Wheeldon v Body Corporate 342525
[2017] NZHC 87
•7 February 2017
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2014-488-0122 [2017] NZHC 87
BETWEEN DEREK PETER WHEELDON AND
CAROL ANN WHEELDON, ANTHONY JOHN BUTCHER AND RUTH BARBARA ROGERS, LARRY LAWRENCE SMALL AND KM TRUSTEE SERVICES LTD, IVOR ANTHONY MILLINGTON AND NEVILLE EADE
Plaintiffs
AND
BODY CORPORATE 342525
DefendantROBYN KATHLEEN STENT Counterclaim Defendant
Hearing: 2-6, and 10-11 March 2015 Appearances:
B E Brill for the Plaintiffs
TJG Allan TJP Gavigan for the DefendantJudgment:
7 February 2017
(FINAL) JUDGMENT OF MUIR J
This judgment was delivered by me on 7 February 2017 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
B E Brill, B E Brill Ltd, Paihia
TJG Allan, Grove Darlow & Partners, Auckland
TJP Gavigan, Grove Darlow & Partners, Auckland
WHEELDON v BODY CORPORATE 342525 [2017] NZHC 87 [7 February 2017]
Introduction
[1] In April 2015 I issued an interim judgment relating to the first cause of action in these proceedings.1 That pleading challenged the vires of the Body Corporate’s intended remediation plan. I found for the defendant and dismissed the claims for declarations and injunctions sought in paras A – E of the plaintiffs’ prayer for relief.2
I did so on the basis that, in my view, the Body Corporate was entitled to proceed with its remediation plan. My decision was upheld by the Court of Appeal.3 An application for leave to appeal to the Supreme Court was declined.4
[2] The interim judgment was released at the defendant’s request, with a view to clearing the way for a timely commencement of the works.5 I also observed:
[24] Moreover if (as I find) the Body Corporate’s intended plans are lawful and if such judgment is either accepted or ultimately upheld on appeal, I consider there to be a high probability that the many subsidiary issues relating to the propriety of individual payments and levies will be self- resolving. For example, if the development is indeed to be fully remediated to current code standards, arguments as to whether existing consultant payments were properly made from what the plaintiffs claim is a long term maintenance fund within the terms of [Unit Titles Act] 2010 (but which the defendant denies was ever constituted as such) are likely to be academic. Likewise, if a comprehensive repair is to take place, there are likely to be higher priorities than whether the procedural requirements associated with an existing levy have been satisfied.
[3] Unfortunately, my assumptions proved optimistic. Further proceedings were filed by the plaintiffs resulting in a second trial in September 2016, my decision in which has now been released.6 Summary judgment proceedings are now before the Court as a result of the refusal of the plaintiffs (and counterclaim defendant) to pay the levies raised for the remediation project (which itself is now complete). Despite the periodic assurances of counsel for the plaintiffs that his clients were substantially
focused on the “big picture” issues – vires in the Wheeldon proceedings and the significance of what came to be called the Butcher consent in the later proceedings –
the efforts of the Body Corporate to draw matters to a conclusion remain immersed
1 Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829.
2 At [200].
3 Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) NZCPR 353.
4 Wheeldon v Body Corporate 342525 [2016] NZSC 125.
5 At [23].
6 Butcher v Body Corporate 342525 [2016] NZHC 3128.
in multiple procedural and other challenges. I am therefore required to give judgment on the second cause of action and the counterclaim.
What the parties seek
[4] In their statement of claim dated July 20147 the plaintiffs seek, on their second cause of action, the following relief:
(a) A declaration that in its appropriation of funds held in the long term maintenance fund (LTMF) the Body Corporate has breached its obligations under s 117 of the Unit Titles Act 2010 (UTA).
(b)A declaration that payments totalling $215,237.698 were made without lawful authority and in breach of the UTA;
(c) A declaration that the purported levy sought in an email of 13 July
2014 is invalid and of no effect; and
(d) Costs.
[5] In its amended statement of defence and amended counterclaim dated 15
January 2015 the defendant counterclaims for the payment of the special levy referred to at [4](c) above. It seeks judgment against the plaintiffs and counterclaim defendant for their share of the levy, interest at 10 per cent per annum from the due date of the levies, and costs on a solicitor client basis.
