Body Corporate 126001 v Hannam
[2021] NZHC 2307
•3 September 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2003
[2021] NZHC 2307
IN THE MATTER OF Unit Titles Act 2010 AND
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 Respondent
Date: 15 March 2021 Counsel:
T J G Allan for Applicant (The Body Corporate) D Bigio QC and S Zellman for First Respondent S L Cogan for 37th Respondent (The Trust)
T Hu for 51st Respondent (The Subsidiary Body Corporate)
Judgment:
3 September 2021
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 3 September 2021 at 3:00pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Grove Darlow & Partners, Auckland Grimshaw & Co
Jeff Morrison & Associates, Auckland Lee Salmon Long, Auckland
BODY CORPORATE 126001 v HANNAM AND ORS [2021] NZHC 2307 [3 September 2021]
Cont:/
AND WESTERNPARK APARTMENTS LIMITED
Second Respondent
AND MIKAELE CHARLES WESTERLUND
Third Respondent
ANDHAGGIE NZ CORPORATE TRUSTEE LIMITED
Fourth Respondent
AND SUSAN MARY KINGSTON
Fifth Respondent
ANDAVRIL BARBARA STOTT AND DAVID IAN HAIGH
Sixth Respondents
ANDBRIAN JOSEPH HINCHCO AND SELENA JANE HINCHCO
Seventh Respondents
AND NIGEL KING
Eighth Respondent
AND SARAH KATE GREENAWAY
Ninth Respondent
AND SNEZANA DACIC
Tenth Respondent
ANDLEANNE JOY GREENHALGH AND PAUL RICHARD GREENHALGH
Eleventh Respondents
ANDCOLIN GRANT KENYON AND JANINE LOIS KENYON
Twelfth Respondents
AND VINODKUMAR HARILAL DEVNANI
Thirteenth Respondent
ANDJAMES ANTHONY YOUNG, JENNY JUNE TONG AND NATALIE SAMANTHA TONG
Fourteenth Respondents
Cont:/
AND COTES INVESTMENTS LIMITED
Fifteenth Respondent
ANDFRANCES ANNE SIMEON AND JOHN MICHAEL SIMEON
Sixteenth Respondents
ANDDONELLE MARIE THOMPSON AND PAUL ALISTAIR CRAIGIE
Seventeenth Respondents
AND ERIK TORE OLOFSSON
Eighteenth Respondent
ANDANN SANDRA EVERARD AND GRANT IAN HALLY
Nineteenth Respondents
AND KAREN ANN COTES
Twentieth Respondent
ANDDAVID ALEXANDER LLOYD AND TRINA MAREE LLOYD
Twenty-First Respondents
AND DAVID JAMES WAY
Twenty-Second Respondent
ANDCHERL ROSEMARY DWYER, WAYNE DAVID KEENE AND KM TRUSTEE SERVICES LIMITED
Twenty-Third Respondents
ANDPHILIP ANDREW JOHNSTONE AND STEPHANIE ROCHELLE JOHNSTONE
Twenty-Fourth Respondents
ANDPAUL FRANCIS QUINLIVAN, SHELLEY ROZANNE QUINLIVAN AND NEW ZEALAND TRUSTEE SERVICES LIMITED
Twenty-Fifth Respondents
AND CAMERON ROSS GRIBBEN
Twenty-Sixth Respondent
ANDJAMES KENNINGTON WATSON AND WENDY MIRIAM WATSON-EKSTEIN
Twenty-Seventh Respondents
Cont:/
AND MELT INVESTMENTS LIMITED
Twenty-Eighth Respondent
ANDALISON STUART SMITH, ALLEN DONALD SHANKS AND SCOTT SHAW SMITH
Twenty-Ninth Respondents
ANDJON RIVERS LAMB, LAWREEN LAMB AND BEECH HILL TRUSTEE LIMITED
Thirtieth Respondents
AND NYNEHEAD HOLDINGS LIMITED
Thirty-First Respondent
ANDDOUGLAS SMERDON CARTER, PATRICIA EMILY CARTER AND SOONG YUAN CHAU
Thirty-Second Respondents
AND HAULTAIN PROPERTIES LIMITED
Thirty-Third Respondent
AND AVANTI APARTMENT LIMITED
Thirty-Fourth Respondent
AND MARGARET ELIZABETH WATTS
Thirty-Fifth Respondent
ANDBRENDAN JOHN ROBINSON, JOHN ANDREW BEDKOBER AND MARY CHRISTINE BEDKOBER
Thirty-Sixth Respondents
ANDCLIVE MARIO FERNANDES AND ELIZABETH SCOTT JOHNS
Thirty-Seventh Respondents
ANDPETER DAVID BONE AND SHALE CHAMBERS
Thirty-Eighth Respondents
ANDJOHN NORMAN SISSONS, SUZANNE ELIZABETH SISSONS AND ATACH LIMITED
Thirty-Ninth Respondents
Cont:/
ANDGERARD JOHN RENNIE, IAN MARTIN GUILFORD AND TRISH JANE
Fortieth Respondents
AND WESTPAC NEW ZEALAND LIMITED
Forty-first Respondent
AND ANZ BANK NEW ZEALAND LIMITED
Forty-second Respondent
AND ASB BANK LIMITED
Forty-third Respondent
AND BANK OF NEW ZEALAND
Forty-fourth Respondent
AND THE CO-OPERATIVE BANK LIMITED
Forty-fifth Respondent
ANDMORTGAGE HOLDING TRUST COMPANY LIMITED
Forty-sixth Respondent
AND SOUTHLAND BUILDING LIMITED
Forty-seventh Respondent
ANDCHUBB INSURANCE NEW ZEALAND LIMITED
Forty eighth Respondent
ANDGRANT JENSEN CASHMORE AND PETER GRANT STODDARD CASHMORE and SELLAR BONE TRUSTEES (2015) LIMITED
Forty ninth Respondents
ANDKALPANA CHIMANLAL AND SURESH CHIMANLAL
Fiftieth Respondents
ANDWESTERN PARK SUBSIDIARY BODY CORPORATE (493826)
Fifty-first Respondent
Introduction
[1] Clive Fernandes and Elizabeth Johns (the applicants) as trustees of the Manfaniko Family Trust (MFT), own unit 801 of the residential apartment complex situated at 9 Hopetoun Street, Freeman’s Bay Auckland, known as Western Park Apartments (Western Park). Their unit suffered water damage from leaking from the deck level of unit 901 above, and the Body Corporate (BC) responsible for the complex has claimed from them the costs of repairing the water damage that occurred within the boundaries of unit 801 pursuant to a scheme under s 74 of the Unit Titles Act 2010 (the Act) which was approved by the Court on 12 November 2019.
The applicants now seek:
(a)an order pursuant to s 74(8) of the Act to vary or set aside the terms of the scheme approved and settled by the Court on 12 November 2019 (the Scheme);
(b)an order pursuant to s 173 of the Act determining the amount they are liable to pay towards the costs of repairs carried out by the BC on unit 801;
(c)an order pursuant to rule 17.29 of the High Court Rules 2016 to stay enforcement of the Scheme pending determination of the applicants’ application to vary or cancel or amend the Scheme;
(d)an order setting aside the BC 126001’s protest to jurisdiction dated 15 December 2020;
(e)an order for costs.
[3] The applicants seek the deletion of the existing provision of the Scheme dealing with the allocation of costs as between the owners of units in the complex, and an order replacing it with a provision stipulating that the cost of repairs to affected levels shall be borne by the owner of levels 9 and 10, unless the repair is a voluntary upgrade sought by any other unit owner.
[4] Body Corporate 126001 (the BC) appears under protest to object to the jurisdiction of the Court to hear and determine the applicants’ application for an order to vary the Scheme. The BC says that following the order of the Court approving the Scheme made on 12 November 2019, the applicants together with all other unit owners with an interest in the BC and the apartments were bound by the Scheme and particularly the dispute resolution procedure by way of arbitration as the only means by which to object to the BC’s allocation of their liability to pay for repair costs.
Background
[5] The Western Park residential complex in which the applicants’ unit is situated comprises 16 original residential units. This building was constructed in 1988 and is administered by the BC. The applicants’ unit 801 is situated on level 8. The Western Park complex also comprises a second building comprising 28 residential units which is operated under a subsidiary body corporate (Subsidiary Body Corporate 493826).
[6] Mr Gary Hannam and Ms Patricia Draper (the first respondent)1 are the trustees of the GK Hannam Family Trust (GHFT) and owners of unit 9012 located on levels 9 and 10 of the building, which are the top two levels. Mr Hannam or his associated interests have owned unit 901 since around 1999.
[7] Prior to the applicants’ purchase of unit 801 in April 2016, Mr Fernandes was provided with a pre-contract disclosure statement prepared by the BC on behalf of the vendor of the unit. It advised that unit 801 had suffered damage as a result of some water leakage from the deck of unit 900 above. The disclosure statement said that a consultant engaged by the BC had concluded that the water leakage was caused by a breakdown of the watertight membrane of the deck of unit 900 due to age, wear and tear. The statement noted that water leaks had caused rusting of the wall panel fixings in unit 801 and possibly units 802, and 803 below. The statement said that it was anticipated that the repair costs would be subject to full or partial reimbursement from
1 When this proceeding was commenced Mr Graeme Bruce Clark (deceased) was named together with Mr Hannam as a respondent. Ms Patricia Joy Draper who is Mr Hannam’s partner has since been appointed as a trustee, and she was added as the second-named first respondent by order made on 12 November 2019.
