Body Corporate 366611 v Wu
[2012] NZCA 614
•20 December 2012
| For a Court ready (fee required) version please follow this link |
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA402/2011 [2012] NZCA 614 |
| BETWEEN BODY CORPORATE 366611 |
| AND THETA MANAGEMENT LIMITED |
| AND CHUAN WU |
| Hearing: 19 March 2012 |
| Court: Hammond, Arnold and Heath JJ |
| Counsel: N R W Davidson QC and G R Burgess for Appellants |
| 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
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]
[1] Wu v Body Corporate 366611 [2011] 2 NZLR 837 (HC).
[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].
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.
The facts in outline
[4]Berachan Investments Ltd v Body Corporate 164205 [2012] NZCA 256, [2012] 3 NZLR 72; judgment was delivered on 19 June 2012.
The Act creates the framework for a model of property ownership known as a unit title development.[5] It deals with both individual units and common property. Each individual owner obtains a stratum title for his or her unit. Common property is held by the proprietors of all units as tenants in common in unequal shares, proportional to the unit entitlement of their respective units.[6] It is managed by a body corporate that is made up of all of the proprietors.[7]
[5]The scheme of the Act is discussed in detail in World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [21]–[52] and Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC) at [83]–[102]. In relation to the need to take account of the particular characteristics of the development in issue, see Berachan Investments Ltd at [37].
[6] Unit Titles Act 1972, s 9(1); see s 6 as to unit entitlement.
[7] Sections 12 and 15(1)(h).
Mr Wu owns Unit 810 (on the eighth floor) of the Empire Building, which is located in Whitaker Place, in central Auckland. Completed in March 2006, it provides student accommodation in close proximity to the main campus of the University of Auckland. The building is 19 storeys high and consists of 313 individual units. When fully occupied, about 800 students can be accommodated.
The development was undertaken by Sanctuary Developments Empire Ltd (Sanctuary). That company owned the land on which the Empire was built. On 29 March 2006 it deposited a unit plan, which had the effect of creating a stratum estate in freehold for each individual unit.[8] After deposit, Sanctuary acquired each of the strata titles that were created and became (as the sole owner) the Body Corporate.[9] The number of proprietors who made up the Body Corporate grew as the individual units were sold.
[8] Section 4(2).
[9] Section 12(1).
The units were marketed in New Zealand and overseas, on the basis that each investor would receive a fixed rent amounting to eight per cent of the purchase price of each unit, for the first two years. Before selling any of the units, Sanctuary entered into a lease of each unit to an associated company, Academic Accommodation Management (3) Ltd (Academic). Individual units were sold subject to that lease. Academic contracted to pay the fixed rent to each purchaser. In effect, Academic assumed an obligation to seek out students with whom it could enter into licences to occupy the units and obtain funds to meet its rental obligations to the owners. On 8 June 2006, understanding that basic business structure, Mr Wu acquired Unit 810.
On 1 August 2006, Academic was appointed as the building manager. Its tenure lasted just over one year. On 22 August 2007, Academic sent a letter to all owners advising that it was unable to continue its role in dealing with student occupiers. It resigned, effective from 31 August 2007. Academic also made it clear that it could not perform its obligations under the leases. Notwithstanding that advice, by letter from his solicitors dated 30 August 2007, Mr Wu affirmed the lease.[10]
[10]Academic was put into liquidation on 12 September 2007. Mr Wu and Academic remained in a lessor/lessee relationship until 28 November 2007, when the liquidators of Academic disclaimed the lease as onerous property.
Following Academic’s resignation as building manager, Theta was appointed in its place. After writing to individual owners, Theta entered into arrangements with a majority of them by which it agreed to lease their units and to pay the fixed returns. As part of this arrangement, Theta required the owners to enter into Security and Access Protocols (the Protocols). The Protocols were rules designed to address safety and insurance problems that had emerged while Academic had been managing the building. Mr Wu was not prepared to enter into an agreement of that type. He and a minority of other owners decided to make arrangements to rent out their units independently without binding themselves to Theta’s terms.
On 31 August 2007, Academic terminated the licences to occupy that it had entered into with each of the students. Around the same time, Academic reprogrammed the electronic locks so that the existing access cards no longer provided access to common property or units. Theta provided new access cards to the unit owners who had agreed to the Protocols and signed leases with it, but not to the owners (including Mr Wu) who had declined to do so.
On 18 October 2007, Mr Wu’s solicitors wrote to Theta to obtain an access card that would allow him to access his unit.[11] In an email dated 22 October 2007, Theta offered to provide an access card only if Mr Wu agreed to abide by the terms of the Protocols and to pay to Theta a “refundable deposit” of $2,575.[12] Mr Wu did not agree to those terms.
[11]While the unit was still leased to Academic at that time, it is clear that, in all practical senses, Theta had the ability to provide a card, if it chose to do so.
[12]The amount of the refundable deposit was described in a letter attached to the email of 22 October as $2,575, but the protocol also attached to the email required a security deposit of $2,925. Rule 3.10(a) of the Body Corporate’s rules provided for a deposit of $2,650. This discrepancy is immaterial for present purposes.
Disputes arose about Theta’s legal ability to deny owners access to their individual units in that way. Some owners issued proceedings in the District Court at Auckland. On 16 January 2008, the District Court issued an injunction directing the Body Corporate to take all practicable steps necessary to provide electronic key cards that gave access both to an individual proprietor’s unit and the common areas.[13] The order was directed to the Body Corporate as it has the statutory obligation to manage the common property.[14] While Theta was not joined as a party to this proceeding, there is no doubt that the Body Corporate could have directed Theta, as its agent, to comply with the Court’s order.[15]
[13]Mai v Body Corporate 366611 DC Auckland CIV-2008-004-14, 16 January 2008 at [47].
[14] Unit Titles Act, s 9(1).
[15]Unit Titles Act, sch 2, r 11(b). This default rule is reproduced in materially similar terms in r 2.3(f) of the Body Corporate’s rules.
The Body Corporate ignored the order. Instead, an Extraordinary General Meeting was called on 8 February 2008, for the purpose of amending r 3.10 of the Body Corporate’s rules to enable the Body Corporate to require owners to enter into the Protocols and to pay the refundable deposit.[16]
[16] There was also a further amendment to r 3.10 on 17 April 2009. See [33] and [34] below.
On 14 February 2008, another hearing took place in the District Court. Judge Hole observed that the 8 February 2008 resolution had been passed in defiance of his earlier order. He directed the Body Corporate to deliver keys to owners by midday on 25 February 2008.[17] Rather than complying with the order, the Body Corporate elected to appeal to the High Court against the District Court judgment.
[17]See Mai v Body Corporate 366611 DC Auckland CIV 2008-004-14, 14 February 2008 at [9] and [11].
On 6 March 2008, the Body Corporate’s appeal was dismissed by Lang J.[18] The Judge expressed an expectation that, by the time of the next District Court hearing on 12 March 2008, the Body Corporate would have required Theta to hand over keys as directed by the District Court. Alternatively, if Theta refused, the Body Corporate would have sought leave to issue third party proceedings against Theta, including an application for an interim injunction.[19] The Body Corporate did neither of those things.
[18]Body Corporate 366611 v Mai HC Auckland CIV 2008-404-809, 6 March 2008.
[19] At [59].
On 25 March 2008, Theta made a without prejudice offer[20] to accept $1000 as the refundable deposit, as long as the Protocols were signed and the proprietors undertook to ensure that any tenant would abide by the relevant rules and regulations. Mr Wu declined that offer.
[20] Set out in full at [49] below.
On 15 August 2008, the Body Corporate held its Annual General Meeting and passed a resolution not to sue Theta in respect of any of the acts that had been the subject of the prior proceedings. In effect, those owners who voted in favour of the resolution purported to ratify Theta’s previous actions.
At this point, Mr Wu changed tack. A new proceeding was issued in the High Court, in which relief was sought against both the Body Corporate and Theta in respect of their alleged illegal acts in interfering with Mr Wu’s enjoyment and use of his unit. On 14 October 2009, the parties agreed that two preliminary questions should be determined before trial, and an order to that effect was made. By the time they came before Lang J, three questions had been identified, which were, ultimately, condensed into one. The question, answered “yes” by Lang J,[21] was:
Did the Body Corporate act in excess of its powers under the [Unit Titles] Act in resolving on 8 February 2008 and 17 April 2009 to amend rule 3.10 [of the Body Corporate Rules]?
[21]Wu v Body Corporate 366611 (2010) 10 NZCPR 917 (HC) at [48]. See also [12] above.
Echoing the sentiments that he had expressed on 6 March 2008,[22] Lang J concluded his judgment on the preliminary questions by saying:
[53] There can be no justification for the body corporate and Theta denying proprietors access to their units in the future. Counsel for the body corporate responsibly accepted during the hearing that this was the case. I would therefore expect the body corporate and Theta to co-operate immediately in providing Mr Wu and others in his position with keys to their units.
(Emphasis added.)
[22] See [14] above.
Following that judgment, in December 2009, Theta allowed the unit owners to access the doors to their units so that locksmiths could install new locks and provide working keys and access cards. It also agreed to provide access cards to common areas at a cost of $150 each, and at least some of the owners obtained access cards in that manner. Despite this, Mr Wu sought an order “enforcing” Lang J’s judgment. On 30 July 2010, that application was dismissed, primarily because no order had been made that was capable of being enforced.[23] Instead, the High Court made timetabling directions for a prompt trial. The proceeding came on for hearing in mid-March 2011 and was determined by Asher J’s judgment of 30 May 2011.
Competing submissions
[23]Wu v Body Corporate 366611 HC Auckland CIV 2009-404-5756, 30 July 2010 at [31].
Asher J held against the Body Corporate and Theta in three material respects:
(a)both the Body Corporate and Theta were liable in private nuisance to Mr Wu;
(b)the Body Corporate was liable for acts undertaken by Academic, on the basis that Academic was the Body Corporate’s authorised agent at the time; and
(c)it was unnecessary for Mr Wu to mitigate his loss by entering into a new lease with Theta on its terms.
On appeal, Mr Davidson QC, for the Body Corporate and Theta, submitted:
(a)Nuisance
(i)Asher J had erred in failing to take into account uncontested evidence about problems that had arisen in the administration of the apartment building that affected adversely both the availability and affordability of adequate insurance cover. That was compounded by the Judge’s failure to apply s 15(1)(b) and (f) of the Act and the correct “security key” rule of the Body Corporate.[24] Section 15(1)(b) creates a duty for a body corporate to maintain insurance, while s 15(1)(f) requires it to keep common property in a good state of repair.
