Kennedy v Body Corporate 82981
[2022] NZHC 1927
•5 August 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-749
[2022] NZHC 1927
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
NEIL DOUGLAS CHARLES COOPER
Second DefendantTONY VOLPICELLI
Third Defendant
Hearing: 30 June 2022 (by AVL) Appearances:
D R Bigio QC for Plaintiffs
D R Kalderimis for Defendants
Judgment:
5 August 2022
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Application to disqualify counsel)
KENNEDY v BODY CORPORATE 82981 [2022] NZHC 1927 [5 August 2022]
[1] The plaintiffs seek an order that Chapman Tripp, solicitors, be disqualified from acting for any of the defendants in this proceeding. At present, Chapman Tripp represent all defendants. The application is made on the following grounds:
(a)the defendants’ interests are not the same; and
(b)the advice of Chapman Tripp is in issue in the current proceeding.
[2] Mr Kalderimis, counsel for the defendants, notes that no further detail in respect of the above grounds is provided in the application. I note here that Mr Bigio QC, counsel who appeared in support of the application, has only recently been instructed and did not draft the pleadings or the present application.
Background
[3] The plaintiffs’ claim concerns a watertightness issue at a heritage building at 78 Victoria Street, Wellington, known as the “Dominion Building” which was built in the 1920s. The plaintiffs own two units in the Dominion Building and it is not disputed that they have been affected by watertightness issues arising from roofing work done in the 1990s. Nor is it in dispute that the roof, which is the predominate cause of the leaks, needs to be replaced. Indeed, the first defendant, the Body Corporate 82981 (the Body Corporate) has resolved to take that step.
[4] The Body Corporate is the first defendant and is the body corporate of the Dominion Building.
[5] The second defendant, Mr Cooper, is a former unit owner in the Dominion Building and was a member of the Body Corporate Committee at what the plaintiffs consider are the material times from 13 August 2009. Mr Cooper was the Chairperson of the Body Corporate from January 2012 to July 2019.
[6] The third defendant, Mr Volpicelli, is a current unit owner who was and is a member of the Body Corporate Committee at the material times.
[7] In summary, the plaintiffs claim the Body Corporate breached its statutory duties to repair and maintain the roof and not interrupt the owners’ quiet enjoyment of
their units. The plaintiffs claim the second and third defendants breached duties to them and/or the Body Corporate to act in the best interests of the Body Corporate as a whole. The plaintiffs say the second and third defendants did not use their powers for a proper purpose and failed to exercise independent judgement and care in decision making.
[8]Issues with watertightness at the Dominion Building go back some years.
[9] The minutes of a special general meeting of the Body Corporate Committee held on 1 April 2004 (the Minutes) refer to ongoing water leak issues, particularly affecting the top floor residential units. The Minutes (which are a series of bullet points) record a recommendation to replace the existing roof with a new roof at an estimated cost then of $300,000 plus GST. The Minutes refer to legal advice having been received and that a peer review of the engineering reports recommending roof replacement was obtained. The peer reviewer’s advice was that specific areas could be remedied by a “fix and hold” solution. The Minutes record: “[p]robably could then last further 10 years, although ongoing inspection and maintenance would still be required”. The cost of that “fix and hold” solution was estimated at $20,000 to
$25,000. The intention was to create a fund to replace the roof in 10 years’ time. The Minutes nonetheless recorded that in the meantime some unit owners were experiencing considerable disruption and inconvenience.
[10] In 2004, Chapman Tripp gave advice which is in the form of a brief memorandum. There is no criticism by the plaintiffs of the advice to obtain a peer review noted in the 1 April 2004 Minutes. There is a memorandum from Chapman Tripp dated 26 April 2004 which comments on potential difficulties in the Body Corporate bringing a claim against the developer or contractor responsible for shoddy workmanship on the roof of the Dominion Building in the 1990s. In respect of the “fix and hold” approach, Chapman Tripp says:
In the circumstances, the cost of $20,000.00 to fix the building for 10 years seems a reasonable course of action for the Body Corporate to decide to take. There would of course need to be guarantees from the contractor that work would provide a weather tight building for the period.
[11] As noted, the special general meeting was on 1 April 2004. It seems Chapman Tripp had been approached prior to the meeting as the Minutes record a paper was to be prepared showing options, costings and legal outcomes to be circulated prior to the Annual General Meeting (AGM). The AGM was held on 26 April 2004, the same date as the Chapman Tripp memorandum just referred to.
