Kennedy v Body Corporate 82981
[2023] NZHC 1377
•6 June 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-000749
[2023] NZHC 1377
Under the Unit Titles Act 2010 In the matter of
Breach of Statutory Duty, Negligence, Nuisance and Deceit
BETWEEN
CY KENNEDY and KAJSA KARIN ELEONORA BJORS
Plaintiffs
AND
BODY CORPORATE 82981
First Defendant
AND
NEIL DOUGLAS CHARLES COOPER
Second Defendant
AND
ANTHONY VOLPICELLI
Third Defendant
Hearing: 27 April 2023
Further memoranda 2, 5 & 30 May 2023
Appearances:
I J Stephenson for Plaintiffs N S Wood for the Defendants
Judgment:
6 June 2023
JUDGMENT OF GRICE J
Introduction
[1] This is an application1 in which the plaintiffs (the applicants) seek orders that a deed of indemnity (the deed) provided by the Body Corporate in favour
1 The application was initially filed as an interlocutory application for interim orders in ordinary proceedings commenced by statement of claim. The claims pleaded were for breach of statutory duty, negligence and nuisance against the Body Corporate (the first defendant) and breach of
KENNEDY and BJORS v BODY CORPORATE 82981 [2023] NZHC 1377 [6 June 2023]
of the second and third defendants, a Body Corporate Chair and Committee members, is ultra vires the Unit Titles Act 2010. They also say that the resolution by the Body Corporate that it would meet the costs of defence of those defendants is ultra vires and that the resolution authorising entry into that deed is unjust and inequitable to the minority.
[2] The second and third defendants filed a memorandum before the hearing indicating that they would abide the decision of the Court. The first defendant took the carriage of the arguments.
Background
[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 program 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,
statutory duty against the second and third defendants. By agreement the application has been treated as an originating application and no new CIV number has been allocated to the application. The parties agreed to this procedure: Kennedy v Body Corporate 82981 HC Wellington CIV-2021- 485-749, 1 December 2022 (Minute of Gendall J).
which necessitated them moving out and finding alternative accommodation for a period of time. The actual cost of repairing the roof and associated damage is not the issue in the substantive proceedings.
[6] The substantive claim pleads negligence, breach of statutory duty and nuisance against the Body Corporate and breach of statutory duty against the second and third defendants. The relief sought against the Body Corporate is judgment for the costs of repairs and restoration of the internal linings of the unit to restore habitability and/or the value of the unit as well as loss of use and consequential losses, and general damages. Against the second and third defendants the plaintiffs claim under breach of statutory duty that they caused the Body Corporate to commit the breaches and are liable to the plaintiffs for the loss arising from the Body Corporate’s breaches of duty and nuisance. In addition, the plaintiffs claim against the second and third defendants the costs of temporary building work to the roof, wasted remedial, design consultancy and related professional fees, as well as escalation in repair costs (to be quantified before trial).
[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 2022.2
[10] The deed of indemnity and the resolutions are intended to indemnify those defendants in relation to claims of the plaintiffs by way of ordinary proceedings pleading various tortious claims for damages related to the failure to replace or repair the roof of the Body Corporate building in a timely manner. The pleadings say a unit owned by the plaintiffs at the top of the building, immediately under the faulty roof, suffered leak damage, including by toxic mould. The total claims are yet to be particularised and total $661,629.55. General damages of $100,000 and interest are also claimed.
[11] While the substantive claim was filed in December 2021, it has made little progress toward hearing due to a number of interlocutory applications. Counsel advised me that a further interlocutory application is to be dealt with on 30 June 2023 and until that had been dealt with no further progress could be made with case management.
[12] The present application was filed by way of an interlocutory application for interim relief. The plaintiffs seek orders under the Declaratory Judgments Act 1908 that one resolution and the indemnity are ultra vires the Unit Titles Act 2010. They also seek minority relief under s 210 of the Unit Titles Act in respect of the other resolution. To the extent the application seeks orders under the Declaratory Judgments Act, it should have properly been brought by originating application. This would have required either a statement of claim under pt 18 of the High Court Rules 2016 or (with permission under r 19.5) by originating application. However, the defendants’ counsel
2 The stamp on the interlocutory notice of application indicating receipt by the Court is dated 4 November 2022. Under s 210(2) any application for minority relief is required to be given within 28 days of the passing of the resolution. If the notice was required to be given 28 days from the passing of the resolution, which is taken as the date that the votes were required to be received votes, the 28-day period expired at close of business 29 October 2022. If the notice was required to be given 28 days from the date of notification of the outcome, the notice was required to be given by close of business on 4 November 2023.
agreed that to expedite the matter the application should be dealt with as if it were an originating application with no statement of claim or defence required. A direction to that effect was made by minute of Gendall J dated 1 December 2022.
Legal framework
[13] In order to consider the issues it is necessary to first set out the legal framework of the Act.
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:
(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.3
(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.4
(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.5
(d)The members of a body corporate for a unit plan are the unit owners of all the units in the unit plan.6
(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.7 The principal unit must generally be a unit that contains a building or part of a building or is contained in a building.8
(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.9
(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.10
(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
3 Unit Titles Act 2010, s 16(1)–(2).
4 Section 17(1).
5 Section 75(1).
6 Section 76(1).
7 Section 7(1).
8 Section 7(1).
9 Section 5(1) definition of “accessory unit”.
10 Section 5(1) definition of “common property”.
tenants in common in shares proportional to the ownership interest in respect of their respective units.11
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 enjoyment of their unit without interruption by other unit owners, occupiers or the body corporate, except as authorised.12
(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.13
(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.14
[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:
11 Section 54.
12 Section 79.
13 Section 80.
14 Sections 84(1), 115, 117–121 and 138.
(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.15
(b)A body corporate may establish and maintain one or more contingency funds to provide for unbudgeted expenditure.16
(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.17
(d)A body corporate may spend or borrow money.18
(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.19
[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.20 A body corporate of a unit title development of 10 or more principal units must form a body corporate committee unless the body corporate, by special resolution, decides not to do so.21 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.
15 Section 115(2).
16 Section 118.
17 Section 121(1).
18 Section 130(1)(a).
19 Section 138(1).
20 Section 108(1).
21 Section 112(2).
[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).22 AGMs must be held once every calendar year and not later than 15 months after the previous AGM.23 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.24
[20] The second respondent, Mr Cooper, is said never to have been a member of the Body Corporate, but rather a former chair and former Committee member nominated as a director of Neil Cooper Trustees Ltd, which owned a unit at the time Mr Cooper was the chair and committee member. The body corporate chairperson is a member of the committee and may be appointed chair of that committee.25 For the purposes of this application, both the second and third defendants are members of the Committee. I deal below with the plaintiffs’ submission that because Mr Cooper has never personally owned a unit he is in a different position to that of the third defendant. In other respects, the fact that Mr Cooper was also the chair of the Body Corporate has no relevance other than likely exposing him to greater risk of legal threats and claims.
[21] In general, no matter may be transacted at a general meeting of the body corporate unless a quorum is present.26 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.27
[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.28 All other matters — except as otherwise provided in the Act — must be decided by ordinary resolution.29
22 Section 88.
23 Section 89(3).
24 Sections 89A and 90(2) and (3).
25 In accordance with s 112A and reg 26 of the Unit Titles Regulations 2011.
26 Section 95.
27 Section 96(1) and (3).
28 Section 101(2).
29 Section 101(1)–(2).
[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.30 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.31
[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).32
[25] I now turn to consider the details of the process undertaken by the Body Corporate to pass the relevant resolutions and the terms of the resolutions and the deed of indemnity.
The process of passing the resolutions
[26] The relevant resolutions and the deed of indemnity were passed and executed respectively by or on behalf of the Body Corporate itself, not the Committee acting under its delegated authority.
[27] No issue is taken with the process undertaken by the Body Corporate to pass the resolutions or execute the deed of indemnity. The focus is entirely on whether the indemnity arrangements and/or resolution agreeing to meet the costs of the defence of the second and third defendants are ultra vires or unjust and inequitable to the minority, in the case of the indemnity resolution.
[28] However, in the course of oral argument it became obvious that there was an issue in relation to whether or not the 28-day time limit for a minority to challenge a decision of the body corporate had been complied with. I deal with this issue further below.
30 Section 97(1), (2) and (4).
31 Section 98(1), (2) and (4).
32 Section 104.
[29] The Body Corporate has and had a Committee at the relevant times. Mr Cooper was chairperson of the Body Corporate from January 2012 to July 2019. Mr Volpicelli remains a current unit owner and was a member of the Committee at the material times.
March 2022 resolution
[30] The March 2022 resolution was to defend the proceeding and support the second and third defendants.
[31] An EGM was held on 17 March 2022. The agenda of the EGM was to discuss the proceeding the plaintiffs had brought.
[32] The EGM notice and associated documentation was sent to owners in advance of the EGM.
[33] The approach of the Committee to the claims against the second and third defendants was set out in the EGM notice under the heading “Approach”:
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.
