Body Corporate 193764 v Antioch Investments Limited HC Auckland CIV 2009-404-7147

[2009] NZHC 2588

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-7147

UNDER  Part 19 High Court Rules

IN THE MATTER OF     Setion 48 Unit Titles Act 1972

BETWEEN  BODY CORPORATE 193764

Applicant

ANDANTIOCH INVESTMENTS LTD First Respondent

ANDTRAMAN PTY LTD Second Respondent

ANDOTHER RESPONDENTS AS SET OUT IN SCHEDULE A TO THE ORIGINATING APPLICATION

Hearing:         16 December 2009

Appearances: Tim Allan for Applicant

Michael Collins, Respondent in person

Judgment:      16 December 2009

JUDGMENT OF HARRISON J

SOLICITORS

Grove Darlow & Partners (Auckland) for Applicant

BODY CORPORATE 193764 V ANTIOCH INVESTMENTS LTD AND ORS HC AK CIV 2009-404-7147  16

December 2009

(copy to Michael Collins in person)

Introduction

[1]      The administrator of Body Corporate 193764 has applied urgently to this Court for an order sanctioning a scheme relating to a property known as Grand Central Auckland, being more particularly 26-48 Te Taou Crescent, Auckland.  The building, which was originally the Auckland Central Railway Station together with recently constructed extensions, requires substantial repairs.   It suffers from widespread leakage, known colloquially as leaky building syndrome.  Approval of the proposed scheme is essential to enable completion of a repair contract.

Background

[2]      The brief background is as follows:

(1)The land area is about 1.085 hectares.  It was originally Government property.    By a  process  of  devolution  it  was  acquired  by private interests.     It  was  redeveloped  in  1998  and  1999  by  Covington Railways Ltd.  Its purpose was to provide accommodation for students at Auckland University;

(2)The effect of the redevelopment was to add residential units to the original    old    railway    station    building.       Mr McCullagh,    the administrator, has explained that Grand Central effectively comprised two parts - one is what is called the original or heritage part with the old building concourse and sidings; the new or redeveloped structure around that concourse is comprised by units constructed above the old building and new structures around it;

(3)The completed development comprises 355 units over five levels.  Of those units, 230 are residential, two are commercial, 85 are car parks within the building, and 38 are car parks around the exterior.  There are  a  further  six  accessory units  owned  by between  one  and  232

proprietors.  The building is a unit title development under the Unit

Titles Act 1972;

(4)Without going into detail, administration of the units reached what Williams J called "a near desperate situation": Norman & Ors v Body Corporate  193764  CIV  2009-404-6570  HC  AK  23 October  2009. Grand Central became insolvent.   The genesis was the discovery in

2006 that the building suffered from widespread leakage.  The Body Corporate on behalf of the owners obtained professional advice.  As a result it entered into a contract with Legacy Construction Ltd to carry out remedial works to both the heritage and redeveloped parts of the building.  It was necessary for this purpose to raise $6.1m pro rata to unit   entitlements   in   four   equal   instalments.      Completion   was scheduled for 2010;

(5)The   problems   were   compounded   by   the   liquidation   of   the management  company,  Uni-Accommodation  Ltd  (UAL),  in  early

2009.  In late 2008 UAL cancelled the management agreement before cancelling all leases in early 2009 when certain proprietors refused to pay their levies.   These events have led to disclosure of widespread and significant defects in the Body Corporate rules.  An attempt was made  by  Covington  to  rectify  them  in  February  2009.    But,  as Mr Allan points out today, the change was legally ineffectual.

[3]      All these events led to Mr McCullagh's appointment as administrator of the Body Corporate on 14 October 2009.  By that time Legacy had nearly completed its obligations under the remedial contract.  Mr Allan advises that, when the contractor suspended its  activities  on 24 November 2009,  a progress  claim for October of

$337,000 was outstanding for payment.  Since then an additional claim for $160,000 for work carried out in November has been submitted and remains unpaid.   In aggregate, Legacy is owed nearly $500,000.  Its decision to suspend work cannot be criticised.  I note, however, that the contractor estimates that work was between 90-

95% completed and, but for the suspension, final completion would have been effected in February 2010.

[4]      The reason for non-payment is set out in Mr McCullagh's affidavits.   In summary, most of the proprietors paid their levies in accordance with a resolution passed on 21 July 2008.  But a small minority defaulted.  It is unnecessary for me to traverse the reasons now.  What is apparent, on Mr McCullagh's calculations, is that about 20 proprietors, including Mr Michael Collins, failed to pay levy obligations which by late November amounted to just under $900,000.   Of that sum nearly

$250,000 was attributable to Mr Collins' defaults.

