Body Corporate 170989 (in administration) v Aquila Holdings Limited

[2020] NZHC 758

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2566

[2020] NZHC 758

BETWEEN

BODY CORPORATE 170989 (IN ADMINISTRATION)
Applicant

AND

AQUILA HOLDINGS LIMITED

First Respondent

BETHANGA PROPERTIES LIMITED
Second Respondent

…/cont

Hearing:

10-11 February 2020

Appearances:

B L Martelli for the Applicant

T J Rainey for the First, Third, Fourth, Seventh and Ninth Respondents
TJG Allan and G Steyn for the Second and Eighth Respondents

Judgment:

20 April 2020

JUDGMENT OF GORDON J

This judgment was delivered by me on 20 April 2020 at 1 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:           Heaney & Partners, Auckland

Grove Darlow & Partners
Richard Allan Law Associates Ltd

Counsel:            T J Rainey, Auckland

BODY CORPORATE 170989 (IN ADMINISTRATION) v AQUILA HOLDINGS LTD [2020] NZHC 758
[20 April 2020]

HARBOUR REFLECTIONS LIMITED

Third Respondent

HAURAKI HOLDINGS LIMITED
Fourth Respondent

GRAHAM BUCHANAN
Fifth Respondent

LISA AZIMI
Sixth Respondent

NICHOLAS VAN DIJK AND NORMAN PALMER AS TRUSTEES OF THE LIVI TRUST

Seventh Respondent

MARINA RESORT LIMITED

Eighth Respondent

NORMAN PALMER
Ninth Respondent

PETIL HOLDINGS LIMITED

Tenth Respondent

Introduction

[1]                   The applicant, Body Corporate 170989 (in administration) (the Body Corporate), is liable to pay costs of $894,199.83.1 This liability arises from an unsuccessful claim in the Weathertight Homes Tribunal (Tribunal) against the Auckland Council (the Council) and Fletcher Construction Company Ltd (Fletchers).2 The Tribunal awarded costs against the Body Corporate. Six years later, there is on- going disagreement between two groups of unit holders as to how the burden of those costs should be allocated. The two groups also disagree as to whether any legal fees and associated costs said to have been paid on behalf of the Body Corporate in the litigation may be set-off against allocated costs.

Application

[2]                   As a consequence of the disagreement, by application dated 16 November 2018, the administrator of the Body Corporate seeks directions from the Court. The directions sought, as amended at the hearing, are:

(a)How the Body Corporate should recover costs from the respondents and, in particular whether:

(i)Either ss 126 or 127 of the Unit Titles Act 2010 (the UTA) applies;

(ii)Or, alternatively, if all unit owners should contribute through a levy struck under s 121;

(b)Whether set-off for sums said to have been paid for legal fees and associated costs in the litigation can be applied;

1      Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2013] NZWHT Auckland 31.

2      Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2011] NZWHT Auckland 39.

(c)If a respondent becomes insolvent, how that respondent’s liability should be allocated to the other respondents.

Jurisdiction

[3]                   There is a preliminary issue as to the Court’s jurisdiction to make the directions. The Body Corporate sought, and was granted, leave to commence proceedings by originating application. However, the application as filed simply refers to the supporting affidavits of  the  administrator  of  the  Body  Corporate,  Ms Toon, the UTA and the High Court Rules 2016 as the basis for the application.

[4]                   In oral submissions, Mr Martelli for the Body Corporate submits that the Court’s source of jurisdiction  is  s  3  of  the  Declaratory  Judgments  Act  1908.  Mr Rainey, for the first, third, fourth, seventh and ninth respondents, and Mr Allan, for the second and eighth respondents, agree.

[5]Section 3 of the Declaratory Judgments Act, as relevant provides:

3        Declaratory orders on originating summons

Where any person has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any statute … such person may apply to the High Court by originating summons for a declaratory order determining any question as to the construction or validity of such statute … or of any part thereof.

[6]                   The jurisdiction under the Declaratory Judgments Act enables anyone whose conduct or rights depend on the effect or meaning of an instrument, including an agreement, to obtain an authoritative ruling.3 A declaratory judgment may be given “by way of anticipation with respect to any act not yet done or any event which has not yet happened”.4

[7]                   As to whether the Body Corporate desires to take steps under s 126 or s 127 of the UTA, its position, as recorded in Mr Martelli’s submissions, is that:

3      Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135 at [9].

4      Section 9.

The applicant has no preference as to the Court’s conclusion. That said, the applicant’s position is that:

(a)The advice [it has received] is correct and therefore the costs should be levied according to s 121 of the UTA;

(b)But, if the Court finds that the criteria of ss 126 and 127 UTA can be met, that finding will obviously inform the applicant’s position whether it should rescind the cost levies that have been struck and exercise its discretion to initially claim the costs from particular respondents.

[8]                   In relation to set-off the submissions for the Body Corporate are framed as follows:

The applicant is also neutral regarding set-off … albeit that:

(a)The applicant has filed evidence on what it considers could be the maximum set-off amounts (and its evidence should be preferred);

…

[9]                   It is not strictly correct to say that the Body Corporate desires to act under either s 126 or s 127. Ms Toon has received advice that neither section is engaged and the Body Corporate relies on that advice. It is clear, however, that if this Court’s interpretation of these two sections is that they confer authority on the Body Corporate to recover the amount of the costs award, under either or both of them, from particular respondents, Ms Toon will consider doing so.

[10]               In those circumstances, I will proceed on the basis that this is an application under the Declaratory Judgments Act. However, the application as drafted does require the Court to make some factual findings on contested facts. Contested issues of fact will not be determined under the Declaratory Judgments Act.5

[11]               Accordingly, in this judgment rather than following the wording of the application as filed, I will consider the issues set out in [2] above.

5      Mandic v The Cornwall Park Trust Board (Inc), above n 3, at [5].

Parties

Applicant

[12]               The Body Corporate was placed in administration  on  12  May  2014  and Ms Toon, a chartered account and insolvency practitioner, was appointed administrator by order of this Court.

Respondents

[13]               There are two groups of respondents. Mr Rainey represents the first, third, fourth, seventh and ninth respondents. For convenience, and for reasons that will become apparent, Mr Rainey’s clients will be described as the Ivil group. Mr Allan represents the second and eighth respondents. For convenience, I will refer to them as the Bethanga group. The fifth, sixth and tenth respondents were not represented in these proceedings and it is said that they have not expressed a position on the matters in dispute.

Background

Initial development

[14]               In the 1990s the Waitakere City Council owned a marina development at West Harbour. Part of the land was leased to Westpark Marina Ltd which commenced construction of a clubhouse on the site, but that building was never completed. In 1994, the Livi Trust (the Trust) acquired the site.6

[15]               The trustees of the Trust entered into an agreement with Fletchers whereby Fletchers would design, build and fund the development of apartments and commercial premises on the basis that Fletchers would be paid once the apartments were sold. Construction took place during 1995 and 1996, building on the partially completed work undertaken by Westpark Marina Ltd. On 2 April 1996, an interim

6      Brent Ivil was the settlor and a beneficiary of the Trust. The trustees at that time were Nicolaas van Dijk and Norman Palmer.

code compliance certificate was issued, although certain work was yet to be completed. No final code compliance certificate was issued.

[16]               The unit plan for the development of Clearwater Cove, as it was known, was deposited on 18 December 1995 and the Body Corporate came into existence on that date. On deposit of the unit plan, titles were issued for each of the 18 principal units in the development. Sixteen were residential units and two were commercial units (restaurant/bar and office).

Weather tightness issues emerge

[17]               By late 2002, the complex was showing signs of leaky building syndrome. This was discussed at an annual general meeting of the Body Corporate in August 2003 and, in March 2004, the Trust raised its concerns with Fletchers that the development showed signs of water ingress and damage. Between 2002 and 2005 interests associated with Brent Ivil re-purchased several of the units in the development.

[18]               In February 2006, some of the individual apartment owners filed applications for an assessor’s report under the Weathertight Homes Resolution Services Act 2002 (the WHRSA 2002). That Act only permitted individual claims by the owners of apartments and did not allow for a claim by a body corporate either as representative of the unit owners or in its own right in relation to common property.

[19]               An assessor’s report confirmed that the individual claims met the eligibility criteria under the WHRSA 2002. It seems the owners of those apartments did not advance their claims until 29 November 2006 when the Body Corporate was said to have passed a resolution authorising the owners’ committee of the Body Corporate (being Messrs van Dijk and Palmer and Daniel Ivil, Brent Ivil’s son) to act on behalf of the Body Corporate on all matters arising with the Weathertight Homes Resolution Service (WHRS) claims.

