Body Corporate Number 203780 v Bell
[2020] NZCA 665
•18 December 2020 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA165/2020 [2020] NZCA 665 |
| BETWEEN | BODY CORPORATE NUMBER 203780 |
| AND | ROBERT JOHN BELL and JUDITH SYLVIA BELL |
| Hearing: | 2 November 2020 |
Court: | Goddard, Duffy and Nation JJ |
Counsel: | T J G Allan and K M Wakelin for the Appellant |
Judgment: | 18 December 2020 at 3.00 pm |
JUDGMENT OF THE COURT
A The appeal is allowed.
BThe declaration made in the High Court that the appellant’s resolution of 9 June 2017 was ultra vires and invalid, and the order quashing that resolution, are set aside.
CThe costs order made in the High Court is set aside.
DThe respondent must pay the appellant costs for a standard appeal on a band A basis, with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
Introduction
In Kingsland, Auckland, there is a townhouse development that was constructed in the mid-1990s. The units are held under unit titles issued pursuant to the Unit Titles Act 2010 (the Act). The appellant, Body Corporate Number 203780 (the Body Corporate), is responsible for the management and administration of the development in accordance with the Act and the Body Corporate’s operational rules.
The development is on a sloping site. It comprises a single building with five contiguous units. Apart from variations due to the sloping site, including entrance stairways of different heights and the presence of vehicle garages beneath several of the units, the exterior appearance of the development is that of five otherwise identical units with their windows, doors and balconies in the same positions. The balconies are on the upper level at the front of each unit.
At the Body Corporate’s Annual General Meeting (AGM) in 2012, reference was made to a water leak at Unit D in the area of the balcony. After that, problems with water leaks at the development became progressively worse.
In 2014, a licenced building inspector identified that the cladding was in the process of failing substantially at all junctions and joins. Water was entering wherever this was occurring, accelerating cracking and buckling to the cladding and allowing more water to penetrate. This was resulting in damage to linings, joinery lines and skirting boards in the interior of all units. The balconies were identified as being in a state of disrepair that the building inspector considered was highly likely to cause their collapse under normal loading conditions.
It was recognised by all unit owners that remedial work including recladding was required to deal with the design issues with the development. However there were differences of view about whether the balconies should be removed or replaced in the course of carrying out the remedial work.
The balcony of each unit is wholly within the boundary of that unit. The balconies are not common property. Four unit owners want to remove their balconies in the course of recladding the units. The respondent (the Bells) want to retain the balcony on their unit. Their ability to do so is not in issue. But the Bells object to the balconies being removed from the other units. They want all the balconies repaired or rebuilt in order to maintain the appearance of the development as a whole.
A quantity surveyor gave uncontested expert evidence that the estimated cost of remediating the weathertightness issues associated with removal and restoration of the balconies was $223,100 (including GST) per unit. The estimated cost of remediation with the balconies removed was $185,150 (including GST) per unit.
The Body Corporate called expert valuation evidence that removal of a unit’s balcony would not reduce the value of that unit. The Bells called expert valuation evidence that the value of a unit, if its balcony was removed, would be reduced in the region of $5,000 to $10,000. The valuers agreed that, if one or more of the balconies were removed, that would be unlikely to cause a significant change in the value of the units that retained their balconies, provided the unit(s) where balconies were removed were altered to cope with that removal in a way which was not “garish”.
At the Body Corporate’s AGM on 9 June 2017, a resolution was passed by four votes to one “[t]hat the Body Corporate consents be granted to the units who would like to remove their balconies in the building re-clad subject to a building consent being obtained” (the 2017 Resolution).
The Bells brought proceedings in the High Court challenging the validity of the 2017 Resolution. Their challenge was successful. Davison J made a declaration that the Body Corporate’s 2017 Resolution was ultra vires and invalid.[1] The Body Corporate appeals from that judgment.
[1]Bell v Body Corporate Number 203780 [2020] NZHC 333 [High Court judgment] at [73].
