Body Corporate 154155 v Bishop
[2022] NZHC 197
•16 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-002394
[2022] NZHC 197
UNDER The Unit Titles Act 2010 IN THE MATTER OF
an application for orders establishing a scheme under s 74 of the Unit Titles Act 2010
BETWEEN
BODY CORPORATE 154155
First Applicant
TOM ANNAN FURNISS
Second ApplicantAND
GILLIAN FRANCES BISHOP
First Respondent
MARIAM JAN BUKSH and LISTON TRUSTEE SERVICES LIMITED
Second Respondents………………………Continued over
Hearing: On the papers Counsel:
K L Wendt for First Applicant
No appearance for or by Respondents
Judgment:
16 February 2022
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie
On 16 February 2022 at 3.00 pm Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Liza Fry-Irvine Law/K L Wendt, Auckland
BODY CORPORATE 154155 v BISHOP [2022] NZHC 197
DOUGLAS JAMES WILSON and CUSHLA MAREE BROWN
Third Respondents
LEON FRANCIS BIRT and JOANNE MEGAN SCOTT
Fourth Respondents
PERPETUAL TRUST LIMITED
Fifth Respondent
JANICE KAY GOULBOURN
Sixth Respondent
KISHOR MAGAN RANCHOD, PRAMILA KISHOR RANCHOD and CALDERA TRUSTEE NO 1 LIMITED
Seventh Respondents
JEREMIAH DAVID BOYACK
Eighth Respondent
CEME ENTERPRISES LIMITED
Ninth Respondent
ANZ BANK NEW ZEALAND LIMITED
Tenth Respondent
ASB BANK LIMITED
Eleventh Respondent
BANK OF NEW ZEALAND
Twelfth Respondent
KIWIBANK LIMITED
Thirteenth Respondent
TSB BANK LIMITED
Fourteenth Respondent
CHUBB INSURANCE NEW ZEALAND LIMITED
Fifteenth Respondent
Introduction
[1] Body Corporate 154155 (the Body Corporate) and its chairperson, Tom Furniss, seek an order settling a scheme under s 74 of the Unit Titles Act 2010.
[2] The scheme relates to a unit title development at the corner of Carlton Gore Road and Arotau Place, Grafton, Auckland. The respondents are the registered unit owners, their mortgagees and the body corporate’s insurer.
[3] The unit title development comprises two separate buildings with 10 principal units in total and 19 accessory units. There is a building known as the Townhouse Block at 11 Carlton Gore Road. It comprises three principal units. There is a second building known as the Apartment Block at 8 Arotau Place which comprises seven principal units. The order sought relates to damage to and remediation of the Apartment Block building.
Background
[4] The relevant events leading to the s 74 application are explained by Mr Furniss in an affidavit filed in support.
[5] The Apartment Block was built in 1993 and the body corporate was constituted under the Unit Titles Act on 20 September 1993 when the unit plan was deposited.
[6] The Apartment Block has monolithic claddings on its exterior. Weathertightness issues were first identified in August 2018. Since then, building consultants have investigated and identified various building defects. Water ingress has occurred leading to the deterioration of wall claddings, the roof cladding and the building fabric. This investigation has since been reviewed by different consultants, who confirmed the defects identified and also noted other areas of water ingress, the corrosion of roof sheets and non-compliant passive fire systems.
[7] The owners of the units in the Apartment Block have assumed responsibility for both the investigation of and planning for the remediation of their separate building. They have agreed that they will pay for the remediation work without contribution from the owners in the Townhouse block.
Relevant principles
[8] Bodies corporate have an overarching obligation to repair and maintain building elements and infrastructure that relate to or serve more than one unit in a unit title development.1 This obligation extends to renewal where necessary.2 Bodies corporate are also responsible for repairing and maintaining common property,3 which they own with owners beneficially entitled as tenants in common in shares proportional to their ownership interests.4 The Act sets out mechanisms for determining owners’ contributions to the costs of building repair and maintenance. Common property repair costs are apportioned amongst owners by utility interest.5 Where a body corporate undertakes repair and maintenance under the Act, it can recover the cost of certain work directly from affected owners in the circumstances set out in ss 126 and 138.6
[9] Under s 74 of the Act, the Court can settle a scheme on application by specified parties, including a body corporate or owner, if any building or other improvement comprised in any unit is damaged or destroyed. A scheme settled under s 74 can make provision for the reinstatement of a building in whole or in part, and the Court has a broad discretion to make any orders that it considers expedient or necessary for giving effect to the scheme. This discretion extends to the terms setting out how owners must share the cost of work covered by the scheme.
[10] The principles that a Court must apply when determining whether to exercise its discretion to settle a scheme were set out by the Court of Appeal in Tisch v Body Corporate 318596.7 The Court identified three steps which need to be taken when considering an application to settle a scheme, as well as five guiding principles. The overarching consideration for a s 74 scheme application is fairness. The aim is to balance the interests of each unit holder by imposing terms that achieve the outcome fairest to all.
1 Unit Titles Act 2010, s 138.
2 Section 138(5)(c).
3 Section 138(1)(a).
4 Section 54.
5 Section 39(3).
6 Body Corporate 361945 v Westpac New Zealand Ltd [2014] NZHC 1336 at [11]; Body Corporate S73368 v Otway [2018] NZCA 612.
7 Tisch v Body Corporate 318596 [2011] 3 NZLR 679 (CA) at [35]-[49] – decided under s 48 of the Unit Titles Act 1972 – now s 74 of the Unit Titles Act 2010.
Analysis
[11]I consider each of the three steps in turn.
[12] First, the Court must be satisfied that the building in question has been damaged or destroyed.
