Parkinson v Body Corporate 62124
[2023] NZHC 2022
•1 August 2023
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 2022
UNDER Part 19 of the High Court Rules IN THE MATTER OF
an application under section 141 of the Unit Titles Act 2010
BETWEEN
DR PHILIP GRANGER PARKINSON
First Applicant
PERRY ALEXANDER WALKER
Second ApplicantAND
BODY CORPORATE 62124
First Respondent
AND
BRENDON JOHN GILHOOLY
Second Respondent
AND
PIETER JAAP BOS
Third Respondent
Hearing: 30 June 2023 (by VMR) Appearances:
A C Elia and A F D Cameron for Applicants First Respondent unrepresented
Mr Gilhooly self-represented Mr Bos self-represented
Judgment:
1 August 2023
INTERIM JUDGMENT OF GRICE J (DYSFUNCTIONAL BODY CORPORATE)
This judgment was delivered by me on 1 August 2023 at 11.00 am pursuant to R 11.5 of the High Court Rules
…………………..
Registrar/Deputy Registrar
PARKINSON v BODY CORPORATE 62124 [2023] NZHC 2022 [1 August 2023]
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 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.
This application
[3] This is an application for appointment of an administrator to the body corporate due to its dysfunctionality leading to an impasse between members. This has put the body corporate in breach of the Unit Titles Act 2010 (the Act) for a number of reasons, including that it does not have a chair, as required under the Act.1
[4] The application did not propose a specific administrator, nor did it propose the terms of any order of appointment. Counsel for the applicants indicated that this course had been chosen because they had to date been unable to identify a suitable person to put forward for nomination as an administrator. However, they indicated it might be for instance a retired solicitor with expertise in the Act or an experienced body corporate manager who was willing to undertake the task. The respondents,
1 Unit Titles Act 2010, s 89; and Unit Titles Regulations 2011, reg 10(1).
while opposing the appointment of an administrator, indicated they wish to be heard if the matter did progress to an appointment. Mr Gilhooly considered that any appointee needed to be impartial, have no relationship to the applicants and be suitably experienced in unit title matters.
[5] Counsel were unable to direct me to any authority which had dealt with an application for the appointment of administrator where the applicant had not put forward a recommendation as to the appointee. The usual process would involve that information being put before the court. Therefore, if I do determine there is sufficient dysfunctionality present to consider the appointment of an administrator, further consideration would be necessary following the provision of the proposals and hearing from all parties.
[6] The matter that precipitated the present application primarily centres on how to deal with a retaining wall between the body corporate and the neighbouring body corporate, which is situated on the downward slope from the body corporate.
[7] While there is some dispute about the extent of the deterioration of the retaining wall, it seems from the evidence produced in the affidavits in this proceeding that at least part of the wall runs along the boundary between the two body corporates. The only information produced of an engineering nature was a letter dated 29 March 2018 from Don Thomson Consulting Engineers addressed to the neighbouring body corporate (the engineering report). The letter was apparently provided by engineers for the purposes of the dispute between the neighbours over responsibility for the maintenance or remediation of the wall. The engineers said that the original construction date of the wall is unknown but similar construction was common from the 1910s to the 1950s and it was likely built at the same time as the wall beyond the right of way, “which while taller is not exhibiting signs of movement”. The failing part of the wall abuts the right of way that the neighbouring body corporate uses for access from Hankey Street. The engineers say the failing wall was probably built on the boundary between the two properties but will have “moved and rotated away from the boundary due in part to the surcharge from the neighbouring townhouse development.” They said that there is a “slow bearing failure occurring at the toe of the wall which will eventually lead to the wall’s collapse.” The engineers warned that
based on the assumptions made, the wall is in danger of collapsing, which “could occur as the result of a modest earthquake or as the result of the ground behind becoming saturated from high rainfall.” This would be to the detriment of both bodies corporate.
[8] If the wall collapses, the neighbouring body corporate will likely have its access via the right of way from Hankey Street blocked by debris. The neighbour has indicated that it considers liability for the wall to be with the present applicant body corporate.
[9] The four owners of the units in the body corporate cannot agree on how to deal with the retaining wall issue, nor how to deal with some historic issues concerning registration of new rules for the body corporate.
Background
[10] The body corporate complex was built in about 1984 and comprises four units built of cedar (painted), concrete tiles and plaster. The required maintenance on the complex is minimal. It needs painting every 15 years. At present it needs some running repairs but they are not urgent. It seems the complex is in need of some attention, however. There is no long-term maintenance plan adopted by the body corporate, nor is there any accruing maintenance fund held by the body corporate. It has about $4,000 in its bank account at present.
