Body Corporate 198900 v Bhana Investments Ltd
[2015] NZHC 1620
•10 July 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4263 [2015] NZHC 1620
BETWEEN BODY CORPORATE 198900
Plaintiff
AND
BHANA INVESTMENTS LIMITED First Defendant
AND
COWBOYS PROPERTIES LIMITED Second Defendant
AND
SHERIFF PROPERTIES LIMITED Third Defendant
AND
SUN OCK LIMITED Fourth Defendant
AND
JGM INVESTMENTS NO. 2 LIMITED Fifth Defendant
Hearing: 16 February 2015 Appearances:
T Rainey and JP Wood for plaintiffs
No appearance for first defendant
K Davenport QC and R Lewis for second and third defendantsM Benvie for fourth defendant (excused from appearing) R Latton for fifth defendant
Judgment:
10 July 2015
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 10 July 2015 at 3:30 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
BODY CORPORATE 198900 v BHANA INVESTMENTS LIMITED [2015] NZHC 1620 [10 July 2015]
Table of Contents Paragraph
Number
Introduction [1] History [6] The broad issue [8]
Issues [10]
Is the declaratory judgment procedure appropriate to resolve the issues in this case and should the Court exercise its discretion to issue a declaration as sought by the plaintiff?
[12]
Is the verandah common property? [20] Evidence [22] Submissions [26] Discussion [32]
Decision that the verandah is common property [35]
What are the principles for the interpretation of the rules of a body corporate?
Did the body corporate validly approve the use of the common property by any or all of the commercial unit proprietors?
Is a special resolution required to approve the
defendants’ use of the common property?
[37] [44]
[44]
Discussion [51]
Decision that a special resolution was not required to approve the awnings
Do the approvals that were given by the Committee in fact authorise the erection of the awnings on the common property?
The awning attached to the verandah at the western side of Unit D – Sports Grill
The awning attached to the verandah at the western side of Unit G & H – Cowboys
The awnings attached to the verandah at the western and northern sides of Unit I – The Food Store
[56] [57]
[59] [60] [66]
Table of Contents Paragraph
Number
Decision that the awnings were validly approved by the body corporate
Is the body corporate estopped from denying that the body corporate gave consent to the erection of the awnings? No answer required.
Did the body corporate validly authorise the commencement of the proceeding?
The general principles for interpreting the body
corporate’s resolutions
The resolution at the annual general meeting on
25 February 2013
[71] [72]
[73] [77]
[81]
Was the resolution sufficient? [82] Decision that proceeding was validly authorised [91] Declarations [92] Costs [94]
Introduction
[1] When construction of The Quays building in Auckland’s Viaduct Harbour was completed at the end of 1999, the unit plan for the development was deposited and the plaintiff, Body Corporate 198900 (“BC198900” or “the body corporate”), came into existence under the Unit Titles Act 1972 (“the 1972 Act”).1 The body corporate has 71 principal units, the majority of which are residential units on the first to fourth floors. The remaining units, on the ground floor, are commercial units.
[2] The Quays has a verandah which is alleged by the body corporate to be attached to the common property of the building at or just above the ground floor, extending along the southern, western and northern sides of the building. On the western side, the verandah overhangs land that was originally common property, but that land now belongs to Auckland Waterfront Development Agency Limited (“Waterfront Auckland”). At issue in this proceeding are the awnings, affixed by a few bolts underneath the verandah, which have been erected by the occupiers of the commercial units on the western and northern sides of the building. Those units are operated as restaurants and bars.
[3] The body corporate seeks a declaratory judgment clarifying the extent of its power to remove the awnings. Specifically, it seeks a declaration that:
The Body Corporate is entitled under the Unit Titles Act 2010 and its Body Corporate Rules to remove the additions to the common areas north of the building and under the verandah to the west of the building and to charge the owners of units D, G, H and I jointly and severally for the cost of doing so.
[4] The five defendants are the commercial tenants and owners who occupy the ground floor on the northern and western sides of the building. The first defendant, Bhana Investments Limited (“Bhana”) owns Unit D and leases it to the fifth defendant, JGM Investments No. 2 Limited (“JGM”), which operates The Sports Grill in the space. The second defendant, Cowboys Properties Limited (“Cowboys”)
and the third defendant, Sheriff Properties Limited (“Sherriff”) own Units G and H
1 Following the repeal of the 1972 Act in 2010, the body corporate is now governed by the Unit
Titles Act 2010 (“the 2010 Act”). See ss 218-221 of the 2010 Act.
respectively and occupy those units together as Cowboys Bar.2 The fourth defendant, Sun Ock Limited (“Sun Ock”) leases Unit I to JGM, which operates The Food Store in the space.
[5] Bhana did not actively defend the proceedings and Mr Benvie for Sun Ock, whose interests align with those of JGM, was excused from appearing. The defendants’ case, therefore, was argued by Ms Davenport QC for Cowboys and Sherriff, and by Mr Latton for JGM.
History
[6] The Waterfront Auckland land below the verandah on the west side of The Quays is used by The Sports Grill, Cowboys and The Food Store to accommodate patrons. Each establishment has a seating area adjacent to the building which has been enclosed by the addition of awnings to the underside of the verandah. The Foodstore also uses the land to the north of Unit I, which remains common property, in a similar fashion.
[7] The occupation of these outdoor areas occurred progressively over time:
(a) On 16 February 2009, the body corporate Committee received an application from the previous tenant of Unit D to erect a canopy overhanging the land immediately outside the unit; on 25 March 2009 the Committee noted that it had been erected.
(b)In 2010, the tenant of Unit H requested permission to erect an awning, like the awning on Unit D, overhanging the land outside. The Committee approved the request, including as to the style and colour of the awning, on 14 October 2010.
(c) In July 2010, JGM took over the lease to Unit I. It wished to erect an awning to match the one on Unit D, along with making other
2 I have resisted the impulse to refer to these defendants collectively as “the Wild West”.
alterations to Unit I. JGM says the Committee approved the alterations in general on 14 October 2010.
