Body Corporate 31428

[2020] NZHC 3218

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2020-441-70

[2020] NZHC 3218

IN THE MATTER OF

AND

the Unit Titles Act 2010

IN THE MATTER OF

an application by Body Corporate 31428

Hearing:	On the papers
Counsel:	J C Muggeridge for Applicant
Judgment:	7 December 2020

JUDGMENT OF CLARK J

[1]                  Body Corporate 31428 has filed an originating application under ss 187 and 188 of the Unit Titles Act 2010 (the Act) for orders authorising and facilitating the sale of timeshare units in Taupō Ika Nui Timeshare Resort (the Resort).

[2]                  More particularly, the Body Corporate applies to the High Court for cancellation of Unit Plan S31428.

Background

[3]                  The resort is a unit-titled property consisting of 22 one-bedroom units and six two-bedroom units. Each of the 28 units has an individual unit title. Each of those titles is broken into 51 timeshare entitlements — also termed “shares” or “weeks”. Thus, the total number of shares (or weeks) available for ownership is 1,428 (28 x 51). Some owners own more than one timeshare entitlement.

An application by Body Corporate 31428 [2020] NZHC 3218 [7 December 2020]

[4]                  At  an  Extraordinary  General  Meeting  on  23   November   2019,   the Body Corporate passed with 93 per cent support a special resolution to sell the Resort and distribute the Body Corporate’s assets and sale proceeds amongst the owners.

[5]                  The Body Corporate has made the following applications to give effect to its special resolution:

(a)pursuant to ss 187 and 188 of the Act, an originating application for cancellation of Unit Plan S31428 together with the ancillary orders and directions that are sought;

(b)an application for an order of sale together with the ancillary orders and directions that are sought; and

(c)a without notice application to the District Court at Napier for orders regarding service.

The legal framework

[6]                  Sections 187 and 188 of the Act set out the process for applying for an order for cancellation of a unit plan when the application is made to the High Court as distinct from the Registrar-General of Land under s 177. Under s 188(2) the “ultimate question” is whether it is just and equitable that the Body Corporate be dissolved and that the plan be cancelled having regard to:1

(a)the rights and interests of any creditor of the Body Corporate; and

(b)the rights and interests of every person who has any interest in any unit or in the base land or in any part of the base land.

[7]                  Counsel cited World Vison of New Zealand Trust Board v Seal, the leading authority on the “just and equitable” test. Heath J said:2

1      Re Body Corporate 44426 [2015] NZHC 3284 at [8] summarising s 188(2).

2      World Vision of New Zealand Trust Board v Seal [2004] NZLR 673 (HC).

[62]      The phrase “just and equitable” has a respectable legal pedigree. It is often used as a test to determine whether a corporate entity should be placed in liquidation or a partnership dissolved: …

[63]      When considering the “just and equitable” ground to liquidate a company, Lord Clyde said, in Baird v Lees …:

… a wider view now prevails regarding the ambit of the discretion which is entrusted to the Court. This discretion must, however, be judicially exercised. It is not enough for the Court in exercising it to have, in the familiar phrase of a decree- arbitral, ‘God and a good conscience’ before its eyes; grounds must be given which can be examined and justified.

Other members of the Inner House concurred with that observation.

[64]      … In the context of the jurisdiction to order liquidation of a company on the “just and equitable” ground, Callaway stated:

The Court must balance all the conflicting claims, giving proper weight to each consideration of right, duty and fairness brought forward by the parties. The expression ‘just and equitable’ may be regarded as an example of statutory hendiadys, the reference to equity not being by way of an additional test but for the purpose of ensuring that the justice to be applied will be equitable justice, ‘the justice of the individual case’. Accordingly justice and equity are referred to herein as one criterion, not two criteria.

