White v VXJ Holdings Limited
[2019] NZHC 3095
•26 November 2019
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000157
[2019] NZHC 3095
BETWEEN MICHAEL LESLIE WHITE AND BODY CORPORATE 78462
ApplicantsAND
VXJ HOLDINGS LIMITED
Respondent
CIV-2019-409-000221 IN THE MATTER OF
AN APPLICATION MADE RELATING TO BODY CORPORATE 78462 (CAVE ROCK)
AND
S 141 UNIT TITLES ACT 2010
AND
VXJ HOLDINGS LIMITED
Applicant
Hearing: 21 and 22 October 2019 Appearances:
H C Matthews for Applicants in CIV-2019-000157
V A Nichols for Respondent in CIV-2019-409-000157 and for Applicant in CIV-2019-409-000221
Judgment:
26 November 2019
JUDGMENT OF GENDALL J
This judgment was delivered by me on 26 November 2019 at 2:30 p.m. pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
WHITE v VXJ HOLDINGS LTD [2019] NZHC 3095 [26 November 2019]
Introduction
[1] The Cave Rock Apartments complex (the complex) is a residential and commercial building complex in Sumner, Christchurch. The complex was built in 1997/1998 and sits at the intersection of Marriner Street and the Esplanade, Sumner. It comprises 49 residential units, a Tavern and a large basement carpark underneath. It is a unit title development in terms of the Unit Titles Act 2010 (UTA 2010) for which the second-named applicant, Body Corporate 78462 (the Body Corporate) was established.
[2] The developer of the complex was Esplanade Investments Limited (Esplanade). The director of Esplanade is Mr Peter Foster (Mr Foster). Mr Foster is also the director of VXJ Holdings Limited (VXJ) which owns Unit 50 in the complex (the Tavern). His wife Mrs Celia Foster (Mrs Foster) owns Unit 39 (a residential apartment). In recent times Mr Foster has transacted the business of Unit 39 under a power of attorney.
[3] In the 2010 and 2011 Canterbury earthquake sequence, the complex was severely damaged. Units 1 to 30 have since been demolished. Units 31 to 45 remain standing but are seriously compromised due to water damage. Units 46 to 49 are occupiable (units 46 and 49 are occupied). Unit 50, which is the Tavern, is occupiable.
[4] The basement carpark underneath the complex was damaged beyond repair. The insurer of the complex deemed it uneconomic to reinstate the apartments, so a sum of around $21 million in settlement of the overall insurance claims was paid out to the Body Corporate for the owners.
[5] At that time there emerged an acrimonious dispute between a few of the unit owners, being particularly Mr and Mrs Foster and possibly two other owners on the one hand, and the remaining majority of the unit owners and the Body Corporate committee on the other. Agreement could not be reached as to how the settlement money should be distributed. As an interim payment, approximately $17 million was distributed to the majority who were those 46 of the 50 owners prepared to accept the arrangements. There is still disagreement between some of the owners as to how the remainder should be distributed.
[6] The Body Corporate has also on behalf of all owners received an offer to purchase the complex as is in its earthquake damaged and part-demolished condition for $4.8 million conditional on all unit owners agreeing to the sale by about 20 December 2019. That sale offer (the sale offer) is from Peterborough 15 Ltd (P15). Of the 50 owners, again 46 have accepted the sale offer. Those owners who have refused are:
(a)Unit 23 (Mr Holm);
(b)Unit 31 (GNS/Mr Mackenzie);
(c)Unit 39 (Mrs Foster with Mr Foster as her spokesman and attorney); and
(d)Unit 50 (VXJ – again with Mr Foster, acting as director and spokesman for VXJ.
[7] Realistically the complex can only be sold as one because the damaged basement carpark lies under the majority of the property.
The applications before the Court
[8]In its present application before the Court, the Body Corporate seeks:
(a)the settlement of a scheme for the Body Corporate under s 74 UTA 2010 to distribute the remaining insurance proceeds and any other property remaining;
(b)an order for the cancellation of the Unit Plan under s 188(2) UTA 2010.
(c)an order under ss 339 – 343 of the Property Law Act 2007 (the PL Act) to require the four unit-owners noted at [6] above who have not agreed to sell, to sell their units to P15 under the existing sale offer joining with the Body Corporate and the rest of the unit owners.
[9] Before me at the hearing of this matter, Mr Matthews appeared as counsel for the Body Corporate and for the first named applicant, Mr Michael White (Mr White) as current Chairperson of the Committee of the Body Corporate and on behalf of the 46 owners who support all aspects of their present applications. Mr Foster, through VXJ Holdings Ltd (VXJ), and Mrs Foster, it seems, however, no longer oppose the proposed sale to P15 but they oppose the proposed distribution of funds. Neither Mr Holm, Mr McKenzie or his company GNS (who I understand are the other unit owner parties who at one point have opposed the Body Corporate’s present application) appeared before me or advanced any specific argument on these matters. As I understand it, they simply take the same position as was advanced before me on behalf of VXJ and the Fosters. Ms Nichols appeared before me as counsel for VXJ and the interests of Mr and Mrs Foster. VXJ also sought a further order from this Court. This was to the effect that an administrator be appointed to immediately conduct an audit and to take over the affairs of the Body Corporate. The application for this order to appoint an administrator is opposed by the Body Corporate and its supporting 46 owners.
