Body Corporate 172108 v Manchester Securities Ltd

[2017] NZHC 329

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-006868 [2017] NZHC 329

BETWEEN

BODY CORPORATE 172108

Applicant

AND

MANCHESTER SECURITIES LIMITED

37TH Respondent

Hearing:	15, 16, 17, 18 and 19 August 2016
Appearances:	T J G Allan and S F Powrie for Applicant M C Harris for Respondents
Judgment:	03 March 2017

JUDGMENT OF FOGARTY J

This judgment was delivered by Justice Fogarty on

3 March 2017 at 11.30 a.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Grove Darlow & Partners, Auckland

Gilbert Walker, Auckland
Copy to:

T J G Allan, Auckland

BODY CORPORATE 172108 v MANCHESTER SECURITIES LIMITED [2017] NZHC 329 [3 March 2017]

The apartment building

[1]      The subject matter of this application is the Hobson Apartments, which is a high-rise development at 196 Hobson Street, Auckland of 12 storeys.  On the top of the building, level 12, is a penthouse unit known as unit 12A.  Unit 12A is owned by Manchester Securities Limited (referred to as Manchester or MSL).

[2]      Hobson Apartments  have been  beset  by damage caused by severe  water ingress.  It has been, in short, a leaky apartment building.

Unit titles

[3]      The apartment’s ownership is governed by the Unit Titles Act 1972 (the Act). This has the consequence that the owners of individual apartments have a percentage share or stratum estate.  These are established pursuant to s 3 of the Act.  The land (including the improvements affixed to the land) is subdivided in a plan deposited under the Land Transfer Act 1952.  The plan specifies the units and their relation to a building or buildings already erected on the land.  This plan is referred to as the unit

plan.1

[4]      Before the unit plan is deposited there is assigned to every principal unit in the  building or  buildings  a  “unit  entitlement”.2   This  entitlement  is  fixed  by a registered valuer on the basis of the relative value of the unit in relation to each of the other units in the unit plan. This is a critical provision.

Common property and unit titles

[5]      Naturally there is a commercial interest in individualising so far as is possible the units, but equally an economic interest in sharing as common property those parts of the building to which the dwellers in the units have an interest in maintenance.   In its simplest and most obvious terms: the roof, solid and vertical

walls, strong foundations, functioning lifts etc.

1      Unit Titles Act 1972 s 4(1).

2      Section 6(1).

[6]      Common property, as the name suggests, is intended to be as rational as can be.  It is not regulated in any detail by the Act. The developer has discretion as to the identification of common property, confined, of course, by the purpose of the Act. This discretion or power to define common property is contained in s 3(1)(b) of the Act.  Read together it provides that the registered proprietor of land, or a lessee of land, can subdivide his or her title into two or more principal units leaving as common property “so much of the [original parcel of land]” as is not comprised in any unit”.  So common property is all the property that is left after the definition of the units.

[7]      All unit holders have a responsibility for the repair and maintenance of the “common property”.   This responsibility is allocated according to the respective values of the unit entitlements.   This could be seen as an arbitrary criterion.  The merits of that proposition are irrelevant, however, because this allocation of responsibility is fixed by law.  Section 9(1) of the Act provides:

9        Common property

(1)       The common property shall be held by the proprietors of all the units as tenants in common in shares proportional to the unit entitlement in respect of their respective units:

provided that nothing in this subsection shall affect the interests among themselves of the proprietors of a stratum estate in an individual unit.

…

[8]      It follows that the maintenance of common property falls to the proprietors of all units.  On their behalf, this task is undertaken by the Body Corporate.  Section

15(1)(f) provides:

15       Duties of body corporate

(1)      The body corporate shall—

…

(f)       Keep the common property in a state of good repair:

[9]      Subsection (2) then provides:

(2)      The body corporate shall also—

(a)      establish and maintain a fund for administrative expenses sufficient in the opinion of the body corporate for the control, management, and administration of the common property, and for the payment  of  any  insurance  premiums,  rent,  and repairs and the discharge of any other obligations of the body corporate:

(b)       determine from time to time the amounts to be raised for the purposes aforesaid:

(c)       raise     amounts     so     determined     by     levying contributions on the proprietors in proportion to the unit entitlement of their respective units.

[10]     As can be seen in s 15(2)(c), the link between the unit entitlement fixed by the valuer and contributions is mandated by that paragraph.   Read in conjunction with s 15(2)(a), the subsection effectively provides:

The Body Corporate shall also—

…

(c)      Raise amounts so determined [for the control, management and administration of the common property and for the payment of any insurance premiums, rent and repair] by levying contributions on the proprietors   in   proportion   to   the   unit   entitlement   of   their respective units.

(Emphasis added.)

[11]     It is important to grasp and hold onto the fact that the unit entitlement is based upon a professional valuer’s assessment of the relative values of the different units in the building adding up in sum to 100 per cent.  So, a repair to a ground floor exterior wall, which is common property, is contributed to in the same proportion as the unit entitlements by all unit holders even if that damage to the common property has no impact at all on most of the unit holders.  This principle has the advantage of simplicity, even if, in particular instances, it produces unfair results.   It is  also underpinned by the statutory policy that common property is to the advantage of all the occupiers of the building. These considerations are gathered in s 9.

[12]     In this case, unit 12A, owned by Manchester, is the largest and most valuable unit in the apartment block.  It was constructed separately to the rest of the building.

While the Body Corporate owns the exterior to levels 1 to 11, the exterior of level 12 is owned by Manchester.   It is common ground that the unit entitlement of unit 12A is 11.88 per cent, first recorded in judgment number 1 of Heath J.3

Defects, litigation and remediation

[13]     The setting of this case was that the Body Corporate and owners of all units except five, one of whom was Manchester, were suing the Council for damages, intending to use the sum recovered to remediate the building.   Manchester successfully brought its own claim against the Auckland Council in the Weathertight

Homes Tribunal.4

[14]     The Body Corporate came up with a plan for the remediation of all levels including level 12.

[15]     In 2009, the Body Corporate applied to the High Court, pursuant to s 48 of the Act, to sanction a scheme so that the Body Corporate would have the power to carry out repairs to individual units as well as common property.  This was because the major work needed for levels 1 to 11 was the renewal and replacement of the exterior cladding, but this task entailed works on the inner side of the exterior walls, including the internal wooden frame works and linings, to be explained in more

detail later in this judgment.5   In the absence of an order sanctioning such a scheme

there would be no power for the Body Corporate to undertake repairs on the units’

property, let alone on unit 12A.

[16]     The timing of the application for the scheme was linked with the timing of a mediation of the litigation against the Auckland Council.   The unit holders of the Body Corporate envisaged, correctly as it turned out, that they would achieve a significant settlement with the Auckland Council. As it was, this was achieved in the

sum of $6 million.

3      Body Corporate 172108 v Meader (2010) 12 NZCPR 101 (HC).

4      Manchester Securities Ltd v Auckland Council [2016] NZWHT Auckland 1. The High Court recently allowed Manchester’s appeal against the Tribunal’s dismissal of the claim it brought as assignee of its vendor’s claim; the Council’s cross-appeal in relation to notification of the assignment has been removed into the Court of Appeal: Manchester Securities Ltd v Auckland Council [2016] NZHC 2441.

5 See below at [34] – [37], [78] – [86], [97] – [99], [105] – [106], and [136].

[17]     The only unit holder opposing the application for a scheme was Manchester. The perspective of the Body Corporate Committee was that Manchester appeared to be unwilling to contribute to repair of common property, on the floors below level

12.   Manchester perceived its defects were minor (it had superior cladding), and wanted to repair its unit independently of the Body Corporate, and the common property on level 12, separately.  This would entail at least two separate contracts for the works rather than one.

The scheme litigation

[18]     As noted already the application was enabled by s 48 of the Unit Titles Act. It is sufficient to cite s 48(1), (5) and (6):

48       Scheme following destruction or damage

(1)       Where any building or other improvement comprised in any unit or on any land to which a unit plan relates is damaged or destroyed, but the unit plan is not cancelled, the Court may, on the application of the body corporate, an administrator, the proprietor or one of the proprietors of a unit, or a registered mortgagee of a unit, by order settle a scheme including provisions—

(a)       for the reinstatement in whole or in part of such building or other improvement; or

(b)      for the transfer of units to the proprietors of the other units so as to form part of the common property.

…

(5)       In the exercise of its powers under subsection (1), the Court may make such orders as it considers expedient or necessary for giving effect to the scheme, including orders—

(a)       directing the application of any insurance money;

(b)      directing  payment  of  money  by  or  to  the  body corporate or by or to any person;

(c)       directing the deposit of an appropriate new unit plan;

or

(d)      imposing such terms and conditions as it thinks fit. (6)      The Court may from time to time cancel, vary, modify, or

discharge any order made by it under this section.

…

(emphasis added.)

