Body Corporate 185632 v Thadhani

[2012] NZHC 1354

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-3260 [2012] NZHC 1354

UNDER  the Unit Titles Act 1972

IN THE MATTER OF      an Originating Application for orders establishing a scheme under s 48 Unit Titles Act 1972

BETWEEN  BODY CORPORATE 185632

Applicant

ANDSURESH MOHANIAL THADHANI AND URMINA SURESH THADHANI

First Respondents

ANDRICHARD LOSE Second Respondent

ANDHYANG SOOK KWON AND HYUN JOO LEE

Third Respondents

ANDSUZANE JOAN COWAN Fourth Respondent

ANDPHILIP JAMES TOMLINSON Fifth Respondent

ANDTERRY JOHN SKILTON Sixth Respondent

ANDBOSANQUET TRUSTEE LIMITED Seventh Respondent

ANDVINKO PRKUSIC Eight Respondent

ANDEMMA LOUISE CANNON-DAVIS Ninth Respondent

ANDHOLODECK LIMITED Tenth Respondent

BODY CORPORATE 185632 V THADHANI HC AK CIV 2011-404-3260 [15 June 2012]

ANDYAJIE ZHANG Eleventh Respondent

ANDJOHN CHARLES SCHROEDER AND WAN LEE SCHROEDER

Twelfth Respondents

ANDNICHOLAS CHARLES KORENEFF AND GALINA FILATOVA

Thirteenth Respondents

ANDALLISON MURIEL DOBBIE Fourteenth Respondent

ANDPATRICIA ANN MATHER Fifteenth Respondent

ANDBRIAN RAY DEADMAN Sixteenth Respondent

ANDMICHAEL ROBINSON AND KATHLEEN RUSHWORTH Seventeenth Respondents

ANDFIONA ELIZABETH DE JARDINE Eighteenth Respondent

ANDTRAVIS T DUNBAR AND JACKSON RUSSELL TRUSTEE SERVICES LIMITED

Nineteenth Respondents

ANDWIBER NOEL CHOAT AND LINLEY ANN CHOAT

Twentieth Respondents

ANDHEATHER ANNE JOHNSTON AND RONALD JOHNSTON

Twenty-First Respondents

ANDCOMMUNICATIONS INVESTMENTS LIMITED

Twenty-Second Respondent

ANDBAILEY BEACH INVESTMENTS LIMITED

Twenty-Third Respondent

ANDPETER LAWRENCE WATTS, SONIA GEORGIA WATTS AND ACE TRUSTEE

SERVICES LIMITED Twenty-Fourth Respondents

ANDPHILIP WILLIAM CROW Twenty-Fifth Respondent

ANDDOWNTOWN INVESTMENTS LIMITED

Twenty-Sixth Respondent

ANDWESTPAC NEW ZEALAND LIMITED Twenty-Seventh Respondent

ANDANZ NATIONAL BANK LIMITED Twenty-Eighth Respondent

ANDBANK OF NEW ZEALAND Twenty-Ninth Respondent

ANDASB BANK LIMITED Thirtieth Respondent

ANDVERO INSURANCE NEW ZEALAND LIMITED

Thirty-First Respondent

Hearing:         23 March 2012

Appearances: D R Bigio and V J Toan for Applicant

D Connor and J S Campion for 25th Respondent

Judgment:      15 June 2012

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 15 June 2012 at 11 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Counsel:       D R Bigio, Barrister, Auckland:  [email protected]

D Connor, Barrister, Auckland:  [email protected]

Solicitors:      Glaister Ennor, Auckland:  [email protected] /  [email protected]

Brian Fox, Auckland;  [email protected]

Introduction

[1]      Body Corporate 185632 (“the Body Corporate”) seeks an order establishing a scheme for the reinstatement of buildings forming part of a residential unit title development (“development”).   The development is known as “the Mews” and is situated at 8 Basque Road, Newton, Auckland.

[2]      There is no dispute that the buildings have been damaged as a result of water ingress and there is no dispute that the Court should settle a scheme pursuant to s 48 of the Unit Titles Act 1972 (“Act”).

[3]      The issues that arise are as to particular terms of the scheme that the Body Corporate proposes (“scheme”).  The scheme has the support of the vast majority of unit proprietors but Mr Philip Crow, the registered proprietor of a principal unit in the development and the 25th Respondent, raises issues regarding:

(a)       the provisions of the scheme that define the scope of the works that might be undertaken;

(b)a provision  of the scheme allowing for the installation  of gutters to balconies forming part of each principal unit;

(c)       the allocation of costs as between proprietors; and

(d)      several mechanical provisions of the scheme.

