Body Corporate 324525 v Stent (No 2)

[2017] NZHC 2857

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI TERENGA PARĀOA ROHE

CIV-2016-488-94 [2017] NZHC 2857

BETWEEN

BODY CORPORATE 324525

Plaintiff

AND

ROBYN CATHLEEN STENT First Defendant

CLARRIE LAWRENCE SMALL and KM TRUSTEE SERVICES LIMITED Second Defendants

ANTHONY JOHN BUTCHER and

RUTH BARBARA ROGERS Third Defendants

IVOR ANTONY MILLINGTON Fourth Defendant

NEVILE EADE Fifth Defendant

Hearing:	2, 3, 9 and 15 February 2017
Appearances:	T J G Allan and SF Powrie (only on 2 February) for Plaintiff B E Brill for Defendants
Judgment:	21 November 2017

JUDGMENT (No.2) OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on 21 November 2017  at 4:00pm

pursuant to Rule 11.5 of the High Court Rules

Solicitors:

…………………………………………………….

Registrar/Deputy Registrar

Grove Darlow, Auckland, for Plaintiff

Barry E Brill Limited, Paihia, for Defendants

BODY CORPORATE 324525 v STENT [2017] NZHC 2857 [21 November 2017]

CONTENTS

Paragraph

Introduction  [1] Background`  [6] Other proceedings  [13] Wheeldon   [14] Butcher  [20]

First cause of action  [22] Second cause of action  [23] Third cause of action  [24]

Body Corporate 324525 v Far North District Council  [28] Procedural matters  [29] Defendants’ pleadings  [29] Defendants’ application to use evidence in earlier proceedings  [33]

No claim for relief under s 210 of the Unit Titles Act  [35] The body corporate’s claim for “other fees”  [39] The claim for SL1   [46] Invalidity arguments  [47] Unauthorised work  [49] Wheeldon 1 [52]

Abuse of process?  [54]

Are the works within body corporate’s powers?  [64] Balustrades  [65] Replacement of stormwater reticulation systems and gutters           [68] Roof/gutter extensions  [73] Fire Protection systems  [77] Summary on unauthorised work  [82]

Invalidity of expenditure  [83] Challenge to the levy of 19 April 2016 – SL8  [93] Tort claims  [116] The harmful publicity claims  [118] The challenges to the validity of the decision to begin

the leaky building proceeding  [128]

Reg 17  [128] Reg 29  [134] The proceeding ultra vires the body corporate?  [137] Suggested judicial review  [151] Proceeding not authorised  [157] The defendants’ causes of action  [164] Negligence  [165] Injurious falsehood  [170] Fair Trading Act claim  [177] Summary of harmful publicity  [181]

Negligence in decision-making  [183] Negligence in remedial works  [193] Equitable set-off  [198] Relief for counterclaim on summary judgment application                   [206] Another set-off argument  [209] Result  [215]

Introduction

[1]      The  body  corporate  for  the  unit  title  development  at  Paihia  known  as Bridgewater Bay Apartments sues the owners of five apartments for unpaid levies, interest and the reasonable costs of collection.  It has applied for summary judgment. The claims are:

(a)      Robyn Cathleen Stent, first defendant           $188,380.47 (level 2 - unit 204)

(b)      Clarrie Small and K M Trustee Services Ltd

second defendants  $107,910.90 (level 2 - unit 206)

Anthony John Butcher and

Ruth Barbara Rogers third defendants          $213,859.24 (level 3 - unit 301)

(c)       Ivor Anthony Millington, fourth defendant    $207,851.22 (level 3 - unit 307)

(d)Neville Eade, fifth defendant  $208,908.55 (level 3 - unit 310)

[2]      The body corporate says that there were resolutions imposing levies described as

SL1, SL4, SL6, SL7 and SL8:1

Levy	Amount	Date of decision	Due Date
SL1	$172,500.00	14 July 2015	31 July 2014
SL4	$57,500.00	15 February 2015	2 April 2015
SL6	$34,500.00	2 June 2015	10 July 2015
SL7	$3,000,000.00	7 August 2015	3 October 2015
SL8	$700,000.00	19 April 2016	15 May 2016

1      There are also levies identified as SL2, SL3 and SL5, but they are not in issue in this proceeding.

Its case is that all owners were levied according to their ownership interests.  A body corporate committee with delegated authority resolved to impose the levies SL1, SL4, SL6 and SL8.  SL1, SL4 and SL6 were ratified at an extraordinary general meeting on

17 June 2015.   SL7  was made at  an emergency extraordinary general meeting on

7 August 2015.   SL8 was not made at a general meeting and has not been ratified. Ms Stent has paid levies SL1, SL4 and SL6 but has not paid SL7 and SL8.  The other defendants have not paid any of the levies.

[3]      I have taken  much longer to  give this  decision  than  I would  have wanted. I apologise to the parties for the time taken.

[4]      Bridgewater had water ingress problems.  The owners were divided on how to deal  with  them.    The majority favoured  carrying  out  extensive  work,  whereas  the minority, the defendants in this case, considered that the proposed repairs went beyond what was necessary.   While the differences were aired in general meetings, the defendants have taken other proceedings challenging decisions by the body corporate to carry out the works, but were unsuccessful.  Muir J described their position:2

… They allege “capture” of the Body Corporate by the Auckland based “leaky building industry” and cupidity on the part of individual consultants.   They contend for a limited or “targeted” repair, deny that there are any systemic problems with the development and say that all that is currently required is remedial work to the two timber-framed “penthouses” which sit on the fourth floor of the building.  They say that such work should be paid for by the owners of  those  units  and  that  although  other  elements  of  the  building,  and,  in particular, deck membranes for the remaining 18 apartments, may be nearing the end of their service life, all that is, in due course, required is to lift and replace the membranes and tiles at a cost unlikely to exceed $6,000 per unit.

The levies were raised to fund the costs of investigating building defects and carrying out remedial and other work.  The defendants’ refusal to pay the levies is based on their disagreement with paying for repairs which they consider are unnecessary.  They have apparently paid levies required to meet the body corporate’s ordinary expenses.

[5]      While the defendants run a number of arguments, they mainly come under two general heads:

2      Wheeldon v Body Corporate 324525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [3].

(a)      They attack the validity of a number of decisions by the body corporate: to issue a leaky building proceeding; to undertake some parts of the remedial works; to carry out remedial works by funding said to be inconsistent with ss 115 to 119 of the Unit Titles Act; and the resolution by the body corporate committee for levy SL8.

(b)They make tort claims for damages for: harmful publicity; for negligence in decision-making; and negligence in carrying out remedial works; and say that these claims can be set off against any liability to pay levies.

Background

[6]      Boutique Body Corporates Ltd provides secretarial and management services to the body corporate.  Its director is Mr Craig Leishman.

[7]      There are 22 apartments in the complex built in 2003.  The ground floor (called level 1) is a car parking area which is common property.  There are ten units on each of levels 2 and 3, and two on level 4. At least since 2013, if not earlier, the body corporate and many of the owners were aware of water ingress problems affecting both common property and some unit property.   During 2013, the body corporate obtained reports from  consultants.    In  October  2013,  on  the  instructions  of  the  body  corporate,  a

proceeding was started claiming damages for damage attributed to building defects.3

The proceeding named the body corporate and the owners of all the apartments as plaintiffs.   While a number of defendants were named, only the Far North District Council actively defended.

[8]      At an extraordinary general meeting on 9 November 2013 it was resolved that the body corporate not lodge a claim with the Weathertight Homes Resolution Service, that the body corporate committee be delegated to investigate and appoint a consultant to  manage  the  building  remediation  process,  that  the  committee’s  appointment  of lawyers to instigate defect litigation be ratified, and that the law firm be engaged to

represent the interest of the body corporate and owners in the proceedings.

3      Body Corporate 324525 v Far North District Council HC Whangarei CIV-2013-488-434. I note the decision in this proceeding was given in Body Corporate 324525 v Far North District Council [2016] NZHC 1506.

[9]      Ms Stent, the first defendant, bought her unit in March 2014 from Mr and

Mrs Wheeldon.

[10]     On 30 November 2015 the body corporate entered into a contract to repair the defects.  The contract price was $2,452,344.00 excluding GST but subject to variations and provisional costs sums. The work has been completed.

[11]     Mr Leishman says that by July 2016 the body corporate had incurred costs of

$3,747,584.00 (including GST) to remedy the defects.  His evidence includes a copy of a building expenditure ledger showing all expenditure paid.  In summary, he says that the total costs incurred in remedying the defects but excluding fees, is $2,768,903.00. The balance is taken up with consultants’ fees, management fees, and sundries such as insurance.

[12]     Since becoming aware of the water ingress problems, the body corporate has obtained reports from consultants:

(a)       Report by AA Home Inspections Ltd dated 22 April 2013;

(b)      Report by AA Home Inspections Ltd dated 18 September 2013;

(c)       Preliminary weathertightness report by Origin Building Consultants Ltd dated 9 October 2013;

(d)      Remedial costs report by Kwanto, quantity surveyors, dated 5 November

2013;

(e)       Scope  of  works  and  methodology  for  proposed  remedial  works  by

Resolution Architecture of June 2014;

(f)       Passive fire protection audit report by Fire Group Consulting Ltd dated

25 October 2015.

Among other things the defendants say that the remedial work by the body corporate is more extensive and has cost much more than the initial reports indicated.

Other proceedings

[13]     Part of the background is three other proceedings involving the Bridgewater Bay apartments which I will explain:4

(a)       Wheeldon v Body Corporate 324525 CIV-2014-488-122 (Wheeldon); (b)     Butcher v Body Corporate 324525 CIV-2015-488-86 (Butcher); and

(c)       Body Corporate 324525 v Far North District Council CIV-2013-488-434 (the leaky building proceeding).

Wheeldon

[14]     In Wheeldon the plaintiffs sought declarations as to the invalidity of resolutions made by the body corporate and its committee to carry out the remedial work.   In a second cause of action they sought a declaration that the SL1 levy was invalid.   In a counterclaim, the body corporate sought judgment for that levy.  The plaintiffs in the Wheeldon proceeding are the second to fifth defendants in this proceeding and Mr and Mrs Wheeldon.  They had sold their unit to Ms Stent.  While she was not named as plaintiff, Ms Stent held a power of attorney from the Wheeldons and effectively ran the proceeding on their behalf.  She was a counterclaim defendant in her own right.

[15]     Muir J’s decision of 30 April 2015 (Wheeldon 1) dealt only with the first cause of action,5  leaving the second cause of action and the counterclaim for decision later. He gave his final decision (Wheeldon 2) on 7 February 2017 while this application was part-heard.6

[16]     In Wheeldon 1 he found for the body corporate. Amongst other things he held:

(a)       Under s 138(1)(e) of the Unit Titles Act the body corporate was under a responsibility to repair and maintain building elements and infrastructure

4      I understand that there have also been proceedings in the Tenancy Tribunal under s 171 of the Unit

Titles Act, but they are not relevant to this proceeding.

