May v Body Corporate 329331
[2019] NZHC 3
•9 January 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2009-404-7379
[2019] NZHC 3
BETWEEN JENNIFER ANN MAY and ANDREW JOHN MAY
Applicants
AND
BODY CORPORATE 329331
First Respondent
REX BADDELEY
Second Respondent…Cont
Hearing: 8 January 2019 Appearances:
A Lloyd and I J Stephenson for Applicants T J Rainey for opposing respondents
T J G Allan for Administrator
Judgment:
9 January 2019
(ORAL) JUDGMENT OF LANG J
[on applications relating to appointment of administrator]
MAY v BODY CORPORATE 329331 [2019] NZHC 3 [9 January 2019]
PATRICIA ELIZABETH HALLT
Third Respondent
RICHARD GRAHAM MOGRIDGE
Fourth Respondent
CAROL ANNE MOGRIDGE
Fifth Respondent
JACQUELINE MCDERMOTT
Sixth Respondent
ROSS WILLIAM SHENNAN
Seventh Respondent
STEPHANIE MARGARET SHENNAN
Eighth Respondent
MPH08 LIMITED
Ninth Respondent
JAMES RONALD ASHTON
Tenth Respondent
ANNETTE JEAN ASHTON
Eleventh Respondent
JUST LAW NO. 65 LIMITED
Twelfth Respondent
RODNEY CHARLES SWIFT
Thirteenth Respondent
FRANCES SWIFT
Fourteenth Respondent
MEAKINS TRUSTEE CO LIMITED
Fifteenth Respondent
207 LIMITED
Sixteenth Respondent
206 LIMITED
Seventeenth Respondent
JOHN CHARLES DEACON
Eighteenth Respondent
MARGARET MARY DEACON
Nineteenth Respondent
RAM TRUSTEE COMPANY LIMITED
Twentieth Respondent
203 LIMITED
Twenty First Respondent
202 LIMITED
Twenty Second Respondent
201 LIMITED
Twenty Third Respondent
GEORGE CHARLES HALLIDAY
Twenty Fourth Respondent
BRENDA MARY HALLIDAY
Twenty Fifth Respondent
307 LIMITED
Twenty Sixth Respondent
306 LIMITED
Twenty Seventh Respondent
JCBEEZ LIMITED
Twenty Eighth Respondent
H & P PROPERTIES LIMITED
Twenty Ninth Respondent
302 LIMITED
Thirtieth Respondent
OLEG ALEXANDROVICH ZAITSEV
Thirty First Respondent
OLGA NIKOLAYEVNA ZAITCEVA
Thirty Second Respondent
DENIS OLEGOVICH ZAITSEV
Thirty Third Respondent
PETER FRANCES ANDREWS
Thirty Fourth Respondent
LINDA ANNE ANDREWS
Thirty Fifth Respondent
ANGUS STUART OGILVIE
Thirty Six Respondent
FIONA JANE MATHIESON
Thirty Seventh Respondent
BIG PICTURE INVESTMENTS LIMITED
Thirty Eighth Respondent
405 LIMITED
Thirty Ninth Respondent
404 LIMITED
Fourtieth Respondent
403 LIMITED
Forty First Respondent
NOMACK GROUP LIMITED
Forty Second Respondent
WESTPAC NEW ZEALAND LIMITED
Forty Third Respondent
ASB BANK LIMITED
Forty Fourth Respondent
BANK OF NEW ZEALAND LIMITED
Forty Fifth Respondent
GEOFFREY PETER ROBERTON DE LATOUR
Forty Sixth Respondent
JUDITH MARGARET DE LATOUR
Forty Seventh Respondent
TIMOTHY JOHN BURCHER
Forty Eighth Respondent
ANZ BANK NEW ZEALAND LIMITED
Forty Ninth Respondent
DAVID JOHN MCFARLANE
Fiftieth Respondent
STEPHANIE ELIZABETH DOUGLAS BANKS
Fifty First Respondent
[1] This proceeding concerns an apartment complex situated in St Marys Bay and known as the Ridge Apartments (The Ridge). The complex consists of 33 residential units constructed on six levels. The affairs of the complex are conducted through a body corporate constituted under the Unit Titles Act 1972 (the Act).
[2] Like many other apartment complexes in the Auckland area, The Ridge has had longstanding weathertightness issues. Since December 2010 the body corporate has been the subject of a notice issued by the Auckland City Council under ss 164 and 165 of the Building Act 2004 requiring it to rectify these issues.