[4]      As the Court of Appeal said in Tisch v Body Corporate No 318596,1 settling the terms of a scheme requires the exercise of discretion,2  the aim of which is to balance the interest of each unit holder in a way that achieves the outcome fairest to all  unit  holders.    Of  the  guiding  principles  to  which  the  Court  referred,  two

particularly are relevant in this case – a scheme with broad proprietor support should

usually be preferred and the s 48 scheme should depart from the scheme of the Act

1 Tisch v Body Corporate No 318596 [2011] NZCA 420 at [44] onwards.

2 Unit Titles Act 1972, s 48(5).

and the rules of the body corporate no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances.  The scheme proposed by the Body Corporate has the broad support to which the Court of Appeal referred.  It does,  however,  depart  from  the  scheme  of  the Act  and  the  rules  of  the  Body Corporate (“rules”), because it requires the Body Corporate to apportion costs incurred in reinstating unit property on a unit entitlement basis.

Application and parties

[5]      As I have said, the Body Corporate’s application is made pursuant to s 48 of the Act.   Although the Act has been repealed, s 227 of the Unit Titles Act 2010 (“2010 Act”)  requires  the application  to  be  continued  and  completed  under the provisions of the (1972) Act.

[6]      The respondents to the Body Corporate’s application comprise  registered proprietors  or  mortgagees  of  principal  units,  as  well  as  the  insurer  of  the development.

[7]      Notices of opposition to the application were filed by the 1st, 12th  and 13th Respondents and Mr Crow.   The 1st  and 12th  Respondents did not appear at the hearing and Mr Koreneff, the 13th  Respondent, ceased to have an interest in the development as of about January 2012.  At about that time Mr Koreneff transferred his  interests  in  the  development  to  CEW Management  (NZ)  Limited  (“CEW”), which Mr Crow owns and/or controls.  Accordingly, at the outset of the hearing, I substituted CEW for Mr Koreneff as the 13th Respondent.

[8]      Mr Crow acquired his unit in or about September 2010.   By that date the Body Corporate had been investigating weathertightness issues with the buildings for several years.  Mr Crow was no stranger to the situation at the time he acquired his unit because he had been advising Mr Koreneff since 2006.

[9]      The affidavit evidence comprises affidavits of Ms A M Dobbie, Mr S R Alexander, Mr I R Colcord and Mr Crow.  Mr Koreneff also swore an affidavit in opposition, but I do not propose to read it, given that he is no longer a party.

[10]     Ms   Dobbie   is   the   Chair   of   the   committee   of   the   Body  Corporate (“Committee”).    Mr Alexander and  Mr Colcord  are  expert  witnesses.    Some of Mr Crow’s evidence is opinion.  Mr Crow is a registered building surveyor and has many qualifications in the building and construction industry.  I accept that Mr Crow is knowledgeable in this field but I also accept the submission of counsel for the Body Corporate that, as a party, Mr Crow cannot be considered independent and because of that his opinions must, at the very least, be treated with caution.

Development

[11]     The Mews was constructed in 1996 and 1997.  The Auckland City Council, as it then was, issued interim code compliance certificates for the units, excluding level 7, in November 1998.   The Council has not issued a final code compliance certificate.

[12]     The  development  comprises  the  26  principal  units,  accessory  units  and common property contained in unit plan DP 185632.  The unit plan was deposited in January 1998.

Principal units

[13]     The 26 principal units are in two separate buildings.

[14]     The  north  building  is  four  storeys  high,  faces  onto  Basque  Road  and comprises eight principal units being 4E and F, 5E and F, 6E and F, and 7C and D.

[15]     The  west  building  is  five  storeys  high,  faces  onto  Exmouth  Street  and comprises 18 principal units being 3A to 3D, 4A to 4D, 5A to 5D, 6A to 6D and 7A and 7B.

[16]     Mr  Crow  and  CEW  are  the  proprietors  of  principal  units  7C  and  5C

respectively.

Balconies

[17]     Each principal unit includes a substantial balcony for the use of the occupant, fronting onto Basque Road or Exmouth Street as the case may be.  Some units also have “Juliet” balconies but I propose to disregard these as the area associated with them is insignificant in the context of this dispute.

