Parkinson v Body Corporate 62124

[2023] NZHC 3050

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2023-485-163

[2023] NZHC 3050

UNDER

Part 19 of the High Court Rules 2016

IN THE MATTER OF

An application under s 141 of the Unit Titles Act 2010

BETWEEN

DR PHILIP GRANGER PARKINSON

First Applicant

PERRY ALEXANDER WALKER

Second Applicant

AND

BODY CORPORATE 62124

First Respondent

BRENDON JOHN GILHOOLY

Second Respondent

PIETER JAAP BOS

Third Respondent

Hearing:

24 October 2023

Appearances:

A C Elia and A F D Cameron for First and Second Applicant First Respondent unrepresented

Mr Gilhooly self-represented Mr Bos self-represented

Judgment:

31 October 2023

JUDGMENT OF GRICE J

[1]    On 1 August 2023, I issued an interim judgment concluding that an administrator should be appointed to Body Corporate 62124 (the body corporate) following the application by the applicants for appointment due to dysfunction in the

PARKINSON v BODY CORPORATE 62124 [2023] NZHC 3050 [31 October 2023]

body corporate between the unit members.1 The dysfunction had lasted some time. However, until 2021 the body corporate owners were able to appoint a chair and a deputy chair to enable routine matters to be dealt with. Since then, there has been no functioning body corporate committee. The day-to-day payment of accounts and obtaining of insurance for the  body  corporate  has  been  largely  carried  out  by  Mr Gilhooly and Mr Walker. Mr Gilhooly has undertaken the financial accounting responsibilities and, as I noted at [43] of the judgment, presumably operated the bank account. Mr Walker had undertaken the negotiations with the insurer to ensure the complex was insured, as required under the Act, as well as negotiations with the Council concerning encroachment fees paid for the car parks for the units.2

[2]    I was satisfied that the body corporate was dysfunctional to such an extent that it was unlikely to function as required under the legislation, and was likely to continue in this way.3 I considered that the risks to the complex and the body corporate’s lack of governance required the Court to take the step of appointing an administrator.4

Background

[3]    The background leading to the application to this Court was set out in the judgment as follows:

Introduction

[1]        Body  Corporate  62124,  situated  at  53  Hankey  Street,  (the   body corporate), is not represented in this application for the appointment of an administrator to it. That is because there is no chair or committee appointed for the body corporate. The body corporate members are the two applicants and two respondents. There has been no change in ownership since about 2003. The applicants were represented by Ms Elia and Mr Cameron. The respondents, Mr Gilhooly and Mr Bos, appeared in person.

[2]        The last general meeting of the members of the body corporate was in 2021. At that meeting the owners could not agree on who should be appointed as chair. Before that there had been a functioning committee made up of the chair and the deputy chair. The tensions between the owners, the members of the body corporate, have been growing since about 2017 or even earlier. This application has been precipitated by the inability of the body corporate members to agree, in particular to agree on how to deal with the

1      Parkinson v Body Corporate 62124 [2023] NZHC 2022.

2 At [43].

3 At [74].

4      At [75]

remediation/repair of a retaining wall between their complex and the neighbouring body corporate, Body Corporate 58067, situated at 47–51 Hankey Street, (the neighbouring body corporate), which, according to engineering evidence, is in danger of imminent collapse.

[4]    Mr Gilhooly, supported by Mr Bos, takes the view that an appointment of an administrator is not necessary because the parties should be able to reach agreement between themselves. In my view that is unrealistic given the history to date. The parties have been unable to agree on steps to be taken to manage a dispute concerning who is  responsible  for  a  retaining  boundary  wall.  The  downhill  neighbour  body corporate has denied liability for the  retaining  wall,  which,  according  to  Don Thompson Consulting Engineers, is liable to collapse if the ground behind it becomes saturated from high rainfall or there is a modest earthquake.5 If the wall collapses, the neighbouring body corporate would likely have its access blocked by debris.6

[5]    A number of decisions of the Tenancy Tribunal, referred to in the judgment, have been the result of disputes between the body corporate members as to who is responsible for various elements in the building. The Tribunal declared that this  body corporate is legally responsible for the retaining wall, alongside the neighbouring body corporate.7 The Tribunal, however, could not adjudicate on the repairs, due to the involvement of the neighbouring body corporate.8 I noted the comments of the adjudicator in my judgment as follows:9

[56]      The adjudicator noted that the parties had provided the Tribunal with copies of legal advice received either individually or for the body corporate. It listed five pieces of advice. The Adjudicator said:

[58]   What is notable, is that by and large this advice is consistent on the important legal matters in dispute, and also consistent on their advice on how to resolve the matter internally, and with the neighbouring body corporate. This is not a case where the Tribunal is called upon to adjudicate matters which the legal experts cannot agree upon.

