BODY CORPORATE 304209 HC WN CIV 2009-485-1104

BODY CORPORATE 304209 HC WN CIV 2009-485-1104 23 March 2010IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2009-485-1104IN THE MATTER OF an application under section 48 of the Unit Titles Act 1972 for approval of a scheme BODY CORPORATE 304209 Applicant Hearing: 22 March 2010 Counsel: D J S Parker and S Dalzell for Applicant R C Laurenson for J J Trust Judgment: 23 March 2010JUDGMENT OF RONALD YOUNG JIntroduction and Background[1] Stadium Gardens Apartments in Thorndon Quay in Wellington is what has become known as a leaky building. There are 91 residential units and three commercial units in common property. The remedial work required is substantial. It runs to many millions of dollars. [2] Because the damage and remedial work involves both common and private property areas the Body Corporation 304209 (Body Corporate) seeks orders pursuant to s 48 of the Unit Titles Act 1972 (the Act) approving a scheme which it says identifies how to best undertake and pay for the costs of the repairs. [3] All the owners save the J J Trust (the owner of a single residential unit) approve the scheme. Indeed without the J J Trust's opposition a s 48 application would not have been required.[4] There is a further feature in this case which adds to the complexity. The trustees of the J J Trust are Robert John Montgomery and Andrew Beatson. Mr Montgomery is a principle of the architectural firm of Peddle Thorp & Montgomery whom it is alleged were the designers of the Stadium Garden Apartments and were professionally involved in a "site observation function" during the construction of the building. Peddle Thorp & Montgomery is a defendant in litigation where owners of most of the units as plaintiffs are suing those involved in the construction and approval of the building. [5] Mr Montgomery therefore has a significant financial interest in keeping the cost of any remedial work as low as possible. His interests are not the same as the owners of the other residential or commercial units. [6] The J J Trust filed a notice of opposition to the s 48 application. The opposition involved nine separate challenges, from questioning the jurisdiction of the Court to make any such order, to allegations the proposed repairs involved betterment, to claims the scheme proposed repairs that were unnecessary. [7] These proceedings came before me both for interim orders and for case management purposes during the course of 2009. I indicated to counsel for the Body Corporate my concern that the proposed scheme did not provide sufficient detail to enable a clear understanding of how it was proposed to identify what was wrong with the building, how to repair it and pay for it. I therefore released a minute of 23 September 2009 where I said:[3] My expectation was that the applicant would provide a draft scheme for my approval which could then be discussed and to which members of the Body Corporate could respond. Neither of the two documents presented, the scheme and the amended scheme seem to me to do this in a coherent way. Both schemes seem to me to be discursive and to contain material which advocates a position rather than describes a process.[8] As a result an amended scheme has now been filed by the Body Corporate. [9] The amended scheme essentially follows my suggestions as to what such a scheme should provide with additional matters. The headings in the scheme are:a) a general description of what the Body Corporate considers is wrong with the building; b) a process to determine what is to be repaired; c) a process to identify who is to repair the building; d) how the costs of repairing the building are to be ascertained; e) if possible to identify what the costs of repairing the building are; f) how the cost of repairing the building is to be paid for; g) how the cost of repairs to the building is to be recovered; h) how any proceeds from litigation are to be distributed; i) a description of who makes these decisions and how any disputes will be resolved; j) steps already taken in accordance with the scheme; and k) miscellaneous matters. These include: the obligation of registered proprietors to provide reasonable access for the repairs; new purchasers to be bound by the scheme; liability of trustees; and the issue of the J J Trust and the difficulty that arises with Mr Montgomery as a defendant in the other litigation. [10] In response to the amended scheme the grounds of the J J Trust's opposition grew. A further five grounds were added by an amended notice of opposition. They were:Additional grounds of opposition3.10 Although the new proposed scheme seeks to meet the intent of the Minute of this Court dated 23 September 2009 (being the first minute issuedthat day), the objective of the scheme remains predetermined and the scheme is litigation driven. 3.11 Specifically, the scheme does not provide a mechanism to determine how repair work is to be carried out. In this regard, Mr Robert Montgomery, one of the trustees, is at the present time developing a remediation solution which potentially will involve an expenditure much less than that budgeted by the Body Corporate Committee and contemplated by the scheme. 3.12 Paragraph 12.4 of the new proposed scheme is illegal in that it excludes or seeks to exclude the trustees of the J J Trust as owners of a unit, from the business of the Body Corporate. 3.13 Paragraph 7.2 of the proposed scheme is illegal in that it seeks to retrospectively legitimise and apply purported levies earlier sought by the Body Corporate for litigation when the trustees were and are not parties to that litigation and when the purported levies otherwise were not in accordance with the law. 3.14 As appear in the further affidavit of Robert John Montgomery filed herewith.