Body Corporate 172108 v Meader
[2024] NZHC 1280
•23 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2009-404-6868
[2024] NZHC 1280
BETWEEN BODY CORPORATE 172108
Applicant
AND
MEADER & ORS
(MANCHESTER SECURITIES LIMITED) 37TH RESPONDENT
CIV-2019-404-1445 BETWEEN
BODY CORPORATE 172108
Applicant
AND
MANCHESTER SECURITIES LIMITED
Respondent
Hearing: 14-18 November 2022 Appearances:
Further submissions completed:
J B Orpin-Dowell and T J G Allan for Applicant
K C Francis and T P Westaway for 37th Respondent (Manchester Securities Ltd (in liquidation))
J D Haig for 43rd Respondent (Sage Securities Ltd)
13 December 2022
Judgment:
23 May 2024
JUDGMENT (No.4) OF POWELL J
This judgment was delivered by me on 23 May 2024 at 4.00 pm.
Pursuant to R 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
Grove Darlow & Partners, Auckland Lindsay Francis, Auckland
Paul Cheng & Co, Wellington
Counsel:
J Orpin-Dowell, Wellington J D Haig, Wellington
BODY CORPORATE 172108 v MEADER & ORS [2024] NZHC 1280 [23 May 2024]
Introduction [1]
Relevant background [13]
The approval of the initial scheme [17]
The remediation commences [23]
The variation [25]
Manchester changes approach [36]
The cross applications [47]
The applications in issue [48]
The position of the Body Corporate [50]
The position of Manchester [51]
The position of Sage [57]
What was the original effect of the scheme? [61]
The Fogarty variation judgment [67]
Did the variation remove the 11.88 per cent cap? [71]
Is any further variation required? [95]
Is a declaration required? [122]
Conclusion — cross applications [127]
The arbitration appeal [128]
Legal principles – issue estoppel and abuse of process [134]
Discussion – The arbitration appeal [141]
Decision [147]
Introduction
[1] This judgment is the latest instalment in a protracted and complex dispute over remediation, carried out and underway, at Hobson Apartments, a 12-storey apartment block located on Hobson Street in Auckland (“the building”).
[2] The remediation has been undertaken pursuant to a court approved scheme of remediation (“the scheme”) under the Unit Titles Act 1972 (“the 1972 Act”). The scheme was first sanctioned by this Court on 31 August 2010 (“the initial scheme”)1 and subsequently varied on 3 March 2017 (“the variation”)2 after the building was discovered to have serious weather tightness issues requiring remediation.
[3] The principal protagonists are the applicant Body Corporate 172108 (“the Body Corporate”), which has been responsible for completing remediation to levels 1–11 of the building, and the 37th respondent Manchester Securities Ltd (in liquidation) (“Manchester”), the owner of level 12.3
[4]This judgment ostensibly addresses two issues:
(a)cross applications by the Body Corporate and Manchester seeking declarations as to the effect of the cost allocation provisions in the scheme or, in the alternative, variations to the scheme to reflect their respective contentions as to the appropriate effect of the scheme (“the cross applications”); and
(b)an appeal by the Body Corporate against a preliminary determination by an arbitrator, Brian Keene KC,4 that he had jurisdiction to proceed
1 Body Corporate 172108 v Meader (Nos 2 & 3) (2010) 12 NZCPR 181 (HC) [Heath judgment No 2] and [Heath judgment No 3].
2 Body Corporate 172108 v Manchester Securities Ltd [2017] NZHC 329 [Fogarty variation judgment].
3 It is noted that works undertaken by Manchester on level 12 have resulted in the addition of a small 13th floor. The evidence established there are now three apartments in total under construction on levels 12 and 13. As collectively all three apartments come under the same title held by Manchester, all references to Manchester’s private property on level 12 include the new construction at level 13 unless the context specifically requires otherwise.
4 Partial Award on Arbitrator’s Jurisdiction dated 25 October 2018 [Keene Award].
with an arbitration to interpret the effect of cl 10.3 of the scheme (“the arbitration appeal”).
[5] The present issues are symptoms of a much broader dispute between the parties. They have arisen because, despite the fact the scheme has been in place for nearly 14 years, Manchester, as the trustee of the Manchester Securities Trading Trust (“MSTT”) between 1997–2019 and acting for the most part under the direction of its sole director and current trustee of MSST, Robert Cummins, has signally failed to complete remediation of level 12, and the evidence confirms level 12 is still not weathertight. Neither Manchester, which (having been placed in liquidation by the Body Corporate for failure to pay amounts owing) now claims it cannot complete the remediation of level 12, nor Mr Cummins have the resources to carry out further work on level 12. This is because the primary funder of the level 12 work to date, the 43rd respondent Sage Securities Ltd (“Sage”), is no longer prepared, or does not have the resources, to advance further monies to complete the remediation of level 12.
[6] As a result, Manchester, supported by Sage, and notwithstanding numerous judgments of the senior courts and the terms of the scheme, seeks financial contribution from the Body Corporate and the other owners of the building to complete the remediation of its unit property on level 12, and, ultimately, to recover significant amounts of the monies it has expended on level 12 to date.
[7] Counsel for both Manchester and Sage, while not conceding full causal responsibility on behalf of their clients, acknowledge the attempted remediation and concomitant redevelopment of level 12 by Manchester has been a disaster. This position is also accepted by Mr Cummins who stated in evidence he now bitterly regrets taking on the remediation. The issue has not been resourcing. There is no dispute that Manchester has received more than adequate funding to complete the remediation of level 12,5 having according to Mr Cummins so far spent nearly $9
5 The evidence showed to date Manchester had received some $2 million in settlement from Auckland City in respect of the weathertightness issues and has borrowed close to $11 million from Sage. In addition, it is not in dispute that Manchester has not paid the Body Corporate approximately $1.5 million owing in levies and Court judgments over the same period.
million (exclusive of GST) on level 12 as at March 2022,6 and has throughout been in receipt of plentiful expert advice.
[8] There is, however, little to show for the monies Manchester has spent. Until recently there appears to have been little in the way of a clear plan, little in the way of reports justifying the work undertaken and, it appears, only limited records of what has actually been done at any given time or indeed the detail of repairs that have had to be redone or repeated.
[9] By the date of the present hearing, Manchester was in liquidation and, according to Mr Cummins, at least $1.6 million was still required simply to make level 12 weathertight and to obtain a code compliance certificate so it could be sold. Moreover, Manchester’s principal funder Sage was either no longer able nor willing to provide further funding to complete the remediation.
