Body Corporate 209538 v McDonnell

[2024] NZHC 1413

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-378

[2024] NZHC 1413

UNDER

the Unit Titles Act 2010

IN THE MATTER

of an originating application for a scheme pursuant to s 74 of the Unit Titles Act 2010

BETWEEN

BODY CORPORATE 209538

Applicant

AND

WAYNE JOHN MCDONNELL, ANNE EVELYN MCDONNELL and BRUCE CYRIL MCNIECE

First Respondents

SARAH ANNE JOSLING
Second Respondent

CHRISTOPHER JOHN BADDELEY
Third Respondent

…/cont

Hearing:	30 May 2024
Appearances:	J Kohu-Morris for the Applicant
Judgment:	31 May 2024

JUDGMENT OF GORDON J

This judgment was delivered by me on 31 May 2024 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Thomas Gibbons Law, Hamilton

BODY CORPORATE 209538 v MCDONNELL [2024] NZHC 1413 [31 May 2024]

YUNHUA LIU

Fourth Respondent

JORGE DANIEL DOMINGUEZ HORMAZABAL and MARCELO OSMAR GONZALEZ

Fifth Respondents

PKM LIMITED
Sixth Respondent

GHUZNEE HOLDINGS LIMITED
Seventh Respondent

HANK TSUNG-HAN LEE and PEI-WEN SUN

Eighth Respondents

KTHB TRUSTEE LIMITED
Ninth Respondent

JOE WEI CHANG and KHARAMIA ENRIQUEZ-LOZANO

Tenth Respondents

GHUZNEE HOLDINGS LIMITED
Eleventh Respondent

GARY WILLIAM BRUNSDON
Twelfth Respondent

DANNIELLE KATHERINE ANN SAVAGE

Thirteenth Respondent

LAURANNE MICHELLE CROOT
Fourteenth Respondent

DANIEL RAY SHEARER
Fifteenth Respondent

GHUZNEE HOLDINGS LIMITED
Sixteenth Respondent

BRATTON INVESTMENTS LIMITED
Seventeenth Respondent

MORTGAGE HOLDING TRUST COMPANY LIMITED

Eighteenth Respondent

ANZ BANK NEW ZEALAND LIMITED
Nineteenth Respondent

WESTPAC NEW ZEALAND LIMITED
Twentieth Respondent

BANK OF NEW ZEALAND
Twenty-First Respondent

VERO INSURANCE NZ LIMITED
Twenty-Second Respondent

[1]                 The applicant, Body Corporate 209538, applies by way of originating application for an order settling a scheme under s 74 of the Unit Titles Act 2010 (the Act).

[2]                The application proceeded by way of formal proof as all relevant parties have been served and no opposition has been filed.

Background

[3]                The complex is situated at 97 Mokoia Road, Birkenhead, Auckland. There are two blocks of units with a total of 17 principal units and 17 accessory units.

[4]                The chairperson of the Body Corporate, Sarah Josling, who also owns a unit in the complex, has sworn an affidavit in support of the application. She says that from around 2016 or 2017 she became aware of weathertightness issues with some of the units in the rear block of the complex. She says those units seemed to have been damaged from water ingress. The Body Corporate initially thought these issues could be dealt with by way of targeted repairs. However, over time it became evident that more significant repairs might be necessary.

[5]                Accordingly, in early 2020 the Body Corporate engaged Veron Building Consultants Ltd (Veron) to begin an assessment of the damage. The Body Corporate also engaged Harry Dillon of Saltire Consultants at around the same time to help manage the process of remediating the damage.

[6]                Ms Josling annexes a copy of the report from Veron dated 3 July 2020 which confirms that the complex has been damaged by water ingress, and that extensive remedial works are necessary to restore the buildings within the complex.

[7]                There is also an affidavit from Martin Hill, a chartered building surveyor and a director at Veron. Mr Hill says that in summary, the findings in the Veron report of

3 July 2022 regarding defects to the building and resulting damage (including significant structural decay and mould) to the complex are as follows:

(a)joinery and cladding were inadequately flashed and allow water entry;

(b)cladding control joints had been poorly formed and terminated short allowing water entry;

(c)insufficient cladding separation from external ground levels had allowed water entry via capillary action;

(d)critical deck terminations and cladding junctions lacked any means of diverting water away from the critical junctions and they leaked as a result;

(e)parapet roof flashing laps were unsealed and had leaked as a result;

(f)roof apron flashing and cladding junctions allowed water entry;

(g)internal membrane gutters had inadequate fall to shed and drain water and lap joints had failed allowing water entry; and

(h)roofing iron fixings were unsealed, misaligned and leaked as a result.

[8]                Mr Hill also notes that the report identified that extensive remedial works were required. These include:

(a)Removal and replacement of cladding, joinery, deck structures and deck membranes, together with roof coverings.

(b)Removal of decayed and damaged framing and building materials, together with the treatment of any sound framing with in-situ preservative.

(c)The roof is recommended to be reconfigured to remove internal gutters and new exterior cladding will need to be installed over a drained and vented cavity. The balconies will be reformed and new double-glazed joinery is to be installed.

(d)Fire alarm and passive fire upgrades are required.

[9]                As is apparent from the above summary, Veron considered that the defects were of a global nature and warranted a holistic approach to remediation. Veron estimated the cost of works at approximately $5 million. The nature of the works requires owners to vacate the units while they are being carried out.

[10]            Having regard to Veron’s findings Ms Josling says it was in the interests of all owners for there to be a single programme of works under a single contract in order to remedy the damage to the complex in a cohesive and coordinated way.