The scheme, as finally approved

[19]     The application was eventually successful, but only after three judgments of

Heath J,6  the last in 2010.   The order sanctioning the scheme being sealed on 13

April 2011 – hereafter referred to as “the scheme”.  The scheme authorised the repair of  the  building,  including  such  related  work  as  the  Body Corporate  considered necessary and advisable.7    Repair under the scheme included not only repair of the common property but repair of structural elements, internal linings, decorative and other parts of the building, whether they be common property or part of freehold units.8

[20]     The general power to carry out this scheme was conferred on the Body Corporate9 which also provided that the money required to meet the costs of repairs be collected from each owner of a unit entitlement.   Funds could be raised by a levy.10   On the subject of allocation of costs clause 10 provides:

10.      Allocation of Costs

10.1Where Repairs can be identified with a specific Unit, the Cost of such Repairs shall be borne by the Owner or Owners of that Unit.

10.2Where Repairs are carried out to Common Property, the provisions of the Act shall apply.

10.3Subject to any specific provision to the contrary in this scheme, where repairs involve both Units and Common Property, the Cost of such Repairs shall to the extent possible be apportioned to each Owner on the basis of that owner’s legal title to part of the Building.

(Emphasis added.)

[21]     Within the scheme there were specific arrangements, carved out in respect of

Manchester, which are at the heart of this dispute:

6      Body Corporate 172108 v Meader, above n 4; Body Corporate 172108 v Meader (No 2) HC Auckland CIV-2009-404-6868, 19 August 2010; Body Corporate 172108 v Meader (No 3) HC Auckland CIV-2009-404-6868, 31 August 2010.

7      Scheme under s 48 of Unit Titles Act in regard to Body Corporate 172108, cl 2.2.

8      Clause 2.2(b).

9      Clause 4.1.

10     Clause 6.3.

21.Specific arrangement with Manchester Securities Ltd in respect of level 12

21.1Manchester Securities Limited (“Manchester”) is the Owner of the penthouse on level 12 of the building. This clause of the scheme provides for:

(a)      the carrying out of Repairs to level 12 as contemplated by the Building Consent by Manchester; and

(b)      Manchester’s share of the total Cost of the Repairs of the

entire Building.

21.2Manchester shall not be liable to pay more than 11.88% of the total Cost of the Repairs carried out pursuant to this Scheme provided  however that  any  Costs  incurred  by  Manchester in respect  of  project  management  consultants  or  other construction-related advisors that do not provide benefit to all other  individual  proprietors  or  the  body  corporate  shall  be borne solely by Manchester.   The costs in respect of project management consultants or other construction-related advisors that Manchester contends provide a benefit to all individual proprietors (other than Manchester) or the body corporate shall be made available in writing, together with supporting documentation to the secretary of the body corporate.  Any dispute about whether benefit is provided to all individual proprietors (other than Manchester) or the body corporate shall be determined under the dispute resolution provisions of this Scheme.

21.3The Cost of Repairs to the Units and Common Property situated at level 12 of the Building shall be separately assessed and paid by Manchester, provided that Manchester shall give to and consult with the Body Corporate all documents and or information in connection with any design element, pricing, quantity surveyor’s or other review of prices, contracts and or sub-contracts with the intent that any works undertaken and to be paid by Manchester shall be transparent from the outset.

21.4Subject  to  clauses  21.1  and  21.2,  the  amount  payable  by Manchester on account of Repairs to the building other than the works to level 12 listed in clause 21.7 shall be 11.88% of the total Cost of Repairs less the cost of repairs assessed and paid for in accordance with clause 21.3.

21.5Manchester may appoint, at its own cost, a suitably qualified project manager to manage that part of the work required for level 12 that can reasonably be carried out separately from the Repairs carried out to the rest of the Building.

21.6The work that is separable from the main building contract includes the work described in the Building Consent that relates to the replacement or repair of the level 12 decks, balustrades, stone veneer cladding and roof (the “Manchester Work”).

21.7The Manchester Work shall be carried out under a separate building consent  to  be  obtained     by  Manchester  utilising  as  far  as  is practicable the existing plans, details and specifications from the Building Consent and shall include: …

[22]     The scheme then sets out the specific works to be carried out.

[23]     The combined effect of clauses 21.1(b), 21.2, and 21.4 is that Manchester’s liability is capped at 11.88 per cent of the total cost of repairs to the unit and common property in levels 1 to 11, less the costs of repairs to the units and to the common property situated at level 12 (these costs having been separately assessed and paid for by Manchester).   The function of clause 21.3 is to ensure that all documents and information in connection with any design, pricing etc. be transparent from the outset and incurred after consultation with the Body Corporate.   These terms abandon the separation of common costs and unit repair costs.

[24]     The scheme concludes with its last clause:

21.9The interaction between the level 12 work and the Repairs to the rest of the Building contemplates full co-operation between Manchester and the Body Corporate and any respective consultants.

(Emphasis added.)

The current dispute

[25]     The  scheme  has  not  gone  according  to  plan.    There  was  no  “full  co- operation”.  All the remedial work on levels 1 to 11 has been completed, but at a higher cost.  The work on level 12 is progressing, but has not been completed, and the cost estimate has quadrupled.  This outcome is the reverse of that anticipated by the scheme.

[26]     In 2010, in the first judgment of Heath J, he reasoned as follows:11

[47]     I work out my figures on the following assumptions:

a)        The cost of repairs for Levels 1 to 11 is (say) $5,750,000.

11     Body Corporate 172108 v Meader, above n 4.

b)The cost of repairs for level 12 (individual and common property) is (say) $500,000.

c)        The total cost of repairs is, therefore, (say) $6,250,000.

[48]     MSL’s unit entitlement is 11.88%.  Applying that percentage to the total estimated costs of repairs (whether individual or common property) of $6,250,000, amounts to a contribution of $742,500.

[49]      The indicative amount of $500,000 to be paid in respect of Level 12 work  amounts  to  8%  of  the  estimated  total  repair  cost  of  the building.   In my view, that needs to be topped-up to equate to the sum of $742,500, which would have been the cost, based on 11.88% of the total cost of repair for the building.  On that basis, in respect of common property (other than that situated on level 12), MSL’s contribution would be $242,500.

[50]     For the purpose of drafting the scheme it may be better for MSL’s apportionment to reflect 11.88% of the total cost of remediating the building, so that the amounts involved can be fixed by reference to higher or lower costs of remediation, both in respect of Levels 1 to

11 and Level 12.

[27]     Paragraph  [49]  of the judgment  set  out  above  reveals  an  assumption  by Heath J  that  the  indicative  amount  of  $500,000  falls  short  of  the  appropriate contribution and that the top-up of $242,500 can be regarded as a contribution to common “(property other than that situated on level 12).”

[28]     In his analysis prior to [47]–[50], Heath J reaches the conclusion that he has a broad power under s 48 of the Act that grants him a very wide discretion:

[43]      I do not consider I am constrained by the terms of s 33.  The wide discretion  conferred  by  s 48(5)  enables  me  to  determine  questions  of apportionment of costs to achieve an equitable solution in advance. This is a case in which such an order is necessary because of the unusual ownership structure in respect of the exterior of the building.

[29]     Paragraph [43] itself is the product of his earlier reasoning in paragraphs [20], [21] and [25]:

[20]     The words “expedient or necessary” focus attention on pragmatic considerations.  While a balancing of private and common needs is inherent in the exercise, the focus, in doing so, is on pragmatic considerations.

[21]     It  will  be  relatively  easy  to  determine  whether  a  scheme  is “necessary”.  That concept is clearly directed to the need for remediation to protect the economic and other interests of the individual proprietors who make up the body corporate.  In context, “expediency” might encompass the desirability of proceeding in a particular way; accepting that rights otherwise

conferred on an individual proprietor to deal with his or her own property might be compromised.  In my view, s 48 requires questions of reinstatement or repair to be determined by reference to the common good, while having regard to the rights otherwise enjoyed by individual proprietors.

…

[25]     In Fraser v Body Corporate S63621, I took the view that the Court was given a wide discretion to do justice among all proprietors in a manner that would best resolve the particular problem that had led to the application. I considered that there was no fetter on the Court’s discretion, which was designed to meet a vast array of circumstances that could not have occurred to the drafters of s 48.   The only absolute requirement is for the Court to exercise its discretion judicially, not arbitrarily or capriciously.

(Footnotes omitted.)

[30]     I do not believe that it is possible to reconcile the reasoning of Heath J in paragraphs [47] to [50] of that judgment with the statutory policy of demarcating common costs from unit costs (enshrined in ss 9 and 15).  Heath J at that time was relying upon the wide discretion conferred by s 48(5).

[31]     Manchester now argues that its cost of repairing level 12 will consume more than 11.88 per cent of the total costs, so Manchester is not obliged to contribute to the repair of levels 1 to 11, rather the unit holders on those levels have to contribute to the remediation cost of level 12.   In response the Body Corporate, in March of

2013, applied to vary the scheme by removing the words in clause 21.2 and 21.4 (set out above in [21]) limiting the contribution of Manchester to 11.88 per cent of the total cost of repairs pursuant to the scheme.

