MANCHESTER SECURITIES LIMITED v BODY CORPORATE 172108 CA719/2014 [2015] NZCA 29 [26 February 2015]

MANCHESTER SECURITIES LIMITED v BODY CORPORATE 172108 CA719/2014 [2015] NZCA 29 [26 February 2015]IN THE COURT OF APPEAL OF NEW ZEALANDCA719/2014[2015] NZCA 29BETWEEN MANCHESTER SECURITIES LIMITEDAppellantAND BODY CORPORATE 172108RespondentHearing: 16 February 2015Court: Randerson, Winkelmann and Venning JJCounsel: M C Harris and M H A Ho for AppellantT J G Allan for RespondentJudgment: 26 February 2015 at 2:30 pmJUDGMENT OF THE COURTA The appeal is allowed.B The respondent must, within 14 days of the date of this judgment, discover any documents in its possession or control evidencing the terms of settlement of the proceeding brought by the Body Corporate and others against the Auckland Council in relation to the recovery of the costs of repairs to the building at issue.C The respondent must pay the appellant costs as for a standard appeal on a Band A basis with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Randerson J)Introduction[1] This appeal arises from the refusal of an application for discovery in High Court proceedings for variation of a building repair scheme settled under s 48 of the Unit Titles Act 1972 (the Act).1[2] The appellant (Manchester) owns the top floor units of a 12 storey unit title development in Auckland. Its ownership interest in the property is 11.88 per cent. After the discovery of weathertightness issues, the respondent (the Body Corporate) applied in 2009 for orders settling the s 48 scheme. The parties were in dispute as to the scope of work to be covered by the scheme and the division of the repair costs. An unusual feature of the development is that the exterior of levels 1 to 11 is common property but the exterior of level 12 (including the roof) is withinManchester's unit boundary.[3] The scheme settled by the High Court in 2010 may be broadly summarised as follows:(a) It authorises the repair of the whole building generally in accordance with a July 2009 building consent.(b) The Body Corporate is responsible for repairing levels 1 to 11 and Manchester is responsible for level 12.(c) Manchester's contribution towards the costs is capped at 11.88%of the costs of repairing the entire building. If the work to level 12 costs less than 11.88% of the total, Manchester will make a top-up payment towards the costs of the work on the floorsbelow. The costs of both sets of work affect each owner'sultimate share of the total costs.[4] Based on the cost estimates available at the time, it appeared that Manchester would likely be required to meet all level 12 costs and to make a top-up payment towards the works below, subject to the 11.88 per cent cap. Manchester accepts that1 Body Corporate 172108 v J M Meader [2014] NZHC 2794 [High Court judgment].some uncertainty existed at that time in respect of the repair costs that would ultimately be incurred.[5] In 2012, it became apparent that the costs of the level 12 work might exceed 11.88 per cent of the total cost of repair. If that were the case, the cap would apply and Manchester would not have to make any further payment towards the cost of the work for the lower levels of the building. This led to the Body Corporate applying in 2013 for a variation of the costs sharing regime under s 48(6) of the Act. The application currently seeks an order removing the 11.88 per cent cap onManchester's liability and replacing it with one of three different formulations thatManchester says is likely to require it to pay a much larger sum than it would be obliged to pay under the scheme settled in 2010. Manchester opposes the variation application accordingly.The discovery application[6] Mr Harris for Manchester accepted that discovery of documents is not routinely ordered in originating applications brought under Pt 19 of the High Court Rules. Nevertheless the Body Corporate consented to an order to provide various categories of documents relating to the costs it had incurred in carrying out work to levels 1 to 11.[7] Manchester challenged the adequacy of that disclosure. The High Court ordered further disclosure of certain documents that are no longer in issue but declined to order discovery of two other items:(a) A fifth amended statement of claim in proceedings which the Body Corporate and some of the unit owners had brought against the Auckland Council; and(b) Documents evidencing the settlement of that litigation in July 2011.[8] Mr Allan for the Body Corporate accepted at the outset of the hearing before us that a copy of the fifth amended statement of claim should be provided to Manchester so the appeal is limited solely to the settlement documents.Manchester's argument[9] It is not in dispute that, when Manchester purchased level 12, it was on notice of the existence of weathertightness issues. Accordingly, it requested that any claim by the Body Corporate against the Council should exclude Manchester's share of thecommon property repair costs. The fourth amended statement of claim in that proceeding is available to Manchester. It submitted that the claim against the Council was for the cost of repairs to all common property even though Manchester was not a party to the proceedings and had accepted it had no claim against the Council.