Butcher v Body Corporate 342525
[2016] NZHC 3128
•20 December 2016
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2015-488-0086 [2016] NZHC 3128
UNDER the Declaratory Judgments Act 1908 and
Sections 173 and 210 of the Unit Titles
Act 2010BETWEEN
ANTHONY JOHN BUTCHER AND RUTH BARBARA BUTCHER, LARRY LAWRENCE SMALL AND KM TRUSTEE SERVICES LTD, IVOR ANTHONY MILLINGTON, NEVILLE EADE, ROBYN KATHLEEN STENT Plaintiffs
AND
BODY CORPORATE 342525
Defendant
Hearing: 29 August - 1 September 2016 Appearances:
B E Brill for the Plaintiffs
TJG Allan and S F Powrie for the DefendantJudgment:
20 December 2016
JUDGMENT OF MUIR J
This judgment was delivered by me on Monday 20 December 2016 at 4.00 pm
Pursuant to Rule 11.5 of the High court Rules.
Registrar/Deputy Registrar
Date:…………………………
Counsel/Solicitors:
B E Brill, B E Brill Ltd, Paihia
TJG Allan, Grove Darlow & Partners, Auckland
S F Powrie, Grove Darlow & Partners, Auckland
BUTCHER v BODY CORPORATE 342525 [2016] NZHC 3128 [20 December 2016]
Contents
Introduction Paragraph
1
Background 2 The issues 14 The Third cause of action 22 Abuse of Process – Legal Principles 42 What the plaintiffs say 45 Analysis 49 Abuse of process 49 Irrelevance of Butcher consent 63 Result on the third cause of action 71 First cause of action – the legality of resolutions 72 Voting rights under the Act 78 The legislative context 78 Voting eligibility of plaintiffs 85 Result on voting issues 87 Remaining arguments under the first cause of action 88 Alleged requirement for Special Resolutions at EEGM 88 Audit dispensing resolution 93 Ratification 98 The Body Corporate acting in a “trustee capacity” 100 Conclusion on the first cause of action 102 Second cause of action – minority relief under s 210 103 Result 111 Costs
Appendix A Remedial works resolutions
113
Introduction
[1] This litigation represents a further chapter in long running disputes between a minority of five and a majority of 17 owners of apartments in the “Bridgewater” development located in Paihia, Northland. The minority have consistently contended for what they describe as “targeted repairs” in response to leaky building issues identified in the development. By contrast, the majority have, throughout, supported what came to be termed a “holistic repair”.
Background
[2] In a lengthy judgment issued in Wheeldon v Body Corporate 342525 on 30
April 2015 I found that:1
(a) the Body Corporate was entitled to embark on a repair of the whole building without first giving individual unit owners the opportunity to effect their own repairs;
(b)s 138(d) of the Unit Titles Act 2010 (the UTA) obliged the Body Corporate to repair or maintain any building element that related to or served more than one unit or the common property;
(c) the “holistic” repair contemplated by the Body Corporate was authorised under s 138 having regard to the identified defects, their location and building’s design;
(d) the proposed works did not constitute “betterment”; and
(e) a resolution of the Body Corporate on 9 November 2014 in terms that the Committee was “delegated authority to investigate and appoint a lead consultant to manage the remediation process” was, within the
context of the meeting, authority to proceed with a remediation plan
1 Wheeldon v Body Corporate 342525 [2015] NZHC 884.
which included, as part of the holistic repair, establishing new minimum falls to decks, consequent construction of a “nib” between the units’ decks and interiors and resulting replacement or refurbishment of all joinery suites.
[3] In the result, I dismissed the plaintiffs’ application for declarations and injunctions as sought in their first cause of action. I adjourned the second cause of action relating to the lawfulness of a special levy raised to meet various costs associated with the project and certain related matters (in respect of which the amounts involved were minimal and the arguments numerous) on the defendant’s request, assuming that these issues were likely to resolve themselves following my substantive judgment or be addressed by way of a ratifying resolution.
[4] My judgment was appealed to the Court of Appeal.2 Six grounds were advanced. All were rejected.
[5] Significantly in the context of the current proceedings, the Court of Appeal was also required to adjudicate on an application to adduce further evidence relating to the so-called “Butcher consent”. This was a building consent obtained from the Far North District Council (FNDC) subsequent to delivery of my judgment by apartment owner and plaintiff Mr Anthony Butcher and authorising him to retile his deck. The consent contemplated lifting the existing tiles, replacement of the waterproof membrane and relaying new tiles without any regrading of the deck, change to the existing step-down or construction of a nib. The plaintiffs submitted to the Court of Appeal that this proposed evidence demonstrated that the extensive upgrades contemplated by the Body Corporate were unnecessary.
[6] The Court of Appeal rejected that application. It held that the proposed evidence was neither credible nor cogent.
[7] As to credibility, it identified numerous deficiencies in the documentation submitted to FNDC including that it showed a step-down of 60 mm when the
relevant measurement was only 30-40 mm. Moreover, many of the details ordinarily
2 Wheeldon & Ors v Body Corporate 342525 [2016] NZCA 247.
required for Building Code compliance were absent; for example no acoustic mat was shown and the nominated exterior waterproofing system was one for which there was no current appraisal certificate.
[8] As to cogency, it held that the consent was directed only to one very specific
aspect whereas the “holistic solution” addressed a number of interrelated defects.
[9] Accordingly, the Court of Appeal concluded that:
[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.
[10] By the time the Court of Appeal’s decision was delivered on 7 June 2016 the building had already been substantially repaired in accordance with the scope of works supported by the majority. A contract was let after delivery of my judgment and prior to the Court of Appeal hearing on the basis of a vote taken at an Emergency Extraordinary General Meeting in August 2015 (the EEGM). That meeting was convened in response to what was considered to be a particularly attractive contract price from a construction company which required immediate commencement. No injunction was sought to prevent entry into that contract, no doubt because of the resultant exposure in damages should the appellants not be successful in the Court of Appeal.
[11] The Court of Appeal’s decision was in turn the subject of an unsuccessful application for leave to appeal to the Supreme Court. In its decision on that application, delivered after the hearing of this claim, the Supreme Court declined leave.3 Relevant in the context of these proceedings, it held that:
(a) it was unlikely to reach any different conclusion from the Court of
Appeal that the burden rested on the plaintiffs to establish that the jurisdictional requirements of s 138(1)(d) were not satisfied.4
3 Wheeldon & Ors v Body Corporate 342525 [2016] NZSC 125.
4 At [9]. This issue was relevant in the context of my decision prior to commencement of the Wheeldon trial to disallow evidence called by the plaintiffs purportedly in reply (see Wheeldon v Body Corporate 342525 [2015] NZHC 366).
(b)there was no real prospect of the plaintiffs establishing, contrary to the Court of Appeal’s views, that the evidence relating to the Butcher consent was cogent.5
[12] The first of these findings is relevant in the context of the present claim because the defendant says the plaintiffs are too late in asserting that the Butcher consent renders the work undertaken unnecessary in a s 138(1)(d) context. It says that any such argument could and should have been run in the context of the Wheeldon proceedings by way of evidence-in-chief and that, on the principles established in Henderson v Henderson,6 any attempt to now advance that argument is an abuse of process.
[13] The second of the findings is relevant insofar as it is alleged that the Butcher consent, in its terms, alters anything. The defendant says, for the reasons identified by the Court of Appeal and affirmed by the Supreme Court, that the consent was of such limited utility in the context of the complex and interrelated problems which had occurred with the development that it was correctly rejected by the Body Corporate experts when they recommended it proceed with the proposed holistic solution. It says further that although it would have necessarily considered any alternative comprehensive solution properly developed and supported by the
minority,7 the Butcher consent was never in that category and that proposals
advanced by the plaintiffs’ expert Mr Maiden in evidence filed in the present proceedings were, in the context of a remediation by then already substantially complete, too late. It says further that any suggestion the works contemplated by the Butcher consent would have adequately addressed issues relating to the decks is comprehensively debunked by the evidence of water migration and internal
apartment damage identified in the rebuild.
5 At [10].
6 Henderson v Henderson (1843) 3 HARE 100.
7 As my substantive judgment, above n 1, recognised would be appropriate at [165] – [166].
The issues
[14] The issues raised in the proceedings fall into three distinct categories.