[3] On 3 February 2010, this Court granted an application by the body corporate for an order sanctioning a scheme of arrangement under s 48 of the Act.1 This empowered the body corporate to undertake the remedial work required to make the complex watertight and code compliant. The complex has never had a code of compliance since it was built in 2004 and 2005.
[4] Despite the passage of time since 2015 remedial work on the complex has not yet begun. The body corporate entered into a contract for the repair works with Brosnan Construction Ltd (Brosnan) in June 2018 and work was originally due to commence under this contract in September 2018. This was deferred after the body corporate voted at its Annual General Meeting (AGM) in July 2018 to halt work under the Brosnan contract so that it could investigate other repair options. Work under the Brosnan contract is now due to commence on 14 January 2019.
[5] Mr and Mrs May, the applicants in this proceeding, own a unit in the complex. They and several other unit owners want the remedial works to be completed under the Brosnan contract. This prompted them to apply for an order under s 141 of the Act appointing Mr Anthony McCullagh as administrator to undertake the remedial works sanctioned by the Court. Clark J granted the application on 5 September 2018 and gave reasons for her decision the following day.2
1 Body Corporate 329331 v Baddeley & Others HC Auckland CIV-2009-404-7379, 3 February 2010.
2 May v Body Corporate 329331 [2018] NZHC 2396.
[6] The administrator was initially appointed for a period of 30 days. The period of appointment has subsequently been extended, again on an interim basis, on several occasions.
[7] Mr and Mrs May now seek an order that the appointment be made permanent to enable the administrator to ensure the remedial work commences as currently planned on 14 January 2019. Those respondents who oppose the application (the opposing respondents) have applied for an order rescinding the orders made by Clark
J. They want control of the remedial works to be restored to the body corporate.
[8] The issue for determination is therefore whether Mr McCullagh should remain in office as administrator as the applicants seek, or whether the body corporate should now resume control of the remedial works as the opposing respondents seek.
Background
[9] Up until 2015, the body corporate concentrated on pursuing those whom it considered to be responsible for the weathertightness issues in the complex. It based its claims in this litigation on an estimate of the likely costs of the remedial work. The body corporate ultimately settled the litigation in mid-2015, but the settlement proceeds will fall well short of meeting the likely cost of repairs. This is because the likely repair costs were initially estimated to be approximately $7 million. With the passage in time and escalating building costs the sum of approximately $15 million will be required to complete the repairs.
[10] Once the litigation had been resolved, the body corporate set about instructing consultants to produce detailed remedial designs. The scheme approved by the Court in 2010 permitted the body corporate to delegate to advisors or individuals such powers and authorities as the body corporate determined from time to time. The body corporate used this power to delegate the task of investigating the remedial work necessary to repair the complex to a committee of unit owners. The committee arranged for consultants to prepare detailed plans and specifications for that work. It then obtained the necessary local authority consents to enable the work to be carried out, and sought tenders to carry out the work from suitably qualified building contractors.
[11] In February 2018, and by a small majority, the unit owners resolved to authorise the committee to enter into a contract with Brosnan as the successful tenderer. This approval was subject to the committee obtaining legal advice regarding the proposed contract from its solicitors.
[12] At that point, a number of unit owners who opposed the body corporate entering into the contract with Brosnan (the opposing respondents) applied to this Court for an order prohibiting the body corporate from entering into the contract.
Hinton J declined the application on 17 April 2018.3
[13] At or around this time, interests associated with one of the opposing respondents, Mr Maxwell-Steele, acquired ownership of several of the units in the complex. This meant the opposing respondents could command a majority of votes at any meeting of the body corporate. They then put forward resolutions to be considered at the AGM of the body corporate on 26 July 2018. They also sought to be represented on the body corporate committee.
[14] Prior to the AGM scheduled for 26 July 2018, the body corporate committee resolved to authorise its chairman, Mr Angus Ogilvie, to sign the contact with Brosnan. Mr Ogilvie took that step on or about 29 June 2018. The contract required Brosnan to be given possession of the site to commence the remedial works on 3 September 2018. The opposing respondents believe the committee took this step to ensure the incoming body corporate committee was bound to the Brosnan contract.
[15] On 26 July 2018, the unit owners at the annual general meeting of the body corporate passed a resolution purporting to halt the planned development of the building so that they could “properly investigate all options using independent unbiased consultants”.
[16] The resolution passed at the meeting on 26 July 2018 caused Mr and Mrs May to believe the new committee of the body corporate was about to terminate the Brosnan contract. This would result in the abandonment of the proposed remedial works. They considered it was also likely to expose the body corporate to a significant claim from
3 201 Ltd v Body Corporate 329331 [2018] NZHC 1933.