(d)At the same time as the awnings were added to Units H and I, a similar awning was added to Unit G.
(e) Following the commencement of the proceedings, the tenants of Units G and H entered into a lease with Waterfront Auckland for an area of Market Square beneath the verandah on the western side of the building. Similarly, JGM says that the land outside Unit D has also been leased from Waterfront Auckland.
(f) There is no evidence of a lease for the common property encased by the awning on the northern side of Unit I.
The broad issue
[8] The body corporate claims that the verandah and all attachments that overhang the land belonging to Waterfront Auckland are common property. It says the awnings are objectionable because they are affixed to the underside of the verandah and thus are on and over common property, and that the proprietors of the commercial units in question never obtained written permission.3 Furthermore, it claims that it never gave permission for the tenants in Unit I to occupy the common property on the northern side of the building. The body corporate is said to have voted at its annual general meeting in 2013 to authorise the body corporate
Committee to require the commercial proprietors to remove the awnings at their own expense. It seeks confirmation that it is entitled to do so.
[9] This issue is underpinned by a tension between the proprietors of the commercial units and the residential proprietors. Many of the residential proprietors
would prefer that the commercial units are not operated as bars because those
3 In the rules of the body corporate, “proprietor” is defined as “a person registered as a proprietor of a stratum estate in leasehold in a Unit on the Unit Plan and any person under the control of the proprietor and, for the purposes of the operating rules and procedures of the Building set out in section 3 of these Rules, includes any occupier of a Unit.”
operations tend to impact upon the quiet enjoyment of their residential units. The body corporate also claims that the awnings prevent maintenance access to other parts of the building and that the awnings have caused damage to the verandah in the form of cracking and ‘ghosting’. The defendants deny these allegations.
Issues
[10] The parties agree that there are five essential issues which the Court is required to determine. The issues, in the order in which they are dealt with below, are:
(a) Is the declaratory judgment procedure appropriate to resolve the issues in this case and should the Court exercise its discretion to issue a declaration as sought by the plaintiff?
(b) Is the verandah common property?
(c) Did the body corporate validly approve the use of the common property by any or all of the commercial unit proprietors?
(d)Is the body corporate estopped from denying that it validly approved the use of common property?
(e) Did the body corporate validly authorise the commencement of the proceeding by resolution or by ratification?
[11] There are subsidiary questions about the principles to be applied in the interpretation of the rules of a body corporate and the interpretation of resolutions of a body corporate, the answers to which inform the determination of questions (c) and (e) above. Should the rules be interpreted as if they were statutory provisions, being an extension of the unit titles legislation, or should the principles of contractual interpretation apply, on the basis that the rules form part of a contract between unit
holders and the body corporate? The subsidiary questions are answered below.4
4 At [37] – [43] (rules), and [77]-[78] (resolutions)
Is the declaratory judgment procedure appropriate to resolve the issues in this case and should the Court exercise its discretion to issue a declaration as sought by the plaintiff?
[12] The body corporate seeks a declaration under the Declaratory Judgments Act
1908 that:
The Body Corporate is entitled under the Unit Titles Act 2010 and its Body Corporate Rules to remove the additions to the common areas north of the building and under the verandah to the west of the building and to charge the owners of units D, G, H and I jointly and severally for the cost of doing so.
[13] Section 3 of the Declaratory Judgments Act provides:
Where any person has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any statute, or any regulation made by the Governor-General in Council under statutory authority, or any bylaw made by a local authority, or any deed, will, or document of title, or any agreement made or evidenced by writing, or any memorandum or articles of association of any company or body corporate, or any instrument prescribing the powers of any company or body corporate; or
Where any person claims to have acquired any right under any such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or to be in any other manner interested in the construction or validity thereof,—
such person may apply to the High Court by originating summons for a declaratory order determining any question as to the construction or validity of such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or of any part thereof.
[14] The Court’s jurisdiction to make a declaration under s 3 is discretionary: s 10.
[15] The defendants challenged the bringing of this action on the basis that, because there are the factual issues that the Court is required to decide, it is not appropriate for the court to make a declaratory judgment. Ms Davenport QC referred to two cases in support of this contention:
(a) Mandic v Cornwall Park Trust Board,5 in which the Supreme Court held that in cases where there is a factual dispute the case is not
appropriate for declaratory judgment.
5 Mandic v Cornwall Park Trust Board [2011] NZSC 135; [2012] 2 NZLR 194.
(b)New Zealand Insurance Company Limited v Prudential Assurance Company Limited,6 in which the Court of Appeal noted that the Declaratory Judgments Act is fundamentally designed to provide a quick and inexpensive means of obtaining a judicial interpretation where the matter in dispute cannot be conveniently determined in its ordinary jurisdiction, and where a “declaratory judgment would be
appropriate relief”. Litigation with difficult questions of mixed fact and law were said to be unsuitable for declaratory judgment procedure.
[16] Ms Davenport and Mr Latton submitted that the basis on which the body corporate seeks declaratory judgment is a mixture of fact and law, particularly since the body corporate disputes the factual assertions made by the defendants about whether consent was granted.
[17] In response, Mr Rainey relied on Carrington v Carrington in which the High Court held that in the exercise of its power under s 3 of the Declaratory Judgments Act, the Court needs to:7
…first determine whether the matter in respect of which a declaration is sought falls within the scope of the Declaratory Judgments Act (the jurisdiction issue) and, secondly, whether the case is an appropriate one for the exercise of the Court’s discretion to make a declaration.