[57]      The Adjudicator then proceeded to consider the specific matters advanced at the hearing. In relation to whether the proposed rules complied

5 At [7].

6 At [8].

7 At [55].

8 At [56].

9      Footnotes omitted.

with the Act he said that there were “some issues with those amended rules”. He went on to say:

[64]      In large measure, the amended rules do no more than restate the obligations held by the body corporate under the [Act]. In particular, section 138 of the [Act] sets out the duties held by the body corporate, and that includes the repair and maintenance of building elements and infrastructure that relate to or serve more than one unit. This obligation is binding on the body corporate, so stating this in body corporate operational rules is probably unnecessary.

[65]      However, there are aspects of the amended rules that do not sit comfortably with section 138, but are not necessarily inconsistent with section 138. As an example, amended rule ‘a’ records that the body corporate is responsible for “the repair and maintenance of all structural elements both internal and external…”. That may be a more generous outcome for the unit owners, as strictly the body corporate is only responsible for maintaining building elements that relate to or serve more than one unit.

[66]      What is more problematic is amended rule ‘c’ which excludes all windows and  doors  from  being  the  responsibility  of  the  body corporate. If the window or door served more than one unit, or related to aesthetics of the premises, then the body corporate would be responsible for those items.

[67]      Ultimately if the rules were registered, any particular rule, if inconsistent with the [Act], would be invalid, and therefore could not be enforced. Never the less, if the amended rule is not consistent with the [Act], then it should not be registered.

[68]      The  applicants  seek  orders  to  the   extent   that   the   body corporate is required to obtain professional advice in relation to the amended rules. There is no legal obligation or expectation that a body corporate would obtain expert advice prior to registration of rules.

[69]      Taking into account that there is a process within the body corporate to correct any inconsistent rules, and given there is no expectation that expert advice is first obtained prior to registration, the Tribunal declines to make any order in relation to the amended rules. I do however strongly encourage the body corporate to revisit these rules within the usual body corporate processes, to ensure the rules are not inconsistent with the [Act]. It would only be reasonable to seek orders from the Tribunal such as a declaration, once this matter has been considered by the body corporate in the first instance.

[58]      The Tribunal then considered the orders sought in relation to the retaining wall. It said that despite the previous declaration by the by Tribunal confirming that the body corporate was responsible for any maintenance or remediation required for the retaining wall as a building element, the unit owners had “not been able to work together as a united or even majority body corporate in order to make the necessary decisions to advance that work.”

[59]The Tribunal said:

[72]      …The starting point of the remediation would be to simply agree on matters around the approach and negotiation with BC 58067. However, that agreement has not been reached internally within BC 62124.

[73]      The Tenancy Tribunal does not have powers to act as a substitute to body corporate governance and decision making. Unit Title law is based on decisions being made not by the Tribunal, but by the body corporate itself. There is in fact very limited scope for the Tribunal to substitute its own assessment on governance issues, such as with applications for minority relief for example.

[74]      In circumstances where the body corporate is dysfunctional, the [Act] addresses any risk by allowing for the appointment of administrator under section 141 of the Act. While I can understand the applicants filing this application as a last gasp attempt to avoid the need for an administrator to be appointed, unfortunately the Tribunal does not have the authority to make the administrative decisions for the body corporate necessary to progress the wall remediation.

[75]      Mr Cameron submitted that an order should be made that funds be raised of some $10,000.00 to progress the work necessary to advance remediation of the retaining wall. I decline to make that order. Whether the Tribunal could make such an order or not, I can see no utility in doing so. Even if I ordered the payment of say

$10,000 into the body corporate accounts, that would serve no immediate purpose, because the unit holders cannot agree on how that money should be spent. Furthermore, it would be premature to progress any professional work (engineering for example) without the agreement of the BC 58067. That is because any steps undertaken toward the actual wall remediation will need to be with the agreement of BC 58067.

[76]      In my view, if the unit owners were able to agree on a way forward with the neighbouring body corporate, the funding of that would fall into place. For example, if it could be agreed that this body corporate would fund say 50% of the remediation works, then it should not be contentious that funding for half of the works needed to be raised based on utility interest.

