Maiden v Body Corporate 46112

[2018] NZHC 1219

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2017-485-960

[2018] NZHC 1219

IN THE MATTER

of an originating application to appoint an administrator

UNDER

section 141 of the Unit Titles Act 2010

BETWEEN

KELLY ROCHELLE MAIDEN

First applicant

PHIL JOHN JAMESON AND XIAO HUA XU
Second Applicants

GAEL MARIA BAGSHAW AND WILLIAM LESLIE CAMERON BRIERLEY

Third Applicants

SAMUEL DENNIS MARMENT AND ERIC ELMER NEMRAVA

Fourth Applicants

COLIN STEVEN MARSHALL
Fifth Applicant

AND

BODY CORPORATE 46112

First Respondent

ALAN CLAUDE GREGAN

Second Respondent

Hearing:	22 May 2018
Counsel:	J K Mahuta-Coyle for Applicants A C Gregan in Person
Judgment:	28 May 2018

KELLY ROCHELLE MAIDEN v BODY CORPORATE 46112 [2018] NZHC 1219 [28 May 2018]

JUDGMENT OF THOMAS J

Table of contents

Factual background................................................................................................ [2]

The proceedings..................................................................................................... [25]

Interim appointment............................................................................................ [27]
Report of interim administrator dated 9 April 2018........................................... [35]

Applicants’ position............................................................................................. [41]

Mr Gregan........................................................................................................... [44]

Application for order appointing administrator................................................. [51]

Costs........................................................................................................................ [56]

The law................................................................................................................ [57]

Submissions......................................................................................................... [62]
Costs against both respondents or solely against Mr Gregan?.......................... [69]

Level of costs....................................................................................................... [79]

Result...................................................................................................................... [85]

[1]    The FIVE-O Apartments in Buckley Road, Wellington is a unit title development in respect of which little or no maintenance has taken place since its development around 40 years ago. Building works to the common property and building elements of the three buildings owned by the Body Corporate is now critical. The Body Corporate is, however, dysfunctional. There is no Body Corporate committee. No annual general meeting (AGM) has been held since 2014 and there is no operative governance structure. An administrator was appointed on an interim basis in March 2018. This decision confirms the appointment of an administrator for a 12 month period. It also addresses the costs of these proceedings.

Factual background

[2]    There are two issues before the Court, that is the appointment of an administrator and costs on an increased basis which the applicants seek against the second respondent, Alan Gregan. In order to deal with them both, it is necessary to traverse the troubled background of the relationships between the parties in some detail.

[3]    FIVE-O Apartments comprises nine principal units and a number of accessory units. There are two blocks of apartments comprising Units A–H. The applicants own

Units A, B, C, E and H. Mr Gregan owns Units D, F and G, and Unit I. Unit I, somewhat strangely, is part of the unit title development but is a stand-alone house, physically separated by some distance from the apartment blocks. Although the applicants comprise the majority of owners, Mr Gregan holds 59.9 per cent of the unit entitlement.

[4]    Mr Gregan’s family undertook the original development, a factor which might well have contributed to the current problems.

[5]    Because of the somewhat anomalous makeup of the unit title development, the Body Corporate’s decision-making up until 2010 tended to concern Units A–H only. Mr Gregan separately insured and maintained Unit I.

[6]    The last time any determinative governance action occurred was in 2009. The 2009 AGM elected the co-owner of Unit B as chairperson. The Body Corporate’s accountant was a Mr Gustafson. Unit owners paid a levy of $200 per quarter to cover insurance, ground maintenance and Mr Gustafson’s fee. Self-evidently, the levy was insufficient for any building maintenance. It does not appear there was any long-term maintenance plan.

[7]    The need for maintenance works to the apartment blocks, being painting and window and roofing replacement, was discussed at the 2010 AGM. This would have required a large increase in the levies and a levy of $230 per unit per month payable from 1 September 2010 appears to have been agreed. Mr Gregan did not attend the 2010 meeting and takes exception to its validity. The basis for this objection was that notice of the AGM was not sent to him by registered mail, something Mr Gregan maintains is a requirement. In any event, it is clear Mr Gregan’s dissatisfaction with the Body Corporate and/or the applicants stems from this time.

[8]    The then chairperson retired as chairperson at the 2010 AGM and the position has not been filled since.

[9]No AGM was held between 2011 and 2013.

[10]   The owner of one of the units appears to have been motivated to progress the required maintenance, having received advice that the exterior joinery in his unit was in urgent need of maintenance. In or around the second half of 2013, the Body Corporate sought quotes for the repair and/or replacement of the rooves of the two apartment blocks. One of the quotes for a new roof, painting, insulation and replacement of joinery, inclusive of materials and labour, was $138,087.40.

