Tang v Body Corporate 183930
[2017] NZCA 305
•18 July 2017 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA40/2017 [2017] NZCA 305 |
| BETWEEN | ZHANLI TANG WEINMIN ZHOU |
| AND | BODY CORPORATE 183930 SYNERGISTIC INVESTMENTS LIMITED |
| Hearing: | 26 June 2017 |
Court: | No appearance for Appellants |
Counsel: | Miller, Lang and Mander JJ |
Judgment: | 18 July 2017 at 3.00 pm |
JUDGMENT OF THE COURT
A The application for leave to adduce new evidence is granted.
B The cross-appeal is allowed.
CThe scheme approved by the High Court is varied to the extent that the revised sch 3 shall be the schedule referred to in cl 8 of sch 1 to the scheme approved by that Court on 14 December 2016.
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REASONS OF THE COURT
(Given by Lang J)
This appeal concerns a residential apartment complex known as “Tuscany Towers”. The complex comprises 97 units constructed in 16 separate blocks.
The complex has suffered significant damage through water ingress. Body Corporate 183930, the body corporate constituted under the Unit Titles Act 2010 (the Act) to manage the affairs of the complex, began the remedial work necessary to repair that damage. The body corporate initially paid for the remedial work by means of levies imposed on unit owners and funds recovered through the settlement of proceedings it had issued in the Weathertight Homes Tribunal against third parties involved in the construction of the complex (the WHT proceeding). Matters reached the point, however, where the settlement proceeds were exhausted before the repairs had been completed.
The body corporate and one of the unit owners then applied to the High Court for approval of a scheme under s 74 of the Act. This would authorise the body corporate to complete the balance of the repairs and to impose further levies on unit owners to meet the resulting costs.
Wylie J approved the proposed scheme in an interim judgment issued on 3 September 2015 (the interim judgment)[1] and a final judgment delivered on 14 December 2016 (the final judgment).[2] The appellants, both of whom are the owners of units in the complex, filed an appeal seeking to challenge several aspects of the final judgment. Ultimately, however, they abandoned their appeal.
[1]Body Corporate 183930 v Chua [2015] NZHC 2122 [HC Interim Judgment].
[2]Body Corporate 183930 v Chua [2016] NZHC 3064.
The body corporate cross-appealed against one aspect of the final judgment. It seeks to pursue the cross-appeal notwithstanding the abandonment of the appeal by the appellants. The appellants have withdrawn their opposition to the body corporate’s cross-appeal. As a result the cross-appeal was argued without opposition.
Background
One of the issues the unit owners were required to determine was the manner in which the cost of the repairs was to be allocated among unit owners. Nine of the unit owners had not been part of the WHT proceeding. Those owners have always acknowledged that they will be required to meet their share of the cost of repairs from their own resources and without recourse to the settlement funds from that proceeding.
The remaining 88 owners were to share in the settlement funds. It was initially anticipated that those funds would be sufficient to cover the budgeted cost of the balance of remedial work. It then transpired that this might not be the case. In order to deal with this issue, the body corporate instructed its solicitors to draft a document known as a Remedial Works Agreement (RWA). This was circulated to all unit owners on 18 May 2011. The RWA provided that, in the event that repair works went over budget, further levies would be made based on an assessment of the extent to which individual unit owners had been contributorily negligent in respect of the damage to their units.
The issue of contributory negligence had been one of the important issues discussed at a mediation that led to the settlement of the WHT proceeding. Prior to the mediation the body corporate’s solicitors had undertaken an assessment of the extent to which they considered individual unit owners may have been negligent. During the mediation the defendants in the WHT proceeding also expressed their views regarding that issue, and it influenced the level at which the defendants were willing to settle the body corporate’s claim.
Clause 9.4 of the RWA set out the manner in which any shortfall would be funded. It provided:
9.4 It is intended that the settlement monies more fully set out in clause 9.3 above will be sufficient to meet the shared costs of the Settlement Unit Owners pursuant to clause 9.121 together with the cost of Remedial Works to repair their units, plus their portion of common property, however in the unlikely event that there is a shortfall, then this will be met by those Settlement Unit Owners who have a contributory negligence allocated against their claim as is more fully set out in Schedule 3, in proportions based on the pro rata percentage of contributory negligence allocated against their claim, which will be levied as a Special Levy by the Body Corporate against those Settlement Unit Owners. However in order to place a limit upon the additional levies that Settlement Unit Owners with a contributory negligence deduction allocated to them need to pay, no Settlement Unit Owners are to receive more than what they were entitled to receive from the Settlement Monies. Any additional levies required from Settlement Unit Owners will be sought by way of a Special Resolution passed at an EGM which is called by the Body Corporate in accordance with the Body Corporate Rules/Unit Titles Act 2010.
