Body Corporate 198694 v McKinnon

[2023] NZHC 3399

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2191

[2023] NZHC 3399

UNDER

The Unit Titles Act 2010

IN THE MATTER OF

an application for orders settling a scheme under s 74 of the Unit Titles Act 2010

BETWEEN

BODY CORPORATE 198694

First Applicant

AND

BRANDEN WAYNE FRANKLAND AND COURTNEY ESTELLE GOOD

Second Applicants

AND

PHILIPPA JAN MCKINNON

First Respondent

Cont:/

Appearances:

K L Wendt for applicants

No appearance for respondents

Judgment:

28 November 2023

JUDGMENT OF JOHNSTONE J

This judgment was delivered by me on 28 November 2023 at 2.30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

J Batchelor-Smith, Auckland

BC 198694 v McKinnon & Ors [2023] NZHC 3399 [28 November 2023]

AND

COLIN COETZEE

Second Respondent

AND

ABDUL VASEEM KHAJA

Third Respondent

AND

MARTIN RICHARD BEHNKE

Fourth Respondent

AND

HAI LAN AND QIUSONG LIU

Fifth Respondents

AND

ANNA CHRISTINA DOKTER

Sixth Respondent

AND

TWIDLE PROPERTY LIMITED

Seventh Respondent

AND

NIGEL DAVID HAMMOND

Eighth Respondent

AND

JOSEPHINE LOUISE BRITTON

Ninth Respondent

AND

MELISSA JEAN FREE

Tenth Respondent

AND

JOHN KEVIN WARDROP

Eleventh Respondent

AND

RUI GUO AND QI QI

Twelfth Respondents

AND

NICOLE PATRICE BOWIE

Thirteenth Respondent

AND

KEVIN WILLIAM JUDGE AND ANNE ELLEN JUDGE

Fourteenth Respondents

AND

FUNG YEE JUDY TANG

Fifteenth Respondent

AND

PAUL ANDREAS HOEPS AND BIRGIT CAROLIN DORIS EHLERS-HOEPS

Sixteenth Respondents

AND

JOE CAMPBELL

Seventeenth Respondent

AND

MICHAEL SANG-EON PARK AND MINJONG KIM

Eighteenth Respondent

AND

SARA ANDERS MARYCHURCH

Nineteenth Respondent

AND

TARUN KUNDANDAS JOUKANI AND CHANDA TARUN JOUKANI

Twentieth Respondents

AND

ANZ BANK NEW ZEALAND LIMITED

Twenty-first Respondent

AND

ASB BANK LIMITED

Twenty-second Respondent

AND

BANK OF NEW ZEALAND

Twenty-third Respondent

AND

WESTPAC NEW ZEALAND LIMITED

Twenty-fourth Respondent

AND

KIWIBANK LIMITED

Twenty-fifth Respondent

AND

AIG INSURANCE NEW ZEALAND LIMITED

Twenty-sixth Respondent

[1]        Peak Ridge is a 21-unit residential development on Target Road, Totara Vale, Auckland. It is comprised of two-and three-storey principal units forming several buildings, together with accessory units and common property, and was built in around 1999.

[2]       The construction of Peak Ridge was defective. The cost of remediating its defects and the damage they have caused is estimated at around $7.72 million. Its body corporate applies for an order settling a proposed scheme for management of the remediation project and for cost allocation.

[3]        Section 74 of the Unit Titles Act 2010 provides the Court’s statutory jurisdiction to approve schemes to reinstate property held under that Act, where such property has been damaged or destroyed but the unit plan has not been cancelled. I must consider:1

(a)whether the development has been damaged or destroyed;

(b)if so, whether it is appropriate to settle a scheme; and

(c)if so, what the terms of the scheme should be.

Has the development been damaged or destroyed?

[4]There is no doubt this criterion is fulfilled.

[5]        A report by the body corporate's building surveyors dated December 2019 establishes numerous systemic and development-wide defects and damage. In summary, the main defects are: lack of adequate cladding clearances; inadequate detailing at cantilevered concrete balconies; inadequate detailing of roof to wall junctions and of parapet/balustrade walls; incorrectly formed inter-storey control joints; inadequate clearance between cladding and timber decking; lack of protection of fibre cement to weatherboard junctions; and inadequate cladding detailing around joinery units.

1      Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] NZLR 679.

Is it appropriate to settle a scheme?

