Young v Body Corporate 85659
[2018] NZHC 849
•30 April 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE
CIV-2017-485-698
[2018] NZHC 849
UNDER The Judicial Review Procedure Act 2016 and Part 30 of the High Court Rules 2016, and section 210 of the Unit Titles Act 2010 BETWEEN
LESLIE YOUNG AND SUZANNE LEE YOUNG
Applicants
AND
BODY CORPORATE 85659
Respondent
Hearing: 19 February 2018 Counsel:
E J Watt and D W Ballinger for Applicants A J Knowsley and D Hunt for Respondent
Judgment:
30 April 2018
JUDGMENT OF CHURCHMAN J
Table of Contents
Introduction.......................................................................................................... [1]
Windows............................................................................................................... [9]
The proceedings................................................................................................. [81]
Discussion of legal issues................................................................................... [84]
Unit title ownership [84]
Rights and responsibilities of unit owners [89] Financial and property management of a unit title development [91] First cause of action [95]
Do the applicants have standing under s 210? [96] Were the actions of the Body Corporate such as to create an estoppel? [100] Were the resolutions unjust and inequitable? [109]
Was replacement of the podium floor windows necessary? [110]
Was the quote excessive? [117]
YOUNG v BODY CORPORATE 85659 [2018] NZHC 849 [30 April 2018]
Was the Body Corporate under an obligation to (a) get competitive quotes and (b) verify Armstrong Downes’ quote with an independent
quantity surveyor? [125]
Is s 126 of the UTA applicable? [134]
Did the Body Corporate consider the counter-proposal? [140]Conclusion [148]
Second cause of action..................................................................................... [149]
Duty to obtain comparative quotes and seek verification of costs [152]
Delay costs [153]
Access to the applicants’ units [155]
The Body Corporate’s motivations in deciding to pass the resolutions [158]Third cause of action....................................................................................... [160] Breach of Regulation 17 of the Unit Titles Regulations 2011 [161] Breach of legitimate expectation [166]
Breach of natural justice [181]
Improper purpose [192]
Summary.......................................................................................................... [195]
Introduction
[1] Richard Pearse House (“RPH”) is a building located in Willis Street, Wellington. The lower portion of it, the podium, consisting of street level shops with two floors of accommodation above, dates from the 1960s.
[2] Like many Wellington fringe CBD buildings, it has been “repurposed” over the years.
[3]Initially, the podium accommodated the offices of the Ministry of Transport.
[4] Some 20 years ago, the building underwent a major transformation. A tower block consisting of levels three to eight was added. The building was also unit titled into 100 separate unit titles. Apart from street level retail activity, the rest of the building is used for accommodation purposes. Units in the podium level have, in recent times, predominantly been contracted to a short-stay accommodation operator and the upper levels have mainly been used for longer term accommodation.
[5] This case focuses on issues arising from windows in the building and, in particular, the apportionment of costs incurred by the Body Corporate in addressing problems with the windows.
[6] Both the podium and tower components of RPH contained steel framed windows. The steel framed windows in the podium date from its original construction some 50 years ago and the windows in the tower are some 20 years old. At the time the tower was built, some of the steel windows in the podium were replaced with bifold aluminium windows.
[7] There is no obvious architectural coherence between the podium and tower block. There are vertical concrete strips between the relatively small windows in the podium section whereas in the tower, apart from the supporting columns and cross- beams, much of the façade (perhaps as much as 60 per cent from looking at the photographs) is made up of glazing. The dimensions of the individual windows are different to the windows in the podium. In the podium, instead of the glazing consisting of one large sheet of glass, there are multiple relatively small framed panels with some of the windows being capable of being opened and some not.
[8] A company called Argest Technical Services Ltd (“Argest”) is the entity engaged by the Body Corporate to attend to matters such as required maintenance, health and safety issues and the like. Its employee, Robert Wilson, is the building manager. Depending on the nature and scale of the maintenance issue needing attention, Argest will either attend to the matter itself or engage a specialist entity to undertake the work for the Body Corporate.
Windows
[9] Argest has been RPH’s property manager since 2002 and, right from its earliest days of involvement with the building, it has had to deal with problems arising in relation to the windows.
[10] Mr Wilson reported to the Body Corporate as long ago as 13 February 2003 about the issue of cracking window panes. A relevant extract from that report says:
The problem of window panes cracking has been an ongoing issue for some time. It appears that the cracking is caused by the steel frames rusting behind the putty and stressing the glass, causing it to crack under pressure, especially at the time of a mild earthquake or other vibration, i.e. slamming of an adjacent window or door. At the last AGM and BCC meeting it was decided to seek estimates to remedy this.
[11] Thereafter, issues to do with window problems were a regular feature of the Argest reports to the Body Corporate and a similarly regular matter dealt with by the Management Committee at its meetings.
[12] It is also clear that, from a very early stage, the applicants were opposed to any suggestion that the podium unit owners should be required to contribute to the cost of remediating the windows on the upper floors.
[13] The minutes of the meeting of the Body Corporate Management Committee for 6 December 2004 contain the following extract:
Geoff we had an email from L Young, an owner of 11 Level 1 and 2 units. Mr Young pointed out that Levels 1 and 2 already had their window frames replaced and that he did not think it appropriate that he pay for replacement of the upper level windows. N Morar agreed. Geoff noted that the unit titles [sic] Act allowed for the allocation of expenditure to specific units that benefited from expenditure where others did not.
[14] The claim that the podium levels had already had their window frames replaced is not correct. A small number of steel frame podium windows had been replaced with aluminium bifold windows at the time the tower was built but all the other podium windows were steel framed and dated from the original construction.
[15] At the 31 January 2005 Management Committee meeting, the proposal was that: “the individual units window replacement be apportioned on a unit by unit basis to those units requiring window replacement.”
[16] The minutes referred to an opinion from Chapman Tripp endorsing the suggested approach.
[17] There were differing views on the approach to be taken to window replacement. At a Special General Meeting (“SGM”) on 15 June 2005, a motion that a special levy be raised on owners of levels 3 to 8 for the purpose of window replacement was put to the vote and lost. That motion had proceeded on the basis that unit owners would be liable for the actual cost relating to the windows in their unit and would receive a refund if that was lower than the proportionate amount of the levy they had paid.
[18] The minutes of the Annual General Meeting (“AGM”) held on 29 August 2005 noted that the failed motion meant that the committee had to “go back to the drawing board” on the replacement of windows issue. A motion was carried that Argest undertake a survey of the windows and that the cost of remediating any windows identified as being unsafe should be borne by the Body Corporate from the long-term maintenance fund.
[19] The Management Committee met on 29 June 2006. As to the funding of the windows remediation, the minutes record the view that: “the sensible allocation of costs should be by actuals for the apartments and not by unit entitlement.” A further view expressed was that “refurbishment was not an option”.
[20] The minutes of the Management Committee of 20 November 2006 record a concern about the risk posed by the steel framed windows and a motion was passed asking Argest to engage a registered engineer to provide a risk assessment.
[21]The building manager’s Activity Detail Report of 19 February 2007 noted:
A report from Sedgwick re Window Risk. The report noted no mandatory/statutory/liability reasons why the windows should be replaced straight away. Only reasons of maintenance, insurance and damage prevention.
[22] The problems with the windows continued to escalate. The building manager’s report for the Body Corporate meeting of 24 May 2007 said:
Cracked windows, window frame corrosions, stays and sill repairs: – The number of rooms requiring unsafe panes of glass to be replaced has increased over the past two months. Once again I advise that it needs to be noted that this method of glass replacement i.e. reglazing from the inside using silicon and no external putty must only be seen as a short-term solution.
[23] At its meeting of 24 May 2007, the Management Committee agreed to undertake a trial sample replacement of windows in a room on level 3 with the cost initially being funded by the Body Corporate.
[24] The Argest report to the Body Corporate AGM on 5 September 2007 stated: “The same historic issues re the various exterior fabric leaks in the walls, windows and roof, the rusting steel windows still remain … .”
[25] The issue of the windows was a topic of discussion at the AGM of the Body Corporate on 5 September 2007. At this stage, a levy was still being collected to fund replacement of the steel framed windows on levels 3 to 8. The minutes of the meeting record clarification that:
The amount collected from each unit is for the benefit of that unit as a deposit on the cost of the units window replacement.
Each unit will bear the cost of the windows that are replaced for that unit.
[26]The meeting approved an amended budget for the window replacement of
$509,600.
[27] It was in the general business section of this meeting that possibilities for an alternative way of funding window replacement were discussed. Two separate issues raised were discussions about the interest rates payable by those who had to borrow money to fund the replacement programme and also a concern that there be no further delays as the replacement was overdue. The question of funding the window replacement project through the long-term maintenance fund was raised but not resolved.
[28] The building manager’s report for the Management Committee meeting of 6 December 2007 noted that Argest was in the process of calling tenders for what was described as the “Steel window frames and glass replacement project”.