[11] The body corporate has relatively modest annual financial requirements. Mr Gilhooly has been doing the financial statements. He circulates these once a year at the end of the financial year in September. Mr Gilhooly says the complex needs about $7,000 per annum to operate to pay standing expenses, which include insurance and a counsel encroachment fee for the unit car parks. If it was accruing repairs and maintenance costs, Mr Gilhooly estimated the amount to be paid by the members each year would total approximately $10,000–$12,000.
[12] In support of the application to appoint an administrator, the applicants point to the history of failure to agree, the number of applications to the Tenancy Tribunal, the imminent failure of the wall and the lack of governance of the body corporate.
[13] The respondents, particularly Mr Gilhooly, do not accept that the retaining wall is in imminent danger of collapse. The respondents also suggest that the liability, as between the neighbouring properties, for the repair or remediation of the wall should be a clear-cut question of law and easily determined.
[14] As to the inability of the members to agree among themselves, the respondents say they are willing to be flexible but the other two owners are causing the difficulties. They say that Mr Walker is reasonable but he is friendly with the neighbours in the neighbouring body corporate and does not want to be in conflict with them over the wall. On the other hand, they say that Dr Parkinson approaches the dispute with a mindset that his unit is a “freehold” unit and so will not participate in discussions management nor contemplate a contribution towards what the joint costs of the body corporate should be. There also appears to be some dispute about whether the unit owners should contribute if their unit is not adjacent to the failing part of the retaining wall. The respondents say Dr Parkinson’s views are contrary to the holistic approach to repairs maintenance and costs which the Act is intended to promote. The respondents say that the appointment of an administrator is not necessary. In support of this they say it is a very small body corporate with an inability to fund the overheads which would inevitably be incurred if an administrator was appointed.
[15] To break the impasse that has developed, the respondents say the solution should be able to be achieved with more discussion and negotiations among the body corporate owners as to the approach to the contributions by the body corporate to enable negotiations with the neighbouring body corporate to reach an agreement on the proportion to be contributed by each of the bodies corporate to the repair/remediation of the retaining wall.
[16] As noted, Mr Gilhooly and Mr Bos oppose the appointment of an administrator at all. However, they said that if the court did consider an appointment was necessary due to the dysfunctionality of the body corporate, they would seek to be heard on who should be the appointee and the scope of appointment as well as the terms and conditions. I accept that as a matter of basic natural justice the respondents should have an opportunity to be heard on those issues if an appointment is to be made, as indeed do all the members of the body corporate.
Legal principles
[17] The application is made under s 141 of the Act, which provides, insofar as relevant:
Appointment of administrator
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.
(9)As soon as an administrator is appointed, the administrator must lodge with the Registrar a sealed copy of the order of the High Court making the appointment.
[18] A number of High Court and Court of Appeal decisions have dealt with the appointment of an administrator. In Maiden v Body Corporate 46112, Thomas J cited the observation of Heath J in Low v Body Corporate 384911 as follows:2
[54] As Heath J observed in Low v Body Corp 384911:3
2 Maiden v Body Corporate 46112 [2018] NZHC 1219.
3 Low v Body Corporate 384911 HC Tāmaki Makaurau | Auckland CIV-2010-404-5280, 2 Hepetema | 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.
[19] Maiden related to a small body corporate of nine units. The chairperson position had not been filled since the 2010 AGM. Following an urgent hearing requested on 8 March 2018, an interim administrator had been appointed by the court on the basis that the body corporate was dysfunctional, no AGM had been held since 2014 and there was no operative governance structure.4 The interim administrator reported on 9 April 2018, focusing on financial matters and maintenance, advising that only two units were in credit and that Mr Gregan, who owned four of the nine units, owed considerably more than any other unit holder in respect of his units, a total of approximately $95,240.
[20] Thomas J had no difficulty in finding that the body corporate was dysfunctional.5 Mr Gregan, the owner of four of the nine body corporate units, had blocked the repairs required, so the body corporate was unable to advance the replacement of the roofs, which the court noted were at that stage in a serious state of decay and in need of urgent replacement. Mr Gregan’s family had undertaken the original development, a factor which the court noted might well have contributed to the problems before the court.
[21] In Maiden the court quoted the first applicant’s comments that the body corporate was a small body corporate and that in order to work within a low overhead cost structure required the small number of unit owners to “communicate with one another and be constructive.” On account of Mr Gregan not wishing to cooperate or participate in any formal or informal decision-making process, the first applicant said there was a state of inaction. The first applicant was quoted as saying:6
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
4 Maiden v Body Corporate 46112 [2018] NZHC 448 [Maiden interim administrator appointment decision].
5 Maiden, above n 2, at [52].
6 At [24], quoting from the first applicant’s affidavit.
owners who reside there must deal with regular water ingress into our apartments. It has not been a pleasant winter.