[18]     The balconies that form part of each of units 7A and 7B are uncovered and are substantially larger than others, each comprising areas of 56.5m2.   The other balconies comprise approximately 18 m2  or thereabouts and are covered by the balcony above.

[19]     The works that are required to repair the buildings include rebuilding the walls (“balcony walls”) that divide the balcony of one unit from another, or from common property in the case of the end units.   In addition, each balcony has a curved balustrade wall which fronts to the street (“balustrade walls”).  These walls too must  be rebuilt.    Matters in  dispute in  the proceeding include  the possible addition of gutters to the balustrade walls and the apportionment of the cost of work that is required to parts of the balconies.

[20]     The balustrade walls encroach over the boundaries of the site, into road reserve which is vested in Auckland Council.  The effect of the encroachment is that the external face of a balcony balustrade on Exmouth Street is outside the unit plan and the entire balustrade to a balcony fronting onto Basque Road, together with parts of the balcony surface, are outside the unit plan.   The areas which encroach are neither unit nor common property.

Common Property and Accessory Units

[21]     Ground level between the two buildings is at level 3.  The common property at level 3 comprises a courtyard and garden area.  The common property at levels 4 to 7 comprises open walkways and bridges which connect the two buildings and provide access to the lifts and stairwells.  Considerable repair work is required to the areas that form and surround the open walkways and bridges.

[22]     Levels  1  and  2  are basement  levels  comprising carparking and  common property.

Unit boundaries

[23]     Subject to what is said above as to encroachment:

(a)      The boundary between adjoining principal units is the centre-line of walls.

(b)The boundary of all other unit property is the centre-line of walls and balcony balustrades.

(c)       The roof above the principal units forms part of the units on level 7. (d)       The surfaces of balconies are within unit space.

(e)      Walls, windows and doors that front onto balconies are within unit space.  Subject to that, the exterior weatherproofing perimeter walls of the principal units are common property.3

Background

[24]     Various weathertightness issues with the buildings were identified in about

2003.  In 2005 the Body Corporate engaged Alexander and Co Limited (“ACL”), a firm of Building Surveyors and Dispute Resolution Consultants.  ACL carried out tests of the building, and formed a view of the nature and cause of the buildings’ defects.  The evidence of Mr Alexander, a principal of ACL, is that investigations have confirmed  the existence of  “numerous  defects,  advanced  corrosion,  timber decay and mould”.

[25]     Aside from the work required to the balconies and the areas that form and surround the walkways, considerable work is also required to the exterior surfaces of

the buildings.

3 Affidavit of A M Dobbie sworn 31 May 2011, exhibit H.

[26]   Tenders for the work that were received in early 2009 ranged from approximately  $3.1  to  $3.5  million  excluding  GST.    Mr Alexander’s  estimate, disputed by Mr Crow, is that 90 per cent of the work that is required is work to common property.  Mr Crow considers the work to unit property will exceed 10 per cent and may be as much as 30 per cent of all work required. As I understand it from counsel’s submissions, ACL’s estimate excludes the work required to the balustrade walls.  No doubt the final division as between work to unit property and to common property will be somewhere between the two estimates.

[27]     In  2008 the  Body Corporate obtained building consent in  respect of the proposed work.  A fresh consent will be required given the passage of time.  Civil proceedings have also been commenced and the Body Corporate has availed itself of the services of the Weathertight Homes Resolution Service.

[28]     The proprietors are unanimous on many, but not all, issues.   That led the Body Corporate to propose the present scheme, bar some immaterial amendments, to an Extraordinary General Meeting in March 2011.  23 of 26 proprietors were present at the meeting.  18 voted in favour of the scheme and five against.  Of those five, two had unpaid levies and therefore were not entitled to vote.4

[29]     It is fair to say that Mr Crow and, before him, Mr Koreneff raised numerous issues with the Committee and ACL in emails, letters and face to face meetings. Clearly, much time and money has been spent considering and responding to the issues raised.   It is essential now that the Body Corporate devote its resources, financially and otherwise, to getting the building reinstated and protecting as far as possible the investment that every proprietor has made.

Section 48

[30]     The relevant parts of s 48 read as follows:

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

4 Rules for Body Corporate No 185632, r 29.

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.

(2)       ... (3)       ... (4)       ...

(5)       In the exercise of its powers under subsection (1) of this section, 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.

