Body Corporate 86975 v Foven Ltd HC Auckland CIV-2011-485-538

[2011] NZHC 795

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-538

UNDER  the Unit Titles Act 1972

BETWEEN  BODY CORPORATE 86975

Plaintiff

ANDFOVEN LIMITED Defendant

Hearing:         26 July 2011

Counsel:         S Peacock with S Hosegood for Plaintiff

P H Bremer for Defendant

Judgment:      29 July 2011

JUDGMENT OF THE HON JUSTICE KÓS

[1]      The roof of an apartment building leaks.   The apartments are held in unit titles.   After some prodding by top floor unit owners, including a threat of legal action, the body corporate agrees with one of them to repair the roof. That means the costs will be shared by all unit owners, whether or not adjacent to the roof.  Later, however, the body corporate renounces the agreement.  It says the roof forms part of the owner’s unit, and it alone must pay for the repairs.   The roof has not been repaired.  The owner has withheld payment of its body corporate levies.  A sum of

$47,980.

[2]      Now the body corporate applies for summary judgment for the unpaid levies. Is it entitled to judgment despite its failure to repair the roof in accordance with the

agreement?

BODY CORPORATE 86975 v FOVEN LIMITED HC WN CIV-2011-485-538 29 July 2011

[3]      The  parties  are  the  body  corporate  responsible  for  the  Robert  Hannah Warehouse  apartment  complex  in  Te  Aro,  Wellington,  and  the  owner  of  two apartment units, a company called Foven Limited.

Leaks

[4]      Foven’s apartments are on the top floor of the complex.  The roof above them leaks.   The leaks began in 2006.   Foven complained to the body corporate.   It believed that the body corporate was responsible for the roof under the body corporate rules.

[5]      There was support for that view in the rules themselves.  They provide that the body corporate shall:

Repair, paint, renew, replace, keep waterproof and maintain in a state of good and substantial repair, the exterior of the building including the roof, or windows and entrance and exit ways.

There  is  also  another  provision  requiring  the  unit  holders  to  permit  the  body corporate access for the purposes of:  “maintaining, repairing, renewing, painting or refurbishing the exterior of the building including the roof”.

[6]      Mrs Susan Peacock, who appeared for the body corporate, accepted that the natural reading of these rules was that the roof was the responsibility of her client.

[7]      Investigations into the leaks proceeded at glacial pace.  One expert followed another.   They all agreed that the roof leaked.   Foven did not think that much progress was being made.  In January 2008, one of its directors wrote to the body corporate to say that if it had not rectified the problem by the end of February 2008, Foven would appoint its own contractor and forward the account to the body corporate.

We believe we have been more than accommodating in waiting for the body corporate to act on the matter.   Reluctantly we are now considering the necessity to place the matter in the hands of our lawyer, as we feel the Body Corporate is avoiding the repair of the leaking roof over apartments 37 & 38.

[9]      May and June 2008 were wet.   There were more leaks.   Foven’s tenants complained about the ingress of yet more water.   Foven complained again to the body corporate.  Then their patience ran out.  They advised they were referring the issue to their lawyer.  Foven wrote:

As already advised we have now reached the unfortunate point where tomorrow I will be referring this issue to our lawyer for action and compensation against the body corporate.  Please be advised that all cost of this action will be charged to the body corporate and we will also seek for past compensation of all the temporary remedial work we had to undertake on our two apartments.   This will include loss of rental we have had to suffer.  In the interim we have stopped all payments to the body corporate. We will make a payment to our solicitor’s trust account until this case is resolved to our full satisfaction.

So it is clear that at this stage Foven was asserting a right of set off against its liability  to  pay  levies.    There  is  no  prohibition  against  deduction  in  the  body corporate rules.

[10]     The body corporate retained another expert.   This time, Tse Group.  At no stage though did it retain legal advisers to check whether the responsibility to fixing the  roof  was  its.    Everyone  proceeded  on  the  basis  the  body  corporate  was responsible for repairing the roof.