[29] The minutes of the Management Committee meeting of 6 December 2007 record that: “The meeting agreed that Rob [Wilson of Argest] would identify all levels with steel windows and include them in the project.”
[30] This seems to be one of the earliest indications that the Body Corporate was approaching the issue of window replacement on a basis wider than simply the windows in levels 3 to 8 but on whether or not the windows were steel framed.
[31] An Extraordinary General Meeting (“EGM”) of the members of the Body Corporate was held on 1 May 2008. The proposal to be voted on was:
[T] he body corporate accept the attached proposal to replace the building’s windows, paint the exterior and repair the parapets, the actual window replacement costs to be paid by each unit according to the attached schedule.
[32] The schedule related to all levels (1 to 8) with the estimated cost for windows in the podium levels being lower than for the upper levels as the costs were calculated on the number of “window bays per room” with the nominal cost of $1,200 per window bay.
[33] The letter from the Body Corporate Chairman which accompanied the documentation sent out to the unit holders clearly set out the rationale for the proposal and the reason why it encompassed levels 1 to 8. The initial paragraph stated:
As you would be aware there is a long history of cracked windows, failing window stays, broken window catches and deteriorating window sills, all emanating from the original buildings steel window frames rusting with age, and the wear and tear on the 10-year old medium density windowsills in this building. This affects all steel framed windows in the building i.e. from level 1 up to level 8. But we are not touching the steel framed windows in the lightwell, mainly due to their sheltered condition and access issues.
[34] In addition to the cost of replacing the windows, some 20 per cent of the project cost related to issues such as repairing the parapets and painting. It was proposed that this portion of the work, along with the costs of windows in the common areas, would be funded from the long-term maintenance fund.
[35] Although the documentation relating to this EGM was sent to all unit holders, there was a notation advising that if Body Corporate fees were not up to date a unit holder may not be able to vote at the meeting.
[36] It was at this EGM that the manner in which the cost of funding the window replacement project changed. The minutes of the meeting recall the following observations:
It was mooted, as a serious concern, that due to the high interest rates and tougher lending criteria, there was no guarantee that all owners would be in a position to meet the costs. If this happened it would leave the body corporate in a position of carrying a liability it may not be able to meet.
YPM suggested an alternative way to handle the window replacement was to treat the project as part of regular long-term maintenance and roll the work out over three to four years. This would mean that the body corporate would
have to raise the long-term maintenance provision in the annual budget and that owners would then be paying for the cost of the windows by unit entitlement rather that [sic] a cost-by-room basis.
[37] This proposal found favour with those in attendance at the meeting and the following motion was passed:
That the body corporate accept the quote for the level three windows immediately which is to be paid for from the long-term maintenance fund. Therefore owners on levels one to eight will bear all the costs by unit entitlement.
[38] No legal challenge to the decisions made at the 1 May 2008 EGM was made either by the applicants or any other unit owners. However, at the Body Corporate’s AGM held on 11 September 2008, there was debate on “… the merits of addressing the window replacement programme by unit entitlement versus apportioning the costs on an actual room-by-room basis.” The minutes of the meeting also record dissatisfaction with the perceived poor performance of the contractors who had been the successful tenderer for the first stage of the window replacement programme (level 3). It was also resolved to extend the duration of the window replacement programme so as to reduce the quantum of the annual funding obligation on the owners.
[39] At a Management Committee meeting on 4 December 2008, one of the unit owners indicated that he would prefer a levy regime where the costs to levels 1 and 2 were treated separately and shared by unit entitlement amongst levels 1 and 2 with the same unit entitlement approach being applied to levels 3 and above. The meeting noted that any change to the agreed methodology would require a decision either at the AGM or an EGM.
[40] Over the ensuing years, the window replacement project was completed in stages. As a result of dissatisfaction with the work of the stage 1 contract, the work was retendered and Armstrong Downes was the successful tenderer for stage 2. The rate of progress with the project was dependent upon the availability of funding. That was exacerbated by the failure of the applicants to pay their share of the levy. As the applicants owned 10 (initially 11) of the total 100 units, the absence of a financial contribution from them significantly affected the funding of the work.
[41] The building manager’s report for the AGM of 2 September 2009 relevantly said:
There are effectively three stages remaining, the West and East faces of the tower block and the Podium (Ground, 1st and 2nd floors). All three stages will include the exterior painting as well. Based on the cost of work to date which roughly equates to one remaining face the total cost remaining could be in the order of $1.1m to $1.2m, depending on the market conditions at the time each stages [sic] tenders are called etc. Based on current funding allowances it is unlikely that any further replacement work will be affordable for another 12 to 18 months.
[42] The minutes of the AGM of 2 September 2009 noted, under the heading “Window replacement levies”, that:
[T] here are Owners who are disputing the allocation of window replacement costs by unit entitlement and are short paying their levies. To date, in the current budget year, this has had a negative impact of around $35,000 on the body corporate’s cashflow and is worsening at $3,500 per month. The net effect of this is that the Body Corporate will not be able to meet all of its Creditors.
[43] The problems with those windows that had not been replaced continued. The minutes of the Management Committee meeting of 25 March 2010 noted:
[T] here are still quite a number of instances of glass cracking in the old steel framed windows. Argest will attend to these and note what locations these are predominantly occurring in to optimise the next window replacement drop.
[44] The minutes of the Management Committee meeting of 23 June 2011 record a resolution to proceed against the applicants in the Tenancy Tribunal for their unpaid levy.
[45] The minutes of the AGM held on 12 September 2012 record that Steven Young, as proxy for the applicants, spoke to the meeting and explained the reasons why the Youngs were disputing the window portion of the additional long-term maintenance fund levy as being:
The Youngs have smaller windows than the level three to eight windows and are therefore financially disadvantaged.
That the cost should be met on a unit by unit basis being the “benefit” to that unit, rather than by Unit Entitlement/Utility Interest.
[46] On 24 January 2013, Argest received a report from architect Campbell Pope which confirmed that, other than in respect of Unit 101 which had an aluminium bifold window only, all the other units owned by the applicants had the original steel window frames and sashes and that the original joinery existed as at the time the building had been converted to apartments.
[47] After a 10 months delay, the Tenancy Tribunal ruled in favour of the Body Corporate’s claim against the applicants for their unpaid levies. The applicants appealed that decision.
[48] Following a hearing on 9 June 2014, the District Court quashed the Tenancy Tribunal decision on the basis of a technical ruling regarding jurisdiction.
[49] On 24 November 2014, the Body Corporate obtained an opinion from law firm Rainey Collins. The opinion noted that a negotiated outcome was the most sensible solution. Regrettably, that did not eventuate.
[50] In late March 2015, Argest received fixed lump sum price quotations from Armstrong Downes for:
(a)window replacement (eastern face) stage 4; and
(b)window replacement (north and west podium) stage 5.
[51] These quotations were forwarded to the applicants on 20 April 2015 in an email from Geoff Holgate of Your Property Matters Ltd (“YPM”) (the Body Corporate secretary) which contained within it the following:
From the Body Corporate’s perspective, having laid down the levy requirements on all members and having won the Tenancy Tribunal case on merit albeit overturned on a technicality, it is now up to you to present the Body Corporate with a counter-proposal that the Chair and Committee can evaluate for presentation to the members at a General Meeting to vote on by majority decision.
[52] Mr Holgate received what was described as a Draft proposal from Dr Young dated 18 May 2015. Much of that document is focused on attacking the Rainey Collins
opinion and presenting a different interpretation of some of the legal issues that had been resolved by the Tenancy Tribunal.
[53] At the heart of both the proposal and the report was a fundamental challenge to the decision made at the EGM that the replacement of the windows be funded from the long-term maintenance fund and an insistence that costs be allocated on a per unit basis. The relevant part of the document said:
The basic principle should be that owners of lower floor units (i.e., levels 1 and 2) should divide (according to their unit entitlement) the cost of repairs from which they derive the principal benefit. The same would apply to owners of upper floor units (i.e., levels 3 to 8).
[54] A separate point raised was Dr Young’s view that the quotation received for stage 5 of the project was excessive. In forthright language, he said:
For removal of doubt: I will not pay for any costs on my units without seeing the tender documents, including at least three competitive bids. The current quotation is so egregious that I reserve the right to nominate bidders myself.
[55] The tone of Dr Young’s proposal was uncompromising. An example is his comment:
I am open to negotiations on details of my proposal, and expect to rewrite it in response to comments by the committee before submitting it to a Body Corporate vote. However, it is unlikely that I would accept major changes.
[56] Faced with a “proposal” that was effectively a challenge to the legal advice that the Body Corporate had received, the Management Committee referred the proposal to Rainey Collins for advice.
[57] The minutes of the Management Committee of 13 August 2015 record that the advice from Rainey Collins was that the Body Corporate progress recovery of the outstanding levies through the Courts.
[58] Faced with that advice, the Management Committee did not present Dr Young’s “proposal” to the 2015 AGM for consideration.
