Body Corporte 183523 v New Zealand Taishan Chinese Association

[2018] NZHC 2460

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-1225

[2018] NZHC 2460

UNDER

The Unit Titles Act 2010

BETWEEN

BODY CORPORATE 183523

First Applicant

NGAI HUNG LEE
Second Applicant

AND

NEW ZEALAND TAISHAN CHINESE ASSOCIATION

First Respondent

Further Respondents as listed in Schedule 1 to Originating Application

Hearing:	19 September 2018
Appearances:	D Bigio and K Wendt for the Applicants No appearances for the respondents
Judgment:	19 September 2018

ORAL JUDGMENT OF MUIR J

Counsel/Solicitors:

D Bigio QC, Barrister, Auckland K Wendt, Barrister, Auckland

Pidgeon Law, Auckland (L Pidgeon)

BODY CORPORATE 183523 v NEW ZEALAND TAISHAN CHINESE ASSOCIATION [2018] NZHC 2460

[19 September 2018]

[1]                   The applicants, Body Corporate 183523 and Ngai Hung Lee, apply by originating application for an order settling a scheme under s 74 of the Unit Titles Act 2010. The scheme is required to remedy substantial damage to the unit title development at 1A Harrison Road, Mt Wellington, Auckland.

[2]                   The originating application is supported by the affidavits of the Body Corporate’s chairperson Ngai Hung Lee, and Ms Eugenia Woo.

Preliminary Matters

[3]                   The applicants apply under r 4.56 of the High Court Rules 2016 for orders striking out and adding a party. The ownership of unit N in the Body Corporate has been recently transferred from Mr Simon Andrew Reilly and Auckland City Trustees Ltd (the current 14th respondents) to Mr Reilly and Scooter Trustee Ltd. The change is purely administrative, as the sole director and shareholder of Scooter Trustee Ltd is Mr Reilly. Service has already been affected on Mr Reilly, and the service documents have been couriered to the address of Scooter Trustee Ltd. The applicants seek orders Mr Reilly and Scooter Trustee Ltd be substituted as the 14th respondent. I am satisfied that the substitution will cause no prejudice to any party and I make orders accordingly.

[4]                   By way of further preliminary matter I note that at the first call of these proceedings counsel advised the Court that the owner respondents would be notified of the formal hearing date by email. This has been done, as confirmed in Ms Woo’s affidavit. No respondents have appeared today.

Background

[5]                   The Body Corporate is a 26-unit development in Mt Wellington, Auckland. It was constructed in 1996–1997 and is comprised of 4 separate blocks, with 22 three- storey townhouses and four two-storey townhouses. Between 2002 and 2003 the Body Corporate undertook investigations and obtained reports from the builder surveyors, Alexander & Co. These identified extensive weathertightness defects caused by the design and construction of the building, including damage to the exterior cladding, timber framing, internal linings and other elements.

[6]                   It has taken some time to get to the point where the Body Corporate is ready to progress remedial works. Between 2004 and 2009 it was preoccupied with litigation against the developer. Then, from 2010, the Body Corporate considered different remedial options, including redevelopment, demolition and rebuild, and re-clad and refurbishment. Ultimately, it resolved in 2015 to proceed with the re-cladding and refurbishment option. A draft scheme was approved unanimously at an EGM on 18 July 2017 by those owners present. This was further amended in a non-material way by the Body Corporate committee in April 2018, following recommendations from the Body Corporate’s lawyers.

Discussion

[7]                   Under s 74(1) of the Act, the High Court may settle a scheme on an application by specified parties (including a body corporate or owner) if “any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled”.

[8]                   A scheme settled under s 74 may include provisions for reinstatement for a building in whole or in part.1 The Court has a very broad discretion to make “any orders that it considers expedient or necessary for giving effect to the scheme”.2

[9]                   The leading authority on s 74 is the judgment of the Court of Appeal in Tisch v Body Corporate 318596.3 Tisch was decided under the 1972 Act, but the wording of s 74 of the current Act is the same for material purposes.

[10]               In Tisch, the Court of Appeal approved the following three step process when the Court considers an application to settle a scheme:4

(a)Step 1 – the Court must be satisfied that the building has been damaged or destroyed.