2 Also referred to as Unit Q.
the owner of Unit 900 who owns the deck on Unit 900 “and is responsible for its repair and maintenance.”
[8] Following receipt of the disclosure statement Mr Fernandes queried whether the owner of unit 801 would be liable for the costs of repairing the water damage to the external wall of the unit. The BC manager Mr Andrew Porter, responded saying:
For clarification the external wall is actually fine the issue is the metal bracket/bracing behind the wall which has rusted due to water coming from the deck above. The body corporate is arranging the repair of the bracket and also a permanent solution to the deck above (currently a temporary fix has been carried out) with payment expected to be covered by the special levy being raised (and 50% yet to be raised), there is always a possibility that the special levy may not be sufficient to meet these costs.
[9] Several days prior to the applicants settling their purchase, Mr Fernandes met with Mr Porter, and Mr David Smith, the BC’s consultant engineer. Then on 14 April 2016 which was the date of settlement, Mr Porter sent an email to the vendor of unit 801 and Mr Fernandes. He said:
Hi Anubha – yes confirming I met with Clive [Fernandes] and David Smith
– engineer for the BC.
There was a discussion about the unit plan for the complex – which stipulates that the boundary of each unit is the external face of external walls – this is backed up by a report the BC obtained by Faulkner Surveyors – which means unit owners actually own the external cladding of their unit – and have the responsibility to therefore maintain it. My understanding from a discussion earlier in the week with the BC Chair was that the BC would be looking to on- charge the cost of the wall of 801 repair to 801 – on the basis of the above. I have just spoken to him and his view is that the BC should in fact cover the cost for the repairs to the wall – bracket and framing of wall – to maintain the integrity of the external cladding for the complex – but advised that this is his view – there is a committee meeting tomorrow morning – 8.00 am when the BC position will be confirmed – and I can advise you straight after that.
What he did say was the BC would not be covering the “making good” of any unit internal water damage – this would need to be a matter for 801 to pursue unit 900 for – but from today’s discussion I don’t think that is an issue as Clive intends to remodel that unit removing a number of internal walls – to have a 1 bedroom unit with the rest of the unit one large living room – kitchen area – so as part of this will be remodelling the entire internal space.
Separately, the BC is also now in a position to fully repair the 900 deck putting down an entire new trafficable membrane – which will mean there will be no prospect of any further leaks into Unit 801 going forward.
So sorry for the confusion and alarm this morning – and confirming I will be able to confirm tomorrow morning the BC position.
[10] Also on 14 April 2016 Mr Jack Atherton, the Barfoot and Thompson real estate agent handling the unit sale, sent Mr Fernandes an email to which he attached an email he had received from Mr Porter on 24 February 2016, in which he said:
Hi jack (sic) – bc will be covering the external wall repair from sinking funds
– but will be looking for reimbursement from owner of unit 900 above as the cause is believed to be deferred maintenance of the deck membrane of unit 900. Regarding internal unit damage of 801 from the leaks above – this will need to be addressed directly – by unit 801 owners with owner of unit 900 we believe.
[11] However, the remedial work did not proceed after the first respondent challenged the building consent for the work obtained by the BC.
[12] Following a period overseas, the applicants returned to New Zealand in January 2017 and moved into unit 801. In February 2017 they experienced water leaking into their apartment after it had been raining. Mr Fernandes contacted the first respondent and suggested meeting for a discussion. In an emailed reply Ms Draper explained that as she was away from Auckland, she had asked her nephew who was also living at unit 900 to contact them to see what could be done about the leak. She explained: “We are indeed working hard to resolve the situation with the Body Corp so that we can go ahead with our proposed solution to make the decks completely waterproof.”
[13] During February 2017 the first respondent undertook waterproofing repairs to the deck of their unit, however they proved ineffective and water leaks into unit 801 continued to occur. Further attempts during the following six months were similarly ineffective.
The 2017 application for approval of the s 74 scheme
[14] During 2017 the BC decided that having regard to its obligations under s 138 of the Act to repair and maintain, it would carry out repairs to the deck on level 9, which would involve work being carried out within the unit property of the apartments
on level 8, including unit 801.3 On 30 August 2017 the BC filed an originating application seeking an order approving a scheme under s 74 of the Act pursuant to which it would carry out work on the deck area of level 9 to remedy water leaking from level 9 into the units of owners on level 8 and lower levels, and allocate the cost of the repairs between the unit owners (the s 74 proceeding). Mr Hannam and Mr Graeme Clark (deceased) were named as the respondent as trustees of the GHFT.
[15] The grounds of the application said that the deck of level 9 had been declared to be a prohibited area for safety reasons, and that it was not feasible for any final repair solution to occur without the BC undertaking work which would “engage unit property of the level 8 owners.” The grounds of the application also included:
(i)The scheme provides for a system of rules to regulate the repair of such of the building as requires repair which may extend into the exterior of level 8 units and therefore unit 8 property.
(j)The scheme will ensure the respondent permanently complies with his duty to give, provide and permit [the] applicant unconditional and unqualified access when it is effecting the final repair solution.
(k)The scheme reflects the Unit Titles Act 2010 and the merits bearing in mind the respondent has since 2003 repeatedly advised the repairs to the level 9-10 deck would be effected by being subsumed in his re- development of those levels. No re-development has occurred. No re- development is realistically likely to occur.
[16] An affidavit by the applicant Clive Fernandes was sworn and filed in support of the s 74 application.
[17] The scheme attached to the s 74 application included a provision dealing with the allocation of costs, as follows:
10.Allocation 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.
3 Unit Titles Act 2010, s 138.
[18] On 6 September 2017 the BC applied for interim orders authorising it to effect temporary repairs to the building pending determination of its application for approval of the Scheme. Following the filing of a joint memorandum by counsel on 13 November 2017 Justice Peters made consent orders pursuant to which the first respondent was prohibited from undertaking any construction or repair work to the surface of the level 9 deck without the consent of the BC or the Court, and afford the BC and its agents reasonable access to the level 9 deck between 7.30 am and 5.00 pm to enable it to carry out and install a temporary repair solution in respect of the water leaking into unit 801.
[19] A second proceeding was also commenced by the BC in 2017 regarding its imposition of levies on the first respondent (Mr Hannam) for costs it had incurred in relation to legal and consultant fees during 2015 for consideration of his re- development plans for levels 9 and 10, and for consultant fees for investigating and developing a remedial solution for repairs to the level 9 deck, which it had on-charged to him (the levies proceeding). 4 The amount involved was approximately $100,000.
[20] The Minutes of the BC 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 Committee noted that temporary repairs and investigation regarding a permanent solution were underway, and that the BC intended to proceed with its s 74 proceeding. The Minutes of the meeting further record:
The Committee discussed the situation and noted that when the problem first arose, the 1972 Unit Titles Act was in force. Pursuant to that Act the maintenance obligations rested solely with the owner of the apartment deck. When the 2010 Act came into force, the responsibility for maintenance moved to the Body Corporate however a right of recovery for private property costs remain in place. The latest information suggests the membrane on the deck has clearly being (sic) compromised by deliberate actions of the parties associated with the unit ( e.g. the multiple membrane penetrations).
It was noted that the Body Corporate had held off undertaking any repairs following its repair obligation coming into effect at the specific request of the unit 900 owner who was insistent the issues would be resolved by its intended redevelopment of the penthouse levels. The redevelopment had not been progressed to any acceptable conclusion.
4 Body Corporate 126001 v Gary Keith Hannam & Ors CIV-2017-004-1845.
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.
RESOLVED:
“That the Body Corporate approve incorporation in the Section 74 Scheme the proviso that the proprietor of Unit 900 will be responsible for all costs associated with repairing the deck (both temporary and permanent) and any consequential damage which the earlier failure to maintain has caused.”
[21] Shortly prior to filing the amended s 74 application on 30 April 2018 counsel for the BC filed a memorandum foreshadowing the amended application and explaining:
When the amended originating application is filed it will list as respondents those parties whom s 74 of the Act require to be notified with the application. Most of the interested parties have agreed to be served by method other than personal service.
[22] On 30 April 2018 the BC filed an amended originating application (the amended application) for an order sanctioning and settling an amended s 74 scheme. This amended application named all of the unit owners, the registered mortgagees, and the building’s insurer, as respondents. A copy of the proposed scheme was attached to the application. The applicants as owners of unit 801 were named as the thirty-seventh respondents.
[23] In its amended application, the BC applied for an order approving the amended scheme on grounds which included:
(h)As a consequence of the first respondent,
(i)Not repairing or maintaining the level 9 deck since 2001; and or
(ii)Physically damaging the level 9 deck (by piercing the waterproofing membrane);
leaking into level 8 units has been aggravated or compounded.
…
(j)While level 9 is not presently continuing to leak into level 8, a longer term repair of level 9 deck is required for which the applicant’s duty
under s 138 of the Act – to repair and maintain the exterior weathertight envelope of the building - is engaged.
(k)Unless level 9 deck is repaired leaking will
(i)Cause or continue to cause discomfort and or pose a risk to the health, safety and welfare of the occupants of the level 8 units (or below level 8)
(ii)Cause harm and or at least pose a threat of harm to the integrity of the building.
