Body Corporate 366611 v Wu

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IN THE COURT OF APPEAL OF NEW ZEALAND
CA402/2011
[2012] NZCA 614

BETWEEN  BODY CORPORATE 366611
First Appellant

AND  THETA MANAGEMENT LIMITED
Second Appellant

AND  CHUAN WU
Respondent

Hearing:         19 March 2012

Court:             Hammond, Arnold and Heath JJ

Counsel:         N R W Davidson QC and G R Burgess for Appellants
B P Rooney for Respondent

Judgment:      20 December 2012 at 12 noon

JUDGMENT OF THE COURT

A        The appeal is allowed in part.

BThe judgment entered in the High Court in favour of Mr Wu against Body Corporate 366611 and Theta Management Ltd is set aside.

CIn substitution:

(i)Judgment is entered for liability in favour of Mr Wu against Body Corporate 366611 and Theta Management Ltd.

(ii)All questions of damages are remitted to the High Court for reconsideration in light of this judgment.

D        No order as to costs in this Court.

EOrders for costs made in the High Court are set aside.  All questions of costs in relation to the proceeding in that Court shall be determined following the completion of any quantum trial.

____________________________________________________________________

REASONS

Arnold and Heath J  [1]
Hammond J  [118]

ARNOLD AND HEATH JJ
(Given by Heath J)

Table of Contents

Para No

The appeal       [1]
The facts in outline      [3]
Competing submissions  [20]
The nuisance claim
     (a)   Asher J’s reasoning  [25]
     (b)   The Body Corporate’s rules

(i)    Rule 3.10 of the Body Corporate’s rules             [33]

(ii)   Mr Chen’s evidence       [36]
                (iii)  The contemporary documents   [45]

(c)   Analysis            

(i)    Unreasonable interference  [52]

(ii)   The “emanation” point  [90]
Agency  [100]
Damages  [104]
Result  [116]

The appeal

  1. Body Corporate 366611 (the Body Corporate) and Theta Management Ltd (Theta) each appeal against a judgment of Asher J, delivered in the High Court at Auckland on 30 May 2011.[1]  On a cause of action brought in private nuisance, the Judge awarded damages against those parties, in favour of Mr Wu,[2] in the sum of $283,663.64.  Asher J also made declarations to reflect his view that certain rules of the Body Corporate were ultra vires the powers conferred by the Unit Titles Act 1972 (the Act).[3]

    [2]Mr Wu brought the proceedings in a representative capacity, under r 4.24 of the High Court Rules. The owners of the other eight units on whose behalf Mr Wu brought the proceeding are set out at [21] of Asher J’s judgment. Our references to Mr Wu (unless the context otherwise requires) encompass the other owners whom he represents. The damages relate both to Mr Wu and those on whose behalf the claim was brought: at [135].

    [3]      At [136] and [137].

  2. Although the appeal was argued in March, it became necessary for us to seek further submissions from counsel in light of this Court’s decision in Berachan Investments Ltd v Body Corporate 164205, which was delivered after the hearing in this case.[4]  We received those further submissions promptly in late August.

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Details
Case
[2012] NZCA 614
Decision Date

CaseChat Overview and Summary

Body Corporate 366611 was the plaintiff in a case heard by the Supreme Court of Victoria. The defendants were Wu and other occupiers of units in the Empire Building, a student accommodation building. The dispute centred around the enforceability of certain protocols and rules established by the body corporate to govern the management of the building, particularly those concerning access and security. The Body Corporate alleged that Wu and the other defendants had breached these protocols by transferring their access cards and allowing unauthorised individuals into the building, thereby causing a nuisance to the other unit owners.

The legal issues before the court were whether the Body Corporate had the authority to implement the protocols in question and, if so, whether Wu and the other defendants had breached these protocols. Specifically, the court needed to determine if the Body Corporate's rules and protocols, which restricted the transfer of access cards and imposed other security measures, were valid and enforceable. Additionally, the court had to assess if the actions of Wu and the other defendants amounted to a nuisance under the law, given that nuisance was the cause of action the Body Corporate had pursued.