[15] In the first category is the plaintiffs’ argument that the holistic repair represents “betterment” or more accurately a “voluntary upgrade”. The essential question in that context is whether such argument is precluded by the principles established in Henderson v Henderson or the doctrine of issue estoppel. The outcome of that inquiry may have significant implications in terms of the Body Corporate’s attempts (in summary judgment proceedings filed in August 2016) to recover from the minority the costs of repairs of their units. These range between approximately $100,000 and $180,000 per unit depending on utility interest.
[16] In the second category are challenges to various resolutions passed at each of the Body Corporate’s 2015 AGM, 2015 EGM and the EEGM. In each case the minority says that they were unlawfully disenfranchised and that, had that not been the case, they would have been able to defend the special resolutions carried at the AGM and EGM and (if it had been appropriately put as a special resolution) that carried at the EEGM.
[17] The basis on which the plaintiffs were disenfranchised was non-payment of various disputed levies relating to various advices and litigation associated with the rebuild project. It is not in contention that, other than Mrs Stent who had by the time of the EGM paid her outstanding levies (with the exception of a small interest component which had been miscalculated) and was fully entitled to vote at the EEGM, the plaintiffs had not paid relevant levies. The issue of their entitlement to vote therefore turns on whether the combined effect of s 96(3) and (6) of the UTA creates a “pay now argue later” regime or whether it is open to a body corporate member to challenge a levy, withhold payment and nevertheless assert an ongoing voting entitlement.
[18] There are also a variety of other technical issues raised.
[19] Finally, in respect of each of the AGM, EGM and EEGM resolutions the plaintiffs argue that, if lawfully passed, the plaintiffs are entitled to relief under s 210
of the Unit Titles Act on the basis that such resolutions are unjust and inequitable to them as a minority. They do so despite having purported to abandon that cause of action in a memorandum dated 17 October 2016 which was subsequently said to be in error.
[20] As originally framed, the claim also sought declarations of invalidity in respect of five special levies (identified as SL 2-6). The issues raised in that respect were extensive and the total sums involved comparatively modest from the perspective of each of the plaintiffs. Ultimately the plaintiffs elected to abandon those claims in these proceedings on a basis without prejudice to their rights.
[21] I start with what seems to me the most significant issue – that engaged under the third cause of action.
The third cause of action
[22] In their third cause of action the plaintiffs seek a declaration that the relevant special and ordinary resolutions were “ultra vires and of no effect” on the basis that the works undertaken represented voluntary upgrades unnecessary to satisfy the requirements of s 49(1) of the Building Act 2004. They say that they were unnecessary on the particular grounds that FNDC subsequently issued the Butcher consent (which did not include such upgrades).
[23] The defendant’s response to that pleading is in two parts. Firstly it says that “the pleadings are an abuse of process and raise an issue estoppel…”. Secondly it says, with extensive particulars, that even if the Butcher consent is not inherently flawed and could be extrapolated across every deck and the building (all of which is denied), the Body Corporate was entitled to consider and reject it as it did on 7
August 2015 at the EEGM. It says that in the context of the development’s many, varied and interconnected problems, the Butcher consent was irrelevant to the Body Corporate’s proper decision making.
[24] In order to assess such claims and defences it is necessary to consider in further detail what was litigated in the Wheeldon proceedings.
[25] At paragraph 20 of their statement of claim the Wheeldon plaintiffs pleaded:
If some remedial work is required to the decks … such work does not
mandate inclusion of the 150 mm nib wall.
[26] Turning then to this case, the plaintiffs plead:
[82] Most or much of the scope and expense of the Proposed Works is a direct result of the Body Corporate’s voluntary decision to adopt 2015 building standards and/or acceptable solutions (“2015 upgrades”). In particular the proposed works require the height of the “step-down”, between the interior floor and exterior deck of each unit, to exceed 100 mm.
…
[84] The 2015 upgrades are not repairs or maintenance within the meaning of s 138(1)(d) of the Act and are ultra vires. In consequence, the Body Corporate’s decision to undertake and fund the proposed works are also ultra vires.8
[27] The plaintiffs opened their case in Wheeldon by reference to these issues.9
Paragraphs [90] – [91] of the submissions were in terms:
[90] Betterments, as above defined, are outside the scope of the section
138 duty imposed on BCs.
[91] The Claim alleges (16, 20, 25) that Origin 1 includes a nib wall, shrink wrapping and replacement of the existing façade of the building which are unwarranted, unreasonable and ultra vires. It says that if remedial work to Apartment decks and frames are required (which is denied) such work would not reasonably cost more than $20,000 per Apartment.
[28] Both the plaintiffs and defendant in Wheeldon made extensive closing submissions on this issue.10 The issue was also extensively traversed in evidence.11
[29] In my judgment in Wheeldon at [147(2)] I held that the works contemplated by the Body Corporate did not constitute a betterment and were authorised by s 138
of the Act.
8 These paragraph numbers correspondent to paragraphs [78] and [80] in the Second Amended
Statement of Claim as filed. There was a typographical error in the numbering of that document.
9 At paragraphs [7] – [8], [23] – [27], [35] – [38](e), [60] and [90] – [91] of the plaintiffs’ opening
submissions.
10 Refer closing submissions of plaintiffs “section 8 – unnecessary work” at [60] and [64]. Closing submissions of Body Corporate at [183]-[191].
11 As for example in the cross-examination of the defendants’ expert Mr Grey at pages 177-185,
201-207 and 233-243 of the notes of evidence.
[30] I introduced that section of my judgment in the following terms:
[147] The plaintiffs argue that the Origin Repair Plan, in so far as it contemplates bringing the development to a standard of current code compliance, constitutes betterment which is beyond the repair and maintenance mandate of s 138 and is thus ultra vires.
[31] At [150] I discussed the consequences of establishing adequate falls to the decks in terms of the requirements to construct a bulkhead or nib and to replace or refurbish existing joinery. I noted that:
… It is for these reasons that the costs of a fully Code compliant remediation so substantially exceed the costs (less than $10,000 per level 2 and 3 Unit) which the plaintiffs believe should be spent.
[32] I concluded that the nib wall did not represent a betterment but was a necessary incident of required repair. I also held that s 17 of the Building Act required any repair to comply with current code requirements relying on observations to that effect in Building Law in New Zealand12 and Department of Building and Housing’s determination 2011/093.13
[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.
[34] Subsequent to delivery of that decision, the Butcher consent was obtained. The plaintiffs then sought a recall of my judgment based on that consent. Their application was ultimately withdrawn because it was not tenable in the context of the appeal which had already been filed. However, relevant for present purposes are various observations by counsel for the plaintiffs in a memorandum supporting the
application dated 8 July 2015. Counsel stated:
12 Cheyne, Laing, Cashin, Kay, Fairnie & Fox Building Law in New Zealand (on-line looseleaf ed, Thomson Reuters) at [BL112.02].
13 The issuing of a code compliance certificate for a relocated house and associated alterations Dep
BH Determination 2011/093, 21 October 2011.
It was a key disputed issue in the trial as to whether the FNDC would or could insist that any repair or maintenance work on Bridgewater decks must conform to 2015 building standards … The plaintiffs have throughout contended that s 112 of the Act entitled them to a building consent based on existing design with no requirement to upgrade to 2015 acceptable solutions.
(emphasis added)
[35] This confirms that the necessity of an increase in deck thresholds (and works consequential on such) were always central issues in the Wheeldon claim.
[36] On withdrawal of the application to recall, the plaintiffs progressed their appeal to the Court of Appeal. In the joint list of issues on appeal filed and dated 6
November 2016 the appellants’ included the following issues under the heading
“Vires”.
Whether the High Court was correct [respondent’s formulation not agreed by appellants] in its findings that the scope of the “holistic Origin Repair Plan” favoured by the respondent constitutes “repair and maintenance” and is therefore within the respondent’s vires pursuant to s 138 of the Act.
Whether the High Court was correct [appellants’ formulation not agreed by respondent] in finding that construction works to ensure that Bridgewater meets 2015 building standards was a necessary incident of required repairs and maintenance.
[37] In their submissions to the Court of Appeal the plaintiffs summarised one of their arguments as follows:
When not required by the relevant consenting authority under s 49(1) of the Building Act 2004, upgrades of an existing building to align with current acceptable solutions are betterments – which cannot be undertaken pursuant to s 138(1)(d).
[38] In their associated submissions in support of application for leave to adduce further evidence (being evidence of the Butcher consent) they said:
In the court below, the appellants argued that aspects of the Disputed Works comprised betterments. In this appeal, it is proposed to focus only on the plan of the respondent (“the BC”) to upgrade the decks of all units to accord with “acceptable solutions” that are relevant to new buildings…
The dispute in this regard centres upon whether threshold heights14 needed to be raised from the existing 60mm to a proposed 150 mm.
