Tremont Holdings Ltd v Body Corporate 401803
[2015] NZCA 314
•21 July 2015 at 12.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA289/2014 [2015] NZCA 314 |
| BETWEEN | TREMONT HOLDINGS LTD |
| AND | BODY CORPORATE 401803 |
| Hearing: | 28 April 2015 |
Court: | Harrison, Keane and Wylie JJ |
Counsel: | T J Rainey and J P Wood for Appellant |
Judgment: | 21 July 2015 at 12.30 pm |
JUDGMENT OF THE COURT
A The application to pursue the additional ground of appeal is declined.
B The appeal is dismissed.
BThe appellant must pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Harrison J)
Introduction
Body Corporate 401803 is the body corporate of the Tremont complex, a multi-unit title residential development in St Lukes, Auckland. Tremont Holdings Ltd (Tremont) owns 20 of the 106 units within the complex.
In 2008 the Body Corporate entered into three agreements with the complex developer, Vermillion Wagener Ltd, whereby it guaranteed the payment obligations of third parties associated with Vermillion under leases of three units within the complex. Shortly afterwards, Vermillion transferred ownership of the three units to Tremont. Vermillion and Tremont are related parties; Geoffrey Hodgkinson is the sole director of and principal shareholder in both companies. So, in the result, Tremont as owner and lessor is the beneficiary of the Body Corporate’s guarantees.
At an extraordinary general meeting held on 7 August 2013 the Body Corporate resolved to take whatever steps were necessary to terminate the three agreements and to instruct a law firm to represent it. The Body Corporate’s legal advice was that the guarantees were ultra vires or outside its legal powers.
At a subsequent extraordinary general meeting on 26 November 2013 the Body Corporate passed ordinary resolutions: (a) removing Mr Hodgkinson and another from its committee; (b) reducing the number of members of the committee to seven and the quorum to four; (c) voting seven members on to a new committee; (d) ratifying the committee’s earlier decision to terminate the agreements; and (e) raising a special levy of $165,000 plus GST to fund the necessary legal action.
Tremont voted against all resolutions at both general meetings. So did eight other unit owners. The owners who voted against the resolutions owned 40 units between them.
As the other party to the impugned agreements, Tremont would be the primary defendant in any proceedings brought by the Body Corporate. The company objected to being levied for around 18 per cent of the Body Corporate’s prospective legal costs in pursuing a claim against it.[1]
[1]The Body Corporate’s challenge to the validity of the agreements was subsequently upheld in the High Court: Body Corporate 401803 v Vermillion Wagener Ltd [2015] NZHC 285, (2015) 15 NZCPR 758. Muir J declared that the Body Corporate was acting ultra vires in entering into the agreements and set them aside. Summary judgment was entered for the Body Corporate. In a judgment delivered concurrently today (Vermillion Wagener Ltd v Body Corporate 401803 [2015] NZCA 313), this Court has dismissed an appeal by Vermillion and Tremont.
Tremont applied to the High Court under s 210 of the Unit Titles Act 2010 (the UTA 2010) for declarations that (a) only those unit owners who voted in favour of the August 2013 resolutions could be levied by the Body Corporate for the costs of the legal and other work outlined to challenge the agreements and that unit owners who voted against such resolutions were to be exempt from the levies or costs; and (b) any contingency fund to which all owners contributed was not to be used to fund the legal and other costs arising from the August 2013 resolutions. As Fogarty J observed, Tremont’s application was commenced between the August 2013 and November 2013 resolutions, anticipating the latter step and the levying of members for the costs of the ensuing legal proceedings.[2]
[2]Tremont Holdings Ltd v Body Corporate 401803 (Tremont Residences) [2014] NZHC 988, (2014) 15 NZCPR 525 at [12].