[20]               The Bethanga group challenges the validity of this and later “resolutions” of the Body Corporate and owners’ committee in relation to the making of a claim in the

Tribunal. That decision, said to have been made on 29 November 2006, coincided with the enactment of the Weathertight Homes Resolution Services Act 2006 (WHRSA 2006) which repealed and replaced the WHRSA 2002 and made provision for representative claims.

[21]               The Ivil group says that after the commencement of the WHRSA 2006,7 the Body Corporate committee resolved on 7 May 2007 that Brent Ivil be authorised to act on behalf of the Body Corporate in lodging claims with the WHRS and all administration matters regarding the claims. The Bethanga group challenges the validity of this “resolution”.

Weathertight Homes Tribunal proceedings commence

[22]               On 18 May 2007, a Body Corporate multi-apartment application, signed by Brent Ivil, was filed with the WHRS. The claim was on behalf of 14 unit owners. The assessor’s report in respect of that claim confirmed that it met the eligibility criteria under the WHRSA 2006. On 18 April 2008, the Body Corporate filed a claim in the Tribunal as the representative of those 14 unit owners against the Council as first respondent and Fletchers as the second respondent. The claim was for approximately

$1.5 million.

[23]               On 10 November 2009 (prior to the substantive hearing in the Tribunal) the claims in respect of Units 4D8, 9K and 10L were struck out. The Ivil entities ultimately accepted that these three apartments had been purchased with knowledge of the defects, as they were purchased after the proceedings had commenced. As a result, neither causation nor loss could be established and the claims in relation to those apartments were struck out unopposed.9 The adjudication proceeding brought by the Body Corporate therefore continued with the Body Corporate as representative of the following 11 units:

7      On 1 April 2017, per the Weathertight Homes Resolution Services Act 2006 Commencement Order 2007.

8      The owners were Brent Ivil (4D) and On Sea Ltd (9K and 10L).

9      Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 2, at [10].

Unit	CT Reference	Owner (Tribunal)	Owner (current)
1A	NZ 104C/81	Norman Dennis Palmer and Marilyn Frances Palmer	Norman Dennis Palmer and Marilyn Frances Palmer
3C	NA 104C/83	West Harbour Holdings Ltd	Bethanga Properties Ltd10
5E	NZ 104C/85	Nicolaas Van Dijk and Norman Palmer11	Aquila Holdings Ltd12
6H	NA 104C/88	West Harbour Holdings Ltd	Aquila Holdings Ltd13
7I	NZ 104C/89	Nicolaas Van Dijk and Norman Palmer	Nicolaas Van Dijk and Norman Palmer
8J	NZ 104C/90	Nicolaas Van Dijk and Norman Palmer	Bethanga Properties Ltd14
11M	NZ 105B/216	West Harbour Holdings Ltd	Bethanga Properties Ltd15
12N	NA 104C/94	West Harbour Holdings Ltd	Bethanga Properties Ltd16
13O	NA 104C/95	West Harbour Holdings Ltd	Marina Resort Ltd17
14P	NA 104C/96	West Harbour Holdings Ltd	Bethanga Properties Ltd18
15Q	NZ 104C/97	West Harbour Holdings Ltd	Marina Resort Ltd19

[24]               The individual claim made by the owner of Unit 2B (Petil Holdings Ltd) under the WHRSA 2002 was consolidated with the Body Corporate’s claim.

10     Registered 28 June 2013.

11     At the time Nicolaas Van Dijk and Norman Palmer were the trustees of the Trust.

12     Registered 29 October 2014.

13     Registered 16 June 2014.

14     Registered 28 June 2013.

15     Registered 28 June 2013.

16     Registered 28 June 2013.

17     Registered 6 June 2014.

18     Registered 28 June 2013.

19     Registered 6 June 2014.

[25]               Of the 12 units which participated in the Tribunal litigation, seven units were owned by West Harbour Holdings Ltd (WHH) and three of the units were owned by the trustees of the Trust. Brent Ivil was the director of WHH and shares in that company were held by the trustees of the Trust. The only units in which Brent Ivil did not have a beneficial interest were Units 1A and 2B.

Tribunal’s determination on the claim

[26]               As already noted the Tribunal dismissed the representative claim made on behalf of the Body Corporate. The Body Corporate’s claims against Fletchers failed in their entirety.20 The claims against the Council also failed, except in a very limited respect in relation to one of the units. The Council was found liable for the sum of

$2,909.50 for damage caused to Unit 2B owned by Petil Holdings Ltd.21

Costs

[27]               Following the Tribunal’s substantive determination, the Council and Fletchers sought costs against the Body Corporate.22 The Tribunal has a discretion, pursuant to s 91 of the WHRSA 2006, to order that costs and expenses be met by a party to the adjudication if it considers that the party has caused those costs and expenses to be incurred unnecessarily by bad faith on the part of that party, or allegations or objections by that party are without substantial merit.23 The Tribunal found that the claims in relation to the majority of units lacked substantial merit and should not have been pursued. The reasons for that finding are summarised in the judgment of Katz J on appeal from the Tribunal’s costs decision:24

[28]                The Tribunal found that the claim lacked substantial merit for the following reasons:

(a)The Council did not owe a duty of care to the Livi Trust because the Livi Trust was a developer.

(b)West    Harbour knew of the defects before buying its apartments and bought them at a substantial discount

20     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 2, at [106].

21 At [157].

22     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2012] NZWHT Auckland 35.

23     Section 91, WHRSA 2006.

24     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2013] NZHC 2824.

reflecting the weathertightness issues. It should have been apparent to the Body Corporate from the time the Council’s valuation evidence was filed that, in the absence of a plausible explanation for the (low) purchase price of the apartments owned by West Harbour, it could not prove loss. The claims arising from the seven units owned by West Harbour were therefore pursued in defiance of common sense.

(c)The Body Corporate’s claim that the cladding installation was a major cause of damage and loss did not have a sound evidential basis and should not have been pursued. Further, there was no evidence of any causative link between the alleged cladding defects and the respondents.

[28]   The Tribunal further found that, as a result, the Council and Fletchers had incurred costs and expenses unnecessarily and thus the presumption in the Act that the parties meet their own costs and expenses had been overcome.

[29]   On the issue of bad faith, Brent Ivil had been ordered by the Tribunal to file a supplementary affidavit in relation to the repair or remediation or redevelopment of the complex.25 Other than producing two concept drawings, Brent Ivil failed to comply with the order but, subsequent to the substantive hearing before the Tribunal, in other litigation, disclosed plans for redevelopment.26 The Council and Fletchers obtained those documents which formed the basis of the claim of bad faith in their application to the Tribunal for indemnity costs. The Tribunal found:

[61] There can be no doubt that the claimant was aware of the undisclosed documents. WHH owns seven out of the 12 units in the Tribunal proceeding and the Livi Trust owns four units. The sole shareholders of WHH are Nicholas Van Dijk and Norman Dennis Palmer as trustees of the Livi Trust therefore WHH and the Trust had the controlling interest in the conduct of these proceedings.

[30]   The Tribunal concluded that the claimant Body Corporate acted in bad faith by failing to produce all relevant documents and failing to comply with specific orders by the Tribunal for discovery. The Tribunal observed that the fact that WHH was seeking to enforce a joint venture agreement in the High Court, was inconsistent with the Body Corporate’s denial in the Tribunal proceedings of any intention to develop the complex. The Tribunal was deeply troubled by the Body Corporate’s failure to discover any documents relating to the existence and terms of the joint venture.  This

25     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 22, at [56].

26     West Harbour Holdings Ltd v Waipareira Investments Ltd [2012] NZHC 1645.

was despite both general and particular discovery having been ordered. As noted by Katz J,27 it was clear that discovery of the documents would have been likely to significantly undermine key aspects of the Body Corporate’s claim.

[31]The Tribunal concluded:

[69] We have no hesitation in concluding that in these proceedings Body Corporate 170989 engaged in misconduct causing loss of time to the Tribunal and other parties; wilfully disregarded known facts and clearly established law; and made allegations which ought never to have been made. We have not reached this conclusion lightly however we are not aware of another case where the conduct approaches the level of bad faith exhibited by this claimant. The fact that the claimant was legally represented from the outset of the proceedings reinforces our conclusion that the level of bad faith warrants an award of indemnity costs.

