Body Corporate 474585 and Body Corporate 476439; s; And; Ravindar Nath and Others; s; Westpac New Zealand Limited; ; Bank of New Zealand; ; ANZ Bank New Zealand Limited; ; ASB Bank Limited; ; …/continued
[2024] NZHC 3171
•30 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-1647
[2024] NZHC 3171
UNDER Section 74 of the Unit Titles Act 2010 IN THE MATTER OF
An application for a scheme
BETWEEN
BODY CORPORATE 474585 and BODY CORPORATE 476439
Applicants
AND
RAVINDAR NATH and OTHERS
First Respondents
WESTPAC NEW ZEALAND LIMITED
Second RespondentBANK OF NEW ZEALAND
Third Respondent
ANZ BANK NEW ZEALAND LIMITED
Fourth RespondentASB BANK LIMITED
Fifth Respondent…/continued
Hearing: 23 October 2024 Appearances:
C Baker and C A MacFadyen for Applicants
Judgment:
30 October 2024
JUDGMENT OF O’GORMAN J
This judgment was delivered by me on 30 October 2024 at 3 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
…………………………………
BODY CORPORATE 474585 v NATH [2024] NZHC 3171 [30 October 2024]
AND KIWIBANK LIMITED
Sixth Respondent
BANK OF BARODA (NEW ZEALAND) LIMITED
Seventh RespondentTSB BANK LIMITED
Eighth RespondentMARK IVAN AMSTRONG and ANN HARRIS
Ninth RespondentTHE CO-OPERATIVE BANK LIMITED
Tenth RespondentSOUTHLAND BUILDING SOCIETY
Eleventh RespondentBASECORP FINANCE LIMITED
Twelfth RespondentCLEARWATER CAPITAL PARTNERS DIRECT LENDING OPPORTUNITIES FUND LP
Thirteenth Respondent
CRESSIDA CAPITAL ONE LIMITED
Fourteenth RespondentAVANTI FINANCE LIMITED
Fifteenth RespondentGETCAPITAL NEW ZEALAND LIMITED
Sixteenth RespondentLENDING CROWD TRUSTEE LIMITED
Seventeenth Respondent
INVESTMENT PORTFOLIO MANAGEMENT LIMITED PARTNERSHIP
Eighteenth Respondent
DU VAL HEALTH CLUBS LIMITED PARTNERSHIP
Nineteenth Respondent
LAKEWOOD PLAZA LIMITED PARTNERSHIP
Twentieth RespondentNEW ZEALAND INSURANCE LIMITED
Twenty-First Respondent
[1] The applicants, Body Corporate 474585 and Body Corporate 476439, apply for an order under s 74 of the Unit Titles Act 2010 (the Act) settling a scheme for the reinstatement of the unit title development at 8 Lakewood Court, Manukau, Auckland (the Development, or Lakewood Plaza). The scheme is designed to repair water damage caused by a water main that burst on 14 November 2021 and to repair any other pre-existing defects.
[2] The first respondents are the registered owners of all the units in the Development. The second to fourteenth respondents are mortgagees of units in the Development. The fifteenth to twentieth respondents are parties with other interests in one or more units in the Development. The twenty-first respondent is the insurer. The Registrar General of Land was also notified of the proceeding and a notice has been placed on the relevant supplementary record sheets.
[3] One of the first respondent unit holders, Du Val Commercial and Mixed-Use Fund Limited Partnership (DVCMF), and the eighteenth respondent, Investment Portfolio Management Limited Partnership, are in statutory management and therefore subject to a moratorium under s 42 of the Corporations (Investigations and Management Act) 1989. The statutory managers have waived the moratorium in respect of the current proceedings against those two entities.
[4] The thirteenth respondent, Clearwater Capital Partners Direct Lending Opportunities Fund LP (Clearwater), is a respondent in its capacity as mortgagee of DVCMF. On the basis that the above waiver is effective, Clearwater does not oppose the application made against Clearwater as mortgagee.
[5] Accordingly, the application is unopposed. At the Court mention on 23 October 2024, there were no appearances for any respondents, and counsel for the applicants sought orders in terms of the application. I confirmed that I would determine the application on the papers. This judgment is the result.
Factual background
[6] Lakewood Plaza is a mixed-use building which is 17 storeys high with three levels of basement parking, plus surrounding land. The building has 151 residential units and there are also commercial spaces on the podium level.
