Chan v Body Corporate 105164
[2015] NZHC 2491
•12 October 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-003347 [2015] NZHC 2491
IN THE MATTER OF the Eden Heights Apartments
94 Dominion Road, Mt Eden
AND
IN THE MATTER OF
the Declaratory Judgments Act 1908 and the Unit Titles Act 2010
BETWEEN
WAI KAM CHAN Plaintiff
AND
BODY CORPORATE 105164
Defendant
Hearing: 17 August 2015 Counsel:
P H Johnson for the Plaintiff
J G H Hannan for the DefendantJudgment:
12 October 2015
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 12 October 2015 at 4.00 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: P H Johnson, Auckland
Solicitors: Clearwater and Associates, Auckland
DLA Piper, Auckland
CHAN v BODY CORPORATE 105164 [2015] NZHC 2491 [12 October 2015]
Introduction
[1] The plaintiff owns a unit in the Eden Heights apartment complex at
94 Dominion Road, Mt Eden. She applies for eight separate declarations pursuant to s 3 of the Declaratory Judgments Act 1908 (Act) concerning the alleged infringement of the Unit Titles Act 2010 (UTA) by the defendant Body Corporate.
[2] The defendant defends the claims on the basis that there is no jurisdiction to grant many of the orders sought, or that the Court should otherwise decline to grant the declarations in the exercise of its discretion.
Background
[3] The Eden Heights apartment complex comprises 67 units and has a mixture of both residential and retail uses. The plaintiff has owned a unit in the apartment complex since 2004.
[4] Until very recently, the defendant’s affairs were managed by Body Corporate Solutions NZ Limited (BCS). Mr Cotton is the sole director of BCS and has been the chairman of the Body Corporate for the last 20 years.
[5] At an extraordinary general meeting held on 27 July 2015, the defendant passed a resolution appointing Crockers Property Managers Ltd (Crockers) as the defendant’s property managers. The defendant says this appointment will relieve any concerns that the plaintiff has about the future management of body corporate affairs.
[6] Proceedings were commenced on 23 December 2014 pursuant to Part 18 of the High Court Rules. Affidavit evidence was filed by the plaintiff, and by Mr Cotton on behalf of the defendant. Mr Mahmood Dean, an accountant, also provided an affidavit on behalf of the defendant. As explained below, the plaintiff was cross-examined on her affidavit evidence at the hearing.
Submissions
[7] The plaintiff alleges that the defendant has breached the UTA and/or the
UnitTitles Act Regulations 2011 (Regulations) in relation to the following: (a) the notices sent for the 2014 AGM;
(b) the audit of the financial accounts for year ending March 2014; (c) the method of contracting with BCS;
(d) the delegation of powers and duties to the Body Corporate
Committee;
(e) the long term maintenance plan and long term maintenance fund; (f) the defendant’s bank accounts;
(g) the Register of Owners;
(h) the levies raised for earthquake strengthening.
[8] The plaintiff is concerned that the affairs of the defendant have not been managed in a transparent way and are not in accordance with the legislative framework.
[9] The defendant challenges the jurisdiction of this Court to make some of the declarations sought on the basis that they are really mandatory orders “dressed up” as declarations. It says that other declarations sought raise issues of mixed fact and law which are not suitable for resolution by way of declaration.
[10] It says further that the Court should not exercise its discretion to grant the declarations sought because of the trifling nature of some of the issues; the fact that many have been resolved; and the fact that none of the other 66 unit owners have joined in the plaintiff ’s proceeding. The defendant stresses that the plaintiff could
have pursued her complaints in the Tenancy Tribunal which has express jurisdiction to deal with unit title disputes.
[11] Overall, the defendant accepts that in some respects the management of its affairs has been “rough-hewn”. But, it says that most issues have now been resolved and any concerns for the future will be met by the appointment of Crockers as Body Corporate manager.
Preliminary rulings
[12] The defendant sought leave to adduce the further affidavit of Michael James Cotton dated 11 August 2015 at the commencement of the hearing. This was not opposed by the plaintiff and leave was granted accordingly.
[13] Prior to the hearing, the defendant served a notice pursuant to r 9.74 requiring the plaintiff to be produced for the purposes of cross-examination on her affidavits. Rule 9.74(3) provides that an affidavit of a person who is not produced must not be used as evidence unless the evidence is routine, or there are exceptional circumstances, and in either case the Court grants leave. I heard argument regarding this application at the commencement of the hearing.
[14] For the plaintiff, Mr Johnson submitted that cross-examination was not appropriate as the claim had been commenced pursuant to Part 18 of the High Court Rules which was the process designed for the expedient resolution of issues. He referred to r 18.15 in particular which provides for evidence to be by way of an agreed statement of facts or affidavit. He submitted that cross-examination was not necessary to explore allegations made by the plaintiff of bad faith because those allegations were made in submission, not in the affidavit evidence.
[15] I considered cross-examination was appropriate in this case and accordingly declined to grant leave under r 9.74(3). I did so because a central plank of the defendant’s defence was that the declarations should not be made because they involved issues of disputed fact making the declaratory jurisdiction inappropriate. I also accepted that the plaintiff’s own conduct and motives in bringing the claim were
relevant to the exercise of the Court’s discretion1 and it was these matters which the defendant wished to explore through cross-examination. The plaintiff was present in Court and made herself available for cross-examination purposes.
[16] Finally, on the morning of the hearing there was an application by the plaintiff to amend the prayer for relief in the statement of claim in respect of five of the eight declarations sought. The defendant opposed all but one of the proposed amendments. My rulings on each of the proposed amendments are set out below.
