Hannam v Body Corporate 126001

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA779/2023
[2024] NZCA 274

BETWEEN	GARY KEITH HANNAM AND PATRICIA JOY DRAPER Appellants
AND	BODY CORPORATE 126001 & ORS Respondents (See Schedule A for complete list of Respondents)

Hearing:	22 and 23 May 2024
Court:	Wylie, Lang and Campbell JJ
Counsel:	D R Bigio KC, S N Zellman and G B Lewis for Appellants J B Orpin-Dowell and T J G Allan for First Respondent No appearance by or for Second to 50th and 52nd to 54th Respondents E D Nilsson and K L Calder for 51st Respondent
Judgment:	27 June 2024 at 3 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
B The appellants are to pay costs to each of the first and the 51st respondents for a standard appeal on a band A basis together with usual disbursements. We certify for second counsel.

____________________________________________________________________

REASONS OF THE COURT

(Given by Wylie J)

Table of Contents

Para No

Introduction
Background

The Western Park apartment complex
The application for a scheme

The High Court judgment
The notice of appeal
Submissions

For the trustees
For the Body Corporate
For the Subsidiary Body Corporate

Issues on appeal
Analysis
Section 74
The nature of an appeal against the exercise of the s 74(2) and (7) discretion
The Body Corporate’s proposed scheme
The 2019 settlement

The relevance of the 2019 settlement
The Judge’s findings in relation to the 2019 settlement
Was it open to the trustees to challenge the Judge’s finding that there was no material change in circumstances?
The alleged change in circumstances
Did the Judge err in finding that there had been no material change in circumstances and that the trustees remained bound by the 2019 settlement?
The s 74 discretion

Did the Judge err in settling the terms of the scheme?

The cost allocation provisions
The correct approach — relevant principles
The unit plan — unit property versus common property
The limits of the damage
The UTA 1972
The UTA 2010
The position of the unit A owners
The conduct of the trustees
The Body Corporate’s scheme — unanimous support
The Judge’s conclusion

The trustees’ proposed schemes

The trustees’ schemes
Was it open to the Judge to adopt the trustees’ schemes?
Did the Judge err in her consideration of the trustees’ schemes?
A fire safety investigation?

Conclusion
Costs
Result

[1]
[6]
[7]
[10]
[12]
[27]
[28]
[28]
[34]
[38]
[41]
[45]
[45]

[51]
[54]
[64]
[64]
[68]

[70]
[77]

[83]
[88]
[94]
[94]
[97]
[105]
[109]
[111]
[116]
[126]
[134]
[139]
[140]
[141]
[142]
[147]

[153]
[157]
[166]
[168]
[169]

Introduction

The appellants, Gary Hannam and Patricia Draper (jointly the trustees), are the trustees of the GK Hannam Family Trust. In that capacity, they own the penthouse unit, unit 900, in a residential apartment complex in Freemans Bay, Auckland (the Western Park apartment complex). The complex leaks, largely from a deck surrounding unit 900.[1]
[1]Unit 900 is referred to as unit Q on the unit plan. It is on two levels and is also referred to as levels 9 and 10.
The Western Park apartment complex is managed by the first respondent, Body Corporate 126001 (the Body Corporate). There were ongoing discussions over a period of some years between the trustees and the Body Corporate, as to how the leaks from unit 900 could be remediated. Although attempts were made to resolve the leaks, little was achieved and, in 2017, the Body Corporate applied to the High Court to settle a scheme for the reinstatement of parts of the Western Park apartment complex under s 74 of the Unit Titles Act 2010 (the UTA 2010). The trustees did not oppose the High Court making an order settling a scheme, but they disagreed with the Body Corporate as to its terms.
In a reserved decision issued on 12 December 2023, Gordon J, in the High Court at Auckland, made an order settling the scheme proposed by the Body Corporate.[2] She declined to vary the scheme to incorporate various amendments proposed by the trustees.
[2]Body Corporate 126001 v Hannam [2023] NZHC 3604 [High Court judgment].
The trustees now appeal the Judge’s decision. The decision is supported by the Body Corporate and also by the 51st respondent, Western Park Subsidiary Body Corporate 493826 (the Subsidiary Body Corporate).
All other unit owners and interested parties, the second to 50th and the 52nd to 54th respondents, supported the Body Corporate’s scheme and consented to the Judge settling the same. They took no part in the appeal.

Background

The Judge comprehensively summarised the factual and procedural background in her judgment. No party took issue with these aspects of the judgment and we gratefully adopt them.

The Western Park apartment complex

The Judge first discussed the Western Park apartment complex. She found as follows:
[10] The building was constructed in 1988 and originally consisted of 16 residential units occupying levels 4 to 10. Each of those units comprises a principal unit and an accessory unit. Unit A, then a commercial unit, occupied four levels from the ground floor to the third floor.
[11] In 2015–2016 Western Park Apartments Ltd converted unit A into a subsidiary unit title development with 28 residential units. Each of those units comprises a principal and an accessory unit. Part of the redevelopment involved the construction of Unit 504, a two‑storey unit on levels 4 and 5 (described by some as a cling‑on unit). Unit 504 is part of the Subsidiary Body Corporate, which is the body corporate for the subsidiary unit title development. The Subsidiary Body Corporate has a 52.4 per cent ownership interest in [the] Western Park [apartment complex].
It was common ground that the redevelopment of unit A was comprehensive. The ground floor level and the various floors through to level three were reclad. Those levels and unit 504 do not require remediation. The Body Corporate’s scheme relates to the repairs that need to be carried out on “levels 9, 10 and possibly the lower levels of the [b]uilding … but not the units in the Subsidiary Body Corporate …”.
The Judge’s summary went on as follows:[3]
[3]Footnote omitted.
[12]     The penthouse … unit 900 … is owned by the [t]rustees … Unit 900 is on two levels and is surrounded by a deck on level 9. At 564 square metres (m²), [u]nit 900 has the largest area of all the units by some margin. Its ownership interest, is 4.42 per cent.
[13]     By way of comparison, the entire Subsidiary Body Corporate (formerly unit A) was, excluding accessory units, 806 m² as at 1988. Since then unit 504 has been added. All other units on levels 4 to 8, excluding unit 402, range between 163 m² and 184 m². Unit 402 is 306 m² because of its extra deck.
[14]     … [T]he level 9 deck forms part of the roof of the building below. The level 4 deck similarly functions as part of a roof over the units below.
[15]     Unit 900 has been owned by the [trustees] since around 1999. From the early 2000s the [t]rustees (particularly Mr Hannam) have worked on plans for a redevelopment of levels 9 and 10.
[16]     All but three of the owners in the original residential tower purchased their units before the [UTA 2010] came into effect. The three who bought subsequently are the owners of unit 801… unit 501 … and unit 401 … All three support the scheme as do the other owners of levels 4 to 8.
[17]     Under the unit plan the exterior walls of all the units, including windows and exterior weatherproofing fabric, are unit property, not common property. The cladding is accordingly unit property, not common property. The roof of unit 900, ie the roof of level 10, the skylight and the deck of unit 900, are all unit property.
[18]     The only parts of the building that are common property are the entry and exit doors, building walls fronting the carpark area on the ground floor, exterior walls of the mechanical services core, the capping of the mechanical services core, the internal service and lobby areas on each level, and the basement walls. There is also a small area of common property at the rear part of level 9 which contains mechanical service shafts that extend to the roof of level 10. The air space above the top of the level 9 boundary is common property.
[19]     Unit boundaries between units are: laterally, to the mid-point of any internal walls; and vertically, to the mid-point of the inter-tenancy Dycore concrete slab between each level.
[20]     There is evidence that unit 900 has been leaking since at least May 2001. On at least five occasions since then, the [t]rustees have represented to the Body Corporate that they intended to carry out a redevelopment of unit 900 that would stop water leaking into units below.
[21]     … [I]t was against the backdrop of ongoing leaks from unit 900 into the units on level 8, and the absence of any redevelopment of unit 900 by the [t]rustees (despite representing that they intended to do so), that led the Body Corporate to apply for orders settling a scheme.