(ii)If Asher J had taken proper account of that evidence and applied s 15(1)(b) and (f), there was no basis on which the Judge could have held that the Body Corporate and/or Theta had unlawfully interfered with Mr Wu’s proprietary interests.
(iii)The Judge erred because he (illegitimately) extended the boundaries of the tort by holding that actions taken on common property,[25] in which the individual unit owners hold proprietary interests,[26] could form a basis for the tort. He submitted the correct position was that any nuisance had to emanate from a property in which Mr Wu had no proprietary interest.[27]
(b)Agency
There was no legal or factual basis for the Judge’s finding that Academic was acting as agent for the Body Corporate when it reprogrammed the electronic locks. Therefore, Asher J erred in holding that the Body Corporate was liable for acts carried out by Academic.
(c)Damages
(i)The Judge erred in holding that it was unnecessary for Mr Wu and other unit owners to mitigate their loss by entering into a holding arrangement of the type proposed by Theta.[28] As a matter of principle,[29] Asher J’s observation that a plaintiff is “entitled to seek redress through the Courts rather than surrender”[30] was wrong.
(ii)The Judge erred by awarding damages against both the Body Corporate and Theta in an excessive amount.
[24]The Body Corporate and Theta contend that Asher J acted on an incorrect premise; namely, that Lang J had declared the original form of r 3.10 ultra vires, when in fact, it was the first attempt to amend that rule that had been considered by Lang J on 30 November 2009. See also [12] and [17] above.
[25]That is, the locking out of owners who did not agree to Theta’s terms.
[26] Unit Titles Act, s 9(1).
[27]Stephen Todd (ed) The Law of Torts in New Zealand (5th ed, Brookers, Wellington, 2009) at [10.2.06]; Hunter v Canary Wharf Ltd [1997] AC 655 (HL) at 685 per Lord Goff of Chieveley and at 700 per Lord Lloyd of Berwick; BP Oil New Zealand Ltd v Ports of Auckland Ltd [2004] 2 NZLR 208 (HC) at [83]–[85].
[28] See [49] below.
[29] Compare Payzu Ltd v Saunders [1919] 2 KB 581 (CA) at 589.
[30] At [58].
Initially, an appeal was also advanced against Asher J’s finding that r 2.42 of the Body Corporate’s rules was ultra vires.[31] That aspect of the appeal is no longer pursued. The effect of that finding was to remove an express provision involving employment of a building manager on specific terms and to revive the application of the default r 11(b) set out in sch 2 to the Act.[32]
[31] At [105].
[32] See also [66] and [67] below.
For Mr Wu, Mr Rooney framed the issue more simply: “was it reasonable for the [Body Corporate and Theta] to lock [Mr Wu] out of the building?” Supporting the Judge’s reasoning, Mr Rooney submitted that the denial of access to common areas unreasonably interfered with Mr Wu’s discrete private property right to use and enjoy his own unit. Mr Rooney submitted that Asher J was correct to find that the tort of nuisance was established and to award damages against both the Body Corporate and Theta.
The competing positions highlight the different perspectives from which each party approached the issues arising in the litigation:
(a)Mr Wu sees the issue as one of individual property rights. In other words, neither the Body Corporate nor Theta had a right to exclude him from his individual unit by denying access to common property through which he needed to go to reach his unit.
(b)The Body Corporate and Theta frame the issue as one of compliance with the Body Corporate’s obligations to maintain adequate insurance and keep the common property in a state of good repair in order to safeguard the common interests of the general body of owners. Their stance puts the common good ahead of an individual’s proprietary interest in a unit.
The nuisance claim
(a) Asher J’s reasoning
Asher J regarded “the essence of nuisance [as] a condition or activity which unduly interferes with the use or enjoyment of land”.[33] His Honour considered that the Court’s focus is on the particular interest of a plaintiff, as opposed to the conduct of a defendant. He held that there is “a lack of formalism about the law of nuisance, which has allowed it to adapt to the changing circumstances of property ownership and developing community standards”.[34] The Judge said:[35]
[30] ... There is no need for the defendant to have any particular status and in particular no need for the defendant to be an adjoining owner or adjoining occupier. Providing the plaintiff does not have exclusive control over the area from which the nuisance emanates, there appears to be no restriction on the place from which a nuisance must emanate. Thus, co-owners may sue each other in nuisance since they cannot exclude each other from the land in question or control each other’s activities. In Clearlite Holdings Ltd v Auckland City Corporation the injury to the plaintiff’s land resulted from an act on the plaintiff’s own land, the nuisance being a shaft dug by the defendant under the plaintiff’s land. It was held that it was not a prerequisite to a cause of action in nuisance that the nuisance emanate from neighbouring land.
[33]At [29], citing Khorasandjian v Bush [1993] QB 727 (CA) at 734 per Dillon LJ. See also Michael A Jones (ed) Clerk and Lindsell on Torts (20th ed, Sweet & Maxwell, London, 2010) at [20–01].
[34] At [30].
[35]Footnotes omitted. See also Hooper v Rogers [1975] 1 Ch 43 (CA) at 50–51 and Clearlite Holdings Ltd v Auckland City Corporation [1976] 2 NZLR 729 (SC) at 739.
Asher J considered that the “original act of nuisance” was “the original reprogramming of the electronic locks so that the claimants’ cards were no longer useable”.[36] A second act was the “maintaining [of] electronic locks on the common areas that the proprietors could not use”, the effect of which was “to lock the proprietors out”.[37] He recorded it as “common ground” that:[38]
(a)Academic was the Body Corporate’s agent when it changed the locks. Therefore, the Body Corporate was legally responsible for its action; and
(b)Theta was acting as the Body Corporate’s agent when it refused to provide cards that enabled Mr Wu to gain access to the common areas.
[36] At [31]. This is a reference to what was done by Academic: see [9] above.
[37] At [31]. This refers to Theta’s actions: see [9]–[10] above.
[38] At [32].
The Judge observed:[39]
[34] ... The fact that the nuisance, that is, the locked doors and lifts, was on land owned by the plaintiff unit owners with others, does not preclude these actions being a nuisance. The fact that the actions were carried out by persons who had a right to occupation of common areas (Academic and Theta) does not preclude them being a nuisance to other affected proprietors. Their actions cannot be materially distinguished from those of an adjoining owner or third party who through its physical activities prevents access. Although I have not been referred to any authority which has held that the locking out of an owner from that owner’s property is a nuisance, I have no doubt that such an action is capable of being a nuisance.
[39] At [34]. (Emphasis added.)
The Judge rejected Theta’s submission that there had been no absolute denial of access, but rather some form of conditional access based on accession to the Protocols. Counsel for Theta, in the High Court, had submitted that those conditions were reasonable and necessary for the protection of the economic interests of all proprietors in the building. That was the context in which Asher J considered whether there was any “unreasonable interference” with Mr Wu’s proprietary rights. He accepted that such interference with property rights lay “at the heart of nuisance”.[40]
[40]At [36], applying Cambridge Water Co Ltd v Eastern Counties Leather plc [1994] 2 AC 264 (HL) at 299 per Lord Goff of Chieveley.
As to the test of what was “reasonable”, Asher J adopted what was said by Lord Wright in Sedleigh-Denfield v O’Callaghan:[41]
A balance has to be maintained between the right of the occupier to do what he likes with his own, and the right of his neighbour not to be interfered with. It is impossible to give any precise or universal formula, but it may broadly be said that a useful test is perhaps what is reasonable according to the ordinary usages of mankind living in society, or more correctly in a particular society.
[41] Sedleigh-Denfield v O’Callaghan [1940] AC 880 (HL) at 903.
The Judge adopted an objective test for assessing whether conduct was unreasonable. Following what Hardie Boys J said in Bank of New Zealand v Greenwood,[42] Asher J articulated the test as “whether a reasonable person, living or working in the particular area, would regard the interference as unacceptable”.[43]
[42] Bank of New Zealand v Greenwood [1984] 1 NZLR 525 (HC) at 531.
[43] At [38].
While accepting that Theta’s actions seemed “commercially justified” to its principal (because Theta believed Mr Wu was behaving irrationally in not agreeing to be bound by the Protocols), Asher J took the view that the question whether the access conditions were reasonable or unreasonable turned on whether there was a power to impose them. He said:
[40] In determining whether the access conditions were unreasonable the principal criterion will be whether Theta (specifically its principal the Body Corporate) had the power to impose them. A body corporate has no powers except those that are reasonably necessary to enable it to carry out the duties imposed on it by the Act and by its rules. If the refusal to provide the cards unless the conditions were accepted was unlawful, it would ordinarily follow that the action was unreasonable. While it has been observed that the body corporate model is essentially democratic, it would be wrong to regard the body corporate as the equivalent to the authorised Parliament of the proprietors. It does not have unbridled power. It has no general right to take such actions as it considers reasonable for the benefit of the proprietors as a whole. Its powers are limited by the Act and its lawful rules.
(Emphasis added and footnotes omitted.)
Asher J held that neither the Body Corporate nor Theta had power, under the Body Corporate’s rules “to make access conditional on such a set of access conditions”.[44] That was the basis on which he held that the Body Corporate and Theta had unreasonably interfered with Mr Wu’s property rights and therefore committed the tort of private nuisance. The Judge said:
[54] The Body Corporate and its agent had no power to make access conditional on such access conditions. The interference with the claimants’ use and enjoyment of their units and the common property that resulted when these conditions were not met was therefore ultra vires the powers of the Body Corporate. I think it is beyond doubt it was also unreasonable for the purposes of establishing nuisance. It is conceivable that denial of access ultra vires the powers of a body corporate might be nonetheless reasonable in, say, an emergency. But it was not here. Denying the claimants access unless they acceded to the protocol and paid the security deposit was an unreasonable interference with their use and enjoyment of their units and the common property and constituted a nuisance.
(Emphasis added.)
(b) The Body Corporate’s rules
(i) Rule 3.10 of the Body Corporate’s rules
[44] At [47].
Immediately after deposit of the unit plan, Sanctuary (as sole proprietor) had the ability to pass unanimous amendments to the default rules set out in sch 2 to the Act.[45] It did so. A new r 3.10 was adopted, in the following form:
3.10 Security Keys
(a)If for security purposes the Body Corporate or its agent the Secretary and/or the Building Manager restricts the access of any Proprietor or occupier to Common Property it may make available to that person a Security Key.
(b)A Proprietor or occupier in possession of a Security Key must not duplicate it, or permit it to be duplicated, and must take all reasonable steps to ensure that the Security Key is not lost or handed to any other person.