Brosnan for wasted costs and loss of profits under the contract. This led them to apply for the order that Clark J made on 5 September 2018.
The opposing respondents’ concerns
[17] The opposing respondents take issue with the Brosnan contract on several bases. First, they consider it provides a remedial solution that pays no realistic regard to the cost of the work and was prepared without regard for budgeting constraints. In mid-December 2018 they obtained advice from Prendos New Zealand Ltd that appropriate remedial work can be undertaken on the complex for approximately $4 million less than unit owners will be required to pay under the Brosnan contract. This represents a saving of approximately $120,000, or 25 per cent, per unit.4
[18] The opposing respondents also consider the contract contains clauses that are unduly onerous to the body corporate. In particular, the contract required the body corporate to provide Brosnan with a bond in the sum of approximately $2.1 million. The opposing respondents contend this is an unusual requirement in contracts of this type, and say the committee should not have permitted Mr Ogilvie to sign a contract containing such a provision.
[19] The opposing respondents also criticise the committee’s decision to enter into the contract before it had obtained confirmation that the body corporate was eligible for assistance under the Funding Assistance Package (FAP) package offered by the Government and local authorities to assist the owners of leaky buildings in meeting the cost of repairs. They also say the committee entered into the contract in circumstances where it could not have been sure that unit owners would be able to meet the levies to be imposed to meet the cost of remedial works. Finally, they query the nature and scope of the legal advice the committee obtained before it authorised Mr Ogilvie to sign the contract on behalf of the body corporate.
[20] The opposing respondents now want all unit owners to have an opportunity to consider the Prendos proposal in greater detail. They therefore oppose work
4 This calculation does not take into account any compensation that the body corporate would be required to pay Brosnan if it cancelled the existing contract.
commencing under the Brosnan contract, and seek to have control of the remedial works returned to the body corporate.
Context
[21] It is important that the opposing views are seen in context. The starting point is the scheme itself, because it remains in force and there has been no application to cancel or vary it.
[22] The scheme did not refer to the contract with Brosnan or to any defined scope of repairs. In 2010, the scope of the remedial works was unknown. For that reason, the terms of the scheme were extremely broad. In essence, the scheme permitted the body corporate to take all steps necessary to undertake such repair work as was necessary to return the complex to a weathertight and code compliant state. The scheme also gave the body corporate broad powers to impose levies on unit owners and to take enforcement action if unit owners did not meet their obligations under the scheme. As already observed, the scheme also gave the body corporate the power to delegate its powers to individuals and advisors.
[23] It follows that the scheme did not require the body corporate to pursue the repairs that form the subject of the contract with Brosnan. It had the power to carry out any form of remedial work provided it produced a weathertight and code compliant building. Importantly for present purposes, however, the scheme contained a provision requiring the body corporate to carry out the remedial work diligently and as expeditiously as practical.
[24] The reasons underlying the orders made by Clark J on 6 September 2018 are also important. By that stage the body corporate had resolved to take action that risked the contract with Brosnan being peremptorily terminated. This would produce two consequences. The first was that it would expose the body corporate to a claim by Brosnan for wasted costs and loss of profits under the contract. At that point the likely quantum of such a claim was estimated at being approximately $1.4 million. The second consequence was that unit owners would be left in a state of uncertainty as to when the repairs to the complex would be carried out. At that stage the opposing respondents had not advanced any alternative repair proposal.
[25] In appointing the administrator, Clark J clearly sought to ensure that unit owners were not denied the prospect of having the repairs carried out under the Brosnan contract in order to ensure they would be completed as expeditiously as practical as required by the scheme. This is evident from the following passage in her reasons judgment:5
[43] The Court has an interest in ensuring effect is given to a scheme which the Court has effectively sanctioned and the provisions of which are binding on the body corporate. In the circumstances of this case, the appointment of an administrator for an interim period is a measure by which, at least, the possibility of giving effect to the scheme is not presumptively foreclosed. There has been no application to cancel or vary the scheme and there had been no such application as at April 2018 when Hinton J heard the application for an injunction. Furthermore, Hinton J regarded the evidence before the Court at that stage as providing insufficient grounds for any such application. An application to vary or cancel the scheme would need to show the circumstances leading to the establishment of the scheme no longer existed. Not only was that “far from the case” but the scheme had been relied on by the Body Corporate and the work was actually being carried out pursuant to the scheme.