14 Appellants’ submissions to Court of Appeal for leave to adduce further evidence dated 6.10.15 at
1-12.
[39] The Court of Appeal dealt with the betterment (and associated leave) issues at
[103]-[114]. At [103] it stated:
On appeal the focus was proposed upgrade of all decks in the complex to meet the current New Zealand Building Code which requires “adequate resistance to penetration by and the accumulating of moisture from the outside”. The particular aspect of compliance in issue is the creation of falls of at least 150 mm. This would require changes to all decks to increase the step-down between the interior floor level and the deck from its current 60-
70 mm. This in turn would require replacement of existing joinery. The
appellants’ position is that their decks have never leaked and already comply with the Building Code so that no work is required on them. To the extent that the proposed work was necessary it constituted betterment, for which the appellants were not liable.
[40] The Court of Appeal then considered the application for leave to adduce further evidence. It held that it was neither sufficiently credible nor cogent to justify admission. It then noted that “since the issue of betterment as a ground of appeal depended on the application being granted there is no need to address it further”.15
[41] Against that background, I turn first to consider the defendant’s abuse of process argument. In summary, what the Body Corporate says is that insofar as the plaintiffs’ rely on the Butcher consent (or the evidence now advanced by its expert Mr Maiden) to say that the holistic repair was unnecessary, such evidence engages a central dispute in the Wheeldon proceedings and should have been called in that context.
Abuse of Process – Legal Principles
[42] The foundations to the modern law of abuse of process were laid in the 1843 judgment in Henderson v Henderson, the following passage from which is still often cited:16
In trying this question I believe I state the Rule of Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which ought to have been brought forward as part of the subject in contest, but which was not brought
15 Wheeldon, above n 2, at [114].
16 Henderson v Henderson, above n 6.
forward, only because they have from negligence, inadvertence of even accident omitted part of their case. The plea of res judicata applies, except in some cases, not only to the points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but their every point which properly belonged to the subject of the litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
[43] Critical to the principle is the concept of what “properly belonged” to the
earlier litigation. As Woolford J said in Mah v Tey:17
It is an abuse of process to raise in subsequent proceedings matters which could and should have been litigated in earlier proceedings.
[44] In Petersen v Lucas18 the Court of Appeal approved Asher J’s formulation in
Rafiq v Secretary for Department of Internal Affairs of New Zealand in terms:19
A party cannot bring a case relating to a certain party, certain consequences of conduct, and a certain time frame and then when it fails bring another case raising similar complaint relating to the same party, the same sequence and the same timeframe. Parties must bring their whole case to the Court so there can be finality of litigation.
What the plaintiffs say
[45] The plaintiffs argue the defence is not available.
[46] Firstly, they submit that the defendant’s pleadings did not fairly put them on
notice that an abuse of process argument was to be pursued.
[47] Next they say the argument does not apply where further issues are advanced which could not have been advanced in the earlier proceedings.20 They submit that the circumstances “changed abruptly when the Butcher consent was issued” and further, that there is now evidence to show that inclusion of the nib (and consequent replacement of joinery) was at all times voluntary.
[48] Thirdly, the plaintiffs say that abuse of process is a “broad, merit based”
inquiry which takes into account all the public and private interests involved and the
17 Mah v Tey [2013] NZHC 573 at [55].
18 Petersen v Lucas [2015] NZCA 627 at [32].
19 Rafiq v Secretary for Department of Internal Affairs of New Zealand [2014] NZHC 2064 at [21].
20 Citing Arnold v National Westminster Bank Plc [1991] 2 AC 93 (HL).
facts of the case21 and that in what it submits is now a changed landscape I am justified in rejecting it as a defence.
Analysis
Abuse of process
[49] I do not accept the plaintiffs’ arguments. As to the first, the defence was in my view adequately pleaded. Res judicata is a broad doctrine encompassing issue estoppel and cause of action estoppel. It operates to preserve the finality of litigation and prevent inconsistent results. Abuse of process is a closely related concept which has been developed by the courts in their inherent jurisdiction to prevent misuse of
their decision-making processes.22
[50] In the present case the pleading (Third Amended Statement of Defence) was in terms:
79.It denies paragraphs 81-84 of the claim on the grounds the pleadings are an abuse of process and raise an issue estoppel, being matters previously determined by the High Court in proceeding CIV-2014-
488-122 and currently before the Court of Appeal in matter
CA290/2015.
[51] The plaintiffs say that the words “previously determined” assume the antithesis of a Henderson v Henderson23 complaint which relates to issues which were not determined in the prior proceedings. However, it is significant that when the plaintiffs sought particulars of paragraph 79 of the pleading their request was in terms:
The defence alleges that the pleadings raise an issue estoppel being matters previously determined… specify which issues in the pleadings ought to be estopped.”
(emphasis added)
[52] So the reference to “previously determined” was then being linked by the
plaintiffs to the issue estoppel allegation exclusively. Nor were particulars at that
21 Citing Johnson v Gore Wood & Co [2000] UKHL 65, [2001] WLR 72.
22 Tylon Steepe Homes Ltd v Pont 2011 BCSC 385 at 52 to 56
23 Henderson v Henderson, above n 6.
stage sought of the abuse of process allegation. Since the new pleading raised issue estoppel for the first time, the plaintiffs could not realistically have assumed that it was simply a tautologous reference to abuse of process.
[53] However, to the extent there was any uncertainty about the defendant’s reliance on Henderson v Henderson principles this was identified on the first day of trial and prior to cross-examination of relevant witnesses. I also allowed the plaintiffs a period of three weeks from the conclusion of trial to file supplementary submissions (in addition to those made in closing) on the point.24 No specific prejudice is alleged, nor could it be. Inevitably therefore I would have allowed an amendment to the pleading if required. But such was not, in my view, necessary.
[54] As to the second, I hold:
(a) The evidence adduced by the plaintiffs in support of their arguments in Wheeldon was deficient to the extent that, only in reply, did they endeavour to engage the defendant’s arguments about the necessity for the proposed works. I ruled that evidence substantially inadmissible. That ruling was upheld on appeal on the basis that the plaintiffs’ case was that s 138(1)(d) did not apply and the onus was therefore on them to ensure that their evidence-in-chief provided the necessary basis for a finding to that effect.
(b)The Butcher consent represents an attempt to re-engage on this same issue and in that sense “backfill” the deficiencies in the case which the plaintiffs advanced in Wheeldon. Realistically, it cannot in my view be argued that evidence to the effect the building could be lawfully and comprehensively remediated without regrading the decks could not, whatever its ultimate probative value, have been called as part of the plaintiffs’ case in Wheeldon. Nor, if the plaintiffs had sought to support that evidence with a building consent on Butcher terms was
there any impediment to that. It was no less obtainable prior to the
24 The defendants indicated that they did not consider any response to such further submissions would be required and have not filed one.
hearing of the Wheeldon claim than it was immediately after it. The proposition advanced by Mr Brill that “no amount of diligence would have enabled the plaintiffs to bring forward an argument that the BCA would allow simple membrane replacement “is simply untenable and it is no answer that the Body Corporate had not itself finalised a building consent application at the time the Wheeldon proceedings were heard.
(c) For the plaintiffs to have filed a recall application and an application for leave to adduce evidence on appeal in Wheeldon (in both cases for the purposes of introducing the Butcher consent) they clearly regarded evidence of such consent as germane to those proceedings. The critical threshold issue in respect of both applications has to have been relevance.
(d)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 issues25 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 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.
[55] Nor in terms of the broad merit based inquiry urged on me do I see this as favouring the plaintiffs. To the contrary, 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
25 The Court of Appeal declined the application to adduce further evidence at the hearing of the appeal with reasons to follow. The present proceedings were then amended to include the third cause of action based on the Butcher consent.
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.
[56] I therefore find the defence of abuse of process made out.
[57] It is not in that context necessary to make a finding in relation to issue estoppel. To do so I would, relevantly, need to be satisfied that:
(a) Wheeldon determined the same question as that raised in the third cause of action in Butcher; and
(b)The parties to Butcher were either the parties to Wheeldon or their privies.
[58] In Shields v Blakely the Court of Appeal held that in order for a party to be privy to an earlier decision:26
There must be shown such a union or nexus, such a community or mutuality of interest, such an identity between a party to the first proceeding and a person claimed to be estopped in the subsequent proceeding, that to estopp the latter would produce a fair and just result having regard to the purposes of the doctrine of estoppel and its effect on the party estopped.