The application for a scheme

The Judge next turned to consider the Body Corporate’s application for orders settling a scheme, the opposition the application attracted, a settlement which was reached in 2019 between all unit owners, the settlement of the Body Corporate’s initial scheme in 2019 and a subsequent order which was made cancelling that settlement. She found as follows:[4]
[4]Footnotes omitted.
[22]     The Body Corporate made its first application for a scheme on 30 August 2017, in order to allow it to carry out work on level 9 to remedy the water leaking from it into the units on level 8 and below. It also sought to allocate the cost of the repairs between the unit owners.
[23]     A separate proceeding also commenced by the Body Corporate in 2017 related to the imposition of levies on the [t]rustees for costs the Body Corporate claimed it had incurred in relation to legal and consultant fees during 2015 (the Levies Proceeding). These fees were incurred for consideration of the [t]rustees’ redevelopment plans for levels 9 and 10 and for investigating and developing a remedial solution for repairs to the level 9 deck. The amount involved was approximately $100,000.
[24]     The two proceedings were set down for a two week hearing before Davison J commencing on 11 November 2019. … [T]he [t]rustees were the only party opposing the Body Corporate’s scheme application …
…
[26]     The scheme attached to the 30 August 2017 application included a provision dealing with the allocation of costs as follows:
10       Allocation of costs
10.1The Cost of those Repairs to unit property shall be borne by the Owner/s of that unit property.
10.2The Cost of those Repairs to common property shall be paid by the Body Corporate and apportioned among Owners in accordance with the Act.
[27]     On 6 September 2017, the Body Corporate applied for interim orders authorising it to effect temporary repairs to the building pending determination of its application for approval of the scheme. Consent orders were made on 13 November 2017 pursuant to which the [t]rustees were prohibited from undertaking any construction or repair work to the surface of the level 9 deck without the consent of the Body Corporate or the Court. It was also agreed the [t]rustees would afford the Body Corporate and its agents reasonable access to the level 9 deck between designated hours to enable the Body Corporate to carry out and install a temporary repair solution in respect of the water leaking into unit 801 (belonging to the 37th respondent) below.
[28]     Minutes of the Body Corporate Committee (Committee) meeting held on 14 December 2017 record discussion regarding responsibility for carrying out the repairs to the deck of unit 900 and the damage caused to the units below. The minutes of that meeting include the following:
After discussion the meeting formed the view that it was entirely appropriate that any costs associated with both temporary repairs, and the permanent repair solution, together with remediating consequential damage arising from unit 900’s direct actions including the earlier failures to repair, despite multiple commitments, should rest solely with unit 900.
[29]     As a consequence, on 30 April 2018 the Body Corporate filed an amended originating application for an order sanctioning and settling an amended s 74 scheme. The amended application and scheme contained an amended provision regarding the allocation of costs as follows:
10.      Allocation of Costs
10.1The Cost of those Repairs to the affected levels shall be borne by the Owner of levels 9 and 10 unless the Repair is a Voluntary Upgrade sought by any other Owner.
[30]     On the evening before the hearing was due to commence, a settlement was reached between the Body Corporate and the [t]rustees (2019 Settlement). This was reflected in a Deed of Settlement dated 11 November 2019 (the Deed). In short, the agreement was that:
(a)the [t]rustees would consent to a further amended scheme with a different cost allocation; and
(b) the Body Corporate would no longer pursue the Levies Proceeding.
[31]     On 11 November 2019 a consent memorandum was filed with the Court. Attached to the memorandum was a s 74 scheme that contained amendments in relation to costs. In summary, this amended scheme provided (in relation to cost allocation) that:
(a) “Direct Construction Costs” for work undertaken on a specific unit would be paid for by the individual owner of that unit;
(b) “Indirect Construction Costs” (being preliminary and general costs and scaffolding) would, where more than one unit was being repaired, be shared by those units in proportion to their respective ownership interests; and
(c) repairs to common property at levels 4 to 10 would be paid in proportion to ownership interest (as had always been the case).
[32]     On 12 November 2019 Davison J made an order approving the scheme in the amended form proposed. In accordance with the joint memorandum of 11 November 2019, an order was made for the scheme to lie in Court until 11 November 2020 upon which date it would become operative. The purpose of the order lying in Court for 12 months was to give the parties time to reach an agreement relating to the [t]rustees’ proposed redevelopment, including the sale of the Body Corporate’s common property (air space) at level 10 to the [t]rustees as at that point they wished to increase the size of the dwelling.
[33]     The order provided that if the parties did not reach agreement in relation to a development agreement by 11 November 2020, the scheme order would be sealed, released by the Court, and become operative.
[34]     Once operative, the scheme would have retrospective effect to the extent that the Body Corporate could recover from any owner the historic costs of repairs which had been effected to the units during the period after commencement of the proceeding but before the scheme became operative.
[35]     Notwithstanding the existence of historic repairs to unit 900, the Body Corporate and the [t]rustees agreed the [GK Hannam Family] Trust would only be required to contribute an ownership interest share of the costs for historic repairs to unit 900 incurred or made prior to the date of the scheme becoming operative.
[36]     The Body Corporate agreed to discontinue the Levies Proceeding with no issue as to costs.
[37]     After the consent order was made the order lay in Court for a year as provided for, while the parties endeavoured to reach agreement in relation to a development agreement for unit 900. An agreement was not reached. In accordance with the Court order, the scheme became operative on 11 November 2020.
[38]     To back up for a moment, shortly after the scheme was approved, the solicitors for the Body Corporate wrote to the owners of unit 801 (the 37th respondents), whose unit is on the level below unit 900 (in part below the level 9 deck and in part below the level 9 apartment), advising that the Committee would be looking to levy them for the repair costs for unit 801. After an amendment to the sum, this was $185,932. The unit 801 owners said they were adversely affected by the changes to the scheme’s cost allocation provisions that were amended as part of the 2019 Settlement and had not been given sufficient notice of them. On 5 October 2020 the 37th respondents applied for orders varying the cost allocation provisions of the scheme.
[39]     The [t]rustees opposed unit 801’s application. In other words, they sought to maintain the 2019 Settlement and the scheme as ordered.
[40]     In his judgment of 3 September 2021, Davison J considered that the owners of unit 801 were significantly affected by the amendments agreed between the Body Corporate and the [t]rustees and as such, ought to have been given notice of them and afforded the right to be heard.[5] Rather than granting unit 801 owners’ variation request, the Judge considered the proper course was to cancel the consent order made on 12 November 2019 approving the scheme that had been agreed between the Body Corporate and the [t]rustees. An order was made accordingly.
[5]Body Corporate 126001 v Hannam [2021] NZHC 2307 [Davison J’s judgment] at [85]–[89].
[41]     The Judge also directed the Body Corporate to effect service of the application (as revised in the 2019 Settlement) on all parties entitled to be heard regarding the scheme. The Body Corporate accordingly filed an amended s 74 application on 1 October 2021 seeking approval of a scheme in all material respects identical to that which had formed the basis of the 2019 Settlement with the [t]rustees. The application was served on all unit [owners].
[42]     Two unit [owners] filed notices of opposition: the owners of unit 801; and the [t]rustees.
[43]     The Body Corporate and the owners of unit 801 subsequently reached a settlement and filed a joint memorandum of counsel dated 7 July 2023 advising the Court that:
(a) the unit 801 owners withdrew their opposition to the scheme and now supported the making of an order approving the scheme; and
(b) the unit 801 owners opposed the approval of any scheme that contained different cost allocation rules to those set out in the draft scheme.
[44]     In summary, the position by the time the hearing commenced was that:
(a)all unit owners other than the [t]rustees supported the Body Corporate’s application for orders settling a scheme; and
(b)the [t]rustees opposed the making of orders settling the scheme which they had agreed to consent to as part of the 2019 Settlement.
[45]     Up to the date of the hearing the [t]rustees, despite their opposition to the Body Corporate’s proposed scheme, had not elected to propose their own scheme or even propose amendments to the Body Corporate’s scheme. It was not until his oral opening submissions on behalf of the [t]rustees that Mr Bigio KC proffered an alternative scheme. The main changes involve the appointment of an independent administrator and different cost allocation provisions. But there are other changes as well. A further alternative scheme was suggested on behalf of the [t]rustees during Mr Bigio’s closing submissions. No written draft scheme was filed. The further alternative scheme would retain the same cost allocation provisions as in the first alternative scheme, but would dispense with an administrator. Stipulated directions for steps to be taken would be set out for the Body Corporate to follow.
The Judge dealt separately with the trustee’s various redevelopment proposals over the years and the various discussions that have taken place in this regard. We discuss these matters below.

The High Court judgment

We deal only with those parts of the judgment that are relevant to the appeal.

After recording the background facts as set out above, the Judge recorded that it is well settled that there is a three step process the courts follow when considering applications under s 74 of the UTA 2010 to settle schemes.[6] She referred to the leading authority dealing with a predecessor section, s 48 in the Unit Titles Act 1972 (the UTA 1972), being the decision of this Court in Tisch v Body Corporate 318596.[7]
[6]High Court judgment, above n 2, at [46].
[7]At [46], citing Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 697 [Tisch].
The Judge discussed the three steps identified in Tisch,[8] noting that:
(a)There was no dispute between the parties that the Western Park apartment complex has been damaged. All parties agreed that unit 900 needs substantial remediation. The parties also accepted that remediation of unit 900 might trigger the need to replace the exterior cladding on levels four to eight (but excluding unit 504). This would ultimately be an issue for Auckland Council.[9]
(b)The trustees supported the Court settling a scheme, but not the scheme proposed by the Body Corporate.[10]
(c)What was in issue was the terms of the scheme to be settled.[11]
[8]High Court judgment, above n 2, at [46]–[49].
[9]At [47].
[10]At [48].
[11]At [49].
The Judge then turned to consider the first issue she had to deal with — the effect of the 2019 settlement. The Body Corporate was arguing that the trustees were prevented from opposing the application, having previously agreed to the Court settling a scheme which was in all material respects identical to the scheme it was proposing. The trustees were arguing that they were no longer bound to consent to the Body Corporate’s scheme, because the judgment given by Davison J in September 2021 had frustrated the agreement, and because the Body Corporate had used its powers under the approved scheme in a manner not contemplated at the time they and the Body Corporate reached agreement in November 2019.
The Judge found that, pursuant to the 2019 settlement, the trustees had an ongoing obligation to consent to the Court making an order settling the scheme.[12] She rejected the trustees’ arguments that the contract between the parties had been frustrated,[13] that the settlement was conditional on the Body Corporate carrying out specific repairs which had not been undertaken,[14] and that there had been a material change in circumstances.[15] The Judge went on to state as follows:
[117] The scheme applied for by the Body Corporate is one that all unit owners have agreed to (the [t]rustees being bound by the 2019 Settlement). In those circumstances, the Body Corporate’s proposed scheme can be said to be fair. Although the Court has a discretion whether or not to make an order, it would be unusual for the Court to decide a scheme is not fair where all owners are agreed on its terms.
…
[118] In conclusion on the effect of the 2019 Settlement, I consider the [t]rustees remain bound by their contractual obligations which prevent them from opposing the scheme. The contract between the Body Corporate and the [t]rustees was not frustrated. I do not consider there is a basis to allow the [t]rustees to now oppose the scheme because they did not manage to achieve a development agreement with the Body Corporate. That is effectively what they are doing here.
[12]At [80].
[13]At [66]–[92].
[14]At [93]–[104].
[15]At [105]–[114].
The Judge then turned to consider how she should deal with the two alternative schemes advanced by the trustees during the course of the hearing — the first in the course of the opening submissions made on their behalf and the second in their closing submissions. She found that it was not open to her to make orders adopting either of the trustees’ proposed alternative schemes.[16] She considered that the trustees’ proposals “significantly and prejudicially alter[ed] the outcome of the application of [the] scheme so far as unit [owners] [were] concerned” and observed that the trustee’s alternatives had not been served on other unit owners.[17] The Judge commented as follows:
[153] For all the above reasons I consider the Court is not able to: order that an administrator be appointed; make an order adopting the [t]rustees’ cost allocation provisions; or make an order adopting the dispute resolution process put forward by the [t]rustees.

The Judge said that, in case she was wrong, she would nevertheless consider the trustee’s two options on their merits.[18]

[16]At [153].

[17]At [130]–[131].

[18]At [154].

Before turning to the third issue she was required to deal with, the Judge summarised the factual background to the various redevelopment proposals which had been advanced by the trustees since they purchased unit 900.[19] As already noted, we summarise this evidence below.
[19]At [155]–[248].
The Judge then turned to deal with the third issue confronting her — cost allocation.
(a)The Body Corporate was proposing cost allocation provisions that would require unit owners to pay for the direct and indirect construction costs relating to their own units.[20] It was submitted for the Body Corporate that such allocation was considered fair in 2019 when the 2019 settlement was reached and that it reflected the scheme that owners had bought into and on which the Body Corporate had always operated, including in relation to the redevelopment of unit A in 2015–2016.[21]
(b)Under the trustees’ proposals, the costs of completing repairs would be allocated amongst all owners (including those in the Subsidiary Body Corporate) on an ownership interest basis. The only exception would be in relation to owner requested variations. In such cases, the owner would pay the difference between the cost of repairs with the variation and the cost of repairs without the variation. The cost of enclosing the deck on unit 900 was to be calculated as if it were an owner requested variation.[22] The trustees were submitting that the Body Corporate’s proposed cost apportionment represented an unjustified departure from the scheme of both the UTA 1972 and the UTA 2010. They submitted that under either regime, it was fair that repairs to the external building envelope should be apportioned according to ownership interest. It was argued that unit 900 functions as a roof over a large part of the Western Park apartment complex and that the repair of the external building envelope, including the cladding system, whether on levels 9 and 10 or elsewhere, is in the interests of all owners. It was argued that ownership interest was the primary cost sharing method under both the UTA 1972 and the UTA 2010.[23]
[20]At [249].
[21]At [251].
[22]At [250].
[23]At [255]–[256].
The Judge summarised Tisch and the relevant statutory provisions.[24] She accepted the submission made on behalf of the Body Corporate and the Subsidiary Body Corporate that it was fair that the direct costs of repairs to the exterior of the building should be allocated based on a division between unit property and common property.[25] She reached this conclusion for the following reasons:
[24]At [258]–[264].
[25]At [265].
(a)First, a particular feature of the Western Park apartment complex was the limited amount of common property and the fact that, with some limited exceptions, all external cladding was unit property, including the decks on levels 4 and 9. The Judge considered that this division continued to be relevant under the UTA 2010, despite the introduction of a general obligation on bodies corporate to repair and maintain building elements that serve more than one unit.[26]
(b)This division set legitimate expectations. The owners of units at levels 4 to 10 had a legitimate expectation that they would be responsible for repairs on this basis, based both on the UTA 1972 and the rules that applied when most of them bought their units.[27] The Judge noted that when the trustees purchased unit 900, they knew that the exterior of the unit and the air space above it up to level 10 was unit property.[28]
(c)The conduct of and representations made by the trustees — particularly Mr Hannam — since the Trust bought unit 900 were relevant. The Judge observed that Mr Hannam had repeatedly represented to both the Body Corporate’s Committee and other unit owners that the trustees would address the watertightness issues associated with unit 900 as part of their redevelopment of the unit. Those representations and various proposals were made on the basis that the trustees would pay for the costs of any works on unit 900.[29]
(d)The Body Corporate’s rules, adopted in 2012, required owners to repair and maintain the exterior of their units if required to do so by the Body Corporate.[30]
(e)The costs of recladding other significant parts of the building had been allocated to the units involved. In particular, the redevelopment of unit A in 2015–2016 was carried out on the basis that the owner of that unit paid for all of the costs of recladding the exterior of that part of the building.[31]
(f)The cost of redevelopment of the lower levels, including constructing unit 504, and undertaking various improvements benefitting the whole of the building, such as general seismic strengthening, upgrades to common areas, including fire protection systems and upgrades to the foyer lifts and rubbish room had been met by the owners of unit A.[32]
(g)The cost allocation proposed by the Body Corporate reflected the limit of the damage. Prior damage to unit A had been remediated in 2015 and 2016. The Judge accepted the submission that, while the UTA 2010 does not impose limits on the scope of a scheme once damage is identified, in cases such as this, where the affected areas are identified, it is fair that the scheme is limited to the units in that part of the building.[33]
(h)Finally, the trustees had agreed to the cost allocation proposed by the Body Corporate when they settled the proceeding in 2019 and nothing had happened since to undermine the fairness of what was then agreed.[34]