[22] The unit owners, apart from Mr Gregan, wished to arrange and pay for the repairs. However, Mr Gregan remained, in the first applicant’s words, “completely uncooperative and recalcitrant as to the Body Corporate’s management”. The first applicant went on to say that the body corporate members had no option other to bring the application for the appointment of an administrator.
[23] On that evidence, an interim administrator had been appointed. In making that interim appointment, Cull J said that the current state of affairs of the body corporate was sufficiently serious to warrant the interim appointment of an administrator.
Thomas J quoted Cull J’s conclusion as follows:7
[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.
[24] Cull J ordered the interim administrator appointed by the court, 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 that in his report of his findings he identify the key issues to be resolved and set out his recommendation and/or proposal for resolution.
[25] Cull J adjourned the formal proof hearing but directed Mr Gregan to file evidence in response to the applicants’ evidence.
[26] Mr Crew’s report addressed the intention to hold an AGM to elect a chairperson and committee, to receive the financial report, to approve the budget and levies, and to decide to appoint the body corporate manager. His report focused on financial matters and maintenance. He pointed out that Mr Gregan owed a total of approximately $95,240.
7 At [32], quoting from the Maiden interim administrator appointment decision, above n 4.
[27] Mr Crew and his maintenance manager carried out an inspection of each unit in March 2018, although Mr Gregan would not provide access to any of his units despite advance arrangements having been made.
[28] Mr Crew produced the building inspection report, which concluded the deteriorated condition of the roofs and windows in the two apartment blocks was by then at a critical point. The report recommended removing and replacing the roofs and windows, as well as the lower soffits as they were made of asbestos. The provisional cost of the works was approximately $1.875 million, with the insured replacement value for the whole complex $2.085 million. Thomas J noted the proposed expenditure was unlikely to be recovered in the subsequent value of each unit, leaving all unit owners severely over-capitalised.
[29] The applicants acknowledged that the absence of proper governance by the body corporate for two years was for reasons unrelated to Mr Gregan. However, the court accepted that the appointment of an interim administrator was required as a direct result of (and only because of) Mr Gregan’s behaviour in purportedly seizing control of the body corporate and attempting to take control of the bank account. The court concluded that the evidence disclosed that the other unit owners had made multiple attempts to engage in a conciliatory manner with Mr Gregan but their efforts had been rebuffed. Mediation had been suggested by the applicants but not taken up. When the applicants had to resort to taking legal advice Mr Gregan was offered “many opportunities to agree to a process and avoid the need for these proceedings.”8
[30] The Court was satisfied that Mr Gregan had failed to comply with court directions and had behaved in a way which compelled the applicants to apply for the interim orders, including pursuing an opposition to the application in a way which lacked any merit but rather focused on past grievances.9
[31] The Court appointed an administrator on terms. Those terms included vesting in the administrator the exercise of all the powers of the body corporate, including the operation of the bank accounts. In addition, the order allowed the administrator to
8 At [77].
9 At [84].
delegate any of the powers vested in him and revoke any delegation at any time. His remuneration was to be fixed in the terms of the consent filed with the court and he was to be paid from the funds of the body corporate. The court directed that the administrator complete a thorough consultation with all unit owners as to feasible options for unit holders and the body corporate to undertake a partial program of remedial works and/or a staged program of remedial works, demolition and development of the site, dissolution of the body corporate and cancellation of the unit plan and related activities. The administrator was required to report to the court within two months as to the extent of his consultation, the detail of the options consulted on, the views of each unit holder as to those options, and his recommendation as to the future of the body corporate. The appointment was to expire after a term of 12 months.
[32] In Gibson v Body Corporate 384911, Ellis J considered an application for the appointment of an administrator to a large commercial/residential body corporate development which involved a hotel as well as residential units and a commercial arrangement between them which had broken down.10 In the circumstances she refused to appoint an administrator, on the basis that the body corporate was administratively functional. It was, for instance, paying repairs and maintenance. Rather, it was the commercial relationship between one set of residential owners and the hotel business which had broken down. However, the body corporate itself was acting democratically, there was no impropriety and the minority were not being oppressed. Her Honour identified the factors that were relevant to the exercise of her discretion in that case and their relevance as follows:11
[71] In summary, I consider that the above review and analysis suggests that, in the present case, a number of matters are potentially relevant to whether “cause” for the appointment of an administrator has been shown. They are:
(a)the existence of any undemocratic or ultra vires decisions;
(b)the existence of any dysfunctionality or deadlock; and
(c)the existence of any majority decisions that:
(i)have been brought about by the improper influence of a third party; and
10 Gibson v Body Corporate 384911 [2012] 1 NZLR 84 (HC).
11 Footnotes omitted.
(ii)deliberately and/or unnecessarily harm the interests of the minority.
