Body Corporate 198072 v Bank of New Zealand
[2016] NZHC 1731
•28 February 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-2932 [2016] NZHC 1731
BETWEEN BODY CORPORATE 198072
First Applicant
AND
TY MAWR INVESTMENTS LIMITED Second Applicant
BANK OF NEW ZEALAND First Respondent
AUSTRALIA AND NEW ZEALAND GROUP LIMITED
Second Respondent
ASB BANK LIMITED Third Respondent
WESTPAC NEW ZEALAND LIMITED Fourth Respondent
NATIONAL BANK OF NEW ZEALAND CUSTODIANS LIMITED (struck off) Fifth Respondent
MORTGAGE HOLDING TRUST COMPANY LIMITED
Sixth Respondent
HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED Seventh Respondent
METROPOLITAN LIFE ASSURANCE COMPANY OF NZ LIMITED (struck off) Eighth Respondent
CRAIG LEISHMAN Ninth Respondent
VANESSA SMITH Tenth Respondent
BODY CORPORATE 198072 v BNZ and Ors [2016] NZHC 1731 [28 February 2016]
VAUGHN SHEPHERD AND SHANE WHITE
Eleventh Respondents
Hearing: 10 February 2016 Appearances:
K L Wendt for the Applicant
Mr Leishman (ninth respondent) in personJudgment:
28 February 2016
JUDGMENT OF DUFFY J
This judgment was delivered by me on 28 July 2016 at 3.30 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
Conveyancing Centre, Auckland
Counsel:
Katerina L Wendt, Auckland
Introduction
[1] There are two key issues for determination in this application. The first is whether powers of amendment that were reserved to the Body Corporate in a Court approved scheme for the repair of a residential unit title building complex go so far as to allow the Body Corporate to depart from the approved scheme by adopting terms that were rejected by the Court when the scheme was first approved.1 The second issue, which is subject to the Court finding that the powers of amendment do not allow such wide change of this scheme, is whether the Body Corporate is required to remediate landscaping works related to the exterior area of the applicant’s
unit, when those works were done by the applicant pursuant to an ultra vires
amendment to the Body Corporate’s rules.
Background
[2] The building complex is located at 15 Nelson Street Auckland and is known as the Columbia Apartments. It suffered from defects that are now commonly known as leaky building syndrome. The remediation of those defects necessitated a court approved scheme (the s 48 scheme).
[3] When the s 48 scheme was settled in this Court by judgment delivered by Allan J on 30 May 2011 leave was reserved to all parties to “ apply for such further order as may be appropriate, either in the light of this judgment, or to deal with matters which may have been overlooked” .2
[4] The tenth respondent, Vanessa Smith, is the legal owner of Unit 1Q. The exterior of unit 1Q once comprised a paved courtyard as well as concrete planter boxes that were constructed on site, plastered and then painted. These were then filled with plants and trees.3 Photographs of the exterior area before demolition were produced in evidence. There was no dispute about the appearance of the area and
what it contained pre-demolition. The dispute was confined to who was responsible
1 The scheme was approved pursuant to s 48 of the Unit Titles Act 1972.
2 Body Corporate 198072 v Bank of New Zealand HC Auckland CIV-2010-404-2932, 30 May
2011 at [132].
3 In her submissions Ms Smith said there were 15 fully grown trees.
for any reinstatement of the exterior area. The estimated reinstatement cost that
Ms Smith has obtained is approximately $33,000.
[5] The exterior area of unit 1Q was demolished in order to repair water damage to the basement garage. In reliance on the leave provision which forms part of the scheme approved by Allan J,4 Ms Smith applies for a direction from this Court that the Body Corporate re-instate the demolished landscaping.
[6] The ninth respondent, Craig Leishman, the owner of a number of other units,5 opposes the direction sought by Ms Smith. None of the other parties in this proceeding, including the Body Corporate, have formally taken steps to oppose Ms Smith’s application.
[7] Mr Leishman’s opposition is seemingly generated by what has been a general change of approach to the application of the s 48 scheme in recent times, and in particular since a company of which he is a director has become the Body Corporate manager. He argues that the Body Corporate has since passed resolutions meaning that Ms Smith has to bear the cost of re-instating the landscaping, that in any event the landscaping cannot be reinstated as it contributed to the damage, that the Body Corporate should not have to re-instate the landscaping as Ms Smith has already been compensated, and finally, that Ms Smith did not validly serve the respondents.
