BODY CORPORATE 406198 v PROPERTY OPPORTUNITIES LIMITED [2023] NZCA 302

BODY CORPORATE 406198 v PROPERTY OPPORTUNITIES LIMITED [2023] NZCA 302 [19 July 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA178/2022[2023] NZCA 302BETWEEN BODY CORPORATE 406198AppellantAND PROPERTY OPPORTUNITIES LIMITEDFirst RespondentSHIRAZ HOLIDAY LIMITEDSecond RespondentBIANCO LIMITEDThird RespondentAVONDALE PROPERTIES LIMITEDFourth RespondentHearing: 14 February 2023Court: Katz, Whata and Davison JJCounsel: D R Bigio KC and H W Struthers for AppellantT J Rainey for Second RespondentNo appearance for First, Third and Fourth RespondentsJudgment: 19 July 2023 at 11:00 amReissued: 1 August 2023JUDGMENT OF THE COURTA The appeal is allowed in part.B The matter is referred back to the High Court for reconsideration of theunjust enrichment claim in light of our finding that cl 5.6.6 is ultra vires.C The second respondent must pay costs to the appellant for a standard appealon a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Whata J)Introduction*[1] This appeal relates to a unit title development in central Auckland known as"Bianco Off Queen". The development comprises 157 principal units in two towerblocks. Some units are used as residential apartments, while others are used as part ofa hotel/short-term accommodation business. One of the units is a commercial unit(Management Unit)1 owned by the first respondent, Property Opportunities Ltd(POL).[2] The appellant, Body Corporate 406198 (Body Corporate) is the body corporatefor the development. The second respondent, Shiraz Holiday Limited (Shiraz) isthe building manager (the Manager) pursuant to a management agreement(the Management Agreement) originally entered into between the Body Corporateand Shiraz's predecessor in 2008. At that time, the developer of the project, TimothyManning, had sole control of both contracting parties.[3] Under the Management Agreement, Shiraz is given the exclusive right toprovide letting services on behalf of the unit owners. This enables it to operatea hotel/short-term accommodation business on the site. Shiraz leases the ManagementUnit from POL for use as the reception and office for the hotel/short-termaccommodation business. Clause 5.6.6 of the Management Agreement envisagespayment of a contribution by the Body Corporate to the rental cost incurred by Shirazfor the Management Unit.[4] The Body Corporate issued proceedings in the High Court challenging thevalidity of the Management Agreement. At heart, the Body Corporate's concern isthat the effect of the Management Agreement is to improperly require unit owners tocross-subsidise Shiraz's running of the hotel and short-term accommodation business,in breach of the Unit Titles Act 1972 (UTA 1972).* This judgment was reissued under the slip rule on 1 August 2023 to correct the costs award fromband B to band A.1 Also known as Unit 1F/2.[5] The Body Corporate's claims succeeded in part. Campbell J found that theprovisions in the Management Agreement giving Shiraz exclusive rights to provideletting services and hotel management services were ultra vires the UTA 1972.2 TheJudge was not satisfied, however, that the Management Agreement as a whole, orcl 5.6.6 in particular, were ultra vires.3 The Body Corporate appeals on the groundsthat the Judge erred in deciding that clause 5.6.6 is not ultra vires, that the ManagementAgreement is intra vires, and that the ultra vires provisions were severable.Overview[6] For the reasons set out below, we have found that the Judge erred in findingthat cl 5.6.6 was not ultra vires. All actions of a body corporate must be referrable tothe performance of its lawful powers and duties. In this case, the Body Corporateinvalidly bound itself to an exclusive letting regime. As cl 5.6.6 was directed toproviding compensation for the rental cost of the unit used for this exclusive lettingregime, it must also be invalid. But the Management Agreement is otherwise lawful.The Body Corporate's remaining powers and duties under it can be discharged withoutrecourse to provisions relating to the exclusive letting regime.Key facts[7] Bianco Off Queen was developed to completion by the third respondent,Bianco Ltd, in late 2008. Mr Manning was then a director of Bianco Ltd. On depositof the unit plan for Bianco Off Queen on 18 November 2008, the Body Corporate wascreated. At that point, the rules for the Body Corporate were the default rules set outin schs 2 and 3 of the UTA 1972.[8] In December 2008, the developer acting through the Body Corporate created abundle of rights that were saleable as a hotel and serviced apartments business and2 Body Corporate 406198 v Property Opportunities Ltd [2022] NZHC 418 [Judgment under appeal]at [79] and [96].3 See [99]–[122] and [132]–[140].provided for building management services. At that time the Body Corporate resolvedat an extraordinary general meeting:(a) to delete the default rules in the UTA 1972 and adopt amended rules insubstitution (the Amended Rules);(b) to enter into the Management Agreement with the fourth respondent,Avondale Properties Ltd (a company of which Mr Manning was the soledirector);(c) as guarantor, to enter into a lease (by Avondale Properties Ltd) of theManagement Unit;(d) to enter into an assignment of the Management Agreement toVR Management Services Ltd; and(e) to enter into an assignment of the lease to VR Management ServicesLtd.