[7] The Development is a layered unit title development. Body Corporate 474585 is the head body corporate (the Head Body Corporate). There are two subsidiary bodies corporate, namely Body Corporate 474588 (Commercial) and Body Corporate 476439 (Residential). The three bodies corporate collectively comprise the land and building at the Development.
[8] The Lakewood Plaza building suffered extensive water damage following a flood event on 14 November 2021, caused by a burst water main in the building on the eleventh floor (the Flood Event). Several floors had to be vacated following the flood. Repairs were begun as soon as possible, to allow reoccupation of units. As part of the investigations into and repair of flood damage, the applicants’ building consultants discovered pre-existing building defects at the Development, which must be repaired in concert with the flood damage.
[9] The applicants have insurance cover with New Zealand Insurance Ltd, which has responded to the flood event. However, the insurer’s position is that some of the remedial costs are not covered by insurance funds because they relate to pre-existing defects, the repair of which is excluded by the applicants’ insurance policies (unless such repair is incidental to repair of flood damage).
[10] The uninsured portion of repair costs must be funded by the applicants. The bodies corporate have considered but not currently sought finance by way of a loan to meet some or all of those costs.
Nature of the scheme
[11] Under the Act, the applicants are obliged to undertake repairs to common property and all building elements and/or infrastructure that relate to or serve more than one unit, and then to levy owners according to their utility interest.1 Otherwise, unit owners are responsible for the repair and maintenance of their own unit property.2
[12] The proposed scheme departs from the Act by providing that both common property and unit property, so far as they relate to the proposed repairs, will fall under the responsibility of the Head Body Corporate, with both types of property being levied against the owners in accordance with their utility interest (to the extent not covered by insurance).
[13] The scheme has been drafted in an expansive way to address not only repairs currently underway or anticipated, but also any other repairs that may be needed once further investigations are complete.
[14] Insofar as repairs are required to unit property, this scheme is intended to empower the applicants to undertake repairs where repairs to common property will necessarily involve repairs to private property not constituting “building elements”, or that necessarily relates to or serves more than one unit. For example, where flood water has damaged an internal wall and one side of the wall is common property (for example, a corridor, lift shaft or stairwell) and the other side of the wall is private property (usually a wall inside a unit), it is unlikely that one side of the wall could be repaired without addressing the other side, especially if water damage is present.
[15] Some of the units suffer from (or suffered from for those that have been repaired) flood damage and pre-existing defects more than other units, and units above Level 11 did not suffer any flood damage. However, one of the two stairwells in the building has been repaired for the full height of the building to ensure a safe path for occupants on all levels. If the damage and defects are not addressed, all units will be
1 Unit Titles Act 2010, ss 121 and 138.
2 Section 80(1)(g).
affected due to deterioration of the building as a whole. If left unresolved, the defects and damage would cause a reduction in value of all units.
[16] The applicants are of the view that it is not practical to design a remedial solution for and repair only the parts of the building for which they are responsible. Unless the repairs are carried out collectively, warranty issues and arguments are likely to arise in the event of any future defect or failing.
[17] For the above reasons, the applicants submit that the most practical and fair method to repair the complex is to have a repair programme, or programmes, to address all necessary repairs (whether to common or private property).
Legal principles
[18] Section 74 of the Act provides that, on the application of a body corporate, the Court may, by order, settle a scheme if any building or other improvement comprised in any unit or on the based land is damaged or destroyed. A scheme may include provision for reinstatement for a building in whole or in part and the Court has a broad discretion to make any orders that it considers expedient or necessary for giving effect to the scheme.3
[19] The Court of Appeal has set out a three-stage process that the Court should follow when considering an application to settle a scheme:4
• Step 1: the Court must be satisfied that the building has been damaged or destroyed.
• Step 2: if so satisfied, the Court must decide whether to settle a scheme. That is, the Court must decide whether a scheme is appropriate in the circumstances.
• Step 3: if the court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.
3 Section 74(7).
4 Tisch v Body Corporate No 318596 [2011] 3 NZLR 679 (CA) at [35], affirmed in Hannam v Body Corporate 126001 [2024] NZCA 274 at [14].
[20] The Court’s power under s 74 is discretionary and each application to settle a scheme is determined on its own factual circumstances.5 The overarching consideration is fairness. The Court of Appeal in Tisch said:6
The aim should be to balance the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit holders.
[21] The Court outlined five factors to be taken into account when considering the terms of a proposed scheme:7
(a)A scheme with broad support is to be preferred.
