Butcher v Body Corporate 342525
[2018] NZCA 19
•20 September 2017 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA42/2017 [2018] NZCA 19 |
| BETWEEN | ANTHONY JOHN BUTCHER AND RUTH BARBARA BUTCHER, LARRY LAWRENCE SMALL AND KM TRUSTEE SERVICES LIMITED, IVOR ANTHONY MILLINGTON, NEVILLE EADE, ROBYN KATHLEEN STENT |
| AND | BODY CORPORATE 342525 |
| Hearing: | 20 September 2017 |
Court: | Kós P, Cooper and Gilbert JJ |
Counsel: | B E Brill for Appellants |
Judgment: | 20 September 2017 at 3.00 pm |
Reasons: | 21 February 2018 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay the respondent costs for a standard appeal on a band A basis with a 50 per cent uplift and usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
Table of Contents
| Introduction | [1] |
| Background | |
| Bridgewater Bay Apartments | [7] |
| Weathertightness issues Origin report | [8] [11] |
| Negligence proceedings issued against Council and others | [13] |
| Resolution to proceed with remedial works | [14] |
| Minority group formed | [15] |
| Special levy — SL 1 | [16] |
| Litigation | |
| Round 1 | [17] |
| Round 2 | [21] |
| Round 3 | [23] |
| Round 4 | [24] |
| Grounds of appeal | [42] |
| Ground 1 — abuse of process/issue estoppel | [43] |
| Fifth requirement — same question | [45] |
| Third requirement — jurisdiction | [54] |
| Fourth requirement — final decision on the merits | [56] |
| Ground 2 — relevance of Butcher consent | [63] |
| Ground 3 — disenfranchisement | [67] |
| Ground 4 — was a special resolution required at the EEGM to enter into the building contract? | [73] |
| Costs | [82] |
| Result | [84] |
Introduction
This appeal (Butcher) was heard together with the related appeal in Wheeldon v Body Corporate (CA112/2017) (Wheeldon). Both appeals arise out of a long‑running dispute between the owners of apartments concerning the scope of works required to address weathertightness issues in their building. The appellants, who represent the minority, consider that targeted repairs would have sufficed whereas the Body Corporate, supported by the majority, maintains that comprehensive remedial works as recommended by an independent expert were required to overcome the weathertightness problems. The remedial works have been carried out by the Body Corporate and the contest now centres on how the costs should be met.
The appellants in both proceedings own five of the 22 apartments in the building. Derek and Carol Wheeldon sold their apartment to Robyn Stent (who is the wife of counsel for the appellants, Mr Brill) in March 2014 with the transfer being registered on 31 July 2014. This appears to be why Mr and Mrs Wheeldon were named as plaintiffs in the Wheeldon proceedings issued on 30 July 2014 but were replaced by Ms Stent in the Butcher proceedings issued on 7 July 2015.
At the conclusion of the hearing, we dismissed both appeals with reasons to follow.[1] These are our reasons for dismissing the Butcher appeal. Our reasons for dismissing the Wheeldon appeal are delivered contemporaneously with this judgment. The judgments should be read together.
[1]Butcher v Body Corporate 342525 [2017] NZCA 423; and Wheeldon v Body Corporate 342525 [2017] NZCA 424.
The Butcher and Wheeldon appeals represent rounds 6 and 7 in litigation arising out of the same underlying dispute. Leaving aside a costs judgment and the present appeals, there have already been five judgments, all of which were in favour of the Body Corporate: an interim judgment of the High Court in Wheeldon (round 1);[2] a previous judgment of this Court in Wheeldon (round 2);[3] a judgment of the Supreme Court declining an application for leave to appeal in Wheeldon (round 3);[4] a judgment of the High Court in Butcher (round 4);[5] and a final judgment of the High Court in Wheeldon (round 5).[6]
[2]Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 [Interim High Court judgment (Wheeldon)].
[3]Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) 17 NZCPR 353 [Wheeldon (CA)].
[4]Wheeldon v Body Corporate 342525 [2016] NZSC 125 [Wheeldon (SC)].
[5]Butcher v Body Corporate 342525 [2016] NZHC 3128, (2016) 17 NZCPR 708 [High Court judgment (Butcher)].
[6]Wheeldon v Body Corporate 342525 [2017] NZHC 87 [Final High Court judgment (Wheeldon)].
It is helpful to start by summarising the essence of the underlying dispute and briefly describing what happened in rounds 1 to 4. This will set the necessary context in which to evaluate the issues arising in the present appeal (Butcher), round 6. We summarise round 5 in the contemporaneous judgment giving our reasons for dismissing the further appeal in Wheeldon.[7]
[7]Wheeldon v Body Corporate 342525 [2018] NZCA 20.
An understanding of the history of Wheeldon is necessary because one of the main questions in this appeal is whether the critical issue raised in Butcher was finally determined between the same parties or their privies in rounds 1 to 3 in Wheeldon. If so, the same issue could not be re-litigated in Butcher because of the doctrine of issue estoppel or because it would be an abuse of process.