[10] The argument was, and is, that it was a reasonable assumption that the settlement payment received from the Council reflected in part Manchester's shareof the common property repair costs. Since it is common ground that the settlement received from the Council was shared only by unit owners other than Manchester, it was contended that the other unit owners had received a benefit or advantage thatwas greater than would have been the case if the costs of repair to Manchester's level 12 had been excluded from the claim. It was submitted on Manchester's behalf that,if established, this was a factor the High Court could take into account in deciding whether a variation of the original scheme was justified and, if so, how the repair costs should equitably be divided between Manchester and the other owners.The judgment under appeal[11] In the judgment under appeal, Thomas J appeared to approach the case as if Manchester was seeking a share of the proceeds of any settlement of the Body Corporate's claim against the Council. She accepted a submission by the BodyCorporate that any such claim would have to be brought by way of an ordinary proceeding rather than as an aspect of the originating application before the Court.2She also found there was no real connection between the Body Corporate's2 High Court judgment, above n 1, at [35].application for variation and any claim that Manchester might have in respect of the settlement. She concluded by saying:[36] I agree with the Body Corporate that [Manchester] is effectively trying to conflate two issues, that is the amount [Manchester] should properly pay towards the repairs of the Building and how [Manchester] would pay its share. Any part of the settlement to which [Manchester] might be entitled is relevant to the second of those questions. [Manchester] elected not to be part of the claim against the Auckland Council.Submissions on appeal[12] Mr Harris advanced the case for Manchester on much the same grounds as those relied upon in the High Court. In essence, these were that the documentssought were capable of supporting Manchester's case and undermining theBody Corporate's case and that disclosure would not be disproportionate. It was further submitted that the arguments relied upon by the Body Corporate to resist disclosure were essentially trial issues which the High Court ought not to have attempted to determine at an interlocutory stage without the full facts being before the Court.[13] Mr Allan submitted for the Body Corporate that the High Court judgmentshould be upheld. He submitted that Manchester's case presupposed a judgmentspecifying a sum of money which the Body Corporate received from the Council impressed with some form of trust in favour of Manchester. He characterisedManchester's argument as effectively a claim for breach of trust by theBody Corporate through failure to account to Manchester for its share of the settlement fund. Mr Allan submitted that this raised an issue about compensation under s 48 of the Act.3 Counsel also submitted that an argument along these lines was likely to lead to a much more complex and wide-ranging inquiry which was more properly brought as a separate proceeding.[14] Mr Allan raised a number of further points: Manchester had been aware since July 2012 of the settlement with the Council and distribution of the proceeds to the owners who were party to that proceeding; there was no evidence to support3 There are no material differences between s 74 of the Unit Titles Act 2010 and s 48 of the 1972 Act: See Body Corporate 114424 v LV Trust Holdings Ltd [2014] NZCA 21, (2014) 15 NZCPR 375 at [27].Manchester's assumption that the terms of settlement would show there had been a recovery that reflected the cost of repairs to the entire building including level 12; the issue in the variation application would be the amount of an equitable contribution by Manchester to the cost of common property repair costs, not the potential means by which Manchester might settle payment if required; and, as such, the terms of the settlement agreement would not be relevant. Counsel submitted that if this Court were to find that the High Court Judge had erred, it would be appropriate to allow the appeal but to refer issues of confidentiality and privilege to the High Court for further directions.Discussion[15] We accept that the court generally adopts a conservative approach towards discovery in originating applications brought under Pt 19 of the High Court Rules. That is because the originating procedure was designed, as was its predecessor in Pt 4A, to provide a relatively speedy and inexpensive mechanism for a number of applications which need to be made to the Court under specific statutory provisions.4However, a consent order for discovery of specific documents was made in this case and Manchester subsequently applied for further discovery relying on rr 8.8 and 8.19 of the High Court Rules.5[16] Notwithstanding the recent changes to the High Court Rules, counsel were content to proceed on the basis that the correct approach in the present case was that set out by this Court in New Zealand Rail Ltd v Port Marlborough New Zealand Ltd:6Parties are required to discover only those documents which are relevant to a matter in question in the proceedings. They must be relevant in the sense ofbeing capable of advancing a party's case or of damaging the case of itsadversary. Relevance is determined by the pleadings and an order is not to be made unless the Court is satisfied that it is reasonably necessary.