(c)A Proprietor or occupier must notify the Building Manager or the Body Corporate promptly if a Security Key is lost, or destroyed.
[45]Section 9(2) of the Unit Titles Act equates a single entity that owns all of the individual units to the plurality of owners that otherwise make up the body corporate: s 9(1).
By way of comparison, the much more detailed versions of r 3.10(a) that were passed at an Extraordinary General Meeting on 8 February 2008 and an Annual General Meeting on 17 April 2009 (both of which were declared invalid by Lang J in his judgment of 30 November 2010) provided:
(a) 2008 version
3.10 Security keys
(a)That the Body Corporate or its agent the Secretary, or the Building Manager as necessary from time to time to ensure the ongoing security and efficient management of the Building may require any Proprietor or occupier of any Unit to:
i.Enter into a security and access protocol agreement detailing the regulations relating to the security of and access to services in the Building as the Body Corporate may from time to time prescribe; and
ii.Pay a refundable security deposit to the Body Corporate, or its agent the Secretary or the Building Manager of a total amount as set out below (which amount notwithstanding the provisions of rule 1.3 shall only be revised by a resolution of the Body Corporate) for the purposes of access security, fire protection, telecommunication services and utilities services for the Building.
Refundable security deposit $2,650
Key and swipe card [ ]
Telephone and internet [ ]
Fire security [ ]
TOTAL $2,650(b) 2009 version
3.10 Access and security
(a)That the Body Corporate or its Agent the Secretary, or the Building Manager as necessary from time to time to ensure the ongoing security and efficient management of the Building may require any Proprietor, Proprietor’s Representative or the occupier of any Unit to:
1.Enter into a security and access protocol agreement detailing the regulations relating to the security and access to services and utilities in the Building and each unit as the Body Corporate may from time to time prescribe; and
2.Pay a refundable security deposit to the Building Manager of a total amount as set out below (which amount shall only be revised by a resolution of the Body Corporate) for the purposes of access security, fire protection, insurance excess reserve, telecommunication services and utilities services and repair for the Building and each Unit:
Refundable Security Deposit $5,000
Key and swipe card [ ]
Telephone and internet [ ]Fire security [ ]
Insurance Excess Reserve [ ]TOTAL [$5,000]
3.In the context of this Rule a Proprietor’s Representative includes individuals or companies appointed by the Proprietor to act as the Proprietor’s Representative to either rent, manage or sell a Unit (“Representative”). Where such Representative is appointed by a Proprietor, an individual person must be nominated to accept personal responsibility and liability under this Rule on the terms set out below.
4.Where a Proprietor’s Representative has been appointed by the Proprietor of a Unit, then the following additional security and access rules apply:
(a)The Representative must provide the Body Corporate or its agent the Secretary, or the Building Manager, with a signed undertaking and warranty letter from the Proprietor appointing the Representative and authorising him or her to act on behalf of the Proprietor.
(b)The Representative must agree to abide by all of the Body Corporate or its agent the Secretary, or the Building Manager’s rules and regulations imposed from time to time, copies of which will be provided to the Representative upon request;
(c)A Representative Undertaking and Warranty Letter must be signed by the Representative for each Unit they represent. The form of the letter is to be as prescribed by the Body Corporate, or its agent the Secretary, or the Building Manager from time to time;
(d)The Representative must procure the signature of each Proprietor certain undertakings required by the Body Corporate that relate to acceptance of liability for damages and excess on insurance premiums that have been taken out by the Body Corporate, or its agent the Secretary, or the Building Manager, for the benefit of the building as a whole;
(e)The Representative must agree to only let the Unit or Units he or she manages to students over 18 years old with a valid student ID;
(f)The Representative must ensure they advise the Proprietor of their IRD obligations when the Unit is rented residentially;
(g)The Representative acknowledges that open homes and the display of marketing signage or flags are strictly forbidden in the Empire Apartments and its proximities;
(h)The Representative must register every showing of a Unit or Units that he or she manages with the on duty manager appointed by the Building Manager;
(i)The Representative is to personally accompany every student, prospective purchaser or guest who is shown a Unit;
(j)Any access cards provided by the Building Manager to the Representative must remain in the possession of the Representative at all times. Should an access card be found not to be in the possession of the Representative then all access cards currently held by the Representative will be cancelled;
(k)The Representative agrees to rent any Units for not less than the minimum rents in the building plus utilities (electricity and telephone) set from time to time by the Body Corporate, or its agent the Secretary, or the Building Manager;
(l)All tenants procured by the Representative must be registered with the Building Manager and provide proof of student ID to the satisfaction of the Building Manager;
(m)All tenants must sign utilities agreements (electricity and telephone) directly with the Building Manager and pay those utility charges directly to the Building Manager.
5.The following additional refundable security deposits to be paid to the Building Manager shall be provided by the Proprietors and/or occupiers of any Units that are managed by a Proprietor’s Representative other than the Building Manager appointed by the Body Corporate:
Key and swipe card $150
Utilities deposit $500While 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.
(iv)There had been expensive and inefficient management of suppliers and service providers to the body corporate. In the 3 & ½ years since Theta assumed the role of building manager, we have negotiated substantial cost savings including $7,000 per annum for Gas (Genesis) and $16,000 per annum for electricity (Trust Power), and we have multiple service providers on written service-legal agreements.
(v)There had been negligent management of building defects and warranties. Since Theta assumed the role of building manager, we have enforced building warranties for several common property building defects (for example, water leaks to common areas and into apartments from defective building exterior/windows have required at least $350,000 in repairs under warranty during this period). Total construction warranty works since 1 September 2007 have exceeded $1,500,000.
27. Areas of most immediate concern related to:
(a) Ongoing damage to the common property;
(b)The possibility that the building could become uninsurable; and
(c)Security.
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 Deposit
A 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).
Mr Chen deposed that when Theta took over as building manager from Academic, he had serious concerns about its ability to insure the building. Obviously, if the building could not be insured, the Body Corporate was not able to fulfil its duty to “insure and keep insured all buildings”.[46]
[46] Unit Titles Act, s 15(1)(b).
There is undisputed evidence that Mr Chen, on behalf of Theta, ascertained that there had been a number of insurance claims made by the Body Corporate before 1 August 2007, arising out of property damage and vandalism. From August 2007 until May 2008, six further claims were made against the general building insurance policy that the Body Corporate had taken out with New Zealand Insurance (NZI). The latter cost NZI $133,201.79.
The only external evidence of insurance problems comes from a facsimile dated 24 March 2010, in which the Body Corporate’s insurance broker specified five options for insurance offered by NZI. In doing so, the broker advised that five other insurers (Vero, Allianz, QBE International, Lumley General Insurance and Zurich New Zealand) had “all declined to quote due to the claims history”.
Increases in insurance premiums apparent from the NZI quote were said to be “due to the claim costs for the last 4 years now totalling $356,412”, plus GST. The broker recommended “renewing the policy with NZI Insurance with the excess level of [the Body Corporate’s] choice”, adding:
Due to the activation of the sprinklers in the 2 most recent claims on 28 November 2009 and 1 December 2009, the assessor has drawn attention in his reports to the insurer the ease in which water was able to enter the lift shafts and service risers. As you are aware most of the costs incurred under the claims are for repairing the electronics in the lifts.
As a result NZI has requested evidence of procedures being put in place and if necessary, equipment purchased to restrict the flow of water into these areas before 20th April 2010.
We are unsure how easy NZI’s requirements in this regard can be met, but would appreciate your thoughts so we can make representations to them on your behalf.
Under cross-examination, Mr Wu admitted that the Empire Building had come close to losing its insurance and that it would be disastrous if it did. He acknowledged that the risk that the building may become uninsurable remained.
(iii) The contemporary documents
Shortly after taking over management functions, Theta wrote to all owners about the provision of access cards. Emphasis was placed on the need for Theta, as building manager, to manage “security and access” at the Empire. The standard letter that Theta sent to all owners on or about 22 October 2007 stated:
The Empire
...
Theta Management Limited (Theta) as building manager of the Empire – has the responsibility of (amongst other things) managing security and access at the Empire. Accordingly, before Theta will grant any person security access to the Empire, Theta requires:
(a)The occupier to complete the enclosed occupant’s registration form and sign the enclosed security and access protocol agreement; and
(b) A security deposit of $2575 to be paid to Theta.
We also enclose a copy of the Empire Rules and regulations referred to in the security and access protocol agreement.
Theta’s reasons for requiring satisfaction of these conditions prior to providing security access include:
(a)As part of its management role, Theta must operate strictly controlled premises, much higher than one would otherwise find in rental premises. With over 700 student residents, Theta enforces strict curfews, rules and regulations as set out in the Resident Handbook, and policies regarding noise control, drugs and so on. Overall, Theta enforces a stringent level of security and control (and, in particular, access and occupation) at the Empire with a view to providing a safe environment to residents that is conducive to study. Under the management agreement, Theta is obliged to maintain a register of residents of the building, as well as to liaise with unit owners and their tenants to promote the quiet enjoyment by residents of their units. In order to maintain this high standard of control, and comply with its obligations under the management agreement, Theta must know who has security access (and for which units).
(b)In the event of an occupant triggering a false fire alarm, costs of evacuation and for all applicable services caused by the false fire alarm is approximately $2,000. There are also costs which are incurred if security key cards are lost. Where an occupant causes such a cost, then they (or the owner who has given them occupation) – rather than the other owners – should meet those costs. The requirement of the security deposit is to protect the owners as a whole. Theta aims to ensure that, out of fairness, other owners do not have to contribute towards costs incurred by individual owners or their occupants. Such costs should obviously be borne by the owner (or occupier, where applicable).
The Protocol attached to that letter provided for the payment of $2,925 as a “security deposit”. That deposit was to be paid before a licensee began to occupy a unit. It was to be refunded on “satisfactory return of all keys and security swipe cards”, “less any costs applicable”. Any loss of access cards was to incur a replacement fee of $25. Loss of a room key was to incur a replacement fee of $150.
Theta also included “other fees” in the Protocol:
OTHER FEES
I understand that the following fees will apply and can be deducted from the security deposit by Theta Management.
Key And/Or Access Card NZ$150.00 fee applicable for any lost room key NZ$25.00 fee applicable for the issue of a new access card. Any lost room key or access card must be reported to EMPIRE Reception or Building Manager as soon as possible. Access cards to be renewed every 6 months; the card may not be renewed if there are any outstanding fees in excess of $200.