[11]   A meeting of unit owners took place in July 2014 to discuss the quotes.     Mr Gregan attended but expressed his dissatisfaction with what had taken place and the meeting broke up without any consensus as  to repairs.  The applicants allege   Mr Gregan became extremely angry, causing at least one of them to become concerned for their safety.

[12]   A formal AGM was convened in September 2014, the key issue being to advance the replacement of rooves, by this stage considered to be in a serious state of decay and in need of urgent replacement. The AGM agenda contemplated the imposition of a new levy to fund the roofing replacement. Mr Gregan attended. The meeting again degenerated into what appears to be ugly exchanges. The applicants say Mr Gregan’s behaviour meant it was impossible for any substantive business to be discussed and the meeting was abandoned.

[13]   Mr Gustafson then asked all unit owners to bring their levies up to date in preparation for instructing contractors.

[14]   The applicants allege Mr Gregan behaved in an intimidating manner towards them, “warning” them not to proceed with the re-roofing without his specific approval. The applicants say, given Mr Gregan owned three of the units within the two apartment blocks, they could not afford, without his contribution, to fund the work and were concerned about the ramifications should they do so, given Mr Gregan’s attitude.

[15]   Mr Gustafson wrote a number of times to Mr Gregan seeking payment of his outstanding levies in the context of the “very urgent re-roof”. Mr Gustafson suggested mediation in an attempt to resolve the issue. Mr Gustafson’s efforts continued throughout 2015, although early that year he concluded he found “the administration

of FIVE-O Apartments tiresome and unrewarding professionally”. He asked the Body Corporate to find a new manager. He carried on with his attempt to collect levies but, by June 2016, had handed his files to another accountant, Paul Turner.

[16]Mr Turner wrote to the unit owners in June 2016, reminding them:

The BC has an obligation to undertake all remedial work affecting common property immediately, and has the appropriate authority should this be required. It is also required to undertake the work when it may affect other Units in the block.

[17]   He suggested the 2015 AGM should be held out of time and proposed an agenda. Mr Gregan appeared to take some exception to this and considered it inappropriate to involve Mr Turner. He also sought access to the Body Corporate bank account.

[18]   The applicants, or some of them, responded to Mr Gregan and proposed a meeting for some decisions to be taken. They asked Mr Gregan to suggest an accountant and/or body corporate secretary if he was unhappy with Mr Turner being involved. There then followed some communication between Mr Gregan and the applicants (or some of them) but debate about outstanding levy payments remained controversial. Eventually, in January 2017, the applicants sought legal advice.

[19]   In  February  2017,  the  applicants’  lawyer,  John  Greenwood,  wrote  to  Mr Gregan about his apparent refusal to participate in the Body Corporate affairs and stressing the need for major repair work in respect of the two apartment blocks. He reminded Mr Gregan of the Body Corporate’s statutory responsibilities and set out the need for proper governance of the Body Corporate to be re-established. He also pointed out the anomaly of Unit I, Mr Gregan’s house, being part of the unit title development and suggested agreement could be reached to sever  the connection.  Mr Greenwood advised Mr Gregan that, if he did not agree to an appropriate meeting of owners, there would be no choice but to put the Body Corporate into administration, noting that would require  an application to the High  Court.   Mr Greenwood put   Mr Gregan on notice that the costs of any such application, including legal fees, would be sought from him. Mr Greenwood suggested the matter should be resolved without the need for any such High Court proceedings.

[20]   Mr Gregan’s response traversed his concerns about background events beginning in 2009, and his view the 2013 AGM was “null and void”. Mr Gregan said the levy should be that set in 2009, $800 per year per unit, and he was prepared to pay any outstanding balance owed by him on the basis of that figure.

[21]   Mr Greenwood responded to Mr Gregan, observing that Mr Gregan’s response and apparent refusal to properly engage with matters demonstrated the dysfunctionality within the Body Corporate. In any event, Mr Greenwood gave notice of a meeting proposed at his office for the purpose of arranging an AGM and, in particular, considering the necessary repairs and maintenance to the two apartment blocks. Mr Gregan responded by contacting the other owners and proposed holding a meeting at his own property. He told Mr Greenwood he would obtain independent legal advice but there is no evidence this took place, a matter to which I will return.