Not all of the unit owners signed the RWA. Nothing turns on that fact because the RWA has effectively been overtaken by the scheme approved by the High Court.
Schedule 3 to the RWA set out in percentage terms the extent to which individual unit owners had been contributorily negligent and would therefore be required to contribute to the cost of repairs. When the body corporate sought approval for its scheme, however, it did not put forward the schedule attached to the RWA. Instead, the proposed scheme contained a revised Schedule 3 that reduced the percentages that some negligent owners would be required to contribute (the revised schedule). The material tendered in support of the application did not explain why the figures had changed. Nor did it contain any information as to when unit owners had first received and/or discussed the revised schedule. These omissions have led directly to the cross-appeal because they assumed considerable importance in the Judge’s ultimate decision.
The Judge’s decision
The Judge accepted in the interim decision that it was appropriate for any shortfall to be funded by those owners who had been assessed as being negligent.[3] He considered, however, that the original schedule should be the operative schedule for the purposes of the scheme approved by the Court. The reasons for the Judge’s decision are contained in the following passages of the interim judgment:
[3]HC Interim Decision, above n 1, at [114].
[35] At an EGM held on 18 June 2011, Mr Bates [the body corporate’s solicitor] spoke to the body corporate about the Remedial Works Agreement. Mr Bates indicated that although the expectation was that the remedial work would be completed for the amount received on settlement, it was necessary to provide for the possibility of the works going over budget. Unit owners were told that, in that event, extra costs would be apportioned according to schedule 3 of the Remedial Works Agreement, which set out each settlement unit owner’s contributory negligence deduction. The chair of the body corporate told owners that a scheme under, what was then, s 48 of the Unit Titles Act 1972 was unnecessary, because the body corporate could adopt the Remedial Works Agreement by special resolution, and impose the conditions of the agreement upon any unit owner who objected. The committee also advised unit owners that, due to delays in the consenting process and subsequent tender of the remedial project, a new firm — Reclad Solutions Limited — was now the preferred contractor. The body corporate resolved to authorise the committee to enter into a contract on behalf of the body corporate with Reclad Solutions Limited for the building work.
…
[40] On 5 July 2012, in response to a letter sent by one of the unit owners (a Ms Gao — the owner of unit 56), Legal Vision [the body corporate’s solicitors] wrote to all owners addressing the provision in the Remedial Works Agreement for raising repair funds in excess of the settlement amount. The letter had a schedule attached to it, detailing the contributory negligence percentages allocated to each settlement unit owner. Unfortunately there were differences between this schedule and schedule 3 in the Remedial Works Agreement. Some of the differences were quite significant. There is no satisfactory explanation for these discrepancies. It is simply asserted that the changes came about after Mr Bates accounted for settlement contributions associated with individual owners. I do not understand what is meant by this assertion and there is no explanatory affidavit from Mr Bates.
…
[115] It is a matter of concern that there are differences between the figures contained in schedule 3 to the Remedial Works Agreement, and a further schedule which was annexed to Mr Bates’ letter to unit owners dated 5 July 2012 — at [40]. The draft scheme uses the figures in the schedule attached to the letter. The differences between schedule 3 of the Remedial Works Agreement, and the schedule adopted by the scheme are shown in the following table:
Unit RWA % Scheme % 4 75 55 7 67 61 12 50 0 40 50 17 50 67 41 56 75 69 68 100 75 70 100 0 71 50 45 73 25 19 83 67 62 85 50 25
As can be seen, in each case there is a reduction from the contributory negligence percentage assessed to each of the relevant unit owners in schedule 3 to the Remedial Works Agreement, and the contributory negligence percentage attributed to each of the relevant owners in the draft scheme.
[116] There is force in Mr Wood’s assertion that these changes affect not only those owners who have been given the benefit of a reduction in their contributory negligence assessments, but also the remaining owners, because the burden of the shortfall is shifted to all. Mr Bigio’s response — namely that the changes simply lessen the impact on affected owners, does not take into account the impact on those who have to pick up the tab for the resulting shortfall.
[117] No good reason has been put forward for departing from the allocations of contributory negligence contained in schedule 3 of the Remedial Works Agreement, and in my view it is not appropriate to do so. Most owners affected agreed to be bound by the schedule attached to the Remedial Works Agreement. Relevantly the owners of units 12 and 70 did not do so. They signed the version of schedule 3 which contained the figures which have been used in the draft scheme. Requiring that the scheme be amended to reflect the allocations recorded in schedule 3 to the Remedial Works Agreement will adversely impact on them. However they have elected to take no part in this hearing. Their remedy may lie elsewhere.
