Body Corporate 187874 v Jackson HC Auckland CIV-2011-404-003635
[2011] NZHC 1729
•3 November 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-003635
UNDER the Unit Titles Act 1972
IN THE MATTER OF an originating application for orders establishing a scheme under s 48 of the Unit Titles Act 1972
BETWEEN BODY CORPORATE 187874
Applicant
ANDKAREN MARY JACKSON & ORS First to Twenty-second Respondents
Hearing: 3 November 2011
Counsel: D Bigio and C Eric for the Applicant
No appearance for the Respondents
Judgment: 3 November 2011
JUDGMENT OF WOOLFORD J
Solicitors/Counsel:
D Bigio, PO Box 4338, Shortland Street, Auckland 1140. Email: [email protected]
BODY CORPORATE 187874 V JACKSON & ORS HC AK CIV-2011-404-003635 3 November 2011
Introduction
[1] The applicant applies for an order establishing a scheme for the repair of the building comprising the unit property and common property in Body Corporate
187874 under s 48 of the Unit Titles Act 1972. The complex to which the Body Corporate relates is located at 25-27 George Street, Mt Eden. It comprises 16 three- storey residential units in four individual blocks which are constructed over a single storey carpark.
[2] The applicant is today represented by Mr Bigio and Ms Eric. There is no appearance by or on behalf of the respondents. The first to fifteenth respondents are all of the present registered proprietors of the units. The sixteenth to twenty-first respondents are the existing mortgagees of the units. The sixteenth respondent, Westpac New Zealand Limited, has filed a notice abiding the decision of the Court. The twenty-second respondent is the provider of building insurance.
[3] At a general meeting on 12 April 2011, the Body Corporate resolved to apply to the High Court for an order settling a scheme for the repair of the George Street Apartments under s 48 of the Unit Titles Act 1972 in general accordance with a draft scheme approved by the Body Corporate at that meeting.
Factual background
[4] The George Street Apartments were constructed between July 1997 and March 1998. A code compliance certificate was issued by the Auckland City Council in April 1998.
[5] The Body Corporate became aware of weathertightness issues affecting the George Street Apartments in late 2003. The Body Corporate engaged Summit Roofing to carry out remedial works to the roofs and decks of some apartments between 2004 and 2006.
[6] In 2008 the Body Corporate discovered that some of the decks were leaking again and that further remedial action was required. Subsequently the Body
Corporate instructed South Trade Construction and Maintenance to report on the condition of the decks and any remedial works required. The report identified that the cladding had been attached down to and below the deck levels and recommended remedial works to rectify this.
[7] In or about June 2009 the Body Corporate requested fee proposals from various building consultants in respect of the costs to carry out inspections to identify the extent of the weathertightness problems and prepare a scope of remedial works. The Body Corporate instructed CoveKinloch Consulting Ltd to undertake this work in or about August 2009.
[8] The CoveKinloch report recorded numerous defects in the construction of the George Street Apartments and elevated moisture readings and recommended that a full re-clad of the building be carried out, including rebuilding all balconies.
[9] In June 2010 the Body Corporate instructed Maynard Marks Ltd to further investigate the condition of the complex and report on the remedial repairs required. In July 2010 Maynard Marks provided its report. The report recorded significant defects in the building envelope and roof, together with high moisture readings in numerous locations. The report stated that the only viable option to repair the George Street Apartments was to fully re-clad all external walls, which would likely require a drained and ventilated cavity system and replace all decayed timber and treat the remainder. The cladding used was considered not fit for the purpose of a three-storey structure. The report also recommended that access to first floor decks be restricted for safety reasons due to extensively decayed joists.
[10] Maynard Marks was then instructed to prepare a remedial concept design which would involve a full re-clad of the building. At a general meeting on 12 April
2011, Maynard Marks presented its remedial concept design and the Body Corporate resolved to accept this design and instruct Maynard Marks to prepare detailed remedial designs based on this.
[11] With the instruction to Maynard Marks to prepare a remedial concept design, the Body Corporate resolved to proceed with the preparation of a scheme for the
reinstatement of the George Street Apartments pursuant to s 48 of the Unit Titles Act
1972 with the draft documentation to be presented to all owners for review and approval prior to the application of being filed in the High Court. A draft scheme was duly prepared and circulated to the owners with explanatory memorandum prior to the general meeting on 12 April 2011. At that meeting 12 of the 15 owners were present or represented by proxy. In respect of the draft scheme for reinstatement the Body Corporate resolved to apply to the High Court for an order settling a scheme for the repair of the building comprising unit property and common property in Body Corporate 187874 under s 48 of the Unit Titles Act 1972 and any other ancillary orders as set out in the draft application and scheme discussed at the meeting.
[12] The Body Corporate Committee was also authorised to approve any non- material amendments to the application and draft scheme between the date of the resolution and the date of filing the application. The Body Corporate Committee were also authorised to approve any amendments to the draft scheme as recommended by the Body Corporate’s legal counsel which might result from any decision of the Court that any provisions of the draft scheme were unacceptable to the Court. Following the meeting in April 2011 the Body Corporate Committee approved some non-material amendments to the draft scheme.
