Body Corporate S89766 v Brocorp Properties Limited
[2015] NZHC 2891
•19 November 2015
IN THE HIGH COURT OF NEW ZEALAND
HAMILTON REGISTRY
CIV-2015-419-317
[2015] NZHC 2891
UNDER the Unit Titles Act 2010 IN THE MATTER
of an application for approval of a scheme pursuant to section 74
BETWEEN
BODY CORPORATE S89766
Applicant
AND
BROCORP PROPERTIES LIMITED
First Respondent
BOSWELL PROPERTIES LIMITED
Second Respondent
Continued …
Hearing: 19 November 2015 Counsel:
M Brady for applicant
No appearance for respondents
Judgment:
19 November 2015
JUDGMENT OF KATZ J
This judgment was delivered by me on 19 November 2015 at 4:00pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
BODY CORPORATE S89766 v BROCORP PROPERTIES LIMITED [2015] NZHC 2891 [19 November 2015]
Solicitors: Whitfield Braun Limited, Hamilton
KEY CITY PROPERTIES LIMITED
Third Respondent
GREENER ACRES PROPERTIES LIMITED
Fourth Respondent
LUCAS JOHN SIKKING and AMELIA ROSE HILLS
Fifth Respondent
HJK RENTALS LIMITED
Sixth Respondent
JENNA ANN HEERDEGEN
Seventh Respondent
PAMELA ANN SKITTRUP and MICHAEL JOHN PAYNE and MCCAW LEWIS CHAPMAN TRUSTEES (NO3) LIMITED
Eighth Respondent
TANIA MARIE CAREY and S R HAMILTON CORPORATE TRUSTEE LIMITED
Ninth Respondent
JANET BEVERLEY WILLIAMS and DTR TRUSTEE SERVICES LIMITED
Tenth Respondent
ROSALIND TAYLOR and HUGH RODERICK CATHERWOOD
Eleventh Respondent
WENDY ANN RICHES and BRYCE JOHN PRESTIDGE and GRANT JAMES PRESTIDGE and JOHN JOSEPH O'SHEA
Twelfth Respondent
Continued …
DEREK CHARLES THURSBY and THOMAS TE HIRA THURSBY and VHARI EMMA THURSBY
Thirteenth Respondent
COREY DAVID BAINES
Fourteenth Respondent
SURESH KRISHNAN and LIPIKA SEN
Fifteenth Respondent
BLUE SPIRAL GROUP LIMITED
Sixteenth Respondent
MICHAEL WILFRED CRABB HAMMONDS and DANA LESLIE BRIDGE
Seventeenth Respondent
WAYNE ANDREW POOLEY and LINDSAY JANE POOLEY
Eighteenth Respondent
SEAHORSE BEACH INVESTMENTS LIMITED
Nineteenth Respondent
MALCOLM JOHN SMITH
Twentieth Respondent
RAYLENE ADELE MARSH and WENDY LORRAINE HAYMAN
Twenty-first Respondents
KATHERINE DAWN HUBERT
Twenty-second Respondent
STEPHEN MAURICE JUDGE and SUPATCHA JUDGE
Twenty-third Respondents
Continued … AWON LIMITED and OWEN MCLEOD & CO TRUSTEES LIMITED
Twenty-fourth Respondents
BETH LORRAINE GREENE and LARRY WILLIAM GREENE and THOMAS BEATSON MCCLUNIE
Twenty-fifth Respondents
PETER JOHN EDGE and JENNIFER ANNE EDGE
Twenty-sixth Respondents
BRUCE JAMES GRIBBLE and LORNA ELIZABETH GRIBBLE and JAMES COLIN GORDON COCHRANE
Twenty-seventh Respondents
ALEXANDER JOHN DALY and CHUNHUA YUAN
Twenty-eighth Respondents
ASB BANK LIMITED
Twenty-ninth Respondent
MORTGAGE HOLDING TRUST COMPANY LIMITED
Thirtieth Respondent
ANZ BANK NEW ZEALAND LIMITED
Thirty-first Respondent
PEPPER NEW ZEALAND (CUSTODIANS) LIMITED
Thirty-second Respondent
Continued ...
KIWIBANK LIMITED
Thirty-third Respondent
WESTPAC NEW ZEALAND LIMITED
Thirty-fourth Respondent
BANK OF NEW ZEALAND
Thirty-fifth Respondent
AMP HOME LOANS LIMITED
Thirty-sixth Respondent
THE CO-OPERATIVE BANK LIMITED
Thirty-seventh Respondent
Introduction
[1] The applicant is the body corporate (“Body Corporate”) of a unit title development at 391 Victoria Street, Hamilton (“Complex”). The Complex is a single building that was originally constructed in the 1980s for the purposes of commercial use. In the early 2000s it was renovated to provide for mixed commercial and residential use. The Complex consists of 32 units over five levels.