[10] There remain, therefore, two core issues to decide in this proceeding. The first is whether a scheme under s 74 of the UTA should be introduced, and if so how it should distribute the insurance, and sale proceeds and any remaining property. The second is whether an administrator should be appointed. A third issue for the sale order under ss 339 – 343 of the PL Act noted at [8](c) above is effectively no longer opposed and I will address this briefly below.
The scheme for the Body Corporate under s 74 UTA 2010
[11] The UTA 2010 allows the court to settle a scheme following destruction or damage to a unit title property. The Court’s jurisdiction and powers are set out in s 74:
Scheme following destruction or damage
(1)This section applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.
…
(7)In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders —
(a)directing the application of any insurance money;
(b)directing payment of money by or to the body corporate or by or to any person; or
(c)directing the deposit of an appropriate new unit plan; or
(d)imposing any terms and conditions that it thinks.
[12] The Court of Appeal set out the following test for applying s 48 of the Unit Titles Act 1972 (UTA 1972), the precursor to the current s 74, in Tisch v Body Corporate No 318596:1
Step 1: The Court must be satisfied that the building has been damaged or destroyed.
Step 2: If so satisfied, the Court must decide whether to settle a scheme. That is, the Court must decide whether a scheme is appropriate in the circumstances.
Step 3: If the Court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.
[13] In Tisch, the Court of Appeal cited five factors to be taken into account when considering the terms of a proposed scheme:2
First, a scheme with broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners.
Secondly, the scheme should be appropriately detailed. The more detailed the scheme the less scope for later misunderstanding and argument about it.
Thirdly, providing that what has been done by the body corporate before the s 48 scheme is actually approved to be in accordance with the scheme, the order has retrospective effect.
Fourthly, work should normally be done to the same standard and at the same time.
Fifthly … the terms of the s 48 scheme should depart from the scheme of the Act and from the body corporate rules no more than is reasonably necessary to achieve what is fair between unit owners in the circumstances. … An
1 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [35]
2 Above n 1, at [45] – [49].
exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.”
[14] The approach in Tisch has been approved in the High Court in relation to s 74 of the UTA 2010 in Body Corporate 312431 v Auckland Council.3 Section 74 provides an important mechanism to avoid grid-lock issues caused by individual unit owners who “hold out” against decisions that would benefit others. Matters need not be “in dispute” in a strict sense for an application under s74 to be triggered. An application may be driven by the failure of some (even one) unit title owners to engage with the process. This can be the case where there is no form of opposition and no particular “dispute”.
[15] In the present case it is agreed by all parties represented before me that a scheme should be settled. The dispute is as to how the insurance funds and remaining property from the complex ought to be distributed. Specifically, Mr White and the Body Corporate apply to the court for orders under s 74:
(a)That the proceeds of the Weathertight Homes Tribunal Resolution held by the Body Corporate be disbursed to unit holders in accordance with a plan provided.
(b)That proceeds received from the Earthquake Commission (EQC) in relation to damage suffered to the complex in the September 2010 earthquake be distributed in line with a schedule that has been provided.
(c)That all further funds and property owned now or in the future be divided between the owners according to currently registered ownership interests for the development.
Weathertightness funds
[16] The complex has suffered leaking and weathertight issues arising from shortly after the time it was built. The assistance of the Weathertight Homes Resolution Service was sought. An assessor’s report was obtained, and this resulted in the Body
3 Body Corporate 312431 v Auckland Council [2015] NZHC 961 at [3].
Corporate on 6 October 2008 resolving to take a case to the Weathertight Homes Tribunal. In January 2010 a settlement agreement was reached at mediation which required payments to be made by certain parties including the City Council, and the developer, Esplanade. Settlement funds were received by the Body Corporate but before repair work could begin it was disrupted by the Canterbury earthquake sequence.
[17] Certain funds paid by some of the owners I understand for legal costs have been returned to them. Contributions from the City Council and Esplanade totalling
$210,000 remain in the Body Corporate’s bank accounts. It now seeks directions as to how to distribute these funds.
[18]On this aspect, the applicants propose that:
(a)Each contributing unit owner be reimbursed the full contribution made to the legal costs to bring the weathertight claim, a total of $39,167.47.
(b)The remainder ($170,832.53) be distributed to the unit owners who participated as claimants in the proceeding in proportion to the assessed damaged to each unit.
[19]This order is not opposed. Accordingly, an appropriate order will follow.
The proceeds held from EQC
[20] In 2012 the Body Corporate received a sum of $120,051.32 from the EQC for damage to parts of the complex arising out of the September 2010 earthquake. The applicants propose that the proceeds held by the Body Corporate received from EQC in relation to that damage be disbursed as follows:
(a)The sums paid in respect of claims made by individual units be paid to those units.
(b)The sums paid in respect of the exterior of each building in the complex be paid to the units in the particular building, and they be apportioned
in accordance with the ownership interest of each unit within that building.
(c)Nothing would be payable to a unit where earthquake damage was not claimed and assessed.
[21]Again, this order is not opposed. An appropriate order will follow.