[11]     More rain.   More leaks.   The defendant, more desperate.   On 3 November

2008 Foven wrote to the body corporate again.  I set out its email in full:

Our apartments have continued to deteriorate.  We have been forced to take some urgent and drastic action in order to protect our asset.   Water leaks have damaged walls and floor, especially in apartment 38.  The expensive wooden staircase in apt 38 has also partially been damaged with water stains which will need to be removed urgently before further and more expensive damage occurs.

We have employed a builder to repair all the damages created by the water leaks.  Our builder has already located and repaired a number of water leaks

and working on locating and repairing a few more.  We have also repainted some of the walls damaged by the water leaks.

We have recently employed an architect and been advised it is in our best interest to replace the entire roof.  As we cannot afford to replace the expensive double glazed glass tiles, we will reroof with corrugated iron similar to the existing roof found in the rest of the building.  This is a step backward and a compromise for us as we really like the glass feature for which our apartments are characteristic of. [sic]

So far, we have been paying for all of this out of our own pocket. Apartment

38 had also become unrentable.

[12]     The body corporate secretary replied immediately:

Prior to  my going to  Europe  at the end of August,  the Committee  had instructed TSE architects to prepare plans etc for submission to the [Wellington City Council] for the repairs to your roof.  Now that I am back I will follow up and see where we have got to and will let you know.

[13]     Still on 3 November 2008, Foven’s director rejoined:

I would need to know urgently by tomorrow morning ... as we have a builder on site costing money and we really need to rent out apartment and stop any further water leak damage.  I will hold off our builder for tomorrow.  If I do not hear anything we will proceed with our plan.

An agreement is reached

[14]     Two days later, on 5 November 2008, a meeting took place.  An agreement was  reached.    Those  in  attendance  were  the  chairman  of  the  body  corporate, Mr Dinsdale, the body corporate secretary, Mr O’Connell, and a director of Foven, Mr Giurioli.  There is no dispute as to what was agreed.  Mr O’Connell’s email sets it out exactly:

This is to confirm this morning’s discussions with Andrew Dinsdale concerning the roof over units 37 and 38.  The Body Corporate will commit to the following costs:

1.   A new roof clad in “long-run” corrugated iron/colorsteel.

2.   The  installation  of  velux  skylights  as  indicated  on  the  plans  you presented.

3.   Your architects costs.

4.   The WCC permit fees.

We acknowledge your advice that you have not paid your body corporate levies as you have used the money to meet repair costs you have incurred to date. You undertook to provide us with a reconciliation of levies vs. costs.

[15]     So we may take it that in November 2008 the body corporate had agreed to undertake (and pay for) the cost of re-roofing the units.   And it agreed to allow Foven to set off repair costs already incurred against its levies arrears.

[16]     It is now accepted by the body corporate that the November 2008 agreement has contractual effect.   Clearly there was consideration.   A lingering dispute was resolved.   Foven’s lawyers and builders were stood down.   The body corporate committed to do the repair work.  It paid Foven’s architect’s bill.  An express set off right for repair costs incurred by Foven was agreed, provided a reconciliation was supplied.  Subject to all that, of course, Foven had to resume payment of its levies.

[17]     There is no evidence before me that the parties actually discussed the body corporate  rules  before  reaching  this  agreement.    They  simply  proceeded  on  a common assumption about what they required of the body corporate.  Mr Dinsdale deposes, quite candidly:

In November 2008, everyone was under a misunderstanding.   That misunderstanding was that the body corporate had a duty to pay for repairs to all the roofs (not just the defendant’s roof) because it was assumed that all the roofs were common property.