[34] For completeness I note that an application for an order that Chapman Tripp be disqualified from acting for any of the defendants in this proceeding was dismissed in a previous interlocutory decision.33
33 Kennedy v Body Corporate 82981 [2022] NZHC 1927 [interlocutory application decision]. An application for an order that Chapman Tripp be granted leave to represent all defendants was also declined on the basis that the claim of the conflict alleged by the plaintiffs was theoretical and the Body Corporate had had a chance to take independent advice in the form of the alleged crossclaim: at [101]. Lester AJ said it was not possible at that time to assess the merits of Chapman Tripp’s application for leave: at [101].
[35] The EGM notice set out the text of seven motions to be decided at the meeting by ordinary resolution. Motions 1 to 3 are of relevance here:
1.The Body Corporate defend the proceeding by the plaintiffs.
2.The Body Corporate stand behind and support Neil and Tony in all respects in their defence of the proceeding.
3.Chapman Tripp continue to act for the Body Corporate, Neil and Tony, at the sole cost of the Body Corporate.
[36] The plaintiffs’ challenge to that resolution (the March 2022 resolution) relates to the final eight words of motion 3, namely “at the sole cost of the Body Corporate”.
[37] Owners of 38 of the 43 units joined the meeting in person or by proxy and three owners participated by postal vote. Of the 38 owners in attendance, 35 were entitled to vote. The plaintiffs, as owners of units 26 and 27, and the owner of unit 28, a company 99 per cent owned by a Mr Phillips, were not allowed to vote as they had unpaid amounts owing to the Body Corporate.
[38]The minutes of the March 2022 EGM relevantly recorded the following:
5. Approach
The Body Corporate Committee believes, based on the advice received, that the plaintiff’s claim has no grounds. The Committee further iterated that the Body Corporate should support past and current volunteer members, and that there would be limited added costs for extending funding for the current legal defence to the past Chair, Neil Cooper, and the current Chair Tony Volpicelli, due to the claims overlapping with those made against the Body Corporate.
[39] The Body Corporate is the primary defendant in the underlying High Court proceeding. Mr Street in his affidavit opposing this application and as a present member of the Body Corporate says that those defendants had spent enormous amounts of time dealing with the claims from the plaintiffs and Mr Phillips as well as investigating and proceeding with the extensive work required in having the roof replaced.
[40] Mr Street goes on to say that as Committee members are unpaid for their time (except for an honorarium they are entitled to receive to reimburse them for minor outgoings incurred if claimed) they give their time voluntarily and without pay. Mr
Street said he believed if the Body Corporate were not to stand behind the relevant defendants it would be a disincentive to owners putting themselves forward to serve as chair and Committee members, to the detriment of the Body Corporate as a whole.
[41] The plaintiffs and Mr Phillips (who had cast three votes against the resolution for units 3, 12 and 16) disagreed with this approach. The affidavit evidence indicates that Mr Kennedy had sent an email to owners before the EGM to dissuade owners from voting in favour of the resolutions arising out of the proceeding the plaintiffs had brought and recommending settlement of that proceeding by the Body Corporate.
Ultra vires the Unit Titles Act 2010
The plaintiffs’ position
[42] The challenge to this March 2022 resolution is that the resolution is ultra vires the Unit Titles Act. The application indicates that the plaintiffs rely on, among other things, the Declaratory Judgments Act 1908. Mr Wood, for the Body Corporate, submits that s 3 of that Act allows any person who “has done or desires to do any act” the validity, legality or effect of which depends on the construction of any legislation, to apply to the High Court for a declaratory order determining any question as to the construction of that legislation. He says the plaintiffs do not identify any acts they have done or wish to do whose validity, legality or effect depends on the construction of the Unit Titles legislation. However, counsel also concedes that this is probably of little moment as the Court’s inherent jurisdiction would allow it to give the relief sought in the circumstances if appropriate.
[43] I am unable to identify a relevant act or intended act that would fall within the provisions of s 3. However, I also agree with Mr Wood’s view that this makes little difference as the Court would have, in its inherent jurisdiction, the power to grant relief in the nature of that which is sought. The jurisdiction to grant such a declaration is discretionary.34
34 Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington, 2011) at [14.7].
[44] The plaintiffs do not invoke the minority relief jurisdiction in s 210 of the Unit Titles Act. They could not do so in relation to the March 2022 resolution as they are not “person[s] who voted against the resolution.”35
[45] Mr Stephenson for the plaintiffs argues that the duties of a body corporate, being a creature of statute, are limited or proscribed by the Unit Titles Act. He points out that s 84 at the time of the matters giving rise to the issue under consideration provides:36
84 Powers and duties of body corporate
(1)The body corporate has the powers and duties set out in—
(a)sections 40 to 42 (which relate to the assignment and reassessment of ownership interests and utility interests):
(b)section 81 (which permits the body corporate to act as an agent for the unit owners who lease or licence their principal unit and are absent for the purpose of enforcing the body corporate operational rules):
(c)section 85 (which requires the body corporate to keep and maintain a register of all the owners of principal units and accessory units on the plan):
(d)section 86 (which relates to the body corporate’s power to sign documents on behalf of the owner):
(e)section 87 (which requires the payment of ground rental to a lessor):
(f)section 90 (which relates to the calling of general meetings):
(g)section 105(4) (which requires the body corporate to comply with the body corporate operational rules):
(h)section 108 (which is the general power of delegation):
(i)sections 115 and 117 to 120 (which relate to the establishment and maintenance of the funds):
(j)section 116 (which requires the body corporate to establish and maintain a long-term maintenance plan):
35 Unit Titles Act, s 210(1). The plaintiffs were ineligible to vote pursuant to s 96(3) of the Act because they had not paid all their body corporate levies.
36 A new subsection “(ba) section 84A (which requires the body corporate to keep records to enable information disclosure obligations to be met):” was inserted on 9 May 2023 by s 10(1) of the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022.
(k)section 121 (which relates to the raising of amounts for each fund and the imposition of levies on the unit owners to establish and maintain each fund):
(l)sections 130 and 131 (which relate to the spending, borrowing, and investing of money and the distribution of surplus money and property):
(m)section 132 (which relates to the keeping of accounting records and submission of its yearly financial statements to an independent auditor):
(n)section 135 (which relates to insurance of the buildings and other improvements on the land):
(o)section 136(4) (which relates to the application of insurance moneys in or towards reinstatement of the development):
(p)section 138 (which relates to repair and maintenance of the common property, assets designed for use in connection with the common property, infrastructure, and building elements and access for those purposes):
(q)section 206 (which relates to the provision of records and documents on request from a unit owner):
(r)any other provisions of this Act, any other Act, or the regulations that confer powers or duties on the body corporate and subject to any limitations to those powers and duties in this Act, any other Act, or the regulations.
(2)Except as expressly provided in this Act, the body corporate does not have any duties in respect of a future development unit that comprises part of the unit title development.
[46] Mr Stephenson said that the authorised powers of a body corporate are those which are reasonably necessary “to carry out identified duties.”37 In Body Corporate 401803 v Vermillion Wagener Ltd, Muir J noted that under the Unit Titles Act 1972 the body corporate had all such powers as were reasonably necessary to enable it to carry out the duties imposed on it by the Act.38 He went on to note that where a power is identified in the rules (such as for the committee to employ agents in connection with the control, management and administration of the common property in the exercise and performance of the powers and duties of the body corporate), it was implicit that the exercise of such powers, for instance by entry into a management
37 Body Corporate 401803 v Vermillion Wagener Ltd [2015] NZHC 285 at [67]; and Body Corporate 207650 v Speck [2017] NZHC 966.
38 At [66].
agreement, would be reasonably necessary to enable the body corporate to carry out duties imposed by the Act and rules.39 It was not necessary in that context to identify, for example, a discrete duty to enter into a management contract. Therefore, management agreements are not per se ultra vires, but specific terms in them may still be challenged as not reasonably necessary to enable the disposition of duties.40
[47] Mr Stephenson says that while s 105 allows the Body Corporate to promulgate operational rules, and it is required to comply with those rules, it cannot create powers through operational rules that “are not incidental to the powers and duties conferred or imposed on the body corporate under this Act.”41
[48] Mr Stephenson says that decisions of a body corporate must be in furtherance of the purpose and scheme of the Act. He points to s 3 of the Act, which sets out the purpose of the Act, including 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. He submits that there is nothing about the purpose of the Act that would imply the ability of a body corporate to require owners to bear the cost of defending former committee members or chairs, especially in circumstances where a defendant is not an owner.42
[49] Mr Stephenson further argues that the scheme of the Act reflects the purpose of establishing and operating stratum estate, in which the Body Corporate has a circumscribed role connected to the management or administration of the building and improvements on land, including powers related to management, finance and communal decision-making.
[50] Mr Stephenson submits that although a body corporate has the powers of a natural person under s 77, any act must be referable to the powers and duties granted under the legislation found otherwise at law, pursuant to s 78 of the Act:
77Core things body corporate may do
39 At [70].
40 At [71].
41 Unit Titles Act, s 106(2).
42 That refers to Mr Cooper not himself being an owner but owning the unit through his company or trust.
(1)A body corporate may do anything authorised by this Act or any other Act.
