Kennedy v Body Corporate 82981

[2025] NZHC 388

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-000749

[2025] NZHC 388

UNDER

the Unit Titles Act 2010

IN THE MATTER OF

Breach of Statutory Duty, Negligence and Nuisance

BETWEEN

CY KENNEDY AND KAJSA KARIN ELEONORA BJORS

Plaintiffs

AND

BODY CORPORATE 82981

First Defendant

NEIL DOUGLAS CHARLES COOPER

Second Defendant

ANTONY VOLPICELLI
Third Defendant

LEIGH FRANCIS BURNEY
Fourth Defendant

DIANE FLORENCE BURNEY

Fifth Defendant

Hearing:

21 October 2024

Counsel:

I J Stephenson for Plaintiffs

N S Wood and J P Papps for Defendants

Judgment:

5 March 2025

JUDGMENT OF LA HOOD J

KENNEDY v BODY CORPORATE 82981 [2025] NZHC 388 [5 March 2025]

Table of Contents

A claim against committee members of a unit title body corporate               [1]
Background  [7]

Legislative framework  [10]

Question 1: Do the plaintiffs have standing to bring, on behalf of the Body Corporate, their cause of action against the second, third, fourth and fifth defendants, including under any exception to the rule in Foss v

Harbottle?  [13]

Legislative requirements for providing information to unit owners            [15] Decisions of the Body Corporate in relation to these proceedings  [22] What are common law derivative actions?  [46]

Issue (a): Is a derivative action possible under the Unit Titles Act, and if

so, is this the type of claim for which a derivative action can be brought? [51] Issue (b): What is the test for standing to bring a derivative action?  [65] Other legal issues  [76]

Conclusion on whether a derivative action is available  [84]
Issue (c): Does the plaintiffs’ claim meet the test to bring a derivative
action?  [85]

Do the defendants owe the Body Corporate any actionable duties?               [85]
The prospects of establishing the claim of improper purpose  [90]

The building manager’s report for the 2017 AGM  [106]
 Events following the 2017 AGM  [109]

Overall assessment of prospects of success  [115]
Other factors relevant to standing  [120]

Overall conclusion on Question 1  [126]

Q2: Ratification  [127]
Costs  [128]

A claim against committee members of a unit title body corporate

[1]                  Cy Kennedy and Kajsa Bjors (the plaintiffs), who are husband and wife, own two of 43 units in a unit title development in the Dominion Building on Victoria Street, Wellington (the Body Corporate). Their claim relates to damage caused to their units from leaks in the roof of the building.

[2]                  The plaintiffs claim the Body Corporate breached its duty to repair and maintain the roof and not interrupt the plaintiffs’ quiet enjoyment of the units. And that the second, third, fourth and fifth defendants, as members of the Body Corporate Committee (the Body Corporate Committee members), breached duties owed to the plaintiffs and the Body Corporate. They are alleged, among other things, to have used their powers for an improper purpose by suppressing information about the leaks and delaying repair of the leaks to advance their own interests (minimising levies and

maintaining the market value of their properties) to the detriment of the Body Corporate.

[3]                  The causes of action against the individual defendants are brought against them by the plaintiffs personally and by way of  derivative  action  on  behalf  of  the  Body Corporate. The following preliminary questions are for determination:1

(a)Q1: Do the plaintiffs have standing to  bring,  on  behalf  of  the  Body Corporate, their cause of action against the second, third, fourth and fifth defendants, including under any exception to the rule in Foss v Harbottle?

(b)Q2: Is the effect of certain resolutions passed at the Body Corporate’s annual general meeting on 10 May 2023 that:

(i)any liability that the individual defendants might otherwise have had to the Body Corporate has now been released and extinguished; and thus,

(ii)the plaintiffs’ cause of action against the individual defendants no longer subsists?

[4]My answer to Question 1 is: No.

[5]                  In summary, I am satisfied that the plaintiffs do not have standing to bring a derivative action in this case for the following reasons:

(a)It is likely that derivative actions are available under the Unit Titles Act 2010. I will assume, without deciding, that the Court has a broad discretion to allow a derivative action to proceed, similar to that exercised under the Companies Act 1993. The test should be whether a reasonable independent body corporate would consider it ought to bring the proceedings  having  regard to  relevant factors derived from

1      Under r 10.15 of the High Court Rules 2016.

the common law and by analogy with the Companies Act derivative action.

(b)I consider no reasonable independent body corporate would bring the derivative action due to: the low prospects of succeeding on the aspect of the claim for which a derivative action would generally be available at common law (the alleged improper purpose); the lack of wrongdoer control or influence over the decision of an independent body corporate not to litigate; the high cost of litigating the claim; and the body corporate’s low interest in the relief sought.

[6]Those conclusions on Question 1 mean I need not address Question 2.

Background

[7]                  I gratefully adopt the following background from Grice J’s decision ruling valid the Body Corporate’s indemnification of Committee members for any liability in these proceedings:2

[3]        The Dominion Building is a Wellington unit title development comprising a total of 43 units, 31 of which are residential units and 12 of which are non-residential units (which are primarily commercial or retail.) The Body Corporate is the first defendant. A committee of eight (the Committee) has managed the building under a general delegated authority  from  the Body Corporate members for some years. The second and third defendants are a former chair and former member of the Body Corporate respectively.

[4]        Concerns about leaks, affecting particularly the top units, date back some years. Leaks are referred to in the minutes of the Body Corporate in April 2004. The plaintiffs, whose apartment is immediately under the roof and therefore most  badly  affected  by  the  leaking,  consider  that  the  Body Corporate and its members and chair at various times were aware of reports that indicated the roof should have been replaced sometime earlier than it was.

[5]        The allegations are that the second and third defendants (and perhaps others) suppressed those reports and undertook a [programme] of patching the roof which was unsatisfactory. When the roof was finally repaired and replaced to deal with the leaking problems, substantial damage had already been caused to the plaintiffs’ unit, which necessitated them moving out and finding alternative accommodation for a period of time. The actual cost of

2      Kennedy & Bjors v Body Corporate 82981 [2023] NZHC 1377 [Judgment of Grice J] (footnote omitted).

repairing the roof and associated damage is not the issue in the substantive proceedings.

…

[7]        The relationship between the plaintiffs and the Body Corporate and its Committee has been tense for some time. Litigation was threatened by the plaintiffs in 2017, which did not eventuate. The Body Corporate insurer, AIG, covered the costs of the Body Corporate and the second and third defendants defending the threats of claims at that time. The details of the policy and particulars of what has been paid for are not before the Court at present. AIG has now refused further cover for the Body Corporate in relation to the claim filed in 2021, which led the Body Corporate to take the steps it has taken to indemnify the second and third defendants.

[8]        The second defendant has never personally owned a unit but he was a director of a company which owned a unit, and under the provisions of the Unit Titles Act he was entitled to be elected chair. The third defendant remains an owner of the unit in the building but is no longer a member of the Committee (for convenience I refer to the second and third defendants together as the Committee members).

[9]        The resolution to meet the costs of the defence was passed at a general meeting in March 2022. The resolution to execute the deed of indemnity was passed by postal resolution by the Body Corporate membership, with the votes to be received on 30 September 2022 and the date of notification to members of the outcome of the postal resolution 6 October 2022. The application for relief includes a pleading that the entering into the resolution was unjust and inequitable to the minority. The present interlocutory application was filed in this Court on 4 November 2022.

…

[77]      The substantive claim is directly related to the second and third defendants’ roles as members of the Body Corporate and, as Mr Wood pointed out, the pleadings point to breaches of various duties alleged which are derived from  their  obligations  to  carry  out  the  powers  and  duties   of   the  Body Corporate. It is alleged that when carrying out those powers and duties all the members of the Committee, including the second and third defendants, owed to the Body Corporate a duty of loyalty, including duties to act in accordance with the Body Corporate duties, to act in the best interests of the Body Corporate as a whole, to use their powers for a proper purpose, and to exercise independent judgment and care in decision-making (described as the “Committee Member Duties”).

[78]      It is pleaded the breach of those Committee Member Duties resulted in the Body Corporate committing the breaches that are pleaded against it, including, among other  things,  preferring  their  own  interests  of  the  Body Corporate when making decisions, including the decision to undertake temporary repairs in preference to incurring levies necessary for the effective remediation of the roof and exterior cladding. The particulars of the breach include allegations of breach of disclosure concerning the scope of repair in the notices for general meetings approving special levies in 2018 and 2019 as well as various other failures, including failure to disclose reports, and directing the amendment or redaction of reports. This resulted, it is pleaded,

in unnecessary expenses, including temporary building work and wasted design, consultancy and related professional fees, as well as escalation in repair costs. The plaintiffs also point to liability for the losses arising from the damage to the plaintiffs’ unit from external moisture requiring interior linings replacement and repair and consequential losses.

[8]    At the time of Grice J’s decision, Mr Cooper and Mr Volpicelli were the only Committee members named as defendants in the proceeding. Mr and Mrs Burney have since been joined as defendants. Mr and Mrs Burney are jointly unit owners and are former members of the Committee.

[9]    It is also helpful to set out some background referred to in an interlocutory decision of Associate Judge Lester (determining that there was no basis to prevent Chapman Tripp acting for the defendants due to a conflict of interest or the firm’s advice being in issue):3

[9]        The minutes of a special general meeting of the Body Corporate Committee held on 1 April 2004 (the Minutes) refer to ongoing water leak issues, particularly affecting the top floor residential units. The Minutes (which are a series of bullet points) record a recommendation to replace the existing roof with a new roof at an estimated cost then of $300,000 plus GST. The Minutes refer to legal advice having been received and that a peer review of the engineering reports recommending roof replacement was obtained. The peer reviewer’s advice was that specific areas could be remedied by a “fix and hold” solution. The Minutes  record:  “[p]robably  could  then  last  further 10 years, although ongoing inspection and maintenance would still be required”. The cost of that “fix and hold” solution was estimated at $20,000 to $25,000. The intention was to create a fund to replace the roof in 10 years’ time. The Minutes nonetheless recorded that in the meantime some unit owners were experiencing considerable disruption and inconvenience.

…

[13]      The plaintiffs purchased their first unit in the Dominion Building in 2005.

[14]      The next significant step in the chronology is that, in March 2014, Opus were engaged by Alive Building Solutions (Alive) who were involved in the management of the Dominion Building to comment on the state of the roof.

[15]      There is a brief document headed “Dominion Building Roof Assessment (28.03.2014)”, (the Opus Report). The Opus Report is addressed to Clinton Huppert (Clinton), who worked for Alive. Opus advised:

Further to our site visit to the Dominion Building.

3      Kennedy v Body Corporate 82981 [2022] NZHC 1927 [Judgment of Associate Judge Lester].

Stephen and I both agree that the existing roof is not worth further extensive repairs and that a full replacement is the most cost effective solution in the long term.

