Body Corporate 39826

[2022] NZHC 2518

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2022-441-23

[2022] NZHC 2518

IN THE MATTER	of the Unit Titles Act 2010
AND
IN THE MATTER	of an application by Body Corporate 39826

Hearing:

8 September 2022

Appearances:

L J Blomfield for the Applicant

B Thorpe on behalf of the Ray Thorpe Trust

Judgment:

3 October 2022

JUDGMENT OF COOKE J

(Cancelling body corporate)

[1]    By application dated 13 April 2022 the applicant, Body Corporate 39826, seeks orders for the cancellation of Unit Plan 39826 (the Unit Plan) under s 187 of the Unit Titles Act 2010 (the Act). The application is opposed by the Ray Thorpe Trust.

[2]    The application is supported by affidavits from Errol Clark, the sole director of Murcia Holdings Ltd (MHL) which owns a majority of the shares of the Body Corporate, Ian Silver, the chairperson of the Body Corporate, and Shelly Mitchell- Jenkins, an accountant who provides evidence of the voting at the relevant extraordinary general meeting. Several affidavits of service have also been provided, and there are affidavits from Messrs Clark and Silver in reply to an affidavit filed by Mr Blair Thorpe opposing the application. An affidavit in reply is also provided from Gordon McGregor, a local real estate agent.

RE BODY CORPORATE 39826 [2022] NZHC 2518 [3 October 2022]

Background

[3]    Body Corporate 39826 (the Body Corporate) is the body corporate for a series of units located at 31-33 Rutherfurd Lane, Nukahau, Taupō known as “The Retreat”. The Retreat is comprised of 8 Units (Units A–H), and an additional unit, Unit J. Unit J is a homestead owned by MHL.

[4]    The Retreat is owned through a body corporate operated on a timeshare basis. Each of Units A–H are broken into 51 weekly timeshare entitlements. Owners purchased these weekly entitlements. This means for Units A–H there were 408 timeshare weeks available for ownership. MHL’s interests own 225 of these weeks. MHL also owns Unit J, which is not part of the timeshare arrangement but is a unit title in the Body Corporate. Unit J carries one vote where body corporate voting is required.

[5]    MHL was established to acquire 182 timeshare weeks in The Retreat in addition to Unit J when the original developer was placed into liquidation. Since then, MHL’s primary objective has been to protect the quality, character and direction of The Retreat. Its intention was to reduce its financial exposure through the sale of certain timeshare weeks. But MHL now effectively owns 225 timeshare weeks in The Retreat and it meets over half of the associated costs through levies paid.

[6]    In April 2021 an Annual General Meeting (AGM) was held. A proposal to sell the entire property was considered at this stage, and later investigated. Following the AGM, the Clark Family, which has been financially sustaining MHL, said it could no longer support MHL’s funding of the majority of timeshare weeks in The Retreat. Mr Clark explains it is now no longer viable for MHL to continue to meet the levies payable given the small income it is deriving from the large number of timeshare weeks it owns.

[7]    On 22 November 2021 MHL sought an Extraordinary General Meeting (EGM) to consider a motion proposing to make an application to the High Court for the cancellation of the Unit Plan and for orders to enable the Body Corporate to sell the freehold title and pay the sale proceeds to the owners based on ownership interest in the development. Under s 89A of the Act MHL was able to propose such a motion as

it effectively owns more than 25 per cent of the principal units. The EGM was duly held on 10 December 2021.

[8]    A special resolution was proposed at the EGM for the cancellation of the Unit Plan. Under s 98(4) of the Act 75 per cent of the eligible voters who vote on the resolution must vote in favour of it. Postal and proxy votes were received and presented. Those votes, and the votes cast at the EGM, resulted in total of 330 votes in favour of the special resolution and 54 against. This satisfied the statutory requirement as well over 75 per cent had voted in favour of the resolution.