Background
Bridgewater Bay Apartments
The appellants own five of the 22 apartments comprising the Bridgewater Bay Apartments situated on the outskirts of Paihia in Northland. The four-level building was constructed in 2002 and 2003. Car parking, storage and the entry lobby are situated on level 1 (the ground floor). Levels 2 and 3 each provide eight two‑bedroom and two one-bedroom apartments. The two penthouse apartments are on level 4. All apartments have a deck on the northern side. Each level of the northern face of the building is stepped back from the one below to improve light, privacy and fire separation. This means that the deck of each apartment covers part of the interior living space and deck of the apartment below.
Weathertightness issues
The owners of the penthouses became concerned about ponding of rainwater on their decks soon after the development was completed. In 2006 the owner of an apartment on level 3 reported moisture problems in his ceiling causing water to seep down his walls and onto his carpet. Remedial works were undertaken to the penthouse decks which eventually appeared to resolve these problems. However, by the time of the January 2013 annual general meeting of the Body Corporate it was apparent that there were issues with some decks on other levels as well including water ponding, inadequate falls, tiles cracking and lifting, some waterproof membrane failure and water cascading from the level 3 roof gutters onto the decks of level 2 during heavy rainfall. A resolution was passed at the meeting authorising the Body Corporate Committee to engage an expert to investigate the problems with the decks and recommend a solution.
AA Home Inspections (2000) Ltd (AA) produced a report in April 2013 after carrying out a visual inspection of six decks on the three apartment levels. AA identified problems with water ponding, loose and cracked tiles and cracked mortar joints. AA recommended remediation including by re-screeding the decks where necessary to create adequate falls to deck drain outlets and replacing the waterproof membrane and tiles.
Around August 2013 residents again reported moisture problems in the ceilings of three of the apartments on level 3. AA was called back. After removing sections of ceiling in the affected apartments, evidence of recent moisture ingress was found under the decks.
Origin report
Lawyers specialising in leaky building cases were consulted. They recommended that Origin Building Consultants Ltd (Origin) be engaged to undertake a comprehensive review of the building. Origin reported in October 2013 that the building suffered from 14 design or construction defects including insufficient cladding to deck clearance on most decks, no apparent waterproofing to the top of the parapet walls on the penthouse decks, unsealed gaps between the deck outlets and the surface of the decks, failure of deck membranes, and insufficient falls on the deck surfaces allowing water to pool.
Comprehensive remedial works were recommended, including work within the boundaries of individual units. The proposed remedial work included lifting the tiles and existing failed waterproof membrane on the decks of each apartment, re‑screeding the decks to provide an adequate fall to enable rainwater to be shed, installing a new waterproof membrane and re-tiling. Unfortunately, the existing step‑down between the interior floor of the units and the decks was insufficient to accommodate the required fall. Consequently, nib walls at the junction between the decks and the units were required. This would necessitate the substantial cost of replacing the joinery and infill panels on the northern façade of the building. The initial cost estimate for all remedial works was approximately $1.7 million.
Negligence proceedings issued against Council and others
In October 2013 the owners and Body Corporate filed proceedings against Far North District Council, the developer, the builder and the project manager claiming that each was liable to meet the costs of the remedial works. A settlement was eventually reached in these proceedings.
Resolution to proceed with remedial works
At an extraordinary general meeting held in November 2013 a resolution was passed authorising the Body Corporate Committee to “appoint a lead consultant to manage the building remediation process”. Muir J concluded that this resolution was adequate authority for the Committee to carry out the remedial works recommended by Origin.[8] This Court agreed.[9] At the AGM held in January 2014, the Body Corporate delegated its powers to the Committee pursuant to s 108(1) of the Unit Titles Act 2010 (the Act). This included the Body Corporate’s powers to raise levies under s 121 of the Act and to repair and maintain the common property and other assets specified in s 138. This delegation was to subsist until the next AGM.
Minority group formed
[8]Interim High Court judgment (Wheeldon), above n 2, at [181]–[182].
[9]Wheeldon (CA), above n 3, at [96].
In March 2014 Robyn Stent, one of the appellants, agreed (with full knowledge of the defects) to purchase Derek and Carol Wheeldon’s unit. Ms Stent is the wife of Mr Brill, who has acted throughout for the appellants in both Butcher and Wheeldon. On Mr Brill’s advice, the Wheeldons and the owners of four other units took the position that the recommended remedial works (the cost of which had by then escalated to approximately $2 million) were not required after all and that targeted repairs by individual unit owners would suffice. Despite the November 2013 resolution, they now contended that the Body Corporate had no power to carry out the recommended remedial works.
Special levy — SL 1
The majority wished to proceed as planned. In mid-July 2014 the Committee, acting under powers delegated at the January 2014 AGM, raised a special levy of $150,000 to meet initial costs (SL 1).
Litigation
Round 1
On 30 July 2014 the Wheeldon plaintiffs (the registered owners of the five units including Mr and Mrs Wheeldon but not Ms Stent — the transfer to Ms Stent was not registered until 31 July 2014) filed proceedings against the Body Corporate in the High Court. In their first cause of action they sought: declarations that the Body Corporate did not have power to carry out the remedial works recommended by Origin, and that the works were not warranted; and an injunction restraining the Body Corporate from proceeding with the works in their units without their consent (the Wheeldon proceedings). In their second cause of action they sought declarations that: the Body Corporate had no power to incur costs in relation to the Origin repair plan and the negligence proceedings; all such payments made by the Body Corporate to date were made without lawful authority; and the special levy (SL 1) was invalid and of no effect. The Body Corporate responded by joining Ms Stent as a counterclaim defendant and seeking judgment against her and the owners of the other four units for their respective shares of the special levy.