[12] Roof issues were a separate item for discussion at the AGM. The comments contained in the Chapman Tripp’s memorandum were noted in summary form. The Minutes record: “[t]he Chair suggested that we proceed with the recommendation of fix and hold outlined …” in the peer reviewer’s report. The Resolution was carried that the “fix and hold” recommendation be adopted and that the fund for the replacement of the roof be established.
[13]The plaintiffs purchased their first unit in the Dominion Building in 2005.
[14] The next significant step in the chronology is that, in March 2014, Opus were engaged by Alive Building Solutions (Alive) who were involved in the management of the Dominion Building to comment on the state of the roof.
[15] There is a brief document headed “Dominion Building Roof Assessment (28.03.2014)”, (the Opus Report). The Opus Report is addressed to Clinton Huppert (Clinton), who worked for Alive. Opus advised:
Further to our site visit to the Dominion Building.
Stephen and I both agree that the existing roof is not worth further extensive repairs and that a full replacement is the most cost effective solution in the long term.
[16] The report suggested replacement of the existing roof (Metal & Traffigard) with a recommended system (Equus Torch on Membrane system). Opus were only able to give a “very indicative estimate” of $480,000 plus GST with a further $85,000 plus GST for consent, fire and architectural documentation and project management basis.
[17] Opus recommended that a quantity surveyor be engaged to provide a detailed costing.
[18] The treatment of the brief Opus report is one of the key areas of concern to the plaintiffs.
[19] The Body Corporate Committee met on Wednesday 23 April 2014. There were a number of agenda items.
[20] Under the heading “Roof Replacement” there appears the following (Justin Leonard was also an employee of Alive):
Justin advised that there were numerous leaks and issues that have been identified on the roof. The skylights had not been installed correctly and were a source of some of the leaks. The professional advice was to remove the existing iron and use a torch on membrane. This method of roofing would allow for the roof to be replaced in stages. The roofing had been patched over several years and was looking at the end of its life span. There was some discussion around funding the replacement programme perhaps over a period of years where parts of the roof could be replaced. Justin point out that this could be done in possibly three tranches given the design of the roof. It was agreed that Alive are to engage a QS to determine the true cost of the roof replacement.
[21] While the above paragraph does not refer expressly to the Opus Report, the reference to a “torch on membrane” is consistent with the repair system referred to in the Opus report and obtaining a QS determination also reflected Opus’ recommendation. The “Action List” arising from the Body Corporate Committee meeting has an entry: “Organise QS to determine the true cost of the roof replacement”. Responsibility for that step was allocated to Alive. It will be recalled the Opus report was addressed to Clinton of Alive.
[22] The next key document is the minutes of the AGM of the Body Corporate held on 5 June 2014. The AGM was attended by Mr Kennedy, one of the plaintiffs. Justin and Clinton also attended.
[23] Justin and Clinton, under the heading “Building Manager’s Report”, referred to:
an extensive review of the roof and repairs that were needed plus the addition of some safety features on the roof to assist with contractors’ safety.
[24]Then, as a budget item, there is the following:
Long Term Maintenance Budget:
Following confirmation from Weathertight and Building Services that if remedial actions are taken with relatively small increases in budgets, the roof life can be extended potentially by up to 10 years, it was agreed to adjust the Long Term Maintenance Budget to reflect this change. It was also confirmed that the current repairs to the roof have a 5 year workmanship and 15 year materials warranty.
[25]The motions moved by Mr Cooper relating to the above item were all carried.
[26] Of course, the idea that the roof could be subject to a “fix and hold” solution to be replaced in 10 years was the position 10 years earlier, in April 2004. At the moment, the Weathertight and Building Services report, if there is one, is not before the Court.
[27] The Opus Report is not referred to in the Body Corporate Minutes, nor was it apparently provided to owners of the units, though that is unclear at the moment.
[28] However, putting in context what must have been discussed at that meeting is a quote from a contractor obtained by a Ms Burney, a unit owner, dated 11 June 2014. Ms Burney took it upon herself to seek a quote for repair of the roof and, in her email to Mr Cooper of 16 June 2014, Ms Burney forwarded the quote to the Body Corporate Committee noting that the Dominion Building roof was currently undergoing “patch” repairs. Ms Burney said: “I also understand from Clinton that the roof has proven to be in pretty sound condition, structurally”. She was under the impression: “[g]iven all this it is clear that nothing major or expensive needs to be done for some time to come”.
[29] The thrust of Ms Burney’s e-mail was that it did not make sense for the Body Corporate to be spending $30,000 - $40,000 each year on patch-ups when she had obtained a quote for a replacement option of $184,000 including GST.