In broad terms, the issue before us is whether a body corporate can, by special resolution, permit one or more unit owners to decide that alterations will be made to their units in a way that materially alters the exterior appearance of the development, in the context of a remedial works project that will be carried out by the body corporate. We have framed this issue in a way that distinguishes between two different decisions:
(a)a decision by the body corporate approving the remedial work that it will carry out to address the weathertightness defects in the development; and
(b)a decision by the body corporate to allow each unit owner to have the balcony of their unit removed, if they wish to do so, with that removal to be implemented in the context of the remedial work to be carried out by the body corporate.
It is helpful to keep these two matters separate. Some confusion was caused by the way in which the parties ran the two matters together before the High Court and in their submissions in this Court.
The statutory framework
The purpose of the Act is set out in s 3:
3 Purpose
The purpose of this Act is to provide a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis by communities of individual owners and, in particular,—
(a)to allow for the subdivision of land and buildings into unit title developments comprising units that are owned in stratum estate in freehold or stratum estate in leasehold or licence by unit owners, and common property that is owned by the body corporate on behalf of the unit owners; and
(b)to create bodies corporate, which comprise all unit owners in a development, to operate and manage unit title developments; and
(c)to establish a flexible and responsive regime for the governance of unit title developments; and
(d)to protect the integrity of the development as a whole.
A body corporate may do anything authorised by the Act, or by any other Act.[2] It may do so only for the purpose of performing its duties or exercising its powers.[3]
[2]Unit Titles Act 2010, s 77(1).
[3]Section 78.
Sections 79 and 80 are at the heart of this appeal:
79 Rights of owners of principal units
An owner of a principal unit—
(a)has all the rights derived from being registered as the owner of the stratum estate in a unit under this Act:
(b)holds a share in the common property in accordance with section 54(2):
(c)is entitled as a body corporate member to exercise a vote in respect of his or her unit, subject to section 96 and any other requirements in the regulations:
(d)is entitled to have quiet enjoyment of his or her unit without interruption by other unit owners or occupiers, or the body corporate or its agents, except as authorised by this Act or the regulations:
(e)subject to section 80(1)(h) and (i), may make any alterations, additions, or improvements to his or her unit so long as these are within the unit boundary and do not materially affect any other unit or common property:
(f)has the right to have any dispute resolved in the manner set out in subpart 1 of Part 4:
(g)has the right to enforce the body corporate operational rules:
(h)has the right to attend the general meetings of the body corporate.
80 Responsibilities of owners of principal units
(1) An owner of a principal unit—
(a)must permit the body corporate (or its agents) to enter the unit at any time in an emergency and at all reasonable hours, and after giving reasonable notice, for any of the following purposes:
(i)to view the condition of the unit for the purpose of ascertaining compliance with the principal unit owners’ or occupiers’ obligations under this Act:
(ii)to maintain, repair, or renew any infrastructure for services and utilities that serve more than 1 unit and any building elements that affect more than 1 unit or the common property, or both:
(iii)to maintain, repair, or renew any common property:
(iv)to ensure the body corporate operational rules are being complied with:
(b)must do all things necessary to give effect to decisions of the body corporate:
(c)must consult with his or her mortgagee, if required to do so, before exercising a vote under section 97 or 98:
(d)must comply with all laws and legal requirements relating to the use, occupation, or enjoyment of the unit:
(e)must carry out, without delay, all work that may be ordered by a territorial authority or public body in respect of the unit to the satisfaction of that authority or body:
(f)must pay all rates, taxes, charges, body corporate levies, and other outgoings that are from time to time payable in respect of the unit:
(g)must repair and maintain the unit and keep it in good order to ensure that no damage or harm, whether physical, economic, or otherwise, is, or has the potential to be, caused to the common property, any building element, any infrastructure, or any other unit in the building:
(h)must notify the body corporate of his or her intention to carry out any additions or structural alterations before the commencement of any work:
(i)must not make any additions or structural alterations to the unit that materially affect any other unit or the common property without the written consent of the body corporate:
(j)must comply with the body corporate operational rules:
(k)must not do anything that breaches or in any way undermines any policy of insurance in the name of the body corporate.