Position of the parties

[9]    As evidenced by the passing of the special resolution, the majority of owners of The Retreat have agreed to the proposed sale and associated cancellation of the Body Corporate. The proceeds are then sought to be distributed to the effect that all their respective shares are paid out and outstanding dues and levies are accounted for, with the Body Corporate and Unit Plan then brought to an end.

[10]   Mr Clark explains that MHL and Taupo RL Property Ltd, which was separately established to purchase suitable timeshare weeks as they became available, meet significant costs associated with the substantial number of timeshare weeks owned by the two companies. He says this comprises of 66 per cent of the total cost. For example, in 2021, MHL alone paid $216,595 in levies. He says that although the timeshare model was once very popular that popularity has waned. Mr Clark says that MHL has supported an uneconomic and unworkable model of The Retreat for over 30 years.

[11]   The main objection arises from trustees of the Ray Thorpe Trust (the Trust), a family trust which has owned two timeshare weeks in the scheme from the outset. The family beneficiaries of the Trust have since then enjoyed their entitlements for the past 35 years. The Trust says that MHL has obtained a controlling interest by purchasing weeks when week owners wanted to sell, and given there were allegedly no competitors it did so at its desired price. The Trust is concerned that MHL has obtained a majority which heavily weighs in decisions such as election of the Body Corporate committee (and by extension, appointment of the Chairman). It says that those who

wished to oppose the plan have not had meaningful dialogue. Mr Thorpe also suggested at the hearing that opposing members did not have the financial means and resources to truly put their opposition to other members. The theme of the objections raised by the Trust lie in this power imbalance.

[12]   Mr Thorpe says in his affidavit that an order of the kind being sought by the Body Corporate would not be just and equitable to the unit holders. Mr Thorpe says that concerns were raised at the EGM, and discussions did raise the question of alternative ownership structures by those keen to retain their interest and use of the Retreat. Mr Thorpe believes that “too many holders felt due to their lack of understanding and the misleading information circulated that it was easier to surrender their interest”.

[13]   The Trust argues that the Court should direct a person “completely independent of [MHL] to look into and advise the interest holders of the financial issues (if any) and the future viability of the scheme as it is presently constituted and to seek a resolution of the non-conflicted interest holder as to whether they want the scheme cancelled”. Alternatively it seeks sale by public auction, an approach that is not favoured by Mr McGregor in his affidavit in reply.

Orders sought

[14]The proposed orders, as amended in counsel’s supplementary submissions, are:

1Pursuant to Section 188(2) of the Unit Titles Act 2010, the High Court cancels Unit Plan 39826 in respect of all Unit Titles set out in Supplementary Record Sheet SA35A/14, South Auckland, 31-33 Rutherford Lane, Taupō and all leases registered over such titles.

2Subject to 3, Body Corporate 39826 is hereby dissolved and Section 186 of the Unit Titles Act 2010 shall apply.

3Pursuant to the cancellation of the plan, the High Court hereby imposes the following conditions and directions for the purpose of giving effect to the declaration.

(a)The Application of Sections 180 to 184 of the Unit Titles Act 2010 are hereby varied so that a new and unencumbered title for the fee simple estate in the base land is issued by the Registrar in the name of the Chairperson of the Applicant, Ian Richard Silver, on behalf of the owners of all of the units. He is authorised to and, as owner for the owners and Body

Corporate, shall sign all agreements and documents of transfer necessary to conclude settlement of the sale of the property and transfer to the purchaser. The proceeds of sale are to be held in the trust account of Colbert Cooper Limited, Chartered Accountants, of Levin for the purpose of distribution to the Unit Owners.

(b)Pending settlement of the sale, the Body Corporate shall continue to manage the property and use the monies available from time to time for that purpose, including in payment of the legal costs and disbursements of and incidental to this application, provided that any shortfall may be paid out of the sale proceeds.