[9] The Amended Rules, Management Agreement, and lease formed a suite ofdocuments relating to the management of Bianco Off Queen. Bianco Ltd remainedthe sole owner of all the units. Mr Manning signed the Body Corporate resolution asdirector of Bianco Ltd. The Amended Rules were registered and took effect on5 December 2008.[10] The Management Agreement was signed by Tim Manning on behalf of boththe Body Corporate and as the sole director of the then manager,Avondale Properties Ltd. Mr Manning as director of Bianco Ltd, the sole owner of allthe units, was the sole member of the Body Corporate when it resolved to adopt theAmended Rules and the lessor when the lease was executed.[11] It appears that almost immediately after the Management Agreement and thelease were entered into, Avondale Properties Ltd assigned its interests under them toVR Management Services Ltd. In November 2013, POL became the owner of theManagement Unit. The rights under the Management Agreement were later assignedto Shiraz in 2014, and this was accompanied by a deed of covenant of obligationsunder that agreement, recording the consent of the Body Corporate to that assignment.Under this agreement Shiraz agrees to perform and be bound by all of the provisionsof the Management Agreement.[12] Shiraz has been the building manager under the Management Agreement sinceJune 2014. It appears the Body Corporate has not had any issues with Shiraz'sperformance of its duties under that agreement. Shiraz has been paid the managementfee provided for by the Management Agreement.[13] We address the provisions of the Management Agreement in detail below. It ishelpful to note here that the Amended Rules and the Management Agreement includeprovisions requiring the Body Corporate to pay to the building manager, presentlyShiraz, in addition to the management fee, a contribution equivalent to the rent payableunder the lease for the Management Unit. The relevant provisions are r 3.1(v) of theAmended Rules and cl 5.6.6 of the Management Agreement. It is common groundthis contemplates that Shiraz will pay to POL the rent under the lease and then bereimbursed an equivalent amount by the Body Corporate.[14] For much of the time that Shiraz has been the building manager, the partiesadopted an arrangement that differed from that contemplated by cl 5.6.6. In earlyJuly 2014, Shiraz and the Body Corporate agreed it would be easier if theBody Corporate paid POL directly. From then until June 2019, POL issued invoicesto the Body Corporate. The invoices were for both rent and outgoings. Under thelease, Shiraz is liable to pay both rent and outgoings. Clause 5.6.6 does not referexplicitly to outgoings. Nonetheless, during this period the Body Corporate paid POLboth rent and outgoings. Since June 2019, Shiraz has paid the rent and outgoingsunder the lease to POL, and the Body Corporate has reimbursed Shiraz for the rent butnot the outgoings.[15] The Body Corporate commenced this proceeding in May 2019 challenging thevalidity of a number of the 2008 Amended Rules that related to the lease of theManagement Unit, the validity of aspects of the Management Agreement, and thevalidity of the lease. The Body Corporate applied for summary judgment on parts ofits claim.[16] Associate Judge Sargisson delivered a decision on the summary judgmentapplication on 7 May 2020, finding that:4(a) Rules 3.1(v) and 3.2(1) (which empowered the Body Corporate toguarantee a lease of the Management Unit) of the Amended Rules wereultra vires the UTA 1972 and therefore void and of no effect; and(b) The guarantee of the lease was ultra vires the UTA 1972.[17] Relevantly, Judge Sargisson found:[37] However, the terms of r 3.1(v) go well beyond such a scheme. Underthat rule, the Body Corporate is empowered, indeed obliged, to pay acontribution to the Manager equivalent to the rent payable under the Lease forthe Management Unit. Nothing in the UTA 1972 could possibly be construedas authorising the Body Corporate to make replacement rules authorising orobliging it to assume a responsibility to contribute to the rent of the lessee forthe Management Unit which must, in terms of the lease, be used for a receptionand office for the serviced apartments. Further, counsel for Shiraz HolidayLtd properly acknowledges that, "[i]f the rule places an obligation on theBody Corporate to provide a rental guarantee regarding the lease of themanagement unit, the rule would not appear to be incidental to performing theduties or powers imposed on the Body Corporate under the UTA 1972."[18] The Body Corporate subsequently narrowed its claim at the hearing beforeCampbell J in the High Court on 26 and 28 October 2021. The claims that theBody Corporate pursued at the hearing were that:(a) the Management Agreement as a whole is void and of no effect becauseit is ultra vires the UTA 1972 and/or the Unit Titles Act 2010(UTA 2010);(b) clause 5.6.6 of the Management Agreement is void and of no effectbecause it is ultra vires the UTA 1972 and/or the UTA 2010; and4 Body Corporate 406198 v Property Opportunities Ltd [2020] NZHC 926 at [50].(c) Shiraz has been unjustly enriched by the Body Corporate's payment ofrent and outgoings under the lease and should pay those amounts to theBody Corporate, with interest.