The pleaded grounds for relief were prolix. However, the essence of the application was that it would be unjust and inequitable for the Body Corporate to levy Tremont for fees to bring legal proceedings against itself, especially when Tremont must also fund its own defence costs. As Fogarty J observed, Tremont’s application was commenced between the August 2013 and November 2013 resolutions, anticipating the latter resolution and the levying of members for the costs of the ensuing legal proceedings.
Fogarty J dismissed the application and ordered costs in favour of the body corporate. He also dismissed a claim, not apparently pleaded, that the August 2013 resolutions were invalid because they were not special resolutions. Tremont appeals against both decisions.
Before addressing Tremont’s appeal, we note that Tremont’s application related solely to the 7 August 2013 resolutions. The company did not seek leave before Fogarty J to amend its application to extend its scope to the 26 November 2013 resolutions. Tremont gave notice of its intention when filing its appeal to apply for leave to amend its pleadings to include the November resolutions. This application was pursued before us. We deal with it below.
Decision
(a) Minority relief
Section 210(1) of the UTA 2010 materially provides:
In any case where this Act requires a resolution and the resolution is passed, any person who voted against the resolution may apply to the appropriate decision-maker for relief on the grounds that the effect of the resolution would be unjust or inequitable for the minority.
(Emphasis added.)
Mr Rainey submitted that Fogarty J erred in finding that the effect of the Body Corporate’s resolutions would not be unjust or inequitable for Tremont because the company was being sued as the lessor of units, not in its capacity as a member of the Body Corporate.[3] In this respect, Fogarty J adopted Associate Judge Doogue’s reasoning in Body Corporate No 85403 v Magill as follows:[4]
[26] The starting point is that it would seem fair that, given that the applicants, together with other owners, will indirectly benefit from a successful action to recover compensation, they should meet their rateable share of the costs in recovering that compensation. To excuse the applicants from the levy for legal costs would throw an unfair burden on the majority of the unit-owners to fund the body corporate’s proceedings.
…
[28] While it may seem repugnant to the applicants to be required to contribute to the cost of litigation brought against them, any perceived difficulty arises from the duality of their interests as developers, on the one hand, and then owners once the development of Valencia Court had been completed. There was always the potential that at some future point a divergence might occur between their interests as developer/vendors of the property, on the one hand, and part-owners of it on the other. The rules which are part of the legal structures that they promoted as part of the property development, may have turned out to have some unexpected consequences. But none of this constitutes a reason why they should now expect to resile from the requirements of the rules that they promoted and then subscribed to.
[3]At [24]–[26].
[4]Body Corporate No 85403 v Magill (2008) 9 NZCPR 399 (HC), cited in Tremont, above n 2, at [24].
Fogarty J concluded that:
[35] Where there is a duality of role, as I have found here, then it is legitimate and not unfair for defendants to proceedings [brought by] a body corporate, be it under the Unit Titles Act or under the Companies Act 1993 or under any other Act, to indirectly have to contribute to the costs of the action being brought against them where, by reason of a different status or role, [they] are in the same class whose interests are being advanced in the claim against themselves exercising a different role. It is the identification of the duality of roles of Tremont which, in my mind, is the critical reason why this application must fail.
Mr Rainey submitted that the Judge erred because Tremont did not have a duality of roles. In essence, he said, the dispute was between members of the Body Corporate, and Tremont was prejudiced by a requirement to pay the levy for the legal and other costs imposed upon it as a unit owner. Accordingly, it was inequitable for a bare majority of the members of the Body Corporate to levy the minority for a contribution to the costs of litigation which the minority opposes, especially where the litigation has been brought against Tremont which must also pay its own legal fees to defend the claim.
Mr Rainey’s argument fails for a number of independent reasons.
First, while any person who voted against a resolution is entitled to apply for relief, s 210 of the UTA 2010 requires that the effect of the resolution is unjust or inequitable for the minority. The minority here are the nine owners of the 40 units who voted against the resolutions. Tremont owns 20 of those units and constitutes 50 per cent of the minority. Only three of its units are the subject of the litigation. Tremont has not attempted to satisfy the statutory threshold of showing that the effect of the resolutions would be materially unjust or inequitable for all nine opponents constituting “the minority”. There is no suggestion that the other eight owners within the minority might be similarly affected by the resolutions or that they seek any relief against their effect, and in particular an exemption from the levy for legal costs.