[6] It also sought a mandatory restraining order requiring the counterclaim defendant Ms Stent either to vacate her apartment or erect the mandatory safety barrier necessary to enable the remediation of Unit 204 to take place. That issue came before the Court by way of a mandatory injunction application in January
2016. Ultimately consent arrangements were possible. On a contested application
for costs, Toogood J ruled that they should lie where they fell.9
7 No day specified.
8 Referred to in paragraph 34 of the Statement of Claim.
9 Wheeldon v Body Corporate 342525 [2016] NZHC 862 at [15].
Issues to be determined
[7] The following issues require to be determined:
(a) Whether the Body Corporate has breached s 117 of the UTA;
(b)Whether payments from the LTMF could be used to meet legal and consulting fees in relation to the remediation and proceedings brought by the defendant against the Far North District Council (FNDC); and
(c) Whether the special levy was lawfully raised on 13 July 2014.
Issue one: Was the Body Corporate in breach of s 117 of the Act?
[8] The plaintiffs argue that the LTMF was used in breach of s 117 which mandates a special resolution to approve any amount spent in excess of the specified amount in the long-term plan by 10 per cent. The section states:
117 Long-term maintenance fund
(1) A body corporate must establish and maintain a long-term maintenance fund unless the body corporate, by special resolution, decides not to establish a long-term maintenance fund.
(2) The fund may only be applied towards spending relating to the long- term maintenance plan.
(3) The body corporate must, by special resolution, approve any amount to be spent on any 1 maintenance item if the amount exceeds the amount specified for that item in the long-term maintenance plan by more than 10% passed at its 2012 AGM.
[9] The defendant says that although in its accounts there was a line item referring to a LTMF, this was in error.10 The relevant funds were in fact held in an
optional contingency account pursuant to s 118, which is in terms:
10 Corrected by a resolution passed at an EGM on 18 June 2015 in terms
“… the body corporate hereby ratifies and affirms by special resolution that the account styled or previously referred to as “the long term maintenance fund” is and always has been an optional contingency fund for the purposes of and as defined under s 118 of the Unit Titles Act 2010 (“the Act”).”
I discussed this in Butcher, above n 6, at [99] (see resolution 8).
118 Optional contingency fund
A body corporate may establish and maintain 1 or more contingency funds to provide for unbudgeted expenditure.
[10] It says that by reference to a special resolution passed in 2012 in terms:
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.
[11] That resolution was carried unanimously. The minutes of the 2012 AGM record that the decision was taken to maximise flexibility and enable the body corporate to raise maintenance levies as required.
[12] As the legislative history indicates,11 concern about managing the financial implications of long term maintenance requirements within unit developments was central to the s 117 regime. However, the Act clearly also envisages the opportunity for flexibility. In my view the resolution passed at the 2012 AGM is adequate authority for the Body Corporate to have stepped outside the regime. Although its accounts may have, for a period, identified particular funds as held in a LTMF, I held in the Butcher proceedings that I could see no impediment to the correction of that categorisation (to “optional contingency fund” under s 118 of the UTA), which
occurred at the 2015 EGM.12 In substance that is how the account had operated
since the 2012 AGM.
[13] Moreover, I would not in any event have been persuaded to exercise my discretion to grant the declaration sought, having regard to the modest importance of the issue within the overall context of the remediation project. My interim judgment in these proceedings found that the scope of works contemplated by the Body Corporate was lawful. That finding was upheld on appeal. The works have now
been completed and all associated professional costs paid. The building is now in
11 See, for example, the observations of MP Nicky Wagner at the Bill’s first reading (5 March
2009) 652 NZPD 1713 in terms: “Interestingly enough, the most common area for dispute in multi-owned developments is the management of maintenance, or, really, the management of finance for maintenance. This bill will require mandatory, long-term maintenance plans and long-term maintenance finance organisation. That will be based on good, sound property management practices, but it will be flexible enough to be tailored to the development’s needs.”
12 At [99].
“as new” condition with relevant warranties. There is no foreseeable requirement to access a LTMF. The remediation project and associated professional costs had to be funded from some source. To the extent money was applied from the ultimately restyled “optional contingency fund” it did not have to be otherwise levied. In that sense the argument typifies many in this case which may have some theoretical interest, but have little in the way of practical application. In my view the Court should neither be called upon nor prepared to give a declaration in that context.
