Body Corporate 455529 v Auckland Council
[2023] NZHC 3047
•1 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001263
[2023] NZHC 3047
UNDER the Declaratory Judgments Act 1908 BETWEEN
BODY CORPORATE 455529, BODY CORPORATE 514752, BODY CORPORATE 472616 AND BODY CORPORATE 509253
Applicants
AND
AUCKLAND COUNCIL
First Respondent
KHAC KIEN VU AND THI TU ANH TON
Second RespondentsXIANMEI YAN
Third Respondent
LE XU
Fourth Respondent
Hearing: 25 October 2023 Appearances:
J Wood and L Taylor for the Applicants
S Price, M Ferrier and C Fairnie for the First Respondent
Judgment:
1 November 2023
JUDGMENT OF GORDON J
This judgment was delivered by me on 1 November 2023 at 10 am, pursuant to r 11.5 of the High Court Rules
Solicitors:
Court One, Auckland
Registrar/Deputy Registrar Date:
MinterEllisonRuddWatts, Auckland
BODY CORPORATE 455529 v AUCKLAND COUNCIL [2023] NZHC 3047 [1 November 2023]
[1] The applicants, Body Corporate 455529, Body Corporate 514752, Body Corporate 472616, and Body Corporate 509253 (together, the bodies corporate) apply under s 3 of the Declaratory Judgments Act 1908 (the Act) for a declaration that, in the context of building defects litigation, they are not obliged to prosecute separate claims in their own names for defects and damage to common property in a unit title development.
[2] The bodies corporate also seek a second declaration that individual members of the bodies corporate are entitled to prosecute claims in their own names for defects and damage to common property.
[3] The application is opposed by the first respondent, Auckland Council (Council). The Council’s position is that the threshold in s 3 of the Act is not met. The first question is not one regarding the construction or validity of a statute or other instrument. Rather, it would require the Court to consider and recognise the existence of a novel duty of care, which is not something that can properly be determined in the Act’s setting.
[4] As to the second declaration sought, the Council’s position is that it faces the same problem in relation to jurisdiction as the first question, and it is even more remote from any exercise that involves the interpretation or effect of any statute or other instrument. It is purely a question of tortious duty.
[5] The second, third and fourth respondents did not file notices of opposition and have not otherwise participated in this application.
Background
[6] The applicants are the four bodies corporate in a layered body corporate in New Lynn, Auckland that are collectively called the Merchant Quarter. It is one building with different sections including: retail shops on the ground floor; a parking arcade; an apartment tower; and terraced housing. The various sections were built sequentially from 2012 to 2017. There are 236 units.
[7] The first named body corporate is the parent body corporate for the development; the three other applicants are subsidiary bodies corporate.
[8] On 8 November 2022 the bodies corporate filed a claim in the High Court against the Council and others for their part in the construction of the complex. It is alleged that the complex has building defects that affect both common property and unit property. The bodies corporate and the majority of individual unit owners are plaintiffs in that proceeding. The four respondents to the present application are not.
[9] The Council owns principal unit 2, which is operated as a public car park (in other words the Council is a potential beneficiary of a common property claim). The Council is also the first defendant in the building defects proceeding in relation to its role as a developer of part of the complex and its role in issuing building consents, carrying out inspections, and issuing certifications as a territorial authority under the Building Act 2004.
[10] The Court is told that the bodies corporate, as plaintiffs, intend to quantify the claim by reference to the individual owners’ economic losses measured by their utility interest contributions towards repairing both common and unit property. At present this equates to 85.637 per cent of the utility interest in the complex.
[11] On this approach Mr Wood, counsel for the bodies corporate, explains that those owners who are not parties to the claim will not receive any of the proceeds of the litigation and will be required to fund their contributions towards the repair of both unit and common property themselves. The bodies corporate would not themselves be pursuing any claim, including for repairs to common property. It is said that this approach reflects the choice that owners have made whether to participate in both the costs and fruits of litigation.
[12] Richard Wong, the chair of the parent body corporate and a committee member of one of the subsidiary bodies corporate states in his affidavit in support of the application that, to this end, the committees of the bodies corporate have approved a draft conduct and distribution agreement (CDA) between Merchant Quarter and the plaintiff owners. Mr Wood explains that the effect of the CDA is that:
(a)the payment of all litigation costs will be by the plaintiff owners only; and
(b)the distribution and/or allocation of the proceeds of any settlement as between them will be in a manner that is consistent with their individual claims.