[22]   On 17 August 2017, Mr Greenwood wrote to Mr Gregan by email, sending him an advance copy of the application to the Tenancy Tribunal seeking orders to force the holding of an AGM and, in particular, to approve the remedial works urgently required to the apartment blocks. He invited Mr Gregan to agree to an AGM and avoid the need for any such application. On 21 August, Mr Gregan replied with his initial response being, “a rejection of some of the sentiments contained”. Mr Greenwood responded on 24 August 2017 saying:

Mr Gregan you have failed to respond again – frankly your apparent attitude in ignoring and resisting your fellow owners highly legitimate claims continues to undermine the functionality of the body corporate coupled with the fact that the market values of the apartment units are declining rapidly while remedial work is further delayed for which you should be held solely accountable.

The owners are considering that a better approach is to appoint a High Court Administrator.

[23]   The applicants decided not to proceed with the Tenancy Tribunal proceedings because, even if an AGM were ordered, Mr Gregan possessed a sufficient number of units and a sufficient ownership interest to prohibit the passing of any resolutions.

[24]   This resulted in the applicants applying for an order appointing an administrator. The first applicant concluded her affidavit by saying:

57.Body Corporate 46112 is a small body corporate. In order to work within a low-overhead cost structure it requires the small number of unit owners to communicate with one another and be constructive. If we disagree about matters, the AGM/EGM process provides a formal means by which disagreements can be resolved. The current state of affairs seems to be largely because Mr Gregan does not wish to co- operate or participate in any formal or informal decision-making process at all.

58.We cannot afford continued inaction. The state of the apartments, the common property and building elements is now seriously jeopardising the value of our respective investments in those units. Tenants or unit owners who reside there must deal with regular water ingress into our apartments. It has not been a pleasant winter.

59.The remaining unit owners-come-applicants, aside from Mr Gregan, would be happy to get on with the administration of the Body Corporate’s governance, such as resolving a long-term maintenance plan, the imposition of a long-term maintenance fund and associated levies from all owners. They support this application.

…

61. However, while Mr Gregan remains completely uncooperative and recalcitrant as to the Body Corporate’s management, the unit owners accordingly feel they have no other choice but to bring the application now before this Court.

The proceedings

[25]   On 13 November 2017, the applicants filed an originating application for an order under s 141 of the Unit Titles Act 2010 (the Act) appointing Mr Paul Crew as administrator of the Body Corporate for a period of six months.

[26]   On 16 November 2017, directions for service on Mr Gregan were made. When the matter was called for case management on 27 November 2017, Mr Gregan arrived late to Court and was given directions about the need to file a notice of opposition and supporting affidavits. The matter was called again on 11 December 2017. Mr Gregan appeared in person, although he had not filed a notice of opposition. He informed Ellis J that he was in general agreement with the (temporary) appointment of an administrator but was concerned about the possibility of adverse comment about him in any judgment and the issue of costs. The parties agreed to a half day formal proof hearing for the substantive application.

Interim appointment

[27]   On 8 March 2018, the applicants sought an urgent hearing date and the appointment of an interim administrator on the grounds the level of dysfunction within the Body Corporate had increased and created a more urgent need for the appointment of an administrator. Mr Gregan appeared (together with Mrs Gregan) to oppose the interim appointment but did not file any opposition or submissions.

[28]There were two specific grounds advanced for the interim appointment:

(a)An allegation Mr Gregan had begun harassing tenants of the applicants’ units in relation to their use of common property. Police had been called twice in relation to this; and

(b)Mr Gregan had purportedly appointed himself chairperson of the Body Corporate and made attempts to obtain control over the Body Corporate’s bank account.

[29]   Three affidavits were filed in support of the application which gave evidence of these allegations. Two were from the applicants and one from a tenant. There was no affidavit from Mr Gregan.

[30]Cull J recorded Mr Gregan’s opposition as follows:1

[18]      Although the historical matters were not before the Court for the purposes of this application, I allowed Mr Gregan to explain his concerns and grievances about the way in which the Body Corporate governance has been conducted. For the purposes of today’s hearing, however, Mr Gregan accepted that there was dysfunction among the unit title holders. He also accepted that work needed to be undertaken urgently, as the majority of units within the Body Corporate have become rundown and are now in urgent need of building works and repairs. Mr Gregan told the Court that three of his units in the Body Corporate are deteriorating and he is losing money as a result.

[19]      Mr Gregan stressed that the present states of affairs would not have happened, if the Body Corporate had followed the law and proper process. He pointed to the absence of a chairperson, which has created the problem, but considers that he could do the job of chairperson, if he were accepted, and undertake the work required.