Distribution of remaining property
[22] As I have noted, the parties before me all agreed that a scheme under s 74 of the UTA 2010 should be settled to distribute the remaining funds. The only dispute arising, however, is as to how these funds are to be distributed, in other words, what amount is each unit owner to receive. The applicants seek that all insurance and other proceeds be distributed in accordance with each unit’s currently registered “ownership interest” as that term is defined in the UTA 2010. This order is opposed by VXJ and presumably also by Mrs Foster, Mr Holm and Mr McKenzie and his company GNS. Mr Foster for VXJ says that the Court should order distribution in accordance with the original ownership interests (known then as “unit entitlement”) as set when the complex was built in 1998.
[23] Under the UTA 2010 (and indeed under the UTA 1972 although under the name unit entitlement (UE)) in a unit title development, at the outset an ownership interest (OI) is assigned to every unit in the development. This is set by a registered valuer who assesses the value of a unit relative to each other unit.4 The OI is used to determine, amongst other things, an owner’s beneficial interest in the common property of a development, the rights of the owner of a principal unit in relation to final distribution of a fund on wind-up of the unit development (of importance here) and voting rights. Under s 39 UTA 2010 a utility interest (UI) is to be assigned to every unit on deposit of a unit plan. Subject to s 39(2A), the UI in terms of s 39(2) “…is the same as the ownership interest assessed for the unit under s 38(2).” This UI is used to determine a range of matters including an owner’s individual contribution
4 Unit Titles Act 2010, s 38(2).
required to body corporate operating levies and a long term maintenance fund and to the owner’s right to distribution of any surplus monies from that fund.
[24] It is useful here to set out how the OIs in this particular complex have changed over time. The initial UEs were set in 1998.5 The UEs (or OIs) at that time had been set by Mr Mark Foster (a registered valuer) who is Mr Foster’s son. The report of Mr Mark Foster prepared at the time and relating to this cannot be found. Mr Foster says now that all the insurance funds and remaining property should be distributed according to those original UE figures which he says were set out in his son’s report and as originally adopted and registered.
[25] In 2011 a reassessment of the OIs for each unit occurred, however. The background to this occurred in the following way. On 1 December 2011, Mr White as Chairperson of the Body Corporate Committee, met with Mr Marius Ogg, a valuer from CBRE. Post-earthquakes, Mr Ogg had been commissioned by IAG, the Body Corporate’s insurer, to complete a market valuation for units 1 to 30 in the complex for indemnity insurance purposes. On 30 January 2013, Mr Ogg completed a similar inspection of Units 31 – 49.
[26] Mr White says that the reports prepared by CBRE highlighted significant inconsistencies between the UEs (or OIs) as originally set in 1998 and the relative market values of the units as at 21 February 2011 (the significant earthquake date here).
[27] By 2017, Mr White and his Committee colleagues considered it likely there would ultimately need to be a cancellation of the Unit Title Plan and a distribution of insurance proceeds. The Committee of the Body Corporate thought at that point that the UTA 2010 required the OIs to be reassessed on a plan change or cancellation. So, at its Annual General Meeting on 5 September 2017, the Body Corporate resolved to have the OIs of units in the complex reassessed.
5 As I have noted, they were then referred to as a “Unit Entitlement” in the UTA 1972. That UTA 1972 has now been replaced by the Unit Titles Act 2010 which refers to this as an “Ownership Interest” instead.
[28] Mr Mark McSkimming from valuation firm Knight Frank was contracted to reassess the OIs. He viewed the reports from Mr Ogg. He also viewed the comprehensive individual apartment survey estimates for Units 1 – 30 that had been prepared by quantity surveyors before the main residential block was demolished. Those quantity surveyors had prepared a costing in case there was a rebuild required.
[29] Mr McSkimming reached a different view of many of the OIs from those that had been in place and applied since the complex was developed in 1998. He updated those OIs accordingly. The reassessment was registered in terms of the UTA 2010 on 27 April 2018. Six owners voiced their objections, however to the Body Corporate Committee at the time. These objections related to what they contended was the legality and the validity of the OI reassessment and as to alleged inconsistencies in it.
[30] Those objections were forwarded to Mr McSkimming who considered they did not alter his view on the update of the original UEs to the new OIs. By way of example, VXJ’s unit entitlement for Unit 50 fell from an original figure of 6.0804% to 3.75%. VXJ’s position now (and that adopted by the Fosters and I assume also Mr Holm and Mr McKenzie) is that the scheme should be settled on the basis of the old UE and not the new assessed OI.
[31] VXJ submits that although s 74 does not include the words “just and equitable” it is consistent with both the scheme of the UTA 2010 and relevant case law to ensure the proposed course of action is just and equitable in this context. It does this, amongst other things, with a reference to ss 188(2) and (3) UTA 2010 relating to a cancellation by the Court of a unit plan.
[32] A relatively recent decision in this Court on ownership interests and reassessment under the UTA 2010 is Dominion Finance Group Limited (In Receivership and Liquidation) v Body Corporate 3829020. This case is referred to as “Gallery Apartments”, after the name of the complex in Christchurch which was involved and severely damaged by the February 2011 earthquake. The apartments there were subsequently demolished after a decision was made not to reinstate. Instead the unit owners took a cash settlement. The valuer instructed came to a judgment that the relativity between the Gallery Apartment Units had altered over the intervening
period between the original assessment in 2007 and 21 February 2011 (the effective date of reassessment). He based his view on sales evidence and his knowledge of the original assessment. In that case Fogarty J in the High Court said:6
The application to cancel on the just and equitable ground invokes the legal method of equity. Equity looks at all the facts. It is necessary therefore to examine carefully the process all the owners first pursued and which some of the owners want stopped. This involves careful examination of what the law would find they actually resolved to do, and, secondly, whether or not the reassessment of values is according to law. Thirdly, there is then an inquiry as to whether or not the mistake of law, ignorance of the need for reassessment, warrants, on all the facts, leaving the distribution of monies to date undisturbed.