Taken together, the Judge considered that these factors established, given the circumstances of this case, that the Body Corporate’s proposed cost allocation provisions balanced the interests of all unit owners in a way that was fairest to all.[35]

[26]At [266], citing Body Corporate 198900 v Bhana Investments Ltd [2015] NZHC 1620 at [34]; Body Corporate 114424 v LV Trust Holdings Ltd [2014] NZCA 21, (2014) 15 NZCPR 375 at [29] and [35]; and Guv Body Corporate 211747 [2018] NZCA 396, [2019] 2 NZLR 463 at [57].

[27]High Court judgment, above n 2, at [267].

[28]At [268].

[29]At [270].

[30]At [272].

[31]At [273].

[32]At [274]–[275].

[33]At [276]–[277].

[34]At [278].

[35]At [279].

In contrast, the Judge did not consider that the trustees’ alternative cost allocation proposals achieved an outcome that was fair between all unit owners.[36] She considered that the trustees’ proposals involved a departure from the longstanding understanding between all owners that each was responsible for repairs to his or her unit property.[37] She further considered that the trustees’ proposal was arbitrary. She noted that the trustees did not contribute to the costs of repairing building elements in unit A; rather the owners in the Subsidiary Body Corporate had paid for those repairs. The Judge considered that it would be manifestly unfair if those owners were required to contribute 52.4 per cent of the costs of repairs to levels 4 and 10.[38]
[36]At [281].
[37]At [281(a)].
[38]At [281(b)].
The Judge also noted that the Body Corporate had, in response to Mr Hannam’s representations and threats, delayed taking steps to carry out repairs on levels 9 and 10 in order to enable Mr Hannam to carry out his redevelopment and not be exposed to wasted costs.[39] She considered that the trustees’ proposals would, to a significant extent, subsidise a substantial redevelopment of the trustees’ unit property.[40] She considered that the trustees’ cost allocation would put the members of the Subsidiary Body Corporate in a worse position than if no scheme were to be ordered.[41]
[39]At [281(c)].
[40]At [281(e)].
[41]At [281(g)].
In summary, the Judge considered that the Body Corporate’s proposed cost allocation provisions were fair as between all owners, whereas the proposed cost allocation put forward by the trustees was not.[42]
[42]At [285].
The Judge then turned to consider whether other amendments proposed by the trustees in their first alternative scheme should be adopted. She concluded that other additions or deletions proposed by the trustees were either unnecessary or inappropriate.[43]
[43]At [355]–[357].
The Judge then went through the same exercise in relation to the trustees’ second alternative scheme. Again, the trustees’ proposed amendments were rejected.[44] One of the amendments rejected was a proposal by the trustees that the scheme should provide for an urgent investigation into fire safety concerns raised by one of their witnesses, Per Olsson, regarding the cladding of the units on levels 4 to 10. The Judge noted that the evidence was that Auckland Council was aware of the Grenfell Tower fire (in London) and that it had taken steps to review buildings in Auckland to determine whether there were any with similar cladding. The Judge noted that the apartment complex had not been identified in that review. She also noted that as part of the 2015–2016 redevelopment of unit A, a fire report was prepared, encompassing all levels of the building, that the design was then reviewed and approved by the New Zealand Fire Service and that the Council had raised no issue with the cladding on the upper levels or with fire safety.[45]
[44]At [358]–[368].
[45]At [363]–[364].
The Judge summarised her decision as follows:
Summary of decision
[383]    The contract between the Body Corporate and the [t]rustees, pursuant to which the [t]rustees agreed to consent to a scheme in the same terms as the scheme before the Court, has not been frustrated. The [t]rustees remain contractually bound to consent to the Body Corporate’s proposed scheme. It is, therefore, not open to the [t]rustees to oppose the scheme proposed by the Body Corporate.
[384]    In the alternative, it is not open to the Court to consider the two alternative schemes proposed by the [t]rustees as they were not served on all respondents.
[385]    In case I am wrong in my decisions in [383] and [384] above, I have considered the terms of the Body Corporate’s proposed scheme as applied for and the [t]rustees’ two proposed schemes.
[386]    There are no grounds for appointing an administrator and the [t]rustees’ cost allocation is not fair as between unit owners. Nor is there a basis for other amendments proposed by the [t]rustees.
[387]    The Body Corporate has satisfied the burden of proof as regards the terms of its proposed scheme. It achieves fairness between all unit owners. The scheme is a fair and practical framework for addressing current and potential issues with the building.
[388]    I will exercise my discretion under s 74 of the [UTA 2010] to order a scheme in the terms as applied for by the Body Corporate.

The notice of appeal

The trustee’s notice of appeal raised the following matters:
(a)The Judge’s findings as to the effect of the 2019 settlement between the trustees and the Body Corporate.
(b)The Judge’s findings as to the fairness of the Body Corporate’s cost allocation.
(c)The Judge’s findings in respect of the trustees’ cost allocation.
(d)The Judge’s finding that the trustees’ request for an urgent investigation into fire safety concerns should not be included in the scheme.
(e)The Judge’s findings that the terms of the scheme proposed by the Body Corporate are appropriate and that the costs associated with the deglazing and wrap of unit 900 are payable by the trustees under the scheme.
(f)The orders made by the Judge.

Submissions

For the trustees

Mr Bigio KC, appearing for the trustees, confirmed that the trustees wish to have their apartment reinstated and that they support the settling of a scheme under s 74 of the UTA 2010. He made it clear that their appeal is limited to the following aspects of the scheme settled by the Court:
(a)the requirement that the trustees pay for all of the direct (and indirect) costs of repair to unit 900;
(b)the requirement that the trustees pay the costs of “mothballing” unit 900; and
(c)the lack of any condition requiring an investigation of the cladding system, as recommended by Mr Olsson.
Mr Bigio referred to Tisch. He discussed the five guiding principles set out by this Court and he analysed the nature of the Court’s discretion, commenting that the Court is required to balance the interests of each owner to achieve the fairest outcome for all unit owners. He submitted that the Body Corporate’s proposed scheme is unfair to the trustees and that the fact that other owners support it is not determinative. He argued that the courts have recognised that it is in the interests of all owners that the exterior of multi-tenanted buildings is kept in good repair and watertight. He noted that levels 9 and 10, including the deck surrounding unit 900, form a roof over the rest of the Western Park apartment complex and he argued that resolution of the watertightness issues on levels 9 and 10 is in the interests of all owners. He put it to us that the Judge failed to identify and balance the interests of all owners as required by Tisch and that the Judge departed from the scheme of the UTA 2010. He also argued that the scheme inappropriately attributes the costs of mothballing the trustees’ unit entirely to them, despite the fact that the mothballing was and still is in the interests of all owners.
Mr Bigio then turned to discuss the owners’ legitimate expectations. He noted that there are 44 apartments in the building, that some owners bought under the UTA 1972 and that most owners (including the 28 in the Subsidiary Body Corporate) bought under the UTA 2010. He submitted that the statutory schemes under the two Acts differ, observing that s 138 of the UTA 2010 expanded the Body Corporate’s repair and maintenance obligations and relegated the Body Corporate rules to operational matters only. He argued that the relevant statutory scheme in this case is the UTA 2010 and that any expectations owners may have had under the UTA 1972 cannot have survived the UTA 2010. He submitted that the reasonable expectation of owners after the UTA 2010 came into force was that the Body Corporate would be responsible for the repair works to levels 9 and 10, in accordance with its obligations under s 138, that the Body Corporate would levy the cost of such works according to ownership interest pursuant to s 121, but that, in appropriate circumstances, it could seek to reapportion those repair costs at the conclusion of the works pursuant to ss 126, 128 and 138(4).
Mr Lewis, also on behalf of the trustees, addressed the exercise by the Judge of her discretion under s 74. He argued that the 2019 settlement, the development of unit A in 2015–2016 by the owner of that unit, and the trustees’ prior development proposals, were all irrelevant considerations and that the Judge, by taking them into account, had erred in the exercise of her discretion. He further argued that the scheme provisions are punitive and that they punish the trustees for not proceeding with their development proposals when they had no obligation to do so. He submitted that there was no binary choice between the options before the Court and that, in any event, the trustee’s alternative proposals were not new schemes or counter‑applications; rather they were, in effect, submissions on the Body Corporate’s proposed scheme. It was argued that the Court wrongly fettered its discretion by ignoring the trustees’ proposals and by failing to exercise its discretion in relation to the scheme wording.

In their written submissions, counsel focussed on cost apportionment. They started with the trustees’ proposal. They argued that, given the common interest in the integrity of the building envelope, it was appropriate to apportion cost according to ownership interest. They noted that the Body Corporate’s cost apportionment formula divides costs between direct costs and indirect costs. They submitted that if work is only undertaken on levels 9 and 10, then all of the direct and indirect costs will be payable by the trustees and they will have to meet the costs of making the roof waterproof for the benefit of all 44 apartments.
In regard to fire safety, counsel referred to the evidence of Mr Olsson. They argued that the risk of the vertical spread of fire raised by Mr Olsson, as a result of the exterior cladding on levels 4 to 10, has to be addressed, that the Court gave no proper justification for rejecting Mr Olsson’s expert evidence, and that the Judge did not properly consider the issue. It was argued that a condition requiring investigation is necessary in the circumstances.