(c)The net sale proceeds (after payment of all real estate agent’s charges and legal costs and disbursements of and incidental to this application and the sale) shall be apportioned to each of Units A-H and J (the relative apportionment having been fixed by a registered valuer) and paid to the Unit Owners in accordance with their ownership interests, less such amount as is owed by them by way of dues or levies to the Body Corporate.

(d)Any other assets of the Body Corporate shall be apportioned and paid to the Unit Owners of Units A-H in accordance with their ownership interests.

(e)In the case of any amount payable to a bankrupt, payment shall be made to the Official Assignee, or in the case of a liquidated company to the Office of the Treasury.

(f)The Body Corporate shall advertise in the New Zealand Herald and Dominion newspapers in the holding of the money due to any Unit Owners unable to be contacted by name.

(g)The Body Corporate shall lodge with the Court an account for the implementation of directions (b), (c) and (d), which account shall be given to each Unit Owner by their last known mail (including by email) address.

(h)In the case of Unit Owners who cannot be contacted and paid out their interests, their share shall go bona vacantia to the Crown not earlier than twelve months after the advertisement in (f).

4Reserving leave for the obtaining of such further directions as may be necessary.

The requirements

[15]   This application is brought under s 187 of the Unit Titles Act 2010 (the Act). It allows the Body Corporate, after securing a special resolution, to apply to the High

Court for an order of cancellation of the unit plan.1 A notice of the application has to be served on every unit owner and other interested parties where relevant, including the Registrar.2 The Court’s power to authorise the proposed cancellation of the unit plan is found under s 188 of the Act:

188     Cancellation of unit plan by High Court

(1)The persons described in paragraphs (a) to (f) of section 187(2) have the right to appear and be heard.

(2)The High Court may authorise that the unit plan be cancelled if—

(a)the High Court is satisfied that it is just and equitable that the body corporate be dissolved and the plan cancelled having regard to—

(i)the rights and interests of any creditor of the body corporate; and

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

(b)no principal unit in the unit title development to which the plan relates contains a subsidiary unit title development.

(3)If the High Court makes a declaration authorising the cancellation of a unit plan under subsection (2), the High Court may by order impose any conditions and give any directions as it thinks fit, for the purpose of giving effect to the declaration, including—

(a)directions for the payment of money by or to the body corporate; or

(b)the distribution of the assets of the body corporate; or

(c)a direction to modify or extinguish, in whole or in part, any registered interest or caveat or notice of claim entered on the register in relation to any unit, the common property, or the base land.

(4)The High Court may, at any time before the unit plan is cancelled under section 189, vary or modify the terms of any declaration or order made by it under this section.

(5)The High Court may make any order for payment of costs as it thinks fit.

1      Unit Titles Act 2010, s 187(1)(a).

2      Section 187(2)(a)-(g).

Discussion

[16]   The relevant touchstones for the Court’s assessment of the application are the interests of justice and equity.3 This includes consideration of the rights and interests of any creditors of the Body Corporate as well as the rights and interests of every person who has any interest in the units or base land.4

[17]   On the face of it the application meets the requirements for making the orders, and it is consistent with previous cases of a similar kind.

[18]   The correct process for passing a special resolution was followed. The owners of the timeshare weeks were given fair opportunity to raise objections. Some voted against the resolution. However the special resolution was passed by a 86 per cent majority. Active opposition is now limited to the Trust. The Trust’s concerns have been largely focussed on alleged inequity in the voting process. Mr Thorpe says that it has been difficult to connect with fellow timeshare owners to address potential opposition. But this difficulty does not mean that the process followed by MHL and the Body Corporate to secure a special resolution is inadequate. If others felt similarly oppressed by the lack of resources available to them, they had the opportunity to join the Trust in the opposition to this application. The fact none of them did so is significant.