Breach of Fire & Safety NZ$500.00 fine applicable for tampering with EMPIRE Fire Safety equipments NZ$500.00 fine applicable for smoking in EMPIRE building.
NZ$2,000 fine applicable for a fire alarm call due [to] breach caused by me, the occupant, resulting in the evacuation of the building, for all applicable services required.
Repair Costs Any repair costs associated to damages to EMPIRE properties resulting from occupant abuse or negligence other than normal wear and tear or equipment defects.
Insurance Excess For substantial damage to other units and common areas from occupant abuse or negligence that require an insurance claim, the occupant causing the damage will be responsible for the Insurance Excess under the Body Corporate Insurance Policy.
The occupant was then to sign a licence to occupy that reflected the terms of the Protocol.
On 25 March 2008, Theta, through its counsel, made a without prejudice offer to resolve outstanding applications for interim orders, after its appeal against Judge Hole’s order to deliver keys to the owners had been dismissed by Lang J.[47] The offer, relevant to questions of mitigation, stated:
[47] See [15] above.
CIV 2008-404-809 – BODY CORPORATE 366611 v MAI & ORS
1. I refer to our without prejudice discussion Thursday last. I am now in a position to relay the following without prejudice offer to settle your clients’ interlocutory application for interim orders only:
a.Theta will [accept a] $1,000 refundable security deposit from each of the your client owners rather than the full $2,650;
b. My client will cover the remainder of the security deposit;
c.Theta would then provide access to each of your client owners conditional upon each of them:
i.signing the security access protocol;
ii.providing written authorisation from the owners personally (rather than just your firm in light of the fact it appears that your firm is acting without some plaintiff owners authority); and
iii.undertaking that their occupant tenant will be required (as a term of any occupation or tenancy) to agree to abide by the Empire Rules and Regulations (attached).
2.Alternatively, Theta would be willing to enter into the following arrangement:
a.Your client owners will enter into management agreements (i.e.: rental agreements by which Theta finds occupants for the apartments) on Theta’s standard terms as attached;
b.Theta would not then require any payment of the refundable security deposit from either such plaintiff owners or my client, and instead would receive such amounts from the occupants;
c.The occupants will sign the security access protocols rather [than] your client owners; and
d.Your client owners would have the right to inspect their apartment on 48 hours prior written notice to Theta.
3.Could you please advise as a matter of priority whether either or both of the above options are acceptable to your clients.
Those proposals were not accepted. By letter dated 1 April 2008, Theta wrote to the Body Corporate’s secretary to clarify its position:
The Empire Apartments
The Body Corporate has asked us to clarify the basis on which Theta Management Limited (Theta) is willing to program and provide access keys to any apartment in the Empire Apartments.
Theta has further considered its position regarding the terms upon which it is obliged to yield up the keys etc to any of the apartments in the Empire Apartments. As Building Manager Theta acknowledges that it is required to comply with the terms of its contract with the Body Corporate and the Rules set by the Body Corporate. Theta has responsibility for security for the Empire Apartments and as such is mindful of the requirements under Rule 3.10(a) of the Body Corporate Rules.
In order to meet its obligations to the Body Corporate, Theta is willing to provide programmed access keys to a particular apartment in the Empire Apartments if
(a)Theta is provided a written authorisation, signed by the owner of the particular apartment personally, to provide such access; and
(b)The owner of the particular apartment pays the security deposit of $2,650 and signs the security access protocol personally, as is required by rule 3.10(a) of the Body Corporate Rules.
Requirement (a) above is necessary because it has come to light that a number of owners that Glaister Ennor still purports to act for are in fact not instructing Glaister Ennor to continue to act for them. Theta does not wish to grant access to apartments only to be sued by the owners of those apartments for granting access without their direct authority.
Theta does not reasonably consider that it has an ability to deviate from the above requirements without being in breach of its contractual obligations to the Body Corporate.
Alternatively, Theta would be willing to enter an arrangement in which the owners enter into shorter term (2 years) management agreements (ie: rental agreements by which Theta finds occupants for the apartments) on Theta’s standard terms. Theta would not then require any payment of the refundable security deposit from either such owners, and instead would receive such deposit amounts from the occupants. Similarly, it would be the occupants which would sign the security access protocols rather than the owners. An owner would have the right to inspect their apartment on 48 hours prior written notice to Theta.
Surprisingly, the only minutes of the Body Corporate that are in evidence are those of the Extraordinary General Meeting held on 8 February 2008.[48] The meeting was held against the background of the proceedings in the District Court. We set out the resolutions put to that meeting and the way in which they were determined:
[48] See [12] above.
1. Should the Body Corporate defend the District Court Claim?
Resolved that the Body Corporate should defend the District Court Claim (256 YES votes, 1 NO vote, 1 vote abstained)
…
3.The Body Corporate to raise an additional levy of $110 + GST per unit to pay to defend the claim in the District Court.
Resolved that the Body Corporate raise $110 + GST per unit to defend the claim in the District Court
(256 YES votes. Nil No vote. 2 votes abstained)
4.Should the Body Corporate appeal the District Court Order in the High Court?
Resolved that the Body Corporate should appeal the District Court Order in the High Court
(256 YES votes, Nil No vote, 2 votes abstained)
5.The Body Corporate to raise an additional levy of $110 + GST per unit to pay for appealing the District Court Order to High Court.
Resolved that the Body Corporate rate $110 + GST per unit for appealing the District Court Order to High Court
(256 YES votes, Nil NO vote, 2 votes abstained)
…
8.Should the Body Corporate [indemnify] Theta by signing the security and access protocol agreement and pay the refundable security deposit ($119,250) on behalf of the 43 plaintiffs (45 units) to Theta for releasing key cards?
Resolved that the Body Corporate should NOT indemnify Theta on behalf of the 43 plaintiffs (45 units), sign the security and access protocol agreement, and pay to Theta the refundable security deposit for releasing key cards
(Nil YES votes, 256 NO votes, 2 votes abstained)
9.Should the Body Corporate amend rule 3.10a regarding the Security and access protocol agreement and the refundable security deposit in Body Corporate Rule? (enclosed).
Resolved that the Body Corporate should amend rule 3.10a – addition of a rule that all proprietors or occupiers of any unit must execute the Security Access Protocol Agreement with the Building manager/Body Corporate and pay a refundable security deposit
(254 YES votes, 1 NO vote, 3 votes abstained)
(c) Analysis
(i) Unreasonable interference
The leading New Zealand text on the law of torts has described private nuisance as a wrong against the land, in respect of which action can be brought only by a person with a sufficient interest in the land affected by it.[49] In general terms, the tort involves an unreasonable interference with a person’s right to use or enjoy his or her proprietary interest in land, in contrast to trespass, which is confined to intrusions upon land that follow directly upon a defendant’s act. While trespass to land is actionable without proof of damage, nuisance requires proof of actual or imminent harm.[50] The first question is whether the Body Corporate and Theta unreasonably prevented Mr Wu from accessing his unit, thereby interfering unreasonably with his proprietary interest.
[49] Law of Torts in New Zealand, above n 27, at [10.1].
[50]Law of Torts in New Zealand at [10.2.01].
Asher J determined that there was no reasonable basis on which the Body Corporate or Theta could withhold security cards from Mr Wu and thereby deprive him of access to his own unit. We consider whether he was right, in light of the arguments based on s 15(1)(a) and (f) and r 3.10 of the Body Corporate’s rules.
The Act contemplates two types of property interests. One is ownership of an individual unit. The other is common property that may be enjoyed by all owners.[51] In the main, it is for the body corporate to manage and maintain common property, while individual owners take responsibility for their own units.[52]
[51]The term “common property” means so much of the land that is not comprised in an individual unit: Unit Titles Act, ss 2 (definition of “common property”) and 3(2)(b). The proprietors are empowered to sell or lease part of the common property, or grant an easement over some or all of it: s 9(3).
[52]Discussed in North Shore City Council, above n 5, at [96]–[98]. However, see the clarification in Berachan Investments Ltd, above n 4, at [44] about “incidental” rights and the circumstances in which the Body Corporate may have an ability to enter an individual unit to facilitate repairs to common property (see [82] below).
The term “body corporate” is defined by ss 2 and 12. On deposit of a unit plan, the registered proprietor becomes a body corporate and, thereafter, the proprietors for the time being of all units included in the plan comprise, collectively, the body corporate.[53] The body corporate has perpetual succession and a common seal.[54] It is capable of suing and being sued in its corporate name and, generally, may do everything that bodies corporate may do.[55]
[53] Section 12(1) and (2).
[54] Section 12(4).
[55] Section 13(1).
The distinction between the individual units (for which each registered proprietor takes responsibility) and common property (the domain of the body corporate) is logical. Only individual registered proprietors can deal with individual property, whereas “common property” is owned by all proprietors and must be managed by the body corporate for the common good of all. The body corporate is the vehicle through which efficient management of common property is undertaken. Emphasis is placed on the “proprietors” acting together for the common good, as opposed to the chaos that could ensue were each registered proprietor entitled to deal with “common property” individually.[56]
[56]This summary is taken from North Shore City Council, above n 5, at [96]–[98]. While that judgment was appealed to both the Court of Appeal (North Shore City Council v Body Corporate 188529 [Sunset Terraces] [2010] NZCA 64, [2010] 3 NZLR 486) and the Supreme Court (North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289), nothing disputing those propositions was said in either of those judgments.
The default rules contained in schs 2 and 3 of the Act govern the way in which a body corporate is managed. Those in sch 2 may be varied by unanimous resolution, while sch 3 rules may be amended by a simple majority.[57] In the absence of a resolution to the contrary[58] these rules bind the body corporate, all proprietors and any other persons in actual occupation of a unit.[59]
[57] Section 37(1)–(4) and schs 2 and 3.
[58] Section 37(3).
[59]Section 37(11).
The final form of a particular body corporate’s rules creates a democratic framework within which all proprietors can manage the property comprised in the plan.[60] Those purchasing individual units do so on those terms. Thereafter, they have the right to participate in discussions about whether existing rules should be changed. Generally, the rules deal with such mundane (but important) matters as the maintenance, repair and renewal of common property.
[60] World Vision of New Zealand Trust Board v Seal, above n 5, at [28].
