Boutique Body Corporate Limited v J Star Property Management Limited

[2012] NZHC 3169

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-004390 [2012] NZHC 3169

IN THE MATTER OF     a Case Stated from the Tenancy Tribunal pursuant to s 103 of the Residential Tenancies Act 1986

BETWEEN  BOUTIQUE BODY CORPORATE LIMITED

Plaintiff

ANDJ STAR PROPERTY MANAGEMENT LIMITED

Defendant

Hearing:         20 November 2012

Counsel:         T J Herbert appearing as an Amicus

C A Leishman (a lay person appearing with leave) for the Plaintiff

J O Rohl (a lay person appearing with leave) for the Defendant

Judgment:      27 November 2012

[RESERVED] JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie

On 27 November 2012 at 3.00 pm

Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

BOUTIQUE BODY CORPORATE LIMITED V J STAR PROPERTY MANAGEMENT LIMITED HC AK CIV

2012-404-004390 [27 November 2012]

Introduction

[1]      Boutique Body Corporate Limited (“Boutique”) has made application to the Tenancy Tribunal (“the Tribunal”) pursuant to s 140(5) of the Unit Titles Act 2000, seeking an order terminating a building management agreement between it and J Star Property Management (“J Star”).

[2]      Mr J Hogan, a tenancy adjudicator, appointed under the Residential Tenancies Act 1986, and sitting as a Tribunal, has stated a case for the opinion of this Court. The question of law posed is as follows:

Does section 171(4) of the Unit Titles Act 2010 prevent the Tribunal from determining an application seeking an order to terminate a service contract where  the  value  of  the  contract  or  underlying  rights  arising  under  the contract may exceed $50,000?

[3]      I am advised that this is something of a test case and that there are a number of proceedings before the Tribunal which will be affected by this judgment.

Factual Background

[4]      Body Corporate 358917 was created on 26 October 2005.  Boutique, as the secretary of Body Corporate 358917, is its agent for the purpose of the application to the Tribunal.

[5]      Body Corporate 358917 entered into a building management agreement with an entity known as 10 Beaumont Limited on 14 November 2005.   Relevantly, the building management agreement is for a term of 35 years, with a yearly management fee adjusted annually by the consumer price index.  Although the case stated does not say so, I presume that the building management agreement imposes various obligations on the building manager to manage the building administered by the body corporate.

[6]      The current management fee is $30,078 plus GST per annum.  The building management agreement has 29 years left to run.

[7]      In   2006,   J Star   purchased   the   building  management   agreement   from

10 Beaumont Limited for $130,000 plus GST.   It recently sought to on-sell the service contract to a third party for $120,000.

[8]      Boutique,  on  behalf  of  Body  Corporate  358917,  seeks  to  terminate  the building management agreement under s 140(5) of the Unit Titles Act, on the basis that it is harsh or unconscionable.

[9]      The case stated records:

(a)      that the proceeding brought does not directly seek an order requiring any person to pay any sum, or otherwise incur expenditure, in excess of $50,000;

(b)that an order terminating the building management agreement could potentially result in losses of more than $50,000 to J Star;

(c)      that if the Tribunal declines the application to terminate the building management agreement, Body Corporate 358917 will be required to adhere to the terms of the contract for the balance of the term.  Inter alia, that will require payment by Body Corporate 358917 of yearly management fees, likely to total more than $800,000.

[10]     J Star   denies   that   the   building   management   agreement   is   harsh   or unconscionable.   Further, it has argued that the Tribunal is not the “appropriate decision maker” for determining Boutique’s application under s 140(5) of the Act and/or that the application should be referred to the District Court pursuant to s 83(2) of the Residential Tenancies Act 1986.

[11]     The case stated records that for the purpose of the opinion being sought from this Court, it is accepted by the parties:

(a)      That  the  building  management  agreement  is  a  service  contract  as defined in the Act;

(b)That the building management agreement was entered into before the relevant “control period” ended;

(c)       That the remedy of compensation from the original owner pursuant to s 140(2) is not now available to Body Corporate 358917.

