Newland v Body Corporate no 81340
[2016] NZHC 1190
•3 June 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-155 [2016] NZHC 1190
UNDER the District Courts Act 1947 and Part 20 of
the High Court Rules
IN THE MATTER
of an appeal from the decision of Judge Walker in the District Court at Porirua
BETWEEN
DEBORAH ANN NEWLAND Appellant
AND
BODY CORPORATE NO 81340
Respondent
Hearing: 30 May 2016 Counsel:
N B Dunning for Appellant
A J Knowsley and M L Clarke-Parker for RespondentJudgment:
3 June 2016
RESERVED JUDGMENT OF ELLIS J
I direct that the delivery time of this judgment is
12.30 pm on the 3rd day of June 2016
NEWLAND v BODY CORPORATE NO 81340 [2016] NZHC 1190 [3 June 2016]
[1] Ms Newland owns a unit in an apartment block known as “the Links” next to the golf course in Paraparaumu. The Links is a leaky building. It is undergoing costly repairs. As in many such cases the nature and cost of the remediation has proved contentious, at least insofar as some of the unit holders are concerned.
[2] For some time now Ms Newland has refused to pay what the respondent (the
Body Corporate) says is her share of the levies it has struck.
[3] The Body Corporate sought summary judgment against her in the District Court for the debt it said was owed. It was successful in relation to her share of the operating expenses levies for the years ending 31 March 2014, 2015 and 2016, totalling $21,242.28.1 It was not successful in relation to her share of the long-term maintenance levy for the same years, totalling $96,514.85. Judge John Walker held that the long-term maintenance fund could not be used (and a long-term maintenance
levy could not be struck) to pay for the remediation works. The Judge held that Ms Newland had an arguable defence because in his view the Body Corporate needed instead to apply to this Court for approval of a scheme under s 74 of the Unit Titles Act 2010 (the Act) in order to recover repair costs from unit holders.
[4] The Body Corporate has not sought to challenge that finding on appeal, and, indeed, has now made a s 74 application. It is keeping its powder dry on whether it might also yet choose to proceed to trial on the long-term maintenance levy debt. But Ms Newland appeals against the summary judgment entered against her in relation to the operating account levy debt. She contends that:
(a) the operating account levies also relate (in part) to “deferred maintenance or remediation work” the costs of which are (at least arguably) only recoverable pursuant to an approved s 74 scheme;
(b)the Body Corporate has wrongly budgeted operating expenses and long-term maintenance expenses together, and paid these into a single
bank account, which is in breach of the Act;
1 The total operating expenses budgeted for those three years were $300,366, $300,366 and
$318,269.
(c) in entering summary judgment for the operating account levies the Judge has deprived Ms Newland of interlocutory procedures that would otherwise have been available to her and should have exercised his discretion against entering judgment.
Relevant statutory provisions
[5] The provisions of the Act that are presently at issue are ss 115, 116, 117, 120,
121 and 124. For convenience I set out the relevant parts here:
115 Operating account
(1) A body corporate must establish and maintain an operating account for the purpose of meeting the expenses described in subsection (2).
(2) The expenses are—
(a) those relating to the management and governance of a unit title development:
(b) those relating to provision of services and amenities for the benefit of the unit title development:
(c) costs associated with statutory or regulatory compliance: (d) any ground rental or licence fees relating to the base land:
(e) those incurred at least once a year relating to the maintenance of the unit title development.
(3) The body corporate must establish a current account at a bank and may, by special resolution, nominate a person or persons who may operate the account and specify the manner in which it may be operated.
116 Long-term maintenance plan
(1) A body corporate must establish and regularly maintain a long-term maintenance plan.
(2) A long-term maintenance plan must cover a period of at least 10 years from the date of the plan or the last review of the plan.
(3) The purpose of a long-term maintenance plan is to—
(a) identify future maintenance requirements and estimate the costs involved; and
(b) support the establishment and management of the funds; and
(c) provide a basis for the levying of owners of principal units;
and
(d) provide ongoing guidance to the body corporate to assist it in making its annual maintenance decisions.
117 Long-term maintenance fund
(1) A body corporate must establish and maintain a long-term maintenance fund unless the body corporate, by special resolution, decides not to establish a long-term maintenance fund.