The s 48 Scheme
[8] The s 48 scheme was supported by a majority of the unit proprietors at the time; Mr Leishman was one of the few unit proprietors who were against it. The relevant provisions of the s 48 scheme are set out below.
[9] Part I preamble:
C. The scope of works ultimately required to repair the Buildings will only become fully apparent when remedial works are actually commenced
4 Ordinarily Ms Smith’s application would have been heard by Allan J but by the time it was filed
he had retired from judicial office.
5 At the time of Allan J’s judgment Mr Leishman owned one of the other units. He now owns four
units and has a 50 per cent interest in a further six units through his family trust.
and the extent of damage to the Buildings which is currently hidden becomes
apparent (“the Latent Damage”).
D. The works recommended and designed in the plans and specifications prepared by Alexander & Co, together with any works required to repair any Latent Damage such that a Code Compliance Certificate is obtained for the Buildings (“the Repairs” is intended to be governed by this scheme.
…
I. This Scheme is intended to ensure the Repairs proceed in a co- ordinated manner irrespective of whether such Repairs are to common or to unit property and that the Owners pay their proportion of the cost of such Repairs as set out herein.
[10] Part II of the scheme provided that the Body Corporate was to reinstate the whole building:
1.Body Corporate 198072 is, subject to the provisions of this Scheme, to carry out the Repairs irrespective of whether the repairs are to Common Property or to the Principal Units or Accessory Units as designated in the Deposited Plan 198072 a copy of which in (sic) annexed hereto marked “A”.
2.The Repairs are to be completed in accordance with the plans and specifications for the Repairs prepared by Alexander & Co Limited (“the Plans and Specifications”) or any amendment thereto that the Body Corporate may approve as provided for below.
[11] Part III of the scheme set out the powers and provided at clause 8:
The Body Corporate, is hereby granted the general power to do all things necessary to obtain a Building Consent for the Repairs (acknowledging that the Repairs currently identified are set out in the Plans and Specifications) or such further defects and damage to the buildings that comprise the Body Corporate as may be identified during the course of the Repairs, and to complete the Repairs in accordance with the terms of any such Building Consent so as to obtain a Code Compliance Certificate for the Repairs, and the Body Corporate is further granted such other power and authority as may be necessary to enable the Body Corporate to fully and properly carry out the Repairs and its obligations under this Scheme.
[12] Under the section headed “Governance” clause 8 provided:
For the avoidance of doubt, all major decisions in connection with the Scheme will be made by the Body Corporate at a General Meeting conducted in accordance with sections 88 to 104 of the Unit Titles Act 2010 and will not be made by the Committee of the Body Corporate. Major decisions shall include any decisions to engage contractors or consultants pursuant to the terms of the Scheme, a decision to engage a project manager,
any decision to significantly alter the design of the remedial works from the plans and specifications attached, and all decisions to raise and enforce payment of levies or to borrow funds to pay for the costs incurred pursuant to the Scheme.
[13] A fundamental precept of the s 48 scheme was that no distinction was made between allocation of costs for remediation of common and private property. The Body Corporate was responsible for carrying out the repairs irrespective of whether they were to private property or to common property. In this regard the s 48 scheme departed from the default provisions in the Unit Titles Act 1972 (the Act).6
[14] Under the Act the Body Corporate is responsible for repairs to common property and individual proprietors are responsible for repairs to their individual units. The allocation of the cost of repairs to common property is calculated on the basis of unit entitlement.
[15] However, for the reasons set out in his judgment Allan J approved a scheme that departed from the Act’s default provisions, instead it adopted a formula which “blended the unit entitlement approach with an assessment of the cost of repairs to individual units (including repairs to exterior walls where they formed part of individual units)”.7 The levies to be raised on each unit in accordance with this
formula were explicitly set out in the s 48 scheme.8
[16] In his decision Allan J noted that Mr Leishman was the author of the
“blended formula” however by the time the scheme was before Allan J for approval
Mr Leishman had withdrawn his support for it.9
6 The application for a scheme was commenced under s 48 of the Unit Titles Act 1972. At the time Allan J delivered his judgment the Unit Titles Act 2010 was due to come into force. At [49] of his judgment Allan J noted that the scheme was to be undertaken in accordance with the existing rules but also in accordance with the Unit Titles Act 2010 once that came into force. As the scheme was approved under s 48 of the 1972 Act I have viewed the scheme under that provision. I have also taken the provisions of the 2010 Act into account, in particular s 74 of the Act which provides for schemes following destruction or damage. I am satisfied that there is nothing in the 2010 Act that would alter the view I have reached on the application of the s 48 scheme.