[18] Counsel for the body corporate emphasised that the existence of a factual dispute does not go to jurisdiction but to the discretion to grant relief.8 He submitted that this matter is appropriate for summary judgment because it is a matter of the Court effectively interpreting the meaning of the body corporate rules and then effectively applying those rules to what are some relatively simple and uncontested facts. The legal questions are (a) is the verandah common property and (b) how does the body corporate consent to use of common property? Once those are established, then it is just a matter of having recourse to all the facts are contained in the minutes
of both the general meetings and the Committee meetings to decide whether a
6 New Zealand Insurance Company Limited v Prudential Assurance Company Limited [1976]
1 NZLR 84 (CA) at 85.
7 Carrington v Carrington [2014] NZHC 869, (2014) 22 PRNZ 43 at [22].
8 At [43].
declaration can be made. Mr Rainey submitted that this is the use of the declaratory judgment procedure that was advocated by the Supreme Court in Mandic v Cornwall Park Trust Board.9
[19] Having given all of the evidence and the matters raised by counsel careful consideration in the course of preparing this judgment, I am satisfied that such factual issues as required to be determined may be resolved on the basis of the comprehensive oral and written evidence adduced by the parties. Where relevant, the evidence of witnesses was the subject of cross-examination and I am satisfied that all of the relevant documentary material was placed before the Court. The parties having taken several days to address all of the issues in some detail, it would be unhelpful for the Court to take a narrow view of the circumstances in which it should exercise its discretion to grant declaratory relief. This is particularly the case since it was not disputed by the defendants that the jurisdictional threshold in s 3 for granting declaratory relief is met in this case. I propose to make a declaration at the conclusion of this judgment.
Is the verandah common property?
[20] The first issue of substance is whether the verandah is common property. The body corporate rules require any unit holder who wishes to use common property to obtain permission to do so.10 If any part of the verandah is not common property, the permission of the body corporate was not required for the addition of an awning to that part. A finding that the verandah is not common property would have an impact upon, but not by itself resolve, the question of the body corporate’s ability to require the defendants to remove the awnings or to remove them itself at the defendants’ expense.
[21] It is common ground between the parties that the verandah on the northern side of the building and the seating area underneath the verandah is common property. The contested issue is the status of the verandah on the western side of the
building.
9 Mandic v Cornwall Park Trust Board, above n 5.
10 Rule 2.1(y), discussed below at [57] – [58].
Evidence
[22] The undisputed facts relating to the verandah on the western side are:
(a) The verandah is attached to and forms part of The Quays building.
(b)The verandah is attached to the building by bolts which intrude into parts of the building structure which are unit property.
(c) The verandah was part of the original construction of the building which was consented to and approved by the Council.
(d)The verandah is not shown on the unit plans which were deposited with the District Land Registrar when the body corporate came into existence.
(e) The verandah extends out beyond the base land of the body corporate over adjoining land now owned by Waterfront Auckland.
[23] The body corporate relies on the expert evidence of Mr Neale Faulkner, a licensed cadastral surveyor, in support of its argument that the verandah is common property. Mr Faulkner was instructed by the body corporate to survey the building in order to form a view as to the location of the verandas in relation to common property, unit property and the base land boundary at the ground floor of the buildings. In forming his opinion, Mr Faulkner relied on site visits to the building, a review of the deposited plan for the body corporate, the Survey Regulations that were in force at the time the unit plan was prepared, approved and deposited and the Cadastral Survey Guidelines that were in force at the time the unit plan was prepared, approved for survey and deposited.
[24] In short, Mr Faulkner said that the verandah is attached to the common property and not to unit property, and that the structures which have been built onto the verandahs enclose the strip of common property. He says:
(a) Units A, B, C, D, G, H and I at the ground floor level all have verandahs associated with them. Given the specific description of the unit boundaries on the unit plan as being in the external walls and glazing where applicable, together with the fact that the building is clear of the base land boundaries, as clearly depicted on the ground floor plan and sections, there is common property between the unit boundaries and the base land boundaries.
(b)Based on on-site observations and measures, the verandahs are all affixed to the exterior portion of the building, which is part of common property, not unit property, and project out from the building over the site boundaries into Customs Street West to the south and Market Square to the west, both of which are outside the base land.
(c) A similar situation occurs with the veranda on the northern side of Unit I where, rather than projecting over the site boundaries, it is wholly contained within the base land and the common property associated with it.
[25] Mr Richard Maiden, a building surveyor, gave evidence on behalf of the defendants, relating primarily to the plaintiff ’s allegations that the affixing of the awnings to the exterior building has allowed water to penetrate the external cladding and that the awnings prevent access to the exterior of the building. He acknowledged that he was not an expert in cadastral surveying and the preparation of unit plans and did not purport to contest Mr Faulkner’s evidence.
Submissions
[26] For the body corporate, Mr Rainey relied on Body Corporate 95035 v Chang11 in which the body corporate of the Endeans Building sought a declaration on the ownership of a verandah attached to the building and overhanging the public thoroughfare on Quay and Queen Streets, Auckland. The verandah was affixed to
the building at a level at the top of the ground floor units. No part of it was within
11 Body Corporate 95035 v Chang [2011] 3 NZLR 132 (HC).
the boundaries of the body corporate complex and it was not depicted on the body corporate’s unit plan. The ground floor units owned the exterior of the building to the edge of the unit plan by dint of a notation on the unit plan.
[27] Ellis J found that under ordinary principles of land law, the verandah was a fixture and was part and parcel of the land that comprised the body corporate complex. The Judge said:12
In my view, there can be little doubt that the physical form of the verandah must either properly be regarded as part and parcel of the land (because it is an intrinsic part of the Building which is itself part and parcel of the land) or (at least) a fixture (which is also part of the land).
[28] Absent the notation on the plan, the effect of s 3(1)(b) of the 1972 Act is that the verandah would have been part of the common property.13 Due to the exterior of the walls being unit property, however, and the subjective intention of the parties to the subdivision to minimise as much as possible the common property in the complex, the Court determined the verandah was part of the unit property. The verandah was held to be owned in common by the units to which it was physically
attached, and in proportion to the amount of the verandah that adjoined the unit.
