basis of the settlement with Hannam/Draper. They did so on 1 October 2021. Fernandes/Johns oppose that application on the grounds that:
2 Body Corporate 126001 v Hannam, above n 1.
3 At [86] and [92].
4 At [101].
(a)Insofar as the BC has already undertaken repairs,5 these result from a failure by Hannam/Draper to maintain their unit and/or the BC’s failure to discharge its obligations under the Act.
(b)As far as future costs of repair are concerned, these again should fall to be paid by Hannam/Draper or the BC.
(c)It is not possible at this stage to determine a fair and equitable allocation of costs because there has never been any “coherent, holistic investigation into and report on the building’s issues, the recommended repairs and the available options” and that in the absence of such information, it is neither practicable nor appropriate to “pre-emptively allocate costs”.
[13] Hannam/Draper have also filed a notice of opposition in respect of the latest s 74 application. They say, among other things, that:
(a)Leaks in a building do not exclusively derive from the nineth level balcony and that there are leaks across each of levels four to ten.
(b)The level nine balcony is a building element which serves more than one unit and the obligation to repair and maintain it lies with the BC under s 138 of the Act.
(c)All that has thus far been designed is a temporary repair and the BC has not taken advice from suitably qualified experts as to the full extent of the necessary repairs.
(d)The temporary repair does not allow for reinstatement of the nineth level unit. Instead, it has the effect of making the unit uninhabitable for a period of up to five years pending a permanent repair.
5 Temporary works have secured the building against further leaks. The nature of the temporary works is such that Hannam/Draper say they are precluded from occupying their unit.
(e)There are further defects and damage to the building which need to be repaired and the amended scheme fails to acknowledge these.
(f)The scheme is not appropriately detailed.
(g)The proposed costs allocation will not achieve the fairest outcome to all unit owners.
[14] The BC says that Hannam/Draper are estopped from advancing these arguments. The central issue I am required to determine is whether that argument should be run as part of the two-week trial on the s 74 application set down to commence on 25 September 2023 or whether it should be separately heard earlier that year.6
The BC’s submissions
[15] Mr Allan argues that the estoppel question is discrete and separate, that there is sufficient time to resolve it and that if the BC’s application is granted, it will substantially reduce the scope of the trial. He says that by opposing the latest iteration of the scheme, Hannam/Draper are acting in breach of the terms of the settlement deed and that it would be unconscionable to allow them to resile from their obligations having regard to the fact that, as part of the settlement, the BC chose not to pursue them for sums in excess of $200,000. He says that the estoppel question is narrow and quite separate from the issues necessarily addressed on a s 74 application, being:
(a)Whether the Western Park Apartments are in any way damaged — a factual inquiry.
(b)If they are, whether a scheme is appropriate in the circumstances.
(c)If a scheme is appropriate, what its terms should be having regard to the established criteria in Tisch v Body Corporate No 318596.7
6 My inquiries of the Registry indicate that the earliest a separate hearing could take place, based on Mr Bigio’s two-day estimate, is the latter part of March 2023.
7 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [35].
[16] He submits that although there can be no guarantee that BC success on the separate question would bring the substantive proceedings to an end, it would leave the thirty-seventh respondent unsupported in its position and may possibly therefore facilitate settlement discussions with that party.
[17] He submits that if the trial were to run, then the issues between BC and Fernandes/Johns could be accommodated in approximately four days as opposed to the existing 10 currently allocated. He submits that allowing for senior and junior counsel and hearing fees, cost savings could be in the order of $50,000.
[18] He also adds that if a separate question hearing is scheduled in early 2023, appeals could be readily disposed of prior to the substantive hearing.
Hannam/Draper submissions
[19] Mr Bigio KC submits that the estoppel issue should be considered in the context of the main trial, essentially for the reasons that:
(a)Whether or not the estoppel claim is upheld, Hannam/Draper are fully entitled to participate in the s 74 argument in opposition to the position taken by Fernandes/Johns.
(b)It is inevitable that they would wish to do so, including by way of opening, cross-examination of the Fernandes/John expert and detailed closing submissions.
(c)Fernandes/Johns would be entitled to rely on the expert evidence already filed by Hannam/Draper in support of the Fernandes/Johns proposition that the proposed scheme is not based on any “coherent, holistic investigation” and is thus pre-emptive in its attempted allocation of costs, with the result that the Hannam/Draper experts may well have to be cross-examined in any event.