(l)The deck of level 9 has been declared by the applicant on advice of its consultants to be a prohibited area on account of safety concerns to the first respondent’s tenants or other licensees.
(m)The scheme reflects the Unit Titles Act 2010 and the merits bearing in mind the first respondent has since 2003 repeatedly advised the repairs to the level 9-10 deck would be effected by being subsumed in his re-development of those levels. No re-development has occurred. No re-development is realistically likely to occur.
(n)Any final repair solution is unlikely to occur without the body corporate also likely having to engage unit property of the level 8 owners.
…
(p)The scheme provides for a system of rules to regulate the repair of such of the building as requires repair which may extend from level 9 deck to the interior (or exterior) of level 8 units and therefore level 8 property (or below).
(q)The scheme will ensure the first respondent permanently complies with his duty to give, provide and permit [the] applicant unconditional and unqualified access when it is effecting the final repair solution.
[24] The amended application contained an amended provision regarding the allocation of costs:
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.
[25] On 3 May 2018 the BC’s solicitors, Grove Darlow & Partners (Grove Darlow) effected service of the amended application and related documents on the applicants by email. In its covering email Grove Darlow advised:
…
2.You are served with this application because the Act requires that every owner, every registered mortgagee and or every other registered charge-holder together with builder’s insurer and the Registrar General of Land are given notice of this application.
3.You may already be aware that the Body Corporate effected temporary repairs to the level 9 deck during the summer of 2017/2018. This, amended, application is to move forward from this point in time so as to facilitate a permanent repair on the basis that cost allocation is certain from the outset.
…
[26] The Minutes of the BC Committee meeting held on 13 May 2019 recorded a discussion regarding a proposal from a building contractor, Neptune Pacific Ltd, for carrying out remedial work for water damage to unit 801. The Committee considered that the BC had a responsibility to consider the exterior cladding in relation to unit 801 including as regards structural and associated issues. The Committee noted that the 2010 Act placed an obligation on the BC to maintain “building elements” even when in private property where they affected more than one unit.5 The Committee further noted that although the exterior cladding of unit 801 was the property of the unit owner, as both the exterior façade and windows provide a weathertight barrier to the unit, failure to maintain these building elements in a weathertight condition would impact on the units below unit 801. The Minutes then record:
The meeting recognised that a right to recover costs following these costs being incurred exists for the Body Corporate under either section 126 or 138(4). Section 138(4) deals with the right to oncharge the costs of private property repairs and section 126 deals with the right to recover the costs of repairs which benefit “to a greater extent a particular unit or units”.
…
Mr Ferens [Neptune Pacific Ltd] indicated that he believed a fair split of costs between the Body Corporate and the owners of unit 801 may be in the order of 50/50.
There was a discussion as to how the Body Corporate may fund the repair obligation which was is (sic) likely to be somewhere between the quoted price of $262,000 and $300,000. The Committee members present felt comfortable that options could be provided to owners which would ensure sufficient resource in place to meet the repair costs in the first instance.
5 Unit Titles Act 2010, s 138.
Correspondence regarding amendment of the scheme.
[27] On 28 August 2019 Grove Darlow wrote to the applicants’ solicitor Mr Jeff Morrison. They advised that they had been instructed by the BC to provide an update on the status of the two proceedings it had commenced in the High Court. The letter set out a summary of the history of the two proceedings and said that both proceedings were set down for a two-week trial commencing 11 November 2019. The letter included the following explanation:
8.For the purposes of understanding what follows, it is necessary to refer to the boundaries of units on the unit plan, as follows:-
(a)Each unit’s boundary extends to the exterior face of the cladding on the building.
(b)The boundary between one unit and another unit is the mid- point [of] any tenancy wall or (vertically) the mid-point of the inter-tenancy floor slab(s).
9.All of the repairs undertaken by the [Body Corporate] have been inside the unit boundaries of units 900 and 801.
10.The [Body Corporate’s] position is that since the repairs are to property entirely within the unit boundaries of unit 900 and 801:-
(a)100% of the cost of repair should be borne by unit 900 (Hannam) because he has been promising to repair L9 deck since about 2001 by a process of undertaking a re- development of levels 9 (unit 900) and 10 (unit 900) but he has not done so;
(b)Alternatively, 100% [of] the cost of the repairs should be borne by units 900 and unit 801 – depending on whether the physical work occurs exclusively within the unit boundary of one or other unit;
(c)Alternatively, the cost of repair should follow the principle adopted by Courtney J in the Endeans case at paragraphs 80- 109 along “use” lines. We have asked a quantity surveyor to consider this decision and advise whether or not what Her Honour ordered in that instance can be expressed as a formula.
11.In the meantime, the [Body Corporate] has had to undertake temporary repairs those repairs.(sic) A copy of the scope of work presently being done to unit 801 is attached, in case you have not previously seen it. That cost has, in the first instance, been invoiced to owners by ownership interest. The [Body Corporate] will then on- charge those costs in accordance with section 126(2)(a) and/or (b) to unit 801. This work is being done exclusively within unit 801’s boundary.
12.We understand Clive has foreshadowed he refuses to pay and will refuse to pay either the first instance levy raised by ownership interest from all owners to enable the [Body Corporate] to discharge its repair and maintenance duty in s 138 of the Act or, in the second instance, the [Body Corporate’s] foreshadowed on-charging Clive for the whole of the cost of repairs occurring within his unit boundary (“Clive objection”). The basis for Clive’s objection is that he says the [Body Corporate’s] manager, Andrew Porter, made a representation to the effect that Clive would not have any liability for repairs to 801.
13.We obtained an affidavit from Clive at the time the s 74 proceeding commenced. We have been aware of the email traffic between Andrew Porter and Clive from the outset. There is nothing in that correspondence which abrogates Clive’s liability or exposure for the cost [of] repairs maintenance occurring within Clive’s unit boundary. Additionally it has always been our understanding that Clive acquired unit 801 with full knowledge of the unit 900 deck problems which manifested themselves as leaks into unit 801 and accordingly acquired unit 801 at lower than market value, thereby recognising a risk of future liability for repairs and maintenance.
14.The [Body Corporate]will not find acceptable a scenario in which Clive gets a windfall; not paying for repairs and maintenance falling exclusively within his unit boundary.
15.Further, if Clive wishes to look at the owner of unit 900, then that will be up to Clive to prosecute. You should be aware however that, at this point in time, Clive has not entered any separate appearance in the s 74 proceeding.
16Given the above, you will no doubt advise him whether it is wise for him to continue that course. If Clive is to now take a position in that proceeding whether it is vis-à-vis unit 900 or vis-à-vis the [Body Corporate] or both, he will need to put himself on the record and appear to argue his point of view. A copy of the s74 proceeding was served on Clive in the usual way but if you would like a separate copy, we are happy to provide that. Electronically is the easiest for us of course.
17. If you have any further questions, do not hesitate to contact us.
[28] The schedule of costs attached to Grove Darlow’s letter detailing the scope of the work then being undertaken in the kitchen and dining area and two bedroom areas within unit 801 totalled $227,703.12.
[29] Despite the explanation set out in Grove Darlow’s letter of 28 August 2019 the applicants took no steps in the proceeding, and apart from Mr Hannam as first respondent, none of the forty-seven other respondents named in the amended s 74 proceeding took any steps in the proceeding.
[30] On 9 November 2019 Body Corporate 493826 gave notice to unit owners of an Emergency Extraordinary General Meeting (EEGM) to be held at 8.00am on 11 November 2019. The notice, which was issued on behalf of the Management Committee of Body Corporate 126001 said:
…
The meeting is an Emergency Extraordinary General Meeting of the Body Corporate called in accordance with Regulation 9 of the Unit Titles Regulations 2011. The purpose is for the Body Corporate to review the agenda and if appropriate vote at a meeting of parent BC 126001 regarding matters affecting the s 74 scheme currently before the High Court, which matter is scheduled to start at 10.00am on Monday 11 November 2019. Following is background to this short-notice EEGM and a copy of the Agenda Items to be considered by BC 126001 following this BC’s EEGM at 8.00am.
One of the key features of the proposed scheme is to ensure costs relating to the exterior weathertightness of Levels 4-10 are vested solely in the unit owners at those levels to the exclusion of any claim against the units contained in BC 493826.
While negotiations continue between the Head BC and Unit 900 to determine whether agreement can be reached, thereby avoiding the need for a trial, BC 126001’s solicitors believe it is prudent to ensure a clear vote on the question of cost allocation is recorded and hence the need for an EEGM.
“INTRODUCTION:
1)As previously notified Body Corporate 126001(BC) has filed a s 74 scheme in the High Court seeking approval of a scheme to allow the BC to carry out permanent repairs to Unit 900 and to address the allocation of costs incurred in respect of repairs, both temporary and permanent to both Units 900 and 801 ( arising from consequential damage) and, if needs be in the future, any other units at levels 4-10.
2)During the course of the lead up to the hearing scheduled to commence on Monday 11th November 2019, the proprietor for Unit 900 is maintaining that some owners may not have had shared with them the cost allocation options that the BC felt the Court may consider in approving the scheme. The options were included not for the purpose of suggesting the Court should accept them but simply to illustrate the range of options potentially available.
3)The BC holds the view that owners have been kept up to date regarding the scheme and in fact the Court may elect not to adopt the scheme submitted in whole or in part and may choose to decline it or to modify it to reflect one or an amalgam of the options referenced in the Body Corporate’s supporting evidence or design its own [cost] allocation model.