5      Wheeldon v Body Corporate 324525 [2015] NZHC 884, (2015) 16 NZCPR 829.

6      Wheeldon v Body Corporate 342525 [2017] NZHC 87.

that relate to or serve more than one unit, even if the building elements and infrastructure are unit property rather than common property.  That applies notwithstanding s 80(1)(g) under which an owner of a principal unit must repair and maintain the unit and keep it in good order.7

(b)The  objective  under  s  3(d)  of  the  Unit  Titles Act  of  protecting  the integrity of  the  development  as  a  whole  went  not  only to  structural integrity but also aesthetic integrity.8

(c)      The plaintiffs cannot complain that it is unfair that they must pay for the costs of repairs and maintenance to building elements and infrastructure by ownership interests in the first instance.   The body corporate may decide later whether it should take action against individual owners to

recover costs incurred by the general body of unit holders.9

(d)Any apparent conflict between ss 138(1)(d) and 80(1)(a)(ii) of the Unit Titles Act (which permits a body corporate or its agents to enter a unit for maintenance, repair and renewal of infrastructure) can be resolved by inserting the words “or the common property (or both)” into s 138(1)(d) and further, a unit could include areas of a building in separate albeit

common ownership of respective proprietors.10

(e)      The  body  corporate  acted  on  bona  fide  advice  from  an  expert  with specialist knowledge in the area.  That expert advised the body corporate that the complex did not comply with the building code when it was built, and remediation would involve reconstruction of decks with adequate falls and consequential changes to the northern façade.   The body corporate was entitled to accept that advice and develop its scope of

works accordingly, notwithstanding contrary views by the minority.11

7      At [26]-[54].

8 At [48].

9 At [52].

10     At [58]-[64].

11 At [76].

(f)      The parts of the building requiring repair involved building elements and infrastructure that related to and served more than one unit or common property or both.12

(g)      The decks on levels 2, 3 and 4 required repair and maintenance.13

(h)As  repair  work  has  to  be  carried  out  to  the  standard  of  the  current building code, the body corporate proposed remedial works did not amount to betterment, but that excluded improvements such as double- glazing and adding ranch sliders to bedroom suites.   On that basis the body corporate was entitled to carry out a holistic repair, rather than

targeted repairs.14

(i)When properly construed, the resolutions passed at the general meeting on  9 November  2013  authorised  the  body corporate  to  carry out  the proposed remedial work.15

(j)Muir J  declined  to  make a declaration  that  the body corporate must recover the cost of repairs or maintenance undertaken within any unit from the owner of that unit (except where damage is caused by water leaked from another unit).16

[17]     The plaintiffs in Wheeldon appealed but were unsuccessful.17     The Court of Appeal did not consider it necessary to read in additional words “or common property or both” into s 138(1)(d).18     The appellants said that Muir J had not addressed an argument that  s 138(1)(d) of the Unit Titles Act did not  give authority to  a body corporate to repair a building element, unless that building element required repair. The Court of Appeal rejected that submission.19   The Court rejected an application to adduce

further evidence, which was directed at showing that the local authority would grant

12     At [77]-[98]

13     At [99]-[146].

14     At [147]-[166].

15     At [167]-[194].

16     At [197]-[199].

17     Wheeldon v Body Corporate 324525 [2016] NZCA 247, (2016) 17 NZCPR 353.

18     At [46]-[47].

19     At [71]-[72].

building consent with a more limited scope of works than the body corporate had planned.20     In all other respects it upheld those findings of Muir J which were the subject of appeal.  The plaintiffs sought leave to appeal to the Supreme Court but were not successful.21

[18]     In Wheeldon 2 Muir J:22

(a)      Declined to make a declaration that the body corporate had breached s 117 of the Unit Titles Act by appropriating funds held in an account described as a long-term maintenance fund;

(b)Held that payments out of that account had been made lawfully and had been ratified in a general meeting;

(c)      Held that SL1 had been lawfully raised.  There was no invalidity in the body corporate  committee conferring by email  instead  of meeting in person;

(d)Gave judgment for the body corporate for its counterclaim (against the defendants in this case) for SL1.

[19]     The plaintiffs appealed against Muir J’s decision in Wheeldon 2.  The Court of

Appeal dismissed the appeal with reasons to be given later.23

Butcher

[20]     The plaintiffs in Butcher are the defendants in this proceeding.  They differ from the Wheeldon plaintiffs in that Ms Stent has replaced the Wheeldons.

[21]     There were three causes of action:

20     At [103]-[114].

21     Wheeldon v Body Corporate 324525 [2016] NZSC 125.

22     Wheeldon v Body Corporate 324525 [2017] NZHC 87.

23     Wheeldon v Body Corporate 324525 [2017] NZCA 424.

(a)      The first cause of action attacked the validity of resolutions passed at an annual general meeting on 31 January 2015, an extraordinary general meeting  on  17  June  2015  and  an  emergency  extraordinary  general meeting on 8 August 2015.

(b)      The second sought minority relief under s 210 of the Unit Titles Act.

(c) The third sought a declaration that the relevant resolutions were ultra vires and of no effect because the works undertaken represented voluntary upgrades unnecessary to satisfy the requirements of s 49(1) of the Building Act 2004.

First cause of action

[22]     In his decision of 20 December 2016,24 on the first cause of action Muir J held that the plaintiffs were ineligible to vote at a general meeting under s 96 of the Unit Titles Act for not having paid their levies.25   In a minute of 21 November 2016, he had recorded other challenges to the legality of resolutions but they were abandoned.26     At the  emergency extraordinary general  meeting  of August  2015,  all  resolutions  were carried by a majority of no less than 75 per cent of those voting.27    The resolutions complained  of  did  not  require  special  resolutions  in  any  event.28    A  resolution dispensing with future audits was invalid.29   Muir J declined to declare that a unanimous resolution  at  the  extraordinary  general  meeting  on  17  June  2015  ratifying  past resolutions by the body corporate and its committee was invalid.30

Second cause of action

[23]     On the second cause of action Muir J declined to allow the plaintiffs to reinstate their abandoned claim under s 210 of the Unit Titles Act.31

24     Butcher v Body Corporate 324525 [2016] NZHC 3128, (2016) 17 NZCPR 708.

25     At [74]-[87].

26 At [73].

27 At [88].

28     At [90]-[92].

29     At [93]-[97].

30     At [98]-[99].

31     At [103]-[110].

Third cause of action

[24]     Muir  J  held  that  the  third  cause  of  action  was  an  abuse  of  process  under Henderson v Henderson,32 because the plaintiffs were trying to run arguments that they ought to have run in the Wheeldon proceeding.33   Insofar as the plaintiffs sought to run arguments as to repairs to decks not being necessary, they were barred by issue estoppel. In any event, Muir J would have dismissed the plaintiffs’ arguments.   He regarded a building consent obtained by Mr Butcher as irrelevant.34     In summary, the plaintiffs were completely unsuccessful in the Butcher proceeding.  They appealed.  The Court of Appeal dismissed the appeal with reasons to be given later.35

[25]     There is some overlap between issues in Wheeldon and Butcher and matters raised in this proceeding.  The extent to which findings in those cases can be applied here needs to be noted.  The starting point is that evidence of a finding of fact in those cases is not admissible in this proceeding to prove a fact in issue in this case.36   That is subject to the substantive rules as to res judicata and issue estoppel.37   In addition as a

matter of procedural law the court may hold that it is an abuse of process for a party to run an argument that could have been raised in the earlier proceeding.38

[26]     As all appeal rights in Wheeldon 1 have been exhausted, that decision clearly has final effect.   It binds its parties and their privies.   Ms Stent was not a party to the plaintiffs’ causes of action in that decision, only to the counterclaim.  She is however a privy, because of a sufficient community of interest with the Wheeldons.   She had bought their unit and held a power of attorney under which she conducted the litigation under their names.  She stood in their place.

[27]     It is otherwise with Butcher and Wheeldon 2.  While an appeal is pending, the decision the subject of appeal does not have final effect for res judicata.  The appeal

32     Henderson v Henderson (1843) 3 Hare 100.

33     At [49]-[62].

34     At [63]-[70].

35     Butcher v Body Corporate 324525 [2017] NZCA 423.

36     Evidence Act 2006, s 50(1).

37     Evidence Act, s 50(2).

38     Henderson v Henderson (1843) 3 Hare 100 as explained in Johnson v Gore Wood & Co [2002]

2 AC 1 (HL).

trumps the estoppel.39    While the appeals in Butcher and Wheeldon 2 have been dismissed, the Court of Appeal has not yet given its reasons. It is possible that not all of Muir J’s reasons will be upheld.  Because of that slight possibility I will have regard to his decisions in Butcher and Wheeldon 2, but not treat them as conclusive for issues in this case.40

Body Corporate 324525 v Far North District Council41

[28]     This is the leaky building proceeding started in October 2013.  The proceeding named the body corporate and all 22 owners as plaintiffs.  An Auckland law firm filed the proceeding on  the  instructions  of the  body corporate  committee  after the  firm advised that the claims were at risk of becoming time-barred.  The Far North District Council was the only defendant that took an active part.  Sometime after the start of the proceeding the defendants in this proceeding instructed Mr Brill, apparently because the Auckland lawyers had difficulty dealing with inconsistent instructions from the body corporate and the defendants.  I case managed the proceeding during the interlocutory phase.  It was set down for an eight-week hearing this year.  I have been advised by the registry that the claim settled between all the plaintiffs and the district council.   The council is apparently pursuing cross-claims against other defendants.

Procedural matters

The defendants’ pleadings

[29]     The defendants were coy about showing their grounds of opposition fully.  They needed some coaxing.  The full range of arguments did not become apparent until some days into the hearing.  The first notice of opposition (dated 9 November 2016) made only general assertions, for example:

Each defendant has one or more valid defences to the plaintiff’s claim.

[30]     The next notice of opposition referred to defences in a draft statement of defence and counterclaim filed on 22 November 2016.  That document was unhelpful in that it

39     Unilin Beheer BV v Berry Floor NV [2007] EWCA Civ 364, [2008] 1 All ER 156 at [80]-[81].

40 This point arises at [111] below.

41     Body Corporate 324525 v Far North District Council HC Whangarei CIV-2013-488-434.

did  not  refer  with  any  particularity  to  enactments  or  principles  of  law  or  judicial decisions on which the defendants relied.42   The draft statement of defence did deal with some matters raised in argument.

