John Price Builders Limited v Trinity Wharf Limited HC Tauranga CIV-2010-470-654
[2011] NZHC 726
•24 June 2011
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2010-470-654
UNDER the Unit Titles Act 1972
IN THE MATTER OF the Declaratory Judgments Act 1908
BETWEEN JOHN PRICE BUILDERS LIMITED & OTHERS
Applicants
ANDTRINITY WHARF LIMITED First Respondent
Hearing: 7 April 2011
Appearances: M C Josephson and B Easton for Applicants
S Price and S Thompson for Respondents
Judgment: 24 June 2011 at 12:00 PM
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
24.06.11 at 12 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
MinterEllisonRuddWatts, P O Box 3798, Auckland: -
Grimshaw & Co, P O Box 6646, Auckland:
JOHN PRICE BUILDERS LIMITED & OTHERS V TRINITY WHARF LIMITED HC TAU CIV-2010-470-654
24 June 2011
Background
[1] The substantive proceeding in this case is concerned with apartment and hotel development which was carried out by the respondents at Trinity Wharf in Tauranga. The applicants have the right to possession of some apartments which are part of the development. The development was created under the Unit Titles Act 1972 (the Act). There are 16 units — 15 apartments and a hotel being counted as 1 unit.
[2] The complex was the result of a development carried out by first respondent, Trinity Wharf Ltd (“Trinity”). Trinity owned the leasehold interest in the underlying land, pursuant to a ground lease between it and the owner (the Otamataha Trust) of the underlying land. Trinity subdivided that leasehold interest — as it is permitted to do pursuant to Part 2 of the Act — into 16 strata titles (the technical name for each being a “stratum in leasehold” estate), each being a “Unit” under the Act. It also granted, to itself, registered leases in respect of the majority of those titles (the technical name for each being a “leasehold in stratum in leasehold” estate). For convenience, the former will be referred to herein as “the Units”, and the latter as “the Leases”. Trinity owns all 16 Units. The applicants are the current owners of 11 of the Leases.
[3] Consistently with the subdivision which I have just described, in respect of each unit belonging to the occupiers, there are two certificates of title. Taking for example Unit 15 which belongs to Mr and Mrs Shakespear, the first document under identifier number 291910 describes an estate which is stated to be a “stratum in leasehold” that was registered on 6 September 2006 with the original proprietor being noted as Trinity Wharf Ltd. No further transactions are noted which evidence any change in the proprietorship of this estate. In respect of the same unit, on the same date under a different identifier, 308003, a further estate, “leasehold in stratum in leasehold” is recorded as having been created. The original proprietor is again noted as Trinity Wharf Ltd, but the computer interest register search produced in evidence shows that on 17 May 2007, the leasehold in stratum in leasehold was transferred to the Shakespears. Trinity affected a transfer of the leasehold in stratum in leasehold but not of the stratum in leasehold itself.
[4] In their statement of claim, the occupiers assert that it was on 6 September
2006 that Trinity “(e)ffected a unit title subdivision in leasehold”, that on the same
date the body corporate was created”.
[5] The applicants for declaratory relief, whom I shall describe as “the owners”, are dissatisfied with financial aspects of the operation of the complex as a whole. They complain of a lack of financial accountability concerning the common expenses associated with the running of the complex to which they are required to contribute. They are dissatisfied because, they say, they do not know how the charges are made up. They are also critical of the fact that they are expected to contribute on a pro rata basis to the expenses and yet the respondents, who are essentially the developers and retain ownership of the hotel unit, received disproportionate advantages for some matters such as paying for costs of waste management at the site.
[6] The owners’ objective in bringing these proceedings, they say, is to attempt to compel accountability on the part of the respondent with regard to the operation of the body corporate to which the owners are required to contribute to the running costs and expenses.