Contentions of the Parties

[12]    Boutique contended that the Tribunal does have jurisdiction to hear the application.   It argued that s 171(4) of the Unit Titles Act only places a limit on claims that exceed $50,000 where a payment is sought.   It submitted that what is sought in this case is not payment of a sum, and that therefore, the Tenancy Tribunal has jurisdiction to hear the application.  Further, it submitted that ss 172 and 173 of the Act could have referred explicitly to applications under s 145, and that they do not do so.

[13]     J Star  contended  that  the  Unit Titles Act  does  not  expressly address  the situation where a Tribunal decision to terminate a service contract could have the effect of creating a loss in excess of $50,000, and that s 171(4) must be read as extending to such situations.  It argued that this interpretation is supported by the use of the term “appropriate decision maker” in s 140(5) of the Act, because, if the Tribunal is to have jurisdiction in all cases, the relevant section would refer to “[t]he Tenancy Tribunal” rather than “[t]he appropriate decision maker”.

Submissions of Amicus

[14]     Pursuant to a minute issued by Ellis J on 17 August 2012, Mr T J Herbert, was appointed as an amicus, I have received comprehensive and helpful submissions from him, and I am grateful for them.

[15]     In broad terms, Mr Herbert submitted as follows:

(a)       Pursuant to s 171 of the Act, the Tribunal has jurisdiction to hear and determine all disputes arising between various identified persons, in

relation to unit title developments.  The listed parties include bodies corporate and service contractors.  As application under s 140(5) is a dispute  in  relation  to  a  unit  title  development.    Prima  facie,  the Tribunal has jurisdiction to hear and determine the application made by Boutique.

(b)Section   171(4)   limits   the   Tribunal’s   otherwise   all   embracing jurisdiction.   Section 171(4)(a) is relevant in the present case.   It provides that the Tribunal does not have jurisdiction to make an order requiring any person or body to pay any sum, or to do any work to a value, or otherwise incur expenditure, in excess of $50,000. These are all positive orders.

(c)      Any order the Tribunal might make under s 140(5) is not a positive order requiring any person or entity to do anything.   Rather, the Tribunal is required to decide whether to terminate or refuse to terminate the service contract in issue.

(d)An application under s 140(5) does not directly involve money and the indirect consequences of an order are irrelevant.

(e)      Any loss J Star may suffer if the service contract is to be terminated is not caught by s 171(4).   Nor are any payments the body corporate may be required to make if the service contract remains on foot.

Analysis

[16]     I have not found this issue easy to resolve.     The Unit Titles Act is  not particularly clear and it contains conflicting provisions.

[17]     I start with s 140.  Relevantly, it provides as follows:

140     Compensation for, or termination of, service contracts

(1)      This section applies to a service contract—

(a)       to which the body corporate of a unit title development is a party; and

(b)       that was entered into before the date that the control period ended in relation to the unit title development concerned.

(2)       The appropriate decision-maker may, on the application of the body corporate,  require  a  person,  or,  as  the  case  may  be,  persons, described  in  subsection  (3)  to  pay  compensation  to  the  body corporate if it appears to the appropriate decision-maker that the body corporate has suffered loss or damage because that person has, or, as the case may be, those persons have, failed to comply with section 139.

…

(5)       The appropriate decision-maker may, on an application made by the body corporate, make an order terminating the service contract if it appears to the appropriate decision-maker that the contract is harsh or unconscionable

[18]     As can be seen, both s  140(2) and (5) use the words  “[t]he appropriate decision maker”.  The words “appropriate decision maker” are defined in s 5.  They mean the Tribunal or the Court that, if the matter were a dispute under subpart (1) of Part 4, would have jurisdiction over that dispute in accordance with that subpart of the Act.

[19]     Subpart (1) of Part 4 of the Act deals with disputes.  Sections 171, 172 and

173 deal respectively with the jurisdiction of the Tenancy Tribunal, the District Court and the High Court in relation to disputes under the Act.

a)       Section 171(1) provides as follows:

171     Jurisdiction of Tenancy Tribunals

(1)       Except as provided in this section, a Tenancy Tribunal (a Tribunal) constituted under section 67 of the Residential Tenancies Act 1986 has jurisdiction to hear and determine all disputes arising between any persons of the kind listed in subsection (2) in relation to a unit title development (a unit title dispute).