[59] Among the documentation sent out to unit holders ahead of the 2015 AGM was an agenda which, in the notes appended to it, had the statement:
Please note that Unit Owners may not vote unless all Body Corporate levies and other amounts that are from time-to-time payable to the Body Corporate in respect of the Unit have been paid.
A similar note appeared at the end of the proxy appointment form and postal voting form which were also sent out prior to the AGM.
[60] By letter of 4 September 2015, Rainey Collins wrote to Dr Young advising him that the Management Committee had considered his correspondence and had elected to file court proceedings to recover the outstanding levies. The letter noted the legal requirement for levies to be raised in accordance with s 121 of the Unit Titles Act 2010 (“the UTA”) and the obligation that they be paid by the unit owner at the time the levy was raised. It noted that any issue as to the apportionment of costs incurred is a separate matter and it was a separate legal issue to be determined at a later stage. The letter detailed the total amount payable as $148,830.84 and requested payment.
[61] The minutes of the AGM held on 17 September 2015 record under the heading “General Business”:
The meeting was advised that, in line with the advice from Rainey Collins lawyers, the matter of the outstanding levies with the Young’s units, unless paid, will be filed with the District Court for full payment. This is on the basis that the Unit Titles Act requires all levies properly struck to be paid in full. Only after the works are completed does the Act allow for discussion on alternative ways of apportioning the costs according to relative benefit from the works.
[62] As a result of legal advice received from Rainey Collins, an EGM was held on 17 December 2015 at which the following resolution was passed:
That a one off adjustment of $77,829 be made to allocate to units G1, G2, G3 and G4 their share, based on Utility Interest, of the window levies to date scaled up to allow for future window replacement of the ground floor Units and associated costs as per the attached schedule.
[63] Problems with the podium windows continued. The building manager’s report provided ahead of the AGM on 22 September 2016 said:
With regard to the installation of new Aluminium framed windows and the exterior painting of the buildings; only stage 5, the podium of the building remains to be completed. The podium floors of levels 1 and 2 are the only floors with the original steel framed windows, but those floors also have a bifolding Aluminium, some of which are also failing. In the last month at least
five old steel windows have required repairs some have cracked glass from the steel frames rusting.
[64] The Body Corporate issued summary judgment proceedings in the High Court to recover from the applicants the outstanding levies.
[65] Argest prepared a scope of works for stage 5 of the window replacement programme and other works including painting. That was provided to Armstrong Downes for them to prepare a quotation.
[66] Dr Young wrote a combative email on 17 March 2017 demanding that the Body Corporate undertake “a public tendering process that solicits competitive quotes for the BC to approve.” Some two years previously (25 March 2015), Armstrong Downes had submitted a quote to stage 5 which had been incorporated into the 31 August 2015 long-term maintenance plan. Dr Young asserted that the Body Corporate needed to authorise the obtaining of any new quotation.
[67] On 11 April 2017, Armstrong Downes submitted a quotation for stage 5 of the window replacement project of $424,703 (GST exclusive) which was accepted on 1 May 2017.
[68] On 19 June 2017, Argest wrote to the applicant’s property manager indicating that the window manufacturers needed to carry out a final measure up to Thursday 22 June 2017 so that the windows could be made.
[69] By email of 20 June 2017, Dr Young replied indicating that access to his units for the purpose of replacing the windows was contingent on him being satisfied that the workmen “are undertaking work under a valid contract which has been duly authorised by the Body Corp.”
[70] Dr Young finished the email by saying: “As attempts to break into my units without documented authorisation would constitute trespass, let us work together quickly to resolve our differences.”
[71] By email of 22 June 2017, Mr Holgate of YPM explained to Dr Young why stages four to five of the window replacement project had “… been managed using both the results of the original tender process coupled with ‘early engagement’ with the Preferred Contracting”. This did not satisfy Dr Young who continued to insist on a competitive tender as a precondition to his co-operation with the request for access to his units.
[72] In carrying out the measuring up for the windows on the podium floors, Armstrong Downes inadvertently entered two of the units owned by the applicants while the tenants were at home, an error for which they subsequently apologised.
[73] By email of 27 June 2017, Armstrong Downes forwarded Argest a standard form of contract based on NZS3915:2005 and also indicated that they needed access to unit 202 (owned by the applicants) by 19 July 2017 in order to commence work in a logical sequence.
[74] On 29 June 2017, Argest sent all the owners of podium units an intended programme of works and confirmed that access to all rooms was required in order, for example, not to incur claims for delays from the contractors.
[75] On 6 July 2017, the applicant’s then solicitors wrote to YPM on behalf of the applicants. The letter threatened the issue of judicial review proceedings and asserted that the Body Corporate’s decision to award the stage 5 contract to Armstrong Downes was unlawful. The letter also complained that the Body Corporate had not sought competitive tenders. The letter concluded by saying:
Accordingly, our clients decline permission for the Body Corporate and any contractors to access the units for any purpose connected to the Works pending resolution of this dispute.
The letter further requested the Body Corporate to instruct Armstrong Downes to stop work on manufacturing the windows which they understood was intended to begin shortly.
[76] Armstrong Downes confirmed by email of 14 July that the windows for the Willis Street elevation were already in production and that their approximate cost of
$50,000 would need to be paid by the end of the month. The email also detailed other costs for things like scaffolding and a footpath permit along with some $10,000 of internal timber work which had been ordered.
[77] By letter of 17 July 2017, the applicants’ solicitors repeated some of the prior demands for the provision of information satisfactory to the applicants and also sought an undertaking that would limit the applicants’ costs and indicated that, unless the undertaking sought was provided by 4pm on 17 July, the applicants would seek urgent interim orders to prevent the work proceeding.
[78] By email of 3.11pm on 17 July, Rainey Collins declined to give the undertaking requested but indicated that the installation of the windows and associated works had been put on hold pending the Body Corporate obtaining an access order.
[79] By correspondence dated 26 July 2017, all unit owners were asked to vote on two resolutions: the first one approving the Management Committee entering into obligations in relation to the window replacement programme as provided for in the budget approved at the AGM of 22 September 2016; and the second one ratifying and approving obligations entered into by the Management Committee in relation to the window replacement programme. The resolutions were passed by a majority.
[80] By email on 1 August 2017, Dr Young sent the following message to YPM: “Please record that I vote against both resolutions. Please acknowledge this message.” YPM replied with a four-word email which said: “Hello, received and noted”.
The proceedings
[81] By statement of claim dated 29 August 2017, the applicants commenced these proceedings seeking:
(a)relief under s 210 of the UTA, alleging that the resolutions passed by the Body Corporate on 1 August 2017 are unjust and inequitable;
(b)judicial review of the Body Corporate’s resolutions passed on 1 August 2017, alleging that the decision to enter into the agreement with
Armstrong Downes “was motivated by an improper purpose” and that the decision to pass the resolutions was motivated by an improper purpose; and
(c)judicial review of the Body Corporate’s decision to enter into the contract with Armstrong Downes on four grounds:
(i)breach of reg 17 of the Unit Titles Regulations 2011 on the basis that, at the time the Body Corporate made the decision to enter into the agreement with Armstrong Downes, no resolution had yet been passed approving that;
(ii)the applicants had a legitimate expectation that Dr Young’s counter-proposal would have been evaluated and presented to the Body Corporate and that the Body Corporate would consider the necessity of the proposed works;
(iii)an alleged breach of natural justice by the Body Corporate in failing to consider and respond to the applicants’ counter- proposal; and
(iv)improper purpose.
[82] The relief sought was an order setting aside the resolution passed on 1 August 2017, a declaration that the decision to enter into the agreement with Armstrong Downes was invalid and an order that the agreement between the Body Corporate and Armstrong Downes is invalid and of no effect.
[83] On 8 September, the applicants filed an amended statement of claim that contained additional allegations alleging that the Armstrong Downes quote was excessive. The amended statement of claim also expanded on the relief sought by asking for an order directing that, before deciding whether to complete the proposed works, the Body Corporate obtained verification of the necessity and appropriate costs for the works. Orders were sought also that the Body Corporate consider and respond
to Dr Young’s counter-proposal and that it be voted on by a majority at a general meeting.
Discussion of legal issues
Unit title ownership
[84] A unit title is a form of multi-unit property ownership, in which the unit title owner will own a defined part of a development, such as an apartment, along with shared ownership of common areas such as stairwells or a lobby. The main New Zealand legislation that governs this form of management structure is the UTA, relevant sections of which are outlined in the paragraphs below.
[85]The purpose of the UTA is set out in s 3 as follows:
3 Purpose
The purpose of this Act is to provide a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis by communities of individual owners and, in particular,—
(a)to allow for the subdivision of land and buildings into unit title developments comprising units that are owned in stratum estate in freehold or stratum estate in leasehold or licence by unit owners, and common property that is owned by the body corporate on behalf of the unit owners; and
(b)to create bodies corporate, which comprise all unit owners in a development, to operate and manage unit title developments; and
(c)to establish a flexible and responsive regime for the governance of unit title developments; and
(d)to protect the integrity of the development as a whole.