Scope of the jurisdiction under the Declaratory Judgments Act 1908
[17] Proceedings under the Act require the Court to determine first, whether the Court has jurisdiction to make a declaration and, second, whether it is appropriate for the Court to exercise its discretion to make a declaration.2
[18] The statement of claim is silent on the section of the Act relied upon but Mr Johnson confirmed in oral submissions that declarations are sought pursuant to s 3 rather than s 2. Section 3 provides:
3 Declaratory orders on originating summons
Where any person has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any statute, or any regulation made by the Governor-General in Council under statutory authority, or any bylaw made by a local authority, or any deed, will, or document of title, or any agreement made or evidenced by writing, or any memorandum or articles of association of any company or body corporate, or any instrument prescribing the powers of any company or body corporate; or
Where any person claims to have acquired any right under any such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or to be in any other manner interested in the construction or validity thereof,—
such person may apply to the High Court by originating summons for a declaratory order determining any question as to the construction or validity of such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or of any part thereof.
1 Kung v Country Section NZ Indian Association Inc [1996] 1 NZLR 663 at 666 Hammond J stated that the “so-called traditional equitable defences or at least the ideas which underlie them” apply so that “if a plaintiff ’s conduct has been itself questionable, why should (say) the clean hands doctrine not also apply to declaratory relief?”
2 Carrington v Carrington [2014] NZHC 869, [2014] NZFLR 571 at [21].
[19] The jurisdiction under s 3 is therefore concerned with the interpretation or validity of written documents.3 Elias CJ confirmed the wide scope of the s 3 jurisdiction in Mandic v The Cornwall Park Trust Board (Inc) describing it as follows: 4
[9] The jurisdiction under the Declaratory Judgments Act enables anyone whose conduct or rights depend on the effect or meaning of an instrument, including an agreement, to obtain an authoritative ruling. In New Zealand, questions concerning the interpretation of rental review provisions of leases have often been addressed under the provisions of the Declaratory Judgments Act, as is illustrated by The Drapery and General Importing Co of New Zealand (Ltd) v The Mayor of Wellington. Access to the jurisdiction does not depend on there being an existing dispute. Nor is it necessary that there be a lis. It is desirable to express this disagreement with the reasons of the Court of Appeal although, in the event, the approach it adopted is not material to the determination of the appeal.
(footnote omitted)
[20] In this case, jurisdiction under s 3 requires the plaintiff to have acquired rights under or to be in some other manner interested in the construction of the UTA or another written document. Whether a party has an “interest” in the construction or validity of a written document will be interpreted broadly. In Wu v Body Corporate 366611, Asher J held that the fact that the plaintiff was not a party to some of the proxies in issue did not mean that the Court did not have jurisdiction. In that case, his Honour found that the plaintiff’s interest went beyond that of a normal
member of the public and was sufficient for the purposes of s3.5 His Honour
nevertheless declined to grant the declarations in one of the causes of action finding that the declarations concerned the use of the proxies rather than their construction or interpretation.
[21] Assuming the Court has jurisdiction, the next question is whether it should exercise its discretion to grant a declaration. Section 10 of the Act confirms the wide nature of the discretion. That section provides that the Court may, on any grounds
which it deems sufficient, refuse to give or make any such judgment or order.
3 Wu v Body Corporate 366611 [2011] 2 NZLR 837 (HC) at [118]-[119]. Subsequently varied on appeal but not in relation to the declaratory judgment points: Body Corporate 366611 v Wu [2012] NZCA 614, [2013] 3 NZLR 522, Wu v Body Corporate 366611 [2014] NZSC 137, [2015] 1 NZLR 215.
4 Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135, [2012] 2 NZLR 194.
5 Wu v Body Corporate 366611 (HC), above n 3 at [131]-[132].
[22] Although Elias CJ expressed disagreement with the Court of Appeal on its description of the jurisdiction in s 3, she did not disagree with the Court’s separate discussion of the discretionary nature of the jurisdiction as follows:6
[14] If jurisdiction is established, the Court will not exercise its discretion to grant a declaration without a proper factual context, and will generally refuse to deal with mixed questions of law and fact or disputes of fact in an application under s 3. It is not sufficient to seek guidance for the future, on hypothetical facts, or where the dispute is of no practical significance. Nor is it appropriate for a Court to decide an issue in a vacuum. Also, within the discretionary realm, declaratory relief is unlikely to be granted when it will not serve any useful purpose.
[15] As this Court observed in New Zealand Insurance Co Ltd v
Prudential Assurance Co Ltd:
The jurisdiction to make orders under the Declaratory Judgments Act is wholly discretionary. The cases defining the attitude of the courts in the exercise of that discretion are numerous … and they establish certain guidelines will generally be followed. The Court will not answer purely abstract questions in anticipation of an actual controversy. It will not deal with mixed questions of fact and law. The procedure is designed to provide a speedy and inexpensive method of obtaining a judicial interpretation where the matter in dispute cannot conveniently be brought before the Court in its ordinary jurisdiction and where a declaratory judgment would be appropriate relief. But the procedure should not be adopted where the party who institutes them can without real difficulty have the matter in dispute disposed of in an ordinary action.
(footnotes omitted)
[23] Other factors, such as the motives of the plaintiff and equitable concepts such as the doctrine of “clean hands” may also be relevant to the exercise of the discretion.7
The Unit Titles Act 2010
[24] The plaintiff’s complaints in this case centre on the governance and
management of the defendant. Part 2, subpart 12 of the UTA contains the statutory provisions relevant to governance and management.