The duties of a body corporate are set out in s 15(1), which provides:
15 Duties of body corporate
(1) The body corporate shall—
(a)Subject to the provisions of this Act, carry out any duties imposed on it by the rules:
(b)Insure and keep insured all buildings and other improvements on the land to the replacement value thereof (including demolition costs and architect’s fees) against fire, flood, explosion, wind, storm, hail, snow, aircraft and other aerial devices dropped therefrom, impact, riot and civil commotion, malicious damage caused by burglars, and earthquake in excess of indemnity value:
(c)Effect such other insurance as it is required by law to effect or as it may consider expedient:
(d)Subject to sections 45, 46, 47, and 48 of this Act, forthwith apply insurance money received by it in respect of damage to any building or improvements in rebuilding and reinstating the said building or improvements so far as the rebuilding or reinstatement may lawfully be effected:
(e)Pay the premiums in respect of any policies of insurance effected by it:
(f) Keep the common property in a state of good repair:
(g)Comply with any notice or order duly served on it by any competent local authority or public body requiring repairs to, or work to be performed in respect of, the land or any building or improvements thereon:
(h)Subject to this Act, control, manage, and administer the common property and do all things reasonably necessary for the enforcement of the rules:
(i)Do all things reasonably necessary for the enforcement of any lease or licence under which the land is held:
(j)Do all things reasonably necessary for the enforcement of any contract of insurance entered into by it under this section.
(Emphasis added.)
Necessarily, funds are required to enable a body corporate to fulfil these duties. Section 15(2)(a) imposes an obligation on the body corporate to establish and maintain a fund for administrative expenses, to determine from time to time amounts required to be raised for those purposes and to levy contributions from proprietors in proportion to their unit entitlements.
Relevantly, s 16 of the Act provides:
16 Powers of body corporate
Subject to the provisions of this Act, the body corporate shall have all such powers as are reasonably necessary to enable it to carry out the duties imposed on it by this Act and by its rules: …
(Emphasis added.)
In a case where the default rules have not been varied, r 4 of sch 2 allows the powers and duties of a body corporate to be exercised and performed by a committee, in specified circumstances. Provisions exist for the election of the committee and its accountability to the collective proprietors who make up the body corporate.[61]
[61] Schedule 2, rr 5–13.
Rule 11(b) of sch 2 entitles a Body Corporate to employ an agent in connection with “the control, management, and administration of the common property and the exercise and performance of the powers and duties of the body corporate”. A provision in materially similar terms is set out in r 2.3(f) of the Body Corporate’s own rules. Subject to any question of vires in relation to such delegation, there is no impediment to the employment of a building manager to perform those delegated functions.
The extent to which a body corporate can delegate these powers and duties to a building manager, or a person or entity holding some similar position, was discussed in Low v Body Corporate 384911.[62]
[62] Low v Body Corporate 384911 [2011] 2 NZLR 263 (HC).
Low concerned litigation over the way in which the Westin Hotel in Auckland was managed. The High Court considered amendments to rules in sch 2 to the Act, in the context of the purported delegation of functions by a body corporate to management and secretarial companies respectively. Low shared a number of similarities with the present case, in that the proceeding was brought by a number of owners (each of whom owned serviced apartments within the hotel’s unit title complex) following a dispute about the owners’ ability to use and enjoy their units as a result of restrictions imposed on them by the management company and the body corporate.[63]
[63]A summary of the structure of the Westin Hotel development is set out in Low at [16]–[19].
On the facts of that case, an amended version of r 11(b) was found to be ultra vires to the extent that it purported “to bind an individual proprietor to a state of affairs in which he or she has lost control over his or her own property” because that was contrary to the scheme of the Act.[64]
[64] At [54].
Heath J expanded on his view that that employment of a manager pursuant to r 11(b) could go no further than to permit relevant functions to be carried out in respect of common property. He said:
[62] In my view, those powers and duties to which r 11(b) refers are limited to control, management and administration of common property. A construction to the contrary would render otiose the ability of the committee to delegate to one or more of its members such of its powers and duties as it thinks fit and to revoke that delegation at any time. The point is that the power of delegation must be to a member of the committee (or to one of the proprietors where there are three or less), while the power to employ an agent for building management purposes necessarily extends to outsiders. I consider that the power of delegation, both to outsiders and members of the body corporate, is informed by r 11(d) of sch 2 by which the committee retains the right, at any time, to revoke its delegation to members.
[63] The ability of the body corporate to place restrictions on the powers of the committee or give a particular direction in that regard can only be applicable prior to the agreement being entered into. That is consistent with r 4 of sch 2 which makes it clear that, in cases involving more than three proprietors, the statutory delegation of functions to a committee remains subject to the same type of “restriction imposed or direction given at a general meeting of the body corporate”. At the time that the management agreement was entered into, Melview was both the Body Corporate and the committee. It did not place any restrictions on the ability to enter into contracts with third parties in relation to the management of the building.
(Footnotes omitted.)
That is the statutory context in which it is necessary to consider the power that Theta held to withhold a security key from Mr Wu to prevent access to common property, in circumstances where the inevitable consequence was that he was unable to access his individual unit or arrange for an agent to show it to a potential occupier.
For present purposes, we focus on r 3.10 of the Body Corporate’s rules, in the form in which it was originally passed.[65] We accept counsel’s submission that Asher J was mistaken in believing that this form of r 3.10 had been declared ultra vires by the High Court. The declaration made by Lang J in earlier proceedings related to the more detailed versions of r 3.10 that were passed at general meetings of the Body Corporate, held on 8 February 2008 and 17 April 2009 respectively.[66]
[65] Set out at [33] above.
[66]Wu v Body Corporate, above n 21, at [48].
In Velich v Body Corporate 164980, this Court left open an argument that it was necessary to go back to the original default rule if a subsequent rule were declared ultra vires.[67] In our view, if a default rule is changed and proprietors enter into a contract to purchase a unit with knowledge of that rule, it should apply in the absence of a declaration that it is ultra vires. Neither party has sought to argue, in this case, that the original amended version of r 3.10 was invalid. In our view, there is no warrant to ignore its effect.
[67] Velich v Body Corporate 164980 (2005) 5 NZ ConvC 194,138 (CA) at [36]–[38].
While repetitious, we set out again the terms of the applicable version of r 3.10:
3.10 Security Keys
(a)If for security purposes the Body Corporate or its agent the Secretary and/or the Building Manager restricts the access of any Proprietor or occupier to Common Property it may make available to that person a Security Key.
(b)A Proprietor or occupier in possession of a Security Key must not duplicate it, or permit it to be duplicated, and must take all reasonable steps to ensure that the Security Key is not lost or handed to any other person.
(c)A Proprietor or occupier must notify the Building Manager or the Body Corporate promptly if a Security Key is lost, or destroyed.
Rule 3.10(a) expressly permitted the Body Corporate and/or the building manager to make available to a proprietor or occupier a security key if it restricts access to common property, or part of it. If that were done, the proprietor or occupier was under an obligation not to duplicate the security key or permit it to be duplicated. He or she was also required to take all reasonable steps to ensure the key was not lost or handed to any other person.[68] The proprietor or occupier was required to notify either the Body Corporate or the building manager promptly if the key were lost or destroyed.[69] Such rules, in the context of a building designed to accommodate something in the order of 800 students who were occupying the building on a transient basis, were both understandable and sensible.
[68] Rule 3.10(b).
[69] Rule 3.10(c).
The general purpose of this rule was to permit the Body Corporate or its agent (in this case either Academic or Theta) to restrict the access of any proprietor or occupier to common property on grounds of security. In the event of restrictions being imposed, either the Body Corporate or its agent was entitled (but not required) to make available “a Security Key” to that person. The term “Security Key” was defined in r 1.1 of the Body Corporate’s rules to mean:
... a key, magnetic card or other device used to open and close doors, gates or locks or to operate alarms, security systems or communication systems in the Building.
While the original form of rule 3.10(a) gave a discretion to either the Body Corporate or its agent to make available a security key to any proprietor or occupier whose access to common property had been restricted, it could not have been intended that the discretion would be exercised in an arbitrary or capricious manner. Use of the word “restricts” tends to suggest an ability to prevent an owner from entering certain parts of the common property. But, because the Body Corporate’s or manager’s powers can only generally be exercised in respect of common property,[70] the rule cannot sensibly be interpreted as allowing either to prevent an owner from accessing the unit that he or she owned.
[70] See [54] above. But see also [81] below.
In any given unit title development, there are a variety of areas that might come under the rubric of “common property”. For example, there might be a restaurant, a gymnasium or laundry area from which, for some valid reason, it may be necessary to prevent a particular proprietor from entering. In this case, the question is the extent to which (if at all) the exercise of a power to refuse to provide a security key to a proprietor to enter common property (for example, lifts used to reach units at higher levels) can, lawfully, affect the proprietor’s use and enjoyment of his or her individual unit.
Questions of fact and degree are involved. Plainly, any person responsible for managing common property must have an ability, in extreme circumstances, to prevent access to it, even though the consequence may be an inability for an individual owner to access his or her unit. For example, if there were a fire in part of the building, restricting access to all parts of the common area (including any foyer entered through the outside doors to the apartment building) would be justified. In such circumstances, it would be reasonable for a body corporate to prevent an owner from accessing his or her unit in order to ensure that occupants are not injured in the fire.
In this case, Mr Chen gave undisputed evidence that there were concerns about property damage and vandalism that could impact on the availability or cost of insurance. The issue is therefore whether that evidence is sufficient to justify the use of the power to restrict access to a common area in order to prevent a tenant (or licensee) of Mr Wu’s choice from taking up residence without the security inherent in the Protocol to which other owners had subscribed.
Because the original version of r 3.10 was in place when Mr Wu acquired his individual unit, he is taken to have agreed to be bound by it. As this Court has observed previously, albeit in the context of potential challenges to rules by a body corporate, it is “somewhat unattractive” for a person who agreed to be bound by a rule to later challenge its efficacy in the circumstances to which it was directed.[71]
[71]Berachan Investments Ltd, above n 4, at [42](b).
It is clear that r 3.10 was designed to deal with the types of threats to security (including, in our view, the possibility of damage to common areas) that could conceivably arise in the context of an apartment complex designed to house up to 800 transient students. We accept that it was open to the Body Corporate or the building manager to invoke r 3.10 in circumstances where genuine concerns about property damage and vandalism existed that could have impacted adversely on the availability or cost of insurance.
Asher J determined that the Body Corporate and Theta had acted unreasonably in denying Mr Wu access to common property if he declined to be bound by the conditions recorded in the Protocol. That finding is distinct from one that focuses on the ability of the Body Corporate or building manager to restrict access of a proprietor to common property, in terms of the original r 3.10. It is necessary to reconsider Asher J’s conclusion in light of the parties’ agreement that the Judge inadvertently analysed the position on the basis of a subsequent version of r 3.10 that has since been declared ultra vires.