…

(4)      The Tribunal does not have jurisdiction—

(a)       to make an order requiring any person or body to pay any sum, or to do any work to a value, or otherwise incur expenditure, in excess of $50,000; or

(b)      to  hear a  dispute relating to the application of insurance money under section 136(4); or

(c)      to hear any dispute relating to the title of land

…

b)       Section 172(1) provides as follows:

172     Jurisdiction of District Courts

(1)       A District Court has jurisdiction to hear and determine a unit title dispute if the order sought requires any person or body to pay any sum, or to do any work to a value, or otherwise incur expenditure, in excess of $50,000 but not more than $200,000.

c)       Section 173(1) provides as follows:

173     Jurisdiction of High Court

(1)       The High Court has jurisdiction to hear and determine any unit title dispute if—

(a)       the order sought requires any person or body to pay any sum, or to do any work to a value, or otherwise incur expenditure, in excess of $200,000; or

(b)      the dispute relates to the title of land.

[20]     The use of the words “[t]he appropriate decision maker” in s 140(5), suggests that each of them, the Tribunal, the District Court, or the High Court, as the case may be,  has  jurisdiction  to  make  an  order  terminating  a  service  contract  which  it considers is harsh or unconscionable.   The Tribunal is the default decision maker pursuant to s 171(1), but its jurisdiction, and the jurisdiction of the District Court, is limited as provided in ss 174(4) and 172(1) respectively.

[21]     Both ss 174(4) and 172(1) refer to the making of an order requiring any person or body to pay any sum, to the making of an order requiring any person or body to do any work, or to the making of an order requiring any person or body to otherwise incur expenditure, to specified monetary values.

[22]     The wording in the Unit Titles Act can be contrasted with similar provisions contained in other legislation.   For example, the section imposing a jurisdictional threshold on the Disputes Tribunal refers to “the total amount in respect of which an

order of the Tribunal is sought”.1    The section imposing a monetary limit on the District Court’s civil jurisdiction refers to proceedings “where the debt, demand or damages, or the value of the chattels claimed, is not more than $200,000”.2    With both the Disputes Tribunal and the District Court, the jurisdictional threshold is determined by reference to the amount in dispute.

[23]     Section 171(4) focuses attention not on the amount in dispute, but rather, on the terms of the order sought.   The question posed is whether the Tribunal has general jurisdiction where the order it makes does not directly require a payment, nor the doing of work, nor the incurring of expenditure, but the order is in respect of and affects rights worth over $50,000?

[24]     Section 5(1) of the Interpretation Act 1999 requires that the meaning of an enactment must be ascertained from its text and in light of its purpose.  I deal first with the text of s 171(4) and then with its purpose.

[25]     There is, in my judgment, an initial problem with s 171(4).  It refers to the making of an order.  It does not refer to the declining of an order.  Sensibly, however, it must be read as referring to the making of an order either granting or declining an application.   Otherwise, s 175 would become otiose.   It permits the Tribunal to transfer  proceedings  to  either  the  District Court  or  the  High Court  if  it  has  no jurisdiction to hear and determine the matter before it.  Necessarily, the Tribunal has to be able to consider whether or not it has jurisdiction before it embarks on a hearing on an application.

[26]   Suppose that a body corporate makes application to the Tribunal for compensation under s 140(2), seeking payment of $100,000.  It cannot sensibly be suggested that the Tribunal must hear the matter, but then decline jurisdiction and refuse to make an order if it decides to award $50,001 by way of compensation, but retain jurisdiction and make an order if it awards $49,999.  Nor can it be suggested that the Tribunal must first hear the application and then decline jurisdiction if it decides that no compensation is payable at all.  Rather, in my judgment, the Tribunal

must  consider what  is sought  in  an  application  made to  it,  and  then determine whether it has jurisdiction and if not, transfer the proceedings to the appropriate Court under s 175.