[10] The responsibility for what has taken place and the future to complete the remediation of level 12 must rest largely with Mr Cummins. As the sole director of Manchester,7 it was his decision to oppose the Body Corporate carrying out the remediation work on level 12,8 and subsequently taking a “dilatory and prevaricating” approach to the remediation of level 12,9 notwithstanding it had required a change in the scheme initially proposed by Heath J so it could complete the remediation of level 12 prior to the Body Corporate undertaking its repairs to levels 1-11.10 There is also no doubt Manchester’s behaviour was substantively enabled by the failure of Sage to impose any discipline on Mr Cummins and Manchester in the way the monies it advanced have been expended. Although Sage claims to have been in a normal commercial relationship with Manchester (“strictly lender/borrower”) and has a long standing business relationship with Mr Cummins, it is clear that the support Sage has
6 By Mr Cummins figures as at 31 March 2022, the total amount expended by Manchester on level 12 was $8,788,632.94 (exclusive of GST) consisting of remediation/repairs of $6,588,593.63, “betterment” of $1,974,914.42 and “wasted expenditure” of $225,124.89.
7 See above at [5].
8 See below at [15], [20], [21] and [23].
9 Fogarty variation judgment, above n 2, at [147]; and Manchester Securities Ltd v Body Corporate 172108 [2017] NZCA 527, (2017) NZCPR 65 [variation appeal judgment] at [44]; and Manchester Securities Limited v Body Corporate 172108 [2019] NZCA 408 at [39]; Cummins v Body Corporate 172108 [2022] NZCA 68 at [69]; and Cummins v Body Corporate 172108 [2022] NZHC 774 at [127].
10 Heath judgment No.2, at [6]; and see below at [21]-[22].
provided to Manchester has far exceeded any rational limits, as has its failure to enforce its mortgage security over level 12 in a timely manner, with the result that Sage’s only hope to recover any of the monies advanced to Manchester is through supporting Manchester’s claims for contribution against the Body Corporate and the other owners of the building.
[11] The abject failure of Manchester to complete the remediation of level 12, aided and abetted by Sage, stands in stark contrast to the actions of the Body Corporate. The Body Corporate, having settled its own litigation with Auckland Council, completed the remediation of levels 1–11 by December 2013. Having completed remediation of the rest of the building, the Body Corporate’s focus since then has been to pursue Manchester for Manchester’s contribution to the remediation of the common property on levels 1–11 and has consistently opposed any attempt by Manchester to pass on the costs of Manchester’s remediation of its unit property on level 12.
[12] I apologise to the parties for the delay in producing this judgment. The delay was the result of a number of factors. Overall though there has been insufficient time to complete the judgment at any earlier point prior to its release.
Relevant background
[13] Manchester purchased level 12 in May 2006 and has remained the legal owner of level 12 since that date. It purchased level 12 from Philip McGaveston, the director of Sage. There is no dispute that level 12 is the largest unit in the building and, at the time it was acquired by Manchester, was the most valuable. This is reflected in its unit entitlement of 11.88 per cent of the building as a whole. Level 12 had been constructed separately to the rest of the building and as a result had a different appearance. Unusually, but apparently deliberately, Manchester’s unit property on level 12 includes the external walls and the roof, with only a limited number of small discrete areas of common property being located on level 12. Ownership of the roof gave Manchester rights to a further 35 metres of airspace above the existing building, giving Manchester the option to develop the building through the potential addition of further floors.
[14] At the time Manchester purchased level 12 from Mr McGaveston, there had already been a history of leaks reported to the three apartments on level 11, notwithstanding the application of a liquid polyurethane waterproof membrane over the decks and fittings on level 12; and a range of remedial work to level 12, albeit relatively minor, had been proposed.
[15] It was ultimately recognised that the building as a whole had suffered significant damage as a result of severe water ingress issues. As a result, considerable remediation was required. Attempts by the Body Corporate to repair the common property as well as the roof and exterior walls of level 12 pursuant to amended rules adopted by the Body Corporate in 1996 were opposed by Manchester. These amended rules had varied the default rules contained in sch 2 of the 1972 Act by requiring the Body Corporate to maintain the exterior of the building. Manchester argued that the amended rules were ultra vires the 1972 Act and that the Body Corporate had no right to undertake repairs to Manchester’s unit property: the exterior walls and roof on level 12.
[16] Manchester’s position was eventually accepted by the Body Corporate. As a result, in 2009 the Body Corporate applied to the High Court under s 48 of the 1972 Act for approval of a scheme of remediation, to empower it to carry out the necessary repairs to both unit and common property in the building, including level 12.
The approval of the initial scheme
[17] The Body Corporate’s application was opposed by Manchester. Manchester’s objections were subsequently summarised by Heath J in the following terms in the course of his Honour’s interim judgment approving the scheme:11
…
(a)[Manchester] does not consider that the Body Corporate should have any decision-making role in respect of remediation to Unit 12A;
(b)remedial works have not been defined in sufficient detail and too broad a discretion is conferred upon the Body Corporate in relation to management of the proposed construction work; and
11 Body Corporate 172108 v Meader (2010) 12 NZCPR 101 (HC) (“Heath judgment No.1”), at [4].
(c)a more equitable apportionment of cost is required. [Manchester] considers that the work to be undertaken on its own property is “relatively minor”, as opposed to “the major re-cladding work apparently required on the remainder of the building”.
[18]As Mr Cummins explained at the time in his evidence in opposition:
[Manchester] intends to carry out significant alterations to level 12 in the foreseeable future. Level 12 has 35 metres of air space rights around and above the Building and essentially owns the roof. I have investigated various development options for the property to take advantage of these rights, such as expanding [Manchester’s] property by creating a second storey or creating a self contained apartment. CoveKinloch has prepared concept plans for such a development for [Manchester]. Inevitably any development of this type would result in substantial changes to the roof area, quite apart from other structural considerations. The consent of the [the Council] would be required and significant cost would be involved.
Until these options are evaluated, I believe only remedial work that is necessary to keep the Building watertight should be undertaken on level 12.
[19]In opposing the scheme Mr Cummins noted:
[Manchester] recognises that it is obliged under the Unit Titles Act 1972 (see the default Body Corporate rules in Schedule 2, particularly Rule 1(e)) to repair and maintain its unit property on level 12 in sufficiently good condition such that no damage or harm shall ensue to the common property or any other unit in the Building. There should be no suggestion that [Manchester] is not willing to meet its obligations in this respect. To date [Manchester] has carried out all interim work recommended by CoveKinloch and has done so in a timely manner.