6 Mandic v The Cornwall Park Trust Board (Inc) [2010] NZCA 576, (2011) 12 NZCPR 34.
7 Kung v Country Section NZ Indian Association Inc above n 1 at 666.
[25] Section 77 provides that a body corporate may do anything authorised by the UTA or by any other Act and may do anything that a person of full age and capacity may do except as provided by the UTA or any other Act.
[26] These wide powers are circumscribed by s 78 which provides that a body corporate may do an act under s 77 only for the purpose of performing its duties or exercising its powers. Section 78 therefore sets a general test for the validity of any act done by a body corporate.
[27] Section 84(1) sets out the powers and duties of the defendant as provided for in other sections of the UTA. The plaintiff contends that the defendant has not complied with many of those specific statutory duties in this case.
[28] A unit owner has the statutory right to have any dispute resolved in the manner set out in subpart 1 of Part 4.8 That subpart provides for disputes having a value of $50,000 and under to be resolved by the Tenancy Tribunal.9 Under s 171(3A), the Tenancy Tribunal may make an order that a party remedy a breach of an obligation arising under the UTA or rules or any agreement, and may also restrain a breach of those obligations. The Tribunal is also able to make ancillary or
consequential orders.
[29] The Tribunal’s powers under the UTA are in addition to those afforded by the Residential Tenancies Act 1986 and part 3 of that Act applies with all necessary modifications in respect of the hearing and determination of a unit title dispute with certain exceptions.10 Under s 85 of the Residential Tenancies Act, the Tribunal shall exercise its jurisdiction “in a manner that is most likely to ensure the fair and expeditious resolution of disputes”.
[30] There is also jurisdiction under the UTA to grant relief to a “minority” unit
owner in relation to a resolution which is unjust or inequitable on the minority,11 and
8 Unit Titles Act 2010 [UTA], s 79(f).
9 Section 171(1) and (4).
10 Section 176.
11 Section 210.
by making orders in relation to a dispute over a “designated resolution”,12 which is defined to include a resolution for the approval of the method of apportionment of a utility interest.13
[31] The defendant raises these alternative routes of dispute resolution as factors relevant to the exercise of the Court’s discretion. It further urges this Court not to be “overly punctilious” given the Tribunal’s broad jurisdiction and the fact that it is not bound to give effect to strict legal rights or obligations or to legal forms and technicalities.
2014 AGM
[32] The plaintiff seeks a declaration in the following terms:
A declaration under the Declaratory Judgments Act 1908 that the 2014 annual general meeting held by the defendant is unlawful and of no effect.
[33] Section 90 of the UTA provides that an annual general meeting must be called by the chairperson of the body corporate in accordance with the regulations. The plaintiff says that neither the notice of intention, nor the notice for the AGM complied with regs 5 and 6.
[34] The plaintiff says the notice of intention to hold the 2014 AGM did not comply with reg 5(4)(c) in that it did not invite unit owners to nominate candidates for election as either the chairperson or a member of the Body Corporate Committee. She further says that it did not comply with reg 5(4)(e) in that it did not include a statement inviting unit owners to propose matters for discussion at the meeting.
[35] The plaintiff says the notice for the annual general meeting was also non- compliant in that it did not set out the agenda for the meeting contrary to reg 6(4)(a); did not contain the text of motions to be decided by resolution contrary to reg 6(4)(b); and did not include a proxy appointment form or postal voting form, nor
a copy of the financial statements as required by reg 6(5)(a), (b) and (c).
12 Section 215.
13 Section 41(6) of the UTA.
[36] Finally, the plaintiff says that there was non-compliance because the notice of intention and notice of AGM were sent out at the same time, rather than sequentially as required by the Regulations.
[37] The defendant does not dispute that there was non-compliance with regs 5 and 6 in some respects. However, it submits that there was compliance with the three week notice period and specification of the date and time of the meeting and that these are matters which should be weighed in its favour in the exercise of the discretion.
[38] The minutes for the 2014 AGM record 19 owners were present, 12 proxies had been received and four apologies were tendered. The meeting was quorate. The irregularities in the notices were brought to the defendant’s Chairman’s attention at the meeting. The plaintiff was present, as was her legal adviser. A resolution was proposed from the floor to the effect that notwithstanding the deficiencies in the way that the meeting had been called, the meeting should nevertheless continue. That resolution was passed by 95 per cent of those present. The plaintiff could not recall how she had voted on that resolution.
[39] Mr Johnson submits that this resolution was an ineffective attempt to cure the irregularities. He referred to s 101(3) of the UTA which provides:
(3) Any matter that is not on the Agenda for a General Meeting may be discussed at the meeting but, unless all the eligible voters are present at the meeting, no resolution may be voted on and made in respect of that matter, except to include that matter on the Agenda for a subsequent General Meeting.
[40] Mr Johnson submits that not all eligible voters were present at the meeting, and therefore the resolution was passed contrary to s 101(3). Mr Johnson submits that a defective resolution cannot be allowed to rectify deficiencies in the notices because to do so would effectively bypass the entire purpose behind the notice, proxy, and postal vote provisions and would circumvent the regulations relating to the way that meetings are to be conducted.
[41] There was a second attempt to cure the irregularities relating to the
2014 AGM at the 2015 AGM. A resolution was passed at the 2015 AGM in the following terms:
(3)(a) Previous AGM 8 February 2014
RESOLVED that the decisions made at the AGM meeting on 8 Feb
2014 that did not meet the requirements of the Unit Titles Act
2010/2011, by special resolution it was agreed that any decisions that were made at that meeting are hereby approved and validated.