[31]     In  a  further  document,  the  defendants  filed  further  particulars  of  the  draft statement of defence, which referred to paragraphs pleaded in the Butcher proceeding. That was not helpful as I had no idea what those paragraphs referred to.  At that stage Muir J had not given his judgment in Butcher, but I was aware that some issues in that case were not being pursued.  I did not know which ones and how they overlapped with this case.  I was concerned not to give a decision inconsistent with matters which Muir J might cover in Wheeldon 2 and Butcher.  On 16 December 2016 I directed:

At the hearing of the summary judgment application, I will not deal with attacks on the validity of the levies or similar matters in paragraph 7 of the statement of defence.  I will, however, deal with the other matters put in issue by the draft statement of defence.

[32]     That was overtaken by the judgments in Butcher and Wheeldon 2 so that I was able to hear argument on validity issues.   All the same, the body corporate opened without knowing exactly which validity issues would be run.  The defendants’ opening synopsis of argument filed before the hearing did not refer to them.  I found out what they were only when supplementary synopses were tendered during the hearing.

Defendants’ application to use evidence in earlier proceedings

[33]     As part of its case, the body corporate relied extensively on evidence in the Wheeldon and Butcher proceedings, as well as on the judgments in those cases.  The defendants accordingly had clear notice of all the evidence the body corporate was relying on.

[34]     In their amended notice of opposition, the defendants gave notice under r 7.32 of the  High  Court  Rules43   that  they  intended  to  rely  on  three  affidavits  filed  in  the Wheeldon and Butcher proceedings.  Unlike the body corporate the defendants did not

include those affidavits as part of their evidence and they were not included in the

42     High Court Rules, r 7.24(2)(b).

43     There was a typographical error: they referred to r 7.31.

bundle of documents for the hearing.  Instead, during the hearing, Mr Brill tendered a bundle of additional materials, comprising extracts from the affidavits referred to in the notice of opposition.  I granted leave to use those materials, but I do not approve the way this was done.   The body corporate was left in the dark as to the evidence the defendants were relying on and did not have the opportunity to reply to it.  To a certain extent,  the  body  corporate  was  ambushed.    Notwithstanding  that,  I  granted  leave because I did not want the error of their counsel to prejudice the defendants.  Refusing leave may have led to delay, as the defendants would have sought leave to file the evidence properly.   With leave given, the body corporate would also require time to reply.   The body corporate was impatient with what it saw as stalling tactics by the defendants.

No claim for relief under s 210 of the Unit Titles Act

[35]     While the defendants claim to be hard done by the body corporate and the majority of the owners, they do not seek relief under s 210 of the Unit Titles Act.  The section says:

210     General relief for minority where resolution required

(1) In any case where this Act requires a resolution and the resolution is passed, any person who voted against the resolution may apply to the appropriate decision-maker for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority.  …

(2) An application for relief under subsection (1) must be made within

28 days of the passing of the resolution.

[36]     Relief  under  the  section  is  not  available  for  those  who  do  not  vote.    The defendants here have not satisfied the voting eligibility requirement under s 96(3) of the Unit Titles Act of having paid all their body corporate levies.  They were therefore not eligible to vote and could not apply under s 210.

[37]     There is another aspect that bars any claim under s 210.  The levies in this case are payable by all owners under ss 121 and 124 of the Unit Titles Act according to their ownership interests.  Because the levies apply equally to all owners, a minority cannot claim that the effects of resolutions for those levies are unjust or inequitable to them as a

minority.  Harrison J caught this in Young v Body Corporate 120066, when dealing with s 43 of the Unit Titles Act 1972, which was in similar terms:44

As Randerson J emphasised in Spencer-Inight at 106, the phrase “inequitable” where used in s 43 implies material unfairness or injustice to the minority unit holder.  Mr Colthart’s  argument  appears  to  proceed  on  the  premise  that  a resolution is inequitable because a minority objects to it. That does not satisfy the statutory test. The Cowley group must identify an element of the resolution which has a materially unfair or unjust effect on it as opposed to the apartment owners as a group. Its failure to do so is fatal.

[38]     That is relevant to the defences in this case.  On the whole the defendants do not allege that they have been hard done by as a minority, but raise matters that apply generally to all unit owners.

The body corporate’s claim for “other fees”

[39]     The  body  corporate  says  that  the  defendants  should  pay  “other  fees”  of

$4,343.20:

(a)       First defendant  $1,589.38 (b)       Second defendants  $427.01 (c)       Third defendants  $891.74 (d)       Fourth defendant  $716.27 (e)       Fifth defendant  $718.80

[40]     The body corporate has not claimed that these fees fall within any of the levies on which it has sued.  The statement of claim does not plead any recognisable cause of action for the fees.   There is no evidence to support these fees. In the absence of adequate pleading and clear evidence, the body corporate has not shown that the defendants do not have an arguable defence to the claims for the fees.

[41]     Mr Allan explained that the claim against the five defendants totalling $4,343.20

for “other fees” was under s 127 of the Unit Titles Act.  The body corporate required the

44     Young v Body Corporate 120066 (2007) 8 NZCPR 932 (HC) at [43].   See also Spencer-Inight v

Johnston [1999] 3 NZLR 103 (HC) at 106; World Vision of New Zealand Trust Board v Seal (2004)

1 NZLR 673 (HC) at [45]; Hart v Body Corporate 180455 (2005) 5 NZConvC 194,147 (HC) at [8]; Body Corporate 85403 v Magill (2008) 9 NZCPR 399 (HC); and Tremont Holdings Ltd v Body Corporate 40180 [2015] NZCA 314 at [11]-[25].

defendants to pay the costs of a loan facility fee it had incurred in arranging finance needed because of the failure of the defendants to pay their levies. The section says:

127     Recovery of money expended where person at fault

(1) This section applies if the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, and the repair, work, or act was rendered necessary by reason of any wilful or negligent act or omission on the part of, or any breach of the Act, the body corporate operational rules, or any regulations by, any unit owner or his or her tenant, lessee, licensee, or invitee.

(2) Any expense incurred by the body corporate in doing the repair, work, or act, together with any reasonable costs incurred in collecting the expense, is recoverable as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense became payable or by the person who is the unit owner at the time proceedings are instituted.

[42]     The body corporate has not pleaded that claim.  The statement of claim is for contributions levied on all unit owners under s 121 recoverable under s 124 including collection costs and interest under s 128 of the Unit Titles Act.  A claim under s 127 is targeted at particular owners where action by the body corporate is required because of any wilful or negligent act or omission on the part of those owners.   No defendant reading the statement of claim would understand that they were facing a claim under s 127.

[43]     The body corporate’s evidence is insufficient.  It has not shown any contractual document under which it was required to pay a loan facility fee and has not proved the amount of the fee.  It is also not apparent how the fee has been apportioned amongst the defendants.  Another matter to be explored is whether the interest payable under s 128 of the Unit Titles Act may be adequate compensation to the body corporate for being kept out of the levies payable to it.

[44]     Mr  Allan  accepted  that  he  could  not  sustain  the  application  for  summary judgment for the “other fees”.  The ordinary course would be to dismiss the summary judgment application for that aspect and give directions for a hearing on the merits in this court.  Mr Allan acknowledged that that was impractical.  The amount in issue is easily within the jurisdiction of the Tenancy Tribunal under s 171(4) of the Unit Titles Act.  There is, however, no provision under which a claim started in this court for less

than $50,000 can be transferred to the Tenancy Tribunal.  While s 175 of the Act allows the Tribunal to move proceedings to the District Court or the High Court, there is no provision for transfer the other way.

[45]     Given  the obvious  inefficiency of hearing a claim  for $4,000  in  this court, Mr Allan sought an order dismissing the claim in this court but without prejudice to the body corporate’s right to claim afresh in the Tenancy Tribunal.  I do that by recording that that aspect of the claim has been discontinued in this court, but without prejudice to the body corporate’s right to recover that sum in the Tenancy Tribunal.

The claim for SL1

[46]     In Wheeldon 2 Muir J gave the body corporate judgment on its counterclaim for SL1 against the defendants.  As the body corporate already has judgment for that levy, the defendants have an arguable defence that the body corporate cannot obtain judgment against them again.   The matter is res judicata.   The body corporate accepted the overlap and did not seek judgment for SL1.  There is no sense in keeping that part of the body corporate’s claim alive.  It is struck out.

Invalidity arguments

[47]     The defendants’ invalidity arguments are:

(a)      All the levies are invalid because the works for which they were raised are outside the powers of the body corporate under the Unit Titles Act;

(b)All the levies are invalid because the expenditure for the works was not made through any of the funding mechanisms under ss 115 to 117 of the Unit Titles Act; and

(c)      The  committee  decision  of  19 April  2016  to  impose  SL8  is  invalid because the committee did not meet.

[48]     These arguments go directly to the validity of the levies.  The defendants also

say that the committee’s decision to issue the leaky building proceeding was invalid.

They run that argument as part of their damages claim against the body corporate, not to attack the levies.  I deal with that argument later.

Unauthorised work

[49]     The defendants say that the levies were raised to fund works, much of which were ultra vires the body corporate. The works they attack can be grouped:

(a)       elements on or adjoining the decks, including nib walls; (b)           balustrades;

(c)       replacement of the internal stormwater reticulation system; (d)          roof and gutters; and

(e)       the passive fire system.

[50]     If work to be funded by levies is ultra vires the body corporate, that may provide an arguable defence to a claim to pay those levies.   If all work is ultra vires, the defendants may properly argue that they should not be required to pay anything for work the body corporate has no power to carry out.  It may be arguable for the body corporate that if the extent of any ultra vires  component in work  to  be funded  is insignificant, any relief might be confined to restraining the body corporate from carrying out the ultra vires component of the work, but leaving the levy intact.  In this case, the defendants gave indicative figures to suggest that the scope of ultra vires work was extensive, even if it was not the entire scope of the work.  If they can establish that the unauthorised element of any works is more than insignificant, they may have an arguable defence which should be left for a full hearing.

[51]     The body corporate’s general response is:

(a)      In  Wheeldon  1  this  court  and  the Court  of Appeal  ruled  against  the defendants on those parts of the remedial works which the defendants alleged were ultra vires;

(b)It is an abuse of process for the defendants to raise fresh ultra vires arguments based on other parts of the scope of works; and

(c)       The works are within the body corporate’s powers.

