McIntyre v Body Corporate 80146
[2023] NZHC 3701
•14 December 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-206
[2023] NZHC 3701
BETWEEN MICHAEL DAVID MCINTYRE
Applicant
AND
BODY CORPORATE 80146
Respondent
Hearing: 29 November 2023 with further written submissions on 11 December 2023 Appearances:
P W Michalik for the Applicant
D C Calder and C P S Tatley for the Respondent
Judgment:
14 December 2023
JUDGMENT OF PALMER J
Counsel/Solicitors
P W Michalik, Barrister, Wellington Whitcombe Law, Dunedin
Gibson Sheat, Wellington
MCINTYRE v BODY CORPORATE 80146 [2023] NZHC 3701 [14 December 2023]
What happened?
Unit 14
[1] Mr Michael McIntyre owns Unit 14 (also known as Unit C) in the residential unit title development at 313 The Terrace, in central Wellington, managed by Body Corporate 80146 (the Body Corporate). Unit 14 is a stand-alone house of a different character and construction than the other units. For reasons which are not clear, it has been allocated an ownership interest of 1.38 per cent in the development. By contrast, comparable units 15 and 16 have an allocated ownership interest of 14.17 per cent and
13.77 per cent respectively. On the basis of the current rating valuation of the units, Unit 14 is 12.46 per cent of the total value of the units, compared to 12.02 per cent each for Units 15 and 16. The proportion of the ownership interest flows through to the proportion of levies assessed and the level of voting power in the event of a poll of the Body Corporate. Unit 14 has also recently been repaired for leaks.
The Resolutions
[2] On 8 August 2022, the agenda and proposed motions for the 2022 Annual General Meeting (AGM) of the Body Corporate were circulated to unit owners. These included two motions proposed as special resolutions (the Resolutions):
8that the body corporate approves a new method of apportionment of utility interests as presented by the committee.
9that the body corporate reviews the Utility Interests for each unit using the new method and assigns to each unit the new interest or interests.
[3] The Resolutions were omitted from the postal voting form sent out with the Agenda and Notice of Proposed Motions. The objective of the Resolutions appears to have been to obtain what the Body Corporate Committee (the Committee) considered to be a more equitable contribution of costs, largely insurance costs, between the units. Before the Resolutions were proposed, the status quo was that the utility interests were based on the ownership interests. The Committee proposed the cost of the insurance premium be shared based on proportion of estimated reinstatement costs. Unit 14’s share of the total replacement value was set at 19.06 per cent. Unit 14’s share of the utilities interest was set at 8.3 per cent.
[4] The 2022 AGM was held on 22 August 2022. The draft minutes, that were prepared and issued after the meeting, record the unit holders present or voting by proxy (11 out of 15) as voting unanimously for resolution 9 which was labelled as Motion 6 and that Motion 6 was passed as an ordinary resolution. Mr McIntyre did not attend in person or by proxy. Resolution 8, as quoted above, was not recorded in the draft minutes.
[5] On 13 April 2023, after lawyers’ letters on behalf of Mr McIntyre, the Body Corporate distributed:
(a)a notice of designated resolution; and
(b)a revised set of draft minutes, with new wording, including the following motions being passed as special resolutions:
6That the body corporate approves a new method of apportionment of utility interest as presented by the committee.
7that the body corporate reviews the Utility Interests for each unit using the new method and assigns to each unit the new interest or interests.
[6] The explanation by the Chair, Mr James Dodwell, is that “the resolution to amend the utility interest was passed unanimously by owners present at the AGM”.
[7] On 10 May 2023, Mr McIntyre applied for relief from the designated resolution reallocating utility interests on the basis it is procedurally and substantively unfair. Since Mr McIntyre filed his application, the insurance premium has been allocated on the basis of the existing ownership interests as an interim measure.