(3H\1E carried by majority – 2A Against)
[42] The plaintiff claims that this resolution was also ineffective because the resolution was cast too broadly. Mr Johnson submits that if separate resolutions had been put in respect of each of the irregularities and those resolutions had then been passed, then this would have been an effective way to regularise what had gone on before. As the resolutions were not in those terms, the deficiencies remain and Mr Johnson submits that the 2014 AGM meeting and all resolutions passed at that meeting are null and void. There was no complaint and no evidence about the notices provided for the 2015 AGM and I proceed on the basis it was properly notified.
Analysis
[43] There is no dispute that the notices for the 2014 AGM were non-compliant with the regulations and were therefore invalid. I would have no hesitation in making a declaration in those terms. Proper notice is of course important to ensure that unit owners can make informed decisions on whether to attend a meeting and if so how to vote on a particular resolution. But whether a declaration that the
2014 AGM was invalid can be made depends on whether the irregularities have been ratified by resolutions passed at the 2014 or 2015 AGM.
[44] I agree with Mr Johnson that the absence of all eligible voters at the 2014 meeting means that any resolution passed at that meeting would not be an effective ratification of the irregularities. However, I am not persuaded that the resolution passed at the 2015 AGM was ineffective in the particular circumstances of this case. I agree that in an ideal world, that resolution would have identified more precisely
the various irregularities sought to be ratified. But the lack of precision in the formulation of the resolution does not necessarily make it ineffective. I am mindful of Muir J’s observation in Wheeldon v Body Corporate 342525 that it is not the role of the Court to submit Body Corporate resolutions to a pedantic or overly critical analysis.14 I consider that in the circumstances of this case, and on the basis of the affidavit evidence before me, that resolution was an effective ratification of the resolutions made at the 2014 AGM.15
[45] But even if I am wrong in that conclusion, I would nevertheless decline to grant the declaration in the exercise of my discretion. The irregularities relate to the
2014 AGM. Time has moved on and the 2015 AGM has now been held. The fact that prior attempts have been made to cure the irregularities both at the 2014 and
2015 AGM is relevant to the exercise of the discretion irrespective of whether those resolutions are effective at law. The 2014 resolution was passed by 95 per cent of those present; the resolution at the 2015 AGM was passed by a majority. I consider that the wishes of the majority of unit owners should be respected in this instance and there would be little utility in declaring the 2014 AGM to be invalid in all the circumstances.
[46] For these reasons, I decline to grant the declaration sought.
Failure to audit financial accounts
[47] As originally pleaded, the plaintiff sought a declaration in the following terms:
A declaration under the Declaratory Judgments Act 1908 that there was no special resolution passed at the 2014 annual general meeting in terms of section 132(8) of the Act and that the financial statements of the defendant must be audited by an independent auditor.
[48] The plaintiff seeks leave to amend the prayer for relief in the following terms:
14 Wheeldon v Body Corporate 342525 [2015] NZHC 884 at [170].
15 I also note that the defects in the 2014 AGM were procedural, meaning that the resolutions were capable of subsequent ratification. See Body Corporate 172108 v Gundry [2014] NZHC 954 at [42].
A declaration under the Declaratory Judgments Act 1908 that the defendant acted unlawfully in verifying the 2014 financial accounts.
[49] Section 132 of the UTA provides as follows:
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.
(3) The financial statements must be in the prescribed form and contain the matters prescribed by regulations.
(4) The body corporate must pay any costs incurred under subsection (2).
(5) A copy of the financial statements for the most recent financial year must accompany the notice of the annual general meeting.
(6) The body corporate must comply with any reasonable request by a person appointed to undertake any of the functions described in subsection (2), that the body corporate answer questions or provide information within 20 working days after receiving the request.
(7) Any person appointed to undertake any of the functions described in subsection (2) must be a qualified auditor (within the meaning of section 35 of the Financial Reporting Act 2013).
(8) The body corporate may, at the annual general meeting, decide by special resolution that subsection (2) does not apply for a particular year.
[50] In the absence of any special resolution passed pursuant to s 132(8), the plaintiff claims that the financial accounts had to be audited.
[51] The defendant accepts that no resolution was passed pursuant to s 132(8), but says that it did not need to pass such a resolution because the accounts were reviewed by an accountant and so the requirements of s 132(2) have been met.
[52] The 2013 and 2014 annual accounts for the defendant were prepared by Mr Dean, a senior accountant with Oracle Accounting and Business Solutions Ltd with over 20 years experience in providing accountancy, business advisory and financial services.
[53] Mr Dean deposes that he was subsequently asked by the defendant to “review the financial statements” which he did, and was satisfied from the review that the financial statements were correct. He sent a letter dated 29 August 2014 to the defendant confirming that he had “checked the 2013 and 2014 financial years and all payments and receipts have been verified as correct”.
[54] At the hearing, the focus of the plaintiff’s claim changed. She now alleges that this process was not in accordance with s 132 of the UTA because the accountant who undertook the review cannot be the same accountant who prepared the financial accounts, and that there was no evidence that the accountant was a qualified auditor which she says is required by s 132(7). There is also a complaint that the review/verification process did not take place within two months of the end of the financial year as required by s 132(2).
Amendment
[55] To obtain leave for an amendment, it is necessary to show that doing so is in the interests of justice, will not significantly prejudice other parties or cause significant delay. The merits of the proposed amendment are also relevant as is the
timing of the application for leave.16
16 High Court Rules, r 7.7; Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA); Fordham v
Xcentrix Communications Ltd (1996) 9 PRNZ 682 (HC).
[56] I decline leave to amend. In doing so, I take into account that leave was sought on the day of the hearing, well after all the evidence had been exchanged dealing with these issues. I also take into account the prejudice to the defendant in not being able to call evidence from the accountant on either his qualifications or what steps he actually took to “verify” the accounts. Finally, I take into account the fact that the proposed amendment would call for a factual enquiry into the accountant’s actions for which the declaratory judgments jurisdiction is ill-suited.