[11] Mr Montgomery, the trustee of the J J Trust, proposed an alternate scheme for the repair of the building. He said it would cost substantially less than the scheme currently proposed. Mr Montgomery's scheme was given to the Committee of the Body Corporate. They referred it for independent assessment. Mr Montgomery was able to make oral submissions to the Committee. The Committee rejected Mr Montgomery's proposals. They say that the scheme is incomplete and seriously flawed. They point to the affidavits filed in this proceeding from independent remedial experts who say that the proposed work is inadequate and will not fix the problems. [12] Late on Friday, 19 March, the J J Trust filed its response submissions in this case. They said for the first time that there were only two issues that they now raised in opposition to the s 48 scheme. They abandoned the other 12 grounds of appeal. Neither ground of opposition was fundamental to the proposed s 48 scheme.Opposition to s 48 scheme[13] Firstly, the J J Trust submitted that cl 7.2 of the s 48 scheme was outside the jurisdiction of this Court. Clause 7.2 provides:7.2 All amounts previously determined and raised by levies in respect of the defects at Stadium Gardens Apartments, including amounts levied to date for legal, expert and/or consultants costs and associated expenditure, are confirmed to have been levied in accordance with this scheme.[14] Secondly, they object to clause 12.4 which provides:12.4 This scheme applies to the trustees of the J J Trust (Robert John Montgomery and Andrew James Leslie Beatson), who are the registered proprietors of Unit 109. Robert John Montgomery is also a director of the third defendant in proceedings CIV 2007-485-2741. Neither the trustees nor any representative of the trustees mentioned in this paragraph shall be entitled to attend any part of any EGM or plaintiffs' meeting, or to receive or obtain any advice or minutes or other material dealing with legally privileged matters in relation to proceedings CIV 2007-485-2741 including (but not limited to) the level of settlement acceptable to the Body Corporate and 81 owners named as plaintiffs therein.[15] The J J Trust's case is that they are entitled as unit owners to be present at all AGMs and EGMs irrespective of whether their presence gives Mr Montgomery any litigation advantage by having access to the Body Corporate's litigation information and strategy.Legal issues[16] Section 48 of the Act provides as follows:48 Scheme following destruction or damage(1) Where any building or other improvement comprised in any unit or on any land to which a unit plan relates is damaged or destroyed, but the unit plan is not cancelled, the Court may, on the application of the body corporate, an administrator, the proprietor or one of the proprietors of a unit, or a registered mortgagee of a unit, by order settle a scheme including provisions— (a) For the reinstatement in whole or in part of such building or other improvement; or (b) For the transfer of units to the proprietors of the other units so as to form part of the common property. (2) Where an order is made under paragraph (b) of subsection (1) of this section, the provisions of section 19 of this Act shall, so far as they are applicable, but subject to any order of the Court to the contrary, thereafter apply to any such transfer.(3) A notice of any application made under subsection (1) of this section shall be served on the Registrar who shall thereupon enter on the supplementary record sheet a notification that application has been so made. (4) On any application to the Court under subsection (1) of this section, any person having or claiming to have any estate or interest in any unit or in the land or in any part of the land or any insurer who has effected insurance on the buildings or other improvements comprised in any unit or in the land or any part thereof shall have the right to appear and be heard. (5) In the exercise of its powers under subsection (1) of this section, the Court may make such orders as 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; (c) Directing the deposit of an appropriate new unit plan; or (d) Imposing such terms and conditions as it thinks fit. (6) The Court may from time to time cancel, vary, modify, or discharge any order made by it under this section. (7) On any application under this section the Court may make such order for payment of costs as it thinks fit.[17] The Body Corporate's function relates to common property. The private property of an apartment building is generally the responsibility of the individual owners. Section 48 provides an exception to those "ordinary" rules. The first requirement to trigger s 48 is that the building which encompasses the units must be damaged. [18] Once damage is established the Court may settle a scheme for the reinstatement of the building. Subsection (4) identifies the J J Trust's right to appear and be heard on any such application before the Court. Subsection (5) provides the Court with a broad jurisdiction. A Court is entitled to make such orders as it considers "expedient or necessary" to give effect to the scheme. Subsection (6) provides for the right to cancel, vary or modify the scheme. [19] Thus s 48 provides a method by which a damaged building might be repaired where the damage involves both private and common property. Section 48 no doubtreflected the obvious point that in a building containing a number of unit titles and common property it will be impossible to allow each individual owner to repair their property as they think fit and then to repair the common property. Such an approach is unlikely to resolve the damage and protect the future of the building. [20] I agree with Heath J when he said in Body Corporate 172108 v Meader & Ors HC Auckland CIV 2009-404-6868, 3 March 2010:In my view s 48 requires questions of reinstatement of repair to be determined by reference to the common good, while having regard to the rights otherwise enjoyed by individual proprietors.No retrospective effect[21] I am satisfied that it is within the jurisdiction of