[19]   Body Corporate 46051 concerned the cancellation of the Village Resort in Taupō, and the Court considered similar objections arising from one family who opposed the application.5 There Ellis J said:6

As this Court has said on many occasions, those who sign up for any form of unit titled ownership are necessarily signing up for the legal incidents of such ownership. In general terms, that includes both yielding to decisions made democratically and in accordance with the Act. And more specifically, it involves recognising the possibility of such decisions leading to the making and approval of an application for cancellation.

…

3      Re Body Corporate 46051 [2019] NZHC 922 at [10]; see also World Vision of New Zealand Trust Board v Seal [2004] NZLR 673 (HC) at [62]–[64].

4      Lake Hayes Property v Petherbridge [2014] NZHC 1673 at [48]; Body Corporate 31428 [2020] NZHC 3218 at [6], citing Re Body Corporate 44426 [2105] NZHC 3284 at [8].

5      Re Body Corporate 46051, above n 3.

6      At [39] and [41].

The submission about opposition being more widespread (or possibly being more widespread) than the vote at the EGM indicates can also lead nowhere. The notification processes in the Act were followed. A significant number of owners did vote. There was a clear majority (well over 75 per cent of eligible voters) in favour of the resolutions. It is simply not possible to go behind that majority and to speculate about the motives or mindsets of the individual owners. Rather, the Court must take notice of the fact that objection processes were notified and available, but not taken up by any owners other than the Chapmans.

[20]   MHL effectively owns the majority of timeshare weeks, and therefore has the majority voting power. But MHL also meets a significant amount of costs for the operation of the Retreat through the amounts paid in levies. It would be inequitable to say that an entity that meets the costs associated with over half of the timeshare weeks should not be entitled to the power associated with that share. This is part of the democratic process attached to such ownership.

[21]   The points made by the Trust about the ability of owners to fully consider potential opposition are not completely without foundation, however. The evidence is that the approximate distribution for each timeshare week after sale is presently assessed at $11,800, although timeshare weeks have only sold for prices between

$1,000–$3,000 in recent times. Whilst there are also retained funds of the Body Corporate to take into account, the amount that each timeshare owner has at issue means that the economics have not encouraged the instruction of lawyers. In addition the stance that MHL took — that it was no longer willing to support what had become an uneconomic proposition for it — may have suggested to many timeshare owners that the proposed winding-up was inevitable, particularly given MHL’s majority ownership. And the proposal involves each owner being paid a sum at approximately

$11,800 rather than the $1,000–$3,000 amounts obtained by timeshare owners who have sold their entitlement. For all these reasons any resistance to the proposal might have been thought to be futile.

[22]   In those circumstances it seems to me that the Court should take care to ensure that there is no inequity or injustice involved in the application.

[23]   Having given the application a degree of scrutiny there are two issues that emerged, and which I raised with Ms Blomfield at the hearing and invited her to address in supplementary submissions and/or an amended application.

Value of weeks

[24]   The first issue is that the application proceeds on the basis that the property will be sold as a freehold title. A valuation has been obtained to assess the relative values of Units A–H and Unit J. It is then proposed that the sale proceeds allocated to Units A–H be divided equally to the Units, and then those amounts are further subdivided equally to reflect the weeks that each timeshare owner has in those Units. So the net sale proceeds of the freehold title is divided between Units A to H and Unit J based on relative value, and then equally between weekly timeshare owners. The valuation report provided by Seagars dated 18 October 2021 values the four buildings in which Units A–H exist at one sum based on an average value of each unit (totalling

$7,800,000) and it then separately values Unit J at $1,200,000. The estimated costs of sale  are then taken into account.   On that  basis the  Units in Units A–H is  valued at

$630,000 each, and Unit J is valued at $960,000. Each of the timeshare owners then get their share of Units A–H distributed equally.

[25]   The Seagars valuation report records that the instructions were not to prepare a full report and that the “overarching assumption of the valuation process is that all existing unit titles are extinguished and that the property is offered to the market with a single title”. Mr Silver says that this sales process was used in the wind up and sale of the Turangi Leisure Lodge, the Village Resort and the Phoenix timeshare complexes in Taupō.