For the Body Corporate

Mr Orpin-Dowell, for the Body Corporate, submitted that the trustees are asking the Court to radically change the law relating to s 74 schemes. He suggested that the premise for the trustees’ case is that, under the UTA 2010, when repairs under a proposed scheme are to building elements, that is effectively the controlling consideration in relation to the fairness of cost allocation, requiring allocation on an ownership interest basis, and that all other considerations are irrelevant. It was submitted that this is wrong and that the Court’s task is to settle terms that achieve the outcome fairest to all unit owners in the circumstances.
Mr Orpin-Dowell submitted that the appeal in this case is against the exercise of a discretion and that the Judge did not misdirect herself. Rather she held that the scheme proposed by the Body Corporate is fair because it is supported by all owners. Further, she considered the relevant provisions in both the Body Corporate’s scheme and in the alternatives proposed by the trustees and concluded that the Body Corporate’s scheme is fairest to all. It was argued that the Judge did not make any reviewable error in her analysis and that there was no error in her approach.
It was put to us that the 2019 settlement was relevant to the fairness of the scheme, that the Judge appropriately balanced the interests of all owners and properly took into account the history of the apartment complex and the legitimate expectations of the owners. It was further argued that the trustees’ redevelopment proposals over the years and the work undertaken to unit A were both relevant in considering what was fair to owners. It was also submitted that the temporary works (the mothballing) were permitted under the scheme initially approved by Davison J and that it was appropriate to require the trustees to meet the costs of these works.
It was submitted that there was no error in relation to fire safety issues, that a further investigation has already been rejected by the Body Corporate, and that, in any event, it was not open to the Court to adopt the trustees’ alternative proposals in this regard.

For the Subsidiary Body Corporate

Mr Nilsson, for the Subsidiary Body Corporate, noted that it has a 52.4 per cent ownership interest in the overall apartment complex but that the units owned by members of the Subsidiary Body Corporate do not need remediation, because unit A was comprehensively redeveloped in 2015–2016. It was pointed out that the redevelopment was effectively funded by the purchasers of the apartments developed by the subdivision of unit A and that no other unit owners contributed anything to the redevelopment works. Mr Nilsson made it clear that the reason for the Subsidiary Body Corporate’s separate involvement in the appeal was to protect its members from being forced to also pay for the remediation required to unit 900, or for any other remediation which may be necessary for units on levels 4 to 10 of the Western Park apartment complex.
It was argued that the Judge’s decision to accept the Body Corporate’s cost allocation proposals involved the exercise of a discretion, that the Judge committed no reviewable error and that her decision should be left undisturbed. It was further submitted that the cost allocation proposed by the Body Corporate and accepted by the Judge was objectively fair, as it reflects the extent and cause of the damage. It was put to us that the trustees’ preferred cost allocation would result in members of the Subsidiary Body Corporate being required to bear 100 per cent of the costs of remediating unit A and 52.4 per cent of the costs of remediating levels 4 to 10, and that this would be patently unfair.
Mr Nilsson otherwise adopted the submissions made for the Body Corporate.

Issues on appeal

The trustees sought to raise 19 issues before us. Some of the issues were divided into sub‑issues.
The Bodies Corporate were rather more economical. They suggested that there were really only four issues the Court had to address.
We do not propose to recite the issues proposed by either the trustees, or the Bodies Corporate. The trustees for their part accepted that some of the issues they sought to raise could not be dealt with by the Court — for example, whether the Body Corporate’s mothball of unit 900 was lawful. They accepted that could only be dealt with in separate proceeding, commenced for that purpose. Similarly, the Bodies Corporate accepted that some of the issues that they sought to raise do not require resolution, in the context of this appeal.
We approach the matter in much the same way as did the Judge, although not necessarily in the same order.

Analysis

Section 74

The Body Corporate’s application for approval of its scheme was made under s 74 of the UTA 2010. Relevantly, the section provides as follows:
74       Scheme following destruction or damage
(1)This section applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.
(2)       The High Court may, by order, settle a scheme on the application of—
(a)       the body corporate; or
…
(d)      the owner or one of the owners of a unit; or
…
(3)       A scheme under subsection (2) may include provisions—
(a)for the reinstatement in whole or in part of the building or other improvement; or
…
(6)On any application to the High Court under subsection (2), the following persons have the right to appear and be heard:
(a)any person having or claiming to have any estate or interest in any unit or in the whole or part of the base land; or
…
(7)In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders—
…
(b)directing payment of money by or to the body corporate or by or to any person; or
…
(d)      imposing any terms and conditions that it thinks fit.
…
The predecessor section was s 48 of the UTA 1972. Although s 74 of the UTA 2010 is structured rather differently, the two sections are in broadly similar terms.
In Tisch, this Court held that an application for a scheme under s 48 of the UTA 1972, imposed a three‑step process on a court considering the application:[46]
(a)the court must be satisfied that the building has been damaged or destroyed;
(b)if so satisfied, the court must decide whether the settlement of a scheme is appropriate in the circumstances; and
(c)if the court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.
[46]Tisch, above n 7, at [35]; and see DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [14.038]; John Burrows (ed) Land Law (online ed, Thomson Reuters) at [UTA74.02]; and Elizabeth Toomey (ed) New Zealand Land Law (3rd ed, Thomson Reuters, Wellington, 2017) at [12.8.02].
As already noted, it is the third step which is in issue in this appeal.
As to the third step, the Court in Tisch emphasised that the court settling the scheme has a discretion but that “[t]he aim should be to balance the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit [owners]”.[47] Without precluding other considerations, the Court identified five guiding principles which, at the time, had emerged from the case law.[48]
[45]     First, a scheme with broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners. This will not invariably be so, because a majority of owners may support a scheme that is unfair to the minority. …
[46]     Secondly, the scheme should be appropriately detailed. The more detailed a scheme, the less scope for later misunderstanding and argument about it.
[47]     Thirdly, providing that what has been done by the body corporate before the s 48 scheme is actually approved is in accordance with the scheme, the order has retrospective effect. …
[48]     Fourthly, work should normally be done to the same standard and at the same time. …
[49]     Fifthly … the terms of the s 48 scheme should depart from the scheme of the [UTA 1972] and from the Body Corporate Rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances. Thus, the Act and the Body Corporate rules remain relevant considerations. An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.
[47]Tisch, above n 7, at [44].
[48]Footnote omitted.
The Tisch approach has been adopted in relation to applications made under s 74 of the UTA 2010.[49] We turn to consider the approach to the extent that it is relevant to this appeal. Before doing so, we touch on the nature of an appeal from the exercise of the discretion conferred by s 74 of the UTA 2010 and we summarise the Body Corporate’s proposed scheme.

The nature of an appeal against the exercise of the s 74(2) and (7) discretion

[49]See for example Gu v Body Corporate 211747, above n 26, at [31] and [34]; and Body Corporate 114424 v LV Trust Holdings Ltd, above n 26, at [27].

Both Mr Orpin‑Dowell and Mr Nilsson submitted that the appeal against the Judge’s decision, limited to the inquiry required at step 3 of the Tisch analysis, is an appeal against the exercise of a discretion. They noted that in Tisch, this Court stated that the step 3 inquiry involves the exercise of a discretion,[50] and that, pursuant to s 74(7), in the exercise of its jurisdiction to settle a scheme, the High Court can make any orders that it considers expedient or necessary for giving effect to the scheme. It was argued that, at step 3, the court is exercising a true discretion in deciding what terms are appropriate. They submitted that the approach discussed by the Supreme Court in Kacem v Bashir should be adopted and that the appeal should only be allowed only if the High Court made an error of law or principle, took into account an irrelevant consideration, failed to take into account a relevant consideration, or reached a conclusion that was plainly wrong.[51]
[50]Tisch, above n 7, at [44].
[51]Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32] citing May v May (1982) 1 NZFLR 165 (CA) at 170.
Although their submissions were couched in terms suggesting that the appeal was against the exercise of a discretion, the trustees did not deal with this issue expressly in their written submissions filed in support of the appeal. When it was raised by the Court, Mr Bigio was prepared to accept that the appeal in this case, limited to the Tisch step 3 analysis, is an appeal against the exercise of a discretion. He sought however to caveat this acknowledgment by suggesting that this Court should not feel constrained in considering what is fair.
We are inclined to agree with counsel, but given that the issue was not fully argued before us and that the trustees’ response was spontaneous, rather than considered, we prefer not to deal with the appropriate approach to such appeals in this case. Counsel for all parties agreed that the issues raised by the trustees can be fully considered, whether the appeal is dealt with as a general appeal, or as an appeal against the exercise of a discretion. Accordingly, we leave the issue for an appropriate case, where the Court has full argument before it.

The Body Corporate’s proposed scheme

The preamble to the scheme records that repairs need to be carried even though they involve private property, of at least unit 900 and possibly of other units on the lower levels of the building. It is further recorded that the building contains a mix of common and private property and that repairs may be required to both; the scheme is intended to authorise the repair of property whether it be unit property, common property or both. The scheme is intended to authorise all repairs under a single building contract managed by the Body Corporate on behalf of the owners of units.
The scheme authorises the repair of damage caused by water ingress into the affected levels (levels 9, 10 and possibly the lower levels of the building) and into such other places if any as are discovered in the course of repairing the affected levels. It is acknowledged that the extent of the repairs required will not be fully known until after the works begin and the damage to the slab (deck) on level 9 is revealed.
It is expressly recorded that the scheme is intended to resolve a dispute between the proprietors and the Body Corporate as to their respective responsibilities to pay for the cost of repairs.
The scheme appoints the Body Corporate as the agent of each owner with authority to carry out the required repairs. The word “repairs” is defined. The definition requires that the term be given the widest possible meaning. The term “costs” is also defined and again it is expressly recorded that the term is intended to have the widest possible meaning, to include all costs involved in assessing and carrying out the repairs, and in obtaining code compliance certificates for the building once the repairs are complete. It is noted that, excepting manifest error, the decision of the Body Corporate as to what constitutes costs is final and binding on all owners.
The cost allocation provisions in the scheme are found in cl 10 and in a schedule attached to the scheme. The schedule reads as follows:
Schedule of Cost allocation rules
Repairs on common property at levels 4 – 10 will be paid by ownership interest pro rata to ownership interest of level 4 – 10 units unless the requirement for the relevant repair arises from an Owner Requested Variation or works undertaken by an owner triggering an involuntary or otherwise unnecessary repair to common property in which case the Repair Costs will be paid on the same basis as Direct Construction Costs as if common property on a level of the building is included in the units on that level.
“Direct Constructions Costs” means those costs charged by the Building Contractor that are directly attributable to work being undertaken on a specific unit in the Building including, without limitation, items such as labour and materials shall be paid by individual owner of that unit.
“Indirect Construction Costs” means preliminary and general costs (P&G) and scaffolding; – If only one unit is repaired at one time, then Indirect Cost is paid by the unit which is repaired but on the basis that in that case the Owner of that unit shall not be required to contribute to the Indirect Construction Costs for the repair of other units unless in the latter event some other part of the first mentioned Owner’s property is also being repaired. If one or more units (and / or common property) at levels 4 – 10 are repaired together then Indirect Cost is paid pro rata in proportion to their respective ownership interest. If all units at levels 4 – 10 (and or common property) are repaired together then Indirect Cost is paid pro rata in proportion to ownership interest of levels 4 – 10.
“Associated costs” means consultants fees, administration fees, insurance, management fees, territorial authority fees and other similar costs related to the Repairs that fall outside the contract with the Building Contractor; – paid by ownership interest pro rata to ownership interest of levels 4 – 10.
The Body Corporate is given the power to ensure that the money required to meet the costs of repair is collected from each owner in such proportion and at such time or times as is determined by the Body Corporate in accordance with the scheme.
The scheme expressly recognises that some work had already been undertaken, including after commencement of the proceeding, to effect repairs (whether temporary or permanent). It records that the cost of such repairs is deemed part of the scheme and that such cost is to be apportioned in the same manner as costs subsequently incurred under the scheme are apportionable between the Body Corporate and the owners.
The Body Corporate can employ suitably qualified and experienced advisors to assess and determine the interim and final costs and determine the allocation of those costs between owners. It is required to apportion the costs of repairs in accordance with the scheme. It must ensure that all monies received from each owner are only allocated and paid out for the repairs.
The scheme recognises that the Body Corporate must raise funds with which to pay for the repairs in advance of incurring the liability for the costs involved and to this end, the Body Corporate is authorised to:
… levy and … collect from an Owner as the Body Corporate deems necessary for undertaking, progressing or completing the Repairs, and at such times as the Body Corporate, shall from time to time decide.
There is a dispute resolution provision. The Body Corporate’s decision is final in all respects, but if the amount in issue, in monetary terms, exceeds $30,000, and the owner has otherwise complied with his or her various obligations set out in the scheme, the owner can issue a notice of objection and refer the objection to arbitration.