All of these issues fold into consideration of whether it is just and equitable to cancel the plan using the existing ownership issues, which were established in 2007, or moving to a different set of ownership entitlements calculated now or just prior to the earthquake.
[33] On this aspect, Ms Nichols for VXJ referred me to a number of cases she said that suggest also that the Court must consider what is just and equitable when forming a scheme under s 74 of the UTA 2010.7 In light of those cases, VXJ contends that the just and equitable outcome here is for the funds held by the Body Corporate, and indeed all remaining assets of the complex, to be distributed according to the original UE percentages and not the new OIs.
[34] In support of this, VXJ submits that the resolution to reassess the OI was made on the basis of both incorrect information and a mistake of law.
[35] In terms of the mistake of law, it is within the powers of the Body Corporate to pass a special resolution to re-evaluate the OI. However, VXJ says that in error it was represented to the Body Corporate members that reassessment was both necessary and inevitable as on final wind up and distribution of all funds, the Unit Plan would likely be cancelled, and this reassessment was required. VXJ says that the vote to re- evaluate the OIs was wrongly undertaken on this basis.
6 Dominion Finance Group Limited (In Receivership and Liquidation) v Body Corporate 3829020
[2012] NZHC 3325 at [5] and [6]
7 See Lake Hayes Property Holdings Limited v Petherbridge [2014] NZHC 1673; World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673; and OM Hardware Limited v Body Corporate 303662 [2015] NZHC 190.
[36] VXJ maintains that under the former UTA 1972, there could be cancellation of the unit plan by the Court, or on application of the proprietors to the Registrar. On cancellation by the Registrar, the estate would be vested in the shares held immediately before cancellation. The Court, however, had the discretion to make orders for the distribution of the assets of the Body Corporate as it thought fit.
[37] The 1972 Act was replaced by the UTA 2010 which introduced a requirement that an application to the Registrar for cancellation be accompanied by a reassessment of the ownership interests from a registered valuer. This was a change from the previous position but could still be avoided by application to the Court.
[38] On 30 May 2017, the UTA 2010 was amended. Of relevance, s 177 was amended to allow a Body Corporate to avoid the need to reassess the OIs before filing an application to cancel a unit plan. From this date, the Body Corporate here, by the same process, could either resolve to reassess or resolve not to reassess the OIs.
[39] Both of these options were available to the Body Corporate when it met on 5 September 2017. However, the meeting minutes record that owners were told:
In the event that the unit title plan was cancelled we would be compelled to undertake this exercise under Section 177 of the Act anyway.
[40] VXJ says the owners voted in favour of the reassessment based on a mistake of law that this was a step they would be legally required to take before they could cancel the unit plan. They intended to comply with the requirements of the law but were mistaken as to what those requirements were. VXJ notes there was and is no legal requirement to reassess the ownership interests in the present circumstances before the plan is cancelled, contrary to what the owners thought.
[41] I accept that the Body Corporate was not compelled to reassess at this point. However, I do not believe that the decision to re-evaluate was undertaken in bad faith or that it was ultimately unfair.
[42] If a resolution for cancellation of a unit plan is followed by a registered valuer’s reassessment of the ownership interests, then disaffected minorities can apply to set
aside that resolution on the ground that the resolution “would be unjust or inequitable”. That provided for by s 210 of the UTA 2010. This states:
210 General relief for minority where resolution required
(1)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.
(2)An application for relief under subsection (1) must be made within 28 days of the passing of the resolution.
[43] Following the 5 September 2017 Body Corporate meeting, VXJ or any other disaffected owner could have applied within 28 days for relief. The applicants say this did not occur. VXJ endeavours to explain this by suggesting that no inference can be drawn from this as at the time the resolution to reassess was passed, VXJ was ineligible to either vote or apply for minority relief under s 210, because it had not paid levies, due to an ongoing dispute at the time. Whether that same argument applies to Mrs Foster, Mr Holm or Mr McKenzie’s company as other unit owners at the time is another matter, however.
[44] In any event, VXJ and Mr Foster say the same test of “unjust or inequitable” is being used now to determine whether the effect of the resolution would be unjust or inequitable for the minority. I do not consider that the decision to re-evaluate was inherently unjust or inequitable, even if it may have been influenced by a misunderstanding of the Body Corporate’s obligations when cancelling a plan.
[45] In particular I am mindful that there is evidence before the Court that Mr Foster had by email in 2012 and 2013 himself complained to the Body Corporate saying that the OI’s were in need of reassessment. The evidence from Mr Foster before the Court in his email dated 4 July 2013 to the Body Corporate is significant. In this email he states:
It is very clear to me that two matters need resolving.