[16]      The report suggested replacement of the existing roof (Metal & Traffigard) with a recommended system (Equus Torch on Membrane system). Opus were only able to give a “very indicative estimate” of $480,000 plus GST with a further $85,000 plus GST for consent, fire and architectural documentation and project management basis.

[17]      Opus recommended that a quantity surveyor be engaged to provide a detailed costing.

[18]      The treatment of the brief Opus report is one of the key areas of concern to the plaintiffs.

[19]      The Body Corporate Committee met on Wednesday 23 April 2014. There were a number of agenda items.

[20]      Under the heading “Roof Replacement” there appears the following (Justin Leonard was also an employee of Alive):

Justin advised that there were numerous leaks and issues that have been identified on the roof. The skylights had not been installed correctly and were a source of some of the leaks. The professional advice was to remove the existing iron and use a torch on membrane. This method of roofing would allow for the roof to be replaced in stages. The roofing had been patched over several years and was looking at the end of its life span. There was some discussion around funding the replacement programme perhaps over a period of years where parts of the roof could be replaced. Justin point[ed] out that this could be done in possibly three tranches given the design of the roof. It was agreed that Alive are to engage a QS to determine the true cost of the roof replacement.

[21]      While  the  above  paragraph  does  not  refer  expressly  to   the Opus Report, the reference to a “torch on membrane” is consistent with the repair system referred to in the Opus report and obtaining a QS determination also reflected Opus’ recommendation. The “Action List” arising from the Body Corporate Committee meeting has an entry: “Organise QS to determine the true cost of the roof replacement”. Responsibility for that step was allocated to Alive. It will be recalled the Opus report was addressed to Clinton of Alive.

[22]      The next key  document  is  the  minutes  of  the  AGM  of  the  Body Corporate  held  on  5  June  2014.   The  AGM  was  attended  by    Mr Kennedy, one of the plaintiffs. Justin and Clinton also attended.

[23]      Justin and Clinton, under the heading “Building Manager’s Report”, referred to:

an extensive review of the roof and repairs that were needed plus the addition of some safety features on the roof to assist with contractors’ safety.

[24]Then, as a budget item, there is the following:

Long Term Maintenance Budget:

Following confirmation from Weathertight and Building Services that if remedial actions are taken with relatively small increases in budgets, the roof life can be extended potentially by up to 10 years, it was agreed to adjust the Long Term Maintenance Budget to reflect this change. It was also confirmed that the current repairs to the roof have a 5 year workmanship and 15 year materials warranty.

[25]      The motions moved by Mr Cooper relating to the above item were all carried.

[26]      Of course, the idea that the roof could be subject to a “fix and hold” solution to be replaced in 10 years was the position 10 years earlier, in April 2004. At the moment, the Weathertight and Building Services report, if there is one, is not before the Court.

[27]      The Opus Report is not referred to in the Body Corporate Minutes, nor was it apparently provided to owners of the units, though that is unclear at the moment.

[28]      However, putting in context what must have been discussed at that meeting is a quote from a contractor obtained by a Ms Burney, a unit owner, dated 11 June 2014. Ms Burney took it upon herself to seek a quote for repair of the roof and, in her email to Mr Cooper of 16 June 2014, Ms Burney forwarded the quote to the Body Corporate Committee noting that the Dominion  Building  roof  was  currently  undergoing   “patch”   repairs.   Ms Burney said: “I also understand from Clinton that the roof has proven to be in pretty sound condition, structurally”. She was under the impression: “[g]iven all this it is clear that nothing major or expensive needs to be done for some time to come”.

[29]      The thrust of Ms Burney’s e-mail was that it did not make sense for the Body Corporate to be spending $30,000 - $40,000 each year on patch-ups when she had obtained a quote for a replacement option of $184,000 including GST.

[30]      That option was discussed by the Body Corporate Committee at its meeting on 30 June 2014. Alive advised that the product referred to in the quote had only been around for a short time and it could not yet confidently recommend it. The Minutes record: “[t]he roof is now in a stable state so the Body Corporate currently has time to allow it to further investigate all roofing options”. The Minutes record it was agreed to proceed on a repair basis as the roof lifespan was considered to be okay for another 10 years. Again, the Opus Report was not referred to.

[31]      It is evident that the confidence further roof repairs would maintain watertightness was misplaced. The evidence shows extensive damage to at least one of the plaintiffs’ units. In 2016, the plaintiffs instructed their solicitors to write to the Body Corporate urging it to stop the leaks into their apartment.

[32]      Chapman Tripp become involved in 2017, having been engaged by the Body Corporate’s insurers.

[33]      The next key exchange from the plaintiffs’ point of view, which forms one of the bases of this application, occurred in November 2017. By then, the plaintiffs’ solicitors had put the Body Corporate on notice of the possibility of litigation.

[34]      On 14 November 2017, Mr Noble of Alive, sent Mr Cooper the Building Manager’s Report for the 2017 AGM. Half an hour after receipt of that Report, Mr Cooper replied to Mr Noble and copied in Justin and Mr Chris Street (another committee member), saying:

I’ve only just had a quick scan but am a bit concerned that we may be saying some things too explicitly or in too much detail and placing our own position at risk in relation to any potential litigation or even just in discussions between Parker & Co [then acting for the plaintiffs] and our own lawyers.

I sent my chair’s report to Chapman Tripp for their review and they have cut it back quite markedly for just the sort of reasons as above. To avoid any potential difficulties I’d like to be able to send your report to them as well please.

Would you mind please sending me the Word version of your report so as to make it easier for them to comment/suggest changes.

[35]Mr Noble replied sending a copy of the Word version and noting:

The original report supplied by ABS will remain on our records as our submission to the Body Corp. and ABS will not make any edits. C&T [Chapman Tripp] and yourself, however, are welcome to make any changes as you see fit for the purposes mentioned below, for inclusion in the AGM pack.

[36]      The AGM pack is the information sent to owners of the units prior to the AGM.

[37]      Both Alive’s original and edited version are produced. Under the heading “Roof Works” the original Report referred to a number of issues with the roof and said:

… With this knowledge, and taking into account the number of leaks that were being dealt with, it was felt that a full roof replacement should be prioritised. This was recommended back in 2013 based on the report written and supplied by Opus however it didn’t fit with the Body Corporates long term maintenance funding at the time so a roof maintenance fund was set up to tie it over until funds increased to do the roof replacement. This worked for a period, however this option is no longer viable.

[38]      In the Building Management Report, it would seem apparently edited by Chapman Tripp, that passage became:

… With this knowledge, and taking account the number of leaks that were being dealt, it was felt that a full roof replacement should be prioritised. Ongoing maintenance is no longer viable.

[39]      The plaintiffs are, to say the least, sceptical that it is a coincidence the Opus Report was apparently not circulated for the 2014 AGM and reference to it was edited out of the above Report. The plaintiffs go so far as to allege the Opus Report was concealed by Mr Cooper.

Legislative framework

[10]     The judgment of Grice J referred to above was upheld by the Court of Appeal in Kennedy v Body Corporate.4 It is helpful to draw on both those decisions in respect of the statutory scheme and its application in this case. First, Grice J’s judgment:5

The Unit Titles Act 2010

[14]Section 3 of the Unit Titles Act sets out its purpose as follows:

3     Purpose

The purpose of this Act is to provide a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis by communities of individual owners and, in particular,—

(a)   to allow for the subdivision of land and buildings into unit title developments comprising units that are owned in stratum estate in freehold or stratum estate in leasehold or licence by unit owners, and common property that is owned by the Body Corporate on behalf of the unit owners; and

(b)   to create bodies corporate, which comprise all unit owners in a development, to operate and manage unit title developments; and

(c)   to establish a flexible and responsive regime for the governance of unit title developments; and

(d)   to protect the integrity of the development as a whole.

[15]      Part 2 of the Unit Titles Act allows for land to be subdivided to create a unit title development. For present purposes, the property aspects of the statutory scheme may be summarised as follows:

4      Kennedy v Body Corporate 82981 [2024] NZCA 250, [2024] 2 NZLR 857 [Court of Appeal judgment].

5      Judgment of Grice J, above n 2.

(a)To create a unit title development, a parcel of land of various kinds may be subdivided into (i) two or more principal units,

(ii) any accessory units the registered owner may wish, and (iii) so much of the land that is not comprised in any unit.6

(b)The subdivision is effected by the deposit of a plan specifying the units in their relation to a building or buildings (if any) already erected on the land.7

(c)When a unit plan is deposited, a body corporate is created and is the body corporate for the unit title development created by the deposit of that unit plan.8

(d)The members of a body corporate for a unit plan are the unit owners of all the units in the unit plan.9

(e)A principal unit is a unit designed for use (whether in conjunction with any accessory unit or not) as a place of residence or business or for any other use of any nature shown on a unit plan as a principal unit.10 The principal unit must generally be a unit that contains a building or part of a building or is contained in a building.11

(f)An accessory unit is a unit designed for use with any principal unit that is shown on a unit plan as an accessory unit.12

(g)The common property comprises (relevantly) all the land and associated fixtures that are part of the unit title development but are not contained in a principal unit or accessory unit.13

(h)The common property is owned by the body corporate, and the owners of all the units are beneficially entitled to the common property as tenants in common in shares proportional to the ownership interest in respect of their respective units.14

Management structures and arrangements, and financial and property management

[16]      Subpart 12 of pt 2 of the Act details body corporate management structures and arrangements and, importantly, sets out in general terms the rights and responsibilities of unit owners and of a body corporate:

(a)An owner of a principal unit has rights set out in s 79, including their entitlement as a body corporate member to exercise a vote in respect of their unit, the right to attend the body corporate’s general meetings and the right to quiet

6      Unit Titles Act 2010, s 16(1)–(2).

7      Section 17(1).

8      Section 75(1).

9      Section 76(1).

10     Section 7(1).

11     Section 7(1).

12     Section 5(1) definition of “accessory unit”.

13     Section 5(1) definition of “common property”.

14     Section 54.

enjoyment of their unit without interruption by other unit owners, occupiers or the body corporate, except as authorised.15

(b)An owner of a principal unit has responsibilities set out in    s 80, including the responsibility to do all things necessary to give effect to decisions of the body corporate and to pay body corporate levies payable for their unit.16

(c)The body corporate has powers and duties set out in various provisions of the Act, including powers and duties relating to the establishment and maintenance of funds, the raising of amounts for each fund and the imposition of levies on the unit owners, and the repair and maintenance of the common property and other assets.17

[17]Subpart 13 of pt 2 details financial and property management of a body corporate. The provisions of this subpart confirm other powers and duties that a body corporate has, including that:

(a)A body corporate must establish and maintain an operating account for the purpose of meeting various expenses, including those relating to the management and governance of a unit title development and those relating to provision of services and amenities for the benefit of the unit title development.18

(b)A body corporate may establish and maintain one or more contingency funds to provide for unbudgeted expenditure.19

(c)A body corporate may determine the amounts to be raised for each fund and impose levies on the owners of principal units to establish and maintain each fund.20

(d)A body corporate may spend or borrow money.21

(e)The body corporate must repair and maintain the common property, any assets designed for use in connection with the common property, any other assets owned by the body corporate, and any building elements and infrastructure that relate to or serve more than one unit.22

[18]      With some exceptions, a body corporate may delegate any of its duties or powers, either generally or specifically, to the body corporate committee by special resolution and written notice.23 A body corporate of a unit title development of 10 or more principal units must form a body corporate

15     Section 79.

16     Section 80.

17     Sections 84(1), 115, 117–121 and 138.

18     Section 115(2).

19     Section 118.

20     Section 121(1).

21     Section 130(1)(a).

22     Section 138(1).

23     Section 108(1).

committee unless the body corporate, by special resolution, decides not to do so.24 In his affidavit, Mr Street, a member of the Body Corporate Committee, confirms that no such special resolution has been passed in respect of the Dominion Building unit title development.

