Body Corporate 206481 v Kempster HC Auckland CIV-2011-404-002579

[2011] NZHC 1730

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-002579

UNDER  the Unit Titles Act 1972

IN THE MATTER OF     An Originating Application for Orders Establishing a Scheme under Section 48 of the Unit Titles Act 1972

BETWEEN  BODY CORPORATE 206481

Applicant

ANDJ H KEMPSTER AND C V KEMPSTER & ORS

First to Seventy-sixth Respondents

Hearing:         3 November 2011

Counsel:         D Bigio and C Eric for the Applicant

No appearance for the Respondents

Judgment:      3 November 2011

JUDGMENT OF WOOLFORD J

Solicitors/Counsel:

D Bigio, PO Box 4338, Shortland Street, Auckland 1140. Email: [email protected]

BODY CORPORATE 206481 KEMPSTER AND KEMPSTER & ORS HC AK CIV-2011-404-002579 3

November 2011

Introduction

[1]      The applicant applies for an order establishing a scheme for the repair of the building comprising the unit property and common property in  Body Corporate

206481 under s 48 of the Unit Titles Act 1972.   The complex to which the Body Corporate relates is located at 80 Richmond Road, Ponsonby, known as the Pulse Apartments.  It comprises of a large 4 storey building plus penthouse containing 65 residential 1-2 bedroom units and various accessory units, being car parks, with lift and stairwell access via the common property.

[2]      The applicant is today represented by Mr Bigio and Ms Eric.   There is no appearance by or on behalf of the respondents.  The first to sixty-fourth respondents are all of the present registered proprietors of the units.  The sixty-fifth respondent is Colin McCloy who has registered a caveat against the certificate of title of Unit 2A. The sixty-sixth respondent is Eileen Smith who has registered a notice of claim pursuant to the Property (Relationships) Act 1976 against the certificate of title of Unit 3N.   The sixty-seventh respondent is the Legal Services Agency which has registered a caveat against the certificate of title of Unit 4C.   The sixty-eighth to seventy-fifth respondents are the existing mortgagees of the units.  The sixty-ninth respondent, Westpac New Zealand Limited, has filed a notice advising the Court that it will abide the decision of the Court.  The seventy-sixth respondent is the provider of building insurance.

[3]      At a general meeting on 16 March 2011, the Body Corporate resolved to apply to the High Court for an order settling a scheme for the repair of the Pulse Apartments under s 48 of the Unit Titles Act 1972 as set out in a draft application and scheme discussed at that meeting.

Factual background

[4]      The Pulse Apartments were constructed between January 2001 and March

2002.   A code compliance certificate was issued by a private building certifier, Compass Building Certification Limited, in March 2002.

[5]      In about March 2005 the Body Corporate instructed CoveKinloch Consulting Limited (“CoveKinloch”) to report on the condition of the exterior balcony balustrades, due to weathertightness issues having been raised by one of the unit owners in respect of their unit’s balcony balustrade.

[6]      In December 2005 CoveKinloch provided a detailed report on the exterior balcony balustrades.  This report recorded various defects in the construction of the balcony balustrades and high moisture readings.  While preparing a design for the remedial  work  to  the  balconies,  CoveKinloch  identified  wider  weathertightness issues with the exterior cladding and roof. As a result the Body Corporate instructed CoveKinloch to prepare a full report on the condition of the exterior cladding.

[7]      In February 2007 CoveKinloch provided a full report on the condition of the exterior cladding.   The report recorded extensive defects in the building envelope and roof, together with high moisture readings in numerous locations.   The report recommended a full re-clad of the Pulse Apartments complex with a drained and ventilated cavity system, including replacing all decayed timber.

[8]      Unit owners were provided with a copy of the full report by CoveKinloch and at a general meeting held on 27 March 2007 CoveKinloch presented its findings and outlined the remedial options available together with its recommendations.

[9]      At the same meeting there was a presentation by a representative of the Weathertight Homes Resolution Service (“the WHRS”) regarding this service.  The Body Corporate resolved to register with the WHRS.   Subsequently, the Body Corporate applied to the WHRS for an assessment of the complex.

[10]     In May 2008, the WHRS issued its assessor’s report.  This report recorded numerous building failures which resulted from poor design and construction, and failures to meet the requirements of the relevant building regulations, codes and product manufacturer.   It concluded that the Pulse Apartments met the eligibility criteria set out in the Weathertight Homes Resolution Services Act 2006 for a multi- unit complex claim.

[11]   Subsequently, the Body Corporate presented the findings of the WHRS assessor’s report to unit owners and after further investigations the Body Corporate filed a claim in the Weathertight Homes Tribunal in March 2011.   This claim is currently being progressed.

[12]     In about September 2008, based on a resolution at a general meeting on

16 September 2008, the Body Corporate engaged building surveyors, Alexander and Co Limited (“Alexander and Co”), to further investigate what remedial works were required and to prepare a concept design for these works.