[20] As a result of this opposition, Heath J declined to give approval for the scheme proposal by the Body Corporate. Instead, in his Honour’s first judgment, Heath J identified a number of principles that provided that the repairs to levels 1–11 would be undertaken by the Body Corporate, while the repairs to level 12, whether in respect of its unit or common property, would be carried out by Manchester.12 At that point in the proceedings, his Honour envisaged a single contractor would undertake all of the necessary work to ensure the building was remediated at the same time.13 While Manchester’s total contribution was capped at 11.88 per cent, consistent with its unit entitlement, on the information available his Honour envisaged that approximately a third of Manchester’s contribution would go towards the repairs to common property
12 Heath judgment No 1, above n 13, at [31].
13 At [30]–[33].
on levels 1–11.14 Specifically, on the information available at that time, Heath J understood that the total cost of repairs to levels 1–11 was estimated to be around
$5,750,00015 and the cost of repairs to level 12 around $500,000, a total of
$6,250,000.16 As Manchester’s share was 11.88 per cent, this would see Manchester contributing approximately $242,500 to the cost of repairs to common property on levels 1–11 in addition to completing the repairs to level 12.17
[21] Following receipt of a further draft scheme from the parties, in the course of two further judgments Heath J finalised the scheme.18 A single contractor was not ultimately possible due to the fact that the Body Corporate had not completed its litigation against the Auckland Council and needed to delay the commencement of its own works, while Manchester gave notice it wished to undertake the immediate remediation of level 12 immediately.
[22] The scheme finally approved by Heath J enabled Manchester to proceed with the remediation of level 12, with Manchester responsible for repairing both its own unit and the common property on level 12. It is not in dispute that in undertaking this work Manchester’s costs were to be capped at 11.88 per cent of the total costs of the remediation, reflecting Manchester’s unit entitlement of ownership in the building.
The remediation commences
[23] Manchester did not, in fact, proceed with the remediation as envisaged by Heath J. Instead, it was the Body Corporate, having settled with Auckland Council, that commenced work first, in July 2012. The repairs to levels 1–11 were completed in December 2013. The total cost of the repairs was $8,131,002.55 (including GST and fees) of which 61 per cent or $4,320,266.00 (excluding GST) was attributed to the repair of the common property.19
14 At [49].
15 It is unclear whether this sum included the cost of repairs to private property on levels 1–11.
16 At [47].
17 At [47]–[49].
18 Heath judgment No 2 and Heath judgment No 3, above n 1.
19 Fogarty variation judgment, above n 2, at [80]–[81].
[24] During that same period, Manchester found that the costs of remediating level 12 were considerably greater than it had first estimated. As a result, Manchester concluded that its 11.88 per cent contribution would not even cover the costs of its own repairs to level 12. From 2012, it has therefore refused to pay any contribution whatsoever towards the amounts incurred by the Body Corporate to remediate levels 1–11, or indeed any other levies raised by the Body Corporate since then. Manchester took the position that rather than contributing to the costs of common property repairs on level 1-11, it was the other owners who would be required to top up Manchester for the cost of the repairs to level 12.
The variation
[25] The Body Corporate responded by applying for a variation of the scheme. Manchester sought to strike out the application on the basis the Court had no jurisdiction to vary the scheme following the repeal of the 1972 Act by the Unit Titles Act 2010 (“the 2010 Act”), submitting that any changes would require an entirely new remediation scheme under the 2010 Act.20 Manchester’s argument was however rejected by Katz J who concluded pursuant to s 277 of the 2010 Act that the Body Corporate retained an ability to apply to this Court to vary the remediation scheme pursuant to s 48 of the 1972 Act.21
[26] By the time the Body Corporate’s variation application was heard by Fogarty J in August 2016, Manchester’s experts estimated the total amount required to complete remediation of level 12 was $2,303,231 (plus GST) comprising the actual costs incurred to that point and the estimated costs required to complete the project,22 the costs having more than quadrupled since the estimate provided to Heath J in 2010.23
[27] Concluding that a variation to the scheme was required, Fogarty J noted that the original scheme approved by Heath J appeared to be inconsistent “with the statutory policy of demarcating common costs from unit costs (enshrined in ss 9 and
20 Body Corporate 172108 v Manchester Securities Ltd [2013] NZHC 2441, (2013) 14 NZCPR 745 at [2].
21 At [25].
22 Fogarty variation judgment, above n 2, at [82].
23 At [148].
15).”24 His Honour noted that the law had developed since the scheme was originally approved, with particular reference to the decision of the Court of Appeal in Tisch v Body Corporate 318596,25 which Fogarty J considered he was required to follow.26
[28]Even more fundamentally, Fogarty J concluded:
[67] Furthermore, independently of the reasoning in Tisch, the blowout 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 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.
[29] Rejecting an argument on behalf of Manchester that arbitration was the more appropriate forum in accordance with the dispute resolution provisions in the scheme, Fogarty J ordered that:27
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.
[30] As Fogarty J then explained, “the effect of that order is [to] set aside the limit of 11.88 per cent and to reinstate the policy of the Act.”28
[31] In addition to removing the cap on Manchester’s total contribution to the repairs to the building, Fogarty J also ordered Manchester to make an interim payment
24 At [30].
25 Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679.
26 Fogarty variation judgment, above n 2, at [66].
27 At [156].
28 At [157].
in the sum of $321,264.79 (plus GST).29 This was calculated by identifying Manchester’s contribution to the cost of repairs to the common property on levels 1–11 based on unit entitlement ($513,247.60 excluding GST)30 less the contribution of the other owners to the estimated cost of repairs to the common property on level 12 ($191,982)31, a total of $321,264.79 (excluding GST). This sum was “to be adjusted upon completion of remediation of the common property on level 12, to the extent that the [estimate relied upon] varies [from the actual cost].”32 Justice Fogarty commented that the judgment sum would be “a minimum cost that Manchester will have to pay in contribution to the remedial works of common property on level 12”.33
[32] Manchester appealed. Upholding the variation, the Court of Appeal noted the effect of the variation adopted by Fogarty J:34
[51] …was to reinstate the default statutory scheme regarding cost allocation, thereby rendering unit owners liable to contribute to the remediation of common property on the basis of their unit entitlement.
[33]The Court likewise accepted that Fogarty J was correct to vary the scheme:
[40] …As Fogarty J recognised, what marks this case out is not the fact of costs increases which would have been anticipated but the sheer magnitude of those increases as compared with those contemplated by the author of the scheme. That is the correct “counterfactual”. On anyone’s view of it, a 430 per cent increase is a radical change of circumstances. As Fogarty J put it, the actual expenditure and the ongoing expenditure is “simply in another scale from that presented to the High Court back in 2010”.
