WHEELDON & ORS v BODY CORPORATE 342525 [2018] NZCA 20

WHEELDON & ORS v BODY CORPORATE 342525 [2018] NZCA 20 [20 September 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA112/2017[2018] NZCA 20BETWEEN DEREK PETER WHEELDON ANDCAROL ANN WHEELDON, ANTHONYJOHN BUTCHER AND RUTHBARBARA ROGERS, LARRYLAWRENCE SMALL AND KMTRUSTEE SERVICES LIMITED, IVORANTHONY MILLINGTON ANDNEVILLE EADEAppellantsAND BODY CORPORATE 342525RespondentHearing: 20 September 2017Court: Kós P, Cooper and Gilbert JJCounsel: B E Brill for AppellantsT J G Allan and S F Powrie for RespondentJudgment: 20 September 2017 at 3.00 pmReasons: 21 February 2018 at 2.30 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants must pay the respondent costs for a standard appeal on aband A basis with a 50 per cent uplift and usual disbursements. We certifyfor second counsel.____________________________________________________________________REASONS OF THE COURT(Given by Gilbert J)Introduction[1] This appeal (Wheeldon) was heard together with the related appeal in Butcherv Body Corporate 342525 (CA42/2017) (Butcher). Both appeals arise out of the samelong-running dispute between the owners of apartments in the Bridgewater BayApartments situated on the outskirts of Paihia in Northland as to the remedial worksrequired to overcome weathertightness issues.[2] The appellants in both proceedings own five of the 22 apartments in thebuilding. Derek and Carol Wheeldon sold their apartment to Robyn Stent (who is thewife of counsel for the appellants, Mr Brill) in March 2014 with the transfer beingregistered on 31 July 2014. This appears to be why Mr and Mrs Wheeldon were namedas plaintiffs in the Wheeldon proceedings issued on 30 July 2014 but were replaced byMs Stent in the Butcher proceedings issued on 7 July 2015.[3] The appellants consider that targeted repairs by individual owners would havebeen sufficient whereas the Body Corporate, supported by the majority, hasconsistently maintained, on the recommendation of Origin Building Consultants Ltd(Origin), that more comprehensive remedial works were required. TheBody Corporate considered that it was responsible for carrying out these works interms of its repair and maintenance obligations under s 138 of the Unit Titles Act 2010(the Act). The works have been completed by the Body Corporate and the contest nowcentres on who should pay for them.[4] At the conclusion of the hearing, we dismissed both appeals with reasons tofollow.1 These are our reasons for dismissing the Wheeldon appeal. Our reasons fordismissing the appeal in Butcher are delivered contemporaneously.2 We have set outthe relevant background in the Butcher reasons judgment. Rather than repeating that1 Wheeldon v Body Corporate 342525 [2017] NZCA 424; Butcher v Body Corporate 342525 [2017]NZCA 423.2 Butcher v Body Corporate 342525 [2018] NZCA 19 [Butcher Reasons (CA)].background here, this judgment should be read together with our reasons judgment inButcher.Claim in the High Court[5] In their statement of claim filed in July 2014, the Wheeldon plaintiffs advancedtwo causes of action. In the first, they claimed that the remedial works recommendedby Origin were unnecessary and outside the scope of the Body Corporate's powers.They sought declaratory relief to that effect and an injunction restraining the BodyCorporate from carrying out the works. In their second cause of action, theychallenged the lawfulness of associated expenditure by the Body Corporate. Theysought three declarations to the following effect:(a) the Body Corporate breached its obligations under s 117 of the Act byallegedly appropriating an amount of $101,635 from a long-termmaintenance fund to meet unbudgeted legal and consulting fees inrelation to the Origin repair plan and negligence proceedings againstFar North District Council and others to recover the costs of theseworks;(b) the Body Corporate breached its obligations under the Act and actedwithout lawful authority by making the payments totalling $215,237(the amount referred to in (a) and a further sum of $113,230 drawn froman operating account);3 and(c) the special levy (SL 1) of $150,000 purportedly raised by theBody Corporate Committee in July 2014 was invalid because theCommittee had no authority to raise levies under s 121 of the Act.3 The figures referred to in the statement of claim do not total the amount claimed but this isimmaterial for present purposes.High Court judgment[6] Muir J dealt with the first cause of action in an interim judgment delivered on30 April 2015.4 The Judge considered that the funding issues raised in the secondcause of action were likely to be "academic" and "self-resolving".5 However, thatexpectation was not fulfilled and accordingly a further, final, judgment was deliveredon 7 February 2017 addressing the second cause of action.6 In dismissing the claims,the Judge resolved the three issues identified above as follows.Long-term maintenance fund[7] Although, for a limited period, the Body Corporate accounts identifiedparticular funds as held in a long-term maintenance fund, in fact this fund had alwaysbeen an optional contingency fund established and maintained pursuant to s 118 of theAct to provide for unbudgeted expenditure.7 In any event, the Judge would not haveexercised his discretion to grant the declaration sought because