The statement of claim
[7] The owners claim that there are a number of body corporate rules that are unduly burdensome on them. For that reason, they seek declarations that the rules are ultra vires. The owners claim that they are carrying a disproportionate share of the burden for various costs, including insurance. They say they are not provided with documentation supporting the various charges that are passed on to them for payment. Trinity does not seek to argue the question of whether the various rules are ultra vires or not. It says that the owners, not being members of the body corporate, have no genuine interest in declarations as to whether certain body corporate rules are ultra vires. Trinity says that if the owners wish to dispute their obligations under the respective leases then that is a separate type of dispute and one which, by virtue of contractual provisions in the leases pursuant to which the owners occupied their units, should be referred to arbitration.
[8] The statement of claim pleads that the rules of the body corporate are not incidental to the performance of the duties or powers imposed on the body corporate under the Unit Titles Act 1972 and that the rules were made for the benefit of the hotel units rather than for the benefit of the body corporate or “the owners” of the other units.
[9] An example of a rule that the purchasers wish to have struck down is r 2.1(y), which provides that the proprietors of the hotel units shall have the right to effect all matters, relevant, normal and legal to the operations of the business, without interference from the proprietors or the body corporate. A further rule which is said to be primarily for the benefit of the hotel unit is r 2.5, which provides that the committee of the body corporate which the rules contemplate, is to have at least three members who have been appointed by the proprietor of the hotel units, out of a total membership of five.
[10] A further and alternative claim made is that because there is only one unit owner, there are no body corporate rules under the Act and a declaration is sought accordingly.
Trinity’s position
[11] The position which Trinity takes is that the owners are not members of the body corporate because they are not relevantly “proprietors” of the stratum estates. Trinity’s position is that the applicants are instead lessees leasing units from the proprietor of those units. Trinity further asserts that the owners do not contribute to the body corporate as members thereof. Such financial contributions as they are required to make come about because the terms on which the units are occupied requires, as a matter of contract, that they are to make payments which are calculated on the basis of the body corporate’s expenses and to meet a share of those expenses as though they were members of the body corporate. Trinity’s assertion is further that, because the owners are not members of the body corporate, they do not have a sufficient interest in the running of the body corporate or the underlying rules which govern its operation to give them standing to apply to the Court for declaratory
relief. For those reasons, Trinity applies to strike out the owners’ substantive
proceeding.
Strike out — principles
[12] I propose to adopt what was said by Richardson P for the Court of Appeal in
Attorney-General v Prince and Gardner:[1]
[1] Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.
A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed … ; the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material … ; but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction … .
The significance of proprietorship — who are the proprietors of the units?
[13] The second respondent (the Body Corporate) came into existence upon the deposit of the unit plan for the development, pursuant to s 12 of the Act. Trinity’s position is that it was at that time, and has always been since, the sole proprietor of all of the units comprised in the unit plan, and therefore was, and is, also the body corporate.
[14] The owners in their proceedings seek declarations that certain of the rules of the body corporate are ultra vires. The grounds upon which that assertion is made are, first, that the rules of the body corporate are not incidental to the performance of the duties or powers imposed on the body corporate under the Unit Titles Act 1972. Second, the rules were made for the benefit of the hotel unit (Unit 17) rather than for the benefit of the body corporate or the owners of the other units.
[15] The grounds upon which Trinity brings its strike-out application are that the owners’ statement of claim discloses no reasonably arguable causes of action. Trinity’s position is, further, that the applicants are not members of the body
corporate and have no standing to seek declarations as to whether or not the rules of
the body corporate are ultra vires, whether or not resolutions and exercise of powers or other conduct by the body corporate are ultra vires, nor do they have any standing to seek declarations concerning conduct of the body corporate’s affairs.
[16] In the course of submissions the grounds were developed. The thrust of Mr Price’s submissions was that the deposit of the unit title plan affected only the owner, (the Otamataha trust) and Trinity. As a consequence of the deposit of the unit title, a stratam estate in leasehold of which Trinity was the proprietor was created, and that issue was not affected by the fact that subsequent leases were made to the owners.
[17] The key passage in the notice of opposition which the owners have filed reads:
(b) The applicants, as persons in actual occupation of their units and so bound by the Rules of the Body Corporate, have standing to seek declarations concerning the Body Corporate, the Rues and its conduct.