[32]   In its costs determination of 22 August 2012, the Tribunal awarded costs to both the Council and Fletchers of over $1 million in total on an indemnity basis as a consequence of the Tribunal’s finding that the Body Corporate’s claim lacked substantial merit and was advanced in bad faith.28

Liquidation of West Harbour Holdings Ltd

[33]   On 4 March 2013, after the initial costs determination in the Tribunal but before the hearing of the costs appeal in this Court, WHH entered into liquidation. As at the date of liquidation, WHH owned seven units. After it was placed into liquidation the mortgagees effected sales as follows:

Unit No	Mortgagee	Purchaser
3C	Westpac	Bethanga Properties Ltd
11M	Westpac	Bethanga Properties Ltd
12N	Westpac	Bethanga Properties Ltd
14P	Westpac	Bethanga Properties Ltd
6H	National Bank	Aquila Holdings Ltd
13O	Waipareira Investments Ltd	Marina Resort Ltd
15Q	Waipareira Investments Ltd	Marina Resort Ltd

27 Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 24, at [52].

28 Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council , above n 22.

[34]   Six of the seven units formerly held by WHH are now vested in companies in the Bethanga group. Aquila Holdings Ltd is a company associated with the Ivil group (Daniel Ivil is the director of the company).

Appeal against the Tribunal’s costs determination

[35]   The Body Corporate appealed the Tribunal’s costs determination. In a judgment dated 25 October 2013, the High Court largely upheld the Tribunal’s decision. Katz J held that the “lack of substantial merit … when combined with the findings on bad faith, [means] the necessary threshold to justify an award of indemnity costs is met”.29 The Judge concluded:

[56]      In my view, however, the Tribunal was correct to find that the appellant’s conduct amounted to bad faith. Full disclosure in this case was critical, given that loss was a key issue and, associated with this, whether West Harbour bought its units with knowledge of the defects. Relevant documents were not discovered, in flagrant breach of a specific discovery order.

[57]      The motivation for such conduct is, in my view, clear. Discovery of the documents would have been likely to seriously undermine the claims being made in the Tribunal. The documents strongly suggest that the apartments had been sold to Marina Resort at full market value, with no reduction in value for weathertightness issues. The documents also appear to significantly undermine West Harbour’s claims of lack of knowledge of the defects. Further, the development plans would have impacted on the extent to which repairs were necessary. Indeed the documents suggest that the primary purpose of the Tribunal proceedings was not to obtain funds to repair the existing structure but rather to provide “working capital” for the joint venture’s development plans for the complex. The documents were highly relevant to the issue of whether any loss had been suffered by the claimants.

[36]   In relation to two of the apartments (Units 1A30 and 2B31), the Court held that the claims were not entirely unmeritorious and so reduced the indemnity costs award from 100 per cent to 85 per cent. The High Court remitted the matter back to the Tribunal to undertake a more detailed assessment of the reasonableness of the solicitor-client costs claimed given the significant quantum of costs.32   In its further

29     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 24, at [67].

30 Although the claim was not proven in the Tribunal, the High Court found the claim did not lack substantial merit, at [46].

31     Where the claim succeeded, at [44]-[45].

32     At [83] and [86].

costs determination of 17 December 2013, the Tribunal made a final costs award of

$894,199.83 against the Body Corporate.33

Efforts at recovery of the costs award

[37]   The evidence of Daniel Ivil is that after the decision of the High Court there was a meeting of the Body Corporate on 14 November 2013. He annexes to his affidavit a document (unsigned) that purports to be the minutes of that meeting. The document records:

Brent Ivil, said that there are 10 units remaining in the costs decision as per the High Court decision by Justice Katz on 25th October 2013 which all unit holders had received and read. These 10 unit parties had been levied their allocated portions and it has been 3 weeks since the decision and the bod [sic] corporate had received no monies from any party.

[38]   Daniel Ivil says in his affidavit that credit notes had been issued in respect of earlier invoices which had been issued by the Body Corporate to all 12 unit owners who had participated and new invoices were issued to the 10 units found to have been at fault. That seems to be confirmed in the evidence of Ms Toon, who says that she has seen copies of the invoices issued in November 2012 by the Body Corporate against the 12 unit owners who participated in the claim and she says a year later it appeared that the 12 owners were told to disregard the earlier invoices. She says that further invoices were then issued to the owners of the 10 units (then owned by WHH and the trustees of the Trust) subject to the adverse decision in the High Court. She says that the Body Corporate accounts do not record payment of the invoices.

[39]   As part of its efforts to recover the costs awarded by the Tribunal, the Council made an application to this Court for the appointment of an administrator of the Body Corporate. As noted above, Ms Toon was appointed in May 2014 following this application.

[40]   Ms Toon says that after she was appointed, in order to avoid the unit owners being involved in protracted litigation about the costs and to avoid the Body Corporate incurring large administration costs, she tried to persuade the unit owners to make a

33     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 1, at [11].

reasonable  commercial  offer  to  the  Council and Fletchers.    Those attempts were unsuccessful. She says that she did not otherwise pursue payment of the 10 invoices.

[41]   After receiving legal advice, Ms Toon struck levies against all 18 unit owners, according to their utility interest, under s 118 and 121 of the UTA. The Ivil group has objected to paying the levies and they have not paid. The Bethanga group initially refused to pay, but following proceedings in this Court,34 they paid their levies.

Relevant statutory provisions

[42]The relevant statutory provisions are as follows:

118     Optional contingency fund

A body corporate may establish and maintain 1 or more contingency funds to provide for unbudgeted expenditure.

121     Contributions to be levied on unit owners

(1)A body corporate may determine from time to time the amounts to be raised for each fund and impose levies on the owners of principal units to establish and maintain each fund.

(2)The levies must be calculated as follows:

(a)in the case of the operating account, long-term maintenance fund, and any contingency fund, in proportion to each unit owner’s utility interest …

126Recovery of money expended for repairs and other work

(1)This section applies where the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, but the repair, work, or act—

(a)is substantially for the benefit of 1 unit only; or

(b)is substantially for the benefit of some of the units only; or

(c)benefits 1 or more of the units substantially more than it benefits the others or other of them.

(2)Any expense incurred by the body corporate in doing the repair, work, or act is recoverable by it as a debt in any court of competent jurisdiction (less any amount already paid) in accordance with the following:

34    Marina Resort Ltd v Body Corporate 170989 (in administration) [2016] NZHC 2831. This was an unsuccessful application by Marina Resort Ltd to set aside a statutory demand by the Body Corporate for payment of the levy.

(a)so far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt; or

(b)so far as the amount of the debt is not met in accordance with the provisions of paragraph (a), it must be apportioned among the units that derive a substantial benefit from the repair, work, or act rateably according to the utility interest of those units, and in the case of each of those units, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the amount apportioned to that unit.

(3)Despite subsection (2)(b), if the court considers that it would be inequitable to apportion the amount of the debt in proportion to the utility interest of the unit owners referred to in that paragraph, it may apportion that amount in relation to those units in the shares as it thinks fit, having regard to the relative benefits to those units.

127Recovery of money expended where person at fault

(1)This section applies if the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, and the repair, work, or act was rendered necessary by reason of any wilful or negligent act or omission on the part of, or any breach of the Act, the body corporate operational rules, or any regulations by, any unit owner or his or her tenant, lessee, licensee, or invitee.

(2)Any expense incurred by the body corporate in doing the repair, work, or act, together with any reasonable costs incurred in collecting the expense, is recoverable as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense became payable or by the person who is the unit owner at the time proceedings are instituted.

Applicant’s submissions on levy or recovery

[43]   The Body Corporate sought further legal advice, commissioning an opinion from Neil Campbell QC in 2015. Ms Toon supplied the opinion to the respondents and annexed a copy to her affidavit. Mr Campbell took the view that recovery of the costs from unit owners was authorised under s 121 of the UTA.

[44]   However, before issuing levies, the Body Corporate had a discretion to claim costs from individual unit owners under ss 126 and 127, if the criteria in those provisions were met. Mr Campbell reviewed the circumstances and found the criteria “could not” be (rather than are not) met. In consequence, the Body Corporate could

not exercise the discretion (Mr Campbell said there was no point in doing so) and the costs should be levied under s 121. The Body Corporate relies on Mr Campbell’s opinion, which Mr Martelli adopts in his submissions.