[27]     This suggests that it is not the form, but rather the effect of an order that is critical under s 171(4).  An order granting or declining an application under s 140(5) of the Unit Titles Act is not an order directly requiring that any person or body do anything, let alone pay any sum, or do any work to a value, or otherwise incur expenditure, in excess of $50,000.   An order granting or declining an application under s  140(5)  is,  however,  an  order  that  could  have the consequence  that  the applicant body corporate or the respondent service provider is required to pay a sum, or to do work to a value, or incur expenditure in excess of $50,000.  In the present case:

(a)      if the application is declined, then the service contract will remain on foot and the Body Corporate will be required to pay the annual management fees to J Star over the balance of the term of the contract. Further,  J Star  will  be  obliged  to  do  the  work  —  that  is  provide management services — required by the service contract.   In both cases, the value of the sum which the body corporate will be required to pay, or the value of the work which J Star will be required to carry out, will be in excess of $50,000;

(b)if  an  order  is  made  granting  the  application  and  terminating  the service contract, then J Star will suffer a loss — it will, in a broad sense, be required to incur expenditure in excess of $50,000.   The word “incur” means to “find, or make, oneself subject to…” or to “bring on oneself (expense, obligation, etc)”.   It also means “make

oneself  liable  to”.3      In  a  New Zealand  context,  the  word  “incur”

means “to suffer, experience or become subject to (something unpleasant) as a result of one’s own behaviour etc”.4   “Expenditure” is “the action or practice of expending money, care, time, effort etc".  It

is also the action or process of “using up, or consumption, or an amount expended”.5   In a different context, the Courts have held that expenditure involves something which is passing out from the person who is making the expenditure.6     Looking at the matter broadly, it seems to me that if the service contract is to be terminated, J Star will be required to incur expenditure, because it will have to write off the value of its asset — the service contract — in its books.  There will be a financial consequence for it.  The value of the service contract is in excess of $50,000.

[28]     The text of s 140(5) and s 171(4) points to the conclusion that Parliament did not intend to give the Tribunal unlimited jurisdiction where the Tribunal’s order requires, as a consequence, the payment of sums, or the doing of work, or the incurring of expenditure in excess of $50,000.  If Parliament has intended to give the Tribunal unlimited jurisdiction, it would have used the words “[t]he Tenancy Tribunal” in s 140(5), rather than the words “[t]he appropriate decision maker”; further, it would have used the words “to make an order that any person or body…” in s 171(4)(a), rather than the words “to make an order requiring any person or body”.

[29]     In my judgment, the reasonable possibility that a party may be required to pay a sum, or do work, or incur expenditure to a value or in excess of $50,000, in the sense I have discussed in [27], suffices to oust the Tribunal’s limited jurisdiction.

[30]     I am reinforced in my view when I consider the purpose of the legislation. The broad purpose of the Act is defined in s 3.   That section does not throw any particular light on the present issue.  However, the overview provision, s 4, does do so.  Section 4(1)(h) reads as follows:

4        Overview

(1)      This Act provides for the following matters:

…

5      Shorter Oxford English Dictionary on Historical Principles, above n 3, at 894.

6      Oram (Inspector of Taxes) v Johnson [1982] All ER 1 at 5–6 (per Walton J); Case J 32 (1987) 9

NZTC 1, 187 at 1,190.

Disputes

(h)      subpart 1 of Part 4 relates to disputes, in particular—

(i)        the Tenancy Tribunal is the dispute resolution body for unit title disputes below a certain monetary amount that do not relate to the title to land:

(ii)      for disputes that involve higher monetary amounts, the District Court and the High Court have jurisdiction:

…

[31]     The subsection suggests that it is the amount in dispute that is the focus of the jurisdictional thresholds discussed in subpart (1) of Part 4, rather than the form of any particular order made.

[32]     I  note  that  these  observations  are  consistent  with  comments  made  in Parliament when the Bill was introduced.  Hansard records the following comments by the Honourable Maurice Williamson, the then Minister for Building and Construction, when the Bill had its first reading:

The   Bill   provides   recourse   for   dispute   resolution   by  extending  the jurisdiction of the Tenancy Tribunal to hear and determine most disputes related to Unit Titles and that is a good step in the right direction.  I do not think anybody could deny that.   There is a monetary limit of $50,000 for this, so that Tenancy Tribunal can hear cases that relate to a sum that is meaningful.  The Bill has quite specific definitions of what one does from that point upwards.  Beyond the $50,000 monetary limit, jurisdiction is given to the District Court.   It can hear a dispute relating to sums of between

$50,000 and $200,000.   Jurisdiction then moves to the High Court if the dispute concerns a sum in excess of $200,000.