(d)The suggested savings in hearing time are therefore exaggerated and must, in turn, be assessed in the context of the two days which would need to be allocated for the separate question.
(e)There is considerable uncertainty about whether the separate question and any appeal therefrom could be determined prior to the September 2023 hearing and the case is not one where such an appeal could simply be postponed until after the substantive proceeding.
[20] By way of background to this submission, Mr Bigio says that since the time of the settlement, Hannam/Draper have undertaken further investigations into the condition of the building and say that any works must now include a reclad for which the cost allocation provisions in the deed they signed would not be appropriate. They say that since the settlement they have also been effectively evicted from their apartment and, under the BC’s plans, may remain so for up to five years.
[21] Mr Bigio submits that these are material changes of circumstances which explain his clients’ revised position and that they should not be estopped from resiling from their previous agreement because the BC suffered no detriment from its decision to abandon attempted recovery of its levies. He bases that submission on the further proposition that the relevant costs were incurred by the BC in breach of its duty of care and/or its obligations under the Act; that the levies were not struck in accordance with the Act and were, therefore, never recoverable.
Discussion
[22] The relevant criteria for assessing whether a split trial should be ordered have been refined by the Courts over many years and are based on a wealth of cumulative judicial experience about the advantages and perils of doing so. While the intentions are often good, the potential pitfalls are many.
[23]The key issues are typically identified as:8
8 Haden v Attorney-General (2011) 22 PRNZ 1 (HC) at [50] and Karam v Fairfax New Zealand Ltd
[2012] NZHC 1331 at [60]–[89].
(a)Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?
(b)Will the proceedings be brought to an end?
(c)What potential time saving does a separate question hearing offer?
(d)How will appeals be dealt with?
(e)Are there any other practical considerations tending one way or the other?
[24]I will address each issue in turn.
Demarcation
[25]In Haden v Attorney-General, Kós J observed that: 9
The interaction between issues in split trials is said to be the single most important question for consideration by a Court considering a Rule 10.15 application … Issues in the two hearings desirably should be discreet (sic).
[26] On initial assessment this criterion appears satisfied. The question of whether, by virtue of a deed of settlement, a party is precluded from opposing a s 74 scheme (including, in this case, the associated questions of change of circumstance, reliance and detriment) are ostensibly quite separate from the criteria used to assess a s 74 application (including the Tisch principles previously referred to).
[27] However, in the present case this ostensible position — and the downstream implications in terms of possible savings in hearing time — must be considered in the context of the Fernandes/Johns opposition to the scheme. It is not in dispute that, even if estopped from opposing the scheme, Hannam/Draper would be at liberty to participate in the substantive hearing in opposition to the allocation of costs contended for by Fernandes/Johns. That is because the allocation contended for by Fernandes/Johns could see Hannam/Draper responsible for the full cost of all
9 Haden v Attorney-General, above n 8 at [50](a).
remediation to the building. In that context, Hannam/Draper would be entitled to open, cross-examine, call relevant evidence and make closing submissions. In terms of the evidence they might seek to call (and again assuming they have been estopped by previous order), there will inevitably be disputes at the margins about whether the evidence is admissible or an abuse of process, having regard to the former order.
[28] Moreover, because a “key element”10 of the Hannam/Draper opposition to the new scheme is the fact that the BC refuses to include a building reclad in the remedial scope, there are significant synergies between the expert evidence already filed by them and the Fernandes/Johns point that there has not yet been a coherent or holistic investigation into the building’s issues and that the proposed cost allocation is therefore pre-emptive.
[29] Despite Mr Allan’s submission that in the event of a preliminary order in the BC’s favour he would not be required to cross-examine Hannam/Draper’s experts, that position would inevitably require reassessment if such experts were adopted by Fernandes/Johns.
[30] Overall, therefore, the demarcation issues are more nuanced than a first assessment suggests. The change of circumstances which underpin the Hannam/Draper opposition to the estoppel claim flow through into one of the live and significant issues of the substantive proceeding.
Will the separate question bring the substantive proceeding to an end?
[31] The answer to this question must be “no”, at least if I put aside the proposition that Fernandes/Johns may be forced to settle the substantive proceedings if Hannam/Draper are limited in the role they can take. I would not wish to decide the application on that premise which has a flavour of oppression about it. Nor is there any suggestion at this stage that Fernandes/Johns are not good for the course they are currently committed to.