(2)A body corporate may do anything a natural person of full age and capacity may do except as provided for in this Act or any other Act.
78Act must be for purpose of performing duties or exercising powers
A body corporate may do an act under section 77 only for the purpose of performing its duties or exercising its powers.
[51] He says that there is nothing in the list of provisions in s 84 of the Act that provides a power of indemnity, and that is the section which sets out the source of powers and duties.
[52] Mr Stephenson says that the sections referred to in s 84 which might have contained a duty or power allowing indemnification of committee members include s 108 (the general power of delegation), ss 115, 117 and 220 (the establishment and maintenance of funds to pay expenses), s 130 (spending money) and s 135 (insurance of the buildings and other improvements on the land). Mr Stephenson said there is nothing in those sections that refers to or provides for, expressly or impliedly, an indemnification of Committee members.
[53] Mr Stephenson also says that when the Act was passed, Parliament had received submissions on the question of indemnity and yet not included it.43 He says that the Unit Titles Amendment Act 2022, which was the most recent reform of the Act, similarly did not change the position on indemnification. In contrast, Parliament did add to the controls on the conduct of committees, including provisions providing for a code of conduct and disclosure of conflicts of interest. In that context of assessing the duties or conduct of committees, he submits, Parliament would have had reason to consider the corollary of indemnification for committee members. In addition, he says that if a body corporate has a power to indemnify, there would be a power to contract for liability insurance for committee members.
43 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 n 124.
[54] Mr Stephenson points out that s 135 contains provisions relating to the duties and powers to insure and does not contain a power to indemnify. The relevant provision relating to the insurance of buildings and other improvements on land is as follows:
135 Body corporate to insure all buildings, etc
(1)The body corporate must insure and keep insured all buildings and other improvements on the base land to their full insurable value.
(2)The body corporate must take out any other insurance it is required by law to take out and may take out additional insurance if it considers it practical to do so.
(3)The body corporate must, before the commencement of any work by the body corporate or the unit owner, notify its insurer of any additions or structural alterations to any units.
(4)For the purposes of this section, in a layered unit title development the body corporate referred to in this section is the head body corporate.
[55] Mr Stephenson says the legislation must be read as a whole and other factors, such as the surrounding words, the subject matter of the relevant part, and the overall scheme of the Act are applicable to the interpretation of the wording. He points to the wording of s 135 as being quite specific to insurance of buildings and improvements. It does not extend beyond the purpose and scheme of the Act to allow other than insurance of those items.
[56] In addition, Mr Stephenson says that the rationale by Mr Street that the Body Corporate indemnify the defendants on the basis that if such defendants were not supported owners would not come forward to be Body Corporate members due to the risk is a straw man. This is because there is no case in this country in which a committee member has been found liable for breaches of duty to the body corporate and only a handful of reported cases where the matter has arisen. He notes the most recent case is that of Singh v Boutique Bodies Corporates Ltd.44
[57] Mr Stephenson further points out that s 79 of the Act, which sets out the rights of owners, does not provide a right to be indemnified by the body corporate for the defence of legal proceedings.
44 Singh v Boutique Bodies Corporates Ltd [2019] NZHC 1707, (2019) 20 NZCPR 297.
[58] Mr Stephenson says that members acting in good faith and in accordance with their duties do not face liability. The Act’s regulations provide means by which committee members can identify what their scope of the authority is. They are served with a copy of the written notice of delegation under reg 22 of the Unit Titles Regulations 2011 and so notified of the limits of the committee’s powers. The notice is required to contain a description of the duty or power and the restrictions (if any) on the body corporate committee’s power to perform the duty or exercise the power.
[59] Mr Stephenson says that any submission that a power to indemnify the committee arises out of the power to constitute a committee or delegate authority “falls into the fallacy of an asserted power derived from a power”, citing the Court of Appeal’s decision in Vermillion Wagener Ltd v Body Corporate 401803.45
[60] The Court of Appeal in that decision noted that a body corporate is a creature of statute, the powers and duties of which “are tightly prescribed by the unit titles legislation.”46 The Court went on to say:47
… the existence of a power, whatever its source, is not enough to authorise the Body Corporate to guarantee a third party obligation which has no tenable relationship with an underlying legal duty.
[61] In that case the Court of Appeal upheld the High Court decision that the power to appoint a building manager did not empower the body corporate to enter into any related agreements because the exercise of the power must be anchored to a duty in the Act or the rules. The guarantee of the lease of the manager’s apartment and a guarantee of an amenities lease in favour of another proprietor were outside the powers of the body corporate because no specific duties grounding the need to give guarantees could be identified in the Act or rules nor could it be established that the exercise of the powers were reasonably necessary to carry out the duties which it was argued necessitated the guarantees.48
45 Vermillion Wagener Ltd v Body Corporate 401803 [2015] NZCA 313, (2015) 16 NZCPR 483 at [28]–[34].
46 At [24].
47 At [29].
48 At [33]–[35].
The Body Corporate’s position
[62] The second and third defendants filed a memorandum shortly before the hearing indicating that they neither consented to nor opposed the application and abided by the Court’s decision. The Body Corporate took the role of defending the validity of the resolutions and the execution of the deed of indemnity.
[63] The Body Corporate said that the March 2022 resolution and deed of indemnity were within the powers of the Body Corporate under the Unit Titles Act. It further said there was no basis for any finding that the September 2022 resolution was unfair or oppressive to the plaintiffs as a minority.
[64] Mr Wood for the Body Corporate said that the legislation provides for democratic decision-making mechanisms allowing the members to decide what the Body Corporate does or does not do. He said the business of the Body Corporate is generally transacted by way of general meetings.
[65] The Body Corporate submitted that the Unit Titles Act was a “one-size-fits-all approach” for unit title developments. Some of these may only have two principal units and others may comprise hundreds. Particularly in larger bodies corporate it is almost inevitable that members will have different interests and differing views about matters related to the management and governance of the building and unit title development. These differences of view must be resolved by way of democratic decision-making by the members. Mr Wood submits that this is exactly what happened here. In this case, the requisite majority of members voted in favour of the resolutions in question.
[66] With regard to the latitude which must be allowed that democratic decision-making process, Mr Wood pointed to the following comments of Bell AJ in Singh v Boutique Body Corporates Ltd:49
[39] Before dealing with the role of the committee, consider decisions made by owners in a general meeting. That is the default position – decisions are made by owners in a general meeting, unless the decision-making power
49 Singh v Boutique Body Corporates Ltd, above n 44.
has been delegated. Not all bodies corporate have committees50 and general meetings of owners decide matters which have not been delegated. There are few limitations on how owners may exercise their voting powers. They must be eligible and up to date with their levies.51 They must not vote for a matter that is beyond the powers of the body corporate or that is illegal. Under [s 210], a minority who vote against a resolution may obtain relief if the effect of the resolution is unjust or inequitable to them. These matters aside, owners can generally vote as they wish. The Court does not decide between competing views as to the merits.
[40] In company law, the Courts have leaned against interfering with voting powers in a general meeting. In Pender v Lushington Sir George Jessel MR said:52
In all cases of this kind, where men exercise their rights of property, they exercise their rights from some motive adequate or inadequate, and I have always considered the law to be that those who have rights of property are entitled to exercise them, whatever their motives may be for such exercise – that is as regards a Court of Law as distinguished from a Court of morality or conscience, if such a Court exists … There is, if I may say so, no obligation on a shareholder of a company to give his vote merely with a view to what other persons may consider the interests of the company at large. He has a right, if he thinks fit, to give his vote from motives or promptings of what he considers his own individual interests.
This being so, the arguments which have been addressed to me as to whether or not the object for which the votes were given would bring about the ruin of the company, or whether or not the motive was an improper one which induced these gentlemen to give their votes, or whether or not their conduct shews a want of appreciation of the principles on which this company was founded, appear to me to be wholly irrelevant.
[41] A similar approach can be seen in unit titles cases. In Wheeldon v Body Corporate [342525], Muir J said about decisions made in a general meeting about the merits of repair plans:53
The Body Corporate was, in my view, entitled to accept that advice and develop its scope of works accordingly. It was entitled to do so despite the existence of contrary views. It is not for the Court to substitute its own view on the merits of one repair plan over another or to examine, in the words of Jaine J, “whether the minority view on the merits of the proposal should be upheld with the result that the wishes of the majority could not be given effect to”.
(citations omitted)
50 Under s 112 of the Unit Titles Act, a development with nine or fewer units does not need a committee but may appoint one. Larger developments must have them unless they decide by special resolution to do without.
51 Unit Titles Act, s 96.
52 Pender v Lushington (1877) 6 Ch D 70 at 75–76.
53 Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 at [76], upheld on appeal in Wheeldon v Body Corporate 342525 [2016] NZCA 247 and Wheeldon v Body Corporate 342525 [2016] NZSC 125.