[41] Further, as Fogarty J also recognised, it was undeniably part of the logic of the scheme that Manchester would benefit from the common property repairs to levels 1-11 and therefore should make some contribution to the cost of those repairs. That was the whole purpose of the formula. We are confident Heath J would never have sanctioned a scheme whereby Manchester paid nothing for that benefit but instead received a windfall at the expense of the other unit holders.
(footnotes omitted)
29 At [157].
30 Being 11.88 per cent of $4,320,266 (excluding GST).
31 Being the then estimated cost of repairs to the common property on level 12 ($217,865.20) less Manchester’s contribution of 11.88 per cent. It is noted that the estimated cost of repairs was the higher of the estimates provided by the experts instructed by both the Body Corporate and Manchester of the costs of repairs to common property on level 12 if undertaken promptly. See Fogarty variation judgment, above n 2, at [150]–[155].
32 At [155].
33 At [153].
34 Variation appeal judgment, above n 10.
[34] Finally, the Court of Appeal upheld the interim payment ordered by Fogarty J.35
[35] Manchester’s subsequent application for leave to appeal to the Supreme Court was dismissed.36
Manchester changes approach
[36] Notwithstanding the ostensible removal of the cap on Manchester’s liability and its unsuccessful challenge to the variation on appeal, Manchester, in what can only be described as being in a studied and deliberate way, has nonetheless refused to make any payment to the Body Corporate as ordered.
[37] Instead, within eight days of the dismissal of Manchester’s final appeal against the variation, Manchester fundamentally changed its approach and commenced arguing that notwithstanding the variation, and as a result of cls 10.3 and 21.3 of the scheme, Manchester was still only required to contribute a maximum of 11.88 per cent of the total cost of repairs to common property and the unit property on level 12. Manchester’s initial focus was on the cost of the roof replacement foreshadowed in the Fogarty variation judgment. Manchester argued that it was only required to pay
11.88 per cent of the cost of replacing the roof, with the balance to be paid by the other owners of the building in accordance with their respective unit entitlement. At the same time, it was signalled that it was likely that Manchester would adopt a similar approach to the remediation of the external walls which were also part of Manchester’s unit property on level 12. Manchester requested that the Body Corporate “accepts Manchester’s apportionment approach for the roof or, if not, that the Body Corporate will promptly appoint an arbitrator to solve the matter.”
[38] As the Body Corporate refused to do so, Manchester initiated the arbitration with Mr Keene. In its notice pursuant to art 1(4) of sch 2 of the Arbitration Act 1996, Manchester advised that the dispute between the parties was:
Does clause 10.3 apply to apportion the cost of repair of the unit property [at] level 12 among all owners by unit entitlement, or has the High Court and/or
35 At [69].
36 Manchester Securities Ltd v Body Corporate 172108 [2018] NZSC 19.
the Court of Appeal determined that Manchester alone must pay the cost of repair of unit property at level 12? (“the Dispute”)
[39]Manchester explained:
…the variation decision did not determine the allocation of unit property repair costs (at any level of the building) or that Manchester is to be solely responsible for the cost of repairs to the unit property at level 12.
[40] The Body Corporate objected, but Mr Keene dismissed the Body Corporate’s protest to jurisdiction.37 The Body Corporate filed the arbitration appeal. Although Manchester subsequently applied to strike out part of the arbitration appeal, the arbitration was effectively put on hold in December 2018, when Jagose J issued interim orders prohibiting the parties’ continued participation in the arbitration pending further order of the Court.38
[41] The cross-applications also followed the issue of the Keene Award as both parties sought to clarify the effect of the scheme as varied, and to vary the scheme if it was found it did not have the effect contended for.
[42] In the meantime, Manchester continued to refuse to pay the judgment sum and the Body Corporate responded by seeking to wind up Manchester. Manchester repeatedly challenged the liquidation proceedings, primarily on the basis that it had counterclaims or set-offs against the amounts claimed by the Body Corporate notwithstanding that these had never been formally notified.39 It was unsuccessful in its opposition and Manchester was placed into liquidation on 11 March 2020.40
[43] Immediately prior to the liquidation, Mr Cummins appointed himself to replace Manchester as the trustee of the MSTT. Further litigation ensued when Mr Cummins then sought to be joined to the present proceedings in place of or in addition to Manchester, while at the same time attempting to ensure he did not have to pay the amounts still outstanding from Manchester to the Body Corporate. Mr Cummins’s
37 Keene Award, above n 4, at [12.1].
38 Body Corporate 172108 v Meader [2018] NZHC 3356 at [22].
39 Body Corporate 172108 v Manchester Securities Ltd [2018] NZHC 3307; Manchester Securities Ltd v Body Corporate 172108, above n 12; and Body Corporate 172108 v Manchester Securities Ltd [2020] NZHC 198; and Cummins v Body Corporate 172108 [2021] NZCA 145, [2021] 3 NZLR 17.
40 Body Corporate 172108 v Manchester Securities Ltd [2020] NZHC 198 at [43].
pursuit of this course of action ultimately substantially delayed the hearing of the present proceedings.41
[44] When Manchester entered liquidation, it ceased work on level 12. Mr Cummins, in his capacity as trustee of the MSTT, continued with the works until funding from Sage ceased in 2022. While Sage has taken no steps at any point to enforce its security, a company controlled by Mr Cummins, Flat Bush Finance Ltd (“Flat Bush”) has purported to enter into possession of level 12 as a mortgagee, and yet more litigation resulted when Flat Bush unsuccessfully attempted to remove a caveat lodged by the Body Corporate over the level 12 title.42
[45] With Manchester remaining the legal owner of level 12, the entry into possession of level 12 by Flat Bush and Mr Cummins self-appointment as trustee of the MSTT, as foreshadowed in recent cases it is difficult to know where any counterclaims or set-offs originally claimed by Manchester may now reside.43 Mr Cummins, with the apparent support of Sage and the liquidators of Manchester, calculates that based on Manchester being liable only for 11.88 per cent of the total cost of repairs to date to this point the net amount payable by other owners of the building to the MSTT (after deductions for “betterment” and “wasted expenditure and a still to be quantified figure for “dilatory remediation” by Manchester) is
$5,084,418.64 as at 31 March 2022, plus interest. It would follow that those same owners would also have to pay 88.12 per cent of the estimated $1.6 million required to complete the remediation of level 12.
[46] In the meantime, level 12 remains not only not weathertight, but a conspicuous eyesore, covered in plastic wrapping on the top of the building. It is against this background that the cross applications and arbitration appeal stand to be considered.