[18] I will now consider the issue of whether the owners have standing.
The entitlement to a declaration
[19] The relevant section of the Declaratory Judgments Act 1908 provides as follows:
3 Declaratory orders on originating summons
Where any person has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any statute, or any regulation made by the Governor-General in Council under statutory authority, or any bylaw made by a local authority, or any deed, will, or document of title, or any agreement made or evidenced by writing, or any memorandum or articles of association of any company or body corporate, or any instrument prescribing the powers of any company or body corporate; or
Where any person claims to have acquired any right under any such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or to be in any other manner interested in the construction or validity thereof,—
such person may apply to the High Court by originating summons for a declaratory order determining any question as to the construction or validity of such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or of any part thereof.
[20] The owners submit that the above enactment confers a wide discretion on the Court to make declaratory orders. Their counsel referred me to the authority of Turner v Pickering.[2] That was a case in which declarations were sought in respect of the way in which a voluntary association’s affairs had been carried on. Casey J acknowledged that there had been a relaxation of the rigour of the traditional approach to the question of standing to apply for orders. The earlier authority had
[2] Turner v Pickering [1976] 1 NZLR 129 (SC).
required that the applicant demonstrate that some unemployment, or property right or similar had been affected before the Court would issue a declaration.[3] In Turner, Casey J was prepared to accept that a member of a private association had standing to apply for a declaration as to whether there had been compliance with the rules of the society. He characterised such a right as a contractual one.[4] The significance of the case in the context of the present issue is that it demonstrates that at the least, a contractual right is required in relation to the subject matter to which the proposed declaration relates. It would seem likely that if the applicants were members of the body corporate, they would be granted standing to seek declarations from the Court about the conduct of the affairs of that entity. Whether they are members of the body corporate is the next matter that I deal with.
[3] Ibid, at 136.
[4] Ibid, at 141.
Are the owners members of the body corporate?
[21] A body corporate comes into existence by operation of law once a unit title plan has been deposited. The members of the body corporate are the “proprietors” of the various units: s 12 of the Act. The term “proprietor” is defined in s 2 as meaning “the person or persons for the time being registered as proprietor of the stratum estate in the unit”. By cross-referencing to s 4(2), it appears that the relevant stratum estate is that which is created in each unit on the deposit of the unit plan. Mr Price submits, and I accept correctly, that the effect of the deposit of the plan in this case
was to create a stratum estate in leasehold in each of the units. Trinity, as the lessee
of the land, created for itself the 16 separate stratum estates in respect of each of which a relevant certificate of title was issued. It is correct that other successive interests have been created which have taken the form of leases of lesser terms granted by Trinity and for which certificates of title have issued. But that has not changed the identity of the proprietor of the stratum estate.
[22] In his lucid submissions, Mr Price said that the applicants are not proprietors of units and therefore are not members of the second respondent Body Corporate.
[23] He referred to s 37 of the Act which deals with body corporate rules. Relevant extracts from that section are as follows:
37 Rules
(1) Except as otherwise provided by this Act, the control, management, administration, use, and enjoyment of the units and the common property shown on a unit plan, and the activities of the body corporate that comprises the proprietors of those units, shall, while there are more proprietors than one, be regulated by the rules for the time being applicable to that body corporate. (Emphasis added.)
…
(11) The rules shall be binding on—
(a) The body corporate; (b) All proprietors; and
(c) Any other person in actual occupation of a unit
and shall enure for the benefit of the body corporate and every proprietor.
[24] Mr Price submitted that in the present context, Trinity is the sole proprietor of all the units. There are not “more proprietors than one”. Accordingly, he submitted, s 37(1) of the Act does not operate so as impose the body corporate rules on the body corporate, its proprietors and/or any other person in actual occupation of a unit.