[29] The body corporate submitted that the verandah of The Quays building shares some of the attributes of the verandah to the Endeans Building: it is not depicted on the deposited plan, but it is affixed to the building and it is subject to the same regulatory control under the District Plan. It was argued that the verandah on The Quays differs from that in Chang in that it is affixed to common property rather than to unit property; that the verandah on the northern side of the building is wholly within the boundaries of the body corporate complex and overhangs common property; and that the western verandah overhangs a small strip of common property. Mr Rainey submitted that, applying the reasoning in Chang, the verandah is part of
the land of the complex despite not being described on the unit plan.
12 At [46].
13 The registered proprietor of an estate in fee simple in a parcel of land under the Land Transfer Act 1952, or of an estate as lessee under a memorandum of lease registered under that Act in respect of a parcel of land, or of an estate as lessee or licensee under a lease or licence from the Crown registered under that Act in respect of a parcel of land, may subdivide that parcel of land, in accordance with the provisions of this Act, into common property, being so much of the land as is not comprised in any unit.
[30] Ms Davenport QC relied on definitions in the Unit Titles Act 2010 (“the 2010
Act”) of:
(a) the “base land” as “the parcel of land that is subdivided into a Unit
Title development”;14
(b)“unit title development” as the “individual units and the common property comprising a stratum estate”;15 and
(c) “common property” as “all the land and associated fixtures that are part of the unit title development but are not contained in a principal unit, accessory unit, or future development unit”.16
[31] Counsel submitted that the verandah is not the land or an associated fixture that is part of the unit title development and that it should be categorised as a “building element”.
Discussion
[32] In a second judgment in Chang, Ellis J noted that although she had held in the first judgment that the verandah was part of the unit entitlement, the judgment had not determined who should maintain it.17 She said:
[41] To complicate things further, it seems that responsibility for and control over the verandah is somewhat altered (although arguably clarified) by the terms of the Unit Titles Act 2010 (UTA10), the operative provisions of which will apply to Body Corporate 95035 from 15 October 2012.
[42] First, the UTA10 introduces the entirely new concept of “Building elements”, which are defined to include:
… the external and internal components of any part of a building or land on a unit plan that are necessary to the structural integrity of the building, the exterior aesthetics of the building, or the health and safety of persons who occupy or use the building and including, without limitation, the roof, balconies, decks, cladding systems, foundations systems (including all horizontal slab structures between
14 Unit Titles Act 2010, s 5.
15 Above.
16 Above.
17 Body Corporate 95035 v Chang [2012] NZHC 2467.
adjoining units or underneath the lowest level of the building), retaining walls, and any other walls or other features for the support of the building.
[33] The Court held that the verandah was arguably necessary for the structural integrity of the building; the exterior aesthetics; and the health and safety of persons who might want protection and was, accordingly, within the definition. Building elements do not need to be common property, but the Act vests responsibility for their upkeep with the body corporate.
[34] I am not attracted by the submission that, if the verandah falls within the definition of a “building element” in the 2010 Act, it might be neither unit property nor common property. The introduction in the 2010 Act of the new concept of a “building element” did not change the basic division of land under the Act; namely, units which are owned by individuals and common property which is owned by the body corporate.
Decision that the verandah is common property
[35] Adopting respectfully the legal analysis given by Ellis J in the first judgment in Chang,18 discussed at [27] and [28] above, I am satisfied that the verandah attached to The Quays building is part and parcel of the land, either because it is an intrinsic part of the building which is itself part and parcel of the land, or because it is a fixture which is also part of the land. Further, I accept the evidence of Mr Faulkner that the exterior of The Quays building is common property. The primary contact between the verandah and the building is on and through common property, and the verandah serves no purpose related to any individual unit.
[36] I rule that the verandah attached to The Quays building is common property. It follows that the approval of the body corporate was required before the awning
could lawfully be attached to it.
18 Body Corporate 95035 v Chang, above, n 11.
What are the principles for the interpretation of the rules of a body corporate?
[37] The questions of whether the body corporate validly authorised the use of the common property by any or all of the commercial unit proprietors and, if so, how any such authorisation may be revoked, must to be answered principally by reference to the rules of the body corporate. There are disputes as to the meaning of the rules and the effect of resolutions of the various committees, requiring the Court to interpret them. It is necessary to consider by what principles such an interpretive exercise is to be conducted.
[38] In general, a body corporate’s operational rules originate in s 105 of the 2010
Act and Schedule 1 of the Unit Titles Regulations 2010 made under s 217(i) of the
2010 Act. In the case of Body Corporate 198900, the rules have their origin in s 37(2) of the 1972 Act, under which the body corporate was established, and in rules promulgated by the body corporate, pursuant to ss 37(3) and (4) of the 1972 Act, in substitution for the statutory rules provided in Schedules 2 and 3 to that Act. Following the repeal of the 1972 Act in 2010, the rules are now governed by the
2010 Act.19
[39] In view of their statutory origin, the rules could be treated as an extension of statutory provisions and the court could apply principles of statutory interpretation to ascertain their meaning. Such an approach would focus on construing the text in the light of the statutory purpose.20 A different approach would be to treat the rules of the body corporate as part of contracts between each of the individual proprietors of the unit titles, and between the individual proprietors and the body corporate. The
focus would be on construing the text in the light of the background to ascertain objectively what the parties intended.21
[40] In the present case there is a dispute over the construction of rule 2.3(f) of the rules of the body corporate, and about the interpretation of resolutions made pursuant to the Rules. Mr Rainey submitted on behalf of the body corporate that the Court
should interpret the rules (and, by implication, any resolutions) in accordance with
19 Unit Titles Act 2010, ss 218-221.
20 Commerce Commission v Fonterra Co-operative Group Ltd [2007] 3 NZLR 767 (SC) at [22].
21 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at [16].
the canons of statutory interpretation. This is because the rules are sourced directly from Schedule 2 to the 1972 Act.