4)Multiple affidavits have been signed by individual unit owners giving their support to the scheme as submitted. To avoid any uncertainty regarding the views of the majority of owners, and without prejudice
to its current position, the BC Committee has resolved to call an EEGM to be held prior to the commencement of proceedings on Monday 11 November 2019. The EEGM will commence as soon after
8.00 am on Monday 11 November 2019 as the subsidiary Body Corporate have met to consider the same matter.
…
[31] The proposed resolution to be put before the EEGM was a resolution that BC 126001 supported the scheme before the Court and its first preference for cost allocation under the scheme was:
[2] Construction costs falling within a unit boundary are paid for by that unit’s owner (i.e. the owner of the unit within whose boundary work occurs). Fees (meaning: consultant’s fees, contract administration/management fees, insurance fees, territorial authority fees, BC secretarial /management fees) are shared by utility interest pro rata among units at levels 4-10. This means there is no subsidisation of work within any unit of work within any unit by any other unit.
[32] However, the EEGM did not take place. At 6.18 am on the morning of 11 November 2019 the manager of the BC sent an email to the unit owners advising that:
At 10.16 pm last evening Mr Hannam signed a settlement Deed which consents to the s 74 Scheme and a consent order is to be made whereby the scheme will lie in court to enable Unit 900 to put together a proposal for the future redevelopment of Unit 900 which will deliver an acceptable outcome to all. If an agreement cannot be reached within the 12 month period the scheme comes into effect immediately.
Further detail will be provided in terms of a formal report in the near future but the short-term consequences are:
a.The trial will not be proceeding this morning.
b.The EEGM’s (sic) which were intended to be held this morning are postponed in anticipation of ultimately being cancelled.
…
The 12 November 2019 consent orders
[33] As noted in Grove Darlow’s 28 August 2019 letter to the applicants’ solicitor Mr Jeff Morrison,6 the two proceedings had been set down for a two week hearing to commence on 11 November 2019. Shortly before the hearing commenced, counsel
6 At [27] above.
for the BC and counsel for Mr Hannam as first respondent, filed a “Consent Memorandum” dated 11 November 2019 (the consent memorandum) stating that they had agreed terms of settlement of both the s 74 proceeding, and the levies proceeding. As regards the levies proceeding the memorandum advised that it had been settled by the parties and the Court was asked to note that the proceeding was discontinued, with no issue as to costs.
[34] Attached to the consent memorandum was a scheme (the second amended scheme) with an amended provision for the allocation of costs. The costs allocation provision states:
10.Allocation of Costs
10.1Subject to clause 2.1(x) Costs shall be allocated between Owners in the manner described in the Schedule.
[35]The schedule to the Scheme then provides:
Schedule of Cost Allocation rules
Repairs on common property at levels 4-10 will be paid by ownership interest pro rata to ownership interest of level 4-10 units 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 which case the Repair Costs will be paid on the same basis as Direct Construction Costs as if common property on a level of the building is included in the units on that level.
“Direct Construction Costs” means those costs charged by the Building Contractor that are directly attributable to work being undertaken on a specific unit in the Building including, without limitation, items such as labour and materials shall be paid by individual owner of that unit.
“Indirect Construction Costs” means preliminary and general costs (P&G) and scaffolding:- If only one unit is repaired at one time, then Indirect Cost is paid by the unit which is repaired but on the basis that in that case the Owner of that unit shall not be required to contribute to the Indirect Construction Costs for the repair of other units unless in the latter event some other part of the first mentioned Owner’s property is also being repaired. If one or more units (and/or common property) at levels 4-10 are repaired together then Indirect Cost is paid pro rata in proportion to their respective ownership interest. If all units at levels 4-10 (and/or common property) are repaired together then Indirect Cost is paid pro rata in proportion to ownership interest of levels 4-10.
...
[36] The consent memorandum referenced an affidavit of service sworn in May 2018 and stated that the “listed owners” had all been served with the s 74 proceeding. It further said that other than the first respondent, no parties had participated in the proceeding or had ever filed any papers in opposition.
[37] Counsel for the BC and the first respondent sought consent orders to be made pursuant to s 74 approving and settling the scheme as attached to their consent memorandum. Counsel also sought a consent order directing that the order approving the scheme would lie in Court for a year until 11 November 2020 when it would then become operative and be binding on each of the named respondents until the scheme was completed and fully paid. Counsel explained that the reason for the provision deferring the operational date of the scheme was to enable further negotiations between the parties regarding the possible establishment of a development unit in the space above the first respondent’s unit, to be acquired by Mr Hannam or his Trust to enable further development to be undertaken.
[38] By Minute issued on 12 November 2019 the Court made orders approving the Scheme in the form proposed and as annexed to the joint memorandum. Orders were also made deferring the date upon which the Scheme would become operational until 11 November 2020, and granting leave to the applicant and respondents to apply for any other ancillary orders or directions as necessary.
[39] On 18 November 2019 Grove Darlow wrote to the Chairman of the BC summarising the history of the s 74 proceeding and reporting the outcome of the hearing on 11 November 2019. The letter said:
1.On 30 August 2017 the Body Corporate (“BC”) applied for a scheme under section 74 of the Unit Titles Act 2010. That application was accompanied by an application for injunction, the purpose of which was to prevent Mr Hannam from interfering with the BC’s attempts to effect temporary repairs to the level 9 deck, unit 801 and in due course, the level 9 dwelling. Mr Hannam consented to an order on 25 October 2017. That paved the way for the BC to effect the first of those three steps at a cost of approximately $110,000, raised from all owners by ownership interest.
2.On 30 April 2018 the BC applied for an amended scheme, the purpose of which was to deal with:-
(a)Other necessary repairs required at levels 8 (unit 801) and 9 (dwelling walls); as well as
(b)Possible other (future) repairs to cladding at levels 9 and below.
3.In making the amended application, the BC acknowledged a risk which is now reflected in the BC’s current ‘Cladding Policy’. The risk is that notwithstanding the BC’s continued performance of the Babbage and David Smith forward maintenance and monitoring schedule, adopted on 30 April 2016, and notwithstanding the BC expects the cladding at level 9 and below will continue to perform, there is nevertheless a risk – which cannot be excluded – of it ceasing to perform before the cladding’s 2026 scheduled review.
4.In view of the documented history of the BC’s dealings with Mr Hannam’s property and the risk just foreshadowed and in the ‘Cladding Policy’, an essential purpose of the s74 scheme was to ensure that the BC could control any repairs required to be made to any private property (bearing in mind that the boundary of each owner’s property is to the exterior face of the outside wall and mid- line between any inter-tenancy wall).
5.The amended application was served on all owners, mortgagees, any other charge-holder, the building’s insurer and the Registrar General of Lands; all as required by s 74 of the Unit Titles Act 2010. Relevantly, all owners were served by our firm in the months from March – May 2018.
6.With the exception of Mr Hannam, no owner opposed the scheme. No owner filed any document wishing to be heard in connection with the amended application or signalling any intention to monitor the amended application.
7.Mr Hannam opposed the scheme for various reasons which may be summarised as follows:-
(a) ….
(b)The scheme allocates all costs to Mr Hannam;
…
(m)The scheme does not take into account that the temporary work is for the benefit of the level 8 owners, not Mr Hannam;
…
14.The committee elected to continue on with the trial. Late on the eve of the trial, Mr Hannam and the BC reached an agreement as to terms of a scheme, subject to the Court making an order.
…
[40] On 19 November 2019, Grove Darlow wrote to Mr Fernandes and Ms Johns advising that the Court had sanctioned a s 74 scheme containing cost allocation rules or principles “which largely reflect the cost allocation notified in our earlier letter and they have retrospective effect for any repairs carried out after commencement of the proceeding (August 2017)”, and that the BC committee would be looking to levy the repair costs for unit 801 to them. Attached to the letter was a copy of Grove Darlow’s letter to the applicants’ solicitor of 28 August 2019 and the building contractor’s quote for remedial work on unit 801 totalling $261,889.64. The letter continued:
8. This letter notifies you the body corporate will levy your unit with the amount of the repair costs to unit 801 (less unit 801’s interest share of which has already been paid). The body corporate will also record the existence of the liability in any disclosure statement sough in respect of your unit. This notice aside, you are invited to reconsider your position in light of the above. For the time being the body corporate will withhold taking any immediate steps to commence an action against you pending your early reply.
[41]On 29 November 2019 the BC forwarded a tax invoice to the applicants for
$228,827.48 in respect of, “Lot 8 Internal Repairs as per attached $228,804 plus [Boutique Body Corporate Ltd] processing fee INV 406473 $23 Due by 12/12/19.” In the covering email the Body Corporate manager advised:
Hi Clive,
Please see on-charge attached along with supporting documents – this accords with the notification from the Body Corporate’s solicitors and reflects the terms of the s 74 scheme which was the subject of recent orders
Whilst the invoice has a due date of 12 December 2019 we are advised interest will not be charges so long as payment in full is received by 31st January 2020.
[42] Also, on 29 November 2019, Mr Fernandes responded to the BC’s email and invoice requesting copies of the building contractors’ invoices. The BC initially referred to the quotation provided by the contractor but following further correspondence advised the applicants that the invoice had included building work undertaken on unit 901 and common property resulting in credits totalling $42,894.95 and a revised on-charge sum of $185,932.53 with the time for payment being 31 January 2020.