[19] The High Court found that the UTA 1972 governed the validity of theManagement Agreement.5 The Judge also found that Shiraz was liable for theoutgoings.6 Those findings have not been appealed. Before examining the High Courtdecision further, we provide an overview of the Management Agreement, the Deed ofLease and Rules that are the focus of this appeal.The Management Agreement[20] The following parts of the Management Agreement are directly relevant to theissues in this case.Key terms[21] The agreement relates to the management of the "Property" which is definedto mean "collectively the Land, the Buildings, the Units, and the Common Property.""Land" refers to the land subject to Deposited Plan 406198. The "Buildings" refers tothe buildings erected on the Land, and "Common Property" refers to that term underthe Act and includes all personal property of the Body Corporate.Exclusive Appointment[22] Clause 2.1 grants "exclusively" to the Manager the "Management Rights andLetting Service Rights and appoints the Manager to perform the Duties and providethe Services set out in this agreement." "Management Rights" refers to "theManagement Rights proposed in this Agreement [and] the Body Corporate Rules.""Services" means the services specified in cl 3.2. This clause refers to the provisionof a wide range of services (including Unit maintenance) to individual proprietors oroccupiers of Units. The Manager may make a separate charge to individual proprietorsand their tenants and invitees for these services.5 Judgment under appeal, above n 2.6 At [176].[23] There is also separate reference to "Letting Service Rights". "Letting Service"means: the business of letting Accommodation Units on a short and long term basisto be conducted on the Property by the Manager on behalf of the Proprietorswho require such a service on the terms of the Letting Agreement.[24] "Letting Service Rights" are defined as: the provision of the Letting Services by the Manager incidental to theLetting Service including, without limitation:(a) advertising and promotion;(b) offering Accommodation Units for short and long term letting;(c) negotiating with person to occupy or use Accommodation Units forreward;(d) entering into and terminating any agreement or arrangement foroccupation or for use of the Accommodation Units;(e) collecting fees and other monies payable for occupation and use of theAccommodation Units;(f) instituting proceedings for recovery of possession of the residential Unitsor any fees and money payable for occupational use of theAccommodation Units;(g) any additional services required for the short or long term letting andmanagement of the Accommodation Units.Duties and Services[25] The Management Agreement also specifies the duties and services to beperformed by the Manager at cls 3.1 and 3.2 (addressed above). In summary, theduties stated at cl 3.1 relate to the works on the Units and the maintenance andoperation of the Common Property. Clause 3.1(p) has particular relevance to thepresent case as it enjoins the Manager to: provide adequate rental accommodation within the complex to the on-sitebuilding manager. If the rental for such accommodation is greater than the$20,000.00 allowance contained in the Management Fee the shortfall shall bepayable by the Manager.[26] The breadth of the services that may be provided by the Manager is capturedby cl 3.2(u) which refers to "[o]ther services required by the Proprietors or tenant[s]or invitee of Units." "Letting Services" are not included in this list of services that theManager may provide under cl 3.2.[27] The Body Corporate's duties are recorded at cl 4. In short, the Body Corporatemust do all things necessary to ensure that the Common Property, the Property, andthe building are maintained in accordance with the statutory and regulatoryobligations. Clauses 4.2, 4.4 and 4.5 also contain proscriptions against interferencewith the Manager's rights and duties under the Agreement. More specifically theystate:4.2 The Body Corporate must not employ or contract with any otherperson to perform any duty or provide any service that the Manager isentitled to provide under this agreement.4.4 The Body Corporate shall not procure any other person or persons toprovide the Services to the Proprietors. The Body Corporate agreesthat all revenue earned by the Manager from providing such Servicesshall belong to the Manager.4.5 The Body Corporate must not pass any resolution varying orrescinding (or purporting to vary or rescind) the Rules in any waywhich may compromise or adversely affect the Manager's rightsunder this Agreement.Management Fees and Management Unit[28] Clause 5 refers to the obligations of the Body Corporate in terms of paymentof a management fee and a rental contribution to the Manager. Clause 5.1 refers to the"Management Fee" at the Commencement Date of $220,000 per annum plus GST(if any). It includes a:$20,000.00 Allowance towards the cost of providing adequateaccommodation within the complex to the on-site building manager. Anyshortfall of rental payable above this sum shall be payable by the Manager.[29] Clause 5.3 also stipulates that the Manager may not assign, transfer, or licenceits right to occupy the Management Unit (as the right to occupy is for the purpose ofthe Manager providing the Duties and Services to the Proprietors) other than inaccordance with cl 13.1(a) which provides for such assignment.