Issue two: Were the payments out of the fund lawful?
[14] The plaintiffs say in their Statement of Claim that:
36. Financial statements and a spreadsheet attached to the BBCL email of 13 July disclosed that the LTMF of $101,635 and $113,230.22 from the Operating Account (a total of $215,237.69) have been used for the purpose of meeting unbudgeted legal and consultant fees in relation to the Origin Repair Plan and the Council Proceedings in breach of the Act for the reasons particularised in paragraph 35 above, with the consequence that the BC has a net deficit of Owners’ Funds amounting to $19,134.83.
[15] The particulars in para 35 of their Statement of Claim are to the effect that:
(a) The expenditure could not come out of an operating account, a LTMF
or a contingency fund as that had not been expressly authorised;
(b)There was no delegated authority to the Committee to spend the money; and
(c) The Committee could not delegate the power to raise a levy to
Boutique Body Corporates Ltd (BBCL).
[16] I have already dealt with (a). The fund could, in my view, accordingly be applied for unbudgeted expenditure in the nature of professional and consultancy fees associated with the remediation project and resultant litigation.
[17] As to (b), s 108 of the Act governs delegation as follows:
108 Delegation 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).
[18] This section places limits on powers which may not be delegated; any other powers including powers to raise or spend levies are not so constrained. This accords with the section’s legislative history. The report of the Social Services Committee on the then Unit Titles Bill 2008 contained, for example, the following observations:13
Delegation of duties and powers
As introduced, clause 93 provides that a body corporate may delegate its powers and duties to a body corporate committee, subject to certain exceptions. We recommend amending clause 93(2) to remove the prohibitions on the delegation of the duty to establish and maintain a long- term maintenance plan, the duty to raise and impose levies, the power to spend, borrow, and invest money, the duty to distribute surplus money and property, and the duty to insure the land and other improvements on the land. It would be more efficient for a body corporate to be able to delegate these powers and duties to a body corporate committee, rather than having to meet every time it wished to exercise these responsibilities.
[19] The Committee was delegated full authority at the AGM on 25 January 2014 by the following resolution:
COMMITTEE POWERS RESOLVED
“The committee is delegated the full powers and authority of the Body Corporate, subject to any prior direction given at any General Meeting of the Body Corporate or prohibition as contained in s 108(2) of the Act.”
CARRIED.
[20] Earlier in the minutes the following statement of intent is recorded:
There was a general discussion about the wish of members to progress the remedial works as expeditiously as possible. To this end it was accepted that the Committee would need to be delegated authority in a number of areas.
[21] The resolution was contained in the written notice of agenda circulated by Mr
Leishman, a principal of the Body Corporate’s secretary/manager, BBCL, on 28
December 2013.
[22] Although neither the agenda nor the Minutes record the resolution as a special resolution, and the Minutes do not identify it as having been passed by the 75 per cent majority necessary for that purpose, the unchallenged evidence of Mr Leishman is that it was passed unanimously. He states in his affidavit, dated
3 February 2015 that it is his “normal recording practice in the minutes when recording a resolution which has been passed unanimously or without anyone registering a dissenting vote” to simply record the resolution as “CARRIED”. Further, the evidence in the case was of unanimity among the body corporate members until Ms Stent’s acquisition of the Wheeldon’s unit.14 In the absence of any evidence to the contrary, I conclude that the resolution was passed unanimously. I further find that any procedural inadequacy in terms of identification of the resolution as “special” in the agenda was capable of ratification (as occurred at the
2015 EGM). Moreover, having come to such conclusions I am unpersuaded that my discretion to grant a declaration of invalidity would be appropriately exercised in any event.
[23] The delegation resolution was also required to be notified in accordance with reg 22 of the Unit Titles Regulations 2011. That step was taken, as deposed to by Mr Philip Andrews in his affidavit of 3 February 2015. The notice of delegation was emailed to the Committee, expressly stating that the notification was for the purpose of compliance with reg 22.
[24] In terms of ss 109 and 121 the Committee was, as a result of the delegation, authorised to raise and spend levies on consultants and related costs. These sections provide:
109 Delegated duties and powers of body corporate committee
(1) A body corporate committee to which any duties or powers are delegated under section 108(1) may, unless the delegation provides otherwise, perform the duties and exercise the powers in the same manner, subject to the same restrictions, and with the same effect as if it were the body corporate.