(2) The fund may only be applied towards spending relating to the long- term maintenance plan.
(3) The body corporate must, by special resolution, approve any amount to be spent on any 1 maintenance item if the amount exceeds the amount specified for that item in the long-term maintenance plan by more than 10%.
…
119 Optional capital improvement fund
A body corporate may establish and maintain a capital improvement fund to provide for spending that adds to or upgrades the unit title development if that spending is not provided for in the long-term maintenance plan.
120 Separate bank accounts for each fund
The body corporate must establish, in accordance with any regulations, either—
(a) separate bank accounts for each of the funds; or
(b) a single bank account in which the respective funds are kept entirely separate and are able to be identified.
121 Contributions to be levied on unit owners
(1) A body corporate may determine from time to time the amounts to be raised for each fund and impose levies on the owners of principal units to establish and maintain each fund.
(2) The levies must be calculated as follows:
(a) in the case of the operating account, long-term maintenance fund, and any contingency fund, in proportion to each unit owner’s utility interest; and
(b) in the case of any capital improvement fund, in proportion to
each unit owner’s ownership interest.
(3) The owner of a future development unit is liable to pay contributions levied by the body corporate under this section from the date that the future development unit is first in use as a place of residence or
business or otherwise and from that date that future development unit is to be treated as a principal unit for the purposes of this section.
(4) Any levies imposed by a subsidiary body corporate must be sufficient to pay any levies raised under subsection (1) by the head body corporate, its parent body corporate, or any other parent body corporate located between the subsidiary body corporate and its head body corporate.
…
124 Recovery of levy
(1) A body corporate must fix the date on or before which payments of levies are due.
(2) The amount of any unpaid levy, together with any reasonable costs incurred in collecting the levy, is recoverable as a debt due to the body corporate by the person who was the unit owner at the time the levy became payable or by the person who is the unit owner at the time the proceedings are instituted.
Discussion
[6] Copies of the operating expenses budgets for the years ending 31 March 2014 and 31 March 2016 were in the agreed bundle.2 They list over 25 cost items of
which only four are the subject of specific objection by Ms Newland, namely:
Item
YE March 2014
YE March 2016
Legal Expenses
$20,000
$20,000
Long Term Management Plan contribution $32,500
$8,500
Quantity Surveyor cost
$3,820
Management Fee: Chairman
$12,000
[7] At the outset I record that there appears to be some confusion in relation to the “Long-Term Management Plan contribution” which, as I understand it, has been caused by the terminology adopted by the Body Corporate over the years in question.
[8] Historically, the Body Corporate referred to the remediation exercise as a
“deferred maintenance project” and the levies relating to that project as “deferred
2 It appears that the budgeted operating expenses for the YE march 2014 and the YE March 2015 were identical.
maintenance budget special levies”. It seems clear, however, that it considered that the authority for striking those levies was ss 117 and 121(2)(a). Indeed, the Chairman, Mr Nicholls deposed that more recently the Body Corporate has referred to the special levies as “long-term maintenance” levies. It is these levies which Judge Walker’s judgment suggests have not been properly struck, on the basis that remediation is not “long-term maintenance”.
[9] At the same time, however, it seems that the Body Corporate has traditionally included a specific item referred to as the “long-term management plan contribution” as part of its operating levies. As I understand it, this item was separate from, and does not relate to, the “deferred” or “long-term maintenance” levies (the validity of which has been doubted by Judge Walker). Rather, the words are intended to refer to a more orthodox long-term maintenance plan of a kind that is contemplated by s 117. The evidence shows that this plan has been the subject of a separate report to the Body Corporate by Prendos New Zealand Ltd (“Property Performance Consultants”).
[10] Lastly there is a further level of complication due to the fact that the long-term maintenance plan outlined by Prendos includes replacement of the Links’ cladding over a 30 year period. Ms Newland considers that that exercise should form part of the remediation project. But based on advice from other sources, the Body Corporate does not agree.