[13] On this approach the respondents, so long as they do not become plaintiffs, will not receive any benefit from the litigation. Nor will they be subject to the burden. Mr Wood says this approach has been adopted in numerous such cases.
[14] On 28 April 2023 this Court issued its decision in Body Corporate 207624 v Grimshaw & Co.1 The Court found that a firm of solicitors, representing a body corporate and owners in building defects litigation, was negligent for not advising the body corporate of any new legal risks to it if it approved and implemented a CDA after the Unit Titles Act 2010 (UTA 2010) came into force. The statement of claim was amended to reflect a change in ownership of the common property under the UTA 2010 but the CDA was not. The change in ownership under the UTA 2010 was relevant to the CDA which would govern the settlement of the newly pleaded claim.
[15] What is now raised by the bodies corporate in this application was not directly at issue in Grimshaw because in that case the body corporate did claim for the full amount of the cost of repair to the common property (the point was that the CDA was not amended after the claim was amended as referred to above).
[16] By way of explanation (and as discussed further below) under the Unit Titles Act 1972 (UTA 1972) the common property was held by all of the unit owners as
1 Body Corporate 207624 v Grimshaw & Co [2023] NZHC 979.
tenants in common in proportions equal to their unit entitlement.2 However, the body corporate had the right to sue in respect of damage or injury to the common property.3 Under the UTA 2010, the common property is owned by the body corporate.4 However, the unit owners remain beneficially entitled to the common property as tenants in common in shares proportional to their ownership interest.5
[17] Mr Wood explains that the position of the bodies corporate in the present case is that, notwithstanding the economic loss is still suffered by the individual owners under the UTA 2010, the question arises as to whether a body corporate is obliged to make a separate claim in respect of the common property. The bodies corporate say they are faced with the following dilemma:
(a)If they do not make a claim for all of the repair costs to the common property and under the proposed CDA agree to allocate the fruits of the litigation only to plaintiff owners, they could be subject to satellite litigation from non-plaintiff owners (both current owners and also potential purchasers after settlement or judgment). They say that at the very least this would mean incurring further costs to defend the position taken; at worst it could see the fruits of the litigation diluted amongst a larger pool of owners.
(b)On the other hand they say if they do make a claim:
(i)They and the plaintiff owners will need to consider and agree in the CDA as to how the litigation costs and proceeds of any settlement are to be fairly distributed/allocated as between them.
(ii)They will need to instruct their experts that a whole of building approach could not be followed and that the experts would need to distinguish between unit and common property defects,
2 Unit Titles Act 1972, s 9(1).
3 Section 13.
4 Unit Titles Act 2010, s 54(1).
5 Section 54(2).
repairs, scope and cost. They say this will be more complicated and expensive.6
[18] With that background in mind, the bodies corporate seek declarations so as to avoid the possibility of later disputes.
Form of declarations sought
[19]The bodies corporate seek the following declarations:
(a)that bodies corporate who are party to building defects litigation, as the parent and subsidiary bodies corporate are, are not under the Unit Titles legislation obliged to prosecute separate claims in their own names for defects and damage to common property;7 and
(b)that individual members of the parent and subsidiary bodies corporate are entitled to prosecute claims in their own name for defects and damage to common property.
Jurisdiction under the Act
[20] Mr Wood says the bodies corporate wish to know whether their proposed position in the claim (not to themselves assert a separate claim for common property) is consistent with the duties and powers of bodies corporate generally under the UTA 2010. Mr Wood says ancillary to this question is whether there is any impediment to the bodies corporate entering into a CDA which excludes them (as bodies corporate) from receiving any proceeds of any settlement. Mr Wood submits these questions fall within the remit of the Act. (The application as filed does not seek a declaration in respect of the ancillary question. In oral submissions Mr Wood clarified that a formal declaration is not sought for the ancillary question).
6 Evidence of Andrew Sweeney, a building surveyor who swore an affidavit in support of the bodies corporate for this application.
7 The wording of the first declaration was amended during oral submissions to delete the words “or the common law” after the words “… Unit Titles legislation”.
[21] Mr Price, for the Council, submits that the application fails at the first stage, for lack of jurisdiction.