Following a seven-day trial in March 2015 Muir J issued an interim judgment on 30 April 2015 dismissing the claims by the minority in their first cause of action. The Judge rejected the Wheeldon plaintiffs’ claim that the remedial works recommended by Origin were not required.[10] He found that the plaintiffs had fallen “a long way short” of establishing this. The Judge also rejected the plaintiffs’ claim that the works constituted betterment (apart from obvious improvements such as double glazing).[11]
[10]Interim High Court judgment (Wheeldon), above n 2, at [146].
[11]At [165].
The Judge concluded that the Body Corporate was authorised to carry out the works in accordance with its duties under s 138 of the Act.[12] This section relevantly provides that the Body Corporate must repair and maintain any building elements that relate to or serve more than one unit. The Judge said he had “no doubt” that “all decks within the development constitute building elements relating to or serving more than one unit or the common property or both”.[13] For example, the deck outlets on all levels drain into an internal piping system which runs through the inter‑tenancy walls on levels 3 and 2 before entering the underground storm water reticulation system in the common property at ground level.[14] The deck drains on level 4 connect to this same system through pipes in the ceiling cavity above level 3.[15] Further, water was able to track horizontally from one deck to another underneath inter-tenancy walls and to other parts of the property including the cladding.[16]
[12]At [165].
[13]At [96].
[14]At [88].
[15]At [89].
[16]At [92]–[93].
The Judge expected that his finding that the Body Corporate was authorised to carry out the recommended remedial works would enable the parties to resolve the consequential funding issues raised in the second cause of action and the counterclaim.[17] The Judge considered that these funding issues were now “likely to be academic” and “self-resolving”.[18] This proved to be optimistic.
Round 2
[17]At [23]–[24].
[18]At [24].
On 26 May 2015 the Wheeldon plaintiffs commenced round 2 by filing a notice of appeal against the interim judgment.
On 8 July 2015 Anthony and Ruth Butcher obtained a consent from the Far North District Council to replace the waterproofing membrane and tiles on the deck of their apartment (the Butcher consent). The Wheeldon plaintiffs applied to introduce this consent as fresh evidence in support of their appeal. They contended it showed that targeted repairs to the decks would be adequate. However, in dismissing the appeal on 7 June 2016, this Court found that the Butcher consent was not sufficiently credible or cogent to justify admission:[19]
[110] However, we are not satisfied that the evidence is sufficiently credible to justify admission. In an affidavit in opposition to the application to adduce further evidence Mr Gray [a building surveyor and director of Origin] identified what he regards as deficiencies in the building consent documentation approved by the [Far North District Council]. For example, we consider the drawings [submitted to the Council in support of the Butcher consent application] to be deficient or inadequate in many aspects, including showing a step-down of 60 mm whereas Mr Gray’s own investigation showed the step-down to be only 30–40 mm. Further, many details ordinarily required for compliance with the Building Code are absent, no acoustic mat is shown and the nominated exterior waterproofing system is one for which there is, apparently, no current appraisal certificate, meaning it would not be an “acceptable solution” for the purposes of the Building Code. Overall, Mr Gray considered that there was insufficient detail for a builder to be able to carry out the work without making assumptions or speculating.
[111] Nor is the proposed evidence sufficiently cogent because it is directed towards only one very specific aspect, whereas the proposed work is intended to rectify several design and construction defects that affect or are likely to affect the building in a significant way. Mr Gray’s evidence, which Muir J accepted, was that the need for repair work is related to a number of defects, including the ponding of water on many of the decks, the lack of any or adequate membranes beneath the tiles on many decks and the minimal falls on most of the decks.
[112] Mr Gray considered that the work would require a building consent and that it was highly unlikely that a building consent would permit the decks to be remediated not only to the standard required by the Building Code at the time of construction but, rather, to the standard of the 2014 Building Code. Muir J found that this evidence, supported by the evidence of Mr Bullen-Smith [an architect with Resolution Architecture], was not materially undermined on cross-examination and was not the subject of contrary evidence from the plaintiffs.
[113] In these circumstances it is not realistic to suggest that evidence of a building consent allowing the replacement of membrane and tiles on one particular deck could assist in determining the correct approach to the building-wide repair works needed to address all the identified defects.
Round 3
[19]Wheeldon (CA), above n 3 (footnote omitted).
The Supreme Court declined leave for a further appeal in a judgment delivered on 14 September 2016.[20] The Supreme Court did not consider that there was sufficient prospect of disturbing the findings of this Court and the High Court to justify granting leave to appeal on the question of whether the Body Corporate’s obligations were engaged under s 138 of the Act to repair and maintain “building elements and infrastructure that relate to or serve more than 1 unit”.[21] The Supreme Court also declined leave in relation to the Butcher consent observing “we do not see any real prospect that the applicants would succeed in establishing, contrary to the Court of Appeal’s view, that this evidence was cogent”.[22]
Round 4
[20]Wheeldon (SC), above n 4.
[21]At [4]–[9].
[22]At [10].