[30] Clause 5.5 states that the Management Fee represents remuneration for theperformance of the Duties (being the Duties set out in Clause 3). The ManagementFee does not include provision for the Services, payment by the Manager of any levypursuant to s 15 of the Act or pursuant to any other powers, authorisations, duties, orfunctions conferred or implied by the Agreement.[31] Clause 5.6.6 addresses the obligation to make a rental contribution. Given itssignificance to the case we restate it here in full:The Body Corporate will throughout the term of this management agreementpay (in addition to the management fee) to the Manager a contributionequivalent to the rent payable under the lease for the Management Unit andReception.Letting Services[32] Clause 11.1 envisages that the Proprietors utilising the Letting Service enterinto a Letting Agreement with the Manager and cl 11.2 envisages that the Managermay enter into agreement with proprietors or occupiers of the Accommodation Unitsfor the provision of any other services approved by the Body Corporate from time totime.[33] Clause 12 deals with the Letting Service Rights. Clauses 12.1, 12.2 and12.4 confer exclusive letting service rights to the Manager:12.1 The Body Corporate or the Proprietors shall not procure any otherperson or persons to provide the Letting Service and the BodyCorporate and the Proprietors shall not provide any facilities on theProperty or permit any part of the Property to be used by any personor persons who may provide services identical or similar to the LettingService.12.2 The Body Corporate must take all reasonable steps to ensure that thereis no interference with the exclusive right of and the exercise by theManager of the Letting Service.12.4 The Body Corporate and the Proprietors shall not, without the priorwritten consent of the Manager:(a) authorise any person to, or permit any person or any of its staffto, or itself exercise the Letting Service on the Property or anyother letting service of the same or similar nature as theLetting Service;(b) licence, lease or grant restrictive or exclusive use of any partof the Property (other than to the Manager) for the purpose ofallowing any person to exercise the Letting Service or carryon any letting service of the same or similar nature as theLetting Service.[34] The remainder of the cl 12 Letting Service Rights refer to the rights of theManager to fulfil the Letting Service.Deed of Lease[35] At about the same time as the Body Corporate and the then Manager enteredinto the Management Agreement, they executed a Deed of Lease relating to theManagement Unit.7 The Deed defines the business use of the premises as "Receptionand Office for the building manager to be used for operation of the complex as servicedapartments".[36] Clause 16 of the Deed stipulates that the Manager must obtain the prior consentof the Body Corporate to use or permit to be used any part of the premises for any useother than the business use.The Amended Rules[37] The Amended Rules8 refer to, among other things, the "ManagementAgreement" as: the agreement in relation to the management control and administration ofthe Property and operation of a Letting Service and provision of servicesentered into by the Body Corporate."[38] "Letting Service(s)" means: the offering of the Units for short term/medium term/long termaccommodation and in accordance with any building or resource consentwhich may apply in respect of any particular Unit.7 The Deed of Lease refers to a specified unit and accessory units. It is common ground that theseinclude the Management Unit.8 Dated 3 December 2008.[39] Clause 2 refers to the duties of a proprietor. Relevantly, cl 2.1(u) states thatany lease of the Management Unit "must be collateral to any Management Agreement"and the proprietor of the Management Unit must "not act in any way which isinconsistent with the grant of management rights as set out in the ManagementAgreement".Exclusive rights and rental contribution[40] The Amended Rules, under cl 3.1(t) specifically confer on the Body Corporatethe power to enter into a Management Agreement that reserves "exclusively to theManager the right to manage the Units, the Common Property, and the Building" andthe exclusive right to provide additional services to the proprietors of Units or tenantsor occupiers.[41] Clause 3.1(u) also stipulates that the Body Corporate:(u) not appoint any other Manager or any other person or entity to providemanagement services or Letting Services to the intent that there shallonly be at any given time one Manager providing managementservices and Letting Services;[42] Clause 3.1(v), the ultra vires provision, then empowers the Body Corporate topay a rental contribution in respect of the Management Unit and Reception as follows:(v) pay a contribution to the Manager equivalent to the rent payable underthe lease for the Management Unit and Reception and provide a rentalguarantee to the lessor of the Management Unit throughout the termof that lease agreement and any renewal thereof;High Court Judgment[43] Campbell J acknowledged that the conferral of an exclusive right to provideletting services to Shiraz was ultra vires the UTA 1972,9 but he was not satisfied thatthe Management Agreement as a whole, or cl 5.6.6 of that agreement were ultra9 Judgment under appeal, above n 2, at [96].vires.10 