Scheme

[5]      In the circumstances, and after receiving the benefit of expert legal advice, Mr McCullagh has applied to this Court for an order sanctioning a scheme.   The relevant provision is 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 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.

…

(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.

[6]      Mr McCullagh's application was served on all interested parties.  Of all the unit owners, only Mr Collins, as owner of six units, and two or three others opposed. Mr Collins has filed a notice of opposition and affidavits in support and appeared in Court this morning.

[7]      After hearing Mr Allan's submissions and conferring with Mr McCullagh and Mr Allan during the morning adjournment, Mr Collins has withdrawn his opposition. His concern, however, is to preserve his rights of recourse against parties whom he alleges are or may be liable for loss or damage which he has suffered in his capacity as a unit owner.   That concern is appropriate.   But I record that the terms of the scheme do not in any way limit or exclude those rights.

[8]      Mr Collins' particular concern was with para 15 as follows:

15.1The Owners jointly and severally indemnify and hold harmless the Body  Corporate,  its  members  (jointly  and  severally)  and  the Secretary against all costs, expenses, claims and proceedings and any other liability of any sort incurred by them in the exercise or attempted exercise of the powers granted to the Body Corporate under this scheme whether before or after the date of this scheme but not against any act or omission done fraudulently or with wilful misconduct.

15.2The Body Corporate and its members shall have no liability to any Owner or other party for the standard or extent of the Repairs or for any action they take or have taken, or any omission to take any action, in respect of any work associated with the Repairs or in respect  of  this  scheme,  whether  before  or  after  the  date  of  this scheme, nor shall they be liable for any claim as to the level, extent, or necessity of any Repair or the Cost incurred for any Repair.

[9]      To dispel any misunderstandings, I have explained to Mr Collins that these provisions are relevant to a very different issue; that of the liability of the Body Corporate, its members and the secretary for acts incurred in exercising their powers and in exempting the Body Corporate from liability to any owner for the standard of repairs performed by Legacy.   Neither of these provisions relates to or affects his common law or statutory rights of recourse for loss or damage suffered by acts or omissions by other parties during his ownership of units (Mr Collins advises that he has sold two of his units unconditionally and is expecting sales of two further units today with settlement due in January and February 2010).

[10]     Two other unit owners have authorised Mr Collins to appear on their behalf today to support notices of opposition.   Mr Collins is aware that his authority to appear today is limited to his capacity as sole shareholder and managing director of his companies (the owners of unit titles).   He has no standing to represent the interests of others.  Accordingly those objections are not pursued today.

[11]     I have no doubt that it would be appropriate to sanction the scheme and to make an order for that purpose.   The factual preconditions to invoke s 48(1) are satisfied.  The units to which a unit plan relates are damaged as outlined.  A scheme including provision  for  reinstatement  of  the  buildings  or  other  improvements  is appropriate.  I should add that the terms are comprehensive and specific and properly vest powers in Mr McCullagh for the purposes of completing the Legacy contract.

[12]     One issue is properly raised by Mr Allan.  He accepts that the existing rules are defective in many respects.  Those defects are summarised in a full affidavit filed by  Mrs Margaret  Norman,  a  chairman  of  the  now  suspended  Body  Corporate Committee and a person who has detailed knowledge of the affairs of Grand Central. Mr Allan's  concern  is  that  an  order  may  offend  what  is  known  as  the  general presumption against retrospectivity.

[13]     However,  I  am  in  no  doubt  that  the  terms  of  the  scheme  requiring  an amendment to the rules will not have that effect.  In summary, they simply validate actions taken by the administrator and his predecessor properly and lawfully in accordance  with   resolutions   passed   by  the   unit   holders   in  July  2008   and subsequently.  In view of the fact that all unit owners are sui juris and no questions of capacity arise, it is appropriate to make an order which has the effect of validating any actions taken by the Body Corporate or the administrator since inception.

[14]     Accordingly I make an order sanctioning the scheme in the terms annexed to schedule 1  of  Mr McCullagh's  affidavit  dated  29  October  2009.    Leave  is  also reserved to the administrator to apply for such further or other orders as may be necessary to vary or implement the scheme: s 48(6).  I do express my appreciation to Mr Allan for the assistance he has given this morning and in preparing this case for

urgent hearing.  There will be no order as to costs.

Rhys Harrison J