[22]Section 3 of the Act provides:
3 Declaratory orders on originating summons
Where any person has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any legislation, or any deed, will, or document of title, or any agreement made or evidenced by writing, or any memorandum or articles of association of any company or body corporate, or any instrument prescribing the powers of any company or body corporate; or
Where any person claims to have acquired any right under any such legislation, deed, will, document of title, agreement, memorandum, articles, or instrument, or to be in any other manner interested in the construction or validity thereof,—
such person may apply to the High Court by originating summons for a declaratory order determining any question as to the construction or validity of such legislation, deed, will, document of title, agreement, memorandum, articles, or instrument, or of any part thereof.
[23] The courts have held that s 3 of the Act is very broad,8 not to be narrowly interpreted,9 and that no existing dispute is required.10 Nevertheless there is a threshold that an applicant must meet.
[24] In Mandic v The Cornwall Park Trust Board (Inc) the Supreme Court summarised the effect of s 3 as enabling “anyone whose conduct or rights depend on the effect or meaning of an instrument, including an agreement, to obtain an authoritative ruling”.11
[25] As is clear from the wording of the section, the particular threshold to be met before a declaration may be sought is that either: an applicant has done or desires to do an act, the validity, legality or effect of which depends on the construction or
8 The Secretary for Internal Affairs v Kilbirnie Tavern Ltd HC Wellington CIV-2007-485-1988, 14 November 2008 at [32].
9 Timaru District Council v The Minister of Local Government [2023] NZHC 244 at [87] citing Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135, [2012] 2 NZLR 194 at [5]–[9] and [82].
10 Mandic v The Cornwall Park Trust Board (Inc), above n 9, at [9] and [82].
11 At [9].
validity of any legislation (or instrument as referred to in the section); or an applicant claims to have acquired any right under any such legislation or instrument or to be in any other manner interested in the construction or validity of the statute or instrument.
[26] If either or both of those threshold conditions are met, an applicant may apply for a declaratory order “determining any question as to the construction or validity” of the legislation or instrument in question, or any part of it.
[27] As will be apparent from the next section of this judgment where I consider the substance of the application, I do not consider that the jurisdiction of the Act is engaged. The bodies corporate are not seeking the effect or meaning of a statute. Rather, the bodies corporate claim to be owed a duty in tort by the Council that they say co-exists with a duty in tort owed to the individual unit owners/members of the bodies corporate. In that context they seek two very broad declarations.
Substance of the application
[28] I now turn to consider the substance of the application. The discussion which follows below informs my view regarding jurisdiction and also the inappropriateness of the bodies corporate’s proposed use of the declaratory judgment procedure for the declarations they seek.
[29] Mr Wood accepts that the bodies corporate’s right to sue in their own right depends on their being owed a duty of care. But he approached the application, at least in his written submissions, on the basis that prior case law had established that they are owed a duty of care.
[30] In his written submissions Mr Wood referred to North Shore City Council v Body Corporate 188529 (Sunset Terraces),12 and submitted that the issue in that case was the same argument that the Council has re-purposed here, namely whether a body corporate could be owed a duty of care. Mr Wood submitted the Supreme Court held in that case that it could.
12 North Shore City Council v Body Corporate 188529 [2010] NZSC 158, [2011] 2 NZLR 289 [Sunset Terraces]. The case involved two appeals from the Court of Appeal – Sunset Terraces and Byron Avenue.
[31] However, Mr Price in his written submissions in response submitted that the prior case law relied upon by the bodies corporate confirmed that a duty of care is not owed to bodies corporate and so any duty recognised by the Court now would be a novel one.
[32] In oral submissions Mr Wood acknowledged that in the Sunset Terraces cases and its counterpart Byron Avenue cases, neither the High Court,13 nor the Court of Appeal,14 nor the Supreme Court,15 had held that (under the UTA 1972) the Council owed a duty of care in tort to the body corporate. That was a proper acknowledgement by Mr Wood. All three courts approached the issue in the same way, namely rather than being owed a duty of care and being capable of suing for economic loss in its own right, the body corporate could sue (under s 13 of the UTA 1972) as the statutory agent of the unit owners to recover their losses.
[33] The issue then arises as to whether two changes made in the UTA 2010 alter this position. This is the issue raised by Mr Price: whether the Court would need to find the existence of a novel duty of care.