[30] That option was discussed by the Body Corporate Committee at its meeting on 30 June 2014. Alive advised that the product referred to in the quote had only been around for a short time and it could not yet confidently recommend it. The Minutes record: “[t]he roof is now in a stable state so the Body Corporate currently has time
to allow it to further investigate all roofing options”. The Minutes record it was agreed to proceed on a repair basis as the roof lifespan was considered to be okay for another 10 years. Again, the Opus Report was not referred to.
[31] It is evident that the confidence further roof repairs would maintain watertightness was misplaced. The evidence shows extensive damage to at least one of the plaintiffs’ units. In 2016, the plaintiffs instructed their solicitors to write to the Body Corporate urging it to stop the leaks into their apartment.
[32] Chapman Tripp become involved in 2017, having been engaged by the Body Corporate’s insurers.
[33] The next key exchange from the plaintiffs’ point of view, which forms one of the bases of this application, occurred in November 2017. By then, the plaintiffs’ solicitors had put the Body Corporate on notice of the possibility of litigation.
[34] On 14 November 2017, Mr Noble of Alive, sent Mr Cooper the Building Manager’s Report for the 2017 AGM. Half an hour after receipt of that Report, Mr Cooper replied to Mr Noble and copied in Justin and Mr Chris Street (another committee member), saying:
I’ve only just had a quick scan but am a bit concerned that we may be saying some things too explicitly or in too much detail and placing our own position at risk in relation to any potential litigation or even just in discussions between Parker & Co [then acting for the plaintiffs] and our own lawyers.
I sent my chair’s report to Chapman Tripp for their review and they have cut it back quite markedly for just the sort of reasons as above. To avoid any potential difficulties I’d like to be able to send your report to them as well please.
Would you mind please sending me the Word version of your report so as to make it easier for them to comment/suggest changes.
[35]Mr Noble replied sending a copy of the Word version and noting:
The original report supplied by ABS will remain on our records as our submission to the Body Corp. and ABS will not make any edits. C&T [Chapman Tripp] and yourself, however, are welcome to make any changes as you see fit for the purposes mentioned below, for inclusion in the AGM pack.
[36]The AGM pack is the information sent to owners of the units prior to the AGM.
[37] Both Alive’s original and edited version are produced. Under the heading “Roof Works” the original Report referred to a number of issues with the roof and said:
… With this knowledge, and taking into account the number of leaks that were being dealt with, it was felt that a full roof replacement should be prioritised. This was recommended back in 2013 based on the report written and supplied by Opus however it didn’t fit with the Body Corporates long term maintenance funding at the time so a roof maintenance fund was set up to tie it over until funds increased to do the roof replacement. This worked for a period, however this option is no longer viable.
[38] In the Building Management Report, it would seem apparently edited by Chapman Tripp, that passage became:
… With this knowledge, and taking account the number of leaks that were being dealt, it was felt that a full roof replacement should be prioritised. Ongoing maintenance is no longer viable.
[39] The plaintiffs are, to say the least, sceptical that it is a coincidence the Opus Report was apparently not circulated for the 2014 AGM and reference to it was edited out of the above Report. The plaintiffs go so far as to allege the Opus Report was concealed by Mr Cooper.
[40] It is Chapman Tripp’s involvement in the editing of the Building Management Report which is said to mean, if Chapman Tripp remain instructed, they will in substance be protecting their own advice in relation to the editing of the Report.
Legal principles
[41] Counsel agreed on the applicable legal principles save for their approach to the issue of the threshold. Both counsel referred to my decision in Fruit Shippers Ltd v Petrie.1 In that decision I referred to Black v Taylor, where Cooke P put the test as follows:2
1 Fruit Shippers Ltd v Petrie [2019] NZHC 269, [2019] NZAR 18324.
2 Black v Taylor [1993] 3 NZLR 403 (CA) at 406.
… The jurisdiction extends to the propriety of a representative appearing in a particular case: it is not then a question of the right of practice generally, which is governed in New Zealand by statute, but a question concerning what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice. Obviously it is a jurisdiction to be exercised with circumspection.
[42]Richardson J said:3
Another aspect of the inherent jurisdiction is the control of a particular proceeding in the Court. There the Court’s concern is with the administration of justice in a particular case and in the generality of cases and with the associated basic need to preserve confidence in the judicial system.