[13] The Body Corporate considers that a Court order settling a scheme under s 48 of the Unit Titles Act 1972 whereby unit property and common property are remedied as one project (based on the concept design by Maynard Marks which has been approved by the Body Corporate) is the most practical and economical approach to resolve widespread common weathertightness issues and to ensure that the remedial works are undertaken in a coordinated and integrated manner with consistent design and construction throughout the George Street Apartments, and that all works are completed in accordance with the current Building Code and other building standards.
[14] All of the owners present at the 12 April 2011 general meeting supported the funding of the remedial works by contributions from owners on a unit entitlement basis because the damage to the George Street Apartments was widespread across all
four buildings. The Body Corporate considered this to be a fair and equitable approach.
Legal principles
[15] Section 48 of the Unit Titles Act 1972 provides:
48 Scheme following destruction or damage
(1) Where any building or other improvement comprised in any unit or on any land to which a unit plan relates is damaged or destroyed, but the unit plan is not cancelled, the Court may, on the application of the body corporate, an administrator, the proprietor or one of the proprietors of a unit, or a registered mortgagee of a unit, by order settle a scheme including provisions—
(a) For the reinstatement in whole or in part of such building or other improvement; or
(b) For the transfer of units to the proprietors of the other units so as to form part of the common property.
(2) Where an order is made under paragraph (b) of subsection (1) of this section, the provisions of section 19 of this Act shall, so far as they are applicable, but subject to any order of the Court to the contrary, thereafter apply to any such transfer.
(3) A notice of any application made under subsection (1) of this section shall be served on the Registrar who shall thereupon enter on the supplementary record sheet a notification that application has been so made.
(4) On any application to the Court under subsection (1) of this section, any person having or claiming to have any estate or interest in any unit or in the land or in any part of the land or any insurer who has effected insurance on the buildings or other improvements comprised in any unit or in the land or any part thereof shall have the right to appear and be heard.
(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.
[16] Section 48 of the Act is normally treated as a remedy of last resort. Given the risks and costs of litigation and the difficulties of arranging and dealing with repairs to various units, it is, of course, desirable to maintain comity and good relationships between the unit owners.
[17] Section 48 is triggered by establishing that the building comprising the units is damaged. Once damage is demonstrated the Court may approve a scheme which provides for reinstatement of the building. In Body Corporate 205963 v Becker[1]
[1] Body Corporate 205963 v Becker HC Auckland CIV-2009-404-6017, 21 April 2010.
Stevens J referred to the principles as follows which he drew from the judgment of
Heath J in Fraser v Body Corporate S63621:[2]
[2] Fraser v Body Corporate S63621 HC Tauranga CIV-2008-470-772, 10 September 2009.
[14] Section 48 is triggered by establishing that the building comprising the units is damaged. Once damage is demonstrated, the Court may approve a scheme which provides for reinstatement of the building. In Fraser v Body Corporate S63621 HC Tauranga CIV 2008-470-772, 10 September 2009, Heath J offered guidance on the extent and nature of the discretion of the Court to approve such a scheme. Heath J explained at [88] that the Court is given a wide discretion in this context.
[15] In exercising its powers under s 48(1) of the Act, the Court may make such orders “as it considers expedient or necessary for giving effect to the scheme”. Examples of orders that may be made are provided in subs (5). If the Court decides that a scheme is required, it has a wide discretion to grant or refuse an application under that subsection. With respect to such discretion, Heath J stated at [91]:
These provisions suggest that the Court is given a wide discretion to do justice among all proprietors in a manner that will best resolve the particular problem that has led to the application. There is no fetter on the Court’s discretion, which is designed to meet a vast array of circumstances that could not have occurred to the drafters of s 48. The only absolute requirement is that the Court exercise its discretion judicially, not arbitrarily or capriciously. (Emphasis added)
[16] Heath J held that it was for these reasons he did not accept any gloss should be placed on s 48(1) to impose a threshold that any repair work must be “essential”.
[17] Once the jurisdictional prerequisites are established, an application under s 48 of the Act is one in respect of which a balancing approach is
necessary. This is because the proprietors of individual units have their own economic and other interests to consider, and these may or may not conflict with interests of the proprietors of other units.
[18] Recently, the Court of Appeal in Tisch v Body Corporate No 318596[3] set out a three stage process for a Court considering an application to settle a s 48 scheme:
[3] Tisch v Body Corporate No 318596 [2011] NZCA 420, 29 August 2011.
Step 1 - The Court must be satisfied that the building has been damaged or destroyed.
Step 2 - If so satisfied, the Court must decide whether to settle a scheme.
That is, the Court must decide whether a scheme is appropriate in the circumstances.
Step 3 - If the Court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.
[19] The Court of Appeal cited five factors to be taken into account when considering the terms of a proposed scheme:
[45] First, a scheme with 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 s 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 s 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 between unit owners in the circumstances...An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.
[20] Applying these principles, there is clear evidence before the Court that the scheme is both necessary and expedient for the carrying out of repairs to the apartments. The scheme was developed in a careful and comprehensive manner. It was the subject of full consideration by the unit owners, all of whom had the
opportunity to attend the general meeting in April 2011.
[21] In terms of the balancing exercise, I am required to consider the interests and wishes of the majority of the unit owners who support the scheme. There will accordingly be an order that the scheme in the form annexed to the originating application be approved. I direct that the scheme will be binding on all successors and assigns.
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Woolford J
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