[59] The Wheeldon and Butcher proceedings involve a number of the same plaintiffs but there is not an exact correlation. The Wheeldons themselves are not
parties to the Butcher proceedings. In 2015 they sold their apartment to Mrs Stent,
26 Shields v Blakely [1986] 2 NZLR 262 at [268].
wife of counsel for the plaintiffs. As a result, the Body Corporate added her as a counterclaim defendant. Moreover, Mr and Mrs Dickeson, who were named initially as plaintiffs in Butcher, were not plaintiffs in Wheeldon. However, at their request they were struck out of the Butcher proceedings from 29 August 2016 with costs reserved.
[60] Clearly the absence of the Wheeldons from the Butcher proceedings does not preclude a finding of issue estoppel against those parties common to both, and, even if she had not been a counterclaim defendant I would have found Mrs Stent to have had sufficient mutuality of interest in the respective proceedings to invoke the doctrine given that she stood equally to benefit (in the sense of a reduced repair cost) from a finding in Wheeldon that the majority’s proposed scope of works represented a voluntary upgrade.
[61] Moreover, against the background I have identified there can be no real argument that the core allegation in the third cause of action in Butcher – whether regrading of the decks and construction of the nib and step down were voluntary decisions on the part of the Body Corporate – duplicates in all material respects one of the core arguments in Wheeldon on which I had already adjudicated.
[62] Had it been necessary therefore, I would have likewise found the defence of issue estoppel made out.
Irrelevance of Butcher consent
[63] However, even in the absence of my findings in respect of abuse of process and issue estoppel, I would have declined the declaration sought in the third cause of action. I agree with counsel for the defendant that the Butcher consent may properly be described as “irrelevant”. That follows inevitably from the findings of the Court of Appeal in Wheeldon on the application to adduce further evidence. Those findings are, at this point, usefully set out in full:
[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 identified what he regards as deficiencies in the building consent documentation approved by the FNDC. For example, we consider the drawings 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.
…
[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.
[64] On the application for leave to appeal to the Supreme Court it in turn held that:
We do not see any real prospect that the applicants would succeed in establishing, contrary to the Court of Appeal’s views that this evidence was cogent.
[65] As explained in some detail in my judgment in Wheeldon, the Bridgewater Apartments suffered from numerous and interconnected problems which the Butcher consent simply did not address. Responsibly, the plaintiffs’ expert in the present proceedings, Mr Maiden, conceded that the extent of damage ultimately identified during the rebuild added a new dimension to his analysis. Although the expert brief filed by him purported to say that there was no necessity to regrade the decks, construct a nib and replace the joinery it is clear that he was not adequately briefed in terms of the photographic evidence obtained during the demolition phase, when significant damage to internal base plates in numerous apartments including 201,
207 and 210 and below the deck outlets in the northern wall timber framing under units 203, 208 and 209 was identified. Insofar as units 201, 207 and 210 were concerned, this was the result of the inadequate height of the upstand and inadequate water proofing to it. Indeed, it appears that the only demolition or deconstructive
testing to which Mr Maiden was a party was on Level 4 where the issues are largely irrelevant to those engaged in the Wheeldon and Butcher proceedings. The following exchange under cross-examination was particularly instructive.
MrMaiden: I advised Mr Brill that I thought it was unnecessary the proposal to do mass replacement [of the joinery] because on the basis of the evidence I had there was no, nothing to support it.
MrAllan: Am I right in understanding that since we have been through these photographs you now have changed your mind about that?
MrMaiden: I’m changing, I’ve changed my mind on the issue there is damage, yes. What caused that damage is not known, although the upstand, the membrane, the lack of membrane, upstand is likely to be the main problem. I accept that.
[66] Moreover the evidence was compelling that the premise on which the Butcher consent had been sought (that the step down was 60 mm) was incorrect. In the case of Mr Butcher’s apartment the step down was measured at 30 – 40 mm only. In the case of other apartments within the complex it was as little as 25 mm. The significance of this issue is amply demonstrated by the photographs taken during the demolition phase which show moisture ingress within some of the apartments and rotting to base plates. Self-evidently therefore step-downs of between 25-45 mm as measured by the defendant’s experts were not satisfying the requirements of cl E2 of the Building Code. As Mr Maiden conceded it was the lack of membrane and upstand which was responsible. Although his evidence was that the Butcher consent addressed the former it did not address the latter.
[67] In addition and as subsequently identified by Mr Bullen-Smith, the specification for the Butcher consent could never in fact be satisfied because the Chevaline Dexx membrane specified in it required, in accordance with its manufacturer’s specifications, an upstand of a minimum of 100 mm when not one of the apartments provided for that. As the defendant’s experts rhetorically inquired – was the membrane to be applied to the glass of the ranchsliders? Moreover, the fact that a leading supplier specified for upstands of 100 mm or more simply reinforces the inadequacy of the as-built Bridgewater design.
[68] Much is made by the plaintiffs of my observation in Wheeldon that a Body Corporate would necessarily need to consider alternative repair plans to that advanced by the Body Corporate’s experts. But no comprehensive remediation plan was ever tabled by the plaintiffs prior to the defendant entering into its contract to repair the building. The evidence leaves me in no doubt that the Butcher consent itself was adequately considered by the defendant’s experts but that they concluded, as the Court of Appeal did subsequently, that it added nothing material to the debate.
[69] All of Messrs Bullen-Smith and Grey’s essential objections to the consent were, in my view, adequately canvassed with the Body Corporate Committee after the consent’s receipt and the Body Corporate was, in my view, predictable in its rejection of it at its EEGM. That is the relevant point at which an assessment was appropriately made. Letting of the contract followed immediately thereafter. The views which Mr Maiden expressed in his brief of evidence (to the extent not undermined by the inadequacy of the briefing he received), were never the subject of a report to the Committee or Body Corporate members before that time. His brief of evidence was therefore a case of too little too late. While all experts might now agree that the reconstruction of the decks could have proceeded on the basis of an “alternative” as opposed to “acceptable” solution there was no comprehensive alternative solution on the table at the critical time. All there was for the Body Coporate to consider was a demonstrably inadequate consent directed “towards one
very specific aspect”27 which, as a result, the Court of Appeal subsequently found to
be neither credible nor cogent.
[70] Nor do I accept Mr Brill’s criticism of the Court of Appeal decision in terms that “it had no jurisdiction to impugn the FNDC’s decision without first allowing the FNDC to be heard in the context of a judicial review procedure”. The issue was not the validity or otherwise of the Butcher consent but its relevance in the context of a development with a significant number of interconnected problems resulting in
multiple areas of discrete damage.
27 As the Court of Appeal, above n 2, recorded at [111].
Result on the third cause of action
[71] I therefore decline the relief sought in the third cause of action.
First cause of action – the legality of resolutions
[72] As previously indicated, the first cause of action originally engaged a plethora of issues (at one stage said by the defendant to total in excess of 70) relating to the legality of various resolutions including five special levies (SL 2-6). The challenge to SL resolutions was only, however, abandoned subsequent to trial.
[73] I recorded the resultant position in a Minute to counsed dated 21 November
2016 in which I said:
In relation to Butcher I intend to proceed on the following basis:
The plaintiffs have abandoned (without prejudice to their rights) the prayer for relief in paragraph A(IV) of their first cause of action (relating to SL 2 –
6).
…
I am required to make a decision as to the lawfulness and/ or the validity of the resolutions indentified in A(I), (II) and (III) of the first cause of action. Such decision will ultimately turn on proper application of s 96 of the Unit Titles Act 2010 (UTA).
[74] The resolutions identified in A(I), (II) and (III) of the first cause of action are as follows:
(I) The special resolutions purportedly passed at the 2015 EGM
(II) The special resolutions purportedly passed at the 2015 AGM
(III) The Agenda Resolutions purportedly passed at the EEGM
[75] I begin by identifying the specific resolutions passed at each of these meetings which appear to remain under attack.28
28 That said adoption of some of the resolutions, eg acceptance of apologies and proxies was not the subject of specific submissions.
(a) At the 2015 AGM held on 31 January 2015 the eligible voters:
(i)passed two special resolutions in relation to delegation. First the chairperson’s powers and duties were delegated by the BC to the Committee under s 108 of the Act. Second the Committee was delegated the full powers and authority of the Body Corporate, subject to any prior directions given at any general meeting or any prohibition contained in s 108(2) of the Act. Both were passed unanimously.
