Body Corporate 194769 v Wheatley
[2016] NZHC 856
•28 April 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-003013 [2016] NZHC 856
BETWEEN BODY CORPORATE 194769
First Applicant
LESLEY ANNE WHEATLEY AND GEOFF ROBERT COPSTICK Second Applicants
AND
LESLEY ANNE WHEATLEY AND GEOFF ROBERT COPSTICK
First Respondents
ANTONIO KRSTEV AND SOFIJA KRSTEVA
Second Respondents
Hearing: 28 April 2016 Appearances:
T Bates for the Applicants
No appearance by or for the RespondentsJudgment:
28 April 2016
ORAL JUDGMENT OF HINTON J
Solicitors:
T Bates, Legal Vision, Auckland
Parties:
First and Second Respondents
BODY CORPORATE 194769 v WHEATLEY AND COPSTICK [2016] NZHC 856 [28 April 2016]
Background
[1] The first applicant, Body Corporate 194769 (the Body Corporate), is the body corporate of a 14 unit residential complex situated at 15 Andersons Road at Oteha known as “the Fields” (the building). The building is damaged, suffering from various water ingress problems throughout the entire building as a result of design and construction failings.
[2] Pursuant to s 74 of the Unit Titles Act 2010, the applicants apply to settle a proposed scheme for reinstatement of the common property and all of the units (including principal and accessory units).
[3] The applicants’ originating application for orders to settle the proposed scheme has been served upon all of the respondents. The first to fourteenth respondents are the unit owners. The fifteenth to seventeenth respondents are the various trading banks that have registered mortgages as against the units of the building. The eighteenth respondent is the insurer of the building. The nineteenth respondent is the Registrar General of Land. None of the respondents has taken steps to oppose the proposed scheme. I note that the nineteenth respondent, the Registrar General of Land, has filed a memorandum noting that it would abide by the decision of this Court.
[4] I have read and considered the proposed scheme, which I do not intend to record here in detail.
Relevant law
[5] Section 74 of the Act provides:
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.
(4) If an order is made under subsection (3)(b), sections 58(1)(c) and 59 apply to the transfer, so far as applicable, but subject to any order of the High Court to the contrary.
(5) A notice of any application made under subsection (2) must be lodged with the Registrar who must enter on the supplementary record sheet a notification that the application has been made.
(6) On any application to the High Court under subsection (2), the following persons have the right to appear and be heard:
(a) any person having or claiming to have any estate or interest in any unit or in the whole or part of the base land; or
(b) any insurer who has effected insurance on the buildings or other improvements comprised in any unit or in the whole or part of the base land.
(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.
(8) The High Court may cancel, vary, modify, or discharge any order made by it under this section.
(9) The High Court may make any order for payment of costs that it thinks fit.
[6] The Court of Appeal decision of Tisch v Body Corporate No 318596 is the leading authority on the application of s 74.1 The case concerned the approval of a scheme under s 48 of the Unit Titles Act 1972. The Court said that s 74 in the 2010
Act is the equivalent of s 48 in the old Act. Therefore, the Court’s observations (as
well as other authorities under the old Act) still stand under the 2010 Act.2
[7] The Court set out a three-step process to follow when considering an application to settle a scheme:3
·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.
[8] The Court added:4
Step 1 is a triggering requirement: the building must be damaged or destroyed. There is no guidance in s 48 as to the amount of damage necessary to trigger the section…About all that can be said is that no-one is likely to apply under s 74 unless the damage is substantial…
Step 2 arises because s 48 provides that the Court “may… by order settle a scheme…” Hopefully, a scheme will not be needed for most ‘leaky buildings’ or other cases where substantial repair work is required… We endorse Heath J’s observation in Fraser that “s 48 should be a remedy of last resort”.
…
Step 3 involves the Court settling the terms of the scheme. As at step 2, the Court has a discretion: s 48(5) provides “… the Court may make such orders as it considers expedient or necessary for giving effect to the scheme…”. The aim should be to balance the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit holders. Although we do not preclude other considerations relevant in the particular case, at least five guiding principles emerge from case law.