In Body Corporate 324525 v Stent I held that, so long as jurisdictional requirements were met, alleged negligence as to the merits of decisions of a body corporate was not justiciable.54 In that case the body corporate sued for unpaid levies and the defaulting owners resisted alleging equitable set-off for negligent decision-making (as well as other matters).
[42] Given the strong policy of not interfering with the exercise of voting powers so long as jurisdiction and eligibility requirements are met and the case is not within s 210, there is no basis for holding that one owner owes a duty of care to other owners when voting in a general meeting. The consequence is that the owners generally must take the consequences of decisions in general meeting for better or worse. If the body corporate makes a botch of matters, the owners may be worse off and may face increased levies to put matters right, but they will not have recourse against the body corporate or each other. So, in this case Ms Singh can have no claim against the body corporate or her fellow owners for their decisions in general meeting, including any major decisions under cl 3.4 of the scheme. That includes decisions to raise scheme levies.
[67] Mr Wood submitted that while it was not open to members to vote for a matter beyond the Body Corporate’s powers or that was otherwise unlawful, nor was it an answer to a s 210 application that the resolution in question express the democratic wish of the requisite majority, nevertheless the Court should take care to avoid any merits review of the Body Corporate’s decisions and not inappropriately interfere with the wishes of the majority.
[68] The Body Corporate says that once the Body Corporate was faced with the proceedings brought by the plaintiffs, the members of the Body Corporate had to decide how to respond to it. They did that at the EGM on 17 March 2022.
[69] Mr Wood submits the views of the plaintiffs against the proposal that the Body Corporate would “stand behind and support” the second and third defendants and that Chapman Tripp would continue to act for the Body Corporate and the second and third defendants “at the sole cost of the Body Corporate” were made known. That appears to be borne in mind by the email sent by Mr Kennedy to owners before the meeting endeavouring to dissuade them from voting for the resolutions proposed.
[70] Mr Wood observed that the challenge to the March 2022 resolution is not by way of seeking minority relief but only that it was ultra vires. The resolution authorising the entry into the deed is the only resolution which attracts the “unjust and
54 Body Corporate 324525 v Stent (No 2) [2017] NZHC 2857 at [183]–[192].
inequitable to the minority” claim. This is because the resolution of March 2022 is well outside the 28-day period allowed for challenge under the minority provisions.
[71] Mr Wood says that the starting point is s 77 of the Unit Titles Act, which provides:55
77Core things body corporate may do
(1)A body corporate may do anything authorised by this Act or any other Act.
(2)A body corporate may do anything a natural person of full age and capacity may do except as provided for in this Act or any other Act.
[72] The Body Corporate says that a natural person of full age and capacity has the power, if they choose, to pay somebody else’s defence costs or otherwise to indemnify that other person. The effect of s 77 is that the body corporate also has that power. This is, however, subject to s 78, which provides:
78Act must be for purpose of performing duties or exercising powers
A body corporate may do an act under section 77 only for the purpose of performing its duties or exercising its powers.
[73] Mr Wood gave the example of an act for purposes unconnected with the body corporate’s role in a unit title development as a decision by a body corporate to impose levies on unit owners to fund a donation to a disaster relief fund set up to assist cyclone victims. This would not be for the purpose of performing its duties or exercising its powers. However, he contrasted that with the decision by the Body Corporate to join its defence of the underlying High Court proceeding with the second and third defendants at the Body Corporate’s sole cost. Mr Wood said this is directly related to the Body Corporate’s powers and duties to meet expenses relating to the management and governance of this unit title development. Those powers and duties are set out in ss 84 and 115(1) and (2) of the Act. I have set out s 84 above. Section 115 relates to the Body Corporate maintaining an operating account for the purposes of meeting the expenses relating to the management and governance of the development and the
55 Emphasis added.
provision of services and amenities for the benefit of the unit title development, among other expenses.
[74] The Body Corporate says that the second and third defendants are named because they were members/chair of the Body Corporate committee and they are sued in respect of alleged acts or omissions relating to the performance and exercise of the Body Corporate’s powers and duties under the unit titles legislation. Mr Wood notes that the plaintiffs’ statement of claim pleads that:
(a)the second and third defendants have been either a committee member or a chairperson of the Body Corporate;
(b)the Body Corporate has certain duties under the unit titles legislation (described as the “Body Corporate Duties”), and has breached those duties;
(c)the cause of action against the second and third defendants is for breach of statutory duty (which must refer to the unit titles legislation, as no other relevant legislation is pleaded);
(d)the members of the Body Corporate Committee have acted under delegated authority to carry out the powers and duties of the Body Corporate;
(e)those members, including the second and third defendants, owed, while carrying out the powers and duties of the body corporate, duties to the body corporate, which the second and third defendants are said to have breached; and
(f)the Body Corporate may join the second and/or third defendants under s 142 of the Unit Titles Act, and in lieu of such and to the extent necessary the plaintiffs say they bring the cause of action by way of derivative action.
[75] The Body Corporate says these allegations go directly to matters relating to powers and duties of a body corporate under the Unit Titles Act. The Body Corporate is the entity established to take responsibility for the management and governance of the building unit title development and it has the power to establish and maintain an operating account to meet expenses relating to, among other things, the management and governance of the unit title development, along with the power to establish and maintain a contingency fund to provide for unbudgeted expenditure. Therefore, the expenses incurred by the Body Corporate in defending litigation brought against the Body Corporate and members and chairpersons (in their capacity as such) relate directly to the management and governance of the unit title development. Therefore, the resolution authorising that expenditure is intra vires the Unit Titles Act.
Analysis of the ultra vires issue
[76] Unfortunately, it is not unusual for a body corporate to be involved in litigation, particularly insofar as it relates to disagreements between members of the body corporate as to repairs to be carried out on leaky apartment buildings and how they should be funded. The plaintiffs do not argue that the actions of the Body Corporate itself to defend and fund its defence of the litigation are beyond the power of the Body Corporate. The Body Corporate must take legal advice and steps to defend itself in the underlying High Court proceeding. To do that it must fund its defence of that proceeding and jointly defend the proceeding with the other defendants in this case.
[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.
[79] That the body corporate is entitled to undertake tasks that are reasonably incidental to the achievement of its purposes is well established.56 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.57 It was largely in the execution of those obligations that the present claims arose.
[80] There is nothing in the Unit Titles Act which prohibits the Body Corporate from funding the defence of a body corporate member or paying that member’s expenses for matters related to the management and governance of the body corporate.
[81] As a matter of general law, a body corporate with the powers of a natural person of full age and capacity must be capable of entering into a myriad of arrangements. As a body corporate must act through natural persons it must have the power to hire employees to perform its duties and exercise its powers under the legislation.
56 Philip A Joseph Joseph On Constitutional and Administrative Law (5th ed, ThomsonReuters, Wellington, 2021) at [23.2.2(2)] and nn 43–45.
57 Section 138(1).
[82] Under s 16 of the Companies Act 1993, companies have, subject to legislation and the common law, full capacity to carry on or undertake any business activity, do any act or enter into any transaction, and for those purposes have full rights, powers and privileges. A company must not indemnify a director or employee in respect of liability for any act or omission in their capacity as a director or employee or for costs incurred in defending or settling any claims relating to such liability, except as provided in s 162.
[83] Section 162 goes on to provide that as long as the constitution of the company authorises the indemnification of a director or employee for any costs relating to any act or omission in those capacities, or costs incurred in defending or settling any claim relating to such liability (not being criminal liability), a company may, with the prior approval of the board, effect insurance for that liability or costs incurred in defending or settling claims relating to such liability.
[84] Crown Entities are entitled to do anything authorised under the Crown Entities Act 2004 and may also do anything that a natural person of full age and capacity may do but only for the purpose of performing its functions.58 There is no specific power in the legislation permitting a statutory entity to grant an indemnity. However, a member of a Crown Entity has the advantage of immunity from civil liability except for excluded acts.59 Nevertheless, the entity may indemnify the member for those excluded acts and may effect insurance cover for members in relation to their acts or omissions except … in bad faith or not in the performance or intended performance of the entity’s function.60
[85] Also relevant are the provisions under the Crown Entities Act relating to restrictions on giving of guarantees and indemnities as follows:61
163 Restrictions on giving of guarantees and indemnities
58 Crown Entities Act 2004, ss 16–18.
59 Section 121. Excluded acts relate to breach of the duties to comply with the Act or breach of the duties to act with honesty and integrity, to act in good faith and not at the expense of the entity’s interests and not acting with reasonable care, diligence, and skill, failure to act with honesty and integrity or disclosing information
60 Sections 122–123.
61 Relevantly, s 122 of the Crown Entities Act provides for the indemnification of a member in respect of an excluded act or omission, and s 162 of the Companies Act is the indemnity provision in the Companies Act as described above.
(1)A Crown entity must not, with or without security, give a guarantee to, or indemnify, another person, or amend the terms of any such guarantee or indemnity, other than as provided in section 160.