[43]In a more recent decision, Deliu v Auckland Standards Committee 1,
Woolford J said:4
[22] I am of the view that the public interest in the administration of justice requires an unqualified perception of its fairness in the eyes of the general public. As noted in the Canadian case of Everingham v Ontario the issue is not whether any ethical rules has been breached, nor is the issue solely whether one of the parties has lost confidence in the process.5 The issue is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires the removal of the solicitor.
[44]In Mitchell v Mitchell, Powell J said:6
[29] The legal principles are well established having been reviewed and applied in a number of recent cases. The starting point remains Black v Taylor, where the Court of Appeal confirmed that this Court has an inherent jurisdiction to disqualify a solicitor from acting against a former client where counsel’s representation of one party against the other may impair the integrity of the judicial process. The cases are clear that the integrity of the justice system will be impaired where counsel has a conflict of interest or there is an appearance of a conflict of interest such that justice will not be seen to be done. In a number of cases the test is couched in terms as to whether a fair minded, reasonably informed member of the public would conclude the proper administration of justice requires that a legal practitioner should be prevented from acting.
[45] Counsel agree it is relevant whether a lawyer, in defending his or her client’s position, is in reality defending advice they have previously given.
3 Black v Taylor, above n 2, at 408.
4 Deliu v Auckland Standards Committee 1 [2014] NZHC 2530, [2014] NZAR 1473.
5 Eveningham v Ontario (1992) 88 DLR (4th) 755.
6 Mitchell v Mitchell [2018] NZHC 2665, [2018] NZAR 1741 (footnotes omitted).
[46] In Fruit Shippers Ltd, I discussed Fisher J’s reference to “extraordinary circumstances” in Clear Communications Ltd v Telecom Corporation of New Zealand Ltd.7 I noted in that case the application to remove counsel was in effect a sanction for discovery inadequacies by counsel.8 Fisher J said in that case: “[t]he alternative of removing a party’s lawyer for discovery deficiencies could be contemplated only in the most extraordinary of circumstances”.
[47] However, I concluded that, while there was a need to be circumspect, I did not consider something extraordinary was required where removal was not sought for a lawyer’s actual misconduct.9 In fairness to Mr Kalderimis, he did not suggest something extraordinary was required but nonetheless submitted the threshold for removal is high and requires “a real risk that a client will not be represented with objectivity”, referring to Accent Management Ltd v Commissioner of Inland Revenue.10
[48] Mr Bigio referred to my conclusion in Fruit Shippers Ltd that there was a more than negligible risk that advice given by the solicitors sought to be restrained from acting would be put in issue.11 I said: “[t]he reference to a ‘more than negligible risk’ comes from Torchlight Fund No 1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd.”12 In the next paragraph of my decision I referred to Li v Liu, where the Court of Appeal said:13
… A reasonable likelihood that [the solicitor] will be called as a witness will be sufficient to make the possibility more than mere speculation and the threat to integrity real.
[49] I note Venning J in 100 Investments Ltd v Walker,14 in an application to recuse solicitors, referred to my reference to a “more than negligible risk” in Fruit Shippers and said:
7 Fruit Shippers Ltd v Petrie, above n 1, at [14] citing Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1997) 14 PRNZ 477 (HC) at 483.
8 At [17].
9 At [20]-[21].
10 Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155, [2013] 3 NZLR 374 at [32].
11 Fruit Shippers Ltd v Petrie, above n 1, at [17].
12 At [117] citing Torchlight Fund No 1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd [2014] NZHC 2552, [2014] NZAR 1486 at [20].
13 Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [37].
14 100 Investments Ltd v Walker [2020] NZHC 165, at [40].
… For my part, I am not sure that the test should be at that relatively low level but even if the threshold required a reasonable likelihood of the advice being put in issue (similar to the established threshold for the giving of evidence), I consider it to be more than met in this case.
[50] In Guardian Retail Holdings Ltd v Buddle Findlay,15 Courtney J, dealing with a challenge to Buddle Findlay acting on the basis their advice would be in issue in the proceeding, concluded:
… there is a risk that is more than negligible that Buddle Findlay will be unable to properly discharge its obligations …
[51] At the end of the day, I approach the question of threshold as I did in Fruit Shippers - with circumspection. A challenge to a firm acting based on speculation will not suffice. Whether the test is based on a reasonable likelihood, a real concern or a more than negligible risk, at the end of the day if the Court is not confident the solicitors continued involvement is consistent with the integrity of the judicial process then it should act.