(2) The body corporate committee must not delegate any of its delegated duties or powers.
(3) The body corporate committee, when purporting to perform a duty or exercise a power under a delegation,—
(a) is, in the absence of proof to the contrary, presumed to do so in accordance with the terms of that delegation; and
(b) must produce evidence of the body corporate committee’s
authority to do so, if reasonably requested
121 Contributions to be levied on unit owners
(1) A body corporate may determine from time to time the amounts to be raised for each fund and impose levies on the owners of principal units to establish and maintain each fund.
(2) The levies must be calculated as follows:
(a) in the case of the operating account, long-term maintenance fund, and any contingency fund, in proportion to each unit owner’s utility interest; and
(b) in the case of any capital improvement fund, in proportion to
each unit owner’s ownership interest.
[25] Finally, I note that at its 2014 AGM the Body Corporate ratified and approved all expenditure approved at the direction of prior General Meetings, and confirmed the LTMF’s disestablishment in accordance with s 117(1). It did so by a
special resolution passed by 13 votes to 4. Further ratification occurred at the 2015
EGM as discussed in my decision in Butcher.15 The result was to cure any procedural inadequacies of the type I have identified.
[26] As to (c), the evidence does not establish that levies were raised by BBCL. It acted at all times on Committee instructions.
Issue three: Was the Special Levy lawfully raised?
[27] As I have found, the Committee was lawfully delegated authority to raise levies. In exercise of this power it purported to raise a levy of $150,000, on 13 July
2014. The plaintiffs challenge the decision on the basis that it was reached without a meeting of the Committee members in person.
[28] The Committee at that stage was comprised of Ms Bath, Ms Grey, Mr
Andrews and Mr Nimmo. Its quorum was fixed at three.16
[29] The evidence demonstrates that on 13 July 2014 at 9.19 am Mr Leishman sent an email to the Committee members suggesting a special levy be raised of
$50,000 and attaching the accounts to date. Ms Grey replied to “All” stating “That’s fine. Are you sure $50K is enough?” Mr Andrews stated “I echo Margaret’s sentiment – is $50K enough at this stage?”
[30] John Nimmo sent a detailed email at 10:26 pm on the same day agreeing that a levy needed to be raised as soon as possible but suggesting that $50,000 was too little. This was because, having just examined the accounts, there was approximately $55,000 owed to creditors. He also noted the likelihood of legal fees being payable in the near future, given that they had to date incurred only half of the projected total cost of the litigation. He therefore explained that the levy should be a minimum of $100,000, but that he preferred $150,000. He acknowledged that while
this may be tough for some Body Corporate members, it was better to identify
15 Butcher, above n 6, at [98].
16 Resolution 11 at the 2014 AGM, as recorded in the minutes (Mr Butcher was also a member of the Committee until he resigned in April 2014 following disagreements with the rest of the Committee over the remediation project).
potential pressure points sooner rather than later in terms of managing the remediation project into the future.
[31] Ms Bath replied to “All” the next day, confirming her agreement with Mr Nimmo’s reasoning. Ms Grey and Mr Andrews did not correspond further but their assent can be readily inferred from the fact that they too considered a higher levy appropriate and did not question Mr Nimmo’s suggestion of $150,000.
[32] All members were copied into the email chain and Mr Leishman confirmed the levy with the Committee before notifying it to the Body Corporate members.
[33] In terms of the validity of this process, the Act provides that:
109 Delegated duties and powers of body corporate committee
(1) A body corporate committee to which any duties or powers are delegated under section 108(1) may, unless the delegation provides otherwise, perform the duties and exercise the powers in the same manner, subject to the same restrictions, and with the same effect as if it were the body corporate.
…
113 Decision-making of body corporate committee
Any matters at a meeting of a body corporate committee must be decided by a simple majority of votes.
[34] In respect of general meetings of a body corporate voting may occur in person, by proxy or by post.
102 Voting: proxies
(1) An eligible voter may exercise the right to vote either by being present in person or by proxy.
…
103 Voting postal
(1) An eligible voter may exercise the right to vote either by being present in person or by proxy.