[60]      The adjudicator went on to note that this was entirely consistent with the advice of lawyers retained in the matter when discussing the responsibility for the retaining wall and that the funding for the repairs and maintenance would come from the operating account derived from levies on owners calculated in proportion to each owner’s “utility interest”. The adjudicator noted that if any of the unit owners wanted to argue that some unit holders should pay more than their utility interest calculated under s 126, then “the sensible approach would be to argue that after the remediation work had been completed, the costs confirmed, and the extent of work settled”.

[6]    In addition to the immediate issues of the negotiations with the neighbouring body corporate and the remediation of the wall, there are a number of other

administrative and governance matters that need attention. These include the settling of new rules for the body corporate and establishing a governance framework that will be effective for the future.

[7]    Mr Gilhooly and Mr Bos have the view that there must be a black-and-white solution as to liability for the retaining wall. I anticipate that is unlikely to be the case. The preferable manner of achieving an outcome would be to negotiate with the members of the neighbouring body corporate. However, if negotiations are not successful it will be up to the administrator as to the next steps that are taken.

Selection of administrator

[8]    The important attributes in any administrator appointed on this matter is that they are suitably qualified and skilled, impartial and will seek the input of all parties into any decision-making.

[9]    Each party proposed an administrator. Each of the administrators provided a signed consent which was filed in the Court. Mr Gilhooly and Mr Bos nominated  Mr John Greenwood. He is an experienced commercial/conveyancing lawyer. He is Wellington-based and has had an extensive background in property law and unit titles, including a strong involvement in the reform of the Unit Titles Act. He has acted as an administrator in the past.

[10]   The applicants nominated Mr Clinton Baker, who is an Auckland-based litigation lawyer with extensive experience in body corporate work and an impressive list of litigation in which he has appeared concerning body corporates.

[11]   Mr  Cameron  for   the   applicants   properly   acknowledged   that   both   Mr Greenwood and Mr Baker have the experience and expertise to act as administrators in this case. The respondents also acknowledged that Mr Baker appeared qualified. The question was which of the two would be most suitable for this appointment.

[12]   The rates of pay differed, in that Mr Greenwood put forward one rate whereas Mr Baker had a graduated rate and also indicated he would retain Mr Harkness, a

retired lawyer in Wellington to assist on the ground. While Mr Baker had a higher hourly rate, there is little ultimate difference between the rates of the two nominees.

[13]   Mr Cameron pointed to Mr Baker’s litigation experience, submitting that in view of the conflict involved in this matter it would be of utility to have a litigation lawyer involved.

[14]   Mr Gilhooly and Mr Bos criticise the nominee of the applicants, saying there is a conflict because of the possible business relationships between Brookfields, the applicants’ law firm, and the nominee.

[15]   I agree with Mr Cameron that there is no basis that would give rise to any suspicion of partiality or bias by the applicants’ nominee. I would not disqualify him on that ground. He is well qualified for the position and has certified, in his consent, that he is not aware of any conflict of interest or reason that would disqualify him from the appointment and also that if he became aware of any conflict or reasons prior to the date of appointment he would advise the Court accordingly. I accept that certification.

[16]   Mr Cameron’s main objection to Mr Greenwood was because Mr Gilhooly indicated he had discussed  the  terms  and  conditions  of  the  appointment  with  Mr Greenwood. Some of the terms which Mr Gilhooly advanced under the heading of “scope” were drafted in a way which might unduly fetter the ability of the administrator to do what was necessary to progress the resolution of the remediation of the boundary wall and to put in place an effective governance structure. This included “facilitat[ing]” the remediation of the wall. Mr Cameron’s concern was that the “scope” provided by Mr Gilhooly contemplated the administrator only being able to progress  matters  by  agreement.  He  was  therefore  concerned  that  this  had  Mr Greenwood’s imprimatur.

[17]   My enquiry to Mr Gilhooly clarified that Mr Greenwood had only provided input in relation to the standard terms and conditions such as the term of appointment, fees and related matters. Mr Gilhooly had drafted, with Mr Bos’s support, the “scope” and balance of the memorandum, which included a number of notes. These included

the useful suggestion of alternative dispute resolution services to attempt to resolve issues with the neighbours.

[18]   It was appropriate that Mr Greenwood received a copy of the judgment and had input into the general terms and conditions of appointment. Mr Cameron agreed that Mr Barker had similarly seen the decision and must have had input into the terms and conditions.

[19]   I am satisfied based on the information before the Court that each of the nominees is well qualified for the role of administrator. Both are barristers and solicitors of the High Court of New Zealand and will act with the appropriate skill and care and will do so impartially.