Wheeldon 1

[52]     While they plead that the work on the decks was ultra vires, in submissions the defendants accept that in Wheeldon 1 this court and the Court of Appeal found the work was within the body corporate’s powers.   The defendants save their  attack on  the decisions to carry out work on the decks and associated elements for a negligence claim.45

[53]     In the first cause of action in Wheeldon 1, the focus of the ultra vires allegation was the work on decks and cladding frames, including the provision of a nib wall.46

Declarations were sought that the body corporate does not have the power to carry out construction work on the cladding frames and on the decks without the consent of apartment owners, and that the work proposed was not warranted.  Muir J held that the body corporate was acting within its powers in undertaking that work.  To reach that conclusion, he resolved the relationship between ss 80 and 138 of the Unit Titles Act. He considered the meaning of “building elements” and “infrastructure” under the Act and the requirements under s 138 for building elements and infrastructure to relate to or serve more than one unit, and the general scope of the repair and maintenance responsibility under s 138.   He held that the decks were both building elements and elements of infrastructure that related to or served more than one unit, as did the “small in-fill panels”.  He found a requirement for repair.  It was not for the court to determine which repair option was better – holistic or targeted.   He also held that the scope of works set out in the Origin report did not constitute betterment, leaving aside improvements of individual units such as double-glazing, the addition of ranchsliders to bedroom suites and the like.  Those findings create an issue estoppel for the decks and

cladding, which the defendants acknowledge.

45 See [192] below.

46     Statement of claim, paragraphs 15, 16, 17, 18, 19 and 20.

Abuse of process?

[54]     The judgment also refers to other building elements, for example, balustrades47 but those references are obiter and not fundamental to the decision.48   The Wheeldon 1 judgment does not deal with balustrades, replacement of stormwater reticulation system and gutters and fire system as subject to an ultra vires challenge.   There is no issue

estoppel on those points. While the general principles in Wheeldon 1 apply, res judicata does not stand in the way of the defendants saying that under those principles other work is ultra vires.

[55]     The body corporate says that the defendants cannot contest vires for these parts of the remedial work, because that is an abuse of process under the well-known dictum of Sir James Wigram V-C in Henderson v Henderson.49

In trying this question, I believe I state the rule of the Court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject  of  litigation  and  which  the  parties,  exercising  reasonable  diligence, might have brought forward at the time.

[56]     The House of Lords reviewed the Henderson rule in Johnson v Gore Wood & Co.50   Lord Bingham noted that while abuse of process under Henderson v Henderson is separate  and  distinct  from  issue  estoppel,  there  are  elements  in  common.    The underlying interests are the same.   There should be finality in litigation and parties should not be twice vexed in the same matter.  That public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation in the interests of the parties and the public.  The bringing of a claim and the raising of a defence in

later proceedings may, without more, amount to an abuse if the court is satisfied that the

claim or defence should have been raised in the earlier proceedings if it was to be raised

47     See Wheeldon 1 at [48].

48     Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.

49     Henderson v Henderson (1843) 3 Hare 100 at 114-115.

50     Johnson v Gore Wood & Co [2002] 2 AC 1 (HL).

at all.  Merely because the matter could have been raised in the earlier proceeding does not mean that it should have been, so as to make the later proceeding necessarily abusive.  Rather than adopt a dogmatic approach, Lord Bingham considered that there should be a broad merits-based judgment, which takes account of the public and private interests involved, and takes account of all the facts of the case, focusing attention on the critical question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it issues which should have been raised before.  Just as it is not possible to list all possible forms of abuse, it is not possible to formulate any hard and fast rule to determine whether, on given facts, abuse is to be

found or not.51     Lord Millett’s speech is to similar effect.  He recognised that whereas

res judicata is a matter of substantive law, this head of abuse of process is procedural.52

[57]     A common element of the defence now under consideration and the first cause of action in Wheeldon 1 is the challenge that the holistic repairs undertaken by the body corporate were ultra vires.   In the first proceeding, objection was taken to decks and cladding and associated elements, whereas here the attack is on balustrades, guttering systems and fire systems.   While different aspects of remedial works are raised, the overall contention is the same, that the body corporate was acting without authority. That is to be decided by the principles laid down in Wheeldon 1.

[58]     It is arguable for the defendants that their objections to other parts of the work cannot be abusive if they did not have the opportunity to raise them in the earlier proceeding.   That turns on when they found out about the other work and their opportunities to refer to it in earlier proceedings.

[59]     The defendants had the opportunity to raise challenges to roofs and rainwater systems in Wheeldon.   They say that in the Origin report of 2013 costs had been allocated towards these elements but that these aspects were expanded considerably under the “Resolution plan”.  They became aware of this before the Wheeldon hearing. The rainwater system systems were the subject of evidence by the body corporate’s architect filed in February 2015, as were the roof-gutter extensions.  They had time to

deal with these matters in the hearing that began on 2 March 2015.

51     At 31.

52     At 59.

[60]    I accept, however, that the defendants could not have found out about the balustrades and fire systems in time to raise them in Wheeldon.   They obtained information about the balustrades only in December 2015, and about the fires systems when the body corporate commissioned a report as to fires systems in November 2015. By then Muir J had already given his decision.   It is accordingly arguable for the defendants that they could not be required to raise balustrades and fire safety in Wheeldon because they arguably did not find out about that within time to put it in issue.

[61]     The  matter  is  otherwise  with  the  Butcher  proceeding.     In  that  case,  the defendants claimed that the body corporate’s holistic repair represented betterment or a voluntary upgrade and was accordingly ultra vires.  Muir J dismissed that claim on the ground that it was an abuse of process within Henderson v Henderson.53   The close of pleadings date in Butcher was 20 November 2015.

[62]     Given  that  one  of  their  claims  in  Butcher  was  to  have  the  holistic  repair undertaken by the body corporate ruled invalid as ultra vires, the defendants had the opportunity to include these elements in that proceeding.   The case was heard from

29 August to 1 September 2016.  An amendment could have been accommodated, even after the close of pleadings date.   Given that challenge to the repair plan, that was arguable ammunition they could have used in support of their complaint, which might possibly have had a better chance than re-running arguments they had raised in Wheeldon.

[63]     Seen in the light of the Wheeldon 1 and Butcher judgments, this proceeding is the defendants’ third challenge to the vires of the holistic repairs.   Having failed in attacking the decks, and having failed in an improvement argument, they have cast around for other matters to repeat their arguments.  A body corporate must be able to plan its affairs with some confidence.  Equally, lawful challenges to whether it is acting within its powers under the Unit Titles Act must be considered and determined.  But that does not mean that the body corporate should be subject to repeated challenges by the same group of owners, who dress up their attacks with arguments based on different

particulars but the same objects.  Such repeated objections are abusive.

53     Butcher v Body Corporate 324525 [2016] NZHC 3128 at [42]-[62].

Are the works within the body corporate’s powers?

[64]     In case I am wrong in finding an abuse of process I consider the substantive merits of the defendants’ objections.

Balustrades

[65]    The defendants object that the remedial work involves installing new glass balustrades with stainless steel fittings and handrails, which I accept may be more expensive than aluminium fittings.  The existing balustrades had to be removed.  The defendants say that the Origin plan provided that the existing balustrades would be removed, stored and reinstated. They say that there are no balustrade issues in the claim against the Far North District Council, no balustrade-related leaks or damage occurred and there is no suggestion of Council balustrade-related negligence.  Balustrades were arguably unit property rather than common property.

[66]     In Wheeldon 1 Muir J said:54

Exterior components of the building, like decks and associated balustrading that relate  in  an  aesthetic  sense  to  other  units  (or  indeed  upon  my  analysis  to common property), properly, in my view, fall within the provisions of s 138.

[67]     That was in the context of his finding that the purpose of the Unit Titles Act of protecting the integrity of the development as a whole55  is not just structural but also aesthetic.   His reference to balustrading was illustrative only.   The Court of Appeal upheld his finding as to integrity.56     I find that balustrading comes within the body corporate’s repair and maintenance responsibilities under s 138.  Clearly work on the decks required removal of the balustrades.  Whether the old balustrades should be put back  or replaced  with  new balustrades  was  a  matter of design  choice.   The body corporate had professional advice throughout.  It was entitled to act on that advice, even if there were alternatives.  The question whether existing balustrades should be put back or new balustrades installed goes to different views as to how repairs should be carried

out.  The decision to replace existing balustrades with new ones during remedial works

54     Wheeldon v Body Corporate 324525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [48].

55     Unit Titles Act, s 3(d).

56     Wheeldon v Body Corporate 324525 [2016] NZCA 247, (2016) 17 NZCPR 353 at [44].

is within the body corporate’s responsibilities under s 138 even if there are different

views on how the remedial work may be carried out.

Replacement of stormwater reticulation system and gutters

[68]     In Wheeldon 1 at [88]-[96], Muir J made factual findings as to the internal stormwater reticulation system, but these were not fundamental to his decision and therefore cannot give rise to any issue estoppel.   Under s 50(1) of the Evidence Act factual findings in the earlier proceedings cannot be used as evidence in this proceeding.

[69]     The Bridgewater apartments have an internal stormwater reticulation system which in part involves pipes that penetrate the tenancy walls of each unit.  Mr Gray, a building surveyor, found that at the base of every inter-tenancy wall there were extremely high moisture readings.  When he drilled, he found that “many of them had simply turned to mush”.  He concluded that over a prolonged period water had not been channelled inside the drainage system but down the outside of the pipes within the inter- tenancy walls.   In his opinion, this internal reticulation system should be capped and bypassed, as this would provide easy and cost-effective access to inspect and maintain.

[70]     Mr Bullen-Smith, the architect who designed the remedial works, says that there were design choices between cutting open concrete inter-tenancy walls and slabs to make a connection to the existing encased frame/downpipe or providing a new externalised stormwater reticulation system which would ensure trouble-free future repairs and maintenance. The second was chosen.

[71]     The defendants criticise this because these problems had not been identified at the Origin report stage.   The external reticulation system was criticised as being a voluntary upgrade rather than a necessary repair.

[72]     The defendants’ case does not amount to a serious challenge that the internal stormwater reticulation system was defective in 2013-2015.   The contest is as to the appropriate repair.   Given the expert advice to the body corporate that an external system would allow trouble-free future repairs and maintenance, that was an option the body corporate was entitled to adopt. That work was accordingly not ultra vires.

Roof/gutter extensions

[73]     There is undisputed evidence that the roof and gutters are building elements within the definition in s 5 of the Unit Titles Act 2010. The roof is explicitly named as a building element.   No survey evidence has been included, although I understand that evidence from a surveyor has been provided in other proceedings.  For the defendants it is arguable that the roof and gutters are unit property rather than common property.  All the same, they relate to or serve more than one unit.   Roofs are required to shed precipitate moisture (Building Code E2.3.1).   In this development, a defective roof stands to cause damage not only to the unit below it but also other units and common property.