1      Maiden v Body Corp 46112 [2018] NZHC 448.

[31]   Cull J concluded the then current state of affairs of the Body Corporate was sufficiently serious to warrant an interim appointment of an administrator. She based her opinion on the following facts which emerged from the evidence:2

(a)the Body Corporate is dysfunctional, given that there is no committee to represent the Body Corporate; no AGM has been held since 2014 and there is no operative governance structure;

(b)in the absence of an elected chairperson replacing the previous one and without an agreement on an acceptable replacement, an interim measure is necessary to enable an independent report to be completed on the outstanding issues to be resolved and recommendations as to how to achieve that;

(c)the disagreement among the shareholders not only demonstrates the state of dysfunction that exists within the Body Corporate, but also prevents the Body Corporate from undertaking necessary building works; and

(d)the two blocks of flats contained within the Body Corporate have fallen into disrepair and are now in a state where necessary building works to common property and/or building elements of those buildings has become critical.

[32]She concluded:

[27]  I am satisfied that the appointment of an independent administrator  will give all unit title holders an independent person from whom they can ask for information and express their respective concerns. I also indicated that in the appointment of an interim administrator, it is essential that he remains independent and is not captured by either faction of the unit title holders. He must make urgent and objective enquiry into the outstanding issues and be scrupulously fair in providing his independent report to the Court. Mr Crew, who was present in Court, nodded his agreement in response.

[33]   Cull J made the orders sought and ordered Mr Crew to investigate the state of the Body Corporate and file and serve an initial report to the Court by 9 April 2018. She required a report of his findings, identification of the key issues to be resolved, and his recommendation and/or proposal for resolution.

[34]   Cull J adjourned the hearing for formal proof but directed Mr Gregan to file his evidence in response to the applicants’ evidence by 10 April and his response to the report and the applicants’ submissions and evidence by 14 May 2018.

2 At [25].

Report of interim administrator dated 9 April 2018

[35]   Mr Crew’s report addressed the intention to hold an AGM in April or May to elect a chairperson and committee, receive the financial report to 31 March 2019, approve the 2019/20 budget and levies and decide to appoint a body corporate manager.

[36]His report focused on financial matters and maintenance.

[37]Only two units are in credit. All others owe balances ranging from $100 to

$50,000. The latter is in respect of Unit I, the stand-alone house owned by Mr Gregan. He also owes considerably more than any other unit owner in respect of his other units. The total is approximately $95,240.

[38]   Mr Crew and his maintenance manager carried out an inspection of each unit in March 2018. However, Mr Gregan did not provide access to any of his units, despite arrangements having been made in advance. Those units were inspected from the exterior only.

[39]   A building inspection report was produced. It concluded the deteriorated condition of the rooves and windows in the two apartment blocks was now at a critical point. Due to the style of the roof, the asbestos sheeting on the north and south ends of the upper levels of both blocks needs to be removed and replaced as part of the process of re-roofing. The report recommends removing and recladding the lower soffits as well, as they are also of asbestos. The rooves require replacement due to the level of corrosion and damage. The wooden framed windows are rotting and leaking.

[40]   Mr Crew has obtained provisional quotes from various contractors. A quantity surveyor visited the property and provided an estimated cost of the required remedial work. The budget estimates of costs for external refurbishment were as follows (GST inclusive):

Block 1  $498,525

Block 2  $498,525

Separate house  $411,125

Applicants’ position

[41]   The cost of the works is in the context where the combined rateable value of the units in the two apartment blocks is $1.875 million, the insured replacement value for the whole complex is $2.085 million and the proposed expenditure is unlikely to be recovered in the subsequent value of each unit, leaving all unit owners severely over-capitalised.

[42]   Unsurprisingly, the applicants are shocked at the assessed costs which pose fundamental questions about the future of the FIVE-O Apartments. They ask for suitable time to review alternatives but say, in the circumstances, the stewardship of Mr Crew as administrator remains absolutely essential.

[43]   As a result of the quantity surveyor’s report, the applicants amended their application for appointment of an administrator. The applicants now seek an order requiring the administrator to consult with all unit owners and consider all feasible options for the future of the FIVE-O Apartments. The object of the amendment is to ensure that all unit owners have a suitable opportunity to consider their options, take advice and determine their own positions.

Mr Gregan

[44]   Mr (and Mrs) Gregan attended the formal proof hearing, despite the fact that at no stage have they served a notice of opposition or any evidence. Like other Judges before me, I gave them the indulgence of being heard.

[45]   Mr Gregan’s position ranged from being opposed to the application, “a bit opposed”, suggesting the administrator should not take control for 12 months and finally accepting the appointment.