[32]     The current setting as to the construction work to repair levels 1 to 11 is that the work is practically complete.  Part of the setting of the case is that the cost of repairs to levels 1 to 11 themselves increased by 33 per cent, more than the original contract, on account of unforeseen but discovered damaged framing, which required replacement.

[33]     Manchester has retained a quantity surveyor, Mr J R Maddren, to provide a preliminary costs estimate for the remediation of level 12 in accordance with the current building consent which was issued on 11 May 2015, and based on actual

costs incurred up to 29 February 2016 and the estimated cost to complete the work thereafter.

[34]     Mr Maddren’s total estimate for level 12 is $2,303,231 plus GST.   This includes actual costs to 29 February and an estimate as to the remaining costs.  He expresses the opinion:

I have formed the view that consideration additional cost has been incurred as a result of the lost opportunity to complete the northern, eastern and southern faces of the building remediation in conjunction with the Body Corporate work on the lower levels from August – September 2012.  While I have not attempted a precise calculation it is clear that the additional costs runs well into six figures.

[35]     Mr Maddren also notes, first, that some of the work had to be done out of the sequence that you would expect from a normal job.  The level 12 decks had to be remediated so that they had correct falls and were waterproof (in order for a code of compliance to be granted for the levels below).   Secondly, the time and costs associated with the need to design and install bespoke scaffolding at level 12, rather than using the Body Corporate scaffolding, has been a major ongoing source of difficulty.  It is still proving to be technically challenging and extremely expensive. He says that the costs could end up higher than he has allowed for in his estimate.

[36]     Similarly, Mr Maddren records that the preliminary and general costs are higher than might be expected if the project was able to be carried out in conjunction with the remediation work of the Body Corporate on levels 1 to 11.

[37]     Mr Maddren’s estimate back in June of 2012 was $1,083,938 as against his current estimate of $2,303,231.  Other items increasing the costs are the work on the roof fabric and supporting substrate, the requirement for 100 per cent timber wall framing replacements on all external walls (for internal wall bracing, for removal of internal wall and ceiling licence and their reinstatement and other items).

[38]     Analysing this data, Mr Allan, for the applicant submits:

MSL says whereas the formula was intended to result in MSL making a contribution of $242,500 to the cost of repairing common property on L1-11, as  at  May/June  2012  when  the  Maddren  estimate  for  the  work  was

$1,246,528 (including GST) plus [solicitor/client costs of] $132,000, in fact

the Body Corporate was liable to pay Manchester $525,039.   And, as at February 2016 the Body Corporate owes MSL $1,484,403.  This in and of itself  – and before a  consideration of other changes  of circumstances  – justify the Court varying the scheme.

[39]     Mr Allan maintains this logic by pointing out that Manchester argues that clauses 21.2 and 21.4 of the scheme taken together means it is not liable for repairs to its private property and common property if the sum of them paid for by Manchester exceeds 11.88 per cent of the “total cost of the repairs”.

Manchester’s opposition to the application to amend the scheme

[40]     Manchester opposes the application to amend the scheme on a number of grounds.  First, Mr Harris submits that any dispute over the application of the 2010 scheme can and should be determined by arbitration through the dispute resolution mechanism provided for under the scheme.

[41]     Secondly, Mr Harris argues that the application is improperly attempting to re-litigate issues that divided the parties when the proceedings were commenced in

2010 and were determined by the judgments of the High Court of Heath J delivered in 2010 and the scheme settled by the High Court.

[42]     Thirdly,  Mr  Harris  submits  that  the  factual  bases  of  the  application  for variation of the scheme are incorrect.  In this regard the first submission is that in no way were there accepted assumptions of construction costs, but on the contrary the costs were treated as indications available at the time.12

[43]     Manchester says that the “carve out” for Manchester occurred only because the Body Corporate was signalling it would not undertake any remediation work pending conclusion of its litigation against the Auckland Council (the benefits of which were going essentially to fund the Body Corporate’s work).

[44]     Fourthly, Manchester is entitled to rely on the scheme which did not assume costs on the basis of a single programme of work carried out by a single contractor. Rather,  it  allowed  Manchester  to  remediate  level  12  separately  from  the  Body

Corporate remediating levels 1 to 11.   Manchester agreed to undertake temporary repairs in order to prevent further water ingress to level 11 apartments, which it did, and now is presently undertaking the remainder of the level 12 work in an orderly and efficient manner.

[45]     It is against all of these considerations that Manchester denies that it has refused unlawfully to pay building levies raised by the Body Corporate, alleging, instead, that the levies being sought by the Body Corporate breach the terms of the scheme approved by the High Court.  It points out its objection to the first levy was upheld by an arbitrator and that the Body Corporate has renewed breach of the scheme by refusing to go to arbitration on the current dispute.  Further, it argues that Manchester could never have carried out the level of repairs as originally contemplated in the original scheme, because there were no proper allowances for the contractor’s margin, provisional sums or contingencies and most significantly the scope of work has increased substantially, principally because it is now necessary to fully replace the roof of the building.

[46]     In respect of the repairs to levels 1 to 11, Manchester argues that the Body Corporate and unit holders’ decision to close in the balconies at levels 4 to 11, instead of like-to-like repair, increased the cost.  This is contested.  The reply is that it reduced the cost.

[47]     Manchester  also  argues  that  the  Body  Corporate  rejected  its  attempts  to reduce costs by working with the Body Corporate, thereby increasing at the end of the day the costs of level 12.  This was because the Body Corporate delayed the start of  the  work  wanting  to  await  the  results  of  its  litigation  against  the Auckland Council.

[48]     The final significant ground of opposition by Manchester is that the parties have relied upon the terms of the High Court scheme settled in 2010 in ordering their affairs since then and it is not in the interests of justice to make any of the orders sought.

[49]     As  is  common,  if  not  inevitable,  in  the  remediation  of  leaky  apartment buildings, the extent of the work required for level 12 is much greater than that anticipated at the time the High Court order was made.  Further, such was the delay between the sequence of the two works that Manchester has lost the opportunity to share the scaffolding erected for the remediation of levels 1 to 11.  Given the cost of erecting, maintaining and removing such scaffolding such extra cost has become a principal driver, along with other factors, of increasing the cost of remediation of level 12.

[50]     All that said, Mr Harris did not press for the aforesaid sum of $1,484,403 calculated  by Mr Allan.13      Mr  Harris  acknowledged,  particularly in  his  closing submissions, that only costs reasonably incurred can be brought within the scheme. That  excludes  costs  that  are  not  reasonable  due  to  an  unreasonably  prolonged building programme.  It is in this context of a dispute as to what costs reasonably incurred, that Manchester is seeking this dispute to go to arbitration rather than that

issue being left for this Court to decide, on the basis of the past five-day hearing.  Mr Harris argues that this case shows that disputes can occur in respect of the scope of work, building programme, unanticipated work, unanticipated delay, interruption, prolongation, methodology, costs, measurement and apportionment.  He argues that the dispute clause in the existing scheme recognises these disputes can be resolved more efficiently when adjudicated by a more suitably qualified professional.

Should the remedial scheme be varied?

[51]     It  is  now possible for the reader to  understand  the orders sought  in  the application to amend the scheme.

The amended application to vary the contribution of Manchester

[52]     The Body Corporate seeks an order removing the words from cl 21.2 of the scheme that cap Manchester’s liability at 11.88 per cent of the total cost of repairs, along with the deletion of cl 21.4.  It seeks an order to insert the following in lieu of those words:

(i)        Manchester shall pay the Costs of Repairs of common property to all levels calculated in accordance with the Units Entitlement (now known as Ownership Interest) of Manchester’s unit (first order); or in the alternative

(ii)       Manchester   shall   pay   to   the   Body   Corporate   $322,525   as Manchester’s contribution to the cost of repairs in respect of levels 1 to 11 and shall otherwise pay for all the remedial costs to level 12 (second order); or in the alternative

(iii)      Manchester shall pay to the Body Corporate, as its share of the Cost of Repair to common property in the building, an amount calculated by the formula ordered by His Honour Justice Heath with the L12 costs  of  construction  to  be  brought  into  the  formula  capped  at

$520,000 (excluding L12’s professional fees already dealt with by

the Order) and shall otherwise pay for all the remedial costs to level

12 (third order).

[53]     Mr Allan, for the Body Corporate and the unit holders of levels 1 to 11, argued that it is necessary when adjudicating upon this application to apply the jurisprudence as developed after the three judgments of Heath J, and particularly as mandated by the decision of the Court of Appeal in Tisch v Body Corporate No

318596,14  rather than following Heath J’s approach, as to the scope of the statutory

discretion when approving a scheme.

[54]     For Manchester, Mr Harris submits in reply that there is no doubt that when the scheme was settled by Heath J the parties expected the level 12 costs to be less than 11.88 per cent of the total.  Clause 21.4 reflects this.  And clause 21.2 caps the liability of Manchester for no more than 11.88 per cent of the total.   Mr Harris submits that the cap should prevail.