[41] I am inclined to think, however, that reference to statutory purpose alone will not often be helpful in ascertaining the meaning of operational rules, particularly in the light of the ability of bodies corporate to amend their rules to suit the particular operational needs of the institution. Resolutions are even more likely to be confined to practical operational matters in respect of which it is improbable much interpretive assistance would be obtained from a consideration of statutory purpose.
[42] A more helpful analogy may be made with the approach to the interpretation of company constitutions in New Zealand. The default provisions of the Companies Act 1993 form the basis of a company’s constitution unless the parties’ agree to adopt a constitution. The position in New Zealand as to the interpretation of a company constitution appears to be that adopted by the Privy Council in Attorney-
General of Belize v Belize Telecom Ltd22 in which the Board said:23
The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors' Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114–115, [1998] 1 WLR 896 at 912–
913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
[43] Based on the principle in Belize Telecom Ltd, it would appear to be sensible to interpret a body corporate’s rules in accordance with principles of contractual interpretation although, where relevant, Parliament’s intention in enacting the governing legislation would form part of the background knowledge to be taken into
account. I address below at [77] – [80] the question of the interpretation of a
22 See Peter Watts, Neil Campbell & Christopher Hare Company Law in New Zealand (LexisNexis, Wellington, 2011) at 149.
23 Attorney-General of Belize v Belize Telecom Ltd, above n 21,at [16].
resolution by or on behalf of the body corporate, before deciding whether the body corporate validly resolved to issue this proceeding.
Did the body corporate validly approve the use of the common property by any or all of the commercial unit proprietors?
Is a special resolution required to approve the defendants’ use of the common
property?
[44] Before considering what approval, if any, was given by the body corporate for the erection of awnings by any defendant, there is a preliminary issue about whether the body corporate could validly approve the use of the common property by the defendants only by passing special resolutions. The body corporate said special resolutions are required by r 2.3(f) of the body corporate rules. The rule provides that the body corporate may:
(f) grant to a Proprietor or to anyone claiming through the Proprietor any special privilege in respect of the enjoyment of part or parts of the Common Property provided that any such grant shall be determinable by special resolution and that any such grant shall not be inconsistent or conflict with any lease or easement affecting any part of the Common Property granted by all the Proprietors in accordance with the Act;
[45] The principal matter in dispute is the meaning of “determinable” in the
context of the body corporate rules.
[46] Mr Rainey submitted that, although the body corporate rules are not themselves an enactment, they are sourced from the 1972 Act; he noted that the word “determinable” is used in the equivalent rule in the Second Schedule to that Act, which reads: 24
The body corporate may … (e) [g]rant to a proprietor of a unit or to anyone claiming through him any special privilege (not being a lease) in respect of the enjoyment of part or parts of the common property … [p]rovided that any such grant shall be determinable by special resolution.
24 Unit Titles Act 1972, Second Schedule, r 3(e).
[47] Counsel submitted that “determinable” should be interpreted to mean “able to be determined”; that is, able to be decided by special resolution. He argued this meaning should be preferred for the following reasons:
(a) The rules use the word “determine” to refer to how the body corporate and the body corporate Committee make decisions. In particular, r 2.22 deals with how matters at a general meeting of the body corporate are “determined” and r 2.10 requires that at a meeting of the committee all matters shall be “determined” by a unanimous vote.
(b)The second part of the proviso to the rule25 is clearly a condition precedent to the body corporate granting the special privilege. If the rule meant what the defendants assert, then only the second part would appear in the proviso.
(c) The rule exists against a backdrop of the 1972 Act imposing very strict requirements for the grant of a lease or easement over common property. Section 17 of the 1972 Act required approval of such grants by unanimous resolution of the body corporate (hence the exemption of leases from the statutory formulation of the rule).
(d)The 1972 Act provided that the common property was owned by all of the members of the body corporate as tenants in common in shares proportional to their unit entitlements.26 It is consistent with the fact that all the members of body corporate were joint owners of the common property that any decision granting a special privilege over their property could only occur after they had received notice of the proposal and approval of 75 per cent of co-owners.
[48] Mr Rainey submitted that the interpretation suggested by the defendants makes no sense. Counsel asked why a decision to revoke a special privilege relating
25 Quoted at [44] above.
26 Unit Titles Act 1972, s 9.
to common property should require a special resolution when it is permissible for the privilege to be granted by a simple decision of the Committee.
[49] For JGM, Mr Latton contended that the clear, ordinary meaning of r 2.3(f) is that the Committee has the power to grant “special privileges” in respect of the enjoyment of any part of the development’s common property, but that any such grant can be ended by a special resolution of the body corporate. Ms Davenport QC concurred on behalf of Cowboys and Sheriff.
[50] Mr Latton rested his submission on the following propositions:
(a) Such an interpretation is consistent with the 1972 Act and the general framework on common property existing prior to the introduction of the 2010 Act. The 1972 Act required the transfer, lease or grant of an easement to be unanimously approved by a body corporate.27 The default rules, however, allowed for less formal grants of “special privileges” of common property by bodies corporate.
(b)The scheme of the 1972 Act is that formal acts related to common property that may alienate it from unit holders, or expose the body corporate to legal obligations to third parties in respect of the common property, require formal steps, usually unanimous consent. Decisions about common property that do not have those consequences may be made by the body corporate, subject to the overriding ability of the body corporate to revoke them by special resolution.
(c) Since a member benefiting from a special privilege will have acted in reliance upon it, it is appropriate that the revocation of the privilege should require the approval of 75 per cent of the unit holders. Calling a special meeting to consider a motion to revoke the privilege is not
an onerous task.
27 Unit Titles Act 1972, s 17.
(d)The use of the word in rr 2.10 and 2.22 is “determined”, not “determinable”, and it is clear from the purpose of those rules that “determined” is used in the sense of “decided”.