…
[35] In respect of such general meetings, Rod Thomas opines that:17
Traditionally, meetings serve an important role in any democratic process, even if the conclusion appears forgone. A meeting provides a venue for dialogue. In such a setting, the minority have the opportunity to express their views and an opportunity to argue their case to the majority. One calls to mind the dicta of Potter J in Spencer-Inight v Johnston where her Honour, referring to the 1972 Act, expressed her thoughts as follows:18
There is clear provision under the [1972] Act and Rules for Body Corporate members to take decisions. Consent in my view requires a positive determination. All members of the Body Corporate are entitled to the opportunity to take part in that decision-making, whether or not they avail themselves of the opportunity. That is the very reason why the legislation provides for meetings of proprietors, the Body Corporate members, and a ritual of calling and convening those meetings.
[36] In the absence of some clear legislative requirement, I would be reluctant to conclude that a body corporate committee was not entitled to reach decisions based on an exchange of views by email. The new Act was intended to relieve much of the sclerosis which had afflicted its predecessor, and it seems to me inconceivable that a delegated committee ought not to be able to avail itself of routine technology in coming to a decision about the necessity for a levy to meet accrued accounts. Significantly, s 113 does not mandate committee meetings; it simply says that at such meetings decisions should be taken by a majority of votes. The section does not in my view preclude decision making by other means.
[37] This is also consistent with the proxy and postal ballots permitted in general meetings. So although Mr Thomas is undoubtedly correct in emphasising the importance of general meetings, the legislation recognises that, even in that context, members may have the ability to vote without being party to an in-person discussion. And within a committee context the arguments in favour of some relaxation seem to me overwhelming. This is particularly so given that, as in this case, unit holders may not be permanent occupants and committee members may be scattered
geographically.
17 Rod Thomas Unit Titles Handbook (Brookers, Wellington, 2011) at 26-27.
18 Spencer-Inight v Johnston HC Auckland M2169/98, 23 December 1998 at 7.
[38] However, if I am wrong in this conclusion I would not be persuaded to exercise my discretion in favour of a declaration of invalidity. The text of the emails clearly shows reasoned discussion, including reference to outstanding debts of approximately $55,000 and the potential for further legal costs in the near future. The emails spanned over two days with input from each Committee Member. I am satisfied that a consensus was ultimately reached which would mean that any intervention on the Court’s part would be on technical, rather than substantive, grounds.
[39] Moreover, to the extent that there was any procedural irregularity in the way in which the Committee reached its decision (and I consider the plaintiffs’ complaint undoubtedly in that category), it was capable of ratification, as occurred by special resolution at the 2015 EGM.19 Again, therefore, I consider the relief sought inappropriate.
Counterclaim
[40] It follows that judgment is appropriately entered on the counterclaim against the following parties and in the following amounts:
(a) Robyn Kathleen Stent (Unit 2.4) $7,696.50.
(b) Anthony John Butcher and Ruth Barbara Rogers (Unit 3.1) $8,487.
(c) Larry Lawrence Small and KM Trustee Services Limited (Unit 2.6)
$4,260.75.
(d) Ivor Anthony Millington (Unit 3.7) $8,211. (e) Neville Eade (Unit 3.10) $8,245.50.
[41] Each party is also liable to pay interest at 10 per cent per annum from 31 July
2014 until payment in full is made. I note that Ms Stent has since paid the levy (and
the interest accrued on it) on a basis which was, at the time of payment, without prejudice to her rights.20
Result
[42] The plaintiffs’ second cause of action is dismissed.
[43] I give judgment on the counterclaim in accordance with [40] and [41] above.
Costs
[44] It is now appropriate to fix costs in relation to both the claim and counterclaim.
[45] As indicated in my interim judgment, I consider that in respect of the claim these are appropriately calculated on a 2B basis in the defendant’s favour. Provisionally, I would also allow for second counsel. Such costs should be capable of agreement. However, if that is not possible memoranda may be filed. These are to be a maximum of five pages plus any required schedules. They are to be exchanged in advance to limit any areas of difference. Counsel are to indicate whether any hearing time is required.
[46] In respect of the counterclaim, costs are likewise payable. These are sought by the defendant on a solicitor/client basis. If agreement is not possible in that
respect, the issue can likewise be addressed by memoranda.
Muir J
4
5
1