[44] The scheme is central. Mr Rainey highlights the resolution to halt the planned development of the building and properly investigate all options using independent unbiased consultants. But the resolution appears to fly in the face of the Body Corporate's obligations under the scheme and in particular the obligation to complete as expeditiously as practical the repairs to the buildings. These concerning aspects of the Body Corporate's latest resolve and new direction, can be confronted by the administrator who has been appointed for an interim period, to take all reasonable steps to meet the Body Corporate's contractual obligations to Brosnan Construction and to report to the Court.
[26] It is also clear, however, that Clark J was not seeking to prevent the administrator from investigating other repair options. Her judgment concluded with the following paragraph:6
[47] The construction contract was at risk of being irrevocably lost. In that situation the prospects for repair which were imminent, become distant. In all of the circumstances which I have outlined the appointment of an administrator who would consider the relative merits of adhering to or abandoning contractual obligations in light of a Court sanctioned scheme of arrangement for expeditious remediation of the Body Corporate's buildings seemed to be mandated.
[27] Thirdly, it is important to bear in mind the history of events. On 26 August 2015, unit owners voted unanimously to approve a concept design presented to an
5 May v Body Corporate 329331, above n 3.
6 May v Body Corporate 329331, above n 3.
extraordinary general meeting, and to engage contractors to complete a detailed design sufficient both to obtain a building consent and to enable the work to be let out to tender. Then, at an extraordinary general meeting on 21 March 2017, the unit owners voted by a majority of 15 to 13 to direct the body corporate committee to secure a contract with the preferred tenderer (Brosnan) and to raise sufficient levies to compete the project. And, as already observed, at an extraordinary general meeting on 16 February 2018, the unit owners resolved by a majority of 16 to 14 that the committee should enter into the proposed contract with Brosnan subject to legal advice being obtained regarding the form of the contract.
[28] These events demonstrate that the decisions of the body corporate up until February 2018 approved the body corporate entering into a contract with Brosnan based on designs that had been approved by the unit owners. It was not until interests associated with the opposing respondents acquired further units in the complex later in 2018 that efforts were made to halt the implementation of the Brosnan contract.
[29] Finally, the present situation cannot be ignored. In December 2018, the administrator reached agreement with Brosnan regarding a new or varied form of contract that resolved the issue relating to the bond. This occurred after Brosnan had purported to terminate the original contract in September 2018 because it alleged the body corporate had failed to provide a bond in accordance with the original contract. The administrator has also been able to arrange for Brosnan to be given access to a neighbouring site to enable it to carry out repairs to the body corporate’s complex. This has been made possible by the administrator providing occupants of the neighbouring property with car parking on land owned by the body corporate.
[30] The administrator also issued levies requiring all unit owners to contribute to the cost of repairs under the Brosnan contract in December 2018. Approximately one- half of all unit owners have paid the levies. The administrator proposes to fund the balance of the cost of the remedial works through borrowings whilst he takes enforcement action against those unit owners who have failed to pay their levies. In addition, there appears to be no concern at present regarding the availability of funding under the FAP.
[31] There is therefore no impediment at this stage to remedial work commencing under the Brosnan contract next week. In practical terms the body corporate is in a position to undertake the remedial work under the Brosnan contract.
Decision
[32] Section 141(3) of the Act gives the Court the power to appoint an administrator “in its discretion on cause shown”. The Act does not define what will constitute “cause” in this context. In some cases the courts have been prepared to appoint an administrator where a body corporate has been shown to have acted improperly, or where the evidence demonstrates that it cannot function properly because it is in a state of paralysis or dysfunction.7 Mr Lloyd argued the case for the applicants in the present case on both bases, and, albeit for a different reason, Mr Rainey for the opposing respondents also criticised the actions of those persons responsible for committing the body corporate to the Brosnan contract.
[33] On the basis of the limited evidence and cross-examination I have heard I am not prepared to make findings as to whether there has been impropriety by any person in relation to the events discussed earlier in this judgment. I therefore propose to approach my decision taking into account the events that have occurred but without making any evaluative assessment of them.
[34] Furthermore, I do not consider I can determine the applications on the basis of any alleged dysfunction within the body corporate. There is certainly a sharp division between unit owners as to which repair option should be adopted. The opposing respondents are also lobbying all unit owners vigorously in an effort to persuade them the Prendos proposal is preferable to the Brosnan contract. Without more, however, this would be insufficient to suggest a state of dysfunction exists within the body corporate.
[35] Mr Rainey emphasises the need for the Court to pay due regard to the democratic processes by which the affairs of a body corporate are managed. These recognise that individual unit owners, who inevitably have disparate interests, abilities
7 See Gibson v Body Corporate 384911 [2012] 1 NZLR 84 (HC) at [71].
and aspirations, may not be able to reach unanimous agreement regarding the governance and management of the body corporate. The ability of the body corporate to make decisions by way of majority resolution ensures the views of the majority are not thwarted by those of the minority.