[72] The mere existence of one or more of these matters would not automatically lead to the appointment of an administrator. The reasons for their existence may be relevant, as would be any alternative remedies. Moreover, it must also, I think, be asked whether an administrator would be capable of running the Body Corporate (and the committee) in a way that did not itself cut across the principles contained in the [Act].
Analysis
[33] In this case it is clear there are some significant areas of disagreement between the parties. The most important issue relates to how the body corporate should manage the retaining/boundary wall dispute with the downhill neighbouring body corporate. There are disputes with the downhill neighbour, who has denied liability for the retaining wall and is pointing to this body corporate as being responsible if the retaining wall collapses over the footpath, which is apparently the neighbouring body corporate’s access to Hankey Street.
[34] The only engineering information I have before me was the engineering report from Don Thomson Consulting Engineers, which was produced as an exhibit. The report, which dates from March 2018, was addressed to Mr Richard Olssen, with a proviso that only the addressee was entitled to rely on the letter and the consulting engineers accepted no liability to anyone else. Against that, I have Mr Gilhooly’s views that the wall only appears to be leaning by about five or six millimetres and he does not think it is in imminent danger of falling.
[35] The body corporate arranged for a survey of the boundary to check where the boundary was. It appears that parts of the wall are on or straddle the boundary, but that is not entirely clear. The engineering report suggests that the wall was originally built on the boundary but since then there has been soil movement which may have altered that position.
[36] In 2019, the Tenancy Tribunal determined that the retaining wall would comprise a building element of the body corporate.12 It said:
12 Walker v Parkinson [2019] NZTT Wellington 9010001 [2019 Tribunal decision].
[36] Based on the information contained on the Tribunal’s file, it is very likely that the retaining wall in question would meet the definition of a building element, because it is likely to support the building complex, given its proximity to the units, and the fact it is lower than the building itself. Were the wall to fail, there must be a risk of any resulting subsidence undermining the unit complex itself.
[37] Because the retaining wall would be a building element (I find), then the obligation for repair or maintenance falls to the Body Corporate, rather than any particular unit owner.
[38] Conceivably the Body Corporate could look to recover money expended on any remediation from on [sic] one or more unit owner if the work substantially benefitted that unit under section 126, however that is not the question I am called upon to decide. I would note again that the extent of section 126 was considered in the Otway decision.
[39] However, a further issue arises in this case, in that the retaining wall is located on the boundary with a neighbour – which is not part of this body corporate complex. There is of course the question of apportionment of responsibility between this body corporate and the neighbour, but that is not a matter that the Tribunal can consider. The Tenancy Tribunal has no jurisdiction to determine complaints that arise between a body corporate and its neighbour. Given that it is the Body Corporate that is responsible for maintenance or repair of this building element, then any action to recover costs from the neighbours, or to arrange for the necessary consents and work to be undertaken – falls to the Body Corporate, not any individual owner.
[37] Members of the body corporate pursued negotiations with the neighbouring body corporate. However, those negotiations got nowhere and I understand there was an angry meeting where the neighbours stormed out. Then followed an offer by the body corporate to the neighbouring body corporate, which was rejected. All this happened back in 2018 and nothing has since been progressed.
[38] There have been a number of legal opinions on liability. As might be expected, they do not provide a definitive answer. On the one hand, there is argument that the retaining wall is a common-law support for 53 Hankey Street and therefore the responsibility for it lies with the neighbours. A legal opinion obtained by the neighbouring body corporate disputes this, setting out legal argument in some detail to the contrary. It may well be that the answer lies somewhere between these positions and each of the neighbours is liable to contribute a proportion. This body corporate has already made an offer of a 20 per cent contribution to the works required. When the consulting engineers looked at the issue back in 2018, the cost of repairs or remediation was in the vicinity of $70,000. Mr Cameron agreed the likely cost now
would be more like $100,000. It appears unlikely the cost of repairs/remediation will decrease over time.
[39] Mr Gilhooly is convinced that the greater share of the responsibility lies with the neighbours. He says once the legal position, which should be black-and-white, is determined, the solution to the dispute will be clear. He reasons that sensible negotiations should provide an outcome.