[45]   Mr Martelli submits that “the act” in s 126(1) includes the Body Corporate prosecuting a claim in the Tribunal that it was authorised or required to prosecute under the UTA or another Act. He says s 126(1) is satisfied because the act was intended to be substantially for the benefit of some of the respondents.

[46]   He submits, however, that s 126(2) cannot be satisfied.   First, in terms of     s 126(1)(a), while the act, namely the prosecution of the claim, may have been “for the benefit” of the 12 units, in no sense did it end up benefitting any of the units and certainly not by a “distinct and ascertainable amount”.35 Second, as to s 126(2)(b), Mr Martelli submits that it only applies where units have derived “a substantial benefit” from the act. As a matter of fact, that did not happen.

[47]   In summary, Mr Martelli submits that s 126 is designed to respond to situations where a body corporate has done something which has actually benefited particular unit owners.

[48]   Mr Martelli illustrates his submissions by reference to the position of Petil Holdings Ltd (the tenth respondent). The claim for this unit was the only successful one in the Tribunal proceedings.  Mr Martelli submits that a literal interpretation of   s 126(1) would leave Petil Holdings liable for the entirety of the costs award. He says this would be “absurd” and an “unfair result”, which would cause the Body Corporate to “rightly decline to exercise its discretion”.

[49]   Mr Martelli similarly relies on Mr Campbell’s opinion in his submissions on s 127. Mr Martelli submits s 127 contemplates two acts. First, there must be a wilful or negligent act or omission by a unit owner. Second, the unit owner’s act requires a subsequent act by the body corporate. Mr Martelli says this did not occur in these circumstances. The Body Corporate did not bring the claim in response to a wilful or negligent act or omission by a unit owner. The Body Corporate’s act was not “rendered

35     Relying on St John’s College Trust Board v Body Corporate 197230 [2013] NZHC 35 at [36](b).

necessary” by the act of a unit owner. Rather than the claim being rendered necessary, the claim was simply brought by several of the unit owners under the terms of the WHRSA 2006.

[50]   While  eschewing  a  “preference”,  the   Body   Corporate   has   accepted  Mr Campbell’s advice and struck levies under s 121. However, Mr Martelli says if the Court finds the criteria in ss 126 or 127 are satisfied, this will inform the Body Corporate’s position on whether it should rescind the cost levies under s 121 and exercise its discretion to first claim the costs from particular unit owners.

Ivil group submissions on levy or recovery

[51]   Mr Rainey relies firstly on s 127 of the UTA and, alternatively, s 126. He submits:

(a)Section 127 permits recovery of the costs award against an owner who is at fault or his or her successor as unit owner.

(b)Section 126 permits recovery of the costs award against owners (or their successors in title) who receive a benefit;

[52]In relation to s 127, Mr Rainey further submits:

(a)The “act” is pursuing the representative claim on behalf of the units (3C, 5E, 6H, 7I, 8J, 11M, 12N, 13O, 14P and 15Q);

(b)This was an act the Body Corporate was authorised to do under the WHRSA 2006;

(c)The act was necessary because of the wilful or negligent acts or omissions of the owners of those units in:

(i)Wilfully pursuing those claims in bad faith;

(ii)Negligently pursuing those claims when they lacked substantial merit or, alternatively, pursuing those claims when a reasonably prudent claimant aware of the facts and circumstances of the claims would not pursue those claims;

(d)Due to the wilful or negligent acts or omissions of these owners, the Body Corporate incurred a legal liability to pay costs;

(e)That expense is recoverable, together with reasonable costs incurred, from “the person who was the unit owner at the time the expense became payable” or from “the person who is the unit owner at time proceedings are instituted”.

[53]   Mr Rainey submits that those unit owners at fault for pursuing the claims should be liable. He submits it would be unconscionable for those who did not participate in the representative proceeding, or who played no role in the adverse costs award, to be required to contribute. Where this liability falls, Mr Rainey says, is provided for in s 127(2) and runs with the title to the unit. In other words, a successor in title, who is not at fault, can be liable. In consequence, Mr Rainey submits the current unit owners, who are not at fault, are liable.

[54]   Alternatively, Mr Rainey submits that s 126 of the UTA provides for the recovery of the costs award by the Body Corporate. He submits:

(a)The Body Corporate was authorised to act in pursuing the representative claim on behalf of the 12 units under the WHRSA 2006;

(b)The act was a substantial benefit to those unit owners on whose behalf the Body Corporate pursued the representative claim;

(c)The unit owners who did not participate received no benefit from the proceeding;

(d)Pursuant to s 126(2)(b), any expense incurred by the Body Corporate in pursuing the representative claim on behalf of the unit owners who

participated is recoverable as a debt, apportioned among the unit owners according to their utility interest.

[55]   Mr Rainey submits the benefits of the representative proceedings were only to the unit owners who authorised the Body Corporate to bring the claim, because the Body Corporate can otherwise only commence proceedings for the costs of repairing common property.36 Mr Rainey submits the parties “who stood to benefit” were those who participated in the representative proceedings. He identifies the units as those owned by WHH, the trustees of the Trust and Mr and Mrs Palmer. Mr Rainey submits the lack of success in the Tribunal is irrelevant; the body corporate commenced the proceeding “to benefit the represented owners”. The benefit they obtained was having “their claims determined”.

[56]   However, he also submits that “the only parties who benefit are unit owners who can make such a claim (through the body corporate) and prove it.” I observe that by adding the words “and prove it”, Mr Rainey appears to contradict his submission that the bringing of representative proceedings alone is a benefit.

Bethanga group submissions on levy or recovery

[57]   Both ss 126 and 127 refer to an act that the Body Corporate is required or authorised to do under the UTA or any other Act. The act Mr Allan identifies for purposes of s 126 is commencing proceedings in the Tribunal while the act he identifies for the purposes of s 127 is the misconduct of the proceedings in the Tribunal. In relation to either act, Mr Allan submits that the Body Corporate had no authority. He says the records of the Body Corporate’s decision to empower the committee of the Body Corporate to commence proceedings, and the committee’s delegation of authority to Brent Ivil, is defective and incomplete and produced in circumstances which raise doubts about their authenticity. Mr Allan further submits even if the minutes are found to be authentic, any decision of the committee of the Body Corporate was ultra vires because the committee was never lawfully constituted.

36     Citing North Shore City Council v Body Corporate 188529 [2011] 2 NZLR 289.

[58]   In any event, Mr Allan submits that ss 126 and 127 do not apply and unit owners must pay the levies struck under s 121 by the administrator. All unit owners must therefore contribute to payment of the costs award based on each unit’s utility interest.

Section 126

[59]   Mr Allan submits that, although the Tribunal claim was representative on behalf of certain unit owners, it also included common property. All of the boundaries of the units who participated adjoined common property at one point or another. The benefit to the unit owners was shared equally so the proceedings were not substantially for the benefit of any one owner for the purposes of s 126(1). All the unit owners would have benefited from the proceedings in the Tribunal and liability should be shared by all unit owners according to their utility interest.

Section 127

[60]   Mr Allan submits that the effect of the Ivil group’s position on s 127 would result in the Bethanga group, as purchasers of units formerly owned by the Ivil group, paying for the consequences of the Ivil group’s misconduct.

[61]   Mr Allan submits that s 127 is engaged where there is fault. This Court has held that “wilful” refers to bad conduct (as opposed to good conduct).37 The wilful act must contribute to the harm caused. The misconduct by Brent Ivil and related persons was not, Mr Allan says, authorised by the unit owners. It was their misconduct which displaced the usual no costs presumption in Tribunal proceedings. Section 127 cannot apply to the Bethanga group because they did not engage in a wilful or negligent act.

[62]   As to a “negligent” act, Mr Allan submits this act was not the bringing and/or continuing the proceeding in the Tribunal. Instead, he says it was the misconduct in the Tribunal proceedings. He adds that the Tribunal proceedings were not rendered necessary by some wilful or negligent act or omission of the Bethanga group. The

37     Hart v Body Corporate No 180455 HC Auckland CIV-2005-404-1429, 23 June 2005 at [26].

Bethanga group were also not responsible for the misconduct in the Tribunal proceedings which led to the costs award. He submits fault lies with Brent Ivil and that the Body Corporate should recover from him.