7 See [73] and [95] of Allan J’s decision.
8 See cl 15 of the s 48 scheme.
[17] Another fundamental precept of the s 48 scheme, which Mr Leishman had unsuccessfully opposed from the outset, was the definition of “repairs”. He wanted the definition of “repairs” in the scheme to “differentiate between repairs arising from building defects and those concerning consequential damage.”10 In this way he sought to exclude from the definition of “repairs” damage that resulted from actions taken to effect the remediation of defective elements of the building complex.
However, Allan J rejected this approach, finding instead that:
[119] …there is no legal distinction between repairs and consequential damage. The formula is intended to cover the whole of the repairs which properly fall within the Scheme. Again this is an issue which might properly form the basis of a further application to the Court, pursuant to leave reserved, if a significant difficulty arises.
(emphasis added)
[18] So, provided repairs fell properly within the s 48 scheme they were to be covered and paid for on the same terms, whether they were the direct result of damage caused by defective work, or damage indirectly resulting from remedial works to defective elements of the Columbia Apartments.
[19] The s 48 scheme recognised that the full extent of the weathertight issues affecting Columbia Apartments may not be known until the remedial works began.
Amendments to the s 48 scheme
[20] At the time the s 48 scheme was approved the damage caused by water ingress to the basement garage from the ground floor courtyards had not been detected. Later Ms Smith became aware of this damage.
[21] Sometime after the s 48 scheme was approved the Body Corporate engaged a new entity, Peddle Thorp, to progress the remediation works.
[22] In 2013 Ms Smith became aware that Peddle Thorp did not know about the damage caused by water ingress into the basement garage. Once this damage was drawn to Peddle Thorp’s attention investigations began. These led to Peddle Thorp
preparing an alternative scope of works specifically for the replacement of a waterproof membrane across the exterior areas of the ground floor units.
[23] In his notice of opposition to the present application Mr Leishman refers to the Body Corporate’s power to amend the plans and specifications for the repairs and states that the Body Corporate, either at general meetings or by its Committee, approved a number of amendments to the repairs contemplated by the scheme, including the replacement of the “podium water-proofing membrane upon which the garden of 1Q was established.” This statement is consistent with Ms Smith’s evidence of what transpired.
[24] Relevantly, the Body Corporate chose to treat the repair of the podium waterproof membrane as the type of additional repair work that it could undertake under the existing terms of the s 48 scheme, rather than as additional work for which further direction was required form the Court before it could be undertaken.
[25] In short, no-one suggested that the Body Corporate could not carry out the replacement of the podium waterproofing membrane to remediate the water ingress into the basement garage under the existing terms of the s 48 scheme. Further, I am satisfied from my reading of the s 48 scheme that this work qualified under the scheme. So, the inclusion of the repair to the podium waterproofing membrane as part of the s 48 repair works was appropriate and lawful.
[26] Because the s 48 scheme makes no distinction between repairs and consequential damage it follows that when it comes to reinstatement of otherwise sound elements of the building complex that are damaged in order to remediate defective areas those works would also fall within the scope of repairs intended to be governed by the s 48 scheme.
[27] There is no dispute that the repair of the podium waterproofing membrane necessitated damage to the exterior areas of the ground floor units, including the demolition of the landscaping and paved courtyard of unit 1Q. It follows that in principle when it comes to the reinstatement of the demolished exterior area of unit
1Q, and other units in the same circumstance, this work would also fall within the scope of repairs intended to be governed by the s 48 scheme.