[8]                  The evaluation must be conducted with proper regard to the scheme and purpose of the Act.3

The Body Corporate’s application

[9]                  The application is supported by an affidavit from Mr Morley, the Resort Manager and Body Corporate Committee Secretary. Ms McCarthy, the Chairperson of the Body Corporate Committee has also filed an affidavit. The following reasons for the Body Corporate’s decision to seek orders from the High Court appear from the two affidavits.

[10]              Many owners have owned their weeks since the resort first opened in 1983. As they have aged, their desire to use their entitlement has decreased. While the unit owners themselves may no longer be making personal use of their entitlements they book on behalf of non-owners who may, for example, be adult children or other family

3      Re Body Corporate 46051 [2019] NZHC 922 at [12].

members. Despite family members making regular use of the timeshare entitlements they frequently do not want to take over the title, which costs money, and they do not want to take on the duties of ownership such as paying annual levies and fees.

[11]              Apparently the death of owners has also caused practical difficulties for the Body Corporate in terms of collecting levies from the estate of the unit owner and selling the entitlement.

[12]              Additionally, there has been an increase in owners defaulting on their obligations to pay their levies. This has placed an increasing financial burden on other owners and the Body Corporate. Mr Morley anticipated the number of “gone no address” owners would continue to increase with time particularly as the market for the sale of individual timeshare weeks continues to decrease.

[13]              It appears to the Body Corporate there is no viable alternative option to selling the Resort as a whole as there is no longer a market for individual timeshare weeks, particularly floating weeks. Other types of holiday accommodation such as Airbnb and Book a Bach have become popular and the Resort has become more expensive than these popular alternatives. As well, it seems the expense, ownership responsibilities and the general concepts of timeshare accommodation is not as competitive or popular as it once was leading to owners having difficulty selling their timeshares. In turn, this has led to some defaulting.

[14]              The Resort has been well maintained since its construction. It had a major refurbishment in 2008 and although the Body Corporate had planned to refurbish every seven years with the next refurbishment date due 2018, this was put on hold pending the outcome of the voting and sale process. While the Body Corporate has sufficient funds to continue to maintain and manage the resort if its income from fees and levies continues to decrease it is expected the Resort will be put under significant financial strain in the coming years.

No opposition

[15]              Form 21 — Notice of Application to High Court to Cancel Unit Plan — was served in accordance with the requirements of s 205 of the Act and the District Court

orders which are appended to Mr Morley’s affidavit. All persons who are required to be served pursuant to s 187(2) of the Act have been served with the required notice.

[16]Of the 1,428 titles the only queries came from the owners of two titles:

(a)One, an owner who is a practicing solicitor, inquired about the timing of service in relation to the case management conference and was advised the same day (21 October) that any opposition should be filed by 16 November with the case management conference to take place on 30 November.

(b)The other, who voted in favour of the special resolution to sale, contacted Tompkins Wake on 22 October saying she did not wish the resort to be sold. She was advised of the process for objecting if she wished.

[17]The Body Corporate has not heard from either since their initial inquiries.

Should the orders be granted?

[18]              As Ellis J observed in Re Body Corporate 46051, the issues faced by the resort with which Ellis J was dealing are not unique and they evidently continue to be shared by other timeshare resorts.4 Ellis J said:

[31] … As the 2015 decision of this Court in relation to the Phoenix Resort makes clear, an application founded on reasons such as those set out by     Mr Stantiall and which is supported by a clear majority is likely to meet the  s 187 “just and equitable” threshold.

[19]              I am satisfied it is just and equitable to grant the Body Corporate’s application. By a significant majority, owners support the proposal. The Registrar-General has been served and, pursuant to s 187(3) entered notification of the application on the supplementary record sheet. No person has opposed the application and no interested person has sought to be heard. Importantly, no one who has a registered interest seeks to assert their interest.

4      At [31] citing Re Body Corporate 44426, above n 1.

Disposition

[20]The application is granted.

[21]              Orders are made in terms of the draft orders attached to counsel’s memorandum dated 2 December 2020.

Karen Clark J

Solicitors:
Tompkins Wake, Hamilton for Applicant