[43] The applicants subsequently engaged Mr Geoffrey Bayley, a quantity surveyor, to assess the BC’s allocation of costs. Mr Bayley’s initial assessment was that the BC’s costs allocation had overcharged the applicants by approximately $90,000. On 18 February 2020, the applicants’ solicitor wrote to Grove Darlow saying:
…
7. As you will be well aware it is settled law that s 126 disputes are not amenable to summary judgment proceedings and this matter is just another illustration of why that is so. The Body Corporate’s allocation is arbitrary and inequitable with its simplistic focus on location of work without regard to who in fact caused the damage being repaired or who benefits from such repairs, as required by s 126. There are also serious questions as to whether the Body Corporate exercised its powers for a proper purpose given that the amended scheme sanctioned by members and lodged with the High Court was, seemingly as a result of the purported settlement with Mr Hannam, switched for the original scheme and wrongly presented to the Court as having the unanimous approval of owners. Plainly, none of these disputes are amenable to determination by way of summary judgment.
[44] Attempts by the parties to reach agreement on the amount of a costs allocation regarding the remedial work undertaken on levels 8 and 9 of the building have proved unsuccessful to date.
[45] On 5 October 2020 the applicants filed an interlocutory application in which as well as applying for an order varying the allocation of costs provisions of the approved scheme, they also seek an order:
Determining under s 173 of the [Unit Titles Act 2010] the amount (if any) properly payable by the Applicants to Body Corporate 126001 (Body Corporate) towards the cost of repairs carried out by the Body Corporate on Unit 801.
[46] On 15 December 2020 the BC filed an Appearance Under Protest to Jurisdiction pleading that the applicants are bound by the terms of the order made by the Court approving the scheme, and that the Court has no jurisdiction to make orders determining the amount of repair costs payable by the applicants, because they are bound by the terms of the scheme as approved by the Court and any dispute regarding the allocation of repair costs under the scheme must be determined pursuant to the arbitration procedures contained in the scheme. The BC accordingly seeks an order
dismissing the applicants’ application for a determination of their responsibility for the water damage repair costs.
Submissions
Applicants’ submissions (Mr Fernandes & Ms Johns - the thirty-seventh respondents)
Service of the scheme
[47] The applicants as trustees of the MFT and owner of unit 801, say that although they were served with the BC’s amended s 74 application on 3 May 2018 they were not served with the revised s 74 scheme which was the basis on which the BC sought the consent orders made by the Court on 12 November 2019. They say that they did not consent to those orders and as a consequence of not being served with the revised scheme, they were not heard on the issue of the allocation of costs as between unit owners. They say that the BC ought reasonably to have known that they disputed the issue.
[48] They say that from May 2019, and during the period immediately prior to the BC and the first respondent jointly seeking the consent orders, the BC had been consistently seeking to allocate the whole of the repair costs related to the water leak from the level 9 deck solely to the first respondent. While that proposed allocation was opposed by the first respondent the applicants did not themselves oppose it.
[49] The applicants say that against that background the BC and the first respondent reached settlement on the eve prior to the 11 November 2019 trial, and proceeded to file an application for approval of a further amended s 74 scheme, although not identifying it as such. They submit that the effect of the further amendment of the scheme was to shift liability for the cost of the repair of the water damage within their unit’s boundaries, from the first respondent to them and their MFT trust. They say that the amended scheme presented to the Court was wholly different from the one annexed to the first amended application filed on 30 April 2018 which was served on them on 3 May 2018. The applicants say that it is significant that during the period shortly prior to settlement being reached between the BC and the first respondent, counsel for
the first respondent raised the issue of service on other respondents in his memorandum filed with the Court on 5 November 2019 in which he said:
2.The body corporate has not responded to the important point raised by Counsel as to whether the hearing can proceed on the basis of an application which, according to the body corporate’s recent affidavit evidence, is materially different to the application that was served on the respondents. An amendment to the application which does not substantially alter the scheme is permissible but the amendments to the cost apportionment in this case are material and substantial.
3.Counsel cannot find an affidavit proving service on the respondents, whether in respect of the body corporate’s original scheme application or the amended application but whatever has been served is different to the current proposal. The scheme attached to the original application provided for the owners to pay for the repairs to their own unit and a share of common property costs, and under the amended scheme wording all of the repair costs were allocated to Mr Hannam. There are now 4 alternative cost apportionment options as set out at paragraph 12 of Counsel’s memorandum dated 29 October 2019.
4.Other than Mr Hannam, the respondent owners have not filed any papers. Some owners (12 of 42) have provided affidavits indicating in general terms they support the body corporate’s approach to cladding repair, but it is not clear what version of the scheme or cost apportionment option they support. As matters currently stand, owners could justifiably take issue with a scheme decision on the basis of procedural fairness.
…
8. For this reason also, it is submitted that the body corporate needs to amend its application, with a firm proposal for cost apportionment, and re-serve it on all respondents.
[50] Mr Fernandes says that although he was aware of the notice of the EEGM, he did not understand the notice as suggesting any change of approach to the recovery of historic costs for consequential repairs to unit 801 required as a result of leaking from level 9. He says that he understood from the proposed motion that there was a clear difference in approach to allocating costs already incurred in accordance with the first amended s 74 application that had been filed and which was before the Court and future repair costs for levels 4-10 in respect of which it was proposed that construction costs falling within a unit boundary were to be paid for by that unit’s owner. Mr Fernandes says:
4.31 There was no suggestion that the Body Corporate was proposing to depart from the costs allocation in the amended s 74 application ( being the approach summarised at paragraph 6(c) of the EEGM
Notice) in favour of the same approach being applied to historic costs as future costs. There was certainly nothing to suggest that it was proposed to fundamentally change the allocation of costs between Units 801 and 900 in a way that was prejudicial to Unit 801 and contrary to the Body Corporate’s acceptance that the damage to Unit 801 was a consequence of the issues with Unit 900.
[51]In his affidavit in support of the present application Mr Fernandes states:
…at times, the Body Corporate discussed the Trust sharing some of the repair costs. However, to the Trust’s knowledge, at all times the proposed costs allocation before the Court was as set out in the amended s 74 application dated 30 April 2018 i.e. that the cost of repairs would be borne solely by the owners of Unit 900. It was therefore a considerable surprise to the Trust when the Body Corporate sought to charge the Trust for the cost of the repairs to Unit 801.
[52] The applicants say that in the amended application which was served on them, the BC sought approval for a scheme pursuant to which it proposed to recover all of the costs of the repair from the owner of levels 9 and 10, and thereafter over the course of subsequent correspondence and discussions between them and the BC, although it indicated that it might seek to recover repair costs from them, at no time to their knowledge did it amend its s 74 application, or advise them that it intended to do so. The applicants say that as a result, it was their understanding that notwithstanding the correspondence they had received from the BC regarding the possibility of a change of approach, the BC’s position as at 11 November 2019 remained that set out in its amended application filed in the Court and served on them, namely, that it was seeking to recover 100 per cent of the repair costs from the first respondent.
[53] The applicants note that there is no dispute that the further amended s 74 application was not served on them. They submit that s 74(6) which affords them the right to be heard in relation to an application under that section, requires service of the amended application to have been effected on them. The applicants submit that the BC and the first respondent agreed to resolve the dispute between them on the basis that a third party would meet the cost of repairs in circumstances when they knew that the applicants were unaware of the significant change that they had made regarding the basis on which repair costs were to be allocated, and that they had not consented to the change.
[54] As regards the BC’s protest to jurisdiction, the applicants submit that s 74(8) of the Act confers jurisdiction on the Court to vary or set aside the Scheme. They further submit that the Court has the power to determine the amount of costs for which the first respondent is liable:7 to stay enforcement of the Scheme;8 and to set aside the BC’s protest to jurisdiction.9 They argue that the Scheme and the arbitration clause within it are invalid, and submit that pending determination of their application for an order to vary and cancel the order made on 12 November 2019 approving the Scheme, any steps to enforce the Scheme or employ the arbitration provisions of the scheme, should be stayed.
[55] The applicants say that following his assessment of the building and work undertaken to repair the water damage, Mr Bayley concluded that the overall repair cost incurred by the BC was unreasonable for the work carried out, and that it had been overcharged by approximately $112,000. In Mr Bayley’s opinion all of the damage to unit 801 which was the subject of repairs appeared to have been caused by leaks from Unit 900 above as a result of failure of construction, repair, and maintenance, to the deck and balustrade of Unit 900. In his opinion the cost of repairs to building elements and/or infrastructure caused by leaks from Unit 900 should not be recovered from the owner of Unit 801 because the damage was caused by leaks from Unit 900 and the damage was caused to building elements and/or infrastructure that relate to the integrity of the building as a whole in terms of weathertightness, and consequently all unit owners benefitted from the repairs. The applicants accordingly submit that had they been served with the second amended scheme presented to the Court on 11 November 2019, and had they been afforded the opportunity to oppose the scheme and be heard, they would have based their opposition on the evidence and expert opinion of Mr Bayley regarding the BC’s allocation of repair costs, and as regards their liability for repair costs.