[40] Mr Gilhooly was not clear about how the resolution would take place other than that he said it was a function of communication, and he and Mr Bos were willing to give-and-take but the body corporate members on the other side were not. He acknowledged the difficulty of negotiating with the neighbours given the history but felt there could be a solution with further discussion. He also considered that the retaining wall issue was not urgent. He said it had been there for decades, probably since the mid-80s, and it had not fallen down to date. He thought the lean on the wall was only minor and did not signal imminent collapse. No engineering evidence was produced on that point other than that of Don Thomson Consulting Engineers.
[41] Mr Gilhooly acknowledged that at present the body corporate was not functioning in a governance sense. He said that was easily remedied by communication. He said rules concerning contributions between members had been adopted by resolution some years ago but never registered. In a decision dated 11 November 2021, the Tenancy Tribunal said in its opinion the proposed rules were ultra vires the Act.13 However, in Mr Gilhooly’s view a resolution had been passed adopting the rules, and questioned why the chairperson at the time had not registered them.
[42] The parties made extensive submissions on the background and nature of the disputes which had given rise to the present impasse. It is not necessary for me to go into detail on those issues. The Tenancy Tribunal has been called on to determine a number of issues in relation to the body corporate, which the members have been able to agree upon. The comments of the body corporate indicate that there has been ongoing tension and dispute between the members, and the history of this indicates
13 Parkinson v Gilhooly [2021] NZTT Wellington 9028422 [2021 Tribunal decision].
that the parties are unable to properly communicate and agree on matters that are threatening the integrity of the complex, the retaining wall and ongoing repairs and maintenance, and have led to a breakdown in the governance and operations of the body corporate.
[43] At the same time, the body corporate has managed to function on a day-to-day basis thanks to the contributions of its members, such as Mr Gilhooly who has undertaken the financial accounting responsibilities and presumably operation of the bank account, and Mr Walker, who has undertaken the negotiations with the insurer to ensure the complex is insured, as required under the Act, as well as the negotiations with the Council concerning the encroachment fees for the car parks for the units.
[44] The Tenancy Tribunal has been required to consider issues relating to the body corporate on at least three occasions, according to the decisions of the Tribunal produced before me. The first resulted in an order dated 8 September 2017, when declarations were made that the walls between the units were in their entirety building elements and the body corporate must maintain, repair or renew them.14 The Tribunal further declared that the fences between the auxiliary units were not building elements or infrastructure and the body corporate did not have responsibility for their maintenance except to the extent they were common property. Dr Parkinson and Mr Walker were required to pay the costs of Mr Gilhooly and Mr Bos on that application.
[45] In a decision of 20 December 2018, the Tenancy Tribunal, on the application of Mr Walker, Mr Gilhooly and Mr Bos, with Dr Parkinson named as the respondent, declared that the south-facing plaster wall of unit 4 (belonging to Mr Parkinson) was a building element which did not relate to or serve more than one unit, and therefore the body corporate was not responsible to repair and maintain it.15 The Tribunal in that decision noted that it had been asked for a declaration that the body corporate had responsibility for the maintenance of all retaining walls on or within the boundaries of the unit plan. They had sought a declaration that the resolution of an issue with the leaning retaining wall situated between these units and a neighbouring property was
14 Gilhooly v Parkinson [2017] NZTT Wellington 9002741 [2017 Tribunal decision].
15 Walker v Parkinson [2018] NZTT Wellington 9010001 [2018 Tribunal decision].
the responsibility of the body corporate.16 The adjudicator said it was not clear on whose boundary the retaining wall sat and who was responsible for its replacement or repair. He indicated that a determination was required as to whether the retaining wall met the definition of a “building element”. Evidence was required on that point, including a survey of the boundary to establish where the retaining wall sat and further engineering evidence. He declined to make a finding on that point.
[46]The adjudicator commented:
[51] It is apparent that the [body corporate] members have struggled to fully understand the workings of the [Act] and it is hoped that by including in this decision detailed parts of the applicable sections of the [Act] and the findings approved by the Court of Appeal in Wheeldon this might provide some assistance and guidance to the [body corporate] in future. The critical point for the [body corporate] is that it must act in accordance with the [Act] and cannot resolve to do things which fall outside of the powers conferred on it by the [Act]. In this case, it is not open to the [body corporate] to decide that it will be responsible for the maintenance repair of all exterior building elements and infrastructure unless the provisions of s 138(1)(d) are satisfied. Whether the [body corporate] is responsible is a question of fact in relation to each building element or infrastructure. Does it relate to or serve more than one unit?
