Re Body Corporate 46051
[2019] NZHC 922
•30 April 2019
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV 2018-441-104
[2019] NZHC 922
IN THE MATTER of the Unit Titles Act 2010 IN THE MATTER
of an application by Body Corporate 46051
Hearing: On Papers Counsel:
M Macfarlane for Applicant
Judgment:
30 April 2019
JUDGMENT OF ELLIS J
[1] Body Corporate 46051 is the Body Corporate of a unit titled property known as the Village Resort, in Taupo (the Resort). The Resort consists of 22 units which are leased for 51 weeks of the year to individual timeshare week owners (the owners). Some owners are entitled to occupy their unit for a fixed week each year. Others own a “floating”, or changeable, week. Some own more than one week.
[2] The Body Corporate has applied under s 187 of the Unit Titles Act 2010 (the Act) to cancel the unit plan with a view to selling the property (land, building and chattels) on the open market, and dissolving the Body Corporate. Ancillary directions are also sought. The Body Corporate says a sale is desirable because many owners have formed the view that the annual cost of their timeshare weeks outweigh the benefits of ownership. Some no longer have the need for timeshare accommodation and others can no longer afford to pay the annual maintenance fees. Some owners cannot be contacted at all. The costs of maintaining the Resort are only increasing over time, with the result that fees will similarly increase.
BODY CORPORATE 46051 [2019] NZHC 922 [30 April 2019]
[3] The only opposition to the application comes from Mr Keith and Mrs Jean Chapman who, together, are the owners of two floating timeshare weeks.
[4] But before turning to consider the merits of the application, and the Chapmans’ opposition to it, it is necessary to say something about the relevant legal context.
Legal context
[5] Under s 177 of the Act, the Body Corporate can resolve to cancel the plan and apply to the Registrar-General of Land to effect cancellation. The default effect of cancelling a unit plan includes that:1
(a)the fee simple or (as the case may be) the estate as lessee or licensee, vests in the former unit owners in shares proportional to their ownership interests;2
(b)where two or more persons were the owners of any unit, whether as joint tenants or tenants in common, the share in the unit that vests in them under ss 180 or 182, as between themselves, vests in them as joint tenants or as tenants in common as the case may be;3 and
(c)the relevant Body Corporate is dissolved.4
[6] But in more complex cases such as the present, where additional directions are required, cancellation may need first to be authorised by the High Court. Those cases are governed by the application process under ss 187 and 188 of the Act, which relevantly provide that:
1 Unit Titles Act 2010, ss 180 – 182 and 185 [the Act]. Where an application is made to the Court under s 187, the Court can modify the operation of these provisions.
2 Sections 180 – 182.
3 Section 184.
4 Section 185.
(a)a Body Corporate (inter alia) may apply to the High Court for the cancellation of a unit plan, after a special resolution to do so;5
(b)the Body Corporate must serve a notice of any such application on (inter alia) every unit owner and on the Registrar-General of Land;
(c)unit holders have the right to appear and be heard on the application;
(d)the Court may authorise the cancellation of a unit plan if it is satisfied that it is just and equitable that the Body Corporate be dissolved and the plan cancelled having regard to:
(i)the rights and interests of any creditor of the body corporate; and
(ii)the rights and interests of every person who has any interest in any unit or in the base land or in any part of the base land;
(e)if the Court makes a declaration authorising the cancellation of a unit plan it may impose any conditions and give any directions as it thinks fit, for the purpose of giving effect to the declaration, including:
(i)directions for the payment of money by or to the body corporate; and
(ii)the distribution of the assets of the body corporate.
[7] If the Court authorises cancellation and once any conditions and directions have been complied with, s 189 provides that:
5 A special resolution is one which requires 75 per cent or more eligible voters to vote in in favour of it in order to pass: s 98(4).
(a)the applicant or the applicant’s successor in title may apply to the Registrar for cancellation of the plan;
(b)unless the Court otherwise directs, the application must be accompanied (inter alia) by a s 177 certificate form a registered valuer showing the ownership interests and proposed ownership interests (if any) reassessed for all the units in the unit title development; and
(c)if the application is made in accordance with all the requirements of s 189, the Registrar must cancel the plan.
