Body Corporate 207650 v Speck - [2017] NZHC 966

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-3079 [2017] NZHC 966

UNDER Section 74 Unit Titles Act 2010

BETWEEN

BODY CORPORATE 207650
Applicant

AND

KATY SPECK RYAN SPECK First Respondents

JILLIAN HOWARD GARY STEVENSON Second Respondents

FRANCIS MCKEAN Third Respondent

RUDRAKAGENDRAN SIVAPALAN AND POLIMA RUDRAKAGENDRAN Fourth Respondents

WAYNE PATRICK VAN EYSSEN, NATASHA ANN VAN EYSSEN, JAMES PETER COSSLETT and ANTONIONETTE MARIA COSSLETT Fifth Respondents

BACHAR EL-KHATIB and NAWAR ALWESH

Sixth Respondents

KARUNA CHAWLA and SAMIR CHAWLA

Seventh Respondents

LLEWELLYN NAIDOO and VALERIE NAIDOO

Eighth Respondents

MOHAMMED KHAN and ASHRAF KHAN

Ninth Respondents

BODY CORPORATE 207650 v KATY SPECK RYAN SPECK [2017] NZHC 966 [12 May 2017]

STEPHEN TELFER Tenth Respondent

FAQIANG WANG and BING LIANG Eleventh Respondents

ZOE FROST and ROB FROST Twelfth Respondents

EDITH BALUYUT and ARMANDO BALUYUT
Thirteenth Respondents

HENRY CHESTER FERALES DELA CRUZ
Fourteenth Respondent

DAO HUNG LY and NHI MAI CHU Fifteenth Respondents

CHERYL SINGH Sixteenth Respondent

YOON CHEE and MAY CHENG Seventeenth Respondents

YUNZHEN YI Eighteenth Respondent

VIKRANT CHAUDHARY Nineteenth Respondent

KWAI YIU LINDA LAM and KWAI YING JUDY LAM
Twentieth Respondents

EDWARD LINTON Twenty-First Respondent

MARK IJSSELDIJK Twenty-Second Respondent

MARY GILDER
Twenty-Third Respondent

GURBACHAN SINGH and INDERPREET KAUR Twenty-Fourth Respondents

KAHUERA NEPIA and SHARON NEPIA Twenty-Fifth Respondents

JENNIFER RANDONICH and AGNES RANDONICH
Twenty-Sixth Respondents

GEORGE DONNOLLY and AMY COLE Twenty-Seventh Respondents

LEELA NAIDU
Twenty-Eighth Respondent

ESTHA SIMPSON and EDWARD SIMPSON
Thirtieth Respondents

WESTPAC BANKING CORPORATION Thirty-Second Respondent

ANZ BANK NEW ZEALAND LIMITED Thirty-Third Respondent

BANK OF NEW ZEALAND Thirty-Fourth Respondent

ASB BANK LIMITED Thirty-Fifth Respondent

MORTAGE HOLDING TRUST COMPANY LIMITED
Thirty-Sixth Respondent

TSB BANK LIMITED Thirty-Seventh Respondent

Hearing: 2 and 3 May 2017

Appearances:

J McBride and D A Cowan for 16th and 30th
Respondents/Applicants
T J G Allan and S F Powrie for Body Corporate
207650/Respondent

Judgment:

12 May 2017

JUDGMENT OF LANG J

[on application for order declaring levies ultra vires]

This judgment was delivered by me on 12 May 2017 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

[1] This proceeding concerns 30 residential units collectively known as Richmond Terraces. The units are constructed in six separate blocks situated on Dawson and Chapel Roads, East Tamaki. The affairs of the complex are conducted through a body corporate incorporated under the Unit Titles Act 2010 (the Act). The body corporate comprises the owners of each of the units in the complex.

[2] In or about 2009, weathertightness issues became apparent in relation to the complex. The body corporate and unit owners then issued proceedings against persons they considered to have been responsible for failures associated with the construction of the complex. They settled that litigation in 2013 and obtained a sum of money as a result. They then resolved to repair the complex by way of a total reclad.

[3] On 8 August 2016, this Court granted an application by the body corporate for orders under s 74 of the Act approving a scheme to carry out the necessary repairs on the complex.1…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] NZHC 966
Decision Date: 12 May 2017