the remediation workshad been completed and the professional costs paid, he had determined in his interimjudgment that the Body Corporate had lawfully undertaken these works, and the costshad to be funded from some source.8 To the extent that the money had come from oneof the Body Corporate's accounts, however characterised, it did not need to beotherwise levied.Payments unlawful[8] Because of his findings on the first issue, the Judge considered that the fundcould be used to meet unbudgeted expenditure.9 A unanimous resolution was passedat the annual general meeting of the Body Corporate in January 2014 delegating itspowers to the Committee pursuant to s 108(1) of the Act.10 Any proceduralinadequacy in failing to identify the resolution as a "special" resolution in the agenda4 Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 [Interim HighCourt judgment (Wheeldon)].5 At [24].6 Wheeldon v Body Corporate 342525 [2017] NZHC 87 [Final High Court judgment (Wheeldon)].7 At [12].8 At [13].9 At [16].10 At [22].was capable of ratification and was ratified at an extraordinary general meeting of theBody Corporate held in June 2015.11 In any event, the Judge said that he would nothave been prepared to exercise his discretion to grant a declaration of invalidity.12This was because notice of delegation was given to the Committee pursuant to s 108(1)of the Act and reg 22 of the Unit Titles Regulations 2011.13 As a result, the Committeewas authorised in terms of ss 109 and 121 of the Act to raise and spend levies onconsultants and related costs.14 Moreover, the expenditure was ratified and approvedby special resolution at the May 2014 extraordinary general meeting and was furtherratified at the June 2015 EGM.15Special levy invalid[9] The Judge found the Committee was lawfully delegated authority to raiselevies.16 An in-person meeting of the Committee was not required for the purpose ofexercising this authority and an exchange of views by email was sufficient.17 In anyevent, the Judge was not prepared to exercise his discretion to make a declaration ofinvalidity because the Committee members reached a consensus by reasoneddiscussion through email over two days with input from each committee member.18Any procedural irregularity was capable of remedy by ratification and this occurredby special resolution at the June 2015 EGM.19Grounds of appeal[10] The appellants appeal on two grounds:(a) Was the Judge correct in holding that the Body Corporate did not breachs 117(2) of the Act because its "long-term maintenance fund" was acontingency fund under s 118 of the Act?11 At [22].12 At [22].13 At [23].14 At [24].15 At [25].16 At [27].17 At [36]–[37].18 At [38].19 At [39].(b) Was the Judge correct in holding that the Body Corporate lawfullyraised the special levy of $150,000 in July 2014 to maintain theoperating fund?[11] Unusually, while the appellants ask that their appeal be upheld, they do notseek declaratory judgments from this Court. In his submissions, Mr Brill explains that"other claims and counterclaims dealing with collateral events are or will be beforethe High Court, and will benefit from final rulings by this Court on each of the issuesraised in this appeal".Ground 1 — long-term maintenance fund[12] Section 115 of the Act requires a Body Corporate to establish and maintain anoperating account to meet expenses described in s 115(2). Section 116 requires abody corporate to establish and regularly maintain a long-term maintenance plan.Section 117 provides that a body corporate must establish and maintain a long-termmaintenance fund unless, by special resolution, it decides not to establish such a fund.Funds held in a long-term maintenance fund may only be applied towards spendingrelated to the long-term maintenance plan. Section 118 provides that a body corporatemay establish and maintain one or more contingency funds to provide for unbudgetedexpenditure.[13] At the annual general meeting of the Body Corporate held in January 2012 thefollowing resolution was passed:The Body Corporate shall not be bound by the provisions of Section 117 ofthe Act, and shall be at liberty to determine from year to year the level ofsaving and expenditure in regards to the long term maintenance plan as theBody Corporate shall from time to time determine.[14] Although this resolution was not notified or put as a special resolution, Mr Brillconcedes that no eligible voter dissented.[15] Mr Brill submits that this resolution was designed to achieve flexibility toenable the Body Corporate to determine cashflows from year to year. He recognisesthat there was no need for a resolution to achieve this. Further, he says that the words"not be bound" are "otiose" because every body corporate is bound by the section. Insummary, on Mr Brill's interpretation the resolution achieved nothing.[16] Mr Brill contends that the long-term maintenance fund was in fact establishedbecause it was shown in the accounts and in disclosure statements provided undersubpart 14 of pt 2 of the Act. He argues that the existence of the long-termmaintenance fund was further confirmed by a special resolution passed at theMay 2014 EGM because it referred to the disestablishment of that fund. Theresolution reads:SPECIAL RESOLUTION:The Body Corporate ratifies, to the extent necessary, and approves theexpenditure incurred at the direction of the previous General Meetings anddetermines to disestablish the Long Term Maintenance fund as permitted bySection 117(1) of the Act until such time as the remediation project iscompleted at which time the Body Corporate will review again the need for along term maintenance fund.