[6]        Schemes under s 74 will be appropriate where the best interests of unit owners as a whole dictate a departure from application of the Act and from the body corporate’s rules. Expedience and necessity are useful touchstones.2

[7]        In this case, the body corporate does not promote substantial departure from the Act. But it says that the stated requirements of the Act and the body corporate’s rules need if not contradiction then at least supplementation, to address matters such as: the securing of appropriate exclusive access to the principal units; more frequent reporting to unit owners on financial and repair-related matters, and by unit owners on potential unit sales and transfer; a uniform arrangement for request and approval of optional extra work for which requesting unit owners will be fully liable; the mechanics of notice; and a mechanism to facilitate prompt and cost-effective dispute resolution so as not to interrupt remediation unnecessarily.

[8]       I agree. For example, s 80(1)(a) of the Act requires unit owners to permit entry upon reasonable notice for the purpose of repairs. But it is not entirely clear whether the body corporate is entitled under the Act to vacant possession for the substantial period that will be necessary in this case.

[9]       In my view, the best interests of unit owners as a whole are best served, in the context of work that is as substantial as that contemplated in this case relative to the value of the development, if a comprehensive scheme is settled as a principal guide to the conduct required of the body corporate and of owners, including in areas such as access to units which are not clearly provided for under the Act.

What should be the terms of the scheme?

[10]      Principles guiding determination of the terms of the scheme to be settled include the following:3

(a)a scheme with broad support is to be preferred;

2      At [36] and [39].

3      At [45]–[49].

(b)the scheme should be appropriately detailed;

(c)the scheme may have retrospective effect, so long as what the body corporate has already done is in accordance with the scheme;

(d)work on each unit should normally be done to the same standard and at the same time; and

(e)the scheme should depart from the Act and from the body corporate's rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances.

Broad support

[11]      Here, the need for a collective response to the development’s defects has been communicated to unit owners since March 2021, when an extraordinary general meeting (EGM) was held to discuss potential sale rather than remediation. That option was not progressed due to lack of support.

[12]     EGMs were held in 2022 and 2023 to discuss and vote on remediation.  On   4 July 2023, the body corporate circulated comprehensive information materials introducing and including the proposed scheme, in anticipation of a 17 July 2023 EGM at which the body corporate’s solicitor and its remediation consultant were present to discuss matters with unit owners.

[13]     Owners of 18 of the 21 units were represented at the 17 July EGM. Owners of 14 units voted in favour of the scheme, and four units’ owners voted against. An affidavit of the body corporate’s current chairperson, Branden Frankland, sets out his understanding that the opposing owners’ opposition was not so much to the scheme itself, but to the cost of the remedial work.

[14]     The body corporate’s originating application to this Court has been served on all of the respondents, the registered unit owners, all registered mortgagees of units, and the body corporate’s insurer. No opposition has been filed. There was no

appearance, other than by Ms Wendt for the body corporate, at the hearing before me on 23 November 2023.

[15]I take the view there is broad support for the scheme.

Appropriately detailed

[16]     I also consider the scheme is appropriately detailed. Indeed, there is room for argument that the scheme in parts simply re-states entitlements (such as to raise funds for contingencies, and to apportion such costs in accordance with the units’ utility interests), and in others confirms the obligations of the body corporate and of unit owners arising under the Act (such as in respect of the engagement and supervision of construction agents, and insurance).

[17]     As Ms Wendt submitted, however, there is likely to be some value in re-stating matters conveniently for the benefit of lay body corporate members and unit owners. And as outlined above, other parts of the scheme are in my view genuinely necessary to ensure the remediation is undertaken effectively and efficiently for the benefit of all unit owners.

[18]     Certainly, the scope of works is professionally set out in considerable detail in the building consent application attached to the proposed scheme.

Other matters

[19]     Work to date has been consistent with the scheme. The scheme proposes further work across all units over a single, extended repair period. And as indicated, the scheme is not a substantial departure from the Act, nor from the body corporate’s largely merely operational rules. It further incorporates sensible provisions for discharge by this Court, and thus de-registration by the Registrar-General of Land, and so as to limit the circumstances in which affected parties may apply to this Court to vary the scheme.

Result

[20]     Pursuant to s 74 of the Act, I order settlement of the scheme attached to the body corporate’s application dated 19 September 2023.

[21]No question as to costs arises.

Johnstone J