Updating the ownership interests
[8] The 2023 AGM of the Body Corporate was held on 14 September 2023. Alongside the agenda for the 2023 AGM, a copy of the first version of the minutes from the 2022 AGM was circulated before the 2023 AGM took place — as one of the items on the 2023 Agenda was to confirm the 2022 AGM minutes. The draft minutes from the 2023 AGM note:
(a)The meeting was advised of the existence of the two versions of the 2022 AGM minutes, with one “incorrectly” recording two passed motions as ordinary resolutions. But the motion at the 2023 AGM confirming the minutes referred to “the minutes of the meeting” without specifying which was approved.
(b)The Body Corporate resolved:
That the body corporate engages a registered valuer to reassess our ownership interests — notwithstanding that the body corporate also commits to not proceed with updating the ownership interests until the conclusion of a related dispute with Unit 14 about Utility Interests.
[9] As Mr Michalik says, for Mr McIntyre, reassessing the ownership interests on the basis of a new registered valuation should have made the continuation of this application unnecessary. Curiously, however, the Body Corporate resolution is conditional upon the conclusion of this dispute. That proviso appears to have prevented the parties agreeing to settle the dispute and necessitates this judgment.
Law of setting aside resolutions
[10] Section 3 of the Unit Titles Act 2010 (the Act) expresses its purpose, relevantly:1
The purpose of this Act is to provide a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis by communities of individual owners and, in particular —
…
(c)to establish a flexible and responsive regime for the governance of unit title developments; and
…
1 It has been noted by the High Court that the emphasis of the regime is on this purpose. Namely, the “management of buildings on a socially and economically sustainable basis, and for a flexible and responsive regime”: see LV Trust Holdings Ltd v Body Corporate 114424 [2012] NZHC 3578, (2012) 14 NZCPRR 344 at [57]; and Body Corporate 114424 v LV Trust Holdings Ltd [2014] NZCA 21, (2014) 15 NZCPR 375 at [25]–[26].
[11] The Act distinguishes between ownership and utilities interests. Under s 39(2), unless they are separately assessed, the utility interest is the same as the ownership interest. Section 39(2A) provides that, alternatively, a different utility interest may be assigned to a unit if it is “fair and equitable, in the view of the registered proprietor or owner, having regard to the relevant benefits and the costs to the units”.
[12]Section 41 of the Act provides, relevantly:
41 Reassessment of ownership interest and utility interest
(1) A body corporate may, by special resolution at a general meeting, decide to reassess the ownership interest or utility interest, or both, for each unit and assign to each unit the new interest or interests.
…
(4)A reassessment under subsection (1) takes effect, and the new interest or interests are assigned to each unit, on—
(a)the date determined as part of the special resolution under subsection (1); or
(b)the date of the valuer’s assessment; or
(c)if there are 2 dates (1 under paragraph (a) and 1 under paragraph (b)), the earlier date.
(5)Any reassessment of the ownership interest of a unit must be made by a registered valuer assessing the value of each of the units relative to each other.
(5A) A reassessment of the utility interests may be made by the body corporate on a fair and equitable basis, having regard to the relevant benefits and the costs to units.
(5B) A reassessment of the utility interests made by a body corporate created before the commencement of the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022 may be of—
(a)a single uniform interest; or
(b)a multiple set of interests,—
(i)each targeted at a particular service or amenity; and
(ii)which may be, for a specific interest targeted at a particular service or amenity, assigned to some units only.
(6)If, as a result of a reassessment, utility interests are to be assigned other than on the basis of the value of the unit relative to each other unit, the body corporate must, by special resolution, approve the method of apportionment of the utility interests.
(7)Sections 212 to 216 (which provide for an objection process) apply to a resolution made in accordance with subsection (6).
(8)Any costs incurred in the reassessment must be paid for by the body corporate.
…
[13] Section 98 requires that a special resolution must be voted for by 75 per cent of the eligible voters. Under s 101(3), unless all eligible voters are present, no resolution not on the agenda may be voted on.