[19]      The business of a body corporate is generally transacted by way of meetings. All meetings of a body corporate are general meetings, which are either an annual general meeting (AGM) or an extraordinary general meeting (EGM).25 AGMs must be held once every calendar year and not later than  15 months after the previous AGM.26 An EGM must be held if a notice signed by the unit owners of not less than 25 per cent of the principal units asks for an EGM or if the chairperson or the body corporate committee calls an EGM in accordance with the regulations.27

…

[21]      In general, no matter may be transacted at a general meeting of the body corporate unless a quorum is present.28 The legislation makes provision for “eligible voters” (in general, the owner of a principal unit) who may not vote unless all body corporate levies in respect of their unit have been paid.29

[22]      Any matters at a general meeting relating to the exercise of a duty or power that may not be delegated under s 108(2) or that have not been delegated to the body corporate committee must be decided by special resolution.30 All other matters — except as otherwise provided in the Act — must be decided by ordinary resolution.31

[23]      Subject to any request for a poll, for a body corporate meeting to pass an ordinary resolution, a majority in number of the eligible voters who vote on the resolution must vote in its favour, and only one vote may be exercised for each principal unit.32 For a special resolution to pass, the same provisions apply but 75 per cent of the eligible voters who vote on the resolution must vote in its favour.33

[24]      A resolution may also be passed without a general meeting, if notice of the resolution is given to eligible voters in accordance with the regulations and a resolution in writing is signed by the requisite majority of eligible voters (a simple majority for an ordinary resolution and not less than 75 per cent for a special resolution).34

…

24     Section 112(2).

25     Section 88.

26     Section 89(3).

27     Sections 89A and 90(2) and (3).

28     Section 95.

29     Section 96(1) and (3).

30     Section 101(2).

31     Section 101(1)–(2).

32     Section 97(1), (2) and (4).

33     Section 98(1), (2) and (4).

34     Section 104.

[79] That the body corporate is entitled to undertake tasks that  are reasonably incidental to the achievement of its purposes is well established.35 The body corporate must repair and maintain the common property, any assets designed for use in connection with the common property, any other assets owned by the body corporate, and any building elements and infrastructure that relate to or serve more than one unit.36 It was largely in the execution of those obligations that the present claims arose.

…

[94] It follows that in the modern legal context, the governance framework for decision-making and management to be undertaken by a body corporate committee, which is tasked with undertaking its duties “on a socially and economically sustainable basis”, must be able to operate in a business-like manner, which would require the appropriate protection from liability of committee members, whether by insurance, indemnity or “standing by them” by paying the costs of defending claims against them brought by other members or third parties. Specifically, under s 77 of the Act, the body corporate may do anything a natural person can do, except as provided under the Act or any other Act, and subject to the requirements of s 78 that such acts are done for the purposes of performing its duties or exercising its powers. There is no doubt the body corporate committee will be required to make decisions concerning repairs and maintenance that will be contentious and expose them to liability, particularly in relation to leaky building claims. A “flexible and responsive regime for the governance of unit title developments” in the modern world, as the purpose provision of the Act envisages, would allow those persons taking on the governance responsibilities as committee members to be entitled to receive protection from such liability by the body corporate. That protection may be by way of insurance, indemnity or covering liability for costs.

…

[99]      The Courts recognise that body corporate members and chairs are in a unique position, as they are owners as well as body corporate members and their interests as owners may well appear to conflict with their obligations as committee members. While it is clear that the body corporate members have duties to the body corporate, the Courts are reluctant to put those members’ obligations at a higher level than is necessary.

[100]    Under the earlier unit titles legislation, in Manning v Body Corporate 126411 the High Court rejected a submission that the body corporate chairperson could, given the circumstances before the Court, owe fiduciary duties to the plaintiff, another owner in the development.37 The Court said:38

… The effect of the plaintiff’s argument would be that the chairman, who must be a proprietor, would have to sacrifice his interests for the benefit of the plaintiff. This does not fit with the scheme of the rules,

35     Philip A Joseph Joseph On Constitutional and Administrative Law (5th ed, Thomson Reuters, Wellington, 2021) at [23.2.2(2)] and nn 43–45.

36     Section 138(1).

37     Manning v Body Corporate 126411 HC Auckland CP 89sd01, 29 November 2001.

38 At [76].

which are designed to facilitate the administration of the body corporate by those who share mutual interests therein.

[101]    In relation to ultra vires acts, one academic commentator, in an article concerning body corporate members’ personal liability under the Unit Titles Act 2010, noted that the ultra vires doctrine is a tool primarily designed to provide a judicial check on the exercise of power by the executive to require statutory powers to be exercised for their intended purpose.39 The writer noted the doctrine was a blunt instrument and that any act which is the result of an impugned decision which is found to be ultra vires is not binding on the body corporate. In such circumstances the plaintiff must therefore look elsewhere for recovery, and that may be to the members of the committee.40 The author noted that finding the action to be ultra vires could lead to very harsh results, given the committee members may have acted in good faith.41

[102]    The author pointed out that there is a trend in recent case law against liability being found on the basis of the doctrine of ultra vires, based on a perception that the doctrine’s policing function “unreasonably impedes the achievement of worthwhile societal goals.”42 The author referred to Fisher J’s comments in Bridgecorp Finance Ltd v Proprietors of Matauri X Inc that “[a]n ultra vires doctrine limiting a corporate entity’s powers by reference to objects stated in its constitution no longer had any place in the modern legal world”.43 The author noted further that the presenters of a 2005 Law Society seminar had suggested a Court would, in future, take a similar view with regard to incorporated societies or charities.44

[103]    The conservative approach to the exposure of committee members to liability except as necessary to properly carry out the responsibilities as committee members also supports the fact that the body corporate should be in a position to protect the members of its committee and its chair from liability in appropriate circumstances.

[104]    In this case the terms of the indemnity were carefully constructed to ensure that they were reasonable in the circumstances. I now consider the terms of that indemnity.

…

[107] The Body Corporate submits that this indemnity is appropriately limited to past, present and future committee members and chairpersons and to loss arising out of the act, omission or status of the member or chairperson in that capacity. The indemnity also does not extend to fraud, wilful default or gross negligence. Importantly, the Body Corporate says cl 4(c) expressly provides that the indemnity does not extend to any loss “for which the Body Corporate is precluded by law from providing indemnification”.

39 [Property Council of New Zealand Inc “Submission to the Social Services Committee on the Unit Titles Bill” at [51]–[56], referred to in] Rod Thomas “A Disincentive to Service — Committee Member’s Personal Liability under the Unit Titles Act” [2014] NZ L Rev 423 at 428[, n 124].

40 Rod Thomas, above n 39, at 428.

41     At 428.

42     At 429.
43 Bridgecorp Finance Ltd v Proprietors of Matauri X Inc [2004] 2 NZLR 792 (HC) at [55].

44  Miles  Agmen-Smith  and  Mark  von  Dadelszen   “Advising   Not-for-Profit   Organisations” (New Zealand Law Society seminar, March 2005) at 26.

…

[112] As I pointed out earlier, the purpose of the legislation is to provide a framework for communal decision-making so as to effect “a socially and economically sustainable basis by communities of individual owners”.45 This would be almost impossible if the body corporate committee members could not look to the body corporate to protect them at least by way of insurance, indemnity or payment of costs to defend actions in relation to claims by other members and third parties. The nature of the ownership and the governance of bodies corporate depends on the goodwill of the members, and in particular the willingness of members to step up and take on those governance responsibilities in bodies corporate of any size. It is almost inevitable that from time to time there will be disputes among members and with third parties. The nature of the obligations to manage the body corporate and related obligations, even that of obtaining the mandatory property insurance, involve difficult operational and management decisions which will from time to time attract criticism. It would be extraordinary if the body corporate could not take commonly accepted standard business steps to protect its committee.

…

[114] It is also usual for an employer to be responsible for the liability of an employee as long as the employee is acting within the scope of the employment relationship. It is not necessary to go into detail on these arguments but that agency relationship applies by way of analogy between the body corporate and its committee members. If committee members were found liable for acts or omissions conducted in the course of their duties as committee members, they would be entitled to seek an indemnity from the body corporate. It would be unrealistic to suggest the body corporate could not insure for that liability. It is therefore equally unrealistic to suggest that the body corporate cannot insure for the committee members’ liability.

[11]     The Court of Appeal decision aligned with Grice J’s conclusions about the legislative scheme:46

[22]      The purpose of the Act is to provide a legal framework for the ownership and management of a unit title development “on a socially and economically sustainable basis”.47 In particular, among other purposes, it establishes “a flexible and responsive” governance regime.48 That casts light on the conferral of power upon a body corporate to “do anything a natural person of full age and capacity may do except as provided for in this or any other Act except as provided for in this Act or any other Act”.49

[23]      A resolution to grant an indemnity for the benefit of the governance of a body corporate, as was done here, is not prohibited by the Act. It was a natural and understandable reaction to the threat of disruptive litigation

45     Section 3.

46     Court of Appeal judgment, above n 4, footnotes omitted.

47     Unit Titles Act, s 3.

48     Section 77.

49 Body Corporate 401803 v Vermillion Wagener Ltd [2015] NZHC 285, (2015) 15 NZCPR 758 at [72], upheld in Vermillion Wagener Ltd v Body Corporate 401803 [2015] NZCA 313. (2015) 16 NZCPR 483.

against members of a body corporate personally. It is directly related to the Body Corporate’s duty to meet expenses relating to the management and governance of the unit title development under s 115(2)(a) of the Act. It goes some way to preventing individuals from being deterred from participating in the governance and management of the unit title by threats of potential personal liability.