Section 126 – discussion

[63]   The application of s 126(1) is principally an exercise in assessing where a benefit lies, not the nature of the benefit itself. However, to undertake this exercise, it is necessary to have regard to the nature of the benefit. For example, in a development of seven units, four units may have access via one door and three units via another. If the door to the four units is damaged, and the body corporate makes repairs to the door, the repairs are for the benefit of the four units alone. Those four units would be liable for the cost of the repair. I also note that benefit is qualified and must be substantially for the benefit of particular unit owners.38

[64]   Thus in the development of seven units, repairs to the door would be substantially for the benefit of the four units. However, if four units obtain direct access by the door, and the other three units obtain indirect access by the door, repairs to the door would be for the benefit of all seven units but substantially for the benefit of the four units for whom it provides direct access. This assessment of where the benefit falls requires an understanding of the nature of the benefits. The door provides benefits to some of the unit owners and not others or greater benefit to certain of the unit owners and not others. The benefit does not stand in isolation from the assessment of whether or not it is substantially for one or more units.

[65]   Moreover, s 126(1) needs to be interpreted consistently with s 126(2).39 I accept Mr Rainey’s submission that if s 126(1) applies then the Body Corporate can recover any expense under s 126(2). There is no discretion, even though s 126(2) uses permissive statutory language, because there is no other way to deal with the

38 The analysis above proceeds primarily from s 126(1)(b). Counsel did not suggest there was a substantial benefit to any of the units for the purposes of s 126(1)(c). However, the door example likely deals with s 126(1)(c) also.

39 In Body Corporate S73368 v Otway [2018] NZCA 612 at [63], in undertaking the assessment required in s 126(1), the Court of Appeal adopted a similar approach by considering whether the benefit to some units was substantially more than others in s 126(1)(c) and whether certain units benefitted by a distinct and ascertainable amount in s 126(2)(a). This is to interpret the criteria in s 126(1) in light of the requirements of s 126(2).

expense.40 The provision has a clear purpose, which is to recover the cost from those who receive a benefit from a particular repair, work or act. However, if s 126(2) is to be effective, the benefit in s 126(1) must either be of a distinct and ascertainable amount or some of the units must derive a substantial benefit.41

[66]   If s 126(1) is not interpreted in this way, the Body Corporate is left unable to recover the expense incurred. This would be inconsistent with Parliament’s intention to provide a legal framework for the management of land and buildings on a socially and economically sustainable basis. A Body Corporate must be able to recover its expenditure and it is appropriate, in certain circumstances, that those costs should be recovered from particular unit owners where the repair, work or act confers a particular benefit on them which other unit owners, for whatever reason, do not enjoy.

[67]   What, then, is a benefit for the purposes of s 126(1)? In my view, it must be an actual benefit. Repairing a door providing access to particular units is an actual benefit. Where that door provides access to multiple units, it is unlikely to be possible to determine the benefit by a distinct and ascertainable amount, though dividing the cost between the units which benefit equally may be possible. But there may be factors which render this difficult. Alternatively, all of those units will derive a substantial benefit from the repair. The options in s 126(2) work effectively.

[68]   In contrast, a contingent benefit is not an actual benefit. The act of bringing (and/or continuing) proceedings is not an actual benefit. The unit owners who participated in the representative claim do not gain an actual benefit from bringing (and/or continuing) the proceedings. The benefit for the unit owners of the proceedings is contingent. They will gain a benefit if the decision-maker finds in their favour. In this case, had the Tribunal found in their favour, the benefit would have been the damages received to offset the cost of addressing defects in the building. That would have been an actual benefit.

[69]   As Mr Rainey points out in his written submissions, “the only parties who benefit are unit owners who can make such a claim (through the body corporate) and

40     Body Corporate 199380 v Cook [2018] NZHC 1244, (2018) 19 NZCPR 522 at [94].

41     Body Corporate S73368 v Otway, above n 39, at [58], [63].

prove it”. The unit owners who benefit are those who can make the claim and are successful. In my view, the benefit to be assessed in determining whether an act by the Body Corporate is “substantially for the benefit” of some unit owners pursuant to s 126(1) is an actual benefit. A contingent benefit is not an actual benefit and commencing and/or continuing a proceeding is a contingent benefit which does not satisfy s 126(1).

[70]   This conclusion is only emphasised by considering the application of s 126(2) if s 126(1) is satisfied. This is because if the benefit is bringing and/or continuing the proceedings, s 126(2) is unworkable because there is no benefit. The proceedings failed and costs were awarded against the Body Corporate. Unit owners received no benefit. In the door example above, unit owners must pay for the benefit they receive from the repair to the access door. They receive a benefit from the cost incurred.

[71]   In this case, the unit owners derive no benefit from the proceedings. Specifically in relation to s 126(2)(a), there is no distinct and ascertainable benefit which can be identified because there is no benefit. As for s 126(2)(b), no unit owner has derived a substantial benefit from the proceedings. Were I to adopt an interpretation of benefit in s 126(1) which means a contingent benefit qualifies as a benefit, s 126(2) would be ineffective and the mandatory language in s 126(1) would leave the Body Corporate unable to recover the costs award from unit owners. As stated above, this cannot have been Parliament’s intention.

[72]   I therefore conclude, but for reasons that differ from those advanced on behalf of the Body Corporate, that s 126 cannot be utilised to recover the amount of the costs award from particular unit owners.

Section 127 – discussion

[73]   Two points provide relevant context. One is the ownership of the units at the time the of the Tribunal proceedings. The costs determination records the ownership of the units:

(a)Three units were owned by Messrs van Dijk and Palmer as trustees of the Trust;

(b)Seven units were owned by WHH (the Trust was the sole shareholder);

(c)One unit was owned by the trustees of the Palmer Family Property Trust (their claim was not without substantial merit);

(d)One unit was owned by Petil Holdings Ltd (its claim was successful).

[74]   In earlier proceedings in this Court, other judges have remarked on the structure of the Body Corporate. Ellis J concluded: “For all practical intents and purposes, the Trust/WHHL controls the Body Corporate. The Trust’s affairs appear inextricably entwined with those of WHHL.”42 Katz J found: “... the Ivil entities have the controlling interest in the Body Corporate in respect of the apartments included in the claim (11 votes to one).”43 The minutes of the meeting where unit owners were said to have authorised the Body Corporate to commence proceedings also record that Brent Ivil was to act on behalf of the Body Corporate and manage the proceedings generally. Misconduct by the Body Corporate was misconduct by the Ivil group. Although he does not frame his submissions in this way, I understand Mr Rainey would agree with this proposition.

[75]   Section 127(1) contains a number of elements. There must be an act by the Body Corporate. The Body Corporate must be required or authorised to do the act under the UTA or some other Act. The act must be rendered necessary by reason of any wilful or negligent act or omission by specified persons. Those persons must be a unit owner, or his or her or its tenant, lessee, licensee, or invitee.

[76]   I will now work through and apply each of these elements. Mr Rainey submits that the Body Corporate’s act is the bringing and continuing of the proceedings in the Tribunal. Mr Rainey characterises bringing proceedings and continuing proceedings as two distinct acts. Another possible act is the payment of the costs award by the Body Corporate. This gives three acts for consideration under s 127. The provision gives no guidance as to which act should be preferred but a causative link to the damage, harm or loss caused would be the most relevant consideration. As Courtney

42     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council [2012] NZHC 1870 at [3].

43     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 24, at [4].

J held in Hart v Body Corporate No 180455, “… in order to constitute a wilful act the deliberateness of the act must be directed towards the harm complained of”.44 A high degree of proximity between the two is required because the Body Corporate’s act must be rendered necessary by the act of another. This can be illustrated by way of physical damage to the property. For example, if a visitor to a unit, who is an invitee of a unit owner, damages an access door, the damage caused is a direct consequence of the action of the visitor.

[77]   Commencement of the proceedings cannot be the relevant act because the causative link between that act and the loss caused to the Body Corporate – the costs award – is broken by the default position that costs in Tribunal proceedings generally lie where they fall. Costs in the Tribunal are governed by s 91 of the WHRSA 2006:

91 Costs of adjudication proceedings

(1)The tribunal may determine that costs and expenses must be met by any of the parties to the adjudication (whether those parties are or are not, on the whole, successful in the adjudication) if it considers that the party has caused those costs and expenses to be incurred unnecessarily by—

(a)bad faith on the part of that party; or

(b)allegations or objections by that party that are without substantial merit.

(2)If the tribunal does not make a determination under subsection (1), the parties to the adjudication must meet their own costs and expenses.