(2)This section does not apply if the other person is—
(a)a member, office holder, committee member, employee, or other individual indemnified by the board in relation to any claim or proceeding under—
(i)section 122 of this Act; or
(ii)section 162 of the Companies Act 1993; or
(iii)the entity’s natural person powers or other powers in the entity’s Act:
(b)a delegate or agent indemnified by the board under its natural person powers, or the common law, in relation to any claim or proceeding.
(3) ….
Position of committee members generally: liability
[86] While no cases were cited where body corporate chairs or committee members individually had been successfully sued by either third parties or other owners, the case law indicates that is a real possibility. In Guardian Retail Holdings Ltd v Buddle Findlay Courtney J considered an application for orders restraining the body corporate from funding or contributing to the defence costs of the respondent committee members.62 The body corporate had purported to ratify the acts that were the subject of the allegations made by one body corporate member owner against others who were committee members. The claims made against three members of the body corporate committee and the body corporate alleged various breaches of the body corporate rules and acts of misfeasance.
[87] In considering the application Courtney J noted that a body corporate exercised its powers through its committee and it was vicariously liable for breaches of its obligations occasioned through the conduct of the committee.63 However, the committee members themselves had personal obligations to act in accordance with the relevant statutory powers and rules. Her Honour said that breaches of those rules
62 Guardian Retail Holdings Ltd v Buddle Findlay [2013] NZHC 1582, (2013) 14 NZPR 664.
63 At [24].
might result in the body corporate having a right of action against the members concerned for ultra vires acts that resulted in liability to the body corporate. Secondly, other members of the body corporate might look to individual committee members for losses caused by their breaches.64
[88] The arguments before her Honour largely focused on whether the committee members’ acts could be regarded as intra vires by virtue of ratification by the body corporate. There was a serious issue over the validity of the ratification. In that case her Honour indicated it would be wrong to simply view the ratification as valid until it was declared to be invalid.65 She did not reach a firm conclusion on whether the committee members were entitled to an indemnity in those circumstances. However, her Honour rejected the suggestion that there would be no circumstances in which the body corporate was entitled to indemnify committee members. That argument proceeded on the basis that an agent who incurs liability for their wrongful acts or defaults is not entitled to an indemnity from its principal. The plaintiff argued that as a result the committee members who were facing legal action personally over allegedly wrongful acts could not look to the body corporate for indemnity. It must, therefore, the argument continued, be ultra vires the body corporate to fund their defence costs, which is effectively an indemnity.66
[89] The argument drew heavily on an analogy to trustee and company law cases, according to which a trustee facing hostile litigation at the instigation of the beneficiary cannot look to the trust estate for defence costs, and shareholders cannot use company funds in shareholder disputes, as such funds can only be used for purposes that are reasonably incidental to the company’s business. Her Honour noted her reservations about the usefulness of the analogy but was not required to consider it further. She noted that although an agent sued for wrongful acts is not entitled to be indemnified, the position may be different if the act has been ratified by the body corporate. In view of her indication that there was a serious issue to be tried in relation to the validity of the ratification she therefore concluded that a serious issue as to
64 At [24].
65 At [54].
66 At [50].
whether the body corporate should be meeting the defence costs of the committee members arose.
[90] It is relevant to note that Courtney J in that case had no difficulty in accepting that the body corporate was able to give an indemnity to its members. The issue was whether the act had been properly ratified by the body corporate in the circumstances. That issue does not arise in this case.
[91] In my view her Honour’s assumption that a body corporate was able to provide an indemnity to its members is consistent with the appropriate interpretation of the Unit Titles Act, which does not prevent a body corporate from indemnifying the actions of body corporate members carried out in the furtherance of their duties. In those circumstances, as long as the terms of the indemnification are reasonable, the body corporate is permitted on the plain meaning of the legislation to provide indemnity to its committee members.
[92] The usual rules of interpretation apply here. The meaning of legislation must be ascertained from its text and in light of its purpose and its context,67 including the statutory scheme of the relevant legislation.68 It is also relevant that legislation applies to circumstances as they arise.69
[93] For convenience I repeat the purpose provision of the Unit Titles Act 2010, as relevant here:70
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,—
…
67 Legislation Act 2019, s 10; and see Commerce Commission v Fonterra Co-Operative Group Ltd
[2007] NZSC 36; [2007] 3 NZLR 767 at [24].
68 Westfield (NZ) Ltd v North Shore City Council [2005] NZSC 17, [2005] 2 NZLR 597 at [6].
69 Legislation Act, s 11.
70 Emphasis added.
(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.
[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.
[95] Mr Stephenson did not argue that the Body Corporate itself was not entitled to have insurance cover for claims, and he also indicated that for the purposes of this argument it was not necessary to focus on the ability of the Body Corporate to purchase insurance for committee members, although it follows from his argument that such insurance must be ultra vires.
[96] While there was not specific evidence before me that it was the usual practice for bodies corporate to insure body corporate members, it is clear that this body corporate has had insurance cover for some years for its committee members,
apparently without demure by its members. I would venture to say that as a matter of prudent governance practice most bodies corporate of any size would carry such insurance today. If the body corporate is entitled to purchase insurance for itself, and more particularly for committee members, without an express power, it follows that it is entitled to offer reasonable indemnities and cover liability for costs in appropriate circumstances. It would be surprising that in modern times a body corporate could not provide insurance for itself and its committee members when the Act purports to put in place a legal framework which is intended to promote the participation of members who are not necessarily legally trained and often have little governance experience. If the body corporate is entitled to purchase insurance, it is difficult to see as a matter of logic why an indemnity for costs (as long as it is on appropriate terms), even on a retrospective basis for uninsured claims, such as in the present case, is ultra vires.
[97] The provisions in the Crown Entities Act which I have set out above are exclusionary, and restrict the giving of guarantees and indemnities rather than expressly permit them. It is assumed the Crown entity has the power to provide such indemnities and guarantees.
[98] This was also the assumption made by the Department of Building and Housing71 in the departmental report on the Unit Titles Bill, which in its analysis on submissions relating to the question of indemnity when rejecting the need for a power of indemnity in the bill, during the passage of the Unit Titles Act stated “[b]odies corporate are free to take out professional indemnity insurance. It would be costly to make this a mandatory requirement.”72
[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.
71 The government department at the time.
72 Department of Building and Housing Departmental Report to the Social Services Select Committee on the Unit Titles Bill 2008 (July 2009) at 53.
[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.73 The Court said:74
… 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, 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.75 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.76 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.77
[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.”78 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”.79 The author noted further that the presenters of a
73 Manning v Body Corporate 126411 HC Auckland CP 89sd01, 29 November 2001.
74 At [76].
75 Thomas, above n 43, at 428.
76 At 428.
77 At 428.
78 At 429.
79 Bridgecorp Finance Ltd v Proprietors of Matauri X Inc [2004] 2 NZLR 792 (HC) at [55].
2005 Law Society seminar had suggested a Court would, in future, take a similar view with regard to incorporated societies or charities.80
[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.
[105] As Mr Wood pointed out in his submissions, the Body Corporate has not granted a carte blanche indemnity under the deed of indemnity. The deed was prepared by an experienced commercial lawyer and in Mr Wood’s submission, it is a limited scope indemnity carving out conduct that properly ought not to be the subject of indemnification.
[106]The relevant provisions may be summarised as follows:
(a)“Indemnified Persons” are limited to all previous, present and future body corporate committee members and chairpersons. Former members or chairpersons are included but only in respect of their acts or omissions referred to in cl 3 of the deed.
(b)Clause 3 provides the irrevocable indemnification of each Indemnified Person against all loss, damage, cost, liability and the like (threatened, actual or alleged), including those incurred or suffered in defence or any settlement reached (defined as “Loss”) arising out of or otherwise in connection with any act or omission (alleged or actual) as committee member or chairperson (as the case may be) or the Indemnified Person’s status as committee member or chairperson.
80 Miles Agmen-Smith and Mark von Dadelszen “Advising Not-for-Profit Organisations” (New Zealand Law Society seminar, March 2005) at 26.
(c)Clause 3 does not extend the indemnity to “Loss” arising out of or otherwise in connection with “fraud or any other wilful default, or gross negligence, of the Indemnified Person” or “the Indemnified Person’s wilful failure to comply with express instructions properly given by the Body Corporate, any act or omission knowingly outside the scope of the Indemnified Person’s delegated authority, or the Indemnified Person’s material breach of the Body Corporate operational rules”.
(d)The indemnity does not extend to any “Loss” for which the Body Corporate is precluded by law from providing indemnification.
(e)The Body Corporate may refuse to indemnify under cl 3 if the Indemnified Person does not comply with the notification, consultation and assistance obligations set out in cl 5.
(f)The Body Corporate may terminate the deed by 30 days’ written notice to the then current committee members and the then current chairperson, but the deed continues to have full effect in respect of any act or omission by, or the status of, an Indemnified Person before the date of termination.
[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”.
[108] I agree with the Body Corporate’s submissions on this point. It is difficult to see how it could be beyond the legal powers of the Body Corporate to provide an indemnity in those terms.