1. That the UI and OI need to be reset to represent the correct value for units in relation to each other.
2. The apportionment upon which your levy calculations are based are not supported by appropriate methodology…
[and]
My suggestion for what it is worth is that a mutually agreed Registered Valuer be commissioned and instructed to provide a fair and equitable assessment method to levy owners for the purpose of establishing the levy.
It is that registered valuation of Mr McSkimming commissioned by the Body Corporate to reassess the OIs (and by implication the UIs under s 39 of the UTA 2010) to which Mr Foster and VXJ now object.
[46] Nevertheless, and ignoring this and other emails from Mr Foster, I turn to consider his and VXJ’s further objections advanced before me. Beyond the allegations of a failure of law in the Body Corporate’s determination to undertake a new OI, VXJ and Mr Foster claim that there has never been any real dispute raised by anyone regarding the method or outcome of the original UE or OI assessment done in 1998. They say that the original assessment was correct and there was no reason to depart from it.
[47] The Body Corporate members were told the indemnity valuation from CBRE “makes it clear that the current ownership interests do not reflect the value of each unit relative to each other. This needs to be corrected.” VXJ says that statement is wrong in the sense that there had been no significant changes to the complex since the original OIs (assessed by Mr Foster’s son) nor were there other compelling reasons to depart from the original OIs.
[48] VXJ also submits that the reassessment methodology was flawed, in that because of the earthquakes, there was limited ability to undergo internal assessments of the individual units. By the time Mr McSkimming was engaged, units 1 to 30 had been demolished and units 31 – 45 were uninhabitable due to weathertightness issues. Mr McSkimming relied heavily upon three CBRE reports.
[49] It was submitted before me on behalf of VXJ and Mr Foster that, in addition, Mr McSkimming should not have relied on CBRE being able to undertake a detailed analysis of the market, because there was simply not enough available sales data to provide any reliable indication of market value as at 21 February 2011. The CBRE
report, they note, was also prepared to “assess the market related indemnity of the individual strata units”. They were not instructed to prepare an OI re-assessment.
[50] Mr McSkimming was faced with what VXJ and Mr Foster suggest is an impossible task. Their argument is to the effect that he could not inspect the units, nor measure the units, and it is said only nominal sales data was available. All he had were the CBRE reports. VXJ suggests that there were no substantive changes to the use or nature of the units in the complex between the OIs at completion of the development, and the revised OIs on 21 February 2011. There were no changes in the location of the units; nothing affected their zoning requirements had altered; none of the views were built out; and no modifications were made to the physical dimensions of any of the units.
[51] VXJ argues that the reassessment was inherently flawed from conception, the resolution to reassess was passed based on mistakes both of fact and law, and the methodology was not in accordance with best practice or relevant case law. The revised OIs, it is said, are unfair because the reassessment adversely affects the property rights of a minority of unit owners, by reducing their respective OIs in the complex. There was never sufficient reason to set aside the original OIs, and the equitable outcome, VXJ and Mr Foster say, is to reinstate these.
Analysis
[52] Further comments of Fogarty J in Dominion Finance Group Limited represent a useful starting point here:8
[42] The Unit Titles Act is a remedial statute. It was not intended to undermine basic principles of property law. On the contrary, it was intended to facilitate the application of principles of property law to multiple dwelling and/or commercial units in one building or on one title. The architecture of the statute is plain, and relevant parts of it have been briefly described. The property rights protected by the statute are intended to be robust. It is not possible for a developer to unilaterally decide upon the relative percentage of the ownership interests of the whole per individual unit. It has to be a decision by a registered valuer. Likewise, upon the cancellation of the plan, Parliament intends that the value of the unit at the time of cancellation be allocated on rational grounds, and fairly, without oppression of a minority, amongst all the owners of the property.
8 Dominion Finance Group Limited, above n 6.
[43] Equitable remedies were developed because it is not possible to anticipate all events. In this statute, Parliament has recognised that room should be left for the Court to exercise its equitable jurisdiction, having otherwise followed the law, to ensure that all the outcomes of the statute are just and equitable. The analysis moves on then to examine the legal consequences of both the resolutions, before judging whether equitable principles should apply.
(emphasis added)
[53] Plainly, the goal of Parliament in the UTA 2010 was that every cancellation of a unit plan should produce a just outcome.
[54] The issue for determination is which OI the court should adopt here. Unfortunately, the court does not have a copy of Mr Mark Foster’s original valuation notes. His affidavit says that he took a standard approach to valuation at the time and that no criticisms were ever made of his valuation. He maintains that there was no bias as between his valuation and his father’s interests. I accept that before this Court, he was transparent about their relationship.
[55] The difficulty that VXJ and the Foster interests face is that they seek to argue that the original OIs were a better reflection of the true and market value of the individual units, but they do not detail notes of how the initial valuation was undertaken.
[56] Mr McSkimming, an experienced valuer, prepared the new valuation. He had regard to the CBRE reports available to him and his own knowledge of the complex. He said the reports were a significant help as they involved the undertaking of an assessment of value of the units prior to their demolition. In his evidence Mr McSkimming said that he was fully familiar with the complex and had considerable personal experience of it and the whole development since its completion in 1997/98. He felt he had reliable and extensive information available and significant prior knowledge of the whole complex.