Discussion
[51] The definitions of “determinable” in The New Shorter Oxford Dictionary indicate that, while the word may be used to mean capable of being, or proper to be, legally or authoritatively decided or settled, it may also be used (especially in a legal context) to mean liable to be terminated or to come to an end, or terminable. Similarly, the definitions of the verb “determine” identify that, in matters of law, the
word may be used in the sense of bring an end to, or terminating, an event.28
[52] Interpreting “determinable” to mean “able to be terminated” is consistent with the wording of the body corporate rules as a whole. Rules 2.10 and 2.22 of the rules provide:
2.10Unless otherwise provided in these Rules, at meetings of the Committee all matters shall be determined by a unanimous vote. Of the Committee cannot reach unanimity the issue shall be referred to the manager of the Precinct who may at his discretion summon an extraordinary general meeting of the Body Corporate to determine the issue or determine the issue himself. If the manager of the Precinct elects to determine the issue his determination shall be final and binding. Any determination by the manager of the Precinct or by the Body Corporate at an extraordinary general meeting may include a decision as to who should bear the costs of such determination.
…
2.22Except as otherwise provided by the act or these Rules, all matters at a general meeting of the Body Corporate shall be determined by a simple majority of votes. In the case of equality of votes the chairperson shall be entitled to a second or casting vote.
[53] In both rules, the word “determine” clearly means “decide”. It may be expected that, if the drafters of the rules had intended that meaning to apply in r 2.3(f), they would have used “determined” rather than “determinable”. By using “determinable” in r 2.3(f) they may be taken to have meant something other than
decide or settle. Since “determinable” evokes the sense of a future event it does not
28 The New Shorter Oxford English Dictionary (Volume 1, Clarendon Press, Oxford, 1993) at 651.
make linguistic sense to read “determinable” as meaning “decided” in that rule; the term indicates that the rule is to be read in the sense of defining by what means the special privilege may be brought to an end.
[54] Further, it is apparent that the drafters intended to amend the statutory version of the rule by adding a condition precedent barring a conflict with a lease or easement. It was convenient to add the condition at the end of the clause, but that does not imply that the statutory proviso should also be read as a condition precedent.
[55] Because the beneficiary of a special privilege may incur costs in implementing a grant, it is not unreasonable to require that a privilege granted by a simple majority may be revoked only by resolution supported by a 75 per cent majority.
Decision that a special resolution was not required to approve the awnings
[56] I conclude that r 2.3(f) permits the body corporate or the Committee to grant a special privilege by the exercise of its ordinary decision-making powers without a special resolution, on the condition that the privilege is not to be inconsistent with any lease or easement affecting any part of the common property granted by all the proprietors in accordance with the Act. Rule 2.3(f) permits the body corporate to revoke any such privilege, but only by a special resolution. If the body corporate validly approved the erection of the awnings, their removal may be required only by a special resolution of the body corporate.
Do the approvals that were given by the Committee in fact authorise the erection of the awnings on the common property?
[57] Rule 2.1(y) provides that the proprietor of any unit shall
…not erect or permit to be erected on or over any part of the Unit or any part of the Common Property any awning, canopy, or such like or any tent, marquee or such like without first obtaining the consent in writing of the Body Corporate.
[58] I agree with Mr Latton that the purpose of r 2.1(y) is to ensure that there is written evidence of the consent and that no particular form of written consent is required. The rule is to be read in conjunction with the power of the body corporate in rule 2.3(f) to grant a special privilege so that a record of a suitable resolution, or some other written record of the grant, will suffice for the purposes of r 2.1(y).
The awning attached to the verandah at the western side of Unit D – Sports Grill
[59] The body corporate accepts that the approval for the attachment of the awning to the verandah outside Unit D is recorded in a Committee minute dated 25
March 2009, and that the layout of the area has not changed since the unit was taken over by the fifth defendant and is now operated as The Sports Grill. I find that the minutes of the Committee meeting satisfy the requirement for “written approval” in r
2.1(y) and I have held that r 2.3(f) does not require approval by special resolution.
The awning attached to the verandah at the western side of Unit G & H – Cowboys
[60] On 14 October 2010, Units G and H were being run as two separate establishments. The owner of Unit H requested that a canopy be erected to the verandah outside the unit. The body corporate accepted that approval was given at the Committee meeting held on that date, but it says that no similar request was made in relation to Unit G. Mr Rainey submitted there is no written approval of the canopies attached to the verandah at the western elevation as required by r 2(y).
[61] Ms Davenport QC submitted that the powers and duties of the body corporate were effectively delegated to the body corporate Committee at the 2010 AGM. Rule
2.4 provides:
2.4Committee of the Body Corporate: Where there are more than three Proprietors, the powers and duties shall be exercised and performed by a Committee, subject to any restriction imposed or direction given at a general meeting of the Body Corporate.
[62] In 1999, the rules allowed for the body corporate to delegate to one or more of its members such of its powers and duties it thought fit. The default rules under the Unit Titles Act 1972 permitted this delegation, whereas the Unit Titles Act 2010 restricts a committee from delegating further. Rule 2.11 allowed the Committee to
delegate authority to one of its members to make decisions in respect of the awnings. Ms Davenport submitted this is exactly what the body corporate did.
[63] Mr Nicholas Gray is a director of Sherriff. He is also a member of BC198900’s Operational Committee, a subcommittee of the body corporate Committee that deals with general day-to-day operations. Mr Gray’s evidence establishes that in 2010 the body corporate Committee delegated to Mr Gino Gurshin, who was then the chairman of the Committee, authority to make a decision about the awnings for all retail units. Mr Gray said it was Mr Gurshin’s intention that the commercial units would have a consistent exterior fixed awning which would be placed underneath the verandah running between the ground and the first floor. He referred to the minutes of Committee meetings between July and October 2010 showing the discussion and approval for the erection of similar fixed rigid awnings and fascia board for all of the commercial units which are the subject of this proceeding.
[64] Nicholas Gray’s evidence was supported by the evidence of his father, Mr David Gray, who said that he was annoyed because he felt his son was being pressured to put up an awning similar manner and that the body corporate should pay for it. Mr Gray said Mr Gurshin told him that the new installation over Units G and H was far more aesthetically pleasing than the individual umbrellas that had been in front of the unit previously and that he was extremely pleased on behalf of the body corporate to see all the awnings looking similar.