[74]     The defendants’ attack on repairs to the roof and guttering is that the proposed work went beyond the defects identified in the Origin report.  The Origin report said that during times of heavy rainfall or a combination of heavy rain and wind, water may be driven below the up-stand into the roof cavity potentially causing damage to the metal and timber framework.   The architect, Mr Bullen-Smith, said that there was a defect to membrane gutters and that in his experience when dealing with the Auckland Council, a failure in a roof membrane required the entire membrane to be replaced.  To carry out a proper repair the metal roof would have to be lifted because the metal roof overlaps the gutter membrane.  The function of the membrane gutter is to prevent the possibility of moisture  ingress  into  structures  below  by channelling  water  into  the reticulation system.  The point raised by the defendants is that the Origin report did not identify any defect to the membrane gutter.

[75]     Any doubts about the matter were removed by Mr Grey’s later affidavit of

19 April 2016, made after remedial works had started.  He noted these defects with the roof and gutters:

(a)       poorly bonded lap joints to gutters; (b) poorly installed gutter outlets;

(c)       fascia joints not weatherproof;

(d)      poor membrane installation at fascia beams;

(e)       the roof underlay terminating shorter fascia and gutter; (f)     roof gutters do not shed water.

[76]     The Origin report did not purport to be exhaustive.  In the way of building defects cases, more defects and damage came to light as the building was opened up.  Mr Gray’s evidence following the opening up of the roof provides support for the body corporate accepting the advice of Mr Gray and Mr Bullen-Smith to undertake work on the roof and gutters.  That work was within the body corporate’s powers.

Fire protection systems

[77]     In late 2015, the body corporate commissioned a report from consultants in passive fire protection.  Their report dated 25 October 2015 identified passive fire protection issues:

(a)       fire-rated walls within the ceiling space in level 4 may not have been installed;

(b)      there were holes in fire separations;

(c)       service penetrations through fire separation were defective as: (i)      they were not fire-stopped; or

(ii)      they were fire stopped using incorrect systems or products; or

(iii)     they    were    not    installed    according    to    the   manufacturers’

requirements; or

(iv)     risers were not fire-stopped; or

(v)      fire dampers were not installed correctly.

The areas where the consultants found these defects were: carpark, garages, selected apartments on levels 2, 3 and 4, the office/store cupboard, the switchboard room, the lift plant-room and the lift motor-room, and risers, stairwell.   The report identified non- compliance with specific fire safety clauses of the Building Code effective as at October

2005, and which broadly matches the time of construction of the apartments.  The body corporate accepted the report and arranged for remedial work to attend to the defects identified by the consultants.

[78] The defendants characterised this as a voluntary upgrade of fire surface separations, which was not required. They base their argument on s 112 of the Building Act 2004:

112     Alterations to existing buildings

(1)       A building consent authority must not grant a building consent for the alteration of an existing building, or part of an existing building, unless the building consent authority is satisfied that, after the alteration,—

(a)      the building will comply, as nearly as is reasonably practicable, with the provisions of the building code that relate to—

(i)       means of escape from fire; and

(ii)      access and facilities for persons with disabilities (if this is a requirement in terms of section 118); and

(b)      the building will,—

(i)        if it complied with the other provisions of the building code immediately before the building work began, continue to comply with those provisions; or

(ii)      if it did not comply with the other provisions of the building code immediately before the building work began, continue to comply at least to the same extent as it did then comply.

(2)       Despite subsection (1), a territorial authority may, by written notice to the owner of a building, allow the alteration of an existing building, or part of an existing building, without the building complying with provisions of the building code specified by the territorial authority if the territorial authority is satisfied that,—

(a)       if  the  building  were  required  to  comply  with  the  relevant provisions of the building code, the alteration would not take place; and

(b)       the alteration will result in improvements to attributes of the building that relate to—

(i)       means of escape from fire; or

(ii)      access and facilities for persons with disabilities; and

(c)       the improvements referred to in paragraph (b) outweigh any detriment that is likely to arise as a result of the building not complying with the relevant provisions of the building code.

[79] They say that when an alteration is made to an existing building, the building consent authority requires that the building will comply with the current building code requirements for means to escape fire, but they point out that the consultants’ report deals with something different – passive fire protection. They submit that the body corporate manager misleadingly referred to s 112 to justify the upgrade of the fire protection systems.

[80] Much of the fire protection work – although not all of it – was on common property. Section 112(1)(b) allows a building consent authority to grant a building consent if, subject to subparagraph (a), the building complied with other provisions of the building code immediately before the building work began, and will continue to comply with those provisions, or will continue to comply, at least to the same extent as it did then. The defendants make the point that the passive fire protection report was commissioned after the building consent for other remedial work had issued.

[81]     The  defendants  misconceive  the  scope  of  a  body  corporate’s  repair  and maintenance responsibilities under s 138 of the Unit Titles Act 2010.  A body corporate is not limited in its repair and maintenance functions to achieving only compliance with the building code as it stood at the time of original construction.  A body corporate is entitled to take appropriate advice as to the condition of the building.   If that advice shows that further work is appropriate to protect the integrity of the development as a whole – even by way of upgrade – the body corporate may undertake that work.  That is especially the case in the matter of fire protection.  In that area, it is hardly prudent to wait for the damage to occur before deciding whether to take fire protection measures.

It is consistent with the body corporate’s repair and maintenance function that it take a

preventative approach to fire protection.

Summary on unauthorised work

[82]     In summary, the body corporate has shown that the defendants do not have any defence based on their arguments that any of the works undertaken were ultra vires the body corporate.   There was also a loose pleading that there were other unauthorised works, but these were never particularised in evidence or pleadings and therefore do not require consideration.

Invalidity of expenditure

[83]     The defendants say that the levies in this proceeding are unauthorised because they are for expenditure which exceeds the amount specified in the long-term maintenance  plan  by  more  than  10  per  cent  and  were  not  authorised  by  special resolution, with the result that s 117(3) of the Unit Titles Act 2010 was not satisfied.

[84]     Part  2  Subpart  13  of  the  Unit Titles Act  deals  with  financial  and  property management.  Under s 121, body corporate levies are allocated to specified funds: the operating account, the long-term maintenance fund, the optional contingency fund and the optional capital improvement fund.57

[85]     The operating account under s 115 is held for the following expenses:

115     Operating account

…

(2)      The expenses are—

(a)      those relating to the management and governance of a unit title development:

(b)      those relating to provision of services and amenities for the benefit of the unit title development:

(c)      costs associated with statutory or regulatory compliance:

57     Definition of “funds” under s 5.

(d)      any ground rental or licence fees relating to the base land:

(e)      those incurred at least once a year relating to the maintenance of the unit title development.

The defendants submit that this account cannot be used for remedial works as it may be applied only for annual maintenance under s 115(2)(e).

[86]     Section 116 provides for a long-term maintenance plan covering a period of at least 10 years. The purpose of the plan is:

116     Long-term maintenance plan

…

(3)      The purpose of a long-term maintenance plan is to—

(a)      identify future maintenance requirements and estimate the costs involved;  and

(b)      support the establishment and management of the funds; and

(c)      provide a basis for the levying of owners of principal units; and

(d)      provide ongoing guidance to the body corporate to assist it in making its annual maintenance decisions.

Section 117 provides for a long-term maintenance fund:

117     Long-term maintenance fund

(1)       A body corporate must establish and maintain a long-term maintenance fund unless the body corporate, by special resolution, decides not to establish a long-term maintenance fund.

(2)       The fund may only be applied towards spending relating to the long- term maintenance plan.

(3)       The body corporate must, by special resolution, approve any amount to be spent on any 1 maintenance item if the amount exceeds the amount specified for that item in the long-term maintenance plan by more than

10%.

The defendants say that the expenditure under the various levy resolutions was more than the 10 per cent limit in s 117(3).

[87]     They also refer to the 10 per cent limit under reg 29(2)(b) of the Unit Titles

Regulations 2011:

29       Operating account

(1)      This regulation applies to a body corporate that has not established an optional contingency fund under section 118 of the Act.

(2)      A  body  corporate  to  which  this  regulation  applies  may  meet  an unbudgeted expense out of its operating account provided that,—

(a)       after  paying  the  unbudgeted  expense  out  of  the  operating account, the body corporate will be able to continue to pay its debts as they become due in the normal course of operation; and

(b)       the amount required to meet the expense is less than 10% of the amount determined by the body corporate to be raised for the operating account under section 121 of the Act in that financial year.

[88]     Section 118 provides for an optional contingency fund:

118      Optional contingency fund

A body corporate may establish and maintain 1 or more contingency funds to provide for unbudgeted expenditure.

[89]     Section 119 provides for an optional capital fund:

119      Optional capital improvement fund

A body corporate may establish and maintain a capital improvement fund to provide for spending that adds to or upgrades the unit title development if that spending is not provided for in the long-term maintenance plan.

Under the defendants’ case none of the expenditure was authorised as falling under the purposes of any of these funds, especially because it was for maintenance costing more than 10 per cent under s 117(3).

[90]     The body corporate relies on two resolutions made at annual general meetings. On 28 January 2012 this resolution was passed:

The body corporate should not be bound by the provisions of s 117 of the Act. It shall be at liberty to determine from year to year the level of saving in expenditure in regards to the long-term maintenance plan as the body corporate shall from time to time determine.

That was a resolution under s 117(1) not to establish a long-term maintenance fund.

[91]     At the extraordinary general meeting on 17 June 2015, a special resolution was passed:

Without prejudice to any of its rights in any proceeding between the body corporate and the Wheeldons, Small, Butcher, Billington, Eade and/or Stent, the body  corporate  hereby  ratifies  and  confirms  by  special  resolution  that  the account styled or previously referred to as the “long-term maintenance fund” is and always has been an optional contingency fund for the purposes of and as defined under section 118 of the Unit Titles Act 2010 (“the Act”).

[92]     It is open to a body corporate to opt out of s 117 and this one did so.  While the body corporate may not have a long-term maintenance fund, it must still carry out repair and maintenance work which may not fall within annual maintenance under s 115(2)(e). A fund to meet that expenditure is an optional contingency fund under s 118.   It is a fund from which the body corporate can meet expenditure which does not fall within the operating account, the long-term maintenance fund (if there is one) or the optional capital improvement fund.  The effect of the special resolution of 17 June 2015 was to correct a miscategorisation of accounts.   On this I respectfully follow and adopt the

reasoning of Muir J in Butcher at [99].58 The defendants’ argument for invalidity under

this head fails.

Challenge to the levy of 19 April 2016 – SL8

[93]     The defendants challenge the process to impose the levy SL8.  They accept that power to impose levies had been delegated to the body corporate committee, but they say  that  the  committee’s  process  was  flawed,  because  it  did  not  meet  to  pass  a resolution.

[94]     In  April  2016  there  were  four  people  on  the  committee:    Margaret  Gray, Viv Bath,  John  Nimmo and  Phillip Andrews.   On 19 April  2016  Mr  Leishman  of Boutique Body Corporates Ltd sent an email to each committee member.   The copy of the email in evidence refers to attachments, a financial report, accounts to date, a spreadsheet summarising costs and a summary of costs to complete and cash flow.  The

attachments were not however put in evidence.