[57] A shortcoming, which he accepted, was the limited amount of sales data available to him. That seems to be a common issue in the Sumner Area. Sales data was likely lacking when Mr Mark Foster prepared his original report and assessments as well.
[58] In my view, the recent valuations and reports are more likely to reflect the true current market value of the properties and are to be preferred. Nothing of substance is before me to question the residential unit valuations here. Mr McSkimming in his evidence discussed the difference in relativity between some units from Mr Mark Foster’s original assessment as being “not necessarily surprising” as relative values change and respond to market forces.9 So far as Unit 50, the Tavern, is concerned, which Mr Foster seems to suggest is the major bone of contention, Mr McSkimming, in his affidavit describes the assessment of its market value as being “relatively straight forward … involving capitalisation of the appropriate market rental”. Mr McSkimming considered its value to be $890,000. He compared that against two other more recent valuations by Ford Baker and Bayleys which valued the Tavern at $750,000 and $840,000 respectively. I am satisfied Mr McSkimming’s Tavern and other valuations were comparable to those completed by other valuers (and even Mr Foster’s own estimate of the Tavern value) and all these can be relied upon.10
[59] I find that the just and equitable outcome here is for the unit plan to be cancelled and for the currently registered OIs to be used with the remaining insurance proceeds, assets and funds from the sale of the remaining complex to be distributed on that basis.
Cancellation of the unit plan
[60] The applicants seek cancellation of the unit plan. There is no opposition to this.
[61]Under s 188 the jurisdiction of the Court allows for cancellation of a unit plan:
188Cancellation of unit plan by High Court
(2)The High Court may authorise that the unit plan be cancelled if—
9 This can be seen particularly from the decision of this Court in OM Hardware Ltd v Body Corporate 303662 [2015] NZHC 190, where a development like the present involved a variety of units such as commercial, residential and even penthouse apartment units.
10 As to the Tavern value, this is confirmed by Mr Foster himself in his 9 July 2012 email to the Body Corporate which is in evidence before me where he states: “the Tavern has a value of
$900k.”
(a)the High Court 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; and
(3)If the High Court makes a declaration authorising the cancellation of a unit plan under subsection (2), the High Court may by order impose any conditions and give any directions as it thinks it, for the purpose of giving effect to the declaration, including —
(a) directions for the payment of money by or to the body corporate; or
(b)the distribution of the assets of the body corporate; …
[62] If the Court authorises the cancellation of the unit plan then the provisions of 189(5) apply when application is made to the Registrar to cancel the plan. Section 189(5)(aa) provides:
189Cancellation of plan following decision of High Court
(5) The following provisions apply when an application is made to the Registrar under this section:
(aa) the application must be accompanied by a certificate from a registered valuer showing the ownership interests and proposed ownership interests (if any) reassessed for all the units in the unit title development, unless the High Court directs otherwise…
[63] The grounds set out in the Originating Application for cancellation of plan include:
2.4It is just and equitable that the BC be dissolved and its unit plan 78462 be cancelled having regard to:
2.4.1the rights and interests of any creditor of the BC; and
2.42 the rights and interests of any person who has any interest in any unit of the BC.
2.5The BC has resolved by a Special (designated) resolution not to reinstate the buildings and the land at Marriner Street, Sumner.
2.6The BC has made a significant interim distribution to 46 of the 50 unit owners.
2.7There is no reason for the BC to continue in existence other than to distribute the funds that it holds or will hold on behalf of unit holders.
2.8The Court's declaration authorising cancellation of a unit plan may impose conditions and give directions including:
28.1 directions for the payment of money by or to the BC;
2.8.2 the distribution of assets of the BC.
2.9At its AGM on 5 September 2017 the BC resolved to have the ownership interests of the unit title development reassessed.
2.10That reassessment of the ownership interests was completed and the reassessed ownership interests were registered on 27 April 2018.
2.11The ownership interests having been reassessed recently are current and do not require reassessment.
[64]There is no opposition to the orders sought on the cancellation of the unit plan.
[65] I make orders accordingly, and in terms of s 189(5)(aa) I direct that the present registered OIs are to apply and no certificate from a registered valuer showing any reassessed OIs is required here.
Property Law Act (the PL Act) ss 339-343
[66] Following the cancellation of the unit plan orders are sought requiring the (now) co-owners to sell their units and their interests in the complex to P15 under the sale offer. There is no opposition to this, as I understand the position. The grounds in this PL Act application are:
2.12Upon the cancellation of the unit plan, all 50 unit owners become co- owners of the property (in proportion to the registered ownership interests).
2.13The BC having agreed not to reinstate the unit and common property need to be sold to realise the balance of the interest of the 50 unit / co- owners.
2.1446 of the 50 unit owners (who would become co-owners) wish to sell the property and for that purpose are bound as vendors to the PI 5 Agreement.
2.15The entirety of the remaining unit and common property ought to be sold together in one transaction for expediency and value.
2.16The owners of the 4 units who have not agreed to enter into the P15 Agreement between them hold 7.24% of the ownership interests of the BC (and on plan cancellation of that same percentage of co- ownership).
2.17The Hardship that will be caused to the 46 unit / co-owners by a refusal of the Order is significant.
2.18That there is no hardship caused to the 4 unit/ co-owners by them being required to participate in the sale of their co-ownership interests under the P15 Agreement.
2.19The Orders sought are just and equitable as between unit/co-owners.