The Judge considered that the ultra vires exclusive letting provisions could beeasily severed from the balance of the Management Agreement, noting:(a) The valid provisions, including payment for the building services,operate perfectly well if the ultra vires provisions are severed.11(b) The ultra vires provisions are subsidiary to the main clauses relating tothe management of the Common Property.12(c) The powers of exclusivity reflect commercial reality in any event —Managers enjoy a natural commercial advantage over other lettingservice providers.13(d) Clause 29.1 of the Management Agreement expressly provides forseverability.14(e) Unlike leading cases where similar arrangements were ultra vires, theright to exclusivity in those cases was essential.15(f) Any ongoing commercial advantage to the Manager of a letting rightunder the Management Agreement was not an improper subsidy but anagreed commercial benefit at the time of acquisition of a unit, theconsideration for which is the discharge of the Management Duties andServices.16(g) Evidence of apparent disproportionate benefit did not support a findingthat the Management Agreement was ultra vires as a whole.1710 See [99]–[121], and [132]–[140].11 At [99].12 At [100].13 At [100(c)].14 At [101].15 At [105]–[110], referring to Humphries v Proprietors "Surfers Palms North" Group Titles Plan1955 (1994) 179 CLR 597; and to Atrium Management Ltd v Quayside Trustee Ltd [2012] NZCA26, (2012) 7 NZ ConvC 96-001.16 At [112]–[121].17 At [122].[44] Campbell J also found that cl 5.6.6 was not ultra vires because the UTA 1972authorised the Body Corporate to pay a building manager for building services.The Judge found that the payment under cl 5.6.6 is the same as payment under cl 5.1— that is, they are "each part of the consideration that the Body Corporate agreed topay to the building manager in exchange for the provision of building managementservices".18 The Judge emphasised that the proprietors enjoyed the "usual liberty thatcontracting parties have to agree the amount to be paid for services".19 The Judgefound that the Manager is obliged to occupy the Management Unit to provide buildingservices (as well as hotel services) under cls 5.3 and 13.1 of theManagement Agreement, so the rent was a cost incurred in relation to those services.20[45] The Judge also addressed the unjust enrichment claim. He found there wasjurisdiction to consider the claim and found that Shiraz was clearly enriched to theextent of the payments made by the Body Corporate pursuant to cl 5.6.6.21 As hefound that cl 5.6.6 was not ultra vires it was not necessary for him to form a final viewon the quantum of any relief. He acknowledged it was a difficult issue, raisingproblems as to the proper basis for such a claim and potential counter restitution.22[46] Justice Campbell nevertheless observed that the Body Corporate had shownthat the value of the services provided by Shiraz was less than the amount by whichits payments to Shiraz exceeded those services, noting that on the available evidencethe difference between the amount paid to Shiraz and the highest of the othercomparable complexes is about $125,000 per annum.23 The Judge also found that,had he found cl 5.6.6 to be void (when dealing with a claim to recoup outgoingspayments),24 the fact that Shiraz had acquired the rights under theManagement Agreement on a different basis would not have affected the unjustenrichment claim.2518 At [132].19 At [134].20 At [117] and [135].21 At [152].22 At [158].23 At [159].24 The findings in relation to the outgoings are not under appeal.25 At [179]–[180].Argument[47] Mr Bigio KC for the Body Corporate submits that the Judge erred in decidingthat the Management Agreement as a whole and cl 5.6.6 were not ultra vires. He saysthat none of the reasons given by the Judge to the contrary support a finding that theagreement is vires. The exclusive right to provide letting services was an essentialfeature of that agreement given the multiple safeguards built into theManagement Agreement and in the collateral lease of the Unit, to protect exclusivity.The cl 5.6.6 rental payment is then said to correlate directly to the exclusive right toprovide letting services as evidenced by the fact that it would otherwise grossly exceedusual provision for rental cost. He submitted that the Judge was wrong to find that thelease permitted the Manager to perform their Duties from there and that the Unit wasin fact used for both the performance of Duties and the Letting Services. The evidenceshows that the Unit was used as a hotel reception office. The entire basis therefore ofthe agreement and cl 5.6.6 is flawed and incapable of severance. This outcome isconsistent with the approach and outcome taken by the Courts here26 and inAustralia.27[48] Mr Rainey for Shiraz responds that while the exclusivity aspect of the lettingservice provisions was ultra vires, the letting services components of theManagement Agreement were not essential and clearly severable. The agreementexpressly separates out "Duties" from "Services", and "Letting Services" are separatefrom both. Furthermore, there is nothing inherently wrong with contracting to provideletting services as part of a management agreement and the inclusion of an additionalfee to cover the rental cost of the Unit was simply a normal arrangement for rentalreimbursement as part of the Manager's overall package that the owners are nowseeking to renege on. Importantly, the Manager uses the Unit to perform hismanagement duties (as well as any letting service). Furthermore, the power to entercommercial arrangements to pay rent was acknowledged by this Court in VermillionWagener Ltd v Body Corporate 401803.2826 Atrium, above n 15.27 Humphries, above n 15.28 Vermillion Wagener Ltd v Body Corporate 401803 [2015] NZCA 313, (2015) 16 NZCPR 483[Vermillion Wagener (CA)] at [33].Is clause 5.6.6 ultra vires?