[11] What this means in the present context is that, in my view, Ms Newland’s specific objection to the inclusion of this item in a s 121(2)(a) levy is not well founded and does not afford her an arguable (partial) defence. I consider that the evidence establishes that that portion of the disputed levy which relates to a “Long Term Management Plan contribution” is properly viewed as a contribution to a long-term maintenance fund which is separate from the deferred maintenance project and is thus not tainted by Judge Walker’s findings.
[12] More importantly, however, I share what appears to have been
Judge Walker’s view that it is not open to a unit holder to dispute a levy on the basis
that she does not agree with one or more of the individual uses to which the levy will be put, for the following reasons.
[13] A distinction must be drawn between the very specific objections taken by Ms Newland here and the more fundamental and vitiating legal error which Judge Walker thought underlay the special levies related to the remediation exercise. If it were open to individual unit holders to dispute individual expenses underlying an operating levy, administrative chaos would result. The evidence makes it clear that the budgets here (and their component parts) were approved at the Body
Corporate’s AGMs.3 There is no arithmetic quibble with the proportion of the levies
charged to Ms Newman. In my view the levies were validly struck and may be recovered as a debt due to the Body Corporate.
[14] But even if I were wrong about that general proposition, I have already explained why I consider that no issue can be taken with the “Long Term Management Plan contribution” aspect of the levy. Nor is there merit in the challenge to the legal expenses or the Chairman’s management fee. As Judge Walker found, both appear to fall squarely within s 115(2)(a) and (c). Even if those expenses indirectly relate, in part, to work that has some connection with the remediation work (oversight and organisation of the work, or with pursuit of the litigation against Ms Newland in relation to her unpaid levies) they can, in my view, still properly be said to be “operating” expenses.
[15] The only disputed operating expense item which does appear to relate directly to the remediation work is the $3,820 cost of the Quantity Surveyors (Maltbys) in the 2014 (and possible the 2015) year. As I understand it Ms Newland’s share of that amount would be around $175. That is plainly de minimis. Asking the Court not to enforce the levies on the basis of such a sum serves only to emphasise the general point made above.
[16] As far as the second ground of appeal is concerned (summarised at [4](b)
above) a single bank account is expressly permitted by s 120(b), provided the funds are kept separate and are able to be identified. I accept that this may be particularly
3 Ms Newland is disqualified from voting at the AGMs because she has not paid her levies.
important where the levies in relation to the different funds are calculated on a different basis.4 But s 121 makes it clear that both the operating account levies and the long-term maintenance fund levies are calculated in the same way, on a utility interest basis. But even assuming that the prohibited intermingling of the funds might be a ground for setting aside or not enforcing a levy (which is perhaps arguable) this ground has no merit. That is because Mr Nicholls has deposed that
although the Body Corporate operates a single account, the payments made into the account are coded and kept separate by the Body Corporate’s Manager, who is an accountant. There is no evidence to the contrary.
[17] As far as the third ground of appeal is concerned I take it to be principally that Ms Newland hopes to obtain further information that will afford her a defence. I reject that argument. The claim is a simple claim for debt arising from levies which I have held to be properly struck. I have expressed the view that it is not open to Ms Newland to scrutinise the levies in the way in which she seeks. Moreover, the evidence is that she has been given access to the information held by the Body Corporate but now refuses to meet the cost of such access.
[18] And lastly, no tenable ground has been advanced that would suggest that any discretion to refuse to grant summary judgment should be exercised in Ms Newland’s favour. In the interests of all the Body Corporate members it needs to be able to continue to operate and to focus on the significant issues it faces. That it should be diverted from these tasks, and be required to bear the cost of a trial, in order to recover $21,242.28 from Ms Newland when she has no arguable defence is, to say the least, an unattractive proposition.
[19] The appeal is dismissed and the judgment of Judge Walker affirmed. Ms Newland is to pay the costs of the Body Corporate in the appeal on a 2B basis.
“Rebecca Ellis J”
4 For example s 121 provides that an operating expenses levy is calculated in proportion to each owner’s utility interest but a capital improvement levy is calculated in proportion to each unit owner’s ownership interest.
Solicitors: Nat Dunning Law, Wellington, for Appellant
Rainey Collins, Wellington, for Respondent
Counsel Acting: J E H Hodder QC.
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