[13] Here, it is clear from Mr Furniss’ affidavit that there is damage to the Apartment Block. There are cladding issues and issues with the roof and internal guttering. Water ingress has occurred and damage has resulted. Building consultants have advised that a full reclad is necessary and have recommended replacement of the cladding, fire rated plasterboard and decayed timber together with replacement of roof coverings and gutters. Architects have provided remediation concept drawings.
[14] As a second step, the Court must decide whether it is appropriate to settle a scheme. Here, I am satisfied a scheme is appropriate for the following reasons:
(a)Usually schemes authorise an elected committee representing all unit owners to oversee and implement the scheme’s terms for the benefit of all owners and the body corporate. However, here, the Apartment Block owners have themselves assumed responsibility for the remediation of their building. The body corporate is proposing that a remedial working group consisting of three Apartment Block owners be established to oversee and implement the remediation.
(b)The scheme proposes that only the unit owners in the Apartment Block share the cost of the remediation works, without contribution from the Townhouse Block unit owners. The Townhouse Block unit owners will only be required to contribute to the costs of preparing and obtaining approval of the scheme.
The unusual features of the proposed scheme, in my view, make it appropriate that a scheme be settled in this case.
[15] As a third step, the Court must decide what the terms of the proposed scheme should be.
[16] Here, while the proposed scheme is substantially similar to other schemes which have been approved by the Court, there are significant differences in relation to governance arrangements and cost sharing. In the circumstances of this case, I am satisfied that the terms of the proposed scheme are appropriate:
(a)As already noted, the body corporate proposes that a remedial working group consisting of three Apartment Block owners will be established. The body corporate will assume various duties and obligations but the remedial working group will act as its delegate in relation to most matters. The only exceptions are those situations where the scheme requires powers and duties to be exercised to the general meeting of the body corporate or where the remedial working group considers that to be appropriate. The remedial working group is given authority to enter into contracts for the remedial works on behalf of the body corporate. It can refer any matter relevant to the implementation of the scheme to a meeting of the Apartment Block owners or a general meeting of the body corporate if necessary. There are provisions regarding remedial working group decision-making, requiring that minutes are kept and that there is a record of all decisions made. There is provision for the resolution of any disputes between the remedial working group and the body corporate committee.
(b)It is proposed that the remediation costs will be met by the Apartment Block owners according to their utility interest in each of their units (with some limited exceptions). However, all costs associated with preparing and applying for the scheme are to be shared between all owners, again according to the utility interest. These cost sharing provisions seem to me to be appropriate, given that the two blocks are physically separate. They differ materially in terms of building and unit configuration. However, each of the Apartment Block units is similar in size and configuration. Each has a balcony and there are no unique design features that result in any materially different repair cost for any particular unit. The defects and damage identified are widespread and the remediation project is in respect of the whole Apartment Block.
Notably, the Townhouse Block has already had remedial work undertaken and that work was paid for by the Townhouse Block owners. It seems to me that a utility interest-based approach to cost apportionment is fair as between the Apartment Block owners, and that excluding the Townhouse Block owners from any liability for the cost of remedial works to the Apartment Block is also appropriate.
[17] I refer briefly to some of the relevant guiding principles discussed in Tisch.8 Generally, a scheme with broad support should be preferred. The scheme should be appropriately detailed. It should require that work be done to the same standard and at the same time, and the terms of the scheme should not depart from the Act in the body corporate rules any more than is reasonably necessary to achieve fairness between unit holders in the circumstances.
[18] Here, the scheme has the support of all unit holders. The body corporate has undertaken appropriate consultation. The Apartment Block owners have been primarily responsible for progressing their building’s investigative and remediation planning, as they are directly affected by it. However, all owners have been updated and the decisions that the Unit Titles Act requires to be made by the body corporate have been made at body corporate meetings. The consultants retained have attended general meetings of the body corporate to answer owners’ queries. All owners have, since 2019, received detailed written advice regarding the remediation and the s 74 scheme. Legal advice obtained by the body corporate has also been circulated to all. Owners have met to discuss and vote on key remediation steps. An extraordinary general meeting (EGM) was held on 9 December 2020; 80 per cent of the unit owners participated. They passed various remediation-related resolutions without dissent. This included a resolution that lawyers be engaged to prepare the s 74 scheme and that remediation costs be shared amongst Apartment Block owners by reference to the utility interest of each owner. Apartment Block owners then discussed the possibility of demolition and rebuilding following the 9 December 2020 EGM. A separate meeting was held on 21 July 2021. It was decided how to proceed with remediation instead. There was a further EGM of all owners held on 2 December 2021; 90 per cent of owners attended and participated. They passed various remediation-related
8 At [45] – [49].
resolutions, again without dissent. One of the resolutions approved the proposed scheme, subject to a non-material change to the scheme which was made before the application for approval was filed. All unit owners have been served, either directly or through a duly authorised representative. So too have all mortgagees and the insurer. No notices of opposition to the scheme have been received and no appearances were entered either by or for any of the unit owners or other interested parties when the matter was called before the Court.
[19] The scheme is appropriately detailed. It does not expressly require that all work be done at the same time but it does envisage a single reinstatement project. The scheme does not depart from the provisions of the Unit Titles Act any more than is necessary to meet the particular circumstances of the unit development in issue and to ensure fairness between all unit owners.
Result
[20] I am satisfied that it is appropriate to approve the s 74 scheme annexed as schedule 2 to the notice of originating application dated 14 December 2021. I make the order set out in paragraph 1 of the originating application.
[21]The application was not opposed and there is no order as to costs.
General
[22] I refer to my minute of 14 February 2022. The fixture allocated for 23 March 2022 (so that the matter could proceed by way of formal proof) is vacated.
Wylie J
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