[86] As Asher J noted in LV Trust Holdings Limited v Body Corporate 114424, “the emphasis is on the management of buildings on a socially and economically sustainable basis, and for a flexible and responsive regime”.1
[87] The advantages that come with unit title ownership are that it provides the ability to own an individual interest in a small piece or pieces of a large development
1 LV Trust Holdings Limited v Body Corporate 114424 [2012] NZHC 3578 at [57].
and to obtain economies of scale in performing repairs or maintenance. The accompanying disadvantage is the loss of autonomy in relation to decision-making.
[88] The UTA acknowledges the tension between individual and collective considerations involved in unit title ownership.2 Unit title ownership is not for everyone and Muir J noted that “people who want to be able to choose how and when they might repair building elements should carefully reflect on whether unit title ownership is appropriate for them”.3
Rights and responsibilities of unit owners
[89] The rights of unit owners are set out under s 79 of the UTA, the relevant rights of which are that an owner is entitled as a body corporate member to exercise a vote in respect of his or her unit, is entitled to have quiet enjoyment of his or her unit, and has the right to attend the general meetings of the body corporate.
[90] The responsibilities of unit owners are set out under s 80 of the UTA, the relevant responsibilities of which are that an owner must permit the body corporate (or its agents) to enter the unit so as to maintain, repair or renew any building elements that affect more than one unit or the common property, must do all things necessary to give effect to decisions of the body corporate, and must pay body corporate levies that are payable in respect of the unit.
Financial and property management of a unit title development
[91] Under the UTA, the body corporate is required to establish a long-term maintenance plan, the purpose of which is to:4
(a)identify future maintenance requirements and estimate the costs involved; and
(b)support the establishment and management of the funds; and
(c)provide a basis for the levying of owners of principal units; and
2 See Thomas Gibbons Unit Titles Law and Practice (2nd ed, LexisNexis, Wellington, 2015) at [1.1.4].
3 Wheeldon v Body Corporate 342525 [2015] NZHC 884 at [52].
4 UTA, s 116(3).
(d)provide ongoing guidance to the body corporate to assist it in making its annual maintenance decisions.
[92] Under s 117 of the UTA, the body corporate is required to establish and maintain a long-term maintenance fund, unless it is decided by special resolution not to do so, with the fund only being applied towards “spending relating to the long-term maintenance plan”.5 Contributions for this fund, along with any other funds such as a contingency or capital improvement fund, are levied on unit owners and are calculated as follows:6
(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.
[93] In relation to a particular unit, ownership interest is “that assessed by a registered valuer on the basis of the value of the unit relative to each other unit.”7 Utility interest is usually the same as ownership interest but, in some circumstances, the registered proprietor may assign to a unit a different utility interest if that is fair and equitable, having regard to the relevant benefits and costs to units, and shares in the documentation lodged with the unit plan.8
[94] Section 126 of the UTA, which governs circumstances where the body corporate does repairs or work that are substantially for the benefit of some of the units only, provides:
126 Recovery of money expended for repairs and other work
(1) This section applies where the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, but the repair, work, or act—
(a)is substantially for the benefit of 1 unit only; or
(b)is substantially for the benefit of some of the units only; or
5 Section 117(2).
6 Section 121(2).
7 Section 38(2).
8 Sections 39(2) and (2A).
(c)benefits 1 or more of the units substantially more than it benefits the others or other of them.
(2) Any expense incurred by the body corporate in doing the repair, work, or act is recoverable by it as a debt in any court of competent jurisdiction (less any amount already paid) in accordance with the following:
(a)so far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt; or
(b)so far as the amount of the debt is not met in accordance with the provisions of paragraph (a), it must be apportioned among the units that derive a substantial benefit from the repair, work, or act rateably according to the utility interest of those units, and in the case of each of those units, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the amount apportioned to that unit.
(3) Despite subsection (2)(b), if the court considers that it would be inequitable to apportion the amount of the debt in proportion to the utility interest of the unit owners referred to in that paragraph, it may apportion that amount in relation to those units in the shares as it thinks fit, having regard to the relative benefits to those units.
First cause of action
[95] The applicants’ first cause of action is an application for relief under s 210 of the UTA. Section 210 provides as follows:
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.
(1A) Subsection (1) does not apply if the resolution is a designated resolution.
(2) An application for relief under subsection (1) must be made within 28 days of the passing of the resolution.
Do the applicants have standing under s 210?
[96] The relief is sought in relation to resolutions passed by the Body Corporate on 1 August 2017. The applicants filed their application for judicial review on 29 August
2017, 28 days after the resolutions were passed, so the requirement of s 210(2) has been met.
[97] There is, however, an issue as to whether the Youngs were, in fact, eligible to vote and therefore able to apply for relief under s 210. The respondent argues that the applicants lack standing to seek relief under s 210 as in order to validly vote they must have paid all their levies owing to the Body Corporate as required by s 96(3) of the UTA and, at the time the resolutions were passed, they owed outstanding levies. I will now consider this issue.
[98]In her evidence, Ms Young stated:
I understand that the Body Corporate will argue that we were not entitled to vote against the resolutions because we had not paid outstanding window levies. However … we consider that the window replacement levies sought by the Body Corporate are unlawful. At the time of voting, we therefore consider that we did not owe any outstanding window levies …
[99] However, the Court of Appeal in Butcher v Body Corporate 342525 held that an eligible voter may not vote unless all body corporate levies have been paid, even if the unpaid levies are disputed.9 Section 96(6) of the UTA provides for an owner to pay a disputed levy, while preserving the owner’s right to dispute the payment, if the sole purpose of making the payment was to exercise the right to vote. There would be no need for this provision if owners were allowed to vote where they have failed to pay a disputed levy.10 Therefore, regardless of the Youngs’ belief that they did not owe any outstanding window levies, they were required to pay those levies if they wanted to be eligible to vote.
Were the actions of the Body Corporate such as to create an estoppel?
[100] The Body Corporate had, though, allowed owners with unpaid levies to vote in the past. The minutes of the 2015 EGM held on 17 December 2015 noted the following:
[YPM] advised the meeting that the Chairperson had received legal advice from Jonathan Griffith of Rainey Collins that the EGM should allow members
9 Butcher v Body Corporate 342525 [2018] NZCA 19 at [68]-[70].
10 At [69].
to vote that are in arrears. The reason for this is that it is being argued that the levies have not been legitimately struck, a matter that this meeting’s resolution will correct.
[101] At that meeting, a number of members who were in arrears were allowed to vote.
[102] On 26 July 2017, the Body Corporate circulated a notice of resolutions to be voted on without a meeting. Those resolutions are as follows:
Ordinary resolution 1: That, pursuant to Regulation 17 of the Unit Titles Regulations 2011, the Body Corporate gives its approval for the Committee to enter into all obligations for the purpose of implementing and giving effect to the expenditures, including in particular the expenditures in relation to the Long-Term Maintenance Plan and window replacement fund and programme, provided for in the budget approved at its most recent Annual General Meeting of 22nd September 2016.
Ordinary resolution 2: That, pursuant to Regulation 17 of the Unit Titles Regulations 2011, the Body Corporate ratifies and approves all obligations entered into by the Committee for the purpose of implementing and giving effect to the expenditures, including in particular the expenditures in relation to the Long-Term Maintenance Plan and window replacement fund and programme, provided for in the approved budgets and long-term maintenance plans at all relevant previous general meetings of the Body Corporate.
[103] This notice contained no mention that only those members who had paid their levies would be eligible to vote. While, under regulation 5(4)(b) of the Unit Titles Regulations 2011, a notice of intention to hold an AGM must state that a unit owner may not vote unless they are up to date with payment of all body corporate levies, the regulation with regards to passing a resolution without a general meeting includes no such requirement.11
[104] On 1 August 2017, Dr Young sent an email asking that his vote against the resolutions be recorded to which Mr Holgate of YPM replied saying that his vote was received and noted. There was no indication given in this email reply that the Youngs were ineligible to vote due to having unpaid levies.
[105] The Youngs point to the facts that owners with unpaid levies were allowed to vote at the 2015 EGM, they were invited to vote by the notice of 26 July 2017 which
11 Unit Titles Regulations 2011, reg 16.
did not specifically state that those with levies outstanding would be ineligible to vote, and the respondent acknowledged that they voted against the resolutions, as creating an estoppel which estops the respondent from denying that the applicants voted.
[106] There are, however, a number of factors which militate against a finding of estoppel. The Body Corporate’s decision to allow those with unpaid levies to vote at the 2015 EGM was peculiar to that particular meeting. There was no obligation on the Body Corporate to specifically point out in the material sent out prior to the vote that a member needed to have paid all levies to have his or her vote counted, nor was it required to do so when the Youngs sent their vote via email. Further, Mr Holgate did not reply to Dr Young that his vote had been counted, merely that it was noted. I conclude that an estoppel has not been made out.