In the meantime, detailed plans and specifications to implement the remedial works recommended by Origin were prepared by Resolution Architecture Ltd and a building consent was obtained from Council for these works. A further special levy to fund unbudgeted legal costs was raised by the Committee on 31 October 2014 (SL 2).
At the annual general meeting held in January 2015 a special resolution was passed delegating to the Body Corporate Committee under s 108(1) of the Act the Body Corporate’s powers until the next AGM (the delegation resolution). Again, this included the Body Corporate’s powers to raise levies and meet its repair and maintenance obligations under s 138. A special resolution was also passed dispensing with an audit of the financial accounts until further notice (the audit dispensation resolution). The Butcher plaintiffs were not permitted to vote at this meeting because they had failed to pay their levies.
An extraordinary general meeting was held in June 2015 to consider various resolutions including resolutions ratifying and affirming previous resolutions or decisions of the Body Corporate or the Committee. These covered all levies raised by the Committee or Body Corporate (by this time there had been six special levies, SL 1–6) and all expenditure incurred in connection with the remediation process. A further special resolution was proposed to finalise and execute a contract to carry out the remedial works recommended by Origin in accordance with the plans and specifications prepared by Resolution Architecture and approved by the Council in the building consent. The purpose of these proposed resolutions was set out in the minutes as follows:
The intention and purpose of the resolutions that follow is to attempt to once and for all address and extinguish the plethora of arguments and attacks by the minority group of owners, including Mr Brill, on previous actions, decisions and or instructions of the Body Corporate and or Committee.
The resolutions were passed unanimously, the Butcher plaintiffs again not being permitted to vote because they had not paid their levies.
Shortly after this meeting, on 7 July 2015, the Butcher plaintiffs commenced the present proceedings seeking a declaration that the delegation and audit dispensation resolutions passed at the 2015 AGM and all resolutions passed at the 2015 EGM were null and void or deemed to have been defeated (round 4). They also sought a declaration that the Body Corporate may not enter into a contract to carry out the remedial works, raise any building levy or borrow any monies without a “valid special resolution” at a future meeting which would require 75 per cent support from all members including the minority.
An emergency extraordinary general meeting (EEGM) of the Body Corporate was held in August 2015 at which it was resolved to accept a tender for completion of the remedial works and to appoint Resolution Architecture as architect and engineer to the building contract. A further special levy of $3 million was also approved to meet the building costs which had increased considerably since the original estimate was provided in 2013. The Butcher plaintiffs (other than Ms Stent who had paid her levies by the time of this meeting) were again not permitted to vote because they had not paid their levies.
The plaintiffs then filed an amended statement of claim on 24 August 2015 adding a challenge to the validity of the resolutions passed at the EEGM.
By the time of the trial, the plaintiffs had filed a second amended statement of claim advancing three causes of action which Muir J summarised as follows:
(a)First cause of action — the resolutions passed at all three 2015 meetings are unlawful, invalid and of no effect because the minority were unlawfully disenfranchised and a 75 per cent majority would not otherwise have been obtained.[23]
(b)Second cause of action — the resolutions passed at all three meetings should be set aside under s 210 of the Act which provides for minority relief where the effect of a resolution is unjust or inequitable.[24]
(c)Third cause of action — the resolutions passed at the EGM and the EEGM were ultra vires and have no effect because the remedial works represented voluntary upgrades and were not necessary.[25] The plaintiffs relied on the Butcher consent as demonstrating that the proposed remedial works constituted upgrades, not repairs or maintenance coming within the scope of the Body Corporate’s obligations under s 138 of the Act.
[23]High Court judgment (Butcher), above n 5, at [76].
[24]At [103].
[25]At [22].
Muir J dismissed all of the Butcher plaintiffs’ claims in his judgment delivered on 20 December 2016.
The Judge dealt with the third cause of action first because it appeared to raise the most significant issue.[26] The Judge upheld the defences, first, that the plaintiffs’ attempt to re‑litigate the issue as to whether the remedial works were necessary or constituted voluntary upgrades amounted to an abuse of process in view of the determinations in rounds 1 to 3 of Wheeldon and second, that the Butcher consent was flawed and irrelevant.
[26]At [21].
The Judge dismissed as “simply untenable” Mr Brill’s submission that “no amount of diligence” would have enabled the plaintiffs to establish at the time of the Wheeldon trial that the Council would allow a simple membrane replacement as confirmed by the Butcher consent.[27] The Judge rejected the plaintiffs’ attempt to rely on the Butcher consent:[28]
I see the position, therefore, in essentially simple terms and readily captured by the abuse of process doctrine. Faced with a decision by the Court of Appeal not to admit additional evidence relating to a consent obtained subsequent to trial, the plaintiffs amended their claim in the present proceedings in an attempt to engage the same issues all of which could and should have formed part of their evidence-in-chief in the Wheeldon proceedings. It was in that context that the plaintiff[s] needed to undertake the necessary investigations, obtain a consent if required and marshall their expert evidence. They did not, having made an incorrect assumption about what they had to prove.
[27]At [54(b)].
[28]At [54(d)] (footnote omitted).