[57] I proceed to consider the declaration sought as originally pleaded.
Analysis
[58] There is no dispute that a resolution was not passed in accordance with s 132(8). But there was no need to pass such a resolution because the defendant elected to proceed with the s 132(2) process. It is not appropriate to grant declaratory relief in those circumstances and I decline to do so.
Entering into contracts without approval
[59] The plaintiff submits that contracts with BCS are unlawful and of no effect. Declarations were originally sought in the following terms:
(a) A declaration under the Declaratory Judgments Act 1908 that obligations entered into between the defendant and the manager, the chairman and their associated parties are unlawful and of no effect. (b)
A declaration that all funds paid by the defendant to the manager, the chairman (and their associated parties) be repaid to the defendant.
[60]
The
plaintiff seeks leave to amend that prayer for relief to replace
paragraph (a) above with the following:
A declaration under the Declaratory Judgments Act 1908 that the defendant acted unlawfully by entering into contracts with Body Corporate Solutions NZ Ltd.
[61] The plaintiff exhibited two undated contracts to her affidavit in support of her claim. They are both very short documents comprising three clauses in one case and
four clauses in the other. Neither document is signed; nor is there any execution page attached to either document.
[62] The terms of the first contract are as follows:
1. Duties & Functions
1.1 Body Corporate Solutions NZ Limited (hereinafter referred to as
“BCS”) has been appointed by the committee of the Body Corporate
105164 (hereinafter referred to as “BC 105164”) on …… as
minuted.
1.2The manager of BCS will administer all the functions that are required under the Unit Title Regulation 2011. In brief:
- Prepare an annual budget
- Annual accounts certified
- Calling of annual general meeting
- Provide written and verbal reports
- Preparation and collection of annual operational levies
- Payment of all operating costs
-Prepare Section 146 and Section 147 as prepared by owners or their representatives
- Maintain a register of unit owners.
1.3Remuneration as per the annual budget Plus any extra Charges detailed and invoiced.
[63] The terms of the second contract provide:
1. Duties and Functions
1.1 Body Corporate Solutionshereinafter [sic] referred to as “BCS) [sic]
has been appointed by the Building Manager of the Body Corporate
105164 (hereinafter referred to as “BC 105164”).
1.2The manager of BCS will administer all the cleaning functions in the common areas including the car park that are required at the building known as Eden Heights Apartments, 94 Dominion Road, Mt Eden, Auckland:
1.3 Annual remuneration as approved in the budget: $20,800.00
1.4 The manager will employ casual staff from time to time
To ensure that extra cleaning of carpark/stairwells/rubbish etc is removed promptly where staff are paid casually by the manager he will be reimbursed such expenses upon invoice or reimbursement docket.
[64] The plaintiff has three grounds of complaint about the method of contracting with BCS, namely:
(a) The contracts with BCS appear to have been entered into by the Body Corporate Committee rather than the Body Corporate. As the Body Corporate had not passed a resolution delegating its powers to the Committee, the Committee had no power to enter into contracts on behalf of the Body Corporate.
(b)There appears to be a delegation by the Body Corporate Committee to BCS of “all” functions in the first contract contrary to s 109(2) of the UTA.
(c) There has been no approval of the obligations by ordinary resolution as required by reg 17(1).
[65] In response, the defendant states that at each AGM there has been a resolution passed appointing BCS as the defendant’s manager and therefore there has been compliance with reg 17(1) of the Regulations. It says further that at the
2015 AGM it was resolved that the Committee contract with BCS in accordance with reg 17(4).
Amendment
[66] The proposed amendment to the declaration in (a) amounts to a re-phrasing of the prayer for relief. There is no prejudice to the defendant in allowing this amendment. Leave to amend is granted accordingly.
Analysis
[67] The declaration in (b) amounts to a mandatory order and there is no jurisdiction to make such an order under s 3 of the Act.17 I decline to make that declaration.
[68] The declaration sought in (a) above requires an analysis of the plaintiff’s complaints and I take each of them in turn. As to the first, I note that there is factual uncertainty about whether BCS was appointed by the Committee or by resolution at the AGM. Although the contracts refer to appointment of BCS by the “committee” or “manager” of the Body Corporate, the fact that resolutions were passed at each AGM appointing BCS as “manager” suggests that the appointments were in fact made by the Body Corporate.
[69] Furthermore, the undated nature of the contracts makes this aspect of the plaintiff’s complaint even more difficult to resolve. The minutes of the 2015 AGM record a delegation of powers to the Committee. That delegation could be sufficient to give the Committee the power to enter into a contract with BCS. This uncertainty means I am unable to form a conclusion about whether the contracts were entered into unlawfully, and that weighs against the grant of declaratory relief sought.
[70] The plaintiff ’s second complaint relates to clause 1.2 of the first contract. Although the literal words of the clause refer to an administration of “all the functions that are required under the Unit Titles Regulation 2011”, it is at least arguable that the functions are in fact limited to those which are specifically set out in the remainder of the clause. The use of the word “administer” rather than “delegate” also suggests that BCS is being contracted to provide services rather than necessarily exercise powers without direction from the Committee. This ambiguity means I am not persuaded that there has been an improper delegation of functions
contrary to the UTA.
17 Rangatira Forests Ltd v Transit New Zealand HC Wellington VIC-2015-483-199, 22 November
2007 at [44].