(7)       On any application under this section the Court may make such order for payment of costs as it thinks fit.

Scheme

[31]     The proposed scheme is comprehensive.  It includes recitals which set out the background to the scheme; provisions recording the duties and powers of the Body Corporate and the duties of proprietors; provisions allowing for the Body Corporate to delegate powers and duties to the Committee; and provisions concerning the allocation and recovery of costs and interest.

[32]     Counsel  for  the  Body  Corporate  submitted  that  this  Court  has  approved similar schemes previously.5  As counsel for Mr Crow submitted, however, there was

5 Body Corporate 206481 v Kempster HC Auckland CIV-2011-404-2579, 3 November 2011 and Body

Corporate 187874 v Jackson HC Auckland CIV-2011-404-3635, 3 November 2011.

no opposition at the hearing of the application for approval in those cases.  Given that, no particular weight can be attached to those cases.

First issue – clauses 3.1 and 3.2

[33]     Section  three  of  the  scheme  concerns  the  work  that  is  to  be  done.    It comprises clauses 3.1, which is intended to define “Repairs”, and 3.2 as follows:

3.1Repairs covered by Scheme:  This Scheme covers all works required to address all building defects and associated damage identified prior to and during construction, and all works that may be necessary to ensure the Building meets Required Building Standards no matter whether the works relate to Common Property or Unit Property.

3.2Repairs include provision of gutters to main balconies:   For the avoidance of doubt, Repairs as defined in clause 3.1 shall include the provision of gutters to the main curved balconies associated with each of the 26 units in the Building should such works be approved by the Body Corporate.

[34]     Required Building Standards is defined as:

“Required Building Standards” means the standards determined in accordance with the Building Act, any Act in substitution and the Building Code and any relevant New Zealand Standards or applicable international standards and manufacturers’ installation requirements.

[35]     The essence of Mr Crow’s objection to clause 3.1 is that it does not limit the scope of works to those required to remedy the defects that have caused the lack of weathertightness  and  the  consequential  damage.   As  Mr  Crow’s  counsel  put  it, Mr Crow seeks greater certainty as to the work that will be done.  The essence of Mr Crow’s objection to clause 3.2 is as to the cost of installing gutters.  Mr Crow wishes clause 3.2 to be deleted or, if I am not willing to require that, for the clause to be amended so that gutters may only be installed if savings are made in the design of the new balustrades.

[36]     Mr Crow also seeks the addition of a clause 3.3, to establish principles on which the Body Corporate may make decisions regarding the work to be carried out. I should say at the outset that I do not propose to require the Body Corporate to make this suggested addition to the scheme.   Proprietors have voted on the scheme and have seen fit to reserve to the Body Corporate a degree of discretion, so that it can

make decisions as required.   I am satisfied that it will be sufficient if the Body

Corporate limits clause 3.1 as I set out below.

Clause 3.1

[37]     Matters at the hearing were left on the basis that the Body Corporate would consider whether it should limit clause 3.1, whether as Mr Crow proposed or otherwise. The Body Corporate has since submitted the same clause for approval.

[38]     Counsel  for  the  Body  Corporate  submits  that  a  degree  of  flexibility  is required so that the Body Corporate can deal with matters as they arise.  There is force in this submission.  As counsel for the Body Corporate submitted, the scheme is being settled before final designs are to hand and building consent obtained.  Once works are underway, decisions will have to be made quickly so that contractors can get on.

[39]     I accept the submission of Mr Crow’s counsel, however, that clause 3.1 as it stands  might  see  the  Body  Corporate  embark  on  works  beyond  what  might reasonably be considered “reinstatement of the building”.

[40]     Because of this, I am not willing to approve clause 3.1 as it stands.  Clause

3.1 requires amendment so that it permits only works that constitute “reinstatement”

and which are within the terms of s 48 of the Act.

[41]     In saying that, I should make it clear that I do not accept the submission of counsel for Mr Crow that reinstatement is to be construed narrowly and, accordingly, that a scheme which incorporates elements of betterment cannot be a scheme for reinstatement.   As counsel for the Body Corporate submitted, “reinstatement” as used in s 48 cannot require the Body Corporate to replicate the identical building design and fabric and standards of workmanship.  The buildings would fail again if that were required and proprietors would be throwing good money after bad in proceeding with such a scheme.