[18]     The underlying assumption or responsibility informing the agreement was then confirmed as a principle of general application at the body corporate’s next AGM. That was in June 2009. The minutes state:

The committee has noted that while the unit title plan shows that both the roof of the building and the balconies of apartments are included in the units, the body corporate rules specifically state that the body corporate is responsible for repairing and maintaining the roof.   The committee has concluded that while the body corporate is responsible for maintaining the roof, owners are responsible for maintaining their individual balconies. Accordingly, if the roof leaks the body corporate will need to repair it. Where there is a leak through a balcony into an apartment or onto the common property below, the owner of the apartment’s balcony will be responsible for arranging the repairs and liable for the costs of the repairs.

So by this point, some six months after the agreement, the body corporate clearly

was aware that the roof was actually within the owners’ units, and not common

property.    But  relying  on  the  provisions  of  the  rules  noted  above  at  [4],  the committee considered it was still bound to repair the roof.

The body corporate changes its mind

[19]     But almost a year later the body corporate changed its mind.  In March 2010 it finally obtained a lawyer’s opinion.  The lawyer said that the original assumption as to responsibility for the roof was wrong.   He said the rules required owners to repair and maintain their own units, and that must include the roof.  So the lawyer said the November 2008 agreement could not stand.

[20]     The top floor owners obtained their own opinion from another lawyer.  The second lawyer disagreed with the first lawyer.  The new advice was given to the first lawyer to consider.   The first lawyer disagreed  with the second lawyer.   Point, counterpoint.

[21]     The body corporate committee decided to follow the advice it had received. In May 2010 it told owners that the position taken at the June 2009 AGM was “incorrect”.  It wrote:

The Committee resolved that the Body Corporate is not legally responsible for repairing and maintaining the roof within a unit, and cannot legally meet any costs associated with the repair and maintenance of the roof within a unit.  The owner of each unit the boundary of which includes the roof must therefore bear the cost of repairing and maintaining his or her own roof.

[22]     On  that  basis,  the  body  corporate  sought  to  treat  the  November  2008 agreement as void.  It simply renounced the agreement.  It told Foven that it now had to repair its own roof, and pay the levies too. When Foven did not do so, it sued.

A concession by Foven?

[23]     This reversal of events obviously made life difficult for Foven.  The work on the roof had not yet been done by the body corporate.  Foven was cash-strapped as it was.  Now it had apartments in disrepair, a need to pay for the roof repairs that the body corporate had previously undertaken to do, and levy arrears to settle.

[24]     Ultimately, on 14 November 2010 Foven’s director, Mr Giurioli, wrote to the body corporate.   This too was a very candid email.   It explained the difficulties Foven now found itself in having to undertake the repairs itself.  It concluded:

So, my proposal to the committee and the body corporate is that we will resume the body corporate payment as of 1 December and once we have sold the apartment we will pay the past body corporate fees.  In view of all our trouble, stress and tremendous loss of money we have incurred for the last 4 years, I ask the body corporate to consider to at least wipe all of those interest we have been charged.

I will leave it up to you and the body corporate if in the future the body corporate may wish to consider to reimburse what we have spent in repairing and fixing the roof.

We cannot afford to instigate a legal battle and we are also quite disheartened and  overwhelmed  with  the  entire  issue  so  we  give  in and let the  body corporate win this case.

[25]     But that proposal was rejected by the body corporate.  It said it would resort to its legal remedies to recover the levy arrears.  Thereafter Foven paid some of the levies owing.  But only $3,000.

The unit plans

[26]     Finally on the facts, I will comment on the plans attached to the unit titles. These are said to confirm the body corporate’s position that the roofs are part of the unit owners’ property, rather than common property.   The plans are annexed to a reply affidavit filed by the body corporate.

[27]     Mr  Philip  Bremer,  for  Foven,  submitted  that  there  was  doubt  as  to  the accuracy of the plans and that there needed to be evidence as to their accuracy from a “cadastral surveyor”.