7 Unit Titles Act 2010, s 173.
8 High Court Rules 2016, r 17.29.
9 Rule 5.49(5).
Submissions in support of application to set aside Body Corporate’s Protest to jurisdiction
[56] The applicants submit that the BC’s protest to jurisdiction should be set aside. They submit that by acting pursuant to the allocation of costs provisions of the scheme and seeking to enforce payment of the sum allocated as being the responsibility of the applicants to pay, the BC is seeking to enforce the scheme, including its dispute resolution/arbitration provisions, in circumstances where due to its failure to comply with s 74 (in particular by failing to serve the revised scheme before proceeding to seek the consent orders), the scheme is invalid, and should be varied or amended before it would become valid and enforceable. The applicants submit that in any event the scheme itself does not oust the Court’s jurisdiction to determine disputes under s 173 of the Act. They say that as long as the BC continues to pursue them pursuant to s 126 of Act for the cost of repairs to their unit, there is no sound basis for the proposition that the Court does not have jurisdiction under s 173.
Submissions as to stay of enforcement of the scheme pending determination of the application to vary or amend the scheme
[57] The applicants submit that as the approved scheme does not comply with s 74 because of the failure of the BC to serve it on them prior to seeking the consent orders approving it, any enforcement of the scheme should be stayed pending determination of their application to vary or amend it. The applicants rely on r 17.29 of the High Court Rules 2016, which provides:
17.29 Stay of enforcement
A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.
[58] The applicants submit that in determining their application pursuant to s 173 of the Act regarding their liability to pay the repair costs, the Court is required to balance the interests of the unit owners in a way that achieves the outcome fairest to all unit owners.10 They say that after spending years pursuing the owners of unit 900 for the cost of repairing the water damage from leaks from level 9, the BC altered its
10 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [44].
position on the eve of the hearing of the application for approval of the scheme to effectively absolve the first respondent of liability for the cost of the repairs and reverting back to their previously fruitless attempts to negotiate the terms of granting airspace redevelopment rights to the first respondent, and adopting an approach that will result in the applicants meeting the cost of repairs to building elements from which all other unit owners benefit.
[59] The applicants further submit that having sought and obtained the consent orders in circumstances where it ought reasonably to have known that the applicants did not and would not consent to them, the BC now seeks to “enjoy the fruits” of the consent orders pending determination of their application to vary and determine the validity of the scheme pursuant to s 74(8). They submit that the BC’s approach would have them pay the full amount of the repairs as determined and claimed by the BC, and submit the dispute to arbitration pursuant to the arbitration provisions of the scheme notwithstanding that they did not agree to or consent to the scheme or to be bound by its arbitration provisions.
[60] The applicants say that there is therefore a real and substantial risk of miscarriage of justice should enforcement of the scheme not be stayed. They say that enforcement of the requirement that they “pay now; argue later” regarding the repair costs the BC is seeking to recover from them based on the approved scheme and whether the remedial work was undertaken within their unit boundary, is necessarily restricted to a question of how much they should pay and not whether they should be required to pay.
[61] The applicants submit that it is clear that they ought to have been served with the revised scheme prior to the consent orders being sought, and that based on the consent memorandum filed by counsel the Court would have apprehended that it was being asked to approve a scheme that had the unanimous support of the parties, unit owners and other interested parties. The applicants say that not only were they denied the opportunity to be heard in relation to whether the Court should approve the scheme, but also had they been heard they would have adduced relevant and cogent expert evidence from Mr Bayley that would have had a material bearing on the Court’s determination as to whether the proposed scheme would be approved.
[62] In response to the BC’s submission that they had not acted promptly to bring their present applications following the consent orders approving the scheme, the applicants say that when set against the whole extended history of this matter, the interval and their delay in commencing their applications is not materially significant. They note that the issues relating to Mr Hannam’s responsibility for repairs to damage occurring below level 9 had already been underway for years before the BC commenced the s 74 proceeding in August 2017. Thereafter the proceeding progressed slowly over the next two and a half years, only to settle on the eve of trial on the basis of an agreement between the BC and the first respondent to negotiate further. The applicants say that these negotiations are yet to achieve a resolution of the issues between the BC and the first respondent. They say that a significant part of the twelve-month period that followed the making of the consent orders during which the consent orders lay in Court was taken up with their efforts to engage constructively with the BC to seek resolution. They submit that it is not unreasonable for them to have held off commencing court proceedings and incurring the cost of doing so until it was apparent that the BC was intent on enforcing the scheme or proceeding under s 126 to recover the repair costs from them. They submit that the overall interests of justice are best served by them and their trust not being required to “pay now; argue later”, when there is a fundamental issue regarding the validity of the scheme under which the repair costs payment is sought, and where the scope of the dispute resolution provisions of the scheme do not encompass the question of whether the applicants should be required to pay any of the repair costs.
Body Corporate’s submissions
[63] Mr Allan for the BC acknowledges that the applicants were not served with the version of the scheme which was the basis of the consent orders made on 12 November 2019. Referring to s 74(6) of the Act, he submits that although the originating application for a scheme or variation of it is required to be served, there is no requirement for every proposed revision of the scheme set out in the originating application to be served on every owner or other person having an interest in a unit so as to gauge whether they support it or oppose it. Mr Allan submits that service of the revised scheme containing the alternative cost allocation provision was not required to be effected on the unit owners, and that there is nothing in the Court of Appeal’s
decision in Tisch v Body Corporate11 or Part 19 of the High Court Rules 2016 to indicate that service was required to have been effected.
[64] The BC submits that Courts have regularly made directions regarding schemes and how costs are to be allocated without every unit owner being required to be served, including directions and orders regarding cost allocation which were not actually sought by the applicant, and different from those of which notice was given to unit owners by service of the originating application.
[65] The BC says that although it was not required to effect service of the revised scheme on the unit owners, the applicants cannot complain about not being served, because the BC had given them fair notice of its cost allocation alternatives well prior to it seeking the consent orders. The BC refers to the affidavit evidence of committee member Mr Anthony McCullagh in which he says that around May 2019 he and another member of the body corporate committee met with the applicants to discuss repairs to their unit, and that during the meeting he had made it clear to them that the cost of repairs to their unit that fell within their unit boundary, would be their responsibility to pay for.
[66] Furthermore, counsel notes that in correspondence sent to their solicitor the applicants were notified by the BC on at least three occasions prior to the November 2019 trial fixture of the costs allocation alternatives, and on each occasion the applicants were encouraged to participate in the trial. The BC refers to Grove Darlow’s letter to Mr Morrison dated 28 August 2019, and says that the terms of the letter made it clear that the BC was contemplating that the Court was unlikely to impose 100 per cent of the liability for the repair costs, past and future, on the owner of Unit 900. The BC says that it was also clear from the terms of its letter that it would be asking the Court to consider the alternatives it had listed, and it had accordingly encouraged the applicants to reconsider whether it was wise for them to continue without entering a separate appearance in relation to the s 74 proceeding, and participating at the hearing to argue their point of view.
11 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679.
[67] The BC also refers to an email sent by Grove Darlow to Mr Morrison on 2 September 2019 which attached an email Grove Darlow had received from the first respondent’s solicitor, Mr Gareth Lewis of Grimshaw & Co, and Grove Darlow’s reply. In the email replying to the respondents’ solicitor, Mr Allan said:
Finally, I am surprised by your suggestion that the body corporate has “applied for a scheme under the Unit Titles Act under which our client would be liable to pay for Repairs to the entire building.” That is not the body corporate’s position. Attached is a recent letter from the body corporate to 801 which sets out the body corporate’s position.
[68] The Body Corporate says that the contents of these emails sent to the applicants’ solicitor made it clear that it was not proceeding on the basis that the first respondent should be solely responsible for meeting the repair costs.
[69] The BC also notes that following the Court’s making of the consent orders approving the scheme, the applicants did not take any steps to either appeal against the decision making the orders, or apply for recall of the Court’s order or apply to set it aside. Instead, the applicants took no steps for a period of eleven months. The BC further notes that the variation to the scheme sought by the applicants is limited to one single provision: clause 10 dealing with allocation of repair costs, which if made would impose the whole of the cost of all repairs, past and future, relating to all levels of the building, solely on the owners of unit 900.
[70] The BC rejects the applicants’ contention that the Court was intentionally misled by the way in which the settlement and consent orders were sought and obtained. Mr Allan says that having regard to the contents of the memorandum of issues for trial and the submissions filed, it would have been clear to the Court that the scheme submitted by the parties for the Court’s approval contained a cost allocation provision which differed from that in the scheme appended to the amended originating application which named and had been served on every unit owner, charge- holder, mortgagee and the building’s insurer. It submits that the applicants can hardly complain that the very cost allocation it was warned was an alternative and which the BC had informed them it would pursue at trial, was the one ultimately ordered.
The Body Corporate’s protest to jurisdiction
[71] The BC submits that the applicants’ application for an order setting aside its protest to jurisdiction should be dismissed.
[72] The BC says that the applicants having made an application to vary the scheme does not abrogate their obligation to comply with its terms, particularly in circumstances where there is no application to set aside the scheme, or its dispute resolution provisions. It submits that s 173 which confers jurisdiction on the Court to hear and determine a unit title dispute, is not engaged, because the applicants are disputing the allocation of repair costs, and they have not given notice under clause 13 of the scheme to commence the dispute resolution procedure. The BC submits that the dispute resolution provisions of the scheme is not “an agreement that purports to exclude or limit the jurisdiction” of the Court as referred to in s 173(2). Rather, it is a scheme approved by order of the Court which includes a dispute resolution mechanism which enables the BC to require payment of a costs allocation to be made upon demand and before the arbitration procedure is undertaken and finalised.