[46]   Mr Gregan’s submissions were wide-ranging, focusing in the main on historic grievances as to whether he should have been served with notices of forthcoming AGMs by registered mail. Mr Gregan repeated long-standing complaints about

Mr Gustafson (the previous accountant) and disputed the allegations made against him in the affidavit evidence.

[47]   Mr (and Mrs) Gregan both maintained they had tried a number of times to obtain legal advice. I am not entirely clear why that could not be achieved and, given the background to these proceedings, venture to suggest it may well be because they did not agree with any advice they were given.

[48]   Mr Gregan was particularly exercised by the extent and cost of work which the building report suggested needed to be carried out to his stand-alone house, Unit I. His family having built the development, he considers the idea of the windows requiring replacement is ridiculous, as is the proposed cost.

[49]   What  the  discussion  did  reveal,  and   indeed   as   was   highlighted   by Mr Greenwood in his correspondence with Mr Gregan, is that there is no logical basis for Unit I to be part of the unit title development. If, as Mr Gregan contends, work is not required to Unit I, or certainly not to the extent the professionals have identified, then the best course is for Unit I to be split off from the unit title development. That way, the Body Corporate would not have any potential responsibilities and liabilities for any structural issues with the house and Mr Gregan could choose if, and the extent to which, he maintains it. For this reason, it was agreed the draft order should be amended to provide for this as a specific option.

[50]   That will not resolve matters completely, however, given Mr Gregan still owns three units in the apartment blocks. Mr Gregan did indicate he would sell those units.

Application for order appointing administrator

[51]The relevant portions of s 141 of the Act provide:

141     Appointment of administrator

(1) The body corporate, a creditor of the body corporate, or any person having a registered interest in a unit, may apply to the High Court for the appointment of an administrator.

…

(3)The High Court may, in its discretion on cause shown, appoint an administrator for an indefinite period or for a fixed period on such terms and conditions as to remuneration or otherwise as it thinks fit.

(4)The remuneration and expenses of the administrator are to be met out of the operating account.

(5)The administrator, to the exclusion of the body corporate and the body corporate committee, has and may exercise the powers of the body corporate and the committee, and is subject to the duties of the body corporate and the committee, or such of those powers and duties as the High Court orders.

(6)The administrator may, in writing, delegate any of the powers vested in the administrator and may revoke any delegation at any time.

(7)The High Court may, in its discretion on the application of the administrator or any other person referred to in subsection (1), remove or replace the administrator.

(8)On any application made under this section the High Court may make any order for the payment of costs as it thinks fit.

…

[52]   As will be evident from the foregoing, there is no doubt the Body Corporate is dysfunctional. I agree entirely with the reasons given by Cull J for making for the interim appointment of the administrator. If anything, matters have deteriorated and indeed the very high cost of remedial works means, in the dysfunctional circumstances of the Body Corporate, it is crucial an independent person is involved in directing its future.

[53]   This is not a situation such as that in Melview Viaduct Harbour Ltd (in rec) v Body Corp 384911, where Ellis J refused to appoint an administrator because the body corporate in that case was performing its duties, although there was disagreement between various members.3 In this case, the Body Corporate is not performing its duties at all and has not done so since about 2010. The result, given the tenfold increase in the cost of repair, is extremely serious for the very future of the Body Corporate.

[54]As Heath J observed in Low v Body Corp 384911:4

3      Melview Viaduct Harbour Ltd (in rec) v Body Corp 384911 [2012] 1 NZLR 84 (HC).

4      Low v Body Corp 384911 HC Auckland CIV-2010-404-5280, 2 September 2010 at [37].

In my view, the general discretion (while it must be exercised in a principled way) should not be fettered. Everything turns on the facts of the particular case, with the Court’s discretion being informed primarily by the functions of a body corporate and the ability of those with responsibility for its affairs to carry out their duties fairly, against the background of the underlying principles on which the Act is based.

[55]   The need for the Court to continue involvement in supervision of the Body Corporate in its inherent jurisdiction is self-evident in the circumstances of this case. The application is granted and an order made in the terms set out in the result section of this judgment.

Costs

[56]   I now turn to the more vexed question of costs. The applicants seek an order that Mr Gregan pays the applicants’ costs of and incidental to this proceeding on a category 2B basis with a 50 per cent uplift.