[107] As the Youngs were ineligible to vote against the resolution, they are therefore unable to seek relief under s 210 of the UTA. Accordingly, their claim under the first cause of action fails.
[108] However, in the event that I am wrong as to the applicant’s ability to seek relief under s 210, I will now consider whether the resolutions passed by the Body Corporate on 1 August 2017 were unjust and inequitable for the minority.
Were the resolutions unjust and inequitable?
[109] The applicants claim that the resolutions passed were unjust and inequitable because:
(a)their purported effect was to authorise the Body Corporate to enter into an agreement with Armstrong Downes to complete the Works at a cost of $418,760;
(b)their effect was that, divided by unit entitlement between the podium floor owners, the cost of replacing the windows in each podium floor was almost identical to the cost of replacing the windows in each upper floor unit;
(c)the minority podium floor unit owners would be liable to pay the same amount of costs for window replacement as the upper floor unit owners;
(d)this constituted an inequitable and unjust burden on the podium floor owners where:
(i)the Body Corporate had failed to consider, either adequately or at all, whether the replacement of the podium floor windows was necessary;
(ii)the Body Corporate had failed to ensure that the proposed Works would be conducted economically by:
1. obtaining competitive quotes for the Works; or
2. seeking verification of the Armstrong Downes quote from an independent quantity surveyor;
(iii)the quote was excessive because there were fewer windows on each podium floor and less scaffolding would be required to complete the Works, as compared with the upper floor window replacement;
(iv)pursuant to s 126 of the UTA, where repair or work benefits one or more units substantially more than it benefits others, it must be apportioned among the units that derive a substantial benefit from the repair, work or act;
(v)accordingly, the costs of window replacement to the podium floor windows should have been lower than the cost to the upper floor unit owners; and
(e)the Body Corporate invited the applicants to submit a counter-proposal in respect of the Works, and undertook to consider it and present it to
the members for a majority vote at a General Meeting, but has failed to do so.
Was replacement of the podium floor windows necessary?
[110] The applicants submitted that there was no record in the minutes of the Body Corporate or the Management Committee between 2004 and 2017 of any discussion regarding whether replacement of all the windows in the podium floors units was necessary, nor was there any record of the Body Corporate having sought or obtained any expert advice regarding appropriate remediation options for the windows.
[111] The applicants provided an expert report from Mr Wutzler, a building surveyor with expertise in remediation and replacement of steel windows, which asserted that replacement of the podium floor windows was unnecessary and that refurbishment would be the most practical and cost-effective solution to the problem being encountered with the windows.
[112] The respondent denied that it failed to consider whether replacement was necessary, submitting that the minutes between 2004 and 2017 record numerous discussions regarding the need to replace the windows on all the floors of RPH, including the windows of the podium floors, and that there were specific references to the replacement of the windows of the podium floor units.
[113] A review of the minutes between 2004 and 2017 confirms that the respondent is correct in saying that over that period there were discussions regarding the necessity of replacing the windows on all the floors of RPH. For example, the minutes of the Windows SGM held on 11 April 2005 record that the options of replacement versus refurbishment of the existing steel window frames were debated and the Chairman’s Report at the AGM held on 29 August 2005 records that the Body Corporate was “in the process of establishing which windows need[ed] refurbishing prior to obtaining quotes from contractors”. The minutes of the Management Committee meeting on 29 June 2006 note that there were lengthy discussions around the issue of the windows and that it was agreed that refurbishment was not an option.
[114] At a meeting on 23 November 2006, the Management Committee moved that Argest engage a registered engineer to provide a risk assessment on the condition of the steel frame windows and a report from Sedgwick Group Architects on the existing window risk was tabled at the Management Committee of 1 March 2007.
[115] At the EGM held on 1 May 2008, the Body Corporate settled on its approach to the window project, with the intention, as stated in the chairperson’s report, being to address the issues identified with all steel windows from level 1 up to level 8. A decision was made to include levels 1-2 in the window replacement project so that the project could be funded from the long-term maintenance fund. The minutes record that it was determined that:
Those of levels one to eight that do not require new windows in this exercise would be eligible to have their windows replaced by the body corporate … when their windows come up for replacement in the future.
[116] It is therefore clear that the Body Corporate did consider the necessity of window replacement for the podium levels and arrived at the conclusion that all steel framed windows, including those of the podium levels needed to be replaced.
Was the quote excessive?
[117] The applicants contended that the resolutions authorising the expenditures in relation to the window replacement were unjust and inequitable for the minority as they placed an unnecessarily heavy financial burden on the podium floor owners.
[118]At the 2008 EGM, a window replacement budget for the podium floors of
$57,600 was tabled, which the applicants submitted set the cost of replacing the windows at $2,400 per unit for the podium floors compared with a cost of $8,000 per unit for the upper floors. This would indicate that it was anticipated there would be a considerable difference between the costs for the podium level windows and the upper level windows.
[119] The Body Corporate, however, denied that the average cost per unit of replacing the windows was $2,400 for the podium levels and $8,000 for the upper levels but submitted that the cost per room ranged from $2,400 to $4,800 for the
podium levels and from $3600 to $12,000 for the upper levels. This provides some support, though, for the applicants’ claim that it was expected there would be a significant disparity in the costs between replacement of the upper level and of the podium level windows.
[120] The window replacement budget presented at the 2008 EGM shows that the cost budgeted for each floor of the podium levels was $28,000 whereas the cost per floor of the upper levels was budgeted at $96,000. These figures show that it was anticipated that the cost of repairing the upper levels would be almost three and a half times the cost of the podium levels. There is some logic to this given the fact that the surface area of the upper levels consists mainly of glazing units, whereas the podium levels have less glazing, the balance being concrete panels.
[121]The budgeted cost as at 2008 of replacing the upper level windows was
$576,000. The Body Corporate submitted that those costs as budgeted in 2008 were, in fact, surpassed (the costs quoted for replacing the west and east face windows of levels 4-8 came to $686,118 alone) and were no longer indicative of the window replacement costs. Therefore, the Body Corporate submitted that the budget presented at the 2008 EGM was irrelevant to the claim that the Armstrong Downes quote was excessive.
[122] In 2015, Armstrong Downes quoted a cost of $418,760 to replace all the windows on the podium floors and paint the exterior walls (“the Works”). This cost was then updated in a quote dated 12 April 2017 to the fixed sum price of $424,703 which equates to an average cost per unit of $17,696, slightly more than the average cost of $17,111 per unit for the window replacement of the upper floor units.12 This was despite there being 80 windows on each of floors three to eight as opposed to only 24 windows on each of the podium floors and fewer tiers of scaffolding being required for the podium floors.
[123] The Body Corporate denied that the quote from Armstrong Downes was excessive and pointed out that the number of windows on each floor was not the sole determinant of the nature and cost of the work required to replace the windows. While
12 This figure of $17,111 was put forward in the affidavit of Aaron Taylor at [58].
the windows in the podium units were smaller than those of the upper levels, they were set into concrete panels which would need to be repaired, a cost that did not arise in the replacement of the windows on levels 3-8. In addition, the cost of the scaffolding for the podium levels would be higher due to the scaffolding encroaching on the footpaths and road which would require traffic management and the area of the podium levels’ façade being greater than that of the upper levels.
[124] In these circumstances, although it is understandable that the Youngs might be surprised at the increase in the estimate of the cost of replacing the podium windows, it cannot be said that the estimate was excessive.
Was the Body Corporate under an obligation to (a) get competitive quotes and
(b) verify Armstrong Downes’ quote with an independent quantity surveyor?
[125] The applicants further argued that the Body Corporate failed to ensure the Works were conducted economically as it did not obtain more than one quote before reaching a decision to award the contract to Armstrong Downes, nor did it seek an opinion from an independent quantity surveyor to confirm the appropriateness of the Armstrong Downes quote.
[126] Mr White, a registered quantity surveyor, prepared a report for the applicants on the costs for completing the Works, based on the Draft Scope of Works prepared by Armstrong Downes. Mr White concluded that the appropriate costs of completing the Works as described in the Draft Scope of Works was $329,399.50, $95,303.50 less than the price quoted by Armstrong Downes. This would have resulted in a cost per unit of $13,724.98 as opposed to $17,696. Even taking into account a level of variance of +/- 5-10%, Mr White determined that the Armstrong Downes quote was higher than he would have estimated reasonable.
[127] The refurbishment and painting programme proposed by Mr Wutzler was also assessed by Mr White who determined that it would cost $247,399.75 (excluding GST), $171,360.25 less than the quote from Armstrong Downes. Divided equally between the 24 residential podium floor unit owners, this would amount to $10,308.32 per unit.