[109] The plaintiffs in their further submissions emphasise that examples of the body corporate being required to indemnify the committee members may be found in cases involving a s 74 scheme order. Mr Stephenson referred to Body Corporate 207650 v Speck as an example of the s 74 scheme order providing for indemnification of committee members.81 He noted that indemnification may be authorised by order of the Court and where a building is damaged or destroyed. The Court, it is submitted, may approve measures which are otherwise ultra vires the Act and s 74 scheme.
[110] As the Body Corporate submits, the Speck decision does not reproduce the part of the s 74 scheme that mentions indemnity. Mr Stephenson noted that Singh v Boutique Body Corporates Ltd, which is a subsequent decision involving the same building, is an example of an indemnity being provided to a committee.82 In that case Bell AJ noted that cl 14.1 of the s 74 scheme provided that the body corporate members jointly indemnified and held harmless the body corporate chair and members of the committee for all acts and omissions done in furtherance of the scheme except in case of wilful misconduct or gross negligence.83
[111] I do not consider that the fact that a Court may impose “any terms and conditions that it thinks fit” (including an indemnity for body corporate members) in order to give effect to a s 74 scheme takes the applicant’s argument any further. Indeed, the fact that the Courts have considered it appropriate to provide for the indemnification of body corporate members in circumstances where the building or other improvements on the base land is damaged or destroyed but the unit plan is not cancelled supports the fact that such indemnification is appropriate. While such schemes are generally employed where the damage is considerable, body corporate committee members who are tasked in that role with giving effect to the maintenance, repair and operation of a significant unit title development may face similar risks to the committee members whose body corporate is effecting a scheme under s 74. If a body corporate were required to apply to the High Court to sanction the indemnification of committee members, the purpose of the Act would not be achieved. Such a requirement would not be “socially and economically sustainable” nor would
81 Body Corporate 207650 v Speck [2017] NZHC 966, (2017) 18 NZCPR 742.
82 Singh v Boutique Body Corporates Ltd, above n 44.
83 At [32].
it be “consistent with a flexible and responsive regime for the governance of unit title developments”.84
Conclusion on ultra vires issue
[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”.85 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.
[113] Once that point is reached, for the purposes of this application there is little difference between an indemnity (on reasonable grounds), liability insurance cover or agreeing to support the defence costs of committee members. Each of those is a different form of managing risk. While the plaintiffs’ counsel did not criticise the fact the Body Corporate itself had liability insurance, nor did he focus on a criticism of the insurance that the Body Corporate had taken out for the liability of committee members, if his arguments were to succeed they would apply equally to that type of insurance. It is merely another way of managing risk.
[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
84 Section 3(b) of the Unit Titles Act.
85 Section 3.
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.
[115] Most people do not have the technical skills to properly represent themselves in civil litigation, and require legal representation. Such litigation is generally complex and requires experienced and expert lawyers to conduct it. This is costly. While many actions never reach hearing but are settled before hearing or discontinued, the legal costs incurred in commencing and conducting litigation are usually significant. To this can be added the costs of experts if they are required, also a not insignificant cost. It would be unfair and inconsistent with the purpose of the Unit Titles Act in promoting a framework that was “socially and economically sustainable” which prevented the taking of precautions such as insurance and indemnities to protect body corporate committee members from the substantial costs involved in defending such actions.
The heads of the application
[116] I now turn to the application and deal with it under the two main heads. The first is the issue of ultra vires, which arises in relation to both the March 2022 resolution authorising the Body Corporate to meet the costs of the defence of the second and third defendants and the September 2022 resolution authorising the Body Corporate to enter the deed of indemnity as well as the Body Corporate then entering into the deed of indemnity. Counsel accepted that if the September 2022 resolution was valid it would follow that the deed executed in accordance with the resolution would also be intra vires.
[117] The second main issue relates to whether or not the September 2022 resolution authorising entry into the deed of indemnity is unjust and inequitable to the minority (the s 210 claim).
[118] A matter raised in the course of arguments concerning whether or not the present application had been filed within the time limit prescribed by the Act was the subject of submissions filed after the hearing by leave and I deal with that issue below.
Whether the March and September 2022 resolutions were ultra vires the Body Corporate
[119] The March 2022 resolution was passed as an ordinary resolution at an EGM called for the purpose of discussing the proceedings that the plaintiffs had brought against the Body Corporate and the second and third defendants. The September 2022 resolution was passed without a meeting using the procedure in s 104 of the Act. No technical nor procedural issues arise over the process by which the meetings were called, the information provided or, in the case of the September 2022 resolution, the form of resolution which was provided to the owners before the meetings, the form of the resolutions as passed and the voting on them (in a technical or procedural sense).
[120] The March 2022 resolution resolved that the Body Corporate would instruct Chapman Tripp to act for it and the other defendants in the proceeding commenced by the plaintiffs in December 2021 at the sole cost of the Body Corporate. In an earlier interlocutory application by the plaintiffs, Lester AJ had declined to make an order that Chapman Tripp could not represent all the defendants.86
[121] The March 2022 ordinary resolution was passed by the Body Corporate at the general meeting. There has been no suggestion that the information, including the nature of the claim, was not before the general meeting. There is no argument that procedurally there were any flaws in the calling or the voting at the general meeting. I have found that it was appropriate for the Body Corporate to determine to meet the fees as resolved.
[122] In relation to the September 2022 resolution, substantial information was provided to the owners in accordance with the requirements of s 104 of the Act. The background information included the following:
2. Indemnification
86 Interlocutory application decision, above n 33.
Owners resolved at the AGM that the Body Corporate take advice from Greenwood Roche to put in place an indemnity for Committee members to the fullest extent permitted by law.
Attached is a deed of indemnity prepared by Greenwood Roche (it refers to Committee Members, and then also to the Chairperson in case that person is not a Committee member).
It is important to continue to note (as discussed at the AGM) that indemnification can only operate to the extent permitted by law. This limitation, and several others, are set out in clause 4 of the deed.
The second resolution approves the deed and execution by the body corporate.
[123]The proposed resolution read:
Resolution
It is resolved (as an ordinary resolution) that the Body Corporate approve, enter into, and give effect to, the deed of indemnity in, or substantially in, the form circulated with this resolution.
[124] Mr Street deposes that 38 (of the 43) unit owners were entitled to vote on the September 2022 resolution and five were not entitled to vote (because of unpaid amounts owed to the Body Corporate). He deposes that 32 unit owners voted in favour of the resolution within the deadline for voting (30 September 2022), two further unit owners voted in favour shortly after that deadline, three owners (including the plaintiffs) voted against the resolution, and one unit owner who was eligible to vote did not do so.
[125] As will be apparent from the above, I am of the view that the March 2022 resolution that the Body Corporate meet the costs of the defence of the second and third defendants and the September 2022 resolution approving the execution of a deed of indemnity, as well as the execution of the deed of indemnity by the Body Corporate, in the terms specified, are all intra vires the Act and the powers of the Body Corporate. Counsel accepted that if I found that the resolution was intra vires it would follow that the deed executed as a result of that resolution was also lawfully executed. Accordingly the aspects of the application seeking findings that the resolutions and the execution of the deed of indemnity were ultra vires fail.
Whether the September 2022 resolution is unjust or inequitable for the minority
[126] Section 210 allows for an application for relief to be made where the effect of a body corporate resolution would be unjust or inequitable for the minority. It provides in full:
210 General relief for minority where resolution required
(1)In any case where this Act requires a resolution and the resolution is passed, any person who voted against the resolution may apply to the appropriate decision-maker for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority.
(1A)Subsection (1) does not apply if the resolution is a designated resolution.
(2)An application for relief under subsection (1) must be made within 28 days of the passing of the resolution.
[127] I first deal with the issue of whether or not the applicants filed their application for relief “within 28 days of the passing of the resolution”. This issue was only raised in the course of the hearing and submissions filed on the issue following the hearing.
[128] The plaintiffs accept that if the application was due 28 days after the postal votes were due to be received, the application was made more than 28 days later and is therefore out of time. However, they say that they filed the application for minority relief on 3 November 2022, which was 28 days after they received an emailed notification of the outcome of the resolution. Mr Stephenson referred to the receipt for the filing of the application showing an invoice date, presumably of the filing fees, of 3 November 2022 at 16:48:32, or approximately 12 minutes before 5pm. The Body Corporate accepts that if the 28 days runs from the date on which the Body Corporate notified owners of the result of the vote on 6 October 2022, the period ends on 3 November 2022, and the application will therefore be within time if filed in the Court on or before 3 November 2022. The defendants say they were served with the application under cover of an email dated 4 November 2022 advising that the application had been filed with the Court the previous day. The copy of the application and the bundle bears a High Court date stamp of 4 November 2022. I accept that if the 28 days ran from notification of the outcome of the resolution, the application here was filed within the required period.
[129] In support of the argument that the 28 days ran from the date following the email of the Body Corporate notifying the result of the vote, Mr Stephenson submits that where the s 104 procedure is engaged the voters do not know precisely when a resolution the voter wishes to oppose has passed. Section 104 provides:
104 Passing of resolution without general meeting
(1)A resolution may be passed without a general meeting in accordance with this section.