[28] Once the Body Corporate recognised the repair of the podium waterproofing membrane as work within the scope of the s 48 scheme any work that was required to achieve that end naturally came within the scheme, and so was to be paid for in accordance with the formula contained in cl 15 of the s 48 scheme. Such work would necessarily include the demolition and subsequent reinstatement of any sound elements that stood in the way of the repair of the podium waterproofing membrane. To hold otherwise would be inconsistent with: (a) the scheme’s treatment of common property and private property; (b) the formula for raising levies for cost allocation; and (c) the rejection of any provision in the scheme for drawing a distinction between repair work and consequential damage.
Could the Body Corporate make Ms Smith bear the cost?
[29] Mr Leishman sought to argue that the Body Corporate could and had changed the fundamental precepts of the s 48 scheme to the point that reinstatement of the exterior area of unit 1Q was a cost to be borne by Ms Smith. In this regard Mr Leishman relies on cl 2 of the s 48 scheme and the phrase “any amendment thereto the Body Corporate may approve as provided for below.” Mr Leishman refers to changes that have occurred since the approval of the s 48 scheme. These include the change of architects; the move from Alexander & Co to Peddle Thorp; the change to the cladding system; and development of replacement plans and specifications. As to the latter he notes that these did not make provision for the reinstatement of soft landscaping removed/damaged during the works. He also says that the Body Corporate either at a general meeting or under delegated authority to the Committee, made decisions about the scope of works to various finishing items for private elements within unit boundaries. These included: car parks, drapes, painting and gardens.
[30] Ms Smith contends that since Boutique Body Corporates has become the Body Corporate manager the changes that have been instituted using the powers given under the s 48 scheme have included what is essentially an attempt to
distinguish between repair work and consequential damage, that leaves the cost of consequential damage to private property to be borne by the affected unit proprietor.
[31] My view is that the power the s 48 scheme vested in the Body Corporate to amend the plans and specifications explicitly identified in cl 2 does not go so far as to empower the Body Corporate to alter the fundamental precepts of the scheme. Nowhere in the s 48 scheme is there authority for the Body Corporate to: (a) amend the formula for allocation of repair costs; or (b) to amend the definition of repairs in cl 3 so as permit the Body Corporate to differentiate between repairs arising from
building defects and those concerning consequential damage.11 I accept that the
plans and specifications for the repair works may be amended and that additional work can be carried out if it qualifies under the definition of repairs in cl 3 of the s
48 scheme. But that of itself cannot allow a change to the definition of “repairs” or a
change to the formula for calculating levies to meet the cost of those repairs.
[32] The general meaning of the phrase in cl 2 “any amendment thereto the Body Corporate may approve” is qualified and so limited by the addition of the words “as provided for below.” When all of cl 2 is taken into account it is obvious that the power to make amendments does not extend to a power to alter the formula for allocating remediation costs between the unit proprietors or to alter the definition of “repairs” in the scheme. This is understandable. There is no need for a Body Corporate to have such powers; further it is undesirable that a Body Corporate should do so, and I doubt that the Act permits it.
[33] A scheme under s 48 is something the court approves in accordance with well settled principles. These are exemplified by the statement from the Court of Appeal in Tisch v Body Corporate No 318596:12
[44] … 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 the case law. (emphasis added).
11 The present cl 3 of the s 48 scheme makes no distinction between different types of repairs as
Allan J’s decision makes clear: see [118] and [119] of Allan J’s judgment.
12 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679, as was the case here, the scheme in Tisch was approved under s 48 of the 1972 Act: Tisch is recognised as being applicable to approval of schemes under s 74 of the 2010 Act.
[34] This statement from Tisch was subsequently approved by the Court of Appeal in Body Corporate 114424 v LV Trust Holdings Ltd.13 The five guiding principles identified in Tisch led the Court of Appeal in Body Corporate 114424 and LV Trust Holdings Ltd to approve a scheme that did not embody what a majority of unit proprietors wanted for the allocation of remediation costs. Instead the Court of Appeal upheld a scheme that had the support of the proprietor of one unit and was
opposed by the proprietors of the other 14 units in the Body Corporate, all of whom were agreed on a different formula for allocating remediation costs.