[36] I accept these submissions. In particular, I agree that it is not for the Court to impose its will on unit owners who have made, or wish to make, decisions for themselves using the prescribed processes. Furthermore, I accept there is nothing to prevent unit owners from rescinding an earlier decision where they consider circumstances have changed to the point where the original decision is no longer appropriate. It follows that I accept the unit owners in this particular body corporate have the power by majority resolution to terminate the contract with Brosnan even though that may result in financial consequences for unit owners as a whole. I also accept that such a decision is likely to be regarded as reasonable if it results in significant overall cost savings for unit owners as a whole.
[37] In addition, I accept Mr Rainey’s submission that the Court must exercise its powers under s 141 in a principled way and having regard to the particular circumstances of the case before it.8 Mr Rainey properly acknowledges, however, that the Court has a wide discretion under s 141, and that the term “cause” has broad application going beyond misconduct or impropriety on the part of the body corporate.
[38] In the present case I consider the most important factor to be the need to ensure this particular body corporate meets its obligations under the scheme it asked the Court to sanction in 2010. The Court has an obvious and legitimate interest in ensuring schemes that it sanctions are implemented according to their terms.
[39] As I have already observed, the scheme in the present case expressly required the body corporate to “proceed to have the repairs made diligently and completed as expeditiously as practical”. Fourteen years have now passed since the complex was built, and nearly nine years have passed since the Court gave its approval to the scheme. Notwithstanding this lengthy passage of time the complex does not yet have a code of compliance and will not be able to obtain one until the remedial work has
8 Low v Body Corporate 384911 (2010) 12 NZCPR 142 (High Court) at [37].
been completed. The delay that has occurred to date leads me to conclude that any further significant delay in carrying out remedial work will result in the body corporate breaching its obligation under the scheme to complete the repairs as diligently and as expeditiously as practical.
[40] If control of the remedial project is restored to the body corporate at this point it seems inevitable that the Brosnan contract will be terminated either by the body corporate or by Brosnan. The stance taken by the opposing respondents to date suggests they do not want it to remain on foot. Mr Brosnan also confirmed in cross- examination before me that his company is likely to exercise the power given to it under the new or varied contract to terminate the contract if Mr McCullagh does not remain as administrator of the body corporate.
[41] The Prendos proposal has yet to be analysed in detail, but Mr McCullagh has obtained preliminary advice to the effect that it will not result in cost savings for unit owners and will produce considerable delays. Whether or not the former is the case is obviously a matter of conjecture at this point. There can be no doubt, however, that a further significant delay is inevitable if the Brosnan contract is abandoned whilst the Prendos proposal is investigated and implemented. This will require new designs to be completed and new consents obtained. The work will also have to be put out for tender again. The fact that the process leading to the Brosnan contract took from 2015 to 2018 is testament to the length of time it can take for these activities to be undertaken.
[42] If the remedial work is halted at this point, there can realistically be no guarantee when it will begin or at what cost. Furthermore, it would obviously be a major blow to the unit owners if they abandoned the Brosnan contract now only to discover in a years time that remedial work was still some way off and that the true costs of the Prendos proposal were significantly greater than they had been led to believe.
[43] These factors lead me to conclude that, on the material presently available, implementation of the Brosnan contract appears to offer the only realistic prospect of the body corporate being able to complete the repairs within a timeframe that will
enable it to meet its obligation under the scheme to carry out the remedial works as expeditiously as practical.
[44] It follows that the applicants have shown cause why the continued appointment of the administrator is necessary. I do not, however, accept Mr Lloyd’s submission that the administrator should now take control of all the body corporate’s affairs. The body corporate appears to have managed its remaining affairs satisfactorily whilst Mr McCullagh has acted as administrator in relation to the remedial work. There is no reason why this should not continue to be the case in the future.
Result
[45] The application for an order extending the appointment of the administrator on current terms until further order of the Court is granted.
[46] The application for an order rescinding the orders made by Clark J on 6 September 2018 is dismissed.
[47] Costs at this stage are reserved. If the parties are unable to reach agreement counsel should file concise memoranda (ie not more than four pages in length) and I will deal with the issue of costs on the papers.
Lang J
Solicitors:
Minter Ellison Rudd Watts, Auckland Grove Darlow, Auckland
Richard Allen Law Associates Ltd, Auckland Counsel:
T J Rainey, Barrister, Auckland
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