(2)Notice of the resolution must be given to eligible voters in accordance with the regulations.
(3)A resolution in writing signed by a majority of eligible voters in respect of an ordinary resolution, and not less than 75% of eligible voters in respect of a special resolution, is as valid as if it had been passed at a meeting of those voters.
[130] Mr Stephenson says s 104 of the Act does not confirm that a resolution is “passed” at a specified time but rather that a postal vote is deemed to be “as valid as if it had been passed at a meeting of owners”. He said that if a postal resolution is “passed” at the time of a deadline set for receiving the votes, then a delayed vote count and/or delayed notice of the outcome, whether intentional or unintentional, truncates the time for or may deprive an owner of, the statutory time to consider the issues and costs and then prepare for an application under s 210 and apply. Mr Stephenson submits that Parliament cannot have intended that postal voting could be used to circumvent the right to have 28 days to prepare an application. He further points out that a notification of owners is not complicated because the Act requires a register of owners and a preferred point of contact for the owners. There is a provision for the deemed service of notices under s 205 of the Act. A notice or other document sent by post is treated as having been delivered to the person on the fourth day after delivery on which it is posted.87 If it is sent by electronic means it is treated as having been received on the working day immediately following the date on which it was transmitted.88 Service is proved by proving that the document was properly addressed in posted or properly transmitted. Therefore, Mr Stephenson says that a resolution by postal vote without a general meeting is “passed” for the purposes of s 210 of the Act on notice of the outcome issued to owners as under s 205 of the Act.
87 Unit Titles Act, s 205(5).
88 Section 205(6).
[131] Mr Wood disagrees with the plaintiffs’ analysis. He submits the 28 days runs from 30 September 2022, the date by which owners’ votes on the resolution had to be received, and therefore the plaintiffs’ s 210 application is out of time as under that approach the 28 days ended at the close of 28 October 2022. He says in this case the application was required to be filed by that date, and as it was not, it is therefore out of time and cannot be pursued. He cites the decision of this Court in Een v Body Corporate 384911 as authority for the fact that if the application is not filed within the statutory timeframe then the applications cannot proceed:89
[34] … There is no need for s 210(2) to provide for the consequence of failing to comply with the 28-day time limit. The consequence naturally follows. An application brought out of time is not authorised. That conforms with a readily apprehensible statutory policy of avoiding those who supported a resolution being left in a potentially indefinite state of uncertainty as to when the resolution becomes immune from challenge.
[35] Moreover, it would deprive the word “must” of its ordinary meaning, and in fact of any meaning, to not regard s 210(2) as imposing a time limit. Parliament is not lightly to be regarded as having intended its words to have no meaning, or a meaning well outside the ordinary, which weighs against Mr Rice’s interpretation.
[132] In that case Hinton J found that the COVID-19-related legislation then in force allowed her to extend time for the filing of the application, as the circumstances suggested COVID-19-related delay.90
[133] Mr Wood says a resolution in writing with the requisite number of votes is as equally valid as if it had been passed at a meeting of those voters. He points to the requirement under reg 16(3) of the Unit Titles Regulations 2011 that the body corporate must notify unit holders of the result of the vote on a notice of resolution to be passed without a general meeting under s 104 “[a]s soon as is reasonably practicable after the votes have been counted”.
[134] Mr Wood points to the clear distinction in reg 16(3) between vote counting (or resolution passing) and the notification. Similarly, he says there is nothing in s 104
89 Een v Body Corporate 384911 [2020] NZHC 3340, (2020) 21 NZCPR 809.
90 In that case, an extension of time was granted only because s 27 and cl 1(1) of sch 2 of the Epidemic Preparedness Act 2006 allowed for an extension. The power of Courts to extend or shorten time under those provisions was repealed on 31 October 2021. Those provisions therefore have no application here.
that provides or suggests that the passing of a written resolution is conditional on notification to the body corporate unit owners of the result. Section 210(2) states that the 28 days runs from “the passing” of the resolution. He acknowledged that if the 28 days ran from the passing of the written resolution rather than its notification there would be a short period during which a person who has voted against the resolution is unaware that the resolution has passed. However, he points out that they do know, first, the fact and the text of the resolution proposed, secondly, the date on which the votes must be received and therefore when the resolution will pass if the requisite majority votes in favour, and thirdly, that any s 210 application will need to be filed 28 days after the resolution passes.
Analysis — statutory deadline
[135] In my view the Body Corporate’s analysis is correct. First, the wording in s 210 is clear: the application must be made “within 28 days of the passing of the resolution.” Notification of the resolution is something different to that of passing the resolution. That differentiation is apparent from the wording of the regulations and the legislation, as pointed out by Mr Wood. Regulation 16 provides as follows:
16 Passing of resolution without general meeting
(1)A notice of a resolution to be passed without a general meeting must contain the following information:
(a)a statement that the resolution that accompanies the notice is to be passed by the body corporate without a general meeting; and
(b)instructions on how to vote in favour of, or against, the resolution; and
(c)the name and address of the person to whom the resolution indicating the vote must be returned; and
(d)the date by which a vote must be cast; and
(e)the percentage of eligible voters required to vote in favour of the resolution for the resolution to pass; and
(f)a statement that no poll can be requested in relation to the resolution.
(2)A notice of a resolution to be passed without a general meeting must be accompanied by the resolution.
(3)As soon as is reasonably practicable after votes have been counted, the body corporate must notify unit owners of the result of the vote.
[136] Secondly, any person wishing to bring an application under s 210 will have been informed, by the information supplied under s 104 at the time the notice of resolution is circulated, that the resolution will be passed if the votes support it. There is no argument in this case about the sufficiency of the material that was sent with the notice of resolution. The resolution was passed without amendment to its terms. The plaintiffs were aware of the date of the close of voting. The notification by the Body Corporate of the result of the vote was made on 6 October 2022 which is less than a week after the closing of the votes. In the circumstances this can be regarded as being as soon as “reasonably practicable after the votes have been counted.”91
[137] The date on which time begins to run under s 210 is not tied to notification. The regulations require the notice of meeting specify the date by which votes must be cast. This is separate from the date of notification of the result of the voting which must be as soon as reasonably practicable after the vote count. The plain meaning that the resolution is passed at the time specified for the voting to close accords with the expressed purpose of the legislation to “provide a legal framework for … ownership and management … on a socially and economically sustainable basis by communities of individual owners … and in particular to establish a flexible and responsive regime for the governance of unit title developments.”92 This contemplates lay persons participating in the management and governance. The wording of the provision providing the deadline for filing applications by reference back to a specific date for the closing of the votes gives certainty as to when the resolution will be passed if sufficient votes are received to support it. The date of notification is not specified and would introduce an element of uncertainty.
[138] As Muir J noted in Butcher v Body Corporate 342525, in the context of considering eligibility for voting when body corporate fees had not been paid by an owner, the Unit Titles Bill 2008 was a “fundamental rewrite of the existing
91 Unit Titles Regulations, reg 16(3).
92 Unit Titles Act, s 3(c).
legislation”.93 His Honour noted that the alteration of the voting rights provisions, including a move away from unanimous requirements, was seen as a key part of that overhaul, and that the problem of “holdouts”, where a minority of unit holders were able to hold up the progress, was a key driver for reform.94 The addition of a provision that predicated voting rights on payment of levies raised by the body corporate was seen as an “additional safeguard for the rights of majority owners”.95 Muir J noted the threshold changes were designed to prevent “a minority of people impeding crucial decisions of the body corporates.”96 While those comments were made in considering the interpretation of different provisions to those before the Court today, nevertheless they give some sense of the intention of the legislature that the majority of unit holders should be able to deal with matters quickly, as long as all the information and material is provided to the unit holders. Therefore, an interpretation which is based on the plain meaning of the section and provides a definite cut-off date for the filing of a minority application under s 210, without argument or uncertainty as to when the notification stage was completed, is consistent with the statutory purpose.
[139] There is no unfairness in applying those provisions strictly to enable a “flexible and responsive regime” which enables the body corporate to make decisions and know they will not be challenged under the minority provisions once the time limit has lapsed. All unit holders have the information necessary to know that a resolution may be passed and its terms.
[140] In the circumstances of this case, I conclude an application under s 210 for minority relief must be filed within 28 days of the passing of the written resolution, which is the date the voting was closed, here 30 September 2022. All owners were aware of the text of the resolution and that it may or may not be passed. They were also aware of the deadline for receiving votes, which was set out in the notice.
[141] Consistent with the view taken by Hinton J, I take the view that unless the application was filed within 28 days following the passing of the resolution, the
93 Butcher v Body Corporate 342525 [2016] NZHC 3128, (2016) 17 NZCPR 708 at [81], citing (5 March 2009) 652 NZPD 1713 Hon Phil Heatley (Minister of Housing) at the Bill’s first reading.
94 At [81].
95 At [81].
96 At [81].
application cannot be pursued. The application was not filed within the requisite 28 days of the passing of the resolution (30 September 2022) and therefore cannot be pursued.