[17] Mr Brill says that there is no power to "switch" a long-term maintenance fund"on and off and on again". He argues that the Body Corporate simply misunderstoodits obligations.[18] Further, Mr Brill submits that there is no evidence that the Body Corporateestablished a contingency fund under s 118. If the relevant fund had always been acontingency fund the special resolution passed at the 2014 EGM would haveterminated it.[19] We are not persuaded that Muir J erred in rejecting these arguments and findingthat the relevant account was an optional contingency fund, not a long-termmaintenance fund.[20] The January 2012 resolution that the Body Corporate "shall not be bound bythe provisions of Section 117 of the Act" can only sensibly have been intended as aresolution exempting it from the requirement to establish and maintain a long-termmaintenance fund. There was no dissent from this resolution and it was subsequentlyaffirmed and ratified by special resolution at the May 2014 EGM and again at the June2015 EGM. The word "disestablish" used in these subsequent resolutions may nothave been the best choice but it is explicable on the basis that the accounts incorrectlyshowed an account with that name even though the Body Corporate had resolved notto create such a fund. The consistent intention of the Body Corporate to exercise itsright under s 117(1) not to establish a long-term maintenance fund is perfectly clear.[21] Muir J found in Butcher that this particular fund, although styled "long-termmaintenance fund" was and always had been an optional contingency fund establishedpursuant to s 118 of the Act.20 As Mr Brill observes, there was no appeal against thatfinding.[22] This ground of appeal fails.Ground 2 — was the special levy lawfully raised?[23] Mr Brill's first submission is that the decision to raise the special levy (SL 1)of $150,000 in July 2014 was in fact taken by the Body Corporate secretary, not theCommittee. There is no substance in this submission. As the Judge found, allmembers of the Committee participated in the decision.[24] Mr Brill submits that the Committee's decision-making powers can only beexercised at meetings. For that reason, he argues that it was insufficient for themembers to confer by email and reach a decision via such a process. He refers to s 113of the Act which provides that any matters at a meeting of a body corporate committeemust be decided by a simple majority of votes.[25] Mr Brill is correct that a "meeting" of the Body Corporate anticipates membersbeing present in person. For example, a body corporate committee must meet withinone month of service of a notice of delegation under s 108(1) of the Act (reg 27(1)).If there is no quorum at a committee meeting, the meeting must be adjourned until thesame day one week later. The reconvened meeting is to be held at the "same time andplace" (reg 27(3)). This indicates that a meeting will occur at a specific time and place,not by a sequence of emails between the secretary and individual members over aperiod of days, as occurred here.20 Butcher v Body Corporate 342525 [2016] NZHC 3128, (2016) 17 NZCPR 708 [High Courtjudgment (Butcher)] at [99].[26] While body corporate committee meetings must be held at a specified time andplace, the Act does not stipulate that every decision made by the committee, regardlessof the circumstances and no matter how inconsequential, must be taken at a meetingconvened for that purpose with committee members being present at the same timeand place and voting in person. Such an interpretation would not serve one of theprincipal purposes of the Act which is to establish a flexible and responsive regime forthe governance of unit title developments (s 3(c)). If, as was the case here, committeemembers separately, and unanimously, confirm by email their vote to raise a levy, therewould be no utility in convening a meeting. We do not consider it was necessary todo so.[27] We also agree with Muir J that even if there was a procedural irregularity, thelevy was affirmed and ratified by the Body Corporate at the 2015 EGM.[28] In summary, we are not persuaded that Muir J erred in concluding that thespecial levy was validly raised. In any event, no error has been shown in the exerciseof his discretion to decline to grant a declaration of invalidity. We note that theappellants no longer seek such a declaration.Costs[29] For the reasons given in Butcher we consider that an uplift of 50 per cent onstandard costs is appropriate to reflect that this appeal lacked merit.21 In all of thecircumstances including that the appellants no longer pursued declaratory relief, theappeal bordered on being pointless.Result[30] The appeal is dismissed.[31] The appellants must pay the respondent costs for a standard appeal on a band Abasis with a 50 per cent uplift and usual disbursements. We certify for second counsel.21 Butcher Reasons (CA), above n 2, at [82]–[83].Solicitors:B E Brill, Paihia, for AppellantsGrove Darlow & Partners, Auckland for Respondent