The ability of a unit owner to make alterations to their unit
Under s 79(e), the owner of a unit is able to make alterations to their unit provided that the alterations are within the unit boundary and do not materially affect any other unit or common property. Notice of proposed additions or structural alterations must be given to the body corporate (s 80(1)(h)). If an alteration within the unit boundary would materially affect other units or common property, the unit owner can only carry out the alteration after obtaining written approval from the body corporate (s 80(1)(i)).
These provisions are designed to strike a balance between the goals of protecting the integrity of the development as a whole and establishing a flexible and responsive regime for governance of unit title developments. The Act permits changes to be made to individual units subject to certain safeguards, including the safeguards set out in s 80(1)(h) and (i).
Another relevant safeguard is set out in s 210, which enables a minority to challenge a body corporate decision that is unjust or inequitable:
210 General relief for minority where resolution required
(1)In any case where this Act requires a resolution and the resolution is passed, any person who voted against the resolution may apply to the appropriate decision-maker for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority.[4]
(1A)Subsection (1) does not apply if the resolution is a designated resolution.
(2)An application for relief under subsection (1) must be made within 28 days of the passing of the resolution.
Repairs to unit title developments
[4]With the issue currently before this Court, the appropriate decision-maker would be either the Tenancy Tribunal if the resolution required expenditure of less than $50,000 (s 171), the District Court if the effect of the resolution was to require a person or body corporate to incur expenditure in excess or $50,000 but not more than $350,000 (s 172), or the High Court if the expenditure was to be more than $350,000 (s 173).
Each unit owner has a responsibility to repair and maintain their unit in a way that (among other things) avoids damage or harm to building elements, other units and common property (s 80(1)(g)).
The body corporate also has duties to repair and maintain certain components of the development, including common property and — of particular relevance in this case — any building elements that relate to or serve more than one unit. Section 138 provides:
138 Body corporate duties of repair and maintenance
(1) The body corporate must repair and maintain—
(a) the common property; and
(b)any assets designed for use in connection with the common property; and
(c)any other assets owned by the body corporate; and
(d)any building elements and infrastructure that relate to or serve more than 1 unit.
…
(3)The body corporate may access at all reasonable hours any unit to enable it to carry out repairs and maintenance under this section.
(4)Any costs incurred by the body corporate that relate to repairs to or maintenance of building elements and infrastructure contained in a principal unit are recoverable by the body corporate from the owner of that unit as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense was incurred or by the person who is the unit owner at the time the proceedings are instituted.
…
As this Court said in relation to this provision in Body Corporate S73368 v Otway:[5]
In addressing the mischief to which this enactment was directed, the legislature sought to address difficulties that had arisen when defects within a unit affected other units or the common property. It did so by assigning to bodies corporate responsibility for building elements and infrastructure found within units and limiting owners’ rights and obligations accordingly.
[5]Body Corporate S73368 v Otway [2018] NZCA 612, [2019] 3 NZLR 759 at [45] (footnote omitted).
The term “building element” that appears in ss 80 and 138 is defined in s 5(1):
building elements includes the external and internal components of any part of a building or land on a unit plan that are necessary to the structural integrity of the building, the exterior aesthetics of the building, or the health and safety of persons who occupy or use the building and including, without limitation, the roof, balconies, decks, cladding systems, foundations systems (including all horizontal slab structures between adjoining units or underneath the lowest level of the building), retaining walls, and any other walls or other features for the support of the building.
It was common ground before us that the balcony of each unit is a building element for the purposes of ss 80 and 138. So the Body Corporate has the power and the duty to repair and maintain those balconies, if they “relate to” more than one unit.
The High Court held that each balcony does relate to the development as a whole, as a matter of design and appearance.[6] That also was not in dispute before us. Where a body corporate carries out repair work on a unit under s 138, the cost of that work is recoverable from the relevant unit owner: s 138(4). So a unit owner has a strong interest in that work being done in a cost-effective manner.
[6]High Court judgment, above n 1, at [51].
The mechanisms set out in the Act for decision-making by unit owners will in most cases be adequate to resolve issues that arise in relation to repairs and alterations to units, and to the unit development as a whole. But where any building or improvement in a unit or on the base land of a development has been damaged or destroyed, s 74 allows the body corporate or individual owners to apply to the High Court to seek approval of a scheme to deal with that damage or destruction. In circumstances where it is difficult or impractical to make decisions about remedial work using the normal mechanisms, s 74 enables the High Court to determine how a dispute between unit owners, or between certain unit owners and a body corporate, can best be resolved with all relevant information put before the court, appropriately scrutinised and assessed.