[2] The Complex is suffering from significant weathertightness issues. These are caused by various defects to different aspects of the building including the roof, gutters, cladding and balconies. The defects relate to both common property and unit property. There is a need for the entire complex to be remediated in order to ensure that it is weathertight, including re-roofing, re-cladding, reforming balconies and replacing all flashing elements.
[3] Since defects were first identified over five years ago, the Body Corporate has attempted to engage with unit owners in an effort to obtain their agreement to remedial works and to work with consultants to develop a plan for the remedial works. Unfortunately a number of unit owners have failed to engage in that process. As a result it has become apparent to the Body Corporate that the remedial works cannot proceed unless court approval is obtained for a scheme under s 74 of the Unit Titles Act 2010 (“Act”).
[4] The Body Corporate accordingly seeks an order for the approval of a scheme of arrangement to undertake significant remedial works to the Complex. Its application is supported by a comprehensive affidavit of Kevin Mark, the chairperson of the Body Corporate and also the chairperson of the Body Corporate Committee. None of the respondents have filed any documents in opposition to the application, nor did any of the respondents appear at the hearing of the application.
Schemes under the Unit Titles Act – the law
[5] A body corporate may apply to the High Court under s 74 of the Act for an order settling a scheme in respect of any building or other improvement comprised in
a unit that is damaged or destroyed, but for which the unit plan has not been cancelled.1 The scheme may include provisions for the reinstatement in whole or in part of the building or other improvement.2 The works are not limited to “essential” works. Work that will prevent or minimise damage can be included in a scheme.3
[6] In ordering the settlement of a scheme the Court has discretion to make any orders it considers expedient or necessary to give effect to the scheme. These include directing the payment of money by or to the Body Corporate or by or to any person and imposing any terms and conditions that it thinks fit.4
[7] Section 48 of the Unit Titles Act 1972 was the predecessor to s 74 of the Act. This section enabled the Court to approve a scheme to repair the buildings when it was impractical to leave the repair work to individual proprietors.5
[8] In Tisch v Body Corporate No 318596 the Court of Appeal established a three step process for considering an application to settle a scheme of arrangement:6
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.
[9] Tisch has been affirmed by the Court of Appeal in St John’s College Trust Board v Body Corporate No 197230.7
[10] The first step is a triggering requirement. While the Court of Appeal did not provide any guidance as to the extent of damage necessary to trigger consideration of
1 Unit Titles Act 2010, ss 74(1) and (2).
2 Unit Titles Act 2010, s 74(3).
3 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [42].
4 Unit Titles Act 2010, s 74(7).
5 Body Corporate No 183059 v Sokol Ltd HC Auckland CIV-2010-404-140, 8 October 2010.
6 Tisch v Body Corporate No 318596, above n 3,at [35].
7 St John’s College Trust Board v Body Corporate No 197230 [2013] NZCA 35; (2013) 14 NZCPR 56.
a scheme, the Court indicated that a scheme is unlikely to be considered unless the damage is substantial.8
[11] The second step is to determine whether a scheme is appropriate. Such consideration should not be founded in concepts of expedience and necessity.9 However, these may be relevant to the Court’s consideration of how to frame a scheme.10 A scheme is viewed as a remedy of last resort.11 As such, it may be appropriate where one unit proprietor refused to engage in consultation about remedial works and is opposed to the remedial work and/or scheme.12
[12] The third step is to consider the terms of the scheme. This involves “balanc[ing] the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit holders”.13
[13] The Court of Appeal in Tisch proposed the following guiding principles to be considered in determining the appropriate terms of a scheme:14
A scheme with broad support from owners will be preferred; The scheme should be appropriately detailed;
Provided that what has been done by the body corporate before the scheme is approved is in accordance with the approved scheme, a scheme can have a retrospective effect;
The work should be done to the same standard and at the same time to maximise efficiency and minimise cost and disruption; and
[14] Where the scheme departs from the Unit Titles Act and/or the body corporate rules, the departure should be no more so than is necessary to achieve what is fair in the circumstances.
8 Tisch v Body Corporate No 318596, above n 3, at [36].
9 Tisch v Body Corporate No 318596, above n 3, at [38].
10 Tisch v Body Corporate No 318596, above n 3, at [39].
11 Tisch v Body Corporate No 318596, above n 3, at [37]; Fraser v Body Corporate S63621 (2009) 10 NZCPR 674 (HC) at [97].