[8]Section 189 also provides that, unless the Court otherwise directs:
(a)the applicant must comply with the requirement under s 177(7) that a registered valuer reassess the ownership interests (unless the Court directs otherwise);
(b)the provisions of ss 180 – 182 and 184 apply; and
(c)the Body Corporate is dissolved upon cancellation of the unit plan.
[9]As well:
(a)s 212(k) provides that a resolution relating to the cancellation of a unit plan is a “designated resolution” for the purpose of s 213;
(b)s 213 requires the Body Corporate to give notice of such a resolution to all the persons listed in s 213(1)(a) – (c), including every unit owner;
(c)those receiving such notification may, within 28 days of receipt:
(i)under s 213(3), object to the resolution, by sending the Body Corporate written notice, in the prescribed form; and
(ii)under s 214(2), “file with the appropriate decision maker an application for relief in the prescribed form”;6
(d)s 214(3) provides that a notice of objection is of no effect if it is not given to the Body Corporate or filed in Court within the 28 day period;
(e)if a timely application for relief is filed, then s 215 requires the Court to hear the objection as soon as practicable and empowers it to make any order it sees fit, including confirming or overturning the resolution, or granting an injunction; and
(f)any such order may only be made if the Court considers that it is “just and equitable” to do so.
[10] In short, the interests of justice and equity are the relevant touchstones in the exercise of the Court’s powers both on an objection to a designated resolution and on an application to cancel a unit plan.
[11] The content of the “just and equitable” test in a unit title context was discussed in depth in World Vision of New Zealand Trust Board v Seal.7 That case involved an application to the Court for a declaration dissolving the relevant Body Corporate and cancelling the unit plan pursuant to the Unit Titles Act 1972.8 Heath J said:9
[62] The phrase “just and equitable” has a respectable legal pedigree. It is often used as a test to determine whether a corporate entity should be placed in liquidation or a partnership dissolved: …
[63] When considering the “just and equitable” ground to liquidate a company, Lord Clyde said, in Baird v Lees …:
“. . . a wider view now prevails regarding the ambit of the discretion which is entrusted to the Court. This discretion must, however, be judicially exercised. It is not enough for the Court in exercising it to have, in the familiar phrase of a decree-arbitral, ‘God and a good conscience’ before its eyes; grounds must be given which can be examined and justified.”
6 The “appropriate decision-maker” is the relevant Registry of the High Court.
7 World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC).
8 Section 46 of the Unit Titles Act 1972 was substantively identical to s 188(2) of the Act.
9 World Vision of New Zealand Trust Board v Seal, above n 7 (citations omitted).
Other members of the Inner House concurred with that observation.
[64] … In the context of the jurisdiction to order liquidation of a company on the “just and equitable” ground, Callaway stated:
“The Court must balance all the conflicting claims, giving proper weight to each consideration of right, duty and fairness brought forward by the parties. The expression ‘just and equitable’ may be regarded as an example of statutory hendiadys, the reference to equity not being by way of an additional test but for the purpose of ensuring that the justice to be applied will be equitable justice, ‘the justice of the individual case’. Accordingly justice and equity are referred to herein as one criterion, not two criteria.”
(Citations omitted.)
[12] Importantly, the relevant evaluation must be conducted with proper regard to the scheme and purpose of the Act.
The Body Corporate’s application
[13] The present application was supported by an affidavit from Mr Stantiall, the Chairman of the Body Corporate who explains the reasons a sale is thought desirable and the relevant processes so far taken under the Act by the Body Corporate. He annexed:
(a)the relevant underlying documents which govern the timeshare arrangements for, and ownership interests in, the Resort, including the pooling agreement by which the floating week owners’ rights are converted from a specific week to a pool of available weeks from which the owners could choose a week to use their entitlement in any given year;10 and
(b)a schedule listing every unit owner which distinguishes between fixed and floating owners.11
10 There are in total 1034 such weeks, obtained by multiplying the 22 units by 51 weeks and deducting the 88 fixed weeks. The 52nd week for each unit is set aside for maintenance of the units.
11 He said that a number of owners on that schedule have purchased units but have not formally transferred the title into their name.