The law

[57]   Costs are at the discretion of the Court, qualified by the principles in the  High Court Rules 2016.5 The intent of the Rules is to provide reliable and expeditious costs decisions and to do justice to both parties.6 The general principle is that costs follow the event unless particular considerations indicate otherwise.7

[58]Rule 14.6 governs the awarding of increased and indemnity costs:

14.6     Increased costs and indemnity costs

(1)Despite rules 14.2 to 14.5, the court may make an order—

(a)increasing costs otherwise payable under those rules (increased costs); or

(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

…

5      High Court Rules 2016, r 14.1(1)–(2); and Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7]–[8].

6      High Court Rules 2016, r 14.2(g).

7      Rule 14.2(1)(a); and Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [19].

(3)The court may order a party to pay increased costs if—

(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)failing to comply with these rules or with a direction of the court; or

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c)the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d)some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(4)The court may order a party to pay indemnity costs if—

(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

…

(f)some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[59]   Bradbury v Westpac Banking Corp is the leading case and the principles outlined in that judgment have recently been confirmed by the Court of Appeal.8 In Bradbury, the Court of Appeal described increased costs as warranted where “there is failure by the paying party to act reasonably” and indemnity costs “where that party has behaved either badly or very unreasonably”.9 Specifically, the Court identified the following circumstances as ones where indemnity costs have been ordered:10

(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings for some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law;

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless  contentions,  summarised  in French J's “hopeless case” test.

[60]   Unsuccessful defendants are jointly and severally liable for costs.11 However, differences in the degree of liability may result in an apportionment of costs liability.12

[61]   While a party who takes no active part in a proceeding may avoid costs, this is not always the case, as the task of the Court is to assess the overall justice as between the parties.13 The Court, in certain circumstances, may need to analyse the facts to ascertain what has given rise to the litigation, taking into account the conduct of the parties and whether one has contributed to costs or engaged in other conduct which should influence the costs decision.14

8      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400; and Ben Nevis Forestry v Commissioner of Inland Revenue [2014] NZCA 348, (2014) 22 PRNZ 322.

9 At [27].

10 At [29].

11     High Court Rules 2016, r 14.14.

12     Sim’s Court Practice (online loose-leaf ed, LexisNexis) at [HCR14.1.6(b)].

13     Kawerau Jet Services Holdings Ltd v Queenstown Lakes District Council HC Invercargill, CIV- 2008-425-518, 19 May 2009 at [18].

14     Cunningham v Butterfield [2014] NZCA 213 at [57].

Submissions

[62]   Mr Mahuta-Coyle for the applicants acknowledged that the absence of proper governance by the Body Corporate between 2011 and 2013 was for reasons unrelated to Mr Gregan. However, the applicants’ position is that, since 2014, Mr Gregan has been the sole reason why the Body Corporate has been unable to “fix itself”. In his submission, the evidence shows Mr Gregan having behaved in a disruptive and bullying manner and using or threatening to use his position within the Body Corporate to thwart any attempts to reconstitute the governance and avoid the need to have recourse to the Courts. In support of this he refers to the 2010 AGM draft minutes; the failed efforts to reconvene a fresh AGM in 2013; the 2013 quotes for various works which the majority of owners (excluding Mr Gregan) were requesting; the attempts to meet in July 2014 to discuss the quotes, followed by Mr Gregan disrupting the meeting to the point it had to be abandoned; the attempt to hold an AGM in September 2014, abandoned after Mr Gregan’s behaviour; and the most recent evidence, which resulted in the urgent application for an interim administrator.

[63]   In  Mr  Mahuta-Coyle’s  submission,  there  were   two   consequences   of Mr Gregan’s behaviour in 2014. First, there was no or insufficient funding for the necessary remedial works. Secondly, the other unit owners lacked the power to undertake the work themselves because the Body Corporate was the only entity which lawfully could do so, given the work concerned building elements and common property. He referred to the correspondence between the accountants and Mr Gregan, attempting to persuade Mr Gregan to pay his levies. He described the failed attempted conciliation by other unit owners, resulting in the engagement of Mr Greenwood as a desperate measure to get matters back on track. Mr Gregan, however, was unwilling to accept the expert opinion of Mr Greenwood, neglected to obtain legal advice despite saying he would do so, and has not properly responded to the Court proceedings as directed.

[64]   Mr Mahuta-Coyle criticised Mr Gregan’s conduct before the Court. After being served with the proceedings, Mr Gregan did not file an appearance or any other document. He appeared late when the matter was first called for case management on 27 November 2017. He told the Court he opposed the application and was directed to

serve an opposition and evidence by 5 December 2017. He failed to do so. He appeared at the next call on 11 December 2017, saying he generally agreed but was opposed to any costs being awarded against him.

[65]   The application for the appointment of an administrator on an interim basis was, in Mr Mahuta-Coyle’s submission, required as a direct result, and only because, of Mr Gregan’s behaviour, including purportedly seizing control of the Body Corporate and attempting to take control of the bank account.