The 2019 settlement

The relevance of the 2019 settlement

The settlement was recorded in a deed dated 11 November 2019. It noted that the parties to the settlement — the Body Corporate and the trustees — had agreed to the High Court making an order approving the Body Corporate’s proposed scheme.[52] A consent memorandum was signed by counsel for the Body Corporate and for the trustees on the same day. It in turn noted the agreement and asked the Court to settle a scheme, a copy of which was attached to the memorandum. That scheme was, in all material respects, identical to the scheme the subject of the Body Corporate’s October 2021 application. This was accepted by the trustees before us.
[52]High Court judgment, above n 2, at [30(a)].
This Court in Tisch recognised the value of settlements in relation to s 74 schemes. It stated as follows:
[37] … Hopefully, a scheme will not be needed for most ‘leaky buildings’ or other cases where substantial repair work is required. The risks and costs of applying to the Court and the desirability of maintaining harmony between people living in the same building or complex surely call for a determined effort to achieve agreement between owners on the carrying out of the required repairs. We endorse Heath J’s observation … that “s 48 should be a remedy of last resort”.[53]
[53]Fraser v Body Corporate S63621 (2009) 10 NZCPR 674 (HC) at [97].
Further and as noted above at [49], while one of the guiding principles identified by the Court in Tisch is that the terms of a scheme should depart from the scheme of the Act and from the Body Corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances, there is an exception where the scheme is unanimously agreed to by all unit owners.[54]
[54]Tisch, above n 7, at [49].

If the 2019 settlement continued to bind the trustees, then subject to the exercise by the Judge of her discretion under s 74, it was likely to have helped dispose of the case.

The Judge’s findings in relation to the 2019 settlement

We have already summarised the competing arguments advanced before the Judge and her decision in relation to them at [15]–[16]. To recap, the Judge concluded that the trustees had an ongoing obligation pursuant to the 2019 settlement to consent to the Court making an order settling the scheme proposed by the Body Corporate.[55] She rejected the trustees’ arguments that the settlement between the parties had been frustrated, that the settlement was conditional on the Body Corporate carrying specific repairs which had not been undertaken, and that there had been a material change in circumstances.[56]
[55]High Court judgment, above n 2, at [118].
[56]High Court judgment, above n 2, at [66]–[118].
In their notice of appeal, the trustees did not expressly challenge any of the Judge’s various findings leading to her conclusion. Rather, they challenged her “findings as to the effect of the 2019 [settlement] between the [trustees] and the Body Corporate”. They referred to three specific paragraphs in the judgment which they took issue with; two are noted above at [16] and the other summarised those paragraphs.

Was it open to the trustees to challenge the Judge’s finding that there was no material change in circumstances?

As we understood it, and as the Body Corporate and the Subsidiary Body Corporate understood it, the trustees were proposing to argue not that any of the Judge’s findings was wrong, but rather that she misunderstood her role and fettered her discretion by relying on the 2019 settlement. This understanding was reinforced by the written submissions filed on behalf of the trustees. The trustees there submitted that the Judge was required to apply the Tisch principles, whether or not the trustees and the Body Corporate had earlier agreed on the terms of the proposed scheme they asked the Court to settle.
At the hearing, Mr Lewis endeavoured to challenge one of the Judge’s underlying findings, namely that there had been no material change in circumstances. In effect, he was seeking to argue afresh that the trustees were not bound by the 2019 settlement, that they were entitled to oppose the Body Corporate’s application for an order to settle the proposed scheme and that the 2019 settlement should be ignored. It was submitted that the 2019 settlement was an irrelevant consideration which should not have been considered in exercising the s 74 discretion.
Pursuant to r 30 of the Court of Appeal (Civil) Rules 2005, any notice of appeal must be in form 2 of sch 1 to the rules, or in a form to similar effect.[57] Inter alia, a notice of appeal must set out the specific grounds of appeal it is proposed to advance.[58] Pursuant to r 34, an appellant can amend the grounds of appeal by filing and serving a memorandum,[59] but once the Registrar has allocated a hearing date, the grounds of appeal can only be amended with the leave of the Court or the consent of the other party.[60]
[57]Court of Appeal (Civil) Rules 2005, r 30(1).
[58]Sch 1 form 2.
[59]Rule 34(1).
[60]Rule 34(2) and (3).
Here, leave was not sought and no memorandum seeking to amend the grounds of appeal was filed by the trustees prior to the appeal hearing. Nor did the trustees seek leave to amend their grounds of appeal during the course of the hearing. Neither the Body Corporate nor the Subsidiary Body Corporate consented to any amendment.
When this issue was raised by the Court, Mr Lewis disputed that the notice of appeal did not refer to the Judge’s finding that there had been no material change in circumstances. He argued, in effect, that it was implicit from the notice of appeal that this finding was disputed.
We do not agree with Mr Lewis’ assertion, but we do not need resolve whether the point the trustees wished to raise is implicit from the notice of appeal. We consider that, to the extent leave to pursue the (additional) ground of appeal is required, it should be granted. The issue was fully dealt with by the Judge; it was raised before us; it was addressed by Mr Lewis for the trustees and by Mr Orpin-Dowell for the Body Corporate. While Mr Nilsson for the Subsidiary Body Corporate did not specifically address the issue, he adopted Mr Orpin-Dowell’s submissions. As a result, there is no prejudice to the respondents if we consider the issue.
In our view, it would be unhelpful to exclude consideration of the issue and it could pre‑empt further argument between the trustees and the Body Corporate. Accordingly, we turn to consider whether or not there was a material change in circumstances, which permitted the trustees to avoid the 2019 settlement.

The alleged change in circumstances

The change of circumstances relied on by the trustees was the so‑called mothballing of unit 900.
Before the Judge, and before us, it was argued for the trustees that, following the 2019 settlement, the Body Corporate undertook temporary works which have meant that the trustees have not been able to access unit 900. The works included the removal of the glazing and window joinery in unit 900, the boarding up of the window openings, and the wrapping of the unit in plastic film to prevent leaks into the rest of the Western Park apartment complex.
The need for temporary repairs was not a new issue. For some years, the Body Corporate had been raising concern with the trustees about water ingress from unit 900. The trustees proposed taking steps to redevelop unit 900 and to address the water ingress issues at the same time, but their proposals had not resulted in any redevelopment. Temporary works had been discussed and both parties had considered how they might best be carried out. Some temporary works had been undertaken but they did not solve the issue.
Not long after the Body Corporate made its first application to settle a scheme on 30 August 2017, it sought interim orders permitting it to carry out repairs to the level 9 deck and balustrades pending the determination of its application for approval of the scheme. Following the file of a joint memorandum by counsel on 13 November 2017, Peters J made consent orders pursuant to which the trustees were prohibited from undertaking any construction or repair to the surface of the level 9 deck without the consent of the Body Corporate or the Court, and affording the Body Corporate and its agents reasonable access to the level 9 deck between agreed hours, to enable it to carry out and install a temporary repair solution in respect of the water leaking into the unit below — unit 801.[61]
[61]See Davison J’s judgment, above n 5, at [18]; and High Court judgment, above n 2, at [27] and [204].
It seems that there were various stages to these temporary works and that the first stage was completed in March 2018. Further temporary works were however required. They were discussed in detail by the Judge and no party took issues with her findings in this regard. We largely adopt and summarise them as follows:
(a)On 16 September 2020, Mr Hannam wrote to the Body Corporate acknowledging its concerns regarding the ongoing leaks coming from unit 900. Mr Hannam said that the trustees proposed “a solution to the uncertainty”; they agreed “to a mothballing of the apartment by having it sealed to prevent further leaks until the development works begin”.[62] A few days later, Mr Hannam wrote to the Body Corporate again, advising that the trustees had decided to proceed with the demolition of unit 900. He also said that he would engage a specialist building contractor to waterproof the area and to provide a warranty until re‑construction works could begin.[63]
[62]High Court judgment, above n 2, at [215].
[63]At [216].
(b)The Body Corporate considered that the scheme permitted it to undertake the works necessary to address the watertightness issues, including on a temporary basis.
(c)At this point, the Body Corporate’s scheme was lying in Court, pursuant to the orders made by Davison J on 12 November 2019. It became operative however on 11 November 2020.[64]
(d)On 30 November 2020, the Body Corporate held its annual general meeting (AGM). One of the trustees, Ms Draper, attended. The minutes of the Body Corporate’s meeting record that she advised the meeting that it was the trustees’ “intent not to demolish until they could rebuild immediately after”.[65] No interim solution was offered by the trustees.
(e)The Body Corporate considered that the priority was to address watertightness issues. A letter was sent by the Body Corporate’s solicitors to the trustees’ solicitors on 23 December 2020, recording the Body Corporate’s position and noting that it proposed to take (temporary) steps to ensure that the leaks were stopped. The letter also recorded that Mr Hannam would be levied with the cost of the temporary works.[66]
(f)On 29 January 2021, the Body Corporate sent a memorandum to Mr Hannam stating that, given its responsibilities to other owners and occupiers in the building, it had resolved that it needed to take effective steps to carry out the waterproofing itself. The memorandum reminded Mr Hannam that the cost of the works would rest with him.[67]
(g)There were subsequent meetings between the Body Corporate representatives and representatives of the trustees. Various options were explored. One of those options — known as option four — was deglazing the windows in unit 900, removing the frames, boarding up the window openings and sealing levels 9 and 10.[68]
(h)On 5 March 2021, the Body Corporate’s Committee considered the various options and resolved to proceed with option four and to levy the trustees the cost of carrying out the work.[69] The Body Corporate’s solicitors wrote to the trustees’ solicitors, advising the trustees of the Body Corporate’s decision and providing the underlying documentation.[70] The letter also advised that the Body Corporate needed to be “placed in funds” by the trustees.
(i)On 8 March 2021, the trustees’ solicitors wrote to the Body Corporate’s solicitors objecting to its decision to proceed with option four.[71] They asserted that the Body Corporate did not have the requisite authority to carry out the works under either the scheme or s 138 of the UTA 2010. They objected to the Body Corporate’s “purported repair invoice”.
(j)The 5 March 2021 decision to proceed with option four was confirmed at a further Body Corporate Committee meeting held on 31 March 2021.[72]
(k)The trustees did not seek to object to the Body Corporate’s proposal under the dispute resolution provisions in the scheme. Nor did they seek to stop the Body Corporate from doing the works, whether by injunction or otherwise.
(l)A building consent to carry out the option four works was obtained in July 2021 and preliminary work on option four then commenced. There were delays caused by the COVID‑19 restrictions which were then in force but the work was largely completed by late November 2021, with final sign off by Auckland Council on 15 March 2022.[73]
[64]At [220].
[65]At [221].
[66]At [223].
[67]At [224].
[68]See [225]–[232].
[69]At [233].
[70]At [234].
[71]At [235].
[72]At [238].
[73]At [239]–[241].
The trustees say that they would never have agreed to the 2019 settlement if they had been aware that the temporary works could be carried out. They complain that the temporary works have left them in limbo and that they have been in this state for some three years.