58     Butcher v Body Corporate 324525 [2016] NZHC 3128, (2016) 17 NZCPR 708.

[95]     Ms Gray replied, advising that she was in favour of the recommendations to the committee outlined in the report, including:

the “levy for 700,000k on an OI basis due 15th May”.

[96]     Mr Andrews replied saying:

“I support the proposed actions below but I did discuss with Craig that the proposed $700K levy be taken as $500K net receivable in the short term due to minority and other possible non-payments on time”.

[97]     John Nimmo replied:

“I support the recommendations but with the proviso that ‘we borrow the maximum up to $800,000 first’ so we don’t subsidise the minority”.

[98]     Viv Bath replied:

“Yes I support this but just a bit confused as thought we were levying to avoid owners who can pay, paying the interest.  I think we need to be careful while we so want the minority out of our hair, we don’t want to have less equity in their apartments than what they owe us…”.

[99]     On  the  same  day  Boutique  Body  Corporate  Ltd  made  a  document  called “Approved levy posting”, showing that a “Building Account Levy 4” had been determined on 19 April 2016 for $700,000 plus GST, apportioned according to ownership interests amongst the 22 units. The levy was payable on 15 May 2016.

[100]   The defendants say that the powers of committee members are limited to voting on resolutions at duly constituted meetings.  It was not open to the committee to make resolutions by email.  The question of delegation is not in issue.  Instead, the question is whether what happened on 19 April 2016 was effective to impose the levy which was the subject of Mr Leishman’s posting.

[101]   Before dealing with the Unit Titles Act, here is a reminder of the common law requirements for a decision by an incorporated body.  Resolutions are how members of an  incorporated  body  exercise  their  will.    In  Macarthy  v  Wellington  Corporation

Denniston J said:59

59     Macarthy v  Wellington Corporation  (1889) 8 NZLR 168 (CA) at 178, followed in Tauranga

Borough v Tauranga Electric Power Board [1944] NZLR 155 (CA) at 223.

The only way I know of by which the collective assent of the membership of a corporate body could be proved would be by a resolution embodied in a minute.

There are two aspects, substantive and evidential.  The substantive is the resolution by the members (or the required majority).  A decision is made by the members assenting to a motion, which when passed is called a resolution.  The evidential is the permanent record of the resolution in a minute.  That entails that a resolution must be expressed in words and figures.  No doubt in Denniston J’s time minutes were recorded on paper, but

other forms of permanent record are acceptable now.60    For many incorporated bodies

legislation has added to these requirements, but where members of a group are to decide on a matter, they must still meet these requirements.  The Unit Titles Act directs how bodies corporate are to conduct business, but it does not relax the requirements for resolutions recorded in minutes.

[102]   It is helpful to consider how the SL8 levy could have been imposed by the body corporate in the absence of any delegation to the committee.  A body corporate may make decisions in general meetings.  Sections 88-103 of the Unit Titles Act deal with meetings.  A meeting under these provisions is a gathering of the owners at one place to conduct business of the body corporate.  There are quorum (s 95) and voting eligibility (s 96) requirements.  Absentee owners may cast postal votes (s 103) or appoint proxies (s 102).  For any matter which cannot be delegated under s 108(2), a special resolution is required – with a 75 per cent majority (s 101(1)).  For all other matters, an ordinary resolution will suffice – a 50 per cent majority (s 101(2)).   Every resolution must be

recorded in writing.61     The business of the meeting must be included in an agenda.

There may not be a vote on a matter not on the agenda, unless all eligible voters are present.62   The duties of the body corporate chairman include preparing the agenda for each general meeting, chairing each general meeting, preparing the minutes of each

general meeting and recording resolutions voted on and whether they were passed.63

60    See for example the Electronic Transactions Act 2002, Part 3, subpart 2.

61     Unit Titles Act, s 101(4), Unit Titles Regulations 2011, reg 11.

62     Section 101(3).

63     Reg 11(1)(b)(c)(d) and (e).

[103]   In Wheeldon 2, Muir J quoted Rod Thomas’s text Unit Titles Handbook on the importance of general meetings:64

Traditionally, meetings serve an important part in any democratic process, even if the conclusion appears foregone.  A meeting provides a venue for dialogue. In such a setting, the minority have the opportunity to express their views and an opportunity to argue their case to the majority.  One calls to mind the dicta of Potter J in Spencer-Inight v Johnston where Her Honour, referring to the 1972

Act, expressed her thoughts as follows:65

There  is  clear  provision  under  the  [1972] Act  and  Rules  for  Body Corporate members to take decisions.  Consent in my view requires a positive determination.  All members of the Body Corporate are entitled to the opportunity to take part in that decision-making, whether or not they avail themselves of the opportunity.  That is the very reason why the legislation provides for meetings of proprietors, the Body Corporate members, and a ritual of calling and convening those meetings.

[104]   Notwithstanding the importance of general meetings for the body corporate, s 104 gives a body corporate the option of making decisions without a general meeting:

104      Passing of resolution without general meeting

(1)       A resolution may be passed without a general meeting in accordance with this section.

(2)       Notice of the resolution must be given to eligible voters in accordance with the regulations.

(3)       A resolution in writing signed by a majority of eligible voters in respect of an ordinary resolution, and not less than 75% of eligible voters in respect of a special resolution, is as valid as if it had been passed at a meeting of those voters.

Under reg 11(1) (j) and (k) of the Unit Titles Regulations, the chairperson is responsible for preparing and issuing notices of resolutions to be passed without a general meeting, and notifying unit owners of the results of any votes on resolutions passed without a general meeting.  Unit title rules may provide how a body corporate is to give notice to unit holders.  There is a requirement for notice to be given to voters under reg 16(1) which includes instructions on how to vote, to whom the vote must be returned and the

date by which the vote must be cast.

64     Wheeldon v Body Corporate 324525 [2017] NZHC 87 at [35]; Rod Thomas Unit Titles Handbook

(Brookers, Wellington, 2011) at 26-27.

65     Spencer-Inight v Johnston HC Auckland, M2169/98, 23 December 1998 at 7.

[105]   The process envisaged under s 104 is that notice of a resolution is given to eligible voters. Instead of voting in a general meeting, eligible voters vote remotely by giving written notice of their vote to the body corporate chairman.  While a resolution might be recorded on a single piece of paper to be circulated amongst all the unit owners for signature, that is not required.  Communications between the body corporate chairman and unit owners to make a resolution under s104 may be electronic, so long as that complies with body corporate rules allowing notice to be given electronically. Eligible voters may cast their votes with electronic signatures under s 22 of the Electronic Transactions Act 2002.  The resolution voted on must be sent with notice of the resolution.  Reg 16(3) provides for the counting of votes and notification to owners.

[106]   Now for body corporate committee decisions.  Section 109 of the Unit Titles Act deals with the body corporate committees performing delegated duties and exercising delegated powers:

109     Delegated duties and powers of body corporate committee

(1)       A  body  corporate  committee  to  which  any  duties  or  powers  are delegated under section 108(1) may, unless the delegation provides otherwise, perform the duties and exercise the powers in the same manner, subject to the same restrictions, and with the same effect as if it were the body corporate.

(2)       The body corporate committee must not delegate any of its delegated duties or powers.

(3)       The body corporate committee, when purporting to perform a duty or exercise a power under a delegation,—

(a)       is, in the absence of proof to the contrary, presumed to do so in accordance with the terms of that delegation; and

(b)      must  produce  evidence  of  the  body  corporate  committee’s

authority to do so, if reasonably requested.

Under s 113 at a committee meeting matters are decided by a simple majority.

[107]   The defendants argue that as a body corporate can make decisions only by resolution in general meeting, the body corporate committee must do likewise.  Informal email exchanges are not equivalent to a gathering of all the eligible committee members in the one place at the same time to discuss and, if thought fit, approve any resolutions which have been already circulated and recorded in an agenda.  That submission misses

the point that if a body corporate can pass resolutions without a general meeting under s 104, a body corporate committee can also. That meets the requirements of s 109.

[108]   To pass a resolution without a meeting, a body corporate committee must follow the procedures under s 104 of the Act and the associated regulations.  At this stage, the evidence for the body corporate does not satisfy me to the summary judgment standard that there was a levy resolution and that it was properly passed in accordance with ss 104 and 109 of the Unit Titles Act and Regulations:

(a)      Notice of the resolution must be given to eligible voters – in this case, the committee members.  The actual motion to be voted on must be given.66

As the attachments to Mr Leishman’s email of 19 April 2016 have not been put in evidence, the text of any motion is not in evidence.  It might be possible to draw some inferences as to what was proposed from the reply emails, but amongst the committee members there is a mixture of responses.     The  absence  of  the  text  of  any  motion  sent  out  by Mr Leishman leaves it open to speculate what the motion said.

(b)The mixed responses by the committee members contrast with standard meeting procedure where after discussion those attending vote for or against a motion: “Aye” or “No” without any qualifications.  Each vote must  be  unequivocal.     Mr  Andrews  refers  to  a  discussion  with Mr Leishman  about  taking  $500,000.    Mr  Nimmo  added  a  proviso. Ms Bath’s  “I support  this  but  just  a bit  confused…” also  suggests  a proviso.  Discussion and voting have not been kept apart.  It is not clear that a majority has assented without qualification to a motion to impose a levy.

(c)      There is no evidence that Mr Leishman’s email contains the information required under reg 16(1).   I regard this aspect as less critical.   While owners ought to be properly informed as to a proposed resolution and the procedures  for  voting,  some  relaxation  for  committee  members  who

confer frequently may be in order.

66     Reg.16(2).

(d)The responsibility for sending out the notice lies with the body corporate chairman or, in the case of a body corporate committee, the committee chairperson.  Mr Leishman sent the notice out.  There is no evidence that he was the committee chairperson or that he was acting as agent of the chairperson. The committee chairperson is not identified in the evidence.

(e)      Records of resolutions are required, whether passed in general meeting or under  s  104.    Here,  there  is  no  written  record  of  the  resolution  in evidence.  The document issued on 19 April is called an “Approved Levy Posting” but it is hard to read it as a record of a resolution of the body corporate committee.

[109]   The body corporate relied on the judgment in Wheeldon 2 on issue 3.67    There was a levy of 13 July 2014 for $150,000 which was passed by committee.   Again, Mr Leishman communicated with the committee members by email.   One committee proposed increasing the amount suggested by Mr Leishman.  Mr Leishman confirmed the increase with the committee before notifying body corporate members.   Muir J said:68

[36]     In  the  absence  of  some  clear  legislative  requirement,  I  would  be reluctant to conclude that a body corporate committee was not entitled to reach decisions based on an exchange of views by email.  The new Act was intended to relieve much of the sclerosis which had afflicted its predecessor,  and  it  seems  to  me  inconceivable  that  a  delegated committee ought not to be able to avail itself of routine technology in coming to a decision about the necessity for a levy to meet accrued accounts.  Significantly, s 113 does not mandate committee meetings;  it simply  says  that  at  such  meetings  decisions  should  be  taken  by  a majority of votes.  The section does not in my view preclude decision making by other means.