CaseChat Overview and Summary

This case concerned an application for an order declaring that a body corporate had no power to impose a second levy on unit owners to meet the cost of repairing weathertightness issues in a residential apartment complex. The unit owners had already settled litigation against the parties responsible for constructing the complex and obtained a sum of money as a result. They then resolved to repair the complex by way of a total reclad. The repairs were carried out pursuant to a scheme approved by the Court under s 74 of the Unit Titles Act 2010. The unit owners originally believed that the repairs would cost less than $6 million to complete. Very quickly, however, it became apparent that the final repair cost would be considerably greater. The total cost of repairs may now be in excess of $13 million. Twenty of the units have now been completed, and work is progressing in respect of the remaining ten. The body corporate will not be able to apply for a code compliance certificate until the repairs to all units have been completed. The body corporate first used the settlement monies raised through the litigation. It then applied funds raised following a levy of all unit owners in or about June 2015. This raised the sum of $1.774 million. In October and December 2015 the body corporate resolved to issue a second levy in respect of all units by which it anticipated raising a further sum of $4.982 million. The owners of two units in the complex, Ms Cheryl Singh (Unit 16) and Mr and Mrs Edward and Esther Simpson (Unit 30), do not accept that the body corporate had the power to raise the second levy. They contend that much of the work that has resulted in the increased costs was not authorised by the scheme approved by the Court. The scheme permitted the parties to the original application to return to the Court in the event that the implementation of the scheme gave rise to disputes. They have therefore filed the present application seeking an order declaring that the body corporate did not have the power to raise the second levy. The body corporate opposes the application. The application has been served on each of the unit owners but none has filed documents in support of or opposition to it. The Court considered the scheme approved by the Court. It noted that the scheme acknowledged that the actual scope of the works to be carried out under the scheme would not be known until remedial works were under way. The scheme permitted the parties to the original application to return to the Court in the event that the implementation of the scheme gave rise to disputes. The scheme contained provisions emphasising that the repairs had to be undertaken as a single project in order to be carried out in the most efficient and cost effective manner. The scheme also acknowledged it would be impractical to stop the repair process once the body corporate had entered into contractual arrangements for the repair work to be carried out. The Court also considered the increased cost of repairs. It noted that the tender used an incorrect formula for pricing the replacement of damaged timber within the complex. This immediately increased the estimated repair costs by more than $1.2 million. The Court also noted that each of the blocks within the complex was constructed in a terrace house style with each unit sharing one or more common walls with adjoining units. These are known as intertenancy walls. Whilst carrying out the remedial work the Body Corporate Committee discovered that the intertenancy walls in the complex no longer meet the current fire standards. The Court noted that it is neither necessary nor appropriate for it to reach any conclusion in relation to issues such as whether the Body Corporate Committee had failed to impose adequate cost controls, and failed to adequately challenge or dispute claims for extra payment made by the contractor. Furthermore, the manner in which the Body Corporate Committee has carried out its task may therefore yet need to be tested in another forum. The Court considered the argument for the applicants. The applicants contended that the scope of the remedial works has changed to the extent that it now goes well beyond the work that was subject to the scheme approved by the Court in August 2016. For that reason they say the body corporate has no ability to impose levies in respect of those works in reliance on the scheme approved by the Court. The Court noted that it is not a particularly satisfactory method of determining factual disputes such as this because it has proceeded as a defended interlocutory application in which deponents have not been cross-examined. It is difficult to assess the weight to be given to the applicants’ argument that the Body Corporate Committee should have refused to do the work because s 112 of the Building Act 1991 prevented the Council from requiring the body corporate to undertake work that was not directly related to the repair work it was undertaking to address weathertightness issues. The Court considered that the criterion to be used in determining whether work falls within the scope of the scheme is whether the work in question was necessary to bring the complex to a state of code compliance. Applying that approach, if the Council required the intertenancy walls to be rebuilt to meet current fire safety standards it is likely that failure to take that step would result in the Council declining to issue a code compliance certificate. The Body Corporate Committee was entitled to adopt a conservative approach in relation to issues such as this. If it believed that failure to comply with the Council’s directive could result in code compliance not being achieved, it was entitled to err on the side of caution. The unit owners would obviously not have welcomed the Body Corporate Committee saving money by not bringing the intertenancy walls up to current standard but thereby failing to achieve code compliance. The cost of replacing the intertenancy walls is undoubtedly significant. Present estimates are that it will cost between $720,000 and $966,000. The Court considered that this work falls within the scheme. The Court took the same approach in respect of any expenditure the body corporate may be required to make as a result of the extension of time claims. These arise out of the delays caused by the need to obtain amendments to the building consent. These were required to authorise the work necessary to deal with the issues arising out of the non-complying intertenancy walls and the replacement of damaged roof trusses. Any failure by the Body Corporate Committee to obtain the required building consents was likely to have jeopardised code compliance. The repairs to the roof trusses were also rendered necessary in any event because of damage caused by water ingress. Expenditure in relation to the extension of time claims is therefore within the scope of the works covered by the scheme. The Court also considered the increased costs caused by the remaining variations. It was satisfied that such works fall within the scheme because they are necessary to bring the complex to a state in which it will be not only weathertight but also code compliant. The Court considered that the scheme extended to all work necessary to ensure that the complex reached a state where it could obtain a code compliance certificate. The Court concluded that the increased costs caused by the remaining variations also form part of the work undertaken to ensure that the complex is restored to a standard sufficient to bring the complex to a state of code compliance. The Court was satisfied on the balance of the probabilities that all of the work the body corporate has carried out has been directed towards the objective of ensuring that the remediated complex is constructed to a standard that will result in code compliance

Orders