1 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679.
2 At [26].
3 At [35].
4 At [36]-[44].
[9] The five guiding principles are summarised as follows:5
(a) 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. This will not invariably be so, because a majority of owners may support a scheme that is unfair to the minority.
(b)The scheme should be appropriately detailed. The more detailed a scheme, the less scope for later misunderstanding and argument about it.
(c) Providing that what has been done by the body corporate before the s 74 scheme is actually approved is in accordance with the scheme, the order has retrospective effect.
(d)Work should normally be done to the same standard and at the same time.
(e) The terms of the 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. Thus, the Act and the body corporate rules remain relevant considerations. An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.
[10] Given the discretionary nature of s 74, it is inevitable that each application under s 74 will turn on its factual circumstances.6
Analysis
[11] I am satisfied that the building is damaged, as described in the affidavit of
Mr Terrence Henshaw, a building surveyor, dated 9 December 2015.
[12] I also consider it is appropriate to settle a scheme in the circumstances. There was clearly a determined effort to reach agreement between the unit owners on the carrying out of the required repairs.7 Annexed to the affidavit of Ms Lesley Wheatley, the Chairperson of the Body Corporate Committee for the Body Corporate, dated 9 December 2015, is a Minute of the Extraordinary General
Meeting (EGM) held on 1 July 2015. At that EGM, a resolution was passed to
5 See [45]-[47].
6 Body Corporate 177519 v Lai [2014] NZHC 3381 at [18].
7 At [37].
“approve that a Section 74 repair scheme be drafted and funding associated with the process be raised.” The resolution was opposed by only two unit owners. Also annexed to Ms Wheatley’s affidavit is a Minute of an EGM dated 30 November
2015, which records that a draft scheme was approved (with two amendments made at the meeting) by unanimous resolution. Twelve of the fourteen unit owners were represented at that EGM. Although the unit owners have not communicated to the applicants or this Court since being served with the applicants’ originating application, there is nothing to suggest that they are opposed to the settling of the proposed scheme or that the consensus to carry out the required repairs has since changed.
[13] Secondly, Ms Wheatley says that the settling of a scheme is necessary because:
It is anticipated that not all unit owners will cooperate with the remedial works and the funding thereof. It is therefore important for the Applicants to have a Scheme sanctioned by the Court which it can strictly enforce in the likely event that there are unit owners who are not willing to cooperate with its terms. The Applicants also wish to avoid complicated assessments having to be made as to how much of the repair costs each unit owner should meet.
[14] That the unit owners have failed to communicate their views in respect of the present application is, in my view, relevant to the issue of whether they are likely to actively and consciously cooperate with the funding of repair works without the need of a court order.
[15] I also accept Ms Wheatley’s evidence that one building contract for the repair work is required and that, before the Body Corporate can enter into such a building contract, it must be satisfied that it is able to meet the necessary funds. She explains:
27. … The Scheme provides a formula and/or methodology for raising repairs levies from unit owners, and for the Body Corporate to be satisfied funds are available such that it can proceed with the building contract. It also provides a mechanism to raise additional monies where the costs of the building contract increases above the tendered sum, and/or unit owners fail to meet their levies. It also will bind current and future unit owners alike for the cost of the repairs.
28. The Scheme also contains a fast track dispute resolution mechanism should unit owners object to levies raised or other decisions made pursuant to the Scheme…
29. Only through the Scheme can the Body Corporate provide a total solution so that it can:
i. Satisfy the requirements of the territorial authority’s terms and building
consents;
ii. Effectively seek contributions required for the works from individual owners; and
iii. Bind current and future unit owners to meet the obligations under the
Scheme.