The plaintiffs’ causes of action
[52] Mr Bigio described the events around the 2014 AGM as being at the core of the plaintiffs’ complaint. Again, it is said the owners of the units in the Dominion Building were not provided with the Opus Report. The plaintiffs say this meant there was no balanced discussion in respect of the apparent report from Weathertight and Building Services with the Opus Report. Mr Bigio submitted the unit owners were not provided with proper information to evaluate their options in relation to the roof repair. There is no explanation as to why the action list item referred to at [21] above was not pursued. Again, Mr Bigio went so far as to say that an inference was open that the Opus Report was concealed. That allegation is strongly refuted; the Body Corporate saying that the “confirmation from Weathertight and Building Services” referred to in the AGM Minutes, as set out at [24] above, came from Justin of Alive. In essence, the submission is Alive was the “clearing house” for reports in respect of the roof.
15 Guardian Retail Holdings Ltd v Buddle Findlay [2013] NZHC 1582, [2013] NZAR 988.
[53] Mr Kalderimis in effect said all the Body Corporation Committee did was take advice from the Building Manager. He maintained nothing nefarious occurred. None of the Committee members from 2004 remained on the Committee in 2014.
[54] As against the second and third defendants, the plaintiffs say they breached their corporate duties as a whole and to the plaintiffs in particular to exercise independent judgement and care. The pleaded particulars of breach include (as set out by Mr Bigio):
concealing the Opus Report in 2014, making misrepresentations about the roof at an AGM in 2014, and altering a building manager’s report in 2017 by removing reference to the Opus Report.
[55]The plaintiffs say:
There is a prima facie basis for the Body Corporate to cross claim against the second and third defendants for breaching their duties to the Body Corporate.
Chapman Tripp’s involvement in editing the 2017 Building Manager’s Report
[56] The allegation against Mr Cooper is that he deliberately deleted reference to the Opus Report in the Building Manager’s Report which went out to unit owners as part of the AGM pack. As far as can be determined at the moment, the deletion was suggested by Chapman Tripp.
[57] I understood the plaintiffs’ argument to be as follows: if Mr Cooper is going to justify his deletion of reference to the Opus Report in the Building Manager’s Report of 2017 on the grounds it was upon advice from Chapman Tripp, that will put in issue Chapman Tripp’s involvement in that step.
[58] However, Mr Bigio accepted that the plaintiffs’ causes of action did not put in issue the correctness of Chapman Tripp’s decision to edit the Building Manager’s Report in the way that they did.
[59] In my view, Chapman Tripp’s involvement, such as it appears to be at the moment, in editing the Building Manager’s Report would not put them into the position of defending the correctness or reasonableness of that step in this proceeding.
[60] Mr Kalderimis submitted all Mr Cooper did, given he was in a litigation context, was take advice from Chapman Tripp as to what should be circulated to the Body Corporate unit owners given the threatened litigation. Mr Cooper acted on the advice from Chapman Tripp in that regard.
[61] Accordingly, Mr Cooper need go no further than point to that advice to explain his actions – he does not have to go further to justify the correctness or accuracy of that legal advice.
[62] Short of the suggestion, which is not made, that somehow Chapman Tripp were knowingly involved in the concealing of the Opus Report, as opposed to simply adopting a cautious view on disclosure in a litigation context, I do not consider Chapman Tripp’s involvement in that step involves the firm defending its own advice in this proceeding. As noted at the outset, the core of the plaintiffs’ complaint relates to the decision in 2014 to continue patching the roof rather than replacing it. Chapman Tripp had no involvement in that process. Nor is there any suggestion that Chapman Tripp’s historical involvement back in 2004 is of any relevance.
[63] Accordingly, I conclude that the application, insofar as it relies on the proposition that Chapman Tripp will be defending its own advice in this proceeding, fails on the material as it is presently known.
Alternative ground – the defendants’ interests are not the same
[64] Mr Bigio submits the High Court Rules 2016 (the Rules) provides a lawyer must not, without leave of the Court, act for more than one party to a proceeding unless all parties share the same interest of the subject matter of the proceeding.16
[65] Mr Bigio submits disqualification can be justified if the pleadings disclose a divergence of interest between defendants such that the defendants lack a community of interest.
16 High Court Rules 2016, 1.20(2).
[66] Mr Bigio refers to Landmark Property Holdings Ltd v SGA Investment Holdings Pte Ltd,17 as authority for the proposition that a body corporate cannot have a community of interest with defendant unit owners in resisting claims raised by plaintiff unit owner when it has a fiduciary duty not to prefer some unit owners over others and is required to treat all unit owners “even-handedly”.