(b)The scheme should be appropriately detailed to enable unit owners and the Court to judge its effectiveness.
(c)The order has retrospective effect so long as the Body Corporate has acted in accordance with the scheme prior to the Court’s approval.
(d)Remedial work is generally to be carried out to the same standard in relation to all units and at the same time.
(e)The terms of the scheme are not to depart from the Act and Body Corporate rules any more than is reasonably necessary to achieve fairness between unit owners in the circumstances.
Analysis
Damage
[22] I accept the evidence of Mr Hilton that extensive repairs are necessary to remediate water damage caused by the flood event, and other pre-existing defects. These repairs are underway but not yet complete. A building consent has been granted for the work, but it has been subject to formal amendments and minor variations as
5 Body Corporate 407798 v Maltby [2023] NZHC 3064 at [18], citing Body Corporate 177519 v Lai [2014] NZHC 3381 at [18]; and Body Corporate 194769 v Wheatley [2016] NZHC 856 at [10].
6 Tisch v Body Corporate No 318596, above n 4, at [44].
7 At [45]–[49].
pre-existing defects have been discovered and other remedial solutions developed. Following a review of the evidence, I am satisfied that the Development has been damaged.
Appropriateness of scheme
[23] For the reasons set out in [12]–[17] above, I accept that the scheme is necessary to deal with the complexities that arise with carrying out repair work for common and private property, when it is unrealistic and uncommercial for such work to be undertaken separately. It is in the interests of all unit holders for the work to be done efficiently, and to a standard that will maintain the value of the Development and its individual units.
Terms of scheme
[24] This Court has approved similar schemes as a sensible departure from the Act where it is in the best interests of the unit owners.8 As in this case, the nature and extent of the damage to Lakewood Plaza means that all unit owners will benefit from the proposed repairs — the restoration of value is in respect of the building as a whole, not simply individual units. The departure will also ensure a consistent standard of design and construction throughout the building as the remedial works are completed.
[25] Without any opposition, I am satisfied that the terms of the scheme should be approved.
Other orders sought
[26]The application also seeks other orders:
(a)reserving leave for parties (and their successors and assigns, if any) to seek any ancillary orders necessary to give effect to this order;
8 Body Corporate 189717 v Duan [2024] NZHC 2428; Body Corporate 209538 v McDonnell [2024] NZHC 1413; Body Corporate 87945 v Marine Parade Holdings Ltd [2019] NZHC 1311; Body Corporate 81340 v Knight [2018] NZHC 2953; and Body Corporate 85115 v Middlemiss [2017] NZHC 1906.
(b)requiring the applicants to file and serve notice on each respondent (and their successors and assigns, if any) when the scheme is concluded; and
(c)for the applicants to recover their actual and reasonable solicitor/client costs from the registered proprietors as if it were an amount raised under s 121 of the Act.
[27] Under s 74, the High Court may cancel, vary, modify, or discharge any order made by it under this section, so I do not consider that it is necessary to reserve leave.
[28] Under para 3.1(k) of the scheme, each owner must be fully appraised of details of the repairs and progress of the same, including a final report on the repairs eventually undertaken. The additional direction sought for notifying each respondent is wider, because it extends to non-owner parties with relevant interests. The difficulty is that other affected parties (mortgagees, caveators etc) may be different at that future point in time. I agree it is appropriate to notify all such parties, but more flexible directions are required.
[29] The default position is that legal costs are on-charged under s 121 of the Act. The Court has a discretion to modify this position in appropriate circumstances, such as by grossing up an award to reimburse the successful party’s contribution liability.9 No such adjustments are sought or required in this case, so I do not consider that any specific cost order is necessary.
Result
[30] I make an order under s 74 of the Unit Titles Act 2010 settling and approving the scheme for repair of the unit title development at 8 Lakewood Court, Manukau, Auckland, as set out in the appendix to the originating application of Body Corporate 474585 and Body Corporate 476439 dated 24 June 2024.
Body Corporate 198900 Ltd v Bhana Investments Ltd [2015] NZHC 2787 at [13]–[14], referencing
Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314 (2015) 16 NZCPR 509 at [25].
[31] I direct the applicants to file a memorandum confirming when the scheme is concluded, and to take reasonable steps to notify the same to any other parties falling within s 74(6) at that time (i.e. the respondents, to the extent they still have those interests).
O’Gorman J
Solicitors:
Price Baker Berridge, Auckland
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