[49] With the benefit of argument, we prefer to address first whether cl 5.6.6 is ultravires.[50] A body corporate is a creature of statute, and its powers and duties are tightlyprescribed by the unit titles legislation.29 The validity of a contract or agreemententered into by the body corporate therefore depends on the powers of the bodycorporate pursuant to the relevant Act or to valid body corporate rules.30 The normaleffect of a finding of ultra vires is that the rule, transaction, or agreement, or the partof it which is ultra vires, is void ab initio.31Duties and powers[51] In the present case, the UTA 1972 applies. Section 15 of that Act sets out theduties of the body corporate. Section 16 refers to the powers of a body corporate. Thes 15 duties were helpfully summarised by Paterson J in Chambers v Strata TitleAdministration Ltd:32The duties specified in the Act relate to insuring the buildings and otherimprovements on the land, paying the premium on the insurance policies,keeping the common property in a state of good repair, complying with noticesissued by local authority or public body requiring repair work, the control,management and administration of the common property, the enforcement ofany lease or licence under which the land is held, the enforcement of anycontract of insurance, the establishment of a maintenance fund foradministrative and other expenses, and the levying of the proprietors tomaintain this fund. The statutory rules contain a provision headed "Powersand Duties of Body Corporate". The duties relate to the repair andmaintenance of chattels, fixtures and fittings, the repair and maintenance ofessential services, and the production on request by certain people of insurancepolicies.29 At [24].30 Humphries, above n 15; Low v Body Corporate 384911 [2011] 2 NZLR 263 (HC); Body Corporate396711 v Sentinel Management Ltd [2012] NZHC 1957, (2012) 13 NZCPR 418; and BodyCorporate 401803 v Vermillion Wagener Ltd [2015] NZHC 285, (2015) 15 NZCPR 758[Vermillion Wagener (HC)] at [62], upheld on appeal in Vermillion Wagener Ltd (CA), above n 28.31 Humphries, above n 15; Low v Body Corporate 384911, above n 30, at [28]–[30]; and VermillionWagener (HC) above n 30, at [64].32 Chambers v Strata Title Administration Ltd (2003) 5 NZCPR 299 (HC) at [41].[52] Section 16 outlines the powers of a body corporate:Subject to the provisions of this Act, the body corporate shall have all suchpowers as are reasonably necessary to enable it to carry out the duties imposedon it by this Act and by its rules:Provided that the body corporate shall not have power to carry on any tradingactivities.[53] As is evident from the face of s 16, the powers of a body corporate must bereasonably necessary to carry out identified duties.33 As Muir J said in Vermillion inthe High Court, "[e]verything must ultimately be referable to its duties".34Rules[54] Schedule 2 of the UTA 1972 sets out the default body corporate rules.Section 37(3) enables these rules to be amended, provided that no rule or amendmentmay prohibit or restrict the devolution of units, or transfer, lease, mortgage or dealingtherewith, or destroy or modify any right created by the UTA 1972.35 The immediateeffect of this provision is that agreements purporting to confer an exclusive right to letare ultra vires. As Lang J said in Russell Management Ltd v Body Corporate No341073:36The legislature was clearly of the view that it was important to preserve theability of individual unit owners to deal with their units without restriction orinterference by the body corporate. The section therefore prevents the bodycorporate from amending its rules so as to prevent or restrict the unit ownersfrom transferring, leasing, mortgaging or otherwise dealing with their units.Clause 5.6.6[55] Returning to the facts, it is common ground that r 3(v) of the Amended Rulesis ultra vires at least insofar as it purports to enable a third-party guarantee of Shiraz'srental costs in respect of the Management Unit. It is also common ground that cls 12.1,12.2 and 12.4 are ultra vires because they purport to confer an exclusive right on theManager to let the properties. Similarly, cls 4.2 and 4.4 which purport to bind theBody Corporate to prescribe non-interference with the Manager's rights insofar as they33 Vermillion Wagener (CA), above n 28, at [34].34 Vermillion Wagener (HC), above n 30 at [67]; cited with approval in Vermillion Wagener (CA),above n 28, at [34].35 Section 37(6).36 Russell Management Ltd v Body Corporate No 341073 (2008) 10 NZCPR 136 (HC) at [38].relate to any exclusive right to let, are ultra vires. While not a matter of agreement wealso consider that cl 2(u) of the Amended Rules is ultra vires insofar as it purports tobind the proprietor to observe the Manager's exclusive rights to let. All of this setsthe frame for the assessment of the vires of cl 5.6.6.Analysis[56] The key issue is whether cl 5.6.6 is ultra vires.