[37]     This is also consistent with the proxy and postal ballots permitted in general meetings.   So although Mr Thomas is undoubtedly correct in emphasising the importance of general meetings, the legislation recognises that, even in that context, members may have the ability to vote  without  being party to an in-person discussion.   And within a committee context the arguments in favour of some relaxation seem to me overwhelming.  This is particularly so given that, as in this case, unit holders may not be permanent occupants and committee members may be scattered geographically.

67 See [18](c) above.

68     Wheeldon v Body Corporate 324525 [2017] NZHC 87 at [36].

[110]   Muir J went on to say that even if he were wrong in that decision he would still not be persuaded to exercise his discretion in favour of a declaration of invalidity.  In that case he was satisfied that there was a consensus reached, which would mean that any intervention by the court would be on technical rather than on substantive grounds. He also noted that any procedural irregularity had been cured by ratifying a special

the  courts  can  decide  the  validity  of  decisions  made  by  an  owners’ meeting  or  a committee, it is another thing to decide the merits of particular decisions.  A court is not any better suited to decide how or when remedial works are to be carried out than the owners  themselves.    It  would  undermine  the  effectiveness  of  decision-making  by meeting or delegated committee if a disappointed minority were given the option of testing the merits of decisions by litigation.  In short the defendants were entitled to test the validity of body corporate decisions, but challenges to the merits of decisions are not

justiciable and not suitable for the imposition of a duty of care.96

[191]   The defendants’ damages  include the levies  they are being sued for in  this proceeding  (and  levies  Ms  Stent  has  paid).    In  Wheeldon  the  defendants  argued

94     Body Corporate 172108 v Gundry [2014] NZHC 954 at [48]. Andrews J did not however find an arguable breach of duty.

95     Unit Titles Act 2010, s 114.

96     See, for example, Takaro Properties Ltd v Rowling [1987] 2 NZLR 700 (PC) at 709.

unsuccessfully that the body corporate’s decisions to undertake the repairs were invalid and unauthorised, so that there was no authority to undertake those works.  If they had been successful, that would have invalidated the levies.  Similarly in this case they have contested the validity of body corporate decisions.  Here the defendants say that even if the decisions  were valid,  they have a tort  claim  for the costs  of the levies. Their complaint here involves making a tort claim to recover the levies.  That amounts to an attempt to invalidate the decisions to undertake the repairs and impose levies to fund them.  If that argument were sound, it would mean that the grounds for setting aside a decision by a body corporate to impose levies would be extended to include negligence in decision-making.  They have already challenged the validity of the body corporate decisions unsuccessfully.  Allowing them to run a negligence claim would give them a second bite at the cherry.  As an example, in Wheeldon Muir J ruled against them on

their challenge to decks and cladding and associated elements.97    Having failed on the

validity challenge they cannot be allowed to circumvent the findings against them by saying that the decisions were made negligently and they ought to have a refund of their levies.  That would be an abuse of procedure.  It would also be incongruous for the law to hold that a lawfully imposed levy could be recovered as damages because it was imposed in breach of a duty of care.

[192]   In summary the defendants do not have an arguable case in tort for their claims of negligent decision-making.

Negligence in remedial works

[193]   The defendants say that the body corporate was negligent in carrying out the

remedial works by constructing within each defendant’s apartment:

(a)       a non-compliant nib wall/bulkhead that is unnecessary, dysfunctional, unsafe and aesthetically repugnant;

(b)      a vertical window that unduly restricts sliders;

(c)       a frosted balustrade that blocks views of the river;

97 See [53] above.

(d)decks with non-matching tiles that are unattractive, unsuitable and do not shed water.

[194]   Mr Butcher says in his affidavit of 9 November 2016 that the body corporate did these without lawful authority.  Neither he nor any other witness for the defendants says that these works have caused any actual harm to anyone or anything, including any of the defendants.  Mr Butcher does however state his intention to remove the step-up from the lounge and to re-instate the windows, deck and balustrades to their original designs or as close to that as practicable.   The tenor of the evidence on scope of work by Mr Maiden, an expert for the defendants, is that the remedial works are a matter of preference rather than essential repair.   The defendants’ evidence is directed more at whether the works were authorised than whether they were carried out negligently. They appear to object to the aesthetic aspects of the design of the remedial works.

[195]   The defendants cannot object to the works as unauthorised.   That has already been established and cannot be re-litigated.  Under s 80(1)(a) of the Unit Titles Act as owners they must permit the body corporate and its agents to enter the unit to maintain, repair or renew any infrastructure for services and utilities that serve more than one unit and building elements that affect more than one unit or the common property or both and to maintain, repair or renew any common property.  It would make a nonsense of that provision if the defendants could sue the body corporate in negligence for carrying out works that the courts have held to be authorised.  On the other hand if the remedial work were carried out badly so as to cause other damage to the defendants’ apartments (not just the inevitable effects of carrying out authorised works) the defendants may have a case for suing the body corporate in negligence.

[196]   On this aspect the defendants’ case is no more than assertion.   They have not given any evidence of any wrongful damage caused by the remedial works.  They have been assiduous in placing very full information before the court on other matters.  If the remedial works had really caused damage to their units beyond the ordinary effects of carrying out authorised repairs and maintenance, they would surely have given evidence about it.   In the absence of any such evidence, any claim for property damage is speculative. At its best this part of their case is tenuous.

[197]   The defendants’ purpose in making tort claims against the body corporate is to allege that it is liable to them in damages and that they should not be required to pay the levies while their tort claims are heard.  While I do not regard any of their tort claims as reasonably arguable, I go on to the next part: whether they can assert these claims to avoid judgment being given against them for unpaid levies.

Equitable set-off

[198]   The defendants’ various tort claims for damages may be a defence to the body corporate’s claims for unpaid levies only if they can show an arguable case for equitable set-off.   Because the tort claims are for disputed claims for unliquidated amounts, statutory set-off is not available.98     The Court of Appeal stated the approach applied in claims for equitable set-off in Grant v NZMC Ltd:99

The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account.   The link must be such that the two are in effect interdependent:  judgment on one cannot fairly be given without regard to the other;   the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that the claim and cross-claim arise out of the same contract.

[199]   The context is this.   The body corporate has imposed levies to fund remedial works.  The levies are valid.  There is no arguable basis for challenging their validity. That  includes  negligence-based  attacks  on  the  reasoning  and/or  processes  which resulted in the levies imposed.   The remedial works were authorised by procedures allowed under the Unit Titles Act.  Similarly, the levies to fund the remedial works were likewise made under procedures recognised under the Unit Titles Act.  The authority to impose the levies can be ultimately traced back to resolutions made in general meeting either authorising the levies directly or appointing a committee and delegating to the committee the power to impose levies.  The burden of levies falls on owners pro rata according to the utility or ownership interests under s 121.  A body corporate also has the option of borrowing.   But the cost of borrowing likewise must be met out of levies funded by owners.  When some owners do not pay levies, the body corporate may be

short-funded for its remedial works.  The burden then falls on the remaining compliant

98     Under the Statutes of Set-Off (1728) 2 Geo 2 c 22 and (1734) 8 Geo 2 c 24, in force in New Zealand under the Imperial Laws Application Act 1988, s 33.

99     Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12-13.

owners, or must be borrowed with the costs of borrowing also to be met through levies. Owners who do not pay levies on time are required to pay interest at up to 10 per cent per annum  plus  the actual  costs  of recovery.    Requiring timely payment  of levies ensures the ongoing solvency of the body corporate with costs borne rateably by all owners.

[200]   The cash-flow considerations that can bear on a body corporate when dissident owners  refuse  to  pay  levies  for  remedial  works  can  be  seen  in  the  judgment  of Harrison J in a case under the 1972 Act, Brooker v Body Corporate 154558:100

[64]     …The  relationship  between  the  body  corporate  and  unit  holders, although contractual, is imposed by the Unit Titles Act.   The body corporate is a statutory entity created for the proprietors’ mutual benefit. There is no commercial element to its functions.  While empowered to engage a manager and secretary, the body corporate’s affairs are in the hands of an owners’ committee.  It is a voluntary entity which must act in the best interests of members generally.   The body corporate will inevitably depend upon expert advice on issues like repair and maintenance of common property.

[65]      Moreover, the body corporate will not normally have sufficient funds to pay for more than routine repair work.   This case illustrates the difficulties faced in attempting to levy a special rate on unit holders to pay for major repairs, especially where the largest unit holder, who also stands to gain most from the work, defaults in payment of her fixed contribution.   The body corporate  can only resort to  the expensive, protracted and problematic process of litigation to recover levies from a recalcitrant proprietor.   And it cannot commission works without the means to pay.

[201]   Against that the defendants propose that their liabilities to pay levies should be put on hold while the court decides the merits of their disputed and contentious damages claims.  There are marked differences between a body corporate’s proceeding to recover levies and an owner’s damages claim.  A debt recovery proceeding by a body corporate under s 124 of the Unit Titles Act to recover unpaid levies typically involves proving that the levy was imposed, the owner was invoiced and the levy has not been paid.  In unusual cases, it may also have to deal with challenges to the validity of the levy.  Even in the unusual case the issues are narrow and any claim may be heard promptly, whether in  the  Tenancy  Tribunal,  the  District  Court  or  this  court.     Summary  judgment

applications may be available.  Statutory demands under s 289 of the Companies Act are

100   Brooker v Body Corporate 154558 (2005) 6 NZCPR 953 (HC).

common.   On the other hand, claims for unliquidated damages in tort are more complicated.   They require more extensive preparation with discovery and other interlocutory matters.  They require more evidence.  The time from filing to hearing is longer and more hearing time is required.

[202] Postponing the time to decide a unit-holder’s liability for levies while an unliquidated damages claim is heard creates delay and is unjust to those owners who have paid their levies on time.   Correspondingly, there is no injustice in requiring an owner to  pay levies  due,  even  though  that  owner asserts  a  claim  for  unliquidated damages against the body corporate.

[203]   The policy of encouraging prompt payment of levies can be seen in the voting eligibility requirements of s 96 of the Unit Titles Act.  Under s 96(3) an eligible voter is barred from voting unless all the levies for his or her unit have been paid.  On the other hand the owner’s right to dispute a levy is saved under s 96(6):

The payment of any body corporate levies and other amounts that are from time to time payable to the body corporate by the owner of a principal unit and that are disputed by the owner, does not affect the right of that owner to dispute the payment if the sole purpose of making the payment was to exercise that owner’s entitlement to vote.