[42]     I note also that recourse may be had to s 48 in the case of a building which has been destroyed.  Any scheme in such a case inevitably would include betterment because of the need to comply with the prevailing District Plan and Building Code.

[43]     To conclude, I would approve clause 3.1 if it were amended so that the works undertaken cannot extend beyond that anticipated by the terms of s 48 of the Act. Clause 3.1 should also be expressed in such a way that it defines “Repairs”, if that is what the provision is intended to do.

Clause 3.2

[44]     Clause 3.2 reserves to the Body Corporate the right to approve the provision of gutters to the balconies as part of the works subject to the scheme.

[45]     The buildings were constructed without a system to collect and dispose of water on the balconies. At present, storm water pools on the surface of the balconies or it spills over the edge of the balconies or it does both.  Water that spills over can splash onto the balconies of unit(s) below.  Accordingly, storm water from 7A spills onto the balcony of 6A, and from there to 5A and so on until landing on 3A and/or the street.

[46]     Accordingly,  and  at  the  request  of  the  Body  Corporate, ACL’s  remedial design provides for gutters to be fitted in the course of reconstructing the balustrade walls.  The Body Corporate has not made a final decision to proceed with this item of work but wishes to have power to do so.

[47]     Mr Crow considers that the cost of installing gutters will exceed the benefit, except possibly in the case of those fitted to the balconies of units 7A and 7B.  The size of those balconies and the fact that they are uncovered means that they catch a considerable  quantity  of  water.     Mr  Crow  also  has  reservations  about  the effectiveness of the designs that ACL have proposed.

[48]     Accordingly, Mr Crow wishes clause 3.2 to be deleted.  Alternatively, if the

Court were to approve clause 3.2 in principle, Mr Crow wishes it to be amended so

that gutters may only be included if the Body Corporate adopts a design for “glass faceted” balustrade walls, rather than replicating the present solid wall design.

[49]     In considering whether to delete or amend clause 3.2, I take the following into account.

[50]     First, for the reasons given above, I reject the submission of counsel for Mr Crow that provision of gutters would constitute betterment and so cannot be reinstatement.  The provision of gutters may constitute betterment, in the sense that there are no gutters at present, but I am not persuaded this means clause 3.2 falls outside what might be considered reinstatement of the buildings.

[51]     Secondly, there is the issue of whether the anticipated benefits justify the costs.

[52]     There is some uncertainty as to how much it will cost to attach gutters when rebuilding the balustrade walls but it appears that it is likely to be modest in the scheme of the overall project.  ACL’s expectation, based on information provided several years ago, was that the additional cost would be approximately $167,000.00. That was less than five per cent of the then estimated total contract price.   This estimate  excludes  GST,  margins  and  other  items  so  it  will  increase,  but  the percentage of total cost should not increase substantially.   As ACL has said previously, it will never be cheaper to make the addition than when the balustrade walls are rebuilt.

[53]     The vast majority of proprietors believe it is in their interests to include provision for the addition of gutters, as the votes cast in favour of the scheme show. In addition, ACL have recommended consistently that the Body Corporate include a guttering system, so as  to avoid the risk of future damage to the fabric of the buildings, to prevent rust and corrosion, and to reduce the run off from one balcony to another.

[54]     Quite  correctly,  counsel  for  Mr  Crow  submits  that  the  Department  of

Building and Housing has determined that the Body Corporate would not be required

to include gutters to obtain building consent for the proposed works.  However, that is because the remedial works concern an existing building.6     It seems clear that gutters should  have been  installed  at  the outset,  and  would  be required  now  if consent were sought for a new building of the same design.  Accordingly, to include guttering now is to do no more than should have been done at the outset.

[55]  Taking all of these matters into account, I am satisfied that the addition of gutters (if the Body Corporate decides on that course) would constitute reinstatement and that clause 3.2 may be included in its present form.

Second issue – cost allocation

[56]     Clause 8.1 of the scheme provides for the apportionment of costs.  Mr Crow objects to clauses 8.1(b) and (c) because they depart from the scheme of the Act and the rules.  It is common ground that they do depart from the Act and rules because they require the Body Corporate to apportion cost incurred in some works to unit property on the basis of unit entitlement.   Counsel for Mr Crow submits, quite correctly, that there are many cases in which the Court has declined to approve a scheme  under  s  48  which  provides  for  costs  to  be  apportioned  other  than  in

accordance with the Act.7    The Court is reluctant to approve a scheme that departs

from the scheme of the Act and the rules.  It is only appropriate to depart from the scheme of the Act and rules where the best interests of unit owners as a whole dictate such a departure.8

[57]     Counsel for the Body Corporate submits that the circumstances of the present case warrant such a departure.