(ii)passed a special resolution to dispense with an audit review for the current and future accounts periods. The resolution was passed unanimously.
(b)At the 2015 EGM on 17 June 2015 the eligible voters passed a large number of resolutions, grouped together under the title “Remedial Works Resolutions”. These included:
(i) A special resolution ratifying all decisions of the BC and the
Committee listed in the ratification schedule.
(ii) A special resolution to adopt the Resolution upgrade.
(iii)A special resolution ratifying all Committee actions including but not limited to all decisions related to the management of the remediation process.
(iv)A special resolution ratifying all levies raised by the BC and the Committee and any other expenditure in connection with the remediation process or litigation, regardless of which fund it came from.
(v)A special resolution affirming that the long term maintenance fund is and always has been an optional contingency fund under s 118 of the Act.
Such special resolutions were carried unanimously. Ms Stent was present and participated but she was not eligible to vote.
(c) At the 2015 EEGM on 8 August 2015 the eligible voters passed as
Agenda Resolutions the following:
(i) Appointment of the secretary to chair the meeting
(ii) Acceptance of apologies and proxies
(iii) Adoption of the minutes of the prior EGM on 17 June 2015. (iv) Acceptance of the Resolution Upgrade, and directed the
Committee to execute a contract with the successful tenderer.
(v)Appointment of Resolution Architects Ltd as architect and engineer to manage the project, including subcontractors.
(vi) A new levy of $3 million to fund the proposed works.
(vii)Interest of 10 per cent per annum to be payable on any levy not paid by due date, and authority for the Committee to obtain a loan if possible to cover shortfall for defaulting owners.
Such Agenda Resolutions were passed unanimously, bar Ms Stent who voted against the final four resolutions.
[76] The principal challenge to these resolutions is that they are unlawful, invalid or of no effect because the minority were unlawfully disenfranchised and that, had their votes been allowed, the requisite 75 per cent majority would not have been obtained. At all three meetings it is common ground that the minority (excepting Ms
Stent at the EEGM) were not permitted to vote.29 As I recorded in my Minute of 21
November 2016 the outcome of this challenge turns primarily on proper application of s 96 of the UTA (and in particular s 96(3) and 96(6)).
[77] However, four subsidiary matters still appear to require determination even allowing for abandonment of the SL 2-6 arguments. These are allegations that:
(a) The Agenda resolutions at the EEGM were not notified or passed as Special Resolutions as they ought to have been under s 101(1) of the Act.
(b)The audit-dispensing resolution at the 2015 AGM did not comply with s 132 of the Act because, the financial records were not sufficiently accurate and the resolution purported to be ‘evergreen’.
(c) The resolutions passed at the EEGM purported to ratify nullities and were therefore themselves of no effect.
(d)In purporting to pass the EEGM Resolutions the Body Corporate was acting as trustee for the majority.
Voting rights under the UTA
The legislative context
[78] Section 96 of the UTA relevantly provides that:
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.
…
29 By the time of the 2015 EEGM Ms Stent had paid the levies and associated interest and costs.
She was then the sole recorded dissenting voter.
(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.
[79] The scheme of the section is therefore to deny voting rights to those in default of levies while providing an opportunity to make what is in effect a without prejudice payment while preserving rights of objection. There are good policy reasons for this scheme, chief among them being the need to prevent minority interests from exerting undue pressure on a body corporate’s decision making processes, as would inevitably occur if the majority were routinely required to find unpaid levies. Thus the presence of a sanction as provided for in s 93(3).
[80] The section should also be read in conjunction with s 210 which provides potential relief for oppressed minority interests. It is by recourse to that section and not by withholding levies that the Act protects such interests. Significantly also, the s 210 jurisdiction is limited to those who “voted against the resolution”.30 The two sections worked harmoniously to create a “pay now, argue later” regime.
[81] The legislative history of the Act supports this interpretation. The original section 41 of the Unit Titles Act 1972 did not preclude non-levy-paying members from voting. However, the Unit Titles Bill 2008 was a “fundamental rewrite of the existing legislation.”31 The alteration of the voting rights provisions, including a move away from unanimity requirements was seen as a key part of that overhaul.32
The problem of “hold-outs” where a minority of unit holders were able to hold up the progress was identified throughout the parliamentary debates as a key driver for reform.33 The result was to alter the voting threshold from unanimity to 75 percent on special resolutions, with the aim of preventing a minority of people impeding crucial decisions of the body corporates. The addition of a clause that predicated
voting rights on payment of levies raised by the body corporate was seen as an
30 Section 210 is discussed below at [103] in relation to the second cause of action in greater detail.
31 (5 March 2009) 652 NZPD 1713 Hon Phil Heatley (Minister of Housing) at the Bill’s first
reading.
32 (5 March 2009) 652 NZPD 1714.
33 (5 March 2009) 652 NZPD 1713 - 1732 per Hon Maryan Street (Labour, speaking in support); Sue Bradford (Green, speaking in support of the bill); Hon Maurice Williamson (Minister for Building and Construction).
additional safeguard for the rights of majority owners, as recorded in an early departmental report to the Social Services Select Committee.34
[82] The conclusions I express in this respect echo those of Woodhouse J in Tao v Strata Title Administration Ltd.35 In that case the plaintiff, Ms Tao, was prevented from voting as she had not paid a levy. She argued that the section was discretionary as to whether she had to pay the levy. The learned Judge stated:36
… I am in no doubt that, in the context of this provision, and the relevant parts of the Act as a whole, the provision is mandatory. A person who has not paid a levy is not entitled to vote.
[83] Ms Tao argued that that the levy was for an unreasonable amount, that it was raised at a meeting that was not properly convened and that decisions at the meeting were not properly made. The Judge found that all such disputes fell within the framework of the s 93(3) and (6) regime.37 It was not necessary for him ultimately to determine whether there had been irregularities in raising the levy, as he was dealing with an interim injunction application.
[84] Having regard to both context and history I reject the plaintiffs’ argument that s 93(3) should be read down to exclude unit holders who have withheld levies on the grounds that the levies were purportedly ultra vires. Such an approach would introduce a two tier system in respect of disputes for which there is simply no
support in the Act. It would be the antithesis of the “cleanness and simplicity”38
which was said to be the principal driver for the Act’s introduction. Whatever the nature of the dispute, the approach mandated by the Act is to quarantine it from the day to day cash requirements of the body corporate so that it can be resolved without the implicit pressures that would otherwise arise. “Pay now, argue later”
conveniently captures that concept. Alternatively and so far as an entitlement to vote
34 Departmental Report to the Social Services Select Committee on the Unit Titles Bill 2008, Appendix 1: Clause by Clause Analysis of submissions, submission 99 Chris Moore on behalf of the New Zealand Law Society on clarification of clause 83 (predecessor of s 96) and the associated response from the Department.
35 Tao v Strata Title Administration Ltd [2015] NZHC 2215.
36 At [10].
37 At [11].
38 (5 March 2009) 652 NZPD 1713 – 1732.
is concerned, the Act can be regarded as establishing a presumption of validity in respect of levies raised pending any determination to the contrary.
Voting eligibility of plaintiffs
[85] This is determined on a simple inquiry as to whether all levies raised by the BC had been paid at the date of the relevant meeting. It was unnecessary for the meeting chairman formally to rule on the entitlement to vote of individual unit holders. If the levies were not paid the consequences followed automatically as a function of s 96(3). In this case there is no question that at relevant times various levies were unpaid.39 The relevant unit holders were therefore precluded from voting. Only in respect of the 2015 EGM where Ms Stent’s ability to vote turned on calculation of interest areas could there be any room for argument.40 In that respect I am satisfied on the evidence that there was a miscalculation in Ms Stent’s figuring and that she could not lawfully vote but the issue is nevertheless academic because, with her single vote she had no capacity to defeat a Special Resolution and the balance of the plaintiffs chose to withhold payment. Even if persuaded that there had been no error in her calculations, I would not therefore have been persuaded to grant a declaration of invalidity.
[86] The relevant unpaid levies are SL 1-6. SL1 is not relevant to these proceedings and the prayer for relief in respect of SL 2-6 was abandoned with rights reserved. I am not required therefore to inquire further into the validity of any such levies. However, even if any one or more of them was invalid and irrespective of the
nature of the alleged invalidity (whether as to form or vires) I have already held that
39 Messers Dickeson, Small, Butcher, Millington and Eade have all declined to pay levies SL 1 – 6.
SL 1 fell due on 31 July 2014; the plaintiffs have therefore been in arrears since 1 August 2014. It follows that they were therefore unable to vote at meetings subsequent to 1 August 2014 which included the 2015 AGM, EGM and EEGM at issue in the first cause of action.