[20]   Some comments made by Mr Gilhooly at the end of the hearing, and supported by Mr Bos, indicated that they may have some difficulty accepting a resolution to the issues surrounding the body corporate that they are not actively in agreement with. The administrator will seek to obtain agreement of all the body corporate owners and ensure they are all properly informed and have an opportunity to give feedback on any major decisions. However, this is a case where the administrator may have to make decisions that not all the unit holders agree with. It is for the purpose of making decisions, which the body corporate has been unable to do, that the administrator has been appointed. The administrator will be required to set levies for any work needed to be done, including for the retaining wall, and also to fund dispute resolution processes, whether that is by way of agreement, mediation or litigation, to achieve a solution in relation to a retaining wall.

Appointment and terms and conditions

[21]   Mr Cameron emphasised the benefit of having an experienced litigator involved as administrator. The administrator will need to explore a resolution concerning the retaining wall whether it be by negotiated agreement, alternative dispute resolution or Court resolution. The nominees have different skills. The ability to negotiate and solve the dysfunctionality of the body corporate will call on a range of skills. White litigation experience may assist if matters require resort to Court, I do not consider those skills give an administrator a significant advantage in this case.

[22]   I am satisfied Mr Greenwood is the most appropriate person to be nominated administrator. He is suitably qualified and, importantly, he is based in Wellington. This is a small body corporate and the administrator will need to be to a certain extent hands-on. Particularly given the retaining wall issue related to this property, a person with local knowledge would have an advantage. While the applicants had suggested using a Wellington-based lawyer to assist Mr Baker, that may lead to some double handling.  It would be preferable for the administrator himself to be local in this case.

[23]Mr Greenwood’s appointment is on the following terms and conditions:

(a)A term of 12 months or such earlier time as the issues facing the   body corporate have been resolved, with the right to seek Court approval to extend the period.

(b)The hourly rates set out in the memorandum of the respondents dated 9 September 2023, with the ability to retain other experts and such other assistance as may be needed from time to time at market rates for such providers.

(c)The fees, disbursements and other costs incurred by or on behalf of the administrator will be paid on or before 20 days following the rendering of an invoice.

(d)The administrator shall exercise all the powers/duties imposed on the body corporate and/or committee arising under the Unit Titles Act 2010, including, but not limited to, in relation to the governance and operation of the body corporate and in respect of steps taken in relation to the key issues facing the body corporate, including the taking of such dispute resolution steps, including litigation, in relation to the repairs or reinstatement of the retaining wall.

(e)The administrator is indemnified by the body corporate in carrying out his role as administrator, subject to any fraud or gross negligence. The administrator may obtain such liability insurance as party of the

body corporate insurance or otherwise as is reasonable on market terms.

(f)The administrator will report to the body corporate.

(g)The administrator will report to the Court at the expiration of 12 months from the date of his appointment or such earlier date.

(h)The administrator may seek further directions or orders from the Court on one month’s notice.

Scope of appointment

[24]   In terms of the scope of Mr Greenwood’s appointment, the key issues facing the body corporate requiring an administrator to resolve can be summarised as follows:

(a)the liability for repairs of the retaining wall on the boundary of the development, which is failing, and the cost apportionment for such repairs as between the body corporate, the unit owners and the neighbouring property;

(b)the preparation and registration of amended body corporate operational rules;

(c)the establishment of a long-term maintenance plan;

(d)the striking and raising of levies to fund the body corporate’s operational expenses and costs of remediation of the retaining wall;

(e)to review the calculation of ownership and utility interests and, if necessary, reassess such interests and assign to each unit the new interest, or interests, in accordance with s 41 of the Act; and

(f)putting in place an effective governance framework to avoid the deadlock and dysfunctionality that has occurred to date.

[25]   The issues set out at [24] form the scope of the appointment. I do not consider it is appropriate to further fetter the ability of the administrator to undertake the resolution of those issues. He must of course remain impartial and seek input from the parties in any significant decisions.

Costs

[26]   The respondents indicated that they may be seeking costs of a more general nature relating to the disputes between the parties back to 2013. However, the only costs which are able to be claimed in this matter are those relating to the present application.

[27]   The usual position is that costs follow the event. In this case the applicants were successful in their application to appoint an administrator, although the person appointed as administrator was the nominee of the respondents. The applicants having legal representation are entitled to make a claim for fees and disbursements in accordance with the High Court Rules on costs.

[28]   Any application for costs should be filed within five days of the date of this judgment and any response to the application should be filed within a further five days and any reply within a further three days.

Grice J

Solicitors:

Brookfields, Auckland