[17] While accepting the approach in New Zealand Rail Ltd, Mr Allan submittedthere were two "delimiting" factors. These were first that the present case involves4 See McGechan on Procedure (looseleaf ed, Brookers) at [HR19.01].5 The discovery rules have been substantially amended by the High Court Amendment Rules (No 2) 2011 with effect from 1 February 2012.6 New Zealand Rail Ltd v Port Marlborough New Zealand Ltd [1993] 2 NZLR 641 (CA) at 644.an originating application rather than a general proceeding. Second, he submitted that the approach adopted to the approval of schemes under s 48 involved a narrow range of considerations.[18] Against that background, the resolution of Manchester's application fordiscovery in the present case required consideration of three principal issues:(a) What was at issue in the Body Corporate's application forvariation?(b) Would the documents in question be capable of supportingManchester's case or adversely affecting the Body Corporate'scase on a relevant issue?(c) Would discovery be appropriate and proportionate in the circumstances?7[19] As to the first issue, in exercising its discretion to order the settlement of a scheme under s 48 of the Act, the court may make such orders as it considers expedient or necessary for giving effect to the scheme.8 In recent decisions, this Court has indicated that relevant considerations include the general scheme of the Act, emphasising the provisions relating to the ownership of common property and the responsibility of unit holders for the repairs of such property.9 Subject to that restraint, the aim is to balance the interests of each unit holder to achieve the fairest outcome for all unit owners in the circumstances.10[20] No guidance is given by s 48(6) of the Act as to the principles to be applied on an application to vary a scheme. Counsel were unable to refer us to any relevant authorities. However, it is obvious that the court would at least consider in the present case whether there were any material changes of circumstances since the scheme was originally settled, whether those circumstances justified a variation, and,7 By reference to the presumption in favour of tailored discovery in r 8.9(a) of the High Court Rules.8 Unit Titles Act 1972, s 48(5).9 Referring particularly to ss 6, 9, 15 and 33 of the Act. See Tisch v Body Corporate 318596[2011] NZCA 420; 3 NZLR 679 at [27]–[30] and St John's College Trust Board v Body Corporate 197230 [2013] NZCA 35 at [22].10 Tisch v Body Corporate 318596, above n 9, at [44].if so, on what terms. In considering the latter, counsel accepted that fairness amongst all unit holders would continue to be an important objective.[21] As to the second issue, we are satisfied that the Judge erred in concludingfirst that Manchester was effectively claiming a share of the Council's settlementmoney and secondly that there was no real connection between that claim and the variation application. Manchester is not seeking to claim a share of those funds. Nor does it allege a breach of trust or failure to account in the technical sense. All it argues is that any advantage gained by the other unit holders in the settlement of the Council proceeding by a recovery based on the cost of repairs to the entire building is a factor the Court could properly consider on the variation application in determining whether a variation is justified and what would be a fair arrangement in the circumstances for sharing responsibility for the costs between all the unit holders.[22] For the same reasons we do not accept Mr Allan's submission that an issue ofcompensation arises under s 74 of the Act.11[23] We accept Manchester's argument that the documents evidencing the settlement are capable of supporting Manchester's case and, correspondingly, are capable of adversely affecting the Body Corporate's case. The significance to beattached to Manchester's argument on this issue will depend on what the documentsin fact disclose and all other relevant circumstances. These are matters for trial and do not require determination as part of an application for discovery.[24] As to third issue, no question of disproportionality arises. We understand that the settlement agreement is likely to be evidenced by a single document or, at most, only a very few documents. We do not consider the disclosure of the terms of settlement is likely to unduly broaden the scope of the inquiry.[25] Mr Allan referred to issues of privilege and confidentiality relating to the documents. He was not able to give us any basis for a claim to privilege. The settlement was undoubtedly confidential but Manchester accepts that the documents are to be used solely for the purposes of the variation application and that they may11 Such as that which arose in Body Corporate 114424 v LV Trust Holdings Ltd, above n 3.not be disclosed to unrelated parties. If there is any difficulty in that respect, no doubt the High Court will deal with the matter.Result[26] The appeal is allowed.[27] The respondent must, within 14 days of the date of this judgment, discover any documents in its possession or control evidencing the terms of settlement of the proceeding brought by the Body Corporate and others against the Auckland Council in relation to the recovery of the costs of repairs to the building at issue.[28] The respondent must pay the appellant costs as for a standard appeal on a Band A basis with usual disbursements.Solicitors:Gilbert Walker, Auckland for AppellantGrove Darlow & Partners, Auckland for Respondent