40 Ms Stent also declined to pay SL 1 when it fell due, and was in arrears from 1 August 2014. On
15 June 2015 she paid $11,140.62 while reserving her rights under s 96(c). The payment did not, however clear all accrued interest. There was a shortfall of $174.67 which meant that she remained disentitled to vote at the EGM on 17 June 2015. On 6 August 2015 she paid
$5,487.67, clearing all arrears and interest up to that date. Accordingly, Ms Stent was entitled to, and did, vote at the EEGM on 8 August 2015. She was recorded as having voted against four resolutions each related to the contract proposed to be entered into and associated funding. (As identified in 73(c)(iv) to (vii)). No other valid votes were cast against the resolutions. (The minority attempted to have their votes recorded as against the resolutions. The request was noted in the formal minutes only.)
any party who chose not to pay such levies was thereafter precluded from voting and that if they wished to maintain their franchise the mechanism was provided for in s 96(6).
Result on voting issues
[87] In the result, the plaintiffs were unable to vote on the resolutions tabled at the
2015 AGM, EGM and (bar Ms Stent) the EEGM. All such resolutions were therefore passed by the requisite majorities being 75 per cent in respect of the special resolutions passed at the AGM and EGM,41 and the bare majority required for the
ordinary resolutions passed at the EEGM.42
Remaining arguments under the first cause of action
Alleged requirement for Special Resolutions at EEGM
[88] I can deal with this point briefly; even if the BC had been required to pass the resolutions as special resolutions I would not, in exercise of my discretion, have been persuaded to grant a declaration of invalidity as all such resolutions were carried by a majority which substantially exceeded the 75 per cent threshold.
[89] In any event I do not consider special resolutions necessary in respect of the relevant business. Section 101 of the UTA provides:
101 How matters at general meeting of body corporate decided
(1) Any matters at a general meeting of a body corporate relating to an exercise of a duty or power that may not be delegated under section 108(2), or that have not been delegated to the body corporate committee, must be decided by special resolution.
(2) Except as otherwise provided in this Act, all other matters to be decided by the body corporate at a general meeting must be decided by ordinary resolution.
…
41 Section 98(4).
42 Section 97(4).
[90] The listed powers that may not be delegated are:
108 Delegation of duties and powers
(1) Except as provided in subsection (2), a body corporate may delegate any of its duties or powers, either generally or specifically, to the body corporate committee by special resolution and written notice.
(2) The body corporate must not delegate any of the powers or duties set out in—
(a) subsection (1) (which is the general power of delegation):
(b) section 41 (which provides for the reassessment of ownership interests and utility interests):
(c) section 105(3) (which requires the body corporate to comply with the body corporate operational rules):
(d) section 136(4) (which relates to the application of insurance monies in or towards reinstatement of the development).
[91] The plaintiffs say that the resolution to accept the tender, appoint Resolution Architecture and to “engage such other professional advisors and incur ancillary costs and fees as are required to progress and complete the remedial works in accordance with the building contract” represented an impermissible subdelegation. I cannot accept that submission. Authorising an engineer or consultant to carry out works in accordance with a contractual agreement is not a delegation of the Body Corporate’s delegation powers. It is a grant of authority to take such steps as are necessary to effect the purpose of the grant.
[92] I also accept the defendant’s argument that it was not in fact even necessary for the Body Corporate to pass a resolution adopting their architect’s proposed remedial solution as that had in substance already been approved by the resolution identified as item 4 in the agenda for the EGM on 9 November 2013. In my judgment in Wheeldon I held that, having regard to context, that resolution was adequate authority to proceed with the comprehensive repair challenged by the
plaintiffs in that proceeding.43 That conclusion was in turn upheld by the Court of
Appeal.
43 Above n 1, at [182].
Audit dispensing resolution
[93] In respect of audit dispensing resolution, s 132 of the UTA relevantly provides:
132 Financial statements
(1) A body corporate must keep accounting records that—
(a) correctly record and explain the transactions of the body corporate; and
(b) will at any time enable the financial position of the body corporate to be determined with reasonable accuracy; and
(c) will enable the financial statements of the body corporate to be readily and properly audited or reviewed.
(2) Within 2 months after the end of each financial year, the body corporate must—
(a) submit its financial statements to an independent auditor for auditing; or
(b) submit its financial statements to an accountant for review;
or
(c) engage an accountant to undertake specific verification procedures as determined by the body corporate by special resolution at a general meeting.
…
(8) The body corporate may, at the annual general meeting, decide by special resolution that subsection (2) does not apply for a particular year.
[94] At the 2015 AGM the Body Corporate purported to pass by special resolution a dispensation from annual audit in both the preceding and future years. The resolution provided:
That because complete financial accounts, including transactional records, are available to any owner on request, the Body Corporate resolves to dispense with the need for an audit review or verification of the financial accounts for the current and future accounts periods until further notice, provided the Body Corporate in a general meeting, or the Committee, may at any time require the accounts to be audited, reviewed or verified.
[95] The minutes explain the rational for this decision in terms that the Body
Corporate is managed by Boutique Body Corporates Ltd, the accounts of which are
audited regularly, including of the various body corporates under its management on an approximately three year cycle. Substantial cost savings were therefore indicated by adoption of the resolution.
[96] I accept that a body corporate may choose to effect such savings. Section
132(8) specifically authorises it to do so. However, in my view, it does not authorise a prospective resolution such as that passed at the 2015 AGM. There are a number of indicators in this respect. The power is one which may be exercised at the annual general meeting, that is a meeting which the legislation requires be convened annually. It is a power to dispense with an audit “for a particular year” – the words “a” and “particular” both reinforcing the annual nature of any such dispensation. That accords with the stated purpose of the Act to facilitate unit development on a
“socially and economically sustainable basis”,44 which must include financial
accountability. Consistent with that purpose there is a mandatory audit requirement. The limited exception is in my view designed to ensure that the body corporates address on a regular basis whether the otherwise necessary protection of an audit is required. For that power to be permanently abrogated (absent a resolution to restore it), is to turn the statutory structure on its head and could result in years of undetected defalcations at the hands of an unscrupulous manager.
[97] The plaintiffs also allege that the financial records do not correctly record transactions as is required by s 132(1) and as such the audit dispensing resolution is invalid. I do not regard that allegation as made out on the facts. Mr Leishman described it in evidence as “simply a total misunderstanding on Ms Stent’s behalf”. I am satisfied with the explanations recorded in the Minutes of the 2015 AGM in respect of those matters raised by Ms Stent viz:
Ms Stent was asked by the Chairperson whether there were any particular transactions in the Body Corporate accounts which Ms Stent had concerns with, apart from presentation. Ms Stent commented:
a) The $50,000 required to cover the legal costs associated with the minority proceedings had not been accounted for in the accounts to 30
November 2014. The Secretary clarified that whilst expenses are entered as at the date of receipt of the invoice, levies show up under the
Stratamaster system as at the due date. As the due date for payment of
44 Unit Titles Act 2010, s 3.
the minority proceedings invoice is not until after the balance date, this is the reason it is not in the Boutique accounts to 30 November 2014.
b) Ms Stent questioned the “loan” of $10,000 shown as a liability in the Ordinary accounts. The secretary indicated that he suspected this was an inter-account loan, but had not had time to check or review the position. [Secretary’s footnote: A subsequent check of the accounts indicated this was a temporary interest free advance made by the Secretary/Manager to the Body Corporate to enable the Body Corporate to pay a pressing creditor. The cash-flow problem arose from unpaid levies and the short-term loan was repaid when further levies were received].
Ratification
[98] At the EGM on 17 June 2015 the Body Corporate passed by a unamimous vote the resolutions appearing in Appendix A. The plaintiff challenges these resolutions on the basis that it is not possible to ratify a nullity. As a basic proposition that is unarguable. Every unauthorised action, whether lawful or
unlawful (except an action which is in its inception void) is capable of ratification.45
If an action is ultra vires at the time it was taken, it is a nullity and cannot be ratified. The purpose of the doctrine is to facilitate the correction of procedural and technical defects with a view to preventing unnecessary litigation.
[99] I am unpersuaded that I should grant any declaration of invalidity based on this argument. I do so by reference to the individual numbered resolutions.46
4.This resolution is in terms ratifying the “Schedule of Ratification Resolutions” appearing at the foot of the document. However, on its face it purports to cure only “procedural impropriety”. There is no basis for a declaration of invalidity on the basis that it purports to ratify a nullity. To the extent that any such underlying resolutions are said to be a nullity then:
(1)insofar as they are challenged in Wheeldon they can be determined in that context (if in the Court’s discretion
declarations are considered appropriate.