[55]     In his closing address Mr Harris acknowledged that there is a live issue as to the reasonable costs of level 12 work, reflecting the delay in the scaffolding issue. Manchester’s solution is that this Court should leave the scheme in place but allow the  parties  to  invoke  the  arbitration  clause  in  the  existing  scheme  and  give appropriate directions to the arbitrators as to how they should handle or weigh these factors.

[56]     However, the consequence of that submission is that unless the scheme is further  amended,  Manchester,  as  the  owner  of  level  12,  will  not  make  any

14     Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679.

contribution at all to the remediation costs of the common property, principally the cladding, in levels 1 to 11 because of the 11.88 per cent cap.  The other owners will have to contribute to the work on the common property on level 12, and at the level inflated by Manchester’s delay.  The common property on level 12 is small, but that itself is not a major or determinative factor.

The law post-Heath J’s judgment

[57]     Mr Allan, for the applicant in these proceedings, submitted that the discretion of the High Court, to decide that a scheme is required and to set the terms, is now more circumscribed.   That the jurisprudence at the time of Heath J’s judgments favoured an unfettered discretion by reason of the standard in s 48(5):  “such orders as it considers expedient or necessary”.  Mr Allan argued that this Court must now apply the law as stated in the judgment of the Court of Appeal in Tisch v Body

Corporate Number 318596.15   Mr Allan submitted that Tisch requires the discretion

conferred in s 48 to be exercised within the policy setting of the statute, that is having regard to the purpose of the statute and statute’s allocation of responsibilities. In that aspect he argued that under the 1972 Act it was a deliberate policy that the unit  holders  were  responsible  jointly  for  the  common  property,  and  individual holders of units for their individual units.  It was accordingly contrary to the policy of the Act to limit the contribution of unit 12A to 11.88 per cent of the total cost of repair.

[58]     To support these propositions, Mr Allan cited particularly Wild J’s judgment in Tisch.  The facts of Tisch can be briefly stated. The Body Corporate had submitted a scheme for repair of a leaky building apartment under s 48. Part of the scheme required work on the balconies, which were privately owned rather than common property. The balcony repair work represented approximately 28 per cent of the total cost. The two ground floor property owners opposed the scheme. At the High Court, Andrews J exercised the discretion in favour of sanctioning the scheme but found that the terms of the draft scheme did not apportion costs in a fair and equitable manner as it made the Body Corporate responsible for cost of repairs to the balcony,

which was not common property. The issue on appeal was whether Andrews J’s

approach to s 48 was correct.

[59] The Court of Appeal interpreted s 48, applying s 5 of the Interpretation Act

1999, to give effect to the purpose of the statute. Significantly, it held:

[28] We thus do not accept the appellants’ submission that s 48 has a “plain and unconstrained intention”, and affords a discretion that is to be – or can be – exercised without regard to the other provisions of the Act, in particular ss 15 and 16.

[60]     Referring to Judgment No 1 of Heath J in relation to the present proceedings, the Court of Appeal observed:16

[30] The appellants fasten upon another statement of Heath J, this time in

Meader:

Section 48 is an exception to the general rule that a body corporate may only undertake tasks associated with common property.

That is obviously correct. But it does not follow that the s 48 exception is to be used without regard to the general rule. The situation must be one justifying departure from the general rule, and the departure should only be to the extent necessary to achieve what is fair as between unit owners in the circumstances.

[31] The rationale of the general rule is that unit owners purchase knowing the property is subject to the Act. They purchase also knowing they are subject to the Body Corporate Rules. Those Rules are a contract between the unit holders. The starting point must be that unit holders should adhere to the statutory scheme they bought into, and to the Body Corporate Rules they agreed to abide by. We see the scope of s 48 as limited to a situation where the best interests of unit owners as a whole dictate a departure from the scheme of the Act and from the Body Corporate Rules.

[61]     Applying these principles to the facts, the Court held:17

[64]      … There are two considerations. First, assessing a scheme in terms of who will benefit from it may lead to outcomes that are completely inconsistent with the Act and the body corporate rules. Relative benefits, of themselves, are not a sufficient reason to depart from the Act and rules. Balconies are a good example. Repair of a leaky balcony that is the roof of the unit below may be of no benefit to the balcony’s owner, but of considerable benefit to the owner of the unit below. But if the Act and the body corporate rules assign responsibility for balconies to owners, the relative benefits just spelt out must be assumed to have been taken into

16     Emphasis added, footnotes omitted.

17     Emphasis added, footnotes omitted.

account. That is, there has been a conscious decision to assign responsibility for remedial work to owners even though in some situations at least they may derive little or no benefit from that remedial work.

[65]     Secondly, and a related point, the owners of the eight units with balconies must be taken to have purchased knowing the balconies were their property  and  therefore  their  responsibility  under  the Act  and  the  Body Corporate rules. While they may well not have anticipated the ‘leaky building’ problem that necessitates the balcony repairs, the unexpected nature  of  that  problem  is  neither  a  logical  nor  a  sound  reason  for shifting some of the repair costs to the owners of the units below, who equally may not have anticipated ‘leaky building’ problems above. …

[66]      Resort to the many cases on s 48 schemes is of limited help, given the discretionary nature of the s 48 power and the different situation in every case. But Andrews J was entitled to find it noteworthy that no case had been cited to her where a s 48 scheme had been granted involving a requirement that unit owners contribute to the cost of repairs to other unit owners’ private property. …

[62]     The Court of Appeal then went on to consider four such cases where a s 48 scheme imposed a requirement that unit owners contribute to the cost of repair of their unit owner’s private property.

[63]     One of them was the case of Young v Body Corporate Number 120066.18

This was a judgment of Harrison J in the High Court, the subject of which was an apartment block with a layered wedding cake form.  The issue was whether or not one of the Body Corporate rules was ultra vires under the Act to the extent that it authorised repairs to those parts of the exterior of the building which were not common property, in particular the windows and doors leading on to the decks and

the decks themselves.  Harrison J upheld that the rule was reasonably necessary:19

In a development of this configuration, a breakdown of any part  of the exterior structure could affect any other part adversely.   For example, a ground floor apartment is particularly susceptible to damage from defects in both apartments on levels above.  There is nothing inequitable in requiring them to contribute equally with the owner of the top level apartment.

[64]     The Court of Appeal in Tisch disagreed with Harrison J’s reasoning:20

We find it difficult to follow the Judge’s reasoning on this point.  Where a leaky deck is above another unit, the potential damage to the unit below is self evident.  For those units with ground level decks there is no potential for

18     Young v Body Corporate Number 120066 HC Auckland CIV-2007-404-2375, 6 December 2000.

19 At [52].

20     Tish v Body Corporate, above n 14, at [68] (emphasis added).

such damage.   It follows there would be inequity in requiring ground level apartment owners to contribute equally with the owners of the top level apartments.

[65]     That led to the conclusion of the Court of Appeal:21

[71]      We have rejected the appellants’ submission that Andrews J erred in principle in her approach to the scheme proposed to her.  In particular we cannot see any error in the Judge’s view that the proposed scheme was an unwarranted departure from the scheme of the Act and the Body Corporate Rules.  Nor have the appellants persuaded us that the Judge was wrong  to  hold  that  the  proposed  scheme  was  not  fair  and  equitable  as between the 10 unit owners.

[66]     Relying on the Court of Appeal’s discussion in Tisch, Mr Allan submits that the scheme approved by Heath J, prior to the decision in Tisch, was too pragmatic and fell outside the scheme and structure of the 1972 Act to a degree that now, post Tisch, it should be regarded as an unwarranted departure from the scheme of the Act.22   But it is not necessary for me to decide this.  It is sufficient for this Court to follow Tisch.

[67]     Furthermore, independently of the reasoning in Tisch, the blow out in costs, which was unforeseeable at the time, has rendered the logic of the High Court, Heath J, inapplicable, in my opinion, to a just response to the present problem. Mr Allan is right that it cannot possibly be the case that Manchester should avoid making its contribution to the repair of the common property, most of which is on levels 1 to 11 and only a small amount on level 12, because of its unit repair costs, almost all not being common property remediation.

[68]     Mr Harris is right, that at the time the scheme was approved the costs were treated as indications only available at the time.  But, it is the degree of magnitude of the variance in the costs which drives the merit of Mr Allan’s argument.

[69]     Another way of looking at the facts is that, had the parties known what they know now, that Manchester was going to do the work last, and that the sheer scale of

the expenditure in level 12 was way off the scale contemplated, then the scheme

21     Emphasis added.

22     There were no relevant corporate property rules because the parties had agreed the rules were

invalid having been “made” before the Body Corporate was formed.

which Manchester is now trying to hold on to would not have been approved by the High Court.  I am in no doubt that justice requires this Court to amend the scheme to reflect the present circumstances, and to return to the scheme of the Act.

[70]     Mr Harris’ argument against that proposition depends upon Article 13 of the

Dispute Resolution set of clauses which forms part of the current scheme.  Article

13.1 and 13.2 provide:

13.1The Body Corporate’s decision shall be final in all respect all matters arising under this scheme, except where 5 or more Owners whose objection in monetary value cumulatively exceeds $30,000, or where one unit holder has an objection which in monetary terms exceeds

$10,000, in which case on the Body Corporate receiving notice of such objection the matter shall be referred to arbitration.