[35] A body corporate is not in the same position as is a court when it comes to balancing the interests of each unit holder in a way that achieves the outcome fairest to all unit holders. Body Corporate 114424 v LV Trust Holdings Ltd demonstrates that. As in that case, there may be times when the approach favoured by a majority of unit proprietors will not achieve the fairest outcome to all unit holders, which tells against vesting powers to re-write s 48 schemes in a body corporate. Indeed I doubt that s 48 and the equivalent in the current legislation would go so far as to permit a scheme containing a power that enabled a body corporate to rewrite a court approved scheme. However, I do not need to reach a view on that in the present circumstances as I am satisfied that the s 48 scheme approved by Allan J never went so far.
[36] Mr Leishman argued that if the Body Corporate became liable for the reinstatement of the exterior area of unit 1Q this would treat other proprietors unfairly as they have carried the cost of restoring their exterior areas. Ms Smith argued that her exterior area was different from the other such areas. Neither argument addresses the key factor that has caused me to conclude that in principle Ms Smith is entitled to reinstatement by the Body Corporate of the exterior area of unit 1Q. Once the repair of the podium waterproofing membrane was carried out as a repair under the s 48 scheme it necessarily followed under the terms of the scheme that any reinstatement of sound elements that were required to be demolished to enable the repair works to proceed also qualified for repair under the scheme. In
short, other proprietors may also be entitled to claim their reinstatement costs be paid
13 Body Corporate 114424 v L V Trust Holdings Limited [2014] NZCA 21, (2014) 15 NZCPR 375 at [31], the scheme in this case was approved under s 74 of the 2010 Act.
for by the Body Corporate under the scheme. Levies may have to be struck to enable that to occur.
[37] Mr Leishman acknowledged that the Body Corporate’s decision to leave Ms Smith responsible for the cost of reinstating the exterior area of unit 1Q was not made as a “major decision”, but he then put forward arguments for why it was now too late for Ms Smith to challenge that aspect of the decision. However, this argument overlooks the lack of authority the Body Corporate has under the s 48 scheme to make a decision that in principle leaves Ms Smith responsible for meeting the cost of reinstatement works necessitated by the remediation of repairs under the s 48 scheme. In short it does not matter how the Body Corporate may have attempted to make the decision that it now relies upon for rejecting Ms Smith’s claim, it simply lacks the power to alter the s 48 scheme in the way in which it purported to do.
Did the landscaping contribute to the water ingress?
[38] Mr Leishman argued that the exterior area of unit 1Q cannot be restored as it was before because he believed it had contributed to the water ingress into the basement garage. Ms Smith denies this. She refers to the fact the waterproof membrane required replacing over the entire ground floor area and not just in the vicinity of her unit to support her claim that her courtyard landscaping played no part in the water ingress, or did damage to the underlying waterproof membrane.
[39] I consider that this issue cannot be resolved without expert evidence. If reinstatement work would endanger the repaired podium waterproof membrane that would be a good reason not to permit it. However, that is presently unknown. As the reinstatement of the exterior area of unit 1Q is in principle a repair cost under the scheme for which the Body Corporate is responsible, it has responsibility for and control over ensuring that the reinstatement works does not harm any other repair work.
[40] As matters stand I consider that in principle Ms Smith is entitled under the s 48 scheme to have the Body Corporate prepare plans and specifications for reinstating the exterior area of unit 1Q. This should of course be done in a way that does no harm to the repair works that have already been done. So the Body
Corporate should first obtain expert advice to see if there are any such barriers to reinstating the exterior area of unit 1Q. If there are no barriers it will then be a matter for the Body Corporate to obtain plans and specifications for the proposed reinstatement, and to see that it is carried out.
[41] It would only be if no reinstatement could be done without risk of harming the repaired podium waterproof membrane that the Body Corporate would be entitled to refuse to carry out reinstatement of the exterior area of unit 1Q. However, that cannot be known until experts have assessed the situation.
The effect of the ultra vires amendments
[42] The findings that I have made so far are in principle only because there is the fact that the exterior area of unit 1Q was developed by Ms Smith pursuant to an amendment to the rules of the Body Corporate that Allan J found to be ultra vires.14
This necessarily raises the question of whether Ms Smith can expect the s 48 scheme to cover the reinstatement of works that were not a valid part of the unit title plan.
[43] This is not a case where Ms Smith knowingly carried out unapproved work that falls outside the unit title plan, or what is permitted under the rules of the Body Corporate. Her unchallenged evidence was that at the time she first expressed interest in purchasing unit 1Q in 1999 she asked the developer if she could construct a different type of exterior area for unit 1Q than was provided under the unit title plan and in the rules of the Body Corporate. The developer agreed.