Despite the general position that a body corporate is responsible for common property only, there are provisions in the Act and the default rules that will permit a body corporate to have access to an individual unit to effect repairs. In Berachan, the point was put on the basis that a body corporate “may have to repair unit property in some circumstances”, giving as an example r 2(b) of sch 2 to the Act.[72] This Court said:
[44] ... [Rule 2(b)] requires the body corporate to repair and maintain “all pipes, wires, cables, ducts, and other apparatus and equipment of whatsoever kind and wheresoever situate which may be reasonably necessary for the enjoyment of an incidental right which may from time to time exist by virtue of s 11 of [the Act]”. Correspondingly, r 1(a)(ii) in sch 2 requires a proprietor to permit the body corporate to enter his or her unit for the purpose of “maintaining, repairing, or renewing any pipes, conduits, wires, cables, or ducts for the time being in, upon, or passing through his unit and capable of being used in connection with the enjoyment of any other unit or common property”. Given that pipes, conduits, ducts and so on will often be situated within ceiling cavities, wall cavities or other enclosed spaces, it is implicit in these provisions that, as an incident of performing its responsibilities, a body corporate may be obliged to repair unit property. In principle, we see no reason why this should not be so in other situations as well.
(Footnotes omitted.)
[72] Above n 4, at [44].
In Berachan, it was unnecessary for this Court to determine whether the relevant right to enter “unit property” included an ability to carry out repairs to an individual unit, as distinct from an ability to enter an individual unit to effect repairs to common property. It was also unnecessary for this Court to determine whether, by conferring a power on a body corporate to obtain access to an individual unit, it necessarily included a concomitant right to exclude the owner from his or her individual property. The first point is relevant to the scope of the Body Corporate’s powers under r 3.10, while the second arises directly for decision.
The first point involves consideration of s 11(2)(a) and those rules of the Body Corporate that reflect rr 1(a)(ii) and 2(b) of sch 2 to the Act. They relevantly provide:
11 Incidental rights
…
(2)The common property and each unit on a unit plan shall, by virtue of this section, have as appurtenant thereto–
(a)A right to full free and uninterrupted access and use of ... doors, or other apertures existing at the date of deposit of the plan and enjoyed at that date; …
over the land and every part thereof.
2.1. A proprietor shall–
(a)permit the Body Corporate (or its agents, servants or contractors) at all reasonable hours and at any time in the event of an emergency to enter into and upon the Unit and any accessory unit for any of the following purposes, that is to say,
…
(ii)providing, installing, maintaining, repairing or renewing any Utility, Service pipes, conduits, wire, cables conductive medium or ducts for the time being in, forming part of, upon, or passing through the Unit and capable of being used in connection with the enjoyment of any other Unit or Common Property;
…
(iv)maintaining, repairing, or renewing any Common Property; …
…
2.2 The Body Corporate shall–
(a)repair and maintain the Common Property together with all chattels, fixtures, and fittings (including without limitation stairs, lifts, elevators, fire escapes, security or fire protection systems) used, or intended, adapted, or designed for use, in connection with the Common Property or the enjoyment thereof;
(b)repair and maintain all Utility Services pipes, wires, cables, ducts, and all other apparatus and equipment of whatsoever kind and wheresoever situate which may be reasonably necessary for the enjoyment of an incidental right which may from time to time exist by virtue of section 11 of the Act;
…
In our view, rr 2.1(a)(ii) and 2.2(b) enable the Body Corporate to enter an individual unit in order to maintain and repair common property. In practical terms, that will usually arise if it were necessary, for example, to drill a hole in the floor or ceiling of a unit to inspect ducts or other wires that had been installed between floors and which, themselves, are common property. While the owner’s obligation to allow access in those circumstances is a necessary part of his or her commitment to maintenance and repair of common property, it does not provide statutory authority for a body corporate to exclude an owner from his or her own unit. Entry into a unit by a person authorised by a body corporate is not inconsistent with the owner’s right to be present when that occurs.
The facts in Berachan were quite different. In that case, this Court held that the body corporate was responsible for the replacement of the entire roof of a 12 storey property, despite 80 per cent of the roof technically being unit property. Given the need to repair that part of the roof that was common property it was necessary for the entire roof to be maintained. That is why the Court held that the responsibility to maintain those parts of the roof comprising unit property was incidental to its statutory obligation, under s 15(1)(f) of the Act, to maintain and repair common property. In the way in which this Court expressed the point in Berachan, repairs and maintenance may be carried out on individual property as an incident of the primary function of maintaining or repairing common property.[73]
[73]At [44]. To the extent that, at [43] of Berachan this Court queried whether a view expressed in North Shore City Council, above n 5, might have been to the contrary, Heath J (the Judge in that case) confirms that was not intended.
Rule 3.10 treats proprietors and occupiers separately. The Body Corporate was entitled to restrict access of either a proprietor or an occupier. Mr Wu is a proprietor. The issue is whether r 3.10(a) could be invoked as against him. In our view, it was not “reasonably necessary” to exclude Mr Wu from his unit by denying him access to common areas. Indeed, it was not necessary to restrict his access to any common property. There was no suggestion that Mr Wu, himself, would act in a manner that was likely to affect adversely security or insurance concerns.
Different considerations arise when considering the position of an occupier who does not own the unit. In our view, the Body Corporate or the building manager could have invoked r 3.10(a) by refusing to supply a key to the licensee. Mr Wu was not entitled, as of right, to provide his key (or a duplicate) to a licensee.[74] Although that would have affected Mr Wu’s economic interests, it would not have restricted his access to his own property. Any ability of the Body Corporate or building manager to refuse to supply a key to a licensee unless appropriate arrangements were made could not transform an unreasonable decision to exclude an owner from his own property into one that was reasonable. That is relevant only to damages.
[74] Rule 3.10(b), set out at [71] above.
Subject to the emanation point,[75] there was no lawful basis on which Mr Wu could have been excluded from his unit. We take the view that Theta, as well as the Body Corporate, acted unreasonably in (effectively) preventing Mr Wu from entering his own property. In terms of r 11(b) of sch 2, Theta was the Body Corporate’s agent.[76] Having said that, Mr Wu was not entitled to provide an occupier with a key in the absence of that person’s agreement to abide by the terms of the Protocol.
[75] See [90]–[99] below.
[76] See [100]–[103] below.
This conclusion is one for which none of the parties contended on appeal. It provides a different foundation for any claim for damages that Mr Wu may make. Ultimately, any loss that he may have suffered as a result of what was unreasonably done by the Body Corporate and Theta must be measured by reference to the intrinsic economic value of the unit to him and to the (possible) loss of a chance of letting or licensing the unit to an occupier who was prepared to meet the conditions contained in the Protocol. Without making any assumptions as to facts that might be capable of proof for damages purposes, if there were evidence that Mr Wu was unable to show potential occupiers the unit because of the restrictions imposed upon him as an owner, that might be relevant to a loss of an opportunity to let or license the property, assuming Mr Wu was prepared to do so on terms set out in the Protocol.[77] While we have some reservations about the likely success of such an argument, given the way Mr Wu’s case has been run to date, we consider that questions of damages should be remitted to the High Court for reconsideration in light of this judgment.
(ii) The “emanation” point
[77]For a discussion of relevant loss of chance principles see Benton v Miller and Poulgrain (A Firm) [2005] 1 NZLR 66 (CA) at [44]–[53] (Glazebrook and William Young JJ) and [100]–[103] (Hammond J).
The issue of “emanation” was discussed by the House of Lords in Hunter v Canary Wharf Ltd.[78] In that case, residents of dwellings situated in the Docklands area of London brought claims for nuisance against Canary Wharf Ltd, as the developer of an “enterprise zone” designated by the Secretary of State for the Environment. In one of their claims, the residents alleged that there had been unlawful interference with their television reception, caused by the presence of a large building (250 metres high and over 50 metres square) that had been lawfully erected by the developer, in accordance with the terms of the planning permission granted. The point was considered in the context of an argument about the plaintiffs’ standing to sue.
[78] Above n 27.
Preliminary questions were ordered to be determined before trial. One of the questions involved the television reception claim. The High Court held that such interference was capable of constituting an actionable private nuisance, but that to bring a claim a plaintiff had to establish a right to exclusive possession of the property. The Court of Appeal reversed that decision.[79] That Court held that the creation or presence of a building in the line of sight between a television transmitter and other properties was not actionable as an interference with the use and enjoyment of land.[80] The Court of Appeal also disagreed with the High Court’s view of standing. It took the view that occupation of a property as a home provided a sufficiently substantial link with any damage suffered to enable that occupier to sue in private nuisance.[81]
[79]Hunter v Canary Wharf Ltd [1997] AC 655 (CA).
[80] At 666.
[81] At 675.
On appeal, the House of Lords agreed with the Court of Appeal’s conclusion on the first point but reversed its finding on the second. Their Lordships held that an owner, subject to planning controls, was entitled to build on its own land as it wished, and was not generally liable, in the absence of an easement or agreement, if its building interfered with a neighbour’s enjoyment of land. That being so, because the building had been erected lawfully, no cause of action in private nuisance existed. On the standing point, (by a majority), their Lordships held that it was settled law that an action in private nuisance could only be brought in respect of a plaintiff’s enjoyment of rights over the land. Thus, in general terms, only a person with an interest in the land could sue.
At all times when Mr Wu was denied access to common property, he owned a stratum title to a unit. On any view, he had a property right in the unit that gave him standing to sue. The relevance of Hunter v Canary Wharf Ltd lies in the actions of a third party who restricts a person from enjoying or exercising an interest in land. Because Mr Wu was one of the proprietors who made up the Body Corporate, did the interference emanate from another property owner?
Like most of the authorities, Hunter v Canary Wharf Ltd was concerned with interference that had emanated from a source outside of the subject property. The present case raises a more subtle point. The alleged interference is Theta’s refusal to supply an access card to Mr Wu that gave him access to both common property and his individual unit.[82] That refusal could have resulted from a decision made by Mr Chen inside or outside the Empire building.
[82]While Academic was responsible for reprogramming the card in an office within the building, the Judge based his decision on Theta’s refusal to provide an access card to all areas: at [31].