[71] In relation to the second contract, the plaintiff suggests that clause 1.1 means that BCS was the building manager and was effectively appointing itself to carry out these services. I do not agree. I consider clause 1.1 should be interpreted to mean appointment “as” the building manager, rather than “by” the building manager, as the tasks set out are of a building management nature. But, as with the first contract, I have insufficient evidence about the date and circumstances in which this contract was concluded to conclusively determine this point.
[72] In relation to the third complaint, Mr Cotton deposes that there have been resolutions passed at each AGM appointing BCS as manager. A resolution was also passed at the 2015 AGM delegating powers to the Body Corporate Committee. Those resolutions would be sufficient to meet the requirements of regs 17(1) and (4). I am therefore unable to conclude that the contracts with BCS are invalid for non- compliance with regs 17.
[73] Finally, I note that the grant of declaratory relief is unlikely to meet the plaintiff’s substantive concerns in any respect. At the heart of those concerns is the fact that Mr Cotton is (or was) at the helm of the Body Corporate, the Body Corporate Committee, and also BCS. That has lead to what the plaintiff sees as a lack of oversight in the fees charged by BCS and in the services rendered by BCS. The appointment of Crockers as Body Corporate manager may meet those substantive concerns, at least for the future. But to the extent it does not, or concerns remain about past conduct, then there are other avenues open to the plaintiff by which those concerns may be pursued.
[74] I decline to grant the relief sought in (a) or (b) above in this cause of action.
Delegation to Body Corporate Committee
[75] The plaintiff claims a declaration in the following terms:
(a) A declaration under the Declaratory Judgments Act 1908 that the defendant has not delegated any of its powers and duties to the body corporate committee.
(b) A declaration that the purposed exercise of any powers and duties of the defendant by the body corporate committee are unlawful and of no effect.
[76] The plaintiff says that there has been no delegation of the powers and duties to a Body Corporate Committee in accordance with ss 108(1) and 101(4) of the UTA and reg 22(2) of the Regulations, and so any decision of the Body Corporate Committee is unlawful and of no effect. The plaintiff does not, however, particularise the specific decisions that she claims are affected by this alleged unlawfulness.
[77] The defendant says that any non-compliance with s 108 and reg 22 of the UTA was remedied at the 2015 AGM where a resolution was passed in the following terms:
9) Delegation
(a) RESOLVED by special resolution in accordance with the provisions of section 108(1) of the Unit Titles Act 2010 and regulation 11(2) of the Unit Titles Regulations 2011 the duties of the body corporate chairperson as set out in regulation 11(1), sub-paragraphs (a) to (m) included in the Unit Titles Regulations are delegated to the committee, effective until the next annual general meeting.
(b) RESOLVED by special resolution in accordance with the provisions of section 108(1) of the Unit Titles Act 2010 all the powers and duties of the body corporate are delegated to the body corporate committee, with the exception of the powers and duties set out in section 109(2) OF THE Unit Titles Act 2010 with effect until the next annual general meeting. The body corporate committee shall report on the delegation to the Body Corporate at the next annual general meeting.
(1Q/1E Carried)
[79] The defendant also says that the Court should not exercise its discretion in making the declaration sought because the appointment of Crockers will meet any future concerns about delegation.
Analysis
[78] I accept that there is no evidence of an express delegation by the Body Corporate to the Committee prior to the 2015 AGM. However, the lack of any particularity about the decisions of the Body Corporate Committee means that there is no proper factual context against which the declarations can be made. Effectively
the Court is being asked to grant relief in a vacuum.18 Further, the proposed terms of
the declaration do not account for the fact that there was a delegation at the
2015 AGM. I do not consider the grant of a declaration to be appropriate in these circumstances.
[79] I decline to grant the declaratory relief sought in (a) and (b) above.
Long term maintenance plan and long term maintenance fund
[80] As originally pleaded, the prayer for relief under this cause of action sought a declaration in the following terms:
A declaration under the Declaratory Judgments Act 1908 that the defendant establishes a long term maintenance plan and a long term maintenance fund.
[81] The plaintiff seeks leave to amend the prayer for relief as follows:
A declaration under the Declaratory Judgments Act 1908 that the defendant acted unlawfully in that it did not establish and implement a long term maintenance plan and long term maintenance fund.
[82] The plaintiff alleges that the defendant does not have a long term maintenance plan, nor a long term maintenance fund as required by ss 116 and 117 of the UTA.
[83] This is not disputed by the defendant. Mr Cotton explains that the defendant commenced a long term maintenance plan process by engaging Terra Group NZ Ltd to inspect buildings and prepare a maintenance plan. Terra then raised urgent
concerns about the need for earthquake strengthening which preoccupied the
18 Mandic v The Cornwall Park Trust Board (Inc), above n 6 at [14].
defendant because of its urgency and as a result the long term maintenance plan has not been finalised.
[84] A document entitled “Long Term Maintenance Plan” was produced in evidence. It identifies some issues with the building which will need attention and some cost estimates for that work are provided. However, as the defendant accepts, that plan does not satisfy the requirements of the UTA.
[85] Mr Cotton deposes that the special levy struck for earthquake strengthening work is, in effect, part of the long term maintenance fund, although he accepts that it should be better recorded as such a fund and better identified in the defendant’s balance sheet.
Amendment
[86] There is no prejudice to the defendant in allowing this amendment to the declaration and I therefore allow the amendment.
Analysis
[87] There are jurisdictional hurdles in the way the amended declaration is framed. A declaration that the long term maintenance plan is invalid as it fails to comply with s 116 of the UTA would be within the s 3 jurisdiction. But that is not what is sought. I consider that, as framed, the terms of the amended declaration fall outside the scope of s 3 as it requires an analysis of the defendant’s conduct rather than the construction of a written instrument.