[24]      The requirement of s 78 that a body corporate “may do an act under section 77 only for the purpose of performing its duties or exercising its powers” reflects the ordinary public law requirements of a body established under statute. The case of Vermillion was a very different situation where the power to appoint a building manager was relied upon to guarantee the lease of the manager’s apartment and to guarantee a lease of amenities, such as a tennis court and a swimming pool, comprised in individual units. The High Court, upheld by this Court on appeal, used the terminology that the exercise of power must be “anchored to” a duty in the Act. But that was in the context of s 16 of the 1972 Act, which only gave to bodies corporate the powers which were “reasonably necessary to enable it to carry out the duties imposed on it by this Act and by its rules”. Now, the requirement of s 78 is to be read in light of the purpose of the 2010 Act as outlined above and in light of bodies corporate having the powers of natural persons. Section 78 simply requires any such act to be done for the purpose of performing a duty or exercising a power.

[25]      We do not consider the nature and extent of the indemnity here means that the resolutions were outside the Body Corporate’s powers. Any indemnity in favour of a person is likely to serve that person’s individual interests. That does not necessarily put it outside the Body Corporate’s powers. Here, as noted above, there is a direct relationship between the indemnity and the Body Corporate’s duties. The fact the indemnity cannot be revoked retrospectively, and that payments are made forthwith, is not prohibited by the Act nor is it outside its purposes. Those features add to the functionality of the indemnity in giving certainty of protection to the individuals who are indemnified. The Body Corporate retains the power to terminate the Deed, prospectively, if it wishes. Clause 5.1 provides reasonable exceptions to the indemnity. Clause 4 limits the extent of the indemnity in usual and sensible ways and is explicit in limiting it from extending to loss for which the Body Corporate is precluded by law from providing indemnification.

[12]     Against that factual and legislative background, I turn to consider each of the preliminary questions.

Question 1: Do  the  plaintiffs  have  standing  to  bring,  on  behalf  of  the  Body Corporate, their cause of action against the second, third, fourth and fifth defendants, including under any exception to the rule in Foss v Harbottle?

[13]In determining Question 1, I will address the following issues:

(a)Is a derivative action possible under the Unit Titles Act, and if so, is this the type of claim for which a derivative action can be brought?

(b)What is the test for standing to bring a derivative action?

(c)Does the plaintiffs’ claim meet the test to bring a derivative action?

[14]However, I will first canvass some additional background matters.

Legislative requirements for providing information to unit owners

[15]     The plaintiffs’ derivative cause of action includes various allegations that the individual defendants breached pleaded duties in not disclosing information. Relevant to those allegations are the provisions of the Act (and its regulations) prescribing the rights and obligations of unit owners, the body corporate and the body corporate committee to provide or receive records, documents and other information.

[16]     The records and documents in respect of which unit owners are entitled to copies under the legislation are relatively limited, and the entitlement to copies arises only where the unit owner requests the document.

[17]     The key provision is s 206, which provides that the body corporate must, on request from a unit owner, make copies of certain records and documents available for purchase by the unit owner.50 Those records and documents are:

(a)the body corporate operational rules;

(b)all current insurance policies held by the body corporate or its head body corporate in respect of the buildings and improvements on the base land;

(c)the long-term maintenance plan;

(d)any agendas or minutes of the body corporate;

(e)the financial statements;

(f)any other documents the owner of a principal unit is required to provide under subpart 14 of Part 2;51 and

(g)any other records or documents if the body corporate thinks it is reasonable in the circumstances to provide those records or documents.

[18]     The Unit Titles Regulations 2011 contemplate certain further information being provided to owners:

(a)A notice of intention to hold an annual general meeting (AGM) must be issued to every unit owner in the unit title development by each owner’s preferred method of contact. The notice must be issued (other than in the case of the first AGM) by the chairperson.52

50 Unit Titles Act 2010, s 206(1). By s 206(2), the copies must be made available within a reasonable time, and the body corporate may charge any reasonable costs incurred in providing the records and documents.

51 Subpart 14 of pt 2 (disclosure of information) contains certain disclosure obligations (a) by a seller of a unit to a buyer or prospective buyer, and (b) by the original owner of a unit title development to the body corporate.

52 Unit Titles Regulations 2011, reg 5(1) and (2).

(b)Notice of an AGM must be issued to every unit owner in the unit title development by each owner’s preferred method of contact. Again, the notice must be issued (other than in the case of the first AGM) by the chairperson.53

(c)The AGM notice must set out the agenda for the meeting, contain the text of motions to be decided by resolution, contain the names of the candidates for election, set out the voting procedures for unit owners who wish to vote by proxy or by post, set out the procedure to be followed if a quorum is not present and “contain any other information that the … chairperson … considers relevant.”54 It must also be accompanied by a proxy appointment form, a postal voting form, a copy of the most recent financial year’s financial statements and “any other document that the … chairperson … considers relevant.”55

(d)In respect of an EGM (other than an EGM required under s 89A), the chairperson or committee (as the case may be) must issue notice of an EGM to every unit owner in the unit title development by each owner’s preferred method.56 Regulation 8(2) sets out what the EGM notice must set out or contain, including “any other information that the chairperson or body corporate committee (as the case may be) considers relevant”. It must also be accompanied by a proxy appointment form, a postal voting form and “any other document that the chairperson or the body corporate committee (as the case may be) considers relevant.”57

[19]     The information required to be provided to unit owners with an AGM or EGM notice is therefore high-level in nature and is directed towards the matters to be considered at the meeting. Any other information or document is provided only if the chairperson considers it relevant.

53     Reg 6(1) and (2).

54     Reg 6(4). The 2022 Amendment Act added other minor matters that the AGM notice needed to set out or be accompanied by, which are not presently relevant.

55     Reg 6(5).

56     Reg 8(1).

57     Reg 8(3).

[20]     There was no general right of a unit owner to receive other information or documents that the body corporate committee or its members possessed in respect of the work of the committee. The Unit Titles Regulations prescribed the following information and reporting requirements in that regard:

(a)The body corporate committee must provide copies of the minutes of its meetings to a unit owner in the unit title development, if the unit owner requests them.58

(b)A body corporate committee must report to the body corporate at each AGM and at such other times and in such manner as the body corporate decides by ordinary resolution.59 The body corporate committee report must include a description of the duties or powers delegated to the body corporate committee during the period covered by the report and an update on the fulfilment of those duties or the exercise of those powers by the committee.60

[21]     As is apparent from this survey of the relevant provisions, the legislative information and reporting requirements of the committee are clearly prescribed. They do not include any general duty to provide (or right to receive) information relating to the conduct of the committee’s business. And before amendments in 2022,61 they did not include a duty to provide meeting minutes absent a request.

Decisions of the Body Corporate in relation to these proceedings

[22]     Affidavit evidence on behalf of the Body Corporate was provided by Christopher Street. Mr Street and his family have lived in one of the building’s units since 2015 (it is owned by his family trust). Except for the period between the September 2019 AGM and December 2020, Mr Street has been a member of the Committee since its 14 September 2015 AGM.

58     Reg 27(5). Since 9 May 2023, a body corporate must provide copies of the minutes of its meetings to all unit owners promptly, but no later than one month after the meeting date: reg 27A(1).

59     Reg 28(1) and (2).

60     Reg 28(3).

61     Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022 (2022 No 19), s 55.

[23]     Mr Street confirms the Body Corporate does not wish to advance the claim against individual Committee members and has resolved:

(a)to approve, confirm and ratify all decisions and actions of all present and former Committee members that are the subject of any claim or allegation in this proceeding;

(b)to stand behind and support Mr Cooper and Mr Volpicelli (and any other present or former Committee member joined);

(c)to record that it does not seek to, and will not, claim against any present or former Committee members for any previous act or omission by that member that is the subject of any claim or allegation in this proceeding; and

(d)to object to any application by the plaintiffs to seek leave to commence a derivative action on behalf of the Body Corporate against Mr Cooper, Mr Volpicelli, Mr Burney and Mrs Burney.

[24]     On 17 March 2022, the Body Corporate held an EGM. The agenda was to discuss the proceeding the plaintiffs had brought in December 2021.

[25]     The Committee had circulated the plaintiffs’ statement of claim to all owners in December 2021. The EGM notice circulated to owners also included copies of:

(a)the defendants’ statements of defence to the plaintiffs’ statement of claim;

(b)correspondence between the plaintiffs’ and defendants’ solicitors (including a notice by the defendants seeking a more explicit statement of claim and further particulars from the plaintiffs); and

(c)an opinion the Body Corporate had obtained from a barrister confirming the Committee’s view that the interests of the

Body Corporate, Mr Cooper and Mr Volpicelli were aligned and that no conflict of interest arose in Chapman Tripp acting for them jointly.

[26]     The EGM notice set out the Committee’s approach to the plaintiffs’ claims against Mr Cooper and Mr Volpicelli:

The Committee considers that there is no ground whatever for any claim against Neil [Cooper] or Tony [Volpicelli] (including by the Body Corporate).

The Committee considers the Body Corporate should stand behind and support all volunteer Committee members over the years who give their time and expertise so willingly and selflessly for the benefit of the Body Corporate.

The Committee proposes that Chapman Tripp continue  to  act  for  the  Body Corporate, Neil and Tony, at no cost to Neil or Tony. Of course, there is little incremental cost in doing so.

[27]     Mr Street says that he and Mr Cooper spent an enormous amount of time from 2016 onwards dealing with threatened claims from the plaintiffs and another unit owner of four units (Phillips Property Rentals Limited or “PPRL”), as well as investigating and proceeding with the extensive work involved in having the Dominion Building  roof  replaced.  After  his  election  as  chairperson  of  the  Body Corporate in 2020, Mr Volpicelli spent much time dealing with these matters too.

[28]     Committee members are unpaid for their time (except if they elect to receive an honorarium intended to reimburse minor outgoings incurred rather than operate as arm’s length “pay”). Where (as has been the case with Mr Cooper and Mr Volpicelli) Committee members give their time voluntarily and without pay to serve on the Committee for the benefit of the Body Corporate as a whole, Mr Street’s view and that of the Committee is that it is appropriate for the Body Corporate to stand behind its Committee members and support them in defence of claims made against them personally in their capacity as Committee members.

[29]     Mr Street says that this approach is particularly appropriate in respect of     Mr Cooper, who sold his apartment in the Dominion Building unit title development in 2019. If the Body Corporate were not to stand behind its Committee members in this way, Mr Street believes it would serve as a disincentive to owners putting

themselves forward to serve as Committee members,  to  the  detriment  of  the  Body Corporate as a whole.

[30]     Mr Street states that Mr Kennedy and Mr Phillips (who owns 99 per cent of the shares in PPRL) took steps ahead of the 17 March 2022 EGM to avoid the resolutions – in Mr Kennedy’s case, sending an email (signed as “Dominion Building Concerned Owners, looking for transparency”) endeavouring to dissuade owners from voting in favour of the various resolutions arising out of the proceeding and recommending settlement of that proceeding by the Body Corporate. And as the 2022 EGM minutes record, Mr Street – who chaired the EGM – began the meeting highlighting the importance that this was an “all owners” meeting and that, as a result, Mr Kennedy had a right to attend even though a joint plaintiff in the proceeding.