41 Body Corporate 172108 v Manchester Securities Ltd [2021] NZHC 365; Body Corporate 172108 v Manchester Securities Ltd [2021] NZHC 686; Cummins v Body Corporate 172108 [2022] NZCA 68; Cummins v Body Corporate 172108 [2022] NZCA 153; and Cummins v Body Corporate 172108 [2022] NZSC 95.
42 Body Corporate 172108 v Flat Bush Finance Ltd [2020] NZHC 3135, (2020) 21 NZCPR 622.
43 Cummins v Body Corporate 172108, above n 43, at [69].
The cross applications
[47] I commence my analysis by considering the cross applications, as my conclusions on those applications and, in particular, the effect of the scheme bear heavily on my analysis of the arbitration appeal.
The applications in issue
[48] Throughout the hearing both parties referred to the applications in issue as the variation applications. Although, like the variation determined by Fogarty J, both are made pursuant to s 48(6) of the 1972 Act which permits a Court to “from time to time cancel, vary, modify, or discharge any order made by it under this section”, the primary relief sought by both the Body Corporate and Manchester was, as noted, declarations as to the effect of the scheme. In both cases, a variation of the scheme is not the primary relief sought. In particular, by way of its amended interlocutory application dated 3 April 2019, the Body Corporate seeks:
(a)declaratory relief that Manchester is estopped from seeking to apportion the costs of repairing its unit property on level 12 between it and the other unit holders under cls 10.3 and 21.2 of the scheme as it says to do so is a collateral attack on the variation decision; or
(b)in the alternative, a series of interlocking alternative variations to the scheme that would restrict Manchester’s ability to claim contributions from the Body Corporate or other owners of the building towards the cost of repairs to level 12.
[49] Manchester and Sage oppose the Body Corporate’s application and by way of Manchester’s cross application seek either a declaration or (if required) a variation to the scheme to the effect that the total cost of building repairs is apportioned between all unit owners according to unit entitlement subject only to Manchester being responsible for any additional costs arising from Manchester’s dilatory remediation.
The position of the Body Corporate
[50] The Body Corporate’s position is based on its understanding of the effect of the 2017 variation as it has been explained in both the Fogarty variation judgment and the variation appeal judgment. The Body Corporate submits that those judgments, implemented by the variation, without question removed the 11.88 per cent cap on Manchester’s liability imposed by Heath J when his Honour set up the scheme. As a result, it submitted that any attempt by Manchester to argue that the cap remains in place by virtue of cls 10.3 and 21.2 of the scheme, by way of arbitration or otherwise in this Court, is an abuse of process and/or a collateral attack on those earlier decisions.
The position of Manchester
[51] Manchester contends the position is not so clear cut. Overall, and as asserted in the arbitration, it is Manchester’s submissions that notwithstanding the Fogarty variation judgment and the variation appeal judgment an effective 11.88 per cent cap remains on Manchester’s contribution to the total cost of repairs to the building.44 If Manchester’s interpretation is correct it would result in the type of outcome contended for by Mr Cummins.45 To interpret the scheme in this way, notwithstanding the Fogarty variation judgment and variation appeal judgment, Manchester relies on cl
10.3 of the scheme which provides:
…where repairs involve both Units and Common Property, the Costs 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.
[52]In Manchester’s submission no issue estoppel can arise because the effect of cl
10.3 was never clearly determined. On the contrary there has been no final determination of the apportionment of costs of repairs to Manchester’s unit property on level 12 between it and other unit holders with regard to cls 10.3 and 21.2. On
44 This is according to Mr Cummins’s calculation which calculates Manchester’s liability based on the 11.88 per cent of the total costs repairs to the building. His calculation of the cost of repairs to level 1-11 was $7,070,437.00 (exclusive of GST) less a sum described as “per Doogue J” of
$997,625.00 which is not explained, nor apparent from the one judgment of Associate Judge JP Doogue issued in connection with the proceeding. It is noted that for its part the Body Corporate has only sought an 11.88 per cent contribution from Manchester to the repairs of the common property on levels 1-11 (11.88 per cent of $4,320,266 (excluding GST) which as noted at [23] above was 61 per cent of the total cost of the repairs to levels 1-11). See Fogarty variation judgment, above n 2, at [81] and [102], and the variation appeal judgment above n 10, at [24].
45 See [45] above.
behalf of Manchester, Mr Francis disputed that the Fogarty variation judgment had determined that Manchester has to contribute the costs of remediation of common property in accordance with its unit entitlement while having to pay for remediation to its own level 12 unit. In Mr Francis’ submission, nowhere in either the Fogarty variation judgment or the variation appeal judgment does either the High Court or the Court of Appeal state that Manchester alone is responsible for all costs in relation to its unit property.
[53] It should be noted that while there appears to be no dispute as to Manchester’s position on the effect of the variation, given it is what it has asserted in its cross application and it is also entirely consistent with its assertion in the notice initiating the arbitration, Mr Francis was demonstrably reluctant to advance this argument before me, or even to acknowledge that this was Manchester’s position. Instead, it appeared to be Manchester’s primary position at the hearing was that the appropriate outcome would be to let the issue of interpretation of both cls 10.3 and 21.2 be determined by arbitration. It therefore appears that Manchester’s cross application actually represents a fallback position in the event the arbitration is not permitted to proceed and the criteria for a further variation of the scheme is met.
[54] Given that position, it is not surprising that Manchester submits that the restrictions on arbitration sought by the Body Corporate are unnecessary given it had already undertaken not to refer any dispute to arbitration “until the level 12 repair work…is complete (except for the clause 10.3 already referred to Mr Keene QC)”.46 Instead, Manchester argues that the Body Corporate’s attempt to use the variation to stop the arbitration is itself an abuse of process.
[55] Manchester’s primary position is, therefore, that as the effect of cl 10.3 has never been determined, arbitration is the appropriate forum given the wording of the dispute resolution provisions contended in cl 13 of the scheme.
[56] Likewise, and consistent with Manchester’s overall submissions as to the present effect of the scheme, Manchester’s proposed variation seeks the explicit
46 An undertaking given by Manchester in the course of the hearing before Jagose J and reasserted before me. See Body Corporate 172108, above n 42, at [13].
reimposition of an 11.88 per cent cap in Manchester’s liability on the grounds that the variation removed the cap and was unfair to Manchester. Instead Manchester submitted it is appropriate for the other owners in the building to contribute to the costs of remediating Manchester’s property on level 12 as well as the common property throughout the building because they all benefit from that work taking place.