Did the Judge err in finding that there had been no material change in circumstances and that the trustees remained bound by the 2019 settlement?

The Judge found that the events relied on by the trustees did not derogate from the contractual obligations the trustees had assumed under the 2019 settlement nor relieve them of those obligations. She noted that generally parties remain bound by their contract unless and until the contract expires, or is terminated, cancelled or frustrated.[74]
[74]At [107]. It is noteworthy that the trustees have taken no formal steps to try to avoid the 2019 settlement. Rather, when the owners of unit 801 applied for orders varying the cost allocation provision in the scheme, the trustees opposed that application and sought to maintain the 2019 settlement and the scheme as initially settled.
The Judge did not consider that there had been a material change in circumstances which permitted the trustees to avoid their obligations. She considered that the Body Corporate had proceeded with temporary repairs to unit 900 as it was entitled to do so under the scheme.[75] She referred to the definition of the word “repairs” in the scheme. As noted above, the scheme recorded that the term “repairs” was to be given the widest possible meaning.[76] The decision of the Body Corporate as to what constituted repairs was final and binding on all owners. The Judge noted that the definition incorporated all work the Body Corporate considered necessary or advisable to ensure that water damage to the building did not recur in the foreseeable future. It also included the process or work required to remedy any damage.[77] The Judge noted that the Body Corporate had concluded, after reviewing the options, that a wrap of unit 900 would make the building watertight, while the trustees decided how they wished to proceed with any reinstatement of unit 900.[78] She did not consider that the carrying out of the temporary works was a material change in circumstances.[79]
[75]High Court judgment, above n 2, at [108].
[76]At [110].
[77]At [111].
[78]At [112].
[79]At [113].
We cannot see any error in the Judge’s analysis. Indeed given the consent order (noted above at [80]), the correspondence, representations and relative inaction by the trustees (noted at [81]), it is difficult to see that any other conclusion was open to the Judge. We note that, while the trustees took issue with the Judge’s finding, they did not advance any reasoned argument suggesting where or how the Judge had erred. Rather, they simply reasserted the argument they had advanced in the High Court — namely that the mothballing of unit 900, with no associated reinstatement plan, was a significant change that would reasonably have caused anyone to alter his or her position.
We acknowledge that the trustees have been unable to gain access to unit 900 for longer than anyone anticipated, but in our view, that is very largely a consequence of the trustees’ own making. Had they not resiled from the 2019 settlement and/or had they not prevaricated with their own proposals for the redevelopment of unit 900, it is likely that matters would have progressed much more quickly than has been the case.
In our view, the Judge did not err when she found there was no material change in circumstances. Her other findings relating to the 2019 settlement were not challenged before us. We conclude that the Judge was correct to find that the trustees remained bound by the 2019 settlement. The trustees were required to approve the scheme being advanced by the Body Corporate.

The s 74 discretion

The trustees next argued that Davison J had not undertaken any Tisch analysis when he approved the Body Corporate’s initial scheme in 2019.[80] They asserted that Gordon J, in 2023, erred by treating the scheme approved by Davison J as if it had been fully analysed. They argued that she was required to apply the Tisch approach, irrespective of whether the Body Corporate and the trustees had previously agreed the terms of a scheme which was, in all material respects, identical to the scheme the Court was being asked to settle.
[80]Davison J’s judgment, above n 5.
With respect to the trustees, there is a distinct air of unreality to this submission.
First, it is not clear that Davison J did not undertake a Tisch analysis. There is no judgment, given that the scheme was settled by the Court following the filing of a consent memorandum. The minute Davison J issued on 12 November 2019 recorded that the Court approved and settled the scheme pursuant to s 74 of the UTA 2010. It was a scheme approved by all unit owners. Any analysis would no doubt have allowed for this, but it cannot be asserted that the Judge, in effect, simply rubber stamped what the unit owners had agreed. Indeed, we consider that this is highly unlikely.
Secondly, and in any event, Gordon J expressly acknowledged that the parties’ agreement could not fetter the Court’s discretion under s 74 of the UTA 2010.[81] She recorded that settlements are commonly reached on the basis that the parties agree to seek orders by consent. She commented that while such agreements do not fetter the Court’s discretion, this does not mean that they are not binding as between the parties.[82] She went on to record that the scheme applied for by the Body Corporate was one that all unit owners had agreed to and that in these circumstances, the Body Corporate’s proposed scheme could be said to be fair.[83] She noted as follows:
[117] … Although the Court has a discretion whether or not to make an order, it would be unusual for the Court to decide a scheme is not fair where all owners are agreed on its terms.

The Judge went on to conduct a detailed analysis both of the Body Corporate’s scheme and of the alternative provisions being proposed by the trustees. She did exactly what the trustees submitted she should have done.

[81]High Court judgment, above n 2, at [115] and [117].

[82]At [115].

[83]At [117].

Where the court is settling a scheme under s 74, it has a wide discretion.[84] It is empowered to make orders that it considers expedient or necessary for giving effect to a scheme.[85] The focus is on pragmatic considerations.[86] There is a strong public interest in owners reaching agreement in relation to s 74 schemes and avoiding expensive and time‑consuming litigation. As this Court observed in Tisch, “[t]he greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners”.[87] Where a proposed scheme is unanimously agreed by all unit owners, then absent evidence of oppression or some other impropriety, the likelihood that the scheme does justice between owners is even stronger. It would be antithetical to the purposes of the UTA 2010, and the interests of unit owners, if the Court was to ignore settlements when asked to approve a s 74 scheme. It would devalue the multiple benefits of settlement.
[84]See Body Corporate 198072 v Bank of New Zealand [2011] 3 NZLR 249 at [13], referring to Fraser v Body Corporate S63621, above n 53, at [88]–[91].
[85]Unit Titles Act 2010, s 74(7).
[86]Tisch, above n 7, at [39] citing Body Corporate 172108 v Meader HC Auckland CIV-2009-404-6868, 3 March 2010 at [20]–[21].
[87]At [45].
In our view, the Judge was required to take into account the 2019 settlement and it was not an irrelevant consideration as asserted by the trustees. There was no error in the Judge’s approach.

Did the Judge err in settling the terms of the scheme?

The cost allocation provisions

The main issue before us was whether the scheme’s cost allocation provisions properly balanced the interests of each unit owner and achieved the outcome fairest to all unit owners.
The trustees’ argument can be summarised as follows:
(a)Unit 900, including the large roof deck, forms a roof over much of the Western Park apartment complex.
(b)The remediation of the watertightness issues with unit 900 is in the interests of all owners.
(c)The Body Corporate’s obligations under s 138 of the UTA 2010 prevail over the unit owners’ obligations to repair and maintain.
(d)Fairness requires that the costs of remedying the watertightness issues be shared between all owners according to ownership interest.

The owners chose to maintain the position that had applied under the UTA 1972 and the default rules put in place by that Act. It was not argued before us that r 14, as amended, was ultra vires. Even if this had been argued and we had found that the rule was ultra vires, it would nevertheless have sufficed to create legitimate expectations between unit owners.[130]

[130]Law v Tan Corporate Trustees Ltd, above n 91, at [76] and [84].

We note that, consistent with the Body Corporate’s rules, the trustees’ unit comprises all of unit 900, including the deck on the 9th level. The repair works anticipated at this stage are not to the overall stormwater and watertightness systems necessary for the structural integrity of the Western Park apartment complex or the health and safety of its owners and users; rather, they are to unit 900.[131] If the repair works go beyond unit 900, then the owners of any further units affected will be levied the cost of the repairs to their units. If levels 4–10 are required to be reclad, all unit owners on those levels will be contributing to the costs of repair.

The position of the unit A owners

[131]See for comparison Body Corporate S73368 v Otway, above n 91, at [52].

As noted, there are 28 owners with units in what was previously unit A in the Western Park apartment complex. It was common ground that when unit A was redeveloped in 2015–2016, the then owner of that unit paid all the costs of recladding the exterior of that part of the building. As the Judge noted, as part of the reclad, the cladding from the ground level to level 3 was stripped back to the concrete structure. Existing damage was repaired, and the external building envelope was rebuilt using a “Hebel” cladding system, installed with a cavity. Where the new cladding joined the Dryvit cladding on the levels above (levels 4–10), flashing was installed. The flashing diverts water that might otherwise enter the building away from the lower levels.[132] The owner constructed unit 504 separately from the building, using new materials and in a way that isolated it from the effects of any water ingress from levels 4–10 above.[133]
[132]High Court judgment, above n 2, at [273(a)].
[133]At [274].
The owner of unit A also met various other costs. General seismic strengthening of the whole building, resulting in a new building standard rating of 90 per cent, was undertaken. There were a number of upgrades undertaken by the developer to common areas, including upgraded fire protection systems for the whole building and upgrades to the foyer, lifts and rubbish room — all common property.[134]
[134]At [274]–[275].
The owner bore the full cost of these upgrades and they were recovered from the purchasers of the new units through the purchase price they paid for their units.[135]
[135]At [275].
The position of the unit A owners appears to have been accepted by the Body Corporate. As the Judge noted:
(a)In December 2015, the Body Corporate agreed to sell to the developer of unit A the airspace rights necessary to build the additional unit, unit 504, above the level 4 deck on the southern side of the main tower building. The sale was approved on the basis of the economic benefit the Body Corporate would obtain by not having to maintain and repair the leak issues with the level 4 back deck, as they would be taken care of by the development of unit 504.[136]
(b)At the Body Corporate’s AGM on 18 November 2019, the Body Corporate passed an ordinary resolution that “[t]he meeting record that the cladding plan [for unit A] should identify that the Subsidiary [Body Corporate] should not be liable for costs associated with any recladding to levels 4 and above”.[137]
[136]At [273(b)].
[137]At [273(c)].
The trustees, as the owners of unit 900, and the other owners of units on levels 4–8 did not pay any of the costs incurred in the course of redeveloping unit A. Further, and as already noted, the Body Corporate’s scheme does not relate to unit A.
We agree with Mr Nilsson’s submission for the Subsidiary Body Corporate that it would be patently unfair if the Subsidiary Body Corporate members were required to pay a 52.4 per cent share (their collective ownership interest) of the costs involved in remediating levels 4–10, given that they have already paid 100 per cent of the costs involved in remediating the ground floor level and levels 1–3.
We also agree with the Judge that it would be unfair to saddle the 28 Subsidiary Body Corporate owners with any part of the costs associated with the repairs required to unit 900, or which might be required to reclad the units on
[138]At [281(b)].
levels 4–8.[138]
Contrary to the trustees’ submissions, the position of the Subsidiary Body Corporate was a relevant consideration. It went to the heart of the issue — what scheme terms were fairest to all unit owners.