[31]     The 17 March 2022 EGM was well attended. Owners of 38 of the 43 units joined the meeting either in person or by proxy according to the EGM’s minutes, and Mr Street says three more owners participated by postal vote, and only two owners did not participate (although one of them had requested by email that Mr Street act as proxy – voting in favour of all resolutions – but the requisite proxy form did not arrive). Of the 38 owners in attendance, 35 were entitled to vote – Units 26 and 27 (the plaintiffs) and Unit 28 (PPRL) were not allowed to vote, given unpaid amounts owed to the Body Corporate.

[32]     At the 17 March 2022 EGM, the Body Corporate passed, by ordinary resolution, motions substantially in the form set out in the EGM Notice, as follows:

(a)The Body Corporate defend the proceeding by the plaintiffs.

(b)The Body Corporate  stand  behind  and  support  Mr  Cooper  and  Mr Volpicelli in all respects in their defence of their proceeding.

(c)Chapman Tripp continue to act for the Body Corporate, Mr Cooper and Mr Volpicelli, at the sole cost of the Body Corporate.

(d)The Body Corporate take any and all steps the Committee considers appropriate in an effort to secure cover by AIG for costs incurred in connection with the proceeding.

(e)The Body Corporate establish a contingency fund (under s 118 of the Unit Titles Act) for the defence of the proceeding, and a separate bank account for that fund (to be  operated  in  the  same  way  as  the  Body Corporate’s existing accounts).

(f)The sum of up to $700,000 (including GST) in the aggregate be raised for the contingency fund, in such special levy instalments as determined necessary by the Committee by notice to owners from time to time, with owners paying those levies as they fall due.

(g)The Committee is requested and authorised otherwise to take any and all steps it considers appropriate to give effect to and otherwise in connection with these resolutions.

[33]     Resolutions 1 to 3 ((a) to (c) above) were carried by 35 votes to three (those three votes cast by PPRL, in relation to Units 3, 12 and 16).

[34]     On 28 April 2022, the Body Corporate held an AGM. After discussion at the meeting, owners voted in favour of a resolution on indemnification:

That the Body Corporate take immediately any and all steps to take advice from Greenwood Roche to put in place an indemnity (to the fullest extent permitted by law) by the Body Corporate of all past, present and future Committee members against any and all claims, proceedings, liabilities and costs arising out of or in connection with their acting as Committee members.

[35]     On 22 September 2022, the Committee circulated three written resolutions for owners to vote on, one of which was a written resolution to approve entry into a deed of indemnity prepared by Greenwood Roche, following the AGM resolution.

[36]     Of the 43 unit owners, 38 were entitled to vote; five unit owners (PPRL’s Units 12, 16 and 28, the plaintiffs’ Unit 26 and one other unit) were not allowed to vote, given unpaid amounts owed to the Body Corporate; 32 unit owners voted in favour of

the resolution within the deadline for voting; two further unit owners sent in votes in favour of the resolution but shortly after the deadline; three unit owners (the plaintiffs’ Unit 27, PPRL’s Unit 3 and one other owner) voted against the resolution; and one unit owner entitled to vote did not do so.

[37]     In accordance with the resolution passed, the Body Corporate executed the deed of indemnity in substantially the form circulated with the written resolution.

[38]     In November 2022, the plaintiffs filed their unsuccessful application in the High Court seeking orders that the deed of indemnity was ultra vires, the resolution authorising entry into the deed of indemnity was unjust and inequitable to the minority, and the resolution authorising the Body Corporate to meet the costs of the defence of Mr Cooper and/or Mr Volpicelli was ultra vires. As already noted, in June 2023 Grice J dismissed that application, and in June 2024 the Court of Appeal dismissed the plaintiffs’ appeal.62

[39]     Mr Street notes that the Body Corporate Committee arranges for periodic communications to be sent to owners updating them on matters relating to the Dominion Building unit title development. Mr Street produces various communications between the 17 March 2022 EGM and the 10 May 2023 AGM that updated owners about the progress of the proceeding during that period.63

[40]     The defendants submit that it is apparent from those updates that owners were regularly kept informed during that period of the progress of this litigation. In particular, by the time of the 2023 AGM, those updates had provided owners with copies of the parties’ then current pleadings (the plaintiffs’ second amended statement of claim and the then three defendants’ statements of defence to it) along with other documents filed in or relating to the proceeding. The defendants point out that the plaintiffs were entitled to supplement this information with whatever information or views they wished to express to other owners.

62     Judgment of Grice J, above n 2; and Court of Appeal judgment, above n 4.

63     Eleven updates were issued during this period.

[41]     On 10 May 2023, the Body Corporate held an AGM. Item 14 of the meeting agenda, as the 2023 AGM Agenda & Motions records, was this litigation. The following motions were proposed in respect of that item:

20That the Body Corporate continue to defend the Bjors/Kennedy proceeding, including all interlocutory matters (the substantive proceeding has yet to be significantly advanced).

21That the Body Corporate approves, confirms and ratifies all decisions and actions of all present and former Committee that are the subject of any claim or allegation in the Bjors/Kennedy proceeding.

22That the Body Corporate stand behind and support Neil and Tony (and any other present or former Committee member that is joined), and (for completeness) record that the Body Corporate does not seek to, and will not, claim against any present or former Committee member for any previous act or omission by that member that is the subject of any claim or allegation in the Bjors/Kennedy proceeding.

23That the Body Corporate objects to any application by Bjors/Kennedy to seek leave to commence a derivative action on behalf  of  the Body Corporate against Neil, Tony, Diane and Leigh.

24That Chapman Tripp continue to act for the Body Corporate and all former and present Committee member individual defendants, at the sole cost of the Body Corporate.

25That the Body Corporate continue to take any and all steps the Committee considers appropriate in an effort to secure cover by AIG for costs incurred by the Body Corporate in connection with the Bjors/Kennedy proceeding.

26That the existing contingency fund and special levy instalment arrangements for the Bjors/Kennedy proceeding continue.

27That the Committee is requested and authorised otherwise to take any and all steps it considers appropriate to give effect to and otherwise in connection with these resolutions concerning the Bjors/Kennedy proceeding.

[42]     The 2023 AGM Committee Report was circulated to owners with the 2023 AGM Notice. Among other things, the report summarised the process to that point in the litigation and the costs incurred and included links to current core documents in the litigation, including the plaintiffs’ second amended statement of claim and the Body Corporate’s statement of defence to it.

[43]     Of the 40 (out of 43) unit owners in attendance, 34 were entitled to vote; six unit owners (including the plaintiffs in respect of their two units and PPRL in respect

of its four units) were not entitled to vote, given  unpaid  amounts  owed  to the Body Corporate.

[44] By ordinary resolution, the Body Corporate passed motions 20 to 27 (set out at [41] above) in substantially the form in which they appeared in the AGM Agenda & Motions. Every owner present and entitled to vote supported and voted in favour of each of these eight motions.

[45]     The defendants contend that the owners had a wealth of information available to them ahead of (and at) the 2023 AGM, including copies of the core documents in this litigation. Each owner (including the plaintiffs) had the opportunity to advance further information before their fellow owners or to propose motions for consideration and voting at the AGM. And each owner (including the plaintiffs) had the opportunity to attend and speak at the AGM. The defendant says it is clear that the Body Corporate does not seek to, and will not, claim against any present or former Committee member for any previous act or omission by a member that is the subject of any claim in these proceedings; and that the Body Corporate objects to the plaintiffs seeking leave to commence a derivative action in relation to any such claim.

What are common law derivative actions?

[46]     It is helpful to set out the following explanation of common law derivative actions from Corporate Law in New Zealand:64

The legal framework governing the availability of a derivative action at common law is known as the rule in Foss v Harbottle. The first part to this rule is that if a company has suffered a wrong, or there has been an irregularity in the conduct of its affairs, then prima facie the company is the proper plaintiff. The second part is that if the alleged wrong or irregularity is one that might be made binding on the company by a simple majority of shareholders, no individual shareholder is permitted to bring an action on the company’s behalf. However, the case law on this second aspect to the rule failed to draw a clear distinction between those wrongs that could be ratified by a simple majority of shareholders and those that could not. The derivative action created an exception to the prima facie rule, referred to as the “fraud on the minority” exception. The action was available where wrongdoers had control of the company and were able to prevent proper action being taken against them by the company. However, the derivative action at common law was variously described by New Zealand commentators as generating “volumes of

64     Susan Watson and Lynne Taylor (eds) Corporate Law in New Zealand (Thomson Reuters, Wellington, 2018) at [27.2] (footnotes omitted).

confused litigation” and as being “surrounded by uncertainty”. In summary, the problem was that there was some confusion on the fundamental point of what constituted a “proper action” by a company against its director(s).

[47]     The confusion and uncertainty regarding common law derivative actions referred to in this commentary included the extent of the exceptions to the rule in Foss v Harbottle.65 The defendants in this case contend that the only true exception is the “fraud on a minority” exception referred to in in the above quote, whereas the plaintiffs’ position is that the exceptions also include ultra vires or illegal acts, enforcement of personal rights and an overall interests of justice ground.66

[48]     As Lord Wedderburn noted in a 1957 article referred to me in argument, the exceptions to the rule are not exceptions at all but rather “situations in which there is no chance of confirmation by the majority, and in which, therefore, the rule cannot apply”.67 An act that is wholly outside the powers of the company cannot be ratified.

[49]     Wedderburn recognised that the source of the rule in Foss v Harbottle is that matters of internal management should be under the control of the majority. Thus “if the thing complained of is the thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly … there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes”.68 He noted that the law had long recognised majority rule as a fundamental principle concerning corporations, which meant it was a justification for the refusal to interfere in internal management.69 However, Wedderburn argued that only a few irregularities are within the power of the majority and that “the limits of ratification and, therefore, of the [r]ule in Foss v Harbottle, may be much more narrowly defined than is sometimes believed”.70

65     Foss v Harbottle (1843) 2 Hare 461, 67 ER 189.

66     The plaintiffs note that some of these exceptions fall outside the rule, rather than being true exceptions.

67     At 203.

68 KW Wedderburn “Shareholders’ Rights and the Rule in Foss v Harbottle” [1957] CLJ 194 at 197, citing MacDougall v Gardiner (No 2) (1875) 1 Ch D 13 (compare the previous action in (1875) 10 Ch App 606).

69 Wedderburn, above n 68, at 198.

70 At 199.

[50]I will return to some of these issues later in my judgment.

Issue (a): Is a derivative action possible under the Unit Titles Act, and if so, is this the type of claim for which a derivative action can be brought?