[14] Section 212(c) defines a resolution approving the method of apportionment of a utility interest under s 41(6) to be a “designated resolution”. Section 213(1)(a) requires a body corporate to serve a notice in the prescribed form on every unit owner after passing a designated resolution. That triggers the opportunity for objection:
215 Hearing if objection made
(1)The appropriate decision-maker must hear the objection as soon as practicable and may make any order it thinks fit, including without limitation any of the following orders:
(a)confirming the resolution:
(b)overturning the resolution:
(c)requiring the body corporate to pay compensation to the person making the objection:
(d)requiring the person making the objection to pay compensation to the body corporate:
(e)a work order:
(f)granting an injunction.
(2)The appropriate decision-maker must not make an order under subsection (1) unless it is satisfied that it is just and equitable to do so.
(3)An order may be subject to any terms or conditions that the appropriate decision-maker thinks fit.
(4)If the appropriate decision-maker—
(a)makes an order overturning the resolution, then the resolution is to be treated as not having been passed; or
(b)makes an order confirming the resolution, then the body corporate may proceed to carry out the resolution subject to any terms and conditions imposed by the appropriate decision-maker under subsection (3).
Jurisdiction
[15] After the hearing, I invited counsel to make brief submissions on the Court’s jurisdiction to decide this dispute. Mr Michalik submits that the Court has jurisdiction under s 173(1)(b) of the Act because “the dispute relates to the title of land”. That is because the dispute concerns the utility interests which are a significant characteristic of the titles of each of the units in the Body Corporate. A utility interest must be assigned by the registered proprietor before a unit plan specifying the units is deposited under the Land Transfer Act 2017. Under s 42 of the Act, any reassessment of the utility interest must be notified to the Registrar-General of Land who must record the new utility interest assigned to each unit. Because one of the possible outcomes of the case will have the effect of changing title to land, the High Court has jurisdiction and ss 171 and 172 provide that the Tenancy Tribunal and District Court do not. Alternatively, the High Court’s inherent jurisdiction is not ousted by those sections, which are not exclusive. Mr Calder, for the Body Corporate, agrees. I proceed on that basis.
Submissions on the application
[16] Mr Michalik submits it is just and equitable to set aside the designated resolution. Procedurally, there were several identified deficiencies and a hopeless confusion in the Resolutions between amending the utility interests and approving the basis on which they should be amended. It is fair to apply the law and unfair not to apply the law. Substantively, Mr Michalik submits the utility cost allocation involves an unbalanced extra loading of insurance costs onto Mr McIntyre. The reinstatement costs measure the burden on the insurer, not the benefit to the insured. Unit 14 would pay 52 per cent more insurance costs compared with allocation on the basis of the valuation of the units. That is an injustice. The countervailing adjustment in relation to long-term maintenance is irrelevant. Fixing the ownership interest will fix the
utility interest. Doing so is important. Mr McIntyre understands the point made by the Body Corporate about the cost of maintenance, but he is still strongly in favour of setting aside the designated resolution. A quick and simple setting aside of the designated resolution would clear the decks for the Body Corporate to reset the ownership interests. The ownership interests are very unlikely to be sorted out unless the resolution is set aside, due to the relationships between the unit holders.
[17] Mr Calder submits it is not fair and equitable to set aside the designated resolution. He acknowledges there were procedural problems, in the Resolutions not being included in the postal voting form and the minutes saying there was only one ordinary resolution. He explains that the Committee’s initial thinking was that the change to the utility interest allocation would be a quick way of increasing Unit 14’s contribution to utilities. A key feature of the utility interest is that it enables bodies corporate to differentiate the calculation of levies more fairly and equitably. For example, Unit 14, due to being a stand-alone unit, is likely to receive less benefit from the long-term maintenance fund that the levies cover.2 Due to this, Unit 14 has not been allocated a share of this cost under the utility interests calculations. If the rating valuations were used, Unit 14 would pay 12.46 per cent of the levies. That would be
$3,115 towards the long-term maintenance fund. This would be unfair on the owner of Unit 14. Further, if the rating valuation figure was adjusted to exclude contributions to the long-term maintenance fund, the owner of Unit 14 would pay close to the utility rate recommended by the Committee ($4,361 compared with $4,979).
Is it just and equitable to set aside the Resolutions?