[73] The BC submits in the alternative that if the Court concludes that it has concurrent jurisdiction to determine the dispute between it and the applicants as unit owners, it should nevertheless stay the applicants’ s 173 application, and order them to comply with clause 13 of the scheme, including making payment of the amount claimed by the BC, as a prerequisite to hearing their s 173 application. The BC also says however that as the Court does not resolve disputed questions of fact (such as the quantity surveying issues underlying the present dispute) under the Part 19 procedure, the proper course would be for the Court to stay the s 173 application, leaving the applicants free to commence a fresh ordinary proceeding or counterclaim in respect of the BC’s current ordinary proceeding.
[74] In relation to the relevant considerations regarding the granting of a stay, the BC says that it is the party most affected by the scheme and whether payment of the amount claimed is paid or not pending determination of the dispute over liability for the repair costs. The BC says that the scheme is not solely concerned with the allocation of the repair costs as between the owners of units 900 and 801. Rather it is
a scheme dealing with the allocation of repair costs which is applicable to the whole of the building and all repairs. The BC says that it is incorrect to characterise its demand for payment of the repair costs as “enjoying the fruits” of the consent orders, as pursuant to the scheme the BC will receive and apply the money to meeting the cost of the repairs, and there is no subsidisation by way of a benefit to other unit owners when all of the repairs for which payment is sought were carried out entirely within the unit boundary of the applicants’ unit.
[75] The BC says that should a stay of the scheme be granted it would unfairly prejudice the other unit owners by leaving the BC unable to carry out its powers and duties and thereby increase the risk of further damage to the building and adverse effects on unit owners’ health. Conversely, it would not be a substantial miscarriage of justice for the BC, having had the use of the applicants’ money, to be required to repay that money at a later date. The BC says that thus far the applicants have had the benefit of the other unit owners’ money which has been applied to paying for the repairs undertaken within the unit boundaries of unit 801. The BC submits that it is inequitable that the applicants, having had the use of the other unit owners’ money, have refused to pay either the amount levied and claimed by the BC of $186,978.08 on the pay now, argue later basis, or even the amount their own quantity surveyor considered to be properly payable. The BC says that there is no risk of it being unable to repay the applicants any amount which is found to be refundable to them following either an arbitration pursuant to the scheme, or a successful variation application under s 74.
[76] Finally, the BC says that it is not correct to say that it absolved the first respondent from any responsibility for repair costs. It says that it expects to recoup the costs it has incurred over the course of dealing with Mr Hannam’s proposals for redevelopment of levels 9 and 10 and reaching agreement with the first respondent on the terms of sale of common property at level 10 and a development agreement.
Discussion
Was service on the applicants required?
[77]Section 74 of the Act provides:
74 Scheme following destruction or damage
(1)This section applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.
(2)The High Court may, by order, settle a scheme on the application of—
(a)the body corporate; or
(b)if the unit title development is in a layered unit title development, the body corporate of the head unit title development or any subsidiary unit title development in that layered unit title development; or
(c)an administrator; or
(d)the owner or one of the owners of a unit; or
(e)a registered mortgagee of a unit.
(3)A scheme under subsection (2) may include provisions—
(a)for the reinstatement in whole or in part of the building or other improvement; or
(b)for the transfer of units to the body corporate so as to form part of the common property.
(4)If an order is made under subsection (3)(b), sections 58(1)(c) and 59 apply to the transfer, so far as applicable, but subject to any order of the High Court to the contrary.
(5)A notice of any application made under subsection (2) must be lodged with the Registrar who must enter on the supplementary record sheet a notification that the application has been made.
(6)On any application to the High Court under subsection (2), the following persons have the right to appear and be heard:
(a)any person having or claiming to have any estate or interest in any unit or in the whole or part of the base land; or
(b)any insurer who has effected insurance on the buildings or other improvements comprised in any unit or in the whole or part of the base land.
(7)In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders—
(a)directing the application of any insurance money; or
(b)directing payment of money by or to the body corporate or by or to any person; or
(c)directing the deposit of an appropriate new unit plan; or
(d)imposing any terms and conditions that it thinks fit.
(8)The High Court may cancel, vary, modify, or discharge any order made by it under this section.
(9)The High Court may make any order for payment of costs that it thinks fit.
[78] For a party to exercise their s 74(6) right to appear and be heard on an application to settle a scheme they must be given proper notice of the scheme for which approval is sought by being served with the originating application, supporting affidavits and any subsequent court filings. In the present case the BC served the applicants together with all other respondents when it filed its amended originating application on 30 April 2018. In the applicant’s case, service of the amended originating application was effected on 3 May 2018. That application stated that the cost of the repairs to be carried out by the BC pursuant to the scheme were to be borne by the owner of levels 9 and 10. Following service, the applicants along with all forty- seven other respondents took no steps in response to the amended application. The obvious purpose of the proposed scheme was for the BC to be authorised to carry out repairs at level 9 and recover the whole of the cost of the repairs from the first respondent. This approach was consistent with what Mr Fernandes had been told by a representative of the BC prior to his trust’s purchase of unit 801 and the approach of the BC management committee as evident from their discussions recorded in their meeting minutes of 14 December 2017, in which they had expressed their view that any costs associated with both the temporary and the permanent repair of the water damage, together with the cost of remediating consequential damage caused by the prior failure of the owners of unit 900 to repair damage on level 9, “should rest solely with unit 900.”
[79] The BC’s position had clearly changed by 28 August 2019 when Grove Darlow wrote to the applicants’ solicitor Mr Morrison, to update him regarding the two proceedings it had commenced against Mr Hannam, and particularly the s 74 proceeding which named the applicants as the thirty-seventh respondents. The letter set out a detailed summary of the history of the proceedings and advised that they were to be heard together at a one day Issues Conference and a two week trial commencing
11 November. The letter clearly set out the BC’s position that responsibility for repairs carried out entirely within the unit boundaries of units 900 and 801 should be allocated between the owners of those units in accordance of one of the three alternative formulations it set out. The letter also made it clear that the BC regarded as unacceptable a situation wherein Mr Fernandes did not meet the cost of repairs undertaken within the boundaries of unit 801, and also advised that if Mr Fernandes wished to claim those costs from the owner of unit 900 it would be up to him to do so.
[80] In their letter, Grove Darlow suggested that Mr Fernandes would be wise to reconsider whether he should take any steps in the s 74 proceeding so as to appear and to argue his case as to which of unit owners 900 or 801 should bear the cost of the repairs required to unit 801. Despite the urging to action contained in the letter, Mr Fernandes took no steps in the proceeding. In the period following the 28 August 2019 letter and early November 2019, counsel for the BC and the first respondent filed memoranda with the Court in which they addressed a range of pre-trial issues including whether affidavits filed by the first respondent and the BC in reply were to be admitted as evidence at the hearing. In his memorandum counsel for the first respondent noted that the position being adopted by the BC as appeared in their affidavit evidence was materially different to the application that was served on the respondents, and noted that as the BC was putting forward four alternative cost allocation options it was unclear which option was to be pursued, and which option had the support of other unit owners whose affidavits the BC had filed.
[81] The EEGM called by the BC to take place on the morning of 11 November 2019 was in response to the issues raised by the first respondent’s counsel regarding whether the alternative cost allocations had been notified to the unit holders. In its explanation of the reasons for calling the EEGM the BC said that it remained of the view that unit owners had been kept up to date regarding the scheme, and the alternative options were included “not for the purpose of suggesting the Court should accept them but simply to illustrate the range of options potentially available.”
[82] There was however nothing in Grove Darlow’s letter of 28 August 2019 to indicate that the BC was considering amending the proposed s 74 scheme and similarly, nothing in the EEGM notice to alert the applicants to the fact that a revised
scheme had been or was being prepared which included a significant change to the costs allocation provisions.
[83] The settlement between the BC and the first respondent was not concluded until around 10.16 pm on the evening before the hearing when Mr Hannam signed a deed of settlement consenting to the revised scheme. The revised scheme altered the allocation of costs provision from that set out in the amended originating application of 30 April 2018 which had been served on the respondents, including the applicants, in which the owner of unit 900 was to be solely responsible for meeting the whole of the repair costs, to an entirely new and different provision pursuant to which repair costs were to be allocated on the basis of whether they related to repairs on common property at levels 4 – 10, or “Direct Construction Costs”, in which case they would be paid for by the owner of the unit within which the work was done.
[84] Of all the unit owners and respondents, the applicants were the most directly affected by this change, and they were not given any notice of it before it was included in the revised scheme presented to the Court attached to the consent memorandum of counsel. Although the Grove Darlow letter of 28 August 2019 had clearly informed the applicants that the BC was considering alternative cost allocation models, it did not advise them of the terms of the revised scheme for which the Court’s approval would be sought. And although it may have been prudent following their receipt of the letter for the applicants to file an appearance in the s 74 proceeding, the fact that they did not, does not relieve the BC from its obligation of notifying them of the contents of the revised scheme for which the Court’s approval would be sought.
[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.12 The Court must nevertheless be satisfied, that unit owners who may be significantly affected by
12 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].