Muir J summarised the reasons for his conclusion on the abuse of process issue in these terms:[29]
… the Body Corporate has now faced almost three years of arguments and very substantial expense all directed to the propriety of its holistic repair. At the forefront of those arguments has always been the allegation pleaded in [82] of the Butcher claim that the establishment of appropriate falls on the decks and consequential construction of a nib and reglazing to the north façade constituted a voluntary upgrade. It was incumbent on the plaintiffs to bring all evidence necessary to support that allegation before the Court in Wheeldon. The observation in [166] of that judgment that any properly advised Body Corporate would be obliged to consider alternative scopes of work in no way derogates from that conclusion. Although a properly advised body corporate would, until a contract had been let, need to consider any alternative and less expensive scopes of work, rejection of such alternatives was never a proper basis to relitigate the underlying issue when they could properly have been before the Court in the first instance. This is the very sort of inefficiency and exposure to ongoing and repetitive litigation that the rule in Henderson v Henderson is, in my view designed to prevent.
[29]At [55].
Given his conclusion on abuse of process, the Judge considered that he did not need to determine the alternative defence based on issue estoppel.[30] However, he stated that he would also have found that defence made out if it had been necessary to determine it.[31] The Judge also upheld the defence contention that the Butcher consent was irrelevant in any event on the basis (as found by this Court in round 2) that the building suffered from numerous and interconnected problems not addressed by the Butcher consent.[32]
[30]At [57].
[31]At [62].
[32]At [63]–[70].
Turning to the first cause of action — unlawful disenfranchisement — the Judge started by examining the relevant parts of s 96 of the Act which deals with voting eligibility:
96 Voting: eligibility
…
(3) An eligible voter may not vote unless all body corporate levies and other amounts that are from time to time payable to the body corporate in respect of his or her unit have been paid.
…
(6) The payment of any body corporate levies and other amounts that are from time to time payable to the body corporate by the owner of a principal unit and that are disputed by the owner does not affect the right of that owner to dispute the payment if the sole purpose of making the payment was to exercise that owner’s entitlement to vote.
…
After reviewing the legislative history, and reading this provision together with the relief provision in s 210, the Judge concluded that s 96 amounts to what he described as a “pay now, argue later” regime.[33] Because the plaintiffs had not paid special levies (SL 1–6) (other than Ms Stent who paid her levies on a without prejudice basis prior to the EEGM), they were not entitled to vote[34] and all resolutions passed at the three meetings in 2015 were valid apart from the resolution purporting to dispense with an audit review for “future accounts periods”.[35]
[33]At [80].
[34]At [85] and [87].
[35]At [102].
The Judge then addressed various other arguments raised in the first cause of action. Of these, it appeared from Mr Brill’s oral submissions in the present appeal that the central surviving issue under this head is whether the resolution passed at the EEGM authorising entry into the building contract for the remedial works was valid. The Judge found that no such resolution was necessary because implementation of the remedial works had already been approved at the EGM in November 2013 as was confirmed in the interim judgment in Wheeldon and on appeal to this Court.[36] In any case, the Judge said he would not have exercised his discretion to grant the declaration of invalidity sought because all resolutions were carried by a majority substantially in excess of the 75 per cent threshold required for a special resolution.[37]
[36]At [92].
[37]At [88].
Finally, the Judge turned to the second cause of action seeking minority relief under s 210. The Judge observed that this cause of action was “withdrawn or discontinued” by a memorandum from Mr Brill dated 17 October 2016. The Judge considered that this was sufficient to bring the cause of action to an end such that it could not be reinstated by Mr Brill’s subsequent memorandum filed shortly thereafter advising that his first was in error.[38] We do not need to decide whether that was right because the Judge addressed this cause of action on its merits in case he was wrong. The Judge considered that Ms Stent was the only plaintiff with standing to seek relief because she alone had paid her levies by the time of the EEGM. For this reason, the Judge considered that while Ms Stent had standing to seek relief, her application had to be confined to the resolutions passed at that meeting.[39]
[38]At [104].
[39]At [105].
The Judge dismissed Ms Stent’s application for relief against the EEGM resolutions because it had already been determined that the Body Corporate was entitled to proceed with the remedial works, she stood to benefit from the works and she was not being asked to pay more than her share of the repair costs.[40] The Judge considered that if relief was granted, this would unfairly disadvantage the majority of owners who had consistently supported the comprehensive repair plan.
Grounds of appeal
[40]At [108].
The notice of appeal lists 11 grounds. However, one of these was withdrawn and others can be grouped together. The essential issues raised by the appeal were distilled in an issues list prepared by Mr Brill and developed in his written and oral submissions. The issues are whether the Judge erred in finding that:
(a)the appellants’ claims in the third cause of action were an abuse of process or precluded by the doctrine of issue estoppel;
(b)the Butcher consent was irrelevant;
(c)the appellants were not entitled to vote because they had not paid levies they disputed; and
(d)the decision to enter into the building contract did not require a special resolution.
Ground 1 — abuse of process/issue estoppel
Mr Brill refers to the six requirements of res judicata estoppel (which covers cause of action estoppel and issue estoppel) referred to in Res Judicata by Spencer Bower and Handley as follows:[41]
[41]Spencer Bower and Handley Res Judicata (4th ed, Butterworths, London, 2009) at [1.02] (footnote omitted).
(i) the decision … was judicial in the relevant sense;
(ii) it was in fact pronounced;
(iii) the tribunal had jurisdiction over the parties and the subject matter;
(iv) the decision was —
(a) final;
(b) on the merits;
(v) it determined a question raised in the later litigation; and
(vi)the parties are the same or their privies, or the earlier decision was in rem.