The authorities do not lay down any immutable rule that the interference must “emanate” from land occupied or controlled by a defendant. The principle has been put in more general terms than that. For example, in Hunter, Lord Goff of Chieveley said:[83]
… in the absence of an easement, more is required than the mere presence of a neighbouring building to give rise to an actionable private nuisance. Indeed, for an action in private nuisance to lie in respect of interference with the plaintiff’s enjoyment of his land, it will generally arise from something emanating from the defendant’s land. Such an emanation may take many forms – noise, dirt, fumes, a noxious smell, vibrations, and suchlike. Occasionally activities on the defendant’s land are in themselves so offensive to neighbours as to constitute an actionable nuisance, as in Thompson-Schwab v Costaki [1956] 1 WLR 335, where the sight of prostitutes and their clients entering and leaving neighbouring premises were held to fall into that category. Such cases must however be relatively rare. In one New Zealand case, Bank of New Zealand v Greenwood [1984] 1 NZLR 525, the glass roof of a verandah which deflected the sun’s rays so that a dazzling glare was thrown on to neighbouring buildings was held, prima facie, to create a nuisance; but it seems that the effect was not merely to reflect the sunlight but to deflect it at such an angle and in such a manner as to cause the dazzling glare, to bright for the human eye to bear, to shine straight into the neighbouring building. One expert witness explained that the verandah glass diffused the light, as if from a multitude of mirrors, into what he described as a high intensity dazzle, which was extremely difficult to look at. On that basis, such a case can be distinguished from one concerned with the mere presence of a building on neighbouring land. At all events the mere fact that a building on the defendant’s land gets in the way and so prevents something from reaching the plaintiff’s land is generally speaking not enough for this purpose.
[83] At 685–686. (Emphasis added.)
Similar views were expressed by other Law Lords in Hunter. While all tend to focus on facts that had arisen in earlier cases (by speaking of something caused to a “neighbour’s land”), their exposition of the principles was more general:
(a)Lord Lloyd of Berwick expressly endorsed the judgment of Hardie Boys J in Bank of New Zealand v Greenwood[84] as “eminently sensible”, even though it had held that “nuisance does not depend in every case on an activity”. While it is fair to say that Lord Lloyd regarded Bank of New Zealand v Greenwood as going “to the limit of the law of nuisance”, he did leave open room for development of the tort, on the facts of particular cases.[85]
(b)Lord Hoffmann did not discuss the concept of “emanation”, but he did approve the more general expression of the tort articulated by Lord Westbury LC in St Helen’s Smelting Co v Tipping.[86] The Lord Chancellor described as one facet of the tort, “an action brought for a nuisance upon the ground that the alleged nuisance produces material injury to the property”.[87]
(c)Lord Hope of Craighead seemed to take the most restrictive view, observing that Bank of New Zealand v Greenwood may have gone too far by eliding the tort of nuisance with that of negligence.[88]
[84] Above n 42.
[85]At 699–700. See also Lord Cooke of Thorndon at 711 (with reference to Bank of New Zealand v Greenwood).
[86]St Helen’s Smelting Co v Tipping (1865) 11 HL Cas 642 (HL) at 650–651. See Hunter, above n 27, at 705.
[87] Ibid.
[88] Hunter, above n 27, at 725–726.
The “emanation” issue arises because the Body Corporate and Theta say that Mr Wu has an interest in the common property. Therefore, they contend that Mr Wu cannot, as a matter of law, complain that a nuisance has been caused to his individual unit. We reject that submission, for two reasons:
(a)The Body Corporate is a distinct entity that can sue and be sued in its corporate name.[89] It is more analogous to a company than a partnership.[90] The Body Corporate is managed either by all of its members or a committee. It has the responsibility for managing and administering the common property.[91] Not all decisions of the Body Corporate will meet with the approval of all owners. In our view, its interest in the common property is quite distinct from that of Mr Wu in his individual unit.
(b)It does not matter whether Theta’s decision not to provide an access card to common property was made on common property. It is the interference by a third party, in this case either the Body Corporate (as principal) or Theta (as its agent), with Mr Wu’s individual property interests that constitutes the tort. Neither Hunter v Canary Wharf Ltd nor any of the earlier authorities support the proposition that “emanation” from another property is a precondition to a successful action in nuisance.
[89] Unit Titles Act, s 13(l).
[90]Generally, see World Vision of New Zealand Trust Board v Seal, above n 5, at [21]–[52] for a discussion of the role of a body corporate within the scheme of the Act. See also, in relation to the ultra vires doctrine, the analogy with company law discussed in Low v Body Corporate 384911, above n 62, at [28]–[31].
[91] Unit Titles Act, s 15(h).
Asher J took the view that there was no need for a defendant to have any particular status or to be an adjoining owner or occupier in order to be sued in nuisance. He took the view that, so long as a plaintiff did not have exclusive control over the area from which the nuisance emanates, there was no restriction on the place from which it must emanate. On that basis, he concluded that co-owners may sue each other in nuisance because they cannot exclude each other from the land in question or control each other’s activities.[92] We agree with that reasoning, which accords, in the context of the particular case, with the view we have expressed about the status of the Body Corporate and the irrelevance of the place at which the decision to deny access was made.[93]
[92] At [30], set out at [25] above.
[93] See [97] above.
For those reasons, we uphold Asher J’s conclusion that the Body Corporate and Theta committed a private nuisance actionable at the suit of Mr Wu.
Agency
Mr Davidson submitted that the Judge erred in holding that the Body Corporate was legally responsible for the acts of Academic in reprogramming the electronic locks. He contended that the uncontested evidence was that this reprogramming was undertaken by Academic acting outside the scope of its agency and without authority. Thus, there was no legal basis on which the Body Corporate could be liable for Academic’s conduct.
We consider that this submission is based on a misapprehension of Asher J’s findings.
The Judge acted on a concession that, at all material times, Academic and Theta acted as the Body Corporate’s agent. On that basis, he concluded that the Body Corporate, as principal, was responsible for the nuisance of both agents.[94]
[94] At [32], [63] and [64].
In the absence of any evidence to indicate why we should go behind the concession made in the High Court, we decline to do so. In any event, we prefer to focus on the decision of Theta, acting as the Body Corporate’s agent in terms of r 2.3(f) of its rules,[95] to maintain refusal of access when asked to provide new security keys.[96]
Damages
[95] See [63] above.
[96] Discussed by Lang J at [31].
Because we have taken a different view on the Body Corporate’s and Theta’s power to restrict access to Mr Wu’s unit depending upon whether the restriction applied to owner or occupier, it is inappropriate for us to determine questions of damages. It may be helpful, however, for us to provide some observations on a point relating to mitigation of loss that may remain relevant when questions of damages are considered in the High Court.
Asher J took the view, contrary to the position advanced on behalf of both the Body Corporate and Theta, that Mr Wu was not required to mitigate his loss by accepting the proposals made to provide access on specified conditions that were unacceptable to him.[97] The Judge said:
[57] As a general rule the victim of an unlawful act must take all reasonable steps to mitigate the loss to it resulting from that act. It cannot recover damages for any such loss which it could thus have avoided but has failed, through unreasonable action or inaction, to avoid. The question of mitigation of damages is a question of fact in the circumstances of each particular case. The onus of proof on the issue of mitigation is on the defendant. The “ordinary course of business” sets the standard of reasonableness in commercial cases, requiring the plaintiff to do no more than reasonable and prudent people would do ordinarily in the course of their business. The standard of reasonableness is not high in view of the fact that the defendant is an admitted wrongdoer. The measures which a claimant may be driven to adopt in order to extricate himself or herself ought not to be weighed in nice scales at the instance of the party whose breach has occasioned the difficulty.
[58] It cannot be said that it is a required reasonable step to mitigate that a victim accede to a demand from the wrongdoer that it enter into a long-term contract with the wrongdoer on the wrongdoer’s unwelcome terms and pay the wrongdoer money. The claimants did not need to do any more than a reasonable person would do ordinarily in the course of that person’s business, and reasonable persons do not give way to such unlawful and unfair ultimatums. They are entitled to seek redress through the courts rather than surrender.
(Emphasis added and footnotes omitted.)
[97] See [49] and [50] above.
In reaching that conclusion, Asher J declined to apply authorities cited by Mr Davidson: Payzu Ltd v Saunders,[98] Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd[99] and Uzinterimpex JSC v Standard Bank plc.[100] After discussing those cases, Asher J said:
[62] ..., Theta could not come along and seek to impose its will and require the proprietors to accept its demands and pay it money and enter into a long-term relational contract with it on pain of being held to be unreasonable in not mitigating their loss. One commercial party should not be obliged to surrender to such unlawful action by a third party and pay it money and bind itself to a contract with the party acting unlawfully as the price of stopping the unlawful action simply because there may be some commercial justification for the demanded arrangement. That would be an unreasonable outcome, and in broad terms not a commercial outcome. There was therefore no failure to mitigate.
[98] Above n 29.
[99]Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd [2009] FCA 1220, (2009) 261 ALR 501.
[100] Uzinterimpex JSC v Standard Bank plc [2008] EWCA Civ 819 [2008] 2 CLC 80 at [50]–[54].
Mr Davidson submitted that Asher J erred in two respects: first, by holding as a matter of law that, given the nature of the unlawful act, there was no requirement to mitigate; and second, by failing to answer the prior factual question of whether Mr Wu had acted reasonably to mitigate his loss.
In Payzu, the Court of Appeal of England and Wales eschewed the notion that the question of mitigation was a question of law, regarding it as “one of fact in the circumstances of each particular case”.[101] In that case, the plaintiff agreed to buy certain goods from the defendant over a period of nine months, with deliveries to be made monthly and paid for within one month of delivery. The plaintiff failed to make prompt payment for the first instalment. The defendant, in breach of contract, refused to deliver any more instalments under the contract, but offered to deliver the goods at the contract price if the plaintiff paid cash on delivery of the order. The plaintiff refused this and claimed damages, these being the difference between the contract price and the market price. Both McCardie J, at first instance, and the Court of Appeal considered that, in rejecting that offer, the plaintiff had acted unreasonably and had failed to mitigate its loss, notwithstanding its success on liability. We consider that case can be distinguished from the present. In Payzu, there was no difference between the amount the defendant offered to accept and that which the plaintiff was bound to pay. The issue was solely one of the mode of payment.
[101]Payzu, above n 29, at 588 per Banks LJ (with whom Scrutton LJ and Eve J agreed).