[28]     I disagree.  The plans form part of the titles held by each unit owner.  And they could not be more clear.   Regardless of the body corporate rules, the roofs above the units, with one immaterial exception concerning a plant room, are clearly

unit owners’ property.  Of course, the body corporate knew that in June 2009.1

1 See [18] above.

[29]     It then becomes a legal question as to how that conflict is to be resolved generally, and how it affects the validity of the November 2008 agreement.

Legal analysis of the facts

[30]     The body corporate says it can only levy owners for repairs to common property.  That may be so, but in 2008 it reached a contrary agreement with Foven. At that stage neither had taken legal advice.   They proceeded on the assumption, understandably given the rules, that the roof above the two Foven units was common property, or otherwise the responsibility of the body corporate to repair.  The latter understanding was then repeated at the June 2009 AGM.

[31]     In November 2008 it was perfectly open to the body corporate to enter the agreement it reached with Foven.  There was no definitive interpretation of the rules at that stage.  No one had troubled lawyers for advice on the point.  Even when they did, long after the agreement had been entered, the lawyers offered up different views.   But back in November 2008 the parties preferred to back their common hunch.   Rather that than spend money on lawyers as well as builders.   Foven’s bargaining position had been that it would get the work done and charge the body corporate.  And the body corporate would likely have paid that bill, given the stance it took at the June 2009 AGM.

[32]     It is immaterial that the body corporate now disagrees with its own original position, on the basis of legal advice which it lacked at the time it entered the agreement.   The agreement was entered in compromise of a disputed claim.   The body corporate is not entitled simply to renounce it.

Potential exit routes

[33]     There  are,  however,  some  potential  exit  routes  available  to  the  body corporate, which would enable it to set the November 2008 agreement to one side. They are:

(a)       consensual discharge;2

(b)      an enforceable waiver of all rights by Foven;

(c)       a  lawful,  unilateral  cancellation  for  breach  under  the  Contractual

Remedies Act 1979;

(d)      or  a  successful  application  for  relief  made  under  the  Contractual

Mistakes Act 1977.

(1) Consensual discharge or enforceable waiver?

[34]     Initially  Mrs  Peacock  was  inclined  to  contend  that  Foven’s  email  and subsequent payments3 amounted to a waiver, or consensual discharge of the November 2008 agreement.   But on further reflection she did not pursue that submission.

[35]     Certainly the submission is prone to a number of difficulties.   First, the payment of some levy sums was not in any sense inconsistent with the November

2008 agreement continuing in effect.4   So I put the payments to one side.  Secondly,

the proposal in Foven’s email was not accepted.   So it cannot take effect as a variation, let alone as a discharge, of the November 2008 agreement.   The same applies to its status as a waiver.  If rejected (as it was) then the recipient cannot later assert that it still takes effect as a waiver.   The body corporate made its election. Foven remained at liberty to revive its reliance on the November 2008 agreement. Thirdly, the email is really no more than a despairing proposal written in the face of the body corporate’s refusal to perform.  That refusal was of doubtful legitimacy.  It may be that the body corporate can extricate itself from the November 2008 agreement.  But it cannot do so by so simple a measure as a unilateral renunciation

of obligation.

2      Such would be the case if, for example, both parties accepted that the agreement was bound to be set aside for mistake and agreed in light of that simply to end it. That is not the case here.

3 See [24]-[25] above.

4 See [16] above.

(2)      Unilateral cancellation for breach

[36]     It is common ground that neither party has lawfully cancelled the November

2008 agreement for the purposes of the Contractual Remedies Act 1979.

(3)      Contractual mistake?

[37]     It  may  be  that  the  body  corporate  ultimately  obtains  relief  from  the

November 2008 agreement. That will depend on five things:

(a)      An application being made under the Contractual Mistakes Act 1977 to unwind the November 2008 agreement:  This step has not yet been undertaken.   As I have said, the body corporate cannot simply renounce the November 2008 agreement, on the basis that it was entered on a false assumption, and treat it as if it never happened. Mrs Peacock accepted that she could not pursue mistake before me, in the absence of an express application.