[11]            Mr Dillon expresses the view that a scheme is a normal and necessary part of a remedial project such as in this case, where works extend over the common property and private property and must be done in a coordinated and consistent way. He is of the view that having a scheme in place will mean that the Body Corporate can proceed with the work across the entire complex without, for example, needing further consent from individual owners for remedial works on individual units. He says in this way the full extent of remedial works can be undertaken in a cohesive manner for the benefit of all owners.

[12]            As well as engaging building professionals, the Body Corporate also engaged a lawyer for the purposes of preparing a scheme. On 17 November 2021 at an Extraordinary General Meeting (EGM) the members of the Body Corporate unanimously resolved to proceed with the proposed scheme, subject to any refinements that were needed. In addition to the vote at the EGM, between November 2021 and October 2022, forms consenting to the scheme were obtained from unit owners. Having regard to subsequent changes in ownership of the units and also because a couple of forms were completed incorrectly, further consent forms have been obtained.

[13]            I also note that work pursuant to the proposed scheme is already underway. That occurs not uncommonly in such situations and any order the Court makes under s 74 has retrospective effect.1

1      Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [47].

The law

[14]            As Mr Kohu-Morris, counsel for the Body Corporate acknowledges, notwithstanding the lack of formal opposition, the Body Corporate still carries the burden of satisfying the Court that its jurisdiction to order a scheme is invoked and that the Court should make an order approving the scheme as filed.

[15]            The approach to settling a scheme was traversed by the Court of Appeal in Tisch v Body Corporate 318596.2 Although that decision related to the previous legislation, the relevant section was materially the same as s 74. The Court of Appeal identified a “three-step process” for a court to undertake when considering an application to settle a scheme:3

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.

[16]            The Court then identified five guiding principles when the Court comes to exercise its discretion at Step 3 as follows:

[45]      First, a scheme with a 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. This will not invariably be so, because a majority of owners may support a scheme that is unfair to a minority.

…

[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

2      Tisch v Body Corporate 318596, above n 1.

3 At [35].

necessary to achieve what is fair as between unit owners in the circumstances. Thus the Act and the Body Corporate rules remain relevant considerations. An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.”

[17]The overarching consideration for an s 74 scheme is fairness.4

[18]            I am satisfied that the triggering requirement in Step 1, namely that the building has been damaged or destroyed, is met.   The  evidence  I have summarised from   Mr Hill’s affidavit establishes that the complex is significantly damaged.

[19]            I also accept that a scheme is appropriate in all the circumstances and having regard to the evidence from Mr Dillon and Mr Hill, it is the best option for the unit holders as a whole, who have given unanimous support to the proposed scheme.

[20]            As to the terms of the proposed scheme, a copy is annexed to this judgment. For convenience I also set out the main points below adopting the summary in counsel’s submissions:

(a)The Body Corporate, through its Committee, will have the authority, as irrevocable agent of each unit owner, to complete repairs in a reasonably expeditious and efficient manner (clause 2.1), and to enter into contracts to give effect to the scheme (clause 2.2(g)).

(b)The repairs are intended to be carried out and completed pursuant to a single works contract covering repairs and remedial works to unit property, common property and building elements (clause 2.3). This will ensure coordination and continuity across the building complex.

(c)Unit owners will have a responsibility to cooperate with the Body Corporate for the purposes of carrying out and completing the repairs (clause 3.1).

(d)Where unit owners wish to have additional work done in respect of their unit, they will have to obtain the Body Corporate’s consent (clause 3.2).

4      Body Corporate 154155 v Bishop [2022] NZHC 197 at [10].

(e)The Body Corporate will levy contributions from owners in order to fulfil its obligations under the scheme, including paying for the repairs and professional fees (clause 4.1).

(f)These levies will be made on the basis of each owner’s utility interest (clause 4.4).

(g)The Body Corporate will have to (i) give reasonable notice before requiring owners to act; (ii) procure that repairs are properly identified and scoped; and (iii) report to owners (clause 5.1).

(h)Unit owners will have to disclose the scheme when selling or transferring their unit, inform the Body Corporate as to this, and ensure all levies are up to date (clauses 6.1–6.3).

(i)The scheme will terminate on the issuance of a code compliance certificate in respect of the repairs (clause 9.1).

[21]            Applying the Tisch principles to the proposed scheme: the scheme has broad support; it is appropriately detailed; work which has already commenced will have retrospective effect; and there is a single works contract.

[22]            As regards the fifth principle, there is a departure from the scheme of the Act. It concerns contributions for repairs to unit property. Under the Act, the Body Corporate is responsible for repairs to common property and levies owners according to their utility interest5 and unit owners are responsible for the repair and maintenance of their own unit property.6 Under the scheme, however, both common property and unit property, so far as they relate to proposed work, would be the responsibility of the Body Corporate with both types of property being levied against the owners in accordance with their utility interest.

5      Unit Titles Act 2010, ss 121 and 138.

6      Unit Titles Act, s 80(1)(g).

[23]            I am satisfied that this is a logical departure and in the best interests of the unit holders as a whole: it allows for the cost of all repairs to be levied against the owners on a utility interest basis and supports the remedial works being carried out expeditiously and in a coordinated and holistic manner. In other words the terms of the scheme depart from the scheme of the Act and the Body Corporate Rules no more than is reasonably necessary to achieve what is fair between unit owners in the circumstances.

Result/order

[24]            The application by Body Corporate 209538 for an order settling a scheme pursuant to s 74 of the Unit Titles Act 2010 in respect of the unit title development situated at 97 Mokoia Road, Birkenhead, Auckland, is granted on the terms as set out in the scheme annexed to this judgment.

Gordon J