[78]The Tribunal interpreted this to mean that:45

There is a clear presumption in the Act that costs lies where they fall unless incurred unnecessarily. This presumption is only overcome if either bad faith or allegations that lacked substantial merit have caused unnecessary costs and expenses to a party.

[79]   The costs order against the Body Corporate was not rendered necessary by bringing the proceedings. An intervening act to engage s 91(1) was necessary.

44     Hart v Body Corporate No 180455, above n 37, at [26].

45     Clearwater Cove Apartments Body Corporate No 170989 v Auckland Council, above n 22, at [10].

[80]   Moreover, commencing the proceedings could not be the relevant act of the Body Corporate in terms of the way in which Mr Rainey frames his submissions. He says the commencement of the proceedings was rendered necessary by either a wilful act or omission of the owners of the 10 units in failing to provide discovery of documents. There is a problem with this sequence of events. The failure to provide discovery of documents occurred during the proceedings. The commencement of the proceedings was therefore not rendered necessary by the wilful act as required by     s 127(1).

[81]   I also do not accept Mr Rainey's submission that the continuation of the proceedings was an act of the Body Corporate that was rendered necessary by either the failure to provide discovery or the negligent act or omission of the owners of the 10 units in pursuing claims which lack substantial merit. I say this for two related reasons. First, it cannot be said that the act of continuing proceeding was “rendered necessary” by either the failure to provide discovery or pursuing claims which lacked substantial merit. There is no causative link between them. Second, I do not consider that continuing the proceedings is an act which is separate from the commencement of proceedings for the purposes of s 127(1). The Body Corporate did not do an act after the wilful or negligent acts of the unit owners Mr Rainey identifies but simply continued on a course which followed from the act it had performed in commencing the proceedings. Failing to withdraw claims without substantial merit, which is arguably an omission by the Body Corporate, is not provided for in s 127(1), which refers to any “repair, work or act” on the part of the Body Corporate.

[82]   That then leaves for consideration the issue of whether payment of the costs award is an act for the purposes of s 127(1). The Body Corporate is required to do an act by any other Act. This follows the costs determination by the Tribunal under s 91 of the WHRSA 2006 to pay costs to the Council and Fletchers. The act is the payment of costs and the WHRSA 2006 is any other Act. Mr Allan’s submissions on whether the unit owners properly authorised the Body Corporate to bring proceedings, or did not authorise the Body Corporate to misconduct the proceedings, are both therefore beside the point.

[83] The payment of the costs award has been rendered necessary by the misconduct of the proceedings by the Body Corporate (as agent for the unit owners, a point I address at [86] below). That there is the necessary causative connection between the Body Corporate’s misconduct and the resulting costs award can be established in two ways. First, there are the accounts given in the Tribunal’s costs determination, and in Katz J’s judgment, which demonstrate the manner in which the Body Corporate pursued claims without substantial merit and failed to give proper discovery in breach of a Tribunal order of a kind which constituted bad faith.

[84]   Second, as already noted, s 91 is only engaged in certain circumstances where a party has caused unnecessary cost and expense through bad faith or pursuing claims that are without substantial merit. That costs were awarded is a direct consequence of the Body Corporate’s misconduct. Had the Body Corporate pursued the claim in good faith and abandoned claims which were without substantial merit, costs against it would ordinarily not follow. These were wilful acts or omissions.46 The Body Corporate was the party responsible for these actions.

[85]   This is because the WHRSA 2006 deems the Body Corporate to be a special statutory agent which can bring claims on behalf of unit owners who specifically authorise it to make such a claim on their behalf. A representative claim is not one which requires all unit owners in the unit plan to participate but only those who give authorisation to bring a claim on their behalf participate in the legal claim and obtain any benefit from proceedings. Mr Rainey submits the misconduct which led the Tribunal to award costs was not on the part of the Body Corporate but rather on the conduct of unit owners on whose behalf the claims were advanced.

[86]   Ordinarily, misconduct by the Body Corporate is not captured by s 127 because the act or omission must be by any unit owner or his or her tenant, lessee, licensee or

46 For completeness, and to avoid any suggestion of the sort of confusion identified by the Court of Appeal in Body Corporate S73368 v Otway, above n 39, at [29], I note that counsel have not suggested any unit owners or a related person has breached the UTA, the body corporate operational rules or any regulations rendering the payment of the costs award necessary. I understood Mr Allan’s submissions on whether the Tribunal proceedings were ultra vires to go to the absence of authorisation, rather than a breach of the UTA or other instruments.

invitee.    However, Heath J has characterised the effect of the WHRSA 2006 as follows:47

In effect, for the purposes of providing a relatively simple and efficient regime to deal with non-complex cases, Parliament has provided a means by which the body corporate can act as a statutory agent of the owners, in a manner akin to that of trustee and beneficiary.

[87]   Heath J identifies an agency relationship but analogises that with a fiduciary relationship between trustee and beneficiary where the body corporate is the trustee on behalf of the beneficiary unit owners. In describing the internal workings of a claim, this analogy helpfully explains how a unit owner could hold a body corporate accountable.

[88]   But the Body Corporate in this case also had obligations to others, including the Tribunal and other parties to the proceedings,48 not to pursue claims without substantial merit and to do so in good faith. These obligations fit much less comfortably with the analogy to trustee and beneficiary. Nevertheless, Heath J recognises a body corporate is also an agent in pursuing a claim in the Tribunal on behalf of unit owners. Heath J’s analogy is one which looks inwards to the operation of the relationship with the unit owners while this case is concerned with the Body Corporate’s relationship with the other parties and the Tribunal. In pursuing a representative claim in the Tribunal on behalf of certain owners who have authorised that claim for their unit, the Body Corporate is the agent for those unit owners. Actions by the Body Corporate within the scope of that agency are actions for which the principals, that is, the unit owners, are responsible.49

[89]   For obvious reasons, the two owners whose claims were either not without substantial merit or which were accepted by the Tribunal cannot be held liable for the Body Corporate’s misconduct. That leaves WHH and Messrs van Dijk and Palmer as the unit owners liable for the misconduct of their agent. The Body Corporate’s actions,

47 Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 at [113].

48 There are usually at least three parties in an agency relationship: the agent, the principal and third parties. The agent is the intermediary between the principal and the third party. Cynthia Hawes and Dale Lester Laws of New Zealand Agency (online ed) at [1].

49 Brierley Investments Ltd v Shortland Securities Ltd (1994) 5 TCLR 615 at 667.

undertaken on their behalf, were a wilful act which has rendered necessary the payment of the costs award.

[90]   For the above reasons, s 127(1) is satisfied. Any expense incurred by the Body Corporate due to fault on the part of WHH and Messrs van Dijk and Palmer are therefore recoverable under s 127(2).

[91]   How it does so depends on the meaning of the words in s 127(2). The decisions of this Court in Body Corporate 199380 v Cook50 and the Court of Appeal in Body Corporate S73368 v Otway51 provide a helpful framework for approaching this task.

[92]   In Cook, the body corporate could recover for repairs to decks under s 126 or s 138(4), which provides:

138     Body corporate duties of repair and maintenance

…

(4) Any costs incurred by the body corporate that relate to repairs to or maintenance of building elements and infrastructure contained in a principal unit are recoverable by the body corporate from the owner of that unit as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense was incurred or by the person who is the unit owner at the time the proceedings are instituted.

…

[93]   The work was both substantially for the benefit of certain units (s 126) and maintenance of building elements and  infrastructure contained  in a  principal unit  (s 138(4)). The Judge, van Bohemen J, noted that the provisions did not give guidance on which was to apply and, after reviewing the legislative history of the two provisions and relevant authorities and finding little assistance from that exercise, determined both could apply.52

[94]   The Judge observed that the language of s 126(1) is both emphatic and comprehensive.53 This is an important point in relation to s 127. Section 127(1) is

50     Above n 40.

51     Above n 39.

52 At [25].

53 At [25].

similarly emphatic and comprehensive. It applies if the criteria are met. Likewise,  the Court of Appeal in Otway held that ss 126 and 127 “prevail [over s 138(4)] where they applied.”54 On my interpretation s 127 applies and there is no other recovery mechanism.

[95]   The language in s 126(1) contrasts with s 126(2) which, van Bohemen J noted in Cook, is permissive. The expense is “recoverable” rather than “shall be recovered.”55 Section 127(2) is similarly permissive rather than mandatory. In Otway, this is reflected in the Court of Appeal’s comment that, in s 127, the Act “provided that an owner who is at fault may be required to pay.”56 That “may” left unresolved when and how a body corporate could recover under s 127 but the Court of Appeal did not need to develop this point further to deal with the matter before it.