[13]     At this same meeting the Body Corporate, by resolution, approved a draft remedial works agreement to be circulated to owners for signing.  This agreement set out the terms upon which the Body Corporate and individual owners agreed that the Body Corporate would take responsibility for the repairs required to both common property and owners’ private property as one project, including that these repairs would  be  funded  by  owners  from  contributions  raised  on  the  basis  of  unit entitlement.

[14]     In April 2009 the Body Corporate instructed Alexander and Co to prepare a detailed design for the remedial works, based on their concept design.

[15]     In about May 2010 Alexander and Co completed the detailed design for the remedial works and a quantity surveyor, Rider Levett Bucknall, provided the Body Corporate with a costs estimate based on this design in the amount of $3,651,750. At a general meeting on 24 June 2010 Alexander and Co presented the detailed design to the unit owners and recommended that a building contract be negotiated. At this meeting the Body Corporate resolved (with one abstention) to:

(a)      Accept the plans and specifications prepared by Alexander and Co and to instruct Alexander and Co to apply for building consent; and

(b)Proceed with the selection of a building contractor on the basis of a negotiated contract, and authorised the Body Corporate Committee to co-ordinate this with Alexander and Co.

[16]     As at the date of this application, the Body Corporate had selected a building contractor, Scope Projects Limited, and had been advised by Alexander and Co that all documents required for building consent have been prepared and were ready for submission to the Auckland Council.

[17]    As at the date of an affidavit sworn by Maurice Gregory Managh, the Chairperson of the Body Corporate Committee on 4 May 2011, 58 of the 64 unit owners had signed the remedial works agreement.   Of the six remaining owners, none had signalled to the Body Corporate that they objected to the remedial project, but they had not signed the agreement.

[18]     At the general meeting on 24 June 2010, the Body Corporate resolved (with one abstention) to proceed with the preparation of a scheme for the reinstatement of the Pulse Apartments and a Court application pursuant to s 48 of the Unit Titles Act

1972, with the draft documents to be presented to all owners for review prior to the application being filed.

[19]     In August 2010 a draft scheme was distributed to all owners for consideration and feedback.

[20]     Subsequently, one of the 65 owners raised various issues with and/or sought changes to the draft scheme and some amendments were made to the draft scheme which is the subject of the application.

[21]     At an extraordinary general meeting on 16 March 2011, at which 49 of the 64 owners were present or represented by proxy,  the Body Corporate unanimously resolved among other things:

(a)      To apply to the High Court for an order setting a scheme for repair of the  building  comprising  common   property  and   units   in  Body Corporate 206481 under s 48 of the Unit Titles Act 1972, and any other ancillary orders, as set out in the draft application and scheme discussed at the meeting.

(b)That the Body Corporate Committee be authorised to approve any non-material amendments to the application and the draft scheme between the date of this resolution and the date of filing the application.

[22]     Following this meeting, some non-material amendments were made to the draft scheme on the approval of the Body Corporate Committee.

[23]     The Body Corporate considers that a Court order settling a scheme under s 48 of the Unit Titles Act whereby common and unit property are remedied as one project (based on the remedial design by Alexander and Co which has been approved by the Body Corporate) is the most practical and economical approach to resolve widespread common weathertightness issues and to ensure that the remedial works are undertaken in a coordinated and integrated manner with consistent design and construction  throughout  the  single  building  complex,  and  that  all  works  are completed  in  accordance  with  the  current  Building  Code  and  other  building standards.

[24]     Since the approval of the draft remedial works agreement in September 2008, and throughout the various drafts of the s 48 scheme, the owners have overwhelmingly supported the funding of the remedial works by contributions from owners on a unit entitlement basis.  The Body Corporate considers this to be a fair and equitable approach.

Legal principles

[25]     Section 48 of the Unit Titles Act 1972 provides:

48       Scheme following destruction or damage

(1)       Where any building or other improvement comprised in any unit or on any land to which a unit plan relates is damaged or destroyed, but the unit plan is not cancelled, the Court may, on the application of the body corporate, an administrator, the proprietor or one of the proprietors of a unit, or a registered mortgagee of a unit, by order settle a scheme including provisions—

(a)      For the reinstatement in whole or in part of such building or other improvement; or

(b)      For the transfer of units to the proprietors of the other units so as to form part of the common property.

(2)       Where an order is made under paragraph (b) of subsection (1) of this section, the provisions of section 19 of this Act shall, so far as they are applicable, but subject to any order of the Court to the contrary, thereafter apply to any such transfer.

(3)       A notice of any application made under subsection (1) of this section shall be served on the Registrar who shall thereupon enter on the supplementary record sheet a notification that application has been so made.

