Body Corporate 340942 v Thomas

[2020] NZHC 1856

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-3083

[2020] NZHC 1856

BETWEEN

BODY CORPORATE 340942

First Applicant

TREVOR ALLAN BROWN
Second Applicant

AND

ELIZABETH THOMAS (in her capacity as executor of the estate of ELWYN MAVIS PACKWOOD)

First Respondent

cont …/2

Hearing:	29 July 2020
Appearances:	D Bigio QC, L M Van and K A Logan for Applicants No appearance for Respondents (no opposition filed)
Judgment:	29 July 2020

JUDGMENT OF LANG J

[on application for variation of scheme of arrangement]

This judgment was delivered by me on 29 July 2020 at 11.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Counsel / Solicitors:

D R Bigio QC, Auckland Anthony Harper, Auckland

BODY CORPORATE 340942 v THOMAS [2020] NZHC 1856 [29 July 2020]

ANDREW SHAUN HOLDING, SANDRA HOLDING AND JENNIFER EDITH ROSWELL

Second Respondents

DEREK GEORGE BOWMAN, JEAN BOWMAN, AND BRUCE CYRIL MCNIECE

Third Respondents

CHRISTINE LEE CARR AND DEBORAH ANNE EVANS

Fourth Respondents

JOHN SAMUEL RUDD AND GREEN VALLEY TRUSTEES LIMITED
Fifth Respondent

DOROTHY MARIA ESADNI, HECTOR ADOLF JOHN DOMINIC EDADNI, CHRISTOPHER PAUL CARUANA, JOSEPH THOMAS CARUANA, AND PAULINE JOSEPHINE CARUANA

Sixth Respondents

GREGORY MURRAY AND LYNNE MURRAY

Seventh Respondents

PATCHAYA RAMMANIYA
Eighth Respondents

H W H HOLDINGS LTD
Ninth Respondent

TRAMS INVESTMENTS LIMITED

Tenth Respondent

RONALD WALTER STROUD AND BARBARA MERCY STROUD

Eleventh Respondents

KEVIN REEVES BROWNE, JUDITH LYNETTE BROWNE AND CHD

TRUSTEES NO. 9 LIMITED
Twelfth Respondents

/3

ANN JANE SMITH AND BLB TRUSTEES LIMITED

Thirteenth Respondents

LESLIE ROY BROWN, MABEL DOROTHY BROWN AND JANICE CHRISTIAN JOHNSON

Fourteenth Respondents

CATHERINE GRACE BOOTH AND DILYS BOOTH

Fifteenth Respondents

STEWART DAVID JOHNS AND KAREN MARGARET JONES

Sixteenth Respondents

ELSIE EDGINTON, RONNIE EGINTON AND DAVID ANDREW EDGINTON

Seventeenth Respondents

CLIFFORD SEYMOUR WHITELAW AND WILLIAM FRANCES MCENTEE

(as Executors)

Eighteenth Respondents

BEVERLY DENISE BANKS, LAWRENCE JOHN BANKS AND ANDREW OWEN THOMAS

Nineteenth Respondents

LLOMA ZARA BRIDGENS
Twentieth Respondent

LYLE JOHN MCILRAITH, WALTER HUGH KETTELWELL AND MALCOLM EVERARD TAYLOR

Twenty-First Respondent

GRANT ALEXANDR DRINKROW AND KAREN CHRISTINE DRINKROW
Twenty-Second Respondents

ASB BANK LIMITED
Twenty-Third Respondents

BANK OF NEW ZEALAND

Twenty-Fourth Respondents

/4

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED

Twenty-Fifth Respondents

CHUBB INSURANCE NEW ZEALAND LIMITED (ORION INSURANCE)

Twenty-Sixth Respondent

[1]    This proceeding relates to an apartment complex situated in Selwyn Road, Howick. The complex comprises a single building containing 23 residential apartment units.

[2]    On 11 April 2018, Palmer J approved a scheme of arrangement under s 74 of the Unit Titles Act 2010 (the Act) providing for remedial work be carried out on the complex to address weathertightness issues that the unit owners had discovered.1

[3]    The body corporate subsequently commenced the remedial work under the scheme of arrangement approved by the Court. In carrying out this work it discovered that the complex will require additional remedial work that was not anticipated when the scheme was initially approved by the Court. The additional work relates particularly to internal walls, bathrooms and kitchens.

[4]    The body corporate has concluded the original scheme does not accurately reflect the work that will now be required to reinstate the complex to a weathertight and code compliant condition. Furthermore, the additional work will differ significantly as between individual units. As a result, the body corporate considers the manner in which the scheme currently apportions costs between unit owners according to their utility interest is not appropriate for this aspect of the remedial work. The body corporate accordingly seeks an order varying the scheme of arrangement in relation to both the scope of remedial work to be carried out and the manner in which the cost of that work is to be allocated between unit owners.