[128] The applicants pointed out that the Body Corporate did not provide any expert evidence to challenge Mr Wutzler’s views, nor did it provide any evidence to verify the reasonableness of the price quoted by Armstrong Downes. They contended that the effect of the resolutions was that the podium floor unit holders would be required to pay costs in the sum of $7,361.39 more on average per unit than is either necessary or justified which is therefore materially unfair to the minority podium floor owners.
[129] The Body Corporate countered that argument by stating that the applicants had failed to acknowledge the fact that the Management Committee took into account other relevant factors in deciding to accept the Armstrong Downes quote. One of these factors was that the Management Committee had been dissatisfied with the performance of the contractors who had completed the initial works on the level three windows, whereas Armstrong Downes had successfully completed the window replacement works on levels four to eight to a consistently high standard, gaining site experience and familiarity with RPH in the process.
[130] Other factors taken into account were that retaining Armstrong Downes as a contractor would ensure uniformity in the quality and aesthetics of the Works,13 its quote was consistent with its prices for previous stages, it was available to complete the work whereas other contractors may not have been available to complete the work for some time, and it had sufficient access to staff and suppliers, appropriate health and safety practices, and professional indemnity insurance in place.
[131] In contracting with Armstrong Downes, the Body Corporate could have confidence that the Works would be completed in a manner which protected the building as an asset as a whole. It was therefore determined that the potential savings from undertaking a tender process would not outweigh the benefits in contracting again with Armstrong Downes to complete the works.
13 The majority of units at RPH operate as medium to long-term accommodation. The applicants’ units are leased and operated under a hotel franchise. The window replacement work on levels 1 to 8 is necessary to ensure that the building is maintained to the standard necessary to compete in these accommodation markets. Therefore, repairs which ensure a uniform standard and quality across the building affect and benefit all owners.
[132] With regards to an independent quantity surveyor, the Body Corporate submits that it was not necessary to seek an opinion from an independent quantity surveyor to confirm the appropriateness of the Armstrong Downes quote nor was it under any obligation to do so.
[133] If a new contractor had been sought to complete stage 5 of the Works, it may have been advisable for the Body Corporate to get competitive quotes before awarding the contract so as to ensure that the Works would be conducted economically. However, given the fact that Armstrong Downes had completed previous stages of the Works to a high standard and retaining their services presented numerous advantages, it was logical for the Body Corporate to save on the costs associated with the tendering process and to contract with Armstrong Downes again. I accept the Body Corporate’s submissions that it was therefore unnecessary to get competitive quotes or to verify the quote with an independent quantity surveyor.
Is s 126 of the UTA applicable?
[134] The applicants submitted that s 126 indicates that where repairs benefit some unit owners more than others, it is not intended that the body corporate should raise those funds under the long-term maintenance fund. The Body Corporate is not permitted to require unit owners who receive no substantial benefit from the Works to fund repairs to the majority through levies to be paid to the fund on the basis that they may be refunded at some point in the future.
[135] The respondent, however, submitted that the applicant’s contended application of s 126 is incorrect and that s 126 instead provides a mechanism whereby the body corporate may recover an expense (as distinct from a levy) that has been expended for work done (rather than work planned), if that work once completed substantially and actually benefits any unit or units by a distinct and ascertainable amount.
[136] Counsel for the respondent relied on the case of Body Corporate 95035 v Chang, in which Courtney J stated that:14
14 Body Corporate 95035 v Chang [2012] NZHC 1512 at [47].
It is apparent from the Court of Appeal’s comments in Tisch that s 33 [of the UTA 1972, the predecessor to s 126 of the UTA 2010] simply provides a mechanism by which repair costs already levied and incurred can be adjusted if the repairs substantially benefit some units more than others.
[137] Justice Courtney was referring to Tisch v Body Corporate 318596, where the Court of Appeal stated that s 33 of the UTA 1972:15
… provides a mechanism to reallocate repair costs after they have been incurred, and are thus known. It contemplates: i) a levy; ii) repairs; iii) reallocation of the costs of those repairs (counsel termed this a ‘back end adjustment’) if the repairs substantially benefit some unit(s) more than another(s).
[138] Counsel for the respondent also relied on Body Corporate S73368 v Otway which supports this interpretation of s 126.16 In that case the body corporate had first levied all its owners to pay for remediation works and, after completing the works, applied to the Court under s 126 to recover expenses it incurred in completing the work which it said benefited the defendants’ units substantially more than other units.17
[139] As the applicants have refused to pay their levies for the Works and s 126 operates so as to allow a body corporate to reallocate the costs of a repair once a levy has been raised and the repairs completed, s 126 is therefore not yet applicable in this case.
Did the Body Corporate consider the counter-proposal?
[140] Following Mr Holgate’s request the he submit a counter-proposal, Dr Young did so on 19 May 2015. That proposal submitted that:
(a)podium floor unit owners should pay for repairs on those floors and to the podium roof on a unit entitlement basis as they would derive the principal benefit from those repairs;
(b)the owners of the units on floors three to eight should pay for repairs to their floors on a unit entitlement basis;
15 Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [25], n 10.
16 Body Corporate S73368 v Otway [2016] NZHC 1070.
17 At [3].
(c)the Armstrong Downes quote is excessive;
(d)there was no urgency to replace the windows on the podium floors;
(e)the Body Corporate should call for other tenders; and
(f)the Youngs would not pay for any costs on their units without seeing the tender documents, including at least three competitive bids.
[141] The Youngs stated that they received no response to that proposal, despite multiple requests from Dr Young and letters from their solicitors. They submitted that they had an expectation the Body Corporate would follow the procedure laid out by Mr Holgate in his email of 20 April 2015 and that Dr Young’s email of 26 August 2015 reflected this expectation:
[P]lease relay to me the evaluation of my proposal by the Chair and Committee that they intend for presentation to the members at a General Meeting to vote on by majority decision so that, in anticipation of that presentation, I can revise my proposal if necessary…
[142] The Body Corporate, however, submitted that Mr Holgate’s email made it clear that Dr Young’s proposal would first be evaluated by the Committee as to whether it was appropriate to submit to the whole Body Corporate for voting. The Youngs were not promised that Dr Young’s proposal would be presented to the whole Body Corporate or voted on. The process, as set out in the email, was followed. I prefer the Body Corporate’s interpretation of Mr Holgate’s email.
[143] The Youngs submitted, though, that there is no record in the Management Committee’s minutes of discussion or evaluation of the proposal. Amit Nijhawan, who attended the meetings over the relevant period, confirmed in an email of 21 June 2017 that, while reference was made to email communication received from Dr Young, the proposal was never shared at a committee meeting.
[144] In his affidavit dated 8 December 2017, Mr Taylor, the Chair of the Body Corporate, gave evidence that the Management Committee did, in fact, consider the proposal and decided it could not be accepted as Dr Young’s proposed method for
apportioning the costs of the work could only be done once the works had been completed, having been first paid for by levying the owners. The Management Committee also decided it would not be able to negotiate with the applicants given Dr Young’s statements in his proposal that he was unlikely to accept major changes to it and was not open to mediation.
[145] Mr Taylor’s affidavit goes on to note that “the applicants were advised by the Body Corporate’s solicitors that the Committee had considered the proposal, along with other correspondence from Dr Young”.
[146] The relevant passage from the letter written by the solicitors is as follows: “[T]he Body Corporate Committee has already considered your various correspondences and elected to file proceedings in the District Court to recover the outstanding levies which you owe …”. While the wording of the letter is such that the Youngs might not have understood the phrase “various correspondences” to include the proposal as well as the emails sent by Dr Young, I accept Mr Taylor’s evidence that the proposal was considered.
[147] I therefore find that the Body Corporate, having invited the applicants to submit a counter-proposal, did consider it but, having determined that the proposal could not be accepted as it proposed measures that were contrary to the UTA, elected not to put it to members for voting at an AGM. The process was not contrary to the correct interpretation of the email sent by Mr Holgate on 20 April 2015 and did not result in the resolutions passed being unjust and inequitable.
Conclusion
[148] Under s 210 of the UTA, the test as to whether a resolution would be unjust or inequitable for the minority is a “high threshold of material unfairness or injustice.”18 Based on the above analysis, this threshold has not been met. Therefore, in the event that I was wrong as to the applicants’ ability to seek relief under s 210, this cause of action would nevertheless fail as the resolutions passed were neither unjust nor inequitable.
18 Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314, (2016) NZCPR 509 at [19].
Second cause of action
[149] The applicants’ second cause of action was an application for judicial review of the Body Corporate’s decision to pass the resolutions of 1 August 2017 on the basis that the decision was not in accordance with the statutory purpose of the UTA where:
(a)the Body Corporate had not obtained comparative quotes in respect of the Works;
(b)the Body Corporate had not sought verification of the cost of the Works by an independent quantity surveyor;
(c)the Body Corporate’s position that it became liable for delay costs in June 2017; and
(d)the Body Corporate was aware that access to the applicants’ units would not be granted until the dispute between the parties regarding the lawfulness and reasonableness of the decision to undertake the Works was resolved.