Mr Brill submits that the third, fourth and fifth requirements were not met by the judgments in rounds 1 to 3 of Wheeldon. Accordingly, he submits that the Butcher plaintiffs ought to have been permitted to advance their third cause of action, contrary to the Judge’s finding.
Fifth requirement — same question
Mr Brill started with this issue. He relied on this Court’s judgment in Craddock’s Transport Ltd v Stuart for the proposition that to found an issue estoppel the question decided in the earlier proceeding must be precisely the same as that raised in the subsequent proceeding.[42] Mr Brill said that the relevant decision pronounced in Wheeldon (round 1) was that “the scope of works set out in the Origin Report does not constitute betterment and is thus authorised in terms of s 138”.[43] He contends that there was no relevant decision by this Court on appeal because, in giving the reasons of the Court, Courtney J stated:[44]
[114] For these reasons the application to adduce further evidence is dismissed. Since the issue of betterment as a ground of appeal depended on the application being granted there is no need to address it further.
[42]Craddock’s Transport Ltd v Stuart [1970] NZLR 499 (CA) at 520.
[43]Interim High Court judgment (Wheeldon), above n 2, at [165].
[44]Wheeldon (CA), above n 3.
Mr Brill next refers to the following paragraph of the interim judgment in Wheeldon:[45]
[151] To an extent the competing positions tended to focus on whether a building consent was required for deck remediation works and the implications of s 112(1) of the Building Act 2004 in so far as it allows alteration of existing buildings.
[45]Interim High Court judgment (Wheeldon), above n 2.
Mr Brill argues that this passage shows that the issue in Wheeldon concerned the applicability of the Building Code, not the content of the Code. Further, he submits that the timeframes are different. The Wheeldon proceedings were issued in 2014 before the views of Council as the consent authority were known whereas the Butcher proceedings were issued in 2015 after Council’s views were known as a result of the Butcher consent.
We reject these submissions.
In Wheeldon the plaintiffs pleaded that the remedial works recommended by Origin fell outside the scope of the Body Corporate’s repair and maintenance obligations under s 138 of the Act. They pleaded, amongst other things:
17.The Body Corporate does not have authority under the Act to demolish or undertake construction work on the decks and cladding frames of the Level 2 Apartments. These elements are wholly within the Principal Unit comprising each Apartment and do not relate to or serve any other Unit.
…
18.The cladding frame within each Level 3 Apartment does not relate to or serve any other Unit …
19.The Origin Repair Plan is outside the Body Corporate’s powers and responsibilities as it relates to cladding frames of all Apartments and the decks of the Level 2 Apartments.
…
25.The Body Corporate’s pursuit of the Origin Repair Plan and its funding proposals are unreasonable, outside its powers and in breach of its obligations under the Act.
Similarly, the Butcher plaintiffs pleaded in their third cause of action:
84. The 2015 Upgrades are not repairs or maintenance within the meaning of section 138(1)(d) of the Act and are ultra vires. In consequence, the body corporate’s decisions to undertake and fund the Proposed Works are also ultra vires.
It can be seen that the issue in both proceedings is the same. The Butcher plaintiffs sought to re-litigate the same issue decided in Wheeldon, namely whether the remedial works were within the scope of the Body Corporate’s powers and responsibilities under s 138 of the Act.
This was the very issue determined in Wheeldon:[46]
[165] … I accept the defendants’ position that the scope of works set out in the Origin Report does not constitute betterment and is thus authorised in terms of s 138. …
[46]Interim High Court judgment (Wheeldon), above n 2.
Contrary to Mr Brill’s submission, the issue in Wheeldon was not the applicability of the Building Code nor was the issue in Butcher to determine its content. Both proceedings raised the same issue — whether s 138 of the Act applied to the remedial works recommended by Origin and it was therefore within the scope of the Body Corporate’s powers to carry them out.
Third requirement — jurisdiction
Mr Brill submits that the Court in Wheeldon had no jurisdiction to determine whether the minimum deck falls and nib walls were required by the Building Code and therefore needed in order to obtain a building consent. He says that the power to make such a decision is vested in the Council under the Building Act 2004.
This is beside the point. The critical issue in both proceedings was whether the Body Corporate was authorised to carry out the remedial works. This turned on whether the building elements and infrastructure related to or served more than one unit in terms of s 138(1)(d) of the Act. While the need for any remedial works to comply with the requirements of the Building Code may have been relevant to that enquiry, it was not determinative of the issue or the claim. There can be no doubt that the High Court (and this Court on appeal) had jurisdiction to determine this issue.
Fourth requirement — final decision on the merits
Mr Brill submits that the High Court did not make any decision in Wheeldon on the merits as to whether the minimum deck falls and nib walls were required by the Building Code. He contends that the plaintiffs in Wheeldon were precluded by s 182 of the Building Act from arguing the requirements of the Code because this was a matter that could be the subject of a determination by the chief executive of the Ministry of Business, Innovation and Employment under pt 3 of that Act. Mr Brill says that in these circumstances, there was no opposing evidence and therefore no contest for the Court to adjudicate.