[58]     The parts of clause 8.1 that are in issue are as follows:

8.1Owners’ contributions: The amount required to meet the cost of the Reinstatement Project shall be raised by levying contributions from Owners in the following manner:

6 Determination 2009/23, Department of Building and Housing, 27 March 2009 at [8.2.12].

7 Eg: St Johns College Trust Board v Body Corporate 197230 [2012] NZHC 827.

8 Tisch v Body Corporate No 318596 [2011] NZCA 420 at [31].

(a)     ...

(b)     Where  the  costs  are  attributable  to  Repairs  on  Building Elements or Infrastructure whether in the [common property] or [unit property] the amount required to fund the Repairs will be raised in proportion to unit entitlement.

(c)     Where the costs are attributable to Repairs on [unit property] not forming part of the Building Elements or Infrastructure but where the Repairs are necessary to comply with Required Building Standards, the amount required to fund the Repairs will be raised in proportion to unit entitlement.

(d)     ... (f)        ...

[59]     The definitions of Building Elements and Infrastructure in the scheme are:

“Building Elements” means the external and internal components of any part of the Building that are necessary to the structural integrity of the Building, the exterior aesthetics of the Building, or the health and safety of persons who occupy or use the Building and including, without limitation, the roof, balconies, decks, cladding systems, foundation systems, retaining walls, and any other wall or other features for the support of the Building.

“Infrastructure” means all fresh and waste water supply, management and disposal systems, gas supply, electrical supply including any emergency backup or generation systems, exterior drainage and storm water system, fire detection, alarm, suppression or extinguishing systems, air-conditioning and/or heating and ventilation systems, insulation systems including in-wall insulation, lift or elevator devices, telecommunication and internet systems, television and radio reception systems, security detection, alarm and monitoring systems including security and access control elements or any other services or utilities to or from a unit or to or from the Common Property.

[60]     As I understand it, the work presently anticipated to unit property that would fall within clauses 8.1(b) and 8.1(c) is the rebuilding of the inner halves of balcony and balustrade walls (subject to the issue of encroachment), and repairing all or some exterior walls fronting onto balconies.  In my view, the gutters referred to in clause

3.2, if they are installed, would be treated as common property.

[61]     Mr Crow accepts that it is not reasonable to expect the Body Corporate to invoice proprietors individually for the actual work that is carried out to their unit’s balustrade, balcony dividing wall and exterior wall.  Aside from anything else, such

an approach would require contractors to keep a record of the time and materials spent on this work for each unit and this is not practicable.

[62]     Given that, some formula to apportion the costs is essential.

[63]     In the course of various annual and extraordinary general meetings, Mr Crow has proposed other methods for allocating costs to proprietors.   Proprietors have rejected these suggestions.   Mr Crow returned to these different methods at the hearing.  I do not propose to consider them, as proprietors have rejected them and they constitute a greater departure from the Act than the scheme itself.

[64]     Counsel for Mr Crow did, however, file a memorandum after the hearing in which he suggested the adoption of a formula such as that used in Body Corporate

198072 v Bank of New Zealand.9    In that case, the scheme provided for cost to be

allocated by reference to the relative percentages of exterior walls forming part of each unit.

[65]     For the following reasons, and with some misgivings,  I have decided to approve clauses 8.1(b) and 8.1(c) as they stand, subject however to the Body Corporate amending the definition of Infrastructure.

[66]     First, I would have been attracted to a formula approach, such as that adopted in Body Corporate 198072, had that been proposed to the Body Corporate prior to the hearing.   This would have allowed the Body Corporate to consider the matter with proprietors and ACL.  However, if I were to ask the Body Corporate to revisit this matter now, further cost would be incurred investigating how best to resolve the matter. That cost would be met by proprietors.