[67] Further, Mr Bigio submits that a defendant body corporate has a right of action against committee members for ultra vires acts that result in liability to the body corporate, including by way of joinder for breaches of statutory duty.18
[68] While Mr Bigio accepted that at the moment there may be some imperfection of expression in the statement of claim, his basic proposition was that it cannot be within the proper exercise of the Body Corporate Committee members’ powers to withhold information from unit owners in respect of major repair decisions.
[69] Mr Bigio submitted the Body Corporate Committee’s own actions here have put the unit owners collectively at risk of paying damages because the unit owners were not given proper information by the Body Corporate Committee in 2014.
[70] Accordingly, and to use Mr Bigio’s words, there is the potential for the Body Corporate “to turn on the Committee members” and seek to join them in the proceeding. Therefore, it cannot be said the defendants’ interests are the same.
[71] Mr Kalderimis analysed whether it was tenable for there to be a claim by a body corporate against individual members of a body corporate committee. He submitted that to date there does not seem to have been such a successful claim.
[72] The plaintiffs advance their claim against the second and third defendants on the following basis:
The first defendant may join the second and third defendants pursuant to s 142 of the Unit Titles Act 2010 and in lieu of such, and to the extent necessary, this cause of action is brought by the plaintiffs by way of derivative action.
17 Landmark Property Holdings Ltd v SGA Investments Holdings Pte Ltd [2020] NZHC 893 at [15].
18 Guardian Retail Holdings Ltd v Buddle Findlay [2013] NZHC 1582, [2013] NZAR 988 at [24].
[73] The second and third defendants are said to have “concealed the Opus Report” in breach of an obligation to act in the best interests of the Body Corporate as a whole, an obligation to use their powers for a proper purpose and in failing to exercise independent judgement and care in their decision making.
[74]A further breach is pleaded as altering the Building Manager’s Report in 2017.
[75] Thus, the plaintiffs say the claims they wish to bring against the second and third defendants are claims the Body Corporate could (and on the plaintiffs’ case should) bring against the Body Corporate Committee members.
[76] Mr Kalderimis referred to an article published in the 2014 New Zealand Law Review.19 The author of that article notes:
A claim may be made by the body corporate against the committee members under the provisions of the 2010 Act.20 Or by recognition of general duty of care obligations imposed under the general law.21 In Guardian Retail, the High Court confirmed the committee members “… have personal obligations to act in accordance with the relevant statutory powers and roles”.22
[77] Mr Bigio referred to the Unit Title Regulations 2011. Clause 6 of those Regulations deals with the giving of notice of the AGM which, after the first AGM, must be given by the Chairperson.23 Notice of the AGM must contain the information listed in cl 6(4)(a)-(e) with cl 6(4)(f) providing the notice must:
contain any other information that the body corporate or chairperson (as the case may be) considers relevant.
[78] The present statement of claim does not assert the second and third defendants breached the 2011 Regulations.
19 Rod Thomas “A disincentive to Service – Committee Members’ Personal Liability under the Unit Titles Act” [2014] NZL Rev 423.
20 Unit Titles Act 2010 Act, s 171(1) and (2). See also Manning v Body Corporate 126411 HC Auckland CP89sd01, 29 November 2001 and in Guardian Retail Holdings Ltd v Buddle Findlay, above n 15.
21 There is unlikely to be a finding based on breach of contract, as there is unlikely to be an agency contract between committee members and their body corporate.
22 Guardian Retail Holdings Ltd v Buddle Findlay, above n 15, at [24].
23 Clause 6(2).
[79] Mr Bigio submitted the Opus roof report was a relevant document both in 2014 and in 2017 and therefore it was arguable the Committee had failed in its obligations under the Unit Title Regulations 2011 to provide the Opus Report to unit owners. He submitted, based on the passage at [76] above, the Body Corporate had a right to claim against the Body Corporate Committee members for this breach.
[80] Unlike a strike out application, this is not a context where the allegations in the statement of claim must be taken to be capable of proof. An applicant opposing counsel continuing to act must have a reasonable basis for the allegations advanced. That said, there is merit in Mr Bigio’s acknowledgement that the need for applications such as the present one to be advanced early means an applicant of necessity will not have had, for example, full discovery or the ability to bring interlocutory applications that might disclose information helpful to the application.
[81] Here, the amended statement of claim pleads the Body Corporate received the Opus Report on 28 March 2014.