Discussion
[25] Section 12 of the Act makes provision for the constitution of the body
corporate. The body corporate comes into being “[on] the deposit of a unit plan”: s
12(1). The effect of the same section is that on deposit of the unit plan the registered proprietor(s) of “the land” acquire(s) the deemed status of a body corporate. “Thereafter”, s 12(2) of the Act provides, the proprietor(s) for the time being of the units collectively become the body corporate. The purpose of this last provision is to
substitute those who become proprietors of the units for the original proprietor. Thus, where the stratum estate which confers the status of proprietor is transferred to a different individual from the original proprietor, it is that transferee who together with the other proprietors collectively comprises the body corporate.
[26] Section 2 of the Act further defines “proprietor”: “Proprietor, in relation to any unit, means the person or persons for the time being registered as proprietor of the stratum estate in the unit.”
[27] The stratum estate comes into existence on the deposit of a unit plan as s 4(2) provides. Once the stratum estate has been created, it may devolve, be leased or transferred, and so on: s 4(3). Not all such steps have the same effect on the question of proprietorship. In particular, the fact that there has been a lease of the stratum estate in leasehold has not had the effect of changing the registered proprietorship of the estate in each unit: it has remained throughout with Trinity. Only a transfer or devolution by operation of law, by way of the two most obvious examples, could have effected a change in the proprietorship of the stratum estate. That has not occurred. It would seem therefore that because Trinity has remained the proprietor of the stratum estate without interruption, it follows that it alone has continued to constitute the body corporate.
[28] I therefore accept that Trinity and not the owners comprise the body corporate. The next question is what effect this has on the owners’ entitlement to seek the declarations that they do.
Is there any other basis on which the owners can claim a sufficient interest to justify them applying for relief under the Declaratory Judgments Act?
[29] The objective of s 3 of the Declaratory Judgments Act, broadly stated, is that a party who proposes to take some course of action depending upon whether or not a particular rule, bylaw or article of association of that sector is valid, can apply for a declaratory judgment as to its validity or otherwise. Trinity’s position is that the levies which the owners are required to pay are recovered as though they were levies owed by members of the body corporate paid to the body corporate. Mr Price for
Trinity submitted that that is a contractual matter under the owners’ respective
leases.
[30] Mr Josephson for the owners submitted that, putting to one side the argument over whether the owners are or are not members of the body corporate, they are directly affected by the body corporate rules. The leases between Trinity and the owners include the following relevant terms:
5.1 The Lessee shall … observe and perform all obligations of the
Lessor pursuant to the Body Corporate rules.
5.2The Lessee acknowledges that the Body Corporate may enforce the Body Corporate rules against the Lessee as if the Lessee were the registered proprietor of the Property herein leased. …
8.1The Lessor hereby appoints the Lessee as its attorney to vote on its behalf as proprietor of the Property at all meetings of the Body Corporate, and to represent the Lessor on any committee of owners appointed by the Body Corporate.
9.1The Lessor hereby grants to the Lessee the same rights to use the Common Property as accrue to the Lessor pursuant to its ownership of the Property but subject in all respect to compliance with the Body Corporate rules.
[31] Mr Josephson also said that s 37(11)(c) of the Act also expressly provides that the body corporate rules shall be binding on “[a]ny other person in actual occupation of a unit”. In the light of the above, he submitted that:
a) each owner is contractually bound to comply with the Body Corporate
Rules; and
b)those owners who occupy their units (or who do so in the future) are also compelled by s 37 of the Act to comply with the Rules.
[32] Therefore, Mr Josephson submitted, the owners plainly have a genuine interest in the validity and/or construction of the body corporate rules given that they are required to comply with them, because the rules impose restrictions and obligations on the owners, and also because Trinity is in a position to register new body corporate rules as it sees fit.
[33] But assuming that Mr Price’s contention is correct, the body corporate rules would not create the liability. At most, the significance of the body corporate rules in relation to the liability of the owners to Trinity would be a background factor. As I understand it, the respective fractions of the overall expenses generated by the development would be allocated to each of the owners in the same proportions as the expenses that would be attributed by the body corporate to its members. In circumstances where the owners’ liability is founded on contract, it may be doubted that the question of vires would be relevant if I have correctly understood the position. That is because the body corporate is not attempting to enforce the rules using s 37(1). The rules function as a paradigm which enables Trinity to apportion the expenses. Whether the rules are enforceable or not, on such a hypothesis, is irrelevant. Their significance is that they are imported into the contractual relationship between Trinity and the owners and it is the liability arising under that relationship that Trinity is purporting to enforce.