[65] I accept the evidence that, acting with the delegated authority of the body corporate Committee, Mr Gurshin confirmed his approval of the erection of the awnings to Units G and H. In my view, this evidence explains the Committee minutes of 29 July 2010 which record that, acting as the Committee’s representative, Mr Gurshin was to be satisfied that what was proposed for Unit H was in keeping with the rest of the building. Read with the minutes of 14 October 2010 in relation to the proposals for Unit G, I am satisfied that they are written evidence of the consent for the addition of an awning to Unit G.
The awnings attached to the verandah at the western and northern sides of Unit I –
The Food Store
[66] The awning on the northern side of Unit I (what was then the Imperial Bar and is now The Food Store) was attached to the verandah in March 2007. At a meeting of the body corporate Committee on 30 March 2007, the Committee noted that:29
5.1 Imperial Bar Canopy
· Alexander and Co has been instructed to inspect and report on the structural implications of fixing their canopy to the exterior fabric of the building.
· It was noted that this canopy was “non compliant”.
[67] The most likely explanation of this non-compliance was that the owners of Unit I, which was operated by the owners of Imperial Bar, had not obtained the approval of the body corporate to attach the canopy as required by rule 2.1(y).
[68] The body corporate accepted that Committee approval was given on
14 October 2010 for the awning attached to the verandah on the western side of Unit I. It argued that no such approval was given for the awnings on the northern side.
[69] In describing the alterations to Unit I for which the Committee’s approval was sought, the proprietor’s letter of 19 July 2010 informed the Committee that “the current awnings on the water side [of the unit] will be retained after rehabilitation and replacement of the canvas and signage”. The minutes of the meeting read:
6. Imperial alterations Mike Molloy
The submitted alterations to unit I by the tenant are approved.
[T Nicholl/K Gurshin/carried]
[70] I am satisfied, therefore, from the relevant correspondence and the minutes of the Committee meeting on 14 October 2010, and on the evidence of Mr Mike
Molloy for the fifth defendant, that the Committee’s approval for the alterations
29 Minutes of Committee Meeting of Body Corporate 198900, 30 March 2007.
which included the addition of an awning to the western side of the unit is sufficient evidence in writing that the Committee also approved the continued existence of the previously “non-compliant” awnings to the north.
Decision that the awnings were validly approved by the body corporate
[71] The defendants have proved, therefore, that the use of the common property by the commercial unit proprietors for the erection of the awnings was validly approved by the body corporate.
Is the body corporate estopped from denying that the body corporate gave consent to the erection of the awnings? No answer required.
[72] Because of the view I have come to about the validity of the approval for the erection of the awnings, it is unnecessary to consider the issue arising from the alternative argument for the defendants that the body corporate is estopped from denying that the defendants’ had the right to install the awnings. That means that it is unnecessary also for me to address the substantial evidence and argument about the extent to which, if any, actions by certain of the members of the body corporate were authorised in accordance with the body corporate rules in the light of limitations on the delegation of authority to a sub-committee of the body corporate.
Did the body corporate validly authorise the commencement of the proceeding?
[73] I turn finally to the question of whether the body corporate validly authorised the issuing of the proceeding. This issue, also, was raised as an alternative argument to the defendants’ principal claims that the awnings were validly approved and that such approval could only be revoked by a special resolution of the body corporate. In the light of the defendants having succeeded on the principal questions, it is strictly unnecessary to answer the question. Because it was fully argued and may inform the future conduct of the body corporate’s operations, however, I propose to address at least that part of it which relates to the nature of the initial purported resolution.
[74] The defendants submitted further that, if the Court found that the 2013 AGM
resolved to issue proceedings:
(a) the resolution was conditional upon prior attempts to settle, and that step was not taken; and
(b)the resolution was invalid in that not all the relevant information was put to the meeting and that the meeting was misled as a result.
[75] The body corporate also advanced the ancillary argument that, if the initial resolution was insufficient, valid steps had been taken subsequently to ratify commencement of the proceeding.
[76] These questions are fact specific and the answers to them will not have any general relevance to the future operation of the body corporate. In those circumstances, because of the views I have reached on the principal questions, it is not necessary to address them.
The general principles for interpreting the body corporate’s resolutions
[77] By its nature, a resolution passed at an authorised meeting of an incorporated body is an extension of the operational rules of the corporate institution.30 This view is supported by s 101(1) of the Act which provides that:
Any matters at a general meeting of a body corporate relating to an exercise of a duty or power that may not be delegated … must be decided by special resolution.
[78] The principles which apply to the interpretation of the rules of a body corporate under the Unit Titles Act should accordingly be applied to the interpretation of the resolution.
[79] In Dominion Finance Group v Body Corporate 38290231 Fogarty J, in an obiter statement, appeared to indicate that body corporate resolutions should be
30 See, for example, Heath J’s discussion of body corporate decision making in World Vision of
New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [51].
31 Dominion Finance Group (in Rec and Liq) v Body Corporate 382902 [2012] NZHC 3325.
interpreted, where possible, in line with the principles of contractual interpretation as set out by Lord Hoffmann in Investors' Compensation Scheme.32 And in Horton v Cowley,33 Associate Judge Bell applied the principles in two of the leading New Zealand cases on contractual interpretation, Vector Gas34 and Gibbons Holdings,35 to the interpretation of a resolution made by the shareholders of a company.36
[80] I would respectfully adopt, however, the helpful observations of Muir J in Wheeldon v Body Corporate 34252537 in which he was mindful of the demonstrated wishes of the clear majority of owners which, the Judge said, should be respected if at all possible. It is not the role of a court to submit the resolutions of a body corporate to a pedantic or overly critical analysis and, given that such decisions are often made by non-professional people and committees of volunteers, it is unrealistic to expect the same precision of language as one might expect, for example, in a commercial contract. Justice Muir suggested that the test should be whether, having
regard to the full context in which body corporate resolutions occur, it can be safely concluded that the body corporate committed itself to the obligation under challenge.38
The resolution at the annual general meeting on 25 February 2013
[81] The minutes of the Annual General Meeting of the body corporate on
25 February 2013, record that:
Bob Tuxford put to the meeting that a further $100,000 should be added to the budget for legal fees to pursue the commercial units where the body corporate rules were not being adhered to, particularly with the erection of external structures which did not have the permission of the body corporate. Some of these structures were encroaching on the common property and some were causing damage to the building and allowing water ingress where they had been affixed to the cladding. They were also preventing the body corporate from maintaining the property properly as access was impossible in some areas.