[66]   Mr Gregan was directed to file any evidence in response to the applicants’ evidence by 10 April 2018 but failed to do so.

[67]   Mr Mahuta-Coyle pointed out that, although various levies are outstanding, by far the largest debtor to the Body Corporate is Mr Gregan, owing approximately

$95,240 in respect of his four units.

[68]   Mr Gregan refuses to accept that he contributed to the problems. Without filing any affidavit evidence, he simply told the Court that the failures went back to 2009 when Mr Gustafson was the accountant. He seemed fixated on his complaint that notices of AGMs were not sent to him by registered mail. He emphasised he had the most voting power in the Body Corporate but believed it was the applicants who were responsible for failure to comply with the Act.

Costs against both respondents or solely against Mr Gregan?

[69]   The applicants seek costs solely against Mr Gregan and, in the alternative, seek an order that costs be borne equally between the Body Corporate and Mr Gregan.

[70]   In this case, the Body Corporate had to be named as the first respondent because it was the subject of the application. It was the entity which has failed to comply with its statutory duties and has become dysfunctional. It has taken no active role in the proceedings. The Body Corporate is neither equivalent to a statutory decision-maker whose action is the subject of review, nor a true bystander who must be named.

[71]   In order to provide the context for this decision, and in particular to ensure Mr Gregan understands the position, it is necessary to give a brief summary of the makeup of a body corporate and its obligations. It is frequently a failure of a unit owner properly to understand the underlying principles of bodies corporate which leads to problems.

[72]   When a unit plan is deposited in the designated land registry office for the creation of a unit title, a body corporate is created and is the body corporate for the unit title development.15 The members of the body corporate are the owners of all the units in the unit title development.16 The common property in the unit title development is owned by the body corporate. The owners of all the units own the common property as tenants in common in proportion to their ownership interests.17 The body corporate has statutory powers and duties, including to establish and maintain a long-term maintenance plan, to insure the buildings and other improvements and to repair and maintain the common property and building elements.18

[73]   The owners of the units within a unit title development are the body corporate. Although a distinct legal entity, the body corporate is not independent from the unit owners and funded by some third party. It is comprised of and managed by the unit owners and funded by the unit owners. If unit owners do not pay their levies, the body corporate will not have the funds to pay insurance or maintenance. Any failure of the body corporate to comply with its statutory obligations is, in effect, a failure of the unit owners.

[74]This context is relevant to the application for costs in two ways:

(a)a costs order against the Body Corporate will be paid by the unit owners; and

(b)the applicants are all of the unit owners except Mr Gregan.

15     Unit Titles Act 2010, s 75(1).

16     Section 76(1).

17     Section 54(1) and (2).

18     Section 84(1)(j), (n) and (p).

[75]   This reinforces the reality that an award of costs against the Body Corporate would award 40 per cent of the costs against the applicants, those who have incurred the costs in the first place. It would not reflect one of the basic principles in respect of costs, which is that they are awarded against the unsuccessful party. There is no doubt that the unsuccessful party is Mr Gregan. It was his failure to consent to the appointment of an administrator which necessitated these proceedings.

[76]   As already discussed, Mr Gregan cites his inability to obtain legal representation as somehow excusing his failure to comply with Court orders or properly engage in these proceedings. As Fisher J said in Aplin v Lagan:19

While an unrepresented party should not be penalised on that account alone, if the result has been to throw an extra burden of legal cost upon the represented party, there is no reason why some recognition should not be given to that.

[77]   The evidence discloses that the other unit owners made multiple attempts to engage in a conciliatory manner with Mr Gregan but their efforts were rebuffed.    Mr Gustafson suggested mediation to Mr Gregan in 2014, to no avail. When the applicants had to resort to taking legal advice, Mr Gregan was again offered many opportunities to agree to a  process  and  avoid  the  need  for  these  proceedings.  Mr Greenwood’s correspondence of 7 and 28 February 2017 put Mr Gregan on notice that the dispute could be resolved but made it plain that litigation would have to follow otherwise.

[78]   In these circumstances, I am  satisfied  costs  should  be  awarded  against  Mr Gregan solely.

Level of costs

[79]   I begin by agreeing with Mr Mahuta-Coyle that costs on a category 2B basis are appropriate given the level of complexity of these proceedings.

19     Aplin v Lagan (1993) 10 FRNZ 562 (HC) at 576.

[80]   I am satisfied indemnity costs are not warranted. Mr Gregan’s behaviour has not reached the egregious level required for indemnity costs. The question is whether there should be increased costs.