[34] An important issue in this case is to determine by what authority the body corporate enforces payment of a proportionate share of expenses by each owner. It would seem unlikely that it is recoverable from all of the owners under s 37 of the Act because not all of the owners occupy the units. It is more likely that the liability is grounded in contract. Assuming that is so, does it follow that the owners have no entitlement to apply under the Declaratory Judgements Act for orders in relation to the body corporate rules? That is to say, are the owners’ proceedings doomed if the Court concludes that they are not members of the body corporate?
[35] If the owners’ obligations arise by way of contract, requiring them to meet a share of the expenses as though they were members of the body corporate, can it be said that the meaning and effect of the body corporate rules is relevant to the dispute between the owners and Trinity?
[36] The exact content of the contractual obligation was not explored in detail in the strike-out hearing. It is likely that it will partly be found to reside in the express terms of the contractual arrangements that the parties entered into and partly to be supplied through implied terms. It is difficult to formulate with precision the type of term for which the owners might be able to contend. Whatever their obligations,
though, there may well be room for an argument that they have no duty under their contracts with Trinity to meet an obligation which is not in compliance with what they would have had to meet had they in fact been members of the body corporate. If such an argument cannot be ruled out, then the Court may well be obliged to consider and give a declaratory judgment on the scope and extent of what liability members of the body corporate would have under the body corporate rules and under the Act when properly interpreted. They may not have a right to apply to strike down the rules, but they may have a right to obtain judgment from the Court which clarifies what comparable obligation a member of the body corporate would owe to the body corporate when the true meaning of the rules and provisions of the Act which affect that question have been determined by the Court.
No body corporate in existence?
[37] It is necessary to note another issue which arose in argument before me. Alternative to seeking an order striking down the body corporate rules, the owners submit that there are actually no body corporate rules in existence for reasons connected with s 37 of the Act to which I will turn shortly. The submission in summary is that if there were no body corporate in existence, there would be no body corporate rules to be complied with and accordingly, there would be no content to the contractual obligation owed by the owners to Trinity to comply with the body corporate rules.
[38] This submission was founded on the terms of s 37 of the Act which I set out at [23] above.
[39] Mr Price for Trinity submitted that in the present context, Trinity is the sole proprietor of all the units. There are therefore not “more proprietors than one”. Accordingly, s 37(1) of the Act does not operate so as to impose the body corporate rules on the body corporate, its proprietors and/or any other person in actual occupation of a unit. In other words, Mr Price said as far as the Act is concerned, as Trinity is the sole proprietor of the units, the rules have no application.
[40] This submission was consistent with the overall approach that counsel for
Trinity took, which was to the effect that the obligations which the owners owed to
Trinity arose under contract rather than under body corporate rules. Such an outcome might not be quite as favourable to Trinity as it apparently assumes. If there are no body corporate rules, to what is the contractual obligation referable? In order to give effect to the contract between the parties, though, the Court might impute to them the intention to regulate matters between themselves on the assumption that the owners would pay such part of the charges and expenses as would be attributable to the units under the standard body corporate rules. Such an interpretation would not require that there actually be a body corporate in existence with the rules regulating its relationships with the unit owners.
Conclusion on application to strike out
[41] The position that is reached in the end is that I cannot say that the position is so clear-cut that an application to strike out the proceedings ought to be allowed.
[42] While the matters that Mr Price has referred to give rise to real question marks about whether the owners’ proceedings enjoy any prospect of success, I have not been persuaded to the point where, having regard to the principles in Prince and Gardner, I consider that there should be an order striking out the application which the owners have brought. The strike-out application is therefore dismissed and costs
are reserved.
J P Doogue
Associate Judge
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