For the reasons already given, the critical issue in Wheeldon was not whether minimum deck falls and nib walls were required by the Building Code and would be needed to gain building consent from Council. This was relevant but it was not the critical issue. As noted, the issue was whether s 138 of the Act applied. There was no impediment to the Wheeldon plaintiffs adducing any evidence relevant to that issue. There can be no question that the High Court determined that issue on the merits following the seven-day trial.
Next, Mr Brill says that the High Court’s determination in Wheeldon was “tentative” rather than “final”. This submission is based on a caveat expressed in the judgment:[47]
[166] I caveat the judgment also with the observation that, were there to be a lawful basis on which the relevant territorial authority issued a building consent for a reduced scope of works than that contemplated in the Origin Report, then the Body Corporate would necessarily need to consider its position further. As desirable as the objective of ensuring the building meets 2015 standards may seem to the defendant and the majority of its members, this judgment is premised on that being a necessary incident of required repair and maintenance and not a lawful objective in itself.
[47]Interim High Court judgment (Wheeldon), above n 2.
There is nothing in this submission. As Muir J explained in his judgment in Butcher, his observation in [166] of his interim judgment in Wheeldon was nothing more than a statement of the obvious:[48]
[33] At [166] of my judgment I noted, however, that the Body Corporate would necessarily need to consider any building consent obtained for a reduced scope of works. That seemed to me to state the obvious position, so often demonstrated in leaky building litigation, that there are often alternative routes to a comprehensive solution, some more cost effective than others.
[48]High Court judgment (Butcher), above n 5.
The judgment was not “tentative” — the plaintiffs’ claims were dismissed. Moreover, this Court dismissed the plaintiffs’ appeal and the Supreme Court declined leave for a further appeal. In the result, the issue as to whether it was within the Body Corporate’s power to carry out the remedial works recommended by Origin was finally determined on its merits.
We conclude that the Butcher plaintiffs who were also party to the Wheeldon proceedings were precluded by the doctrine of issue estoppel from re-litigating this issue against the Body Corporate. All Butcher plaintiffs were also Wheeldon plaintiffs other than Ms Stent. Although Ms Stent was not a plaintiff in Wheeldon, she was a party in that she was a counterclaim defendant. Further, her interest in both proceedings was founded on her purchase of the Wheeldon’s apartment and she stood in their shoes. Accordingly, she was a privy, if not a party, to the Wheeldon proceedings.
This ground of appeal fails.
Ground 2 — relevance of Butcher consent
Mr Brill submits that the Butcher consent offered “strong evidence” for the proposition that the decks could be reconstructed lawfully and in a manner that would achieve code compliance without using nib walls.
This submission again misses the point that the critical issue in Wheeldon and Butcher was whether the Body Corporate had the power under s 138 of the Act to implement the remedial works recommended by Origin. That issue having been finally determined in Wheeldon, it does not matter whether the Council might grant consent for targeted repairs on some or all of the decks.
Further, Mr Brill’s submission is directly contrary to this Court’s conclusion in the earlier appeal that the Butcher consent was neither credible nor cogent. The Court concluded that “it is not realistic to suggest that evidence of a building consent allowing the replacement of membrane and tiles on one particular deck could assist in determining the correct approach to the building-wide repair works needed to address all the identified defects”.[49] The Wheeldon plaintiffs are bound by this finding because it was critical to the determination of their application to adduce the Butcher consent as further evidence in support of their appeal. Ms Stent was also bound for the reasons already given.
[49]Wheeldon (CA), above n 3, at [113].
We conclude that the Butcher consent was irrelevant for the reasons given by this Court in the previous appeal in Wheeldon and those given by Muir J in Butcher. This ground of appeal also fails.
Ground 3 — disenfranchisement
Mr Brill submits that the Body Corporate was obliged to count all votes cast by eligible voters, whether or not they had paid disputed levies. He contends that there is no support in the statutory text for the “pay now, argue later” regime suggested by the Judge. He argues that such an interpretation would be an unattractive and draconian concept.
We reject this submission. The legislation could not be clearer — an eligible voter may not vote unless all body corporate levies have been paid (s 96(3)).[50] Regulation 5(4)(b) of the Unit Titles Regulations 2011 requires that a notice of intention to hold an annual general meeting must state that a unit owner may not vote unless all body corporate levies have been paid. The same requirement for extraordinary general meetings is contained in reg 8(2)(e).
[50]Quoted at [37] above.
If Mr Brill’s submission was correct that s 96(3) only precludes voting if the unpaid levy is not genuinely disputed, there would be no need for s 96(6) which enables an owner to pay a disputed levy, while preserving the owner’s right to dispute the payment, if the sole purpose of making the payment was to exercise the right to vote. On Mr Brill’s analysis such an owner would not have to pay the disputed levy in order to be able to exercise the right to vote.
The regime cannot fairly be described as “draconian”. Section 121 of the Act empowers the body corporate to impose levies on owners of principal units. Section 124 requires the body corporate to fix the date for payment. Section 124(2) provides that any unpaid levy is recoverable as a debt due. Section 80(1) reinforces this by imposing an unqualified statutory obligation on all principal unit owners to pay body corporate levies payable in respect of their units. Parliament has incentivised owners to pay their levies by removing their voting rights until they do so, regardless of whether the owners wish to exercise their right to dispute the levies under pt 4 of the Act. Parliament has thereby struck a balance between the interests of an individual owner and the need for the body corporate to be properly funded through levies to meet its statutory obligations, including those imposed under s 138.