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. In Body Corporate 183930 v Chua & Ors13, the Court noted, that after an amended scheme had been prepared, which dealt with a revised allocation of remediation costs between unit owners, it had been circulated by the Body Corporate to unit owners together with an explanatory memorandum prior to an EGM at which it was considered and a resolution passed to proceed with an application pursuant to s 74 to seek the Court’s approval. Justice Wylie declined to approve the proposed scheme and directed that a further amended scheme be prepared, and said he anticipated that the parties would be able to come back to the Court “with a scheme which all support.”14 The Court’s consideration of the proposed scheme was clearly predicated on the basis that all unit owners had been fully informed of the proposed amended scheme, and that all unit owners would be informed of any further proposed amendments to the scheme before the Court’s approval was sought.
[86] Here however, where the amendment is of material significance to an individual unit holder, I consider that notification of the amendment by way of service of the amended application and the revised scheme on the affected party was required to ensure that their right to be heard in relation to the application was given effect. When the terms of settlement between the BC and the first respondent were finalised late on the eve of trial it would have been clear to both of the parties to the settlement that the revised scheme was materially different from that contained in the amended application which had been served on the respondents some 18 months earlier. In these circumstances, notwithstanding the agreement reached between the BC and the first respondent, the proper course was for the BC to have effected service of the revised scheme before proceeding to seek consent orders from the Court. The BC could have sought an adjournment of the trial fixture to enable service of the revised scheme, and directions from the Court as to service, on the basis that service was only required to be effected on the applicants as the unit owners most directly affected.
13 Body Corporate 183930 v Chua & Ors [2015] NZHC 2122 at [55].
14 At [124].
[87] The consent memorandum of counsel in which the consent orders were sought and to which the revised scheme was attached correctly informed the Court that service of the s 74 proceeding had been served on the unit owners and that “No person other than the first respondent has participated in this proceeding and/or ever filed any papers in opposition.”
[88] I reject the applicants’ submission that the Court was deliberately misled by the consent memorandum or by counsel in their explanation of the settlement to the Court. Counsel no doubt assumed from the applicants’ failure to take any steps to file an appearance in the s 74 proceeding following the 28 August 2019 letter, that they did not oppose the proposed scheme. Nevertheless, the fact remains that the applicants had not been given any notice that the BC had resiled from its previous position whereby it was seeking to recover the total cost of the repairs, including the cost of repairing water damage within the boundaries of the applicants’ unit from the owner of levels 9 and 10, to a position whereby the applicants would be solely responsible for the cost of repairs undertaken within their unit boundaries. A change to that position had not been unequivocally signalled by the BC’s solicitors in their letter of 28 August 2019, and it was not unreasonable for the applicants to expect to be re-served with an amended s 74 application and revised scheme, should the BC make such a material change to the scheme for which they were seeking the Court’s approval. The significant change made to the scheme from that served on the applicants and the other respondents named in the s 74 proceeding, was unfortunately not drawn to the Court’s attention, and the consent memorandum clearly conveyed to the Court that as no parties other than the first respondent had opposed or taken any steps, no parties were opposed to the making of the consent orders sought.
[89] In the result, the consent orders sought were made by the Court, and it was not until the BC through its solicitors took steps to enforce the scheme approved by the Court and recover the cost of repairs undertaken within the boundaries of unit 801 totalling $228,827.48, that the applicants became aware of what had been a “last minute” change made to the s 74 scheme. In my view the circumstances in which the BC significantly altered its position and reached agreement with the first respondent on an amended provision of the scheme regarding the allocation of repair costs, meaning that the whole of the repair costs accrued out within the unit 801 boundaries,
resulted in a fundamental breach of the applicants’ right to be heard as confirmed in s 74(6), as they were not given the opportunity to be heard in relation to the revised scheme for which the Court’s approval was sought.
[90] The Court has the power pursuant to s 74(8) to cancel, vary, modify or discharge any order made by it under s 74. I am satisfied that the circumstances here warrant the Court exercising the power in the interests of justice and to ensure that the applicants’ right to be heard is recognised. Section 74(8) confers a discretion enabling the Court make an order tailored to the circumstances and directed at achieving the objectives of the scheme and balancing the interests of the unit holders in a way that achieves the fairest outcome to all unit owners.15
[91] However, I do not consider that it is appropriate to vary the provisions of the revised scheme in accordance with the applicants’ application by simply substituting the consent order scheme’s allocation of costs provisions with the version contained in the BC’s amended application of 30 April 2018. Although that amended application was served on the applicants and all other unit owners, it does not have support of the first respondent and is no longer proposed by the BC. In the absence of agreement between the BC and unit holders, the appropriate costs allocation model will be determined by the Court in the context of a s 74 application.
[92] In my view the proper course in the circumstances here is for the Court to cancel the consent order made on 12 November 2019 approving the scheme attached to the consent memorandum, and to substitute an order directing the BC to effect service of the revised scheme on the applicants and all other unit holders and parties entitled to be heard from regarding the scheme. The provisions dealing with the repair costs allocation are the central and crucial issues in dispute, and service on all respondents of an amended application containing the revised scheme will ensure that all unit owners have an opportunity to be heard on regarding their views of the proposed scheme in accordance with their right to do so under s 74(6).
[93] The order I shall make cancelling the consent orders made on 12 November 2019 has the effect of cancelling the revised scheme upon which the BC relied to
15 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [44].
allocate the repair costs and make demand for payment from the applicants, and as a consequence there is no need to consider the applicants’ application for an order to stay enforcement of the scheme pending determination of their application to vary or amend the scheme.
[94] The application for an order pursuant to s 173 determining the amount the applicants are liable to pay towards the cost of the repairs carried out by the BC on unit 801 raises contested issues appropriately addressed and determined in the context of an arbitration in accordance with the dispute resolution procedures contained in the proposed scheme. There is no dispute between the parties regarding the inclusion of the dispute resolution provisions in the proposed scheme, and following the Court settling or approving a future scheme the issue of whether or how much the applicants are liable to pay the BC towards the repair costs relating to unit 801 can be addressed and determined by means of the dispute resolution procedures in the scheme.
[95] The order cancelling the scheme also makes it unnecessary to determine the applicants’ application for an order setting aside the BC’s protest to jurisdiction dated 15 December 2020.
[96] The BC’s protest to jurisdiction is founded on the basis of the applicants being bound by the dispute resolution procedure contained in clause 13 of the scheme. The BC argues that if the applicants wish to dispute the amount of the costs allocation made by the BC pursuant to the scheme, they must do so by means of the scheme’s dispute resolution procedure. The BC says that by applying pursuant to s 173 for a determination of their liability to pay repair costs, the applicants have failed to follow the dispute resolution procedure, and the Court has no jurisdiction to make the orders sought by the applicants.
[97] Section 74(8) clearly confers jurisdiction on the Court to cancel, vary, modify or discharge any previous orders made pursuant to s 74 regarding a scheme, and the BC’s protest to jurisdiction is not directed at the applicants’ application in that regard. The availability of an arbitration provision in the scheme will not be sufficient to
eliminate the Courts’ jurisdiction to cancel or vary a previously settled or approved scheme.16
[98] Section 173 establishes the Court’s jurisdiction to hear and determine any unit title dispute where the order sought requires any person or body to pay any sum, or to do any work to a value, or otherwise incur expenditure in excess of $350,000. In order for the Court’s jurisdiction to be engaged the dispute must satisfy the criteria contained in s 173 including that the order sought involves the payment or expenditure of a sum in excess of $350,000. Where those criteria are satisfied the Court will have jurisdiction to hear and determine a unit title dispute. Where the amount in dispute is in excess of $50,000 but not more than $350,000 the District Court has jurisdiction to determine the dispute.17 Here the amount claimed by the BC from the applicants is the sum of $185,932.5318 and below the threshold amount to engage this Court’s jurisdiction under s 173. Accordingly, the BC’s protest to jurisdiction as regards the applicants application for determination of the amount they are required to pay towards the costs of repairs is well founded.
Result
[99] For these reasons I grant the applicants’ application brought pursuant to s 74(6) of the Act, and make the following orders:
(a)an order cancelling the consent order dated 12 November 2019 approving the scheme as annexed to the consent memorandum of counsel dated 11 November 2019.
(b)an order directing Body Corporate 126001 to effect service on all of the respondents of an amended originating application for an order approving the scheme.
[100]I dismiss the thirty-seventh respondents’ applications for:
16 Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329 at [73]– [74].
17 Unit Titles Act 2010, s 172(1).
18 See [42].
(a)an order pursuant to s 173 of the Act determining the amount they are liable to pay towards the costs of repairs carried out by the BC on unit 801;
(b)an order pursuant to rule 17.29 of the High Court Rules 2016 to stay enforcement of the Scheme pending determination of the applicants’ application to vary or cancel or amend the Scheme; and
(c)an order setting aside the Body Corporate 126001’s protest to jurisdiction dated 15 December 2020.
Costs
[101] Although both parties have had a measure of success, the applicants have achieved the more significant success in their application under s 74(6) and 74(8) to have the allocation of costs provision of the scheme deleted and the scheme cancelled. However, their failure to take any steps to file an appearance in the proceeding, especially following their receipt of the Grove Darlow letter of 28 August 2019, was a factor that contributed significantly to the situation in which they subsequently found themselves, with consent orders being made which adversely affected their interests. For that reason, I find that there should be no order for costs and the costs of the parties in relation to the applicants’ applications, should lie where they fall.
Paul Davison J
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