Second, Tremont sought relief from the effect of the August 2013, not the November 2013, resolutions. That resolution was to take whatever steps were necessary to set aside the agreements. Before us Mr Rainey did not suggest that it was unjust or inequitable for the Body Corporate to resolve to challenge the agreements. He accepted that, as the principal contracting party, the Body Corporate was the appropriate vehicle. We agree with Mr Price that once the decision to take legal action is accepted as lawful, any consequential decision to levy owners for the legal costs cannot constitute material unfairness or injustice to any of them.
Mr Rainey did not question the Body Corporate’s decisions to establish a contingency fund to provide for unbudgeted expenditure,[5] to finance the litigation or to exercise its lawful power to impose levies on owners of principal units to establish and maintain the fund.[6] Once those steps were taken, the Body Corporate was bound to impose levies “in proportion to each unit owner’s utility interest”.[7] Mr Rainey did not explain how in the light of this statutory obligation Tremont could nevertheless claim that the effect of resolutions passed by the Body Corporate to impose levies in accordance with its statutory duty was unfair to the minority.
[5]Unit Titles Act 2010, s 118.
[6]Section 121(1).
[7]Section 121(2).
Third, it is not necessary to traverse the various authorities under the broadly similar s 43 of the 1972 Act in detail because the statutory test under the UTA 2010 is plain, requiring a high threshold of material unfairness or injustice to be met by the minority.[8] To the extent that Fogarty J allowed Tremont to venture into a challenge to the November 2013 resolutions, we are satisfied that he was correct to find that it was not unjust or inequitable to require Tremont to contribute to the Body Corporate’s legal costs.
[8]See for example Young v Body Corporate 120066 (2007) 8 NZCPR 932 (HC) at [43] and [49]; Hart v Body Corporate No 180455 (2005) 5 NZConvC ¶95-498 (HC) at [8]; World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [45]; Spencer‑Inight v Johnston [1999] 3 NZLR 103 (HC) at 106.
In reliance on Associate Judge Doogue’s reasoning in Body Corporate No 85403 v Magill, Fogarty J rightly emphasised the distinction in or duality of Tremont’s roles, or more particularly, its interests. One of Tremont’s interests is as owner and lessor of three units, entitled to the contractual benefit of rent payments made by the Body Corporate in accordance with a guarantee; the other interest is its membership of the Body Corporate, subject to a duty to meet a levy lawfully imposed upon it to contribute its proportionate share of the legal costs to be incurred in pursuing a legal challenge. The fact that the resolutions have the effect of creating a conflict between and consequential impost upon Tremont’s own financial interests solely because the ownership and contractual structure which it has chosen to adopt cannot render the resolutions themselves unfair, either for Tremont or for the other owners together comprising the minority.
Fourth, we endorse Associate Judge Doogue’s observation in Body Corporate No 85403 v Magill. The starting point for any consideration of an application for relief under s 210 is that, given all members of the Body Corporate stand to benefit from a successful action to set aside the guarantees and thus relieve them of an obligation to make future rental payments, each should meet its rateable share of the costs incurred for that purpose. Excusing one or more from compliance with a levy would unfairly disadvantage the majority of owners who otherwise funded the proceeding. In this case Tremont as owner of three units stands to take a benefit from the litigation. There is no reason for allowing that result without requiring performance of its statutory burden of meeting its rateable contribution to the legal costs.
Fifth, at one stage Mr Rainey suggested that the Body Corporate was acting as representative of a majority of the owners but was not required to bring the proceeding. Any member could have brought a claim, he said, in which case that member would have been responsible for the funding; and, similarly, there is nothing unfair in requiring only those members who support the Body Corporate’s action to pay the costs.