The position of Sage
[57] Although Sage also seeks a reimposition of an 11.88 per cent cap on Manchester’s contribution for the overall repairs undertaken in the building, its reasons diverge somewhat from Manchester’s. Mr Haig, on behalf of Sage, prefaced his submissions by suggesting that while the long overdue remediation of level 12 had been difficult for the other owners it had equally been a disaster for both Manchester and Sage. He submitted that it was important, and necessary for the other owners, to look for a solution that ensured the work that could no longer be funded by either Manchester or Sage was nevertheless completed.
[58] In addition to supporting Manchester’s arguments on cl 10.3, Mr Haig raised two alternative approaches on behalf of Sage which he submitted would ensure the works on level 12 could be completed. With regard to the first alternative, Mr Haig submitted it was relevant that most of the other owners of the building had purchased at a time when the modified rules were in force and, therefore, in accordance with the owners’ expectations at the time of purchase the Body Corporate should have responsibility for the external walls and roof of level 12.
[59] The second alternative posited by Sage is that the Court should consider simply terminating the scheme, which would mean that remediation to the building would have to be completed under the 2010 Act which would, again, make the Body Corporate responsible for completing remediation to the external walls and roof of level 12.
[60] In making its submission, Sage confirmed that it did not seek the Body Corporate to actually complete the necessary remediation on level 12, but saw the alternative approaches it proposed as providing a further basis for the other owners in
the building to fund the completion of the remediation so that the level 12 apartments could be sold.
What was the original effect of the scheme?
[61] In order to consider the effect of the variation, the first step is to consider how the cost allocation provisions in the scheme originally worked prior to the variation.
[62] There is no dispute as to how costs were to be allocated under the scheme as established by Heath J. Generally, the scheme provided that the costs of the repairs were to be allocated as follows:47
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.
[63] In terms of the scheme, it is cl 10.1 that requires owners to pay the cost of repairs to their specific unit and cl 10.2 that brings in the scheme of the 1972 Act making owners liable for the costs of repairs to common property according to individual unit entitlement. These general provisions apply throughout and establish the basis of liability for all owners including Manchester. It was the operation of these clauses that meant that Manchester has no liability for repairs to unit property on levels 1–11 of the building, and why, but for the specific limitation of liability contained in cl 21 of the original scheme, Manchester was required to meet the costs of repairs to its unit property on level 12, including the external walls and roof. Clause 10.3 does not derogate from the starting point set out in cls 10.1 and 10.2 where the repair is identifiably common property or unit property. Instead, cl 10.3 deals with the specific instance where the repair involves both common property and unit property, for example where there is a join between common property and unit property, although
47 Heath judgment No 3, above n 1, at sch A.
as Fogarty J noted even then apportionment between common property and unit property can be carried out relatively precisely.48
[64] The principles set out in cl 10 were amended, but not displaced, by cl 21 which provided a specific regime for cost allocation in respect of the works on level 12 and, in particular, Manchester’s liability for those repairs that would have otherwise been determined by cls 10.1–10.3. In relation to cost allocation, cl 21 relevantly provided:
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 costs of repairs assessed and paid for in accordance with clause 21.3.
48 See below at [87] and fn 69.
[65] Clause 21 clearly did not displace cl 10 or else Manchester’s liability would have been 11.88 per cent of the total costs of the repairs of the building.49 This is because the scope of “costs” and “repairs” in terms of cl 2 and 3 of the scheme would have included the costs of repairs to the individual units on levels 1–11 as well. Instead, as both the Heath and variation judgments made clear, there is no dispute that the references to 11.88 per cent contained in cls 21.2 and 21.4 coupled with cls 10.1 and 10.2 limited Manchester’s contribution to 11.88 per cent of the repairs to common property on levels 1–11 and the repairs to both unit property and common property on level 12.
[66] This interpretation is supported by the illustration provided by Heath J in the Heath judgment No 1 when his Honour described how after completing repairs on level 12 the balance of Manchester’s 11.88 per cent contribution (estimated to be
$242,500) would be paid towards the costs of repairs to common property in the rest of the building.50 A similar illustration was provided by Fogarty J when considering the effect of the cost blow-out on level 12 on the original scheme. At that point, when the estimated cost of the repairs to level 12 had blown out to $2.3 million (an increase of some 460 per cent),51 the effect of the 11.88 per cent cap imposed by Heath J was that not only would Manchester not be required to make a contribution to the cost of common property repairs on levels 1–11, but the other owners in the building would be required to pay Manchester for the cost of both its repairs to its unit on level 12 and the common property on level 12 once the cost of those repairs exceeded 11.88 per cent of the cost of repairs to all levels.52
The Fogarty variation judgment
[67] As noted in the relevant background section, Fogarty J concluded that as a result of the costs blow-out on level 12 a limitation of Manchester’s liability of the
49 Although as noted in n 48 this seems to be what Mr Cummins is now saying.
50 Heath judgment No 1, above n 13, at [49].
51 Not 430 per cent as stated by the Court of Appeal in the variation appeal judgment, above n 10, at [26].
52 Fogarty variation judgment, above n 2, at [67].
type imposed by Heath J was no longer appropriate.53 Instead the scheme of the 1972 Act was to be applied with regard to cost allocation.54 As Fogarty J explained:55
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.
[68] Although both Manchester and Sage submitted that the Fogarty variation judgment and the variation appeal judgment were only concerned with common property and not the cost of Manchester’s repairs to its unit property on level 12, that is clearly incorrect. As Mr Orpin-Dowell observed in closing:
It is not open to Manchester to now contend that whether it was liable to pay for the cost of repairs to its unit property on level 12 was not an issue before Fogarty J. The whole point of Manchester’s position was that because it had to pay for repairs to its unit property on level 12, the 11.88 per cent cap was exceeded and other unit owners therefore had to make a contribution to the cost of repairing its unit property. The issue Forgarty J had to decide was whether Manchester’s liability should remain limited to 11.88 per cent or whether there should be a return to the default statutory scheme under which it would pay 11.88 per cent of common property repairs, plus the cost of repairing its unit property. This is exactly how the Court of Appeal understood the position: see [56]-[57] above.
[69] With references to Tisch56 and Young,57 Fogarty J accepted the Body Corporate’s submissions 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.”58
[70] There can be absolutely no doubt that Fogarty J believed that the 11.88 per cent cap on Manchester’s liability should be removed and his Honour clearly varied the scheme with the intention of achieving that outcome. Specifically, the two explicit references to Manchester not being liable for more than 11.88 per cent were removed.