13.2The  Owners  must  give  notice  to  the  Body  Corporate  of  their objection within 10 working days of receiving an assessment as to Costs or other notice from the Body Corporate which is the subject of the objection outlining the grounds on which such objection is made.   On receipt of the notice the body Corporate will refer the matter to an arbitrator (to be appointed by the President of the Quantity Surveyors Association) and the arbitrator shall determine the issue under the provisions of the Arbitration Act 1996.   The arbitrator’s decision shall be final and the costs of the arbitration shall be borne as between the objecting owners and the unit holders generally as the arbitrator shall decide.

(Emphasis added.)

[71]     Mr Harris, rightly, did not explicitly rely on art 8(1) of Schedule 1 of the

Arbitration Act 1996. Article 8(1) states:

8        Arbitration agreement and substantive claim before court

(1)       A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party's first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact  any  dispute  between  the  parties  with  regard  to  the  matters agreed to be referred.

[72]     The original notice of opposition to the application to amend the scheme did cite s 13 of the scheme, the dispute resolution clause. However, neither party has applied for a stay of the proceedings before this Court. They have rather participated in the litigation, submitting to the jurisdiction of the Court to determine their dispute.

In those circumstances, art 8 is not available.23 Mr Harris’ argument that arbitration is a more appropriate forum to determine the dispute cannot therefore be considered to be backed by art 8. On my view, the unavailability of art 8 is sufficient to respond to that argument.

[73]     In any event, I am not persuaded that the presence of an arbitration clause in the scheme is sufficient to eliminate the Court’s jurisdiction to alter the scheme. It is common ground that this dispute is governed by the Unit Titles Act 1972.  Section

48(6) is set out in paragraph [18] above.  It is worth repeating:

(6)      The Court may from time to time cancel, vary, modify, or discharge any order made by it under this section.

[74]     That power enables a scheme to be amended because a scheme consists of a set of orders.   Mr Harris’ argument depends on the proposition that because the scheme contains an arbitration provision, clause 13,  the statutory power given to the High Court to exercise a discretion “from time to time” to vary, modify or discharge any order, cannot or should not be exercised.

[75]     I found in paragraph [67] that the blow-out in costs which was unforeseeable at the time has rendered the logic of the last amendment to the scheme inapplicable to the present problem.  To get to a just outcome it is necessary to vary or amend the scheme. Yet s 13 of the existing scheme provides that an arbitrator is to be appointed

“by the President of the Quantity Surveyors Association”.24   Those arbitrators are not

given a statutory power to amend the scheme.   The selection of the Quantity Surveyors Association to appoint arbitrators reflects a judgment that the disputes will be as to the application of the scheme, not to the content of the scheme.

[76]     Section 48(6) applies to any order made under s 48 which orders as a whole constitute the scheme.   So where the facts merit modification of the orders which make up the scheme, which can only be made by a Court, and which can never be made by an arbitrator appointed by the Quantity Surveyors Association, it follows

that all applications to cancel, vary, modify or discharge any orders made under a

23     Property People Ltd v Housing New Zealand Ltd (1999) 14 PRNZ 66 (HC),

24     See 13.2.

scheme are not within the concept of “all matters arising under this scheme” (see

Article 13.1).

[77]     For these reasons I conclude that the challenge to the jurisdiction of the High

Court in this dispute by the 37th respondent, Manchester, fails.

On what terms should the scheme be varied?

[78]     Once this Court departs, as it must, from the present scheme it is inevitable that the application to vary the scheme succeeds.   The issue becomes upon what terms.  The Court is guided, as it must be, by the reasoning of the Court of Appeal in Tisch.  The effect of that reasoning is that the Court cannot lightly depart from the scheme of the Unit Titles Act.  At the core of that scheme is the proposition that repair and maintenance of common property is a burden shared by all unit holders in proportion to the unit entitlement.  It matters not what other costs such unit holders have to bear in respect of repair and maintenance to their units.

[79]     The repair and remediation of levels 1 to 11 was conducted professionally. The work was delayed until the settlement with the Auckland Council, which funded it. That is normal.

[80]     The total costs of construction of level 1 to 11 was $8,131,002.55 (including GST and fees).  It will be recalled that it was in the nature of the original scheme that the Body Corporate had the responsibility of differentiating the costs of common property repair and repair to the individual units.

The expert evidence

[81]     To that end the Body Corporate engaged an expert, Mr Daniel Johnson.  He has calculated the cost of common property repair at levels 1 to 11 in the sum of

$4,320,266.00 (excluding GST).25    This being 61 per cent of the total construction

costs.26   It was subject to a qualification and verification of contract terms, to which I

25     This is made up of the physical works of $3,779,539.00 and consent fees, professional fees and insurance as apportioned in the same ratio of 61/39per cent of $540,727.00.

26     The total construction costs are the physical works together with consent fees, professional fees and insurance.

will return in a later paragraph.  Suffice to say at this stage that I do not think that is a meaningful qualification and I am disregarding it.

[82]     Manchester retained another expert quantity surveyor, Mr J R Maddren.  He was retained to assess the cost of repairs to level 12.   His total cost estimate is

$2,303,231 plus GST. This includes the actual costs incurred up to 29 February 2016 and the remaining costs estimated to complete the project.  He has formed the view that  considerable  additional  costs  have  been  incurred  as  a  result  of  the  lost opportunity to share the scaffolding erected for the levels 1 to 11 works.  He makes other preliminary points.  He said that the level 12 decks had to be remediated so they had the correct falls and were waterproofed and that normally this kind of work would be done last.  Here it was done ahead of the main work (on level 12) because the Council required it before certifying code compliance to the Body Corporate for its work (on levels 1 to 11).   So that doing this work out of its normal sequence added time and cost to the level 12 works.   The finished decking must now be protected while the main work proceeds.

[83]     Secondly, the time and costs needed to be incurred now to design and install bespoke scaffolding at level 12, rather than using the Body Corporate scaffolding, has been a major ongoing source of difficulty.   It is still proving to be technically challenging  and  extremely  expensive.     The  cost  could  end  up  higher  than Mr Maddren has allowed for in his estimate.  Normally the preliminary and general costs on the project on level 12 are higher than expected than if the project had been able to be carried out in conjunction with the remediation works of the Body Corporate on levels 1 to 11.

[84]     It is Mr Maddren’s understanding that it was not possible for Manchester to access the Body Corporate scaffolding or negotiate with the Body Corporate’s contractor for the re-cladding work to the exterior walls on the northern, eastern and southern faces of the building (on level 12).  The level 12 project programme has been extended, says Mr Maddren, as a result of the need to obtain an amended building consent to waterproof the decks after May 2013 and to complete this work outside the normal sequence.

[85]     The  total  scaffolding  costs  for  the  work  at  level  12  is  estimated  to  be

$289,540, plus GST.

[86]     Mr Maddren’s estimate of the costs in June 2012 were $1,083,938 against his current estimate of $2,303,231.   He sums up the main items that have led to this increase, which is in the order of more than $1 million. They are:

(a)       The roof fabric and supporting substrate now required to be fully replaced to meet watertightness and code requirements;

(b)The requirement for 100 per cent timber wall framing replacement on all the external walls;

(c)      The requirement for internal wall bracing;

(d)Scaffolding now required to be cantilevered and subject to a specific design;

(e)      The roof structural support members require replacement;

(f)       Adjacent internal fittings and fixtures to external walls are required to be removed and reinstated;

(g)Internal  wall  and  ceiling  linings  are  required  to  be  removed  and reinstated;

(h)      The prolonged construction period;  and

(i)       Increased consenting consultant and escalation costs.

[87]     Mr Maddren does not agree with Mr Johnson’s apportioning of 61 per cent of

the total construction costs to common property.  Mr Maddren’s position is that:

The reality is that the external weatherproofing fabric in this case could not be remediated without also replacing the timber wall framing.  The timber wall framing could not be replaced without also replacing the internal wall linings (which may or may not be damaged).  In some cases, the replacement

of internal wall linings will include tiled bathroom walls and plumbing.  In other cases, it will be a relatively simple exercise to pull back carpet and replace, stop and paint the relevant areas of plasterboard.  By analogy, the same reasoning applies to the roof.  It is impossible to replace the roof beams without replacing the ceiling linings.  [This is a point relating to level 12.]

[88]     That led to his conclusion:

Accordingly, in my opinion, all of the building costs in this case are consequential upon the need to remediate the whole building and it is impracticable to allocate the costs between common and unit property on a simplified spatial basis.

[89]     Mr  Johnson  disagrees.    He  says  Mr Maddren’s  analysis  is  based  on  a

fundamental misunderstanding of the apportionment exercise.

[90]     Mr Johnson says that the division of costs between common property and units was made on the basis of the percentage of external walls that were common property.   The cost of the new external wall framing was split 50:50 to common property and private property.27

[91]     Mr Johnson gives specific examples of different splits.   For example, the window joinery is 96 per cent the common property to 4 per cent to the unit.  He says this is because window joinery sits outside the centre line that divides property, private and common property.  Whereas balcony joinery is 50 per cent on each side of the centre line.

