Wheeldon v Body Corporate 342525
[2018] NZCA 20
•20 September 2017 at 3.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA112/2017 [2018] NZCA 20 |
| BETWEEN | DEREK PETER WHEELDON AND CAROL ANN WHEELDON, ANTHONY JOHN BUTCHER AND RUTH BARBARA ROGERS, LARRY LAWRENCE SMALL AND KM TRUSTEE SERVICES LIMITED, IVOR ANTHONY MILLINGTON AND NEVILLE EADE |
| AND | BODY CORPORATE 342525 |
| Hearing: | 20 September 2017 |
Court: | Kós P, Cooper and Gilbert JJ |
Counsel: | B E Brill for Appellants |
Judgment: | 20 September 2017 at 3.00 pm |
Reasons: | 21 February 2018 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay the respondent costs for a standard appeal on a band A basis with a 50 per cent uplift and usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gilbert J)
Introduction
This appeal (Wheeldon) was heard together with the related appeal in Butcher v Body Corporate 342525 (CA42/2017) (Butcher). Both appeals arise out of the same long‑running dispute between the owners of apartments in the Bridgewater Bay Apartments situated on the outskirts of Paihia in Northland as to the remedial works required to overcome weathertightness issues.
The appellants in both proceedings own five of the 22 apartments in the building. Derek and Carol Wheeldon sold their apartment to Robyn Stent (who is the wife of counsel for the appellants, Mr Brill) in March 2014 with the transfer being registered on 31 July 2014. This appears to be why Mr and Mrs Wheeldon were named as plaintiffs in the Wheeldon proceedings issued on 30 July 2014 but were replaced by Ms Stent in the Butcher proceedings issued on 7 July 2015.
The appellants consider that targeted repairs by individual owners would have been sufficient whereas the Body Corporate, supported by the majority, has consistently maintained, on the recommendation of Origin Building Consultants Ltd (Origin), that more comprehensive remedial works were required. The Body Corporate considered that it was responsible for carrying out these works in terms of its repair and maintenance obligations under s 138 of the Unit Titles Act 2010 (the Act). The works have been completed by the Body Corporate and the contest now centres on who should pay for them.
At the conclusion of the hearing, we dismissed both appeals with reasons to follow.[1] These are our reasons for dismissing the Wheeldon appeal. Our reasons for dismissing the appeal in Butcher are delivered contemporaneously.[2] We have set out the relevant background in the Butcher reasons judgment. Rather than repeating that background here, this judgment should be read together with our reasons judgment in Butcher.
Claim in the High Court
[1]Wheeldon v Body Corporate 342525 [2017] NZCA 424; Butcher v Body Corporate 342525 [2017] NZCA 423.
[2]Butcher v Body Corporate 342525 [2018] NZCA 19 [Butcher Reasons (CA)].
In their statement of claim filed in July 2014, the Wheeldon plaintiffs advanced two causes of action. In the first, they claimed that the remedial works recommended by Origin were unnecessary and outside the scope of the Body Corporate’s powers. They sought declaratory relief to that effect and an injunction restraining the Body Corporate from carrying out the works. In their second cause of action, they challenged the lawfulness of associated expenditure by the Body Corporate. They sought three declarations to the following effect:
(a)the Body Corporate breached its obligations under s 117 of the Act by allegedly appropriating an amount of $101,635 from a long‑term maintenance fund to meet unbudgeted legal and consulting fees in relation to the Origin repair plan and negligence proceedings against Far North District Council and others to recover the costs of these works;
(b)the Body Corporate breached its obligations under the Act and acted without lawful authority by making the payments totalling $215,237 (the amount referred to in (a) and a further sum of $113,230 drawn from an operating account);[3] and
(c)the special levy (SL 1) of $150,000 purportedly raised by the Body Corporate Committee in July 2014 was invalid because the Committee had no authority to raise levies under s 121 of the Act.
High Court judgment
[3]The figures referred to in the statement of claim do not total the amount claimed but this is immaterial for present purposes.
Muir J dealt with the first cause of action in an interim judgment delivered on 30 April 2015.[4] The Judge considered that the funding issues raised in the second cause of action were likely to be “academic” and “self-resolving”.[5] However, that expectation was not fulfilled and accordingly a further, final, judgment was delivered on 7 February 2017 addressing the second cause of action.[6] In dismissing the claims, the Judge resolved the three issues identified above as follows.
Long-term maintenance fund
[4]Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 [Interim High Court judgment (Wheeldon)].
[5]At [24].