The conduct of the trustees

The Judge set out in no little detail the trustees’ various redevelopment proposals after they purchased unit 900 in 1999.[139] Some of the Judge’s findings are challenged by the trustees, but it is not necessary for us to get into the detail of those challenges. The following broad summary suffices.
[139]At [157]–[248].
(a)The trustees lived in Switzerland until relatively recently, but they visited New Zealand from time to time. When they were in this country, they stayed in unit 900. Family members and others have also lived in the unit from time to time.
(b)From as early as 2000, the trustees have been working on plans to redevelop unit 900.
(c)The trustees have been aware that leaks from their unit into the unit(s) below have been occurring for some years. There is a dispute as to how long they have known this. It is not however in dispute that over the years, Mr Hannam has frequently represented that the trustees would, in conjunction with a proposed redevelopment of unit 900, carry out repairs to stop water leaking from unit 900 into the unit(s) below. The trustees took various steps in an endeavour to stop the leaks at their own cost. None proved to be successful.
(d)Redevelopment plans were presented to the Body Corporate’s Committee in August 2002. Resource consent was obtained, but in 2005, Ms Draper advised the Body Corporate that any redevelopment of unit 900 would be delayed. Eventually, the resource consent expired.
(e)Further leaks were reported. They were raised with Mr Hannam at the Body Corporate’s AGM in October 2010. He advised that the trustees had retained a specialist construction firm and that temporary repairs would be put in place because the redevelopment of unit 900 was then scheduled to begin in late 2011.
(f)In November 2011, the Body Corporate’s consent to redevelop unit 900 was sought. The Body Corporate resolved to consent to the redevelopment and to sell the necessary Body Corporate common property (the airspace) to the trustees so that unit 900’s boundaries could be extended. However, later in November 2011, Mr Hannam said that the “processing costs [were] getting too hard” and that the trustees were reconsidering their position.[140] No redevelopment took place.
[140]At [172].
(g)The leaks continued and, in September 2014, the Body Corporate wrote again to Mr Hannam in this regard. He responded advising that the remedial works that had been undertaken at that point were intended to “act as a stop gap until the 9th and 10th levels could be rebuilt”.[141]
[141]At [179].
(h)At the Body Corporate’s AGM in October 2014, Mr Hannam’s representative at the meeting stated that Mr Hannam was investigating the possibility of adding further floors to unit 900.
(i)In November 2014, Mr Hannam indicated that the trustees wanted to “progress the re-build at full speed”.[142] Mr Hannam also indicated that the costs of rebuilding would be much less if the work could proceed in conjunction with the works necessary to address the watertightness issues.
(j)By mid‑2015, concept drawings for the redevelopment of unit 900 had been prepared. The Trust was offering to buy the common property airspace rights necessary to carry out its redevelopment from the Body Corporate. An extraordinary general meeting, requested by Mr Hannam, to consider the Trust’s proposal was held on 9 July 2015. However, the required resolutions proposed by Mr Hannam were not carried.
(k)The Body Corporate had set a deadline of 31 July 2015 for the Trust to present a repair proposal for level 9. On 7 August 2015, the Body Corporate’s solicitors wrote to the Trust’s solicitors recording that while the Body Corporate had permitted the Trust to suggest temporary repair solutions, given that the trustees’ redevelopment had not been approved by the Body Corporate, full and complete repair works needed to be undertaken. The letter stated that, in the circumstances, the Body Corporate had no choice but to take over the repair work required for the unit 900 deck, while reserving its right to on charge the costs to the trustees.
(l)Further redevelopment proposals were advanced by Mr Hannam, but they were not accepted by the Body Corporate.
(m)Matters dragged on and ultimately, the Body Corporate decided to carry out the required repairs to level 9 as a temporary solution.
(n)While the Body Corporate was arranging for the temporary repairs to the level 9, Mr Hannam advised the Body Corporate that he was continuing to work on plans to redevelop level 9. He obtained resource consent from Auckland Council in December 2017 to redevelop levels 9 and 10. The consented drawings showed the whole of the level 9 deck being enclosed and the division of unit 900 into two separate units.
(o)During 2018, the trustees continued to work on their proposals to build within their own unit space. By July 2018, they had formed the view that the necessary work to enclose the level 9 deck would trigger a reclad of levels 4–8 below the level 9 deck. The trustees considered that as a result, they could not undertake the work on their own and that it could be done in conjunction with the Body Corporate.
(p)As already noted, in November 2019 the trustees and the Body Corporate entered into the 2019 settlement. As part of that settlement, the parties consented to the approved and settled s 74 scheme sitting in Court for a year while the parties attempted to negotiate how any redevelopment by the trustees might proceed.
(q)In September 2020, Mr Hannam wrote to the Body Corporate’s Committee, advising that the trustees had decided to proceed with the demolition of unit 900.
(r)In the trustees’ notice of opposition to the Body Corporate’s second s 74 application, Mr Hannam asserted that the trustees were progressing their own building consent application, without the purchase of any air rights, to redevelop unit 900.
[142]At [182].
As the Judge noted, the representations and various proposals made by the trustees were made on the basis that the Trust would pay for the costs of the redevelopment works to unit 900.[143] These representations and proposals were made both before and after the UTA 2010 came into force.
[143]At [270].
The Judge considered that the conduct of, and the representations made by the trustees, in particular by Mr Hannam, since the Trust bought unit 900, supported the Body Corporate’s position that its proposed cost allocations were fair.[144] She observed that Mr Hannam had repeatedly represented to both the Committee and to other unit owners that the trustees would address the watertightness issues associated with level 9 as part of their redevelopment of unit 900.
[144]At [270].
We agree with the Judge’s observations.
Before us, it was argued for the trustees that they were not obliged to redevelop unit 900. We also agree with this assertion, but it does not derogate from the Judge’s findings. It is clear that, until relatively recently, the trustees have accepted that they were liable for the costs of redeveloping unit 900 and, in that process, addressing the watertightness issues their unit presents. Again, this was a relevant consideration which, in the circumstances of the Western Park apartment complex, the Judge was entitled to consider.

The Body Corporate’s scheme — unanimous support

As the Judge noted, the trustees, through the 2019 settlement, agreed to the cost allocations proposed by the Body Corporate.[145] So did all other unit owners.

The Judge’s conclusion

[145]At [278].

The Judge concluded that all of these various factors established that, in the circumstances of the Western Park apartment complex, the Body Corporate’s proposed allocation provisions operated to balance the interests of all unit owners in a way that imposed terms that achieved an outcome that was fairest to all.[146] We agree. Given the circumstances and history of the Western Park apartment complex, as well as the legitimate expectations that the owners had from the unit plan, the UTA 1972, the UTA 2010, the rules, the way in which unit property has been dealt with in the past and the trustees’ various representations and actions, we are satisfied that the Body Corporate’s cost allocation proposals are fairest to all. We conclude that the Judge made no error in her analysis of the Body Corporate’s scheme.

The trustees’ proposed schemes

[146]At [279].

The trustees criticised the Judge for ignoring their proposals. They asserted that she wrongly fettered her discretion in so doing. They further asserted that their alternative proposals were not new schemes or counter‑applications, but rather were submissions on the Body Corporate’s proposed scheme.

The trustees’ schemes

The background to this issue was dealt with by the Judge. She recorded that, in their notice of opposition to the Body Corporate’s s 74 application, the trustees had asserted that an independent scheme administrator should be appointed and that they had objected to the Body Corporate’s proposed cost allocation.[147] There was however no alternative scheme annexed to the notice of opposition. Nor did the trustees apply on notice under s 141 of the UTA 2010 for the appointment of an administrator and no alternative scheme was annexed to the opening submissions filed on behalf of the trustees in advance of the hearing.
[147]At [120].
An alternative scheme was proposed by the trustees in the course of their opening submissions. A copy of this proposed scheme (option 1) has been made available to us. It used the same format as the Body Corporate’s proposed scheme but suggested a number of significant alterations to it. In particular, it sought to:
(a)alter the description of those parts of the building that require repair;
(b)require that the works be carried out by an administrator appointed by the court to act on behalf of the Body Corporate and the unit owners;
(c)delete the provisions giving the Body Corporate the right to undertake destructive testing prior to the commencement of the repair works;
(d)delete the provisions recording that the cost of historic works are deemed part of the scheme;
(e)alter the definition of the word “repair”;
(f)change the cost allocation provisions;
(g)delete the insurance provisions;
(h)amend the indemnity provisions;
(i)amend the provisions regarding the repair of common property; and
(j)delete the schedule setting out the cost allocation provisions.
During the closing submissions made for the trustees, their counsel promoted another alternative, option 2. There was no draft scheme for option 2, but in substance, the trustees proposed that the Court should allow the Body Corporate to undertake the repairs, but sought to include in the scheme various directions, detailing the steps the Body Corporate was required to take. It was proposed that if the Body Corporate did not take these steps within defined timeframes, the trustees would have leave to apply for the appointment of an administrator.[148]
[148]At [123].
Both options 1 and 2 had the same cost apportionment provisions. The trustees were suggesting that costs should be allocated between owners on an ownership interest basis, but that any owner requested variation should be at the cost of the owner of the unit concerned. The costs of enclosing the level 9 deck, together with associated works, were to be treated as if they were an owner requested variation and were to be paid by the trustees, as owners of unit 900.
Before us, the trustees asserted that options 1 and 2 were not new schemes nor counter‑applications but were rather submissions on the Body Corporate’s proposed scheme. We do not accept that submission.
(a)It is inconsistent with the stance taken for the trustees in the High Court. In the course of the closing submissions for the trustees in that Court, it was asserted as follows:
The [t]rustees have proposed an amended scheme.
Footnotes to the submissions referred to the “[f]irst respondents’ proposed scheme”.
(b)It is clear from the wording of the trustees’ options 1 and 2 that they were proposing substantial alterations to the Body Corporate’s proposed scheme. As the Judge noted, a number of the changes proposed by the trustees were “central and crucial”.[149]

Was it open to the Judge to adopt the trustees’ schemes?

[149]At [150].

The Judge held that she was not able to order that an administrator be appointed, make an order adopting the trustees’ cost allocation provisions, or make an order adopting the dispute resolution process put forward by the trustees.[150]
[150]At [153].
We agree with the Judge’s conclusion.
The critical question was whether the trustees’ proposals “significantly and prejudicially alter[ed] the outcome of the application of [the] scheme so far as [the] unit [owners] [were] concerned”,[151] and we have no hesitation in concluding that they did. As the Judge found, the trustees’ proposals fundamentally altered the Body Corporate’s proposed scheme.[152]
[151]At [131].
[152]At [133].
The s 74 application before the Court required it to determine whether or not it should approve and settle the Body Corporate’s scheme; it was the Body Corporate’s scheme that established the parameters of the case. The Court could either approve the Body Corporate’s scheme, or if it was not satisfied that the terms of the Body Corporate’s scheme achieved an outcome fairest to all unit owners and that it could be made fairer, it could indicate how it might appropriately be amended, adjourn the hearing, require that all unit owners be served and give all unit owners the opportunity to consider and be heard in relation to the Court’s indications.
Here, much contained in the trustees’ options had not been signalled in their notice of opposition to the Body Corporate’s scheme; certainly not in any detail. Moreover, neither of the trustees’ options had been served on other owners. Unit owners and the affected Bodies Corporate had not had the opportunity to consider them. It would have been inconsistent with the requirements of natural justice if the Judge had adopted the trustees’ proposed amendments, without first giving unit owners and the parties an opportunity to consider them and be heard in relation to them.
Essentially, the proposition the trustees asserted before us was that, having filed a notice of opposition to the Body Corporate’s application, it was open to them to appear at the hearing in the High Court and ask the Court to adopt a different scheme, which contained very different provisions from those the subject of the application before the Court, without giving the Bodies Corporate and other unit owners the opportunity to consider and comment on their proposed scheme. In our view, the Judge was correct, in the circumstances of this case, to find that it was not open to her to adopt the wide‑ranging proposals the trustees belatedly sought to foist on their fellow unit owners.[153]

Did the Judge err in her consideration of the trustees’ schemes?

[153]At [384].