[82] There is no evidence to support that allegation. Firstly, the Opus Report dated 8 March 2014 is addressed to Clinton of Alive. The Opus Report is not referred to in the Committee Minutes of 23 April 2014. Instead, as set out at [20] above, Justin of Alive appears to have spoken to the meeting with paragraph 10.1 beginning: “Justin advised …”. The Minutes refer to the advice received by the Committee which, as I noted at [21] above, appears to be a reference to the Opus Report but the Minutes do not record that the Opus Report was received by the Body Corporate Committee. In any event, paragraph 10.1 of the Minutes of 23 April 2014 is broadly consistent with what is in the Opus Report given the conclusion Alive were to engage a QS to determine the true cost of the roof replacement.
[83] It is true that the Minutes of the AGM dated 5 June 2014 do not refer to the Opus Report. Although it also appears that Justin and Clinton of Alive spoke to the Building Manager’s Report, I accept there is uncertainty as to just what was sent out to unit owners.
[84] There is a practical difficulty with the case being presented by Mr Bigio differing from that pleaded. It was only in reply that Mr Bigio referred to the Unit Title Regulations 2011 (albeit I acknowledge arrangements between counsel permitted Mr Kalderimis to speak to the additional material provided prior to Mr Bigio’s reply).
[85] Both counsel referred to Guardian Retail Holdings Ltd v Buddle Findlay.24 The plaintiff, Guardian Retail Holdings Ltd (Guardian) was a member of the Body Corporate and had brought proceedings against the Body Corporate and three members of the Body Corporate Committee alleging breaches of the Body Corporate Rules and acts of misfeasance. The Body Corporate purported to ratify the acts subject to those allegations. The Body Corporate also resolved to stand behind the respondent Committee members and meet their defence costs.
[86] Guardian asserted there was a conflict of interest between the Body Corporate and the respondent Committee members that prevented Buddle Findlay from properly discharging its obligations to the Court and which put Buddle Findlay in breach of the Conduct and Client Care Rules.25 Guardian also asserted that Buddle Findlay’s own independence was compromised because its advice would be in issue, that is, the advice it gave in relation to the ratification process.
[87] Guardian sought an order restraining Buddle Findlay from continuing to act. The application was opposed by the Body Corporate and the respondent Committee members because of the ratification by the Body Corporate of the respondent Committee members acts. Their main contention was, because the Body Corporate had ratified the Committee members’ acts, their interests were aligned and there was no conflict between them.
[88] The ratification occurred at an emergency general meeting. The Court was satisfied there existed a conflict of interest between the Body Corporate and the respondent Committee members at the time of the meeting that would have prevented Buddle Findlay from acting further without the Body Corporate members receiving
24 Guardian Retail Holdings Ltd v Buddle Findlay, above n 15.
25 Guardian Retail Holdings Ltd v Buddle Findlay, above n 15, at [2] referring to Lawyers and Conveyancers (Conduct and Client Care) Rules 2008.
independent advice. The Court noted that as at the date of the emergency general meeting, the Committee members were already facing allegations of breaching Body Corporate Rules with some of those allegations likely to be sustained. The Court noted that, prior to ratification, the Body Corporate would have had a right of action against the Committee members in respect of those actions.
[89]The Court then said:26
[37] The Body Corporate could choose to ratify such acts and/or elect not to proceed proceeding against the committee members and that is, in fact, what happened; one of the current committee members, Mr Plummer, deposed that Buddle Findlay has:
… repeatedly explained to the Committee that it is unable to advise the Body Corporate on any potential claims against the Second Defendants and has recommended that it seek independent legal advice if it wished to explore that option further.
[38] Mr Plummer explained that the Body Corporate does not wish to obtain legal advice as to possible claims against the respondent committee members:
The Committee has carefully considered this advice. It has concluded that the interests of the Body Corporate and the second defendants are the same insofar as the Guardian proceeding is concerned. From our perspective, the second defendants – who were unpaid, elected volunteers – were acting in good faith on behalf of the Body Corporate and in accordance with what they understood their obligations to be. They undertook the actions complained of on behalf of the Body Corporate as a whole, on the basis that they had a legal duty to do so.
[39] This decision was open to the Body Corporate and the reasons that Mr Plummer gave for it are understandable. However, it was a decision that could only be made properly with the benefit of independent legal advice and knowledge of the relevant facts. There are two aspects of the decision-making process that I find concerning.
[90] The Court concluded that the ratification occurred without full knowledge of some of the relevant facts and that the Body Corporate did not obtain independent legal advice prior to the resolution to ratify the Body Corporate Committee members’ acts. An order was made that Buddle Findlay not continue to act.