[47] The adjudicator also mentioned that Dr Parkinson had said that, given the ongoing disputes between the parties, the body corporate ought to consider an application to the High Court under s 141 of the Act for the appointment of an administrator. The adjudicator commented “[t]hat may well be the way forward.”17 The applicants, Mr Walker, Mr Gilhooly and Mr Bos, were required to pay the filing fee of the application.18
[48] The matter again came before the Tenancy Tribunal in June 2019.19 In that decision the Tribunal noted there had been two disputes around similar issues in this complex and the background had been set out extensively in those decisions. The application before it was for a rehearing on the basis that the adjudicator in the earlier decision had not considered the matters that were the subject of the application. Therefore a fresh hearing was held before Mr Woodhouse on 27 June 2019.
16 At [49].
17 At [53].
18 At [55].
19 2019 Tribunal decision, above n 12.
[49] Mr Woodhouse concluded that the body corporate was responsible for maintenance of any building element that related to or served more than one unit, but that the south-facing plaster wall only served unit 4 and therefore was the responsibility of that owner, Dr Parkinson, solely . It said there was no statutory right for the body corporate to enter the property comprising unit 4 to inspect the south-facing plaster wall and that it was responsible for any remediation work required to the retaining wall as it was a building element that served or related to more than one unit. It said:
[38] Conceivably the Body Corporate could look to recover money expended on any remediation from on [sic] one or more unit owner if the work substantially benefitted that unit under section 126, however that is not the question I am called upon to decide. I would note again that the extent of section 126 was considered in the Otway decision.
[50] On 11 November 2021 the Tribunal, with Mr Woodhouse again as the adjudicator, dismissed an application by Dr Parkinson and Mr Walker with Mr Gilhooly and Mr Bos named as the respondents. That application concerned the retaining wall again and the proposed set of amendments to the body corporate operational rules.20
[51] The Tribunal noted the “fundamental problems” as far as the body corporate was concerned, in that the unit holders were “unable to agree on very much around the remediation.”21 The Tribunal said:22
… There was a dispute as to liability for the retaining wall that was the subject of an earlier Tribunal order (Application 9010001), and there is also no agreement on matters around working with the neighbouring BC 58067 to progress the remediation, including what the respective contribution should be, not only between the members of BC 62124, but also what the members of BC62124 consider should be their body corporate contribution to the remediation work with the neighbours.
[52] The Tribunal noted that subsequent to its earlier decision, while the unit holders had debated liability and how to proceed with the wall remediation, there had been no material progress made.23
20 2021 Tribunal decision, above n 13.
21 At [7].
22 At [7].
23 At [10].
[53] In relation to the operational rules, the Tribunal noted that on 27 February 2020 the body corporate had passed a resolution 3:1 around the amendment of the body corporate operational rules. However, having received legal advice, Mr Walker and Dr Parkinson had determined the proposed rules should not be registered and therefore the rules had not been filed for registration. The Tribunal reviewed the proposed changes to the rules, which said that the body corporate would be responsible for the repair and maintenance of all structural elements, both internal and external, with the exception of the south-facing plaster wall attached to unit 4. The Tribunal noted it was clear that Mr Gilhooly considered that aspects of the Tribunal’s earlier decisions were wrong, such as the decision that the south-facing wall was not the responsibility of the Body Corporate. Mr Gilhooly requested that the south-facing wall decision be reversed.24
[54] In his analysis the adjudicator noted that Mr Gilhooly had submitted that a court-appointed mediator should be appointed to work with the parties to resolve their differences, and in fact that is just what occurred, but was not successful at resolving the dispute.25
[55] The adjudicator said it was plain that the respondents disagreed with the earlier decision of the Tribunal from June 2019, but that the decision was binding on all parties, there having been no appeal. The adjudicator said:26
… As it relates to the retaining wall, given the Tribunals [sic] declaration, the Body Corporate is legally responsible for the retaining wall, alongside BC 58067.
[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.27 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.
24 At [31].
25 At [54].
26 At [55].
27 I am told by the parties that these were from law firms and related to various aspects of the disputes, from the application of the Act to the retaining wall.
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 with the Act he said that there were “some issues with those amended rules”.28 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 the 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 Tribunal confirming that the body
28 At [61].
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.”29
[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 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
29 At [71]–[72].
operating account derived from levies on owners calculated in proportion to each owner’s “utility interest”.30 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”.31
[61]The Tribunal declined to make any orders.
[62] Insofar as the general operation of the body corporate is concerned, the routine operations of the body corporate are being maintained even without any governance in place, because not much is required. Mr Gilhooly, who has undertaken work on behalf of the body corporate, has prepared a maintenance plan, but of course without any governance that cannot be adopted or even considered by the body corporate.