[16] I note that Ms Wheatley relies on the evidence of Mr Terrence Henshaw, which I also accept, that, “[i]n my opinion, to ensure uniformity and a standard of repair which will ultimately maintain the integrity of the buildings and the value for their owners the building must be repaired by a single contractor …”
[17] For the reasons set out below, I approve the terms of the scheme as proposed by the applicants:
(a) The proposed scheme appears to be broadly supported. As I have already mentioned, the Minutes of the 30 November 2015 EGM, in particular, suggest that unit owners are in favour of the proposed scheme being settled. To date, 13 of the 14 unit owners have paid levies which, to me, suggests there is broad support for the proposed scheme. Furthermore, notice of the present application has been served upon all of the respondents, none of whom has formally or expressly indicated any opposition to the making of the order sought.
(b)The proposed scheme is appropriately detailed, without being overly complex.
(c) All actions taken by the Body Corporate prior to the proposed scheme being settled, are consistent with the terms of the proposed scheme. For example, the unit owners have so far been levied in accordance with cl 21.2; and all costs to which unit owners are subject have been
consistent with the definition of “Costs” set out in cl 15. Furthermore, there is a specific clause which states that the proposed scheme is of retrospective effect. Clause 13.4 provides:
The work undertaken prior to the date of this Scheme, in identifying the initial damage to the Buildings and the Repairs required, and any related initial reports, their cost to date, together with any construction work completed, are deemed part of this Scheme and the costs payable for such work shall be deemed Costs within the meaning of this Scheme.
(d)The affidavit evidence clearly demonstrates the Body Corporate’s intention to commence work at the same time and to the same standard.
(e) Mr Bates, for the applicants, submits the proposed scheme departs from the Act in one material respect only, which is with regard to funding. The Act presumes that each unit owner has the responsibility of repairing and maintaining his or her or its own unit,8 whereas the proposed scheme seeks to raise levies for the costs of repair of both common and unit property in proportion to the percentage of ownership interest for each individual unit. Mr Bates submits the proposed scheme allows the Body Corporate to avoid the recovery mechanism set out in ss 138(4) and 126(1)9 of the Act, which are available only once the repairs are already complete.
[18] I deal with the last point in more detail. Although the proposed scheme departs from the Act to the extent identified by Mr Bates, I accept that such a departure is no more than reasonably necessary to achieve what is fair as between unit owners in the circumstances. No one unit owner is disadvantaged against another. Further, Ms Wheatley has given evidence saying there is reason to believe that unit owners may not pay the costs of repair without a scheme being settled, and,
although the Body Corporate may well be able to recover its debt due from the unit
8 Unit Titles Act 2010, s80(g); “to ensure that no damage or harm… is, or has the potential to be, caused to the common property, … or any unit in the building”.
9 Unit Titles Act, ss 138(4) and 126(1) would enable the Body Corporate to recover any costs incurred relating to the repairs in a principal unit (in the case of s 138(4)) or “1 or more of the units” (in the case of s 126(1)(c)).
owners, the settling of a scheme, in my view, avoids any uncertainty10 as to payments of levies, by setting a clear formula for calculating the levies each unit owner will be required to pay. I consider the Body Corporate’s power to raise such levies is necessary and expedient to give effect to the purpose of the proposed scheme, which is to:
Ensure the Repairs proceed in a co-ordinated manner irrespective of whether such Repairs are to common or to private unit property and that the Owners pay their proportion of the costs of such Repairs as set out [in the proposed scheme].
[19] Furthermore, the Body Corporate has quite rightly required unit owners identified as “A-K” to meet their own cost of repairing and/or replacing the decks on their units because, as Mr Bates says, it was considered unfair by members of the Body Corporate to require all unit owners to contribute to the cost of repairs of the decks when not all units have decks.
[20] Overall, I am satisfied that the settling of the proposed scheme is the best option for the unit owners as a whole.
Conclusion
[21] I order the settling of the scheme sought by the applicants, as attached to the notice of originating application.
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Hinton J
10 Body Corporate 201036 v Westpac Banking Corp [2015] NZHC 1524 at [19].
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