[92]     There is no doubt that Mr Johnson favours the solution for distinguishing between common property and unit property in walls which essentially have to be completely rebuilt to take the centre line rule.  Effectively this was a line through the centre of the wooden framing.

[93]     Mr Maddren is correct in saying that the walls had to be rebuilt externally and internally in order to remediate the apartment building.  In that sense one could argue  that  the  lack  of  weathertightness  of  the  external  cladding  drove  and necessitated the reconstruction of the internal parts of the wall which one would normally think of as the units’ property.

[94]     The Unit Titles Act, like every statute, is driven by a statutory policy which must be pursued.28    This statutory policy distinguishes between common property costs and unit entitlements.   As discussed above, Tisch in the Court of Appeal is authority for the proposition that the statutory power to approve schemes has so far as possible to be exercised consistently with the policy of the Act.  The external parts of the walls are clearly common property.  There is common interest in the external

walls being weathertight.  The internal fabric of the walls creates the amenity within the unit.

[95]     There are two reasons for favouring Mr Johnson’s demarcation.  The starting point of apportioning wall costs between its external parts and internal parts, is to split vertically the wall 50:50, between common property and units entitlement. Mr Johnson instances situations where the split is not 50:50 as in the illustration with the window that I have set out above.  But it is at odds with the statutory policy to declare the remediation of walls to be either all common property or all units entitlement.

[96]     Mr Johnson’s apportionment between common property and private property drives off a report prepared by Yeoman Survey Solutions (Yeoman).   This was in May 2009.   Yeoman, an incorporated firm of licensed cadastral surveyors, were retained on the very question as to which parts of the exterior (weatherproofing fabric) of the building are within common property and which parts are within unit property.

[97]     Yeoman relied upon reg 41(6) of the Survey Regulations 1972 then in force which state:

Unless otherwise stated on the plan the common boundary or part of a common boundary of the unit … with another unit… or with the common property, where that boundary or part thereof lies within a wall, fence, floor or ceiling, be the median of that wall, fence, or ceiling, be the medium of that wall, fence, floor or ceiling as the case may be.

[98]     Yeoman also  rely on  s 3.3.10  (Unit  Boundaries) of the Chief Surveyor’s Memorandum 1994 which was also in force at the time which clarifies the above regulation by saying in part:

Unless otherwise stated on the plan the Unit boundaries are deemed to be the

centre line of the walls’, floors, ceilings etc.

Any gap between the Unit boundary and the title boundary shall be clearly labelled (i.e. Common Property or Accessory Unit) or where the Unit boundary is to be coincident with the title boundary, this shall be stated where it may not be obvious.

[99]     They also point out that the unit plan 172018, sheet 4 states:

Unit boundaries are the centre line of internal walls, external walls and floors unless otherwise stated.

[100]   That led to Yeoman’s conclusion:

This being the case, the Unit boundaries are therefore a combination of the centrelines of walls, floors and roofs, terrace balustrades, and in the case of the car parking Accessory Units (AUs) at levels 1, 2 and 3, dimensions, together with the upper and lower height limits, as detailed on the schedule on sheet 4 and illustrated on the cross-section of that sheet of the unit plan, where applicable.

[101]   I  conclude  that  Mr  Johnson’s  reliance  on  Yeoman’s  surveys  solutions argument is correct.   On the probabilities,   his 61 to 39 per cent split between common property and unit property is correct.

[102]   The consequence is that in the absence of a s 48 scheme, Manchester would be responsible for 11.88 per cent of 61 per cent of the total cost of remediating levels

1 to 11.  The current scheme overrides that distinction.  Given that the cost estimates and construction assumptions have completely changed, the current application should reflect current assessments.

Manchester’s claims against the Body Corporate, and/or the unit holders of levels 1 to 11

[103]   The  setting  of  this  aspect  of  the  dispute  is  the  fact  that  the  costs  of remediating level 12 is very high, unexpectedly high, way beyond the expectations of the parties before the Court, and so of the Court.

[104]   How did this come about? There are two reasons, one factual, the other legal. The factual reason is that initially the leaks to the structure were seen principally to come from the failure of the cladding to the walls at levels 1 to 11.  The cladding of level 12 was different and superior.   It was assumed that the superior cladding on level 12 would not be leaking.  It was known that there was some leaking of the roof on level 12 which needed remediating.   The original apprehension was that this leaking was around the perimeter of level 12 where planter boxes were placed and underneath which the membrane otherwise covering the floor stopped.  Secondly, it was appreciated that there were spot points in the Butynol membrane over the roof, which would need to be repaired.

[105]   The original conception that the leaks on level 12 could be confined to the planter boxes and patching of the Butynol led to a “half-way house” solution that the leaks from under the planter boxes and the various leaks around the membrane could be fixed, ahead of repairs to the rest of level 12 so that the Body Corporate and unit holders of units 1 to 11 could get an Auckland Council code of compliance approval to the remediation of units 1 to 11.  Heath J in his first judgment said this “solution was designed to limit the work to be undertaken on level 12, while ensuring that

units on Level 11 were adequately protected from water ingress from above”. 29   This

proposal was “subject to Council confirmation that the work would, if completed satisfactorily,  result  in  a single unqualified  code compliance certificate.”30     The assumption also was that Manchester could and would get on with these minor works before the level 1 to 11 unit holders would be able to settle with the Auckland Council.

[106]   This conception of the limited character of the problems on level 12 led to the adoption of the half-way house in the first scheme which allowed for there to be two separate contracts, one for levels 1 to 11 and the other for level 12. As we have seen this was considered reasonable at the time because the assessment of remediation of level 12 was considered to be a modest expense, which did not require scaffolding to

be raised from the street level to level 12.  Therefore there is no need for level 12 to

29     Body Corporate 172108 v Meader, above n 4, at [12].

30     Above.

be locked into the re-cladding of level 1 to 11 using scaffolding from the ground to level 12.

[107]   However, when the remediation of level 12 began, serious structural defects to the structure of the floor of level 12 were discovered, the remediation of which required reconstruction of the concrete beams radiating out to the perimeter and to that end lifting the whole of the membrane.

Discussion on the half-way house and its implications

[108]   In his first judgment in March 2010 Heath J had anticipated there would be a single contractor appointed to undertake all work,31 a single work programme32 and, if possible, a single building consent should cover all work.33   However Heath J was attracted to the notion that joint project managers should be appointed, one by the Body Corporate and one by Manchester.   The project manager appointed by the Body Corporate should supervise levels 1 to 11 and the other responsible for level

12.34

[109]   That was an interim judgment and the parties came back for the second hearing after counsel had seen the Judge in chambers. At a minute in chambers, also in March 2010, the Judge recorded that his intention was to fix the contribution to be paid by the owner of level 12 at 11.88 per cent of the total costs of repairs for the building.

[110]   Counsel  also  raised  with  Heath  J  the  prospect  of  the  Body  Corporate deferring repair work pending the trial in the light of a failed mediation with the Auckland Council. That led to a hearing on 2 July and Judgment No. 2 on 19 August

2010.35   In Judgment No. 2 in paragraph [6] Heath J records that the Body Corporate

has elected to defer repair pending the trial or earlier settlement of proceedings against the Council.  He also records:36

31 At [30].

32     Above

33     Above

34 At [31].

35     Body Corporate 172108 v Meader (No 2), above n 6.

36     At [6]

MSL has decided to undertake work on level 12 before the result of the Body

Corporate’s proceeding is known.

Manchester, however,  did not go ahead with remediation before the Body Corporate finally settled its claim against the Auckland Council.

[111]   After settling the Council litigation in August  2011, the Body Corporate began investigating closing in the balconies at levels 1 to 11 instead of moving forward  with  the  previously  consented  scope  of  works.    The  Body  Corporate contends that the incremental cost of enclosing the balconies was only $140,000 more than the alternative solution.

[112]   In the meantime Manchester had not started significant remediation work on level 12.  On 25 August 2011, around about the same time as the settlement the Body Corporate had with the Council, Mr Cummins advised the Body Corporate that further inspection of the roof revealed a whole new Butynol roof membrane would be required rather than the modest targeted repairs, already mentioned.

[113]   That also raised the question of a possible need for replacement of the ply- wood roof substrate or roof framing which could require an amended building consent.  That then led Manchester to consider creating a canopy over level 12 in a design in keeping with to the closing in of the balconies below.  And so, time passed without any significant work being done on level 12.

[114]   In December of 2011, the Body Corporate had  advised Manchester of a tender report from Cove Kinloch recommending the Brosnan construction price of

$4,495,205 plus GST for levels 1 to 11, and invited Manchester to agree completing level 12 under a single contract.

[115]   There was a general meeting of the Body Corporate on 24 April 2012.  Mr Cummins of Manchester was present.  Mr Cummins was advised that the contract was shortly going to be concluded with Brosnan or Naylor Love, once updated variations  to  the  tenders  had  been  considered  by  them.    On  1  June  the  Body Corporate expressed concern at Manchester’s continued unwillingness to work with a single contractor.