[57] Campbell J found that cl 5.6.6 was intra vires because it formed part of thecompensation for the building management services. More specifically Campbell Jsaid:37[132] Clause 5.6.6 is a promise by the Body Corporate to make a paymentto the building manager. The payments made under cl 5.6.6 are payments (ormore correctly part of the payments) for the provision of building managementservices. They are no different in that respect from the payments of themanagement fee under cl 5.1. They are each part of the consideration that theBody Corporate agreed to pay the building manager in exchange for theprovision of building management services.[58] We take a different view of the purpose and effect of cl 5.6.6. We consider thatthe cl 5.6.6 compensation is directly referable to the ultra vires exclusive lettingservice and we do not consider that it can now be sensibly decoupled from thecorresponding ultra vires exclusivity provisions.[59] First, cl 5.6.6 demands a contribution to the rental cost payable by the Managerin respect of a "Reception and Office to be used for operation of the complex asserviced apartments" as defined in the Deed of Lease. There is no other compensatorymechanism in the Management Agreement directed to this operation. TheManagement Fee relates only to the performance of the Manager's "Duties". Thoseduties do not include the Letting Services. The Manager's "Services" under theManagement Agreement are related only to services provided to individual proprietorsand tenants at their cost under cl 3.2 of the Management Agreement.38 Thecl 5.6.6 payments therefore provide the only method for compensating for theexclusive letting service.37 Judgment under appeal, above n 2.38 Per cl 3.2 of the Management Agreement. See discussion above at [22], [25], and [26].[60] Second, as detailed above, the "Letting Service Rights" are defined as theManager's rights and the power to provide those services is conferred exclusively onthe manager by cl 12 of the Management Agreement. Thus, the entire premise of theletting service is that it would be exclusive. There is no scope within this lettingservice scheme, as drafted at inception, for a non-exclusive letting service.Accordingly, cl 5.6.6 was clearly directed to compensating the manager for the rentalcosts of an ultra vires exclusive letting service.[61] Figure A below depicts the relationship between the Duties, Services andLetting Rights and the compensation provisions. As illustrated there, there is nomethod of payment for the exclusive letting service except cl 5.6.6.Figure A[62] Mr Rainey nevertheless submits that a non-exclusive power of the Manager tooperate a letting service out of the Management Unit remains efficacious, and thus,cl 5.6.6 remains a valid form of compensation. He also says that the Manager's Dutiesand Services are performed out of the Management Unit and so further justify theadded expense. Campbell J also reasoned that as the Unit was being used for a dualpurpose — letting and performance of the Manager's Duties — the cl 5.6.6 paymentswere intra vires.[63] We are unable to agree. For reasons we have just explained, the clear purposeof cl 5.6.6 is to compensate the Manager for rental costs associated with the ultra viresexclusive letting services. A clause requiring the Body Corporate to pay for an ultravires purpose must also be ultra vires and void ab initio. The fact that Duties andServices may also have been performed out of the Management Unit does not validatepayments clearly made for an ultra vires purpose.[64] We acknowledge the point made by Campbell J that the Body Corporate wasat liberty to engage a manager on terms it thought appropriate. But a body corporatecan only bind itself to do something that is referable to its lawful powers and duties.By purporting to bind itself to an exclusive letting service, and to pay the rental costassociated with that service, it acted ultra vires its powers and duties. A compensatorymethod premised on that exclusivity is necessarily also ultra vires from inception.[65] We are fortified in our conclusion by the approach taken by this Court inVermillion. In that case, the issue was whether the body corporate had the legal powerto guarantee obligations under two separate leases. We are concerned with only thelease of a unit to the building manager. The management agreement in that caseauthorised the body corporate to guarantee the lease of a unit by the building managerwithin the complex. But, this Court found, there being no duty within the amendedrules to secure accommodation for the manager and more particularly for the bodycorporate to assume a primary obligation to pay a manager's rent, the guarantee couldnot be justified. This Court then endorsed the following reasoning of Muir J from theHigh Court judgment:39 a power to appoint a building manager does not, in turn, empower the bodycorporate to enter into any related agreements simply because they are said tobe reasonably necessary or incidental to the exercise of that power. Beyondentry into the management agreement itself the exercise of the power mustbe anchored to a duty in the Act or the rules.