32 At [62]. See also Investors’ Compensation Scheme Ltd v West Bromwhich Building Society
[1998] 1 WLR 896 (HL).
33 Horton v Cowley [2012] NZHC 3089.
34 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444.
35 Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277 (SC).
36 Horton v Cowley, above n 33, at [70]-[89].
37 Wheeldon v Body Corporate 342525 [2015] NZHC 884.
38 At [170].
It was noted that the committee would only take legal action if a solution could not be agreed on by communicating directly with the unit owners and working with the Council.
Was the resolution sufficient?
[82] Mr Rainey argued for the body corporate that, by virtue of that resolution at the AGM on 25 February 2013, the body corporate was entitled to bring these proceedings.
[83] In support of this submission he referred to the evidence of Mr Robert Tuxford who owns a residential unit in The Quays. Although Mr Tuxford is not currently a member of the body corporate Committee, he was a member from February 2012 until October 2013. As the person who proposed the resolution and, as an elected member of the body corporate Committee at the relevant time, Mr Tuxford says that the Committee and he understood that the resolution passed by a majority of the body corporate authorised any means of enforcement, primarily through litigation, so long as the Committee tried alternative methods first.
[84] Further, Mr Rainey relied on the minutes of Committee meetings both before and after the commencement of the proceedings which show approval of costs incurred in pursuing the litigation and of the invoices of the body corporate’s legal counsel.
[85] Counsel for the defendants did not object to the admissibility of Mr Tuxford’s evidence on the grounds that it was hearsay or lay opinion evidence but, addressing the relevance of the evidence and the weight to be given to it, I am inclined to think that it is not particularly helpful for the Court to know what Mr Tuxford thinks or what he thinks other people thought. The determination about what was resolved by the body corporate in its annual meeting is to be made objectively, in the context of the surrounding circumstances, from the terms of the resolution.
[86] Ms Davenport QC and Mr Latton argued that the initiation of the proceeding was not validly within the scope of the resolution passed at the annual general meeting on 25 February 2013 which is relied on by the body corporate.
[87] In reply to Mr Tuxford’s point, counsel for the defendants submitted that the resolution was not a proper resolution to issue proceedings and that it merely authorises the expenditure in the event that a valid decision to go to court was made later. Counsel compared the resolution with an earlier, more explicit, resolution by the body corporate to issue legal proceedings against different defendants in another case, to illustrate what ought to have been done to validly issue proceedings.
[88] I agree that the resolution recorded at [81] above merely approves expenditure to a level of $1,137,296, which includes an allowance of $100,000 for legal fees for enforcing the body corporate’s rules with respect to the commercial units on the ground floor. That resolution, by itself, would not be sufficient, in my view, to address the requirement in reg 17(1) of the Unit Titles Regulations 2011 that “a Body Corporate may not enter into an obligation without the Body Corporate’s approval by ordinary resolution”. A resolution which does no more than set a budget would not, in general, be sufficient to meet the requirements of the regulation.
[89] In order to enter into the obligations, budgetary provision for which had been made, the body corporate would need to give express approval. No doubt that is why, in the resolution recorded immediately below the budgetary provision, the meeting resolved as follows:
Resolved by ordinary resolution That pursuant to the provisions of Regulation 17 of the Unit Titles Regulations 2011, the Body Corporate gives its approval for the Committee to enter into all necessary obligations on commercial terms that will give effect to any expenditures provided for in the budget.
[S Ivory/B Smith Carried]
[90] Mr Rainey did not rely on this resolution and counsel for the defendants did not refer to it. Nevertheless, undertaking court proceedings includes, in context, the entering into of “necessary obligations” to give effect to the authorised expenditure.
Decision that proceeding was validly authorised
[91] I am satisfied that, in combination, the two resolutions were sufficient to authorise the issuing of this proceeding.
Declaration
[92] I have held:
(a) This is an appropriate case for the making of declarations by the
Court: [19].
(b)The verandah attached to the Quays building is common property, and that the prior approval of the body corporate was required before the awnings could lawfully be attached to it: [36].
(c) A special resolution of the body corporate was not required for valid approval to the attachment of the awnings to the verandah: [56].
(d)A special resolution of the body corporate is required for the valid revocation of any approval for the erection of the awnings [56].
(e) The use of the common property by the commercial proprietors for the erection of the awnings was validly approved by the body corporate: [71].
(f) The commencement of the proceeding was validly authorised by the body corporate: [91].
[93] In the exercise of the Court’s discretion under s 10 of the Declaratory
Judgments Act 1908, I declare:
Body Corporate 198900 is not entitled under the Unit Titles Act 2010 and its body corporate rules to remove the additions to the common areas north of the building and under the verandah to the west of the building, and to charge the owners of Units D, G, H and I jointly and severally for the cost of doing so, unless the body corporate terminates the grant of the prior approvals for the use of the common property by special resolution in accordance with its rules.
Costs
[94] Costs are reserved. Any application for costs shall be made by memorandum filed and served not later than 31 July 2015. Any memorandum in reply shall be filed and served not later than 21 August 2015. Costs shall then be determined on the papers unless the Court directs otherwise.
……………………………..
Toogood J
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