[34] Under the UTA 2010 bodies corporate became the legal owners of the common property,16 with the unit owners beneficially entitled to the common property as tenants in common in shares proportional to the ownership interest in respect of their respective units.17 The second change was that the statutory agency in s 13 of the UTA 1972 for the body corporate to sue on behalf of unit owners was not re-enacted.
[35] The written submissions for the bodies corporate focus on the wrong issue here. Because Mr Wood submitted (as he now acknowledges, incorrectly) that the Supreme Court in Sunset Terraces recognised a duty owed to bodies corporate under the UTA 1972, he said the relevant question is whether the common property
13 Body Corporate No 189855 v North Shore City Council (Byron Avenue) HC Auckland CIV-2005- 404-5561, 25 July 2008 at [55]–[69].
14 O’Hagan v Body Corporate 189855 (Byron Avenue) [2010] NZCA 65, [2010] 3 NZLR 445 at [101], [182] and [197].
15 Sunset Terraces, above n 12, at [57]–[59].
16 Unit Titles Act 2010, s 54(1).
17 Section 54(2).
ownership change in the UTA 2010 extinguished that duty. That is the wrong question to ask.
[36] In oral submissions Mr Wood changed tack and pointed to the judgment of Chambers J in the later decision of the Supreme Court in Body Corporate No. 207624 v North Shore City Council, where the Court considered whether the duty of care owed by Councils to owners of homes should be further extended to other premises.18 Justice Chambers stated:
[215] Tipping J concluded the majority opinion in Sunset Terraces as follows:
[85] It may be helpful to summarise here the principal conclusions to which we have come:
(1)We have declined to review the law as confirmed by the Privy Council in the Hamlin case, and have decided that Hamlin was, in any event, correctly decided.
(2)Councils owe a duty of care in their inspection role to owners, both original and subsequent, of premises designed to be used as homes.
(3)Subsequent purchasers of such premises are not barred from suing for beach [sic] of the duty owed to them by reason of the cause of action having accrued to a predecessor in title.
[216] The effect of this decision is to remove the qualification to proposition (2), namely “designed to be used as homes”. The duty of care is owed regardless of the nature of the premises.
[37] Relying on the statement that “the duty of care is owed regardless of the nature of the premises” Mr Wood submits that “premises” includes “common property”.
[38] However, there are available arguments to the effect that common property, such as spaces within walls or external cladding (to choose but two examples), might not be “premises”.
[39] This all raises complex questions regarding whether the change in ownership under the UTA 2010 was intended to change legal rights in tort. There have been
18 Body Corporate No. 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 279.
differing views expressed in the High Court, although the cases concerned deal with the issues relatively briefly. For example, in Body Corporate 346799 v KNZ International Co Ltd Thomas J held that the legislative change in ownership under the UTA 2010 means the duty owed by the defendants in respect of the common property is owed to the body corporate direct, as is the case with any subsequent owners of property.19
[40] On the other hand, in Body Corporate 160361 v BC 2004 Ltd Whata J said (in obiter) that the split of legal and beneficial ownership, and the powers vested in the body corporate, continue to support the basic proposition that the bodies corporate stand in the shoes of the unit owners for the purpose of those proceedings in relation to the common property.20
[41] More recently in Body Corporate 406198 v Argon Construction Ltd,21 delivered after the hearing in this case, the High Court has held that a body corporate has standing to sue in relation to unit property (which falls within its obligation to repair under s 138 of the UTA 2010).
[42] In determining whether a novel duty of care exists in relation to common property, the Court would need to at least consider: what, if anything, can be inferred from the absence of any discussion in the parliamentary debates regarding the UTA 2010 on this issue; the issue of damage where it is the individual unit owners and not the body corporate that suffer economic loss; and any relevant policy considerations.
[43] From the above discussion it is apparent that the first declaration sought does not involve simply a determination of the effect or meaning of a statute. Of necessity, in order to make the first declaration, the Court would need to decide in the context of a developing area of tort law, whether councils owe a duty of care in tort to bodies corporate as the legal owners of common property. I do not consider that falls within s 3 of the Act.
19 Body Corporate 346799 v KNZ International Co Ltd [2017] NZHC 511 at [132]. See also Small v Body Corporate 324525 [2018] NZHC 19 at [36] and [38].
20 Body Corporate 160361 v BC 2004 Ltd [2015] NZHC 1803 at [236]. See also Body Corporate 324371 v Clark Brown Architects Ltd [2021] NZHC 2379 at [56].