[6]Wheeldon v Body Corporate 342525 [2017] NZHC 87 [Final High Court judgment (Wheeldon)].
Although, for a limited period, the Body Corporate accounts identified particular funds as held in a long-term maintenance fund, in fact this fund had always been an optional contingency fund established and maintained pursuant to s 118 of the Act to provide for unbudgeted expenditure.[7] In any event, the Judge would not have exercised his discretion to grant the declaration sought because the remediation works had been completed and the professional costs paid, he had determined in his interim judgment that the Body Corporate had lawfully undertaken these works, and the costs had to be funded from some source.[8] To the extent that the money had come from one of the Body Corporate’s accounts, however characterised, it did not need to be otherwise levied.
Payments unlawful
[7]At [12].
[8]At [13].
Because of his findings on the first issue, the Judge considered that the fund could be used to meet unbudgeted expenditure.[9] A unanimous resolution was passed at the annual general meeting of the Body Corporate in January 2014 delegating its powers to the Committee pursuant to s 108(1) of the Act.[10] Any procedural inadequacy in failing to identify the resolution as a “special” resolution in the agenda was capable of ratification and was ratified at an extraordinary general meeting of the Body Corporate held in June 2015.[11] In any event, the Judge said that he would not have been prepared to exercise his discretion to grant a declaration of invalidity.[12] This was because notice of delegation was given to the Committee pursuant to s 108(1) of the Act and reg 22 of the Unit Titles Regulations 2011.[13] As a result, the Committee was authorised in terms of ss 109 and 121 of the Act to raise and spend levies on consultants and related costs.[14] Moreover, the expenditure was ratified and approved by special resolution at the May 2014 extraordinary general meeting and was further ratified at the June 2015 EGM.[15]
Special levy invalid
[9]At [16].
[10]At [22].
[11]At [22].
[12]At [22].
[13]At [23].
[14]At [24].
[15]At [25].
The Judge found the Committee was lawfully delegated authority to raise levies.[16] An in-person meeting of the Committee was not required for the purpose of exercising this authority and an exchange of views by email was sufficient.[17] In any event, the Judge was not prepared to exercise his discretion to make a declaration of invalidity because the Committee members reached a consensus by reasoned discussion through email over two days with input from each committee member.[18] Any procedural irregularity was capable of remedy by ratification and this occurred by special resolution at the June 2015 EGM.[19]
Grounds of appeal
[16]At [27].
[17]At [36]–[37].
[18]At [38].
[19]At [39].
The appellants appeal on two grounds:
(a)Was the Judge correct in holding that the Body Corporate did not breach s 117(2) of the Act because its “long-term maintenance fund” was a contingency fund under s 118 of the Act?
(b)Was the Judge correct in holding that the Body Corporate lawfully raised the special levy of $150,000 in July 2014 to maintain the operating fund?
Unusually, while the appellants ask that their appeal be upheld, they do not seek declaratory judgments from this Court. In his submissions, Mr Brill explains that “other claims and counterclaims dealing with collateral events are or will be before the High Court, and will benefit from final rulings by this Court on each of the issues raised in this appeal”.
Ground 1 — long-term maintenance fund
Section 115 of the Act requires a Body Corporate to establish and maintain an operating account to meet expenses described in s 115(2). Section 116 requires a body corporate to establish and regularly maintain a long-term maintenance plan. Section 117 provides that a body corporate must establish and maintain a long‑term maintenance fund unless, by special resolution, it decides not to establish such a fund. Funds held in a long-term maintenance fund may only be applied towards spending related to the long-term maintenance plan. Section 118 provides that a body corporate may establish and maintain one or more contingency funds to provide for unbudgeted expenditure.
At the annual general meeting of the Body Corporate held in January 2012 the following resolution was passed:
The Body Corporate shall not be bound by the provisions of Section 117 of the Act, and shall be at liberty to determine from year to year the level of saving and expenditure in regards to the long term maintenance plan as the Body Corporate shall from time to time determine.
Although this resolution was not notified or put as a special resolution, Mr Brill concedes that no eligible voter dissented.
Mr Brill submits that this resolution was designed to achieve flexibility to enable the Body Corporate to determine cashflows from year to year. He recognises that there was no need for a resolution to achieve this. Further, he says that the words “not be bound” are “otiose” because every body corporate is bound by the section. In summary, on Mr Brill’s interpretation the resolution achieved nothing.