[5]    The present application has been served on all unit owners and all parties holding mortgages over units in the complex. No party has filed any documents in opposition to the application.

The proposed variation

[6]    The proposed variation recognises that the remedial work to be carried out by way of internal fitout, including the replacement of kitchens in some units, will differ

1      Body Corporate 340942 v Packwood [2018] NZHC 649.

for each of the units in the complex. This gives individual unit owners the ability to dictate the quality of fixtures and fittings to be installed. The scheme in its current form provides for unit owners to be levied on the basis of utility interest. The body corporate considers this is no longer appropriate given the fact that work carried out on individual units will now vary in scope, cost and quality of materials used. It considers that the actual cost of internally fitting out each of the units in the complex should now be met by individual unit owners.

[7]    The exception to this relates to the costs associated with reinstatement of internal partition walls. These will continue to be assessed in accordance with utility interest because the walls contain important infrastructure (such as electrical wiring or plumbing) for which the body corporate is responsible. The body corporate considers these to be essential to ensure the overall integrity of the building is maintained.

Relevant principles

[8]    The principles to be applied in the present context are largely the same as those applied when the Court determines an application for approval of a scheme under s 74 of the Act. They are now well established through cases such as Tisch v Body Corporate No 318596.2

[9]    An application for approval of a scheme must show that a building has been, or is likely to be, damaged and that a scheme of repair is appropriate. The proposed scheme needs to balance the interests of all unit owners and must be sufficiently detailed to enable unit owners and the Court to judge its effectiveness. Remedial work is generally to be carried out to the same standard in relation to all units and at the same time. A scheme with broad support of unit owners is also preferable. Finally, the terms of the scheme should not depart from the Act and the relevant body corporate rules more than is reasonably necessary to achieve fairness between unit holders.

2      Tisch v Body Corporate No 318596 [2011] 3 NZLR 679 (CA) at [36]–[44].

Decision

[10]   As I recently observed in Body Corporate 210720 v ASB Bank Ltd, it is important for schemes of this type to enjoy the broad support of unit owners from the outset because this minimises the risk of future conflict arising between them.3

[11]   In the present case the body corporate convened an Extraordinary General Meeting (EGM) of unit owners on 6 May 2019. This was attended by 18 of the 23 unit owners in the complex. Of these, all but one voted in favour of the proposed variation. I consider this indicates a broad level of support for the proposal. Furthermore, no documents have been filed in opposition to the present application.

[12]   The fact that the proposed variation enjoys the broad support of unit owners is particularly significant in the present case because the remedial work is now at an advanced stage. This means the risk of future discord between unit owners in relation to the implementation of the scheme is significantly less than will generally be the case where approval is sought before remedial works commence.

[13]   Mrs Thomas, the owner of Unit 1A, was the only unit owner who did not vote in favour of the proposed variation at the EGM. Her unit is the only unit in the complex that spans two levels. Mrs Thomas abstained from voting because she held concerns regarding the fairness of the manner in which the proposal dealt with the issue of cost allocation. In particular, she considered that the reinstatement of internal partition walls within units should be included within the definition of internal fitout. This would require individual unit owners to meet the cost of reinstatement of internal partition walls within their units.

[14]   Mrs Thomas has not filed documents in opposition to the application but I address her concern despite that fact. I am satisfied the cost of reinstating internal partition walls should continue to be allocated according to utility interest for the reasons advanced by the body corporate. The existence of important infrastructure within such walls means it remains appropriate for this cost to be allocated according to utility interest. In all other respects Mrs Thomas will be required to meet the cost

3      Body Corporate 210720 v ASB Bank Ltd [2020] NZHC 1478 at [14].

of the internal fitout of her unit in the same way as other unit owners. I therefore do not consider the proposed variation treats her unfairly by virtue of the fact that her unit spans two levels.

[15]   In all other respects I am also satisfied the proposed variation meets the test for approval by the Court. It is detailed and clearly set out so there is no risk of future misunderstanding by individual unit owners. The remedial work on individual units will continue to be carried out at approximately the same time. Unit owners will now have the additional advantage of being able to upgrade the quality of the fixtures and fittings used in the fitout of their units if they are prepared to meet the cost of doing so. Finally, I am satisfied the proposed variation departs from the scheme of the Act no more than is necessary to achieve what is fair as between individual unit owners in the circumstances.

Order

[16]   I grant leave to the body corporate to amend the interlocutory application dated 22 May 2020 by substituting a new Schedule One to the application so as to insert a new definition of “Internal Fitout”.

[17]   I make an order approving the variation of the scheme of arrangement as sought in the amended application.

Lang J