10 I use the description in Mr Bigio’s written submissions.
[32] I approach the application on the basis, therefore, that irrespective of the Court’s decision on any preliminary point, the substantive proceedings will continue.
Potential time savings
[33] As indicated, Mr Allan suggests that the substantive hearing could be reduced from 10 to four days. In his written submissions, he suggested that:
(a)The number of affidavits before the Court would be reduced by at least 10, many of which would otherwise have to be cross-examined on — an estimated saving of three days.
(b)The Court would not hear opening submissions from Hannam/Draper
— an estimated saving of a quarter of a day.
(c)The Court would not hear closing submissions from Hannam/Draper
— an estimated saving of half a day.
(d)There would only be one party to cross-examine the Fernandes/Johns witnesses instead of two.
(e)Only Fernandes/Johns would cross-examine the BC’s witnesses.
[34] Some of these points do not stand in light of Mr Allan’s subsequent acknowledgement that Hannam/Draper would be able to participate in the substantive hearing in opposition to the position taken by Fernandes/Johns, even if the BC was successful on the sperate question. That acknowledgement extended to openings, closings and cross-examination of the Fernandes/Johns witnesses by Hannam/Draper. Cumulatively, that must erode at least one day of Mr Allan’s suggested six-day saving.
[35] Then I have to take into account the points previously made — possible adoption by Fernandes/Johns of the Hannam/Draper evidence (with a resulting requirement for cross-examination) and what I see as inevitable arguments around precisely what evidence Hannam/Draper could still call on the assumption they were estopped from opposing the application.
[36] Finally, I have to take into account the fact that the suggested savings come at the cost of a two-day preliminary hearing earlier in 2023. In total, therefore, I consider the savings more likely to be in the order of two, rather than six days. In dollar terms and adopting Mr Allan’s calculations, that might equate to savings of $15,000 to
$20,000 only.
Implications for appeals
[37] It is in this context particularly that the good intentions underpinning applications for separate trials can rapidly pave the way to juristic hell, especially if there are real issues regarding the ability to determine an appeal in advance of the substantive hearing and where success on a subsequent appeal would undermine or negate the results of that hearing.
[38] Mr Bigio says that consideration of the separate question would require two days. That may be slightly generous, but I accept, having regard to the arguments he now indicates would be made, that a one-day allocation would be insufficient. My inquiries of the Registry indicate that two days cannot be allocated before the end of the first quarter or beginning of the fourth quarter 2023. A reserved decision is highly likely. Realistically, it will not be delivered before May 2023. In order for any appeal to be heard prior to commencement of the substantive proceeding, a priority fixture would need to be allocated by the Court of Appeal. In turn, the Court of Appeal would be required to produce a judgment by September 2023. While none of this is impossible, it places significant burdens on the Courts and their schedulers. There is, in my view, a real risk that any appeal would not be determined prior to commencement of the trial.
[39]As a fall-back position, Mr Allan adopted the observations of Kós J in Haden
that:11
It may be desirable to make it a condition of granting a Rule 10.15 application that the hearing of appeals be postponed until determination of all issues in the proceeding.
11 Haden v Attorney-General, above n 8 at [50](d).
[40] That may work where the proceeding does indeed determine all issues. But it does not work in this case because if Hannam/Draper are precluded from opposing the scheme but succeed on a subsequent appeal, there would be no realistic option but to relitigate the s 74 application. It would be déjá vu in the context of the Fernandes/Johns application to overturn the earlier scheme, with Hannam/Draper arguing that a scheme had been approved without them properly being heard in opposition. In the context of all that has already occurred in this case, that would be a most unfortunate outcome. Although Mr Allan says that in addressing his application, I need not navigate every potential “mine”, the risks here are, in my view, disproportionate to the benefit that might be obtained from splitting the trials.
Summary
[41] Although I accept that if a separate question hearing was ordered and the result favoured the BC, some savings in substantive hearing time might follow, the demarcation of issues is not as clear as first impressions suggest and the economies are therefore, in my view, overstated by the applicant. When I assess these alongside the downside risks of splitting the trial, I am not persuaded that the application should be granted.
Result
[42]I decline the application.
[43] If any issue of costs arises, they can be dealt with by brief memorandum (maximum three pages, plus any schedules). Provisionally, I see no reason why a scale allowance calculated on a 2B basis would be inappropriate.
Muir J
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