Notwithstanding that the Judge concluded that it was not open to her to adopt the trustees’ proposals, she nevertheless went on to consider them.[154]
[154]At [281]–[284].
We focus on the two issues the subject of argument before us — cost allocation and fire safety.
The Judge noted that the trustees’ alternative cost allocation proposal was effectively “the other side of the coin” from the Body Corporate’s proposal.[155] She concluded that the trustees’ proposed cost allocation did not achieve an outcome that was fairest as between all unit owners.[156] She noted the following:
(a)The trustees’ alternative cost allocation proposal was a departure from the long‑standing understanding between all owners that they were responsible for repairs to their unit property.[157]
(b)The trustees’ proposal was arbitrary. While their case was advanced on the basis that all owners benefitted from repairing building elements, they had not contributed towards the costs of repairing the building elements in unit A.[158]
(c)The Body Corporate had delayed in taking steps to carry out repairs on levels 9 and 10 in order to enable Mr Hannam to carry out his redevelopment and avoid being exposed to wasted costs. The Judge noted that under the trustees’ proposed scheme, other owners would be paying the price for the trustees’ delay.[159]
(d)The trustees were seeking to impose on unit owners a “pay now, argue later” approach, whereby owners would be invited to revisit the cost allocation after the works were completed.[160]
(e)Under the trustees’ cost allocation proposal, the Body Corporate would be required, to a significant extent, to subsidise substantial redevelopment of the trustees’ unit property, which the trustees had indicated over many years they would carry out.[161]
(f)The effect of an ownership interest allocation of costs would mean that the Subsidiary Body Corporate members would pay almost 80 per cent of the total costs of recladding the building. This was not fair to members of the Subsidiary Body Corporate.[162]
(g)The trustees’ cost allocation proposal would put members of the Subsidiary Body Corporate in a worse position than if no scheme was to be ordered.[163]
[155]At [281].
[156]At [281].
[157]At [281(a)].
[158]At [281(b)].
[159]At [281(c)].
[160]At [281(d)].
[161]At [281(e)].
[162]At [281(f)].
[163]At [281(g)].
The Judge concluded as follows:
[284] In short, the [t]rustees’ [o]ption 1: requires the level 9 deck to be enclosed; requires the other unit owners to pay a significant share of the cost of developing the Trust’s unit property; and compulsorily deprives other owners of their interest in common property but without any compensation to the other owners. All of that is manifestly unfair to the other owners.
We agree with the Judge’s conclusions and for the same reasons she set out in her judgment.

A fire safety investigation?

One of the proposals also dismissed by the Judge was a suggested requirement that the Body Corporate undertake an urgent investigation into fire safety concerns raised by one the trustees’ witnesses, Mr Olsson, regarding the cladding on
levels 4–10.
Mr Olsson is an engineer. He has specialist qualifications and experience in fire engineering. He gave evidence that he had inspected the Western Park apartment complex and, in an affidavit which he filed for the proceeding, he expressed concern at the speed at which a fire might spread up the cladding of the building. He noted that part of the cladding comprises Dryvit Outsulation panels, which is known to be a highly flammable material. He expressed concern that there was a safety risk associated with the building and he recommended that the Body Corporate undertake destructive testing of the cladding panels and associated fire testing in order to determine whether there are any effective fire barriers in the cladding.
In cross‑examination, Mr Olsson acknowledged that the cladding on
levels 4–10 complied with fire safety requirements at the time that the building was constructed. He also accepted that there is no legal obligation to improve existing fire protection to meet current code requirements, unless and until remedial works are carried out.
The Judge dealt with this issue as follows:
[363] Other directions that Mr Bigio submits should be included as steps the Body Corporate should be required to take are: an urgent investigation into fire safety concerns raised by the [t]rustees’ witness [Mr] Olsson regarding the cladding …
[364] As to the first of the above proposed directions, I note that the evidence was that the Council was aware of the Grenfell Tower fire (in London) and took steps to review buildings in Auckland to determine whether there were any with similar cladding. The building in this case was not identified in that review. Also, as part of the 2015–2016 redevelopment, a fire report was prepared encompassing all levels of the building. The design was reviewed and approved by the New Zealand Fire Service and the Council raised no issues with the cladding on the upper levels or fire safety.
Again, we agree with the Judge.
There is an additional reason why it is inappropriate to amend the scheme to incorporate the trustees’ proposed requirement. The unit owners considered the fire safety reports prepared for the trustees at the Body Corporate’s 2019 AGM. Mr Hannam was present. The owners unanimously passed a resolution that “no further action be taken at this point [regarding] passive fire testing”. Mr Hannam confirmed in cross‑examination that he supported this resolution. It is not for the Court, in the context of settling a scheme, to overrule a resolution unanimously passed by the unit owners.
As we understand it, all parties accept that any watertightness repairs to unit 900 may trigger a reclad of levels 4–8, to meet current code requirements. Whether or not a reclad is necessary will ultimately be for Auckland Council. If a reclad of units 4–10 is required, any fire safety issues will be resolved without the need for any further investigation. Moreover, if the trustees want destructive testing, they can carry out that testing on the cladding on their own unit. There is no need for the requirement to be directed in the scheme.
Again, we do not consider that the Judge erred in the approach she took to this issue.

Conclusion

For the reasons we have set out, we do not consider that the Judge erred in approving and settling the scheme proposed by the Body Corporate. On the evidence before the Court, the terms of the Body Corporate’s scheme achieved an outcome which was fairest to all unit owners, given the circumstances applying to the Western Park apartment complex.
It follows that the appeal must be dismissed.

Costs

All counsel were agreed that costs should follow the result and that they should be fixed for a standard appeal on a band A basis. They also agreed that it was appropriate to certify for second counsel.

Result

The appeal is dismissed.
The appellants are to pay costs to each of the first and the 51st respondents for a standard appeal on a band A basis together with usual disbursements. We certify for second counsel.

Solicitors:
Grimshaw & Co, Auckland for Appellants
Grove Darlow & Partners, Auckland for First Respondent
LeeSalmonLong, Auckland for 51st Respondent

SCHEDULE A — complete list of Respondents

BODY CORPORATE 126001
First Respondent
KEITH OLIVER DIPROSE, LYNETTE PATRICIA CHAPMAN AND STUART ISAN CHAPMAN
Second Respondents
MIKAELE CHARLES WESTERLUND
Third Respondent
JEFFREY LAURENCE FISHER AND LISA FIONA FISHER
Fourth Respondents
SUSAN MARY KINGSTON
Fifth Respondent
AVRIL BARBARA STOTT AND DAVID IAN HAIGH
Sixth Respondents
BRIAN JOSEPH HINCHCO AND SELENA JANE HINCHCO
Seventh Respondents
NIGEL KING
Eight Respondent
SARAH KATE GREENAWAY
Ninth Respondent
SNEZANA DACIC
Tenth Respondent
LEANNE JOY GREENHALGH AND PAUL RICHARD GREENHALGH
Eleventh Respondents
COLIN GRANT KENYON AND JANINE LOIS KENYON
Twelfth Respondents
TONY ALAN HOPKINS AND TRACEY ANN HOPKINS
Thirteenth Respondents
JAMES ANTHONY YOUNG, JENNY JUNE TONG AND NATALIE SAMANTHA TONG
Fourteenth Respondents
ANNA GABRIELLE SOTHERAN AND HAYDEN ROBERT HYAMS
Fifteenth Respondents
FRANCES ANNE SIMEON AND JOHN MICHAEL SIMEON
Sixteenth Respondents
DONELLE MARIE THOMPSON AND PAUL ALISTAIR CRAIGIE
Seventeenth Respondents
ERIK TORE OLOFSSON
Eighteenth Respondent
ANN SANDRA EVERARD AND GRANT IAN HALLY
Nineteenth Respondents
KAREN ANN COTES
Twentieth Respondent
DAVID ALEXANDER LLOYD AND TRINA MAREE LLOYD
Twenty-First Respondents
DAVID JAMES WAY
Twenty-Second Respondent
CHERYL ROSEMARY DWYER, WAYNE DAVID KEENE AND KM TRUSTEE SERVICES LIMITED
Twenty-Third Respondents
PHILIP ANDREW JOHNSTONE AND STEPHANIE ROCHELLE JOHNSTONE
Twenty-Fourth Respondents
PAUL FRANCES QUINLIVAN, SHELLEY ROZANNE QUINLIVAN AND NEW ZEALAND TRUSTEE SERVICES LIMITED
Twenty-Fifth Respondents
CAMERON ROSS GRIBBEN
Twenty-Sixth Respondent
JAMES KENNINGTON WATSON AND WENDY MIRIAM WATSON‑EKSTEIN
Twenty-Seventh Respondents
MELT INVESTMENTS LIMITED
Twenty-Eighth Respondent
ALISON STUART SMITH, ALLEN DONALD SHANKS AND SCOTT SHAW SMITH
Twenty-Ninth Respondents
JON RIVERS LAMB, LAWREEN LAMB AND BEECH HILL TRUSTEE LIMITED
Thirtieth Respondents
ANGELA MARY GREENHALGH AND BARRY GREENHALGH
Thirty-First Respondents
DOUGLAS SMERDON CARTER, PATRICIA EMILY CARTER AND SOONG YUAN CHAU
Thirty-Second Respondents
HAULTAIN PROPERTIES LIMITED
Thirty-Third Respondent
AVANTI APARTMENT LIMITED
Thirty-Fourth Respondent
MARGARET ELIZABETH WATTS
Thirty-Fifth Respondent
JOHN ANDREW BEDKOBER
Thirty-Sixth Respondent
CLIVE MARIO FERNANDES AND ELIZABETH SCOTT JOHNS
Thirty-Seventh Respondents
PETER DAVID BONE AND SHALE CHAMBERS
Thirty-Eight Respondents
JOHN NORMAN SISSONS, SUZANNE ELIZABETH SISSONS AND ATACH LIMITED
Thirty-Ninth Respondents
GERARD JOHN RENNIE, IAN MARTIN GUILFORD AND TRISH JANE
Fortieth Respondents
WESTPAC NEW ZEALAND LIMITED
Forty-First Respondent
ANZ BANK NEW ZEALAND LIMITED
Forty-Second Respondent
ASB BANK LIMITED
Forty-Third Respondent
BANK OF NEW ZEALAND
Forty-Fourth Respondent
NEW ZEALAND HOME LENDING LIMITED
Forty-Fifth Respondent
MORTGAGE HOLDING TRUST COMPANY LIMITED
Forty-Sixth Respondent
SOUTHLAND BUILDING SOCIETY
Forty-Seventh Respondent
CHUBB INSURANCE NEW ZEALAND LIMITED
Forty-Eighth Respondent
GRANT JENSEN CASHMORE, PETER GRANT STODDARD CASHMORE AND STELLAR BONE TRUSTEES (2015) LIMITED
Forty-Ninth Respondents
KAPLANA CHIMANLAL AND SURESH CHIMANLAL
Fiftieth Respondents
WESTERN PARK SUBSIDIARY BODY CORPORATE (493826)
Fifty-First Respondent
GREGORY IAN VARLEY AND LAURA ALICE DONALDSON
Fifty-Second Respondents
LISTON TRUSTEE SERVICES LIMITED, MARY WALLACE FRANCIS AND WILLIAM PETER FRANCIS
Fifty-Third Respondents
TSB BANK LIMITED
Fifty-Fourth Respondent

[81]–[84]; Gu v Body Corporate 211747, above n 26, at [70]–[71]; and Body Corporate S73368 v Otway [2018] NZCA 612, [2019] 3 NZLR 759 at [58]–[64].

[2024] NZCA 274

27 June 2024 at 3 pm