[63] The parties took me through an extensive amount of material to illustrate the attempts that have been made in order to resolve the disputes in relation to the retaining wall. Mr Gilhooly remained of the view that despite those disputes he was sure this could be negotiated and he would be flexible and put aside the past. He indicated, however, that Mr Parkinson had set views that “his house was his castle” and that his unit was “freehold”. Those comments are based on the fact that Mr Parkinson was reluctant to participate in body corporate affairs and took the view that he was responsible only for costs directly related to his unit. It was to counter this that Mr Gilhooly had wanted to have the amended rules registered. He took the view that they had been approved and therefore the chairperson should have been forced to register them. The amended rules in Mr Gilhooly’s view were consistent with the Act policy that a body corporate should be viewed holistically. Mr Gilhooly considered there would be major difficulties if the proposed rules were not put in place, as if they were left to rely on only the provisions of the Act they would not be able to agree on matters, and, as the history illustrated, the members would be regularly asking the Tribunal for determinations.
30 At [77]–[78].
31 At [79].
[64] Mr Bos made submissions responding to some matters raised by the applicants. However, in general terms he supported Mr Gilhooly. He indicated Mr Gilhooly had done a lot in an attempt to resolve this matter.
Is the body corporate dysfunctional?
[65] It was clear even from the comments made by the parties and counsel during the hearing that the applicants and the respondents are unlikely to ever agree in the present circumstances over how to deal with the retaining wall. The relationships had broken down to such an extent that it had not even been possible to appoint a chair at the last AGM nearly 18 months ago. No steps had been taken at the time of the hearing to attempt to call another general meeting, although Mr Gilhooly indicated he intended to try and do so.
[66] Mr Gilhooly and Mr Bos generally want to resolve this matter through better communication, and think it is possible. However, the history to date indicates that it is highly unlikely that the applicants and the respondents will agree in relation to the approach to the retaining wall. There is no method other than agreement or a determination by the District Court as to whether liability for the remediation of the wall lies on both the body corporate and the neighbouring body corporate, and, if both, what the proportionate liability should be between them.
[67] At the moment, agreement between the neighbours is unlikely, not least because the members of this body corporate cannot agree among themselves as to the approach. The Tribunal commented as far back as 2019 that the appointment of an administrator might be the way forward for this body corporate. The Tribunal has already made a determination as to liability resting on the body corporate for the retaining wall. However, that was insufficient to enable the body corporate to move forward. The Tribunal is unable to make a determination as to liability between the neighbours.
[68] It is likely the cost of the repair/remediation of the retaining wall has gone up substantially since the engineer assessed it in 2018. At that stage the engineer was concerned about its stability. This cannot have improved. The body corporate is therefore running a high risk that the wall will collapse, and if so it will face a claim
from the neighbours, which will need to be determined in court. In addition, it appears that there may be some jeopardy to the insurance cover due to the known risk of the retaining wall, as the Tribunal commented in 2021.
Factors relevant to the appointment of an administrator
[69] In determining whether to appoint an administrator to a dysfunctional body corporate, I note the following factors may be relevant:
(a)the extent of dysfunctionality in the body corporate between the unit owner members;
(b)the duration of such dysfunction;
(c)the apparent willingness or otherwise of the parties to cooperate to resolve the dysfunction;
(d)previous attempts at resolving the issues in dispute, and the expected likelihood of such resolution occurring in the future;
(e)the existence of any previous court or tribunal determinations, any relevant comments made in those decisions, and the subsequent compliance or otherwise with the orders made in those determinations;
(f)the nature and seriousness of the issues in dispute;
(g)any relevant professional evidence in relation to the issues in dispute;
(h)whether the issues in dispute mean the body corporate is in breach of the unit titles legislation, and the extent and duration of any such breach;
(i)the presence of any third parties affected by the dysfunction, and the effect, including any risk posed to them, of the dysfunction on them;
(j)the operational and financial organisational structures currently in place, the extent of dysfunction in respect of those structures, and the ability or otherwise of the body corporate to operate functionally;
(k)the size of the body corporate, and its ability to meet the costs of an appointed administrator; and
(l)any other relevant matter.
[70] I am satisfied that the evidence supports the fact that this body corporate is dysfunctional in a way which is seriously affecting its governance. Indeed, in respect of this I need look no further than the comments of the Tribunal adjudicator in the November 2021 decision, who suggested the appointment of an adjudicator “may well be the way forward”.32
[71] Neither the Tribunal nor this court can supervise the operations or governance of the body corporate. The only realistic mechanism available to this court is the appointment of an administrator. Despite the ruling of the Tribunal in 2019 that the body corporate as a whole was responsible for the retaining wall, and that the repair/remediation should be carried out, there has been no effective progress. That is because no agreement has been able to be reached either internally or with the neighbours. Agreement with the neighbours was attempted back in 2018, with no results at all. Internally, the body corporate cannot agree on a way forward, which means there is no decision-maker in relation to the serious governance issues that the body corporate faces. It is presently operating in breach of the Act as it does not have a chairperson and has not had a general meeting within 12 months. Importantly, it is not able to actually function as a body corporate should function.