[44] Unfortunately the developer attempted to accommodate Ms Smith’s request by a notice of change of rules. This rule change permitted ground floor unit owners to landscape their courtyard gardens as she had requested. Amendments to the rules were made on 30 September 1999 and on 18 October 1999. Ms Smith took possession once the building was completed and in about September 2000 she arranged for construction of the landscaping work for the exterior area of unit 1Q.
The work was done openly and to the knowledge of everyone then associated with
14 See [64] to [67] of the Allan J’s judgment.
the Columbia Apartments. Further, everyone who purchased units from the time of the amendments to the rules would have been aware of them.
[45] The amendments to the rules of the Body Corporate were found to be ultra vires by Allan J for the reason that the unit plan relating to the Columbia Apartments was not deposited until 19 October 1999 and the amendments pre-dated this event. Until the unit plan was deposited the Body Corporate did not exist and there were no proprietors. This led Allan J to find that the purported amendments to the rules were a nullity, and that the applicable rules for the Columbia Apartments Body Corporate were those set out in schedules 2 and 3 to the Act. The developer could have achieved the outcome which Ms Smith sought and allowed other unit proprietors to do the same if this had been included as one of the rules that were deposited on
19 October 1999 rather than as a purported amendment of those rules made prior to them being deposited.
[46] Clearly Ms Smith is not responsible for the approval she obtained from the developer being subsequently found to be a nullity. The circumstances are such that it is likely they would give rise to an estoppel if the Body Corporate were to attempt to argue that Ms Smith cannot seek reinstatement of the exterior area of unit 1Q because the work Ms Smith had done was done in reliance on an ultra vires amendment to the Body Corporate’s rules.
[47] Further, I note that in his notice of opposition Mr Leishman never explicitly raised any issue regarding the exterior area of unit 1Q being landscaped pursuant to an ultra vires rule of the Body Corporate as justification for it not being restored. The closest Mr Leishman’s notice of opposition comes to raising any opposition grounds based on an ultra vires principle is the statement in paragraph [26] of his notice of opposition which refers to Ms Smith’s “defect litigation claim”; her submitting a “consequential damages claim for the amount of the reinstatement of the concrete block planters and planting” and then states “Vanessa did this knowing the works contained in the quote to reinstate on a like for like basis could not lawfully be affected.” It may be that this last sentence alludes to the landscaping work being ultra vires. However, I consider the issue has not been clearly raised in a manner that sufficiently put Ms Smith on notice that she had to address the issue.
Had she been given clear notice of an opposition based on those grounds she could and most probably would have raised counter-arguments asserting the existence of an estoppel against the Body Corporate. Certainly she referred to these at the hearing. Given the circumstances, an estoppel argument is very likely to have prevailed.
[48] It follows that the fact the development of the exterior area of unit 1Q was carried out under an ultra vires rule is not a barrier to Ms Smith obtaining orders directing the Body Corporate to reinstate that area to a condition that resembles how it was before it was demolished as part of the remediation of the podium waterproof membrane.
Failure to mitigate
[49] Mr Leishman argues that Ms Smith failed to mitigate the damage to the exterior area of unit 1Q. To the contrary Ms Smith contends that the concrete planter boxes and landscape planting contained therein were too heavy to move and there was nowhere she could store them, even if they could be moved. I reject Mr Leishman’s argument as it seeks to impose a responsibility on Ms Smith which was not hers to undertake. Under the terms of the s 48 scheme the Body Corporate was responsible for the demolition and reinstatement of the exterior area of unit 1Q. Therefore any steps to mitigate the damage to that area were for the Body Corporate to undertake, and not Ms Smith.