[14] Mr Stantiall explained that, over time, more and more owners of the timeshares in the Resort have been defaulting in their obligations and that this is placing an increasing burden on the Resort committee and managers, and on other owners.12 The Resort’s management company, Classic Holdings Ltd and a related company, Classic Clubs Ltd have, between them, acquired a number of weeks from those owners wishing to exit the timeshare scheme.
[15] In September 2018, as a result of his view that the majority of owners would support a sale of the Resort, Mr Stantiall called an Extraordinary General Meeting (EGM) of owners. The purpose of the EGM was to vote on the following resolutions:
(a)That the Committee is authorised to place the property on the market for sale by way of tender with the intention of securing an agreement for the sale of the property at current market value but not in any event less than $6,000,000.00 (net of marketing costs) plus GST if any;13 and
(b)That consent is given to the surrender of the timeshare week/s to enable the cancellation of the unit plan for all unit titles, comprising the Body Corporate;
(c)That authority is given for the Chairperson signing all documents required for the Application to cancel the Unit Plan, the agreement for sale, the surrender of leases and titles, and transfer of land on settlement; and
(d)That the Resort solicitors Messrs Sainsbury Logan & Williams at Napier be instructed to prepare the documentation for the Application to cancel the Unit Plan and the Tender documents for sale of the timeshare Resort for the purposes set out in (a) to (c) above and the distribution to owners of the net proceeds of sale in accordance with their ownership interests as fixed by a registered valuer or valuers approved by the Court.
[16] The EGM was notified to all owners and postal and proxy voting papers distributed. Pre-vote valuation information was also provided, which explained that a registered valuer had carried out a full valuation of the property. The valuer’s report included an assessment of the “ownership interest” Fixed to Floating Timeshare Entitlement value ratio, which he determined should be 2:1 (Fixed:Floating). This effectively means that a fixed week is worth twice what a floating week is worth.
12 55 Timeshare unit holders are presently in arrears.
13 The $6 million figure was based on a registered valuation that put the current (2018) market value at between $6 million and $7 million. Somewhat higher market appraisals (ranging between
$6.5 million and $9 million) had been obtained from three real estate agencies.
[17] Mr Stantiall says that this (2:1) assessment is consistent with the Body Corporate committee’s own investigation into the market value of fixed and floating timeshare weeks. He says that while there is still a market for fixed weeks (which are usually over the Christmas holiday period) in most timeshare resorts, there is little demand for floating weeks, because the annual levies of between $800 and $1,000 make it an expensive holiday option for many. By way of example, he referred to the current list of timeshare weeks for sale at another timeshare resort, Busby Manor in Paihia. It shows that of the 160 weeks available for purchase 87 of the floating weeks are available at no cost to the purchaser, whereas the eight fixed weeks were listed at prices of between $1000 and $2900.14 Logically, it would seem that there would be no value in the market for floating weeks because many such weeks are available at no cost.
[18] Mr Stantiall and the committee concluded that the 2:1 ratio for the ultimate distribution to fixed and floating week owners is a reasonable balance which should be acceptable to both groups of owners. He deposed that no owners have contacted the committee to oppose this proposed distribution ratio.15
The EGM and the vote
[19] The EGM took place on 27 October 2018. 57 owners, representing 95 timeshare unit titles (five per cent being the required number for a quorum) were present. The voting at the meeting (including the postal votes and proxies) resulted in the passing of the resolutions. A total of 772 eligible votes were cast, with 715 in favour and 57 against.16 Of the 88 fixed week owners, 61 votes were cast, with 58 in favour and three against.
14 In fact, Mr Stantiall noted, some vendors of floating timeshare weeks were offering to make an incentive payment to purchasers and to pay all their legal expenses just to take the week off their hands.
15 The fact that there are 88 fixed weeks and 1034 floating weeks also means that the extra payment for the fixed week owners will have minimal impact on the floating week owners’ payment.
16 Owners with unpaid levies are ineligible to vote, by virtue of s 93(3) of the Act. Mr Stantiall deposed that had the votes of defaulting owners been counted, then those in favour of the resolution to cancel would have been greater.