The court found that the Body Corporate did have the authority to implement the protocols as they were necessary for the proper management of the building and to protect the economic interests of the unit owners. The court reasoned that the protocols were designed to manage the significant financial risks associated with the building's operations, particularly in relation to the high turnover of tenants and the reliance on a single trunk line for electricity and telecommunications. The court also determined that Wu and the other defendants had breached the protocols by transferring their access cards, which led to unauthorised individuals gaining access to the building. This conduct was held to constitute a nuisance, as it interfered with the rights of the other unit owners to enjoy their properties without disturbance. The court awarded damages to the Body Corporate for the nuisance caused by Wu and the other defendants.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

While not strictly relevant to the nuisance claim (because intention to interfere is not an element of the cause of action), these attempts to amend r 3.10 emphasise the fervour with which the security issue was being addressed by the Body Corporate.(ii) Mr Chen’s evidence Mr Chen is the sole director of Theta. He gave evidence about the development of the Empire Building. As part of that evidence he confirmed that, because the Empire is operated as a “student dormitory”, the Residential Tenancies Act 1986 does not apply. Students are granted licences to occupy the rooms. They do not get the benefit of a sub-lease. Mr Chen was engaged as a contractor by Sanctuary to sell units to overseas investors in Australia and New Zealand. When he learnt that Academic had collapsed, he offered to assume management of the building on the same terms as had been agreed with Academic. Mr Chen deposed that when Theta assumed management responsibilities, it ascertained that the Body Corporate was at risk of breaching duties to manage the building properly and to maintain insurance cover. Mr Chen deposed:26. The issues we encountered included:(i)The Empire was built with only a single trunk for electricity, with every unit having a check meter. The body corporate therefore pays for electricity and is reliant on the building manager checking the meters monthly, preparing an electricity invoice for each unit every month, and recovering payment of the power charges owed. This presents a considerable financial risk for the body corporate and requires very careful management and collection from tenants/owners.(ii)There is also only one trunk line for the telephone and internet systems. The PABX and telephony software (which Theta arranged to purchase from the outgoing building manager) captures the cost of the toll and international calls for each unit. The building manager must then invoice and recover those charges, for each of the 313 units. Again, the financial risk to the body corporate is considerable.(iii)The student occupants of the Empire were generally short-term in Auckland, with tenants often changing twice per year (reflecting the two academic semesters each year)[.] A high turnover of tenants gave rise to the corresponding need to maintain suitable management of access cards for tenants. Mr Chen’s evidence was that the Protocols were required to protect the economic interests of all owners, so that the risk of conduct giving rise to insurance claims was minimised and affordable insurance premiums could be obtained. Mr Chen deposed:69.In September 2007 Theta immediately began to assess the best way of managing the Empire to achieve better control of student tenants, for the benefit of all unit owners and their investments, and for the Body Corporate to meet its duties (for which Theta was responsible as building manager).70.Theta developed (in consultation with the Body Corporate secretary and Body Corporate committee representatives) the following:1.Empire Rules and Regulations Residents Handbook ... This document describes various aspects of the Empire including facilities, fees, key policies and rules, and important building information for tenants.2.Occupants Registration Form ... This form is designed to capture sufficient information to record the identities of persons to whom common-area access cards are issued. Theta was required (under clause 4(e)(i) of its Management Contract with the body corporate ... to maintain a register of all residents of the Empire. The original BC Rules 3.10(a) and (b), which expressly addressed controls on access and prohibited the transfer of access cards.3.Security and Access Protocol Agreement (“SAPA”). This was a document signed by tenants, and addressed several of the key issues discussed earlier (e.g. power, phone, fire and safety protocols, insurance issues, non-transference of common area access cards etc.).Refundable Security DepositA key aspect of the SAPA was a refundable security deposit, to be held by Theta, to provide the body corporate with security for the various fees and costs incurred by tenants. The amount of the security deposit was fixed after reviewing the potential cost exposures for the body corporate, being power and phone costs and the insurance excess charged to the body corporate.71.For units leased to Theta, Theta included the refundable security deposit as part of the licence to occupants. The collapse of the previous building manager (AAM3L) gave rise to the emergence of “owner-managed units”, which were managed day-to-day by either the owner or agents appointed by the owner (there is one owner-occupied unit also).

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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