[67]     Secondly, this is not a case where departure from the scheme of the Act and the rules will impose a disproportionate financial burden on a minority.   On the information presented by ACL, the parties who stand to benefit most are the proprietors of units 7A and B, with the cost that they otherwise might bear spread across the proprietors of the other 24 units.  Most of those other 24 units have shown

that they are willing to bear any additional cost because they have voted in favour of the scheme.   Mr Crow did not suggest that he and/or CEW will have to pay substantially more if costs are apportioned on a unit entitlement basis.  For instance, on the figures contained in an estimate from ACL in May 2009,10  apportioning the cost of works to private units on a unit entitlement basis would see Mr Crow, as the proprietor of unit 7C, pay approximately $4,000.00 excluding GST less than he

would otherwise.  CEW, as the proprietor of unit 5C, would pay $6,000.00 excluding GST more than it would otherwise.   These sums are negligible in the scheme of overall costs and vastly greater sums will no doubt have been spent preparing for the hearing before me.

[68]     I add that counsel for the Body Corporate submitted that clause 8.1(b) is consistent with provisions of the 2010 Act which shortly will apply to the Body Corporate, and that approving the clause merely anticipates the effect of the new legislation.  I have not taken that matter into account in deciding to approve clause

8.1(b). Aside from anything else, the 2010 Act requires a body corporate to bear the cost of maintaining and renewing Building Elements and Infrastructure only if they serve more than one unit.  I am not satisfied that the 2010 Act would allocate all of the clause 8.1(b) costs on a unit entitlement basis.  That said, to avoid confusion, the scheme definition of Infrastructure should be amended to reflect the definition in the

2010 Act.

Third issue – other matters

[69]     Mr Crow proposed a number of amendments to particular wordings in the scheme. These relate, largely, to minor details of the scheme.

[70]     I will say at the outset that I do not propose to require the Body Corporate to amend the provisions as Mr Crow seeks.  A list and detail of those provisions with my comments are as follows.

[71]     The first change proposed is to paragraph F of the Recitals section.   The reason given for the proposed amendment is that it would clarify the scope of works to be carried out under the scheme.  Given what I have said above, that clarification will be made to clause 3.1 and that will prevail over the Recitals.   No further amendment is required.

[72]     Mr  Crow  proposes  additions  and  amendments  to  various  definitions  to section two of the scheme. Again, I do not propose to require the changes proposed. However, in the course of considering what amendment it will propose to clause 3.1, the Body Corporate should consider whether any of the definitions in section two require consequential amendment.

[73]     Mr Crow also proposes amendments to sections 11 and 16 of the scheme. These sections include provisions pertaining to, inter alia, recovery of costs from a proprietor who fails to pay levies by the due date and to dispute resolution.

[74]     Provisions in section 11 of the scheme reserve to the Body Corporate the right  to  charge  administrative  costs  and  costs  on  a  solicitor/client  basis  to  a proprietor who fails to pay their levy on the due date.

[75]     I do not consider such provisions objectionable.  There is no reason why the Body Corporate should be put to trouble and expense by an owner who fails to pay a levy by the due date.

[76]     Mr Crow also objects to clauses 16.1, 16.2, 16.3 and 16.6 of the scheme. These clauses provide for decisions of the Body Corporate to be final and binding unless the “total value of the objection(s)” exceeds certain monetary thresholds; how notice of dispute is to be given; require any proprietor who disputes a levy to pay the amount of that levy into the trust account of the Body Corporate’s solicitor, such amount  to  be  held  in  escrow;  and  reserve  to  the  Body  Corporate  the  right  to disregard  dispute  notices  which  the  Body Corporate  reasonably considers  to  be frivolous, vexatious, without merit or under the monetary threshold to which I have referred.  I should add that all provisions in the scheme are subject to the right of any party to apply to the Court.

[77]     Mr Crow seeks the deletion of these clauses and would have all disputes dealt with pursuant to Part 4 of the 2010 Act.  I do not propose to require deletion of these clauses.     Again,  proprietors  have  voted  in  favour  of  this  dispute  resolution mechanism and I would not require amendment of it unless there were good reason to do so.

[78]     At the hearing, counsel for Mr Crow also made submissions concerning the composition of the Committee, to the effect that it would be preferable if it were to comprise people with appropriate experience and possibly also a third party.  It is, of course, for proprietors to elect the Committee.  I note, however, that the rules require the Committee to be made up of proprietors.  There is no scope under the rules for the Committee to include a third party.

Result

[79]     I adjourn the Body Corporate’s application, pending submission of a revised scheme taking into account the matters referred to at [43] and [68].  All changes to the present draft of the scheme should be marked up.   Mr Crow may reply to the proposed changes if he wishes.

[80]     Costs are reserved pending final approval of the scheme.

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M Peters J