[81]   I agree with Mr Mahuta-Coyle that relevant background to a consideration of increased costs is Mr Gregan’s behaviour prior to the proceedings. The affidavit evidence discloses he adopted at best an uncooperative and aggressive stance which can be seen as the major, if not sole, contributor to the Body Corporate’s dysfunction and failure to comply with its statutory obligations. The applicants tolerated this behaviour and sought on a number of occasions to placate Mr Gregan. It is clear the proceedings could have been entirely avoided.

[82]   During the proceedings, Mr Gregan has failed to comply with directions of the Court as outlined above. His behaviour following commencement of the proceedings, when Mr Gregan circulated correspondence telling the applicants he had called his own AGM earlier in March 2017 and was in fact the chairperson, necessitated the urgent application for interim orders. Self-evidently that application could have been avoided.

[83]   This case is analogous to Greenhalgh v Body Corp 330324.20 An appointment of an administrator was required following the breakdown of the relationship between a group of unit owners and their body corporate managers. An interim injunction was applied for after the body corporate manager refused to provide records. The Court awarded costs on a category 2B basis with a 50 per cent uplift, principally because the body corporate manager was given an opportunity to cooperate and repeatedly warned a lack of cooperation would result in proceedings being issued, which would include an application for indemnity costs. The Court said:21

I am satisfied that the second defendant must bear a significant measure of responsibility for the need of the plaintiff to bring both the proceedings and the injunction application on an urgent basis. One has the impression that if the second defendant was not actively obstructing the appointment of an administrator, then it was at least acting in such a way as might result in the perpetuation of its mandate as secretary for as long as possible. That was clearly inappropriate when so many of the apartment owners had signalled

20     Greenhalgh v Body Corp 330324 HC Auckland CIV-2008-404-1854, 2 July 2008.

21 At [21].

that their relationship with the second defendant had broken down and that there was a need for change.

[84]   In the present case, I am satisfied Mr Gregan has failed to comply with Court directions, behaved in a way which compelled the applicants to apply for the interim orders, pursued opposition to the application in a way which lacked any merit, focusing as it did on past grievances. Mr Gregan bears sole responsibility for the need for the applicants to bring these proceedings and the interim application. He was warned that any proceedings would be accompanied by an application for costs against him. Increased costs of 50 per cent are appropriate.

Result

[85]   For the reasons given, the application for an order for the appointment of an administrator is granted in the following terms:

(a)Paul Crew of The Body Corp Limited and current interim administrator of Body Corporate 46112, also known as FIVE-O Apartments (the Body Corporate), is appointed to a fixed term of 12 months effective from the date of this judgment.

(b)All of the powers vested in Mr Crew by orders given at paragraph [29](b), (c) and (e) of Cull J’s judgment dated 13 March 2018 remain vested in Mr Crew during his fixed term appointment. Those powers are:

(i)under s 141(5) of the Act, Mr Crew may exercise all of the powers of the Body Corporate and may access, operate and authorise expenditure from the bank account(s) held in the name of the Body Corporate, being Westpac Account number [redacted] (and any other associated suffixes), to the exclusion of all other previously authorised persons;

(ii)under s 141(6) of the Act, Mr Crew, as administrator may, in writing, delegate any of the powers vested in him and revoke any delegation at any time;

(iii)Mr Crew’s remuneration is to be fixed in the terms of the consent filed with this Court and is to be paid from the funds of the Body Corporate.

(c)That Mr Crew as administrator complete thorough consultation with all unit owners, including on all feasible options for unit owners and the Body Corporate as to the future of the development including (but not limited to):

(i)a partial programme of remedial works and/or a staged programme of remedial works;

(ii)demolition and redevelopment of the site;

(iii)dissolution of the Body Corporate, cancellation of the unit plan, and sale of the property; and

(iv)cancellation of the unit plan, separation of Unit I and reconstitution of the remaining units as a body corporate;

(d)Within two months, further report to this Court as to the extent of the administrator’s consultation, the detail of the options consulted on, the views on such options of unit owners to the extent each unit owner has made those known, and the administrator’s recommendation to the Court as to the future of the Body Corporate.

(e)That the appointment of Paul Crew as administrator shall expire after a term of 12 months from the date of appointment. Leave is reserved for any party, by application under this proceeding, to apply for the early cessation of the appointment or the renewal of the appointment for a further term for any reason.

(f)Mr Crew may apply to the Court for directions at any time during the term of his appointment.

[86]   Costs against Mr Gregan  are  awarded  on  a  2B  basis  with  an  uplift  of  50 per cent, together with reasonable disbursements to be fixed by the Registrar.

Thomas J

Solicitors:
Greenwood Roche, Wellington for Applicants