Operational rules
A body corporate must have operational rules.[7] For the sake of completeness, we note that r 15 of the Body Corporate’s operational rules parallels s 80(l)(g) and (i):
15. Exterior of the building
An Owner must
a)Repair and maintain the exterior of the unit (if required by the Body Corporate) and keep it in sufficiently good order, repair and condition to ensure that no damage, harm, or diminution in value occurs to the common property [or] any other unit.
b)Make no alteration or structural alterations to the unit or in any way alter the elevation or external appearance of the unit without the written consent of the Body Corporate.
…
f)Maintain any deck, balcony or courtyard forming part of the unit in a neat and tidy condition and not place any item other than outdoor furniture and plants on the deck or balcony without the written prior approval of the Body Corporate or its Agents, the Secretary or the Building Manager.
The issue that arose in this case
[7]Unit Titles Act 2010, s 105(1).
It has throughout been clear that the development requires remedial work to address weathertightness issues, including recladding. The practical issue that arose in this case was whether a unit owner could choose to have their balcony removed in the context of that remedial work, in order to reduce the cost of the work in relation to their unit (which they would be required to meet: s 138(4)), and in order to avoid any future risks and maintenance costs associated with having a balcony.
In order to instruct a designer to prepare plans for remedial work and seek building consent for that work, the Body Corporate needed to be able to tell the designer whether the balconies would be removed, retained or replaced in the course of carrying out that work. The Body Corporate could not decide that a balcony of a unit should be removed without the consent of the unit owner: as explained below at [55], that would be outside its powers. Some unit owners wanted to remove their balconies and were willing to agree to the work proceeding on that basis. But because removing a balcony from a unit would have an effect on the appearance of the development as a whole, and thus on other units, the Body Corporate’s advisers formed the view that body corporate consent under s 80(1)(i) was required to enable balcony removal to occur.
The 2017 Resolution was intended to resolve this practical issue by enabling unit owners to make firm decisions about whether their balcony would be removed when the remedial work was carried out. The remedial work could then be designed, approved by the Body Corporate, and implemented.
The High Court judgment
After traversing the background to the impasse between the owners and the submissions presented for the parties, the Judge said “[t]he key issue is whether the Body Corporate’s 2017 resolution, permitting the removal of the balconies by those owners who wished to do so, was ultra vires”.[8]
[8]High Court judgment, above n 1, at [47].
The Judge found the damage caused by water ingress around the balconies was extensive. The cost of the damage was reflected in the estimated cost of remediating the balconies and by the proposal that they be removed altogether and replaced by cladding to achieve a more reliable watertight repair.[9]
[9]At [55].
The Judge held that s 138 of the Act applied. In particular, he referred to the Body Corporate’s obligation under s 138(1)(d) to repair and maintain any building elements and infrastructure that relate to or serve more than one unit.[10] As noted above at [23]–[24], he held that the balconies were building elements as defined in s 5(1) of the Act and that they served more than one unit.[11] It followed that the Body Corporate had a duty to repair and maintain the balconies in the interests of all Body Corporate members.[12]
[10]At [48].
[11]At [49] and [51].
[12]At [52].
The Judge considered that the Body Corporate could not discharge its duty to repair and maintain building elements that relate to or serve more than one unit by employing the operational rules to authorise individual unit owners to undertake repairs and maintenance the Body Corporate must itself do.[13] Adopting the approach of Muir J in Wheeldon v Body Corporate 342525,[14] the Judge held the duty of an individual unit owner to repair and maintain building elements that serve more than one unit is subject to the Body Corporate’s s 138 duty to repair and maintain.[15] Accordingly, the duties and responsibilities of the Body Corporate could not be delegated other than pursuant to ss 108 and 109 of the Act.[16]
[13]At [60].
[14]At [58], citing Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [47]-[48].
[15]High Court judgment, above n 1, at [60].
[16]At [61]. It has never been suggested that ss 108 and 109 of the Unit Titles Act permitted delegation in the circumstances of this case.