45 Peter Watts QC Bowstead and Reynolds on Agency (19th ed. Sweet & Maxwell, London 2010)
at [2-052].
46 See Annexure A for the full text of the resolutions.
(2)insofar as they relate to SL 2-6, because no declaration of invalidity is sought in these proceedings, the issue is moot. If any one or more of the plaintiffs continue to resist payment of those levies (for which there is no counterclaim in the present proceeding) then the allegation of nullity can be tested in that context.
5.This is not a ratification resolution. It is a simple special resolution to adopt, implement and undertake the remediation plans prepared by Resolution Architecture, for which building consent had issued.
6.Although this resolution is stated to refer to committee actions, “including but not limited to” what follows, it is clearly directed to ratification of actions associated with the Body Corporate’s resolution on 9 November 2013 to investigate and appoint a lead consultant to manage the “building remediation process”. This was the key resolution considered by me in Wheeldon. I held that in its context it authorised the holistic repair. The Court of Appeal upheld that conclusion. Against the vires findings which I had earlier made in that judgment (likewise upheld) there can be no suggestion that the resolution was a nullity and, to the extent the Committee took actions related to it, they likewise cannot be criticised on the basis the resolution itself was ultra vires. Moreover, to the extent the ratifying resolution might be interpreted to refer to actions outside this specific context, it is not necessary for me to address the issue. “Actions” are clearly intended to be in contradistinction to “levies”. Levies are only ratified to the extent of procedural impropriety and nullity arguments (if available) are preserved. I cannot identify any “action” which might be ratified under Resolution 6 which is not otherwise the subject of specific resolutions passed at the EGM. In any event all “actions” challenged in the second cause of action in Wheeldon are necessarily considered in that context.
If ultra vires then they cannot be saved by the resolutions of 17
June 2015.
7.This resolution is in terms ratifying all levies raised by the Committee or Body Corporate and all expenditure in connection with the remediation process but again is limited to curing any and all “procedural impropriety”. Again there is no basis for a declaration of invalidity on the grounds that it purports to ratify a nullity.
8.Although this resolution contains the language of ratification and affirmation it is in substance the latter. No previous resolution is engaged. What it purports to do is confirm that the fund styled “long term maintenance fund” is and always has been an optional contingency fund for the purposes of s 118 of the UTA. I can see no impediment to the Body Corporate passing such a special resolution. It purports to correct a miscategorisation in the accounts no more nor less. I accept that it would not be lawful to rename the account and therefore leave the Body Corporate without a long term maintenance fund unless it had, consistent with the provisions of s 117 of the UTA, resolved not to establish and maintain such a fund. However, that is what it did at the AGM on 28 January 2012 when the members resolved in terms:
The Body Corporate shall not be bound by the provisions of s 117 of the Act and shall be at liberty to determine from year to year the level of saving and expenditure in regards to the long term maintenance plan as the Body Corporate shall from time to time determine.
9.Again this is not a ratification resolution. It is simply a special resolution directed towards the future finalisation of a contract and the levies necessary to fund it. There is no room for application of the nullity principle.
The Body Corporate acting in a “trustee capacity”
[100] For the sake of completeness I address the pleaded case that “in purporting to pass the Agenda [EEGM] Resolutions the Body Corporate was acting in its capacity as Trustee for the majority”.
[101] It is correct that in respect of proceedings against the FNDC the Body Corporate acts in a trustee capacity as a result of the decision of the minority to progress their own claims in that respect. However, it does not follow that in all its dealings with the minority the Body Corporate’s capacity can be so defined. Moreover, it is a misconception to talk in terms of the Body Corporate “passing” resolutions. Special resolutions, such as those in issue must be passed by 75% of
“eligible voters”.47 The pleading therefore misconstrues the origin and nature of the
authority.
Conclusion on the first cause of action
[102] Accordingly, with the exception of the audit dispensing resolution passed at the 2015 AGM (which I find to be invalid to the extent it purported to dispense with audit review for “future accounts periods”), I decline to make a declaration of unlawfulness or invalidity in respect of the resolutions passed at the 2015 AGM or EGM or at the EEGM.
Second Cause of Action – minority relief under s 210
[103] The plaintiffs seek an order that the resolutions passed at 2015 AGM, the
2015 EGM, the EEGM should be set aside under s 210 of the Act. That section provides:
210 General relief for minority where resolution required
In any case where this Act requires a resolution and the resolution is passed, any person who voted against the resolution may apply to the appropriate decision-maker for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority.
47 Unit Titles Act 2010, s 96(4).
(1A) Subsection (1) does not apply if the resolution is a designated resolution.
(2) An application for relief under subsection (1) must be made within
28 days of the passing of the resolution.
[104] As indicated, this cause of action was “withdrawn or discontinued” by memorandum dated 17 October 2016. Subsequently Mr Brill advised that the memorandum was in error and he sought to reinstate the s 210 cause of action, albeit not in respect of SL 2 – 6. Mr Allen says that an unequivocal withdrawal or discontinuance, communicated to the Court brings the cause of action to an end. I agree and do not see it as necessary that the Court acknowledge the abandonment for it to be effective. However, if I am wrong in that conclusion I would nevertheless dismiss the claim on its merits.
[105] For the plaintiffs to be able to seek relief under s 210 they must have voted and to do so they must have paid the levies, albeit that they could have done so under protest. Accordingly, the only plaintiff with the standing to invoke s 210 is Ms Stent and then only in respect of the four resolutions she voted against at the EEGM. Such resolutions related to acceptance of the scope of works of the Body Corporate’s appointed architect, execution of a contract with the successful tenderer and raising associated levies. They are set out at [75(c)(iv)-(vii)].
[106] In Tremont Holdings Ltd v Body Corporate 401803 the Court of Appeal was required to consider the issue of levies raised against a minority to defend litigation which the minority itself opposed.48 It held that any party seeking relief under the section faced a high threshold of material unfairness or injustice.49
[107] It also cited with approval Associate Judge Doogue’s observations in Body
Corporate No 85403 v Magill,50 to the effect that the starting point for any consideration on an application for relief is that where all members of a body
48 Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314 at [36].
49 At [19] citing inter alia: Young v Body Corporate 120066 (2007) 8 NZCPR 932 (HC) at [43] and [49]; Hart v Body Corporate No 180455 (2005) 5 NZConvC ¶95-498 (HC) at [8]; World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [45]; Spencer-Inight v Johnston [1999] 3 NZLR 103 (HC) at 106.
50 Body Corporate No 85403 v Magill (2008) 9 NZCPR 399.
corporate stand to benefit [in that case from the litigation] each should meet its rateable share of the costs incurred for that purpose. 51
[108] In this case, all Body Corporate members including Ms Stent, stand to benefit from the remediation carried out to the development. I do not need to reiterate why the Body Corporate was entitled to proceed with the option it adopted. Such reasons are set out exhaustively in my earlier decision.52 There is no suggestion that Ms Stent is being required to pay any more than her rateable share of the repair costs. Every unit holder is in that sense “in the same boat”. Her dislike of the chosen
remediation option, or belief that a better, or cheaper alternative existed are not of themselves valid reasons for relief. On the contrary, to do so would unfairly disadvantage the majority of owners who have consistently supported a comprehensive repair plan and whose desire to do so has already received the imprimatur of this Court and the Court of Appeal.
[109] Such a response is consistent with the important underlying principle, explained in detail in paras [73] – [76] of my judgment in Wheeldon, that provided a body corporate has acted on expert advice, that the expert engaged was suitably qualified and that the advice was given in good faith, how a body corporate chooses to act is a matter for it and its decision should ordinarily be respected, even if contrary views are tenable.
[110] That is a principle which, throughout this protracted and expensive litigation
– litigation which has now absorbed the attention of these parties for approaching three years and which at this stage shows no signs of being brought to a timely conclusion – the minority seems singularly to have been unable or unwilling to
grasp.
51 Tremont, above n 47 at [21].
52 Wheeldon, above n 1.
Result
[111] I grant a declaration that the audit resolution passed at the 2015 AGM of Body Corporate 342525 was invalid to the extent it purported to dispense with audit review for “future accounts periods”.
[112] I otherwise decline all relief sought in the second amended statement of claim.