53 See above at [26]–[31].
54 Fogarty variation judgment, above n 2, at [30].
55 At [78].
56 Tisch v Body Corporate No 318596, above n 27.
57 Young v Body Corporate 120066 (2007) 8 NZCPR 932.
58 Fogarty variation judgment, above n 2, at [57].
His Honour amended cls 12.2 and 21.4 by removing any reference to the 11.88 per cent figure and inserting replacement wording, so that the relevant parts of cl 21 now read:59
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 pay the cost of repairs of common property to all levels calculated in accordance with the unit entitlement (now known as ownership interest) of Manchester’s unit 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.
21.4Manchester shall pay the cost of repairs of common property to all levels calculated in accordance with the unit entitlement (now known as ownership interest) of Manchester’s unit.
(emphasis added to replacement wording)
59 It should be noted that the scheme was not reprinted in full following the Fogarty variation judgment. Instead the sealed order following the judgment indicates the specific words to be deleted and the words that replaced them in cls 21.2 and 21.4 respectively.
Did the variation remove the 11.88 per cent cap?
[71] Although both Manchester and Sage now contend that the changes made to the scheme by Fogarty J did not affect Manchester’s liability, there was no suggestion to that effect when the Fogarty variation judgment was released.
[72] The Fogarty variation judgment was, in fact, initially released to the parties in draft on 22 September 2016. Justice Fogarty provided the draft judgment solely to enable further submissions as to the calculations of sums.60
[73] In response, Manchester took what it described as the exceptional step of inviting Fogarty J to receive further submissions beyond those that his Honour had been called for. The reason given by Manchester was:
By any measure, the proposed order, in bluntly removing the cap, has a major financial impact on Manchester. In percentage terms, it would increase Manchester’s share of the repair costs from 11.88% (the cap) to approximately 28% (on the costings before the Court with the adjustment sought by the Body Corporate). In dollar terms, Manchester’s contribution would increase from
$1,104,840 (11.88% of circa $9.3 million) to $2,624,296 (2,203,231 as estimated by Mr Maddren plus the immediate payment of $321,265 that the Body Corporate seeks).
(emphasis added)
[74] As the Body Corporate submitted, Manchester accepted in its memorandum to Fogarty J that the effect of the Fogarty variation judgment was to render Manchester liable for all of the repairs to its unit property on level 12 (then estimated to cost
$2,303,231) together with its 11.88 per cent share of repairs to the common property represented by the figure of $321,265. At the invitation of Fogarty J, the Body Corporate confirmed it too understood the effect of the judgment in the same way. Justice Fogarty declined to call for the further submissions sought by Manchester, instead noting:61
[11] …As the draft shows, I was aware of the scope and brought the consequences of the judgment.
60 Body Corporate 172108 v Manchester Securities Ltd HC Auckland CIV-2009-404-6868, 22 September 2016 (Draft judgment No 1) at [152]–[153].
61 Body Corporate 172108 v Manchester Securities Ltd CIV-2009-404-006868, 7 December 2016.
[12] Therefore in as much as Manchester is dissatisfied with the judgment, the proper course is for Manchester to appeal it…
[75] Unsurprisingly, Manchester reiterated the same arguments when it appealed the Fogarty variation judgment to the Court of Appeal. In dismissing the appeal, there is equally no doubt the Court of Appeal considered the effect of the Fogarty variation judgment was that the 11.88 per cent cap on Manchester’s liability had been removed.62
[76] Instead, the Court of Appeal specifically confirmed that Manchester should not receive a subsidy from the other owners for the costs of works to its unit property when it stated:63
…it was undeniably part of the logic of the scheme that Manchester would benefit from the common property repairs to levels 1–11 and therefore should make some contribution to the cost of those repairs. That was the whole purpose of the formula. We are confident Heath J would never have sanctioned a scheme whereby Manchester paid nothing for that benefit but instead received a windfall at the expense of the other unit holders.
(footnotes omitted)
[77] The Court went on to approve Fogarty J’s summary of the law post-Tisch which, with regard to the scheme of the 1972 Act, was to impose a burden upon all unit holders to repair and maintain common property in proportion to their unit entitlement, regardless of the cost each have to bear in respect of the repair and maintenance to their units.64
[78] Manchester’s arguments did not change when it sought leave to appeal to the Supreme Court. The notice of application stated that the Court of Appeal had erred, amongst other things, because:
[T]he scheme as varied will relieve the other owners from costs they would have incurred if the Body Corporate had been free to carry out all repairs under a single contract, free from delays by Manchester (such costs being over
$1,000,000).
62 Variation appeal judgment, above n 10, at [29](f).
63 At [41].
64 At [54]–[55].
[79] In addition, Manchester argued that a substantial miscarriage of justice would occur due to the variation, which Manchester considered would have the following effect:
Instead of directing that the additional costs of dilatory remediation be quantified and borne by Manchester alone, the scheme as varied effectively releases the other owners from making any contribution to the substantial costs that they would otherwise have occurred.
In an effort to avoid Manchester enjoying a “windfall” from having the common property repaired, the scheme as varied gives the other owners far greater windfall at Manchester’s expense because they no longer have to contribute anything to replacing the roof and other unanticipated exterior property repairs for which they would have been liable under the original scheme.
[80] This section of the application makes it clear that Manchester considered the other owners would now not have to contribute to the repair and remediation of Manchester’s property on level 12, specifically the roof and the external walls, which are “substantial costs they would have otherwise incurred”. This point was made even more clear in Manchester’s submissions that accompanied the application:
Discussion – The arbitration appeal
[141] There is a general presumption of non-intervention by courts in arbitral proceedings, and this is enforced by art 5 in sch 1 of the Arbitration Act 1996. However, art 16(3) of that schedule expressly provides scope for parties to appeal
81 Greymouth Petroleum Holdings Ltd v Empresa Nacional Del Petróleo [2017] NZCA 490, [2017] NZAR 1617 at [51].
82 See Arbuthnot v Chief Executive of the Department of Work and Income [2007] NZSC 55, [2008[ 1 NZLR 13 at [29].
83 Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (HL) at 31.
84 Blair v Curran (1939) 62 CLR 464
arbitral awards on jurisdiction to this Court. As the Body Corporate filed their originating application appealing the arbitral award within the 30 days required by art 16(3), I therefore have jurisdiction to hear this matter. Contrary to Manchester’s claim, Mr Keene’s award as to jurisdiction is not res judicata in this proceeding, as such an approach would clearly defeat the intended appellate function within art 16(3), sch 1 of the Arbitration Act 1996.