[51]     The defendants’ position is that there is no room for any common law derivative action in respect of a body corporate established under the Unit Titles Act for the following reasons:

(a)The so-called exceptions to the rule in Foss v Harbottle do not (and should not be extended to) apply to a body corporate established under the Unit Titles Act. The common law relating to derivative actions has, for companies incorporated in New Zealand, been abolished and replaced  with   a   statutory   derivative   leave   procedure.71   The Law Commission’s report preceding enactment of the Companies Act 1993 stated that what is now s 165 “does away with the rule in Foss v Harbottle while preserving, through Court supervision, protection against abuse”.72 Given Parliament’s choice 30 years ago to abolish the common law derivative action in its original “home” – companies law

– it would be odd for the Court to import it now into the different context of the Unit Titles Act.

(b)The fact that common law derivative actions have not been expressly precluded in the legislation is not decisive. It is hardly surprising given there is no clear authority in New Zealand on whether a common law derivative action is available under the Unit Titles Act. That matter has to date been considered in only two New Zealand cases, both determined by Associate Judge Bell. Those cases included obiter statements suggesting that a common law derivative action might be

71 Companies Act 1993, ss 165–168. “Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company”: s 165(6).

72 Law Commission Companies Law: Reform and Restatement (NZLC R9, 1989) at [568].

available in the unit titles context, but the Court did not hear argument, and reached no final conclusion, on the issue.73

(c)Importation of a derivative action regime into the Unit Titles Act would cut across the statutory scheme Parliament carefully created for bodies corporate (which includes the ability for a minority to seek relief under s 210 of the Act or seek to have an administrator appointed under s 141 of the Act). The legislation contemplates and requires that what a body corporate will or will not do is a matter for democratic decision by vote of the owners.

(d)Where Parliament intends a derivative action to be available for a particular type of corporate body, it expressly so provides. Thus, ss 82 to 85 of the Limited Partnerships Act 2008 provide for derivative actions to be brought, with the Court’s leave, on a limited partnership’s behalf by a partner. Similarly, ss 133 to 140 of the Incorporated Societies Act 2022 allows the Court to grant leave to a member or officer to apply to enforce officers’ duties in the name and on behalf of the society. Tellingly, Parliament has not enacted such provisions (based on the Companies Act’s derivative action provisions) as part of the Unit Titles Act.

[52]     I am not prepared to definitively conclude, as a preliminary question, that derivative actions are unavailable under the Unit Titles Act. I do not need to come to a concluded view on this issue in any event because, as I explain later, on the assumption it is legally possible to bring a derivative action, no standing to bring one should be recognised in the particular circumstances of this case. However, I consider

73 Small v Body Corporate [2018] NZHC 19 at [28]: “There may be an arguable legal basis under which the minority could sue to recover for the body corporate any amounts by which the majority have enriched themselves at the expense of the body corporate – the “fraud on the minority” exception to the rule in Foss v Harbottle. The minority has not relied on this, but I deal with it as giving a possible way for assessing the misallocation claim.” See also Singh v Boutique Body Corporates Ltd [2019] NZHC 1707, (2019) 20 NZCPR 297 at [44]: “Generally speaking, Ms Singh cannot sue derivatively for any alleged wrongs done to the body corporate. That is no more than a restatement of the rule in Foss v Harbottle. The rule is subject to exceptions – decisions may be challenged if they are ultra vires or illegal, require a special majority or a fraud on the minority. None of them apply here and there was no suggestion that they did.”

it is likely that the legislation does not preclude a derivative action for the following reasons.

[53]     I accept there are important differences between company directors and committee members under the Act. The committee has no separate legal identity, and all its powers are delegated from the body corporate.74 These differences have been explained by a leading commentator, Rod Thomas:75

Thus [the committee] acts as an agent, subject to the dictates of its principal. In terms of legal consequences, valid decisions of the committee are decisions of the body corporate. This was recently affirmed in Guardian Retail in which the High Court explained that the body corporate was vicariously liable for the conduct of the committee. Legitimate committee decisions are consequentially underwritten by the corpus of all the members and, as with incorporated societies, damages are obtained against the body corporate and not the committee members per se.

Given the committee has no separate legal status, owners in either an AGM or EGM can override decisions of the committee, taken in earlier meetings, and also validate procedural irregularities, so long as those irregularities are a matter of mere form and do not exceed a body corporate’s powers, as granted by the legislation.

A committee’s position can be contrasted with that of directors under corporations law. Company directors are entitled to exercise powers given to them by either the company constitution or applicable statute, and conventionally, are employees of companies. Further, directors can bind the company, notwithstanding a shareholder vote that the company should not commit itself to the obligation.

Thomas goes on to note:

Given the committee members act as agent for the body corporate, a finding that they are liable to the principal where they exceed that authority is unremarkable. However, the claim could only be made where the body corporate actually suffers loss. …

A claim may be made by the body corporate against the committee members under the provisions of the 2010 Act, or by recognition of the general duty of care obligations imposed under the general law. In Guardian Retail, the High Court confirmed “the committee members … have personal obligations to act in accordance with the relevant statutory powers and rules”. To date, there is no case law to indicate how damages for breach of statutory duties will be assessed, although the existence of such liability has been recognised. A choice of which claim is best asserted may be remedies driven, if more extensive recovery is thought to be available by application of tort negligence principles.

74     See the Unit Titles Act, ss 108–110 and 112–114.

75     Rod Thomas, above n 39, at 425 (footnotes omitted), citing Guardian Retail Holdings Ltd v Buddle Findlay [2013] NZHC 1582, [2013] NZAR 988.

[54]     As Thomas notes, his view that it would be unremarkable for committee members to be liable to the body corporate where they exceed their authority is supported by the High Court’s decision in Guardian Retail.76 It is also supported by cases decided under the equivalent New South Wales Strata Title legislation, where it has been held that derivative actions can be brought on behalf of the body corporate.77

[55]     The learned authors of Company Law in New Zealand give this explanation of a non-ratifiable wrong in respect of which derivative actions could be brought at common law:78

20.4.1 Derivative action at common law

At common law, a minority shareholder could only bring a derivative action in the name of the company if he or she could satisfy a number of restrictive requirements. First, the shareholder had to establish that there had been a “fraud on the minority” that could not be ratified by the general meeting. The concept has never been clearly defined, although it is possible to give examples of conduct that fall within its scope. As a general rule, there will be a “fraud on the minority” when the wrongdoers have attempted to ratify, or prevent proceedings from being brought in respect of, a non-ratifiable wrong done to the company.

Clearly, this will include fraudulent or dishonest conduct, as well as certain breaches of fiduciary duty – it was recognised in Mathias v Pearce that “fraud on the minority would include attempts to dissipate corporate assets” or illegal activity. While mere negligence will not fall within the concept, “self-serving” negligence that involves the directors making a significant profit for themselves or acquiring corporate property will constitute a “fraud on the minority”. Equally, conduct that is designed to frustrate the purposes of the corporation or with the aim of expropriating the minority may fall within that term.

[56]     The plaintiffs advance three ways that they say the individual defendants breached the duties owed to the Body Corporate and/or the plaintiffs:

(a)the defendants breached their duty to act in the best interests of the Body Corporate and to exercise independent judgement;

76 Guardian Retail Holdings Ltd v Buddle Findlay, above n 75.

77 Carre v Owners Corporation – SP53020 [2003] NSWSC 397, (2003) 58 NSWLR 302; Eastmark Holdings Pty Ltd v Kabraji [2013] NSWSC 1763, (2013) 97 ACSR 161; APX Projects Pty Ltd v The Owners – Strata Plan No 64025 [2015] NSWSC 1250; and Tan v The Owners – Strata Plan 22014 (No 2) [2015] NSWSC 1920.

78 Peter Watts, Neil Campbell and Christopher Hare Company Law in New Zealand (2nd ed, LexisNexis, Wellington, 2016) (footnotes omitted).

(b)the defendants breached their statutory duties to repair and maintain the common property (s 138) and to not interrupt a unit owner’s quiet enjoyment of their unit (s 79); and

(c)the defendants breached their duty to use their power for a proper purpose, with the improper purpose being the protection of their financial interests (at the expense of the Body Corporate’s).

[57]     There is overlap between the three grounds. They appear to plead a mixture of breach of statutory duty, negligence and bad faith/fraudulent conduct.

[58]     I consider there is only one aspect of these overlapping allegations that could fall into the type of conduct for which a derivative action would generally be available at common law. This is the allegation that the Committee members suppressed information and breached duties for the improper purpose of protecting their financial interests at the expense of the Body Corporate’s.

[59]This appears to fall into the “fraud on the minority” exception to the rule in

Foss v Harbottle described in the passage in Company Law in New Zealand set out at

[55] above. It is therefore the type of wrongdoing for which a derivative action would generally be available at common law (subject to an argument about the necessity for wrongdoer control to qualify as a “fraud on a minority”, which I address below). However, when the pleaded allegations are stripped of this element of improper purpose, they amount to no more than allegations of negligent or careless exercise of powers, or breaches of duties, for which a derivative action would not generally be available at common law.79

[60]               As the Court of Appeal’s decision in this case notes, the Body Corporate’s indemnity of the individual defendants contained reasonable exceptions for fraud, bad faith or gross negligence, and limited the indemnity in usual and sensible ways, such as excluding losses for which the Body Corporate is precluded by law from providing indemnification.80 This is a reflection of the established obligation on a body

(b)In Guardian Retail, Courtney J expressly agreed with Master Faire’s reasoning  in  Manning,  finding  that  individual  members  of   a body corporate must act in accordance with the body corporate rules and are “personally exposed for their wrongful acts”.113 The defendants submit that there was no separate analysis and no explanation of how Master Faire’s analysis of the 1972 Act carries over to the differently worded provisions of the 2010 Act. The defendants note that the adopted comments in Manning are concerned with breaches of body corporate rules, not body corporate duties.

(c)In Singh v Boutique Body Corporates Limited, Associate Judge Bell commented that “[b]ecause [committee members] make decisions on behalf of the body corporate, they owe it some duties”.114 The

112   Manning v Body Corporate 126411, above n 37, at [170].

113   Guardian Retail Holdings Ltd v Buddle Findlay, above n 75, at [26].

114   Singh v Boutique Body Corporates Ltd, above n 73, at [43].

defendants submit that this observation should be treated with caution. The comments are obiter, because the Court did not need to decide whether committee members owed a duty to their body corporate (rather than to individual unit owners). The defendants submit that statutory context should be carefully considered in deciding whether committee members owe any duties to a body corporate (and, if so, the scope of those duties).