[88] Even if there was jurisdiction to make the declaration in the terms sought by the plaintiff, I would decline to do so in the exercise of my discretion. There is evidence that the defendant has attempted to comply with the provisions and has at least embarked on the process. The appointment of Crockers as a professional manager should assist with the development of the plan and the fund going forwards. There is little utility in making the declaration as framed in those circumstances. If
progress has not been made in either respect, then the plaintiff may seek relief through the routes provided under the UTA.
[89] I therefore decline to make the declaration as sought.
Body Corporate bank accounts
[90] The plaintiff sought a declaration in the following terms:
A declaration under the Declaratory Judgments Act 1908 that the defendant establishes its own bank accounts at a bank and authorises the person and manner in which those accounts are to be operated.
[91] The plaintiff seeks leave to amend the prayer for relief as follows:
A declaration under the Declaratory Judgments Act 1908 that the defendant’s conduct in respect of the bank accounts is in breach of s120 UTA and is unlawful
[92] The plaintiff’s original concern as pleaded was that the defendant did not hold bank accounts in its name. At the hearing, the plaintiff’s concern was that funds were not adequately identified in the Body Corporate’s bank account as required by s 120 of the UTA. That position is reflected in the proposed amendment to the prayer for relief.
[93] The defendant opposes the amendment and resists any suggestion of non- compliance with the Act. Mr Cotton has deposed that the defendant operates a bank account with Westpac which is held in the name of the defendant. Counsel for the defendant submits that the identification of other funds is sufficient to meet requirements in s 120 of the UTA.
Amendment
[94] I decline to allow the late amendment to the statement of claim. The proposed amendment would cause prejudice to the defendant, which has not had an opportunity to call evidence on the way that it manages and operates the bank accounts. The only affidavit evidence filed is directed to the presence of bank accounts in accordance with the UTA.
[95] In declining the amendment, I have also had regard to the fact that there would be very little prospect of a declaration in the terms sought being granted in any respect. That is because it calls for a factual enquiry into the conduct of the defendant’s bank accounts, and such a factual enquiry is not appropriate in declaratory proceedings.
[96] I proceed to consider the declaration as originally pleaded.
Analysis
[97] As originally framed, the declaration seeks mandatory orders requiring the defendant to set up bank accounts. There is no jurisdiction to make such an order under s 3 of the Act.
[98] In any respect, even if there was jurisdiction to make such a declaration, I would decline to do so as the evidence is that there are bank accounts established by the defendant. I am also unable to determine on the evidence before me whether the plaintiff’s concerns about the operation of the bank accounts have any substance. Further investigation and evidence would be required. This is exactly the type of dispute which could be pursued in the Tenancy Tribunal or by way of action in the District Court as necessary.
[99] For these reasons, I decline to grant the declaration sought.
Register of owners
[100] The plaintiff originally sought relief in the following terms:
A declaration under the Declaratory Judgments Act 1908 that the defendant provides a copy of the register of owners to the plaintiff.
[101] The plaintiff seeks leave to amend the prayer for relief so that a declaration is sought in the following terms:
A declaration under the Declaratory Judgments Act 1908 that a search of the register of owners includes a right to obtain a copy of the register.
[102] Leave is not opposed to this amendment and I grant leave accordingly.
[103] The short issue under this ground of complaint is whether the right to inspect the register includes a right to obtain a copy of it.
[104] In Lihua Ltd v Body Corporate 366611, Woolford J held that the Body Corporate in that case should not unnecessarily withhold its approval of the request by the unit owner in that case to search the register. He stated that his view was that the right to search also includes the right to take copies of the register.19
[105] The Court of Appeal allowed an appeal in part from that decision, finding that the Body Corporate should have permitted the unit owner to search the body corporate register.20 In doing so, the Court of Appeal confirmed that the Body Corporate’s ability to resist a request by a unit owner to search the register is modest when the purpose for which the request is made is the need to communicate with others about the development’s management:
[28] Before us Mr Price accepted that when an owner wishes to communicate with others about the development's management, the body corporate committee needs good reason to deny the request. That conclusion follows, we think, from the committee's undoubted obligation to exercise the power of access to the register for purposes contemplated by the 2010 Act and Regulations. Regulation 4(4) protects the privacy interests of unit owners, which extends to keeping their names and contact details from fellow owners. But that interest gives way where a fellow owner wishes to contact them for generously defined purposes.
[29] It bears emphasis that the power to deny a unit owner access to the register is a very modest one. The regulation supports accountability of the committee and body corporate by facilitating independent communication among unit owners about the development's management or use and enjoyment. An applicant may wish to contact fellow owners precisely because it has failed to achieve its objectives via the body corporate's governance processes or management. It follows that the committee cannot justify denying access merely because it disagrees with the applicant on the merits of any given dispute.
[106] The Court of Appeal did not disturb Woolford J’s finding that the right to
search the register also includes the right to take a copy.
19 Lihua Ltd v Body Corporate 366611 [2012] NZHC 1975, (2012) 13 NZCPR 767 at [50].
20 Lihua Ltd v Body Corporate 366611 [2013] NZCA 630, (2013) 15 NZCPR 216.
[107] It became apparent at the hearing that the defendant accepted that the plaintiff was entitled to inspect the register. Indeed, its position taken during the cross- examination of the plaintiff was that she had been invited to inspect, and could have, if she so wished, taken a copy of the register of owners with her phone.
[108] I expressed dismay that a dispute of this sort should be taking up valuable Court time and suggested this might be easily resolved without requiring the Court’s ruling.