12 Body Corporate 205963 v Becker HC Auckland CIV-2009-404-006017, 21 April 2010.
13 Tisch v Body Corporate No 318596, above n 3, at [44].
14 Tisch & Ors v Body Corporate No 318596, above n 3, at [44]-[49].
[15] Heath J approved a scheme in Body Corporate 172108 v Meader that has subsequently been used and approved in other decisions.15 In Heath J’s view the shaping of the scheme should focus on pragmatic considerations.16
[16]I will consider, in turn, each of the three steps set out in Tisch.
Has the Complex been damaged or destroyed?
[17] The first step is that the Court must be satisfied that the building has been damaged or destroyed.
[18] In early 2009, unit owners identified issues with the units leaking. In 2010, the Body Corporate engaged experts in relation to issues with the roof. Cove Kinloch Waikato Limited (“Cove Kinloch”) was subsequently engaged to project manage the roof replacement works. Unfortunately, Cove Kinloch identified that there were other serious issues with the Complex. In November 2011, they prepared a condition report for 29 of the residential units. That report identified extensive weathertightness defects.
[19] The extent of damage occurring to the unit title development is set out in the Cove Kinloch Report. It includes issues in the following areas:
(a)Roof: including issues with the membrane and moisture ponding.
(b)Gutters/Spouting: including issues with internal gutters not draining and moisture leaching from downpipes.
(c)Parapets: including issues with the cap flashing being open allowing moisture ingress.
(d)Penetrations: including issues with penetrations through the roof being totally reliant on sealant or the membrane for weathertightness.
15 See Body Corporate 172108 v Meader (2011) 12 NZCPR 101 (HC); Body Corporate 172108 v Meader (No 2) HC Auckland CIV-2009-404-6868, 19 August 2010, scheme approved in Tisch v Body Corporate No 318596 [2011] NZCA 420 at [45].
16 Body Corporate 172108 v Meader, above n 15, at [20]—[21].
(e)Flashings: including issues with a lack of adequate flashing and deficient flashings.
(f)Joinery: including issues with unsealed and open jambs and inadequate flashing.
(g)Cladding: including issues with cracking and premature failure of the Hardiflex sheeting.
(h)Balcony area: including issues with the planter boxes and the tiled upstands not allowing water to drain from the cladding.
(i)Internal area: including issues with elements in the plant room and the waste pipes in the car park failing.
(j)Moisture: including moisture readings between 7 per cent and 40 per cent and moisture ingress occurring due to various processes.
[20] Based on Cove Kinloch’s findings, it is clear that the building has been damaged and is likely to suffer further damage if remediation works are not undertaken.
Is settlement of a scheme appropriate in the circumstances?
[21] The second step in the Tisch analysis is to identify whether settlement of a scheme is appropriate in the circumstances.
[22] The Complex comprises 32 units that are owned by 29 separate entities. Four owners own two units each. Mr Mark’s affidavit indicates that there have been significant issues with unit owners failing to engage with the Body Corporate in relation to the issues identified, or indeed more generally. Over the last five years only 14 units (six of which are owned by three owners) have been represented at 75 per cent of the general meetings of the Body Corporate. Of the remaining units, 12 unit owners have not attended any general meetings at all over the past five years.
[23] Based on the Cove Kinloch report it is clear that the issues with the Complex relate to each of the common property, the building elements and infrastructure and property comprised in individual units. Further, the delineation between the boundary of the common and private property is unclear in some respects. That is because the boundary between unit property and common property is the external face of the walls and structures. However, large and extensive planter boxes have been mounted on the exterior balconies of some units. The expert surveyors who have been engaged advised that because the planter boxes have not been installed as per the original plans, and overhang the external face of the building, they are on both common and private property.
[24] The Body Corporate has been working towards having the issues with the Complex remediated since 2012. Although there have been some delays in determining the full extent of the damage, the key difficulty has been the apathy of some unit owners, or their unwillingness to engage in reaching agreement as to a way forward. That said, the scheme has broad support from the unit owners who have engaged in the process. At the 2015 Annual General Meeting of the Body Corporate a resolution was passed to approve the draft scheme. Twenty one owners either attended the AGM or appointed proxies. Nineteen unit owners voted in support of the resolution, with one unit owner abstaining and no votes against. Accordingly, the scheme has broad support from those unit owners that are participating in Body Corporate matters.