Mr Rainey’s argument misses the point that the Body Corporate was a principal party to the agreements and the correct entity for contesting any liabilities as guarantor. It was the only party with standing to bring the claim or more particularly to set aside the guarantees. There is no principled basis for limiting liability to contribute towards the costs to those who support the action.
In summary, shorn of its various justifications, Tremont’s application for relief came down to one basic proposition. It was, as Mr Rainey put it, that because of Tremont’s interest in the litigation, which is different from that of other members of the Body Corporate, in having to defend its rights as an owner and beneficiary of the leases it is unfair that it must incur costs in both capacities – as the defendant and a member of the plaintiff Body Corporate.
However, we repeat that the fact Tremont may have to incur its own legal expenses in defending a different interest from other members of the Body Corporate does not make the effect of the resolution materially unfair for either Tremont or the minority. In this respect we would add that if Tremont had successfully defended the Body Corporate’s substantive application to set aside the guarantees, it could have applied to the High Court to exercise its discretion and make an award of costs to rectify any unfairness resulting from its contribution towards the Body Corporate’s costs in bringing the unsuccessful proceeding.
(b) Invalidity
In the High Court Fogarty J dismissed a separate ground of challenge that the August 2013 resolutions were invalid because they were not special resolutions even though this ground was not pleaded. On appeal Mr Rainey maintained the challenge to the August 2013 resolutions and sought leave to extend the application to challenge the November 2013 resolutions as well, on the ground that a new committee was appointed that day without fresh delegations being issued.
On 8 July 2013 the Body Corporate at its annual general meeting passed a special resolution delegating the chairperson’s duties and the Body Corporate’s duties and powers to the Body Corporate committee, being a general delegation of “all the powers and duties that may be delegated”. Written notice of the delegation was sent to all members of the committee who were elected at the annual general meeting. Tremont argued in the High Court, and again on appeal, that the notice did not comply with reg 22 of the Unit Titles Regulations 2011.
Regulation 22 provides:
22 Delegation to body corporate committee
(1)A written notice of delegation of a duty or power by a body corporate to a body corporate committee under section 108(1) of the Act must—
(a) contain the following information about each duty or power that is being delegated:
(i) a description of the duty or power; and
(ii)the restrictions (if any) on the body corporate committee’s power to perform the duty or exercise the power; and
(b) specify the duration of the delegation; and
(c)contain a statement that the notice of delegation is evidence of the body corporate committee’s authority to perform each duty or exercise each power that is being delegated; and
(d)specify the frequency of the body corporate committee’s reports on the delegation to the body corporate.
(2) A written notice of delegation must be served on each member of the body corporate committee.
The notice required under regulation 22(2) was given to the Body Corporate’s agent, and contained this statement:
That in accordance with the provisions of s 108 of the Unit Titles Act 2010, all the powers and duties that may be delegated, together with the full authority of the Body Corporate, is delegated to the Body Corporate Committee provided that in accordance with section 110 of the Unit Titles Act 2010, nothing in this resolution affects the ability of the Body Corporate to form a power or duty it has delegated to the Committee or to revoke any power or duty that has been delegated as provided in section 111 of the Unit Titles Act 2010.
In Mr Rainey’s submission the notice failed to comply with reg 22 because it did not provide any of the required information about each of the delegated powers including (a) the power to engage legal counsel and commence proceedings on behalf of the Body Corporate; and (b) the power to raise levies.
Accordingly, Mr Rainey submitted, those powers and duties had not been delegated to the Body Corporate committee as required by s 101 of the UTA 2010 which provides:
101 How matters at general meeting of body corporate decided
(1)Any matters at a general meeting of a body corporate relating to an exercise of a duty or power that may not be delegated under section 108(2), or that have not been delegated to the body corporate committee, must be decided by special resolution.
(2)Except as otherwise provided in this Act, all other matters to be decided by the body corporate at a general meeting must be decided by ordinary resolution.