[18] There are several significant procedural deficiencies with the passage of the Resolutions and the designated resolution. Two special resolutions were required under s 41, in order to effect the Body Corporate’s intention. Under s 41(1), one resolution should have decided to reassess the utility interest and assigned the new interests to each unit. Under s 41(6), the other resolution should have approved the method of apportionment of the utility interests. But:
2 This is because the Body Corporate duties of repair and maintenance are limited to building elements and infrastructure that relate or serve more than one unit: Unit Titles Act 2010, s 138(1).
(a)The Resolutions were omitted from the postal voting form sent out with the Agenda and Notice of Proposed Motions.
(b)Only one relevant resolution was recorded by the first version of the minutes as being passed.
(c)The resolution that was passed was recorded by the first version of the minutes issued as being passed as an ordinary resolution and by the second version as being passed a special resolution.
(d)Even if the other resolution had been passed, it would not have satisfied the requirements of s 41(6) according to the first version of the minutes, because it did not approve a method of apportionment of the utility interests.
(e)Neither version of the minutes records a resolution that actually assigned the new interests to each unit, as s 41(1) requires.
(f)It is not clear which version of draft minutes from the 2022 AGM was approved at the 2023 AGM, but the evidence before the Court suggests only the first version was circulated.
(g)The motions recorded by the second version of the minutes as having been passed appears to be a retrospective change because that wording was not circulated before the AGM and was not recorded in the first set of minutes. The evidence does not support the propositions that those motions were passed at the 2022 AGM.
[19] Section 215(2) requires that I must be satisfied it is “just and equitable” to make an order confirming or overturning a challenged resolution. Justice and equity can relate to procedure or substance. Having regard to the purposes of the Act, especially that the governance of unit titles should be “flexible and responsive”, the procedural requirements should not be interpreted in an overly technical or legalistic way. As Gordon J stated in Yee Good Fortune Investments Ltd v Body Corporate
392619, “mistakes are inevitable, particularly when the decisions in question are mostly undertaken by individual owners who in many cases will have little or no experience reading and complying with statutory provisions”.3
[20] But the procedural deficiencies here were egregious. For present purposes, I put to one side the requirement for a special resolution because the resolution was passed unanimously. I also put aside the retrospective amendment of the minutes in a non-credible way. But postal voters did not have had the opportunity to vote on the relevant resolutions. And, crucially, the Resolutions did not assign new interests or approve a method of apportionment, as was fundamental to the procedure required by the Act. These deficiencies satisfy me that it is just and equitable to overturn the resolution contained in the Notice of Designated Resolution dated 13 April 2023.
[21] I consider overturning the designated resolution is also just and equitable in terms of the substance of the situation, including for all unit owners. The reason given for the allocation of utility interests is the inequities created by the underlying mis-identification of ownership interests. That affects the contributions by the owner of Unit 14 to the overall levies and to the utilities, as well as their voting rights. Now that the Body Corporate is prepared to reassess the ownership interests, it should do so. That will provide an equitable baseline between the unit holders. If there are specific reasons of justice or equity that call for adjustments, such as the relative contributions to the long-term maintenance fund, that can be addressed separately.
[22] All of this could easily have been achieved by agreement between the parties. In particular, the refusal of the Body Corporate to action its decision to reassess the ownership interests pending determination of these proceedings appears to have prevented settlement.
Result
[23] I set aside the resolution contained in the Designated Resolution dated 13 April 2023.
3 Yee Good Fortune Investments Ltd v Body Corporate 392619 [2017] NZHC 723, (2017) 18 NZCPR 504 at [104].
[24] I direct the Body Corporate to obtain the valuation reports necessary to update the registered ownership interests, and to update them.
[25] I award costs to Mr McIntyre. On a preliminary basis, I am inclined to award increased costs of 25 per cent, because of the Body Corporate’s unnecessary contribution to the time and expense of the proceeding under r 14.16(3) of the High Courts Rules 2016. If there is disagreement about costs, both sides should file memoranda of no more than five pages within 10 working days.
Palmer J
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