Settlement compensation
[50] Mr Leishman also argued that the exterior area of unit 1Q should not be reinstated at the expense of the Body Corporate because Ms Smith has received compensation for its demolition. Mr Leishman gave evidence to the effect that a lump sum settlement in what he termed “defect litigation” was distributed to the “second plaintiffs” in that litigation including Ms Smith. She says that the settlement sum was a general sum that covered all claims, and so it cannot be attributed in part to any losses she may have suffered as a result of the demolition of the exterior area of unit 1Q. Mr Leishman refers to this payment as a “lump sum” that was distributed in proportion to the cost allocation formula in the s 48 scheme. I do not
see why this distribution of settlement funds should absolve the Body Corporate of its responsibility to pay for the reinstatement of the exterior area of unit 1Q. If these costs should have been met out of the settlement fund, the Body Corporate may have to seek to retrieve them from all proprietors in proportion to the costs allocation formula in cl 15 of the s 48 scheme. An alternative approach may be that the Body Corporate simply levy for the reinstatement costs based on the cl 15 formula. Thus, I do not accept Mr Leishman’s argument that distribution of the settlement funds to Ms Smith bars her from having the exterior of unit 1Q reinstated at the Body Corporate’s expense.
Were the respondents validly served?
[51] Mr Leishman raised a concern regarding service of the application on the
Body Corporate and the need for service on the unit proprietors.
[52] Ms Smith provided evidence to show that she had served all but two of the parties named in this proceeding. Those who were not served were companies that have been struck off the Companies register since Allan J approved the s 48 scheme.15 She served no other persons. She also stated that the Body Corporate has not updated its address for service since the role of body corporate manager was assumed by Boutique Body Corporate Ltd. However, she advised that Mr Leishman was Body Corporate secretary and a director of Boutique Body Corporate. Ms Smith relies on service on Mr Leishman as having effected service on the Body
Corporate as well.
[53] Mr Leishman is the Body Corporate’s secretary and he advised the Court that the Body Corporate supports his stance. So the Body Corporate is well aware of Ms Smith’s application. Indeed, Mr Leishman also sought costs on the basis:
The Body Corporate will incur costs payable to Boutique for its attendances in representing the Body Corporate’s support of [sic] the Craig’s Notice of Opposition.
15 The companies were National Bank of New Zealand Custodians Ltd and Metropolitan Life
Assurance Company of NZ Ltd.
[54] I consider therefore that Ms Smith has done all that she can to effect service on the Body Corporate. Personal service on the secretary of the Body Corporate is sufficient to effect service on the Body Corporate under r 6.14.16
[55] Mr Leishman also argued that the unit proprietors were interested parties in the s 48 scheme, and so Ms Smith should have served them with her application.
[56] All that the present application seeks is to have the Court approved scheme implemented in accordance with its terms. The Body Corporate is responsible for implementing the reinstatement works Ms Smith seeks to have carried out. I consider therefore that it was not necessary for the other unit proprietors to be served with her application. The Body Corporate was capable of representing their interests. The Body Corporate should have reported the present application to the other unit proprietors and sought their views on how it should be approached. Seemingly, the Body Corporate chose not to make any formal opposition to the application but instead relied upon Mr Leishman’s opposition to the application. If this approach was not approved by the unit proprietors that is an issue between them and Mr Leishman.
[57] I consider that because the Body Corporate has taken no formal steps to oppose Ms Smith’s application I should view it as having chosen to play no part in the application. Mr Leishman has no right to represent the Body Corporate in this Court.17 His right of standing is as the ninth respondent in this proceeding.
Result
[58] Mr Leishman is unsuccessful in his opposition to Mr Smith’s application for
directions.
[59] Ms Smith seeks orders:
(a) directing that reinstatement of concrete block planter boxes and plants in Unit 1Q are part of the scheme governing the
16 High Court Rules r 6.14; see also Incorporated Societies Act 1908, s 16.
17 Re G J Mannis Ltd [1984] 1 NZLR 309 (CA).
remedial works to the buildings comprised in Body Corporate
198072 (the Columbia Apartments) pursuant to s 48 of the
Unit Titles Act 1972; and
(b) costs.
[60] Ms Smith is entitled to the order she seeks in [57](a) and I so order.
[61] I propose to defer making orders as to costs until the parties have an opportunity to make further submissions on costs. Ms Smith should file her memorandum on costs no later than 10 working days from delivery of this judgment. Mr Leishman is to file any memorandum in response by no later than 20 working days from the date of delivery of this judgment.
[62] Ms Smith sought no order directing that reinstatement of the paved courtyard in unit 1Q is part of the s 48 scheme. The findings that I have made however are equally applicable to this reinstatement work as well. Leave is reserved to her to seek further directions on the scope of the reinstatement works should she need to do so.
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