Mr Brill’s interpretation would enable a minority to frustrate Parliament’s clear intention that body corporates must repair and maintain the common property and other assets and building elements specified in s 138 (and be able to raise and receive levies necessary to fund this). This would be contrary to one of the principal purposes of the Act which is to protect the integrity of the development as a whole (s 3(d)).
For these reasons, this ground of appeal also fails.
Ground 4 — was a special resolution required at the EEGM to enter into the building contract?
Mr Brill submits that a special resolution was required at the EEGM to authorise entry into the building contract.
Mr Brill commences his analysis by referring to s 101(1) of the Act which relevantly provides that any matters at a general meeting of a body corporate relating to an exercise of a duty or power (other than those that have been delegated to the body corporate committee) must be decided by special resolution. He says that the relevant resolution at the August 2015 EEGM was notified and passed as an ordinary resolution and therefore did not meet this requirement.
Section 108(1) provides that the Body Corporate may delegate any of its duties or powers to the committee by special resolution. Special resolutions were passed at the 2014 and 2015 AGMs delegating “the full powers and authority” of the Body Corporate to the Committee. The 2014 resolution was ratified and affirmed by special resolution at the 2015 EGM. A further special resolution was passed at this meeting directing the Committee to finalise and sign the building contract.
Nevertheless, Mr Brill submits that the 2015 EGM “was invalid” because the appellants were disenfranchised. For that reason, he says that the power to enter into the contract was not delegated to the Committee. We have already rejected the disenfranchisement argument.
Alternatively, Mr Brill submits that even if the delegation to the Committee was valid, it was terminated when the Committee declined to accept it and referred the exercise of the power back to the general meeting. He relies on the notice of meeting circulated for the EEGM which stated by way of introduction:
8) The Committee, pursuant to its delegated authority, could accept the tender however it believes the decision should be brought back to a General Meeting of the Body Corporate, as a result of:
a) The limited time to accept
b) The obligation to deliver early possession
c) The ongoing opposition of the minority
d) The significant (albeit considerably reduced) sum required to be raised[51]
[51]This was a reference to the Committee’s assessment that the tender was particularly favourable and would delivery significant time and costs savings that would be lost if the tender was not accepted promptly.
We reject this argument.
Muir J found in the interim judgment in Wheeldon that the special resolution passed at the November 2013 EGM was “adequate authority” for the Committee to carry out the remedial works recommended by Origin.[52] This Court confirmed that finding on appeal.[53] For the reasons given, the Butcher plaintiffs are bound by that finding. In any event, a valid special resolution was passed at the 2015 EGM authorising the Committee to finalise and sign a contract to effect the works described in the building consent. It follows that there was no need for any further special resolution at the EEGM to authorise the Committee to enter into the construction contract to carry out these works. Muir J was therefore correct in reaching this conclusion.[54]
[52]Interim High Court judgment (Wheeldon), above n 2, at [181]–[182].
[53]Wheeldon (CA), above n 3, at [96].
[54]High Court judgment (Butcher), above n 5, at [92].
We conclude that a special resolution was not required at the 2015 EEGM to enter into the building contract. An ordinary resolution was sufficient given that the Committee was exercising delegated power conferred by special resolution at the November 2013 EGM, the January 2015 AGM and the June 2015 EGM. That the Committee sought, as a precaution, further confirmation before signing the particular building contract does not indicate that it was relinquishing its delegated authority.
This ground of appeal fails.
Costs
Muir J awarded indemnity costs to the Body Corporate for the Butcher proceedings.[55] Neither party has appealed against that judgment. Mr Allan for the Body Corporate submits that the same approach is justified for the appeal. Mr Brill submits that although the appeal did not find favour with the Court and was dismissed at the conclusion of the hearing, it could not be said that the appeal was so hopeless that the appellants should be “punished” by indemnity or increased costs.
[55]Butcher v Body Corporate 324525 [2017] NZHC 1061.
Indemnity costs are awarded only in exceptional cases. Flagrant misconduct is generally required.[56] We are not persuaded that the appellants’ conduct in this appeal can properly be characterised as flagrant misconduct. However, we consider that an uplift of 50 per cent on scale costs is warranted because the appellant contributed unnecessarily to the time and expense of the appeal by pursuing arguments that lacked merit (r 53E(2)(b)(ii) Court of Appeal (Civil) Rules 2005), and conversely by failing, without reasonable justification, to accept a legal argument (r 53E(2)(b)(iii)). The essential contest in this proceeding and in Wheeldon was whether the remedial works recommended by Origin fell within the scope of the Body Corporate’s repair and maintenance obligations under s 138 of the Act. That issue was conclusively and finally determined in rounds 1 to 3 of Wheeldon. The appellants had no reasonable justification for attempting to re‑litigate these issues; their attempt to do so bordered on being vexatious and frivolous.
Result
[56]Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [28].
The appeal is dismissed.
The appellants must pay the respondent costs for a standard appeal on a band A basis with a 50 per cent uplift and usual disbursements. We certify for second counsel.
Solicitors:
B E Brill, Paihia for Appellants
Grove Darlow & Partners, Auckland for Respondent
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