Mr Brill contends that the long-term maintenance fund was in fact established because it was shown in the accounts and in disclosure statements provided under subpart 14 of pt 2 of the Act. He argues that the existence of the long-term maintenance fund was further confirmed by a special resolution passed at the May 2014 EGM because it referred to the disestablishment of that fund. The resolution reads:
SPECIAL RESOLUTION:
The Body Corporate ratifies, to the extent necessary, and approves the expenditure incurred at the direction of the previous General Meetings and determines to disestablish the Long Term Maintenance fund as permitted by Section 117(1) of the Act until such time as the remediation project is completed at which time the Body Corporate will review again the need for a long term maintenance fund.
Mr Brill says that there is no power to “switch” a long-term maintenance fund “on and off and on again”. He argues that the Body Corporate simply misunderstood its obligations.
Further, Mr Brill submits that there is no evidence that the Body Corporate established a contingency fund under s 118. If the relevant fund had always been a contingency fund the special resolution passed at the 2014 EGM would have terminated it.
We are not persuaded that Muir J erred in rejecting these arguments and finding that the relevant account was an optional contingency fund, not a long‑term maintenance fund.
The January 2012 resolution that the Body Corporate “shall not be bound by the provisions of Section 117 of the Act” can only sensibly have been intended as a resolution exempting it from the requirement to establish and maintain a long-term maintenance fund. There was no dissent from this resolution and it was subsequently affirmed and ratified by special resolution at the May 2014 EGM and again at the June 2015 EGM. The word “disestablish” used in these subsequent resolutions may not have been the best choice but it is explicable on the basis that the accounts incorrectly showed an account with that name even though the Body Corporate had resolved not to create such a fund. The consistent intention of the Body Corporate to exercise its right under s 117(1) not to establish a long-term maintenance fund is perfectly clear.
Muir J found in Butcher that this particular fund, although styled “long-term maintenance fund” was and always had been an optional contingency fund established pursuant to s 118 of the Act.[20] As Mr Brill observes, there was no appeal against that finding.
[20]Butcher v Body Corporate 342525 [2016] NZHC 3128, (2016) 17 NZCPR 708 [High Court judgment (Butcher)] at [99].
This ground of appeal fails.
Ground 2 — was the special levy lawfully raised?
Mr Brill’s first submission is that the decision to raise the special levy (SL 1) of $150,000 in July 2014 was in fact taken by the Body Corporate secretary, not the Committee. There is no substance in this submission. As the Judge found, all members of the Committee participated in the decision.
Mr Brill submits that the Committee’s decision-making powers can only be exercised at meetings. For that reason, he argues that it was insufficient for the members to confer by email and reach a decision via such a process. He refers to s 113 of the Act which provides that any matters at a meeting of a body corporate committee must be decided by a simple majority of votes.
Mr Brill is correct that a “meeting” of the Body Corporate anticipates members being present in person. For example, a body corporate committee must meet within one month of service of a notice of delegation under s 108(1) of the Act (reg 27(1)). If there is no quorum at a committee meeting, the meeting must be adjourned until the same day one week later. The reconvened meeting is to be held at the “same time and place” (reg 27(3)). This indicates that a meeting will occur at a specific time and place, not by a sequence of emails between the secretary and individual members over a period of days, as occurred here.
While body corporate committee meetings must be held at a specified time and place, the Act does not stipulate that every decision made by the committee, regardless of the circumstances and no matter how inconsequential, must be taken at a meeting convened for that purpose with committee members being present at the same time and place and voting in person. Such an interpretation would not serve one of the principal purposes of the Act which is to establish a flexible and responsive regime for the governance of unit title developments (s 3(c)). If, as was the case here, committee members separately, and unanimously, confirm by email their vote to raise a levy, there would be no utility in convening a meeting. We do not consider it was necessary to do so.
We also agree with Muir J that even if there was a procedural irregularity, the levy was affirmed and ratified by the Body Corporate at the 2015 EGM.
In summary, we are not persuaded that Muir J erred in concluding that the special levy was validly raised. In any event, no error has been shown in the exercise of his discretion to decline to grant a declaration of invalidity. We note that the appellants no longer seek such a declaration.
Costs
For the reasons given in Butcher we consider that an uplift of 50 per cent on standard costs is appropriate to reflect that this appeal lacked merit.[21] In all of the circumstances including that the appellants no longer pursued declaratory relief, the appeal bordered on being pointless.
Result
[21]Butcher Reasons (CA), above n 2, at [82]–[83].
The appeal is dismissed.
The appellants must pay the respondent costs for a standard appeal on a band A basis with a 50 per cent uplift and usual disbursements. We certify for second counsel.
Solicitors:
B E Brill, Paihia, for Appellants
Grove Darlow & Partners, Auckland for Respondent
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