In Uzinterimpex JSC v Standard Bank plc, the issue of mitigation arose out of a contract for the sale of cotton by an Uzbek state company to an English cotton trader, for which Standard Bank had agreed to provide finance. A dispute arose. At first instance, David Steel J held that although the bank had committed conversion by refusing to release the documents of title to cotton held in warehouses in various European and Middle Eastern ports, Uzinterimpex had acted unreasonably and in breach of its duty to mitigate by refusing to agree to the sale of the goods and the payment of proceeds of sale into a joint account to abide resolution of the dispute.[102] The Court of Appeal, in a judgment delivered by Moore-Bick LJ, with whom Sir Anthony Clarke MR and Laws LJ agreed, held that, as “a general rule the victim of an unlawful act has a duty to take reasonable steps to ensure that any damage he suffers as a result is kept to a minimum”.[103] The Court of Appeal took the view that the issue between the parties had arisen in “a purely commercial context ... of a kind that is often encountered in international trade”, in which a common form of interim resolution is for an amount to be held in a secured manner pending resolution of the dispute.[104] The Court confirmed that Uzinterimpex ought to have accepted the proposal to secure the disputed sum to mitigate its loss.[105]
[102]Summarised at [47] of the judgment of Moore-Bick LJ in the Court of Appeal.
[103] At [49].
[104] At [50].
[105] At [53].
The Court then turned to consider whether there was a duty to mitigate, in a case involving conversion. The primary submission advanced, on behalf of Uzinterimpex, was that it was under no duty to mitigate because of the nature of the wrongful act on which the claim was based. The Court of Appeal rejected that submission, on the basis of Cairns LJ’s observations in Sotiros Shipping Inc v Sameiet Solholt (The Solholt).[106] Moore-Bick LJ said:[107]
61.For the same reason I would accept [counsel for Uzinterimpex’s] submission that a person whose property has been stolen is not bound in the exercise of his duty to mitigate to accept an offer from the thief to pay him the value of the property, since such an offer does not mitigate the loss; it merely involves an acknowledgement of the thief’s liability and an offer to pay damages accordingly. Even in a case where the claimant seeks an order for delivery up of the property, it does no more than offer an alternative remedy of the same monetary value. The claimant is not bound to choose between these two remedies because to do so would not reduce his loss, though as Cairns LJ pointed out, he might well incur liability for the costs of any proceedings if the outcome was not more advantageous than that which he had been offered. However, considerations of that kind do not arise in this case and in my view little assistance can be derived from Strutt v Whitnell.
Again, the basis for the finding that mitigation was required to avoid or minimise loss, even in a case of conversion, was that all that was demanded was a holding position.
[106]Sotiros Shipping Inc v Sameiet Solholt (The Solholt) [1983] 1 Lloyd’s Rep 605 (CA) at 873.
[107]Uzinterimpex, above n 100, at [61]. The authority to which Moore-Bick LJ refers is reported as Strutt v Whitnell [1975] 1 WLR 870 (CA).
In Australian Medic-Care Co Ltd, the Federal Court of Australia considered whether an offer to supply an alternative product in lieu of orders that had not been supplied ought to have been accepted to mitigate loss. Finn J took the view that the claimant ought to have accepted the offer. He said:[108]
[456] While an innocent claimant is under no positive duty to take action to mitigate losses resulting from another’s breach of contract, that party may not recover damages for that breach in respect of losses which it might reasonably have been expected to avoid: … The onus of proof is upon the party in breach to show that the claimant ought reasonably to have taken certain mitigating steps: … The claimant is not bound to take all possible steps to mitigate its loss, only those which are reasonable: … many of the reported cases which have considered whether the claimant has acted reasonably to reduce its loss have involved the refusal of offers made by the party in breach. While it will be regarded as unreasonable to require a claimant to take steps which are likely to injure its commercial reputation: … in commercial contracts, as Scrutton LJ commented in Payzu Ltd v Saunders … at 589 … “it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact”. In judging what is reasonable in relation to such offers in a commercial matter, the claimant can be expected to view the matter dispassionately without “indulgence in far-fetched resentment”: Payzu, at 586.
[108]Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501 (FCA) at [456]. (Citations omitted.)
In light of those authorities, we consider whether Asher J was right to hold that Mr Wu was not required to mitigate his loss by accepting the offers put forward by the Body Corporate and Theta to provide access to specified conditions.
The proposals put by Theta provided a basis on which access would be provided. Although the amount of the “refundable security deposit” was reduced from $2,650 to $1,000, Theta still required accession to the Protocol. While an alternative proposal did not require Mr Wu to agree to the Protocol it did require a management agreement to be entered into by Mr Wu with Theta, on its standard terms.[109] A later proposal still required the owner or occupier to sign the Protocol.[110]
[109] See [49] above.
[110] See [50] above.
We agree with Asher J that the basis of Theta’s proposal was different in kind from those considered in the three authorities to which we have referred. There is no rule of law that mitigation in this form is required in all circumstances. The factual question is whether reasonable steps were taken to mitigate. By accepting either of Theta’s proposals, Mr Wu was not entering into an arrangement that was consistent with the nature of the relief actually obtained at trial. The proposals required Mr Wu to do the very things that the High Court held that he was not required to do; namely, agree to the Protocol put forward by Theta in order to gain access to his unit.
We agree with Asher J that there was no legal requirement that Mr Wu accept a proposal that involved Theta acting unlawfully “simply because there may [have been] some commercial justification for the demanded arrangement”.[111]
Result
[111] At [62].
For the reasons given, we allow the appeal against entry of judgment in favour of Mr Wu against the Body Corporate and Theta in the sum of $283,663.64. The judgment entered in the High Court is set aside. In substitution:
(a)Judgment is entered for liability in favour of Mr Wu against the Body Corporate and Theta.[112]
(b)All questions of damages are remitted for reconsideration in the High Court, in light of this judgment.
[112]Although proof of actual or imminent harm is required to establish the tort of private nuisance (see [52] above), we have no doubt that some loss was suffered by Mr Wu; the remaining issue is one of quantification.
Both parties have, to some degree, succeeded on appeal. As overall success in the litigation is likely to be measured by any damages award that might be made in the High Court, we consider that the appropriate course is to make no order as to costs in this Court. Further, we set aside orders for costs made in the High Court, on the basis that all questions of costs in that Court will fall for determination after completion of any quantum trial.
HAMMOND J
I agree that this appeal should be allowed. I agree with the reasoning of Arnold and Heath JJ and with the orders proposed in the judgment of Heath J.
I add some brief observations as to the fundamental principles that govern this area of the law. Failure to take sufficient cognisance of these, in my view has led to the difficulties this case has encountered. In particular, most of the argument in this case has been subsumed under a rubric of whether what one or the other side did was “reasonable”. That creates all the difficulties of arguments of that kind, and is not in any event correct in law.
In my view the starting point is to recognise that a private nuisance of this character is a tort that protects rights in land. In a widely respected article, F H Newark said that private nuisance is “a tort directed against the plaintiff’s enjoyment of rights over land”.[113] And in the most senior common law authority we have, Lord Hoffman described the cause of action as a “tort against land”.[114] Lord Hope said: “The tort of nuisance is an invasion of the plaintiff’s interest in the possession and enjoyment of land”.[115]
[113] F H Newark “The Boundaries of Nuisance” (1949) 65 LQR 480 at 482.
[114] Hunter v Canary Wharf Ltd [1997] AC 655 (HL) at 702.
[115] Hunter at 723.
There had been a school of thought that private nuisance is “an amalgam of property-based and obligation-based ideas” and that “undue concentration on its property aspects is bound to produce doctrinal complications”.[116] Taken even further (as in the judgment of Lord Cooke of Thorndon in Canary Wharf), the nuisance tort would have elided with a negligence and “reasonableness” approach. But that is precisely what the senior Law Lords rejected in Canary Wharf.
[116] Peter Cane “What a nuisance!” [1997] 113 LQR 515 at 517–518.
On the view of the majority in Canary Wharf, this case then becomes a relatively easy one. It was never suggested in the pleadings, or at any stage in argument, that Mr Wu did not have a sufficient proprietary interest in “his” unit to be able to bring an action in nuisance. He always had, and has, the underlying proprietary rights that applied to him as owner. He was also (and principally so) interested in this unit for rental purposes to students. Counsel seemed to have rolled up these two interests instead of more rigorously examining them.
The problem for the defendants in this case was that given Mr Wu’s proprietary interests they had to “justify”. This is not the place to undertake a detailed examination of the “defences” or “justifications” to an action in private nuisance. The argument in this case was all directed at the difficulties relating to potential “occupiers”, and no thought appears to have been given to Mr Wu’s individuated status as owner.
I agree with my colleagues that when the distinction is, as it should be, properly made, Mr Wu’s rights qua his position as proprietor stood undiminished. It has to be recalled in this connection that ultimately the defendants allowed Mr Wu to go his own way. This meant that he could emplace his own occupiers, if he did not utilise the unit himself.[117] But what the defendants could do, and did, because of the difficulties which had arisen in the building, was to impose reasonable restrictions with respect to occupiers in common areas.
[117] See the factual recitation at [6]–[10] of Heath J’s judgment, with which I agree.
So it appears to me that by proceeding on what amounted to a rolled up basis, both sides misapprehended the true legal position.
In the result, in my view, Mr Wu personally was entitled to his judgment in nuisance in respect of his own direct property interest. But we do not have a damages analysis from the High Court on this basis. The panel has therefore found it necessary to remit the matter to the High Court for the assessment of those damages.
This is not an altogether easy task. For my own part I make some short observations. Again, fundamental principle needs to be observed. With respect to the commission of this tort, it is absolutely necessary to distinguish between damages awarded as a substitute for the right infringed, and consequential damages as compensation for the loss to the complainant consequent upon that infringement.
It has to be said that courts, even at the most senior level, have had difficulty with damages in this area. Cases like Hunter are relatively easy cases because, in the end, although there are distinct factual issues involved, they go to the diminution in the amenity value of the land during the period when the nuisance took place.[118]
[118] Hunter at 696 per Lord Lloyd and 706 per Lord Hoffman.
Here, what on my analysis Mr Wu is entitled to, is damages for the fact that he personally could not get into his own flat for the relevant period of time. It is unclear to me what use he might have made of the unit himself (remembering that he was in the rental game, and a buyer from a distance). But he is not entitled to damages during the relevant period for the consequential loss of his being unable to rent the properties, because he would not accept the restrictions lawfully required by the Body Corporate.
I make these observations because it would surely be unfortunate if there has to be yet another round of determined litigation to try and assess the damages. In my view Mr Wu is entitled to something, but his claim fell a long way short, quantitatively, of what was advanced in the High Court. This is a quantification that the parties should be able to resolve for themselves, or with the assistance of an experienced professional mediator. I make these observations because if the matter has to advance further on the damages point, and it is pursued unreasonably, that may have some bearing on how future appellate courts would view the allocation of awards of costs.
Solicitors:
Clendons, Auckland for Appellants
James Keat, Auckland for Respondent
8
3
0