[116]   In the first week of June the Body Corporate advised Mr Cummins that work would commence on levels 1 to 11.  A week later Mr Cummins advised the Body Corporate that the level 12 work was to be carried out in stages and requested the Body Corporate to “ensure” appropriate access terms to the scaffolding in the Body Corporate contract, accepting “if these cannot be resolved, then Manchester will arrange its own access to the work places as required”.   The next day the Body Corporate advised Mr Cummins that the contract had been accepted and was being let to Brosnan. The advice included this information:

The contract the Body Corporate has accepted is predicated on a particularly tight timeframe and whether this permits access to the scaffolding by [Manchester’s]  own  contractors  is  something  which  will  need  to  be discussed before any concession could be considered.

Further:

In the light of the polarisation of positions (ie your contribution to BC’s repair Nil and the   BC’s view a significant contribution) it is difficult to perceive how a compromise could be achieved and revisiting the issues seems probable.

[117]   Two days later, on 11 June, Mr Cummins for Manchester advised the Body Corporate that Manchester work to level 12 could be done without access to Brosnan’s scaffolding if such access becomes problematic, and that the Manchester work would not impact on the ability of the Body Corporate to obtain a code of compliance certificate for the consented works at the lower levels.

[118]   Five days later on 16 June, the Body Corporate committee is advised that Mr Cummins for Manchester has requested access to the contractor, Brosnan, to discuss  using  scaffolding  and/or  be  the  contractor  for  the  level  12  works. Mr Brosnan is adamant that he does not wish to work in with another contractor nor with another principal to a separate contract.   Mr Brosnan declined Mr Cummins’ request.

[119]   On 9 July the Body Corporate issued an interim levy, to fund the remediation of levels 1 to 11, including to Manchester.  Manchester disputed the interim levy on

16  July.   There ensued  a dispute about  this  levy which  eventually went  off to arbitration.  It was decided in Manchester’s favour.

[120]   In August, Manchester pursued the possibility of Brosnan carrying on and completing all the works required on level 12.  No progress was made in that regard.

[121]   Time passes, marked in November 2013 by the practical completion of the level 1 to 11 works.

[122]   As the hearing before me went to trial work is ongoing on level 12.   It is proving even more costly.  The assumption that Manchester had, that the work could be done without full scaffolding completely by “boom and gantry” up the side of the building as for the level 1 to 11 work, has proved to be wrong.  The final costs are unknown beyond the estimate of Mr Maddren already recorded.

Discussion of Manchester’s scaffolding predicament

[123]   I begin with recollecting that the effect of Mr Maddren’s evidence is that the costs of remediating level 12 is in the order of $1 million higher than if the work was done efficiently.  Even efficiently the cost would have been $1 million.  It will be recollected that the original cost was estimated at around $500,000 at a time when the remediation was relatively modest, confined to leaks under the planter boxes, spot leaks to the membrane and no expectation as to significant problems with the construction of the deck or with the extent of repairs required to the roof of unit 12A. As already recorded, the inability to take advantage of the scaffolding erected by Brosnan is a major driver of costs.

[124]   Mr Cummins gave evidence.   He is a solicitor no longer practising.   His occupation is a property developer, and has been for some time.

[125]   In his affidavit in opposition to the application to vary the scheme, he advised he is the sole director of Manchester.  He denies ever misleading the Court, let alone back in 2010.   It is his picture of events that the Body Corporate would not co- operate   with   him   from   about   mid-2012,   June   actually,   because   they  were disappointed by the outcome of the scheme.  He recalled that their argument is that he had an opportunity to do the work as one contract, but did not take it up.  He puts his position in February 2010 as recorded in an affidavit he made at that time, that Manchester intended to carry out significant alterations to level 12 in the foreseeable

future, but until the options to that end were evaluated he believed only remedial work that is necessary to keep the building watertight should be undertaken on level

12.  When the Body Corporate advised it did not want to start work until its litigation against  the  Council  was  resolved,  Manchester  did  not  want  to  be  part  of  that litigation and did not want to be tied to its progress.  He records that he advised the Body Corporate in April 2010:

Manchester wishes to commence work as soon as possible, at least to the extent of removing planter boxes, laying the new stone deck and deck edge flashing and installing new glass balustrades.

[126]   In 2010 Manchester did carry out repairs addressing the leaks on level 12 of water into level 11.  After the Body Corporate settled its litigation with the Council in July 2011, Mr Cummins said that Manchester supported the proposal of the Body Corporate to close the balconies instead of repairing existing decks, balustrades and walls and Manchester began to consider a similar change by installing a glass canopy over the level 12 decks, effectively creating a weathertight conservatory.

[127]   On  Mr  Cummins’  telling  of  the  story  the  relationship  with  the  Body Corporate fell down in 2012 when he attached estimates Manchester had obtained from Maddren associates, including that the roof now needed to be replaced and that the total cost of remedial work on level 12 was likely itself to exceed 11.88 per cent and therefore Manchester was unlikely to be liable to make a contribution to the work on levels 1 to 11.   He reports that the Body Corporate responded with the proposition that the Body Corporate would apply to the High Court for the scheme to be changed if Manchester intended to proceed that way.

[128]   Shortly thereafter in July the Body Corporate invoiced Manchester with a net demand after a credit of $181,745.17 to which Manchester objected.   One of Mr Cummins’ arguments was that the demand made on him was based on a levy which in turn omitted numerous costs of undertaking the level 12 work.

[129]   What Mr Cummins does not do in his evidence is explain why, in 2011, 2012 and 2013, Manchester did not proceed with work.   His narrative of events was focused on the levy dispute.  Though he does argue that the Body Corporate refused to allow Manchester to access its (Brosnan’s) scaffolding.

[130]   I am satisfied, however, that at the time Mr Cummins thought he had an alternative option to using the Brosnan scaffolding, that alternative being a gantry system which would enable the work to be done on level 12 without full scaffolding of the building down to street level.

[131]   Mr Cummins was cross-examined on the question of delay in respect to the period from July/August 2010 to August 2011 Mr Cummins rejected, convincingly, the proposition that he could have prepared his own plans, obtained a building permit consent to do the level 12 work.  He explained that the unexpected issue as to the state of the roof arose, it having been flagged in a report from the firm of Pilcher and Edwards.

[132]   It was put to him that after he had that report he could have advised the Body Corporate to keep access for him when negotiating with the tenders, but he did not. Mr Cummins admitted that when he advised the Body Corporate of the need for a new Butynol roof membrane, rather than patch repairs, did not go on to say it would be prudent for the Body Corporate to make provision for scaffolding for him.

[133]   It was put to him that, from the Body Corporate’s perspective, the best they could take from his information in 2011-2012 was that Manchester was undecided about what to do on level 12.  He also agreed that in December 2011 he knew the Body Corporate was indicating to him that it regarded it as in the best interests of everybody, including Manchester, that Manchester come in under a single contract. He agreed, though noting a month or two before, the Body Corporate consultants had requested level 12 to be excluded altogether.

[134]   In response to questioning from myself, asking him to clarify his position he said this:

… I think the Body Corporate’s email was directed at Manchester becoming part of the  overall scheme  in bringing the level 12  work back into the scheme and at that stage there had only been preliminary work done by me in terms of design, the concepts for closing in of the level 12 decks and  no work with regard to that at level 12 had been done by the Body Corporate’s consultants.  So it seem to me at that stage that I would – well I took the view at that stage that I would prefer to maintain the status quo until I had properly evaluated my options for level 12.  So, the link if you like is that I didn’t see how Manchester could come back into the Body Corporate’s tent

before the level 12 canopy concept design had been formalised or finished, or at least developed further and I wanted to have control of that process and rather than leave that with the – with CoveKinloch the Body Corporate’s consultants, is that, that sort of thing at the time.

[135]   It was put to him that all the Body Corporate was trying to do in 2011-2012 was that he would come in under a single contract and he responded that he could not do that because he had not completed his concept for the level 12 closing in.

[136]   It was also put to him that in December 2011 there was no reason he could not have said to the Body Corporate, “please make sure you reserve for me the ability to have access under your contract”:

Q.        …because it didn’t matter whether or not you were going to be closing in the decks or repairing level 12 according to the original consent.  From your perspective, given your criticism today, access was still required, but you didn’t ask the Body Corporate for that then, did you?

A.        In December 2011 I didn’t.

[137]   He agreed he was communicating to the Body Corporate, “you continue to go your way and I’ll continue to go my way”.  He agreed that in February 2012 he had the view that he had an alternative to the Body Corporate scaffolding being his own cantilevered scaffolding or a swinging stage.