[142] As a result of conclusions I have reached with regard to the effect of the scheme, and now recorded in the declarations set out below, my discussion of the arbitration appeal can be relatively brief. It is apparent that Manchester’s attempt to arbitrate the effect of cl 10.3 not only fell outside the dispute resolution provisions in the scheme but was, as the Body Corporate submitted, nothing more than a collateral attack on the Fogarty variation judgment and variation appeal judgment.
[143] With regard to the first of these issues, I accept the Body Corporate’s submission to Mr Keene that the dispute fell outside the scope of the dispute resolution clause. The jurisdiction to arbitrate disputes arising from the scheme pursuant to cl 13 is in fact limited:
13.1The Body Corporate’s decision shall be final in respect of 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 Owner has an objection which in monetary terms exceeds
$10,000. Upon receiving notice of such an objection, the Body Corporate shall refer the matter to arbitration.
13.2The objecting Owners must give notice to the Body Corporate of their objection within 15 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 other members of the Body Corporate generally as the arbitrator shall decide.
13.3No Owner shall be entitled to withhold payment of a Levy on the basis that the matter is in the process of dispute resolution.
[144] As can be seen, a prerequisite for the dispute resolution provisions to be invoked and a dispute referred to an arbitrator is a decision of the Body Corporate.
There was no decision of the Body Corporate in this case. What was at issue was the effect of the scheme itself following the variation which had already been determined by this Court and the Court of Appeal over Manchester’s specific objections, and in no sense could the variation be considered a decision of the Body Corporate. It follows that the terms of this scheme and in particular the ambit of liability are matters for the Court rather than for arbitration.
[145] Likewise, in determining that he had jurisdiction, Mr Keene failed to understand the default scheme of the 1972 Act which both the Fogarty variation judgment and the variation appeal judgment confirmed was in place as a result of the variation. As has been detailed in this judgment, the default scheme is reflected by cls 10.1 and 10.2 of the scheme such that the scheme permits no argument as to the scope of Manchester’s liability as a result of cl 10.3. Indeed, I note that Mr Keene did not even mention either cls 10.1 or 10.2 in his decision but appeared to treat 10.3 as a standalone provision which meant that his analysis of both the Fogarty variation judgment and variation appeal judgment were manifestly in error. On the contrary, as I have found earlier in this judgment, the meaning and effect of the earlier judgments was clear and effected by the changes Fogarty J made to the scheme in effecting the variation. It follows that the attempt to arbitrate a different interpretation of cl 10.3 did amount to a collateral attack on the earlier judgments and were therefore an abuse of process such that an appeal must be allowed, and the orders made by Jagose J made permanent.
[146] In the alternative, even if I am I am wrong in concluding that the initiation of the arbitration was outside cl 13 or otherwise amounted to an abuse of process, given the conclusions reached with regard to the meaning and effect of the scheme in my consideration of the cross applications, the arbitration is in any event rendered effectively moot such that a permanent extension of the Jagose J injunction would have been warranted.
Decision
[147] For the reasons set out above, I make the following declarations as to the effect of the scheme:
(a)With regard to remedial work undertaken on Manchester’s unit, the costs are to be borne solely by Manchester pursuant to cl 10.1 of the scheme, subject to any claims Manchester may have pursuant to cl 21.2 of the scheme.
(b)With regard to remedial work undertaken to the common property on level 12, the costs of remediation are to be borne according to unit entitlement pursuant to cl 10.2, subject to any claims Manchester may have pursuant to cl 21.2 of the scheme.
(c)It is only at the junction between Manchester’s unit property and common property that cl 10.3 can have any application. Given the clear effect of cls 10.1, 10.2 and 21.2–21.4, it is not a provision that can be used to claim contribution from the other owners in the building to repairs to Manchester’s unit.
[148] Clause 13 of the scheme is varied as set out in the schedule annexed to this judgment, and leave is reserved for the Body Corporate to apply for any further variation necessary to effect completion of the remediation of level 12 in the event Manchester does not obtain a code compliance certificate within six months of the date of this judgment.
[149] The appeal by the Body Corporate against the Keene Award is allowed. The orders made by Jagose J on 7 February 2019 are made permanent.85
[150] The Body Corporate is entitled to costs against both Manchester and Sage on both the cross applications and the arbitration appeal, and I leave open whether there are other individuals or entities against whom costs might be claimed. If costs cannot be agreed, the submissions of the Body Corporate setting out the individuals and/or entities against whom costs are sought are to be filed by 25 June 2024, and those individuals and/or entities against whom costs are sought will have until 3 July 2024 to respond. Depending on the issues raised, I will determine whether a hearing is necessary or whether I will determine the issue of costs on the papers.
85 See above at [40].
[151] Leave is reserved for either party to seek such further directions as may be necessary to give effect to the orders made in this judgment.
Powell J
Schedule
Variations to cl 13 of the Scheme [Changes Italicised]
13.Dispute resolution
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 Owner has an objection which in monetary terms exceeds
$10,000. Upon receiving notice of such an objection and subject to cl 13.4, the Body Corporate shall refer the matter of arbitration.
13.2The objecting Owners must give notice to the Body Corporate of their objection within 15 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 other members of the Body Corporate generally as the arbitrator shall decide.
13.3No Owner shall be entitled to withhold payment of a Levy on the basis that the matter is in the process of dispute resolution.
Arbitration of Manchester’s objections
13.4In the event a notice of objection is given by, for, under or on behalf of Manchester, arising out of or otherwise derived from any rights provided to or claimed by Manchester under this scheme including any claim based on any claim or entitlement arising out of cl 21.2, the dispute is not to be referred to an arbitrator unless:
(a) the notice of objection is given within 20 working days of a code compliance certificate being issued in respect of all works on level 12 and 13; and
(b) Manchester or the person or entity claiming for, under or on behalf of Manchester has paid to the Body Corporate prior to the notice of objection being issued:
(i) all levies currently outstanding for level 12 (and 13 (if any)) at the date of the notice of objection;
(ii) the judgment sum of $321,264.79 (plus GST if any) ordered by Fogarty J to be paid by Manchester to the Body Corporate ([2017] NZHC 329); and
(iii) all costs awarded against Manchester in favour of the Body Corporate and unpaid at the date of the notice of objection.
13.5For avoidance of doubt any dispute as to whether notice has been given in time pursuant to cl 13.4(a) or that all amounts have been paid pursuant to cl 13.4(b) are not matters for arbitration pursuant to cl 13 but fall within the leave reserved provisions of the judgment of Powell J dated 23 May 2024 ([2024] NZHC 1280).
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