1      Section 74(3).

2      Section 74(4).

3      Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679; affirmed in St John's College Trust Board v Body Corporate No 197230 [2013] NZCA 35, (2013) 14 NZCPR 56.

4 At [35].

(b)Step 2 – if satisfied, the Court must decide whether to settle the scheme. That is, the Court must decide whether a scheme is appropriate in the circumstances.

(c)Step 3 – if the Court decides the scheme is appropriate, it must then decide what the terms of the scheme should be.

[11]               The evidence of the chairperson establishes that the first step has been met and the property suffers from extensive weathertightness defects.

[12]               As to the second step, I am satisfied that a scheme is appropriate in all of the circumstances. It will enable necessary work to proceed in a co-ordinated manner, with costs to be allocated among owners, and will set out the rights, duties and obligations of the owners and the Body Corporate in relation to the remediation project.

[13]               As to the third step, the Court of Appeal in Tisch set out five factors to be taken into account when considering the terms of a proposed scheme:5

(a)Whether the scheme has broad support from owners. A scheme with broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners.

(b)The scheme should be appropriately detailed. The more detailed a scheme, the less scope for later misunderstanding and argument about it.

(c)Providing that what has been done by a body corporate before the s 74 scheme is actually approved is in accordance with the scheme, the order has retrospective effect.

(d)Work should be done to the same standard, at the same time.

5      At [45]–[49].

(e)The terms of the scheme should depart from the scheme of the Act no more than is reasonably necessary to achieve what is fair between unit owners in the circumstances. An exception to this fifth principle is a scheme unanimously agreed to by all unit owners.

[14]               A draft of the scheme was circulated to all owners for consideration on 11 July 2017, in advance of the EGM. At the EGM on 17 July 2017, approximately 65 per cent of owners were represented and all voted in favour of the proposed scheme. While some owners did not participate, there has been no opposition to the proposed scheme then or now.

[15]               The approval of the scheme at the EGM was subject to “any non-material amendments to the ... scheme recommended by the lawyers acting for the Body Corporate and approved by the Body Corporate Committee”. The scheme was amended in a non-material way by the Body Corporate committee in April 2018, following recommendations from its solicitors. No objections to those changes have been raised. I am, therefore, satisfied that the scheme has broad support from the owners.

[16]               I am also satisfied that the scheme is appropriately detailed, and will allow the work to be undertaken at the same time and to the same standard. The details of the proposed scheme are indeed very similar to those that have been previously approved by this Court.

[17]               A distinguishing feature of this scheme is the cost allocation. The Body Corporate identified that allocation of costs using a rigid unit property/common property approach would result in complex and inconsistent allocation of repair costs among owners. In order to address this, the scheme allocates costs on the basis that owners of similar units will pay the same fixed cost to repair their units generally to that type of unit. Owners will know in advance what their part of the fixed remediation cost will be.

[18]               Costs that are not directly attributable to the repair of specific units (like consultants’ fees), are shared among owners according to their utility interest, which

in my view is fair given these costs do not benefit one or more units substantially more than they benefit other units. The cost of unforeseen work is also allocated by utility interest, which reduces the risk to individual owners if there is a major cost increase for their particular unit. Similar cost allocations have been approved by this Court in the past.6

[19]               Overall, I consider the proposed cost allocations to depart no more than is reasonably necessary to achieve what is fair between unit owners in the circumstances. I am fortified in that conclusion by the broad support the scheme has received and the absence of a dissentient voice.

Result

[20]               I make orders settling the scheme under s 74 of the Act on the terms in the Body Corporate’s application.

[21]I make a further order an r 4.56(1) of the High Court Rules 2016:

(a)the second-named 14th respondent, Auckland City Trustees Ltd, is struck out as a party to this application; and

(b)Scooter Trustee Ltd is joined as the replacement second-name 14th respondent to this application, on the basis it ought to be joined and be bound by the Court’s orders.

[22]I make no order as to costs.

Muir J

6      Body Corporate 183930 v Chua [2016] NZHC 3064.