The Judge held the proposed remedial measure of removing four of the five balconies of the development would result in a significant alteration to the aesthetic appearance of the development and so affect the integrity of the development.[17]
[17]At [63].
The Judge said the purposes of the Act included the protection of the integrity of the development as a whole.[18] He held the 2017 Resolution did not require the balconies to be removed, did not stipulate what the removed balconies should be replaced with and said nothing to require remedial work to be carried out to the same standard using the same materials to achieve a uniform aesthetic outcome.[19]
[18]At [66].
[19]At [64].
The Judge held the Body Corporate had erroneously treated the proposed removal of the balconies as being outside the scope of its s 138(1)(d) duty to repair and maintain, and as a matter falling within the scope of its operational rules dealing with approvals for the alteration of the exterior of the development.[20]
[20]At [69].
Having found the Body Corporate’s s 138(1)(d) duty to repair and maintain could not be discharged other than by the Body Corporate itself, the Judge found the 2017 Resolution, purporting to authorise individual unit owners to carry out work required to repair the water damage by removing the decks and balconies of their respective units and not replacing them, was ultra vires and unlawful.[21]
[21]At [70].
In the absence of unanimity amongst the unit owners concerning removal of the balconies, the Judge considered the appropriate mechanism for the Body Corporate to progress and resolve matters was by way of an application to the High Court, pursuant to s 74, for the approval of a settlement of a scheme which would set out the details of the proposed repairs to the development required to remedy the water damage in and around the balconies.[22]
[22]At [71].
The Judge made a declaration that the 2017 Resolution was ultra vires and invalid. He made an order quashing the resolution.[23]
Submissions for the Body Corporate
[23]At [73].
The Body Corporate accepted the balconies are within the boundaries of each unit title and are building elements as that term is used in the Act.
In its notice of appeal, the Body Corporate acknowledged it had a non‑delegable duty under s 138 to repair and maintain building elements. It could not delegate that duty to individual owners. It asserted the real effect of the 2017 Resolution was to reflect the formal consent of the Body Corporate to removal of the balconies and replacement with cladding and joinery, where desired by the particular unit owner. The 2017 Resolution was not intended to delegate responsibility for carrying out the remedial work to individual unit owners and did not purport to do so.
The Body Corporate submitted:
(a)The Judge made a number of specific errors in deciding that a body corporate, under s 138, could not, by a majority decision, adopt a method of repair involving inter alia replacement of balconies with cladding and joinery and thus must apply for a scheme under s 74 of the Act.
(b)The Judge had misdirected himself in holding that decisions of bodies corporate as to repair methodology under s 138 require unanimity of decision-making. Decisions about repair methodology require no more than an ordinary resolution.
(c)To the extent an owner objected to the repair methodology proposed or resolved to be adopted by a body corporate, the remedy was to exercise their rights under s 210 of the Act.[24]
(d)Consistent with the purposes of the Act, it should be for the body corporate and the unit owners, not the courts, to determine what repair plan owners should adopt for the purpose of discharging a body corporate’s duty to act under s 138.
(e)Once the duty to act under s 138 had been triggered, the Judge erred in determining that, where the repair required the removal of a building element (in this instance balconies), the element could not be replaced with a different type or category of building element.
(f)Adopting the purposive approach mandated by s 3, a more flexible approach to how repairs might be carried out should have been recognised.
[24]Section 210 permits a unit owner to seek relief from the Court from the effects of a body corporate decision on the grounds of oppression, see [18] of this judgment.
In its notice of appeal, the Body Corporate sought declarations that the Body Corporate was entitled to carry out repairs to the building elements of the building under s 138 without having to resort to any other provisions in the Act and, in particular, without having to resort to s 74 of the Act.
Submissions for the Bells
The Bells submitted that the Body Corporate’s arguments on appeal required the Court to be able to interpret the resolution as not delegating what the Body Corporate admits is a non-delegable duty, and as authorising not just removal of a building element but removal and replacement with something completely different. Counsel said that at no time was it suggested in the High Court that the resolution did not include a delegation to unit owners. Nor was it suggested the resolution authorised not just removal of a building element, but removal and replacement with something completely different.