(3)Any matter that is not on the agenda for a general meeting may be discussed at the meeting but, unless all the eligible voters are present at the meeting, no resolution may be voted on and made in respect of that matter except to include that matter on the agenda for a subsequent general meeting.
(4)Every resolution must be recorded in writing.
Fogarty J dismissed these arguments. He found that the main purpose of s 101(1) is to provide that the powers which cannot be delegated, set out in s 108(2), have to be decided by special resolution.
Section 108 provides:
108Delegation of duties and powers
(1)Except as provided in subsection (2), a body corporate may delegate any of its duties or powers, either generally or specifically, to the body corporate committee by special resolution and written notice.
(2)The body corporate must not delegate any of the powers or duties set out in—
(a)subsection (1) (which is the general power of delegation):
(b)section 41 (which provides for the reassessment of ownership interests and utility interests):
(c)section 105(3) (which requires the body corporate to comply with the body corporate operational rules):
(d)section 136(4) (which relates to the application of insurance monies in or towards reinstatement of the development).
In accordance with its entitlement under s108(1) to delegate “any of its powers or duties, either generally or specifically”, the Body Corporate did so by special resolution. The only question then is whether it gave written notice under s 108(1) to the committee, in accordance with reg 22. As noted, the rule requires that the notice “must” describe “each duty or power that has been delegated” together with any restrictions if any and state their duration.
Fogarty J accepted that the notice did not expressly describe the power of the Body Corporate to “exercise a discretion to terminate existing contractual obligations which affect all owners”.[9] However, he went on to say that:
[46] Section 108 does not list all the powers of the Body Corporate. It functions by listing the non-delegable powers. It allows the delegation of all other powers and duties. It does not prescribe that to be delegated they have to be separately listed. Arguably, if only some are delegated, it follows the rest can only be exercised by special resolution. Section 108 is designed to enable delegation of all powers and duties to the body Corporate Committee, save a few exceptions. The powers to litigate, pursue ultra vires issues, try to renegotiate or set aside obligations seen as unreasonable are delegable. Mr Stainton did not argue otherwise.
[9]At [40].
We agree with this conclusion. Furthermore, we agree with Mr Price that reg 22 cannot be construed as requiring a specific description of each duty or power delegated: that would mean that a delegation could never be general, notwithstanding the express language of s 108(1).
In any event, even if there was a deficiency, it does not render the written notice of delegation or the delegation itself invalid. We do not see anything in the relevant provisions to support the proposition that Parliament intended that any technical non-compliance invalidates a notice.
Finally, Tremont’s failure to plead the invalidity of the August 2013 resolutions, where issues of the consequences of non‑compliance with the Body Corporate’s statutory and regulatory duties would be properly identified, is fatal to its argument. This ground of challenge must fail.
On appeal, Mr Rainey sought to widen the scope of Tremont’s challenge to argue that the Body Corporate’s November 2013 resolutions were also invalid. His essential proposition was that changes to the membership of the committee of the August 2013 extraordinary general meeting required the November 2013 resolutions to be passed by special resolution. Mr Price pointed out that this argument was entirely new, raised for the first time on appeal. He opposed granting leave to Tremont to pursue it.
We agree with Mr Price. Tremont’s application was limited to relief against the August 2013 resolutions on the ground that their effect was unjust or inequitable for the minority. We repeat that it did not plead that either the August or November resolutions were invalid. Fogarty J allowed some leeway which may have been justifiable for the August 2013 resolutions. However, in our judgment it is now too late for Tremont to raise, for the first time on appeal, an argument that the November resolutions were invalid because they were not passed by a special resolution. We decline leave to pursue this ground.
Result
The application to pursue the additional ground of appeal is declined.
The appeal is dismissed.
The appellant must pay the respondent costs for a standard appeal on a band A basis together with usual disbursements.
Solicitors:
Rainey Law, Auckland for Appellant
Minter Ellison Rudd Watts, Auckland for Respondent
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