[142] However, putting that statutory bar to relief to one side, I nevertheless consider the substance of the application for relief under s 210.
Analysis — unjust or inequitable for the minority
[143] As Mr Wood pointed out, the Court of Appeal in Tremont Holdings Ltd v Body Corporate 401803 noted that the statutory test under the Act presented a “high threshold of material unfairness or injustice to be met by the minority”.97 In that case the minority were seeking to challenge a contribution to the costs of litigation, which the minority had opposed, where litigation had been brought against one of the owners. That owner, Tremont Holdings Ltd (Tremont), objected to contributing to the legal fees of the body corporate in that litigation. The essence of the majority’s application was that it would be unjust and inequitable for the body corporate to levy Tremont for fees to bring legal proceedings against itself, especially when it must also fund its legal costs.
[144] The Court of Appeal upheld the dismissal of the minority application concerning the resolutions to fund the body corporate’s legal fees. The Court set out reasoning from an earlier decision followed by the High Court, that to excuse the applicants from the levy for legal costs would “throw an unfair burden on the majority of the unit-holders to fund the body corporate’s proceedings.”98 The starting point was that it would seem fair that given that the applicants and the other owners would indirectly benefit from a successful action to recover compensation, they should meet the rateable share of the costs in doing so. The Court of Appeal noted that independently of that argument, while any person who voted against a resolution was entitled to apply for relief under s 210, the provision requires that the effect of the resolution is “unjust or inequitable for the minority”.99 Secondly, there was no
97 Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314, (2015) 16 NZCPR 509 at [19].
98 At [12], citing Body Corporate No 85403 v Magill (2008) 9 NZCPR 399 (HC) at [26].
99 At [16] (emphasis in original).
suggestion that it was unjust or inequitable for the body corporate to resolve to challenge the agreements, but simply to fund them.100 The Court pointed out that once the decision to take legal action is accepted as lawful, “any consequential decision to levy owners for the legal costs cannot constitute material unfairness or injustice to any of them.”101
[145] Similar considerations arise in this case. The Body Corporate has been sued by the plaintiffs. It must defend that action. The second and third defendants have been joined and while there are heads of claim against them that differ from those against the Body Corporate, they are largely dependent on establishing the factual allegations made in relation to the Body Corporate. One way or the other the Body Corporate will need to defend the action and must incur legal costs. There has been no suggestion that the Body Corporate should not engage in the defence, nor that its legal fees should not be paid. The claims against the Body Corporate and the second and third defendants are inextricably linked. As Mr Wood submitted, the additional legal fees are likely to be minimal for defending the second and third defendants. In addition, it is to the Body Corporate’s advantage that all defendants are represented by the same lawyer. Lester AJ determined that there is no conflict of interest in that joint representation at present.102 In addition, it is not outside the realm of possibility that the second and third defendants will seek to recover costs and disbursements from the Body Corporate, whether on the basis of agency or otherwise. Therefore, all body corporate members will benefit from a coordinated defence which is properly funded for all defendants. The disadvantage for the minority is that they are also the plaintiffs and will be incurring legal costs in bringing the action. However, that is not a relevant injustice or inequity for the present analysis.
[146] I have already concluded that an indemnity granted to committee members/the chair on reasonable terms and not for any unlawful purpose is not ultra vires the Body Corporate. I consider the chair is in the same position. The chair undertakes similar, or likely more onerous, responsibilities in the governance of the body corporate than does an ordinary committee member. The Regulations provide that the body corporate
100 At [17].
101 At [17].
102 Interlocutory application decision, above n 33.
must elect a chairperson by ordinary resolution at every AGM of the body corporate.103 A candidate must be nominated by another unit owner and consent to the nomination.104 Under reg 10(3), if the candidate for election is not a natural person “the candidate must nominate a director to act as chairperson on the candidate’s behalf”. The chairperson must be either an owner of a principal unit or a director who has been nominated under sub-reg (3).105
[147] Mr Stephenson submitted that it was unfair and unjust that the deed provides pre-emptive indemnification of the second defendant, who was not liable to pay for levies to contribute to the defence, being a former director of a company that owned a unit rather than an owner personally.
[148] That the second defendant is a “former director of a company that formally owned a unit” and at present neither he nor his company is liable for levies to contribute to the defence is not relevant to the test under s 210. That section provides for any person who voted against the resolution to apply “for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority”. I am unable to see how the fact that the second defendant was a director of an owner of a unit at the time he was chair, or the fact that neither he nor his company now own a unit and so are not contributing to levies, is “unjust or inequitable for the minority.”
[149] Mr Stephenson also criticised the “blanket obligation” that the Body Corporate had entered into by way of the deed of indemnity on the basis that it cut across the procedural safeguards in the Act without a subsequent vote or decision on indemnification. However, the appropriate procedure has been followed for the entry into the deed of indemnity. It was authorised by a resolution and the procedure for the passing of that resolution followed the required processes for the notification and passing of a resolution. Apart from the challenges as to vires and under s 210, the actual process for the calling of the meeting, notification of resolutions and the voting procedure has not been challenged. The plaintiffs’ argument under this head is in fact the same as the arguments in support of the resolutions being ultra vires. There are no
103 Unit Titles Regulations, reg 10(1).
104 Regulation 10(2).
105 Regulation 10(4).
procedural errors which would give rise to grounds for basing an allegation that the resolution was unjust or inequitable for the minority. The minority were afforded full participation in the process. They could vote against the resolution if they so wished.
[150] The effect of the resolution on the plaintiffs does not differ from its effect on all other owners. They are not prejudiced as a minority. Mr Wood also pointed out that the deed conferred a benefit on Mr Kennedy, as he had previously been a member of the Body Corporate Committee. Either of the plaintiffs could have been nominated and elected to be the chairperson or a member of the Body Corporate Committee. They are no different in position to that of all other members of the Body Corporate.
Affidavits
[151] Mr Wood sought a direction that the affidavit made by Mr Simon Phillips, which was filed in the registry directly by Mr Phillips and was included in the plaintiffs’ bundle of relevant pleadings and evidence, not be read and be taken off the file. That affidavit was not filed by the plaintiffs. Mr Phillips is not a party and has no role in these proceedings. I direct that the affidavit of Mr Phillips not be read and that if it has not already been taken off the Court file it now be taken off the file.
[152] Following the hearing on 12 May 2023, one of the plaintiffs, Mr Kennedy, filed in person a document headed “post hearing affirmation”, said to have been affirmed that day. No application for leave to file the affirmation has been made. It may have initially been filed without the knowledge of counsel, whose details do not appear on the front page of the document. The affirmation appears to seek to respond to issues which were raised in the course of argument at the hearing. In view of the fact that no leave has been granted, I direct that the affirmation not be read and be taken off the Court file.
Conclusion
[153]As will be apparent, none of the heads under the application are successful.
[154] The plaintiffs brought their application challenging two ordinary resolutions of the Body Corporate, namely the March 2022 resolution and the September 2022
resolution, and the deed of indemnity subsequently entered into pursuant to the September 2022 resolution. By their first head of claim, the plaintiffs claimed the March 2022 resolution and the entry into the deed of indemnity were ultra vires the Unit Titles Act. By their second head of claim, the plaintiffs also applied under s 210 for minority relief in respect of the September 2022 resolution.
[155] As to the first head of claim, I have found that neither the March 2022 resolution, nor the deed of indemnity entered into pursuant to the September 2022 resolution (nor the September 2022 resolution), were ultra vires the Act or the powers of the Body Corporate. The Act provides a framework for democratic communal decision-making on “a socially and economically sustainable basis by communities of individual owners”.106 It would be inconsistent with such a framework to prevent a body corporate from taking precautions such as insurance and indemnities to protect body corporate committee members from the often substantial costs involved in defending actions from third party claims including those arising out of disagreements between body corporate members, as are bound to arise from time to time. The resolutions were passed appropriately according to the correct procedure under the Act and there were no procedural or technical problems in this regard. Both resolutions were intra vires the Act and the powers of the Body Corporate. It follows that the deed of indemnity effecting the second resolution was therefore also within the powers of the Act and Body Corporate.
[156] As to the second head of claim, I have found that the application for minority relief under s 210 was brought out of time, being more than 28 days after the passing of the 30 September 2022 resolution, being the date the voting closed. The claim is therefore barred by statute. Notwithstanding this, however, I consider such relief would not have been available in any case. The plaintiffs have not established any relevant injustice or inequity, let alone such as to meet the high threshold for relief under s 210, and are not prejudiced as a minority.
[157]The application is dismissed.
106 Section 3 of the Unit Titles Act.
Costs
[158] As the application has been dismissed, costs would normally follow the event. Subject to submissions, costs based on category 2B appears appropriate in this case. Given that indication counsel may be able to agree on costs, however, if not, any application and submissions as to costs are to be filed within five days of the date of this judgment. Any response is to be filed within a further five days and any reply within a further three days.
Grice J
Solicitors:
Lane Neave, Auckland
Chapman Tripp, Wellington
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