[118] In my judgment the draft scheme should adopt the contributory negligence percentages recorded in the schedule to the Remedial Works Agreement.
The Judge did not amplify his reasoning on this issue in the final judgment. As a result, cl 8 of sch 1 of the scheme approved by the High Court currently requires contributions to be made by negligent unit owners in accordance with “Schedule 3 of the Tuscany Towers Remedial Works Agreement” rather than the revised sch 3.
The application for leave to adduce new evidence
It is clear from the passages set out above that the Judge was concerned that he had not been given an adequate explanation for the differing figures in the two schedules. He also appears to have been concerned that the revised schedule was not circulated to unit owners until 5 July 2012.
In order to address these issues the body corporate seeks leave to file an affidavit by Mr Roger Levie, the Chief Executive of the Home Owners and Buyers Association of New Zealand Inc (HOBANZ). HOBANZ has provided the unit owners in the Tuscany Towers complex with advice regarding various issues in relation to the repair of the complex since January 2014. We consider it to be in the interests of justice to admit the evidence, particularly given the fact that the appeal is not opposed and the evidence in question addresses an acknowledged gap in the evidence available at trial. We grant leave to adduce the evidence on that basis.
Mr Levie’s evidence
Mr Levie deposes:
3.From the time I became involved in this matter (from January 2014), I worked closely with owners across the various “factions” of owners. I was made aware of the existence of two contributory negligence schedules, known as “Schedule 3”, to the Remedial Works Agreement (“RWA”). The initial Schedule 3, which was attached to the RWA, was prepared for and circulated to owners in May 2011. In June 2011 a revised Schedule 3 was completed (“Revised Schedule 3”). It was distributed to owners at an EGM held on 18 June 2011. It was then circulated to owners who did not attend the meeting by way of email on 21 June 2011. I was never in the course of my work with the owners led to believe that Revised Schedule 3 was not accepted by owners.
4.As explained in earlier evidence, I was deeply involved in preparing two of the cost apportionment proposals presented to owners to be voted on at the extraordinary general meeting on 9 August 2014. Revised Schedule 3 was used in both proposals, which included contributory negligence percentages when calculating the required owner contributions. The percentages used for contributory negligence were not a point of contention when the proposals were discussed and voted on.
5.It was not until the opposing owners were advancing arguments in the High Court to reject the application of the contributory negligence percentages altogether that the two different schedules took on any relevance. However, no one ever produced any correspondence showing that Revised Schedule 3 was ever contested up until that point in time, being some four years after the changes were made.
6.It appears that Revised Schedule 3 most accurately reflects the matters considered at the mediation and the contributions made toward the settlement sum.
Mr Levie also annexes as an exhibit to his affidavit a schedule setting out the amounts that some unit owners who were assessed as being negligent have recovered from third parties. This shows that those owners were able to introduce significant funds to meet the cost of repairs by successfully pursuing third parties. The revised sch 3 recognises this by reducing the percentage figure that such owners will be required to contribute to the cost of repairs.
Decision
The material that is now available provides an answer to the concerns that the Judge expressed. In particular, it explains why the amount that some negligent owners will be required to contribute has been reduced. It also confirms that the revised calculations will not detrimentally affect the remaining unit owners because the pool of funds available to meet the cost of repairs will be augmented by the funds received from third parties who were pursued by negligent owners. In effect, those funds will replace the amounts that negligent unit owners would otherwise have been required to contribute under the original sch 3.
In addition, Mr Levie’s evidence confirms that unit owners who attended the meeting on 18 June 2011 based their discussion on the revised sch 3 rather than the original sch 3 as the Judge was led to believe on the basis of the material available at trial. Unit owners who did not attend the meeting received a copy of the revised schedule three days later. This meets the Judge’s concern that unit owners may not have learned of the revised schedule until July 2012. Furthermore, the revised schedule has effectively replaced the original schedule in all discussions held by unit owners since June 2011.
The Judge was obviously entitled to express the concerns that he did because the evidence adduced by the body corporate at the trial in the High Court was deficient in several material respects. On the basis of the evidence now available, however, we are satisfied that the revised sch 3 should be the operative schedule in terms of the scheme approved by the Court.
Result
The cross-appeal is allowed. The scheme approved by the High Court is varied to the extent that the revised sch 3 shall be the schedule referred to in cl 8 of sch 1 to the scheme approved by that Court on 14 December 2016.
Solicitors:
Pidgeon Law, Auckland for First Respondent
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