(4)       On any application to the Court under subsection (1) of this section, any person having or claiming to have any estate or interest in any unit or in the land or in any part of the land or any insurer who has effected   insurance   on   the   buildings   or   other   improvements comprised in any unit or in the land or any part thereof shall have the right to appear and be heard.

(5)       In the exercise of its powers under subsection (1) of this section, the Court may make such orders as it considers expedient or necessary for giving effect to the scheme, including orders—

(a)      Directing the application of any insurance money;

(b)      Directing payment of money by or to the body corporate or by or to any person;

(c)      Directing the deposit of an appropriate new unit plan; or

(d)      Imposing such terms and conditions as it thinks fit.

(6)       The Court may from time to time cancel, vary, modify, or discharge any order made by it under this section.

(7)       On any application under this section the Court may make such order for payment of costs as it thinks fit.

[26]     Section 48 of the Act is normally treated as a remedy of last resort.  Given the risks and costs of litigation and the difficulties of arranging and dealing with repairs to various units it is of course desirable to maintain comity and good relationships between the unit owners.

[27]     Section 48 is triggered by establishing that the building comprising the units is damaged.  Once damage is demonstrated the Court may approve a scheme which

provides for reinstatement of the building.   In Body Corporate 205963 v Becker[1]

[1] Body Corporate 205963 v Becker HC Auckland CIV-2009-404-6017, 21 April 2010.

Stevens J referred to the principles as follows which he drew from the judgment of

Heath J in Fraser v Body Corporate S63621:[2]

[2] Fraser v Body Corporate S63621 HC Tauranga CIV-2008-470-772, 10 September 2009.

[14]     Section 48 is triggered by establishing that the building comprising the units is damaged.  Once damage is demonstrated, the Court may approve a scheme which provides for reinstatement of the building.  In Fraser v Body Corporate S63621 HC Tauranga CIV 2008-470-772, 10 September 2009, Heath J offered guidance on the extent and nature of the discretion of the Court to approve such a scheme.  Heath J explained at [88] that the Court is given a wide discretion in this context.

[15]      In exercising its powers under s 48(1) of the Act, the Court may make such orders “as it considers expedient or necessary for giving effect to the scheme”.  Examples of orders that may be made are provided in subs (5). If the Court decides that a scheme is required, it has a wide discretion to grant or refuse an application under that subsection.  With respect to such discretion, Heath J stated at [91]:

These provisions suggest that the Court is given a wide discretion to do justice among all proprietors in a manner that will best resolve the particular problem that has led to the application. There is no fetter on the  Court’s discretion, which is  designed to  meet a  vast array of circumstances that could not have occurred to the drafters of s 48.  The only absolute requirement is that the Court exercise its  discretion judicially, not arbitrarily or capriciously.              (Emphasis added)

[16]      Heath J held that it was for these reasons he did not accept any gloss should be placed on s 48(1) to impose a threshold that any repair work must be “essential”.

[17]     Once the jurisdictional prerequisites are established, an application under s 48 of the Act is one in respect of which a balancing approach is necessary.  This is because the proprietors of individual units have their own economic and other interests to consider, and these may or may not conflict with interests of the proprietors of other units.

[28]     More recently the Court of Appeal in Tisch v Body Corporate No 318596[3] set out a three step process for a Court considering an application to settle a s 48 scheme:

[3] Tisch v Body Corporate No 318596 [2011] NZCA 420, 29 August 2011.

Step 1  -   The Court must be satisfied that the building has been damaged or destroyed.

Step 2  -   If so satisfied, the Court must decide whether to settle a scheme.

That is, the Court must decide whether a scheme is appropriate in the circumstances.

Step 3  -   If the Court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.

[29]     The  Court  of  Appeal  cited  five  factors  to  be  taken  into  account  when considering the terms of a proposed scheme:

[45]      First, a scheme with broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners...

[46]      Secondly, the scheme should be appropriately detailed.   The more detailed a scheme, the less scope for later misunderstanding and argument about it.

[47]     Thirdly, providing that what has been done by the body corporate before  the  s  48  scheme  is  actually  approved  is  in  accordance  with  the scheme, the order has retrospective effect.

[48]      Fourthly, work should normally be done to the same standard and at the same time...

[49]      Fifthly...the terms of the s 48 scheme should depart from the scheme of the Act and from the body corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances...An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.

[30]     Applying those principles, there is clear evidence before the Court that the scheme is both necessary and expedient for the carrying out of repairs to the apartments.  The scheme was developed in a careful and comprehensive manner.  It has been the subject of full consideration by the unit owners, all of whom had the opportunity to attend the general meeting in March 2011.

[31]     In terms of the balancing exercise I am required to consider the interests and wishes of the majority of the unit owners who support the scheme.   There will accordingly be an order that the scheme in the form annexed to the amended originating application dated 7 June 2011 and the attached draft order be approved.  I direct that the scheme will be binding on all successors and assigns.

……………………………..

Woolford J