Those are quite sensible levels I would have thought.  In terms of a dispute concerning  more  than  $200,000,  people  will  need  a  fairly  robust  legal process to go through a large claim like that.  But if the amount is less than

$50,000, taken the dispute to the Tenancy Tribunal and, hopefully, getting through the levels of adjudication and all the other support that is provided is

probably the best way to go.

[33]     The Interpretation Act also provides that the matters that may be considered in ascertaining the meaning of an enactment include the indications provided in the

enactment itself.7   I note the following:

7      Interpretation Act 1999, s 5(2).

(a)       Section 4(1)(h) of the Act assists, as I have noted above.

(b)Section 171(1) is also relevant.  It gives primary jurisdiction under the Act to a Tenancy Tribunal constituted under s 67 of the Residential Tenancies Act  1986.    Under that Act,  a  tenancy adjudicator  must either hold a practising certificate as a barrister or a solicitor, or as both a barrister and solicitor, or be a person who, in the opinion of the Minister of Justice, and the Minister for the time being responsible for the administration of the Residential Tenancies Act, is otherwise capable by reason of special knowledge or experience of performing and exercising the duties, functions and powers of a tenancy adjudicator.  It follows that a Tenancy Tribunal could comprise a lay adjudicator,  who  does  not  have  legal  qualifications.     It  seems inherently unlikely that Parliament would have entrusted decisions in relation to the termination of all service contracts, which could well involve many hundreds of thousands of dollars, or more, to persons who may not have legal qualifications.   In determining whether a service contract is harsh or unconscionable, both legal and factual

issues of some complexity are likely to arise,8  and the consequences

of an order could be very significant indeed.

(c)      I also refer to s 176 of the Unit Titles Act.  It provides that Part 3 of the Residential Tenancies Act 1986 applies with all necessary modifications in respect of the hearing and determination of a unit title  dispute  by  a  Tenancy  Tribunal.    Part  3  of  the  Residential Tenancies Act comprises s 67 through to 120 (inclusive).  Section 80 of the Act provides that every order made by a Tenancy Tribunal is final and binding on an all parties to the proceedings, unless it is expressed to be an interim order.   The section is subject to some qualifications.  Relevantly, pursuant to s 117 of the Act, any party to any proceedings in the Tribunal who is dissatisfied with the decision

of that Tribunal, may appeal to the District Court, (unless the appeal

8      See, for example, Body Corporate 396711 & Anor v Sentinel Management Ltd [2012] NZHC

1957.

relates to an interim order, or the amount involves is less than $1,000). The  District Court  has  jurisdiction  to  hear  and  determine  appeals under s 117 notwithstanding that any limits imposed on the Court in its ordinary civil jurisdiction by ss 29 to 34 of the District Courts Act

1947.  Section 118 gives the District Court Judge on appeal the power to quash the order of the Tribunal, or dismiss the appeal.  Section 119 of the Residential Tenancies Act gives a further right of appeal from the  District Court  to  the  High Court,  but  only  on  a  point  of  law. Section 120 allows a further appeal to the Court of Appeal, but only with the leave of the High Court, or special leave from the Court of Appeal.  It follows that there is no general right of appeal to this Court from a Tenancy Tribunal, pursuant to the Residential Tenancies Act provisions, which are imported into the Unit Titles Act.   Given the statutory context, again, it seems to me improbable that Parliament intended by s 171(4)(a) of the Unit Titles Act to give the Tenancy Tribunal  unlimited  jurisdiction  in  relation  to  applications  under  s

140(5) of the Act.

[34]     For all of these various reasons, the question posed in the case stated is answered in the affirmative.  Section 171(4) of the Unit Titles Act 2010 does prevent the Tribunal from determining an application seeking an order to terminate a service contract, where the value of the contract, or the underlying rights arising under the

contract, exceed $50,000.

Wylie J