[72] The Act is intended to provide a legal framework for the ownership and management of land and associated buildings “on a socially and economically sustainable basis by communities of individual owners” and, in particular, to protect the integrity of the development as a whole.33 In this case the community of individual
32 2018 Tribunal decision, above n 15, at [53].
33 Unit Titles Act, s 3.
owners has been unable to cooperate to provide a socially and economically sustainable governance structure. The body corporate’s inability to function and resolve the issue of the retaining wall is jeopardising the protection of the integrity of the development as a whole.
Conclusion
[73] The appointment of an administrator is a serious step, not least because such an appointment has cost implications on the owners, which is particularly significant on a small body corporate such as the one in this case. However, there is a very little likelihood of the owners being able to work together, in particular to reach a resolution of the retaining wall issue. There is also simply no governance structure in place at the moment, which is contrary to the legislation and the interests of the owners. In addition, third parties are affected by the lack of decision-making mechanisms in place.
[74] In conclusion, I am satisfied that this body corporate is dysfunctional to such an extent that it is unlikely to function as required under the legislation. I am satisfied that it is likely to continue to operate in breach of the legislation, without proper decision-making structures, and that those failures will threaten the integrity of the development.
[75] While Mr Gilhooly and Mr Bos insisted that they had taken all steps to be reasonable and reach an agreement to move this matter on, it is clear that agreement is not going to be reached. The Tribunal noted that mediation had been tried unsuccessfully, and that Mr Gilhooly did not accept the decision of the tribunal as to the responsibility for the retaining wall.34 The respondents’ position that agreement is possible which would resolve the serious measures facing this body corporate and allow it to resume proper governance and operations, is not supported by the progress to date in attempts to resolve the issues. Agreement has not been able to be reached and this dispute has dragged on for more than five years now. It has reached a stage where the body corporate is breaching the Act, it is unable to make decisions because
34 I note Mr Gilhooly in this hearing reasonably accepted that there would be some liability on the body corporate but was contesting the proportion of that liability.
there is no operating governance structure, and the risk posed by the deterioration of retaining wall will be increasing. The risks to the complex and its lack of governance require this court to take the step of the appointment of administrator.
[76] The significant issues that flow from that are who the administrator should be and the scope of the appointment. It would be preferable for the administrator to be required to focus on the matters that need immediate attention but also to consider how best to assist the body corporate to put in place a governance structure that is consistent with the purpose of the Act and enable the owners to enjoy their homes without the stress and tension of a dysfunctional body corporate.
[77] It is unfortunate that the applicants did not propose an administrator so that immediate consideration could have been given to that appointment as well as the terms and conditions, including the extent, time period and the appropriate scope of the appointment.
[78] The applicants sought an adjournment to make further enquiries and propose a suitable administrator, together with terms and conditions. Mr Gilhooly and Mr Bos indicated that if an administrator was to be appointed, it was important that it be someone impartial with appropriate expertise in relation to unit titles, and that the scope of the appointment be defined, as well as the term of that appointment. I accept too that this is a small body corporate and it is unfortunate that added costs will be imposed on the members due to the need to appoint an administrator. That must be borne in mind when considering the appointment.
Timetable
[79] With that indication I consider it is appropriate to timetable further submissions in relation to the appointment of a suitable person as an administrator. As I indicated to the parties, it was not a matter that could be done on the papers, anticipating that the parties are unlikely to agree on the administrator, given the difficulties in reaching consensus to date. Therefore I adjourn this application and timetable the next steps as follows:
(a)On or before 15 working days from the date of this judgment, the applicants are to file and serve a further memorandum with terms setting out the proposed administrator together with the details of that administrator’s appointment, the term of appointment, the scope of appointment and terms and conditions, including fees, together with the consent to take the appointment by the proposed administrator. That memorandum must also make submissions on the appointment.
(b)On or before a further 15 working days, the respondents may file memoranda in response, including a proposal for an administrator together with the information set out above.
(c)On or before a further five working days, the applicants are to file any reply to the respondents’ memorandum or memoranda.
(d)The Registrar will set this matter down for a half-day (two-hour) hearing (in person) on the appointment of the administrator, the scope of appointment, period of appointment and terms and conditions of appointment on a suitable date after 14 August 2023 before me.
Grice J
Solicitors:
Brookfields, Auckland
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