21 Body Corporate 406198 v Argon Construction Ltd [2023] NZHC 3034.
[44] In any event, even assuming jurisdiction, I do not consider a declaration is the appropriate vehicle in the absence of evidence and full submissions including submissions from other parties who are defendants in the substantive litigation (including a property developer, building and construction companies and engineers).
Breadth of declarations sought
[45] In addition, even assuming jurisdiction, the breadth of the first declaration sought and its utility needs to be considered.
[46]Despite the width of the jurisdiction, as confirmed by the Supreme Court in
Mandic, the jurisdiction remains discretionary. Section 10 of the Act provides:
10 Jurisdiction discretionary
The jurisdiction hereby conferred upon the High Court to give or make a declaratory judgment or order shall be discretionary, and the said Court may, on any grounds which it deems sufficient, refuse to give or make any such judgment or order.
[47] In the recent case of Timaru District Council v Minister of Local Government involving a challenge to, what was colloquially known as, the Three Waters reform, the High Court refused to make declarations stating that they were too general and therefore inaccurate to reflect the full framework of local government ownership rights in respect of infrastructure assets.22 In the earlier case of Woolworths (New Zealand) Ltd v Attorney-General the High Court refused to make the declarations sought as they were too general and thus had little utility to the plaintiff.23
[48] In the present case Mr Price submits that the first declaration lacks utility and should not be made because it is too broad and ambiguous. He submits that if jurisdiction exists (which he does not concede) the Court would need to be satisfied there is no conceivable circumstance in which a body corporate is obliged to sue in its own right. He submits the Court is in no position to be so satisfied. He provides the example of an individual unit owner not being informed of the defects or the proposed litigation and accordingly making no choice whether to become a plaintiff or not. In
22 Timaru District Council v The Minister for Local Government, above n 9, at [144].
23 Woolworths (New Zealand) Ltd v Attorney-General [2001] 3 NZLR 123 (HC) at [44]–[49].
that situation a body corporate may have a duty to sue in relation to common property (if it has that right – which is not conceded by the Council).
[49] I accept Mr Price’s submission, that for the Court to make the first declaration sought (assuming jurisdiction) the Court would need to be satisfied there is no conceivable circumstance in which a body corporate is obliged to sue in relation to defects and damage to common property in its own right.
[50] A further difficulty is that the first declaration purports to apply to any body corporate in building defects litigation. As already noted, the Court simply does not have the necessary evidence and submissions as to circumstances which may arise and which would likely need consideration. Unintended consequences could arise for the parties to this proceeding and possibly future cases if the declaration were to be made.
Second declaration
[51] I agree with the submission made by Mr Price that the second declaration sought faces the same issues in relation to jurisdiction and that it is even more remote from any exercise involving the interpretation or effect of the statute. It relates simply to tortious duty.
[52] There is a difficulty in any event with the proposed wording. It does not make it clear that individual owners of a body corporate can only sue in relation to their own economic loss, which may include their share of the cost to repair defects and damage to common property.24
[53] Even assuming jurisdiction, and even if the wording were to be improved to remove the ambiguity referred to in [52] above, I would decline to make the declaration. The entitlement of individual members of a body corporate to sue and recover their share of the repair costs for defects and damage to common property is well-established and uncontroversial. A declaration to that effect would have no utility. It would serve no purpose.
24 Jewett Investments Ltd v Body Corporate 204096 [2011] NZCA 232 at [50].
Result
[54] The application for declaratory relief is refused for lack of jurisdiction under s 3 of the Declaratory Judgments Act 1908 in respect of both declarations sought.
[55] Even if there were jurisdiction I would have exercised my discretion under s 10 of the Declaratory Judgments Act to refuse the application.
Costs
[56] The Council, as the successful party, is prima facie entitled to costs. But as I did not hear from counsel on costs I reserve costs. If the parties are able to agree costs, I direct that counsel file a joint memorandum within 20 working days of the date of this judgment.
[57] If there is no agreement the Council is to file and serve its memorandum within five days of the date for the joint memorandum. The bodies corporate are to file and serve their memorandum in response within five working days of the date of service of the Council’s memorandum. Memoranda must not exceed four pages excluding any attachments. I will determine costs on the papers.
Gordon J
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