The Bells submitted the resolution could not properly be interpreted as an agreement to both the removal of the balconies and their replacement with cladding and joinery as contended by the Body Corporate. Accordingly, the resolution did not authorise the Body Corporate to do what it now says it is authorised to do.
The Bells also submitted:
(a)Even if the resolution could be interpreted in the way the Body Corporate contends, it would be unlawful for the Body Corporate to act in accordance with the resolution because the Body Corporate would be removing the balconies and replacing them with another element, the cladding and joinery. This would be outside the Body Corporate’s powers, limited by s 138. The obligation under s 138(1) is to repair and maintain, consistent with an obligation to preserve. Consistent with this, s 138(5) states the s 138 duty includes duties to keep in a good state of repair and renew where necessary, the concepts of keeping and renewal also being about preservation.
(b)A swap of elements, as proposed by the Body Corporate, would be unfair on the Bells. The balconies are within the boundaries of each unit title. When a party buys a unit under the Act, it buys with it certain property rights. While a unit owner’s property rights are tempered by the Act, if a Body Corporate is to carry out repairs, it must do so as much as possible without affecting the status quo. This means the Body Corporate can do no more than repair and maintain the balconies.
(c)If the Body Corporate was able to act as it contends, this could have a drastic and unfair effect on the value of a unit and create a risk for others, such as a mortgagee or an insurer of the development, without such parties being given notice of the work or the way it might affect their interests.
(d)A purposive interpretation must be taken of how the Act is to be applied and that purpose can relate to social aspects of what is proposed, not just economic aspects. In that way, the value a unit owner might attach to the “look” of their unit and the development needs to be weighed in the balance. Allowing an existing element to be replaced with something completely different would not be striking a balance between the economic and social interests unit owners have in their unit and the development as a whole.
(e)If a balancing of interests is required to determine how an existing element might be replaced, that could only fairly happen with certainty as to what the replacement is to be. That certainty was not provided in the 2017 Resolution.
It was submitted for the Bells that, under s 80(1)(g) and (h), the primary obligation of unit owners is to repair and maintain the essential elements of their unit. Thus, to the extent s 80(1)(i) might be seen as potentially permitting a unit owner to make structural alterations, that must be interpreted to mean a body corporate can approve such alterations only if they do not result in the removal of the existing elements of a development. The Bells also submitted that the obligation of a unit owner to repair and maintain their unit, as set out in s 80(1)(g), limits the power of a unit owner to make alterations, as referred to in s 80(1)(h) and (i). They submitted the Act should be applied in that way to reflect the related obligation which the Body Corporate has to repair and maintain elements of the development as referred to in s 138.
Discussion
The meaning and effect of the 2017 Resolution
We begin by determining what the Body Corporate decided in the 2017 Resolution. The resolution must be interpreted by applying the normal principles of contractual interpretation, as this Court explained in Wheeldon v Body Corporate 342525:[25]
[92] Although not a contract, the delegation of authority by a body corporate to a body corporate committee is amenable to the accepted principles of contractual interpretation. The application of these principles to instruments beyond a typical contract was recognised by the Privy Council in Attorney General of Belize v Belize Telecom Ltd:
The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–913. It is this objective meaning which is conveniently called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
[93] The interpretation of the resolution was, therefore, to be approached on the basis of the well-settled principles summarised by the Supreme Court in Firm PI 1 Ltd v Zurich Australian Insurance Ltd:
It is sufficient to say that the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
The requirement that the reasonable person have all the background knowledge known or reasonably available to the parties is a reflection of the fact that contractual language, like all language, must be interpreted within its overall context, broadly viewed. Contextual interpretation of contract has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity. More recently, however, it has been confirmed that a purposive or contextual interpretation is not dependent on there being an ambiguity in the contractual language.
[25]Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) 17 NZCPR 353 (footnotes omitted).
We set the 2017 Resolution out again for ease of reference:
That the Body Corporate consents be granted to the units who would like to remove their balconies in the building re-clad subject to a building consent being obtained.