[26]   But it is unlikely that each timeshare week has exactly the same value. I suggested at the hearing that a timeshare week in the middle of summer would have higher value than a week in the middle of winter even taking into account the winter attractions of the region. The Units in the separate buildings themselves might be considered to have relatively different values. I am confident there would be a differential of some kind, although owners will likely have different views about these issues. I also note that the issue of the different values of different weeks was not explored in any detail at the EGM.

[27]   There have been instances where the different attributes of timeshare entitlements have been reflected in different distributions of sale proceeds when

cancelling a body corporate. With the Village Resort there were two types of timeshare entitlement — a fixed week entitlement, and then a floating week entitlement. The approach adopted in that case resulted in a fixed week being worth twice what a floating week was worth.7

[28]   I am satisfied, however, that it is not necessary to engage in a more elaborate assessment of value in this case. Whilst there might be some justification for treating the Units, and particular weeks in the Units, differently the complications involved in making a comprehensive assessment of the difference in valuations would be too extensive, and is not necessary to meet the requirements for an equitable and just distribution. As Fogarty J said in Gallery Apartments:8

The Unit Titles Act is a remedial statute. It was not intended to undermine basic principles of property law. On the contrary, it was intended to facilitate applications of principles of property law to multiple dwelling and/or commercial units in one building or on one title. The architecture of the statute is plain, and relevant parts of it have been briefly described. The property rights protected by the statute are intended to be robust. It is not possible for a developer to unilaterally decide upon the relative percentage of the ownership interests of the whole per individual unit. It has to be a decision by a registered valuer. Likewise, upon the cancellation of the plan, Parliament intends that the value of the unit at the time of cancellation be allocated on rational grounds, and fairly, without oppression of a minority, amongst all the owners of the property.

[29]   All that is required is that a rational and fair approach be applied. This is reflected by the approach adopted for the Village Resort where ratios were used to distinguish between fixed and floating timeshare entitlements. It was not suggested that a more elaborate valuation of each timeshare entitlement was required in that case. And I accept that it is not required here. Any perceived difference in value of Units, and individual timeshare weeks, forms part of the swings and roundabouts that are associated with the common ownership associated with such timeshares. Section 188 requires an equitable distribution, not a perfect one. And the proposal to realise the freehold, and then distribute the proceeds equally, involves a distribution of higher amounts than the individual value of timeshare weeks based on the evidence of recent

7      Body Corporate 46051, above n 3, at [16]–[18].

8      Dominion Finance Group Limited (in rec and in liq) v Body Corporate 382902 (Gallery Apartments) [2012] NZHC 3325, (2012) 14 NZCPR 252 at [42].

sales. So an approach that involves sale of the freehold is to the advantage of all the timeshare owners.

Fair distribution

[30]   The second issue is partly related to the first issue, and focuses on whether the proposal fairly distributes the net assets as between Unit J and Units A–H.

[31]   At the hearing I asked Ms Blomfield to file further submissions not only in relation to the potentially different values of timeshare weeks, but I also asked her to address whether the relative distributions to Unit J and to Units A–H was equitable, including in the context of the deductions of the costs of sale.

[32]   I accept what Ms Blomfield has submitted in response on that issue. The relative values of Unit J on the one hand, and Units A–H on the other have been assessed by a valuation. And as Ms Blomfield confirmed in her further submissions the costs of the sale process are allocated in the same ratios — Unit J bears its fair proportion of the costs, and MHL also bears its fair proportion of the costs associated with Units A–H. This is a fair and equitable approach.