[20] Notice of the resulting designated resolutions was attended to in accordance with s 187(2). Form 21 notices were served on all but “missing” owners and notice by way of advertisement has occurred, for those owners who cannot be located. An affidavit confirming completion of this process has been filed. No one in receipt of the Form 21 notices signalled an intention or desire to appear and be heard in the proceeding.
[21]The application for cancellation was filed on 20 December 2018.
Proposed sale and distribution of proceeds
[22] Since filing the application an agreement has been reached to sell the Resort for $6,500,000.00 including GST. After expected costs and existing account balances are taken into account (all relatively minor)17 this price will result in a pay-out of approximately $5,000 per Floating Timeshare Entitlement and $10,000 per Fixed Timeshare Entitlement.18
[23] In order to deal with the missing owners’ share of the sale proceeds, the Body Corporate proposes that its solicitor hold their share of net sale proceeds (less any outstanding levies) in the Body Corporate's trust account with Sainsbury Logan & Williams, its solicitors at Napier; and that notice of that be given by advertisement. The funds will then be held on terms prescribed by the Court.
The Chapmans’ position
[24] As I have said, Mr and Mrs Chapman are owners of two floating timeshare weeks in the Resort. They have consistently been opposed to the idea of cancellation and sale and have corresponded with Mr Stantiall (and, later, the Body Corporate’s lawyers) voicing that opposition. They voted (by post) against the resolutions at the EGM.
17 The Body Corporate annual accounts confirm that there are no creditors of the Body Corporate beyond the ordinary outgoings (rates, insurance, maintenance, and remuneration of managers and staff). The Body Corporate is able to pay these expenses out of cash flow and reserves. No extraordinary expenses are expected. Usual maintenance will be carried out, and the costs of sale and distribution will be paid out of the sale proceeds.
18 Owners owing more than $5,000 per Floating Timeshare Entitlement and $10,000 per Fixed Timeshare Entitlement will of course receive nothing. Those owners who have prepaid their levies will have the relevant proportion refunded from cash reserves at the time of settlement.
[25] In an email dated 15 November 2018, sent to the Body Corporate and the Napier District Court, the Chapmans advised their wish to file a notice of objection to the designated resolutions. A draft notice of objection was enclosed, but it was not signed or dated. The Chapmans asked the Registry where the finalised notice should be filed.
[26] The District Court immediately forwarded the Chapmans’ email to the Registry of this Court for response. There is a handwritten note on it recording that, on 22 January 2019 (over two months after its receipt) someone at the Registry spoke to Mr Sullivan (solicitor for the Body Corporate) about the Chapmans’ inquiry. The note simply states, “no signed or dated notice of objection has been received by the Court”. There is nothing on the file to suggest that anybody from the Registry ever reverted to the Chapmans.
[27] In the meantime, the Body Corporate’s application under s 187 had been filed. A teleconference with me as Duty Judge was scheduled on 4 February 2019. It was in the course of that teleconference that I became aware of the Chapmans’ attempts to object to the designated resolution, recorded above. Subsequently, there was a further telephone conference in which Mr Chapman indicated that he and his wife did wish to pursue the objection and/or oppose the application for cancellation.
[28] After discussion with Mr MacFarlane it was agreed (and I recorded in a minute) that the Chapmans’ objection and the Body Corporate’s application should be determined together. The thinking was that, for all practical intents and purposes, the application for cancellation is the mirror image of the objection. Under the former, the Body Corporate has the onus of satisfying the Court that justice and equity favour the cancellation of the unit plan and the dissolution of the Body Corporate. The Body Corporate will be unable to do so if the Chapmans are able to persuade me that it would be just and equitable to set the preceding resolutions aside.
[29] It was agreed that Mr Chapman should be given the opportunity to make submissions on his objection/the Body Corporate’s application, and that once these (and submissions from the Body Corporate) had been received that I should determine the matter on the papers.
[30] Submissions were subsequently received on 15 March, 28 March and 2 April 2019.
Should the orders be granted?