[67] Further/residual orders (and leave) are sought as may be necessary to give effect to the completion of those sales. These orders are to include the following:
(a)The applicant may apply to the Court (without notice) for further orders as it relates to any one or more of the unit owners as may be necessary to effect completion of the sales;
(b)The Registrar of this Court is authorised (on the request of the solicitors for the applicant), to sign any relevant documents that are necessary to effect the sale of any unit for and on behalf of any unit owner(s) where that unit owner(s) has/have either refused or neglected to sign those document(s) in the time frame required by the solicitors for the applicant.
[68] Given there is no opposition now to this PL Act application, I will grant the application and make orders first, requiring all unit owners to sell to P15 under the sale offer and secondly, those further residual orders noted at [67] above. Orders to this effect will follow.
VXJ’s application
Appointment of an administrator
[69] VXJ seeks the appointment of an administrator. The appointment of an administrator is opposed by the Body Corporate and at least 46 of the other unit owners. The jurisdiction to appoint is outlined in s 141 UTA 2010:
141 Appointment of administrator
(3) The High Court may, in its discretion on cause shown, appoint an administrator for an indefinite period or for a fixed period on such terms and conditions as to remuneration or otherwise as it thinks fit.
[70] This is a broad-brush discretion allowing for consideration of a wide range of circumstances which might warrant the appointment of an administrator.
[71] Unlike much of the applicable case law, in the present case, all owners agree the unit plan should be cancelled. Considerations of any ongoing ownership relationship between the parties thus do not apply.
[72] The jurisdiction under s 141 was considered in Low.11 In this case 114 co- applicants owned units. Each unit was subject to a sublease in favour of a company associated with the developer providing a guaranteed rental. The rental had fallen into arrears and 92 of the unit owners had cancelled the subleases and obtained possession of their units. In the interim the ground lease of the property and insurance premiums for the building could not be paid because the unit holders had declined to pay the amounts levied. Instead, they had paid those amounts to their individual solicitors’ trust accounts. The claim was that the Body Corporate was dysfunctional, and an administrator should be appointed. In that case Heath J noted generally:
[3]In general terms, the Act divides responsibility for areas within the complex between individual owners of particular units and common property. While individual units are the responsibility of the respective owners, common property is administered by the body corporate, on behalf of all proprietors
[4]While a body corporate has such powers as are reasonably necessary to enable it to carry out duties imposed on it by the Act and its rules, it has no power “to carry on any trading activities”. Therefore, in
11 Low v Body Corporate 384911 (2010) 12 NZCPR 142.
determining whether the Court should interfere in the affairs of the body corporate it should, ordinarily, acknowledge the fact that it comprises “a group of people who have no reason to be bound together other than the fact that they happen to occupy, or have some other interest in, a unit plan development created under the Act”. That lack of common interest will generally mean that each proprietor will have differing interests to protect. “ [emphasis added]
[73] In the present case, VXJ says the evidence filed discloses a number of instances of mismanagement by the Body Corporate. VXJ seeks orders for an administrator to be appointed, it says, to conduct a full audit of the Body Corporate's affairs since 2011. VXJ says:
(a)There has been a failure to maximise the Body Corporate's financial position, particularly regarding the payment of tax. Although tax returns have belatedly been filed, 122 there is no evidence that this was done in a considered manner. The level of fees charged indicated this was an administrative action only, not taking into account anything other than the high-level strategic advice provided in the evidence of Mr Walton. Previous comments about the tax situation have been ignored. Undue reliance has been placed on the annual audit of the financial statements to uncover any issues. It is not the role of auditors to advise on the best available options, and they are limited by the information provided.
(b)Levies have been raised that were ultra vires. This is a known and acknowledged issue, which has been ignored for the sake of perceived expediency. It was open to the body corporate to avoid this problem by applying to the Court to settle a scheme, but this was not done, even after the levies were disputed.
(c)Interest has been used to cover costs, instead of raising levies.
(d)Issues around the distribution of funds could not be resolved without application to the Court. Judicial Review proceedings (currently halted) allege the interim distribution was ultra vires. Decisions
regarding the conduct of the judicial review proceedings have unnecessarily increased legal costs.
(e)The demolition of units 1 to 30 may have harmed the interests of Mr Holm who is the owner of Unit 23.
(f)An application for a scheme under s 74 was not made when the complex was partially demolished, and partially repairable.
(g)The process for reassessment of the ownership interests was flawed. The resolution was passed in reliance on both a misrepresentation that it was required by law, and a misrepresentation that the CBRE reports made it clear that the Original 01 did not reflect the value of each unit relative to each other and needed to be corrected.
(h)The revised OIs were registered while still being disputed by multiple owners, including, it is said, by the owners of units 9, 23, 46, 39, and
50. Although it is claimed the resolution referred to the OIs only and did not authorise reassessment of the utility interests, when the revised OIs were registered, it was recorded as amending the utility interests as well as the OIs.
(i)Proceedings (currently halted) have been brought against members of the 2010 Body Corporate Committee alleging underinsurance.
(j)There is a dysfunctional relationship between the Body Corporate Committee, not only with Mr and Mrs Foster and VXJ, but also with Mr Holm and with Mr McKenzie.