We make six points about the interpretation of the 2017 Resolution:
(a)First, the resolution does not on its face purport to delegate responsibility for carrying out remedial work to unit owners. The Body Corporate says, and we accept, that it was at all times clear that the Body Corporate would be responsible for the design and implementation of the remedial work to be carried out on the development.
(b)Second, the resolution does not require any unit owner to remove their balcony if they do not wish to do so.
(c)Third, the resolution does not give each unit owner permission to remove the balcony themselves, as and when they choose to do so. It only authorises removal of a balcony “in the building reclad”.
(d)Fourth, the resolution does not purport to approve any recladding work. As we read it, it proceeds on the tacit assumption that there will need to be a separate decision in the future approving the remedial work (described in shorthand as the “reclad”). Unit owners will have another opportunity to make a decision about the precise nature and details of that remedial work — including, importantly, what will replace the balconies.
(e)Fifth — a related point — the approval is given subject to a building consent being obtained. So any removal of a balcony must meet building legislation requirements.
(f)Sixth, the resolution is silent on what will replace the balconies. That is left to be dealt with in the context of decisions about the remedial work to be carried out by the Body Corporate.
Against that backdrop, we consider the reasons identified by the High Court and the Bells for the conclusion that the 2017 Resolution was invalid.
No impermissible delegation
We agree with the Judge that the Body Corporate has a duty to carry out the remedial work under s 138. We also agree that if there is a conflict between the duty of a unit owner to carry out remedial work under s 80(1)(g), and the duty of the Body Corporate to carry out remedial work under s 138, s 138 will prevail. The Body Corporate cannot simply leave the unit owners to do the work.
However the Bells’ argument that the 2017 Resolution involves an impermissible delegation of remedial work to unit owners is based on an incorrect premise. There is nothing in the 2017 Resolution that provides for a delegation of the remedial work that the Body Corporate is required to carry out, and intends to carry out.
We need not therefore consider the restrictions in the Act on delegation by a body corporate: they are not engaged. Rather, the question is whether the 2017 Resolution is a valid exercise of the Body Corporate’s power under s 80(1)(i) to consent to the removal of a balcony if the unit owner wishes to do so, with that removal to be effected by the Body Corporate in the course of the remedial work to be carried out by the Body Corporate.
Approval of unit owner decision to have balcony removed
Section 138 does not empower the Body Corporate to require a unit owner to remove their balcony as part of a repair strategy. But it does not follow that the Body Corporate cannot incorporate the removal of one or more balconies in the scope of remedial work, if the unit owner has consented to that removal, and subject to s 80(1)(h) and (i) and the other safeguards set out in the Act in relation to such alterations.
If there was no need for repairs to the building, it seems clear that a unit owner could decide to remove their balcony subject to obtaining the Body Corporate’s written consent under s 80(1)(i). We do not accept the Bells’ argument that the requirements of ss 80 and 138 in relation to repair and maintenance of certain building elements prevent a unit owner making changes to those building elements. The Act does not require building elements and infrastructure that relate to or serve more than one unit to be kept in their original form in perpetuity.[26]
[26]There are many other provisions that enable alterations to be made to a unit development over time. Subject to certain restrictions, the Body Corporate can, by special resolution, resolve to acquire an interest in land and add it to the common property (s 58). Similarly, the Body Corporate may, after a special resolution, agree to vary, surrender or assign any easement or revoke any covenant affecting the land on which the development is situated (s 61). Likewise, the owner of a unit may, for the benefit of their unit, deal with an easement or covenant affecting their land but, before doing so, must obtain the consent by special resolution and in writing of the Body Corporate (s 63). The owners of adjoining units can make changes to the boundary between units as shown on the unit plan but the Body Corporate must certify that the proposed changes do not affect the common property or materially affect the use, enjoyment or ownership interests of the units (s 65).
Unless and until a decision is made to remove a relevant building element, it must be repaired and maintained. But the obligations of repair and maintenance must, as a matter of statutory interpretation and common sense, be read subject to the ability of a unit owner to make alterations to a unit, with consent of the body corporate where required by ss 79(e) and 80(1)(i). Section 79(e) is not expressed to be subject to any provision other than s 80(1)(h) and (i). Nor do we consider that there is any implicit limit of the kind contended for by the Bells. The interpretation contended for by the Bells would preclude a wide range of alterations to a unit of the kind contemplated by s 80(1)(i): the operation of that provision would be severely constrained in a manner that would be inconsistent with the broader scheme of the Act. As noted above, the provisions of the Act seek to strike a balance between the s 3 goals of flexibility and responsiveness, and maintenance of the integrity of the development. The approach set out above is consistent with that balance.