[31] It seems plain that the issues faced by the Resort are not unique and are shared by other timeshare resorts. As the 2015 decision of this Court in relation to the Phoenix Resort makes clear, an application founded on reasons such as those set out by Mr Stantiall and which is supported by a clear majority is likely to meet the s 187 “just and equitable” threshold.19
[32] The application in the Phoenix Resort case was not, however, opposed. So, the question is whether the Chapmans have raised anything that might lead to a different conclusion, despite the fact that the orders sought are supported by a significant majority of the other timeshare unit owners.
[33]In essence, the Chapmans submitted that:
(a)there are alternatives for timeshare owners in distressed circumstances (such as surrender or sale of their timeshare weeks);
(b)the Body Corporate has failed to deal with defaulting owners appropriately and its present position is at odds with views it has previously expressed (that sale of timeshares was doing well);
(c)the Chapmans should not have to “give away their ‘second home’ in Taupo” when the cost a holiday there for one night is now very high;20
19 See Re Body Corporate 44426 [2015] NZHC 3284 where Collins J cancelled the unit plan for the Phoenix Timeshare Resort which is also in Taupo.
20 They say that it costs $400 per night to holiday in Taupo now.
(d)the cancellation provisions in the Act are (or may be) inconsistent with art 17 of the Universal Declaration of Human Rights (UDHR) because they enable the extinguishment of individual property rights against the will of the owners;21
(e)it may not be legally possible for an owner of property holding a certificate of title to “vote” to authorise a third party to execute the documents necessary to effect the sale of that property;
(f)the Act was not drafted with timeshares in mind and so fails to distinguish between the respective interests of timeshare owners (who invest in a lifetime of holidays) and the owners of ordinary unit titled properties (who invest in real estate);
(g)there are other owners of the same view but who are (for whatever reason) are unable to contest the application;
(h)“no readily accessible platform” was provided to permit dissenters to be heard, which has resulted in owners feeling “railroaded into a sale, or at least to abstain from contention in a typically kiwi way”;
(i)individual timeshare owners’ names, addresses and email addresses are not offered to other owners which makes it difficult to organise any opposition;
(j)it is not always possible (financially, professionally and personally) to travel to Taupo for the Body Corporate meetings;
(k)the “notice of designated resolution” form referred to the Department of Building and Housing instead of the Ministry of Business, Innovation and Employment;
21 Art 17 provides (a) that everyone has the right to own property alone as well as in association with others and (b) no one shall be arbitrarily deprived of his property.
(l)the result at the EGM in October 2018 seems inexplicable given the result of an earlier EGM (on 27 May 2017) where only 65 per cent of votes cast favoured the motion for cancellation/sale; and
(m)the Body Corporate has not adequately explained its refusal prior to the October 2018 EGM to include (at the Chapmans’ request) an additional agenda item to the effect that the returning officer must be impartial and must not stand to gain or benefit in any way from carrying out that role.22
[34] I am not, however, persuaded that any of these matters are capable of shifting the balance of justice and equity in a way that could militate against the making of the orders sought. I give my reasons below.
[35] First, the evidence of Mr Stantiall, together with the vote at the EGM, satisfies me that the interests of the timeshare owners overall are better served by cancellation of the unit plan and the sale of the Resort. The suggestion that those timeshare owners who wish to exit the scheme should explore other options has an air of unreality about it; the evidence strongly suggests that (at least for the owners of the 1034 floating weeks) sale is not a viable option. The prospect of all owners receiving some payment for their timeshare interests seems more just and equitable than requiring those who wish to exit to give their timeshares away.
[36] Relatedly, the prospect of further defaults is real. Moreover, whatever action is taken by the Body Corporate to “deal” with defaulters, it will be likely to impose an unfair and increasing burden on non-defaulting owners. As the Body Corporate has said, if there is no market for the sale of the timeshare weeks of defaulters to owners who are willing and able to meet the ongoing costs, there will be no means of fixing the difficulties caused by defaulters.
22 Objection was taken to the Body Corporate’s lawyer acting in this role because he was remunerated for his time.
[37] That said, however, it must be accepted that the orders sought will have the effect of depriving the Chapmans of a property right that they wish to retain. I also acknowledge that the amount they will receive for their interest may not go far in terms of paying for alternative holiday accommodation, although I imagine that this depends somewhat on the time of year they ordinarily manage to secure their “weeks”.