[33]   But as originally formulated paragraph 1.3(c) the originating application contemplated that not only the net sale proceeds but also “any other assets of the body corporate” were to be distributed in accordance with the formula I have described above. Mr Silver explains in his affidavit that the Body Corporate holds approximately $510,000 in a refurbishment fund. This had been built up from amounts levied from owners. But Unit J is not part of the timeshare arrangements, and it has made no contribution towards the refurbishment fund or any other assets of the Body Corporate. So it should not receive an allocation of these Body Corporate funds.

[34]   The position is now appropriately remedied in the form of the amended orders sought in Ms Blomfield’s supplementary submissions. Paragraph 3(d) now provides that the other assets of the Body Corporate are to be distributed to Units A–H. It may be that this was simply an error in the way the originating application was first drafted. Mr Silver’s affidavit indicated that it was proposed that these amounts “will also be

paid out to owners in the same way that it was levied (ie equally)”. So this may always have been the intention which the drafting of the application did not accurately reflect.

[35]   In any event I am satisfied that this position is now appropriately addressed. The only residual issue arises from the fact that it was the Court that identified that matter through its own scrutiny of the application. This issue was not addressed at the EGM. Neither had Mr Thorpe considered it. As I have already indicated the economics of this situation, and the apparent inevitability of this proposal given MHL’s stance, may have meant there has been little reason for timeshare owners to carefully scrutinise the details with the benefit of legal assistance.

[36]   The amended application includes a reservation of leave to apply for further direction (paragraph 4). In the circumstances it is appropriate to direct the applicant to provide a copy of this judgment on all timeshare owners, and for leave to be reserved for any timeshare owner to make application to the Court should any other issues of this kind be identified. That should not be taken to be an encouragement for timeshare owners to approach the Court. Rather it is a reservation to ensure there is an ability to approach the Court if some other significant inequity is discovered. The sale process can continue in the meantime.

Purchase by MHL interests

[37]   Finally, at the EGM an issue emerged relating to whether the Clark family, or any other party associated with those who currently operate the Body Corporate, would be a potential buyer. Mr Clark indicated at the EGM that neither MCL nor the Clark family would be putting in a tender for the property. Mr Silver also advised that neither he or his family would be doing so.

[38]   At the hearing I asked Ms Blomfield whether this position could be formalised. In her supplementary submissions she indicated that both the Clark and Silver families were prepared to give an undertaking in the following terms:

The following parties may not, without the leave of the Court, purchase the property:

(a)Ian Richard Silver and Gillian Alma Silver;

(b)Errol Desmond Clark and Jennifer Mary Helena Clark;

(c)Murcia Holdings Limited;

(d)The Errol Clark Family Trust;

(e)The Clark Family Trust;

(g)Taupo R L Property Limited; and

(h)Any entities with which the parties in (a)-(g) are associated.

[39]   I have decided not to make this a term of the order, however. I am satisfied that the proposal before the Court does not involve a plan by the Clark or the Silver families, or any entities associated with them, to acquire the Body Corporate land. This is reflected in their willingness to provide such an undertaking. But should the circumstances arise that the best offer that can be obtained comes from those families, or entities associated with them, it would be in the owners’ best interests to accept that offer.

[40]   Given that the undertakings have now been given in the supplementary submissions it would be necessary for leave to be sought should either of those families, or associated entities wish to be the purchaser. But I can indicate that the Court would be prepared to grant leave if an offer from these parties represented the best offer.

[41]   Finally I accept that sale by tender, rather than public auction is the most appropriate way to maximise the value of the Body Corporate land.

Conclusion

[42]   For these reasons the application is granted in the form of the amended orders provided with counsel submissions dated 13 September 2022 with the following additional orders:

(a)a copy of the Court’s judgment is to be provided to all timeshare owners at their contact details as provided to the Body Corporate; and

(b)that each timeshare owner has leave to apply to the Court within a period of 15 working days after being provided with a copy of the judgment. For the avoidance of doubt, the sale process may continue in the meantime.

Cooke J

Solicitors:
Sainsbury Logan & Williams, Napier for the Applicant