26 Guardian Retail Holdings Ltd v Buddle Findlay, above n 15, at [37], [38] and [39].
[91] Here, an opinion from Mr Kalderimis as to the appropriateness of Chapman Tripp acting was obtained. Mr Kalderimis, in his opinion of 7 March 2022, said:
… the only reason here for disqualifying Chapman Tripp would be because of the realistic prospect of cross-claims between defendants …
[92] That possibility was examined by Mr Kalderimis. He noted he had not located an authority where there had been a successful claim against members of a body corporate committee and he said:
I do not see this case as breaking new ground. This is because the alleged duties are not the statutory rules themselves, but idiosyncratic allegations of equitable duties that are said to inhere in or compliment the statutory rules.
(my emphasis)
[93] Mr Kalderimis’ opinion concluded that the causes of action as pleaded by the plaintiffs against the second and third defendants would not form the basis of a viable cross-claim by the Body Corporate against the second and third defendants should the Body Corporate need to cross-claim.
[94] Mr Kalderimis’ opinion was circulated to all members of the Body Corporate and was the subject of discussion at an extraordinary general meeting held on 17 March 2022. A motion was carried 35/3 (the plaintiffs attending the meeting) as follows:
Chapman Tripp continued to act for the Body Corporate [and the second and third defendants], at the sole cost to the Body Corporate”
[95] With the plaintiffs’ current pleading not alleging a breach by the defendants of the Unit Title Regulations based either on events in 2014 or perhaps 2017, the viability of cross-claims based on such a breach was not considered by Mr Kalderimis so that could not be considered at the meeting. Mr Kalderimis’ comment set out at [92] suggests that had the allegations against the second and third defendants been pleaded as breach of the “statutory rules”, his opinion may have been different. I put it no higher than that.
[96] To rule now that Chapman Tripp could not act on the basis of a claim that has not been crystallised into a pleading would be to deprive the defendants of their
solicitors of choice based on a claim about which the Body Corporate has not had a chance to take independent advice or to put to unit owners. The plaintiffs would have to crystallise that hypothetical claim into an amended pleading before such a claim could be fully considered.
[97] The absence of truly independent advice was a key factor in the Guardian Retail Ltd decision. However, para [39] from Guardian Retail Ltd set out at [89] above shows that, if the Body Corporate and the owners have independent advice about the ability to claim against Committee members, it is open to the Body Corporate to decide not to pursue such a claim. That is what was sought to achieve through Mr Kalderimis’ opinion provided to unit owners and the issue being put to the vote. However, to the extent the claim may be repleaded, the independent advice will need to be revised.
[98] But for the potential of a claim based on Unit Title Regulations, the unit owners have had independent advice on whether the Body Corporate should bring a cross-claim against the other defendants and decided not to do so.
[99] Accordingly, at this point I decline to make an order that Chapman Tripp not represent the defendants on the basis there is the potential for a cross-claim between the Body Corporate and the second and third defendants, meaning that their interests are not aligned. I decline to do so because of the way the application has developed. The basis for saying the Body Corporate may have a cross-claim against the Body Corporate Committee members, in particular Mr Cooper, namely breach of the Unit Titles Regulations 2011, is unpleaded and was only raised late in submissions. I understand the claimed loss would be that had the repair process got underway in 2014, the repair cost would be markedly less than it is now.
[100] Mr Kalderimis submitted the present application was premature and that depending on how the claim developed, a further application may be warranted. I agree. Equally, Mr Kalderimis’ submission that the present application is premature will limit Chapman Tripp’s ability to argue any further application has been delayed or brought for technical reasons.
[101] I also decline to make an order in relation to Chapman Tripp’s application that it be granted leave to represent all defendants should their interests differ. Until the basis of the conflict is more than theoretical and the Body Corporate has had a chance to take independent advice on the form of the alleged cross-claim, it is not possible to assess the merits of Chapman Tripp’s application.
[102] While the dismissal of the plaintiffs’ application at this time leaves the potential for uncertainty in respect of Chapman Tripp’s role given the likelihood of amendment to the pleadings, such cannot be avoided.
Costs
[103] Costs are reserved. My impression is that costs should follow the event on a 2B basis. If no submissions as to costs are filed by either party within five working days of this judgment (not more than five pages), then the order of the Court will be the respondents are awarded costs on a 2B basis plus disbursements as fixed by the Registrar.
Associate Judge Lester
Solicitors:
Lane Neave, Auckland (for Plaintiffs)
Chapman Tripp, Auckland (for Defendants)
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