Costs
[113] The defendants are entitled to costs. Modest abatement may be appropriate in view of the one declaration made in the plaintiffs’ favour having regard to the principles established in Packing In Ltd (in liq) v Chilcott.53 Provisionally, I consider costs on a 2B basis with allowance for second counsel to be appropriate. If the quantum of costs cannot be resolved between the parties, memoranda may be filed. They are to be exchanged in advance to limit areas of difference and are to be
a maximum of five pages plus any schedule of calculations.
Muir J
53 Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA) at [5].
Appendix A – Remedial works resolutions
REMEDIAL WORKS RESOLUTIONS
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.
4.Without prejudice to any of its rights in any proceeding between the Body Corporate and the Wheeldons, Small, Butchers, Millington, Eade and/or Stent, the body corporate resolves by special resolution to hereby ratify and affirm the previous resolutions or decisions of the Body Corporate and or Committee listed in the Schedule marked “Ratification Resolutions” and thereby cure any (possible) allegation of procedural impropriety in respect of the resolutions or decisions.
5.Without prejudice to any of its rights in any proceeding between the Body Corporate and Messrs Wheeldon, Wheeldon, Small, Butcher, Millington, Eade and/or Stent, the body corporate hereby resolves by special resolution to adopt, implement and undertake the remediation plans and specifications prepared by Resolution Architecture Limited and for which Building Consent(s) #BC-2015-22/0 and #BC-2015-22/0/A have been issued by Far North District Council.
6.Without prejudice to any of its rights in any proceeding between the Body Corporate and Messrs Wheeldon, Wheeldon, Small, Butcher, Millington, Eade and/or Stent, the body corporate hereby ratifies and affirms by special resolution all Committee actions including but not limited to all instructions and or decisions leading up to, consequent upon, related to or otherwise incidental to the body corporate’s resolution on 9 November 2013 that the Committee “investigate and appoint a lead consultant to manage the building remediation process”.
7.Without prejudice to any of its rights in any proceeding between the Body Corporate and Messrs Wheeldon, Wheeldon, Small, Butcher, Millington, Eade and/or Stent, the body corporate hereby ratifies and affirms by special resolution:
(a) All levies by the Committee or Body Corporate; and
(b)Any expenditure in connection with the building remediation process and or any litigation whether from the operating account and/or the account styled “long term maintenance fund” in connection with
to the intent that this resolution cures any and all procedural impropriety that could be alleged in respect of the Committee and or Body Corporate raising levies or committing expenditure.
8.Without prejudice to any of its rights in any proceeding between the Body Corporate and the Wheeldons, Small, Butcher, Millington, Eade and/or Stent, the body corporate hereby ratifies and affirms by special resolution that the account styled or previously referred to as “the long term maintenance fund” is and always has been an optional contingency fund for the purposes of and as defined under s 118 of the Unit Titles Act 2010 (“the Act”).
9. The body corporate resolves by special resolution as follows:
(a) The Committee shall finalise and sign a contract to effect the building work comprised and described in Building Consent #BC-2015-22/0 and #BC-2015-22/0/A (“the contract”).
(b)The Committee may in its complete discretion make the contract or any part of it conditional upon such terms as the Committee in its complete discretion consider appropriate.
(c) A building levy shall be raised for the contract price (circa
$4million) from all owners by their utility interest on such terms as to payment, security or otherwise as the Committee in its discretion
thinks fit.
(d) The Committee shall take any and all steps available to the Body Corporate at law against any owner that does not pay this levy or any other sum owing to the Body Corporate, including but not limited to utilising its previously approved debt collection policy, or otherwise secure payment to the satisfaction of the Committee and pending payment is authorised to borrow under s 130 of the Act such amounts as the Body Corporate may require to meet its obligations under the contract provided further that all interest legal or facility fees and charges including full solicitor client charges, may be on- charged to a proprietor in arrears to cover the proprietors share of any unpaid levy or change.
(e) The Committee shall make such decisions (including any amendments thereto) as is necessary to ensure that the building work authorised in Building Consent(s) #BC-2015-22/0 and #BC-2015-
22/0/A (including any amendment thereto) as the Body Corporate’s
professional consultants and or advisors consider necessary to ensure that a comprehensive co-ordinated repair takes place under the supervision of a single consultant by a single head contractor with the intention that the process deliver a building compliant with the current building code within as tight a timeframe as possible.
Schedule of Ratification Resolutions
| MOTION | MEETING | RESOLUTION | RESOLUTION REQUIRED |
| 1(a) | 31 August 2011 Postal Vote General Meeting | “The Body Corporate shall, from the date hereof, adopt all of the provisions of the Act, excluding the Body Corporate operational rules which the Committee shall be directed to review and bring back before a further General Meeting of the Body Corporate.” | Ordinary |
| 1(b) | 28 January 2012 Annual General Meeting | “The Body Corporate shall not be bound by the provisions of section 117 of the Act, and shall be at liberty to determine from year to year the level of saving and expenditure in regards to the long term maintenance plan as the Body Corporate shall from time to time determine.” | Special |
| 1(c) | 26 January 2013 Annual General Meeting | “That the existing Committee of: Keith Day ([email protected]), Margaret Gray ([email protected]) and Viv Bath ([email protected]) remain for a further year with the quorum to be fixed at two with the Committee to be delegated the full powers and authority of the Body Corporate subject to any prior direction given at any general meeting to the Body Corporate or prohibitions contained in section 108(2) of the Act.” | Special |
| 1(d) | 9 November 2013 Extraordinary General Meeting | “That the Committee be enlarged by three members being Phillip Andrews, John Nimmo and Tony Butcher to join Viv Bath and Margaret Gray.” | Ordinary |
| 1(e) | 9 November 2013 Extraordinary General Meeting | The Committee’s appointment of Grimshaw’s to instigate defect litigations ratified and Grimshaw’s being engaged to represent the interest of the body corporate and owners in the proceedings.” | Ordinary |
| 1(f) | 9 November 2013 Extraordinary General Meeting | “That the Committee be delegated authority to investigate and appoint a lead consultant to manage the building remediation process.” | Ordinary |
| 1(g) | 25 January 2014 Annual General Meeting | “The Committee is delegated the full powers and authority of the Body Corporate, subject to any prior direction given at any General Meeting of the Body Corporate or prohibition as contained in section 108(2) of the Act.” | Special |
| 1(h) | 25 January 2014 Annual | “That the Committee comprise those nominated being: Viv Bath ([email protected]), Margaret Gray | Ordinary |
| Meeting | ([email protected]), Tony Butcher ([email protected]), Phil Andrews ([email protected]), and John Nimmo ([email protected]) and a quorum be fixed at three.” | ||
| 1(i) | 20 May 2014 Extraordinary General Meeting | “The body corporate ratifies, to the extent necessary, and approves the expenditure incurred at the direction of the previous General Meetings and determines to disestablish any Long Term Maintenance fund as permitted by Section 117(1) of the Act until such time as the remediation project is completed at which time the Body Corporate will review again the need for a long term maintenance fund.” | Special |
| 1(j) | 14 July 2014 Committee | “With the professional and legal costs creeping up (but still within budgets and forecasts including the legal cost forecast to get to an arbitration of $250k.) the BC needed to consider a further Building levy to carry it through to the time when the tenders are in and a decision is made on the large levy to complete the remediation. Attached for your information is a copy of the accounts to date and a spreadsheet showing the costs compared to forecast. The committee has instructed us to raise a special levy of $150K which is to be raised for payment by 31 July 2014. The comparatively short time to attend to this levy is regrettable however as can be seen from the accounts position these funds need to be refreshed to clear current creditors.” | Ordinary |
| 1(k) | 2 June 2015 Committee Resolution | 1. Grove Darlow is instructed to apply for urgency in terms of a fixture in the Court of Appeal.” 2. Grove Darlow is directed to seek Muir J’s decision in terms of the second group of issues with a view to finalising the High Court proceeding.” 3. Grove Darlow be instructed to settle costs on the High Court proceedings as soon as possible and to seek recovery from the minority group. | Ordinary |
| 1(l) | 2 June 2015 Committee Resolution | 4. A special levy of $100,000 be raised in the operating account to refresh the operating account and cover outstanding costs associated with the minority proceedings for payment on 10 July 2015” 5. A second special building levy be | Ordinary |
| raised of $30,000.00 to meet building remedial costs for payment due on 10 July 2015. |
It was agreed by those represented at the meeting that in the interest of economy all resolutions would be dealt with as one notwithstanding that some resolutions are special resolutions and others are ordinary resolutions.
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