[86]             As noted above, Thomas says that “[g]iven the committee members act as agent for the body corporate, a finding that they are liable to the principal where they exceed that authority is unremarkable. However, the claim could only be made where the body corporate actually suffers loss”.115 Thomas goes on to say that “[g]iven committee members will also be owners in the development, the more interesting issue is trying to comprehend what duties a court may impose on members”.116

[87]             It must be borne in mind that I am assessing whether there is standing to bring a derivative action rather than conclusively determining the extent of the actionable duties owed by committee members to a body corporate. Based on the authorities and commentary referred to above, it seems at least arguable that committee members owe actionable duties to their body corporate when performing their functions.

[88]             In the circumstances of this case, I do not consider any non-fraudulent, good faith or negligent exercise of any such duties would likely be sufficient to provide standing to bring a derivative action.117 That is generally the type of conduct that a majority of body corporate members should be left to assess whether proceedings should be brought without the interference from the Court. But even assuming that

115 Rod Thomas, above n 39, at 431; citing Peter Watts and FMB Reynolds Bowstead and Reynolds  on Agency (19th ed, Sweet & Maxwell, London, 2010) at [6-003].

116 Rod Thomas, above n 39, at 432.

117 I accept the plaintiffs’ submission that it is questionable whether any duties that do exist extend to a duty on committee members to take reasonable care (negligence). Unlike director duties under the Companies Act (s 137), there is no statutory duty to take reasonable care. Notably the duties imposed on committee members on 9 May 2023 under the Code of Conduct established by s 114A and contained in Schedule 1A of the Unit Title Regulations 2011 do not impose a duty to take reasonable care. But instead imposes duties to act honestly and fairly and performing those duties (Schedule 1A, cl 2(1)), to act in the body corporate’s  best interests in  performing those duties (cl 3), and to comply with the Act, the regulations, the Code and any other applicable legislation (cl 4).

such conduct could be sufficient, having regard to other factors in this case (which I return to below) I consider no reasonable independent body corporate would take a derivative action in respect of such conduct.

[89]             However, I consider it is at the very least arguable that committee members owe an actionable duty to the body corporate not to cause it loss by exercising powers, or failing to comply with duties, for the improper purpose of advancing their own financial interests at the expense of the body corporate. In my view, it would be surprising if such conduct, which likely falls within the concept of “fraud on a power”, did not provide a basis for a derivative action.

The prospects of establishing the claim of improper purpose

[90]             The next issue is the prospects of the plaintiffs successfully establishing the claim that the Committee members exercised their powers, or failed to comply with their duties, for the improper purpose alleged.

[91]             As is evident in the extracts from Associate Judge Lester’s judgment quoted above,118 there are two crucial points in time where it is alleged that there is clear evidence to support the improper purpose pleaded. The first relates to failure to disclose the Opus report prior to the 5 June 2014 AGM. The second crucial allegation is the editing of the Building Manager’s report for the 2017 AGM.

118   Judgment of Associate Judge Lester, above n 3.

[92]             The remaining allegations in support of an improper purpose are general allegations, essentially anchored to the duty of repair and maintenance in s 138, and failure to disclose to unit owners relevant information about that duty.119

[93] The relevant evidence relating to the 2014 alleged failure to disclose the Opus Report and editing of the Building Manager’s report for the 2017 AGM was summarised by Associate Judge Lester in the extracts at [9] above. I also adopt the following from Associate Judge Lester’s judgment:

[81]      Here, the amended statement of claim pleads the Body Corporate received the Opus Report on 28 March 2014.

[82] There is no evidence to support that allegation. Firstly, the Opus Report dated 8 March 2014 is addressed to Clinton of Alive. The Opus Report is not referred to in the Committee Minutes of 23 April 2014. Instead, as set out at [20] above, Justin of Alive appears to have spoken to the meeting with paragraph 10.1 beginning: “Justin advised …”. The Minutes refer to the advice received by the Committee which, as I noted at [21] above, appears to be a reference to the Opus Report but the Minutes do not record that the Opus Report was received by the Body Corporate Committee. In any event, paragraph 10.1 of the Minutes of 23 April 2014 is broadly consistent with what is in the Opus Report given the conclusion Alive were to engage a QS to determine the true cost of the roof replacement.

[83]      It is true that the Minutes of the AGM dated 5 June 2014 do not refer to the Opus Report. Although it also appears that Justin and Clinton of Alive spoke to the Building Manager’s Report, I accept there is uncertainty as to just what was sent out to unit owners.

[94]             The Opus Report (I agree with Associate Judge’s Lester’s description of it as a brief document) does not state that the roof must be replaced in any particular time

119 I accept the defendants’ submission that regs 6 and 8 did not impose a statutory duty on the committee members to disclose the Opus Report or indeed any other report that it is alleged should have been disclosed to the body corporate through the General Meeting process. Section 206 requires a body corporate to provide specific documents upon the request of a unit owner, which is not applicable here as no requests were made. Regs 6 and 8 set out specific documents that must be provided as part of the notice of either an AGM or an EGM, as well as the catch-all “any other document that the body corporate or chairperson (as the case may be) considers relevant.” None of the documents alleged to have been withheld or suppressed are specified in those regulations, which means it is only the catch-all provision that can be relied upon. It is clear from the plain words of those provisions that they do not impose a duty on the chairperson or committee to provide any particular document, but rather invest them with a discretion to provide any documents they consider relevant. I see no basis to find that provisions of this nature contained in regulations imposes statutory duties on committee members or the chairperson, let alone duties that may be actionable in a private law claim for damages.

frame, but suggests that further extensive repairs are not worthwhile and it is cost effective in the long-term to replace the roof.

[95]             The 2014 AGM is of some importance in light of subsequent events. Ahead of the 2014 AGM, Mr Cooper’s Chair’s Report for that AGM again noted water leaks “continue to be a problem” and again warned that “we cannot delay some major repair work here any longer” and that “the roof in particular cannot be delayed any longer as the leaks are causing major issues for some owners” (having previously expressed the view that major work on the roof should not be delayed in material provided prior to the 2012 and 2013 AGMs). The Chair’s Report stated that the implications of the budget for the year indicated that it would be “necessary to raise levies again by 5% from 1 Feb 2015” to “now rebuild our funds for the major expenditure referred to earlier”. The updated Long Term Maintenance Plan (LTMP) circulated ahead of the AGM proposed that short-term solution work on the roof be undertaken over 2014 to 2017 and alternatives for a longer term solution be sought during 2014, and recommended (among other things) that the standard owner levy be increased by  five per cent from 1 February 2015 to contribute to funds needed for the LTMP.

[96]             Other advice about the roof was given before and at the 2014 AGM. The Building Management Report from the building manager, Alive Building Solutions, noted that an “extensive review of the roof has been carried out”, that repairs “have now commenced” and that they were “fairly confident we have found the source of the water ingress and are taking the necessary steps to remedy the leaks previously experienced”. The report continued that the “contractors doing the works believe that they can manage the roof[’]s current issues, and that the BC won’t need to completely replace immediately”. And at the 2014 AGM, there was “confirmation from Weathertight and Building Services that if remedial actions are taken with relatively small increases in budgets, the roof life can be extended potentially by up to 10 years”.

[97]             At the 2014 AGM, owners passed various resolutions, including that the Body Corporate  delegate  those  powers,  duties  and  responsibilities   to   the   Body Corporate Committee that it was able to delegate under s 108 of the Unit Titles Act in line with a Notice of Delegation and that the Body Corporate “shall report on the delegation at each AGM of the body corporate and at other times as appropriate”.

The Notice of Delegation provided (relevantly) that the Body Corporate did not delegate the power to adopt an LTMP, the power to dispense with a long-term maintenance fund or the power to levy contributions or borrow money.

[98]             Owners also passed resolutions approving the total five per cent levy increase to take effect on 1 February 2015 and approving the LTMP and the operating and LTMP budgets, but adjusting the long-term maintenance budget to reflect the confirmation from Weathertight and Building Services about the roof life (resulting in a reduction from $142,000 to $92,000 of long-term maintenance expenditure that year).

[99]             Therefore, the material provided to unit owners before the 2014 AGM included Mr Cooper’s Chair’s Report that “the roof in particular cannot be delayed any longer as the leaks are causing major issues for some owners”. The updated LTMPs proposed that the short-term solution work on the roof be undertaken over three years and alternatives for a longer-term solution be sought, and the building manager’s report from Alive advised that contractors doing the roof work believed they could manage the roof’s current issues and the roof would not need to be replaced immediately; and the AGM minutes record that there was confirmation from Weathertight and Building Services that if remedial actions are taken the roof life can be extended potentially by up to 10 years.

[100] As noted at [93] above, whether the Committee members themselves actually received the report or simply relied upon the advice provided through Alive is not clear. However, even assuming that the Committee received the Opus Report, comparison between the contents of the Opus Report and the advice provided at the AGM120 is not so contrasting as to lead to the inference that there was suppression of the Opus Report for the improper purpose alleged.

[101]         Moreover, what followed between 2014 and 2017 does not tend to support an inference of suppression of information for the alleged improper purpose.

120 That it is cost effective in the long term to replace the roof without any indication that it must be replaced immediately on the one hand (Opus), and on the other hand that the body corporate will not need to completely replace the roof immediately and remedial action can be undertaken that may extend it potentially by up to 10 years (advice provided at the AGM).

[102]         Ahead of the 2015 AGM, Mr Cooper’s Chair’s Report noted that “the extra amount budgeted last year for repairing the roof has led to considerably fewer leaks, especially around skylights”. The building manager’s report from Alive advised that “[a] round of maintenance took place last year”, “of all of last year’s work there was only one repeat leak, and that has now been rectified”, “[t]his work needs to continue and there are several areas already marked out as more pressing than others”, “for which allowance had been made in the budget”.

[103]         At the 2015 AGM, the building manager’s report noted that “the majority of the roof issues have been addressed” and “ongoing proactive action will be taken”. Owners passed various resolutions, including that the Body Corporate delegate its powers, duties and responsibilities to the Body Corporate Committee, in line with a Notice of Delegation, and that the Body Corporate Committee “shall report on the delegation at each AGM of the Body Corporate and at other times as appropriate”.121 Owners also passed resolutions approving the 2015/2016 operating budget, long-term maintenance budget and the 10-year LTMP (revised to reflect the withdrawal of a special levy provision and the failure of a motion for a three per cent increase for the coming year).   A motion that a total three per cent levy increase take effect on        1 February 2016 was not carried.

[104]         Ahead of the 2016 AGM, Mr Cooper’s Chair’s Report noted that most leaks in the building “had been identified” but that one had “proved particularly difficult”. In excess of $20,000 had been spent investigating and resolving the issue but the leak had not “been eliminated” although its extent “had markedly reduced”. The building manager’s report from Alive advised that “thanks to input from a number of professionals and concerned residents, we have a better understanding of the main issues” and that “[b]ased on all the information, and with further upcoming discussions with these professionals, the body corporate has a plan of work that is believed to be the most effective and efficient way to deal with the issues”.