[74] The appointment of an administrator is opposed by the Body Corporate, and its Committee members along with the majority of the unit owners here. The grounds of opposition are:
(a)There is no dysfunction or deadlock within the Body Corporate.
(b)Almost all members of the Body Corporate;
(i)are agreed on the process that should be adopted by the Body Corporate for the sale of what remains of the complex and the distribution of proceeds.
oppose the appointment of an administrator.
(c)There is no principled or factual basis for the appointment of an administrator.
(d)The resolution of the questions before the Court in this proceeding (in relation to the UTA 2010 issues) will enable the Body Corporate to complete the sale of the unit title property, to wind up its affairs and to complete a long-outstanding final distribution to members/owners.
(e)The Body Corporate is operational and functional.
(f)The disagreement of a small number of unit holders does not create a dysfunction.
(g)There is no substance in any claims of impropriety.
(h)The Court’s intervention by way of such an appointment is not necessary.
[75] 43 Unit owners originally objected to the appointment of an administrator. They also expressed support for the current Committee. This “straw poll” was conducted before the committee took the benefit of evidence filed in these proceedings to obtain a significant tax refund. As I understand it, that number is now at least 46 owners.
[76] At one level it is unclear how the appointment of a single person as administrator might be more complex than the existing statutory scheme arrangements. If this unit title development were to remain in existence for any length
of time in the future, the Body Corporate would remain and certain actions would need to be taken. These would require a continuing vote of the entire Body Corporate, or a decision taken to delegate responsibility to the continuing Committee that has to find time to meet, reach agreement, and delegate actions to individual members.
[77] In that event, in terms of anticipated future costs, if an administrator is appointed, the paid role of Chairman of the Body Corporate Committee might no longer be required. The annual salary of $35,000 paid to Mr White as Chairman would become available to pay the administrator. As a result of evidence provided by VXJ, it seems the Body Corporate is also receiving a significant tax refund, which might also be available to assist with the costs of an administrator.
[78] VXJ’s complaints here involve suggestions of a history of failures on the part of the Body Corporate to comply with the processes of the UTA 2010, lax financial management, and problematic personal relationships within the Body Corporate and its Committee.
[79] By way of contrast, VXJ contends the only objections to the appointment of an administrator here are spurious. This is because VXJ suggests there is no evidence supporting the assertions that it would result in either increased complexity or cost.
[80] And, by analogy with the other cases in which an administrator has been appointed, VXJ maintains the circumstances justify the exercise of the Court's discretion to appoint an administrator here on the terms it seeks.
Analysis
[81] I disagree with VXJ’s arguments here. In my view there is little to be gained by the appointment of an administrator, and, on the evidence before me, no proper grounds have been made out for this to occur. The Body Corporate is to be wound up and this will happen automatically on cancellation of the Unit Plan. Funds are to be distributed according to the registered OIs. The committee of the BC can accept the offer of P15 now as unconditional and go about the sale.
[82] On the face of all the material presently before the Court, there does not seem at this point to be anything in the Body Corporate’s actions that, as I see it, can be regarded as improper. Nevertheless, the allegations and historical grievances Mr Foster and Mr Holm in particular have expressed against the Body Corporate in any event can be resolved through separate legal proceedings if they so wish. It is unnecessary to appoint an administrator as these issues at this point, in my view, are unsubstantiated and are very much in the past. The final steps of accepting and processing the sale offer with P15 and distributing the funds essentially are procedural, and in my judgment, in the interests of all parties here, do not need to be delayed further.
[83] The Committee of the Body Corporate is aware of what needs to be done. I am satisfied here it would not be expedient to appoint an independent administrator to endeavour get up to speed just to effect the sale which is on a rather tight deadline. Significant funds due to individual unit owners are held up and have been for some time. Matters need to be brought to a final conclusion and the sale offer which all parties have indicated they now accept needs to proceed to settlement of the sale.
Result
[84] For all the reasons I have outlined above, the applications by Mr White and the Body Corporate before the Court succeed. Orders are now made as follows:
(a)The funds held by the Body Corporate as a result of the weathertight homes settlement totalling $210,000 are to be distributed as set out above at [18] and [19].
(b)The EQC proceeds are to be distributed as set out above at [20] and [21].
(c)The insurance proceeds and all remaining funds and assets, including the property sale proceeds from P15, are to be disbursed in line with the currently registered OIs as specified at [59] above.
(d)The unit plan for Body Corporate 78462 is cancelled under s 188(2) of the UTA 2010 in accordance with [65] above, and in addition, the direction outlined in that paragraph [65] is also made.
(e)The property is sold to P15 in accordance with the existing sale offer (which is now to become unconditional and bind all the unit owners) according to the terms set out at [67] and [68] above.
[85] Leave is reserved for any party to approach the Court further on 48 hours’ notice if additional assistance may be required in implementing the orders that have been made or otherwise.
[86] VXJ’s application to appoint an administrator here fails. No order is made as to the appointment of an administrator.
Costs
[87] Costs are reserved. If the parties are unable to agree on the costs issue then they may file memoranda (five pages maximum) on the issue (sequentially) which are to be referred to me and I will then deal with the issue of costs on the basis of the memoranda filed and all other material presently before the Court.
...................................................
Gendall J
Solicitors:
White Fox & Jones, Christchurch Saunders & Co, Christchurch
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