[96]   The result is that s 127 must apply if the criteria in s 127(1) are met but the Body Corporate is not required to recover any expense under s 127(2).  However, if  s 127 must apply, then there is no other mechanism for recovery. As the Court of Appeal observed in relation to s 138(4), the strict language is “somewhat problematical.”57 Further, a plain and literal reading of the words of that provision could lead to a situation which “cuts across s 126 and 127 and the overall scheme of the UTA 2010.”58

[97]   A plain and literal reading of s 127 could also cut across the overall scheme of the UTA both in terms of the general purposes and the specific purpose of this provision. The Court of Appeal considered “a purposive construction of the UTA 2010 is required, construing the meaning of the words in s 138(4) against the legislative purpose of the Act to ensure the overall scheme and functionality of the Act is respected.”59 I must do the same in relation to s 127. Adopting the Court of Appeal’s analysis of s 3 of the UTA, emphasis is placed on a legal framework which owns and manages property “on a socially and economically sustainable basis by communities of individual owners”, in particular by “protect[ing] the integrity of the development

54 At [42].

55     At [94](c).

56 At [45].

57 At [46].

58 At [46].

59 At [48].

as a whole.”60 These priorities, which as Mr Rainey submits are underpinned by fairness, guide my interpretation of s 127(2) below.

[98]   I start with the words “[a]ny expense incurred by the body corporate in doing the … act … is recoverable as a debt …”. The expense incurred by the body corporate is unqualified.   It is anything connected with the act of paying the costs award.     Mr Martelli submits that any expense of doing the act would be the costs of paying the sum awarded but not the sum itself. He would say the act and the expense are two different things. If a door is damaged by the actions of a unit owner or his or her tenants or invitees, then the act of the body corporate is repairing the door and the expense incurred is the materials and labour required to repair the door. On that interpretation, in this case, the payment of the costs award is the act and the expense is any cost associated with processing that payment.

[99]   However, I am of the view that this takes a plain and literal interpretation of the meaning of the phrase “expense incurred”, which is at odds with the unqualified nature of the expense and with the purpose of the provision. Such a strict technical interpretation cannot be justified where the unit owner (or their tenant or invitee) who has engaged in misconduct and caused damage, loss or expense should be liable for the cost of his or her actions. Moreover, the other unit owners should not be liable for the cost of those actions. Here WHH and Messrs van Dijk and Palmer were at fault. The costs award was a direct result of the actions of their agent. I take “any expense incurred” to have a broad meaning which can include the performance of the act itself.

[100]   The amount of the costs determination is therefore an expense (as is any cost arising out of the collection of this sum).

[101]   Section 127(2) provides that this debt should be “less any amount already paid”. Counsel did not submit that any amount had already been paid to discharge this debt. The sums claimed by way of set-off relate to payment of legal fees and associated costs in the litigation, not to any part payment of the costs award.

[102]Finally, there is the last part of s 127(2):

60 At [49]. Emphasis omitted

… the person who was the unit owner at the time the expense became payable or by the person who is the unit owner at the time proceedings are instituted.

[103]   There are two people who might be liable. It is consistent with the purpose of s 127 that the Body Corporate must first pursue the unit owner at the time the expense became payable. That unit owner (or their tenant or invitee) will be the person at fault. The purpose of s 127 is, primarily, to recover any expense from the person who is at fault and, secondarily, to avoid the cost of any expense falling on the unit owners as a whole.

[104]   The expense became payable when the Tribunal issued its costs determination on 22 August 2012. The Tribunal’s findings on fault were affirmed on appeal to this Court with some adjustment to the quantum required. The final costs determination as to quantum was given on 17 December 2013. WHH and the trustees of the Trust were the unit owners at the time of the Tribunal’s costs determination on 22 August 2012. The Body Corporate can therefore recover the expenses from WHH and the trustees of the Trust (there is the issue of the liquidation of WHH, which I refer to in the paragraph below).

[105]   Before moving onto to deal with the implications of the final part of s 127(2), this is a situation where the owners of multiple units were at fault. It is consistent with the terms of s 127 that any expense incurred is recovered from all unit owners (or their tenant or invitee) who have engaged in misconduct. Together they must be, for the purposes of s 127(2), jointly and severally liable for the expense. I am of the view that this principle applies to the liability of WHH and the trustees of the Trust. They are jointly and severally liable for the expense caused to the Body Corporate by their misconduct. If WHH is now insolvent, then the trustees are alone liable. This approach is also consistent with the purpose of s 127.

[106]   The last part of s 127(2) indicates that the expense can be recovered from the person who is the unit owner  at  the  time  proceedings  for  recovery  commence. Mr Allan submits it would be absurd for this part of the provision to mean that a subsequent unit owner who has not participated in the misconduct, and who is not at fault, is liable for the actions of a former unit owner. This would be at odds with the purpose of the provision and with the immediately preceding words.

[107]   Addressing this submission, I note that the words in question were added by the Social Services Select Committee in reviewing the Unit Titles Bill. In its report to Parliament, the select committee recommended amending what became s 127 (it was cl 112 in the Bill referred to the select committee).61 The Bill as referred to the select committee simply described the expense as a debt recoverable from the “unit owner”. The words added are part of s 127(2) presently under consideration:62

… as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense became payable or by the person who is the unit owner at the time proceedings are instituted.

[108]   In its report, the select committee did not provide a policy justification for this change.63 The addition of the words “the person who was the unit owner at the time the expense became payable” is consistent with the focus on fault. However, the amendment also makes clear that recovery may alternatively be sought against the current unit owner even if he or she is without fault.

[109]   The secondary purpose referred to in [103] above, namely avoiding all unit owners bearing the expense incurred due to the misconduct of a unit owner, would suggest that it does not matter from whom the costs are recovered (i.e. former unit owner at fault or current unit owner) so long as it is not the other unit owners. However, the amendment to the Bill proposed by the select committee and adopted by Parliament in enacting the legislation demonstrates that the purpose cannot be simply to avoid cost to other unit owners where a particular unit owner is at fault. It is the unit owner at the time the expense is incurred and who is at fault who is liable. Avoiding cost to other unit owners is achieved by leaving, as a last resort, the unit owner at the time recovery proceedings commence who may become liable if recovery from the unit owner at fault fails.

[110]   Further support for this interpretation is found in an important distinction between s 126(2) and s 127(2). Section 126 establishes joint and several liability between the owner at the time the expense was incurred and the owner at the time recovery action is commenced. There is good reason for establishing liability in this

61     Social Services Committee Unit Titles Bill (2 September 2009).

62     At 101.

63     At 25.

way in relation to s 126. The owners of a particular unit who obtain a benefit (whether substantial or by a distinct and ascertainable amount) will receive that benefit whether or not they owned the unit at the time the expense was incurred or later in time.  In   s 127, the liability arising from fault should ordinarily be discharged by the person at fault and not by any future owner who did not participate in the misconduct. This drafting difference is significant and supports an interpretation of s 127 which places liability on the person at fault in the first instance.

[111]   On the other hand, there are the judgments of  the  Supreme  Court  in  Gilbert v QAM Trustees which considered similar words used in s 124 regarding the recovery of levies.64 Section 124(2) provides:

124 Recovery of levy

…

(2) The amount of any unpaid levy, together with any reasonable costs incurred in collecting the levy, is recoverable as a debt due to the body corporate by the person who was the unit owner at the time the levy became payable or by the person who is the unit owner at the time the proceedings are instituted.

[112]   In the  judgment  of  William  Young  and  Glazebrook  JJ,  given  by  William Young J, the Judges said:

[13] Section 124 imposes the liability for unpaid levies on the person “who is the unit owner at the time the proceedings are instituted”. In ordinary circumstances, unpaid levies will be priced into the purchase price of a unit.

[113]   In the separate judgment of Elias CJ and O’Regan J, given by O’Regan J, the Judges said:

[68]  … Ownership at either the time at which the levy became payable or the time at which proceedings are instituted is the basis for liability. It is notable that liability falls not only on the owner at the time the levy was imposed, but also on a subsequent owner if the subsequent owner acquires the unit while the levy remains unpaid …

[114]   My interpretation of similar words in s 127(2) must be informed by its specific purpose. The view expressed in the judgment given by William Young J is that

64 [2016] NZSC 61, [2018] 1 NZLR 1.

recovery is from the current owner of the unit. The judgment given by O’Regan J acknowledges that recovery may be from the owner at the time the levy became payable or a subsequent owner but does not give an opinion on priority as between any former or current owner for the purposes of recovering an unpaid levy.