[25] There is a need for the entire complex to be remediated in order to ensure that it is weathertight, including re-roofing, re-cladding, reforming balconies and replacing all flashing elements. In the absence of a court approved scheme, if just one unit owner does not agree to the remedial works, does not provide access to his/her unit, or does not pay the costs associated with the remedial works, this would likely defeat the entire remedial project. In that event the condition of the Complex will continue to deteriorate, to the detriment of all unit owners.
[26] I note that although the Act enables the Body Corporate to repair and maintain building elements or infrastructure that relates to or serves more than one unit,17 difficulties arise in respect of a number of matters.
[27] First, costs can only be levied in accordance with utility interest or ownership interests,18 but can then be recovered where such works are for the substantial benefit of one or more units.19 The Body Corporate’s evidence is that there are costs associated with the planter boxes which, although intended to be private property, were actually constructed over common property. The costs associated with the planter boxes would otherwise be required to be raised against all units, and subsequently sought to be recovered from those units that had the benefit of the planter boxes. The Body Corporate submits that it would be much more effective to enable levies to be raised in accordance with benefits to be received in the first instance.
[28] Second, the remedial works will necessarily extend to and involve some works that relate to only one unit (and are therefore outside the Body Corporate’s repair and maintenance obligations), such as replacement of deck tiles on individual balconies, and any necessary interior remediation. The Body Corporate’s position, however, is that as the unit title development comprises one building, it is important that the full scope of remedial works is managed and undertaken under one comprehensive contract to ensure that all required works are properly completed. Such an approach will also maximise efficiency and minimise cost and disruption.
[29] Further, the proposed scheme is necessary to allow the Body Corporate to obtain the necessary finance to undertake the repairs, through a combination of levying costs in advance, charging interest to owners and seeking financing from other parties to cover defaulting owners’ levies.
[30] Taking all of these matters into account, I am satisfied that the settlement of a scheme is appropriate. The Body Corporate has used its best endeavours, over several years, to try and get agreement as to an agreed plan of remediation. It has been unable
17 Unit Titles Act 2010, s 138.
18 Unit Titles Act 2010, s 121.
19 Unit Titles Act 2010, s 126.
to do so, however, due to a lack of engagement on the part of some of the unit owners. If a scheme of arrangement is not ordered, it is likely that the Complex will continue to deteriorate, to the detriment of all unit owners. Further, without the scheme, it is unlikely that the Body Corporate will be able to finance any remedial works.
What should the terms of the scheme be?
[31] The terms of the draft scheme that has been put forward are largely based on the scheme that was approved by Heath J in Meader. There have been some changes to tailor the scheme to the Complex’s particular situation, including the following:
(a)Clause Two: The powers of the Body Corporate are delegated to the Body Corporate Committee. In Meader, the Body Corporate was appointed as the agent of the unit owners, as is the case here, however, there was no delegation to the Body Corporate Committee.
(b)Clause Three: The scheme authorises that all repairs are undertaken that are reasonably necessary, in the opinion of the Body Corporate, whether they relate to private and/or unit property, and generally in accordance with the Cove Kinloch Design Concept. In Meader, the repair work was being done under a pre-existing building consent.
(c)Clause Four: The scheme authorises the Body Corporate to engage consultants to oversee the steps necessary to undertake the repair works and manage the scheme. In Meader, the body corporate could engage consultants but for more limited purposes.
(d)Clause Five: The scheme authorises the Body Corporate to engage a contractor to carry out the repairs. This is to happen through a tender process managed by a consultant appointed by the Body Corporate. There was no comparable provision in Meader. In that case the scheme simply provided for the Body Corporate to engage and instruct suitably qualified persons with no parameters around the process.
(e)Clause 23: The scheme allows additional work to be undertaken to unit property while the repairs are being undertaken at the discretion of the Body Corporate. There was no comparable provision in Meader, however in that case, different arrangements were made for the penthouse apartment to the other units in the unit title development.
[32] The scheme appears to be appropriately detailed. It addresses all reasonably foreseeable issues by authorising the repair of the Complex in accordance with the Cove Kinloch Design Concept, giving the Body Corporate the necessary powers to undertake tasks such as appointing consultants and contractors and levying costs associated with the remedial works and detailing the duties and obligations of each party.
[33] I am satisfied that the terms of the scheme are appropriate in all the circumstances of this case.
Result
[34] The application is granted. I order settlement of a scheme, pursuant to s 74 of the Unit Titles Act 2010, on the terms set out in the draft scheme annexed as Exhibit AC to the affidavit of Kevin David Mark, sworn 14 September 2015.
Katz J
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