121 Apart from also delegating to the body corporate committee certain powers to take action on owners in default of payment, the 2015 Notice of Delegation was materially the same as the 2014 Notice of Delegation.

[105]         At the 2016 AGM, representatives from Alive Building Solutions spoke to the building manager’s report and addressed the meeting on the subject of water ingress, particularly into Unit 26. A recommended course of action was advised, with which the meeting unanimously agreed, with the exception of Mr Kennedy who voted against the proposal and then left the meeting. After Mr Kennedy had left, owners passed various resolutions, including that the Body Corporate delegate its powers, duties and responsibilities to the Body Corporate Committee, in line with a Notice of Delegation, and that the Body Corporate Committee “shall report on the delegation at each AGM of the body corporate and at other times as appropriate”, and resolutions for the 2016/2017 Budgets, LTMP and levies.122

The building manager’s report for the 2017 AGM

[106]         Moving now to the amendments made by Mr Cooper to the building manager’s report for the 2017 AGM. As Associate Judge Lester noted, it is clear that the report was edited in conjunction with advice received from Chapman Tripp following the plaintiffs putting the Body Corporate on notice of the possibility of litigation. It is clear from Mr Cooper’s email to Alive that he was concerned to obtain advice about how much should be included in the report given the litigation risk posed by the plaintiffs. Chapman Tripp had already provided advice in respect of cutting out material from his Chair’s Report. The removal of reference to the Opus Report was done in conjunction with advice received from Chapman Tripp. Mr Cooper’s prudence in obtaining advice from Chapman Tripp before editing the report does not appear to be consistent with the act of a committee chair suppressing relevant information for the improper purpose of advancing his own interests. Moreover, the material edited did not alter the overall conclusion that a full replacement of the roof should be prioritised.

[107]         Ahead of the 2017 AGM, item 12 of the Agenda noted that “[w]e have been advised that the metal roof, which had previously been advised could last for at least another 5 years with judicious maintenance, does in fact need to be replaced as soon as possible” and that the “estimated cost of $350,000-$500,000 has meant that other major projects have had to be scaled back or deferred.”

122   The 2016 Notice of Delegation was materially the same as the 2015 Notice of Delegation.

[108]         At the 2017 AGM, owners unanimously passed resolutions, including that the Body Corporate delegate its powers, duties and responsibilities to the Body Corporate Committee, in line with a Notice of Delegation,123 and approving budgets, the LTMP and levies. The minutes noted that, once the costing for the new roof had come through, the LTMP would be reviewed and updated and presented back to owners for approval at the next AGM.

Events following the 2017 AGM

[109]         In July 2018 (and ahead of the 2018 AGM), Mr Cooper circulated to owners a written resolution and accompanying paper seeking owner approval “that the current roof be replaced with a ‘warm roof with multi-layer membrane’, the work be done in two phases, and $180,000 be budgeted in the 2018/19 financial year for phase one of this project, all on the basis outlined in the notice accompanying this resolution”. Twenty-five out of 35 owners representing 32 out of 43 units (74.4%) voted in favour and no owner voted against.

[110]         Ahead of the 2018 AGM, Mr Cooper’s Chair’s Report noted that the re-roofing costs had “risen markedly from an initial estimate of up to $600,000 a year ago to about $900,000 currently” and that how to manage that would be an important discussion item at the AGM.

[111]         At the 2018 AGM, owners unanimously passed resolutions, including that the Body Corporate delegate its powers, duties and responsibilities to the Body Corporate Committee, in line with a Notice of Delegation. Owners agreed at the meeting that no decision on budgets would be made, given the potential for a special levy had been identified only at the meeting. The Committee would review other options for managing the work and the budget implications and arrange for an EGM to be held later.124

[112]         On 18 February 2019, the Body Corporate held an EGM to ask for owners’ approval on the amended stage one and the three stage two options. Ahead of that

123   The 2017 Notice of Delegation was materially the same as the 2016 Notice of Delegation.

124   The 2018 Notice of Delegation was materially the same as the 2017 Notice of Delegation.

EGM, a re-roofing project proposal was circulated to provide owners with background and to outline a newly amended stage one of the project and to provide three options for implementing stage two of the project, together with associated costs and timeframes.125

[113]         As pleaded in each defendant’s statement of defence, work began on stage one of the re-roofing project in March 2019. In or around June 2019, the Body Corporate applied for an amendment to the building consent, which was approved in July 2019, to remove and replace some exterior cladding. Stage one of the re-roof project, which replaced the roof above the plaintiffs’ apartments and external cladding, was completed in May 2021 at a cost of approximately $2,615,000 (including GST), funded by members of the Body Corporate. Stage two of the re-roof project, which replaced the remainder of the roof, began in September 2021 and was practically completed in July 2023 at a further cost of approximately $4,500,000 (including GST), funded by members of the Body Corporate.

[114]         The Body Corporate pleads that it could do only what its unit owners – in general meeting or by written resolution – authorised and funded it to do. And absent any earlier positive decision by a majority of eligible  unit  owners  voting,  the  Body Corporate had neither the power nor the funds to replace the roof or permanently repair related areas of external cladding earlier than it did.

Overall assessment of prospects of success

[115]         I accept the defendants’ submissions that the following matters weigh against the likelihood of the plaintiffs’ improper purpose claim succeeding:

(a)The work involved in replacing the roof required owners resolving to approve the work and to fund it by way of levy contribution. The Committee was required to act within the budgetary constraints that owners approved in each general meeting. None of the four Committee member defendants had the power at any time to unilaterally make decisions on behalf of the Committee.

125   Additional background papers were also circulated ahead of the EGM.

(b)The complaints that particular documents should have been sent out with AGM or EGM Notices overlooks the prescriptive and high-level nature of the documentation that the Unit Titles Regulations contemplates will accompany a Notice of General Meeting. In any event, cursory review of the various AGM and EGM Notices confirms that considerable care was taken to provide substantive useful information to owners.

(c)The material provided ahead of (particularly) the 2012, 2013 and 2014 AGMs – in which Mr Cooper expressed the view that major work on the roof should not be delayed – tells against any suggestion that there was an attempt to delay replacement of the roof for the improper purpose alleged.

(d)The ability of the Committee members to carry out the alleged improper purpose is inconsistent with the Body Corporate’s reservation to owners of the powers to levy contributions (rather than delegating it to the Committee). The Body Corporate’s oversight and approval of the Committee’s work over such a lengthy period of time decreases the likelihood that the Committee members were able to mislead  the Body Corporate to give effect to the improper purpose (although, I do not place great weight on this matter, as the very point of the improper purpose was to mislead the Body Corporate about the repairs required).

[116]         I must be cautious not to reach conclusive factual findings when assessing the likelihood of the improper purpose claim succeeding. But in assessing the issue, I must take into account the relevant parts of the extensive affidavit and documentary evidence produced.

[117]         In the end, my main concern is simply the paucity of evidence to support the improper purpose allegation. As Grice J has noted in this case: the nature of the obligations to manage the body corporate and related obligations involve difficult operational and management decisions for volunteer committee members;126 and there

126   Judgment of Grice J, above n 2, at [112].

is no doubt the committee will be required to make decisions concerning repairs and maintenance that will be contentious and expose them to liability, particularly in relation to leaky building claims.127 The complexities of dealing with leaky buildings in a Unit Titles context should not be underestimated.

[118]         The two points in time where there is said to be “smoking gun” type evidence of an improper purpose, namely alleged suppression of the Opus Report in 2014 and editing of the building manager’s report for the 2017 AGM, are at best equivocal. They are equally consistent with the remainder of the evidence, which indicates that the Committee members were doing their best to act in the Body Corporate’s interests under the complexities and financial constraints faced by the Body Corporate (even if their confidence in the ability to repair rather than replace the roof in the short term was misplaced).

[119]         For these reasons, I consider there are low prospects of the improper purpose claim succeeding.

Other factors relevant to standing

[120] As noted at [81] above, I consider wrongdoer control of the decision whether to bring a claim is a highly relevant consideration to standing, although not determinative. It is highly relevant in this case that the Committee member defendants have had no control over the Body Corporate’s decision that it does not want to pursue any claim against them and objects to any derivative action being allowed to proceed. The evidence of the steps taken to inform unit owners of relevant matters relating to these decisions and the evidence of the circumstances of the decisions themselves, indicate this is not a situation where the wrongdoers have exerted de facto control through influence over unit owners, or that there has been unit owner apathy. The decision of an overwhelming majority of informed and independent Body Corporate members that they do not wish to pursue the claim is a factor that weighs heavily against standing.

127 At [94].

[121]         The Body Corporate’s interests in the proposed claim are low. The claim pleads losses to compensate the plaintiffs alone, and are mainly consequential rather than direct losses for items such as consulting fees, legal fees, and alternative accommodation.

[122]         The likely cost of litigating the derivative action will be high. As the number of decisions already issued in these proceedings indicate,128 the litigation is complex and highly contentious. Any trial is likely to be lengthy and expensive.

[123]         I consider a reasonable independent body corporate would not bring the derivative action due to: the low prospects of succeeding on the aspect of the claim for which a derivative action would generally be available at common law (the alleged improper purpose); the lack of wrongdoer control or influence over the decision of an independent Body Corporate not to litigate; the high cost of litigating the claim; and the Body Corporate’s low interest in the relief sought.

[124]         This is not an appropriate case for the Court to interfere with the Body Corporate’s decision that a claim should not be brought. I therefore conclude there is no standing to bring the derivative action.

[125]         Even applying the low standard of proof contended for by the defendants, for the same reasons I do not consider there is an arguable or tenable basis for standing. I am satisfied there is no tenable basis to bring a derivative action given my assessment of the factors relevant to that that determination, namely low prospects of success, lack of wrongdoer control or influence, the high cost of bring the claim, and the low interest in the relief sought.

Overall conclusion on Question 1

[126]         Given these findings, I answer Question 1: No. Assuming (without deciding) the most favourable view of the law for the plaintiffs, which would allow standing

128 Judgment of Associate Judge Lester, above n 3; Kennedy v Body Corporate 82981 [2023] NZHC 3123; Judgment of Grice J, above n 2; Kennedy v Body Corporate 82981 [2024] NZHC 913; and Court of Appeal judgment, above n 4.

based on a broad discretionary assessment of relevant factors, I am satisfied there is no standing to bring a derivative action in this case.

Q2: Ratification

[127]         Having answered Question 1: No, I do not need to determine the second question of ratification.

Costs

[128]         My preliminary view is that the defendants are entitled to costs on a 2B basis with certification for second counsel. If costs cannot be agreed, the parties should file memoranda within 15 working days (limited to five pages), and reply memoranda (limited to two pages) five working days thereafter. Costs will be determined on the papers.

La Hood J

Solicitors:

Lane Neave, Auckland for Plaintiffs

Chapman Tripp, Wellington for Defendants