[115]   To adopt a similar interpretation to that of William Young and Glazebrook JJ in Gilbert would be at odds with the purpose of s 127 to recover from the person at fault. While the words used in ss 124 and 127 are similar, the clear purpose must prevail. Different considerations arise in relation to s 124, where liability from an unpaid levy arises simply because a person is an owner of a particular unit; there are no preconditions, such as fault, which have to be met.

[116]   The nature of the disclosure regime for unpaid levies provides a further reason for drawing a distinction between the interpretation of s 124 in the judgment of William Young and Glazebrook JJ and the interpretation of s 127(2) I have adopted. The Unit Titles Regulations 2011 require disclosures relating to payment or non- payment of levies and enforcement proceedings to recover unpaid levies. A buyer of a unit is therefore in a position to make an informed decision on any purchase and/or seek an adjustment to the purchase price to allow for unpaid levies. There would be no disclosure of a prior owner’s misconduct which could give rise to recovery action under s 127. An interpretation of s 127(2) which leaves liability with a unit owner who was not at fault, when recovery is possible against a former unit owner who is at fault, would be unfair and inconsistent with the purpose of this section.

[117]   Finally, Mr Allan submits the unit owner referred to in s 127(1) and the unit owner from whom recovery is sought under s 127(2) must be the same owner. If the unit owner at fault should be the unit owner who pays, and I accept this is the purpose of the section, the owner has to be the same. However, I do not accept Mr Allan’s submission. It is at odds with the clear language of the Act. There are two different unit owners referred to in s 127(2). The unit owner in s 127(1) will not always be the unit owner in s 127(2) who pays but, to give effect to the scheme and purpose of the UTA, recovery should first be sought from the unit owner at fault.

[118]   To conclude, an interpretation of the final words of s 127(2) which is consistent with the purpose and the words used is that the Body Corporate must first take steps to enforce recovery of the debt against the unit owners at the time the expense became payable because the unit owners, WHH and Messrs van Dijk and Palmer, were at fault. Only after exhausting all possible avenues of recovery against them can the Body Corporate pursue the unit owner at the time recovery proceedings commence. This is consistent with the purpose of s 127 because liability cannot fall on the collective unit owners where the expense arises from a person at fault. The Body Corporate does not have a discretion. Following the liquidation of WHH, it must pursue Messrs van Dijk and Palmer who were unit owners at the time the expense became payable.65 Bethanga Properties Ltd, Marina Resort Ltd, Aquila Holdings Ltd and Messrs van Dijk and Palmer (as the current owners of Unit 7I) are only liable for the costs award if the Body Corporate is unable to recover from Messrs van Dijk and Palmer.

Set-off

Submissions

[119]   The Body Corporate says it is neutral on set-off of the legal fees and associated costs said to have been paid in the litigation. Its neutrality is, however, qualified as it has taken a position on the maximum set-off amounts. In that regard Ms Toon disagrees with the amount Daniel Ivil says was paid by the trustees of the Trust to fund the litigation.

[120]   Mr Rainey submits that the cost of the bringing the proceedings in the Tribunal was met by the trustees of the Trust. He says the difference between Daniel Ivil’s figure and the lesser sum calculated by Ms Toon, follows from the inclusion by Daniel Ivil of payments said to have been made on behalf of the Trust by related entities. The Ivil group maintains that part of the debt it says was incurred by the Body Corporate was assigned to Aquila Holdings Ltd and Harbour Reflections Ltd.

65 Both were trustees of the Trust at the relevant time. Section 5 of the UTA defines an “owner” as “the person or persons for the time being registered as owner of the stratum estate in the unit under the Land Transfer Act 2017”. Daniel Ivil’s affidavit indicates they have retired as the trustees. However, this does not alter their joint liability under s 127(2). Whether they have recourse to the present trustee(s) of the Trust under any indemnity given to them by the trust deed is not a matter for resolution in this proceeding. Nor does it need to be resolved. That is a matter for Messrs van Dijk and Palmer and their successors as trustee(s). In terms of s 127(2), their liability is clear.

Mr Rainey submits these amounts should be applied as a credit to those two respondents. There remains a balance which should be applied as a credit for the benefit of the trustees of the Trust.

[121]   Mr Allan says the Ivil group are not entitled to set-off at law. He submits the Ivil group have not established the payments were made on behalf of the Body Corporate. Moreover, even if the payments were proved, there is no evidence demonstrating the assignment of the debt. Mr Allan further says that any effort to establish equitable set-off fails because the misconduct of the Ivil group in the Tribunal proceedings. In consequence he says, a claim to equitable relief is precluded because the Ivil group does not have clean hands.

Disputed facts

[122]   As already noted, the Court is not in a position on an application under the Declaratory Judgments Act to determine disputed questions of fact. In this case, there are disputes as to the following factual matters:

(a)Whether the Body Corporate agreed to repay the Ivil group for legal and other expenses associated with the Tribunal claim (this is disputed by the Bethanga group);

(b)The amount said to been paid for legal and other expenses by the Ivil group;

(c)Whether parts of the amount said to have been paid by the Ivil group have been validly assigned to Aquila Holdings Ltd and Harbour Reflections Ltd;

[123]   This Court is not in a position under the Declaratory Judgments Act to determine these factual disputes. Further, the disputed facts are fundamental to the issue of set-off and a statement of principle in the absence of certainty on them is not presently possible. A firm foundation of established and agreed facts would be required and that is simply not available on this point. This alleged debt is a matter

for the Ivil group, and any assignee who claims from them, to pursue with the Body Corporate in separate proceedings.

Reallocation of an insolvent respondent’s costs liability

[124]   The Body Corporate seeks a direction on whether any respondent’s costs liability should be re-allocated if a respondent becomes insolvent.

[125]   Mr Martelli’s submissions on this issue are premised on the Body Corporate recovering the costs award by way of a levy under s 121, where no claim is first made under ss 126 or 127. He submits:

(a)A respondent remains liable for the levy so long as it is a unit owner;

(b)The Body Corporate has no power to redistribute a respondent’s liability in the event of insolvency;

(c)Rather the liability remains with the unit owner until levy is paid or the unit is sold;

(d)Any unpaid levy would be disclosed to a potential successor unit owner through the sale process.

[126]Mr Rainey and Mr Allan made no submissions on this issue.

[127]   I accept Mr Martelli’s submission that under s 121, liability for a levy remains with the unit owner until that levy is paid or the unit is sold. However, this issue is somewhat academic given my decision that the Body Corporate must recover the costs award under s 127.

Result

[128]I make the following declarations:

(a)The Body Corporate cannot recover the costs award under s 126;

(b)The Body Corporate must recover the costs award under s 127:

(i)From Messrs van Dijk and Palmer;

(ii)In the event that the Body Corporate is unable to recover from Messrs van Dijk and Palmer, then from the unit owners of units 3C, 5E, 6H, 7I, 8J, 11M, 12N, 13O, 14P and 15Q.

[129]   For reasons explained in the judgment, I do not make declarations in relation to either set-off or re-allocation of liability in the event of insolvency of a respondent.

Costs

[130]Costs are reserved.

[131]   Both the Body Corporate and the Bethanga group took the position that a levy under s 121 was the appropriate mechanism to raise the funds necessary to pay the costs award and that neither s 126 nor s 127 was available for that purpose. While I have accepted their submissions that s 126 is not satisfied, I have found s 127 applies. The Ivil group took the position that s 127 applied and, in the alternative, that s 126 applied. I have found that s 127 is available but for different reasons than those advanced and with different consequences.

[132]   Each party has had limited success. For this reason, my preliminary view is that costs should lie where they fall. However, I did not hear from the parties on costs. In the event the parties agree with my preliminary view, they should file a joint memorandum, recording their agreement, within 20 working days of the date of this judgment. In the event the parties disagree with my preliminary view, and if costs can be agreed, then a joint memorandum should be filed again within 20 working days of the date of this judgment.

[133]   In the further alternative, if the parties disagree with my preliminary view and are not able to agree costs, memoranda are to be filed and served contemporaneously within 10 working days of the date for any joint memorandum. Memoranda should

not exceed four pages, excluding any attachments. If it is necessary to determine costs, I will do so on the papers.

Gordon J