Body Corporate 184013

[2017] NZHC 2194

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1820 [2017] NZHC 2194

UNDER

the Unit Tiles Act 2010

BETWEEN

BODY CORPORATE 184013 A BODY CORPORATE CONSTITUTED PURSUANT TO THE PROVISIONS OF THE UNIT TITLES ACT 2010

Applicant

Hearing:	6 September 2017
Appearances:	G B Lewis for the Applicant No appearance for the parties served
Judgment:	9 September 2017

REASONS JUDGMENT OF MUIR J

This judgment was delivered by me on Friday 8 September 2017 at 4.30 pm

Pursuant to Rule 11.5 of the High court Rules.

Registrar/Deputy Registrar

Date:…………………………

Body Corporate 184013 Application to settle scheme for remediation [2017] NZHC 2194 [9 September 2017]

Introduction

[1]      The applicant Body Corporate (184013) applies for an order under section 74 of the Unit Titles Act 2010 (“the Act”) settling a scheme for the remediation of the property at 6 Ambrico Place, New Lynn (“the Property”).

[2]      The originating application dated 3 August 2017 is supported by affidavits sworn by:

(a)       the Body Corporate manager, Stephen Douglas Plummer, of Scope

Strata Management Limited; and

(b)the  building  expert  engaged  by the  Body Corporate,  Ivan  Melvin McLellan, a building surveyor employed by Prendos New Zealand Limited (“Prendos”).

[3]      When the matter was called on 6 September 2017 I made orders in terms of the application.  My reasons now follow.

Background

[4]      The  Property  consists  of  five  separate  buildings  containing  a  total  of

25 residential units.  The 25 units are similar in size and each has a deck of the same size.

[5]      In 2013 the Body Corporate obtained a report from the Weathertight Homes Resolution Service (“WHRS”).   In 2014 the Body Corporate engaged Prendos to review the WHRS  report  and  investigate the exterior  of the building.    Prendos identified a number of weathertightness defects including the inadequately weatherproof roof, inadequately weatherproofed gutters, visible cracking of external walls, inadequately weatherproofed windows and doors and inadequately weatherproofed decks and barriers.

[6]      The Property does not comply with the Building Code and requires extensive remedial works including a reclad of the exterior.

[7]      In 2015 the Body Corporate engaged Prendos to prepare designs for the necessary remedial works, obtain building consent for the works, seek the tenders from contractors to undertake the work and to administer the contract works.

[8]      In 2015/2016 Prendos prepared designs for the remedial work to the Property. In about April 2017 Prendos applied to the Auckland Council for a building consent to undertake the necessary remedial works.

[9]      In early 2017 Prendos sought and obtained tenders for the remedial works on behalf of the Body Corporate from three contractors.   The Body Corporate has accepted a tender from RCS Construction in the sum of $3,353,900.00 plus GST. The work is projected to commence in September or October 2017 and is estimated to take seven to eight months.

[10]     At an extraordinary general meeting (“EGM”) on 22 June 2017, the Body Corporate resolved to apply to the High Court for a scheme under s 74 of the Unit Titles Act 2010 to undertake the remedial works on the basis that the owners pay for the works in accordance with their utility interests.  The resolution was carried out with no votes against and one abstention.

Service and subsequent steps

[11]     The Court made directions as to service on 10 August 2017.  I am satisfied on the basis of the affidavits filed that service has been effected in accordance with such directions.

[12]     No notice of opposition to the application has been filed.  Consistent with the outcome of the EGM, the Court is entitled to proceed on the basis that all owners agree that the scheme is appropriate for their purposes.

Analysis

[13]     Section 74 of the Unit Titles Act 2010 states:

74       Scheme following destruction or damage

(1)       This section applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.

(2)       The High Court may, by order, settle a scheme on the application of—

(a)      the Body Corporate; or

(b)      if the unit title development is in a layered unit title development, the Body Corporate of the head unit title development or any subsidiary unit title development in that layered unit title development; or

(c)      an administrator; or

(d)      the owner or one of the owners of a unit; or

(e)      a registered mortgagee of a unit.

(3)      A scheme under subsection (2) may include provisions—

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

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

...

(7)       In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders—

(a)      directing the application of any insurance money; or

(b)       directing payment of money by or to the Body Corporate or by or to any person; or

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

(d)      imposing any terms and conditions that it thinks fit.

...

[14]     The leading authority on s 74 is the judgment of the Court of Appeal in Tisch v Body Corporate 318596.1   Tisch was decided under the 1972 Act, but the wording of s 74 of the current Act is the same for current purposes.

[15]     In Tisch, the Court of Appeal approved the following three step process when the Court considers an application to settle a scheme:2

(a)      Step  1  -  the  Court  must  be  satisfied  that  the  building  has  been damaged or destroyed;

(b)Step 2 - if so satisfied, the Court must decide whether to settle the scheme.   That is, the Court must decide whether a scheme is appropriate in the circumstances.

(c)      Step 3 - if the Court decides the scheme is appropriate, it must then decide what the terms of the scheme should be.

[16]     The evidence of Mr McLellan establishes that the first step has been met in this case.  The Property suffers from weathertightness defects and does not comply with the Building Code.

[17]     In terms of the second step, I am satisfied that the scheme is appropriate in the circumstances.  It will enable the necessary work to be undertaken in respect of all dwellings in the development to a consistent standard, enable contractors to deal with the Body Corporate alone, clarify the basis upon which levies are to be raised, clarify the obligations of both the Body Corporate and owners, assist owners in obtaining funding from their banks and will be binding on both current and future owners.

[18]     In terms of the third step, in Tisch the Court of Appeal set out the following five factors to be taken into account when considering the terms of a proposed

scheme:

1      Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679, affirmed in St

John’s College Trust Board v Body Corporate No 197230 [2013] NZCA 35, (2013) 14 NZCPR

56.

2 At [35].

[45]     First, a scheme with a broad support is to be preferred.  The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners ...

[46]     Secondly, the scheme should be appropriately detailed.  The more detailed the scheme, the less scope for later misunderstanding and argument about it.

[47]     Thirdly, providing that what has been done by the Body Corporate before the section 48 scheme is actually approved is in accordance with the scheme, the order has retrospective effect …

[48]      Fourthly, work should normally be done to the same standard and at the same time ...

[49]      Fifthly ... the terms of the section 48 scheme should depart from the scheme of the Act and from the Body Corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances ... An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.

[19]     This scheme has broad support, is appropriately detailed and will allow the work to be undertaken at the same time and to the same standard.   The proposed scheme is in keeping with the scheme of the Unit Titles Act 2010 and in particular s 138 by which the Body Corporate is to repair and maintain all common property and any unit property which relates to or serves more than one unit.  Having regard to the nature of the repairs, the proposal to levy by way of ownership interest is demonstrably fair.

[20]     The applicant identifies a proposed amendment to paragraph 5 of the scheme by adding the following underlined words:

The Body Corporate shall levy and collect from owners such funds as it considers necessary to undertake and complete the repairs and fulfil its obligations under the Scheme on the basis owners shall pay for the repairs in accordance with their utility interests.

[21]     In my view, the proposed amendment does not substantively alter the terms of the scheme such that  reconsideration  by EGM  is  required.    It  falls  into  the category of clarification for the avoidance of doubt. The scheme is the better for it.

Result

[22]     I make orders settling a scheme under s 74 of the Act in terms of the Body

Corporate’s application subject to the amendment referred to in [19] to [20] above.

Muir J