[66] We make the same point here. There was no basis upon which theBody Corporate could assume an obligation to compensate a manager for exclusiveletting services.39 Vermillion Wagener (HC), above n 30, at [72] (footnote omitted), cited with approval in VermillionWagener (CA), above n 28, at [34].[67] This Court in Vermillion also rejected the contention advanced by Mr Raineyin that case that a guarantee was appropriate as the rental of the unit was needed toenable the building manager to perform its duties. The Court said:40[33] We reject Mr Rainey's submission. As we have found, he has failedto identify any duty for which it was reasonably necessary for theBody Corporate to provide accommodation for the building manager or, moreparticularly, that giving a guarantee was reasonably necessary to performanceof any of the duties imposed by ss 15(1)(a), (f) or (h). In the normal courseany arrangement between the members of the Body Corporate and themanager to meet or subsidise rental would be met by a contractual provisionfor reimbursement of the rental component or part of it. It would not besatisfied by an obligation in the name of a guarantee to pay rental to the owneror lessor of the manager's unit.[68] Like Campbell J, Mr Rainey in the present proceedings places somesignificance on the above statement that "[i]n the normal course any arrangementbetween the members of the Body Corporate and the manager to meet or subsidiserental would be met by a contractual provision for reimbursement of the rentalcomponent."41 That may well be so as a matter of generality (for which we expressno concluded view), but that is not what happened in this case. The Body Corporatebound itself, and therefore the members, to an ultra vires exclusive letting regime withcorresponding compensation at cl 5.6.6 for the Manager. Furthermore, it plainly neverhad in contemplation the type of unfettered non-exclusive letting arrangements nowadvanced by Mr Rainey.[69] Accordingly, we find that cl 5.6.6 was ultra vires from inception.Was the management agreement as a whole ultra vires?[70] We turn then to examine the larger question of whether theManagement Agreement as a whole is ultra vires. On this issue, the High Court ofAustralia in Humphries provides some helpful guidance:42 the question is whether the provision of the letting service was so materialand important a part of the bargain between the parties that the body corporatewould not have agreed to pay the sum of $60,000 per annum without thatservice being provided. Unless that question is answered in the negative, the40 Vermillion Wagener (CA), above n 28.41 At [33].42 Humphries, above n 15, at 20.promise contained in cl 2(r) must be regarded as inseverable from the promisecontained in cl 8 of the agreement.[71] We can deal with this succinctly. Referring to Figure A above, it can be seenthat all of the ultra vires provisions can be removed without consequence for thebalance of the Body Corporate's scheme. All of the Duties and Services, which areclearly demarcated by the Management Agreement as separate from the "LettingService Rights", can continue to be performed with corresponding intra virescompensation provisions. We note that the lease of the Management Unitcontemplates only a letting service use. But it was not seriously contended that theManagement Unit could not be used to perform the Duties and Services. We note alsothat the Management Agreement contemplates that the Duties and Services may beperformed from that Unit.43[72] Mr Bigio places some emphasis on Atrium.44 In that case this Court found thata promise to procure a management agreement with exclusive rights was an essentialterm and thus could not be severed. For the reason just expressed, we do not considerthat the "Letting Service Rights" were essential to the Management Agreement as awhole.[73] We therefore agree with Campbell J on this wider issue and dismiss this partof the appeal.Unjust enrichment[74] Mr Bigio submits it is not necessary to refer the matter back to the High Courtto consider the unjust enrichment claim. Mr Rainey submits it should go back for thatassessment.[75] It appears, on our reading of the High Court judgment, that Campbell J wouldhave been minded to grant relief in unjust enrichment had he found cl 5.6.6 to beultra vires. He specifically found that the Body Corporate had shown that Shiraz hadbenefitted in the order of $125,000 per annum based on the costs incurred by a43 Per cl 5.3 of the Management Agreement, see discussion above at [29] and [44].44 Atrium, above n 15.comparable complex. But the discussion in the judgment about problems relating tothe exact basis for the restitutionary claim, and the potential availability of counterrestitution, leave us unclear as to whether definitive findings have been made as toquantum.[76] As we did not hear detailed argument on the unjust enrichment claim, we prefertherefore simply to refer this aspect back to the High Court for reconsideration in lightof our finding that cl 5.6.6 is ultra vires.Result[77] The appeal is allowed in part.[78] The matter is referred back to the High Court for reconsideration of the unjustenrichment claim in light of our finding that cl 5.6.6 is ultra vires.[79] The second respondent must pay costs to the appellant for a standard appeal ona band A basis and usual disbursements.Solicitors:Lane Neave, Auckland for AppellantPidgeon Judd Limited, Auckland for Second Respondent