[204]   This is a pay now/argue later approach.  If payment can be required (by barring voting rights at a general meeting) even though the owner disputes the validity of the levies, there is no injustice to an owner who does not or cannot dispute the validity of the levies  but  wishes  to  make  a  claim  for  unliquidated  damages  against  the body corporate.  The case for postponing payment in a damages claim when validity of levies is not disputed cannot be any stronger than resisting payment because the validity of the levies is disputed.

[205]   For these reasons, it is not unjust to postpone any tort claims by the defendants against the body corporate until after their liability on the claims for levies has been determined.  This is not a case for equitable set-off under the Court of Appeal’s decision in Grant v NZMC Ltd.

Relief for counterclaim on summary judgment application

[206]   The  defendants  say  that  even  if  their  defence  of  equitable  set-off  is  not recognised, the court should exercise its powers under r 12.12(2) of the High Court Rules in their favour. The rule says:

12.12   Disposal of application

…

(2)       If it appears to the court on an application for judgment under rule 12.2 or 12.3  that the defendant has a counterclaim that ought to be tried, the court—

(a)       may give judgment for the amount that appears just on any terms it thinks just; or

(b)      may   dismiss   the   application   and   give   directions   under subclause (1).

[207]   Before the court can exercise the powers under that section, it must be satisfied that the defendant has a counterclaim that ought to be tried.  So far, I am not satisfied. For that, I rely on my findings that the defendants do not have reasonably arguable tort claims against the body corporate.   But even if I found the defendants had triable counterclaims, the pay now/argue later considerations that counted against equitable set- off require that the body corporate be able to enforce its judgment before the merits of any counterclaims are decided.  Cash-flow considerations require the defendants to pay their levies now and to litigate their tort claims later.

[208]   The  defendants  also  ask  for  a  stay of  execution  while  they prosecute  their counterclaims.  Again the same pay now/argue later considerations count against a stay of execution.  Later circumstances may give the defendants other grounds to apply for a stay.  My refusal to order a stay of execution while their counterclaims are heard does not bar a later application for different grounds.

Another set-off argument

[209]   The defendants also say that they are entitled to a set-off because the body corporate ought to have but did not make claims against the owners at the penthouse level under ss 138(4), 126 and 127 of the Unit Titles Act.  These are provisions under

which the body corporate may in various circumstances recover the costs of works from particular owners.  Here they are:

138     Body corporate duties of repair and maintenance

(4)       Any costs incurred by the body corporate that relate to repairs to or maintenance of building elements and infrastructure contained in a principal unit are recoverable by the body corporate from the owner of that unit as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense was incurred or by the person who is the unit owner at the time the proceedings are instituted.

126     Recovery of money expended for repairs and other work

(1)       This section applies where the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, but the repair, work, or act—

(a)      is substantially for the benefit of 1 unit only; or

(b)      is substantially for the benefit of some of the units only; or

(c)       benefits 1 or more of the units substantially more than it benefits the others or other of them.

(2)       Any expense incurred by the body corporate in doing the repair, work, or  act  is  recoverable  by  it  as  a  debt  in  any  court  of  competent jurisdiction (less any amount already paid) in accordance with the following:

(a)       so far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt; or

(b)       so far as the amount of the debt is not met in accordance with the provisions of paragraph (a), it must be apportioned among the units that derive a substantial benefit from the repair, work, or act rateably according to the utility interest of those units, and in the case of each of those units, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the amount apportioned to that unit.

(3)       Despite  subsection  (2)(b),  if  the  court  considers  that  it  would  be inequitable to apportion the amount of the debt in proportion to the utility interest of the unit owners referred to in that paragraph, it may apportion that amount in relation to those units in the shares as it thinks fit, having regard to the relative benefits to those units.

127     Recovery of money expended where person at fault

(1)       This section applies if the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, and the repair, work, or act was rendered necessary by reason of any wilful or negligent act or omission on the part of, or any breach of the Act, the body corporate operational rules, or any regulations by, any unit owner or his or her tenant, lessee, licensee, or invitee.

(2)       Any expense incurred by the body corporate in doing the repair, work, or act, together with any reasonable costs incurred in collecting the expense, is recoverable as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense became payable or by the person who is the unit owner at the time proceedings are instituted.

(Emphasis added)

[210]   The defendants say that the penthouse owners ought to pay the costs of repairs on level 4 plus the costs of repairing the ceilings of level 3 units damaged because of their  failure  to  maintain  the  level  4  decks  adequately.    Those  repairs  would  cost

$750,000.  The defendants say by way of defence that they should have a credit against their liability for the body corporate’s unrecovered debts.

[211]   The sections the defendants rely on allow the body corporate to recover costs already incurred from particular owners.   They do not allow the body corporate to recover those costs before they are incurred.  That is apparent from the italicised parts. To carry out works under these sections, the body corporate will use its funds derived from levies paid by all owners.   It may then look to owners under ss 126, 127 and

138(4).  Whether it does so is for it to decide.  It may, but cannot be required to, make claims under these sections.  Such claims are not straightforward.101   Because the body corporate has to pay the costs of repair first, it may obtain funds by levies paid by all owners.   It is no answer for any owner to resist paying their share of those costs by claiming that the body corporate may be able to recover the repair costs later from other owners. To allow any owner to run that argument would be an open invitation to all

owners not to pay and that would frustrate proper repair work.

101   As an example, Body Corporate S73368 v Otway [2016] NZHC 1070.

[212]   In Wheeldon 1 the plaintiffs ran a similar argument.  Muir J said:102

The position is that the Body Corporate has not yet made any decision pursuant to s 138(4) of the UTA 2010 relating to the recoverability of costs incurred for “repairs or maintenance to building elements or infrastructure contained within any principal unit”. Indeed, apart from consultant’s reports no such costs have yet been “incurred” within the terms of the section because of the challenge made in the present proceedings. In my view the Body Corporate should be entitled to consider this issue as and when it arises without the prior dictate of the Court. The approach it may choose to adopt in relation to a holistic repair may well be different to that which may, for example have applied if the plaintiff’s  have  succeeded  on  their  primary  claims  and  the  only  significant repairs  contemplated  were  those  at  penthouse  level.  Even  if  there  was jurisdiction to make a declaration at this stage, which I doubt given the prospective nature of the expenses, I would decline to exercise the relevant discretion. The matter can be addressed at the relevant time.

[213]   The defendants submitted that the relevant time is now overdue.  “Recoverable” was to be read as “ought to be recovered” rather than “able to be recovered”.  The body corporate should seek recovery in a timely way.  It was in breach of its duty to owners in not claiming from penthouse owners.

[214]   Whatever the merits of the arguments about recovering from penthouse owners they do not give any reason for the defendants to withhold all or any of their levies. Their argument asks for them to be put in a favoured position vis-à-vis other owners who have already paid for repairs by their levies.   Nothing in the defendants’ case justifies treating them as privileged.

Result

[215]   I have found for the body corporate on its claims for levies SL4, SL6 and SL7, but not on its claims for SL1, SL8 or other fees.  It has shown that the defendants do not have arguable defences based on invalidity, tort claims or set-off.  The body corporate is entitled to judgment against each of the defendants for those unpaid levies.  Ms Stent is not liable for SL4 and SL6 as she has already paid.  Further evidence and calculations

are required to decide how much each defendant owes.

102   Wheeldon v Body Corporate 324525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [199].

[216]   The body corporate seeks interest on the levies at 10 per cent per annum until payment is made including after judgment.  Section 128 gives the body corporate the right to recover interest:

128     Interest on money owing to body corporate

(1)      If a unit owner owes money to the body corporate under section 121,

124, 125, 126, or 127, interest accrues in respect of so much of the debt as remains unpaid.

(2)      The amount of interest charged by a body corporate in relation to any unpaid debt must not exceed 10% per annum.

The defendants do not dispute the right to recover interest at 10 per cent up to judgment. There is a question whether the body corporate can recover interest after judgment at the statutory rate, or whether the body corporate is confined  to the interest  rate for a judgment debt under r 11.27 of the High Court Rules.  Under the merger rule, a contract debt merges with the judgment, with the result that interest runs at the rate allowed under r 11.27,  instead  of any higher contractual  rate, unless  there is  a contractual provision ousting the merger rule.   But that rule does not necessarily apply in the case of money payable under a statute.  In London Borough of Ealing v El Isaac, a statute provided that a debt “shall carry interest at such a rate as may be prescribed from the

date on which it was paid by the local authority until repayment”.103   The English Court

of Appeal held that the merger rule did not apply because it could not be allowed to contradict a statute.     Interest accordingly runs on the debt at the rate under s 128 notwithstanding the entry of judgment.    Judgment cannot be given for a liability that has still to accrue.   The court can, instead, make a declaration that interest continues to accrue on the unpaid levy at 10 per cent per annum after judgment.

[217]   Under s 124 of the Unit Titles Act the body corporate is entitled to recover its reasonable costs of recovering the levies.  It has not proved those costs yet.  They will be fixed under the principles in Black v ASB Bank Ltd and Crown Money Corp v

Grasmere Estate Trustco Ltd.104

103   London Borough of Ealing v El Isaac [1980] 2 All ER 548 (CA).

104   Black v ASB Bank Ltd [2012] NZCA 384 and Crown Money Corp v Grasmere Estate Trustco Ltd

(2008) 19 PRNZ 591 (HC).

[218]   I make these orders:

(a)       I give the body corporate judgment against the first defendant for levy

SL7;

(b)I give the body corporate judgment for levies SL4, SL6 and SL7 against the second to fifth defendants;

(c)       I strike out the body corporate’s claim for SL1;

(d)      I strike out the body corporate’s claim for other fees without prejudice to

its right to claim them in another court or tribunal;

(e)       I dismiss the body corporate’s summary judgment application for SL8;

(f)       The body corporate may recover interest on levies SL4, SL6 and SL7 from their due dates to judgment at 10 per cent per annum;

(g)I declare that interest runs on the unpaid levies after judgment at 10 per cent per annum until payment;

(h)The body corporate will have its actual and reasonable costs in collecting the levies;

(i)       The case will be called in the High Court at Whangarei on Wednesday 29

November 2017 at 9.30 am to:

(i)       Fix the amounts of the levies payable by each defendant; (ii)  Fix the interest payable by each defendant;

(iii)     Fix the costs payable by the defendants; (iv)    Enter judgment;

(v)      Give directions for the plaintiff’s claim for SL8, including filing a

statement of defence, discovery and hearing directions.

(j)The body corporate is  to  file and  serve any further memoranda  and affidavits by 23 November 2017.  The defendants are to file and serve any further memoranda by 27 November 2017.

……………………………….

Associate Judge R M Bell