[109] Following the hearing, further memoranda were filed by both parties concerning this issue. The defendant filed a memorandum of counsel advising that a copy of the register had been provided to the plaintiff but on a without prejudice basis as to the obligation of the defendant to provide such a copy. The plaintiff then filed a memorandum disputing that what she had received could be classified as a copy of the register of owners and stating that the issue remained unresolved. A second memorandum of counsel filed on behalf of the defendant recorded that Crockers had now produced a register of owners to the plaintiff.
[110] The dispute underlying the claim for relief is now moot and I decline to grant the declaration sought on that basis.
Earthquake strengthening levy
[111] A declaration is sought by the plaintiff in the following terms:
(a) A declaration under the Declaratory Judgments Act 1908 that the special levy is unlawful and of no effect; and
(b) A declaration that the special levy funds be repaid to the owners.
[112] The defendant originally set a levy for the earthquake strengthening fund on a flat rate basis (original levy). As a result of the plaintiff’s complaints about the method of calculation, the defendant accepted that a flat rate basis was not allowed under the UTA. The levy was recalculated on the basis of the ownership interest of each owner (revised levy). Fresh invoices were sent to those who had not paid the
original levy (including the plaintiff). Those who had paid the original levy were told they would receive a refund for the difference between the two levies.
[113] The plaintiff complains in this case that both the original and revised levy had been set by the Body Corporate Committee, and that the Committee did not have delegated authority from the Body Corporate to set either levy.
[114] The plaintiff also raises concerns that the revised levy may not have been set on the correct basis, because the fresh invoice sent states that the levy has been set on the basis of “entitlement”. However, Mr Cotton deposes that the revised levy has now been struck on the basis of a utility interest and so is compliant with the Act.
[115] The defendant says that if the Court is minded to make a declaration, the only prayer for relief that would be appropriate is that at (a) which should be shorn of the word “unlawful”. It is said that the prayer for relief at (b) is inappropriate as it seeks a mandatory order relating to the non-parties, which does not include the plaintiff as she has not paid the levy at all.
Analysis
[116] I accept there is jurisdiction to make the declaration sought in (a) above. The declaration sought in (b) above is in effect a mandatory order and falls outside the scope of the declaratory jurisdiction. I decline to make the declaration in (b).
[117] There is no dispute that the original levies were not calculated in accordance with the UTA. Those levies are therefore ultra vires the UTA. The promise to make an adjustment pay-out at a later time cannot alleviate the invalidity.21
[118] If the declaratory relief was being sought in respect of the original levies as paid, then I would have no hesitation in declaring those levies invalid. However, those levies are not the subject of the declaration as I understand it. The plaintiff is
not in the position of having paid the original levy, and will not therefore receive an
21 Wu v Body Corporate 366611 above n 3 at [109].
adjustment pay-out. The levy relevant in her case is the revised levy and that is the levy upon which the declaration sought is to be made.
[119] The plaintiff has not been able to persuade me that the revised levy was calculated in a manner contrary to the UTA. Mr Cotton’s evidence suggests otherwise and there is no basis upon which that evidence should be doubted.
[120] However, the revised levy may still be invalid if it was set by the Body Corporate Committee, and that Committee had no delegated authority to do so. As with previous declarations sought, there is some factual uncertainty about whether or not the Committee set the revised levy (as Mr Cotton seems to suggest), whether it had delegated authority to do so (at least pursuant to a resolution passed at the 2015 AGM), or whether the Body Corporate set the levy.
[121] There was discussion at the 2015 AGM about the basis upon which the revised levy was set. The minutes record the following:
15 General Business
… There was discussion around the setting of the levies for the earthquake strengthening the levies had been set on a per unit basis regardless of size and not on the standard practice of unit entitlement the Chairman advised that statements would be coming out shortly based on entitlement some owners may receive a small refund others a small invoice. It was moved by the Chairman and seconded by Moana Herewini carried. (This is also covered under 3A previous AGM).
[122] The wording of the minutes suggests that the Committee had already set the revised levy prior to the AGM, in which case it would not be authorised by the delegation to the Body Corporate Committee at that meeting. However, the fact that a resolution was passed indicates that the Body Corporate Committee was authorised to issue the revised levies. Without further evidence, I am unable to conclusively determine whether it was the Body Corporate or the Body Corporate Committee, with or without delegated power that set the levy. Ultimately, that factual uncertainty weighs against the grant of a declaration.
[123] In any respect, I consider that the fact that the levy was discussed at the
2015 AGM, that it now appears to be calculated on the correct basis, and appears to
have been approved of at the 2015 AGM weighs against the grant of a declaration in this case.
[124] I accordingly decline to make the declaration sought.
Result
[125] I grant the application to amend the prayer for relief in accordance with paragraphs [66], [86] and [102] of this judgment.
[126] I decline to grant the application to amend the prayer for relief in all other cases.
[127] I decline the plaintiff ’s claim for declaratory relief on all eight causes of
action.
[128] The plaintiff has been unsuccessful in her claim. Whilst costs usually follow the event, I consider that the particular circumstances of this case would warrant leaving costs to lie where they fall. It is clear that management of the defendant’s affairs has been very poor and in many respects clearly non-compliant with the UTA. It is only as a result of the plaintiff’s claims that many of those areas of non- compliance have now been remedied, and new managers put in place for the future. Improved management and compliance with the UTA going forwards is for the general benefit of the Body Corporate.
[129] If the defendant nevertheless still seeks an award of costs then the defendant is directed to file and serve a memorandum as to costs within 10 working days of delivery of this judgment. The plaintiff shall have five working days to file and
serve a memorandum in response and costs shall be finally determined on the papers.
Edwards J
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