[38] But even assuming that art 17 of the UDHR could have some bearing on the operation of the Act, I am unable to see that the taking away of their property right can be termed “arbitrary”. That is because it is expressly contemplated by the Act, in certain specified circumstances and with specific safeguards, namely the requirement for a special resolution and the oversight of the Court. Moreover, in the present case, the Chapmans will receive compensation which (the evidence suggests) may be more than the market value of their timeshare weeks.
[39] As this Court has said on many occasions, those who sign up for any form of unit titled ownership are necessarily signing up for the legal incidents of such ownership. In general terms, that includes both yielding to decisions made democratically and in accordance with the Act. And more specifically, it involves recognising the possibility of such decisions leading to the making and approval of an application for cancellation.
[40] The Chapmans’ other submissions about the operation of the Act do not lead anywhere. The Act plainly authorises what is proposed here (subject to the requisite vote and the Court’s sign off). And while I accept that timeshare ownership may not be the most common form of unit title ownership it is clearly covered by the Act’s provisions.
[41] The submission about opposition being more widespread (or possibly being more widespread) than the vote at the EGM indicates can also lead nowhere. The notification processes in the Act were followed. A significant number of owners did vote. There was a clear majority (well over 75 per cent of eligible voters) in favour of the resolutions. It is simply not possible to go behind that majority and to speculate about the motives or mindsets of the individual owners. Rather, the Court must take
notice of the fact that objection processes were notified and available, but not taken up by any owners other than the Chapmans.
[42] Nor does there seem to me to be anything dubious about the apparent growth in support for the resolutions between May 2017 and October 2018. Indeed, that increase it is consistent with Mr Stantiall’s evidence that things (defaults, maintenance demands, owners who are unable to sell) are getting worse.
[43] The issue about the returning officer’s role and appointment appears to relate to the fact that the person receiving and counting proxy and postal votes was a lawyer from the law firm representing the Body Corporate. Therefore, the Chapmans say, they were not impartial. I am unable to agree with that submission. As the Body Corporate says, there is no basis in law for such an objection; it can select any person it likes under the Act to be the returning officer. The mere fact that the retuning officer may have been paid by the Body Corporate for his time does not give rise to an appearance of partiality.
[44] Other minor points (such as the fact that the “notice of designated resolution” form referred to the Department of Building and Housing instead of the Ministry of Business, Innovation and Employment) do not warrant further discussion. I merely note that the mistake plainly did not cause issues for the Chapmans because they located the necessary form and provided it to the Body Corporate.
[45] Overall, as the Body Corporate has said, no matter has been raised by the Chapmans that would justify a finding that it would not be “just and equitable” to order cancellation. There were only 57 votes against the resolutions compared with 715 in favour. In order to go against the will of what is such an overwhelming majority the Court would require clear evidence of some serious irregularity or significant prejudice. There is no such evidence here.
Conclusion and orders
[46] For the reasons I have given I am not satisfied that it is just and equitable to overturn the resolutions made on 27 October 2018.23 Rather, I consider that they should be confirmed, and I do so.
[47] Conversely, and subject to certain conditions and directions which I have yet to make, I consider that it is just and equitable that Body Corporate 46051 be dissolved and that the unit plan be cancelled.24
[48] Although the Body Corporate application set out the conditions and directions it considered necessary to give practical effect to the cancellation and subsequent sale, there are in my view some difficulties with them. I will issue a separate minute setting out my concerns and inviting the Body Corporate response. In the meantime, I propose to issue this judgment in order that the time for any appeal by the Chapmans from my order at [46] above starts to run. I note that s 177 of the Act makes it clear that the Body Corporate will need to certify that that time has expired before making the necessary application to the Registrar for cancellation.25
Rebecca Ellis J
23 Outlined above at [15].
24 Namely Unit Plan 46051 in respect of all titles set out in Supplementary Record Sheet SA39B/280, South Auckland, 82 Lake Terrace, Taupo, and all leases registered over such titles.
25 I observe that the Act itself does not expressly confer any appeal rights. But the possibility of bringing an appeal against a decision on an objection seems to be contemplated by s 177(6).
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