[150] The applicants claimed that, in deciding to pass the resolutions, the Body Corporate was motivated to protect its position in respect of this dispute.
[151] The defendant opposed the judicial review sought by the applicants on the grounds that the Body Corporate’s decision to pass the resolutions was in accordance with the statutory purpose of the UTA.
Duty to obtain comparative quotes and seek verification of costs
[152] As addressed under the first cause of action, the Management Committee came to the conclusion that it was unnecessary to obtain comparative quotes and to seek verification of costs. I accept the Body Corporate’s submissions that it was unnecessary to do so and find that, in the circumstances of this case, this decision was not contrary to the purposes of the UTA as it allowed for management of RPH on an economically sustainable basis.
Delay costs
[153] The Body Corporate has previously advised the applicants that delays caused to the podium floor window replacement works programme might result in the Body Corporate being liable for delay costs to Armstrong Downes under their contract for the podium works. The respondent is liable for delay costs as a result of the applicants’ failure to comply with their statutory duties under the UTA and to allow the Body Corporate access to their units.
[154] Although this was raised in the statement of claim/defence, neither party addressed this issue in their submissions so I will not consider it further.
Access to the applicants’ units
[155] Under ss 80(1)(a) and (b) of the UTA, the applicants have statutory duties to allow the Body Corporate to access their units to repair and maintain the windows (provided this is to occur at a reasonable hour and reasonable notice is given) and to do all things necessary to give effect to decisions of the Body Corporate, which here include to undertake the window replacement programme and podium window replacement.
[156] Although the UTA does not indicate what would amount to a reasonable hour or reasonable notice, the landlord’s right of entry under s 48 of the Residential Tenancies Act 1986 would appear to be analogous. When entering for the purpose of inspecting a premises, a landlord may do so at any time between 8 am and 7 pm, with no less than 48 hours notice given.19 As the Body Corporate had informed the Youngs three days beforehand that the workmen would appear at 10 am, this would appear reasonable in the circumstances and would have given the Youngs time to inform their tenants that this would occur, thus avoiding them being surprised, as happened, whilst asleep or in the bathroom.
[157] The responsibilities of unit owners under s 80 of the UTA is mandatory so the Youngs were not entitled to impose conditions of entry or to refuse access to their units
19 Residential Tenancies Act 1986, s 48(2)(b).
until they received the information sought. The Youngs’ refusal to provide access to their units to allow the Works to proceed was therefore contrary to their statutory obligations.
The Body Corporate’s motivations in deciding to pass the resolutions
[158] The Body Corporate decided in 2008 to replace the windows on levels 1 to 8, treating this work as part of its long-term maintenance programme. Levies were raised under the long-term maintenance fund, as required by the UTA 1972 and the UTA.20 The Body Corporate intended to complete the podium windows in the later stages of the project. As discussed above, the Body Corporate had numerous reasons for accepting the quote from Armstrong Downes to complete the final stage. The Body Corporate passed the resolutions of August 2017 so as to give effect to the owners’ expectations that the Works would proceed, not to strengthen the Body Corporate’s position, and its decision to pass the resolutions was therefore consistent with the purpose of the UTA and the Body Corporate’s duty of repair and maintenance.
[159] For the reasons given above, I therefore decline the Youngs’ application for judicial review of the Body Corporate’s decision to pass the resolutions of 1 August 2017.
Third cause of action
[160] The applicants apply for judicial review of the Body Corporate’s decision to complete the Works on the grounds of:
(a)breach of Regulation 17 of the Unit Titles Regulations 2011;
(b)breach of legitimate expectation;
(c)breach of natural justice; and
(d)improper purpose.
20 UTA 1972, s 15(2)(c); UTA s 121.
Breach of Regulation 17 of the Unit Titles Regulations 2011
[161] Regulation 17 of the Unit Titles Regulations 2011 provides that a body corporate may not enter into an obligation without approval by ordinary resolution.
[162] The applicants submit that the decision to complete the Works was made on or around 1 May 2017 when the Body Corporate accepted the Armstrong Downes quote to complete the Works at a cost of $424,703 and, at that time, no resolution had been passed approving that obligation.
[163] The Body Corporate denies this, stating that it passed the 1 August 2017 resolutions which authorised the Body Corporate to enter into all obligations for the purpose of implementing the expenditures provided for in the budgets approved by the Body Corporate at its General Meetings. It therefore claims that the Body Corporate has complied with regulation 17.
[164]In his affidavit of 8 December 2017, Mr Taylor stated the following:
[T]he Body Corporate and Committee previously considered that the annual resolutions to raise the window replacement levies and approving the Body Corporate budgets which provided for the window project provided sufficient authorisation to proceed with the window replacement work. When the applicants raised that the works have not been authorised under regulation 17, the Body Corporate and Committee took steps to pass the 1 August 2017 resolutions to give effect to the Body Corporate’s expectations that the window project had been approved by the owners.
[165] It is my view that the Body Corporate were legitimately acting in the best interests of the Body Corporate members as a whole and believed that they were entitled to enter into the agreement with Armstrong Downes based on the previous resolutions passed approving the levies raised for the purpose of the window replacement and the budgets providing for the works. When the issue of regulation 17 was raised, the Body Corporate acted so as to ensure it complied with this regulation. The resolutions passed and would no doubt have passed had they been voted on prior to entering into the agreement. The initial failure to comply with regulation 17 was merely an oversight and I would not have granted a remedy by way of judicial review on this technicality.
Breach of legitimate expectation
[166] The applicants claimed that the Body Corporate breached their legitimate expectation that the Management Committee would evaluate Dr Young’s proposal and present it to the Body Corporate members at a General Meeting to vote on by majority decision. This expectation was said to have arisen out of Mr Holgate’s email.
[167] The applicants also claimed they had a legitimate expectation that the Body Corporate would consider the necessity and economy of the quote from Armstrong Downes in respect of the proposed Works. This expectation was said to have arisen out of the Body Corporate’s established practice in respect of repairs and maintenance and the established practice of Body Corporates generally.
[168] The Body Corporate denied these claims, stating that it was not tenable that the applicants held the alleged legitimate expectation in relation to Dr Young’s proposal and the Armstrong Downes quote.
[169] The test for determining whether a legitimate expectation exists was set out by the Court of Appeal in Comptroller of Customs v Terminals (NZ) Limited.21 That test was summarised by the High Court as follows:22
[T]he three steps generally required to establish a legitimate expectation: to establish the nature of the commitment made by the public authority; to determine whether the plaintiff’s reliance on it is legitimate; and to decide what remedy, if any, should be granted.
[170] As established above, Mr Holgate’s email of 20 April 2015 only stated that Dr Young’s proposal would be evaluated by the Management Committee as to whether it should be presented to the Body Corporate as a whole. It did not guarantee that the proposal would be presented to the Body Corporate for voting.
[171] Dr Young’s proposal provided for the Body Corporate to levy for the window project on a basis other than utility interest which would have resulted in the Body Corporate acting contrary to the UTA. The Management Committee came to the
21 Comptroller of Customs v Terminals (NZ) Limited [2012] NZCA 598, [2014] 2 NZLR 137 at [125]-[127].
22 Chamberlain v Ministry of Health [2017] NZHC 1821 at [73].
decision that the proposal could therefore not be adopted by the Body Corporate and elected not to present the proposal at a General Meeting.
[172] The applicants argued that Dr Young’s proposal was not actually evaluated by all of the Management Committee but only by selected members. Mr Holgate, who is not a member of the Management Committee, read the proposal and then emailed three of its six members for permission to seek comment on the proposal from the Body Corporate’s lawyers. Mr Wilson, who is also not a member of the Management Committee, composed a four-page response to Dr Young’s proposal and sent it to those same three members. The Body Corporate’s lawyers advised that the proposal was contrary to the UTA and recommended the Body Corporate proceed to Court to collect levies from the Youngs. This advice was forwarded to those same three members for their views on whether to proceed to Court and they agreed with filing Court proceedings. This decision was then ratified by the Management Committee at the next meeting.
[173] The Body Corporate relies on a finding by Muir J in the case of Wheeldon v Body Corporate 342525 that it is open to a committee to make a decision by email.23 However, in that case the text of the emails showed input from each committee member and that a consensus was ultimately reached.
[174] The email from Mr Holgate did not say that Dr Young’s proposal would be considered by the Management Committee at one of its meetings, merely that the Chair and the Management Committee would evaluate it. Three members of the Management Committee gave their permission by email for the proposal to be forwarded to lawyers and then agreed, again by email, to follow the advice provided. Approval was later confirmed at a meeting of the Management Committee on 13 August 2015. Although the procedure followed showed some irregularity, it is my view, particularly given that the proposal could not have been accepted given that it was contrary to the UTA, that the same decision would have been reached were the proposal to have been considered by the Management Committee as a whole. Therefore, it is my view that this was sufficient consideration of Dr Young’s proposal
23 Wheeldon v Body Corporate 342525 [2015] NZHC 87 at [36]-[39].
in the circumstances and the Youngs could not legitimately have expected the Management Committee to do more.