Nor do we consider that the repair context precludes a unit owner from seeking, and obtaining, consent to make such an alteration, on the basis that the alteration will be carried out as an integral (lower cost) method of carrying out the remedial work that will be undertaken by the Body Corporate.
Allowing s 80 to be used in this manner will not prejudice the interests of third parties such as mortgagees or insurers. Their interests will continue to be protected in the normal way by requiring mortgagors and insureds to inform them of any changes to their property that might affect its value.
The interests of other unit owners are protected by the s 80(1)(i) approval mechanism, and by their ability to apply to the High Court under s 210 if an approval given under s 80(1)(i) is unjust or inequitable for the minority that voted against the approval.
There is no need to invoke s 74 of the Act and apply to the High Court for a scheme if the relevant decisions are capable of being made by the Body Corporate using other mechanisms such as s 80(1)(i). It would be unfortunate for all owners to have to be involved in the costs, delays and other exigencies of s 74 proceedings if the Act provides an alternative workable decision-making procedure, as we consider it does.
We therefore conclude that the 2017 Resolution was a valid resolution adopted by the Body Corporate under s 80(1)(i). The Bells did not challenge the resolution in the manner permitted by s 210.[27] It is now too late for them to do so.
Next steps
[27]An issue on which it appears they received advice from their lawyer at the time.
There is no dispute that this development has serious weathertightness issues. There has been substantial damage to the development through water ingress. Appropriate steps need to be taken to rectify the original design and construction faults that led to these problems. With further delay, there will be further damage to the detriment of all owners. The owners of four of the five units, 80 per cent of eligible voters, supported a resolution that, if requested by a particular unit owner, a balcony could be removed and the necessary area re-clad to deal with those problems. That resolution has not been challenged under s 210. The Body Corporate should now be permitted to proceed with the design and implementation of the remedial work, with that work incorporating removal of balconies where requested by the relevant unit owner as authorised by the 2017 Resolution.
The balcony removals will, as noted above, have to form part of the proposed remedial work. The Body Corporate will need to approve that remedial work. The details of how the work will be carried out will be decided at that time. The remedial work, including removal of some of the balconies, will also be subject to obtaining a building consent, thus ensuring it complies with relevant building laws.
Affected parties may be entitled to seek relief in accordance with s 210 if they are aggrieved by a decision made by the Body Corporate about the remedial work. But that is not an opportunity to revisit the question of removal of balconies: that issue has been determined by the 2017 Resolution, the validity of which we have upheld.
Conclusion
The appeal is allowed.
The declaration made in the High Court is set aside.
In its submissions the Body Corporate asked this Court to make various declarations as to the validity of the 2017 Resolution and what it was permitted to do consequent to that Resolution. The declarations were however largely framed with reference to s 138 and the way the Body Corporate had contended it should be applied. Our judgment relates primarily to the interpretation of s 80(1)(i). In the High Court, the Body Corporate did not, in its statement of defence, seek a declaration in the alternative to that sought by the Bells. We do not consider that such a declaration is necessary or appropriate.
Costs
Costs in the High Court should be determined by that Court in light of the outcome in this Court, if they cannot be agreed by the parties.
Costs in this Court should follow the event in the usual way. The Body Corporate is entitled to costs for a standard appeal on a band A basis, with usual disbursements. We do not certify for second counsel.
Result
The appeal is allowed.
The declaration made in the High Court that the appellant’s resolution of 9 June 2017 was ultra vires and invalid, and the order quashing that resolution, are set aside.
The costs order in the High Court is set aside.
The respondent must pay the appellant costs for a standard appeal on a band A basis, with usual disbursements.
Solicitors:
Grove Darlow & Partners, Auckland for Appellant
Daniel Overton & Goulding, Auckland for Respondent
4
0