[138]   He acknowledged that he had been aware that the Body Corporate had been negotiating with tenderers from sometime around August 2011.  He agreed that on 1

June 2012 when the Body Corporate sent him a minute expressing concern at his continued unwillingness to work with a single contractor and requesting a response by Friday 8 June, he did not at that time have any consent to either repair level 12 either according to the original scope of work under the building consent or the canopy option.  He also agreed that his first request for access came on that deadline date of 8 June.  It was put to him that he, Mr Cummins, always wanted to be kept separate from the Body Corporate contract.  He disagreed with that and said there could not be a single contract in 2012 because the level 12 concept and plans had not been finalised.

[139]   That led to a closing phase in the cross-examination where essentially it was being put to him that in comparison with his delays the Body Corporate had in under two years got a building consent, a resource consent and repaired levels 1 to 11:

Q.       ….but in two and a half years, in fact longer, you haven’t got a

building consent or even commenced repairs on level 12?

A.        What timeframe are you talking about for not obtaining a building consent?

Q.       I’m talking from July 2010 when you knew you were able to go it

alone through to June 2012?

A.       No, my building consent for the closed in option didn’t issue until

about April 2013, from memory, so that’s correct.

[140]   It was then put to him that:

Q.        …the real reason that you didn’t wish to come in under a single contract or to be part of this scheme and why you wanted to be able to go alone, was because of your financial circumstances through the period from 2010, 11, 12?

[141]   Mr Cummins  denied that  although  he  accepted  that  at  that  time he was involved  in  advancing  a  scheme  of  arrangement  for  his  personal  solvency. Essentially he explained that the financing of the work on these apartments were from a finance company, Sage Securities Ltd, which was and remains independent from and unaffected by, his need for a scheme of arrangement in respect of other liabilities.

[142]   The  cross-examination  concluded  on  the  topic  that  throughout  this  time Mr Cummins  was  expecting  that  Manchester  would  not  have  to  pay  the  Body Corporate anything, but rather, the Body Corporate and the unit holders would owe Manchester money.

[143]   In re-examination he was asked to put to the Court his reason why work did not start earlier on level 12.  Here is his answer:

A.  Once it became essential to waterproof the level 12 decks following the council’s letter in May 2013, then we got involved in the out of sequence work that Mr Maddren was describing yesterday which meant that the decks  had  to  be  waterproofed  to  the  council’s  satisfaction  before  it would issue a code compliance certificate to the body corporate for the

levels up to level 11.  That required the reformation of the decks which had reverse falls which meant they fell towards the building instead of away from the building.   It was discovered by Mr Harris that the underlying beams, the concrete beams, were underweight and so he had to design a new deck layout which incorporated low weight concrete screed, Your Honour, which is essentially screed with pumice in it, for want of a better expression, to lower the loads on the deck and then it was found that I was unable to reinstall the sandstone pavers that I had originally  installed  and  so  we  had  to  redesign  the  decks  for  a combination of timber and ceramic tiles.  Now, none of that work can be completed until the rest of the work is completed because you’ve got people walking all over the deck and damage will incur and so forth, so that resulted in a programme of works that was extremely inefficient and that has been part of the litany of issues with level 12.  I hope that’s the answer that you are looking for.

[144]   I accept Mr Cummins’ answer, so far as it goes.  He attempted in that answer to cover all the events, but recognised at the end it was only part of litany of issues with level 12.

[145]   I consider that Mr Cummins gave straightforward answers to his questioning. His story of being fated to be enmeshed in a leaky building is not unfamiliar to this Court.  In such cases, it is a good rule of thumb that, by in large, matters only get worse.  Defects are initially not diagnosed or if diagnosed, are understated.  It is only after significant invasive examination of the structure that the full scope of remedial work can be identified.  Yet invasive examination is itself a considerable expense. All that said, Mr Allan was correct to persist with questions and his submission that as an experienced property developer, Mr Cummins must have known that the most efficient way to remediate level 12 was to work in conjunction with the contractor for levels 1 to 11.  It is no accident that the very last clause of the scheme, set out above in paragraph [24], contemplates “full co-operation between Manchester and the Body Corporate and any respective consultants”. That did not happen.

[146]   On the probabilities, the best explanation for the delays must also include the consequences  of  the  Global  Financial  Crisis  (GFC)  to  Mr  Cummins’ property developments and his need for a scheme of arrangement.  He says the financing of level 12 was always independent and unaffected by his personal insolvency because of the support of Sage Securities.  He was not challenged on that.  I was prepared to give counsel, who had not heard of that explanation before, an opportunity to call for further evidence.  Mr Allan, correctly in my view, pursued the proposition that Mr

Cummins’ conduct as the directing agent of Manchester in letting the repair of level

12 slip out of sequence and behind the repairs to levels 1 to 11 must be explained significantly by, at the very least, the distraction of the personal burden, which has to be nearly a crushing one, of pursuing a scheme of arrangement in the midst of the GFC.

[147]   It follows, naturally, that, unless I am driven by the statutory policy of the Act, the consequences of Manchester’s dilatory remediation of level 12 should not be born by the unit holders in levels 1 to 11.  That would be simply unjust, not to mention inconsistent with the original scheme.

Resolution of application to amend the scheme

[148]   Three options were proffered in the application, as set out in paragraph [52] above.  The second and third options drive off the estimates of cost before the High Court.   I am not attracted to those options because, as we have seen, the actual expenditure on levels 1 to 11 and the ongoing expenditure on level 12 is simply in another scale from that presented to the High Court back in 2010.  (See paragraph [26] above.) There it records the cost of repairs assessed for levels 1 to 11 was $5.75 million, actual being $8.13 million (see paragraph [72] above).  In 2010 the cost of repairs for level 12 was estimated at $500,000, and is now estimated at $2.3 million, more than quadrupling (see paragraph [34] above).

[149]   At the present time we know the actual costs of the remediation of levels 1 to

11.37     I have found that Mr Johnson was correct in his calculation of the cost of common property repair to be 61 per cent of the total construction costs $4,320,266 (excluding GST).38   11.88 per cent of which is $513,247.60 (plus GST).

[150]   The common property at level 12 comprises the lift machinery room on the roof  of  the  building,  various  extraction  ducts  with  air  handling  units  and  three

adjoining exterior walls on the eastern face of the building.

37     See paragraph [73] and [74] above.

38 Paragraph [94].

[151]   Mr Maddren has done a costs estimate for the common property on level 12. This assessment updated to 21 March 2016 has a total estimate of $217,865.20. Mr Maddren reaches this estimate by allocating some of the common costs of repair of unit 12A and repair of the common property on level 12 by allocating a portion of costs such as scaffolding.  I have no reason to doubt that the current total estimate on the  common  property  is  itself  likely  to  be  inflated  by  the  consequences  of Manchester not taking advantage of doing the work on level 12 at the same time as the work on levels 1 to 11 were done, particularly as to scaffolding.  If the level 12 common property remedial works were done now, at a cost of $217,865, Manchester would be entitled to deduct onlt $191,982 (being $217,865.20 less 11.88 per cent =

$25,882.39).

[152]   Indicatively, this total estimate could be in the order of $100,000 higher than the efficient cost, but for the delay on the party of Manchester.  11.88 per cent of an efficient cost of $217,865.20 is $25,882.39.

[153]   In the nature of things that sum is not likely to be lower.  So that sum is in the long run a minimum cost that Manchester will have to pay in contribution to the remedial works of common property on level 12.  If the level 12 common property remedial works were done now, at a cost of $217,865.20, Manchester would be entitled to deduct by way of set-off only $191,982.81 (being $217,865.20 less 11.88 per cent of $217,865.20 = $25,882.39).  It follows the liability figure of $513,247.60 plus GST (see [142] above), minus $191,982.81 is $321,264.79 plus GST.   The question is whether or not it would be appropriate to anticipate this credit now.

[154]   I think it is, if only to encourage immediate compliance by Manchester with

this Court’s order to the benefit of all the other unit holders.

[155]   So, by amending the scheme to reinstate the unit title statutory policy, the unit holders other than Manchester are entitled to a judgment of $321,264.79 (plus GST), to be adjusted upon completion of remediation of the common property on level 12, to the extent that the Maddren figure of $217,865.20 varies.

[156]   Given that the reasoning in this judgment is to allow the application to set aside the scheme and then to apply the Act, I am of the view that the appropriate order is:

Manchester shall pay the cost of repairs of common property to all levels calculated  in  accordance  with  the  units  entitlement  (now  known  as ownership interest) of Manchester’s unit.

[157]   The effect of that order is set aside the limit of 11.88 per cent and to reinstate the policy of the Act.  Second, as indicated in paragraph [146], I order Manchester to pay to the Body Corporate for the benefit of the unit holders of levels 1 to 11 the sum of $321,264.79 (plus GST) as a provisional sum.   That sum to be adjusted upon completion of remediation of the property on level 12 to the extent that the Maddren figure of $217,865.20 varies.

Interest

[158]   I am minded to grant interest on the sum of $321,264.79.   I reserve all interest issues, including the rate, and the date or dates from which interest, or parcels of interest run.

Costs

[159]   I am minded to grant costs on a 2B basis in favour of the applicant unit holders.   Depending on counsel’s judgment as to whether there will need to be a further hearing, I will receive submissions on costs now or they may be postponed until the case is finally concluded in this Court.