(b)The  body  corporate  establishing  that  as  a  matter  of  law  its construction of the rules5 is right, and that the contrary opinion by the lawyer  for  the  owners  (including  Foven)  is  wrong:    Given  the decisions  of the Court  of Appeal  in  Velich  v Body Corporate No

1649806   and  of  Allan  J  in  Body  Corporate  164205  v  Berachah

Investments Limited,7  it seems likely to succeed in doing so.  Those cases make clear that the effect of s 37(5) of the Unit Titles Act 1972 was to preclude the adoption of rules imposing on the body corporate as a whole a responsibility to repair unit owners’ own property (other,

perhaps, than incidentally to the repair of common property).

5      This depends on the rules referred to in [4] being ultra vires. Other parts of this body corporate’s rules have been held to be ultra vires in an earlier decision: Cassels v Body Corporate 86975 (2007) 5 NZ ConvC 194,466(HC).

6      Velich v Body Corporate No 164980 (2005) 5 NZ ConvC 194, 138 (CA).

7      Body Corporate 164205 v Berachah Investments Limited (2010) 34 TCL 6/8(HC).

(c)      The body corporate establishing that as a matter of fact the roof above the  Foven  apartments  is  not  common property:    The  body corporate should succeed in that step, given my findings at [29];

(d)That either (b) or (c) above give rise to an actionable mistake in entering the November  2008 agreement, in terms of s 6(1) of the Contractual Mistakes Act 1977:    This is not by any means straightforward.   An actionable mistake occurs where  parties to  a contract have (or one of them has) given consideration to a particular matter (even a matter of law) and reached a wrong conclusion about it.   But where the parties have simply proceeded on a common but unexpressed misapprehension, it may well be that there is no mistake.

In New Zealand Refining Company v Attorney General8 there was no

actionable mistake where the parties had failed to consider whether a payment made was inclusive or exclusive of GST.   In Ladstone Holdings   Limited   v   Leonora   Holdings   Limited9    there   was   no actionable mistake where neither party to the contract for sale of land was aware of the existence of a drain running across the land.10    (It should  be  noted,  though,  that  Professors  McLauchlan  and  Rickett have criticised the conclusion in the New Zealand Refining line of cases, suggesting specific advertence is not necessary under the Act.11

The Court of Appeal is yet to revisit the issue.)  It is clear that this step will require evidence, and cross-examination.

(e)      The extent of relief (including counter-relief by Foven, based on its reliance on the agreement) being determined:   Again this step will

require evidence.

8      New Zealand Refining Company v Attorney General (1993) 15 NZTC 10,038 (CA).

9      Ladstone Holdings Limited v Leonora Holdings Limited [2006] 1 NZLR 211 (HC) at 226-229 per Potter J.

10     See also Chilcott v McLachlan HC Auckland CIV 2007-404-2796 22 December 2009 at [77]-

[78] per Allan J.

11     D W McLauchlan & C E F Rickett “Mistake & Ignorance under the New Zealand Contractual

Mistakes Act 1977” (1995) 8 JCL 193.

Repudiation accepted?

[38]     Ultimately, Mrs Peacock retreated to a position relying on the email and subsequent payments as an acceptance by Foven of the body corporate’s repudiation of the November 2008 agreement.

[39] Acceptance of a repudiation (here, by the body corporate) does not mean the agreement is set aside. That is why I did not list it in [33].

[40]     The  concept  of  acceptance  of  repudiation  is  now  less  relevant  than previously,  given  the  terms  of  the  Contractual  Remedies Act  1979.    The  more important question in light of that Act is whether the innocent party to a repudiated contract has cancelled it or affirmed it.12   Unless cancelled, the contract continues on foot and, if thereafter affirmed (or treated as affirmed by effluxion of time and continued counterperformance, without cancellation),13 cannot be cancelled at a later date.