[175] With regards to the Youngs having a legitimate expectation that the Body Corporate would consider the necessity and economy of the quote from Armstrong Downes in respect of the proposed Works, they argue that this expectation was created by the practice of the Body Corporate, as well as New Zealand bodies corporate in general, of obtaining competitive quotes for repairs and maintenance.
[176] The Youngs point to the Body Corporate showing a consistent trend of getting a number of quotes or a quantity surveyor review before undertaking repairs or maintenance of any significant value. In November 2009, two quotes were obtained for removal of a roof top compressor and repairs to roof butynol, while a quantity surveyor verified an engineer’s costs in relation to repairs to fire protection in the east duct of the building in August 2016. Three quotes were obtained in relation to preparations of a long-term maintenance plan and the Body Corporate had intended to obtain three quotes for repairs to the podium roof. The Body Corporate had, in fact, followed a tender process in awarding a contract for stage two of the window replacement. No evidence was provided as to the practice of body corporates in general of obtaining competitive quotes.
[177] Counsel for the Body Corporate countered that argument by referring to the Court of Appeal’s comments in Green v Racing Integrity Unit Limited:24
[S]uccess at the first step – establishing the existence and content of the expectation pleaded – might not come in the form of an explicit promise. A promise can be implied from past practice or policy. But where the expectation is in the form of a practice or policy, as alleged here, its existence and content must equally be established to the level of a commitment or undertaking. The existence and content of such a practice or policy must be both unambiguous, and settled in the sense that it is regular and well established. (citations omitted)
[178]The Court of Appeal continued at [15]:
We also emphasise the importance of the second element – establishing reasonable reliance on the unambiguous and settled policy or practice – to a successful claim of a legitimate expectation. The presence of reliance (that is,
24 Green v Racing Integrity Unit Limited [2014] NZCA 133 at [14].
reasonable reliance) helps distinguish a legitimate expectation from one which is a mere hope that a course of action will be pursued. It is difficult to see how a party could have a legitimate expectation without relying on the undertaking (whether by a promise or otherwise), given that its foundation is that a public authority should be bound by its undertakings when it “has promised to follow a certain procedure, [because] it is in the interest of good administration that it should act fairly and should implement its promise”. (citations omitted)
[179] The Body Corporate submitted that the Youngs had failed to demonstrate that the Body Corporate had given a commitment of such a nature upon which they had relied nor did the occasions on which the Body Corporate had obtained quotes establish an “unambiguous and settled policy or practice”. It also argued that the circumstances of this project distinguished it from the instances where the Body Corporate had obtained multiple quotes as it concerned the final stage of the window replacement project which commenced in 2008. As discussed above, the Body Corporate had numerous reasons for accepting the Armstrong Downes quote.
[180] I accept the Body Corporate’s submissions. The fact that the Body Corporate had, on a number of occasion, obtained quotes from several contractors being embarking on repairs or maintenance was not in my view sufficient to establish a settled policy of doing so. While the Youngs might have hoped that the Body Corporate would obtain quotes for the final stage of the window replacement works, there was insufficient evidence to establish that they could reasonably have had a legitimate expectation that the Body Corporate would do this and, in this particular instance, the Body Corporate had genuine and justifiable reasons for avoiding the additional unnecessary costs this would have entailed. Therefore, a breach of legitimate expectation is not established.
Breach of natural justice
[181] The Youngs seek review of the Body Corporate’s decision to complete the Works on the basis that the Body Corporate breached the rules of natural justice by:
(a)failing to consider whether the repairs are necessary;
(b)failing to consider and respond to the applicant’s counter-proposal;
(c)failing to verify the cost of the Works; and
(d)refusing to disclose the evidence necessary for the applicant to properly respond to the proposed Works.
[182]In the case of Dotcom v United States of America, the Supreme Court held:25
The content of the right to natural justice, however, is always contextual. The question is what form of procedure is necessary to achieve justice without frustrating the apparent purpose of the legislation.
[183] The Youngs submitted that part of the Body Corporate’s legal obligations was to ensure the sufficiency of information necessary to perform its powers and, as it did not act on evidence of the need or reasonable cost of the Works, it therefore failed to meet this test.
[184] As addressed above, I have found that the Body Corporate did take steps to consider whether the repairs were necessary, to consider and respond to Dr Young’s proposal and to verify the cost of the Works to the extent necessary. The issue, then, to be addressed is whether the Body Corporate was under an obligation to disclose the evidence the Youngs contend was necessary for them to respond properly to the Works.
[185] The Body Corporate submitted that the Youngs’ natural justice rights are covered by their right to bring a claim for relief under s 210 of the UTA 2010, to raise matters for discussion at a general meeting of the Body Corporate and to request documents as provided for under s 206.
[186]Section 206 of the UTA provides as follows:
206 Provision of records and documents
(1) The body corporate must, on request from a unit owner, make copies of the following records and documents available for purchase by the unit owner:
(a)the body corporate operational rules:
(b)all current insurance policies held by the body corporate or its head body corporate in respect of the buildings and improvements on the base land:
25 Dotcom v United States of America [2014] NZSC 24, [2014] 1 NZLR 355 at [120] per McGrath and Blanchard JJ.
(c)the long-term maintenance plan:
(d)any agendas or minutes of the body corporate:
(e)the financial statements:
(f)any other documents the owner of a principal unit is required to provide under subpart 14 of Part 2:
(g)any other records or documents if the body corporate thinks it is reasonable in the circumstances to provide those records or documents.
(2) The copies must be made available within a reasonable time, and the body corporate may charge any reasonable costs incurred in providing the records and documents.
[187] The Youngs submitted that natural justice requires a decision-maker to provide information so that the person whose rights are adversely affected knows the case they have to meet26 and that requirement of disclosure is reinforced by s 206(g) which provides that certain documents “must” be made available to unit owners on request.
[188] Prior to the decisions being made to complete the Works and to pass the resolutions of 1 August 2017, the Youngs had requested the following information:
(a)Mr Wilson’s response to Dr Young’s proposal;
(b)documents or information concerning the need to replace the windows on the podium floors;
(c)the nature and terms of the agreement between Armstrong Downes and the Body Corporate;
(d)a copy of the ordinary resolution of the Body Corporate approving the agreement with Armstrong Downes; and
(e)a copy of the information provided to Armstrong Downes and other potential tenderers in respect of the proposed Works.
26 Royal Australasian College of Surgeons v Phipps [1999] 3 NZLR 1 (CA) at 16 and 23.
[189] The Body Corporate refused to provide this information which the Youngs submit prevented them from obtaining a report on steel windows regarding the appropriate approach to addressing any issues with the podium windows, and a report from a quantity surveyor to assess whether the costs imposed on them were reasonable. This information was provided to the Youngs only after they had brought a claim seeking judicial review of the body Corporate’s refusal to provide that material.
[190] The Body Corporate denied that it was required to provide the above information, stating that that information was to be provided “if the body corporate thinks it is reasonable in the circumstances” and stated that it was open to it to exercise the discretion granted to under s 206(g).
[191] Ultimately, this information was provided to the Youngs, albeit after the resolutions were passed and the Body Corporate decided to complete the Works. While this information no doubt proved helpful to the Youngs in obtaining the reports they wanted, they were nevertheless unsuccessful in arguing that the proposed Works were unnecessary and imposed excessive costs on the podium level owners. I therefore find that there has been no breach of natural justice in this case.
Improper purpose
[192] The Youngs submitted that the dominant purpose of the Body Corporate’s decision to complete the Works was to reinforce its decision to levy the cost of the window replacement project by unit entitlement and its claims against them for payment of those levies. They note that the Armstrong Downes quote was obtained shortly after advice was received from the Body Corporate’s lawyers that the Body Corporate’s claim for payment of levies would be strengthened by arguing the cost of the podium floors works is similar to that of the upper floors.
[193] As noted under the second cause of action, the Body had decided to replace the windows on levels 1 to 8 in 2008, with the windows of the podium levels being dealt with after the upper levels. The Body Corporate’s decision to complete the Works was merely to finish the final stage of what was a very lengthy process of replacing the building’s windows as part of its duty of repair and maintenance. I therefore find that
no improper purpose can be imputed to the Body Corporate in arriving at a decision to authorise the Works.
[194] For the reasons provided above, I therefore decline the Youngs’ application for judicial review of the Body Corporate’s decision to complete the Works.
Summary
[195] The applicants have failed to prove all three causes of action and, accordingly, the proceedings are dismissed.
[196] The parties are invited to settle costs between themselves but, failing that, the Body Corporate is to file submissions on costs within 14 days of the date of this decision with the respondent having 14 days to reply.
Churchman J
Solicitors:
Fitzherbert Rowe, Palmerston North for Applicants Rainey Collins Solicitors, Wellington for Respondent
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