this Court to make orders pursuant to s 48 which have retrospective effect. That rather bold statement requires proper qualification. The jurisdiction to make an order under s 48 (assuming a unit plan) is damage to a building. Once damage is established an order may be made to settle a scheme for reinstatement under s 48. Self evidently damage will already have occurred and may be ongoing when the need for a s 48 scheme becomes apparent. Typically the Body Corporate will of necessity have taken action to preserve the building from further damage. Immediate identification of remedial work required will typically be required. All this is likely before any s 48 order. As well there will be a cost to this work which will have to be paid for by levy. [22] As a question of interpretation of s 48 I can see no reason why orders cannot relate back to the time when the damage entitling an order under s 48 first occurred. It would in my view be wholly unreal to suggest a s 48 order could not be retrospective. Without retrospective effect the Body Corporate will be hamstrung until an order is made. This could mean further damage to the building while awaiting the s 48 order. Some at least of the s 48(5) orders can be seen as retrospective as well as authorising future action. Further, ss 5(a) and s 6 give the Court the widest jurisdiction to do the best to give effect to the intention of s 48. Subsection (5) entitles the Court to make any orders it considers expedient and necessary to give effect to the scheme. Given in most cases considerable workrelating to the preservation of the building and proposed remedy will already have taken place the Court must have power to approve a scheme which retrospectively confirms this work as part of the scheme to repair the damaged building. [23] I am satisfied, therefore, that the scheme can have retrospective effect in that its effect can relate back to the time when the relevant damage to the building occurred and can therefore properly encompass the actions of the Body Corporate from that time. [24] However, there can only be retrospective effect if what has been done before the order by the Body Corporate is in accordance with the s 48 scheme actually approved. This ensures compliance with the scheme throughout the Body Corporate's actions. [25] Clause 7.2 therefore needs to be redrafted. This is the Body Corporate's responsibility. The new clause can reflect the fact that the s 48 scheme is retrospective in the sense that it can approve actions going back to the relevant damage to the building but what it approves can only be that which has occurred in accordance with the s 48 scheme and process actually approved. I therefore invite the Body Corporate to redraft clause 7.2 and submit it for my approval.Mr Montgomery's presence at AGMs and EGMs ([14] [15])[26] Clause 12.4 attempts to exclude the trustees of the J J Trust from discussions at Body Corporate meetings where legally privileged matters from the construction litigation are discussed. [27] The J J Trust's point is that a s 48 scheme cannot exclude owners of a unit from the business of the Body Corporate. The J J Trust stresses that such an exclusion would unfairly compromise the Trust's rights under the Body Corporate rules. [28] The factual situation here is unusual although not unique. However, without directly dealing with the general jurisdiction to make an order under s 48 excluding aunit owner from some of the discussions had by the other unit holders I am satisfied in this case that approval of cl 12.4 should not be given. [29] The plaintiffs/owners in the proceedings involving this apartment block are suing those involved in the construction and approval of the building. The proceeding involves most but not all of the owners. Obviously the plaintiffs' dealings with their solicitors including preparation for the case, and discussions about settlement, will be matters of privilege in the hands of the plaintiffs/owners. This is not information the J J Trust is entitled to. However none of this litigation privileged material need be discussed at any meetings of the Body Corporate called as AGMs or EGMs or similar. [30] The plaintiffs/owners are entitled to call their own meetings where they can discuss legally privileged matters without Mr Montgomery's presence. He is not a plaintiff/owner and so has no right of access to this material. In those circumstances I can see no reason why any privileged matters need be raised at any of the meetings of the Body Corporate. [31] If any privileged matters are raised at Body Corporate meetings those members of the Body Corporate who are also plaintiffs/owners will no doubt be entitled to refuse to discuss or answer questions in relation to that privileged information. [32] Therefore even assuming that I had jurisdiction to approve cl 12.4 I would not do so in this case. I can see no reason why discussions at the AGM and EGM cannot be full and open and include the J J Trust. Where any matters are litigation privileged then those matters can be discussed solely amongst those members of the Body Corporate who are plaintiffs. Clause 12.4 therefore should be deleted. [33] In summary, therefore, clause 7.2 of the Deed should be redrafted to reflect the content of this judgment. Clause 12.4 of the Scheme should be deleted. Otherwise the Scheme is approved subject to the drafting amendments suggested by Mr Laurenson and accepted by Mr Parker. A final version of the scheme should be presented to me within 14 days for approval.Costs[34] At the end of the hearing I gave counsel for the Body Corporate 14 days within which to make submissions on costs and a further 14 days within which counsel for the J J Trust to respond. ____________________________ Ronald Young JSolicitors: D J S Parker, Parker & Associates, PO Box 23270, Wellington email: dan.parker@parkerandassociates.co.nz R C Laurenson, Barrister, Wellington, email: resultlaw@xtra.co.nz