[41]     Acceptance of a repudiation is now simply an assessment made preparatory to cancellation (which has not occurred here). All it could mean is that neither side would need to perform the agreement further.  That suspensory status might then be confirmed by cancellation.14    But, importantly, accrued rights, including a right to claim damages for breach of the November 2008 agreement, are not lost.15

[42]   Conceivably Foven retains a damages claim for the value to it of the unperformed  roof  repairs,  and  for  losses  accruing  by  reason  of  delays  in performance.   Mr Bremer confirmed before me that Foven would wish to pursue such claims.   I consider that submission broadly within the scope of the amended notice of opposition filed by Foven.  That relies explicitly on the November 2008

agreement having continuing effect.

12     It is common ground in this case that Foven has not cancelled.

13     As for example in Westpac Merchant Finance Limited v Winstone Industries Limited [1993] 2

NZLR 247 (HC).

14     Contractual Remedies Act 1979, s 8(3)(a).

15     McDonald v Dennys Larcelles Limited (1933) 48 CLR 457 (HCA) at 476–477 per Dixon J.

Again, the same applies in the event of cancellation: Contractual Remedies Act 1979, s 8(4).

[43]     The body corporate would no doubt counter such claims with an application for the agreement to be set aside on the basis of common mistake. And, of course, it can pursue its claim for the unpaid levies in that context also.

Summary judgment?

[44]     I need  not  repeat  in  any  detail  the  principles  governing  applications  for summary judgment.  In short, the plaintiff must discharge the burden of establishing that there is no real defence requiring trial evidence to be taken.16     In  Jowada

Holdings Ltd v Cullen Investments Ltd the Court of Appeal put it thus:17

In essence, the Court must be persuaded that on the material before the Court the plaintiff has established the necessary facts and legal basis for its claim and that there is no reasonably arguable defence available to the defendant. Once the plaintiff has established a prima facie case, if the defence raises questions of fact, on which the Court’s decision may turn, summary judgment will usually be inappropriate. That is particularly so if resolution of such matters depends on the assessment by the Court of credibility or reliability of witnesses. On the other hand, where despite the differences on certain factual matters the lack of a tenable defence is plain on the material before the Court, to the extent that the Court is sure on the point, summary judgment will in general be entered. That will be the case even if legal arguments must be ruled on to reach the decision.

[45]     In the present case:

(a)       the presence of a still-extant contract inconsistent with the plaintiff’s

claim; and

(b)the  defendant’s  retention  of  an  arguable  accrued  right  to  claim damages   for   non-performance   of   that   contract   (which   would constitute a set off defence in the terms contemplated by the Court of Appeal in Grant v NZMC Limited):18

means that the plaintiff has failed to discharge the burden of establishing that there is no real defence requiring trial evidence to be taken.

16     Pemberton v Chappell [1987] 1 NZLR 1 (CA), at 3 per Somers J.

17     Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [28] per McGrath J.

18     Grant v NZMC Limited [1989] 1 NZLR 8 (CA) at 12-13 per Somers J.

[46]     I note two final matters:

(a)      This is a claim for $48,000.  It should not have been brought in the High Court.   The District Court possesses a summary judgment jurisdiction.19

(b)The existence of the agreement in November 2008 (which is plainly material to the issue as to whether there is an arguable defence in this case) was not disclosed in the original affidavit in support for of the application for summary judgment.  It should have been.

Disposition

[47]     The application for summary judgment is dismissed.

[48]     The defendant will have costs on a category 2 band B basis.

[49]     In accordance with s 46 of the District Courts Act 1947 this proceeding is now transferred to the District Court at Wellington.

Stephen Kós J

Solicitors:

Johnston Lawrence, Wellington for Plaintiff

Grimshaw & Co, Wellington for Defendant

19     Rule 2.42, District Court Rules.